PATHWARD FINANCIAL, INC. 10-Q

Item 1. Financial Statements. PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Financial Condition (Dollars in thousands, except per share data) June 30, 2024 September 30, 2023 ASSETS (Unaudited) (Audited) Cash and cash equivalents $ 298,926 $ 375,580 Securities available for sale, at fair value 1,725,460 1,804,228 Securities held to maturity, at amortized cost (fair value $ 30,237 and $ 31,425 , respectively) 34,026 36,591 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 24,449 28,210 Loans held for sale 29,380 77,779 Loans and leases 4,612,552 4,366,116 Allowance for credit losses ( 79,836 ) ( 49,705 ) Accrued interest receivable 31,755 23,282 Premises, furniture, and equipment, net 36,953 39,160 Rental equipment, net 209,544 211,750 Goodwill and intangible assets 327,018 330,225 Other assets 280,053 292,327 Total assets $ 7,530,280 $ 7,535,543 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits $ 6,431,516 $ 6,589,182 Short-term borrowings — 13,000 Long-term borrowings 33,329 33,873 Accrued expenses and other liabilities 300,187 248,863 Total liabilities 6,765,032 6,884,918 STOCKHOLDERS’ EQUITY Preferred stock, 3,000,000 shares authorized, no shares issued, none outstanding at June 30, 2024 and September 30, 2023, respectively — — Common stock, $ 0.01 par value; 90,000,000 shares authorized, 25,215,159 and 26,225,563 shares issued, 25,085,230 and 26,183,583 shares outstanding at June 30, 2024 and September 30, 2023, respectively 251 262 Common stock, Nonvoting, $ 0.01 par value; 3,000,000 shares authorized, no shares issued, none outstanding at June 30, 2024 and September 30, 2023, respectively — — Additional paid-in capital 636,284 628,500 Retained earnings 343,392 278,655 Accumulated other comprehensive loss ( 207,992 ) ( 255,443 ) Treasury stock, at cost, 129,929 and 41,980 common shares at June 30, 2024 and September 30, 2023, respectively ( 6,181 ) ( 344 ) Total equity attributable to parent 765,754 651,630 Noncontrolling interest ( 506 ) ( 1,005 ) Total stockholders’ equity 765,248 650,625 Total liabilities and stockholders’ equity $ 7,530,280 $ 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 June 30, Nine Months Ended June 30, (Dollars in thousands, except per share data) 2024 2023 2024 2023 Interest and dividend income: Loans and leases, including fees $ 95,871 $ 81,242 $ 293,584 $ 233,517 Mortgage-backed securities 9,748 10,234 29,795 30,972 Other investments 8,323 7,870 33,222 24,604 113,942 99,346 356,601 289,093 Interest expense: Deposits 1,689 164 11,900 2,402 FHLB advances and other borrowings 1,394 1,717 5,505 3,764 3,083 1,881 17,405 6,166 Net interest income 110,859 97,465 339,196 282,927 Provision for credit loss 5,881 1,773 41,823 48,312 Net interest income after provision for credit loss 104,978 95,692 297,373 234,615 Noninterest income: Refund transfer product fees 9,111 8,262 38,475 39,144 Refund advance fee income ( 67 ) ( 927 ) 43,244 37,685 Card and deposit fees 33,408 39,708 99,502 119,513 Rental income 13,779 13,980 40,958 39,628 Gain on sale of trademarks — — — 10,000 Gain on sale of other 4,675 821 9,210 657 Other income 4,965 5,889 16,188 13,921 Total noninterest income 65,871 67,733 247,577 260,548 Noninterest expense: Compensation and benefits 48,449 47,402 149,174 137,966 Refund transfer product expense 2,136 1,727 9,694 9,695 Refund advance expense 47 239 1,923 1,869 Card processing 34,314 26,342 104,061 75,949 Occupancy and equipment expense 9,070 8,595 27,211 25,417 Operating lease equipment depreciation 10,465 10,517 31,312 34,864 Legal and consulting 5,410 5,089 16,443 19,469 Intangible amortization 983 1,168 3,207 3,861 Impairment expense 999 2,749 3,012 3,273 Other expense 11,806 10,750 37,347 34,410 Total noninterest expense 123,679 114,578 383,384 346,773 Income before income tax expense 47,170 48,847 161,566 148,390 Income tax expense 5,123 3,243 26,088 18,996 Net income before noncontrolling interest 42,047 45,604 135,478 129,394 Net income attributable to noncontrolling interest 212 508 718 1,685 Net income attributable to parent $ 41,835 $ 45,096 $ 134,760 $ 127,709 Earnings per common share: Basic $ 1.66 $ 1.69 $ 5.27 $ 4.63 Diluted $ 1.66 $ 1.68 $ 5.27 $ 4.62 See Notes to Condensed Consolidated Financial Statements. 3 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended June 30, Nine Months Ended June 30, (Dollars in thousands) 2024 2023 2024 2023 Net income before noncontrolling interest $ 42,047 $ 45,604 $ 135,478 $ 129,394 Other comprehensive income (loss): Change in net unrealized gain (loss) on debt securities ( 1,463 ) ( 26,673 ) 63,659 6,483 ( 1,463 ) ( 26,673 ) 63,659 6,483 Unrealized gain (loss) on currency translation ( 297 ) 495 ( 260 ) 942 Deferred income tax effect ( 338 ) ( 6,111 ) 15,948 2,241 Total other comprehensive income (loss) ( 1,422 ) ( 20,067 ) 47,451 5,184 Total comprehensive income 40,625 25,537 182,929 134,578 Total comprehensive income attributable to noncontrolling interest 212 508 718 1,685 Comprehensive income attributable to parent $ 40,413 $ 25,029 $ 182,211 $ 132,893 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 June 30, 2024 Balance, March 31, 2024 $ 254 $ 634,415 $ 317,964 $ ( 206,570 ) $ ( 6,181 ) $ 739,882 $ ( 420 ) $ 739,462 Cash dividends declared on common stock ($ 0.05 per share) — — ( 1,257 ) — — ( 1,257 ) — ( 1,257 ) Repurchases of common stock ( 3 ) 3 ( 15,150 ) — — ( 15,150 ) — ( 15,150 ) Stock compensation — 1,866 — — — 1,866 — 1,866 Total other comprehensive loss — — — ( 1,422 ) — ( 1,422 ) — ( 1,422 ) Net income — — 41,835 — — 41,835 212 42,047 Net distribution to noncontrolling interest — — — — — — ( 298 ) ( 298 ) Balance, June 30, 2024 $ 251 $ 636,284 $ 343,392 $ ( 207,992 ) $ ( 6,181 ) $ 765,754 $ ( 506 ) $ 765,248 Three Months Ended June 30, 2023 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 distribution to noncontrolling interest — — — — — — ( 588 ) ( 588 ) Balance, June 30, 2023 $ 266 $ 625,825 $ 267,100 $ ( 207,896 ) $ ( 6,943 ) $ 678,352 $ ( 631 ) $ 677,721 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 Nine Months Ended June 30, 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 ($ 0.15 per share) — — ( 3,824 ) — — ( 3,824 ) — ( 3,824 ) Issuance of common stock due to restricted stock 3 — — — — 3 — 3 Repurchases of common stock ( 14 ) 14 ( 65,676 ) — ( 5,837 ) ( 71,513 ) — ( 71,513 ) Stock compensation — 7,770 — — — 7,770 — 7,770 Total other comprehensive income — — — 47,451 — 47,451 — 47,451 Joint venture membership interest divestiture — — ( 523 ) — — ( 523 ) — ( 523 ) Net income — — 134,760 — — 134,760 718 135,478 Net distribution to noncontrolling interest — — — — — — ( 219 ) ( 219 ) Balance, June 30, 2024 $ 251 $ 636,284 $ 343,392 $ ( 207,992 ) $ ( 6,181 ) $ 765,754 $ ( 506 ) $ 765,248 Nine Months Ended June 30, 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 ($ 0.15 per share) — — ( 4,115 ) — — ( 4,115 ) — ( 4,115 ) Issuance of common stock due to restricted stock 1 — — — — 1 — 1 Repurchases of common stock ( 23 ) 23 ( 101,888 ) — ( 2,108 ) ( 103,996 ) — ( 103,996 ) Stock compensation — 8,399 — — — 8,399 — 8,399 Total other comprehensive income — — — 5,184 — 5,184 — 5,184 Net income — — 127,709 — — 127,709 1,685 129,394 Net distribution to noncontrolling interest — — — — — — ( 2,286 ) ( 2,286 ) Balance, June 30, 2023 $ 266 $ 625,825 $ 267,100 $ ( 207,896 ) $ ( 6,943 ) $ 678,352 $ ( 631 ) $ 677,721 See Notes to Condensed Consolidated Financial Statements. 6 Table of Contents PATHWARD FINANCIAL, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended June 30, (Dollars in thousands) 2024 2023 Cash flows from operating activities: Net income before noncontrolling interest $ 135,478 $ 129,394 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 43,832 49,506 Provision for credit loss 41,823 48,312 Provision for deferred taxes 7,762 4,895 Originations of loans held for sale ( 1,426,973 ) ( 941,502 ) Proceeds from sales of loans held for sale 1,468,162 870,132 Net change in loans held for sale 18,062 5,456 Net realized (gain) on loans held for sale ( 3,091 ) ( 235 ) Net realized (gain) on trademarks — ( 10,000 ) Net realized (gain) on other ( 6,119 ) ( 91 ) Impairment on rental equipment 2,013 24 Net change in accrued interest receivable ( 8,473 ) ( 4,353 ) Net change in other assets ( 13,705 ) 22,193 Net change in accrued expenses and other liabilities 51,978 6,519 Stock compensation 7,770 8,399 Net cash provided by operating activities 318,519 188,649 Cash flows from investing activities: Purchases of securities available for sale — ( 150,751 ) Proceeds from maturities of and principal collected on securities available for sale 141,801 127,071 Proceeds from maturities of and principal collected on securities held to maturity 2,430 3,758 Purchases of Federal Reserve Bank and Federal Home Loan Bank stock ( 276,025 ) ( 206,104 ) Redemption of Federal Reserve Bank and Federal Home Loan Bank stock 279,787 204,026 Purchases of loans and leases ( 229,912 ) ( 197,549 ) Net change in loans and leases 147,134 ( 42,484 ) Purchases of premises, furniture, and equipment ( 5,784 ) ( 4,973 ) Purchases of rental equipment ( 221,681 ) ( 373,063 ) Proceeds from sales of rental equipment 7,302 9,373 Net change in rental equipment 408 ( 279 ) Proceeds from sales of foreclosed real estate and repossessed assets — 1 Proceeds from sale of trademarks — 10,000 Proceeds from sale of other assets 6,466 — Net cash (used in) investing activities ( 148,074 ) ( 620,974 ) Cash flows from financing activities: Net change in deposits ( 157,666 ) 440,939 Net change in short-term borrowings ( 13,000 ) 230,000 Principal payments on other liabilities ( 621 ) ( 1,416 ) Payment of debt issuance costs — ( 511 ) Dividends paid on common stock ( 3,824 ) ( 4,115 ) Issuance of common stock due to restricted stock 3 1 Repurchases of common stock ( 71,513 ) ( 103,996 ) Investment by (distributions to) noncontrolling interest ( 219 ) ( 2,286 ) Net cash provided by (used in) financing activities ( 246,840 ) 558,616 Effect of exchange rate changes on cash ( 259 ) 942 Net change in cash and cash equivalents ( 76,654 ) 127,233 Cash and cash equivalents at beginning of fiscal year 375,580 388,038 Cash and cash equivalents at end of fiscal period $ 298,926 $ 515,271 7 Table of Contents Nine Months Ended June 30, (Dollars in thousands) 2024 2023 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 15,988 $ 5,556 Income taxes 13,996 11,260 Franchise and other taxes 620 649 Supplemental schedule of non-cash investing activities: Purchases/sales of securities accrued, not settled Trade Date Purchases - AFS — 3,026 Transfers Held for sale to loans and leases 8,403 158 Loans and leases to rental equipment 3,847 2,168 Rental equipment to loan and leases 187,505 311,278 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 nine months ended June 30, 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 June 30, 2024 Corporate securities $ 25,000 $ — $ ( 5,375 ) $ 19,625 SBA securities 90,960 — ( 7,389 ) 83,571 Obligations of states and political subdivisions 502 — ( 36 ) 466 Non-bank qualified obligations of states and political subdivisions 252,583 8 ( 36,424 ) 216,167 Asset-backed securities 211,421 418 ( 4,679 ) 207,160 Mortgage-backed securities 1,420,440 3 ( 221,972 ) 1,198,471 Total debt securities AFS $ 2,000,906 $ 429 $ ( 275,875 ) $ 1,725,460 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 June 30, 2024 Non-bank qualified obligations of states and political subdivisions $ 31,970 $ — $ ( 3,521 ) $ 28,449 Mortgage-backed securities 2,056 — ( 268 ) 1,788 Total debt securities HTM $ 34,026 $ — $ ( 3,789 ) $ 30,237 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 June 30, 2024 Corporate securities $ — $ — $ 19,625 $ ( 5,375 ) $ 19,625 $ ( 5,375 ) SBA securities — — 83,571 ( 7,389 ) 83,571 ( 7,389 ) Obligations of state and political subdivisions — — 466 ( 36 ) 466 ( 36 ) Non-bank qualified obligations of states and political subdivisions — — 214,139 ( 36,424 ) 214,139 ( 36,424 ) Asset-backed securities — — 94,518 ( 4,679 ) 94,518 ( 4,679 ) Mortgage-backed securities 2,635 ( 42 ) 1,194,791 ( 221,930 ) 1,197,426 ( 221,972 ) Total debt securities AFS $ 2,635 $ ( 42 ) $ 1,607,110 $ ( 275,833 ) $ 1,609,745 $ ( 275,875 ) 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 June 30, 2024 Non-bank qualified obligations of states and political subdivisions $ — $ — $ 28,449 $ ( 3,521 ) $ 28,449 $ ( 3,521 ) Mortgage-backed securities — — 1,788 ( 268 ) 1,788 ( 268 ) Total debt securities HTM $ — $ — $ 30,237 $ ( 3,789 ) $ 30,237 $ ( 3,789 ) 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 June 30, 2024 to September 30, 2023 was primarily driven by principal pay downs during the nine months. At June 30, 2024, there were 193 securities AFS in an unrealized loss position. All of the mortgage-backed securities ("MBS") in an unrealized loss position at June 30, 2024 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, 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 June 30, 2024 At September 30, 2023 Debt Securities AFS Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 513 $ 506 $ 5,023 $ 4,971 Due after one year through five years 20,007 18,631 11,175 10,292 Due after five years through ten years 72,379 63,601 79,139 66,428 Due after ten years 487,567 444,251 552,360 497,012 580,466 526,989 647,697 578,703 Mortgage-backed securities 1,420,440 1,198,471 1,495,636 1,225,525 Total debt securities AFS $ 2,000,906 $ 1,725,460 $ 2,143,333 $ 1,804,228 Debt Securities HTM Due after ten years $ 31,970 $ 28,449 $ 34,415 $ 29,571 31,970 28,449 34,415 29,571 Mortgage-backed securities 2,056 1,788 2,176 1,854 Total debt securities HTM $ 34,026 $ 30,237 $ 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 June 30, 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 $ 4.8 million and $ 8.5 million at June 30, 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 June 30, 2024 and September 30, 2023, respectively. The Company recognized $ 0.2 million unrealized losses on marketable equity securities during the nine months ended June 30, 2024 and 2023. No such securities were sold during the nine months ended June 30, 2024. 12 Table of Contents Non-marketable equity securities with a readily determinable fair value totaled $ 10.5 million and $ 8.4 million at June 30, 2024 and September 30, 2023, respectively. These securities are held within other assets on the Condensed Consolidated Statements of Financial Condition. The Company recognized $ 0.6 million in unrealized gains and $ 0.1 million in unrealized losses during the nine months ended June 30, 2024 and 2023, respectively. No such securities were sold during the nine months ended June 30, 2024. Non-marketable equity securities without readily determinable fair value totaled $ 13.8 million and $ 16.2 million at June 30, 2024 and September 30, 2023, respectively, reflecting Company ownership interests in other entities through its Pathward Venture Capital, LLC, a wholly-owned service corporation subsidiary of the Bank that was formed in 2017 for the purpose of making minority equity investments, and other corporate investments. During the quarter ended June 30, 2024, the Company recognized a $ 2.4 million gain on Visa shares previously carried at cost basis of $0 since 2008. On April 8, 2024, Visa Inc. announced the commencement of an exchange offer for Visa Class B-1 common stock and the Company subsequently tendered its Visa Class B-1 common stock in exchange for a combination of Visa Class C common stock and Visa Class B-2 common stock. After entering the exchange, the Company sold its Visa Class C and Visa Class B-2 common stock in the secondary market. There was one additional such security sold during the nine months ended June 30, 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 $ 1.0 million and $ 3.2 million impairment for such investments for the nine months ended June 30, 2024 and 2023, respectively. NOTE 4. LOANS AND LEASES, NET Loans and leases consist of the following: (Dollars in thousands) June 30, 2024 September 30, 2023 Term lending $ 1,533,722 $ 1,308,133 Asset-based lending 473,289 382,371 Factoring 350,740 358,344 Lease financing 155,044 183,392 Insurance premium finance 617,054 800,077 SBA/USDA 563,689 524,750 Other commercial finance 166,653 166,091 Commercial finance 3,860,191 3,723,158 Consumer finance 253,358 254,416 Tax services 43,184 5,192 Warehouse finance 449,962 376,915 Total loans and leases 4,606,695 4,359,681 Net deferred loan origination costs 5,857 6,435 Total gross loans and leases 4,612,552 4,366,116 Allowance for credit losses ( 79,836 ) ( 49,705 ) Total loans and leases, net $ 4,532,716 $ 4,316,411 During the nine months ended June 30, 2024 and 2023, the Company originated $ 1.43 billion and $ 941.5 million of commercial finance and consumer finance as held for sale, respectively. The Company sold held for sale loans resulting in proceeds of $ 1.47 billion and a $ 3.1 million gain on sale during the nine months ended June 30, 2024. 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. 13 Table of Contents Loans purchased and sold by portfolio segment, including participation interests, were as follows: Three Months Ended June 30, Nine Months Ended June 30, (Dollars in thousands) 2024 2023 2024 2023 Loans Purchased Loans held for investment: Commercial finance $ 11,000 $ — $ 11,000 $ — Warehouse finance 55,821 9,715 218,912 197,549 Total purchases $ 66,821 $ 9,715 $ 229,912 $ 197,549 Loans Sold Loans held for sale: Commercial finance $ 24,173 $ 11,114 $ 49,218 $ 12,263 Consumer finance 474,991 254,655 1,418,944 857,869 Total sales $ 499,164 $ 265,769 $ 1,468,162 $ 870,132 Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following: (Dollars in thousands) June 30, 2024 September 30, 2023 Minimum lease payments receivable $ 164,458 $ 191,807 Unguaranteed residual assets 10,442 12,709 Unamortized initial direct costs 62 141 Unearned income ( 19,846 ) ( 21,124 ) Total net investment in direct financing and sales-type leases $ 155,116 $ 183,533 The components of total lease income were as follows: Three Months Ended June 30, Nine Months Ended June 30, (Dollars in thousands) 2024 2023 2024 2023 Interest income - loans and leases Interest income on net investments in direct financing and sales-type leases $ 2,908 $ 2,858 $ 8,869 $ 8,821 Leasing and equipment finance noninterest income Lease income from operating lease payments 13,589 13,780 40,449 39,176 Other (1) 1,051 833 2,644 1,179 Total leasing and equipment finance noninterest income 14,640 14,613 43,093 40,355 Total lease income $ 17,548 $ 17,471 $ 51,962 $ 49,176 (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 June 30, 2024 were as follows: (Dollars in thousands) Remaining in 2024 $ 17,056 2025 54,962 2026 36,939 2027 22,897 2028 17,622 Thereafter 14,982 Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases 164,458 Third-party residual value guarantees — Total carrying amount of direct financing and sales-type leases $ 164,458 The Company did not record any contingent rental income from direct financing and sales-type leases in the nine months ended June 30, 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 June 30, 2024 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 28,627 $ 5,962 $ ( 4,628 ) $ 698 $ 30,659 Asset-based lending 1,215 10 — 9 1,234 Factoring 6,814 1,369 ( 2,389 ) 18 5,812 Lease financing 1,551 ( 86 ) — 29 1,494 Insurance premium finance 1,409 480 ( 263 ) 26 1,652 SBA/USDA 2,942 358 ( 456 ) — 2,844 Other commercial finance 1,720 ( 321 ) — — 1,399 Commercial finance 44,278 7,772 ( 7,736 ) 780 45,094 Consumer finance 4,576 1,099 ( 36 ) — 5,639 Tax services 31,528 ( 3,285 ) ( 820 ) 1,230 28,653 Warehouse finance 395 55 — — 450 Total loans and leases 80,777 5,641 ( 8,592 ) 2,010 79,836 Unfunded commitments (1) 743 240 — — 983 Total $ 81,520 $ 5,881 $ ( 8,592 ) $ 2,010 $ 80,819 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. 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 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. 16 Table of Contents Nine Months Ended June 30, 2024 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 25,686 $ 18,087 $ ( 14,925 ) $ 1,811 $ 30,659 Asset-based lending 2,738 ( 1,754 ) — 250 1,234 Factoring 6,566 1,497 ( 2,424 ) 173 5,812 Lease financing 3,302 ( 1,867 ) ( 125 ) 184 1,494 Insurance premium finance 2,637 ( 291 ) ( 923 ) 229 1,652 SBA/USDA 2,962 338 ( 456 ) — 2,844 Other commercial finance 3,089 ( 1,690 ) — — 1,399 Commercial finance 46,980 14,320 ( 18,853 ) 2,647 45,094 Consumer finance 2,346 3,427 ( 136 ) 2 5,639 Tax services 2 23,292 ( 1,965 ) 7,324 28,653 Warehouse finance 377 73 — — 450 Total loans and leases 49,705 41,112 ( 20,954 ) 9,973 79,836 Unfunded commitments (1) 272 711 — — 983 Total $ 49,977 $ 41,823 $ ( 20,954 ) $ 9,973 $ 80,819 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. Nine Months Ended June 30, 2023 (Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance Allowance for credit losses: Term lending $ 24,621 $ 7,895 $ ( 7,374 ) $ 1,496 $ 26,638 Asset-based lending 1,050 2,972 ( 2,873 ) 154 1,303 Factoring 6,556 ( 311 ) ( 323 ) 20 5,942 Lease financing 5,902 ( 976 ) ( 1,315 ) 255 3,866 Insurance premium finance 1,450 1,202 ( 852 ) 272 2,072 SBA/USDA 3,263 ( 625 ) — 26 2,664 Other commercial finance 1,310 2,769 — — 4,079 Commercial finance 44,152 12,926 ( 12,737 ) 2,223 46,564 Consumer finance 1,463 2,573 ( 2,193 ) — 1,843 Tax services 5 32,830 ( 2,135 ) 2,432 33,132 Warehouse finance 327 50 — — 377 Total loans and leases 45,947 48,379 ( 17,065 ) 4,655 81,916 Unfunded commitments (1) 366 ( 67 ) — — 299 Total $ 46,312 $ 48,312 $ ( 17,065 ) $ 4,655 $ 82,215 (1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. 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 June 30, 2024 At September 30, 2023 Term lending $ 14,425 $ 3,516 Asset-based lending — 19,226 Factoring — 1,133 Lease financing 5,909 630 SBA/USDA 1,419 750 Commercial finance (1) 21,753 25,255 Total $ 21,753 $ 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 $ 109.0 million and $ 117.0 million at June 30, 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 $ 253.4 million and $ 43.2 million at June 30, 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 June 30, 2024 2024 2023 2022 2021 2020 Prior Term lending Pass $ 401,657 $ 475,168 $ 119,617 $ 67,910 $ 52,871 $ 46,207 $ — $ 1,163,430 Watch 68,494 56,746 40,545 45,016 2,967 2,676 — 216,444 Special mention 8,797 3,641 7,043 20,568 7,680 21 — 47,750 Substandard 16,990 24,672 16,907 18,418 19,170 2,684 — 98,841 Doubtful — 2,713 2,355 963 487 739 — 7,257 Total 495,938 562,940 186,467 152,875 83,175 52,327 — 1,533,722 Current period charge-offs — 1,976 7,241 3,211 1,789 708 — 14,925 Asset-based lending Pass — — — — — — 222,125 222,125 Watch — — — — — — 233,343 233,343 Special mention — — — — — — 13,875 13,875 Substandard — — — — — — 3,946 3,946 Total — — — — — — 473,289 473,289 Current period charge-offs — — — — — — — — Factoring Pass — — — — — — 287,625 287,625 Watch — — — — — — 56,232 56,232 Special mention — — — — — — 577 577 Substandard — — — — — — 6,273 6,273 Doubtful — — — — — — 33 33 Total — — — — — — 350,740 350,740 Current period charge-offs — — — — — — 2,424 2,424 Lease financing Pass 34,430 55,730 18,396 8,546 10,519 2,583 — 130,204 Watch 1,157 — 387 8,489 2,258 8 — 12,299 Special mention — 265 — 12 192 116 — 585 Substandard — 5,902 381 2,479 2,015 819 — 11,596 Doubtful — — — 147 27 186 — 360 Total 35,587 61,897 19,164 19,673 15,011 3,712 — 155,044 Current period charge-offs — — — 58 67 — — 125 19 Table of Contents Insurance premium finance Pass 600,053 16,207 — — — — — 616,260 Watch 228 133 — — — — — 361 Special mention 82 73 — — — — — 155 Substandard 41 108 — — — — — 149 Doubtful 33 96 — — — — — 129 Total 600,437 16,617 — — — — — 617,054 Current period charge-offs 24 726 173 — — — — 923 SBA/USDA Pass 46,314 181,467 181,385 21,135 30,045 39,910 — 500,256 Watch — 11,992 — 1,054 11 3,052 — 16,109 Special mention — — 55 55 — 471 — 581 Substandard — 11,736 12,281 1,606 9,539 11,180 — 46,342 Doubtful — 300 — — — 101 — 401 Total 46,314 205,495 193,721 23,850 39,595 54,714 — 563,689 Current period charge-offs — 250 79 — 127 — — 456 Other commercial finance Pass 20,667 2,240 9,748 32,361 1,214 72,607 — 138,837 Watch — 2,490 — — — — — 2,490 Substandard — 2,645 19 22,662 — — — 25,326 Total 20,667 7,375 9,767 55,023 1,214 72,607 — 166,653 Current period charge-offs — — — — — — — — Warehouse finance Pass — — — — — — 449,962 449,962 Total — — — — — — 449,962 449,962 Current period charge-offs — — — — — — — — Total loans and leases Pass 1,103,121 730,812 329,146 129,952 94,649 161,307 959,712 3,508,699 Watch 69,879 71,361 40,932 54,559 5,236 5,736 289,575 537,278 Special mention 8,879 3,979 7,098 20,635 7,872 608 14,452 63,523 Substandard 17,031 45,063 29,588 45,165 30,724 14,683 10,219 192,473 Doubtful 33 3,109 2,355 1,110 514 1,026 33 8,180 Total $ 1,198,943 $ 854,324 $ 409,119 $ 251,421 $ 138,995 $ 183,360 $ 1,273,991 $ 4,310,153 Current period charge-offs $ 24 $ 2,952 $ 7,493 $ 3,269 $ 1,983 $ 708 $ 2,424 $ 18,853 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 June 30, 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 $ — $ — $ — $ — $ 29,380 $ 29,380 $ — $ — $ — Term lending 22,708 4,523 11,403 38,634 1,495,088 1,533,722 4,843 23,871 28,714 Asset-based lending — — — — 473,289 473,289 — — — Factoring — — — — 350,740 350,740 — 40 40 Lease financing 2,386 51 2,634 5,071 149,973 155,044 2,293 548 2,841 Insurance premium finance 1,584 2,463 1,227 5,274 611,780 617,054 1,227 — 1,227 SBA/USDA 1,546 311 1,807 3,664 560,025 563,689 64 3,154 3,218 Other commercial finance — — — — 166,653 166,653 — — — Commercial finance 28,224 7,348 17,071 52,643 3,807,548 3,860,191 8,427 27,613 36,040 Consumer finance 4,496 3,534 8,588 16,618 236,740 253,358 8,588 — 8,588 Tax services — 43,184 — 43,184 — 43,184 — — — Warehouse finance — — — — 449,962 449,962 — — — Total loans and leases held for investment 32,720 54,066 25,659 112,445 4,494,250 4,606,695 17,015 27,613 44,628 Total loans and leases $ 32,720 $ 54,066 $ 25,659 $ 112,445 $ 4,523,629 $ 4,636,074 $ 17,015 $ 27,613 $ 44,628 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 June 30, 2024 2024 2023 2022 2021 2020 Prior Term lending $ 9,284 $ 2,830 $ 5,082 $ 1,712 $ 1,218 $ 3,745 $ — $ 23,871 $ — Factoring — — — — — — 40 40 — Lease financing — 153 — 155 2 238 — 548 — SBA/USDA — 1,037 — — 1,598 519 — 3,154 681 Commercial finance 9,284 4,020 5,082 1,867 2,818 4,502 40 27,613 681 Total nonaccrual loans and leases $ 9,284 $ 4,020 $ 5,082 $ 1,867 $ 2,818 $ 4,502 $ 40 $ 27,613 $ 681 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 June 30, 2024 2024 2023 2022 2021 2020 Prior Term lending $ 1,570 $ 2,154 $ 746 $ 175 $ 180 $ 18 $ — $ 4,843 Lease financing 220 — 1,258 287 53 475 — 2,293 Insurance premium finance 699 528 — — — — — 1,227 SBA/USDA — — — — 48 16 — 64 Commercial finance 2,489 2,682 2,004 462 281 509 — 8,427 Consumer finance 6,535 1,516 397 140 — — — 8,588 Total loans and leases held for investment 9,024 4,198 2,401 602 281 509 — 17,015 Total 90 days or more delinquent and accruing $ 9,024 $ 4,198 $ 2,401 $ 602 $ 281 $ 509 $ — $ 17,015 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 June 30, Nine Months Ended June 30, (Dollars in thousands) 2024 2023 2024 2023 Term lending $ 20,007 $ 12,637 $ 18,808 $ 10,397 Asset-based lending — 15,792 4,896 8,452 Factoring 967 545 2,631 592 Lease financing 635 2,675 1,299 3,308 SBA/USDA 2,853 1,261 2,223 1,353 Commercial finance 24,462 32,910 29,857 24,102 Total loans and leases $ 24,462 $ 32,910 $ 29,857 $ 24,102 The recognized interest income on the Company's nonaccrual loans and leases for the three and nine months ended June 30, 2024 and 2023 was not significant. 24 Table of Contents 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 nine months ended June 30, 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 nine months ended June 30, 2024 were $ 6.1 million and $ 7.6 million in the commercial finance loan portfolio, respectively. The types of modifications granted were term extensions and reduced payments. During the three and nine months ended June 30, 2024, the Company had $ 1.5 million of commercial finance loans where a modification was granted in the previous 12 months in which there was a payment default. As of June 30, 2024, $ 1.5 million of modifications granted were in the 60-89 days past due category. No loans were modified in a TDR during the three and nine months ended June 30, 2023. The Company had an immaterial amount and $ 0.4 million of commercial finance loans that were modified within the previous 12 months experience a payment default during the three and nine months ended June 30, 2023, respectively. 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. 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. 25 Table of Contents A reconciliation of net income and common stock share amounts used in the computation of basic and diluted earnings per share is presented below. Three Months Ended June 30, Nine Months Ended June 30, (Dollars in thousands, except per share data) 2024 2023 2024 2023 Basic income per common share: Net income attributable to Pathward Financial, Inc. $ 41,835 $ 45,096 $ 134,760 $ 127,709 Dividends and undistributed earnings allocated to participating securities ( 432 ) ( 690 ) ( 1,181 ) ( 1,920 ) Basic net earnings available to common stockholders 41,403 44,406 133,579 125,789 Undistributed earnings allocated to nonvested restricted stockholders 419 670 1,148 1,858 Reallocation of undistributed earnings to nonvested restricted stockholders ( 419 ) ( 667 ) ( 1,146 ) ( 1,852 ) Diluted net earnings available to common stockholders $ 41,403 $ 44,409 $ 133,580 $ 125,795 Total weighted-average basic common shares outstanding 24,946,085 26,346,693 25,335,621 27,152,773 Effect of dilutive securities (1) Performance share units 33,733 100,339 29,021 86,028 Total effect of dilutive securities 33,733 100,339 29,021 86,028 Total weighted-average diluted common shares outstanding 24,979,818 26,447,032 25,364,642 27,238,801 Net earnings per common share: Basic earnings per common share $ 1.66 $ 1.69 $ 5.27 $ 4.63 Diluted earnings per common share (2) $ 1.66 $ 1.68 $ 5.27 $ 4.62 (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, 2024 and 2023, respectively, were 260,415 and 409,666 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, 2024 and 2023, respectively, were 224,035 and 414,539 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive. NOTE 6. RENTAL EQUIPMENT, NET Rental equipment consists of the following: (Dollars in thousands) June 30, 2024 September 30, 2023 Computers and IT networking equipment $ 23,908 $ 25,094 Motor vehicles and other 136,025 122,845 Other furniture and equipment 39,190 37,637 Solar panels and equipment 135,625 142,355 Total 334,748 327,931 Accumulated depreciation ( 126,276 ) ( 117,418 ) Unamortized initial direct costs 1,072 1,237 Net book value $ 209,544 $ 211,750 26 Table of Contents Future minimum lease payments expected to be received for operating leases at June 30, 2024 were as follows: (Dollars in thousands) Remaining in 2024 $ 11,141 2025 39,960 2026 30,116 2027 21,961 2028 12,686 Thereafter 12,069 Total $ 127,933 NOTE 7. GOODWILL AND INTANGIBLE ASSETS The Company held a total of $ 309.5 million of goodwill at June 30, 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 nine months ended June 30, 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 ( 790 ) — ( 2,018 ) ( 399 ) ( 3,207 ) At June 30, 2024 $ 6,687 $ — $ 7,092 $ 3,734 $ 17,513 Gross carrying amount $ 13,774 $ 301 $ 77,578 $ 7,732 $ 99,385 Accumulated amortization ( 7,087 ) ( 301 ) ( 59,568 ) ( 3,845 ) ( 70,801 ) Accumulated impairment — — ( 10,918 ) ( 153 ) ( 11,071 ) At June 30, 2024 $ 6,687 $ — $ 7,092 $ 3,734 $ 17,513 At September 30, 2022 $ 8,605 $ — $ 12,395 $ 4,691 $ 25,691 Amortization during the period ( 868 ) — ( 2,595 ) ( 398 ) ( 3,861 ) At June 30, 2023 $ 7,737 $ — $ 9,800 $ 4,293 $ 21,830 Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 9,940 $ 109,133 Accumulated amortization ( 6,887 ) ( 2,481 ) ( 61,370 ) ( 5,429 ) ( 76,167 ) Accumulated impairment — — ( 10,918 ) ( 218 ) ( 11,136 ) At June 30, 2023 $ 7,737 $ — $ 9,800 $ 4,293 $ 21,830 (1) Book amortization period of 5 - 15 years. Amortized using the straight line and accelerated methods. (2) Book amortization period of 10 - 30 years. Amortized using the accelerated method. (3) Book amortization period of 3 - 20 years. Amortized using the straight line method. 27 Table of Contents The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets. Estimated amortization expense of intangible assets in the remaining three months of fiscal 2024 and subsequent fiscal years at June 30, 2024 was as follows: (Dollars in thousands) Remaining in 2024 $ 923 2025 3,569 2026 3,223 2027 2,577 2028 2,267 Thereafter 4,954 Total anticipated intangible amortization $ 17,513 There were no impairments to intangible assets during the nine months ended June 30, 2024 and 2023. Intangible impairment expense is recorded within the impairment expense line of the Condensed Consolidated Statements of Operations. NOTE 8. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES Operating lease right-of-use ("ROU") assets, included in other assets , were $ 25.2 million and $ 26.9 million at June 30, 2024 and September 30, 2023, respectively. Operating lease liabilities, included in accrued expenses and other liabilities , were $ 27.0 million and $ 28.8 million at June 30, 2024 and September 30, 2023, respectively. Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at June 30, 2024 were as follows: (Dollars in thousands) Remaining in 2024 $ 1,121 2025 3,985 2026 3,435 2027 3,152 2028 3,095 Thereafter 15,545 Total undiscounted future minimum lease payments 30,333 Discount ( 3,356 ) Total operating lease liabilities $ 26,977 The weighted-average discount rate and remaining lease term for operating leases were as follows: June 30, 2024 September 30, 2023 Weighted-average discount rate 2.44 % 2.38 % Weighted-average remaining lease term (years) 8.93 9.66 The components of total lease costs for operating leases were as follows: Three Months Ended June 30, Nine Months Ended June 30, (Dollars in thousands) 2024 2023 2024 2023 Lease expense $ 990 $ 978 $ 3,007 $ 2,974 Short-term and variable lease cost 21 22 44 106 Sublease income ( 314 ) ( 368 ) ( 953 ) ( 1,040 ) Total lease cost for operating leases $ 697 $ 632 $ 2,098 $ 2,040 28 Table of Contents 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 nine months ended June 30, 2024 and 2023, the Company repurchased 1,283,693 and 2,316,814 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, 2024, 7,382,743 shares of common stock remained available for repurchase. For the nine months ended June 30, 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 nine months ended June 30, 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 immediately 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 PSUs 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 PSU 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 nine months ended June 30, 2024. Number of Shares Weighted Average Fair Value at Grant Nonvested shares outstanding, September 30, 2023 370,151 $ 35.87 Granted 178,917 50.41 Vested ( 277,447 ) 39.49 Forfeited or expired ( 13,864 ) 42.49 Nonvested shares outstanding, June 30, 2024 257,757 $ 41.71 Number of Units (1) Weighted Average Fair Value at Grant Performance share units outstanding, September 30, 2023 155,804 $ 41.20 Granted 52,125 49.61 Vested ( 60,984 ) 55.47 Forfeited or expired ( 4,483 ) 44.59 Performance share units outstanding, June 30, 2024 142,462 $ 47.24 (1) The activity in this table includes 60,984 shares related to the fiscal year 2021 PSUs, 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 June 30, 2024, stock-based compensation expense not yet recognized in income totaled $ 8.5 million, which is expected to be recognized over a weighted average remaining period of 1.54 years. 30 Table of Contents NOTE 11. INCOME TAXES The Company recorded an income tax expense of $ 26.1 million for the nine months ended June 30, 2024, resulting in an effective tax rate of 16.15 %, compared to an income tax expense of $ 19.0 million, or an effective tax rate of 12.80 %, for the nine months ended June 30, 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. Nine Months Ended June 30, (Dollars in thousands) 2024 2023 Provision at statutory rate $ 33,778 $ 30,808 Tax-exempt income ( 522 ) ( 600 ) State income taxes 6,518 6,109 Interim period effective rate adjustment ( 593 ) ( 3,065 ) Tax credit investments, net - federal ( 12,556 ) ( 13,669 ) Research tax credit ( 602 ) ( 805 ) IRC 162(m) nondeductible compensation 826 928 Other, net ( 761 ) ( 710 ) Income tax expense $ 26,088 $ 18,996 Effective tax rate 16.15 % 12.80 % 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 June 30, 2024 2023 2024 2023 2024 2023 2024 2023 Net interest income (1) $ 57,875 $ 40,683 $ 52,494 $ 53,067 $ 490 $ 3,715 $ 110,859 $ 97,465 Noninterest income: Refund transfer product fees 9,111 8,262 — — — — 9,111 8,262 Refund advance fee income (1) ( 67 ) ( 927 ) — — — — ( 67 ) ( 927 ) Card and deposit fees 33,151 39,450 250 253 7 5 33,408 39,708 Rental income (1) — — 13,615 13,756 164 224 13,779 13,980 Gain on sale of other (1) 20 — 2,264 812 2,391 9 4,675 821 Other income (1) 2,020 1,929 1,922 1,888 1,023 2,072 4,965 5,889 Total noninterest income 44,235 48,714 18,051 16,709 3,585 2,310 65,871 67,733 Revenue $ 102,110 $ 89,397 $ 70,545 $ 69,776 $ 4,075 $ 6,025 $ 176,730 $ 165,198 Nine Months Ended June 30, Net interest income (1) $ 173,758 $ 116,373 $ 143,288 $ 142,149 $ 22,150 $ 24,405 $ 339,196 $ 282,927 Noninterest income: Refund transfer product fees 38,475 39,144 — — — — 38,475 39,144 Refund advance fee income (1) 43,244 37,685 — — — — 43,244 37,685 Card and deposit fees 98,755 118,730 727 766 20 17 99,502 119,513 Rental income (1) — — 40,444 39,008 514 620 40,958 39,628 Gain on sale of trademarks — — — — — 10,000 — 10,000 Gain on sale of other (1) 5 — 4,233 566 4,972 91 9,210 657 Other income (1) 6,230 4,470 6,395 4,907 3,563 4,544 16,188 13,921 Total noninterest income 186,709 200,029 51,799 45,247 9,069 15,272 247,577 260,548 Revenue $ 360,467 $ 316,402 $ 195,087 $ 187,396 $ 31,219 $ 39,677 $ 586,773 $ 543,475 (1) These revenues are not within the scope of Topic 606. Additional details are included in other footnotes to the accompanying financial statements. The scope of Topic 606 explicitly excludes net interest income as well as many other revenues for financial assets and liabilities, including loans, leases, and securities. Following is a discussion of key revenues within the scope of Topic 606. The Company provides services to customers that have related performance obligations that must be completed to recognize revenue. Revenues are generally recognized immediately upon the completion of the service or over time as services are performed. Any services performed over time generally require that the Company renders services each period; therefore, the Company measures progress in completing these services based upon the passage of time. Revenue from contracts with customers did not generate significant contract assets and liabilities for the nine months ended June 30, 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 off-balance sheet custodial 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 June 30, 2024 2023 2024 2023 2024 2023 2024 2023 Net interest income $ 57,875 $ 40,683 $ 52,494 $ 53,067 $ 490 $ 3,715 $ 110,859 $ 97,465 Provision for (reversal of) credit loss ( 2,187 ) 508 8,013 1,265 55 — 5,881 1,773 Noninterest income 44,235 48,714 18,051 16,709 3,585 2,310 65,871 67,733 Noninterest expense 49,133 39,666 33,227 33,594 41,319 41,318 123,679 114,578 Income (loss) before income tax expense 55,164 49,223 29,305 34,917 ( 37,299 ) ( 35,293 ) 47,170 48,847 Total assets 450,044 455,540 4,321,893 3,914,924 2,758,343 3,088,161 7,530,280 7,458,625 Total goodwill 87,145 87,145 222,360 222,360 — — 309,505 309,505 Total deposits 6,190,419 6,130,524 13,592 7,550 227,505 168,902 6,431,516 6,306,976 Nine Months Ended June 30, Net interest income $ 173,758 $ 116,373 $ 143,288 $ 142,149 $ 22,150 $ 24,405 $ 339,196 $ 282,927 Provision for credit loss 26,719 35,402 15,031 12,860 73 50 41,823 48,312 Noninterest income 186,709 200,029 51,799 45,247 9,069 15,272 247,577 260,548 Noninterest expense 158,598 124,070 106,213 105,189 118,573 117,514 383,384 346,773 Income (loss) before income tax expense 175,150 156,930 73,843 69,347 ( 87,427 ) ( 77,887 ) 161,566 148,390 Total assets 450,044 455,540 4,321,893 3,914,924 2,758,343 3,088,161 7,530,280 7,458,625 Total goodwill 87,145 87,145 222,360 222,360 — — 309,505 309,505 Total deposits 6,190,419 6,130,524 13,592 7,550 227,505 168,902 6,431,516 6,306,976 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 June 30, 2024 (Dollars in thousands) Total Level 1 Level 2 Level 3 Debt securities AFS Corporate securities $ 19,625 $ — $ 19,625 $ — SBA securities 83,571 — 83,571 — Obligations of states and political subdivisions 466 — 466 — Non-bank qualified obligations of states and political subdivisions 216,167 — 216,167 — Asset-backed securities 207,160 — 207,160 — Mortgage-backed securities 1,198,471 — 1,198,471 — Total debt securities AFS $ 1,725,460 $ — $ 1,725,460 $ — Common equities and mutual funds (1) $ 4,286 $ 4,286 $ — $ — Non-marketable equity securities (2) $ 10,495 $ — $ — $ — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at June 30, 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 33 %. 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 June 30, 2024 (Dollars in thousands) Total Level 1 Level 2 Level 3 Loans and leases, net individually evaluated for credit loss Commercial finance $ 8,418 $ — $ — $ 8,418 Total loans and leases, net individually evaluated for credit loss 8,418 — — 8,418 Total $ 8,418 $ — $ — $ 8,418 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 June 30, 2024 Fair Value at September 30, 2023 Valuation Technique Unobservable Input Range of Inputs Loans and leases, net individually evaluated for credit loss $ 8,418 $ 21,829 Market approach Appraised values (1) 3 % - 33 % (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 33 %. 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, 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 June 30, 2024 (Dollars in thousands) Carrying Amount Estimated Fair Value Level 1 Level 2 Level 3 Financial assets Cash and cash equivalents $ 298,926 $ 298,926 $ 298,926 $ — $ — Debt securities available for sale 1,725,460 1,725,460 — 1,725,460 — Debt securities held to maturity 34,026 30,237 — 30,237 — Common equities and mutual funds (1) 4,286 4,286 4,286 — — Non-marketable equity securities (1)(2) 20,017 20,017 — 9,522 — Loans held for sale 29,380 29,380 — 29,380 — Loans and leases 4,606,695 4,565,649 — — 4,565,649 Federal Reserve Bank and Federal Home Loan Bank stocks 24,449 24,449 — 24,449 — Accrued interest receivable 31,755 31,755 31,755 — — Financial liabilities Deposits 6,431,516 6,431,235 6,389,937 41,298 — Overnight federal funds purchased — — — — — Other short- and long-term borrowings 33,329 31,443 — 31,443 — Accrued interest payable 1,664 1,664 1,664 — — (1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at June 30, 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 June 30, 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 June 30, 2024. 37 Table of Contents