株探米国株
英語
エドガーで原本を確認する
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2023
or
☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           .

Commission File Number:  0-22140

PATHWARD_LOGO_RGB.jpg

PATHWARD FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 42-1406262
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

5501 South Broadband Lane, Sioux Falls, South Dakota 57108
(Address of principal executive offices and Zip Code)

(877) 497-7497
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $.01 par value CASH The NASDAQ Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).  Yes ☒  No ☐



Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company See the definitions of "large accelerated filer." "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class:
Outstanding at January 31, 2024:
Common Stock, $.01 par value 25,490,775  Shares
Nonvoting Common Stock, $.01 par value 0  Nonvoting shares




PATHWARD FINANCIAL, INC.
FORM 10-Q

Table of Contents
Description Page
PART I - FINANCIAL INFORMATION
Item 1.
 
     
 
3
     
 
     
 
     
 
     
 
Item 2.
Item 3.
Item 4.
   
PART II - OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.
i
Table of Contents


PART I - FINANCIAL INFORMATION
Item 1.    Financial Statements.
PATHWARD FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data) December 31, 2023 September 30, 2023
ASSETS (Unaudited) (Audited)
Cash and cash equivalents $ 671,630  $ 375,580 
Securities available for sale, at fair value 1,850,581  1,804,228 
Securities held to maturity, at amortized cost (fair value $32,180 and $31,425, respectively)
 35,440  36,591 
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 23,694  28,210 
Loans held for sale 69,518  77,779 
Loans and leases 4,426,281  4,366,116 
Allowance for credit losses (53,785) (49,705)
Accrued interest receivable 27,080  23,282 
Premises, furniture, and equipment, net 38,270  39,160 
Rental equipment, net 228,916  211,750 
Goodwill and intangible assets 329,241  330,225 
Other assets 280,571  292,327 
Total assets $ 7,927,437  $ 7,535,543 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
LIABILITIES  
Deposits $ 6,936,055  $ 6,589,182 
Short-term borrowings —  13,000 
Long-term borrowings 33,614  33,873 
Accrued expenses and other liabilities 228,486  248,863 
Total liabilities 7,198,155  6,884,918 
STOCKHOLDERS’ EQUITY    
Preferred stock, 3,000,000 shares authorized, no shares issued, none outstanding at December 31, 2023 and September 30, 2023, respectively
 —  — 
Common stock, $0.01 par value; 90,000,000 shares authorized, 26,099,348 and 26,225,563 shares issued, 25,988,230 and 26,183,583 shares outstanding at December 31, 2023 and September 30, 2023, respectively
 260  262 
Common stock, Nonvoting, $0.01 par value; 3,000,000 shares authorized, no shares issued, none outstanding at December 31, 2023 and September 30, 2023, respectively
 —  — 
Additional paid-in capital 629,737  628,500 
Retained earnings 293,463  278,655 
Accumulated other comprehensive loss (188,433) (255,443)
Treasury stock, at cost, 111,118 and 41,980 common shares at December 31, 2023 and September 30, 2023, respectively
 (5,235) (344)
Total equity attributable to parent 729,792  651,630 
Noncontrolling interest (510) (1,005)
Total stockholders’ equity 729,282  650,625 
Total liabilities and stockholders’ equity $ 7,927,437  $ 7,535,543 
See Notes to Condensed Consolidated Financial Statements.
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PATHWARD FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended December 31,
(Dollars in thousands, except per share data) 2023 2022
Interest and dividend income:    
Loans and leases, including fees $ 94,963  $ 68,396 
Mortgage-backed securities 10,049  10,412 
Other investments 10,886  6,252 
  115,898  85,060 
Interest expense:    
Deposits 3,526  142 
FHLB advances and other borrowings 2,336  861 
  5,862  1,003 
Net interest income 110,036  84,057 
Provision for credit loss 9,890  9,776 
Net interest income after provision for credit loss 100,146  74,281 
Noninterest income:    
Refund transfer product fees 422  677 
Refund advance fee income 111  617 
Card and deposit fees 30,750  37,718 
Rental income 13,459  12,708 
Gain on sale of trademarks —  10,000 
Gain on sale of other 2,840  502 
Other income 5,179  3,555 
Total noninterest income 52,761  65,777 
Noninterest expense:    
Compensation and benefits 46,652  43,017 
Refund transfer product expense 192  105 
Refund advance expense 30  27 
Card processing 34,584  22,683 
Occupancy and equipment expense 8,848  8,312 
Operating lease equipment depreciation 10,423  9,628 
Legal and consulting 4,892  9,459 
Intangible amortization 984  1,258 
Impairment expense —  24 
Other expense 12,669  10,546 
Total noninterest expense 119,274  105,059 
Income before income tax expense 33,633  34,999 
Income tax expense 5,719  6,577 
Net income before noncontrolling interest 27,914  28,422 
Net income attributable to noncontrolling interest 257  580 
Net income attributable to parent $ 27,657  $ 27,842 
Earnings per common share:    
Basic $ 1.06  $ 0.98 
Diluted $ 1.06  $ 0.98 
See Notes to Condensed Consolidated Financial Statements.
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PATHWARD FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended December 31,
(Dollars in thousands) 2023 2022
Net income before noncontrolling interest $ 27,914  $ 28,422 
Other comprehensive income (loss):    
Change in net unrealized gain on debt securities 88,535  14,708 
88,535  14,708 
Unrealized gain on currency translation 618  387 
Deferred income tax effect 22,143  3,705 
Total other comprehensive income 67,010  11,390 
Total comprehensive income 94,924  39,812 
Total comprehensive income attributable to noncontrolling interest 257  580 
Comprehensive income attributable to parent $ 94,667  $ 39,232 
See Notes to Condensed Consolidated Financial Statements.
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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 December 31, 2023
Balance, September 30, 2023 $ 262  $ 628,500  $ 278,655  $ (255,443) $ (344) $ 651,630  $ (1,005) $ 650,625 
Cash dividends declared on common stock ($0.05 per share)
 —  —  (1,299) —  —  (1,299) —  (1,299)
Issuance of common stock due to restricted stock 1  —  —  —  —  1  —  1 
Repurchases of common stock (3) 3  (11,027) —  (4,891) (15,918) —  (15,918)
Stock compensation —  1,234  —  —  —  1,234  —  1,234 
Total other comprehensive income —  —  —  67,010  —  67,010  —  67,010 
Joint venture membership interest divestiture —  —  (523) —  —  (523) —  (523)
Net income —  —  27,657  —  —  27,657  257  27,914 
Net distribution to noncontrolling interests —  —  —  —  —  —  238  238 
Balance, December 31, 2023
 $ 260  $ 629,737  $ 293,463  $ (188,433) $ (5,235) $ 729,792  $ (510) $ 729,282 
Three Months Ended December 31, 2022
Balance, September 30, 2022 $ 288  $ 617,403  $ 245,394  $ (213,080) $ (4,835) $ 645,170  $ (30) $ 645,140 
Cash dividends declared on common stock ($0.05 per share)
 —  —  (1,402) —  —  (1,402) —  (1,402)
Issuance of common stock due to restricted stock 1  —  —  —  —  1  —  1 
Repurchases of common stock (7) 7  (24,943) —  (1,989) (26,932) —  (26,932)
Stock compensation —  3,271  —  —  —  3,271  —  3,271 
Total other comprehensive income —  —  —  11,390  —  11,390  —  11,390 
Net income —  —  27,842  —  —  27,842  580  28,422 
Net distribution to noncontrolling interests —  —  —  —  —  —  (757) (757)
Balance, December 31, 2022
 $ 282  $ 620,681  $ 246,891  $ (201,690) $ (6,824) $ 659,340  $ (207) $ 659,133 
See Notes to Condensed Consolidated Financial Statements.


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PATHWARD FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended December 31,
(Dollars in thousands) 2023 2022
Cash flows from operating activities:    
Net income before noncontrolling interest $ 27,914  $ 28,422 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 14,689  14,566 
Provision for credit loss 9,890  9,776 
Provision for deferred taxes 1,162  2,255 
Originations of loans held for sale (631,905) (398,798)
Proceeds from sales of loans held for sale 626,336  402,870 
Net change in loans held for sale 13,829  (84)
Net realized (gain) on trademarks —  (10,000)
Net realized (gain) on other (2,840) (502)
Impairment on rental equipment —  24 
Net change in accrued interest receivable (3,798) (2,191)
Net change in other assets (14,344) 16,986 
Net change in accrued expenses and other liabilities (19,723) (24,222)
Stock compensation 1,234  3,271 
Net cash provided by operating activities 22,444  42,373 
Cash flows from investing activities:
Proceeds from maturities of and principal collected on securities available for sale 41,936  49,069 
Proceeds from maturities of and principal collected on securities held to maturity 1,093  1,058 
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock (91,130) (57,760)
Redemption of Federal Reserve Bank and Federal Home Loan Bank stock 95,647  57,760 
Purchases of loans and leases (89,390) (67,649)
Net change in loans and leases 98,895  217,812 
Purchases of premises, furniture, and equipment (1,885) (1,989)
Purchases of rental equipment (106,160) (164,245)
Proceeds from sales of rental equipment 3,373  1,495 
Net change in rental equipment (79) (109)
Proceeds from sales of foreclosed real estate and repossessed assets —  1 
Proceeds from sale of trademarks —  10,000 
Proceeds from sale of other assets 4,077  — 
Net cash (used in) provided by investing activities (43,623) 45,443 
Cash flows from financing activities:
Net change in deposits 346,873  (76,905)
Net change in short-term borrowings (13,000) — 
Principal payments on other liabilities (284) (573)
Payment of debt issuance costs —  (504)
Dividends paid on common stock (1,299) (1,402)
Issuance of common stock due to restricted stock 1  1 
Repurchases of common stock (15,918) (26,932)
Distributions to noncontrolling interest 238  (757)
Net cash provided by (used in) financing activities 316,611  (107,072)
Effect of exchange rate changes on cash 618  387 
Net change in cash and cash equivalents 296,050  (18,869)
Cash and cash equivalents at beginning of fiscal year 375,580  388,038 
Cash and cash equivalents at end of fiscal period $ 671,630  $ 369,169 
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Three Months Ended December 31,
(Dollars in thousands) 2023 2022
Supplemental disclosure of cash flow information:    
Cash paid during the period for:    
Interest $ 4,168  $ 478 
Income taxes 641  492 
Franchise and other taxes 66  66 
Supplemental schedule of non-cash investing activities:    
Transfers
Loans and leases to rental equipment 1,430  1,405 
Rental equipment to loan and leases 76,941  128,145 
Recognition of operating lease ROU assets, net of measurements 654  — 
Joint venture membership interest divestiture 523  — 
See Notes to Condensed Consolidated Financial Statements.


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

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

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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 December 31, 2023
Corporate securities $ 25,000  $ —  $ (6,625) $ 18,375 
SBA securities 94,458  —  (6,726) 87,732 
Obligations of states and political subdivisions 2,351  —  (47) 2,304 
Non-bank qualified obligations of states and political subdivisions 262,999  25  (34,136) 228,888 
Asset-backed securities 244,965  96  (7,357) 237,704 
Mortgage-backed securities 1,471,376  27  (195,825) 1,275,578 
Total debt securities AFS $ 2,101,149  $ 148  $ (250,716) $ 1,850,581 
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 December 31, 2023
Non-bank qualified obligations of states and political subdivisions $ 33,337  $ —  $ (3,050) $ 30,287 
Mortgage-backed securities 2,103  —  (210) 1,893 
Total debt securities HTM $ 35,440  $ —  $ (3,260) $ 32,180 
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 


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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 December 31, 2023
Corporate securities $ —  $ —  $ 18,375  $ (6,625) $ 18,375  $ (6,625)
SBA securities 23,502  (742) 64,229  (5,984) 87,731  (6,726)
Obligations of state and political subdivisions —  —  2,304  (47) 2,304  (47)
Non-bank qualified obligations of states and political subdivisions 1,616  (18) 225,198  (34,118) 226,814  (34,136)
Asset-backed securities 86,695  (257) 112,043  (7,100) 198,738  (7,357)
Mortgage-backed securities 17,688  (245) 1,256,811  (195,580) 1,274,499  (195,825)
Total debt securities AFS $ 129,501  $ (1,262) $ 1,678,960  $ (249,454) $ 1,808,461  $ (250,716)
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 December 31, 2023
Non-bank qualified obligations of states and political subdivisions $ —  $ —  $ 30,287  $ (3,050) $ 30,287  $ (3,050)
Mortgage-backed securities —  —  1,893  (210) 1,893  (210)
Total debt securities HTM $ —  $ —  $ 32,180  $ (3,260) $ 32,180  $ (3,260)
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 increase in the fair value of investment securities balances when comparing December 31, 2023 to September 30, 2023 was primarily driven by decreases in unrealized losses due to steady interest rates during the three months. At December 31, 2023, there were 199 securities AFS in an unrealized loss position. All of the mortgage-backed securities ("MBS") in an unrealized loss position at December 31, 2023 were government guaranteed. Management assessed each investment security with unrealized losses for credit loss and determined all unrealized losses on these securities were due to adverse market conditions and/or change in interest rates versus credit loss. As part of that assessment, management evaluated and concluded that it is more-likely-than-not that the Company will not be required and does not intend to sell any of the securities prior to recovery of the amortized cost. At December 31, 2023, there was no allowance for credit losses ("ACL") for debt securities AFS.

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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 December 31, 2023 At September 30, 2023
Debt Securities AFS Amortized Cost Fair
Value		 Amortized Cost Fair
Value
Due in one year or less $ 3,597  $ 3,579  $ 5,023  $ 4,971 
Due after one year through five years 11,172  10,523  11,175  10,292 
Due after five years through ten years 79,137  68,613  79,139  66,428 
Due after ten years 535,867  492,288  552,360  497,012 
629,773  575,003  647,697  578,703 
Mortgage-backed securities 1,471,376  1,275,578  1,495,636  1,225,525 
Total debt securities AFS $ 2,101,149  $ 1,850,581  $ 2,143,333  $ 1,804,228 
Debt Securities HTM
Due after ten years $ 33,337  $ 30,287  $ 34,415  $ 29,571 
33,337  30,287  34,415  29,571 
Mortgage-backed securities 2,103  1,893  2,176  1,854 
Total debt securities HTM $ 35,440  $ 32,180  $ 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 December 31, 2023 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 $4.0 million and $8.5 million at December 31, 2023 and at September 30, 2023, respectively.

These equity securities are ‘restricted’ in that they can only be sold back to the respective institution from which they were acquired or another member institution at par. Therefore, FRB and FHLB stocks are less liquid than other marketable equity securities, and the cost approximates fair value.

Equity Securities. The Company held $4.2 million and $3.4 million in marketable equity securities within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2023 and September 30, 2023, respectively. The Company recognized $0.1 million and zero in unrealized gains on marketable equity securities during the three months ended December 31, 2023 and 2022, respectively. No such securities were sold during the three months ended December 31, 2023.

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Non-marketable equity securities with a readily determinable fair value totaled $9.7 million and $8.4 million at December 31, 2023 and September 30, 2023, respectively. The Company recognized $0.3 million and $0.1 million in unrealized gains during the three months ended December 31, 2023 and 2022, respectively. No such securities were sold during the three months ended December 31, 2023.

Non-marketable equity securities without readily determinable fair value totaled $14.9 million and $16.2 million at December 31, 2023 and September 30, 2023, respectively. There was one such security sold during the three months ended December 31, 2023 for a $2.5 million gain.

Equity Securities Impairment. 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 impairment for such investments for the three months ended December 31, 2023 and 2022, respectively.

NOTE 4. LOANS AND LEASES, NET

Loans and leases consist of the following:
(Dollars in thousands) December 31, 2023 September 30, 2023
Term lending $ 1,452,274  $ 1,308,133 
Asset-based lending 379,681  382,371 
Factoring 335,953  358,344 
Lease financing 188,889  183,392 
Insurance premium finance 671,035  800,077 
SBA/USDA 546,048  524,750 
Other commercial finance 160,628  166,091 
Commercial finance 3,734,508  3,723,158 
Consumer finance 301,510  254,416 
Tax services 33,435  5,192 
Warehouse finance 349,911  376,915 
Total loans and leases 4,419,364  4,359,681 
Net deferred loan origination costs 6,917  6,435 
Total gross loans and leases 4,426,281  4,366,116 
Allowance for credit losses (53,785) (49,705)
Total loans and leases, net $ 4,372,496  $ 4,316,411 

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

The Company sold held for sale loans resulting in proceeds of $626.3 million and a nominal gain on sale during the three months ended December 31, 2023. The Company sold held for sale loans resulting in proceeds of $402.9 million and gain on sale of $0.1 million during the three months ended December 31, 2022.


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Loans purchased and sold by portfolio segment, including participation interests, were as follows:
Three Months Ended December 31,
(Dollars in thousands) 2023 2022
Loans Purchased
Loans held for investment:
Warehouse finance $ 89,390  $ 67,649 
Total purchases $ 89,390  $ 67,649 
Loans Sold
Loans held for sale:
Commercial finance $ 3,872  $ 855 
Consumer finance 622,464  402,015 
Total sales $ 626,336  $ 402,870 

Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following:
(Dollars in thousands) December 31, 2023 September 30, 2023
Minimum lease payments receivable $ 197,829  $ 191,807 
Unguaranteed residual assets 14,388  12,709 
Unamortized initial direct costs 114  141 
Unearned income (23,181) (21,124)
Total net investment in direct financing and sales-type leases $ 189,150  $ 183,533 

The components of total lease income were as follows:
Three Months Ended December 31,
(Dollars in thousands) 2023 2022
Interest income - loans and leases
Interest income on net investments in direct financing and sales-type leases $ 3,108  $ 3,143 
Leasing and equipment finance noninterest income
Lease income from operating lease payments 13,255  12,554 
Other(1)
 724  702 
Total leasing and equipment finance noninterest income 13,979  13,256 
Total lease income $ 17,087  $ 16,399 
(1) Other leasing and equipment finance noninterest income consists of gains (losses) on sales of leased equipment, fees and service charges on leases and gains (losses) on sales of leases.


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Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at December 31, 2023 were as follows:
(Dollars in thousands)
Remaining in 2024 $ 60,302 
2025 54,431 
2026 33,348 
2027 20,287 
2028 15,912 
Thereafter 13,549 
Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases 197,829 
Third-party residual value guarantees — 
Total carrying amount of direct financing and sales-type leases $ 197,829 

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

A number of factors affected the economic environment in 2023 including geopolitical conflict, supply chain disruptions, inflation, rising interest rates, and bank failures brought on by, among other things, rising interest rates, deposit outflows and liquidity crises. While the ultimate impact of these factors on the Company's loan and lease portfolio remains difficult to predict, management continues to evaluate the loan and lease portfolio in order to assess the impact on repayment sources and underlying collateral that could result in additional losses and the impact to our customers and businesses as a result of these factors impacting the economy and will refine its estimate as developments occur and more information becomes available.

Activity in the allowance for credit losses and balances of loans and leases by portfolio segment was as follows:
Three Months Ended December 31, 2023
(Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance
Allowance for credit losses:
Term lending $ 25,686  $ 5,822  $ (5,121) $ 626  $ 27,013 
Asset-based lending 2,738  (1,510) —  142  1,370 
Factoring 6,566  751  (23) 139  7,433 
Lease financing 3,302  766  (153) 93  4,008 
Insurance premium finance 2,637  (239) (365) 90  2,123 
SBA/USDA 2,962  327  —  —  3,289 
Other commercial finance 3,089  223  —  —  3,312 
Commercial finance 46,980  6,140  (5,662) 1,090  48,548 
Consumer finance 2,346  2,097  (63) —  4,380 
Tax services 2  1,356  (1,145) 294  507 
Warehouse finance 377  (27) —  —  350 
Total loans and leases 49,705  9,566  (6,870) 1,384  53,785 
Unfunded commitments(1)
 272  324  —  —  596 
Total $ 49,977  $ 9,890  $ (6,870) $ 1,384  $ 54,381 
(1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition.
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Three Months Ended December 31, 2022
(Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance
Allowance for credit losses:
Term lending $ 24,621  $ 3,671  $ (1,817) $ 277  $ 26,752 
Asset-based lending 1,050  2,853  —  —  3,903 
Factoring 6,556  (764) (121) 3  5,674 
Lease financing 5,902  (438) (406) 180  5,238 
Insurance premium finance 1,450  (47) (185) 43  1,261 
SBA/USDA 3,263  (651) —  20  2,632 
Other commercial finance 1,310  2,046  —  —  3,356 
Commercial finance 44,152  6,670  (2,529) 523  48,816 
Consumer finance 1,463  1,603  (179) —  2,887 
Tax services 5  1,637  (1,731) 698  609 
Warehouse finance 327  (47) —  —  280 
Total loans and leases 45,947  9,863  (4,439) 1,221  52,592 
Unfunded commitments(1)
 366  (87) —  —  279 
Total $ 46,313  $ 9,776  $ (4,439) $ 1,221  $ 52,871 
(1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition.

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 December 31, 2023 At September 30, 2023
Term lending $ 4,160  $ 3,516 
Asset-based lending 7,731  19,226 
Factoring 3,562  1,133 
Lease financing 593  630 
SBA/USDA 2,591  750 
Commercial finance(1)
 18,637  25,255 
Total $ 18,637  $ 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 $114.3 million and $117.0 million at December 31, 2023 and at September 30, 2023, respectively.

Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered by the Bank's primary regulator, the OCC, to be of lesser quality as “substandard,” “doubtful” or “loss.” The loan classification and risk rating definitions are as follows:

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.

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Special Mention - A special mention asset is a credit with potential weaknesses deserving management’s close attention and, if left uncorrected, may result in deterioration of the repayment prospects for the asset. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Special mention is a temporary status with aggressive credit management required to garner adequate progress and move to watch or higher.
 
The adverse classifications are as follows:
 
Substandard - A substandard asset is inadequately protected by the net worth and/or repayment ability or by a weak collateral position. Assets so classified will have well-defined weaknesses creating a distinct possibility the Bank will sustain some loss if the weaknesses are not corrected. Loss potential does not have to exist for an asset to be classified as substandard.

Doubtful - A doubtful asset has weaknesses similar to those classified substandard, with the degree of weakness causing the likely loss of some principal in any reasonable collection effort. Due to pending factors, the asset’s classification as loss is not yet appropriate.

Loss - A loss asset is considered uncollectible and of such little value that the asset’s continuance on the Bank’s balance sheet is no longer warranted. This classification does not necessarily mean an asset has no recovery or salvage value leaving room for future collection efforts.

Loans and leases, or portions thereof, are generally charged off when collection of principal becomes doubtful. Typically, this is associated with a delay or shortfall in payments of 210 days or more for 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 $301.5 million and $33.4 million at December 31, 2023, respectively, and $254.4 million and $5.2 million at September 30, 2023, respectively. The amortized cost basis of loans and leases by asset classification and year of origination was as follows:
Amortized Cost Basis
(Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total
At December 31, 2023 2024 2023 2022 2021 2020 Prior
Term lending
Pass $ 234,250  $ 496,789  $ 138,710  $ 110,564  $ 59,710  $ 55,391  $ —  $ 1,095,414 
Watch 61,518  32,021  43,154  23,282  13,908  2,416  —  176,299 
Special mention 922  24,558  13,232  26,952  572  283  —  66,519 
Substandard 9,393  25,451  27,768  13,345  23,610  4,953  —  104,520 
Doubtful 715  1,202  4,300  976  879  1,450  —  9,522 
Total 306,798  580,021  227,164  175,119  98,679  64,493  —  1,452,274 
Current period charge-offs —  118  2,524  1,673  618  188  —  5,121 
Asset-based lending
Pass —  —  —  —  —  —  187,835  187,835 
Watch —  —  —  —  —  —  159,962  159,962 
Special mention —  —  —  —  —  —  22,378  22,378 
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Substandard —  —  —  —  —  —  9,506  9,506 
Total —  —  —  —  —  —  379,681  379,681 
Current period charge-offs —  —  —  —  —  —  —  — 
Factoring
Pass —  —  —  —  —  —  253,129  253,129 
Watch —  —  —  —  —  —  63,492  63,492 
Special mention —  —  —  —  —  —  5,528  5,528 
Substandard —  —  —  —  —  —  13,804  13,804 
Total —  —  —  —  —  —  335,953  335,953 
Current period charge-offs —  —  —  —  —  —  23  23 
Lease financing
Pass 26,190  62,933  13,847  13,464  22,422  2,564  —  141,420 
Watch 1,266  458  9,747  10,573  3,769  1,635  —  27,448 
Special mention —  2  —  175  360  265  —  802 
Substandard —  6,126  2,005  5,642  2,884  2,272  —  18,929 
Doubtful —  —  —  64  —  226  —  290 
Total 27,456  69,519  25,599  29,918  29,435  6,962  —  188,889 
Current period charge-offs —  —  44  42  67  —  —  153 
Insurance premium finance
Pass 238,408  430,949  352  —  —  —  —  669,709 
Watch —  251  —  —  —  —  —  251 
Special mention —  420  —  —  —  —  —  420 
Substandard —  317  4  —  —  —  —  321 
Doubtful —  326  8  —  —  —  —  334 
Total 238,408  432,263  364  —  —  —  —  671,035 
Current period charge-offs —  202  163  —  —  —  —  365 
SBA/USDA
Pass 27,424  154,580  147,067  24,847  35,508  26,629  —  416,055 
Watch —  53,475  48,374  650  61  3,309  —  105,869 
Special mention —  —  —  525  —  —  —  525 
Substandard —  252  2,339  1,706  5,377  13,925  —  23,599 
Total 27,424  208,307  197,780  27,728  40,946  43,863  —  546,048 
Current period charge-offs —  —  —  —  —  —  —  — 
Other commercial finance
Pass —  2,300  18,958  32,615  1,105  76,911  —  131,889 
Watch —  1,736  —  —  —  —  —  1,736 
Substandard —  2,717  58  24,228  —  —  —  27,003 
Total —  6,753  19,016  56,843  1,105  76,911  —  160,628 
Current period charge-offs —  —  —  —  —  —  —  — 
Warehouse finance
Pass —  —  —  —  —  —  349,911  349,911 
Total —  —  —  —  —  —  349,911  349,911 
Current period charge-offs —  —  —  —  —  —  —  — 
Total loans and leases
Pass 526,272  1,147,551  318,934  181,490  118,745  161,495  790,875  3,245,362 
Watch 62,784  87,941  101,275  34,505  17,738  7,360  223,454  535,057 
Special mention 922  24,980  13,232  27,652  932  548  27,906  96,172 
Substandard 9,393  34,863  32,174  44,921  31,871  21,150  23,310  197,682 
Doubtful 715  1,528  4,308  1,040  879  1,676  —  10,146 
Total $ 600,086  $ 1,296,863  $ 469,923  $ 289,608  $ 170,165  $ 192,229  $ 1,065,545  $ 4,084,419 
Current period charge-offs $ —  $ 320  $ 2,731  $ 1,715  $ 685  $ 188  $ 23  $ 5,662 
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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 
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 
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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 

Past due loans and leases were as follows:
At December 31, 2023
Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases
(Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total
Loans held for sale $ 1,173  $ 786  $ 661  $ 2,620  $ 66,898  $ 69,518  $ 661  $ —  $ 661 
Term lending 28,694  6,156  14,385  49,235  1,403,039  1,452,274  4,006  17,978  21,984 
Asset-based lending —  —  123  123  379,558  379,681  —  4,593  4,593 
Factoring —  —  —  —  335,953  335,953  —  1,173  1,173 
Lease financing 1,944  1,107  2,161  5,212  183,677  188,889  1,488  1,645  3,133 
Insurance premium finance 2,666  999  1,924  5,589  665,446  671,035  1,924  —  1,924 
SBA/USDA 102  79  2,146  2,327  543,721  546,048  444  2,710  3,154 
Other commercial finance —  —  —  —  160,628  160,628  —  —  — 
Commercial finance 33,406  8,341  20,739  62,486  3,672,022  3,734,508  7,862  28,099  35,961 
Consumer finance 4,258  3,345  2,859  10,462  291,048  301,510  2,859  —  2,859 
Tax services —  —  —  —  33,435  33,435  —  —  — 
Warehouse finance —  —  —  —  349,911  349,911  —  —  — 
Total loans and leases held for investment 37,664  11,686  23,598  72,948  4,346,416  4,419,364  10,721  28,099  38,820 
Total loans and leases $ 38,837  $ 12,472  $ 24,259  $ 75,568  $ 4,413,314  $ 4,488,882  $ 11,382  $ 28,099  $ 39,481 
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 

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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 December 31, 2023 2024 2023 2022 2021 2020 Prior
Term lending $ 1,264  $ 2,002  $ 7,666  $ 2,082  $ 1,925  $ 3,039  $ —  $ 17,978  $ — 
Asset-based lending —  —  —  —  —  —  4,593  4,593  4,469 
Factoring —  —  —  —  —  —  1,173  1,173  — 
Lease financing —  —  —  439  781  425  —  1,645  593 
SBA/USDA —  1,008  —  —  1,301  401  —  2,710  750 
Commercial finance 1,264  3,010  7,666  2,521  4,007  3,865  5,766  28,099  5,812 
Total nonaccrual loans and leases $ 1,264  $ 3,010  $ 7,666  $ 2,521  $ 4,007  $ 3,865  $ 5,766  $ 28,099  $ 5,812 
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 December 31, 2023 2024 2023 2022 2021 2020 Prior
Loans held for sale $ —  $ 661  $ —  $ —  $ —  $ —  $ —  $ 661 
Term lending —  1,139  2,290  186  383  8  —  4,006 
Lease financing —  —  498  895  95  —  —  1,488 
Insurance premium finance —  —  910  5  —  1,009  —  1,924 
SBA/USDA —  —  —  —  191  253  —  444 
Commercial finance —  1,139  3,698  1,086  669  1,270  —  7,862 
Consumer finance —  1,898  706  235  —  —  20  2,859 
Total loans and leases held for investment —  3,037  4,404  1,321  669  1,270  20  10,721 
Total 90 days or more delinquent and accruing $ —  $ 3,698  $ 4,404  $ 1,321  $ 669  $ 1,270  $ 20  $ 11,382 
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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 December 31,
(Dollars in thousands) 2023 2022
Term lending $ 17,419  $ 8,796 
Asset-based lending 9,711  4,272 
Factoring 1,180  708 
Lease financing 1,623  3,623 
SBA/USDA 1,488  1,420 
Commercial finance 31,421  18,819 
Total loans and leases $ 31,421  $ 18,819 

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

Effective October 1, 2023, the Company adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on a prospective basis. Financial information at and for the quarter ended December 31, 2023 is reflected as such. The historical information disclosed is in accordance with Subtopic ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors.

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

No loans were modified in a TDR during the three months ended December 31, 2022. The Company had $0.1 million of commercial finance loans that were modified within the previous 12 months experience a payment default during the three months ended December 31, 2022. TDR net charge-offs and the impact of TDRs on the Company's allowance for credit losses were insignificant during the three months ended December 31, 2022.
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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 December 31,
(Dollars in thousands, except per share data) 2023 2022
Basic income per common share:
Net income attributable to Pathward Financial, Inc. $ 27,657  $ 27,842 
Dividends and undistributed earnings allocated to participating securities (220) (403)
Basic net earnings available to common stockholders 27,437  27,439 
Undistributed earnings allocated to nonvested restricted stockholders 210  383 
Reallocation of undistributed earnings to nonvested restricted stockholders (210) (382)
Diluted net earnings available to common stockholders $ 27,437  $ 27,440 
Total weighted-average basic common shares outstanding 25,776,845  28,024,541 
Effect of dilutive securities(1)
Performance share units 24,693  62,282 
Total effect of dilutive securities 24,693  62,282 
Total weighted-average diluted common shares outstanding 25,801,538  28,086,823 
Net earnings per common share:
Basic earnings per common share $ 1.06  $ 0.98 
Diluted earnings per common share(2)
 $ 1.06  $ 0.98 
(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 December 31, 2023 and 2022, respectively, were 207,074 and 411,794 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive.

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NOTE 6. RENTAL EQUIPMENT, NET

Rental equipment consists of the following:
(Dollars in thousands) December 31, 2023 September 30, 2023
Computers and IT networking equipment $ 23,958  $ 25,094 
Motor vehicles and other 125,801  122,845 
Other furniture and equipment 46,934  37,637 
Solar panels and equipment 149,157  142,355 
Total 345,850  327,931 
Accumulated depreciation (118,120) (117,418)
Unamortized initial direct costs 1,186  1,237 
Net book value $ 228,916  $ 211,750 

Future minimum lease payments expected to be received for operating leases at December 31, 2023 were as follows:
(Dollars in thousands)
Remaining in 2024 $ 32,519 
2025 36,915 
2026 27,052 
2027 19,132 
2028 10,461 
Thereafter 10,805 
Total $ 136,884 


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NOTE 7. GOODWILL AND INTANGIBLE ASSETS

The Company held a total of $309.5 million of goodwill at December 31, 2023. The recorded goodwill is a result of multiple business combinations that occurred from 2015 to 2018. There have been no changes to the carrying amount of goodwill during the three months ended December 31, 2023.
The changes in the carrying amount of the Company’s intangible assets were as follows:
(Dollars in thousands)
Trademark(1)
 Non-Compete
Customer Relationships(2)
All Others(3)
 Total
At September 30, 2023 $ 7,477  $ —  $ 9,110  $ 4,133  $ 20,720 
Amortization during the period (264) —  (587) (133) (984)
At December 31, 2023 $ 7,213  $ —  $ 8,523  $ 4,000  $ 19,736 
Gross carrying amount $ 13,774  $ 301  $ 77,578  $ 7,798  $ 99,451 
Accumulated amortization (6,561) (301) (58,137) (3,579) (68,578)
Accumulated impairment —  —  (10,918) (219) (11,137)
At December 31, 2023 $ 7,213  $ —  $ 8,523  $ 4,000  $ 19,736 
At September 30, 2022 $ 8,605  $ —  $ 12,395  $ 4,691  $ 25,691 
Amortization during the period (351) —  (776) (131) (1,258)
At December 31, 2022 $ 8,254  $ —  $ 11,619  $ 4,560  $ 24,433 
Gross carrying amount $ 14,624  $ 2,481  $ 82,088  $ 9,940  $ 109,133 
Accumulated amortization (6,370) (2,481) (59,551) (5,162) (73,564)
Accumulated impairment —  —  (10,918) (218) (11,136)
At December 31, 2022 $ 8,254  $ —  $ 11,619  $ 4,560  $ 24,433 
(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 nine months of fiscal 2024 and subsequent fiscal years at December 31, 2023 was as follows:
(Dollars in thousands)
Remaining in 2024 $ 3,148 
2025 3,569 
2026 3,223 
2027 2,577 
2028 2,267 
Thereafter 4,952 
Total anticipated intangible amortization $ 19,736 

There were no impairments to intangible assets during the three months ended December 31, 2023 and 2022. Intangible impairment expense is recorded within the impairment expense line of the Condensed Consolidated Statements of Operations.


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NOTE 8. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES

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

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

Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at December 31, 2023 were as follows:
(Dollars in thousands)
Remaining in 2024 $ 3,141 
2025 3,985 
2026 3,435 
2027 3,152 
2028 3,095 
Thereafter 15,545 
Total undiscounted future minimum lease payments 32,353 
Discount (3,703)
Total operating lease liabilities $ 28,650 

The weighted-average discount rate and remaining lease term for operating leases at December 31, 2023 were as follows:
Weighted-average discount rate 2.43  %
Weighted-average remaining lease term (years) 9.3

The components of total lease costs for operating leases were as follows:
Three Months Ended December 31,
(Dollars in thousands) 2023 2022
Lease expense $ 1,025  $ 1,014 
Short-term and variable lease cost (7) 42 
Sublease income (370) (333)
Total lease cost for operating leases $ 648  $ 723 

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

Under the repurchase programs, repurchased shares were retired and designated as authorized but unissued shares. The Company accounts for repurchased shares using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. As of December 31, 2023, 8,433,848 shares of common stock remained available for repurchase.

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

Retirement of Treasury Stock. 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 three months ended December 31, 2023 and 2022.

NOTE 10. STOCK COMPENSATION

On September 27, 2023, the Board adopted the Pathward Financial, Inc. 2023 Omnibus Incentive Plan (the "2023 Omnibus Incentive Plan") contingent on stockholder approval at the Annual Meeting of Stockholders expected to be held on February 27, 2024. The 2023 Omnibus Incentive Plan permits the granting of various types of awards including but not limited to nonvested (restricted) shares and performance share units ("PSUs") to certain officers and directors of the Company. Awards may be granted by the Compensation Committee of the Board of Directors based on the performance of the award recipients or other relevant factors.

Shares have previously been granted each year to executives and senior leadership members under the applicable Company incentive plan. These shares vest at various times ranging from immediately to three years based on circumstances at time of grant. The fair value is determined based on the fair market value of the Company’s stock on the grant date. Director shares are issued to the Company’s directors, and these shares have historically vested one year from the grant date.

The Company also grants selected executives and other key employees PSU awards. The vesting of these awards is contingent on meeting company-wide performance goals, including but not limited to return on equity, earnings per share, and total shareholder return. PSUs are generally granted at the market value of the underlying share on the date of grant, adjusted for dividends, as performance share units do not participate in dividends. The awards contingently vest over a period of three years and have payout levels ranging from a threshold of 50% to a maximum of 200%. Upon vesting, each performance share unit earned is converted into one share of common stock.

The fair value of the PSUs is determined by the dividend-adjusted fair value on the grant date for those awards subject to a performance condition. For those PSUs subject to a market condition, a simulation valuation is performed.

In addition, during the first and second quarters of fiscal year 2017, shares were granted to certain executive officers of the Company in connection with their signing of employment agreements with the Company. These stock awards vest in equal installments over eight years.

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The following tables show the activity of share awards (including shares of restricted stock subject to vesting, fully-vested restricted stock, and PSUs) granted, exercised or forfeited under all of the Company's incentive plans during the three months ended December 31, 2023.
Number of Shares Weighted Average Fair Value at Grant
Nonvested shares outstanding, September 30, 2023 370,151  $ 35.87 
Granted(1)
 —  — 
Vested (176,700) 36.44 
Forfeited or expired (1,863) 39.23 
Nonvested shares outstanding, December 31, 2023 191,588  $ 35.31 
Number of Units(2)
 Weighted Average Fair Value at Grant
Performance share units outstanding, September 30, 2023 155,804  $ 41.20 
Granted(1)
 —  — 
Vested (60,984) 55.47 
Forfeited or expired —  — 
Performance share units outstanding, December 31, 2023 94,820  $ 55.47 
(1) While no shares were granted during the first quarter of fiscal year 2024, 150,522 of nonvested shares and 44,800 of target performance share units were issued under awards contingent on the stockholder approval of the 2023 Omnibus Incentive Plan.
(2) The activity in this table includes 60,984 shares related to the fiscal year 2021 performance share units, which are included in this table under the assumption of a target performance achievement. The final performance was assessed after September 30, 2023, resulted in an achievement greater than target, and an additional 47,252 shares were allocated to the participants in the plan.

Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of the grant. The exercise price of fair value of nonvested (restricted) shares and PSUs granted under the Company’s incentive plans is equal to the fair market value of the underlying stock at the grant date, adjusted for dividends where applicable. The Company has elected to record forfeitures as they occur.

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


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NOTE 11. INCOME TAXES

The Company recorded an income tax expense of $5.7 million for the three months ended December 31, 2023, resulting in an effective tax rate of 17.00%, compared to an income tax expense of $6.6 million, or an effective tax rate of 18.79%, for the three months ended December 31, 2022. The Company’s effective tax rate was lower than the U.S. 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.
Three Months Ended December 31,
(Dollars in thousands) 2023 2022
Provision at statutory rate $ 7,009  $ 7,228 
Tax-exempt income (174) (203)
State income taxes 1,228  1,510 
Interim period effective rate adjustment 2,806  1,119 
Tax credit investments, net - federal (4,377) (3,062)
IRC 162(m) nondeductible compensation (280) 136 
Other, net (493) (151)
Income tax expense $ 5,719  $ 6,577 
Effective tax rate 17.00  % 18.79  %

NOTE 12. REVENUE FROM CONTRACTS WITH CUSTOMERS

Topic 606 applies to all contracts with customers unless such revenue is specifically addressed under existing guidance. The table below presents the Company’s revenue by operating segment. For additional descriptions of the Company’s operating segments, including additional financial information and the underlying management accounting process, see Note 13. Segment Reporting to the Condensed Consolidated Financial Statements.
(Dollars in thousands) Consumer Commercial Corporate Services/Other Consolidated Company
Three Months Ended December 31, 2023 2022 2023 2022 2023 2022 2023 2022
Net interest income(1)
 $ 59,356  $ 34,272  $ 45,881  $ 42,324  $ 4,799  $ 7,461  $ 110,036  $ 84,057 
Noninterest income:
Refund transfer product fees 422  677  —  —  —  —  422  677 
Refund advance fee income(1)
 111  617  —  —  —  —  111  617 
Card and deposit fees 30,507  37,452  236  261  7  5  30,750  37,718 
Rental income(1)
 —  —  13,235  12,515  224  193  13,459  12,708 
Gain on sale of trademarks —  —  —  —  —  10,000  —  10,000 
Gain (loss) on sale of other(1)
 (31) —  362  502  2,509  —  2,840  502 
Other income(1)
 1,778  793  2,166  1,084  1,235  1,678  5,179  3,555 
Total noninterest income 32,787  39,539  15,999  14,362  3,975  11,876  52,761  65,777 
Revenue $ 92,143  $ 73,811  $ 61,880  $ 56,686  $ 8,774  $ 19,337  $ 162,797  $ 149,834 
(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 three months ended December 31, 2023.
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Refund Transfer Product Fees. Refund transfer fees are specific to the Banking as a Service ("BaaS") business line and reflect product fees offered by the Company through third-party tax preparers and tax preparation software providers where the Company acts as the partnering financial institution. A refund transfer allows a taxpayer to pay tax preparation and filing fees directly from their federal or state government tax refund, with the remainder of the refund being disbursed in accordance with the terms and conditions of the taxpayer agreement, which may include satisfaction of other disbursement obligations before going directly to the taxpayer via check, direct deposit, or prepaid card. Refund transfer fees are recognized by the Company immediately after the taxpayer's refund has been disbursed in accordance with the contract and are based on standalone pricing included within the terms and conditions. Certain expenses to tax preparation software providers are netted with refund transfer fee income as the Company is considered the agent in these contractual relationships. All refund transfer fees are recorded within the Consumer reporting segment.

Card and Deposit Fees. Card fees relate to the BaaS business line and consists of income from prepaid cards and merchant services, including interchange fees from prepaid cards processed through card association networks, merchant services and other card related services. Interchange rates are generally set by card association networks based on transaction volume and other factors. Since interchange fees are generated by cardholder activity, the Company recognizes the income as transactions occur. Fee income for merchant services and other card related services reflect account management and transaction fees charged to merchants for processing card association network transactions. The associated income is recognized as transactions occur or as services are performed. For the Company's internally managed prepaid card programs, fees are based on standalone pricing within the terms and conditions of the cardholder agreement. The Company is considered the principal of these relationships resulting in all fee income being presented on a gross basis within the Condensed Consolidated Statement of Operations. For the Company's sponsorship prepaid card programs where a third-party is considered the Program Manager, the fees are based on standalone pricing within the terms and conditions of the Program Agreement. For these relationships, the Company is considered the agent and certain expenses with the Program Manager, networks and associations are netted with card fee revenue. All card fee income is included in the Consumer reporting segment.

Deposit fees relate to the BaaS and Commercial Finance business lines and consist of income from banking and deposit-related services, including account services, overdraft protection, and wire transfers. Fee income for account services is recognized over the course of the month as the performance obligation is satisfied. Fee income for overdraft protection and wire transfers is recognized at the point in time when such event occurs. For BaaS, the fees for account services and overdraft protection are based on standalone pricing within the terms and conditions of the Program Agreement with the sponsorship partner. For these relationships, the Company is considered the agent and certain expenses with the partner are netted with deposit fee revenue. For Commercial Finance, fees for wire transfers are based on standalone pricing within the terms and conditions of the customer deposit agreement. Bank and deposit fees for the BaaS and Commercial Finance business lines are included in the Consumer and Commercial reporting segments, respectively. Also included within Card and Deposit Fees for the Consumer reporting segment are servicing fees the Company recognizes for custodial off-balance sheet deposits. This fee income is for services the Bank performs to maintain records of cardholder funds placed at one or more third-party banks insured by the Federal Deposit Insurance Corporation ("FDIC"). The servicing fee is typically reflective of the effective federal funds rate ("EFFR").

NOTE 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.

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The following table presents segment data for the Company:
(Dollars in thousands) Consumer Commercial Corporate Services/Other Total
Three Months Ended December 31, 2023 2022 2023 2022 2023 2022 2023 2022
Net interest income $ 59,356  $ 34,272  $ 45,881  $ 42,324  $ 4,799  $ 7,461  $ 110,036  $ 84,057 
Provision for (reversal of) credit loss 3,454  3,240  6,463  6,583  (27) (47) 9,890  9,776 
Noninterest income 32,787  39,539  15,999  14,362  3,975  11,876  52,761  65,777 
Noninterest expense 50,013  34,494  34,856  32,749  34,405  37,816  119,274  105,059 
Income (loss) before income tax expense 38,676  36,077  20,561  17,354  (25,604) (18,432) 33,633  34,999 
Total assets 563,706  393,898  4,206,522  3,476,942  3,157,209  2,788,385  7,927,437  6,659,225 
Total goodwill 87,145  87,145  222,360  222,360  —  —  309,505  309,505 
Total deposits 6,587,052  5,624,919  3,669  6,628  345,334  157,585  6,936,055  5,789,132 

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.

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).

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The following tables summarize the fair values of debt securities available for sale and equity securities as they are measured at fair value on a recurring basis.
  At December 31, 2023
(Dollars in thousands) Total Level 1 Level 2 Level 3
Debt securities AFS        
Corporate securities $ 18,375  $ 18,375 
SBA securities 87,732  —  87,732  — 
Obligations of states and political subdivisions 2,304  —  2,304  — 
Non-bank qualified obligations of states and political subdivisions 228,888  —  228,888  — 
Asset-backed securities 237,704  —  237,704  — 
Mortgage-backed securities 1,275,578  —  1,275,578  — 
Total debt securities AFS $ 1,850,581  $ —  $ 1,850,581  $ — 
Common equities and mutual funds(1)
 $ 4,207  $ 4,207  $ —  $ — 
Non-marketable equity securities(2)
 $ 9,700  $ —  $ —  $ — 
(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2023.
(2) Consists of certain non-marketable equity securities that are measured at fair value using net asset value ("NAV") per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.
  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%.

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The following tables summarize the assets of the Company that are measured at fair value in the Condensed Consolidated Statements of Financial Condition on a nonrecurring basis:
  At December 31, 2023
(Dollars in thousands) Total Level 1 Level 2 Level 3
Loans and leases, net individually evaluated for credit loss        
Commercial finance $ 6,441  $ —  $ —  $ 6,441 
    Total loans and leases, net individually evaluated for credit loss 6,441  —  —  6,441 
Total $ 6,441  $ —  $ —  $ 6,441 
  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
December 31, 2023
Fair Value at
September 30, 2023
 Valuation
Technique		 Unobservable Input Range of Inputs
Loans and leases, net individually evaluated for credit loss $ 6,441  $ 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 December 31, 2023 and September 30, 2023 based on relevant market information and information about financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled. 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.

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The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company:
  At December 31, 2023
(Dollars in thousands) Carrying
Amount		 Estimated
Fair Value		 Level 1 Level 2 Level 3
Financial assets
Cash and cash equivalents $ 671,630  $ 671,630  $ 671,630  $ —  $ — 
Debt securities available for sale 1,850,581  1,850,581  —  1,850,581  — 
Debt securities held to maturity 35,440  32,180  —  32,180  — 
Common equities and mutual funds(1)
 4,207  4,207  4,207  —  — 
Non-marketable equity securities(1)(2)
 20,195  20,195  —  10,495  — 
Loans held for sale 69,518  69,518  —  69,518  — 
Loans and leases 4,419,364  4,298,218  —  —  4,298,218 
Federal Reserve Bank and Federal Home Loan Bank stocks 23,694  23,694  —  23,694  — 
Accrued interest receivable 27,080  27,080  27,080  —  — 
Financial liabilities
Deposits 6,936,055  6,937,613  6,795,322  142,292  — 
Other short- and long-term borrowings 33,614  31,421  —  31,421  — 
Accrued interest payable 1,941  1,941  1,941  —  — 
(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2023.
(2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.
  At September 30, 2023
(Dollars in thousands) Carrying
Amount		 Estimated
Fair Value		 Level 1 Level 2 Level 3
Financial assets
Cash and cash equivalents $ 375,580  $ 375,580  $ 375,580  $ —  $ — 
Debt securities available for sale 1,804,228  1,804,228  —  1,804,228  — 
Debt securities held to maturity 36,591  31,425  —  31,425  — 
Common equities and mutual funds(1)
 3,378  3,378  3,378  —  — 
Non-marketable equity securities(1)(2)
 20,453  20,453  —  12,064  — 
Loans held for sale 77,779  77,779  —  77,779  — 
Loans and leases 4,359,681  4,223,010  —  —  4,223,010 
Federal Reserve Bank and Federal Home Loan Bank stocks 28,210  28,210  —  28,210  — 
Accrued interest receivable 23,282  23,282  23,282  —  — 
Financial liabilities
Deposits 6,589,182  6,589,065  6,583,648  5,417  — 
Other short- and long-term borrowings 33,873  31,187  —  31,187  — 
Accrued interest payable 247  247  247  —  — 
(1) Equity securities at fair value are included within other assets on the Consolidated 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 December 31, 2023. During this period, up to the filing date of this Quarterly Report on Form 10-Q, management did not identify any material subsequent events that would require recognition or disclosure in our Condensed Consolidated Financial Statements as of or for the quarter ended December 31, 2023.

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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

PATHWARD FINANCIAL, INC. ("Pathward Financial" or the "Company" or "us") and its wholly-owned subsidiary, Pathward®, National Association ("Pathward®, N.A" or "Pathward" or "the Bank") may from time to time make written or oral “forward-looking statements,” including statements contained in this Quarterly Report on Form 10-Q, the Company’s other filings with the Securities and Exchange Commission (the "SEC"), the Company’s reports to stockholders, and other communications by the Company and Pathward, N.A, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” "target," or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results including our performance expectations; the performance of our securities portfolio; future effective tax rate; the impact of card balances related to government stimulus programs; progress on key initiatives; expected results of our partnerships; customer retention; loan and other product demand; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; and technology. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the potential adverse effects of unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the military conflicts in Ukraine and the Middle East, weather-related disasters, or public health events, such as the COVID-19 pandemic, and any governmental or societal responses thereto; our ability to achieve brand recognition for Pathward equal to or greater than we enjoyed for MetaBank; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate, and their related impacts on macroeconomic conditions, customer behavior, funding costs and loan and securities portfolios; changes in tax laws; the strength of the United States' economy, and the local economies in which the Company operates; adverse developments in the financial services industry generally such as bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer behavior; inflation, market, and monetary fluctuations; our liquidity and capital positions, including the sufficiency of our liquidity; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value and acceptance of these products and services by users; Pathward's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of Pathward’s strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by Pathward of its status as well capitalized; changes in consumer borrowing, spending, and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase.

The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date hereof, and the Company does not undertake any obligation to update, revise, or clarify these forward-looking statements whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in its entirety by the cautionary statements contained or referred to in this section. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2023, and in the Company's other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason.

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GENERAL

The Company, a registered bank holding company that has elected to be a financial holding company, is a Delaware corporation, the principal assets of which are all the issued and outstanding shares of the Bank, a chartered national bank, the accounts of which are insured up to applicable limits by the FDIC as administrator of the Deposit Insurance Fund. Unless the context otherwise requires, references herein to the Company include Pathward Financial and the Bank, and all direct or indirect subsidiaries of Pathward Financial on a consolidated basis.

The Company’s common stock trades on the NASDAQ Global Select Market under the symbol “CASH.”

The following discussion focuses on the consolidated financial condition of the Company at December 31, 2023, compared to September 30, 2023, and the consolidated results of operations for the three months ended December 31, 2023 and 2022. This discussion should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the fiscal year ended September 30, 2023 and the related management's discussion and analysis of financial condition and results of operations contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

EXECUTIVE SUMMARY

Company Highlights

•On January 16, 2024, the Company announced a multi-year extension with a long-standing partner that allows for collaboration on product innovation and expanded product offerings for a range of programs in market and under development.

Financial Highlights for the 2024 Fiscal First Quarter

•Total revenue for the first quarter was $162.8 million, an increase of $13.0 million, or 9%, compared to the same quarter in fiscal 2023, driven by an increase in net interest income, partially offset by a decrease in noninterest income.

•Net interest margin ("NIM") increased 61 basis points to 6.23% for the first quarter from 5.62% during the same period of last year, primarily driven by increased yields and an improved earnings asset mix from the continued optimization of the portfolio.

•Total gross loans and leases at December 31, 2023 increased $916.6 million to $4.43 billion compared to December 31, 2022 and increased $60.2 million when compared to September 30, 2023. The increase compared to the prior year quarter was primarily due to growth in the commercial, consumer, and warehouse finance loan portfolios. The primary driver for the sequential increase was growth in seasonal consumer finance loans related to a tax partnership.

•During the 2024 fiscal first quarter, the Company repurchased 232,588 shares of common stock at an average share price of $47.25.

FINANCIAL CONDITION

At December 31, 2023, the Company’s total assets increased to $7.93 billion compared to September 30, 2023, primarily due to growth of $296.0 million in cash and cash equivalents, $60.2 million in total loans and leases, and $46.4 million in securities AFS, partially offset by a reduction of $11.8 million in other assets.

Total cash and cash equivalents were $671.6 million at December 31, 2023, increasing from $375.6 million at September 30, 2023. The Company maintains its cash investments primarily in interest-bearing overnight deposits with the FHLB of Des Moines and the FRB. At December 31, 2023, the Company did not have any federal funds sold.

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The total investment portfolio increased $45.2 million, or 2%, to $1.89 billion at December 31, 2023, compared to $1.84 billion at September 30, 2023. The Company’s portfolio of securities customarily consists primarily of MBS, which have expected lives much shorter than the stated final maturity, non-bank qualified obligations of states and political subdivisions, which mature in approximately 15 years or less, and other tax exempt municipal mortgage related pass through securities which have average lives much shorter than their stated final maturities. During the three months ended December 31, 2023, the Company made no purchases of investment securities.

Through the Bank, the Company owns stock in the FHLB due to the Bank’s membership and participation in this banking system as well as stock in the FRB. The FHLB requires a level of stock investment based on a pre-determined formula. The Company’s investment in these stocks was $23.7 million at December 31, 2023 and $28.2 million at September 30, 2023, as redemptions were partially offset by purchases of FHLB membership stock during the three months ended December 31, 2023.

Loans held for sale at December 31, 2023 totaled $69.5 million, decreasing from $77.8 million at September 30, 2023. This decrease was primarily driven by a reduction in consumer credit products held for sale at December 31, 2023 compared to September 30, 2023.

Total gross loans and leases totaled $4.43 billion at December 31, 2023, as compared to $4.37 billion at September 30, 2023. The primary drivers for the increase was an increase in seasonal consumer finance loans, seasonal tax services loans and commercial finance loans, partially offset by a decrease in warehouse finance loans. See Note 4 to the “Notes to Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.

Commercial finance loans, which comprised 85% of the Company's gross loan and lease portfolio, totaled $3.73 billion at December 31, 2023, reflecting an increase of $11.4 million from September 30, 2023. The increase in commercial finance loans was primarily driven by a $144.1 million increase in the term lending portfolio and a $21.3 million increase in the SBA/USDA portfolio, partially offset by a $129.0 million decrease in the insurance premium finance portfolio.

Total end-of-period deposits increased 5% to $6.94 billion at December 31, 2023, compared to $6.59 billion at September 30, 2023, primarily driven by increases in noninterest-bearing deposits of $215.9 million and wholesale deposits of $135.7 million, partially offset by a decrease in savings deposits of $4.9 million.

As of December 31, 2023, the Company had $837.6 million in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $334.5 million are on activated cards while $503.1 million are on inactivated cards. During the remainder of fiscal year 2024, the inactive deposit balances are expected to decline by approximately $310 million as the Company actively returns unclaimed balances to the U.S. Treasury.

The Company's total borrowings decreased $13.3 million from $46.9 million at September 30, 2023 to $33.6 million at December 31, 2023, primarily driven by a decrease in short-term borrowings of $13.0 million.

At December 31, 2023, the Company’s stockholders’ equity totaled $729.3 million, an increase of $78.7 million, from $650.6 million at September 30, 2023. The increase was primarily attributable to an increase in accumulated other comprehensive income and retained earnings. The Company and Bank remained above the federal regulatory minimum capital requirements at December 31, 2023, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies. See “Liquidity and Capital Resources” for further information.

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Noninterest-bearing Checking Deposits. The Company may hold negative balances associated with cardholder programs in the BaaS business line that are included within noninterest-bearing deposits on the Company's Condensed Consolidated Statements of Financial Condition. Negative balances can relate to any of the following payments functions:

–Prefundings: The Company deploys funds to cards prior to receiving cash (typically 2-3 days) where the prefunding balance is netted at a pooled partner level utilizing ASC 210-20.
–Discount fundings: The Company funds cards in alignment to expected breakage values on the card. Consumers may spend more than is estimated. These discounts are netted at a pooled partner level using ASC 210-20. The majority of these discount fundings relate to a small number of partners and are analyzed on an ongoing basis.
–Demand Deposit Account ("DDA") overdrafts: Certain programs offered allow cardholders traditional DDA overdraft protection services whereby cardholders can spend a limited amount in excess of their available card balance. When overdrawn, these accounts are re-classed as loans on the balance sheet within the Consumer Finance category.

The Company meets the Right of Set off criteria in ASC 210-20, Balance Sheet - Offsetting, for all payments negative deposit balances with the exception of DDA overdrafts. The following table summarizes the Company's negative deposit balances within the BaaS business line:
(Dollars in thousands) December 31, 2023 September 30, 2023
Noninterest-bearing deposits $ 6,876,657  $ 6,608,137 
Prefunding (266,820) (230,749)
Discount funding (51,490) (34,351)
DDA overdrafts (9,528) (10,096)
Noninterest-bearing checking, net $ 6,548,819  $ 6,332,941 

Custodial Off-Balance Sheet Deposits. The Bank utilizes a custodial deposit transference structure for certain prepaid and deposit programs whereby the Bank, acting as custodian of cardholder funds, places a portion of such cardholder funds that are not needed to support near term settlement at one or more third-party banks insured by the FDIC (each, a “Program Bank”). Accounts opened at Program Banks are established in the Bank’s name as custodian, for the benefit of the Bank’s cardholders. The Bank remains the issuer of all cards and holder of all accounts under the applicable cardholder agreements and has sole custodial control and transaction authority over the accounts opened at Program Banks.

The Bank maintains the records of each cardholder’s deposits maintained at Program Banks. Program Banks undergo robust due diligence prior to becoming a Program Bank and are also subject to continuous monitoring.

As of December 31, 2023, the Company managed $1.1 billion of customer deposits at other banks in its capacity as custodian. These deposits provide the Company with excess deposits that can earn servicing fee income, typically reflective of the EFFR.

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the Company’s total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. The balances presented in the table below are calculated on a daily average balance. Tax-equivalent adjustments have been made in yields on interest-bearing assets and NIM. Nonaccruing loans and leases have been included in the table as loans or leases carrying a zero yield.
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Three Months Ended December 31,
2023 2022
(Dollars in thousands) Average
Outstanding
Balance		 Interest
Earned /
Paid
Yield /
Rate(1)
 Average
Outstanding
Balance		 Interest
Earned /
Paid
Yield /
Rate(1)
Interest-earning assets:            
Cash and fed funds sold $ 337,975  $ 4,103  4.83  % $ 226,004  $ 1,716  3.01  %
Mortgage-backed securities 1,486,854  10,049  2.69  % 1,571,022  10,412  2.63  %
Tax exempt investment securities 136,470  930  3.43  % 154,754  980  3.18  %
Asset-backed securities 250,172  3,565  5.67  % 155,988  1,149  2.92  %
Other investment securities 284,625  2,288  3.20  % 301,739  2,407  3.17  %
Total investments 2,158,121  16,832  3.15  % 2,183,503  14,948  2.76  %
Commercial finance 3,762,910  75,345  7.97  % 3,010,868  58,100  7.66  %
Consumer finance 362,935  10,585  11.60  % 198,372  4,313  8.63  %
Tax services 28,050  (11) (0.16) % 25,230  57  0.90  %
Warehouse finance 381,931  9,044  9.42  % 290,454  5,926  8.09  %
Total loans and leases 4,535,826  94,963  8.33  % 3,524,924  68,396  7.70  %
Total interest-earning assets 7,031,922  $ 115,898  6.57  % 5,934,431  $ 85,060  5.70  %
Noninterest-earning assets 543,418  589,580 
Total assets $ 7,575,340  $ 6,524,011 
Interest-bearing liabilities:
Interest-bearing checking $ 426  $ —  0.34  % $ 447  $ —  0.33  %
Savings 54,783  6  0.04  % 62,607  6  0.04  %
Money markets 183,255  576  1.25  % 138,872  78  0.22  %
Time deposits 5,517  4  0.25  % 7,199  2  0.11  %
Wholesale deposits 211,281  2,940  5.54  % 5,712  56  3.89  %
Total interest-bearing deposits 455,262  3,526  3.08  % 214,837  142  0.26  %
Overnight fed funds purchased 117,153  1,656  5.62  % 24,783  244  3.91  %
Subordinated debentures 19,600  357  7.24  % 19,593  357  7.22  %
Other borrowings 14,178  323  9.07  % 15,817  260  6.53  %
Total borrowings 150,931  2,336  6.16  % 60,193  861  5.67  %
Total interest-bearing liabilities 606,193  5,862  3.85  % 275,030  1,003  1.45  %
Noninterest-bearing deposits 6,102,927  —  —  % 5,421,821  —  —  %
Total deposits and interest-bearing liabilities 6,709,120  $ 5,862  0.35  % 5,696,851  $ 1,003  0.07  %
Other noninterest-bearing liabilities 210,469  178,789 
Total liabilities 6,919,589  5,875,640 
Shareholders' equity 655,751  648,371 
Total liabilities and shareholders' equity $ 7,575,340  $ 6,524,011 
Net interest income and net interest rate spread including noninterest-bearing deposits $ 110,036  6.22  % $ 84,057  5.63  %
Net interest margin 6.23  % 5.62  %
Tax-equivalent effect 0.01  % 0.02  %
Net interest margin, tax-equivalent(2)
 6.24  % 5.64  %
(1) Tax rate used to arrive at the TEY for the three months ended December 31, 2023 and 2022 was 21%.
(2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes.

General
The Company recorded net income of $27.7 million, or $1.06 per diluted share, for the three months ended December 31, 2023, compared to net income of $27.8 million, or $0.98 per diluted share, for the three months ended December 31, 2022.

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Net Interest Income
Net interest income for the first quarter of fiscal 2024 was $110.0 million, an increase of 31% from the same quarter in fiscal 2023. The increase was mainly attributable to increased yields, higher interest-earning asset balances and an improved earning asset mix.

The Company’s average interest-earning assets for the first quarter of fiscal 2024 increased by $1.10 billion to $7.03 billion compared to the same quarter in fiscal 2023, primarily due to growth in loans and leases and an increase in cash balances, partially offset by a decrease in total investment security balances. The first quarter average outstanding balance of loans and leases increased $1.01 billion compared to the same quarter of the prior fiscal year, primarily due to an increase in commercial, consumer, and warehouse finance portfolios.

Fiscal 2024 first quarter NIM increased to 6.23% from 5.62% in the first fiscal quarter of last year. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 87 basis points to 6.57% compared to the prior year quarter, driven by an increase in loan and lease, investment securities and cash yields. The yield on the loan and lease portfolio was 8.33% compared to 7.70% for the comparable period last year and the TEY on the securities portfolio was 3.15% compared to 2.76% over that same period.

The Company's cost of funds for all deposits and borrowings averaged 0.35% during the fiscal 2024 first quarter, as compared to 0.07% during the prior year quarter. The Company's overall cost of deposits was 0.21% in the fiscal first quarter of 2024, as compared to 0.01% during the prior year quarter.

Provision for Credit Loss
The Company recognized a provision for credit loss of $9.9 million for the quarter ended December 31, 2023, compared to $9.8 million for the comparable period in the prior fiscal year. Net charge-offs were $5.5 million for the quarter ended December 31, 2023, compared to $3.2 million for the quarter ended December 31, 2022. Net charge-offs attributable to the commercial finance, tax services, and consumer finance portfolios for the current quarter were $4.6 million, $0.8 million, and $0.1 million, respectively. Net charge-offs attributable to the commercial finance, tax services, and consumer finance portfolios for the same quarter of the prior year were $2.0 million, $1.0 million, and $0.2 million, respectively.

Noninterest Income
Fiscal 2024 first quarter noninterest income decreased 20% to $52.8 million, compared to $65.8 million for the same period of the prior year. The decrease was primarily attributable to the $10.0 million gain on sale of trademarks recognized during the prior year period, along with a decrease in card and deposit fees. The period-over-period decrease was partially offset by increases in gain on sale of other, other income, and rental income. The increase in gain on sale of other was driven by a $2.5 million gain related to an investment in the Pathward Venture Capital business.

The decrease in card and deposit fee income was primarily related to servicing fee income on off-balance sheet deposits, which totaled $5.1 million during the 2024 fiscal first quarter, as compared to $7.8 million for the fiscal quarter ended September 30, 2023 and $12.9 million for the same period of the prior year. The decrease in servicing fee income was due to a reduction in off-balance sheet deposits that the Company manages at other banks.

Noninterest Expense
Noninterest expense increased 14% to $119.3 million for the fiscal 2024 first quarter, from $105.1 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, compensation and benefits expense, other expense, operating lease equipment depreciation, and occupancy and equipment expense. The period-over-period increase was partially offset by a decrease in legal and consulting expense.

The card processing expense increase was due to rate-related agreements with BaaS partners. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally, this rate index is based on a percentage of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 53% of the deposit portfolio was subject to these rate-related processing expenses during the 2024 fiscal first quarter. For the fiscal quarter ended December 31, 2023, contractual, rate-related processing expenses were $26.8 million, as compared to $22.5 million for the fiscal quarter ended September 30, 2023 and $14.0 million for the fiscal quarter ended December 31, 2022.
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Income Tax Expense
The Company recorded an income tax expense of $5.7 million, representing an effective tax rate of 17.0%, for the fiscal 2024 first quarter, compared to $6.6 million, representing an effective tax rate of 18.8%, for the first quarter last fiscal year. The current quarter decrease in income tax expense compared to the prior year quarter was primarily due to an increase in investment tax credits recognized ratably.

The Company originated $12.2 million in renewable energy leases during the fiscal 2024 first quarter, resulting in $4.4 million in total net investment tax credits. During the first quarter of fiscal 2023, the Company originated $11.4 million in renewable energy leases resulting in $3.1 million in total net investment tax credits. Investment tax credits related to renewable energy leases are recognized ratably based on income throughout each fiscal year.

Asset Quality
Generally, when a loan or lease becomes delinquent 90 days or more or when the collection of principal or interest becomes doubtful, the Company will place the loan or lease on a nonaccrual status and, as a result, previously accrued interest income on the loan or lease is reversed against current income. The loan or lease will generally remain on a non-accrual status until six months of good payment history has been established or management believes the financial status of the borrower has been significantly restored. Certain relationships in the table below are over 90 days past due and still accruing. The Company considers these relationships as being in the process of collection. Insurance premium finance loans, consumer finance and tax services loans are generally not placed on nonaccrual status, but are instead written off when the collection of principal and interest become doubtful.

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 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 believes that the level of allowance for credit losses at December 31, 2023 was appropriate and reflected probable losses related to these loans and leases; however, there can be no assurance that all loans and leases will be fully collectible or that the present level of the allowance will be adequate in the future. See the section below titled “Allowance for Credit Losses” for further information.
 
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The table below sets forth the amounts and categories of the Company's nonperforming assets.
(Dollars in thousands) December 31, 2023 September 30, 2023
Nonperforming Loans and Leases
Nonaccruing loans and leases:  
Commercial finance $ 28,099  $ 37,372 
Total nonaccruing loans and leases 28,099  37,372 
Accruing loans and leases delinquent 90 days or more:  
Loans held for sale 661  306 
Commercial finance 7,862  11,242 
Consumer finance 2,859  2,210 
Tax services(1)
 —  5,082 
Total accruing loans and leases delinquent 90 days or more 11,382  18,840 
Total nonperforming loans and leases 39,481  56,212 
Other Assets  
Nonperforming operating leases 2,785  1,764 
Total other assets 2,785  1,764 
Total nonperforming assets $ 42,266  $ 57,976 
Total as a percentage of total assets 0.53  % 0.77  %
(1) Certain tax services loans do not bear interest.

The Company's nonperforming assets at December 31, 2023 were $42.4 million, representing 0.53% of total assets, compared to $58.0 million, or 0.77% of total assets at September 30, 2023. The decrease in the nonperforming assets as a percentage of total assets at December 31, 2023 compared to September 30, 2023, was primarily driven by paydowns within the commercial finance portfolio.

The Company's nonperforming loans and leases at December 31, 2023 were $39.5 million, representing 0.88% of total gross loans and leases, compared to $56.2 million, or 1.26% of total gross loans and leases at September 30, 2023.

Classified Assets. Federal regulations provide for the classification of certain loans, leases, 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,” with each such classification dependent on the facts and circumstances surrounding the assets in question. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the Bank will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such minimal value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When assets are classified as “loss,” the Bank is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. The Bank’s determinations as to the classification of its assets and the amount of its valuation allowances are subject to review by its regulatory authorities, which may order the establishment of additional general or specific loss allowances.

On the basis of management’s review of its loans, leases, and other assets, at December 31, 2023, the Company had classified loans and leases of $197.7 million as substandard, $10.1 million as doubtful and none as loss. At September 30, 2023, the Company classified loans and leases of $208.2 million as substandard, $8.2 million as doubtful and none as loss.
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Allowance for Credit Losses. The ACL represents management’s estimate of current credit losses expected to be incurred by the loan and lease portfolio over the life of each financial asset as of the balance sheet date. The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets, which generally means loans and leases identified as modifications or loans and leases on nonaccrual status. All other loans and leases are evaluated collectively for credit loss. A reserve for unfunded credit commitments such as letters of credit and binding unfunded loan commitments is recorded in other liabilities on the Condensed Consolidated Statements of Financial Condition.

Individually evaluated loans and leases are a key component of the ACL. Generally, the Company measures credit loss on individually evaluated loans based on the fair value of the collateral less estimated selling costs, as the Company considers these financial assets to be collateral dependent. If an individually evaluated loan or lease is not collateral dependent, credit loss is measured at the present value of expected future cash flows discounted at the loan or lease initial effective interest rate.

The Company's ACL totaled $53.8 million at December 31, 2023, an increase compared to $49.7 million at September 30, 2023. The increase in the ACL at December 31, 2023, when compared to September 30, 2023, was primarily due to a $2.0 million increase in the allowance related to the consumer finance portfolio and a $1.6 million increase in the allowance related to the commercial finance portfolio.

The following table presents the Company's ACL as a percentage of its total loans and leases.
As of the Period Ended
December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022
Commercial finance 1.30  % 1.26  % 1.35  % 1.53  % 1.62  %
Consumer finance 1.45  % 0.92  % 0.92  % 1.99  % 1.54  %
Tax services 1.52  % 0.04  % 70.20  % 53.77  % 2.01  %
Warehouse finance 0.10  % 0.10  % 0.10  % 0.10  % 0.10  %
Total loans and leases 1.22  % 1.14  % 2.01  % 2.27  % 1.50  %
Total loans and leases excluding tax services 1.21  % 1.14  % 1.21  % 1.40  % 1.50  %

The Company's ACL as a percentage of total loans and leases increased to 1.22% at December 31, 2023 from 1.14% at September 30, 2023. The increase in the total loans and leases coverage ratio was primarily driven by an increase in the consumer finance portfolio due to seasonal activity and an increase in the seasonal tax services portfolio. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
The Company’s financial statements are prepared in accordance with GAAP. The financial information contained within these financial statements is, to a significant extent, based on approximate measures of the financial effects of transactions and events that have already occurred. Management has identified its critical accounting policies, which are those policies that, in management's view, are most important in the portrayal of our financial condition and results of operations. These policies involve complex and subjective decisions and assessments. Some of these estimates may be uncertain at the time they are made, could change from period to period, and could have a material impact on the financial statements. A discussion of the Company’s critical accounting policies and estimates can be found in the Company's Annual Report on Form 10-K for the year ended September 30, 2023. There were no significant changes to these critical accounting policies and estimates during the first three months of fiscal 2024.

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LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of funds are deposits, derived principally through its BaaS business line, borrowings, principal and interest payments on loans and leases and mortgage-backed securities, and maturing investment securities. In addition, the Company utilizes wholesale deposit sources to provide temporary funding when necessary or when favorable terms are available. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan repayments are influenced by the level of interest rates, general economic conditions and competition. The Company uses its capital resources principally to meet ongoing commitments to fund maturing certificates of deposit and loan commitments, to maintain liquidity, and to meet operating expenses.

At December 31, 2023, the Company had unfunded loan and lease commitments of $1.51 billion. Management believes that loan repayment and other sources of funds will be adequate to meet its foreseeable short- and long-term liquidity needs. The liquidity sources as of December 31, 2023 include $1.1 billion in off-balance sheet deposits and $672 million in cash and cash equivalents. When factoring in additional resources, such as the Federal Home Loan Bank, the Federal Reserve Discount Window and other unsecured funding and wholesale options, the Company has over $3.8 billion in total available liquidity as of December 31, 2023.

The Company and the Bank are required to comply with the regulatory capital rules administered by federal banking agencies (the "Capital Rules"). Under the Capital Rules and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

The Capital Rules require the Company and the Bank to maintain minimum ratios (set forth in the table below) of total risk-based capital and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and a leverage ratio consisting of Tier 1 capital (as defined) to average assets (as defined). At December 31, 2023, the Company and the Bank exceeded federal regulatory minimum capital requirements to be classified as well-capitalized under the prompt corrective action requirements. The Company and the Bank took the AOCI opt-out election; under the rule, non-advanced approach banking organizations were given a one-time option to exclude certain AOCI components.

The table below includes certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analyses and has included this non-GAAP financial information, and corresponding reconciliation to total equity.
Company Bank Minimum
to be Adequately Capitalized Under Prompt Corrective Action Provisions		 Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
At December 31, 2023
Tier 1 leverage capital ratio 7.96  % 8.15  % 4.00  % 5.00  %
Common equity Tier 1 capital ratio 11.43  11.97  4.50  6.50 
Tier 1 capital ratio 11.69  11.97  6.00  8.00 
Total capital ratio 13.12  13.01  8.00  10.00 
At September 30, 2023
Tier 1 leverage capital ratio 8.11  % 8.32  % 4.00  % 5.00  %
Common equity Tier 1 capital ratio 11.25  11.81  4.50  6.50 
Tier 1 capital ratio 11.50  11.81  6.00  8.00 
Total capital ratio 12.84  12.76  8.00  10.00 

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The following table provides a reconciliation of the amounts included in the table above for the Company.
Standardized Approach(1)
(Dollars in thousands) December 31, 2023 September 30, 2023
Total stockholders' equity $ 729,282  $ 650,625 
Adjustments:
LESS: Goodwill, net of associated deferred tax liabilities 297,283  297,679 
LESS: Certain other intangible assets 20,093  21,228 
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 20,253  19,679 
LESS: Net unrealized (losses) on available for sale securities (187,901) (254,294)
LESS: Noncontrolling interest (510) (1,005)
ADD: Adoption of Accounting Standards Update 2016-13 1,345  2,017 
Common Equity Tier 1(1)
 581,409  569,355 
Long-term borrowings and other instruments qualifying as Tier 1 13,661  13,661 
Tier 1 minority interest not included in common equity Tier 1 capital (410) (826)
Total Tier 1 capital 594,660  582,190 
Allowance for credit losses 53,037  47,960 
Subordinated debentures, net of issuance costs 19,617  19,591 
Total capital $ 667,314  $ 649,741 
(1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum common equity tier 1 capital ratio; those changes were fully phased in through the end of 2021.

Since January 1, 2016, the Company and the Bank have been required to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of Common Equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. The required Common Equity Tier 1 risk-based, Tier 1 risk-based and total risk-based capital ratios with the buffer are currently 7.0%, 8.5% and 10.5%, respectively.

Based on current and expected continued profitability and subject to continued access to capital markets, we believe that the Company and the Bank will continue to meet the capital conservation buffer of 2.5% in addition to required minimum capital ratios.

CONTRACTUAL OBLIGATIONS

See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations" in the Company’s Annual Report on Form 10-K for its fiscal year ended September 30, 2023 for a summary of our contractual obligations as of September 30, 2023. There were no material changes outside the ordinary course of our business in contractual obligations from September 30, 2023 through December 31, 2023.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

The Company derives a portion of its income from the excess of interest collected over interest paid. The rates of interest the Company earns on assets and pays on liabilities generally are established contractually for a period of time. Market interest rates change over time. Accordingly, the Company’s results of operations, like those of most financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of its assets and liabilities.

The Company monitors and measures its exposure to changes in interest rates in order to comply with applicable government regulations and risk policies established by the Board of Directors, and in order to preserve stockholder value. In monitoring interest rate risk, the Company analyzes assets and liabilities based on characteristics including size, coupon rate, repricing frequency, maturity date, likelihood of prepayment, and deposit behaviors.

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The Company’s primary objective for its investment portfolio is to provide a source of liquidity for the Company. In addition, the investment portfolio may be used in the management of the Company’s interest rate risk profile. The investment policy generally calls for funds to be invested among various categories of security types and maturities based upon the Company’s need for liquidity, desire to achieve a proper balance between minimizing risk while maximizing yield, the need to provide collateral for borrowings, and the need to fulfill the Company’s asset/liability management goals.

The Company believes that its portfolio of longer duration deposits generated from its BaaS business line provides a stable and profitable funding vehicle, but also subjects the Company to greater risk in a falling interest rate environment than it would otherwise have without this portfolio. This risk is due to the fact that, while asset yields may decrease in a falling interest rate environment, the Company generally does not have an offsetting reduction as it does not pay interest on these deposits. However, a portion of the Company’s deposit balances are subject to variable card processing expenses, derived from contractual agreements with certain BaaS partners tied to a rate index, typically the EFFR. These costs reprice immediately upon a change in the applicable rate index and would likely lower card processing expenses.

The Bank, acting as custodian of cardholder funds, places a portion of such cardholder funds at one or more third-party banks insured by the FDIC (each, a “Program Bank”). These custodial deposits earn recordkeeping service fee income, typically reflective of the EFFR.
 
The Board of Directors and relevant government regulations establish limits on the level of acceptable interest rate risk at the Company, to which management adheres. There can be no assurance, however, that, in the event of an adverse change in interest rates, the Company’s efforts to limit interest rate risk will be successful.

Interest Rate Risk (“IRR”)

Overview. The Company actively manages interest rate risk, as changes in market interest rates can have a significant impact on reported earnings. The Company's IRR analysis is designed to compare income and economic valuation simulations in market scenarios designed to alter the direction, magnitude and speed of interest rate changes, as well as the slope of the yield curve. This analysis may not represent all impacts driven by changes in the interest rate environment, such as certain other card fee income and expense line items tied to card processing expense derived from contractual agreements with certain BaaS partners and servicing fees the Company recognizes from custodial off-balance sheet deposits. The Company does not currently engage in trading activities to control interest rate risk although it may do so in the future, if deemed necessary, to help manage interest rate risk.

Earnings at risk and economic value analysis. As a continuing part of its financial strategy, the Bank considers methods of managing an asset/liability mismatch consistent with maintaining acceptable levels of net interest income. In order to monitor IRR, the Company has created an Asset/Liability Committee whose principal responsibilities are to assess the Bank’s asset/liability mix and implement strategies that will enhance income while managing the Bank’s vulnerability to changes in interest rates.

The Company uses two approaches to model interest rate risk: Earnings at Risk (“EAR analysis”) and Economic Value of Equity (“EVE analysis”). Under EAR analysis, net interest income is calculated for each interest rate scenario and compared to the net interest income forecast in the base case. EAR analysis measures the sensitivity of interest-sensitive earnings over a one-year minimum time horizon. The results are affected by projected rates, prepayments, caps and floors. Management exercises its best judgment in making assumptions regarding events that management can influence, such as non-contractual deposit re-pricing, as well as events outside of management's control, such as customer behavior on loan and deposit activity and the effect that competition has on both lending and deposit pricing. These assumptions are subjective and, as a result, net interest income simulation results will differ from actual results due to the timing, magnitude, and frequency of interest rate changes, changes in market conditions, customer behavior and management strategies, among other factors. The Company performs various sensitivity analyses on assumptions of deposit attrition, loan prepayments, and asset re-pricing, as well as market-implied forward rates and various likely and extreme interest rate scenarios, including rapid and gradual interest rate ramps, rate shocks and yield curve twists.

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The EAR analysis used in the following table reflects the required analysis used no less than quarterly by management. It models basis point parallel shifts in market interest rates over the next one-year period. The following table shows the results of the scenarios as of December 31, 2023:
Net Sensitive Earnings at Risk
  Change in Interest Income/Expense
for a given change in interest rates
Over/(Under) Base Case Parallel Shift
(Dollars in Thousands) Book Value -200 -100 Base +100 +200 +300 +400
Total interest-sensitive income 7,046,067  423,779  454,633  485,679  516,113  546,547  576,838  607,403 
Total interest-sensitive expense 387,572  7,504  8,606  10,339  12,515  14,708  16,918  19,139 
Net interest-sensitive income 416,275  446,027  475,340  503,598  531,839  559,920  588,264 
Percentage change from base -12.4  % -6.2  % —  % 5.9  % 11.9  % 17.8  % 23.8  %

The EAR analysis reported at December 31, 2023, shows that total interest-sensitive income will change more rapidly than total interest-sensitive expense over the next year. IRR is a snapshot in time. The Company’s business and deposits are predictably cyclical on a weekly, monthly and yearly basis. The Company’s static IRR results could vary depending on which day of the week the month ends, primarily related to payroll processing and timing of when certain programs are prefunded and when the funds are received.
Under EVE analysis, the economic value of financial assets, liabilities and off-balance sheet instruments is derived under each rate scenario. The economic value of equity is calculated as the difference between the estimated market value of assets and liabilities, net of the impact of off-balance sheet instruments.
The EVE analysis used in the following table reflects the required analysis used no less than quarterly by management. It models immediate basis point parallel shifts in market interest rates. The following table shows the results of the scenarios as December 31, 2023:
Economic Value Sensitivity
Standard (Parallel Shift)
  Economic Value of Equity at Risk %
  -200 -100 +100 +200 +300 +400
Percentage change from base -11.2  % -4.7  % 3.6  % 6.5  % 8.9  % 11.7  %

The EVE at risk reported at December 31, 2023 shows that the economic value of equity position is expected to benefit from rising interest rates due to the large amount of noninterest-bearing funding.


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Item 4.    Controls and Procedures.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Management, under the direction of its Chief Executive Officer and Chief Financial Officer, is responsible for maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "1934 Act")) that are designed to ensure that information required to be disclosed in reports filed or submitted under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
 
In connection with the preparation of this Quarterly Report on Form 10-Q, management evaluated the Company's disclosure controls and procedures. The evaluation was performed under the direction of the Company's Chief Executive Officer and Chief Financial Officer to determine the effectiveness, as of December 31, 2023, of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2023, the Company’s disclosure controls and procedures were designed effectively to ensure timely alerting of material information relating to the Company required to be included in the Company's periodic SEC filings.

INHERENT LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS

Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Management conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the three months ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Based on this evaluation, management concluded that, as of the end of the period covered by this report, there were no changes in the Company’s internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the fiscal first quarter to which this report relates that could have materially affected the Company’s internal controls over financial reporting.

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PATHWARD FINANCIAL, INC.
PART II - OTHER INFORMATION

FORM 10-Q

Item 1. Legal Proceedings.

There are no material pending legal proceedings to which we are a party or to which any of our properties are subject. There are no material proceedings known to us to be contemplated by any governmental authority. We are involved in a variety of litigation matters in the ordinary course of our business and anticipate that we will become involved in new litigation matters in the future.

Item 1A. Risk Factors.

A description of our risk factors can be found in "Item 1A. Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. There were no material changes to those risk factors during the three months ended December 31, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) None.

(b) None.

(c) Issuer Purchases of Equity Securities.

On September 3, 2021, the Company's Board of Directors authorized a 6,000,000 share repurchase program that was publicly announced on September 7, 2021 and is scheduled to expire on September 30, 2024. The Company's Board of Directors authorized an additional 7,000,000 share repurchase program that was publicly announced on August 25, 2023 and is scheduled to expire September 30, 2028. The table below sets forth information regarding repurchases of our common stock during the fiscal 2024 first quarter.
Period
Total Number of Shares Repurchased(1)
Average Price Paid per Share(1)(2)
 Total Number Of Shares Purchased As Part of Publicly Announced Plans or Programs Maximum Number Of Shares that may yet be Purchased Under the Plans or Programs
October 1 to 31 293,640  $ 47.14  232,588  8,433,848 
November 1 to 30 42,589  47.85  —  8,433,848 
December 1 to 31 —  —  —  8,433,848 
Total 336,229  232,588 
(1) All shares not purchased as part of the Company's publicly announced repurchase program were acquired in satisfaction of the tax withholding obligations of holders of restricted stock unit awards, which vested during the quarter.
(2) The average price paid per share is calculated on a trade date basis for all open market transactions and excludes commissions and other transaction expenses.

Item 5. Other Information

Adoption or Termination of Trading Arrangements by Directors and Executive Officers

During the fiscal quarter ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the 1934 Act) informed us of the adoption or termination of any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as those terms are defined in Item 408 of Regulation S-K.

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Table of Contents
Item 6. Exhibits.
Exhibit
Number		 Description
Offer Letter between the Company and Gregory Sigrist, dated as of October 2, 2023, filed on October 5, 2023 as an exhibit to the Registrant's Current Report on Form 8-K, is incorporated herein by reference.
Section 302 certification of Chief Executive Officer.
Section 302 certification of Chief Financial Officer.
Section 906 certification of Chief Executive Officer.
Section 906 certification of Chief Financial Officer.
101
The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) Cover Page, (ii) Condensed Consolidated Statements of Financial Condition, (iii) Condensed Consolidated Statements of Operations, (iv) Condensed Consolidated Statements of Comprehensive Income, (v) Condensed Consolidated Statements of Changes in Stockholders' Equity, (vi) Condensed Consolidated Statements of Cash Flows, and (vii) Notes to Condensed Consolidated Financial Statements, tagged in summary and in detail.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Management contract or compensatory plan or agreement.




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PATHWARD FINANCIAL, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
PATHWARD FINANCIAL, INC.
     
Date: February 8, 2024
 By:
/s/ Brett L. Pharr
   
Brett L. Pharr,
   
Chief Executive Officer and Director
     
Date: February 8, 2024
 By:
/s/ Gregory A. Sigrist
   
Gregory A. Sigrist,
   
Executive Vice President and Chief Financial Officer

50
EX-31.1 2 cash12312023exhibit311.htm EX-31.1 Document

Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brett L. Pharr, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of Pathward Financial, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report), that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 8, 2024
/s/ Brett L. Pharr
Chief Executive Officer and Director


EX-31.2 3 cash12312023exhibit312.htm EX-31.2 Document

Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gregory A. Sigrist, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of Pathward Financial, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report), that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 8, 2024
/s/ Gregory A. Sigrist
Executive Vice President and Chief Financial Officer


EX-32.1 4 cash12312023exhibit321.htm EX-32.1 Document

Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Pathward Financial, Inc. (the “Company”) for the quarterly period ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brett L. Pharr, the Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)    the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By: /s/ Brett L. Pharr
Name: Brett L. Pharr
Chief Executive Officer and Director
February 8, 2024

EX-32.2 5 cash12312023exhibit322.htm EX-32.2 Document

Exhibit 32.2
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Pathward Financial, Inc. (the “Company”) for the quarterly period ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory A. Sigrist, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)    the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)    the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

By: /s/ Gregory A. Sigrist
Name: Gregory A. Sigrist
Executive Vice President and Chief Financial Officer
February 8, 2024