Equibles

10-Q

PATHWARD FINANCIAL, INC. (CASH)

10-Q 2024-05-07 For: 2024-03-31
View Original
Added on April 07, 2026

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 March 31, 2024

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, a 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 May 1, 2024:
Common Stock, $.01 par value 25,270,584 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. Financial Statements 2
Condensed Consolidated Statements of Financial Condition as ofMarch31, 2024and September 30, 2023 2
Condensed Consolidated Statements of Operations for the Threeand SixMonths EndedMarch31, 2024and 2023 3
Condensed Consolidated Statements of Comprehensive Income for the Threeand SixMonths EndedMarch31, 2024and 2023 4
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Threeand SixMonths EndedMarch31, 2024and 2023 5
Condensed Consolidated Statements of Cash Flows for theSixMonths EndedMarch31, 2024and 2023 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38
Item 3. Quantitative and Qualitative Disclosures About Market Risk 50
Item 4. Controls and Procedures 52
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 53
Item 1A. Risk Factors 53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 53
Item 5. Other Information 53
Item 6. Exhibits 54
SIGNATURES 55

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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) March 31, 2024 September 30, 2023
ASSETS (Unaudited) (Audited)
Cash and cash equivalents $ 347,888 $ 375,580
Securities available for sale, at fair value 1,779,458 1,804,228
Securities held to maturity, at amortized cost (fair value $31,113 and $31,425, respectively) 34,682 36,591
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 25,844 28,210
Loans held for sale 25,946 77,779
Loans and leases 4,409,385 4,366,116
Allowance for credit losses (80,777) (49,705)
Accrued interest receivable 30,294 23,282
Premises, furniture, and equipment, net 37,266 39,160
Rental equipment, net 215,885 211,750
Goodwill and intangible assets 328,001 330,225
Other assets 283,245 292,327
Total assets $ 7,437,117 $ 7,535,543
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits $ 6,368,344 $ 6,589,182
Short-term borrowings 31,000 13,000
Long-term borrowings 33,373 33,873
Accrued expenses and other liabilities 264,938 248,863
Total liabilities 6,697,655 6,884,918
STOCKHOLDERS’ EQUITY
Preferred stock, 3,000,000 shares authorized, no shares issued, none outstanding at March 31, 2024 and September 30, 2023, respectively — —
Common stock, $0.01 par value; 90,000,000 shares authorized, 25,507,915 and 26,225,563 shares issued, 25,377,986 and 26,183,583 shares outstanding at March 31, 2024 and September 30, 2023, respectively 254 262
Common stock, Nonvoting, $0.01 par value; 3,000,000 shares authorized, no shares issued, none outstanding at March 31, 2024 and September 30, 2023, respectively — —
Additional paid-in capital 634,415 628,500
Retained earnings 317,964 278,655
Accumulated other comprehensive loss (206,570) (255,443)
Treasury stock, at cost, 129,929 and 41,980 common shares at March 31, 2024 and September 30, 2023, respectively (6,181) (344)
Total equity attributable to parent 739,882 651,630
Noncontrolling interest (420) (1,005)
Total stockholders’ equity 739,462 650,625
Total liabilities and stockholders’ equity $ 7,437,117 $ 7,535,543

See Notes to Condensed Consolidated Financial Statements.

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PATHWARD FINANCIAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

Three Months Ended March 31, Six Months Ended March 31,
(Dollars in thousands, except per share data) 2024 2023 2024 2023
Interest and dividend income:
Loans and leases, including fees $ 102,750 $ 83,879 $ 197,713 $ 152,275
Mortgage-backed securities 9,998 10,326 20,047 20,738
Other investments 14,013 10,482 24,899 16,734
126,761 104,687 242,659 189,747
Interest expense:
Deposits 6,685 2,096 10,211 2,238
FHLB advances and other borrowings 1,775 1,186 4,111 2,047
8,460 3,282 14,322 4,285
Net interest income 118,301 101,405 228,337 185,462
Provision for credit loss 26,052 36,763 35,942 46,539
Net interest income after provision for credit loss 92,249 64,642 192,395 138,923
Noninterest income:
Refund transfer product fees 28,942 30,205 29,364 30,882
Refund advance fee income 43,200 37,995 43,311 38,612
Card and deposit fees 35,344 42,087 66,094 79,805
Rental income 13,720 12,940 27,179 25,648
Gain on sale of trademarks — — — 10,000
Gain (loss) on sale of other 1,695 (666) 4,535 (164)
Other income 6,044 4,477 11,223 8,032
Total noninterest income 128,945 127,038 181,706 192,815
Noninterest expense:
Compensation and benefits 54,073 47,547 100,725 90,564
Refund transfer product expense 7,366 7,863 7,558 7,968
Refund advance expense 1,846 1,603 1,876 1,630
Card processing 35,163 26,924 69,747 49,607
Occupancy and equipment expense 9,293 8,510 18,141 16,822
Operating lease equipment depreciation 10,424 14,719 20,847 24,347
Legal and consulting 6,141 4,921 11,033 14,380
Intangible amortization 1,240 1,435 2,224 2,693
Impairment expense 2,013 500 2,013 524
Other expense 12,872 13,114 25,541 23,660
Total noninterest expense 140,431 127,136 259,705 232,195
Income before income tax expense 80,763 64,544 114,396 99,543
Income tax expense 15,246 9,176 20,965 15,753
Net income before noncontrolling interest 65,517 55,368 93,431 83,790
Net income attributable to noncontrolling interest 249 597 506 1,177
Net income attributable to parent $ 65,268 $ 54,771 $ 92,925 $ 82,613
Earnings per common share:
Basic $ 2.56 $ 1.99 $ 3.61 $ 2.95
Diluted $ 2.56 $ 1.99 $ 3.61 $ 2.95

See Notes to Condensed Consolidated Financial Statements.

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PATHWARD FINANCIAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended March 31, Six Months Ended March 31,
(Dollars in thousands) 2024 2023 2024 2023
Net income before noncontrolling interest $ 65,517 $ 55,368 $ 93,431 $ 83,790
Other comprehensive income (loss):
Change in net unrealized gain (loss) on debt securities (23,414) 18,448 65,121 33,156
(23,414) 18,448 65,121 33,156
Unrealized gain (loss) on currency translation (579) 60 39 447
Deferred income tax effect (5,856) 4,647 16,287 8,352
Total other comprehensive income (loss) (18,137) 13,861 48,873 25,251
Total comprehensive income 47,380 69,229 142,304 109,041
Total comprehensive income attributable to noncontrolling interest 249 597 506 1,177
Comprehensive income attributable to parent $ 47,131 $ 68,632 $ 141,798 $ 107,864

See Notes to Condensed Consolidated Financial Statements.

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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<br>Stock Additional<br>Paid-in<br>Capital Retained<br>Earnings Accumulated<br>Other<br>Comprehensive<br>Income (Loss) Treasury<br>Stock Total Pathward Financial, Inc.<br>Stockholders’<br>Equity Noncontrolling interest Total<br>Stockholders’<br>Equity
Three Months Ended March 31, 2024
Balance, December 31, 2023 $ 260 $ 629,737 $ 293,463 $ (188,433) $ (5,235) $ 729,792 $ (510) $ 729,282
Cash dividends declared on common stock ($0.05 per share) — — (1,267) — — (1,267) — (1,267)
Issuance of common stock due to restricted stock 2 — — — — 2 — 2
Repurchases of common stock (8) 8 (39,500) — (946) (40,446) — (40,446)
Stock compensation — 4,670 — — — 4,670 — 4,670
Total other comprehensive loss — — — (18,137) — (18,137) — (18,137)
Net income — — 65,268 — — 65,268 249 65,517
Net distribution to noncontrolling interest — — — — — — (159) (159)
Balance, March 31, 2024 $ 254 $ 634,415 $ 317,964 $ (206,570) $ (6,181) $ 739,882 $ (420) $ 739,462
Three Months Ended March 31, 2023
Balance, December 31, 2022 $ 282 $ 620,681 $ 246,891 $ (201,690) $ (6,824) $ 659,340 $ (207) $ 659,133
Cash dividends declared on common stock ($0.05 per share) — — (1,386) — — (1,386) — (1,386)
Repurchases of common stock (11) 11 (55,230) — (119) (55,349) — (55,349)
Stock compensation — 2,558 — — — 2,558 — 2,558
Total other comprehensive income — — — 13,861 — 13,861 — 13,861
Net income — — 54,771 — — 54,771 597 55,368
Net distribution to noncontrolling interest — — — — — — (941) (941)
Balance, March 31, 2023 $ 271 $ 623,250 $ 245,046 $ (187,829) $ (6,943) $ 673,795 $ (551) $ 673,244

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(Dollars in thousands, except per share data) Common<br>Stock Additional<br>Paid-in<br>Capital Retained<br>Earnings Accumulated<br>Other<br>Comprehensive<br>Income (Loss) Treasury<br>Stock Total Pathward Financial, Inc.<br>Stockholders’<br>Equity Noncontrolling interest Total<br>Stockholders’<br>Equity
Six Months Ended March 31, 2024
Balance, September 30, 2023 $ 262 $ 628,500 $ 278,655 $ (255,443) $ (344) $ 651,630 $ (1,005) $ 650,625
Cash dividends declared on common stock ($0.10 per share) — — (2,566) — — (2,566) — (2,566)
Issuance of common stock due to restricted stock 3 — — — — 3 — 3
Repurchases of common stock (11) 11 (50,527) — (5,837) (56,364) — (56,364)
Stock compensation — 5,904 — — — 5,904 — 5,904
Total other comprehensive income — — — 48,873 — 48,873 — 48,873
Joint venture membership interest divestiture — — (523) — — (523) — (523)
Net income — — 92,925 — — 92,925 506 93,431
Net investment by noncontrolling interest — — — — — — 79 79
Balance, March 31, 2024 $ 254 $ 634,415 $ 317,964 $ (206,570) $ (6,181) $ 739,882 $ (420) $ 739,462
Six Months Ended March 31, 2023
Balance, September 30, 2022 $ 288 $ 617,403 $ 245,394 $ (213,080) $ (4,835) $ 645,170 $ (30) $ 645,140
Cash dividends declared on common stock ($0.10 per share) — — (2,788) — — (2,788) — (2,788)
Issuance of common stock due to restricted stock 1 — — — — 1 — 1
Repurchases of common stock (18) 18 (80,173) — (2,108) (82,281) — (82,281)
Stock compensation — 5,829 — — — 5,829 — 5,829
Total other comprehensive income — — — 25,251 — 25,251 — 25,251
Net income — — 82,613 — — 82,613 1,177 83,790
Net distribution to noncontrolling interest — — — — — — (1,698) (1,698)
Balance, March 31, 2023 $ 271 $ 623,250 $ 245,046 $ (187,829) $ (6,943) $ 673,795 $ (551) $ 673,244

See Notes to Condensed Consolidated Financial Statements.

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PATHWARD FINANCIAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended March 31,
(Dollars in thousands) 2024 2023
Cash flows from operating activities:
Net income before noncontrolling interest $ 93,431 $ 83,790
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 29,457 34,390
Provision for credit loss 35,942 46,539
Provision for deferred taxes 4,059 2,545
Originations of loans held for sale (933,786) (608,628)
Proceeds from sales of loans held for sale 968,998 604,363
Net change in loans held for sale 17,924 652
Net realized (gain) on loans held for sale (1,370) (110)
Net realized (gain) on trademarks — (10,000)
Net realized (gain) loss on other (3,165) 272
Impairment on rental equipment 2,013 24
Net change in accrued interest receivable (7,012) (4,455)
Net change in other assets (13,724) 14,050
Net change in accrued expenses and other liabilities 16,729 14,568
Stock compensation 5,904 5,829
Net cash provided by operating activities 215,400 183,829
Cash flows from investing activities:
Proceeds from maturities of and principal collected on securities available for sale 89,476 89,162
Proceeds from maturities of and principal collected on securities held to maturity 1,811 2,822
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock (183,010) (120,160)
Redemption of Federal Reserve Bank and Federal Home Loan Bank stock 185,377 119,586
Purchases of loans and leases (163,091) (187,834)
Net change in loans and leases 255,909 191,195
Purchases of premises, furniture, and equipment (3,592) (3,428)
Purchases of rental equipment (173,005) (238,999)
Proceeds from sales of rental equipment 4,951 6,736
Net change in rental equipment 188 (153)
Proceeds from sales of foreclosed real estate and repossessed assets — 1
Proceeds from sale of trademarks — 10,000
Proceeds from sale of other assets 4,091 —
Net cash provided by (used in) investing activities 19,105 (131,072)
Cash flows from financing activities:
Net change in deposits (220,838) 36,659
Net change in short-term borrowings 18,000 43,000
Principal payments on other liabilities (550) —
Proceeds from other liabilities — (1,026)
Payment of debt issuance costs — (511)
Dividends paid on common stock (2,566) (2,788)
Issuance of common stock due to restricted stock 3 1
Repurchases of common stock (56,364) (82,281)
Investment by (distributions to) noncontrolling interest 79 (1,698)
Net cash (used in) financing activities (262,236) (8,644)
Effect of exchange rate changes on cash 39 447
Net change in cash and cash equivalents (27,692) 44,560
Cash and cash equivalents at beginning of fiscal year 375,580 388,038
Cash and cash equivalents at end of fiscal period $ 347,888 $ 432,598

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Six Months Ended March 31,
(Dollars in thousands) 2024 2023
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 12,608 $ 4,273
Income taxes 9,694 7,842
Franchise and other taxes 398 472
Supplemental schedule of non-cash investing activities:
Transfers
Loans and leases to rental equipment 2,538 1,449
Rental equipment to loan and leases 143,752 202,330
Recognition of operating lease ROU assets, net of measurements 654 —
Joint venture membership interest divestiture 523 —

See Notes to Condensed Consolidated Financial Statements.

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

Certain prior fiscal year amounts have been reclassified to conform to the current year financial statement presentation. These reclassifications did not impact previously reported net income, comprehensive income or the statement of financial condition.

Additionally, certain prior fiscal year amounts within Note 4. Loans and Leases, Net have been revised. Prior fiscal year tables that were revised include the amortized cost basis of loans and leases by asset classification and year of origination, nonaccrual loans and leases by year of origination, and loans and leases that are 90 days or more delinquent and accruing by year of origination. The revisions were related to the year of origination and did not impact total loan balances, total asset classification balances, total nonaccrual balances, or total past due loan balances.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES ("ASU")

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

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

ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU eliminate accounting guidance for troubled-debt restructurings ("TDRs") by creditors in Subtopic ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors, and enhance disclosure requirements for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. The ASU also requires current-period gross charge-offs by year of origination to be disclosed for loans and leases within scope of Topic 326.

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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<br>Value
Debt Securities AFS
At March 31, 2024
Corporate securities $ 25,000 $ — $ (6,875) $ 18,125
SBA securities 91,979 — (7,182) 84,797
Obligations of states and political subdivisions 540 — (33) 507
Non-bank qualified obligations of states and political subdivisions 258,421 14 (35,766) 222,669
Asset-backed securities 228,852 420 (5,858) 223,414
Mortgage-backed securities 1,448,649 12 (218,715) 1,229,946
Total debt securities AFS $ 2,053,441 $ 446 $ (274,429) $ 1,779,458
At September 30, 2023
Corporate securities $ 25,000 $ — $ (6,750) $ 18,250
SBA securities 95,549 — (10,307) 85,242
Obligations of states and political subdivisions 2,368 — (79) 2,289
Non-bank qualified obligations of states and political subdivisions 269,396 — (42,673) 226,723
Asset-backed securities 255,384 234 (9,419) 246,199
Mortgage-backed securities 1,495,636 — (270,111) 1,225,525
Total debt securities AFS $ 2,143,333 $ 234 $ (339,339) $ 1,804,228
Debt Securities HTM
At March 31, 2024
Non-bank qualified obligations of states and political subdivisions $ 32,602 $ — $ (3,321) $ 29,281
Mortgage-backed securities 2,080 — (248) 1,832
Total debt securities HTM $ 34,682 $ — $ (3,569) $ 31,113
At September 30, 2023
Non-bank qualified obligations of states and political subdivisions $ 34,415 $ — $ (4,844) $ 29,571
Mortgage-backed securities 2,176 — (322) 1,854
Total debt securities HTM $ 36,591 $ — $ (5,166) $ 31,425

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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<br>Value Gross Unrealized (Losses) Fair<br>Value Gross Unrealized (Losses) Fair<br>Value Gross Unrealized (Losses)
Debt Securities AFS
At March 31, 2024
Corporate securities $ — $ — $ 18,125 $ (6,875) $ 18,125 $ (6,875)
SBA securities 22,894 (978) 61,903 (6,204) 84,797 (7,182)
Obligations of state and political subdivisions — — 506 (33) 506 (33)
Non-bank qualified obligations of states and political subdivisions 940 (20) 219,665 (35,746) 220,605 (35,766)
Asset-backed securities — — 103,409 (5,858) 103,409 (5,858)
Mortgage-backed securities 17,317 (371) 1,211,570 (218,344) 1,228,887 (218,715)
Total debt securities AFS $ 41,151 $ (1,369) $ 1,615,178 $ (273,060) $ 1,656,329 $ (274,429)
At September 30, 2023
Corporate securities $ — $ — $ 18,250 $ (6,750) $ 18,250 $ (6,750)
SBA securities 22,327 (1,919) 62,915 (8,388) 85,242 (10,307)
Obligations of state and political subdivisions — — 2,289 (79) 2,289 (79)
Non-bank qualified obligations of states and political subdivisions 5,010 (83) 221,714 (42,590) 226,723 (42,673)
Asset-backed securities 46,528 (224) 115,608 (9,195) 162,136 (9,419)
Mortgage-backed securities 18,311 (944) 1,207,214 (269,167) 1,225,525 (270,111)
Total debt securities AFS $ 92,176 $ (3,170) $ 1,627,990 $ (336,169) $ 1,720,165 $ (339,339)
Debt Securities HTM
At March 31, 2024
Non-bank qualified obligations of states and political subdivisions $ — $ — $ 29,281 $ (3,321) $ 29,281 $ (3,321)
Mortgage-backed securities — — 1,832 (248) 1,832 (248)
Total debt securities HTM $ — $ — $ 31,113 $ (3,569) $ 31,113 $ (3,569)
At September 30, 2023
Non-bank qualified obligations of states and political subdivisions $ — $ — $ 29,571 $ (4,844) $ 29,571 $ (4,844)
Mortgage-backed securities — — 1,854 (322) 1,854 (322)
Total debt securities HTM $ — $ — $ 31,425 $ (5166) $ 31,425 $ (5,166)

The decrease in the fair value of investment securities balances when comparing March 31, 2024 to September 30, 2023 was primarily driven by principal pay downs during the six months. At March 31, 2024, there were 194 securities AFS in an unrealized loss position. All of the mortgage-backed securities ("MBS") in an unrealized loss position at March 31, 2024 were government guaranteed or issued by a private label where the Company held a senior tranche. Management assessed each investment security with unrealized losses for credit loss and determined all unrealized losses on these securities were due to adverse market conditions and/or change in interest rates versus credit loss. As part of that assessment, management evaluated and concluded that it is more-likely-than-not that the Company will not be required and does not intend to sell any of the securities prior to recovery of the amortized cost. At March 31, 2024, there was no allowance for credit losses ("ACL") for debt securities AFS or debt securities HTM.

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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 March 31, 2024 At September 30, 2023
Debt Securities AFS Amortized Cost Fair<br>Value Amortized Cost Fair<br>Value
Due in one year or less $ 1,188 $ 1,175 $ 5,023 $ 4,971
Due after one year through five years 19,591 18,249 11,175 10,292
Due after five years through ten years 73,455 63,343 79,139 66,428
Due after ten years 510,558 466,745 552,360 497,012
604,792 549,512 647,697 578,703
Mortgage-backed securities 1,448,649 1,229,946 1,495,636 1,225,525
Total debt securities AFS $ 2,053,441 $ 1,779,458 $ 2,143,333 $ 1,804,228
Debt Securities HTM
Due after ten years $ 32,602 $ 29,281 $ 34,415 $ 29,571
32,602 29,281 34,415 29,571
Mortgage-backed securities 2,080 1,832 2,176 1,854
Total debt securities HTM $ 34,682 $ 31,113 $ 36,591 $ 31,425

Federal Reserve Bank ("FRB") Stock. The Bank is required by federal law to subscribe to capital stock (divided into shares of $100 each) as a member of the FRB of Minneapolis with an amount equal to six per centum of the paid-up capital stock and surplus. One-half of the subscription is paid at time of application, and one-half is subject to call of the Board of Governors of the Federal Reserve System. FRB of Minneapolis stock held by the Bank totaled $19.7 million at March 31, 2024 and September 30, 2023. These equity securities are 'restricted' in that they can only be owned by member banks.

Federal Home Loan Bank ("FHLB") Stock. The Company's borrowings from the FHLB are secured by specific investment securities. Such advances can be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities.

The investments in the FHLB stock are required investments related to the Company's membership in and current borrowings from the FHLB of Des Moines. The investments in the FHLB of Des Moines could be adversely impacted by the financial operations of the FHLB and actions of their regulator, the Federal Housing Finance Agency.

The FHLB stock is carried at cost since it is generally redeemable at par value. The carrying value of the stock held at the FHLB was $6.2 million and $8.5 million at March 31, 2024 and at September 30, 2023, respectively.

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

Equity Securities. The Company held $4.3 million and $3.4 million in marketable equity securities within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2024 and September 30, 2023, respectively. The Company recognized no unrealized gains on marketable equity securities during the six months ended March 31, 2024 and 2023. No such securities were sold during the six months ended March 31, 2024.

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Non-marketable equity securities with a readily determinable fair value totaled $10.0 million and $8.4 million at March 31, 2024 and September 30, 2023, respectively. These securities are held within other assets on the Condensed Consolidated Statements of Financial Condition. The Company recognized $0.4 million in unrealized gains and $0.1 million in unrealized losses during the six months ended March 31, 2024 and 2023, respectively. No such securities were sold during the six months ended March 31, 2024.

Non-marketable equity securities without readily determinable fair value totaled $14.8 million and $16.2 million at March 31, 2024 and September 30, 2023, respectively. There was one such security sold during the six months ended March 31, 2024 for a $2.5 million gain which is included in gain on sale of other on the Condensed Consolidated Statements of Operations.

Equity Securities Impairment. The Company evaluates impairment for investments held at cost on at least an annual basis based on the ultimate recoverability of the par value. All other equity investments, including those under the equity method, are reviewed for other-than-temporary impairment on at least a quarterly basis. The Company recognized no and $0.5 million impairment for such investments for the six months ended March 31, 2024 and 2023, respectively.

NOTE 4. LOANS AND LEASES, NET

Loans and leases consist of the following:

(Dollars in thousands) March 31, 2024 September 30, 2023
Term lending $ 1,489,054 $ 1,308,133
Asset-based lending 429,556 382,371
Factoring 336,442 358,344
Lease financing 168,616 183,392
Insurance premium finance 522,904 800,077
SBA/USDA 560,433 524,750
Other commercial finance 149,056 166,091
Commercial finance 3,656,061 3,723,158
Consumer finance 267,031 254,416
Tax services 84,502 5,192
Warehouse finance 394,814 376,915
Total loans and leases 4,402,408 4,359,681
Net deferred loan origination costs 6,977 6,435
Total gross loans and leases 4,409,385 4,366,116
Allowance for credit losses (80,777) (49,705)
Total loans and leases, net $ 4,328,608 $ 4,316,411

During the six months ended March 31, 2024 and 2023, the Company originated $933.8 million and $608.6 million of commercial finance and consumer finance as held for sale, respectively.

The Company sold held for sale loans resulting in proceeds of $969.0 million and a $1.4 million gain on sale during the six months ended March 31, 2024. The Company sold held for sale loans resulting in proceeds of $604.4 million and gain on sale of $0.1 million during the six months ended March 31, 2023.

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

Three Months Ended March 31, Six Months Ended March 31,
(Dollars in thousands) 2024 2023 2024 2023
Loans Purchased
Loans held for investment:
Warehouse finance $ 73,701 $ 120,185 $ 163,091 $ 187,834
Total purchases $ 73,701 $ 120,185 $ 163,091 $ 187,834
Loans Sold
Loans held for sale:
Commercial finance $ 21,173 $ 294 $ 25,045 $ 1,149
Consumer finance 321,489 201,199 943,953 603,214
Total sales $ 342,662 $ 201,493 $ 968,998 $ 604,363

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

(Dollars in thousands) March 31, 2024 September 30, 2023
Minimum lease payments receivable $ 177,498 $ 191,807
Unguaranteed residual assets 12,171 12,709
Unamortized initial direct costs 82 141
Unearned income (21,053) (21,124)
Total net investment in direct financing and sales-type leases $ 168,698 $ 183,533

The components of total lease income were as follows:

Three Months Ended March 31, Six Months Ended March 31,
(Dollars in thousands) 2024 2023 2024 2023
Interest income - loans and leases
Interest income on net investments in direct financing and sales-type leases $ 2,853 $ 2,819 $ 5,961 $ 5,962
Leasing and equipment finance noninterest income
Lease income from operating lease payments 13,605 12,843 26,860 25,397
Other(1) 869 (356) 1,593 346
Total leasing and equipment finance noninterest income 14,474 12,487 28,453 25,743
Total lease income $ 17,327 $ 15,306 $ 34,414 $ 31,705
(1) Other leasing and equipment finance noninterest income consists of gains (losses) on sales of leased equipment, fees and service charges on leases and gains (losses) on sales of leases.

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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 March 31, 2024 were as follows:

(Dollars in thousands)
Remaining in 2024 $ 36,927
2025 53,952
2026 34,868
2027 21,176
2028 16,575
Thereafter 14,000
Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases 177,498
Third-party residual value guarantees —
Total carrying amount of direct financing and sales-type leases $ 177,498

The Company did not record any contingent rental income from direct financing and sales-type leases in the six months ended March 31, 2024.

A number of factors affected the economic environment in 2023 including geopolitical conflict, supply chain disruptions, inflation, rising interest rates, and bank failures brought on by, among other things, rising interest rates, deposit outflows and liquidity crises. While the ultimate impact of these factors, some of which continue to impact the economic environment in 2024, on the Company's loan and lease portfolio remains difficult to predict, management continues to evaluate the loan and lease portfolio in order to assess the impact on repayment sources and underlying collateral that could result in additional losses and the impact to our customers and businesses as a result of these factors impacting the economy and will refine its estimate as developments occur and more information becomes available.

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Activity in the allowance for credit losses and balances of loans and leases by portfolio segment was as follows:

Three Months Ended March 31, 2024
(Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance
Allowance for credit losses:
Term lending $ 27,013 $ 6,303 $ (5,176) $ 487 $ 28,627
Asset-based lending 1,370 (254) — 99 1,215
Factoring 7,433 (623) (12) 16 6,814
Lease financing 4,008 (2,547) 28 62 1,551
Insurance premium finance 2,123 (532) (295) 113 1,409
SBA/USDA 3,289 (347) — — 2,942
Other commercial finance 3,312 (1,592) — — 1,720
Commercial finance 48,548 408 (5,455) 777 44,278
Consumer finance 4,380 231 (37) 2 4,576
Tax services 507 25,221 — 5,800 31,528
Warehouse finance 350 45 — — 395
Total loans and leases 53,785 25,905 (5,492) 6,579 80,777
Unfunded commitments(1) 596 147 — — 743
Total $ 54,381 $ 26,052 $ (5,492) $ 6,579 $ 81,520
(1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. Three Months Ended March 31, 2023
--- --- --- --- --- --- --- --- --- --- ---
(Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance
Allowance for credit losses:
Term lending $ 26,752 $ 3,974 $ (2,705) $ 394 $ 28,415
Asset-based lending 3,903 51 (2,873) — 1,081
Factoring 5,674 (40) (62) 16 5,588
Lease financing 5,238 (183) (607) 101 4,549
Insurance premium finance 1,261 155 (224) 71 1,263
SBA/USDA 2,632 2 — 6 2,640
Other commercial finance 3,356 976 — — 4,332
Commercial finance 48,816 4,935 (6,471) 588 47,868
Consumer finance 2,887 232 (154) — 2,965
Tax services 609 31,422 — 1,063 33,094
Warehouse finance 280 97 — — 377
Total loans and leases 52,592 36,686 (6,625) 1,651 84,304
Unfunded commitments(1) 279 77 — — 356
Total $ 52,871 $ 36,763 $ (6,625) $ 1,651 $ 84,660
(1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition.

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Six Months Ended March 31, 2024
(Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance
Allowance for credit losses:
Term lending $ 25,686 $ 12,125 $ (10,297) $ 1,113 $ 28,627
Asset-based lending 2,738 (1,764) — 241 1,215
Factoring 6,566 128 (35) 155 6,814
Lease financing 3,302 (1,781) (125) 155 1,551
Insurance premium finance 2,637 (771) (660) 203 1,409
SBA/USDA 2,962 (20) — — 2,942
Other commercial finance 3,089 (1,369) — — 1,720
Commercial finance 46,980 6,548 (11,117) 1,867 44,278
Consumer finance 2,346 2,328 (100) 2 4,576
Tax services 2 26,577 (1,145) 6,094 31,528
Warehouse finance 377 18 — — 395
Total loans and leases 49,705 35,471 (12,362) 7,963 80,777
Unfunded commitments(1) 272 471 — — 743
Total $ 49,977 $ 35,942 $ (12,362) $ 7,963 $ 81,520
(1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition. Six Months Ended March 31, 2023
--- --- --- --- --- --- --- --- --- --- ---
(Dollars in thousands) Beginning Balance Provision (Reversal) Charge-offs Recoveries Ending Balance
Allowance for credit losses:
Term lending $ 24,621 $ 7,645 $ (4,522) $ 671 $ 28,415
Asset-based lending 1,050 2,904 (2,873) — 1,081
Factoring 6,556 (804) (183) 19 5,588
Lease financing 5,902 (621) (1,013) 281 4,549
Insurance premium finance 1,450 108 (409) 114 1,263
SBA/USDA 3,263 (649) — 26 2,640
Other commercial finance 1,310 3,022 — — 4,332
Commercial finance 44,152 11,605 (9,000) 1,111 47,868
Consumer finance 1,463 1,835 (333) — 2,965
Tax services 5 33,059 (1,731) 1,761 33,094
Warehouse finance 327 50 — — 377
Total loans and leases 45,947 46,549 (11,064) 2,872 84,304
Unfunded commitments(1) 366 (10) — — 356
Total $ 46,313 $ 46,539 $ (11,064) $ 2,872 $ 84,660
(1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition.

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

(Dollars in thousands) At March 31, 2024 At September 30, 2023
Term lending $ 7,100 $ 3,516
Asset-based lending 1,213 19,226
Factoring 5,103 1,133
Lease financing 647 630
SBA/USDA 1,748 750
Commercial finance(1) 15,811 25,255
Total $ 15,811 $ 25,255
(1) For Commercial Finance, collateral dependent financial assets have collateral in the form of cash, equipment, or other business assets.

Management has identified certain structured finance credits for alternative energy projects in which a substantial cash collateral account has been established to mitigate credit risk. Due to the nature of the transactions and significant cash collateral positions, these credits are evaluated individually. The balance of these pass rated cash collateral loans totaled $119.1 million and $117.0 million at March 31, 2024 and at September 30, 2023, respectively.

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

Pass - A pass asset is of sufficient quality in terms of repayment, collateral and management to preclude a special mention or an adverse rating.

Watch - A watch asset is generally a credit performing well under current terms and conditions but with identifiable weakness meriting additional scrutiny and corrective measures. Watch is not a regulatory classification but can be used to designate assets that are exhibiting one or more weaknesses that deserve management’s attention. These assets are of better quality than special mention assets.

Special Mention - A special mention asset is a credit with potential weaknesses deserving management’s close attention and, if left uncorrected, may result in deterioration of the repayment prospects for the asset. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Special mention is a temporary status with aggressive credit management required to garner adequate progress and move to watch or higher.

The adverse classifications are as follows:

Substandard - A substandard asset is inadequately protected by the net worth and/or repayment ability or by a weak collateral position. Assets so classified will have well-defined weaknesses creating a distinct possibility the Bank will sustain some loss if the weaknesses are not corrected. Loss potential does not have to exist for an asset to be classified as substandard.

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

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

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Loans and leases, or portions thereof, are generally charged off when collection of principal becomes doubtful. Typically, this is associated with a delay or shortfall in payments of 210 days or more for insurance premium finance, 120 days or more for consumer credit products and leases, and 90 days or more for commercial finance loans. Action is taken to charge off electronic return originator ("ERO") loans if such loans have not been collected by the end of June and refund advance loans if such loans have not been collected by the end of the calendar year. The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets, which generally means loans and leases identified as modifications or loans and leases on nonaccrual status.

The Company recognizes that concentrations of credit may naturally occur and may take the form of a large volume of related loans and leases to an individual, a specific industry, or a geographic location. Credit concentration is a direct, indirect, or contingent obligation that has a common bond where the aggregate exposure equals or exceeds a certain percentage of the Company’s Tier 1 Capital plus the allowable Allowance for Credit Losses.

The Company has various portfolios of consumer finance and tax services loans that present unique risks that are statistically managed. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in its evaluation of the appropriateness of the ACL on these portfolios, and as such, these loans are not included in the asset classification table below. The outstanding balances of consumer finance loans and tax services loans were $267.0 million and $84.5 million at March 31, 2024, respectively, and $254.4 million and $5.2 million at September 30, 2023, respectively. The amortized cost basis of loans and leases by asset classification and year of origination was as follows:

Amortized Cost Basis
(Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total
At March 31, 2024 2024 2023 2022 2021 2020 Prior
Term lending
Pass $ 308,787 $ 492,087 $ 125,586 $ 97,696 $ 54,397 $ 48,457 $ — $ 1,127,010
Watch 66,389 42,282 46,196 24,715 3,456 1,549 — 184,587
Special mention 920 14,887 7,222 19,254 10,145 114 — 52,542
Substandard 9,546 35,689 23,732 21,362 22,623 4,730 — 117,682
Doubtful — 601 3,135 1,657 534 1,306 — 7,233
Total 385,642 585,546 205,871 164,684 91,155 56,156 — 1,489,054
Current period charge-offs — 1,336 5,063 2,314 1,351 233 — 10,297
Asset-based lending
Pass — — — — — — 229,053 229,053
Watch — — — — — — 176,233 176,233
Special mention — — — — — — 21,530 21,530
Substandard — — — — — — 2,740 2,740
Total — — — — — — 429,556 429,556
Current period charge-offs — — — — — — — —
Factoring
Pass — — — — — — 272,222 272,222
Watch — — — — — — 38,237 38,237
Special mention — — — — — — 7,459 7,459
Substandard — — — — — — 16,970 16,970
Doubtful — — — — — — 1,554 1,554
Total — — — — — — 336,442 336,442
Current period charge-offs — — — — — — 35 35
Lease financing
Pass 29,214 57,899 11,949 10,795 17,486 2,851 — 130,194
Watch 1,210 164 9,047 9,295 2,019 398 — 22,133
Special mention — 278 — — 1,026 45 — 1,349
Substandard 52 6,013 1,165 3,506 2,291 1,612 — 14,639
Doubtful — — — 58 — 243 — 301
Total 30,476 64,354 22,161 23,654 22,822 5,149 — 168,616
Current period charge-offs — — — 58 67 — — 125

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Insurance premium finance
Pass 141,340 56 — — — — 521,976
Watch 254 — — — — — 344
Special mention 270 — — — — — 300
Substandard 152 — — — — — 157
Doubtful 127 — — — — — 127
Total 142,143 56 — — — — 522,904
Current period charge-offs 487 173 — — — — 660
SBA/A
Pass 184,511 182,889 25,243 25,614 40,539 — 493,278
Watch 12,241 55 1,111 6,592 3,077 — 23,076
Special mention — 1,325 — 2,783 369 — 4,477
Substandard 10,144 11,173 1,295 5,217 11,694 — 39,523
Doubtful — 79 — — — — 79
Total 206,896 195,521 27,649 40,206 55,679 — 560,433
Current period charge-offs — — — — — — —
Other commercial finance
Pass 2,270 10,532 32,600 1,079 73,678 — 120,159
Watch 2,500 — — — — — 2,500
Substandard 2,681 44 23,672 — — — 26,397
Total 7,451 10,576 56,272 1,079 73,678 — 149,056
Current period charge-offs — — — — — — —
Warehouse finance
Pass — — — — — 394,814 394,814
Total — — — — — 394,814 394,814
Current period charge-offs — — — — — — —
Total loans and leases
Pass 878,107 331,012 166,334 98,576 165,525 896,089 3,288,706
Watch 57,441 55,298 35,121 12,067 5,024 214,470 447,110
Special mention 15,435 8,547 19,254 13,954 528 28,989 87,657
Substandard 54,679 36,114 49,835 30,131 18,036 19,710 218,108
Doubtful 728 3,214 1,715 534 1,549 1,554 9,294
Total 831,305 $ 1,006,390 $ 434,185 $ 272,259 $ 155,262 $ 190,662 $ 1,160,812 $ 4,050,875
Current period charge-offs — $ 1,823 $ 5,236 $ 2,372 $ 1,418 $ 233 $ 35 $ 11,117

All values are in US Dollars.

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

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Special mention — — — — — 8,892 8,892
Substandard — — — — — 7,865 7,865
Total — — — — — 358,344 358,344
Lease financing
Pass 15,941 15,167 27,489 4,036 1,281 — 121,037
Watch 10,436 12,566 4,494 1,579 55 — 29,923
Special mention — 847 415 195 — — 1,457
Substandard 1,983 7,082 3,660 3,062 33 — 30,710
Doubtful — 71 61 — 133 — 265
Total 28,360 35,733 36,119 8,872 1,502 — 183,392
Insurance premium finance
Pass 1,210 — — — — — 798,477
Watch 34 — — — — — 892
Special mention 15 — — — — — 265
Substandard 20 — — — — — 111
Doubtful 152 — — — — — 332
Total 1,431 — — — — — 800,077
SBA/A
Pass 148,525 26,244 36,274 8,798 18,252 — 396,768
Watch 48,833 658 51 357 2,572 — 101,481
Special mention — 530 — — — — 530
Substandard 2,356 1,718 5,418 8,509 7,718 — 25,971
Total 199,714 29,150 41,743 17,664 28,542 — 524,750
Other commercial finance
Pass 18,927 32,737 1,137 10,122 69,927 — 135,180
Watch — — — — — — 1,742
Substandard 450 25,708 — — 258 — 29,169
Total 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 333,793 173,825 138,032 37,324 175,272 809,413 3,222,502
Watch 110,339 71,265 16,775 6,419 3,354 245,076 559,112
Special mention 13,868 21,840 1,138 3,127 75 35,274 102,111
Substandard 35,260 49,237 33,691 15,443 8,773 27,366 208,193
Doubtful 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

All values are in US Dollars.

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Past due loans and leases were as follows:

At March 31, 2024
Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases
(Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total
Loans held for sale $ 323 $ 546 $ 843 $ 1,712 $ 24,234 $ 25,946 $ 843 $ — $ 843
Term lending 31,580 20,883 10,397 62,860 1,426,194 1,489,054 890 18,960 19,850
Asset-based lending — — — — 429,556 429,556 — — —
Factoring — — — — 336,442 336,442 — 4,580 4,580
Lease financing 2,655 171 1,526 4,352 164,264 168,616 752 1,605 2,357
Insurance premium finance 2,211 592 1,037 3,840 519,064 522,904 1,037 — 1,037
SBA/USDA 36 2,340 2,636 5,012 555,421 560,433 — 2,636 2,636
Other commercial finance — — — — 149,056 149,056 — — —
Commercial finance 36,482 23,986 15,596 76,064 3,579,997 3,656,061 2,679 27,781 30,460
Consumer finance 4,293 3,001 3,093 10,387 256,644 267,031 3,093 — 3,093
Tax services 1,123 — — 1,123 83,379 84,502 — — —
Warehouse finance — — — — 394,814 394,814 — — —
Total loans and leases held for investment 41,898 26,987 18,689 87,574 4,314,834 4,402,408 5,772 27,781 33,553
Total loans and leases $ 42,221 $ 27,533 $ 19,532 $ 89,286 $ 4,339,068 $ 4,428,354 $ 6,615 $ 27,781 $ 34,396 At September 30, 2023
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases
(Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total
Loans held for sale $ 626 $ 549 $ 306 $ 1,481 $ 76,298 $ 77,779 $ 306 $ — $ 306
Term lending 13,898 7,723 11,136 32,757 1,275,376 1,308,133 3,737 15,324 19,061
Asset-based lending — — 123 123 382,248 382,371 — 18,082 18,082
Factoring — — — — 358,344 358,344 — 1,298 1,298
Lease financing 6,865 158 4,828 11,851 171,541 183,392 4,242 1,666 5,908
Insurance premium finance 2,159 1,262 2,339 5,760 794,317 800,077 2,339 — 2,339
SBA/USDA 512 — 1,835 2,347 522,403 524,750 833 1,002 1,835
Other commercial finance — — 91 91 166,000 166,091 91 — 91
Commercial finance 23,434 9,143 20,352 52,929 3,670,229 3,723,158 11,242 37,372 48,614
Consumer finance 2,992 2,425 2,210 7,627 246,789 254,416 2,210 — 2,210
Tax services — — 5,082 5,082 110 5,192 5,082 — 5,082
Warehouse finance — — — — 376,915 376,915 — — —
Total loans and leases held for investment 26,426 11,568 27,644 65,638 4,294,043 4,359,681 18,534 37,372 55,906
Total loans and leases $ 27,052 $ 12,117 $ 27,950 $ 67,119 $ 4,370,341 $ 4,437,460 $ 18,840 $ 37,372 $ 56,212

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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 March 31, 2024 2024 2023 2022 2021 2020 Prior
Term lending $ 1,121 $ 2,683 $ 7,414 $ 2,222 $ 1,446 $ 4,074 $ — $ 18,960 $ —
Factoring — — — — — — 4,580 4,580 —
Lease financing — — 95 540 695 275 — 1,605 539
SBA/USDA — 1,307 79 — 1,005 245 — 2,636 750
Commercial finance 1,121 3,990 7,588 2,762 3,146 4,594 4,580 27,781 1,289
Total nonaccrual loans and leases $ 1,121 $ 3,990 $ 7,588 $ 2,762 $ 3,146 $ 4,594 $ 4,580 $ 27,781 $ 1,289 Amortized Cost Basis
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
(Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total Nonaccrual with No ACL
At September 30, 2023 2023 2022 2021 2020 2019 Prior
Term lending $ 865 $ 4,942 $ 2,933 $ 2,165 $ 3,134 $ 1,285 $ — $ 15,324 $ —
Asset-based lending — — — — — — 18,082 18,082 —
Factoring — — — — — — 1,298 1,298 —
Lease financing — — 446 660 — 560 — 1,666 1
SBA/USDA — 750 — — — 252 — 1,002 —
Commercial finance 865 5,692 3,379 2,825 3,134 2,097 19,380 37,372 1
Total nonaccrual loans and leases $ 865 $ 5,692 $ 3,379 $ 2,825 $ 3,134 $ 2,097 $ 19,380 $ 37,372 $ 1

Loans and leases that are 90 days or more delinquent and accruing by year of origination were as follows:

Amortized Cost Basis
(Dollars in thousands) Term Loans and Leases by Origination Year Revolving Loans and Leases Total
At March 31, 2024 2024 2023 2022 2021 2020 Prior
Loans held for sale $ — $ 843 $ — $ — $ — $ — $ — $ 843
Term lending — 185 58 393 254 — — 890
Lease financing 354 121 — — 2 275 — 752
Insurance premium finance 198 839 — — — — — 1,037
Commercial finance 552 1,145 58 393 256 275 — 2,679
Consumer finance 309 1,969 658 157 — — — 3,093
Total loans and leases held for investment 861 3,114 716 550 256 275 — 5,772
Total 90 days or more delinquent and accruing $ 861 $ 3,957 $ 716 $ 550 $ 256 $ 275 $ — $ 6,615

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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 March 31, Six Months Ended March 31,
(Dollars in thousands) 2024 2023 2024 2023
Term lending $ 18,999 $ 9,758 $ 18,209 $ 9,277
Asset-based lending 82 5,292 4,896 4,782
Factoring 5,745 523 3,463 615
Lease financing 1,639 3,627 1,631 3,625
SBA/USDA 2,329 1,379 1,908 1,400
Commercial finance 28,794 20,579 30,107 19,699
Total loans and leases $ 28,794 $ 20,579 $ 30,107 $ 19,699

The recognized interest income on the Company's nonaccrual loans and leases for the three and six months ended March 31, 2024 and 2023 was not significant.

Effective October 1, 2023, the Company adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on a prospective basis. Financial information at and for the three and six months ended March 31, 2024 is reflected as such. The historical information disclosed is in accordance with Subtopic ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors.

Modifications made to borrowers experiencing financial difficulty during the three and six months ended March 31, 2024 were $1.6 million in the commercial finance loan portfolio.

No loans were modified in a TDR during the three and six months ended March 31, 2023. The Company had an immaterial amount and $0.1 million of commercial finance loans that were modified within the previous 12 months experience a payment default during the three and six months ended March 31, 2023, respectively. TDR net charge-offs and the impact of TDRs on the Company's allowance for credit losses were insignificant during the six months ended March 31, 2023.

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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 March 31, Six Months Ended March 31,
(Dollars in thousands, except per share data) 2024 2023 2024 2023
Basic income per common share:
Net income attributable to Pathward Financial, Inc. $ 65,268 $ 54,771 $ 92,925 $ 82,613
Dividends and undistributed earnings allocated to participating securities (524) (841) (744) (1,231)
Basic net earnings available to common stockholders 64,744 53,930 92,181 81,382
Undistributed earnings allocated to nonvested restricted stockholders 514 820 724 1,190
Reallocation of undistributed earnings to nonvested restricted stockholders (514) (818) (724) (1,187)
Diluted net earnings available to common stockholders $ 64,744 $ 53,932 $ 92,181 $ 81,385
Total weighted-average basic common shares outstanding 25,281,743 27,078,048 25,529,186 27,555,197
Effect of dilutive securities(1)
Performance share units 29,401 91,521 26,470 77,540
Total effect of dilutive securities 29,401 91,521 26,470 77,540
Total weighted-average diluted common shares outstanding 25,311,144 27,169,569 25,555,656 27,632,737
Net earnings per common share:
Basic earnings per common share $ 2.56 $ 1.99 $ 3.61 $ 2.95
Diluted earnings per common share(2) $ 2.56 $ 1.99 $ 3.61 $ 2.95

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

(2) Excluded from the computation of diluted earnings per share for the three months ended March 31, 2024 and 2023, respectively, were 204,877 and 422,461 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive. Excluded from the computation of diluted earnings per share for the six months ended March 31, 2024 and 2023, respectively, were 206,060 and 417,012 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive.

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NOTE 6. RENTAL EQUIPMENT, NET

Rental equipment consists of the following:

(Dollars in thousands) March 31, 2024 September 30, 2023
Computers and IT networking equipment $ 24,435 $ 25,094
Motor vehicles and other 135,158 122,845
Other furniture and equipment 37,086 37,637
Solar panels and equipment 134,917 142,355
Total 331,596 327,931
Accumulated depreciation (116,864) (117,418)
Unamortized initial direct costs 1,153 1,237
Net book value $ 215,885 $ 211,750

Future minimum lease payments expected to be received for operating leases at March 31, 2024 were as follows:

(Dollars in thousands)
Remaining in 2024 $ 22,318
2025 39,532
2026 29,630
2027 21,494
2028 12,248
Thereafter 11,693
Total $ 136,915

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NOTE 7. GOODWILL AND INTANGIBLE ASSETS

The Company held a total of $309.5 million of goodwill at March 31, 2024. The recorded goodwill is a result of multiple business combinations that occurred from 2015 to 2018. There have been no changes to the carrying amount of goodwill during the six months ended March 31, 2024.

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

(Dollars in thousands) Trademark(1) Non-Compete Customer Relationships(2) All Others(3) Total
At September 30, 2023 $ 7,477 $ — $ 9,110 $ 4,133 $ 20,720
Amortization during the period (527) — (1,431) (266) (2,224)
At March 31, 2024 $ 6,950 $ — $ 7,679 $ 3,867 $ 18,496
Gross carrying amount $ 13,774 $ 301 $ 77,578 $ 7,798 $ 99,451
Accumulated amortization (6,824) (301) (58,981) (3,712) (69,818)
Accumulated impairment — — (10,918) (219) (11,137)
At March 31, 2024 $ 6,950 $ — $ 7,679 $ 3,867 $ 18,496
At September 30, 2022 $ 8,605 $ — $ 12,395 $ 4,691 $ 25,691
Amortization during the period (609) — (1,819) (265) (2,693)
At March 31, 2023 $ 7,996 $ — $ 10,576 $ 4,426 $ 22,998
Gross carrying amount $ 14,624 $ 2,481 $ 82,088 $ 9,940 $ 109,133
Accumulated amortization (6,628) (2,481) (60,594) (5,296) (74,999)
Accumulated impairment — — (10,918) (218) (11,136)
At March 31, 2023 $ 7,996 $ — $ 10,576 $ 4,426 $ 22,998

(1) Book amortization period of 5-15 years. Amortized using the straight line and accelerated methods.

(2) Book amortization period of 10-30 years. Amortized using the accelerated method.

(3) Book amortization period of 3-20 years. Amortized using the straight line method.

The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets. Estimated amortization expense of intangible assets in the remaining six months of fiscal 2024 and subsequent fiscal years at March 31, 2024 was as follows:

(Dollars in thousands)
Remaining in 2024 $ 1,904
2025 3,563
2026 3,217
2027 2,571
2028 2,261
Thereafter 4,980
Total anticipated intangible amortization $ 18,496

There were no impairments to intangible assets during the six months ended March 31, 2024 and 2023. Intangible impairment expense is recorded within the impairment expense line of the Condensed Consolidated Statements of Operations.

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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 $26.0 million and $26.9 million at March 31, 2024 and September 30, 2023, respectively.

Operating lease liabilities, included in accrued expenses and other liabilities, were $27.8 million and $28.8 million at March 31, 2024 and September 30, 2023, respectively.

Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at March 31, 2024 were as follows:

(Dollars in thousands)
Remaining in 2024 $ 2,132
2025 3,985
2026 3,435
2027 3,152
2028 3,095
Thereafter 15,545
Total undiscounted future minimum lease payments 31,344
Discount (3,526)
Total operating lease liabilities $ 27,818

The weighted-average discount rate and remaining lease term for operating leases were as follows:

March 31, 2024 September 30, 2023
Weighted-average discount rate 2.44 % 2.38 %
Weighted-average remaining lease term (years) 9.11 9.66

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

Three Months Ended March 31, Six Months Ended March 31,
(Dollars in thousands) 2024 2023 2024 2023
Lease expense $ 992 $ 982 $ 2,017 $ 1,996
Short-term and variable lease cost 30 42 23 84
Sublease income (269) (339) (639) (672)
Total lease cost for operating leases $ 753 $ 685 $ 1,401 $ 1,408

NOTE 9. STOCKHOLDERS' EQUITY

Repurchase of Common Stock. The Company's Board of Directors authorized the September 3, 2021 share repurchase program to repurchase up to 6,000,000 shares of the Company's outstanding common stock. This authorization is effective from September 3, 2021 through September 30, 2024. On August 25, 2023, the Company's Board of Directors announced a share repurchase program to repurchase up to an additional 7,000,000 shares of the Company's outstanding common stock on or before September 30, 2028. During the six months ended March 31, 2024 and 2023, the Company repurchased 996,773 and 1,826,694 shares, respectively, as part of the share repurchase programs.

Under the repurchase programs, repurchased shares were retired and designated as authorized but unissued shares. The Company accounts for repurchased shares using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. As of March 31, 2024, 7,669,663 shares of common stock remained available for repurchase.

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For the six months ended March 31, 2024 and 2023, the Company also repurchased 122,452 and 59,626 shares, or $5.8 million and $2.1 million, of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock.

Retirement of Treasury Stock. The Company accounts for the retirement of repurchased shares, including treasury stock, using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. The Company retired no shares of common stock held in treasury during the six months ended March 31, 2024 and 2023.

NOTE 10. STOCK COMPENSATION

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

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

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

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

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

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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 six months ended March 31, 2024.

Number of Shares Weighted Average Fair Value at Grant
Nonvested shares outstanding, September 30, 2023 370,151 $ 35.87
Granted 177,317 49.53
Vested (277,447) 39.33
Forfeited or expired (6,428) 41.84
Nonvested shares outstanding, March 31, 2024 263,593 $ 41.27
Number of Units(1) Weighted Average Fair Value at Grant
Performance share units outstanding, September 30, 2023 155,804 $ 41.20
Granted 52,125 50.15
Vested (60,984) 55.47
Forfeited or expired — —
Performance share units outstanding, March 31, 2024 146,945 $ 47.35
(1) The activity in this table includes 60,984 shares related to the fiscal year 2021 performance share units, which are included in this table under the assumption of a target performance achievement. The final performance was assessed after September 30, 2023, resulted in an achievement greater than target, and an additional 47,252 shares were allocated to the participants in the plan.

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

At March 31, 2024, stock-based compensation expense not yet recognized in income totaled $10.5 million, which is expected to be recognized over a weighted average remaining period of 1.61 years.

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NOTE 11. INCOME TAXES

The Company recorded an income tax expense of $21.0 million for the six months ended March 31, 2024, resulting in an effective tax rate of 18.33%, compared to an income tax expense of $15.8 million, or an effective tax rate of 15.83%, for the six months ended March 31, 2023. The Company’s effective tax rate was lower than the U.S. statutory rate of 21% primarily because of the effect of investment tax credits during fiscal year 2024. The Company's effective tax rate in the future will depend in part on actual investment tax credits generated from qualified renewable energy property.

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

Six Months Ended March 31,
(Dollars in thousands) 2024 2023
Provision at statutory rate $ 23,917 $ 20,657
Tax-exempt income (341) (398)
State income taxes 4,550 4,285
Interim period effective rate adjustment 4,581 (483)
Tax credit investments, net - federal (11,363) (7,916)
Research tax credit — (805)
IRC 162(m) nondeductible compensation 340 576
Other, net (719) (163)
Income tax expense $ 20,965 $ 15,753
Effective tax rate 18.33 % 15.83 %

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NOTE 12. REVENUE FROM CONTRACTS WITH CUSTOMERS

The table below presents the Company’s revenue by operating segment. For additional descriptions of the Company’s operating segments, including additional financial information and the underlying management accounting process, see Note 13. Segment Reporting to the Condensed Consolidated Financial Statements.

(Dollars in thousands) Consumer Commercial Corporate Services/Other Consolidated Company
Three Months Ended March 31, 2024 2023 2024 2023 2024 2023 2024 2023
Net interest income(1) $ 56,527 $ 41,418 $ 44,913 $ 46,758 $ 16,861 $ 13,229 $ 118,301 $ 101,405
Noninterest income:
Refund transfer product fees 28,942 30,205 — — — — 28,942 30,205
Refund advance fee income(1) 43,200 37,995 — — — — 43,200 37,995
Card and deposit fees 35,097 41,828 241 252 6 7 35,344 42,087
Rental income(1) — — 13,594 12,737 126 203 13,720 12,940
Gain (loss) on sale of other(1) 16 — 1,607 (748) 72 82 1,695 (666)
Other income(1) 2,432 1,748 2,307 1,935 1,305 794 6,044 4,477
Total noninterest income 109,687 111,776 17,749 14,176 1,509 1,086 128,945 127,038
Revenue $ 166,214 $ 153,194 $ 62,662 $ 60,934 $ 18,370 $ 14,315 $ 247,246 $ 228,443
Six Months Ended March 31,
Net interest income(1) $ 115,883 $ 75,690 $ 90,794 $ 89,082 $ 21,660 $ 20,690 $ 228,337 $ 185,462
Noninterest income:
Refund transfer product fees 29,364 30,882 — — — — 29,364 30,882
Refund advance fee income(1) 43,311 38,612 — — — — 43,311 38,612
Card and deposit fees 65,604 79,280 477 513 13 12 66,094 79,805
Rental income(1) — — 26,829 25,252 350 396 27,179 25,648
Gain on sale of trademarks — — — — — 10,000 — 10,000
Gain (loss) on sale of other(1) (15) — 1,969 (246) 2,581 82 4,535 (164)
Other income(1) 4,210 2,541 4,473 3,019 2,540 2,472 11,223 8,032
Total noninterest income 142,474 151,315 33,748 28,538 5,484 12,962 181,706 192,815
Revenue $ 258,357 $ 227,005 $ 124,542 $ 117,620 $ 27,144 $ 33,652 $ 410,043 $ 378,277
(1) These revenues are not within the scope of Topic 606. Additional details are included in other footnotes to the accompanying financial statements. The scope of Topic 606 explicitly excludes net interest income as well as many other revenues for financial assets and liabilities, including loans, leases, and securities.

Following is a discussion of key revenues within the scope of Topic 606. The Company provides services to customers that have related performance obligations that must be completed to recognize revenue. Revenues are generally recognized immediately upon the completion of the service or over time as services are performed. Any services performed over time generally require that the Company renders services each period; therefore, the Company measures progress in completing these services based upon the passage of time. Revenue from contracts with customers did not generate significant contract assets and liabilities for the six months ended March 31, 2024.

Refund Transfer Product Fees. Refund transfer fees are specific to the Banking as a Service ("BaaS") business line and reflect product fees offered by the Company through third-party tax preparers and tax preparation software providers where the Company acts as the partnering financial institution. A refund transfer allows a taxpayer to pay tax preparation and filing fees directly from their federal or state government tax refund, with the remainder of the refund being disbursed in accordance with the terms and conditions of the taxpayer agreement, which may include satisfaction of other disbursement obligations before going directly to the taxpayer via check, direct deposit, or prepaid card. Refund transfer fees are recognized by the Company immediately after the taxpayer's refund has been disbursed in accordance with the contract and are based on standalone pricing included within the terms and conditions. Certain expenses to tax preparation software providers are netted with refund transfer fee income as the Company is considered the agent in these contractual relationships. All refund transfer fees are recorded within the Consumer reporting segment.

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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 March 31, 2024 2023 2024 2023 2024 2023 2024 2023
Net interest income $ 56,527 $ 41,418 $ 44,913 $ 46,758 $ 16,861 $ 13,229 $ 118,301 $ 101,405
Provision for credit loss 25,452 31,654 555 5,012 45 97 26,052 36,763
Noninterest income 109,687 111,776 17,749 14,176 1,509 1,086 128,945 127,038
Noninterest expense 59,452 49,910 38,130 38,846 42,849 38,380 140,431 127,136
Income (loss) before income tax expense 81,310 71,630 23,977 17,076 (24,524) (24,162) 80,763 64,544
Total assets 493,718 361,528 4,124,909 3,581,677 2,818,490 2,925,051 7,437,117 6,868,256
Total goodwill 87,145 87,145 222,360 222,360 — — 309,505 309,505
Total deposits 6,063,339 5,744,278 7,143 9,313 297,862 149,105 6,368,344 5,902,696
Six Months Ended March 31,
Net interest income $ 115,883 $ 75,690 $ 90,794 $ 89,082 $ 21,660 $ 20,690 $ 228,337 $ 185,462
Provision for credit loss 28,906 34,894 7,018 11,595 18 50 35,942 46,539
Noninterest income 142,474 151,315 33,748 28,538 5,484 12,962 181,706 192,815
Noninterest expense 109,465 84,404 72,986 71,595 77,254 76,196 259,705 232,195
Income (loss) before income tax expense 119,986 107,707 44,538 34,430 (50,128) (42,594) 114,396 99,543
Total assets 493,718 361,528 4,124,909 3,581,677 2,818,490 2,925,051 7,437,117 6,868,256
Total goodwill 87,145 87,145 222,360 222,360 — — 309,505 309,505
Total deposits 6,063,339 5,744,278 7,143 9,313 297,862 149,105 6,368,344 5,902,696

NOTE 14. FAIR VALUES OF FINANCIAL INSTRUMENTS

ASC 820, Fair Value Measurements defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and requires disclosures about fair value measurement. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.

The fair value hierarchy is as follows:

Level 1 Inputs - Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access at measurement date.

Level 2 Inputs - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which significant assumptions are observable in the market.

Level 3 Inputs - Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability.

Debt Securities Available for Sale and Held to Maturity. Debt securities available for sale are recorded at fair value on a recurring basis and debt securities held to maturity are carried at amortized cost.

The fair value of debt securities available for sale, categorized primarily as Level 2, is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets. Management reviews the prices obtained from independent asset pricing services for unusual fluctuations and compares to current market trading activity.

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Equity Securities. Marketable equity securities and certain non-marketable equity securities are recorded at fair value on a recurring basis. The fair values of marketable equity securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs).

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

At March 31, 2024
(Dollars in thousands) Total Level 1 Level 2 Level 3
Debt securities AFS
Corporate securities $ 18,125 $ — $ 18,125 $ —
SBA securities 84,797 — 84,797 —
Obligations of states and political subdivisions 507 — 507 —
Non-bank qualified obligations of states and political subdivisions 222,669 — 222,669 —
Asset-backed securities 223,414 — 223,414 —
Mortgage-backed securities 1,229,946 — 1,229,946 —
Total debt securities AFS $ 1,779,458 $ — $ 1,779,458 $ —
Common equities and mutual funds(1) $ 4,334 $ 4,334 $ — $ —
Non-marketable equity securities(2) $ 10,000 $ — $ — $ —

(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2024.

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

At September 30, 2023
(Dollars in thousands) Total Level 1 Level 2 Level 3
Debt securities AFS
Corporate securities $ 18,250 $ — $ 18,250 $ —
SBA securities 85,242 — 85,242 —
Obligations of states and political subdivisions 2,289 — 2,289 —
Non-bank qualified obligations of states and political subdivisions 226,723 — 226,723 —
Asset-backed securities 246,199 — 246,199 —
Mortgage-backed securities 1,225,525 — 1,225,525 —
Total debt securities AFS $ 1,804,228 $ — $ 1,804,228 $ —
Common equities and mutual funds(1) $ 3,378 $ 3,378 $ — $ —
Non-marketable equity securities(2) $ 8,389 $ — $ — $ —

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

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

Loans and Leases. The Company does not record loans and leases at fair value on a recurring basis. However, if a loan or lease is individually evaluated for risk of credit loss and repayment is expected to be solely provided by the values of the underlying collateral, the Company measures fair value on a nonrecurring basis. Fair value is determined by the fair value of the underlying collateral less estimated costs to sell. The fair value of the collateral is determined based on the internal estimates and/or assessment provided by third-party appraisers and the valuation relies on discount rates ranging from 3% to 44%.

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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 March 31, 2024
(Dollars in thousands) Total Level 1 Level 2 Level 3
Loans and leases, net individually evaluated for credit loss
Commercial finance $ 9,234 $ — $ — $ 9,234
Total loans and leases, net individually evaluated for credit loss 9,234 — — 9,234
Total $ 9,234 $ — $ — $ 9,234 At September 30, 2023
--- --- --- --- --- --- --- --- ---
(Dollars in thousands) Total Level 1 Level 2 Level 3
Loans and leases, net individually evaluated for credit loss
Commercial finance $ 21,829 $ — $ — $ 21,829
Total loans and leases, net individually evaluated for credit loss 21,829 — — 21,829
Total $ 21,829 $ — $ — $ 21,829 Quantitative Information About Level 3 Fair Value Measurements
--- --- --- --- --- --- --- ---
(Dollars in thousands) Fair Value at<br><br>March 31, 2024 Fair Value at<br><br>September 30, 2023 Valuation<br>Technique Unobservable Input Range of Inputs
Loans and leases, net individually evaluated for credit loss $ 9,234 $ 21,829 Market approach Appraised values(1) 3% - 44%

(1) The Company generally relies on external appraisers to develop this information. Management reduced the appraised value by estimating selling costs and other inputs in a range of 3% to 44%.

Management discloses the estimated fair value of financial instruments, including assets and liabilities on and off the Condensed Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value. These fair value estimates were made at March 31, 2024 and September 30, 2023 based on relevant market information and information about financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled. However, since there is no active market for certain financial instruments of the Company, the estimates of fair value are subjective in nature, involve uncertainties, and include matters of significant judgment. Changes in assumptions as well as tax considerations could significantly affect the estimated values. Accordingly, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis.

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

At March 31, 2024
(Dollars in thousands) Carrying<br>Amount Estimated <br>Fair Value Level 1 Level 2 Level 3
Financial assets
Cash and cash equivalents $ 347,888 $ 347,888 $ 347,888 $ — $ —
Debt securities available for sale 1,779,458 1,779,458 — 1,779,458 —
Debt securities held to maturity 34,682 31,113 — 31,113 —
Common equities and mutual funds(1) 4,334 4,334 4,334 — —
Non-marketable equity securities(1)(2) 20,522 20,522 — 10,522 —
Loans held for sale 25,946 25,946 — 25,946 —
Loans and leases 4,402,408 4,339,150 — — 4,339,150
Federal Reserve Bank and Federal Home Loan Bank stocks 25,844 25,844 — 25,844 —
Accrued interest receivable 30,294 30,294 30,294 — —
Financial liabilities
Deposits 6,368,344 6,368,058 6,267,603 100,455 —
Overnight federal funds purchased 31,000 31,000 31,000 — —
Other short- and long-term borrowings 33,373 31,297 — 31,297 —
Accrued interest payable 1,961 1,961 1,961 — —

(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at March 31, 2024.

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

At September 30, 2023
(Dollars in thousands) Carrying<br>Amount Estimated <br>Fair Value Level 1 Level 2 Level 3
Financial assets
Cash and cash equivalents $ 375,580 $ 375,580 $ 375,580 $ — $ —
Debt securities available for sale 1,804,228 1,804,228 — 1,804,228 —
Debt securities held to maturity 36,591 31,425 — 31,425 —
Common equities and mutual funds(1) 3,378 3,378 3,378 — —
Non-marketable equity securities(1)(2) 20,453 20,453 — 12,064 —
Loans held for sale 77,779 77,779 — 77,779 —
Loans and leases 4,359,681 4,223,010 — — 4,223,010
Federal Reserve Bank and Federal Home Loan Bank stocks 28,210 28,210 — 28,210 —
Accrued interest receivable 23,282 23,282 23,282 — —
Financial liabilities
Deposits 6,589,182 6,589,065 6,583,648 5,417 —
Overnight federal funds purchased 13,000 13,000 13,000 — —
Other short- and long-term borrowings 33,873 31,187 — 31,187 —
Accrued interest payable 247 247 247 — —

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

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

NOTE 15. SUBSEQUENT EVENTS

Management has evaluated subsequent events that occurred after March 31, 2024. During this period, up to the filing date of this Quarterly Report on Form 10-Q, management did not identify any material subsequent events that would require recognition or disclosure in our Condensed Consolidated Financial Statements as of or for the quarter ended March 31, 2024.

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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; impacts of our improved data analytics, underwriting, and monitoring processes; expected nonperforming loan resolutions and net charge-off rates; 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 pandemics, and any governmental or societal responses thereto; 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 a well-capitalized institution; 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. 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, revise, or clarify 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 March 31, 2024, compared to September 30, 2023, and the consolidated results of operations for the three and six months ended March 31, 2024 and 2023. 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 February 27. 2024, the Board of Directors (the "Board') of Pathward Financial appointed Neeraj Mehta as a member of the Board.

•On April 3, 2024, Pathward®, N.A. announced it became Certified™ by Great Place to Work® for the second year in a row. Great Place to Work describes itself as the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation.

Financial Highlights for the 2024 Fiscal Second Quarter

•Total revenue for the second quarter was $247.2 million, an increase of $18.8 million, or 8%, compared to the same quarter in fiscal 2023, driven by an increase in both net interest income and noninterest income.

•Net interest margin ("NIM") increased 11 basis points to 6.23% for the second quarter from 6.12% 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 March 31, 2024 increased $683.8 million to $4.41 billion compared to March 31, 2023 and decreased $16.9 million when compared to December 31, 2023. The increase compared to the prior year quarter was primarily due to growth across all loan portfolios. The primary driver for the sequential decrease was a reduction in the commercial and consumer finance portfolios, partially offset by growth in the warehouse finance and seasonal tax services loan portfolios.

•During the 2024 fiscal second quarter, the Company repurchased 764,185 shares of common stock at an average share price of $51.20.

Tax Season

For the six months ended March 31, 2024, total tax services product revenue was $72.9 million, an increase of 1% compared to the same period of the prior year. Total tax services product fee income increased marginally compared to the prior year, while total tax services product expense and net interest income on tax services loans decreased.

Provision for credit losses for the tax services portfolio decreased $6.5 million for the six months ended March 31, 2024 when compared to the same period of the prior year, due to improvements in data analytics, underwriting and monitoring which helped lead to net recoveries of $4.9 million recognized in the tax services portfolio during the first six months of 2024.

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Total tax services product income, net of losses and direct product expenses, increased 24% to $36.9 million from $29.7 million, when comparing the first six months of fiscal 2024 to the same period of the prior fiscal year.

For the 2024 tax season through March 31, 2024, Pathward originated $1.56 billion in refund advance loans compared to $1.46 billion during the 2023 tax season.

FINANCIAL CONDITION

At March 31, 2024, the Company’s total assets decreased to $7.44 billion compared to September 30, 2023, primarily due to reductions of $51.8 million in loans held for sale, $27.7 million in cash and cash equivalents, and $24.8 million in securities AFS.

Total cash and cash equivalents were $347.9 million at March 31, 2024, decreasing 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 March 31, 2024, the Company did not have any federal funds sold.

The total investment portfolio decreased $26.7 million, or 1%, to $1.81 billion at March 31, 2024, 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 six months ended March 31, 2024, 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 $25.8 million at March 31, 2024 and $28.2 million at September 30, 2023, as redemptions were partially offset by purchases of FHLB membership stock during the six months ended March 31, 2024.

Loans held for sale at March 31, 2024 totaled $25.9 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 March 31, 2024 compared to September 30, 2023.

Total gross loans and leases totaled $4.41 billion at March 31, 2024, as compared to $4.37 billion at September 30, 2023. The increase was due to growth in the consumer finance, seasonal tax services, and warehouse finance loan portfolios, partially offset by a reduction in the commercial loan portfolio. See Note 4 to the “Notes to Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.

Commercial finance loans, which comprised 83% of the Company's gross loan and lease portfolio, totaled $3.66 billion at March 31, 2024, reflecting a decrease of $67.1 million from September 30, 2023. The decrease in commercial finance loans was primarily driven by a $277.2 million decrease in the insurance premium finance portfolio and a $21.9 million decrease in the factoring portfolio, partially offset by a $180.9 million increase in the term lending portfolio and a $47.2 million increase in the asset-based lending portfolio.

Total end-of-period deposits decreased 3% to $6.37 billion at March 31, 2024, compared to $6.59 billion at September 30, 2023, primarily driven by a decrease in noninterest-bearing deposits of $320.9 million, partially offset by an increase in wholesale deposits of $96.0 million.

As of March 31, 2024, the Company had $740.8 million in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $323.3 million are on activated cards while $417.5 million are on inactivated cards. During the remainder of fiscal year 2024, the inactive deposit balances are expected to decline by approximately $219 million as the Company actively returns unclaimed balances to the U.S. Treasury.

The Company's total borrowings increased $17.5 million from $46.9 million at September 30, 2023 to $64.4 million at March 31, 2024, primarily driven by an increase in short-term borrowings of $18.0 million.

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At March 31, 2024, the Company’s stockholders’ equity totaled $739.5 million, an increase of $88.8 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 March 31, 2024, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies. See “Liquidity and Capital Resources” for further information.

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) March 31, 2024 September 30, 2023
Noninterest-bearing deposits $ 6,414,550 $ 6,608,137
Prefunding (329,117) (230,749)
Discount funding (62,552) (34,351)
DDA overdrafts (10,858) (10,096)
Noninterest-bearing checking, net $ 6,012,023 $ 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 March 31, 2024, the Company managed $1.2 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.

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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.

Three Months Ended March 31,
2024 2023
(Dollars in thousands) Average<br>Outstanding<br>Balance Interest<br>Earned /<br>Paid Yield /<br><br>Rate(1) Average<br>Outstanding<br>Balance Interest<br>Earned /<br>Paid Yield /<br><br>Rate(1)
Interest-earning assets:
Cash and fed funds sold $ 616,288 $ 7,422 4.84 % $ 564,656 $ 5,843 4.20 %
Mortgage-backed securities 1,464,530 9,998 2.75 % 1,549,240 10,326 2.70 %
Tax exempt investment securities 132,733 932 3.57 % 149,912 990 3.39 %
Asset-backed securities 237,421 3,368 5.71 % 141,968 1,273 3.64 %
Other investment securities 281,695 2,291 3.27 % 298,030 2,376 3.23 %
Total investments 2,116,379 16,589 3.20 % 2,139,150 14,965 2.89 %
Commercial finance 3,650,845 74,330 8.19 % 3,056,293 60,765 8.06 %
Consumer finance 351,459 9,144 10.46 % 187,826 6,301 13.60 %
Tax services 493,168 9,014 7.35 % 448,659 10,555 9.54 %
Warehouse finance 407,703 10,262 10.12 % 321,334 6,258 7.90 %
Total loans and leases 4,903,175 102,750 8.43 % 4,014,112 83,879 8.47 %
Total interest-earning assets 7,635,842 $ 126,761 6.69 % 6,717,918 $ 104,687 6.34 %
Noninterest-earning assets 600,354 612,020
Total assets $ 8,236,196 $ 7,329,938
Interest-bearing liabilities:
Interest-bearing checking $ 266 $ — 0.31 % $ 267 $ — 0.33 %
Savings 59,914 5 0.04 % 70,024 6 0.03 %
Money markets 190,143 598 1.26 % 125,193 71 0.23 %
Time deposits 5,027 4 0.29 % 6,948 2 0.11 %
Wholesale deposits 439,785 6,078 5.56 % 186,421 2,017 4.39 %
Total interest-bearing deposits 695,135 6,685 3.87 % 388,853 2,096 2.19 %
Overnight fed funds purchased 79,484 1,107 5.60 % 46,735 543 4.71 %
Subordinated debentures 19,625 355 7.27 % 19,523 354 7.34 %
Other borrowings 13,901 313 9.07 % 15,283 289 7.68 %
Total borrowings 113,010 1,775 6.32 % 81,541 1,186 5.90 %
Total interest-bearing liabilities 808,145 8,460 4.21 % 470,394 3,282 2.83 %
Noninterest-bearing deposits 6,473,538 — — % 5,997,739 — — %
Total deposits and interest-bearing liabilities 7,281,683 $ 8,460 0.47 % 6,468,133 $ 3,282 0.21 %
Other noninterest-bearing liabilities 223,560 191,360
Total liabilities 7,505,243 6,659,493
Shareholders' equity 730,953 670,445
Total liabilities and shareholders' equity $ 8,236,196 $ 7,329,938
Net interest income and net interest rate spread including noninterest-bearing deposits $ 118,301 6.22 % $ 101,405 6.13 %
Net interest margin 6.23 % 6.12 %
Tax-equivalent effect 0.01 % 0.02 %
Net interest margin, tax-equivalent(2) 6.24 % 6.14 %
(1) Tax rate used to arrive at the TEY for the three months ended March 31, 2024 and 2023 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.

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Six Months Ended March 31,
2024 2023
(Dollars in thousands) Average<br>Outstanding<br>Balance Interest<br>Earned /<br>Paid Yield /<br><br>Rate(1) Average<br>Outstanding<br>Balance Interest<br>Earned /<br>Paid Yield /<br><br>Rate(1)
Interest-earning assets:
Cash and fed funds sold $ 476,371 $ 11,525 4.84 % $ 393,469 $ 7,559 3.85 %
Mortgage-backed securities 1,475,753 20,047 2.72 % 1,560,251 20,738 2.67 %
Tax exempt investment securities 134,612 1,862 3.50 % 152,359 1,970 3.28 %
Asset-backed securities 243,831 6,933 5.69 % 149,055 2,422 3.26 %
Other investment securities 283,168 4,579 3.23 % 299,905 4,783 3.20 %
Total investments 2,137,364 33,421 3.17 % 2,161,570 29,913 2.82 %
Commercial finance 3,707,184 149,675 8.07 % 3,033,331 118,865 7.86 %
Consumer finance 357,228 19,729 11.05 % 193,157 10,614 11.02 %
Tax services 259,338 9,003 6.94 % 234,619 10,612 9.07 %
Warehouse finance 394,747 19,306 9.78 % 305,724 12,184 7.99 %
Total loans and leases 4,718,497 197,713 8.38 % 3,766,831 152,275 8.11 %
Total interest-earning assets 7,332,232 $ 242,659 6.63 % 6,321,870 $ 189,747 6.04 %
Noninterest-earning assets 571,730 600,676
Total assets $ 7,903,962 $ 6,922,546
Interest-bearing liabilities:
Interest-bearing checking $ 346 $ 1 0.33 % $ 358 $ 1 0.33 %
Savings 57,334 11 0.04 % 66,275 12 0.04 %
Money markets 186,681 1,173 1.26 % 132,108 148 0.23 %
Time deposits 5,273 7 0.27 % 7,075 4 0.11 %
Wholesale deposits 324,909 9,019 5.55 % 95,074 2,073 4.37 %
Total interest-bearing deposits 574,543 10,211 3.55 % 300,890 2,238 1.49 %
Overnight fed funds purchased 98,421 2,763 5.61 % 35,638 787 4.43 %
Subordinated debentures 19,613 711 7.25 % 19,558 711 7.28 %
Other borrowings 14,040 637 9.07 % 15,553 549 7.09 %
Total borrowings 132,074 4,111 6.23 % 70,749 2,047 5.80 %
Total interest-bearing liabilities 706,617 14,322 4.05 % 371,639 4,285 2.31 %
Noninterest-bearing deposits 6,287,220 — — % 5,706,615 — — %
Total deposits and interest-bearing liabilities 6,993,837 $ 14,322 0.41 % 6,078,254 $ 4,285 0.14 %
Other noninterest-bearing liabilities 216,979 185,005
Total liabilities 7,210,816 6,263,259
Shareholders' equity 693,146 659,287
Total liabilities and shareholders' equity $ 7,903,962 $ 6,922,546
Net interest income and net interest rate spread including noninterest-bearing deposits $ 228,337 6.22 % $ 185,462 5.89 %
Net interest margin 6.23 % 5.88 %
Tax-equivalent effect 0.01 % 0.02 %
Net interest margin, tax-equivalent(2) 6.24 % 5.90 %

(1) Tax rate used to arrive at the TEY for the six months ended March 31, 2024 and 2023 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.

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General

The Company recorded net income of $65.3 million, or $2.56 per diluted share, for the three months ended March 31, 2024, compared to net income of $54.8 million, or $1.99 per diluted share, for the three months ended March 31, 2023.

The Company recorded net income of $92.9 million, or $3.61 per diluted share, for the six months ended March 31, 2024, compared to net income of $82.6 million, or $2.95 per diluted share, for the six months ended March 31, 2023.

Net Interest Income

Net interest income for the second quarter of fiscal 2024 was $118.3 million, an increase of 17% from the same quarter in fiscal 2023. The increase was mainly attributable to increased yields, higher average interest-earning asset balances and an improved earning asset mix. For the six months ended March 31, 2024, net interest income was $228.3 million, an increase of 23%, from $185.5 million compared to the same period in the prior fiscal year.

The Company’s average interest-earning assets for the second quarter of fiscal 2024 increased by $917.9 million to $7.64 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 second quarter average outstanding balance of loans and leases increased $889.1 million compared to the same quarter of the prior fiscal year, primarily due to an increase across all loan portfolios.

Fiscal 2024 second quarter NIM increased to 6.23% from 6.12% in the second fiscal quarter of last year. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 35 basis points to 6.69% compared to the prior year quarter, driven by an improved earning asset mix. The yield on the loan and lease portfolio was 8.43% compared to 8.47% for the comparable period last year and the TEY on the securities portfolio was 3.20% compared to 2.89% over that same period.

For the six months ended March 31, 2024, NIM was 6.23%, an increase of 35 basis points from 5.88% compared to the same period in the prior fiscal year.

The Company's cost of funds for all deposits and borrowings averaged 0.47% during the fiscal 2024 second quarter, as compared to 0.21% during the prior year quarter. The Company's overall cost of deposits was 0.38% in the fiscal second quarter of 2024, as compared to 0.13% during the prior year quarter.

Provision for Credit Loss

The Company recognized a provision for credit loss of $26.1 million for the three months ended March 31, 2024, compared to $36.8 million for the comparable period in the prior fiscal year. The period-over-period decrease in provision for credit loss was due to improvements in the Company's data analytics, underwriting and monitoring within the tax services portfolio along with a decrease in provision for credit losses in the commercial finance portfolio primarily due to a mix shift in the loan portfolio and a benign credit environment. The Company recognized net recoveries of $1.1 million for the quarter ended March 31, 2024, compared to net charge-offs of $5.0 million for the quarter ended March 31, 2023. Net charge-offs attributable to the commercial finance portfolio for the current quarter were $4.7 million, while recoveries of $5.8 million were recognized in the tax services portfolio. Net charge-offs attributable to the commercial finance and consumer finance portfolios for the same quarter of the prior year were $5.9 million and $0.2 million, respectively, while a recovery of $1.1 million was recognized in the tax services portfolio.

The Company recognized a provision for credit loss of $35.9 million for the six months ended March 31, 2024, compared to $46.5 million for the comparable period in the prior fiscal year. The decrease was primarily due to reductions in the tax services and commercial finance portfolios. The Company recognized net charge-offs of $4.4 million for the six months ended March 31, 2024, compared to net charge-offs of $8.2 million for the six months ended March 31, 2023. Net charge-offs attributable to the commercial finance portfolio for the current six months were $9.3 million, while net recoveries of $4.9 million were recognized in the tax services portfolio. Net charge-offs attributable to the commercial finance portfolio were $7.9 million for the same six months of the prior year, while net recoveries in the tax services portfolio were insignificant.

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Noninterest Income

Fiscal 2024 second quarter noninterest income increased 2% to $128.9 million, compared to $127.0 million for the same period of the prior year. The increase was primarily driven by an increase in refund advance fee income. The period-over-period increase was partially offset by a decrease in card and deposits fees.

The period-over-period decrease in card and deposit fee income was primarily related to servicing fee income on off-balance sheet deposits, which totaled $10.4 million during the 2024 fiscal second quarter, compared to $18.2 million for the same period of the prior year. The decrease in servicing fee income when compared to the prior year period was due to a reduction in off-balance sheet deposits.

Noninterest income for the six months ended March 31, 2024 decreased to $181.7 million from $192.8 million for the same period of the prior year.

Noninterest Expense

Noninterest expense increased 10% to $140.4 million for the fiscal 2024 second quarter, from $127.1 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, compensation and benefits expense, impairment expense, legal and consulting expense, and occupancy and equipment expense. The period-over-period increase was partially offset by decreases in operating lease equipment depreciation, other expense, refund transfer product expense, and intangible amortization 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 56% of the deposit portfolio was subject to these rate-related processing expenses during the 2024 fiscal second quarter. For the fiscal quarter ended March 31, 2024, contractual, rate-related processing expenses were $30.1 million, as compared to $26.8 million for the fiscal quarter ended December 31, 2023 and $20.4 million for the fiscal quarter ended March 31, 2023.

Noninterest expense for the six months ended March 31, 2024 increased to $259.7 million from $232.2 million for the same period of the prior year.

Income Tax Expense

The Company recorded an income tax expense of $15.2 million, representing an effective tax rate of 18.9%, for the fiscal 2024 second quarter, compared to $9.2 million, representing an effective tax rate of 14.2%, for the second quarter last fiscal year. The current quarter increase in income tax expense compared to the prior year quarter was primarily due to increased earnings and also a decrease in investment tax credits recognized ratably when compared to the prior year quarter.

The Company originated $25.9 million in renewable energy leases during the fiscal 2024 second quarter, resulting in $7.0 million in total net investment tax credits. During the second quarter of fiscal 2023, the Company originated $18.1 million in renewable energy leases resulting in $4.9 million in total net investment tax credits. For the six months ended March 31, 2024, the Company originated $38.1 million in renewable energy leases, compared to $29.5 million for the comparable prior year period. 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.

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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 March 31, 2024 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.

The table below sets forth the amounts and categories of the Company's nonperforming assets.

(Dollars in thousands) March 31, 2024 September 30, 2023
Nonperforming Loans and Leases
Nonaccruing loans and leases:
Commercial finance $ 27,781 $ 37,372
Total nonaccruing loans and leases 27,781 37,372
Accruing loans and leases delinquent 90 days or more:
Loans held for sale 843 306
Commercial finance 2,679 11,242
Consumer finance 3,093 2,210
Tax services(1) — 5,082
Total accruing loans and leases delinquent 90 days or more 6,615 18,840
Total nonperforming loans and leases 34,396 56,212
Other Assets
Nonperforming operating leases 2,782 1,764
Total other assets 2,782 1,764
Total nonperforming assets $ 37,178 $ 57,976
Total as a percentage of total assets 0.50 % 0.77 %
(1) Certain tax services loans do not bear interest.

The Company's nonperforming assets at March 31, 2024 were $37.2 million, representing 0.50% 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 March 31, 2024 compared to September 30, 2023, was primarily driven by a decrease in nonperforming loans in the commercial finance portfolio.

The Company's nonperforming loans and leases at March 31, 2024 were $34.4 million, representing 0.78% 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.

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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 March 31, 2024, the Company had classified loans and leases of $218.1 million as substandard, $9.3 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.

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 $80.8 million at March 31, 2024, an increase compared to $49.7 million at September 30, 2023. The increase in the ACL at March 31, 2024, when compared to September 30, 2023, was primarily due to a $31.5 million increase in the allowance related to the seasonal tax services portfolio.

The following table presents the Company's ACL as a percentage of its total loans and leases.

As of the Period Ended
March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023
Commercial finance 1.21 % 1.30 % 1.26 % 1.35 % 1.53 %
Consumer finance 1.71 % 1.45 % 0.92 % 0.92 % 1.99 %
Tax services 37.31 % 1.52 % 0.04 % 70.20 % 53.77 %
Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 %
Total loans and leases 1.83 % 1.22 % 1.14 % 2.01 % 2.27 %
Total loans and leases excluding tax services 1.14 % 1.21 % 1.14 % 1.21 % 1.40 %

The Company's ACL as a percentage of total loans and leases increased to 1.83% at March 31, 2024 from 1.14% at September 30, 2023. The increase in the total loans and leases coverage ratio was primarily driven by seasonality in both the tax services portfolio and consumer finance portfolio.

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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 six months of fiscal 2024.

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 March 31, 2024, the Company had unfunded loan and lease commitments of $1.45 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 March 31, 2024 include $1.2 billion in off-balance sheet deposits and $348 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 $3.6 billion in total available liquidity as of March 31, 2024.

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 March 31, 2024, 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.

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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<br>to be Adequately Capitalized Under Prompt Corrective Action Provisions Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
At March 31, 2024
Tier 1 leverage capital ratio 7.75 % 7.92 % 4.00 % 5.00 %
Common equity Tier 1 capital ratio 12.30 12.83 4.50 6.50
Tier 1 capital ratio 12.56 12.83 6.00 8.00
Total capital ratio 14.21 14.09 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

The following table provides a reconciliation of the amounts included in the table above for the Company.

Standardized Approach(1)
(Dollars in thousands) March 31, 2024 September 30, 2023
Total stockholders' equity $ 739,462 $ 650,625
Adjustments:
LESS: Goodwill, net of associated deferred tax liabilities 296,889 297,679
LESS: Certain other intangible assets 19,146 21,228
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 15,862 19,679
LESS: Net unrealized (losses) on available for sale securities (205,460) (254,294)
LESS: Noncontrolling interest (420) (1,005)
ADD: Adoption of Accounting Standards Update 2016-13 1,345 2,017
Common Equity Tier 1(1) 614,790 569,355
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 (311) (826)
Total Tier 1 capital 628,140 582,190
Allowance for credit losses 62,715 47,960
Subordinated debentures, net of issuance costs 19,642 19,591
Total capital $ 710,497 $ 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.

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.

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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 March 31, 2024.

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.

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.

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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.

The EAR 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 over the next one-year period. The following table shows the results of the scenarios as of March 31, 2024:

Net Sensitive Earnings at Risk
Change in Interest Income/Expense <br>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 6,594,330 389,297 417,919 447,140 474,663 501,852 528,892 556,210
Total interest-sensitive expense 387,392 5,198 7,020 9,401 11,666 13,715 15,770 17,839
Net interest-sensitive income 384,099 410,899 437,739 462,997 488,137 513,122 538,371
Percentage change from base -12.3 % -6.1 % — % 5.8 % 11.5 % 17.2 % 23.0 %

The EAR analysis reported at March 31, 2024, 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.

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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 March 31, 2024:

Economic Value Sensitivity
Standard (Parallel Shift)
Economic Value of Equity at Risk %
-200 -100 +100 +200 +300 +400
Percentage change from base -7.6 % -3.1 % 2.2 % 3.7 % 4.9 % 6.7 %

The EVE at risk reported at March 31, 2024 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.

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 March 31, 2024, 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 March 31, 2024, 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 March 31, 2024 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 second 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 six months ended March 31, 2024.

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 second 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
January 1 to 31 497,455 $ 51.43 488,600 7,945,248
February 1 to 29 199,412 50.55 197,670 7,747,578
March 1 to 31 86,129 51.19 77,915 7,669,663
Total 782,996 764,185

(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 March 31, 2024, 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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Item 6. Exhibits.

Exhibit<br>Number Description
10.1* Pathward Financial, Inc. 2023 Omnibus Incentive Plan, filed on February 28, 2024 as an exhibit to the Registrant's Current Report on Form 8-K, is incorporated herein by reference.
31.1 Section 302 certification of Chief Executive Officer.
31.2 Section 302 certification of Chief Financial Officer.
32.1 Section 906 certification of Chief Executive Officer.
32.2 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 March 31, 2024 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: May 7, 2024 By: /s/ Brett L. Pharr
Brett L. Pharr,
Chief Executive Officer and Director
Date: May 7, 2024 By: /s/ Gregory A. Sigrist
Gregory A. Sigrist,
Executive Vice President and Chief Financial Officer

55

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: May 7, 2024 /s/ Brett L. Pharr
Chief Executive Officer and Director

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: May 7, 2024 /s/ Gregory A. Sigrist
Executive Vice President and Chief Financial Officer

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 March 31, 2024 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

May 7, 2024

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 March 31, 2024 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

May 7, 2024

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