UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q


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


For the quarterly period ended December 31, 20172023

or
☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from to.


Commission File Number:  0-22140


metalogoa05.jpgPATHWARD_LOGO_RGB.jpg
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PATHWARD FINANCIAL, GROUP, INC.®
(Exact name of registrant as specified in its charter)
Delaware42-1406262
Delaware42-1406262
(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)


(605) 782-1767(877) 497-7497
(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par valueCASHThe 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 Yes ☒  NO☐  No ☐


Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  YES Yes ☒  NO   No ☐




Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company See the definitions of "large accelerated filer." "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):

Act:
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filer☒Accelerated filer☐Non-accelerated filer☐Smaller Reporting Company☐
Emerging growth company☐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 ☐ YES    No ☒ 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 February 5, 2018:January 31, 2024:
Common Stock, $.01 par value9,683,841 shares25,490,775 Shares
Nonvoting Common Stock, $.01 par value0 Nonvoting shares



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PATHWARD FINANCIAL, GROUP, INC.
FORM 10-Q


Table of Contents
DescriptionPage
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
2
Item 1.
Financial Statements (Unaudited)
2
Condensed Consolidated Statements of Financial Condition as of December 31 2017, 2023 and September 30, 20172023
2
Condensed Consolidated Statements of Operations for the Three Months Ended December 31 2017, 2023 and 20162022
3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended DecemberDecember 31 2017, 2023 and 20162022
4
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended December 31 2017, 2023 and 20162022
5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2017 31, 2023 and 20162022
6
Notes to Condensed Consolidated Financial Statements
87
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
3934
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
5444
Item 4.
Controls and Procedures
6046
PART II - OTHER INFORMATION
Item 1.
Legal Proceedings
6148
Item 1.1A.
Legal ProceedingsRisk Factors
6148
Item 1A.  2.
Risk FactorsUnregistered Sales of Equity Securities and Use of Proceeds
6148
Item 6.5.
ExhibitsOther Information
6348
Item 6.
Exhibits
49
SIGNATURES
6450

i

Table of Contents



PART I - FINANCIAL INFORMATION
Item 1.    Financial Statements.
METAPATHWARD FINANCIAL, GROUP, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Financial Condition
(Dollars in Thousands, Except Share and Per Share Data)
 (Unaudited)  
ASSETSDecember 31, 2017 September 30, 2017
Cash and cash equivalents$1,300,409
 $1,267,586
Investment securities available for sale1,392,240
 1,106,977
Mortgage-backed securities available for sale600,112
 586,454
Investment securities held to maturity235,024
 449,840
Mortgage-backed securities held to maturity8,468
 113,689
Loans receivable1,509,140
 1,325,371
Allowance for loan losses(8,862) (7,534)
Federal Home Loan Bank Stock, at cost57,443
 61,123
Accrued interest receivable21,089
 19,380
Premises, furniture, and equipment, net20,571
 19,320
Bank-owned life insurance85,371
 84,702
Foreclosed real estate and repossessed assets128
 292
Goodwill98,723
 98,723
Intangible assets50,521
 52,178
Prepaid assets29,758
 28,392
Deferred taxes5,379
 9,101
Other assets12,449
 12,738
 

  
        Total assets$5,417,963
 $5,228,332
    
LIABILITIES AND STOCKHOLDERS’ EQUITY 
  
    
LIABILITIES 
  
Non-interest-bearing checking$2,779,645
 $2,454,057
Interest-bearing checking84,390
 67,294
Savings deposits53,535
 53,505
Money market deposits47,451
 48,758
Time certificates of deposit128,220
 123,637
Wholesale deposits420,404
 476,173
        Total deposits3,513,645
 3,223,424
Short-term debt1,313,401
 1,404,534
Long-term debt85,552
 85,533
Accrued interest payable4,065
 2,280
Accrued expenses and other liabilities63,595
 78,065
          Total liabilities4,980,258
 4,793,836
    
STOCKHOLDERS’ EQUITY 
  
Preferred stock, 3,000,000 shares authorized, no shares issued or outstanding at December 31, 2017 and September 30, 2017, respectively—
 —
Common stock, $.01 par value; 15,000,000 shares authorized, 9,685,398 and 9,626,431 shares issued, 9,664,846 and 9,622,595 shares outstanding at December 31, 2017 and September 30, 2017, respectively96
 96
Common stock, Nonvoting, $.01 par value; 3,000,000 shares authorized, no shares issued or outstanding at December 31, 2017 and September 30, 2017, respectively—
 —
Additional paid-in capital262,872
 258,336
Retained earnings170,578
 167,164
Accumulated other comprehensive income5,782
 9,166
Treasury stock, at cost, 20,552 and 3,836 common shares at December 31, 2017 and September 30, 2017, respectively(1,623) (266)
         Total stockholders’ equity437,705
 434,496
    
         Total liabilities and stockholders’ equity$5,417,963
 $5,228,332
(Dollars in thousands, except per share data)December 31, 2023September 30, 2023
ASSETS(Unaudited)(Audited)
Cash and cash equivalents$671,630 $375,580 
Securities available for sale, at fair value1,850,581 1,804,228 
Securities held to maturity, at amortized cost (fair value $32,180 and $31,425, respectively)35,440 36,591 
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost23,694 28,210 
Loans held for sale69,518 77,779 
Loans and leases4,426,281 4,366,116 
Allowance for credit losses(53,785)(49,705)
Accrued interest receivable27,080 23,282 
Premises, furniture, and equipment, net38,270 39,160 
Rental equipment, net228,916 211,750 
Goodwill and intangible assets329,241 330,225 
Other assets280,571 292,327 
Total assets$7,927,437 $7,535,543 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
LIABILITIES 
Deposits$6,936,055 $6,589,182 
Short-term borrowings— 13,000 
Long-term borrowings33,614 33,873 
Accrued expenses and other liabilities228,486 248,863 
Total liabilities7,198,155 6,884,918 
STOCKHOLDERS’ EQUITY  
Preferred stock, 3,000,000 shares authorized, no shares issued, none outstanding at December 31, 2023 and September 30, 2023, respectively— — 
Common stock, $0.01 par value; 90,000,000 shares authorized, 26,099,348 and 26,225,563 shares issued, 25,988,230 and 26,183,583 shares outstanding at December 31, 2023 and September 30, 2023, respectively260 262 
Common stock, Nonvoting, $0.01 par value; 3,000,000 shares authorized, no shares issued, none outstanding at December 31, 2023 and September 30, 2023, respectively— — 
Additional paid-in capital629,737 628,500 
Retained earnings293,463 278,655 
Accumulated other comprehensive loss(188,433)(255,443)
Treasury stock, at cost, 111,118 and 41,980 common shares at December 31, 2023 and September 30, 2023, respectively(5,235)(344)
Total equity attributable to parent729,792 651,630 
Noncontrolling interest(510)(1,005)
Total stockholders’ equity729,282 650,625 
Total liabilities and stockholders’ equity$7,927,437 $7,535,543 
See Notes to Condensed Consolidated Financial Statements.

2
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PATHWARD FINANCIAL, GROUP, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data)
 Three Months Ended December 31,
 2017 2016
Interest and dividend income:   
Loans receivable, including fees$16,443
 $10,678
Mortgage-backed securities3,758
 3,320
Other investments10,656
 8,577
 30,857
 22,575
Interest expense: 
  
Deposits1,885
 938
FHLB advances and other borrowings2,776
 1,804
 4,661
 2,742
    
Net interest income26,196
 19,833
    
Provision for loan losses1,068
 843
    
Net interest income after provision for loan losses25,128
 18,990
    
Non-interest income: 
  
Refund transfer product fees192
 176
Tax advance product fees1,947
 449
Card fees25,247
 18,414
Loan fees1,292
 870
Bank-owned life insurance669
 448
Deposit fees848
 150
Loss on sale of securities available-for-sale, net (Includes ($1,010) and ($1,234) reclassified from accumulated other comprehensive income (loss) for net gains (losses) on available for sale securities for the three months ended December 31, 2017 and 2016, respectively)(1,010) (1,234)
Loss on foreclosed real estate(19) —
Other income102
 76
Total non-interest income29,268
 19,349
    
Non-interest expense: 
  
Compensation and benefits22,340
 17,850
Refund transfer product expense101
 51
Tax advance product expense280
 27
Card processing6,540
 5,579
Occupancy and equipment4,890
 3,977
Legal and consulting2,416
 2,723
Marketing553
 470
Data processing414
 363
Intangible amortization expense1,681
 1,525
Other expense4,827
 4,188
Total non-interest expense44,042
 36,753
    
    
Income before income tax expense10,354
 1,586
    
Income tax expense (Includes ($380), and ($463) reclassified from accumulated other comprehensive income (loss) for the three months ended December 31, 2017 and 2016, respectively)5,684
 342
    
Net income$4,670
 $1,244
    
Earnings per common share 
  
Basic$0.48
 $0.14
Diluted$0.48
 $0.14
Three Months Ended December 31,
(Dollars in thousands, except per share data)20232022
Interest and dividend income:  
Loans and leases, including fees$94,963 $68,396 
Mortgage-backed securities10,049 10,412 
Other investments10,886 6,252 
 115,898 85,060 
Interest expense:  
Deposits3,526 142 
FHLB advances and other borrowings2,336 861 
 5,862 1,003 
Net interest income110,036 84,057 
Provision for credit loss9,890 9,776 
Net interest income after provision for credit loss100,146 74,281 
Noninterest income:  
Refund transfer product fees422 677 
Refund advance fee income111 617 
Card and deposit fees30,750 37,718 
Rental income13,459 12,708 
Gain on sale of trademarks— 10,000 
Gain on sale of other2,840 502 
Other income5,179 3,555 
Total noninterest income52,761 65,777 
Noninterest expense:  
Compensation and benefits46,652 43,017 
Refund transfer product expense192 105 
Refund advance expense30 27 
Card processing34,584 22,683 
Occupancy and equipment expense8,848 8,312 
Operating lease equipment depreciation10,423 9,628 
Legal and consulting4,892 9,459 
Intangible amortization984 1,258 
Impairment expense— 24 
Other expense12,669 10,546 
Total noninterest expense119,274 105,059 
Income before income tax expense33,633 34,999 
Income tax expense5,719 6,577 
Net income before noncontrolling interest27,914 28,422 
Net income attributable to noncontrolling interest257 580 
Net income attributable to parent$27,657 $27,842 
Earnings per common share:  
Basic$1.06 $0.98 
Diluted$1.06 $0.98 
See Notes to Condensed Consolidated Financial Statements.

3

Table of Contents
METAPATHWARD FINANCIAL, GROUP, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(Dollars in Thousands)
 Three Months Ended
December 31,
 2017 2016
Net income$4,670
 $1,244
    
Other comprehensive income (loss): 
  
Change in net unrealized loss on securities(7,480) (45,268)
Losses realized in net income1,010
 1,234
 (6,470) (44,034)
LESS: Deferred income tax effect(3,086) (16,092)
Total other comprehensive loss(3,384) (27,942)
Total comprehensive income (loss)$1,286
 $(26,698)
Three Months Ended December 31,
(Dollars in thousands)20232022
Net income before noncontrolling interest$27,914 $28,422 
Other comprehensive income (loss):  
Change in net unrealized gain on debt securities88,535 14,708 
88,535 14,708 
Unrealized gain on currency translation618 387 
Deferred income tax effect22,143 3,705 
Total other comprehensive income67,010 11,390 
Total comprehensive income94,924 39,812 
Total comprehensive income attributable to noncontrolling interest257 580 
Comprehensive income attributable to parent$94,667 $39,232 
See Notes to Condensed Consolidated Financial Statements.


4
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Table of Contents
PATHWARD FINANCIAL, GROUP, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
For the Three Months Ended December 31, 2017 and 2016
(Dollars in Thousands, Except Share and Per Share Data)
  
 
Common
Stock		  
Additional
Paid-in
Capital		  
 
Retained
Earnings		 Accumulated
Other
Comprehensive
Income		  
 
Treasury
Stock		  
Total
Stockholders’
Equity
Balance, September 30, 2016$85
 $184,780
 $127,190
 $22,920
 $—
 $334,975
            
Cash dividends declared on common stock ($0.13 per share)—
 —
 (1,195) —
 —
 (1,195)
            
Issuance of common shares due to issuance of stock options, restricted stock and ESOP3
 3,245
 —
 —
 —
 3,248
            
Issuance of common shares due to acquisition5
 37,291
 —
 —
 —
 37,296
            
Contingent consideration equity earnout due to SCS acquisition—
 24,091
 —
 —
 —
 24,091
            
Stock compensation—
 69
 —
 —
 —
 69
            
Net change in unrealized gains on securities, net of income taxes—
 —
 —
 (27,942) —
 (27,942)
            
Net income—
 —
 1,244
 —
 —
 1,244
            
Balance, December 31, 2016$93
 $249,476
 $127,239
 $(5,022) $—
 $371,786
            
Balance, September 30, 2017$96
 $258,336
 $167,164
 $9,166
 $(266) $434,496
            
Cash dividends declared on common stock ($0.13 per share)—
 —
 (1,256) —
 —
 (1,256)
            
Issuance of common shares due to ESOP—
 1,606
 —
 —
 —
 1,606
            
Shares repurchased for tax withholdings on stock compensation—
 (314) —
 —
 (1,357) (1,671)
            
Stock compensation—
 3,244
 —
 —
 —
 3,244
            
Net change in unrealized losses on securities, net of income taxes—
 —
 —
 (3,384) —
 (3,384)
            
Net income—
 —
 4,670
 —
 —
 4,670
            
Balance, December 31, 2017$96
 $262,872
 $170,578
 $5,782
 $(1,623) $437,705
(Dollars in thousands, except per share data)Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Treasury
Stock		Total Pathward Financial, Inc.
Stockholders’
Equity		Noncontrolling interestTotal
Stockholders’
Equity
Three Months Ended December 31, 2023
Balance, September 30, 2023$262 $628,500 $278,655 $(255,443)$(344)$651,630 $(1,005)$650,625 
Cash dividends declared on common stock ($0.05 per share)— — (1,299)— — (1,299)— (1,299)
Issuance of common stock due to restricted stock1 — — — — 1 — 1 
Repurchases of common stock(3)3 (11,027)— (4,891)(15,918)— (15,918)
Stock compensation— 1,234 — — — 1,234 — 1,234 
Total other comprehensive income— — — 67,010 — 67,010 — 67,010 
Joint venture membership interest divestiture— — (523)— — (523)— (523)
Net income— — 27,657 — — 27,657 257 27,914 
Net distribution to noncontrolling interests— — — — — — 238 238 
Balance, December 31, 2023$260 $629,737 $293,463 $(188,433)$(5,235)$729,792 $(510)$729,282 
Three Months Ended December 31, 2022
Balance, September 30, 2022$288 $617,403 $245,394 $(213,080)$(4,835)$645,170 $(30)$645,140 
Cash dividends declared on common stock ($0.05 per share)— — (1,402)— — (1,402)— (1,402)
Issuance of common stock due to restricted stock1 — — — — 1 — 1 
Repurchases of common stock(7)7 (24,943)— (1,989)(26,932)— (26,932)
Stock compensation— 3,271 — — — 3,271 — 3,271 
Total other comprehensive income— — — 11,390 — 11,390 — 11,390 
Net income— — 27,842 — — 27,842 580 28,422 
Net distribution to noncontrolling interests— — — — — — (757)(757)
Balance, December 31, 2022$282 $620,681 $246,891 $(201,690)$(6,824)$659,340 $(207)$659,133 
See Notes to Condensed Consolidated Financial Statements.



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Table of Contents
PATHWARD FINANCIAL, GROUP, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended December 31,
(Dollars in thousands)20232022
Cash flows from operating activities:  
Net income before noncontrolling interest$27,914 $28,422 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization14,689 14,566 
Provision for credit loss9,890 9,776 
Provision for deferred taxes1,162 2,255 
Originations of loans held for sale(631,905)(398,798)
Proceeds from sales of loans held for sale626,336 402,870 
Net change in loans held for sale13,829 (84)
Net realized (gain) on trademarks— (10,000)
Net realized (gain) on other(2,840)(502)
Impairment on rental equipment— 24 
Net change in accrued interest receivable(3,798)(2,191)
Net change in other assets(14,344)16,986 
Net change in accrued expenses and other liabilities(19,723)(24,222)
Stock compensation1,234 3,271 
Net cash provided by operating activities22,444 42,373 
Cash flows from investing activities:
Proceeds from maturities of and principal collected on securities available for sale41,936 49,069 
Proceeds from maturities of and principal collected on securities held to maturity1,093 1,058 
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock(91,130)(57,760)
Redemption of Federal Reserve Bank and Federal Home Loan Bank stock95,647 57,760 
Purchases of loans and leases(89,390)(67,649)
Net change in loans and leases98,895 217,812 
Purchases of premises, furniture, and equipment(1,885)(1,989)
Purchases of rental equipment(106,160)(164,245)
Proceeds from sales of rental equipment3,373 1,495 
Net change in rental equipment(79)(109)
Proceeds from sales of foreclosed real estate and repossessed assets— 1 
Proceeds from sale of trademarks— 10,000 
Proceeds from sale of other assets4,077 — 
Net cash (used in) provided by investing activities(43,623)45,443 
Cash flows from financing activities:
Net change in deposits346,873 (76,905)
Net change in short-term borrowings(13,000)— 
Principal payments on other liabilities(284)(573)
Payment of debt issuance costs— (504)
Dividends paid on common stock(1,299)(1,402)
Issuance of common stock due to restricted stock1 1 
Repurchases of common stock(15,918)(26,932)
Distributions to noncontrolling interest238 (757)
Net cash provided by (used in) financing activities316,611 (107,072)
Effect of exchange rate changes on cash618 387 
Net change in cash and cash equivalents296,050 (18,869)
Cash and cash equivalents at beginning of fiscal year375,580 388,038 
Cash and cash equivalents at end of fiscal period$671,630 $369,169 
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 Three Months Ended December 31,
(Dollars in Thousands)2017 
2016 (1)
Cash flows from operating activities:   
Net income$4,670
 $1,244
Adjustments to reconcile net income to net cash provided (used in) by operating activities: 
  
Depreciation, amortization and accretion, net9,561
 9,479
Stock-based compensation expense3,244
 69
Provision for loan losses1,068
 843
Provision (recovery) for deferred taxes6,807
 (927)
(Gain) on other assets(8) (6)
Loss on sale of foreclosed real estate19
 —
Loss on sale of securities available for sale, net1,010
 1,234
Net change in accrued interest receivable(1,709) (4,176)
Fair value adjustment of foreclosed real estate23
 —
Originations of loans held for sale—
 (27,191)
Proceeds from sales of loans held for sale—
 25,968
Change in bank-owned life insurance value(669) (448)
Net change in other assets(1,102) (27,164)
Net change in accrued interest payable1,785
 1,379
Net change in accrued expenses and other liabilities(14,462) 14,255
Net cash provided by (used in) operating activities10,237
 (5,441)
    
Cash flows from investing activities: 
  
Purchase of securities available-for-sale(105,327) (144,024)
Proceeds from sales of securities available-for-sale65,941
 60,623
Proceeds from maturities and principal repayments of securities available for sale35,065
 30,849
Proceeds from maturities and principal repayments of securities held to maturity12,021
 13,301
Loans purchased(75,163) (136,172)
Loans sold5,916
 6,525
Net change in loans receivable(114,827) (59,008)
Proceeds from sales of foreclosed real estate or other assets122
 —
Net cash paid for acquisitions—
 (29,425)
Federal Home Loan Bank stock purchases(249,920) (140,680)
Federal Home Loan Bank stock redemptions253,600
 184,360
Proceeds from the sale of premises and equipment—
 58
Purchase of premises and equipment(2,593) (2,899)
Net cash used in investing activities(175,165) (216,492)
    
Cash flows from financing activities: 
  
Net change in checking, savings, and money market deposits341,407
 309,726
Net change in time deposits4,583
 (3,658)
Net change in wholesale deposits(55,769) 926,987
Net change in FHLB and other borrowings(205,000) (100,000)
Net change in federal funds113,000
 (992,000)
Net change in securities sold under agreements to repurchase867
 744
Principal payments on capital lease obligations(16) (18)
Cash dividends paid(1,256) (1,195)
Purchase of shares by ESOP1,606
 —
Proceeds from exercise of stock options and issuance of common stock—
 3,248
Shares repurchased for tax withholdings on stock compensation(1,671) —
Net cash provided by financing activities197,751
 143,834
    
Net change in cash and cash equivalents32,823
 (78,099)
    
Cash and cash equivalents at beginning of period1,267,586
 773,830
Cash and cash equivalents at end of period$1,300,409
 $695,731
    







Supplemental disclosure of cash flow information 
  
Cash paid during the period for: 
  
Interest$6,446
 $1,362
Income taxes218
 2,110
Franchise taxes31
 20
Other taxes1
 1
    
Supplemental schedule of non-cash investing activities: 
  
Securities transferred from held to maturity to available for sale$(306,000) $—
Contingent consideration - cash  $(17,259)
Contingent consideration - equity—
 (24,091)
Stock issued for acquisition—
 (37,296)
Three Months Ended December 31,
(Dollars in thousands)20232022
Supplemental disclosure of cash flow information:  
Cash paid during the period for:  
Interest$4,168 $478 
Income taxes641 492 
Franchise and other taxes66 66 
Supplemental schedule of non-cash investing activities:  
Transfers
Loans and leases to rental equipment1,430 1,405 
Rental equipment to loan and leases76,941 128,145 
Recognition of operating lease ROU assets, net of measurements654 — 
Joint venture membership interest divestiture523 — 
See Notes to Condensed Consolidated Financial Statements.
(1) See Note 1. Basis

7
Table of Presentation for further discussion on the current presentation.Contents

NOTE 1. BASIS OF PRESENTATION


The interim unaudited Condensed Consolidated Financial Statements contained herein should be read in conjunction with the audited consolidated financial statements and accompanying notes to the consolidated financial statements for the fiscal year ended September 30, 20172023 included in MetaPathward Financial, Group, Inc.’s (“Meta Financial”("Pathward Financial" or the “Company”“Company") Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on November 29, 2017.21, 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 month periodmonths ended December 31, 20172023 are not necessarily indicative of the results expected for the fiscal year ending September 30, 2018.2024.


InCertain prior fiscal 2017,year amounts have been reclassified to conform to the Company early adopted Accounting Standards Updatecurrent 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") 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." The requirement to report

Significant accounting policies in effect and disclosed within the excess tax benefit related to settlements of share-based payment awards in earnings as an increase or (decrease) to income tax expense has been applied utilizing the prospective method. While the adoption of ASU 2016-09 requires retrospective application to all fiscal year periods presented, the Company elected to not recast previously reportedCompany’s most recent audited consolidated financial statements as the impact was considered insignificant. However,of September 30, 2023 remain substantially unchanged.

The following ASU became effective for the Company reclassified stock compensation from financing to operating activities on the Consolidated Statement of Cash Flows as of December 31, 2017October 1, 2023, and December 31, 2016.

NOTE 2.     CREDIT DISCLOSURES

The allowance for loan losses represents management’s estimate of probable loan losses whichdid not have been incurred as of the date of the consolidated financial statements.  The allowance for loan losses is increased by a provision for loan losses charged to expense and decreased by charge-offs (net of recoveries).  Estimating the risk of loss and the amount of loss on any loan is necessarily subjective.  Management’s periodic evaluation of the appropriateness of the allowance is basedmaterial impact on the Company’s pastsignificant 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 loss experience, knownrefinancings and inherent risks in the portfolio, adverse situations that may affect the borrower’s abilityrestructurings when a borrower is experiencing financial difficulty. The ASU also requires current-period gross charge-offs by year of origination to repay, thebe 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 valuefair values of any underlying collateral, and current economic conditions.  While management may periodically allocate portions of the allowance for specific problem loan situations, the entire allowance is available for any loan charge-offssale ("AFS") and held to maturity ("HTM") debt securities are presented below.
(Dollars in thousands)Amortized CostGross Unrealized GainsGross Unrealized (Losses)Fair
Value
Debt Securities AFS
At December 31, 2023
Corporate securities$25,000 $— $(6,625)$18,375 
SBA securities94,458 — (6,726)87,732 
Obligations of states and political subdivisions2,351 — (47)2,304 
Non-bank qualified obligations of states and political subdivisions262,999 25 (34,136)228,888 
Asset-backed securities244,965 96 (7,357)237,704 
Mortgage-backed securities1,471,376 27 (195,825)1,275,578 
Total debt securities AFS$2,101,149 $148 $(250,716)$1,850,581 
At September 30, 2023
Corporate securities$25,000 $— $(6,750)$18,250 
SBA securities95,549 — (10,307)85,242 
Obligations of states and political subdivisions2,368 — (79)2,289 
Non-bank qualified obligations of states and political subdivisions269,396 — (42,673)226,723 
Asset-backed securities255,384 234 (9,419)246,199 
Mortgage-backed securities1,495,636 — (270,111)1,225,525 
Total debt securities AFS$2,143,333 $234 $(339,339)$1,804,228 
Debt Securities HTM
At December 31, 2023
Non-bank qualified obligations of states and political subdivisions$33,337 $— $(3,050)$30,287 
Mortgage-backed securities2,103 — (210)1,893 
Total debt securities HTM$35,440 $— $(3,260)$32,180 
At September 30, 2023
Non-bank qualified obligations of states and political subdivisions$34,415 $— $(4,844)$29,571 
Mortgage-backed securities2,176 — (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 occur.individual securities have been in a continuous loss position, were as follows:

LESS THAN 12 MONTHSOVER 12 MONTHSTOTAL
(Dollars in thousands)Fair
Value		Gross Unrealized (Losses)Fair
Value		Gross Unrealized (Losses)Fair
Value		Gross Unrealized (Losses)
Debt Securities AFS
At December 31, 2023
Corporate securities$— $— $18,375 $(6,625)$18,375 $(6,625)
SBA securities23,502 (742)64,229 (5,984)87,731 (6,726)
Obligations of state and political subdivisions— — 2,304 (47)2,304 (47)
Non-bank qualified obligations of states and political subdivisions1,616 (18)225,198 (34,118)226,814 (34,136)
Asset-backed securities86,695 (257)112,043 (7,100)198,738 (7,357)
Mortgage-backed securities17,688 (245)1,256,811 (195,580)1,274,499 (195,825)
Total debt securities AFS$129,501 $(1,262)$1,678,960 $(249,454)$1,808,461 $(250,716)
At September 30, 2023
Corporate securities$— $— $18,250 $(6,750)$18,250 $(6,750)
SBA securities22,327 (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 subdivisions5,010 (83)221,714 (42,590)226,723 (42,673)
Asset-backed securities46,528 (224)115,608 (9,195)162,136 (9,419)
Mortgage-backed securities18,311 (944)1,207,214 (269,167)1,225,525 (270,111)
Total debt securities AFS$92,176 $(3,170)$1,627,990 $(336,169)$1,720,165 $(339,339)
Debt Securities HTM
At December 31, 2023
Non-bank qualified obligations of states and political subdivisions$— $— $30,287 $(3,050)$30,287 $(3,050)
Mortgage-backed securities— — 1,893 (210)1,893 (210)
Total debt securities HTM$— $— $32,180 $(3,260)$32,180 $(3,260)
At September 30, 2023
Non-bank qualified obligations of states and political subdivisions$— $— $29,571 $(4,844)$29,571 $(4,844)
Mortgage-backed securities— — 1,854 (322)1,854 (322)
Total debt securities HTM$— $— $31,425 $(5166)$31,425 $(5,166)
Loans are considered impaired if full principal or interest payments are not probable
The increase in accordance with the contractual loan terms.  Impaired loans are carried at the present value of expected future cash flows discounted at the loan’s effective interest rate or at the fair value of investment securities balances when comparing December 31, 2023 to September 30, 2023 was primarily driven by decreases in unrealized losses due to steady interest rates during the collateral if the loan is collateral dependent.  A portionthree months. At December 31, 2023, there were 199 securities AFS in an unrealized loss position. All of the mortgage-backed securities ("MBS") in an unrealized loss position at December 31, 2023 were government guaranteed. Management assessed each investment security with unrealized losses for credit loss and determined all unrealized losses on these securities were due to adverse market conditions and/or change in interest rates versus credit loss. As part of that assessment, management evaluated and concluded that it is more-likely-than-not that the Company will not be required and does not intend to sell any of the securities prior to recovery of the amortized cost. At December 31, 2023, there was no allowance for loancredit losses is allocated to impaired loans if the("ACL") for debt securities AFS.

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The amortized cost and fair value of such loansdebt securities by contractual maturity are shown below. Certain securities have call features that allow the issuer to call the security prior to maturity. Expected maturities may differ from contractual maturities in MBS because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, MBS are not included in the maturity categories in the following maturity summary. The expected maturities of certain SBA securities may differ from contractual maturities because the borrowers may have the right to prepay the obligation. However, certain prepayment penalties may apply.
(Dollars in thousands)At December 31, 2023At September 30, 2023
Debt Securities AFSAmortized CostFair
Value		Amortized CostFair
Value
Due in one year or less$3,597 $3,579 $5,023 $4,971 
Due after one year through five years11,172 10,523 11,175 10,292 
Due after five years through ten years79,137 68,613 79,139 66,428 
Due after ten years535,867 492,288 552,360 497,012 
629,773 575,003 647,697 578,703 
Mortgage-backed securities1,471,376 1,275,578 1,495,636 1,225,525 
Total debt securities AFS$2,101,149 $1,850,581 $2,143,333 $1,804,228 
Debt Securities HTM
Due after ten years$33,337 $30,287 $34,415 $29,571 
33,337 30,287 34,415 29,571 
Mortgage-backed securities2,103 1,893 2,176 1,854 
Total debt securities HTM$35,440 $32,180 $36,591 $31,425 

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

Federal Home Loan Bank ("FHLB") Stock. The Company's borrowings from the unpaid balance.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 allowance consistsinvestments in the FHLB stock are required investments related to the Company's membership in and current borrowings from the FHLB of specific, general and unallocated components.Des Moines. The specific component relates to impaired loans.  For such loans, an allowance is established wheninvestments in the discounted cash flows (or collateral value or observable market price)FHLB of Des Moines could be adversely impacted by the financial operations of the impaired loanFHLB and actions of their regulator, the Federal Housing Finance Agency.

The FHLB stock is lower than thecarried at cost since it is generally redeemable at par value. The carrying value of that loan.  The general component covers loans not considered impairedthe stock held at the FHLB was $4.0 million and is based on historical loss experience adjusted for qualitative factors.  An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses.  The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.


Homogeneous loan populations are collectively evaluated for impairment.  These loan populations may include commercial insurance premium finance loans, residential first mortgage loans secured by one-to-four family residences, residential construction loans, home equity and second mortgage loans, and tax product loans.  Commercial and agricultural loans as well as mortgage loans secured by other properties are monitored regularly by the Bank given the larger balances. When analysis of the borrower operating results and financial condition indicates that underlying cash flows of the borrower’s business is not adequate to meet its debt service requirements, the individual loan or loan relationship is evaluated for impairment. Often this is associated with a delay or shortfall in payments of 210 days or more for commercial insurance premium finance, 180 days or more for tax and other national lending loans and 90 days or more for other loans. Non-accrual loans and all troubled debt restructurings are considered impaired.  Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Loans receivable$8.5 million at December 31, 20172023 and at September 30, 2023, respectively.

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

Equity Securities. The Company held $4.2 million and $3.4 million in marketable equity securities within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2023 and September 30, 20172023, respectively. The Company recognized $0.1 million and zero in unrealized gains on marketable equity securities during the three months ended December 31, 2023 and 2022, respectively. No such securities were as follows:sold during the three months ended December 31, 2023.

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Table of Contents
 December 31, 2017 September 30, 2017
 (Dollars in Thousands)
1-4 Family Real Estate$203,967
 $196,706
Commercial and Multi-Family Real Estate654,029
 585,510
Agricultural Real Estate61,303
 61,800
Consumer274,981
 163,004
Commercial Operating56,516
 35,759
Agricultural Operating24,696
 33,594
Commercial Insurance Premium Finance235,671
 250,459
Total Loans Receivable1,511,163
 1,326,832
    
Allowance for Loan Losses(8,862) (7,534)
Net Deferred Loan Origination Fees(2,023) (1,461)
Total Loans Receivable, Net$1,500,278
 $1,317,837
Non-marketable equity securities with a readily determinable fair value totaled $9.7 million and $8.4 million at December 31, 2023 and September 30, 2023, respectively. The Company recognized $0.3 million and $0.1 million in unrealized gainsduring the three months ended December 31, 2023 and 2022, respectively. No such securities were sold during the three months ended December 31, 2023.



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



Activity inEquity Securities Impairment. The Company evaluates impairment for investments held at cost on at least an annual basis based on the allowanceultimate recoverability of the par value. All other equity investments, including those under the equity method, are reviewed for loan losses and balances of loans receivable by portfolio segmentother-than-temporary impairment on at least a quarterly basis. The Company recognized no impairment for such investments for the three months ended December 31, 20172023 and 20162022, respectively.

NOTE 4. LOANS AND LEASES, NET

Loans and leases consist of the following:
(Dollars in thousands)December 31, 2023September 30, 2023
Term lending$1,452,274 $1,308,133 
Asset-based lending379,681 382,371 
Factoring335,953 358,344 
Lease financing188,889 183,392 
Insurance premium finance671,035 800,077 
SBA/USDA546,048 524,750 
Other commercial finance160,628 166,091 
Commercial finance3,734,508 3,723,158 
Consumer finance301,510 254,416 
Tax services33,435 5,192 
Warehouse finance349,911 376,915 
Total loans and leases4,419,364 4,359,681 
Net deferred loan origination costs6,917 6,435 
Total gross loans and leases4,426,281 4,366,116 
Allowance for credit losses(53,785)(49,705)
Total loans and leases, net$4,372,496 $4,316,411 

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

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


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Table of Contents
Loans purchased and sold by portfolio segment, including participation interests, were as follows:
Three Months Ended December 31,
(Dollars in thousands)20232022
Loans Purchased
Loans held for investment:
Warehouse finance$89,390 $67,649 
Total purchases$89,390 $67,649 
Loans Sold
Loans held for sale:
Commercial finance$3,872 $855 
Consumer finance622,464 402,015 
Total sales$626,336 $402,870 

Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following:
(Dollars in thousands)December 31, 2023September 30, 2023
Minimum lease payments receivable$197,829 $191,807 
Unguaranteed residual assets14,388 12,709 
Unamortized initial direct costs114 141 
Unearned income(23,181)(21,124)
Total net investment in direct financing and sales-type leases$189,150 $183,533 

The components of total lease income were as follows:
Three Months Ended December 31,
(Dollars in thousands)20232022
Interest income - loans and leases
Interest income on net investments in direct financing and sales-type leases$3,108 $3,143 
Leasing and equipment finance noninterest income
Lease income from operating lease payments13,255 12,554 
Other(1)
724 702 
Total leasing and equipment finance noninterest income13,979 13,256 
Total lease income$17,087 $16,399 
(1) Other leasing and equipment finance noninterest income consists of gains (losses) on sales of leased equipment, fees and service charges on leases and gains (losses) on sales of leases.


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Table of Contents
Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at December 31, 2023 were as follows:
(Dollars in thousands)
Remaining in 2024$60,302 
202554,431 
202633,348 
202720,287 
202815,912 
Thereafter13,549 
Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases197,829 
Third-party residual value guarantees— 
Total carrying amount of direct financing and sales-type leases$197,829 

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

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

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

Three Months Ended December 31, 2023
(Dollars in thousands)Beginning BalanceProvision (Reversal)Charge-offsRecoveriesEnding Balance
Allowance for credit losses:
Term lending$25,686 $5,822 $(5,121)$626 $27,013 
Asset-based lending2,738 (1,510)— 142 1,370 
Factoring6,566 751 (23)139 7,433 
Lease financing3,302 766 (153)93 4,008 
Insurance premium finance2,637 (239)(365)90 2,123 
SBA/USDA2,962 327 — — 3,289 
Other commercial finance3,089 223 — — 3,312 
Commercial finance46,980 6,140 (5,662)1,090 48,548 
Consumer finance2,346 2,097 (63)— 4,380 
Tax services2 1,356 (1,145)294 507 
Warehouse finance377 (27)— — 350 
Total loans and leases49,705 9,566 (6,870)1,384 53,785 
Unfunded commitments(1)
272 324 — — 596 
Total$49,977 $9,890 $(6,870)$1,384 $54,381 
(1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition.
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 1-4 Family
Real Estate		 Commercial and
Multi-Family
Real Estate		 Agricultural
Real Estate		 Consumer Commercial
Operating		 Agricultural
Operating		 CML Insurance
Premium
Finance		 Unallocated Total
 (Dollars in Thousands)
Three Months Ended December 31, 2017                 
Allowance for loan losses:                 
Beginning balance$803
 $2,670
 $1,390
 $6
 $158
 $1,184
 $796
 $527
 $7,534
Provision (recovery) for loan losses(118) 364
 (210) 297
 690
 (380) 51
 374
 1,068
Charge offs(31) —
 —
 —
 —
 —
 (129) —
 (160)
Recoveries—
 —
 —
 367
 46
 —
 7
 —
 420
Ending balance$654
 $3,034
 $1,180
 $670
 $894
 $804
 $725
 $901
 $8,862
                  
Ending balance: individually evaluated for impairment—
 —
 —
 —
 —
 —
 —
 —
 —
Ending balance: collectively evaluated for impairment654
 3,034
 1,180
 670
 894
 804
 725
 901
 8,862
Total$654
 $3,034
 $1,180
 $670
 $894
 $804
 $725
 $901
 $8,862
                  
Loans: 
  
  
  
  
  
  
  
  
Ending balance: individually
evaluated for impairment		95
 707
 —
 61
 —
 1,052
 —
 —
 1,915
Ending balance: collectively
evaluated for impairment		203,872
 653,322
 61,303
 274,920
 56,516
 23,644
 235,671
 —
 1,509,248
Total$203,967
 $654,029
 $61,303
 $274,981
 $56,516
 $24,696
 $235,671
 $—
 $1,511,163

Three Months Ended December 31, 2022
(Dollars in thousands)Beginning BalanceProvision (Reversal)Charge-offsRecoveriesEnding Balance
Allowance for credit losses:
Term lending$24,621 $3,671 $(1,817)$277 $26,752 
Asset-based lending1,050 2,853 — — 3,903 
Factoring6,556 (764)(121)3 5,674 
Lease financing5,902 (438)(406)180 5,238 
Insurance premium finance1,450 (47)(185)43 1,261 
SBA/USDA3,263 (651)— 20 2,632 
Other commercial finance1,310 2,046 — — 3,356 
Commercial finance44,152 6,670 (2,529)523 48,816 
Consumer finance1,463 1,603 (179)— 2,887 
Tax services5 1,637 (1,731)698 609 
Warehouse finance327 (47)— — 280 
Total loans and leases45,947 9,863 (4,439)1,221 52,592 
Unfunded commitments(1)
366 (87)— — 279 
Total$46,313 $9,776 $(4,439)$1,221 $52,871 
(1) Reserve for unfunded commitments is recognized within other liabilities on the Condensed Consolidated Statements of Financial Condition.

 1-4 Family
Real Estate		 Commercial and
Multi-Family
Real Estate		 Agricultural
Real Estate		 Consumer Commercial
Operating		 Agricultural
Operating		 CML Insurance
Premium
Finance		 Unallocated Total
 (Dollars in Thousands)
Three Months Ended December 31, 2016                 
Allowance for loan losses:                 
Beginning balance$654
 $2,198
 $142
 $51
 $117
 $1,332
 $588
 $553
 $5,635
Provision (recovery) for loan losses—
 (286) 334
 (28) 691
 (3) 110
 25
 843
Charge offs—
 —
 —
 —
 —
 —
 (118) —
 (118)
Recoveries—
 —
 —
 24
 5
 12
 14
 —
 55
Ending balance$654
 $1,912
 $476
 $47
 $813
 $1,341
 $594
 $578
 $6,415
                  
Ending balance: individually
evaluated for impairment		11
 —
 —
 —
 339
 —
 —
 —
 350
Ending balance: collectively
evaluated for impairment		643
 1,912
 476
 47
 474
 1,341
 594
 578
 6,065
Total$654
 $1,912
 $476
 $47
 $813
 $1,341
 $594
 $578
 $6,415
                  
Loans: 
  
  
  
  
  
  
  
  
Ending balance: individually
evaluated for impairment		190
 429
 —
 —
 505
 —
 —
 —
 1,124
Ending balance: collectively
evaluated for impairment		172,687
 440,083
 64,014
 173,164
 50,319
 33,617
 179,508
 —
 1,113,392
Total$172,877
 $440,512
 $64,014
 $173,164
 $50,824
 $33,617
 $179,508
 $—
 $1,114,516
Information on loans and leases that are deemed to be collateral dependent and are evaluated individually for the ACL was as follows:

(Dollars in thousands)At December 31, 2023At September 30, 2023
Term lending$4,160 $3,516 
Asset-based lending7,731 19,226 
Factoring3,562 1,133 
Lease financing593 630 
SBA/USDA2,591 750 
Commercial finance(1)
18,637 25,255 
Total$18,637 $25,255 
(1) For Commercial Finance, collateral dependent financial assets have collateral in the form of cash, equipment, or other business assets.


Management has identified certain structured finance credits for alternative energy projects in which a substantial cash collateral account has been established to mitigate credit risk. Due to the nature of the transactions and significant cash collateral positions, these credits are evaluated individually. The balance of these pass rated cash collateral loans totaled $114.3 million and $117.0 million at December 31, 2023 and at September 30, 2023, respectively.

Federal regulations promulgated by the Bank's primary federal regulator, the Office of the Comptroller of the Currency (the "OCC"), provide for the classification of loans and other assets such as debt and equity securities.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 for the Company and its wholly-owned subsidiary, MetaBank (the "Bank"), are generally as follows:


Pass-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-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.


15
Table of Contents
Special Mention- SpecialMention - A special mention assets are creditsasset 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.

Substandard-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 that 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-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-Loss - A loss asset is considered uncollectible and of such little value that the asset’s continuance on the Company'sBank’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.


General allowances represent loss allowances which have been established to recognize the inherent riskLoans and leases, or portions thereof, are generally charged off when collection of principal becomes doubtful. Typically, this is associated with lending activities, but which, unlike specific allowances,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 allocated to particular problem assets.  When assets are classified as “loss,”collected by the Company is required either to establish a specific allowance for losses equal to 100%end of that portionJune and refund advance loans if such loans have not been collected by the end of the asset so classifiedcalendar 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 to charge-off such amount.  The Company's determinations as to the classification of its assetsloans 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.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 LoanCredit Losses.


The Company has various portfolios of consumer finance and tax services loans that present unique risks that are statistically managed. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in its evaluation of the appropriateness of the ACL on these portfolios, and as such, these loans are not included in the asset classification table below. The outstanding balances of consumer finance loans and tax services loans were $301.5 million and $33.4 million at December 31, 20172023, respectively, and $254.4 million and $5.2 million at September 30, 2017 were as follows:

December 31, 20171-4 Family
Real Estate		 Commercial and
Multi-Family
Real Estate		 Agricultural
Real Estate		 Consumer Commercial
Operating		 Agricultural
Operating		 CML Insurance
Premium
Finance		 Total
 (Dollars in Thousands)
Pass$203,035
 $643,393
 $28,794
 $274,783
 $56,245
 $14,304
 $235,671
 $1,456,225
Watch608
 10,145
 —
 102
 271
 13
 —
 11,139
Special Mention245
 199
 2,939
 —
 —
 —
 —
 3,383
Substandard79
 292
 29,570
 96
 —
 10,379
 —
 40,416
Doubtful—
 —
 —
 —
 —
 —
 —
 —
 $203,967
 $654,029
 $61,303
 $274,981
 $56,516
 $24,696
 $235,671
 $1,511,163

September 30, 20171-4 Family
Real Estate		 Commercial and
Multi-Family
Real Estate		 Agricultural
Real Estate		 Consumer Commercial
Operating		 Agricultural
Operating		 Premium
Finance		 Total
 (Dollars in Thousands)
Pass$195,838
 $574,730
 $27,376
 $163,004
 $35,759
 $18,394
 $250,459
 $1,265,560
Watch525
 10,200
 2,006
 —
 —
 4,541
 —
 17,272
Special Mention247
 201
 2,939
 —
 —
 —
 —
 3,387
Substandard96
 379
 29,479
 —
 —
 10,659
 —
 40,613
Doubtful—
 —
 —
 —
 —
 —
 —
 —
 $196,706
 $585,510
 $61,800
 $163,004
 $35,759
 $33,594
 $250,459
 $1,326,832

One-to-Four Family Residential Mortgage Lending.  One-to-four family residential mortgage loan originations are generated by the Company’s marketing efforts, its present customers, walk-in customers and referrals.2023, respectively. The Company offers fixed-rate and adjustable rate mortgage (“ARM”) loans for both permanent structures and those under construction.  The Company’s one-to-four family residential mortgage originations are secured primarily by properties located in its primary market area and surrounding areas.

The Company originates one-to-four family residential mortgage loans with terms up to a maximum of 30 years and with loan-to-value ratios up to 100% of the lesser of the appraised value of the security property or the contract price.  The Company generally requires that private mortgage insurance be obtained in an amount sufficient to reduce the Company’s exposure to at or below the 80% loan‑to‑value level. Residential loans generally do not include prepayment penalties. Due to consumer demand, the Company offers fixed-rate mortgage loans with terms up to 30 years, most of which conform to secondary market standards, such as Fannie Mae, Ginnie Mae, and Freddie Mac standards.  The Company typically holds all fixed-rate mortgage loans and does not engage in secondary market sales.  Interest rates charged on these fixed-rate loans are competitively priced according to market conditions.

The Company also currently offers five- and ten-year ARM loans.  These loans have a fixed-rate for the stated period and, thereafter, adjust annually.  These loans generally provide for an annual cap of up to 200amortized cost basis points and a lifetime cap of 600 basis points over the initial rate.  As a consequence of using an initial fixed-rate and caps, the interest rates on these loans may not be as rate sensitive as the Company’s cost of funds.  The Company’s ARMs do not permit negative amortization of principal and are not convertible into fixed-rate loans.  The Company’s delinquency experience on its ARM loans has generally been similar to its experience on fixed-rate residential loans.  The current low mortgage interest rate environment makes ARM loans relatively unattractive and very few are currently being originated.




In underwriting one-to-four family residential real estate loans, the Company evaluates both the borrower’s ability to make monthly payments and the value of the property securing the loan.  Properties securing real estate loans made by the Company are appraised by independent appraisers approved by the Board of Directors of the Company.  The Company generally requires borrowers to obtain an attorney’s title opinion or title insurance, and fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan.  Real estate loans originated by the Company generally contain a “due on sale” clause allowing the Company to declare the unpaid principal balance due and payable upon the sale of the security property.  The Company has not engaged in sub-prime residential mortgage originations.

Commercial and Multi-Family Real Estate Lending.  The Company engages in commercial and multi-family real estate lending in its primary market area and surrounding areas and, in order to supplement its loan portfolio, has purchased whole loan and participation interests in loans from other financial institutions.  The purchased loans and loan participation interests are generally secured by properties primarily located in the Midwest.

The Company’s commercial and multi-family real estate loan portfolio is secured primarily by apartment buildings, office buildings and hotels.  Commercial and multi-family real estate loans generally are underwritten with terms not exceeding 20 years, have loan-to-value ratios of up to 80% of the appraised value of the security property, and are typically secured by guarantees of the borrowers.  The Company has a variety of rate adjustment features and other terms in its commercial and multi-family real estate loan portfolio.  Commercial and multi-family real estate loans provide for a margin over a number of different indices.  In underwriting these loans, the Company analyzes the financial condition of the borrower, the borrower’s credit history, and the reliability and predictability of the cash flow generated by the property securing the loan.  Appraisals on properties securing commercial real estate loans originated by the Company are performed by independent appraisers.

Commercial and multi-family real estate loans generally present a higher level of risk than loans secured by one-to-four family residences.  This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effectleases by asset classification and year of general economic conditions on income producing properties and the increased difficultyorigination was as follows:
Amortized Cost Basis
(Dollars in thousands)Term Loans and Leases by Origination YearRevolving Loans and LeasesTotal
At December 31, 202320242023202220212020Prior
Term lending
Pass$234,250 $496,789 $138,710 $110,564 $59,710 $55,391 $— $1,095,414 
Watch61,518 32,021 43,154 23,282 13,908 2,416 — 176,299 
Special mention922 24,558 13,232 26,952 572 283 — 66,519 
Substandard9,393 25,451 27,768 13,345 23,610 4,953 — 104,520 
Doubtful715 1,202 4,300 976 879 1,450 — 9,522 
Total306,798 580,021 227,164 175,119 98,679 64,493 — 1,452,274 
Current period charge-offs— 118 2,524 1,673 618 188 — 5,121 
Asset-based lending
Pass— — — — — — 187,835 187,835 
Watch— — — — — — 159,962 159,962 
Special mention— — — — — — 22,378 22,378 
16
Table of evaluating and monitoring these typesContents
Substandard— — — — — — 9,506 9,506 
Total— — — — — — 379,681 379,681 
Current period charge-offs— — — — — — — — 
Factoring
Pass— — — — — — 253,129 253,129 
Watch— — — — — — 63,492 63,492 
Special mention— — — — — — 5,528 5,528 
Substandard— — — — — — 13,804 13,804 
Total— — — — — — 335,953 335,953 
Current period charge-offs— — — — — — 23 23 
Lease financing
Pass26,190 62,933 13,847 13,464 22,422 2,564 — 141,420 
Watch1,266 458 9,747 10,573 3,769 1,635 — 27,448 
Special mention— 2 — 175 360 265 — 802 
Substandard— 6,126 2,005 5,642 2,884 2,272 — 18,929 
Doubtful— — — 64 — 226 — 290 
Total27,456 69,519 25,599 29,918 29,435 6,962 — 188,889 
Current period charge-offs— — 44 42 67 — — 153 
Insurance premium finance
Pass238,408 430,949 352 — — — — 669,709 
Watch— 251 — — — — — 251 
Special mention— 420 — — — — — 420 
Substandard— 317 4 — — — — 321 
Doubtful— 326 8 — — — — 334 
Total238,408 432,263 364 — — — — 671,035 
Current period charge-offs— 202 163 — — — — 365 
SBA/USDA
Pass27,424 154,580 147,067 24,847 35,508 26,629 — 416,055 
Watch— 53,475 48,374 650 61 3,309 — 105,869 
Special mention— — — 525 — — — 525 
Substandard— 252 2,339 1,706 5,377 13,925 — 23,599 
Total27,424 208,307 197,780 27,728 40,946 43,863 — 546,048 
Current period charge-offs— — — — — — — — 
Other commercial finance
Pass— 2,300 18,958 32,615 1,105 76,911 — 131,889 
Watch— 1,736 — — — — — 1,736 
Substandard— 2,717 58 24,228 — — — 27,003 
Total— 6,753 19,016 56,843 1,105 76,911 — 160,628 
Current period charge-offs— — — — — — — — 
Warehouse finance
Pass— — — — — — 349,911 349,911 
Total— — — — — — 349,911 349,911 
Current period charge-offs— — — — — — — — 
Total loans and leases
Pass526,272 1,147,551 318,934 181,490 118,745 161,495 790,875 3,245,362 
Watch62,784 87,941 101,275 34,505 17,738 7,360 223,454 535,057 
Special mention922 24,980 13,232 27,652 932 548 27,906 96,172 
Substandard9,393 34,863 32,174 44,921 31,871 21,150 23,310 197,682 
Doubtful715 1,528 4,308 1,040 879 1,676 — 10,146 
Total$600,086 $1,296,863 $469,923 $289,608 $170,165 $192,229 $1,065,545 $4,084,419 
Current period charge-offs$— $320 $2,731 $1,715 $685 $188 $23 $5,662 
17
Table of loans.  Furthermore, the repaymentContents
Amortized Cost Basis
(Dollars in thousands)Term Loans and Leases by Origination YearRevolving Loans and LeasesTotal
At September 30, 202320232022202120202019Prior
Term lending
Pass$539,448 $149,190 $99,677 $73,132 $14,368 $85,812 $— $961,627 
Watch53,481 51,036 58,041 12,230 4,483 727 — 179,998 
Special mention26,539 13,853 20,463 723 2,932 75 — 64,585 
Substandard20,437 30,451 14,729 24,613 3,872 764 — 94,866 
Doubtful200 2,655 1,691 1,121 165 1,225 — 7,057 
Total640,105 247,185 194,601 111,819 25,820 88,603 — 1,308,133 
Asset-based lending
Pass— — — — — — 161,744 161,744 
Watch— — — — — — 174,243 174,243 
Special mention— — — — — — 26,382 26,382 
Substandard— — — — — — 19,501 19,501 
Doubtful— — — — — — 501 501 
Total— — — — — — 382,371 382,371 
Factoring
Pass— — — — — — 270,754 270,754 
Watch— — — — — — 70,833 70,833 
Special mention— — — — — — 8,892 8,892 
Substandard— — — — — — 7,865 7,865 
Total— — — — — — 358,344 358,344 
Lease financing
Pass57,123 15,941 15,167 27,489 4,036 1,281 — 121,037 
Watch793 10,436 12,566 4,494 1,579 55 — 29,923 
Special mention— — 847 415 195 — — 1,457 
Substandard14,890 1,983 7,082 3,660 3,062 33 — 30,710 
Doubtful— — 71 61 — 133 — 265 
Total72,806 28,360 35,733 36,119 8,872 1,502 — 183,392 
Insurance premium finance
Pass797,267 1,210 — — — — — 798,477 
Watch858 34 — — — — — 892 
Special mention250 15 — — — — — 265 
Substandard91 20 — — — — — 111 
Doubtful180 152 — — — — — 332 
Total798,646 1,431 — — — — — 800,077 
SBA/USDA
Pass158,675 148,525 26,244 36,274 8,798 18,252 — 396,768 
Watch49,010 48,833 658 51 357 2,572 — 101,481 
Special mention— — 530 — — — — 530 
Substandard252 2,356 1,718 5,418 8,509 7,718 — 25,971 
Total207,937 199,714 29,150 41,743 17,664 28,542 — 524,750 
Other commercial finance
Pass2,330 18,927 32,737 1,137 10,122 69,927 — 135,180 
Watch1,742 — — — — — — 1,742 
Substandard2,753 450 25,708 — — 258 — 29,169 
Total6,825 19,377 58,445 1,137 10,122 70,185 — 166,091 
Warehouse finance
Pass— — — — — — 376,915 376,915 
Total— — — — — — 376,915 376,915 
Total loans and leases
Pass1,554,843 333,793 173,825 138,032 37,324 175,272 809,413 3,222,502 
18
Table of loans secured by commercial and multi-family real estate is typically dependent upon the successful operation of the related real estate project.  If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, or a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired.Contents

Watch105,884 110,339 71,265 16,775 6,419 3,354 245,076 559,112 
Special mention26,789 13,868 21,840 1,138 3,127 75 35,274 102,111 
Substandard38,423 35,260 49,237 33,691 15,443 8,773 27,366 208,193 
Doubtful380 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 
Agricultural Lending.  The Company originates loans to finance the purchase of farmland, livestock, farm machinery and equipment, seed, fertilizer and other farm-related products.  Agricultural operating loans are originated at either an adjustable or fixed rate of interest for up to a one year term or, in the case of livestock, upon sale.  Such loans provide for payments of principal and interest at least annually or a lump sum payment upon maturity if the original term is less than one year.  Loans secured by agricultural machinery are generally originated as fixed-rate loans with terms of up to seven years.

Agricultural real estate loans are frequently originated with adjustable rates of interest.  Generally, such loans provide for a fixed rate of interest for the first five to ten years, after which the loan will balloon or the interest rate will adjust annually.  These loans generally amortize over a period of 20 to 25 years.  Fixed-rate agricultural real estate loans generally have terms up to ten years.  Agricultural real estate loans are generally limited to 75% of the value of the property securing the loan.

Agricultural lending affords the Company the opportunity to earn yields higher than those obtainable on one-to-four family residential lending, but involves a greater degree of risk than one-to-four family residential mortgage loans because of the typically larger loan amount.  In addition, payments on loans are dependent on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized.  The success of the loan may also be affected by many factors outside the control of the borrower.

Weather presents one of the greatest risks as hail, drought, floods, or other conditions can severely limit crop yields and thus impair loan repayments and the value of the underlying collateral.  This risk can be reduced by the farmer with a variety of insurance coverages which can help to ensure loan repayment.  Government support programs and the Company generally require that farmers procure crop insurance coverage.  Grain and livestock prices also present a risk as prices may decline prior to sale, resulting in a failure to cover production costs.  These risks may be reduced by the farmer with the use of futures contracts or options to mitigate price risk.  The Company frequently requires borrowers to use futures contracts or options to reduce price risk and help ensure loan repayment.  Another risk is the uncertainty of government programs and other regulations.  During periods of low commodity prices, the income from government programs can be a significant source of cash for the borrower to make loan payments, and if these programs are discontinued or significantly changed, cash flow problems or defaults could result.  Finally, many farms are dependent on a limited number of key individuals whose injury or death may result in an inability to successfully operate the farm.

Consumer Lending.  The Bank originates a variety of secured consumer loans, including home equity, home improvement, automobile and boat loans and loans secured by savings deposits.  In addition, the Bank offers other secured and unsecured consumer loans and currently originates most of its community banking consumer loans in its primary market areas and surrounding areas. In addition, the Bank’s consumer lending portfolio includes two purchased student loan portfolios, the most recent purchased on October 11, 2017, along with consumer lending products offered through its payments segment.

The Bank's community banking consumer loan portfolio consists primarily of home equity loans and lines of credit.  Substantially all of the Bank's home equity loans and lines of credit are secured by second mortgages on principal residences.  The Bank will lend amounts which, togetherwith all prior liens, may be up to 90% of the appraised value of the property securing the loan.  Home equity loans and lines of credit generally have maximum terms of five years.

The Bank primarily originates automobile loans on a direct basis to the borrower, as opposed to indirect loans, which are made when the Bank purchases loan contracts, often at a discount, from automobile dealers which have extended credit to their customers.  The Bank’s automobile loans typically are originated at fixed interest rates with terms of up to 60 months for new and used vehicles.  Loans secured by automobiles are generally originated for up to 80% of the N.A.D.A. book value of the automobile securing the loan.

Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower.  The underwriting standards employed by the Bank for consumer loans include an application, a determination of the applicant’s payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan.  Although creditworthiness of the applicant is a primary consideration, the underwriting process also may include a comparison of the value of the security, if any, in relation to the proposed loan amount.

Consumer loans may entail greater credit risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or are secured by rapidly depreciable assets, such as automobiles or recreational equipment.  In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.  In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus more likely to be affected by adverse personal circumstances.  Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

On October 11, 2017, the Company completed the purchase of a $73.0 million, seasoned, floating rate, private student loan portfolio. All loans are indexed to one-month LIBOR. The portfolio is serviced by ReliaMax Lending Services LLC and insured by ReliaMax Surety Company. This portfolio purchase builds on the Company's existing student loan platform.

The Bank’s student loan portfolio that was purchased during the first quarter of fiscal year 2017 is a seasoned portfolio that is also serviced by ReliaMax Lending Services, LLC and insured by ReliaMax Surety Company. All loans in this portfolio are floating rate and indexed to the three-month LIBOR plus various margins.
Through its Payments segment, the Bank strives to offer consumers innovative payment products, including credit products. Most credit products have fallen into the category of portfolio lending. The Payments segment, including Specialty Consumer Services ("SCS"), continues its development of new alternative portfolio lending products primarily to serve its customer base and to provide innovative lending solutions to the unbanked and under-banked segment.


The Payments segment also provides short-term consumer refund advance loans. Taxpayers are underwritten to determine eligibility for the unsecured loans, which are, by design, interest and fee-free to the consumer. Due to the nature of consumer advance loans, it typically takes no more than three e-file cycles (the period of time between scheduled IRS payments) from when the return is accepted by the IRS to collect from the borrower. In the event of default, the Bank has no recourse against the tax consumer. Generally, when the refund advance loan becomes delinquent for 180 days or more, or when collection of principal becomes doubtful, the Company will charge off the loan balance.

Commercial Operating Lending.  The Company also originates commercial operating loans.  Most of the Company’s commercial operating loans have been extended to finance local and regional businesses and include short-term loans to finance machinery and equipment purchases, inventory and accounts receivable. Commercial loans also may involve the extension of revolving credit for a combination of equipment acquisitions and working capital in expanding companies. The Company also extends short-term commercial Electronic Return Originator ("ERO") advance loans through its Payments segment as described in more detail below.

The maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment.  Generally, the maximum term on non-mortgage lines of credit is one year.  The loan-to-value ratio on such loans and lines of credit generally may not exceed 80% of the value of the collateral securing the loan. ERO loans are not collateralized.  The Company’s commercial operating lending policy includes credit file documentation and analysis of the borrower’s character, capacity to repay the loan, the adequacy of the borrower’s capital and collateral as well as an evaluation of conditions affecting the borrower.  Analysis of the borrower’s past, present and future cash flows is also an important aspect of the Company’s credit analysis.  As described further below, such loans are believed to carry higher credit risk than more traditional lending activities.

Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial operating loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.  As a result, the availability of funds for the repayment of commercial operating loans may be substantially dependent on the success of the business itself (which, in turn, is likely to be dependent upon the general economic environment).  The Company’s commercial operating loans are usually, but not always, secured by business assets and personal guarantees.  However, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.

Through its Payments segment, the Company also provides short-term ERO advance loans on a nation-wide basis. These loans are typically utilized to purchase tax preparation software and to prepare tax offices for the upcoming tax season. EROs go through an underwriting process to determine eligibility for the unsecured advances. Collection on ERO advances begins once the ERO begins to process refund transfers. Generally, when the ERO advance loan becomes delinquent for 120 days or more, or when collection of principal becomes doubtful, the Company will charge off the loan balance.

Commercial Insurance Premium Finance Lending.  Through its AFS/IBEX division, the Bank provides short-term and primarily collateralized financing to facilitate the commercial customers’ purchase of insurance for various forms of risk otherwise known as commercial insurance premium financing.  This includes, but is not limited to, policies for commercial property, casualty and liability risk.  The AFS/IBEX division markets itself to the insurance community as a competitive option based on service, reputation, competitive terms, cost and ease of operation.

Commercial insurance premium financing is the business of extending credit to a policyholder to pay for insurance premiums when the insurance carrier requires payment in full at inception of coverage.  Premiums are advanced either directly to the insurance carrier or through an intermediary/broker and repaid by the policyholder with interest during the policy term.  The policyholder generally makes a 20% to 25% down payment to the insurance broker and finances the remainder over nine to ten months on average.  The down payment is set such that if the policy is canceled, the unearned premium is typically sufficient to cover the loan balance and accrued interest.


Due to the nature of collateral for commercial insurance premium finance receivables, it customarily takes 60-210 days to convert the collateral into cash.  In the event of default, AFS/IBEX, by statute and contract, has the power to cancel the insurance policy and establish a first position lien on the unearned portion of the premium from the insurance carrier. In the event of cancellation, the cash returned in payment of the unearned premium by the insurer has typically been sufficient to cover the receivable balance, the interest and other charges due. Due to notification requirements and processing time by most insurance carriers, many receivables will become delinquent beyond 90 days while the insurer is processing the return of the unearned premium.  Generally, when a loan becomes delinquent for 210 days or more, or when collection of principal or interest becomes doubtful, the Company will charge off the loan balance and any remaining interest and fees after applying any collection from the insurance company.


Past due loans at December 31, 2017 and September 30, 2017leases were as follows:
At December 31, 2023
Accruing and Nonaccruing Loans and LeasesNonperforming Loans and Leases
(Dollars in thousands)30-59 Days Past Due60-89 Days Past Due> 89 Days Past DueTotal Past DueCurrentTotal Loans and Leases Receivable> 89 Days Past Due and AccruingNonaccrual BalanceTotal
Loans held for sale$1,173 $786 $661 $2,620 $66,898 $69,518 $661 $— $661 
Term lending28,694 6,156 14,385 49,235 1,403,039 1,452,274 4,006 17,978 21,984 
Asset-based lending— — 123 123 379,558 379,681 — 4,593 4,593 
Factoring— — — — 335,953 335,953 — 1,173 1,173 
Lease financing1,944 1,107 2,161 5,212 183,677 188,889 1,488 1,645 3,133 
Insurance premium finance2,666 999 1,924 5,589 665,446 671,035 1,924 — 1,924 
SBA/USDA102 79 2,146 2,327 543,721 546,048 444 2,710 3,154 
Other commercial finance— — — — 160,628 160,628 — — — 
Commercial finance33,406 8,341 20,739 62,486 3,672,022 3,734,508 7,862 28,099 35,961 
Consumer finance4,258 3,345 2,859 10,462 291,048 301,510 2,859 — 2,859 
Tax services— — — — 33,435 33,435 — — — 
Warehouse finance— — — — 349,911 349,911 — — — 
Total loans and leases held for investment37,664 11,686 23,598 72,948 4,346,416 4,419,364 10,721 28,099 38,820 
Total loans and leases$38,837 $12,472 $24,259 $75,568 $4,413,314 $4,488,882 $11,382 $28,099 $39,481 
At September 30, 2023
Accruing and Nonaccruing Loans and LeasesNonperforming Loans and Leases
(Dollars in thousands)30-59 Days Past Due60-89 Days Past Due> 89 Days Past DueTotal Past DueCurrentTotal Loans and Leases Receivable> 89 Days Past Due and AccruingNonaccrual BalanceTotal
Loans held for sale$626 $549 $306 $1,481 $76,298 $77,779 $306 $— $306 
Term lending13,898 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 financing6,865 158 4,828 11,851 171,541 183,392 4,242 1,666 5,908 
Insurance premium finance2,159 1,262 2,339 5,760 794,317 800,077 2,339 — 2,339 
SBA/USDA512 — 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 finance23,434 9,143 20,352 52,929 3,670,229 3,723,158 11,242 37,372 48,614 
Consumer finance2,992 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 investment26,426 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 

19
Table of Contents
 Accruing and Non-accruing Loans Nonperforming Loans
December 31, 201730-59 Days
Past Due		 60-89 Days
Past Due		 > 89 Days Past Due Total Past
Due		 Current Total Loans
Receivable		 > 89 Days Past Due and Accruing Non-accrual balance Total
 (Dollars in Thousands)
1-4 Family Real Estate$106
 $—
 $234
 $340
 $203,627
 203,967
 234
 $—
 $234
Commercial and Multi-Family Real Estate—
 284
 —
 284
 653,745
 654,029
 —
 284
 284
Agricultural Real Estate—
 —
 27,818
 27,818
 33,485
 61,303
 27,818
 —
 27,818
Consumer4,192
 2,015
 1,624
 7,831
 267,150
 274,981
 1,624
 —
 1,624
Commercial Operating—
 —
 —
 —
 56,516
 56,516
 —
 —
 —
Agricultural Operating—
 —
 —
 —
 24,696
 24,696
 —
 —
 —
CML Insurance Premium Finance1,594
 592
 3,194
 5,380
 230,291
 235,671
 3,194
 —
 3,194
   Total$5,892
 $2,891
 $32,870
 $41,653
 $1,469,510
 1,511,163
 32,870
 $284
 $33,154
 Accruing and Non-accruing Loans Nonperforming Loans
September 30, 201730-59 Days
Past Due		 60-89 Days
Past Due		 > 89 Days Past Due Total Past
Due		 Current Total Loans
Receivable		 > 89 Days Past Due and Accruing Non-accrual balance Total
 (Dollars in Thousands)
1-4 Family Real Estate$370
 $79
 $—
 $449
 $196,257
 $196,706
 —
 $—
 $—
Commercial and Multi-Family Real Estate295
 —
 390
 685
 584,825
 585,510
 —
 685
 685
Agricultural Real Estate—
 —
 34,198
 34,198
 27,602
 61,800
 34,198
 —
 34,198
Consumer2,512
 558
 1,406
 4,476
 158,528
 163,004
 1,406
 —
 1,406
Commercial Operating—
 —
 —
 —
 35,759
 35,759
 —
 —
 —
Agricultural Operating—
 —
 97
 97
 33,497
 33,594
 97
 —
 97
CML Insurance Premium Finance1,509
 2,442
 1,205
 5,156
 245,303
 250,459
 1,205
 —
 1,205
Total$4,686
 $3,079
 $37,296
 $45,061
 $1,281,771
 $1,326,832
 36,906
 $685
 $37,591

When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment.  Often this is associated with a delay or shortfall in payments of 210 days or more for commercial insurance premium finance loans, 180 days or more for refund advance loans, 120 days or more for ERO advanceNonaccrual loans and leases by year of origination were as follows:
Amortized Cost Basis
(Dollars in thousands)Term Loans and Leases by Origination YearRevolving Loans and LeasesTotalNonaccrual with No ACL
At December 31, 202320242023202220212020Prior
Term lending$1,264 $2,002 $7,666 $2,082 $1,925 $3,039 $— $17,978 $— 
Asset-based lending— — — — — — 4,593 4,593 4,469 
Factoring— — — — — — 1,173 1,173 — 
Lease financing— — — 439 781 425 — 1,645 593 
SBA/USDA— 1,008 — — 1,301 401 — 2,710 750 
Commercial finance1,264 3,010 7,666 2,521 4,007 3,865 5,766 28,099 5,812 
Total nonaccrual loans and leases$1,264 $3,010 $7,666 $2,521 $4,007 $3,865 $5,766 $28,099 $5,812 
Amortized Cost Basis
(Dollars in thousands)Term Loans and Leases by Origination YearRevolving Loans and LeasesTotalNonaccrual with No ACL
At September 30, 202320232022202120202019Prior
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 finance865 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 for other loan categories.  Asdelinquent and accruing by year of December 31, 2017, thereorigination were no commercial insurance premium financeas follows:
Amortized Cost Basis
(Dollars in thousands)Term Loans and Leases by Origination YearRevolving Loans and LeasesTotal
At December 31, 202320242023202220212020Prior
Loans held for sale$— $661 $— $— $— $— $— $661 
Term lending— 1,139 2,290 186 383 8 — 4,006 
Lease financing— — 498 895 95 — — 1,488 
Insurance premium finance— — 910 5 — 1,009 — 1,924 
SBA/USDA— — — — 191 253 — 444 
Commercial finance— 1,139 3,698 1,086 669 1,270 — 7,862 
Consumer finance— 1,898 706 235 — — 20 2,859 
Total loans and leases held for investment— 3,037 4,404 1,321 669 1,270 20 10,721 
Total 90 days or more delinquent and accruing$— $3,698 $4,404 $1,321 $669 $1,270 $20 $11,382 
20
Table of Contents
Amortized Cost Basis
(Dollars in thousands)Term Loans and Leases by Origination YearRevolving Loans and LeasesTotal
At September 30, 202320232022202120202019Prior
Loans held for sale$306 $— $— $— $— $— $— $306 
Term lending1,604 1,371 500 233 29 — — 3,737 
Lease financing151 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 finance1,755 2,275 1,593 1,850 2,157 1,612 — 11,242 
Consumer finance891 1,045 246 — — — 28 2,210 
Tax services5,082 — — — — — — 5,082 
Total loans and leases held for investment7,728 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 greater than 210and 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.

Total loans past due decreased $3.4 million to $41.7 million at December 31, 2017 from $45.1 million at September 30, 2017. This decrease was due to a $4.4 million decrease in loans greater than 90 days past due. The primary driver of the decrease in loans greater than 90 days past due included the payoff of a large nonperforming agricultural loan relationship during the first quarter of fiscal 2018.

Impaired loans at December 31, 2017 and September 30, 2017 were as follows:
 Recorded
Balance		 Unpaid Principal
Balance		 Specific
Allowance
December 31, 2017(Dollars in Thousands)
Loans without a specific valuation allowance     
1-4 Family Real Estate$95
 $95
 $—
Commercial and Multi-Family Real Estate707
 707
 —
   Consumer61
 61
 —
   Agricultural Operating1,052
 1,052
 —
Total$1,915
 $1,915
 $—
 Recorded
Balance		 Unpaid Principal
Balance		 Specific
Allowance
September 30, 2017(Dollars in Thousands)
Loans without a specific valuation allowance     
1-4 Family Real Estate$72
 $72
 $—
Commercial and Multi-Family Real Estate1,109
 1,109
 —
Total$1,181
 $1,181
 $—


The following table provides the average recorded investment in impairednonaccrual loans and leases:
Three Months Ended December 31,
(Dollars in thousands)20232022
Term lending$17,419 $8,796 
Asset-based lending9,711 4,272 
Factoring1,180 708 
Lease financing1,623 3,623 
SBA/USDA1,488 1,420 
Commercial finance31,421 18,819 
Total loans and leases$31,421 $18,819 

The recognized interest income on the Company's nonaccrual loans and leases for the three month periodsmonths ended December 31, 20172023 and 2016.2022 was not significant.

 Three Months Ended December 31,
 2017 2016
 Average
Recorded
Investment		 Average
Recorded
Investment
 (Dollars in Thousands)
1-4 Family Real Estate$80
 $172
Commercial and Multi-Family Real Estate975
 432
Consumer20
 —
Commercial Operating—
 168
Agricultural Operating351
 —
Total$1,426
 $772
Effective October 1, 2023, the Company adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on a prospective basis. Financial information at and for the quarter ended December 31, 2023 is reflected as such. The historical information disclosed is in accordance with Subtopic ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors.


The Company’s troubled debt restructurings (“TDR”) typically involve forgiving a portion of interest or principal on existingModifications made to borrowers experiencing financial difficulty during the three months ended December 31, 2023 were insignificant.

No loans or making loans at a rate materially less than current market rates.There were $1.1 million of loans modified in a TDR during the three month periodmonths ended December 31, 2017 and no2022. The Company had $0.1 million of commercial finance loans that were modified in a TDR duringwithin the three month period ended December 31, 2016. Additionally, there were no TDR loans for which there wasprevious 12 months experience a payment default during the three month periodsmonths ended December 31, 2017 or 2016 that had been modified during2022. TDR net charge-offs and the 12-month period prior toimpact of TDRs on the default.



NOTE 3.     ALLOWANCE FOR LOAN LOSSES

At December 31, 2017, the Company’sCompany's allowance for loancredit losses increased to $8.9 million from $7.5 million at September 30, 2017. This increase was primarily due to the additional provision expense related to tax advance loans. Duringwere insignificant during the three months ended December 31, 2017, the Company recorded a provision for loan losses2022.
21
Table of $1.1 million compared to $0.8 million for the same period of the prior year. The Company had $0.3 million of net recoveries for the three months ended December 31, 2017, compared to $0.1 million of net charge-offs for the three months ended December 31, 2016.Contents

The allowance for loan losses is established through the provision for loan losses based on management’s evaluation of the risk inherent in its loan portfolio and changes in the nature and volume of its loan activity, including those loans which are being specifically monitored by management.  Such evaluation, which includes a review of loans for which full collectability may not be reasonably assured, considers, among other matters, the estimated fair value of the underlying collateral, economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an appropriate loan loss allowance.

Management closely monitors economic developments both regionally and nationwide, and considers these factors when assessing the appropriateness of its allowance for loan losses. The current economic environment continues to show signs of improvement in the Bank’s markets.  The Bank’s average loss rates over the past three years for community banking loans were relatively low compared to peers, but was offset with a higher agricultural loss rate in fiscal year 2016 driven by the charge off of one relationship. Although the Bank’s four market areas have indirectly benefited from a stable agricultural market, the market has become slightly stressed as commodity prices have generally remained lower than a few years ago. Management believes the low commodity prices and adverse weather conditions have the potential to negatively impact the economies of our agricultural markets. The improving economic conditions have also kept the loss rates on the national lending loans as well as the tax service loans relatively low.

Management believes that, based on a detailed review of the loan portfolio, historic loan losses, current economic conditions, the size of the loan portfolio and other factors, the current level of the allowance for loan losses at December 31, 2017, reflects an appropriate allowance against probable losses from the loan portfolio.  Although the Company maintains its allowance for loan losses at a level it considers to be appropriate, investors and others are cautioned that there can be no assurance that future losses will not exceed estimated amounts, or that additional provisions for loan losses will not be required in future periods.  In addition, the Company’s determination of the allowance for loan losses is subject to review by the OCC, which can require the establishment of additional general or specific allowances.

Real estate properties acquired through foreclosure are recorded at the lesser of fair value or the recorded investment.  If fair value at the date of foreclosure is lower than the balance of the related loan, the difference will be charged to the allowance for loan losses at the time of transfer.  Valuations are periodically updated by management and, if the value declines, a specific provision for losses on such property is established by a charge to operations.

NOTE 4.5. EARNINGS PER COMMON SHARE ("EPS")


Earnings per share is computed after deducting dividends. 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.calculation under the two-class method. Basic earnings per shareEPS 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 earnings per shareEPS 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 the Company’srestricted stock optionsgrants and after the allocation of earnings to the participating securities. Antidilutive optionssecurities are disregarded in the earnings per share calculations. Diluted EPS shown below reflects the two-class method, as diluted EPS under the two-class method was more dilutive than under the treasury stock method.



A reconciliation of net income and common stock share amounts used in the computation of basic and diluted earnings per share is presented below.
Three Months Ended December 31,
(Dollars in thousands, except per share data)20232022
Basic income per common share:
Net income attributable to Pathward Financial, Inc.$27,657 $27,842 
Dividends and undistributed earnings allocated to participating securities(220)(403)
Basic net earnings available to common stockholders27,437 27,439 
Undistributed earnings allocated to nonvested restricted stockholders210 383 
Reallocation of undistributed earnings to nonvested restricted stockholders(210)(382)
Diluted net earnings available to common stockholders$27,437 $27,440 
Total weighted-average basic common shares outstanding25,776,845 28,024,541 
Effect of dilutive securities(1)
Performance share units24,693 62,282 
Total effect of dilutive securities24,693 62,282 
Total weighted-average diluted common shares outstanding25,801,538 28,086,823 
Net earnings per common share:
Basic earnings per common share$1.06 $0.98 
Diluted earnings per common share(2)
$1.06 $0.98 
(1) Represents the effect of the assumed exercise of stock options and vesting of performance share units and restricted stock, as applicable, utilizing the treasury stock method.
(2) Excluded from the computation of diluted earnings per share for the three months ended December 31, 20172023 and 2016 is presented below.2022, respectively, were 207,074 and 411,794 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive.

Three Months Ended December 31,2017 2016
(Dollars in Thousands, Except Share and Per Share Data)   
Basic income per common share:   
     Net income attributable to Meta Financial Group, Inc.$4,670
 $1,244
Weighted average common shares outstanding9,656,778
 8,938,339
     Basic income per common share0.48
 0.14
    
Diluted income per common share:   
     Net income attributable to Meta Financial Group, Inc.$4,670
 $1,244
Weighted average common shares outstanding9,656,778
 8,938,339
     Outstanding options - based upon the two-class method56,063
 63,061
Weighted average diluted common shares outstanding9,712,841
 9,001,400
     Diluted income per common share0.48
 0.14
22
Table of Contents

NOTE 5. SECURITIES6. RENTAL EQUIPMENT, NET


During the first quarter of fiscal 2018, the Company early adopted Accounting Standard Update ("ASU") 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." Due to the early adoptionRental equipment consists of the ASU, the Company transferred $204.7 million of investment securities and $101.3 million of MBS from HTMfollowing:
(Dollars in thousands)December 31, 2023September 30, 2023
Computers and IT networking equipment$23,958 $25,094 
Motor vehicles and other125,801 122,845 
Other furniture and equipment46,934 37,637 
Solar panels and equipment149,157 142,355 
Total345,850 327,931 
Accumulated depreciation(118,120)(117,418)
Unamortized initial direct costs1,186 1,237 
Net book value$228,916 $211,750 

Future minimum lease payments expected to AFS during the first quarter of fiscal 2018. This change allowsbe received for enhanced balance sheet management and provides the opportunity for more liquidity, should it be needed.
The amortized cost, gross unrealized gains and losses and estimated fair values of available for sale and held to maturity securitiesoperating leases at December 31, 2017 and September 30, 2017 are presented below.2023 were as follows:
(Dollars in thousands)
Remaining in 2024$32,519 
202536,915 
202627,052 
202719,132 
202810,461 
Thereafter10,805 
Total$136,884 


23
Available For Sale       
At December 31, 2017AMORTIZED
COST
 GROSS
UNREALIZED
GAINS

 GROSS
UNREALIZED
(LOSSES)

 FAIR
VALUE
 (Dollars in Thousands)
Debt securities       
Small business administration securities56,602
 349
 (3) 56,948
Obligations of states and political subdivisions14,513
 123
 (26) 14,610
Non-bank qualified obligations of states and political subdivisions1,212,661
 16,079
 (5,710) 1,223,030
Asset-backed securities93,486
 2,337
 —
 95,823
Mortgage-backed securities606,338
 198
 (6,424) 600,112
Total debt securities1,983,600
 19,086
 (12,163) 1,990,523
Common equities and mutual funds1,298
 532
 (1) 1,829
Total available for sale securities$1,984,898
 $19,618
 $(12,164) $1,992,352
NOTE 7. GOODWILL AND INTANGIBLE ASSETS


At September 30, 2017AMORTIZED
COST
 GROSS
UNREALIZED
GAINS
 GROSS
UNREALIZED
(LOSSES)
 FAIR
VALUE
 (Dollars in Thousands)
Debt securities       
Small business administration securities57,046
 825
 —
 57,871
Non-bank qualified obligations of states and political subdivisions938,883
 14,983
 (3,037) 950,829
Asset-backed securities94,451
 2,381
 —
 96,832
Mortgage-backed securities588,918
 1,259
 (3,723) 586,454
Total debt securities1,679,298
 19,448
 (6,760) 1,691,986
Common equities and mutual funds1,009
 436
 —
 1,445
Total available for sale securities$1,680,307
 $19,884
 $(6,760) $1,693,431

Held to Maturity       
At December 31, 2017AMORTIZED
COST
 GROSS
UNREALIZED
GAINS

 GROSS
UNREALIZED
(LOSSES)

 FAIR
VALUE
 (Dollars in Thousands)
Debt securities       
Obligations of states and political subdivisions$4,341
 $26
 $(25) $4,342
Non-bank qualified obligations of states and political subdivisions230,683
 336
 (3,537) 227,482
Mortgage-backed securities8,468
 —
 (148) 8,320
Total held to maturity securities$243,492
 $362
 $(3,710) $240,144

At September 30, 2017AMORTIZED
COST
 GROSS
UNREALIZED
GAINS
 GROSS
UNREALIZED
(LOSSES)
 FAIR
VALUE
 (Dollars in Thousands)
Debt securities       
Obligations of states and political subdivisions$19,247
 $157
 $(36) $19,368
Non-bank qualified obligations of states and political subdivisions430,593
 4,744
 (2,976) 432,361
Mortgage-backed securities113,689
 —
 (1,233) 112,456
Total held to maturity securities$563,529
 $4,901
 $(4,245) $564,185

Management has implemented a process to identify securities with potential credit impairment that are other-than-temporary.  This process involves evaluation of the length of time and extent to which the fair value has been less than the amortized cost basis, review of available information regarding the financial position of the issuer, monitoring the rating, watch, and outlook of the security, monitoring changes in value, cash flow projections, and the Company’s intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity.  To the extent the Company determines that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.

For all securities considered temporarily impaired, the Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost, which may occur at maturity.  The Company believes it will collect all principal and interest due on all investments with amortized cost in excessheld a total of fair value and considered only temporarily impaired.


GAAP requires that, at acquisition, an enterprise classify debt securities into one$309.5 million of three categories: Available for Sale (“AFS”), Held to Maturity (“HTM”) or trading. AFS securities are carried at fair value on the consolidated statements of financial condition, and unrealized holding gains and losses are excluded from earnings and recognized as a separate component of equity in accumulated other comprehensive income (“AOCI”). HTM debt securities are measured at amortized cost. Both AFS and HTM are subject to review for other-than-temporary impairment. The Company did not have any trading securitiesgoodwill at December 31, 2017 or September 30, 2017.

Gross unrealized losses and fair value, aggregated by investment category and length2023. The recorded goodwill is a result of timemultiple business combinations that individual securitiesoccurred from 2015 to 2018. There have been in a continuous unrealized loss position at December 31, 2017 and September 30, 2017, were as follows:

Available For SaleLESS THAN 12 MONTHS OVER 12 MONTHS TOTAL
At December 31, 2017Fair
Value		 Unrealized
(Losses)		 Fair
Value		 Unrealized
(Losses)		 Fair
Value		 Unrealized
(Losses)
 (Dollars in Thousands)
Debt securities           
Small business administration securities$14,236
 $(3) $—
 $—
 $14,236
 $(3)
Obligations of states and political subdivisions3,139
 (26) —
 —
 3,139
 (26)
Non-bank qualified obligations of states and political subdivisions553,626
 (4,945) 16,045
 (765) 569,671
 (5,710)
Mortgage-backed securities234,672
 (1,275) 296,252
 (5,149) 530,924
 (6,424)
Total debt securities805,673
 (6,249) 312,297
 (5,914) 1,117,970
 (12,163)
Common equities and mutual funds1,829
 (1) —
 —
 1,829
 (1)
Total available for sale securities$807,502
 $(6,250) $312,297
 $(5,914) $1,119,799
 $(12,164)

 LESS THAN 12 MONTHS OVER 12 MONTHS TOTAL
At September 30, 2017Fair
Value		 Unrealized
(Losses)		 Fair
Value		 Unrealized
(Losses)		 Fair
Value		 Unrealized
(Losses)
 (Dollars in Thousands)
Debt securities           
Non-bank qualified obligations of states and political subdivisions280,900
 (2,887) 5,853
 (150) 286,753
 (3,037)
Mortgage-backed securities237,897
 (1,625) 100,287
 (2,098) 338,184
 (3,723)
Total debt securities518,797
 (4,512) 106,140
 (2,248) 624,937
 (6,760)
Total available for sale securities$518,797
 $(4,512) $106,140
 $(2,248) $624,937
 $(6,760)


Held To MaturityLESS THAN 12 MONTHS OVER 12 MONTHS TOTAL
At December 31, 2017Fair
Value		 Unrealized
(Losses)		 Fair
Value		 Unrealized
(Losses)		 Fair
Value		 Unrealized
(Losses)
 (Dollars in Thousands)
Debt securities           
Obligations of states and political subdivisions$1,261
 $(3) $2,147
 $(22) $3,408
 $(25)
Non-bank qualified obligations of states and political subdivisions114,999
 (1,789) 80,813
 (1,748) 195,812
 (3,537)
Mortgage-backed securities—
 —
 8,320
 (148) 8,320
 (148)
Total held to maturity securities$116,260
 $(1,792) $91,280
 $(1,918) $207,540
 $(3,710)
 LESS THAN 12 MONTHS OVER 12 MONTHS TOTAL
At September 30, 2017Fair
Value		 Unrealized
(Losses)		 Fair
Value		 Unrealized
(Losses)		 Fair Value Unrealized
(Losses)
 (Dollars in Thousands)
Debt securities           
Obligations of states and political subdivisions$1,364
 $(6) $4,089
 $(30) $5,453
 $(36)
Non-bank qualified obligations of states and political subdivisions202,018
 (2,783) 6,206
 (193) 208,224
 (2,976)
Mortgage-backed securities112,456
 (1,233) —
 —
 112,456
 (1,233)
Total held to maturity securities$315,838
 $(4,022) $10,295
 $(223) $326,133
 $(4,245)

At December 31, 2017,no changes to the investment portfolio included securities with current unrealized losses which have existed for longer than one year.  All of these securities are considered to be acceptable credit risks.  Because the declines in fair value were due to changes in market interest rates, not in estimated cash flows, and because the Company does not intend to sell these securities (has not made a decision to sell) and it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost basis, which may occur at maturity, no other-than-temporary impairment was recorded at December 31, 2017.

The amortized cost and fair value of debt securities by contractual maturity as of the dates set forth below are shown below.  Certain securities have call features which allow the issuer to call the security prior to maturity.  Expected maturities may differ from contractual maturities in mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  Therefore, mortgage-backed securities are not included in the maturity categories in the following maturity summary.  The expected maturities of certain housing related municipal securities, Small Business Administration and asset-backed securities may differ from contractual maturities because the borrowers may have the right to prepay the obligation. However, certain prepayment penalties may apply.

Available For SaleAMORTIZED
COST
 FAIR
VALUE
 
At December 31, 2017(Dollars in Thousands)
    
Due in one year or less$100
 $100
Due after one year through five years55,485
 56,375
Due after five years through ten years452,422
 462,903
Due after ten years869,255
 871,033
 1,377,262
 1,390,411
Mortgage-backed securities606,338
 600,112
Common equities and mutual funds1,298
 1,829
Total available for sale securities$1,984,898
 $1,992,352
 AMORTIZED
COST
 FAIR
VALUE
At September 30, 2017(Dollars in Thousands)
    
Due in one year or less$—
 $—
Due after one year through five years36,586
 37,674
Due after five years through ten years347,831
 358,198
Due after ten years705,963
 709,660
 1,090,380
 1,105,532
Mortgage-backed securities588,918
 586,454
Common equities and mutual funds1,009
 1,445
Total available for sale securities$1,680,307
 $1,693,431
Held To MaturityAMORTIZED
COST
 FAIR
VALUE
 
At December 31, 2017(Dollars in Thousands)
    
Due in one year or less$2,674
 $2,662
Due after one year through five years11,864
 11,895
Due after five years through ten years27,919
 28,206
Due after ten years192,567
 189,061
 235,024
 231,824
Mortgage-backed securities8,468
 8,320
Total held to maturity securities$243,492
 $240,144
 AMORTIZED
COST
 FAIR
VALUE
At September 30, 2017(Dollars in Thousands)
Due in one year or less$1,483
 $1,480
Due after one year through five years17,926
 18,160
Due after five years through ten years144,996
 147,832
Due after ten years285,435
 284,257
 449,840
 451,729
Mortgage-backed securities113,689
 112,456
Total held to maturity securities$563,529
 $564,185


NOTE 6.     COMMITMENTS AND CONTINGENCIES

In the normal course of business, the Bank makes various commitments to extend credit which are not reflected in the accompanying consolidated financial statements.

At December 31, 2017 and September 30, 2017, unfunded loan commitments approximated $349.5 million and $233.2 million, respectively, excluding undisbursed portions of loans in process. Commitments, which are disbursed subject to certain limitations, extend over various periods of time.  Generally, unused commitments are canceled upon expiration of the commitment term as outlined in each individual contract.

The Company had no commitments to purchase or sell securities at December 31, 2017 or September 30, 2017.

The exposure to credit loss in the event of non-performance by other parties to financial instruments for commitments to extend credit is represented by the contractualcarrying amount of those instruments.  The same credit policies and collateral requirements are used in making commitments and conditional obligations as are used for on-balance-sheet instruments.

Since certain commitments to make loans and to fund lines of credit and loans in process expire without being used, the amount does not necessarily represent future cash commitments.  In addition, commitments used to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

Legal Proceedings
The Bank was served on April 15, 2013, with a lawsuit captioned Inter National Bank v. NetSpend Corporation, MetaBank, BDO USA, LLP d/b/a BDO Seidman, Cause No. C-2084-12-I filed in the District Court of Hidalgo County, Texas. The Plaintiff’s Second Amended Original Petition and Application for Temporary Restraining Order and Temporary Injunction adds both MetaBank and BDO Seidman to the original causes of action against NetSpend. NetSpend acts as a prepaid card program manager and processor for both Inter National Bank ("INB") and MetaBank. According to the Petition, NetSpend has informed INB that the depository accounts at INB for the NetSpend program supposedly contained $10.5 million less than they should. INB alleges that NetSpend has breached its fiduciary duty by making affirmative misrepresentations to INB about the safety and stability of the program, and by failing to timely disclose the nature and extent of any alleged shortfall in settlement of funds related to cardholder activity and the nature and extent of NetSpend’s systemic deficiencies in its accounting and settlement processing procedures. To the extent that an accounting reveals that there is an actual shortfall, INB alleges that MetaBank may be liable for portions or all of said sum due to the fact that funds have been transferred from INB to MetaBank, and thus MetaBank would have been unjustly enriched. The Bank is vigorously contesting this matter. In January 2014, NetSpend was granted summary judgment in this matter which is under appeal. Because the theory of liability against both NetSpend and the Bank is the same, the Bank views the NetSpend summary judgment as a positive in support of our position. An estimate of a range of reasonably possible loss cannot be made at this stage of the litigation because discovery is still being conducted.
The Bank was served, on October 14, 2016, with a lawsuit captioned Card Limited, LLC v. MetaBank dba Meta Payment Systems, Civil No. 2:16-cv-00980 in the United States District Court for the District of Utah. This action was initiated by a former prepaid program manager of the Bank, which was terminated by the Bank in fiscal year 2016. Card Limited alleges that after all of the programs were wound down, there were two accounts with a positive balance to which they are entitled. The Bank’s position is that Card Limited is not entitled to the funds contained in said accounts. The total amount to which Card Limited claims it is entitled is $4,001,025. The Bank intends to vigorously defend this claim. An estimate of a range of reasonably possible loss cannot be made at this stage of the litigation because discovery is still being conducted.
From time to time, the Company or its subsidiaries are subject to certain legal proceedings and claims in the ordinary course of business. Accruals have been recorded when the outcome is probable and can be reasonably estimated. While management currently believes that the ultimate outcome of these proceedings will not have a material adverse effect on the Company’s financial position or its results of operations, legal proceedings are inherently uncertain and unfavorable resolution of some or all of these matters could, individually or in the aggregate, have a material adverse effect on the Company’s and its subsidiaries’ respective businesses, financial condition or results of operations.


NOTE 7.     STOCK COMPENSATION

The Company maintains the amended and restated Meta Financial Group, Inc. 2002 Omnibus Incentive Plan, as amended (the "2002 Omnibus Incentive Plan"), which, among other things, provides for the awarding of stock options and nonvested (restricted) shares to certain officers and directors of the Company.  Awards are granted by the Compensation Committee of the Board of Directors based on the performance of the award recipients or other relevant factors.

Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of the grant. The exercise price of options or fair value of non-vested (restricted) shares granted under the Company’s incentive plan is equal to the fair market value of the underlying stock at the grant date. The Company has elected, with the adoption of ASU 2016-09, to record forfeitures as they occur.

The following tables show the activity of options and nonvested (restricted) shares granted, exercised, or forfeited under the 2002 Omnibus Incentive Plan forgoodwill during the three months ended December 31, 2017:2023.

The changes in the carrying amount of the Company’s intangible assets were as follows:
 Number
of
Shares
 Weighted
Average
Exercise
Price
 Weighted
Average
Remaining
Contractual
Term (Yrs)
 Aggregate
 Intrinsic
Value
 (Dollars in Thousands, Except Per Share Data)
Options outstanding, September 30, 201775,757
 $22.62
 2.28
 $4,225
Granted—
 —
 —
 —
Exercised—
 —
 —
 —
Forfeited or expired—
 —
 —
 —
Options outstanding, December 31, 201775,757
 $22.62
 2.03
 $5,305
        
Options exercisable, December 31, 201775,757
 $22.62
 2.03
 $5,305
(Dollars in thousands)
Trademark(1)
Non-Compete
Customer Relationships(2)
All Others(3)
Total
At September 30, 2023$7,477 $— $9,110 $4,133 $20,720 
Amortization during the period(264)— (587)(133)(984)
At December 31, 2023$7,213 $— $8,523 $4,000 $19,736 
Gross carrying amount$13,774 $301 $77,578 $7,798 $99,451 
Accumulated amortization(6,561)(301)(58,137)(3,579)(68,578)
Accumulated impairment— — (10,918)(219)(11,137)
At December 31, 2023$7,213 $— $8,523 $4,000 $19,736 
At September 30, 2022$8,605 $— $12,395 $4,691 $25,691 
Amortization during the period(351)— (776)(131)(1,258)
At December 31, 2022$8,254 $— $11,619 $4,560 $24,433 
Gross carrying amount$14,624 $2,481 $82,088 $9,940 $109,133 
Accumulated amortization(6,370)(2,481)(59,551)(5,162)(73,564)
Accumulated impairment— — (10,918)(218)(11,136)
At December 31, 2022$8,254 $— $11,619 $4,560 $24,433 

(1) Book amortization period of 5-15 years. Amortized using the straight line and accelerated methods.
(2) Book amortization period of 10-30 years. Amortized using the accelerated method.
 Number
of
Shares
 Weighted
Average
Fair Value
at Grant
(Dollars in Thousands, Except Per Share Data)
Nonvested (restricted) shares outstanding, September 30, 2017304,526
 $86.96
Granted42,181
 85.03
Vested(61,161) 83.55
Forfeited or expired—
 —
Nonvested (restricted) shares outstanding, December 31, 2017285,546
 $87.40
(3) Book amortization period of 3-20 years. Amortized using the straight line method.


DuringThe 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 first and second quartersremaining nine months of fiscal 2017, stock awards were granted to the Company's three highest paid executive officers in connection with their signing of employment agreements with the Company. These stock awards vest over eight years.

At2024 and subsequent fiscal years at December 31, 2017, stock-based compensation expense not yet recognized in income totaled $17.2 million, which is expected2023 was as follows:
(Dollars in thousands)
Remaining in 2024$3,148 
20253,569 
20263,223 
20272,577 
20282,267 
Thereafter4,952 
Total anticipated intangible amortization$19,736 

There were no impairments to be recognized over a weighted average remaining period of 3.68 years.



NOTE 8.     SEGMENT INFORMATION

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: Payments, Banking, and Corporate Services/Other. Certain shared services, including the investment portfolio, wholesale deposits and borrowings, are included in Corporate Services/Other. National Lending and Community Banking are reported in the Banking segment. MPS, Refund Advantage, EPS Financial ("EPS"), SCS, and other tax businesses are reported in the Payments segment.

The Company reclassified goodwill, intangibles, and related amortization expensesintangible assets during fiscal year 2017 from the
Corporate Services / Other segment to Payments and Banking based on how annual impairment testing is performed. Prior period amounts have also been reclassified to conform to the current year presentation.

The following tables present segment data for the Company for the three months ended December 31, 20172023 and 2016, respectively.2022. Intangible impairment expense is recorded within the impairment expense line of the Condensed Consolidated Statements of Operations.


24
 Payments Banking Corporate
Services/Other		 Total
Three Months Ended December 31, 2017       
Interest income$4,669
 $16,478
 $9,710
 $30,857
Interest expense—
 881
 3,780
 4,661
Net interest income4,669
 15,597
 5,930
 26,196
Provision for loan losses1,017
 51
 —
 1,068
Non-interest income28,101
 1,485
 (318) 29,268
Non-interest expense26,934
 6,568
 10,540
 44,042
Income (loss) before income tax expense (benefit)4,819
 10,463
 (4,928) 10,354
        
Total goodwill87,145
 11,578
 —
 98,723
Total assets380,442
 1,478,693
 3,558,828
 5,417,963
Total deposits2,768,736
 236,494
 508,415
 3,513,645
NOTE 8. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES

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

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

Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at December 31, 2023 were as follows:
(Dollars in thousands)
Remaining in 2024$3,141 
20253,985 
20263,435 
20273,152 
20283,095 
Thereafter15,545 
Total undiscounted future minimum lease payments32,353 
Discount(3,703)
Total operating lease liabilities$28,650 

The weighted-average discount rate and remaining lease term for operating leases at December 31, 2023 were as follows:
Weighted-average discount rate2.43 %
Weighted-average remaining lease term (years)
9.3
 Payments Banking Corporate
Services/Other		 Total
Three Months Ended December 31, 2016       
Interest income$2,912
 $10,754
 $8,909
 $22,575
Interest expense—
 544
 2,198
 2,742
Net interest income2,912
 10,210
 6,711
 19,833
Provision for loan losses331
 512
 —
 843
Non-interest income19,024
 1,072
 (747) 19,349
Non-interest expense22,080
 5,845
 8,828
 36,753
Income (loss) before income tax expense (benefit)(475) 4,925
 (2,864) 1,586
        
Total goodwill87,320
 11,578
 —
 98,898
Total assets239,804
 1,118,429
 2,855,096
 4,213,329
Total deposits2,435,530
 225,182
 1,002,425
 3,663,137

The components of total lease costs for operating leases were as follows:
Three Months Ended December 31,
(Dollars in thousands)20232022
Lease expense$1,025 $1,014 
Short-term and variable lease cost(7)42 
Sublease income(370)(333)
Total lease cost for operating leases$648 $723 



NOTE 9. NEW ACCOUNTING PRONOUNCEMENTSSTOCKHOLDERS' EQUITY


Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): MeasurementRepurchase of Credit Losses on Financial Instruments

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 ASU requires organizations to replace the incurred loss impairment methodology with a methodology reflecting expected credit losses with considerations for a broader range of reasonable and supportable information to substantiate credit loss estimates. This ASUauthorization is effective for annual reporting periods beginning afterfrom September 3, 2021 through September 30, 2024. On August 25, 2023, the Company's Board of Directors announced a share repurchase program to repurchase up to an additional 7,000,000 shares of the Company's outstanding common stock on or before September 30, 2028. During the three months ended December 15, 2019.31, 2023 and 2022, the Company repurchased 232,588 and 653,994 shares, respectively, as part of the share repurchase programs.

Under the repurchase programs, repurchased shares were retired and designated as authorized but unissued shares. The Company accounts for repurchased shares using the par value method under which the repurchase price is currently undertaking a data analysis and is taking measures so that its systems capture data applicablecharged to paid-in capital up to the standard. In addition, the Company is undergoing a readiness assessment with an external consultant that began in the first quarter of fiscal 2018.

ASU No. 2016-04, Extinguishment of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products

This ASU requires organizations to derecognize the deposit liabilities for unredeemed prepaid stored-value products (i.e. – breakage) consistent with breakage guidance in Topic 606, Revenue from Contracts with Customers. This ASU is effective for annual reporting periods beginning after December 15, 2017, and the Company expects the impact to the consolidated financial statements to be minimal.

ASU No. 2016-02, Leases (Topic 842): Amendments to the Leases Analysis

This ASU requires organizations to recognize lease assets and lease liabilities on the balance sheet, along with disclosing key information about leasing arrangements.  This update is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and the Company has finalized its initial assessmentamount of the ASU and expects thatoriginal proceeds of those shares. When the standard will be immaterialrepurchase price is greater than the original issue proceeds, the excess is charged to the consolidated financial statements with the Company's current leases.

ASU No. 2014-09, Revenue Recognition – Revenue from Contracts with Customers (Topic 606)

This ASU provides guidance on when to recognize revenue from contracts with customers.  The objective of this ASU is to eliminate diversity in practice related to this topic and to provide guidance that would streamline and enhance revenue recognition requirements.  The ASU defines five steps to recognize revenue, including identify the contract with a customer, identify the performance obligations in the contract, determine a transaction price, allocate the transaction price to the performance obligations and then recognize the revenue when or as the entity satisfies a performance obligation.  This update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and the Company is currently assessing all income streams, including different prepaid card programs so as to ascertain how breakage will be recognized under the standard.

ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes

This ASU requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. This update was effective for annual and interim periods in fiscal years beginning after December 15, 2016, and did not have an impact on the consolidated financial statements.

ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments

This ASU addresses eight classification issues related to the statement of cash flows including: debt prepayment or debt extinguishment costs, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. This update is effective for annual and interim periods in fiscal years beginning after December 15, 2017, and the Company expects the impact to the consolidated financial statements to be minimal.


ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities

This ASU requires entities to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments in this update require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and is not expected to have a material impact on the consolidated financial statements.

ASU 2017-12, Receivables - Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
This ASU targets improving the accounting treatment for hedging activities and provides more flexibility in defining what can be hedged, while reducing earnings volatility due to ineffective hedges, and minimizing documentation requirements. The ASU also offers the ability to reclassify prepayable debt securities from HTM to AFS and subsequently sell the securities, as long as the securities are eligible to be hedged. This update is effective for annual periods and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted in any interim period or fiscal year before the effective date. The Company early adopted ASU 2017-12 as of October 1, 2017. The Company reclassified certain prepayable debt securities from HTM to AFS during the first quarter of fiscal 2018. See Note 5 to the Notes to Condensed Consolidated Financial Statements for additional information on the securities reclassed.

ASU 2016-01, Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

This ASU allows equity investments that do not have a readily determinable fair value to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The ASU also requires enhanced disclosure about those investments. The ASU simplifies the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. Entities that are required to disclose the fair value of financial instruments measured at amortized cost on the balance sheet are required to use the exit price notion consistent with Topic 820, Fair Value Measurement. This update will be effective for annual and interim periods in fiscal years beginning after December 15, 2017, with early adoption permitted. The Company is currently evaluating the potential impact of ASU 2016-01 on its consolidated financial statements.


NOTE 10. FAIR VALUE MEASUREMENTS

Accounting Standards Codification (“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.  Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.


Securities Available for Sale and Held to Maturity.  Securities available for sale are recorded at fair value on a recurring basis and securities held to maturity are carried at amortized cost.  Fair value measurement is based upon quoted prices, if available.  If quoted prices are not available, fair values are measured using an independent pricing service.  For both Level 1 and Level 2 securities, management uses various methods and techniques to corroborate prices obtained from the pricing service, including but not limited to reference to dealer or other market quotes, and by reviewing valuations of comparable instruments.  The Company’s Level 1 securities include equity securities and mutual funds.  Level 2 securities include U.S. Government agency and instrumentality securities, U.S. Government agency and instrumentality mortgage-backed securities, municipal bonds and corporate debt securities.  The Company had no Level 3 securities at December 31, 2017 or September 30, 2017.

The fair values of securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), or valuation 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 2 inputs).  The Company considers these valuations supplied by a third party provider which utilizes several sources for valuing fixed-income securities.  These sources include Interactive Data Corporation, Reuters, Standard and Poor’s, Bloomberg Financial Markets, Street Software Technology, and the third party provider’s own matrix and desk pricing.  The Company, no less than annually, reviews the third party’s methods and source’s methodology for reasonableness and to ensure an understanding of inputs utilized in determining fair value.  Sources utilized by the third party provider include but are not limited to pricing models that vary based by asset class and include available trade, bid, and other market information.  This methodology includes but is not limited to broker quotes, proprietary models, descriptive terms and conditions databases, as well as extensive quality control programs. Monthly, the Company receives and compares prices provided by multiple securities dealers and pricing providers to validate the accuracy and reasonableness of prices received from the third party provider. On a monthly basis, the Investment Committee reviews mark-to-market changes in the securities portfolio for reasonableness.
The following table summarizes the fair values of securities available for sale and held to maturity at December 31, 2017 and September 30, 2017.  Securities available for sale are measured at fair value on a recurring basis, while securities held to maturity are carried at amortized cost in the consolidated statements of financial condition.
 Fair Value At December 31, 2017
 Available For Sale Held to Maturity
(Dollars in Thousands)Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Debt securities               
Small business administration securities56,948
 —
 56,948
 —
 —
 —
 —
 —
Obligations of states and political subdivisions14,610
 —
 14,610
 —
 4,342
 —
 4,342
 —
Non-bank qualified obligations of states and political subdivisions1,223,030
 —
 1,223,030
 —
 227,482
 —
 227,482
 —
Asset-backed securities95,823
 —
 95,823
 —
 —
 —
 —
 —
Mortgage-backed securities600,112
 —
 600,112
 —
 8,320
 —
 8,320
 —
Total debt securities1,990,523
 —
 1,990,523
 —
 240,144
 —
 240,144
 —
Common equities and mutual funds1,829
 1,829
 —
 —
 —
 —
 —
 —
Total securities$1,992,352
 $1,829
 $1,990,523
 $—
 $240,144
 $—
 $240,144
 $—

 Fair Value At September 30, 2017
 Available For Sale Held to Maturity
(Dollars in Thousands)Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Debt securities               
Small business administration securities57,871
 —
 57,871
 —
 —
 —
 —
 —
Obligations of states and political subdivisions—
 —
 —
 —
 19,368
 —
 19,368
 —
Non-bank qualified obligations of states and political subdivisions950,829
 —
 950,829
 —
 432,361
 —
 432,361
 —
Asset-backed securities96,832
 —
 96,832
 —
 —
 —
 —
 —
Mortgage-backed securities586,454
 —
 586,454
 —
 112,456
 —
 112,456
 —
Total debt securities1,691,986
 —
 1,691,986
 —
 564,185
 —
 564,185
 —
Common equities and mutual funds1,445
 1,445
 —
 —
 —
 —
 —
 —
Total securities$1,693,431
 $1,445
 $1,691,986
 $—
 $564,185
 $—
 $564,185
 $—

Loans.  The Company does not record loans at fair value on a recurring basis.  However, if a loan is considered impaired, an allowance for loan losses is established.  Once a loan is identified as individually impaired, management measures impairment in accordance with ASC 310, Receivables.

The following table summarizes the assets of the Company that were measured at fair value in the consolidated statements of financial condition on a non-recurring basis asretained earnings. As of December 31, 20172023, 8,433,848 shares of common stock remained available for repurchase.

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For the three months ended December 31, 2023 and September 30, 2017.2022, the Company also repurchased 103,641 and 57,291 shares, or $4.9 million and $2.0 million, of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock.

 Fair Value At December 31, 2017
(Dollars in Thousands)Total Level 1 Level 2 Level 3
Foreclosed Assets, net128
 —
 —
 128
Total$128
 $—
 $—
 $128
 Fair Value At September 30, 2017
(Dollars in Thousands)Total Level 1 Level 2 Level 3
Foreclosed Assets, net292
     292
Total$292
 $—
 $—
 $292
 Quantitative Information About Level 3 Fair Value Measurements
(Dollars in Thousands)Fair Value at
December 31, 2017		 Fair Value at
September 30, 2017		 Valuation
Technique		 Unobservable Input Range of Inputs
Foreclosed Assets, net$128
 292
 Market approach 
Appraised values (1)
 4.00 - 10.00%
(1)
The Company generally relies on external appraisers to develop this information. Management reduced the appraised value by estimating selling costs in a range of 4% to 10%.

Retirement of Treasury Stock. The following table disclosesCompany accounts for the Company’s estimated fairretirement of repurchased shares, including treasury stock, using the par value amounts of its financial instruments asmethod under which the repurchase price is charged to paid-in capital up to the amount of the dates set forth below.  Itoriginal proceeds of those shares. When the repurchase price is management’s belief thatgreater than the fair values presented below are reasonable based onoriginal issue proceeds, the valuation techniques and data availableexcess is charged to retained earnings. The Company retired no shares of common stock held in treasury during the Company as ofthree months ended December 31, 20172023 and September 30, 2017, as more fully described below.  The operations of the Company are managed from a going concern basis and not a liquidation basis.  As a result, the ultimate value realized for the financial instruments presented could be substantially different when actually recognized over time through the normal course of operations.  Additionally, a substantial portion of the Company’s inherent value is the Bank’s capitalization and franchise value.  Neither of these components have been given consideration in the presentation of fair values below.2022.



The following presents the carrying amount and estimated fair value of the financial instruments held by the Company at December 31, 2017 and September 30, 2017.
 December 31, 2017
 Carrying
Amount		 Estimated
Fair Value		 Level 1 Level 2 Level 3
 (Dollars in Thousands)
Financial assets         
Cash and cash equivalents$1,300,409
 $1,300,409
 $1,300,409
 $—
 $—
          
Securities available for sale1,992,352
 1,992,352
 1,829
 1,990,523
 —
Securities held to maturity243,492
 240,144
 —
 240,144
 —
Total securities2,235,844
 2,232,496
 1,829
 2,230,667
 —
          
Loans receivable: 
  
  
  
  
One to four family residential mortgage loans203,967
 205,413
 —
 —
 205,413
Commercial and multi-family real estate loans654,029
 655,777
 —
 —
 655,777
Agricultural real estate loans61,303
 61,257
 —
 —
 61,257
Consumer loans274,981
 293,832
 —
 —
 293,832
Commercial operating loans56,516
 56,520
 —
 —
 56,520
Agricultural operating loans24,696
 24,506
 —
 —
 24,506
CML insurance premium finance loans235,671
 235,530
 —
 —
 235,530
Total loans receivable1,511,163
 1,532,835
 —
 —
 1,532,835
          
Federal Home Loan Bank stock57,443
 57,443
 —
 57,443
 —
Accrued interest receivable21,089
 21,089
 21,089
 —
 —
          
Financial liabilities 
  
  
  
  
Noninterest bearing demand deposits2,779,645
 2,779,645
 2,779,645
 —
 —
Interest bearing demand deposits, savings, and money markets185,376
 185,376
 185,376
 —
 —
Certificates of deposit128,220
 127,451
 —
 127,451
 —
Wholesale non-maturing deposits40,928
 40,928
 40,928
 —
 —
Wholesale certificates of deposit379,476
 379,101
 —
 379,101
 —
Total deposits3,513,645
 3,512,501
 3,005,949
 506,552
 —
          
Advances from Federal Home Loan Bank210,000
 210,002
 —
 210,002
 —
Federal funds purchased1,100,000
 1,100,000
 1,100,000
 —
 —
Securities sold under agreements to repurchase3,339
 3,339
 —
 3,339
 —
Capital lease1,922
 1,922
 —
 1,922
 —
Trust preferred securities10,310
 10,445
 —
 10,445
 —
Subordinated debentures73,382
 75,750
 —
 75,750
 —
Accrued interest payable4,065
 4,065
 4,065
 —
 —

 September 30, 2017
 Carrying
Amount		 Estimated
Fair Value		 Level 1 Level 2 Level 3
 (Dollars in Thousands)
Financial assets         
Cash and cash equivalents$1,267,586
 $1,267,586
 $1,267,586
 $—
 $—
          
Securities available for sale1,693,431
 1,693,431
 1,445
 1,691,986
 —
Securities held to maturity563,529
 564,185
 —
 564,185
 —
Total securities2,256,960
 2,257,616
 1,445
 2,256,171
 —
          
Loans receivable: 
  
  
  
  
One to four family residential mortgage loans196,706
 196,970
 —
 —
 196,970
Commercial and multi-family real estate loans585,510
 576,330
 —
 —
 576,330
Agricultural real estate loans61,800
 61,584
 —
 —
 61,584
Consumer loans163,004
 163,961
 —
 —
 163,961
Commercial operating loans35,759
 35,723
 —
 —
 35,723
Agricultural operating loans33,594
 32,870
 —
 —
 32,870
CML insurance premium finance loans250,459
 250,964
 —
 —
 250,964
Total loans receivable1,326,832
 1,318,402
 —
 —
 1,318,402
          
Federal Home Loan Bank stock61,123
 61,123
 —
 61,123
 —
Accrued interest receivable19,380
 19,380
 19,380
 —
 —
          
Financial liabilities 
  
  
  
  
Noninterest bearing demand deposits2,454,057
 2,454,057
 2,454,057
 —
 —
Interest bearing demand deposits, savings, and money markets169,557
 169,557
 169,557
 —
 —
Certificates of deposit123,637
 123,094
 —
 123,094
 —
Wholesale non-maturing deposits18,245
 18,245
 18,245
 —
 —
Wholesale certificates of deposits457,928
 457,509
 —
 457,509
 —
Total deposits3,223,424
 3,222,462
 2,641,859
 580,603
 —
          
Advances from Federal Home Loan Bank415,000
 415,003
 —
 415,003
 —
Federal funds purchased987,000
 987,000
 987,000
 —
 —
Securities sold under agreements to repurchase2,472
 2,472
 —
 2,472
 —
Capital lease1,938
 1,938
 —
 1,938
 —
Trust preferred securities10,310
 10,447
 —
 10,447
 —
Subordinated debentures73,347
 76,500
 —
 76,500
 —
Accrued interest payable2,280
 2,280
 2,280
 —
 —

The following sets forth the methods and assumptions used in determining the fair value estimates for the Company’s financial instruments at December 31, 2017 and September 30, 2017.
CASH AND CASH EQUIVALENTS
The carrying amount of cash and short-term investments is assumed to approximate the fair value.
SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
Securities available for sale are recorded at fair value on a recurring basis and securities held to maturity are carried at amortized cost.  Fair values for investment securities are based on obtaining quoted prices on nationally recognized securities exchanges, or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities.

LOANS RECEIVABLE, NET
The fair value of loans is estimated using a historical or replacement cost basis concept (i.e., an entrance price concept).  The fair value of loans was estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers and for similar remaining maturities.  When using the discounting method to determine fair value, homogeneous loans with similar terms and conditions were grouped together and discounted at a target rate at which similar loans would be made to borrowers at December 31, 2017 or September 30, 2017.  In addition, when computing the estimated fair value for all loans, allowances for loan losses have been subtracted from the calculated fair value as a result of the discounted cash flow which approximates the fair value adjustment for the credit quality component.
FEDERAL HOME LOAN BANK (“FHLB”) STOCK
The fair value of FHLB stock is assumed to approximate book value since the Company is only able to redeem this stock at par value.
ACCRUED INTEREST RECEIVABLE
The carrying amount of accrued interest receivable is assumed to approximate the fair value.
DEPOSITS
The carrying values of non-interest bearing checking deposits, interest bearing checking deposits, savings, money markets, and wholesale non-maturing deposits are assumed to approximate fair value, since such deposits are immediately withdrawable without penalty.  The fair value of time certificates of deposit and wholesale certificates of deposit were estimated by discounting expected future cash flows by the current rates offered on certificates of deposit with similar remaining maturities.
In accordance with ASC 825, Financial Instruments, no value has been assigned to the Company’s long-term relationships with its deposit customers (core value of deposits intangible) since such intangibles are not financial instruments as defined under ASC 825.
ADVANCES FROM FHLB
The fair value of such advances was estimated by discounting the expected future cash flows using current interest rates for advances with similar terms and remaining maturities.
FEDERAL FUNDS PURCHASED
The carrying amount of federal funds purchased is assumed to approximate the fair value.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND SUBORDINATED DEBENTURES
The fair value of these instruments was estimated by discounting the expected future cash flows using derived interest rates approximating market over the contractual maturity of such borrowings.
ACCRUED INTEREST PAYABLE
The carrying amount of accrued interest payable is assumed to approximate the fair value.
LIMITATIONS
Fair value estimates are made at a specific point in time and are based on relevant market information about the financial instrument.  Additionally, fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, customer relationships and the value of assets and liabilities that are not considered financial instruments.  These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time.  Furthermore, since no market exists for certain of the Company’s financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with a high level of precision.  Changes in assumptions as well as tax considerations could significantly affect the estimates.  Accordingly, based on the limitations described above, 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.


NOTE 11. GOODWILL AND INTANGIBLE ASSETS10. STOCK COMPENSATION


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

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

The Company heldalso grants selected executives and other key employees PSU awards. The vesting of these awards is contingent on meeting company-wide performance goals, including but not limited to return on equity, earnings per share, and total shareholder return. PSUs are generally granted at the market value of the underlying share on the date of grant, adjusted for dividends, as performance share units do not participate in dividends. The awards contingently vest over a totalperiod of $98.7 millionthree years and have payout levels ranging from a threshold of goodwill as50% to a maximum of December 31, 2017. 200%. Upon vesting, each performance share unit earned is converted into one share of common stock.

The recorded goodwill was duefair value of the PSUs is determined by the dividend-adjusted fair value on the grant date for those awards subject to two separate business combinations during fiscal 2015 and two separate business combinationsa performance condition. For those PSUs subject to a market condition, a simulation valuation is performed.

In addition, during the first quarterand second quarters of fiscal 2017. The fiscal 2015 business combinations included $11.6 millionyear 2017, shares were granted to certain executive officers of goodwillthe Company in connection with their signing of employment agreements with the purchaseCompany. 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 commercial loan portfolio and related assets of AFS/IBEX onCompany's incentive plans during the three months ended December 2, 2014 and $25.4 million of goodwill in connection with31, 2023.
Number of SharesWeighted Average Fair Value at Grant
Nonvested shares outstanding, September 30, 2023370,151 $35.87 
Granted(1)
— — 
Vested(176,700)36.44 
Forfeited or expired(1,863)39.23 
Nonvested shares outstanding, December 31, 2023191,588 $35.31 
Number of Units(2)
Weighted Average Fair Value at Grant
Performance share units outstanding, September 30, 2023155,804 $41.20 
Granted(1)
— — 
Vested(60,984)55.47 
Forfeited or expired— — 
Performance share units outstanding, December 31, 202394,820 $55.47 
(1) While no shares were granted during the first quarter of fiscal year 2024, 150,522 of nonvested shares and 44,800 of target performance share units were issued under awards contingent on the stockholder approval of the 2023 Omnibus Incentive Plan.
(2) The activity in this table includes 60,984 shares related to the fiscal year 2021 performance share units, which are included in this table under the assumption of a target performance achievement. The final performance was assessed after September 30, 2023, resulted in an achievement greater than target, and an additional 47,252 shares were allocated to the participants in the plan.

Compensation expense for share-based awards is recorded over the purchase of substantially allvesting period at the fair value of the assets and liabilities of Refund Advantage on September 8, 2015. The fiscal 2017 business combinations included $30.4 million of goodwill in connection withaward at the purchase of substantially alltime of the assetsgrant. The exercise price of EPS Financial, LLC on November 1, 2016;fair value of nonvested (restricted) shares and $31.4 million of goodwill in connection withPSUs granted under the purchase of substantially allCompany’s incentive plans is equal to the fair market value of the assets and specified liabilitiesunderlying stock at the grant date, adjusted for dividends where applicable. The Company has elected to record forfeitures as they occur.

At December 31, 2023, stock-based compensation expense not yet recognized in income totaled $4.1 million, which is expected to be recognized over a weighted average remaining period of Specialty Consumer Services LP on December 14, 2016. The goodwill associated with these transactions is deductible for tax purposes.1.27 years.


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NOTE 11. INCOME TAXES

The changes in the carrying amountCompany recorded an income tax expense of the Company’s goodwill and intangible assets$5.7 million for the three months ended December 31, 2017 and 2016 were as follows:
 2017 2016
 (Dollars in Thousands)
Goodwill   
Balance as of September 30,$98,723
 $36,928
Acquisitions during the period—
 61,970
Write-offs during the period—
 —
Balance as of December 31,$98,723
 $98,898

 
Trademark(1)
 
Non-Compete(2)
 
Customer
Relationships(3)
 
All Others(4)
 Total
Intangibles 
Balance as of September 30, 2017$10,051
 $1,782
 $31,707
 $8,638
 $52,178
Acquisitions during the period—
 —
 —
 38
 38
Amortization during the period(159) (132) (1,160) (230) (1,681)
Write-offs during the period—
 —
 —
 (14) (14)
Balance as of December 31, 2017$9,892
 $1,650
 $30,547
 $8,432
 $50,521
          
Gross carrying amount$10,990
 $2,480
 $57,810
 $10,540
 $81,820
Accumulated amortization(1,098) (830) (17,015) (1,565) (20,508)
Accumulated impairment—
 —
 (10,248) (543) (10,791)
Balance as of December 31, 2017$9,892
 $1,650
 $30,547
 $8,432
 $50,521
(1) Book amortization period of 5-15 years. Amortized using the straight line and accelerated methods.
(2) Book amortization period of 3-5 years. Amortized using the straight line method.
(3) Book amortization period of 10-30 years. Amortized using the accelerated method.
(4) Book amortization period of 3-20 years. Amortized using the straight line method.


 
Trademark(1)
 
Non-Compete(2)
 
Customer
Relationships(3)
 
All Others(4)
 Total
Intangibles 
Balance as of September 30, 2016$5,149
 $127
 $20,590
 $3,055
 $28,921
Acquisitions during the period5,480
 2,210
 32,230
 6,156
 46,076
Amortization during the period(120) (86) (1,193) (126) (1,525)
Write-offs during the period—
 —
 —
 —
 —
Balance as of December 31, 2016$10,509
 $2,251
 $51,627
 $9,085
 $73,472
          
Gross carrying amount$10,970
 $2,510
 $58,270
 $9,711
 $81,461
Accumulated amortization(461) (259) (6,643) (626) (7,989)
Balance as of December 31, 2016$10,509
 $2,251
 $51,627
 $9,085
 $73,472
(1) Book amortization period of 15 years. Amortized using the straight line and accelerated methods.
(2) Book amortization period of 3 years. Amortized using the straight line method.
(3) Book amortization period of 10-30 years. Amortized using the accelerated method.
(4) Book amortization period of 3-20 years. Amortized using the straight line method.

The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets. Estimated amortization expense of intangible assets in the remaining nine months of fiscal 2018 and subsequent fiscal years is as follows:
 (Dollars in Thousands)
Remaining in 2018$6,028
20197,151
20205,753
20215,184
20224,262
20233,625
Thereafter18,518
Total anticipated intangible amortization$50,521

The Company tests intangible assets for impairment at least annually or more often if conditions indicate a possible impairment.  There were no impairments to intangible assets during the three months ended December 31, 2017 or 2016.  The annual goodwill impairment test for fiscal 2018 will be conducted at September 30, 2018. 

NOTE 12. INCOME TAXES

Income tax expense for the fiscal 2018 first quarter was $5.7 million,2023, resulting in an effective tax rate of 54.9%17.00%, compared to $0.3an income tax expense of $6.6 million, or an effective tax rate of 21.6%18.79%, for the three months ended December 31, 2022. The Company’s effective tax rate was lower than the U.S. statutory rate of 21% primarily because of the effect of investment tax credits during fiscal 2017 first quarter.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 Tax Cuts and Jobs Act (the "Tax Act") was signed into law on December 22, 2017. The Tax Act has a significant impact ontable below compares the U.S. corporate income tax regime by lowering the U.S. corporate tax rate from 35 percent to 21 percent effective for taxable years beginning on or after January 1, 2018 in addition to implementing numerous other changes. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law was enacted.
As a result of the Tax Act, the Company remeasured its deferred tax assets and deferred tax liabilities during its fiscal 2018 first quarter, resulting in additional income tax expense of $3.6 million. Ascomponents for the periods presented.
Three Months Ended December 31,
(Dollars in thousands)20232022
Provision at statutory rate$7,009 $7,228 
Tax-exempt income(174)(203)
State income taxes1,228 1,510 
Interim period effective rate adjustment2,806 1,119 
Tax credit investments, net - federal(4,377)(3,062)
IRC 162(m) nondeductible compensation(280)136 
Other, net(493)(151)
Income tax expense$5,719 $6,577 
Effective tax rate17.00 %18.79 %

NOTE 12. REVENUE FROM CONTRACTS WITH CUSTOMERS

Topic 606 applies to all contracts with customers unless such revenue is specifically addressed under existing guidance. The table below presents the Company’s fiscal year end ends on September 30, the statutory corporate rate for fiscal 2018 will be prorated to 24.53 percent.


In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance regarding how a company is to reflect provisional amounts when necessary information is not yet available, prepared or analyzed sufficiently to complete its accounting for the effectrevenue by operating segment. For additional descriptions of the changes inCompany’s operating segments, including additional financial information and the Tax Act.underlying management accounting process, see Note 13. Segment Reporting to the Condensed Consolidated Financial Statements.
(Dollars in thousands)ConsumerCommercialCorporate Services/OtherConsolidated Company
Three Months Ended December 31,20232022202320222023202220232022
Net interest income(1)
$59,356 $34,272 $45,881 $42,324 $4,799 $7,461 $110,036 $84,057 
Noninterest income:
Refund transfer product fees422 677 — — — — 422 677 
Refund advance fee income(1)
111 617 — — — — 111 617 
Card and deposit fees30,507 37,452 236 261 7 5 30,750 37,718 
Rental income(1)
— — 13,235 12,515 224 193 13,459 12,708 
Gain on sale of trademarks— — — — — 10,000 — 10,000 
Gain (loss) on sale of other(1)
(31)— 362 502 2,509 — 2,840 502 
Other income(1)
1,778 793 2,166 1,084 1,235 1,678 5,179 3,555 
Total noninterest income32,787 39,539 15,999 14,362 3,975 11,876 52,761 65,777 
Revenue$92,143 $73,811 $61,880 $56,686 $8,774 $19,337 $162,797 $149,834 
(1) These revenues are not within the scope of Topic 606. Additional details are included in other footnotes to the accompanying financial statements. The scope of Topic 606 explicitly excludes net interest income as well as many other revenues for financial assets and liabilities, including loans, leases, and securities.

Following is a discussion of key revenues within the scope of Topic 606. The income tax expense of $3.6 million recorded duringCompany provides services to customers that have related performance obligations that must be completed to recognize revenue. Revenues are generally recognized immediately upon the fiscal 2018 first quarter represents all known and estimable impactscompletion of the Tax Act and is a provisional amount based onservice or over time as services are performed. Any services performed over time generally require that the Company’s current best estimate. This provisional amount incorporates assumptions madeCompany renders services each period; therefore, the Company measures progress in completing these services based upon the Company’s current interpretationspassage of time. Revenue from contracts with customers did not generate significant contract assets and liabilities for the three months ended December 31, 2023.
28
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Refund Transfer Product Fees. Refund transfer fees are specific to the Banking as a Service ("BaaS") business line and reflect product fees offered by the Company through third-party tax preparers and tax preparation software providers where the Company acts as the partnering financial institution. A refund transfer allows a taxpayer to pay tax preparation and filing fees directly from their federal or state government tax refund, with the remainder of the Tax Actrefund being disbursed in accordance with the terms and conditions of the taxpayer agreement, which may changeinclude 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 receives additional clarificationis considered the agent in these contractual relationships. All refund transfer fees are recorded within the Consumer reporting segment.

Card and implementation guidance,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 data becomes available allowingtransactions occur. Fee income for a more accurate schedulingmerchant 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 deferred tax assetscardholder 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 liabilities, including those related to items potentially impacted byconditions of the Tax Act such as fixed assetsProgram Agreement. For these relationships, the Company is considered the agent and employee compensation. Adjustments to this provisional amount through December 22, 2018 will becertain 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 operationsbanking 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 an adjustmentthe 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 tax expense in future periods.

NOTE 13. REGULATORY MATTERS

On January 5, 2015,maintain records of cardholder funds placed at one or more third-party banks insured by the Federal Deposit Insurance Corporation (“FDIC”("FDIC") published industry guidance. 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 formConsumer 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.

29
Table of Frequently Asked Questions (“FAQs”) with respectContents
The following table presents segment data for the Company:
(Dollars in thousands)ConsumerCommercialCorporate Services/OtherTotal
Three Months Ended December 31,20232022202320222023202220232022
Net interest income$59,356 $34,272 $45,881 $42,324 $4,799 $7,461 $110,036 $84,057 
Provision for (reversal of) credit loss3,454 3,240 6,463 6,583 (27)(47)9,890 9,776 
Noninterest income32,787 39,539 15,999 14,362 3,975 11,876 52,761 65,777 
Noninterest expense50,013 34,494 34,856 32,749 34,405 37,816 119,274 105,059 
Income (loss) before income tax expense38,676 36,077 20,561 17,354 (25,604)(18,432)33,633 34,999 
Total assets563,706 393,898 4,206,522 3,476,942 3,157,209 2,788,385 7,927,437 6,659,225 
Total goodwill87,145 87,145 222,360 222,360 — — 309,505 309,505 
Total deposits6,587,052 5,624,919 3,669 6,628 345,334 157,585 6,936,055 5,789,132 

NOTE 14. FAIR VALUES OF FINANCIAL INSTRUMENTS

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

The fair value hierarchy is as follows:

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

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

Level 3 Inputs - Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the categorizationextent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of deposit liabilitiesassumptions 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 “brokered” deposits. On November 13, 2015,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 FDIC issuedprices obtained from independent asset pricing services for comment updatedunusual fluctuations and annotated FAQs,compares to current market trading activity.

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

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The following tables summarize the FDIC finalizedfair values of debt securities available for sale and equity securities as they are measured at fair value on a recurring basis.
 At December 31, 2023
(Dollars in thousands)TotalLevel 1Level 2Level 3
Debt securities AFS    
Corporate securities$18,375 $18,375 
SBA securities87,732 — 87,732 — 
Obligations of states and political subdivisions2,304 — 2,304 — 
Non-bank qualified obligations of states and political subdivisions228,888 — 228,888 — 
Asset-backed securities237,704 — 237,704 — 
Mortgage-backed securities1,275,578 — 1,275,578 — 
Total debt securities AFS$1,850,581 $— $1,850,581 $— 
Common equities and mutual funds(1)
$4,207 $4,207 $— $— 
Non-marketable equity securities(2)
$9,700 $— $— $— 
(1) Equity securities at fair value are included within other assets on the FAQs. The Company believesCondensed Consolidated Statements of Financial Condition at December 31, 2023.
(2) Consists of certain non-marketable equity securities that the final FAQs do not materially impact the processes that it uses to identify, accept and report brokered deposits. On April 26, 2016, the FDIC issued a final rule to amend how small banks (less than $10 billion in assets that have been FDIC insured forare measured at least five years) are assessed for deposit insurance (the "Final Rule"fair value using net asset value ("NAV"). The Final Rule imposes higher assessments for banks that the FDIC believes present higher risk profiles. The Final Rule became effective with the Bank's December 2016 assessment invoice, which the Company received in March 2017.

Due to the Bank’s status per share (or its equivalent) as a "well-capitalized" institution underpractical expedient and are excluded from the FDIC's prompt corrective action regulations,fair value hierarchy.
 At September 30, 2023
(Dollars in thousands)TotalLevel 1Level 2Level 3
Debt securities AFS    
Corporate securities$18,250 $— $18,250 $— 
SBA securities85,242 — 85,242 — 
Obligations of states and political subdivisions2,289 — 2,289 — 
Non-bank qualified obligations of states and political subdivisions226,723 — 226,723 — 
Asset-backed securities246,199 — 246,199 — 
Mortgage-backed securities1,225,525 — 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 further with respect toare excluded from the Bank’s financial condition in general, thefair value hierarchy.

Loans and Leases. The Company does not record loans and leases at this time anticipate that eitherfair 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 FAQs orvalues of the Final Rule will haveunderlying collateral, the Company measures fair value on a material adverse impactnonrecurring 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 Company’s business operations.  However, shouldinternal estimates and/or assessment provided by third-party appraisers and the Bank ever failvaluation relies on discount rates ranging from 3% to be well-capitalized44%.

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The following tables summarize the assets of the Company that are measured at fair value in the future,Condensed Consolidated Statements of Financial Condition on a nonrecurring basis:
 At December 31, 2023
(Dollars in thousands)TotalLevel 1Level 2Level 3
Loans and leases, net individually evaluated for credit loss    
Commercial finance$6,441 $— $— $6,441 
    Total loans and leases, net individually evaluated for credit loss6,441 — — 6,441 
Total$6,441 $— $— $6,441 
 At September 30, 2023
(Dollars in thousands)TotalLevel 1Level 2Level 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 loss21,829 — — 21,829 
Total$21,829 $— $— $21,829 
 Quantitative Information About Level 3 Fair Value Measurements
(Dollars in thousands)
Fair Value at
December 31, 2023
Fair Value at
September 30, 2023
Valuation
Technique		Unobservable InputRange of Inputs
Loans and leases, net individually evaluated for credit loss$6,441 $21,829 Market approach
Appraised values(1)
3% - 44%
(1) The Company generally relies on external appraisers to develop this information. Management reduced the appraised value by estimating selling costs and other inputs in a range of 3% to 44%.

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

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The following tables present the carrying amount and estimated fair value of the financial instruments held by the Company:
 At December 31, 2023
(Dollars in thousands)Carrying
Amount		Estimated
Fair Value		Level 1Level 2Level 3
Financial assets
Cash and cash equivalents$671,630 $671,630 $671,630 $— $— 
Debt securities available for sale1,850,581 1,850,581 — 1,850,581 — 
Debt securities held to maturity35,440 32,180 — 32,180 — 
Common equities and mutual funds(1)
4,207 4,207 4,207 — — 
Non-marketable equity securities(1)(2)
20,195 20,195 — 10,495 — 
Loans held for sale69,518 69,518 — 69,518 — 
Loans and leases4,419,364 4,298,218 — — 4,298,218 
Federal Reserve Bank and Federal Home Loan Bank stocks23,694 23,694 — 23,694 — 
Accrued interest receivable27,080 27,080 27,080 — — 
Financial liabilities
Deposits6,936,055 6,937,613 6,795,322 142,292 — 
Other short- and long-term borrowings33,614 31,421 — 31,421 — 
Accrued interest payable1,941 1,941 1,941 — — 
(1) Equity securities at fair value are included within other assets on the Condensed Consolidated Statements of Financial Condition at December 31, 2023.
(2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a result of failing to meet the well-capitalized requirements, or the imposition of an individual minimum capital requirement or similar formal requirements, then, notwithstanding that the Bank has capital in excess of the well-capitalized minimum requirements, the Bank would be prohibited, absent waiverpractical expedient and are excluded from the FDIC, from utilizing brokered deposits (i.e., may not accept, renew or rollover brokered deposits), which could produce serious adverse effectsfair value hierarchy.
 At September 30, 2023
(Dollars in thousands)Carrying
Amount		Estimated
Fair Value		Level 1Level 2Level 3
Financial assets
Cash and cash equivalents$375,580 $375,580 $375,580 $— $— 
Debt securities available for sale1,804,228 1,804,228 — 1,804,228 — 
Debt securities held to maturity36,591 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 sale77,779 77,779 — 77,779 — 
Loans and leases4,359,681 4,223,010 — — 4,223,010 
Federal Reserve Bank and Federal Home Loan Bank stocks28,210 28,210 — 28,210 — 
Accrued interest receivable23,282 23,282 23,282 — — 
Financial liabilities
Deposits6,589,182 6,589,065 6,583,648 5,417 — 
Other short- and long-term borrowings33,873 31,187 — 31,187 — 
Accrued interest payable247 247 247 — — 
(1) Equity securities at fair value are included within other assets on the Company’s liquidity,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 financial condition and results of operations.  Similarly, shouldare excluded from the Bank’s financial condition in general deteriorate, future FDIC assessments could have a material adverse effect on the Company.fair value hierarchy.




NOTE 14.15. SUBSEQUENT EVENTS
On January 2, 2018, a deed in lieu of foreclosure was executed on the collateral for a large, well-collateralized loan relationship. Upon execution of the deed in lieu, the Company took ownership of the properties serving as collateral and transferred the loans to foreclosed real estate and repossessed assets. If, as expected, the properties are sold prior
Management has evaluated subsequent events that occurred after December 31, 2023. During this period, up to the endfiling date of the agreed-upon receivership period set forththis Quarterly Report on Form 10-Q, management did not identify any material subsequent events that would require recognition or disclosure in the settlement agreement, the Company will be entitled to all principal, note interest, legal and other fees and expenses. After the receivership period ends, if the properties are not sold, the Company will be entitled to the fair valueour Condensed Consolidated Financial Statements as of the properties.
On January 9, 2018, the Company announced that it entered into a definitive merger agreement with Crestmark Bancorp, Inc. (“Crestmark”), the holding company of Crestmark Bank, whereby the Company will acquire Crestmark in an all-stock transaction.
Pursuant to the terms of the merger agreement, at the effective time of the merger, Crestmark will merge with and into the Company, and Crestmark Bank will merge with and into MetaBank (the "Bank"). 
Under the terms of the merger agreement, Crestmark shareholders will receive 2.65 shares of the Company's common stock for each share of Crestmark common stock. The aggregate value of the acquisition consideration, based on the closing price of Meta Financial shares on January 8, 2018 of $91.35, would have been $320.6 million. Giving effect to the transaction, existing shareholders of the Company are expected to own approximately 75%, and Crestmark shareholders are expected to own approximately 25%, of the outstanding shares of the Company.
On January 25, 2018, the Company announced that the Bank entered into a three-year program agreement with Liberty Lending, LCC ("Liberty"), whereby the Bank will provide personal loans to Liberty customers. Under the agreement, the Bank expects to originate between $500 million and $1 billion in personal loans during the term of the program. The loan products contemplated under this agreement will be closed-end installment loans ranging from $3,500 to $45,000 in principal amount with lengths of between 13 and 60 months. The Bank expects to begin providing such loans as early as the third quarter of fiscal 2018. The Bank has the contractual right to sell these loans or interests in the loans. The agreement marks the entry point for the Company into a direct-to-consumer credit business.quarter ended December 31, 2023.



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


META FINANCIAL GROUP, INC®.
AND SUBSIDIARIES
FORWARD LOOKINGFORWARD-LOOKING STATEMENTS

Meta Financial Group, Inc.®, (“Meta Financial”PATHWARD FINANCIAL, INC. ("Pathward Financial" or “the Company”the "Company" or “us”"us") and its wholly-owned subsidiary, MetaBank® (the “Bank”Pathward®, National Association ("Pathward®, N.A" or “MetaBank”"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, in itsthe Company’s other filings with the Securities and Exchange Commission (“SEC”(the "SEC"), in itsthe Company’s reports to stockholders, and in other communications by the Company and the Bank,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;results including our performance expectations; the performance of our securities portfolio; future effective tax rate; the impact of card balances related to government stimulus programs; progress on key initiatives; expected results of our partnerships; customer retention; loan and other product demand; important components of the Company's statements of financial condition and operations; growth and expansion; new products and services, such as those offered byservices; credit quality; the Bank orlevel of net charge-offs and the Company's Payments divisions (which includes Meta Payments Systems (“MPS”) and its tax-related financial solutions divisions: Refund Advantage, EPS Financial (“EPS”) and Specialty Consumer Services (“SCS”)); credit quality and adequacy of reserves; technology;the allowance for credit losses; and the Company's employees.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: the risk that the transaction with Crestmark may not occur on a timely basis or at all; the parties’ ability to obtain regulatory approvals and approval of their respective shareholders, and otherwise satisfy the other conditions to closing, on a timely basis or at all; the risk that the businesses of the Company and MetaBank, on the one hand, and Crestmark and Crestmark Bank, on the other hand, may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; themaintaining our executive management team; expected growth opportunities beneficial synergies and/or operating efficiencies from the proposed transaction with Crestmark may not be fully realized or may take longer to realize than expected; customer lossesthe potential adverse effects of unusual and business disruption following the announcement or consummation of the proposed transaction; potential litigation relating to the proposed merger transaction; the risk that the Company may incur unanticipated or unknown losses or liabilities if it completes the proposed transaction with Crestmark and Crestmark Bank; the risk that the Company’s preliminary analysis ofinfrequently occurring events, including the impact ofon financial markets from geopolitical conflicts such as the Tax Act may be incorrect; additional changesmilitary conflicts in tax laws; the risk that the Bank may be unable to originate between $500 million and $1 billion in personal loans during the three-year term of the program agreement with Liberty Lending, LLC; the risk that we are unable to recoup a significant portion of the lost earnings associated with the non-renewal of the agreement with H&R Block through agreements with new tax partners and expanded relationships with existing tax partners; the risk that loan production levels and other anticipated benefits related to the agreement with Jackson Hewitt Tax Service®, as extended, may not be as much as anticipated; maintaining our executive management team; the strength of the United States' economy, in general,Ukraine and the strength ofMiddle East, weather-related disasters, or public health events, such as the local economies in which the Company conducts operations; the effects of,COVID-19 pandemic, and any governmental or societal responses thereto; our ability to achieve brand recognition for Pathward equal to or greater than we enjoyed for MetaBank; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate, policies ofand their related impacts on macroeconomic conditions, customer behavior, funding costs and loan and securities portfolios; changes in tax laws; the Board of Governors of the Federal Reserve System (the “Federal Reserve”), as well as effortsstrength of the United States Treasury in conjunction with bank regulatory agencies to stimulate theStates' economy, and protectthe local economies in which the Company operates; adverse developments in the financial system;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, interest rate, market, and monetary fluctuations; our liquidity and capital positions, including the sufficiency of our liquidity; the timely development of, and acceptanceefficient 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 business,businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or acceptance of usage of the Company’sPathward’s strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators in the future; the impact ofregulators; changes in financial services laws and regulations, including but not limited to, laws and regulations relating to the tax refund industry and the insurance premium finance industry; our relationship with our primary regulators, the Office of the Comptroller of the Currency (“OCC”) and the Federal Reserve, as well as the Federal Deposit Insurance Corporation (“FDIC”), which insures the Bank’s deposit accounts up to applicable limits; technological changes, including, but not limited to, the protection of our electronic files or databases; acquisitions;systems and information; the impact of acquisitions and divestitures; litigation risk, in general, including, but not limited to, those risks involving the Bank's divisions;risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the BankPathward of its status as a well-capitalized institution, particularly in light of our growing deposit base, a portion of which has been characterized as “brokered”;well capitalized; changes in consumer borrowing, spending, and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase.


The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date hereof.hereof, and the Company does not undertake any obligation to update, revise, or clarify these forward-looking statements whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in theirits entirety by the cautionary statements contained or referred to in this section. Additional discussions of factors affecting the Company’s business and prospects are includedreflected under the caption "Risk Factors"“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, 20172023, and in the Company's other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason.



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GENERAL

The Company, a registered unitary savings and loanbank 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 federal savings bank.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 MetaPathward Financial and the Bank, and all direct or indirect subsidiaries of MetaPathward Financial on a consolidated basis.

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

The following discussion focuses on the consolidated financial condition of the Company at December 31, 2017,2023, compared to September 30, 2017,2023, and the consolidated results of operations for the three months ended December 31, 20172023 and 2016.2022. This discussion should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the fiscal year ended September 30, 20172023 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, 2017.2023.


BUSINESS DEVELOPMENTSEXECUTIVE SUMMARY

Company Highlights

•On January 9, 2018,16, 2024, the Company announced that it entered into a definitive merger agreement with Crestmark Bancorp, Inc. (“Crestmark”), the holding company of Crestmark Bank, whereby the Company will acquire Crestmark in an all-stock transaction.
Pursuant to the terms of the merger agreement, at the effective time of the merger, Crestmark will merge with and into the Company, and Crestmark Bank will merge with and into MetaBank. As of September 30, 2017, the Bank had $5.2 billion in assets and $1.3 billion in total loans and, on a pro forma consolidated basis, the combined company would have had approximately $6.4 billion in assets and $2.2 billion in loans and leases, or 34% of total assets, with lending operations throughout the U.S.
Under the terms of the merger agreement, Crestmark shareholders will receive 2.65 shares of the Company's common stock for each share of Crestmark common stock. The aggregate value of the acquisition consideration, based on the closing price of Meta Financial shares on January 8, 2018, of $91.35, would have been $320.6 million. Giving effect to the transaction, existing shareholders of the Company are expected to own approximately 75%, and Crestmark shareholders are expected to own approximately 25%, of the outstanding shares of the Company.
Crestmark, through Crestmark Bank, is a commercial lender offering asset-based loans, equipment finance leases and government guaranteed loans to small and mid-sized businesses across the US. Crestmark focuses on workingmulti-year extension with a broadlong-standing partner that allows for collaboration on product innovation and expanded product offerings for a range of industries, including manufacturing, transportationprograms in market and health care. Crestmark will operate as a division of MetaBank and will continue to operate from its offices in Troy, Michigan.under development.
On January 25, 2018, the Company announced that MetaBank entered into a three year program agreement with Liberty Lending, LLC ("Liberty"), whereby MetaBank will provide personal loans to Liberty customers. Under the agreement, the Bank expects to originate between $500 million and $1 billion in personal loans during the term of the program. The loan products contemplated under this agreement will be closed-end installment loans ranging from $3,500 to $45,000 in principal amount with lengths of between 13 and 60 months. The Bank expects to begin providing such loans as early as the third quarter of fiscal 2018. The Bank has the contractual right to sell these loans or interests in the loans. The agreement marks the entry point
Financial Highlights for the Company into a direct-to-consumer credit business.2024 Fiscal First Quarter
As previously disclosed, on October 11, 2017, the Company completed the purchase of a $73.0 million, seasoned, floating rate, private student loan portfolio. All loans are indexed to one-month LIBOR. The portfolio is serviced by ReliaMax Lending Services LLC and insured by ReliaMax Surety Company. This portfolio purchase builds on the Company's existing student loan platform.

OVERVIEW OF FINANCIAL PERFORMANCE

The Company recorded net income of $4.7 million, or $0.48 per diluted share,•Total revenue for the three months ended December 31, 2017, compared to net income of $1.2first quarter was $162.8 million, or $0.14 per diluted share, for the three months ended December 31, 2016, an increase of 275%. Included in the 2018 fiscal first quarter net income was an additional, non recurring income tax expense of $3.6 million from a reduction in the value of certain deferred tax assets as a result of the Tax Cuts and Jobs Act (the "Tax Act") signed into law on December 22, 2017. The 2018 fiscal first quarter pre-tax results included a $1.0 million loss on sale of investments and $1.3 million of acquisition expenses. The 2018 fiscal first quarter pre-tax results also included $1.7 million in amortization of intangible assets and $1.3 million in non-cash stock-related compensation associated with executive officer employment agreements.

Net interest income was $26.2 million in the 2018 fiscal first quarter, an increase of $6.4$13.0 million, or 32%9%, compared to the first quarter of fiscal 2017. This increase was primarily a result of high credit quality loan growth in both the commercial insurance premium finance loan portfolio and community banking loan portfolio, as well as the purchased floating rate student loans. Also contributing to the improvement were increases in higher yielding securities balances, primarily due to highly-rated tax-exempt municipal securities at relatively high tax equivalent yields and a continuing improvement in the overall interest-earning asset mix.

Card fee income increased $6.8 million, or 37%, for the 2018 fiscal first quarter when compared to the same quarter in 2017. Thisfiscal 2023, driven by an increase was duein net interest income, partially offset by a decrease in noninterest income.

•Net interest margin ("NIM") increased 61 basis points to residual fees related to a wind down of two of our non-strategic programs. The Company expects fiscal year 2018 total card fee income to be between $95.0 million and $101.0 million and expects total card processing expense to be between $23.0 million and $27.0 million.

Total tax product fee income increased $1.5 million, or 242%, from $0.6 million6.23% for the three months endedfirst quarter from 5.62% during the same period of last year, primarily driven by increased yields and an improved earnings asset mix from the continued optimization of the portfolio.

•Total gross loans and leases at December 31, 20162023 increased $916.6 million to $2.1 million for the three months ended$4.43 billion compared to December 31, 2017. This2022 and increased $60.2 million when compared to September 30, 2023. The increase compared to the prior year quarter was primarily due to growth in the volume of pre-seasoncommercial, consumer, and warehouse finance loan portfolios. The primary driver for the sequential increase was growth in seasonal consumer finance loans related to a tax advance loans originated duringpartnership.

•During the first quarter of fiscal 2018 compared to the first quarter of fiscal 2017. All of these loans are being held during fiscal 2018, as opposed to the previous year when many of these loans were sold, which also contributed to the increase.

The Company's 20182024 fiscal first quarter, average assets grew to $4.12 billion, compared to $3.49 billion in the 2017 first quarter, an increase of 18%, primarily driven by growth in loan and securities balances.

Total loans receivable, net of allowance for loan losses, increased $393.2 million, or 36%, at December 31, 2017, compared to December 31, 2016. This increase was primarily related to growth in commercial real estate loans of $213.5 million, or 48%, growth in consumer loans of $101.8 million, or an increase of 59%, of which $56.7 million was attributable to the Company's purchased student loan portfolios and $44.0 million was related to refund advance loans, growth in commercial insurance premium finance loans of $56.2 million, or an increase of 31%, and growth in residential mortgage loans of $31.1 million, or an increase of 18%. The growth in net loans receivable from December 31, 2016 to December 31, 2017 was partially offset by an $11.6 million decrease, or a 12% decrease, in total agricultural loans. Excluding all purchased student loan portfolios and refund advance loans, total loans receivable, net of allowance for loan losses, at December 31, 2017 were up $293.1 million, or 30%, compared to the same period of the prior year. At December 31, 2017, community banking loans increased $223.3 million, or 29%, compared to December 31, 2016.

Payments division average deposits increased $295.2 million, or 15%, for the 2018 fiscal first quarter when compared to the same quarter of 2017.

Non-performing assets (“NPAs”) were 0.61% of total assets at December 31, 2017, compared to 0.05% at December 31, 2016. The increase in NPAs was primarily related to a large, well-collateralized agricultural loan relationship being more than 90 days past due, which was still accruing at December 31, 2017. On January 2, 2018, a deed in lieu of foreclosure was executed on the collateral for this relationship upon which the Company took ownershiprepurchased 232,588 shares of the properties serving as collateral and transferred the loans to foreclosed real estate and repossessed assets. If, as expected, the properties are sold prior to the endcommon stock at an average share price of the agreed-upon receivership period set forth in the settlement agreement, the Company will be entitled to all principal, note interest, legal and other fees and expenses. After the receivership period ends, if the properties are not sold, the Company will be entitled to the fair value of the properties, which the Company believes to be significantly in excess of all principal, note interest, legal and other fees and expenses. At September 30, 2017, NPAs were 0.72% of total assets. The decrease in NPAs from September 30, 2017 to December 30, 2017 was primarily due to the payoff of a $7.0 million nonperforming agricultural loan relationship during the first quarter of fiscal 2018.$47.25.


FINANCIAL CONDITION

At December 31, 2017,2023, the Company’s total assets increased by $189.6 million, or 4%, to $5.42$7.93 billion compared to $5.23 billion at September 30, 2017. The increase in assets was2023, primarily due to an increasegrowth of $296.0 million in cash and cash equivalents, $60.2 million in total loans receivable.and leases, and $46.4 million in securities AFS, partially offset by a reduction of $11.8 million in other assets.


Total cash and cash equivalents were $1.30 billion$671.6 million at December 31, 2017, an increase of $32.82023, increasing from $375.6 million or 3%, from $1.27 billionat September 30, 2017. Similar to September 30, 2017, the Company also temporarily repositioned the balance sheet at the end of the 2018 fiscal first quarter to prepare for the upcoming seasonal tax lending activity.
2023. The Company maintains its cash investments primarily in interest-bearing overnight deposits with the FHLB of Des Moines and the Federal Reserve Bank. FRB. At December 31, 2023, the Company did not have any federal funds sold.



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The total of mortgage-backed securities (“MBS”) and investment securities decreased $21.1portfolio increased $45.2 million, or 1%2%, to $2.24$1.89 billion at December 31, 2017,2023, compared to $2.26$1.84 billion at September 30, 2017, as maturities, sales, and principal pay downs exceeded purchases.2023. The Company’s portfolio of investment securities and MBS securitiescustomarily consists primarily of U.S. Government agency and instrumentality MBS, which have relatively short expected lives U.S. Government related asset backed securities, U.S. Government agency or instrumentality collateralized housing related municipal securities, and high qualitymuch shorter than the stated final maturity, non-bank qualified obligations of states and political subdivisions, (“NBQ”), which mature in approximately 15 years or less.  Of the total MBS, $600.1 million were classified as available for sale,less, and $8.5 million were classified as held to maturity.  Of the total investmentother tax exempt municipal mortgage related pass through securities $1.39 billion were classified as available for sale and $235.0 million were classified as held to maturity.which have average lives much shorter than their stated final maturities. During the three month periodmonths ended December 31, 2017,2023, the Company purchased $105.3 millionmade no purchases of investment securities available for sale, no MBS securities, and no investment securities held to maturity, withsecurities.

Through the available for sale investment security purchases consisting primarily of Ginnie Mae (“GNMA”) convertible and collateralized municipal housing securities and other municipal housing securities fully collateralized by U.S. agency and instrumentality securities. 
During the first quarter of fiscal 2018,Bank, the Company early adopted Accounting Standard Update ("ASU") 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." Dueowns stock in the FHLB due to the early adoptionBank’s membership and participation in this banking system as well as stock in the FRB. The FHLB requires a level of the ASU, the Company transferred $204.7 million ofstock investment securities and $101.3 million of MBS from HTM to AFS during the first quarter of fiscal 2018. This change allows for enhanced balance sheet management and provides the opportunity for more liquidity, should it be needed.

based on a pre-determined formula. The Company’s portfolio of net loans receivable increased $182.4investment in these stocks was $23.7 million or 14%, to $1.50 billion at December 31, 2017, from $1.32 billion2023 and $28.2 million at September 30, 2017. This increase was primarily attributable to a $112.0 million increase in consumer loans, largely due to the student loan portfolio2023, as redemptions were partially offset by purchases and refund advance loans, a $68.5 million, or 12%, increase in commercial real estate loans, a $20.8 million, or 58%, increase in commercial operating loans, and a $7.3 million, or 4%, increase in residential mortgage loans, offset in part by a $14.8 million, or 6%, decrease in commercial insurance premium finance loans and a $9.4 million, or 10%, decrease in total agricultural loans,of FHLB membership stock during the three months ended December 31, 2017. Excluding the purchased student loan portfolios and refund advances, total loans receivable, net of allowance2023.

Loans held for loan losses, would have increased $72.2 million, or 6%, from September 30, 2017 to December 31, 2017. Community banking loans increased $61.5 million, or 7%, during this period. Of the $654.0 million in commercial and multi-family real estate loanssale at December 31, 2017, $129.92023 totaled $69.5 million, were considered high-volatility commercial real estate (“HVCRE”) loans.  While such HVCRE loans are risk-weighteddecreasing from $77.8 million at 150% rather than 100%, as is customarySeptember 30, 2023. This decrease was primarily driven by a reduction in consumer credit products held for non-HVCRE commercial loans, the increase to the Company’s risk-weighted assets continues to be inconsequential in terms of the Company’s capital ratios.

Total deposits increased $290.2 million, or 9%,sale at December 31, 2017,2023 compared to $3.51September 30, 2023.

Total gross loans and leases totaled $4.43 billion from $3.22at December 31, 2023, as compared to $4.37 billion at September 30, 2017, primarily related to2023. The primary drivers for the increase was an increase of $325.6 million in non-interest bearing deposits, an increase of $17.1 million in interest-bearing checking depositsseasonal consumer finance loans, seasonal tax services loans and a $4.6 million increase in certificates of deposit. The increase in total deposits wascommercial finance loans, partially offset by a decrease of $55.8 million in wholesale deposits. Deposits attributablewarehouse finance loans. See Note 4 to the Payments segment“Notes to Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.

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

Total end-of-period deposits increased by $331.8 million, or 14%,5% to $2.77$6.94 billion at December 31, 2017,2023, compared to $2.44$6.59 billion at September 30, 2017.  The average balance2023, primarily driven by increases in noninterest-bearing deposits of total$215.9 million and wholesale deposits and interest-bearing liabilities was $3.62 billion for the three month period endedof $135.7 million, partially offset by a decrease in savings deposits of $4.9 million.

As of December 31, 2017, compared2023, the Company had $837.6 million in deposits related to $3.06 billionforgovernment stimulus programs. Of the same period intotal amount of government stimulus program deposits, $334.5 million are on activated cards while $503.1 million are on inactivated cards. During the prior year. The average balanceremainder of non-interest bearing deposits forfiscal year 2024, the three month period ended December 31, 2017 increased by$272.3inactive deposit balances are expected to decline by approximately $310 million or 13%, to $2.33 billion, comparedas the Company actively returns unclaimed balances to the same period in the prior year.U.S. Treasury.

TotalThe Company's total borrowings decreased $91.1$13.3 million or 6%, from $1.49 billion$46.9 million at September 30, 20172023 to $1.40 billion$33.6 million at December 31, 2017,2023, primarily due todriven by a decrease in short-term borrowings of federal funds purchased. At September 30, 2017 and December 31, 2017, the Company's cash balances were much higher than normal due to a temporary repositioning of the balance sheet at those dates as part of its preparations for the 2018 tax season. The Company’s overnight federal funds purchased fluctuates on a daily basis due to the nature of a portion of its non-interest bearing deposit base, primarily related to payroll processing timing with a higher volume of overnight federal funds purchased on Monday through Wednesday, which are typically paid down on Thursday and Friday.  Secondarily, a portion of certain programs are pre-funded, typically in the final week of the month and the corresponding deposits are received typically on the first day of the following month causing a temporary increased need for overnight borrowings. Accordingly, our level of borrowings may fluctuate significantly on any particular quarter end date.$13.0 million.


At December 31, 2017,2023, the Company’s stockholders’ equity totaled $437.7$729.3 million, an increase of $3.2$78.7 million, from $434.5$650.6 million at September 30, 2017.2023. The increase was primarily attributable to net earnings and an increase in additional paid-in capital, offset by accumulated other comprehensive income and cash dividends paid. Atretained earnings. The Company and Bank remained above the federal regulatory minimum capital requirements at December 31, 2017, the Bank2023, and continued to exceed allbe classified as well-capitalized, and in good standing with the regulatory requirements for classification as a well‑capitalized institution.agencies. See “Liquidity and Capital Resources” for further information.

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

–Prefundings: The Company deploys funds to cards prior to receiving cash (typically 2-3 days) where the prefunding balance is netted at a pooled partner level utilizing ASC 210-20.
–Discount fundings: The Company funds cards in alignment to expected breakage values on the card. Consumers may spend more than is estimated. These discounts are netted at a pooled partner level using ASC 210-20. The majority of these discount fundings relate to a small number of partners and Allowanceare 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 Loan Lossesall payments negative deposit balances with the exception of DDA overdrafts. The following table summarizes the Company's negative deposit balances within the BaaS business line:
(Dollars in thousands)December 31, 2023September 30, 2023
Noninterest-bearing deposits$6,876,657 $6,608,137 
Prefunding(266,820)(230,749)
Discount funding(51,490)(34,351)
DDA overdrafts(9,528)(10,096)
Noninterest-bearing checking, net$6,548,819 $6,332,941 
Generally,
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 majoritybenefit of the Bank’s cardholders. The Bank remains the issuer of all cards and holder of all accounts under the applicable cardholder agreements and has sole custodial control and transaction authority over the accounts opened at Program Banks.

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

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

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the Company’s total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. The balances presented in the table below are calculated on a daily average balance. Tax-equivalent adjustments have been made in yields on interest-bearing assets and NIM. Nonaccruing loans and leases have been included in the table as loans or leases carrying a zero yield.
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Three Months Ended December 31,
20232022
(Dollars in thousands)Average
Outstanding
Balance		Interest
Earned /
Paid
Yield /
Rate(1)
Average
Outstanding
Balance		Interest
Earned /
Paid
Yield /
Rate(1)
Interest-earning assets:      
Cash and fed funds sold$337,975 $4,103 4.83 %$226,004 $1,716 3.01 %
Mortgage-backed securities1,486,854 10,049 2.69 %1,571,022 10,412 2.63 %
Tax exempt investment securities136,470 930 3.43 %154,754 980 3.18 %
Asset-backed securities250,172 3,565 5.67 %155,988 1,149 2.92 %
Other investment securities284,625 2,288 3.20 %301,739 2,407 3.17 %
Total investments2,158,121 16,832 3.15 %2,183,503 14,948 2.76 %
Commercial finance3,762,910 75,345 7.97 %3,010,868 58,100 7.66 %
Consumer finance362,935 10,585 11.60 %198,372 4,313 8.63 %
Tax services28,050 (11)(0.16)%25,230 57 0.90 %
Warehouse finance381,931 9,044 9.42 %290,454 5,926 8.09 %
Total loans and leases4,535,826 94,963 8.33 %3,524,924 68,396 7.70 %
Total interest-earning assets7,031,922 $115,898 6.57 %5,934,431 $85,060 5.70 %
Noninterest-earning assets543,418 589,580 
Total assets$7,575,340 $6,524,011 
Interest-bearing liabilities:
Interest-bearing checking$426 $— 0.34 %$447 $— 0.33 %
Savings54,783 6 0.04 %62,607 6 0.04 %
Money markets183,255 576 1.25 %138,872 78 0.22 %
Time deposits5,517 4 0.25 %7,199 2 0.11 %
Wholesale deposits211,281 2,940 5.54 %5,712 56 3.89 %
Total interest-bearing deposits455,262 3,526 3.08 %214,837 142 0.26 %
Overnight fed funds purchased117,153 1,656 5.62 %24,783 244 3.91 %
Subordinated debentures19,600 357 7.24 %19,593 357 7.22 %
Other borrowings14,178 323 9.07 %15,817 260 6.53 %
Total borrowings150,931 2,336 6.16 %60,193 861 5.67 %
Total interest-bearing liabilities606,193 5,862 3.85 %275,030 1,003 1.45 %
Noninterest-bearing deposits6,102,927 — — %5,421,821 — — %
Total deposits and interest-bearing liabilities6,709,120 $5,862 0.35 %5,696,851 $1,003 0.07 %
Other noninterest-bearing liabilities210,469 178,789 
Total liabilities6,919,589 5,875,640 
Shareholders' equity655,751 648,371 
Total liabilities and shareholders' equity$7,575,340 $6,524,011 
Net interest income and net interest rate spread including noninterest-bearing deposits$110,036 6.22 %$84,057 5.63 %
Net interest margin6.23 %5.62 %
Tax-equivalent effect0.01 %0.02 %
Net interest margin, tax-equivalent(2)
6.24 %5.64 %
(1) Tax rate used to arrive at the TEY for the three months ended December 31, 2023 and 2022 was 21%.
(2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes.

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

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

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

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

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

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

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

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

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

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

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

Asset Quality
Generally, when a loan or lease becomes delinquent 90 days or more (210 days or more for commercial insurance premium finance loans), or when the collection of principal or interest becomes doubtful, the Company will place the loan or lease on a non-accrualnonaccrual 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 inon a non-accrual status until six months of good payment history has been established or management believes the loan becomes currentfinancial status of the borrower has been significantly restored. Certain relationships in the table below are over 90 days past due and has demonstrated a sustained periodstill accruing. The Company considers these relationships as being in the process of satisfactory performance, typically after six months.

Consumercollection. Insurance premium finance loans, consumer finance and tax advanceservices loans originated through the Company's tax divisions, are interest and fee free to the consumer. Due to the nature of consumer advance loans, it typically takes no more than three e-file cycles, the period of time between scheduled IRS payments, fromgenerally not placed on nonaccrual status, but are instead written off when the return is accepted to collect. In the eventcollection of default, MetaBank has no recourse with the tax consumer. Generally, when the refund advance loan becomes delinquent for 180 daysprincipal and interest become doubtful.

Loans and leases, or more, orportions thereof, are generally charged-off when collection of principal becomes doubtful, the Company willdoubtful. 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 loan balance.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 loancredit losses at December 31, 20172023 was appropriate and reflected probable losses related to these loans;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 LoanCredit Losses” below.for further information.
 
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The table below sets forth the amounts and categories of non-performingthe Company's nonperforming assets.
(Dollars in thousands)December 31, 2023September 30, 2023
Nonperforming Loans and Leases
Nonaccruing loans and leases: 
Commercial finance$28,099 $37,372 
Total nonaccruing loans and leases28,099 37,372 
Accruing loans and leases delinquent 90 days or more: 
Loans held for sale661 306 
Commercial finance7,862 11,242 
Consumer finance2,859 2,210 
Tax services(1)
— 5,082 
Total accruing loans and leases delinquent 90 days or more11,382 18,840 
Total nonperforming loans and leases39,481 56,212 
Other Assets 
Nonperforming operating leases2,785 1,764 
Total other assets2,785 1,764 
Total nonperforming assets$42,266 $57,976 
Total as a percentage of total assets0.53 %0.77 %
(1) Certain tax services loans do not bear interest.

The Company's nonperforming assets in the Company’s portfolio as of the dates set forth below. Foreclosed assets include assets acquired in settlement of loans.


 Non-Performing Assets As Of
 December 31, 2017 September 30, 2017
Non-Performing Loans(Dollars in Thousands)
    
Non-Accruing Loans:   
Commercial and Multi-Family Real Estate284
 685
Total (1)
284
 685
    
Accruing Loans Delinquent 90 Days or More 
  
1-4 Family Real Estate234
 —
Agricultural Real Estate27,818
 34,198
Consumer1,624
 1,406
Agricultural Operating—
 97
CML Insurance Premium Finance3,194
 1,205
Total32,870
 36,906
    
Total Non-Performing Loans33,154
 37,591
    
Other Assets   
Foreclosed Assets:   
   1-4 Family Real Estate—
 62
Commercial and Multi-Family Real Estate128
 230
       Total128

292
    
Total Other Assets$128

$292
    
Total Non-Performing Assets$33,282

$37,883
Total as a Percentage of Total Assets0.61% 0.72%
Total Non-Performing Assets as a Percentage of Total Assets - excluding insured loans(2)
0.58% 0.70%
(1) During the three-month period endedat December 31, 2017, the Company had $1.1 million of loans modified as troubled debt restructurings ("TDRs") and no loans modified as TDRs during the three-month period ended September 30, 2017. In addition, the Company had $1.6 million and $0.5 million of TDRs performing in accordance with their terms at each of the periods ended December 31, 2017 and September 30, 2017.
(2)Excludes from non-performing assets the student loans that are insured by ReliaMax Surety Company.

At December 31, 2017, non-performing loans totaled $33.22023 were $42.4 million, representing 2.19%0.53% of total loans,assets, compared to $37.6$58.0 million, or 2.83%0.77% of total loansassets at September 30, 2017. This2023. The decrease in non-performing loansthe nonperforming assets as a percentage of total assets at December 31, 2023 compared to September 30, 2023, was primarily duedriven by paydowns within the commercial finance portfolio.

The Company's nonperforming loans and leases at December 31, 2023 were $39.5 million, representing 0.88% of total gross loans and leases, compared to the payoff$56.2 million, or 1.26% of a $7.0 million nonperforming agricultural loan relationship during the first quarter of fiscal 2018.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 ourthe Bank's primary regulator, the OCC, to be of lesser quality as “substandard,” “doubtful” or “loss.“loss,” with each such classification dependent on the facts and circumstances surrounding the assets in question. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the Bank will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such minimal value that their continuance as assets without the establishment of a specific loss reserve is not warranted.


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


On the basis of management’s review of its loans, leases, and other assets, at December 31, 2017,2023, the Company had classified $40.4loans and leases of $197.7 million of its assets as substandard, and did not classify any assets$10.1 million as doubtful orand none as loss. At September 30, 2017,2023, the Company classified $40.6loans and leases of $208.2 million of its assets as substandard, and did not classify any assets$8.2 million as doubtful orand none as loss.
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Allowance for LoanCredit Losses. The allowanceACL 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 lossescommitments is established throughrecorded in other liabilities on the Condensed Consolidated Statements of Financial Condition.

Individually evaluated loans and leases are a provision for loan losseskey component of the ACL. Generally, the Company measures credit loss on individually evaluated loans based on management’s evaluation of the risk inherent in its loan portfolio and changes in the nature and volume of its loan activity, including those loans which are being specifically monitored by management.  Such evaluation, which includes a review of loans for which full collectability may not be reasonably assured, involves consideration of, among other matters, the estimated fair value of the underlying collateral economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an appropriate loan loss allowance.
Management closely monitors economic developments both regionally and nationwide, andless estimated selling costs, as the Company considers these factors when assessingfinancial assets to be collateral dependent. If an individually evaluated loan or lease is not collateral dependent, credit loss is measured at the appropriatenesspresent value of its allowance forexpected future cash flows discounted at the loan losses. or lease initial effective interest rate.

The current economic environment continues to show signs of improvement in the Bank’s markets.  The Bank’s average loss rates over the past three years for community banking loans were relatively lowCompany's ACL totaled $53.8 million at December 31, 2023, an increase compared to peers, but were offset with a higher agricultural loss rate in fiscal year 2016 driven by the charge off of one relationship. The Bank does not believe it is likely that these low loss conditions will continue indefinitely.  Although the Bank’s four market areas have indirectly benefited from a stable agricultural market, the market has become slightly stressed as commodity prices have generally remained lower than a few years ago. Management believes the low commodity prices and adverse weather conditions have the potential to negatively impact the economies of our agricultural markets. The improving economic conditions have also kept the loss rates on the national lending loans as well as the tax service loans relatively low, although management realizes that these low loss conditions may not continue.
At December 31, 2017, the Company had established an allowance for loan losses totaling $8.9 million, compared to $7.5$49.7 million at September 30, 2017. This2023. The increase wasin the ACL at December 31, 2023, when compared to September 30, 2023, was primarily due to a $2.0 million increase in the additional provision expenseallowance related to loans originated by our tax services divisions. During the three months ended December 31, 2017, the Company recorded a provision for loan losses of $1.1 million, partially offset by $0.3 million of net recoveries, compared to $0.1 millionof net charge offs for the three months ended December 31, 2016.  Management believes that, based on a detailed review of the loan portfolio, historic loan losses, current economic conditions, the size of the loanconsumer finance portfolio and other factors, the level ofa $1.6 million increase in the allowance for loan lossesrelated to the commercial finance portfolio.

The following table presents the Company's ACL as a percentage of its total loans and leases.
As of the Period Ended
December 31, 2023September 30, 2023June 30, 2023March 31, 2023December 31, 2022
Commercial finance1.30 %1.26 %1.35 %1.53 %1.62 %
Consumer finance1.45 %0.92 %0.92 %1.99 %1.54 %
Tax services1.52 %0.04 %70.20 %53.77 %2.01 %
Warehouse finance0.10 %0.10 %0.10 %0.10 %0.10 %
Total loans and leases1.22 %1.14 %2.01 %2.27 %1.50 %
Total loans and leases excluding tax services1.21 %1.14 %1.21 %1.40 %1.50 %

The Company's ACL as a percentage of total loans and leases increased to 1.22% at December 31, 2017 reflected2023 from 1.14% at September 30, 2023. The increase in the total loans and leases coverage ratio was primarily driven by an increase in the consumer finance portfolio due to seasonal activity and an increase in the seasonal tax services portfolio. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate allowance against probable losses from the loan portfolio. Although the Company maintains its allowance for loan losses at a level that it considers to be adequate, investors and others are cautioned that there can be no assurance that future losses will not exceed estimated amounts, or that additional provisions for loan losses will not be required in future periods.supportable level.

The allowance for loan losses reflects management’s best estimate of probable losses inherent in the portfolio based on currently available information.  In addition to the factors mentioned above, future additions to the allowance for loan losses may become necessary based upon changing economic conditions, increased loan balances or changes in the underlying collateral of the loan portfolio.  In addition, our regulators have the ability to order us to increase our allowance.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
The Company’s financial statements are prepared in accordance with U.S. 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 policies described below as Critical Accounting Policies.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. ThisA discussion and analysis should be read in conjunction withof the Company’s financial statementscritical accounting policies and estimates can be found in the accompanying notes presented in Part II, Item 8 “Consolidated Financial Statements and Supplementary Data” of itsCompany's Annual Report on Form 10-K for the year ended September 30, 2017, and information contained herein.

Allowance for Loan Losses.  The Company’s allowance for loan loss methodology incorporates a variety of risk considerations, both quantitative and qualitative, in establishing an allowance for loan loss that management believes is appropriate at each reporting date.  Quantitative factors include the Company’s historical loss experience, delinquency and charge-off trends, collateral values,2023. There were no significant changes in nonperforming loans, and other factors.  Quantitative factors also incorporate known information about individual loans, including borrowers’ sensitivity to interest rate movements.  Qualitative factors include the general economic environment in the Company’s markets, including economic conditions throughout the Midwest and, in particular, the state of certain industries.  Size and complexity of individual credits in relation to loan structure, existing loanthese critical accounting policies and pace of portfolio growth are other qualitative factors that are considered in the methodology.  Although management believes the levels of the allowance at both December 31, 2017 and September 30, 2017 were adequate to absorb probable losses inherent in the loan portfolio, a decline in local economic conditions or other factors could result in losses in excess of the applicable allowance.
Goodwill and Intangible Assets.  Each quarter, the Company evaluates the estimated useful lives of its amortizable intangible assets and whether events or changes in circumstances warrant a revision to the remaining periods of amortization.  In accordance with ASC 350, Intangibles – Goodwill and Other, recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate.  If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.
In addition, goodwill and intangible assets are tested annually as of our fiscal year end for impairment or more often if conditions indicate a possible impairment.  Determining the fair value of a reporting unit involves the use of significant estimates and assumptions.  These estimates and assumptions include revenue growth rates and operating margins used to calculate future cash flows, risk-adjusted discount rates, future economic and market conditions, comparison of the Company’s market value to book value and determination of appropriate market comparables.  Actual future results may differ from those estimates.

Assumptions and estimates about future values and remaining useful lives of the Company’s intangible and other long-lived assets are complex and subjective.  They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in the Company’s business strategy and internal forecasts.  Although the Company believes the historical assumptions and estimates used are reasonable and appropriate, different assumptions and estimates could materially impact the reported financial results.
Customer relationship, trademark, and non-compete intangibles are amortized over the periods in which the asset is expected to meaningfully contribute to the business as a whole, using either the present value of excess earnings or straight line amortization, depending on the nature of the intangible asset.  Patents are estimated to have a useful life of 20 years, beginning on the date the patent application is originally filed.  Thus, patents are amortized based on the remaining useful life once granted.  Periodically, the Company reviews the intangible assets for events or circumstances that may indicate a change in recoverability of the underlying basis.
Deferred Tax Assets.  The Company accounts for income taxes according to the asset and liability method.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Deferred tax assets and liabilities are measured using the enacted tax rates applicable to income for the years in which those temporary differences are expected to be recovered or settled.  Deferred tax assets are recognized subject to management’s judgment that realization is more-likely-than-not.  An estimate of probable income tax benefits that will not be realized in future years is required in determining the necessity for a valuation allowance.


Security Impairment.  Management monitors the investment securities portfolio for impairment on a security by security basis.  Management has a process in place to identify securities that could potentially have a credit impairment that is other-than-temporary.  This process involves the length of time and extent to which the fair value has been less than the amortized cost basis, review of available information regarding the financial position of the issuer, monitoring the rating of the security, monitoring changes in value, cash flow projections, and the Company’s intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity.  To the extent we determine that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.  If the Company intends to sell a security or it is more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the Company recognizes an other-than-temporary impairment in earnings for the difference between amortized cost and fair value.  If we do not expect to recover the amortized cost basis, we do not plan to sell the security and if it is not more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the recognition of the other-than-temporary impairment is bifurcated.  For those securities, the Company separates the total impairment into a credit loss component recognized in earnings, and the amount of the loss related to other factors is recognized in other comprehensive income net of taxes.
The amount of the credit loss component of a debt security impairment is estimated as the difference between amortized cost and the present value of the expected cash flows of the security.  The present value is determined using the best estimate of cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset- backed or floating rate security.  Cash flow estimates for trust preferred securities are derived from scenario-based outcomes of forecasted default rates, loss severity, prepayment speeds and structural support.

Level 3 Fair Value Measurement. U.S. GAAP requires the Company to measure the fair value of financial instruments under a standard which describes three levels of inputs that may be used to measure fair value.  Level 3 measurement includes significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.  Although management believes that it uses a best estimate of information available to determine fair value, due to the uncertainty of future events, the approach includes a process that may differ significantly from other methodologies and still produce an estimate that is in accordance with U.S. GAAP.
RESULTS OF OPERATIONS
General. The Company recorded net income of $4.7 million, or $0.48 per diluted share, for the three months ended December 31, 2017, compared to net income of $1.2 million, or $0.14 per diluted share, for the three months ended December 31, 2016. Included in the 2018 fiscal first quarter net income was an income tax expense of $3.6 million from a reduction in the value of certain deferred tax assets as a result of the Tax Act signed into law on December 22, 2017 (see non-interest expense section for further discussion). The 2018 fiscal first quarter pre-tax results included a $1.0 million loss on sale of investments and $1.3 million of acquisition expenses. The 2018 fiscal first quarter pre-tax results also included $1.7 million in amortization of intangible assets and $1.3 million in non-cash stock-related compensation associated with executive officer employment agreements. Total revenue for the fiscal 2018 first quarter was $55.5 million, compared to $39.2 million for the same quarter in fiscal 2017, an increase of $16.3 million, or 42%, primarily due to an increase in interest from commercial insurance premium finance and community banking loans, card fee income, as well as the student loan purchases and income from tax-exempt securities (included in other investment securities), and growth in tax product fee income.

Seasonality.  In the industries for electronic payments processing and tax refund processing, companies commonly experience seasonal fluctuations in revenue. For example, in recent years, the Company's results of operations for the first half of each fiscal year have been favorably affected by large numbers of taxpayers electing to receive their tax refunds via direct deposit on our pre-paid cards, which caused their operating revenues to be typically higher in the first half of those years than they were in the corresponding second half of those years. Meta's tax business is expected to continue to generate the vast majority of its revenues in the Company's fiscal second quarter, with some additional revenues in the third quarter, while most expenses are spread throughout the year with some elevated expenses in the December and March quarters. Management expects the Company's revenue to continue to be based on seasonal factors that affect the electronic payments processing and tax refund processing industries as a whole. The Company and its tax preparation partners rely on the Internal Revenue Service (the “IRS”), technology, and employees when processing and preparing tax refunds and tax-related products and services.

Net Interest Income.  Net interest income for the fiscal 2018 first quarter increased by $6.4 million, or 32%, to $26.2 million from $19.8 million for the same quarter in 2017, primarily due to significant increases in the community banking loan portfolio, commercial insurance premium finance loan portfolio, and the purchased student loan portfolios. Growth in investment security balances also contributed to the increase in net interest income. Additionally, the overall increase was driven by a better mix and higher percentage of loans as a percentage of interest-earning assets, with loan yields driving a sizable increase due in part to the recently acquired student loan portfolios and their floating rate yields. The quarterly average outstanding balance of loans from all sources as a percentage of interest-earning assets increased from 30% as of the end of the first fiscal quarter of 2017 to 37% as of the end of the first fiscal quarter of 2018. In addition, lower-yielding agency Mortgage-Backed Securities ("MBS") decreased from 21% of interest-earning assets in the fiscal first quarter of 2017 compared to 18% of interest-earning assets for the same quarter in 2018. Net interest income for the fiscal 2018 first quarter was up $1.7 million from the Company's fiscal 2017 fourth quarter, as anticipated, primarily due to a better mix of earning assets.

Net interest margin, tax equivalent (“NIM”) increased from 2.90% in the fiscal 2017 first quarter to 3.06% in the fiscal 2018 first quarter. The reported 3.06% NIM reflects the lowered corporate prorated tax rate on the Company's tax-exempt municipal portfolio. Had corporate tax rates remained at previous rates, excluding changes resulting from the Tax Act, the reported NIM of 3.06% would have been 3.26%. The reported NIM of 3.06% was also impacted by 16 basis points due to tax service loans and wholesale deposits.

The overall reported tax equivalent yield (“TEY”) on average earning asset yields increased by 31 basis points to 3.55% when comparing the fiscal 2018 first quarter to the 2017 first quarter, which was driven primarily by the Company's improved earning asset mix, with increased exposure to its high-quality commercial insurance premium finance, student, and community banking loan portfolios. The increase in TEY continues to highlight the beneficial tailwind provided by this rotation among earning assets. The reported 3.55% TEY on earning assets reflects the lowered corporate prorated tax rate on the Company's tax-exempt municipal portfolio. Had corporate tax rates remained at previous rates, excluding changes resulting from the adoption of the Tax Act, reported TEY on earning assets would have been 3.75%.

The fiscal 2018 first quarter TEY on the securities portfolio increased by one basis point compared to the prior year fiscal first quarter, primarily due to the continued shift in new investments being made in higher-yielding investment securities, primarily mortgage-related, tax-exempt municipal securities rather than traditional agency MBS securities. The TEY on the securities portfolio of 2.93% for the first fiscal quarter of 2018 reflects the lowered corporate prorated tax rate on the Company's tax-exempt municipal portfolio. Had corporate tax rates remained at previous rates, excluding changes resulting from the adoption of the Tax Act, reported securities portfolio yield would have been 3.25%.

The Company’s average interest-earning assets for the fiscal 2018 first quarter increased by $539.4 million, or 17%, to $3.76 billion, up from $3.22 billion during the same quarter of the last fiscal year, primarily from growth in loan portfolios and tax-exempt investments securities, of $436.8 million and $236.3 million, respectively.
The Company’s average total deposits and interest-bearing liabilities for the 2018 first fiscal quarter increased $556.7 million, or 18%, to $3.62 billion from $3.06 billion for the same quarter of the prior fiscal year. This increase was primarily due to an increase in non-interest-bearing deposits of $272.3 million, an increase in Federal Home Loan Bank advances of $248.9 million and an increase in wholesale deposits of $126.7 million, offset by a decrease in federal funds purchased of $132.1 million. Average quarterly deposits in the Payments segment increased in the fiscal 2018 first quarter by $295.2 million, or 15%, from the same period last year.

Overall, the Company's cost of funds for all deposits and borrowings averaged 0.51% during the fiscal 2018 first quarter, compared to 0.36% for the 2017 first quarter. This increase was primarily due to increases in wholesale deposits, overnight borrowing rates and higher average overall funding balances due to the Company's utilization of more of its capital during non-tax season with higher investment balances and funding, and in preparation to hold more tax loans on the balance sheet. Notwithstanding this increase, the Company believes that its growing, low-cost deposit base gives it a distinct and significant competitive advantage over most banks, and even more so if interest rates continue to rise, because the Company anticipates that its cost of deposits will likely remain relatively low, increasing less than at many other banks. At December 31, 2017 and 2016, low-cost checking deposits represented 83% and 70% of total deposits, respectively.



The following tables present, 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.  Tax equivalent adjustments have been made in yield on interest bearing assets and net interest margin.  Non-accruing loans have been included in the table as loans carrying a zero yield.
Three Months Ended December 31,2017 2016
(Dollars in Thousands)
 		Average
Outstanding
Balance		 Interest
Earned /
Paid		 
Yield /
Rate (1)
 Average
Outstanding
Balance		 Interest
Earned /
Paid		 
Yield /
Rate(2)
Interest-earning assets:           
Cash & fed funds sold$100,321
 $607
 2.40% $186,565
 $391
 0.83%
    Mortgage-backed securities673,411
 3,758
 2.21% 689,617
 3,320
 1.91%
    Tax exempt investment securities1,408,552
 8,698
 3.25% 1,172,252
 6,902
 3.59%
    Asset-backed securities93,631
 765
 3.24% 117,928
 695
 2.34%
    Other investment securities80,035
 586
 2.91% 87,029
 589
 2.69%
Total investments2,255,629
 13,807
 2.93% 2,066,826
 11,506
 2.92%
    Community banking loans(3)
958,222
 10,466
 4.33% 762,559
 8,169
 4.25%
    Tax services loans12,378
 —
 —% 5,573
 —
 —%
        Commercial insurance premium finance loans244,380
 2,799
 4.54% 181,422
 2,078
 4.54%
        Student loans and other191,510
 3,178
 6.58% 20,129
 431
 8.50%
    National lending loans(4)
435,891
 5,977
 5.44% 201,551
 2,509
 4.94%
Total loans1,406,490
 16,443
 4.64% 969,684
 10,678
 4.37%
Total interest-earning assets$3,762,441
 $30,857
 3.55% $3,223,075
 $22,575
 3.24%
Non-interest-earning assets360,508
     267,947
    
Total assets$4,122,949
     $3,491,022
    
            
Interest-bearing liabilities:           
    Interest-bearing checking$71,448
 $50
 0.28% $38,229
 $39
 0.40%
    Savings53,084
 8
 0.06% 50,528
 7
 0.06%
    Money markets47,899
 27
 0.22% 47,605
 21
 0.18%
    Time deposits128,496
 366
 1.13% 131,169
 259
 0.78%
    Wholesale deposits483,878
 1,434
 1.18% 357,224
 612
 0.68%
Total interest-bearing deposits784,805
 1,885
 0.95% 624,755
 938
 0.60%
    Overnight fed funds purchased139,152
 525
 1.50% 271,272
 392
 0.57%
    FHLB advances268,913
 937
 1.38% 20,043
 141
 2.80%
    Subordinated debentures73,359
 1,113
 6.02% 73,223
 1,111
 6.02%
    Other borrowings22,982
 201
 3.47% 15,580
 160
 4.06%
Total borrowings504,406
 2,776
 2.18% 380,118
 1,804
 1.88%
Total interest-bearing liabilities1,289,211
 4,661
 1.43% 1,004,873
 2,742
 1.08%
Non-Interest Bearing Deposits2,328,159
 —
 —% 2,055,842
 —
 —%
Total deposits and interest-bearing liabilities$3,617,370
 $4,661
 0.51% $3,060,715
 $2,742
 0.36%
Other non-interest bearing liabilities71,398
     78,219
    
Total liabilities3,688,768
     3,138,934
    
Shareholders' equity434,181
     352,088
    
Total liabilities and shareholders' equity$4,122,949
     $3,491,022
    
Net interest income and net interest rate spread including non-interest bearing deposits  $26,196
 3.04%   $19,833
 2.88%
            
Net interest margin    2.76%     2.44%
Net interest margin, tax equivalent(5)
    3.06%     2.90%

(1) Tax rate used to arrive at the TEY for the three months ended December 31, 2017 was 24.53%
(2) Tax rate used to arrive at the TEY for the three months ended December 31, 2016 was 35%
(3) Previously stated Retail Bank loans have been renamed as Community Banking Loans
(4) Previously stated Specialty Finance Loans have been renamed as National Lending Loans
(5) 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. We believe that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis, and accordingly believe the presentation of this non-GAAP financial measure may be useful for peer comparison purposes.
Provision for Loan Losses.  The Company recorded a $1.1 million provision for loan losses in the three month period ended December 31, 2017, as compared to a $0.8 million provision for loan losses in the three month period ended December 31, 2016. The provision during the three months ended December 31, 2017 was primarily due to the additional provision expense related to tax services loans as well as growth in the loan portfolio. See Note 3 to the Condensed Consolidated Financial Statements.

Non-Interest Income.  Non-interest income for the fiscal 2018 first quarter increased by $10.0 million, or 51%, to $29.3 million from $19.3 million for the same period in the prior fiscal year. This increase was largely due to increases in card fee income of $6.8 million, or 37%, and tax product fee income of $1.5 million, or 242%. The increase in card fee income was primarily driven by residual fees related to wind-downs from two of our non-strategic programs. The increase in tax product fee income was primarily due to the volume of pre-season tax advance loans originated during the first quarterthree months of fiscal 2018 compared to the first quarter2024.

42
Table of fiscal 2017. All of these loans are also being held during fiscal 2018, as opposed to the previous year when many of these loans were sold, which also contributed to the increase.Contents

Non-Interest Expense.  Non-interest expense increased $7.3 million, or 20%, to $44.0 million, for the first quarter of fiscal year 2018, as compared to $36.8 million for the same period in 2017.This increase was largely caused by a $4.5 million increase in compensation expense, a $1.0 million increase in card processing expense and a $0.9 million increase in occupancy and equipment. The increase in compensation expense was primarily due to a full quarter of expenses related to the EPS and SCS acquisitions, both of which closed during the first quarter of fiscal 2017, along with increased staffing to support the Company's growing business initiatives. The integration of EPS and SCS allowed the Company to gain scale in the tax services divisions during fiscal 2017 and the Company expects to gain further efficiencies during fiscal 2018.

Income Tax. Income tax expense for the fiscal 2018 first quarter was $5.7 million, resulting in an effective tax rate of 54.9%, compared to $0.3 million, or an effective tax rate of 21.6%, for the 2017 fiscal first quarter. The increase in the effective tax rate is primarily due to a non-recurring income tax expense of approximately $3.6 million from a reduction in the value of certain deferred tax assets as a result of the Tax Act. The Company will continue to analyze the financial impact of the Tax Act. As the Company’s fiscal year end falls on September 30, the statutory corporate rate for fiscal 2018 will be prorated to 24.53%. 


LIQUIDITY AND CAPITAL RESOURCES


The Company’s primary sources of funds are deposits, derived principally through its Payments divisions, and to a lesser extent through its Community Banking divisionBaaS 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 depositsdeposit and loan commitments, to maintain liquidity, and to meet operating expenses.

At December 31, 2017,2023, the Company had unfunded loan and lease commitments to originate and purchase loans and unused lines of credit totaling $349.5 million.  The Company$1.51 billion. Management believes that loan repaymentsrepayment and other sources of funds will be adequate to meet its foreseeable short- and long-term liquidity needs.

In July 2013, The liquidity sources as of December 31, 2023 include $1.1 billion in off-balance sheet deposits and $672 million in cash and cash equivalents. When factoring in additional resources, such as the Company’s primary federal regulator,Federal Home Loan Bank, the Federal Reserve Discount Window and other unsecured funding and wholesale options, the Bank’s primary federal regulator, the OCC, approved final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations. Company has over $3.8 billion in total available liquidity as of December 31, 2023.

The Basel III Capital Rules generally implement the Basel Committee on Banking Supervision’s (the “Basel Committee”) December 2010 final capital framework referred to as “Basel III” for strengthening international capital standards. The Basel III Capital Rules substantially revised the risk-based capital requirements applicable to financial institution holding companies and their depository institution subsidiaries, including usCompany and the Bank as comparedare required to U.S. general risk-based capital rules. The Basel III Capital Rules revisedcomply with the definitions and the components of regulatory capital as well as addressed other issues affecting the numerator inrules administered by federal banking institutions’ regulatory capital ratios. The Basel III Capital Rules also addressed asset risk weights and other matters affecting the denominator in banking institutions’ regulatory capital ratios and replaced the existing general risk-weighting approach, which was derived from the Basel Committee’s 1988 “Basel I” capital accords, with a more risk-sensitive approach based, in part, on the “standardized approach” in the Basel Committee’s 2004 “Basel II” capital accords. In addition, the Basel III Capital Rules implemented certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, including the requirements of Section 939A to remove references to credit ratings from the federal agencies’ rules. The Basel III Capital Rules became effective for us and the Bank on January 1, 2015, subject to phase-in periods for certain of their components and other provisions.

Pursuant to the Basel III Capital Rules, the Company and Bank, respectively, are subject to new regulatory capital adequacy requirements promulgated by the Federal Reserve and the OCC. Failure by the Company or Bank to meet minimum capital requirements could result in certain mandatory and discretionary actions by our regulators that could have a material adverse effect on our consolidated financial statements. Prior to January 1, 2015, the Bank was subject to capital requirements under Basel I and there were no capital requirements for the Company.agencies (the "Capital Rules"). Under the capital requirementsCapital 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.


Quantitative measures established by regulation to ensure capital adequacyThe Capital Rules require the Company and the Bank to maintain minimum ratios (set forth in the table below) of total risk-based capital and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and a leverage ratio consisting of Tier 1 capital (as defined) to average assets (as defined). At December 31, 2017, both2023, the BankCompany and the CompanyBank 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 accumulated other comprehensive income (“AOCI”)AOCI opt-out election; under the rule, non-advanced approach banking organizations were given a one-time option to exclude certain AOCI components.


The tablestable below includeincludes 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 analysis.

       Minimum
       Requirement to Be
     Minimum Well Capitalized
     Requirement For Under Prompt
     Capital Adequacy Corrective Action
At December 31, 2017Company Bank Purposes Provisions
        
Tier 1 leverage ratio7.68% 9.61% 4.00% 5.00%
Common equity Tier 1 capital ratio12.93
 16.71
 4.50
 6.50
Tier 1 capital ratio13.38
 16.71
 6.00
 8.00
Total qualifying capital ratio16.99
 17.11
 8.00
 10.00

The following table provides certainanalyses and has included this non-GAAP financial measures usedinformation, and corresponding reconciliation to compute certaintotal equity.
CompanyBankMinimum
to be Adequately Capitalized Under Prompt Corrective Action Provisions		Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
At December 31, 2023
Tier 1 leverage capital ratio7.96 %8.15 %4.00 %5.00 %
Common equity Tier 1 capital ratio11.43 11.97 4.50 6.50 
Tier 1 capital ratio11.69 11.97 6.00 8.00 
Total capital ratio13.12 13.01 8.00 10.00 
At September 30, 2023
Tier 1 leverage capital ratio8.11 %8.32 %4.00 %5.00 %
Common equity Tier 1 capital ratio11.25 11.81 4.50 6.50 
Tier 1 capital ratio11.50 11.81 6.00 8.00 
Total capital ratio12.84 12.76 8.00 10.00 

43
Contents
 Standardized Approach (1)
December 31, 2017
 (Dollars in Thousands)
  
Total equity$437,705
Adjustments:

LESS: Goodwill, net of associated deferred tax liabilities95,705
LESS: Certain other intangible assets40,417
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards—
LESS: Net unrealized gains (losses) on available-for-sale securities5,782
Common Equity Tier 1 (1)
295,801
Long-term debt and other instruments qualifying as Tier 110,310
LESS: Additional tier 1 capital deductions—
Total Tier 1 capital306,111
Allowance for loan losses9,058
Subordinated debentures (net of issuance costs)73,382
Total qualifying capital388,551
(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 are being fully phased in through the end of 2021.

The following table provides a reconciliation of tangible common equity usedthe amounts included in calculating tangible book value data to Total Stockholders' Equity.
the table above for the Company.
 December 31, 2017
 (Dollars in Thousands)
Total Stockholders' Equity$437,705
LESS: Goodwill98,723
LESS: Intangible assets50,521
     Tangible common equity288,461
LESS: AOCI5,782
     Tangible common equity excluding AOCI282,679
Standardized Approach(1)
(Dollars in thousands)December 31, 2023September 30, 2023
Total stockholders' equity$729,282 $650,625 
Adjustments:
LESS: Goodwill, net of associated deferred tax liabilities297,283 297,679 
LESS: Certain other intangible assets20,093 21,228 
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards20,253 19,679 
LESS: Net unrealized (losses) on available for sale securities(187,901)(254,294)
LESS: Noncontrolling interest(510)(1,005)
ADD: Adoption of Accounting Standards Update 2016-131,345 2,017 
Common Equity Tier 1(1)
581,409 569,355 
Long-term borrowings and other instruments qualifying as Tier 113,661 13,661 
Tier 1 minority interest not included in common equity Tier 1 capital(410)(826)
Total Tier 1 capital594,660 582,190 
Allowance for credit losses53,037 47,960 
Subordinated debentures, net of issuance costs19,617 19,591 
Total capital$667,314 $649,741 
(1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum common equity tier 1 capital ratio; those changes were fully phased in through the end of 2021.


Due to the predictable, quarterly cyclicality of MPS deposits in conjunction with tax season business activity, management believes that a six-month capital calculation is a useful metric to monitor the Company’s overall capital management process. As such, the Bank’s six-month average Tier 1 leverage ratio, Common equity Tier 1 capital ratio, Tier 1 capital ratio, and Total qualifying capital ratio as of December 31, 2017 were 9.75%, 18.17%, 18.17%, and 18.60%, respectively.
BeginningSince January 1, 2016, Basel III implemented a requirement for all banking organizationsthe 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 implementation of the capital conservation buffer began on January 1, 2016, which increased or will increase the three risk-based capital ratios by 0.625% each year through 2019, at which point therequired Common Equity Tier 1 risk-based, Tier 1 risk-based and total risk-based capital ratios were or will bewith the buffer are currently 7.0%, 8.5% and 10.5%, respectively.

Based on current and expected continued profitability and subject to continued access to capital markets, we believe that the Company and the Bank will continue to meet targetedthe capital ratiosconservation buffer of 2.5% in addition to required by the revised requirements, as they become effective.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, 20172023 for a summary of our contractual obligations as of September 30, 2017.2023. There were no material changes outside the ordinary course of our business in contractual obligations from September 30, 20172023 through December 31, 2017.2023.


OFF-BALANCE SHEET FINANCING ARRANGEMENTS

For discussion of the Company’s off-balance sheet financing arrangements as of December 31, 2017, see Note 6 to our consolidated financial statements included in Part I, Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q. Depending on the extent to which the commitments or contingencies described in Note 6 occur, the effect on the Company’s capital and net income could be significant.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

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 risk associated with changes in interest rates and the Company’s ability to adapt to these changes is known as interest rate risk and is the Company’s only significant “market” risk.


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, and likelihood of prepayment.prepayment, and deposit behaviors.


If the Company’s assets mature or reprice more rapidly or to a greater extent than its liabilities, then economic value
44

The Company currently focuses lending efforts toward originating and purchasing competitively priced adjustable-rate and fixed-rate loan products with short to intermediate terms to maturity, and may originate loans with terms longer than five years for borrowers that have a strong credit profile and typically lower loan-to-value ratios. This approach allows the Company to better maintain a portfolio of loans that will have less sensitivity to changes in the level of interest rates, while providing a reasonable spread to the cost of liabilities used to fund the loans.


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’s cost of funds responds to changes in interest rates due to the relatively short-term nature of its wholesale deposit portfolio, and due to the relatively short-term nature of its borrowed funds. The Company believes that its growing portfolio of longer duration low-cost deposits generated from its prepaid divisionBaaS 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 cannot significantly reducegenerally does not have an offsetting reduction as it does not pay interest costs associated withon these deposits, which thereby compresses the Company’s net interest margin. Asdeposits. However, a resultportion of the Company’s interestdeposit balances are subject to variable card processing expenses, derived from contractual agreements with certain BaaS partners tied to a rate risk exposureindex, typically the EFFR. These costs reprice immediately upon a change in this regard, the Company has elected not to enter into any new longer-term wholesale borrowings,applicable rate index and generally has not emphasized longer-term time deposit products.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 Bank, like other financial institutions, is subject to interest rate risk to the extent that its interest-bearing liabilities mature or reprice more rapidly than its interest-earning assets. The interest rate risk processCompany's IRR analysis is designed to compare income and economic valuation simulations in market scenarios designed to alter the direction, magnitude and speed of interest rate changes, as well as the slope of the yield curve. This analysis may not represent all impacts driven by changes in the interest rate environment, such as certain other card fee income and expense line items tied to card processing expense derived from contractual agreements with certain BaaS partners and servicing fees the Company recognizes from custodial off-balance sheet deposits. The Company does not currently engage in trading activities to control interest rate risk although it may do so in the future, if deemed necessary, to help manage interest rate risk.


Earnings at risk and economic value analysis. As a continuing part of its financial strategy, the Bank considers methods of managing an asset/liability mismatch consistent with maintaining acceptable levels of net interest income. In order to monitor interest rate risk,IRR, the Board of DirectorsCompany has created an InvestmentAsset/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 judgementjudgment 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 loanlending 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. We performThe Company performs various sensitivity analyses on assumptions of deposit attrition, loan prepayments, and deposit re-pricing. Market-impliedasset re-pricing, as well as market-implied forward rates and various likely and extreme interest rate scenarios, can be used for EAR analysis. These likely and extreme scenarios can includeincluding rapid and gradual interest rate ramps, rate shocks and yield curve twists.


45
The EAR analysis used in the following table reflects the required analysis used no less than quarterly by management. It models -100, +100, +200, +300, and +400 basis point parallel shifts in market interest rates over the next one-year period. Due to the current low level of interest rates, only a -100 basis point parallel shift is represented.


The Company was within Board policy limits for all rate scenarios using the snapshot as of December 31, 2017 as required by regulation.  Thefollowing table below shows the results of the scenarios as of December 31, 2017:2023:

Net Sensitive Earnings at Risk
 Change in Interest Income/Expense
for a given change in interest rates
Over/(Under) Base Case Parallel Shift
(Dollars in Thousands)Book Value-200-100Base+100+200+300+400
Total interest-sensitive income7,046,067 423,779 454,633 485,679 516,113 546,547 576,838 607,403 
Total interest-sensitive expense387,572 7,504 8,606 10,339 12,515 14,708 16,918 19,139 
Net interest-sensitive income416,275 446,027 475,340 503,598 531,839 559,920 588,264 
Percentage change from base-12.4 %-6.2 %— %5.9 %11.9 %17.8 %23.8 %
Net Sensitive Earnings at Risk
Net Sensitive Earnings at Risk
Balances as of December 31, 2017Standard (Parallel Shift) Year 1
 Net Interest Income at Risk%
 -100 +100 +200 +300 +400
Basis Point Change Scenario-7.4 % 3.3 % 5.5 % 7.4 % 9.4 %
Board Policy Limits-8.0 % -8.0 % -10.0 % -15.0 % -20.0 %

The EAR analysis reported at December 31, 20172023, shows that in all rising rate scenarios,total interest-sensitive income will change more assetsrapidly than liabilities would repricetotal interest-sensitive expense over the modeled one-year period.
next year. IRR is a snapshot in time. The Company’s business and deposits are very predictably cyclical on a weekly, monthly and yearly basis. The Company’s static IRR results could vary depending on which day of the week and timing in relation to certain payrolls, as well as time of the month in regard to early funding of certain programs, when this snapshot is taken. The Company’s overnight federal funds purchased fluctuates on a predictable daily and monthly basis due to fluctuations in a portion of its non-interest bearing deposit base,ends, primarily related to payroll processing and timing of when certain programs are prefunded and when the funds are received. Fiscal first quarter 2018 results do not necessarily show the typical effect of day of week cyclicality due to the temporary repositioning of the balance sheet, as previously noted.
Owing to the snapshot nature of IRR, as is required by regulators, in concert with the Company’s predictable weekly, monthly and yearly fluctuating deposit base and overnight borrowings, the results produced by static IRR analysis are not necessarily representative of what management, the Board of Directors, and others would view as the Company’s true IRR positioning. Management and the Board are aware of and understand these typical borrowing and deposit fluctuations as well as the point in time nature of IRR analysis and anticipated an outcome where the Company may temporarily be outside of Board policy limits based on a snapshot analysis.
For management to better understand the IRR position of the Bank, an alternative IRR analysis was completed whereby all December 31, 2017 values were utilized with the exception of overnight borrowings, non-interest bearing deposits, brokered deposits, cash due from banks, non-earning assets, and non-paying liabilities. To diminish potential issues documented above, quarterly average balances were utilized for overnight borrowings, non-interest-bearing deposits, brokered deposits and cash due from banks. Non-earning assets and non-paying liabilities were used to balance the balance sheet. Management believes this view on IRR, while still subject to some yearly cyclicality, more accurately portrays the Bank's IRR position. As noted in the below chart, the alternative EAR results are more normalized and slightly improved in the -100 interest rate shock compared to the static results, as timing issues in deposits and overnight borrowings are diminished and lower balances in cash and due from banks are observed.

The Company was within policy limits as of December 31, 2017 in all scenarios utilizing the alternative IRR scenario run.  The table below highlights those results:
Alternative Net Sensitive Earnings at Risk
Net Sensitive Earnings at Risk
Alternative IRR ResultsStandard (Parallel Shift) Year 1
 Net Interest Income at Risk%
 -100 +100 +200 +300 +400
Basis Point Change Scenario-5.5 % 0.9 % 0.6 % — % -0.5 %
Board Policy Limits-8.0 % -8.0 % -10.0 % -15.0 % -20.0 %
The alternative EAR analysis reported at December 31, 2017 shows that in an increasing +100 and +200 interest rate environment, more assets than liabilities would reprice over the modeled one-year period. However, in the +300 scenario the results are more neutral to changes in interest rates, and in the +400 interest rate scenario, more liabilities (primarily due to overnight federal funds purchased) than assets would reprice over the modeled one-year period.



The alternative IRR results were somewhat lower in regard to the change in net interest income at risk percentages as compared to the fiscal 2018 first quarter alternative IRR results which resulted from higher average borrowings and an increased average interest-bearing deposit base. The Company anticipates solid EAR results in a rising rate environment due to continued commercial insurance premium finance loan growth, the addition of adjustable rate loans and securities, continued growth of non-interest bearing MPS deposits, and the sustained execution on its strategic plan.

Net Sensitive Earnings at Risk as of December 31, 2017

Balances as of December 31, 2017       
   % of Change in Interest Income/Expense
for a given change in interest rates		  
 Total Earning Total Earning Over / (Under) Base Case Parallel Shift  
Basis Point Change ScenarioAssets (in $000's) Assets -100 Base +100 +200 +300 +400
Total Loans1,509,141
 30.2% 65,404
 70,803
 75,956
 80,981
 85,966
 91,142
Total Investments (non-TEY) and other Earning Assets3,484,181
 69.8% 59,605
 78,231
 94,619
 109,695
 124,544
 139,321
Total Interest-Sensitive Income4,993,322
 100.0% 125,009
 149,033
 170,575
 190,676
 210,509
 230,463
Total Interest-Bearing Deposits734,000
 35.8% 6,482
 8,244
 12,439
 16,634
 20,829
 25,024
Total Borrowings1,315,261
 64.2% 7,543
 20,878
 34,212
 47,547
 60,883
 74,234
Total Interest-Sensitive Expense2,049,262
 100.0% 14,025
 29,122
 46,651
 64,181
 81,711
 99,258

Alternative Net Sensitive Earnings at Risk

Alternative IRR Results       
   % of Change in Interest Income/Expense
for a given change in interest rates		  
 Total Earning Total Earning Over / (Under) Base Case Parallel Shift  
Basis Point Change ScenarioAssets (in $000's) Assets -100 Base +100 +200 +300 +400
Total Loans1,509,141
 39.4% 65,404
 70,803
 75,956
 80,981
 85,966
 91,142
Total Investments (non-TEY) and other Earning Assets2,323,118
 60.6% 52,958
 59,952
 64,692
 68,099
 71,273
 74,350
Total Interest-Sensitive Income3,832,259
 100.0% 118,362
 130,755
 140,648
 149,080
 157,238
 165,492
Total Interest-Bearing Deposits797,475
 65.4% 7,402
 9,193
 13,747
 18,301
 22,855
 27,409
Total Borrowings421,370
 34.6% 2,468
 6,739
 11,011
 15,282
 19,566
 23,860
Total Interest-Sensitive Expense1,218,845
 100.0% 9,870
 15,932
 24,758
 33,583
 42,421
 51,269


The Company believes that its growing portfolio of non-interest bearing deposits provides a stable and profitable funding vehicle and a significant competitive advantage in a rising interest rate environment as the Company’s cost of funds will likely remain relatively low, with less increase expected relative to many other banks. When unable to match loan growth to deposit growth, the Company continues to execute its investment strategy of primarily purchasing NBQ municipal bonds and agency MBS, however, the Bank reviews opportunities to add diverse, high quality securities at attractive relative rates when opportunities present themselves. The NBQ municipal bonds are tax exempt and as such have a tax equivalent yield higher than their book yield. The tax equivalent yield calculation for NBQ municipal bonds uses the Company’s cost of funds as one of its components. With the Company’s large volume of non-interest bearing deposits, the tax equivalent yield for these NBQ municipal bonds is higher than a similar term investment in other investment categories of similar risk and higher than most other banks can realize and sustain on the same or similar instruments. The above interest income figures are quoted on a pre-tax basis which is particularly notable due to the size of the Company’s tax-exempt municipal portfolio.
Under EVE analysis, the economic value of financial assets, liabilities and off-balance sheet instruments is derived under each rate scenario. The economic value of equity is calculated as the difference between the estimated market value of assets and liabilities, net of the impact of off-balance sheet instruments.
The EVE analysis used in the following table reflects the required analysis used no less than quarterly by management. It models immediate -100, +100, +200, +300 and +400 basis point parallel shifts in market interest rates. Due to the current low level of interest rates, only a -100 basis point parallel shift is represented.
The Company was within Board policy limits for all scenarios. Thefollowing table below shows the results of the scenarios as of December 31, 2017:2023:

Economic Value Sensitivity
Standard (Parallel Shift)
 Economic Value of Equity at Risk %
 -200-100+100+200+300+400
Percentage change from base-11.2 %-4.7 %3.6 %6.5 %8.9 %11.7 %
Economic Value Sensitivity as of December 31, 2017
Balances as of December 31, 2017Standard (Parallel Shift)
 Economic Value of Equity at Risk%
 -100 +100 +200 +300 +400
Basis Point Change Scenario-4.1 % -1.3 % -4.8 % -9.3 % -12.7 %
Board Policy Limits-10.0 % -10.0 % -20.0 % -30.0 % -40.0 %


The EVE at risk reported at December 31, 20172023 shows that as interest rates increase, the economic value of equity position will decreaseis expected to benefit from the base, primarilyrising interest rates due to the degreelarge amount of the economic valuenoninterest-bearing funding.


46

The Company was within policy limits in all scenarios utilizing the alternative IRR scenario run for management purposes.  The table below highlights those results:

Alternative Economic Value Sensitivity
Contents
Alternative IRR ResultsStandard (Parallel Shift)
 Economic Value of Equity at Risk%
 -100 +100 +200 +300 +400
Basis Point Change Scenario-0.9 % -3.8 % -9.3 % -15.5 % -20.5 %
Board Policy Limits-10.0 % -10.0 % -20.0 % -30.0 % -40.0 %

The EVE at risk reported using the alternative methodology used for management purposes shows that if interest rates increase immediately, the economic value of equity position will decrease from the base, partially due to the degree of the economic value of its base asset size in relation to the economic value of its base liabilities size.






Detailed Economic Value Sensitivity

The following table details the economic value sensitivity to changes in market interest rates at December 31, 2017, for loans, investments, deposits, borrowings, and other assets and liabilities (dollars in thousands). The analysis reflects that in the +100 and +200 rising rate scenarios, total assets are marginally less sensitive than total liabilities, while in the +300 and +400, total assets are marginally more sensitive than total liabilities. Asset sensitivity is offset by the non-interest bearing deposits.
Balances as of December 31, 2017       
   % of Change in Economic Value
for a given change in interest rates		  
 Book Total Over / (Under) Base Case Parallel Shift  
Basis Point Change ScenarioValue (in $000's) Assets -100 +100 +200 +300 +400
Total Loans1,500,279
 28% 2.0% -2.0 % -4.1 % -6.0 % -7.9 %
Total Investment3,484,181
 64% 2.3% -3.2 % -6.6 % -9.9 % -12.8 %
Other Assets420,792
 8% 0.0% 0.0 % 0.0 % 0.0 % 0.0 %
Assets5,405,252
 100% 2.1% -2.6 % -5.4 % -8.1 % -10.4 %
Interest Bearing Deposits734,000
 15% 1.7% -1.5 % -3.0 % -4.3 % -5.5 %
Non-Interest Bearing Deposits2,783,941
 57% 5.7% -5.1 % -9.7 % -13.8 % -17.5 %
Total Borrowings & Other Liabilities1,363,650
 28% 0.0% 0.0 % 0.0 % 0.0 % 0.0 %
Liabilities4,881,591
 100% 3.2% -2.9 % -5.5 % -7.8 % -10.0 %

Detailed Alternative Economic Value Sensitivity

The following is EVE at risk reported using the alternative methodology used for management purposes, for loans, investments, deposits, borrowings, and other assets and liabilities (dollars in thousands). The analysis reflects that in rising interest rate scenarios, the total assets are slightly more sensitive in regard to economic value sensitivity.
Alternative IRR Results       
   % of Change in Economic Value
for a given change in interest rates		  
 Book Total Over / (Under) Base Case Parallel Shift  
Basis Point Change ScenarioValue (in $000's) Assets -100 +100 +200 +300 +400
Total Loans1,500,279
 28% 2.0% -2.0 % -4.1 % -6.0 % -7.9 %
Total Investment2,323,118
 43% 3.5% -4.9 % -9.9 % -14.9 % -19.2 %
Other Assets1,581,855
 29% 0.0% 0.0 % 0.0 % 0.0 % 0.0 %
Assets5,405,252
 100% 2.1% -2.6 % -5.4 % -8.1 % -10.4 %
Interest Bearing Deposits797,475
 16% 1.1% -1.0 % -1.9 % -2.8 % -3.7 %
Non-Interest Bearing Deposits2,333,111
 48% 5.8% -5.1 % -9.7 % -13.8 % -17.5 %
Total Borrowings & Other Liabilities1,751,006
 36% 0.0% 0.0 % 0.0 % 0.0 % 0.0 %
Liabilities4,881,591
 100% 2.7% -2.4 % -4.5 % -6.5 % -8.2 %

Certain shortcomings are inherent in the method of analysis discussed above and as presented in the tables above. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Furthermore, although management has estimated changes in the levels of prepayments and early withdrawal in these rate environments, such levels would likely deviate from those assumed in calculating the tables above. Finally, the ability of some borrowers to service their debt may decrease in the event of an interest rate increase.

Item 4.    Controls and Procedures.


EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES


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

INHERENT LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS

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


DISCLOSURE CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s “disclosure controls and procedures”, as such term is defined in Rules 13a – 15(e) and 15d – 15(e) of the Securities Exchange Act of 1934 (“Exchange Act”) as of the end of the period covered by the report.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at December 31, 2017, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that (i) the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING


With the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the CompanyManagement conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the Company’s fiscal quarterthree months ended December 31, 2017,2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controlcontrols over financial reporting. Based on suchthis evaluation, management concluded that, as of the end of the period covered by this report, there have not been anywere no changes in the Company’s internal controlcontrols over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange1934 Act) during the fiscal first quarter to which this report relates that could have materially affected or are reasonably likely to materially affect, the Company’s internal controlcontrols over financial reporting.


META
47
PATHWARD FINANCIAL, GROUP, INC.
PART II - OTHER INFORMATION


FORM 10-Q


Item 1. Legal Proceedings. – See “Legal Proceedings” under Note 6

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 Notes to Condensed Consolidated Financial Statements, which is incorporated herein by reference.ordinary course of our business and anticipate that we will become involved in new litigation matters in the future.


ItemItem 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, 2017.2023. There were no material changes to those risk factors during the three months ended December 31, 2017, except2023.

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 the following risk factors are hereby added:

There are risks associated with the proposed transaction with Crestmarkwas publicly announced on September 7, 2021 and Crestmark Bank, including the receiptis scheduled to expire on September 30, 2024. The Company's Board of required shareholderDirectors authorized an additional 7,000,000 share repurchase program that was publicly announced on August 25, 2023 and regulatory approvals and timing for completion of the transactions contemplated thereby.

We recently announced that we and MetaBank have entered into a definitive agreement and plan of merger with Crestmark and its wholly-owned subsidiary, Crestmark Bank, whereby we will acquire Crestmark in an all-stock transaction.is scheduled to expire September 30, 2028. The transaction remains subject to approval of our stockholders and Crestmark’s shareholders, regulatory approvals and other closing conditions. It is possible that one or more of the closing conditions may not be satisfied or that it may take an extended amount of time until they are. Accordingly, there is a risk that the proposed transaction may not be completed on a timely basis or at all, which could have adverse effects on the market pricetable below sets forth information regarding repurchases of our common stock during the fiscal 2024 first quarter.
Period
Total Number of Shares Repurchased(1)
Average Price Paid per Share(1)(2)
Total Number Of Shares Purchased As Part of Publicly Announced Plans or ProgramsMaximum Number Of Shares that may yet be Purchased Under the Plans or Programs
October 1 to 31293,640 $47.14 232,588 8,433,848 
November 1 to 3042,589 47.85 — 8,433,848 
December 1 to 31— — — 8,433,848 
Total336,229 232,588 
(1) All shares not purchased as part of the Company's publicly announced repurchase program were acquired in satisfaction of the tax withholding obligations of holders of restricted stock unit awards, which vested during the quarter.
(2) The average price paid per share is calculated on a trade date basis for all open market transactions and our operating results. Furthermore,excludes commissions and other transaction expenses.

Item 5. Other Information

Adoption or Termination of Trading Arrangements by Directors and Executive Officers

During the transaction involves a number of other risks and uncertainties, including, but not limited to, the following:

the businesses may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected;

the risk that the expected growth opportunities, beneficial synergies and/or operating efficiencies from the proposed transaction may not be fully realized or may take longer to realize than expected;

customer losses and business disruption in connection with and following the acquisition;

potential litigation relating to the transaction;

the risk that the Company may incur unanticipated or unknown losses or liabilities if it completes the proposed transaction; and

potential adverse effects on the market pricefiscal quarter ended December 31, 2023, none of our common stock caused by the sale of such stock held by former Crestmark shareholders following the transaction.

Anydirectors or officers (as defined in Rule 16a-1(f) of the foregoing risks or similar risks could have an adverse impact on our business. We have also incurred, and will incur, significant expenses associated with the proposed transaction with Crestmark, including fees of professional advisors.
Additional information regarding the risks and uncertainties associated with the proposed transaction with Crestmark will be contained in the registration statement on Form S-4, which will include a joint proxy statement and prospectus, that we intend to file with the SEC in connection with the proposed transaction.


Program agreements that the Company and the Bank have entered into, and expect to enter into from time to time in the future, with third parties to market and service consumer loans originated by the Bank may subject the Bank to claims from regulatory agencies and other third parties that, if successful, could negatively impact MetaBank’s ongoing and future business.

On January 25, 2018, the Company announced that the Bank had entered into a lending program with Liberty Lending, LLC, an unaffiliated third party (“Liberty”), whereby Liberty will market and service unsecured consumer loans underwritten and originated by the Bank. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Business Developments” for further information regarding the Bank’s program agreement with Liberty. The Company expects the Bank to enter into similar program agreements with other third parties to market and service loans originated by the Bank, from time to time in the future. Certain types of these arrangements have been challenged both in the courts and in regulatory actions. In these actions, plaintiffs have generally argued that the “true lender” is the marketer and that the intent of such lending program is to evade state usury and loan licensing laws. Other cases have also included other claims, including racketeering and other state law claims, in their challenge of such programs. There can be no assurance that lawsuits or regulatory actions in connection with any such lending programs the Bank enters into will not be brought in the future. If a regulatory agency, consumer advocate group or other third party were to bring an action against the Bank or any1934 Act) informed us of the third parties with which the Bank operates such lending programs, suchadoption or termination of any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as Liberty, and such actions were successful, such an outcome could have a material adverse effect on the Bank and the Company.those terms are defined in Item 408 of Regulation S-K.


Agreements with Liberty Lending and others whereby the Bank will originate and hold unsecured consumer loans, may result in increased exposure to credit risk and fraud and may present certain additional risks.
48

Although the Bank has offered unsecured consumer loans to its customers through its brick-and-mortar branch network, the Bank’s entry into program agreements with other third parties to market and service loans originated by the Bank, such as its recently announced program agreement with Liberty, represents a new area
Table of the consumer credit market for the Bank, which presents potential increased credit risks. As a result of the loans originated under such program being unsecured, in the event a borrower does not repay the loan in accordance with its terms or otherwise defaults on the loan, the Bank may not be able to recover from the borrower an amount sufficient to pay any remaining balance on the loan. See “If the Company’s actual loan losses exceed the Company’s allowance for loan losses, the Company’s net income will decrease.” We may also become subject to claims by regulatory agencies or other third parties due to the conduct of the third parties with which the Bank operates such lending programs if such conduct does not comply with applicable laws in connection with marketing and servicing loans under the program.Contents

Item 6. Exhibits.

Exhibit
Number		Description
Exhibit
Number10.1*
Description
2.1
AgreementOffer Letter between the Company and Plan of Merger,Gregory Sigrist, dated as of January 9, 2018, by and among Meta Financial Group, Inc., MetaBank, Crestmark Bancorp, Inc. and Crestmark Bank,October 2, 2023, filed on January 9, 2018October 5, 2023 as an exhibit to the Registrant’sRegistrant's Current Report on Form 8-K, is incorporated herein by reference.
Certificate of Incorporation, as amended
10.1
Amended and Restated Meta Financial Group, Inc. 2002 Omnibus Incentive Plan, as amended, filed on January 24, 2018 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.
Section 302 certification of Chief Financial Officer.
Section 906 certification of Chief Executive Officer.
Section 906 certification of Chief Financial Officer.
101The following financial information from the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2023 formatted in Inline Extensible Business Reporting Language (iXBRL) includes: (i) Cover Page, (ii) Condensed Consolidated Statements of Financial Condition, (iii) Condensed Consolidated Statements of Operations, (iv) Condensed Consolidated Statements of Comprehensive Income, (v) Condensed Consolidated Statements of Changes in Stockholders' Equity, (vi) Condensed Consolidated Statements of Cash Flows, and (vii) Notes to Condensed Consolidated Financial Statements, tagged in summary and in detail.
101.INSInstance Document
104
101.SCHCover Page Interactive Data File (formatted as Inline XBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Documentand contained in Exhibit 101).



*Management contract or compensatory plan or agreement.
META



49
PATHWARD FINANCIAL, GROUP, 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.

METAPATHWARD FINANCIAL, GROUP, INC.
Date: February 7, 20188, 2024
By:/s/ J. Tyler HaahrBrett L. Pharr
J. Tyler Haahr, Chairman of the BoardBrett L. Pharr,
and Chief Executive Officer and Director
Date: February 7, 20188, 2024
By:/s/ Glen W. HerrickGregory A. Sigrist
Glen W. Herrick, Gregory A. Sigrist,
Executive Vice President
and Chief Financial Officer


64
50