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What changed in PATHWARD FINANCIAL, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of PATHWARD FINANCIAL, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+460 added−490 removedSource: 10-K (2023-11-21) vs 10-K (2022-11-22)

Top changes in PATHWARD FINANCIAL, INC.'s 2023 10-K

460 paragraphs added · 490 removed · 349 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

175 edited+33 added−75 removed170 unchanged
Biggest changeAt and For the Fiscal Year Ended September 30, 2022 2021 (Dollars in thousands) Net Loan Charge-offs Average Outstanding Balance Percent of Net Charge-offs to Average Loans Net Loan Charge-offs Average Outstanding Balance Percent of Net Charge-offs to Average Loans Term lending $ 9,580 $ 1,040,003 0.9 % $ 12,803 $ 886,678 1.4 % Asset based lending (416) 358,683 (0.1) % 777 241,195 0.3 % Factoring 9,140 380,544 2.4 % (1,175) 293,468 (0.4) % Lease financing (335) 235,475 (0.1) % 2,596 285,402 0.9 % Insurance premium finance 541 444,184 0.1 % (785) 382,382 (0.2) % SBA/USDA 578 258,039 0.2 % (21) 346,224 — % Other commercial finance — 167,657 — % — 113,986 — % Commercial finance 19,088 2,884,585 0.7 % 14,195 2,549,335 0.6 % Consumer credit products — 182,447 — % — 108,060 — % Other consumer finance 4,442 112,909 3.9 % 3,004 140,697 2.1 % Consumer finance 4,442 295,356 1.5 % 3,004 248,757 1.2 % Tax services 28,090 179,611 15.6 % 33,276 214,835 15.5 % Warehouse finance — 433,121 — % — 330,224 — % Community banking (424) 34,758 (1.2) % 144 375,258 — % Total $ 51,196 $ 3,827,431 1.3 % $ 50,619 $ 3,718,409 1.4 % The distribution of the Company’s ACL at the dates indicated is summarized as follows: At September 30, 2022 2021 (Dollars in thousands) Amount Percent of Loans and Leases in Each Category of Total Loans and Leases Amount Percent of Loans and Leases in Each Category of Total Loans and Leases Term lending $ 24,621 30.9 % $ 29,351 26.6 % Asset based lending 1,050 10.0 % 1,726 8.3 % Factoring 6,556 10.5 % 3,997 10.1 % Lease financing 5,902 6.0 % 7,629 7.4 % Insurance premium finance 1,450 13.5 % 1,394 11.9 % SBA/USDA 3,263 10.2 % 2,978 6.9 % Other commercial finance 1,310 4.5 % 1,168 4.4 % Commercial finance 44,152 85.6 % 48,243 75.6 % Consumer credit products 1,400 4.1 % 1,242 3.6 % Other consumer finance 63 0.7 % 6,112 3.4 % Consumer finance 1,463 4.8 % 7,354 7.0 % Tax services 5 0.3 % 2 0.3 % Warehouse finance 327 9.3 % 420 11.6 % Community banking — — % 12,262 5.5 % Total $ 45,947 100.0 % $ 68,281 100.0 % 13 Table of Contents Management closely monitors economic developments and considers these factors when assessing the appropriateness of its ACL.
Biggest changeAt and For the Fiscal Year Ended September 30, 2023 2022 (Dollars in thousands) Net Loan Charge-offs Average Outstanding Balance Percent of Net Charge-offs to Average Loans Net Loan Charge-offs Average Outstanding Balance Percent of Net Charge-offs to Average Loans Term lending $ 9,476 $ 1,184,055 0.8 % $ 9,580 $ 1,040,003 0.9 % Asset-based lending 2,317 369,686 0.6 % (416) 358,683 (0.1) % Factoring 1,513 342,447 0.4 % 9,140 380,544 2.4 % Lease financing 1,176 190,661 0.6 % (335) 235,475 (0.1) % Insurance premium finance 1,162 558,018 0.2 % 541 444,184 0.1 % SBA/USDA 5 409,296 — % 578 258,039 0.2 % Other commercial finance — 166,422 — % — 167,657 — % Commercial finance 15,649 3,220,585 0.5 % 19,088 2,884,585 0.7 % Consumer finance 2,263 231,242 1.0 % 4,442 295,356 1.5 % Tax services 35,778 141,210 25.3 % 28,090 179,611 15.6 % Warehouse finance — 343,168 — % — 433,121 — % Community banking — — — % (424) 34,758 (1.2) % Total $ 53,690 $ 3,936,205 1.4 % $ 51,196 $ 3,827,431 1.3 % The distribution of the Company’s ACL at the dates indicated is summarized as follows: At September 30, 2023 2022 (Dollars in thousands) Amount Percent of Loans and Leases in Each Category of Total Loans and Leases Amount Percent of Loans and Leases in Each Category of Total Loans and Leases Term lending $ 25,686 30.0 % $ 24,621 30.9 % Asset-based lending 2,738 8.8 % 1,050 10.0 % Factoring 6,566 8.2 % 6,556 10.5 % Lease financing 3,302 4.2 % 5,902 6.0 % Insurance premium finance 2,637 18.4 % 1,450 13.5 % SBA/USDA 2,962 12.0 % 3,263 10.2 % Other commercial finance 3,089 3.8 % 1,310 4.5 % Commercial finance 46,980 85.4 % 44,152 85.6 % Consumer finance 2,346 5.8 % 1,463 4.8 % Tax services 2 0.1 % 5 0.3 % Warehouse finance 377 8.7 % 327 9.3 % Total $ 49,705 100.0 % $ 45,947 100.0 % Management closely monitors economic developments and considers these factors when assessing the appropriateness of its ACL.
Pathward's innovative approach and customized financial products offer the flexibility traditional bank products cannot. This diverse range of commercial financial products is available through the following lending solutions: working capital, equipment finance, structured finance, and insurance premium finance. Working capital provides ready cash for liquidity needs to new or growing companies or companies in cyclical or seasonal industries.
Pathward's innovative approach and customized financial products offer the flexibility traditional bank products cannot. This diverse range of commercial finance products is available through the following lending solutions: working capital, equipment finance, structured finance, and insurance premium finance. Working capital provides ready cash for liquidity needs to new or growing companies or companies in cyclical or seasonal industries.
First Midwest Financial Capital Trust I, a wholly-owned subsidiary of Pathward Financial, was established in July 2001 and Crestmark Capital Trust I, acquired by the Company in August 2018, was established in June 2005. Both subsidiaries were established for the purpose of issuing trust preferred securities.
First Midwest Financial Capital Trust I, a wholly-owned subsidiary of Pathward Financial, was established in July 2001 and Crestmark Capital Trust I, a wholly-owned subsidiary of Pathward Financial and acquired by the Company in August 2018, was established in June 2005. Both subsidiaries were established for the purpose of issuing trust preferred securities.
LENDING ACTIVITIES General The Company focuses its lending activities on the origination of commercial finance loans, consumer finance loans and tax services loans. The Company emphasizes credit quality and seeks to avoid undue concentrations of loans and leases to a single industry or based on a single class of collateral.
Lending Activities General The Company focuses its lending activities on the origination of commercial finance loans and leases, consumer finance loans and tax services loans. The Company emphasizes credit quality and seeks to avoid undue concentrations of loans and leases to a single industry or based on a single class of collateral.
The Company has established lending policies that include a number of underwriting factors that it considers in making a loan, including loan-to-value ratio, cash flow, interest rate and credit history of the borrower.
The Company has established lending policies that include a number of underwriting factors it considers in making a loan, including loan-to-value ratio, cash flow, interest rate and credit history of the borrower.
Similar to traditional debit cards, prepaid cards are embedded with a magnetic stripe, which encodes relevant card data (which may or may not include information about the user and/or purchaser of such card), or an EMV chip, which is equipped with a microprocessor chip and the technology used to authenticate chip card transactions.
Similar to traditional debit cards, prepaid cards are embedded with a magnetic stripe, which encodes relevant card data (which may or may not include information about the user and/or purchaser of such card), and an EMV chip, which is equipped with a microprocessor chip and the technology used to authenticate chip card transactions.
When the holder of such a card attempts a permitted transaction, necessary information, including the authorization for such transaction, is shared between the “point of use” or “point of sale” and authorization systems maintaining the account of record. Most recently, “virtual” prepaid cards have become popular in the industry.
When the holder of a card attempts a permitted transaction, necessary information, including the authorization for such transaction, is shared between the “point of use” or “point of sale” and authorization systems maintaining the account of record. Most recently, “virtual” prepaid cards have become popular in the industry.
The cards may work in a closed loop (e.g., the card will only work at one particular merchant and will not work anywhere else), a "Restricted Access Network" (e.g., the card will only work at a specific set of merchants such as a shopping mall), or in an open loop by way of a Visa or MasterCard or Discover branded debit card that will work wherever such cards are accepted for payment.
The cards may work in a closed loop (e.g., the card will only work at one particular merchant and will not work anywhere else), a restricted access network (e.g., the card will only work at a specific set of merchants such as a shopping mall), or in an open loop by way of a Visa, MasterCard, or Discover branded debit card that will work wherever such cards are accepted for payment.
Non-marketable equity investments measured under the equity method, or the measurement alternative method are reviewed for impairment each reporting period and is reported in earnings if applicable. Funding Activities General The Company’s sources of funds are deposits, borrowings, amortization and repayment of loan and lease principal, interest earned on or maturation of investment securities and funds provided from operations.
Non-marketable equity investments measured under the equity method, or the measurement alternative method are reviewed for impairment each reporting period and are reported in earnings if applicable. Funding Activities General The Company’s sources of funds are deposits, borrowings, amortization and repayment of loan and lease principal, interest earned on or maturation of investment securities and funds provided from operations.
As of the date of the filing of this Annual Report on Form 10-K, several provisions of the Dodd-Frank Act remain subject to further rulemaking and interpretation by the federal banking agencies; moreover, certain provisions of the act that were implemented by federal agencies have been revised or rescinded pursuant to legislative changes adopted by the U.S.
As of the date of the filing of this Annual Report on Form 10-K, several provisions of the Dodd-Frank Act remain subject to further rulemaking and interpretation by the federal banking agencies; moreover, certain provisions of the act that were implemented by federal agencies have been revised or rescinded pursuant to legislative changes adopted by the U.S. Congress.
Our people are our number one asset and the source of our ability to deliver on our mission. We empower them by providing opportunities to grow and develop in their careers, supported by strong compensation, benefits, and health and well-being programs. We live our mission and provide a diverse, inclusive, safe, and healthy workplace for all.
Our people are our number one asset and the source of our ability to deliver on our mission. We empower them by providing opportunities to grow and develop in their careers, supported by strong compensation, benefits, and health and well-being programs. We live our mission and seek to provide a diverse, inclusive, safe, and healthy workplace for all.
If a major client or card program were to leave the Bank, deposit outflows could be more significant than if the Bank were to lose a more traditional customer, although it is considered unlikely that all deposits related to a program would leave the Bank without significant advance notification.
If a major customer or card program were to leave the Bank, deposit outflows could be more significant than if the Bank were to lose a more traditional customer, although it is considered unlikely that all deposits related to a program would leave the Bank without significant advance notification.
According to FRB staff, the FRBs are likely to require holding companies to eliminate, defer or reduce dividends if these payments are not fully covered by the net income available to shareholders for the past four quarters, earnings retention is not consistent with capital needs or the holding company will not meet or is in danger of not meeting minimum regulatory capital adequacy ratios. 35 Table of Contents Management In August 2017, the Federal Reserve published proposed guidance related to supervisory expectations for boards of directors of BHCs.
According to FRB staff, the FRBs are likely to require holding companies to eliminate, defer or reduce dividends if these payments are not fully covered by the net income available to shareholders for the past four quarters, earnings retention is not consistent with capital needs or the holding company will not meet or is in danger of not meeting minimum regulatory capital adequacy ratios. 33 Table of Contents Management In August 2017, the Federal Reserve published proposed guidance related to supervisory expectations for boards of directors of BHCs.
We believe that diversity of backgrounds, thoughts and experiences in our organization leads to more innovative solutions for our customers and partners as we seek to understand the unique needs in the niche markets that we serve.
We believe that diversity of backgrounds, thoughts and experiences in our organization leads to more innovative solutions for our customers and partners as we seek to understand the unique needs in the markets that we serve.
To date, the Company has not experienced any significant outflows related to the BaaS business line deposits, though no assurance can be given that this will continue to be the case.
To date, the Company has not experienced any unexpected significant outflows related to the BaaS business line deposits, though no assurance can be given that this will continue to be the case.
The remaining 32% are a variety of investment advisory and insurance agency loans and other more traditional term equipment and general purpose commercial loans. Asset Based Lending . The Bank provides asset based loans secured by short-term assets such as accounts receivable and inventory. Asset based loans may also be secured by equipment supported by third party independent appraisals.
The remaining 34% are a variety of investment advisory and insurance agency loans and other more traditional term equipment and general purpose commercial loans. Asset-Based Lending . The Bank provides asset-based loans secured by short-term assets such as accounts receivable and inventory. Asset-based loans may also be secured by equipment supported by third party independent appraisals.
Pathward currently provides financial processing services for approximately 65% of freestanding ATMs nationwide providing consumers with access to funds at ATMs frequently found in malls, retail chains, convenience stores, events, fairs and other small business locations across the U.S. Issuing Solutions Prepaid Cards.
Pathward currently provides financial processing services for approximately 60% of freestanding ATMs nationwide providing consumers with access to funds at ATMs frequently found in malls, retail chains, convenience stores, events, fairs and other small business locations across the U.S. Issuing Solutions Prepaid Cards.
As of September 30, 2022, the Bank exceeded all of its regulatory capital requirements and was designated as “well capitalized” under federal guidelines. Recent Developments Related to Capital Rules There have been several developments which are intended to reduce the regulatory capital burden on smaller, less complex banking organizations like the Company and the Bank.
As of September 30, 2023, the Bank exceeded all of its regulatory capital requirements and was designated as “well capitalized” under federal guidelines. Recent Developments Related to Capital Rules There have been several developments which are intended to reduce the regulatory capital burden on smaller, less complex banking organizations like the Company and the Bank.
The proposed interagency guidance is based on the OCC’s existing third-party risk management guidance from 2013 and seeks to, among other things, promote consistency in third-party risk management and provide sound risk management guidance for third-party relationships commensurate with a bank’s risk profile and complexity as well as the criticality of the activity.
The interagency guidance is based, in part, on the OCC’s existing third-party risk management guidance from 2013 and seeks to, among other things, promote consistency in third-party risk management and provide sound risk management guidance for third-party relationships commensurate with a bank’s risk profile and complexity as well as the criticality of the activity.
Our people are dedicated to a spirit of stewardship and service to the clients and communities that we serve. By growing and promoting a diversity of perspectives within our employee base that reflects our diverse customer base, we can better understand their challenges and deliver on the solutions that they need.
Our people are dedicated to a spirit of stewardship and service to the customers and communities that we serve. By growing and promoting a diversity of perspectives within our employee base that reflects our diverse customer base, we can better understand their challenges and deliver on the solutions that they need.
This allows us to expand our talent pool to acquire the best talent available while encouraging the ability for interactivity in our hub locations to build connections and community. This reimagined recruiting strategy allows us to expand our reach beyond local candidates as a remote-enabled employer of choice.
This allows us to expand our talent pool to acquire the best talent available while encouraging the ability for interactivity in our hub locations to build connections and community. This reimagined recruiting strategy allows us to expand our reach beyond local candidates as a remote-first employer of choice.
Technology has accelerated the growth and speed of transactional payments for corporate and financial organizations. Prompt movement of money creates efficiency, speed and a robust marketplace for consumers, B2B and business-to-consumer ("B2C") companies. Pathward is a Nacha Top 50 bank for receiving and originating payments.
Technology has accelerated the growth and speed of transactional payments for corporate and financial organizations. Prompt movement of money creates efficiency, speed and a robust marketplace for consumers, B2B and business-to-consumer ("B2C") companies. Pathward is a Nacha Top 25 bank for receiving and originating payments.
The Company has signed agreements with terms extending through the next few years with several of its largest sales agents/program managers, which the Company expects will help mitigate this risk. Each core capability is discussed generally below with examples to illustrate use cases. The Company cross-utilizes personnel and resources across these capabilities. Payment Solutions Acquiring Sponsorship.
The Company has signed agreements with terms extending through the next few years with several of its largest sales agents/program managers, which the Company expects will help mitigate this risk. Each core capability is discussed generally below with examples to illustrate use cases. The Company cross-utilizes personnel and resources across these capabilities. 21 Table of Contents Payment Solutions Acquiring Sponsorship.
Pathward Financial's principal assets are all the issued and outstanding shares of the Bank, a South Dakota chartered, national bank, the accounts of which are insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC") as administrator of the Deposit Insurance Fund (“DIF”).
Pathward Financial's principal assets are all the issued and outstanding shares of the Bank, a chartered national bank, the accounts of which are insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC") as administrator of the Deposit Insurance Fund (“DIF”).
The prepayment risk associated with MBS is continually monitored, and prepayment rate assumptions are adjusted as appropriate to update the Company’s MBS accounting and asset/liability reports. The following table sets forth the carrying value of the Company’s MBS at the dates indicated.
The prepayment risk associated with MBS is continually monitored, and prepayment rate assumptions are adjusted as appropriate to update the Company’s MBS accounting and asset/liability reports. 15 Table of Contents The following table sets forth the carrying value of the Company’s MBS at the dates indicated.
For the fiscal year ended September 30, 2022, gross interest income, which would have been recorded had the nonaccruing loans and leases been current in accordance with their original terms was insignificant, none of which was included in interest income. Nonaccruing Loans and Leases.
For the fiscal year ended September 30, 2023, gross interest income, which would have been recorded had the nonaccruing loans and leases been current in accordance with their original terms, was insignificant, none of which was included in interest income. Nonaccruing Loans and Leases.
The Bank provides creative, flexible lease solutions for equipment needs of its clients. Leases that transfer substantially all of the benefits and risks of ownership to the lessee are accounted for as sales-type or direct financing leases.
The Bank provides creative, flexible lease solutions for equipment needs of its customers. Leases that transfer substantially all of the benefits and risks of ownership to the lessee are accounted for as sales-type or direct financing leases.
Many of the Company’s municipal holdings are able to be pledged at both the FRB and the FHLB. 14 Table of Contents The following table sets forth the carrying value of the Company’s investment securities portfolio, excluding MBS, at the dates indicated.
Many of the Company’s municipal holdings are able to be pledged at both the FRB and the FHLB. 13 Table of Contents The following table sets forth the carrying value of the Company’s investment securities portfolio, excluding MBS, at the dates indicated.
The Company’s investment and MBS portfolios are managed in accordance with a written investment policy adopted by the Board of Directors, which is implemented by members of the Company’s Asset/Liability Committee. The Company closely monitors balances in these accounts and maintains a portfolio of highly liquid assets to fund potential deposit outflows or other liquidity needs.
The Company’s investment and MBS portfolios are managed in accordance with a written investment policy, which is implemented by members of the Company’s Asset/Liability Committee. The Company closely monitors balances in these accounts and maintains a portfolio of highly liquid assets to fund potential deposit outflows or other liquidity needs.
Generally, the Bank will charge off the balance of an ERO advance loan if there is a balance at the end of June, or when collection of principal becomes doubtful. 7 Table of Contents Warehouse Finance The Bank participates in several collateral-based warehouse lines of credit whereby the Bank is in a senior, secured position as the first out participant.
Generally, the Bank will charge off the balance of an ERO advance loan if there is a balance at the end of June, or when collection of principal becomes doubtful. Warehouse Finance The Bank participates in several collateral-based warehouse lines of credit whereby the Bank is in a senior, secured position as the first out participant.
Most of the Company's prepaid cards are open loop. Pathward is one of the leading prepaid card issuers in the United States. The prepaid card business can generally be divided into two program categories: Consumer Use and Business or Commercial Use products. These programs are typically offered through a third-party relationship. Consumer Use.
Most of the Company's prepaid cards are open loop. Pathward is one of the leading prepaid card issuers in the United States. The prepaid card business can generally be divided into two program categories: Consumer Use and Business or Commercial Use products. These programs are typically offered through a third-party relationship. 22 Table of Contents Consumer Use.
In the normal course of business, the Company has received requests for information from these regulators. Such requests have been considered routine and incidental to the Company’s operations. 36 Table of Contents Federal and State Taxation Pathward Financial and its subsidiaries file a consolidated federal income tax return and various consolidated state income tax returns.
In the normal course of business, the Company has received requests for information from these regulators. Such requests have been considered routine and incidental to the Company’s operations. Federal and State Taxation Pathward Financial and its subsidiaries file a consolidated federal income tax return and various consolidated state income tax returns.
In addition to regulation and supervision by the FRB, the Company is a reporting company under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is required to file reports with the SEC and otherwise comply with federal securities laws. As described broadly below, the banking industry is subject to significant regulation.
In addition to regulation and supervision by the FRB, the Company is a reporting company under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is required to file reports with the SEC and otherwise comply with federal securities laws. 23 Table of Contents As described broadly below, the banking industry is subject to significant regulation.
The flow of deposits is influenced significantly by general economic conditions, changes in prevailing interest rates, and competition. 18 Table of Contents The variety of deposit accounts offered by the Company has allowed it to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand.
The flow of deposits is influenced significantly by general economic conditions, changes in prevailing interest rates, and competition. The variety of deposit accounts offered by the Company has allowed it to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand.
The Bank’s deposit insurance premium expense totaled $3.1 million for 2022, $6.2 million for 2021, and $8.4 million for 2020. A significant increase in DIF insurance premiums would have an adverse effect on the operating expenses and results of operations of the Bank.
The Bank’s deposit insurance premium expense totaled $4.3 million for 2023, $3.1 million for 2022, and $6.2 million for 2021. A significant increase in DIF insurance premiums would have an adverse effect on the operating expenses and results of operations of the Bank.
If either of these features is present, the issuer must verify the identity of the named account holder. Privacy and Cybersecurity The Bank is required by federal statutes and regulations to disclose its privacy policies to its customers. The Bank is also required to appropriately safeguard its customers’ personal information.
If either of these features is present, the issuer must verify the identity of the named account holder. 28 Table of Contents Privacy and Cybersecurity The Bank is required by federal statutes and regulations to disclose its privacy policies to its customers. The Bank is also required to appropriately safeguard its customers’ personal information.
It is why for the past two decades Pathward Financial has been building solutions to help those who have been underserved by traditional banking providers.
This is why for the past two decades Pathward Financial has been building solutions to help those who have been underserved by traditional banking providers.
There is also a leverage ratio that compares tier 1 capital to average total assets. Failure by the Company or the Bank to meet minimum capital requirements set by the Capital Rules could result in certain mandatory and/or discretionary disciplinary actions by their regulators that could have a material adverse effect on their business and their consolidated financial position.
There is also a leverage ratio that compares tier 1 capital to average total assets. 29 Table of Contents Failure by the Company or the Bank to meet minimum capital requirements set by the Capital Rules could result in certain mandatory and/or discretionary disciplinary actions by their regulators that could have a material adverse effect on their business and their consolidated financial position.
The Company makes available, through a link with the SEC’s EDGAR database, free of charge, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and statements of ownership on Forms 3, 4, and 5.
The Company makes available, through a link with the SEC’s EDGAR database (http://www.sec.gov), free of charge, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and statements of ownership on Forms 3, 4, and 5.
All asset based facilities have standardized loan policies, established and authorized credit limits, attentive portfolio management and the use of lock box agreements and similar arrangements which result in the Company receiving and controlling the debtors' cash receipts. As of September 30, 2022, approximately 65% of asset based loans were backed by accounts receivable. Factoring.
All asset-based facilities have standardized loan policies, established and authorized credit limits, attentive portfolio management and the use of lock box agreements and similar arrangements which result in the Company receiving and controlling the debtors' cash receipts. As of September 30, 2023, approximately 60% of asset-based loans were backed by accounts receivable. Factoring.
Debt Securities The composition and maturities of the Company’s available for sale ("AFS") and held to maturity ("HTM") investment debt securities portfolios at September 30, 2022, excluding equity securities and mutual funds, FHLB stock and MBS, are indicated in the following table.
Debt Securities The composition and maturities of the Company’s available for sale ("AFS") and held to maturity ("HTM") investment debt securities portfolios at September 30, 2023, excluding equity securities and mutual funds, FRB and FHLB stock, and MBS, are indicated in the following table.
This ensures our internal talent supply keeps pace with demand, that we invest in our workforce with intention, have our highest performing, highest potential employees applied to our most critical work, and are preparing today’s talent for tomorrow’s needs.
This helps ensure our internal talent supply keeps pace with demand, that we invest in our workforce with intention, have our highest performing, highest potential employees applied to our most critical work, and are preparing today’s talent for tomorrow’s needs.
Credit risk is managed through standardized advance policies, established and authorized credit limits, verification of receivables, attentive portfolio management and the use of lock box agreements and similar arrangements which result in the Company receiving and controlling the client's cash receipts. In addition, clients generally guarantee the payment of purchased accounts receivable. Lease Financing.
Credit risk is managed through standardized advance policies, established and authorized credit limits, verification of receivables, attentive portfolio management and the use of lock box agreements and similar arrangements which result in the Company receiving and controlling the customer's cash receipts. In addition, customers generally guarantee the payment of purchased accounts receivable. Lease Financing.
The business of the Bank is to collaborate with partners through the BaaS business line to provide solutions that attract low-cost deposits and generate fee income. The low-cost deposits are primarily invested into loan and lease products offered through the Commercial Finance business line.
The business of the Bank is to collaborate with partners through the BaaS business line to provide solutions that attract stable deposits and generate fee income. The deposits are primarily invested into loan and lease products offered through the Commercial Finance business line.
With capabilities ranging from prepaid cards and deposit accounts to payment processing and consumer lending, the Company empowers its partners to deliver programs that provide a financial path forward for all. The Company offers the following innovative solutions: payment, issuing, credit, and tax. Payment solutions accepts and processes payments for all customers' personal and business needs.
With capabilities ranging from prepaid cards and deposit accounts to payment processing and consumer lending, the Company empowers its partners to deliver programs that provide a financial path forward for all. The Company offers the following innovative solutions: payment, issuing, credit, and tax. Payment solutions accept and process payments for all customers' personal and business needs.
Partners looking to offer financial services in an ecosystem typically employ a demand deposit account ("DDA"), savings account or debit card, or combination thereof.
Partners looking to offer financial services in an ecosystem typically employ a DDA, savings account or debit card, or combination thereof.
Notably, the FDIC has the authority to increase an institution’s deposit insurance premium if it determines that an insured depository institution significantly relies upon brokered deposits. As of September 30, 2022, 2021 and 2020, the Bank’s deposit insurance assessment rate was 5 basis points, 5 basis points, and 14 basis points, respectively.
Notably, the FDIC has the authority to increase an institution’s deposit insurance premium if it determines that an insured depository institution significantly relies upon brokered deposits. As of September 30, 2023, 2022 and 2021, the Bank’s deposit insurance assessment rate was 7 basis points, 5 basis points, and 5 basis points, respectively.
For our customers and partners, we commit to identifying ways we can work with people to increase their economic mobility. • INCLUSION: We prioritize creating a culture where our employees, customers and partners have a sense of belonging and feel valued in the ways that most resonate with them.
For our customers and partners, we seek to identify ways we can work with people to increase their economic mobility. • INCLUSION: We prioritize creating a culture where our employees, customers and partners have a sense of belonging and feel valued in the ways that most resonate with them.
Also posted on the Company's website, among other things, are the Environmental, Social and Governance Report, the charters of committees of the Board of Directors, as well as the Company's Code of Business Conduct.
Also posted on the Company's website, among other things, are the Environmental, Social and Governance Report, the charters of committees of the Board of Directors, as well as the Company's Code of Business Conduct. 36 Table of Contents
The Company had 24 other lending relationships in excess of $15.0 million as of September 30, 2022. 4 Table of Contents Loan and Lease Portfolio Composition The following table shows the composition of the Company’s loan and lease portfolio by fixed- and adjustable-rate at the dates indicated.
The Company had 24 other lending relationships in excess of $19.0 million as of September 30, 2023. 4 Table of Contents Loan and Lease Portfolio Composition The following table shows the composition of the Company’s loan and lease portfolio by fixed- and adjustable-rate at the dates indicated.
Credit solutions enables the Bank's partners' lending solutions that serve the borrowing needs of customers in a diverse credit pool.
Credit solutions enable the Bank's partners' lending solutions that serve the borrowing needs of customers in a diverse credit pool.
For example, virtual prepaid cards are used to facilitate one-time payments between a company and its vendors for monthly settlement. Travel and entertainment cards, alternatively, are reloadable by the company for use by its employees to travel for business. 24 Table of Contents Consumer Banking Solutions.
For example, virtual prepaid cards are used to facilitate one-time payments between a company and its vendors for monthly settlement. Travel and entertainment cards, alternatively, are reloadable by the company for use by its employees to travel for business. Consumer Banking Solutions.
This calculation is performed on a rolling basis as described in the OCC’s earnings limitation regulations. The Bank paid cash dividends in the amount of $229.2 million to the Company during fiscal 2022, to be used to fund share repurchases under the common stock share repurchase programs that were authorized by the Company's Board of Directors.
This calculation is performed on a rolling basis as described in the OCC’s earnings limitation regulations. The Bank paid cash dividends in the amount of $110.0 million to the Company during fiscal 2023, to be used to fund share repurchases under the common stock share repurchase programs that were authorized by the Company's Board of Directors.
Congress. 25 Table of Contents Certain provisions of the Dodd-Frank Act that directly impact the operation of the Company or the Bank are highlighted below: Consumer Financial Protection Bureau. Pursuant to the Dodd-Frank Act, the Bank is subject to regulations promulgated by the Consumer Financial Protection Bureau (the “Bureau”).
Certain provisions of the Dodd-Frank Act that directly impact the operation of the Company or the Bank are highlighted below: Consumer Financial Protection Bureau. Pursuant to the Dodd-Frank Act, the Bank is subject to regulations promulgated by the Consumer Financial Protection Bureau (the “Bureau”).
Pathward acts as an acquiring bank to sponsor acquiring activity on behalf of merchant clients by leveraging partnerships with partners who act as merchant processors, third-party service providers, ISOs, and/or payment facilitators to identify, onboard and support merchant clients. 23 Table of Contents Money Movement Solutions.
Pathward acts as an acquiring bank to sponsor acquiring activity on behalf of merchant customers by leveraging partnerships with partners who act as merchant processors, third-party service providers, ISOs, and/or payment facilitators to identify, onboard and support merchant customers. Money Movement Solutions.
Loans and leases in excess of certain amounts require approval by an Executive Credit Committee. The Company may discontinue, adjust, or create new lending programs to respond to competitive factors. At September 30, 2022, the Company’s largest lending relationship to a single borrower or group of related borrowers totaled $74.9 million.
Loans and leases in excess of certain amounts require approval by an Executive Credit Committee. The Company may discontinue, adjust, or create new lending programs to respond to competitive factors. At September 30, 2023, the Company’s largest lending relationship to a single borrower or group of related borrowers totaled $112.5 million.
As a member of the FHLB system, the Bank is required to purchase and maintain activity-based capital stock in the FHLB in the amount specified by the applicable FHLB's capital plan. At September 30, 2022, the Bank had in the aggregate $9.1 million in FHLB stock, which was in compliance with the FHLB of Des Moines' requirement.
As a member of the FHLB system, the Bank is required to purchase and maintain activity-based capital stock in the FHLB in the amount specified by the applicable FHLB's capital plan. At September 30, 2023, the Bank had in the aggregate $8.5 million in FHLB stock, which was in compliance with the FHLB of Des Moines' requirement.
As of September 30, 2022, 14% of the term lending portfolio exposure is concentrated in solar/alternative energy, most of which are construction projects that will convert to longer term government guaranteed facilities upon completion of the construction phase. Equipment Finance agreements make up 54% of the term lending total as of September 30, 2022.
As of September 30, 2023, 11% of the term lending portfolio exposure is concentrated in solar/alternative energy, most of which are construction projects that will convert to longer term government guaranteed facilities upon completion of the construction phase. Equipment finance agreements make up 55% of the term lending total as of September 30, 2023.
Government-related agency and instrumentality securities, U.S. Government-related agency or instrumentality collateralized securities, state and local government obligations and overnight federal funds. As of September 30, 2022, the Company had total investment securities, excluding MBS, with an amortized cost of $623.4 million compared to $891.6 million as of September 30, 2021.
Government-related agency and instrumentality securities, U.S. Government-related agency or instrumentality collateralized securities, state and local government obligations and overnight federal funds. As of September 30, 2023, the Company had total investment securities, excluding MBS, with an amortized cost of $682.1 million compared to $623.4 million as of September 30, 2022.
In addition to originating loans and leases, the Bank also occasionally contracts to sell loans, such as consumer credit product loans, refund advance loans, and government guaranteed loans to third party buyers.
In addition to originating loans and leases, the Bank also occasionally contracts to sell loans, such as consumer credit product loans, government guaranteed loans, and other commercial loans to third party buyers.
The Company endeavors to manage the pricing of its deposits in keeping with its asset/liability management and profitability objectives. Based on its experience, the Company believes that deposits related to prepaid cards are relatively stable sources of deposits.
The Company endeavors to manage the pricing of its deposits in keeping with its asset/liability management and profitability objectives. Based on its experience, the Company believes that deposits related to the BaaS business line are relatively stable sources of deposits.
Our healthcare, insurance benefits, health savings and flexible spending accounts are equally competitive with a low-cost share for the employee. We understand how important it is that our employees have time away from work.
We offer a 401(k) plan with a highly competitive company match. Our healthcare, insurance benefits, health savings and flexible spending accounts are equally competitive with a low-cost share for the employee. We understand how important it is that our employees have time away from work.
As of September 30, 2022, the Bank categorized $83.8 million, or 1% of its deposit liabilities, as brokered deposits. 28 Table of Contents On December 15, 2020, the FDIC issued a final rule establishing a new framework for analyzing whether bank deposits obtained through third-party arrangements are brokered deposits pursuant to Section 29 of the Federal Deposit Insurance Act.
As of September 30, 2023, the Bank categorized $64.3 million, or 1% of its deposit liabilities, as brokered deposits. On December 15, 2020, the FDIC issued a final rule establishing a new framework for analyzing whether bank deposits obtained through third-party arrangements are brokered deposits pursuant to Section 29 of the Federal Deposit Insurance Act.
Pathward Financial strives to increase financial availability, choice, and opportunity across two business lines: BaaS and Commercial Finance. These strategic business lines provide end-to-end support to individuals and businesses. As a nationally chartered bank, Pathward sits at the hub of the financial ecosystem.
Pathward Financial aims to increase financial availability, choice, and opportunity across two business lines: BaaS and Commercial Finance. These strategic business lines provide end-to-end support to individuals and businesses. As a nationally chartered bank, Pathward sits at the hub of the financial ecosystem where traditional banking and financial technology intersect.
The BaaS business line offers a complement of payments related products and services that are marketed to consumers and businesses nationwide through financial institutions and other commercial entities. Other solutions facilitate the movement of funds between an entity and the audience they serve, typically a consumer.
The BaaS business line offers multiple payment solutions that are marketed to consumers and businesses nationwide through financial institutions and other commercial entities. Other solutions facilitate the movement of funds between an entity and the audience they serve, typically a consumer.
On September 3, 2021, the Company's Board of Directors authorized a new stock repurchase program pursuant to which the Company may repurchase up to an additional 6,000,000 shares of the Company's outstanding common stock on or before September 30, 2024.
The program authorized the Company to repurchase up to 7,500,000 shares of the Company's outstanding common stock through December 31, 2022. On September 3, 2021, the Company's Board of Directors authorized a stock repurchase program pursuant to which the Company may repurchase up to an additional 6,000,000 shares of the Company's outstanding common stock on or before September 30, 2024.
As part of our DEI strategy, we train our internal recruiters on how to mitigate unconscious bias in the hiring process and how to assemble diverse candidate slates for open positions. Talent Assessment and Development Assessing talent and leadership development are also critical areas to our talent pipeline strategy. We have continued to mature our enterprise talent management framework.
As part of our DEI strategy, we train our internal recruiters on how to mitigate unconscious bias in the hiring process and how to assemble diverse candidate slates for open positions. 35 Table of Contents Talent Assessment and Development Assessing talent and leadership development are also critical areas to our talent pipeline strategy.
ASU 2016-13 requires the use of a current expected credit losses ("CECL") methodology to determine the allowance for credit losses ("ACL") for loans and debt securities held to maturity.
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments requires the use of a current expected credit losses ("CECL") methodology to determine the allowance for credit losses ("ACL") for loans and debt securities held to maturity.
The OCC’s 2023 supervisory plan provides the foundation for policy initiatives and for supervisory strategies as applied to national banks as well as their technology service providers. OCC staff members use the supervisory plan to guide their supervisory priorities, planning, and resource allocations.
The OCC’s 2024 supervisory plan provides the foundation for policy initiatives and for supervisory strategies as applied to national banks as well as their third-party service providers subject to OCC examination. OCC staff members use the supervisory plan to guide their supervisory priorities, planning, and resource allocations.
This framework is used throughout the company to better equip Pathward to have clear line of sight on their teams’ strengths and opportunities, by identifying capabilities needed to achieve our strategy and creating action plans to close gaps.
We continue to mature and expand our talent management framework. This framework is used throughout the company to better equip Pathward to have clear line of sight on its teams’ strengths and opportunities, by identifying capabilities needed to achieve our strategy and creating action plans to close gaps.
For the fiscal year ended September 30, 2022, dividends paid by the FHLB to the Bank totaled $0.3 million.
For the fiscal year ended September 30, 2023, dividends paid by the FHLB to the Bank totaled $0.5 million.
In periods of economic uncertainty, the Company’s ability to originate large dollar volumes of loans and leases may be substantially reduced or restricted, with a resultant decrease in related loan origination fees, other fee income and operating earnings.
In periods of economic uncertainty, the Company’s ability to originate large dollar volumes of loans and leases may be substantially reduced or restricted, with a resultant decrease in related loan origination fees, other fee income and operating earnings. In addition, the Company’s ability to sell loans may substantially decrease if potential buyers reduce their purchasing activities.
At September 30, 2022, the Company’s loans and leases receivable, net of allowance for credit losses, totaled $3.49 billion, or 52% of the Company’s total assets, as compared to $3.54 billion, or 53%, at September 30, 2021.
At September 30, 2023, the Company’s loans and leases receivable, net of allowance for credit losses, totaled $4.32 billion, or 57% of the Company’s total assets, as compared to $3.49 billion, or 52%, at September 30, 2022.
Borrowings, including FHLB advances, overnight federal funds purchased, repurchase agreements, other short-term borrowings, and funds available through the FRB Discount Window, may be used at times to compensate for seasonal reductions in deposits or deposit inflows at less than projected levels, may be used on a longer-term basis to support expanded lending activities, and may also be used to match the funding of a corresponding asset.
Borrowings, including FHLB advances, overnight federal funds purchased, repurchase agreements, other short-term borrowings, and funds available through the FRB Discount Window, may be used at times to compensate for seasonal reductions in deposits or deposit inflows at less than projected levels, may be used to compensate for short-term delays in deposit funding, may be used on a longer-term basis to support expanded lending activities, and may also be used to match the funding of a corresponding asset. 17 Table of Contents Deposits The Company offers a variety of deposit accounts having a wide range of interest rates and terms.
The Company considers these relationships as being in the process of collection. Insurance premium finance loans, consumer finance and tax services loans are generally not placed on non-accrual status, but are instead written off when the collection of principal and interest become doubtful. The table below sets forth the amounts and categories of the Company’s nonperforming assets.
Insurance premium finance loans, consumer finance and tax services loans are generally not placed on non-accrual status, but are instead written off when the collection of principal and interest become doubtful. 9 Table of Contents The table below sets forth the amounts and categories of the Company’s nonperforming assets.
The Small Dollar Rule, however, has been the subject of further regulatory review and a court order staying compliance in connection with a legal challenge. The Bureau issued its final Small Dollar Rule on July 22, 2020, which became fully effective on October 20, 2020.
The Small Dollar Rule, however, has been the subject of further regulatory review and a court order staying compliance in connection with a legal challenge. 27 Table of Contents The Bureau issued its final Small Dollar Rule on July 22, 2020.
Demographics The following table describes the composition of our workforce as of September 30, 2022: Employee Type 9/30/2021 9/30/2022 Change Full-time 1,121 1,139 1.6% All Other Types 13 15 15.4% Total Employees 1,134 1,154 1.8% Women 56% Minorities 19% Diversity, Equity and Inclusion ("DEI") We place immense value on the diversity of our employees, and we are proud of our commitment to treating our employees with dignity and respect through an inclusive work environment.
Demographics The following table describes the composition of our workforce as of September 30, 2023: Employee Type 9/30/2022 9/30/2023 Change Full-time 1,139 1,192 4.6% All Other Types 15 7 (53.0)% Total Employees 1,154 1,199 3.8% Women 56% Minorities 20% Diversity, Equity and Inclusion ("DEI") We value the diversity of our employees, and we are proud of our commitment to treating our employees with dignity and respect through an inclusive work environment.
The assessments are paid to the OCC on a semi-annual basis. During the fiscal year ended September 30, 2022, the Bank paid assessments (standard assessments) of $944,848 to the OCC.
The assessments are paid to the OCC on a semi-annual basis. During the fiscal year ended September 30, 2023, the Bank paid assessments (standard assessments) of $734,217 to the OCC.
At September 30, 2022, the Company had $13.4 million in nonaccruing loans and leases, which constituted 0.4% of the Company's gross loan and lease portfolio. At September 30, 2021, the Company had $34.2 million in nonaccruing loans which also constituted 0.9% of its gross loan and lease portfolio.
At September 30, 2023, the Company had $37.4 million in nonaccruing loans and leases, which constituted 0.8% of the Company's gross loan and lease portfolio. At September 30, 2022, the Company had $13.4 million in nonaccruing loans which constituted 0.4% of its gross loan and lease portfolio.
Adequately capitalized banks, in general, cannot pay dividends or make any capital contributions that would leave them undercapitalized; they cannot pay a management fee to a controlling person if, after paying the fee, they would be undercapitalized; and they cannot accept, renew or roll over any brokered deposit unless they have applied for and been granted a waiver by the FDIC.
Adequately capitalized banks, in general, cannot pay dividends or make any capital contributions that would leave them undercapitalized; they cannot pay a management fee to a controlling person if, after paying the fee, they would be undercapitalized; and they cannot accept, renew or roll over any brokered deposit unless they have applied for and been granted a waiver by the FDIC. 30 Table of Contents The activities of an “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized” bank are further restricted.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeCongress or otherwise may adversely impact our tax refund processing and settlement business, which could reduce customer demand for our strategic partner's refund advance products, thereby reducing the volume of refund advance loans that we may offer. 48 Table of Contents The Bureau has reshaped certain consumer financial laws through rulemaking and enforcement of prohibitions against unfair, deceptive or abusive practices, and such actions have directly impacted, and may continue to impact, the Bank's consumer financial products and service offerings.
Biggest changeFor example, any changes in the U.S. tax laws as a result of pending tax legislation in the U.S. Congress or otherwise may adversely impact our tax refund processing and settlement business, which could reduce customer demand for our strategic partner's refund advance products, thereby reducing the volume of refund advance loans that we may offer.
For example, if our underwriting practices or criteria fail to adequately identify, price, and mitigate credit risks, such as risks related to continued economic disruption and the risk in our refund advance loan portfolio that the IRS or the relevant state revenue department does not pay our customer's tax refund in full or the risk that any of our EROs will facilitate or engage in malfeasance or offer the Bank's products and services in a manner that does not comply with applicable law or contractual representations, warranties and covenants, it is possible that losses in our loan portfolio will exceed the amounts the Bank has set aside for loss reserves and result in reduced interest income and increased provision for loan losses, which could have an adverse effect on our financial condition and results of operations.
For example, if our underwriting practices or criteria fail to adequately identify, price, and mitigate credit risks, such as risks related to continued economic disruption and the risk in our refund advance loan portfolio that the IRS or the relevant state revenue department does not pay our customer's tax refund in full or the risk that any of our EROs will facilitate or engage in malfeasance or offer the Bank's products and services in a manner that does not comply with applicable law or contractual representations, warranties and covenants, it is possible that losses in our loan portfolio will exceed the amounts the Bank has set aside for loss reserves and result in reduced interest income and increased provision for credit losses, which could have an adverse effect on our financial condition and results of operations.
The possible inability to realize these tax credits and other tax benefits would have a negative impact on our financial results. Through our Commercial Finance business line, we engage in equipment leasing activities; the residual value of leased equipment at the time of its disposition may be less than forecasted at the time we entered into the lease.
The possible inability to realize these tax credits and other tax benefits would have a negative impact on our financial results. The residual value of leased equipment at the time of its disposition may be less than forecasted at the time we entered into the lease. Through our Commercial Finance business line, we engage in equipment leasing activities.
See also "If our actual loan and lease losses exceed our allowance for credit losses, our net income will decrease." The electronic payments industry, including the prepaid financial services segment within that industry in which the BaaS business line operates, depends heavily upon the overall level of consumer spending, which may decrease if economic or political conditions in the United States further deteriorate and result in a reduction of the number of our prepaid accounts that are purchased or reloaded, the number of transactions involving our cards and the use of our reloadable card products and related services.
See also "If our actual loan and lease losses exceed our allowance for credit losses, our net income will decrease." The electronic payments industry, including the prepaid financial services segment within that industry in which the BaaS business line operates, depends heavily upon the overall level of consumer spending, which may decrease if economic or political conditions in the United States deteriorate and result in a reduction of the number of our prepaid accounts that are purchased or reloaded, the number of transactions involving our cards and the use of our reloadable card products and related services.
If one or more of these events occurs, it could result in the disclosure of confidential customer information, impairment of our ability to provide products and services to our customers, damage to our reputation with our customers and the market, additional costs (such as costs for repairing systems or adding new personnel or protection technologies), regulatory penalties, and financial losses for us, our clients and other third parties.
If one or more of these events occurs, it could result in the disclosure of confidential customer information, impairment of our ability to provide products and services to our customers, damage to our reputation with our customers and the market, additional costs (such as costs for repairing systems or adding new personnel or protection technologies), regulatory penalties, and financial losses for us, our customers and other third parties.
Intended to promote economic opportunity and spur financial innovation, SPNBs may engage in paying checks, lending money and taking deposits. While the OCC has not granted any SPNB charters as of the date of this filing, it has granted bank charters to companies that were previously non-bank fintech companies.
Intended to promote economic opportunity and spur financial innovation, SPNBs may engage in paying checks, lending money and taking deposits. While the OCC has not granted any SPNB charters as of the date of this filing, it has granted national bank charters to companies that were previously non-bank fintech companies.
The competition for qualified personnel in the financial services industry is intense, and the loss of any of our key personnel or an inability to continue to attract, retain, and motivate key personnel could adversely affect our business. We and our divisions regularly assess our investments in technology, and changes in technology could be costly.
The competition for qualified personnel in the financial services industry is intense, and the loss of any of our key personnel or an inability to continue to attract, retain, and motivate key personnel could adversely affect our business. We regularly assess our investments in technology, and changes in technology could be costly.
In addition to our current regulatory requirements, banks with $10 billion or more in total assets are, among other things: examined directly by the CFPB with respect to various federal consumer financial laws; subject to reduced dividends on the Bank’s holdings of Federal Reserve Bank of Minneapolis common stock; subject to limits on interchange fees pursuant to the Durbin Amendment to the Dodd-Frank Act; subject to certain enhanced prudential standards; no longer treated as a “small institution” for FDIC deposit insurance assessment purposes; and no longer eligible to elect to be subject to the Community Bank Leverage ratio.
In addition to our current regulatory requirements, banks with $10 billion or more in total assets are, among other things: examined directly by the Bureau with respect to various federal consumer financial laws; subject to reduced dividends on the Bank’s holdings of Federal Reserve Bank of Minneapolis common stock; subject to limits on interchange fees pursuant to the Durbin Amendment to the Dodd-Frank Act; subject to certain enhanced prudential standards; no longer treated as a “small institution” for FDIC deposit insurance assessment purposes; and no longer eligible to elect to be subject to the Community Bank Leverage ratio.
As an SEC reporting company, we are required to, among other things, maintain a system of effective internal control over financial reporting, which requires annual management and independent registered public accounting firm assessments of the effectiveness of our internal controls.
As a SEC reporting company, we are required to, among other things, maintain a system of effective internal control over financial reporting, which requires annual management and independent registered public accounting firm assessments of the effectiveness of our internal controls.
In some cases, such agreements may permit the third party to unilaterally prescribe certain business practices and procedures with respect to the Bank and its divisions (as is the case under agreements between Payments and Discover, MasterCard, Visa and other card networks) or terminate the agreement early under certain circumstances (as is the case under our program management agreement with EFS with respect to certain H&R Block financial services if the Bank should lose its exemption from the “Durbin Amendment”).
In some cases, such agreements may permit the third party to unilaterally prescribe certain business practices and procedures with respect to the Bank and its business lines (as is the case under agreements between Payments and Discover, MasterCard, Visa and other card networks) or terminate the agreement early under certain circumstances (as is the case under our program management agreement with EFS with respect to certain H&R Block financial services if the Bank should lose its exemption from the “Durbin Amendment”).
If a partner becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to remit proceeds to our card issuing bank from the sales of our products and services, we are liable for any amounts owed to our customers. At September 30, 2022, we had assets subject to settlement risk of $269.0 million.
If a partner becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to remit proceeds to our card issuing bank from the sales of our products and services, we are liable for any amounts owed to our customers. At September 30, 2023, we had assets subject to settlement risk of $269.0 million.
See “Funding Activities – Deposits” for further breakdown of balances as of September 30, 2022. We are not insured against these settlement or partner risks. Our business strategy includes plans for organic growth, and our financial condition and results of operation could be adversely affected if we fail to grow or fail to manage our growth effectively.
See “Funding Activities – Deposits” for further breakdown of balances as of September 30, 2023. We are not insured against these settlement or partner risks. Our business strategy includes plans for organic growth, and our financial condition and results of operation could be adversely affected if we fail to grow or fail to manage our growth effectively.
Such events could also cause interruptions or malfunctions in the operations of our clients, customers, or other third parties with which we engage in business.
Such events could also cause interruptions or malfunctions in the operations of our customers, or other third parties with which we engage in business.
In addition, were we to lose any of our significant third-party providers, including in our refund advance related business in which we have a limited number of partners, it could cause a material disruption in our ability to service our customers, which also could have an adverse material impact on the Bank, its divisions and, ultimately, us.
In addition, were we to lose any of our significant third-party providers, including in our refund advance related business in which we have a limited number of partners, it could cause a material disruption in our ability to service our customers, which also could have an adverse material impact on the Bank, its business lines and, ultimately, us.
Certain provisions of our charter documents and federal regulations could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. In addition, we may need to obtain approval from regulatory authorities before we can acquire control of any other company.
Certain provisions of our organizational documents and federal regulations could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. In addition, we may need to obtain approval from regulatory authorities before we can acquire control of any other company.
We encounter significant competition in all of our market areas and national business lines from other commercial banks, savings and loan associations, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial intermediaries, including but not limited to fintech or neobank financial intermediaries.
We encounter significant competition in all of our market areas and national business lines from other commercial banks, savings and loan associations, credit unions, mortgage banking firms, consumer finance companies, factoring companies, card issuers, securities brokerage firms, insurance companies, money market mutual funds and other financial intermediaries, including but not limited to fintech or neobank financial intermediaries.
External factors, such as regulatory reception, compliance with regulations and guidance, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service.
External factors, such as regulatory reception, compliance with regulations and guidance, developing laws and regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service.
The amount of any impairment charge could be significant and could have a material adverse impact on our financial condition and results of operations for the period in which the charge is taken. We may incur losses due to fraudulent and negligent acts, as well as errors, by third parties or our employees.
The amount of any impairment charge could be significant and could have a material adverse impact on our financial condition and results of operations for the period in which the charge is taken. 45 Table of Contents We may incur losses due to fraudulent and negligent acts, as well as errors, by third parties or our employees.
To the extent we incur losses from disputed transactions, our business, results of operations and financial condition could be materially and adversely affected. 43 Table of Contents We are exposed to settlement and other losses from payments customers. Our cardholders can incur charges in excess of the funds available in their accounts, and we may become liable for these overdrafts.
To the extent we incur losses from disputed transactions, our business, results of operations and financial condition could be materially and adversely affected. We are exposed to settlement and other losses from payments customers. Our cardholders can incur charges in excess of the funds available in their accounts, and we may become liable for these overdrafts.
Our earnings depend substantially on our interest rate spread, which is the difference between (i) the rates we earn on loans, securities, and other earning assets, and (ii) the interest rates we pay on deposits and other borrowings.
Our earnings depend substantially on our interest rate spread, which is the difference between (i) the interest rates we earn on loans, securities, and other interest-earning assets, and (ii) the interest rates we pay on deposits, other borrowings, and other interest-bearing liabilities.
Other cases have also included other claims, including racketeering and other state law claims, in their challenge of such programs. 46 Table of Contents In 2020, the OCC issued final rules designed to clarify when a national bank such as the Bank will be considered the “true lender” in such relationships (the "True Lender Rule").
Other cases have also included other claims, including racketeering and other state law claims, in their challenge of such programs. In 2020, the OCC issued final rules designed to clarify when a national bank such as the Bank will be considered the “true lender” in such relationships (the "True Lender Rule").
We, through the Bank and its divisions, originate various types of loans and leases, and our financial condition and results of operations are affected by the ability of borrowers to repay their loans or leases in a timely manner. Borrowers may be unable to repay their loans due to various factors, some of which are outside of their control.
We, through the Bank and its business lines, originate various types of loans and leases, and our financial condition and results of operations are affected by the ability of borrowers to repay their loans or leases in a timely manner. Borrowers may be unable to repay their loans due to various factors, some of which are outside of their control.
Because we must use assumptions to establish our allowance for credit losses, the current allowance for credit losses may not be sufficient to cover actual loan and lease losses, and increases in the allowance, which may be significant, may be necessary.
Because we must use assumptions to establish our allowance for credit losses, the current allowance for credit losses may not be sufficient to cover actual credit losses, and increases in the allowance, which may be significant, may be necessary.
These events or circumstances could include a significant change in the business climate, legal and regulatory factors, competition, a decrease in our stock price and market capitalization over a sustained period of time, a sustained decline in a reporting unit's fair value or other operating 44 Table of Contents performance indicators.
These events or circumstances could include a significant change in the business climate, legal and regulatory factors, competition, a decrease in our stock price and market capitalization over a sustained period of time, a sustained decline in a reporting unit's fair value or other operating performance indicators.
During the course of implementing new technology into our or the Bank's operations, we may experience system interruptions and failures. In addition, there can be no assurances that we will recognize, in a timely manner 47 Table of Contents or at all, the benefits that we may expect as a result of our implementing new technology into our operations.
During the course of implementing new technology into our or the Bank's operations, we may experience system interruptions and failures. In addition, there can be no assurances that we will recognize, in a timely manner or at all, the benefits that we may expect as a result of our implementing new technology into our operations.
If the cost of coverage becomes too high, we may need to reduce our policy limits, increase the deductibles or agree to certain exclusions from our coverage in order to reduce the premiums to an acceptable amount. 53 Table of Contents Item 1B. Unresolved Staff Comments. None.
If the cost of coverage becomes too high, we may need to reduce our policy limits, increase the deductibles or agree to certain exclusions from our coverage in order to reduce the premiums to an acceptable amount. Item 1B. Unresolved Staff Comments. None.
Any resulting deterioration in our loan portfolio could also cause a decrease in our capital, which would make it more difficult to maintain regulatory capital compliance.
Any resulting deterioration in our loan and lease portfolio could also cause a decrease in our capital, which would make it more difficult to maintain regulatory capital compliance.
Risks and exposures related to cybersecurity attacks have increased as a result of the COVID-19 pandemic and the related increased reliance on remote working, and are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, the proliferation of malicious actors internationally, and the expanding use of technology-based products and services by us and our customers.
Risks and exposures related to cybersecurity attacks have increased as a result of greater reliance on remote working, and are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, the proliferation of malicious actors internationally, and the expanding use of technology-based products and services by us and our customers.
In addition, price and profitability targets for new lines of business or new products or services may not prove feasible, as we, the Bank or any of the Bank's divisions may need to price products and services on less advantageous terms than anticipated to retain or attract clients.
In addition, price and profitability targets for new lines of business or new products or services may not prove feasible, as we, the Bank or any of the Bank's business lines may need to price products and services on less advantageous terms than anticipated to retain or attract customers.
We and the third parties with which we conduct business may experience security breaches, due in part to the failure of our data encryption technologies or otherwise, involving the receipt, transmission, and storage of confidential customer and other personally identifiable information, including account takeovers, unavailability of service, computer viruses, or other malicious code, cyberattacks, or other events, any of which may arise from human error, fraud or malice on the part of employees or third parties or from accidental technological failure.
We and the third parties with which we conduct business are subject to security breaches, which may be due to the failure of our data encryption technologies or otherwise, involving the receipt, transmission, and storage of confidential customer and other personally identifiable information, including account takeovers, unavailability of service, computer viruses, or other malicious code, cyberattacks, or other events, any of which may arise from human error, fraud or malice on the part of employees or third parties or from accidental technological failure.
We may experience significant loan and lease losses due to nonpayment by our borrowers, which could have a material adverse effect on our overall financial condition and results of operation, as well as the value of our common stock.
We may experience significant credit losses due to nonpayment by our borrowers, which could have a material adverse effect on our overall financial condition and results of operation, as well as the value of our common stock.
Should any event triggering such policies occur, however, it is possible that our policies would not fully reimburse us for the losses we could sustain due to deductible limits, policy limits, coverage limits, or other factors. We generally renew our insurance policies on an annual basis.
Should any event triggering such policies occur, however, it is possible that our policies would not fully reimburse us for the losses we could sustain due to deductible limits, policy limits, coverage limits, or other factors. 55 Table of Contents We generally renew our insurance policies on an annual basis.
Because the loans originated under such programs are 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.
Because the loans originated under such programs are unsecured, in the event a borrower does not repay the loan in accordance with its terms or otherwise 47 Table of Contents 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.
In such event, such a result could produce material adverse consequences for the Bank with respect to liquidity and could also have material adverse effects on our financial condition and results of operations.
In such event, such a result could produce material adverse consequences for the Bank with 51 Table of Contents respect to liquidity and could also have material adverse effects on our financial condition and results of operations.
Our regulators may also consider our preparation for compliance with 49 Table of Contents these regulatory requirements in the course of examining our operations generally or when considering any request from us or the Bank.
Our regulators may also consider our preparation for compliance with these regulatory requirements in the course of examining our operations generally or when considering any request from us or the Bank.
Similarly, if a significant program manager was not replaced, we may be required to seek higher-rate funding sources as compared to the existing program manager or see a significant reduction in fee income. We are exposed to fraud losses from customer accounts.
Similarly, if a significant program manager relationship was not replaced, we may be required to seek higher-rate funding sources as compared to the existing program manager relationship or see a significant reduction in fee income. 43 Table of Contents We are exposed to fraud losses from customer accounts.
We will become subject to reduced interchange income and could face related adverse business consequences if our total assets grow in excess of $10 billion as of December 31 of any calendar year.
We will become subject to reduced interchange income and could face related adverse business consequences if our total assets exceed $10 billion as of December 31 of any calendar year.
The level of uncertainty concerning economic 40 Table of Contents conditions may adversely affect the accuracy of our estimates which may, in turn, impact the reliability of our underwriting processes.
The level of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates which may, in turn, impact the reliability of our underwriting processes.
Further, risk mitigation techniques and the judgments that accompany their application cannot 39 Table of Contents anticipate every economic and financial outcome or the specific circumstances and timing of such outcomes, which may result in the Bank or any of its divisions incurring unexpected losses.
Further, risk mitigation techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the specific circumstances and timing of such outcomes, which may result in the Bank or any of its business lines incurring unexpected losses.
The Bank relies on brokered deposits to assist in funding its loan and other financing products; accordingly, any change in the Bank's ability to gather brokered deposits may adversely impact the Bank. Failure to maintain the Bank's status as a "well capitalized" institution could have an adverse effect on us, and our ability to fund our operations.
Failure to maintain the Bank's status as a "well capitalized" institution could have an adverse effect on us, and our ability to fund our operations. The Bank relies on brokered deposits to assist in funding its loan and other financing products.
Agreements that the Bank has entered into with third parties to market and service consumer loans originated by the Bank may subject the Bank to credit risk, fraud and other risks, as well as claims from regulatory agencies and third parties that, if successful, could negatively impact the Bank's current and future business.
Agreements between the Bank and third parties to market and service Bank-originated consumer loans may subject the Bank to credit, fraud and other risks, as well as claims from regulatory agencies and third parties that, if successful, could negatively impact the Bank's current and future business.
Substantial risks and uncertainties are associated with developing and marketing new lines of business or new products or services, particularly in instances where markets are not fully developed, and we may be required to invest significant time and management and capital resources in connection with such new lines of business or new products or services.
Substantial risks and uncertainties are associated with developing and marketing new lines of business or new products or services, particularly in instances where markets are not fully developed or when the laws and regulations regarding a new product are not mature, and we may be required to invest significant time and management and capital resources in connection with such new lines of business or new products or services.
The loss or transition of key members of our senior management team or key employees in the Bank's divisions, or our inability to attract and retain qualified personnel, could adversely affect our business. We believe that our success depends largely on the efforts and abilities of our senior executive management team. Their experience and industry contacts significantly benefit us.
The loss or transition of key members of our senior management team or key employees in the Bank's divisions, or our inability to attract and retain qualified personnel, could adversely affect our business. We believe that our success depends largely on the efforts and abilities of our senior executive management team and other key employees.
In addition, the Bank is subject to regulation by the FDIC and, to a lesser degree, the Bureau. Prepaid card issuers like the Bank are also subject to heightened regulatory scrutiny based on AML and Bank Secrecy Act concerns, which scrutiny could result in higher compliance costs. See Part I, Item 1 "Business - Regulation and Supervision" herein.
In addition, the Bank is subject to regulation by the FDIC and, to a lesser degree, the Bureau. Prepaid card issuers like the Bank are also subject to heightened regulatory scrutiny based on AML and Bank Secrecy Act concerns, which scrutiny could result in higher compliance costs.
We cannot provide any assurance that our monitoring procedures and policies will reduce certain lending risks or that our allowance for credit losses will be adequate to cover actual losses. The earnings of financial services companies, like us, are significantly affected by general business, political and economic conditions.
We cannot provide any assurance that our monitoring 39 Table of Contents procedures and policies will reduce certain lending risks or that our allowance for credit losses will be adequate to cover actual losses. Our earnings are significantly affected by general business, political and economic conditions.
Such approvals could involve significant expenses related to diligence, legal compliance, and the submission of required applications and could be conditioned on acts or practices that limit or otherwise constrain our operations. We may not be able to pay dividends in the future in accordance with past practice. We have historically paid a quarterly dividend to stockholders.
Such approvals could involve significant expenses related to diligence, legal compliance, and the submission of required applications and could be conditioned on acts or practices that limit or otherwise constrain our operations. 54 Table of Contents We may not be able to pay dividends in the future in accordance with past practice.
We have continued to experience considerable growth recently, having 50 Table of Contents increased our assets from $2.53 billion at September 30, 2015 to $6.75 billion at September 30, 2022, primarily due to strategic transactions, such as the Crestmark Acquisition, through participation in government stimulus programs such as the EIP, and through organic growth.
We have continued to experience considerable growth recently, having increased our assets from $2.53 billion at September 30, 2015 to $7.54 billion at September 30, 2023, primarily due to strategic transactions, such as the Crestmark Acquisition, through participation in government stimulus programs such as the EIP, and through organic growth.
The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. Moreover, the impact of the COVID-19 pandemic and recent geopolitical turmoil may also have the effect of heightening many of the risks and uncertainties described in the risks discussed below.
The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. Moreover, certain events including geopolitical and financial market turmoil may also have the effect of heightening many of the risks and uncertainties described in the risks discussed below.
Moreover, our loss of eligibility under the exemption for small issuers could adversely affect or reduce our ability to maintain certain of our fee-sharing prepaid card partnerships, which have the right to terminate our agreement with respect to certain financial services under such circumstances.
Moreover, our loss of eligibility under the exemption for small issuers could adversely affect or reduce our ability to maintain certain of our fee-sharing prepaid card partnerships, which have the right to terminate our agreement with respect to certain financial services under such circumstances. Any change in the Bank's ability to gather brokered deposits may adversely impact the Bank.
State regulators may choose to initiate collection or other litigation action against prepaid card issuers, like Payments, for unreported abandoned property, and such actions may seek to assess fines and penalties.
State regulators may choose to initiate collection or other litigation action against prepaid card issuers, like Payments, for unreported abandoned property, and such actions may seek to assess fines and penalties and could have an adverse effect on our business.
General Risk Factors The price of our common stock may be volatile, which may result in losses for investors. The market price for shares of our common stock has been volatile in the past, and several factors, including factors outside of our control and unrelated to our performance, could cause the price to fluctuate substantially in the future.
The market price for shares of our common stock has been volatile in the past, and several factors, including factors outside of our control and unrelated to our performance, could cause the price to fluctuate substantially in the future.
In addition, federal and state regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or recognize loan charge-offs.
In addition, federal and state regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or recognize loan charge-offs. Material additions to our allowance would materially decrease our net income.
In addition, if the revenue and cash flows generated from any of our other acquired intangible assets is not sufficient to support its net book value, we may be required to record an impairment charge.
In addition, if the revenue and cash flows generated from any of our other acquired intangible assets is not sufficient to support its net book value, we may be required to record an impairment charge. The estimation of fair value involves a high degree of judgment and subjectivity in the assumptions used.
We are a legal entity separate and distinct from the Bank. Our primary source of cash, other than securities offerings, is dividends from the Bank. These dividends are a principal source of funds to pay dividends on our common stock, interest on our trust preferred securities and interest and principal on our debt.
Our ability to receive dividends from the Bank could affect our liquidity and ability to pay dividends on our common stock and interest on our trust preferred securities. We are a legal entity separate and distinct from the Bank. Our primary source of cash, other than securities offerings, is dividends from the Bank.
We may be required to apply a new or revised standard retroactively or apply an existing standard differently and retroactively, which may result in us being required to restate prior period financial statements, which restatements may reflect material changes.
We may be required to apply a new or revised standard retroactively or apply an existing standard differently and retroactively, which may result in us being required to restate prior period financial statements, which restatements may reflect material changes. Such changes could also require us to incur additional personnel and technology costs.
Negative publicity can result from actual or alleged conduct in a number of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, inadequate protection of customer data, illegal or unauthorized acts taken by third parties that supply products or services to us or the Bank, and behavior of our employees.
Negative publicity or reputational harm can result from actual or alleged conduct in a number of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, inadequate protection of customer data, illegal or unauthorized acts taken by third parties that supply products or services to us or the Bank, the behavior of our employees, the customers with whom we have chosen to do business, and negative publicity for other financial institutions.
The market value of used leased equipment depends on several factors, including: • the market price for new equipment that is similar; • the age and condition of the leased equipment at the time it is sold; • the supply of and demand for similar used equipment on the market; • technological advances relating to the leased equipment or similar equipment; and • economic conditions in the specific business or industry in which the equipment is used, as well as broader regional or national economic conditions. 41 Table of Contents We include in income from operations the difference between the sales price and the depreciated value of an item of leased equipment sold.
The market value of used leased equipment depends on several factors, including: • the market price for new equipment that is similar; • the age and condition of the leased equipment at the time it is sold; • the supply of and demand for similar used equipment on the market; • technological advances relating to the leased equipment or similar equipment; and • economic conditions in the specific business or industry in which the equipment is used, as well as broader regional or national economic conditions.
Some of our and the Bank's competitors have substantially greater resources and lending limits, may be subject to less regulation than we are, and may offer services that we do not or cannot provide.
Some of our and the Bank's competitors have substantially greater resources and lending limits, may be subject to less regulation than we are, may offer services that we do not or cannot provide and, due to their size and other factors, may be able to offer services at more competitive rates.
We can provide no assurances that the safeguards we have in place or may implement in the future will prevent all unauthorized infiltrations or breaches and that we will not suffer losses related to a security breach in the future, which losses may be material.
Cybersecurity risk and other security matters are also a major focus of regulatory authorities. We can provide no assurances that the safeguards we have in place or may implement in the future will prevent all unauthorized infiltrations or breaches and that we will not suffer losses related to a security breach in the future, which losses may be material.
Any such disruption in the information systems and other operating technologies utilized by the Bank or its divisions, including due to infiltration by hackers or other intruders, could also result in negative publicity and have a material adverse effect on our financial condition and results of operations.
Any such disruption in the information systems and other operating technologies utilized by the Bank or its divisions, including due to infiltration by hackers or other intruders, power loss, telecommunications failure, physical break-ins, or damage from fire, could also result in negative publicity, have a material adverse effect on our ability to obtain or retain customers, and have a material adverse effect on our financial condition and results of operations.
From time to time, we may implement new lines of business or offer new financial products or services within existing lines of business.
From time to time, we have implemented, and in the future, may implement new lines of business or offer new financial products or services within existing lines of business.
From time to time, the Financial Accounting Standards Board (the "FASB") and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements.
Our accounting policies are fundamental to determining and understanding our financial results and condition. From time to time, the Financial Accounting Standards Board (the "FASB") and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements.
We make various assumptions and subjective judgments about the collectability of our loan and lease portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of our loans and leases, which are subject to change.
If our actual credit losses exceed our allowance for credit losses, our net income will decrease. We make various assumptions and subjective judgments about the collectability of our loan and lease portfolio, including the creditworthiness of our borrowers and the value of the assets serving as collateral for the repayment of our loans and leases, which are subject to change.
Management transitions may create uncertainty and involve a diversion of resources and management attention, be disruptive to our daily operations or impact public or market perception, any of which could negatively impact our ability to operate effectively or execute our strategies and result in a material adverse impact on our business, financial condition, results of operations or cash flows.
Management transitions may create uncertainty and involve a diversion of resources and management attention, be disruptive to our daily operations or impact public or market perception, any of which could negatively impact our ability to operate effectively or execute our strategies and result in a material adverse impact on our business, financial condition, results of operations or cash flows. 48 Table of Contents As we continue to develop and expand our operations, we may require personnel with different skills and experiences, with a sound understanding of our business and the industries in which we operate.
This competition, and competition in any of the Bank's other divisions, may increase our costs, reduce our revenues or revenue growth, or make it difficult for us to compete effectively in obtaining additional customer relationships.
This competition, and competition in any of the Bank's other business lines, may increase our costs, reduce our revenues or revenue growth, result in fragmented market share and a failure to enjoy economies of scale or make it difficult for us to compete effectively in maintaining and obtaining additional customer relationships.
These factors include: • announcements of developments related to our business; • the initiation, pendency or outcome of litigation, regulatory reviews, inquiries and investigations, and any related adverse publicity; • fluctuations in our results of operations; • sales of substantial amounts of our securities into the marketplace; • general conditions in the banking industry or the worldwide economy; • a shortfall in revenues or earnings compared to securities analysts' expectations; • lack of an active trading market for the common stock; • changes in analysts' recommendations or projections; and • announcement of new acquisitions, dispositions or other projects.
These factors include: • announcements of developments related to our business; • the initiation, pendency or outcome of litigation, regulatory reviews, inquiries and investigations, and any related adverse publicity; • fluctuations in our results of operations; • sales of substantial amounts of our securities into the marketplace; • general conditions in the financial services industry or the worldwide economy; • operating and stock price performance of comparable companies, as deemed by investors; • geopolitical conditions, such as acts or threats of terrorism, military conflicts, the effects (or perceived effects) of pandemics and trade relations; • a shortfall in revenues or earnings compared to securities analysts' expectations; • lack of an active trading market for the common stock; • new technology used, or services offered, by competitors; • changes in analysts' recommendations or projections; and • announcement of new acquisitions, dispositions or other projects by the Company or our competitors.
See also “ The ongoing COVID-19 pandemic and resulting adverse economic conditions have adversely impacted, and could continue to adversely impact, our business and results .” The process we use to estimate losses inherent in our credit exposure requires difficult, subjective and complex judgments, including forecasts of economic conditions, and determinations as to whether economic conditions might impair the ability of our borrowers to repay their loans and leases.
The process we use to estimate losses inherent in our credit exposure requires difficult, subjective and complex judgments, including forecasts of economic conditions, and determinations as to whether economic conditions might impair the ability of our borrowers to repay their loans and leases.
General market price declines or market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.
General market price declines or market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices. Stock price volatility also may make it more difficult for our stockholders to resell their common stock when desired.
We rely heavily upon information systems and other operating technologies to efficiently operate and manage our business, including to process transactions through the Internet, including, in particular, in our BaaS business line.
Our reputation and financial condition may be harmed by system failures, computer viruses and other technological interruptions to our operations. We rely heavily upon information systems and other operating technologies to efficiently operate and manage our business, including to process transactions through the Internet, including, in particular, in our BaaS business line.
Legal challenges to and regulatory investigations of our, or the Bank's, operations could have a significant material adverse effect on us. From time to time, we, the Bank or our other subsidiaries are subject to regulatory supervision and investigation, legal proceedings and claims in the ordinary course of business.
From time to time, we, the Bank or our other subsidiaries are subject to regulatory supervision and investigation, legal proceedings and claims in the ordinary course of business.
The payment of dividends is subject to legal and regulatory restrictions. Any payment of dividends in the future will depend, in large part, on our earnings, capital requirements, financial condition, regulatory review, and other factors considered relevant by our Board of Directors. Catastrophic events could occur and impact our operations or the operations third parties with which we do business.
We have historically paid a quarterly dividend to stockholders. The payment of dividends is subject to legal and regulatory restrictions. Any payment of dividends in the future will depend, in large part, on our earnings, capital requirements, financial condition, regulatory review, and other factors considered relevant by our Board of Directors.
See also Part II, Item 9A "Controls and Procedures" of this Annual Report on Form 10-K. 52 Table of Contents Federal regulations and our organizational documents may inhibit a takeover or prevent a transaction you may favor or limit our growth opportunities, which could cause the market price of our common stock to decline.
Controls and Procedures - Inherent Limitations on the Effectiveness of Controls " if this Annual Report on Form 10-K for inherent limitations in a control system. Federal regulations and our organizational documents may inhibit a takeover, prevent a transaction you favor or limit our growth opportunities, causing the market price of our common stock to decline.
Before making an investment decision with respect to any of our securities, you should carefully consider the following risks and uncertainties described below and elsewhere in this Annual Report on Form 10-K. See “Forward-Looking Statements.” Risks Related to Our Industry and Business Our framework for managing risk, including our underwriting practices, may not prevent future losses.
Before making an investment decision with respect to any of our securities, you should carefully consider the following risks and uncertainties described below and elsewhere in this Annual Report on Form 10-K.
We are required to maintain capital to meet regulatory requirements, and, if we fail to maintain sufficient capital, whether due to growth opportunities, losses or an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as our compliance with regulatory requirements, would be adversely affected.
If we fail to maintain sufficient capital, our financial condition, liquidity, results of operations, and compliance with regulatory requirements would be adversely affected. Both we and the Bank are required to meet regulatory capital requirements and otherwise need to maintain sufficient liquidity to support recent and future growth.
Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund, or by any other public or private entity.
Securities litigation could result in substantial costs and divert management’s attention and resources from our normal business. An investment in our common stock is not an insured deposit. Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund, or by any other public or private entity.
In addition, changes to FDIC regulations regarding brokered deposits or interpretations of such regulations by federal banking agencies could have an adverse impact on the Bank’s ability to accept brokered deposits. As a bank holding company, we are required to serve as a "source of strength" for the Bank.
In addition, changes to FDIC regulations regarding brokered deposits or interpretations of such regulations by federal banking agencies could have an adverse impact on the Bank’s ability to accept brokered deposits. Additionally, brokered deposits are highly sensitive to changes in interest rates and, accordingly, can be a more volatile source of funding.
Our investments in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on our results of operations. We invest in certain tax-advantaged investments that support renewable energy resources.
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation – Liquidity and Capital Resources” of this Form 10-K. Our investments in certain tax-advantaged projects may not generate anticipated returns, causing an adverse impact on our results of operations. We invest in certain tax-advantaged investments that support renewable energy resources.
Such activities could also result in the imposition of regulatory sanctions, including significant monetary fines, and civil claims which could adversely affect our business, operating results and financial condition.
Such activities could also result in the imposition of regulatory sanctions, including significant monetary fines, and civil claims which could adversely affect our business, operating results and financial condition. Security breaches involving us, the Bank or any third parties with which we do business could expose us to liability and litigation, adversely affecting our reputation and operating revenues.
Our business could suffer if there is a decline in the use of prepaid cards or there are adverse developments with respect to the prepaid financial services industry in general. As the prepaid financial services industry evolves, consumers may find prepaid financial services to be less attractive than other financial services.
Our business could suffer if consumer behaviors, or other factors, in connection with the use of prepaid cards change, or there are adverse developments with respect to the prepaid financial services industry in general.
While we believe we are a leader in managing, monitoring and overseeing BaaS relationships with third parties and corresponding technologies, we could be subject to additional regulatory scrutiny with respect to that portion of our business.
While we believe we are a leader in managing, monitoring and overseeing BaaS relationships with third parties and corresponding technologies, we could be subject to additional regulatory scrutiny with respect to that portion of our business. 50 Table of Contents Increased scrutiny and evolving expectations from stakeholders with respect to environmental, social and governance ("ESG") practices may impose additional costs on us or expose us to new or additional risks.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Commercial Finance business line operates out of offices in Troy, Michigan; Franklin, Tennessee; and Toronto, Ontario, Canada. The Company has corporate and shared services offices located in Scottsdale, AZ and Washington, D.C. Of the Company's eight properties, the Company leases seven of them, all on market terms.
Biggest changeThe Commercial Finance business line operates out of offices in Troy, Michigan; Newport Beach, California; Franklin, Tennessee; Addison, Texas; and Toronto, Ontario, Canada. The Company has corporate and shared services offices located in Scottsdale, Arizona and Washington, D.C. Of the Company's 10 properties, the Company leases nine of them, all on market terms.
Item 2. Properties. The Company's home office is located at 5501 South Broadband Lane in Sioux Falls, South Dakota. The Company has eight non-branch offices from which its BaaS and Commercial Finance business lines operate. The BaaS business line operates out of the Company's home office along with additional offices in Louisville, Kentucky and Easton, Pennsylvania.
Item 2. Properties. The Company's corporate headquarters is located at 5501 South Broadband Lane in Sioux Falls, South Dakota. The Company has 10 non-branch offices from which its BaaS and Commercial Finance business lines operate. The BaaS business line operates out of the Company's corporate headquarters along with additional offices in Louisville, Kentucky and Easton, Pennsylvania.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe information contained in this section, including the following line graph, shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings of Pathward Financial with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent the Company specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended, or the Exchange Act.
Biggest changeThe information contained in this section, including the following line graph, shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings of Pathward Financial with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent the Company specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended, or the Exchange Act. 57 Table of Contents Fiscal Year Ended September 30, Index 2018 2019 2020 2021 2022 2023 Pathward Financial, Inc. $ 100.00 $ 119.36 $ 70.95 $ 194.58 $ 122.76 $ 172.38 NASDAQ Composite Index 100.00 100.52 141.70 184.58 136.12 171.65 NASDAQ ABA Community Bank Index 100.00 92.06 63.58 115.50 106.20 86.80 S&P 600 Financials Index 100.00 95.88 70.86 114.59 96.88 90.85 58 Table of Contents
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The Company’s common stock trades on the NASDAQ Global Select Market ® under the symbol “CASH.” Quarterly dividends for all quarters of fiscal years 2022 and 2021 were $0.05 per share.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The Company’s common stock trades on the NASDAQ Global Select Market ® under the symbol “CASH.” Quarterly dividends for all quarters of fiscal years 2023 and 2022 were $0.05 per share.
As of November 16, 2022, the Company had (i) 28,466,833 shares of common stock outstanding, which were held by approximately 214 stockholders of record, (ii) no shares of nonvoting common stock outstanding, and (iii) 147,344 shares of common stock held in treasury. The transfer agent for the Company’s common stock is Computershare Investor Services, P.O. Box 43006, Providence, RI 02940-3006.
As of November 15, 2023, the Company had (i) 25,989,063 shares of common stock outstanding, which were held by approximately 206 stockholders of record, (ii) no shares of nonvoting common stock outstanding, and (iii) 111,118 shares of common stock held in treasury. The transfer agent for the Company’s common stock is Computershare, P.O. Box 43078, Providence, RI 02940-3078.
Period Total Number of Shares Repurchased (1) Average Price Paid per Share (1)(2) Total Number Of Shares Purchased As Part of Publicly Announced Plans or Programs Additional Shares Authorized As Part of Publicly Announced Plans or Programs Maximum Number Of Shares that may yet be Purchased Under the Plans or Programs July 1 to 31 306,129 $ 40.55 305,700 — 4,562,477 August 1 to 31 — — — — 4,562,477 September 1 to 30 273,435 32.76 267,500 — 4,294,977 Total 579,564 573,200 — (1) Of the total number of shares acquired during the period, 6,364 shares were acquired in satisfaction of the tax withholding obligations of holders of restricted stock unit awards, which vested during the quarter.
Period Total Number of Shares Repurchased (1) Average Price Paid per Share (1)(2) Total Number Of Shares Purchased As Part of Publicly Announced Plans or Programs Additional Shares Authorized As Part of Publicly Announced Plans or Programs Maximum Number Of Shares that may yet be Purchased Under the Plans or Programs July 1 to 31 311,727 $ 51.29 311,727 — 1,666,436 August 1 to 31 — — — 7,000,000 8,666,436 September 1 to 30 7,477 46.07 — — 8,666,436 Total 319,204 311,727 7,000,000 (1) Of the total number of shares acquired during the period, 7,477 shares were acquired in satisfaction of the tax withholding obligations of holders of restricted stock unit awards, which vested during the quarter.
On September 3, 2021, the Company's Board of Directors authorized an additional 6,000,000 share repurchase program that was publicly announced on September 7, 2021 and is scheduled to expire on September 30, 2024. The table below sets forth information regarding repurchases of our common stock during the fiscal 2022 fourth quarter.
On September 3, 2021, the Company's Board of Directors authorized a 6,000,000 share repurchase program that was publicly announced on September 7, 2021 and is scheduled to expire on September 30, 2024. The Company's Board of Directors authorized an additional 7,000,000 share repurchase program that was publicly announced on August 25, 2023 and is scheduled to expire September 30, 2028.
(2) The average price paid per share is calculated on a trade date basis for all open market transactions and excludes commissions and other transaction expenses. 55 Table of Contents Total Stock Return Performance Gra ph The following graph compares the cumulative total stockholder return on Pathward Financial common stock over the last five fiscal years with the cumulative total return of the NASDAQ Composite Index and the NASDAQ ABA Community Bank Index (assuming the investment of $100 in each index on October 1, 2017 and reinvestment of all dividends).
Total Stock Return Performance Graph The following graph compares the cumulative total stockholder return on Pathward Financial common stock over the last five fiscal years with the cumulative total return of the NASDAQ Composite Index, the NASDAQ ABA Community Bank Index, and the S&P 600 Financials Index (assuming the investment of $100 in each index on October 1, 2018 and reinvestment of all dividends).
Removed
The Company's Board of Directors authorized a 7,500,000 share repurchase program on November 20, 2019 that was publicly announced on November 20, 2019 and is scheduled to expire on December 31, 2022. All remaining shares available for repurchase under this program were repurchased during the fiscal 2022 first quarter.
Added
The table below sets forth information regarding repurchases of our common stock during the fiscal 2023 fourth quarter.
Removed
Fiscal Year Ended September 30, Index 2017 2018 2019 2020 2021 2022 Pathward Financial, Inc. $ 100.00 $ 106.00 $ 126.51 $ 75.20 $ 206.25 $ 130.12 NASDAQ Composite Index 100.00 125.17 125.82 177.36 231.03 170.37 NASDAQ ABA Community Bank Index 100.00 103.35 95.14 65.70 119.36 109.76 56 Table of Contents
Added
(2) The average price paid per share is calculated on a trade date basis for all open market transactions and excludes commissions and other transaction expenses.
Added
The Company determined to change from using the NASDAQ ABA Community Bank Index for purposes of the graph to the S&P 600 Financials Index as of September 30, 2023 to align with an index that better reflects the strategy and model of the Bank.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeNonaccruing loans and leases have been included in the table as loans or leases carrying a zero yield. 60 Table of Contents Fiscal Year Ended September 30, 2022 2021 2020 (Dollars in thousands) Average Outstanding Balance Interest Earned / Paid Yield / Rate (1) 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 $ 496,334 $ 3,535 0.71 % $ 1,919,760 $ 3,709 0.19 % $ 1,236,027 $ 2,824 0.23 % Mortgage-backed securities 1,292,804 26,846 2.08 % 728,884 12,155 1.67 % 367,869 9,028 2.45 % Tax exempt investment securities 183,936 3,565 2.45 % 281,573 4,004 1.80 % 434,262 7,477 2.18 % Asset-backed securities 283,752 3,898 1.37 % 388,458 5,340 1.37 % 319,258 7,636 2.39 % Other investment securities 268,062 6,274 2.34 % 239,283 4,566 1.91 % 198,924 4,748 2.39 % Total investments 2,028,554 40,583 2.05 % 1,638,198 26,065 1.66 % 1,320,313 28,889 2.34 % Commercial finance 2,884,585 203,004 7.04 % 2,549,335 188,855 7.41 % 2,100,464 169,189 8.05 % Consumer finance 295,356 23,097 7.82 % 248,757 19,940 8.02 % 254,293 19,808 7.79 % Tax services 179,611 12,978 7.23 % 214,835 7,321 3.41 % 148,650 6,390 4.30 % Warehouse finance 433,121 27,474 6.34 % 330,224 21,262 6.44 % 292,952 17,919 6.12 % Community banking 34,758 1,525 4.39 % 375,258 18,702 4.98 % 975,618 47,822 4.90 % Total loans and leases (3) 3,827,431 268,078 7.00 % 3,718,409 256,080 6.89 % 3,771,977 261,128 6.92 % Total interest-earning assets 6,352,319 $ 312,196 4.93 % 7,276,367 $ 285,854 3.94 % 6,328,317 $ 292,841 4.66 % Noninterest-earning assets 751,555 849,141 881,314 Total assets $ 7,103,874 $ 8,125,508 $ 7,209,631 Interest-bearing liabilities: Interest-bearing checking $ 338 $ 1 0.32 % $ 254,236 $ — — % $ 189,704 $ 259 0.14 % Savings 78,613 24 0.03 % 81,619 16 0.02 % 50,888 18 0.03 % Money markets 96,112 214 0.22 % 58,656 204 0.35 % 57,573 422 0.73 % Time deposits 8,493 38 0.45 % 13,081 139 1.06 % 61,837 1,226 1.98 % Wholesale deposits 63,529 223 0.35 % 150,213 1,234 0.82 % 1,081,935 20,691 1.91 % Total interest-bearing deposits 247,085 500 0.20 % 557,805 1,593 0.29 % 1,441,937 22,616 1.57 % Overnight fed funds purchased 32,414 235 0.73 % 6 — 0.25 % 183,438 2,804 1.53 % FHLB Advances — — — % — — — % 106,093 2,638 2.49 % Subordinated debentures 46,441 3,375 7.27 % 73,886 4,507 6.10 % 73,718 4,618 6.26 % Other borrowings 17,490 762 4.36 % 21,549 763 3.54 % 28,696 1,127 3.93 % Total borrowings 96,345 4,372 4.54 % 95,441 5,270 5.52 % 391,945 11,187 2.85 % Total interest-bearing liabilities 343,430 4,872 1.42 % 653,246 6,863 1.05 % 1,833,882 33,803 1.84 % Noninterest-bearing deposits 5,776,852 — — % 6,440,830 — — % 4,396,132 — — % Total deposits and interest-bearing liabilities 6,120,282 $ 4,872 0.08 % 7,094,115 $ 6,863 0.10 % 6,230,014 $ 33,803 0.54 % Other noninterest-bearing liabilities 202,887 189,841 143,772 Total liabilities 6,323,169 7,283,956 6,373,786 Shareholders' equity 780,705 841,552 835,845 Total liabilities and shareholders' equity $ 7,103,874 $ 8,125,508 $ 7,209,631 Net interest income and net interest rate spread including noninterest-bearing deposits $ 307,324 4.85 % $ 278,992 3.84 % $ 259,038 4.12 % Net interest margin 4.84 % 3.83 % 4.09 % Tax-equivalent effect 0.01 % 0.01 % 0.03 % Net interest margin, tax equivalent (2) 4.85 % 3.84 % 4.12 % (1) Tax rate used to arrive at the TEY for the fiscal years ended September 30, 2022, 2021, and 2020 was 21%.
Biggest changeNonaccruing loans and leases have been included in the table as loans or leases carrying a zero yield. 62 Table of Contents Fiscal Year Ended September 30, 2023 2022 2021 (Dollars in thousands) Average Outstanding Balance Interest Earned / Paid Yield / Rate (1) 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 $ 316,222 $ 12,425 3.93 % $ 496,334 $ 3,535 0.71 % $ 1,919,760 $ 3,709 0.19 % Mortgage-backed securities 1,541,909 41,197 2.67 % 1,292,804 26,846 2.08 % 728,884 12,155 1.67 % Tax exempt investment securities 147,863 3,924 3.36 % 183,936 3,565 2.45 % 281,573 4,004 1.80 % Asset-backed securities 186,854 8,197 4.39 % 283,752 3,898 1.37 % 388,458 5,340 1.37 % Other investment securities 295,439 9,390 3.18 % 268,062 6,274 2.34 % 239,283 4,566 1.91 % Total investments 2,172,065 62,708 2.94 % 2,028,554 40,583 2.05 % 1,638,198 26,065 1.66 % Commercial finance 3,220,585 261,195 8.11 % 2,884,585 203,004 7.04 % 2,549,335 188,855 7.41 % Consumer finance 231,242 22,404 9.69 % 295,356 23,097 7.82 % 248,757 19,940 8.02 % Tax services 141,210 10,490 7.43 % 179,611 12,978 7.23 % 214,835 7,321 3.41 % Warehouse finance 343,168 29,513 8.60 % 433,121 27,474 6.34 % 330,224 21,262 6.44 % Community banking — — — % 34,758 1,525 4.39 % 375,258 18,702 4.98 % Total loans and leases (3) 3,936,205 323,602 8.22 % 3,827,431 268,078 7.00 % 3,718,409 256,080 6.89 % Total interest-earning assets 6,424,492 $ 398,735 6.23 % 6,352,319 $ 312,196 4.93 % 7,276,367 $ 285,854 3.94 % Noninterest-earning assets 585,719 751,555 849,141 Total assets $ 7,010,211 $ 7,103,874 $ 8,125,508 Interest-bearing liabilities: Interest-bearing checking $ 355 $ 1 0.30 % $ 338 $ 1 0.32 % $ 254,236 $ — — % Savings 65,175 25 0.04 % 78,613 24 0.03 % 81,619 16 0.02 % Money markets 137,024 461 0.34 % 96,112 214 0.22 % 58,656 204 0.35 % Time deposits 6,488 10 0.15 % 8,493 38 0.45 % 13,081 139 1.06 % Wholesale deposits 81,153 3,859 4.75 % 63,529 223 0.35 % 150,213 1,234 0.82 % Total interest-bearing deposits 290,195 4,356 1.50 % 247,085 500 0.20 % 557,805 1,593 0.29 % Overnight fed funds purchased 74,812 3,922 5.24 % 32,414 235 0.73 % 6 — 0.25 % Subordinated debentures 19,560 1,422 7.27 % 46,441 3,375 7.27 % 73,886 4,507 6.10 % Other borrowings 15,108 1,174 7.77 % 17,490 762 4.36 % 21,549 763 3.54 % Total borrowings 109,480 6,518 5.95 % 96,345 4,372 4.54 % 95,441 5,270 5.52 % Total interest-bearing liabilities 399,675 10,874 2.72 % 343,430 4,872 1.42 % 653,246 6,863 1.05 % Noninterest-bearing deposits 5,739,084 — — % 5,776,852 — — % 6,440,830 — — % Total deposits and interest-bearing liabilities 6,138,759 $ 10,874 0.18 % 6,120,282 $ 4,872 0.08 % 7,094,115 $ 6,863 0.10 % Other noninterest-bearing liabilities 200,054 202,887 189,841 Total liabilities 6,338,813 6,323,169 7,283,956 Shareholders' equity 671,398 780,705 841,552 Total liabilities and shareholders' equity $ 7,010,211 $ 7,103,874 $ 8,125,508 Net interest income and net interest rate spread including noninterest-bearing deposits $ 387,861 6.05 % $ 307,324 4.85 % $ 278,992 3.84 % Net interest margin 6.04 % 4.84 % 3.83 % Tax-equivalent effect 0.01 % 0.01 % 0.01 % Net interest margin, tax equivalent (2) 6.05 % 4.85 % 3.84 % (1) Tax rate used to arrive at the TEY for the fiscal years ended September 30, 2023, 2022, and 2021 was 21%.
The majority of these discount fundings relate to a small number of partners, and 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.
The majority of these discount fundings relate to a small number of partners and are analyzed on an ongoing basis. – Demand Deposit Account ("DDA") overdrafts: Certain programs offered allow cardholders traditional DDA overdraft protection services whereby cardholders can spend a limited amount in excess of their available card balance.
Impact of New Accounting Standards See Note 1 to the "Notes of Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, for information regarding recently issued accounting pronouncements. 69 Table of Contents
Impact of New Accounting Standards See Note 1 to the "Notes of Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, for information regarding recently issued accounting pronouncements. 70 Table of Contents
The Company believes that the level of allowance for credit losses at September 30, 2022 was appropriate and reflected probable losses related to these loans and leases; however, there can be no assurance that all loans and leases will be fully collectible or that the present level of the allowance will be adequate in the future.
The Company believes that the level of allowance for credit losses at September 30, 2023 was appropriate and reflected probable losses related to these loans and leases; however, there can be no assurance that all loans and leases will be fully collectible or that the present level of the allowance will be adequate in the future.
Although management believes the levels of the allowance for credit losses at September 30, 2022 and September 30, 2021 are adequate to absorb expected credit losses in the financial assets evaluated, a decline in local economic conditions or other factors could result in increasing losses.
Although management believes the levels of the allowance for credit losses at September 30, 2023 and September 30, 2022 are adequate to absorb expected credit losses in the financial assets evaluated, a decline in local economic conditions or other factors could result in increasing losses.
The cohort loss rate is a life of loan loss rate that immediately reverts to historical loss information for the remaining maturity of the financial asset. Management has elected to use a twelve-month reasonable and supportable forecast for forward-looking information.
The cohort loss rate is a life of loan loss rate that immediately reverts to historical loss information for the remaining maturity of the financial asset. Management has elected to use a twelve to twenty-four month reasonable and supportable forecast for forward-looking information.
See Note 8. Goodwill and Intangibles to the Consolidated Financial Statements for further information. 67 Table of Contents LIQUIDITY AND CAPITAL RESOURCES The Company’s primary sources of funds are deposits, derived principally through its BaaS business line, borrowings, principal and interest payments on loans and leases and mortgage-backed securities, and maturing investment securities.
See Note 8. Goodwill and Intangibles to the Consolidated Financial Statements for further information. LIQUIDITY AND CAPITAL RESOURCES The Company’s primary sources of funds are deposits, derived principally through its BaaS business line, borrowings, principal and interest payments on loans and leases and mortgage-backed securities, and maturing investment securities.
The ACL represents management’s estimate of current credit losses expected to be incurred by the loan and lease portfolio over the life of each financial asset as of the balance sheet date.
Allowance for Credit Losses . The ACL represents management’s estimate of current credit losses expected to be incurred by the loan and lease portfolio over the life of each financial asset as of the balance sheet date.
See Note 15 to the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Noninterest-bearing Checking Deposits.
See Note 15 to the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. 60 Table of Contents Noninterest-bearing Checking Deposits.
See the section below titled “Allowance for Credit Losses” for further information. 64 Table of Contents The table below sets forth the amounts and categories of the Company's nonperforming assets.
See the section below titled “Allowance for Credit Losses” for further information. 66 Table of Contents The table below sets forth the amounts and categories of the Company's nonperforming assets.
The Company’s noninterest income is derived primarily from tax product fees, prepaid cards, credit products, deposit and ATM fees attributable to the BaaS business line and fees charged on bank loans, leases and transaction accounts.
The Company’s noninterest income is derived primarily from tax product fees, card and deposit fees, credit products, and ATM fees attributable to the BaaS business line and fees charged on bank loans, leases and transaction accounts.
(3) Included in the yield computation are net loan fees of $33.7 million, $35.7 million, and $24.0 million for the fiscal years ended September 30, 2022, 2021 and 2020, respectively. 61 Table of Contents Rate / Volume Analysis The following table presents, for the periods presented, the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities.
(3) Included in the yield computation are net loan fees of $27.7 million, $33.7 million, and $35.7 million for the fiscal years ended September 30, 2023, 2022 and 2021, respectively. 63 Table of Contents Rate / Volume Analysis The following table presents, for the periods presented, the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities.
This income is offset by noninterest expenses, such as compensation and occupancy expenses associated with additional personnel and office locations, as well as card processing expenses and tax product expenses attributable to the Baas business line. Noninterest expense is also impacted by acquisition-related expenses, operating lease equipment depreciation expense, occupancy and equipment expenses, regulatory expenses, and legal and consulting expenses.
This income is offset by noninterest expenses, such as compensation and benefits associated with personnel, as well as card processing expenses and tax product expenses attributable to the Baas business line. Noninterest expense is also impacted by operating lease equipment depreciation expense, occupancy and equipment expense, legal and consulting expenses, and regulatory expense.
If an individually evaluated loan or lease is not collateral dependent, credit loss is measured at the present value of expected future cash flows discounted at the loan or lease initial effective interest rate. The Company's ACL totaled $45.9 million at September 30, 2022, a decrease compared to $68.3 million at September 30, 2021.
If an individually evaluated loan or lease is not collateral dependent, credit loss is measured at the present value of expected future cash flows discounted at the loan or lease initial effective interest rate. The Company's ACL totaled $49.7 million at September 30, 2023, an increase compared to $45.9 million at September 30, 2022.
Unless the context otherwise requires, references herein to the Company include Pathward Financial and the Bank, and all direct or indirect subsidiaries of Pathward Financial on a consolidated basis.
Unless the context otherwise requires, references herein to the Company include Pathward Financial and the Bank, and all direct or indirect subsidiaries of Pathward Financial on a consolidated basis. EXECUTIVE SUMMARY Company Highlights • On October 5, 2023, the Company announced Gregory A.
See Note 11 to the “Notes to Consolidated Financial Statements,” which are included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. 58 Table of Contents At September 30, 2022, the Company’s stockholders’ equity totaled $645.1 million, a decrease of $226.7 million, from $871.9 million at September 30, 2021.
See Note 11 to the “Notes to Consolidated Financial Statements,” which are included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. At September 30, 2023, the Company’s stockholders’ equity totaled $650.6 million, an increase of $5.5 million, from $645.1 million at September 30, 2022.
The Company and the Bank met regulatory requirements for classification as well-capitalized institutions at September 30, 2022. Based on current and expected continued profitability and subject to continued access to capital markets, management believes that the Company and the Bank will continue to meet the capital conservation buffer of 2.5% in addition to required minimum capital ratios.
Based on current and expected continued profitability and subject to continued access to capital markets, management believes that the Company and the Bank will continue to meet the capital conservation buffer of 2.5% in addition to required minimum capital ratios.
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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company’s financial statements are prepared in accordance with GAAP. The financial information contained within these financial statements is, to a significant extent, based on approximate measures of the financial effects of transactions and events that have already occurred.
For the loan and lease portfolio, the Company measures credit loss on individually evaluated loans based on the fair value of the collateral less estimated selling costs if collateral dependent or based on the present value of expected future cash flows discounted at the loan or lease initial effective interest rate if not collateral dependent.
Allowance for Credit Losses The Company’s allowance for credit losses methodology estimates expected credit losses over the life of each financial asset as of the balance sheet date. 68 Table of Contents For the loan and lease portfolio, the Company measures credit loss on individually evaluated loans based on the fair value of the collateral less estimated selling costs if collateral dependent or based on the present value of expected future cash flows discounted at the loan or lease initial effective interest rate if not collateral dependent.
Income Tax Expense The Company recorded an income tax expense of $28.0 million for fiscal 2022, resulting in an effective tax rate of 15.2%, compared to an income tax expense of $10.7 million and an effective tax rate of 7.0%, in fiscal 2021.
Income Tax Expense The Company recorded an income tax expense of $16.3 million, representing an effective tax rate of 9.0%, for fiscal 2023, compared to an income tax expense of $28.0 million, representing an effective tax rate of 15.2%, in fiscal 2022.
Notwithstanding that a significant amount of the Company’s deposits, primarily those attributable to the BaaS business line, pay relatively low rates of interest or none at all, the Company, like other financial institutions, is subject to interest rate risk to the extent that its interest-earning assets mature or reprice at different times, or on a different basis, than its interest-bearing liabilities.
Notwithstanding that a significant amount of the Company’s deposits, primarily those attributable to the BaaS business line, pay relatively low rates of interest or none at all, the Company, like other financial institutions, is subject to interest rate risk to the extent that its interest-earning assets mature or reprice at different times, or on a different basis, than its interest-bearing liabilities and that card processing expense derived from contractual agreements with certain BaaS partners are tied to a rate index and servicing fees the Company recognizes for custodial off-balance sheet deposits are typically reflective of the EFFR.
The following table summarizes the Company's negative deposit balances within the BaaS business line: (Dollars in thousands) September 30, 2022 September 30, 2021 Noninterest-bearing deposits $ 5,916,142 $ 5,492,646 Prefunding (244,462) (436,111) Discount funding (15,991) (26,440) DDA overdrafts (8,587) (11,862) Noninterest-bearing checking, net $ 5,647,102 $ 5,018,233 Custodial Off-Balance Sheet Deposits.
The following table summarizes the Company's negative deposit balances within the BaaS business line: (Dollars in thousands) September 30, 2023 September 30, 2022 Noninterest-bearing deposits $ 6,608,137 $ 5,916,142 Prefunding (230,749) (244,462) Discount funding (34,351) (15,991) DDA overdrafts (10,096) (8,587) Noninterest-bearing checking, net $ 6,332,941 $ 5,647,102 Custodial Off-Balance Sheet Deposits.
Total cash and cash equivalents was $388.0 million at September 30, 2022, increasing from $314.0 million at September 30, 2021. The Company maintains its cash investments primarily in interest-bearing overnight deposits with the FHLB of Des Moines and the FRB. At September 30, 2022, the Company did not have any federal funds sold.
Total cash and cash equivalents were $375.6 million at September 30, 2023, decreasing from $388.0 million at September 30, 2022. The Company maintains its cash investments primarily in interest-bearing overnight deposits with the FHLB of Des Moines and the FRB.
Commercial finance loans, which comprised 86% of the Company's gross loan and lease portfolio, totaled $3.02 billion at September 30, 2022 , reflecting growth of $298.2 million , or 11% , from September 30, 2021 .
Commercial finance loans, which comprised 85% of the Company's gross loan and lease portfolio, totaled $3.72 billion at September 30, 2023 , reflecting an increase of $699.5 million , or 23% , from September 30, 2022 .
Comparison of Operating Results for the Fiscal Years Ended September 30, 2021, and September 30, 2020 A comparison of the 2021 results to the 2020 results and other 2020 information not included herein can be found in the Company's Annual Report on Form 10-K: Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” filed November 23, 2021 and is incorporated by reference herein.
The timing and impact of future renewable energy tax credits are expected to vary from period to period, and the Company intends to undertake only those tax credit opportunities that meet the Company's underwriting and return criteria. 65 Table of Contents Comparison of Operating Results for the Fiscal Years Ended September 30, 2022, and September 30, 2021 A comparison of the 2022 results to the 2021 results and other 2021 information not included herein can be found in the Company's Annual Report on Form 10-K: Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” filed November 22, 2022 and is incorporated by reference herein.
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. 66 Table of Contents Allowance for Credit Losses The Company’s allowance for credit losses methodology estimates expected credit losses over the life of each financial asset as of the balance sheet date.
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.
At September 30, 2022, nonperforming loans and leases totaled $29.2 million, representing 0.82% of total loans and leases, compared to $55.9 million, or 1.52% of total loans and leases at September 30, 2021. Classified Assets .
The Company's nonperforming loans and leases at September 30, 2023, were $56.2 million, representing 1.26% of total gross loans and leases, compared to $29.2 million, or 0.82% of total gross loans and leases at September 30, 2022.
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 averages between 50% to 85% of the EFFR and reprices immediately upon a change in the EFFR.
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.
As of the Period Ended September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 Commercial finance 1.46 % 1.56 % 1.66 % 2.04 % 1.77 % Consumer finance 0.86 % 2.44 % 3.18 % 2.70 % 2.91 % Tax services 0.05 % 54.29 % 35.76 % 1.60 % 0.02 % Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % Community banking — % — % — % — % 6.16 % Total loans and leases 1.30 % 2.04 % 2.38 % 1.84 % 1.89 % Total loans and leases excluding tax services 1.30 % 1.44 % 1.59 % 1.84 % 1.89 % The Company's ACL as a percentage of total loans and leases decreased to 1.30% at September 30, 2022 from 2.04% at June 30, 2022.
As of the Period Ended September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 Commercial finance 1.26 % 1.35 % 1.53 % 1.62 % 1.46 % Consumer finance 0.92 % 0.92 % 1.99 % 1.54 % 0.86 % Tax services 0.04 % 70.20 % 53.77 % 2.01 % 0.05 % Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % Total loans and leases 1.14 % 2.01 % 2.27 % 1.50 % 1.30 % Total loans and leases excluding tax services 1.14 % 1.21 % 1.40 % 1.50 % 1.30 % The Company's ACL as a percentage of total loans and leases decreased to 1.14% at September 30, 2023 from 1.30% at September 30, 2022.
The increase in recorded income tax expense during the period was primarily due to a decrease in the investment tax credit. For the fiscal year ended September 30, 2022, the Company originated $62.8 million in solar leases, compared to $101.1 million for the comparable prior year period.
The decrease in income tax expense was primarily due to an increase in investment tax credit recognized ratably when compared to the prior fiscal year. For the fiscal year ended September 30, 2023, the Company originated $93.6 million in renewable energy tax credits, compared to $62.8 million for the prior fiscal year.
(Dollars in thousands) September 30, 2022 September 30, 2021 Nonperforming Loans and Leases Nonaccruing loans and leases: Commercial finance $ 13,375 $ 19,330 Community banking — 14,915 Total nonaccruing loans and leases 13,375 34,245 Accruing loans and leases delinquent 90 days or more: Commercial finance 4,142 12,489 Consumer finance 2,793 1,236 Tax services (1) 8,873 7,962 Total accruing loans and leases delinquent 90 days or more 15,808 21,687 Total nonperforming loans and leases 29,183 55,932 Other Assets Nonperforming operating leases 1,736 3,824 Foreclosed and repossessed assets: Commercial finance 1 2,077 Total foreclosed and repossessed assets 1 2,077 Total other assets 1,737 5,901 Total nonperforming assets $ 30,920 $ 61,833 Total as a percentage of total assets 0.46 % 0.92 % (1) Certain tax services loans do not bear interest.
(Dollars in thousands) September 30, 2023 September 30, 2022 Nonperforming Loans and Leases Nonaccruing loans and leases: Commercial finance $ 37,372 $ 13,375 Total nonaccruing loans and leases 37,372 13,375 Accruing loans and leases delinquent 90 days or more: Loans held for sale 306 — Commercial finance 11,242 4,142 Consumer finance 2,210 2,793 Tax services (1) 5,082 8,873 Total accruing loans and leases delinquent 90 days or more 18,840 15,808 Total nonperforming loans and leases 56,212 29,183 Other Assets Nonperforming operating leases 1,764 1,736 Foreclosed and repossessed assets: Commercial finance — 1 Total foreclosed and repossessed assets — 1 Total other assets 1,764 1,737 Total nonperforming assets $ 57,976 $ 30,920 Total as a percentage of total assets 0.77 % 0.46 % (1) Certain tax services loans do not bear interest.
The decrease was primarily attributable to a reduction in accumulated other comprehensive income and a reduction in retained earnings related to activity from the Company's share repurchase programs. The Company and Bank remained above the federal regulatory minimum capital requirements at September 30, 2022, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies.
The Company and Bank remained above the federal regulatory minimum capital requirements at September 30, 2023, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies.
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.
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. 67 Table of Contents On the basis of management’s review of its loans, leases, and other assets, at September 30, 2023, the Company had classified loans and leases of $208.2 million as substandard, $8.2 million as doubtful and none as loss.
The subordinated debentures bear interest at LIBOR plus 3.00%, have a stated maturity of 30 years and are redeemable by the Company at par, with regulatory approval. See Note 8 to the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
See Note 15 to the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Management believes that loan repayment and other sources of funds will be adequate to meet the Company’s foreseeable short- and long-term liquidity needs. The following table summarizes the Company’s significant contractual obligations at September 30, 2022.
Management believes that loan repayment and other sources of funds will be adequate to meet the Company’s foreseeable short- and long-term liquidity needs. The liquidity sources as of September 30, 2023 include $375 million in cash and cash equivalents and $268 million in off-balance sheet deposits.
For the fiscal year ended September 30, 2022, the Company recognized $6.4 million in servicing fee income. In prior periods, the Servicing Fee was not significant. The Servicing Fee has been typically reflective of the EFFR upon a renegotiation of the contracts with Program Banks.
In return for record keeping services at Program Banks, the Bank receives a servicing fee (“Servicing Fee”). The Servicing Fee has been typically reflective of the EFFR. For the fiscal year ended September 30, 2023, the Company recognized $53.4 million in servicing fee income compared to $6.4 million for the prior fiscal year.
Th e $22.3 million year-o ver-year decrease in the ACL was primarily driven by a $12.3 million decrease attributable to the disposition of the community banking portfolio, along with a $5.9 million decrease in the consumer finance portfolio and a $4.1 million decrease in the commercial finance portfolio.
Th e $3.8 million year-o ver-year increase in the ACL was primarily driven by a $2.8 million increase in the allowance related to the commercial finance portfolio and a $0.9 million increase in the allowance related to the consumer finance portfolio.
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. In return for record keeping services at Program Banks, the Bank receives a servicing fee (“Servicing Fee”).
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 September 30, 2023, the Company managed $267.6 million of customer deposits at other banks in its capacity as custodian.
Fiscal Year Ended September 30, 2022 vs. 2021 2021 vs. 2020 (Dollars in thousands) Increase / (Decrease) Due to Volume Increase / (Decrease) Due to Rate Total Increase / (Decrease) Increase / (Decrease) Due to Volume Increase / (Decrease) Due to Rate Total Increase / (Decrease) Interest-earning assets: Cash and fed funds sold $ (4,293) $ 4,119 $ (174) $ 1,408 $ (523) $ 885 Mortgage-backed securities 11,152 3,539 14,691 6,711 (3,584) 3,127 Tax-exempt investment securities (2,008) 1,569 (439) (2,323) (1,150) (3,473) Asset-backed securities (1,442) — (1,442) 1,423 (3,720) (2,297) Other investment securities 594 1,113 1,707 865 (1,045) (180) Total investments 7,310 7,208 14,518 6,845 (9,668) (2,823) Commercial finance 23,929 (9,779) 14,150 34,013 (14,347) 19,666 Consumer finance 3,664 (507) 3,157 (441) 573 132 Tax services (1,373) 7,030 5,657 2,440 (1,509) 931 Warehouse finance 6,546 (334) 6,212 2,362 981 3,343 Community banking (15,193) (1,984) (17,177) (29,872) 752 (29,120) Total loans and leases 7,768 4,230 11,998 (3,784) (1,264) (5,048) Total interest-earning assets $ 10,785 $ 15,557 $ 26,342 $ 4,469 $ (11,455) $ (6,986) Interest-bearing liabilities: Interest-bearing checking $ — $ — $ — $ 66 $ (324) $ (258) Savings (1) 9 8 8 (9) (1) Money markets 103 (93) 10 8 (226) (218) Time deposits (38) (63) (101) (684) (404) (1,088) Wholesale deposits (507) (504) (1,011) (11,698) (7,759) (19,457) Total interest-bearing deposits (703) (391) (1,094) (9,025) (11,997) (21,022) Overnight fed funds purchased 235 — 235 (1,527) (1,278) (2,805) FHLB Advances — — — (1,319) (1,319) (2,638) Subordinated debentures (1,887) 755 (1,132) 10 (122) (112) Other borrowings (159) 158 (1) (261) (103) (364) Total borrowings 49 (947) (898) (12,000) 6,082 (5,918) Total interest-bearing liabilities $ (654) $ (1,338) $ (1,992) $ (21,025) $ (5,915) $ (26,940) Net effect on net interest income $ 11,439 $ 16,895 $ 28,334 $ 25,494 $ (5,540) $ 19,954 Comparison of Operating Results for the Fiscal Years Ended September 30, 2022 and September 30, 2021 General The Company recorded net income of $156.4 million, or $5.26 per diluted share, for the fiscal year ended September 30, 2022, compared to $141.7 million, or $4.38 per diluted share, for the fiscal year ended September 30, 2021, an increase of $14.7 million.
Fiscal Year Ended September 30, 2023 vs. 2022 2022 vs. 2021 (Dollars in thousands) Increase / (Decrease) Due to Volume Increase / (Decrease) Due to Rate Total Increase / (Decrease) Increase / (Decrease) Due to Volume Increase / (Decrease) Due to Rate Total Increase / (Decrease) Interest-earning assets: Cash and fed funds sold $ (1,709) $ 10,599 $ 8,890 $ (4,293) $ 4,119 $ (174) Mortgage-backed securities 5,795 8,556 14,351 11,152 3,539 14,691 Tax-exempt investment securities (1,032) 1,391 359 (2,008) 1,569 (439) Asset-backed securities (1,721) 6,020 4,299 (1,442) — (1,442) Other investment securities 691 2,425 3,116 594 1,113 1,707 Total investments 3,115 19,010 22,125 7,310 7,208 14,518 Commercial finance 25,245 32,946 58,191 23,929 (9,779) 14,150 Consumer finance (5,584) 4,891 (693) 3,664 (507) 3,157 Tax services (2,837) 349 (2,488) (1,373) 7,030 5,657 Warehouse finance (6,457) 8,496 2,039 6,546 (334) 6,212 Community banking (763) (762) (1,525) (15,193) (1,984) (17,177) Total loans and leases 7,778 47,746 55,524 7,768 4,230 11,998 Total interest-earning assets $ 9,184 $ 77,355 $ 86,539 $ 10,785 $ 15,557 $ 26,342 Interest-bearing liabilities: Savings $ 1 $ — $ 1 $ (1) $ 9 $ 8 Money markets 247 — 247 103 (93) 10 Time deposits (28) — (28) (38) (63) (101) Wholesale deposits 78 3,558 3,636 (507) (504) (1,011) Total interest-bearing deposits 101 3,755 3,856 (703) (391) (1,094) Overnight fed funds purchased 644 3,043 3,687 235 — 235 Subordinated debentures (1,952) (1) (1,953) (1,887) 755 (1,132) Other borrowings (116) 528 412 (159) 158 (1) Total borrowings 653 1,493 2,146 49 (947) (898) Total interest-bearing liabilities $ 754 $ 5,248 $ 6,002 $ (654) $ (1,338) $ (1,992) Net effect on net interest income $ 8,430 $ 72,107 $ 80,537 $ 11,439 $ 16,895 $ 28,334 Comparison of Operating Results for the Fiscal Years Ended September 30, 2023 and September 30, 2022 General The Company reported net income of $163.6 million, or $5.99 per diluted share, for the fiscal year ended September 30, 2023, compared to $156.4 million, or $5.26 per diluted share, for the fiscal year ended September 30, 2022, an increase of $7.2 million.
The increase in noninterest income was primarily driven by gain on sale of trademarks, partially offset by loss on sale of other and a reduction in other income. Within payment card and deposit fee income, the Company recognized $6.4 million from servicing fee income on off-balance sheet deposits during the fiscal year ended September 30, 2022.
The increase in card and deposit fee income was primarily from servicing fee income on off-balance sheet deposits, which totaled $53.4 million during the fiscal year ended September 30, 2023, as compared to $6.4 million for the fiscal year ended September 30, 2022.
The total investment portfolio increased $3.0 million to $1.92 billion at September 30, 2022, compared to $1.92 billion at September 30, 2021, as purchases exceeded maturities and principal pay downs.
At September 30, 2023, the Company did not have any federal funds sold. 59 Table of Contents The total investment portfolio decreased $83.7 million to $1.84 billion at September 30, 2023, compared to $1.92 billion at September 30, 2022, as maturities and principal pay downs exceeded purchases.
Approximately 37% of the deposit portfolio was subject to these higher card processing expenses. For the fiscal year ended September 30, 2022, card processing expenses related to these structured agreements were $9.9 million, as compared to $0.4 million for the fiscal year ended September 30, 2021.
Generally this rate index averages between 50% to 85% of the EFFR and reprices immediately upon a change in the EFFR. Approximately 49% of the deposit portfolio was subject to these higher rate-related processing expenses. For fiscal 2023, contractual, rate-related processing expenses were $77.4 million, as compared to $9.9 million for the fiscal year ended September 30, 2022.
On the basis of management’s review of its loans, leases, and other assets, at September 30, 2022, the Company had classified loans and leases of $203.7 million as substandard, $4.0 million as doubtful and none as loss.
At September 30, 2022, the Company classified loans and leases of $203.7 million as substandard, $4.0 million as doubtful and none as loss. Further, at September 30, 2023, the Company did not own any real estate or other assets as a result of foreclosure of loans, as compared to owning an insignificant amount at September 30, 2022.
Financial Highlights for the 2022 Fiscal Fourth Quarter • Total revenue for the fourth quarter was $123.2 million, an increase of $3.0 million, or 3%, compared to the same quarter in fiscal 2021, primarily driven by an increase in interest income, partially offset by a decrease in noninterest income. • Net interest margin ("NIM") increased to 5.21% for the fourth quarter from 4.35% during the same period of last year.
Financial Highlights for the 2023 Fiscal Fourth Quarter • Total revenue for the fourth quarter was $161.0 million, an increase of $37.8 million, or 31%, compared to the same quarter in fiscal 2022, driven by an increase in both net interest income and noninterest income. • Net interest margin ("NIM") increased 98 basis points to 6.19% fo r the fourth quarter from 5.21% during the same period of last year, p rimarily driven by increased yields and an improved earning asset mix from the continued optimization of the portfolio. • Total gross loans and leases at September 30, 2023 increased $829.8 million , to $4.37 billion compared to September 30, 2022.
Total revenue for fiscal 2022 was $601.1 million, compared to $549.9 million for fiscal 2021, an increase of 9%.
Total revenue for fiscal 2023 was $704.5 million, compared to $601.1 million for fiscal 2022, an increase of 17%. The increase in net income was driven by an increase in both net interest income and noninterest income.
The Company’s investment in these stocks increased $0.4 million, or 1%, to $28.8 million at September 30, 2022 from $28.4 million at September 30, 2021, resulting from the purchase of FHLB membership stock. Total end-of-period deposits increased 6% to $5.87 billion at September 30, 2022, compared to $5.51 billion at September 30, 2021.
The FHLB requires a level of stock investment based on a pre-determined formula. The Company’s investment in these stocks decreased $0.6 million, or 2%, to $28.2 million at September 30, 2023 from $28.8 million at September 30, 2022, resulting from redemptions exceeding purchases of FHLB membership stock.
This decrease was primarily due to decreases in average interest-bearing deposits of $310.7 million and noninterest-bearing deposits of $664.0 million, partially offset by an increase in the average balance of total borrowings of $0.9 million. Overall, the Company’s cost of funds for all deposits and borrowings averaged 0.08% during fiscal 2022, compared to 0.10% during fiscal 2021.
The Company’s average balance of total deposits and interest-bearing liabilities increased $18.5 million to $6.14 billion during fiscal 2023 from $6.12 billion during fiscal 2022. This increase was primarily due to increases in average interest-bearing deposits of $43.1 million and total borrowings of $13.1 million, partially offset by a decrease in the average noninterest-bearing deposits of $37.8 million.
The following table presents the Company's ACL as a percentage of its total loans and leases.
The year-over-year increase in the allowance related to both the commercial finance and consumer finance portfolios was primarily attributable to loan growth in each respective portfolio. The following table presents the Company's ACL as a percentage of its total loans and leases.
Also see Note 4 to the Consolidated Financial Statements included in this Annual Report on Form 10-K. Noninterest Income Noninterest income increased by $22.9 million, or 8%, to $293.8 million for fiscal 2022 from $270.9 million for fiscal 2021.
Provision for Credit Losses The Company recognized a provision for credit losses of $57.4 million for fiscal 2023 compared to $28.5 million in fiscal 2022. The increase in provision for credit losses was primarily driven by growth in the commercial finance portfolio. Also see Note 4 to the Consolidated Financial Statements included in this Annual Report on Form 10-K.
The Company uses its capital resources principally to meet ongoing commitments to fund maturing certificates of deposit and loan commitments, to maintain liquidity, and to meet operating expenses. The Bank is required by regulation to maintain sufficient liquidity to assure its safe and sound operation. In the opinion of management, the Bank is in compliance with this requirement.
The Company uses its capital resources principally to meet ongoing commitments to fund maturing certificates of deposit and loan commitments, to maintain liquidity, and to meet operating expenses. 69 Table of Contents At September 30, 2023, the Company had unfunded loan and lease commitments of $1.31 billion.
The Company's average interest-earning assets for fiscal 2022 decreased $924.0 million, or 13%, to $6.35 billion, from $7.28 billion during fiscal 2021. The decrease was primarily attributable to a decrease in average cash balances of $1.42 billion, partially offset by increases in total average investment securities of $390.4 million, and in average loan and lease balances of $109.0 million.
The increase was mainly attributable to increased yields, higher interest-earning asset balances and an improved earning asset mix. 64 Table of Contents The Company's average interest-earning assets for fiscal 2023 increased by $72.2 million to $6.42 billion compared with fiscal 2022, primarily due to growth in loans and leases and an increase in total investment balances, partially offset by a decrease in cash balances.
The increase in end-of-period deposits was primarily driven by an increase in noninterest-bearing deposits of $628.9 million, partially offset by decreases in interest-bearing checking of $254.3 million and in wholesale deposits of $73.6 million. The Company's total borrowings decreased $56.8 million, or 61%, from $92.8 million at September 30, 2021 to $36.0 million at September 30, 2022.
Total end-of-period deposits increased 12% to $6.59 billion at September 30, 2023, compared to $5.87 billion at September 30, 2022. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $685.8 million and money market deposits of $47.4 million, partially offset by decreases in savings deposits of $8.1 million and certificate of deposits of $2.1 million.
These agreements are tied to a portion of a rate index, typically the EFFR. 59 Table of Contents RESULTS OF OPERATIONS The Company’s results of operations are dependent on net interest income, provision for credit losses, noninterest income, noninterest expense and income tax expense.
The increase when compared to the prior year was driven by several factors, including the interest rate environment, increased balances, and fiscal year 2023 being the first full year that the Company received the Servicing Fee. 61 Table of Contents RESULTS OF OPERATIONS The Company’s results of operations are dependent on net interest income, provision for credit losses, noninterest income, noninterest expense and income tax expense.
Prior to authorizing such transactions, the Board of Directors considers the effect the dividend or repurchase of shares would have on liquidity and regulatory capital ratios. On August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was signed into law.
Prior to authorizing such transactions, the Board of Directors considers the effect the dividend or repurchase of shares would have on liquidity and regulatory capital ratios. See "Regulation and Supervision - Limitations on Dividends and Other Capital Distributions" within Item 1 "Business", which is included in Part I of this Annual Report on Form 10-K.
The increase in net interest income was mainly attributable to increased yields and an improved earning asset mix. NIM was 4.84% for fiscal 2022, an increase of 101 basis points from 3.83% in fiscal 2021.
For fiscal 2023, NIM was 6.04%, an increase of 120 basis points from 4.84% in fiscal 2022. NIM, tax-equivalent for fiscal 2023 increased to 6.05% from 4.85% in fiscal 2022.
Of the total $1.35 billion MBS held by the Company at September 30, 2022, $1.10 billion were issued by a U.S. Government agency or instrumentality. During the fiscal year ended September 30, 2022, the Company purchased $907.4 million of investment securities. Loans held for sale at September 30, 2022 totaled $21.1 million, decreasing from $56.2 million at September 30, 2021.
During the fiscal year ended September 30, 2023, the Company purchased $156.9 million of investment securities. Loans held for sale at September 30, 2023 totaled $77.8 million, increasing from $21.1 million at September 30, 2022. This increase was primarily driven by growth in consumer credit products held for sale at September 30, 2023 compared to September 30, 2022.
The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company’s financial statements are prepared in accordance with GAAP.
The decrease in the total loans and leases coverage ratio was primarily driven by a decrease in the commercial finance portfolio which was due to both quantitative and qualitative factors. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level.
The increases in net income was primarily due to an increase in noninterest income and a decrease in provision for credit losses, partially offset by an increase in non-interest expense. 62 Table of Contents Net Interest Income Net interest income for fiscal 2022 increased by $28.3 million, or 10%, to $307.3 million from $279.0 million for the same period of the prior year.
Noninterest Expense Noninterest expense increased 21% to $465.0 million for fiscal 2023 from $385.3 million for fiscal 2022. The increase in noninterest expense was primarily attributable to increases in card processing expense, compensation and benefits expense, and operating lease equipment depreciation, partially offset by a decrease in legal and consulting expense.
Through the Bank, the Company owns stock in the FHLB due to the Bank’s membership and participation in this banking system as well as stock in the Federal Reserve Bank. The FHLB requires a level of stock investment based on a pre-determined formula.
The increase was primarily driven by increases in the insurance premium finance, SBA/USDA, term lending, and asset-based lending portfolios, partially offset by reductions in the factoring and lease financing portfolios. Through the Bank, the Company owns stock in the FHLB due to the Bank’s membership and participation in this banking system as well as stock in the FRB.
This decrease was primarily driven by a reduction in SBA/USDA loans held for sale at September 30, 2022 compared to September 30, 2021. The Company’s total loans and leases decreased $78.5 million, or 2%, to $3.53 billion at September 30, 2022, from $3.61 billion at September 30, 2021.
FINANCIAL CONDITION At September 30, 2023, the Company’s total assets increased by $788.1 million to $7.54 billion compared to September 30, 2022, primarily due to growth of $829.8 million in total loans and leases and $56.7 million in loans held for sale, partially offset by reductions of $78.6 million in securities available for sale and $20.3 million in other assets.
The decrease in the total loans and leases coverage ratio was primarily driven by the seasonal tax services loan portfolio, along with a decrease in the coverage ratio for both the commercial and consumer finance portfolios. The decrease in the consumer finance portfolio coverage ratio was attributable to the sale of the student loan portfolio.
The increase in nonperforming assets as a percentage of total assets at September 30, 2023 compared to September 30, 2022 was primarily due to one sizable relationship moving to nonaccrual within the commercial finance portfolio, partially offset by a decrease in nonperforming loans in the seasonal tax services portfolio and the consumer finance portfolio. Classified Assets .
The decrease compared to the prior year quarter was primarily due to the sale of all remaining community banking loans during the fiscal 2022 first quarter, the sale of the student loan portfolio during the fiscal 2022 fourth quarter, and a reduction in warehouse finance loans, partially offset by growth in the commercial finance portfolio.
The Company's average outstanding balance of loans and leases increased $108.8 million compared to the prior fiscal year, primarily due to an increase in commercial finance loans, partially offset by decreases in consumer finance loans, tax services loans, and warehouse finance loans.
Removed
EXECUTIVE SUMMARY Business Highlights • On October 27, 2022, the Company announced that Sonja Theisen, currently Executive Vice President of Governance, Risk and Compliance, has been appointed to succeed Glen Herrick as the Chief Financial Officer effective April 30, 2023.
Added
Sigrist was appointed as Executive Vice President ("EVP"), Chief Financial Officer-Designee of the Company and the Bank, beginning November 1, 2023. Immediately after the filing of the Company’s Form 10-K for fiscal year ended September 30, 2023, Mr. Sigrist will transition to EVP, Chief Financial Officer, succeeding Glen W.
Removed
Ms.Theisen, who joined Pathward in 2013, has held leaderships roles across the organization including Chief Accounting Officer, Chief of Staff, and EVP of Governance, Risk and Compliance.
Added
Herrick, who will retire but continue his employment with the Company as EVP, Executive Advisor to the Chief Executive Officer through December 29, 2023 to transition his duties and responsibilities and assist with various projects. • On August 25, 2023, the Company announced a new share repurchase program to repurchase up to 7,000,000 shares of the Company's outstanding common stock on or before September 30, 2028.
Removed
Additional details can be found in the related press release available at www.pathwardfinancial.com. • On October 4, 2022, the Company announced the unveiling of its new corporate brand, marked by the transition to its new name, Pathward™, N.A. ("Pathward" or the "Bank"), and the launch of the Company's new website, Pathward.com.
Added
The increase compared to the prior year quarter was primarily due to growth in the commercial and consumer finance portfolios. • During the 2023 fiscal fourth quarter, the Company repurchased 311,727 shares of common stock at an average share price of $51.29. Subsequent Events Management has evaluated and identified subsequent events that occurred after September 30, 2023. See Note 21.
Removed
As part of the corporate rebrand, the Company recognized $6.9 million of pre-tax expenses related to rebranding efforts during the fourth quarter of fiscal 2022.
Added
Total gross loans and leases totaled $4.37 billion at September 30, 2023, as compared to $3.54 billion at September 30, 2022. The increase was primarily due to increases in commercial finance, consumer finance, and warehouse finance loans, partially offset by a slight reduction in seasonal tax services loans.
Removed
The Company continues to estimate total rebranding expenses will range between $15 million to $20 million. • As part of its strategy to continue to optimize interest-earning assets, the Company sold the entirety of its student loan portfolio during the fourth quarter of fiscal 2022.
Added
As of September 30, 2023 , the Company had $897.5 million in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $340.7 million are on activated cards while $556.8 million are on inactivated cards.
Removed
The sale generated an unfavorable pre-tax impact of approximately $0.5 million after netting the $4.3 million reversal of provision from the portfolio's allowance and the loss on sale of $4.8 million.
Added
During fiscal year 2024, the inactive card balances are expected to decrease by approximately $380 million as the Company actively returns unclaimed balances to the U.S. Treasury. The Company's total borrowings increased $10.9 million, or 30%, from $36.0 million at September 30, 2022 to $46.9 million at September 30, 2023.
Removed
The balance of the portfolio at time of sale was $81.5 million. • On September 26, 2022, the Company announced the completion of a private placement of $20 million of its 6.625% Fixed-to-Floating Rate Subordinated Notes due 2032 to certain qualified institutional buyers and accredited investors.
Added
The increase was primarily attributable to an increase in additional paid-in capital and retained earnings related to activity from the Company's share repurchase programs partially offset by an increase in accumulated other comprehensive loss.
Removed
The Notes are intended to qualify as Tier 2 capital for regulatory capital purposes. • The Company announced on October 10, 2022 that the American Bankers Association ("ABA") Foundation awarded it the 2022 Community Commitment Award during the ABA's Annual Convention on October 4.
Added
Net Interest Income Net interest income for fiscal 2023 was $387.9 million, an increase of 26%, from $307.3 million for the same period of the prior year.
Removed
Pathward's Community Impact Program partners with organizations that provide resources for the unbanked and underbanked and aid to historically marginalized populations. The Community Impact Program delivers on Pathward's purpose of powering financial inclusion for all™ by lifting up the communities it serves.
Added
See the table in section above titled "Average Balances, Interest Rates and Yields." The Company’s cost of funds for all deposits and borrowings averaged 0.18% during fiscal 2023, as compared to 0.08% during fiscal 2022. The Company's overall cost of deposits was 0.12% in fiscal 2023, as compared to 0.01% during fiscal 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+2 added−0 removed14 unchanged
Biggest changeThe following table shows the results of the scenarios as of September 30, 2022 and 2021: 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 -100 Base +100 +200 +300 +400 Balances as of September 30, 2022 Total interest-sensitive income 5,866,763 314,229 337,945 361,442 384,921 408,263 431,850 Total interest-sensitive expense 221,302 323 752 1,821 2,904 4,017 5,149 Net interest-sensitive income 313,906 337,193 359,621 382,017 404,246 426,701 Percentage change from base -6.9 % — % 6.7 % 13.3 % 19.9 % 26.5 % Balances as of September 30, 2021 Total interest-sensitive income 5,880,667 263,269 277,479 302,440 327,277 352,428 377,750 Total interest-sensitive expense 501,932 603 770 1,958 3,178 4,426 5,698 Net interest-sensitive income 262,666 276,709 300,482 324,099 348,002 372,052 Percentage change from base -5.1 % — % 8.6 % 17.1 % 25.8 % 34.5 % The EAR analysis reported at September 30, 2022 , shows that total interest-sensitive income will change more rapidly than total interest-sensitive expense over the next year.
Biggest changeThe following table shows the results of the scenarios as of September 30, 2023 and 2022: Net Sensitive Earnings at Risk Change in Interest Income/Expense for a given change in interest rates Over/(Under) Base Case Parallel Shift (Dollars in thousands) Book Value -200 -100 Base +100 +200 +300 +400 Balances as of September 30, 2023 Total interest-sensitive income 6,650,735 397,360 424,061 450,823 477,078 503,412 529,599 556,117 Total interest-sensitive expense 269,861 1,069 1,905 3,530 5,429 7,352 9,289 11,249 Net interest-sensitive income 396,291 422,156 447,293 471,649 496,060 520,310 544,868 Percentage change from base -11.4 % -5.6 % — % 5.4 % 10.9 % 16.3 % 21.8 % Balances as of September 30, 2022 Total interest-sensitive income 5,866,763 314,229 337,945 361,442 384,921 408,263 431,850 Total interest-sensitive expense 221,302 323 752 1,821 2,904 4,017 5,149 Net interest-sensitive income 313,906 337,193 359,621 382,017 404,246 426,701 Percentage change from base -6.9 % — % 6.7 % 13.3 % 19.9 % 26.5 % The EAR analysis reported at September 30, 2023 , shows that total interest-sensitive income will change more rapidly than total interest-sensitive expense over the next year.
In order to monitor interest rate risk, the Company has created an Asset/Liability Committee whose principal responsibilities are to assess the Bank’s asset/liability mix and implement strategies that will enhance income while managing the Bank’s vulnerability to changes in interest rates. 70 Table of Contents The Company uses two approaches to model interest rate risk: Earnings at Risk (“EAR analysis”) and Economic Value of Equity (“EVE analysis”).
In order to monitor interest rate risk, the Company has created an Asset/Liability Committee whose principal responsibilities are to assess the Bank’s asset/liability mix and implement strategies that will enhance income while managing the Bank’s vulnerability to changes in interest rates. 71 Table of Contents The Company uses two approaches to model interest rate risk: Earnings at Risk (“EAR analysis”) and Economic Value of Equity (“EVE analysis”).
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. The Company’s primary objective for its investment portfolio is to provide a source of liquidity for the Company.
In monitoring interest rate risk, the Company analyzes assets and liabilities based on characteristics including size, coupon rate, repricing frequency, maturity date, likelihood of prepayment, and deposit behaviors. The Company’s primary objective for its investment portfolio is to provide a source of liquidity for the Company.
The Company believes that its growing portfolio of longer duration, low-cost deposits generated from its BaaS business line provides a stable and profitable funding vehicle, but also subjects the Company to greater risk in a falling interest rate environment than it would otherwise have without this portfolio.
The Company believes that its portfolio of longer duration deposits generated from its BaaS business line provides a stable and profitable funding vehicle, but also subjects the Company to greater risk in a falling interest rate environment than it would otherwise have without this portfolio.
The following table shows the results of the scenario as of September 30, 2022 and 2021: 71 Table of Contents Economic Value Sensitivity Standard (Parallel Shift) Economic Value of Equity at Risk % -100 +100 +200 +300 +400 Balances as of September 30, 2022 Percentage change from base -3.8 % 2.9 % 5.3 % 7.3 % 9.6 % Balances as of September 30, 2021 Percentage change from base -12.9 % 8.4 % 14.5 % 19.5 % 24.6 % The EVE at risk reported at September 30, 2022 shows that the economic value of equity position is expected to benefit from rising interest rates due to the large amount of noninterest-bearing funding. 72 Table of Contents
The following table shows the results of the scenario as of September 30, 2023 and 2022: Economic Value Sensitivity Standard (Parallel Shift) Economic Value of Equity at Risk % -200 -100 +100 +200 +300 +400 Balances as of September 30, 2023 Percentage change from base -9.9 % -4.3 % 3.4 % 6.3 % 8.7 % 11.5 % Balances as of September 30, 2022 Percentage change from base -3.8 % 2.9 % 5.3 % 7.3 % 9.6 % The EVE at risk reported at September 30, 2023 shows that the economic value of equity position is expected to benefit from rising interest rates due to the large amount of noninterest-bearing funding. 73 Table of Contents
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.
These costs reprice immediately upon a change in the applicable rate index. 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.
This analysis may not represent all impacts driven by changes in the interest rate environment. 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.
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.
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.
Under EVE analysis, the economic value of financial assets, liabilities and off-balance sheet instruments is derived under each rate scenario.
A portion of the Company’s deposit balances are subject to variable card processing expenses, derived from contractual agreements with certain BaaS partners tied to a rate index, typically the EFFR. These costs reprice immediately upon a change in the application rate index.
However, the card processing expense derived from contractual agreements with certain BaaS partners, which are tied to a rate index, would likely lower card processing expenses. A portion of the Company’s deposit balances are subject to variable card processing expenses, derived from contractual agreements with certain BaaS partners tied to a rate index, typically the EFFR.
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.
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 EVE analysis used in the following table reflects the required analysis used no less than quarterly by management. It models immediate basis point parallel shifts in market interest rates.
It models immediate basis point parallel shifts in market interest rates.
Added
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.
Added
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. 72 Table of Contents The EVE analysis used in the following table reflects the required analysis used no less than quarterly by management.

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