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What changed in PATHWARD FINANCIAL, INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of PATHWARD FINANCIAL, INC.'s 2023 and 2024 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 2024 report.

+411 added−387 removedSource: 10-K (2024-11-26) vs 10-K (2023-11-21)

Top changes in PATHWARD FINANCIAL, INC.'s 2024 10-K

411 paragraphs added · 387 removed · 326 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

165 edited+45 added−40 removed173 unchanged
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.
Biggest changeAt and For the Fiscal Year Ended September 30, 2024 2023 (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 $ 15,850 $ 1,462,403 1.1 % $ 9,476 $ 1,184,055 0.8 % Asset-based lending (255) 429,726 (0.1) % 2,317 369,686 0.6 % Factoring 2,229 341,571 0.7 % 1,513 342,447 0.4 % Lease financing 103 170,962 0.1 % 1,176 190,661 0.6 % Insurance premium finance 870 639,825 0.1 % 1,162 558,018 0.2 % SBA/USDA 754 566,255 0.1 % 5 409,296 — % Other commercial finance — 159,472 — % — 166,422 — % Commercial finance 19,551 3,770,214 0.5 % 15,649 3,220,585 0.5 % Consumer finance 4,061 318,886 1.3 % 2,263 231,242 1.0 % Tax services 22,995 153,713 15.0 % 35,778 141,210 25.3 % Warehouse finance — 416,988 — % — 343,168 — % Total $ 46,607 $ 4,659,801 1.0 % $ 53,690 $ 3,936,205 1.4 % 12 Table of Contents The distribution of the Company’s ACL at the dates indicated is summarized as follows: At September 30, 2024 2023 (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 $ 30,394 38.2 % $ 25,686 30.0 % Asset-based lending 1,356 11.6 % 2,738 8.8 % Factoring 5,757 8.9 % 6,566 8.2 % Lease financing 1,189 3.7 % 3,302 4.2 % Insurance premium finance — — % 2,637 18.4 % SBA/USDA 3,273 14.0 % 2,962 12.0 % Other commercial finance 607 4.6 % 3,089 3.8 % Commercial finance 42,576 81.0 % 46,980 85.4 % Consumer finance 2,240 6.1 % 2,346 5.8 % Tax services 2 0.2 % 2 0.1 % Warehouse finance 518 12.7 % 377 8.7 % Total $ 45,336 100.0 % $ 49,705 100.0 % Management closely monitors economic developments and considers these factors when assessing the appropriateness of its ACL.
Rather, it is intended to briefly summarize the legal and regulatory framework in which the Bank and the Company operate and describe legal requirements that impact their businesses and operations. The information set forth below is subject to change and is qualified in its entirety by the actual laws and regulations referenced.
Rather, it is intended to briefly summarize the legal and regulatory framework in which the Company and the Bank operate and describe legal requirements that impact their businesses and operations. The information set forth below is subject to change and is qualified in its entirety by the actual laws and regulations referenced.
The Company’s borrowings have historically consisted primarily of advances from the FHLB upon the security of a blanket collateral agreement of a percentage of unencumbered loans and the pledge of specific investment securities. Such advances can be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities.
The Company’s borrowings have historically consisted primarily of advances from the FHLB upon the security of a blanket collateral agreement of a percentage of unencumbered loans and the pledge of specific securities. Such advances can be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities.
Investment Activities General The investment policy of the Company generally is to invest funds among various categories of investments and maturities based upon the Company’s need for liquidity, to achieve the proper balance between its desire to minimize risk and maximize yield, to provide collateral for borrowings and to fulfill the Company’s asset/liability management policies.
Investment Activities The investment policy of the Company generally is to invest funds among various categories of investments and maturities based upon the Company’s need for liquidity, to achieve the proper balance between its desire to minimize risk and maximize yield, to provide collateral for borrowings and to fulfill the Company’s asset/liability management policies.
Total Rewards As part of our total rewards strategy, we aspire to offer and maintain market competitive total rewards programs for our employees that attract and retain superior talent. In addition to healthy base wages, we offer other variable pay depending on an employee's position, including an annual bonus or commission plan.
Total Rewards As part of our total rewards strategy, we aspire to offer and maintain market competitive total rewards programs for our employees that attract and retain superior talent. In addition to competitive base wages, we offer other variable pay depending on an employee's position, including an annual bonus or commission plan.
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.
The interagency guidance is based, in part, on the OCC’s previously 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.
To allow employees time to recharge, we offer paid time off, family leave, family care resources, flexible work schedules, adoption assistance, employee assistance programs, and other rest and family related benefits. We want our employees to be healthy and be able to bring their whole selves to the workplace.
To allow employees time to recharge, we offer paid time off, family leave, family care resources, flexible work schedules, adoption assistance, employee assistance programs, and other related benefits. We want our employees to be healthy and be able to bring their whole selves to the workplace.
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.
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. 16 Table of Contents Deposits The Company offers a variety of deposit accounts having a wide range of interest rates and terms.
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.
Lending Activities 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 down payment is set such that if the policy is canceled, the unearned premium is typically sufficient to cover the loan balance and accrued interest and is returned by the insurer to the Bank on a pro rata basis.
The down payment was set such that if the policy is canceled, the unearned premium was typically sufficient to cover the loan balance and accrued interest and was returned by the insurer to the Bank on a pro rata basis.
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.
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 The Company’s sources of funds are deposits, borrowings, amortization and repayment of loan and lease principal, interest earned on or maturation of securities and funds provided from operations.
Regulation and Supervision General Both the Company and the Bank are subject to extensive regulation in connection with their respective activities and operations, including those of their subsidiaries.
Regulation and Supervision Both the Company and the Bank are subject to extensive regulation in connection with their respective activities and operations, including those of their subsidiaries.
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.
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, 2024, 2023 and 2022, the Bank’s deposit insurance assessment rate was 7 basis points, 7 basis points, and 5 basis points, respectively.
Health and Safety We believe the success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety, and wellness of our employees. Being a fully remote-first employer, we provide laptops and related hardware along with a stipend to enhance employees' at-home work experience.
Health and Safety We believe the success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the health, safety, and wellness of our employees. Being a fully remote-enabled employer, we provide laptops and related hardware along with a stipend to enhance employees' at-home work experience.
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.
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. 10 Table of Contents The table below sets forth the amounts and categories of the Company’s nonperforming assets.
Payment solutions include the acceptance, processing and settlement of credit card and debit card payments by an acquiring bank on behalf of merchants.
Acquiring solutions include the acceptance, processing and settlement of credit card and debit card payments by an acquiring bank on behalf of merchants.
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.
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 30 bank for receiving and originating payments.
With expert talent and access to world-class partners, Pathward moves money seamlessly across a multitude of solutions while mitigating risk by anticipating changes to a complicated, regulatory landscape. The Bank, a wholly-owned full-service banking subsidiary of Pathward Financial, operates through three reportable segments (Consumer, Commercial, and Corporate Services/Other). See Note 17. Segment Reporting for further information on the reportable segments.
With expert talent and access to world-class partners, Pathward moves money seamlessly across a multitude of solutions while mitigating risk and anticipating changes to a complicated, regulatory landscape. The Bank, a wholly-owned full-service banking subsidiary of Pathward Financial, operates through three reportable segments (Consumer, Commercial, and Corporate Services/Other). See Note 16. Segment Reporting for further information on the reportable segments.
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.
The OCC’s 2025 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.
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.
For the fiscal year ended September 30, 2024, 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.
These securities are recorded at fair value with unrealized gains and losses, due to changes in fair value, reflected in earnings. Interest and dividend income from these securities is recognized in interest income. See Note 3. Securities for additional information on marketable equity securities.
These securities are recorded at fair value with unrealized gains and losses, due to changes in fair value, reflected in earnings. Interest and dividend income from these securities is recognized in interest income. See Note 2. Securities for additional information on marketable equity securities.
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.
The business of the Bank is to collaborate with partners through the Partner Solutions 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.
The Company’s BaaS business line serves customers nationally and also faces strong competition from large commercial banks and specialty providers of electronic payments processing and servicing, including prepaid, debit and credit card issuers, ACH processors and ATM network sponsors. Many of these national players are aggressive competitors, leveraging relationships and economies of scale.
The Company’s Partner Solutions business line serves customers nationally and also faces strong competition from large commercial banks and specialty providers of electronic payments processing and servicing, including prepaid, debit and credit card issuers, ACH processors and ATM network sponsors. Many of these national players are aggressive competitors, leveraging relationships and economies of scale.
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.
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.
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.
The Company’s portfolio is 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.
The Company’s held to maturity debt security portfolio is limited to investments with implicit and explicit guarantees by government agencies. As a result, management has concluded a zero risk of loss associated with these securities and no provision for credit loss has been included in the Company’s Consolidated Statement of Operations.
The Company’s HTM debt security portfolio is limited to investments with implicit and explicit guarantees by government agencies. As a result, management has concluded a zero risk of loss associated with these securities and no provision for credit loss has been included in the Company’s Consolidated Statement of Operations.
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 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. 33 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.
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.
Pathward Financial aims to increase financial availability, choice, and opportunity across two business lines: Partner Solutions 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 Bank also sells and purchases loan participations from time to time to and from other financial institutions, as well as mortgage-backed securities ("MBS") and other investments permissible under applicable regulations. The Consumer segment includes the BaaS business line, which collaborates with partners to navigate payment and lending needs.
The Bank also sells and purchases loan participations from time to time to and from other financial institutions, as well as mortgage-backed securities ("MBS") and other investments permissible under applicable regulations. The Consumer segment includes the Partner Solutions business line, which collaborates with partners to navigate payment and lending needs.
The Company’s deposits primarily consist of demand deposit accounts, savings accounts, and money market savings accounts, many of which are related to the BaaS business line. In addition, the Company may periodically utilize brokered or other wholesale deposits to target strategic maturities related to its seasonal refund advance lending.
The Company’s deposits primarily consist of demand deposit accounts, savings accounts, and money market savings accounts, many of which are related to the Partner Solutions business line. In addition, the Company may periodically utilize brokered or other wholesale deposits to target strategic maturities related to its seasonal refund advance lending.
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.
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.
While terms range from three years to 25 years, the weighted average life of these loans is approximately 53 months. These term loans may be secured by equipment, recurring revenue streams, or real estate. Credit risk is managed through setting loan amounts appropriate for the collateral based on information including equipment cost, appraisals, valuations, and lending history.
While terms range from three years to 12 years, the weighted average life of these loans is approximately 59 months. These term loans may be secured by equipment, recurring revenue streams, or real estate. Credit risk is managed through setting loan amounts appropriate for the collateral based on information including equipment cost, appraisals, valuations, and lending history.
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.
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.
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.
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.
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.
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.
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.
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 $87.0 million to the Company during fiscal 2024, to be used to fund share repurchases under the common stock share repurchase programs that were authorized by the Company's Board of Directors.
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.
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, 2024, approximately 65% of asset-based loans were backed by accounts receivable. Factoring.
Under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs (collectively, "Topic 326") investment debt securities held to maturity are subject to an allowance for credit loss that reflects expected credit losses over the life of the financial asset, unless management concludes there is a zero risk of loss.
Under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs (collectively, "Topic 326") debt securities HTM are subject to an allowance for credit losses that reflects expected credit losses over the life of the financial asset, unless management concludes there is a zero risk of loss.
For calendar year 2023, the FDIC set the DRR at 2.00%, which is consistent with the DRR set for each calendar year since 2011 and the FDIC's goal to maintain the DRR at or above the statutory threshold. 26 Table of Contents Brokered Deposits The FDIC limits the ability to accept brokered deposits to those insured depository institutions that are well capitalized.
For calendar year 2024, the FDIC set the DRR at 2.00%, which is consistent with the DRR set for each calendar year since 2011 and the FDIC's goal to maintain the DRR at or above the statutory threshold. 25 Table of Contents Brokered Deposits The FDIC limits the ability to accept brokered deposits to those insured depository institutions that are well capitalized.
The BaaS business line originates debit card programs through outside sales agents and other financial institutions. As such, these deposits carry a somewhat higher degree of concentration risk than traditional consumer products.
The Partner Solutions business line originates debit card programs through outside sales agents and other financial institutions. As such, these deposits carry a somewhat higher degree of concentration risk than traditional consumer products.
See "Originations, Sales and Servicing of Loans and Leases" below for further details. Tax Services The Bank's BaaS business line offers tax solutions, which includes short-term refund advance loans and short-term electronic return originator ("ERO") advance loans. Refund Advance Loans.
See "Originations, Sales and Servicing of Loans and Leases" below for further details. Tax Services The Bank's Partner Solutions business line offers professional tax solutions, which includes short-term refund advance loans and short-term electronic return originator ("ERO") advance loans. Refund Advance Loans.
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.
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 Partner Solutions business line are relatively stable sources of deposits.
Federal banking policy is designed to protect customers of and depositors in insured depository institutions, the DIF, and the U.S. banking system. The framework by which both the Bank and the Company are supervised and examined is complex.
Federal banking policy is designed to protect customers of and depositors in insured depository institutions, the DIF, and the U.S. banking system. 22 Table of Contents The framework by which both the Company and the Bank are supervised and examined is complex.
Non-credit related losses are recorded in Other Comprehensive Income in the Company’s Consolidated Statement of Condition. The adoption of CECL was inconsequential to debt securities available for sale. Equity Securities. The Company holds marketable equity securities, which have readily determinable fair values, and include common equity and mutual funds.
Non-credit related losses are recorded in Other Comprehensive Income in the Company’s Consolidated Statement of Condition. The adoption of CECL was inconsequential to debt securities AFS. Equity Securities. The Company holds marketable equity securities, which have readily determinable fair values, and include common equity and mutual funds.
The following table presents contractual maturities of estimated time deposits in excess of FDIC insurance limits or are otherwise uninsured.
The following table presents contractual maturities of estimated U.S. time deposits in excess of FDIC insurance limits or are otherwise uninsured.
Although, as of the date of the filing of this Annual Report on Form 10-K, the interchange fee restrictions in the Durbin Amendment do not apply to the Bank because debit card issuers with total worldwide assets of less than $10 billion are exempt, such restrictions may negatively impact the pricing all debit card processors in the market, including the Bank, may charge.
Although, as of the date of the filing of this Annual Report on Form 10-K, the interchange fee restrictions in the Durbin Amendment do not apply to the Bank because debit card issuers with total worldwide assets of less than $10 billion are exempt, such restrictions may negatively impact the pricing all debit card processors in the market, including the Bank, may charge. 23 Table of Contents Incentive Compensation.
The Company also will provide copies of its Annual Report on Form 10-K, free of charge, upon written request to Darby Schoenfeld, SVP of Investor Relations, at the Company’s address.
The Company also will provide copies of its Annual Report on Form 10-K, free of charge, upon written request to Darby Schoenfeld, SVP Chief of Staff and Investor Relations, at the Company’s address.
The servicing fee is recognized as income over the life of the loans. As of September 30, 2023, the Company was servicing $318.8 million of SBA/USDA loans and $13.7 million of term lending loans. 7 Table of Contents The Company may sell the guaranteed portion of its SBA 7(a) loans and USDA program loans in the secondary market.
The servicing fee is recognized as income over the life of the loans. As of September 30, 2024, the Company was servicing $350.7 million of SBA/USDA loans and $13.8 million of term lending loans. 8 Table of Contents The Company may sell the guaranteed portion of its SBA 7(a) loans and USDA program loans in the secondary market.
CECL requires loss estimates for the remaining estimated life of the assets to be measured using historical loss data, adjustments for current conditions, and adjustments for reasonable and supportable forecasts of future economic conditions.
CECL requires loss estimates for the remaining estimated life of the assets to be measured using historical loss data, adjustments for current conditions, and adjustments for reasonable and supportable forecasts of future economic conditions. See Note 1.
Over 95% of the portfolio finances policies provided by investment grade-rated insurance company partners. 6 Table of Contents SBA and USDA. The Bank originates loans through programs partially guaranteed by the SBA or USDA. SBA loans are made to small businesses and professionals. Generally, the Bank provides USDA loans to alternative energy project developers and the hotel industry.
Over 95% of the portfolio finances policies were provided by investment grade-rated insurance company partners. 7 Table of Contents Government Guaranteed Lending. The Bank originates loans through programs partially guaranteed by the SBA or USDA. SBA loans are made to small businesses and professionals. Generally, the Bank provides USDA loans to alternative energy project developers and the hotel industry.
Department of the Treasury’s Bureau of the Fiscal Service (“Fiscal Service”), the Bank issued 16.5 million prepaid cards in conjunction with the three Economic Impact Payment ("EIP") stimulus programs, totaling approximately $24.15 billion. As of September 30, 2023, the Company had $897.5 million in deposits related to government stimulus funds.
Department of the Treasury’s Bureau of the Fiscal Service (“Fiscal Service”), the Bank issued 16.5 million prepaid cards in conjunction with the three Economic Impact Payment ("EIP") stimulus programs, totaling approximately $24.15 billion. As of September 30, 2024, the Company had $433.3 million in deposits related to government stimulus funds.
As such, and as historical results indicate, the Company believes that its deposit portfolio attributable to the Consumer segment is stable. The increase in deposits arising from the BaaS business line has allowed the Bank to reduce its reliance on wholesale deposits, certificates of deposit and public funds, which typically have relatively higher costs.
As such, and as historical results indicate, the Company believes that its deposit portfolio attributable to the Consumer segment is stable. Deposits arising from the Partner Solutions business line has allowed the Bank to reduce its reliance on wholesale deposits, certificates of deposit and public funds, which typically have relatively higher costs.
Tax solutions offer tax-related financial products, such as electronic refund advances and refund transfers, that ease the pressure of tax season and help over 30,000 independent tax offices stay competitive in a crowded marketplace. 3 Table of Contents The Commercial segment includes the Company's Commercial Finance business line, which helps businesses access funds they need to launch, operate, and grow.
Professional tax solutions offer tax-related financial products, such as electronic refund advances and refund transfers, that ease the pressure of tax season and help over 38,000 independent tax offices stay competitive in a crowded marketplace. The Commercial segment includes the Company's Commercial Finance business line, which helps businesses access funds they need to launch, operate, and grow.
Under Topic 326, investment debt securities available for sale continue to be recorded at fair value but are subject to an allowance for credit loss that reflects the portion of an unrealized loss position related to credit factors. Any such credit loss is recorded in the Company’s Provision for Credit Loss on the Company’s Consolidated Statement of Operations.
Under Topic 326, debt securities AFS continue to be recorded at fair value but are subject to an allowance for credit losses that reflects the portion of an unrealized loss position related to credit factors. Any such credit loss is recorded in the Company’s Provision for Credit Loss on the Company’s Consolidated Statement of Operations.
We follow local, state and federal regulations issued by the Occupational Safety and Health Administration and are prepared to implement any applicable workplace requirements. Available Information The Company’s website address is www.pathwardfinancial.com.
We follow local, state and federal regulations issued by the Occupational Safety and Health Administration and are prepared to implement any applicable workplace requirements. 35 Table of Contents Available Information The Company’s website address is www.pathwardfinancial.com.
The Company sponsors ATM independent sales organizations (“ISOs”) into various networks and provides associated sponsorships of encryption support organizations and third-party processors in support of the financial institutions and the ATM ISO sponsorships. Sponsorship consists of the review and oversight of entities participating in debit and credit networks.
The Company sponsors ATM ISOs into various networks and provides associated sponsorships of encryption support organizations and third-party processors in support of the financial institutions and the ATM ISO sponsorships. Sponsorship consists of the review and oversight of entities participating in debit and credit networks.
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.
As of September 30, 2024, the Bank categorized $82.0 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.
As of September 30, 2023 and 2022, total deposits that exceed FDIC insurance limits, or are otherwise uninsured, were estimated to be $550.7 million and $211.4 million, respectively. Estimated uninsured domestic deposits reflect amounts, disclosed in U.S. regulatory reports of the Bank, with adjustments for amounts related to consolidated subsidiaries.
As of September 30, 2024 and 2023, total deposits that exceed FDIC insurance limits, or are otherwise uninsured, were estimated to be $643.3 million and $550.7 million, respectively. Estimated uninsured domestic deposits reflect amounts, disclosed in U.S. regulatory reports of the Bank, with adjustments for amounts related to consolidated subsidiaries.
Unless the context otherwise requires, references herein to the Company include Pathward Financial and the Bank, and all subsidiaries of Pathward Financial, direct or indirect, on a consolidated basis. As a nationwide provider of banking as a service ("BaaS") solutions and commercial finance products, the Company has offices across the country.
Unless the context otherwise requires, references herein to the Company include Pathward Financial and the Bank, and all subsidiaries of Pathward Financial, direct or indirect, on a consolidated basis. As a nationwide provider of payments and commercial finance products, the Company has offices across the country.
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.
The Bank’s deposit insurance premium expense totaled $5.3 million for 2024, $4.3 million for 2023, and $3.1 million for 2022. A significant increase in DIF insurance premiums would have an adverse effect on the operating expenses and results of operations of 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.
As of September 30, 2024, the Bank exceeded all of its regulatory capital requirements and was designated as “well capitalized” under federal guidelines. There have been several developments which are intended to reduce the regulatory capital burden on smaller or less complex banking organizations like the Company and the Bank.
In the normal course of business, the Company enters into off-balance sheet transactions with special purpose entities ("SPEs"). See Note 1 to the "Notes of Consolidated Financial Statements," which is included in Part II, Item 8 "Financial Statements and Supplementary Date" of this Annual Report on Form 10-K, for more information on these transactions.
Subsequent Events 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 more information on the sale and transaction. In the normal course of business, the Company enters into off-balance sheet transactions with special purpose entities ("SPEs"). See Note 1.
Partners looking to offer financial services in an ecosystem typically employ a DDA, savings account or debit card, or combination thereof.
Partners looking to offer financial services in an ecosystem typically employ a direct deposit account, savings account or debit card, or combination thereof.
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 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, 2024, the Bank had in the aggregate $16.3 million in FHLB stock, which was in compliance with the FHLB of Des Moines' requirement.
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.
As of September 30, 2024, 41% 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 39% of the term lending total as of September 30, 2024.
At September 30, 2023, there were no outstanding loans sold by the Company with recourse. When loans or leases are sold, the Company may retain the responsibility for collecting and remitting loan payments, making certain that real estate tax payments are made on behalf of borrowers, and otherwise servicing the loans.
At September 30, 2024, there were no outstanding loans sold by the Company with recourse. When loans or leases are sold, the Company may retain the responsibility for collecting and remitting loan payments, making certain that escrow payments are made on behalf of borrowers, and otherwise servicing the loans.
Premiums are advanced either directly to the insurance carrier or through an intermediary/broker and repaid by the policyholder with interest during the policy term. The policyholder generally makes a 20% to 25% down payment to the insurance broker and finances the remainder over nine to 10 months on average.
Premiums were advanced either directly to the insurance carrier or through an intermediary/broker and repaid by the policyholder with interest during the policy term. The policyholder generally made a 20% to 25% down payment to the insurance broker and financed the remainder over nine to 10 months on average.
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.
At September 30, 2024, the Company had $26.4 million in nonaccruing loans and leases, which constituted 0.6% of the Company's gross loan and lease portfolio. At September 30, 2023, the Company had $37.4 million in nonaccruing loans which constituted 0.8% of its gross loan and lease portfolio.
The majority of these deposits represent funds available to spend on prepaid debit cards and other stored value products, of which $6.32 billion are included with noninterest-bearing checking accounts and $57.8 million are included with savings deposits on the Company’s Consolidated Statements of Financial Condition.
The majority of these deposits represent funds available to spend on prepaid debit cards and other stored value products, of which $5.59 billion are included with noninterest-bearing checking accounts and $47.5 million are included with savings deposits on the Company’s Consolidated Statements of Financial Condition.
On November 21, 2018, the FDIC, the OCC, and the FRB jointly issued a proposed rule required by the Regulatory Relief Act that would permit qualifying banks that have less than $10 billion in consolidated assets to elect to be subject to a 9% leverage ratio that would be applied using less complex leverage calculations (referred to as the “community bank leverage ratio” or “CBLR”).
The Bank did not elect to implement the relief provided under the simplification rule. 29 Table of Contents On November 21, 2018, the FDIC, the OCC, and the FRB jointly issued a proposed rule required by the Regulatory Relief Act that would permit qualifying banks that have less than $10 billion in consolidated assets to elect to be subject to a 9% leverage ratio that would be applied using less complex leverage calculations (referred to as the “community bank leverage ratio” or “CBLR”).
The increase in balance of accruing loans and leases 90 days or more past due was primarily within the commercial finance portfolio, partially offset by a reduction within the seasonal tax services portfolio. For information on classified assets, see “Item 7.
The decrease in the balance of accruing loans and leases 90 days or more past due was primarily within the commercial finance portfolio, partially offset by increases within the consumer finance and seasonal tax services portfolios. For information on classified assets, see “Item 7.
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.
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. Acquiring Merchant Acquiring Sponsorship.
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 more information of the ACL. 10 Table of Contents The following table sets forth an analysis of the Company’s ACL.
Summary of Significant Accounting Policies 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 more information of the ACL. 11 Table of Contents The following table sets forth an analysis of the Company’s ACL.
On April 1, 2020, the Bank converted from a federal thrift charter to a national bank charter and the Company converted from a savings and loan holding company to a bank holding company (“BHC”) that has elected to be a financial holding company (a “FHC”).
On April 1, 2020, the Bank converted from a federal thrift charter to a national bank charter and the Company converted from a savings and loan holding company to a BHC that has elected to be a FHC.
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.
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 also provide employer paid short- and long-term disability and life insurance benefits. We understand how important it is that our employees have time away from work.
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.
The remaining 20% are a variety of other 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.
Specific provisions of the Regulatory Relief Act that benefit smaller banks include modifications to the “qualified mortgage” criteria under the “ability to repay” rules for certain mortgages that are held and maintained on the Bank’s retained portfolio as well as relief from certain capital requirements required by an international banking capital framework with the creation of a “community bank leverage ratio.” See “Recent Developments Related to Capital Rules” and “Brokered Deposits.” Temporary Regulatory Capital Relief Related to Impact of CECL In March 2020, concurrently with enactment of the CARES Act, federal banking agencies issued an interim final rule that delayed the estimated impact on regulatory capital resulting from the adoption of CECL.
Specific provisions of the Regulatory Relief Act that benefit smaller banks include modifications to the “qualified mortgage” criteria under the “ability to repay” rules for certain mortgages that are held and maintained on the Bank’s retained portfolio as well as relief from certain capital requirements required by an international banking capital framework with the creation of a “community bank leverage ratio.” See “Regulatory Capital Requirements” and “Brokered Deposits.” Temporary Regulatory Capital Relief Related to Impact of CECL On August 26, 2020, the federal banking agencies adopted a final rule that delayed the estimated impact on regulatory capital resulting from the adoption of CECL.
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.
The Company had 24 other lending relationships in excess of $22.5 million as of September 30, 2024. 5 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 refund advance lending season typically lasts six weeks or less and it is generally more efficient to fund these short-term loans by using brokered deposits rather than by selling investment securities. Other sources of wholesale deposits may also be utilized periodically to take advantage of balance sheet funding opportunities.
The refund advance lending season typically lasts six weeks or less and it is generally more efficient to fund these short-term loans by using brokered deposits to match the expected repayment from refunds. Other sources of wholesale deposits may also be utilized periodically to take advantage of balance sheet funding opportunities.
The Bank provides, on a national basis, short-term, primarily collateralized financing to facilitate the commercial customers’ purchase of insurance for various forms of risk, otherwise known as insurance premium financing. This includes, but is not limited to, policies for commercial property, casualty and liability risk.
Until the Closing Date, the Bank provided, on a national basis, short-term, primarily collateralized financing to facilitate the commercial customers’ purchase of insurance for various forms of risk, otherwise known as insurance premium financing. This included, but was not limited to, policies for commercial property, casualty and liability risk.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeRecently, federal bank regulators have increasingly focused on the risks related to bank and fintech company partnerships, raising concerns regarding risk management, oversight, internal controls, information security, change management, and information technology operational resilience. This focus is demonstrated by recent regulatory enforcement actions against other banks that have allegedly not adequately addressed these concerns while growing their BaaS offerings.
Biggest changeThis focus is demonstrated by recent regulatory enforcement actions against other banks that have allegedly not adequately addressed these concerns while growing their BaaS offerings, as well as by a request for information by the federal banking regulators on bank-fintech arrangements.
Even if we do consummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction, including: • increased regulatory and compliance requirements; • implementation or remediation of controls, procedures and policies at the acquired company; 44 Table of Contents • diversion of management time and focus from operation of our then-existing business; • integration and coordination of product, sales, marketing, program and systems management functions; and • integration of the acquired company’s systems and operations generally with ours; • integration of employees from the acquired company into our organization; • loss or termination, including costs associated with the termination or replacement, of employees; • liability for activities of the acquired company prior to the acquisition, including violations of law, commercial disputes and tax and other known and unknown liabilities; and • increased litigation or other claims in connection with the acquired company, including claims brought by terminated employees, customers, former stockholders or other third parties.
Even if we do consummate such a transaction, we may be unable to obtain the benefits or avoid the difficulties and risks of such transaction, including: • increased regulatory and compliance requirements; • implementation or remediation of controls, procedures and policies at the acquired company; • diversion of management time and focus from operation of our then-existing business; 44 Table of Contents • integration and coordination of product, sales, marketing, program and systems management functions; • integration of the acquired company’s systems and operations generally with ours; • integration of employees from the acquired company into our organization; • loss or termination, including costs associated with the termination or replacement, of employees; • liability for activities of the acquired company prior to the acquisition, including violations of law, commercial disputes and tax and other known and unknown liabilities; and • increased litigation or other claims in connection with the acquired company, including claims brought by terminated employees, customers, former stockholders or other third parties.
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.
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, management and capital resources in connection with such new lines of business or new products or services.
These laws, regulations and standards are rapidly evolving and increasing in complexity and could have a significant impact 46 Table of Contents on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer and employee information, and some of current or planned business activities.
These laws, regulations and standards are rapidly evolving and increasing in complexity and could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, 46 Table of Contents sharing, retention and safeguarding of consumer and employee information, and some current or planned business activities.
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.
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 47 Table of Contents remaining balance on the loan.
See "If our actual loan and lease losses exceed our allowance for credit losses, our net income will decrease." We may also become subject to claims by regulatory agencies, customers, or other third parties due to the conduct of the third parties with which the Bank operates such lending programs if such conduct is deemed to not comply with applicable laws in connection with the marketing and servicing of loans originated pursuant to these programs.
See "If our actual loan and lease losses exceed our allowance for credit losses, our net income will decrease." We may also become subject to claims by regulatory agencies, customers, or other third parties due to the conduct of the third parties with which the Bank operates such lending programs if such conduct is deemed not to comply with applicable laws in connection with the marketing and servicing of loans originated pursuant to these programs.
See “Forward-Looking Statements.” Risk Factor Summary These risks and uncertainties include: Risks Related to Our Industry and Business • Our framework for managing risk, including our underwriting practices, may not prevent future losses. • We are subject to credit risk in connection with our lending and leasing activities, and our financial condition and results of operations may be negatively impacted by factors that adversely affect our borrowers. • If our actual credit losses exceed our allowance for credit losses, our net income will decrease. • Our earnings are significantly affected by general business, political and economic conditions. • Adverse developments or concerns affecting the financial services industry or specific financial institutions could adversely affect our financial condition and results of operations. • Ineffective liquidity management could adversely affect our financial condition and results of operation. • Our investments in certain tax-advantaged projects may not generate anticipated returns, causing an adverse impact on our results of operations. • 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. • Changes in interest rates could adversely affect our results of operations and financial condition. • We operate in an extremely competitive market, and our business will suffer if we are unable to compete effectively. • 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. • Our operations depend upon third-party relationships; our ability to maintain such relationships and such third parties' performances could adversely affect our business. • We derive a significant percentage of our deposits, total assets and income from deposit accounts that we generate through Payments' customer relationships, of which a limited number of program manager relationships are particularly significant to our operations. • We are exposed to fraud losses from customer accounts. • We are exposed to settlement and other losses from payments customers. • 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. • Acquisitions and other strategic transactions, or the failure to consummate such transactions, could disrupt our business and harm our financial condition and may not yield the intended benefits. • New lines of business or new products and services may subject us to additional risks. • An impairment charge of goodwill or other intangibles could have a material adverse impact on our financial condition and results of operations. • We may incur losses due to fraudulent and negligent acts, as well as errors, by third parties or our employees. • 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. 37 Table of Contents • Failure to comply satisfactorily with certain privacy and data protection laws, regulations and standards to which we are subject could adversely affect our reputation and operating revenues. • Our reputation and financial condition may be harmed by system failures, computer viruses and other technological interruptions to our operations. • Agency, technological, or human error could lead to tax refund processing delays, which could adversely affect our reputation and operating revenues. • The Commercial Finance business line generates government-backed loans funded by the Bank, any of which could be negatively impacted by a variety of factors. • 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. • The OCC's grant of bank charters to fintech companies and special purpose fintech charter could present a market risk to us generally and the BaaS business line specifically. • 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 regularly assess our investments in technology, and changes in technology could be costly. • 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. • Unclaimed funds represented by unused value of the cards presents compliance and other risks.
See “Forward-Looking Statements.” 36 Table of Contents Risk Factor Summary These risks and uncertainties include: Risks Related to Our Industry and Business • Our framework for managing risk, including our underwriting practices, may not prevent future losses. • We are subject to credit risk in connection with our lending and leasing activities, and our financial condition and results of operations may be negatively impacted by factors that adversely affect our borrowers. • If our actual credit losses exceed our allowance for credit losses, our net income will decrease. • Our earnings are significantly affected by general business, political and economic conditions. • Adverse developments or concerns affecting the financial services industry or specific financial institutions could adversely affect our financial condition and results of operations. • Ineffective liquidity management could adversely affect our financial condition and results of operation. • Our investments in certain tax-advantaged projects may not generate anticipated returns, causing an adverse impact on our results of operations. • 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. • Changes in interest rates could adversely affect our results of operations and financial condition. • We operate in an extremely competitive market, and our business will suffer if we are unable to compete effectively. • 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. • Our operations depend upon third-party relationships; our ability to maintain such relationships and such third parties' performances could adversely affect our business. • We derive a significant percentage of our deposits, total assets and income from deposit accounts that we generate through Payments' customer relationships, of which a limited number of program manager relationships are particularly significant to our operations. • We are exposed to fraud losses from customer accounts. • We are exposed to settlement and other losses from payments customers. • 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. • Acquisitions and other strategic transactions, or the failure to consummate such transactions, could disrupt our business and harm our financial condition and may not yield the intended benefits. • New lines of business or new products and services may subject us to additional risks. • An impairment charge of goodwill or other intangibles could have a material adverse impact on our financial condition and results of operations. • We may incur losses due to fraudulent and negligent acts, as well as errors, by third parties or our employees. • 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. • Failure to comply satisfactorily with certain privacy and data protection laws, regulations, and standards to which we are subject could adversely affect our reputation and operating revenues. • Our reputation and financial condition may be harmed by system failures, computer viruses and other technological interruptions to our operations. • Agency, technological, or human error could lead to tax refund processing delays, which could adversely affect our reputation and operating revenues. • The Commercial Finance business line generates government-backed loans funded by the Bank, any of which could be negatively impacted by a variety of factors. • 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. • The OCC's grant of bank charters to fintech companies and special purpose fintech charter could present a market risk to us generally and the Partner Solutions business line specifically. • 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 regularly assess our investments in technology, and changes in technology could be costly. 37 Table of Contents • Our ability to receive dividends from the Bank could affect our liquidity and ability to pay dividends on our common stock, interest on our trust preferred securities and principal on our debt. • Unclaimed funds represented by unused value on the cards presents compliance and other risks.
If, in the future, the OCC determines to grant any SPNB applications or continues to grant bank charters to fintech applicants, recipients of such charters may enter the U.S. payments market BaaS solutions market, and other business lines in which the Bank operates, which could increase the competition we face and have a material adverse effect on the Bank and the BaaS business line.
If, in the future, the OCC determines to grant any SPNB applications or continues to grant bank charters to fintech applicants, recipients of such charters may enter the U.S. payments market, BaaS solutions market, and other business lines in which the Bank operates, which could increase the competition we face and have a material adverse effect on the Bank and the Partner Solutions business line.
Such catastrophic events could each negatively impact our employees, our business operations or the stability of our deposit base, cause significant property damage, adversely impact the values of collateral securing our loans and/or interrupt our borrowers’ abilities to conduct their business in a manner to support their debt obligations, which could result in losses and increased provision for credit losses.
Such catastrophic events could each negatively impact our employees, our business operations or the stability of our deposit base, cause significant property damage, adversely impact the values of collateral securing our loans and/or interrupt our borrowers’ abilities to conduct their business in a manner to support their debt obligations, which could result in losses and increased provision for credit loss.
General Risk Factors • The price of our common stock may be volatile, which may result in losses for investors. • An investment in our common stock is not an insured deposit. • Future sales or additional issuances of our capital stock may depress prices of shares of our common stock or otherwise dilute the book value of shares then outstanding. • Changes in accounting policies or accounting standards, or changes in how accounting standards are interpreted or applied, could materially affect how we report our financial results and condition. • If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and our reputation. • 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. • We may not be able to pay dividends in the future in accordance with past practice. • Catastrophic events could negatively impact our operations, the operations of third parties with which we do business, and the communities in which we do business. 38 Table of Contents • Legal challenges to and regulatory investigations of our, or the Bank’s operations could have a significant material adverse effect on us. • Our reputation and business could be damaged by negative publicity. • Existing insurance policies may not adequately protect us and our subsidiaries.
General Risk Factors • The price of our common stock may be volatile, which may result in losses for investors. • An investment in our common stock is not an insured deposit. • Future sales or additional issuances of our capital stock may depress prices of shares of our common stock or otherwise dilute the book value of shares then outstanding. • Changes in accounting policies or accounting standards, or changes in how accounting standards are interpreted or applied, could materially affect how we report our financial results and condition. • If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and our reputation. • 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. • We may not be able to pay dividends in the future in accordance with past practice. • Catastrophic events could negatively impact our operations, the operations of third parties with which we do business, and the communities in which we do business. • Legal challenges to and regulatory investigations of our, or the Bank's, operations could have a significant material adverse effect on us. • Our reputation and business could be damaged by negative publicity. • Existing insurance policies may not adequately protect us and our subsidiaries.
Many of the Commercial Finance business line's competitors have been in business for many years, have established customer bases, are larger and may offer other services that neither the Commercial Finance business line nor the Bank do. Several banking institutions have adopted business strategies similar to ours, particularly with respect to the banking-as-a-service business.
Many of the Commercial Finance business line's competitors have been in business for many years, have established customer bases, are larger and may offer other services that neither the Commercial Finance business line nor the Bank do. Several banking institutions have adopted business strategies similar to ours, particularly with respect to the banking-as-a-service ("BaaS") business.
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, federal and state regulators periodically review our allowance for credit losses and may require us to increase our provision for credit loss or recognize loan charge-offs. Material additions to our allowance would materially decrease our net income.
The third parties that use these BaaS solutions, and with which we often partner in marketing efforts, are typically considered fintech companies but may also include other financial intermediaries.
The third parties that use these partner solutions, and with which we often partner in marketing efforts, are typically considered fintech companies but may also include other financial intermediaries.
Continued uncertainty regarding or worsening of the severity or duration of the volatility in the banking industry could also adversely impact our estimate of our allowance for credit losses and related provision for credit losses.
Continued uncertainty regarding or worsening of the severity or duration of the volatility in the banking industry could also adversely impact our estimate of our allowance for credit losses and related provision for credit loss.
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.
For example, if our underwriting practices or criteria fail to adequately identify, price, and mitigate credit risks, such as risks related to 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 38 Table of Contents 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 loss, which could have an adverse effect on our financial condition and results of operations.
Many borrowers have been negatively impacted by recent events impacting financial, real estate, and securities markets, including geopolitical turmoil, rising interest rates, inflation, adverse developments in the financial services industry, and other recent events that have caused market and economic volatility, and may continue to be similarly or more severely affected in the future.
Many borrowers have been negatively impacted by recent events impacting financial, real estate, and securities markets, including geopolitical turmoil, higher interest rates, inflation, adverse developments in the financial services industry, and other events that have caused market and economic volatility, and may continue to be similarly or more severely affected in the future.
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.
See “Funding Activities – Deposits” for further breakdown of balances as of September 30, 2024. 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 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.
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 Partner Solutions 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.
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.
Our ability to receive dividends from the Bank could affect our liquidity and ability to pay dividends on our common stock, interest on our trust preferred securities and principal on our debt. 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.
Should the Bank ever fail to be well capitalized in the future as a result of not meeting the well capitalized requirements or the imposition of an individual minimum capital requirement or similar formal requirement, then, the Bank would be prohibited, absent waiver from the FDIC, from utilizing brokered deposits (i.e., no insured depository institution that is deemed to be less than "well capitalized" may accept, renew or rollover brokered deposits absent a waiver from the FDIC).
Should the Bank ever fail to be well capitalized in the future as a result of not meeting the well capitalized requirements or the imposition of an individual minimum capital requirement or similar formal requirement, then, the Bank would be prohibited, absent waiver from the FDIC, from utilizing brokered deposits (i.e., no insured depository 51 Table of Contents institution that is deemed to be less than "well capitalized" may accept, renew or rollover brokered deposits absent a waiver from the FDIC).
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar events, have in the past and may in the future lead to erosion of customer confidence in the banking system, deposit volatility, liquidity issues, stock price volatility, and other adverse developments.
Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar events, have in the past and may in the future lead to erosion of customer confidence in the banking system, deposit volatility, liquidity issues, stock price volatility, increased regulatory scrutiny and other adverse developments.
For example, negative publicity surrounding us or other prepaid financial service providers could impact the Payments business and prospects for 42 Table of Contents growth to the extent it adversely impacts the perception of prepaid financial services. Consumer spend behaviors could increase or decrease, or become more difficult to accurately predict, thereby impacting operating revenues and/or expenses of the Company.
For example, negative publicity surrounding us or other prepaid financial service providers could impact the Payments business and prospects for growth to the extent it adversely impacts the perception of prepaid financial services. Consumer spend behaviors could increase or decrease, or become more difficult to accurately predict, thereby impacting operating revenues and/or expenses of the Company.
Federal banking law codifies a requirement that a bank holding company (like us) act as a financial "source of strength" for its FDIC-insured depository institution subsidiaries (like the Bank) and permits the OCC, as the Bank's primary federal regulator, to request reports from us to assess our ability to serve as a source of strength for the Bank and to enforce compliance with these statutory requirements.
Federal banking law codifies a requirement that a BHC (like us) act as a financial "source of strength" for its FDIC-insured depository institution subsidiaries (like the Bank) and permits the OCC, as the Bank's primary federal regulator, to request reports from us to assess our ability to serve as a source of strength for the Bank and to enforce compliance with these statutory requirements.
Risks Related to Regulation of the Company and the Bank • We operate in a highly regulated environment, and our failure to comply with laws and regulations, or changes in laws and regulations to which we are subject, may adversely affect our business, prospects, results of operations and financial condition. • The Bureau's rulemaking and enforcement of prohibitions against unfair, deceptive or abusive practices have directly impacted, and may continue to impact, the Bank's consumer financial products and service offerings. • Regulatory scrutiny of bank provision of BaaS solutions and related technology considerations has recently increased. • Increased scrutiny and evolving expectations from stakeholders with respect to environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks. • We will be subject to heightened regulatory requirements if our total assets exceed $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. • Any change in the Bank's ability to gather brokered deposits may adversely impact the Bank. • As a bank holding company, we are required to serve as a "source of strength" for the Bank. • If we fail to maintain sufficient capital, our financial condition, liquidity, results of operations, and compliance with regulatory requirements would be adversely affected. • Changes in federal, state and local tax laws, interpretations of existing laws, or adverse determinations by tax authorities, could increase our tax burden or otherwise have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Regulation of the Company and the Bank • We operate in a highly regulated environment, and our failure to comply with laws and regulations, or changes in laws and regulations to which we are subject, may adversely affect our business, prospects, results of operations and financial condition. • The Bureau's rulemaking and enforcement of prohibitions against unfair, deceptive or abusive practices have directly impacted, and may continue to impact, the Bank's consumer financial products and service offerings. • Regulatory scrutiny of bank provision of partner solutions and related technology considerations has increased. • Increased scrutiny and evolving expectations from stakeholders with respect to ESG practices may impose additional costs on us or expose us to new or additional risks. • We will be subject to heightened regulatory requirements if our total assets exceed $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. • Any change in the Bank's ability to gather brokered deposits may adversely impact the Bank. • As a BHC, we are required to serve as a "source of strength" for the Bank. • If we fail to maintain sufficient capital, our financial condition, liquidity, results of operations, and compliance with regulatory requirements would be adversely affected. • Changes in federal, state, and local tax laws, interpretations of existing tax laws, or adverse determinations by tax authorities, could increase our tax burden or otherwise have a material adverse effect on our business, financial condition, and results of operations.
If we sell our used leased equipment at prices significantly below our projections or in lesser quantities than we anticipated at the time we entered into the lease, our results of operations and cash flows may be negatively impacted. Changes in interest rates could adversely affect our results of operations and financial condition.
If we sell our used leased equipment at prices significantly below our projections or in lesser quantities than we anticipated at the time we entered into the lease, our results of operations and cash flows may be negatively impacted. 41 Table of Contents Changes in interest rates could adversely affect our results of operations and financial condition.
A deterioration in business, political or economic conditions, including those arising from pandemics such as COVID-19, geopolitical turmoil and war, government shutdowns or defaults, or increases in unemployment, could result in an increase in loan delinquencies and nonperforming assets, decreases in loan collateral values, and a decrease in demand for our products and services, among other things, any of which could have a material adverse impact on our financial condition and results of operations.
A deterioration in business, political or economic conditions, including those arising from pandemics, geopolitical turmoil and war, government shutdowns or defaults, or increases in unemployment, could result in an increase in loan delinquencies and nonperforming assets, decreases in loan collateral values, and a decrease in demand for our products and services, among other things, any of which could have a material adverse impact on our financial condition and results of operations.
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.
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 Partner Solutions business line.
Any of these impacts, or any other impacts resulting from the events described above, could have a material adverse effect on our liquidity and our current and/or projected business operations and financial condition and results of operations. Ineffective liquidity management could adversely affect our financial condition and results of operation. Liquidity is essential to our business.
Any of these impacts, or any other impacts resulting from the events described above, could have a material adverse effect on our liquidity and our current and/or projected business operations and financial condition and results of operations. 40 Table of Contents Ineffective liquidity management could adversely affect our financial condition and results of operation. Liquidity is essential to our business.
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.
The competition for 48 Table of Contents 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.
We include in income from operations the difference between the sales price and the depreciated value of an item of leased equipment sold. Changes in our assumptions regarding depreciation could change our depreciation expense, 41 Table of Contents as well as the gain or loss realized upon disposal of leased equipment.
We include in income from operations the difference between the sales price and the depreciated value of an item of leased equipment sold. Changes in our assumptions regarding depreciation could change our depreciation expense, as well as the gain or loss realized upon disposal of leased equipment.
We rely on different sources in order to meet our potential liquidity demands. Our primary sources of funds are deposits, derived principally through our BaaS business line, borrowings, principal and interest payments on loans and leases and mortgage-backed securities, and maturing investment securities.
We rely on different sources in order to meet our potential liquidity demands. Our primary sources of funds are deposits, derived principally through our Partner Solutions business line, borrowings, principal and interest payments on loans and leases and mortgage-backed securities, and maturing investment securities.
A considerable amount of management time and resources is devoted to oversight of, and development, implementation and execution of controls and procedures relating to, compliance with these laws, regulations and policies.
A considerable amount of management time and resources are devoted to oversight of, and development, implementation and execution of controls and procedures relating to, compliance with these laws, regulations and policies.
The BaaS business line utilizes automated programs designed to comply with applicable escheatment laws and regulations. There appears, however, to be a movement among some state regulators to more broadly interpret definitions in escheatment statutes and regulations than in the past.
The Partner Solutions business line utilizes automated programs designed to comply with applicable escheatment laws and regulations. There appears, however, to be a movement among some state regulators to more broadly interpret definitions in escheatment statutes and regulations than in the past.
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.
Controls and Procedures - Inherent Limitations on the Effectiveness of Controls " in this Annual Report on Form 10-K for inherent limitations in a control system. 54 Table of Contents 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.
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.
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.
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.
We have continued to experience considerable growth recently, having increased our assets from $2.53 billion at September 30, 2015 to $7.55 billion at September 30, 2024, primarily due to strategic transactions, such as the Crestmark Acquisition, through participation in government stimulus programs such as the EIP, and through organic growth.
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.
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.
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.
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. Our earnings are significantly affected by general business, political and economic conditions.
In the wake of the repeal of the True Lender Rule, several states have announced their intention to broaden oversight of non-bank fintech lenders, while certain parties have initiated litigation in order to obtain court guidance on how particular jurisdictions may weigh loan program facts and rule on “true lender” challenges.
In the wake of the repeal of the True Lender Rule, several states have announced their intention to broaden oversight of non-bank fintech lenders, and several states have adopted legislation and guidance regarding "true lenders." Additionally, certain parties have initiated litigation in order to obtain court guidance on how particular jurisdictions may weigh loan program facts and rule on “true lender” challenges.
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.
While we believe we are a leader in managing, monitoring and overseeing partner solutions 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 ESG practices may impose additional costs on us or expose us to new or additional risks.
While our deposit base primarily consists of millions of retail cards and other small dollar accounts with an average balance less than $1,000 and we maintain a liquidity 40 Table of Contents position with numerous funding options available totaling over $2.6 billion as of September 30, 2023, we cannot be assured that unusual deposit withdrawal activity will not affect banks generally in the future or us in particular.
While our deposit base primarily consists of millions of retail cards and other small dollar accounts with an average balance less than $1,000 and we maintain a liquidity position with numerous funding options available totaling over $2.0 billion as of September 30, 2024, we cannot be assured that unusual deposit withdrawal activity will not affect banks generally in the future or us in particular.
This is especially true with respect to our BaaS business line, which requires significant expenditures to exploit technology and to develop new products and services to meet customers' needs.
This is especially true with respect to our Partner Solutions business line, which requires significant expenditures to exploit technology and to develop new products and services to meet customers' needs.
The OCC's grant of bank charters to fintech companies and special purpose fintech charter could present a market risk to us generally and the BaaS business line specifically.
The OCC's grant of bank charters to fintech companies and special purpose fintech charter could present a market risk to us generally and the Partner Solutions business line specifically.
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.
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, 2024, we had assets subject to settlement risk of $365.9 million.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact the Company’s reputation, ability to do business with certain partners, and stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact the Company’s reputation, ability to do business with certain partners, and stock price. Both recently adopted and pending government regulations will result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
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”).
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 with 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 Emerald Financial Services, LLC ("EFS") with respect to certain H&R Block financial services if the Bank should lose its exemption from the Durbin Amendment).
We will be subject to heightened regulatory requirements if our total assets exceed $10 billion as of December 31 of any calendar year. As of September 30, 2023, our total assets were $7.54 billion.
We will be subject to heightened regulatory requirements if our total assets exceed $10 billion as of December 31 of any calendar year. As of September 30, 2024, our total assets were $7.55 billion.
Damage to our reputation could adversely impact our ability to attract new, and maintain existing, loan and deposit customers, employees and business relationships, and, particularly with respect to our BaaS business line, could result in the imposition of new regulatory requirements, operational restrictions, enhanced supervision and/or civil money penalties.
Damage to our reputation could adversely impact our ability to attract new, and maintain existing, loan 55 Table of Contents and deposit customers, employees and business relationships, and, particularly with respect to our Partner Solutions business line, could result in the imposition of new regulatory requirements, operational restrictions, enhanced supervision and/or civil money penalties.
Future sales or additional issuances of stock may affect the market price for shares of our common stock. 53 Table of Contents Changes in accounting policies or accounting standards, or changes in how accounting standards are interpreted or applied, could materially affect how we report our financial results and condition.
Future sales or additional issuances of stock may affect the market price for shares of our common stock. Changes in accounting policies or accounting standards, or changes in how accounting standards are interpreted or applied, could materially affect how we report our financial results and condition. Our accounting policies are fundamental to determining and understanding our financial results and condition.
See Part I, Item 1 "Business - Regulation and Supervision" herein. 49 Table of Contents Many of the laws, rules, regulations and supervisory policies governing our business are intended primarily for the protection of our depositors, our customers, the financial system and the FDIC insurance fund, not our stockholders or other creditors and are subject to regular modification and change.
Many of the laws, rules, regulations and supervisory policies governing our business are intended primarily for the protection of our depositors, our customers, the financial system and the FDIC insurance fund, not our stockholders 49 Table of Contents or other creditors and are subject to regular modification and change.
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.
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, further regulations, including in response to recent highly-publicized bank failures, could increase the assessment rate we are required to pay to the FDIC, adversely affecting our earnings. It is very difficult to predict future changes in regulation or the competitive impact that any such changes would have on our business.
In addition, future regulations could increase the assessment rate we are required to pay to the FDIC, adversely affecting our earnings. It is very difficult to predict future changes in regulation or the competitive impact that any such changes would have on our business.
See "Business - Regulation and Supervision - Bank Regulation and Supervision" in Part I, Item 1 of this Annual Report on Form 10-K. Regulatory scrutiny of bank provision of BaaS solutions and related technology considerations has recently increased. We provide products and services to third parties through various payments, issuing, credit and tax solutions.
See "Business - Regulation and Supervision - Bank Regulation and Supervision" in Part I, Item 1 of this Annual Report on Form 10-K. Regulatory scrutiny of bank provision of partner solutions and related technology considerations has increased. We provide products and services to third parties through issuing, acquiring, digital payments, financial institution solutions, credit solutions, and professional tax solutions.
As a bank holding company, we are required to serve as a "source of strength" for the Bank.
As a BHC, we are required to serve as a "source of strength" for the Bank.
Moreover, if our regulators examine our third-party service providers and find questionable or illegal acts or practices, our regulators could require us to restructure or terminate our agreements with such providers.
Moreover, if our regulators examine our third-party service providers and find questionable or illegal acts or practices, our regulators could require us to restructure or terminate our agreements with such providers or enhance management and risk oversight practices with respect thereto.
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.
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.
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.
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.
In any event, our agreements with third parties could come under scrutiny by our regulators, and our regulators could raise an issue with, or object to, any term or provision in such an agreement or any action taken by such third party vis-à-vis the Bank's operations or customers, resulting in a material adverse effect to us including, but not limited to, the imposition of fines and/or penalties and the material restructuring or termination of such agreement.
In any event, our agreements with, and management practices with respect to, third parties have been and may continue to be scrutinized by our regulators, and our regulators could raise an issue with, or object to, any term or provision in such an agreement or any action taken by such third party vis-à-vis the Bank's operations or customers, resulting in a material adverse effect to us including, but not limited to, the imposition of fines and/or penalties and the material restructuring or termination of such agreement.
These rates are highly sensitive to many factors beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities, including the Federal Reserve. Throughout 2022 and 2023, the Federal Reserve has raised the federal funds rate to its current targeted rate between 5.25% and 5.5% in an effort to curb inflation.
These rates are highly sensitive to many factors beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities, including the Federal Reserve. Throughout 2022, 2023 and 2024, the Federal Reserve raised the target range for the federal funds rate in an effort to curb inflation.
Their experience and industry contacts significantly benefit us. Our future success also depends in part on our ability to attract, retain and motivate key management and operating personnel. The loss of any of our key personnel could have an adverse effect on our business. Most recently, we completed a Chief Financial Officer transition in November 2023.
Their experience and industry contacts significantly benefit us. Our future success also depends in part on our ability to attract, retain and motivate key management and operating personnel. The loss of any of our key personnel could have an adverse effect on our business.
The governing tax laws and applicable tax rates vary by jurisdiction and are subject to interpretation and changes. We may be subject to examination by the tax authorities and such authorities may disagree with our tax positions, which could adversely affect our financial 52 Table of Contents condition.
We are subject to taxation at the federal state and local levels. The governing tax laws and applicable tax rates vary by jurisdiction and are subject to interpretation and changes. We may be subject to examination by the tax authorities and such authorities may disagree with our tax positions, which could adversely affect our financial condition.
As of September 30, 2023, we were authorized to issue up to 90,000,000 shares of common stock, of which 26,183,583 shares were outstanding, and 41,980 shares were held as treasury stock. We were also authorized to issue up to 3,000,000 shares of preferred stock and 3,000,000 shares of non-voting common stock, none of which were outstanding or reserved for issuance.
As of September 30, 2024, we were authorized to issue up to 90,000,000 shares of common stock, of which 24,847,353 shares were outstanding, and 3,769 shares were held as treasury stock. We were also authorized to issue up to 3,000,000 shares of preferred stock and 3,000,000 shares of non-voting common stock, none of which were outstanding or reserved for issuance.
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.
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.
If we or the Bank fail to meet applicable minimum capital requirements or cease to be well capitalized, such failure would cause us and the Bank to be subject to regulatory restrictions and could adversely affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common stock and/or repurchase shares, our ability to make distributions on our trust preferred securities, our ability to make acquisitions, and our business, results of operations and financial condition, generally.
If we or the Bank fail to meet applicable minimum capital requirements or cease to be well capitalized, such failure would cause us and the Bank to be subject to regulatory restrictions and could adversely affect customer confidence, our ability to grow, our costs of funds and FDIC insurance costs, our ability to pay dividends on common stock and/or repurchase shares, our ability to make distributions on our trust preferred securities, our ability to make acquisitions, and our business, results of operations and financial condition, generally. 52 Table of Contents Changes in federal, state, and local tax laws, interpretations of existing tax laws, or adverse determinations by tax authorities, could increase our tax burden or otherwise have a material adverse effect on our business, financial condition, and results of operations.
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.
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.
Growth of prepaid financial services as an electronic payment mechanism may not occur or may occur more slowly than estimated. These factors could have a material adverse effect on our financial condition and results of operations. Our operations depend upon third-party relationships; our ability to maintain such relationships and such third parties' performances could adversely affect our business.
Growth of prepaid financial services as an electronic payment mechanism may not 42 Table of Contents occur or may occur more slowly than estimated. These factors could have a material adverse effect on our financial condition and results of operations.
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.
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.
Investment in our common stock is inherently subject to risks, including those described in this "Risk Factors" section, and is subject to forces that affect the financial markets in general. As a result, if you hold or acquire our common stock, it is possible that you may lose all or a portion of your investment.
Investment in our common stock is inherently subject to risks, including those described in this "Risk Factors" section, and is subject to forces that affect the financial markets in general.
As market interest rates rise, we experience competitive pressures to increase the rates we pay on deposits, which may decrease our net interest income. In addition, inflationary pressures will increase our operating costs and could have a significant negative effect on our borrowers and the values of collateral securing loans, which could negatively affect our financial performance.
In addition, inflationary pressures will generally increase our operating costs and could have a significant negative effect on our borrowers and the values of collateral securing loans, which could negatively affect our financial performance. In addition, certain of our noninterest income and noninterest expenses are subject to adverse effect in a rising interest rate environment.
In addition, certain of our noninterest income and noninterest expenses are subject to adverse effect in a rising interest rate environment. The Bank monitors its interest rate risk exposure; however, the Bank can provide no assurance that its efforts will appropriately protect the Bank in the future from interest rate risk exposure.
The Bank monitors its interest rate risk exposure; however, the Bank can provide no assurance that its efforts will appropriately protect the Bank in the future from interest rate risk exposure.
As a regulated financial institution and a publicly traded company, we are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to ESG practices and disclosure.
As a regulated financial institution and a publicly traded company, we are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to ESG practices and disclosure. Investor advocacy groups, investment funds, and influential investors are increasingly focused on these practices, especially as they relate to climate risk, hiring practices, diversity, health and safety and human rights.
Future sales or additional issuances of our capital stock may depress prices of shares of our common stock or otherwise dilute the book value of shares then outstanding.
As a result, if you hold or acquire our common stock, it is possible that you may lose all or a portion of your investment. 53 Table of Contents Future sales or additional issuances of our capital stock may depress prices of shares of our common stock or otherwise dilute the book value of shares then outstanding.
Removed
Investor advocacy groups, investment funds, and influential investors are increasingly focused on these practices, especially as they relate to climate risk, hiring practices, the diversity of the work force, and racial and social justice issues.
Added
Additionally, an unpredictable or volatile political environment in the United States, including any social unrest and uncertainty as a result of the 2024 U.S. presidential election, could negatively impact business and market 39 Table of Contents conditions, economic growth, financial stability, and business, consumer, investor, and regulatory sentiments, any one or more of which could have a material adverse impact on our financial condition and results of operations.
Removed
Changes in federal, state, and local tax laws, interpretations of existing tax laws, or adverse determinations by tax authorities, could increase our tax burden or otherwise have a material adverse effect on our business, financial condition, and results of operations. We are subject to taxation at the federal state and local levels.
Added
It is difficult to predict the legislative and regulatory changes that may result due to the upcoming presidential election. A new administration, or a change in the make-up of either the Senate and/or House of Representatives may cause broader economic changes due to changes in governing ideology and style.
Added
New appointments to the Board of Governances of the Federal Reserve could affect monetary policy and interest rates, which could in turn affect economic growth.
Added
In September 2024 and November 2024, the Federal Reserve lowered the target range for the federal funds rate to its current range of 4.50% to 4.75% in light of the progress on inflation. As market interest rates have risen, we have experienced competitive pressures to increase the rates we pay on deposits, which may decrease our net interest income.
Added
Our operations depend upon third-party relationships; our ability to maintain such relationships and such third parties' performances could adversely affect our business.
Added
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.

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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; 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.
Biggest changeThe Partner Solutions business line operates out of the Company's corporate headquarters along with additional offices in Louisville, Kentucky and Easton, Pennsylvania. The Company has corporate and shared services offices located in Scottsdale, Arizona and Washington, D.C.
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 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 Commercial Finance and Partner Solutions business lines operate. The Commercial Finance business line operates out of offices in Troy, Michigan; Newport Beach, California; Franklin, Tennessee; Addison, Texas; and Toronto, Ontario, Canada.
See Note 6 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 current facilities are adequate to meet its present needs, though it is continuing to assess those property needs as Pathward Financial is a Talent Anywhere remote working environment.
Management believes current facilities are adequate to meet its present needs, though it is continuing to assess those property needs as Pathward Financial is a Talent Anywhere remote working environment.
Added
The offices in Newport Beach, California and Addison, Texas were included in the sale of the commercial insurance premium finance business that closed October 31, 2024. After the sale, the Company has eight non-branch offices from which its Commercial Finance and Partner Solutions business lines operate.
Added
Of the Company's eight properties, the Company leases seven of them, all on market terms. See Note 5. Premises, Furniture, and Equipment, Net 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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFrom time to time, we are involved in a variety of litigation matters in the ordinary course of our business and anticipate that we will become involved in new litigation matters in the future.
Biggest changeFrom time to time, we are involved in a variety of litigation matters in the ordinary course of our business and anticipate that we will become involved in new litigation matters in the future. Item 4. Mine Safety Disclosures. Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+1 added−2 removed3 unchanged
Biggest changePeriod 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.
Biggest changeThe table below sets forth information regarding repurchases of our common stock during the fiscal 2024 fourth quarter. 58 Table of Contents Period Total Number of Shares Repurchased (1) Average Price Paid per Share (1)(2) Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs Maximum Number Of Shares that may yet be Purchased Under the Plans or Programs July 1 to 31 108,200 $ 62.60 108,200 7,274,543 August 1 to 31 115,100 63.76 115,100 7,159,443 September 1 to 30 16,777 67.17 13,008 7,000,000 (3) Total 240,077 236,308 (1) Of the total number of shares acquired during the period, 3,769 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 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.
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 expired 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.
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.
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 2024 and 2023 were $0.05 per share.
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).
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 and the S&P 600 Financials Index (assuming the investment of $100 in each index on October 1, 2019 and reinvestment of all dividends).
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.
As of November 20, 2024, the Company had (i) 24,119,508 shares of common stock outstanding, which were held by approximately 194 stockholders of record, (ii) no shares of nonvoting common stock outstanding, and (iii) 70,123 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.
The 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
The 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. 59 Table of Contents Fiscal Year Ended September 30, Index 2019 2020 2021 2022 2023 2024 Pathward Financial, Inc. $ 100.00 $ 59.44 $ 163.03 $ 102.86 $ 144.43 $ 207.57 NASDAQ Composite Index 100.00 140.96 183.61 135.41 170.76 236.74 S&P 600 Financials Index 100.00 73.90 119.51 101.04 94.75 130.48 Item 6. [Reserved] 60 Table of Contents
Removed
The table below sets forth information regarding repurchases of our common stock during the fiscal 2023 fourth quarter.
Added
(3) In addition to the shares purchased as part of the publicly announced program and the shares acquired in satisfaction of withholding obligations, the Company’s authority to repurchase the remaining 146,435 shares under the program announced on September 7, 2021 expired on September 30, 2024.
Removed
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. 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%.
Biggest changeNonaccruing loans and leases have been included in the table as loans or leases carrying a zero yield. 64 Table of Contents Fiscal Year Ended September 30, 2024 2023 2022 (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 $ 348,149 $ 15,446 4.44 % $ 316,222 $ 12,425 3.93 % $ 496,334 $ 3,535 0.71 % Mortgage-backed securities 1,450,601 39,402 2.72 % 1,541,909 41,197 2.67 % 1,292,804 26,846 2.08 % Tax-exempt investment securities 130,567 3,631 3.52 % 147,863 3,924 3.36 % 183,936 3,565 2.45 % Asset-backed securities 227,099 13,048 5.75 % 186,854 8,197 4.39 % 283,752 3,898 1.37 % Other investment securities 285,281 8,948 3.14 % 295,439 9,390 3.18 % 268,062 6,274 2.34 % Total investments 2,093,548 65,029 3.15 % 2,172,065 62,708 2.94 % 2,028,554 40,583 2.05 % Commercial finance 3,770,214 311,480 8.26 % 3,220,585 261,195 8.11 % 2,884,585 203,004 7.04 % Consumer finance 318,886 33,008 10.35 % 231,242 22,404 9.69 % 295,356 23,097 7.82 % Tax services 153,713 9,194 5.98 % 141,210 10,490 7.43 % 179,611 12,978 7.23 % Warehouse finance 416,988 42,194 10.12 % 343,168 29,513 8.60 % 433,121 27,474 6.34 % Community banking — — — % — — — % 34,758 1,525 4.39 % Total loans and leases (3) 4,659,801 395,876 8.50 % 3,936,205 323,602 8.22 % 3,827,431 268,078 7.00 % Total interest-earning assets 7,101,498 $ 476,351 6.72 % 6,424,492 $ 398,735 6.23 % 6,352,319 $ 312,196 4.93 % Noninterest-earning assets 560,259 585,719 751,555 Total assets $ 7,661,757 $ 7,010,211 $ 7,103,874 Interest-bearing liabilities: Interest-bearing checking $ 506 $ 1 0.22 % $ 355 $ 1 0.30 % $ 338 $ 1 0.32 % Savings 54,594 17 0.03 % 65,175 25 0.04 % 78,613 24 0.03 % Money markets 181,515 2,318 1.28 % 137,024 461 0.34 % 96,112 214 0.22 % Time deposits 4,754 13 0.28 % 6,488 10 0.15 % 8,493 38 0.45 % Wholesale deposits 191,276 10,670 1.18 % 81,153 3,859 4.75 % 63,529 223 0.35 % Total interest-bearing deposits (a) 432,645 13,019 3.01 % 290,195 4,356 1.50 % 247,085 500 0.20 % Overnight fed funds purchased 99,290 5,538 5.58 % 74,812 3,922 5.24 % 32,414 235 0.73 % Subordinated debentures 19,638 1,421 7.23 % 19,560 1,422 7.27 % 46,441 3,375 7.27 % Other borrowings 13,862 1,255 9.06 % 15,108 1,174 7.77 % 17,490 762 4.36 % Total borrowings 132,790 8,214 6.19 % 109,480 6,518 5.95 % 96,345 4,372 4.54 % Total interest-bearing liabilities 565,435 21,233 3.76 % 399,675 10,874 2.72 % 343,430 4,872 1.42 % Noninterest-bearing deposits (b) 6,113,217 — — % 5,739,084 — — % 5,776,852 — — % Total deposits and interest-bearing liabilities 6,678,652 $ 21,233 0.32 % 6,138,759 $ 10,874 0.18 % 6,120,282 $ 4,872 0.08 % Other noninterest-bearing liabilities 251,475 200,054 202,887 Total liabilities 6,930,127 6,338,813 6,323,169 Shareholders' equity 731,630 671,398 780,705 Total liabilities and shareholders' equity $ 7,661,757 $ 7,010,211 $ 7,103,874 Net interest income and net interest rate spread including noninterest-bearing deposits $ 455,118 6.40 % $ 387,861 6.05 % $ 307,324 4.85 % Net interest margin 6.41 % 6.04 % 4.84 % Tax-equivalent effect 0.01 % 0.01 % 0.01 % Net interest margin, tax equivalent (2) 6.42 % 6.05 % 4.85 % Total cost of deposits (a+b) 6,545,862 13,019 0.20 % 6,029,279 4,356 0.07 % 6,023,937 500 0.01 % (1) Tax rate used to arrive at the tax-equivalent yield ("TEY") for the fiscal years ended September 30, 2024, 2023, and 2022 was 21%.
The Company considers these relationships as being in the process of collection. Insurance premium finance loans, consumer finance and tax services loans are generally not placed on nonaccrual status, but are instead written off when the collection of principal and interest become doubtful. Loans and leases, or portions thereof, are charged-off when collection of principal becomes doubtful.
The Company considers these relationships as being in the process of collection. Insurance premium finance loans, consumer finance and tax services loans are generally not placed on nonaccrual status, but are instead written off when the collection of principal and interest become doubtful. Loans and leases, or portions thereof, are generally charged-off when collection of principal becomes doubtful.
The provision for credit losses is the adjustment to the allowance for credit losses balance for the applicable period. The allowance for credit losses represents management’s current estimate of credit losses expected to be incurred by the loan and lease portfolio over the life of each financial asset as of the balance sheet date.
The provision for credit loss is the adjustment to the allowance for credit losses balance for the applicable period. The allowance for credit losses represents management’s current estimate of 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.
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.
Notwithstanding that a significant amount of the Company’s deposits, primarily those attributable to the Partner Solutions 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 Partner Solutions partners are tied to a rate index and servicing fees the Company recognizes for off-balance sheet custodial deposits are typically reflective of the EFFR.
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.
The Company believes that the level of allowance for credit losses at September 30, 2024 was appropriate and reflected probable losses related to these loans and leases; however, there can be no assurance that all loans and leases will be fully collectible or that the present level of the allowance will be adequate in the future.
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.
Although management believes the levels of the allowance for credit losses at September 30, 2024 and September 30, 2023 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.
Allowance for Credit Losses . The ACL represents management’s estimate of current credit losses expected to be incurred by the loan and lease portfolio over the life of each financial asset as of the balance sheet date.
The 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.
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.
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 Partner Solutions business line. Noninterest expense is also impacted by operating lease equipment depreciation expense, occupancy and equipment expense, legal and consulting expenses, and regulatory expense.
The majority of the Company's loans and leases subject to individual evaluation are considered collateral dependent. Only loans and leases that are on nonaccrual status or are designated as a TDR are subject to individual evaluation.
The majority of the Company's loans and leases subject to individual evaluation are considered collateral dependent. Only loans and leases that are on nonaccrual status or are designated as a modification are subject to individual evaluation.
No assurance can be given that our regulators will consider our liquidity level, or our capital level, though substantially in excess of current rules pursuant to which the Company and the Bank are considered “well-capitalized,” to be sufficiently high in the future.
No assurance can be given that our regulators will consider our liquidity level, or our capital level, though substantially in excess of current rules pursuant to which the Company and the Bank are considered “well-capitalized,” to be sufficiently high in the future. See Note 14.
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.
See the section below titled “Allowance for Credit Losses” for further information. 68 Table of Contents The table below sets forth the amounts and categories of the Company's nonperforming assets.
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. See Note 14.
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.
The Company’s noninterest income is derived primarily from tax product fees, card and deposit fees, credit products, and ATM fees attributable to the Partner Solutions business line and fees charged on bank loans, leases and transaction accounts.
The Company may hold negative balances associated with cardholder programs in the BaaS business line that are included within noninterest-bearing deposits on the Company's Consolidated Statements of Financial Condition.
The Company may hold negative balances associated with cardholder programs in the Partner Solutions business line that are included within noninterest-bearing deposits on the Company's Consolidated Statements of Financial Condition.
The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets, which generally means loans and leases identified as troubled debt restructurings or loans and leases on nonaccrual status. All other loans and leases are evaluated collectively for credit loss.
The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets, which generally means loans and leases identified as modifications or loans and leases on nonaccrual status. All other loans and leases are evaluated collectively for credit loss.
(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.
(3) Included in the yield computation are net loan fees of $22.7 million, $27.7 million, and $33.7 million, for the fiscal years ended September 30, 2024, 2023, and 2022, respectively. 65 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.
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.
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, 2024, the Company managed $201.9 million of customer deposits at other banks in its capacity as custodian.
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.
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 $45.3 million at September 30, 2024, a decrease compared to $49.7 million at September 30, 2023.
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.
See Note 7. Goodwill and Intangibles to the Consolidated Financial Statements for further information. 71 Table of Contents LIQUIDITY AND CAPITAL RESOURCES The Company’s primary sources of funds are deposits, derived principally through its Partner Solutions business line, borrowings, principal and interest payments on loans and leases and mortgage-backed securities, and maturing investment securities.
See Note 4 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.
Loans and Leases, Net 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. The payment of dividends and repurchase of shares have the effect of reducing stockholders’ equity.
Capital Requirements and Restrictions on Retained Earnings 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. The payment of dividends and repurchase of shares have the effect of reducing stockholders’ equity.
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.
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, 2024 include $158.3 million in cash and cash equivalents and $201.9 million in off-balance sheet custodial deposits.
Investment debt securities held to maturity include implicit and explicit guarantees by government agencies and have an expected zero risk of loss, therefore no provision for credit loss for debt securities held to maturity has been included in the Company’s Consolidated Statement of Operations.
Debt securities HTM include implicit and explicit guarantees by government agencies and have an expected zero risk of loss, therefore no provision for credit loss for debt securities held to maturity has been included in the Company’s Consolidated Statement of Operations. Debt securities AFS are recorded at fair value and are assessed quarterly for credit loss.
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
Summary of Significant Accounting Policies 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. 72 Table of Contents
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.
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. See Note 1. Summary of Significant Accounting Policies and Note 4.
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 was mainly attributable to increased yields, higher average interest-earning asset balances and an improved earning asset mix. 66 Table of Contents The Company's average interest-earning assets for fiscal 2024 increased by $677.0 million to $7.10 billion compared with fiscal 2023, primarily due to growth in average outstanding balances of loans and leases and cash balances, partially offset by a decrease in total investment security balances.
This section should be read in conjunction with the following parts of this Form 10-K: Part I, Item 1 “Business,” Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” and Part II, Item 8 “Financial Statements and Supplementary Data.” GENERAL The Company, a registered bank holding company, is a Delaware corporation, the principal assets of which are all the issued and outstanding shares of the Bank, a national bank.
This section should be read in conjunction with the following parts of this Form 10-K: Part I, Item 1 “Business,” Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” and Part II, Item 8 “Financial Statements and Supplementary Data.” GENERAL The Company, a registered BHC that has elected to be a financial holding company, is a Delaware corporation, the principal assets of which are all the issued and outstanding shares of the Bank, a chartered national bank, the accounts of which are insured up to applicable limits by the FDIC as administrator of the DIF.
Action is taken to charge off ERO loans if such loans have not been collected by the end of June and refund advance loans if such loans have not been collected by the end of the calendar year. Nonaccrual loans and troubled debt restructurings are generally considered impaired.
Action is taken to charge off ERO loans if such loans have not been collected by the end of June and refund advance loans if such loans have not been collected by the end of the calendar year.
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.
Capital Requirements and Restrictions on Retained Earnings 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.
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 Company's nonperforming loans and leases at September 30, 2024, were $41.6 million, representing 0.87% of total gross loans and leases, compared to $56.2 million, or 1.26% of total gross loans and leases at September 30, 2023. Classified Assets .
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.
Capital Requirements and Restrictions on Retained Earnings 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. Impact of New Accounting Standards See Note 1.
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.
Th e $4.4 million year-o ver-year decrease in the ACL was primarily driven by a $4.4 million decrease in the allowance related to the commercial finance portfolio and a $0.1 million decrease in the allowance related to the consumer finance portfolio, partially offset by a $0.1 million increase in the allowance related to the warehouse finance portfolio.
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.
Total cash and cash equivalents were $158.3 million at September 30, 2024, decreasing from $375.6 million at September 30, 2023. The Company maintains its cash investments primarily in interest-bearing overnight deposits with the FHLB of Des Moines and the FRB. At September 30, 2024, the Company did not have any federal funds sold.
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.
Financial Highlights for the 2024 Fiscal Fourth Quarter • Total revenue for the fourth quarter was $167.9 million, an increase of $6.9 million, or 4%, compared to the same quarter in fiscal 2023, driven by an increase in net interest income, partially offset by a reduction in noninterest income. • Net interest margin ("NIM") increased 47 basis points to 6.66% fo r the fourth quarter from 6.19% during the same period of last year, p rimarily driven by increased yields on earning assets and an improved earning asset mix from the continued optimization of the portfolio. • Total gross loans and leases at September 30, 2024 decreased $290.9 million , to $4.08 billion compared to September 30, 2023.
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.
Short-term and Long-term Borrowings 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. 62 Table of Contents At September 30, 2024, the Company’s stockholders’ equity totaled $839.6 million, an increase of $189.0 million, from $650.6 million at September 30, 2023.
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.
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.
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.
Net Interest Income Net interest income for fiscal 2024 was $455.1 million, an increase of 17%, from $387.9 million for the same period of the prior year.
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.
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.
Investment debt securities available for sale are recorded at fair value and are assessed quarterly for credit loss. Any such credit loss is recorded in the Company’s Provision for Credit Loss on the Company’s Consolidated Statement of Operations. Non-credit related losses are recorded in Other Comprehensive Income in the Company’s Consolidated Statement of Condition.
Any such credit loss is recorded in the Company’s Provision for Credit Loss on the Company’s Consolidated Statement of Operations. Non-credit related losses are recorded in Other Comprehensive Income in the Company’s Consolidated Statement of Condition.
Generally, this is associated with a delay or shortfall in payments of greater than 210 days for insurance premium finance, 180 days for tax and other specialty lending loans, 120 days for consumer credit products and 90 days for other loans.
Typically, this is associated with a delay or shortfall in payments of 210 days or more for commercial insurance premium finance, 120 days or more for consumer credit products and leases, and 90 days or more for commercial finance loans.
(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.
(Dollars in thousands) September 30, 2024 September 30, 2023 Nonperforming Loans and Leases Nonaccruing loans and leases: Commercial finance $ 26,412 $ 37,372 Total nonaccruing loans and leases 26,412 37,372 Accruing loans and leases delinquent 90 days or more: Loans held for sale 1,050 306 Commercial finance 2,314 11,242 Consumer finance 3,053 2,210 Tax services (1) 8,733 5,082 Total accruing loans and leases delinquent 90 days or more 15,150 18,840 Total nonperforming loans and leases 41,562 56,212 Other Assets Nonperforming operating leases 1,471 1,764 Total other assets 1,471 1,764 Total nonperforming assets $ 43,033 $ 57,976 Total as a percentage of total assets 0.57 % 0.77 % (1) Certain tax services loans do not bear interest.
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.
The increase in income tax expense was primarily due a decrease in investment tax credits. For the fiscal year ended September 30, 2024, the Company originated $68.4 million in renewable energy leases, compared to $93.6 million for the prior fiscal year. Investment tax credits related to renewable energy leases are recognized ratably based on income throughout each fiscal year.
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.
The following table summarizes the Company's negative deposit balances within the Partner Solutions business line: (Dollars in thousands) September 30, 2024 September 30, 2023 Noninterest-bearing deposits $ 5,982,992 $ 6,608,137 Prefunding (315,994) (230,749) Discount funding (38,665) (34,351) DDA overdrafts (11,236) (10,096) Noninterest-bearing checking, net $ 5,617,097 $ 6,332,941 Off-Balance Sheet Custodial Deposits.
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.
As of September 30, 2024, the Company had $433.3 million in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $198.2 million are on activated cards while $235.1 million are on inactivated cards.
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.
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 and Business Developments • On August 28, 2024, Pathward announced the sale of its commercial insurance premium finance business. The sale was completed on October 31, 2024.
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.
Total end-of-period deposits decreased 11% to $5.88 billion at September 30, 2024, compared to $6.59 billion at September 30, 2023. The decrease in end-of-period deposits was primarily driven by decreases in noninterest-bearing deposits of $715.8 million, money market deposits of $10.6 million, and savings deposits of $10.3 million, partially offset by an increase in wholesale deposits of $20.1 million.
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.
Comparison of Operating Results for the Fiscal Years Ended September 30, 2023, and September 30, 2022 A comparison of the 2023 results to the 2022 results and other 2022 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 21, 2023 and is incorporated by reference herein.
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.
The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally this rate index is based on a percentage of the EFFR and reprices immediately upon a change in the EFFR.
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 in the nonperforming assets as a percentage of total assets at September 30, 2024 compared to the prior fiscal year, was primarily driven by a decrease in nonperforming loans in the commercial finance portfolio, partially offset by increases in the tax services and consumer finance portfolios.
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.
Fiscal Year Ended September 30, 2024 vs. 2023 2023 vs. 2022 (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 $ 1,320 $ 1,701 $ 3,021 $ (1,709) $ 10,599 $ 8,890 Mortgage-backed securities (2,515) 720 (1,795) 5,795 8,556 14,351 Tax-exempt investment securities (546) 253 (293) (1,032) 1,391 359 Asset-backed securities 1,986 2,865 4,851 (1,721) 6,020 4,299 Other investment securities (327) (115) (442) 691 2,425 3,116 Total investments (2,319) 4,640 2,321 3,115 19,010 22,125 Commercial finance 45,374 4,911 50,285 25,245 32,946 58,191 Consumer finance 8,985 1,619 10,604 (5,584) 4,891 (693) Tax services 873 (2,169) (1,296) (2,837) 349 (2,488) Warehouse finance 6,961 5,720 12,681 (6,457) 8,496 2,039 Community banking — — — (763) (762) (1,525) Total loans and leases 61,017 11,257 72,274 7,778 47,746 55,524 Total interest-earning assets $ 60,018 $ 17,598 $ 77,616 $ 9,184 $ 77,355 $ 86,539 Interest-bearing liabilities: Savings $ (3) $ (5) $ (8) $ 1 $ — $ 1 Money markets 196 1,661 1,857 247 — 247 Time deposits (4) 7 3 (28) — (28) Wholesale deposits 8,112 (1,301) 6,811 78 3,558 3,636 Total interest-bearing deposits 2,842 5,821 8,663 101 3,755 3,856 Overnight fed funds purchased 1,350 266 1,616 644 3,043 3,687 Subordinated debentures 6 (7) (1) (1,952) (1) (1,953) Other borrowings (102) 183 81 (116) 528 412 Total borrowings 1,429 267 1,696 653 1,493 2,146 Total interest-bearing liabilities $ 4,271 $ 6,088 $ 10,359 $ 754 $ 5,248 $ 6,002 Net effect on net interest income $ 55,747 $ 11,510 $ 67,257 $ 8,430 $ 72,107 $ 80,537 Comparison of Operating Results for the Fiscal Years Ended September 30, 2024 and September 30, 2023 The Company reported net income of $168.4 million, or $6.62 per diluted share, for the fiscal year ended September 30, 2024, compared to $163.6 million, or $5.99 per diluted share, for the fiscal year ended September 30, 2023, an increase of $4.7 million.
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 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. See Note 20.
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.
As of the Period Ended September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023 Commercial finance 1.29 % 1.17 % 1.21 % 1.30 % 1.26 % Consumer finance 0.90 % 2.23 % 1.71 % 1.45 % 0.92 % Tax services 0.02 % 66.35 % 37.31 % 1.52 % 0.04 % Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % Total loans and leases 1.11 % 1.73 % 1.83 % 1.22 % 1.14 % Total loans and leases excluding tax services 1.12 % 1.12 % 1.14 % 1.21 % 1.14 % The Company's ACL as a percentage of total loans and leases decreased to 1.11% at September 30, 2024 from 1.14% at September 30, 2023.
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 increase was primarily attributable to a decrease in accumulated other comprehensive loss and increases in additional paid-in capital and retained earnings. The Company and Bank remained above the federal regulatory minimum capital requirements at September 30, 2024, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies. See Note 14.
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 increase in net income was driven by an increase in net interest income and a decrease in provision for credit losses, partially offset by a decrease in noninterest income and increases in noninterest expense and income tax expense. Total revenue for fiscal 2024 was $754.7 million, compared to $704.5 million for fiscal 2023, an increase of 7%.
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 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.
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.
Subsequent Events for details on these events. 61 Table of Contents FINANCIAL CONDITION At September 30, 2024, the Company’s total assets increased slightly to $7.55 billion compared to $7.54 billion at September 30, 2023, primarily due to an increase of $611.1 million in loans held for sale and $8.1 million in accrued interest receivable, partially offset by decreases of $290.9 million in loans and leases, $217.2 million in cash and cash equivalents, $63.0 million in securities available for sale and $32.3 million in other assets.
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.
The increase was primarily attributable to increases in card processing expense, compensation and benefits expense, and other expense, partially offset by decreases in operating lease equipment depreciation and legal and consulting expense. The card processing expense increase was due to rate-related agreements with Partner Solutions relationships.
(Dollars in thousands) Less Than 1 Year 1 to 3 Years 3 to 5 Years More Than 5 Years Total Time deposits $ 5,165 $ 369 $ — $ — $ 5,534 Short-term debt 13,000 — — — 13,000 Long-term debt 621 — — 33,252 33,873 Operating leases — 7,631 6,287 18,639 32,557 Total $ 18,786 $ 8,000 $ 6,287 $ 51,891 $ 84,964 For more information on the Company’s short-term and long-term borrowings, see “Funding Activities – Borrowings” within Item 1 “Business,” which is included in Part I of this Annual Report on Form 10-K and Note 11 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.” The Company and the Bank met regulatory requirements for classification as well-capitalized institutions at September 30, 2023.
Short-term and Long-term Borrowings 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.” The Company and the Bank met regulatory requirements for classification as well-capitalized institutions at September 30, 2024.
When factoring in all resources, such as the FHLB, the FRB Discount Window and other unsecured funding and wholesale options, the Company has over $2.6 billion in available liquidity. The following table summarizes the Company’s significant contractual obligations at September 30, 2023.
When factoring in all resources, such as the FHLB, the FRB Discount Window and other unsecured funding and wholesale options, the Company has over $2.1 billion in available liquidity. Due to the characteristics of the Company's deposit portfolio, uninsured deposits remained less than 15% of total deposits during fiscal year 2024 and below the Company's available liquidity.
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 .
Commercial finance loans, which comprised 81% of the Company's loan and lease portfolio, totaled $3.30 billion at September 30, 2024 , reflecting a decrease of $427.6 million , or 11% , from September 30, 2023 . The decrease was primarily driven by the aforementioned commercial insurance premium finance loans along with a decrease in lease financing.
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.
This increase was primarily due to increases in average noninterest-bearing deposits of $374.2 million, interest-bearing deposits of $142.5 million, and total borrowings of $23.3 million. Fiscal 2024 NIM increased to 6.41% from 6.04% in fiscal 2023.
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.
Servicing fee income totaled $27.2 million during fiscal 2024, compared to $53.4 million for fiscal 2023. 63 Table of Contents RESULTS OF OPERATIONS The Company’s results of operations are dependent on net interest income, provision for credit loss, noninterest income, noninterest expense and income tax expense.
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.
The period-over-period decrease in provision for credit loss was primarily due to decreases in the tax services portfolio of $12.8 million and the commercial finance portfolio of $3.3 million, partially offset by an increase of $0.8 million in provision for credit loss in the consumer finance portfolio.
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.
This increase was primarily related to the commercial insurance premium finance portfolio moving to held for sale at September 30, 2024. Total gross loans and leases totaled $4.08 billion at September 30, 2024, as compared to $4.37 billion at September 30, 2023.
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.
For fiscal 2024, contractual, rate-related processing expenses were $110.8 million, as compared to $77.4 million for the fiscal year ended September 30, 2023. 67 Table of Contents Income Tax Expense The Company recorded an income tax expense of $29.1 million, representing an effective tax rate of 14.7%, for fiscal 2024, compared to an income tax expense of $16.3 million, representing an effective tax rate of 9.0%, for fiscal 2023.
Noninterest Income Noninterest income increased 8% to $316.6 million for fiscal 2023 from $293.8 million for fiscal 2022. The increase was primarily attributable to increases in card and deposit fees, rental income, gain on sale of other, and other income, partially offset by decrease in gain on sale of trademarks.
The decrease was primarily driven by a decrease in card and deposit fees and the gain on sale of trademarks recognized in the prior year, partially offset by increases in gain on sale of other and tax services product fees.
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.
The following table presents the Company's ACL as a percentage of its total loans and leases.
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 decrease in card and deposit fee income was primarily related to lower servicing fee income due to a reduction in custodial deposits. Servicing fee income totaled $27.2 million during fiscal 2024, compared to $53.4 million for fiscal 2023. Noninterest Expense Noninterest expense increased 10% to $513.3 million for fiscal 2024 from $465.0 million for fiscal 2023.
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’s investment in these stocks was $36.0 million at September 30, 2024, an increase from $28.2 million at September 30, 2023, as purchases of FHLB membership stock were partially offset by redemptions during the fiscal year. Loans held for sale at September 30, 2024 totaled $688.9 million, increasing from $77.8 million at September 30, 2023.
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.
The yield on the loan and lease portfolio was 8.50% compared to 8.22% for the prior fiscal year and the TEY on the securities portfolio was 3.15% compared to 2.94% for the prior fiscal year. The Company’s cost of funds for all deposits and borrowings averaged 0.32% during fiscal 2024, as compared to 0.18% during fiscal 2023.
Removed
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.
Added
Subsequent Events 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. • On September 25, 2024, the Bank celebrated its 20th year serving the payments industry with the announcement it renamed its "Banking as a Service" business line to "Partner Solutions." • On September 30, 2024, Pathward Financial and Pathward announced the Bank’s Partner Solutions line of business won the 2024 Finovate Award for Best Banking as a Service Provider.
Removed
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.
Added
According to Finovate, its awards recognize the companies driving fintech innovation forward and the individuals bringing new ideas to life.
Removed
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.
Added
When excluding the insurance premium finance loans of $800.1 million at September 30, 2023, total gross loans and leases at September 30, 2024 increased $509.2 million, or 14%, when compared to September 30, 2023. • During the 2024 fiscal fourth quarter, the Company repurchased 236,308 shares of common stock at an average share price of $63.44.
Removed
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.
Added
As of September 30, 2024, there were 7,000,000 shares available for repurchase under the current common stock share repurchase program. Subsequent Events Management has evaluated and identified subsequent events that occurred after September 30, 2024. See Note 20.
Removed
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.
Added
The total investment portfolio decreased $66.5 million to $1.77 billion at September 30, 2024, compared to $1.84 billion at September 30, 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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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.
Biggest changeThe following table shows the results of the scenarios as of September 30, 2024 and 2023: Net Sensitive Earnings at Risk Change in Interest Income/Expense for a given change in interest rates Over/(Under) Base Case Parallel Shift (Dollars in thousands) Book Value -200 -100 Base +100 +200 Balances as of September 30, 2024 Total interest income 6,676,417 411,926 440,588 470,620 499,529 527,533 Total interest expense 634,988 12,614 16,686 22,053 27,715 33,184 Net interest income 399,312 423,902 448,567 471,814 494,349 Percentage change from base -11.0 % -5.5 % — % 5.2 % 10.2 % Balances as of September 30, 2023 Total interest income 6,650,735 397,360 424,061 450,823 477,078 503,412 Total interest expense 269,861 1,069 1,905 3,530 5,429 7,352 Net interest income 396,291 422,156 447,293 471,649 496,060 Percentage change from base -11.4 % -5.6 % — % 5.4 % 10.9 % The EAR analysis reported at September 30, 2024 , shows that total interest income will change more rapidly than total interest expense over the next year.
The Company actively manages interest rate risk, as changes in market interest rates can have a significant impact on reported earnings. The Company's interest rate risk analysis is designed to compare income and economic valuation simulations in market scenarios designed to alter the direction, magnitude and speed of interest rate changes, as well as the slope of the yield curve.
The Company actively manages interest rate risk, as changes in market interest rates can have a significant impact on reported earnings. The Company's IRR analysis is designed to compare income and economic valuation simulations in market scenarios designed to alter the direction, magnitude and speed of interest rate changes, as well as the slope of the yield curve.
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.
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. 74 Table of Contents The EVE analysis used in the following table reflects the required analysis used no less than quarterly by management.
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.
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 Partner Solutions partners and servicing fees the Company recognizes from custodial off-balance sheet deposits.
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 order to monitor IRR, the Company has created an Asset/Liability Committee whose principal responsibilities are to assess the Bank’s asset/liability mix and implement strategies that will enhance income while managing the Bank’s vulnerability to changes in interest rates. 73 Table of Contents The Company uses two approaches to model IRR: Earnings at Risk (“EAR analysis”) and Economic Value of Equity (“EVE analysis”).
Under EAR analysis, net interest income is calculated for each interest rate scenario and compared to the net interest income forecast in the base case. EAR analysis measures the sensitivity of interest-sensitive earnings over a one-year minimum time horizon. The results are affected by projected rates, prepayments, caps and floors.
Under EAR analysis, net interest income is calculated for each interest rate scenario and compared to the net interest income forecast in the base case over a one-year minimum time horizon. The results are affected by projected rates, prepayments, caps and floors.
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 following table shows the results of the scenario as of September 30, 2024 and 2023: Economic Value Sensitivity Standard (Parallel Shift) Economic Value of Equity at Risk % -200 -100 +100 +200 Balances as of September 30, 2024 Percentage change from base -10.0 % -3.9 % 2.6 % 4.2 % Balances as of September 30, 2023 Percentage change from base -9.9 % -4.3 % 3.4 % 6.3 % The EVE at risk reported at September 30, 2024 shows that the economic value of equity position is expected to benefit from rising interest rates due to the large amount of noninterest-bearing funding. 75 Table of Contents
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 IRR although it may do so in the future, if deemed necessary, to help manage IRR. Earnings at risk and economic value analysis. As a continuing part of its financial strategy, the Bank considers methods of managing an asset/liability mismatch consistent with maintaining acceptable levels of net interest income.
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.
The Company believes that its portfolio of longer duration deposits generated from its Partner Solutions business line provides a stable and profitable funding vehicle. A portion of the Company’s deposit balances are subject to variable card processing expenses, derived from contractual agreements with certain Partner Solutions partners tied to a rate index, typically the EFFR.
Removed
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.
Removed
This risk is due to the fact that, while asset yields may decrease in a falling interest rate environment, the Company cannot significantly reduce interest costs associated with these deposits, which thereby compress the Company’s net interest margin.
Removed
As a continuing part of its financial strategy, the Bank considers methods of managing an asset/liability mismatch consistent with maintaining acceptable levels of net interest income.

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