00009074712022FYFalsehttp://fasb.org/us-gaap/2022#AccountingStandardsUpdate201613Memberhttp://fasb.org/us-gaap/2022#AssetImpairmentChargeshttp://fasb.org/us-gaap/2022#AssetImpairmentChargeshttp://fasb.org/us-gaap/2022#OtherAssetshttp://fasb.org/us-gaap/2022#OtherAssetshttp://fasb.org/us-gaap/2022#AccruedLiabilitiesCurrentAndNoncurrenthttp://fasb.org/us-gaap/2022#AccruedLiabilitiesCurrentAndNoncurrenthttp://fasb.org/us-gaap/2022#LongTermDebthttp://fasb.org/us-gaap/2022#LongTermDebt
Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
 
☒  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10‑K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 20172022
OR
☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______.

Commission File Number:  0-22140
 
Commission file number 0‑22140.cash-20220930_g1.jpg

PATHWARD FINANCIAL, INC.TM
(Exact name of registrant as specified in its charter)
META FINANCIAL GROUP, INC.
(Name of Registrant as specified in its charter)
Delaware42‑140626242-1406262
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

5501 South Broadband Lane, Sioux Falls, SD5501 South Broadband Lane, Sioux Falls, South Dakota 57108
(Address of principal executive offices)(Zip Code)
(Address of principal executive offices and Zip Code)

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

Securities Registered Pursuant to Section 12(b) of the Act:
Title of Classeach classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par value $0.01 per shareCASHThe NASDAQ GlobalStock Market LLC


Securities Registered Pursuant to Section 12(g) of the Act:  NoneNone.
 
Indicate by check mark if the Registrant is a well‑knownwell-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YESYes ☒ No ☐ NO ☒
 
Indicate by check mark if the Registrant is not required to file reports pursuant Section 13 and Section 15(d) of the Act.  YESYes ☐ NONo ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YESYes ☒ NONo ☐



Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑TS-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  YESYes ☒ NO☐.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K.No ☐
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non‑acceleratednon-accelerated filer, a smaller reporting company or an emerging growth company. (Check one):See the definitions of "large accelerated filer." "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated Accelerated
filer ☒		Accelerated filer ☐☒Non‑accelerated Accelerated
filer ☐		☐Non-accelerated
filer		☐Smaller Reporting Company reporting
company		☐
Emerging growth
company ☐		☐

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


Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b‑212b-2 of the Exchange Act). Yes ☐ YESNo ☒ NO
 
As of March 31, 2017,2022, the aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the average of the closing bid and asked prices of such stock on the NASDAQ Global Select Market as of such date, was $762.6 million.$1.5 billion.
 
As of November 24, 2017,16, 2022, there were 9,666,46228,466,833 shares of the Registrant’s Common Stock outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
PART III of Form 10-K -- Portions of the Proxy Statement for the Annual Meeting of Stockholders expected to be held January 22, 2018February 28, 2023 are incorporated by reference into Part III of this report.




META


PATHWARD FINANCIAL, GROUP, INC.
FORM 10-K


Table of Contents
DescriptionPage
PART I
Item 1.
No.3
PART I
Item 1.1A.
339
Item 1A.1B.
49
Item 1B.
Unresolved Staff Comments
6954
Item 2.
6954
Item 3.
7054
Item 4.
7054
PART II
Item 5.
7155
Item 6.7.
73
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
7457
Item 7A.
9170
Item 8.
9373
Item 9.
150130
Item 9A.
150130
Item 9B.
151132
Item 9C.
132
PART III
PART III
Item 10.
153135
Item 11.
153135
Item 12.
153136
Item 13.
154136
Item 14.
154136
PART IV
Item 15.
154137
Item 16.
155139
140



i
Table of Contents

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


You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results; our ability to remediate the material weakness in our internal controls over financial reporting and otherwise maintain effective internal controls over financial reporting; customer retention; expectations regarding the Company's and the Bank's ability to meet minimum capital ratios and capital conservation buffers; loan and other product demand; important components of the Company's statements of financial conditionexpectations concerning acquisitions and operations; growth and expansion;divestitures; new products and services, such as those offered byservices; credit quality; the Bank orlevel of net charge-offs and the Company's Payments divisions (which includes Meta Payments Systems (“MPS”), Refund Advantage, EPS Financial (“EPS”) and Specialty Consumer Services (“SCS”)); credit quality and adequacy of reserves;the allowance for credit losses; technology; and the Company'smanagement and other employees. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: the risk that we are unable to recoup a significant portion of the lost earnings associated with the non-renewal of the agreement with H&R Block through agreements with new tax partnerssuccessfully transitioning and expanded relationships with existing tax partners; the risk that loan production levels and other anticipated benefits related to the agreement with Jackson Hewitt Tax Service®, as extended, may not be as much as anticipated; maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the potential adverse effects of the ongoing COVID-19 pandemic and any governmental or societal responses thereto, or other unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the war between Russia and Ukraine; our ability to achieve brand recognition as Pathward equal to or greater than we enjoyed under our prior brand; changes in tax laws; the strength of the United States' economy, in general, and the strength of the local economies in which the Company conducts operations; the effects of, andoperates; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rate policies ofrates and the Board of Governors of the Federal Reserve System (the “Federal Reserve”), as well as efforts of the U.S. Congress, United States Treasury in conjunction with bank regulatory agencies to stimulate the economy and protect the financial system;Fed funds rate; inflation, interest rate, market, and monetary fluctuations; the timely and economicalefficient development of, and acceptance of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value and acceptance of these products and services by users; the Bank's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s refund advance business,business; the risk of reduced volume of refund advance loans as a result of reduced customer demand for or acceptance of usage of Meta’sPathward’s strategic partners’ refund advance products, including as a result of pending tax legislation in the U.S. Congress;products; our relationship with, and any actions which may be initiated by our regulators in the future; the impact ofregulators; changes in financial services laws and regulations, including but not limited to, laws and regulations relating to the tax refund industry and the insurance premium finance industry our relationship with our primary regulators,and recent and potential changes in response to the Office of the Comptroller of the Currency (“OCC”) and the Federal Reserve, as well as the Federal Deposit Insurance Corporation (“FDIC”), which insures the Bank’s deposit accounts up to applicable limits;ongoing COVID-19 pandemic; technological changes, including, but not limited to, the protectionsecurity of our electronic files or databases; acquisitions;systems and information; the impact of acquisitions and divestitures; litigation risk, in general, including, but not limited to, those risks involving the Bank's divisions;risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the BankPathward of its status as a well-capitalized institution, particularly in light of our growing deposit base, a portion of which has been characterized as “brokered”;institution; changes in consumer spending and saving habits; losses from fraudulent or illegal activity; technological risks and developments, and cyber threats, attacks or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase.

These statements are based on information currently available to us and are subject to various risks, uncertainties, and other factors, including, but not limited to, those discussed herein under the caption “Risk Factors” that could cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these statements.


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

2


Table of Contents
PART I

Item 1.BusinessBusiness.


GeneralGENERAL
 
MetaPathward Financial, a registered unitary savings and loanbank holding company, was incorporated in Delaware on June 14, 1993, the1993. Pathward Financial's principal assets of which are all the issued and outstanding shares of the Bank, a federal savingsSouth Dakota chartered, national bank, the accounts of which are insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC") as administrator of the Deposit Insurance Fund (“DIF”) of the FDIC.. Unless the context otherwise requires, references herein to the Company include MetaPathward Financial and the Bank, and all subsidiaries of MetaPathward 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. The principal executive office is located at 5501 South Broadband Lane, Sioux Falls, South Dakota, 57108. Its telephone number at that address is (877) 497-7497. The Company is subject to comprehensive regulation and supervision. See "Regulation and Supervision" herein.

The Company's purpose of financial inclusion for all® means everyone deserves access to high quality financial services. 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.

The Company strives to remove barriers to financial access and promote economic mobility by working with third parties to provide responsible, secure, high quality financial products that contribute to the social and economic benefit of communities at the core of the real economy. Pathward Financial strives to increase financial availability, choice, and opportunity across two business lines: BaaS and Commercial Finance. These strategic business lines provide end-to-end support to individuals and businesses.

As a nationally chartered bank, Pathward sits at the hub of the financial ecosystem. 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 MetaPathward Financial, is both a community-oriented financial institution offering a variety of financial services to meetoperates through three reportable segments (Consumer, Commercial, and Corporate Services/Other). See Note 17. Segment Reporting for further information on the needs of the communities it serves and a payments company providing services on a nationwide basis, as further described below.  reportable segments.

The business of the Bank consists of attracting retailis to collaborate with partners through the BaaS business line to provide solutions that attract low-cost deposits fromand generate fee income. The low-cost deposits are primarily invested into loan and lease products offered through the general public and investing those funds primarily in one-to-four family residential mortgage loans, commercial and multi-family real estate, agricultural operations and real estate, construction, consumer loans (including tax refund advance loans), commercial operating loans, and premium finance loans.Commercial Finance business line. In addition to originating loans and leases, the Bank also has contractedoccasionally contracts to sell loans, in this case principally taxsuch as consumer credit product loans, refund advance loans, and government guaranteed loans to third party buyers. 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.


In additionThe Consumer segment includes the BaaS business line, which collaborates with partners to itsnavigate payment and lending needs. With capabilities ranging from prepaid cards and deposit gathering activities,accounts to payment processing and consumer lending, the Bank’s various divisions issueCompany empowers its partners to deliver programs that provide a financial path forward for all.

The Company offers the following innovative solutions: payment, issuing, credit, and tax. Payment solutions accepts and processes payments for all customers' personal and business needs. The Bank moves funds daily through high speed banking rails, including ACH, wire transfers, and push to debit. With its Issuing solutions, Pathward is one of the leading debit and prepaid cards, designcard issuers in the country and holds funds for the programs of its partners in order to provide the consumer protections of a traditional bank account. Credit solutions enables the Bank's partners' lending solutions that serve the borrowing needs of customers in a diverse credit pool. Tax solutions offer electronic refund advances and refund transfers with some of the largest tax companies, as well as thirty-thousand independent tax preparers nationwide.

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. Pathward's innovative consumer creditapproach and customized financial products sponsor Automatic Teller Machines (“ATMs”offer the flexibility traditional bank products cannot. This diverse range of commercial financial products is available through the following lending solutions: working capital, equipment finance, structured finance, and insurance premium finance.

Working capital provides ready cash for liquidity needs to new or growing companies or companies in cyclical or seasonal industries. Working capital financing is secured by business collateral (assets) such as accounts receivable, inventory, and equipment. Equipment finance provides financing in the form of leases and loans for equipment needs. Structured finance assists small- and mid-sized business and rural borrowers to fund growth, expansion, and restructuring. Products include alternative energy financing, conventional loans, and loans administered through partnerships with the Small Business Administration ("SBA") into various debit networks, and offer tax refund-transfer servicesUnited States Department of Agriculture ("USDA"). Insurance premium finance is short-term financing to facilitate the purchase of property, casualty, and other payment industry products and services.  Through its activities, the Meta Payment Systems (“MPS”liability insurance premiums.

OTHER SUBSIDIARIES

Pathward Venture Capital, LLC ("Pathward Venture Capital") division, a wholly-owned service corporation subsidiary of the Bank generates both fee income and low- and no cost depositswas formed in 2017 for the Bank. On September 8, 2015, the Bank purchased substantially allpurpose of the assets and related liabilities of Fort Knox Financial Services Corporation and its subsidiary, Tax Product Services, LLC (together “Refund Advantage”).  The assets acquired by MetaBankmaking minority equity investments. Pathward Venture Capital focuses on investing in companies in the acquisition include the Fort Knox operating platform and trade name, Refund Advantage®, and other assets. On November 1, 2016, the Bank purchased substantially all of the assets and certain liabilities of EPS Financial, LLC ("EPS") from privately held Drake Enterprises, Ltd. ("Drake"). The assets acquired by MetaBank in the EPS acquisition include the EPS trade name, operating platform, and other assets. Also, on December 14, 2016, the Bank purchased substantially all of the assets and specified liabilities of privately-held Specialty Consumer Services LP ("SCS") relating to its consumer lending and tax advance business. All of these transactions expanded the Company’s business into providing tax refund-transfer and lendingfinancial services for its customers.industry.


First Midwest Financial Capital Trust alsoI, a wholly-owned subsidiary of MetaPathward Financial, was established in July 2001 and Crestmark Capital Trust I, acquired by the Company in August 2018, was established in June 2005. Both subsidiaries were established for the purpose of issuing trust preferred securities.

In April 2017, the Company formed a new entity, Meta Capital, LLC, that is a wholly-owned service corporation subsidiary of MetaBank. Meta Capital was formed for the purposes of investing in financial technology companies.LENDING ACTIVITIES
 
Meta Financial and the Bank are subject to comprehensive regulation and supervision.  See “Regulation” herein.
General
The principal executive office of the Company is located at 5501 South Broadband Lane, Sioux Falls, South Dakota 57108.  Its telephone number at that address is (605) 782-1767.
Market Areas
The Bank’s home office is located at 5501 South Broadband Lane, Sioux Falls, South Dakota.  The Banking segment consists of the retail bank, the AFS/IBEX division, as well as other specialty finance loans.  The retail bank’s locations include offices in Storm Lake, Iowa, Brookings, South Dakota, Sioux Falls, South Dakota and the Des Moines, Iowa area. AFS/IBEX operates an office in both Dallas, Texas and Newport Beach, California.  The Payments segment offers prepaid cards, tax refund-transfer services, and other payment industry products and services nationwide and includes the MPS, Refund Advantage, EPS Financial and SCS divisions.  It operates out of Sioux Falls, South Dakota, with offices in Louisville, Kentucky, Easton, Pennsylvania and Hurst, Texas.


Lending Activities
General.  The Company originates both fixed-rate and adjustable-rate (“ARM”) loans in response to consumer demand.  At September 30, 2017, the Company had $1.12 billion in fixed-rate loans and $205.6 million in ARM loans.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included in Item 7 of this Annual Report on Form 10-K for further information on Asset/Liability Management.

In addition, the Company has more recently focusedfocuses its lending activities on the origination of commercial and multi-family real estatefinance loans, one-to-four family mortgage loans, commercial operating loans, premiumconsumer finance loans and tax refund advanceservices loans. The Company also continuesemphasizes credit quality and seeks to originate traditional consumeravoid undue concentrations of loans and agricultural-related loans.leases to a single industry or based on a single class of collateral. The Company originates mosthas established lending policies that include a number of its retail bank loansunderwriting factors that it considers in making a loan, including loan-to-value ratio, cash flow, interest rate and credit history of the primary market areas in Storm Lake, IA, Brookings, SD, Sioux Falls, SD, and Des Moines, IA.borrower. At September 30, 2017,2022, the Company’s loans and leases receivable, net loan portfolioof allowance for credit losses, totaled $1.32$3.49 billion, or 25%52% of the Company’s total assets, as compared to $919.5 million,$3.54 billion, or 23%53%, at September 30, 2016. The Bank recently signed an agreement extension to originate tax refund advance loans to customers of Jackson Hewitt Tax Service through the 2020 tax season. The Bank also purchased two separate student loan portfolios, one in fiscal year 20172021.

Loan and one in the beginning of fiscal year 2018. The loans included in each of these loan portfolios are serviced by ReliaMax Lending Services, LLC, and the loans are insured by ReliaMax Surety Company.
Loanlease applications are initially considered and approved at various levels of authority, depending on the type and amount of the loan.loan or lease as directed by the Bank's lending policies. The Company has a loan committee consistingstructure in place for oversight of senior lendersits lending activities. Loans and Market Presidents, and is led by the Chief Lending Officer.  Loansleases in excess of certain amounts require approval by at least two members of the loan committee, a majority of the loan committee, or by the Company’s Board Loan Committee, which has responsibility for the overall supervision of the loan portfolio.an Executive Credit Committee. The Company may discontinue, adjust, or create new lending programs to respond to competitive factors.  The Company also created a Specialty Lending committee to oversee its insurance premium finance division and other specialized lending activities in which the Company may become involved.  The Committee consists of senior personnel with diverse backgrounds well suited for oversight of these types of activities.  Insurance premium finance loans in excess of certain amounts require approval from one or more members of the Committee.
 
At September 30, 2017,2022, the Company’s largest lending relationship to a single borrower or group of related borrowers totaled $50.8$74.9 million. The Company had 24 other lending relationships in excess of $9.1$15.0 million as of September 30, 2017.  At September 30, 2017, one of these relationships, which had loans that totaled $27.8 million at September 30, 2017, was classified as substandard.  See “Non-Performing Assets, Other Loans of Concern, and Classified Assets.”2022.
 


4
Table of Contents
Loan and Lease Portfolio Composition.  The following table provides information about the composition of the Company’s loan portfolio in dollar amounts and in percentages as of the dates indicated.  In general, for the fiscal year ended September 30, 2017, the aggregate principal amounts in all categories of loans discussed below, except agriculture real estate and agriculture operating loans, increased over levels from the prior fiscal year.

 At September 30,
 2017 2016 2015 2014 2013
 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
 (Dollars in Thousands)
Real Estate Loans:                   
1-4 Family$196,706
 14.8% $162,298
 17.5% $125,021
 17.5% $116,395
 23.3% $82,287
 21.4%
Commercial & Multi-Family585,510
 44.1% 422,932
 45.7% 310,199
 43.5% 224,302
 44.9% 192,786
 50.1%
Agricultural61,800
 4.7% 63,612
 6.9% 64,316
 9.0% 56,071
 11.3% 29,552
 7.7%
Total Real Estate Loans844,016
 63.6% 648,842
 70.1% 499,536
 70.0% 396,768
 79.5% 304,625
 79.2%
                    
Other Loans: 
  
  
  
  
  
  
  
  
  
Consumer Loans: 
  
  
  
  
  
  
  
  
  
Home Equity21,228
 1.6% 20,883
 2.2% 18,463
 2.6% 15,116
 3.0% 13,799
 3.6%
Automobile769
 0.1% 730
 0.1% 573
 0.1% 671
 0.1% 658
 0.1%
Purchased Student Loans123,742
 9.3% —
 —% —
 —% —
 —% —
 —%
Other (1)
17,265
 1.3% 15,481
 1.7% 14,491
 2.0% 13,542
 2.7% 15,857
 4.1%
Total Consumer Loans163,004
 12.3% 37,094
 4.0% 33,527
 4.7% 29,329
 5.8% 30,314
 7.8%
                    
Agricultural Operating33,594
 2.5% 37,083
 4.0% 43,626
 6.1% 42,258
 8.5% 33,750
 8.8%
Commercial Operating35,759
 2.7% 31,271
 3.4% 29,893
 4.2% 30,846
 6.2% 16,264
 4.2%
Premium Finance250,459
 18.9% 171,604
 18.5% 106,505.0
 15.0% —
 —% —
 —%
                    
Total Other Loans482,816
 36.4% 277,052
 29.9% 213,551
 30.0% 102,433
 20.5% 80,328
 20.8%
Total Loans$1,326,832
 100.0% $925,894
 100.0% $713,087
 100.0% $499,201
 100.0% $384,953
 100.0%

(1)
Consist generally of various types of secured and unsecured consumer loans.


The following table shows the composition of the Company’s loan and lease portfolio by fixedfixed- and adjustable rateadjustable-rate at the dates indicated.
 At September 30,
 20222021
(Dollars in thousands)AmountPercentAmountPercent
Fixed-Rate Loans and Leases
Commercial finance$1,872,256 53.1 %$1,754,706 48.6 %
Consumer finance169,659 4.8 %154,169 4.3 %
Tax services9,098 0.3 %10,405 0.3 %
Warehouse finance252,276 7.1 %322,682 8.9 %
Community banking— — %190,240 5.3 %
Total fixed-rate loans and leases2,303,389 65.3 %2,432,202 67.4 %
Adjustable-Rate Loans and Leases
Commercial finance1,151,417 32.6 %970,789 26.9 %
Consumer finance— — %98,688 2.7 %
Tax services (1)
— — %— — %
Warehouse finance74,574 2.1 %97,244 2.7 %
Community banking— — %8,892 0.3 %
Total adjustable-rate loans and leases1,225,991 34.7 %1,175,613 32.6 %
Total loans and leases3,529,280 100.0 %3,607,815 100.0 %
Deferred fees and discounts7,025 1,748 
Allowance for credit losses(45,947)(68,281)
Total loans and leases receivable, net$3,490,358 $3,541,282 
(1)Certain tax services loans do not bear interest.
 September 30,
 2017 2016 2015 2014 2013
 Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
 (Dollars in Thousands)
Fixed Rate Loans:                   
Real Estate:                   
1-4 Family$185,596
 14.0% $152,232
 16.5% $116,171
 16.3% $105,870
 21.2% $75,477
 19.6%
Commercial & Multi-Family566,156
 42.6% 404,888
 43.7% 284,586
 39.9% 203,840
 40.8% 173,373
 45.1%
Agricultural57,863
 4.4% 59,455
 6.4% 59,219
 8.3% 49,643
 10.0% 22,433
 5.8%
Total Fixed-Rate Real Estate Loans809,615
 61.0% 616,575
 66.6% 459,976
 64.5% 359,353
 72.0% 271,283
 70.5%
Consumer24,656
 1.9% 23,024
 2.5% 20,842
 2.9% 19,279
 3.9% 20,129
 5.2%
Agricultural Operating22,556
 1.7% 27,196
 2.9% 35,802
 5.0% 24,991
 5.0% 23,137
 6.0%
Commercial Operating13,935
 1.1% 12,393
 1.4% 15,520
 2.2% 13,659
 2.7% 8,070
 2.1%
Premium Finance250,459
 18.9% 171,604
 18.5% 106,505
 15.0% —
 —% —
 —%
Total Fixed-Rate Loans1,121,221
 84.6% 850,792
 91.9% 638,645
 89.6% 417,282
 83.6% 322,619
 83.8%
                    
Adjustable Rate Loans: 
  
  
  
  
  
  
  
  
  
Real Estate: 
  
  
  
  
  
  
  
  
  
1-4 Family11,110
 0.8% 10,066
 1.1% 8,850
 1.2% 10,525
 2.1% 6,810
 1.8%
Commercial & Multi-Family19,354
 1.5% 18,044
 1.9% 25,613
 3.6% 20,461
 4.1% 19,413
 5.0%
Agricultural3,937
 0.3% 4,157
 0.5% 5,097
 0.7% 6,429
 1.3% 7,119
 1.9%
Total Adjustable Real Estate Loans34,401
 2.6% 32,267
 3.5% 39,560
 5.5% 37,415
 7.5% 33,342
 8.7%
Consumer138,348
 10.4% 14,070
 1.5% 12,685
 1.8% 10,050
 2.0% 10,185
 2.6%
Agricultural Operating11,038
 0.8% 9,887
 1.1% 7,824
 1.1% 17,267
 3.5% 10,613
 2.8%
Commercial Operating21,824
 1.6% 18,878
 2.0% 14,373
 2.0% 17,187
 3.4% 8,194
 2.1%
Total Adjustable Loans205,611
 15.4% 75,102
 8.1% 74,442
 10.4% 81,919
 16.4% 62,334
 16.2%
Total Loans1,326,832
 100.0% 925,894
 100.0% 713,087
 100.0% 499,201
 100.0% 384,953
 100.0%
  
  
  
  
  
  
  
  
  
  
Deferred Fees and Discounts(1,461)  
 (789)  
 (577)  
 (797)  
 (595)  
Allowance for Loan Losses(7,534)  
 (5,635)  
 (6,255)  
 (5,397)  
 (3,930)  
                    
Total Loans Receivable, Net$1,317,837
  
 $919,470
  
 $706,255
  
 $493,007
  
 $380,428
  


The following table illustrates the maturity analysiscontractual maturities of the Company’s loan and lease portfolio and the distribution by changes in interest rates for loans with a contractual maturity greater than one year at September 30, 2017.  Mortgages that have adjustable2022.
 Loan MaturitiesLoans Maturing After One Year
(Dollars in thousands)Due in 1 Year Or LessDue After 1 Year Through 5 YearsAfter 5 Years Through 15 YearsAfter 15 YearsTotalFixed Interest RateFloating/Variable Interest Rate
Commercial finance$968,371 $1,444,060 $331,342 $279,900 $3,023,673 $1,256,970 $798,332 
Consumer finance37,102 130,530 2,027 — 169,659 132,557 — 
Tax services9,098 — — — 9,098 — — 
Warehouse finance89,963 236,887 — — 326,850 236,887 — 
Total loans and leases$1,104,534 $1,811,477 $333,369 $279,900 $3,529,280 $1,626,414 $798,332 
5
Table of Contents
Commercial Finance
The Company's Commercial Finance business line offers a variety of products through its working capital, equipment finance, structured finance, and insurance premium finance lending solutions. These products include term lending, asset based lending, factoring, lease financing, insurance premium finance, government guaranteed lending and other commercial finance products offered on a nationwide basis.

Term Lending. The Bank originates a variety of collateralized conventional term loans and notes receivable. 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 renegotiable interest rates are shown as maturing inreal estate. Credit risk is managed through setting loan amounts appropriate for the period duringcollateral based on information including equipment cost, appraisals, valuations, and lending history. The Bank follows standardized loan policies and established and authorized credit limits and applies attentive portfolio management, which the contract reprices.  The table reflects management’s estimateincludes monitoring past dues, financial performance, financial covenants, and industry trends. As of September 30, 2022, 14% of the effectsterm lending portfolio exposure is concentrated in solar/alternative energy, most of loan prepayments or curtailments based on data fromwhich are construction projects that will convert to longer term government guaranteed facilities upon completion of the Company’s historical experiencesconstruction phase. Equipment Finance agreements make up 54% of the term lending total as of September 30, 2022. The remaining 32% are a variety of investment advisory and insurance agency loans and other third-party sources.more traditional term equipment and general purpose commercial loans.

 
Real Estate (1)
 Consumer Commercial Operating Agricultural Operating Premium Finance Total
 Amount 
Weighted
Average
Rate
 Amount 
Weighted
Average
Rate
 Amount 
Weighted
Average
Rate
 Amount 
Weighted
Average
Rate
 Amount 
Weighted
Average
Rate
 Amount 
Weighted
Average
Rate
 (Dollars in Thousands)
                        
Due in one year or less (2)
$220,813
 4.32% $22,252
 3.97% $15,136
 4.98% $31,141
 4.39% $250,447
 5.90% $539,789
 5.00%
Due after one year through five years435,956
 4.24% 88,569
 4.03% 15,353
 5.11% 2,339
 5.14% 12
 8.40% 542,229
 4.23%
Due after five years187,247
 4.17% 52,183
 4.50% 5,270
 5.18% 114
 4.74% —
 —% 244,814
 4.26%
Total$844,016
  
 $163,004
  
 $35,759
  
 $33,594
  
 $250,459
  
 $1,326,832
  

(1)
Includes one-to-four family, multi-family, commercial and agricultural real estate loans.
(2)
Includes demand loans, loans having no stated maturity and overdraft loans.


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

At September 30, 2017, the Company’s one-to-four family residential mortgage loan portfolio totaled $196.7 million, or 14.8% of the Company’s total loans.  During the year ended September 30, 2017, the Company originated $21.3 million of adjustable-rate loans and $74.3 million of fixed-rateBank provides asset based loans secured by one-to-four family residential real estate.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 primary sources of repayment are the collection of the receivables and/or the sale of the inventory securing the loan, as well as the operating income of the borrower. Loans are typically revolving lines of credit with terms of one year to three years, whereby the Bank withholds a contingency reserve representing the difference between the amount advanced and the fair value of the invoice amount or other collateral value. Credit risk is managed through advance rates appropriate for the collateral (generally, advance rates on accounts receivable ranges from 80% to 90% and inventory advance rates range from 40% to 60%). In certain cases, inventory advances are supported by the third party independent appraisals. Collateral is further supported and verified via field audits conducted up to three times per year. All asset based facilities have standardized loan policies, established and authorized credit limits, attentive portfolio management and the use of lock box agreements and similar arrangements which result in the Company receiving and controlling the debtors' cash receipts. As of September 30, 2022, approximately 65% of asset based loans were backed by accounts receivable.

Factoring. The Bank provides factoring lending where clients provide detailed accounts receivable reporting for lending arrangements. The factoring clients are diversified as to industry and geography. With these loans, the Commercial Finance business line withholds a contingency reserve, which is the difference between the fair value of the invoice amount or other collateral value and the amount advanced (generally, advance rates range between 80% and 95% on accounts receivable). This reserve is withheld for nonpayment of factored receivables, service fees and other adjustments. Credit risk is managed through standardized advance policies, established and authorized credit limits, verification of receivables, attentive portfolio management and the use of lock box agreements and similar arrangements which result in the Company receiving and controlling the client's cash receipts. In addition, clients generally guarantee the payment of purchased accounts receivable.

Lease Financing. The Bank provides creative, flexible lease solutions for equipment needs of its clients. Leases that transfer substantially all of the benefits and risks of ownership to the lessee are accounted for as sales-type or direct financing leases. The lease may contain provisions that transfer ownership to the lessee at the end of the initial term, contain a bargain purchase option or allow for purchase of the equipment at fair market value. Residual values are estimated at the inception of the lease. Lease maturities are generally no greater than 84 months.

Insurance Premium Finance. 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. 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. 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. 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. These loans are made to small businesses and professionals. Certain guaranteed portions of these loans are sold to the secondary market. See “Originations, Purchases,"Originations, Sales and Servicing of Loans and Mortgage-Backed Securities.”Leases" below for further details. The Company is also participating in the Paycheck Protection Program (the "PPP") which is being administered by the SBA. The Company expects that the major portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. Loans funded through the PPP are fully guaranteed by the U.S. government. As of September 30, 2022, the same date, the averageCompany had 41 loans outstanding principal balancewith total loan balances of a one-to-four family residential mortgage loan was approximately $0.2 million.

The Company originates one-to-four family residential mortgage loans with terms up to a maximum of 30 years and with loan-to-value ratios up to 100%$13.5 million originated as part of the lesserPPP.

Other Commercial Finance. Included in this category of loans are the appraised valueCompany's healthcare receivables loan portfolio primarily comprised of the property securing the loan or the contract price. However, the vastloans to individuals for medical services received. The majority of these loans are originated with loan-to-value ratios below 80%. The Company generally requires that private mortgage insurance be obtained in an amount sufficientguaranteed by the hospital providing the service to the debtor and this guarantee serves to reduce credit risk as the Company’s exposureguarantors agree to at or below the 80% loan‑to‑value level.  Residential loans generally do not include prepayment penalties. Due to consumer demand, the Company also offers fixed-rate mortgage loans with terms up to 30 years, most of which conform to secondary market standards such as Fannie Mae, Ginnie Mae, and Freddie Mac standards.  The Company typically holds all fixed-rate mortgage loans and does not engage in secondary market sales.  Interest rates charged on these fixed-rate loans are competitively priced according to market conditions.
The Company currently offers five- and ten-year ARMrepurchase severely delinquent loans. These loans have a fixed-rate for the stated period and, thereafter, adjust annually.  These loans generally provide for an annual cap of up to 200 basis points and a lifetime cap of 600 basis points over the initial rate.  As a consequence of using an initial fixed-rate and caps, the interest ratesCredit risk is minimized on these loans maybased on the guarantor’s repurchase agreement. This loan category also includes commercial real estate loans.

Consumer Finance
The Company's BaaS business line offers its consumer credit products and Emerald Advance products through its credit solutions.

Consumer Credit Products. The Bank designs its credit program relationships with certain desired outcomes. Three high priority outcomes are liquidity, credit protection, and risk retention by the program partner. The Bank believes the benefits of these outcomes not beonly support its goals but the goals of the credit program partner as rate sensitive aswell. The Bank designs its program credit protections in a manner so that the Company’s costBank earns a reasonable risk adjusted return, but is protected by certain layers of funds.  The Company’s ARMs do not permit negative amortization of principal and are not convertible into fixed-rate loans.  The Company’s delinquency experience on its ARM loans has generally beencredit support, similar to its experiencewhat you would find in structured finance. Certain loans are sold to third parties based on fixed-rate residential loans.  The current low mortgage interest rate environment makes ARM loans relatively unattractiveterms and very few are currently being originated.
In underwriting one-to-four family residential real estate loans,conditions within the Company evaluates both the borrower’s ability to make monthly payments and the value of the property securing the loan.  Properties securing real estate loans made by the Company are appraised by independent appraisers approved by the Board of Directors of the Company.  The Company generally requires borrowers to obtain an attorney’s title opinion or title insurance, as well as fire and property insurance (including flood insurance, if necessary) in an amount not less than the amount of the loan.  Real estate loans originated by the Company generally contain a “due on sale” clause allowing the Company to declare the unpaid principal balance due and payable upon the sale of the security property.  The Company has not engaged in sub-prime residential mortgage originations. At September 30, 2017, there were no one-to-four family residential mortgage loans that were non-performing.
Commercial and Multi-Family Real Estate Lending.  The Company engages in commercial and multi-family real estate lending in its primary market areas and surrounding areas and, in order to supplement its loan portfolio, has purchased whole loan and participation interests in loans from other financial institutions. The purchased loans and loan participation interests are generally secured by properties located in the Midwest.Program Agreement. See “Originations, Purchases,"Originations, Sales and Servicing of Loans and Mortgage-Backed Securities.”Leases" below for further details.


AtAs of September 30, 2017,2022, the Company’s commercial and multi-family real estateBank has multiple consumer credit programs. The loan portfolio totaled $585.5 million, or 44.1%, of the Company’s total loans. At September 30, 2017, the Company’s largest commercial and multi-family real estate lending relationship totaled $47.2 million and was secured by real estate.  As of the same date, the average outstanding principal balance of a commercial or multi-family real estate loan held by the Company was approximately $1.8 million.

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

     Commercial and multi-family real estate loans generally present a higher level of risk than loans secured by one-to-four family residences.  This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effect of general economic conditions on income producing properties and the increased difficulty of evaluating and monitoring these types of loans.  Furthermore, the repayment of loans secured by commercial and multi-family real estate is typically dependent upon the successful operation of the related real estate project.  If the cash flow from the project is reduced (for example, if leases are not obtained or renewed, or a bankruptcy court modifies a lease term, or a major tenant is unable to fulfill its lease obligations), the borrower’s ability to repay the loan may be impaired. At September 30, 2017, there were $0.7 million of commercial and multi‑family real estate loans that were non-performing. See “Non-Performing Assets, Other Loans of Concern and Classified Assets.”
Agricultural Lending.  The Company originates loans to finance the purchase of farmland, livestock, farm machinery and equipment, seed, fertilizer, and other farm-related products, primarily in its market areas. Agricultural operating loans are originated at either an adjustable or fixed-rate of interest for up to a one-year term or, in the case of livestock, are due upon sale.  Such loans provide for payments of principal and interest at least annually or a lump sum payment upon maturity if the original term is less than one year. Loans secured by agricultural machineryprograms are generally originated as fixed-rateclosed-end installment loans with terms between 12 months and 84 months.

Emerald Advance. Through the Bank’s partner program, the Bank serves as the originator of upa line of credit, where customers draw on a line of credit and the balance must be paid down to seven years.

Atzero by February 15 to maintain an account with good standing. Funds are loaded onto a prepaid card and the line of credit gives customers the ability to repeatedly borrow and repay money and has an annual resting period from January 27 to February 15 during which draws cannot generally be made. As of September 30, 2017,2022, there were no outstanding loan balances on the Company's balance sheet for this product type. The Company had agricultural real estate loans secured by farmlandexpects balances on the line of $61.8 million or 4.7% ofcredit to increase with the Company’s total loans.  At the same date, $33.6 million, or 2.5%, of the Company’s total loans consisted of secured loans related to agricultural operations.  Total agricultural-related lending constituted 7.2% of total loans at September 30, 2017. At September 30, 2017, the Company’s largest agricultural real estate and agricultural operating loan relationship was $27.8 million, which is currently non-performing (as it is more than 90 days past due) but still accruing. Given the underlying values of collateral (primarily land related to our agricultural loans), we believe that we have minimal loss exposure on this agricultural relationship . At the same date, the average outstanding principal balance of an agricultural real estate loan and agricultural operating loan held by the Company was approximately $0.6 million and $0.2 million, respectively.
Agricultural real estate loans are frequently originated with adjustable rates of interest.  Generally, such loans provide for a fixed rate of interest fornew Emerald Advance promotional period in the first five to ten years, after whichquarter of fiscal 2023.

Other Consumer Finance
Student Lending. During the loan will balloon orfourth quarter of fiscal 2022, the interest rate will adjust annually.  These loans generally amortize over a period of 20 to 25 years.  Fixed-rate agricultural real estate loans typically have terms up to ten years.  Agricultural real estate loans are generally limited to 75% of the value of the property securing the loan.
Agricultural lending affords the Company the opportunity to earn yields higher than those obtainable on one-to-four family residential lending, but involves a greater degree of risk than one-to-four family residential mortgage loans because of the typically larger loan amount.  In addition, payments on loans are dependent on the successful operation or management of the farm property securing the loan or for which an operating loan is utilized.  The success of the loan may also be affected by many factors outside the control of the borrower.
Weather presents one of the greatest risks as hail, drought, floods, or other conditions can severely limit crop yields and thus impair loan repayments and the value of the underlying collateral. The farmer can reduce this risk with a variety of insurance coverages which can help to ensure loan repayment. Both government support programs, as well as the Company, typically require farmers to procure crop insurance coverage.  Grain and livestock prices also present a risk as prices may decline prior to sale, resulting in a failure to cover production costs.  These risks may be reduced, by the farmer, with the use of futures contracts or options to mitigate price risk.  The Company frequently requires borrowers to use futures contracts or options to reduce price risk and help ensure loan repayment.  The uncertainty of government programs and other regulations is also a risk.  During periods of low commodity prices, the income from government programs can be a significant source of cash for the borrower to make loan payments, and if these programs are discontinued or significantly changed, cash flow problems or defaults could result.  Finally, many farms are dependent on a limited number of key individuals whose injury or death may result in an inability to successfully operate the farm. At September 30, 2017, $34.2 million of the Company’s agricultural real estate loans and $0.1 million of agricultural operating loans were non-performing. See “Non-Performing Assets, Other Loans of Concern and Classified Assets.”
Consumer Lending.  The Company originates a variety of secured consumer loans, including home equity, home improvement, automobile, boat and loans secured by savings deposits.  In addition, the Company offers other secured and unsecured consumer loans and currently originates most ofBank sold its retail bank consumer loans in its primary market areas and surrounding areas. In addition, at September 30, 2017, the Company's consumer lending portfolio included a purchasedentire student loan portfolio along with consumer lending products offered through its Payments segment.


On December 20, 2016, the Bank purchased, netconsisting of purchase discount, a $134.0 million seasoned, floating rate, private student loan portfolio. This portfolio isportfolios serviced by ReliaMax Lendinga third-party servicer.

Tax Services LLC and insured by ReliaMax Surety Company. All the loans in this portfolio are floating rate and indexed to the three-month LIBOR plus various margins. On October 11, 2017, the Bank purchased a second student loan portfolio. See
The Bank's BaaS business line also Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the caption “Overview of Corporate Developments Since Fiscal Year 2016.”

At September 30, 2017, the Company's consumer loan portfolio totaled $163.0 million, or 12.3% of its total loans including the student loan portfolio purchased in December 2016.  Excluding the December 2016 purchased student loan portfolio of $123.7 million, the Bank's consumer loan portfolio at September 30, 2017 consisted of $24.7 million in short- and intermediate-term, fixed-rateoffers tax solutions, which includes short-term refund advance loans and $14.6 million in adjustable-rateshort-term electronic return originator ("ERO") advance loans.


The Company's retail bank consumer loan portfolio consists primarily of home equityRefund Advance Loans. Refund advance loans and lines of credit.  Substantially all of the Company’s home equity loans and lines of credit are secured by second mortgages on principal residences.  The Bank will lend amounts which, together with all prior liens, may be up to 90% of the appraised value of the property securing the loan.  Home equity loans and lines of credit generally have maximum terms of five years.
The Company primarily originates automobile loans on a direct basis to the borrower, as opposed to indirect loans, which are made when the Company purchases loan contracts, often at a discount, from automobile dealers which have extended credit to their customers.  The Company's automobile loans typically are originated at fixed interest rates with terms up to 60 months for new and used vehicles.  Loans secured by automobiles are generally originated for up to 80% of the N.A.D.A. book value of the automobile securing the loan.
Consumer loan terms vary according to the type and value of collateral, length of contract and creditworthiness of the borrower.  The underwriting standards employed by the Bank for consumer loans include an application, a determination of the applicant’s payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan.  Although creditworthiness of the applicant is a primary consideration, the underwriting process also may include a comparison of the value of the security, if any, in relation to the proposed loan amount.

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

  At September 30, 2017, $1.4 million of the Bank’s consumer loans were non-performing. The Bank's non-performing consumer loans, at September 30, 2017, were primarily comprised of purchased student loans that are serviced by ReliaMax Lending Services, LLC and insured by ReliaMax Surety Company; accordingly, the Company believes that its exposure to realizable losses with respect to these loans is low. See “Non-Performing Assets, Other Loans of Concern and Classified Assets.”

Through its Payments segment, the Bank strives to offer consumers innovative payment products, including credit products. The Payments segment continues its development of new alternative lending products primarily to serve its customer base and to provide innovative lending solutions to the unbanked and under-banked segment.

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


No Payments segment credit products were non-performing as of September 30, 2017. There were no taxpayer advances outstanding as of September 30, 2017.

Commercial Operating Lending.  The Company also originates its Banking segment's commercial operating loans primarily in its market areas.  Most of these commercial operating loans have been extended to finance local and regional businesses and include short-term loans to finance machinery and equipment purchases, inventory and accounts receivable.  Commercial loans also may involve the extension of revolving credit for a combination of equipment acquisitions and working capital in expanding companies. The Company also extends short-term commercial Electronic Return Originator ("EROs") advance loans to their clients on a nationwide basis through its Payments segment. At September 30, 2017, $35.8 million, or 2.7% of the Company’s total loans, were comprised of commercial operating loans.  
The maximum term for loans extended on machinery and equipment is based on the projected useful life of such machinery and equipment.  Generally, the maximum term on non-mortgage lines of credit is one year.  The loan-to-value ratio on such loans and lines of credit generally may not exceed 80% of the value of the collateral securing the loan. ERO loans are not collateralized.  The Company’s commercial operating lending policy includes credit file documentation and analysis of the borrower’s character, capacity to repay the loan, the adequacy of the borrower’s capital and collateral as well as an evaluation of conditions affecting the borrower.  Analysis of the borrower’s past, present and future cash flows is also an important aspect of the Company’s current credit analysis. As described further below, such loans are believed to carry higher credit risk than more traditional lending activities.
Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment and other income and which are secured by real property whose value tends to be more easily ascertainable, commercial operating loans typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.  As a result, the availability of funds for the repayment of commercial operating loans may be substantially dependent on the success of the business itself (which, in turn, is likely to be dependent upon the general economic environment).  The Company’s commercial operating loans are usually, but not always, secured by business assets and personal guarantees.  However, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.  At September 30, 2017, the average outstanding principal balance of a commercial operating loan held by the Company's Banking segment was approximately $0.2 million.

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

7
Table of Contents
Warehouse Finance
The Bank participates in several collateral-based warehouse lines of credit whereby the Company will charge offBank is in a senior, secured position as the loan balance. There were $0.2 million of ERO advances outstanding as of September 30, 2017.

At September 30, 2017, none of the Company’s commercial operating loans were non-performing.

Premium Finance Lending.  Through its AFS/IBEX division, the Company provides short-term,first out participant. These facilities are primarily collateralized financing to facilitateby consumer receivables, with the commercial customers’ purchaseBank holding a senior collateral position enhanced by a subordinate party structure.

Community Banking
The Company completed its final sale 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.  The AFS/IBEX division markets itself to the insurance community as a competitive option based on service, reputation, competitive terms, cost and ease of operation. At September 30, 2017, the four largest market areas for the Company with respect to premium financeretained Community Bank loans were California, Texas, Florida and New York.

At September 30, 2017, $250.5 million, or 18.9% of the Company’s total loans, were comprised of premium finance loans. The largest premium finance exposure outstanding at September 30, 2017, was a $4.6 million loan relationship secured by the related insurance policy of the borrower.  At the same date, the average outstanding principal balance of a premium finance loan held by the Company was approximately $9,900. During fiscal year 2017, the average balance of a premium finance loan originated was approximately $20,500.
Insurance premium financing is the business of extending credit to a policyholder to pay for insurance premiums when the insurance carrier requires payment in full at inception of coverage.  Premiums are advanced either directly to the insurance carrier or through an intermediary/broker and repaid by the policyholder with interest during the policy term.  The policyholder generally makes a 20% to 25% down payment to the insurance broker and finances the remainder over nine to ten months on average.  The down payment is set such that if the policy is canceled, the unearned premium is typically sufficient to cover the loan balance and accrued interest.

Due to the nature of collateral for commercial premium finance receivables, it customarily takes 60-210 days to convert the collateral into cash.  In the event of default, AFS/IBEX, by statute and contract, has the power to cancel the insurance policy and establish a first position lien on the unearned portion of the premium from the insurance carrier. In the event of cancellation, the cash returned in payment of the unearned premium by the insurer has typically been sufficient to cover the receivable balance, the interest and other charges due. Due to notification requirements and processing time by most insurance carriers, many receivables will become delinquent beyond 90 days while the insurer is processing the return of the unearned premium.  Generally, when a premium finance loan becomes delinquent for 210 days or more, or when collection of principal or interest becomes doubtful, the Company will charge off the loan balance and any remaining interest and fees after applying any collection from the insurance company.  At September 30, 2017, $1.2 million of the Company’s premium finance loans were non-performing.

Originations, Sales and Servicing of Loans
At the retail bank, loans are generally originated by the Company’s staff of loan officers.  Loan applications are taken and processed in the branches and the main officefirst quarter of the Company.  While the Company originates both adjustable-rate and fixed-rate loans, its ability to originate loans is dependent upon the relative customer demand for loans in its market.  Demand is affected by the interest rate and economic environment.fiscal 2022.

ORIGINATIONS, SALES AND SERVICING OF LOANS AND LEASES

The Company, from time to time, sells loans and leases, and in some cases, loan participations, generally without recourse. At September 30, 2017,2022, there were no outstanding loans outstanding sold by the Company with recourse. When loans or leases are sold, the Company may retainthe 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. The servicing fee is recognized as income over the life of the loans. The Company services loans that it originated and sold totaling $21.8 million atAs of September 30, 2017, of which $3.22022, the Company was servicing $336.6 million were sold to Fannie Mae and $18.6 million were sold to others.

On October 26, 2016, MetaBank entered into an agreement with certain H&R Block entities to originate up to $1.45 billion and retain up to $750 million of interest-free tax advance loans for H&R Block tax preparation customers during the 2017 tax season. On July 27, 2017, MetaBank announced the H&R Block agreement would not be renewed for the 2018 tax season.SBA/USDA loans.
 
On August 2, 2017, MetaBank announced an extension throughThe Company may sell the 2020 tax seasonguaranteed portion of its current agreementSBA 7(a) loans and USDA program loans in the secondary market. These sales have resulted in premium income for the Company at the time of sale and created a stream of future servicing income. When the Company sells the guaranteed portion of its loans, it retains credit risk on the non-guaranteed portion of the loans, and, if a customer defaults on the loan, the Company shares any loss and recovery related to the loan pro-rata with Jackson Hewitt Tax Servicethe SBA or USDA, as applicable. If the SBA or USDA establishes that a loss on a guaranteed loan is attributable to offer on an annual basis upsignificant technical deficiencies in the manner in which the loan was originated, funded or serviced by the Company, the SBA or USDA may seek recovery of the principal loss related to $750the deficiency from the Company, which could materially adversely affect our business, results of operations and financial condition.

The Company sold additional loans from the retained Community Bank portfolio in the amount of $192.5 million and $308.1 million for the fiscal years ended September 30, 2022 and 2021, respectively. All loans from the retained Community Bank portfolio have been sold as of interest-free tax advance loans, an increase of $300 million over the prior year.December 31, 2021.


In periods of economic uncertainty, the Company’s ability to originate large dollar volumes of loans and leases may be substantially reduced or restricted, with a resultant decrease in related loan origination fees, other fee income and operating earnings. In addition, the Company’s ability to sell loans may substantially decrease if potential buyers (principally government agencies) reduce their purchasing activities.



8
Table of Contents
The following table shows the loan and lease originations (including draws, loan and lease renewals, and undisbursed portions of loans and leases in process), purchases, and sales and repayment activities of the Company for the periods indicated.
 Fiscal Year Ended September 30,
(Dollars in thousands)20222021
Originations
Commercial finance$11,554,312 $9,678,519 
Consumer finance1,530,128 1,098,526 
Tax services1,898,511 1,841,326 
Total loans and leases originated14,982,951 12,618,372 
Purchases
Commercial finance3,098 — 
Warehouse finance112,255 308,014 
Community banking— 3,318 
Total loans and leases purchased115,353 311,332 
Sales and Repayments
Sales:
Commercial finance66,397 89,276 
Consumer finance932,747 494,584 
Community banking183,457 321,793 
Total loans and leases sales1,182,601 905,793 
Repayments:
Loan and lease principal repayments14,029,362 11,857,619 
Total principal repayments14,029,362 11,857,619 
Total reductions15,211,963 12,763,412 
Increase (decrease) in other items, net27,612 (18,970)
Net increase (decrease)$(86,047)$147,322 

 Years Ended September 30,
 2017 2016 2015
Originations by Type:(Dollars in Thousands)
Adjustable Rate:     
1-4 Family Real Estate$21,324
 $15,276
 $15,360
Commercial and Multi-Family Real Estate6,014
 2,460
 5,575
Consumer9
 13
 13
Commercial Operating168,136
 35,433
 20,219
Agricultural Operating23,513
 21,954
 12,347
Total Adjustable Rate218,996
 75,136
 53,514
      
Fixed Rate: 
  
  
1-4 Family Real Estate74,294
 81,218
 48,576
Commercial and Multi-Family Real Estate190,618
 154,478
 109,173
Agricultural Real Estate5,033
 4,216
 12,877
Consumer1,505,247
 222,391
 204,258
Commercial Operating54,866
 42,775
 15,533
Agricultural Operating16,340
 30,889
 20,646
Premium Finance535,339
 357,252
 208,183
Total Fixed-Rate2,381,737
 893,219
 619,246
Total Loans Originated2,600,733
 968,355
 672,760
      
Purchases: 
  
  
1-4 Family Real Estate540
 —
 —
Commercial and Multi-Family Real Estate7,078
 —
 —
Consumer133,785
 —
 —
Premium Finance—
 —
 74,120
Total Loans Purchased141,403
 —
 74,120
      
Sales and Repayments: 
  
  
Sales: 
  
  
Commercial and Multi-Family Real Estate4,720
 —
 4,843
Agricultural Real Estate—
 —
 520
Consumer685,934
 17,611
 11,650
Agricultural Operating—
 83
 99
Total Loan Sales690,654
 17,694
 17,112
      
Repayments: 
  
  
Loan Principal Repayments1,652,674
 737,853
 515,883
Total Principal Repayments1,652,674
 737,853
 515,883
Total Reductions2,343,328
 755,547
 532,995
      
(Decrease) increase in Other Items, Net(441) 408
 (637)
Net Increase$398,367
 $213,216
 $213,248

At September 30, 2017, approximately $134.5 million, or 10%, of the Company’s loan portfolio consisted of purchased loans, including the purchased student loan portfolio balance of $123.7 million. The remainder of the Company's purchased loan portfolio is secured by properties located in Iowa, North Dakota and South Dakota.  The Company believes that purchasing loans outside of its market areas assists the Company in diversifying its portfolio and may lessen the adverse effects on the Company’s business or operations which could result in the event of a downturn or weakening of the local economy in which the Company conducts its primary operations.  However, additional risks are associated with purchasing loans outside of the Company’s market areas, including the lack of knowledge of the local market and difficulty in monitoring and inspecting the property securing the loans. During fiscal 2017, the Company purchased a $148.7 million student loan portfolio discounted to $133.8 million, $7.1 million of commercial real estate participation loans and $0.5 million of other loans.
Non-Performing Assets, Other Loans of Concern and Classified Assets
When a borrower fails to make a required payment on retail bank real estate secured loans and consumer loans within 16 days after the payment is due, the Company generally initiates collection procedures by mailing a delinquency notice.  The customer is contacted again, by written notice or telephone, before the payment is 30 days past due and again before 60 days past due.  Generally, delinquencies are cured promptly; however, if a loan has been delinquent for more than 90 days, satisfactory payment arrangements must be adhered to or the Company may initiate foreclosure or repossession. For premium finance loans, a notice of cancellation is sent 18 days after the missed payment. If the account is not brought current, the Company may cancel the underlying insurance policy.NONPERFORMING ASSETS, OTHER LOANS AND LEASES OF CONCERN AND CLASSIFIED ASSETS
 
The following table sets forth the Company’s loan and lease delinquencies by type, by amount and by percentage of type at September 30, 2017.2022.

 30-59 Days60-89 Days> 89 Days Past Due
(Dollars in thousands)Number of LoansAmountPercent of CategoryNumber of LoansAmountPercent of CategoryNumber of LoansAmountPercent of Category
Commercial finance414 $24,881 88.2 %293 $6,208 70.4 %900 $7,868 40.3 %
Consumer finance228 3,322 11.8 %152 2,609 29.6 %1,003 2,793 14.3 %
Tax services (1)
— — — %— — — %— 8,873 45.4 %
Total loans and leases held for investment642 $28,203 100.0 %445 $8,817 100.0 %1,903 $19,534 100.0 %
Total loans and leases642 $28,203 100.0 %445 $8,817 100.0 %1,903 $19,534 100.0 %
 Loans Delinquent For:
 
30-59 Days (1)
 
60-89 Days (2)
 
90 Days and Over (3)
 Number Amount 
Percent
of
Category
 Number Amount 
Percent
of
Category
 Number Amount 
Percent
of
Category
       (Dollars in Thousands)      
Real Estate:                 
1-4 Family1
 $370
 8.4% 1
 $79
 2.6% —
 $—
 —%
   Commercial & Multi-Family—
 —
 —% —
 —
 —% 3
 685
 1.8%
Agricultural—
 —
 —% —
 —
 —% 13
 34,198
 91.0%
Consumer82
 2,512
 57.2% 21
 558
 18.1% 51
 1,406
 3.7%
Agricultural Operating—
 —
 —% —
 —
 —% 1
 97
 0.3%
Premium Finance327
 1,509
 34.4% 241
 2,442
 79.3% 1,010
 1,205
 3.2%
Total410
 $4,391
 100.0% 263
 $3,079
 100.0% 1,078
 $37,591
 100.0%
(1) As of September 30, 2017, 80The tax services loans past due represented the aggregate remaining balance of the consumer loans, which totaled $2.5 million, were student loans that are insured by ReliaMax Surety.tax services loan portfolio.
(2) As of September 30, 2017, 20 of the consumer loans, which totaled $0.1 million, were student loans that are insured by ReliaMax Surety.
(3) As of September 30, 2017, 50 of the consumer loans, which totaled $1.4 million were student loans that are insured by ReliaMax Surety.


Delinquencies 90 days and over constituted 2.8%0.55% of total loans and 0.72% of total assets. Excluding the insured student loans, delinquencies 90 daysleases and over would have constituted 2.7% of total loans and 0.70%0.29% of total assets.





9

Table of Contents

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


The table below sets forth the amounts and categories of the Company’s non-performingnonperforming assets.
 At September 30,
(Dollars in thousands)20222021
Nonperforming Loans and Leases
Nonaccruing loans and leases:
Commercial finance$13,375 $19,330 
Community banking— 14,915 
Total nonaccruing loans and leases13,375 34,245 
Accruing loans and leases delinquent 90 days or more:  
Loans held for sale— — 
Commercial finance4,142 12,489 
Consumer finance2,793 1,236 
Tax services(1)
8,873 7,962 
Total accruing loans and leases delinquent 90 days or more15,808 21,687 
Total nonperforming loans and leases29,183 55,932 
Other Assets  
Nonperforming operating leases1,736 3,824 
Foreclosed and repossessed assets:  
Commercial finance1 2,077 
Total foreclosed and repossessed assets1 2,077 
Total other assets1,737 5,901 
Total nonperforming assets$30,920 $61,833 
Total as a percentage of total assets0.46 %0.92 %
(1) Certain tax services loans do not bear interest.
 At September 30,
 2017 2016 2015 2014 2013
Non-Performing Loans(Dollars in Thousands)
          
Non-Accruing Loans:         
1-4 Family Real Estate$—
 $83
 $24
 $281
 $245
Commercial & Multi-Family Real Estate685
 —
 904
 312
 427
Agricultural Operating—
 —
 5,132
 340
 —
Commercial Operating—
 —
 —
 —
 7
Total685
 83
 6,060
 933
 679
          
Accruing Loans Delinquent 90 Days or More: 
  
  
  
  
 Agricultural Real Estate34,198
 —
 —
 —
 —
 Consumer1,406
 53
 13
 54
 13
 Agricultural Operating97
 —
 —
 —
 —
 Premium Finance1,205
 965
 1,728
 —
 —
Total36,906
 1,018
 1,741
 54
 13
          
Total Non-Performing Loans37,591
 1,101
 7,801
 987
 692
          
Other Assets 
  
  
  
  
          
Foreclosed Assets: 
  
  
  
  
1-4 Family Real Estate62
 76
 —
 —
 —
Commercial & Multi-Family Real Estate230
 —
 —
 15
 116
Total292
 76
 —
 15
 116
          
Total Other Assets292
 76
 —
 15
 116
          
Total Non-Performing Assets$37,883
 $1,177
 $7,801
 $1,002
 $808
Total as a Percentage of Total Assets0.72% 0.03% 0.31% 0.05% 0.05%
Total Non-Performing Assets as a Percentage of Total Assets - excluding insured loans (1)
0.70% 0.03% 0.31% 0.05% 0.05%
(1) Excludes from non-performing assets the student loans that are insured by ReliaMax Surety Company.



For the fiscal year ended September 30, 2017,2022, gross interest income, thatwhich would have been recorded had the non-accruingnonaccruing loans and leases been current in accordance with their original terms amounted to approximately $13,000,was insignificant, none of which was included in interest income.
 
Non-AccruingNonaccruing Loans.  and Leases. At September 30, 2017,2022, the Company had $0.7$13.4 million in non-accruingnonaccruing loans and leases, which constituted less than 0.1%0.4% of the Company's gross loan portfolio and total assets.lease portfolio. At September 30, 2016,2021, the Company had $0.1$34.2 million in non-accruingnonaccruing loans which also constituted less than 0.1%0.9% of its gross loans portfolioloan and total assets.  lease portfolio.

The fiscal 2017 increase2022 decrease in non-accruingnonaccruing loans relates to an increaseand leases was primarily driven by a reduction of $14.9 million in non-accruing loansthe community bank portfolio, along with a decrease in the commercial real estate categoryfinance portfolio.

10
Table of $0.7 million.Contents
Accruing Loans and Leases Delinquent 90 Days or More.  More. At September 30, 2017,2022, the Company had $1.2$15.8 million in accruing premium finance loans and leases delinquent 90 days or more. At the same date, the Company also had $36.9 million in agricultural loans relatedmore, compared to two large relationships that were more than 90 days past due and still accruing. One of these agricultural relationships, which represented an outstanding loan balance of about $7$21.7 million at September 30, 2017,2021. This balance of accruing loans and leases 90 days or more past due was paid in full on November 1, 2017. The Company received all principal, accrued interest, legal,mainly comprised of tax services, commercial finance, and other expenses at the closing. The Company also believes that its strong collateral position on the other relationship (less than 75% loan-to-value ("LTV") secured by agricultural real estate)consumer finance loans and active collection process with the borrower supports the decision to continue to accrue interest on such loan. Given the underlying values of collateral (primarily land related to our agricultural loans), we believe that we have minimal loss exposure on this agricultural relationship and expect to receive all principal, accrued interest, legal, and other expenses. It is possible the collateral will go through a deed-in-lieu of foreclosure process in the near future. In addition to the principal balance, this relationship also had accrued interest of $1.8 million as of September 30, 2017 that the Company, as noted above, expects to collect.leases.


Classified Assets.  Assets. Federal regulations provide for the classification of certain loans, leases, and other assets such as debt and equity securities considered by ourthe Bank's primary regulator, the OCC,Office of the Comptroller of the Currency (the "OCC"), to be of lesser quality as “substandard,” “doubtful” or “loss,” with each such classification dependent on the facts and circumstances surrounding the assets in question. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the Bank will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such minimal value that their continuance as assets without the establishment of a specific loss reserve is not warranted.
 
General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When assets are classified as “loss,” the Bank is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. The Bank’s determinations as to the classification of its assets and the amount of its valuation allowances are subject to review by its regulatory authorities, which may order the establishment of additional general or specific loss allowances.

Pathward has revised its credit administration policies and reviewed its loan portfolio to better align with OCC guidance for national banks, a process that began during the quarter ending June 30, 2021 and was completed as of September 30, 2021. These credit policy revisions had an impact on our loan and lease risk ratings, resulting in downgrades of certain credits in several categories. Our loan and collateral management practices have proven effective in managing losses during previous economic cycles; and this process resulted in setting a new baseline for portfolio metrics going forward, it does not indicate a deterioration in our portfolio's expected performance.
On the basis of management’s review of its classifiedloans, leases, and other assets, at September 30, 2017,2022, the Company had classified loans and leases of $40.6$203.7 million as substandard, $4.0 million as doubtful and none as loss. At September 30, 2021, the Company classified loans and leases of $264.2 million as substandard, $12.1 million as doubtful and none as doubtful or loss. Further, at September 30, 2017,2022, the BankCompany owned an insignificant amount of real estate or other assets as a result of foreclosure of loans, with a value of $292,000.as compared to $2.1 million at September 30, 2021.
 
Allowance for LoanCredit Losses. Effective October 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses.  The (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs (collectively “Topic 326”), which measures credit loss for most financial assets, including trade and other receivables, debt securities held to maturity, loans, net investments in leases, purchased financial assets with credit deterioration, and off-balance sheet credit exposures. ASU 2016-13 requires the use of a current expected credit losses ("CECL") methodology to determine the allowance for credit losses ("ACL") for loans and debt securities held to maturity. 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.

The ACL represents management's estimate of expected credit losses over the life of each financial asset as of the balance sheet date. The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets for credit loss, generally this means loans and leases identified as troubled debt restructurings or loans and leases on nonaccrual status. Management has also identified certain structured finance credits for alternative energy projects in which a substantial cash collateral accounts have been established to mitigate credit risk. Due to the nature of the transactions and significant cash collateral positions, these credits are evaluated individually. All other loans and leases are evaluated collectively for credit loss. A reserve for unfunded credit commitments such as letters of credit and binding unfunded loan lossescommitments is established throughrecorded in other liabilities on the Consolidated Statements of Financial Condition.


11
Table of Contents
Individually evaluated loans and leases are a provision for loan losseskey component of the ACL. Generally, the Company measures credit loss on individually evaluated loans based on management’s evaluation of the risk inherent in its loan portfolio and changes in the nature and volume of its loan activity, including those loans which are being specifically monitored by management.  Such evaluation, which includes a review of loans for which full collectability may not be reasonably assured, considers, among other matters, the estimated fair value of the underlying collateral economic conditions, historicalless estimated selling costs, as the Company considers these financial assets to be collateral dependent. If an individually evaluated loan or lease is not collateral dependent, credit loss experience and other factors that warrant recognition in providing for an appropriateis measured at the present value of expected future cash flows discounted at the loan loss allowance.or lease initial effective interest rate.
 
The following table sets forth an analysis of the Company’s ACL.
 At September 30,
(Dollars in thousands)20222021
Balance at beginning of period$68,281 $56,188 
Impact of CECL Adoption:
Commercial finance— 12,713 
Consumer finance— 5,998 
Warehouse finance— (1)
Community banking— (5,937)
Total Impact of CECL Adoption— 12,773 
Charge-offs: 
Commercial finance(25,422)(19,451)
Consumer finance(4,787)(3,324)
Tax services(30,852)(34,354)
Community banking— (144)
Total charge-offs(61,061)(57,273)
Recoveries:
Commercial finance6,334 5,256 
Consumer finance345 320 
Tax services2,762 1,078 
Community banking424 — 
Total recoveries9,865 6,654 
Net (charge-offs) recoveries(51,196)(50,619)
Provision for credit losses28,862 49,939 
Balance at end of period$45,947 $68,281 
Ratio of net charge-offs during the period to average loans outstanding during the period1.34 %1.36 %
Ratio of net charge-offs during the period to average loans outstanding during the period (excluding tax loans and tax net charge-offs)0.63 %0.50 %
Ratio of net charge offs during the period to nonperforming assets at year end165.58 %81.86 %
Allowance to total loans and leases1.30 %1.89 %
Ratio of allowance to total nonaccrual loans3.44 1.99 
For more information on the Provision for Credit Losses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included in Item 7 of this Annual Report on Form 10-K.


12
Table of Contents
The following table presents net loan charge-offs per lending category and the percentage of net charge-offs to average loan and lease balances.
At and For the Fiscal Year Ended September 30,
 20222021
(Dollars in thousands)Net Loan Charge-offsAverage Outstanding BalancePercent of Net Charge-offs to Average LoansNet Loan Charge-offsAverage Outstanding BalancePercent of Net Charge-offs to Average Loans
Term lending$9,580 $1,040,003 0.9 %$12,803 $886,678 1.4 %
Asset based lending(416)358,683 (0.1)%777 241,195 0.3 %
Factoring9,140 380,544 2.4 %(1,175)293,468 (0.4)%
Lease financing(335)235,475 (0.1)%2,596 285,402 0.9 %
Insurance premium finance541 444,184 0.1 %(785)382,382 (0.2)%
SBA/USDA578 258,039 0.2 %(21)346,224 — %
Other commercial finance— 167,657 — %— 113,986 — %
Commercial finance19,088 2,884,585 0.7 %14,195 2,549,335 0.6 %
Consumer credit products— 182,447 — %— 108,060 — %
Other consumer finance4,442 112,909 3.9 %3,004 140,697 2.1 %
Consumer finance4,442 295,356 1.5 %3,004 248,757 1.2 %
Tax services28,090 179,611 15.6 %33,276 214,835 15.5 %
Warehouse finance— 433,121 — %— 330,224 — %
Community banking(424)34,758 (1.2)%144 375,258 — %
Total$51,196 $3,827,431 1.3 %$50,619 $3,718,409 1.4 %

The distribution of the Company’s ACL at the dates indicated is summarized as follows:
 At September 30,
 20222021
(Dollars in thousands)AmountPercent of Loans and Leases in Each Category of Total Loans and LeasesAmountPercent of Loans and Leases in Each Category of Total Loans and Leases
Term lending$24,621 30.9 %$29,351 26.6 %
Asset based lending1,050 10.0 %1,726 8.3 %
Factoring6,556 10.5 %3,997 10.1 %
Lease financing5,902 6.0 %7,629 7.4 %
Insurance premium finance1,450 13.5 %1,394 11.9 %
SBA/USDA3,263 10.2 %2,978 6.9 %
Other commercial finance1,310 4.5 %1,168 4.4 %
Commercial finance44,152 85.6 %48,243 75.6 %
Consumer credit products1,400 4.1 %1,242 3.6 %
Other consumer finance63 0.7 %6,112 3.4 %
Consumer finance1,463 4.8 %7,354 7.0 %
Tax services5 0.3 %2 0.3 %
Warehouse finance327 9.3 %420 11.6 %
Community banking— — %12,262 5.5 %
Total$45,947 100.0 %$68,281 100.0 %

13
Table of Contents
Management closely monitors economic developments both regionally and nationwide, and considers these factors when assessing the appropriateness of its allowance for loan losses.ACL. The current economic environment continuesCompany's ACL as a percentage of total loans and leases decreased to show signs of stability and improvement1.30% at September 30, 2022 from 1.89% at September 30, 2021. The decrease in the Bank’s markets.  The Bank’s average loss rates over the past three years were low relative to industry averages for such years, offset, in the case of fiscal 2016, with a higher agricultural loss ratetotal loans and leases coverage ratio was primarily driven by the charge offsale of one relationship.the community bank portfolio, along with a decrease in the coverage ratio for both the commercial and consumer finance portfolios. The Bank does not believe it is likely these low loss conditions willdecrease in the consumer finance portfolio coverage ratio was attributable to the sale of the student loan portfolio. The Company expects to continue indefinitely.  Each loan segment is evaluated using both historical loss factorsto diligently monitor the ACL and adjust as well as other qualitative factorsnecessary in orderfuture periods to determine the amount of risk the Company believes exists within that segment.maintain an appropriate and supportable level.




Management believes that, based on a detailed review of the loan and lease portfolio, historic loan and lease losses, current economic conditions, the size of the loan and lease portfolio and other factors, the level of the allowance for loan lossesACL at September 30, 20172022 reflected an appropriate allowance against probableexpected credit losses from the loanlending portfolio. Although the Company maintains its allowance for loan lossesACL at a level it considers to be appropriate, investors and others are cautioned that there can be no assurance that future losses will not exceed estimated amounts, or that additional provisions for loan and lease losses will not be required in future periods.  In addition, the Company’s determination of the allowance for loan losses is subject to review by the OCC, which can require the establishment of additional general or specific allowances.

Real estate properties acquired through foreclosure are recorded at fair value.  If fair value at the date of foreclosure is lower than the balance of the related loan, the difference will be charged to the allowance for loan losses at the time of transfer.  Valuations are periodically updated by management and, if the value declines, a specific provision for losses on such property is established by a charge to operations.
The following table sets forth an analysis of the Company’s allowance for loan losses. 
 September 30,
 2017 2016 2015 2014 2013
 (Dollars in Thousands)
Balance at Beginning of Period$5,635
 $6,255
 $5,397
 $3,930
 $3,971
          
Charge Offs: 
  
  
  
  
1-4 Family Real Estate—
 (32) (45) —
 (25)
Commercial & Multi-Family Real Estate(138) (385) (214) —
 (194)
Consumer(7,084) (728) —
 —
 (1)
Commercial Operating(1,149) (249) —
 —
 —
Agricultural Operating—
 (3,252) (186) (50) —
Premium Finance(626) (726) (285) —
 —
Total Charge Offs(8,997) (5,372) (730) (50) (220)
Recoveries: 
  
  
  
  
1-4 Family Real Estate—
 —
 —
 2
 2
Commercial & Multi-Family Real Estate—
 27
 6
 347
 113
Consumer209
 11
 —
 —
 1
Commercial Operating25
 —
 3
 18
 63
Agricultural Operating12
 2
 —
 —
 —
Premium Finance61
 107
 114
 —
 —
Total Recoveries307
 147
 123
 367
 179
          
Net (Charge Offs) Recoveries(8,690) (5,225) (607) 317
 (41)
Provision Charged to Expense10,589
 4,605
 1,465
 1,150
 —
Balance at End of Period$7,534
 $5,635
 $6,255
 $5,397
 $3,930
          
Ratio of Net Charge Offs During the Period to
Average Loans Outstanding During the Period
0.73% 0.06% 0.10% (0.07)% 0.01%
          
Ratio of Net Charge Offs During the Period to
 Non-Performing Assets at Year End
22.94% 443.84% 7.78% (31.66)% 5.07%
          
Allowance to Total Loans0.57% 0.61% 0.88% 1.08 % 1.02%
Allowance to Total Loans - excluding insured loans (1)
0.63% 0.61% 0.88% 1.08 % 1.02%
(1) Excludes from the total loan balance student loans that are insured by ReliaMax Surety Company.


For more information on the Provision for Loan Losses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included in Item 7 of this Annual Report on Form 10-K.
 The distribution of the Company’s allowance for losses on loans at the dates indicated is summarized as follows:
 At September 30,
 2017 2016 2015 2014 2013
 Amount 
Percent of
Loans in
Each
Category
of Total
Loans
 Amount 
Percent of
Loans in
Each
Category
of Total
Loans
 Amount 
Percent of
Loans in
Each
Category
of Total
Loans
 Amount 
Percent of
Loans in
Each
Category
of Total
Loans
 Amount 
Percent of
Loans in
Each
Category
of Total
Loans
     (Dollars in Thousands)      
1-4 Family Real Estate$803
 14.8% $654
 17.5% $278
 17.5% $552
 23.3% $333
 21.4%
Commercial & Multi-Family Real Estate2,670
 44.1
 2,198
 45.7
 1,187
 43.5
 1,575
 44.9
 1,937
 50.1
Agricultural Real Estate1,390
 4.7
 142
 6.9
 163
 9.0
 263
 11.2
 112
 7.6
Consumer6
 12.3
 51
 4.0
 20
 4.7
 78
 5.9
 74
 7.9
Commercial Operating158
 2.7
 117
 3.4
 28
 4.2
 93
 6.2
 49
 4.2
Agricultural Operating1,184
 2.5
 1,332
 4.0
 3,537
 6.1
 719
 8.5
 267
 8.8
Premium Finance796
 18.9
 588
 18.5
 293
 15.0
 —
 —
 —
 —
Unallocated527
 —
 553
 —
 749
 —
 2,117
 —
 1,158
 —
Total$7,534
 100.0% $5,635
 100.0% $6,255
 100.0% $5,397
 100.0% $3,930
 100.0%


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. The Company’s investment and mortgage-backed securitiesMBS portfolios are managed in accordance with a written investment policy adopted by the Board of Directors, which is implemented by members of the Company’s InvestmentAsset/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. To date, the Company has not experienced any significant outflows related to the MPS divisionBaaS business line deposits, though no assurance can be given that this will continue to be the case.
 
As of September 30, 2017,2022, investment securities and mortgage-backed securitiesMBS with fair values of approximately $1.07 billion, $325.4$924.2 million and $9.5$804.0 million were pledged as collateral for the Bank’s Federal Reserve Bank (“FRB”) advances and Federal Home Loan Bank of Des Moines (“FHLB”) advances, Federal Reserve Bank (“FRB”) advances and collateral for securities sold under agreements to repurchase, respectively. For additional information regarding the Company’s collateralization of borrowings, see Notes 8 and 9Note 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.

Investment Securities.  Investments
It is the Company’s general policy to purchase investment securities which are U.S. Government-related securities, U.S. Government-related agency and instrumentality securities, U.S. Government-related agency or instrumentality collateralized securities, state and local government obligations commercial paper, corporate debt securities and overnight federal funds.





  The Company continues to execute its investment strategy of primarily purchasing U.S. Government-related securities and U.S. Government-related MBS, as well as AAA and AA rated NBQ municipal bonds; however, the Company also reviews opportunities to add other diverse, high-quality securities at attractive relative rates when opportunities arise. As of September 30, 2017,2022, the Company had total investment securities, excluding mortgage-backed securities,MBS, with an amortized cost of $1.54 billion$623.4 million compared to $1.37 billion$891.6 million as of September 30, 2016.2021. At September 30, 2017, $838.82022, $491.1 million, or 57%86%, of the Company’s investment securities were pledged to secure various obligations of the Company.

A large portion of this investment strategy involves the purchase of non-bank qualified municipal housing bonds backed by Fannie Mae, Freddie Mac, and or Ginnie Mae or convertible directly into Ginnie Mae securities that also provide monthly cash flow in the form of principal and interest payments.  These bonds are issued in larger denominations than bank qualified obligations of political subdivisions, which allows for the purchase of larger blocks.  These larger blocks of municipal bonds are typically issued in larger denominations by well-known issuers with reputable reporting and in turn, tend to be more liquid, which helps reduce price risk.  These municipal bonds are tax-exempt and as such have a tax equivalent yield higher than their book yield.  The tax equivalent yield calculation uses the Company’s cost of funds as one of its components.  Given the Company’s relatively low cost of funds due to the volume of interest-free deposits generated by the MPS division, the tax equivalent yield for these bonds is higher than a similar term investment in other investment categories. Many of the Company’s municipal holdings are able to be pledged at both the Federal ReserveFRB and the Federal Home Loan Bank.FHLB.
 
As
14
Table of September 30, 2017, the Company held obligations of states and political subdivisions of $1.40 billion, representing 90.0% of total investment securities, excluding mortgage‑backed securities.  This amount is spread among 48 of the 50 states of the U.S. and the District of Columbia, with no individual state (excluding agency backed and/or convertible municipal securities) having a concentration higher than 10% of the total carrying value of the municipal portfolio.  The Company has no direct municipal bond exposure in Detroit or Puerto Rico, which are municipalities that have had recent financial troubles and carry a higher than normal risk of the principal not being returned to the investor.  Management believes this geographical diversification lessens the credit risk associated with these investments. The Company also monitors concentrations of the ultimate borrower and exposure to counties within each state to further enhance proper diversification.Contents


The following table sets forth the carrying value of the Company’s investment securities portfolio, excluding mortgage-backed securities and other Benefit Equalization Plan equity securities,MBS, at the dates indicated.
 At September 30,
(Dollars in thousands)20222021
Investment Securities Available for Sale ("AFS")
Corporate securities$22,187 $25,000 
Asset-backed securities147,790 394,859 
SBA securities97,768 157,209 
Obligations of states and political subdivisions2,344 2,507 
Non-bank qualified obligations of states and political subdivisions263,783 268,295 
Subtotal debt securities AFS533,872 847,870 
Common equities and mutual funds(1)
— 12,668 
Investment Securities Held to Maturity ("HTM")
  Non-bank qualified obligations of states and political subdivisions(2)
39,093 52,944 
Subtotal debt securities HTM39,093 52,944 
FRB and FHLB stock28,812 28,400 
Total investment securities and FRB and FHLB stock$601,777 $929,214 
Other Interest-Earning Assets
Interest bearing deposits in other financial institutions and federal funds sold(3)
$295,752 $184,729 
 At September 30,
 2017 2016 2015
 (Dollars in Thousands)
Investment Securities AFS     
   Trust preferred and corporate securities$—
 $12,978
 $13,944
   Asset backed securities96,832
 116,815
 —
   Small business administration securities57,871
 80,719
 56,056
   Non-bank qualified obligations of states and political subdivisions950,829
 698,672
 608,590
   Common equities and mutual funds1,445
 1,125
 914
Subtotal AFS1,106,977
 910,309
 679,504
      
Investment Securities HTM     
   Obligations of states and political subdivisions19,247
 20,626
 19,540
   Non-bank qualified obligations of states and political subdivisions (1)
430,593
 465,469
 259,627
Subtotal HTM449,840
 486,095
 279,167
      
FHLB Stock61,123
 47,512
 24,410
      
Total Investment Securities and FHLB Stock$1,617,940
 $1,443,916
 $983,081
      
Other Interest-Earning Assets:     
Interest bearing deposits in other financial institutions and Federal Funds Sold (2)
$1,227,308
 $513,441
 $10,051
(1) Equity securities at fair value are included within other assets on the consolidated statements of financial condition at September 30, 2022 and 2021.
(1) (2) Includes $3.1 million ofno taxable obligations of states and political subdivisions.

(2) (3) From time to time, the Company maintains balances in excess of insured limits at various financial institutions, including the FHLB, the FRB, and other private institutions. At September 30, 2017,2022, the Company had $1.23 billion$9.1 million and $295.8 million in interest bearing deposits held at the FRB and $0.5 million at other institutions. At September 30, 2017, the Company did not have interest bearing deposits held at the FHLB and FRB, respectively. At September 30, 2021, the Company had no federal funds sold$8.7 million and $184.7 million in interest bearing deposits held at a private institution.the FHLB and FRB, respectively.


Debt Securities
The composition and maturities of the Company’s available for sale ("AFS") and held to maturity ("HTM") investment debt securities portfolio,portfolios at September 30, 2022, excluding equity securities and mutual funds, FHLB stock and mortgage-backed securities,MBS, are indicated in the following table. The actual maturity of certain municipal housing related securities areis typically less than its stated contractual maturity due to scheduled principal payments and prepayments of the underlying mortgages.
 At September 30, 2022
 1 Year or LessAfter 1 Year Through 5 YearsAfter 5 Years Through 10 YearsAfter 10 YearsTotal Investment Securities
(Dollars in thousands)Carrying
 Value		Carrying
 Value		Carrying
 Value		Carrying
 Value		Amortized CostFair
Value
Available for Sale
Corporate securities$— $— $22,187 $— $25,000 $22,187 
Asset-backed securities— — — 147,790 160,806 147,790 
SBA securities8 3,602 55,380 38,778 105,238 97,768 
Obligations of states and political subdivisions— 1,954 390 — 2,469 2,344 
Non-bank qualified obligations of states and political subdivisions708 3,838 3,862 255,375 290,754 263,783 
Total debt securities AFS$716 $9,394 $81,819 $441,943 $584,267 $533,872 
Weighted average yield(1)
3.38 %4.78 %4.67 %4.75 %3.00 %4.74 %
15
Table of Contents
 September 30, 2017
 1 Year or Less After 1 Year Through 5 Years After 5 Years Through 10 Years After 10 Years Total Investment Securities
 Carrying Value Carrying Value Carrying Value Carrying Value Amortized Cost Fair Value
Available for Sale(Dollars in Thousands)
Asset backed securities—
 —
 —
 96,832
 94,451
 96,832
Small business administration securities—
 —
 43,160
 14,711
 57,046
 57,871
Non-bank qualified obligations of states and political subdivisions—
 37,674
 315,038
 598,117
 938,883
 950,829
Total Investment Securities AFS$—
 $37,674
 $358,198
 $709,660
 $1,090,380
 $1,105,532
            
Weighted Average Yield (1)
—% 1.38% 1.89% 2.75% 2.67% 2.39%
At September 30, 2022
1 Year or LessAfter 1 Year Through 5 YearsAfter 5 Years Through 10 YearsAfter 10 YearsTotal Investment Securities
(Dollars in thousands)Carrying
 Value		Carrying
 Value		Carrying
 Value		Carrying
 Value		Amortized CostFair
Value
Held to Maturity
Non-bank qualified obligations of states and political subdivisions$— $— $— $39,093 $39,093 $35,902 
Total debt securities HTM$— $— $— $39,093 $39,093 $35,902 
Weighted average yield(1)
— %— %— %2.42 %2.42 %4.30 %
 September 30, 2017
 1 Year or Less After 1 Year Through 5 Years After 5 Years Through 10 Years After 10 Years Total Investment Securities
 Carrying Value Carrying Value Carrying Value Carrying Value Amortized Cost Fair Value
Held to Maturity(Dollars in Thousands)
Obligations of states and political subdivisions$1,483
 $5,893
 $8,473
 $3,398
 $19,247
 $19,368
Non-bank qualified obligations of states and political subdivisions—
 12,033
 136,523
 282,037
 430,593
 432,361
Total Investment Securities HTM$1,483
 $17,926
 $144,996
 $285,435
 $449,840
 $451,729
            
Weighted Average Yield (1)
1.43% 1.83% 2.19% 2.90% 2.62% 2.41%
 (1) Yields on tax-exempt obligations have not been computed on a tax-equivalent basis.


Mortgage-Backed Securities. 
The Company’s mortgage-backed and related securities portfolio as of September 30, 20172022 consisted entirely of securities issued by U.S. Government agencies or instrumentalities, including those of Ginnie Mae, Fannie Mae, Freddie Mac and Farmer Mac.Mac, along with private label institutions. The Ginnie Mae, Fannie Mae, Freddie Mac and Farmer Mac certificates are modified pass‑through mortgage-backed securitiesMBS representing undivided interests in underlying pools of fixed‑rate, or certain types of adjustable-rate, predominantly single-family mortgages issued by these U.S. Government agencies or instrumentalities.
At September 30, 2017,2022, the Company had a diverse portfolio of mortgage-backed securitiesMBS with an amortized cost of $702.6 million, all$1.58 billion. The fair market value of the MBS at fixed rates of interest. At September 30, 2017, the Company held primarily seasoned 20-year, 30-year, and 40-year pass through mortgage-backed securities. Coupons on these securities ranged from below 3% to 4.5%.2022 was $1.35 billion.


Mortgage-backed securitiesMBS generally increase the quality of the Company’s assets by virtue of the insurance or guarantees that back them, are more liquid than individual mortgage loans, and may be used to collateralize borrowings or other obligations of the Company. At September 30, 2017, $514.42022, $495.7 million, or 74%36.7%, of the Company’s mortgage-backed securitiesMBS were pledged to secure various obligations of the Company.
 
While mortgage-backed securitiesMBS carry a reduced credit risk as compared to whole loans, such securities remain subject to the risk that a fluctuating interest rate environment, along with other factors such as the geographic distribution and other underwriting risks inherent in the underlying mortgage loans, may alter the prepayment rate of such mortgage loans and so affect both the prepayment speed, and value, of such securities. The prepayment risk associated with mortgage-backed securitiesMBS is continually monitored, and prepayment rate assumptions are adjusted as appropriate to update the Company’s mortgage-backed securitiesMBS accounting and asset/liability reports.


The following table sets forth the carrying value of the Company’s mortgage-backed securitiesMBS at the dates indicated.
 At September 30,
(Dollars in thousands)20222021
Available for Sale
Farmer Mac$78,870 $109,355 
Freddie Mac66,653 53,206 
Freddie Mac CML11,983 14,578 
Fannie Mae121,968 156,605 
Ginnie Mae814,971 683,285 
Private Label254,552 — 
Total MBS AFS$1,348,997 $1,017,029 

 At September 30,
 2017 2016 2015
Available for Sale(Dollars in Thousands)
      
Freddie Mac$100,287
 $164,577
 $174,322
Fannie Mae486,167
 394,363
 391,846
Fannie Mae DUS—
 —
 10,415
Total AFS$586,454
 $558,940
 $576,583
 At September 30,
(Dollars in thousands)20222021
Held To Maturity
Ginnie Mae2,589 3,725 
Total MBS HTM$2,589 $3,725 
 
16
 At September 30,
 2017 2016 2015
Held to Maturity(Dollars in Thousands)
      
Farmer Mac$61,295
 $71,011
 $—
Fannie Mae43,458
 51,894
 61,026
Ginnie Mae8,936
 10,853
 5,551
Total HTM$113,689
 $133,758
 $66,577
Table of Contents

The following table setstables set forth the contractual maturities of the Company’s mortgage-backed securities at September 30, 2017.  Not considered in the preparation of the table below isMBS, excluding the effect of prepayments, periodic principal repayments and the adjustable-rate nature of these instruments, all of which typically lower the average life of these securities.
 At September 30, 2022
 1 Year or LessAfter 1 Year Through 5 YearsAfter 5 Years Through 10 YearsAfter 10 YearsTotal Investment Securities
(Dollars in thousands)Carrying
 Value		Carrying
 Value		Carrying
 Value		Carrying
 Value		Amortized
Cost		Fair
Value
Available for Sale
Farmer Mac$— $— $65,222 $13,648 $90,045 $78,870 
Freddie Mac— — 21,746 44,907 77,812 66,653 
Freddie Mac CML— — — 11,983 12,450 11,983 
Fannie Mae— — 5,102 116,866 137,968 121,968 
Ginnie Mae— — — 814,971 968,049 814,971 
Private Label— — — 254,552 295,128 254,552 
Total MBS AFS$— $— $92,070 $1,256,927 $1,581,452 $1,348,997 
Weighted average yield— %— %4.50 %4.78 %2.67 %4.76 %
 September 30, 2017
 1 Year or Less After 1 Year Through 5 Years After 5 Years Through 10 Years After 10 Years Total Investment Securities
 Carrying Value Carrying Value Carrying Value Carrying Value Amortized Cost Fair Value
Available for Sale(Dollars in Thousands)
            
Freddie Mac$—
 $—
 $—
 $100,287
 $102,385
 $100,287
Fannie Mae—
 —
 —
 486,167
 486,533
 486,167
Total Investment Securities$—
 $—
 $—
 $586,454
 $588,918
 $586,454
            
Weighted Average Yield—% —% —% 2.73% 2.64% 2.73%

 At September 30, 2022
 1 Year or LessAfter 1 Year Through 5 YearsAfter 5 Years Through 10 YearsAfter 10 YearsTotal Investment Securities
(Dollars in thousands)Carrying
 Value		Carrying
 Value		Carrying
 Value		Carrying
 Value		Amortized
Cost		Fair
Value
Held To Maturity
Ginnie Mae$— $— $— $2,589 $2,589 $2,268 
Total MBS HTM$— $— $— $2,589 $2,589 $2,268 
Weighted average yield— %— %— %2.70 %2.70 %5.87 %
 September 30, 2017
 1 Year or Less After 1 Year Through 5 Years After 5 Years Through 10 Years After 10 Years Total Investment Securities
 Carrying Value Carrying Value Carrying Value Carrying Value Amortized Cost Fair Value
Held to Maturity(Dollars in Thousands)
            
Farmer Mac$—
 $—
 $—
 $61,295
 $61,295
 $60,733
Fannie Mae—
 —
 —
 43,458
 43,458
 42,894
Ginnie Mae—
 —
 —
 8,936
 8,936
 8,829
Total Investment Securities$—
 $—
 $—
 $113,689
 $113,689
 $112,456
            
Weighted Average Yield—% —% —% 2.64% 2.64% 2.73%


At September 30, 2017,2022, the contractual maturity of allapproximately 93.2% of the Company’s mortgage‑backed securities wasmortgage backed-securities were in excess of ten years. The actual maturity of a mortgage-backed securityan MBS is typically less than its stated contractual maturity due to scheduled principal payments and prepayments of the underlying mortgages. Prepayments that are different than anticipated will affect the yield to maturity. The yield is based upon the interest income and the amortization of any premium or discount related to the mortgage-backed security.MBS. In accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), premiums and discounts are amortized over the estimated lives of the loans, which decrease and increase interest income, respectively. The prepayment assumptions used to determine the amortization period for premiums and discounts can significantly affect the yield of mortgage-backed securities,MBS, and these assumptions are reviewed periodically to reflect actual prepayments. Although prepayments of underlying mortgages depend on many factors, including the type of mortgages, the coupon rate, borrower credit scores, loan to premises value, the age of mortgages, the geographical location of the underlying real estate collateralizing the mortgages and general levels of market interest rates, the difference between the interest rates on the underlying mortgages and the prevailing mortgage interest rates generally is the most significant determinant of the rate of prepayments. During periods of falling mortgage interest rates, if the coupon rate of the underlying mortgages exceeds the prevailing market interest rates offered for mortgage loans, refinancing generally increases and accelerates the prepayment of the underlying mortgages and the related security. Under such circumstances, the Company may be subject to reinvestment risk because, to the extent that the Company’s mortgage-backed securitiesMBS amortize or prepay faster than anticipated, the Company may not be able to reinvest the proceeds of such repayments and prepayments at a comparable rate. During periods of rising interest rates, these prepayments tend to decelerate as the prevailing market interest rates for mortgage rates increase and prepayment incentives dissipate.


Management
17
Table of Contents
Effective October 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs (collectively “Topic 326”). Under 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. 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 implementedconcluded a processzero risk of loss associated with these securities and no provision for credit loss has been included in the Company’s Consolidated Statement of Operations. Under Topic 326, investment debt securities available for sale continue to identifybe 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. 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.

Prior to adoption of ASU 2016-13, management identified securities with potential credit impairment that arewere other-than-temporary. This process involvesinvolved evaluation of the length of time and extent to which the fair value has beenwas less than the amortized cost basis, review of available information regarding the financial position of the issuer, monitoring the rating, watch, and outlook of the security, monitoring changes in value, cash flow projections, and the Company’s intent to sell a security or whether it is more likely than not we willwould be required to sell the security before the recovery of its amortized cost which, in some cases, may extendextended to maturity. To the extent we determinedetermined that a security iswas deemed to be other-than-temporarily impaired, an impairment loss iswas recognized.
For all securities considered temporarily impaired, the Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost, which may occur at maturity.  The Company believes it will collect all principal and interest due on all investments with amortized cost in excess of fair value and considered only temporarily impaired.
In fiscal 2017, 2016 and 2015,2020, there were no other-than-temporary impairments recorded. Fannie Mae

Equity Securities. The Company holds marketable equity securities, which have readily determinable fair values, and Freddie Mac, whichinclude common equity and mutual funds. These securities are bothrecorded at fair value with unrealized gains and losses, due to changes in conservatorship, generally providefair 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.

The Company also holds non-marketable equity investments and accounts for them under the certificate holder a guaranteeequity method, fair value, or the measurement alternative method depending on the level of timely paymentssignificant influence the Company can exercise and the availability of interest, whetherfair value. All income or not collected.  Ginnie Mae’s guarantee toloss recognition or fair value adjustments, regardless of measurement methodology, are reflected in earnings as non-interest income. Non-marketable equity investments measured under the holderequity method, or the measurement alternative method are reviewed for impairment each reporting period and is timely payments of principal and interest, backed by the full faith and credit of the U.S. Government.reported in earnings if applicable.

Funding Activities
 
Sources of FundsGeneral
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 short-term investments, mortgage-backed securities and funds provided from operations.
 
Borrowings, including FHLB advances, overnight federal funds purchased, repurchase agreements, other short-term borrowings, and funds available through the FRB Discount Window, may be used at times to compensate for seasonal reductions in deposits or deposit inflows at less than projected levels, may be used on a longer-term basis to support expanded lending activities, and may also be used to match the funding of a corresponding asset.
 
Deposits. 
The Company offers a variety of deposit accounts having a wide range of interest rates and terms. The Company’s deposits consistprimarily consists of statementdemand deposit accounts, savings accounts, money market savings accounts, NOW and regular checking accounts, deposits related to prepaid cards primarily categorized as checking accounts, and certificate accounts currently ranging in terms from 3three months to 5 years.  The Company solicits deposits from its primary market area and relies primarily on competitive pricing policies, advertising and high-quality customer servicefive years, many of which are related to attract and retain these deposits.prepaid cards. In addition, the Company may periodically utilize brokered or other wholesale deposits to target strategic maturities related to ourits seasonal taxrefund advance lending. The taxrefund 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. As of September 30, 2017, $255.3 million of the Company's brokered certificates of deposits are scheduled to mature during the second quarter of fiscal 2018 to coincide with a significant paydown of the principal balances on these tax advances. Other sources of brokeredwholesale deposits may also be utilized periodically to take advantage of balance sheet funding opportunities.


The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates, and competition.
 
18
Table of Contents
The variety of deposit accounts offered by the Company has allowed it to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand. The 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 its savings, money market accounts, NOW, regular checking accounts and deposits related to prepaid cards are relatively stable sources of deposits. However, the ability of the Company to attract and maintain certificates of deposit and the rates paid on these deposits has been and will continue to be significantly affected by market conditions.


Beginning in fiscal year 2020, the Bank partnered with the U.S. Department of the Treasury’s Bureau of the Fiscal Service (“Fiscal Service”) to disburse Economic Impact Payment (“EIP”) stimulus payments through the distribution of prepaid cards. The Company’s BaaS business line, in collaboration with Fiserv and Visa, is serving in an ongoing role to provide a safe and secure mechanism for individuals, including the underbanked, to receive their stimulus payments. In 2020, the Bank disbursed approximately $6.42 billion of the first round of EIP payments under the Coronavirus Aid, Relief, and Economic Security Act through the distribution of 3.6 million Bank-issued prepaid cards, and in 2021 disbursed approximately $7.10 billion of the second round of EIP payments under the Consolidated Appropriations Act of 2021 through the distribution of 8.1 million Bank-issued prepaid cards.

On March 11, 2021, the U.S. Congress, through the American Rescue Plan Act of 2021, directed the Internal Revenue Service (“IRS”), to distribute a third round of EIP via the U.S. Treasury to persons in the U.S. eligible to receive them. Through this third round, the Bank disbursed approximately $10.64 billion of EIP payments through the distribution of 4.7 million Bank-issued prepaid cards.

Of the 16.5 million prepaid cards issued in conjunction with the three EIP stimulus programs, totaling approximately $24.15 billion, $1.08 billion were outstanding as of September 30, 2022, of which $681.4 million of deposits was on Pathward Financial’s balance sheet with the remainder being held by other banks.
At September 30, 2017, $2.442022, $5.70 billion of the Company’s $3.22$5.87 billion deposit portfolio was attributable to the PaymentsConsumer segment. The majority of these deposits represent funds available to spend on prepaid debit cards and other stored value products, of which $2.39$5.63 billion are included with non-interest-bearingnoninterest-bearing checking accounts, and $20.2$65.9 million are included with savings deposits on the Company’s Consolidated StatementStatements of Financial Condition. Generally, these deposits do not pay interest. The Payments segmentBaaS 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. If a major client or card program were to leave the Bank, deposit outflows could be more significant than if the Bank were to lose a more traditional customer, although it is considered unlikely that all deposits related to a program would leave the Bank without significant advance notification. As such, and as historical results indicate, the Company believes that its deposit portfolio attributable to the PaymentsConsumer segment is stable. The increase in deposits arising from Paymentsthe BaaS business line has allowed the Bank to reduce its reliance on wholesale deposits, certificates of depositsdeposit and public funds, which typically have relatively higher costs. See “Regulation

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. Negative balances can relate to any of the following payments functions:

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

19
Table of Contents
The Company meets the Right of Set off criteria in ASC 210-20, Balance Sheet - Offsetting, for all payments negative deposit balances with the exception of DDA overdrafts. The following table summarizes the Company's negative deposit balances within the BaaS business line:
At September 30,
(Dollars in thousands)20222021
Noninterest-bearing deposits$5,916,142 $5,492,646 
Prefunding(244,462)(436,111)
Discount funding(15,991)(26,440)
DDA overdrafts(8,587)(11,862)
Noninterest-bearing checking, net$5,647,102 $5,018,233 

The following table sets forth the deposit flows at the Company during the periods indicated.
 Fiscal Year Ended September 30,
(Dollars in thousands)20222021
Opening balance$5,514,971 $4,979,200 
Deposits1,414,581,944 1,041,660,076 
Withdrawals(1,414,230,916)(1,041,124,905)
Interest credited38 601 
Ending balance$5,866,037 $5,514,971 
Net increase$351,066 $535,772 
Percent increase6.37 %10.76 %
 September 30,
 2017 2016 2015
 (Dollars in Thousands)
Opening Balance$2,430,082
 $1,657,534
 $1,366,541
Deposits418,732,743
 418,950,277
 315,944,447
Withdrawals(417,941,472) (418,178,086) (315,653,993)
Interest Credited2,071
 357
 539
      
Ending Balance$3,223,424
 $2,430,082
 $1,657,534
      
Net Increase$793,342
 $772,548
 $290,993
      
Percent Increase32.65% 46.61% 21.29%



The following table sets forth the dollar amount of deposits in the various types of deposit programs offered by the Company for the periods indicated.
At September 30,
20222021
(Dollars in thousands)AmountPercent of TotalAmountPercent of Total
Transactions and Savings Deposits:
Non-Interest bearing checking$5,647,102 96.3 %$5,018,233 91.0 %
Interest bearing checking(1)
423 — %254,721 4.6 %
Savings deposits67,158 1.2 %86,356 1.6 %
Money market deposits137,888 2.4 %67,204 1.2 %
Wholesale deposits5,712 — %55,957 0.9 %
Total transactions and savings deposits5,858,283 99.9 %5,482,471 99.3 %
Time Certificates of Deposit:    
0.00 - 0.99%7,311 0.1 %25,604 0.5 %
1.00 - 1.99%344 — %3,329 0.1 %
2.00 - 2.99%99 — %3,567 0.1 %
Total time certificates of deposit(2)
7,754 0.1 %32,500 0.7 %
Total deposits$5,866,037 100.0 %$5,514,971 100.0 %
(1) Of the total balance as of September 30, 2021, $254.3 million were interest-bearing deposits where interest expense was paid by a third party and not by the Company. On October 1, 2021, the Company reclassified the balances related to that program to noninterest bearing checking due to the product moving to noninterest bearing.
 September 30,
 2017 2016 2015
 Amount 
Percent of
Total
 Amount 
Percent of
Total
 Amount 
Percent of
 Total
 (Dollars in Thousands)
Transactions and Savings Deposits:           
Non-Interest Bearing Checking$2,454,057
 76.1% $2,167,522
 89.2% $1,449,101
 87.4%
Interest Bearing Checking67,294
 2.1% 38,077
 1.6% 33,320
 2.0%
Savings Deposits53,505
 1.7% 50,742
 2.1% 41,720
 2.5%
Money Market Deposits48,758
 1.5% 47,749
 1.9% 42,222
 2.6%
Wholesale transaction and savings deposits18,245
 0.6% —
 —% —
 —%
Total Non-Certificate Deposits$2,641,859
 82.0% $2,304,090
 94.8% $1,566,363
 94.5%
            
Time Certificates of Deposit: 
  
  
  
  
  
            
Variable103
 —% 124
 —% 192
 —%
0.00 - 0.99%58,745
 1.8% 125,519
 5.2% 89,044
 5.4%
1.00 - 1.99%522,393
 16.2% 349
 —% 1,935
 0.1%
2.00 - 2.99%324
 —% —
 —% —
 —%
            
Total Time Certificates of Deposits (1)
$581,565
 18.0% $125,992
 5.2% $91,171
 5.5%
Total Deposits$3,223,424
 100.0% $2,430,082
 100.0% $1,657,534
 100.0%
(1)(2) As of September 30, 2017,2022, total time certificates of depositsdeposit included $457.9$0.1 million of brokeredwholesale certificates of deposits.deposit.

20
Table of Contents
As of September 30, 2022 and 2021, total deposits that exceed FDIC insurance limits, or are otherwise uninsured, were estimated to be $211.4 million and $135.1 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.

The following table presents contractual maturities of estimated time deposits in excess of FDIC insurance limits or are otherwise uninsured.
 Maturity
(Dollars in thousands)3 Months or LessAfter 3 to 6 MonthsAfter 6 to 12 MonthsAfter 12 MonthsTotal
Certificates of deposit$940 $727 $880 $613 $3,160 

The following table shows rate and maturity information for the Company’s certificates of deposit as ofat September 30, 2017. 2022.
(Dollars in thousands)0.00 - 0.99%1.00 - 1.99%2.00 - 2.99%TotalPercent of Total
Certificate accounts maturing in quarter ending:  
December 31, 2022$1,992 $344 $99 $2,435 31.4 %
March 31, 20231,227 — — 1,227 15.8 %
June 30, 20231,721 — — 1,721 22.2 %
September 30, 2023564 — — 564 7.3 %
December 31, 2023762 — — 762 9.8 %
March 31, 20241,045 — — 1,045 13.5 %
Total$7,311 $344 $99 $7,754 100.0 %
Percent of total94.3 %4.4 %1.3 %100.0 % 
 Variable 0.00- 0.99% 1.00 - 1.99% 2.00 - 2.99% Total 
Percent of
Total
 (Dollars in Thousands)
Certificate accounts maturing in quarter ending:   
    
    
December 31, 201734
 42,083
 174,877
 —
 $216,994
 37.3%
March 31, 201818
 2,093
 298,302
 —
 300,413
 51.7%
June 30, 20188
 4,700
 35,743
 —
 40,451
 7.0%
September 30, 201826
 1,324
 1,617
 —
 2,967
 0.5%
December 31, 20189
 2,673
 3,417
 —
 6,099
 1.1%
March 31, 20198
 498
 831
 —
 1,337
 0.2%
June 30, 2019—
 1,386
 1,620
 —
 3,006
 0.5%
September 30, 2019—
 501
 —
 —
 501
 0.1%
December 31, 2019—
 1,647
 1,397
 7
 3,051
 0.5%
March 31, 2020—
 269
 36
 —
 305
 0.1%
June 30, 2020—
 829
 757
 —
 1,586
 0.3%
September 30, 2020—
 135
 82
 —
 217
 —%
Thereafter—
 607
 3,714
 317
 4,638
 0.8%
            
Total$103
 $58,745
 $522,393
 $324
 $581,565
 100.0%
            
Percent of total—% 10.1% 89.8% 0.1% 100.0%  


The following table indicates the amount of the Company’s certificates of deposit and other deposits by time remaining until maturity as of September 30, 2017.2022.
Maturity
Maturity
3 Months or
Less
 
After 3 to 6
Months
 
After 6 to 12
Months
 After 12 Months Total
(Dollars in Thousands)
(Dollars in thousands)(Dollars in thousands)3 Months or LessAfter 3 to 6 MonthsAfter 6 to 12 MonthsAfter 12 MonthsTotal
Certificates of deposit less than $250,000$193,317
 $257,999
 $26,928
 $18,117
 $496,361
Certificates of deposit less than $250,000$745 $— $406 $445 $1,596 
         
Certificates of deposit of $250,000 or more23,677
 42,414
 16,490
 2,623
 $85,204
Certificates of deposit of $250,000 or more1,690 1,227 1,880 1,362 6,158 
         
Total certificates of deposit$216,994
 $300,413
 $43,418
 $20,740
 $581,565
Total certificates of deposit$2,435 $1,227 $2,285 $1,807 $7,754 
 
At September 30, 2017,2022, there were $80.4 million inno deposits from governmental andor other public entities included in certificates of deposit.

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

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


21
Table of Contents
In return for record keeping services at Program Banks, the Bank receives a servicing fee (“Servicing Fee”). For the fiscal year ended September 30, 2022, the Company recognized $6.4 million in servicing fee income. In prior periods, the Servicing Fee was not significant. The Servicing Fee has been typically reflective of the EFFR upon a renegotiation of the contracts with Program Banks.
Borrowings
Although deposits are the Company’s primary source of funds, the Company’s practice has been to utilize borrowings when they are a less costly source of funds, can be invested at a positive interest rate spread, or when the Company desires additional capacity to fund loan demand. Borrowings from various sources mature based on stated payment schedules.
     
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. At September 30, 2017,2022, the Bank had $415.0 million ofno overnight borrowings or term advances, $987.0 million of overnight borrowings andbut did have the ability to borrow up to an approximate additional $0.4$693.0 million from the FHLB. During the fourth quarter of fiscal 2017,

On May 15, 2022, the Company incurred a $0.8retired the outstanding $75.0 million prepayment expense related to the early extinguishment of longer term FHLBsubordinated debt, which had a balance of $7.0 million at a weighted average interest rate of 6.98%.

The Company completed the public offering of $75 million of 5.75% fixed-to-floating rate subordinated debentures during fiscal year 2016. These notes arewas due August 15, 2026.

On September 26, 2022, the Company announced the completion of a private placement of $20 million of its 6.625% Fixed-to-Floating Rate Subordinated Notes due 2032 to certain qualified institutional buyers and accredited investors. The Notes are intended to qualify as Tier 2 capital for regulatory capital purposes. The Notes were issued under an indenture with UMB Bank, N.A., as trustee. At September 30, 2022, $20.0 million in aggregate principal amount in subordinated debentures were sold at par, resulting in net proceeds of approximately $73.9 million. At September 30, 2017, $73.3 million in subordinated debentures, net of issuance costs of $1.7 million, were outstanding.


On July 16, 2001, the Company issued all of the 10,310 authorized shares of Company Obligated Mandatorily Redeemable Preferred Securities of First Midwest Financial Capital Trust I (preferred securities of subsidiary trust) holding solely trust preferred securities. Distributions are paid semi‑annually.semiannually. Cumulative cash distributions are calculated at a variable rate of the London Interbank Offered Rate (“LIBOR”)LIBOR plus 3.75%, not to exceed 12.5%. The Company may, at one or more times, defer interest payments on the capital securities for up to 10 consecutive semi-annual periods, but not beyond July 25, 2031. At the end of any deferral period, all accumulated and unpaid distributions must be paid. The capital securities are required to be redeemed on July 25, 2031; however, the Company has a semi‑annualsemiannual option to shorten the maturity date. The option has not been exercised as of the date of this filing. The redemption price is $1,000 per capital security plus any accrued and unpaid distributions to the date of redemption. Holders of the capital securities have no voting rights, are unsecured, and rank junior in priority of payment to all of the Company’s indebtedness and senior to the Company’s common stock. The trust preferred securities have been includable in the Company’s capital calculations since they were issued. The preferential capital treatment of the Company’s trust preferred securities was grandfathered under recent banking legislation.the Dodd-Frank Act and is consistent with federal community bank capital rules. The outstanding balance of the trust preferred securities at September 30, 2022 was $13.7 million.


FromThrough the Crestmark Acquisition, the Company acquired $3.4 million in floating rate capital securities due to Crestmark Capital Trust I, a 100%-owned nonconsolidated subsidiary of the Company. The subordinated debentures bear interest at LIBOR plus 3.00%, have a stated maturity of 30 years from the date of issuance and are redeemable by the Company at par, with regulatory approval. The interest rate is reset quarterly at distribution dates in February, May, August, and November. The subsidiary has the option to defer interest payments on the subordinated debentures from time to time thefor a period not to exceed five consecutive years.

The Company haspreviously offered retail repurchase agreements to its customers. These agreements typically rangeranged from 14 days to five years in term, and typically have beenwere offered in minimum amounts of $100,000. The proceeds of these transactions arewere used to meet cash flow needs of the Company. At September 30, 2017,2022, the Company had $2.5 million ofno retail repurchase agreements outstanding.

The Company had three capital leases as of September 30, 2017, two equipment leases and one property lease.  At September 30, 2017, the portion of the liability expected to be expensed and amortized over the next 12 months is approximately $62,000, while the portion of the liability expected to be expensed and amortized beyond 12 months is $1.9 million.  The majority of the $1.9 million liability is related to the Urbandale, Iowa retail branch location.


The following table sets forth the maximum month-end balance and average balance of FHLB advances, retail and reverse repurchase agreements, trust preferred securities, subordinated debentures, capital leases, and overnight fed funds purchased for the periods indicated.
22
Table of Contents
Fiscal Year Ended September 30,
(Dollars in thousands)(Dollars in thousands)20222021
Maximum Balance:Maximum Balance:
September 30,
2017 2016 2015
(Dollars in Thousands)
Maximum Balance:     
FHLB advances$415,000
 $107,000
 $7,000
Repurchase agreements3,782
 3,468
 17,400
Trust preferred securities10,310
 10,310
 10,310
Trust preferred securities$13,661 $13,661 
Subordinated debentures73,347
 73,211
 —
Subordinated debentures20,000 73,980 
Capital leases2,012
 2,137
 2,247
Other overnight borrowings20,000
 —
 —
Overnight fed funds purchased987,000
 992,000
 540,000
Overnight fed funds purchased582,000 — 
Other borrowingsOther borrowings4,994 10,250 
     
Average Balance: 
  
  
Average Balance:  
FHLB advances$52,956
 $61,454
 $7,000
Repurchase agreements2,225
 2,179
 10,884
Trust preferred securities10,310
 10,310
 10,310
Trust preferred securities$13,661 $13,661 
Subordinated debentures73,273
 9,437
 —
Subordinated debentures46,441 73,886 
Capital leases1,979
 2,086
 1,993
Other overnight borrowings1,425
 —
 —
Overnight fed funds purchased259,378
 339,035
 234,025
Overnight fed funds purchased32,414 5 
Other borrowingsOther borrowings3,829 7,888 


The following table sets forth certain information as to the Company’s FHLB advances, retail and reverse repurchase agreements, trust preferred securities, subordinated debentures, capital leases, and overnight fed funds purchased at the dates indicated.purchased.
 At .September 30,
(Dollars in thousands)20222021
Trust preferred securities$13,661 $13,661 
Subordinated debentures20,000 73,980 
Other borrowings2,367 5,193 
Total borrowings$36,028 $92,834 
Weighted average interest rate of trust preferred securities7.68 %3.72 %
Weighted average interest rate of subordinated debentures6.63 %5.75 %

 September 30,
 2017 2016 2015
 (Dollars in Thousands)
      
FHLB advances$415,000
 $107,000
 $7,000
Repurchase agreements2,472
 3,039
 4,007
Trust preferred securities10,310
 10,310
 10,310
Subordinated debentures73,347
 73,211
 —
Capital leases1,938
 2,018
 2,143
Overnight fed funds purchased987,000
 992,000
 540,000
      
Total borrowings$1,490,067
 $1,187,578
 $563,460
      
Weighted average interest rate of FHLB advances1.27% 0.89% 6.98%
      
Weighted average interest rate of repurchase agreements0.98% 0.60% 0.52%
      
Weighted average interest rate of trust preferred securities5.26% 4.99% 4.28%
      
Weighted average interest rate of subordinated debentures5.75% 5.75% —%
      
Weighted average interest rate of overnight fed funds purchased1.33% 0.45% 0.30%
Payment, Issuing, and Tax Solutions

Subsidiary Activities

The subsidiariesCompany's core capabilities of the Company are the Bankpayment, issuing, and First Midwest Financial Capital Trust I.

Payments Overview

The Company, through the MPS division of the Bank, is focusedtax solutions focus on innovation in the finserv and fintech industries by providing solid banking infrastructure, proven tech resource partners, and payments industries. MPShigh-energy collaboration that enables its partners to deliver banking programs that meet their customers' demands. The BaaS business line offers a complement of prepaid cards, consumer credit products and other payment industry-payments related products and services that are marketed to consumers and businesses nationwide through financial institutions and other commercial entities onentities. Other solutions facilitate the movement of funds between an entity and the audience they serve, typically a nationwide basis.  Theconsumer. Overall, the products and services offered by MPSthe Company are generally designed to facilitate the processing and settlement of authorized electronic transactions involving the movement of funds.  MPS offers specific product solutions
While the Company has adopted policies and procedures to manage and monitor risks, and the executives who manage the Company’s program have years of experience, no guarantee can be made that the Company will not experience losses in the following areas:  (i) prepaid cards, (ii) consumer credit products, (iii) ATM sponsorship, (iv) tax refund transfers and (v) interest-free tax refund loans.  MPS’ products and services generally target banks, card processors, third parties that market and distributeBaaS business line. The Company has signed agreements with terms extending through the cards, resellers and independent tax preparers (EROs).next few years with several of its largest sales agents/program managers, which the Company expects will help mitigate this risk. 

Each line of MPS’ businesscore capability is discussed generally below.  With respectbelow with examples to the lines of business, there is a significant amount of cross-utilization ofillustrate use cases. The Company cross-utilizes personnel and resources (e.g., MPS may develop products for both prepaid and consumer credit needs pursuant to a client's request).across these capabilities.
     
Payment Solutions

Acquiring Sponsorship. Payment solutions include the acceptance, processing and settlement of credit card and debit card payments by an acquiring bank on behalf of merchants. Pathward acts as an acquiring bank to sponsor acquiring activity on behalf of merchant clients by leveraging partnerships with partners who act as merchant processors, third-party service providers, ISOs, and/or payment facilitators to identify, onboard and support merchant clients.
Prepaid Cards.
23
Table of Contents
Money Movement Solutions. In today’s market, consumers want to move their money fast, with more visibility and control of their own financial transactions. Pathward provides the financing operations for Automated Clearing House ("ACH") transactions, disburse to debit (through Visa Direct or Mastercard Send), wire or check processing which enable the faster, almost instantaneous movement of funds from sender to receiver.

Technology has accelerated the growth and speed of transactional payments for corporate and financial organizations. Prompt movement of money creates efficiency, speed and a robust marketplace for consumers, B2B and business-to-consumer ("B2C") companies.

Pathward is a Nacha Top 50 bank for receiving and originating payments. As oneof September 2022, Pathward typically processes a combined $2.5 billion per day in ACH and wire services, which supports that Pathward has earned the confidence of its partners by providing safe and efficient movement of money, unprecedented service, and operational success.

ATM Sponsorship. 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 largest issuersfinancial institutions and the ATM ISO sponsorships. Sponsorship consists of prepaid cardsthe review and oversight of entities participating in debit and credit networks. In certain instances, Pathward also has certain leasehold interests in certain ATMs which require bank ownership and registration for compliance with applicable state law.

Pathward currently provides financial processing services for approximately 65% of freestanding ATMs nationwide providing consumers with access to funds at ATMs frequently found in malls, retail chains, convenience stores, events, fairs and other small business locations across the United States, MPS has issued over 870 million prepaid cards since MPS first began issuing prepaid cards. U.S.

Issuing Solutions
Prepaid cards areCards. Similar to traditional debit cards, thatprepaid cards are embedded with a magnetic stripe, which encodes relevant card data (which may or may not include information about the user and/or purchaser of such card), or an EMV chip, which is equipped with a microprocessor chip and the technology used to authenticate chip card transactions. When the holder of such a card attempts a permitted transaction, necessary information, including the authorization for such transaction, is shared between the “point of use” or “point of sale” and authorization systems maintaining the account of record. Most recently, “virtual” prepaid cards have become popular in the industry. Virtual prepaid cards are used in both the consumer space, for example as a gift card, and in the commercial arena to facilitate accounts payable and vendor payments.


The funds associated with such cards are typically held in pooled accounts at the Bank representing the aggregate value of all cards issued in connection with particular products or programs. Although the funds are held in pooled accounts, the account of record indicates the funds held by each individual card. The cards may work in a closed loop (e.g., the card will only work at one particular merchant and will not work anywhere else), a "Restricted Access Network" (e.g., the card will only work at a specific set of merchants such as a shopping mall), or in an open loop which functions asby way of a Visa or MasterCard or Discover branded debit card that will work wherever such cards are accepted for payment. Most of MPS’the Company's prepaid cards are open-loop.open loop. Pathward is one of the leading prepaid card issuers in the United States.


The MPS prepaid card business can generally be divided into two program categories: Consumer Use and Business or Commercial Use products. These programs are typically offered viathrough a third-party relationship.
     
Consumer Use.  Use. Examples of consumer use prepaid card programs include payroll, General Purpose Reloadablegeneral purpose reloadable ("GPR"), Reward, Giftreward, gift and Benefit/benefit/HSA cards. Payroll cards are a product whereby an employee’s payroll is loaded to the card by their employer utilizingvia direct deposit. GPR cards are usually distributed by retailers and can be reloaded an indefinite number of times at participating retail load networks. Other examples of reloadable cards are travel cards, which are used to replacein place of traveler’s checks and can be reloaded a predetermined number of times, as well as tax-related cards where a taxpayer’s refund is placed on the card. Reloadable cards are generally open- loop cards that consumers can use to obtain cash at ATMs or purchase goods and services wherever such cards are accepted for payment.


Business or Commercial Use. Prepaid cards are also frequently used by businesses for travel and entertainment, accounts payable and B2Bbusiness-to-business ("B2B") settlement products. For example, virtual prepaid cards are used to facilitate one-time payments between a company and its vendors for monthly settlement. Travel and Entertainmententertainment cards, alternatively, are reloadable by the company for use by its employees to travel for business.
24
Table of Contents
Consumer Credit Products.  In its belief that credit programs can help meet legitimate credit needsBanking Solutions. Partners looking to offer financial services in an ecosystem typically employ a demand deposit account ("DDA"), savings account or debit card, or combination thereof. Pathward facilitates their ability to establish a direct deposit relationship with consumers, complete with online acceptance and digital funds transfer, as well as options such as overdraft protection in times of income shortfalls and the overall benefit of improved money management.

Tax Solutions
Under the Refund Transfer program, the Bank opens a temporary bank account for primeeach customer who is receiving an income tax refund and sub-prime borrowers,elects to defer payment of his or her tax preparation fees. After the IRS and affordany state income tax authorities transfer the refund into the customer’s account, the net funds are transferred to the customer and the temporary deposit account is closed.

Regulation and Supervision

General
Both the Company an opportunityand the Bank are subject to diversifyextensive regulation in connection with their respective activities and operations, including those of their subsidiaries. On April 1, 2020, the loan portfolioBank converted from a federal thrift charter to a national bank charter and minimize earnings exposure due to economic downturns, the Company has offered certain credit programs that were designed to accomplish these objectives, although only one such program existed as of September 30, 2017.
MPS has strived to offer consumers innovative payment products, including credit products.  Most credit products have historically fallen into one of two general categories:  (1) sponsorship lending and (2) portfolio lending.  In a sponsorship lending model, MPS typically originates loans and sells (without recourse) the resulting receivables to third-party investors equipped to take the associated credit risk. MPS discontinued most sponsorship lending programs in fiscal year 2012 with only one run-off portfolio still in existence.  A Portfolio Credit Policy which has been approved by the Board of Directors governs portfolio credit initiatives undertaken by MPS, whereby the Company retains some or all receivables and relies on the borrower as the underlying source of repayment.
ATM Sponsorship.  MPS 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.  In certain instances, MPS also has certain leasehold interests in certain ATMs which require bank ownership and registration for compliance with applicable state law.
While the Company has adopted policies and procedures to manage and monitor the risks attendant to this line of business, and the executives who manage the Company’s program have years of experience in this area of the Company's business, no guarantee can be made that the Company will not experience losses in the MPS division.  MPS has signed agreements with terms extending through the next few years with several of its largest sales agents/program managers, which the Company expects will help mitigate this risk.  See “- Regulation - Proposal Prepaid Payments Regulation.”

Tax Refund Transfers and Lending.  With the acquisitions of Refund Advantage in September 2015, EPS Financial in November 2016, and SCS in December 2016, the Company is a leading provider of professional tax refund-transfer software used by independent EROs. Both Refund Advantage and EPS offer tax refund-transfer solutions through ACH direct deposit, check and prepaid card. The Bank offers 0% APR tax refund loans to consumers through marketing programs with national consumer tax preparation companies, including Jackson Hewitt and MetaBank's own refund transfer companies, Refund Advantage and EPS.

Regulation

General

The Company is broadly regulated asconverted from a savings and loan holding company to a bank holding company (“BHC”) that has elected to be a financial holding company (a “FHC”).

As a national bank, the Bank is supervised and examined by the OCC, as its primary federal regulator, and the Federal Reserve,Deposit Insurance Corporation (“FDIC”), the federal agency that administers the Deposit Insurance Fund (“DIF”). As a BHC, the Company is supervised and examined by the FRB. Federal banking policy is requireddesigned to file reports withprotect customers of and otherwise comply withdepositors in insured depository institutions, the rulesDIF, and the U.S. banking system.

The framework by which both the Bank and the Company are supervised and examined is complex. This framework includes acts of Congress, regulations, policy statements and guidance, and other interpretive materials that define the obligations and requirements for entities participating in the U.S. banking system.

Moreover, regulation of banks and their holding companies is subject to continual revision, both through statutory changes and corresponding regulatory revisions as well as through evolving supervisory objectives of banking agency examiners and supervisory staff. It is not possible to predict the content or timing of changes to the laws and regulations that may impact the business of the Federal ReserveBank and the Company. Any changes to the regulatory framework applicable to such companies.  Asthe Company or the Bank, however, could have a material adverse impact on the condition or operations of each entity.

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"), the Companyand is also required to file reports with the SEC and otherwise comply with federal securities laws.  The Bank is a federally chartered thrift institution that

As described broadly below, the banking industry is subject to broad federal regulation and oversight extendingsignificant regulation. The following discussion is not intended to be a complete list of all of its operationsthe activities regulated by the OCC,U.S. banking laws or of the impact of such laws and regulations on the Company or the Bank. 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 primary federal regulator, andentirety by the FDIC as deposit insurer.  The Bank is also a member of the FHLB.  See “Risk Factors” which is included in Item 1A of this Annual Report on Form 10-K.actual laws and regulations referenced.
 
The legislative and regulatory enactments described below have had and are expected to continue to have a material impact upon the operations of the Company and the Bank.
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“(the "Dodd-Frank Act”)
Enacted in 2010, the Dodd-Frank Act”).  In response toAct significantly changed the national and international economic recession that beganfinancial regulatory regime in 2007-2008 and to strengthen supervision of financial institutions and systemically important non-bank financial institutions, Congress and the U.S. Government took a variety of actions, includingUnited States. Since the enactment of the Dodd-Frank Act, on July 21, 2010.  The Dodd-Frank Act representedU.S. banks and financial services firms, such as the most comprehensive changeCompany and the Bank, have been subject to banking laws since the Great Depressionenhanced regulation and oversight. As of the 1930s and mandated changes indate of the filing of this Annual Report on Form 10-K, several key areas:  regulation and compliance (both with respect to financial institutions and systemically important non-bank financial companies), securities regulation, executive compensation, regulationprovisions of derivatives, corporate governance, transactions with affiliates, deposit insurance assessments and consumer protection.  Importantly for the Bank, the Dodd-Frank Act also abolishedremain subject to further rulemaking and interpretation by the Office of Thrift Supervision (the “OTS”) on July 21, 2011, and transferred rulemaking authority and regulatory oversight to the OCC with respect to federal savings banks, such as the Bank, and to the Board of Governorsbanking agencies; moreover, certain provisions of the Federal Reserve System with respectact that were implemented by federal agencies have been revised or rescinded pursuant to savings and loan holding companies, such aslegislative changes adopted by the Company.  While the changes in the law required byU.S. Congress.

25
Table of Contents
Certain provisions of the Dodd-Frank Act have had a majorthat directly impact on large institutions, even relatively smaller institutions such as ours have been affected.the operation of the Company or the Bank are highlighted below:

Consumer Financial Protection Bureau. Pursuant to the Dodd-Frank Act, the Bank is subject to regulations promulgated by the Consumer Financial Protection Bureau (the “Bureau” or “CFPB”). The Bureau has consolidated rulesauthority related to federal laws and orders with respect toregulations impacting the provision of consumer financial products and services andservices.The Bureau also has substantial power to define the rights of consumers and responsibilities of lending institutions, such as the Bank. The Bureau does not, however, examine or supervise the Bank for compliance with such laws and regulations; rather, based on the Bank’s size (less than $10 billion in assets), enforcement authority remains with the OCC, although the Bank may be required to submit reports or other materials to the Bureau upon its request. Notwithstanding jurisdictional limitations set forth in the Dodd-Frank Act, the Bureau and federal banking regulators may endeavor to work jointly in investigating and resolving cases as they arise.
The Dodd-Frank Act included provisions which restrict interchange fees to those which are “reasonable and proportionate” for certain debit card issuers and limits the ability of networks and issuers to restrict debit card transaction routing (known as the “Durbin Amendment”).  The Federal Reserve issued final rules implementing the Durbin Amendment on June 29, 2011.  In the final rule, interchange fees for debit card transactions were capped at $0.21 plus five basis points to be eligible for a “safe harbor” such that the fee is conclusively reasonable and proportionate.  Another related rule also permits an additional $0.01 per transaction “fraud prevention adjustment” to the interchange fee if certain standards designed by the Federal Reserve are implemented including an annual review of fraud prevention policies and procedures.  With respect to network exclusivity and merchant routing restrictions, it is now required that all debit cards participate in at least two unaffiliated networks so that the transactions initiated using those debit cards will have at least two independent routing channels.  Notably, 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.

The Dodd-Frank Act also included a provision that supplements the Federal Trade Commission Act’s prohibitions against practices that are unfair or deceptive by also prohibiting practices that are “abusive.”  The Bureau’s Director, Richard Cordray, has publicly stated that this term will not be defined by regulation but will, instead, be illuminated by the enforcement actions the Bureau initiates. 

The extent to which new legislation, existing and planned governmental initiatives, and a new presidential administration result in an improvement in the national economy is uncertain.  In addition, because some components of the Dodd-Frank Act still have not been finalized, it is difficult to predict the ultimate effect of the Dodd-Frank Act on us or the Bank at this time, although recent public statements by federal regulators have expressed recognition that regulatory relief is needed for smaller financial institutions (e.g., those with less than $10 billion in assets, like the Bank).
USA Patriot Act of 2001.  In October 2001, the USA Patriot Act of 2001 (the “Patriot Act”) was enacted in response to the terrorist attacks in New York, Pennsylvania and Washington, D.C., which occurred on September 11, 2001.  The Patriot Act is intended to strengthen U.S. law enforcement’s and the intelligence communities’ abilities to work cohesively to combat terrorism on a variety of fronts.  The potential impact of the Patriot Act on financial institutions of all kinds is significant and wide-ranging.  The Patriot Act contains sweeping anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.  Among other provisions, the Patriot Act requires financial institutions to have anti-money laundering programs in place and requires banking regulators to consider a holding company’s effectiveness in combating money laundering when ruling on certain merger or acquisition applications.
Privacy.  The Bank is required by statute and regulation to disclose its privacy policies to its customers on an annual basis.  The Bank does not share nonpublic personal information about its customers with non-affiliated third parties for marketing purposes.  The Bank is also required to appropriately safeguard its customers’ personal information.
Preemption.  On July 21, 2011, the preemption provisions of the Dodd-Frank Act became effective, requiring that federal savings associations be subject to the same preemption standards as national banks, with respect to the application ofprovides state consumer laws to the interstate activities of federally chartered depository institutions.  Under the preemption standards established under the Dodd‑Frank Act for both national banks and federal savings associations, preemption of a state consumer financial law is permissible only if:  (1) application of the state law would have a discriminatory effect on national banks or federal thrifts as compared to state banks; (2) the state law is preempted under a judicial standard that requires a state consumer financial law to prevent or significantly interfereattorneys general with the exercise of the national bank’s or federal thrift’s powers before it can be preempted, with such preemption determination being made by the OCC (by regulation or order) or by a court, in either case on a “case‑by‑case” basis; or (3) the state law is preempted by another provision of federal law other than Title X of the Dodd-Frank Act.  Additionally, the Dodd-Frank Act specifies that such preemption standards only applyright to national banks and federal thrifts themselves, and not their non-depository institution subsidiaries or affiliates.  Specifically, operating subsidiaries of national banks and federal thrifts that are not themselves chartered as a national bank or federal thrift may no longer benefit from federal preemption of state consumer financial laws, which now apply to such subsidiaries (or affiliates) to the same extent that they apply to any person, corporation or entity subject to such state laws. The Bank has one wholly owned service corporation subsidiary at present.

Prohibition on Unfair, Deceptive and Abusive Acts and Practices.  July 21, 2011 was the designated transfer date under the Dodd-Frank Act for the formal transfer of rulemaking functions under theenforce federal consumer financial laws from each of the various federal banking agencies to the Bureau, which is charged with the mission of protecting consumer interests.  The Bureau is responsible for administering and carrying out the purposes and objectives of the federal consumer financial laws and to prevent evasions thereof, with respect to all financial institutions that offer financial products and services to consumers.protection laws. The Bureau is also authorized to prescribe rules applicable to any covered person or service provider identifying and prohibiting acts or practices that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.  With its broad rulemaking and enforcement powers coupled with a six-year operational history,service ("UDAAP authority"). To date, the Bureau has redrawn the consumer financial laws throughengaged in rulemaking and taken enforcement actions which maythat directly impact the business operations of financial institutions offering consumer financial products or services including the Bank and its divisions.

Prepaid Accounts underInterchange Fees. The Dodd-Frank Act includes provisions that restrict interchange fees to those which are “reasonable and proportionate” for certain debit card issuers and limits the Electronic Fund Transfer Act (Regulation E)ability of networks and issuers to restrict debit card transaction routing (known as the Truth In Lending Act (Regulation Z)“Durbin Amendment”).On October 5, 2016, The Federal Reserve issued final rules implementing the CFPB issued a final rule which supplementedDurbin Amendment on June 29, 2011. Although, as of the existing regulatory framework pursuantdate of the filing of this Annual Report on Form 10-K, the interchange fee restrictions in the Durbin Amendment do not apply to which prepaid products (both cards and other delivery methods, including codes) are offered and serviced. Importantly for the Bank because debit card issuers with total worldwide assets of less than $10 billion are exempt, such restrictions may negatively impact the rule brought prepaid products fully within Regulation E, which implementspricing all debit card processors in the federal Electronic Funds Transfermarket, including the Bank, may charge.

Incentive Compensation. The Dodd-Frank Act by adding a definition for “prepaid account”. In addition, prepaid products that have a credit component, like some of those offered in connection with an existing program manager agreement, are now regulated by Regulation Z, which implements the federal Truth in Lending Act.

Pursuant to the Prepaid Accounts Rule, the CFPB requires that the consumer be presented with a new “Know Before You Owe” disclosure. Financial institutions, such as the Bank, must provide certain account information in a short form disclosure, in close proximity to the short-form disclosure, and in a long form disclosure to consumers before they acquire a prepaid account, unless specifically exempted. The rule generally extended Regulation E’s error resolution and limited liability requirements to all prepaid accounts, regardless of whether the financial institution has completed its consumer identification and verification process with respect to the account. In addition, the Prepaid Accounts Rule extended Regulation E’s three tiers of liability for unauthorized transfers to prepaid accounts, depending on when the consumer reported the error. The rule also extended Regulation E’s periodic statement requirement to prepaid accounts. Under the final rule, financial institutions must, at no additional charge or fee, provide prepaid account holders with (i) periodic account statements, or (ii) access to his or her account balance through a readily available telephone line and written and electronic records of the account history. The rule also extended Regulation Z’s credit card rules and disclosure requirements to prepaid accounts that provide overdraft services and other credit features. The rule also requires account issuers, such as the Bank, to post their publicly offered prepaid card program agreements on their websites, make them available to consumers upon request, and provide copies of all publicly offered prepaid card program agreements to the CFPB. Most of the rule's provisions took effect on October 1, 2017.
Customer Identification Programs for Holders of Prepaid Cards. On March 21, 2016, the federal banking agencies, including the OCC and the Federal Reserve, issued Interagency Guidance to Issuing Banks on Applying Customer Identification Program Requirements to Holders of Prepaid Cards. This guidance extends the requirements of the Customer Identification Program required by Section 326 of the USA Patriot Act to prepaid accounts where the cardholder has either the (i) ability to reload funds, or (ii) access to credit or overdraft features. If either of these features is present, the issuer must verify the identity of the named account holder.
Incentive-Based Compensation Restrictions. On June 10, 2016, the federal banking regulators, including the Federal Reserve and the OCC, issuedissue a proposed rule related to incentive-based compensation (the originalcompensation. No final rule implementing this provision of the Dodd-Frank Act has, as of the date of the filing of this Annual Report on Form 10-K, been adopted, but a proposed rule was published in April 2011). A2016 that expanded upon a prior proposed rule related to incentive-based compensation is required by Dodd-Frank. According to the banking agencies, thepublished in 2011. The proposed rule is intended to (1)(i) prohibit incentive-based payment arrangements that the Agenciesbanking agencies determine could encourage certain financial institutions to take inappropriate risks by providing excessive compensation or that could lead to material financial loss, (2)(ii) require the board of directors of those financial institutions to take certain oversight actions related to incentive-based compensation, and (3)(iii) require those financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate Federalfederal regulator.

The banking regulators have tailored the requirements of the proposed Although a final rule to the size and complexity of the covered institution. As currently contemplated,has not been issued, the Company and the Bank would be Level 3 coveredhave undertaken efforts to ensure that their incentive compensation plans do not encourage inappropriate risks, consistent with the principles identified above.

The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (“Regulatory Relief Act”)
Enacted in 2018, the Regulatory Relief Act includes several provisions that positively affect smaller banking institutions (e.g., those with less than $10 billion in assets) like the Bank. Specific provisions of the Regulatory Relief Act that benefit smaller banks include modifications to the “qualified mortgage” criteria under the proposal because both have“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 average total consolidated assets between $1 international banking capital framework with the creation of a “community bank leverage ratio.” See “Recent Developments Related to Capital Rules” and $50 billion. As a Level 3 covered institution,“Brokered Deposits.”

The Coronavirus Aid, Relief, and Economic Security Act
In response to the proposal subjectsCOVID-19 pandemic, the CARES Act was signed into law on March 27, 2020 to provide national emergency economic relief measures. Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions, such as the Company and the Bank, to onlyand have been implemented through rules and guidance adopted by federal departments and agencies, including the basic setU.S. Department of prohibitionsTreasury, the Federal Reserve and requirements, which prohibit “excessive compensation, fees, or benefits” or any compensation agreement that “could lead to material financial loss.”
The proposal also would require that the Company’s board of directors, or a committee thereof, conduct oversight of its incentive-based compensation program and approve incentive-based compensation arrangements for senior executive officers. Additionally,other federal banking agencies, including those with direct supervisory jurisdiction over the Company and the Bank. Furthermore, as the on-going COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. The Company continues to assess the impact of the CARES Act and other statues, regulations and supervisory guidance related to the COVID-19 pandemic.

26
Table of Contents
Paycheck Protection Program. The CARES Act amended the SBA’s loan program, in which the Bank would be requiredparticipates, to create a guaranteed, unsecured loan program, the PPP, to fund operational costs of eligible businesses, organizations and maintain recordsself-employed persons during COVID-19. In June 2020, the Paycheck Protection Program Flexibility Act was enacted, which among other things, gave borrowers additional time and flexibility to use PPP loan proceeds. After previously being extended by Congress, the application deadline for PPP loans expired on May 31, 2021. As a participating lender in the PPP, the Bank continues to monitor legislative, regulatory, and supervisory developments related thereto, including updates to guidance on loan forgiveness.

Troubled Debt Restructuring and Loan Modifications for Affected Borrowers. The CARES Act (as amended by the Consolidated Appropriations Act of 2021) permits banks to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that documentwould otherwise be characterized as TDRs and suspend any determination related thereto if (i) the structureloan modification is made between March 1, 2020 and the earlier of allJanuary 1, 2022 or 60 days after the end of the incentive-based compensation arrangements, demonstrate compliancenational COVID-19 emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019. The federal banking agencies also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19 and to assure banks that they will not be criticized by examiners for doing so. The Company has applied this guidance to qualifying loan modifications. 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 for further information about the COVID-19-related loan modifications completed by the company.

Temporary Regulatory Capital Relief Related to Impact of CECL
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. The interim final rule provided banking organizations that implemented CECL before the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. Thereafter, the federal banking agencies issued a final rule that made certain technical changes to the interim final rule. The changes in the final rule and discloseapply only to those records tobanking organizations that elected the appropriate Federal regulator upon request.CECL transition relief provided under the interim rule. The Company has elected this option.
Examination Guidance for Third-Party Lending. On July 29, 2016, the FDIC issued revised examination guidance related to third-party lending relationships (e.g., lending arrangements that rely on a third party to perform a significant aspect of the lending process). Similar to guidance published by the OCC in 2013, these regulatory materials generally require that financial institutions ensure that risks related to such programs are evaluated, including the type of lending activity, the complexity of the lending program, the projected and realized volume created by the relationship, and the number of third-party lending relationships the institution has in place.
Other Regulation.  The Bank is also subject to a variety of other regulations with respect to its business operations including, but not limited to, the Truth in Lending Act, the Truth in Savings Act, the Equal Credit Opportunity Act, the Electronic Funds Transfer Act, the Military Lending Act, the Servicemembers’ Civil Relief Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Fair Debt Collection Practices Act and the Fair Credit Reporting Act.  As discussed below, any change in the regulations affecting the Bank’s operations is not predictable and could affect the Bank’s operations and profitability.



Bank Regulation and Supervision & Regulation
The Bank is a federally chartered thrift institutionnational bank that is subject to broad federal regulation and oversight extending to all of its operations by its primary federal regulator, the OCC, and by its deposit insurer, the FDIC. Such regulation covers all aspects of the banking business, including lending practices, safeguarding deposits, capital structure, transactions with affiliates, and conduct and qualifications of personnel. The Bank pays assessment fees both to the OCC and the FDIC, and the level of such assessments reflects the condition of the Bank. If the condition of the Bank were to deteriorate, the level of such assessments could increase significantly, having a material adverse effect on the Company’s financial condition and results of operations.  The Bank is also a member of the FHLB System and is subject to certain limited regulation by the Federal Reserve.

Regulatory authorities have been granted extensive discretion in connection with their supervisory and enforcement activities which are intended to strengthen the financial condition of the banking industry, including, but not limited to, the imposition of restrictions on the operation of an institution, the classification of assets by the institution, and the adequacy of an institution’s allowance for loancredit losses. Typically, these actions are undertaken due to violations of laws or regulations or conduct of operations in an unsafe or unsound manner.  The OCC has announced that supervisory strategies for 2018 will focus on the following: (i) cybersecurity and operational resiliency; (ii) retail credit loan underwriting and concentration risk management; (iii) business model sustainability; (iv) BSA/AML compliance management; and (v) change management processes to address new regulatory requirements.

Any change in the nature of such regulation and oversight, such as the items mentioned above, whether by the OCC, the FDIC, the Federal Reserve, or legislatively by Congress, could have a material impact on the Company or the Bank and their respective operations.  The discussion herein of the regulatory and supervisory structure within which the Bank operates is general and does not purport to be exhaustive or a complete description of the laws and regulations involved in the Bank’s operations.  The discussion is qualified in its entirety by the actual laws and regulations.
Federal Regulation of the Bank.  As the primary federal regulator for federal savings associations, the OCC has extensive authority over the operations of federal savings associations, such as the Bank.  This regulation and supervision establishes a comprehensive framework for activities in which a federal savings association can engage and is intended primarily for the protection of the DIF and depositors.  The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies.
In connection with its assumption of responsibility for the ongoing examination, supervision and regulation of federal savings associations, the OCC published a final rule on July 21, 2011, that republishes those OTS regulations that the OCC has the authority to promulgate and enforce as of the July 21, 2011 transfer date, with nomenclature and other technical amendments to reflect OCC supervision of federal savings associations.  In addition, on May 17, 2012, November 20, 2013, June 2, 2015 and March 14, 2016, the OCC rescinded additional OTS documents that formerly applied to federal savings and loan associations, and applied new policy guidance where policy guidance did not already exist.  With respect to the 2015 rules, the OCC streamlined requirements (where permitted) to provide integrated treatment to national banks and federal savings associations with respect to certain corporate activities and transactions.  The new regulations define an “eligible savings association” as one that: (i) is well capitalized as defined in 12 CFR 6.4; (ii) has a composite rating of 1 or 2 under the Uniform Financial Institutions Rating System (“CAMELS”); (iii) has a Community Reinvestment Act (“CRA”), 12 U.S.C. 2901 et seq., rating of ‘‘Outstanding’’ or ‘‘Satisfactory,’’ if applicable; (iv) has a consumer compliance rating of 1 or 2 under the Uniform Interagency Consumer Compliance Rating System; and (v) is not subject to a cease and desist order, consent order, formal written agreement, or Prompt Corrective Action directive or, if subject to any such order, agreement, or directive, is informed in writing by the OCC that the savings association may be treated as an ‘‘eligible bank or eligible savings association’’ for purposes of the regulation. With respect to the 2016 rule changes, the OCC removed unnecessary regulatory reporting, accounting and management policy requirements and integrated and updated rules related to insiders and affiliate transactions. The OCC undertook this integration to promote fairness in supervision, reduce regulatory duplication and create efficiencies for national banks and federal savings associations, as well as the OCC. Once finalized, the OCC’s regulations and guidance supersede that of OTS and are indicative of the OCC’s goal of one integrated policy platform for national banks and savings associations.

It is possible that additional rulemaking could require significant revisions to the regulations under which the Bank operates and is supervised.  Any change in such laws and regulations or interpretations thereof negatively impacting the Bank's or the Company's current operations, whether by the OCC, the FDIC, the Bureau, the Federal Reserve or through legislation, could have a material adverse impact on the Bank and its operations and on the Company and its stockholders.




Business Activities
The activities of federal savings associations are generally governed by federal laws and regulations.  These laws and regulations delineate the nature and extent of the activities in which federal savings associations may engage.  In particular, many types of lending authority for federal savings associations are limited to a specified percentage of the institution’s capital or assets.
Loan and Investment Powers

The Bank derives its lending and investment powers from the Home Owners’ LoanNational Bank Act (“HOLA”NBA”) and the OCC’s implementing regulations promulgated thereunder. Under these laws and regulations, the Bank may invest in mortgage loans secured by residential and commercial real estate, commercial and consumer loans, certain types of debt securities and certain other assets. The Bank may also establishinvest in operating subsidiaries, bank service companies (but not service corporations that are permittedgenerally), financial subsidiaries, and may make non-controlling investments in other entities, in each case subject to engage in activities not otherwise permissible for the Bank, including certain real estate equity investments and securities and insurance brokerage activities; provided, however, that such investments are limited to 3%statutory provisions of the association's assets.  These investment powers are subject to various limitations, including (i) a prohibition against the acquisition of any corporate debt security unless, prior to acquisition, the savings association has determined that the investment is safe and sound and suitable for the institution and that the issuer has adequate resources and willingness to provide all required payments on its obligations in a timely manner; (ii) a limit of 400% of an association’s capital on the aggregate amount of loans secured by non-residential real estate property; (iii) a limit of 20% of an association’s assets on the aggregate amount of commercial and agricultural loans and leases with the amount of commercial loans in excess of 10% of assets being limited to small business loans; (iv) a limit of 35% of an association’s assets on the aggregate amount of secured consumer loans and acquisitions of certain debt securities, with amounts in excess of 30% of assets being limited to loans made directly to the original obligor and where no third-party finder or referral fees were paid; (v) a limit of 5% of assets on non-conforming loans (loans in excess of the specific limitations of the HOLA); and (vi) a limit of the greater of 5% of assets or an association’s capital on certain construction loans made for the purpose of financing what is or is expected to become residential property.  In addition, the HOLANBA and the OCC regulations provide that a federal savings association may invest up to 10%OCC’s regulatory requirements and limitations.

In general, the Bank’s legal lending limit totals 15 percent of its assets in tangible personal property for leasing purposes.
The Bank’s general permissible lending limit to one borrower is equal to the greater of $500,000 or 15% of unimpaired capital and surplus (except for loansplus an additional 10 percent of capital and surplus if the amount that exceeds the 15 percent general limit is fully secured by certain readily marketable collateral in which case this limit is increased(together, referred to 25% of unimpaired capital and surplus)as the “combined general limit”). At September 30, 2017,2022, the Bank’s lending limit under these restrictionsBank was $57.2 million.  The Bank is in compliance with thisthe combined general limit.

27
Table of Contents
The OCC announced on October 6, 2022 that its supervisory strategies for 2023 will focus on: (a) strategic and operational planning; (b) credit risk management and allowance for credit losses; (c) operational resilience; (d) oversight of third parties and related concentrations; (e) Bank Secrecy Act/anti-money laundering and Office of Foreign Assets Control/sanctions programs compliance management; (f) interest rate risk and liquidity risk management; (g) consumer compliance and fair lending limit.risk; (h) Community Reinvestment Act performance; (i) new products and services, including those related to payments and fintech/digital assets; and (j) climate-related financial risk management.


Federal Deposit InsuranceThe OCC’s 2023 supervisory plan provides the foundation for policy initiatives and Other Regulatory Requirementsfor supervisory strategies as applied to national banks as well as their technology service providers. OCC staff members use the supervisory plan to guide their supervisory priorities, planning, and resource allocations. The OCC typically provides periodic updates about supervisory priorities through the Semiannual Risk Perspective process in the fall and spring of each year.


Insurance of Deposit Accounts and Regulation by the FDIC. 
The Bank is a member of the DIF, which is administered by the FDIC. Deposits arePursuant to the Dodd-Frank Act, a permanent increase in deposit insurance to $250,000 was authorized. The coverage limit is per depositor, per insured up to applicable limits by thedepository institution for each account ownership category. FDIC and such insurance is backed by the full faith and credit of the United States Government.  government.

While not ourthe Bank's primary federal regulator, the FDIC, as insurer of the Bank's deposits, imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions. It also may prohibit any FDIC-insured institution from engaging in any activity the FDIC determines by regulation or order to poseposes a serious risk to the DIF. The FDIC also has authority to initiate enforcement actions against any FDIC-insured institution after giving its primary federal regulator the opportunity to take such action, and may seek to terminate the deposit insurance if it determines that the institution has engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

Under the Dodd-Frank Act, a permanent increase in deposit insurance was authorized to $250,000.  The coverage limit is per depositor, per insured depository institution for each account ownership category. The Dodd-Frank Act also set a new minimum DIF reserve ratio at 1.35% of estimated insured deposits.  The FDIC is required to attain this ratio by September 30, 2020.  In connection with this requirement, in November 2015, the FDIC released a proposed rulemaking (1) raising the minimum reserve ratio from 1.15% to 1.35%; (2) requiring that the reserve ratio reach 1.35% by September 30, 2020; and (3) requiring that the FDIC offset the effect of the increase in the minimum reserve ratio on insured depository institutions with less than $10 billion in assets, like the Bank.  The Board of the FDIC voted to increase the reserve ratio to 1.35% in October 2015. The reserve ratio reached 1.15% on June 30, 2016 and it is anticipated to reach the statutory mandate of 1.35% by December 31, 2018.


The FDIC imposes an assessment against all depository institutions for deposit insurance.  Pursuant to changes adopted by the FDIC that were effective July 1, 2016, in connection with the achievement of a 1.15% reserve ratio, the initial base rate for deposit insurance is between 3-30 basis points. Total base assessment after possible adjustments now ranges between 1.5-40.0 basis points. For established smaller institutions, like the Bank, CAMELS composite ratings are used along with (i) an initial base assessment rate, (ii) an unsecured debt adjustment (can be positive or negative), and (iii) a brokered deposit adjustment rate, to calculate a total base assessment rate. Note that the final rule states that it is “revenue neutral” in that it leaves aggregate assessment revenue collected from small banks approximately as it would have been absent the final rule. Risk categorization for purposes of deposit insurance are no longer utilized.

As noted above, brokered deposits are subject to an adjustment rate in the calculation of deposit insurance premiums. Based upon guidance issued by the FDIC, some of Meta’s prepaid deposits are deemed to be “brokered” deposits. As discussed below, should the Bank fail to maintain its well capitalized status, limitations related to brokered deposits would automatically trigger which could have a material adverse effect on the Bank and the Company.

Under the Federal Deposit Insurance Act (“FDIA”), Finally, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC or the OCC.  Management

The FDIC imposes an assessment against all depository institutions for deposit insurance quarterly. FDIC assessment rates range from 3 to 30 basis points annually and take into account an institution’s composite CAMELS rating and other factors. Notably, the FDIC has the authority to increase an institution’s deposit insurance premium if it determines that an insured depository institution significantly relies upon brokered deposits. As of September 30, 2022, 2021 and 2020, the Bank does not know of any practice, condition or violation that might lead to termination ofBank’s deposit insurance.

insurance assessment rate was 5 basis points, 5 basis points, and 14 basis points, respectively. The Bank’s deposit insurance premium expense totaled $3.1 million for 2022, $6.2 million for 2021, and $8.4 million for 2020. A significant increase in DIF insurance premiums would have an adverse effect on the operating expenses and results of operations of the Bank.

DIF-insured institutions pay a Financing CorporationThe designated reserve ratio (“FICO”DRR”) assessment in order to fundof the interest on bonds issued to resolve thrift failures in the 1980s.  AtDIF reached 1.36% as of September 30, 2017,2018, exceeding the FICO assessment was equal to 0.54 basis points for each $100statutorily required 1.35% two years ahead of its total assessment base of approximately $3.62 billion.  These assessments will continue until the bonds mature in 2019.
Interest Rate Risk Management.  The OCC requires federal savings banks, like the Bank, to have an effective and sound interest rate risk management program, including appropriate measurement and reporting, robust and meaningful stress testing, assumption development reflecting the institution’s experience, and comprehensive model valuation.  Interest rate risk exposure is supposed to be managed using processes and systems commensurate with their earnings and capital levels; complexity; business model; risk profile; and scope of operations.  As of March 31, 2012, federal savings banks are required to have an independent interest rate risk management process in place that measures both earnings and capital at risk.
Stress Testing.  Althoughdeadline imposed by the Dodd-Frank Act requires institutionsAct. On June 30, 2019, the DRR reached 1.40% and the FDIC applied small bank credits to banks with moreless than $10 billion in assets, such as the Bank, beginning September 30, 2020. The FDIC will continue to conduct stress testing,apply small bank credits so long as the OCC expects every bank, regardless of its size or risk profile, to have an effective internal process to (1) assess its capital adequacy in relation to its overall risksDRR is at least annually, and (2)1.35%. After applying small bank credits for four quarters, the FDIC will remit to plan for maintaining appropriate capital levels.  It isbanks the OCC’s belief that stress testing permits community banks to identify their key vulnerabilities to market forces and assess how to effectively manage those risks should they emerge.  If stress testing results indicate that capital ratios could fall below the level needed to adequately support the bank’s overall risk profile, the OCC believes the bank’s board and management should take appropriate steps to protect the bank from such an occurrence, including establishing a plan that requires closer monitoring of market information, adjusting strategic and capital plans to mitigate risk, changing risk appetite and risk tolerance levels, limiting or stopping loan growth or adjusting the portfolio mix, adjusting underwriting standards, raising more capital and selling or hedging loans to reduce the potential impact from such stress events.
Assessments.  The Dodd-Frank Act provides that, in establishing the amount of an assessment, the Comptroller of the Currency may consider the nature and scope of the activities of the entity, the amount and type of assets it holds, the financial and managerial condition of the entity and any other factor that is appropriate. The Bank’s assessment (standard assessment) at September 30, 2017, was $368,373.

Basel III Capital Requirements.  2017 is the third year of implementation of the bank capital rules (the “Basel III Capital Rules”) adopted in July 2013 by our primary federal regulator, the Federal Reserve, and the Bank’s primary federal regulator, the OCC. The Basel III Capital Rules established a new comprehensive capital framework for U.S. banking organizations and generally implement the Basel Committee on Banking Supervision’s (the “Basel Committee”) December 2010 final capital framework referred to as “Basel III” for strengthening international capital standards.  The Basel III Capital Rules substantially increased the risk-based capital requirements applicable to bank holding companies and their depository institution subsidiaries, including us and the Bank. The Basel III Capital Rules became effective for us and the Bank on January 1, 2015, subject to phase-in periods for certain of their components and other provisions.


The Basel III Capital Rules established three components of regulatory capital: (1) common equity tier 1 capital (“CET1 Capital”), (2) additional tier 1 capital, and (3) tier 2 capital. Tier 1 capital is the sum of CET1 Capital and additional tier 1 capital instruments meeting certain revised requirements. Total capital is the sum of tier 1 capital and tier 2 capital. Under the Basel III Capital Rules, for most banking organizations, the most common form of additional tier 1 capital is non-cumulative perpetual preferred stock and the most common form of tier 2 capital is subordinated notes and a portion of the allocation for loan and lease losses, in each case, subject to the Basel III Capital Rules’ specific requirements. CET1 Capital, tier 1 capital, and total capital serve as the numerators for three prescribed regulatory capital ratios. Risk-weighted assets, calculated using the standardized approach in the Basel III Capital Rules for us and the Bank, provide the denominator for such ratios. There is also a leverage ratio that compares tier 1 capital to average total assets.

Failure by our Company or Bank to meet minimum capital requirements set by the Basel III Capital Rules could result in certain mandatory and/or discretionary disciplinary actions by our regulators that could have a material adverse effect on our business and our consolidated financial position. Under the capital requirements and the regulatory framework for prompt corrective action, our Company and Bank must meet specific capital guidelines that involve quantitative measures of our Company and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our Company’s and Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors.

Beginning January 1, 2016, we and the Bank became required to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of CET1 Capital, applies to each of the three risk-based capital ratios (but not the leverage ratio), and increases the minimum requirement of the three risk-based capital ratios by 0.625% for each year through 2019. On January 1, 2017, the Company and Bank complied with the capital conservation buffer requirement for 2017.

The Basel III Capital Rules provide for a number of deductions from and adjustments to CET1 Capital.  These include, for example, the requirement that deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks and significant investments in non-consolidated financial entities be deducted from CET1 Capital to the extent that any one such category exceeds 10% of CET1 or all such items, in the aggregate, exceed 15% of CET1 Capital.  See Note 13 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.

Pursuant to the Basel III Capital Rules, the effects of certain accumulated other comprehensive income or loss (“AOCI”) items are not excluded; however, “non-advanced approaches banking organizations,” including us and the Bank, may make a one-time permanent election to continue to exclude these items.  This election was made concurrently with the first filing of certain of our and the Bank’s periodic regulatory reports in the beginning of 2015 in order to avoid significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of their securities portfolio.  The Basel III Capital Rules also preclude certain hybrid securities, such as trust preferred securities issued prior to May 19, 2010, from inclusion in our Tier 1 capital, subject to grandfathering in the case of companies, such as us, that had less than $15 billion in total consolidated assets as of December 31, 2009.

Implementation of the deductions and other adjustments to CET1 Capital began on January 1, 2015, and are being phased in over a four-year period (beginning at 40% on January 1, 2015, and an additional 20% per year thereafter). The implementation of the capital conservation buffer began on January 1, 2016, at the 0.625% level and the buffer increases by 0.625% on each subsequent January 1, until it reaches 2.5% on January 1, 2019.

With respect to the Bank, the Basel III Capital Rules apply to and revised the Prompt Corrective Action (“PCA”) regulations adopted pursuant to Section 38 of the Federal Deposit Insurance Act, by: (i) introducing a CET1 Capital ratio requirement at each PCA category (other than critically undercapitalized), with the required CET1 Capital ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum Tier 1 capital ratio for well-capitalized status being 8% (as compared to the previous 6%); and (iii) eliminating the provision that provides that aany remaining small bank with a composite supervisory rating of 1 may have a 3% leverage ratio and still be adequately capitalized.  The Basel III Capital Rules did not change the total risk-based capital requirement for any PCA category.

The Basel III Capital Rules prescribe a standardized approach for risk weightings for a large and risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. Government and agency securities, to 600% for certain equity exposures, and resulting in high-risk weights for a variety of asset classes.


As of September 30, 2017, the Bank exceeded all of its regulatory capital requirements as showing in the table below and was designated as “well-capitalized” under federal guidelines.  The table below includes certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies.  Management reviews these measures along with other measures of capital as part of its financial analysis. See Note 13 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.

Regulatory Capital Data
 Company (Actual) Bank (Actual) 
Minimum
Requirement For
Capital Adequacy
Purposes
 
Minimum Requirement
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
 Ratio Ratio Ratio Ratio
 (Dollars in Thousands)
September 30, 2017       
        
Tier 1 leverage ratio7.64% 9.64% 4.00% 5.00%
Common equity Tier 1 capital ratio13.97% 18.22% 4.50% 6.50%
Tier 1 capital ratio14.46% 18.22% 6.00% 8.00%
Total qualifying capital ratio18.41% 18.59% 8.00% 10.00%
The following table provides a reconciliation of the amounts included in the table above.
Reconciliation:
 
Standardized Approach (1)
 September 30, 2017
 (Dollars in Thousands)
  
Total equity$434,496
Adjustments: 
LESS: Goodwill, net of associated deferred tax liabilities95,332
LESS: Certain other intangible assets41,743
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards1,495
LESS: Net unrealized gains (losses) on available-for-sale securities9,166
Common Equity Tier 1 (1)
286,760
Long-term debt and other instruments qualifying as Tier 110,310
LESS: Additional tier 1 capital deductions374
Total Tier 1 capital296,696
Allowance for loan losses7,718
Subordinated debentures (net of issuance costs)73,347
Total qualifying capital377,761
(1) Capital ratios were determined using the Basel III Capital Rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum CET1 ratio; those changes are being fully phased in through the end of 2021.




The following table provides a reconciliation of tangible common equity used in calculating tangible book value data.
 September 30, 2017
 (Dollars in Thousands)
Total Stockholders' Equity$434,496
Less: Goodwill98,723
Less: Intangible assets52,178
     Tangible common equity283,595
Less: AOCI9,166
     Tangible common equity excluding AOCI274,429
Due to the predictable, quarterly cyclicality of MPS deposits in connection with tax season business activity, management believes that a six-month capital calculation is a useful metric to monitor the Company’s overall capital management process. As such, the Bank’s six-month average Tier 1 leverage ratio, Common equity Tier 1 capital ratio, Tier 1 capital ratio, and Total qualifying capital ratio as of September 30, 2017 were 9.70%, 18.99%, 18.99%, and 19.39%, respectively.
Recent Releases Related to Capital Rules. On November 21, 2017, the federal banking agencies released a final rule finalizing certain capital rule transitions related to regulatory capital deductions and risk weights for banking organizations, including federal savings banks (like the Bank) and savings and loan holding companies (like the Company), that are not subject to the advanced approaches capital rule. Specifically, the final rule extends existing capital provisions for mortgage servicing assets, certain deferred tax assets, non-significant investments in the capital instruments of unconsolidated financial institutions, and minority interests. Without adoption of this final rule, new requirements that included significantly higher risks ratings for the affected assets would have become effective on January 1, 2018.

In September 2017, the federal banking agencies, including the OCC, the FDIC, and the Federal Reserve, released for comment a proposed rule that would simplify certain aspects of the agencies’ capital rules as they relate to federal savings banks and savings and loan holding companies. The proposal is designed to simplify and clarify certain complex aspects of the existing capital rules. Among other proposed changes, the proposal would replace the definition of high volatility commercial real estate exposure in the standardized approaches capital framework with a straightforward definition of highly volatile acquisition, development or construction; these exposures would receive a 130% risk weighting instead of the current 150% risk weighting such assets receive now. In addition, the proposal would simplify threshold deduction treatment for mortgage servicing assets and certain tax deferred assets; it would also simplify limits on minority interests included in regulatory capital. The comment period is currently scheduled to close on this proposal on December 26, 2017.

Prompt Corrective Action. Federal banking regulators are authorized and, under certain circumstances, required to take certain actions against banks that fail to meet their capital requirements.  Effective December 19, 1992, (and revised as described above) the federal banking agencies were given additional enforcement authority with respect to undercapitalized depository institutions.  Under the current regulations, an institution is deemed to be (a) “well-capitalized” if it has total risk-based capital of 10.0% or more, has a Tier 1 risk-based capital ratio of 8.0% or more, has a CET1 risk based capital ratio of 6.5% or more, and has leverage capital ratio of 5.0% or more and is not subject to any order or final capital directive to meet and maintain a specific capital level for any capital measure; (b) “adequately capitalized” if it has a total Capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 6.0% or more, a CET1 risk based capital ratio of 4.5% or more and has a leverage capital ratio of 4.0% or more (3.0% under certain circumstances) and does not meet the definition of well-capitalized; (c) “undercapitalized” if it has a total risk-based capital ratio that is less than 8.0%, a Tier 1 risk-based capital ratio that is less than 6.0%, a CET1 Capital ratio less than 4.5% or a Tier 1 leverage capital ratio that is less than 4.0%; (d) “significantly undercapitalized” if it has a total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 4.0%, a CET1 Capital ratio less than 3% or a Tier 1 leverage capital ratio that is less than 3.0%; and (e) “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%.  In certain situations, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized or undercapitalized institution to comply with supervisory actions as if the institution werecredits in the next lower category.assessment period in which the DRR is at least 1.35%.


Brokered Deposits
The federal banking agencies are generally requiredFDIC limits the ability to take actionaccept brokered deposits to restrict the activities of an “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized” bank.  Any such bank must submit a capital restoration plan that is guaranteed by the parent holding company and such holding company has provided appropriate assurances of performances.  Until such plan is approved, it may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions.  The banking regulators are authorized to impose additional restrictions, discussed below,those insured depository institutions that are applicable to significantly undercapitalized institutions.

Adequatelywell capitalized. Institutions that are less than well capitalized banks cannot normally pay dividends or make any capital contributions that would leave them undercapitalized; they cannot pay a management fee to a controlling person if, after paying the fee, they would be undercapitalized; and they cannot accept, renew or roll over any brokered deposit unless they have applied for and been granted a waiver by the FDIC. The FDIC has defined the “national rate” for all interest-bearing deposits held by less-than-well-capitalized institutions as “a simple average of rates paid by all insured depository institutions and branches for which data are available” and has stated that its presumption is that this national rate is the prevailing rate in any market. As such, less-than-well-capitalized institutions that are less than well capitalized that are permitted to accept, renew or rollover brokered deposits via FDIC waiver generally may not pay an interest rate in excess of the national rate plus 75 basis points on such brokered deposits. As of September 30, 2022, the Bank categorized $83.8 million, or 1% of its deposit liabilities, as brokered deposits.

Undercapitalized banks may not accept, renew or rollover
28
Table of Contents
On December 15, 2020, the FDIC issued a final rule establishing a new framework for analyzing whether bank deposits obtained through third-party arrangements are brokered deposits and are subjectpursuant to restrictions on the solicitingSection 29 of deposits over prevailing rates.  In addition, undercapitalized banks are subject to certain regulatory restrictions.  These restrictions include, among others, that such a bank generally may not make any capital distributions, must submit an acceptable capital restoration plan to the FDIC, may not increase its average total assets during a calendar quarter in excess of its average total assets during the preceding calendar quarter unless any increase in total assets is consistent with a capital restoration plan approved by the FDIC and the bank’s ratio of equity to total assets increases during the calendar quarter at a rate sufficient to enable the bank to become adequately capitalized within a reasonable time.  In addition, such banks may not acquire a business, establish or acquire a branch office or engage in a new line of business without regulatory approval.  Further, as part of a capital restoration plan, the bank’s holding company must generally guarantee that the bank will return to adequately capitalized status and provide appropriate assurances of performance of that guarantee.  If a capital restoration plan is not approved, or if the bank fails to implement the plan in any material respect, the bank would be treated as if it were “significantly undercapitalized,” which would result in the imposition of a number of additional requirements and restrictions.  It should also be noted all FDIC-insured institutions are assigned an assessment risk category.  In general, weaker banks (those with a higher assessment risk category) are subject to higher assessments than stronger banks.  An adverse change in category can lead to materially higher expenses for insured institutions.  Finally, bank regulatory agencies have the ability to seek to impose higher than normal capital requirements known as individual minimum capital requirements (“IMCR”) for institutions with higher risk profiles.  If the Bank’s capital status – well-capitalized – changes as a result of future operations or regulatory order, or if it becomes subject to an IMCR, the Company’s financial condition or results of operations could be adversely affected.

Any institution that fails to comply with its capital plan or is “significantly undercapitalized” (i.e., Tier 1 risk-based ratio of less than 4% or CET1 risk-based or core capital ratios of less than 3% or a risk-based capital ratio of less than 6%) must be made subject to one or more of additional specified actions and operating restrictions mandated by the Federal Deposit Insurance Corporation Improvement ActAct. Generally, a person is a "deposit broker" if it is "engaged in the business of 1991 (“FDICIA”).  These actionsplacing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions or the business of placing deposits with insured depository institutions for the purpose of selling interests in those deposits to third parties." The final rule clarifies what it means to be in the business of placing deposits and restrictions include requiringfacilitating the issuanceplacement of additional voting securities; limitations on asset growth; mandated asset reduction; changes in senior management; divestiture, merger or acquisitiondeposits for purpose of the association; restrictions on executive compensation;deposit broker definition.

Section 29 provides, in particular, that a person with an exclusive deposit placement arrangement with one insured depository institution will not be considered a deposit broker because it is not in the business of placing deposits or facilitating the placement of deposits.

The final rule also clarifies application of the “primary purpose exception” to Section 29 by identifying a number of common business relationships described as “designated exceptions” as meeting the primary purpose exception. Many of these designated exceptions are arrangements previously addressed in advisory opinions and any other actioninclude: certain investment-related deposits; property management service deposits; deposits for cross-border clearing services; deposits related to real estate and mortgage servicing activities; retirement and 529 deposits; deposits related to employee benefits programs; deposits held to secure credit card loans; and deposits placed by agencies to disburse government benefits. The final rule became effective April 1, 2021, with full compliance extended to January 1, 2022. As a result of this final rule, the OCC deems appropriate.  An institutionCompany's deposits that becomes “critically undercapitalized” is subject to further mandatory restrictions on its activities in addition to those applicable towere classified as brokered deposits reduced significantly undercapitalized associations.  In addition, the appropriate banking regulator must appoint a receiver (or conservatorbeginning with the FDIC’s concurrence) for an institution, with certain limited exceptions, within 90 days after it becomes critically undercapitalized.  Any undercapitalized institution is also subject to other possible enforcement actions, including the appointment of a receiver or conservator.  The appropriate regulator is also generally authorized to reclassify an institution into a lower capital category and impose restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition.June 30, 2021 reporting period.

The imposition of any of these measures on the Bank may have a substantial adverse effect on it and on the Company’s operations and profitability.  Meta Financial stockholders do not have preemptive rights and, therefore, if Meta Financial is directed by its regulators to issue additional shares of common stock, such issuance may result in the dilution in stockholders’ percentage of ownership of Meta Financial.
Institutions in Troubled Condition.  Certain events, including entering into a formal written agreement with a bank’s regulator that requires action to improve the bank’s financial condition, or simply being informed by the regulator that the bank is in troubled condition, will automatically result in limitations on so-called “golden parachute” agreements pursuant to Section 18(K) of the FDIA.  In addition, organizations that are not in compliance with minimum capital requirements, or are otherwise in a troubled condition, must give 90 days’ written notice before appointing a Director or Senior Executive Officer, pursuant to the OCC’s regulations.





Branching by Federal Savings Associations.  National Banks
Subject to certain limitations, the HOLAfederal statutes and the OCC regulations permit federally chartered savings associationsnational banks to establish branches in any state of the United States. The authority to establish such branches is available ifWith OCC approval, a national bank may open an interstate de novo branch in any state that permits the law of the state in which the branch is located, or is to be located, would permit establishment of thea branch if the savings association wereby a state savings associationbank chartered by such state, or ifsubject to applicable state law limitations. On February 29, 2020, the association qualifies asCompany sold the Bank's Community Bank division to Central Bank, a “domestic building and loan association”state-chartered bank headquartered in Storm Lake, Iowa. The sale included, among other things, all of the Community Bank division's branch locations. Consequently, the Bank's only banking office open to the public is its home office in Sioux Falls, South Dakota, where it accepts deposits.

Prepaid Accounts under the Internal Revenue CodeElectronic Fund Transfer Act ("Regulation E") and the Truth In Lending Act ("Regulation Z")
The Bureau’s “Prepaid Accounts Rule,” adopted in October 2016, enhanced the regulations applicable to prepaid products and brought them fully within Regulation E, which implements the federal Electronic Funds Transfer Act. In addition, prepaid products that have a credit component, like some of 1986, as amended,those offered in connection with an existing program manager agreement, are now regulated by Regulation Z, which imposes qualificationimplements the federal Truth in Lending Act. The rule also extended Regulation Z’s credit card rules and disclosure requirements similar to thoseprepaid accounts that provide overdraft services and other credit features. These rules became effective on April 1, 2019.

Short-Term, Small-Dollar Installment Lending
In October 2017, the OCC rescinded its guidance on deposit advance products in light of the Bureau’s pending small dollar loan rule related to payday, vehicle title and certain high cost installment loans that was issued in November 2017 (“Small Dollar Rule”). The Small Dollar Rule, however, has been the subject of further regulatory review and a court order staying compliance in connection with a legal challenge.

The Bureau issued its final Small Dollar Rule on July 22, 2020, which became fully effective on October 20, 2020. Specifically, the Bureau revoked provisions that: (i) provide that it is an unfair and abusive practice for a “qualified thrift lender” underlender to make a covered short-term or longer-term balloon-payment loan, including payday and vehicle title loans, without reasonably determining that consumers have the HOLA.  See “—Qualified Thrift Lender Test.”  The branching authority underability to repay those loans according to their terms; (ii) prescribe mandatory underwriting requirements for making the HOLAability-to-repay determination; (iii) exempt certain loans from the mandatory underwriting requirements; and (iv) establish related definitions, reporting, and recordkeeping requirements. However, no lenders are required to comply until either November 19, 2020 or until the court in litigation challenging the Small Dollar Rule lifts its stay of the compliance date.


29
Table of Contents
Separately, in May 2018, the OCC regulations preempts any state law purporting to regulate branching bypublished guidance that encourages national banks and federal savings associations.associations to offer responsible short-term, small-dollar installment loans with terms between two and twelve months and equal amortizing payments. Pursuant to the OCC’s guidance on this issue, banks are encouraged to offer these products in a manner that is consistent with sound risk management principles and clear, documented underwriting guidelines. Further, the federal banking agencies issued interagency guidance on May 20, 2020 to encourage banks, savings associations, and credit unions to offer responsible small-dollar loans to customers for consumer and small business purposes. As of the date of the filing of this Annual Report on Form 10-K, the Bank has not determined to offer such products, although this position may change as the Bank further refines its business plan in the future.

Interest Rate Risk Management
The OCC requires national banks, like the Bank, to have an effective and sound interest rate risk management program, including appropriate measurement and reporting, robust and meaningful stress testing, assumption development reflecting the institution’s experience, and comprehensive model valuations. According to OCC guidance, interest rate risk exposure is supposed to be managed using processes and systems commensurate with their earnings and capital levels; complexity; business model; risk profile; and scope of operations. 

Standards for Safety and Soundness. 
The federal banking agencies have adopted theInteragency Guidelines Establishing Standards for Safety and Soundness. The guidelines establish certain safety and soundness standards for all depository institutions. The operational and managerial standards in the guidelines generally relate to the following: (1) internal controls and information systems; (2) internal audit systems; (3) loan documentation; (4) credit underwriting; (5) interest rate exposure; (6) asset growth; (7) compensation, fees and benefits; (8) asset quality; and (9) earnings. Again, rather than providing specific rules, the guidelines set forth basic compliance considerations and guidance with respect to a depository institution.  Failure to meet the standards in the guidelines however, could result in a request by the OCC to the Bank to provide a written compliance plan to demonstrate its efforts to come into compliance with such guidelines.


Anti-Money Laundering (“AML”) Laws and Regulations
AML and financial transparency laws and regulations, including the Bank Secrecy Act and the USA PATRIOT Act of 2001, impose strict standards for gathering and verifying customer information in order to ensure funds or other assets are not being placed in U.S. financial institutions to facilitate terrorist financing and laundering of funds. Applicable laws require financial institutions to have AML programs in place and require the federal banking agencies to consider a holding company’s effectiveness in combating money laundering when ruling on certain merger or acquisition applications. In addition, failure to comply with these requirements could lead to significant fines and penalties or the imposition of corrective orders.

Customer Identification Programs for Holders of Prepaid Cards
The federal banking agencies, including the OCC and the FRB, issued guidance in 2016 that extends the requirements of the Customer Identification Program required by Section 326 of the USA PATRIOT Act to prepaid accounts where the cardholder has either the (i) ability to reload funds, or (ii) access to credit or overdraft features. 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.

On November 18, 2021, the federal banking agencies issued a final rule to improve the sharing of information about cyber incidents. The final rule requires a banking organization to notify its primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after the banking organization determines that a cyber incident has occurred. Notification is required for incidents that have materially affected—or are reasonably likely to materially affect—the viability of a banking organization's operations, its ability to deliver banking products and services, or the stability of the financial sector. The final rule also requires a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect banking organization customers for four or more hours. This rule became effective May 1, 2022.

In addition, certain state laws could potentially impact the Bank’s operations, including those related to applicable notification requirements when computer-security incident or unauthorized access to customers’ nonpublic personal information has occurred.

30
Table of Contents
Examination Guidance for Third-Party Lending
On July 29, 2016, the FDIC issued revised examination guidance related to third-party lending relationships (e.g., lending arrangements that rely on a third party to perform a significant aspect of the lending process). Similar to guidance published by the OCC in 2013, this guidance generally requires that financial institutions, including the Bank, ensure that risks related to such third-party lending relationships are evaluated, including the type of lending activity, the complexity of the lending program, the projected and realized volume created by the relationship, and the number of third-party lending relationships the institution has in place.

On July 19, 2021, the OCC, Federal Reserve, and FDIC issued an interagency notice seeking comment on proposed risk management guidance of third-party relationships, including third party lending relationships. The proposed interagency guidance is based on the OCC’s existing third-party risk management guidance from 2013 and seeks to, among other things, promote consistency in third-party risk management and provide sound risk management guidance for third-party relationships commensurate with a bank’s risk profile and complexity as well as the criticality of the activity. The public comment period ended on October 18, 2021. When finalized, the proposed interagency guidance will replace each agency’s existing guidance on this topic and will be directed to all banking organizations supervised by the OCC, Federal Reserve, and FDIC. The Company continues to monitor developments related to the proposed guidance to determinate what affect, if any, it will have on the Bank and its third-party relationships.

Unclaimed Property Laws
Unclaimed property (escheatment) laws vary by state but generally require holders of customer property (including money) to turn over such property to the applicable state after holding the property for the statutorily prescribed period of time. These laws are not uniform and impose varying requirements on entities, like the Bank, which may hold funds that are required to be escheated to the applicable states.

Assessments
The Dodd-Frank Act provides that, in establishing the amount of an assessment, the Comptroller of the Currency may consider the nature and scope of the activities of the entity, the amount and type of assets it holds, the financial and managerial condition of the entity and any other factor that is appropriate. The assessments are paid to the OCC on a semi-annual basis. During the fiscal year ended September 30, 2022, the Bank paid assessments (standard assessments) of $944,848 to the OCC.

Regulatory Capital Requirements
The regulatory capital rules applicable to the Company and the Bank (the “Capital Rules”) identify three components of regulatory capital: (i) common equity tier 1 capital (“CET1 Capital”), (ii) additional tier 1 capital, and (iii) tier 2 capital. Tier 1 capital is the sum of CET1 Capital and additional tier 1 capital instruments meeting certain requirements. Total capital is the sum of tier 1 capital and tier 2 capital. CET1 Capital, tier 1 capital, and total capital serve as the numerators for three prescribed regulatory capital ratios. Risk-weighted assets, calculated using the standardized approach in the Capital Rules for the Company and the Bank, provide the denominator for such ratios. 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. Under the capital requirements and the regulatory framework for prompt corrective action (discussed below), the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company's and the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors.

The Company and the Bank are required to maintain a capital conservation buffer of 2.5% above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of CET1 Capital and applies to each of the three risk-based capital ratios (but not the leverage ratio).

The Capital Rules provide for a number of deductions from and adjustments to CET1 Capital. These include, for example, the requirement that deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks and significant investments in non-consolidated financial entities be deducted from CET1 Capital to the extent that any one such category exceeds 10% of CET1 Capital or all such items, in the aggregate, exceed 15% of CET1 Capital.
31
Table of Contents
The Capital Rules prescribe a standardized approach for risk weightings for a large and risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities to 600% for certain equity exposures, and resulting in high-risk weights for a variety of asset classes. As of September 30, 2022, the Bank exceeded all of its regulatory capital requirements and was designated as “well capitalized” under federal guidelines.

Recent Developments Related to Capital Rules
There have been several developments which are intended to reduce the regulatory capital burden on smaller, less complex banking organizations like the Company and the Bank. The effect that these developments will have on the Company and the Bank is currently uncertain.

In July 2019, the federal banking agencies finalized a rule intended to simplify and clarify a number of the more complex aspects of existing regulatory capital rules. Specifically, the rule simplifies the capital treatment for mortgage servicing assets, certain deferred tax assets, investments in the capital instruments of unconsolidated financial institutions, and minority interest. The final rule also allows bank holding companies to redeem common stock without prior approval unless otherwise required. The final rule became effective April 1, 2020 for the amendments to simplify capital rules, and October 1, 2019 for revisions to the pre-approval requirements for the redemption of common stock and other technical amendments. The Bank did not elect to implement the relief provided under the simplification rule.

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”). Under the proposed rule, banks that opt into the CBLR framework and maintain a CBLR of greater than 9% would not be subject to other risk-based and leverage capital requirements and would be deemed to have met the well capitalized ratio requirements. The rule was adopted in September 2019. The Bank continues to assess the potential impact of opting in to this election as part of its ongoing capital management and planning processes.

Prompt Corrective Action ("PCA")
Federal banking agencies are authorized and, under certain circumstances, required to take certain actions against banks that fail to meet their minimum capital requirements expressed in terms of a total risk-based capital ratio, a Tier 1 risk-based capital ratio, a CET1 ratio, and a leverage ratio (as identified in the tables above).

Well capitalized banks may not make a capital distribution or pay management fees if the bank would be undercapitalized after making such distributions or paying such fees. Adequately capitalized banks, in general, cannot pay dividends or make any capital contributions that would leave them undercapitalized; they cannot pay a management fee to a controlling person if, after paying the fee, they would be undercapitalized; and they cannot accept, renew or roll over any brokered deposit unless they have applied for and been granted a waiver by the FDIC.

The activities of an “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized” bank are further restricted. Any such bank must submit a capital restoration plan that is guaranteed by each company that controls the Bank, and such company must provide appropriate assurances of performance. Until such plan is approved, the bank may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions. The federal banking agencies are authorized to impose additional restrictions, discussed below, that are applicable to significantly undercapitalized institutions.

The imposition of any action taken by the OCC against the Bank in connection with the agency’s PCA authority would likely have a substantial adverse effect on it and on the Company’s operations and profitability. This is especially true if the Bank were to no longer be deemed to be well capitalized and, therefore, subject to limitations on its ability to accept, renew or roll over brokered deposits absent a waiver from the FDIC. The Company's stockholders are not entitled to preemptive rights and, therefore, if the Company is directed by its regulators to issue additional shares of common stock, such issuance may result in dilution to the Company's existing stockholders.


32
Table of Contents
Institutions in Troubled Condition
Certain events, including entering into a formal written agreement with a bank’s regulator that requires action to improve the bank’s financial condition, or being informed by the regulator that the bank is in troubled condition, will automatically result in limitations on so-called “golden parachute” agreements pursuant to Section 18(K) of the FDIA. In addition, organizations that are not in compliance with minimum capital requirements, or are otherwise in a troubled condition, must give 90 days’ written notice to the OCC before appointing a Director or Senior Executive Officer, pursuant to the OCC’s regulations.

Civil Money Penalties.Penalties
The OCC has the authority to assess civil money penalties (“CMPs”) against any national bank, federal savings bank or any of their institution-affiliated parties (“IAP”IAPs”). In addition, the OCC has the authority to assess CMPs against bank service companies and service providers. CMPs may encourage an affected party to correct violations, unsafe or unsound practices or breaches of fiduciary duty. CMPs are also intended to serve as a deterrent to future violations of law, regulation,regulations, orders and other conditions. When determining CMP amounts, the OCC is required by statute to consider the following four factors: (1) the size and financial resources and good faith of the institution or IAP charged; (2) the gravity of the violation; (3) the history of previous violations; and (4) such other matters as justice may require. In addition to these factors there are other factors that the FFIEC has adopted that banking agencies should consider. If the Bank, the Company or any of its IAPs were to have CMPs imposed, such penalties could be material.


Limitations on Dividends and Other Capital Distributions.  Federal
The NBA and related federal regulations govern the permissibility of dividends and capital distributions by a federal savings association.  Pursuant to the Dodd-Frank Act, savings associations that are part ofnational bank. As a savings and loan holding company structure must now file a notice of a declaration of a dividend with the Federal Reserve at least 30 days before the proposed dividend declaration bynational bank, the Bank’s board of directors.  Indirectors may not declare, and the caseBank may not pay, any dividend in an amount greater than the sum of cash dividends, OCC regulations require that federal savings associations that are subsidiaries of a stock savingscurrent period net income and loan holding company must file an informational copyretained earnings. A distribution in excess of that notice withamount is a reduction in permanent capital, and the OCC atBank would need to follow the same time the notice is filed with the Federal Reserve.  OCC regulations further set forth the circumstances under which a federal savings association is required to submit an application or notice before it may make a capital distribution.
A federal savings association proposing to make a capital distribution is required to submit an application to the OCC if:  the association does not qualify for expedited treatment pursuant to criteriaapplicable procedures set forth in OCC regulations;regulations and guidance. Further, the total amountBank’s board of all ofdirectors may not declare a dividend if paying the association’s capital distributions (including the proposed capital distribution) for the applicable calendar year exceeds the association’s net income for that year to date plus the association’s retained net income for the preceding two years; the associationdividend would not be at least adequately capitalized following the distribution; or the proposed capital distribution would violate a prohibition contained in any applicable statute, regulation or agreement between the association and the OCC or the Company’s and Bank’s former regulator, the OTS, or violate a condition imposed on the association in an application or notice approved by the OCC or the OTS.
A federal savings association proposing to make a capital distribution is required to submit a prior notice to the OCC if:  the association would not be well-capitalized following the distribution; the proposed capital distribution would reduce the amount of or retire any part of the association’s common or preferred stock or retire any part of debt instruments such as notes or subordinate debentures includedresult in the association’s capital (other than regular payments requiredBank being undercapitalized under a debt instrument); or the association is a subsidiary of a federally chartered mutual savings and loan holding company; however, where a savings association subsidiary of a stock savings and loan holding company is proposingOCC’s PCA rule.

The Bank also must obtain prior approval from the OCC to pay a cash dividend if the dividend would exceed the sum of current period net income and retained earnings from the past two years, after deducting the following transactions during that does not require an application or a notice filing, only an informational filing is required.

Each ofperiod: (i) any dividends previously declared, (ii) extraordinary transfers required by the Federal ReserveOCC, and OCC have primary reviewing responsibility(iii) payments made for the applications or notices required to be submitted to them by savings associations relating toretirement of preferred stock. This calculation is performed on a proposed distribution.  The Federal Reserve may disapprove of a notice, and the OCC may disapprove of a notice or deny an application, if:
the savings association would be undercapitalized, significantly undercapitalized or critically undercapitalized following the distribution;

the proposed distribution raises safety and soundness concerns; or

the proposed distribution violates a prohibition contained in any statute, regulation, enforcement action or agreement between the savings association (or its holding company,rolling basis as described in the case of the Federal Reserve) and the entity’s primary federal regulator, or a condition imposed on the savings association (or its holding company,OCC’s earnings limitation regulations.

The Bank paid cash dividends in the caseamount of the Federal Reserve) in an application or notice approved by the entity’s primary federal regulator.

Under current regulations, the Bank is not permitted to pay dividends on its stock if its regulatory capital would fall below the amount required for the liquidation account established to provide a limited priority claim to the assets of the Bank to qualifying depositors at March 31, 1992, who continue to maintain deposits at the Bank after its conversion from a federal mutual savings and loan association to a federal stock savings bank pursuant to its Plan of Conversion adopted August 21, 1991.

During the fiscal year ended September 30, 2017, the Bank paid no cash dividends$229.2 million to the Company asduring fiscal 2022, to be used to fund share repurchases under the common stock share repurchase programs that were authorized by the Company's Board of Directors. The program authorized the Company utilized existing cash holdingsto repurchase up to 7,500,000 shares of the Company's outstanding common stock through December 31, 2022. On September 3, 2021, the Company's Board of Directors authorized a new stock repurchase program pursuant to which the Company may repurchase up to an additional 6,000,000 shares of the Company's outstanding common stock on or before September 30, 2024. As part of its capital planning, the Company will continue to regularly assess its needs for payment of dividends to the Company’s stockholders and other holding company expenses.  The Company does not currently anticipate that it will need dividends from the Bank in order to fund future share repurchases and dividends to the Company’s stockholders.  To declare a dividend under new rules adopted in 2015 by the OCC, an institution must file a notice with the OCCCompany's stockholders as an “eligible savings association” (as defined in the OCC’s regulations) if, among other things, it would not remain well-capitalized or would not be an eligible savings association upon the distribution.  An application to the OCC is required prior to a capital distribution if, among other things, a federal savings association is not an “eligible savings association.”  If neither of these are triggered, an institutiondoes not need to file a notice or an application before declaring a dividend or otherwise making a capital distribution.needed.

Qualified Thrift Lender Test.  All savings associations, including the Bank, are required to meet a qualified thrift lender (“QTL”) test to avoid certain restrictions on their operations.  This test requires a savings association to have at least 65% of its portfolio assets (as defined by regulation) in qualified thrift investments (primarily residential mortgages and related investments, including certain mortgage-backed securities) on a monthly average for nine out of every 12 months on a rolling basis or meet the requirements for a domestic building and loan association under the Internal Revenue Code.  Under either test, the required assets primarily consist of residential housing related to loans and investments.  At September 30, 2017, the Bank met the test and always has since its inception.
Any savings association that fails to meet the QTL test must convert to a national bank charter, unless it qualifies as a QTL within one year and thereafter remains a QTL, or limits its new investments and activities to those permissible for both a savings association and a national bank.  In addition, the association is subject to national bank limits for payment of dividends and branching authority.  If such association has not requalified or converted to a national bank within three years after the failure, it must divest all investments and cease all activities not permissible for a national bank or federal savings association.  The Bank currently meets its QTL requirement and expects to do so for the foreseeable future.
Community Reinvestment Act.  Under the Community Reinvestment Act (the “CRA”), the Bank is evaluated periodically by its primary federal banking regulator to determine if it is meeting its continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its assessment areas, including low and moderate income neighborhoods.  The Bank received a “Satisfactory” rating during its most recent Performance Evaluation dated January 3, 2017.  A copy of the Bank’s most recent Performance Evaluation is available as part of its Public File.

Volcker Rule.  On December 10, 2013, five financial regulatory agencies, including our primary federal regulators the Federal Reserve and the OCC, adopted final rules implementing the so-called Volcker Rule embodied in Section 13 of the Bank Holding Company Act (“BHCA”), which was added by Section 619 of the Dodd-Frank Act.  The final rules prohibit banking entities from (1) engaging in short-term proprietary trading for their own accounts and (2) having certain ownership interests in and relationships with hedge funds or private equity funds (“covered funds”).  The final rules are intended to provide greater clarity with respect to both the extent of those primary prohibitions and of the related exemptions and exclusions.  The final rules also require each regulated entity to establish an internal compliance program that is consistent with the extent to which it engages in activities covered by the Volcker Rule, which must include (for the largest entities) making regular reports about those activities to regulators.  Community and small banks, such as MetaBank, are afforded some relief under the final rules.  If such banks are engaged only in exempted proprietary trading, such as trading in U.S. Government, agency, state and municipal obligations, they are exempt entirely from compliance program requirements.  Moreover, even if a community or small bank engages in proprietary trading or covered fund activities under the rule, they need only incorporate references to the Volcker Rule into their existing policies and procedures.  The compliance date for banks to conform to the Volcker Rule was July 21, 2015, but the regulators granted multiple extensions until July 21, 2017 for conformance of relationships with covered funds that existed prior to December 31, 2013 (this was the final extension granted in connection with such "legacy" covered funds).  Beginning June 30, 2014, banking entities with $50 billion or more in trading assets and liabilities were required to report quantitative metrics; on April 30, 2016, banking entities with at least $25 billion but less than $50 billion were required to report; and on December 31, 2016, banking entities with at least $10 billion but less than $25 billion were required to report.  The Company does not at this time expect the Volcker Rule to have a material impact on its operations.

Interstate Banking and Branching.  The FRB may approve an application of an adequately capitalized and adequately managed savings and loan holding company to acquire control of, or acquire all or substantially all of the assets of, a bank or savings association located in a state other than such holding company’s home state, without regard to whether the transaction is prohibited by the laws of any state.  In general, the FRB may not approve the acquisition of a bank that has not been in existence for the minimum time period (not exceeding five years) specified by the statutory law of the host state or if the applicant (and its depository institution affiliates) controls or would control more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank’s home state or in any state in which the target bank maintains a branch.
The federal banking agencies are also generally authorized to approve interstate merger transactions without regard to whether such transaction is prohibited by the law of any state.  Interstate acquisitions of branches or the establishment of a new branch is permitted only if the law of the state in which the branch is located permits such acquisitions.  Interstate mergers and branch acquisitions are also subject to the nationwide and statewide insured deposit concentration amounts described above.  South Dakota permits interstate branching only by merger.
Transactions with Affiliates. 
The Bank must comply with Sections 23A and 23B of the Federal Reserve Act relative to transactions with “affiliates,” generally defined to mean any company that controls or is under common control with the institution (as such, Meta FinancialThe Company is an affiliate of the Bank for these purposes). Transactions between an institution or its subsidiaries and its affiliates are required to be on terms as favorable to the Bank as terms prevailing at the time for transactions with non-affiliates. In addition, certainCertain transactions, such as loans to an affiliate, are restricted to a percentage of the institutions’ capital (e.g.(e.g., the aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the institution; the aggregate amount of covered transactions with all affiliates is limited to 20% of the institution’s capital and surplus).  In addition, a savings

Community Reinvestment Act (“CRA”)
Under the CRA, the Bank is evaluated periodically by its primary federal banking regulator to determine if it is meeting its continuing and loan holding company may not lendaffirmative obligations consistent with its safe and sound operation, to any affiliate engaged in activities not permissible for a savingshelp meet the credit needs of its assessment areas, including low- and loan holding company or acquire the securities of most affiliates.  The OCC has the discretion to treat subsidiaries of savings institutions as affiliates on a case-by-case basis.
The Dodd-Frank Actmoderate-income neighborhoods. CRA ratings can also included specific changes to the law related to the definition of “covered transaction” in Sections 23A and 23B and limitations on asset purchases from insiders.  With respect to the definition of “covered transaction,” the Dodd-Frank Act now defines that term to include the acceptance of debt obligations issued by an affiliate as collateral for a bank’s loan or extension of credit to another person or company.  In addition, a “derivative transaction” with an affiliate is now deemed to be a “covered transaction” to the extent that such a transaction causes a bank or its subsidiary to have a credit exposure to the affiliate.  A separate provision of the Dodd-Frank Act states thatimpact an insured depository institution may not “purchase an asset from, or sell an asset to” a bank insider (or their related interests) unless (1) the transactioninstitution’s ability to engage in certain activities as CRA performance is conducted on market terms between the parties, and (2) if the proposed transaction represents more than 10% of the capital stock and surplus of the insured institution, it has been approvedconsidered in advanceconnection with certain applications by a majority of the institution’s non-interested directors.

Certain transactions with directors, officers or controlling persons are also subject to conflict of interest regulations.  These conflict of interest regulations and other statutes also impose restrictions on loans to such personsdepository institutions and their related interests.  Among other things, such loans must be made on terms substantially the same as for loansholding companies, including merger applications, charter applications, and applications to unaffiliated individuals and must not createacquire assets or assume liabilities. The Bank received an abnormal risk“Outstanding” rating during its most recent Performance Evaluation dated February 3, 2020.


33
Table of repayment or other unfavorable features for the Bank.Contents

Federal Home Loan Bank System. 
The Bank is a member of the Federal Home Loan Bank (“FHLB”) system through the FHLB of Des Moines, one of 11 regional FHLBs that administersadminister the home financing credit function of savings associations that is subject to supervisionregulation and regulationsupervision by the Federal Housing Finance Agency. All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB. In addition, all long-term advances must be used for residential home financing.

As membersa member of the FHLB System,system, the Bank is required to purchase and maintain activity-based capital stock in the FHLB in the amount specified by the applicable Federal Home Loan Bank'sFHLB's capital plan. At September 30, 2017,2022, the Bank had in the aggregate $61.1$9.1 million in FHLB stock, which was in compliance with the Federal Home Loan BankFHLB of Des Moines' requirement. For the fiscal year ended September 30, 2017,2022, dividends paid by the FHLB to the Bank totaled $538,434.  In June 2015,$0.3 million.

Other Regulation
The Bank is also subject to a variety of other regulations with respect to its business operations including, but not limited to, the FHLBTruth in Lending Act, the Truth in Savings Act, the Consumer Leasing Act, the Equal Credit Opportunity Act, the Electronic Funds Transfer Act, the Military Lending Act, the Servicemembers’ Civil Relief Act, the Fair Housing Act, the Fair Debt Collection Practices Act, the Telephone Consumer Protection Act, the Controlling the Assault of Des MoinesNon-Solicited Pornography and Marketing Act, and the FHLB of Seattle merged intoFair Credit Reporting Act.

It is possible that additional rulemaking could require significant revisions to the FHLB of Des Moines.  Notably, pursuant to certain integration rules adoptedregulations under which the Bank operates and is supervised. Any change in such laws and regulations or interpretations thereof negatively impacting the Bank's or the Company's current operations, whether by the OCC, in 2015, federal savings associations are no longer required to become members of a Federal Home Loan Bank.

Under federal law, the FHLBs are required to provide funds forFDIC, the resolution of troubled savings associations and to contribute to low and moderately priced housing programsBureau, the FRB or through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects.  These contributions have affected adversely the level of FHLB dividends paid andlegislation, could continue to do so in the future.  These contributions could also have an adverse effect on the value of FHLB stock in the future.  A reduction in value of the Bank’s FHLB stock may result in a corresponding reduction in the Bank’s capital.  In addition, the federal agency that regulates the FHLBs has required each FHLB to register its stock with the SEC, which has increased the costs of each FHLB and may have other effects that are not possible to predict at this time.
Federal Securities Law.  The common stock of Meta Financial is registered with the SEC under the Exchange Act, as amended.  Meta Financial is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.
Meta Financial’s stock held by persons who are affiliates (generally officers, directors and principal stockholders) of the Company may not be resold without registration unless sold in accordance with certain resale restrictions.  If Meta Financial meets specified current public information requirements, each affiliate of the Company, subject to certain requirements, will be able to sell, in the public market, without registration, a limited number of shares in any three-month period.
FDIC Deposit Classification Guidance
On January 5, 2015, the Federal Deposit Insurance Corporation (“FDIC”) published initial industry guidance (the “Guidance”) in the form of Frequently Asked Questions with respect to the categorization of deposit liabilities as "brokered" deposits.  This guidance was later supplemented on November 13, 2015, and was finalized on June 30, 2016.  As of September 30, 2017, the Bank categorized $1.47 billion, or 45.7% of its deposit liabilities, as brokered deposits.
Due to the Bank’s status as a "well-capitalized" institution under the new Basel III Capital Rules, and further with respect to the Bank’s financial condition in general, the Company does not at this time anticipate that the Guidance will have a material adverse impact on the Company’s liquidity, statements of financial condition or results ofBank and its operations going forward. However, 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 a similar formal requirement, then, notwithstanding that the Bank has capital in excess of the well-capitalized minimum requirements, 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).  In such event, unless the Bank were to receive a suitable waiver from the FDIC, such a result could produce serious material adverse consequences for the Bank with respect to liquidity and could also have serious material adverse effects on the Company’s financial conditionCompany and results of operations.  Further, and in general, depending on the Bank’s condition in the future, the FDIC could increase the surcharge on our brokered deposits up to thirty basis points. The Company will monitor any future clarifications, rulings and interpretations, including whether institutions would be expected by the FDIC to amend prior call reports.  If we are required to amend previous call reports with respect to our level of brokered deposits, which the Company does not expect, or we are ever required to pay higher surcharge assessments with respect to these deposits, such payments could be material and therefore could have a material adverse effect on our financial condition and results of operations.its stockholders.



Holding Company Regulation and Supervision & Regulation
We are a registered unitary savings and loan holding company, and as such we areThe Company is subject to Federal Reserve examination, supervision, and certain reporting requirements.  In addition,requirements by the Federal Reserve, has enforcement authority over us and any of our non-savings institution subsidiaries.  Among other things, this authority permits the Federal Reserve to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness or stability of a subsidiary savings association.

The Federal Reservewhich has responsibility for the primary supervisionregulation and regulationsupervision of all savings and loan holding companies,BHCs, including the Company.  In connection with its assumptionCompany, under the Bank Holding Company Act (“BHCA”). The Federal Reserve also has supervisory authority over any nonbank subsidiary of responsibility fora BHC that is not functionally regulated by another federal or state regulator, such as a leasing subsidiary. Through the ongoing examination, supervision and regulation of savings and loan holding companies,supervisory process, the Federal Reserve ensures that BHCs, like the Company, comply with law and regulation and are operated in a manner that is consistent with safe and sound banking practices. The Federal Reserve supervises BHCs pursuant to Regulation Y (12 C.F.R. Part 225) and a supervisory program that seeks to ensure that BHCs comply with rules and regulations and that they operate in a safe and sound manner.

As a BHC that has published an interim final rule (“Regulation LL”, which, aselected to become a FHC, the Company may engage in any activity, or acquire and retain the shares of the date of this filing, has still not been adopteda company engaged in final form)any activity, that provides for the corresponding transfer from the OTSis either (i) financial in nature or incidental to such financial activity (as determined by the Federal Reserve in consultation with the Secretary of the regulations necessary forTreasury) or (ii) complementary to a financial activity, and that does not pose a substantial risk to the safety and soundness of depository institutions or the financial system (as solely determined by the Federal Reserve to administer the statutes governing savings and loan holding companies.  Related to this authority, the Federal Reserve issued on November 7, 2014, a list identifying the supervisory guidance documents issued by it prior to July 21, 2011Reserve). Activities that are now applicable to savings and loan holding companies such as the Company.  The FRB stated that, among other things, this list was part of their initiative to establish a savings and loan holding company supervisory program similarfinancial in nature to its “long-established supervisory program for bank holding companies.”include securities underwriting and dealing, insurance underwriting, and making merchant banking investments.


Restrictions Applicable to All Savings and Loan Holding Companies.
Acquisitions
Federal law prohibits a savings and loan holding company,BHC, including us,the Company, directly or indirectly, from acquiring:
from: (a) acquiring control (as defined under the HOLA)Regulation Y) of another savings institutionbank (or a holding company parent) without prior Federal Reserve approval;

or (b) through merger, consolidation or purchase of assets, acquiring another savings institutionbank or a holding company thereof, or acquiring all or substantially all of the assets of such institution (or a holding company), without prior Federal Reserve approval; or

control of any depository institution not insured by the FDIC (except through a merger with and into the holding company’s savings institution subsidiary that is approved by the Federal Reserve).

A savings and loan holding company may not acquire as a separate subsidiary an FDIC-insured institution that has a principal office outside of the state where the principal office of its subsidiary institution is located, except:
in the case of certain emergency acquisitions approved by the FDIC;

if such holding company controls a savings institution subsidiary that operated a home or branch office in such additional state as of March 5, 1987; or

if the laws of the state in which the savings institution to be acquired is located specifically authorize a savings institution chartered by that state to be acquired by a savings institution chartered by the state where the acquiring savings institution or savings and loan holding company is located, or by a holding company that controls such a state-chartered association.

The HOLA also prohibits a savings and loan holding company (directly or indirectly, or through one or more subsidiaries) from acquiring or retaining, with certain exceptions, more than 5% of the voting shares of a non‑subsidiary savings association, a non-subsidiary holding company or a non-subsidiary company engaged in activities other than those permitted by the HOLA.approval. In evaluating applications by BHCs to acquire other holding companies to acquire savings associations,and banks, the Federal Reserve must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the DIF, the convenience and needs of the community and competitive factors.

Failure
34
Table of Contents
Change in Bank Control
Federal law and regulation set forth the types of transactions that require prior notice under the Change in Bank Control Act (“CIBCA”). Pursuant to Meet QTL Test.
If a banking subsidiaryCIBCA and Regulation Y, any person (acting directly or indirectly) that seeks to acquire control of a savings and loan holding company fails to meet the QTL test, thebank or its holding company must register withprovide prior notice to the FRB asFederal Reserve. A “person” includes an individual, bank, corporation, partnership, trust, association, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, or any other form of entity. A person acquires "control" of a bank holding company within one yearbanking organization whenever the person acquires ownership, control, or the power to vote 25 percent or more of any class of voting securities of the savings institution’s failure to comply.institution. The applicable regulations also provide for certain other "rebuttable" presumptions of control.


Activities Restrictions.
Prior to the Dodd-Frank Act, savings and loan holding companies were generally permitted to engage in a wider array of activities than those permissible for their bank holding company counterparts and could have concentrations in real estate lending that are not typical for bank holding companies.  Section 606 of the Dodd-Frank Act amended the HOLA and requires that covered savings and loan holding companies (e.g., those that are not exempt from activities restrictions under the HOLA) that intend to engage in activities that are permissible only for a financial holding company under Section 4(k) of the BHCA do so only if the covered company meets all of the criteria to qualify as a financial holding company, and complies with all of the requirements applicable to a financial holding company as if the covered savings and loan holding company was a bank holding company.  Savings and loan holding companies engaging in new Section 4(k) activities permissible for bank holding companies will need to comply with notice and filing requirements of the Federal Reserve.
IfIn April 2020, the Federal Reserve believes that an activityadopted a final rule to revise its regulations related to determinations of whether a savings and loan holding company orhas the ability to exercise a non-bank subsidiary constitutes a serious risk to the financial safety, soundness or stability of a subsidiary savings association and is inconsistent with the principles of sound banking, thecontrolling influence over another company for purposes of the HOLA or other applicable statutes,BHCA. The final rule expands and codifies the presumptions for use in such determinations. By codifying the presumptions, the final rule provides greater transparency on the types of relationships that the Federal Reserve may require the savings and loan holdinggenerally views as supporting a facts-and-circumstances determination that one company controls another company. The Federal Reserve’s final rule applies to terminate the activity or divestquestions of control of the non-banking subsidiary.  This obligation is established in Section 10(g)(5) of the HOLA and bank holding companies are subject to equivalent obligations under the BHCA, and the Federal Reserve’s Regulation Y.but does not extend to CIBCA.

Source of Strength and Capital Requirements.
Requirements
The Dodd-Frank Act requires all companies, including savings and loan holding companies,BHCs, that directly or indirectly control an insured depository institution to serve as a source of financial and managerial strength to its subsidiary savings associations;depository institutions and to maintain adequate resources to support such institutions; to date, however, specific regulations implementing this requirement have not been published. Moreover, pursuant toAs an BHC, the Dodd-Frank Act, savings and loan holding companies are generallyCompany is also subject to the same regulatory capital and activity requirements as those applicable to bank holding companies.the Bank.

New rules promulgated byExamination
In 2019, the Federal Reserve related to capital requirements that were required by the Dodd-Frank Act have also become effective. For a summary of the applicable changes, see “Risk Factors – Risks Related to Our Industry and Business.”

Examination.
The Federal Reserve has stated that it intends, to the greatest extent possible, taking into account any unique characteristics of savings and loan holding companies and the requirements of the HOLA, to assess the condition, performance and activities of savings and loan holding companies on a consolidated basis in a manner that is consistent with the Federal Reserve’s established risk-based approach regarding bank holding company supervision.  As with bank holding companies, the Federal Reserve’s objective will be to ensure that a savings and loan holding company and its non-depository subsidiaries are effectively supervised and can serve as a source of strength for, and do not threaten the soundness of, its subsidiary depository institution(s).
In accordance with its goal to assess the condition, performance and activities of savings and loan holding companies on a consolidated basis in a manner that is consistent with the Federal Reserve’s established risk-based approach regarding bank holding company supervision, the Federal Reserve announced in 2013 that it will use the “RFI/C(D)” rating system (commonly referred to as “RFI”) to assign indicative ratings to such companies.  On December 9, 2016, the Federal Reserve issued a proposal to fully apply its existing rating system for bank holding companies to savings and loan holding companies on a fully implemented basis (the "Ratings Proposal"). If adopted as proposed, indicative ratings would no longer be used to evaluate the Company.


In late 2013, the Federal Reserve announced that,published finalized guidance with respect to savingsinspection frequency and loan holding companiesscope for BHCs with less than $10 billion in assets (like the Company), such companies’ inspection frequency and scope requirements will be the same as those for bank holding companies of the same asset size.  The FRB will also determine whether or not a savings and loan holding company is “complex” as determined by certain factors enumerated by the Federal Reserve.assets. According to the Federal Reserve, with respect to institutions with less than $10 billion in assets (such as the Company), the determination of whether a holding company is "complex" versus "noncomplex" is made at least annually on a case-by-case basis taking into account and weighing a number of considerations, such as: the size and structure of the holding company; the extent of intercompany transactions between insured depository institution subsidiaries and the holding company or uninsured subsidiaries of the holding company; the nature and scale of any non-bank activities, including whether the activities are subject to review by another regulatoractivities; and the extent to whichdegree of leverage of the holding company, is conducting Gramm-Leach-Bliley authorized activities (e.g., insurance, securities, merchant banking); whether risk management processes forincluding the holding company are consolidated; and whether the holding company has materialextent of its debt outstanding to the public.

In addition, on June 23, 2020, the federal banking agencies released guidance to promote consistency in the supervision and examination of financial institutions affected by the COVID-19 pandemic. The Federal Reserve and OCC will continue to assess institutions in accordance with existing policies and procedures. However, in conducting their supervisory assessment, federal banking examiners will consider whether institution management has advised savingsmanaged risk appropriately, including taking appropriate actions in response to stress caused by COVID-19-related impacts. The interagency guidance instructs examiners to consider the unique, evolving, and loan holding companies with less than $10 billion in assets (like the Company) to refer to this supervisory guidance until the Ratings Proposal is finalized.  Aspotential long-term nature of the date of this filing, the FRB has not advised the Company that it is complex.issues confronting institutions and to exercise appropriate flexibility in their supervisory response.


Change of Control.Dividends
The federal banking laws require that appropriate regulatory approvals must be obtained before an individual or company may take actions to “control” a bank or savings association.  The definition of control found in the HOLA is similar to that found in the BHCA for bank holding companies.  Both statutes apply a similar three-prong test for determining when a company controls a bank or savings association.  Specifically, a company has control over either a bank or savings association if the company:

(1)directly or indirectly or acting in concert with one or more persons, owns, controls or has the power to vote 25% or more of the voting securities of a company;

(2)controls in any manner the election of a majority of the directors (or any individual who performs similar functions in respect of any company, including a trustee under a trust) of the board; or

(3)directly or indirectly exercises a controlling influence over the management or policies of the bank.

Regulation LL, the interim final rule discussed above, implements the HOLA to govern the operations of savings and loan holding companies. Regulation LL includes a specific definition of “control” similar to the statutory definition, with certain additional provisions.  Additionally, Regulation LL modifies the regulations previously used by the OTS for purposes of determining when a company or natural person acquires control of a savings association or savings and loan holding company under the HOLA or the Change in Bank Control Act (“CBCA”).  In light of the similarity between the statutes governing bank holding companies and savings and loan holding companies,2009, the Federal Reserve proposedreleased a supervisory letter entitled Applying Supervisory Guidance and Regulations on the Payment of Dividends, Stock Redemptions and Stock Repurchases at Bank Holding Companies. This letter generally sets forth principles describing when a BHC must consult, provide notice, or seek approval from the FRB prior to use its established rules and processes with respecta capital distribution including the payment of dividends, stock redemptions, or stock repurchases. According to control determinations underFRB staff, the HOLA and the CBCAFRBs are likely to ensure consistency between equivalent statutes administered by the same agency.
The Federal Reserve stated in connection with its issuance of Regulation LL that it will review investments and relationships with savings and loan holding companies by companies using the current practices and policies applicable to bankrequire holding companies to the extent possible.  Overall, the indicia of control usedeliminate, defer or reduce dividends if these payments are not fully covered by the Federal Reserve undernet income available to shareholders for the BHCA to determine whether a company has a controlling influence over the management or policies of a banking organization (which, for Federal Reserve purposes, will now include savings associations and savings and loan holding companies) are similar to the control factors found in OTS regulations.  However, the OTS rules weighed these factors somewhat differently and used a different review process designed to be more mechanical.
Among the differences highlighted by the Federal Reserve with respect to OTS procedures on determinations of control, the Federal Reserve noted that it does not limit its review of companies with the potential to have a controlling influence to the two largest stockholders.  Specifically, the Federal Reserve reviews all investors based on all of the facts and circumstances to determine if a controlling influence is present.

Moreover, unlike the OTS control rules, the Federal Reserve does not have a separate application process for rebutting control under the BHCA and Regulation LL does not include such a process.  Under the former OTS rules, investors that triggered a control factor under the rules could submit an application to the OTS requesting a determination that they have successfully rebutted control under the HOLA.  This separate application processpast four quarters, earnings retention is not available under Regulation LL.  Given that Federal Reserve practiceconsistent with capital needs or the holding company will not meet or is to consider potential control relationships for all investors in connection with applications submitted under the BHCA, the Federal Reserve will review potential control relationships for all investors in connection with applications submitted to the Federal Reserve under Section 10(e) or 10(o)danger of the HOLA.  The Federal Reserve may obtain a seriesnot meeting minimum regulatory capital adequacy ratios.


35
Table of passivity commitments from investors seeking to purchase in excess of 5% of the issued and outstanding common stock of savings and loan holding companies and bank holding companies.Contents

Management

OnIn August 9, 2017, the Federal Reserve published proposed guidance related to supervisory expectations for board of directors, including boards of directors of savings and loan holding companies.BHCs. The proposal seekssought to clarify supervisory expectations of boards and distinguish the roles held by senior management to allow boards to focus on fulfilling their core responsibilities. On February 26, 2021, the Federal Reserve issued a Supervision and Regulation letter (SR 21-3/CA 21-1) containing its final supervisory guidance on the effectiveness of a banking institution's board of directors. Although the guidance only applies to bank holding companies and savings-and-loan holding companies with total consolidated assets of $100 billion or more, the Company continues to monitor the Federal Reserve's evolving supervisory and regulatory approach to board and senior management effectiveness.

Additional Regulatory Matters
The comment period closes on February 15, 2018.Company is subject to oversight by the SEC, NASDAQ and various state securities regulators. In the normal course of business, the Company has received requests for information from these regulators. Such requests have been considered routine and incidental to the Company’s operations.



36
Table of Contents
Federal and State Taxation

Federal and State Taxation.  MetaPathward Financial and its subsidiaries file a consolidated federal income tax return and various consolidated state income tax returns. Additionally, MetaPathward Financial or its subsidiaries file separate company income tax returns in states where required. All returns are filed on a fiscal year basis using the accrual method of accounting. We monitorThe Company monitors relevant tax authorities and change ourchanges its estimate of accrued income tax due to changes in income or franchise tax laws and their interpretation by the courts and regulatory authorities.  In addition to the regular income tax, corporations, including savings banks such as the Bank, generally are subject to a minimum tax.  An alternative minimum tax is imposed at a minimum tax rate of 20% on alternative minimum taxable income, which is the sum of a corporation’s regular taxable income (with certain adjustments) and tax preference items, less any available exemption. 

Competition

The alternative minimum tax is imposed to the extent it exceeds the corporation’s regular income tax and net operating losses can offset no more than 90% of alternative minimum taxable income.
To the extent earnings appropriated to a savings bank’s bad debt reserves and deductedCompany operates in competitive markets for federal income tax purposes exceed the allowable amount of such reserves computed under the experience method and to the extenteach of the bank’s supplemental reserves for losses on loans (“Excess”), such Excess may not, without adversedifferent financial sectors in which it engages in business: payments, commercial finance, tax consequences, be utilized forservices and consumer lending. Competitors include a wide range of regional and national banks and financial services companies located both in the payment of cash dividends or other distributions to a stockholder (including distributions on redemption, dissolution or liquidation) or for any other purpose (except to absorb bad debt losses).  As of September 30, 2017,Company's market areas and across the Bank’s Excess for tax purposes totaled approximately $6.7 million.nation.
Competition

The Company’s Retail Banking operation faces strong competition, both in originating real estate and other loans and in attracting deposits.  Competition in originating real estate loans comes primarily from commercial banks, savings banks, credit unions, captive finance companies, insurance companies and mortgage bankers making loans secured by real estate located in the Company’s market area.  Commercial banks and credit unions provide vigorous competition in consumer lending.  The Company competes for real estate and other loans principally on the basis of the quality of services it provides to borrowers, interest rates and loan fees it charges, and the types of loans it originates.

The Company’s Retail Banking operation attracts deposits through its Retail Banking offices, primarily from the communities in which those Retail Banking offices are located; therefore, competition for those deposits is principally from other commercial banks, savings banks, credit unions and brokerage offices located in the same communities.  The Company competes for these deposits by offering a variety of deposit accounts at competitive rates, convenientBaaS business hours and convenient branch locations with interbranch deposit and withdrawal privileges at each.
The Company’s MPS divisionline 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, Automated Clearing House (“ACH”)ACH processors and ATM network sponsors. Many of these national players are aggressive competitors, leveraging relationships and economies of scale.

It isAs part of its national lending operations, the Company also expected that the Bank will continue to experiencefaces strong competition for its AFS/IBEX division with respect to financingfrom non-bank commercial finance companies, leasing companies, factoring companies, insurance premiumspremium finance companies, consumer finance and for its Refund Advantage, EPS, and SCS businesses with respect toothers on a nationwide basis. In addition, the Company’s tax return processing services.services division competes nationwide with financial institutions that offer similar processing technologies and capabilities.


EmployeesHuman Capital Resources

AtOur mission of Financial Inclusion for All® is foundational to our ability to attract and retain top talent who desire to have impact working with innovators to enable financial availability, choice, and opportunity for consumers and businesses in underserved niche markets. Our people are our number one asset and the source of our ability to deliver on our mission. We empower them by providing opportunities to grow and develop in their careers, supported by strong compensation, benefits, and health and well-being programs. We live our mission and provide a diverse, inclusive, safe, and healthy workplace for all.

Demographics
The following table describes the composition of our workforce as of September 30, 2017,2022:

Employee Type9/30/20219/30/2022Change
Full-time1,1211,1391.6%
All Other Types131515.4%
Total Employees1,1341,1541.8%
Women56%
Minorities19%

Diversity, Equity and Inclusion ("DEI")
We place immense value on the Companydiversity of our employees, and its subsidiaries had a totalwe are proud of 827 full-time equivalentour commitment to treating our employees with dignity and respect through an increaseinclusive work environment. We believe that diversity of 155 employees, or 23%, from September 30, 2016.  The Company’sbackgrounds, thoughts and experiences in our organization leads to more innovative solutions for our customers and partners as we seek to understand the unique needs in the niche markets that we serve. All employees are not representedexpected to contribute to a culture of mutual respect and inclusion, and we promote a workplace culture that is free from discrimination, harassment, or any other form of abuse.


37
Table of Contents
We approach the components of DEI as follows:

•DIVERSITY: We prioritize cultivating a culture that promotes, supports, and respects diversity among our employees, customers, partners, and community, honoring their unique perspectives that enrich their experience with us.
•EQUITY: We prioritize designing a workplace experience that meets people’s individual needs by any collective bargaining group.  Management considers itsfacilitating equitable access and advancement aligned with their professional goals. For our customers and partners, we commit to identifying ways we can work with people to increase their economic mobility. 
•INCLUSION: We prioritize creating a culture where our employees, customers and partners have a sense of belonging and feel valued in the ways that most resonate with them.

We oversee our DEI efforts through our Environmental, Social and Governance (ESG) structure, which includes Board and executive management oversight, as well as a DEI Steering Committee that supports the implementation of our DEI strategy which is both internally and externally focused. Our people are dedicated to a spirit of stewardship and service to the clients and communities that we serve. By growing and promoting a diversity of perspectives within our employee relationsbase that reflects our diverse customer base, we can better understand their challenges and deliver on the solutions that they need.

Talent Acquisition
A core tenet of our talent system is to both develop talent from within and enrich our talent pool with external hires to support a continuous improvement mindset. We have evolved our “Talent Anywhere” recruitment strategy to source candidates in anchor geographic hubs with flexibility to hire “anywhere” domestically. This allows us to expand our talent pool to acquire the best talent available while encouraging the ability for interactivity in our hub locations to build connections and community. This reimagined recruiting strategy allows us to expand our reach beyond local candidates as a remote-enabled employer of choice. As part of our DEI strategy, we train our internal recruiters on how to mitigate unconscious bias in the hiring process and how to assemble diverse candidate slates for open positions.

Talent Assessment and Development
Assessing talent and leadership development are also critical areas to our talent pipeline strategy. We have continued to mature our enterprise talent management framework. This framework is used throughout the company to better equip Pathward to have clear line of sight on their teams’ strengths and opportunities, by identifying capabilities needed to achieve our strategy and creating action plans to close gaps. This ensures our internal talent supply keeps pace with demand, that we invest in our workforce with intention, have our highest performing, highest potential employees applied to our most critical work, and are preparing today’s talent for tomorrow’s needs.

Our performance management program is an interactive practice that engages our employees beginning with aligning objectives at the enterprise level to drive individual goal setting and quarterly conversations designed to review progress and accomplishments and calibrate on focus areas for the upcoming quarter, driving progress against objectives, alignment, and performance feedback throughout the year. We offer a variety of support to help team members and managers establish and meet personalized development goals, take on new roles and become better leaders.

Employee Engagement
We recognize that team members who are involved in, enthusiastic about and committed to their work and workplace contribute meaningfully to the success of the company. As a normal course of business, we complete enterprise-wide engagement surveys. The results of the survey are reviewed with the executive management team and are used to prioritize employee programs, initiatives, and communications.

Total Rewards
As part of our total rewards strategy, we aspire to offer and maintain market competitive total rewards programs for our employees and that attracts and retain superior talent. In addition to healthy base wages, we offer other variable pay including an annual bonus or commission plan. 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. 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 good.healthy and be able to bring their whole selves to the workplace.

38
Table of Contents
Health and Safety
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. In 2021, we became a fully remote-enabled employer and instituted a work-from-home program allowing hybrid access to our offices while imposing safety protocols. We purchased laptops and related hardware for home-based employees who previously worked on desktop computers; we also provided employees with a stipend to enhance their at-home work experience. Our employees and their families were also supported with access to a variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health. 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.metafinancialgroup.com.www.pathwardfinancial.com. The Company makes available, through a link with the SEC’s EDGAR database, free of charge, its annual reportAnnual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and statements of ownership on Forms 3, 4, and 5. Investors are encouraged to access these reports and other information about our business on our website. The information found on the Company’s website is not incorporated by reference in this or any other report the Company files or furnishes to the SEC. WeThe Company also will provide copies of ourits Annual Report on Form 10-K, free of charge, upon written request to Brittany Kelly Elsasser, DirectorJustin Schempp, VP of Investor Relations and Financial Reporting, at the Company’s address. Also posted on ourthe Company's website, among other things, are the Environmental, Social and Governance Report, the charters of our committees of the Board of Directors, as well as the Company's and the Bank's CodesCode of Ethics.Business Conduct.



Item 1A. Risk FactorsFactors.


FactorsWe are subject to various risks, including those described below that, individually or in the aggregate, we think could cause our actual results to differ materially from expected or historical results include those described below as well as other risks and factors identified from time to time in our SEC filings.  The Company’sresults. Our business could be harmed, perhaps materially, by any of these risks, as well as other risks that we have not identified, whether due to such risks not presently being known to us, because we do not currently believe such risks to be material, orotherwise. The trading price of the Company’sour common stock could decline due to any of these risks, and you may lose all or part of your investment. Moreover, the impact of the COVID-19 pandemic and recent geopolitical turmoil may also have the effect of heightening many of the risks and uncertainties described in the risks discussed below. The risks discussed below also include forward-looking statements, and actual results and events may differ substantially from those discussed or highlighted in these forward-looking statements. In assessing these risks, you should also refer to the other information contained in this annual reportAnnual Report on Form 10-K, including the Company’s financial statements and related notes. Before making an investment decision with respect to any of our securities, you should carefully consider the following risks and uncertainties described below and elsewhere in this annual reportAnnual Report on Form 10-K. See also “Forward-Looking Statements.”


Risks Related to Our Industry and Business
 
Our growthframework for managing risk, including our underwriting practices, may not prevent future losses.

We have established processes and procedures intended to identify, measure, monitor, report, and analyze the types of risk to which we are subject, including liquidity risk, credit risk, market risk, interest rate risk, operational risk, legal and compliance risk, and reputational risk, among others. However, as with any risk management framework, there are inherent limitations to our risk management strategies, as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. 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 been robust,set aside for loss reserves and failure to generate sufficient capital to support anticipated growthresult in reduced interest income and increased provision for loan losses, which could have an adverse effect on our financial condition and results of operations. Any resulting deterioration in our loan portfolio could also cause us difficultya decrease in maintaining regulatory capital compliance and meeting our capital, requirements, and adversely affect our earnings and prospects.
The Company has continued to experience considerable growth recently, having increased its assets from $4.01 billion at September 30, 2016 to $5.23 billion at September 30, 2017.  Funded primarily by growth of low- and no-cost deposits, the proceeds thereof have been invested primarily in loans, municipal bonds, mortgage-backed securities (“MBS”) and investment securities available for sale.  The Company’s asset growth has required and, if continued as expected, will continue to generate a need for higher levels of capital which management believes may not be met through earnings retention alone. Additionally, our asset mix has changed, and we expect will continue to change, as we increase commercial and consumer loans, especially in our tax-related financial solutions divisions; such loans carry risk weights far in excess of traditional one- to four- family loans, and as a resultwould make it will be more difficult to maintain regulatory capital compliance. ConsiderationFurther, risk mitigation techniques and the judgments that accompany their application cannot
39
Table of maintaining compliance with capital requirements,Contents
anticipate every economic and financial outcome or the specific circumstances and timing of such outcomes, which may result in August 2016, the Company completed the public offering of $75 millionBank or any of its 5.75% fixed-to-floatingdivisions incurring unexpected 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.

We, through the Bank and its divisions, originate various types of loans and leases, and our financial condition and results of operations are affected by the ability of borrowers to repay their loans or leases in a timely manner. Borrowers may be unable to repay their loans due to various factors, some of which are outside of their control. Similarly, borrowers under our commercial loans and related financing products (typically, small- to medium-sized businesses) may be more susceptible to even mild or moderate economic declines than larger commercial borrowers, which may subject the Bank and, ultimately, us, to a higher risk of loan loss. Many borrowers have been negatively impacted by the COVID-19 pandemic, its economic consequences, and other recent events that have caused market and economic volatility, and may continue to be similarly or more severely affected in the future. The risk of non-payment by borrowers is assessed through our underwriting processes and other risk management practices, which may not be able to fully identify, price and mitigate such risk. See "Our framework for managing risk, including our underwriting practices, may not prevent future losses." Despite those efforts, we do and will experience loan and lease losses, and our financial condition and results of operations will be adversely affected by those loan and lease losses.

If our actual loan and lease losses exceed our allowance for credit losses, our net income will decrease.

We make various assumptions and subjective judgments about the collectability of our loan and lease portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of our loans and leases, which are subject to change. Despite our underwriting and monitoring practices, our loan and lease customers may not repay their loans and leases according to their terms, and the collateral securing the payment of these loans and leases may be insufficient to pay any remaining loan and lease balance. We may experience significant loan and lease losses due to nonpayment by our borrowers, which could have a material adverse effect on our overall financial condition and results of operation, as well as the value of our common stock. Because we must use assumptions to establish our allowance for credit losses, the current allowance for credit losses may not be sufficient to cover actual loan and lease losses, and increases in the allowance, which may be significant, may be necessary. 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. Our allowance for credit losses has been negatively impacted by the economic consequences of the COVID-19 pandemic and other recent events that have affected the economy, and a worsening or prolonged continuation of such unfavorable economic conditions could further impact our allowance. Material additions to our allowance would materially decrease our net income. We cannot provide any assurance that our monitoring procedures and policies will reduce certain lending risks or that our allowance for credit losses will be adequate to cover actual losses.

The earnings of financial services companies, like us, are significantly affected by general business, political and economic conditions.

Our operations and profitability, including the value of the portfolio of investment securities we hold and the value of collateral securing certain of our loans, are impacted by general business, political and economic conditions in the United States and abroad. These conditions include short-term and long-term interest rates, inflation, commodity pricing, money supply and monetary policy, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, the strength of the United States economy, and uncertainty in financial markets globally, all of which are beyond our control. 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. See also “The ongoing COVID-19 pandemic and resulting adverse economic conditions have adversely impacted, and could continue to adversely impact, our business and results.”

The process we use to estimate losses inherent in our credit exposure requires difficult, subjective and complex judgments, including forecasts of economic conditions, and determinations as to whether economic conditions might impair the ability of our borrowers to repay their loans and leases. The level of uncertainty concerning economic
40
Table of Contents
conditions may adversely affect the accuracy of our estimates which may, in turn, impact the reliability of our underwriting processes. See also "If our actual loan and lease losses exceed our allowance for credit losses, our net income will decrease."

The electronic payments industry, including the prepaid financial services segment within that industry in which the BaaS business line operates, depends heavily upon the overall level of consumer spending, which may decrease if economic or political conditions in the United States further deteriorate and result in a reduction of the number of our prepaid accounts that are purchased or reloaded, the number of transactions involving our cards and the use of our reloadable card products and related services. A sustained reduction in the use of our products and related services, either as a result of a general reduction in consumer spending or as a result of a disproportionate reduction in the use of card-based payment systems, would materially harm our business, results of operations and financial condition.

The ongoing COVID-19 pandemic and resulting adverse economic conditions have adversely impacted, and could continue to adversely impact, our business and results.

Our business is dependent on the willingness and ability of our customers to conduct banking and other financial transactions. The ongoing COVID-19 global and national health emergency caused significant disruption in the United States and international economies and financial markets and continues to cause illness, quarantines, reduced attendance at events and reduced travel, reduced commercial and financial activity, and overall economic and financial market instability.

While the level of disruption caused by, and the economic impact of, COVID-19 has lessened in 2022, there is no assurance that the pandemic will not worsen again, included as a result of the emergence of new strains of the virus. Any worsening of the pandemic and its effects on the economy could further impact our business, our provision and allowance for credit losses, and the value of certain assets that we carry on our balance sheet such as goodwill. Our customers, business partners, and third-party providers, including those who perform critical services for our business, may also be adversely affected.

Our investments in certain tax-advantaged projects may not generate returns as anticipated and may have an adverse impact on our results of operations.
We invest in certain tax-advantaged investments that support renewable energy resources. Our investments in these projects are designed to generate a return in part through the realization of federal and state income tax credits, and other tax benefits, over specified time periods. We are subject to the risk that previously recorded tax credits, which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level, may fail to meet certain government compliance requirements and may not be able to be realized.

The risk of not being able to realize, or of subsequently incurring a recapture of, the tax credits and other tax benefits depends on various factors, some of which are outside of our control, including changes in the applicable tax code, as well as the continued economic viability of the project and project operator. Further, while we engage in due diligence review both prior to the initial investment and on an ongoing basis, our due diligence review may not identify relevant issues or risks that may adversely impact our ability to realize these tax credits or other tax benefits. The possible inability to realize these tax credits and other tax benefits would have a negative impact on our financial results.

Through our Commercial Finance business line, we engage in equipment leasing activities; the residual value of leased equipment at the time of its disposition may be less than forecasted at the time we entered into the lease.

The market value of any given piece of leased equipment could be less than its depreciated value at the time it is sold due to various factors, including factors beyond our control. The market value of used leased equipment depends on several factors, including:
•the market price for new equipment that is similar;
•the age and condition of the leased equipment at the time it is sold;
•the supply of and demand for similar used equipment on the market;
•technological advances relating to the leased equipment or similar equipment; and
•economic conditions in the specific business or industry in which the equipment is used, as well as broader regional or national economic conditions.

41
Table of Contents
We include in income from operations the difference between the sales price and the depreciated value of an item of leased equipment sold. Changes in our assumptions regarding depreciation could change our depreciation expense, as well as the gain or loss realized upon disposal of leased equipment. 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.

Our earnings depend substantially on our interest rate subordinated debentures due August 15, 2026,spread, which is the difference between (i) the rates we earn on loans, securities, and other earning assets, and (ii) the interest rates we pay on deposits and other borrowings. These rates are highly sensitive to many factors beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities. As market interest rates rise, we experience competitive pressures to increase the rates we pay on deposits, which may decrease our net interest income. Conversely, if interest rates fall, yields on loans and investments may fall. 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. For additional information, see Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk."
We operate in an extremely competitive market, and our business will suffer if we are unable to compete effectively.

We encounter significant competition in all of our market areas and national business lines from other commercial banks, savings and loan associations, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial intermediaries, including but not limited to fintech or neobank financial intermediaries. Some of our and the Bank's competitors have substantially greater resources and lending limits, may be subject to less regulation than we are, and may offer services that we do not or cannot provide. Our profitability depends upon both our ability to compete successfully in our market areas and the Bank's and the divisions' ability to compete in their various business markets.

For example, the Commercial Finance business line competes for loans, leases, and other financial services with numerous national and regional banks, thrifts, credit unions, and other financial institutions, as well as other entities that provide financial services, including specialty lenders, securities firms, and mutual funds. Certain larger commercial financing companies do not currently focus their marketing efforts on smaller commercial companies; however, any shift in focus by such larger financing companies may further fragment existing market share in this commercial finance industry. Moreover, some of the financial institutions and financial service organizations with which the Commercial Finance business line competes are not subject to the same degree of regulation as the Commercial Finance business line and the Bank. 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. This competition, and competition in any of the Bank's other divisions, may increase our costs, reduce our revenues or revenue growth, or make it difficult for us to compete effectively in obtaining additional customer relationships.

Our business could suffer if there is a decline in the use of prepaid cards or there are adverse developments with respect to the prepaid financial services industry in general.

As the prepaid financial services industry evolves, consumers may find prepaid financial services to be less attractive than other financial services. Consumers might not use prepaid financial services for any number of reasons. For example, negative publicity surrounding us or other prepaid financial service providers could impact Payments' business and prospects for growth to the extent it adversely impacts the perception of prepaid financial services. If consumers do not continue or increase their usage of prepaid cards, Payments' operating revenues may remain at current levels or decline. Growth of prepaid financial services as an electronic payment mechanism may not occur or may occur more slowly than estimated. If there is a shift in the mix of payment forms used by consumers (i.e., cash, credit cards, traditional debit cards and prepaid cards) away from products and services offered by Payments, such a shift could have a material adverse effect on our financial condition and results of operations.
42
Table of Contents
We are dependent upon relationships with various third parties with respect to our operations, and our ability to maintain such relationships and the ability of such third parties to perform in accordance with the proceedsapplicable agreements, could adversely affect our business.
The Bank has entered into numerous arrangements with third parties with respect to the operations of its business, as described in Part I, Item 1 "Business." Upon the expiration of the offering, approximately $73.9 million, qualifying as Tier 2 capital for regulatory purposes at the Company level, and as Tier 1 capital as investedthen-current term, any such agreements may not be renewed by the Company inthird party or may be renewed on terms less favorable to the Bank. In addition,some cases, such agreements may permit the Company privately placed 266,430 shares of common stockthird party to several institutional investors during fiscal 2016. There can be no assurance, however, thatunilaterally prescribe certain business practices and procedures with respect to the Company willBank and its divisions (as is the case under agreements between Payments and Discover, MasterCard, Visa and other card networks) or terminate the agreement early under certain circumstances (as is the case under our program management agreement with EFS with respect to certain H&R Block financial services if the Bank should lose its exemption from the “Durbin Amendment”). To the extent any agreement with a service provider is terminated, we may not be able to continue to access sources of capital, private or public.  Failure to remain well-capitalized, or to attain potentially even higher levels of capitalization that are or will be required in the future under regulatory initiatives mandated by Congress, our regulatory agencies, or under the Basel accords, could adversely affect the Company’s earnings and prospects.

We may have difficulty continuing to grow,secure alternate service providers, and, even if we do, grow,the terms with alternate providers may not be as favorable as those currently in place. In addition, were we to lose any of our growth may strainsignificant third-party providers, including in our resources and limitrefund advance related business in which we have a limited number of partners, it could cause a material disruption in our ability to expandservice our customers, which also could have an adverse material impact on the Bank, its divisions and, ultimately, us. Moreover, significant disruptions in our ability to provide services could negatively affect the perception of our business, which could result in a loss of confidence and other adverse effects on our business.

In addition, if any of our counterparties is unable to or otherwise does not fulfill (or does not timely fulfill) its obligations to us for any reason (including, but not limited to, bankruptcy, computer or other technological interruptions or failures, personnel loss, negative regulatory actions, or acts of God) or engages in fraud or other misconduct during the course of such relationship, we may need to seek alternative third-party service providers, or discontinue certain products or programs in their entirety. We have experienced, and expect to continue to experience, situations where we have been held directly or indirectly responsible, or were otherwise subject to liability, for the inability of our third party service providers to perform services for our customers on a timely basis or at all or for actions of third parties undertaken on behalf of the Bank or otherwise in connection with the Bank's arrangement with such third parties. Any such responsibility or liability in the future may have a material adverse effect on our business, including the operations successfully.of the Bank and its divisions, and financial results.

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. 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.

Additionally, although our network of tax preparation partners is expansive, it is possible that our EROs may choose to offer tax-related products of other companies that provide products and services similar to the Bank's if such other companies offer superior pricing or for other competitive reasons.

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 derive a significant percentage of our deposits, total assets and income from deposit accounts we generate through program manager relationships between third parties and Payments. If one of these significant program manager relationships were to be terminated or there is a significant decrease in revenues or deposits associated with any of these business relationships, it could materially reduce our deposits, assets and income. Similarly, if a significant program manager was not replaced, we may be required to seek higher-rate funding sources as compared to the existing program manager or see a significant reduction in fee income.

We are exposed to fraud losses from customer accounts.

Fraudulent activity involving our products may lead to customer disputed transactions, for which we may be liable under banking regulations and payment network rules. Our fraud detection and risk control mechanisms may not prevent all fraudulent or illegal activity. To the extent we incur losses from disputed transactions, our business, results of operations and financial condition could be materially and adversely affected.
43
Table of Contents
We are exposed to settlement and other losses from payments customers.

Our cardholders can incur charges in excess of the funds available in their accounts, and we may become liable for these overdrafts. While we decline authorization attempts for amounts that exceed the available balance in a cardholder's account, the application of card association rules, the timing of the settlement of transactions and the assessment of the card's monthly maintenance fee, among other things, can result in overdrawn accounts.

In addition, we face settlement risks from our distributors and banking partners, which may increase during an economic downturn. Depending on contract terms, we may prefund partner accounts. If a partner becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to remit proceeds to our card issuing bank from the sales of our products and services, we are liable for any amounts owed to our customers. At September 30, 2022, we had assets subject to settlement risk of $269.0 million.

For one of our programs, the Company pays servicing fees which are primarily offset by estimated card breakage. For cards issued prior to January of 2020, if consumers spend more than projected over the life of the card programs, the Company could experience a material adverse effect on our business, results of operations and financial condition. See “Funding Activities – Deposits” for further breakdown of balances as of September 30, 2022. We are not insured against these settlement or partner risks.

Our business strategy includes plans for organic growth, and our financial condition and results of operation could be adversely affected if we fail to grow or fail to manage our growth effectively.

As described above,part of our general growth strategy, we expect to continue to pursue organic growth, while also continuing to evaluate potential acquisitions and expansion opportunities that we believe provide a strategic or geographic fit with our business. Although we have experienced significant growth in the amount of our assets; this is also the case with the level of our deposits.  Our future profitability will depend in part on our continued ability to grow in both of these categories, as well as in other categories; including through expansion of our business through acquisitionsassets and other strategic transactions. See “Acquisitions could disrupt our business and harm our financial condition.” Werevenues, we may not however, be able to sustain our historical growth rate or be able to grow at all. In addition, weWe believe that our future successorganic growth will depend on competitive factors and on the ability of our senior management to continue to maintain a robust system of internal controls and procedures and manage a growing number of customer relationships. See “The Company operates"We operate in an extremely competitive market, and the Company’sour business will suffer if it iswe are unable to compete effectively.”" We may not be able to implement changes or improvements to these internal controls and procedures in an efficient or timely manner and may discover deficiencies in existing systems and controls. Consequently, continued organic growth, if achieved, may place a strain on our operational infrastructure, which could have a material adverse effect on our financial condition and results of operations.


New lines of business or new products and services may subject us to additional risks.

From time to time, we may implement new lines of business or offer new financial products or services within existing lines of business. Substantial risks and uncertainties are associated with developing and marketing new lines of business or new products or services, particularly in instances where markets are not fully developed, and we may be required to invest significant time and management and capital resources in connection with such new lines of business or new products or services. Initial timetables for the introduction and development of new lines of business or new products or services may not be achieved. In addition, price and profitability targets for new lines of business or new products or services may not prove feasible, as we, the Bank or any of the Bank's divisions may need to price products and services on less advantageous terms than anticipated to retain or attract clients. External factors, such as regulatory reception, compliance with regulations and guidance, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business or new product or service may be expensive to implement and could also have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could reduce our revenues and potentially generate losses.

An impairment charge of goodwill or other intangibles could have a material adverse impact on our financial condition and results of operations.

From previous acquisitions, the Company has goodwill and intangible assets included in its consolidated assets. Under GAAP we are required to test the carrying value of goodwill and intangible assets at least annually or sooner if events occur that indicate impairment could exist. These events or circumstances could include a significant change in the business climate, legal and regulatory factors, competition, a decrease in our stock price and market capitalization over a sustained period of time, a sustained decline in a reporting unit's fair value or other operating
44
Table of Contents
performance indicators. GAAP requires us to assign and then test goodwill at the reporting unit level. If the fair value of our reporting unit is less than its net book value, the shortfall is recognized as impairment and is recognized in current earnings. In addition, if the revenue and cash flows generated from any of our other acquired intangible assets is not sufficient to support its net book value, we may be required to record an impairment charge. The amount of any impairment charge could be significant and could have a material adverse impact on our financial condition and results of operations for the period in which the charge is taken.

We may incur losses due to fraudulent and negligent acts, as well as errors, by third parties or our employees.

We may incur losses due to fraudulent or negligent acts, misconduct or errors on the part of third parties with which we do business, our employees and individuals and entities unaffiliated with us, including unauthorized wire and automated clearinghouse transactions, the theft of customer data, customer fraud concerning the value of any relevant collateral, identity theft, errors in a customer's tax return, tax return fraud, the counterfeiting of cards and "skimming" (whereby a skimmer reads a debit card's encoded mag stripe and a camera records the PIN that is entered by a customer), malicious social engineering schemes (where people are asked to provide a prepaid card or reload product in order to obtain a loan or purchase goods or services) and collusion between participants in the card system to act illegally. Additionally, our employees could hide unauthorized activities from us, engage in improper or unauthorized activities on behalf of our customers, or improperly use confidential information. There can be no assurances that the Bank's program to monitor fraud and other activities will be able to detect all instances of such conduct or that, even if such conduct is detected, we, the Bank, our customers or the third parties with which we do business, including the ATM networks and card payment industry in which the Bank participates, will not be the victims of such activities. Even a single significant instance of fraud, misconduct or other error could result in reputational damage to us, which could reduce the use and acceptance of our cards and other products and services, cause retail distributors or their customers to cease doing business with us or them, or could lead to greater regulation that would increase our compliance costs. Such activities could also result in the imposition of regulatory sanctions, including significant monetary fines, and civil claims which could adversely affect our business, operating results and financial condition.

Security breaches involving us, the Bank or any of the third parties with which we do business could expose us to liability and protracted and costly litigation, and could adversely affect our reputation and operating revenues.

In connection with our business, we collect and retain significant volumes of sensitive business and personally identifiable information, including social security numbers of our customers and other personally identifiable information of our customers and employees, on our data systems. We and the third parties with which we conduct business may experience security breaches, due in part to the failure of our data encryption technologies or otherwise, involving the receipt, transmission, and storage of confidential customer and other personally identifiable information, including account takeovers, unavailability of service, computer viruses, or other malicious code, cyberattacks, or other events, any of which may arise from human error, fraud or malice on the part of employees or third parties or from accidental technological failure. If one or more of these events occurs, it could result in the disclosure of confidential customer information, impairment of our ability to provide products and services to our customers, damage to our reputation with our customers and the market, additional costs (such as costs for repairing systems or adding new personnel or protection technologies), regulatory penalties, and financial losses for us, our clients and other third parties. Such events could also cause interruptions or malfunctions in the operations of our clients, customers, or other third parties with which we engage in business. Risks and exposures related to cybersecurity attacks have increased as a result of the COVID-19 pandemic and the related increased reliance on remote working, and are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, the proliferation of malicious actors internationally, and the expanding use of technology-based products and services by us and our customers. We can provide no assurances that the safeguards we have in place or may implement in the future will prevent all unauthorized infiltrations or breaches and that we will not suffer losses related to a security breach in the future, which losses may be material.

In addition, if the Bank or its divisions fail to comply with data security regulations, the Bank could be subject to various regulatory sanctions, including financial penalties. For example, the largest credit card associations in the world created the Payment Card Industry Data Security Standards (the "PCI DSS"), a multifaceted standard that includes data security management, policies and procedures as well as other protective measures to protect the nonpublic personal information of cardholders. Compliance with the PCI DSS is costly and changes to the standards could have an equal, or greater, effect on the profitability of one or more of our business divisions.

45
Table of Contents
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. Were there to be a failure or a significant impairment in the operation of any of such systems, we may need to develop alternative processes, including to comply with customer safeguard protocols, during which time revenues and profitability may be lower, and there can be no assurance that we could develop or find such an alternative on terms acceptable to us or at all. Any such disruption in the information systems and other operating technologies utilized by the Bank or its divisions, including due to infiltration by hackers or other intruders, could also result in negative publicity and have a material adverse effect on our financial condition and results of operations.

Agency, technological, or human error could lead to tax refund processing delays, which could adversely affect our reputation and operating revenues.

We and our tax preparation partners rely on the IRS, technology, and employees when processing and preparing tax refunds and tax-related products and services. Any delays during the processing or preparation period could result in reputational damage to us or to our tax preparation partners, which could reduce the use and acceptance of our cards and tax-related products and services, either of which could have a significant adverse impact on our operating revenues and future growth prospects.

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.

The Commercial Finance business line originates loans backed by numerous state and federal government agencies. Risks inherent in the Bank's participation in such programs, through its Commercial Finance business line, include: (i) some of these programs guarantee only a portion of the commercial loan made by the Bank; as such, if the borrower defaults and losses exceed those guaranteed by the government agency, the Bank could realize significant losses; (ii) certain programs, including some guaranteed by the United States Department of Agriculture, limit the geographic scope of such loans; as such, if the Commercial Finance business line is not able to market these loans to potential borrowers, the Bank's share in this market may be negatively impacted; (iii) the intended beneficiaries of such loan programs may experience a contraction in their credit quality due to local, national, or global economic events or because of factors specific to their business, including, for example, businesses dependent upon the farming and agriculture industry; as such, any negative impact to certain commercial business lines designed to benefit from such government-sponsored loan programs could constrict the Bank's business in these areas; and (iv) nearly all of these guaranteed loan programs are subject to an appropriations process, either at the legislative or regulatory level; this means that funds that may be currently available to guarantee loans or portions of loans could be limited or eliminated in their entirety with little or no advance warning.

Agreements that the Bank has entered into with third parties to market and service consumer loans originated by the Bank may subject the Bank to credit risk, fraud and other risks, as well as claims from regulatory agencies and third parties that, if successful, could negatively impact the Bank's current and future business.

The Bank has entered into various agreements with unaffiliated third parties ("Marketers"), whereby the Marketers will market and service unsecured consumer loans underwritten and originated by the Bank. These agreements present potential increased credit, operational, and reputational risks. Because the loans originated under such programs are unsecured, in the event a borrower does not repay the loan in accordance with its terms or otherwise defaults on the loan, the Bank may not be able to recover from the borrower an amount sufficient to pay any remaining balance on the loan. 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.

Certain types of these arrangements have been challenged both in the courts and in regulatory actions. In these actions, plaintiffs have generally argued that the "true lender" is the marketer and that the intent of such lending program is to evade state usury and loan licensing laws. Other cases have also included other claims, including racketeering and other state law claims, in their challenge of such programs.

46
Table of Contents
In 2020, the OCC issued final rules designed to clarify when a national bank such as the Bank will be considered the “true lender” in such relationships (the "True Lender Rule"). In June 2021, the True Lender Rule was repealed and the OCC prohibited from issuing any replacement of the True Lender Rule absent Congressional authorization. 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 addition, the Consumer Financial Protection Bureau and the Federal Trade Commission have each announced their intention to explore their authority to supervise nonbank lending partnerships in markets for consumer financial products and services.
Consequently, state and federal regulatory authorities may proceed on different paths to promulgate “true lender” restrictions, and – absent binding court rulings or direct legislative action – impacted parties may have little to no advance notice of new restrictions and compliance obligations. In the absence of applicable laws or regulations addressing these matters, true lender disputes will be determined on a case-by-case basis, informed by differing state laws and the facts in each instance. There can be no assurance that lawsuits or regulatory actions in connection with any such lending programs the Bank has entered, or will enter, into will not be brought in the future. If a regulatory agency, consumer advocate group, or other third party were to bring successful action against the Bank or any of the third parties with which the Bank operates such lending programs, there could be a material adverse effect on our financial condition and results of operations.

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 announced on July 31, 2018 that it would begin to accept and evaluate charters for entities that wanted to conduct certain components of a banking business pursuant to a federal charter, known as a "special purpose national bank" ("SPNB") charter. Intended to promote economic opportunity and spur financial innovation, SPNBs may engage in paying checks, lending money and taking deposits. While the OCC has not granted any SPNB charters as of the date of this filing, it has granted bank charters to companies that were previously non-bank fintech companies.

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.

The loss or transition of key members of our senior management team or key employees in the Bank's divisions, or our inability to attract and retain qualified personnel, could adversely affect our business.

We believe that our success depends largely on the efforts and abilities of our senior executive management team. Their experience and industry contacts significantly benefit us. Our future success also depends in large part on our ability to attract, retain and motivate key management and operating personnel. We completed a Chief Executive Officer and Chief Operating Officer transition in October 2021 and announced a Chief Financial Officer transition in October 2022 that will be effective April 30, 2023. 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.

Additionally, 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. The competition for qualified personnel in the financial services industry is intense, and the loss of any of our key personnel or an inability to continue to attract, retain, and motivate key personnel could adversely affect our business.

We and our divisions regularly assess our investments in technology, and changes in technology could be costly.

The fintech industry is undergoing technological innovation at a fast pace. To keep up with our competition, we regularly evaluate technology to determine whether it may help us compete on a cost-effective basis. 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. The cost of investing in, implementing and maintaining such technology is high, and there can be no assurance, given the fast pace of change and innovation, that our technology, either purchased or developed internally, will meet our needs, in a timely, cost-effective manner or at all. During the course of implementing new technology into our or the Bank's operations, we may experience system interruptions and failures. In addition, there can be no assurances that we will recognize, in a timely manner
47
Table of Contents
or at all, the benefits that we may expect as a result of our implementing new technology into our operations. In connection with our implementation of new lines of business, offering of new financial products or acquisitions, we may experience significant, one-time or recurring technology-related costs.

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. These dividends are a principal source of funds to pay dividends on our common stock, interest on our trust preferred securities and interest and principal on our debt. Various laws and regulations limit the amount of dividends that the Bank may pay us, as further described in Part I, Item 1 "Business - Regulation and Supervision - Bank Regulation and Supervision - Limitations on Dividends and Other Capital Distributions" of this Annual Report on Form 10-K. Such limitations could have a material adverse effect on our liquidity and on our ability to pay dividends on common stock. Additionally, if the Bank's earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, we may not be able to make dividend payments to our common shareholders or make payments on our trust preferred securities.

Unclaimed funds represented by unused value on the cards presents compliance and other risks.

The concept of escheatment involves the reporting and delivery of property to states that is abandoned when its rightful owner cannot be readily located and/or identified. In the context of prepaid cards, the customer funds represented by such cards can sometimes be "abandoned" or unused for the relevant period of time set forth in each applicable state's abandoned property laws. 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. State regulators may choose to initiate collection or other litigation action against prepaid card issuers, like Payments, for unreported abandoned property, and such actions may seek to assess fines and penalties.

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.

We and the Bank operate in a highly regulated environment, and we are subject to extensive regulation (including, among others, the Dodd-Frank Act, the Basel III Capital Rules, the Bank Secrecy Act and other AML rules), supervision, and examination, including by the OCC and the Federal Reserve, our primary banking regulators. 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. Banking regulatory authorities have broad discretion in connection with their supervisory and enforcement activities, including, but not limited, to the imposition of restrictions on the operation of an institution, the classification of assets by the institution, and the adequacy of an institution's allowance for credit losses. If any of our banking regulators takes informal or formal supervisory action or pursues an enforcement action, any required corrective steps could result in us being subject to additional regulatory requirements, operational restrictions, a consent order, enhanced supervision and/or civil money penalties. Any new requirements or rules, changes in such requirements or rules, changes to or new interpretations of existing requirements or rules, failure to follow requirements or rules, or future lawsuits or rulings could increase our compliance and other costs of doing business, require significant systems redevelopment, render our products or services less profitable or obsolete or otherwise have a material adverse effect on our business, prospects, results of operations, and financial condition. For example, any changes in the U.S. tax laws as a result of pending tax legislation in the U.S. Congress or otherwise may adversely impact our tax refund processing and settlement business, which could reduce customer demand for our strategic partner's refund advance products, thereby reducing the volume of refund advance loans that we may offer.
48
Table of Contents
The Bureau has reshaped certain consumer financial laws through rulemaking and enforcement of prohibitions against unfair, deceptive or abusive practices, and such actions have directly impacted, and may continue to impact, the Bank's consumer financial products and service offerings.

The Bureau has broad rulemaking authority to administer and carry out the purposes and objectives of "federal consumer financial laws, and to prevent evasions thereof" with respect to all financial institutions that offer financial products and services to consumers. We cannot predict the impact the Bureau's future actions, including any exercise of its UDAAP authority, will have on the banking industry broadly or us and the Bank specifically. Notwithstanding that insured depository institutions with assets of $10 billion or less (such as the Bank) will continue to be supervised and examined by their primary federal regulators, the full reach and impact of the Bureau's broad rulemaking powers and UDAAP authority on the operations of financial institutions offering consumer financial products or services are currently unknown. The Bureau has initiated enforcement actions against a variety of bank and non-bank market participants with respect to a number of consumer financial products and services that has resulted in those participants expending significant time, money and resources to adjust to the initiatives being pursued by the Bureau. Such enforcement actions may serve as precedent for how the Bureau interprets and enforces consumer protection laws, which may result in the imposition of higher standards of compliance with such laws and, as a result, limit or restrict the Bank with respect to its consumer product offerings. 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. 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. Recently, 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. 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.

Increased scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to environmental, social and governance (ESG) practices may impose additional costs on the Company or expose it to new or additional risks.

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, the diversity of the work force, and racial and social justice issues. 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. ESG-related costs, including with respect to compliance with any additional regulatory or disclosure requirements or expectations, could adversely impact our results of operations.

We will be subject to heightened regulatory requirements if our total assets grow in excess of $10 billion as of December 31 of any calendar year.

As of September 30, 2022, our total assets were $6.75 billion. While we intend to remain under the $10 billion asset level, our total assets could exceed $10 billion at the end of this or a future calendar year. In addition to our current regulatory requirements, banks with $10 billion or more in total assets are, among other things: examined directly by the CFPB with respect to various federal consumer financial laws; subject to reduced dividends on the Bank’s holdings of Federal Reserve Bank of Minneapolis common stock; subject to limits on interchange fees pursuant to the Durbin Amendment to the Dodd-Frank Act; subject to certain enhanced prudential standards; no longer treated as a “small institution” for FDIC deposit insurance assessment purposes; and no longer eligible to elect to be subject to the Community Bank Leverage ratio. Compliance with these additional ongoing requirements may necessitate additional personnel, the design and implementation of additional internal controls, or the incurrence of other significant expenses, any of which could have a significant adverse effect on our business, financial condition or results of operations. Our regulators may also consider our preparation for compliance with
49
Table of Contents
these regulatory requirements in the course of examining our operations generally or when considering any request from us or the Bank.

We will become subject to reduced interchange income and could face related adverse business consequences if our total assets grow in excess of $10 billion as of December 31 of any calendar year.

Debit card interchange fee restrictions set forth in Section 1075 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is known as the Durbin Amendment, as implemented by regulations of the Federal Reserve, cap the maximum debit interchange fee that a debit card issuer may receive per transaction. Debit card issuers with total consolidated assets of less than $10 billion are exempt from these interchange fee restrictions. The exemption for small issuers ceases to apply as of July 1 of the year following the calendar year in which the debit card issuer has total consolidated assets of $10 billion or more at calendar year-end. While we intend to remain under the $10 billion asset level, and have implemented an off-balance sheet strategy for deposits, growth in deposits and associated loan growth could result in such an increase on our balance sheet. Any reduction in interchange income as a result of the loss of the exemption for small issuers under the Durbin Amendment could have a significant adverse effect on our business, financial condition and results of operations. Moreover, our loss of eligibility under the exemption for small issuers could adversely affect or reduce our ability to maintain certain of our fee-sharing prepaid card partnerships, which have the right to terminate our agreement with respect to certain financial services under such circumstances.

The Bank relies on brokered deposits to assist in funding its loan and other financing products; accordingly, any change in the Bank's ability to gather brokered deposits may adversely impact the Bank.

Failure to maintain the Bank's status as a "well capitalized" institution could have an adverse effect on us, and our ability to fund our operations. 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). 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. Further, depending on the Bank's condition in the future and its reliance on these deposits as a source of funding, the FDIC could increase the surcharge on our brokered deposits. If we are ever required to pay higher surcharge assessments with respect to these deposits, such payments could be material and therefore 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.

As a bank holding company, we are required to serve as a "source of strength" for the Bank.

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. See Part I, Item 1 "Business - Regulation and Supervision - Holding Company Regulation and Supervision." Given the power provided to the federal banking agencies, we, as a source of strength for the Bank, may be required to contribute capital to the Bank when we might not otherwise voluntarily choose to do so. Specifically, the imposition of such financial requirements might require us to raise additional capital to support the Bank at a time when it is not otherwise prudent for us to do so, including on terms that are not typical or favorable to us. Further, any capital provided by us to the Bank would be subordinate to others with an interest in the Bank, including the Bank's depositors. In addition, in the event of our bankruptcy at a time when we had a commitment to one of the Bank's regulators to maintain the capital of the Bank, the regulators' claims against us may be entitled to priority status over other obligations.

We are required to maintain capital to meet regulatory requirements, and, if we fail to maintain sufficient capital, whether due to growth opportunities, losses or an inability to raise additional capital or otherwise, our financial condition, liquidity and results of operations, as well as our compliance with regulatory requirements, would be adversely affected.

Both we and the Bank are required to meet regulatory capital requirements and otherwise need to maintain sufficient liquidity to support recent and future growth. We have continued to experience considerable growth recently, having
50
Table of Contents
increased our assets from $2.53 billion at September 30, 2015 to $6.75 billion at September 30, 2022, primarily due to strategic transactions, such as the Crestmark Acquisition, through participation in government stimulus programs such as the EIP, and through organic growth. Asset growth, diversification of our lending business, expansion of our financial product offerings and other changes in our asset mix continue to require higher levels of capital, which management believes may not be met through earnings retention alone. Our ability to raise additional capital, when and if needed in the future, to meet such regulatory capital requirements and liquidity needs will depend on conditions in the capital markets, general economic conditions, the performance and prospects of our business and a number of other factors, many of which are outside of our control. We cannot assure you that we will be able to raise additional capital if needed or raise additional capital on terms acceptable to us. If we fail to meet these capital and other regulatory requirements, our financial condition, liquidity and results of operations could be materially and adversely affected.

Although we comply with all current applicable capital requirements, we may be subject to more stringent regulatory capital requirements in the future, and we may need additional capital in order to meet those requirements. 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.

General Risk Factors

The price of our common stock may be volatile, which may result in losses for investors.

The market price for shares of our common stock has been volatile in the past, and several factors, including factors outside of our control and unrelated to our performance, could cause the price to fluctuate substantially in the future. These factors include:

•announcements of developments related to our business;
•the initiation, pendency or outcome of litigation, regulatory reviews, inquiries and investigations, and any related adverse publicity;
•fluctuations in our results of operations;
•sales of substantial amounts of our securities into the marketplace;
•general conditions in the banking industry or the worldwide economy;
•a shortfall in revenues or earnings compared to securities analysts' expectations;
•lack of an active trading market for the common stock;
•changes in analysts' recommendations or projections; and
•announcement of new acquisitions, dispositions or other projects.

General market price declines or market volatility in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.
Additionally, the COVID-19 pandemic, or other economic factors, has also resulted in severe volatility in the financial markets and may result in a lower stock price for companies, including our common stock.

An investment in our common stock is not an insured deposit.

Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund, or by any other public or private entity. 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.

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.

Sales of a substantial amount of our capital stock in the public market or the issuance of a significant number of shares could adversely affect the market price for shares of our common stock. As of September 30, 2022, we were authorized to issue up to 90,000,000 shares of common stock, of which 28,788,124 shares were outstanding, and 90,053 shares were held as treasury stock. We were also authorized to issue up to 3,000,000 shares of preferred
51
Table of Contents
stock and 3,000,000 shares of non-voting common stock, none of which were outstanding or reserved for issuance. 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. 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. In addition, those that set accounting standards and those that interpret the accounting standards (such as the FASB, the SEC, banking regulators, and our outside auditors) may change or even reverse their previous interpretations or positions on how these standards should be applied. Changes in financial accounting and reporting standards and changes in current interpretations may be beyond our control, can be difficult to predict, and could materially affect how we report our financial results and condition. We may be required to apply a new or revised standard retroactively or apply an existing standard differently and retroactively, which may result in us being required to restate prior period financial statements, which restatements may reflect material changes.

We incur significant costs and demands upon management and accounting and finance resources as a result of complying with the laws and regulations affecting public companies; 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.


As an SEC reporting company, we are required to, among other things, maintain a system of effective internal control over financial reporting, which requires annual management and independent registered public accounting firm assessments of the effectiveness of our internal controls. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be re-evaluated frequently. We have historically dedicated a significant amount of time and resources to implement our internal financial and accounting controls and procedures. Substantial work may continue to be required to further implement, document, assess, test, and, if necessary, remediate our system of internal controls. We may also need to retain additional finance and accounting personnel in the future.


IfControl failures, including failures in our internal controlcontrols over financial reporting, iscould result from human error, fraud, breakdowns in information and computer systems, lapses in operating processes, or natural or man-made disasters. If a significant control failure or business interruption were to occur, it could materially damage our financial condition and results of operations. We may not effective,be able to foresee, prevent, mitigate, reverse, or repair the negative effects of such failures or interruptions.

We identified control deficiencies in our internal controls over financial reporting related to certain loan systems control environment over the segregation of duties associated with the disbursement process, which, as described in Part II, Item 9A "Controls and Procedures" of this Annual Report on Form 10-K, we determined, represent a material weakness in internal controls over financial reporting. Other control deficiencies of this or a similar nature may be unable to issue our financial statementsidentified in a timely manner, we may bethe future. These and any future control deficiencies could result in us being unable to obtain the required audit or review of our financial statements by our independent registered public accounting firm in a timely manner. Any such control deficiencies could also result in a misstatement of our financial statement accounts and disclosures that, in turn, could result in a material misstatement of our annual or interim final statements that may not be prevented or detected.

If we are unable to correct the material weakness or deficiencies in internal controls over financial reporting in a timely manner or if future instances of an ineffective control environment exist, our ability to record, process, summarize and report financial information accurately and within the time periods specified in the rules and forms of the SEC could be adversely affected, and we may be otherwise unable to comply with the periodic reporting requirements of the SEC. This failure, which could cause our investors to lose confidence in our reported financial information, could subject us to investigation and sanction by the SEC or other regulatory authorities and to claims by stockholders, which could impose significant additional costs on us, divert our management's attention and materially and adversely impact our business and financial condition. Additionally, our common stock listing on the NASDAQ Global Select Market could be suspended or terminated, and our stock price could materially suffer. See also Part II, Item 9A "Controls and Procedures" of this Annual Report on Form 10-K.

52
Table of Contents
Federal regulations and our organizational documents may inhibit a takeover or prevent a transaction you may favor or limit our growth opportunities, which could cause the market price of our common stock to decline.

Certain provisions of our charter documents and federal regulations could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. In addition, we or membersmay need to obtain approval from regulatory authorities before we can acquire control of our managementany other company. 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. The payment of dividends is subject to investigationlegal and sanction byregulatory restrictions. Any payment of dividends in the SECfuture will depend, in large part, on our earnings, capital requirements, financial condition, regulatory review, and other regulatory authoritiesfactors considered relevant by our Board of Directors.

Catastrophic events could occur and to claims by stockholders,impact our operations or the operations third parties with which could impose significant additional costs on uswe do business.

Catastrophic events (including natural disasters, severe weather conditions, pandemics, terrorism and divertother geopolitical events), which are beyond our management's attention.

In addition, see "Item 9A. Controls and Procedures-Management’s Annual Report on Internal Control over Financial Reporting" for inherent limitations in a control, system.

The Company is required to serve as a “source of strength” for the Bank.
Federal banking law codifies a requirement that savings and loan holding companies (like the Company) act as a financial “source of strength” for its FDIC-insured depository institution subsidiaries (like the Bank).  The term “source of financial strength” is defined in the relevant statute as the ability of a company to provide financial assistance to such insured depository institution in the event of the financial distress of such insured depository institution.  The statute permits the OCC, as the Bank’s primary federal regulator, to request reports from the Company to assess its ability to serve as a source of strength and to enforce compliance with these statutory requirements.  To date, no regulations have been proposed in connection with this statutory requirement, although it is widely assumed that the Federal Reserve would enforce its prior guidance regarding the applicability of this doctrine to bank holding companies in connection with the rule’s application to savings and loan holding companies.
Given the power provided to the federal banking agencies in this provision, it is possible that the Company could be required to serve as a source of strength when it might not otherwise voluntarily choose to do so.  Specifically, the imposition of such financial requirements might require the Company to raise additional capital to support the Bank at a time when it is not otherwise prudent for the Company to do so; for example, such raise could be on terms that are not favorable or typical in the existing market.  Further, any capital provided by the Company would be subordinate to others with interest in the Bank, including its depositors. In addition, in the event of the bankruptcy of the Company at a time when it had a commitment to one of the Bank’s regulators to maintain the capital of the Bank, the regulators’ claims against the Company may be entitled to priority status over other obligations.

Our loan portfolio has grown substantially, and our underwriting practices may not prevent future losses in our loan portfolio.
Over the last several fiscal years, our loan portfolio has grown substantially with new loan originations.  Our underwriting practices are designed to mitigate risk by adhering to specific loan parameters.  Components of our underwriting program include, where appropriate, an analysis of the borrower and their creditworthiness, a financial statement review, and, if applicable, cash flow projections and a valuation of collateral. Other lending programs, particularly in the Bank's divisions, rely on experience and quantitative data. We may incur losses in our loan portfolio, especially the new portions thereof, if our underwriting practices or criteria fail to identify credit risks.  It is also possible that losses will exceed the amounts the Bank has set aside for loss reserves and result in reduced interest income and increased provision for loan losses, which could have an adverse effect on our financial condition and results of operations. Deterioration in our loan portfolio could also cause a decrease in our capital, which would make it more difficult to maintain regulatory capital compliance.

The bulk of our retail bank lending operations is concentrated in Iowa and South Dakota.
Our retail bank lending activities are largely based in Iowa and South Dakota.  As a result, and notwithstanding lending in our AFS/IBEX division and lending in our tax-related financial solutions divisions, our financial performance depends to a large degreeimpact on the economic conditions in these areas.  If local economic conditions worsen it could cause us to experience an increase in the number of borrowers who default on their loans along with a reduction in the value of the collateral securing such loans, which could decrease our capitalBank's ability and have an adverse effect on our financial condition and results of operations. Lending by AFS/IBEX is concentrated in California, Texas, Florida and New York, while lending by Refund Advantage, EPS Financial and SCS is nationwide.
Economic and market conditions could adversely affect our industry and regulatory costs and could continue to increase.
General economic trends, low national economic growth and reduced availability of commercial credit could negatively impact the credit performance of commercial and consumer credit in general, which could lead to increased commercial and consumer deficiencies, lack of customer confidence, increased market volatility and widespread reduction in general business activity.  The resulting economic pressure on consumers and businesses and the lack of confidence in the financial markets may adversely affect our business, financial condition, results of operations and stock price.  A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial institutions industry.  In particular, we may face the following risks in connection with these events:
We have faced increased regulation of our industry.  Although it is possible that the effect of the November 2016 federal elections may curtail such events, compliance with existing and expected regulations may increase our costs and limit our ability to pursue business opportunities;

Customer demand for loans secured by real estate could be reduced due to weaker economic conditions, an increase in unemployment, a decrease in real estate values or an increase in interest rates;
The process we use to estimate losses inherent in our credit exposure requires difficult, subjective and complex judgments, including forecasts of economic conditions, and whether economic conditions might impair the ability of our borrowersvendors and other third parties with which we do business, to repay their loans.  The level of uncertainty concerning economic conditions may adversely affectprovide necessary services to support the accuracy of our estimates which may, in turn, impact the reliabilityoperation of the process.  Further, a new method of determining loan loss allowances, expected to be implemented in fiscal year 2020, could decrease our profitability.

The value of the portfolio of investment securities that we hold,Bank and which constitute a large percentage of our assets, may be adversely affected; and

If we experience financial setbacks or regulatory action in the future, we may be required to pay significantly higher FDIC insurance premiums than we currently pay due, in part, to our significant level of brokered deposits.  See “– Regulation.”


The full impact of the Dodd-Frank Act is still unknown.
While regulatory agencies have made considerable progress in implementing the Dodd-Frank Act, the full compliance burden and impact on our operations and profitability are still not known.  Hundreds of new federal regulations, studies and reports were required under the Dodd-Frank Act and not all of them have been finalized; some rules and policies will be further developing for months and years to come.  Based on the provisions of the Dodd-Frank Act that have already been implemented as well as anticipated regulations, and notwithstanding the recent Presidential election results of 2016, it is likely that banks and thrifts as well as their holding companies will continue to be subject to regulation and compliance obligations that expose us to higher costs as well as noncompliance risk and consequences.

The Consumer Financial Protection Bureau is reshaping the consumer financial laws through rulemaking and enforcement of prohibitions against unfair, deceptive or abusive practices, which may directly impact the business operations of depository institutions offering consumer financial products or services, including the Bank.
The Bureau has broad rulemaking authority to administer and carry out the purposes and objectives of “federal consumer financial laws, and to prevent evasions thereof” with respect to all financial institutions that offer financialprovide products and services to consumers.  The Bureau isthe Bank's customers. Although insurance coverage may provide some protection in light of such events, there can be no assurance that any insurance proceeds would adequately compensate the Bank for the losses it incurred as a result of such events. See also authorized"Existing insurance policies may not adequately protect us and our subsidiaries." Moreover, the damage caused by such events may not be directly compensable from insurance proceeds or otherwise, such as damage to prescribe rules, applicableour reputation as a result of such events.

Legal challenges to any covered person or service provider, identifying and prohibiting acts or practices that are “unfair, deceptive, or abusive” in connection with any transaction with a consumer for a consumer financial product or service,regulatory investigations of our, or the offering of a consumer financial product or service (“UDAAP authority”).  The term “abusive” is new and developing and because Bureau officials have indicated that compliance will be achieved through enforcement actions rather than the issuance of regulations, we cannot predict to what extent the Bureau’s future actions will have on the banking industry or the Company.  Notwithstanding that insured depository institutions with assets of $10 billion or less (such as the Bank) will continue to be supervised and examined by their primary federal regulators, the full reach and impact of the Bureau’s broad new rulemaking powers and UDAAP authority on theBank's, operations of financial institutions offering consumer financial products or services are currently unknown.
In addition to taking many enforcement actions and finalizing regulation covering prepaid payments, described below, the Bureau finalized its ability to repay (“ATR”) rule as well as its qualified mortgage rule in January 2013.  The ATR rule applies to residential mortgage loan applications received after January 10, 2014.  The scope of the rule specifically applies to loans securing one-to-four unit dwellings and includes purchases, refinances and home equity loans for principal or second homes.  Under the ATR rules, a lender may not make a residential mortgage loan unless the lender makes a reasonable and good faith determination that is based on verified, documented information at or before consummation that the borrower has a reasonable ability to repay.  The eight underwriting factors that must be considered and verified include the following: (1) income and assets: (2) employment status; (3) monthly payment of loan; (4) monthly payment of any simultaneous loan secured by the same property; (5) monthly payment for other mortgage-related obligations like property taxes and insurance; (6) current debt obligations; (7) monthly debt to income ratio; and (8) credit history (although eight factors are delineated, the ATR rule does not dictate that a lender follow a particular underwriting model).  Liability for violations of the ATR rule include actual damages, statutory damages, court costs and attorneys’ fees.
Additionally, the Bureau published regulations required by the Dodd-Frank Act related to “qualified mortgages,” which are mortgages for which there is a presumption that the lender has satisfied the ATR rules.  Pursuant to Dodd-Frank, qualified mortgages (“QMs”) must have certain product-feature prerequisites and affordability underwriting requirements.  Generally, to meet the QM test, the lender must calculate the  monthly payments based on the highest payment that will apply in the first five years and the consumer must have a total debt-to-income ratio that is less than or equal to 43%.  The QM rule provides a safe harbor for lenders that make loans that satisfy the definition of a QM and are not higher priced.  With respect to higher-priced mortgage loans, there is a rebuttable presumption of compliance available to the lender with respect to compliance with the ATR rule.
With respect to final regulations that affect insured depository institutions such as the Bank, the Bureau also issued a final rule related to international remittances, which covers entities that provide at least 100 remittance transfers per calendar year.  As such, the Bank is subject to the rule.


Our most recent CRA rating was “Satisfactory.”  A less than “Satisfactory” CRA rating could have a negativesignificant material adverse effect on the OCC’s review of certain banking applications.us.

Under the CRA,From time to time, we, the Bank is evaluated periodically by its primary federal banking regulator to determine if it is meeting its continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods.  In the Bank’s most recent CRA examination dated January 3, 2017, the Bank received an overall rating of “Satisfactory.”  If the Bank were to receive a future CRA rating of less than “Satisfactory,” the CRA requires the OCC to take such rating into account in considering an application for any of the following:  (i) the establishment of a domestic branch; (ii) the relocation of its main office or of a branch; (iii) the merger or consolidation with or acquisition of assets or assumption of liabilities of an insured depository institution; or (iv) the conversion of the Bank to a national charter.
Legislative and regulatory initiatives taken to date, including with respect to capital requirements may not achieve their intended objective.
Under the Basel III Capital Rules, minimum requirements have increased for both the quantity and quality of capital held by banking organizations. The Basel III Capital Rules include a new minimum ratio of CET1 Capital to risk-weighted assets of 4.5% and a capital conservation buffer of which is .0625% for 2016, rising by .0625% per year to 2.5% of risk-weighted assets for 2019 and later years. The Rules also impose a minimum ratio of tier 1 capital to risk-weighted assets of 6% and includes a minimum leverage ratio (tier 1 capital to average total assets) of 4% for all banking organizations. The Rules also emphasize CET1 Capital and implement strict eligibility criteria for regulatory capital instruments. The minimum total capital ratio remains at 8% but the general PCA framework has been changed to incorporate these increased minimum requirements. The Basel III Capital Rules phase-in period for smaller, less complex banking organizations like the Company and the Bank began in January 2015. The phase-in will gradually increase capital requirements for the Company and the Bank, making compliance and future growth more difficult to achieve. Should the Company or the Bank fail to meet the requirements of the Basel III Capital Rules, including the application of well-capitalized levels in connection with such rules, the Company and the Bank would beour other subsidiaries are subject to regulatory supervision and investigation, legal proceedings and claims in the ordinary course of business. An adverse resolution in litigation or a regulatory action, including litigation or other actions brought by our shareholders, customers or another third party, such as a state attorney general or one of our regulators, which action could result in material adverse consequences for us, the Bank,substantial damages or otherwise negatively impact our business, reputation and our shareholders.financial condition. See Part I, Item 1 "Business - Regulation and Supervision" and Item 3, "Legal Proceedings."
We have a concentration of our assets in mortgage-backed securities and municipal securities.
As of September 30, 2017, approximately 13.4% of the Company’s assets were invested in mortgage‑backed securities, compared to 17.3% at September 30, 2016.  The Company’s mortgage-backed and related securities portfolio consists primarily of securities issued by U.S. Government instrumentalities, including those of Fannie Mae and Freddie Mac which are in conservatorship.  The Fannie Mae and Freddie Mac certificates are modified pass-through mortgage-backed securities that represent undivided interests in underlying pools of fixed-rate, or certain types of adjustable-rate, predominantly single-family and, to a lesser extent, multi-family residential mortgages issued by these U.S. Government instrumentalities. 

Mortgage-backed securities remain subject to credit risk, and to the risk that a fluctuating interest rate environment, along with other risk factors such as the geographic distribution of the underlying mortgage loans may alter the prepayment rate of such mortgage loans and so affect both the prepayment speed, and value, of such securities.
As of September 30, 2017, approximately 26.8% of the Bank’s assets were invested in municipal securities, compared to approximately 29.6% at September 30, 2016.  As of September 30, 2017, 26.4% of the Bank’s assets invested in municipal securities were non-bank qualified obligations. 

     Municipal securities remain subject to the risk that a fluctuating interest rate environment may alter the value of the securities.



Our reputation and business could be damaged by negative publicity.

Reputational risk, including as a result of negative publicity, is inherent in our business. Negative publicity can result from actual or alleged conduct in a number of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, inadequate protection of customer data, illegal or unauthorized acts taken by third parties that supply products or services to the Companyus or the Bank, ethicaland behavior of our employees and from actions taken by regulators and others as a result of that conduct.employees. 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 MPS division,BaaS business line, could result in the imposition of new regulatory requirements, operational restrictions, enhanced supervision and/or civil money penalties. Such damage could also adversely affect our ability to raise additional capital.  Any such damage to our reputation couldcapital, and otherwise have a material adverse effect on our financial condition and results of operations.
We are subject to certain operational risks, including, but not limited to, data processing system failures, errors, breaches and customer or employee fraud.
There have been a number of publicized cases involving errors, fraud or other misconduct by employees of financial services firms in recent years.  Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information.  Employee fraud, errors and employee and customer misconduct could subject us to financial losses or regulatory sanctions and significantly harm our reputation.  It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases.  Employee errors could also subject us to civil claims for negligence.
Although we maintain a system of internal controls and procedures designed to reduce the risk of loss from employee or customer fraud or misconduct and employee errors, and maintain insurance coverage to mitigate losses that may be attributable to operational risks, including data processing system failures and errors and customer or employee fraud, these internal controls may fail to prevent or detect such an occurrence, or such an occurrence may not be insured or exceed applicable insurance limits.
In addition, there have also been a number of cases where financial institutions have been the victim of fraud related to unauthorized wire and automated clearinghouse transactions.  The facts and circumstances of each case vary but generally involve criminals posing as customers (i.e., stealing bank customers’ identities) to transfer funds out of the institution quickly in an effort to place the funds beyond recovery prior to detection.  Although we have policies and procedures in place to verify the authenticity of our customers and prevent identity theft, we can provide no assurances that these policies and procedures will prevent all fraudulent transfers.  In addition, our computer systems could be infiltrated by hackers or other intruders.  We can provide no assurances that the safeguards we have in place or may implement in the future will prevent all unauthorized infiltrations or breaches.  Identity theft, successful unauthorized intrusions and similar unauthorized conduct could result in reputational damage and financial losses to the Company.  See “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Changes in economic and political conditions could adversely affect the Company’s earnings, as the Company’s borrowers’ ability to repay loans and the value of the collateral securing the Company’s loans decline.
The Company’s success depends, to a certain extent, upon economic and political conditions, local and national, as well as governmental monetary policies.  Conditions such as inflation, recession, unemployment, changes in interest rates, money supply and other factors beyond the Company’s control may adversely affect the Company’s asset quality, deposit levels, products and loan demand and, therefore, the Company’s earnings.  Because the Company has a significant amount of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral.  Among other things, adverse changes in the economy may also have a negative effect on the ability of the Company’s borrowers to make timely repayments of their loans, which would have an adverse impact on the Company’s earnings.  In addition, at the present, the vast majority of the Company’s loans are to individuals and businesses in the Company’s market areas.  Consequently, any economic decline in the Company’s market areas could have an adverse impact on the Company’s earnings. During the 2017 tax season, we made a large amount of no-interest, 0% APR tax refund loans in connection with a program agreement with a national tax preparation company. Although we have developed policies and procedures related to the underwriting and making of these loans, this is still a relatively new business line for us, and unexpected events could cause unanticipated losses or issues related to such loans.

Changes in interest rates could adversely affect the Company’s results of operations and financial condition.
The Company’s earnings depend substantially on the Company’s interest rate spread, which is the difference between (i) the rates we earn on loans, securities and other earning assets, and (ii) the interest rates we pay on deposits and other borrowings.  These rates are highly sensitive to many factors beyond the Company’s control, including general economic conditions and the policies of various governmental and regulatory authorities.  As market interest rates rise, we will have competitive pressures to increase the rates we pay on deposits, especially at our retail bank, which may result in a decrease of the Company’s net interest income.  Conversely, if interest rates fall, yields on loans and investments may fall.  Although the Bank continues to monitor its interest rate risk exposure and has undertaken additional analyses and implemented additional controls to improve its core earnings from interest income, the Bank can provide no assurance that its efforts will appropriately protect the Bank in the future from interest rate risk exposure.  For additional information, see Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.”
The Company operates in a highly regulated environment, and changes in laws and regulations to which we are subject may adversely affect the Company’s results of operations.
The Company and the Bank operate in a highly regulated environment and are subject to extensive regulation, supervision and examination by the OCC and the Federal Reserve.  In addition, the Bank is subject to regulation by the FDIC and the Bureau.  See Item 1 “Business – Regulation” herein.  Applicable laws and regulations may change and the enforcement of existing laws and regulations may vary when actions are evaluated by these regulators, and there is no assurance that such changes will not adversely affect the Company’s business.  Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including but not limited to the imposition of restrictions on the operation of an institution, the classification of assets by the institution and the adequacy of an institution’s allowance for loan losses.  Any change in such regulation and oversight, whether in the form of restrictions on activities, regulatory policy, regulations or legislation, could have a material impact on the Company’s operations.  Notwithstanding the recent Presidential election, it is unknown at this time to what extent new legislation will be passed into law or pending or new regulatory proposals will be adopted, or the effect that such passage or adoption will have, positively or negatively, on the banking industry or the Company.

Changes in technology could be costly.
The banking industry is undergoing technological innovation at a fast pace.  To keep up with its competition, the Company needs to stay abreast of innovations and evaluate those technologies that will enable it to compete on a cost-effective basis.  This is especially true with respect to our MPS division.  The cost of such technology, including personnel, has been high in both absolute and relative terms and additional funds continue to be used to enhance existing management information systems.  There can be no assurance, given the fast pace of change and innovation, that the Company’s technology, either purchased or developed internally, will meet the needs of the Company, in a timely, cost-effective manner. During the course of implementing new technology into the Company’s or the Bank’s operations, we may experience system interruptions and failures. In addition, there can be no assurances that we will recognize, in a timely manner or at all, the benefits that we may expect as a result of our implementing new technology into our operations.
The OCC and Federal Reserve are our primary banking regulators and we may not be able to comply with applicable banking regulations to their satisfaction.
Our primary regulators have broad discretionary powers to enforce banking laws and regulations and may seek to take informal or formal supervisory action if they deem such actions are necessary or required.  If imposed in the future, corrective steps could result in additional regulatory requirements, operational restrictions, a consent order, enhanced supervision and/or civil money penalties.  If imposed, additional resources, both economic and in terms of personnel, would be expended by the Company and the Bank and such regulatory actions could have a material adverse effect on the Company.
We are a party to certain legal matters and are subject to additional litigation risk.

From time to time, the Company, the Bank or our other subsidiaries are subject to certain legal proceedings and claims in the ordinary course of business. While most matters are now resolved, an adverse resolution in remaining litigation or other litigation, including litigation brought by the Company’s shareholders, could result in substantial damages negatively or otherwise impact our business, reputation and financial condition. See also Part I, Item 3, "Legal Proceedings."


Contracts with third parties, some of which are material to the Company, may not be renewed, may be renegotiated on terms that are not as favorable, may not be fulfilled or could be subject to modification or cancellation by regulatory authorities.
The Bank has entered into numerous contracts with third parties with respect to the operations of its business.  In some instances, the third parties provide services to the Bank and its divisions; in other instances, the Bank and its divisions provide products and services to such third parties.  Were such agreements not to be renewed by the third party or were such agreements to be renewed on terms less favorable, such actions could have an adverse material impact on the Bank, its divisions and, ultimately, the Company.  For example, in July 2017, the Bank announced that it would not be providing interest-free Refund Advance loans for H&R Block tax preparation customers during the 2018 tax season. The Company’s relationship with H&R Block represented approximately $12.0 million in net earnings during fiscal year 2017. Given the loss of this relationship, the Company recognized a total impairment charge of $10.2 million, which was expensed during the 2017 fiscal fourth quarter. Similarly, were one of these third-parties unable to meet their obligations to us for any reason (including but not limited to bankruptcy, computer or other technological interruptions or failures, personnel loss or acts of God), we may need to seek alternative service providers.

We may not be able to secure alternate service providers, and, even if we do, the terms with such alternate providers may not be as favorable as those currently in place.  In addition, were we to lose any of our important third-party providers, it could cause a material disruption in our own ability to service our customers, which also could have an adverse material impact on the Bank, its divisions and, ultimately, the Company.  Moreover, were the disruptions in our ability to provide services significant, this could negatively affect the perception of our business, which could result in a loss of confidence and other adverse effects on our business.

Additionally, our agreements with third-party vendors could come under scrutiny by our regulators.  If a regulator should raise an issue with, or object to, any term or provision in such agreement or any action taken by such third party vis-à-vis the Bank’s operations or customers, this could result in a material adverse effect to the Company including, but not limited to, the imposition of fines and/or penalties and the termination of such agreement.

Finally, we may be held responsible for actions of our third party vendors (e.g., EROs) for activity they undertake on behalf of the Bank, notwithstanding the Bank's onboarding and review program.
The Company operates in an extremely competitive market, and the Company’s business will suffer if it is unable to compete effectively.
The Company encounters significant competition in the Company’s market area from other commercial banks, savings and loan associations, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial intermediaries.  Many of the Company’s competitors have substantially greater resources and lending limits and may offer services that the Company does not or cannot provide.  The Company’s profitability depends upon the Company’s continued ability to compete successfully in the Company’s market area. The Bank's divisions operate on a national scale against competitors with substantially greater resources.  The success of the Bank's divisions depends upon the Company’s, the Bank’s and the MPS division’s ability to compete in such an environment.

Several banking institutions have adopted business strategies that are similar to ours, particularly with respect to the MPS division. As a consequence, we have encountered competition in this area and anticipate that we will continue to do so in the future. This competition may increase our costs, reduce our revenues or revenue growth, or make it difficult for us to compete effectively in obtaining additional customer relationships.


A substantial portion of the Company's deposit liabilities are classified as brokered deposits, and failure to maintain the Bank's status as a "well-capitalized" institution could have a serious adverse effect on the Company.

On January 5, 2015, the FDIC published industry guidance in the form of Frequently Asked Questions (“FAQs”) with respect to, among other things, the categorization of deposit liabilities as “brokered” deposits.  This guidance was later supplemented on November 13, 2015, and June 30, 2016. Based on the noted guidance, as of September 30, 2017, the Bank classified $1.47 billion, or 45.6%, of its deposit liabilities as brokered deposits. Due to the Bank’s current status as a “well-capitalized” institution under the FDIC’s prompt corrective action regulations, management believes the guidance does not pose a risk to the Bank. However, 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, notwithstanding that the Bank has capital in excess of the well-capitalized minimum requirements, 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).  In such event, unless the Bank were to receive a suitable waiver from the FDIC, such a result could produce serious material adverse consequences for the Bank with respect to liquidity and could also have serious material adverse effects on the Company’s financial condition and results of operations.  Further, and in general, depending on the Bank’s condition in the future, the FDIC could increase the surcharge on our brokered deposits up to thirty basis points. For the year ended September 30, 2017, the Company estimates that the additional surcharge attributable to the Bank’s brokered deposits was approximately $0.5 million, after tax. The Company will monitor any future clarifications, rulings and interpretations, including whether institutions would be expected by the FDIC to amend prior call reports.  If we are required to amend previous call reports with respect to our level of brokered deposits, which the Company does not expect, or we are ever required to pay higher surcharge assessments with respect to these deposits, such payments could be material and therefore could have a material adverse effect on our financial condition and results of operations.

We derive a significant percentage of our deposits, total assets and income from deposit accounts that we generate through MPS’ customer relationships, of which four are particularly significant to our operations.
We derive a significant percentage of our deposits, total assets and income from deposit accounts we generate through program manager relationships between third parties and MPS.  Deposits related to our top four program managers (each, a significant program manager) totaled $1.38 billion at September 30, 2017.  We provide oversight and auditing of such third-party relationships and all such relationships must meet all internal and regulatory requirements.  We may exit these relationships if such requirements are not met or if required to do so by our regulators.  We perform liquidity reporting and planning daily and identify and monitor contingent sources of liquidity, such as national CDs, fed fund lines or public fund CDs.  If one of these significant program manager relationships were to be terminated, it could materially reduce our deposits, assets and income.  Similarly, if a significant program manager was not replaced, we may be required to seek higher-rate funding sources as compared to the existing program manager, and interest expense might increase.  We may also be required to sell securities or other assets which would reduce revenues and potentially generate losses.
Fraud and other illegal activity involving our tax preparation partners or products could lead to a regulatory investigation and reputational damage to us, reduce the use and acceptance of our cards and reload network, reduce the use of our services, and may adversely affect our financial position and results of operations.

Criminals are using increasingly sophisticated methods to engage in illegal activities involving prepaid cards, reload products, and tax refunds. Illegal activities involving such products and services include malicious social engineering schemes, where people are asked to provide a prepaid card or reload product in order to obtain a loan or purchase goods or services. Illegal activities may also include fraudulent payment or refund schemes and identity theft. We rely upon third party tax preparers for tax preparation and other services, which subjects us to risks related to the vulnerabilities of those third parties. Even a single significant instance of fraud could theoretically result in reputational damage to us, which could reduce the use and acceptance of our cards and other products and services, cause retail distributors or their customers to cease doing business with us or them, or could lead to greater regulation that would increase our compliance costs. Fraudulent activity could also result in the imposition of regulatory sanctions, including significant monetary fines, which could adversely affect our business, operating results and financial condition.


The student loan portfolio purchases present certain risks to the Bank.

The Bank purchased two separate student loan portfolios in fiscal year 2017 and the beginning of fiscal year 2018. The first of which portfolios included seasoned loans that were taken by medical school students who enrolled in non-U.S. medical schools and the second included more traditional loans made to higher education students. The servicing of these loans remains with ReliaMax Lending Services, LLC, and are insured by ReliaMax Surety Company. To the extent there are any issues raised in connection with the origination, transfer or servicing of the loans constituting these portfolios, and to the extent any related losses were not deemed to be insured losses pursuant to the surety agreement and other insurance applicable to these loans, such a determination could have a material adverse effect on the Bank and the Company.

A data security breach involving the Company, the Bank or any of our tax preparation partners could expose use to liability and protracted and costly litigation, and could adversely affect our reputation and operating revenues.

In connection with the Company’s and the Bank’s businesses, we collect and retain significant volumes of personally identifiable information, including social security numbers of our customers and other personally identifiable information of our customers and employees. We and our tax preparation partners may experience security breaches involving the receipt, transmission and storage of confidential customer and other personally identifiable information. The continued occurrence of high-profile data breaches provides evidence of the serious threats to information security. Our customers and employees, and those of our tax preparation partners, expect that we and our partners will adequately protect their personal information, and the regulatory environment surrounding information security and privacy is increasingly demanding. Improper access to our or the tax preparation partner’s systems or databases could result in the theft, publication, deletion or modification of confidential customer and other information. In addition, a data security breach at the tax preparation partners could result in significant reputational harm to us and cause the use and acceptance of our tax-related products and services to decline, either of which could have an adverse impact on our operating revenues and future growth prospects.

Agency, technological, or human error could lead to tax refund processing delays, which could adversely affect our reputation and operating revenues.

We and our tax preparation partners rely on the Internal Revenue Services (the “IRS”), technology, and employees when processing and preparing tax refunds and tax-related products and services. Any delays during the processing or preparation period could result in reputational damage to us or to our tax preparation partners, which could reduce the use and acceptance of our cards and tax-related products and services, either of which could have a significant adverse impact on our operating revenues and future growth prospects. An IRS delay in processing tax returns this season could result in a smaller percentage of expected revenues flowing into our third fiscal quarter.

Changes in laws and regulations, or our failure to comply with existing laws and regulations, that govern or are otherwise applicable to our tax refund-related services could have a material adverse effect on our business, prospects, results of operations and financial condition.

We derive a significant portion of our total operating revenues and earnings from tax refund processing and settlement services. The tax preparation industry is highly regulated under a variety of statutes and regulations, all of which are subject to change, which may impose significant costs, limitations or prohibitions on the way we conduct or expand our tax refund processing and related services. Any new requirements or rules, changes in such requirements or rules, new interpretations of existing requirements or rules, failure to follow requirements or rules, or future lawsuits or rulings could increase our compliance and other costs of doing business, require significant systems redevelopment, render our products or services less profitable or obsolete or otherwise have a material adverse effect on our business, prospects, results of operations, and financial condition. In addition, changes in the U.S. tax laws, as a result of pending tax legislation in the U.S. Congress or otherwise, may adversely impact our tax refund processing and settlement business, including to the extent that any such changes may reduce customer demand for the Company’s strategic partner’s refund advance products, thereby reducing the volume of refund advance loans that we may offer.


Tax advance loans represent a significant credit risk, and if we are unable to collect a significant portion of the tax return advances, it would materially negatively impact earnings.

There is a credit risk associated with a tax refund advance because the funds are disbursed to the customer prior to the Company receiving the customer’s refund from the IRS. Because there is no recourse to the customer if the tax refund advance is not paid in full with the proceeds of the customer’s tax refund, the Company may not collect all of its payments related to the tax refund advances from the IRS and state revenue departments. Losses will generally occur on tax refund advances when the Company does not receive payment from the IRS or state revenue department due to a number of reasons, such as IRS revenue protection strategies including audits of returns, errors in the tax return, tax return fraud and tax debts not previously disclosed to the Company during its underwriting process. Although the Company’s underwriting takes these factors into consideration during the tax refund advance approval process, if the IRS significantly alters its revenue protection strategies for a given tax season, or the Company is incorrect in its underwriting assumptions, the Company could experience higher loan loss provisions above those projected. In addition, a consumer could exercise its rights and withdraw its ACH authorization provided in connection with a tax refund advance, meaning the Bank could no longer collect the payments related to the tax return advances via a direct debit to the designated bank account, which could result in additional losses.

Acquisitionscould disrupt our business and harm our financial condition.
As part of our general growth strategy, we have expanded our business in part through acquisitions.  Since December 2014, we have completed the acquisition of substantially all of the commercial loan portfolio and related assets of AFS/IBEX Financial Services, Inc., and completed the acquisition of the assets of Fort Knox Financial Services Corporation and its subsidiary, Tax Products Services LLC, in September 2015. More recently, we completed the acquisition of substantially all the assets and certain liabilities of EPS Financial in November 2016 and completed the acquisition of substantially all of the assets and specified liabilities of SCS in December 2016.

In addition to the transactions noted above, we may engage in additional acquisitions that we believe provide a strategic or geographic fit with our business. We cannot predict the number, size or timing of acquisitions. To the extent that we grow through acquisitions, we cannot assure that we will be able to adequately and profitably manage this growth. Acquiring other businesses will involve risks commonly associated with acquisitions, including:
increased capital needs;

increased and new 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 to acquisition-integration challenges;

coordination of product, sales, marketing and program and systems management functions;

transition of the acquired company’s users and customers onto our systems;

retention of employees from the acquired company;

integration of employees from the acquired company into our organization;

integration of the acquired company’s accounting, information management, human resources and other administrative systems and operations with ours;

potential 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;

potential increased litigation or other claims in connection with the acquired company, including claims brought by terminated employees, customers, former stockholders, vendors, or other third parties; and

goodwill impairment


If we are unable to successfully integrate an acquired business or technology, or otherwise address these difficulties and challenges or other problems encountered in connection with an acquisition, we might not realize the anticipated benefits of that acquisition, we might incur unanticipated liabilities or we might otherwise suffer harm to our business generally, which could have a material adverse effect on our business, prospects, financial condition and results of operations. Unanticipated costs, delays, regulatory review and examination, or other operational or financial problems related to integrating the acquired company and business with our company, may result in the diversion of our management's attention from other business issues and opportunities. To integrate acquired businesses, we must implement our technology and compliance systems in the acquired operations and integrate and manage the personnel of the acquired operations. We also must effectively integrate the different cultures of acquired business organizations into our own in a way that aligns various interests and may need to enter new markets in which we have no or limited experience and where competitors in such markets have stronger market positions. Failures or difficulties in integrating the operations of the businesses that we acquire, including their personnel, technology, compliance programs, financial systems, distribution and general business operations and procedures, marketing, promotion and other relationships, may affect our ability to grow and may result in us incurring asset impairment or restructuring charges. Furthermore, acquisitions and investments are often speculative in nature and the actual benefits we derive from them could be lower or take longer to materialize than we expect.
To the extent we pay the consideration for any future acquisitions or investments in cash, it would reduce the amount of cash available to us for other purposes. Future acquisitions or investments could also result in dilutive issuances of our equity securities or the incurrence of debt, contingent liabilities, amortization expenses or impairment charges against goodwill on our balance sheet, any of which could harm our financial condition and negatively impact our stockholders.

An impairment charge of goodwill or other intangibles could have a material adverse impact on our financial condition and results of operations.
Because we have recently grown in part through acquisitions, goodwill and intangible assets are now a portion of our consolidated assets. Our goodwill and intangible assets were $150.9 million as of September 30, 2017.  Under accounting principles generally accepted in the United States, or U.S. GAAP, we are required to test the carrying value of goodwill and intangible assets at least annually or sooner if events occur that indicate impairment could exist. These events or circumstances could include a significant change in the business climate, including sustained decline in a reporting unit’s fair value, legal and regulatory factors, operating performance indicators, competition and other factors. U.S. GAAP requires us to assign and then test goodwill at the reporting unit level. If over a sustained period of time we experience a decrease in our stock price and market capitalization, which may serve as an estimate of the fair value of our reporting unit, this may be an indication of impairment. If the fair value of our reporting unit is less than its net book value, we may be required to record goodwill impairment charges in the future. In addition, if the revenue and cash flows generated from any of our other intangible assets is not sufficient to support its net book value, we may be required to record an impairment charge. For example, in the fiscal 2017 fourth quarter, we recognized a $10.2 million intangible impairment charge related to the non-renewal of the H&R Block relationship. The amount of any impairment charge could be significant and could have a material adverse impact on our financial condition and results of operations for the period in which the charge is taken.
New lines of business or new products and services may subject us to additional risks.
From time to time, we may implement new lines of business or offer new products and services within existing lines of business.  Substantial risks and uncertainties are associated with developing and marketing new lines of business or new products or services, particularly in instances where the markets are not fully developed, and we may be required to invest significant time and resources.  Initial timetables for the introduction and development of new lines of business or new products or services may not be achieved and price and profitability targets may not prove feasible.  External factors, such as regulatory reception, compliance with regulations and guidance (such as the OCC’s guidance released in August 2015 related to the offering of tax refund-related products), competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service.  Furthermore, any new line of business or new product or service could have a significant impact on the effectiveness of our system of internal controls.  Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could reduce our revenues and potentially generate losses.

Existing insurance policies may not adequately protect the Companyus and itsour subsidiaries.

Fidelity, business interruption, cybersecurity, and property insurance policies are in place with respect to the operations of the Company.our operations. 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. If the cost of coverage becomes too high, we may need to reduce our policy limits, increase the deductibles or agree to certain exclusions from our coverage in order to reduce the premiums to an acceptable amount.



The loss of key members of the Company’s senior management team, or our ability to attract and retain qualified personnel, could adversely affect the Company’s business.
We believe that the Company’s success depends largely on the efforts and abilities of the Company’s senior executive management team.  Their experience and industry contacts significantly benefit us. Our future success also depends in large part on our ability to attract, retain and motivate key management and operating personnel. 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. The competition for qualified personnel in the financial services industry is intense, and the loss of any of the Company’s key personnel or an inability to continue to attract, retain and motivate key personnel could adversely affect the Company’s business.

The Company’s loan portfolio includes loans with a higher risk of loss.
The Company originates commercial mortgage loans, commercial loans, consumer loans, agricultural real estate loans, agricultural loans and residential mortgage loans.  Commercial mortgage, commercial, consumer, agricultural real estate and agricultural loans may expose a lender to greater credit risk than loans secured by residential real estate because the collateral securing these loans may not be sold as easily as residential real estate.  These loans also have greater credit risk than residential real estate for the following reasons:

Commercial Mortgage Loans.  Repayment is dependent upon income being generated in amounts sufficient to cover operating expenses and debt service.
53

Commercial Loans.  Repayment is dependent upon the successful operationTable of the borrower’s business.Contents

Consumer Loans.  Consumer loans (such as personal lines of credit) are collateralized, if at all, with assets that may not provide an adequate source of payment of the loan due to depreciation, damage or loss.

Agricultural Loans.  Repayment is dependent upon the successful operation of the business, which is greatly dependent on many things outside the control of either the Bank or the borrowers.  These factors include weather, commodity prices and interest rates, among others.

Premium Finance Loans. Repayment is dependent upon the successful operations of the business. The risk is mitigated since the loan is secured by the unamortized portion of the underlying insurance policy.

Student Loans. Repayment is dependent upon the obligor’s fulfillment of its contractual payment obligations.

Refund Advance Loans. Repayment is dependent upon an income tax refund being approved and paid by the Internal Revenue Service or a state tax authority.

Premium financing activity may result in increased exposure to credit risk and fraud.
The Company acquired the premium finance loan portfolio and related assets of AFS/IBEX Financial Services, Inc., and continues, through that platform, to serve businesses and insurance agencies nationwide with commercial insurance premium financing. The Company is reliant on insurance agents and brokers to produce these commercial loans, which are made to borrowers who borrow funds to pay premiums on property and casualty insurance policies. Typically the financing arrangement with the borrower provides for periodic payments to the lender to secure the insurance policy with an insurer, and that the lender is entitled to any unearned premium due from the insurer in the event of policy cancellation with any excess returned to the insured/borrower after the loan has been paid off. The financing arrangement typically includes a limited power of attorney to permit the lender to cancel the insurance policy in the event of default.  Typically, premium finance loans are designed to amortize faster than the unearned premium that has been paid, either as a down payment, or periodically is earned, so that the value of the unearned premium exceeds the outstanding financed amount, providing collateral to the lender.  If the borrower fails to pay on the premium finance loan, then the financed insurance policy must be cancelled to avoid losses with respect to unearned premiums. The Company must consider both the creditworthiness of the borrower, and the creditworthiness of the insurer (for the ability to return the unearned premium).  There is also an operational risk of assuring that the insurance policy is cancelled on a timely basis to prevent unearned premium from dissipating once the policy can be cancelled.  Further, the Company is not involved in the production of the loans, and is therefore exposed to the risk of fraud by producers.


If the Company’s actual loan losses exceed the Company’s allowance for loan losses, the Company’s net income will decrease.
The Company makes various assumptions and judgments about the collectability of the Company’s loan portfolio, including the creditworthiness of the Company’s borrowers and the value of the real estate and other assets serving as collateral for the repayment of the Company’s loans.  Despite the Company’s underwriting and monitoring practices, the Company’s loan customers may not repay their loans according to their terms, and the collateral securing the payment of these loans may be insufficient to pay any remaining loan balance.  The Company may experience significant loan losses, which could have a material adverse effect on its operating results.  Because the Company must use assumptions regarding individual loans and the economy, the current allowance for loan losses may not be sufficient to cover actual loan losses, and increases in the allowance may be necessary.  The Company may need to significantly increase the Company’s provision for losses on loans if one or more of the Company’s larger loans or credit relationships becomes impaired or if we continue to expand the Company’s commercial real estate and commercial lending or enter new lines of lending.  In addition, federal and state regulators periodically review the Company’s allowance for loan losses and may require the Company to increase the Company’s provision for loan losses or recognize loan charge-offs.  Material additions to the Company’s allowance would materially decrease the Company’s net income.  The Company cannot assure you that its monitoring procedures and policies will reduce certain lending risks or that the Company’s allowance for loan losses will be adequate to cover actual losses.

If the Company forecloses on and takes ownership of real estate collateral property, it may be subject to the increased costs associated with the ownership of real property, resulting in reduced revenues.
The Company may have to foreclose on collateral property to protect its investment and may thereafter own and operate such property.  In such case, the Company will be exposed to the risks inherent in the ownership of real estate.  The amount that the Company, as a mortgagee, may realize after a default is dependent upon factors outside of the Company’s control, including, but not limited to:  (i) general or local economic conditions; (ii) neighborhood values; (iii) interest rates; (iv) real estate tax rates; (v) operating expenses of the mortgaged properties; (vi) supply of and demand for rental units or properties; (vii) ability to obtain and maintain adequate occupancy of the properties; (viii) zoning laws; (ix) governmental rules, regulations and fiscal policies; and (x) acts of God.  Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may adversely affect the income from the real estate.  Therefore, the cost of operating a real property may exceed the rental income earned from such property, and the Company may have to advance funds in order to protect the Company’s investment, or may be required to dispose of the real property at a loss.  The foregoing expenditures and costs could adversely affect the Company’s ability to generate revenues, resulting in reduced levels of profitability.
Our agricultural loans are subject to factors beyond the Company’s control.
The agricultural community is subject to commodity price fluctuations.  Extended periods of low commodity prices, higher input costs or poor weather conditions could result in reduced profit margins, reducing demand for goods and services provided by agriculture-related businesses, which, in turn, could affect other businesses in the Company’s market area. Any combination of these factors could produce losses within the Company's agricultural loan portfolios.

Environmental liability associated with commercial lending could have a material adverse effect on the Company’s business, financial condition and results of operations.
In the course of the Company’s business, it may acquire, through foreclosure, commercial properties securing loans that are in default.  There is a risk that hazardous substances could be discovered on those properties.  In this event, the Company could be required to remove the substances from and remediate the properties at its own cost and expense.  The cost of removal and environmental remediation could be substantial.  The Company may not have adequate remedies against the owners of the properties or other responsible parties and could find it difficult or impossible to sell the affected properties.  These events could have a material adverse effect on the Company’s business, financial condition and operating results.

New products and services are expensive to implement and are closely scrutinized by the OCC.

The Bank operates in an environment that is reliant upon innovative products and services that complement and enhance existing product and service offerings.  The investments we make in these new products and services are often expensive and we can never be certain that products or services will be acceptable to our regulators or will realize commercial success.  In addition, the OCC has stated that new products and services must be undertaken only after the appropriate controls are in place (which can often be time-consuming and expensive to implement).


Our framework for managing risks may not be effective in mitigating risk and loss to us.
We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject, including liquidity risk, credit risk, market risk, interest rate risk, operational risk, legal and compliance risk, and reputational risk, among others.  However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified.  For example, the 2008 financial and credit crisis and resulting regulatory reform highlighted both the importance and certain limitations of managing unanticipated risks.  If our risk management framework proves ineffective, we could suffer unexpected losses which could have a material adverse effect on our financial condition and results of operations.

A breach of information security, compliance breach, or error by one of the Company’s agents or vendors could negatively affect the Company’s reputation and business.
The Company depends on data processing, communication and information exchange on a variety of computing platforms and networks and over the Internet.  Despite safeguards, no system, including ours, is entirely free from vulnerability to attack or error.  Additionally, the Company relies on and does business with a variety of third-party service providers, agents and vendors with respect to the Company’s business, data and communications needs.  If information security is breached, or one of the Company’s agents or vendors breaches compliance procedures, or otherwise errs, information could be lost or misappropriated, resulting in financial loss or costs to the Company or damages to others.  These costs or losses could materially exceed the Company’s amount of insurance coverage, if any, which would adversely affect the Company’s business.
Other “high profile” data breaches during recent years have raised interest in new legislation at both the federal and state level.  To the extent additional requirements are imposed on the Bank as a result of such legislation, these costs could have an adverse impact on the Bank.
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.  Some of these policies require use of estimates and assumptions that may affect the value of our assets or liabilities and financial results.  Any changes in our accounting policies could materially affect 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.  In addition, accounting standard setters and those who interpret the accounting standards (such as the FASB, the SEC, banking regulators and our outside auditors) may change or even reverse their previous interpretations or positions on how these standards should be applied.  Changes in financial accounting and reporting standards and changes in current interpretations may be beyond our control, can be difficult to predict and could materially affect how we report our financial results and condition.  We may be required to apply a new or revised standard retroactively or apply an existing standard differently and retroactively, which may result in the Company being required to restate prior period financial statements in material amounts. In particular, the FASB issued a rule in 2016 requiring companies to estimate current expected credit losses. The rule, which is a major change for banking organizations, becomes effective for the Company on October 1, 2020. The new standard is likely to result in more timely recognition of credit losses than under the previous incurred loss model, and the Company is evaluating the extent to which the new rule will affect its results of operations.

Our network of tax preparation partners is extensive but it may be difficult to manage and retain such marketing partners because of competitive market forces.

As of the date of this filing, the Bank has a network of over 10,000 active EROs that utilize its services and it is expected that this number will increase for the 2018 tax season.  Although each ERO undergoes an analysis of its operations prior to marketing the Bank’s products, it is possible that certain EROs will facilitate or engage in tax-related malfeasance or offer the Bank's products and services in a manner that does not comply with law or contractual representations, warranties and covenants.  In addition, it is possible that the EROs may choose to offer the tax-related products of other companies who provide products and services similar to the Bank’s for pricing or other competitive reasons.  The effect of any of these events, were they to be realized in the future, could potentially result in material adverse consequences to the Company.

Catastrophic events could occur and impact either our or our vendors’ operations.

Catastrophic events (including those that are weather related as well as those that are geopolitical related) could have an adverse impact on both the Bank’s and its vendors’ ability to provide necessary services to support the operation of the Bank and provide products and services to the Bank’s customers. These events, which are beyond our control, could be short-term in nature or longer term, lasting for significant periods of time. Although insurance coverage may provide some protection in light of such events, it cannot be determined whether insurance proceeds would adequately compensate the Bank for the losses it incurred as a result of such events. Moreover, the damage cause by such events may not be directly compensable, such as damage to our reputation as a result of such events.

Risks Related to the Company’s Stock
The price of the Company’s common stock may be volatile, which may result in losses for investors.
The market price for shares of the Company’s common stock has been volatile in the past, and several factors could cause the price to fluctuate substantially in the future.  These factors include:
announcements of developments related to the Company’s business;

the initiation, pendency or outcome of litigation, regulatory reviews, inquiries and investigations, and any related adverse publicity;

fluctuations in the Company’s results of operations;

sales of substantial amounts of the Company’s securities into the marketplace;

general conditions in the Company’s banking niche or the worldwide economy;

a shortfall in revenues or earnings compared to securities analysts’ expectations;

lack of an active trading market for the common stock;

changes in analysts’ recommendations or projections; and

the Company’s announcement of new acquisitions or other projects.

The market price of the Company’s common stock may fluctuate significantly in the future, and these fluctuations may be unrelated to the Company’s performance.  General market price declines or market volatility in the future could adversely affect the price of the Company’s common stock, and the current market price may not be indicative of future market prices.

An investment in Company common stock is not an insured deposit.
Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private entity.  Investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and is subject to market forces that affect the price of common stock in any company.  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.

The Company’s common stock is thinly traded, and thus your ability to sell shares or purchase additional shares of the Company’s common stock will be limited, and the market price at any time may not reflect true value.
Your ability to sell shares of the Company’s common stock or purchase additional shares largely depends upon the existence of an active market for the common stock.  The Company’s common stock is quoted on the NASDAQ Global Select Market, but the volume of trades on any given day is relatively light, and you may be unable to find a buyer for shares you wish to sell or a seller of additional shares you wish to purchase.  In addition, a fair valuation of the purchase or sales price of a share of common stock also depends upon active trading, and thus the price you receive for a relatively thinly traded stock, such as the Company’s common stock, may not reflect its true value.

Future sales or additional issuances of the Company’s capital stock may depress prices of shares of the Company’s common stock or otherwise dilute the book value of shares then outstanding.
Sales of a substantial amount of the Company’s capital stock in the public market or the issuance of a significant number of shares could adversely affect the market price for shares of the Company’s common stock.  As of September 30, 2017, the Company was authorized to issue up to 15,000,000 shares of common stock, of which 9,622,595 shares were outstanding, and 3,836 shares were held as treasury stock.  The Company was 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.  Future sales or additional issuances of stock may affect the market price for shares of the Company’s common stock.
Federal regulations and our organic corporate documents may inhibit a takeover, prevent a transaction you may favor or limit the Company’s growth opportunities, which could cause the market price of the Company’s common stock to decline.
Certain provisions of the Company’s charter documents and federal regulations could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company.  In addition, the Company may need to obtain approval from regulatory authorities before it can acquire control of any other company. 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 the Company’s or the Bank’s operations.
The Company may not be able to pay dividends in the future in accordance with past practice.
The Company pays 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 the Company’s earnings, capital requirements, financial condition, regulatory review, and other factors considered relevant by the Company’s Board of Directors.

Risks Related to the Bank's divisions
Our divisional products and services are highly regulated financial products subject to extensive supervision and regulation and are costly to maintain.

The products and services offered by several of our divisions are highly regulated by federal banking agencies, the Bureau and some state regulators.  Some of the laws and related regulations affecting its operations include consumer protection laws, escheat laws, privacy laws, anti-money laundering laws and data protection laws.  Compliance with the relevant legal paradigm in which our divisions operate is costly and requires significant personnel resources, as well as extensive contacts with outside lawyers and consultants to stay abreast of the applicable regulatory schemes. 

The Bureau's Prepaid Accounts Rule impacts the Bank’s offering of prepaid cards.

As described above, the Bureau issued a final rule on October 5, 2016, which supplemented the existing regulatory framework pursuant to which prepaid products (both cards and other delivery methods, including codes) are offered and serviced. The Prepaid Accounts Rule brought prepaid products fully within Regulation E, which implements the federal Electronic Funds Transfer Act, and, for prepaid products that have a “credit” component, within Regulation Z, which implements the federal Truth in Lending Act. The Prepaid Accounts Rule created tailored provisions which (1) created a definition for a “prepaid account” in Regulation E, (2) required certain disclosures to consumers before such consumer acquires a prepaid card account, (3) extended Regulation E’s limited liability and error resolution provisions to certain registered prepaid accounts, (4) regulated the provision of billing statements, and (5) extended Regulation Z’s credit card rules and disclosure requirements to prepaid accounts that provide
overdraft services and other credit features (the Bank currently issues a card with an overdraft feature that is marketed by a third party program manager.) The Prepaid Accounts Rule also required account issuers to post their publicly offered prepaid card program agreements on their own websites and make them available to consumers upon request and to provide copies of all publicly offered prepaid card program agreements to the Bureau. The Prepaid Accounts Rule became effective on October 1, 2017, and compliance with the Prepaid Accounts Rule has resulted in additional costs.

In addition to the CFPB’s final prepaid regulation (discussed above), it is possible that new legislation or more stringent focus by banking agencies could further restrict our current operations or change the regulatory environment in which our customers operate.
Although it is possible that some legislation under consideration could have either a positive or de minimis impact on its operations and profitability, it is also possible that any new legislation affecting our operations or our customers, some of which are also regulated entities, would have a negative impact on the conduct of the relevant business.  There is no way to quantify the impact that such changes could have on our profitability or operations at this time given the unpredictable nature of the risk.
In addition to the relevant legal paradigm set forth above, it should also be noted that there has been concern within the bank regulatory environment over the use of credit and, in particular, prepaid cards as a means by which to illegally launder and move money.  The U.S. Treasury’s Financial Crimes Enforcement Network issued rules related to providers of “prepaid access” which have left certain issues unresolved related to its regulatory requirements.  It is likely that any changes to the regulatory environment related to the offering of prepaid cards will increase the Bank’s compliance and operational costs.  Although the Bank will continue to work with its regulators to provide information about its operations as well as the state of the prepaid card industry, we believe such concerns in general will continue for the foreseeable future for the entire banking industry, with a continued emphasis on heightened compliance expectations, resulting in higher compliance costs.  See “Business Regulation – Bank Supervision and Regulation” which is included in Item 1 of this Annual Report on Form 10-K.

Our tax refund-related business is concentrated in a limited number of partners and our success will depend upon the
maintenance of those agreements.

If any of the companies through which we offer tax refund-related products to consumers and commercial entities were to significantly decrease the size of our existing or projected relationship, such a decrease would likely have a significant impact on our financial condition. For example, the Bank’s agreement with Jackson Hewitt Tax Service extends through the 2020 tax season, but the loss of this relationship prior to such time for a contractual or other reason would have a materially adverse impact on the Bank’s results of operation.

The CFPB’s recently published final rule related to certain small dollar loans will impact certain processes used by the Bank and could materially impact the Bank’s ability to grow certain aspects of the Payments division.

On October 5, 2017, the CFPB issued its final rule related to certain small dollar loans. Affecting primarily shorter term (e.g., 45 days or less) loans with an Annual Percentage Rate of 36% or more, the rule generally requires a provider of such loans to determine the consumer borrower’s ability to repay; an alternative to the ability-to-repay determination is provided for loans that do not exceed $500 and meet certain other requirements.

In addition to these restrictions, the CFPB also imposes certain requirements related to the collection of longer-term loans with an Annual Percentage Rate of 36% or more; specifically, the final rule requires that, where the creditor (like the Bank) has access to the consumer’s bank account for repayment of the loan proceeds, the creditor must provide certain notices to the consumer about upcoming payments and transactions via model forms the CFPB also published. In addition, a creditor is prohibited from attempting to withdraw payment from a consumer’s bank account where such repayment has been declined for two consecutive payment attempts. At such time, the creditor is required to get a new, specific authorization from the consumer to debit the bank account.

If the OCC finalizes rules related to the application process for the acceptance of “fintech” charters, entities that receive such charters could encroach upon the Bank’s business.

Although the OCC has publicly stated in court filings that it is not yet accepting applications for a “fintech” charter, the recent Acting Comptroller of the Currency has stated that the agency continues to evaluate the benefits and risks of providing national charters to companies that do not exercise the full range of traditional banking powers. Were the OCC to accept such applications from companies that sought a national platform from which to offer specific banking products and services (including payment processing services), such new fintech companies could engage in operations or bring products to the market that could materially impact the Bank’s financial performance.


The Bank owns or is seeking a number of patents, trademarks and other forms of intellectual property with respect to the operation of its business and the protection of such intellectual property may in the future require material expenditures.
In their operations, our divisions, through the Bank, seek protection for various forms of intellectual property from time to time.  No assurance can be given that such protection will be granted.  In addition, given the competitive market environment of its business, the Bank must be vigilant in ensuring that its patents and other intellectual property are protected and not exploited by unlicensed third parties.

The Bank must also protect itself and defend against intellectual property challenges initiated by third parties making various claims against it.  With respect to these claims, regardless of whether we are pursuing our claims against perceived infringers or defending our intellectual property from third parties asserting various claims of infringement, it is possible that significant personnel time and monetary resources could be used to pursue or defend such claims.
It should also be noted that intellectual property risks extend to foreign countries whose protections of such property are not as extensive as those in the United States.  As such, the Bank may need to spend additional sums to ensure that its intellectual property protections are maximized globally.  Moreover, should there be a material, improper use of the Bank’s intellectual property, this could have an impact on our divisions' operations and the Bank.
Costs of conforming products and services to the Payment Card Industry Data Security Standards (the “PCI DSS”) are costly and could continue to affect the operations of MPS.
The PCI DSS is a multifaceted standard that includes data security management, policies and procedures as well as other protective measures, that was created by the largest credit card associations in the world in an effort to protect the nonpublic personal information of all types of cardholders, including prepaid cardholders and holders of network branded credit cards (such as Discover, MasterCard and Visa).  The PCI DSS mandates a prescribed technical foundation for the collection, storage and transmission of cardholder data and also contains significant provisions regarding the testing of security protections by various entities in the payment card industry, including MPS.  Compliance with the PCI DSS is costly and changes to the standards could have an equal, or greater, effect on profitability of the relevant business division.
The potential for fraud in the card payment industry is significant.
Issuers of prepaid and credit cards have suffered significant losses in recent years with respect to the theft of cardholder data that has been illegally exploited for personal gain.  The theft of such information is regularly reported and affects not only individuals but businesses as well.  Many types of credit card fraud exist, including the counterfeiting of cards and “skimming.”
Losses from fraud have been substantial for certain card industry participants.  Although fraud has not had a material impact on the profitability of the Bank, it is possible that such activity could adversely impact in the future, notwithstanding, our recent introduction of EMV (i.e., chip-enabled) cards and the broader acceptance of such cards in the U.S. and international markets.
Part of our business depends on sales agents who do not sell our products exclusively.
Our business model, to some degree, depends upon the use of sales agents who are not our employees.  These agents sell the products and services of many different processors to merchants and other parties in need of card services.  Failure to maintain good relations with such sales agents or the perceived or actual malfeasance of such agents could have a negative impact on our business.

Products and services offered by MPS involve many business parties and the possibility of collusion exists.
As described above, the theft of cardholder data is a significant threat in the industry in which MPS operates.  This threat also includes the possibility that there is collusion between certain participants in the card system to act illegally.  Although MPS is not aware of any instances to date, it is possible that such activities could occur in the future, thereby impacting its operation and profitability.

Competition in the card industry is significant.  In order to maintain an edge to its products and offerings, MPS must invest significantly in technology and research and development.
The heavy emphasis upon technology in the products and services offered by MPS requires significant expenditures with respect to research and development both to exploit technological gains and to develop new products and services to meet customers’ needs.  As is common with most research and development, while some efforts may yield substantial benefits for the division, others will not, thereby resulting in expenditures for which profits will not be realized.  MPS is not able to predict with any degree of certainty as to the level of research and development that will be required in the future, how much those efforts will cost, or how profitable such developments will be for the division once undertaken.
Our business could suffer if there is a decline in the use of prepaid cards or there are adverse developments with respect to the prepaid financial services industry in general.
As the prepaid financial services industry evolves, consumers may find prepaid financial services to be less attractive than other financial services.  Consumers might not use prepaid financial services for any number of reasons.  For example, negative publicity surrounding the Company or other prepaid financial service providers could impact MPS’ business and prospects for growth to the extent it adversely impacts the perception of prepaid financial services.  If consumers do not continue or increase their usage of prepaid cards, MPS’ operating revenues may remain at current levels or decline.  Growth of prepaid financial services as an electronic payment mechanism may not occur or may occur more slowly than estimated.  If there is a shift in the mix of payment forms used by consumers (i.e., cash, credit cards, traditional debit cards and prepaid cards) away from products and services offered by MPS, such a shift could have a material adverse effect on our financial condition and results of operations. 

FTC legal action against a major program manager offering Bank-issued prepaid cards requires heightened review and
oversight

On November 10, 2016, the Federal Trade Commission filed suit in federal court in Georgia against NetSpend, a significant program manager for the Bank, alleging that NetSpend engaged in deceptive marketing and servicing in connection with Bank and other-branded prepaid cards issued pursuant to such program agreement. No allegations against the Bank are included in the complaint but it is possible in the future that other third parties with which the Bank has contractual agreements are accused or found to have engaged in illegal practices.

Discover, MasterCard and Visa, as well as other electronic funds networks in which MPS operates, could change their rules.
Pursuant to the agreements between MPS and Discover, MasterCard, Visa and other card networks, these third parties typically have retained the right to prescribe certain business practices and procedures with respect to parties such as MPS.  Such prescribed terms include, but are not limited to, a contracting party’s level of capital as well as other business requirements.
Discover, MasterCard and Visa also retain the right in their agreements with industry participants such as MPS to unilaterally change the rules under which such transactions are processed with little or no advance warning.  This power includes the power to prevent MPS from accessing their networks in order to process transactions as well as the power to revise, replace or alter existing card interchange rates and rules.  Should any third party choose to invoke this right unilaterally, such changes could materially impact the operations of MPS.

Our business is heavily dependent upon the Internet and any negative disruptions to its operation could negatively impact our business.
Much of our business, especially at the divisional level, depends upon transactions being processed through the Internet.  Like nearly all other commercial enterprises, we rely upon others to provide the Internet so that commerce can be conducted.  Were there to be a failure in the operation of the Internet or a significant impairment in our ability to move information on the Internet or our ability to do so in accordance with customer safeguard protocols, we would need to develop alternative processes during which time revenues and profitability may be lower.
Our ability to process transactions requires functioning communication and electricity lines.
The nature of the banking industry in general, and the credit card and debit card industry in particular, is that it must be operational every day of the week and every hour of the week.  Any disruption in the utilities utilized by the Bank or its divisions could have a negative effect on our operations and extensive disruptions could materially affect our operations, and have a material adverse effect on our financial condition and results of operations.

Data encryption technology has not been perfected and vigilance in MPS’ information technology systems is costly.
The Bank and its divisions hold holds sensitive business and personal information with respect to the products and services it offers.  This information, which is generally digitally encrypted, is passed along various technology channels, including the Internet.  Although we encrypt its customer and other sensitive information and expend significant financial and personnel resources to maintain the integrity of its technology networks and the confidentiality of nonpublic customer information, because such information may travel on public technology and other non-secure channels, the confidential information is potentially susceptible to hacking and other illegal intrusions.  Were such a security breach to occur, the provision of products and services to our customers would be impaired.  In addition, were a breach to occur, we could incur significant fines from the electronic funds associations involved, or from federal and/or state regulators, and be subject to other prohibitions, as well as extensive litigation from commercial parties and consumers affected by such breach. Such actions would have a material adverse effect on our financial condition and results of operations.
Unclaimed funds represented by unused value on the cards presents compliance and other risks.
The concept of escheatment involves the reporting and delivery of property to states that is abandoned when its rightful owner cannot be readily located and/or identified.  In the context of prepaid cards, the funds in connection with such cards can sometimes be “abandoned” or unused for the relevant period of time set forth in each applicable state’s abandoned property laws.  MPS utilizes automated programs to ensure its operations are compliant with such applicable laws and regulations.  There appears, however, to be a movement among some state regulators to interpret definitions in escheatment statutes and regulations in a manner that is more aggressive.  Should such state regulators choose to do so, they may initiate collection or other litigation action against prepaid card issuers for unreported abandoned property.  Such actions may seek to assess fines and penalties.

MPS Revenue Concentration.
MPS works with a large number of business partners to derive its revenue.  The Company believes four of its partners have reached a size that, should these partners’ business with the Company end or there is a significant decrease in revenues associated with any of these business relationships, the earnings attributable to them would have a material effect on the financial results of the Company.

ATM fraud is becoming both more sophisticated and more prevalent.

Although the Bank has not been the subject of any widespread or concerted ATM attack, ATM fraud has shown a marked increase and threats to the network of entities that comprise ATM networks continue. It is estimated that global losses from ATM skimming alone are over $2 billion annually and are expected to grow.  Although most ATM fraud continues to involve skimming (whereby a skimmer reads a debit card's encoded mag stripe and a camera records the PIN that is entered by a customer), new frauds including those perpetrated by Wi-Fi scanners and the cracking of encryption software, are being perpetrated against global banks and their customers.  The Bank continues to monitor these developments and has a program in place to monitor for debit and credit card fraud.  Even with such policies and procedures in place, however, there can be no assurance that the Bank, its customers or the ATM networks in which it participates will not be the victims of an ATM-based crime.

Item 1B. Unresolved Staff CommentsComments.
 
Not applicable.None.

Item 2.    PropertiesProperties.

The Company's home office is located at 5501 South Broadband Lane in Sioux Falls, South Dakota. The Bank is a federally chartered savings bank which operates 10 full-service branch banking offices in four market areas:  Storm Lake and Des Moines, Iowa and Brookings and Sioux Falls, South Dakota, one non-retail service branch in Memphis, Tennessee, and sevenCompany has eight non-branch offices located in South Dakota, Texas, California, Kentucky,from which its BaaS and Pennsylvania.Commercial Finance business lines operate. The non-branch offices are related toBaaS business line operates out of the following divisions of MetaBank: MPS, Refund Advantage, EPS Financial, SCS, and AFS/IBEX. Our MPS division offers prepaid cards,Company's home office along with other payment industry products and services with operations in twoadditional offices in Sioux Falls, South Dakota. Refund Advantage and EPS Financial offer tax payment industry products and services nationwide, with offices located in Louisville, Kentucky and Easton, Pennsylvania. SCS provides consumer creditThe Commercial Finance business line operates out of offices in Troy, Michigan; Franklin, Tennessee; and Toronto, Ontario, Canada. The Company has corporate and shared services through its propriety underwriting model with an officeoffices located in Hurst, Texas. Our AFS/IBEX division provides nationwide commercial insurance premium financing for businessScottsdale, AZ and insurance agencies and has two agency offices, one in Dallas, Texas, and one in Newport Beach, California.  Washington, D.C.



Of the Company's 19eight properties, the Company leases 15seven of them, all on market terms. See Note 76 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.


Though the Company has experienced rapid growth in both of its payments and banking segments, managementManagement believes current facilities are adequate to meet its present needs.needs, though it is continuing to assess those property needs as Pathward Financial is a Talent Anywhere remote working environment.


The Bank maintains an online database with a service bureau, whose primary business is providing such services to financial institutions.

Item 3.    Legal ProceedingsProceedings.

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


Item 4.    Mine Safety DisclosuresDisclosures.
 
Not applicable.































54
Table of Contents
PART II


Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesSecurities.
 
The Company’s common stock trades on the NASDAQ Global Select Market® under the symbol “CASH.” Quarterly dividends for 2017all quarters of fiscal years 2022 and 20162021 were $0.13.  The quarterly high and low sales prices$0.05 per share of the common stock, as reported on the NASDAQ Global Market, was as follows for the periods presented below:share.
 Fiscal Year 2017 Fiscal Year 2016
 Low High Low High
First Quarter$60.20
 $106.85
 $39.10
 $49.67
Second Quarter76.56
 106.90
 36.22
 46.53
Third Quarter82.40
 93.20
 43.55
 53.76
Fourth Quarter60.70
 95.00
 48.97
 62.62

Prices disclose inter-dealer quotations without retail mark-up, mark-down or commissions and do not necessarily represent actual transactions.

Dividend payment decisions are made with consideration of a variety of factors including earnings, financial condition, market considerations and regulatory restrictions.
 
As of November 24, 2017,16, 2022, the Company had (i) 9,666,46228,466,833 shares of common stock outstanding, which were held by approximately 213214 stockholders of record, (ii) no shares of nonvoting common stock outstanding, and (iii) 18,936147,344 shares of common stock held in treasury.
 
The transfer agent for the Company’s common stock is Computershare Investor Services, 462 South 4th Street, Suite 1600, Louisville, KY 40202.P.O. Box 43006, Providence, RI 02940-3006.
 
ThereThe Company's Board of Directors authorized a 7,500,000 share repurchase program on November 20, 2019 that was publicly announced on November 20, 2019 and is scheduled to expire on December 31, 2022. All remaining shares available for repurchase under this program were no purchases by the Companyrepurchased during the fiscal year ended2022 first quarter. On September 3, 2021, the Company's Board of Directors authorized an additional 6,000,000 share repurchase program that was publicly announced on September 7, 2021 and is scheduled to expire on September 30, 2017,2024. The table below sets forth information regarding repurchases of equity securities that are registered byour common stock during the Company pursuant to Section 12fiscal 2022 fourth quarter.
Period
Total Number of Shares Repurchased(1)
Average Price Paid per Share(1)(2)
Total Number Of Shares Purchased As Part of Publicly Announced Plans or ProgramsAdditional Shares Authorized As Part of Publicly Announced Plans or ProgramsMaximum Number Of Shares that may yet be Purchased Under the Plans or Programs
July 1 to 31306,129 $40.55 305,700 — 4,562,477 
August 1 to 31— — — — 4,562,477 
September 1 to 30273,435 32.76 267,500 — 4,294,977 
Total579,564 573,200 — 
(1) Of the total number of shares acquired during the period, 6,364 shares were acquired in satisfaction of the Exchange Act.tax withholding obligations of holders of restricted stock unit awards, which vested during the quarter.

(2) The average price paid per share is calculated on a trade date basis for all open market transactions and excludes commissions and other transaction expenses.


55
Table of Contents
Total Stock Return Performance GraphGraph


The following graph compares the cumulative total stockholder return on MetaPathward Financial common stock over the last five fiscal years with the cumulative total return of the NASDAQ Composite Index and the NASDAQ ABA Community Bank Index (assuming the investment of $100 in each index on October 1, 20122017 and reinvestment of all dividends). The stock price performance reflected below is based on historical results and is not necessarily indicative of future stock price performance.


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 MetaPathward Financial with the SEC, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent wethe Company specifically incorporateincorporates it by reference into a document filed under the Securities Act of 1933, as amended, or the Exchange Act.



cash-20220930_g2.jpg


Fiscal Year Ended September 30,
Index201720182019202020212022
Pathward Financial, Inc.$100.00 $106.00 $126.51 $75.20 $206.25 $130.12 
NASDAQ Composite Index100.00 125.17 125.82 177.36 231.03 170.37 
NASDAQ ABA Community Bank Index100.00 103.35 95.14 65.70 119.36 109.76 


56
 Year Ended September 30,
Index201220132014201520162017
Meta Financial Group$100.00
$159.75
$150.22
$180.37
$264.51
$344.36
NASDAQ Composite Index100.00
122.77
148.08
153.99
179.29
221.75
NASDAQ ABA Community Bank Index100.00
126.80
136.75
157.73
174.20
226.50




Item 6.        Selected Financial Data
Table of Contents
September 30,2017 
2016 (1)
 2015 2014 2013
          
SELECTED FINANCIAL CONDITION DATA         
(Dollars in Thousands)         
Total assets$5,228,332
 $4,006,419
 $2,529,705
 $2,054,031
 $1,691,989
Loans receivable, net1,317,837
 919,470
 706,255
 493,007
 380,428
Securities available for sale1,693,431
 1,469,249
 1,256,087
 1,140,216
 881,193
Securities held to maturity563,529
 619,853
 345,744
 282,933
 288,026
Goodwill and intangible assets150,901
 65,849
 70,505
 2,588
 2,339
Deposits3,223,424
 2,430,082
 1,657,534
 1,366,541
 1,315,283
Total borrowings1,490,067
 1,187,578
 561,317
 497,721
 216,456
Stockholders' equity434,496
 334,975
 271,335
 174,802
 142,984
          
Year Ended September 30,2017 2016 2015 2014 2013
          
SELECTED OPERATIONS DATA 
  
  
  
  
(Dollars in Thousands, Except Per Share Data) 
  
  
  
  
          
Total interest income$108,103
 $81,396
 $61,607
 $48,660
 $38,976
Total interest expense14,873
 4,091
 2,387
 2,398
 2,954
Net interest income93,230
 77,305
 59,220
 46,262
 36,022
Provision for loan losses10,589
 4,605
 1,465
 1,150
 —
Net interest income after provision for loan losses82,641
 72,700
 57,755
 45,112
 36,022
Total non-interest income172,172
 100,770
 58,174
 51,738
 55,503
Total non-interest expense199,663
 134,648
 96,506
 78,231
 74,403
Income before income tax expense55,150
 38,822
 19,423
 18,619
 17,122
Income tax expense10,233
 5,602
 1,368
 2,906
 3,704
Net income44,917
 33,220
 18,055
 15,713
 13,418
          
Earnings per common share: 
  
  
  
  
Basic$4.86
 $3.93
 $2.68
 $2.57
 $2.40
Diluted$4.83
 $3.91
 $2.66
 $2.53
 $2.38
(1) See Reclassification and Revision of Prior Period Balances under Note 1 Summary of Significant Accounting Policies for additional information describing adjustments made to the Company's EPS calculation. 2016 YTD basic EPS of $3.95 was corrected to $3.93 and diluted EPS of $3.92 was corrected to $3.91.


Year Ended September 30,2017 2016 2015 2014 2013
          
SELECTED FINANCIAL RATIOS AND OTHER DATA         
          
PERFORMANCE RATIOS         
Return on average assets1.13% 1.10% 0.78% 0.81% 0.78%
Return on average equity11.20% 10.80% 8.83% 10.01% 9.36%
Net interest margin, tax equivalent3.05% 3.19% 3.03% 2.80% 2.48%
          
QUALITY RATIOS 
  
  
  
  
Non-performing assets to total assets0.72% 0.03% 0.31% 0.05% 0.05%
Allowance for loan losses to total loans0.57% 0.61% 0.88% 1.08% 1.02%
Allowance for loan losses to non-performing loans20% 479% 80% 547% 568%
Excluding insured loans (1)
         
Non-performing assets to total assets (2)
0.70% 0.03% 0.31% 0.05% 0.05%
Allowance for loan losses to total loans (3)
0.63% 0.61% 0.88% 1.08% 1.02%
Allowance for loan losses to non-performing loans (4)
21% 479% 80% 547% 568%
          
CAPITAL RATIOS 
  
  
  
  
Stockholders' equity to total assets8.31% 8.36% 10.73% 8.51% 8.45%
Average stockholders' equity to average assets10.07% 10.19% 8.81% 8.14% 8.37%
          
OTHER DATA 
  
  
  
  
Book value per common share outstanding at end of year$45.15
 $39.30
 $33.24
 $28.33
 $23.55
Tangible book value per common share outstanding at end of year$29.47
 $31.57
 $24.60
 $27.91
 $23.17
Dividends declared per share at end of year0.52
 0.52
 0.52
 0.52
 0.52
Number of full-service offices at end of year10
 10
 10
 11
 11
          
Common Shares Outstanding9,622,595
 8,523,641
 8,163,022
 6,169,604
 6,070,654
(1) Excludes student loans that are insured by ReliaMax Surety Company.
(2) The insured student loans that are 90 or more days past due are excluded from non-performing assets.
(3) The insured student loan balance of $123.7 million is excluded from the total loan balance.
(4) The insured student loans that are 90 or more days past due are excluded from non-performing loans.


Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.
 
This section should be read in conjunction with the following parts of this Form 10-K: Part II,I, Item 8 “Financial Statements and Supplementary Data,1 “Business,” Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” and Part I,II, Item 1 “Business.8 “Financial Statements and Supplementary Data.”
 
General
GENERAL
The Company, a registered unitary savings and loanbank holding company, is a Delaware corporation, the principal assets of which are all the issued and outstanding shares of the Bank, a federal savingsnational bank. Unless the context otherwise requires, references herein to the Company include MetaPathward Financial and the Bank, and all subsidiaries of Meta Financial, direct or indirect subsidiaries of Pathward Financial on a consolidated basis.
 

EXECUTIVE SUMMARY


OverviewBusiness Highlights

•On October 27, 2022, the Company announced that Sonja Theisen, currently Executive Vice President of Corporate Developments Since Fiscal Year 2016Governance, Risk and Compliance, has been appointed to succeed Glen Herrick as the Chief Financial Officer effective April 30, 2023. Ms.Theisen, who joined Pathward in 2013, has held leaderships roles across the organization including Chief Accounting Officer, Chief of Staff, and EVP of Governance, Risk and Compliance. Additional details can be found in the related press release available at www.pathwardfinancial.com.

•On November 1, 2016, MetaBank completedOctober 4, 2022, the acquisitionCompany announced the unveiling of substantially allits new corporate brand, marked by the transition to its new name, Pathward™, N.A. ("Pathward" or the "Bank"), and the launch of the assets and certain liabilities of EPS Financial, LLC (“EPS”) from privately-held Drake Enterprises, Ltd. (“Drake”). The assets acquired by MetaBank in the EPS acquisition include the EPS trade name, operating platform, and other assets. The EPS management team and other employees were hired by MetaBank and EPS operations have continued to be based out of Easton, PA. The purchase price for the acquisition of approximately $42.5 million included the payment of approximately $21.3 million in cash and the issuance of 369,179 shares of Meta Financial common stock to Drake. The cash portionCompany's new website, Pathward.com. As part of the purchase price was funded from the proceeds of the previously announced subordinated debt issuance.

On December 14, 2016, MetaBank completed the acquisition of substantially all of the assets and specified liabilities of SCS, a fintech provider of consumer tax advances and other consumer credit services through its propriety underwriting model and loan management system. The assets acquired by MetaBank in the SCS acquisition include the SCS trade name, propriety underwriting model and loan management system and other assets. The purchase price for the acquisition included the payment of approximately $7.5 million in cash to SCS and the issuance of 113,328 shares of Meta Financial common stock to SCS’ stakeholders on behalf of SCS. In addition, MetaBank paid out $17.5 million of contingent cash consideration and 264,431 shares of Meta Financial common stock due to the achievement of certain performance benchmarks during fiscal year 2017. MetaBank acquired SCS assets with estimated fair values of $28.1 million of intangible assets, including customer relationships, trademark, and non-compete agreements, and negligible other assets, resulting in goodwill of $31.6 million.

On December 20, 2016, MetaBank purchased, net of purchase discount, a $133.8 million seasoned, floating rate, private student loan portfolio. All loans are indexed to three-month LIBOR plus various margins. The portfolio is serviced by ReliaMax Lending Services, LLC and insured by ReliaMax Surety Company.
On July 27, 2017, MetaBank was advised they will not be providing interest-free tax advance loans for H&R Block tax preparation customers during the 2018 tax season. The Company’s relationship with H&R Block represented approximately $12.0 million in net earnings during fiscal year 2017. Given the loss of this relationship,corporate rebrand, the Company recognized a total impairment charge of $10.2 million, which was expensed during the 2017 fiscal fourth quarter.

On August 2, 2017, MetaBank, entered into an extension to its current agreement with Jackson Hewitt Tax Service to offer on an annual basis up to $750$6.9 million of interest-free refund advance loans, an increase of $300 million in available funds over last year. The agreement includes underwriting, origination, servicing, and loan retention, and is supported by Specialty Consumer Services, a division of MetaBank. Under the extended agreement, MetaBank will continuepre-tax expenses related to provide these services through the 2020 tax season.

On September 25, 2017, Sheree Thornsberry joined the Company as Executive Vice President and Head of Payments. Ms. Thornsberry is responsible for the prepaid, debit, correspondent and ATM business lines.

On October 11, 2017, the Company completed the purchase of a $73 million, seasoned, floating rate, private student loan portfolio. All loans are indexed to one-month LIBOR. The portfolio is serviced by ReliaMax Lending Services LLC and insured by ReliaMax Surety Company. The Company expects to realize initial net yields of over 6%. This portfolio purchase builds on our existing student loan platform and we expect that the acquired loan portfolio will be easily integrated with minimal impact to the business.

On November 13, 2017, Shelly Schneekloth joined the Company as Executive Vice President and Head of Technology and Operations. Ms. Schneekloth is responsible for directing information technology and operations initiatives to align and support business strategies.

The Company recorded net income of $44.9 million in fiscal 2017 compared to $33.2 million in fiscal 2016.  The increase in net income was primarily due to increases in non-interest income and net interest income. In fiscal 2017, non-interest income increased to $172.2 million from $100.8 million in fiscal 2016, primarily due to increases in tax advance product fee income, card fee income and refund transfer product fee income.  The Company’s net interest income grew to $93.2 million in fiscal 2017, compared to $77.3 million in fiscal 2016. The increase was driven by growth in both loan and investment volumes as well as increased yields in the investment portfolio. Additionally, the continuous improvement in the overall interest-earning asset mix contributed to the increased net interest income, primarily due to loan growth, including as a result of the December 2016 purchased student loan portfolio, and purchases of highly rated tax-exempt municipal securities at relatively high tax equivalent yields. Partially offsetting the higher non-interest income and net interest income was non-interest expense, which rose $65.0 million, from $134.6 million in fiscal 2016 to $199.7 million in fiscal 2017, and income tax expense which rose from $5.6 million to $10.2 million year over year.

Overall, the cost of funds at MetaBank averaged 0.43%rebranding efforts during fiscal 2017, compared to 0.15% for 2016. This increase was primarily due to a combination of the issuance of the Company's subordinated debt in the fourth quarter of fiscal year 2016,2022. The Company continues to estimate total rebranding expenses will range between $15 million to $20 million.

•As part of its strategy to continue to optimize interest-earning assets, the additionCompany sold the entirety of wholesale deposits,its student loan portfolio during the fourth quarter of fiscal 2022. The sale generated an unfavorable pre-tax impact of approximately $0.5 million after netting the $4.3 million reversal of provision from the portfolio's allowance and the loss on sale of $4.8 million. The balance of the portfolio at time of sale was $81.5 million.

•On September 26, 2022, the Company announced the completion of a private placement of $20 million of its 6.625% Fixed-to-Floating Rate Subordinated Notes due 2032 to certain qualified institutional buyers and accredited investors. The Notes are intended to qualify as Tier 2 capital for regulatory capital purposes.

•The Company announced on October 10, 2022 that the American Bankers Association ("ABA") Foundation awarded it the 2022 Community Commitment Award during the ABA's Annual Convention on October 4. Pathward's Community Impact Program partners with organizations that provide resources for the unbanked and underbanked and aid to historically marginalized populations. The Community Impact Program delivers on Pathward's purpose of powering financial inclusion for all™ by lifting up the communities it serves.

Financial Highlights for the 2022 Fiscal Fourth Quarter

•Total revenue for the fourth quarter was $123.2 million, an increase of $3.0 million, or 3%, compared to the same quarter in short-term borrowing rates.
Tangible book value per common share decreased by $2.10, or 7%, to $29.47 per share at September 30, 2017, from $31.57 per share at September 30, 2016.  This decrease wasfiscal 2021, primarily driven by an increase in common shares outstanding alonginterest income, partially offset by a decrease in noninterest income.

•Net interest margin ("NIM") increased to 5.21% for the fourth quarter from 4.35% during the same period of last year. The prior year period was impacted by excess cash associated with increasesthe Company's participation in goodwillthe U.S. Treasury Department's Economic Impact Program.

•Total gross loans and intangible assets, which for this calculation, are excluded from total stockholders' equity. The increases in common shares outstanding, goodwill and intangible assets were primarily attributable to the EPS and SCS acquisitions completed during fiscal 2017. Book value per common share outstanding increased by $5.85, or 15%, to $45.15 per shareleases at September 30, 2017, from $39.30 per share at2022 decreased $78.5 million, to $3.53 billion, or 2%, compared to September 30, 2016.2021 and decreased $154.2 million, or 4%, when compared to June 30, 2022. The decrease compared to the prior year quarter was primarily due to the sale of all remaining community banking loans during the fiscal 2022 first quarter, the sale of the student loan portfolio during the fiscal 2022 fourth quarter, and a reduction in warehouse finance loans, partially offset by growth in the commercial finance portfolio. The primary driver for the decrease on a linked quarter basis was the sale of the student loan portfolio, a reduction in warehouse finance loans, and the seasonal decline in tax services loans.

57
Table of Contents
•The Company resumed share repurchases on July 1, 2022, and during the fiscal 2022 fourth quarter repurchased 573,200 shares of common stock at an average share price of $37.05.

Subsequent Events

Management has evaluated and identified subsequent events that occurred after September 30, 2022. See Note 21. Subsequent Events for details on these events.

FINANCIAL CONDITION

At September 30, 2022, the Company’s non-performing assets (“NPAs”) were 0.72% of total assets at September 30, 2017, comparedincreased by $56.8 million to 0.03% at September 30, 2016. The increase in NPAs was primarily related to two large agricultural relationships becoming more than 90 days past due. These loan relationships were both still accruing in the fourth fiscal quarter. One of these relationships was paid in full on November 1, 2017, and it is possible the collateral related to the other relationship could go through a deed in lieu of foreclosure process in the near future.

Financial Condition
As of September 30, 2017, the Company’s assets grew by $1.22 billion, or 30%, to $5.23$6.75 billion compared to $4.01 billion at September 30, 2016.  The growth in assets resulted from a variety of factors, including increases in the Company’s cash and cash equivalents, loan balances, and investment securities portfolio.2021.
 
Total cash and cash equivalents was $1.27 billion at September 30, 2017, an increase of $493.8 million from $773.8$388.0 million at September 30, 2016.2022, increasing from $314.0 million at September 30, 2021. The majority of this increase was related to a temporary repositioning of the balance sheet in September 2017, similar to what was done in fiscal year 2016, to prepare the Company for the upcoming 2018 seasonal tax lending activity. The Company anticipated utilizing excess cash it held at its fiscal year end to repay overnight borrowings in October 2017. In general, the Company maintains its cash investments primarily in interest-bearing overnight deposits with the FHLB of Des Moines and the FRB. At September 30, 2017,2022, the Company had nodid not have any federal funds sold.


The total of MBS and investment securitiesportfolio increased $167.9$3.0 million or 8%, to $2.26$1.92 billion at September 30, 2017,2022, compared to $1.92 billion at September 30, 2016,2021, as investment purchases exceeded related maturities sales and principal pay downs. The Company’s portfolio of securities customarily consists primarily of MBS, which have expected lives much shorter than the stated final maturity, non-bank qualified obligations of states and political subdivisions, (“NBQ”) which mature in approximately 15 years or less, and other tax exempt municipal mortgage related pass through securities which have average lives much shorter than their stated final maturities. AllOf the total $1.35 billion MBS held by the Company at September 30, 20172022, $1.10 billion were issued by a U.S. Government agency or instrumentality. OfDuring the total $700.1fiscal year ended September 30, 2022, the Company purchased $907.4 million of MBSinvestment securities.

Loans held for sale at September 30, 2017, $586.52022 totaled $21.1 million, were classified as availabledecreasing from $56.2 million at September 30, 2021. This decrease was primarily driven by a reduction in SBA/USDA loans held for sale (“AFS”)at September 30, 2022 compared to September 30, 2021.

The Company’s total loans and leases decreased $78.5 million, or 2%, to $3.53 billion at September 30, 2022, from $3.61 billionat September 30, 2021. The decrease was primarily driven due the sale of all remaining community banking loans during the fiscal 2022 first quarter, the sale of the student loan portfolio during the fiscal 2022 fourth quarter, and $113.7 million were classified as held to maturity (“HTM”).  Of the total $1.56 billion of investment securities, $1.11 billion were classified as AFS and $449.8 million were classified as HTM.  During fiscal 2017, the Company purchased an aggregate of $292.2 million of MBS securities, of which $131.4 million have an average life estimated at approximately five years or less or stated final maturities of approximately 30 years or less, and sold MBSa reduction in the amount of $90.0 million.  In addition, the Company purchased $557.4 million of investment securities which are principally comprised of tax exempt municipal bonds primarily backedwarehouse finance loans, partially offset by and/or convertible into, Ginnie Mae, Fannie Mae, or Freddie Mac MBS securities, government related and guaranteed floating rate securities, and smaller portions of other security types.growth in our commercial finance portfolio. See Note 64 to the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Consolidated Financial“Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Commercial finance loans, which comprised 86% of the Company's gross loan and lease portfolio, totaled $3.02 billion at September 30, 2022, reflecting growth of $298.2 million, or 11%, from September 30, 2021.

When excluding PPP loans, the community bank portfolio and the student loan portfolio, total loans and leases grew 9% at September 30, 2022 when compared to the same period of the prior year.

Through the Bank, the Company owns stock in the FHLB due to the Bank’s membership and participation in this banking system as well as stock in the Federal Reserve Bank. The FHLB requires a level of stock investment based on a pre-determined formula. The Company’s investment in these stocks increased $0.4 million, or 1%, to $28.8 million at September 30, 2022 from $28.4 million at September 30, 2021, resulting from the purchase of FHLB membership stock.
 
The Company’s portfolio of net loans receivableTotal end-of-period deposits increased by $398.4 million, or 43%,6% to $1.32$5.87 billion at September 30, 2017,2022, compared to $5.51 billion at September 30, 2021. The increase in end-of-period deposits was primarily driven by an increase in noninterest-bearing deposits of $628.9 million, partially offset by decreases in interest-bearing checking of $254.3 million and in wholesale deposits of $73.6 million.

The Company's total borrowings decreased $56.8 million, or 61%, from $919.5$92.8 million at September 30, 2016.  This growth was driven by increases2021 to $36.0 million at September 30, 2022. See Note 11 to the “Notes to Consolidated Financial Statements,” which are included in commercial real estate loansPart II, Item 8 “Financial Statements and Supplementary Data” of $162.6this Annual Report on Form 10-K.


58
Table of Contents
At September 30, 2022, the Company’s stockholders’ equity totaled $645.1 million, consumer loansa decrease of $125.9$226.7 million, residential mortgage loans of $34.4from $871.9 million and commercial operating loans of $4.5 million, along with growth in premium finance loans of $78.9 million.at September 30, 2021. The growth in consumer loansdecrease was primarily attributable to a reduction in accumulated other comprehensive income and a reduction in retained earnings related to activity from the student loan portfolio purchaseCompany's share repurchase programs. The Company and Bank remained above the federal regulatory minimum capital requirements at September 30, 2022, and continued to be classified as well-capitalized, and in December 2016. The increase in net loans receivable was partially offset by a decrease in agricultural loans of $5.3 million.good standing with the regulatory agencies. See Note 315 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.

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

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

The Company meets the Right of Set off criteria in ASC 210-20, Balance Sheet - Offsetting, for all payments negative deposit balances with the exception of DDA overdrafts. The following table summarizes the Company's negative deposit balances within the BaaS business line:
(Dollars in thousands)September 30, 2022September 30, 2021
Noninterest-bearing deposits$5,916,142 $5,492,646 
Prefunding(244,462)(436,111)
Discount funding(15,991)(26,440)
DDA overdrafts(8,587)(11,862)
Noninterest-bearing checking, net$5,647,102 $5,018,233 

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

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

In return for record keeping services at Program Banks, the Bank receives a servicing fee (“Servicing Fee”). For the fiscal year ended September 30, 2022, the Company owns stockrecognized $6.4 million in servicing fee income. In prior periods, the FHLB due toServicing Fee was not significant. The Servicing Fee has been typically reflective of the Bank’s membership and participationEFFR upon a renegotiation of the contracts with Program Banks.

As of September 30, 2022, the Company managed $1.31 billion of customer deposits at other banks in this banking system.  The FHLB requires a levelits capacity as custodian. These deposits provide the Company with excess deposits that can earn record keeping service fee income, typically reflective of stock investment based on a pre-determined formula.  The Company’s investment in such stock increased $13.6 million, or 29%, to $61.1 millionthe EFFR.

Approximately 37% of the deposit balances at September 30, 2017, from $47.5 million at September 30, 2016.  The increase directly correlates with the higher short-term borrowings balances.


Total deposits increased by $793.3 million, or 33%,2022 are subject to $3.22 billion at September 30, 2017, from $2.43 billion at September 30, 2016. The increase in end-of-period deposits was primarily the result of an increase in wholesale deposits of $476.2 million, an increase in non-interest bearing checking deposits of $286.5 million, and a $29.2 million increase in interest-bearing checking deposits. Wholesale deposits were added during fiscal year 2017 at advantageous rates when compared to the overnight borrowing rates, thereby lowering funding costs, or to target strategic maturities whichvariable card processing expenses that are expected to aid in tax season tax advance loan funding. Deposits attributable to the Payments divisions were up $305.9 million, or 14%, at September 30, 2017, as compared to September 30, 2016.  The increase is due to continued growth in our core business relationships related to the Payments divisions.

The Company’s total borrowings increased $302.5 million, or 25%, from $1.19 billion at September 30, 2016, to $1.49 billion at September 30, 2017, primarily due to the increases in short-term advancesderived from the FHLB, which was done as partterms of a temporary repositioning of the balance sheet, as noted above.  The Company’s short-term borrowings fluctuate on a daily basis duecontractual agreements with certain BaaS partners. These agreements are tied to the nature of a portion of its non-interest-bearing deposit base, primarily related to payroll processing timing with a higher volumerate index, typically the EFFR.

59
Table of short-term borrowings on Monday and Tuesday, which are typically paid down throughout the week.  This predictable fluctuation may be augmented near a month-end by a prefunding of certain programs.Contents
RESULTS OF OPERATIONS
See Notes 8 and 9 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, 2017, the Company’s stockholders’ equity totaled $434.5 million, an increase of $99.5 million from $335.0 million at September 30, 2016.  Stockholders’ equity increased primarily as a result of an increase in additional paid-in capital and retained earnings.  At September 30, 2017, the Bank continued to meet regulatory requirements for classification as a well-capitalized institution.  See Note 13 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.
Results of Operations
The Company’s results of operations are dependent on net interest income, provision for loancredit losses, non-interestnoninterest income, non-interestnoninterest expense and income tax expense. Net interest income is the difference, or spread, between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. The interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan and lease demand and deposit flows. Notwithstanding that a significant amount of the Company’s deposits, primarily those attributable to the Payments divisions,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. The provision for loan losscredit losses is the adjustment to the allowance for loan losscredit losses balance for the applicable period. The allowance for loan loss iscredit losses represents management’s current estimate of probable loancredit losses inexpected to be incurred by the loan and lease portfolio based upon loan losses that have been incurredover the life of each financial asset as of the balance sheet date.

The Company’s non-interestnoninterest income is derived primarily from tax product fees, prepaid cards, credit products, deposit and ATM fees attributable to the MPS divisionBaaS business line and fees charged on bank loans, leases and transaction accounts. Non-interestNoninterest income is also derived from rental income, net gains on the sale of securities, available fornet gains on the sale of loans and leases, as well as the Company’s holdings of bank-owned life insurance. This income is offset by non-interestnoninterest expenses, such as compensation and occupancy expenses associated with additional personnel and office locations, as well as card processing expenses and tax product expenses attributable to Payments.  Non-interestthe Baas business line. Noninterest expense is also impacted by acquisition-related expenses, operating lease equipment depreciation expense, occupancy and equipment expenses, regulatory expenses, and legal and consulting expenses.


Average Balances, Interest Rates and Yields
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. OnlyThe balances presented in the yield/ratetable below are calculated on a daily average basis. Tax-equivalent adjustments have tax equivalent adjustments.  Non-Accruingbeen made in yields on interest-bearing assets and NIM. Nonaccruing loans and leases have been included in the table as loans or leases carrying a zero yield.

60
Table of Contents
Year Ended September 30,2017 2016 2015
(Dollars in Thousands)
Average
Outstanding
Balance
 
Interest
Earned /
Paid
 
Yield /
Rate
 
Average
Outstanding
Balance
 
Interest
Earned /
Paid
 
Yield /
Rate
 
Average
Outstanding
Balance
 
Interest
Earned /
Paid
 
Yield /
Rate
Interest-earning assets:                 
Specialty Finance Loans*$317,293
 $16,903
 5.33% $135,334
 $7,276
 5.38% $74,537
 $6,037
 8.10%
Tax Advance Loans49,026
 11
 0.02% 3,804
 —
 —% —
 —
 —%
Retail Bank Loans820,980
 35,203
 4.29% 671,308
 28,911
 4.31% 543,329
 23,528
 4.33%
Mortgage-backed securities747,027
 16,571
 2.22% 728,738
 15,771
 2.16% 695,539
 13,979
 2.01%
Tax-Exempt Investment Securities1,303,830
 31,930
 3.77% 1,061,198
 24,965
 3.56% 704,529
 15,730
 3.38%
Asset-Backed Securities115,716
 2,999
 2.59% 54,993
 1,199
 2.18% —
 —
 —%
Other investments and fed funds sold115,958
 3,104
 2.68% 101,258
 2,537
 2.51% 72,954
 1,742
 2.39%
Cash & Fed Funds Sold150,338
 1,382
 0.92% 66,759
 737
 1.54% 127,901
 591
 0.51%
Total interest-earning assets3,620,168
 $108,103
 3.46% 2,823,392
 $81,396
 3.34% 2,218,789
 $61,607
 3.14%
Non-interest-earning assets362,133
     193,286
     103,138
    
Total assets$3,982,301
     $3,016,678
     $2,321,927
    
                  
Non-interest bearing deposits$2,286,358
 $—
 —% $2,017,977
 $—
 0.00% $1,632,130
 $—
 —%
Interest-bearing liabilities:                 
Interest-bearing checking42,231
 172
 0.41% 36,317
 97
 0.27% 35,610
 88
 0.25%
Savings55,484
 31
 0.06% 59,670
 24
 0.04% 34,129
 40
 0.12%
Money markets46,466
 87
 0.19% 46,115
 75
 0.16% 39,401
 61
 0.15%
Time deposits103,115
 830
 0.80% 79,825
 418
 0.52% 85,843
 537
 0.63%
Wholesale deposits558,855
 4,931
 0.88% —
 —
 —% —
 —
 —%
FHLB advances52,956
 1,045
 1.97% 61,454
 709
 1.15% 7,000
 495
 7.07%
Overnight fed funds purchased259,378
 2,649
 1.02% 339,035
 1,607
 0.47% 234,025
 691
 0.30%
Subordinated debentures73,273
 4,448
 6.07% 9,437
 539
 5.71% —
 —
 —%
Other borrowings15,939
 680
 4.27% 14,575
 622
 4.27% 21,193
 475
 2.05%
Total interest-bearing liabilities1,207,697
 14,873
 1.23% 646,428
 4,091
 0.63% 457,201
 2,387
 0.56%
Total deposits and interest-bearing liabilities3,494,055
 $14,873
 0.43% 2,664,405
 $4,091
 0.15% 2,089,331
 $2,387
 0.11%
Other non-interest bearing liabilities87,084
     44,786
     28,009
    
Total liabilities3,581,139
     2,709,191
     2,117,340
    
Stockholders' equity401,162
     307,487
     204,587
    
Total liabilities and stockholders' equity$3,982,301
     $3,016,678
     $2,321,927
    
Net interest income and net interest rate spread including non-interest bearing deposits  $93,230
 3.04%   $77,305
 3.18%   $59,220
 3.03%
                  
Net interest margin, tax equivalent    3.05%     3.19%     3.03%
Fiscal Year Ended September 30,
202220212020
(Dollars in thousands)Average
Outstanding
Balance		Interest
Earned /
Paid
Yield /
Rate (1)
Average
Outstanding
Balance		Interest
Earned /
Paid
Yield /
Rate (1)
Average
Outstanding
Balance		Interest
Earned /
Paid
Yield /
Rate (1)
Interest-earning assets:
Cash and fed funds sold$496,334 $3,535 0.71 %$1,919,760 $3,709 0.19 %$1,236,027 $2,824 0.23 %
Mortgage-backed securities1,292,804 26,846 2.08 %728,884 12,155 1.67 %367,869 9,028 2.45 %
Tax exempt investment securities183,936 3,565 2.45 %281,573 4,004 1.80 %434,262 7,477 2.18 %
Asset-backed securities283,752 3,898 1.37 %388,458 5,340 1.37 %319,258 7,636 2.39 %
Other investment securities268,062 6,274 2.34 %239,283 4,566 1.91 %198,924 4,748 2.39 %
Total investments2,028,554 40,583 2.05 %1,638,198 26,065 1.66 %1,320,313 28,889 2.34 %
Commercial finance2,884,585 203,004 7.04 %2,549,335 188,855 7.41 %2,100,464 169,189 8.05 %
Consumer finance295,356 23,097 7.82 %248,757 19,940 8.02 %254,293 19,808 7.79 %
Tax services179,611 12,978 7.23 %214,835 7,321 3.41 %148,650 6,390 4.30 %
Warehouse finance433,121 27,474 6.34 %330,224 21,262 6.44 %292,952 17,919 6.12 %
Community banking34,758 1,525 4.39 %375,258 18,702 4.98 %975,618 47,822 4.90 %
Total loans and leases(3)
3,827,431 268,078 7.00 %3,718,409 256,080 6.89 %3,771,977 261,128 6.92 %
Total interest-earning assets6,352,319 $312,196 4.93 %7,276,367 $285,854 3.94 %6,328,317 $292,841 4.66 %
Noninterest-earning assets751,555 849,141 881,314 
Total assets$7,103,874 $8,125,508 $7,209,631 
Interest-bearing liabilities:
Interest-bearing checking$338 $1 0.32 %$254,236 $— — %$189,704 $259 0.14 %
Savings78,613 24 0.03 %81,619 16 0.02 %50,888 18 0.03 %
Money markets96,112 214 0.22 %58,656 204 0.35 %57,573 422 0.73 %
Time deposits8,493 38 0.45 %13,081 139 1.06 %61,837 1,226 1.98 %
Wholesale deposits63,529 223 0.35 %150,213 1,234 0.82 %1,081,935 20,691 1.91 %
Total interest-bearing deposits247,085 500 0.20 %557,805 1,593 0.29 %1,441,937 22,616 1.57 %
Overnight fed funds purchased32,414 235 0.73 %6 — 0.25 %183,438 2,804 1.53 %
FHLB Advances— — — %— — — %106,093 2,638 2.49 %
Subordinated debentures46,441 3,375 7.27 %73,886 4,507 6.10 %73,718 4,618 6.26 %
Other borrowings17,490 762 4.36 %21,549 763 3.54 %28,696 1,127 3.93 %
Total borrowings96,345 4,372 4.54 %95,441 5,270 5.52 %391,945 11,187 2.85 %
Total interest-bearing liabilities343,430 4,872 1.42 %653,246 6,863 1.05 %1,833,882 33,803 1.84 %
Noninterest-bearing deposits5,776,852 — — %6,440,830 — — %4,396,132 — — %
Total deposits and interest-bearing liabilities6,120,282 $4,872 0.08 %7,094,115 $6,863 0.10 %6,230,014 $33,803 0.54 %
Other noninterest-bearing liabilities202,887 189,841 143,772 
Total liabilities6,323,169 7,283,956 6,373,786 
Shareholders' equity780,705 841,552 835,845 
Total liabilities and shareholders' equity$7,103,874 $8,125,508 $7,209,631 
Net interest income and net interest rate spread including noninterest-bearing deposits$307,324 4.85 %$278,992 3.84 %$259,038 4.12 %
Net interest margin4.84 %3.83 %4.09 %
Tax-equivalent effect0.01 %0.01 %0.03 %
Net interest margin, tax equivalent (2)
4.85 %3.84 %4.12 %
*Specialty Finance Loan Receivables include loan portfolios(1) Tax rate used to arrive at the TEY for the fiscal years ended September 30, 2022, 2021, and 2020 was 21%.
(2) Net interest margin expressed on a fully taxable equivalent basis ("net interest margin, tax equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. Management of the Company deems as non-retail bank product offerings or loans not generated by the Retail Bank itself (for example, premium finance and purchased loan portfolios). The loan receivables included in this line item are includedbelieves that it is a standard practice in the customarybanking industry to present net interest margin expressed on a fully taxable equivalent basis, and accordingly believe the presentation of this non-GAAP financial measure may be useful for peer comparison purposes.
(3) Included in the yield computation are net loan categories presented elsewhere in this report.fees of $33.7 million, $35.7 million, and $24.0 million for the fiscal years ended September 30, 2022, 2021 and 2020, respectively.



61
Table of Contents
Rate / Volume Analysis

The following table presents, for the periods presented, the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The table distinguishes between the change related to higher outstanding balances and the change due to the levels and volatility of interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by old rate); and (ii) changes in rate (i.e., changes in rate multiplied by old volume). Due to the numerous simultaneous volume and rate changes during any period, it is not possible to precisely allocate such changes between volume and rate. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.

Fiscal Year Ended September 30,
2022 vs. 20212021 vs. 2020
(Dollars in thousands)Increase /
(Decrease)
Due to Volume		Increase /
(Decrease)
Due to Rate		Total
Increase /
(Decrease)		Increase /
(Decrease)
Due to Volume		Increase /
(Decrease)
Due to Rate		Total
Increase /
(Decrease)
Interest-earning assets:
Cash and fed funds sold$(4,293)$4,119 $(174)$1,408 $(523)$885 
Mortgage-backed securities11,152 3,539 14,691 6,711 (3,584)3,127 
Tax-exempt investment securities(2,008)1,569 (439)(2,323)(1,150)(3,473)
Asset-backed securities(1,442)— (1,442)1,423 (3,720)(2,297)
Other investment securities594 1,113 1,707 865 (1,045)(180)
Total investments7,310 7,208 14,518 6,845 (9,668)(2,823)
Commercial finance23,929 (9,779)14,150 34,013 (14,347)19,666 
Consumer finance3,664 (507)3,157 (441)573 132 
Tax services(1,373)7,030 5,657 2,440 (1,509)931 
Warehouse finance6,546 (334)6,212 2,362 981 3,343 
Community banking(15,193)(1,984)(17,177)(29,872)752 (29,120)
Total loans and leases7,768 4,230 11,998 (3,784)(1,264)(5,048)
Total interest-earning assets$10,785 $15,557 $26,342 $4,469 $(11,455)$(6,986)
Interest-bearing liabilities:
Interest-bearing checking$— $— $— $66 $(324)$(258)
Savings(1)9 8 8 (9)(1)
Money markets103 (93)10 8 (226)(218)
Time deposits(38)(63)(101)(684)(404)(1,088)
Wholesale deposits(507)(504)(1,011)(11,698)(7,759)(19,457)
Total interest-bearing deposits(703)(391)(1,094)(9,025)(11,997)(21,022)
Overnight fed funds purchased235 — 235 (1,527)(1,278)(2,805)
FHLB Advances— — — (1,319)(1,319)(2,638)
Subordinated debentures(1,887)755 (1,132)10 (122)(112)
Other borrowings(159)158 (1)(261)(103)(364)
Total borrowings49 (947)(898)(12,000)6,082 (5,918)
Total interest-bearing liabilities$(654)$(1,338)$(1,992)$(21,025)$(5,915)$(26,940)
Net effect on net interest income$11,439 $16,895 $28,334 $25,494 $(5,540)$19,954 
Rate / Volume

Year Ended September 30, 2017 vs. 2016 
2016 vs. 2015 (1)
  
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            
Specialty Finance Loans $9,699
 $(72) $9,627
 $3,751
 $(2,514) $1,237
Tax Advance Loans —
 11
 11
 5,513
 (128) 5,385
Retail Bank Loans 6,441
 (149) 6,292
 —
 —
 —
Mortgage-backed securities 385
 415
 800
 687
 1,105
 1,792
Tax-Exempt Investment Securities 5,576
 1,389
 6,965
 8,115
 1,120
 9,235
Asset-Backed Securities 1,537
 263
 1,800
 1,199
 —
 1,199
Other investments and fed funds sold 389
 178
 567
 705
 90
 795
Cash & Fed Funds Sold 1,115
 (470) 645
 (508) 654
 146
Total interest-earning assets $25,142
 $1,565
 $26,707
 $19,462
 $327
 $19,789
             
Interest-bearing liabilities            
Interest-bearing checking $18
 $57
 $75
 $2
 $7
 $9
Savings (2) 10
 8
 20
 (37) (17)
Money markets 1
 10
 11
 11
 4
 15
Time deposits 145
 267
 412
 (36) (83) (119)
Wholesale deposits 4,931
 —
 4,931
 —
 —
 —
FHLB advances (109) 445
 336
 941
 (728) 213
Overnight fed funds purchased (451) 1,493
 1,042
 389
 526
 915
Subordinated Debt 3,873
 36
 3,909
 22
 —
 22
Other borrowings 58
 —
 58
 (234) 900
 666
Total interest-bearing liabilities $8,464
 $2,318
 $10,782
 $1,115
 $589
 $1,704
             
Net effect on net interest income $16,678
 $(753) $15,925
 $18,347
 $(262) $18,085
(1) Due to the change in categorization of the Average Balances, Interest Rates and Yields table, 2016 vs. 2015 rate/volume calculation results have been conformed to be consistent with the updated categorization.


Comparison of Operating Results for the Fiscal Years Ended
September 30, 2017,2022 and September 30, 20162021
 
General.General
The Company recorded net income of $44.9$156.4 million, or $4.83$5.26 per diluted share, for the fiscal year ended September 30, 2017,2022, compared to $33.2$141.7 million, or $3.91$4.38 per diluted share, for the fiscal year ended September 30, 2016,2021, an increase of $11.7$14.7 million. The increase in net incomeTotal revenue for fiscal 2022 was primarily caused by$601.1 million, compared to $549.9 million for fiscal 2021, an increase in tax advance fee income of $30.3 million, a $24.2 million increase in card fee income, a $15.9 million increase9%. The increases in net interest income, and a $15.6 million increase in refund advance fee income. The net income increase was offset in part by an increase in compensation and benefits expense of $27.1 million, a $10.2 million intangible impairment expense, a $7.5 million increase in amortization expense, and an increase in other expense of $5.5 million.


Net Interest Income. Net interest income for fiscal 2017 increased by $15.9 million, or 21%, to $93.2 million from $77.3 million for the prior year. Net interest margin decreased to 3.05% in fiscal 2017 as compared to 3.19% in 2016. The increase in net interest income was primarily due to an increase in noninterest income and a decrease in provision for credit losses, partially offset by an increase in non-interest expense.


62
Table of Contents
Net Interest Income
Net interest income of $26.7for fiscal 2022 increased by $28.3 million, or 10%, to $108.1$307.3 million from $81.4$279.0 million for the same period of the prior year. The increase in net interest income was mainly attributable to increased yields and an improved earning asset mix.

NIM was 4.84% for fiscal 2022, an increase of 101 basis points from 3.83% in fiscal 2021. The increase in NIM in fiscal 2022, compared to the same period of the prior year was primarily dueattributable to the decrease in noninterest-bearing deposit balances related to government stimulus-related dollars.

The overall reported tax equivalent yield ("TEY") on average interest-earning assets increased by 99 basis points to 4.93% when comparing fiscal 2022 to fiscal 2021. The growth was driven primarily by an increase in loan and lease and investment securities yields, along with a decrease in lower-yielding cash balances. The overall yield on the Company’s average earning assets of $796.8 million, or 28%,loan and lease portfolio increased primarily related to $3.62 billion duringincreased yields in the tax services portfolio. The increase in tax services yields for fiscal 2017 from $2.82 billion during 2016. This2022 compared to fiscal 2021 was due to a significant increasechange in volume in commercial real estate loansmix between interest and specialty finance loans, which includes premium finance loans and the December 2016 purchased student loan portfolio. Growth in investment security balances and yields attained on those investment securities also contributed to the increase in net interestfee income. The increase in interest income was partially offset by an increase in interest expense of $10.8 million, to $14.9 million from $4.1 million for the prior year.

Overall, when using a taxable equivalent yield (“TEY”), the Company’s interest earning asset yield increased by 12 basis points due to improved yields achieved within the securities portfolio and a shift in the earning asset mix due to increased volume in loans. The yield on non-MBS investment securities increased by 19 basis points on a TEY basis.  The yield on government-related MBS increased six basis points while longer-term interest rates generally decreased throughout the fiscal year.  Average2022 TEY on the securities portfolio increased by 2039 basis points in fiscal 2017to 2.05% as compared to the same period of the prior year.

The Company's average interest-earning assets for fiscal 2016.2022 decreased $924.0 million, or 13%, to $6.35 billion, from $7.28 billion during fiscal 2021. The increased volumedecrease was primarily attributable to a decrease in loans receivable reflectsaverage cash balances of $1.42 billion, partially offset by increases in total average investment securities of $390.4 million, and in average loan and lease balances of $109.0 million. The increase in the Company's average loan and lease balances was driven by growth of $335.3 million and $102.9 million in specialtycommercial finance and warehouse finance loans, which includes premium finance loans andrespectively, partially offset by the purchased student loansale of the remaining community bank portfolio as well as growth in the typical retail banking sectors.of $340.5 million.


The Company’s average balance of total deposits and interest-bearing liabilities increased $829.7decreased $973.8 million, or 31%14%, to $3.49$6.12 billion during fiscal 20172022, from $2.66$7.09 billion during 2016. A portion of this increasefiscal 2021. This decrease was primarily due to the utilization of advantageous pricing and strategic maturities on certain wholesale deposits, an increasedecreases in average non-interest bearinginterest-bearing deposits of $310.7 million and the Company's completionnoninterest-bearing deposits of the public offering of its subordinated notes in August 2016, which are due August 15, 2026. This increase was$664.0 million, partially offset by a decrease of $79.7 millionan increase in the average balance of overnight fed funds purchased. The average outstanding balancetotal borrowings of non-interest-bearing deposits increased from $2.02 billion in fiscal 2016 to $2.29 billion in fiscal 2017.  The$0.9 million.

Overall, the Company’s cost of totalfunds for all deposits and interest-bearing liabilities increased 28 basis points to 0.43%borrowings averaged 0.08% during fiscal 2017 from 0.15%2022, compared to 0.10% during 2016. This increasefiscal 2021. The cost of deposits was primarily due to a combination of0.01% during fiscal 2022, the issuance of the Company's subordinated debt in the fourth quarter ofsame as during fiscal 2016, the addition of wholesale deposits, an increase in the overnight borrowing rates and higher average overall funding balances due to the Company's utilization of more of its capital during non-tax season with higher investment balances and funding. Notwithstanding this increase, the2021. The Company believes that its growing, lower-cost deposit base gives it a distinct and significant competitive advantage, and even more so if interest rates continue to rise, because the Company anticipates that its cost of funds will likely remain relatively low, increasing less than at many other banks.


Provision for Loan Losses. InCredit Losses
During fiscal 2017,2022, the Company recorded $10.6$28.5 million in provision for loancredit losses, compared to $4.6$49.8 million in 2016.fiscal 2021. The increasedecrease in provision expense was primarily driven by higher seasonal volumesa reversal of provision for credit losses related to the community bank and student loan portfolio sales, along with a decrease in tax season loans. The growthcommercial finance provision expense. Also see Note 4 to the Consolidated Financial Statements included in the Banking segment loans, as well as the downgrade of a significant agriculture relationship during the second quarter of fiscal 2017 also contributed to an increased provision in fiscal 2017.this Annual Report on Form 10-K.

Non‑Interest Income. Non-interestNoninterest Income
Noninterest income increased by $71.4$22.9 million, or 71%8%, to $172.2$293.8 million for fiscal 20172022 from $100.8$270.9 million for 2016. Thisfiscal 2021. The increase in noninterest income was primarily due to an increasedriven by gain on sale of trademarks, partially offset by loss on sale of other and a reduction in tax advanceother income.

Within payment card and deposit fee income, of $30.3the Company recognized $6.4 million a $24.2 million increase in cardfrom servicing fee income and a $15.6 million increase in refund transfer product fee income. The increases in tax advance fee income and refund transfer product fee income were related to the acquisitions of EPS and SCSon off-balance sheet deposits during the fiscal 2017 first quarter. Cardyear ended September 30, 2022. The amount of servicing fee income primarily grew due to a wind-down of one of our non-strategic partners and also due to continued strong growth in our core business relationships.recognized during the prior period was not significant.
 
Non-Interest Expense. Non-interestNoninterest Expense
Noninterest expense increased by $65.0$41.6 million, or 48%12%, to $199.7$385.3 million for fiscal 20172022 from $134.6$343.7 million for fiscal 2016.2021. This increase in non-interestnoninterest expense from 2016 to 2017 was largelyprimarily driven by an increase in compensation expense of $27.1$20.0 million, an increase in amortizationcard processing expense of $7.5$11.6 million, and an increase in other expense of $5.5 million. The increases in these categories were principally due to the EPS Financial and SCS acquisitions, which occurred in the first quarter of fiscal 2017. The increase in compensation was also driven by non-cash stock-related compensation expense associated with three executive officers signing long-term employment agreements in the first and second quarters of fiscal 2017.  Also leading to the increase in non-interest expense when comparing 2017 to 2016 was a $10.2 million intangible impairment charge related to the non-renewal of the H&R Block relationship during the fiscal 2017 fourth quarter. In addition, and to a lesser extent, non-interest expense also increased year over year due to increases in legal and consulting expense tax advance product expense, refund transfer product expense, occupancy and equipment expense, andof $9.3 million.

63
Table of Contents
The card processing expense.expense increase was due to structured agreements with banking as a service ("BaaS") partners. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally this rate index averages between 50% to 85% of the EFFR and reprices immediately upon a change in the EFFR. Approximately 37% of the deposit portfolio was subject to these higher card processing expenses. For the fiscal year ended September 30, 2022, card processing expenses related to these structured agreements were $9.9 million, as compared to $0.4 million for the fiscal year ended September 30, 2021.


Income Tax Expense. IncomeExpense
The Company recorded an income tax expense of $28.0 million for fiscal 2017 was $10.2 million,2022, resulting in an effective tax rate of 18.6%15.2%, compared to aan income tax expense of $5.6$10.7 million and an effective tax rate of 14.4%7.0%, in fiscal 2016.2021. The increase in the Company’s recorded income tax expense for 2017during the period was primarily attributabledue to an increasea decrease in earnings; however, the increase was partially offset byinvestment tax credit. For the effectsfiscal year ended September 30, 2022, the Company originated $62.8 million in solar leases, compared to $101.1 million for the comparable prior year period. The timing and impact of adopting ASU 2016-09, “Improvementsfuture solar tax credits are expected to Employee Share-Based Payment Accounting” for recording excessvary from period to period, and the Company intends to undertake only those tax benefits as a reduction to income tax expense.credit opportunities that meet the Company's underwriting and return criteria.
 

Comparison of Operating Results for the Fiscal Years Ended
September 30, 2016,2021, and September 30, 20152020

General.A comparison of the 2021 results to the 2020 results and other 2020 information not included herein can be found in the Company's Annual Report on Form 10-K: Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” filed November 23, 2021 and is incorporated by reference herein.

Asset Quality
Generally, when a loan or lease becomes delinquent 90 days or more or when the collection of principal or interest becomes doubtful, the Company will place the loan or lease on a nonaccrual status and, as a result, previously accrued interest income on the loan or lease is reversed against current income. The loan or lease will generally remain on a non-accrual status until six months of good payment history has been established or management believes the financial status of the borrower has been significantly restored. Certain relationships in the table below are over 90 days past due and still accruing. The Company recorded net incomeconsiders these relationships as being in the process of $33.2collection. 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. 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. 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.

The Company believes that the level of allowance for credit losses at September 30, 2022 was appropriate and reflected probable losses related to these loans and leases; however, there can be no assurance that all loans and leases will be fully collectible or that the present level of the allowance will be adequate in the future. See the section below titled “Allowance for Credit Losses” for further information.

64
Table of Contents
The table below sets forth the amounts and categories of the Company's nonperforming assets.
(Dollars in thousands)September 30, 2022September 30, 2021
Nonperforming Loans and Leases
Nonaccruing loans and leases: 
Commercial finance$13,375 $19,330 
Community banking— 14,915 
Total nonaccruing loans and leases13,375 34,245 
Accruing loans and leases delinquent 90 days or more: 
Commercial finance4,142 12,489 
Consumer finance2,793 1,236 
Tax services(1)
8,873 7,962 
Total accruing loans and leases delinquent 90 days or more15,808 21,687 
Total nonperforming loans and leases29,183 55,932 
Other Assets 
Nonperforming operating leases1,736 3,824 
Foreclosed and repossessed assets:
Commercial finance1 2,077 
Total foreclosed and repossessed assets1 2,077 
Total other assets1,737 5,901 
Total nonperforming assets$30,920 $61,833 
Total as a percentage of total assets0.46 %0.92 %
(1) Certain tax services loans do not bear interest.

At September 30, 2022, nonperforming loans and leases totaled $29.2 million, representing 0.82% of total loans and leases, compared to $55.9 million, or $3.92 per diluted share,1.52% of total loans and leases at September 30, 2021.

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

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

On the basis of management’s review of its loans, leases, and other assets, at September 30, 2016,2022, the Company had classified loans and leases of $203.7 million as substandard, $4.0 million as doubtful and none as loss. At September 30, 2021, the Company classified loans and leases of $264.2 million as substandard, $12.1 million as doubtful and none as loss.


65
Table of Contents
Allowance for Credit Losses. The ACL represents management’s estimate of current credit losses expected to be incurred by the loan and lease portfolio over the life of each financial asset as of the balance sheet date. The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets, which generally means loans and leases identified as troubled debt restructurings or loans and leases on nonaccrual status. All other loans and leases are evaluated collectively for credit loss. A reserve for unfunded credit commitments such as letters of credit and binding unfunded loan commitments is recorded in other liabilities on the Consolidated Statements of Financial Condition.

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

The Company's ACL totaled $45.9 million at September 30, 2022, a decrease compared to $18.1$68.3 million or $2.66 per diluted share, for the year endedat September 30, 2015, an increase of $15.1 million. The increase2021. The $22.3 million year-over-year decrease in net incomethe ACL was primarily causeddriven by tax product fee incomea $12.3 million decrease attributable to the disposition of $23.3the community banking portfolio, along with a $5.9 million a $16.0 million increasedecrease in card fee income, a $13.2 million increase in interest income from the securitiesconsumer finance portfolio and a $6.6$4.1 million increasedecrease in the commercial finance portfolio.

The following table presents the Company's ACL as a percentage of its total loans and leases.
As of the Period Ended
September 30, 2022June 30, 2022March 31, 2022December 31, 2021September 30, 2021
Commercial finance1.46 %1.56 %1.66 %2.04 %1.77 %
Consumer finance0.86 %2.44 %3.18 %2.70 %2.91 %
Tax services0.05 %54.29 %35.76 %1.60 %0.02 %
Warehouse finance0.10 %0.10 %0.10 %0.10 %0.10 %
Community banking— %— %— %— %6.16 %
Total loans and leases1.30 %2.04 %2.38 %1.84 %1.89 %
Total loans and leases excluding tax services1.30 %1.44 %1.59 %1.84 %1.89 %

The Company's ACL as a percentage of total loans and leases decreased to 1.30% at September 30, 2022 from 2.04% at June 30, 2022. The decrease in the total loans and leases coverage ratio was primarily driven by the seasonal tax services loan interest income.portfolio, along with a decrease in the coverage ratio for both the commercial and consumer finance portfolios. The net income increasedecrease in the consumer finance portfolio coverage ratio was offset in part by an increase in compensation and benefits expense of $15.2 million, tax product expense of $8.6 million, and increased card processing expense of $5.8 million.

Net Interest Income. Net interest income for fiscal 2016 increased by $18.1 million, or 31%, to $77.3 million from $59.2 million for the prior year.  Net interest margin increased to 3.19% in fiscal 2016 as compared to 3.03% in 2015. The increase was mainly due to growth in loans receivable and a higher volume of other investments (primarily high credit quality municipal bonds). An improved mix of earning assets complemented the higher volume of investments, addingattributable to the overall increase.
The Company’s average earning assets increased $604.6 million, or 27%, to $2.82 billion during fiscal 2016 from $2.22 billion during 2015. The increase is primarily the resultsale of the increasestudent loan portfolio. The Company expects to continue to diligently monitor the ACL and adjust as necessary in the Company’s investment securitiesfuture periods to maintain an appropriate and non-bank qualified, high-quality municipal portfolios as well as loans receivable.supportable level.


The Company’s average total deposits and interest-bearing liabilities increased $575.1 million, or 28%, to $2.66 billion during fiscal 2016 from $2.09 billion during 2015. The increase resulted mainly from an increase in the Company’s non-interest-bearing deposits. The average outstanding balance of non-interest-bearing deposits increased from $1.63 billion in fiscal 2015 to $2.02 billion in fiscal 2016. The Company’s cost of total deposits and interest-bearing liabilities increased four basis points to 0.15% during fiscal 2016 from 0.11% during 2015, primarily due to an increase in the overnight borrowing rate as well as the issuance of the Company's subordinated debt.
Provision for Loan Losses. In fiscal 2016, the Company recorded $4.6 million in provision for loan losses, compared to $1.5 million in 2015. The increased provision was primarily due to loan growth as well as seasonal charge-offs related to refund advance loan programs, and also partially due to a write down and eventual charge-off of a large agriculture relationship.
Non-Interest Income. Non-interest income increased by $42.6 million, or 73%, to $100.8 million for fiscal 2016 from $58.2 million for 2015 primarily due to tax product fee income of $23.3 million related to the acquisition of Refund Advantage in September 2015, an increase in fees earned on prepaid debit cards, credit products and other payment systems products of $16.0 million due to the addition of multiple new partners and growth in existing Payments programs. Loan fees also increased by $2.9 million from retail and premium finance loan growth.
Non-Interest Expense. Non-interest expense increased by $38.1 million, or 40%, to $134.6 million for fiscal 2016 from $96.5 million for fiscal 2015. Compensation expense increased $15.2 million during fiscal 2016 compared to 2015, and occupancy and equipment increased $2.6 million. The increases in these categories were principally due to a full year of expenses associated with the Refund Advantage and AFS/IBEX operations and due to additional product development and IT developer staffing to support the Company’s growth initiatives and prepare for other business opportunities. In addition, tax product expense increased $8.6 million due to the Refund Advantage acquisition, card-processing expense increased $5.8 million, and other expense increased $2.2 million primarily due to intangibles amortization and overall Company growth initiatives. A significant portion of the increase in card-processing expense was due to sales promotions from one of our largest partners and is a variable expense directly tied to the fee income growth.
Income Tax Expense. Income tax expense for fiscal 2016 was $5.6 million, resulting in an effective tax rate of 14%, compared to a tax expense of $1.4 million and an effective tax rate of 7%, in fiscal 2015. The increase in the Company’s recorded income tax expense for 2016 was impacted primarily by an increase in earnings and also by higher year-to-date income than what was projected; however, the increase was partially reduced by an increase in tax-exempt income, highlighting one of the benefits of our growing tax-exempt municipal securities portfolio.


Critical Accounting PoliciesCRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
The Company’s financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP").GAAP. The financial information contained within these financial statements is, to a significant extent, based on approximate measures of the financial effects of transactions and events that have already occurred. Management has identified theits critical accounting policies, which are those policies described below as Critical Accounting Policies.Estimates that, in management's view are most important in the portrayal of our financial condition and results of operations. These policies involve complex and subjective decisions and assessments. Some of these estimates may be uncertain at the time they are made, could change from period to period, and could have a material impact on the financial statements.


66
Table of Contents
Allowance for LoanCredit 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.

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. 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. Management has also identified certain structured finance credits for alternative energy projects in which a substantial cash collateral account has been established to mitigate credit risk. Due to the nature of the transactions and significant cash collateral positions, these credits are evaluated individually. All other loans and leases are evaluated collectively for credit loss by pooling loans and leases based on similar risk characteristics. The collective evaluation of expected losses in all commercial finance portfolios is based on a cohort loss rate and adjustments for forward-looking information, including industry and macroeconomic forecasts. The cohort loss rate is a life of loan loss methodology incorporatesrate that immediately reverts to historical loss information for the remaining maturity of the financial asset. Management has elected to use a varietytwelve-month reasonable and supportable forecast for forward-looking information. Factors utilized in the determination of risk considerations, both quantitative and qualitative, in establishing anthe allowance for loan loss that management believes is appropriate at each reporting date.  Quantitative factors include the Company’s historical loss experience, current and forecasted economic conditions, and measurement date credit characteristics such as product type, delinquency, and charge-off trends, collateral values, changesindustry. The unfunded credit commitments depend on these same factors, as well as estimates of lines of credit usage. The collective evaluation of expected credit losses for certain consumer lending portfolios utilize different methodologies when estimating expected credit losses. The Company’s student loan portfolio utilizes a roll-rate historical loss rate and adjustments for forward-looking information, including macroeconomic conditions. Management has elected to use a twelve-month reasonable and supportable forecast with an immediate reversion to historical loss rates. Factors utilized in non-performing loansthe determination of the allowance include historical loss experience, current and other factors.  Quantitative factors also incorporate known information about individual loans,forecasted economic conditions, and measurement date credit characteristics including borrowers’ sensitivitydelinquency.

Investment debt securities held to interest rate movements.  Qualitative factorsmaturity include the general economic environmentimplicit 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 markets, including economic conditions throughout the MidwestConsolidated Statement of Operations. Investment debt securities available for sale are recorded at fair value and in particular, the state of certain industries.  Size and complexity of individual credits in relation to loan structure, existing loan policies and pace of portfolio growth are other qualitative factors that are consideredassessed quarterly for credit loss. Any such credit loss is recorded in the methodology.  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.

Although management believes the levels of the allowance as of bothfor credit losses at September 30, 2017,2022 and September 30, 2016, were2021 are adequate to absorb probableexpected credit losses inherent in the loan portfolio,financial assets evaluated, a decline in local economic conditions or other factors could result in increasing losses.

Goodwill and Intangible Assets. Each quarter,Assets
The Company accounts for business combinations under the Company evaluates the estimated useful livesacquisition method of its amortizable intangible assets and whether events or changesaccounting in circumstances warrant a revision to the remaining periods of amortization. In accordance with ASC 350, Intangibles – Goodwill805, Business Combinations. Under the acquisition method, the Company records assets acquired, including identifiable intangible assets, liabilities assumed, and Other, recoverability of these assets is measured by comparisonany non-controlling interest in the acquired business at their fair values as of the carrying amountacquisition date. Any acquisition-related transaction costs are expensed in the period incurred. Results of operations of the asset toacquired entity are included in the future undiscounted cash flowsConsolidated Statements of Operations from the assetdate of acquisition. Any measurement-period adjustments are recorded in the period the adjustment is expected to generate. If the asset is considered to be impaired, the amountidentified.

The excess of any impairment is measured as the difference between the carrying value andconsideration paid over the fair value of the impaired asset. The Company was advised on July 27, 2017 that they will not be providing interest-free Refund Advance loans for H&R Block tax preparation customers during the 2018 tax season. Given the loss of this relationship, the Company reviewed the intangible asset relating to this relationship for impairment, which resulted in an impairment charge of $10.2 million during the fourth quarter of fiscal year 2017.
In addition, goodwill and intangiblenet assets are tested annually,acquired is recorded as of our fiscal year end, for impairment or more often if conditions indicate a possible impairment.goodwill. Determining the fair value of a reporting unit involvesassets acquired, including identifiable intangible assets, liabilities assumed, and any noncontrolling interest often requires the use of significant estimates and assumptions. TheseThis may involve estimates and assumptions include revenue growth rates and operating margins used to calculate future cash flows, risk-adjusted discount rates, future economic and market conditions, comparison of the Company’s market value to book value and determination of appropriate market comparables. Actual future results may differ from those estimates.
Assumptions and estimates about future values and remaining useful lives of the Company’s intangible and other long-lived assets are complex and subjective. They can be affected by a variety of factors, including external factorsbased on third-party valuations, such as industry and economic trends, andappraisals, or internal factors such as changes in the Company’s business strategy and internal forecasts. Although the Company believes the historical assumptions and estimates used are reasonable and appropriate, different assumptions and estimates could materially impact the reported financial results.
Customer relationship, trademark, and non-compete intangibles are amortized over the periods in which the asset is expected to meaningfully contribute to the business as a whole, using either the present value of excess earnings or straight line amortization, depending on the nature of the intangible asset. Patents are estimated to have a useful life of 20 years, beginning on the date the patent application is originally filed. Thus, patents are amortizedvaluations based on the remaining useful life once granted. Periodically, the Company reviews the intangible assets for events or circumstances that may indicate a change in recoverability of the underlying basis. 
Deferred Tax Assets and Liabilities.  The Company accounts for income taxes according to the asset and liability method.  Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Deferred tax assets and liabilities are measured using the enacted tax rates applicable to income for the years in which those temporary differences are expected to be recovered or settled.  Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not.  An estimate of probable income tax benefits that will not be realized in future years is required in determining the necessity for a valuation allowance.

Security Impairment.  Management continually monitors the investment securities portfolio for impairment on a security-by-security basis.  Management has a process in place to identify securities that could potentially have a credit impairment that is other-than-temporary.  This process involves the length of time and extent to which the fair value has been less than the amortized cost basis, review of available information regarding the financial position of the issuer, monitoring the rating of the security, monitoring changes in value, cash flow projections and the Company’s intent to sell a security or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity.  To the extent we determine that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.  If the Company intends to sell a security or it is more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the Company recognizes an other-than-temporary impairment in earnings for the difference between amortized cost and fair value.  If we do not expect to recover the amortized cost basis, we do not plan to sell the security and if it is not more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the recognition of the other-than-temporary impairment is bifurcated.  For those securities, the Company separates the total impairment into a credit loss component recognized in earnings, and the amount of the loss related to other factors is recognized in other comprehensive income net of taxes.

The amount of the credit loss component of a debt security impairment is estimated as the difference between amortized cost and the present value of the expected cash flows of the security.  The present value is determined using the best estimate of cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security.  Cash flow estimates for trust preferred securities are derived from scenario-based outcomes of forecasted default rates, loss severity, prepayment speeds and structural support.
In fiscal 2017, 2016 and 2015, there were no other-than-temporary impairment losses.
Level 3 Fair Value Measurement.  U.S. GAAP requires the Company to measure the fair value of financial instruments under a standard that describes three levels of inputs that may be used to measure fair value.  Level 3 measurement includes significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologiesanalyses or similarother valuation techniques such as well as instruments for whichestimates of attrition, inflation, asset growth rates, discount rates, multiples of earnings or other relevant factors. In addition, the determination of fair value requires significant management judgment or estimation.  Although management believes that it uses a best estimate of information available to determine fair value, duethe useful lives over which an intangible asset will be amortized is subjective. See Note 8. Goodwill and Intangibles to the uncertainty of future events, the approach includes a process that may differ significantly from other methodologies and still produce an estimate that is in accordance with U.S. GAAP.
Interest Rate Risk (“IRR”)
Overview. The Company activelymanages interest rate risk, as changes in market interest rates can have a significant impact on reported earnings.  The Bank, like other financial institutions, is subject to interest rate risk to the extent that its interest-bearing liabilities mature or reprice more rapidly than its interest-earning assets.  The interest rate risk process is designed to compare income 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 does not currently engage in trading activities to control interest rate risk although it may do so in the future, if deemed necessary, to help manage interest rate risk.
Earnings at risk and economic value analysis. As a continuing part of its financial strategy, the Bank considers methods of managing an asset/liability mismatch consistent with maintaining acceptable levels of net interest income.  In order to monitor interest rate risk, the Board of Directors has created an Investment Committee whose principal responsibilities are to assess the Bank’s asset/liability mix and implement strategies that will enhance income while managing the Bank’s vulnerability to changes in interest rates.

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

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

The Company is within Board approved policy limits for all interest rate scenarios using the snapshot as of September 30, 2017. The tables below show the results of the scenarios as of September 30, 2017 and 2016:
Net Sensitive Earnings at Risk
Net Sensitive Earnings at Risk
Balances as of September 30, 2017Standard (Parallel Shift) Year 1
 Net Interest Income at Risk%
 -100 +100 +200 +300 +400
Percent Change Scenario-6.6 % 3.7 % 6.0 % 8.4 % 10.9 %
Board Policy Limits-8.0 % -8.0 % -10.0 % -15.0 % -20.0 %

Net Sensitive Earnings at Risk
Balances as of September 30, 2016Standard (Parallel Shift) Year 1
 Net Interest Income at Risk%
 -100 +100 +200 +300 +400
Percent Change Scenario-4.5 % 0.5 % -0.9 % -2.2 % -2.8 %
Board Policy Limits-5.0 % -5.0 % -10.0 % -15.0 % -20.0 %

The EAR analysis reported at September 30, 2017, shows that in an increasing +100, +200, +300, and +400 interest rate environment, more assets than liabilities will reprice over the modeled one-year period.
IRR is a snapshot in time.  The Company’s business and deposits are very predictably cyclical on a weekly, monthly and yearly basis.  The Company’s static IRR results could vary depending on which day of the week and timing in relation to certain payrolls, as well as time of the month in regard to early funding of certain programs, when this snapshot is taken.  The Company’s overnight federal funds purchased fluctuates on a predictable daily and monthly basis due to fluctuations in a portion of its non-interest bearing deposit base, primarily related to payroll processing and timing of when certain programs are prefunded and when the funds are received. Fiscal fourth quarter 2017 results do not necessarily show the typical effect of day of week cyclicality due to the temporary repositioning of the balance sheet, as previously noted. Owing to the snapshot nature of IRR, as is required by regulators, in concert with the Company’s predictable weekly, monthly and yearly fluctuating deposit base and overnight borrowings, the results produced by static IRR analysis are not necessarily representative of what management, the Board of Directors and others would view as the Company’s true IRR positioning.  Management and the Board are aware of and understand these typical borrowing and deposit fluctuations as well as the point in time nature of IRR analysis and anticipated an outcome where the Company may temporarily be outside of Board policy limits based on a snapshot analysis.

For management to better understand the IRR position of the Bank, an alternative IRR run was completed, for which all September 30, 2017, values were utilized with the exception of overnight borrowings, non-interest bearing deposits, brokered deposits, cash due from banks, non-earning assets, and non-paying liabilities. To diminish potential issues documented above, quarterly average balances were utilized for overnight borrowings, non-interest-bearing deposits, brokered deposits and cash due from banks. Non-earning assets and non-paying liabilities were used to balance the balance sheet. Management believes this view on IRR, while still subject to some yearly cyclicality, more accurately portrays the Bank's IRR position.  As noted in the below chart, the alternative EAR results are more normalized and slightly improved in the -100 interest rate shock compared to the static results, as timing issues in deposits and overnight borrowings are diminished and lower balances in cash and due from banks are observed.

The Company would be within policy limits in all scenarios utilizing the alternative IRR scenario run for management purposes.  The tables below highlight those results for September 30, 2017 and 2016.





Alternative Net Sensitive Earnings at Risk
Net Sensitive Earnings at Risk
Balances as of September 30, 2017Standard (Parallel Shift) Year 1
Alternative IRR ResultsNet Interest Income at Risk%
 -100 +100 +200 +300 +400
Percent Change Scenario-1.8 % 3.4 % 5.4 % 5.7 % 6.3 %
Board Policy Limits-8.0 % -8.0 % -10.0 % -15.0 % -20.0 %

Net Sensitive Earnings at Risk
Balances as of September 30, 2016Standard (Parallel Shift) Year 1
Alternative IRR ResultsNet Interest Income at Risk%
 -100 +100 +200 +300 +400
Percent Change Scenario-4.6 % 0.9 % -0.2 % -1.2 % -1.4 %
Board Policy Limits-5.0 % -5.0 % -10.0 % -15.0 % -20.0 %
The alternative EAR analysis reported at September 30, 2017 shows that in an increasing +100, +200, +300, and +400 interest rate environment, more assets than liabilities will reprice over the modeled one-year period.
Net Sensitive Earnings at Risk as of September 30, 2017
Balances as of September 30, 2017  % of 
Change in Interest Income/Expense
for a given change in interest rates
 Total Earning Total Earning Over / (Under) Base Case Parallel Ramp
Basis Point Change ScenarioAssets (in $000's) Assets -100 Base +100 +200 +300 +400
Total Loans1,317,152
 28.0% 62,784
 67,489
 72,240
 76,914
 81,601
 86,378
Total Investments (non-TEY) and other Earning Assets3,390,010
 72.0% 49,427
 69,628
 86,760
 102,502
 118,174
 134,059
Total Interest -Sensitive Income4,707,162
 100.0% 112,211
 137,117
 159,000
 179,416
 199,775
 220,437
Total Interest-Bearing Deposits743,831
 34.7% 3,700
 7,304
 11,111
 14,917
 18,724
 22,530
Total Borrowings1,402,000
 65.3% 5,706
 19,726
 33,746
 47,766
 61,768
 75,806
Total Interest-Sensitive Expense2,145,831
 100.0% 9,406
 27,030
 44,857
 62,683
 80,492
 98,336
Alternative Net Sensitive Earnings at Risk
Alternative IRR Results
 
  % of 
Change in Interest Income/Expense
for a given change in interest rates
 Total Earning Total Earning Over / (Under) Base Case Parallel Ramp
Basis Point Change ScenarioAssets (in $000's) Assets -100 Base +100 +200 +300 +400
Total Loans1,317,152
 37.4% 62,784
 67,489
 72,240
 76,914
 81,601
 86,378
Total Investments (non-TEY) and other Earning Assets2,206,516
 62.6% 46,468
 54,826
 60,100
 63,968
 67,751
 71,732
Total Interest -Sensitive Income3,523,668
 100.0% 109,252
 122,315
 132,340
 140,882
 149,352
 158,110
Total Interest-Bearing Deposits817,480
 69.6% 872
 8,386
 12,950
 17,515
 22,079
 26,643
Total Borrowings357,207
 30.4% 1,997
 5,569
 7,354
 9,141
 12,713
 16,285
Total Interest-Sensitive Expense1,174,687
 100.0% 2,869
 13,955
 20,304
 26,656
 34,792
 42,928


The Company believes that its growing portfolio of non-interest bearing deposits provides a stable and profitable funding vehicle and a significant competitive advantage in a rising interest rate environment as the Company’s cost of funds will likely remain relatively low, with less increase expected relative to other banks. When not able to match loan growth to deposit growth, the Company continues to execute its investment strategy of primarily purchasing NBQ municipal bonds and agency MBS, however, the Bank reviews opportunities to add diverse, high quality securities at attractive relative rates when opportunities present themselves. The NBQ municipal bonds are tax exempt and as such have a tax equivalent yield higher than their book yield. The tax equivalent yield calculation for NBQ municipal bonds uses the Company’s cost of funds as one of its components. With the Company’s large volume of non-interest bearing deposits, the tax equivalent yield for these NBQ municipal bonds is higher than a similar term investment in other investment categories of similar risk and higher than most other banks can realize and sustain on the same or similar instruments. The above interest income figures are quoted on a pre-tax basis which is particularly notable due to the size of the Company’s tax-exempt municipal portfolio.
Under EVE analysis, the economic value of financial assets, liabilities and off-balance sheet instruments is derived under each rate scenario.  The economic value of equity is calculated as the difference between the estimated market value of assets and liabilities, net of the impact of off-balance sheet instruments.
The EVE analysis used in the following table reflects the required analysis used no less than quarterly by management.  It models immediate -100, +100, +200, 300 and +400 basis point parallel shifts in market interest rates.  Due to the current low level of interest rates, only a -100 basis point parallel shift is represented.
The Company is within Board policy limits for all scenarios. The tables below show the results of the scenario as of September 30, 2017 and 2016:
Economic Value Sensitivity
Balances as of September 30, 2017Standard (Parallel Shift)
 Economic Value of Equity at Risk%
 -100 +100 +200 +300 +400
Percent Change Scenario-3.2 % -0.8 % -3.8 % -7.8 % -10.7 %
Board Policy Limits-10.0 % -10.0 % -20.0 % -30.0 % -40.0 %

Balances as of September 30, 2016Standard (Parallel Shift)
 Economic Value of Equity at Risk%
 -100 +100 +200 +300 +400
Percent Change Scenario1.6 % -3.7 % -8.3 % -13.1 % -17.2 %
Board Policy Limits-10.0 % -10.0 % -20.0 % -30.0 % -40.0 %

The EVE at risk reported at September 30, 2017, shows that as interest rates increase immediately, the economic value of equity position will decrease from the base, partially due to the degree of the economic value of its base asset size in relation to the economic value of its base liabilities.
The Company would be within policy limits in all scenarios utilizing the alternative IRR scenario run for management purposes.  The tables below highlight those results for September 30, 2017 and 2016:
Alternative Economic Value Sensitivity
Balances as of September 30, 2017Standard (Parallel Shift)
Alternative IRR ResultsEconomic Value of Equity at Risk%
 -100 +100 +200 +300 +400
Percent Change Scenario-2.2 % -1.9 % -6.0 % -10.9 % -14.7 %
Board Policy Limits-10.0 % -10.0 % -20.0 % -30.0 % -40.0 %


Balances as of September 30, 2016Standard (Parallel Shift)
Alternative IRR ResultsEconomic Value of Equity at Risk%
 -100 +100 +200 +300 +400
Percent Change Scenario2.1 % -4.2 % -9.4 % -14.7 % -19.3 %
Board Policy Limits-10.0 % -10.0 % -20.0 % -30.0 % -40.0 %

The EVE at risk reported using the alternative methodology used for management purposes shows that as interest rates increase immediately, the economic value of equity position will decrease from the base, partially due to the degree of the economic value of its base asset size in relation to the economic value of its base liabilities. These results under the rising scenarios are marginally more sensitive than the static snapshot as the effects of the temporary balance sheet repositioning noted above are diminished.
Detailed Economic Value Sensitivity as of September 30, 2017
The following table details the economic value sensitivity to changes in market interest rates at September 30, 2017, for loans, investments, deposits, borrowings and other assets and liabilities (dollars in thousands).  The analysis reflects the temporary balance sheet positioning of cash and due from bank in total investments, and the added economic value creation of the Bank’s non-interest bearing deposit base under a rising rate environment relative to other aspects of the balance sheet.

Balances as of September 30, 2017  % of 
Change in Economic Value
for a given change in interest rates
 Book Total Over / (Under) Base Case Parallel Ramp
Basis Point Change ScenarioValue (in $000's) Assets -100 +100 +200 +300 +400
Total Loans1,317,152
 25% 2.0% -2.0 % -4.1 % -6.0 % -7.8 %
Total Investment3,390,010
 65% 2.4% -3.1 % -6.3 % -9.7 % -12.5 %
Other Assets508,410
 10% —% — % — % — % — %
Assets5,215,572
 100% 2.1% -2.6 % -5.3 % -8.1 % -10.5 %
Interest Bearing Deposits743,831
 16% 1.0% -0.7 % -1.4 % -2.1 % -2.8 %
Non-Interest Bearing Deposits2,480,087
 53% 6.4% -5.9 % -11.2 % -16.1 % -20.6 %
Total Borrowings & Other Liabilities1,470,633
 31% —% — % — % — % — %
Liabilities4,694,551
 100% 3.3% -3.0 % -5.7 % -8.2 % -10.4 %
Detailed Alternative Economic Value Sensitivity
The following is EVE at risk reported using the alternative methodology used for management purposes, for loans, investments, deposits, borrowings, and other assets and liabilities (dollars in thousands). The analysis reflects the more evenly matched changes in value of the Bank’s non-interest bearing deposit base under a rising rate environment relative to changes in value observed in total investments, which is adjusted for the temporary increased portion of cash and due from bank at period end.
Alternative IRR Results
 
  % of 
Change in Economic Value
for a given change in interest rates
Economic Value SensitivityBook Total Over / (Under) Base Case Parallel Ramp
Basis Point Change ScenarioValue (in $000's) Assets -100 +100 +200 +300 +400
Total Loans1,317,152
 25% 2.0% -2.0 % -4.1 % -6.0 % -7.8 %
Total Investment2,206,516
 42% 3.6% -4.6 % -9.5 % -14.5 % -18.8 %
Other Assets1,691,904
 32% —% — % — % — % — %
Assets5,215,572
 100% 2.1% -2.6 % -5.3 % -8.1 % -10.5 %
Interest Bearing Deposits817,480
 17% 0.9% -0.7 % -1.3 % -1.9 % -2.5 %
Non-Interest Bearing Deposits2,291,115
 49% 6.4% -5.8 % -11.2 % -16.1 % -20.5 %
Total Borrowings & Other Liabilities1,585,956
 34% —% — % — % — % — %
Liabilities4,694,551
 100% 3.0% -2.7 % -5.2 % -7.5 % -9.6 %


Certain shortcomings are inherent in the method of analysis discussed above and as presented in the table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Furthermore, although management has estimated changes in the levels of prepayments and early withdrawal in these rate environments, such levels would likely deviate from those assumed in calculating the table. Finally, the ability of some borrowers to service their debt may decrease in the event of an interest rate increase. 
The above EAR and EVE measures do not include all actions that management may undertake to manage interest rate risk in response to anticipated changes in interest rates.

Asset Quality
At September 30, 2017, non-performing assets, consisting of impaired/non-accruing loans, accruing loans delinquent 90 days or more, foreclosed real estate and repossessed consumer property totaled $37.9 million, or 0.72% of total assets, compared to $1.2 million, or 0.03% of total assets, at September 30, 2016.  The increase in NPAs was primarily related to two large, well-collateralized agricultural relationships that became more than 90 days past due. These loan relationships were both still accruing in the fourth fiscal quarter and one was paid in full on November 1, 2017. The majority of the past due receivables related to AFS/IBEX are due to the notification requirements and processing time by most insurance carriers while the insurer is processing the return of the unearned premium. Management will continue to accrue interest until maturity as the unearned premium is ordinarily sufficient to pay off the outstanding balance and the contractual interest due.
Non-accruing loans at September 30, 2017, totaled approximately $0.7 million. The Company had repossessed assets of approximately $0.3 million at September 30, 2017.
The Company maintains an allowance for loan losses because it is probable that some loans may not be repaid in full.  At September 30, 2017, the Company had an allowance for loan losses of $7.5 million as compared to $5.6 million at September 30, 2016. This increase was mainly due to loan growth and a downgrade of a large well-collateralized agricultural relationship, as mentioned previously. Management’s periodic review of the allowance for loan losses is based on various subjective and objective factors including the Company’s past loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and current economic conditions.  While management may allocate portions of the allowance for specifically identified problem loan situations, the majority of the allowance is based on both subjective and objective factors related to the overall loan portfolio and is available for any loan charge-offs that may occur.  As stated previously, there can be no assurance future losses will not exceed estimated amounts, or that additional provisions for loan losses will not be required in future periods.  In addition, the Bank is subject to review by the OCC, which has the authority to require management to make changes to the allowance for loan losses, and the Company is subject to similar review by the Federal Reserve.

In determining the allowance for loan losses, the Company specifically identifies loans it considers to have potential collectability problems.  Based on criteria established by ASC 310, Receivables, some of these loans are considered to be “impaired” while others are not considered to be impaired, but possess weaknesses that the Company believes merit additional analysis in establishing the allowance for loan losses.  All other loans are evaluated by applying estimated loss ratios to various pools of loans.  The Company then analyzes other applicable qualitative factors (such as economic conditions) in determining the aggregate amount of the allowance needed.

At September 30, 2017, none of the allowance for loan losses was allocated to impaired loans.  See Note 3 of the “Notes to Consolidated Financial Statements” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” for further information.


67
Table of this Annual Report on Form 10-K.  Of the allowance, $2.0 million was allocated to other identified problem loans and loan relationships, representing 3.5% of the related loan balances, and $5.5 million, representing 0.4% of the related loan balances, was allocated to the remaining overall loan portfolio based on historical loss experience and qualitative factors.  At September 30, 2016, $0.01 million of the allowance for loan losses was allocated to impaired loans, representing 1.7% of the related loan balances.  $0.9 million was allocated to other identified problem loan situations or 1.9% of related loan balances, and $4.7 million, representing 0.5%, was allocated against losses from the overall loan portfolio based on historical loss experience and qualitative factors.Contents
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains an internal loan review and classification process which involves multiple officers of the Company and is designed to assess the general quality of credit underwriting and to promote early identification of potential problem loans.  All loan officers are charged with the responsibility of risk rating all loans in their portfolios and updating the ratings, positively or negatively, on an ongoing basis as conditions warrant.

The level of potential problem loans is another predominant factor in determining the relative level of risk in the loan portfolio and in determining the appropriate level of the allowance for loan losses.  Potential problem loans are generally defined by management to include loans rated as substandard by management that are not considered impaired (i.e., non-accrual loans and accruing troubled debt restructurings), but there are circumstances present to create doubt as to the ability of the borrower to comply with present repayment terms.  The decision of management to include performing loans in potential problem loans does not necessarily mean that the Company expects losses to occur, but that management recognizes a higher degree or risk associated with these loans.  The loans that have been reported as potential problem loans are predominantly commercial loans covering a diverse range of businesses and real estate property types.  At September 30, 2017, potential problem loans totaled $39.5 million compared to $8.9 million at September 30, 2016.  The $30.6 million increase in potential problem loans since September 30, 2016, was primarily due to the previously mentioned large, well-collateralized agriculture relationship that was downgraded during fiscal 2017. This relationship also had accrued interest of $1.8 million as of September 30, 2017, which is expected to be collected. It is possible the collateral will go though a deed in lieu of foreclosure in the near future.
Liquidity and Capital Resources

The Company’s primary sources of funds are deposits, derived principally through its Payments divisions, and to a lesser extent through its retail bank division,BaaS business line, borrowings, principal and interest payments on loans and leases and mortgage-backed securities, and maturing investment securities. In addition, the Company utilizes wholesale deposit sources to provide temporary funding when necessary or when favorable terms are available. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan repayments are influenced by the level of interest rates, general economic conditions and competition.
The Company relies on advertising, quality customer service, convenient locationsuses its capital resources principally to meet ongoing commitments to fund maturing certificates of deposit and competitive pricingloan commitments, to attractmaintain liquidity, and retain its retail bank deposits and primarily solicits these deposits from its core market areas.  Based on its experience, the Company believes that its consumer checking, savings and money market accounts are relatively stable sources of deposits.  The Company’s ability to attract and retain time deposits has been, and will continue to be, affected by market conditions.  However, the Company does not foresee any significant retail bank funding issues resulting from the sensitivity of time deposits to such market factors.meet operating expenses.
The low-cost checking deposits generated through the Company's Payments divisions may carry a greater degree of concentration risk than traditional consumer checking deposits but, based on experience, the Company believes that Payments‑generated deposits are a stable source of funding.  To date, the Company has not experienced any materialnet outflows related to Payments-generated deposits, though no assurance can be given that this will continue to be the case.


The Bank is required by regulation to maintain sufficient liquidity to assure its safe and sound operation. In the opinion of management, the Bank is in compliance with this requirement.
 
Liquidity management is both a daily and long-term function of the Company’s management strategy. The Company adjusts its investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) the projected availability of purchased loan products, (iii) expected deposit flows, (iv) yields available on interest-bearing deposits and (v) the objectives of its asset/liability management program. Excess liquidity is generally invested in interest-earning overnight deposits and other short-term government agency or instrumentality obligations. If the Company requires funds beyond its ability to generate them internally, it has additional borrowing capacity with the FHLB and other wholesale funding sources. The Company is not aware of any facts that would be reasonably likely to have a material adverse impact on the Company’s liquidity or its ability to borrow additional funds.


The primary investing activities of the Company are the origination of loans the acquisitions of companiesand leases and the purchase of securities. During the fiscal years ended September 30, 2017, 20162022, 2021 and 2015,2020, the Company originated loans and leases totaling $2.6$14.98 billion, $968.4 million$12.62 billion and $672.8 million,$9.79 billion, respectively. Purchases of loans and leases totaled $141.4$115.4 million, $311.3 million, and $74.1$151.4 million during the fiscal years ended September 30, 20172022, 2021 and 2015, respectively, and2020. During the Company did not purchase any loans during the year ended September 30, 2016.  During thefiscal years ended September 30, 2017, 20162022, 2021 and 2015,2020, the Company purchased mortgage-backed securitiesMBS and other securities in the amount of $849.5$907.4 million, $902.9 million$1.04 billion and $894.3$229.3 million, respectively. Of these purchases, in 2017, 2016 and 2015, $0.9 million, $298.9 million and $75.8 million, respectively,there were no securities designated as held to maturity.maturity in fiscal 2022, 2021 and 2020.




At September 30, 2017,2022, the Company had unfunded loan and lease commitments of $233.2 million.  See Note 14 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.$1.27 billion. Certificates of deposit scheduled to mature in one year or less fromat September 30, 20172022 totaled $560.8 million, $457.9$5.9 million, of which are brokered certificates of deposit, with $255.3$0.1 million of the $457.9were wholesale time deposits and $5.8 million brokered certificates of deposit structured to mature during the second quarter of fiscal 2018, to coincide with the funding of seasonal tax advance loans. Retail bank certificates of deposit scheduled to mature in one year or less from September 30, 2017 totaled $102.9 million and based on its historical experience, management believes that a significant portion of such deposits will remain with the Company; however, there can be no assurance that the Company can retain all suchwere non-wholesale time 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 following table summarizes the Company’s significant contractual obligations at September 30, 2017 (dollars in thousands)2022.
(Dollars in thousands)TotalLess Than 1 Year1 to 3 Years3 to 5 YearsMore Than 5 Years
Time deposits$7,655 $5,848 $1,807 $— $— 
Wholesale time deposits99 99 — — — 
Long-term debt36,028 603 1,764 — 33,661 
Operating leases36,503 3,946 7,631 6,287 18,639 
Total$80,285 $10,496 $11,202 $6,287 $52,300 
Contractual ObligationsTotal Less than 1 year 1 to 3 years 3 to 5 years More than 5 years
Time deposits$581,565
 $557,858
 $19,069
 $4,638
 $—
Long-term debt85,533
 —
 137
 159
 85,237
Short-term debt1,404,534
 1,404,534
 —
 —
 —
Operating leases29,009
 2,486
 4,576
 4,025
 17,922
Data processing services27,789
 3,369
 14,762
 9,658
 —
Total$2,128,430
 $1,968,247
 $38,544
 $18,480
 $103,159


During July 2001, the Company’s unconsolidated trust subsidiary, First Midwest Financial Capital Trust I, sold $10.3 million in floating-rate cumulative preferred securities. Proceeds from the sale were used to purchase trust preferred securities of the Company, which mature in 2031, and are redeemable at any time after five years. The capital securities are required to be redeemed on July 25, 2031; however, the Company has the option to redeem them earlier. The Company used the proceeds for general corporate purposes. 



68
Table of Contents
On AugustMay 15, 2016,2022, the Company announced that it had completedretired the public offering of $75outstanding $75.0 million of its 5.75% fixed-to-floating rate subordinated debentures due August 15, 2026. UseOn September 23, 2022, the Company completed a private placement of $20.0 million of its 6.625% fixed-to-floating rate subordinated debentures due 2032 to certain qualified institutional buyers and accredited investors. These notes will mature on September 30, 2032, unless earlier redeemed. Beginning on September 30, 2027, the notes may be redeemed, in whole or in part, at the Company's option subject to regulatory approval, on any scheduled interest payment date. Prior to September 30, 2027, the notes may be redeemed, in whole but not in part, at any time upon certain other specified events. The Company has used and intends to continue to use the net proceeds fromof the offering was for general corporate purposes acquisitions and investmentsrepurchases of the Company's common stock.

Through the Crestmark Acquisition, consummated in MetaBank as Tier 1the fourth quarter of fiscal 2018, the Company acquired $3.4 million in floating rate capital securities due to support growth.Crestmark Capital Trust I, a 100%-owned nonconsolidated subsidiary of the company. The subordinated debentures bear interest at LIBOR plus 3.00%, have a stated maturity of 30 years and are redeemable by the Company at par, with regulatory approval. See Note 98 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, 2017.2022. Based on current and expected continued profitability and subject to continued access to capital markets, management believes that the Company and the Bank will continue to meet the capital conservation buffer of 2.5% in addition to required minimum capital ratios. See Note 1315 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. Prior to authorizing such transactions, the Board of Directors considers the effect the dividend or repurchase of shares would have on liquidity and regulatory capital ratios. On August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was signed into law. The IRA imposes a 1% excise tax on net repurchases of stock by certain publicly traded corporations, including the Company. The excise tax is imposed on the value of net stock repurchased or treated as repurchased and will apply to stock repurchases occurring after December 31, 2022.
 
The Board of Directors approved a minimum management target, reflected in its capital plan, for the Bank to stay at or above an 8% Tier 1 capital to adjusted total assets ratio during fiscal 2017. Adjusted total assets are calculated based on a rolling six month average basis.
Management and the Board of Directors are also mindful of new capital rules that will increase bank and holding company capital requirements and liquidity requirements.  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 wethe Company and the Bank are considered “well-capitalized,” to be sufficiently high in the future.

Off-Balance Sheet Financing ArrangementsImpact of New Accounting Standards
For discussionSee Note 1 to the "Notes of the Company’s off-balance sheet financing arrangements, see Note 14 of “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.  Depending on the extent to which the commitments or contingencies described in Note 14 occur, the effect on the Company’s capital and net income could be significant.


Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented in this Annual Report have been prepared in accordance with U.S. GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation.  The primary impact of inflation is reflected in the increased cost of the Company’s operations.  Unlike most industrial companies, virtually all the assets and liabilities of the Company are monetary in nature.  As a result, interest rates generally have a more significant impact on a financial institution’s performance than do the effects of general levels of inflation.  Interest rates do not necessarily move in the same direction, or to the same extent, as the prices of goods and services. There have not been any material effects on Meta's business due to inflation during any of the last three fiscal years.
Impact of New Accounting Standards
See Note 1 to the Consolidated Financial Statements10-K, for information regarding recently issued accounting pronouncements. 

69
Table of Contents
Item 7A. Quantitative and Qualitative Disclosures About Market RiskRisk.
 
As stated above, theThe Company derives a portion of its income from the excess of interest collected over interest paid. The rates of interest the Company earns on assets and pays on liabilities generally are established contractually for a period of time. Market interest rates change over time. Accordingly, the Company’s results of operations, like those of most financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of its assets and liabilities. The risk associated with changes in interest rates and the Company’s ability to adapt to these changes is known as interest rate risk and is the Company’s only significant “market” risk.


The Company monitors and measures its exposure to changes in interest rates in order to comply with applicable government regulations and risk policies established by the Board of Directors, and in order to preserve stockholder value. In monitoring interest rate risk, the Company analyzes assets and liabilities based on characteristics including size, coupon rate, repricing frequency, maturity date and likelihood of prepayment.
If the Company’s assets mature or reprice more rapidly or to a greater extent than its liabilities, then economic value of equity and net interest income would tend to increase during periods of rising rates and decrease during periods of falling interest rates.  Conversely, if the Company’s assets mature or reprice more slowly or to a lesser extent than its liabilities, then economic value of equity and net interest income would tend to decrease during periods of rising interest rates and increase during periods of falling interest rates.
The Company currently focuses lending efforts toward originating and purchasing competitively priced adjustable-rate and fixed-rate loan products with short to intermediate terms to maturity, and may originate loans with terms longer than five years for borrowers that have a strong credit profile and typically lower loan-to-value ratios. This approach allows the Company to better maintain a portfolio of loans that will have less sensitivity to changes in the level of interest rates, while providing a reasonable spread to the cost of liabilities used to fund the loans.


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

The Company’s cost of funds responds to changes in interest rates due to the relatively short-term nature of its deposit portfolio, and due to the relatively short-term nature of its borrowed funds.  The Company believes that its growing portfolio of longer duration, low-cost deposits generated from its BaaS business line provides a stable and profitable funding vehicle, but also subjects the Company to greater risk in a falling interest rate environment than it would otherwise have without this portfolio. This risk is due to the fact that, while asset yields may decrease in a falling interest rate environment, the Company cannot significantly reduce interest costs associated with these deposits, which thereby compressescompress the Company’s net interest margin.  As a result

A portion of the Company’s interestdeposit balances are subject to variable card processing expenses, derived from contractual agreements with certain BaaS partners tied to a rate risk exposureindex, typically the EFFR. These costs reprice immediately upon a change in this regard, the Company has elected not to enter into any new longer-term wholesale borrowings, and generally has not emphasized longer-term time deposit products.application rate index.

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



See also Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the caption “InterestInterest Rate Risk ("IRR"(“IRR”)
Overview. The Company actively manages interest rate risk, as changes in market interest rates can have a significant impact on reported earnings. The Company's 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. This analysis may not represent all impacts driven by changes in the interest rate environment. The Company does not currently engage in trading activities to control interest rate risk although it may do so in the future, if deemed necessary, to help manage interest rate risk.

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


70
Table of Contents
The Company uses two approaches to model interest rate risk: Earnings at Risk (“EAR analysis”) and Economic Value of Equity (“EVE analysis”).” Under EAR analysis, net interest income is calculated for each interest rate scenario and compared to the net interest income forecast in the base case. EAR analysis measures the sensitivity of interest-sensitive earnings over a one-year minimum time horizon. The results are affected by projected rates, prepayments, caps and floors. Management exercises its best judgment in making assumptions regarding events that management can influence, such as non-contractual deposit re-pricing, as well as events outside of management's control, such as customer behavior on loan and deposit activity and the effect that competition has on both lending and deposit pricing. These assumptions are subjective and, as a result, net interest income simulation results will differ from actual results due to the timing, magnitude, and frequency of interest rate changes, changes in market conditions, customer behavior and management strategies, among other factors. The Company performs various sensitivity analyses on assumptions of deposit attrition, loan prepayments, and asset re-pricing, as well as market-implied forward rates and various likely and extreme interest rate scenarios, including rapid and gradual interest rate ramps, rate shocks and yield curve twists.



The EAR analysis used in the following table reflects the required analysis used no less than quarterly by management. It models basis point parallel shifts in market interest rates over the next one-year period. The following table shows the results of the scenarios as of September 30, 2022 and 2021:

Net Sensitive Earnings at Risk
Change in Interest Income/Expense
for a given change in interest rates
Over / (Under) Base Case Parallel Shift
(Dollars in thousands)Book Value-100Base+100+200+300+400
Balances as of September 30, 2022
Total interest-sensitive income5,866,763 314,229 337,945 361,442 384,921 408,263 431,850 
Total interest-sensitive expense221,302 323 752 1,821 2,904 4,017 5,149 
Net interest-sensitive income313,906 337,193 359,621 382,017 404,246 426,701 
Percentage change from base-6.9 %— %6.7 %13.3 %19.9 %26.5 %
Balances as of September 30, 2021
Total interest-sensitive income5,880,667 263,269 277,479 302,440 327,277 352,428 377,750 
Total interest-sensitive expense501,932 603 770 1,958 3,178 4,426 5,698 
Net interest-sensitive income262,666 276,709 300,482 324,099 348,002 372,052 
Percentage change from base-5.1 %— %8.6 %17.1 %25.8 %34.5 %

The EAR analysis reported at September 30, 2022, shows that total interest-sensitive income will change more rapidly than total interest-sensitive expense over the next year. IRR is a snapshot in time. The Company’s business and deposits are predictably cyclical on a weekly, monthly and yearly basis. The Company’s static IRR results could vary depending on which day of the week the month ends, primarily related to payroll processing and timing of when certain programs are prefunded and when the funds are received.

Under EVE analysis, the economic value of financial assets, liabilities and off-balance sheet instruments is derived under each rate scenario. The economic value of equity is calculated as the difference between the estimated market value of assets and liabilities, net of the impact of off-balance sheet instruments.
The EVE analysis used in the following table reflects the required analysis used no less than quarterly by management. It models immediate basis point parallel shifts in market interest rates. The following table shows the results of the scenario as of September 30, 2022 and 2021:
71
Table of Contents
Economic Value Sensitivity
Standard (Parallel Shift)
Economic Value of Equity at Risk %
 -100+100+200+300+400
Balances as of September 30, 2022
Percentage change from base-3.8 %2.9 %5.3 %7.3 %9.6 %
Balances as of September 30, 2021
Percentage change from base-12.9 %8.4 %14.5 %19.5 %24.6 %

The EVE at risk reported at September 30, 2022 shows that the economic value of equity position is expected to benefit from rising interest rates due to the large amount of noninterest-bearing funding.
72
Table of Contents
Item 8.    Financial Statements and Supplementary DataData.


 
Table of Contents


Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Statements of Financial Condition
Statements of Operations
Statements of Comprehensive Income
Statements of Changes in Stockholders’ Equity
Statements of Cash Flows
Notes to Consolidated Financial Statements


KPMG LLP
73
Table of Contents
2500 Ruan CenterREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
666 Grand Avenue
Des Moines, IA 50309

Report of Independent Registered Public Accounting Firm

TheStockholders and the Board of Directors and Stockholdersof Pathward Financial, Inc.
MetaSioux Falls, South Dakota

Opinion on the Financial Group, Inc.:Statements


We have audited the accompanying consolidated statements of financial condition of Pathward Financial, Inc.(formerly known as Meta Financial Group, Inc.) and subsidiariesSubsidiaries (the Company)"Company") as of September 30, 20172022 and 2016, and2021, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the three‑three-year period ended September 30, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three- year period ended September 30, 2017. These consolidated financial statements are2022, in conformity with accounting principles generally accepted in the responsibilityUnited States of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.America.

We conducted our auditsalso have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated November 22, 2022 expressed an adverse opinion.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective October 1, 2020 due to the adoption of Financial Accounting Standards Board’s Accounting Standards Codification No. 326, Financial Instruments – Credit Losses (ASC 326). The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion,
Critical Audit Matter

The critical audit matter communicated below is a matter arising from the consolidatedcurrent period audit of the financial statements referredthat was communicated or required to above present fairly, in allbe communicated to the audit committee and that: (1) relates to accounts or disclosures that are material respects,to the financial position of Meta Financial Group, Inc.statements and subsidiaries as of September 30, 2017 and 2016, and the results of their operations and their cash flows for each(2) involved our especially challenging, subjective, or complex judgments. The communication of the yearscritical audit matter does not alter in the three‑year period ended September 30, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Meta Financial Group, Inc.’s internal control over financial reporting as of September 30, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), andany way our report dated November 29, 2017 expressed an unqualified opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.


74
Table of Contents
Allowance for Credit Losses (ACL) – Qualitative Adjustments

As described in Notes 1 and 4 to the financial statements, the Company adopted ASC 326 as of October 1, 2020, which, among other things, required the Company to recognize expected credit losses over the contractual lives of financial assets carried at amortized cost, including loans receivable, utilizing the Current Expected Credit Losses (“CECL”) methodology. Estimates of expected credit losses are based on relevant information about current conditions, past events, and reasonable and supportable forward-looking forecasts regarding collectability of the reported amounts. For most of its loan segments, the Company utilized a cohort model which computes the historical life-of-loan loss rate for each identified loan segment (also referred to as the “quantitative loss rates”). The quantitative loss rates are then adjusted, as deemed necessary, based on current economic forecasts over a twelve-month reasonable and supportable forecast period as well as for measurement date credit characteristics including problem loan and delinquency trends, portfolio growth and other factors (also referred to as the “qualitative adjustments”).

We have identified auditing the qualitative adjustments as a critical audit matter as management’s determination of the qualitative adjustments used in the ACL is subjective and involves significant management judgements; and our audit procedures related to the qualitative adjustments involved a high degree of auditor judgment and required significant audit effort, including the need to involve more experienced audit personnel.

The primary procedures we performed to address this critical audit matter included:

•Testing the effectiveness of controls over the qualitative adjustments used in the ACL calculation including controls addressing:

◦Testing the design and operating effectiveness of controls pertaining to the key assumptions and judgments applied in the development of the qualitative adjustments.
◦Testing the design and operating effectiveness of the Company’scontrols around the mathematical accuracy of the qualitative adjustments applied to the loan segments in the ACL calculation.

•Substantively testing management’s determination of the qualitative adjustments used in the ACL estimate, including evaluating their judgements and assumptions, including:

◦Testing management’s process for developing the qualitative adjustments and assessing the reasonableness, relevance and reliability of data used to develop the adjustments, including evaluating their judgments and assumptions for reasonableness. Among other procedures, our evaluation considered evidence from internal control over financial reporting.and external sources, loan portfolio performance and whether such assumptions were applied consistently from period to period.

◦Analytically evaluating the qualitative adjustments for directional consistency.
◦Testing the qualitative adjustments for reasonableness, including evaluating significant changes.
◦Testing the mathematical accuracy of the qualitative adjustments applied to the loan segments in the ACL calculation.

/s/ Crowe LLP
We have served as the Company’s auditor since 2018./s/ KPMG LLP
Des Moines, IowaSouth Bend, Indiana
November 29, 201722, 2022







75
Table of Contents
META
PATHWARD FINANCIAL, GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONConsolidated Statements of Financial Condition
(Dollars in Thousands, Except Share and Per Share Data)
ASSETSSeptember 30, 2017 September 30, 2016
Cash and cash equivalents$1,267,586
 $773,830
Investment securities available-for-sale1,106,977
 910,309
Mortgage-backed securities available-for-sale586,454
 558,940
Investment securities held to maturity449,840
 486,095
Mortgage-backed securities held to maturity113,689
 133,758
Loans receivable1,325,371
 925,105
Allowance for loan losses(7,534) (5,635)
Federal Home Loan Bank stock, at cost61,123
 47,512
Accrued interest receivable19,380
 17,199
Premises, furniture, and equipment, net19,320
 18,626
Bank-owned life insurance84,702
 57,486
Foreclosed real estate and repossessed assets292
 76
Goodwill98,723
 36,928
Intangible assets52,178
 28,921
Prepaid assets28,392
 9,443
Deferred taxes9,101
 —
Other assets12,738
 7,826
    
Total assets$5,228,332
 $4,006,419
    
LIABILITIES AND STOCKHOLDERS’ EQUITY 
  
    
LIABILITIES 
  
Non-interest-bearing checking$2,454,057
 $2,167,522
Interest-bearing checking67,294
 38,077
Savings deposits53,505
 50,742
Money market deposits48,758
 47,749
Time certificates of deposit123,637
 125,992
Wholesale deposits476,173
 —
Total deposits3,223,424
 2,430,082
Short-term debt1,404,534
 1,095,118
Long-term debt85,533
 92,460
Accrued interest payable2,280
 875
Deferred taxes—
 4,600
Accrued expenses and other liabilities78,065
 48,309
Total liabilities4,793,836
 3,671,444
    
STOCKHOLDERS’ EQUITY 
  
Preferred stock, 3,000,000 shares authorized, no shares issued or outstanding at September 30, 2017 and 2016, respectively—
 —
Common stock, $.01 par value; 15,000,000 shares authorized, 9,626,431 and 8,523,641 shares issued, 9,622,595 and 8,523,641 shares outstanding at September 30, 2017 and 2016, respectively96
 85
Common stock, Nonvoting, $.01 par value; 3,000,000 shares authorized, no shares issued or outstanding at September 30, 2017 and 2016, respectively—
 —
Additional paid-in capital258,336
 184,780
Retained earnings167,164
 127,190
Accumulated other comprehensive income9,166
 22,920
Treasury stock, at cost, 3,836 common shares at September 30, 2017 and none at September 30, 2016(266) —
Total stockholders’ equity434,496
 334,975
    
Total liabilities and stockholders’ equity$5,228,332
 $4,006,419
(Dollars in thousands, except per share data)
ASSETSSeptember 30, 2022September 30, 2021
Cash and cash equivalents$388,038 $314,019 
Securities available for sale, at fair value1,882,869 1,864,899 
Securities held to maturity, at amortized cost (fair value $38,171 and $56,391, respectively)41,682 56,669 
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost28,812 28,400 
Loans held for sale21,071 56,194 
Loans and leases3,536,305 3,609,563 
Allowance for credit losses(45,947)(68,281)
Accrued interest receivable17,979 16,254 
Premises, furniture, and equipment, net41,710 44,888 
Rental equipment, net204,371 213,116 
Goodwill and intangible assets335,196 342,653 
Other assets295,324 212,276 
Total assets$6,747,410 $6,690,650 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
LIABILITIES 
Deposits$5,866,037 $5,514,971 
Long-term borrowings36,028 92,834 
Accrued expenses and other liabilities200,205 210,961 
Total liabilities6,102,270 5,818,766 
STOCKHOLDERS’ EQUITY  
Preferred stock, 3,000,000 shares authorized, no shares issued, none outstanding at September 30, 2022 and 2021, respectively— — 
Common stock, $0.01 par value; 90,000,000 shares authorized, 28,878,177 and 31,686,483 shares issued, 28,788,124 and 31,669,952 shares outstanding at September 30, 2022 and 2021, respectively288 317 
Common stock, Nonvoting, $0.01 par value; 3,000,000 shares authorized, no shares issued, none outstanding at September 30, 2022 and 2021, respectively— — 
Additional paid-in capital617,403 604,484 
Retained earnings245,394 259,189 
Accumulated other comprehensive income (loss)(213,080)7,599 
Treasury stock, at cost, 90,053 and 16,531 common shares at September 30, 2022 and 2021, respectively(4,835)(860)
Total equity attributable to parent645,170 870,729 
Noncontrolling interest(30)1,155 
Total stockholders’ equity645,140 871,884 
Total liabilities and stockholders’ equity$6,747,410 $6,690,650 
See Notes to Consolidated Financial Statements.


META
76
Table of Contents
PATHWARD FINANCIAL, GROUP, INC
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Consolidated Statements of Operations
 For the Years Ended September 30,
(Dollars in Thousands, Except Share and Per Share Data)2017 2016 2015
Interest and dividend income:     
Loans receivable, including fees$52,117
 $36,187
 $29,565
Mortgage-backed securities16,571
 15,771
 13,979
Other investments39,415
 29,438
 18,063
 108,103
 81,396
 61,607
Interest expense:     
Deposits6,051
 614
 726
FHLB advances and other borrowings8,822
 3,477
 1,661
 14,873
 4,091
 2,387
      
Net interest income93,230
 77,305
 59,220
      
Provision for loan losses10,589
 4,605
 1,465
      
Net interest income after provision for loan losses82,641
 72,700
 57,755
      
Non-interest income:     
Refund transfer product fees38,956
 23,347
 63
Tax advance product fees31,913
 1,575
 —
Card fees94,707
 70,533
 54,542
Loan fees3,882
 3,374
 2,348
Bank-owned life insurance income2,216
 1,656
 2,030
Deposit fees736
 603
 593
Loss on sale of securities available-for-sale, net (Includes ($493), ($326), and ($1,634) reclassified from accumulated other comprehensive income (loss) for net gains (losses) on available for sale securities for the fiscal years ended September 30, 2017, 2016 and 2015, respectively)(493) (326) (1,634)
Loss (gain) on foreclosed real estate(6) —
 28
Other income261
 8
 204
Total non-interest income172,172
 100,770
 58,174
      
Non-interest expense: 
  
  
Compensation and benefits88,728
 61,675
 46,493
Refund transfer product expense11,885
 8,648
 3
Tax advance product expense3,241
 —
 —
Card processing expense24,130
 22,263
 16,508
Occupancy and equipment expense16,465
 13,999
 11,399
Legal and consulting expense8,384
 4,824
 4,978
Marketing2,117
 1,972
 1,537
Data processing expense1,449
 1,334
 1,347
Amortization expense12,362
 4,828
 1,349
Intangible impairment10,248
 —
 —
Other expense20,654
 15,105
 12,892
Total non-interest expense199,663
 134,648
 96,506
      
Income before income tax expense55,150
 38,822
 19,423
      
Income tax expense (Includes ($185), ($118), and ($597) income tax expense (benefit) reclassified from accumulated other comprehensive income (loss) for the fiscal years ended September 30, 2017, 2016 and 2015, respectively)10,233
 5,602
 1,368
      
Net income$44,917
 $33,220
 $18,055
      
Earnings per common share (1):
 
  
  
Basic$4.86
 $3.93
 $2.68
Diluted$4.83
 $3.91
 $2.66

(1) See Reclassification and Revision of Prior Period Balances under Note 1 Summary of Significant Accounting Policies for additional information describing adjustments made to the Company's EPS calculation. Basic EPS for the fiscal year ended September 30, 2016 of $3.95 was corrected to $3.93 and diluted EPS of $3.92 was corrected to $3.91.
 Fiscal Year Ended September 30,
(Dollars in thousands, except per share data)202220212020
Interest and dividend income:
Loans and leases, including fees$268,078 $256,080 $261,128 
Mortgage-backed securities26,846 12,155 9,028 
Other investments17,272 17,619 22,685 
 312,196 285,854 292,841 
Interest expense: 
Deposits500 1,593 22,616 
FHLB advances and other borrowings4,372 5,270 11,187 
 4,872 6,863 33,803 
Net interest income307,324 278,991 259,038 
Provision for credit losses28,538 49,766 64,776 
Net interest income after provision for credit losses278,786 229,225 194,262 
Noninterest income: 
Refund transfer product fees39,809 37,967 36,061 
Refund advance fee income40,557 47,639 31,826 
Payments card and deposit fees104,684 107,182 87,379 
Other bank and deposit fees1,049 939 1,310 
Rental income46,558 39,416 44,826 
Gain (loss) on sale of securities(1,287)6 51 
Gain on divestitures— — 19,275 
Gain on sale of trademarks50,000 — — 
Gain (loss) on sale of other(4,920)11,515 4,425 
Other income17,357 26,240 14,641 
Total noninterest income293,807 270,904 239,794 
Noninterest expense:   
Compensation and benefits171,126 151,090 136,247 
Refund transfer product expense8,908 11,861 7,644 
Refund advance expense2,157 2,564 2,723 
Card processing38,785 27,201 25,956 
Occupancy and equipment expense34,909 29,269 26,995 
Operating lease equipment depreciation35,636 30,987 32,831 
Legal and consulting40,634 31,341 20,858 
Intangible amortization6,585 8,545 10,997 
Impairment expense670 2,818 1,982 
Other expense45,865 48,007 52,818 
Total noninterest expense385,275 343,683 319,051 
Income before income tax expense187,318 156,446 115,005 
Income tax expense27,964 10,701 5,661 
Net income before noncontrolling interest159,354 145,745 109,344 
Net income attributable to noncontrolling interest2,968 4,037 4,624 
Net income attributable to parent$156,386 $141,708 $104,720 
Earnings per common share:   
Basic$5.26 $4.38 $2.94 
Diluted$5.26 $4.38 $2.94 
See Notes to Consolidated Financial Statements.


META
77
Table of Contents
PATHWARD FINANCIAL, GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in Thousands)
 For Years Ended September 30,
 2017 2016 2015
Net income$44,917
 $33,220
 $18,055
      
Other comprehensive (loss) income: 
  
  
Change in net unrealized gain on securities(21,661) 31,965
 7,723
Losses realized in net income493
 326
 1,634
 (21,168) 32,291
 9,357
Deferred income tax effect(7,414) 11,826
 3,493
Total other comprehensive (loss) income(13,754) 20,465
 5,864
Total comprehensive income$31,163
 $53,685
 $23,919

 Fiscal Year Ended September 30,
(Dollars in thousands)202220212020
Net income before noncontrolling interest$159,354 $145,745 $109,344 
Other comprehensive income (loss):
Change in net unrealized gain (loss) on debt securities(293,952)(13,896)15,164 
Net loss (gain) realized on investment securities1,287 (6)(51)
(292,665)(13,902)15,113 
Unrealized gain (loss) on currency translation(1,736)476 (101)
Deferred income tax effect(73,722)(3,483)3,809 
Total other comprehensive income (loss)(220,679)(9,943)11,203 
Total comprehensive income (loss)(61,325)135,802 120,547 
Total comprehensive income attributable to noncontrolling interest2,968 4,037 4,624 
Comprehensive income (loss) attributable to parent$(64,293)$131,765 $115,923 
See Notes to Consolidated Financial Statements.



78
Table of Contents
META
PATHWARD FINANCIAL, GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended September 30, 2015, 2016 and 2017
Pathward Financial, Inc.
(Dollars in thousands, except per share data)Common
Stock		Additional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Treasury
Stock		Total Pathward Financial
Stockholders’
Equity		Noncontrolling interestTotal
Stockholders’
Equity
Balance, September 30, 2019$378 $580,826 $252,813 $6,339 $(445)$839,911 $4,047 $843,958 
Cash dividends declared on common stock ($0.20 per share)— — (7,100)— — (7,100)— (7,100)
Issuance of common stock due to exercise of stock options1 265 — — — 266 — 266 
Issuance of common stock due to restricted stock2 — — — — 2 — 2 
Issuance of common stock due to ESOP1 3,219 — — — 3,220 — 3,220 
Repurchases of common stock(38)38 (115,506)— (3,232)(118,738)— (118,738)
Stock compensation— 10,221 — — — 10,221 — 10,221 
Total other comprehensive income— — — 11,203 — 11,203 — 11,203 
Net income— — 104,720 — — 104,720 4,624 109,344 
Net investment by (distribution to) noncontrolling interests— — — — — — (5,068)(5,068)
Balance, September 30, 2020$344 $594,569 $234,927 $17,542 $(3,677)$843,705 $3,603 $847,308 
Balance, September 30, 2020$344 $594,569 $234,927 $17,542 $(3,677)$843,705 $3,603 $847,308 
Adoption of Accounting Standards Update 2016-13, net of income taxes— — (8,351)— — (8,351)(2,452)(10,803)
Cash dividends declared on common stock ($0.20 per share)— — (6,400)— — (6,400)— (6,400)
Issuance of common stock due to ESOP2 3,034 — — — 3,036 — 3,036 
Repurchases of common stock(29)29 (96,999)— (2,879)(99,878)— (99,878)
Retirement of treasury stock— — (5,696)— 5,696 — — — 
Stock compensation— 6,852 — — — 6,852 — 6,852 
Total other comprehensive loss— — — (9,943)— (9,943)— (9,943)
Net income— — 141,708 — — 141,708 4,037 145,745 
Net investment by (distribution to) noncontrolling interests— — — — — — (4,033)(4,033)
Balance, September 30, 2021$317 $604,484 $259,189 $7,599 $(860)$870,729 $1,155 $871,884 
Balance, September 30, 2021$317 $604,484 $259,189 $7,599 $(860)$870,729 $1,155 $871,884 
Cash dividends declared on common stock ($0.20 per share)— — (5,921)— — (5,921)— (5,921)
Issuance of common stock due to ESOP1 2,885 — — — 2,886 — 2,886 
Repurchases of common stock(30)30 (164,260)— (3,975)(168,235)— (168,235)
Stock compensation— 10,004 — — — 10,004 — 10,004 
Total other comprehensive income (loss)— — — (220,679)— (220,679)— (220,679)
Net income— — 156,386 — — 156,386 2,968 159,354 
Net investment by (distribution to) noncontrolling interests— — — — — — (4,153)(4,153)
Balance, September 30, 2022$288 $617,403 $245,394 $(213,080)$(4,835)$645,170 $(30)$645,140 
(Dollars in Thousands, Except Share and Per Share Data)
 
 
 
Common
Stock

 
 
 
Additional
Paid-in
Capital

 
 
 
 
Retained
Earnings

 
Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax

 
 
 
 
Treasury
Stock

 
 Total
Stockholders’
Equity

            
Balance, September 30, 2014$62
 $95,079
 $83,797
 $(3,409) $(727) $174,802
            
Cash dividends declared on common stock ($0.52 per share)—
 —
 (3,493) ��
 —
 (3,493)
            
Issuance of common shares from the sales of equity securities14
 50,737
 —
 —
 417
 51,168
            
Issuance of common shares due to issuance of stock options and restricted stock—
 378
 —
 —
 —
 378
            
Issuance of common shares due to acquisition6
 24,297
 —
 —
 —
 24,303
            
Stock compensation—
 258
 —
 —
 —
 258
            
Net change in unrealized gains (losses) on securities, net of income taxes—
 —
 —
 5,864
 —
 5,864
            
Net income—
 —
 18,055
 —
 —
 18,055
            
Balance, September 30, 2015$82
 $170,749
 $98,359
 $2,455
 $(310) $271,335
            
Balance, September 30, 2015$82
 $170,749
 $98,359
 $2,455
 $(310) $271,335
            
Cash dividends declared on common stock ($0.52 per share)—
 —
 (4,389) —
 —
 (4,389)
            
Issuance of common shares from the sales of equity securities2
 11,498
 —
 —
 —
 11,500
            
Issuance of common shares due to issuance of stock options and restricted stock1
 2,046
 —
 —
 310
 2,357
            
Stock compensation—
 487
 —
 —
 —
 487
            
Net change in unrealized gains (losses) on securities, net of income taxes—
 —
 —
 20,465
 —
 20,465
            
Net income—
 —
 33,220
 —
 —
 33,220
            
Balance, September 30, 2016$85
 $184,780
 $127,190
 $22,920
 $—
 $334,975
            
Balance, September 30, 2016$85
 $184,780
 $127,190
 $22,920
 $—
 $334,975
            
Adoption of Accounting Standards Update 2016-09—
 104
 (104) —
 —
 —
            
Cash dividends declared on common stock ($0.52 per share)—
 —
 (4,839) —
 —
 (4,839)
            
Issuance of common shares due to exercise of stock options—
 650
 —
 —
 —
 650
            
Issuance of common shares due to restricted stock4
 —
 —
 —
 —
 4
            
Issuance of common shares due to ESOP—
 1,174
 —
 —
 —
 1,174
            
Issuance of common shares due to acquisition7
 37,289
 —
 —
 —
 37,296
            
Contingent consideration equity earnout due to acquisition—
 24,142
 —
 —
 —
 24,142
            
Shares repurchased for tax withholdings on stock compensation—
 (204) —
 —
 (266) (470)
            
Stock compensation—
 10,401
 —
 —
 —
 10,401
            
Net change in unrealized gains on securities, net of income taxes—
 —
 —
 (13,754) —
 (13,754)
            
Net income—
 —
 44,917
 —
 —
 44,917
            
Balance, September 30, 2017$96
 $258,336
 $167,164
 $9,166
 $(266) $434,496
See Notes to Consolidated Financial Statements.

79
Table of Contents
META
PATHWARD FINANCIAL, GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in Thousands)
 Fiscal Year Ended September 30,
(Dollars in thousands)202220212020
Cash flows from operating activities:
Net income before noncontrolling interest$159,354 $145,745 $109,344 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion, net61,601 59,047 60,745 
Provision for credit losses28,538 49,766 64,776 
Provision (reversal of) for deferred taxes17,587 (1,639)(2,347)
Originations of loans held for sale(985,330)(601,481)(98,798)
Proceeds from sales of loans held for sale1,059,361 890,340 319,123 
Net change in loans held for sale12,819 588 22,855 
Fair value adjustment of foreclosed real estate301 591 568 
Net realized (gain) on securities available for sale, net(154)(6)(51)
Net realized (gain) loss on loans held for sale3,694 (8,610)(5,389)
Net realized loss on premise, furniture, and equipment55 — — 
Net realized (gain) on lease receivables and equipment(3,397)(2,257)(4,335)
Net realized (gain) on foreclosed real estate and repossessed assets— (4)4,960 
Net realized (gain) on divestitures— — (19,275)
Net realized (gain) on trademarks(50,000)— — 
Net realized (gain) loss on other assets1,441 28 361 
Change in bank-owned life insurance value(2,434)(2,434)(2,488)
Impairment on rental equipment— — 447 
Impairment of intangibles670 — — 
Impairment on assets held for sale— — 242 
Net change in accrued interest receivable(1,725)374 2,050 
Net change in other assets(32,936)825 1,524 
Net change in deposits held for sale— — 1,535 
Net change in accrued expenses and other liabilities(10,640)43,920 1,152 
Stock compensation10,004 6,852 10,221 
Net cash provided by operating activities268,809 581,645 467,220 
Cash flows from investing activities:
Purchases of securities available for sale(907,361)(1,041,768)(229,326)
Proceeds from sales of securities available for sale265,951 50,468 4,904 
Proceeds from maturities of and principal collected on securities available for sale324,234 371,898 237,254 
Proceeds from maturities of and principal collected on securities held to maturity14,281 34,268 40,017 
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock(173,653)(1,296)(472,000)
Redemption of Federal Reserve Bank and Federal Home Loan Bank stock173,240 34 475,778 
Purchases of loans and leases(115,353)(311,332)(151,435)
Proceeds from sales of loans and leases123,241 13,850 9,991 
Net change in loans and leases358,635 (196,356)(100,508)
Purchases of premises, furniture, and equipment(8,177)(12,961)(12,266)
Proceeds from sales of premises, furniture, and equipment35 86 107 
Purchases of rental equipment(424,919)(50,437)(53,637)
Proceeds from sales of rental equipment9,372 16,822 14,692 
Net change in rental equipment(5,772)(630)2,623 
Proceeds from sales of foreclosed real estate and repossessed assets1,824 8,952 23,992 
Proceeds from divestitures— — 3,498 
Proceeds from sale of trademarks50,000 — — 
Proceeds from sale of other assets3,550 — — 
Net cash (used in) investing activities(310,872)(1,118,402)(206,316)
Cash flows from financing activities:
Net change in deposits351,066 535,771 931,128 
Net change in short-term borrowings— — (756,019)
80
Table of Contents
 For the Years Ended September 30,
 2017 2016 2015
Cash flows from operating activities:     
Net income$44,917
 $33,220
 $18,055
Adjustments to reconcile net income to net cash provided by operating activities: 
  
  
Depreciation, amortization and accretion, net45,048
 35,617
 28,882
Stock compensation10,401
 487
 258
Provision for loan losses10,589
 4,605
 1,465
Recovery for deferred taxes(6,286) (230) (3,896)
Loss on other assets406
 104
 6
Loss (Gain) on foreclosed real estate6
 —
 (28)
Loss on sale of securities available-for-sale, net537
 326
 1,634
Gain on sale of securities held-to-maturity, net(44) —
 —
Net change in accrued interest receivable(2,181) (3,847) (2,130)
Impairment of intangibles10,248
 —
 —
Fair value adjustment of foreclosed real estate18
 —
 —
Originations of loans held for sale(685,934) —
 —
Proceeds from sales of loans held for sale685,934
 —
 —
Change in bank-owned life insurance value(2,216) (1,656) (1,225)
Net change in other assets(23,408) (1,968) (672)
Net change in accrued interest payable1,405
 603
 (46)
Excess contingent consideration paid(248) —
 —
Net change in accrued expenses and other liabilities30,806
 11,237
 6,911
Net cash provided by operating activities119,998
 78,498
 49,214
      
Cash flows from investing activities: 
  
  
Purchase of securities available-for-sale(848,613) (603,995) (810,624)
Proceeds from sales of securities available-for-sale457,306
 285,508
 566,371
Proceeds from maturities and principal repayments of securities available-for-sale126,420
 116,333
 124,558
Purchase of securities held to maturity(932) (298,869) (72,759)
Proceeds from sales of securities held-to-maturity5,870
 —
 —
Proceeds from maturities and principal repayments of securities held to maturity45,615
 20,465
 9,879
Purchase of bank-owned life insurance(25,000) (10,000) (10,000)
Proceeds from bank-owned life insurance death benefit—
 —
 864
Loans purchased(141,403) —
 —
Proceeds from loans sold4,720
 89
 5,462
Net change in loans receivable(274,840) (217,985) (146,111)
Proceeds from sales of foreclosed real estate200
 —
 86
Cash paid for acquisitions(29,425) —
 (125,314)
Cash received upon acquisitions—
 —
 9,768
Federal Home Loan Bank stock purchases(715,891) (860,902) (544,324)
Federal Home Loan Bank stock redemptions702,280
 837,800
 541,160
Proceeds from the sale of premises and equipment58
 55
 2,100
Purchase of premises and equipment(6,798) (6,979) (5,031)
Net cash used in investing activities(700,433) (738,480) (453,915)
      
Cash flows from financing activities: 
  
  
Net change in checking, savings, and money market deposits319,524
 737,727
 334,375
Net change in time deposits(2,355) 34,821
 (43,382)
Net change in wholesale deposits476,173
 —
 —
Net change of FHLB and other borrowings308,000
 100,000
 —
Net change in federal funds(5,000) 452,000
 70,000
Net change in securities sold under agreements to repurchase(565) (969) (6,404)
Proceeds from long term debt—
 75,000
 —
Payment of debt issuance costs—
 (1,767) —
Payment of debt extinguishment costs(772) —
 —
Principal payments on capital lease obligations(80) (126) (116)
Cash dividends paid(4,839) (4,389) (3,493)
Redemption of long-term borrowings(75,000)— — 
Proceeds from long-term borrowings20,000 — — 
Principal payments on capital lease obligations(75)(32)(1,737)
Principal payments on other liabilities(2,751)(5,611)(7,568)
Proceeds from other liabilities— 80 1,633 
Dividends paid on common stock(5,921)(6,400)(7,100)
Issuance of common stock due to exercise of stock options— — 266 
Issuance of common stock due to restricted stock1 — 2 
Issuance of common stock due to ESOP2,886 3,036 3,220 
Repurchases of common stock(168,235)(99,878)(118,738)
Distributions to noncontrolling interest(4,153)(4,033)(5,068)
Net cash provided by financing activities117,818 422,933 40,019 
Effect of exchange rate changes on cash(1,736)476 (101)
Net change in cash and cash equivalents74,019 (113,348)300,822 
Cash and cash equivalents at beginning of fiscal year314,019 427,367 126,545 
Cash and cash equivalents at end of fiscal period$388,038 $314,019 $427,367 


Purchase of shares by ESOP1,174
 —
 —
Issuance of restricted stock4
 —
 —
Proceeds from exercise of stock options and issuance of common stock650
 13,857
 51,547
Shares repurchased for tax withholdings on stock compensation(470) —
 —
Contingent consideration - cash paid(17,253) —
 —
Net cash provided by financing activities1,074,191
 1,406,154
 402,527
      
Net change in cash and cash equivalents493,756
 746,172
 (2,174)
      
Cash and cash equivalents at beginning of year773,830
 27,658
 29,832
Cash and cash equivalents at end of year$1,267,586
 $773,830
 $27,658

META FINANCIAL GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Con't.)
(Dollars in Thousands)

 For the Years Ended September 30,
 2017 2016 2015
Supplemental disclosure of cash flow information     
Cash paid during the year for:     
Interest$16,278
 $3,488
 $2,433
Income taxes20,058
 5,898
 5,277
Franchise taxes187
 98
 98
Other taxes290
 79
 48
      
Supplemental disclosure of non-cash investing and financing activities: 
  
  
Loans transferred to foreclosed real estate440
 $76
 54
Common stock issued for acquisition(37,296) —
 (24,303)
Contingent consideration - equity(24,142) —
 —
Capital lease obligation—
 —
 (2,259)
Securities transferred from available-for-sale to held to maturity—
 —
 310
Purchase of available-for-sale securities accrued, not paid—
 —
 (7,877)
Purchase of held-to-maturity securities accrued, not paid$—
 $—
 $(3,000)

 Fiscal Year Ended September 30,
(Dollars in thousands)202220212020
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$5,259 $8,207 $41,294 
Income taxes13,940 8,038 6,223 
Franchise taxes250 250 281 
Other taxes541 722 535 
Supplemental schedule of non-cash investing activities:
Transfers
Held for sale to loans and leases115,934 36,919 — 
Loans and leases to held for sale169,045 188,638 542,101 
Loans and leases to rental equipment3,893 28,604 2,134 
Loans and leases to foreclosed real estate and repossessed assets$49 $9 $9,983 
Rental equipment to loan and leases400,148 24,324 8,924 
Rental equipment to foreclosed real estate and repossessed assets— 1,650 — 
Other assets to held for sale— — 7,858 
Deposits to held for sale— — 288,975 
Recognition of operating lease ROU assets, net of measurements117 12,954 28,666 
See Notes to Consolidated Financial Statements.

81

Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
PRINCIPLES OF CONSOLIDATION
The consolidated financial statementsConsolidated Financial Statements include the accounts of MetaPathward Financial, Group, Inc. (the® ("Pathward Financial" or the “Company” or "us"), a unitary savings and loanregistered bank holding company located in Sioux Falls, South Dakota, and its wholly-owned subsidiaries. The Company's subsidiaries which include MetaBank (thePathwardTM, National Association ("Pathward, N.A." or "Pathward" or "the “Bank”), a federally chartered savingsnational bank whose primary federal regulator is the Office of the Comptroller of the Currency (the "OCC"), and MetaPathward Venture Capital, LLC, a wholly ownedwholly-owned service corporation subsidiary of MetaBankPathward, N.A. which invests in companies in the financial technology companies.services industry. All significant intercompany balances and transactions have been eliminated. The Company also owns 100% of First Midwest Financial Capital Trust I (the “Trust”), which was formed in July 2001 for the purpose of issuing trust preferred securities.securities, and Crestmark Capital Trust I, which was acquired from the Crestmark Acquisition in August 2018. The Trust isand Crestmark Capital Trust I are not included in the consolidated financial statementsConsolidated Financial Statements of the Company. AllIn addition, the Company evaluates its relationships with other entities to identify whether they are variable interest entities ("VIEs") and to assess whether it is the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary, then that entity is included in the Consolidated Financial Statements.

Variable Interest Entities
VIEs are defined by contractual ownership or other interests that change with fluctuations in the VIE's net asset value. The primary beneficiary is the entity which has both: (1) the power to direct the activities of the VIE that most significantly impacts the VIE’s economic performance, and (2) the obligation to absorb losses or receive benefits of the entity that could potentially be significant intercompany balancesto the VIE. To determine whether or not a variable interest the Company holds could potentially be significant to the VIE, the Company considers both qualitative and transactions have been eliminated.quantitative factors regarding the nature, size and form of the Company's involvement with the VIE. Further, the Company assesses whether or not the Company is the primary beneficiary of a VIE on an ongoing basis.

Crestmark Capital Trust I qualifies as a VIE for which the Company is not the primary beneficiary. Consequently, the accounts of that entity are not consolidated in the Company’s Financial Statements.

As a result of the Crestmark Acquisition, the Company acquired existing membership interests of five joint venture limited liability companies (the "LLCs"). The Company holds 80% of the membership interests in each of the five LLC entities, which offer commercial lending and other financing arrangements. In connection with these LLCs, the Company exclusively provides funding for each entity's activities. The Company determined it is the primary beneficiary of all five LLCs as it has the managing power under the terms of each of the LLC operating agreements. Results of the five LLCs are reflected in the Company's September 30, 2022 Consolidated Financial Statements and are summarized below. The assets recognized as a result of consolidating the LLCs are the property of the LLCs and are not available for any other purpose.

(Dollars in thousands)At September 30, 2022
Cash and cash equivalents$604 
Loans and leases81,881 
Allowance for credit losses(3,720)
Accrued interest receivable345 
Foreclosed real estate and repossessed assets, net1 
Other assets1,727 
Total assets80,838 
Accrued expenses and other liabilities1,280 
Noncontrolling interest(30)
Net assets less noncontrolling assets$79,588 


82
Table of Contents
Amounts for noncontrolling interests reflect the proportionate share of membership interest (equity) and net income attributable to the holders of minority membership interest in the following entities:

•Capital Equipment Solutions, LLC (“CES”) - CES engages in the business of providing equipment financing term loans.

•CM Help, LLC - CM Help provides flexible patient loan programs to hospitals and patient clients of hospitals as a financing alternative for the self-pay and co-pay portions of patients’ hospital expenses.

•CM Southgate II, LLC - CM Southgate II engages in the business of acquiring fleet leases and semi-trailer/tractor loans and leases.

•CM Sterling, LLC - CM Sterling engages in asset based lending and factoring.

•CM TFS, LLC - CM TFS engages in the business of acquiring equipment financing term loans and leases.

NATURE OF BUSINESS AND INDUSTRY SEGMENT INFORMATION
TheOne of the Company's primary sourcesources of incomerevenue relates to payment processing services for prepaid debit cards, ATM sponsorship, tax refund transfer and other money transfer systems and services. Additionally, a significant source of incomerevenue for the Company is interest from the purchase or origination of commercial finance loans, consumer commercial, agricultural, commercial real estate, residential real estate,finance loans, and premiumwarehouse finance loans. The Company accepts deposits from customers in the normal course of business primarily in northwest and central Iowa, and eastern South Dakota and on a national basis through its MPSPayments and tax services divisions.divisions, and through wholesale funding. The Company operates in the banking industry, which accounts for the majority of its revenues and assets. The Company uses the “management approach” for reporting information about segments in annual and interim financial statements. The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company. Based on the management approach model, the Company has determined that its business is comprised of three reporting segments. See Note 17. Segment Reporting for additional information on the Company's segment reporting.
 
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of consolidated financial statementsConsolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain significant estimates include the valuation of residual values within lease receivables, allowance for loancredit losses, the valuation of goodwill and intangible assets and the fair values of securities and other financial instruments. These estimates are reviewed by management regularly; however, they are particularly susceptible to significant changes in the future.
 
CASH AND CASH EQUIVALENTS AND FEDERAL FUNDS SOLD
For purposes of reporting cash flows, cash and cash equivalents is defined to include the Company’s cash on hand and due from financial institutions and short-term interest-bearing deposits in other financial institutions. The Company reports cash flows net for customer loan transactions, securities purchased under agreement to resell, federal funds purchased, deposit transactions, securities sold under agreements to repurchase, and Federal Home Loan Bank ("FHLB") advances with terms less than 90 days. The Bank is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank ("FRB"),FRB, based on a percentage of deposits. The total of those reserve balances was $1.5 millionzero at September 30, 2017,2022, and there were no such reserve balanceszero at September 30, 2016.2021. The Company at times maintains balances in excess of insured limits at various financial institutions including the FHLB, the FRB and other private institutions. At September 30, 2017,2022, the Company had no$1.3 million interest-bearing deposits held at the FHLB and $1.23 billion$294.4 million in interest-bearing deposits held at the FRB.  At September 30, 2017, the Company had no federal funds sold. The Company does not believe these instruments carry a significant risk of loss, but cannot provide assurances that no losses could occur if these institutions were to become insolvent.



83
Table of Contents
SECURITIES
GAAP requires that, at acquisition, an enterprise classify debt securities into one of three categories: Available for Sale (“AFS”), Held to Maturity (“HTM”) or trading. AFS debt securities are carried at fair value on the consolidated statementsConsolidated Statements of financial condition,Financial Condition. Unrealized holding gains and losses due to risk of credit loss are recognized in earnings while unrealized holding gains and losses due to market conditions and other non-credit risk factors are excluded from earnings and recognized as a separate component of equity in accumulated other comprehensive income (loss) (“AOCI”). See Note 20. Fair Values of Financial Instruments for additional information on fair value of AFS debt securities. HTM debt securities are measured at amortized cost. Both AFS and HTM are subject to review for other-than-temporary impairment. Meta Financial did not hold trading securities at September 30, 2017.

The Company classifies the majority of its debt securities as AFS.  AFS, securitieswhich are those the Company may decide to sell if needed for liquidity, asset-liabilityasset/liability management, or other reasons. PriorBoth AFS and HTM are subject to Junean allowance for credit loss. Pathward Financial did not hold trading securities at September 30, 2013, the Basel III Accord was finalized and clarified that unrealized losses and gains on securities will not affect regulatory capital for those companies that opt out of the requirement, which the Company has done.2022 or 2021.
 
Gains and losses on the sale of securities are determined using the specific identification method based on amortized cost and are reflected in results of operations at the time of sale. Interest and dividend income, adjusted by amortization of purchase premium or discount over the estimated life of the security using the level yield method, is included in income as earned. For callable debt securities, any purchase premium is amortized to the first call date while any discount is accreted over the contractual life of the security.

Debt Securities Credit Losses
The Company evaluates HTM debt securities for credit losses on a quarterly basis and records any such losses as a component of provision for credit losses in the Consolidated Statements of Operations. The Company has concluded that its portfolio as of September 30, 2022 has a zero risk of credit loss due to the U.S. Government financial guarantees underlying the securities within the HTM portfolio and as a result has not recorded an allowance for credit loss.

The Company evaluates AFS debt securities for credit losses on a quarterly basis and records any such losses as a component of provision for credit losses in the Consolidated Statements of Operations. The Company has concluded that any unrealized holding losses in its portfolio as of September 30, 2022 are not related to credit loss and as a result has not recorded an allowance for credit loss. See Note 3. Securities for further information.

Equity Investments
The Company holds marketable equity securities, which have readily determinable fair values ofvalue, and include common equity and mutual funds. These securities availableare 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 sale are determined by obtaining quoted pricesadditional information on nationally recognized securities exchanges (Level 1 inputs), or based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in marketsmarketable equity securities.

The Company also holds non-marketable equity investments that are not active and model-based valuation techniques for which significant assumptions are observableincluded in Other Assets in the market (Level 2 inputs).Company’s Consolidated Financial Statements. The Company considersgenerally accounts for these valuations supplied byinvestments under the equity method or the provisions of Accounting Standards Codification ("ASC") 321. Equity Securities. Investments where the Company has significant influence, but not control, over the investee are accounted for under the equity method. Investments where the Company cannot exercise significant influence over the investee are measured at fair value, with changes in fair value recognized in earnings, unless those investments have no readily determinable fair value. Investments without readily determinable fair value are measured under the measurement alternative, which reflects cost less impairment, with adjustments in value resulting from observable price changes arising from orderly transactions of the same or a third-party provider that utilizes several sources for valuing fixed-income securities.  Sources utilized bysimilar security from the third-party provider include pricing models that vary based on asset class and include available trade, bid, and other market information.  This methodology includes broker quotes, proprietary models, descriptive terms and conditions databases, as well as extensive quality control programs.same issuer ("measurement alternative investments").


Securities Impairment
Management continually monitors the investment securities portfolioThe Company reviews for impairment on a security-by-security basisfor equity method and has a processmeasurement alternative investments and includes an analysis of the facts and circumstances for each investment, expectations of cash flows, capital needs, and viability of its business model. For equity method, the asset carrying value is reduced when the decline in placefair value is considered to identify securities that could potentially have a credit impairment thatbe other than temporary. For measurement alternative investments, the asset carrying value is other-than-temporary.  This process involvesreduced when the fair value is less than the carrying value, without the consideration of recovery.


84
Table of Contents
The Company held the lengthfollowing non-marketable equity investments:

•Equity Method - The Company held equity method investments of time$2.9 million within other assets as of September 30, 2022 and extent$3.1 million at September 30, 2021. The Company’s ownership of such investments typically ranges from 5% - 25% of the investee. The Company recognized net earnings from these investments in the amount of $12,863 within noninterest income for the fiscal year ended September 30, 2022. The Company elected to whichclassify distributions received from equity method investments using the cumulative earnings approach on the Consolidated Statements of Cash Flows.

•Fair Value Method - The Company held equity investments measured at net asset value (NAV) per share (or its equivalent) of $7.2 million at September 30, 2022 and $4.6 million at September 30, 2021 where NAV is considered the fair value has been less thanpractical expedient. These investments are recorded within other assets on the amortized cost basis, reviewCompany’s Consolidated Financial Statements. Fluctuations in fair value are recognized in earnings within noninterest Income.

•Measurement Alternative - The Company held equity investments measured using the measurement alternative of available information regarding$15.3 million as of September 30, 2022 and $12.9 million at September 30, 2021 within other assets on the financial positionCompany’s Consolidated Financial Statements. The Company recognized a fair value decrease of $1.0 million and an increase of $8.0 million during the fiscal years ended September 30, 2022 and 2021, respectively. The Company recognized impairment losses of zero and $2.6 million on such investments during the fiscal years ended September 30, 2022 and 2021, respectively.

LOANS HELD FOR SALE ("LHFS")
LHFS include commercial loans originated under the guidelines of the issuer, monitoringSBA or USDA and consumer loans. LHFS are held at the ratinglower of the security, monitoring changes in value, cash flow projections, and the Company’s intent to sell a securitycost or whether it is more likely than not the Company will be required to sell the security before the recovery of its amortized cost, which, in some cases, may extend to maturity.  To the extent the Company determines that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.  If the Company intends to sell a security or it is more likely than not that the Company would be required to sell a security before the recovery of its amortized cost, the Company recognizes an other-than-temporary impairment for the difference between amortized cost and fair value. IfAny amount by which the Company does not expect to recover the amortized cost basis, does not plan to sell the security and if it is not more likely than not that the Company would be required to sell the security before the recovery of its amortized cost, the recognition of the other-than-temporary impairment is bifurcated.  For those securities, the Company separates the total impairment into a credit loss component recognized in net income, and the amount of the loss related to other factors is recognized in other comprehensive income, net of taxes.
The amount of the credit loss component of a debt security impairment is estimated as the difference between amortized cost and the present value of the expected cash flows of the security.  The presentexceeds fair value is determined usinginitially recorded as a valuation allowance and subsequently reflected in the best estimate of cash flows discounted at the effective interest rate implicit to the security at the date of purchasegain or the current yield to accrete an asset-backed or floating rate security.  In fiscal 2017, 2016loss on sale when sold. At September 30, 2022 and 2015,2021, there was no other-than-temporary impairment recorded.valuation allowance recorded for LHFS. Gains and losses on LHFS are recorded in noninterest income on the Consolidated Statements of Operations. Loan costs and fees are deferred at origination and are recognized in income at the time of sale. Interest income is calculated based on the note rate of the loan and is recorded as interest income. For loans transferred to LHFS due to change in intent of holding the loans to maturity or for the foreseeable future, such loans are transferred at lower of cost or fair value.

LOANS RECEIVABLEAND LEASES

Loans Receivable
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balances reduced by the allowance for loan losses andnet of any unearned income, cumulative charge-offs, unamortized deferred fees orand costs on originated loans, and unamortized premiums or discounts on purchased loans.

Interest income on loans is accrued over the term of the loans based upon the amount of principal outstanding except when serious doubt exists as to the collectability of a loan, in which case the accrual of interest is discontinued. InterestUnearned income, deferred loan fees and costs, and discounts and premiums are amortized to interest income over the contractual life of the loan using the interest method. The Company's business lines follow a nonaccrual policy with certain commercial finance, consumer finance and tax service loans not generally being placed on non-accrual status, but instead are charged off when the collection of principal and interest become doubtful. When placed on nonaccrual status, the accrued unpaid interest receivable is subsequentlyreversed against interest income and any remaining amortizing of net deferred fees is suspended. Cash collected on these loans is applied to first reduce the carrying value of the loan with any remainder being recognized onlyas interest income. Generally, a loan can return to the extent that cash payments are received until, in management’s judgment, the borrower has demonstrated a continued ability to make contractualaccrual status when all delinquent interest and principal become current under the terms of the loan agreement and collectability of the remaining principal and interest is no longer doubtful. Loans are considered past due when contractually required principal or interest payments in which casehave not been made on the due dates.


85
Table of Contents
For commercial loans, the Company generally fully charges off or charges down to net realizable value (fair value of collateral, less estimated costs to sell) for loans secured by collateral when: management judges the loans to be uncollectible; repayment is deemed to be protracted beyond reasonable time frames; the loan has been classified as a loss by either the Company's internal loan review process or its banking regulatory agencies; the customer has filed bankruptcy and the loss becomes evident owing to lack of assets; or the loan meets a defined number of days past due unless the loan is returnedboth well-secured and in the process of collection. For consumer loans, the Company fully charges off or charges down to accrual status.net realizable value when deemed uncollectible due to bankruptcy or other factors, or meets a defined number of days past due.
Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the interest method.


As part of the Company’s ongoing risk management practices, management generally attempts to work with borrowers when necessary to extend or modify loan terms to better align with their current ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Modified loan terms may include interest rate reductions, principal forgiveness, term extensions, payment forbearance or other actions intended to minimize the Company’s economic loss and to avoid foreclosure or repossession of the collateral. Each occurrence is unique to the borrower and is evaluated separately. In a situation where an economic concession has been granted to a borrower that is experiencing financial difficulty, the Company identifies and reports that loan as a troubled debt restructuring (“TDR”). Management considers regulatory guidelines when restructuring loans to ensure that prudent lending practices are followed. As such, qualification criteria and payment terms consider the borrower’s current and prospective ability to comply with the modified terms of the loan. Additionally, the Company structures loan modifications with the intent of strengthening repayment prospects.
The Company considers whether a borrower is experiencing financial difficulties, as well as whether a concession has been granted to a borrower determined to be troubled, when determining whether a modification meets the criteria of being a TDR.  For such purposes, evidence which may indicate that a borrower is troubled includes, among other factors, the borrower’s default on debt, the borrower’s declaration of bankruptcy or preparation for the declaration of bankruptcy, the borrower’s forecast that entity-specific cash flows will be insufficient to service the related debt, or the borrower’s inability to obtain funds from sources other than existing creditors at an effective interest rate equal to the current market interest rate for similar debt for a non-troubled debtor.  If a borrower is determined to be troubled based on such factors or similar evidence, a concession will be deemed to have been granted if a modification of the terms of the debt occurred that management would not otherwise consider.  Such concessions may include, among other modifications, a reduction of the stated interest for the remaining original life of the debt, an extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk, a reduction of accrued interest, or a reduction of the face amount or maturity amount of the debt.

Loans that are reported as TDRs apply the identical criteria in the determination of whether the loan should be accruing or not accruing. The event of classifying the loan as a TDR due to a modification of terms may be independent from the determination of accruing interest on a loan.


Generally, whenLeases Receivable
The Company provides various types of commercial lease financing that are classified for accounting purposes as direct financing, sales-type or operating leases. Leases that transfer substantially all of the benefits and risks of ownership to the lessee are classified as direct financing or sales-type leases and are included in loans and leases receivable on the Consolidated Statements of Financial Condition. Direct financing and sales-type leases are carried at the combined present value of future minimum lease payments and lease residual values. The determination of lease classification requires various judgments and estimates by management, including the fair value of equipment at lease inception, useful life of the equipment under lease, lease residual value, and collectability of minimum lease payments.

Sales-type leases generate dealer profit, which is recognized at lease inception by recording lease revenue net of lease cost. Lease revenue consists of the present value of the future minimum lease payments. Lease cost consists of the lease equipment’s book value, less the present value of its residual. Interest income on direct financing and sales-type leases is recognized using methods that approximate a loanlevel yield over the fixed, non-cancelable term of the lease. Recognition of interest income is generally discontinued at the time the lease becomes delinquent 90 days delinquent, unless the lease is well-secured and in process of collection. Delinquency and past due status is based on the contractual terms of the lease. The Company receives pro rata rent payments for the interim period until the lease contract commences and the fixed, non-cancelable lease term begins. Interim payments are recognized in the month they are earned and are recorded in interest income. Management has policies and procedures in place for the determination of lease classification and review of the related judgments and estimates for all lease financings.

The Company generally fully charges off or morecharges down to net realizable value (fair value of collateral, less estimated costs to sell) for retail bank loansleases when management judges the lease to be uncollectible; repayment is deemed to be protracted beyond reasonable time frames; the lease has been classified as a loss by either the Company's internal review process or whenits banking regulatory agencies; the collectioncustomer has filed bankruptcy and the loss becomes evident owing to lack of principalassets; or interest becomes doubtful,the lease meets a defined number of days past due unless the lease is both well-secured and in the process of collection.


86
Table of Contents
Some lease financings include a residual value component, which represents the estimated fair value of the leased equipment at the expiration of the initial term of the transaction. The estimation of the residual value involves judgments regarding product and technology changes, customer behavior, shifts in supply and demand, and other economic assumptions. The Company may purchase and sell minimum lease payments, primarily as a credit risk reduction tool, to third-party financial institutions at fixed rates on a non-recourse basis with its underlying equipment as collateral. For those transactions that achieve sale treatment, the related lease cash flow stream and the non-recourse financing are derecognized. For those transactions that do not achieve sale treatment, the underlying lease remains on the Company’s Consolidated Statements of Financial Condition and non-recourse debt is recorded in the amount of the proceeds received. The Company retains servicing of these leases and bills, collects, and remits funds to the third-party financial institution. Upon default by the lessee, the third-party financial institutions may take control of the underlying collateral which the Company will placewould otherwise retain as residual value.

Leases that do not transfer substantially all benefits and risks of ownership to the loanlessee are classified as operating leases. Such leased equipment are included in rental equipment on the Consolidated Statements of Financial Condition and are depreciated on a non-accrual statusstraight-line basis over the term of the lease to its estimated residual value. Depreciation expense is recorded as operating lease equipment depreciation expense within noninterest expense. Operating lease rental income is recognized when it becomes due and is reflected as a result, previously accrued interest incomecomponent of noninterest income. The Company evaluates the carrying value of rental equipment for impairment whenever events or circumstances have occurred that would indicate the carrying amount may not be fully recoverable. If the carrying amount is not fully recoverable, an impairment loss is recognized to reduce the carrying amount to fair value, where fair value is based on the loan is reversed againstcondition of the rental equipment and the projected net cash flows from rental and sale adjusted for current income. The loan will remain on a non-accrual status until six months of good payment history. Specialty finance loansmarket conditions. No impairment expense was recognized for fiscal years ended September 30, 2022, 2021, and Payment segment loans are generally not placed on non-accrual status, but are instead written off when the collection of principal and interest becomes doubtful.2020.

MORTGAGELOAN SERVICING AND TRANSFERS OF FINANCIAL ASSETS
The Company, from time to time, sells loan participations, generally without recourse. The Company also sells commercial SBA and USDA loans to third parties, generally without recourse. Sold loans are not included in the consolidated financial statements.Consolidated Financial Statements. The Bank generally retains the right to service the sold loans for a fee.fee and records a servicing asset, which is included within other assets on the Consolidated Statements of Financial Condition. At September 30, 20172022 and 2016,2021, the Bank was servicing loans for others with aggregate unpaid principal balances of $21.8$336.6 million and $19.4$307.3 million, respectively. The service fees and ancillary income related to these loans were immaterial.

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been legally isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

ALLOWANCE FOR LOANCREDIT LOSSES
The allowance for loan lossesACL represents management’s estimate of probablecurrent credit losses expected to be incurred by the loan losses that have been incurredand lease portfolio over the life of each financial asset as of the datebalance sheet date. The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets, which generally means loans and leases identified as troubled debt restructurings or loans and leases on nonaccrual status. All other loans and leases are evaluated collectively for credit loss. A reserve for unfunded credit commitments such as letters of credit and binding unfunded loan commitments is recorded in other liabilities on the Consolidated Statements of Financial Condition.

Individually evaluated loans and leases are a key component of the consolidated financial statements.  The allowance for loan losses is increased by a provision for loan losses charged to expense and decreased by charge-offs (net of recoveries).  EstimatingACL. Generally, the risk of loss and the amount ofCompany measures credit loss on any loan is necessarily subjective.  Management’s periodic evaluation of the appropriateness of the allowance isindividually evaluated loans based on the Company’s and peer group’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimatedfair value of any underlyingthe collateral and current economic conditions.  While management may periodically allocate portions ofless estimated selling costs, as the allowance for specific problemCompany considers these financial assets to be collateral dependent. If an individually evaluated loan situations, the entire allowanceor lease is available for any loan charge-offs that occur.  The allowance consists of specific, general and unallocated components.
The specific component relates to impaired loans.  Loans are generally considered impaired if full principal or interest payments are not probable in accordance with the contractual loan terms.  Often thiscollateral dependent, credit loss is associated with a delay or shortfall in payments of 90 days or more for retail bank loans categories.  Non-accrual loans and all TDRs are considered impaired.  Impaired loans, or portions thereof, are charged off when deemed uncollectible.  Impaired loans are carriedmeasured at the present value of expected future cash flows discounted at the loan’sloan or lease initial effective interest rate. Management has also identified certain structured finance credits for alternative energy projects in which a substantial cash collateral account has been established to mitigate credit risk. Due to the nature of the transactions and significant cash collateral positions, these credits are evaluated individually.


87
Table of Contents
Credit loss for all other loans and leases is evaluated collectively by various characteristics. The collective evaluation of expected losses in all commercial finance portfolios is based on a cohort loss rate and adjustments for forward-looking information, including industry and macroeconomic forecasts. The cohort loss rate is a life of loan loss rate that immediately reverts to historical loss information for the remaining maturity of the financial asset. Management has elected to use a twelve-month reasonable and supportable forecast for forward-looking information. Factors utilized in the determination of the allowance include historical loss experience, current economic forecasts and measurement date credit characteristics such as product type, delinquency, and industry. The unfunded credit commitments depend on these same factors, as well as estimates of lines of credit usage. The various quantitative and qualitative factors used in the methodologies are reviewed quarterly.

The collective evaluation of expected credit losses for certain consumer lending portfolios utilize different methodologies when estimating expected credit losses. Factors utilized in the determination of the allowance include historical loss experience, current economic forecasts, and measurement date credit characteristics including delinquency.

The amount of ACL depends significantly on management’s estimates or key factors and assumptions affecting valuation, appraisals of collateral, evaluations of performance and status, the amounts and timing of future cash flows expected to be received, forecasts of future economic conditions and reversion periods. Such estimates, appraisals, evaluations, cash flows and forecasts may be subject to frequent adjustments due to changing economic prospects of borrowers, lessees, properties or economic conditions. These estimates are reviewed quarterly and adjustments, if necessary, are recorded in the provision for credit losses in the periods in which they become known.

Accrued interest receivable is presented separately on the Consolidated Statements of Financial Condition, and an ACL is not recorded for these balances. Generally, when a loan or lease is placed on nonaccrual status, typically when the collection of interest or principal is 90 days or more past due, uncollected interest accrued in prior years is charged off against the ACL and interest accrued in the current year is reversed against interest income.

Management maintains a framework of controls over the estimation process for the ACL, including review of collective reserve methodologies for compliance with GAAP. Management has a quarterly process to review the appropriateness of historical observation periods and loss assumptions and risk ratings assigned to loans and leases, if applicable. Management reviews its qualitative framework and the effect on the collective reserve compared with relevant credit risk factors and consistency with credit trends. Management also maintains controls over information systems, models and spreadsheets used in the quantitative components of the reserve estimate. This includes the quality and accuracy of historical data used to derive loss rates, the inputs to industry and macroeconomic forecasts and the reversion periods utilized. The results of this process are summarized and presented to management quarterly for their approval of the recorded allowance. See Note 4. Loans and Leases, Net for further information.

The following are risk characteristics of the Company’s loan and lease portfolio:
Commercial Finance
The Company's Commercial Finance business line offers a variety of products through its working capital, equipment finance, structured finance, and insurance premium finance lending solutions. These products include term lending, asset based lending, factoring, lease financing, insurance premium finance, government guaranteed lending and other commercial finance products offered on a nationwide basis that are subject to adverse market conditions which may impact the borrower’s ability to make repayment on the loan or lease or could cause a decline in the value of the collateral that secures the loan or lease. The loans or leases are primarily made based on the operating cash flows of the borrower and on the underlying collateral provided by the borrower. The cash flows of borrowers may be volatile and the value of the collateral securing these loans and leases may be difficult to measure. Most commercial finance loans and leases are secured by the assets being financed or other business assets such as accounts receivable or inventory. Although the loans and leases are often collateralized by equipment, inventory, accounts receivable, insurance premiums or other business assets, the liquidation of collateral in the event of a borrower default may be an insufficient source of repayment, because accounts receivable may be uncollectible and inventories and equipment may be obsolete or of limited use. The Company attempts to mitigate these risks by adhering to its underwriting policies in evaluating the management of the business and the credit-worthiness of borrowers and guarantors.


88
Table of Contents
Consumer Finance
The Company's BaaS business line offers its consumer credit products and Emerald Advance products through its credit solution. The Bank designs its credit program relationships with certain desired outcomes. Three high priority outcomes are liquidity, credit protection, and risk retention. The Bank believes the benefits of these outcomes not only support its goals but the goals of the credit program partner as well. The Bank designs its program credit protections in a manner so that the Bank earns a reasonable risk adjusted return, but is protected by certain layers of credit support, similar to what you would find in structured finance. Certain loans are sold to third parties based on terms and conditions within the Program Agreement.

Tax Services
The Bank's BaaS business line also offers tax solutions, which includes short-term refund advance loans. Through this product, taxpayers are underwritten to determine eligibility for these unsecured loans. Due to the nature of refund advance loans, it typically takes no more than three e-file cycles (the period of time between scheduled IRS payments) from when the return is accepted by the IRS to collect from the borrower. In the event of default, the Bank has no recourse against the tax consumer. The Bank will charge off the balance of a refund advance loan if there is a balance at the end of the calendar year, or when collection of principal becomes doubtful.

The Bank offers short-term electronic return originator ("ERO") advance loans on a nationwide basis. These loans are typically utilized by tax preparers to purchase tax preparation software and to prepare tax office operations for the upcoming tax season. EROs go through an underwriting process to determine eligibility for the unsecured advances. ERO loans are not collateralized. Collection on ERO advances begins once the ERO begins to process refund transfers. Generally, the Bank will charge off the balance of an ERO advance loan if there is a balance at the end of June, or when collection of principal becomes doubtful.

Warehouse Finance
The Bank participates in several collateral-based warehouse lines of credit whereby the Bank is in a senior, secured position as the first out participant. These facilities are primarily collateralized by consumer receivables, with the Bank holding a senior collateral position enhanced by a subordinate party structure.

EARNINGS PER COMMON SHARE (“EPS”)
Basic earnings per share is computed by dividing income available to common stockholders after the allocation of dividends and undistributed earnings to the participating securities by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, and is computed after giving consideration to the weighted average dilutive effect of the Company’s stock options and after the allocation of earnings to the participating securities. See Note 5. Earnings per Common Share for further information.

PREMISES, FURNITURE, AND EQUIPMENT
Land is carried at cost. Buildings, furniture, fixtures, leasehold improvements, internal-use software and equipment are carried at cost, less accumulated depreciation and amortization. The Company primarily uses the straight-line method of depreciation over the estimated useful lives of the assets, which is 39 years for buildings, three years years for internal-use software, and range from two years to 15 years for leasehold improvements, and for furniture, fixtures and equipment. Assets are reviewed for impairment when events indicate the carrying amount may not be recoverable. See Note 6. Premises, Furniture and Equipment, Net for further information.


89
Table of Contents
GOODWILL
Goodwill represents the cost in excess of the fair value of net assets acquired (including identifiable intangibles) in transactions accounted for as business acquisitions. Goodwill is evaluated annually for impairment at a reporting unit level. The Company has determined that its reporting units are one level below the operating segments and distinguish these reporting units based on how the segments and reporting units are managed, taking into consideration the economic characteristics, nature of the products, and customers of the segments and reporting units. The Company performs its impairment evaluation as of September 30 of each fiscal year unless a triggering event occurs that would require an interim impairment evaluation. The Company generally utilizes a qualitative approach during this annual assessment to determine whether it is more likely than not (i.e. a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying value. If we determine it is more likely than not that goodwill is impaired, then a quantitative assessment is performed to determine fair value of the reporting unit. If the carrying amount of the reporting unit with goodwill exceeds its fair value, goodwill is considered impaired and is written down by the excess carrying value of the reporting unit. Subsequent increases in goodwill are not recognized in the Consolidated Financial Statements. No goodwill impairment was recognized during the fiscal years ended September 30, 2022, 2021 or 2020. See Note 8. Goodwill and Intangible Assets for further information.

INTANGIBLE ASSETS
Intangible assets other than goodwill are amortized over their respective estimated lives. All intangible assets are subject to an impairment test at least annually or more often if conditions indicate a possible impairment. See Note 8. Goodwill and Intangible Assets for further information.

EMPLOYEE PROFIT SHARING PLAN
The Company has a profit sharing plan covering substantially all full-time employees. Profit sharing expense included in compensation and benefits, for the fiscal years ended September 30, 2022, 2021 and 2020 was $0.1 million, $3.1 million and $3.1 million, respectively. As of October 1, 2021, the Company modified its profit sharing plan to incorporate a Qualified Automatic Contribution Arrangement safe harbor provision, whereby employee contributions are matched at 100% of the first 6% of eligible compensation contributed.

STOCK COMPENSATION
Compensation expense for share-based awards is recorded over the vesting period at the fair value of the collateral if the loan is collateral dependent.  For such loans, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.



The general reserve covers retail bank loans not considered impaired and is determined based upon both quantitative and qualitative analysis.  A separate general reserve analysis is performed for individual classified non-impaired loans and for non-classified smaller-balance homogeneous loans.  The three main assumptions for the quantitative components for 2017 and 2016 are historical loss rates, the look back period (“LBP”) and the loss emergence period (“LEP”).

The historical loss experience is determined by portfolio segment and is based on the actual loss history of the Company over the past seven years.  For the individual classified loans, historic charge-off rates for the Company’s classified loan population are utilized.

A seven-year LBP is appropriate as it captures the Company’s ability to workout troubled loans or relationships while continuing to factor in the loss experience resulting from varying economic cycles and other factors.

The weighted average LEP is an estimate of the average amount of time from the point the Company identifies a credit event of the borrower to the point the loss is confirmed by the Company weighted by the dollar value of the write off.  The LEP is only applied to the non-classified loan general reserve.
Qualitative adjustment considerations for the general reserve include considerations of changes in lending policies and procedures, changes in national and local economic and business conditions and developments, changes in the nature and volume of the loan portfolio, changes in lending management and staff, trending in past due, classified, nonaccrual, and other loan categories, changes in the Company’s loan review system and oversight, changes in collateral values, credit concentration risk, and the regulatory and legal requirements and environment.
An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses.  The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

The other loan portfolios primarily utilize a general reserve process that primarily uses historical factors related to the specific loan portfolio, although other qualitative factors may be considered in the final loss rate used to calculate the reserve on these portfolios. Loans in these portfolios are generally not placed on non-accrual status or impaired. The balances are written off after a loan becomes past due greater than 210 days for premium finance loans, 180 days for tax and other specialty lending loans and 90 days for other loans.
FORECLOSED REAL ESTATE AND REPOSSESSED ASSETS
Real estate properties and repossessed assets acquired through, or in lieu of, loan foreclosure are initially recorded at fair value less selling costs at the date of foreclosure, establishing a new cost basis.  Any reduction to fair value from the carrying value of the related loanaward at the time of acquisition is accounted for as a loan loss and charged against the allowance for loan losses.  Valuations are periodically performed by management and valuation allowances are increased through a charge to income for reductions ingrant. The exercise price of options or fair value or increases in estimated selling costs.of non-vested (restricted) shares and performance share units granted under the Company’s incentive plans is equal to the fair market value of the underlying stock at the grant date, adjusted for dividends where applicable. The Company has elected to record forfeitures as they occur. See Note 13. Stock Compensation for further information.

INCOME TAXES
The Company records income tax expense based on the amount of taxes due on its tax return plus deferred taxes computed based on the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, using enacted tax rates. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.


In accordance with ASC 740, Income Taxes, the Company recognizes a tax position as a benefit only if it is more likely than not that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized upon examination. For tax positions not meeting the more likely than not test, no tax benefit is recorded. The Company recognizes interest and/or penalties related to income tax matters in noninterest income or noninterest expense. The effect on deferred tax assets and liabilities from a change in tax rates is recorded in income tax expense.

PREMISES, FURNITURE AND EQUIPMENT
Land is carried at cost.  Buildings, furniture, fixtures, leasehold improvements and equipment are carried at cost, less accumulated depreciation and amortization.  Capital leases, where we areexpense in the lessee, are includedConsolidated Statements of Operations in premises and equipment at the capitalized amount less accumulated amortization.  We primarily useperiod in which the straight-line method of depreciation overenactment date occurs. If current period income tax rates change, the estimated useful lives of the assets, which range from 10 to 40 years for buildings, and 2 to 15 years for leasehold improvements, and for furniture, fixtures and equipment. We amortize capitalized leased assets on a straight-line basis over the lives of the respective leases. Assets are reviewed for impairment when events indicate the carrying amount may not be recoverable.

TRANSFERS OF FINANCIAL ASSETS

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered.  Control over transferred assets is deemed to be surrendered when (1) the assets have been legally isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

BANK-OWNED LIFE INSURANCE
Bank-owned life insurance represents the cash surrender value of investments in life insurance contracts.  Earningsimpact on the contracts are based on the earnings on the cash surrender value, less mortality costs.
EMPLOYEE STOCK OWNERSHIP PLAN (“ESOP”)
The cost of shares issuedannual effective income tax rate is applied year to the ESOP, but not yet allocated to participants, are presenteddate in the consolidated statementsperiod of financial condition as a reduction of stockholders’ equity.  Compensation expense is recorded based on the market price of the shares as they are committed to be releasedenactment. See Note 14. Income Taxes for allocation to participant accounts.  The difference between the market price and the cost of shares committed to be released is recorded as an adjustment to additional paid-in capital.  Dividends on allocated ESOP shares are recorded as a reduction of retained earnings.  Dividends on unallocated shares are used to reduce the accrued interest and principal amount of the ESOP’s loan payable to the Company.  At September 30, 2017 and 2016, all shares in the ESOP were allocated.further information.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company, in the normal course of business, makes commitments to makeoriginate loans which are not reflected in the consolidated financial statements.Consolidated Financial Statements. The reserve for these unfunded commitments is included within Other Liabilities on the Consolidated Statements of Financial Condition.


GOODWILL
90
Goodwill represents the cost in excess
Table of the fair value of net assets acquired (including identifiable intangibles) in transactions accounted for as business acquisitions. Goodwill is evaluated annually for impairment. The Company performs its impairment evaluation as of September 30 of each fiscal year. If the implied fair value of goodwill is lower than its carrying amount, goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill are not recognized in the consolidated financial statements. No goodwill impairment was recognized during the years ended September 30, 2017, 2016 or 2015.Contents

INTANGIBLE ASSETS
Intangible assets other than goodwill are amortized over their respective estimated lives. All intangible assets are subject to an impairment test at least annually or more often if conditions indicate a possible impairment.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company enters into sales of securities under agreements to repurchase with primary dealers only, which provide for the repurchase of the same security.  Securities sold under agreements to repurchase identical securities are collateralized by assets which are held in safekeeping in the name of the Bank or by the dealers who arranged the transaction.  Securities sold under agreements to repurchase are treated as financings, and the obligations to repurchase such securities are reflected as a liability.  The securities underlying the agreements remain in the asset accounts of the Company.

REVENUE RECOGNITION
Interest revenue from loans, leases, and investments is recognized on the accrual basis of accounting as the interest is earned according to the terms of the particular loan, lease, or investment. Income from service and other customer charges is recognized as earned. Revenue within the PaymentsConsumer segment is recognized as services are performed and service charges are earned in accordance with the terms of the various programs. Refer to Note 16. Revenue from Contracts with Customers for additional information.
EARNINGS PER COMMON SHARE (“EPS”)
Basic earnings per share is computed by dividing income available to common stockholders after the allocation of dividends and undistributed earnings to the participating securities by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, and is computed after giving consideration to the weighted average dilutive effect of the Company’s stock options and after the allocation of earnings to the participating securities.

COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) consists of net income and other comprehensive income or loss. Other comprehensive income or loss includes the change in net unrealized holding gains and losses due to market conditions and other non-credit risk factors on AFS debt securities, available for sale, net of reclassification adjustments and tax effects. Accumulated other comprehensive income (loss) is recognized as a separate component of stockholders’ equity.
 
STOCK COMPENSATIONRELATED PARTY TRANSACTIONS
The Company has disclosed information on its equity investments and relationships with variable interest entities in Note 1. Summary of Significant Accounting Policies.
Compensation expense for share-based awards is recorded over
At September 30, 2022 and 2021, the vesting period at the fair valueCompany had no loans outstanding with individuals deemed under Regulation O to be directors, executive officers and/or employees of the award at the time of grant.  The exercise price of options or fair value of nonvested restricted shares granted under the Company’s incentive plans is equal to the fair market value of the underlying stock at the grant date. Company.


RECLASSIFICATION AND REVISION OF PRIOR PERIOD BALANCES

The Company reclassified insignificant electronic return originator ("ERO") and taxpayer advance fee income and related expenses during fiscalCertain prior year 2017 from loan fees and other income to tax product fees and other expenses to tax product expense. Prior period amounts have also been reclassified.

As of March 31, 2017, certain insignificant adjustments to previously reported Earnings Per Share ("EPS") have been made to correctly reflect the effect of participating securities on basic and diluted EPS calculations in accordance with ASC 260. These changes were immaterial to the overall EPS calculation. Basic EPS for the fiscal year ended September 30, 2016 of $3.95 was corrected to $3.93 and diluted EPS of $3.92 was corrected to $3.91.

In fiscal 2017, the Company early adopted Accounting Standards Update ("ASU") 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." The requirement to report the excess tax benefit related to settlements of share-based payment awards in earnings as an increase or (decrease) to income tax expense has been applied utilizing the prospective method. While the adoption of ASU 2016-09 requires retrospective application to all fiscal year periods presented, the Company elected to not recast previously reported financial statements as the impact was considered insignificant. However, the Company reclassified stock compensation from financing to operating activities on the Consolidated Statement of Cash Flows as of September 30, 2016 and September 30, 2015.

The Company reclassified goodwill, intangibles, and related amortization expenses during fiscal year 2017 from the Corporate Services / Other segment to Payments and Banking based on how the Company performs its annual impairment testing. Prior period amounts have also been reclassified to conform to the current year financial statement presentation. These changes and reclassifications did not impact previously reported net income or comprehensive income.


RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES ("ASU")
In fiscal year 2016,The following ASUs were adopted by the Company disclosed $89 thousand for proceeds from loan sales as a negative adjustment to net cash used in investing activities in the Consolidated Statements of Cash Flows. In fiscal 2017, the Company has correctedduring the fiscal year 2016 cash flow presentationended September 30, 2022, none of which had a material impact on the Company's Consolidated Financial Statements. All became effective for the Company on October 1, 2021.

ASU 2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes by removing specific technical exceptions in ASC 740 related to appropriately disclose this amountthe incremental approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition for deferred tax liabilities for outside basis differences. All changes within ASU 2019-12 were applied on a prospective basis and did not have a material impact on the Company's Consolidated Financial Statements.

ASU 2020-08,Codification Improvements to Subtopic 310-20: Receivables – Nonrefundable Fees and Other Costs. This ASU clarifies that an entity should amortize any premium, if applicable, to the next call date, which is the first date when a call option at a specified price becomes exercisable. The Company had previously amortized fees through the next call date and will continue to do so; accordingly, there is no impact on the Company's Consolidated Financial Statements as a positive adjustmentresult of adopting this ASU.

ASU 2020-10,Codification Improvements. This ASU made minor improvements to net cash used in investing activities.  Asvarious Topics that did not have a significant impact on the Company’s accounting policies and practices. There were no material impacts to the Consolidated Financial Statements as a result of adopting this ASU.

ASU 2021-06,Presentation of Financial Statements (Topic 205), Financial Services – Depository and Lending (Topic 942), and Financial Services – Investment Companies (Topic 946) – Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Business, and No. 33-10835, Updated of Statistical Disclosures for Bank and Savings and Loan Registrants. This ASU adds new quarterly disclosures and expands certain annual disclosures to quarterly reporting. The additional disclosure requirements have been included within the prior period amount for net changes in loans receivable hasManagement Discussion & Analysis section.

The following ASUs have been adjusted from $(217,807) thousand, as previously reported, to $(217,985) thousand. These adjustmentsissued and are considered applicable to be prior period immaterial correctionsthe Company, but have not yet been adopted as of September 30, 2022.


91
Table of Contents
ASU 2021-05,Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments. The amendments in this ASU require lessors to classify and account for leases with variable lease payments that do not have any impactdepend on fiscal year 2017 net cash provided by (used in)a reference index or rate as an operating activities, investing activities, and financing activities.  In fiscal year 2015, the Company disclosed $5,462 thousand for proceeds from loan sales as a negative adjustment to net cash used in investing activities. In fiscal year 2017, the Company has corrected the fiscal year 2015 cash flow presentation to appropriately disclose this amount as a positive adjustment to net cash used in investing activities.  As a result, the prior period amount for net changes in loans receivable has been adjusted from $(135,187) thousand, as previously reported, to $(146,111) thousand. These adjustmentslease if certain criteria are considered to be prior period immaterial corrections and do not have any impact on fiscal year 2017 net cash provided by (used in) operating activities, investing activities, and financing activities.

NEW ACCOUNTING PRONOUNCEMENTS

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

This ASU requires organizations to replace the incurred loss impairment methodology with a methodology reflecting expected credit losses with considerations for a broader range of reasonable and supportable information to substantiate credit loss estimates. met. This ASU is effective for annual reporting periods beginning after December 15, 2019. The Company is currently undertaking a data analysis and ensuring its systems are capturing data applicable to the standard. In addition, the Company is undergoing a readiness assessment with an external consultant that began in the first quarter of fiscal 2018.
ASU No. 2016-04, Extinguishment of liabilities (Subtopic 405-20): Recognition of Breakagepublic companies for Certain Prepaid Stored-Value Products

This ASU requires organizations to derecognize the deposit liabilities for unredeemed prepaid stored-value products (i.e. – breakage) consistently with breakage guidance in Topic 606, Revenue from Contracts with Customers. This ASU is effective for annual reporting periods beginning after December 15, 2017, and the Company expects the impact to the consolidated financial statements to be minimal.
ASU No. 2016-02, Leases (Topic 842): Amendments to the Leases Analysis

This ASU requires organizations to recognize lease assets and lease liabilities on the balance sheet, along with disclosing key information about leasing arrangements. This update is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and the Company has finalized their initial assessment of the ASU and expects that the standard will be immaterial to the consolidated financial statements with the Company's current leases.

ASU No. 2014-9, Revenue Recognition – Revenue from Contracts with Customers (Topic 606)
This ASU provides guidance on when to recognize revenue from contracts with customers.  The objective of this ASU is to eliminate diversity in practice related to this topic and to develop guidance that would streamline and enhance revenue recognition requirements.  The ASU defines five steps to recognize revenue, including identify the contract with a customer, identify the performance obligations in the contract, determine a transaction price, allocate the transaction price to the performance obligations and then recognize the revenue when or as the entity satisfies a performance obligation.  This update is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and the Company is currently assessing all income streams, including different prepaid card programs so as to ascertain how breakage will be recognized under the standard.

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

This ASU requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. This update is effective for annual and interim periods in fiscal years beginning after December 15, 2016, and2021. The Company’s Equipment Finance division does not generally originate leases with variable lease payments that do not depend on a reference rate or index, so the Company has determined thatimpact of this update willASU is not have an impact onexpected to be material to the consolidated financial statements.


ASU 2016-09, Compensation - Stock Compensation2022-02, Financial Instruments – Credit Losses (Topic 718)326): Improvements to Employee Share-Based Payment Accounting
Troubled Debt Restructurings and Vintage Disclosures. The amendments in this ASU eliminate accounting guidance for troubled-debt restructurings (TDRs) by creditors in Subtopic ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors, and enhance disclosure requirements for certain loan refinancings and restructurings when a borrower is experiencing financial difficulty. This ASU provides guidance to improve the accounting for share-based payment transactions as part of the FASB’s simplification initiative. The ASU changes seven aspects of the accounting for share-based payment award transactions, including: (1) accounting for income taxes; (2) classification of excess tax benefits on the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes; (6) practical expedient - expected term (nonpublic companies only); and (7) intrinsic value (nonpublic companies only). This update is effective for annual and interim periods inpublic companies for fiscal years beginning after December 15, 2016, and2022. Management is currently evaluating the Company early adopted the standard in the Company's third quarter of fiscal year 2017. Under the new standard, excess tax benefits and deficiencies related to employee stock-based compensation will be recognized directly within income tax expense or benefit in the consolidated statement of operations, rather than within additional paid-in capital. Additionally, as permitted under the new standard, the Company made an accounting policy election to account for forfeitures of awards as they occur, which represents a change from the current requirement to estimate forfeitures when recognizing compensation expense. The impact of applying thatthis guidance reduced reported income tax expense by $0.5 million for the quarter ended June 30, 2017. All income tax-related cash flows resulting from share-based payments are reported as an operating activity in the consolidated statements of cash flows. The Company elected to adopt the change in cash flow classification on a prospective basis, which resulted in an increase to net cash from operating activities and a corresponding decrease to net cash from financing activities in the accompanying consolidated statement of cash flows.
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
This ASU addresses eight classification issues related to the statement of cash flows including; debt prepayment or debt extinguishment costs, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. This update is effective for annual periods and interim periods in fiscal years beginning after December 15, 2017, and the Company is currently assessing the potential impact to the consolidated financial statements.
ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
This ASU requires entities to shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments in this update require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and is not expected to have an impact on the consolidated financial statements.
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
This ASU targets improving the accounting treatment for hedging activities and provides more flexibility in defining what can be hedged, less earnings volatility due to ineffective hedges, and less arduous documentation requirements. The ASU also offers the ability to reclassify prepayable debt securities from HTM to AFS and subsequently sell the securities, as long as the securities are eligible to be hedged. This update is effective for annual periods and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted in any interim period or fiscal year before the effective date. The Company is currently assessing the potential impact of early adoption for reclassification of certain prepayable debt securities from HTM to AFS.



NOTE 2. ACQUISITIONSSIGNIFICANT EVENTS

Rebranding

On December 7, 2021, the Company executed a Purchase Agreement (the “Agreement”) with Beige Key, LLC (the “Assignee”) for the sale of all of the Company’s worldwide right, title and interest in and to company names and tradenames including Meta and other "Meta" formative names including MetaBank and Meta Financial Group, and the domain names, social media accounts and goodwill associated with the foregoing (collectively, the “Meta” tradenames) in exchange for $60.0 million in cash. Subject to the terms and conditions set forth in the Agreement, the Company has one year from the Agreement execution date to phase out and cease all use of the Meta tradenames. From the date of the Agreement until the date such phase out is completed (the “Phase Out Period”), Assignee has granted the Company a non-exclusive royalty free license in the United States and Canada to use the Meta tradenames in the manner in which they were used by the Company prior to the Agreement.

The Company received $50.0 million upon execution and delivery of the Agreement, at which time the Meta tradenames were assigned to the Assignee. The Company has recognized the $50.0 million as noninterest income in the fiscal year ended September 30, 2022. The remaining $10.0 million was paid by the Assignee and is being held in an escrow account by a third-party agent until the agreed upon activities within the Phase Out Period have been completed, two acquisitionsat which time the funds will be released to the Company. The Company’s receipt of the $10.0 million payment is contingent upon phase out activities that have not yet been completed and has not been recognized in the Company’s consolidated financial statements for the fiscal year ended September 30, 2017. The two purchase transactions are detailed below.2022.

EPS Financial
On November 1, 2016,July 13, 2022, the Company through MetaBank, completedannounced it changed its name to Pathward Financial, Inc.TM, and its bank subsidiary MetaBank®, N.A. changed to Pathward™, N.A. ("Pathward" or the acquisition of substantially all of the assets and certain liabilities of EPS Financial, LLC ("EPS") from privately-held Drake Enterprises, Ltd. ("Drake""Bank"). The assets acquiredfull transition to Pathward, including a new brand identity and website, is expected to be completed by MetaBank in the EPS acquisition include the EPS trade name, operating platform, and other assets. EPS is a leading providerend of comprehensive tax-related financial transaction solutions for over 10,000 ERO's nationwide, offering a one-stop-shop for all tax preparer financial transactions. These solutions include a full-suite of refund settlement products, prepaid payroll card solutions and merchant services.this calendar year.
Under the terms of the purchase agreement, the aggregate purchase price, which was based upon the November 1, 2016 tangible book value of EPS, included the payment of $21.9 million in cash, after adjustments, and the issuance of 369,179 shares of Meta Financial common stock. The Company acquired assets with approximate fair values of $17.9 million of intangible assets, including customer relationships, trademark, and non-compete agreements, and $0.1 million of other assets, resulting in $30.4 million of goodwill.

The following table represents the approximate fair value of assets acquired and liabilities assumed of EPS on the consolidated balance sheet as of November 1, 2016:
 As of November 1, 2016
 (Dollars in Thousands)
Fair value of consideration paid 
Cash$21,877
Stock issued26,507
Total consideration paid48,384
  
Fair value of assets acquired 
Intangible assets17,930
Other assets79
Total assets18,009
Fair value of net assets acquired18,009
Goodwill resulting from acquisition$30,375

The Company has included the financial results of EPS in its consolidated financial statements subsequent to the acquisition date. The EPS transaction has been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the transaction date. The Company made significant estimates and exercised judgment in estimating fair values and accounting for such acquired assets and liabilities.

The Company recognized goodwill$13.1 million of $30.4 millionnoninterest expense related to rebranding efforts in the fiscal year ended September 30, 2022.

92
Table of Contents
NOTE 3.  SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair values of available for sale ("AFS") and held to maturity ("HTM") debt securities are presented below.
Debt Securities AFS
(Dollars in thousands)Amortized CostGross Unrealized GainsGross Unrealized (Losses)Fair
Value
At September 30, 2022
Corporate securities$25,000 $— $(2,813)$22,187 
SBA securities105,238 — (7,470)97,768 
Obligations of states and political subdivisions2,469 — (125)2,344 
Non-bank qualified obligations of states and political subdivisions290,754 — (26,971)263,783 
Asset-backed securities160,806 — (13,016)147,790 
Mortgage-backed securities1,581,452 — (232,455)1,348,997 
Total debt securities AFS$2,165,719 $— $(282,850)$1,882,869 
At September 30, 2021
Corporate securities$25,000 $— $— $25,000 
SBA securities151,958 5,251 — 157,209 
Obligations of states and political subdivisions2,497 10 — 2,507 
Non-bank qualified obligations of states and political subdivisions266,048 3,347 (1,100)268,295 
Asset-backed securities393,103 3,003 (1,247)394,859 
Mortgage-backed securities1,016,478 9,728 (9,177)1,017,029 
Total debt securities AFS$1,855,084 $21,339 $(11,524)$1,864,899 

Debt Securities HTM
(Dollars in thousands)Amortized CostGross Unrealized GainsGross Unrealized (Losses)Fair
Value
At September 30, 2022
Non-bank qualified obligations of states and political subdivisions$39,093 $— $(3,190)$35,903 
Mortgage-backed securities2,589 — (321)2,268 
Total debt securities HTM$41,682 $— $(3,511)$38,171 
At September 30, 2021
Non-bank qualified obligations of states and political subdivisions$52,944 $103 $(471)$52,576 
Mortgage-backed securities3,725 90 — 3,815 
Total debt securities HTM$56,669 $193 $(471)$56,391 

93
Table of Contents
Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous loss position, were as follows:

LESS THAN 12 MONTHSOVER 12 MONTHSTOTAL
(Dollars in thousands)Fair
Value		Gross Unrealized (Losses)Fair
Value		Gross Unrealized (Losses)Fair
Value		Gross Unrealized (Losses)
Debt Securities AFS
At September 30, 2022
Corporate securities$— $— $22,187 $(2,813)$22,187 $(2,813)
SBA securities97,767 (7,470)— — 97,767 (7,470)
Obligations of state and political subdivisions2,345 (125)— — 2,345 (125)
Non-bank qualified obligations of states and political subdivisions195,816 (19,743)67,967 (7,228)263,783 (26,971)
Asset-backed securities64,886 (1,838)82,904 (11,178)147,790 (13,016)
Mortgage-backed securities816,657 (106,583)532,340 (125,872)1,348,997 (232,455)
Total debt securities AFS$1,177,471 $(135,759)$705,398 $(147,091)$1,882,869 $(282,850)
At September 30, 2021
Non-bank qualified obligations of states and political subdivisions$101,046 $(1,100)$— $— $101,046 $(1,100)
Asset-backed securities127,110 (283)91,553 (964)218,663 (1,247)
Mortgage-backed securities759,035 (7,418)60,792 (1,759)819,827 (9,177)
Total debt securities AFS$987,191 $(8,801)$152,345 $(2,723)$1,139,536 $(11,524)
Debt Securities HTM
At September 30, 2022
Non-bank qualified obligations of states and political subdivisions$3,984 $(300)$31,919 $(2,890)$35,903 $(3,190)
Mortgage-backed securities2,268 (321)— — 2,268 (321)
Total debt securities HTM$6,252 $(621)$31,919 $(2,890)$38,171 $(3,511)
At September 30, 2021
Non-bank qualified obligations of states and political subdivisions$26,096 $(471)$— $— $26,096 $(471)
Total debt securities HTM$26,096 $(471)$— $— $26,096 $(471)

At September 30, 2022, there were 195 securities AFS in an unrealized loss position. All of November 1, 2016, whichthe mortgage-backed securities ("MBS") in an unrealized loss position at September 30, 2022 were government guaranteed. Management assessed each investment security with unrealized losses for credit loss and determined substantially all unrealized losses on these securities were due to credit spreads and interest rates versus credit loss. As part of that assessment, management evaluated and concluded that it is calculated asmore-likely-than-not that the excessCompany will not be required and does not intend to sell any of both the consideration exchangedsecurities prior to recovery of the amortized cost. At September 30, 2022, there was no ACL for debt securities AFS.

The amortized cost and the liabilities assumed, which were negligible, as compared to the fair value of identifiable assets acquired.  Goodwill resulteddebt securities by contractual maturity are shown below. Certain securities have call features which allow the issuer to call the security prior to maturity. Expected maturities may differ from contractual maturities in MBS because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Therefore, MBS are not included in the maturity categories in the following maturity summary. The expected operational synergies and expanded product lines and is expectedmaturities of certain SBA securities may differ from contractual maturities because the borrowers may have the right to be deductible for tax purposes. See Note 20prepay the obligation. However, certain prepayment penalties may apply.

94
Table of Contents
At September 30,
(Dollars in thousands)20222021
Securities AFS at Fair ValueAmortized CostFair
Value		Amortized CostFair
Value
Due in one year or less$718 $715 $810 $822 
Due after one year through five years9,921 9,395 13,026 13,378 
Due after five years through ten years89,921 81,819 50,785 52,357 
Due after ten years483,707 441,943 773,985 781,313 
584,267 533,872 838,606 847,870 
Mortgage-backed securities1,581,452 1,348,997 1,016,478 1,017,029 
Total securities AFS, at fair value$2,165,719 $1,882,869 $1,855,084 $1,864,899 

At September 30,
(Dollars in thousands)20222021
Securities HTM at Fair ValueAmortized CostFair
Value		Amortized CostFair
Value
Due after ten years$39,093 $35,903 $52,944 $52,576 
39,093 35,903 52,944 52,576 
Mortgage-backed securities2,589 2,268 3,725 3,815 
Total securities HTM, at cost$41,682 $38,171 $56,669 $56,391 

Activity related to the Consolidated Financial Statementssale of securities available for further informationsale is summarized below.
Fiscal Year Ended September 30,
(Dollars in thousands)202220212020
Available For Sale
   Proceeds from sales$265,951 $50,468 $4,904 
   Gross gains on sales1,742 179 51 
   Gross losses on sales1,588 173 — 
 Net gain (loss) on securities AFS$154 $6 $51 

There was no activity related to the sale of securities held to maturity during the fiscal years ended September 30, 2022, 2021, and 2020.

No securities were pledged as collateral for public funds on goodwill.deposit at September 30, 2022 and 2021. No securities were pledged as collateral for individual, trust and estate deposits at September 30, 2022 and 2021.

Equity Securities
The Company recognized $0.5held $2.9 million of pre-tax transaction-related expenses during fiscal 2017. The transaction expenses are reflected on the consolidated statement of operations primarily under legal and consulting.






SCS

On December 14, 2016, the Company, through MetaBank, completed the acquisition of substantially all of the assets and specified liabilities of Specialty Consumer Services LP ("SCS"). The assets acquired by MetaBank in the SCS acquisition include the SCS trade name, propriety underwriting model and loan management system and other assets. SCS primarily provides consumer tax advance and other consumer credit services through its loan management services and other financial products.

Under the terms of the purchase agreement, the aggregate purchase price paid at closing, which was based upon the December 14, 2016 tangible book value of SCS, was approximately $7.5$12.7 million in cashmarketable equity securities at September 30, 2022 and the issuance of 113,328 shares of Meta Financial common stock. In addition, contingent cash consideration of $17.5 million was paid out in the third quarter of fiscal 2017 and equity contingent consideration of 264,431 shares of Meta Financial common stock was paid in the fourth quarter of fiscal 2017 following the achievement of specified performance benchmarks (described more fully below). The Company acquired assets with approximate fair values of $28.3 million of intangible assets, including customer relationships, trademark, and non-compete agreements, and negligible other assets, resulting in goodwill of $31.4 million. All amounts are at estimated fair market values.

Subject to the equity earn-out terms of the purchase agreement, SCS was eligible to receive up to an aggregate of 264,431 shares of Meta Financial common stock within 20 days after the applicable equity earn-out statement was deemed final if certain targets achieved. The equity earn-out measurements were as follows; 1) if, as of an equity earn-out measurement date, the anticipated 2018 measured gross profit met or exceeded the statement amount, MetaBank would deliver to SCS a stated number of shares of Meta Financial common stock; 2) if, as of an equity earn-out measurement date, the aggregate anticipated loan volume under all 2018 eligible contracts was greater than or equal to the agreed upon volume amount, then MetaBank would deliver to SCS a stated number of shares of Meta Financial common stock; and 3) if, as of an equity earn-out measurement date, each agreement specified in the contract was in effect and none of such agreements was amended or modified as of such time (except as approved in writing by the President of MetaBank, in his or her sole discretion), then MetaBank would deliver to SCS a stated number of shares of Meta Financial common stock. None of the equity earn-out payments was contingent on the achievement of any of the other equity earn-out targets. Upon the determined equity earn-out measurement date, MetaBank determined that each of the three earn-out measurement targets was achieved and the Company issued an aggregate of 264,431 shares of Meta Financial common stock in the fourth quarter of fiscal 2017.

Subject to the cash earn-out terms of the purchase agreement, MetaBank agreed to pay to SCS an amount equal to 100% of the 2017 measured business gross profit up to a maximum of $17.5 million within 20 days after the date on which each determination of the cash earn-out payment was deemed final. During the third quarter of fiscal 2017, MetaBank paid out the $17.5 million of contingent cash consideration to SCS based upon the measured business gross profit.

The Company has included the financial results of SCS in its consolidated financial statements subsequent to the acquisition date. The fair value of the liability for the cash contingent consideration was approximately $17.3 million and was included in other liabilities in the Company's consolidated statement of financial condition. The fair value of the equity contingent consideration was approximately $24.1 million at closing and was included in additional paid-in capital in the Company's consolidated statement of financial condition. The respective fair values of the liability and equity were estimated using an option-based income valuation method with significant inputs that were not observable in the market and thus represent a Level 3 fair value measurement as defined in the FASB's Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures. The significant inputs in the Level 3 measurement not supported by market activity included the Company's probability assessments of the expected future cash flows related to the Company's acquisition of SCS during the earn-out period.

The following table represents the approximate fair value of assets acquired from and liabilities recorded of SCS on the consolidated statement of financial condition as of December 14, 2016.

 As of December 14, 2016
 (Dollars in Thousands)
Fair value of consideration paid 
Cash$7,548
Stock issued10,789
Paid Consideration18,337
Contingent consideration - cash17,252
Contingent consideration - equity24,142
Contingent consideration payable41,394
    Total consideration paid59,731
  
Fair value of assets acquired 
Intangible assets28,310
Other assets2
Total assets28,312
Fair value of net assets acquired28,312
Goodwill resulting from acquisition$31,419
The SCS transaction has been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the transaction date. The Company made significant estimates and exercised judgment in estimating fair values and accounting for such acquired assets and liabilities. Upon receipt of final fair value estimates on certain assets, liabilities, and contingent considerations, which must be within one year of the acquisition date, the Company made final adjustments to the purchase price allocation and retrospectively adjusted the recorded goodwill.

2021, respectively. The Company recognized goodwill of $31.4$3.8 million as of December 14, 2016,and $3.4 million in unrealized loss on marketable equity securities during the fiscal years ended September 30, 2022 and 2021, respectively, which is attributable to an investee becoming publicly traded during fiscal year 2021. All other marketable equity securities and related activity were insignificant for the fiscal years ended September 30, 2022 and 2021. There was calculated as the excess of both the adjusted consideration exchanged and the liabilities recorded as compared to theone marketable equity security sold during fiscal year 2022 for a $0.3 million gain.

Non-marketable equity securities with a readily determinable fair value of identifiable assets acquired. Goodwill resulted from expected operational synergiestotaled $7.2 million and expanded product lines$4.6 million at September 30, 2022 and is expected to be deductible for tax purposes. See Note 20 to the Consolidated Financial Statements for further information on goodwill.

2021, respectively. The Company recognized $0.8$1.1 million of pre-tax transaction related expensesand $0.6 million in unrealized gains during the fiscal years ended September 30, 2022 and 2021, respectively. No such securities were sold during fiscal year 2022.

Non-marketable equity securities without readily determinable fair value totaled $18.2 million and $16.0 million at September 30, 2022 and 2021, respectively. There were four securities sold during the fiscal year ended 2017. September 30, 2022 for a $1.7 million loss.
95
Table of Contents
FRB Stock
The transaction expensesBank is required by federal law to subscribe to capital stock (divided into shares of $100 each) as a member of the FRB of Minneapolis with an amount equal to six per centum of the paid-up capital stock and surplus. One-half of the subscription is paid at time of application, and one-half is subject to call of the Board of Governors of the Federal Reserve System. FRB of Minneapolis stock held by the Bank totaled $19.7 million at September 30, 2022 and 2021. These equity securities are reflected'restricted' in that they can only be owned by member banks. At fiscal year-end 2022 and 2021, the Company pledged securities with fair values of approximately $924.2 million and $236.1 million against FRB advances, respectively.
`
Included in interest and dividend income from other investments is $1.2 million and $1.5 million related to dividend income on FRB stock for the fiscal years ended September 30, 2022 and 2021, respectively.

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

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

The FHLB stock is carried at cost since it is generally redeemable at par value. The carrying value of the stock held at the FHLB was $9.1 million and $8.7 million at September 30, 2022 and 2021, respectively. At fiscal year-end 2022 and 2021, the Company pledged securities with fair values of approximately $804.0 million and $644.7 million, respectively, to be used against FHLB advances. In addition, a combination of qualifying residential and other real estate loans of zero and zero were pledged as collateral at September 30, 2022 and 2021, respectively.

Included in interest and dividend income from other investments is $0.3 million, $0.2 million and $0.8 million related to dividend income on FHLB stock for the fiscal years ended September 30, 2022, 2021 and 2020, respectively.

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

Equity Security Impairment
The Company evaluates impairment for investments held at cost on at least an annual basis based on the consolidated statementultimate recoverability of operations primarilythe par value. All other equity investments, including those under legalthe equity method, are reviewed for other-than-temporary impairment on at least a quarterly basis. The Company recognized zero, $2.6 million, and consulting.$1.3 million in impairment for such investments for the fiscal years ended September 30, 2022, 2021, and 2020, respectively.


96


Table of Contents
NOTE 3.4.  LOANS RECEIVABLE,AND LEASES, NET


Year-endLoans and leases consist of the following:
At September 30,
(Dollars in thousands)20222021
Term lending$1,090,289 $961,019 
Asset based lending351,696 300,225 
Factoring372,595 363,670 
Lease financing210,692 266,050 
Insurance premium finance479,754 428,867 
SBA/USDA359,238 247,756 
Other commercial finance159,409 157,908 
Commercial finance3,023,673 2,725,495 
Consumer credit products144,353 129,251 
Other consumer finance25,306 123,606 
Consumer finance169,659 252,857 
Tax services9,098 10,405 
Warehouse finance326,850 419,926 
Community banking— 199,132 
Total loans and leases3,529,280 3,607,815 
Net deferred loan origination costs7,025 1,748 
Total gross loans and leases3,536,305 3,609,563 
Allowance for credit losses(45,947)(68,281)
Total loans and leases, net$3,490,358 $3,541,282 

During the fiscal years ended September 30, 2022 and 2021, the Company transferred $169.0 million and $188.6 million, respectively, of Community Banking loans receivableto held for sale.

During the fiscal years ended September 30, 2022, the Company originated $985.3 million of other consumer finance and SBA/USDA loans held for sale. During the fiscal year ended September 30, 2021, the Company originated $601.5 million of other consumer finance, SBA/USDA, and consumer credit product loans as held for sale.

The Company sold held for sale loans resulting in proceeds of $1.06 billion and gains on sale of $3.7 million during the fiscal year ended September 30, 2022. The Company sold held for sale loans resulting in proceeds of $890.3 million and gains on sale of $8.6 million during the fiscal year ended September 30, 2021.

In connection with the Company's sale of the Bank's Community Bank division to Central Bank, the Company entered into a servicing agreement with Central Bank for the retained Community Bank loan portfolio that became effective on February 29, 2020 (the "Closing Date"). The Company recognized $0.2 million and $3.3 million for the fiscal years ended September 30, 2022 and 2021, respectively.

Since the Closing Date, the Company has entered into subsequent loan portfolio sale agreements with Central Bank and other third parties. The Company sold additional loans from the retained Community Bank portfolio in the amount of $192.5 million and $308.1 million for the fiscal years ended September 30, 2022 and 2021, respectively. All loans from the retained Community Bank portfolio have been sold as of December 31, 2021.



97
Table of Contents
Loans purchased and sold by portfolio segment, including participation interests, were as follows:
Fiscal Year Ended September 30,
(Dollars in thousands)20222021
Loans Purchased
Commercial finance$3,098 $— 
Warehouse finance112,255 308,014 
Community banking— 3,318 
Total purchases$115,353 $311,332 
Loans Sold
Loans held for sale:
Commercial finance$50,848 $89,276 
Consumer finance855,291 494,585 
Community banking153,222 308,082 
Loans held for investment:
Commercial finance15,549 — 
Consumer finance77,456 — 
Community banking30,235 13,850 
Total sales$1,182,601 $905,793 

Leasing Portfolio. The net investment in direct financing and sales-type leases was comprised of the following:
At September 30,
(Dollars in thousands)20222021
Carrying amount$216,880 $278,341 
Unguaranteed residual assets13,037 14,393 
Unamortized initial direct costs295 490 
Unearned income(19,225)(26,684)
Total net investment in direct financing and sales-type leases$210,987 $266,540 

The components of total lease income were as follows:
Fiscal Year Ended September 30,
(Dollars in thousands)20222021
Interest income - loans and leases
Interest income on net investments in direct financing and sales-type leases$17,081 $22,876 
Leasing and equipment finance noninterest income
Lease income from operating lease payments46,017 39,553 
Profit recorded on commencement date on sales-type leases— 337 
Other(1)
5,982 4,986 
Total leasing and equipment finance noninterest income51,999 44,876 
Total lease income$69,080 $67,752 
(1) Other leasing and equipment finance noninterest income consists of gains (losses) on sales of leased equipment, fees and service charges on leases and gains (losses) on sales of leases.
98
Table of Contents
 September 30, 2017 September 30, 2016
 (Dollars in Thousands)
   1-4 Family Real Estate$196,706
 $162,298
   Commercial and Multi-Family Real Estate585,510
 422,932
   Agricultural Real Estate61,800
 63,612
   Consumer163,004
 37,094
   Commercial Operating35,759
 31,271
   Agricultural Operating33,594
 37,083
   Premium Finance250,459
 171,604
Total Loans Receivable1,326,832
 925,894
    
Allowance for Loan Losses(7,534) (5,635)
Net Deferred Loan Origination Fees(1,461) (789)
Total Loans Receivable, Net$1,317,837
 $919,470
Undiscounted future minimum lease payments receivable for direct financing and sales-type leases, and a reconciliation to the carrying amount recorded at September 30, 2022 were as follows:

(Dollars in thousands)
2023$95,608 
202466,344 
202534,657 
202612,714 
20275,495 
Thereafter2,062 
Total undiscounted future minimum lease payments receivable for direct financing and sales-type leases216,880 
Third-party residual value guarantees— 
Total carrying amount of direct financing and sales-type leases$216,880 
Annual activity
The Company did not record any contingent rental income from direct financing and sales-type leases in the fiscal year ended September 30, 2022.

The COVID-19 pandemic began impacting the U.S. and global economies in the first calendar quarter of 2020, with significant deterioration of macroeconomic conditions and markets into 2021. Although macroeconomic conditions and markets have improved since the beginning of 2021, other factors have been affecting the economic environment in 2022 including geopolitical conflict, supply chain disruptions, inflation, and rising interest rates. While the ultimate impact of the pandemic and these other factors on the Company's loan and lease portfolio remains difficult to predict, management continues to evaluate the loan and lease portfolio in order to assess the impact on repayment sources and underlying collateral that could result in additional losses and the impact to our customers and businesses as a result of COVID-19 and other factors impacting the economy and will refine its estimate as developments occur and more information becomes available.

Activity in the allowance for loancredit losses was as follows:
Fiscal Year Ended September 30,
(Dollars in thousands)20222021
Beginning balance$68,281 $56,188 
Impact of CECL adoption— 12,773 
Provision for credit losses28,862 49,939 
Charge-offs(61,061)(57,273)
Recoveries9,865 6,654 
Ending balance$45,947 $68,281 

99
Table of Contents
Year ended September 30,2017
 2016
 2015
 (Dollars in Thousands)
Beginning balance$5,635
 $6,255
 $5,397
Provision for loan losses10,589
 4,605
 1,465
Recoveries307
 147
 123
Charge offs(8,997) (5,372) (730)
Ending balance$7,534
 $5,635
 $6,255
Activity in the allowance for credit losses and balances of loans and leases by portfolio segment was as follows:

At September 30, 2022
(Dollars in thousands)Beginning BalanceProvision (Reversal)Charge-offsRecoveriesEnding Balance
Allowance for credit losses:
Term lending$29,351 $4,850 $(12,629)$3,049 $24,621 
Asset based lending1,726 (1,092)(16)432 1,050 
Factoring3,997 11,699 (11,057)1,917 6,556 
Lease financing7,629 (2,062)(301)636 5,902 
Insurance premium finance1,394 597 (767)226 1,450 
SBA/USDA2,978 863 (652)74 3,263 
Other commercial finance1,168 142 — — 1,310 
Commercial finance48,243 14,997 (25,422)6,334 44,152 
Consumer credit products1,242 158 — — 1,400 
Other consumer finance6,112 (1,607)(4,787)345 63 
Consumer finance7,354 (1,449)(4,787)345 1,463 
Tax services2 28,093 (30,852)2,762 5 
Warehouse finance420 (93)— — 327 
Community banking12,262 (12,686)— 424 — 
Total loans and leases68,281 28,862 (61,061)9,865 45,947 
Unfunded commitments(1)
690 (324)— — 366 
Total$68,971 $28,538 $(61,061)$9,865 $46,313 

(1) Reserve for unfunded commitments is recognized within other liabilities on the Consolidated Statements of Financial Condition.
Allowance
At September 30, 2021
(Dollars in thousands)Beginning BalanceImpact of CECL AdoptionProvision (Reversal)Charge-offsRecoveriesEnding Balance
Allowance for loan and lease losses:
Term lending$15,211 $9,999 $16,944 $(14,090)$1,287 $29,351 
Asset based lending1,406 164 933 (1,200)423 1,726 
Factoring3,027 987 (1,192)— 1,175 3,997 
Lease financing7,023 (556)3,758 (2,969)373 7,629 
Insurance premium finance2,129 (965)(555)(1,192)1,977 1,394 
SBA/USDA940 2,720 (703)— 21 2,978 
Other commercial finance182 364 622 — — 1,168 
Commercial finance29,918 12,713 19,807 (19,451)5,256 48,243 
Consumer credit products845 — 397 — — 1,242 
Other consumer finance2,821 5,998 297 (3,324)320 6,112 
Consumer finance3,666 5,998 694 (3,324)320 7,354 
Tax services2 — 33,276 (34,354)1,078 2 
Warehouse finance294 (1)127 — — 420 
Community banking22,308 (5,937)(3,965)(144)— 12,262 
Total loans and leases56,188 12,773 49,939 (57,273)6,654 68,281 
Unfunded commitments(1)
32 831 (173)— — 690 
Total$56,220 $13,604 $49,766 $(57,273)$6,654 $68,971 
(1) Reserve for Loan Lossesunfunded commitments is recognized within other liabilities on the Consolidated Statements of Financial Condition.

100
Table of Contents
Information on loans and Recorded Investmentleases that are deemed to be collateral dependent and are evaluated individually for the ACL was as follows:
(Dollars in thousands)At September 30, 2022At September 30, 2021
Term lending$2,885 $20,965 
Factoring550 1,268 
Lease financing2,787 3,882 
SBA/USDA1,199 — 
Commercial finance(1)
7,421 26,115 
Community banking— 14,915 
Total$7,421 $41,030 
(1) For commercial finance, collateral dependent financial assets have collateral in loans atthe form of cash, equipment, or other business assets.

Management has identified certain structured finance credits for alternative energy projects in which a substantial cash collateral account has been established to mitigate credit risk. Due to the nature of the transactions and significant cash collateral positions, these credits are evaluated individually. At September 30, 20172022, the balance of these pass rated cash collateral loans totaled $120.7 million.

In response to the ongoing COVID-19 pandemic, the Company allowed modifications, such as payment deferrals and 2016temporary forbearance, to credit-worthy borrowers who are experiencing temporary hardship due to the effects of COVID-19. Up to January 1, 2022, when this relief ended, if all payments were less than 30 days past due prior to the onset of the pandemic effects, the loan or lease was not be reported as follows:
 
1-4 Family
Real Estate
 
Commercial and
Multi-Family
Real Estate
 
Agricultural
Real Estate
 Consumer 
Commercial
Operating
 
Agricultural
Operating
 
Premium
Finance
 Unallocated Total
 (Dollars in Thousands)
Year Ended September 30, 2017                 
Allowance for loan losses:                 
Beginning balance$654
 $2,198
 $142
 $51
 $117
 $1,332
 $588
 $553
 $5,635
Provision (recovery) for loan losses149
 610
 1,248
 6,830
 1,165
 (160) 773
 (26) 10,589
Charge offs—
 (138) —
 (7,084) (1,149) —
 (626) —
 (8,997)
Recoveries—
 —
 —
 209
 25
 12
 61
 —
 307
Ending balance$803
 $2,670
 $1,390
 $6
 $158
 $1,184
 $796
 $527
 $7,534
                  
Ending balance: individually evaluated for impairment—
 —
 —
 —
 —
 —
 —
 —
 —
Ending balance: collectively evaluated for impairment803
 2,670
 1,390
 6
 158
 1,184
 796
 527
 7,534
Total$803
 $2,670
 $1,390
 $6
 $158
 $1,184
 $796
 $527
 $7,534
                  
Loans: 
  
  
  
  
  
  
  
  
Ending balance: individually evaluated for impairment72
 1,109
 —
 —
 —
 —
 —
 —
 1,181
Ending balance: collectively evaluated for impairment196,634
 584,401
 61,800
 163,004
 35,759
 33,594
 250,459
 —
 1,325,651
Total$196,706
 $585,510
 $61,800
 $163,004
 $35,759
 $33,594
 $250,459
 $—
 $1,326,832

 
1-4 Family
Real
Estate
 
Commercial and
Multi-Family
Real Estate
 
Agricultural
Real Estate
 Consumer 
Commercial
Operating
 
Agricultural
Operating
 
Premium
Finance
 Unallocated Total
 (Dollars in Thousands)
Year Ended September 30, 2016                 
Allowance for loan losses:                 
Beginning balance$278
 $1,187
 $163
 $20
 $28
 $3,537
 $293
 $749
 $6,255
Provision (recovery) for loan losses408
 1,369
 (21) 748
 338
 1,045
 914
 (196) 4,605
Charge offs(32) (385) —
 (728) (249) (3,252) (726) —
 (5,372)
Recoveries—
 27
 —
 11
 —
 2
 107
 —
 147
Ending balance$654
 $2,198
 $142
 $51
 $117
 $1,332
 $588
 $553
 $5,635
                  
                  
Ending balance: individually evaluated for impairment10
 —
 —
 —
 —
 —
 —
 —
 10
Ending balance: collectively evaluated for impairment644
 2,198
 142
 51
 117
 1,332
 588
 553
 5,625
Total$654
 $2,198
 $142
 $51
 $117
 $1,332
 $588
 $553
 $5,635
                  
Loans: 
  
  
  
  
  
  
  
  
Ending balance: individually evaluated for impairment162
 433
 —
 —
 —
 —
 —
 —
 595
Ending balance: collectively evaluated for impairment162,136
 422,499
 63,612
 37,094
 31,271
 37,083
 171,604
 —
 925,299
Total$162,298
 $422,932
 $63,612
 $37,094
 $31,271
 $37,083
 $171,604
 $—
 $925,894

The asset classificationpast due during the deferral or forbearance period. As of loans at September 30, 2017,2022, the Company had no loans and 2016,leases that were in active deferment. These modifications consisted solely of payment deferrals ranging from 30 days to six months. These modifications are in line with applicable regulatory guidelines and, therefore, they are not reported as follows:troubled debt restructurings.
September 30, 2017
1-4 Family
Real Estate
 
Commercial and
Multi-Family
Real Estate
 
Agricultural
Real Estate
 Consumer 
Commercial
Operating
 
Agricultural
Operating
 
Premium
Finance
 Total
 (Dollars in Thousands)
Pass$195,838
 $574,730
 $27,376
 $163,004
 $35,759
 $18,394
 $250,459
 $1,265,560
Watch525
 10,200
 2,006
 —
 —
 4,541
 —
 17,272
Special Mention247
 201
 2,939
 —
 —
 —
 —
 3,387
Substandard96
 379
 29,479
 —
 —
 10,659
 —
 40,613
Doubtful—
 —
 —
 —
 —
 —
 —
 —
 $196,706
 $585,510
 $61,800
 $163,004
 $35,759
 $33,594
 $250,459
 $1,326,832


September 30, 2016
1-4 Family
Real Estate
 
Commercial and
Multi-Family
Real Estate
 
Agricultural
Real Estate
 Consumer 
Commercial
Operating
 
Agricultural
Operating
 
Premium
Finance
 Total
 (Dollars in Thousands)
Pass$161,255
 $421,577
 $34,421
 $37,094
 $30,574
 $19,669
 $171,604
 $876,194
Watch200
 72
 2,934
 —
 184
 4,625
 —
 8,015
Special Mention666
 962
 25,675
 —
 —
 5,407
 —
 32,710
Substandard177
 321
 582
 —
 513
 7,382
 —
 8,975
Doubtful—
 —
 —
 —
 —
 —
 —
 —
 $162,298
 $422,932
 $63,612
 $37,094
 $31,271
 $37,083
 $171,604
 $925,894


Federal regulations provide for the classification of loans and other assets such as debt and equity securities considered by the Bank's primary regulator, the Office of the Comptroller of the Currency (the “OCC”),OCC, to be of lesser quality as “substandard,” “doubtful” or “loss.” The loan classification and risk rating definitions are as follows:
 
Pass-Pass - A pass asset is of sufficient quality in terms of repayment, collateral and management to preclude a special mention or an adverse rating.
 
Watch-Watch - A watch asset is generally a credit performing well under current terms and conditions but with identifiable weakness meriting additional scrutiny and corrective measures. Watch is not a regulatory classification but can be used to designate assets that are exhibiting one or more weaknesses that deserve management’s attention. These assets are of better quality than special mention assets.

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


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

Loss-
101
Table of Contents
Loss - A loss asset is considered uncollectible and of such little value that the asset’s continuance on the Bank’s balance sheet is no longer warranted. This classification does not necessarily mean an asset has no recovery or salvage value leaving room for future collection efforts.

Generally,Loans and leases, or portions thereof, are generally charged off when a loan becomes delinquent 90 days or more for retail bank loans or when the collection of principal or interest becomes doubtful, the Company will place the loan on a non-accrual status and, as a result, previously accrued interest income on the loan is reversed against current income. Specialty finance loans and Payment segment loans are generally not placed on non-accrual status but written off when the collection of principal and interest become doubtful.

Past due loans at September 30, 2017 and 2016 were as follows:
September 30, 2017
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Greater Than
90 Days
 
Total Past
Due
 Current 
Non-Accrual
Loans
 
Total Loans
Receivable
 (Dollars in Thousands)
1-4 Family Real Estate$370
 $79
 $—
 $449
 $196,257
 $—
 $196,706
Commercial and Multi-Family Real Estate—
 —
 —
 —
 584,825
 685
 585,510
Agricultural Real Estate—
 —
 34,198
 34,198
 27,602
 —
 61,800
Consumer2,512
 558
 1,406
 4,476
 158,528
 —
 163,004
Commercial Operating—
 —
 —
 —
 35,759
 —
 35,759
Agricultural Operating—
 —
 97
 97
 33,497
 —
 33,594
Premium Finance1,509
 2,442
 1,205
 5,156
 245,303
 —
 250,459
Total$4,391
 $3,079
 $36,906
 $44,376
 $1,281,771
 $685
 $1,326,832
September 30, 2016
30-59 Days
Past Due
 
60-89 Days
Past Due
 
Greater Than
90 Days
 
Total Past
Due
 Current 
Non-Accrual
Loans
 
Total Loans
Receivable
 (Dollars in Thousands)
1-4 Family Real Estate$—
 $30
 $—
 $30
 $162,185
 $83
 $162,298
Commercial and Multi-Family Real Estate—
 —
 —
 —
 422,932
 —
 422,932
Agricultural Real Estate—
 —
 —
 —
 63,612
 —
 63,612
Consumer—
 —
 53
 53
 37,041
 —
 37,094
Commercial Operating151
 354
 —
 505
 30,766
 —
 31,271
Agricultural Operating—
 —
 —
 —
 37,083
 —
 37,083
Premium Finance1,398
 275
 965
 2,638
 168,966
 —
 171,604
Total$1,549
 $659
 $1,018
 $3,226
 $922,585
 $83
 $925,894

When analysis of borrower operating results and financial condition indicates that underlying cash flows of the borrower’s business are not adequate to meet its debt service requirements, the loan is evaluated for impairment.  Often Typically, this is associated with a delay or shortfall in payments of 210 days or more for commercial insurance premium finance, 180 days or more for the purchased student loan portfolios, 120 days or more for consumer credit products and leases, and 90 days or more for retail bankcommunity banking loans and commercial finance loans. SpecialtyAction is taken to charge off electronic return originator ("ERO") loans if such loans have not been collected by the end of June and refund advance loans if such loans have not been collected by the end of the calendar year. Nonaccrual loans and troubled debt restructurings are generally individually evaluated for expected credit losses.

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

The Company has various portfolios of consumer finance and tax services loans that present unique risks that are statistically managed. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for credit losses on these portfolios, and as such, these loans are not included in the asset classification table below. The outstanding balances of consumer finance loans and Payment segmenttax services loans are generally not impaired but written off when the collection of principalwere $169.7 million and interest become doubtful. As of September 30, 2017, there were no specialty finance loans greater than 210 days past due and the Payment segment had no loans past due.

Impaired loans$9.1 million at September 30, 20172022, respectively, and 2016$252.9 million and $10.4 million at September 30, 2021, respectively. The amortized cost basis of loans and leases by asset classification and year of origination was as follows:
Amortized Cost Basis
(Dollars in thousands)Term Loans and Leases by Origination YearRevolving Loans and LeasesTotal
At September 30, 202220222021202020192018Prior
Term lending
Pass$246,627 $240,018 $105,170 $60,417 $89,072 $61,229 $— $802,533 
Watch45,539 24,318 45,052 11,698 21,077 9,799 — 157,483 
Special Mention9,500 24,885 14,300 2,861 619 242 — 52,407 
Substandard10,627 16,694 12,248 23,266 10,457 2,255 — 75,547 
Doubtful175 407 469 872 204 192 — 2,319 
Total312,468 306,322 177,239 99,114 121,429 73,717 — 1,090,289 
Asset based lending
Pass— — — — — — 154,494 154,494 
Watch— — — — — — 162,990 162,990 
Special Mention— — — — — — 13,770 13,770 
Substandard— — — — — — 20,442 20,442 
Total— — — — — — 351,696 351,696 
Factoring
Pass— — — — — — 254,883 254,883 
Watch— — — — — — 86,219 86,219 
Special Mention— — — — — — 9,174 9,174 
Substandard— — — — — — 22,319 22,319 
Total— — — — — — 372,595 372,595 
Lease financing
Pass7,407 38,818 31,408 26,552 12,361 823 — 117,369 
Watch8,799 17,098 10,284 6,655 2,899 151 — 45,886 
Special Mention151 6,151 2,644 481 2,876 2,811 — 15,114 
Substandard825 9,486 11,819 7,273 1,245 — — 30,648 
Doubtful144 163 1,280 88 — — — 1,675 
Total17,326 71,716 57,435 41,049 19,381 3,785 — 210,692 
102
Table of Contents
Insurance premium finance
Pass478,504 307 8 — — — — 478,819 
Watch539 7 — — — — — 546 
Special Mention169 40 — — — — — 209 
Substandard106 46 — — — — — 152 
Doubtful14 14 — — — — — 28 
Total479,332 414 8 — — — — 479,754 
SBA/USDA
Pass54,512 111,907 40,474 56,538 28,874 24,305 — 316,610 
Watch— 13,836 1,266 702 — 710 — 16,514 
Special Mention— 211 — 869 — — — 1,080 
Substandard4,149 10,968 4,278 — 1,094 4,545 — 25,034 
Total58,661 136,922 46,018 58,109 29,968 29,560 — 359,238 
Other commercial finance
Pass5,886 13,607 26,040 20,458 23,098 40,782 — 129,871 
Substandard— 9,538 — — — 20,000 — 29,538 
Total5,886 23,145 26,040 20,458 23,098 60,782 — 159,409 
Warehouse finance
Pass— — — — — — 294,350 294,350 
Special Mention— — — — — — 32,500 32,500 
Total— — — — — — 326,850 326,850 
Total loans and leases
Pass792,936 404,657 203,100 163,965 153,405 127,139 703,727 2,548,929 
Watch54,877 55,259 56,602 19,055 23,976 10,660 249,209 469,638 
Special Mention9,820 31,287 16,944 4,211 3,495 3,053 55,444 124,254 
Substandard15,707 46,732 28,345 30,539 12,796 26,800 42,761 203,680 
Doubtful333 584 1,749 960 204 192 — 4,022 
Total$873,673 $538,519 $306,740 $218,730 $193,876 $167,844 $1,051,141 $3,350,523 

Amortized Cost Basis
(Dollars in thousands)Term Loans and Leases by Origination YearRevolving Loans and LeasesTotal
At September 30, 202120212020201920182017Prior
Term lending
Pass$362,443 $192,305 $63,708 $34,381 $3,195 $1,236 $— $657,268 
Watch63,046 71,701 32,941 21,419 76 3,628 — 192,811 
Special Mention6,422 26,673 4,821 932 70 633 — 39,551 
Substandard18,569 16,810 26,920 3,529 928 641 — 67,397 
Doubtful252 1,673 1,756 311 — — — 3,992 
Total450,732 309,162 130,146 60,572 4,269 6,138 — 961,019 
Asset based lending
Pass— — — — — — 185,432 185,432 
Watch— — — — — — 52,072 52,072 
Special Mention— — — — — — 43,135 43,135 
Substandard— — — — — — 19,586 19,586 
Total— — — — — — 300,225 300,225 
Factoring
Pass— — — — — — 294,124 294,124 
103
Table of Contents
Watch— — — — — — 17,984 17,984 
Special Mention— — — — — — 33,035 33,035 
Substandard— — — — — — 18,527 18,527 
Total— — — — — — 363,670 363,670 
Lease financing
Pass54,434 73,629 17,153 7,511 1,857 203 — 154,787 
Watch22,061 20,455 9,274 2,739 1,454 — — 55,983 
Special Mention15,402 20,595 4,148 1,546 61 — — 41,752 
Substandard479 4,765 4,981 831 25 — — 11,081 
Doubtful— 6 2,402 38 1 — — 2,447 
Total92,376 119,450 37,958 12,665 3,398 203 — 266,050 
Insurance premium finance
Pass428,131 144 9 — — — — 428,284 
Watch262 5 — — — — — 267 
Special Mention58 5 — — — — — 63 
Substandard68 107 — — — — — 175 
Doubtful58 20 — — — — — 78 
Total428,577 281 9 — — — — 428,867 
SBA/USDA
Pass110,122 37,006 14,461 12,760 6,525 3,779 — 184,653 
Watch— 20,431 1,996 1,670 1,394 298 — 25,789 
Special Mention— 8,333 214 3,348 177 919 — 12,991 
Substandard— 3,812 9,550 8,079 2,169 713 — 24,323 
Total110,122 69,582 26,221 25,857 10,265 5,709 — 247,756 
Other commercial finance
Pass56,957 642 5,786 6,075 3,345 60,965 — 133,770 
Watch— 17,404 3,409 451 — — — 21,264 
Substandard466 — — 273 837 1,299 — 2,875 
Total57,423 18,046 9,195 6,799 4,182 62,264 — 157,909 
Warehouse finance
Pass— — — — — — 419,926 419,926 
Total— — — — — — 419,926 419,926 
Community banking
Pass— — 4,159 — 5,683 472 — 10,314 
Watch— 10,134 — 10,854 6,133 — — 27,121 
Special Mention— — 35,916 — — — — 35,916 
Substandard— 119 49,449 50,626 13,933 6,110 — 120,237 
Doubtful— 122 — 5,422 — — — 5,544 
Total— 10,375 89,524 66,902 25,749 6,582 — 199,132 
Total loans and leases
Pass1,012,088 303,727 105,274 60,727 20,605 66,655 899,481 2,468,557 
Watch85,369 140,131 47,620 37,132 9,057 3,926 70,056 393,291 
Special Mention21,882 55,606 45,099 5,826 307 1,552 76,171 206,443 
Substandard19,584 25,613 90,900 63,338 17,891 8,762 38,113 264,201 
Doubtful310 1,822 4,158 5,770 1 — — 12,061 
Total$1,139,233 $526,899 $293,051 $172,793 $47,861 $80,895 $1,083,821 $3,344,553 


104
Table of Contents
Past due loans and leases were as follows:
At September 30, 2022
Accruing and Nonaccruing Loans and LeasesNonperforming Loans and Leases
(Dollars in thousands)30-59 Days Past Due60-89 Days Past Due> 89 Days Past DueTotal Past DueCurrentTotal Loans and Leases Receivable> 89 Days Past Due and AccruingNonaccrual BalanceTotal
Loans held for sale$— $— $— $— $21,071 $21,071 $— $— $— 
Term lending14,066 2,576 4,458 21,100 1,069,189 1,090,289 2,035 7,576 9,611 
Asset based lending— — 68 68 351,628 351,696 39 29 68 
Factoring— — — — 372,595 372,595 — 569 569 
Lease financing8,265 2,253 1,714 12,232 198,460 210,692 440 3,750 4,190 
Insurance premium finance2,550 1,379 1,628 5,557 474,197 479,754 1,628 — 1,628 
SBA/USDA— — — — 359,238 359,238 — 1,451 1,451 
Other commercial finance— — — — 159,409 159,409 — — — 
Commercial finance24,881 6,208 7,868 38,957 2,984,716 3,023,673 4,142 13,375 17,517 
Consumer credit products3,209 2,558 2,669 8,436 135,917 144,353 2,669 — 2,669 
Other consumer finance113 51 124 288 25,018 25,306 124 — 124 
Consumer finance3,322 2,609 2,793 8,724 160,935 169,659 2,793 — 2,793 
Tax services— — 8,873 8,873 225 9,098 8,873 — 8,873 
Warehouse finance— — — — 326,850 326,850 — — — 
Total loans and leases held for investment28,203 8,817 19,534 56,554 3,472,726 3,529,280 15,808 13,375 29,183 
Total loans and leases$28,203 $8,817 $19,534 $56,554 $3,493,797 $3,550,351 $15,808 $13,375 $29,183 

At September 30, 2021
Accruing and Nonaccruing Loans and LeasesNonperforming Loans and Leases
(Dollars in thousands)30-59 Days Past Due60-89 Days Past Due> 89 Days Past DueTotal Past DueCurrentTotal Loans and Leases Receivable> 89 Days Past Due and AccruingNonaccrual BalanceTotal
Loans held for sale$— $— $— $— $56,194 $56,194 $— $— $— 
Term lending11,879 2,703 5,452 20,034 940,985 961,019 2,558 14,904 17,462 
Asset based lending— — — — 300,225 300,225 — — — 
Factoring— — — — 363,670 363,670 — 1,268 1,268 
Lease financing4,909 3,336 8,401 16,646 249,404 266,050 8,345 3,158 11,503 
Insurance premium finance1,415 375 599 2,389 426,478 428,867 599 — 599 
SBA/USDA66 974 987 2,027 245,729 247,756 987 — 987 
Other commercial finance— — — — 157,908 157,908 — — — 
Commercial finance18,269 7,388 15,439 41,096 2,684,399 2,725,495 12,489 19,330 31,819 
Consumer credit products713 527 511 1,751 127,500 129,251 511 — 511 
Other consumer finance963 285 725 1,973 121,633 123,606 725 — 725 
Consumer finance1,676 812 1,236 3,724 249,133 252,857 1,236 — 1,236 
Tax services— — 7,962 7,962 2,443 10,405 7,962 — 7,962 
Warehouse finance— — — — 419,926 419,926 — — — 
Community banking— — — — 199,132 199,132 — 14,915 14,915 
Total loans and leases held for investment19,945 8,200 24,637 52,782 3,555,033 3,607,815 21,687 34,245 55,932 
Total loans and leases$19,945 $8,200 $24,637 $52,782 $3,611,227 $3,664,009 $21,687 $34,245 $55,932 






105
Table of Contents
Nonaccrual loans and leases by year of origination at September 30, 2022 were as follows:
Amortized Cost Basis
Term Loans and Leases by Origination YearRevolving Loans and LeasesTotalNonaccrual with No ACL
(Dollars in thousands)20222021202020192018Prior
Term lending$251 $1,110 $1,964 $989 $3,096 $166 $— $7,576 $2,885 
Asset based lending— — — — — — 29 29 — 
Factoring— — — — — — 569 569 550 
Lease financing977 310 2,442 13 8 — — 3,750 — 
SBA/USDA— — 1,199 — — 252 — 1,451 1,199 
Commercial finance1,228 1,420 5,605 1,002 3,104 418 598 13,375 4,634 
Total nonaccrual loans and leases$1,228 $1,420 $5,605 $1,002 $3,104 $418 $598 $13,375 $4,634 
 
Recorded
Balance
 
Unpaid Principal
Balance
 
Specific
Allowance
September 30, 2017(Dollars in Thousands)
Loans without a specific valuation allowance     
1-4 Family Real Estate$72
 $72
 $—
Commercial and Multi-Family Real Estate1,109
 1,109
 —
      Total$1,181
 $1,181
 $—
Loans with a specific valuation allowance 
  
  
      Total$—
 $—
 $—



 
Recorded
Balance
 
Unpaid Principal
Balance
 
Specific
Allowance
September 30, 2016(Dollars in Thousands)
Loans without a specific valuation allowance     
1-4 Family Real Estate$84
 $84
 $—
Commercial and Multi-Family Real Estate433
 433
 —
Total$517
 $517
 $—
Loans with a specific valuation allowance 
  
  
1-4 Family Real Estate$78
 $78
 $10
Total$78
 $78
 $10

Cash interest collected on impairedNonaccrual loans was not material during the years endedand leases by year of origination at September 30, 20172021 were as follows:
Amortized Cost Basis
Term Loans and Leases by Origination YearRevolving Loans and LeasesTotalNonaccrual with No ACL
(Dollars in thousands)20212020201920182017Prior
Term lending$131 $3,812 $10,072 $756 $133 $— $— $14,904 $12,103 
Asset based lending— — — — — — — — — 
Factoring— — — — — — 1,268 1,268 1,268 
Lease financing— 30 2,471 632 25 — — 3,158 541 
Commercial finance131 3,842 12,543 1,388 158 — 1,268 19,330 13,912 
Community banking— 242 — 14,673 — — — 14,915 — 
Total nonaccrual loans and leases$131 $4,084 $12,543 $16,061 $158 $— $1,268 $32,245 $13,912 

Loans and 2016.leases that are 90 days or more delinquent and accruing by year of origination at September 30, 2022 were as follows:

Amortized Cost Basis
Term Loans and Leases by Origination YearRevolving Loans and LeasesTotal
(Dollars in thousands)20222021202020192018Prior
Term lending$207 $720 $716 $130 $70 $192 $— $2,035 
Asset based lending— — — — — — 39 39 
Lease financing8 158 98 131 45 — — 440 
Insurance premium finance1,513 110 5 — — — — 1,628 
Commercial finance1,728 988 819 261 115 192 39 4,142 
Consumer credit products2,123 481 42 23 — — — 2,669 
Other consumer finance— 124 — — — — — 124 
Consumer finance2,123 605 42 23 — — — 2,793 
Tax services8,873 — — — — — — 8,873 
Total 90 days or more delinquent and accruing$12,724 $1,593 $861 $284 $115 $192 $39 $15,808 


106
Table of Contents
Loans and leases that are 90 days or more delinquent and accruing by year of origination at September 30, 2021 were as follows:
Amortized Cost Basis
Term Loans and Leases by Origination YearRevolving Loans and LeasesTotal
(Dollars in thousands)20212020201920182017Prior
Term lending$2,546 $— $12 $— $— $— $— $2,558 
Lease financing429 7,558 224 99 31 4 — 8,345 
Insurance premium finance468 131 — — — — — 599 
SBA/USDA— 987 — — — — — 987 
Commercial finance3,443 8,676 236 99 31 4 — 12,489 
Consumer credit products206 77 224 3 — — — 510 
Other consumer finance— — — — — 725 — 725 
Consumer finance206 77 224 3 — 725 — 1,235 
Tax services7,962 — — — — — — 7,962 
Total 90 days or more delinquent and accruing$11,611 $8,753 $460 $102 $31 $729 $— $21,686 

Certain loans and leases 90 days or more past due as to interest or principal continue to accrue because they are (1) well-secured and in the process of collection or (2) consumer loans exempt under regulatory rules from being classified as non-accrual until later delinquency, usually 120 days past due.

The following table provides the average recorded investment in impairednonaccrual loans and leases:

Fiscal Year Ended September 30,
(Dollars in thousands)20222021
Term lending$11,320 $14,623 
Asset based lending3,754 444 
Factoring6,344 757 
Lease financing3,278 3,029 
SBA/USDA1,244 550 
Commercial finance25,940 19,403 
Community banking— 16,231 
Total loans and leases$25,940 $35,634 

The recognized interest income on the Company's nonaccrual loans and leases for the fiscal years ended September 30, 20172022 and 2016.2021 was not significant.

 Year Ended September 30,
 2017 2016
 
Average
Recorded
Investment
 
Average
Recorded
Investment
1-4 Family Real Estate$176
 $144
Commercial and Multi-Family Real Estate883
 1,117
Agricultural Real Estate146
 —
Commercial Operating202
 6
Agricultural Operating268
 2,919
Total$1,675
 $4,186

For fiscal 2017 and 2016, theThe Company’s TDRs (which involvedtroubled debt restructurings ("TDRs") typically involve forgiving a portion of interest or principal on anyexisting loans, or making loans at a rate materially less than current market rates, or extending the term of the loan. There were $10.5 million of commercial finance loans and $0.9 million of consumer finance loans that of market rates) are includedwere modified in the table above.
No TDRs were recorded during fiscal 2017 or 2016.  Also, no TDRs which had been modifieda TDR during the 12-month period prior to default had a payment default during fiscal 2017 or 2016.
In December 2016, MetaBank purchased, net of purchase discount, a $134.0 million seasoned, floating rate, private student loan portfolio. All loans are indexed to three-month LIBOR plus various margins. The portfolio is serviced by ReliaMax Lending Services, LLC and insured by ReliaMax Surety Company.

The majority of the Company’s retail bank originated loans are to Iowa- and South Dakota-based individuals and organizations. Excluding the purchased student loan balance of $123.7 million at September 30, 2017, the Company’s purchased loans portfolio totaled $10.7 million at September 30, 2017, which were secured by properties located in Iowa, North Dakota, and South Dakota.
The Company originates and purchases commercial real estate loans.  These loans are considered by management to be of somewhat greater risk of not being collected due to the dependency on income production.  The Company’s commercial real estate loans included $110.2 million of loans secured by hotel properties and $156.4 million of multi-family properties at September 30, 2017.  The Company’s commercial real estate loans included $65.4 million of loans secured by hotel properties and $112.6 million of multi-family properties at September 30, 2016.  The remainder of the commercial real estate portfolio is diversified by industry.  The Company’s policy for requiring collateral and guarantees varies with the creditworthiness of each borrower.



Non-accruing loans were $0.7 million and $0.1 million at September 30, 2017 and 2016, respectively.  There were $36.9 million and $1.0 million in accruing loans delinquent 90 days or more at September 30, 2017 and 2016, respectively.  For the year ended September 30, 2017, gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to approximately $13,000, none2022, all of which were modified to extend the term of the loan. There were $5.9 million of commercial finance loans and $0.3 million of consumer finance loans that were modified in a TDR during the fiscal year ended September 30, 2021.

During the fiscal year ended September 30, 2022, the Company had $5.2 million of commercial finance loans and $1.1 million of consumer finance loans that were modified in a TDR within the previous 12 months and for which there was includeda payment default. During the fiscal year ended September 30, 2021, the Company had $3.4 million of commercial finance loans and $0.3 million of consumer finance loans that were modified in interest income.a TDR within the previous 12 months and for which there was a payment default. TDR net charge-offs and the impact of TDRs on the Company's allowance for credit losses were insignificant during the fiscal years ended September 30, 2022 and September 30, 2021.


NOTE 4.  LOAN SERVICING
Loans serviced for others are not reported as assets.  The unpaid principal balances of these loans at year-end were as follows:

107
September 30,2017 2016 2015
 (Dollars in Thousands)
Mortgage loan portfolios serviced for Fannie Mae$3,162
 $3,980
 $5,055
Other18,649
 15,452
 17,156
 $21,811
 $19,432
 $22,211

Table of Contents

NOTE 5.  EARNINGS PER COMMON SHARE ("EPS")
 
EPS is computed after deducting dividends. The Company has granted restricted share awards with dividend rights that are considered to be participating securities. Accordingly, a portion of the Company’s earnings is allocated to those participating securities in the EPS calculation. Basic earnings per share calculation under the two-class method. Basic EPS is computed using the two-class method by dividing income available to common stockholders after the allocation of dividends and undistributed earnings to the participating securities by the weighted average number of common shares outstanding for the period. Diluted earnings per shareEPS is calculated using the more dilutive of the treasury stock method or the two-class method. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, and is computed after giving consideration to the weighted average dilutive effect of the Company’s stock options, performance share units, and afternonvested restricted stock, where applicable. Diluted EPS under the two-class method also considers the allocation of earnings to the participating securities. Antidilutive optionssecurities are disregarded in earnings per share calculations. Diluted EPS shown below reflects the two-class method, as diluted EPS calculations.under the two-class method was more dilutive than under the treasury stock method.
A reconciliation of the net income and common stock share amounts used in the computation of basic and diluted EPSearnings per share is presented below.
Fiscal Year Ended September 30,
(Dollars in thousands, except per share data)202220212020
Basic income per common share:
Net income attributable to Pathward Financial, Inc.$156,386 $141,708 $104,720 
Dividends and undistributed earnings allocated to participating securities(2,565)(2,698)(2,414)
Basic net earnings available to common stockholders153,821 139,010 102,306 
Undistributed earnings allocated to nonvested restricted stockholders2,468 2,575 2,249 
Reallocation of undistributed earnings to nonvested restricted stockholders(2,468)(2,573)(2,249)
Diluted net earnings available to common stockholders$153,821 $139,012 $102,306 
Total weighted-average basic common shares outstanding29,227,071 31,729,596 34,829,971 
Effect of dilutive securities(1)
Stock options— — — 
Performance share units5,176 21,926 — 
Total effect of dilutive securities5,176 21,926 — 
Total weighted-average diluted common shares outstanding29,232,247 31,751,522 34,829,971 
Net earnings per common share:
Basic earnings per common share$5.26 $4.38 $2.94 
Diluted earnings per common share(2)
$5.26 $4.38 $2.94 
(1) Represents the effect of the assumed exercise of stock options and vesting of performance share units and restricted stock, as applicable, utilizing the treasury stock method.
(2) Excluded from the computation of diluted earnings per share for the fiscal years ended September 30, 2017, 20162022, 2021, and 2015 is presented below.2020, respectively, were 487,476, 615,811, and 821,738 weighted average shares of nonvested restricted stock because their inclusion would be anti-dilutive.

108
 2017 
2016 (1)
 2015
 (Dollars in Thousands, Except Share and Per Share Data)
Basic income per common share:     
   Net income attributable to Meta Financial Group, Inc.$44,917
 $33,220
 $18,055
Weighted average common shares outstanding9,247,092
 8,443,956
 6,730,086
Basic income per common share$4.86
 $3.93
 $2.68
      
Diluted income per common share:     
   Net income attributable to Meta Financial Group, Inc.$44,917
 $33,220
 $18,055
Weighted average common shares outstanding9,247,092
 8,443,956
 6,730,086
     Outstanding options - based upon the two-class method55,652
 53,390
 61,499
Weighted average diluted common shares outstanding9,302,744
 8,497,346
 6,791,585
Diluted income per common share$4.83
 $3.91
 $2.66
(1) See Reclassification and Revision
Table of Prior Period Balances under Note 1 Summary of Significant Accounting Policies for additional information describing adjustments made to the Company's EPS calculation. Basic EPS for the fiscal year ended September 30, 2016 of $3.95 was corrected to $3.93 and diluted EPS of $3.92 was corrected to $3.91.
All stock options were considered in computing diluted EPS for the years ended September 30, 2017 and September 30, 2016. Stock options totaling 28,891 were not considered in computing diluted earnings per common share for the year ended September 30, 2015 because they were anti-dilutive.
Contents


NOTE 6.  SECURITIES
Securities available for sale at September 30, 2017 and 2016 were as follows:
Available For Sale  GROSS
 GROSS
  
 AMORTIZED
 UNREALIZED
 UNREALIZED
 FAIR
At September 30, 2017COST
 GAINS
 (LOSSES)
 VALUE
 (Dollars in Thousands)
Debt securities       
Small business administration securities57,046
 825
 —
 57,871
Non-bank qualified obligations of states and political subdivisions938,883
 14,983
 (3,037) 950,829
Asset-backed securities94,451
 2,381
 —
 96,832
Mortgage-backed securities588,918
 1,259
 (3,723) 586,454
Total debt securities1,679,298
 19,448
 (6,760) 1,691,986
Common equities and mutual funds1,009
 436
 —
 1,445
Total available for sale securities$1,680,307
 $19,884
 $(6,760) $1,693,431

 AMORTIZED
 
GROSS
UNREALIZED

 
GROSS
UNREALIZED

 FAIR
At September 30, 2016COST
 GAINS
 (LOSSES)
 VALUE
 (Dollars in Thousands)
Debt securities       
Trust preferred and corporate securities$14,935
 $—
 $(1,957) $12,978
Small business administration securities78,431
 2,288
 —
 80,719
Non-bank qualified obligations of states and political subdivisions668,628
 30,141
 (97) 698,672
Asset-backed securities117,487
 73
 (745) 116,815
Mortgage-backed securities555,036
 4,382
 (478) 558,940
Total debt securities1,434,517
 36,884
 (3,277) 1,468,124
Common equities and mutual funds755
 373
 (3) 1,125
Total available for sale securities$1,435,272
 $37,257
 $(3,280) $1,469,249

Securities held to maturity at September 30, 2017 and 2016 were as follows:
Held to Maturity  GROSS
 GROSS
  
 AMORTIZED
 UNREALIZED
 UNREALIZED
 FAIR
At September 30, 2017COST
 GAINS
 (LOSSES)
 VALUE
 (Dollars in Thousands)
Debt securities       
Obligations of states and political subdivisions$19,247
 $157
 $(36) $19,368
Non-bank qualified obligations of states and political subdivisions430,593
 4,744
 (2,976) 432,361
Mortgage-backed securities113,689
 —
 (1,233) 112,456
Total held to maturity securities$563,529
 $4,901
 $(4,245) $564,185


 AMORTIZED
 
GROSS
UNREALIZED

 
GROSS
UNREALIZED

 FAIR
At September 30, 2016COST
 GAINS
 (LOSSES)
 VALUE
 (Dollars in Thousands)
Debt securities       
Obligations of states and political subdivisions$20,626
 $355
 $(44) $20,937
Non-bank qualified obligations of states and political subdivisions465,469
 11,744
 (11) 477,202
Mortgage-backed securities133,758
 708
 (31) 134,435
Total held to maturity securities$619,853
 $12,807
 $(86) $632,574

Included in securities available for sale are trust preferred securities as follows:
At September 30, 2016             
Issuer(1)
Amortized Cost Fair Value 
Unrealized
Gain (Loss)
 
S&P
Credit Rating
 
Moody's
Credit Rating
  (Dollars in Thousands)
Key Corp. Capital I$4,987
 $4,189
 $(798) BB+ Baa2
Huntington Capital Trust II SE4,981
 4,077
 (904) BB Baa2
PNC Capital Trust4,968
 4,712
 (256) BBB- Baa1
Total$14,936
 $12,978
 $(1,958)     
(1) Trust preferred securities are single-issuance.  There are no known deferrals, defaults or excess subordination.

The Company sold all of its trust preferred securities during the first quarter of fiscal year 2017.

Management has implemented processes to identify securities that could potentially have a credit impairment that is other-than-temporary.  This process can include, but is not limited to, evaluating the length of time and extent to which the fair value has been less than the amortized cost basis, reviewing available information regarding the financial position of the issuer, interest or dividend payment status, monitoring the rating of the security, monitoring changes in value, and projecting cash flows.  Management also determines whether the Company intends to sell a security or whether it is more likely than not we will be required to sell the security before the recovery of its amortized cost basis which, in some cases, may extend to maturity.  To the extent we determine that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.
For all securities considered temporarily impaired, the Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost, which may occur at maturity.  The Company believes collection will occur for all principal and interest due on all investments with amortized cost in excess of fair value and considered only temporarily impaired.
Generally accepted accounting principles require that, at acquisition, an enterprise classify debt securities into one of three categories: available for sale, held to maturity or trading. AFS securities are carried at fair value on the consolidated statements of financial condition, and unrealized holding gains and losses are excluded from earnings and recognized as a separate component of equity in accumulated other comprehensive income.  HTM debt securities are measured at amortized cost. Both AFS and HTM are subject to review for other-than-temporary impairment. Meta Financial did not have any trading securities at September 30, 2017.

Gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position at September 30, 2017, and 2016, were as follows:

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

 LESS THAN 12 MONTHS OVER 12 MONTHS TOTAL
At September 30, 2016
Fair
Value
 
Unrealized
(Losses)
 
Fair
Value
 
Unrealized
(Losses)
 
Fair
Value
 
Unrealized
(Losses)
 (Dollars in Thousands)
Debt securities           
Trust preferred and corporate securities$—
 $—
 $12,978
 $(1,957) $12,978
 $(1,957)
Non-bank qualified obligations of states and political subdivisions8,481
 (58) 2,688
 (39) 11,169
 (97)
Asset-backed securities89,403
 (745) —
 —
 89,403
 (745)
Mortgage-backed securities54,065
 (230) 36,979
 (248) 91,044
 (478)
Total debt securities151,949
 (1,033) 52,645
 (2,244) 204,594
 (3,277)
Common equities and mutual funds—
 —
 125
 (3) 125
 (3)
Total available for sale securities$151,949
 $(1,033) $52,770
 $(2,247) $204,719
 $(3,280)

Held To MaturityLESS THAN 12 MONTHS OVER 12 MONTHS TOTAL
At September 30, 2017
Fair
Value
 
Unrealized
(Losses)
 
Fair
Value
 
Unrealized
(Losses)
 
Fair
Value
 
Unrealized
(Losses)
 (Dollars in Thousands)
Debt securities           
Obligations of states and political subdivisions$1,364
 $(6) $4,089
 $(30) $5,453
 $(36)
Non-bank qualified obligations of states and political subdivisions202,018
 (2,783) 6,206
 (193) 208,224
 (2,976)
Mortgage-backed securities112,456
 (1,233) —
 —
 112,456
 (1,233)
Total held to maturity securities$315,838
 $(4,022) $10,295
 $(223) $326,133
 $(4,245)


 LESS THAN 12 MONTHS OVER 12 MONTHS TOTAL
At September 30, 2016
Fair
Value
 
Unrealized
(Losses)
 
Fair
Value
 
Unrealized
(Losses)
 
Fair
Value
 
Unrealized
(Losses)
 (Dollars in Thousands)
Debt securities           
Obligations of states and political subdivisions$2,909
 $(13) $2,256
 $(31) $5,165
 $(44)
Non-bank qualified obligations of states and political subdivisions1,294
 (11) —
 —
 1,294
 (11)
Mortgage-backed securities20,061
 (31) —
 —
 20,061
 (31)
Total held to maturity securities$24,264
 $(55) $2,256
 $(31) $26,520
 $(86)

As of September 30, 2017 and 2016, the investment portfolio included securities with current unrealized losses which have existed for longer than one year.  All of these securities are considered to be acceptable credit risks.  Because the declines in fair value were due to changes in market interest rates, not in estimated cash flows, and the Company does not intend to sell these securities (has not made a decision to sell) and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, which may occur at maturity, no other-than-temporary impairment was recorded at September 30, 2017 or 2016.
The amortized cost and fair value of debt securities by contractual maturity are shown below.  Certain securities have call features which allow the issuer to call the security prior to maturity.  Expected maturities may differ from contractual maturities in mortgage-backed securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  Therefore, mortgage-backed securities are not included in the maturity categories in the following maturity summary.  The expected maturities of certain Small Business Administration securities may differ from contractual maturities because the borrowers may have the right to prepay the obligation. However, certain prepayment penalties may apply.

Available For Sale
 
AMORTIZED
COST

 
FAIR
VALUE

At September 30, 2017(Dollars in Thousands)
    
Due in one year or less$—
 $—
Due after one year through five years36,586
 37,674
Due after five years through ten years347,831
 358,198
Due after ten years705,963
 709,660
 1,090,380
 1,105,532
Mortgage-backed securities588,918
 586,454
Common equities and mutual funds1,009
 1,445
Total available for sale securities$1,680,307
 $1,693,431

 
AMORTIZED
COST

 
FAIR
VALUE

At September 30, 2016(Dollars in Thousands)
    
Due in one year or less$—
 $—
Due after one year through five years17,370
 17,897
Due after five years through ten years426,034
 446,771
Due after ten years436,077
 444,516
 879,481
 909,184
Mortgage-backed securities555,036
 558,940
Common equities and mutual funds755
 1,125
Total available for sale securities$1,435,272
 $1,469,249

Held To Maturity
AMORTIZED
COST

 
FAIR
VALUE

At September 30, 2017(Dollars in Thousands)
    
Due in one year or less$1,483
 $1,480
Due after one year through five years17,926
 18,160
Due after five years through ten years144,996
 147,832
Due after ten years285,435
 284,257
 449,840
 451,729
Mortgage-backed securities113,689
 112,456
Total held to maturity securities$563,529
 $564,185

 
AMORTIZED
COST

 
FAIR
VALUE

At September 30, 2016(Dollars in Thousands)
    
Due in one year or less$472
 $471
Due after one year through five years12,502
 12,696
Due after five years through ten years157,944
 163,806
Due after ten years315,177
 321,166
 486,095
 498,139
Mortgage-backed securities133,758
 134,435
Total held to maturity securities$619,853
 $632,574


Activities related to the sale of securities are summarized below.
 2017 2016 2015
September 30,(Dollars in Thousands)
Available For Sale     
   Proceeds from sales$457,306
 $285,508
 $566,371
   Gross gains on sales4,091
 1,459
 2,753
   Gross losses on sales4,628
 1,785
 4,387
 Net (loss) on available for sale securities(537) (326) (1,634)
      
Held To Maturity     
   Net carrying amount of securities sold$5,826
 $—
 $—
   Gross realized gain on sales92
 —
 —
   Gross realized losses on sales48
 —
 —
Net gain on held to maturity securities44
 —
 —

The Company's decision to sell securities held to maturity in the fourth quarter of fiscal 2017 was due to credit deteriorations of the securities based on the Company's internal credit analysis as well as respective downgrades from credit agencies.

NOTE 7.6.  PREMISES, FURNITURE, AND EQUIPMENT, NET
 
Year-end premisesPremises, furniture, and equipment were as follows:consists of the following:
At September 30,
(Dollars in thousands)20222021
Land$1,354 $1,354 
Buildings21,300 21,196 
Furniture, fixtures, and equipment56,631 76,662 
79,285 99,212 
Less: accumulated depreciation and amortization(37,575)(54,324)
Net book value$41,710 $44,888 
September 30,2017 2016
 (Dollars in Thousands)
    
Land$1,578
 $1,578
Buildings10,642
 10,482
Furniture, fixtures, and equipment46,934
 41,756
Capitalized leases2,259
 2,259
 61,413
 56,075
Less: accumulated depreciation and amortization(42,093) (37,449)
Net book value$19,320
 $18,626


Depreciation expense of premises, furniture and equipment included in occupancy and equipment expense was approximately $5.5$11.3 million, $5.4$9.6 million and $4.6$9.2 million for the fiscal years ended September 30, 2017, 20162022, 2021 and 2020, respectively.

NOTE 7.  RENTAL EQUIPMENT, NET

Rental equipment consists of the following:
At September 30,
(Dollars in thousands)20222021
Computers and IT networking equipment$21,669 $17,683 
Motor vehicles and other107,648 87,396 
Other furniture and equipment34,254 48,828 
Solar panels and equipment133,765 125,457 
Total297,336 279,364 
Accumulated depreciation(94,355)(67,825)
Unamortized initial direct costs1,390 1,577 
Net book value$204,371 $213,116 

Future minimum lease payments expected to be received for operating leases at September 30, 2022 were as follows:
(Dollars in thousands)
2023$39,286 
202430,807 
202523,158 
202614,651 
20278,454 
Thereafter9,704 
Total$126,060 

NOTE 8.  GOODWILL AND INTANGIBLE ASSETS
The Company held a total of $309.5 million of goodwill at September 30, 2022. The recorded goodwill is a result of multiple business combinations that occurred from 2015 respectively. Amortization expense on capitalized leases forto 2018. The Company did not enter into any business combinations in the fiscal year ended September 30, 2022. There have been no changes to the carrying amount of goodwill during the fiscal years ended September 30, 2017, 20162022 and 2015, was $0.1 million, $0.2 million and $0.2 million, respectively, and is included2021.


109
Table of Contents
The changes in occupancy and equipment expense. Substantially allthe carrying amount of the Company's capitalizedintangible assets were as follows:
(Dollars in thousands)
Trademark(1)
Non-Compete
Customer Relationships(2)
All Others(3)
Total
Intangible Assets
At September 30, 2021$9,823 $40 $17,868 $5,417 $33,148 
Acquisitions during the period— — — 1 1 
Amortization during the period(1,218)(40)(4,803)(524)(6,585)
Write-offs during the period— — (670)(203)(873)
At September 30, 2022$8,605 $— $12,395 $4,691 $25,691 
Gross carrying amount$14,624 $2,481 $82,088 $9,940 $109,133 
Accumulated amortization(6,019)(2,481)(58,775)(5,031)(72,306)
Accumulated impairment— — (10,918)(218)(11,136)
At September 30, 2022$8,605 $— $12,395 $4,691 $25,691 
At September 30, 2020$10,901 $422 $24,333 $6,036 $41,692 
Acquisitions during the period— — — 24 24 
Amortization during the period(1,078)(382)(6,465)(620)(8,545)
Write-offs during the period— — — (23)(23)
At September 30, 2021$9,823 $40 $17,868 $5,417 $33,148 
Gross carrying amount$14,624 $2,481 $82,088 $10,142 $109,335 
Accumulated amortization(4,801)(2,441)(53,972)(4,507)(65,721)
Accumulated impairment— — (10,248)(218)(10,466)
At September 30, 2021$9,823 $40 $17,868 $5,417 $33,148 
(1) Book amortization period of 5-15 years.Amortized using the straight line and accelerated methods.
(2) Book amortization period of 10-30 years. Amortized using the accelerated method.
(3) Book amortization period of 3-20 years. Amortized using the straight line method.

The estimated amortization expense of intangible assets assumes no activities, such as acquisitions, which would result in additional amortizable intangible assets. Estimated amortization expense of intangible assets in the subsequent fiscal years at September 30, 2022 was as follows:
(Dollars in thousands)
2023$4,937 
20244,123 
20253,561 
20263,215 
20272,569 
Thereafter7,286 
Total anticipated intangible amortization$25,691 

There was a $0.7 million impairment to intangible assets for the fiscal year ended September 30, 2022 and no impairment for the fiscal year ended September 30, 2021. Intangible impairment expense is recorded within the impairment expense line of the Consolidated Statements of Operations.

NOTE 9. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES

Operating lease ROU assets, included in other assets, were $30.1 million and $34.4 million at September 30, 2022 and 2021, respectively.

Operating lease liabilities, included in accrued expenses and other liabilities, were $32.1 million and $36.5 million at September 30, 2022 and 2021, respectively.

110
Table of Contents
Undiscounted future minimum operating lease payments and a reconciliation to the amount recorded as operating lease liabilities at September 30, 2022 were as follows:
(Dollars in thousands)
2023$3,946 
20243,913 
20253,718 
20263,195 
20273,092 
Thereafter18,639 
Total undiscounted future minimum lease payments36,503 
Discount(4,448)
Total operating lease liabilities$32,055 

The weighted-average discount rate and remaining lease term for operating leases at September 30, 2017 were building leases.



NOTE 8.  TIME CERTIFICATES OF DEPOSITS
Time certificates of deposits in denominations of $250,000 or more were approximately $85.2 million and $44.5 million at September 30, 2017, and 2016, respectively.
At September 30, 2017, the scheduled maturities of time certificates of deposits2022 were as follows for the years ending:
As of September 30, 
(Dollars in Thousands) 
  
2018$560,825
201910,943
20205,158
20212,412
20222,227
Thereafter—
Total Certificates (1)
$581,565
(1) As of September 30, 2017, total certificates of deposits included $457.9 million of brokered certificates of deposits, which are recored in Wholesale deposits on the consolidated statements of financial condition.

Under the Dodd-Frank Act, IRA and non-IRA deposit accounts are permanently insured up to $250,000 by the DIF under management of the FDIC.

NOTE 9.  SHORT TERM DEBT AND LONG TERM DEBT

Short Term Debt
September 30,2017 2016
    
Overnight federal funds purchased$987,000
 $992,000
Short-term FHLB advances415,000
 100,000
Short-term capital lease62
 79
Repurchase agreements2,472
 3,039
     Total1,404,534
 1,095,118

The Company had $987.0 million of overnight federal funds purchased from the FHLB as of September 30, 2017. The Company had $992.0 million in overnight federal funds purchased from the FHLB at September 30, 2016. At September 30, 2017, the Company’s short-term advances from the FHLB totaled $415.0 million and carried a net weighted average rate of 1.27%. The Company had $100.0 million in short-term advances from the FHLB at September 30, 2016.
The Bank has executed blanket pledge agreements whereby the Bank assigns, transfers, and pledges to the FHLB and grants to the FHLB a security interest in all mortgage collateral and securities collateral.  The Bank has the right to use, commingle, and dispose of the collateral it has assigned to the FHLB.  Under the agreement, the Bank must maintain “eligible collateral” that has a “lending value” at least equal to the “required collateral amount,” all as defined by the agreement.
At fiscal year-end 2017 and 2016, the Bank pledged securities with fair values of approximately $1.07 billion and $824.5 million, respectively, against specific FHLB advances.  In addition, qualifying mortgage loans of approximately $628.0 million, and $501.0 million were pledged as collateral at September 30, 2017, and 2016, respectively.

As of September 30, 2017, the Company had three capital leases, two equipment leases and one property lease.  At September 30, 2017, the portion of the liability expected to be expensed and amortized over the next 12 months is approximately $79,507.


Securities sold under agreements to repurchase totaled approximately $2.5 million and $3.0 million at September 30, 2017, and 2016, respectively.

An analysis of securities sold under agreements to repurchase at September 30, 2017 and 2016 follows:

Weighted-average discount rate2.35 %
Weighted-average remaining lease term (years)10.41
September 30,2017 2016
 (Dollars in Thousands)
    
Highest month-end balance$3,782
 $3,468
Average balance2,225
 2,179
Weighted average interest rate for the year0.98% 0.60%
Weighted average interest rate at year end1.59% 0.61%

The Company pledged securities with fair values of approximately $9.3 million at September 30, 2017, as collateral for securities sold under agreements to repurchase.  There were $9.2 million of securities pledged as collateral for securities sold under agreements to repurchase at September 30, 2016.

Long Term Debt
September 30,2017 2016
(Dollars in Thousands)   
Long-term FHLB advances$—
 $7,000
Trust preferred securities10,310
 10,310
Subordinated debentures (net of issuance costs)73,347
 73,211
Long-term capital lease1,876
 1,939
     Total85,533
 92,460

At September 30, 2017, the Company had no long-term advances from the FHLB. The Company had $7.0 million in long-term advances from the FHLB at September 30, 2016 which carried a weighted average rate of 6.98%. The $7.0 million of long-term advances were paid off by the Company during the fourth quarter of 2017.

At September 30, 2017, the scheduled maturities of the Company's long-term debt were as follows for the years ending:
September 30,    
(Dollars in Thousands)Trust preferred securitiesSubordinated debenturesLong-term capital leaseTotal
2018$—
$—
$—
$—
2019—
—
65
65
2020—
—
72
72
2021—
—
77
77
2022—
—
82
82
Thereafter10,310
73,347
1,580
85,237
Total long-term debt$10,310
$73,347
$1,876
$85,533

Trust preferred securities are due to First Midwest Financial Capital Trust I, a 100%-owned nonconsolidated subsidiary of the Company.  The securities were issued in 2001 in conjunction with the Trust’s issuance of 10,000 shares of Trust Preferred Securities.  The securities bear the same interest rate and terms as the trust preferred securities.  The securities are included on the consolidated statements of financial condition as liabilities. 


The Company issued all of the 10,310 authorized shares of trust preferred securities of First Midwest Financial Capital Trust I holding solely securities.  Distributions are paid semi-annually.  Cumulative cash distributions are calculated at a variable rate of London Interbank Offered Rate (“LIBOR”) plus 3.75% (5.22% at September 30, 2017, and 4.99% at September 30, 2016), not to exceed 12.5%.  The Company may, at one or more times, defer interest payments on the capital securities for up to 10 consecutive semi-annual periods, but not beyond July 25, 2031.  At the end of any deferral period, all accumulated and unpaid distributions are required to be paid.  The capital securities are required to be redeemed on July 25, 2031; however, the Company has a semi-annual option to shorten the maturity date.  The redemption price is $1,000 per capital security plus any accrued and unpaid distributions to the date of redemption.
Holders of the capital securities have no voting rights, are unsecured and rank junior in priority of payment to all of the Company’s indebtedness and senior to the Company’s common stock.
Although the securities issued by the Trust are not included as a component of stockholders’ equity, the securities are treated as capital for regulatory purposes, subject to certain limitations.

The Company completed the public offering of $75.0 million of 5.75% fixed-to-floating rate subordinated debentures during fiscal year 2016. These notes are due August 15, 2026. The subordinated debentures were sold at par, resulting in net proceeds of approximately $73.9 million. At September 30, 2017, the Company had $73.3 million in subordinated debentures, net of issuance costs of $1.7 million. Accumulated interest expense on the subordinated debentures was $4.3 million as of September 30, 2017.
As of September 30, 2017, the Company had three capital leases, two equipment leases and one property lease.  At September 30, 2017, the portion of the liability expected to be expensed and amortized beyond 12 months is $1.9 million.  The majority of the $1.9 million is related to the Urbandale, Iowa retail branch location.

NOTE 10.  EMPLOYEE STOCK OWNERSHIP AND PROFIT SHARING PLANS
The Company maintains an Employee Stock Ownership Plan (“ESOP”) for eligible employees who have 1000 hours of employment with the Bank, have worked at least one year at the Bank and who have attained age 21.  ESOP expense of $1,668,000, $1,150,000 and $994,000 was recorded for the years ended September 30, 2017, 2016 and 2015, respectively.  Contributions of $1,606,102, $1,174,682 and $992,038 were made to the ESOP during the years ended September 30, 2017, 2016 and 2015, respectively.
Contributions to the ESOP and shares released from suspense are allocated among ESOP participants on the basis of compensation in the year of allocation.  Benefits generally become 100% vested after seven years of credited service.  Prior to the completion of seven years of credited service, a participant who terminates employment for reasons other than death or disability receives a reduced benefit based on the ESOP’s vesting schedule.  Forfeitures are reallocated among remaining participating employees in the same proportion as contributions.  Benefits are payable in the form of stock upon termination of employment.  The Company’s contributions to the ESOP are not fixed, so benefits payable under the ESOP cannot be estimated.
For the years ended September 30, 2017, 2016 and 2015, 20,486 shares, 19,381 shares and 23,750 shares, from the suspense account, with a fair value of $78.40, $60.61 and $41.77 per share, respectively, were released. For the years ended September 30, 2017, 2016 and 2015, allocated shares and total ESOP shares reflect 14,126 shares, 15,502 shares and 10,294 shares, respectively, withdrawn from the ESOP by participants who were no longer with the Company or by participants diversifying their holdings.  At September 30, 2017, 2016 and 2015, there were 1,479, 2,710 and 2,974 shares purchased, respectively, for dividend reinvestment.

Year-end ESOP shares are as follows:
At September 30,2017 2016 2015
 (Dollars in Thousands)
      
Allocated shares256,219
 262,872
 256,283
Unearned shares—
 —
 —
Total ESOP shares256,219
 262,872
 256,283
Fair value of unearned shares$—
 $—
 $—

The Company also has a profit sharing plan covering substantially all full-time employees.  Contribution expense to the profit sharing plan, included in compensation and benefits, for the years ended September 30, 2017, 2016 and 2015 was $1.61 million, $1.26 million and $1.10 million, respectively.
NOTE 11.  SHARE-BASED COMPENSATION PLANS
The Company maintains the 2002 Omnibus Incentive Plan, as amended and restated, which, among other things, provides for the awarding of stock options and nonvested (restricted) shares to certain officers and directors of the Company.  Awards are granted by the Compensation Committee of the Board of Directors based on the performance of the award recipients or other relevant factors.
The following table shows the effect to income, net of tax benefits, of share-based expense recorded in the years ended September 30, 2017, 2017 and 2016.
Year Ended September 30,2017 2016 2015
 (Dollars in Thousands)
Total employee stock-based compensation expense recognized in income, net of tax effects of $3,907, $192, and $66, respectively$6,486
 $559
 $334

As of September 30, 2017, stock-based compensation expense not yet recognized in income totaled $16.9 million, which is expected to be recognized over a weighted-average remaining period of 4.08 years.
At grant date, the fair value of options awarded to recipients is estimated using a Black-Scholes valuation model.  The exercise price of stock options equals the fair market value of the underlying stock at the date of grant.  Options are issued for 10-year periods with 100% vesting generally occurring either at grant date or over a four-year period.  No options were granted during the years ended September 30, 2017, 2016 or 2015.  The intrinsic value of options exercised during the years ended September 30, 2017, 2016 and 2015 were $1.8 million, $1.5 million and $0.9 million, respectively.
Shares have previously been granted each year to executives and senior leadership members under the applicable Company incentive plan. These shares vest at various times ranging from immediately to four years based on circumstances at time of grant. The fair value is determined based on the fair market value of the Company’s stock on the grant date.  Director shares are issued to the Company’s directors, and these shares vest immediately.  The total fair value of director’s shares granted during the years ended September 30, 2017, 2016 and 2015 was $0.5 million, $0.2 million and $0.1 million, respectively.
In addition to the Company’s 2002 Omnibus Incentive Plan, the Company also maintains the 1995 Stock Option and Incentive Plan.  No new options were, or could have been, awarded under the 1995 plan during the year ended September 30, 2017; however, previously awarded options were exercised under this plan during the year ended September 30, 2017.

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

The following tables show the activity of options and share awards (including shares of restricted stock subject to vesting and fully-vested restricted stock) granted, exercised or forfeited under all of the Company’s option and incentive plans during the years ended September 30, 2017 and 2016.

 
Number
of
Shares

 
Weighted
Average
Exercise
Price

 
Weighted
Average
Remaining
Contractual
Term (Yrs)

 
Aggregate
Intrinsic
Value

 (Dollars in Thousands, Except Share and Per Share Data)
        
Options outstanding, September 30, 2016125,560
 $25.73
 2.68
 $4,379
Granted—
 —
 —
 —
Exercised(29,386) 33.38
 —
 1,790
Forfeited or expired(20,417) 26.25
 —
 1,464
Options outstanding, September 30, 201775,757
 $22.62
 2.28
 $4,225
        
Options exercisable end of year75,757
 $22.62
 2.28
 $4,225

 
Number
of
Shares

 
Weighted
Average
Exercise
Price

 
Weighted
Average
Remaining
Contractual
Term (Yrs)

 
Aggregate
Intrinsic
Value

 (Dollars in Thousands, Except Share and Per Share Data)
        
Options outstanding, September 30, 2015189,088
 $25.74
 3.16
 $3,027
Granted—
 —
 —
 —
Exercised(63,528) 25.77
 —
 1,510
Forfeited or expired—
 —
 —
 —
Options outstanding, September 30, 2016125,560
 $25.73
 2.68
 $4,379
        
Options exercisable end of year125,560
 $25.73
 2.68
 $4,379

 
Number of
Shares

 
Weighted Average
Fair Value At Grant

 (Dollars in Thousands, Except Share and Per Share Data)
    
Nonvested shares outstanding, September 30, 201620,656
 $41.37
Granted316,604
 87.49
Vested(29,135) 64.22
Forfeited or expired(3,599) 56.39
Nonvested shares outstanding, September 30, 2017304,526
 $86.96

 
Number of
Shares

 
Weighted Average
Fair Value At Grant

 (Dollars in Thousands, Except Share and Per Share Data)
    
Nonvested shares outstanding, September 30, 201544,002
 $40.80
Granted8,154
 42.49
Vested(33,666) 40.93
Forfeited or expired2,166
 46.98
Nonvested shares outstanding, September 30, 201620,656
 $41.37

NOTE 12.  INCOME TAXES

The Company and its subsidiaries file a consolidated federal income tax return on a fiscal year basis. The provision for income taxes for the years presented below consisted of the following:
Years ended September 30,2017 2016 2015
 (Dollars in Thousands)
Federal:     
Current$12,153
 $4,410
 $4,217
Deferred(5,040) (440) (3,896)
 7,113
 3,970
 321
      
State: 
  
  
Current4,366
 1,422
 1,048
Deferred(1,246) 210
 (1)
 3,120
 1,632
 1,047
      
Income tax expense$10,233
 $5,602
 $1,368

Total income tax expense differs from the statutory federal income tax rate as follows:
Years ended September 30,2017 2016 2015
 (Dollars in Thousands)
      
Income tax expense at federal tax rate$19,303
 $13,588
 $6,798
Increase (decrease) resulting from: 
  
  
State income taxes net of federal benefit2,014
 933
 692
Nontaxable buildup in cash surrender value(776) (580) (711)
Stock based compensation(593) (66) (37)
Tax exempt income(9,991) (8,257) (5,230)
Nondeductible expenses316
 196
 188
Other, net(40) (212) (332)
Total income tax expense$10,233
 $5,602
 $1,368



The components of the net deferred tax asset (liability) at September 30, 2017 and 2016 were:
September 30,2017 2016
 (Dollars in Thousands)
Deferred tax assets:   
Bad debts$2,832
 $2,044
Deferred compensation1,548
 1,345
Stock based compensation3,436
 265
Operational reserve645
 540
AMT Credit1,869
 5,563
Intangibles5,235
 393
Indirect tax benefits of unrecognized tax positions266
 216
Other assets1,933
 1,362
 17,764
 11,728
    
Deferred tax liabilities: 
  
FHLB stock dividend(425) (411)
Premises and equipment(1,789) (1,913)
Patents(842) (988)
Prepaid expenses(673) (668)
Net unrealized gains on securities available for sale(4,934) (12,348)
 (8,663) (16,328)
    
Net deferred tax assets (liabilities)$9,101
 $(4,600)


As of September 30, 2017 and 2016, the Company had a gross deferred tax asset of $1.3 million and $0.9 million, respectively,total lease costs for separate company state cumulative net operating loss carryforwards, which was fully reserved forleases were as the Company does not anticipate any state taxable income at the holding company level in future periods.

In general, management believes that the realization of its deferred tax assets is more likely than not based on the expectations as to future taxable income; therefore, there was no deferred tax valuation allowance at September 30, 2017, or 2016 with the exception of the state cumulative net operating loss carryforwards discussed above.
Federal income tax laws provided savings banks with additional bad debt deductions through September 30, 1987, totaling $6.7 million for the Bank.  Accounting standards do not require a deferred tax liability to be recorded on this amount, which liability otherwise would total approximately $2.3 million at September 30, 2017 and 2016.  If the Bank were to be liquidated or otherwise cease to be a bank, or if tax laws were to change, the $2.3 million would be recorded as expense.
The provisions of ASC 740, Income Taxes, address the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements.  Under ASC 740, the Company recognizes the tax benefits from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination, with a tax examination being presumed to occur, including the resolution of any related appeals or litigation.  The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.
The Company’s tax reserves reflect management’s judgment as to the resolution of the issues involved if subject to judicial review.  While the Company believes that its reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed its related reserve.  With respect to these reserves, the Company’s income tax expense would include (i) any changes in tax reserves arising from material changes during the period in the facts and circumstances surrounding a tax issue, and (ii) any difference from the Company’s tax position as recorded in the consolidated financial statements and the final resolution of a tax issue during the period.

The tax years ended September 30, 2014 and later remain subject to examination by the Internal Revenue Service.  For state purposes, the tax years ended September 30, 2014 and later remain open for examination, with few exceptions.
A reconciliation of the beginning and ending balances for liabilities associated with unrecognized tax benefits for the years ended September 30, 2017, and 2016 follows:
Fiscal Year Ended September 30,
(Dollars in thousands)20222021
Lease expense$4,431 $4,310 
Short-term and variable lease cost194 193 
ROU asset impairment670 224 
Sublease income(1,267)(591)
Total lease cost for operating leases$4,028 $4,136 

September 30,2017
 2016
 (Dollars in Thousands)
Balance at beginning of year$525
 $974
Additions for tax positions related to the current year192
 63
Additions for tax positions related to the prior years31
 —
Reductions for tax positions due to settlement with taxing authorities—
 (372)
Reductions for tax positions related to prior years(103) (140)
Balance at end of year$645
 $525
The total amount of unrecognized tax benefits that, if recognized, would impact the effective rate was $460,000 as of September 30, 2017.  The Company recognizes interest related to unrecognized tax benefits as a component of income tax expense.  The amount of accrued interest related to unrecognized tax benefits was $114,000 as of September 30, 2017.  The Company does not anticipate any significant change in the total amount of unrecognized tax benefits within the next 12 months.

NOTE 10.  TIME CERTIFICATES OF DEPOSIT
Time certificates of deposit in denominations of $250,000 or more were approximately $6.2 million and $24.9 million at September 30, 2022, and 2021, respectively.
Scheduled maturities of time certificates of deposit at September 30, 2022 were as follows for the fiscal years ending:
(Dollars in thousands)
2023$5,947 
20241,807 
2025— 
2026— 
2027— 
Thereafter— 
Total(1)
$7,754 
(1) As of September 30, 2022, the Company had $0.1 million of certificates of deposit which were recorded in wholesale deposits on the Consolidated Statements of Financial Condition.

Under the Dodd-Frank Act, IRA and non-IRA deposit accounts are insured up to $250,000 by the DIF under management of the FDIC.

111
Table of Contents
NOTE 11.  SHORT-TERM AND LONG-TERM BORROWINGS

Short-Term Borrowings
The Company had no short-term borrowing at September 30, 2022 and 2021.
The Bank has executed blanket pledge agreements whereby the Bank assigns, transfers, and pledges to the FHLB and grants to the FHLB a security interest in real estate and securities collateral. The Bank has the right to use, commingle, and dispose of the collateral it has assigned to the FHLB. Under the agreement, the Bank must maintain “eligible collateral” that has a “lending value” at least equal to the “required collateral amount,” all as defined by the agreement.
At September 30, 2022 and 2021, the Bank pledged securities with fair values of approximately $804.0 million and $644.7 million, respectively, to be used against FHLB advances as needed. In addition, no qualifying real estate loans were pledged as collateral at September 30, 2022 and 2021.

The Company had no securities sold under agreements to repurchase at September 30, 2022 and 2021.
At September 30, 2022 and 2021, the Company did not have any securities pledged as collateral for securities sold under agreements to repurchase.

Long-Term Borrowings
At September 30,
(Dollars in thousands)20222021
Trust preferred securities13,661 13,661 
Subordinated debentures, net of issuance costs20,000 73,980 
Other long-term borrowings(1)
2,367 5,193 
Total$36,028 $92,834 
(1) Includes $2.4 million and $5.1 million of discounted leases and none and $0.1 million of finance lease obligations at September 30, 2022 and 2021, respectively.

Scheduled maturities of the Company's long-term borrowings at September 30, 2022 were as follows for the fiscal years ending:
(Dollars in thousands)Trust preferred securitiesSubordinated debenturesOther long-term borrowingsTotal
2023$— $— $603 $603 
2024— — 1,764 1,764 
2025— — — — 
2026— — — — 
2027— — — — 
Thereafter13,661 20,000 — 33,661 
Total long-term borrowings$13,661 $20,000 $2,367 $36,028 

Certain trust preferred securities are due to First Midwest Financial Capital Trust I, a 100%-owned nonconsolidated subsidiary of the Company. The securities were issued in 2001 in conjunction with the Trust’s issuance of 10,000 shares of Trust Preferred Securities. The securities bear the same interest rate and terms as the trust preferred securities. The securities are included on the Consolidated Statements of Financial Condition as liabilities.

112
Table of Contents
The Company issued all of the 10,310 authorized shares of trust preferred securities of First Midwest Financial Capital Trust I holding solely securities. Distributions are paid semi-annually. Cumulative cash distributions are calculated at a variable rate of LIBOR plus 3.75% (7.98% at September 30, 2022, and 3.93% at September 30, 2021), not to exceed 12.5%. The Company may, at one or more times, defer interest payments on the capital securities for up to 10 consecutive semi-annual periods, but not beyond July 25, 2031. At the end of any deferral period, all accumulated and unpaid distributions are required to be paid. The capital securities are required to be redeemed on July 25, 2031; however, the Company has a semi-annual option to shorten the maturity date. The redemption price is $1,000 per capital security plus any accrued and unpaid distributions to the date of redemption.
Holders of the capital securities have no voting rights, are unsecured and rank junior in priority of payment to all of the Company’s indebtedness and senior to the Company’s common stock.
Although the securities issued by the Trust are not included as a component of stockholders’ equity, the securities are treated as capital for regulatory purposes, subject to certain limitations.

Through the Crestmark Acquisition, the Company acquired $3.4 million in floating rate capital securities due to Crestmark Capital Trust I, a 100%-owned nonconsolidated subsidiary of the Company. The subordinated debentures bear interest at LIBOR plus 3.00%, have a stated maturity of 30 years and are redeemable by the Company at par, with regulatory approval. The interest rate is reset quarterly at distribution dates in February, May, August, and November. The interest rate as of September 30, 2022 was 6.75%. The Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years.
The Company redeemed its $75.0 million of 5.75% fixed-to-floating rate subordinated debentures on May 15, 2022 with payment of $75.0 million principal and approximately $1.0 million interest. On September 23, 2022, the Company completed a private placement of $20.0 million of its 6.625% fixed-to-floating rate subordinated debentures due 2032 to certain qualified institutional buyers and accredited investors. These notes will mature on September 30, 2032, unless earlier redeemed. Beginning on September 30, 2027, the notes may be redeemed, in whole or in part, at the Company's option subject to regulatory approval, on any scheduled interest payment date. Prior to September 30, 2027, the notes may be redeemed, in whole but not in part, at any time upon certain other specified events. At September 30, 2022, the Company had $20.0 million in aggregate principal amount in subordinated debentures remains outstanding.

NOTE 12.  STOCKHOLDERS' EQUITY

Repurchase of Common Stock
The Company's Board of Directors authorized the November 20, 2019 share repurchase program to repurchase up to 7,500,000 shares of the Company's outstanding common stock. This authorization is effective from November 21, 2019 through December 31, 2022. All remaining shares available for repurchase under this program were repurchased during the fiscal 2022 first quarter. On September 7, 2021, the Company's Board of Directors announced a share repurchase program to repurchase up to an additional 6,000,000 shares of the Company's outstanding common stock. This authorization is effective from September 3, 2021 through September 30, 2024. During the fiscal years ended September 30, 2022 and 2021, the Company repurchased 3,020,899 and 2,833,755 shares, respectively, as part of the share repurchase programs.
Under the repurchase programs, repurchased shares were retired and designated as authorized but unissued shares. The Company accounts for repurchased shares using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. As of September 30, 2022, 4,294,977 shares of common stock remained available for repurchase.
For the fiscal years ended September 30, 2022, and 2021, the Company also repurchased 73,522 and 101,481 shares, or $4.0 million and $2.9 million, of common stock, respectively, in settlement of employee tax withholding obligations due upon the vesting of restricted stock.

113
Table of Contents
Repurchase of Treasury Stock
The Company accounts for the retirement of repurchased shares, including treasury stock, using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. The Company retired zero and 203,224 shares of common stock held in treasury during the fiscal years ended September 30, 2022 and 2021, respectively.

NOTE 13.  STOCK COMPENSATION
The Company maintains the Pathward Financial, Inc. 2002 Omnibus Incentive Plan, as amended and restated (the "2002 Omnibus Incentive Plan"), which, among other things, provides for the awarding of stock options, nonvested (restricted) shares, and performance share units ("PSUs") to certain officers and directors of the Company. Awards are granted by the Compensation Committee of the Board of Directors based on the performance of the award recipients or other relevant factors.

At grant date, the fair value of options awarded to recipients is estimated using a Black-Scholes valuation model. The exercise price of stock options equals the fair market value of the underlying stock at the date of grant. Options are issued for a period of 10 years with 100% vesting generally occurring either at grant date or over a period of four years. There were no options granted during the fiscal years ended September 30, 2022, 2021 or 2020. The intrinsic value of options exercised during the fiscal years ended September 30, 2022, 2021 and 2020 were zero, zero and $1.0 million, respectively.

Shares have previously been granted each year to executives and senior leadership members under the applicable Company incentive plan. These shares vest at various times ranging from immediately to four years based on circumstances at time of grant. The fair value is determined based on the fair market value of the Company’s stock on the grant date. Director shares are issued to the Company’s directors, and these shares vest immediately. The total fair value of director’s shares granted during the fiscal years ended September 30, 2022, 2021 and 2020 was $0.0 million, $1.0 million and $0.8 million, respectively.

Under its 2002 Omnibus Incentive Plan, the Company also grants selected executives and other key employees PSU awards. The vesting of these awards is contingent on meeting company-wide performance goals, including but not limited to return on equity, earnings per share, and total shareholder return. PSUs are generally granted at the market value of the underlying share on the date of grant, adjusted for dividends, as performance share units do not participate in dividends while unearned. The awards contingently vest over a period of three years and have payout levels ranging from a threshold of 50% to a maximum of 200%. Upon vesting, each performance share unit is converted into one share of common stock.

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

In addition to the Company’s 2002 Omnibus Incentive Plan, the Company also maintains the 1995 Stock Option and Incentive Plan. No new options were, or could have been, awarded under the 1995 plan during the fiscal years ended September 30, 2022, 2021 or 2020. Furthermore, no options were outstanding during the year.

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

The following tables show the activity of options and share awards (including shares of restricted stock subject to vesting, fully-vested restricted stock, and PSUs) granted, exercised or forfeited under all of the Company’s option and incentive plans during the fiscal year ended September 30, 2022 and 2021.

There was no activity of options during the fiscal years ended September 30, 2022 and 2021 and zero were outstanding or exercisable at September 30, 2022 and 2021.
114
Table of Contents
(Dollars in thousands, except per share data)Number of SharesWeighted Average Fair Value at Grant
Nonvested shares outstanding, September 30, 2021547,063 $30.22 
Granted178,631 55.56 
Vested(230,323)35.70 
Forfeited or expired(21,023)43.45 
Nonvested shares outstanding, September 30, 2022474,348 $36.52 
Nonvested shares outstanding, September 30, 2020790,083 $30.03 
Granted190,187 30.88 
Vested(329,409)30.32 
Forfeited or expired(103,798)29.66 
Nonvested shares outstanding, September 30, 2021547,063 $30.22 

(Dollars in thousands, except per share data)Number of UnitsWeighted Average Fair Value at Grant
Performance share units outstanding, September 30, 202160,984 $34.03 
Granted(1)
35,705 57.20 
Vested— — 
Forfeited or expired— — 
Performance share units outstanding, September 30, 202296,689 $42.59 
(1) The number of PSUs granted reflects the target number of PSUs able to be earned under a given award.

Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of the grant. The exercise price of options or fair value of nonvested (restricted) shares and PSUs granted under the Company’s 2002 Omnibus Incentive Plan is equal to the fair market value of the underlying stock at the grant date, adjusted for dividends where applicable. The Company has elected, with the adoption of ASU 2016-09, to record forfeitures as they occur.

The following table shows the effect to income, net of tax benefits, of share-based compensation expense recorded:

Fiscal Year Ended September 30,
(Dollars in thousands)202220212020
Total employee stock-based compensation expense recognized in income, net of tax effects of $2,181, $1,562, and $2,567, respectively$7,824 $5,290 $7,656 

As of September 30, 2022, stock-based compensation expense not yet recognized in income totaled $6.5 million, which is expected to be recognized over a weighted-average remaining period of 1.48 years.

115
Table of Contents
NOTE 14.  INCOME TAXES

The Company and its subsidiaries file a consolidated federal income tax return on a fiscal year basis. The provision for income taxes were as follows:
Fiscal Year Ended September 30,
(Dollars in thousands)202220212020
Federal:
Current$5,657 $6,402 $3,148 
Deferred12,900 (3,909)(4,505)
18,557 2,493 (1,357)
State:   
Current4,720 5,938 4,860 
Deferred4,687 2,270 2,158 
9,407 8,208 7,018 
Income tax expense (benefit)$27,964 $10,701 $5,661 

The tax effects of the Company's temporary differences that give rise to significant portions of its deferred tax assets and liabilities were:
At September 30,
(Dollars in thousands)20222021
Deferred tax assets:
Bad debts$10,636 $15,946 
Deferred compensation2,652 3,733 
Stock based compensation3,521 3,314 
Valuation adjustments3,047 4,111 
General business credits(1)
52,684 49,196 
Accrued expenses1,948 2,780 
Lease liability8,074 9,206 
Net unrealized losses on securities available for sale71,336 — 
Other assets2,662 4,253 
 156,560 92,539 
Deferred tax liabilities:  
Premises and equipment(3,148)(3,328)
Intangibles(4,099)(3,032)
Net unrealized gains on securities available for sale— (2,471)
Leased assets(58,592)(46,355)
Right-of-use assets(7,758)(8,877)
Other liabilities(1,170)(3,303)
(74,767)(67,366)
Net deferred tax assets$81,793 $25,173 
(1) The general business credits are investment tax credits generated from qualified solar energy property placed in service during the fiscal years ended September 30, 2022 and 2021. These credits expire on September 30, 2042 and 2041, respectively.

As of September 30, 2022, the Company had a gross deferred tax asset of $2.9 million for separate company state cumulative net operating loss carryforwards, for which $2.9 million was reserved. At September 30, 2021, the Company had a gross deferred tax asset of $2.7 million for separate company state cumulative net operating loss carryforwards, for which $2.7 million was reserved. These state operating loss carryforwards will expire in various subsequent periods.

116
Table of Contents
In general, management believes that the realization of its deferred tax assets is more likely than not based on the expectations as to future taxable income; therefore, there was no deferred tax valuation allowance at September 30, 2022, or 2021 with the exception of the state cumulative net operating loss carryforwards discussed above.

The table below reconciles the statutory federal income tax expense and rate to the effective income tax expense and rate for the fiscal years presented. The Company's effective tax rate is calculated by dividing income tax expense by income before income tax expense.
Fiscal Year Ended September 30,
202220212020
(Dollars in thousands)AmountRateAmountRateAmountRate
Statutory federal income tax expense and rate$38,714 21.0 %$32,854 21.0 %$24,151 21.0 %
Change in tax rate resulting from:
State income taxes net of federal benefits7,413 4.0 %6,452 4.1 %5,444 4.7 %
162(m) disallowance1,125 0.4 %686 0.4 %1,129 1.0 %
Tax exempt income(743)(0.4)%(835)(0.5)%(1,212)(1.0)%
General business credits(17,589)(9.5)%(26,945)(17.2)%(22,284)(19.4)%
Other, net(956)(0.3)%(1,511)(1.0)%(1,567)(1.4)%
Income tax expense$27,964 15.2 %$10,701 6.8 %$5,661 4.9 %

The Company uses the flow through method of accounting for investment tax credits under which the credits are recognized as a reduction to income tax expense in the period in which the credit arises. During the fiscal years ended September 30, 2022, 2021, and 2020, $16.8 million, $26.5 million, and $20.5 million in investment tax credits were recognized as a reduction to income tax expense, respectively.

The Company’s tax reserves reflect management’s judgment as to the resolution of the issues involved if subject to judicial review. While the Company believes that its reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed its related reserve. With respect to these reserves, the Company’s income tax expense would include (i) any changes in tax reserves arising from material changes during the period in the facts and circumstances surrounding a tax issue, and (ii) any difference from the Company’s tax position as recorded in the Consolidated Financial Statements and the final resolution of a tax issue during the period.

The tax years ended September 30, 2019 and later remain subject to examination by the Internal Revenue Service. For state purposes, the tax years ended September 30, 2019 and later remain open for examination, with few exceptions.
A reconciliation of the beginning and ending balances for liabilities associated with unrecognized tax benefits follows:
At September 30,
(Dollars in thousands)20222021
Balance at beginning of fiscal year$777 $1,091 
Additions (reductions) for tax positions related to prior years(132)(314)
Balance at end of fiscal year$645 $777 

The total amount of unrecognized tax benefits that, if recognized, would impact the effective rate was $699,000 as of September 30, 2022. The Company recognizes interest related to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest related to unrecognized tax benefits was $145,000 as of September 30, 2022. The Company does not anticipate any significant change in the total amount of unrecognized tax benefits within the next 12 months.

117
Table of Contents
NOTE 15.  CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS
 
In July 2013,As U.S. banking organizations, the Company’s primary federal regulator,Company and the Bank are required to comply with the regulatory capital rules adopted by the Federal Reserve and the Bank’s primary federal regulator, the OCC approved final rules (the “Basel III Capital Rules”"Capital Rules") establishing a new comprehensive capital framework for U.S. banking organizations. The Basel III Capital Rules generally implement the Basel Committee on Banking Supervision’s (the “Basel Committee”) December 2010 final capital framework referred to as “Basel III” for strengthening international capital standards.  The Basel III Capital Rules substantially revised the risk-based capital requirements applicable to financial institution holding companies and their depository institution subsidiaries, including us and the Bank, as compared to U.S. general risk-based capital rules. The Basel III Capital Rules revised the definitions and the components of regulatory capital, as well as addressed other issues affecting the numerator in banking institutions’ regulatory capital ratios.  The Basel III Capital Rules also addressed asset risk weights and other matters affecting the denominator in banking institutions’ regulatory capital ratios and replaced the existing general risk-weighting approach, which was derived from the Basel Committee’s 1988 “Basel I” capital accords, with a more risk-sensitive approach based, in part, on the “standardized approach” in the Basel Committee’s 2004 “Basel II” capital accords. In addition, the Basel III Capital Rules implemented certain provisions of the Dodd-Frank Act, including the requirements of Section 939A to remove references to credit ratings from the federal agencies’ rules. The Basel III Capital Rulesthat became effective for us and the Bank on January 1, 2015, subject to phase-in periods for certain of their componentsrequirements and other provisions. 

Pursuant toprovisions of the Basel III Capital Rules, the Company and Bank, respectively, are subject to new regulatory capital adequacy requirements promulgated by the Federal Reserve and the OCC. Failure by our Company or Bank to meet minimum capital requirements could result in certain mandatory and discretionary actions by our regulators that could have a material adverse effect on our consolidated financial statements. Prior to January 1, 2015, our Bank was subject to capital requirements under Basel I and there were no capital requirements for our Company.Rules. Under the capital requirementsCapital Rules and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors.



Quantitative measures established by regulation to ensure capital adequacyThe Capital Rules require the Company and the Bank to maintain minimum ratios (set forth in the table below) of total risk-based capital and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and a leverage ratio consisting of Tier 1 capital (as defined) to average assets (as defined). At September 30, 2017, both2022, the BankCompany and the CompanyBank exceeded federal regulatory minimum capital requirements to be classified as well-capitalized under the prompt corrective action requirements. The Company and the Bank tookmade the accumulated other comprehensive income (“AOCI”) opt-out election; under the rule, non-advanced approach banking organizations were given a one-time option to exclude certain AOCI components. 

The tabletables below includesinclude certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analyses and has included this non-GAAP financial information, and the corresponding reconciliation to total equity.

 CompanyBankMinimum
to be Adequately Capitalized Under Prompt Corrective Action Provisions		Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
At September 30, 2022
Tier 1 leverage capital ratio8.10 %8.19 %4.00 %5.00 %
Common equity Tier 1 capital ratio12.07 12.55 4.50 6.50 
Tier 1 capital ratio12.39 12.55 6.00 8.00 
Total capital ratio13.88 13.57 8.00 10.00 
At September 30, 2021    
Tier 1 leverage capital ratio7.67 %8.69 %4.00 %5.00 %
Common equity Tier 1 capital ratio12.12 14.11 4.50 6.50 
Tier 1 capital ratio12.46 14.13 6.00 8.00 
Total capital ratio15.45 15.38 8.00 10.00 

118
Table of Contents
 Company Bank 
Minimum
Requirement For
Capital Adequacy
Purposes
 
Minimum Requirement
To Be Well Capitalized
Under Prompt
Corrective Action
Provisions
        
September 30, 2017       
        
Tier 1 leverage ratio7.64% 9.64% 4.00% 5.00%
Common equity Tier 1 capital ratio13.97
 18.22
 4.50
 6.50
Tier 1 capital ratio14.46
 18.22
 6.00
 8.00
Total qualifying capital ratio18.41
 18.59
 8.00
 10.00
        
September 30, 2016 
  
  
  
        
Tier 1 leverage ratio8.35% 10.35% 4.00% 5.00%
Common equity Tier 1 capital ratio17.28
 21.95
 4.50
 6.50
Tier 1 capital ratio17.82
 21.95
 6.00
 8.00
Total qualifying capital ratio23.17
 22.35
 8.00
 10.00

The following table provides a reconciliation of the amounts included in the table above for the Company.
(Dollars in thousands)
Standardized Approach(1)
September 30, 2022
Total stockholders' equity$645,140 
Adjustments:
LESS: Goodwill, net of associated deferred tax liabilities299,186 
LESS: Certain other intangible assets26,406 
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards17,968 
LESS: Net unrealized gains (losses) on available for sale securities(211,600)
LESS: Noncontrolling interest(30)
ADD: Adoption of Accounting Standards Update 2016-132,689 
Common Equity Tier 1(1)
515,899 
Long-term borrowings and other instruments qualifying as Tier 113,661 
Tier 1 minority interest not included in common equity Tier 1 capital(20)
Total Tier 1 capital529,540 
Allowance for credit losses43,623 
Subordinated debentures, net of issuance costs20,000 
Total capital$593,163 
 
Standardized Approach (1)
September 30, 2017
 (Dollars in Thousands)
  
Total equity$434,496
Adjustments: 
LESS: Goodwill, net of associated deferred tax liabilities95,332
LESS: Certain other intangible assets41,743
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards1,495
LESS: Net unrealized gains (losses) on available-for-sale securities9,166
Common Equity Tier 1 (1)
286,760
Long-term debt and other instruments qualifying as Tier 110,310
LESS: Additional tier 1 capital deductions374
Total Tier 1 capital296,696
Allowance for loan losses7,718
Subordinated debentures (net of issuance costs)73,347
Total qualifying capital377,761

(1) TheCapital ratios were determined using the Basel III Capital Rulescapital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum CET1 ratio.  Thosecommon equity tier 1 capital ratio; those changes became effective for the Company on January 1, 2015, and are being fully phased in through the end of 2021.

The capital ratios were determined usingfollowing table provides a reconciliation of tangible common equity and tangible common equity excluding AOCI, each of which is used in calculating tangible book value data, to total stockholders' equity. Each of tangible common equity and tangible common equity excluding AOCI is a non-GAAP financial measure that is commonly used within the Basel III Capital Rules that became effective on January 1, 2015.banking industry.

(Dollars in thousands)At September 30, 2022
Total stockholders' equity$645,140 
LESS: Goodwill309,505 
LESS: Intangible assets25,691 
Tangible common equity309,944 
LESS: AOCI(213,080)
Tangible common equity excluding AOCI$523,024 
Beginning
Since January 1, 2016, Basel III implemented a requirement for all banking organizationsthe Company and the Bank have been required to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of Common Equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. On January 1, 2016, the Company and Bank were expected to comply with the capital conservation buffer requirement, which increased the three risk-based capital ratios by 0.625% each year through 2019, at which point theThe required Common Equity Tier 1 risk-based, Tier 1 risk-based and total risk-based capital ratios will bewith the buffer are currently 7.0%, 8.5% and 10.5%, respectively.



NOTE 14.  COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank makes various commitments to extend credit which are not reflected in the accompanying consolidated financial statements.
At September 30, 2017Based on current and 2016, unfunded loan commitments approximated $233.2 millionexpected continued profitability and $182.9 million, respectively, excluding undisbursed portions of loans in process. Commitments, which are disbursed subject to certain limitations, extend over various periods of time.  Generally, unused commitments are cancelled upon expiration of the commitment term as outlined in each individual contract.
The Company had no commitmentscontinued access to purchase or sell securities at September 30, 2017 or September 30, 2016.
The exposure to credit loss in the event of non-performance by other parties to financial instruments for commitments to extend credit is represented by the contractual amount of those instruments.  The same credit policies and collateral requirements are used in making commitments and conditional obligations as are used for on-balance-sheet instruments. Management monitors several factors when estimating its allowance for uncollectible off-balance-sheet credit exposures, including, but not limited to, economic developments and historical loss rates.
Since certain commitments to make loans and to fund lines of credit expire without being used, the amount does not necessarily represent future cash commitments.  In addition, commitments used to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
Securities with fair values of approximately $5.7 million and $5.8 million at September 30, 2017 and 2016, respectively, were pledged as collateral for public funds on deposit.  Securities with fair values of approximately $3.8 million and $3.4 million at September 30, 2017, and 2016, respectively, were pledged as collateral for individual, trust and estate deposits.

Legal Proceedings
The Bank was served on April 15, 2013, with a lawsuit captioned Inter National Bank v. NetSpend Corporation, MetaBank, BDO USA, LLP d/b/a BDO Seidman, Cause No. C-2084-12-I filed in the District Court of Hidalgo County, Texas. The Plaintiff’s Second Amended Original Petition and Application for Temporary Restraining Order and Temporary Injunction adds both MetaBank and BDO Seidman to the original causes of action against NetSpend. NetSpend acts as a prepaid card program manager and processor for both INB and MetaBank. According to the Petition, NetSpend has informed Inter National Bank (“INB”)capital markets, we believe that the depository accounts at INB for the NetSpend program supposedly contained $10.5 million less than they should. INB alleges that NetSpend has breached its fiduciary duty by making affirmative misrepresentations to INB about the safety and stability of the program, and by failing to timely disclose the nature and extent of any alleged shortfall in settlement of funds related to cardholder activity and the nature and extent of NetSpend’s systemic deficiencies in its accounting and settlement processing procedures. To the extent that an accounting reveals that there is an actual shortfall, INB alleges that MetaBank may be liable for portions or all of said sum due to the fact that funds have been transferred from INB to MetaBank, and thus MetaBank would have been unjustly enriched. The Bank is vigorously contesting this matter. In January 2014, NetSpend was granted summary judgment in this matter which is under appeal. Because the theory of liability against both NetSpendCompany and the Bank will continue to meet the capital conservation buffer of 2.5% in addition to required minimum capital ratios.

NOTE 16. REVENUE FROM CONTRACTS WITH CUSTOMERS

Topic 606 applies to all contracts with customers unless such revenue is specifically addressed under existing guidance. The table below presents the same, the Bank views the NetSpend summary judgment as a positive in support of our position.  An estimate of a range of reasonably possible loss cannot be made at this stageCompany’s revenue by operating segment. For additional descriptions of the litigation because discovery is still being conducted.


The Bank was served on October 14, 2016, with a lawsuit captioned Card Limited, LLC v. MetaBank dba Meta Payment Systems, Civil No. 2:16-cv-00980 inCompany’s operating segments, including additional financial information and the United States District Court for the District of Utah. This action was initiated by former prepaid program manager of the Bank, which was terminated by the Bank in fiscal year 2016. Card Limited alleges that after all of the programs have been wound down, there are two accounts with a positive balance to which they are entitled. The Bank’s position is that Card Limited is not entitledunderlying management accounting process, see Note 17. Segment Reporting to the funds containedConsolidated Financial Statements.
119
Table of Contents
(Dollars in thousands)ConsumerCommercialCorporate Services/OtherConsolidated Company
Fiscal Year Ended September 30,20222021202220212022202120222021
Net interest income(1)
$98,366 $91,489 $187,209 $173,969 $21,749 $13,533 $307,324 $278,991 
Noninterest income:
Refund transfer product fees39,809 37,967 — — — — 39,809 37,967 
Refund advance fee income(1)
40,557 47,639 — — — — 40,557 47,639 
Payment card and deposit fees104,684 107,182 — — — — 104,684 107,182 
Other bank and deposit fees— — 1,020 917 29 22 1,049 939 
Rental income(1)
— 18 46,023 39,398 535 — 46,558 39,416 
Gain (loss) on sale of securities(1)
— — — — (1,287)6 (1,287)6 
Gain on trademarks(1)
— — — — 50,000 — 50,000 — 
Gain (loss) on sale of other(1)
— — 8,782 12,622 (13,702)(1,107)(4,920)11,515 
Other income(1)
4,202 2,902 12,587 8,876 568 14,462 17,357 26,240 
Total noninterest income189,252 195,708 68,412 61,813 36,143 13,383 293,807 270,904 
Revenue$287,618 $287,197 $255,621 $235,782 $57,892 $26,916 $601,131 $549,895 
(1) These revenues are not within the scope of Topic 606. Additional details are included in said accounts. The total amount to which Card Limited claims it is entitled is $4,001,025. The Bank intends to vigorously defend this claim. An estimate of a range of reasonably possible loss cannot be made at this stage of the litigation because discovery is still being conducted.

Other than the matters set forth above and litigation routineother footnotes to the Company's or its subsidiaries' respective businesses, there are no other new material pending legal proceedings or updates to which the Company or its subsidiaries is a party.

NOTE 15.  LEASE COMMITMENTS
The Company has leased property under various non-cancelable operating lease agreements which expire at various times through 2036, and require annual rentals ranging from $12,000 to $789,000 plus the payment of the property taxes, normal maintenance, and insurance on certain properties. The Company also entered into capital lease agreements during the fiscal year ended September 30, 2015, for building and equipment expiring at various times through fiscal year 2035. Amortization expense for these capital leases was $0.1 million for the fiscal year ended September 30, 2017, and included in interest expense.

In November 2014, the Company entered into a sale-leaseback transaction for one of its retail bank locations in the Des Moines area.  This lease meets the requirements of a capital lease and has been reflected as such in theaccompanying financial statements. The original termscope of Topic 606 explicitly excludes net interest income as well as many other revenues for financial assets and liabilities, including loans, leases, and securities.

Following is a discussion of key revenues within the scope of Topic 606. The Company provides services to customers that have related performance obligations that must be completed to recognize revenue. Revenues are generally recognized immediately upon the completion of the lease is 20 yearsservice or over time as services are performed. Any services performed over time generally require that the Company renders services each period; therefore, the Company measures progress in completing these services based upon the passage of time. Revenue from contracts with customers did not generate significant contract assets and does not contain any penalties for failureliabilities.

Refund Transfer Product Fees. Refund transfer fees are specific to renewthe Tax Services division and reflect product fees offered by the Company through third-party tax preparers and tax preparation software providers where the Company acts as the partnering financial institution. A refund transfer allows a taxpayer to pay tax preparation and filing fees directly from their federal or state government tax refund, with the remainder of the refund being disbursed in accordance with the terms and conditions of the taxpayer agreement, which may include satisfaction of other disbursement obligations before going directly to the taxpayer via check, direct deposit, or prepaid card. Refund transfer fees are recognized by the Company immediately after the initial 20 year term where guaranteestaxpayer's refund has been disbursed in accordance with the contract and is based on standalone pricing included within the terms and conditions. Certain expenses to tax preparation software providers are netted with refund transfer fee income as the Company is considered the agent in these contractual relationships. All refund transfer fees are recorded within the Consumer reporting segment.

Card Fees. Card fees relate to Payments and Tax Services divisions and consists of income from prepaid cards and merchant services, including interchange fees from prepaid cards processed through card association networks, merchant services and other card related services. Interchange rates are generally set by card association networks based on transaction volume and other factors. Since interchange fees are generated by cardholder activity, the Company recognizes the income as transactions occur. Fee income for merchant services and other card related services reflect account management and transaction fees charged to merchants for processing card association network transactions. The associated income is recognized as transactions occur or loans fromas services are performed. For the lessee toCompany's internally managed prepaid card programs, fees are based on standalone pricing within the lessor are expected to be outstanding.terms and conditions of the cardholder agreement. The Company hasis considered the option to extendprincipal of these relationships resulting in all fee income being presented on a gross basis within the lease for four additional five yearConsolidated Statement of Operations. For the Company's sponsorship prepaid card programs where a third-party is considered the Program Manager, the fees are based on standalone pricing within the terms at the conclusionand conditions of the original lease term.Program Agreement. For these relationships, the Company is considered the agent and certain expenses with the Program Manager, networks and associations are netted with card fee revenue. All card fee income is included in the Consumer reporting segment.


The following table showsBank and Deposit Fees. Bank and deposit fees relate to Payments and Commercial Finance divisions and consist of income from banking and deposit-related services, including account services, overdraft protection, and wire transfers. Fee income for account services is recognized over the total minimum rental commitment for our operating and capital leases for eachcourse of the years presented belowmonth as the performance obligation is satisfied. Fee income for overdraft protection and wire transfers is recognized point in time when such event occurs. For Payments, the fees for account services and overdraft protection are based on standalone pricing within the terms and conditions of September 30, 2017.

the Program Agreement with the sponsorship partner. For these relationships, the
120
Table of Contents
 Year Ended September 30,
 (Dollars in Thousands)
 
Operating
Leases
 
Capital
Leases
2018$2,486
 $179
20192,287
 179
20202,289
 182
20212,143
 182
20221,882
 182
Thereafter17,922
 2,240
Total Leases Commitments$29,009
 $3,144
    
Amounts representing interest 
 $1,206
Present value of net minimum lease payments 
 1,938


NOTE 16.  SEGMENT REPORTING
An operating segmentCompany is generally defined as a componentconsidered the agent and certain expenses with the partner are netted with deposit fee revenue. For Commercial Finance, fees for wire transfers are based on standalone pricing within the terms and conditions of a businessthe customer deposit agreement. Bank and deposit fees for which discrete financial information is availablethe Payments and whose results are reviewed by the chief operating decision-maker. Operating segments are aggregated into reportable segments if certain criteria are met.

The Company reports its results of operations through the following three business segments: Payments, Banking, and Corporate Services/Other. Certain shared services, including the investment portfolio, wholesale deposits and borrowings,Commercial Finance divisions are included in Corporate Services/Other. Specialty Lendingthe Consumer and Retail Bank are reported in the Banking segment. MPS, Refund Advantage, EPS, SCS, and other tax businesses are reported in the Payments segment.Commercial reporting segments, respectively.



The Company reclassified goodwill, intangibles, and related amortization expenses during fiscal year 2017 from the Corporate Services / Other segment to Payments and Banking based on how annual impairment testing is performed. Prior period amounts have also been reclassified to conform to the current year presentation.
 Payments Banking Corporate Services/Other Total
Year Ended September 30, 2017       
Interest income$13,845
 $52,231
 $42,027
 $108,103
Interest expense503
 2,723
 11,647
 14,873
Net interest income13,342
 49,508
 30,380
 93,230
Provision for loan losses7,613
 2,976
 —
 10,589
Non-interest income165,707
 4,685
 1,780
 172,172
Non-interest expense132,984
 24,520
 42,159
 199,663
Income (loss) before income tax expense (benefit)38,452
 26,697
 (9,999) 55,150
        
Total assets185,521
 1,343,968
 3,698,843
 5,228,332
Total goodwill87,145
 11,578
 —
 98,723
Total deposits2,436,893
 229,969
 556,562
 3,223,424
 Payments Banking Corporate Services/Other Total
Year Ended September 30, 2016       
Interest income$9,711
 $38,321
 $33,364
 $81,396
Interest expense181
 1,331
 2,579
 4,091
Net interest income9,530
 36,990
 30,785
 77,305
Provision for loan losses971
 3,634
 —
 4,605
Non-interest income95,261
 4,280
 1,229
 100,770
Non-interest expense77,411
 23,001
 34,236
 134,648
Income (loss) before income tax expense (benefit)26,409
 14,635
 (2,222) 38,822
        
Total assets87,311
 946,420
 2,972,688
 4,006,419
Total goodwill25,350
 11,578
 —
 36,928
Total deposits2,131,042
 299,030
 10
 2,430,082

 Payments Banking Corporate Services/Other Total
Year Ended September 30, 2015       
Interest income$7,261
 $31,394
 $22,952
 $61,607
Interest expense169
 1,377
 841
 2,387
Net interest income7,092
 30,017
 22,111
 59,220
Provision for loan losses—
 689
 776
 1,465
Non-interest income54,417
 3,358
 399
 58,174
Non-interest expense47,731
 19,028
 29,747
 96,506
Income (loss) before income tax expense (benefit)13,778
 13,658
 (8,013) 19,423
        
Total assets93,336
 724,834
 1,711,535
 2,529,705
Total goodwill25,350
 11,578
 —
 36,928
Total deposits1,424,304
 233,235
 (5) 1,657,534


NOTE 17.  SEGMENT REPORTING
An operating segment is generally defined as a component of a business for which discrete financial information is available and whose results are reviewed by the chief operating decision-maker. Operating segments are aggregated into reportable segments if certain criteria are met.
The Company reports its results of operations through the following three business segments: Consumer, Commercial, and Corporate Services/Other. The BaaS business line is reported in the Consumer segment. The Commercial Finance business line is reported in the Commercial segment. The Corporate Services/Other segment includes certain shared services as well as treasury related functions such as the investment portfolio, warehouse finance, wholesale deposits and borrowings.

The following tables present segment data for the Company:
Fiscal Year Ended September 30, 2022
(Dollars in thousands)ConsumerCommercialCorporate Services/OtherTotal
Net interest income$98,366 $187,209 $21,749 $307,324 
Provision (reversal of) for credit losses30,680 14,674 (16,816)28,538 
Noninterest income189,252 68,412 36,143 293,807 
Noninterest expense99,589 128,904 156,782 385,275 
Income (loss) before income tax expense157,349 112,043 (82,074)187,318 
Total assets356,994 3,487,461 2,902,955 6,747,410 
Total goodwill87,145 222,360 — 309,505 
Total deposits5,695,776 8,965 161,296 5,866,037 

Fiscal Year Ended September 30, 2021
(Dollars in thousands)ConsumerCommercialCorporate Services/OtherTotal
Net interest income$91,489 $173,969 $13,533 $278,991 
Provision (reversal of) for credit losses35,765 19,791 (5,790)49,766 
Noninterest income195,708 61,813 13,383 270,904 
Noninterest expense90,792 114,925 137,966 343,683 
Income (loss) before income tax expense160,640 101,066 (105,260)156,446 
Total assets354,441 3,208,889 3,127,320 6,690,650 
Total goodwill87,145 222,360 — 309,505 
Total deposits5,342,192 6,625 166,154 5,514,971 

121
Table of Contents
Fiscal Year Ended September 30, 2020
(Dollars in thousands)ConsumerCommercialCorporate Services/OtherTotal
Net interest income$92,362 $151,649 $15,027 $259,038 
Provision for loan and lease losses21,807 29,296 13,673 64,776 
Noninterest income158,284 60,151 21,359 239,794 
Noninterest expense76,533 107,790 134,728 319,051 
Income (loss) before income tax expense152,306 74,714 (112,015)115,005 
Total assets276,998 2,854,088 2,960,988 6,092,074 
Total goodwill87,145 222,360 — 309,505 
Total deposits4,555,999 6,226 416,975 4,979,200 

NOTE 18.  PARENT COMPANY FINANCIAL STATEMENTS
 
Presented below are the condensed financial statements for the parent company, Meta Financial, at the dates and for the years presented below.Pathward Financial.
 
CONDENSED STATEMENTS OF FINANCIAL CONDITION
Condensed Statements of Financial Condition
(Dollars in thousands)September 30, 2022September 30, 2021
ASSETS
Cash and cash equivalents$13,117 $3,296 
Investment securities held to maturity, at cost8,003 4,623 
Investment in subsidiaries665,172 956,584 
Other assets928 278 
Total assets$687,220 $964,781 
LIABILITIES AND STOCKHOLDERS' EQUITY  
LIABILITIES  
Subordinated debentures$33,661 $87,641 
Other liabilities8,419 5,256 
Total liabilities42,080 92,897 
STOCKHOLDERS' EQUITY  
Common stock288 317 
Additional paid-in capital617,403 604,484 
Retained earnings245,394 259,189 
Accumulated other comprehensive income (loss)(213,080)7,599 
Treasury stock, at cost(4,835)(860)
Total equity attributable to parent645,170 870,729 
Non-controlling interest(30)1,155 
Total stockholders' equity645,140 871,884 
Total liabilities and stockholders' equity$687,220 $964,781 






122
Table of Contents
Condensed Statements of Operations
Fiscal Years Ended September 30,
(Dollars in thousands)202220212020
Interest expense$3,982 $4,915 $5,168 
Other expense1,062 1,287 1,256 
Total expense5,044 6,202 6,424 
Loss before income taxes and equity in undistributed net income of subsidiaries(5,044)(6,202)(6,424)
Income tax benefit(1,029)395 (3,638)
Loss before equity in undistributed net income of subsidiaries(4,015)(6,597)(2,786)
Equity in undistributed net income of subsidiaries159,652 147,895 107,476 
Other Income749 410 30 
Total Income160,401 148,305 107,506 
Net income attributable to parent$156,386 $141,708 $104,720 
 
123
Table of Contents
September 30,2017 2016
 (Dollars in Thousands)
ASSETS   
Cash and cash equivalents$14,569
 $15,716
Investment in subsidiaries521,021
 403,574
Other assets406
 413
Total assets$535,996
 $419,703
    
LIABILITIES AND STOCKHOLDERS' EQUITY 
  
    
LIABILITIES 
  
Long term debt$83,657
 $83,521
Other liabilities17,843
 1,207
Total liabilities$101,500
 $84,728
    
STOCKHOLDERS' EQUITY 
  
Common stock$96
 $85
Additional paid-in capital258,336
 184,780
Retained earnings167,164
 127,190
Accumulated other comprehensive income9,166
 22,920
Treasury stock, at cost(266) —
Total stockholders' equity$434,496
 $334,975
Total liabilities and stockholders' equity$535,996
 $419,703
Condensed Statements of Cash Flows
Fiscal Year Ended September 30,
(Dollars in thousands)202220212020
Cash flows from operating activities:
Net income attributable to parent$156,386 $141,708 $104,720 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and accretion, net1,020 173 163 
Equity in undistributed net income of subsidiaries(159,652)(147,895)(107,476)
Net change in accrued interest receivable(15)— — 
Net change in other assets(636)3,030 (3,149)
Net change in accrued expenses and other liabilities3,163 (2,698)(2,660)
Cash dividend received229,200 104,000 118,000 
Stock compensation10,004 6,852 10,221 
Net cash provided by operating activities239,470 105,170 119,819 
Cash flows from investing activities:
Alternative investments(3,380)(3,415)(797)
Net cash (used in) investing activities(3,380)(3,415)(797)
Cash flows from financing activities:
Redemption of long-term borrowings(75,000)— — 
Proceeds from long-term borrowings20,000 — — 
Dividends paid on common stock(5,921)(6,400)(7,100)
Issuance of common stock due to exercise of stock options— — 266 
Issuance of common stock due to restricted stock1 — 2 
Issuance of common stock due to ESOP2,886 3,036 3,220 
Repurchases of common stock(168,235)(99,878)(118,738)
Net cash (used in) financing activities(226,269)(103,242)(122,350)
Net change in cash and cash equivalents9,821 (1,487)(3,328)
Cash and cash equivalents at beginning of fiscal year3,296 4,783 8,111 
Cash and cash equivalents at end of fiscal year$13,117 $3,296 $4,783 

CONDENSED STATEMENTS OF OPERATIONS
Years Ended September 30,2017 2016 2015
 (Dollars in Thousands)
Interest expense$4,959
 $1,022
 $418
Other expense440
 382
 269
Total expense5,399
 1,404
 687
      
Gain (loss) before income taxes and equity in undistributed net income of subsidiaries(5,399) (1,404) (687)
      
Income tax (benefit)(1,935) (519) (324)
      
Gain (loss) before equity in undistributed net income of subsidiaries(3,464) (885) (363)
      
Equity in undistributed net income of subsidiaries48,381
 34,105
 18,418
      
Net income$44,917
 $33,220
 $18,055

CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended September 30,2017 2016 2015
 (Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES     
Net income$44,917
 $33,220
 $18,055
Adjustments to reconcile net income to net cash provided by (used in) operating activities 
  
  
Depreciation, amortization and accretion, net136
 (22) —
Equity in undistributed net income of subsidiaries(48,381) (34,105) (18,418)
Stock compensation10,401
 427
 253
Change in other assets7
 (5) (15)
Change in other liabilities16,636
 541
 378
Net cash provided by (used in) operating activities23,716
 56
 253
      
CASH FLOWS FROM INVESTING ACTIVITES 
  
  
Capital contributions to subsidiaries(82,820) (81,000) (67,600)
Net cash used in investing activities(82,820) (81,000) (67,600)
      
CASH FLOWS FROM FINANCING ACTIVITIES 
  
  
Cash dividends paid(4,839) (4,389) (3,493)
Purchase of shares by ESOP1,174
 —
 —
Proceeds from contingent consideration - equity24,142
 —
 —
Proceeds from exercise of stock options & issuance of common stock650
 13,536
 75,681
Issuance of common shares due to acquisition37,296
 —
 —
Issuance of restricted stock4
 —
 —
Proceeds from long term debt—
 75,000
 —
Payment of debt issuance costs—
 (1,767) —
Shares repurchased for tax withholdings on stock compensation(470) —
 —
Other, net—
 —
 —
Net cash provided by financing activities57,957
 82,380
 72,188
      
Net change in cash and cash equivalents$(1,147) $1,436
 $4,841
      
CASH AND CASH EQUIVALENTS 
  
  
Beginning of year$15,716
 $14,280
 $9,439
End of year$14,569
 $15,716
 $14,280


The extent to which the Company may pay cash dividends to stockholders will depend on the cash currently available at the Company, as well as the ability of the Bank to pay dividends to the Company. For further discussion, see Note 1315 herein.


124
Table of Contents
NOTE 18.19.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

 Quarter Ended
(Dollars in thousands, except per share data)December 31March 31June 30September 30
Fiscal Year 2022
Interest and dividend income$72,891 $85,177 $73,906 $80,222 
Interest expense1,278 1,377 1,755 462 
Net interest income71,613 83,800 72,151 79,760 
Provision (reversal of) for credit losses186 32,302 (1,302)(2,648)
Noninterest income86,591 109,766 53,994 43,456 
Net income attributable to parent61,324 49,251 22,391 23,420 
Earnings per common share    
Basic$2.00 $1.66 $0.76 $0.81 
Diluted2.00 1.66 0.76 0.81 
Dividend declared per share0.05 0.05 0.05 0.05 
Fiscal Year 2021    
Interest and dividend income$68,146 $75,669 $69,983 $72,056 
Interest expense2,147 1,819 1,508 1,389 
Net interest income65,999 73,850 68,475 70,667 
Provision for loan and lease losses6,089 30,290 4,612 8,775 
Noninterest income45,455 113,453 62,453 49,542 
Net income attributable to parent28,037 59,066 38,701 15,903 
Earnings per common share    
Basic$0.84 $1.84 $1.21 $0.50 
Diluted0.84 1.84 1.21 0.50 
Dividend declared per share0.05 0.05 0.05 0.05 
Fiscal Year 2020    
Interest and dividend income$77,625 $79,403 $67,406 $68,407 
Interest expense12,974 11,666 5,269 3,894 
Net interest income64,651 67,737 62,137 64,513 
Provision for loan and lease losses3,407 37,296 15,093 8,980 
Noninterest income37,483 120,513 41,048 40,750 
Net income attributable to parent21,068 52,304 18,190 13,158 
Earnings per common share    
Basic$0.56 $1.45 $0.53 $0.38 
Diluted0.56 1.45 0.53 0.38 
Dividend declared per share0.05 0.05 0.05 0.05 






125
 QUARTER ENDED
 December 31 March 31 June 30 September 30
 (Dollars in Thousands)
Fiscal Year 2017       
Interest income$22,575
 $27,718
 $28,861
 $28,949
Interest expense2,742
 3,752
 3,918
 4,461
Net interest income19,833
 23,966
 24,943
 24,488
Provision (recovery) for loan losses843
 8,649
 1,240
 (144)
Net Income1,244
 32,142
 9,787
 1,744
Earnings per common and common equivalent share 
  
  
  
Basic$0.14
 $3.44
 $1.05
 $0.19
Diluted0.14
 3.42
 1.04
 0.19
Dividend declared per share0.13
 0.13
 0.13
 0.13
        
Fiscal Year 2016 
  
  
  
Interest income$18,275
 $20,629
 $20,763
 $21,729
Interest expense720
 691
 844
 1,836
Net interest income17,555
 19,938
 19,919
 19,893
Provision for loan losses786
 1,173
 2,098
 548
Net Income4,058
 14,283
 8,873
 6,006
Earnings per common and common equivalent share 
  
  
  
Basic$0.49
 $1.68
 $1.04
 $0.70
Diluted0.49
 1.67
 1.04
 0.70
Dividend declared per share0.13
 0.13
 0.13
 0.13
        
Fiscal Year 2015 
  
  
  
Interest income$14,232
 $15,758
 $15,254
 $16,363
Interest expense661
 473
 593
 660
Net interest income13,571
 15,285
 14,661
 15,703
Provision for loan losses48
 593
 700
 124
Net Income3,595
 5,181
 4,640
 4,639
Earnings per common and common equivalent share 
  
  
  
Basic$0.58
 $0.79
 $0.67
 $0.64
Diluted0.58
 0.78
 0.66
 0.63
Dividend declared per share0.13
 0.13
 0.13
 0.13

NOTE 19.  FAIR VALUES OF FINANCIAL INSTRUMENTS
Accounting Standards Codification (“ASC”) 820, Fair Value Measurements defines fair value, establishes a framework for measuring the fair valueTable of assets and liabilities using a hierarchy system and requires disclosures about fair value measurement.  It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.
The fair value hierarchy is as follows:
Level 1 Inputs – Valuation is based upon quoted prices for identical instruments traded in active markets that the Company has the ability to access at measurement date.

Level 2 Inputs – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which significant assumptions are observable in the market.
Level 3 Inputs – Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available.  These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability.  Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
There were no transfers between levels of the fair value hierarchy for the years ended September 30, 2017 or 2016.
Securities Available for Sale and Held to Maturity.  Securities available for sale are recorded at fair value on a recurring basis and securities held to maturity are carried at amortized cost.  Fair value measurement is based upon quoted prices, if available.  If quoted prices are not available, fair values are measured using an independent pricing service.  For both Level 1 and Level 2 securities, management uses various methods and techniques to corroborate prices obtained from the pricing service, including but not limited to reference to dealer or other market quotes, and by reviewing valuations of comparable instruments.  The Company’s Level 1 securities include equity securities and mutual funds.  The Company’s Level 2 securities include U.S. Government agency and instrumentality securities, U.S. Government agency and instrumentality mortgage-backed securities, municipal bonds, corporate debt securities and trust preferred securities.  The Company had no Level 3 securities at September 30, 2017, or 2016.
The fair values of securities are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), or valuation based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model‑based valuation techniques for which significant assumptions are observable in the market (Level 2 inputs).  The Company considers these valuations supplied by a third-party provider which utilizes several sources for valuing fixed-income securities.  These sources include Interactive Data Corporation, Reuters, Standard and Poor’s, Bloomberg Financial Markets, Street Software Technology and the third‑party provider’s own matrix and desk pricing.  The Company, no less than annually, reviews the third party’s methods and source’s methodology for reasonableness and to ensure an understanding of inputs utilized in determining fair value.  Sources utilized by the third-party provider include but are not limited to pricing models that vary based on asset class and include available trade, bid, and other market information.  This methodology includes but is not limited to broker quotes, proprietary models, descriptive terms and conditions databases, as well as extensive quality control programs. Monthly, the Company receives and compares prices provided by multiple securities dealers and pricing providers to validate the accuracy and reasonableness of prices received from the third-party provider. On a monthly basis, the Investment Committee reviews mark-to-market changes in the securities portfolio for reasonableness.

The following table summarizes the fair values of securities available for sale and held to maturity at September 30, 2017 and 2016.  Securities available for sale are measured at fair value on a recurring basis, while securities held to maturity are carried at amortized cost in the consolidated statements of financial condition.
Contents
 Fair Value At September 30, 2017
 Available For Sale Held to Maturity
(Dollars in Thousands)Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Debt securities               
Small business administration securities57,871
 —
 57,871
 —
 —
 —
 —
 —
Obligations of states and political subdivisions—
 —
 —
 —
 19,368
 —
 19,368
 —
Non-bank qualified obligations of states and political subdivisions950,829
 —
 950,829
 —
 432,361
 —
 432,361
 —
Asset-backed securities96,832
 —
 96,832
 —
 —
 —
 —
 —
Mortgage-backed securities586,454
 —
 586,454
 —
 112,456
 —
 112,456
 —
Total debt securities1,691,986
 —
 1,691,986
 —
 564,185
 —
 564,185
 —
Common equities and mutual funds1,445
 1,445
 —
 —
 —
 —
 —
 —
Total securities$1,693,431
 $1,445
 $1,691,986
 $—
 $564,185
 $—
 $564,185
 $—


 Fair Value At September 30, 2016
 Available For Sale Held to Maturity
(Dollars in Thousands)Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
Debt securities               
Trust preferred and corporate securities$12,978
 $—
 $12,978
 $—
 $—
 $—
 $—
 $—
Small business administration securities80,719
 —
 80,719
 —
 —
 —
 —
 —
Obligations of states and political subdivisions—
 —
 —
 —
 20,937
 —
 20,937
 —
Non-bank qualified obligations of states and political subdivisions698,672
 —
 698,672
 —
 477,202
 —
 477,202
 —
Asset-backed securities116,815
 —
 116,815
 —
 —
 —
 —
 —
Mortgage-backed securities558,940
 —
 558,940
 —
 134,435
 —
 134,435
 —
Total debt securities1,468,124
 —
 1,468,124
 —
 632,574
 —
 632,574
 —
Common equities and mutual funds1,125
 1,125
 —
 —
 —
 —
 —
 —
Total securities$1,469,249
 $1,125
 $1,468,124
 $—
 $632,574
 $—
 $632,574
 $—

Foreclosed Real Estate and Repossessed Assets.  Real estate properties and repossessed assets are initially recorded at the fair value less selling costs at the date of foreclosure, establishing a new cost basis.  The carrying amount represents the lower of the new cost basis or the fair value less selling costs of foreclosed assets that were measured at fair value subsequent to their initial classification as foreclosed assets.
Loans.  The Company does not record loans at fair value on a recurring basis.  However, if a loan is considered impaired, an allowance for loan losses is established.  Once a loan is identified as individually impaired, management measures impairment in accordance with ASC 310, Receivables.
The following table summarizes the assets of the Company that are measured at fair value in the consolidated statements of financial condition on a non-recurring basis as of September 30, 2017 and 2016.
 Fair Value at September 30, 2017
(Dollars in Thousands)Total Level 1 Level 2 Level 3
Impaired Loans, net       
Foreclosed Assets, net292
 —
 —
 292
Total$292
 $—
 $—
 $292

 Fair Value At September 30, 2016
(Dollars in Thousands)Total Level 1 Level 2 Level 3
Impaired Loans, net       
1-4 family real estate$68
 $—
 $—
 $68
Total68
 —
 —
 68
Foreclosed Assets, net76
 —
 —
 76
Total$144
 $—
 $—
 $144



 Quantitative Information About Level 3 Fair Value Measurements
(Dollars in Thousands)
Fair Value at
September 30, 2017
 
Fair Value at
September 30, 2016
 
Valuation
Technique
 
Unobservable
Input
Impaired Loans, net$—
 $68
 Market approach 
Appraised values (1)
Foreclosed Assets, net292
 76
 Market approach 
Appraised values (1)

(1)
The Company generally relies on external appraisers to develop this information.  Management reduced the appraised value by estimated selling costs in a range of 4% to 10%.

The following tables disclose the Company’s estimated fair value amounts of its financial instruments at the dates provided.  It is management’s belief that the fair values presented below are reasonable based on the valuation techniques and data available to the Company as of September 30, 2017 and 2016, as more fully described below.  The operations of the Company are managed from a going concern basis and not a liquidation basis.  As a result, the ultimate value realized for the financial instruments presented could be substantially different when actually recognized over time through the normal course of operations.  Additionally, a substantial portion of the Company’s inherent value is the Bank’s capitalization and franchise value.  Neither of these components have been given consideration in the presentation of fair values below.


The following presents the carrying amount and estimated fair value of the financial instruments held by the Company at September 30, 2017 and 2016.

 September 30, 2017
 
Carrying
Amount
 
Estimated
Fair Value
 Level 1 Level 2 Level 3
 (Dollars in Thousands)
Financial assets         
Cash and cash equivalents$1,267,586
 $1,267,586
 $1,267,586
 $—
 $—
          
Securities available for sale1,693,431
 1,693,431
 1,445
 1,691,986
 —
Securities held to maturity563,529
 564,185
 —
 564,185
 —
Total securities2,256,960
 2,257,616
 1,445
 2,256,171
 —
          
Loans receivable: 
  
  
  
  
One to four family residential mortgage loans196,706
 196,970
 —
 —
 196,970
Commercial and multi-family real estate loans585,510
 576,330
 —
 —
 576,330
Agricultural real estate loans61,800
 61,584
 —
 —
 61,584
Consumer loans163,004
 163,961
 —
 —
 163,961
Commercial operating loans35,759
 35,723
 —
 —
 35,723
Agricultural operating loans33,594
 32,870
 —
 —
 32,870
Premium finance loans250,459
 250,964
 —
 —
 250,964
Total loans receivable1,326,832
 1,318,402
 —
 —
 1,318,402
          
Federal Home Loan Bank stock61,123
 61,123
 —
 61,123
 —
Accrued interest receivable19,380
 19,380
 19,380
 —
 —
          
Financial liabilities 
  
  
  
  
Non-interest bearing demand deposits2,454,057
 2,454,057
 2,454,057
 —
 —
Interest bearing demand deposits, savings, and money markets169,557
 169,557
 169,557
 —
 —
Certificates of deposit123,637
 123,094
 —
 123,094
 —
Wholesale non-maturing deposits18,245
 18,245
 18,245
 —
 —
Wholesale certificates of deposits457,928
 457,509
 —
 457,509
 —
Total deposits3,223,424
 3,222,462
 2,641,859
 580,603
 —
          
Advances from Federal Home Loan Bank415,000
 415,003
 —
 415,003
 —
Federal funds purchased987,000
 987,000
 987,000
 —
 —
Securities sold under agreements to repurchase2,472
 2,472
 —
 2,472
 —
Capital leases1,938
 1,938
 —
 1,938
 —
Trust preferred securities10,310
 10,447
 —
 10,447
 —
Subordinated debentures73,347
 76,500
 —
 76,500
 —
Accrued interest payable2,280
 2,280
 2,280
 —
 —

 September 30, 2016
 
Carrying
Amount
 
Estimated
Fair Value
 Level 1 Level 2 Level 3
 (Dollars in Thousands)
Financial assets         
Cash and cash equivalents$773,830
 $773,830
 $773,830
 $—
 $—
          
Securities available for sale1,469,249
 1,469,249
 1,125
 1,468,124
 —
Securities held to maturity619,853
 632,574
 —
 632,574
 —
Total securities2,089,102
 2,101,823
 1,125
 2,100,698
 —
          
Loans receivable: 
  
  
  
  
One to four family residential mortgage loans162,298
 163,886
 —
 —
 163,886
Commercial and multi-family real estate loans422,932
 422,307
 —
 —
 422,307
Agricultural real estate loans63,612
 63,868
 —
 —
 63,868
Consumer loans37,094
 36,738
 —
 —
 36,738
Commercial operating loans31,271
 31,108
 —
 —
 31,108
Agricultural operating loans37,083
 36,897
 —
 —
 36,897
Premium finance loans171,604
 172,000
 —
 —
 172,000
Total loans receivable925,894
 926,803
 —
 —
 926,803
          
Federal Home Loan Bank stock47,512
 47,512
 —
 47,512
 —
Accrued interest receivable17,199
 17,199
 17,199
 —
 —
          
Financial liabilities 
  
  
  
  
Non-interest bearing demand deposits2,167,522
 2,167,522
 2,167,522
 —
 —
Interest bearing demand deposits, savings, and money markets136,568
 136,568
 136,568
 —
 —
Certificates of deposit125,992
 125,772
 —
 125,772
 —
Total deposits2,430,082
 2,429,862
 2,304,090
 125,772
 —
          
Advances from Federal Home Loan Bank107,000
 108,168
 —
 108,168
 —
Federal funds purchased992,000
 992,000
 992,000
 —
 —
Securities sold under agreements to repurchase3,039
 3,039
 —
 3,039
 —
Capital leases2,018
 2,018
 —
 2,018
 —
Trust preferred10,310
 10,437
 —
 10,437
 —
Subordinated debentures73,211
 77,250
 —
 77,250
 —
Accrued interest payable875
 875
 875
 —
 —

The following sets forth the methods and assumptions used in determining the fair value estimates for the Company’s financial instruments at September 30, 2017 and 2016.


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

LOANS RECEIVABLE, NET
The fair value of loans is estimated using a historical or replacement cost basis concept (i.e., an entrance price concept).  The fair value of loans was estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers and for similar remaining maturities.  When using the discounting method to determine fair value, loans were grouped by homogeneous loans with similar terms and conditions and discounted at a target rate at which similar loans would be made to borrowers at September 30, 2017 and 2016.  In addition, when computing the estimated fair value for all loans, allowances for loan losses have been subtracted from the calculated fair value as a result of the discounted cash flow which approximates the fair value adjustment for the credit quality component.
FHLB STOCK
The fair value of such stock is assumed to approximate book value since the Company is generally able to redeem this stock at par value.
ACCRUED INTEREST RECEIVABLE
The carrying amount of accrued interest receivable is assumed to approximate the fair value.
DEPOSITS
The carrying values of non-interest-bearing checking deposits, interest-bearing checking deposits, savings, money markets, and wholesale non-maturing deposits are assumed to approximate fair value, since such deposits are immediately withdrawable without penalty.  The fair value of time certificates of deposit and wholesale certificates of deposit were estimated by discounting expected future cash flows by the current rates offered on certificates of deposit with similar remaining maturities.
In accordance with ASC 825, Financial Instruments, no value has been assigned to the Company’s long-term relationships with its deposit customers (core value of deposits intangible) since such intangible is not a financial instrument as defined under ASC 825.
ADVANCES FROM FHLB
The fair value of such advances was estimated by discounting the expected future cash flows using current interest rates for advances with similar terms and remaining maturities.
FEDERAL FUNDS PURCHASED
The carrying amount of federal funds purchased is assumed to approximate the fair value.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE, CAPITAL LEASES, SUBORDINATED DEBENTURES AND TRUST PREFERRED SECURITIES
The fair value of these instruments was estimated by discounting the expected future cash flows using derived interest rates approximating market over the contractual maturity of such borrowings.

ACCRUED INTEREST PAYABLE
The carrying amount of accrued interest payable is assumed to approximate the fair value.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument.  Additionally, fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, customer relationships and the value of assets and liabilities that are not considered financial instruments.  These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time.  Furthermore, since no market exists for certain of the Company’s financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with a high level of precision.  Changes in assumptions as well as tax considerations could significantly affect the estimates.  Accordingly, based on the limitations described above, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis.

NOTE 20.  GOODWILL AND INTANGIBLE ASSETSFAIR VALUES OF FINANCIAL INSTRUMENTS
ASC 820, Fair Value Measurements defines fair value, establishes a framework for measuring the fair value of assets and liabilities using a hierarchy system and requires disclosures about fair value measurement. It clarifies that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.
 
The fair value hierarchy is as follows:
Level 1 Inputs - Valuation is based upon quoted prices for identical instruments traded in active markets that the Company had a totalhas the ability to access at measurement date.

Level 2 Inputs - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which significant assumptions are observable in the market.
Level 3 Inputs - Valuation is generated from model-based techniques that use significant assumptions not observable in the market and are used only to the extent that observable inputs are not available. These unobservable assumptions reflect the Company’s own estimates of $98.7 million of goodwill as of September 30, 2017. The recorded goodwill was due to two separate business combinations during fiscal 2015 and two separate business combinations duringassumptions that market participants would use in pricing the first quarter of fiscal 2017. The fiscal 2015 business combinations included $11.6 million of goodwill in connection with the purchase of substantially allasset or liability. 
There were no transfers between levels of the commercial loan portfolio and related assets of AFS/IBEX on December 2, 2014, and $25.4 million in goodwill in connection withfair value hierarchy for the purchase of substantially all of the assets and liabilities of Refund Advantage on September 8, 2015. The fiscal 2017 business combinations included $30.4 million of goodwill in connection with the purchase of substantially all of the assets of EPS on November 1, 2016, and $31.4 million of goodwill in connection with the purchase of substantially all of the assets and specified liabilities of SCS on December 14, 2016. The goodwill associated with these transactions are deductible for tax purposes.
The changes in the carrying amount of the Company’s goodwill and intangible assets for the years ended September 30, 2017 and 2016 are as follows:2022 or 2021.
 
Debt Securities Available for Sale and Held to Maturity. Debt securities available for sale are recorded at fair value on a recurring basis and debt securities held to maturity are carried at amortized cost.
 September 30,
 2017 2016
 (Dollars in Thousands)
Goodwill 
Beginning balance$36,928
 $36,928
Acquisitions during the period61,795
 —
Write-offs during the period—
 —
Ending balance$98,723
 $36,928

The Company completed an annual goodwill impairment testfair values of debt securities available for sale, categorized primarily as Level 2, is recorded using prices obtained from independent asset pricing services that are based on observable transactions, but not quoted markets. Management reviews the fiscal year endedprices obtained from independent asset pricing services for unusual fluctuations and compares to current market trading activity.

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

The following table summarizes the fair values of debt securities available for sale and equity securities as they are measured at fair value on a recurring basis.
 Fair Value At September 30, 2022
(Dollars in thousands)TotalLevel 1Level 2Level 3
Debt securities AFS
Corporate securities$97,768 $— $97,768 — 
SBA securities2,344 — 2,344 — 
Obligations of states and political subdivisions263,783 — 263,783 — 
Non-bank qualified obligations of states and political subdivisions147,790 — 147,790 — 
Asset-backed securities1,348,997 — 1,348,997 — 
Mortgage-backed securities22,187 — 22,187 — 
Total debt securities AFS$1,882,869 $— $1,882,869 $— 
Common equities and mutual funds(1)
$2,874 $2,874 $— $— 
Non-marketable equity securities(2)
$7,212 $— $— $— 
(1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at September 30, 2017. Based2022.
(2) Consists of certain non-marketable equity securities that are measured at fair value using net asset value ("NAV") per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.
126
Table of Contents
 Fair Value At September 30, 2021
(Dollars in thousands)TotalLevel 1Level 2Level 3
Debt securities AFS
Corporate securities$25,000 $— $25,000 $— 
SBA securities157,209 — 157,209 — 
Obligations of states and political subdivisions2,507 — 2,507 — 
Non-bank qualified obligations of states and political subdivisions268,295 — 268,295 — 
Asset-backed securities394,859 — 394,859 — 
Mortgage-backed securities1,017,029 — 1,017,029 — 
Total debt securities AFS$1,864,899 $— $1,864,899 $— 
Common equities and mutual funds(1)
$12,668 $12,668 $— $— 
Non-marketable equity securities(2)
$4,560 $— $— $— 
(1) Equity securities at fair value are included within other assets on the resultsconsolidated statement of financial condition at September 30, 2021.
(2) Consists of certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the qualitative analysis, it was identified that it was more likely thanfair value hierarchy.

Loans and Leases. The Company does not record loans and leases at fair value on a recurring basis. However, if a loan or lease is individually evaluated for risk of credit loss and repayment is expected to be solely provided by the values underlying collateral, the Company measures fair value on a nonrecurring bases. Fair value is determined by the fair value of the goodwill recorded exceededunderlying collateral less estimated costs to sell. The fair value of the current carrying value.collateral is determined based on the internal estimates and/or assessment provided by third-party appraisers and the valuation relies on discount rates ranging from 4% to 35%.
The following table summarizes the assets of the Company that are measured at fair value in the Consolidated Statements of Financial Condition on a non-recurring basis:
 Fair Value At September 30, 2022
(Dollars in thousands)TotalLevel 1Level 2Level 3
Loans and leases, net individually evaluated for credit loss
Commercial finance$1,575 $— $— $1,575 
    Total loans and leases, net individually evaluated
    for credit loss		1,575 — — 1,575 
Foreclosed assets, net1 — — 1 
Total$1,576 $— $— $1,576 

 Fair Value At September 30, 2021
(Dollars in thousands)TotalLevel 1Level 2Level 3
Impaired loans and leases, net
Commercial finance$3,404 $— $— $3,404 
Community banking9,371 — — 9,371 
    Total impaired loans and leases, net12,775 — — 12,775 
Foreclosed assets, net2,077 — — 2,077 
Total$14,852 $— $— $14,852 


127
Table of Contents
Quantitative Information About Level 3 Fair Value Measurements
(Dollars in thousands)Fair Value at September 30, 2022Fair Value at September 30, 2021Valuation
Technique		Unobservable InputRange of Inputs
Loans and leases, net individually evaluated for credit loss$1,575 12,775 Market approach
Appraised values(1)
15% - 59%
Foreclosed assets, net$1 2,077 Market approach
Appraised values(1)
9% - 20%
(1) The Company concludedgenerally relies on external appraisers to develop this information. Management reduced the appraised value by estimated selling costs and other inputs in a quantitative analysis wasrange of 15% to 59%.

Management discloses the estimated fair value amounts of its financial instruments, including assets and liabilities on and off the Consolidated Statements of Financial Condition, for which it is practicable to estimate fair value. These fair values estimates were made at September 30, 2022 and 2021 based on relevant market information and information about financial instruments. Fair value estimates are intended to represent the price at which an asset could be sold or a liability could be settled. However, since there is no active market for certain financial instruments of the Company, the estimates of fair value are subjective in nature, involve uncertainties, and include matters of significant judgment. Changes in assumptions as well as tax considerations could significantly affect the estimated values. Accordingly, the aggregate fair value estimates are not requiredintended to represent the underlying value of the Company, on either a going concern or a liquidation basis.

The following tables present the carrying amount and no impairment existed.estimated fair value of the financial instruments held by the Company:
 At September 30, 2022
(Dollars in thousands)Carrying
Amount		Estimated
Fair Value		Level 1Level 2Level 3
Financial assets
Cash and cash equivalents$388,038 $388,038 $388,038 $— $— 
Debt securities available for sale1,882,869 1,882,869 — 1,882,869 — 
Debt securities held to maturity41,682 38,171 — 38,171 — 
Common equities and mutual funds(1)
2,874 2,874 2,874 — — 
Non-marketable equity securities(1)(2)
22,526 22,526 — 15,314 — 
Loans held for sale21,071 21,071 — 21,071 — 
Loans and leases3,529,280 3,525,803 — — 3,525,803 
Federal Reserve Bank and Federal Home Loan Bank stocks28,812 28,812 — 28,812 — 
Accrued interest receivable17,979 17,979 17,979 — — 
Financial liabilities
Deposits5,866,037 5,865,854 5,858,283 7,571 — 
Other short- and long-term borrowings36,028 35,986 — 35,986 — 
Accrued interest payable192 192 192 — — 
(1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at September 30, 2022.
(2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

128
Table of Contents
 At September 30, 2021
(Dollars in thousands)Carrying
Amount		Estimated
Fair Value		Level 1Level 2Level 3
Financial assets
Cash and cash equivalents$314,019 $314,019 $314,019 $— $— 
Debt securities available for sale1,864,899 1,864,899 — 1,864,899 — 
Debt securities held to maturity56,669 56,391 — 56,391 — 
Common equities and mutual funds(1)
12,668 12,668 12,668 — — 
Non-marketable equity securities(1)(2)
17,509 17,509 — 12,949 — 
Loans held for sale56,194 56,194 — 56,194 — 
Loans and leases3,607,815 3,616,646 — — 3,616,646 
Federal Reserve Bank and Federal Home Loan Bank stocks28,400 28,400 — 28,400 — 
Accrued interest receivable16,254 16,254 16,254 — — 
Financial liabilities
Deposits5,514,971 5,515,035 5,482,471 32,564 — 
Other short- and long-term borrowings92,834 93,938 — 93,938 — 
Accrued interest payable579 579 579 — — 
(1) Equity securities at fair value are included within other assets on the consolidated statement of financial condition at September 30, 2021.
(2) Includes certain non-marketable equity securities that are measured at fair value using NAV per share (or its equivalent) as a practical expedient and are excluded from the fair value hierarchy.

The following sets forth the methods and assumptions used in determining the fair value estimates for the Company’s financial instruments at September 30, 2022 and 2021.
 

 
Trademark (1)
 
Non-Compete (2)
 
Customer Relationships (3)
 
Technology/Other (4)
 Total
Intangibles 
Balance as of September 30, 2016$5,149
 $127
 $20,590
 $3,055
 $28,921
Acquisitions during the period5,500
 2,180
 31,770
 6,947
 46,397
Amortization during the period(598) (525) (10,405) (835) (12,363)
Write-offs during the period—
 —
 (10,248) (529) (10,777)
Balance as of September 30, 2017$10,051
 $1,782
 $31,707
 $8,638
 $52,178
          
Balance upon acquisition$10,990
 $2,480
 $57,810
 $10,502
 $81,782
Accumulated amortization$(939) $(698) $(15,855) $(1,335) $(18,827)
Accumulated impairment$—
 $—
 $(10,248) $(529) $(10,777)
Balance as of September 30, 2017$10,051
 $1,782
 $31,707
 $8,638
 $52,178
(1) Book amortization period of 5-15 years. Amortized using the straight line and accelerated methods.
(2) Book amortization period of 3-5 years. Amortized using the straight line method.
(3) Book amortization period of 10-30 years. Amortized using the accelerated method.
(4) Book amortization period of 3-20 years. Amortized using the straight line method.


 
Trademark (1)
 
Non-Compete (2)
 
Customer Relationships (3)
 
Technology/Other (4)
 Total
Intangibles 
Balance as of September 30, 2015$5,439
 $227
 $24,811
 $3,100
 $33,577
Acquisitions during the period—
 —
 —
 172
 172
Amortization during the period(290) (100) (4,221) (217) (4,828)
Write-offs during the period—
 —
 —
 —
 —
Balance as of September 30, 2016$5,149
 $127
 $20,590
 $3,055
 $28,921
          
Balance upon acquisition$5,490
 $300
 $26,040
 $3,539
 $35,369
Accumulated amortization$(341) $(173) $(5,450) $(484) $(6,448)
Balance as of September 30, 2016$5,149
 $127
 $20,590
 $3,055
 $28,921
(1) Book amortization period of 15 years. Amortized using the straight line and accelerated methods.
(2) Book amortization period of 3 years. Amortized using the straight line method.
(3) Book amortization period of 10-30 years. Amortized using the accelerated method.
(4) Book amortization period of 3-20 years. Amortized using the straight line method.

CASH AND CASH EQUIVALENTS
The Company tests intangible assetscarrying amount of cash and short-term investments is assumed to approximate the fair value.
DEBT SECURITIES AVAILABLE FOR SALE AND EQUITY SECURITIES
Fair values for impairmentdebt securities available for sale are based on quoted prices of similar securities on nationally recognized securities exchanges, or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities. Fair values for marketable equity securities are based on unadjusted quoted prices from active markets in which the security is traded. Non-marketable equity securities are measured at least annuallyfair value using NAV per share (or its equivalent) as a practical expedient.

LOANS HELD FOR SALE
Loans held for sale are carried at the lower of amortized cost or more often if conditions indicatefair value, where fair value reflects the amount a possible impairment.willing market participant would pay for the loan. The Company recorded a $10.2 million intangible impairment charge duringclassifies SBA/USDA loans held for sale as Level 2 in the fourth quarter of fiscal 2017 related tofair value hierarchy as there is an active secondary market in which these loans are exchanged. Consumer loans held for sale are classified as Level 3 in the non-renewalfair value hierarchy as the price at which these loans are sold are dictated by terms of the H&R Block relationship.Program Agreements with consumer lending partners.


LOANS AND LEASES, NET
The weighted-average amortization period, by major intangible asset classfair values of loans and in total, for eachleases were estimated using an exit price methodology. The exit price estimation of fair value is based on the present value of expected cash flows, which are based on the contractual terms of the acquisitions during fiscal year 2017 were as follows:loans, adjusted for prepayments and a discount rate based on the relative risk of the cash flows. Other considerations include the loan type, remaining life of the loan and credit risk.

 Weighted Average Amortization Period
IntangibleEPS SCS
Trademark15.0 5.0
Non-Compete3.0 4.1
Customer Relationships20.0 9.1
Technology/Other3.0 15.0
Total16.1 10.2

FEDERAL RESERVE BANK AND FEDERAL HOME LOAN BANK STOCKS
The fair value of FRB and FHLB stock is assumed to approximate book value since the Company is only able to redeem this stock at par value.
ACCRUED INTEREST RECEIVABLE
The carrying amount of accrued interest receivable is assumed to approximate the fair value.

129
Table of Contents
DEPOSITS
With the exception of time certificate deposits and wholesale deposits, the carrying values of deposits are assumed to approximate fair value since deposits are immediately withdrawable without penalty. The fair value of time certificate deposits and wholesale certificate of deposits are estimated using a discounted cash flows calculation that applies the FHLB Des Moines curve to aggregated expected maturities of time deposits.
FEDERAL HOME LOAN BANK ADVANCES
The fair value of such advances was estimated by discounting the expected future cash flows using current interest rates for advances with similar terms and remaining maturities.
SUBORDINATED DEBENTURES AND OTHER BORROWINGS
The fair value of these instruments was estimated by discounting the expected future cash flows using derived interest rates approximating market over the contractual maturity of such borrowings.
ACCRUED INTEREST PAYABLE
The carrying amount of accrued interest payable is assumed to approximate the fair value.
LIMITATIONS
Fair value estimates are made at a specific point in time and are based on relevant market information about the financial instrument. Additionally, fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future amortizationbusiness, customer relationships and the value of intangibles isassets and liabilities that are not considered financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time. Furthermore, since no market exists for certain of the Company’s financial instruments, fair value estimates may be based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with a high level of precision. Changes in assumptions as follows:well as tax considerations could significantly affect the estimates. Accordingly, based on the limitations described above, the aggregate fair value estimates are not intended to represent the underlying value of the Company, on either a going concern or a liquidation basis.

 September 30,
 (Dollars in Thousands)
2018$7,706
20197,147
20205,749
20215,179
20224,257
Thereafter22,140
Total anticipated intangible amortization$52,178

NOTE 21.  SUBSEQUENT EVENTS


Management has evaluated subsequent events that occurred after September 30, 2022. During this period, up to the filing date of this Annual Report on Form 10-K, management identified the following subsequent events:

•On October 11, 2017,27, 2022, the Company completedannounced that Sonja Theisen, currently Executive Vice President of Governance, Risk and Compliance, was appointed to succeed Glen Herrick as the purchaseChief Financial Officer effective April 30, 2023. Ms.Theisen, who joined Pathward in 2013, has held leaderships roles across the organization including Chief Accounting Officer, Chief of a $73 million, seasoned, floating rate, private student loan portfolio. All loans are indexedStaff, and EVP of Governance, Risk and Compliance.

•On October 4, 2022, the Company launched its new brand identity and website as part of its rebranding efforts and overall transition to one-month LIBOR. The portfolio is serviced by ReliaMax Lending Services LLC and insured by ReliaMax Surety Company. This portfolio purchase builds on the Company's existing student loan platform.Pathward Financial, Inc.



Item 9.Changes in and Disagreements With Accountants on Accounting and Financial DisclosureDisclosure.
 
None.


Item 9A. Controls and ProceduresProcedures.


(a)Evaluation of Disclosure Controls and Procedures.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Management, under the direction of its Chief Executive Officer and Chief Financial Officer, is responsible for maintaining disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “1934 Act”)) that are designed to ensure that information required to be disclosed in reports filed or submitted under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
130
Table of Contents
In connection with the preparation of this Annual Report on Form 10-K, management evaluated the Company’s disclosure controls and procedures. The evaluation was performed under the direction of the Company’s Chief Executive Officer and Chief Financial Officer to determine the effectiveness, as of September 30, 2017,2022, of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, at September 30, 2022, the Company’s disclosure controls and procedures were effective innot designed effectively to ensure timely alerting them to theof material information relating to the Company required to be included in the Company’s periodic SEC filings.


(b)Management’s Annual Report on Internal Control over Financial Reporting.

In the fiscal fourth quarter of 2021 and the fiscal third quarter of 2022, the Company identified control deficiencies related to access permissions in two loan systems which resulted in a lack of segregation of duties over disbursements in which select individuals had the ability to both initiate and approve disbursements indicating that the user access provisioning and user entitlement review monitoring controls did not function to a precise level to ensure segregation of duties was maintained. Management determined that the combination of user access provisioning and user entitlement review deficiencies represent a material weakness in internal controls over financial reporting on the basis that the deficiencies could result in a misstatement potentially impacting the Company's financial statement accounts and disclosures that would not be prevented or detected on a timely basis.

REMEDIATION PLAN FOR REPORTED MATERIAL WEAKNESS

Annual entitlement review for the loan system identified in the fourth quarter of 2021 was performed in March 2022 and no inappropriate access was identified.

For the loan system identified with inappropriate system access in fiscal third quarter of 2022, management removed access for the individuals that had inappropriate access and performed testing of disbursements during the impacted period and did not identify any instances where the segregation of the disbursement over initiation and approval was not maintained. In May, management also implemented an IT application control to identify instances where the initiator and approver are the same to prevent disbursement from occurring.

The Company is also undergoing a broader risk assessment across all material applications to ensure preventative controls are in place to identify and strengthen sensitive user functions including but not limited to loan disbursements regarding the user access and entitlement provisioning controls.

INHERENT LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS

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

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Management conducted an evaluation of the Company’s internal control over financial reporting to determine whether any changes occurred during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Based on this evaluation, management concluded that, as of the end of the period covered by this report, there were changes in the Company’s internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the 1934 Act) during the fiscal fourth quarter to which this report relates that could have materially affected the Company’s internal controls over financial reporting, as described above.


131
Table of Contents
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. OurThe Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company assets that could have a material effect on the financial statements. 


Internal control over financial reporting, no matter how well designed, has inherent limitations.  Because of such inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2017,2022, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control Integrated Framework (2013).” Based on this assessment, our management concluded that our internal control over financial reporting was not effective as of September 30, 2017.2022.


The effectiveness of the Company’s internal control over financial reporting as of September 30, 2017,2022, has been audited by KPMGCrowe LLP, the independent registered public accounting firm that also has audited the Company’s consolidated financial statementsConsolidated Financial Statements included in this Annual Report on Form 10-K. KPMGCrowe LLP’s attestation report on the Company’s internal controlcontrols over financial reporting appears below.
 
(c)Changes in Internal Control over Financial Reporting.

There were no changes in the Company's internal control over financial reporting that occurred during the fourth quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B. Other InformationInformation.


None.


KPMG LLP
2500 Ruan CenterItem 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
666 Grand Avenue
Des Moines, IA 50309Not applicable.
132
Report
Table of Independent Registered Public Accounting FirmContents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The
Stockholders and the Board of Directors and Stockholdersof Pathward Financial, Inc.
Sioux Falls, South Dakota

Opinion on Internal Control over Financial Reporting

We have audited Pathward Financial, Inc. (formerly known as Meta Financial Group, Inc.:

We have audited Meta Financial Group, Inc.’s) and Subsidiaries’ (the Company)“Company”) internal control over financial reporting as of September 30, 2017,2022, based on criteria established in Internal Control -– Integrated FrameworkFramework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, because of the effects of the material weakness discussed in the following paragraph, the Company has not maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management's report:

In the fiscal fourth quarter of 2021 and the fiscal third quarter of 2022, the Company identified control deficiencies related to access permissions in two loan systems which resulted in a lack of segregation of duties over disbursements in which select individuals had the ability to both initiate and approve disbursements indicating that the user access provisioning and user entitlement review monitoring controls did not function to a precise level to ensure segregation of duties was maintained. Management determined that the combination of user access provisioning and user entitlement review deficiencies represented a material weakness in internal controls over financial reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated statements of financial condition of the Company as of September 30, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the three year period ended September 30, 2022, and the related notes (collectively referred to as the "financial statements") and our report dated November 22, 2022 expressed an unqualified opinion. We considered the material weakness identified above in determining the nature, timing, and extent of audit procedures applied in our audit of the 2022 financial statements, and this report on Internal Control over Financial Reporting does not affect such report on the financial statements.
Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying 2022 Management’s Annual Report onAssessment of Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.





133
Table of Contents
Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Meta Financial Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition of Meta Financial Group, Inc. and subsidiaries as of September 30, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended September 30, 2017, and our report dated November 29, 2017 expressed an unqualified opinion on those consolidated financial statements.


/s/ Crowe LLP
South Bend, Indiana/s/ KPMG LLP
Des Moines, Iowa
November 29, 201722, 2022


134
Table of Contents
PART III

Item 10. Directors, Executive Officers and Corporate GovernanceGovernance.


Directors
 
Information concerning directors of the Company required by this item will be included under the captions “Election of Directors,” “Communicating with Our Directors”Directors,” "Meetings and Committees" and “Stockholder Proposals For The Fiscal Year 20182023 Annual Meeting” in the Company’s definitive Proxy Statement for the Annual Meeting of Stockholders to be held on January 22, 2018 (the “2017 Proxy Statement”),February 28, 2023, a copy of which will be filed notno later than 120 days after September 30, 2017,2022 (the “2023 Proxy Statement”), and is incorporated herein by reference.
 
Executive Officers
 
Information concerning the executive officers of the Company required by this item will be included under the captions “Executive Officers” and “Election of Directors” in the 20172023 Proxy Statement and is incorporated herein by reference.
 
Compliance with Section 16(a)
 
Information, if applicable, required by this item regarding compliance with Section 16(a) of the Exchange Act will be included under the caption “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” in the Company’s 20172023 Proxy Statement and is incorporated herein by reference.
 
Audit Committee and Audit Committee Financial Expert
 
Information regarding the audit committee of the Company’s Board of Directors including information regarding Frederick Moore, Becky Shulman and Kendall Stork, the audit committee financial experts serving on the audit committee for fiscal 2017, will be included under the captions “Meetings and Committees” and “Election of Directors” in the Company’s 20172023 Proxy Statement and is incorporated herein by reference.
 
Code of EthicsBusiness Conduct
 
Information regarding the Company’s Code of EthicsBusiness Conduct will be included under the caption “Corporate Governance” in the Company’s 20172023 Proxy Statement and is incorporated herein by reference.
 
Item 11. Executive CompensationCompensation.
 
Information concerning executive and director compensation will be included under the captions “Compensation of Directors” and “Executive Compensation” in the Company’s 20172023 Proxy Statement and is incorporated herein by reference.

















135
Table of Contents
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersMatters.
 
(a)           Security Ownership of Certain Beneficial Owners and Management
 
The information required by this item will be included under the caption “Stock Ownership” in the Company’s 20172023 Proxy Statement and is incorporated herein by reference.


(b)           Changes in Control
 
Management of the Company knows of no arrangements, including any pledge by any persons of securities of the Company, the operation of which may, at a subsequent date, result in a change in control of the Registrant.

(c)           Equity Compensation Plan Information
 
The Company maintains the 2002 Omnibus Incentive Plan for purposes of issuing stock-based compensation to employees and directors. An amendment to thisThe plan authorizing an additional 750,000was amended and restated effective November 24, 2014 and currently authorizes 4,800,000 shares to be issued under this plan, was approved by the Board of Directors on November 30, 2007, and by the stockholders at the annual meeting held February 12, 2008.plan. The Company alsono longer has unexercised options, warrants or rights outstanding under a previousany stock option or other incentive plan. The following table provides information about the Company’s common stock that may be issued under the Company’s omnibus incentive plans.plans as of September 30, 2022.
Plan CategoryNumber of securities
to be issued upon
exercise of
outstanding options,
warrants and rights		Weighted-average
exercise price of
outstanding options,
warrants and rights		Number of securities
remaining available
for future issuance
under equity
compensation plan
excluding securities
reflected in (a)
Equity compensation plans approved by stockholders— $— 1,255,735 
Equity compensation plans not approved by stockholders— — — 


Plan Category 
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
 
Number of securities
remaining available
for future issuance
under equity
compensation plan
excluding securities
reflected in (a)
Equity compensation plans approved by stockholders 75,757
 $22.62
 188,152
Equity compensation plans not approved by stockholders —
 $—
 —

Item 13. Certain Relationships and Related Transactions, and Director IndependenceIndependence.
 
The information required by this item will be included under the captions “Election of Directors,” “Meetings and Committees” and “Related Person Transactions” in the Company’s 20172023 Proxy Statement and is incorporated herein by reference.
 
Item 14. Principal Accountant Fees and ServicesServices.
 
The information required by this item will be included under the caption “Independent“Ratification of Appointment of Independent Registered Public Accounting Firm” in the Company’s 20172023 Proxy Statement and is incorporated herein by reference.

The Independent Registered Public Accounting Firm is Crowe LLP (Public Company Accounting Oversight Board Firm ID No. 173) located in South Bend, Indiana.













136
Table of Contents
PART IV


Item 15. Exhibits and Financial Statement SchedulesSchedules.
 
The following is a list of documents filed as Part of this report:
 
(a)           Financial Statements:
 
The following financial statements are included under Part II, Item 8 of this Annual Report on Form 10-K:


1.Report of Independent Registered Public Accounting Firm.

2.Consolidated Statements of Financial Condition as of September 30, 2022 and 2021.

3.Consolidated Statements of Operations for the Fiscal Years Ended September 30, 2022, 2021 and 2020.

4.Consolidated Statements of Comprehensive Income for the Fiscal Years ended September 30, 2022, 2021, and 2020.

5.Consolidated Statements of Changes in Stockholders’ Equity for the Fiscal Years Ended September 30, 2022, 2021, and 2020.

6.Consolidated Statements of Cash Flows for the Fiscal Years Ended September 30, 2022, 2021, and 2020.

7.Notes to Consolidated Financial Statements.

(b)           Exhibits:
Exhibit
Number		 
Description
1.Registrant’s Amended and Restated Certificate of Incorporation, filed on July 13, 2022 as an exhibit to the Registrant's Current Report on Form 8-K, is incorporated herein by reference.
Registrant’s Third Amended and Restated By-laws, filed on July 13, 2022 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
Description of the Securities of the Registrant filed on November 30, 2020 as an exhibit to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 2021, is incorporated herein by reference.
Registrant’s Specimen Stock Certificate, filed on June 27, 2016 as an exhibit to the Registrant’s registration statement on Form S-3 (Commission File No. 333-212269), is incorporated herein by reference.
Indenture, dated as of August 15, 2016, by and between the Registrant and U.S. Bank National Association, as trustee, filed on August 15, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
First Supplemental Indenture, dated as of August 15, 2016, by and between the Registrant and U.S. Bank National Association, as trustee, filed on August 15, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
Form of Global Note of the Registrant representing the 5.75% Fixed-to-Floating Rate Subordinated Notes due August 15, 2026, filed on August 15, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
Indenture, dated as of September 23, 2022, by and between the Registrant and UMB Bank, N.A. as Trustee, filed on September 26, 2022 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
Forms of 6.625% Fixed-to-Floating Subordinated Note due 2032 (included as Exhibit A-1 and Exhibit A-2 to the Indenture, dated as of September 23, 2022, by and between the Registrant and UMB Bank, N.A. as Trustee), filed on September 26, 2022 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
137
Table of Contents
Registrant’s 1995 Stock Option and Incentive Plan, filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 1996, is incorporated herein by reference.
Performance-Based Restricted Stock Agreement between Meta and Glen W. Herrick, dated as of December 2, 2016, filed on December 6, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
Registrant’s Supplemental Employees’ Investment Plan, originally filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 1994.  First amendment to such agreement, filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2008, is incorporated herein by reference.
Registrant’s Amended and Restated 2002 Omnibus Incentive Plan, as amended, filed on January 24, 2018 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
Investor Rights Agreement by and among Meta Financial Group, Inc., BEP IV LLC and BEP Investors, LLC, dated as of December 17, 2015, filed on December 17, 2015 as an exhibit to the Registrant’s Current Report on Form 8‑K, is incorporated herein by reference.
Form of Meta Financial Group, Inc. 2002 Omnibus Incentive Plan Restricted Stock Agreement, filed on August 2, 2016 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q, is incorporated herein by reference.
Employment Agreement among MetaBank, Meta Financial Group, Inc. and Glen W. Herrick, effective as of October 1, 2020, filed on November 30, 2020 as an exhibit to the Registrant's Annual Report on Form 10-K, is incorporated herein by reference.
Form of Performance Share Unit Award Agreement, filed on November 23, 2021 as an exhibit to the Registrant's Annual Report on Form 10-K, is incorporated herein by reference.
Form of Performance-Based Restricted Stock Award Agreement, filed on November 23, 2021 as an exhibit to the Registrant's Annual Report on Form 10-K, is incorporated herein by reference.
Executive Nonqualified Deferred Compensation Plan Adoption Agreement by MetaBank, National Association, effective as of July 1, 2021, filed on May 20, 2021 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
Executive Nonqualified Deferred Compensation Plan, effective as of July 1, 2021, filed on May 20, 2021 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
First Amendment to the MetaBank, National Association Amended and Restated Supplemental Employees’ Investment Plan for Salaried Employees, effective as of June 30, 2021, filed on May 20, 2021 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
Transition and General Release Agreement by and among Meta Financial Group, Inc., MetaBank, National Associate and Bradley C. Hanson, dated as of September 1, 2021, filed on September 7, 2021 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
Executive Severance Pay Policy, effective as of November 1, 2021, filed on November 2, 2021 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
Termination Agreement by and among Meta Financial Group, Inc., MetaBank, National Associate and Glen W. Herrick, effective as of November 1, 2021, filed on November 2, 2021 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
Purchase Agreement, dated December 7, 2021, between the Registrant and Beige Key LLC, filed on February 8, 2022 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q, is incorporated herein by reference.
Form of 2002 Omnibus Incentive Plan Restricted Stock Agreement (Non-Employee Directors Annual Equity Award), filed on May 9, 2022 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q, is incorporated herein by reference.
Form of 2002 Omnibus Incentive Plan Restricted Stock Agreement (Non-Employee Directors Award in Lieu of Cash Retainer), filed on May 9, 2022 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q, is incorporated herein by reference.
Amendment No. 3 to the Registrant’s Amended and Restated 2002 Omnibus Incentive Plan, as amended, filed on May 9, 2022 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q, is incorporated herein by reference.
Form of Subordinated Note Purchase Agreement, dated as of September 23, 2022, by and among the Registrant and the Purchasers (as defined therein), filed on September 26, 2022 as an exhibit to the Registrant’s Current Report on Form 8-K, in incorporated by reference herein.
Form of Registration Rights Agreement, dated as of September 23, 2022, by and among the Registrant and the Purchasers (as defined therein), filed on September 26, 2022 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
Subsidiaries of the Registrant is filed herewith.
138
Table of Contents
Consent of Independent Registered Public Accounting Firm.Firm of Crowe LLP is filed herewith.

2.Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 is filed herewith.
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 is filed herewith.
Certification of the CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is filed herewith.
Certification of the CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is filed herewith.
101Interactive data files formatted in Inline eXtensible Business Reporting Language - pursuant to Rule 405 of Regulation S-T: (i) Consolidated Statements of Financial Condition as of September 30, 2017,2022 and 2016.

3.September 30, 2021, (ii) the Consolidated Statements of Operations for the Years Endedfiscal years ended September 30, 2017, 2016,2022, 2021, and 2015.

4.2020, (iii) the Consolidated Statements of Comprehensive Income for the Yearsfiscal years ended September 30, 2017, 2016,2022, 2021, and 2015.

5.2020, (iv) the Consolidated Statements of Changes in Stockholders’ Equity for the Years Endedfiscal years ended September 30, 2017, 2016,2022, 2021, and 2015.

6.2020, (v) the Consolidated Statements of Cash Flows for the Years Endedfiscal years ended September 30, 2017, 2016,2022, 2021, and 2015.2020 and (vi) the Notes to the Consolidated Financial Statements for the fiscal years ended September 30, 2022, 2021, and 2020.

7.104Notes to Consolidated Financial Statements.Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

(b)          Exhibits:
* Management Contract or Compensatory Plan or Agreement
See Index† Certain schedules or exhibits have been omitted pursuant to Exhibits.Item 601(a)(5) of Regulation S-K. A copy of     any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request; provided, however that the Registrant may request confidential treatment for any schedule or exhibit so furnished.

(c)           Financial Statement Schedules:
 
All financial statement schedules have been omitted as the information is not required under the related
instructions or is inapplicable.


Item 16. Form 10-K Summary


None.



























139
Table of Contents
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
META FINANCIAL GROUP, INC.Pathward Financial, Inc.
Date:  November 29, 201722, 2022By:/s/ J. Tyler HaahrBrett L. Pharr
J. Tyler Haahr, Chairman of the BoardBrett L. Pharr,
and Chief Executive Officer and Director


140
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By:/s/ Brett L. PharrDate:  November 22, 2022
Brett L. Pharr, Chief Executive Officer and Director
(Principal Executive Officer)
By:/s/ J. Tyler HaahrDate:  November 29, 2017
J. Tyler Haahr, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
By:/s/ Bradley C. HansonDate:  November 29, 2017
Bradley C. Hanson, President and Director
By:/s/ Douglas J. HajekDate:  November 29, 201722, 2022
Douglas J. Hajek, Director
By:/s/ Elizabeth G. HoopleDate:  November 29, 201722, 2022
Elizabeth G. Hoople, Director
By:/s/ Michael R. KramerDate:  November 22, 2022
Michael R. Kramer, Director
By:/s/ Ronald D. McCrayDate:  November 22, 2022
Ronald D. McCray, Director
By:/s/ Frederick V. MooreDate:  November 29, 201722, 2022
Frederick V. Moore, Director
By:/s/ Becky S. ShulmanDate:  November 29, 201722, 2022
Becky S. Shulman, Director
By:/s/ Kendall E. StorkDate:  November 29, 201722, 2022
Kendall E. Stork, Director
By:/s/ Lizabeth H. ZlatkusDate:  November 22, 2022
Lizabeth H. Zlatkus, Director
By:/s/ Glen W. HerrickDate:  November 29, 201722, 2022
Glen W. Herrick, Executive Vice President
President and Chief Financial Officer
(Principal Financial Officer)
By:/s/ Sonja A. TheisenJennifer W. WarrenDate:  November 29, 201722, 2022
Sonja A. Theisen,Jennifer W. Warren, Senior Vice President
and Chief Accounting Officer
(Principal Accounting Officer)

INDEX TO EXHIBITS 
Exhibit
Number
Description
2.1
Asset Purchase Agreement, dated as of July 15, 2015, by and among Meta Financial Group, Inc., MetaBank, Fort Knox Financial Services Corporation, Tax Product Services LLC, Alan D. Lodge Family Trust, Michael E. Boone, Michael J. Boone, Cary Shields and Alan D. Lodge filed on July 16, 2015 as an exhibit to the Registrant’s Current Report on Form 8‑K, is incorporated herein by reference. Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant will furnish the omitted exhibits and schedules to the Securities and Exchange Commission upon request by the Commission.
2.2
Asset Purchase Agreement, dated as of October 1, 2016, by and among Meta Financial Group, Inc., MetaBank, Drake Enterprises, Ltd., and EPS Financial, LLC filed on November 3, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference. Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant will furnish the omitted exhibits and schedules to the Securities and Exchange Commission upon request by the Commission.
2.3
Asset Purchase Agreement dated as of November 9, 2016, by and among Meta Financial Group, Inc., MetaBank, and Specialty Consumer Services LP filed on November 10, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference. Exhibits and schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant will furnish the omitted exhibits and schedules to the Securities and Exchange Commission upon request by the Commission.
3.1
Registrant’s Certificate of Incorporation, as amended, filed on May 10, 2013 as an exhibit to the Registrant’s registration statement on Form S-3 (Commission File No. 333-188535), is incorporated herein by reference.
3.2
Registrant’s Certificate of Amendment to the Certificate of Incorporation, as amended, filed on January 26, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
3.3
Registrant’s Amended and Restated By-laws, as amended, filed on December 14, 2015 as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2015, is incorporated herein by reference.
4.1
Registrant’s Specimen Stock Certificate, filed on June 26, 2016 as an exhibit to the Registrant’s registration statement on Form S-3 (Commission File No. 333-212269), is incorporated herein by reference.
4.2
Indenture, dated as of August 15, 2016, by and between the Registrant and U.S. Bank National Association, as trustee, filed on August 15, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
4.3
First Supplemental Indenture, dated as of August 15, 2016, by and between the Registrant and U.S. Bank National Association, as trustee, filed on August 15, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
4.4
Form of Global Note of the Registrant representing the 5.75% Fixed-to-Floating Rate Subordinated Notes due August 15, 2026, filed on August 15, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
*10.1
Registrant’s 1995 Stock Option and Incentive Plan, filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 1996, is incorporated herein by reference
*10.2
Employment Agreement between MetaBank and J. Tyler Haahr, dated as of October 1, 2016, filed on November 18, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
*10.3
Employment Agreement between MetaBank and Bradley C. Hanson, dated as of October 1, 2016, filed on November 18, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
*10.4
Employment Agreement between MetaBank and Glen W. Herrick, dated as of October 1, 2016, filed on December 6, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
*10.5
Performance-Based Restricted Stock Agreement between Meta and J. Tyler Haahr, dated as of November 16, 2016, filed on November 18, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
*10.6
Performance-Based Restricted Stock Agreement between Meta and Bradley C. Hanson, dated as of November 16, 2016, filed on November 18, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference
*10.7
Performance-Based Restricted Stock Agreement between Meta and Glen W. Herrick, dated as of December 2, 2016, filed on December 6, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference
*10.8
Registrant’s Supplemental Employees’ Investment Plan, originally filed as an exhibit to the Registrant’s Annual Report on Form 10-KSB for the fiscal year ended September 30, 1994.  First amendment to such agreement, filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended September 30, 2008, is incorporated herein by reference.
141

*10.9
Registrant’s 2002 Omnibus Incentive Plan, as amended and restated effective November 24, 2014, filed on December 16, 2014 as Appendix A to the Registrant’s Schedule 14A (DEF 14A) Proxy Statement, is incorporated herein by reference.
10.10
Registration Rights Agreement by and among Meta Financial Group, Inc., BEP IV LLC and BEP Investors, LLC, dated as of December 17, 2015, filed on December 17, 2015 as an exhibit to the Registrant’s Current Report on Form 8‑K, is incorporated herein by reference.
10.11
Investor Rights Agreement by and among Meta Financial Group, Inc., BEP IV LLC and BEP Investors, LLC, dated as of December 17, 2015, filed on December 17, 2015 as an exhibit to the Registrant’s Current Report on Form 8‑K, is incorporated herein by reference.
10.12
Securities Purchase Agreement by and between Meta Financial Group, Inc. and Nantahala Capital Partners SI, LP, dated as of December 7, 2015, filed on December 8, 2015 as an exhibit to the Registrant’s Current Report on Form 8‑K, is incorporated herein by reference.
10.13
Registration Rights Agreement by and between Meta Financial Group, Inc. and Nantahala Capital Partners SI, LP, dated as of December 17, 2015, filed on December 17, 2015 as an exhibit to the Registrant’s Current Report on Form 8‑K, is incorporated herein by reference.
*10.14
Separation and General Release Agreement dated as of September 9, 2016, by and among the Company, MetaBank and Ira D. Frericks. filed on September 9, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
*10.15
Separation and General Release Agreement dated as of September 30, 2016, by and among the Company, MetaBank and Troy Moore III, filed on September 30, 2016 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
*10.16
Severance and General Release Agreement dated as of August 30, 2017, by and between the MetaBank and Cynthia Smith, filed on September 8, 2017 as an exhibit to the Registrant’s Current Report on Form 8-K, is incorporated herein by reference.
*10.17
Form of Restricted Stock Agreement under Meta Financial Group, Inc. 2002 Omnibus Incentive Plan filed on August 2, 2016 as an exhibit to the Registrant’s Quarterly Report on Form 10-Q, is incorporated herein by reference.
11
Statement re: computation of per share earnings (See Note 5 of “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).
21
Subsidiaries of the Registrant is filed herewith.
23.1
Consent of Independent Registered Public Accounting Firm is filed herewith.
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 is filed herewith.
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes‑Oxley Act of 2002 is filed herewith.
32.1
Certification of the CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is filed herewith.
32.2
Certification of the CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is filed herewith.
101.INSInstance Document Filed Herewith.
101.SCHXBRL Taxonomy Extension Schema Document Filed Herewith.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document Filed Herewith.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document Filed Herewith.
101.LABXBRL Taxonomy Extension Label Linkbase Document Filed Herewith.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document Filed Herewith.
* Management Contract or Compensatory Plan or Agreement