What changed in this filing

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Item 1A. Risk Factors

2021-11-23 compared with 2020-11-30 · 115 added, 82 removed, 280 unchanged (41% of the section changed)

2 unchanged sentences

The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.

Moreover, the impact of the COVID-19 pandemic 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.

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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 loan and lease losses, our net income will decrease.

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.

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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 loan and lease losses, the current allowance for loan and lease 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 loan and lease losses and may require us to increase our provision for loan and lease losses or recognize loan charge-offs.

Our allowance for loan and lease losses has been negatively impacted by the economic consequences of the COVID-19 pandemic and a worsening or prolonged continuation of such unfavorable economic conditions could further impact our allowance.

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 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 loan and lease losses will be adequate to cover actual losses.

Further, a new method of determining loan and lease loss allowances, which was effective for the Company on October 1, 2020, could impact future profitability.

See Note 1 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 details on this accounting pronouncement.

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, 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 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 Meta Payments division 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 has 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.

The COVID-19 pandemic caused disruptions to our business and could cause material disruptions in the future.

Impacts to our business have included costs due to additional health and safety precautions implemented at our offices and the transition of a portion of our workforce to home locations, increases in customers' inability to make scheduled loan payments, increases in requests for forbearance and loan modifications, and an adverse effect on accounting estimates that we use to determine our provision and allowance for credit losses.

While we have seen improvement in these areas, a 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.

While we have taken and are continuing to take precautions to protect the safety and well-being of our employees, customers and partners, no assurance can be given that the steps being taken will be adequate or appropriate.

The continued or renewed spread of COVID-19 could negatively impact the availability of key personnel necessary to conduct our business, the business and operations of our third-party service providers who perform critical services for our business, or the businesses of many of our customers and borrowers.

Among the factors outside our control that are likely to affect the impact the COVID-19 pandemic will ultimately have on our business are:

• the pandemic's course, duration and severity, including with respect to the efficacy and deployment of vaccines and the potential development of more contagious or vaccine-resist variances;

• the direct and indirect results of the pandemic, such as recessionary economic trends, including with respect to employment, wages and benefits, commercial activity, consumer spending and real estate market values;

• declines in collateral values;

• further political, legal and regulatory actions and policies in response to the pandemic;

• the timing, magnitude and effect of any further public spending, related to the pandemic and its effects on the economy in the short and long term;

• the ability of our employees and our third-party vendors to continue to work effectively during the course of the pandemic;

• any increase in cyber and payment fraud related to COVID-19, as cybercriminals attempt to profit from disruption, given increased online banking, e-commerce and other online activity.

We are continuing to monitor the COVID-19 pandemic and related risks.

If the pandemic worsens or further impacts the current environment, our business, financial condition, results of operations could be materially 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.

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Many of the Crestmark division's competitors have been in business for many years, have established customer bases, are larger and may offer other services that neither the Crestmark division nor the Bank do.

Several banking institutions have adopted business strategies similar to ours, particularly with respect to the MPS division.

Several banking institutions have adopted business strategies similar to ours, particularly with respect to the Meta Payments division.

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.

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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 MPS's 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's operating revenues may remain at current levels or decline.

For example, negative publicity surrounding us or other prepaid financial service providers could impact Meta 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, Meta 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 MPS, such a shift could have a material adverse effect on our financial condition and results of operations.

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 Meta Payments, such a shift could have a material adverse effect on our financial condition and results of operations.

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 applicable 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 then-current term, any such agreements may not be renewed by the third party or may be renewed on terms less favorable to the Bank.

In some cases, such agreements may permit the third party to unilaterally prescribe certain business practices and procedures with respect to the Bank and its divisions (as is the case under agreements between MPS and Discover, MasterCard, Visa and other card networks) or terminate the agreement early under certain circumstances (as is the case under our program management agreement with EFS with respect to certain H&R Block financial services if the Bank should lose its exemption from the “Durbin Amendment”).

In some cases, such agreements may permit the third party to unilaterally prescribe certain business practices and procedures with

respect to the Bank and its divisions (as is the case under agreements between Meta 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 secure alternate service providers, and, even if we do, the terms with alternate providers may not be as favorable as those currently in place.

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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 MPS' customer relationships, of which five 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 MPS.

Deposits related to our top five program managers (each, a significant program manager) totaled $3.03 billion at September 30, 2020.

We derive a significant percentage of our deposits, total assets and income from deposit accounts that we generate through Meta Payments' customer relationships, of which five 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 Meta 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, and interest expense might increase.

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.

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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 experienced significant growth, in part through acquisitions, goodwill and intangible assets are included within our consolidated assets.

Under accounting principles generally accepted in the United States, or 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.

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 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, 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.

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.

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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 MPS division.

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.

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.

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

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 level of uncertainty concerning economic conditions may adversely affect the accuracy of our estimates which may, in turn, impact the reliability of our underwriting processes.

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

The electronic payments industry, including the prepaid financial services segment within that industry in which the MPS division 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.

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 has caused significant disruption in the United States and international economies and financial markets.

The spread of COVID-19 in the United States has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability.

Although the Bank continued operating during the initial shutdowns, the COVID-19 pandemic has caused disruptions to our business and could cause material disruptions in the future.

A worsening or prolonged continuation of the current unfavorable economic conditions could further impact our provision and allowance for credit losses, and could impact the value of certain assets that we carry on our balance sheet such as goodwill.

While we have taken and are continuing to take precautions to protect the safety and well-being of our employees, customers and partners, including as local economies re-open, no assurance can be given that the steps being taken will be adequate or appropriate.

Among the factors outside our control that are likely to affect the impact the COVID-19 pandemic will ultimately have on our business are:

• the pandemic's course, duration and severity;

• declines in collateral values;

• political, legal and regulatory actions and policies in response to the pandemic, including the effects on restrictions on commerce and banking, such as moratoria and other suspensions of collections, foreclosures, and related obligations;

• the timing, magnitude and effect of public spending, directly or through subsidies, its direct and indirect effects on commercial activity and incentives of employers and individuals to resume or increase employment, wages and benefits and commercial activity;

• the timing and availability of direct and indirect governmental support for various financial assets;

• potential longer-term effects of increased government spending on the interest rate environment and borrowing costs for non-governmental parties;

• the ability of our employees and our third-party vendors to work effectively during the course of the pandemic;

• any increase in cyber and payment fraud related to COVID-19, as cybercriminals attempt to profit from disruption, given increased online banking, e-commerce and other online activity.

We are continuing to monitor the COVID-19 pandemic and related risks, although the rapid development and fluidity of the situation precludes any specific prediction as to its ultimate impact on us.

However, if the pandemic continues to spread or otherwise result in a continuation or worsening of the current economic environment, our business, financial condition, results of operations could be materially adversely affected.

The Crestmark division generates government-backed loans funded by the Bank, any of which could be negatively impacted by a variety of factors.

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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 loan and lease losses, our net income will decrease." We may also become subject to claims by regulatory agencies, customers, or other third parties due to the conduct of the third parties with which the Bank operates such lending programs if such conduct is deemed to not comply with applicable laws in connection with the marketing and servicing of loans originated pursuant to these programs.

See "If our actual loan and lease losses exceed our allowance for credit losses, our net income will decrease." We may also become subject to claims by regulatory agencies, customers, or other third parties due to the conduct of the third parties with which the Bank operates such lending programs if such conduct is deemed 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.

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Other cases have also included other claims, including racketeering and other state law claims, in their challenge of such programs.

The OCC recently issued final rules designed to clarify when a national bank such as the Bank will be considered the “true lender” in such a relationship.

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 an action against the Bank or any of the third parties with which the Bank operates such lending programs, and such actions were successful, such an outcome could have a material adverse effect on our financial condition and results of operation.

The OCC's new "fintech" charter could present a market risk to us generally and the MPS division specifically.

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, President Biden signed a joint Congressional resolution to repeal the True Lender Rule.

The joint resolution prohibits the OCC from issuing any replacement of the True Lender Rule absent Congressional authorization.

The repeal of the True Lender Rule, and the absence of a federal law or regulation in its place providing legal certainty for national banks in making loans under third party lending partnerships, means that true lender issues will be determined on a case-by-case basis, informed by differing state laws and the facts in each particular instance.

Consequently, 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 "fintech" charter could present a market risk to us generally and the Meta Payments division 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.

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District Court in New York set aside the OCC regulation that would have permitted entities that did not intend to accept deposits to receive an SPNB charter.

The OCC has appealed the ruling, but as of the date of this filing, no final decision has been issued.

Further, the Acting Comptroller recently discussed publicly plans for the OCC to introduce an SPNB charter specifically for payments companies, although the OCC has not taken any action with respect to such plans.

As of the date of this filing, the OCC has not announced approval of any applications for an SPNB charter, if any SPNB applications are granted, recipients of an SPNB charter may enter the U.S.

payments market in which the Bank operates, which could have a material adverse effect on the Bank and the payments division.

In June 2021, the U.S.

Court of Appeals for the Second Circuit reversed the lower court decision in the favor of the OCC.

However, despite thefavorable ruling and pronouncements from the former Acting Comptroller for the OCC to introduce an SPNB charter specifically for payments companies, the OCC has not taken any action with respect to such plans and no SPNB charters have been granted as of the date of this filing.

If, in the future, the OCC determines to grant any SPNB applications, recipients of an SPNB charter may enter the U.S.

payments market in which the Bank operates, which could increase the competition we face and have a material adverse effect on the Bank and the payments division.

Our recent management transition may divert resources and attention from the daily operation of our business;

the loss 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.

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Our future success also depends in large part on our ability to attract, retain and motivate key management and operating personnel.

Management transition 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.

We completed our previously announced Chief Executive Officer and Chief Operating Officer transition on October 1, 2021.

That management transition or other transitions in the future 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.

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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.

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.

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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.

MPS utilizes automated programs designed to comply with applicable escheatment laws and regulations.

The Meta Payments division 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 MPS, for unreported abandoned property, and such actions may seek to assess fines and penalties.

State regulators may choose to initiate collection or other litigation action against prepaid card issuers, like Meta 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 our primary banking regulators –the OCC and the Federal Reserve.

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.

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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 loan and lease 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.

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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 CFPB 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.

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.

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, 2021, our total assets were $6.69 billion.

While we intend to remain under the $10 billion asset level, our total assets could exceed $10 billion at the end of this calendar year.

Our total assets increased substantially during certain periods of fiscal 2020 and fiscal 2021 as a result of our distribution of prepaid debit cards as part of the EIP program and deposits our prepaid partners received related to the EIP program.

Although we did not expect the EIP program deposits to expand our total assets beyond $10 billion, these deposits, in combination with Child Tax Credit ("CTC") deposits, could result in such an increase.

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 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.

Although we do not expect the EIP program deposits to expand our total assets beyond $10 billion at calendar year end, these deposits, in combination with CTC deposits, could result in such an increase.

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.

A substantial portion of our deposit liabilities are classified as brokered deposits, and failure to maintain the Bank's status as a "well capitalized" institution could have an adverse effect on us, and our ability to fund our operations.

Failure to maintain the Bank's status as a "well capitalized" institution could have an adverse effect on us, and our ability to fund our operations.

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, and in general, 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.

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.

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.

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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 increased our assets from $2.53 billion at September 30, 2015 to $6.09 billion at September 30, 2020, primarily due to strategic transactions, such as the Crestmark Acquisition, and through organic growth.

We have continued to experience considerable growth recently, having increased our assets from $2.53 billion at September 30, 2015 to $6.69 billion at September 30, 2021, 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.

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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 ongoing COVID-19 pandemic has also resulted in severe volatility in the financial markets and meaningfully lower stock prices for many companies, including our common stock.

Additionally, the ongoing COVID-19 pandemic has also resulted in severe volatility in the financial markets and may result in a lower stock price for companies, including our common stock.

Depending on the extent and duration of the COVID-19 pandemic, the price of our common stock may continue to experience volatility and declines.

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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.

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.

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We may not be able to foresee, prevent, mitigate, reverse, or repair the negative effects of such failures or interruptions.

As previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019, the Company identified a material weakness in the control environment of the Crestmark division.

The material weakness resulted from the aggregation of control deficiencies at the Crestmark division relating to Information Technology ("IT") system access, program change controls and review procedures related to new loan accounts and client record maintenance changes.

The aggregation of these deficiencies did not result in a material misstatement to the Company's Consolidated Financial Statements.

The Company's remediation plan was fully implemented during the fiscal fourth quarter ended September 30, 2020 to address the material weakness described above with respect to the internal controls environment of the Crestmark division.

The remediation plan included re-evaluating IT governance and controls, updating procedures related to access management, and training IT personnel.

We identified control deficiencies in our internal controls over financial reporting related to the Crestmark Leasing division's 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 identified in the 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 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.

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Catastrophic events could occur and impact our operations or the operations third parties with which we do business.

Catastrophic events (including natural disasters, severe weather conditions, pandemics, terrorism and other geopolitical events), which are beyond our control, could have an adverse impact on the Bank's ability and the ability of our vendors and other third parties with which we do business, to provide necessary services to support the operation of the Bank and provide products and services to the Bank's customers.

of our vendors and other third parties with which we do business, to provide necessary services to support the operation of the Bank and provide products and services to the 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.

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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 us or the Bank, and ethical behavior of our 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 payments division, could result in the imposition of new regulatory requirements, operational restrictions, enhanced supervision and/or civil money penalties.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors