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Item 7. Management’s Discussion and Analysis

2022-11-22 compared with 2021-11-23 · 231 added, 176 removed, 182 unchanged (69% of the section changed)

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The Company, a registered bank holding company, is a Delaware corporation, the principal assets of which are all the issued and outstanding shares of the Bank, a national bank.

Unless the context otherwise requires, references herein to the Company include Meta and the Bank, and all direct or indirect subsidiaries of Meta on a consolidated basis.

Unless the context otherwise requires, references herein to the Company include Pathward Financial and the Bank, and all direct or indirect subsidiaries of Pathward Financial on a consolidated basis.

EXECUTIVE SUMMARY

Business Development Highlights for the 2021 Fiscal Fourth Quarter and Full Fiscal Year 2021

• Named the Visa card issuer, in conjunction with Blackhawk Network, for the Excluded Workers Fund, a New York State Department of Labor program that provides one-time payments to certain New Yorkers who lost income due to COVID-19.

• Recognized a net unrealized gain of $4.1 million on a prior investment in MoneyLion Inc.

("MoneyLion") following the completion of its de-SPACing process and listing on the New York Stock Exchange on September 22, 2021.

• Expanded our renewable energy financing, originating $101.1 million for the fiscal year 2021, resulting in $26.5 million in total net investment tax credits.

• Announced a new share repurchase program and repurchased 234,297 shares during the 2021 fiscal fourth quarter , at an average price of $ 51.18, r eflecting the momentum of the business and confidence in the Company's strategy and growth trajectory.

An additional 1,252,145 shares were repurchased subsequent to September 30, 2021 through November 18, 2021.

Hanson, President and Chief Executive Officer of the Company retired from his positions at Meta Financial and MetaBank.

He will remain on the Company’s Board until the next annual stockholders’ meeting, expected to take place in February 2022.

He also will serve as a Strategic Advisor to Meta on industry and partner relations until the end of 2022.

The Board appointed Brett L.

Pharr as Chief Executive Officer and Anthony M.

Sharett as President of Meta Financial Group and MetaBank effective October 1, 2021.

Business Highlights

• On October 27, 2022, the Company announced that Sonja Theisen, currently Executive Vice President of Governance, Risk and Compliance, has been appointed to succeed Glen Herrick as the Chief Financial Officer effective April 30, 2023.

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 October 4, 2022, the Company announced the unveiling of its new corporate brand, marked by the transition to its new name, Pathward™, N.A.

("Pathward" or the "Bank"), and the launch of the Company's new website, Pathward.com.

As part of the corporate rebrand, the Company recognized $6.9 million of pre-tax expenses related to rebranding efforts during the fourth quarter of fiscal 2022.

The Company continues to estimate total rebranding expenses will range between $15 million to $20 million.

• As part of its strategy to continue to optimize interest-earning assets, the Company sold the entirety of its student loan portfolio during the fourth quarter of fiscal 2022.

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 $120.2 million, an increase of $14.9 million compared to the same quarter in fiscal 2020, primarily driven by higher net interest income, payments fee income and $4.1 million in other income related to the MoneyLion valuation.

Net interest income for the fourth quarter was $70.7 million, an increase of $6.2 million compared to $64.5 million in the fourth quarter last year.

Net interest margin ("NIM") improved to 4.35% for the fourth quarter from 3.77% during the same period of last year, chiefly due to the decrease of cash associated with the Company's participation in the EIP program, as well as an increase in commercial and warehouse finance loans and leases.

Total gross loans and leases at September 30, 2021 increased $293.7 million, to $3.61 billion, or 9%, compared to September 30, 2020 and increased $112.6 million, or 3%, when compared to June 30, 2021.

The increase was primarily driven by growth in commercial finance, and consumer finance loans partially offset by a decrease in community bank loans, which was driven by a loan sale of $75.1 million during the quarter.

• Total revenue for the fourth quarter was $123.2 million, an increase of $3.0 million, or 3%, compared to the same quarter in fiscal 2021, primarily driven by an increase in interest income, partially offset by a decrease in noninterest income.

• Net interest margin ("NIM") increased to 5.21% for the fourth quarter from 4.35% during the same period of last year.

The prior year period was impacted by excess cash associated with the Company's participation in the U.S.

Treasury Department's Economic Impact Program.

• Total gross loans and leases at September 30, 2022 decreased $78.5 million, to $3.53 billion, or 2%, compared to September 30, 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.

• 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

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FINANCIAL CONDITION

At September 30, 2021, the Company’s total assets increased by $598.6 million to $6.69 billion compared to September 30, 2020, primarily due to an increase of $596.8 million in investment securities available for sale.

Total cash and cash equivalents was $314.0 million at September 30, 2021, decreasing from $427.4 million at September 30, 2020, primarily resulting from the withdraw of EIP related deposits.

The Bank has been working with other banks to transfer these temporary deposits off the balance sheet.

Otherwise, the Company maintains its cash investments primarily in interest-bearing overnight deposits with the FHLB of Des Moines and the FRB.

At September 30, 2022, the Company’s total assets increased by $56.8 million to $6.75 billion compared to September 30, 2021.

Total cash and cash equivalents was $388.0 million at September 30, 2022, increasing from $314.0 million at September 30, 2021.

The Company maintains its cash investments primarily in interest-bearing overnight deposits with the FHLB of Des Moines and the FRB.

At September 30, 2022, the Company did not have any federal funds sold.

The total investment portfolio increased $560.9 million, or 41%, to $1.92 billion at September 30, 2021, compared to $1.36 billion at September 30, 2020, as purchases exceeded maturities and principal pay downs.

The total investment portfolio increased $3.0 million to $1.92 billion at September 30, 2022, compared to $1.92 billion at September 30, 2021, as purchases exceeded maturities and principal pay downs.

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, 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.

All MBS held by the Company at September 30, 2021 were issued by a U.S.

Of the total $1.35 billion MBS held by the Company at September 30, 2022, $1.10 billion were issued by a U.S.

Government agency or instrumentality.

Of the total MBS at September 30, 2021, $1.02 billion, at fair value, were classified as available for sale, and $3.7 million, at cost, were classified as held to maturity.

Of the total investment securities at September 30, 2021, $847.9 million, at fair value, were classified as available for sale and $52.9 million, at cost, were classified as held to maturity.

During the fiscal year ended September 30, 2021, the Company purchased $1.04 billion of investment securities.

During the fiscal year ended September 30, 2022, the Company purchased $907.4 million of investment securities.

Loans held for sale at September 30, 2022 totaled $21.1 million, decreasing from $56.2 million at September 30, 2021.

This decrease was primarily driven by a portion of the retained Community Bank loan portfolio transferred to loans held for sale at September 30, 2020 compared to none at September 30, 2021.

The Company’s total loans and leases increased $293.7 million, or 9%, to $3.61 billion at September 30, 2021, from $3.31 billion at September 30, 2020.

The increase was primarily driven by growth in the commercial finance, tax services, and warehouse finance portfolios partially offset by the continued decrease in community banking loan balances.

See Note 5 to the “Notes to Consolidated Financial Statements” of this Annual Report on Form 10-K.

Commercial finance loans increased $417.5 million, or 18% to $2.73 billion at September 30, 2021 compared to September 30, 2020.

Consumer finance loans, tax services loans and warehouse finance loans increased $28.7 million, $7.3 million, and $126.6 million at September 30, 2021, respectively, compared to September 30, 2020.

Community banking loans decreased $286.4 million, or 59%, at September 30, 2021 compared to September 30, 2020, primarily attributable to loan portfolio sales along with continued principal payments and payoffs.

As of September 30, 2021, the Company had no community banking loans classified as held for sale.

See Note 3 and Note 5 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.

This decrease was primarily driven by a reduction in SBA/USDA loans held for sale at September 30, 2022 compared to September 30, 2021.

The Company’s total loans and leases decreased $78.5 million, or 2%, to $3.53 billion at September 30, 2022, from $3.61 billion at September 30, 2021.

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 a reduction in warehouse finance loans, partially offset by growth in our commercial finance portfolio.

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.

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 % a t 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.

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Total end-of-period deposits increased 6% to $5.87 billion at September 30, 2022, compared to $5.51 billion at September 30, 2021.

The increase in end-of-period deposits was primarily driven by an increase in noninterest-bearing deposits of $661.6 million, partially offset by a decrease in wholesale deposits of $269.1 million.

The increase in noninterest-bearing deposits was driven by government stimulus-related dollars loaded on various partner cards.

As of September 30, 2021, EIP program card balances outstanding totaled $1.64 billion, of which only $69.8 million was on Meta's balance sheet with the remainder being held by other banks.

The increase in end-of-period deposits was primarily driven by an increase in noninterest-bearing deposits of $628.9 million, partially offset by decreases in interest-bearing checking of $254.3 million and in wholesale deposits of $73.6 million.

The Company's total borrowings decreased $56.8 million, or 61%, from $92.8 million at September 30, 2021 to $36.0 million at September 30, 2022.

See Note 11 to the “Notes to Consolidated Financial Statements,” which are included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

At September 30, 2021, the Company’s stockholders’ equity totaled $871.9 million, an increase of $24.6 million, from $847.3 million at September 30, 2020.

The increase was primarily attributable to growth in retained earnings and an increase in additional paid-in capital.

The Company and Bank remained above the federal regulatory minimum capital requirements at September 30, 2021, continued to be classified as well-capitalized, and in good standing with the regulatory agencies.

At September 30, 2022, the Company’s stockholders’ equity totaled $645.1 million, a decrease of $226.7 million, from $871.9 million at September 30, 2021.

The decrease was primarily attributable to a reduction in accumulated other comprehensive income and a reduction in retained earnings related to activity from the Company's share repurchase programs.

The Company and Bank remained above the federal regulatory minimum capital requirements at September 30, 2022, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies.

See Note 15 to the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Noninterest-bearing Checking Deposits.

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, 2022 September 30, 2021

Noninterest-bearing deposits $ 5,916,142 $ 5,492,646

Prefunding (244,462) (436,111)

Discount funding (15,991) (26,440)

DDA overdrafts (8,587) (11,862)

Noninterest-bearing checking, net $ 5,647,102 $ 5,018,233

Custodial Off-Balance Sheet Deposits.

The 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 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.

As of September 30, 2022, the Company managed $1.31 billion of customer deposits at other banks in its capacity as custodian.

These deposits provide the Company with excess deposits that can earn record keeping service fee income, typically reflective of the EFFR.

Approximately 37% of the deposit balances at September 30, 2022 are subject to variable card processing expenses that are derived from the terms of contractual agreements with certain BaaS partners.

These agreements are tied to a portion of a rate index, typically the EFFR.

RESULTS OF OPERATIONS

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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 division, pay relatively low rates of interest or none at all, the Company, like other financial institutions, is subject to interest rate risk to the extent that its interest-earning assets mature or reprice at different times, or on a different basis, than its interest-bearing liabilities.

Notwithstanding that a significant amount of the Company’s deposits, primarily those attributable to the BaaS business line, pay relatively low rates of interest or none at all, the Company, like other financial institutions, is subject to interest rate risk to the extent that its interest-earning assets mature or reprice at different times, or on a different basis, than its interest-bearing liabilities.

The provision for credit losses is the adjustment to the allowance for credit losses balance for the applicable period.

The allowance for credit losses represents management’s 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’s noninterest income is derived primarily from tax product fees, prepaid cards, credit products, deposit and ATM fees attributable to the payments division and fees charged on bank loans, leases and transaction accounts.

The allowance for credit losses represents management’s current estimate of credit losses expected to be incurred by the loan and lease portfolio over the life of each financial asset as of the balance sheet date.

The Company’s noninterest income is derived primarily from tax product fees, prepaid cards, credit products, deposit and ATM fees attributable to the BaaS business line and fees charged on bank loans, leases and transaction accounts.

Noninterest income is also derived from rental income, net gains on the sale of securities, net 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 noninterest expenses, such as compensation and occupancy expenses associated with additional personnel and office locations, as well as card processing expenses and tax product expenses attributable to the payments division.

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.

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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.

The balances presented in the table below are calculated on a daily average basis.

Tax-equivalent adjustments have been made in yields on interest-bearing assets and NIM.

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Total loans and leases (3)

3,827,431 268,078 7.00 % 3,718,409 256,080 6.89 % 3,771,977 261,128 6.92 %

Total interest-earning assets 6,352,319 $ 312,196 4.93 % 7,276,367 $ 285,854 3.94 % 6,328,317 $ 292,841 4.66 %

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Management of the Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis, and accordingly 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 fees of $33.7 million, $35.7 million, and $24.0 million for the fiscal years ended September 30, 2022, 2021 and 2020, respectively.

Rate / Volume Analysis

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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).

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.

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 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,

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Net effect on net interest income $ 11,439 $ 16,895 $ 28,334 $ 25,494 $ (5,540) $ 19,954

Comparison of Operating Results for the Fiscal Years Ended

September 30, 2021 and September 30, 2020

Comparison of Operating Results for the Fiscal Years Ended September 30, 2022 and September 30, 2021

The Company recorded net income of $156.4 million, or $5.26 per diluted share, for the fiscal year ended September 30, 2022, compared to $141.7 million, or $4.38 per diluted share, for the fiscal year ended September 30, 2021, an increase of $14.7 million.

Total revenue for fiscal 2022 was $601.1 million, compared to $549.9 million for fiscal 2021, an increase of 9%.

The increases in net income and revenue 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.

The increases in net income was primarily due to an increase in noninterest income and a decrease in provision for credit losses, partially offset by an increase in non-interest expense.

Net Interest Income

Net interest income for fiscal 2022 increased by $28.3 million, or 10%, to $307.3 million from $279.0 million for the same period of the prior year.

The increase in net interest income was mainly attributable to the continued optimization of our earning asset and liability mix, which included a decrease in interest expense of 80% to $6.9 million for fiscal 2021, from $33.8 million for the same period of the prior year.

The decrease in interest expense was primarily driven by a significant increase in noninterest-bearing deposits, which lessened the Company's need to rely on wholesale deposits during fiscal 2021.

NIM was 3.83% for fiscal 2021, a decrease of 26 basis points from 4.09% in fiscal 2020.

The decrease in NIM in fiscal 2021, compared to the same period of the prior year was primarily attributable to the increase in noninterest-bearing deposit balances related to government stimulus-related dollars.

This increase in deposit balances also led to excess cash balances held at the Federal Reserve during fiscal 2021, which yielded approximately 10 basis points in interest income, and increased the quarterly average of interest-earning assets compared to previous periods.

This increase of lower-yielding cash balances resulted in a drag to the overall yield on total interest-earning assets during the current period.

The overall reported tax equivalent yield ("TEY") on average interest-earning assets decreased by 72 basis points to 3.94% when comparing fiscal 2021 to fiscal 2020.

The reduction was driven primarily by an increase in low-yielding cash held at the Federal Reserve, along with an overall lower rate environment.

The yield on the commercial finance portfolio decreased by 64 basis points and the tax services portfolio decreased by 89 basis points while the yield on the warehouse finance portfolio increased by 32 basis points.

The fiscal 2021 TEY on the securities portfolio decreased by 68 basis points to 1.66% as compared to the same period of the prior year.

The Company's average interest-earning assets for fiscal 2021 increased $948.1 million, or 15%, to $7.28 billion, from $6.33 billion during fiscal 2020.

The increase was primarily attributable to increases in average cash balances of $683.7 million and total average investment securities of $317.9 million, partially offset by a decrease in average loan and lease balances of $53.6 million.

The increase in average cash balances was due to an increase in noninterest-bearing deposit balances related to government stimulus-related dollars.

The decrease in the Company's average loan and lease balances was driven by a reduction $600.4 million in community banking loans partially offset by increases of $448.9 million, $66.2 million, and $37.3 million in commercial finance, tax services, and warehouse finance loans, respectively.

The Company’s average balance of total deposits and interest-bearing liabilities increased $864.1 million, or 14%, to $7.09 billion during fiscal 2021, from $6.23 billion during fiscal 2020.

This increase was primarily due to increases in average noninterest-bearing deposits of $2.04 billion, partially offset by a decrease in average wholesale deposits of $931.7 million and a decrease in the average balance of total borrowings of $296.5 million.

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 attributable 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 loan and lease portfolio increased primarily related to increased yields in the tax services portfolio.

The increase in tax services yields for fiscal 2022 compared to fiscal 2021 was due to a change in mix between interest and fee income.

The fiscal 2022 TEY on the securities portfolio increased by 39 basis points to 2.05% as compared to the same period of the prior year.

The Company's average interest-earning assets for fiscal 2022 decreased $924.0 million, or 13%, to $6.35 billion, from $7.28 billion during fiscal 2021.

The decrease was primarily attributable to a decrease in average cash balances of $1.42 billion, partially offset by increases in total average investment securities of $390.4 million, and in average loan and lease balances of $109.0 million.

The increase in the Company's average loan and lease balances was driven by growth of $335.3 million and $102.9 million in commercial finance and warehouse finance loans, respectively, partially offset by the sale of the remaining community bank portfolio of $340.5 million.

The Company’s average balance of total deposits and interest-bearing liabilities decreased $973.8 million, or 14%, to $6.12 billion during fiscal 2022, from $7.09 billion during fiscal 2021.

This decrease was primarily due to decreases in average interest-bearing deposits of $310.7 million and noninterest-bearing deposits of $664.0 million, partially offset by an increase in the average balance of total borrowings of $0.9 million.

Overall, the Company’s cost of funds for all deposits and borrowings averaged 0.08% during fiscal 2022, compared to 0.10% during fiscal 2021.

The cost of deposits was 0.01% during fiscal 2021, compared to 0.12% during fiscal 2020.

This decrease was primarily due to a decrease in the average balance of overnight borrowings and FHLB advances as well as an increase in the average balance of the Company's noninterest-bearing deposits.

The cost of deposits was 0.01% during fiscal 2022, the same as during fiscal 2021.

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 rise, because the Company anticipates that its cost of funds will likely remain relatively low, increasing less than at many other banks.

Provision for Credit Losses

Effective October 1, 2020, the Company adopted the CECL accounting standard, which required a day one entry to increase the allowance for credit losses in the amount of $12.8 million.

The entry did not have a direct impact to the provision for credit losses at the time of adoption.

During fiscal 2022, the Company recorded $28.5 million in provision for credit losses, compared to $49.8 million in fiscal 2021.

The decrease in provision was largely attributable to the build in reserves during the prior year stemming from the COVID-19 pandemic.

The decrease in provision was primarily driven by a reversal of provision for credit losses related to the community bank and student loan portfolio sales, along with a decrease in commercial finance provision expense.

Also see Note 4 to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

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Noninterest income increased by $22.9 million, or 8%, to $293.8 million for fiscal 2022 from $270.9 million for fiscal 2021.

The increase in noninterest income was primarily driven by tax advance fee income and payments fee income.

The payments fee income was aided by an increase in activity related to government stimulus programs.

The increase in noninterest income was primarily driven by gain on sale of trademarks, partially offset by loss on sale of other and a reduction in other income.

Within payment card and deposit fee income, the Company recognized $6.4 million from servicing fee income on off-balance sheet deposits during the fiscal year ended September 30, 2022.

The amount of servicing fee income recognized during the prior period was not significant.

Noninterest Expense

Noninterest expense increased by $41.6 million, or 12%, to $385.3 million for fiscal 2022 from $343.7 million for fiscal 2021.

This increase in noninterest expense was primarily driven by an increase in compensation expense of $14.8 million and in legal and consulting expense of $10.5 million.

CEO transition expenses of $1.3 million related to accelerated vesting of CEO shares and associated professional expenses also contributed to the year-over-year change.

This increase in noninterest expense was primarily driven by an increase in compensation expense of $20.0 million, in card processing expense of $11.6 million, and in legal and consulting expense of $9.3 million.

The card processing 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

The Company recorded an income tax expense of $28.0 million for fiscal 2022, resulting in an effective tax rate of 15.2%, compared to an income tax expense of $10.7 million and an effective tax rate of 7.0%, in fiscal 2021.

The increase in recorded income tax expense during the period was primarily due to an increase in taxable income.

The Company originated $101.1 million in solar leases for the 2021 fiscal year, compared to $77.8 million during the 2020 fiscal year.

Investment tax credits related to solar leases are recognized ratably based on income throughout each fiscal year.

The timing and impact of future solar tax credits are expected to vary from period to period, and Meta intends to undertake only those tax credit opportunities that meet the Company's underwriting and return criteria.

Comparison of Operating Results for the Fiscal Years Ended

September 30, 2020, and September 30, 2019

The increase in recorded income tax expense during the period was primarily due to a decrease in the investment tax credit.

For the fiscal year ended September 30, 2022, the Company originated $62.8 million in solar leases, compared to $101.1 million for the comparable prior year period.

The timing and impact of future solar tax credits are expected to vary from period to period, and the Company intends to undertake only those tax credit opportunities that meet the Company's underwriting and return criteria.

Comparison of Operating Results for the Fiscal Years Ended September 30, 2021, and September 30, 2020

A comparison of the 2021 results to the 2020 results and other 2020 information not included herein can be found in the Company's Annual Report on Form 10-K:

Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” filed November 30, 2020.

Nonperforming Assets and Allowance for Credit Losses

At September 30, 2021, nonperforming assets, consisting of nonaccruing loans and leases, accruing loans and leases delinquent 90 days or more, foreclosed real estate, repossessed property, and nonperforming operating leases, totaled $61.8 million, or 0.92% of total assets, compared to $48.0 million, or 0.79% of total assets, at September 30, 2020.

The increase in NPAs was primarily attributable to one $14.9 million relationship in the community bank portfolio along with increases in tax services and commercial finance loans, partially offset by a reduction of foreclosed and repossessed assets.

As of September 30, 2021, the Company had nonaccruing loans and leases totaling $34.2 million and foreclosed and repossessed assets of approximately $2.1 million.

The Company maintains an allowance for credit losses because it is probable that some loans and leases may not be repaid in full.

At September 30, 2021, the Company had an allowance for credit losses of $68.3 million as compared to $56.2 million at September 30, 2020.

The increase was driven by a $18.3 million increase in the commercial finance portfolio and a $3.7 million increase in the consumer lending portfolio.

These increases were driven by the year-over-year loan growth and the adoption of the CECL accounting standard, which required a day one entry to increase the allowance for credit losses in the amount of $12.8 million effective October 1, 2020.

The increases noted above were partially offset by a $10.0 million reduction within the retained community banking portfolio, as the balance in community bank loans declined.

The following table presents the Company's allowance for credit losses as a percentage of its total loans and leases.

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 considers these relationships as being in the process of collection.

Insurance premium finance loans, consumer finance and tax services loans are generally not placed on nonaccrual status, but are instead written off when the collection of principal and interest become doubtful.

Loans and leases, or portions thereof, are charged-off when collection of principal becomes doubtful.

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.

The table below sets forth the amounts and categories of the Company's nonperforming assets.

(Dollars in thousands) September 30, 2022 September 30, 2021

Nonperforming Loans and Leases

Nonaccruing loans and leases:

Commercial finance $ 13,375 $ 19,330

Community banking — 14,915

Total nonaccruing loans and leases 13,375 34,245

Accruing loans and leases delinquent 90 days or more:

Commercial finance 4,142 12,489

Consumer finance 2,793 1,236

Tax services (1)

Total accruing loans and leases delinquent 90 days or more 15,808 21,687

Total nonperforming loans and leases 29,183 55,932

Nonperforming operating leases 1,736 3,824

Foreclosed and repossessed assets:

Commercial finance 1 2,077

Total foreclosed and repossessed assets 1 2,077

Total other assets 1,737 5,901

Total nonperforming assets $ 30,920 $ 61,833

Total as a percentage of total assets 0.46 % 0.92 %

(1) Certain tax services loans do not bear interest.

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

Classified Assets .

Federal regulations provide for the classification 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, 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.

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 $68.3 million at September 30, 2021.

Th e $22.3 million year-o ver-year decrease in the ACL was primarily driven by a $12.3 million decrease attributable to the disposition of the community banking portfolio, along with a $5.9 million decrease in the consumer finance portfolio and a $4.1 million decrease in the commercial finance portfolio.

The following table presents the Company's ACL as a percentage of its total loans and leases.

As of the Period Ended

September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 October 1, 2020 (1)

September 30, 2020

September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021

Commercial finance 1.46 % 1.56 % 1.66 % 2.04 % 1.77 %

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Total loans and leases 1.30 % 2.04 % 2.38 % 1.84 % 1.89 %

(1) Represents the Company's allowance coverage ratio upon the adoption of the Accounting Standards Update 2016-13 using September 30, 2020 loan and lease and allowance balances plus the CECL allowance adjustment..

Allowance for credit losses as a percentage of the total loan and lease portfolio was 1.89% at September 30, 2021, compared to 1.70% at September 30, 2020.

This increase was driven primarily by the adoption of the CECL accounting standard noted above.

The CECL methodology 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, which led to the increase in the ACL as of the October 1, 2020 adoption date.

During fiscal year 2021, the Company had net charge-offs of $50.6 million, of which $33.3 million were related to the tax services portfolio.

During fiscal year 2020, the Company had net charge-offs of $37.7 million, of which $22.0 million were related to the tax services portfolio.

The charge-offs within the tax services portfolio were fully reserved for.

Management closely monitors economic developments both regionally and nationwide, and considers these factors when assessing the appropriateness of its allowance for credit losses.

The Company continued to assess each of its loan and lease portfolios during the fiscal fourth quarter and increased its allowance for credit losses as a percentage of total loans and leases in the community bank and commercial finance portfolios primarily as a result of the ongoing COVID-19 pandemic, as noted above.

Tax services coverage rates were driven only by typical seasonal activity and are not expected to be materially impacted by COVID-19 as the tax lending season is now complete.

The Company expects to continue to diligently monitor the allowance for credit losses and adjust as necessary in future periods to 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 credit losses at September 30, 2021 reflected an appropriate allowance against inherent credit losses from the lending portfolio.

Although the Company maintains its allowance for credit losses at a level it considers to be appropriate, investors and others are cautioned that there can be no assurance that future losses will not exceed estimated amounts, or that additional provisions for loan and lease losses will not be required in future periods.

In addition, the Company’s determination of the allowance for credit losses is subject to review by the OCC, which can require the establishment of additional general or specific allowances.

Management’s periodic review of the allowance for credit 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 and lease situations, the majority of the allowance is based on both subjective and objective factors related to the overall loan and lease portfolio and is available for any loan and lease 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 credit 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 credit losses, and the Company is subject to similar review by the Federal Reserve.

In determining the allowance for credit losses, the Company specifically identifies loans and leases it considers as having potential collectability problems.

The Company believes these loans and leases possess weaknesses that merit additional analysis in establishing the allowance for credit losses.

All other loans and leases are evaluated by applying estimated loss ratios to various pools of loans and leases.

The Company then analyzes other applicable qualitative factors (such as economic conditions) in determining the aggregate amount of the allowance needed.

At September 30, 2021, $8.9 million of the allowance for credit losses was allocated to loans and leases individually evaluated for credit losses.

See Note 5 of 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.

At September 30, 2020, $5.1 million of the allowance for credit losses was allocated to impaired loans and leases.

The Company maintains an internal loan and lease 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 and leases.

All loan officers are charged with the responsibility of risk rating all loans and leases in their portfolios and updating the ratings, positively or negatively, on an ongoing basis as conditions warrant.

The level of potential problem loans and leases is another predominant factor in determining the relative level of risk in the loan and lease portfolio and in determining the appropriate level of the allowance for credit losses.

Potential problem loans and leases are generally defined by management to include loans and leases rated as substandard by management that are not considered nonperforming ( i.e.

, non-accrual loans and leases and accruing troubled debt restructurings), but there are circumstances that create doubt as to the ability of the borrower to comply with repayment terms.

The decision of management to include performing loans and leases in potential problem loans and leases does not necessarily mean that the Company expects losses to occur, but that management recognizes a higher degree of risk associated with these loans and leases.

The loans and leases that have been reported as potential problem loans and leases are predominantly commercial loans and leases covering a diverse range of businesses and real estate property types.

The Company 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 the loan and lease risk ratings, resulting in downgrades of certain credits in several categories.

The Company's loan and collateral management practices have proven effective in managing losses during previous economic cycles;

and while management expects this process will result in setting a new baseline for portfolio metrics going forward, management does not believe it indicates a deterioration in expected performance of the portfolio.

At September 30, 2021, potential problem loans and leases totaled $276.7 million compared to $67.9 million at September 30, 2020.

Total loans and leases excluding tax services 1.30 % 1.44 % 1.59 % 1.84 % 1.89 %

The Company's ACL as a percentage of total loans and leases decreased to 1.30% at September 30, 2022 from 2.04% at June 30, 2022.

The decrease in the total loans and leases coverage ratio was primarily driven by the seasonal tax services loan portfolio, along with a decrease in the coverage ratio for both the commercial and consumer finance portfolios.

The decrease in the consumer finance portfolio coverage ratio was attributable to the sale of the student loan portfolio.

The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s financial statements are prepared in accordance with GAAP.

The financial information contained within these financial statements is, to a significant extent, based on approximate measures of the financial effects of transactions and events that have already occurred.

Management has identified its critical accounting policies, which are those policies described below as Critical Accounting 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.

Allowance for Credit Losses

The Company’s allowance for credit losses methodology estimates expected credit losses over the life of each financial asset as of the balance sheet date.

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 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 and forecasted economic conditions, 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 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.

Investment debt securities held to maturity include implicit and explicit guarantees by government agencies and have an expected zero risk of loss, therefore no provision for credit loss for debt securities held to maturity has been included in the Company’s Consolidated Statement of Operations.

Investment debt securities available for sale are recorded at fair value and are assessed quarterly for credit loss.

Any such credit loss is recorded in the Company’s Provision for Credit Loss on the Company’s Consolidated Statement of Operations.

Non-credit related losses are recorded in Other Comprehensive Income in the Company’s Consolidated Statement of Condition.

Although management believes the levels of the allowance for credit losses at September 30, 2022 and September 30, 2021 are adequate to absorb expected credit losses in the financial assets evaluated, a decline in local economic conditions or other factors could result in increasing losses.

Goodwill and Intangible Assets

The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, Business Combinations .

Under the acquisition method, the Company records assets acquired, including identifiable intangible assets, liabilities assumed, and any non-controlling interest in the acquired business at their fair values as of the acquisition date.

Any acquisition-related transaction costs are expensed in the period incurred.

Results of operations of the acquired entity are included in the Consolidated Statements of Operations from the date of acquisition.

Any measurement-period adjustments are recorded in the period the adjustment is identified.

The excess of consideration paid over the fair value of the net assets acquired is recorded as goodwill.

Determining the fair value of assets acquired, including identifiable intangible assets, liabilities assumed, and any noncontrolling interest often requires the use of significant estimates and assumptions.

This may involve estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques such as estimates of attrition, inflation, asset growth rates, discount rates, multiples of earnings or other relevant factors.

In addition, the determination of the useful lives over which an intangible asset will be amortized is subjective.

Goodwill and Intangibles to the Consolidated Financial Statements for further information.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of funds are deposits, derived principally through its payments division, borrowings, principal and interest payments on loans and leases and mortgage-backed securities, and maturing investment securities.

The Company’s primary sources of funds are deposits, derived principally through its BaaS business line, borrowings, principal and interest payments on loans and leases and mortgage-backed securities, and maturing investment securities.

In addition, the Company utilizes wholesale deposit sources to provide temporary funding when necessary or when favorable terms are available.

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Purchases of loans and leases totaled $115.4 million, $311.3 million, and $151.4 million during the fiscal years ended September 30, 2022, 2021 and 2020.

During the fiscal years ended September 30, 2021, 2020 and 2019, the Company purchased MBS and other securities in the amount of $1.04 billion, $297.8 million and $653.2 million, respectively.

During the fiscal years ended September 30, 2022, 2021 and 2020, the Company purchased MBS and other securities in the amount of $907.4 million, $1.04 billion and $229.3 million, respectively.

Of these purchases, there were no securities designated as held to maturity in fiscal 2022, 2021 and 2020.

At September 30, 2022, the Company had unfunded loan and lease commitments of $1.27 billion.

See Note 19 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.

Certificates of deposit scheduled to mature in one year or less at September 30, 2022 totaled $5.9 million, of which $0.1 million were wholesale time deposits and $5.8 million were non-wholesale time deposits.

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however, the Company has the option to redeem them earlier.

In 2016, the Company completed a public offering of $75.0 million of its 5.75% fixed-to-floating rate subordinated debentures due August 15, 2026.

The debentures can be redeemed in whole or in part at par by the Company on any interest payment date on or after August 15, 2021, with regulatory approval.

On May 15, 2022, the Company retired the outstanding $75.0 million of its 5.75% fixed-to-floating rate subordinated debentures due August 15, 2026.

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.

The Company has used and intends to continue to use the net proceeds of the offering for general corporate purposes and repurchases of the Company's common stock.

Through the Crestmark Acquisition, consummated in the fourth quarter of fiscal 2018, 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.

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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.

No assurance can be given that our regulators will consider our liquidity level, or our capital level, though substantially in excess of current rules pursuant to which the Company and the Bank are considered “well-capitalized,” to be sufficiently high in the future.

Impact of New Accounting Standards

See Note 1 to the Consolidated Financial Statements for information regarding recently issued accounting pronouncements.

Critical Accounting Estimates

The Company’s financial statements are prepared in accordance with GAAP.

Management has identified the policies described below as Critical Accounting Estimates.