What changed in this filing

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Item 1. Business

2023-11-21 compared with 2022-11-22 · 158 added, 290 removed, 870 unchanged (34% of the section changed)

Pathward Financial, a registered bank holding company, was incorporated in Delaware on June 14, 1993.

Pathward Financial's principal assets are all the issued and outstanding shares of the Bank, a South Dakota chartered, national bank, the accounts of which are insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC") as administrator of the Deposit Insurance Fund (“DIF”).

Pathward Financial, a registered bank holding company ("BHC") that has elected to be a financial holding company ("FHC"), was incorporated in Delaware on June 14, 1993.

Pathward Financial's principal assets are all the issued and outstanding shares of the Bank, a chartered national bank, the accounts of which are insured up to applicable limits by the Federal Deposit Insurance Corporation ("FDIC") as administrator of the Deposit Insurance Fund (“DIF”).

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

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The Company's purpose of Financial Inclusion for All™ means everyone deserves access to high quality financial services.

It is why for the past two decades Pathward Financial has been building solutions to help those who have been underserved by traditional banking providers.

This is why for the past two decades Pathward Financial has been building solutions to help those who have been underserved by traditional banking providers.

The Company strives to remove barriers to financial access and promote economic mobility by working with third parties to provide responsible, secure, high quality financial products that contribute to the social and economic benefit of communities at the core of the real economy.

Pathward Financial strives to increase financial availability, choice, and opportunity across two business lines:

Pathward Financial aims to increase financial availability, choice, and opportunity across two business lines:

BaaS and Commercial Finance.

These strategic business lines provide end-to-end support to individuals and businesses.

As a nationally chartered bank, Pathward sits at the hub of the financial ecosystem.

As a nationally chartered bank, Pathward sits at the hub of the financial ecosystem where traditional banking and financial technology intersect.

With expert talent and access to world-class partners, Pathward moves money seamlessly across a multitude of solutions while mitigating risk by anticipating changes to a complicated, regulatory landscape.

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Segment Reporting for further information on the reportable segments.

The business of the Bank is to collaborate with partners through the BaaS business line to provide solutions that attract low-cost deposits and generate fee income.

The low-cost deposits are primarily invested into loan and lease products offered through the Commercial Finance business line.

In addition to originating loans and leases, the Bank also occasionally contracts to sell loans, such as consumer credit product loans, refund advance loans, and government guaranteed loans to third party buyers.

The business of the Bank is to collaborate with partners through the BaaS business line to provide solutions that attract stable deposits and generate fee income.

The deposits are primarily invested into loan and lease products offered through the Commercial Finance business line.

In addition to originating loans and leases, the Bank also occasionally contracts to sell loans, such as consumer credit product loans, government guaranteed loans, and other commercial loans to third party buyers.

The Bank also sells and purchases loan participations from time to time to and from other financial institutions, as well as mortgage-backed securities ("MBS") and other investments permissible under applicable regulations.

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payment, issuing, credit, and tax.

Payment solutions accepts and processes payments for all customers' personal and business needs.

Payment solutions accept and process payments for all customers' personal and business needs.

The Bank moves funds daily through high speed banking rails, including ACH, wire transfers, and push to debit.

With its issuing solutions, Pathward is one of the leading debit and prepaid card issuers in the country and holds funds for the programs of its partners in order to provide the consumer protections of a traditional bank account.

Credit solutions enables the Bank's partners' lending solutions that serve the borrowing needs of customers in a diverse credit pool.

Tax solutions offer electronic refund advances and refund transfers with some of the largest tax companies, as well as thirty-thousand independent tax preparers nationwide.

Credit solutions enable the Bank's partners' lending solutions that serve the borrowing needs of customers in a diverse credit pool.

Tax solutions offer tax-related financial products, such as electronic refund advances and refund transfers, that ease the pressure of tax season and help over 30,000 independent tax offices stay competitive in a crowded marketplace.

The Commercial segment includes the Company's Commercial Finance business line, which helps businesses access funds they need to launch, operate, and grow.

Pathward's innovative approach and customized financial products offer the flexibility traditional bank products cannot.

This diverse range of commercial financial products is available through the following lending solutions:

This diverse range of commercial finance products is available through the following lending solutions:

working capital, equipment finance, structured finance, and insurance premium finance.

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Pathward Venture Capital focuses on investing in companies in the financial services industry.

First Midwest Financial Capital Trust I, a wholly-owned subsidiary of Pathward Financial, was established in July 2001 and Crestmark Capital Trust I, acquired by the Company in August 2018, was established in June 2005.

First Midwest Financial Capital Trust I, a wholly-owned subsidiary of Pathward Financial, was established in July 2001 and Crestmark Capital Trust I, a wholly-owned subsidiary of Pathward Financial and acquired by the Company in August 2018, was established in June 2005.

Both subsidiaries were established for the purpose of issuing trust preferred securities.

Lending Activities

The Company focuses its lending activities on the origination of commercial finance loans, consumer finance loans and tax services loans.

The Company focuses its lending activities on the origination of commercial finance loans and leases, consumer finance loans and tax services loans.

The Company emphasizes credit quality and seeks to avoid undue concentrations of loans and leases to a single industry or based on a single class of collateral.

The Company has established lending policies that include a number of underwriting factors that it considers in making a loan, including loan-to-value ratio, cash flow, interest rate and credit history of the borrower.

The Company has established lending policies that include a number of underwriting factors it considers in making a loan, including loan-to-value ratio, cash flow, interest rate and credit history of the borrower.

At September 30, 2023, the Company’s loans and leases receivable, net of allowance for credit losses, totaled $4.32 billion, or 57% of the Company’s total assets, as compared to $3.49 billion, or 52%, at September 30, 2022.

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Warehouse finance 141,421 3.2 % 252,276 7.1 %

Community banking — — % 190,240 5.3 %

Total fixed-rate loans and leases 2,827,811 64.9 % 2,303,389 65.3 %

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Commercial finance 1,296,376 29.7 % 1,151,417 32.6 %

Consumer finance — — % 98,688 2.7 %

Tax services (1)

Warehouse finance 235,494 5.4 % 74,574 2.1 %

Community banking — — % 8,892 0.3 %

Total adjustable-rate loans and leases 1,531,870 35.1 % 1,225,991 34.7 %

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Total loans and leases receivable, net $ 4,316,411 $ 3,490,358

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

The following table illustrates the contractual maturities of the Company’s loan and lease portfolio and the distribution by changes in interest rates for loans with a contractual maturity greater than one year at September 30, 2023.

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The primary sources of repayment are the collection of the receivables and/or the sale of the inventory securing the loan, as well as the operating income of the borrower.

Loans are typically revolving lines of credit with terms of one year to three years, whereby the Bank withholds a contingency reserve representing the difference between the amount advanced and the fair value of the invoice amount or other collateral value.

Loans are typically revolving lines of credit with terms of one year to three years.

Credit risk is managed through advance rates appropriate for the collateral (generally, advance rates on accounts receivable ranges from 80% to 90% and inventory advance rates range from 40% to 60%).

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As of September 30, 2023, approximately 60% of asset-based loans were backed by accounts receivable.

The Bank provides factoring lending where clients provide detailed accounts receivable reporting for lending arrangements.

The factoring clients are diversified as to industry and geography.

With these loans, the Commercial Finance business line withholds a contingency reserve, which is the difference between the fair value of the invoice amount or other collateral value and the amount advanced (generally, advance rates range between 80% and 95% on accounts receivable).

This reserve is withheld for nonpayment of factored receivables, service fees and other adjustments.

Credit risk is managed through standardized advance policies, established and authorized credit limits, verification of receivables, attentive portfolio management and the use of lock box agreements and similar arrangements which result in the Company receiving and controlling the client's cash receipts.

In addition, clients generally guarantee the payment of purchased accounts receivable.

The Bank provides factoring lending where customers provide detailed accounts receivable reporting for lending arrangements.

The factoring customers are diversified as to industry and geography.

With these loans, the Commercial Finance business lends a percentage of eligible accounts receivable invoices.

Advance rates generally range between 80% and 95%.

In addition, customers generally guarantee the payment of purchased accounts receivable.

Lease Financing.

The Bank provides creative, flexible lease solutions for equipment needs of its clients.

The Bank provides creative, flexible lease solutions for equipment needs of its customers.

Leases that transfer substantially all of the benefits and risks of ownership to the lessee are accounted for as sales-type or direct financing leases.

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The Bank originates loans through programs partially guaranteed by the SBA or USDA.

These loans are made to small businesses and professionals.

Certain guaranteed portions of these loans are sold to the secondary market.

SBA loans are made to small businesses and professionals.

Generally, the Bank provides USDA loans to alternative energy project developers and the hotel industry.

Certain guaranteed portions of these loans may be sold to the secondary market.

See "Originations, Sales and Servicing of Loans and Leases" below for further details.

The Company is also participating in the Paycheck Protection Program (the "PPP") which is being administered by the SBA.

The Company expects that the major portion of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program.

Loans funded through the PPP are fully guaranteed by the U.S.

As of September 30, 2022, the Company had 41 loans outstanding with total loan balances of $13.5 million originated as part of the PPP.

Other Commercial Finance.

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Consumer Finance

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

Consumer Credit Products.

The Bank designs its credit program relationships with certain desired outcomes.

Three high priority outcomes are liquidity, credit protection, and risk retention by the program partner.

The Bank offers a variety of installment and revolving consumer lending products through its credit solutions.

The Bank designs its credit program relationships with certain desired outcomes, including liquidity, credit protection, and risk retention by the program partner.

The Bank believes the benefits of these outcomes not only support its goals but the goals of the credit program partner as well.

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See "Originations, Sales and Servicing of Loans and Leases" below for further details.

As of September 30, 2022, the Bank has multiple consumer credit programs.

The loan products offered under these programs are generally closed-end installment loans with terms between 12 months and 84 months.

Emerald Advance.

Through the Bank’s partner program, the Bank serves as the originator of a line of credit, where customers draw on a line of credit and the balance must be paid down to zero by February 15 to maintain an account with good standing.

Funds are loaded onto a prepaid card and the line of credit gives customers the ability to repeatedly borrow and repay money and has an annual resting period from January 27 to February 15 during which draws cannot generally be made.

As of September 30, 2022, there were no outstanding loan balances on the Company's balance sheet for this product type.

The Company expects balances on the line of credit to increase with the new Emerald Advance promotional period in the first quarter of fiscal 2023.

Other Consumer Finance

Student Lending.

During the fourth quarter of fiscal 2022, the Bank sold its entire student loan portfolio consisting of seasoned, floating rate, private portfolios serviced by a third-party servicer.

The Bank's BaaS business line also offers tax solutions, which includes short-term refund advance loans and short-term electronic return originator ("ERO") advance loans.

The Bank's BaaS business line offers tax solutions, which includes short-term refund advance loans and short-term electronic return originator ("ERO") advance loans.

Refund Advance Loans.

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In the event of default, the Bank has no recourse against the taxpayer.

The Bank will charge off the balance of a refund advance loan if there is a balance at the end of the calendar year, or when collection of principal becomes doubtful.

When collection of principal becomes doubtful, the Bank will charge off the balance of a refund advance loan on September 30.

Any remaining balances are charged off at the end of the calendar year.

The Bank may record recoveries of previously charged off loans if collected in subsequent tax years.

ERO Advance Loans.

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These facilities are primarily collateralized by consumer receivables, with the Bank holding a senior collateral position enhanced by a subordinate party structure.

Community Banking

The Company completed its final sale of retained Community Bank loans in the first quarter of fiscal 2022.

Originations, Sales and Servicing of Loans and Leases

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The servicing fee is recognized as income over the life of the loans.

As of September 30, 2022, the Company was servicing $336.6 million SBA/USDA loans.

As of September 30, 2023, the Company was servicing $318.8 million of SBA/USDA loans and $13.7 million of term lending loans.

The Company may sell the guaranteed portion of its SBA 7(a) loans and USDA program loans in the secondary market.

These sales have resulted in premium income for the Company at the time of sale and created a stream of future servicing income.

These sales have resulted in gains for the Company at the time of sale and created a stream of future servicing income.

When the Company sells the guaranteed portion of its loans, it retains credit risk on the non-guaranteed portion of the loans, and, if a customer defaults on the loan, the Company shares any loss and recovery related to the loan pro-rata with the SBA or USDA, as applicable.

If the SBA or USDA establishes that a loss on a guaranteed loan is attributable to significant technical deficiencies in the manner in which the loan was originated, funded or serviced by the Company, the SBA or USDA may seek recovery of the principal loss related to the deficiency from the Company, which could materially adversely affect our business, results of operations and financial condition.

The Company sold additional loans from the retained Community Bank portfolio in the amount of $192.5 million and $308.1 million for the fiscal years ended September 30, 2022 and 2021, respectively.

All loans from the retained Community Bank portfolio have been sold as of December 31, 2021.

In the normal course of business, the Company enters into off-balance sheet transactions with special purpose entities ("SPEs").

See Note 1 to the "Notes of Consolidated Financial Statements," which is included in Part II, Item 8 "Financial Statements and Supplementary Date" of this Annual Report on Form 10-K, for more information on these transactions.

In periods of economic uncertainty, the Company’s ability to originate large dollar volumes of loans and leases may be substantially reduced or restricted, with a resultant decrease in related loan origination fees, other fee income and operating earnings.

In addition, the Company’s ability to sell loans may substantially decrease if potential buyers (principally government agencies) reduce their purchasing activities.

In addition, the Company’s ability to sell loans may substantially decrease if potential buyers reduce their purchasing activities.

The following table shows the loan and lease originations (including draws, loan and lease renewals, and undisbursed portions of loans and leases in process), purchases, and sales and repayment activities of the Company for the periods indicated.

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Warehouse finance 212,706 112,255

Community banking — 3,318

Total loans and leases purchased 213,186 115,353

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(Dollars in thousands) Number of Loans Amount Percent of Category Number of Loans Amount Percent of Category Number of Loans Amount Percent of Category

Loans held for sale 27 $ 626 2.3 % 25 $ 549 4.5 % 15 $ 306 1.1 %

Commercial finance 364 23,434 86.6 % 255 9,143 75.5 % 981 20,352 72.8 %

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Commercial finance $ 37,372 $ 13,375

Community banking — 14,915

Total nonaccruing loans and leases 37,372 13,375

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At September 30, 2023, the Company had $37.4 million in nonaccruing loans and leases, which constituted 0.8% of the Company's gross loan and lease portfolio.

At September 30, 2021, the Company had $34.2 million in nonaccruing loans which also constituted 0.9% of its gross loan and lease portfolio.

The fiscal 2022 decrease in nonaccruing loans and leases was primarily driven by a reduction of $14.9 million in the community bank portfolio, along with a decrease in the commercial finance portfolio.

At September 30, 2022, the Company had $13.4 million in nonaccruing loans which constituted 0.4% of its gross loan and lease portfolio.

The fiscal 2023 increase in nonaccruing loans and leases was primarily driven by one sizable relationship within the commercial finance portfolio.

Accruing Loans and Leases Delinquent 90 Days or More.

At September 30, 2023, the Company had $18.8 million in accruing loans and leases delinquent 90 days or more, compared to $15.8 million at September 30, 2022.

This balance of accruing loans and leases 90 days or more past due was mainly comprised of tax services, commercial finance, and consumer finance loans and leases.

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 Office of the Comptroller of the Currency (the "OCC"), to be of lesser quality as “substandard,” “doubtful” or “loss,” with each such classification dependent on the facts and circumstances surrounding the assets in question.

An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

“Substandard” assets include those characterized by the “distinct possibility” that the Bank will sustain “some loss” if the deficiencies are not corrected.

Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such minimal value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets.

When assets are classified as “loss,” the Bank is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount.

The Bank’s determinations as to the classification of its assets and the amount of its valuation allowances are subject to review by its regulatory authorities, which may order the establishment of additional general or specific loss allowances.

Pathward has revised its credit administration policies and reviewed its loan portfolio to better align with OCC guidance for national banks, a process that began during the quarter ending June 30, 2021 and was completed as of September 30, 2021.

These credit policy revisions had an impact on our loan and lease risk ratings, resulting in downgrades of certain credits in several categories.

Our loan and collateral management practices have proven effective in managing losses during previous economic cycles;

and this process resulted in setting a new baseline for portfolio metrics going forward, it does not indicate a deterioration in our portfolio's expected performance.

On the basis of management’s review of its 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.

Further, at September 30, 2022, the Company owned an insignificant amount of real estate or other assets as a result of foreclosure of loans, as compared to $2.1 million at September 30, 2021.

The increase in balance of accruing loans and leases 90 days or more past due was primarily within the commercial finance portfolio, partially offset by a reduction within the seasonal tax services portfolio.

For information on classified assets, see “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operation – Asset Quality” of this Annual Report on Form 10-K.

Allowance for Credit Losses.

Effective October 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , and subsequent related ASUs (collectively “Topic 326”), which measures credit loss for most financial assets, including trade and other receivables, debt securities held to maturity, loans, net investments in leases, purchased financial assets with credit deterioration, and off-balance sheet credit exposures.

ASU 2016-13 requires the use of a current expected credit losses ("CECL") methodology to determine the allowance for credit losses ("ACL") for loans and debt securities held to maturity.

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments requires the use of a current expected credit losses ("CECL") methodology to determine the allowance for credit losses ("ACL") for loans and debt securities held to maturity.

CECL requires loss estimates for the remaining estimated life of the assets to be measured using historical loss data, adjustments for current conditions, and adjustments for reasonable and supportable forecasts of future economic conditions.

The ACL represents management's estimate of expected credit losses over the life of each financial asset as of the balance sheet date.

The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets for credit loss, generally this means loans and leases identified as troubled debt restructurings or loans and leases on nonaccrual status.

Management has also identified certain structured finance credits for alternative energy projects in which a substantial cash collateral accounts have been established to mitigate credit risk.

Due to the nature of the transactions and significant cash collateral positions, these credits are evaluated individually.

All other loans and leases are evaluated collectively for credit loss.

A reserve for unfunded credit commitments such as letters of credit and binding unfunded loan 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.

See Note 1 to the "Notes of Consolidated Financial Statements," which is included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K, for more information of the ACL.

The following table sets forth an analysis of the Company’s ACL.

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Balance at beginning of period $ 45,947 $ 68,281

Impact of CECL Adoption:

Commercial finance (18,894) (25,422)

Consumer finance (2,263) (4,787)

Warehouse finance — (1)

Community banking — (5,937)

Total Impact of CECL Adoption — 12,773

Commercial finance (25,422) (19,451)

Consumer finance (4,787) (3,324)

Tax services (38,741) (30,852)

Community banking — (144)

Total charge-offs (59,898) (61,061)

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Commercial finance 15,649 3,220,585 0.5 % 19,088 2,884,585 0.7 %

Consumer credit products — 182,447 — % — 108,060 — %

Other consumer finance 4,442 112,909 3.9 % 3,004 140,697 2.1 %

Consumer finance 2,263 231,242 1.0 % 4,442 295,356 1.5 %

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Commercial finance 46,980 85.4 % 44,152 85.6 %

Consumer credit products 1,400 4.1 % 1,242 3.6 %

Other consumer finance 63 0.7 % 6,112 3.4 %

Consumer finance 2,346 5.8 % 1,463 4.8 %

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Warehouse finance 377 8.7 % 327 9.3 %

Community banking — — % 12,262 5.5 %

Total $ 49,705 100.0 % $ 45,947 100.0 %

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The Company's ACL as a percentage of total loans and leases decreased to 1.14% at September 30, 2023 from 1.30% at September 30, 2022.

The decrease in the total loans and leases coverage ratio was primarily driven by the sale of the community bank 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 decrease in the total loans and leases coverage ratio was primarily driven by a decrease in the coverage ratio for the commercial finance portfolio which was due to both quantitative and qualitative factors.

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

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The investment policy of the Company generally is to invest funds among various categories of investments and maturities based upon the Company’s need for liquidity, to achieve the proper balance between its desire to minimize risk and maximize yield, to provide collateral for borrowings and to fulfill the Company’s asset/liability management policies.

The Company’s investment and MBS portfolios are managed in accordance with a written investment policy adopted by the Board of Directors, which is implemented by members of the Company’s Asset/Liability Committee.

The Company’s investment and MBS portfolios are managed in accordance with a written investment policy, which is implemented by members of the Company’s Asset/Liability Committee.

The Company closely monitors balances in these accounts and maintains a portfolio of highly liquid assets to fund potential deposit outflows or other liquidity needs.

To date, the Company has not experienced any significant outflows related to the BaaS business line deposits, though no assurance can be given that this will continue to be the case.

As of September 30, 2022, investment securities and MBS with fair values of approximately $924.2 million and $804.0 million were pledged as collateral for the Bank’s Federal Reserve Bank (“FRB”) advances and Federal Home Loan Bank of Des Moines (“FHLB”) advances, respectively.

To date, the Company has not experienced any unexpected significant outflows related to the BaaS business line deposits, though no assurance can be given that this will continue to be the case.

As of September 30, 2023, investment securities and MBS with fair values of approximately $773.6 million and $996.9 million were pledged as collateral to the Federal Reserve Bank (“FRB”) and the Federal Home Loan Bank of Des Moines (“FHLB”), respectively, to secure various obligations of the Company.

For additional information regarding the Company’s collateralization of borrowings, see Note 11 to the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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Subtotal debt securities AFS 578,703 533,872

Common equities and mutual funds (1)

Investment Securities Held to Maturity ("HTM")

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$ 262,225 $ 295,752

(1) Equity securities at fair value are included within other assets on the consolidated statements of financial condition at September 30, 2022 and 2021.

(1) Includes no taxable obligations of states and political subdivisions.

(3) From time to time, the Company maintains balances in excess of insured limits at various financial institutions, including the FHLB, the FRB, and other private institutions.

At September 30, 2022, the Company had $9.1 million and $295.8 million in interest bearing deposits held at the FHLB and FRB, respectively.

At September 30, 2021, the Company had $8.7 million and $184.7 million in interest bearing deposits held at the FHLB and FRB, respectively.

(2) From time to time, the Company maintains balances in excess of insured limits at various financial institutions, including the FRB, the FHLB,

and other private institutions.

At September 30, 2023, the Company had $260.3 million and $1.9 million in interest bearing deposits held at

the FRB and FHLB, respectively.

At September 30, 2022, the Company had $294.5 million and $1.3 million in interest bearing deposits held

at the FRB and FHLB, respectively.

Debt Securities

The composition and maturities of the Company’s available for sale ("AFS") and held to maturity ("HTM") investment debt securities portfolios at September 30, 2022, excluding equity securities and mutual funds, FHLB stock and MBS, are indicated in the following table.

The composition and maturities of the Company’s available for sale ("AFS") and held to maturity ("HTM") investment debt securities portfolios at September 30, 2023, excluding equity securities and mutual funds, FRB and FHLB stock, and MBS, are indicated in the following table.

The actual maturity of certain municipal housing related securities is typically less than its stated contractual maturity due to scheduled principal payments and prepayments of the underlying mortgages.

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Value Amortized Cost Fair

Available for Sale

Debt Securities AFS

Corporate securities $ — $ — $ 18,250 $ — $ 25,000 $ 18,250

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4.29 % 6.73 % 6.97 % 6.45 % 4.05 % 6.48 %

At September 30, 2022

1 Year or Less After 1 Year Through 5 Years After 5 Years Through 10 Years After 10 Years Total Investment Securities

(Dollars in thousands) Carrying

Value Carrying

Value Amortized Cost Fair

Held to Maturity

Debt Securities HTM

Non-bank qualified obligations of states and political subdivisions $ — $ — $ — $ 34,415 $ 34,415 $ 29,571

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(1) Yields on tax-exempt obligations have not been computed on a tax-equivalent basis.

The amortized cost of AFS and HTM investment debt securities increased $58.8 million at September 30, 2023 when compared to September 30, 2022 while the fair value of AFS and HTM investment debt securities increased $38.5 million over the same period.

These increases were primarily driven by an increase in asset-backed securities, partially offset by a reduction in non-bank qualified obligations of state and political subdivisions.

Mortgage-Backed Securities

The Company’s mortgage-backed and related securities portfolio as of September 30, 2023 consisted of securities issued by U.S.

Government agencies or instrumentalities, including those of Ginnie Mae, Fannie Mae, Freddie Mac and Farmer Mac, along with private label institutions.

The Ginnie Mae, Fannie Mae, Freddie Mac and Farmer Mac certificates are modified pass‑through MBS representing undivided interests in underlying pools of fixed‑rate, or certain types of adjustable-rate, predominantly single-family mortgages issued by these U.S.

Government agencies or instrumentalities, including those of Farmer Mac, Freddie Mac, Fannie Mae, and Ginnie Mae along with private label institutions.

The Farmer Mac, Freddie Mac, Fannie Mae, and Ginnie Mae certificates are modified pass‑through MBS representing undivided interests in underlying pools of fixed‑rate, or certain types of adjustable-rate, predominantly single-family mortgages issued by these U.S.

Government agencies or instrumentalities.

At September 30, 2022, the Company had a diverse portfolio of MBS with an amortized cost of $1.58 billion.

The fair market value of the MBS at September 30, 2022 was $1.35 billion.

At September 30, 2023, the Company had a diverse MBS portfolio with an amortized cost of $1.50 billion.

The fair market value of the MBS portfolio at September 30, 2023 was $1.23 billion.

MBS generally increase the quality of the Company’s assets by virtue of the insurance or guarantees that back them, are more liquid than individual mortgage loans, and may be used to collateralize borrowings or other obligations of the Company.

At September 30, 2022, $495.7 million, or 36.7%, of the Company’s MBS were pledged to secure various obligations of the Company.

At September 30, 2023, $1.17 billion, or 95.2%, of the Company’s MBS were pledged to secure various obligations of the Company.

While MBS carry a reduced credit risk as compared to whole loans, such securities remain subject to the risk that a fluctuating interest rate environment, along with other factors such as the geographic distribution and other underwriting risks inherent in the underlying mortgage loans, may alter the prepayment rate of such mortgage loans and so affect both the prepayment speed, and value, of such securities.

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Total MBS AFS $ 1,225,525 $ 1,348,997

At September 30,

(Dollars in thousands) 2022 2021

Held To Maturity

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Total MBS HTM $ 2,176 $ 2,589

The following tables set forth the contractual maturities of the Company’s MBS, excluding the effect of prepayments, periodic principal repayments and the adjustable-rate nature of these instruments, all of which typically lower the average life of these securities.

The following table sets forth the contractual maturities of the Company’s MBS, excluding the effect of prepayments, periodic principal repayments and the adjustable-rate nature of these instruments, all of which typically lower the average life of these securities.

At September 30, 2023

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Weighted average yield — % — % 5.73 % 5.93 % 2.74 % 5.92 %

At September 30, 2022

1 Year or Less After 1 Year Through 5 Years After 5 Years Through 10 Years After 10 Years Total Investment Securities

(Dollars in thousands) Carrying

Value Carrying

Value Amortized

Held To Maturity

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During periods of rising interest rates, these prepayments tend to decelerate as the prevailing market interest rates for mortgage rates increase and prepayment incentives dissipate.

Effective October 1, 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , and subsequent related ASUs (collectively “Topic 326”).

Under Topic 326, investment debt securities held to maturity are subject to an allowance for credit loss that reflects expected credit losses over the life of the financial asset, unless management concludes there is a zero risk of loss.

Under ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs (collectively, "Topic 326") investment debt securities held to maturity are subject to an allowance for credit loss that reflects expected credit losses over the life of the financial asset, unless management concludes there is a zero risk of loss.

The Company’s held to maturity debt security portfolio is limited to investments with implicit and explicit guarantees by government agencies.

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The adoption of CECL was inconsequential to debt securities available for sale.

Prior to adoption of ASU 2016-13, management identified securities with potential credit impairment that were other-than-temporary.

This process involved evaluation of the length of time and extent to which the fair value was less than the amortized cost basis, review of available information regarding the financial position of the issuer, monitoring the rating, watch, and outlook of the security, monitoring changes in value, cash flow projections, and the Company’s intent to sell a security or whether it is more likely than not we would be required to sell the security before the recovery of its amortized cost which, in some cases, extended to maturity.

To the extent we determined that a security was deemed to be other-than-temporarily impaired, an impairment loss was recognized.

In fiscal 2020, there were no other-than-temporary impairments recorded.

Equity Securities.

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All income or loss recognition or fair value adjustments, regardless of measurement methodology, are reflected in earnings as non-interest income.

Non-marketable equity investments measured under the equity method, or the measurement alternative method are reviewed for impairment each reporting period and is reported in earnings if applicable.

Non-marketable equity investments measured under the equity method, or the measurement alternative method are reviewed for impairment each reporting period and are reported in earnings if applicable.

Funding Activities

The Company’s sources of funds are deposits, borrowings, amortization and repayment of loan and lease principal, interest earned on or maturation of investment securities and funds provided from operations.

Borrowings, including FHLB advances, overnight federal funds purchased, repurchase agreements, other short-term borrowings, and funds available through the FRB Discount Window, may be used at times to compensate for seasonal reductions in deposits or deposit inflows at less than projected levels, may be used on a longer-term basis to support expanded lending activities, and may also be used to match the funding of a corresponding asset.

Borrowings, including FHLB advances, overnight federal funds purchased, repurchase agreements, other short-term borrowings, and funds available through the FRB Discount Window, may be used at times to compensate for seasonal reductions in deposits or deposit inflows at less than projected levels, may be used to compensate for short-term delays in deposit funding, may be used on a longer-term basis to support expanded lending activities, and may also be used to match the funding of a corresponding asset.

The Company offers a variety of deposit accounts having a wide range of interest rates and terms.

The Company’s deposits primarily consists of demand deposit accounts, savings accounts, money market savings accounts, and certificate accounts currently ranging in terms from three months to five years, many of which are related to prepaid cards.

The Company’s deposits primarily consist of demand deposit accounts, savings accounts, and money market savings accounts, many of which are related to the BaaS business line.

In addition, the Company may periodically utilize brokered or other wholesale deposits to target strategic maturities related to its seasonal refund advance lending.

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The Company endeavors to manage the pricing of its deposits in keeping with its asset/liability management and profitability objectives.

Based on its experience, the Company believes that deposits related to prepaid cards are relatively stable sources of deposits.

However, the ability of the Company to attract and maintain certificates of deposit and the rates paid on these deposits has been and will continue to be significantly affected by market conditions.

Beginning in fiscal year 2020, the Bank partnered with the U.S.

Department of the Treasury’s Bureau of the Fiscal Service (“Fiscal Service”) to disburse Economic Impact Payment (“EIP”) stimulus payments through the distribution of prepaid cards.

The Company’s BaaS business line, in collaboration with Fiserv and Visa, is serving in an ongoing role to provide a safe and secure mechanism for individuals, including the underbanked, to receive their stimulus payments.

In 2020, the Bank disbursed approximately $6.42 billion of the first round of EIP payments under the Coronavirus Aid, Relief, and Economic Security Act through the distribution of 3.6 million Bank-issued prepaid cards, and in 2021 disbursed approximately $7.10 billion of the second round of EIP payments under the Consolidated Appropriations Act of 2021 through the distribution of 8.1 million Bank-issued prepaid cards.

On March 11, 2021, the U.S.

Congress, through the American Rescue Plan Act of 2021, directed the Internal Revenue Service (“IRS”), to distribute a third round of EIP via the U.S.

Treasury to persons in the U.S.

eligible to receive them.

Through this third round, the Bank disbursed approximately $10.64 billion of EIP payments through the distribution of 4.7 million Bank-issued prepaid cards.

Of the 16.5 million prepaid cards issued in conjunction with the three EIP stimulus programs, totaling approximately $24.15 billion, $1.08 billion were outstanding as of September 30, 2022, of which $681.4 million of deposits was on Pathward Financial’s balance sheet with the remainder being held by other banks.

Based on its experience, the Company believes that deposits related to the BaaS business line are relatively stable sources of deposits.

However, the ability of the Company to attract and maintain deposits and the rates paid on these deposits has been and will continue to be significantly affected by market conditions.

During fiscal years 2020 and 2021, in partnership with the U.S.

Department of the Treasury’s Bureau of the Fiscal Service (“Fiscal Service”), the Bank issued 16.5 million prepaid cards in conjunction with the three Economic Impact Payment ("EIP") stimulus programs, totaling approximately $24.15 billion.

As of September 30, 2023, the Company had $897.5 million in deposits related to government stimulus funds.

Of the total amount of government stimulus program deposits, $340.7 million are on activated cards while $556.8 million are on inactivated cards.

During fiscal year 2024, these inactivated card balances are expected to decrease by approximately $380 million as the Company actively returns unclaimed balances to the U.S.

At September 30, 2023, $6.38 billion of the Company’s $6.59 billion deposit portfolio was attributable to the Consumer segment.

The majority of these deposits represent funds available to spend on prepaid debit cards and other stored value products, of which $5.63 billion are included with noninterest-bearing checking accounts, $65.9 million are included with savings deposits on the Company’s Consolidated Statements of Financial Condition.

The majority of these deposits represent funds available to spend on prepaid debit cards and other stored value products, of which $6.32 billion are included with noninterest-bearing checking accounts and $57.8 million are included with savings deposits on the Company’s Consolidated Statements of Financial Condition.

The BaaS business line originates debit card programs through outside sales agents and other financial institutions.

As such, these deposits carry a somewhat higher degree of concentration risk than traditional consumer products.

If a major client or card program were to leave the Bank, deposit outflows could be more significant than if the Bank were to lose a more traditional customer, although it is considered unlikely that all deposits related to a program would leave the Bank without significant advance notification.

If a major customer or card program were to leave the Bank, deposit outflows could be more significant than if the Bank were to lose a more traditional customer, although it is considered unlikely that all deposits related to a program would leave the Bank without significant advance notification.

As such, and as historical results indicate, the Company believes that its deposit portfolio attributable to the Consumer segment is stable.

The increase in deposits arising from the BaaS business line has allowed the Bank to reduce its reliance on wholesale deposits, certificates of deposit and public funds, which typically have relatively higher costs.

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:

At September 30,

(Dollars in thousands) 2022 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

The following table sets forth the deposit flows at the Company during the periods indicated.

Fiscal Year Ended September 30,

(Dollars in thousands) 2022 2021

Opening balance $ 5,514,971 $ 4,979,200

Deposits 1,414,581,944 1,041,660,076

Withdrawals (1,414,230,916) (1,041,124,905)

Interest credited 38 601

Ending balance $ 5,866,037 $ 5,514,971

Net increase $ 351,066 $ 535,772

Percent increase 6.37 % 10.76 %

For information on noninterest-bearing checking deposits, see "Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operation - Financial Condition" of this Annual Report on Form 10-K.

Approximately 49% of the deposit portfolio during the 2023 fiscal fourth quarter was subject to variable, rate-related processing expenses that are derived from the terms of contractual agreements with certain BaaS partners.

These agreements are tied to a rate index, typically the Effective Federal Funds Rate ("EFFR").

The following table sets forth the dollar amount of deposits in the various types of deposit programs offered by the Company for the periods indicated.

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Interest bearing checking 415 — % 423 — %

423 — % 254,721 4.6 %

Savings deposits 59,041 0.9 % 67,158 1.2 %

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Total deposits $ 6,589,182 100.0 % $ 5,866,037 100.0 %

(1) Of the total balance as of September 30, 2021, $254.3 million were interest-bearing deposits where interest expense was paid by a third party and not by the Company.

On October 1, 2021, the Company reclassified the balances related to that program to noninterest bearing checking due to the product moving to noninterest bearing.

(2) As of September 30, 2022, total time certificates of deposit included $0.1 million of wholesale certificates of deposit.

(1) As of September 30, 2023, total time certificates of deposit included no wholesale certificates of deposit.

As of September 30, 2023 and 2022, total deposits that exceed FDIC insurance limits, or are otherwise uninsured, were estimated to be $550.7 million and $211.4 million, respectively.

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September 30, 2024 — — — — — %

December 31, 2023 762 — — 762 9.8 %

March 31, 2024 1,045 — — 1,045 13.5 %

September 30, 2025 369 — — 369 6.7 %

Thereafter — — — — — %

Total $ 5,534 $ — $ — $ 5,534 100.0 %

Percent of total 100.0 % — % — % 100.0 %

The following table indicates the amount of the Company’s certificates of deposit and other deposits by time remaining until maturity as of September 30, 2022.

The following table indicates the amount of the Company’s certificates of deposit by time remaining until maturity as of September 30, 2023.

(Dollars in thousands) 3 Months or Less After 3 to 6 Months After 6 to 12 Months After 12 Months Total

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At September 30, 2023, there were no deposits from governmental or other public entities included in certificates of deposit.

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.

For information on custodial off-balance sheet deposits, see “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operation – Financial Condition” of this Annual Report on Form 10-K.

Although deposits are the Company’s primary source of funds, the Company’s practice has been to utilize borrowings when they are a less costly source of funds, can be invested at a positive interest rate spread, or when the Company desires additional capacity to fund loan demand.

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Such advances can be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities.

At September 30, 2022, the Bank had no overnight borrowings or term advances, but did have the ability to borrow up to an approximate additional $693.0 million from the FHLB.

On May 15, 2022, the Company retired the outstanding $75.0 million subordinated debt, which was due August 15, 2026.

At September 30, 2023, the Bank had $13.0 million overnight borrowings with the ability to borrow up to an approximate additional $785.0 million from the FHLB.

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.

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Distributions are paid semiannually.

Cumulative cash distributions are calculated at a variable rate LIBOR plus 3.75%, not to exceed 12.5%.

Cumulative cash distributions are calculated at 6-month CME Term SOFR plus 0.42826% tenor spread adjustment plus 3.75%, not to exceed 12.5%.

The Company may, at one or more times, defer interest payments on the capital securities for up to 10 consecutive semi-annual periods, but not beyond July 25, 2031.

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The preferential capital treatment of the Company’s trust preferred securities was grandfathered under the Dodd-Frank Act and is consistent with federal community bank capital rules.

The outstanding balance of the trust preferred securities at September 30, 2022 was $13.7 million .

Through the Crestmark Acquisition, the Company acquired $3.4 million in floating rate capital securities due to Crestmark Capital Trust I, a 100%-owned nonconsolidated subsidiary of the Company.

The subordinated debentures bear interest at LIBOR plus 3.00%, have a stated maturity of 30 years from the date of issuance and are redeemable by the Company at par, with regulatory approval.

The subordinated debentures bear interest at 3-month CME Term SOFR plus 0.26161% tenor spread adjustment plus 3.00%, have a stated maturity of 30 years from the date of issuance and are redeemable by the Company at par, with regulatory approval.

The interest rate is reset quarterly at distribution dates in February, May, August, and November.

The subsidiary has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years.

The Company previously offered retail repurchase agreements to its customers.

These agreements typically ranged from 14 days to five years in term, and typically were offered in minimum amounts of $100,000.

The proceeds of these transactions were used to meet cash flow needs of the Company.

At September 30, 2022, the Company had no retail repurchase agreements outstanding.

The following table sets forth the maximum month-end balance and average balance of FHLB advances, retail and reverse repurchase agreements, trust preferred securities, subordinated debentures, and overnight fed funds purchased for the periods indicated.

The outstanding balance of the trust preferred securities at September 30, 2023 was $13.7 million.

The following table sets forth the maximum month-end balance and average balance of trust preferred securities, subordinated debentures, overnight fed funds purchased, and other borrowings for the periods indicated.

Fiscal Year Ended September 30,

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Other borrowings 1,447 3,829

The following table sets forth certain information as to the Company’s FHLB advances, retail and reverse repurchase agreements, trust preferred securities, subordinated debentures, and overnight fed funds purchased.

The following table sets forth certain information as to the Company’s trust preferred securities, subordinated debentures, overnight fed funds purchased, and other borrowings.

At September 30,

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Subordinated debentures 19,591 20,000

Overnight fed funds purchased 13,000 —

Other borrowings 621 2,367

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Weighted average interest rate of subordinated debentures 6.63 % 6.63 %

Weighted average interest rate of overnight fed funds purchased 5.57 % — %

Payment, Issuing, and Tax Solutions

The Company's core capabilities of payment, issuing, and tax solutions focus on innovation in the finserv and fintech industries by providing solid banking infrastructure, proven tech resource partners, and high-energy collaboration that enables its partners to deliver banking programs that meet their customers' demands.

The BaaS business line offers a complement of payments related products and services that are marketed to consumers and businesses nationwide through financial institutions and other commercial entities.

The Company's core capabilities of payment, issuing, and tax solutions focus on innovation in the fintech industry by providing solid banking infrastructure, proven tech resource partners, and high-energy collaboration that enables its partners to deliver banking programs that meet their customers' demands.

The BaaS business line offers multiple payment solutions that are marketed to consumers and businesses nationwide through financial institutions and other commercial entities.

Other solutions facilitate the movement of funds between an entity and the audience they serve, typically a consumer.

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Payment solutions include the acceptance, processing and settlement of credit card and debit card payments by an acquiring bank on behalf of merchants.

Pathward acts as an acquiring bank to sponsor acquiring activity on behalf of merchant clients by leveraging partnerships with partners who act as merchant processors, third-party service providers, ISOs, and/or payment facilitators to identify, onboard and support merchant clients.

Pathward acts as an acquiring bank to sponsor acquiring activity on behalf of merchant customers by leveraging partnerships with partners who act as merchant processors, third-party service providers, ISOs, and/or payment facilitators to identify, onboard and support merchant customers.

Money Movement Solutions.

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Pathward is a Nacha Top 25 bank for receiving and originating payments.

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

As of September 2023, Pathward typically processes a combined $2.5 billion per day in ACH and wire services to provide safe and efficient movement of money.

ATM Sponsorship.

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Prepaid Cards.

Similar to traditional debit cards, prepaid cards are embedded with a magnetic stripe, which encodes relevant card data (which may or may not include information about the user and/or purchaser of such card), or an EMV chip, which is equipped with a microprocessor chip and the technology used to authenticate chip card transactions.

When the holder of such a card attempts a permitted transaction, necessary information, including the authorization for such transaction, is shared between the “point of use” or “point of sale” and authorization systems maintaining the account of record.

Similar to traditional debit cards, prepaid cards are embedded with a magnetic stripe, which encodes relevant card data (which may or may not include information about the user and/or purchaser of such card), and an EMV chip, which is equipped with a microprocessor chip and the technology used to authenticate chip card transactions.

When the holder of a card attempts a permitted transaction, necessary information, including the authorization for such transaction, is shared between the “point of use” or “point of sale” and authorization systems maintaining the account of record.

Most recently, “virtual” prepaid cards have become popular in the industry.

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Although the funds are held in pooled accounts, the account of record indicates the funds held by each individual card.

The cards may work in a closed loop (e.g., the card will only work at one particular merchant and will not work anywhere else), a "Restricted Access Network" (e.g., the card will only work at a specific set of merchants such as a shopping mall), or in an open loop by way of a Visa or MasterCard or Discover branded debit card that will work wherever such cards are accepted for payment.

The cards may work in a closed loop (e.g., the card will only work at one particular merchant and will not work anywhere else), a restricted access network (e.g., the card will only work at a specific set of merchants such as a shopping mall), or in an open loop by way of a Visa, MasterCard, or Discover branded debit card that will work wherever such cards are accepted for payment.

Most of the Company's prepaid cards are open loop.

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Consumer Banking Solutions.

Partners looking to offer financial services in an ecosystem typically employ a demand deposit account ("DDA"), savings account or debit card, or combination thereof.

Partners looking to offer financial services in an ecosystem typically employ a DDA, savings account or debit card, or combination thereof.

Pathward facilitates their ability to establish a direct deposit relationship with consumers, complete with online acceptance and digital funds transfer, as well as options such as overdraft protection in times of income shortfalls and the overall benefit of improved money management.

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Under the Refund Transfer program, the Bank opens a temporary bank account for each customer who is receiving an income tax refund and elects to defer payment of his or her tax preparation fees.

After the IRS and any state income tax authorities transfer the refund into the customer’s account, the net funds are transferred to the customer and the temporary deposit account is closed.

After, the IRS and any state income tax authorities transfer the refund into the customer’s account, the net funds are transferred to the customer.

The temporary deposit account remains available for use for two tax years, which allows for additional payments to be received in addition to federal and state refunds, and then the account is closed.

Regulation and Supervision

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On April 1, 2020, the Bank converted from a federal thrift charter to a national bank charter and the Company converted from a savings and loan holding company to a bank holding company (“BHC”) that has elected to be a financial holding company (a “FHC”).

As a national bank, the Bank is supervised and examined by the OCC, as its primary federal regulator, and the Federal Deposit Insurance Corporation (“FDIC”), the federal agency that administers the Deposit Insurance Fund (“DIF”).

As a national bank, the Bank is supervised and examined by the Office of the Comptroller of the Currency ("OCC"), as its primary federal regulator, and the FDIC, the federal agency that administers the DIF.

As a BHC, the Company is supervised and examined by the FRB.

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Although, as of the date of the filing of this Annual Report on Form 10-K, the interchange fee restrictions in the Durbin Amendment do not apply to the Bank because debit card issuers with total worldwide assets of less than $10 billion are exempt, such restrictions may negatively impact the pricing all debit card processors in the market, including the Bank, may charge.

Debit Card Transactions.

On October 3, 2022, the Federal Reserve updated its rules concerning debit card transactions under Regulation II (12 C.F.R.

Part 235) consistent with the Federal Reserve's statutory obligations under the Dodd-Frank Act.

The final rule amends Regulation II to (i) specify that the requirement that each debit card transaction must be able to be processed on at least two unaffiliated payment card networks applies to card-not-present transactions, (ii) clarify the requirement that debit card issuers ensure that at least two unaffiliated networks have been enabled to process a debit card transaction, and (iii) standardize and clarify the use of certain terminology for debit card transactions, including for card-not-present transactions.

The final rule, which became effective on July 1, 2023 does not impact or modify the Federal Reserve's rules on interchange fees.

Incentive Compensation.

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Specific provisions of the Regulatory Relief Act that benefit smaller banks include modifications to the “qualified mortgage” criteria under the “ability to repay” rules for certain mortgages that are held and maintained on the Bank’s retained portfolio as well as relief from certain capital requirements required by an international banking capital framework with the creation of a “community bank leverage ratio.” See “Recent Developments Related to Capital Rules” and “Brokered Deposits.”

The Coronavirus Aid, Relief, and Economic Security Act

In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020 to provide national emergency economic relief measures.

Many of the CARES Act’s programs are dependent upon the direct involvement of U.S.

financial institutions, such as the Company and the Bank, and have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S.

Department of Treasury, the Federal Reserve and other federal banking agencies, including those with direct supervisory jurisdiction over the Company and the Bank.

Furthermore, as the on-going COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19.

The Company continues to assess the impact of the CARES Act and other statues, regulations and supervisory guidance related to the COVID-19 pandemic.

Paycheck Protection Program.

The CARES Act amended the SBA’s loan program, in which the Bank participates, to create a guaranteed, unsecured loan program, the PPP, to fund operational costs of eligible businesses, organizations and self-employed persons during COVID-19.

In June 2020, the Paycheck Protection Program Flexibility Act was enacted, which among other things, gave borrowers additional time and flexibility to use PPP loan proceeds.

After previously being extended by Congress, the application deadline for PPP loans expired on May 31, 2021.

As a participating lender in the PPP, the Bank continues to monitor legislative, regulatory, and supervisory developments related thereto, including updates to guidance on loan forgiveness.

Troubled Debt Restructuring and Loan Modifications for Affected Borrowers.

The CARES Act (as amended by the Consolidated Appropriations Act of 2021) permits banks to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that would otherwise be characterized as TDRs and suspend any determination related thereto if (i) the loan modification is made between March 1, 2020 and the earlier of January 1, 2022 or 60 days after the end of the national COVID-19 emergency declaration and (ii) the applicable loan was not more than 30 days past due as of December 31, 2019.

The federal banking agencies also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19 and to assure banks that they will not be criticized by examiners for doing so.

The Company has applied this guidance to qualifying loan modifications.

See Note 4 to the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for further information about the COVID-19-related loan modifications completed by the company.

Temporary Regulatory Capital Relief Related to Impact of CECL

Concurrently with enactment of the CARES Act, federal banking agencies issued an interim final rule that delayed the estimated impact on regulatory capital resulting from the adoption of CECL.

In March 2020, concurrently with enactment of the CARES Act, federal banking agencies issued an interim final rule that delayed the estimated impact on regulatory capital resulting from the adoption of CECL.

The interim final rule provided banking organizations that implemented CECL before the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay.

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If the condition of the Bank were to deteriorate, the level of such assessments could increase significantly, having a material adverse effect on the Company’s financial condition and results of operations.

In May, 2023, the FDIC announced a proposed rulemaking with respect to a special assessment to recover the costs associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.

As proposed, the assessment would be calculated based only on a bank's uninsured deposits in excess of $5 billion and therefore is not expected to impact the Company or the Bank.

Regulatory authorities have been granted extensive discretion in connection with their supervisory and enforcement activities which are intended to strengthen the financial condition of the banking industry, including, but not limited to, the imposition of restrictions on the operation of an institution, the classification of assets by the institution, and the adequacy of an institution’s allowance for credit losses.

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At September 30, 2023, the Bank was in compliance with the combined general limit.

The OCC announced on October 6, 2022 that its supervisory strategies for 2023 will focus on:

(a) strategic and operational planning;

The OCC announced on September 28, 2023 that its supervisory strategies for 2024 will focus on:

(a) asset and liability management;

(b) credit risk management and allowance for credit losses;

(d) oversight of third parties and related concentrations;

(e) Bank Secrecy Act/anti-money laundering and Office of Foreign Assets Control/sanctions programs compliance management;

(f) interest rate risk and liquidity risk management;

(g) consumer compliance and fair lending risk;

(h) Community Reinvestment Act performance;

(i) new products and services, including those related to payments and fintech/digital assets;

and (j) climate-related financial risk management.

The OCC’s 2023 supervisory plan provides the foundation for policy initiatives and for supervisory strategies as applied to national banks as well as their technology service providers.

(d) operations;

(e) digital ledger technology activities;

(f) change management;

(g) payments;

(h) Bank Secrecy Act/anti-money laundering/countering the financing of terrorism/Office of Foreign Assets Control;

(i) consumer compliance and fair lending risk;

(j) Community Reinvestment Act performance;

and (k) climate-related financial risk management.

The OCC’s 2024 supervisory plan provides the foundation for policy initiatives and for supervisory strategies as applied to national banks as well as their third-party service providers subject to OCC examination.

OCC staff members use the supervisory plan to guide their supervisory priorities, planning, and resource allocations.

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After applying small bank credits for four quarters, the FDIC will remit to banks the value of any remaining small bank credits in the next assessment period in which the DRR is at least 1.35%.

The Federal Deposit Insurance Act requires the FDIC to designate and publish the DRR before the beginning of each calendar year.

For calendar year 2023, the FDIC set the DRR at 2.00%, which is consistent with the DRR set for each calendar year since 2011 and the FDIC's goal to maintain the DRR at or above the statutory threshold.

Brokered Deposits

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The Small Dollar Rule, however, has been the subject of further regulatory review and a court order staying compliance in connection with a legal challenge.

The Bureau issued its final Small Dollar Rule on July 22, 2020, which became fully effective on October 20, 2020.

The Bureau issued its final Small Dollar Rule on July 22, 2020.

Specifically, the Bureau revoked provisions that:

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and (iv) establish related definitions, reporting, and recordkeeping requirements.

However, no lenders are required to comply until either November 19, 2020 or until the court in litigation challenging the Small Dollar Rule lifts its stay of the compliance date.

However, due to continuing appellate litigation regarding the constitutionality of the Bureau's funding structure, which stems, in part, from legal challenges to the Small Dollar Rule, the effective date for nationwide compliance with the Small Dollar Rule remains uncertain at this time.

Separately, in May 2018, the OCC published guidance that encourages national banks and federal savings associations to offer responsible short-term, small-dollar installment loans with terms between two and twelve months and equal amortizing payments.

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Similar to guidance published by the OCC in 2013, this guidance generally requires that financial institutions, including the Bank, ensure that risks related to such third-party lending relationships are evaluated, including the type of lending activity, the complexity of the lending program, the projected and realized volume created by the relationship, and the number of third-party lending relationships the institution has in place.

On July 19, 2021, the OCC, Federal Reserve, and FDIC issued an interagency notice seeking comment on proposed risk management guidance of third-party relationships, including third party lending relationships.

The proposed interagency guidance is based on the OCC’s existing third-party risk management guidance from 2013 and seeks to, among other things, promote consistency in third-party risk management and provide sound risk management guidance for third-party relationships commensurate with a bank’s risk profile and complexity as well as the criticality of the activity.

The public comment period ended on October 18, 2021.

When finalized, the proposed interagency guidance will replace each agency’s existing guidance on this topic and will be directed to all banking organizations supervised by the OCC, Federal Reserve, and FDIC.

The Company continues to monitor developments related to the proposed guidance to determinate what affect, if any, it will have on the Bank and its third-party relationships.

On June 9, 2023, the OCC, Federal Reserve, and FDIC issued final interagency guidance on risk management of third-party relationships, including third-party lending relationships.

The interagency guidance is based, in part, on the OCC’s existing third-party risk management guidance from 2013 and seeks to, among other things, promote consistency in third-party risk management and provide sound risk management guidance for third-party relationships commensurate with a bank’s risk profile and complexity as well as the criticality of the activity.

The final interagency guidance replaces each agency’s existing guidance on this topic (including the OCC's 2020 Frequently Asked Questions on Third-Party Relationships) and is directed to all banking organizations supervised by the OCC, Federal Reserve, and FDIC.

Unclaimed Property Laws

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The program authorized the Company to repurchase up to 7,500,000 shares of the Company's outstanding common stock through December 31, 2022.

On September 3, 2021, the Company's Board of Directors authorized a new stock repurchase program pursuant to which the Company may repurchase up to an additional 6,000,000 shares of the Company's outstanding common stock on or before September 30, 2024.

On September 3, 2021, the Company's Board of Directors authorized a stock repurchase program pursuant to which the Company may repurchase up to an additional 6,000,000 shares of the Company's outstanding common stock on or before September 30, 2024.

On August 25, 2023, the Company's Board of Directors authorized a new stock repurchase program pursuant to which the Company may repurchase up to an additional 7,000,000 shares of the Company's outstanding common stock on or before September 30, 2028.

As part of its capital planning, the Company will continue to regularly assess its needs for dividends from the Bank in order to fund future share repurchases and dividends to the Company's stockholders as needed.

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Federal Home Loan Bank System

The Bank is a member of the Federal Home Loan Bank (“FHLB”) system through the FHLB of Des Moines, one of 11 regional FHLBs that administer the home financing credit function that is subject to regulation and supervision by the Federal Housing Finance Agency.

The Bank is a member of the FHLB system through the FHLB of Des Moines, one of 11 regional FHLBs that administer the home financing credit function that is subject to regulation and supervision by the Federal Housing Finance Agency.

All advances from the FHLB are required to be fully secured by sufficient collateral as determined by the FHLB.

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and the degree of leverage of the holding company, including the extent of its debt outstanding to the public.

In addition, on June 23, 2020, the federal banking agencies released guidance to promote consistency in the supervision and examination of financial institutions affected by the COVID-19 pandemic.

The Federal Reserve and OCC will continue to assess institutions in accordance with existing policies and procedures.

However, in conducting their supervisory assessment, federal banking examiners will consider whether institution management has managed risk appropriately, including taking appropriate actions in response to stress caused by COVID-19-related impacts.

The interagency guidance instructs examiners to consider the unique, evolving, and potential long-term nature of the issues confronting institutions and to exercise appropriate flexibility in their supervisory response.

In 2009, the Federal Reserve released a supervisory letter entitled Applying Supervisory Guidance and Regulations on the Payment of Dividends, Stock Redemptions and Stock Repurchases at Bank Holding Companies .

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Human Capital Resources

Our mission of Financial Inclusion for All® is foundational to our ability to attract and retain top talent who desire to have impact working with innovators to enable financial availability, choice, and opportunity for consumers and businesses in underserved niche markets.

Our mission of Financial Inclusion for All™ is foundational to our ability to attract and retain top talent who desire to have impact working with innovators to enable financial availability, choice, and opportunity for consumers and businesses in underserved markets.

Our people are our number one asset and the source of our ability to deliver on our mission.

We empower them by providing opportunities to grow and develop in their careers, supported by strong compensation, benefits, and health and well-being programs.

We live our mission and provide a diverse, inclusive, safe, and healthy workplace for all.

We live our mission and seek to provide a diverse, inclusive, safe, and healthy workplace for all.

The following table describes the composition of our workforce as of September 30, 2023:

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Diversity, Equity and Inclusion ("DEI")

We place immense value on the diversity of our employees, and we are proud of our commitment to treating our employees with dignity and respect through an inclusive work environment.

We believe that diversity of backgrounds, thoughts and experiences in our organization leads to more innovative solutions for our customers and partners as we seek to understand the unique needs in the niche markets that we serve.

We value the diversity of our employees, and we are proud of our commitment to treating our employees with dignity and respect through an inclusive work environment.

All employees are expected to contribute to a culture of mutual respect and inclusion, and we promote a workplace culture that is free from discrimination, harassment, or any other form of abuse.

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We prioritize designing a workplace experience that meets people’s individual needs by facilitating equitable access and advancement aligned with their professional goals.

For our customers and partners, we commit to identifying ways we can work with people to increase their economic mobility.

For our customers and partners, we seek to identify ways we can work with people to increase their economic mobility.

We prioritize creating a culture where our employees, customers and partners have a sense of belonging and feel valued in the ways that most resonate with them.

We oversee our DEI efforts through our Environmental, Social and Governance (ESG) structure, which includes Board and executive management oversight, as well as a DEI Steering Committee that supports the implementation of our DEI strategy which is both internally and externally focused.

Our people are dedicated to a spirit of stewardship and service to the clients and communities that we serve.

Our people are dedicated to a spirit of stewardship and service to the customers and communities that we serve.

By growing and promoting a diversity of perspectives within our employee base that reflects our diverse customer base, we can better understand their challenges and deliver on the solutions that they need.

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This allows us to expand our talent pool to acquire the best talent available while encouraging the ability for interactivity in our hub locations to build connections and community.

This reimagined recruiting strategy allows us to expand our reach beyond local candidates as a remote-enabled employer of choice.

This reimagined recruiting strategy allows us to expand our reach beyond local candidates as a remote-first employer of choice.

As part of our DEI strategy, we train our internal recruiters on how to mitigate unconscious bias in the hiring process and how to assemble diverse candidate slates for open positions.

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Assessing talent and leadership development are also critical areas to our talent pipeline strategy.

We have continued to mature our enterprise talent management framework.

This framework is used throughout the company to better equip Pathward to have clear line of sight on their teams’ strengths and opportunities, by identifying capabilities needed to achieve our strategy and creating action plans to close gaps.

This ensures our internal talent supply keeps pace with demand, that we invest in our workforce with intention, have our highest performing, highest potential employees applied to our most critical work, and are preparing today’s talent for tomorrow’s needs.

We continue to mature and expand our talent management framework.

This framework is used throughout the company to better equip Pathward to have clear line of sight on its teams’ strengths and opportunities, by identifying capabilities needed to achieve our strategy and creating action plans to close gaps.

This helps ensure our internal talent supply keeps pace with demand, that we invest in our workforce with intention, have our highest performing, highest potential employees applied to our most critical work, and are preparing today’s talent for tomorrow’s needs.

Our performance management program is an interactive practice that engages our employees beginning with aligning objectives at the enterprise level to drive individual goal setting and quarterly conversations designed to review progress and accomplishments and calibrate on focus areas for the upcoming quarter, driving progress against objectives, alignment, and performance feedback throughout the year.

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Total Rewards

As part of our total rewards strategy, we aspire to offer and maintain market competitive total rewards programs for our employees and that attracts and retain superior talent.

In addition to healthy base wages, we offer other variable pay including an annual bonus or commission plan.

As part of our total rewards strategy, we aspire to offer and maintain market competitive total rewards programs for our employees that attract and retain superior talent.

In addition to healthy base wages, we offer other variable pay depending on an employee's position, including an annual bonus or commission plan.

We offer a 401(k) plan with a highly competitive company match.

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Health and Safety

The success of our business is fundamentally connected to the well-being of our people.

We believe the success of our business is fundamentally connected to the well-being of our people.

Accordingly, we are committed to the health, safety, and wellness of our employees.

In 2021, we became a fully remote-enabled employer and instituted a work-from-home program allowing hybrid access to our offices while imposing safety protocols.

We purchased laptops and related hardware for home-based employees who previously worked on desktop computers;

we also provided employees with a stipend to enhance their at-home work experience.

Our employees and their families were also supported with access to a variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health.

Being a fully remote-first employer, we provide laptops and related hardware along with a stipend to enhance employees' at-home work experience.

Employees also have access to our offices if they choose to work there instead.

Our employees and their families are also supported with access to a variety of flexible and convenient health and welfare programs, including benefits that support their physical and mental health.

We follow local, state and federal regulations issued by the Occupational Safety and Health Administration and are prepared to implement any applicable workplace requirements.

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The Company’s website address is www.pathwardfinancial.com.

The Company makes available, through a link with the SEC’s EDGAR database, free of charge, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and statements of ownership on Forms 3, 4, and 5.

The Company makes available, through a link with the SEC’s EDGAR database (http://www.sec.gov), free of charge, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and statements of ownership on Forms 3, 4, and 5.

Investors are encouraged to access these reports and other information about our business on our website.

The information found on the Company’s website is not incorporated by reference in this or any other report the Company files or furnishes to the SEC.

The Company also will provide copies of its Annual Report on Form 10-K, free of charge, upon written request to Justin Schempp, VP of Investor Relations and Financial Reporting, at the Company’s address.

The Company also will provide copies of its Annual Report on Form 10-K, free of charge, upon written request to Darby Schoenfeld, SVP of Investor Relations, at the Company’s address.

Also posted on the Company's website, among other things, are the Environmental, Social and Governance Report, the charters of committees of the Board of Directors, as well as the Company's Code of Business Conduct.

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 1. Business