What changed in this filing

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Item 1. Business

2024-11-26 compared with 2023-11-21 · 209 added, 229 removed, 799 unchanged (35% of the section changed)

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

As a nationwide provider of banking as a service ("BaaS") solutions and commercial finance products, the Company has offices across the country.

As a nationwide provider of payments and commercial finance products, the Company has offices across the country.

The principal executive office is located at 5501 South Broadband Lane, Sioux Falls, South Dakota, 57108.

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See "Regulation and Supervision" herein.

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

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's purpose of powering financial inclusion means individuals and businesses deserve access to financial solutions.

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

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

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

BaaS and Commercial Finance.

Partner Solutions and Commercial Finance.

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

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

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.

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

The Bank, a wholly-owned full-service banking subsidiary of Pathward Financial, operates through three reportable segments (Consumer, Commercial, and Corporate Services/Other).

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 stable deposits and generate fee income.

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

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

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

The Consumer segment includes the BaaS business line, which collaborates with partners to navigate payment and lending needs.

With capabilities ranging from prepaid cards and deposit accounts to payment processing and consumer lending, the Company empowers its partners to deliver programs that provide a financial path forward for all.

The Company offers the following innovative solutions:

payment, issuing, credit, and tax.

Payment solutions 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.

The Consumer segment includes the Partner Solutions business line, which collaborates with partners to navigate payment and lending needs.

With capabilities ranging from prepaid cards and deposit accounts to payment processing and consumer lending, the Company enables its partners to deliver programs that provide a financial path forward for all.

The Company delivers a diversified portfolio of offerings including issuing, acquiring, digital payments, financial institution solutions, credit solutions, and professional tax solutions.

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.

Acquiring solutions focuses on optimizing the core banking activities to ensure secure, compliant, and seamless transactions through merchant acquiring and ATM sponsorship.

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

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

Through its financial institution solutions, Pathward offers innovative, cost-effective banking and lending solutions designed to fill product gaps and add value for community banks and credit unions.

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.

Professional tax solutions offer tax-related financial products, such as electronic refund advances and refund transfers, that ease the pressure of tax season and help over 38,000 independent tax offices stay competitive in a crowded marketplace.

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

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Insurance premium finance is short-term financing to facilitate the purchase of property, casualty, and liability insurance premiums.

On October 31, 2024 (the "Closing Date"), the Bank completed the sale of substantially all of the assets and liabilities related to its commercial insurance premium finance business to AFS IBEX Financial Services, LLC, a subsidiary of Honor Capital Holdings, LLC.

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

Other Subsidiaries

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Commercial finance 1,750,854 43.0 % 1,296,376 29.7 %

Consumer finance 171,209 4.2 % — — %

Warehouse finance 484,058 11.9 % 235,494 5.4 %

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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, 2024.

Loan Maturities Loans Maturing After One Year

(Dollars in thousands) Due in 1 Year Or Less Due After 1 Year Through 5 Years After 5 Years Through 15 Years After 15 Years Total Fixed Interest Rate Floating/Variable Interest Rate

Loan Maturities Loans Maturing After 1 Year

(Dollars in thousands) Due in 1 Year or Less Due After 1 Year Through 5 Years After 5 Years Through 15 Years After 15 Years Total Fixed Interest Rate Variable Interest Rate

Commercial finance $ 417,612 $ 1,932,753 $ 592,228 $ 353,006 $ 3,295,599 $ 1,469,846 $ 1,408,140

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Equipment finance agreements make up 39% of the term lending total as of September 30, 2024.

The remaining 34% are a variety of investment advisory and insurance agency loans and other more traditional term equipment and general purpose commercial loans.

The remaining 20% are a variety of other general purpose commercial loans.

Asset-Based Lending .

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Insurance Premium Finance.

The Bank provides, on a national basis, short-term, primarily collateralized financing to facilitate the commercial customers’ purchase of insurance for various forms of risk, otherwise known as insurance premium financing.

This includes, but is not limited to, policies for commercial property, casualty and liability risk.

Premiums are advanced either directly to the insurance carrier or through an intermediary/broker and repaid by the policyholder with interest during the policy term.

The policyholder generally makes a 20% to 25% down payment to the insurance broker and finances the remainder over nine to 10 months on average.

The down payment is set such that if the policy is canceled, the unearned premium is typically sufficient to cover the loan balance and accrued interest and is returned by the insurer to the Bank on a pro rata basis.

Over 95% of the portfolio finances policies provided by investment grade-rated insurance company partners.

SBA and USDA.

Effective on the Closing Date of the commercial insurance premium finance business sale to AFS IBEX Financial Services, LLC, the Company no longer holds or originates insurance premium finance loans.

Until the Closing Date, the Bank provided, on a national basis, short-term, primarily collateralized financing to facilitate the commercial customers’ purchase of insurance for various forms of risk, otherwise known as insurance premium financing.

This included, but was not limited to, policies for commercial property, casualty and liability risk.

Premiums were advanced either directly to the insurance carrier or through an intermediary/broker and repaid by the policyholder with interest during the policy term.

The policyholder generally made a 20% to 25% down payment to the insurance broker and financed the remainder over nine to 10 months on average.

The down payment was set such that if the policy is canceled, the unearned premium was typically sufficient to cover the loan balance and accrued interest and was returned by the insurer to the Bank on a pro rata basis.

Over 95% of the portfolio finances policies were provided by investment grade-rated insurance company partners.

Government Guaranteed Lending.

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

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

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.

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

Refund Advance Loans.

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At September 30, 2024, there were no outstanding loans sold by the Company with recourse.

When loans or leases are sold, the Company may retain the responsibility for collecting and remitting loan payments, making certain that real estate tax payments are made on behalf of borrowers, and otherwise servicing the loans.

When loans or leases are sold, the Company may retain the responsibility for collecting and remitting loan payments, making certain that escrow payments are made on behalf of borrowers, and otherwise servicing the loans.

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

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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.

On October 31, 2024, as part of the insurance premium finance business sale, the Company sold $588.4 million of commercial insurance premium finance loans.

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.

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

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Consumer finance 1,937,079 1,123,271

Community banking — 183,457

Total loans and leases sales 2,036,084 1,139,881

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Increase (decrease) in other items, net (2,058) 4,348

Net increase (decrease) $ 882,761 $ (86,047)

Net increase $ 324,539 $ 882,761

Nonperforming Assets, Other Loans and Leases of Concern and Classified Assets

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— — — % — — — % — 8,733 26.6 %

Warehouse finance — — — % — — — % — — — %

Total loans and leases held for investment 2,192 $ 27,343 92.3 % 945 $ 10,857 88.9 % 1,083 $ 31,761 96.8 %

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Nonperforming operating leases 1,471 1,764

Foreclosed and repossessed assets:

Commercial finance — 1

Total foreclosed and repossessed assets — 1

Total other assets 1,471 1,764

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

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

The fiscal 2024 decrease in nonaccruing loans and leases was primarily driven by one sizable relationship within the commercial finance portfolio that was nonaccrual during the prior period and not reported as such as of September 30, 2024.

Accruing Loans and Leases Delinquent 90 Days or More.

At September 30, 2024, the Company had $15.2 million in accruing loans and leases delinquent 90 days or more, compared to $18.8 million at September 30, 2023.

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.

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

For information on classified assets, see “Item 7.

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

See Note 1 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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Tax services 7,785 2,963

Community banking — 424

Total recoveries 11,074 6,208

Net (charge-offs) recoveries (46,607) (53,690)

Provision for credit losses 57,448 28,862

Provision for credit loss 42,238 57,448

Balance at end of period $ 45,336 $ 49,705

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Ratio of allowance to total nonaccrual loans 1.72 % 1.33 %

For more information on the Provision for Credit Losses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included in Item 7 of this Annual Report on Form 10-K.

Ratio of total nonaccrual loans to total loans outstanding 0.55 % 0.84 %

For more information on the Provision for Credit Loss, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included in Item 7 of this Annual Report on Form 10-K.

The following table presents net loan charge-offs per lending category and the percentage of net charge-offs to average loan and lease balances.

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Warehouse finance — 416,988 — % — 343,168 — %

Community banking — — — % (424) 34,758 (1.2) %

Total $ 46,607 $ 4,659,801 1.0 % $ 53,690 $ 3,936,205 1.4 %

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The Company's ACL as a percentage of total loans and leases decreased to 1.11% at September 30, 2024 from 1.14% at September 30, 2023.

The 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.

The decrease in the total loan and lease coverage ratio was primarily driven by decreases in the loan and lease coverage ratios for the consumer finance portfolio and the seasonal tax services portfolio, partially offset by an increase in the loan and lease coverage ratio for the commercial finance portfolio.

The increase in the commercial finance loan and lease coverage ratio was primarily related to the $594.4 million of insurance premium finance loans that were held for sale as of September 30, 2024 and, as such, had no related ACL balance.

That portfolio carried a lower reserve rate compared to the rest of the commercial finance portfolio.

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

Management believes that, based on a detailed review of the loan and lease portfolio, historic loan and lease losses, current economic conditions, the size of the loan and lease portfolio and other factors, the level of the ACL at September 30, 2024 reflected an appropriate allowance against expected credit losses from the lending portfolio.

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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, which is implemented by members of the Company’s Asset/Liability Committee.

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

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

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.

It is the Company’s general policy to purchase investment securities which are U.S.

Government-related securities, U.S.

Government-related agency and instrumentality securities, U.S.

Government-related agency or instrumentality collateralized securities, state and local government obligations and overnight federal funds.

As of September 30, 2023, the Company had total investment securities, excluding MBS, with an amortized cost of $682.1 million compared to $623.4 million as of September 30, 2022.

At September 30, 2023, $602.5 million, or 99%, of the Company’s investment securities were pledged to secure various obligations of the Company.

Many of the Company’s municipal holdings are able to be pledged at both the FRB and the FHLB.

The following table sets forth the carrying value of the Company’s investment securities portfolio, excluding MBS, at the dates indicated.

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

As of September 30, 2024, the Company had total investment securities with an amortized cost of $1.98 billion compared to $2.18 billion as of September 30, 2023.

At September 30, 2024, $1.57 billion, or 79.3%, of the Company’s investment securities were pledged to secure various obligations of the Company.

Many of the Company’s municipal holdings are able to be pledged at either the Federal Reserve bank ("FRB") or the Federal Home Loan Bank of Des Moines ("FHLB").

The Company’s mortgage-backed securities ("MBS") portfolio consists of securities issued by U.S.

Government agencies or by non-agencies.

MBS have uncertain cash flow characteristics that present additional interest rate risk in the form of prepayment or extension risk primarily caused by changes in market interest rates.

The prepayment risk associated with MBS is continually monitored, and prepayment rate assumptions are adjusted as appropriate to update the Company’s MBS accounting and asset/liability reports.

The following table sets forth the carrying value of the Company’s portfolio at the dates indicated.

At September 30,

(Dollars in thousands) 2024 2023

Investment Securities Available for Sale ("AFS")

Securities Available for Sale ("AFS")

Corporate securities $ 19,750 $ 18,250

Asset-backed securities 246,199 147,790

SBA securities 81,935 85,242

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Non-bank qualified obligations of states and political subdivisions 217,990 226,723

Subtotal debt securities AFS 578,703 533,872

Investment Securities Held to Maturity ("HTM")

Asset-backed securities 189,698 246,199

Mortgage-backed securities 1,231,368 1,225,525

Total debt securities AFS 1,741,221 1,804,228

Securities Held to Maturity ("HTM")

Non-bank qualified obligations of states and political subdivisions 31,060 34,415

34,415 39,093

Subtotal debt securities HTM 34,415 39,093

Mortgage-backed securities 2,032 2,176

Total debt securities HTM 33,092 36,591

FRB and FHLB stock 36,014 28,210

Total investment securities and FRB and FHLB stock $ 641,328 $ 601,777

Total securities and FRB and FHLB stock $ 1,810,327 $ 1,869,029

Other Interest-Earning Assets

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$ 106,672 $ 262,225

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

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

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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, 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.

The fair value of debt securities available for sale ("AFS") decreased $63.0 million at September 30, 2024 when compared to September 30, 2023 while the amortized cost of debt securities held to maturity ("HTM") decreased $3.5 million over the same period.

These decreases were primarily driven by reductions in SBA securities, non-bank qualified obligations of state and political subdivisions, and asset-backed securities, partially offset by an increase in MBS.

The following table sets forth the contractual maturities of debt securities AFS and HTM at September 30, 2024.

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations.

At September 30, 2024

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

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

(Dollars in thousands) Carrying

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Corporate securities $ — $ — $ 19,750 $ — $ 25,000 $ 19,750

Asset-backed securities — — — 246,199 255,384 246,199

SBA securities 1,599 7,330 38,756 34,250 86,036 81,935

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Non-bank qualified obligations of states and political subdivisions 198 6,402 1,529 209,861 246,233 217,990

Asset-backed securities — — 3,601 186,097 192,979 189,698

Total debt securities AFS $ 1,797 $ 14,212 $ 63,636 $ 430,208 $ 550,749 $ 509,853

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— % — % — % 2.49 % 2.49 % 4.07 %

(1) Weighted average yield for debt securities AFS and HTM are calculated on a pro rata basis for each security based on the relative amortized cost and relative market value, respectively.

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 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, 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, 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.

The prepayment risk associated with MBS is continually monitored, and prepayment rate assumptions are adjusted as appropriate to update the Company’s MBS accounting and asset/liability reports.

The following table sets forth the carrying value of the Company’s MBS at the dates indicated.

At September 30,

(Dollars in thousands) 2023 2022

Available for Sale

Farmer Mac $ 70,034 $ 78,870

Freddie Mac 61,516 66,653

Freddie Mac CML 11,745 11,983

Fannie Mae 107,585 121,968

Ginnie Mae 746,858 814,971

Private Label 227,787 254,552

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

Held To Maturity

Ginnie Mae $ 2,176 $ 2,589

Total MBS HTM $ 2,176 $ 2,589

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, 2024

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

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

(Dollars in thousands) Carrying

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Value Amortized

Available for Sale

Farmer Mac $ — $ — $ 56,947 $ 13,087 $ 80,141 $ 70,034

Freddie Mac — — 21,286 40,230 74,521 61,516

Freddie Mac CML — — — 11,745 12,228 11,745

Fannie Mae — — 4,929 102,656 127,444 107,585

Ginnie Mae — — — 746,858 926,700 746,858

Private Label — — — 227,787 274,602 227,787

Agency MBS $ — $ 30,680 $ 53,537 $ 918,859 $ 1,138,849 $ 1,003,076

Non-agency MBS — — — 228,292 254,700 228,292

Total MBS AFS $ — $ 30,680 $ 53,537 $ 1,147,151 $ 1,393,549 $ 1,231,368

Weighted average yield — % 4.20 % 4.78 % 4.71 % 2.73 % 4.70 %

Held To Maturity

Ginnie Mae $ — $ — $ — $ 2,176 $ 2,176 $ 1,854

Agency MBS $ — $ — $ — $ 2,032 $ 2,032 $ 1,844

Total MBS HTM $ — $ — $ — $ 2,032 $ 2,032 $ 1,844

Weighted average yield — % — % — % 2.75 % 2.75 % 4.59 %

At September 30, 2023, the contractual maturity of approximately 93.2% of the Company’s mortgage backed-securities were in excess of ten years.

At September 30, 2024, the contractual maturity of approximately 93.2% of the Company’s MBS were in excess of ten years.

The actual maturity of an MBS is typically less than its stated contractual maturity due to scheduled principal payments and prepayments of the underlying mortgages.

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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.

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

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

As a result, management has concluded a zero risk of loss associated with these securities and no provision for credit loss has been included in the Company’s Consolidated Statement of Operations.

Under Topic 326, investment debt securities available for sale continue to be recorded at fair value but are subject to an allowance for credit loss that reflects the portion of an unrealized loss position related to credit factors.

Under Topic 326, debt securities AFS continue to be recorded at fair value but are subject to an allowance for credit losses that reflects the portion of an unrealized loss position related to credit factors.

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

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

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

The adoption of CECL was inconsequential to debt securities AFS.

Equity Securities.

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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.

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

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 consist of demand deposit accounts, savings accounts, and money market savings accounts, many of which are related to the BaaS business line.

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

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

The refund advance lending season typically lasts six weeks or less and it is generally more efficient to fund these short-term loans by using brokered deposits rather than by selling investment securities.

The refund advance lending season typically lasts six weeks or less and it is generally more efficient to fund these short-term loans by using brokered deposits to match the expected repayment from refunds.

Other sources of wholesale deposits may also be utilized periodically to take advantage of balance sheet funding opportunities.

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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 the BaaS business line are relatively stable sources of deposits.

Based on its experience, the Company believes that deposits related to the Partner Solutions 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.

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Of the total amount of government stimulus program deposits, $198.2 million are on activated cards while $235.1 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, 2024, $5.64 billion of the Company’s $5.88 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 $5.59 billion are included with noninterest-bearing checking accounts and $47.5 million are included with savings deposits on the Company’s Consolidated Statements of Financial Condition.

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

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

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

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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.

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

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.

Approximately 57% of the deposit portfolio during the 2024 fiscal fourth quarter was subject to variable, rate-related processing expenses that are derived from the terms of contractual agreements with certain Partner Solutions relationships.

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

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Time Certificates of Deposit:

0.00 - 0.99% 5,534 0.1 % 7,311 0.1 %

1.00 - 1.99% — — % 344 — %

2.00 - 2.99% — — % 99 — %

Total time certificates of deposit (1)

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Total deposits $ 5,875,085 100.0 % $ 6,589,182 100.0 %

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

(1) As of September 30, 2024, total time certificates of deposit included $25.0 million of wholesale certificates of deposit.

As of September 30, 2024 and 2023, total deposits that exceed FDIC insurance limits, or are otherwise uninsured, were estimated to be $643.3 million and $550.7 million, respectively.

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regulatory reports of the Bank, with adjustments for amounts related to consolidated subsidiaries.

The following table presents contractual maturities of estimated time deposits in excess of FDIC insurance limits or are otherwise uninsured.

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

The following table presents contractual maturities of estimated U.S.

time deposits in excess of FDIC insurance limits or are otherwise uninsured.

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

Certificates of deposit $ 675 $ 579 $ 750 $ 602 $ 2,606

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September 30, 2025 — — — — — — — %

September 30, 2025 369 — — 369 6.7 %

Thereafter — — — — — %

December 31, 2025 300 — — — 25,000 25,300 86.6 %

March 31, 2026 802 — — — — 802 2.8 %

Total $ 4,206 $ — $ — $ — $ 25,000 $ 29,206 100.0 %

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Borrowings from various sources mature based on stated payment schedules.

The Company’s borrowings have historically consisted primarily of advances from the FHLB upon the security of a blanket collateral agreement of a percentage of unencumbered loans and the pledge of specific investment securities.

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

At September 30, 2024, the Bank had $257.0 million overnight borrowings with the ability to borrow up to an approximate additional $726.6 million from the FHLB.

As of September 30, 2024, debt securities with fair values of approximately $533.8 million and $1.04 billion were pledged as collateral to the FRB and the FHLB, respectively, to secure various obligations of the Company.

For additional information regarding the Company’s collateralization of borrowings, see Note 10.

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

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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Weighted average interest rate of overnight fed funds purchased 5.11 % 5.57 %

Payment, Issuing, and Tax Solutions

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.

Partner Solutions Activities

The Company's core differentiators, including industry experience, operational excellence, committed partnership, and mature risk and compliance infrastructure are important for payment innovators in an evolving marketplace.

Partner Solutions delivers a diversified portfolio of offerings including issuing, acquiring, digital payments, financial institution solutions, credit solutions, and professional tax solutions with an operating structure that streamlines banking processes and ensures reliable and sustainable programs with unparalleled commitment to enabling our partners' success.

Overall, the products and services offered by the Company are generally designed to facilitate the processing and settlement of authorized electronic transactions involving the movement of funds.

While the Company has adopted policies and procedures to manage and monitor risks, and the executives who manage the Company’s program have years of experience, no guarantee can be made that the Company will not experience losses in the BaaS business line.

While the Company has seasoned banking expertise and time-tested risk and compliance infrastructure, no guarantee can be made that the Company will not experience losses in the Partner Solutions business line.

The Company has signed agreements with terms extending through the next few years with several of its largest sales agents/program managers, which the Company expects will help mitigate this risk.

Each core capability is discussed generally below with examples to illustrate use cases.

The Company cross-utilizes personnel and resources across these capabilities.

Payment Solutions

Acquiring Sponsorship.

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

Pathward acts as an acquiring bank to sponsor acquiring activity on behalf of merchant 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.

In today’s market, consumers want to move their money fast, with more visibility and control of their own financial transactions.

Pathward provides the financing operations for Automated Clearing House ("ACH") transactions, disburse to debit (through Visa Direct or Mastercard Send), wire or check processing which enable the faster, almost instantaneous movement of funds from sender to receiver.

Technology has accelerated the growth and speed of transactional payments for corporate and financial organizations.

Prompt movement of money creates efficiency, speed and a robust marketplace for consumers, B2B and business-to-consumer ("B2C") companies.

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

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.

The Company sponsors ATM independent sales organizations (“ISOs”) into various networks and provides associated sponsorships of encryption support organizations and third-party processors in support of the financial institutions and the ATM ISO sponsorships.

Sponsorship consists of the review and oversight of entities participating in debit and credit networks.

In certain instances, Pathward also has certain leasehold interests in certain ATMs which require bank ownership and registration for compliance with applicable state law.

Pathward currently provides financial processing services for approximately 60% of freestanding ATMs nationwide providing consumers with access to funds at ATMs frequently found in malls, retail chains, convenience stores, events, fairs and other small business locations across the U.S.

Issuing Solutions

Prepaid Cards.

Each offering is discussed generally below with examples to illustrate use cases.

The Company cross-utilizes personnel and resources across these offerings.

DDA Sponsorship.

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

Pathward facilitates their ability to establish a seamless banking experience for both their consumer and business customers, 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.

Prepaid Sponsorship.

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.

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Travel and entertainment cards, alternatively, are reloadable by the company for use by its employees to travel for business.

Consumer Banking Solutions.

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.

Tax Solutions

Merchant Acquiring Sponsorship.

Acquiring 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 customers by leveraging partnerships with partners who act as merchant processors, third-party service providers, independent sales organizations (“ISOs”), and/or payment facilitators to identify, onboard and support merchant customers.

ATM Sponsorship.

The Company sponsors ATM ISOs into various networks and provides associated sponsorships of encryption support organizations and third-party processors in support of the financial institutions and the ATM ISO sponsorships.

Sponsorship consists of the review and oversight of entities participating in debit and credit networks.

Pathward currently provides financial processing services for approximately 300,000 freestanding ATMs nationwide providing consumers with access to funds at ATMs frequently found in malls, retail chains, convenience stores, events, fairs and other small business locations across the U.S.

Digital Payments

Money Movement Solutions.

In today’s market, consumers want to move their money fast, with more visibility and control of their own financial transactions.

Technology has accelerated the growth and speed of transactional payments for corporate and financial organizations.

Prompt movement of money creates efficiency, speed and a robust marketplace for consumers, B2B and business-to-consumer ("B2C") companies.

Pathward is a Nacha Top 30 bank for receiving and originating payments.

As of September 2024, Pathward typically processes a combined $2.5 billion per day in ACH and wire services to provide safe and efficient movement of money.

Financial Institution Solutions

With this suite of offerings, Pathward provides community banks and credit unions a path to fulfill the unique needs of their customers without using in-house resources.

Prepaid Solutions.

Pathward has delivered myriad co-branded prepaid card programs that promote the brands of our financial institution clients.

Commercial Financing Options.

Today’s businesses require unique, flexible financial products to target areas ranging from acquiring new equipment and business expansion to maximizing cash flow and working capital.

When business clients do not qualify for traditional financing or when a product is not available, Pathward provides a variety of options including asset-based lending and SBA lending.

Merchant Services.

Pathward’s merchant services program empowers community banks and credit unions to offer merchant processing services to their business clients, eliminating the challenges and liabilities associated with managing an independent program.

Professional Tax Solutions

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.

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Both the Company and the Bank are subject to extensive regulation in connection with their respective activities and operations, including those of their subsidiaries.

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

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

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.

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banking system.

The framework by which both the Bank and the Company are supervised and examined is complex.

The framework by which both the Company and the Bank are supervised and examined is complex.

This framework includes acts of Congress, regulations, policy statements and guidance, and other interpretive materials that define the obligations and requirements for entities participating in the U.S.

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banking laws or of the impact of such laws and regulations on the Company or the Bank.

Rather, it is intended to briefly summarize the legal and regulatory framework in which the Bank and the Company operate and describe legal requirements that impact their businesses and operations.

Rather, it is intended to briefly summarize the legal and regulatory framework in which the Company and the Bank operate and describe legal requirements that impact their businesses and operations.

The information set forth below is subject to change and is qualified in its entirety by the actual laws and regulations referenced.

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The Dodd-Frank Act includes provisions that restrict interchange fees to those which are “reasonable and proportionate” for certain debit card issuers and limits the ability of networks and issuers to restrict debit card transaction routing (known as the “Durbin Amendment”).

The Federal Reserve issued final rules implementing the Durbin Amendment on June 29, 2011.

In October 2023, the Federal Reserve issued proposed rules that would reduce the maximum permissible interchange fee cap and would adopt an approach for future adjustments to the interchange fee cap.

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.

The Dodd-Frank Act requires that the federal banking agencies, including the Federal Reserve and the OCC, issue a rule related to incentive-based compensation.

No final rule implementing this provision of the Dodd-Frank Act has, as of the date of the filing of this Annual Report on Form 10-K, been adopted, but a proposed rule was published in 2016 that expanded upon a prior proposed rule published in 2011.

No final rule implementing this provision of the Dodd-Frank Act has, as of the date of the filing of this Annual Report on Form 10-K, been adopted, but a proposed rule was published in May 2024.

The proposed rule is intended to (i) prohibit incentive-based payment arrangements that the banking agencies determine could encourage certain financial institutions to take inappropriate risks by providing excessive compensation or that could lead to material financial loss, (ii) require the board of directors of those financial institutions to take certain oversight actions related to incentive-based compensation, and (iii) require those financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate federal regulator.

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Enacted in 2018, the Regulatory Relief Act includes several provisions that positively affect smaller banking institutions (e.g., those with less than $10 billion in assets) like the Bank.

Specific provisions of the Regulatory Relief Act that benefit smaller banks include modifications to the “qualified mortgage” criteria under the “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.”

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

Temporary Regulatory Capital Relief Related to Impact of CECL

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.

On August 26, 2020, the federal banking agencies adopted a final rule that delayed the estimated impact on regulatory capital resulting from the adoption of CECL.

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

Thereafter, the federal banking agencies issued a final rule that made certain technical changes to the interim final rule.

The changes in the final rule apply only to those banking organizations that elected the CECL transition relief provided under the interim rule.

The Company has elected this option.

The Company elected to phase in the regulatory capital impact as permitted under this final rule.

The CECL transition amount is being phased out of regulatory capital over a three-year period that began October 1, 2022 and ends on September 30, 2025.

Bank Regulation and Supervision

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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, 2024, the Bank was in compliance with the combined general limit.

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) 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 announced on October 1, 2024 that its supervisory strategies for 2025 will focus on:

(b) allowance for credit losses;

(e) climate-related financial risks for banks with over $100 billion in total consolidated assets;

(f) cybersecurity;

(g) enterprise change management;

(h) operations;

(i) third-party risks;

(j) payments;

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

(l) consumer compliance;

(m) Community Reinvestment Act;

and (n) fair lending.

The OCC’s 2025 supervisory plan provides the foundation for policy initiatives and for supervisory strategies as applied to national banks as well as their third-party service providers subject to OCC examination.

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The FDIC imposes an assessment against all depository institutions for deposit insurance quarterly.

FDIC assessment rates range from 3 to 30 basis points annually and take into account an institution’s composite CAMELS rating and other factors.

FDIC total base assessment rates for institutions that have been insured for at least five years range from 2.5 to 42 basis points annually and take into account an institution’s composite CAMELS rating and other factors.

Notably, the FDIC has the authority to increase an institution’s deposit insurance premium if it determines that an insured depository institution significantly relies upon brokered deposits.

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and deposits placed by agencies to disburse government benefits.

The final rule became effective April 1, 2021, with full compliance extended to January 1, 2022.

As a result of this final rule, the Company's deposits that were classified as brokered deposits reduced significantly beginning with the June 30, 2021 reporting period.

On July 30, 2024, the FDIC proposed a rule that would amend the current rules governing brokered deposits.

The proposed rule as drafted would, among other things, (1) amend the definition of “deposit broker”;

(2) eliminate the exclusive deposit placement arrangement exception;

(3) eliminate the enabling transactions designated business exception;

(4) revise the “25 percent test” designated business exception for a primary purpose exception to be available only to broker-dealers and investment advisers and only if less than 10 percent of the total assets that the broker-dealer or investment adviser has under management for its customers is placed at one or more insured depository institutions;

(5) revise the interpretation of the primary purpose exception to consider the third party’s intent in placing customer funds at a particular insured depository institution;

(6) allow only insured depository institutions to file notices and applications for primary purpose exceptions;

and (7) clarify how an insured depository institution that loses its “agent institution” status regains that status.

The Company is currently evaluating the effect of the proposed rule on the Company were it to be adopted as a final rule and monitoring the status of this rulemaking.

Branching by National Banks

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With OCC approval, a national bank may open an interstate de novo branch in any state that permits the establishment of a branch by a bank chartered by such state, subject to applicable state law limitations.

On February 29, 2020, the Company sold the Bank's Community Bank division to Central Bank, a state-chartered bank headquartered in Storm Lake, Iowa.

The sale included, among other things, all of the Community Bank division's branch locations.

Consequently, the Bank's only banking office open to the public is its home office in Sioux Falls, South Dakota, where it accepts deposits.

The Bank's only banking office open to the public is its home office in Sioux Falls, South Dakota, where it accepts deposits.

Prepaid Accounts under the Electronic Fund Transfer Act ("Regulation E") and the Truth In Lending Act ("Regulation Z")

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In October 2017, the OCC rescinded its guidance on deposit advance products in light of the Bureau’s pending small dollar loan rule related to payday, vehicle title and certain high cost installment loans that was issued in November 2017 (“Small Dollar Rule”).

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

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

The Bureau issued its final Small Dollar Rule on July 22, 2020, which rescinded certain provisions of the rule that was issued in 2017 relating to mandatory underwriting.

Specifically, the Bureau revoked provisions that:

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

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.

The payment provisions of the Small Dollar Rule were not rescinded and restrict lenders from attempting to withdraw payment from a borrower’s account after two consecutive failed attempts unless the borrower provides new authorization for the third attempt.

In order to begin re-attempting payments, the lender must follow certain guidelines and obtain new authorizations where applicable.

The Small Dollar Rule has been the subject of litigation, but the Bureau indicated that it expects the Small Dollar Rule to become effective on March 30, 2025.

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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In addition, failure to comply with these requirements could lead to significant fines and penalties or the imposition of corrective orders.

In July 2024, the federal banking agencies, including the FRB and OCC, proposed amendments to update the requirements for supervised institutions to establish, implement and maintain effective, risk-based and reasonably designed AML and countering the financing of terrorism (“CFT”) programs.

The proposed amendments would require supervised institutions to identify, evaluate and document the regulated institution’s money laundering, terrorist financing and other illicit finance activity risks, as well as consider, as appropriate, the U.S.

Department of the Treasury’s Financial Crimes Enforcement Network’s (“FinCEN”) published national AML/CFT priorities.

Customer Identification Programs for Holders of Prepaid Cards

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

Examination Guidance for Third-Party Lending

On July 29, 2016, the FDIC issued revised examination guidance related to third-party lending relationships (e.g., lending arrangements that rely on a third party to perform a significant aspect of the lending process).

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

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

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.

Additionally, third party relationship risk management and banking as a service arrangements (including with respect to deposit products and services) have been topics of focus for federal bank regulators in 2024 and further rulemaking activity or guidance may be forthcoming.

Unclaimed Property Laws

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As of September 30, 2024, the Bank exceeded all of its regulatory capital requirements and was designated as “well capitalized” under federal guidelines.

Recent Developments Related to Capital Rules

There have been several developments which are intended to reduce the regulatory capital burden on smaller, less complex banking organizations like the Company and the Bank.

There have been several developments which are intended to reduce the regulatory capital burden on smaller or less complex banking organizations like the Company and the Bank.

The effect that these developments will have on the Company and the Bank is currently uncertain.

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The Bank paid cash dividends in the amount of $87.0 million to the Company during fiscal 2024, to be used to fund share repurchases under the common stock share repurchase programs that were authorized by the Company's Board of Directors.

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 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 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.

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CRA ratings can also impact an insured depository institution’s ability to engage in certain activities as CRA performance is considered in connection with certain applications by depository institutions and their holding companies, including merger applications, charter applications, and applications to acquire assets or assume liabilities.

The Bank received an “Outstanding” rating during its most recent Performance Evaluation dated February 3, 2020.

The Bank received a “Satisfactory” rating during its most recent Performance Evaluation dated January 29, 2024.

On October 24, 2023, the federal banking agencies jointly issued a final rule to modernize CRA regulations consistent with the following key goals:

(i) to encourage banks to expand access to credit, investment, and banking services in low to moderate income communities;

(ii) to adapt to changes in the banking industry, including internet and mobile banking and the growth of non-branch delivery systems;

(iii) to provide greater clarity and consistency in the application of the CRA regulations, including adoption of a new metrics-based approach to evaluating bank retail lending and community development financing;

and (iv) to tailor CRA evaluations and data collection to bank size and type, recognizing that differences in bank size and business models may impact CRA evaluations and qualifying activities.

Most of the final CRA rule’s requirements will be applicable beginning January 1, 2026, with certain requirements, including the data reporting requirements, applicable as of January 1, 2027.

The Bank is evaluating the expected impact of the modified CRA regulations.

Federal Home Loan Bank System

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In evaluating applications by BHCs to acquire other holding companies and banks, the Federal Reserve must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the DIF, the convenience and needs of the community and competitive factors.

On September 17, 2024, the OCC issued a final rule related to its regulations for business combinations involving national banks and a policy statement that summarizes the principles the OCC uses when it reviews proposed bank merger transactions under the Bank Merger Act (“BMA”).

The final rule removes provisions related to expedited review and the use of the streamlined business combination application.

The policy statement discusses the OCC’s review of applications submitted under the BMA, including general principles for the OCC’s review and the OCC’s consideration of the financial stability, managerial and financial resources and future prospects and the convenience and statutory needs factors under the BMA.

On September 17, 2024, the FDIC also approved a final Statement of Policy on Bank Merger Transactions addressing the scope of transactions subject to FDIC approval, the FDIC’s process for evaluating merger applications, and the principles that guide the FDIC’s consideration of the applicable statutory factors as set forth in the BMA.

Change in Bank Control

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Competitors include a wide range of regional and national banks and financial services companies located both in the Company's market areas and across the nation.

The Company’s BaaS business line serves customers nationally and also faces strong competition from large commercial banks and specialty providers of electronic payments processing and servicing, including prepaid, debit and credit card issuers, ACH processors and ATM network sponsors.

The Company’s Partner Solutions business line serves customers nationally and also faces strong competition from large commercial banks and specialty providers of electronic payments processing and servicing, including prepaid, debit and credit card issuers, ACH processors and ATM network sponsors.

Many of these national players are aggressive competitors, leveraging relationships and economies of scale.

As part of its national lending operations, the Company also faces strong competition from non-bank commercial finance companies, leasing companies, factoring companies, insurance premium finance companies, consumer finance and others on a nationwide basis.

As part of its national lending operations, the Company also faces strong competition from non-bank commercial finance companies, leasing companies, factoring companies, consumer finance and others on a nationwide basis.

In addition, the Company’s tax return processing services division competes nationwide with financial institutions that offer similar processing technologies and capabilities.

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 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 seek to provide a diverse, inclusive, safe, and healthy workplace for all.

The Company's purpose of powering financial inclusion is foundational to our ability to attract and retain top talent who desire to work with innovators to enable financial availability, choice, and opportunity for consumers and businesses in underserved markets.

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

We seek to provide a diverse, inclusive, safe, and healthy workplace, recognizing our employees enable us to deliver on our purpose.

The following table describes the composition of our workforce as of September 30, 2024:

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Total Employees 1,199 1,244 3.75%

Minorities 20%

Diversity, Equity and Inclusion ("DEI")

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.

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 markets that we serve.

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.

We approach the components of DEI as follows:

We prioritize cultivating a culture that promotes, supports, and respects diversity among our employees, customers, partners, and community, honoring their unique perspectives that enrich their experience with us.

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 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 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.

Racial/Ethnic Minorities 22%

Diversity, Equity, Inclusion and Belonging ("DEIB")

At Pathward, we are committed to advancing DEIB to meet the dynamic needs of our workforce and business.

We aim to cultivate an environment where every employee is embraced and recognized for their unique contributions in serving our clients, partners and communities.

Pathward works to promote diversity throughout our organization and provide an equal opportunity for employment and success regardless of background and identity, as reflected in our Code of Business Conduct and Employee Handbook.

Talent Acquisition

A core tenet of our talent system is to both develop talent from within and enrich our talent pool with external hires to support a continuous improvement mindset.

We have evolved our “Talent Anywhere” recruitment strategy to source candidates in anchor geographic hubs with flexibility to hire “anywhere” domestically.

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

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

Our “Talent Anywhere” recruitment strategy enables us to source candidates needed to fill essential capabilities and roles while positioning us as a remote-enabled employer of choice.

Our remote-enabled workplace has created valuable benefits for both employees and our business by reducing necessary commutes, allowing us to hire diverse talent from anywhere in the United States, and realizing a reduction in our physical footprint.

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

Talent Assessment and Development

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

Assessing talent and leadership development are also critical to our talent growth and retention strategy.

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 framework is used throughout the company to better equip Pathward to have clear line of sight into teams’ strengths and opportunities in terms of skills, diversity, and leadership potential.

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.

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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.

In addition to competitive 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.

Our healthcare, insurance benefits, health savings and flexible spending accounts are equally competitive with a low-cost share for the employee.

We also provide employer paid short- and long-term disability and life insurance benefits.

We understand how important it is that our employees have time away from work.

To allow employees time to recharge, we offer paid time off, family leave, family care resources, flexible work schedules, adoption assistance, employee assistance programs, and other rest and family related benefits.

We want our employees to be healthy and be able to bring their whole selves to the workplace.

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

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

Being a fully remote-enabled 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.

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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 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.

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

Also posted on the Company's website, among other things, are the Sustainability 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