What changed in this filing

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Item 1A. Risk Factors

2024-11-26 compared with 2023-11-21 · 77 added, 68 removed, 450 unchanged (24% of the section changed)

38 unchanged sentences

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

• The OCC's grant of bank charters to fintech companies and special purpose fintech charter could present a market risk to us generally and the BaaS business line specifically.

• The OCC's grant of bank charters to fintech companies and special purpose fintech charter could present a market risk to us generally and the Partner Solutions business line specifically.

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

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

• Our ability to receive dividends from the Bank could affect our liquidity and ability to pay dividends on our common stock and interest on our trust preferred securities.

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

• Our ability to receive dividends from the Bank could affect our liquidity and ability to pay dividends on our common stock, interest on our trust preferred securities and principal on our debt.

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

Risks Related to Regulation of the Company and the Bank

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• The Bureau's rulemaking and enforcement of prohibitions against unfair, deceptive or abusive practices have directly impacted, and may continue to impact, the Bank's consumer financial products and service offerings.

• Regulatory scrutiny of bank provision of BaaS solutions and related technology considerations has recently increased.

• Increased scrutiny and evolving expectations from stakeholders with respect to environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.

• Regulatory scrutiny of bank provision of partner solutions and related technology considerations has increased.

• Increased scrutiny and evolving expectations from stakeholders with respect to ESG practices may impose additional costs on us or expose us to new or additional risks.

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

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• Any change in the Bank's ability to gather brokered deposits may adversely impact the Bank.

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

• As a BHC, we are required to serve as a "source of strength" for the Bank.

• If we fail to maintain sufficient capital, our financial condition, liquidity, results of operations, and compliance with regulatory requirements would be adversely affected.

• Changes in federal, state and local tax laws, interpretations of existing laws, or adverse determinations by tax authorities, could increase our tax burden or otherwise have a material adverse effect on our business, financial condition and results of operations.

• Changes in federal, state, and local tax laws, interpretations of existing tax laws, or adverse determinations by tax authorities, could increase our tax burden or otherwise have a material adverse effect on our business, financial condition, and results of operations.

General Risk Factors

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However, as with any risk management framework, there are inherent limitations to our risk management strategies, as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified.

For example, if our underwriting practices or criteria fail to adequately identify, price, and mitigate credit risks, such as risks related to continued economic disruption and the risk in our refund advance loan portfolio that the IRS or the relevant state revenue department does not pay our customer's tax refund in full or the risk that any of our EROs will facilitate or engage in malfeasance or offer the Bank's products and services in a manner that does not comply with applicable law or contractual representations, warranties and covenants, it is possible that losses in our loan portfolio will exceed the amounts the Bank has set aside for loss reserves and result in reduced interest income and increased provision for credit losses, which could have an adverse effect on our financial condition and results of operations.

For example, if our underwriting practices or criteria fail to adequately identify, price, and mitigate credit risks, such as risks related to economic disruption and the risk in our refund advance loan portfolio that the IRS or the relevant state revenue department does not pay our customer's tax refund in full or the risk that any of our EROs will facilitate or engage in malfeasance or offer the Bank's products

and services in a manner that does not comply with applicable law or contractual representations, warranties and covenants, it is possible that losses in our loan portfolio will exceed the amounts the Bank has set aside for loss reserves and result in reduced interest income and increased provision for credit loss, which could have an adverse effect on our financial condition and results of operations.

Any resulting deterioration in our loan and lease portfolio could also cause a decrease in our capital, which would make it more difficult to maintain regulatory capital compliance.

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Similarly, borrowers under our commercial loans and related financing products (typically, small- to medium-sized businesses) may be more susceptible to even mild or moderate economic declines than larger commercial borrowers, which may subject the Bank and, ultimately, us, to a higher risk of loan loss.

Many borrowers have been negatively impacted by recent events impacting financial, real estate, and securities markets, including geopolitical turmoil, rising interest rates, inflation, adverse developments in the financial services industry, and other recent events that have caused market and economic volatility, and may continue to be similarly or more severely affected in the future.

Many borrowers have been negatively impacted by recent events impacting financial, real estate, and securities markets, including geopolitical turmoil, higher interest rates, inflation, adverse developments in the financial services industry, and other events that have caused market and economic volatility, and may continue to be similarly or more severely affected in the future.

The risk of non-payment by borrowers is assessed through our underwriting processes and other risk management practices, which may not be able to fully identify, price and mitigate such risk.

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Because we must use assumptions to establish our allowance for credit losses, the current allowance for credit losses may not be sufficient to cover actual credit losses, and increases in the allowance, which may be significant, may be necessary.

In addition, federal and state regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or recognize loan charge-offs.

In addition, federal and state regulators periodically review our allowance for credit losses and may require us to increase our provision for credit loss or recognize loan charge-offs.

Material additions to our allowance would materially decrease our net income.

We cannot provide any assurance that our monitoring

procedures and policies will reduce certain lending risks or that our allowance for credit losses will be adequate to cover actual losses.

We cannot provide any assurance that our monitoring procedures and policies will reduce certain lending risks or that our allowance for credit losses will be adequate to cover actual losses.

Our earnings are significantly affected by general business, political and economic conditions.

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These conditions include short-term and long-term interest rates, inflation, commodity pricing, money supply and monetary policy, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, the strength of the United States economy, and uncertainty in financial markets globally, all of which are beyond our control.

A deterioration in business, political or economic conditions, including those arising from pandemics such as COVID-19, geopolitical turmoil and war, government shutdowns or defaults, or increases in unemployment, could result in an increase in loan delinquencies and nonperforming assets, decreases in loan collateral values, and a decrease in demand for our products and services, among other things, any of which could have a material adverse impact on our financial condition and results of operations.

A deterioration in business, political or economic conditions, including those arising from pandemics, geopolitical turmoil and war, government shutdowns or defaults, or increases in unemployment, could result in an increase in loan delinquencies and nonperforming assets, decreases in loan collateral values, and a decrease in demand for our products and services, among other things, any of which could have a material adverse impact on our financial condition and results of operations.

Additionally, an unpredictable or volatile political environment in the United States, including any social unrest and uncertainty as a result of the 2024 U.S.

presidential election, could negatively impact business and market

conditions, economic growth, financial stability, and business, consumer, investor, and regulatory sentiments, any one or more of which could have a material adverse impact on our financial condition and results of operations.

It is difficult to predict the legislative and regulatory changes that may result due to the upcoming presidential election.

A new administration, or a change in the make-up of either the Senate and/or House of Representatives may cause broader economic changes due to changes in governing ideology and style.

New appointments to the Board of Governances of the Federal Reserve could affect monetary policy and interest rates, which could in turn affect economic growth.

The process we use to estimate losses inherent in our credit exposure requires difficult, subjective and complex judgments, including forecasts of economic conditions, and determinations as to whether economic conditions might impair the ability of our borrowers to repay their loans and leases.

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

The electronic payments industry, including the prepaid financial services segment within that industry in which the BaaS business line operates, depends heavily upon the overall level of consumer spending, which may decrease if economic or political conditions in the United States deteriorate and result in a reduction of the number of our prepaid accounts that are purchased or reloaded, the number of transactions involving our cards and the use of our reloadable card products and related services.

The electronic payments industry, including the prepaid financial services segment within that industry in which the Partner Solutions business line operates, depends heavily upon the overall level of consumer spending, which may decrease if economic or political conditions in the United States deteriorate and result in a reduction of the number of our prepaid accounts that are purchased or reloaded, the number of transactions involving our cards and the use of our reloadable card products and related services.

A sustained reduction in the use of our products and related services, either as a result of a general reduction in consumer spending or as a result of a disproportionate reduction in the use of card-based payment systems, would materially harm our business, results of operations and financial condition.

Adverse developments or concerns affecting the financial services industry or specific financial institutions could adversely affect our financial condition and results of operations.

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar events, have in the past and may in the future lead to erosion of customer confidence in the banking system, deposit volatility, liquidity issues, stock price volatility, and other adverse developments.

For example, the closures of Silicon Valley Bank ("SVB") and Signature Bank in March 2023, and First Republic Bank in May 2023, led to disruption and volatility, including deposit outflows and increased need for liquidity, at certain banks.

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While we did not experience any abnormal changes in our total outstanding deposit balances following the bank closures in March and May 2023 and related events, we experienced changes in deposit balances resulting from typical seasonal fluctuations due to the nature of our business.

While our deposit base primarily consists of millions of retail cards and other small dollar accounts with an average balance less than $1,000 and we maintain a liquidity

position with numerous funding options available totaling over $2.6 billion as of September 30, 2023, we cannot be assured that unusual deposit withdrawal activity will not affect banks generally in the future or us in particular.

Continued uncertainty regarding or worsening of the severity or duration of the volatility in the banking industry could also adversely impact our estimate of our allowance for credit losses and related provision for credit losses.

While our deposit base primarily consists of millions of retail cards and other small dollar accounts with an average balance less than $1,000 and we maintain a liquidity position with numerous funding options available totaling over $2.0 billion as of September 30, 2024, we cannot be assured that unusual deposit withdrawal activity will not affect banks generally in the future or us in particular.

Any of these impacts, or any other impacts resulting from the events described above, could have a material adverse effect on our liquidity and our current and/or projected business operations and financial condition and results of operations.

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We rely on different sources in order to meet our potential liquidity demands.

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

Our primary sources of funds are deposits, derived principally through our Partner Solutions business line, borrowings, principal and interest payments on loans and leases and mortgage-backed securities, and maturing investment securities.

We also utilize wholesale deposit sources to provide temporary funding when necessary or when favorable terms are available.

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We include in income from operations the difference between the sales price and the depreciated value of an item of leased equipment sold.

Changes in our assumptions regarding depreciation could change our depreciation expense,

as well as the gain or loss realized upon disposal of leased equipment.

Changes in our assumptions regarding depreciation could change our depreciation expense, as well as the gain or loss realized upon disposal of leased equipment.

If we sell our used leased equipment at prices significantly below our projections or in lesser quantities than we anticipated at the time we entered into the lease, our results of operations and cash flows may be negatively impacted.

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These rates are highly sensitive to many factors beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities, including the Federal Reserve.

Throughout 2022 and 2023, the Federal Reserve has raised the federal funds rate to its current targeted rate between 5.25% and 5.5% in an effort to curb inflation.

As market interest rates rise, we experience competitive pressures to increase the rates we pay on deposits, which may decrease our net interest income.

In addition, inflationary pressures will increase our operating costs and could have a significant negative effect on our borrowers and the values of collateral securing loans, which could negatively affect our financial performance.

Throughout 2022, 2023 and 2024, the Federal Reserve raised the target range for the federal funds rate in an effort to curb inflation.

In September 2024 and November 2024, the Federal Reserve lowered the target range for the federal funds rate to its current range of 4.50% to 4.75% in light of the progress on inflation.

As market interest rates have risen, we have experienced competitive pressures to increase the rates we pay on deposits, which may decrease our net interest income.

In addition, inflationary pressures will generally increase our operating costs and could have a significant negative effect on our borrowers and the values of collateral securing loans, which could negatively affect our financial performance.

In addition, certain of our noninterest income and noninterest expenses are subject to adverse effect in a rising interest rate environment.

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

Several banking institutions have adopted business strategies similar to ours, particularly with respect to the banking-as-a-service business.

Several banking institutions have adopted business strategies similar to ours, particularly with respect to the banking-as-a-service ("BaaS") business.

This competition, and competition in any of the Bank's other business lines, may increase our costs, reduce our revenues or revenue growth, result in fragmented market share and a failure to enjoy economies of scale or make it difficult for us to compete effectively in maintaining and obtaining additional customer relationships.

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Consumers might not use prepaid financial services for any number of reasons.

For example, negative publicity surrounding us or other prepaid financial service providers could impact the Payments business and prospects for

growth to the extent it adversely impacts the perception of prepaid financial services.

For example, negative publicity surrounding us or other prepaid financial service providers could impact the Payments business and prospects for growth to the extent it adversely impacts the perception of prepaid financial services.

Consumer spend behaviors could increase or decrease, or become more difficult to accurately predict, thereby impacting operating revenues and/or expenses of the Company.

Growth of prepaid financial services as an electronic payment mechanism may not occur or may occur more slowly than estimated.

Growth of prepaid financial services as an electronic payment mechanism may not

occur or may occur more slowly than estimated.

These factors could have a material adverse effect on our financial condition and results of operations.

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The Bank has entered into numerous arrangements with third parties with respect to the operations of its business, as described in Part I, Item 1 "Business." Upon the expiration of the then-current term, any such agreements may not be renewed by the third party or may be renewed on terms less favorable to the Bank.

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

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

To the extent any agreement with a service provider is terminated, we may not be able to secure alternate service providers, and, even if we do, the terms with alternate providers may not be as favorable as those currently in place.

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Any such responsibility or liability in the future may have a material adverse effect on our business, including the operations of the Bank and its divisions, and financial results.

In any event, our agreements with third parties could come under scrutiny by our regulators, and our regulators could raise an issue with, or object to, any term or provision in such an agreement or any action taken by such third party vis-à-vis the Bank's operations or customers, resulting in a material adverse effect to us including, but not limited to, the imposition of fines and/or penalties and the material restructuring or termination of such agreement.

Moreover, if our regulators examine our third-party service providers and find questionable or illegal acts or practices, our regulators could require us to restructure or terminate our agreements with such providers.

In any event, our agreements with, and management practices with respect to, third parties have been and may continue to be scrutinized by our regulators, and our regulators could raise an issue with, or object to, any term or provision in such an agreement or any action taken by such third party vis-à-vis the Bank's operations or customers, resulting in a material adverse effect to us including, but not limited to, the imposition of fines and/or penalties and the material restructuring or termination of such agreement.

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

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From time to time, we have implemented, and in the future, may implement new lines of business or offer new financial products or services within existing lines of business.

Substantial risks and uncertainties are associated with developing and marketing new lines of business or new products or services, particularly in instances where markets are not fully developed or when the laws and regulations regarding a new product are not mature, and we may be required to invest significant time and management and capital resources in connection with such new lines of business or new products or services.

Substantial risks and uncertainties are associated with developing and marketing new lines of business or new products or services, particularly in instances where markets are not fully developed or when the laws and regulations regarding a new product are not mature, and we may be required to invest significant time, management and capital resources in connection with such new lines of business or new products or services.

Initial timetables for the introduction and development of new lines of business or new products or services may not be achieved.

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For example, the largest credit card associations in the world created the Payment Card Industry Data Security Standards (the "PCI DSS"), a multifaceted standard that includes data security management, policies and procedures as well as other protective measures to protect the nonpublic personal information of cardholders.

These laws, regulations and standards are rapidly evolving and increasing in complexity and could have a significant impact

on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer and employee information, and some of current or planned business activities.

These laws, regulations and standards are rapidly evolving and increasing in complexity and could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use,

sharing, retention and safeguarding of consumer and employee information, and some current or planned business activities.

Complying with these laws, regulations and standards may increase our operational costs, restrict our ability to provide certain products and services or have an effect on the profitability of one or more of our business divisions.

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Our reputation and financial condition may be harmed by system failures, computer viruses and other technological interruptions to our operations.

We rely heavily upon information systems and other operating technologies to efficiently operate and manage our business, including to process transactions through the Internet, including, in particular, in our BaaS business line.

Were there to be a failure or a significant impairment in the operation of any of such systems, we may need to develop alternative processes, including to comply with customer safeguard protocols, during which time revenues and profitability may be lower, and there can be no assurance that we could develop or find such an alternative on terms acceptable to us or at all.

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These agreements present potential increased credit, operational, and reputational risks.

Because the loans originated under such programs are unsecured, in the event a borrower does not repay the loan in accordance with its terms or otherwise

defaults on the loan, the Bank may not be able to recover from the borrower an amount sufficient to pay any remaining balance on the loan.

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

Because the loans originated under such programs are unsecured, in the event a borrower does not repay the loan in accordance with its terms or otherwise defaults on the loan, the Bank may not be able to recover from the borrower an amount sufficient to pay any

remaining balance on the loan.

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

Certain types of these arrangements have been challenged both in the courts and in regulatory actions.

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In June 2021, the True Lender Rule was repealed and the OCC prohibited from issuing any replacement of the True Lender Rule absent Congressional authorization.

In the wake of the repeal of the True Lender Rule, several states have announced their intention to broaden oversight of non-bank fintech lenders, while certain parties have initiated litigation in order to obtain court guidance on how particular jurisdictions may weigh loan program facts and rule on “true lender” challenges.

In the wake of the repeal of the True Lender Rule, several states have announced their intention to broaden oversight of non-bank fintech lenders, and several states have adopted legislation and guidance regarding "true lenders." Additionally, certain parties have initiated litigation in order to obtain court guidance on how particular jurisdictions may weigh loan program facts and rule on “true lender” challenges.

In addition, the Consumer Financial Protection Bureau and the Federal Trade Commission have each announced their intention to explore their authority to supervise nonbank lending partnerships in markets for consumer financial products and services.

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If a regulatory agency, consumer advocate group, or other third party were to bring successful action against the Bank or any of the third parties with which the Bank operates such lending programs, there could be a material adverse effect on our financial condition and results of operations.

The OCC's grant of bank charters to fintech companies and special purpose fintech charter could present a market risk to us generally and the BaaS business line specifically.

The OCC's grant of bank charters to fintech companies and special purpose fintech charter could present a market risk to us generally and the Partner Solutions business line specifically.

The OCC announced on July 31, 2018 that it would begin to accept and evaluate charters for entities that wanted to conduct certain components of a banking business pursuant to a federal charter, known as a "special purpose national bank" ("SPNB") charter.

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If, in the future, the OCC determines to grant any SPNB applications or continues to grant bank charters to fintech applicants, recipients of such charters may enter the U.S.

payments market BaaS solutions market, and other business lines in which the Bank operates, which could increase the competition we face and have a material adverse effect on the Bank and the BaaS business line.

payments market, BaaS solutions market, and other business lines in which the Bank operates, which could increase the competition we face and have a material adverse effect on the Bank and the Partner Solutions business line.

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

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The loss of any of our key personnel could have an adverse effect on our business.

Most recently, we completed a Chief Financial Officer transition in November 2023.

Management transitions may create uncertainty and involve a diversion of resources and management attention, be disruptive to our daily operations or impact public or market perception, any of which could negatively impact our ability to operate effectively or execute our strategies and result in a material adverse impact on our business, financial condition, results of operations or cash flows.

As we continue to develop and expand our operations, we may require personnel with different skills and experiences, with a sound understanding of our business and the industries in which we operate.

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

The competition for

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

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

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To keep up with our competition, we regularly evaluate technology to determine whether it may help us compete on a cost-effective basis.

This is especially true with respect to our BaaS business line, which requires significant expenditures to exploit technology and to develop new products and services to meet customers' needs.

This is especially true with respect to our Partner Solutions business line, which requires significant expenditures to exploit technology and to develop new products and services to meet customers' needs.

The cost of investing in, implementing and maintaining such technology is high, and there can be no assurance, given the fast pace of change and innovation, that our technology, either purchased or developed internally, will meet our needs, in a timely, cost-effective manner or at all.

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If we are not able to anticipate and keep pace with existing and future technology needs, our business, financial results, or reputation could be negatively impacted.

Our ability to receive dividends from the Bank could affect our liquidity and ability to pay dividends on our common stock and interest on our trust preferred securities.

Our ability to receive dividends from the Bank could affect our liquidity and ability to pay dividends on our common stock, interest on our trust preferred securities and principal on our debt.

We are a legal entity separate and distinct from the Bank.

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In the context of prepaid cards, the customer funds represented by such cards can sometimes be "abandoned" or unused for the relevant period of time set forth in each applicable state's abandoned property laws.

The BaaS business line utilizes automated programs designed to comply with applicable escheatment laws and regulations.

The Partner Solutions business line utilizes automated programs designed to comply with applicable escheatment laws and regulations.

There appears, however, to be a movement among some state regulators to more broadly interpret definitions in escheatment statutes and regulations than in the past.

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See Part I, Item 1 "Business - Regulation and Supervision" herein.

Many of the laws, rules, regulations and supervisory policies governing our business are intended primarily for the protection of our depositors, our customers, the financial system and the FDIC insurance fund, not our stockholders or other creditors and are subject to regular modification and change.

A considerable amount of management time and resources is devoted to oversight of, and development, implementation and execution of controls and procedures relating to, compliance with these laws, regulations and policies.

or other creditors and are subject to regular modification and change.

A considerable amount of management time and resources are devoted to oversight of, and development, implementation and execution of controls and procedures relating to, compliance with these laws, regulations and policies.

Banking regulatory authorities have broad discretion in connection with their supervisory and enforcement activities, including, but not limited, to the imposition of restrictions on the operation of an institution, the classification of assets by the institution, and the adequacy of an institution's allowance for credit losses.

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Congress or otherwise may adversely impact our tax refund processing and settlement business, which could reduce customer demand for our strategic partner's refund advance products, thereby reducing the volume of refund advance loans that we may offer.

In addition, further regulations, including in response to recent highly-publicized bank failures, could increase the assessment rate we are required to pay to the FDIC, adversely affecting our earnings.

In addition, future regulations could increase the assessment rate we are required to pay to the FDIC, adversely affecting our earnings.

It is very difficult to predict future changes in regulation or the competitive impact that any such changes would have on our business.

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See "Business - Regulation and Supervision - Bank Regulation and Supervision" in Part I, Item 1 of this Annual Report on Form 10-K.

Regulatory scrutiny of bank provision of BaaS solutions and related technology considerations has recently increased.

We provide products and services to third parties through various payments, issuing, credit and tax solutions.

The third parties that use these BaaS solutions, and with which we often partner in marketing efforts, are typically considered fintech companies but may also include other financial intermediaries.

Recently, federal bank regulators have increasingly focused on the risks related to bank and fintech company partnerships, raising concerns regarding risk management, oversight, internal controls, information security, change management, and information technology operational resilience.

This focus is demonstrated by recent regulatory enforcement actions against other banks that have allegedly not adequately addressed these concerns while growing their BaaS offerings.

While we believe we are a leader in managing, monitoring and overseeing BaaS relationships with third parties and corresponding technologies, we could be subject to additional regulatory scrutiny with respect to that portion of our business.

Increased scrutiny and evolving expectations from stakeholders with respect to environmental, social and governance ("ESG") practices may impose additional costs on us or expose us to new or additional risks.

Regulatory scrutiny of bank provision of partner solutions and related technology considerations has increased.

We provide products and services to third parties through issuing, acquiring, digital payments, financial institution solutions, credit solutions, and professional tax solutions.

The third parties that use these partner solutions, and with which we often partner in marketing efforts, are typically considered fintech companies but may also include other financial intermediaries.

Federal bank regulators are increasingly focused on the risks related to bank and fintech company partnerships, raising concerns regarding risk management, oversight, internal controls, information security, change management, and information technology operational resilience.

This focus is demonstrated by recent regulatory enforcement actions against other banks that have allegedly not adequately addressed these concerns while growing their BaaS offerings, as well as by a request for information by the federal banking regulators on bank-fintech arrangements.

While we believe we are a leader in managing, monitoring and overseeing partner solutions relationships with third parties and corresponding technologies, we could be subject to additional regulatory scrutiny with respect to that portion of our business.

Increased scrutiny and evolving expectations from stakeholders with respect to ESG practices may impose additional costs on us or expose us to new or additional risks.

As a regulated financial institution and a publicly traded company, we are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to ESG practices and disclosure.

Investor advocacy groups, investment funds, and influential investors are increasingly focused on these practices, especially as they relate to climate risk, hiring practices, the diversity of the work force, and racial and social justice issues.

Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact the Company’s reputation, ability to do business with certain partners, and stock price.

New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.

Both recently adopted and pending government regulations will result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.

Additionally, ongoing legislative or regulatory uncertainties and changes regarding ESG, including climate risk, management and practices may result in higher compliance, credit and reputational risks and costs.

To the extent that we or our customers experience increases in costs, including with respect to compliance with any additional regulatory or disclosure requirements or expectations, reductions in the value of assets, constraints on operations or similar concerns driven by changes in ESG oversight and regulation, our results of operations, financial condition, and business could be adversely affected.

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The Bank relies on brokered deposits to assist in funding its loan and other financing products.

Should the Bank ever fail to be well capitalized in the future as a result of not meeting the well capitalized requirements or the imposition of an individual minimum capital requirement or similar formal requirement, then, the Bank would be prohibited, absent waiver from the FDIC, from utilizing brokered deposits (i.e., no insured depository institution that is deemed to be less than "well capitalized" may accept, renew or rollover brokered deposits absent a waiver from the FDIC).

In such event, such a result could produce material adverse consequences for the Bank with

respect to liquidity and could also have material adverse effects on our financial condition and results of operations.

institution that is deemed to be less than "well capitalized" may accept, renew or rollover brokered deposits absent a waiver from the FDIC).

In such event, such a result could produce material adverse consequences for the Bank with respect to liquidity and could also have material adverse effects on our financial condition and results of operations.

Further, depending on the Bank's condition in the future and its reliance on these deposits as a source of funding, the FDIC could increase the surcharge on our brokered deposits.

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In addition, changes to FDIC regulations regarding brokered deposits or interpretations of such regulations by federal banking agencies could have an adverse impact on the Bank’s ability to accept brokered deposits.

On July 30, 2024, the FDIC released a notice of proposed rulemaking to revise its regulations regarding brokered deposits, which would significantly change the FDIC’s current approach to brokered deposits.

If the FDIC adopts these amendments as proposed, it could have an adverse impact on the Bank’s ability to accept brokered deposits.

Additionally, brokered deposits are highly sensitive to changes in interest rates and, accordingly, can be a more volatile source of funding.

Use of brokered deposits involves the risk that growth supported by such deposits would be halted, or the Bank’s liquidity adversely impacted, if the rates offered by the Bank were less than those offered by other institutions seeking such deposits, or if depositors were to perceive a decline in the Bank’s safety and soundness, or both.

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

Federal banking law codifies a requirement that a bank holding company (like us) act as a financial "source of strength" for its FDIC-insured depository institution subsidiaries (like the Bank) and permits the OCC, as the Bank's primary federal regulator, to request reports from us to assess our ability to serve as a source of strength for the Bank and to enforce compliance with these statutory requirements.

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

Federal banking law codifies a requirement that a BHC (like us) act as a financial "source of strength" for its FDIC-insured depository institution subsidiaries (like the Bank) and permits the OCC, as the Bank's primary federal regulator, to request reports from us to assess our ability to serve as a source of strength for the Bank and to enforce compliance with these statutory requirements.

See Part I, Item 1 "Business - Regulation and Supervision - Holding Company Regulation and Supervision." Given the power provided to the federal banking agencies, we, as a source of strength for the Bank, may be required to contribute capital to the Bank when we might not otherwise voluntarily choose to do so.

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The governing tax laws and applicable tax rates vary by jurisdiction and are subject to interpretation and changes.

We may be subject to examination by the tax authorities and such authorities may disagree with our tax positions, which could adversely affect our financial

We may be subject to examination by the tax authorities and such authorities may disagree with our tax positions, which could adversely affect our financial condition.

Additionally, the amount of tax payable in a given financial statement period may be impacted by sudden or unforeseen changes in tax laws, changes in the mix and level of earnings by taxing jurisdictions, or changes to existing accounting rules or regulations.

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What changed 10-K

Item 1A. Risk Factors