CASH 2018 Annual Report

91 The Company’s average balance of total deposits and interest-bearing liabilities increased $829.7 million, or 31%, to $3.49 billion during fiscal 2017 from $2.66 billion during 2016. A portion of this increase was due to the utilization of advantageous pricing and strategic maturities on certain wholesale deposits, an increase in average non-interest bearing deposits and the Company's completion of the public offering of its subordinated notes in August 2016, which are due August 15, 2026. This increase was partially offset by a decrease of $79.7 million in the average balance of overnight fed funds purchased. The average outstanding balance of non-interest-bearing deposits increased from $2.02 billion in fiscal 2016 to $2.29 billion in fiscal 2017. The Company’s cost of total deposits and interest-bearing liabilities increased 28 basis points to 0.43% during fiscal 2017 from 0.15% during 2016. This increase was primarily due to a combination of the issuance of the Company's subordinated debt in the fourth quarter of fiscal 2016, the addition of wholesale deposits, an increase in the overnight borrowing rates and higher average overall funding balances due to the Company's utilization of more of its capital during non-tax season with higher investment balances and funding. Provision for Loan Losses In fiscal 2017, the Company recorded $10.6 million in provision for loan losses, compared to $4.6 million in 2016. The increase in provision expense was primarily driven by higher seasonal volumes in tax season loans. The growth in the Banking segment loans, as well as the downgrade of a significant agriculture relationship during the second quarter of fiscal 2017 also contributed to an increased provision in fiscal 2017. Non-Interest Income Non-interest income increased by $71.4 million, or 71%, to $172.2 million for fiscal 2017 from $100.8 million for 2016. This increase was primarily due to an increase in tax advance fee income of $30.3 million, a $24.2 million increase in card fee income, and a $15.6 million increase in refund transfer product fee income. The increases in tax advance fee income and refund transfer product fee income were related to the acquisitions of EPS and SCS during the fiscal 2017 first quarter. Card fee income primarily grew due to a wind-down of one of our non-strategic partners and also due to continued strong growth in our core business relationships. Non-Interest Expense Non-interest expense increased by $65.0 million, or 48%, to $199.7 million for fiscal 2017 from $134.6 million for fiscal 2016. This increase in non-interest expense from 2016 to 2017 was largely driven by an increase in compensation expense of $27.1 million, an increase in amortization expense of $7.5 million, and an increase in other expense of $5.5 million. The increases in these categories were principally due to the EPS and SCS acquisitions, which occurred in the first quarter of fiscal 2017. The increase in compensation was also driven by non-cash stock-related compensation expense associated with three executive officers signing long-term employment agreements in the first and second quarters of fiscal 2017. Also leading to the increase in non-interest expense when comparing 2017 to 2016 was a $10.2 million intangible impairment charge related to the non-renewal of the H&R Block relationship during the fiscal 2017 fourth quarter. In addition, and to a lesser extent, noninterest expense also increased year over year due to increases in legal and consulting expense, tax advance product expense, refund transfer product expense, occupancy and equipment expense, and card processing expense. Income Tax Expense Income tax expense for fiscal 2017 was $10.2 million, resulting in an effective tax rate of 18.6%, compared to a tax expense of $5.6 million and an effective tax rate of 14.4%, in fiscal 2016. The increase in the Company’s recorded income tax expense for 2017 was primarily attributable to an increase in earnings; however, the increase was partially offset by the effects of adopting ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” for recording excess tax benefits as a reduction to income tax expense. Asset Quality At September 30, 2018, non-performing assets, consisting of impaired/non-accruing loans and leases, accruing loans and leases delinquent 90 days or more, foreclosed real estate and repossessed property totaled $41.8 million, or 0.72% of total assets, compared to $37.9 million, or 0.72% of total assets, at September 30, 2017. The small increase in NPAs was primarily attributable to the growth of, including through acquired loans and leases within, the commercial finance portfolio. Despite the increase in overall NPAs, NPAs as a percentage of total assets remained the same as the prior year due to the corresponding increase in assets. As of September 30, 2018, the Company had non-accruing loans and leases totaling $2.9 million and foreclosed and repossessed assets of approximately $31.6 million.