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Item 2. Management’s Discussion and Analysis

2025-09-10 compared with 2025-02-06 · 173 added, 105 removed, 254 unchanged (52% of the section changed)

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the performance of our securities portfolio;

future effective tax rate;

the impact of card balances related to government stimulus programs;

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our ability to successfully implement measures designed to reduce expenses and increase efficiencies;

changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the federal funds rate, and their related impacts on macroeconomic conditions, customer behavior, funding costs and loan and securities portfolios;

changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate and changes in international trade policies, tariffs and treaties affecting imports and exports, and their related impacts on macroeconomic conditions, customer behavior, funding costs and loan and securities portfolios;

changes in tax laws;

trade disputes, barriers to trade or the emergence of trade restrictions;

the strength of the United States' economy, and the local economies in which the Company operates;

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the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value and acceptance of these products and services by users;

Pathward's ability to maintain its Durbin Amendment exemption;

the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of Pathward’s strategic partners’ refund advance products;

the Bank's ability to maintain its Durbin Amendment exemption;

the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Bank’s strategic partners’ refund advance products;

our relationship with, and any actions which may be initiated by, our regulators, and any related increases in compliance and other costs;

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the growth of the Company’s business, as well as expenses related thereto;

continued maintenance by Pathward of its status as a well-capitalized institution;

continued maintenance by the Bank of its status as a well-capitalized institution;

changes in consumer borrowing, spending, and saving habits;

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The forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date hereof.

All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in its entirety by the cautionary statements contained or referred to in this section.

Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2024, and in the Company's other filings made with the SEC.

All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K/A for the Company’s fiscal year ended September 30, 2024, and in the Company's other filings made with the SEC.

The Company expressly disclaims any intent or obligation to update, revise, or clarify any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason.

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The Company’s common stock trades on the NASDAQ Global Select Market under the symbol “CASH.”

The following discussion focuses on the consolidated financial condition of the Company at December 31, 2024, compared to September 30, 2024, and the consolidated results of operations for the three months ended December 31, 2024 and 2023.

This discussion should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the fiscal year ended September 30, 2024 and the related management's discussion and analysis of financial condition and results of operations contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2024.

The following discussion focuses on the consolidated financial condition of the Company at March 31, 2025, compared to September 30, 2024, and the consolidated results of operations for the three and six months ended March 31, 2025 and 2024.

As described in Note 17.

"Restatement of Previously Issued Financial Statements" to the condensed consolidated financial statements, the Company has restated its unaudited historical consolidated financial statements as of March 31, 2024 and for the three and six months ended March 31, 2024.

Prior period financial information restated for three and six months ended March 31, 2024, was restated in the Form 10-K/A for the fiscal year ended September 30, 2024.

As a result the previously reported financial information as of March 31, 2024 and for the three and six months ended March 31, 2024 in this management's discussion and analysis has been updated to reflect the restatements.

EXECUTIVE SUMMARY

Company Highlights and Business Developments

• On October 31, 2024, Pathward ® , N.A.

completed the sale of substantially all of the assets and liabilities related to the Bank's commercial insurance premium finance business.

The purchase price was $603.3 million, plus a $31.2 million premium.

The Bank recorded a $16.4 million pre-tax gain on the sale.

• On November 30, 2024, the Bank sold $160.1 million of debt securities AFS with a pre-tax loss on the sale of securities of $15.7 million.

This loss largely offsets the gain from the sale of the commercial insurance premium finance business.

Financial Highlights for the 2025 Fiscal First Quarter

• Total revenue for the first quarter was $173.5 million, an increase of $10.7 million, or 7%, compared to the same quarter in fiscal 2024, driven by an increase in both net interest income and noninterest income.

• Net interest margin ("NIM") increased 61 basis points to 6.84% for the first quarter from 6.23% during the same period of last year, primarily driven by increased yields and balances in the loan and lease portfolio and an improved earnings asset mix from the continued balance sheet optimization.

• Total gross loans and leases at December 31, 2024 increased $136.4 million to $4.56 billion compared to December 31, 2023 and increased $487.5 million when compared to September 30, 2024.

When excluding the insurance premium finance loans of $671.0 million at December 31, 2023, total gross loans and leases at December 31, 2024 increased $807.4 million, or 22%, when compared to December 31, 2023.

• During the 2025 fiscal first quarter, the Company repurchased 701,860 shares of common stock at an average share price of $74.05.

As of December 31, 2024, there were 6,298,140 shares available for repurchase under the current common stock share repurchase program.

• On March 20, 2025, the Company's subsidiary Pathward®, N.A.

announced it became Certified™ by Great Place to Work® for the third year in a row.

Great Place to Work describes itself as the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation.

Financial Highlights for the 2025 Fiscal Second Quarter

• Total tax services product income, net of losses and direct product expenses, increased 29% to $47.6 million from $36.9 million, when comparing the first six months of fiscal 2025 to the same period of the prior fiscal year.

• Total revenue for the second quarter was $274.8 million, an increase of $17.2 million, or 7%, compared to the same quarter in fiscal 2024, driven by an increase in both noninterest income and net interest income.

• Net interest margin ("NIM") increased 35 basis points to 7.12% for the second quarter from 6.77% during the same period of last year, primarily driven by increased yields and balances in the loan and lease portfolio and an improved earning asset mix from the continued balance sheet optimization.

• Total gross loans and leases at March 31, 2025 increased $52.9 million to $4.46 billion compared to March 31, 2024 and decreased $97.8 million when compared to December 31, 2024.

When excluding the insurance premium finance loans, which sold during the first quarter of fiscal 2025, of $525.5 million at March 31, 2024, total gross loans and leases at March 31, 2025 increased $578.4 million, or 15%, when compared to March 31, 2024.

• During the 2025 fiscal second quarter, the Company repurchased 575,804 shares of common stock at an average share price of $78.11.

As of March 31, 2025, there were 5,722,336 shares available for repurchase under the current common stock share repurchase program.

For the six months ended March 31, 2025, total tax services product revenue was $85.0 million, an increase of 17% compared to the same period of the prior year.

Total tax services product fee income increased by $9.5 million and net interest income on tax services loans increased $2.6 million, while total tax services product expense increased marginally when compared to the prior year.

Provision for credit losses for the tax services portfolio increased $0.9 million for the six months ended March 31, 2025 when compared to the same period of the prior year, primarily due to an increase in loan originations.

Total tax services product income, net of losses and direct product expenses, increased 29% to $47.6 million from $36.9 million, when comparing the first six months of fiscal 2025 to the same period of the prior fiscal year.

This increase was primarily due to a 13% increase in independent tax office enrollments this tax season as compared to the prior year period.

For the 2025 tax season through March 31, 2025, Pathward originated $1.66 billion in refund advance loans compared to $1.56 billion during the 2024 tax season.

FINANCIAL CONDITION

At December 31, 2024, the Company’s total assets increased slightly to $7.62 billion compared to $7.55 billion at September 30, 2024, primarily due to growth of $487.5 million in loans and leases, $439.1 million in cash and cash equivalents, and $48.6 million in other assets, partially offset by reductions of $616.2 million in loans held for sale, $261.1 million in securities AFS, and $13.0 million in goodwill and intangible assets.

Total cash and cash equivalents were $597.4 million at December 31, 2024, increasing from $158.3 million at September 30, 2024.

The increase is primarily due to the proceeds from the sale of the commercial insurance premium finance business, net transaction costs, and the sale of debt securities AFS, partially offset by the repayment of short-term borrowings during the three months ended December 31, 2024 .

At March 31, 2025, the Company’s total assets decreased to $6.99 billion compared to $7.53 billion at September 30, 2024, primarily due to reductions of $645.9 million in loans held for sale and $329.7 million in securities AFS, partially offset by growth of $389.7 million in loans and leases and $95.9 million in cash and cash equivalents.

Total cash and cash equivalents were $254.2 million at March 31, 2025, increasing from $158.3 million at September 30, 2024.

The increase is primarily due to the proceeds from the sale of the commercial insurance premium finance business, net transaction costs, the sale of the transportation portfolio within working capital, and the sale of debt securities AFS, partially offset by the repayment of short-term borrowings during the six months ended March 31, 2025.

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

At December 31, 2024, the Company did not have any federal funds sold.

The Company's investment security balances at December 31, 2024 totaled $1.51 billion, as compared to $1.77 billion at September 30, 2024.

The decrease is primarily due to $160.1 million of debt securities AFS sold by the Bank during the three months ended December 31, 2024.

At March 31, 2025, the Company did not have any federal funds sold.

The Company's investment security balances at March 31, 2025 totaled $1.44 billion, as compared to $1.77 billion at September 30, 2024.

The decrease is primarily due to $217.9 million of debt securities AFS sold by the Bank during the six months ended March 31, 2025.

The Company’s portfolio of securities customarily consists primarily of MBS, which have expected lives much shorter than the stated final maturity, non-bank qualified obligations of states and political subdivisions, which mature in approximately 15 years or less, and other tax exempt municipal mortgage related pass through securities which have average lives much shorter than their stated final maturities.

During the three months ended December 31, 2024, the Company made $1.2 million of purchases of investment securities.

During the six months ended March 31, 2025, the Company made $2.3 million of purchases of investment securities.

Through the Bank, the Company owns stock in the FHLB due to the Bank’s membership and participation in this banking system as well as stock in the FRB.

The FHLB requires a level of stock investment based on a pre-determined formula.

The Company’s investment in these stocks was $24.5 million at December 31, 2024 and $36.0 million at September 30, 2024, as redemptions were partially offset by purchases of FHLB membership stock during the three months ended December 31, 2024.

Loans held for sale at December 31, 2024 totaled $72.6 million, decreasing from $688.9 million at September 30, 2024.

This decrease was primarily driven by the sale of the commercial insurance premium finance loans and a reduction in SBA/USDA held for sale, partially offset by growth in consumer credit products held for sale at December 31, 2024 compared to September 30, 2024.

Total gross loans and leases totaled $4.56 billion at December 31, 2024, as compared to $4.08 billion at September 30, 2024.

The increase was due to growth across all loan portfolios.

The Company’s investment in these stocks was $24.3 million at March 31, 2025 and $36.0 million at September 30, 2024, as redemptions were partially offset by purchases of FHLB membership stock during the six months ended March 31, 2025.

Loans held for sale at March 31, 2025 totaled $45.8 million, decreasing from $691.7 million at September 30, 2024.

This decrease was primarily driven by the sale of the commercial insurance premium finance loans and a reduction in SBA/USDA loans held for sale, partially offset by growth in consumer credit products held for sale at March 31, 2025 compared to September 30, 2024.

Total gross loans and leases totaled $4.46 billion at March 31, 2025, as compared to $4.08 billion at September 30, 2024.

The increase was due to growth in the commercial finance, tax services, and warehouse finance loan portfolios, partially offset by a reduction in the consumer finance loan portfolio.

Loans and Leases, Net to the “Notes to Condensed Consolidated Financial Statements” of this Quarterly Report on Form 10-Q.

Commercial finance loans, which comprised 79% of the Company's loan and lease portfolio, totaled $3.62 billion at December 31, 2024 , reflecting an increase of $321.0 million, 10%, from September 30, 2024.

The increase was primarily driven by increases of $180.9 million in term lending and $136.4 million in asset-based lending.

Total end-of-period deposits increased 11% to $6.52 billion at December 31, 2024, compared to $5.88 billion at September 30, 2024, primarily driven by an increase in noninterest-bearing deposits of $666.8 million, partially offset by a decrease in wholesale deposits of $25.0 million.

As of December 31, 2024, the Company had $416.1 million in deposits related to government stimulus programs.

The Company's total borrowings decreased from $410.4 million at September 30, 2024 to $33.4 million at December 31, 2024, primarily driven by a decrease in short-term borrowings of $377.0 million as the Company used the increase in total deposits to fund loans and leases and investment balances.

Commercial finance loans, which comprised 79% of the Company's loan and lease portfolio, totaled $3.52 billion at March 31, 2025 , reflecting an increase of $229.2 million, 7%, from September 30, 2024.

The increase was primarily driven by increases of $211.8 million in term lending, $133.1 million in SBA/USDA, and $70.6 million in asset-based lending, partially offset by decreases of $137.8 million in factoring loans and $31.2 million in other commercial finance.

Total end-of-period deposits decreased 1% to $5.82 billion at March 31, 2025, compared to $5.88 billion at September 30, 2024, primarily driven by decreases in noninterest-bearing deposits of $63.0 million and in wholesale deposits of $25.0 million, partially offset by increases in interest-bearing deposits of $21.1 million and in savings deposits of $15.9 million.

As of March 31, 2025, the Company had $386.7 million in deposits related to government stimulus programs.

The Company's total borrowings decreased from $410.4 million at September 30, 2024 to $33.4 million at March 31, 2025, primarily driven by a decrease in short-term borrowings of $377.0 million as the Company used total deposits to fund loans and leases and investment balances.

The Company's short-term borrowings fluctuate on a daily basis due to the nature of a portion of its noninterest-bearing deposit base.

At December 31, 2024, the Company’s stockholders’ equity totaled $776.4 million, a decrease of $63.2 million, from $839.6 million at September 30, 2024.

The decrease was primarily attributable to an increase in accumulated other comprehensive loss and a decrease in retained earnings.

The Company and Bank remained above the federal regulatory minimum capital requirements at December 31, 2024, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies.

At March 31, 2025, the Company’s stockholders’ equity totaled $814.0 million, a decrease of $8.1 million, from $822.2 million at September 30, 2024.

The decrease was primarily attributable to an increase in accumulated other comprehensive loss, partially offset by an increase in additional paid-in capital and retained earnings.

The Company and Bank remained above the federal regulatory minimum capital requirements at March 31, 2025, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies.

See “Liquidity and Capital Resources” for further information.

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The following table summarizes the Company's negative deposit balances within the Partner Solutions business line:

(Dollars in thousands) December 31, 2024 September 30, 2024

(Dollars in thousands) March 31, 2025 September 30, 2024

Noninterest-bearing deposits $ 5,930,963 $ 5,982,992

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Program Banks undergo robust due diligence prior to becoming a Program Bank and are also subject to continuous monitoring.

As of December 31, 2024, the Company managed $840.5 million of customer deposits at other banks in its capacity as custodian.

As of March 31, 2025, the Company managed $1.12 billion of customer deposits at other banks in its capacity as custodian.

These deposits provide the Company with the ability to earn servicing fee income, typically reflective of the EFFR.

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the Company’s total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates.

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

The following tables present, for the periods indicated, the Company’s total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates.

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

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

Nonaccruing loans and leases have been included in the table as loans or leases carrying a zero yield.

Three Months Ended December 31,

Three Months Ended March 31,

(As Restated)

(Dollars in thousands) Average

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Total cost of deposits (a+b) 7,181,308 4,086 0.23 % 7,168,673 6,685 0.38 %

(1) Tax rate used to arrive at the TEY for the three months ended December 31, 2024 and 2023 was 21%.

(1) Tax rate used to arrive at the TEY for the three months ended March 31, 2025 and 2024 was 21%.

(2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure.

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The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes.

The Company recorded net income of $31.4 million, or $1.29 per diluted share, for the three months ended December 31, 2024, compared to net income of $27.7 million, or $1.06 per diluted share, for the three months ended December 31, 2023.

Six Months Ended March 31,

(As Restated)

(Dollars in thousands) Average

Balance Interest

Interest-earning assets:

Cash and fed funds sold $ 579,452 $ 11,346 3.93 % $ 476,371 $ 11,525 4.84 %

Mortgage-backed securities 1,275,467 17,566 2.76 % 1,475,753 20,047 2.72 %

Tax-exempt investment securities 118,862 1,642 3.51 % 134,612 1,862 3.50 %

Asset-backed securities 184,497 4,832 5.25 % 243,831 6,933 5.69 %

Other investment securities 221,173 3,370 3.06 % 283,168 4,579 3.23 %

Total investments 1,799,999 27,410 3.10 % 2,137,364 33,421 3.17 %

Commercial finance 3,642,820 147,665 8.13 % 3,710,571 148,580 8.01 %

Consumer finance 305,868 42,317 27.75 % 357,228 40,048 22.42 %

Tax services 294,147 12,045 8.21 % 259,338 9,003 6.94 %

Warehouse finance 621,094 29,577 9.55 % 394,747 19,306 9.78 %

Total loans and leases 4,863,929 231,604 9.55 % 4,721,884 216,937 9.19 %

Total interest-earning assets 7,243,380 $ 270,360 7.50 % 7,335,619 $ 261,883 7.15 %

Noninterest-earning assets 620,823 544,708

Total assets $ 7,864,203 $ 7,880,327

Interest-bearing liabilities:

Interest-bearing checking $ 1,564 $ — 4.30 % $ 346 $ 1 0.33 %

Savings 49,252 6 0.03 % 57,334 11 0.04 %

Money markets 179,850 655 0.73 % 186,681 1,173 1.26 %

Time deposits 4,210 6 0.25 % 5,273 7 0.27 %

Wholesale deposits 186,526 4,194 4.51 % 324,909 9,019 5.55 %

Total interest-bearing deposits (a) 421,402 4,861 2.31 % 574,543 10,211 3.55 %

Overnight fed funds purchased 110,165 2,674 4.87 % 98,421 2,763 5.61 %

Subordinated debentures 19,715 710 7.22 % 19,613 711 7.25 %

Other borrowings 13,661 587 8.62 % 14,040 637 9.07 %

Total borrowings 143,541 3,971 5.55 % 132,074 4,111 6.23 %

Total interest-bearing liabilities 564,943 8,832 3.14 % 706,617 14,322 4.05 %

Noninterest-bearing deposits (b) 6,203,825 — — % 6,287,220 — — %

Total deposits and interest-bearing liabilities 6,768,768 $ 8,832 0.26 % 6,993,837 $ 14,322 0.41 %

Other noninterest-bearing liabilities 315,189 217,102

Total liabilities 7,083,957 7,210,939

Shareholders' equity 780,246 669,388

Total liabilities and shareholders' equity $ 7,864,203 $ 7,880,327

Net interest income and net interest rate spread including noninterest-bearing deposits $ 261,528 7.24 % $ 247,561 6.74 %

Net interest margin 7.24 % 6.75 %

Tax-equivalent effect 0.01 % 0.01 %

Net interest margin, tax-equivalent (2)

7.25 % 6.76 %

Total cost of deposits (a+b) 6,625,227 4,861 0.15 % 6,861,763 10,211 0.30 %

(1) Tax rate used to arrive at the TEY for the six months ended March 31, 2025 and 2024 was 21%.

(2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure.

The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income.

The Company recorded net income of $75.0 million, or $3.14 per diluted share, for the three months ended March 31, 2025, compared to net income of $69.9 million, or $2.74 per diluted share, for the three months ended March 31, 2024.

The Company recorded net income of $104.9 million, or $4.35 per diluted share, for the six months ended March 31, 2025, compared to net income of $104.8 million, or $4.07 per diluted share, for the six months ended March 31, 2024.

Net Interest Income

Net interest income for the first quarter of fiscal 2025 was $116.1 million, an increase of 6% from the same quarter in fiscal 2024.

The increase was mainly attributable to increased yields and balances in the loan and lease portfolio and an improved earning asset mix.

The Company’s average interest-earning assets for the first quarter of fiscal 2025 decreased by $296.0 million to $6.74 billion compared to the same quarter in fiscal 2024, due to decreases in average outstanding balances of total investments and interest earning cash balances, partially offset by an increase in total loan and lease balances.

The first quarter average outstanding balance of loans and leases increased $107.6 million compared to the same quarter of the prior fiscal year, primarily due to increases in warehouse finance and tax services loans, partially offset by decreases in commercial finance and consumer finance loans.

The decrease in the average outstanding balance of commercial finance loans and leases was primarily driven by the sale of the insurance premium finance loans, partially offset by an increase in term lending, asset-based lending, and SBA/USDA loans.

Fiscal 2025 first quarter NIM increased to 6.84% from 6.23% in the first fiscal quarter of 2024 .

Net interest income for the second quarter of fiscal 2025 was $136.3 million, an increase of 6% from the same quarter in fiscal 2024.

The increase was mainly attributable to increased yields and balances in the loan and lease portfolio and an improved earning asset mix, along with a reduction in funding costs.

For the six months ended March 31, 2025, net interest income was $261.5 million, an increase of 6%, from $247.6 million compared to the same period in the prior fiscal year.

The Company’s average interest-earning assets for the second quarter of fiscal 2025 increased by $122.2 million to $7.76 billion compared to the same quarter in fiscal 2024, due to increases in average outstanding balances of interest earning cash and total loan and lease balances, partially offset by a decrease in total investment securities.

The second quarter average outstanding balance of loans and leases increased $182.1 million compared to the same quarter of the prior fiscal year, primarily due to increases in the warehouse finance and tax services portfolios, partially offset by decreases in the consumer finance and commercial finance loan portfolios.

The decrease in the average outstanding balance of commercial finance loans and leases was primarily driven by the sale of the insurance premium finance loans during the first quarter of fiscal year 2025.

Fiscal 2025 second quarter NIM increased to 7.12% from 6.77% in the second fiscal quarter of 2024 .

The overall reported tax-equivalent yield (“TEY”) on average interest-earning assets increased 20 basis points to 7.43% compared to the prior year quarter, driven by an improved earning asset mix.

The yield on the loan and lease portfolio was 9.54% compared to 9.27% for the comparable period last year and the TEY on the securities portfolio was 3.11% compared to 3.20% over that same period.

The Company's cost of funds for all deposits and borrowings averaged 0.20% during the fiscal 2025 first quarter, as compared to 0.35% during the prior year quarter.

The Company's overall cost of deposits was 0.05% in the fiscal first quarter of 2025, as compared to 0.21% during the prior year quarter.

For the six months ended March 31, 2025, NIM was 7.24%, an increase of 49 basis points from 6.75% compared to the same period in the prior fiscal year.

The Company's cost of funds for all deposits and borrowings averaged 0.32% during the fiscal 2025 second quarter, as compared to 0.47% during the prior year quarter.

The Company's overall cost of deposits was 0.23% in the fiscal second quarter of 2025, as compared to 0.38% during the prior year quarter.

Provision for Credit Loss

The Company recognized a provision for credit losses of $12.0 million for the quarter ended December 31, 2024, compared to $9.9 million for the comparable period in the prior fiscal year.

The period-over-p eriod increase in provision for credit losses was primarily due to increases in provision for credit losses in the commercial finance portfolio of $1.9 million, the consumer finance portfolio of $0.7 million, and the warehouse finance portfolio of $0.1 million, partially offset by a decrease of $0.1 million in provision for credit losses tax services portfolio .

The Company recognized net charge-offs of $8.6 million for the quarter ended December 31, 2024, compared to net charge-offs of $5.5 million for the quarter ended December 31, 2023.

Net charge-offs attributable to the commercial finance and seasonal tax services portfolios for the current quarter were $8.1 million and $0.5 million, respectively.

Net charge-offs attributable to the commercial finance, tax services, and consumer finance portfolios for the same quarter of the prior year were $4.6 million, $0.8 million, and $0.1 million, respectively.

The Company recognized a provision for credit losses of $35.3 million for the quarter ended March 31, 2025, compared to $29.7 million for the comparable period in the prior fiscal year.

The period-over-period increase in provision for credit losses was primarily due to increases in provision for credit losses in the commercial finance portfolio of $2.8 million, the consumer finance portfolio of $1.6 million, and the seasonal tax services portfolio of $1.0 million.

The Company recognized net charge-offs of $6.4 million for the quarter ended March 31, 2025, compared to net charge-offs of $9.4 million for the quarter ended March 31, 2024.

Net charge-offs attributable to the commercial finance portfolio and the consumer finance portfolio for the quarter ended March 31, 2025 were $6.9 million and $6.3 million, respectively, while recoveries of $6.8 million were recognized in the tax services portfolio.

Net charge-offs attributable to the commercial finance portfolio and the consumer finance portfolio for the same quarter of the prior year were $4.7 million and $10.5 million, respectively, while recoveries of $5.8 million were recognized in the tax services portfolio.

The Company recognized a provision for credit losses of $53.9 million for the six months ended March 31, 2025, compared to $37.5 million for the comparable period in the prior fiscal year.

The increase was primarily due to increases in provision for credit losses in all loan portfolios.

The Company recognized net charge-offs of $22.6 million for the six months ended March 31, 2025, compared to net charge-offs of $22.6 million for the six months ended March 31, 2024.

Net charge-offs attributable to the commercial finance portfolio and the consumer finance portfolio for the six months ended March 31, 2025 were $14.9 million and $14.0 million, respectively.

Net recoveries of $6.3 million were recognized in the tax services portfolio for the six months ended March 31, 2025.

Net charge-offs attributable to the commercial finance portfolio and the consumer finance portfolio were $9.3 million and $18.3 million, respectively, for the same six months of the prior year, while net recoveries of $4.9 million were recognized in the tax services portfolio.

Noninterest Income

Fiscal 2025 first quarter noninterest income increased 9% to $57.4 million, compared to $52.8 million for the same period of the prior year.

During the first fiscal quarter of 2025, the Company recognized a gain on divestiture of $16.4 million from the sale of its commercial insurance premium finance business.

This gain on divestiture was largely offset by a loss on sale of securities of $15.7 million also recognized during the current quarter.

The increase in noninterest income when comparing the current period to the same period of the prior year was primarily driven by an increase in gain on sale of loans and leases, other income, tax services product fees, and rental income.

The period-over-period increase was partially offset by a decrease in card and deposit fees and a reduction in gain on sale of other.

The increase in gain on sale of loans was primarily driven by SBA/USDA loan sales.

The period-over-period decrease in card and deposit fee income was primarily related to lower servicing fee income due to a reduction in rates following reductions in the EFFR.

Servicing fee income on custodial deposits totaled $4.5 million during the 2025 fiscal first quarter, compared to $5.1 million for the same period of the prior year.

For the fiscal quarter ended September 30, 2024, servicing fee income on custodial deposits totaled $3.2 million.

Fiscal 2025 second quarter noninterest income increased 7% to $138.5 million, compared to $128.9 million for the same period of the prior year.

The increase in noninterest income when comparing the current period to the same period of the prior year was primarily driven by secondary market revenue, refund advance and other tax product income, and refund transfer product fees, partially offset by a loss on sale of investment securities, a reduction in card and deposit fees, and a loss on sale of divestiture related to closing business activities from the insurance premium finance business sale that occurred during the first quarter of the fiscal year.

The increase in the secondary market revenue was primarily driven by the gain from the sale of the transportation portfolio within working capital.

The period-over-period decrease in card and deposit fee income was primarily related to lower quarterly average deposit balances held at partner banks along with lower servicing fee income due to a reduction in rates following reductions in the EFFR.

Servicing fee income on custodial deposits total ed $6.5 million d uring the 2025 fiscal second quarter, compared to $10.4 million for the same period of the prior year.

For the fiscal quarter ended December 31, 2024, servicing fee income on custodial deposits totaled $4.5 million.

Noninterest income for the six months ended March 31, 2025 increased to $195.9 million from $181.7 million for the same period of the prior year.

Noninterest Expense

Noninterest expense increased 4% to $123.6 million for the fiscal 2025 first quarter, from $119.3 million for the same quarter last year.

The increase was primarily attributable to increases in compensation and benefits, operating lease depreciation, occupancy and equipment expense, other expense, and legal and consulting expense.

The period-over-period increase was partially offset by decreases in card processing expense.

The card processing expense decrease was due to rate-related agreements with Partner Solutions relationships.

Noninterest expense increased 5% to $148.2 million for the fiscal 2025 second quarter, from $140.7 million for the same quarter last year.

The increase was primarily attributable to increases in operating lease equipment depreciation expense, other expense, refund transfer product expense, card processing expense, and occupancy and equipment expense.

This increase was partially offset primarily by reductions in compensation and benefits expense, refund advance product expense, and impairment expense.

Occupancy and equipment expense was impacted by continued investment in our technology infrastructure.

The Company expects to continue investments in technology as well as risk and compliance over the balance of fiscal 2025 .

Card processing expense is primarily driven by rate-related agreements with Partner Solutions relationships.

The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions.

Generally, this rate index is based on a percentage of the EFFR and reprices immediately upon a change in the EFFR.

Approximately 60% of the deposit portfolio was subject to these rate-related processing expenses during the fiscal 2025 first quarter.

For the fiscal quarter ended December 31, 2024, contractual, rate-related processing expenses were $25.6 million, as compared to $26.3 million for the fiscal quarter ended September 30, 2024 and $26.8 million for the fiscal quarter ended December 31, 2023.

Approximately 62% of the deposit portfolio was subject to these rate-related processing expenses during the fiscal 2025 second quarter.

For the fiscal quarter ended March 31, 2025, contractual, rate-related processing expenses were $28.4 million, as compared to $25.6 million for the fiscal quarter ended December 31, 2024 and $30.1 million for the fiscal quarter ended March 31, 2024.

Noninterest expense for the six months ended March 31, 2025 increased to $276.0 million from $261.8 million for the same period of the prior year.

Income Tax Expense

The Company recorded income tax expense of $6.3 million, representing an effective tax rate of 16.6%, for the fiscal 2025 first quarter, compared to an income tax expense of $5.7 million, representing an effective tax rate of 17.0%, for the first quarter last fiscal year.

The current quarter increase in income tax expense compared to the prior year quarter was primarily due to an increase in income and a decrease in investment tax credits.

The Company originated $9.3 million in renewable energy leases during the fiscal 2025 first quarter, resulting in $3.2 million in total net investment tax credits.

During the first quarter of fiscal 2024, the Company originated $12.2 million in renewable energy leases resulting in $4.4 million in total net investment tax credits.

The Company recorded income tax expense of $16.2 million, representing an effective tax rate of 17.7%, for the fiscal 2025 second quarter, compared to an income tax expense of $16.9 million, representing an effective tax rate of 19.4%, for the second quarter last fiscal year.

The current quarter decrease in income tax expense compared to the prior year quarter was primarily due to an investment tax credit.

The Company originated $1.9 million in renewable energy leases during the fiscal 2025 second quarter, resulting in $0.5 million in total net investment tax credits.

During the second quarter of fiscal 2024, the Company originated $25.9 million in renewable energy leases resulting in $7.0 million in total net investment tax credits.

For the six months ended March 31, 2025, the Company originated $11.2 million in renewable energy leases, compared to $38.1 million for the comparable prior year period.

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

9 unchanged sentences

The Company individually evaluates loans and leases that do not share similar risk characteristics with other financial assets, which generally means loans and leases identified as modifications or loans and leases on nonaccrual status.

The Company believes that the level of allowance for credit losses at December 31, 2024 was appropriate and reflected probable losses related to these loans and leases;

The Company believes that the level of allowance for credit losses at March 31, 2025 was appropriate and reflected probable losses related to these loans and leases;

however, there can be no assurance that all loans and leases will be fully collectible or that the present level of the allowance will be adequate in the future.

1 unchanged sentence

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

(Dollars in thousands) December 31, 2024 September 30, 2024

(Dollars in thousands) March 31, 2025 September 30, 2024

Nonperforming Loans and Leases

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

The Company's nonperforming assets at December 31, 2024 were $37.5 million, representing 0.49% of total assets, compared to $43.0 million, or 0.57% of total assets at September 30, 2024.

The decrease in the nonperforming assets as a percentage of total assets at December 31, 2024 compared to September 30, 2024, was primarily driven by a decrease in nonperforming loans in the seasonal tax services and consumer finance portfolios, partially offset by an increase in nonperforming loans in the commercial finance portfolio.

The Company's nonperforming loans and leases at December 31, 2024 were $35.2 million, representing 0.76% of total gross loans and leases, compared to $41.6 million, or 0.87% of total gross loans and leases at September 30, 2024.

The Company's nonperforming assets at March 31, 2025 were $41.6 million, representing 0.59% of total assets, compared to $43.0 million, or 0.57% of total assets at September 30, 2024.

The decrease in the nonperforming assets as a percentage of total assets at March 31, 2025 compared to September 30, 2024, was primarily driven by a decrease in nonperforming loans in the seasonal tax services portfolio, partially offset by an increase in nonperforming loans in the commercial finance portfolio.

The Company's nonperforming loans and leases at March 31, 2025 were $39.8 million, representing 0.88% of total gross loans and leases, compared to $41.6 million, or 0.87% of total gross loans and leases at September 30, 2024.

Classified Assets .

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

On the basis of management’s review of its loans, leases, and other assets, at December 31, 2024, the Company had classified loans and leases of $197.7 million as substandard, $4.8 million as doubtful and none as loss.

On the basis of management’s review of its loans, leases, and other assets, at March 31, 2025, the Company had classified loans and leases of $202.9 million as substandard, $5.0 million as doubtful and none as loss.

At September 30, 2024, the Company classified loans and leases of $180.9 million as substandard, $10.3 million as doubtful and none as loss.

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If an individually evaluated loan or lease is not collateral dependent, credit loss is measured at the present value of expected future cash flows discounted at the loan or lease initial effective interest rate.

The Company's ACL totaled $49.0 million at December 31, 2024, an increase compared to $45.3 million at September 30, 2024.

The increase in the ACL at December 31, 2024, when compared to September 30, 2024, was primarily due to a $2.8 million increase in the allowance related to the consumer finance portfolio due to seasonal activity and a $0.8 million increase in the allowance related to the seasonal tax services portfolio.

The Company's ACL totaled $102.9 million at March 31, 2025, an increase compared to $71.8 million at September 30, 2024.

The increase in the ACL at March 31, 2025, when compared to September 30, 2024, was primarily due to a $33.8 million increase in the allowance related to the seasonal tax services portfolio and a $1.0 million increase related to the consumer finance portfolio, partially offset by a $3.7 million decrease in the allowance related to the commercial finance portfolio.

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

As of the Period Ended

December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023

March 31, 2025 December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024

Commercial finance 1.10 % 1.18 % 1.29 % 1.17 % 1.21 %

4 unchanged sentences

Total loans and leases excluding tax services 1.57 % 1.63 % 1.77 % 1.71 % 1.85 %

The Company's ACL as a percentage of total loans and leases decreased to 1.07% at December 31, 2024 from 1.11% at September 30, 2024.

The decrease in the total loans and leases coverage ratio was primarily driven by the commercial finance portfolio, partially offset by an increase in the seasonal tax services portfolio and consumer finance portfolio.

The increase in the tax services and consumer finance portfolios loan coverage ratios was due to seasonal activity.

The Company's ACL as a percentage of total loans and leases increased to 2.30% at March 31, 2025 from 1.76% at September 30, 2024.

The increase in the total loans and leases coverage ratio was primarily driven by seasonality in both the tax services portfolio and consumer finance portfolio.

When comparing the current quarter to the same quarter of the prior year, the increase in the tax services coverage ratio was due to higher repayments during the current quarter which decreased the outstanding loan balance within the portfolio.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

4 unchanged sentences

Some of these estimates may be uncertain at the time they are made, could change from period to period, and could have a material impact on the financial statements.

A discussion of the Company’s critical accounting policies and estimates can be found in the Company's Annual Report on Form 10-K for the year ended September 30, 2024.

There were no significant changes to these critical accounting policies and estimates during the first three months of fiscal 2025.

A discussion of the Company’s critical accounting policies and estimates can be found in the Company's Form 10-K/A for the year ended September 30, 2024.

There were no significant changes to these critical accounting policies and estimates during the first six months of fiscal 2025.

LIQUIDITY AND CAPITAL RESOURCES

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The Company uses its capital resources principally to meet ongoing commitments to fund maturing certificates of deposit and loan commitments, to maintain liquidity, and to meet operating expenses.

At December 31, 2024, the Company had unfunded loan and lease commitments of $1.31 billion.

At March 31, 2025, the Company had unfunded loan and lease commitments of $1.24 billion.

Management believes that loan repayment and other sources of funds will be adequate to meet its foreseeable short- and long-term liquidity needs.

The liquidity sources as of December 31, 2024 include $597.4 million in cash and cash equivalents and $840.5 million in off-balance sheet custodial deposits.

When factoring in additional resources, such as the Federal Home Loan Bank, the Federal Reserve Discount Window and other unsecured funding and wholesale options, the Company has over $4.03 billion in total available liquidity as of December 31, 2024.

Due to the characteristics of the Company's deposit portfolio, uninsured deposits remained less than 15% of total deposits during the fiscal 2025 first quarter and below the Company's available liquidity.

The liquidity sources as of March 31, 2025 include $254.2 million in cash and cash equivalents and $1.12 billion in off-balance sheet custodial deposits.

When factoring in additional resources, such as the Federal Home Loan Bank, the Federal Reserve Discount Window and other unsecured funding and wholesale options, the Company has over $3.89 billion in total available liquidity as of March 31, 2025.

Due to the characteristics of the Company's deposit portfolio, uninsured deposits remained less than 15% of total deposits during the fiscal 2025 second quarter and below the Company's available liquidity.

The Company and the Bank are required to comply with the regulatory capital rules administered by federal banking agencies (the "Capital Rules").

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The Capital Rules require the Company and the Bank to maintain minimum ratios (set forth in the table below) of total risk-based capital and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and a leverage ratio consisting of Tier 1 capital (as defined) to average assets (as defined).

At December 31, 2024, the Company and the Bank exceeded federal regulatory minimum capital requirements to be classified as well-capitalized under the prompt corrective action requirements.

At March 31, 2025, the Company and the Bank exceeded federal regulatory minimum capital requirements to be classified as well-capitalized under the prompt corrective action requirements.

The Company and the Bank took the AOCI opt-out election;

4 unchanged sentences

to be Adequately Capitalized Under Prompt Corrective Action Provisions Minimum to be Well Capitalized Under Prompt Corrective Action Provisions

At December 31, 2024

March 31, 2025

Tier 1 leverage capital ratio 8.32 % 8.52 % 4.00 % 5.00 %

2 unchanged sentences

Total capital ratio 15.57 15.51 8.00 10.00

At September 30, 2024

September 30, 2024

Tier 1 leverage capital ratio 9.05 % 9.22 % 4.00 % 5.00 %

4 unchanged sentences

Standardized Approach (1)

(Dollars in thousands) December 31, 2024 September 30, 2024

(Dollars in thousands) March 31, 2025 September 30, 2024

Total stockholders' equity $ 814,047 $ 822,189

21 unchanged sentences

CONTRACTUAL OBLIGATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations " in the Company’s Annual Report on Form 10-K for its fiscal year ended September 30, 2024 for a summary of our contractual obligations as of September 30, 2024.

There were no material changes outside the ordinary course of our business in contractual obligations from September 30, 2024 through December 31, 2024.

Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations " in the Company’s Form 10-K/A for its fiscal year ended September 30, 2024 for a summary of our contractual obligations as of September 30, 2024.

There were no material changes outside the ordinary course of our business in contractual obligations from September 30, 2024 through March 31, 2025.

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-Q

Item 2. Management’s Discussion and Analysis