What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-11-25 compared with 2024-11-26 · 48 added, 58 removed, 313 unchanged (25% of the section changed)

5 unchanged sentences

EXECUTIVE SUMMARY

Company Highlights and Business Developments

• On August 28, 2024, Pathward announced the sale of its commercial insurance premium finance business.

The sale was completed on October 31, 2024.

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

• On September 25, 2024, the Bank celebrated its 20th year serving the payments industry with the announcement it renamed its "Banking as a Service" business line to "Partner Solutions."

• On September 30, 2024, Pathward Financial and Pathward announced the Bank’s Partner Solutions line of business won the 2024 Finovate Award for Best Banking as a Service Provider.

According to Finovate, its awards recognize the companies driving fintech innovation forward and the individuals bringing new ideas to life.

Financial Highlights for the 2025 Fiscal Fourth Quarter

• Total revenue for the fourth quarter was $167.9 million, an increase of $6.9 million, or 4%, compared to the same quarter in fiscal 2023, driven by an increase in net interest income, partially offset by a reduction in noninterest income.

• Net interest margin ("NIM") increased 47 basis points to 6.66% fo r the fourth quarter from 6.19% during the same period of last year, p rimarily driven by increased yields on earning assets and an improved earning asset mix from the continued optimization of the portfolio.

• Total gross loans and leases at September 30, 2024 decreased $290.9 million , to $4.08 billion compared to September 30, 2023.

When excluding the insurance premium finance loans of $800.1 million at September 30, 2023, total gross loans and leases at September 30, 2024 increased $509.2 million, or 14%, when compared to September 30, 2023.

• Total revenue for the fourth quarter was $186.7 million, an increase of $7.2 million, or 4%, compared to the same quarter in fiscal 2024, primarily driven by an increase of 13% in noninterest income.

• Net interest margin ("NIM") increased 14 basis points to 7.46% fo r the fourth quarter from 7.32% during the same period of last year, primarily driven by an improved earning asset mix from continued balance sheet optimization.

• Total gross loans and leases at September 30, 2025 increased $589.7 million , to $4.66 billion compared to September 30, 2024 an d decreased $78.4 million when compared to June 30, 2025.

The primary driver for the sequential decrease was due to the Company moving $144.1 million of its held for investment consumer finance portfolio to held for sale due to a purchase agreement being signed during the 2025 fiscal fourth quarter.

On October 3, 2025, the Company closed on the sale of more than half of the held for sale consumer finance portfolio.

• During the 2025 fiscal fourth quarter, the Company repurchased 180,740 shares of common stock at an average share price of $82.95.

4 unchanged sentences

FINANCIAL CONDITION

At September 30, 2024, the Company’s total assets increased slightly to $7.55 billion compared to $7.54 billion at September 30, 2023, primarily due to an increase of $611.1 million in loans held for sale and $8.1 million in accrued interest receivable, partially offset by decreases of $290.9 million in loans and leases, $217.2 million in cash and cash equivalents, $63.0 million in securities available for sale and $32.3 million in other assets.

At September 30, 2025, the Company’s total assets decreased to $7.17 billion compared to $7.53 billion at September 30, 2024, primarily due to reductions of $512.3 million in loans held for sale, $413.4 million in securities AFS, and $37.8 million in cash and cash equivalents, partially offset by growth of $589.7 million in loans and leases.

Total cash and cash equivalents were $120.6 million at September 30, 2025, decreasing from $158.3 million at September 30, 2024.

The decrease was primarily due to the repayment of short-term borrowings partially offset by the proceeds from the sale of the commercial insurance premium finance business, net transaction costs, the sale of the transportation portfolio within the Company's working capital lending solutions, and the sale of debt securities AFS during the fiscal year ended September 30, 2025.

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

At September 30, 2025, the Company did not have any federal funds sold.

The total investment portfolio decreased $66.5 million to $1.77 billion at September 30, 2024, compared to $1.84 billion at September 30, 2023.

The Company's investment security balances at September 30, 2025 totaled $1.36 billion, as compared to $1.77 billion at September 30, 2024.

The decrease was primarily related to the sale of investment securities AFS during the first, second, and fourth quarters of fiscal 2025 and normal paydown activity of investment security balances during the fiscal year.

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.

2 unchanged sentences

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

The Company’s investment in these stocks was $36.0 million at September 30, 2024, an increase from $28.2 million at September 30, 2023, as purchases of FHLB membership stock were partially offset by redemptions during the fiscal year.

Loans held for sale at September 30, 2024 totaled $688.9 million, increasing from $77.8 million at September 30, 2023.

This increase was primarily related to the commercial insurance premium finance portfolio moving to held for sale at September 30, 2024.

The Company’s investment in these stocks was $24.7 million at September 30, 2025, a decrease from $36.0 million at September 30, 2024, as redemptions were partially offset by purchases of FHLB membership stock during the fiscal year.

Loans held for sale at September 30, 2025 totaled $179.4 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 an increase in consumer credit products held for sale at September 30, 2025 compared to September 30, 2024.

Total gross loans and leases totaled $4.66 billion at September 30, 2025, as compared to $4.08 billion at September 30, 2024.

The decrease was primarily related to the commercial insurance premium finance portfolio moving to held for sale, partially offset by growth in commercial finance loans excluding commercial insurance premium finance loans and warehouse finance loans.

When excluding commercial insurance premium finance loans, total gross loan and leases at September 30, 2024 increased $509.2 million, or 14%, when compared to September 30, 2023.

The increase was due to an increase in the commercial finance and warehouse finance portfolios, partially offset by decreases in the consumer finance and seasonal tax services loan portfolios.

The decrease in consumer finance was due to the Company moving $144.1 million of its held for investment consumer finance portfolio to held for sale due to a purchase agreement being signed during the 2025 fiscal fourth quarter.

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

Commercial finance loans, which comprised 81% of the Company's loan and lease portfolio, totaled $3.30 billion at September 30, 2024 , reflecting a decrease of $427.6 million , or 11% , from September 30, 2023 .

The decrease was primarily driven by the aforementioned commercial insurance premium finance loans along with a decrease in lease financing.

This decrease was partially offset by increases in term lending, asset-based lending, SBA/USDA, and other commercial finance portfolios.

When excluding commercial insurance premium finance loans, commercial finance loans at September 30, 2024 increased $372.5 million, or 13%, compared to September 30, 2023.

Total end-of-period deposits decreased 11% to $5.88 billion at September 30, 2024, compared to $6.59 billion at September 30, 2023.

The decrease in end-of-period deposits was primarily driven by decreases in noninterest-bearing deposits of $715.8 million, money market deposits of $10.6 million, and savings deposits of $10.3 million, partially offset by an increase in wholesale deposits of $20.1 million.

As of September 30, 2024, the Company had $433.3 million in deposits related to government stimulus programs.

Of the total amount of government stimulus program deposits, $198.2 million are on activated cards while $235.1 million are on inactivated cards.

The Company's total borrowings increased $363.5 million to $410.4 million at September 30, 2024 from $46.9 million at September 30, 2023, primarily driven by an increase in short-term borrowings of $364.0 million.

Commercial finance loans, which comprised 84% of the Company's loan and lease portfolio, totaled $3.92 billion at September 30, 2025 , reflecting an increase of $628.4 million , or 19% , from September 30, 2024 .

The increase was primarily driven by increases in term lending of $747.9 million and asset-based lending of $121.4 million, partially offset by decreases of $144.8 million in factoring loans, $57.1 million in SBA/USDA, and $36.0 million in other commercial finance.

Total end-of-period deposits increased slightly to $5.89 billion at September 30, 2025, compared to $5.88 billion at September 30, 2024.

The increase in end-of-period deposits was primarily driven by increases in money market deposits of $32.3 million, partially offset by a decrease in wholesale deposits of $25.0 million.

The Company's total borrowings decreased $367.9 million to $42.5 million at September 30, 2025 from $410.4 million at September 30, 2024, primarily driven by a decrease in short-term borrowings of $368.0 million.

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

At September 30, 2025, the Company’s stockholders’ equity totaled $857.5 million, an increase of $35.3 million, from $822.2 million at September 30, 2024.

The increase was primarily attributable to a decrease in accumulated other comprehensive loss and increases in additional paid-in capital and retained earnings.

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

The Company and Bank remained above the federal regulatory minimum capital requirements at September 30, 2025, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies.

29 unchanged sentences

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

Servicing fee income totaled $27.2 million during fiscal 2024, compared to $53.4 million for fiscal 2023.

RESULTS OF OPERATIONS

5 unchanged sentences

The allowance for credit losses represents management’s current estimate of credit losses expected to be incurred by the loan and lease portfolio over the life of each financial asset as of the balance sheet date.

The Company’s noninterest income is derived primarily from tax product fees, card and deposit fees, credit products, and ATM fees attributable to the Partner Solutions business line and fees charged on bank loans, leases and transaction accounts.

Noninterest income is also derived from rental income, net gains on the sale of securities, net gains on the sale of loans and leases, as well as the Company’s holdings of bank-owned life insurance.

The Company’s noninterest income is derived primarily from acquiring fee income, tax product fees, card and deposit fees, credit products, and ATM fees attributable to the Partner Solutions business line and fees charged on bank loans, leases and transaction accounts.

Noninterest income is also derived from rental income, net gains on the sale of securities, secondary market revenue, as well as the Company’s holdings of bank-owned life insurance.

This income is offset by noninterest expenses, such as compensation and benefits associated with personnel, as well as card processing expenses and tax product expenses attributable to the Partner Solutions business line.

Noninterest expense is also impacted by operating lease equipment depreciation expense, occupancy and equipment expense, legal and consulting expenses, and regulatory expense.

Noninterest expense is also impacted by operating lease equipment depreciation expense, building and software, legal and consulting expenses, and regulatory expense.

Average Balances, Interest Rates and Yields

20 unchanged sentences

Warehouse finance 640,598 60,650 9.47 % 416,988 42,194 10.12 % 343,168 29,513 8.60 %

Community banking — — — % — — — % 34,758 1,525 4.39 %

Total loans and leases (3)

57 unchanged sentences

Warehouse finance 21,332 (2,876) 18,456 6,961 5,720 12,681

Community banking — — — (763) (762) (1,525)

Total loans and leases 16,819 414 17,233 66,865 24,901 91,766

1 unchanged sentence

Interest-bearing liabilities:

Interest-bearing checking $ 1 $ (1) $ — $ — $ — $ —

Savings $ (2) $ 2 $ — $ (3) $ (5) $ (8)

11 unchanged sentences

The Company reported net income of $185.9 million, or $7.87 per diluted share, for the fiscal year ended September 30, 2025, compared to $183.2 million, or $7.20 per diluted share, for the fiscal year ended September 30, 2024, an increase of $2.7 million.

The increase in net income was driven by an increase in net interest income and a decrease in provision for credit losses, partially offset by a decrease in noninterest income and increases in noninterest expense and income tax expense.

The increase in net income was driven by increases in noninterest income and net interest income and a decrease in provision for credit losses, partially offset by an increase in noninterest expense and income tax expense.

Total revenue for fiscal 2025 was $839.9 million, compared to $797.4 million for fiscal 2024, an increase of 5%.

1 unchanged sentence

Net interest income for fiscal 2025 was $511.8 million, an increase of 3%, from $497.8 million for the same period of the prior year.

The increase was mainly attributable to increased yields, higher average interest-earning asset balances and an improved earning asset mix.

The Company's average interest-earning assets for fiscal 2024 increased by $677.0 million to $7.10 billion compared with fiscal 2023, primarily due to growth in average outstanding balances of loans and leases and cash balances, partially offset by a decrease in total investment security balances.

The Company's average outstanding balance of loans and leases increased $723.6 million compared to the prior fiscal year due to increases across all loan portfolios.

The Company’s average deposits and interest-bearing liabilities increased $539.9 million to $6.68 billion during fiscal 2024 from $6.14 billion during fiscal 2023.

This increase was primarily due to increases in average noninterest-bearing deposits of $374.2 million, interest-bearing deposits of $142.5 million, and total borrowings of $23.3 million.

The increase was mainly attributable to an improved earning asset mix.

The Company's average interest-earning assets for fiscal 2025 decreased by $132.0 million to $6.97 billion compared with fiscal 2024, primarily due to a decrease in total investment security balances, partially offset by increases in average outstanding balances of loans and leases and cash balances.

The Company's average outstanding balance of loans and leases increased $176.5 million compared to the prior fiscal year primarily due to an increase in the warehouse finance portfolio.

The Company’s average deposits and interest-bearing liabilities decreased $211.2 million to $6.47 billion during fiscal 2025 from $6.68 billion during fiscal 2024.

This decrease was primarily due to decreases in average interest-bearing deposits of $107.8 million, noninterest-bearing deposits of $79.0 million, and total borrowings of $24.4 million.

Fiscal 2025 NIM increased to 7.34% from 7.01% in fiscal 2024.

5 unchanged sentences

The Company recognized a provision for credit loss of $56.8 million for fiscal 2025, compared to $58.1 million in fiscal 2024.

The period-over-period decrease in provision for credit loss was primarily due to decreases in the tax services portfolio of $12.8 million and the commercial finance portfolio of $3.3 million, partially offset by an increase of $0.8 million in provision for credit loss in the consumer finance portfolio.

The decrease in provision for credit loss in the commercial finance portfolio was primarily due to the commercial insurance premium finance portfolio moving to held for sale and reversing out the provision for credit loss on that portfolio.

The period-over-period decrease in provision for credit loss was primarily due to decreases in provision for credit losses in the consumer finance portfolio of $12.9 million and the tax services portfolio of $0.9 million, partially offset by an increase of $12.7 million in provision for credit loss in the commercial finance portfolio.

The decrease in provision for credit loss in the consumer finance portfolio was primarily driven by a $14.3 million release in provision as the Company moved more than half of its held for investment consumer finance portfolio to held for sale during the fiscal 2025 fourth quarter.

The Company recognized net charge-offs of $75.0 million for the fiscal year ended September 30, 2025, compared to net charge-offs of $82.8 million for the fiscal year ended September 30, 2024.

Net charge-offs attributable to the tax services, commercial finance, and consumer finance portfolios for fiscal 2024 were $23.0 million, $19.5 million, and $4.1 million, respectively.

Net charge-offs attributable to the tax services, commercial finance, and consumer finance portfolios for fiscal 2023 were $35.8 million, $15.6 million, and $2.3 million, respectively.

Net charge-offs attributable to the consumer finance, commercial finance, and tax services portfolios for fiscal 2025 were $28.7 million, $24.2 million, and $22.1 million, respectively.

Net charge-offs attributable to the consumer finance, tax services, and commercial finance portfolios for fiscal 2024 were $40.2 million, $23.0 million, and $19.5 million, respectively.

Loans and Leases, Net for further information on the provision for credit loss.

Noninterest Income

Fiscal 2024 noninterest income decreased 5% to $299.6 million, compared to $316.6 million for fiscal 2023.

The decrease was primarily driven by a decrease in card and deposit fees and the gain on sale of trademarks recognized in the prior year, partially offset by increases in gain on sale of other and tax services product fees.

Fiscal 2025 noninterest income increased 10% to $328.1 million, compared to $299.6 million for fiscal 2024.

The increase was primarily driven by increases in secondary market revenue, gain on divestiture, total tax services product fees, and other income, partially offset by a loss on sale of investment securities and decreases in rental income, gain on sale of other, and card and deposit fees.

The decrease in card and deposit fee income was primarily related to lower servicing fee income due to a reduction in custodial deposits.

2 unchanged sentences

Noninterest expense increased 8% to $560.1 million for fiscal 2025 from $520.7 million for fiscal 2024.

The increase was primarily attributable to increases in card processing expense, compensation and benefits expense, and other expense, partially offset by decreases in operating lease equipment depreciation and legal and consulting expense.

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

The increase was primarily attributable to increases in other expense, legal and consulting expense, building and software, operating lease equipment depreciation, and impairment expense, partially offset by decreases in compensation and benefits and intangible amortization expense.

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.

4 unchanged sentences

The Company recorded an income tax expense of $36.3 million, representing an effective tax rate of 16.3%, for fiscal 2025, compared to an income tax expense of $34.1 million, representing an effective tax rate of 15.6%, for fiscal 2024.

The increase in income tax expense was primarily due a decrease in investment tax credits.

The increase in income tax expense was primarily due to the increase in income and the surrender of life insurance policies.

For the fiscal year ended September 30, 2025, the Company originated $95.5 million in renewable energy leases, compared to $68.4 million for the prior fiscal year.

1 unchanged sentence

Comparison of Operating Results for the Fiscal Years Ended September 30, 2024, and September 30, 2023

A comparison of the 2023 results to the 2022 results and other 2022 information not included herein can be found in the Company's Annual Report on Form 10-K:

Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” filed November 21, 2023 and is incorporated by reference herein.

A comparison of the 2024 results to the 2023 results and other 2023 information not included herein can be found in the Company's Annual Report on Form 10-K/A:

Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” filed August 29, 2025 and is incorporated by reference herein.

Asset Quality

3 unchanged sentences

The Company considers these relationships as being in the process of collection.

Insurance premium finance loans, consumer finance and tax services loans are generally not placed on nonaccrual status, but are instead written off when the collection of principal and interest become doubtful.

Consumer finance and tax services loans are generally not placed on nonaccrual status, but are instead written off when the collection of principal and interest become doubtful.

Loans and leases, or portions thereof, are generally charged-off when collection of principal becomes doubtful.

Typically, this is associated with a delay or shortfall in payments of 210 days or more for commercial insurance premium finance, 120 days or more for consumer credit products and leases, and 90 days or more for commercial finance loans.

Typically, this is associated with a delay or shortfall in payments of 120 days or more for consumer credit products and leases and 90 days or more for commercial finance loans.

Action is taken to charge off ERO loans if such loans have not been collected by the end of June and refund advance loans if such loans have not been collected by the end of the calendar year.

22 unchanged sentences

The Company's nonperforming assets at September 30, 2025 were $101.7 million, representing 1.42% 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 September 30, 2024 compared to the prior fiscal year, was primarily driven by a decrease in nonperforming loans in the commercial finance portfolio, partially offset by increases in the tax services and consumer finance portfolios.

The increase in the nonperforming assets as a percentage of total assets at September 30, 2025 compared to the prior fiscal year, was primarily driven by an increase in nonperforming loans in the commercial finance portfolio, partially offset by decreases in the tax services and consumer finance portfolios.

The Company's nonperforming loans and leases at September 30, 2025, were $99.1 million, representing 2.05% of total gross loans and leases, compared to $41.6 million, or 0.87% of total gross loans and leases at September 30, 2024.

18 unchanged sentences

The Company's ACL totaled $53.3 million at September 30, 2025, a decrease compared to $71.8 million at September 30, 2024.

Th e $4.4 million year-o ver-year decrease in the ACL was primarily driven by a $4.4 million decrease in the allowance related to the commercial finance portfolio and a $0.1 million decrease in the allowance related to the consumer finance portfolio, partially offset by a $0.1 million increase in the allowance related to the warehouse finance portfolio.

Th e $18.4 million year-o ver-year decrease in the ACL was primarily driven by a $22.2 million decrease in the allowance related to the consumer finance portfolio, partially offset by a $3.7 million increase in the allowance related to the commercial finance portfolio and a $0.1 million increase in the allowance related to the warehouse finance portfolio.

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

8 unchanged sentences

The Company's ACL as a percentage of total loans and leases decreased to 1.14% at September 30, 2025 from 1.76% at September 30, 2024.

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

The decrease in the total loans and leases coverage ratio was primarily driven by the decrease in the ACL relative to the decrease in the consumer finance and the seasonal tax services portfolios.

The decrease in the consumer finance portfolio coverage ratio was primarily driven by the aforementioned release in provision.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

35 unchanged sentences

In addition, the determination of the useful lives over which an intangible asset will be amortized is subjective.

Goodwill and Intangibles to the Consolidated Financial Statements for further information.

Goodwill and Intangible Assets to the Consolidated Financial Statements for further information.

LIQUIDITY AND CAPITAL RESOURCES

3 unchanged sentences

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.

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

At September 30, 2025, the Company had unfunded loan and lease commitments of $1.20 billion.

24 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis