Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This section should be read in conjunction with the following parts of this Form 10-K: Part I, Item 1 “Business,” Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” and Part II, Item 8 “Financial Statements and Supplementary Data.”
GENERAL
The Company, a registered BHC that has elected to be a financial holding company, is a Delaware corporation, the principal assets of which are all the issued and outstanding shares of the Bank, a chartered national bank, the accounts of which are insured up to applicable limits by the FDIC as administrator of the DIF. Unless the context otherwise requires, references herein to the Company include Pathward Financial and the Bank, and all direct or indirect subsidiaries of Pathward Financial on a consolidated basis.
EXECUTIVE SUMMARY
Financial Highlights for the 2025 Fiscal Fourth Quarter
• 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. As of September 30, 2025, there were 4,937,816 shares available for repurchase under the current common stock share repurchase program.
Subsequent Events
Management has evaluated and identified subsequent events that occurred after September 30, 2025. See Note 21. Subsequent Events for details on these events.
FINANCIAL CONDITION
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.
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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. During the fiscal year ended September 30, 2025, the Company made $2.3 million 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 $24.7 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 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. See Note 4. 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 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. See Note 11. 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 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. See Note 15. Capital Requirements and Restrictions on Retained Earnings 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.
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Noninterest-bearing Checking Deposits. The Company may hold negative balances associated with cardholder programs in the Partner Solutions business line that are included within noninterest-bearing deposits on the Company's Consolidated Statements of Financial Condition. Negative balances can relate to any of the following payments functions:
– Prefundings: The Company deploys funds to cards prior to receiving cash (typically 2-3 days) where the prefunding balance is netted at a pooled partner level utilizing ASC 210-20.
– Discount fundings: The Company funds cards in alignment to expected breakage values on the card. Consumers may spend more than is estimated. These discounts are netted at a pooled partner level using ASC 210-20. The majority of these discount fundings relate to a small number of partners and are analyzed on an ongoing basis.
– Demand Deposit Account ("DDA") overdrafts: Certain programs offered allow cardholders traditional DDA overdraft protection services whereby cardholders can spend a limited amount in excess of their available card balance. When overdrawn, these accounts are re-classed as loans on the balance sheet within the Consumer Finance category.
The Company meets the Right of Set off criteria in ASC 210-20, Balance Sheet - Offsetting, for all payments negative deposit balances with the exception of DDA overdrafts. The following table summarizes the Company's negative deposit balances within the Partner Solutions business line:
(Dollars in thousands) September 30, 2025 September 30, 2024
Noninterest-bearing deposits $ 5,886,873 $ 5,982,992
Prefunding (245,841) (315,994)
Discount funding (3,501) (38,665)
DDA overdrafts (17,977) (11,236)
Noninterest-bearing checking, net $ 5,619,554 $ 5,617,097
Off-Balance Sheet Custodial Deposits. The Bank utilizes a custodial deposit transference structure for certain prepaid and deposit programs whereby the Bank, acting as custodian of cardholder funds, places a portion of such cardholder funds that are not needed to support near term settlement at one or more third-party banks insured by the FDIC (each, a “Program Bank”). Accounts opened at Program Banks are established in the Bank’s name as custodian, for the benefit of the Bank’s cardholders. The Bank remains the issuer of all cards and holder of all accounts under the applicable cardholder agreements and has sole custodial control and transaction authority over the accounts opened at Program Banks.
The Bank maintains the records of each cardholder’s deposits maintained at Program Banks. Program Banks undergo robust due diligence prior to becoming a Program Bank and are also subject to continuous monitoring.
As of September 30, 2025, the Company managed $210.5 million 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 Company’s results of operations are dependent on net interest income, provision for credit loss, noninterest income, noninterest expense and income tax expense. Net interest income is the difference, or spread, between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities. The interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan and lease demand and deposit flows. Notwithstanding that a significant amount of the Company’s deposits, primarily those attributable to the Partner Solutions business line, pay relatively low rates of interest or none at all, the Company, like other financial institutions, is subject to interest rate risk to the extent that its interest-earning assets mature or reprice at different times, or on a different basis, than its interest-bearing liabilities and that card processing expense derived from contractual agreements with certain Partner Solutions partners are tied to a rate index and servicing fees the Company recognizes for off-balance sheet custodial deposits are typically reflective of the EFFR. The provision for credit loss is the adjustment to the allowance for credit losses balance for the applicable period. 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.
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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, building and software, legal and consulting expenses, and regulatory expense.
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Average Balances, Interest Rates and Yields
The following table presents, for the periods indicated, the 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. 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.
Fiscal Year Ended September 30,
2025 2024 2023
(Dollars in thousands) Average
Outstanding
Balance Interest
Earned /
Paid Yield /
Rate (1)
Average
Outstanding
Balance Interest
Earned /
Paid Yield /
Rate (1)
Average
Outstanding
Balance Interest
Earned /
Paid Yield /
Rate (1)
Interest-earning assets:
Cash and fed funds sold $ 422,992 $ 15,559 3.68 % $ 348,149 $ 15,446 4.44 % $ 316,222 $ 12,425 3.93 %
Mortgage-backed securities 1,229,621 34,052 2.77 % 1,450,601 39,402 2.72 % 1,541,909 41,197 2.67 %
Tax-exempt investment securities 115,503 3,180 3.49 % 130,567 3,631 3.52 % 147,863 3,924 3.36 %
Asset-backed securities 165,438 8,625 5.21 % 227,099 13,048 5.75 % 186,854 8,197 4.39 %
Other investment securities 199,642 6,160 3.09 % 285,281 8,948 3.14 % 295,439 9,390 3.18 %
Total investments 1,710,204 52,017 3.09 % 2,093,548 65,029 3.15 % 2,172,065 62,708 2.94 %
Commercial finance 3,749,715 307,341 8.20 % 3,773,316 310,589 8.23 % 3,222,583 263,412 8.17 %
Consumer finance 282,975 75,816 26.79 % 318,886 76,606 24.02 % 231,242 43,402 18.77 %
Tax services 166,157 12,009 7.23 % 153,713 9,194 5.98 % 141,210 10,490 7.43 %
Warehouse finance 640,598 60,650 9.47 % 416,988 42,194 10.12 % 343,168 29,513 8.60 %
Total loans and leases (3)
4,839,445 455,816 9.42 % 4,662,903 438,583 9.41 % 3,938,203 346,817 8.81 %
Total interest-earning assets 6,972,641 $ 523,392 7.52 % 7,104,600 $ 519,058 7.32 % 6,426,490 $ 421,950 6.58 %
Noninterest-earning assets 594,993 536,466 566,550
Total assets $ 7,567,634 $ 7,641,066 $ 6,993,040
Interest-bearing liabilities:
Interest-bearing checking $ 1,317 $ 1 0.08 % $ 506 $ 1 0.22 % $ 355 $ 1 0.30 %
Savings 49,466 17 0.04 % 54,594 17 0.03 % 65,175 25 0.04 %
Money markets 177,107 1,176 0.66 % 181,515 2,318 1.28 % 137,024 461 0.34 %
Time deposits 3,476 18 0.51 % 4,754 13 0.28 % 6,488 10 0.15 %
Wholesale deposits 93,528 4,218 4.51 % 191,276 10,670 5.58 % 81,153 3,859 4.75 %
Total interest-bearing deposits (a) 324,894 5,430 1.67 % 432,645 13,019 3.01 % 290,195 4,356 1.50 %
Overnight fed funds purchased 74,949 3,606 4.81 % 99,290 5,538 5.58 % 74,812 3,922 5.24 %
Subordinated debentures 19,740 1,421 7.20 % 19,638 1,421 7.23 % 19,560 1,422 7.27 %
Other borrowings 13,661 1,141 8.35 % 13,862 1,255 9.06 % 15,108 1,174 7.77 %
Total borrowings 108,350 6,168 5.69 % 132,790 8,214 6.19 % 109,480 6,518 5.95 %
Total interest-bearing liabilities 433,244 11,598 2.68 % 565,435 21,233 3.76 % 399,675 10,874 2.72 %
Noninterest-bearing deposits (b) 6,034,254 — — % 6,113,217 — — % 5,739,084 — — %
Total deposits and interest-bearing liabilities 6,467,498 $ 11,598 0.18 % 6,678,652 $ 21,233 0.32 % 6,138,759 $ 10,874 0.18 %
Other noninterest-bearing liabilities 307,197 251,580 200,119
Total liabilities 6,774,695 6,930,232 6,338,878
Shareholders' equity 792,939 710,834 654,162
Total liabilities and shareholders' equity $ 7,567,634 $ 7,641,066 $ 6,993,040
Net interest income and net interest rate spread including noninterest-bearing deposits $ 511,794 7.34 % $ 497,825 7.00 % $ 411,076 6.40 %
Net interest margin 7.34 % 7.01 % 6.40 %
Tax-equivalent effect 0.01 % 0.01 % 0.01 %
Net interest margin, tax equivalent (2)
7.35 % 7.02 % 6.41 %
Total cost of deposits (a+b) 6,359,148 5,430 0.09 % 6,545,862 13,019 0.20 % 6,023,937 4,356 0.07 %
(1) Tax rate used to arrive at the tax-equivalent yield ("TEY") for the fiscal years ended September 30, 2025, 2024, and 2023 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. Management of 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 believe the presentation of this non-GAAP financial measure may be useful for peer comparison purposes.
(3) Included in the yield computation are net loan fees of $27.6 million, $22.7 million, and $27.7 million, for the fiscal years ended September 30, 2025, 2024, and 2023, respectively.
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Rate / Volume Analysis
The following table presents, for the periods presented, the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The table distinguishes between the change related to higher outstanding balances and the change due to the levels and volatility of interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume ( i.e., changes in volume multiplied by old rate); and (ii) changes in rate ( i.e., changes in rate multiplied by old volume). Due to the numerous simultaneous volume and rate changes during any period, it is not possible to precisely allocate such changes between volume and rate. For this table, changes attributable to both rate and volume that cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.
Fiscal Year Ended September 30,
2025 vs. 2024
2024 vs. 2023
(Dollars in thousands) Increase /
(Decrease)
Due to Volume Increase /
(Decrease)
Due to Rate Total
Increase /
(Decrease) Increase /
(Decrease)
Due to Volume Increase /
(Decrease)
Due to Rate Total
Increase /
(Decrease)
Interest-earning assets:
Cash and fed funds sold $ 3,013 $ (2,900) $ 113 $ 1,320 $ 1,701 $ 3,021
Mortgage-backed securities (6,059) 709 (5,350) (2,515) 720 (1,795)
Tax-exempt investment securities (415) (36) (451) (546) 253 (293)
Asset-backed securities (3,292) (1,131) (4,423) 1,986 2,865 4,851
Other investment securities (2,635) (153) (2,788) (327) (115) (442)
Total investments (11,804) (1,208) (13,012) (2,319) 4,640 2,321
Commercial finance (1,965) (1,283) (3,248) 45,357 1,821 47,178
Consumer finance (9,122) 8,332 (790) 19,104 14,100 33,204
Tax services 787 2,028 2,815 873 (2,169) (1,296)
Warehouse finance 21,332 (2,876) 18,456 6,961 5,720 12,681
Total loans and leases 16,819 414 17,233 66,865 24,901 91,766
Total interest-earning assets $ 8,028 $ (3,694) $ 4,334 $ 65,866 $ 31,241 $ 97,107
Interest-bearing liabilities:
Interest-bearing checking $ 1 $ (1) $ — $ — $ — $ —
Savings $ (2) $ 2 $ — $ (3) $ (5) $ (8)
Money markets (54) (1,088) (1,142) 196 1,661 1,857
Time deposits (5) 10 5 (4) 7 3
Wholesale deposits (4,692) (1,760) (6,452) 8,112 (1,301) 6,811
Total interest-bearing deposits (2,723) (4,866) (7,589) 2,842 5,821 8,663
Overnight fed funds purchased (1,236) (696) (1,932) 1,350 266 1,616
Subordinated debentures 7 (7) — 6 (7) (1)
Other borrowings (18) (96) (114) (102) 183 81
Total borrowings (345) (1,701) (2,046) 1,429 267 1,696
Total interest-bearing liabilities $ (3,068) $ (6,567) $ (9,635) $ 4,271 $ 6,088 $ 10,359
Net effect on net interest income $ 11,096 $ 2,873 $ 13,969 $ 61,595 $ 25,154 $ 86,749
Comparison of Operating Results for the Fiscal Years Ended September 30, 2025 and September 30, 2024
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 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%.
Net Interest Income
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 an improved earning asset mix.
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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. The overall reported TEY on average earning asset yields increased 33 basis points to 7.35% compared to the prior fiscal year primarily driven by an improved earning asset mix. The yield on the loan and lease portfolio was 9.42% compared to 9.41% for the prior fiscal year and the TEY on the securities portfolio was 3.09% compared to 3.15% for the prior fiscal year.
The Company’s cost of funds for all deposits and borrowings averaged 0.18% during fiscal 2025, as compared to 0.32% during fiscal 2024. The Company's overall cost of deposits was 0.09% in fiscal 2025, as compared to 0.20% during fiscal 2024.
Provision for Credit Loss
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 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 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. See Note 4. Loans and Leases, Net for further information on the provision for credit loss.
Noninterest Income
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. Servicing fee income totaled $21.4 million during fiscal 2025, compared to $27.2 million for fiscal 2024.
Noninterest Expense
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 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. Generally this rate index is based on a percentage of the EFFR and reprices immediately upon a change in the EFFR. Approximately 64% of the deposit portfolio was subject to these higher rate-related processing expenses. For fiscal 2025, contractual, rate-related processing expenses were $104.1 million, as compared to $110.8 million for the fiscal year ended September 30, 2024.
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Income Tax Expense
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 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. Investment tax credits related to renewable energy leases are recognized ratably based on income throughout each fiscal year.
Comparison of Operating Results for the Fiscal Years Ended September 30, 2024, and September 30, 2023
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
Generally, when a loan or lease becomes delinquent 90 days or more or when the collection of principal or interest becomes doubtful, the Company will place the loan or lease on a nonaccrual status and, as a result, previously accrued interest income on the loan or lease is reversed against current income. The loan or lease will generally remain on a non-accrual status until six months of good payment history has been established or management believes the financial status of the borrower has been significantly restored. Certain relationships in the table below are over 90 days past due and still accruing. The Company considers these relationships as being in the process of collection. 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 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. 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 September 30, 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. See the section below titled “Allowance for Credit Losses” for further information.
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The table below sets forth the amounts and categories of the Company's nonperforming assets.
(Dollars in thousands) September 30, 2025 September 30, 2024
Nonperforming Loans and Leases
Nonaccruing loans and leases:
Commercial finance $ 81,416 $ 26,412
Total nonaccruing loans and leases 81,416 26,412
Accruing loans and leases delinquent 90 days or more:
Loans held for sale 1,521 1,050
Commercial finance 12,900 2,314
Consumer finance 826 3,053
Tax services (1)
2,477 8,733
Total accruing loans and leases delinquent 90 days or more 17,724 15,150
Total nonperforming loans and leases 99,140 41,562
Other Assets
Nonperforming operating leases 2,571 1,471
Total other assets 2,571 1,471
Total nonperforming assets $ 101,711 $ 43,033
Total as a percentage of total assets 1.42 % 0.57 %
(1) Certain tax services loans do not bear interest.
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 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.
Classified Assets . Federal regulations provide for the classification of certain loans, leases, and other assets such as debt and equity securities considered by the Bank's primary regulator, the OCC, to be of lesser quality as “substandard,” “doubtful” or “loss,” with each such classification dependent on the facts and circumstances surrounding the assets in question. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the Bank will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such minimal value that their continuance as assets without the establishment of a specific loss reserve is not warranted.
General allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When assets are classified as “loss,” the Bank is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. 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.
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On the basis of management’s review of its loans, leases, and other assets, at September 30, 2025, the Company had classified loans and leases of $244.9 million as substandard, $13.7 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.
Allowance for Credit Losses . The ACL represents management’s estimate of current 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 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. All other loans and leases are evaluated collectively for credit loss. A reserve for unfunded credit commitments such as letters of credit and binding unfunded loan commitments is recorded in other liabilities on the Consolidated Statements of Financial Condition.
Individually evaluated loans and leases are a key component of the ACL. Generally, the Company measures credit loss on individually evaluated loans based on the fair value of the collateral less estimated selling costs, as the Company considers these financial assets to be collateral dependent. 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 $53.3 million at September 30, 2025, a decrease compared to $71.8 million at September 30, 2024. 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.
As of the Period Ended
September 30, 2025 June 30, 2025 March 31, 2025 December 31, 2024 September 30, 2024
Commercial finance 1.18 % 1.27 % 1.10 % 1.18 % 1.29 %
Consumer finance 6.88 % 11.69 % 12.04 % 10.84 % 11.52 %
Tax services — % 81.32 % 60.35 % 1.75 % 0.02 %
Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 %
Total loans and leases 1.14 % 2.23 % 2.30 % 1.63 % 1.76 %
Total loans and leases excluding tax services 1.14 % 1.60 % 1.57 % 1.63 % 1.77 %
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 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
The Company’s financial statements are prepared in accordance with GAAP. The financial information contained within these financial statements is, to a significant extent, based on approximate measures of the financial effects of transactions and events that have already occurred. Management has identified its critical accounting policies, which are those policies described below as Critical Accounting Estimates that, in management's view, are most important in the portrayal of our financial condition and results of operations. These policies involve complex and subjective decisions and assessments. 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. See Note 1. Summary of Significant Accounting Policies and Note 4. Loans and Leases, Net 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.
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Allowance for Credit Losses
The Company’s allowance for credit losses methodology estimates expected credit losses over the life of each financial asset as of the balance sheet date.
For the loan and lease portfolio, the Company measures credit loss on individually evaluated loans based on the fair value of the collateral less estimated selling costs if collateral dependent or based on the present value of expected future cash flows discounted at the loan or lease initial effective interest rate if not collateral dependent. The majority of the Company's loans and leases subject to individual evaluation are considered collateral dependent. Only loans and leases that are on nonaccrual status or are designated as a modification are subject to individual evaluation. Management has also identified certain structured finance credits for alternative energy projects in which a substantial cash collateral account has been established to mitigate credit risk. Due to the nature of the transactions and significant cash collateral positions, these credits are evaluated individually. All other loans and leases are evaluated collectively for credit loss by pooling loans and leases based on similar risk characteristics. The collective evaluation of expected losses in all commercial finance portfolios is based on a cohort loss rate and adjustments for forward-looking information, including industry and macroeconomic forecasts. The cohort loss rate is a life of loan loss rate that immediately reverts to historical loss information for the remaining maturity of the financial asset. Management has elected to use a twelve to twenty-four month reasonable and supportable forecast for forward-looking information. Factors utilized in the determination of the allowance include historical loss experience, current and forecasted economic conditions, and measurement date credit characteristics such as product type, delinquency, and industry. The unfunded credit commitments depend on these same factors, as well as estimates of lines of credit usage. The collective evaluation of expected credit losses for certain consumer lending portfolios utilizes different methodologies when estimating expected credit losses.
Debt securities HTM include implicit and explicit guarantees by government agencies and have an expected zero risk of loss, therefore no provision for credit loss for debt securities held to maturity has been included in the Company’s Consolidated Statement of Operations. Debt securities AFS are recorded at fair value and are assessed quarterly for credit loss. Any such credit loss is recorded in the Company’s Provision for Credit Loss on the Company’s Consolidated Statement of Operations. Non-credit related losses are recorded in Other Comprehensive Income in the Company’s Consolidated Statement of Condition.
Although management believes the levels of the allowance for credit losses at September 30, 2025 and September 30, 2024 are adequate to absorb expected credit losses in the financial assets evaluated, a decline in local economic conditions or other factors could result in increasing losses.
Goodwill and Intangible Assets
The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, Business Combinations . Under the acquisition method, the Company records assets acquired, including identifiable intangible assets, liabilities assumed, and any non-controlling interest in the acquired business at their fair values as of the acquisition date. Any acquisition-related transaction costs are expensed in the period incurred. Results of operations of the acquired entity are included in the Consolidated Statements of Operations from the date of acquisition. Any measurement-period adjustments are recorded in the period the adjustment is identified.
The excess of consideration paid over the fair value of the net assets acquired is recorded as goodwill. Determining the fair value of assets acquired, including identifiable intangible assets, liabilities assumed, and any noncontrolling interest often requires the use of significant estimates and assumptions. This may involve estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques such as estimates of attrition, inflation, asset growth rates, discount rates, multiples of earnings or other relevant factors. In addition, the determination of the useful lives over which an intangible asset will be amortized is subjective. See Note 8. Goodwill and Intangible Assets to the Consolidated Financial Statements for further information.
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LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary sources of funds are deposits, derived principally through its Partner Solutions business line, borrowings, principal and interest payments on loans and leases and mortgage-backed securities, and maturing investment securities. In addition, the Company utilizes wholesale deposit sources to provide temporary funding when necessary or when favorable terms are available. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan repayments are influenced by the level of interest rates, general economic conditions and competition. 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 September 30, 2025, the Company had unfunded loan and lease commitments of $1.20 billion. Management believes that loan repayment and other sources of funds will be adequate to meet the Company’s foreseeable short- and long-term liquidity needs. The liquidity sources as of September 30, 2025 include $120.6 million in cash and cash equivalents and $210.5 million in off-balance sheet custodial deposits. When factoring in all resources, such as the FHLB, the FRB Discount Window and other unsecured funding and wholesale options, the Company has over $2.30 billion in available liquidity. Due to the characteristics of the Company's deposit portfolio, uninsured deposits remained less than 15% of total deposits during fiscal year 2025 and below the Company's available liquidity.
The following table summarizes the Company’s significant contractual obligations at September 30, 2025.
(Dollars in thousands) Less Than 1 Year 1 to 3 Years 3 to 5 Years More Than 5 Years Total
Time deposits $ 2,636 $ — $ — $ — $ 2,636
Wholesale time deposits — — — — —
Short-term debt 9,000 — — — 9,000
Long-term debt — — — 33,456 33,456
Operating leases 3,441 6,803 6,763 9,830 26,837
Total $ 15,077 $ 6,803 $ 6,763 $ 43,286 $ 71,929
For more information on the Company’s short-term and long-term borrowings, see “Funding Activities – Borrowings” within Item 1 “Business,” which is included in Part I of this Annual Report on Form 10-K and Note 11. Short-term and Long-term Borrowings to the “Notes to Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.”
The Company and the Bank met regulatory requirements for classification as well-capitalized institutions at September 30, 2025. Based on current and expected continued profitability and subject to continued access to capital markets, management believes that the Company and the Bank will continue to meet the capital conservation buffer of 2.5% in addition to required minimum capital ratios. See Note 15. Capital Requirements and Restrictions on Retained Earnings 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.
The payment of dividends and repurchase of shares have the effect of reducing stockholders’ equity. Prior to authorizing such transactions, the Board of Directors considers the effect the dividend or repurchase of shares would have on liquidity and regulatory capital ratios. See "Regulation and Supervision - Limitations on Dividends and Other Capital Distributions" within Item 1 "Business", which is included in Part I of this Annual Report on Form 10-K.
No assurance can be given that our regulators will consider our liquidity level, or our capital level, though substantially in excess of current rules pursuant to which the Company and the Bank are considered “well-capitalized,” to be sufficiently high in the future. See Note 15. Capital Requirements and Restrictions on Retained Earnings 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.
Impact of New Accounting Standards
See Note 1. Summary of Significant Accounting Policies to the "Notes of Consolidated Financial Statements,” which is included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, for information regarding recently issued accounting pronouncements.
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