PATHWARD FINANCIAL, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. FORWARD-LOOKING STATEMENTS PATHWARD FINANCIAL, INC. ("Pathward Financial" or the "Company" or "us") and its wholly-owned subsidiary, Pathward ® , National Association ("Pathward ® , N.A" or "Pathward" or "the Bank") may from time to time make written or oral “forward-looking statements,” including statements contained in this Quarterly Report on Form 10-Q, the Company’s other filings with the Securities and Exchange Commission (the "SEC"), the Company’s reports to stockholders, and other communications by the Company and Pathward, N.A, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” "target," or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results, including our performance expectations; progress on key strategic initiatives; expected results of our partnerships; impacts of our improved data analytics, underwriting, and monitoring processes; expected nonperforming loan resolutions and net charge-off rates; the performance of our securities portfolio; the impact of card balances related to government stimulus programs; customer retention; loan and other product demand; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; and technology, including impacts of technology investments. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; 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 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; adverse developments in the financial services industry generally such as bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer behavior; inflation, market, and monetary fluctuations; our liquidity and capital positions, including the sufficiency of our liquidity; 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; 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; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the Bank of its status as a well-capitalized institution; changes in consumer borrowing, spending, and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; emerging external focus among regulators and other officials related to risks in connection with the development and use of artificial intelligence; the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase; and the potential adverse effects of unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the military conflicts in Ukraine and the Middle East, government shutdowns, weather-related disasters, or public health events, such as pandemics, and any governmental or societal responses thereto. The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. 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 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 for the Company’s fiscal year ended September 30, 2025, 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. 39 Table of Contents GENERAL Pathward Financial, a registered bank holding company that has elected to be a financial holding company, is a Delaware corporation. Pathward Financial's principal assets 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 Deposit Insurance Fund. 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. 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 March 31, 2026, compared to September 30, 2025, and the consolidated results of operations for the three and six months ended March 31, 2026 and 2025. This discussion should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the fiscal year ended September 30, 2025 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, 2025. EXECUTIVE SUMMARY Company Highlights • The Company's subsidiary Pathward®, N.A. announced it became Certified™ by Great Place To Work® for the fourth year in a row. This year, 88% of employees surveyed said Pathward is a Great Place To Work® – 31 points higher than the typical U.S. company. 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 2026 Fiscal Second Quarter All highlights are compared to the same fiscal quarter in the prior year period. • Total revenue was $276.3 million, which was driven by a 9% increase in noninterest income. This was primarily driven by growth in card and deposit fees of 22%, refund advance and other tax fee income of 18%, and refund transfer product fees of 7%. Noninterest income represented 55% of total revenue. • New loan originations, excluding tax services, increased from $902 million to $1.31 billion, primarily driven by the new contract announced during fiscal 2025 within consumer finance. • Annualized return on average assets was 3.56% and return on average tangible equity was 54.41%. • The Company repurchased 855,201 shares of common stock at an average share price of $84.15. As of March 31, 2026, there were 3,430,811 shares available for repurchase under the current common stock share repurchase program. Tax Season All reported numbers are for the six months ended March 31, 2026 and are compared to the same fiscal period in the prior year. Total tax services product revenue was $95.7 million, an increase of 13% compared to the prior year. This was driven by an increase in the number of refund advances, as well as higher origination volumes and an increase in refund transfers. Total tax services product fee income increased by $10.6 million and net interest income on tax services loans increased $0.2 million. Total tax services product expense increased $0.8 million when compared to the prior year. Provision for credit losses for the tax services portfolio decreased $4.4 million when compared to the prior year as a result of the continued work on enhancing underwriting models and data analytics capabilities. 40 Table of Contents Total tax services product income, net of losses and direct product expenses, increased 30% to $62.0 million from $47.6 million. This increase is the result of significant work to grow this business, increase market share and evolve the underwriting model. For the 2026 tax season through March 31, 2026, the Company originated $1.87 billion in refund advance loans compared to $1.66 billion during the 2025 tax season. FINANCIAL CONDITION At March 31, 2026, the Company’s total assets decreased to $7.11 billion compared to $7.17 billion at September 30, 2025, primarily due to reductions of $126.3 million in loans held for sale, $56.5 million in debt securities AFS, $55.3 million in other assets, and an increase of $45.0 million in allowance for credit losses, partially offset by growth of $202.3 million in loans and leases and $37.0 million in cash and cash equivalents. Total cash and cash equivalents were $157.6 million at March 31, 2026, increasing from $120.6 million at 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 March 31, 2026, the Company did not have any federal funds sold. The Company's investment security balances at March 31, 2026 totaled $1.30 billion, as compared to $1.36 billion at September 30, 2025, due to principal pay downs. 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 six months ended March 31, 2026, the Company made no 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 $25.5 million at March 31, 2026 and $24.7 million at September 30, 2025, as purchases of FHLB membership stock were partially offset by redemptions during the six months ended March 31, 2026. Loans held for sale at March 31, 2026 totaled $53.1 million, decreasing from $179.4 million at September 30, 2025. This decrease was primarily driven by the sale of the consumer finance portfolio in October 2025, partially offset by an increase in SBA/USDA loans held for sale at March 31, 2026 compared to September 30, 2025. Total gross loans and leases totaled $4.87 billion at March 31, 2026, as compared to $4.66 billion at September 30, 2025. The increase was due to growth in the commercial finance and seasonal tax services portfolios, partially offset by a decrease in the consumer finance portfolio due to the aforementioned loan sale within that portfolio in October 2025, as well as a decrease in the warehouse finance portfolio. See Note 4. 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 84% of the Company's loan and lease portfolio, totaled $4.11 billion at March 31, 2026 , reflecting an increase of $188.6 million, or 5%, from September 30, 2025. The increase was primarily driven by an increase of $199.3 million in term lending and $67.0 million in asset-based lending, partially offset by a decrease of $76.2 million in other commercial finance. These changes are primarily the result of the Company's efforts to optimize the balance sheet. Total end-of-period deposits decreased 1% to $5.85 billion at March 31, 2026, from $5.89 billion at September 30, 2025, primarily driven by a decrease in noninterest-bearing deposits of $89.8 million, partially offset by an increase in interest-bearing checking of $46.7 million. The Company's total borrowings increased from $42.5 million at September 30, 2025 to $59.5 million at March 31, 2026, driven by an increase in short-term borrowings of $17.0 million. The Company's short-term borrowings fluctuate on a daily basis due to the nature of a portion of its noninterest-bearing deposit base. 41 Table of Contents At March 31, 2026, the Company’s stockholders’ equity totaled $850.7 million, a decrease of $6.8 million, from $857.5 million at September 30, 2025. The decrease was primarily attributable to a decrease in retained earnings, partially offset by an increase in additional paid-in capital and a decrease in accumulated other comprehensive loss. The Company and Bank remained above the federal regulatory minimum capital requirements at March 31, 2026, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies. See “Liquidity and Capital Resources” for further information. 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 Condensed 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) March 31, 2026 September 30, 2025 Noninterest-bearing deposits $ 5,798,536 $ 5,886,873 Prefunding (238,583) (245,841) Discount funding (12,409) (3,501) DDA overdrafts (17,777) (17,977) Noninterest-bearing checking, net $ 5,529,767 $ 5,619,554 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 March 31, 2026, the Company managed $1.07 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. 42 Table of Contents RESULTS OF OPERATIONS 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 net interest margin ("NIM"). Nonaccruing loans and leases have been included in the table as loans or leases carrying a zero yield. Three Months Ended March 31, 2026 2025 (Dollars in thousands) 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 $ 620,549 $ 4,886 3.19 % $ 926,841 $ 9,088 3.98 % Mortgage-backed securities 1,100,278 7,590 2.80 % 1,240,243 8,580 2.81 % Tax-exempt investment securities 104,537 747 3.67 % 116,976 797 3.50 % Asset-backed securities 132,041 1,500 4.61 % 180,750 2,228 5.00 % Other investment securities 170,063 1,324 3.16 % 207,973 1,556 3.03 % Total investments 1,506,919 11,161 3.06 % 1,745,942 13,161 3.11 % Commercial finance 4,128,461 81,463 8.00 % 3,597,280 73,053 8.24 % Consumer finance 146,499 7,187 19.90 % 295,099 19,976 27.45 % Tax services 620,285 12,695 8.30 % 557,229 11,913 8.67 % Warehouse finance 631,052 13,484 8.67 % 638,747 14,813 9.41 % Total loans and leases 5,526,297 114,829 8.43 % 5,088,355 119,755 9.54 % Total interest-earning assets 7,653,765 $ 130,876 6.95 % 7,761,138 $ 142,004 7.43 % Noninterest-earning assets 648,512 611,851 Total assets $ 8,302,277 $ 8,372,989 Interest-bearing liabilities: Interest-bearing checking $ 3,537 $ — 0.01 % $ 2,462 $ — 0.04 % Savings 50,501 4 0.03 % 53,120 3 0.02 % Money markets 209,841 138 0.27 % 179,591 270 0.61 % Time deposits 2,640 6 0.91 % 4,213 3 0.25 % Wholesale deposits 431,278 4,126 3.88 % 349,706 3,810 4.42 % Total interest-bearing deposits (a) 697,797 4,274 2.48 % 589,092 4,086 2.81 % Overnight fed funds purchased 87,836 862 3.98 % 88,522 1,003 4.60 % Subordinated debentures 19,830 357 7.30 % 19,728 355 7.29 % Other borrowings 13,661 259 7.68 % 13,661 281 8.34 % Total borrowings 121,327 1,478 4.94 % 121,911 1,639 5.45 % Total interest-bearing liabilities 819,124 5,752 2.85 % 711,003 5,725 3.27 % Noninterest-bearing deposits (b) 6,323,247 — — % 6,592,216 — — % Total deposits and interest-bearing liabilities 7,142,371 $ 5,752 0.33 % 7,303,219 $ 5,725 0.32 % Other noninterest-bearing liabilities 307,071 294,080 Total liabilities 7,449,442 7,597,299 Shareholders' equity 852,835 775,690 Total liabilities and shareholders' equity $ 8,302,277 $ 8,372,989 Net interest income and net interest rate spread including noninterest-bearing deposits $ 125,124 6.62 % $ 136,279 7.11 % Net interest margin 6.63 % 7.12 % Tax-equivalent effect 0.01 % 0.01 % Net interest margin, tax-equivalent (2) 6.64 % 7.13 % Total cost of deposits (a+b) 7,021,044 4,274 0.25 % 7,181,308 4,086 0.23 % (1) Tax rate used to arrive at the TEY for the three months ended March 31, 2026 and 2025 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 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. 43 Table of Contents Six Months Ended March 31, 2026 2025 (Dollars in thousands) 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 $ 446,046 $ 6,686 3.01 % $ 579,452 $ 11,346 3.93 % Mortgage-backed securities 1,111,299 15,402 2.78 % 1,275,467 17,566 2.76 % Tax-exempt investment securities 105,972 1,481 3.55 % 118,862 1,642 3.51 % Asset-backed securities 134,278 3,246 4.85 % 184,497 4,832 5.25 % Other investment securities 171,738 2,679 3.13 % 221,173 3,370 3.06 % Total investments 1,523,287 22,808 3.05 % 1,799,999 27,410 3.10 % Commercial finance 4,118,802 165,296 8.05 % 3,642,820 147,665 8.13 % Consumer finance 173,131 16,644 19.28 % 305,868 42,317 27.75 % Tax services 329,509 12,655 7.70 % 294,147 12,045 8.21 % Warehouse finance 637,833 28,009 8.81 % 621,094 29,577 9.55 % Total loans and leases 5,259,275 222,604 8.49 % 4,863,929 231,604 9.55 % Total interest-earning assets 7,228,608 $ 252,098 7.01 % 7,243,380 $ 270,360 7.50 % Noninterest-earning assets 646,970 620,823 Total assets $ 7,875,578 $ 7,864,203 Interest-bearing liabilities: Interest-bearing checking $ 2,226 $ — 0.03 % $ 1,564 $ — 4.30 % Savings 47,224 8 0.03 % 49,252 6 0.03 % Money markets 211,145 306 0.29 % 179,850 655 0.73 % Time deposits 2,638 12 0.91 % 4,210 6 0.25 % Wholesale deposits 214,627 4,154 3.88 % 186,526 4,194 4.51 % Total interest-bearing deposits (a) 477,860 4,480 1.88 % 421,402 4,861 2.31 % Overnight fed funds purchased 93,096 1,910 4.11 % 110,165 2,674 4.87 % Subordinated debentures 19,817 713 7.22 % 19,715 710 7.22 % Other borrowings 13,661 533 7.82 % 13,661 587 8.62 % Total borrowings 126,574 3,156 5.00 % 143,541 3,971 5.55 % Total interest-bearing liabilities 604,434 7,636 2.53 % 564,943 8,832 3.14 % Noninterest-bearing deposits (b) 6,114,940 — — % 6,203,825 — — % Total deposits and interest-bearing liabilities 6,719,374 $ 7,636 0.23 % 6,768,768 $ 8,832 0.26 % Other noninterest-bearing liabilities 313,729 315,189 Total liabilities 7,033,103 7,083,957 Shareholders' equity 842,475 780,246 Total liabilities and shareholders' equity $ 7,875,578 $ 7,864,203 Net interest income and net interest rate spread including noninterest-bearing deposits $ 244,462 6.78 % $ 261,528 7.24 % Net interest margin 6.78 % 7.24 % Tax-equivalent effect 0.01 % 0.01 % Net interest margin, tax-equivalent (2) 6.79 % 7.25 % Total cost of deposits (a+b) 6,592,800 4,480 0.14 % 6,625,227 4,861 0.15 % (1) Tax rate used to arrive at the TEY for the six months ended March 31, 2026 and 2025 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 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. 44 Table of Contents General The Company reported net income of $72.9 million, or $3.35 per diluted share, for the three months ended March 31, 2026, compared to net income of $75.0 million, or $3.14 per diluted share, for the three months ended March 31, 2025. The Company reported net income of $108.1 million, or $4.89 per diluted share, for the six months ended March 31, 2026, compared to net income of $104.9 million, or $4.35 per diluted share, for the six months ended March 31, 2025. Net Interest Income Net interest income for the second quarter of fiscal 2026 was $125.1 million, a decrease of 8% compared to the same quarter in fiscal 2025, which was primarily driven by decreases in interest income of $12.8 million on the consumer finance portfolio and $4.2 million of cash and fed funds sold. Interest income on the consumer finance portfolio was impacted by the sale of a portfolio in October 2025 that was previously accounted for using a gross accounting methodology, and therefore, recorded at higher yields with offsetting entries not included in net interest income. Partially offsetting that decrease, interest income from commercial finance loans and leases increased $8.4 million over that same period. For the six months ended March 31, 2026, net interest income was $244.5 million, a decrease of 7% compared to the same period in the prior fiscal year. The Company’s average interest-earning assets for the second quarter of fiscal 2026 decreased by $107.4 million to $7.65 billion compared to the same quarter in fiscal 2025, due to decreases in the average outstanding balances in cash and fed funds sold and total investments securities. The decrease was partially offset by an increase in the average outstanding balance of total loans and leases. These results are expected as the Company continues to shift the balance sheet toward higher returning assets. The second quarter average outstanding balance of loans and leases increased $437.9 million compared to the same quarter of the prior fiscal year, due to increases in the commercial finance and tax services portfolios, partially offset by decreases in the consumer finance and warehouse finance portfolios. Fiscal 2026 second quarter NIM decreased to 6.63% from 7.12% in the second fiscal quarter of 2025 primarily due to the aforementioned sale of the consumer finance portfolio in October 2025. The overall reported tax-equivalent yield (“TEY”) on average interest-earning assets decreased 48 basis points to 6.95% compared to the prior year quarter. The yield on the loan and lease portfolio was 8.43% compared to 9.54% for the comparable period last year and the TEY on the securities portfolio was 3.06% compared to 3.11% over that same period. The decreases in the TEY on average interest-earning assets and the yield on the loan and lease portfolio were also primarily driven by the aforementioned sale of the consumer finance portfolio. For the six months ended March 31, 2026, NIM was 6.78%, a decrease of 46 basis points from 7.24% compared to the same period in the prior fiscal year. The Company's cost of funds for all deposits and borrowings averaged 0.33% during the fiscal 2026 second quarter, as compared to 0.32% during the prior year quarter. The Company's overall cost of deposits was 0.25% in the fiscal second quarter of 2026, as compared to 0.23% during the prior year quarter. Provision for Credit Loss The Company recognized a provision for credit losses of $45.6 million for the quarter ended March 31, 2026, compared to $35.3 million for the comparable period in the prior fiscal year. The year-over-year increase was primarily due to increases in the commercial finance portfolio of $19.0 million, partially offset by decreases in the consumer finance portfolio of $6.9 million and the tax services portfolio of $1.7 million. The Company recognized net charge-offs of $5.8 million for the quarter ended March 31, 2026, compared to net charge-offs of $6.4 million for the quarter ended March 31, 2025. Net charge-offs attributable to the commercial finance portfolio and consumer finance portfolio were $14.5 million and $1.1 million, respectively, while net recoveries of $9.7 million were recognized in the seasonal tax services portfolio. Net charge-offs attributable to the commercial finance portfolio and consumer finance portfolio for the same quarter of the prior year were $6.9 million and $6.3 million, respectively, while net recoveries of $6.8 million were recognized in the tax services portfolio. 45 Table of Contents The Company recognized a provision for credit losses of $48.8 million for the six months ended March 31, 2026, compared to $53.9 million for the comparable period in the prior fiscal year. The decrease was primarily due to decreases in provision for credit losses in the consumer finance portfolio of $12.2 million and tax services portfolio of $4.4 million, partially offset by an increase in the commercial finance portfolio of $11.6 million. The Company recognized net charge-offs of $3.6 million for the six months ended March 31, 2026, compared to net charge-offs of $22.6 million for the six months ended March 31, 2025. Net charge-offs attributable to the commercial finance portfolio and the consumer finance portfolio for the six months ended March 31, 2026 were $13.2 million and $2.6 million, respectively, while net recoveries of $12.2 million were recognized in the tax services portfolio. Net charge-offs attributable to the commercial finance portfolio and the consumer finance portfolio were $14.9 million and $14.0 million, respectively, for the same six months of the prior year, while net recoveries of $6.3 million were recognized in the tax services portfolio. Noninterest Income Fiscal 2026 second quarter noninterest income increased 9% to $151.2 million, compared to $138.5 million for the same period of the prior year. The increase was driven by increases in refund advance and other tax fee income, card and deposit fees, and refund transfer product fees, partially offset by decreases in secondary market revenue and rental income. Secondary market revenue in the prior year period was elevated by the gain from a portfolio sale within working capital. That gain was partially offset by a loss on sale of securities and a loss on divestiture that were also recognized in the prior year period. Servicing fee income on custodial deposits totaled $7.8 million during the 2026 fiscal second quarter, as compared to $6.5 million for the same period of the prior year. The year-over-year increase in servicing fee income on custodial deposit balances held at Program Banks was due to higher quarterly average deposits balances held at Program Banks. Noninterest income for the six months ended March 31, 2026 increased to $204.9 million from $195.9 million for the same period of the prior year. Noninterest Expense Noninterest expense decreased 3% to $143.5 million in the second quarter of fiscal 2026, compared to $148.2 million for the same quarter last year. The decrease was primarily attributable to reductions in card processing and other expense, partially offset by increases in compensation and benefits and building and software 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 66% of the deposit portfolio was subject to these rate-related processing expenses during the fiscal 2026 second quarter. For the fiscal quarter ended March 31, 2026, contractual, rate-related processing expenses were $25.4 million, as compared to $28.4 million for the fiscal quarter ended March 31, 2025. Noninterest expense for the six months ended March 31, 2026 decreased to $270.7 million from $276.0 million for the same period of the prior year. Income Tax Expense The Company recorded an income tax expense of $14.2 million, representing an effective tax rate of 16.2%, for the fiscal 2026 second quarter, compared to an income tax expense of $16.2 million, representing an effective tax rate of 17.7%, for the second quarter last fiscal year. The current quarter decrease in income tax expense compared to the prior year quarter was primarily driven by research tax credits. The Company originated $8.0 million in renewable energy leases during the fiscal 2026 second quarter, resulting in $2.0 million in total net investment tax credits. During the second quarter of fiscal 2025, the Company originated $1.9 million in renewable energy leases resulting in $0.5 million in total net investment tax credits. For the six months ended March 31, 2026, the Company originated $27.7 million in renewable energy leases, compared to $11.2 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. 46 Table of Contents The Company recorded an income tax expense of $21.4 million, representing an effective tax rate of 16.5% for the six months ended March 31, 2026, compared to an income tax expense of $22.2 million, or an effective tax rate of 17.4%, for the six months ended March 31, 2025. 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 March 31, 2026 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. The table below sets forth the amounts and categories of the Company's nonperforming assets. (Dollars in thousands) March 31, 2026 September 30, 2025 Nonperforming Loans and Leases Nonaccruing loans and leases: Commercial finance $ 91,446 $ 81,416 Total nonaccruing loans and leases 91,446 81,416 Accruing loans and leases delinquent 90 days or more: Loans held for sale — 1,521 Commercial finance 25,850 12,900 Consumer finance 417 826 Tax services (1) — 2,477 Total accruing loans and leases delinquent 90 days or more 26,267 17,724 Total nonperforming loans and leases 117,713 99,140 Other Assets Nonperforming operating leases 2,080 2,571 Total other assets 2,080 2,571 Total nonperforming assets $ 119,793 $ 101,711 Total as a percentage of total assets 1.68 % 1.42 % (1) Certain tax services loans do not bear interest. The Company's nonperforming assets at March 31, 2026 were $119.8 million, representing 1.68% of total assets, compared to $101.7 million, or 1.42% of total assets at September 30, 2025. The increase in the nonperforming assets as a percentage of total assets at March 31, 2026 compared to September 30, 2025, was driven by an increase in nonperforming loans in the commercial finance portfolio. 47 Table of Contents The Company's nonperforming loans and leases at March 31, 2026 were $117.7 million, representing 2.39% of total gross loans and leases, compared to $99.1 million, or 2.05% of total gross loans and leases at September 30, 2025. 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. On the basis of management’s review of its loans, leases, and other assets, at March 31, 2026, the Company had classified loans and leases of $247.3 million as substandard, $18.3 million as doubtful and none as loss. At September 30, 2025, the Company classified loans and leases of $244.9 million as substandard, $13.7 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 Condensed 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 $98.3 million at March 31, 2026, an increase compared to $53.3 million at September 30, 2025. The increase in the ACL at March 31, 2026, when compared to September 30, 2025, was primarily due to increases of $35.3 million in the allowance related to the seasonal tax services portfolio and $9.5 million in the allowance related to the commercial finance portfolio. 48 Table of Contents The following table presents the Company's ACL as a percentage of its total loans and leases. As of the Period Ended March 31, 2026 December 31, 2025 September 30, 2025 June 30, 2025 March 31, 2025 Commercial finance 1.36 % 1.16 % 1.18 % 1.27 % 1.10 % Consumer finance 7.25 % 6.85 % 6.88 % 11.69 % 12.04 % Tax services 58.63 % 1.71 % — % 81.32 % 60.35 % Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % Total loans and leases 2.02 % 1.18 % 1.14 % 2.23 % 2.30 % Total loans and leases excluding tax services 1.31 % 1.17 % 1.14 % 1.60 % 1.57 % The Company's ACL as a percentage of total loans and leases increased to 2.02% at March 31, 2026 from 1.14% at September 30, 2025 and decreased from 2.30% at March 31, 2025. The year-over-year decrease in the total loans and leases coverage ratio was primarily driven by the decrease in the ACL related to the decrease in the consumer finance portfolio due to the aforementioned loan sale within the consumer finance portfolio in October 2025. The year-over-year decrease in the total loans and leases coverage ratio was partially offset by an increase in the ACL related to the commercial finance portfolio. 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 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. A discussion of the Company’s critical accounting policies and estimates can be found in the Company's Form 10-K for the year ended September 30, 2025. There were no significant changes to these critical accounting policies and estimates during the first six months of fiscal 2026. 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 March 31, 2026, the Company had unfunded loan and lease commitments of $1.55 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 March 31, 2026 include $157.6 million in cash and cash equivalents and $1.07 billion in 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 $2.73 billion in total available liquidity as of March 31, 2026. Due to the characteristics of the Company's deposit portfolio, uninsured deposits remained less than 15% of total deposits during the fiscal 2026 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"). Under the Capital Rules and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors. 49 Table of Contents 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 March 31, 2026, 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; under the rule, non-advanced approach banking organizations were given a one-time option to exclude certain AOCI components. The table below includes certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analyses and has included this non-GAAP financial information, and corresponding reconciliation to total equity. Company Bank Minimum to be Adequately Capitalized Under Prompt Corrective Action Provisions Minimum to be Well Capitalized Under Prompt Corrective Action Provisions March 31, 2026 Tier 1 leverage capital ratio 8.62 % 8.85 % 4.00 % 5.00 % Common equity Tier 1 capital ratio 12.65 13.24 4.50 6.50 Tier 1 capital ratio 12.89 13.24 6.00 8.00 Total capital ratio 14.52 14.49 8.00 10.00 September 30, 2025 Tier 1 leverage capital ratio 9.79 % 10.00 % 4.00 % 5.00 % Common equity Tier 1 capital ratio 12.70 13.23 4.50 6.50 Tier 1 capital ratio 12.95 13.23 6.00 8.00 Total capital ratio 14.27 14.19 8.00 10.00 The following table provides a reconciliation of the amounts included in the table above for the Company. Standardized Approach (1) (Dollars in thousands) March 31, 2026 September 30, 2025 Total stockholders' equity $ 850,677 $ 857,454 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 284,471 285,158 LESS: Certain other intangible assets 17,306 18,077 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 1,207 5,733 LESS: Net unrealized (losses) on available for sale securities (138,462) (143,190) LESS: Noncontrolling interest (785) (591) ADD: Adoption of Accounting Standards Update 2016-13 — 1,788 Common Equity Tier 1 (1) 686,940 694,055 Long-term borrowings and other instruments qualifying as Tier 1 13,661 13,661 Tier 1 minority interest not included in common equity Tier 1 capital (382) (307) Total Tier 1 capital 700,219 707,409 Allowance for credit losses 68,278 52,455 Subordinated debentures, net of issuance costs 19,846 19,796 Total capital $ 788,343 $ 779,660 (1) Capital amounts and ratios are calculated in accordance with Basel III capital rules as implemented by U.S. banking regulators and reflect fully phased-in regulatory requirements to the Company as of the reporting date. 50 Table of Contents The Company and the Bank have been required to maintain a capital conservation buffer above the minimum risk-based capital requirements in order to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively composed of Common Equity Tier 1 capital, and it applies to each of the three risk-based capital ratios but not the leverage ratio. The required Common Equity Tier 1 risk-based, Tier 1 risk-based and total risk-based capital ratios with the buffer are currently 7.0%, 8.5% and 10.5%, respectively. Based on current and expected continued profitability and subject to continued access to capital markets, we believe that the Company and the Bank will continue to meet the capital conservation buffer of 2.5% in addition to required minimum capital ratios. CONTRACTUAL OBLIGATIONS See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations " in the Company’s Form 10-K for its fiscal year ended September 30, 2025 for a summary of our contractual obligations as of September 30, 2025. There were no material changes outside the ordinary course of our business in contractual obligations from September 30, 2025 through March 31, 2026.