What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2026-08-06 compared with 2026-05-07 · 105 added, 106 removed, 319 unchanged (40% of the section changed)

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impacts of our improved data analytics, underwriting, and monitoring processes;

expectations with respect to credit performance;

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;

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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;

the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses;

the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Bank’s strategic partners’ refund advance products;

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

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the 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.

and the potential adverse effects of unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts, 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.

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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.

Pathward Financial, a registered bank holding company that has elected to be a financial holding company, is a Delaware corporation.

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

The following discussion focuses on the consolidated financial condition of the Company at 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.

The following discussion focuses on the consolidated financial condition of the Company at June 30, 2026, compared to September 30, 2025, and the consolidated results of operations for the three and nine months ended June 30, 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.

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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.

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

• In April 2026, the Company released its 2025 Impact Report.

The report highlights Pathward's deep partner expertise in enabling inclusive banking, payments, lending and tax solutions nationwide, while making progress on the Company's sustainability efforts.

Financial Highlights for the 2026 Fiscal Third 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%.

• Interest income from commercial finance loans increased by $6.1 million.

• Total noninterest income increased 4%, or $3.3 million, as a result of strong secondary market revenue generation.

• Noninterest expense decreased 7% as a result of disciplined expense management while the Company continued to make strategic investments across people, processes, and technology in order to execute on its long-term strategy.

• New loan originations increased from $1.10 billion to $1.86 billion, primarily driven by an increase in consumer loan originations resulting from a new contract announced during fiscal 2025 and growth with current partners.

• The Company repurchased 303,632 shares of common stock at an average share price of $92.18.

As of March 31, 2026, there were 3,430,811 shares available for repurchase under the current common stock share repurchase program.

All reported numbers are for the six months ended March 31, 2026 and are compared to the same fiscal period in the prior year.

As of June 30, 2026, there were 3,127,179 shares available for repurchase under the current common stock share repurchase program.

All reported numbers are for the nine months ended June 30, 2026 and are compared to the same fiscal period in the prior year.

The Tax Services business saw strong performance during fiscal 2026 as a result of significant work to grow the business, increase market share and evolve the underwriting model.

Total tax services product revenue was $107.7 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.

This was driven by increases in refund advance and refund transfer product fees.

Total tax services product fee income increased by $12.4 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.

Total tax services product expense increased $0.9 million.

Provision for credit losses for the tax services portfolio decreased $5.7 million as a result of the continued work on enhancing underwriting models and data analytics capabilities.

Total tax services product income, net of losses and direct product expenses, increased 29% to $77.1 million from $59.8 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.

At June 30, 2026, the Company’s total assets increased to $7.31 billion compared to $7.17 billion at September 30, 2025, primarily due to growth of $442.9 million in loans and leases, partially offset by reductions of $108.2 million in debt securities AFS, $82.1 million in loans held for sale, $78.7 million in other assets, and an increase of $56.5 million in allowance for credit losses.

Total cash and cash equivalents were $149.4 million at June 30, 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.

At June 30, 2026, the Company did not have any federal funds sold.

The Company's investment security balances at June 30, 2026 totaled $1.25 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.

During the nine months ended June 30, 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.

The Company’s investment in these stocks was $30.9 million at June 30, 2026 and $24.7 million at September 30, 2025, as purchases of FHLB membership stock were partially offset by redemptions during the nine months ended June 30, 2026.

Loans held for sale at June 30, 2026 totaled $97.3 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.

Total gross loans and leases totaled $5.11 billion at June 30, 2026, as compared to $4.66 billion at September 30, 2025.

The increase was driven by growth across all portfolios, primarily within commercial finance.

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.

Commercial finance loans, which comprised 85% of the Company's loan and lease portfolio, totaled $4.32 billion at June 30, 2026 , reflecting an increase of $398.8 million, or 10%, from September 30, 2025.

The increase was primarily driven by an increase of $364.4 million in term lending and $104.4 million in asset-based lending, partially offset by a decrease of $100.4 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.

Total end-of-period deposits increased 1% to $5.95 billion at June 30, 2026, from $5.89 billion at September 30, 2025, primarily driven by an increase in noninterest-bearing deposits of $84.7 million, partially offset by a decrease in money market deposits of $44.2 million.

The Company's total borrowings increased from $42.5 million at September 30, 2025 to $201.0 million at June 30, 2026, driven by an increase in short-term borrowings of $158.5 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.

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.

At June 30, 2026, the Company’s stockholders’ equity totaled $851.1 million, a decrease of $6.3 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.

The Company and Bank remained above the federal regulatory minimum capital requirements at June 30, 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.

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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

(Dollars in thousands) June 30, 2026 September 30, 2025

Noninterest-bearing deposits $ 5,991,476 $ 5,886,873

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

As of March 31, 2026, the Company managed $1.07 billion of customer deposits at other banks in its capacity as custodian.

As of June 30, 2026, the Company managed $575.0 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.

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

Three Months Ended March 31,

Three Months Ended June 30,

(Dollars in thousands) Average

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Total cost of deposits (a+b) 6,173,468 140 0.01 % 6,002,547 287 0.02 %

(1) Tax rate used to arrive at the TEY for the three months ended March 31, 2026 and 2025 was 21%.

(1) Tax rate used to arrive at the TEY for the three months ended June 30, 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.

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

Six Months Ended March 31,

Nine Months Ended June 30,

(Dollars in thousands) Average

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Total cost of deposits (a+b) 6,453,023 4,620 0.14 % 6,417,667 5,147 0.16 %

(1) Tax rate used to arrive at the TEY for the six months ended March 31, 2026 and 2025 was 21%.

(1) Tax rate used to arrive at the TEY for the nine months ended June 30, 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.

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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.

The Company reported net income of $29.0 million, or earnings per diluted share of $1.37, for the three months ended June 30, 2026, compared to net income of $42.1 million, or earnings per diluted share of $1.81, for the three months ended June 30, 2025.

The Company reported net income of $137.0 million, or earnings per diluted share of $6.29, for the nine months ended June 30, 2026, compared to net income of $147.1 million, or earnings per diluted share of $6.17, for the nine months ended June 30, 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.

Net interest income for the third quarter of fiscal 2026 was $112.9 million, a decrease of 8% compared to the same quarter in fiscal 2025.

The decrease was primarily driven by an $11.6 million reduction in interest income on the consumer finance portfolio.

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.

Partially offsetting that decrease, interest income from commercial finance loans and leases increased $6.1 million year-over-year as the Company continues to have strong originations.

For the nine months ended June 30, 2026, net interest income was $357.4 million, a decrease of 7% compared to the same period in the prior fiscal year.

The Company’s average interest-earning assets for the third quarter of fiscal 2026 increased by $273.8 million to $6.88 billion compared to the same quarter in fiscal 2025 due to increases in the average outstanding balances in total loans and leases and cash and fed fun ds sold.

The increase was partially offset by a decrease in the average outstanding balance of total investments.

The third quarter average outstanding balance of loans and leases increased $406.2 million compared to the same quarter of the prior fiscal year due to an increase in the commercial finance portfolio, partially offset by decreases in the consumer finance portfolio and warehouse finance portfolio.

Fiscal 2026 third quarter NIM decreased to 6.59% from 7.43% in the third 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 86 basis points to 6.66% compared to the prior year quarter.

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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.

For the nine months ended June 30, 2026, NIM was 6.72%, a decrease of 58 basis points from 7.30% compared to the same period in the prior fiscal year.

The Company's cost of funds for all deposits and borrowings averaged 0.07% during the fiscal 2026 third quarter, as compared to 0.08% during the prior year quarter.

The Company's overall cost of deposits was 0.01% in the fiscal third quarter of 2026, as compared to 0.02% 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.

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.

The Company recognized a provision for credit losses of $28.3 million for the quarter ended June 30, 2026, compared to $9.3 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 provision of $22.6 million, partially offset by decreases in the consumer finance portfolio provision of $3.0 million and in the tax services portfolio provision of $1.3 million.

The increase in the provision in the commercial finance portfolio was primarily driven by specific reserves on two loans and an increase in the current expected credit loss ("CECL") reserve.

The Company recognized net charge-offs of $16.0 million for the quarter ended June 30, 2026, of which $15.9 million was attributable to the commercial finance portfolio.

Net charge-offs of $6.1 million for the quarter ended June 30, 2025, comprised of $5.8 million within the consumer finance portfolio and $1.7 million within the commercial finance portfolio, while net recoveries of $1.4 million were recognized in the seasonal tax services portfolio.

The Company recognized a provision for credit losses of $77.2 million for the nine months ended June 30, 2026, compared to $63.2 million for the comparable period in the prior fiscal year.

The increase was primarily due to an increase in provision for credit losses in the commercial finance portfolio of $34.1 million, partially offset by a decrease in the consumer finance portfolio provision of $15.2 million.

The Company recognized net charge-offs of $19.7 million for the nine months ended June 30, 2026, compared to net charge-offs of $28.8 million for the nine months ended June 30, 2025.

Net charge-offs attributable to the commercial finance portfolio and the consumer finance portfolio for the nine months ended June 30, 2026 were $29.1 million and $3.7 million, respectively, while net recoveries of $13.1 million were recognized in the tax services portfolio.

Net charge-offs attributable to the commercial finance portfolio and the consumer finance portfolio were $16.6 million and $19.8 million, respectively, for the same nine months of the prior year, while net recoveries of $7.7 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.

Fiscal 2026 third quarter noninterest income increased 4% to $76.7 million, compared to $73.4 million for the same period of the prior year.

The increase was driven by increases in secondary market revenue as the Company was able to catch up on sales as government agencies cleared earlier-year backlogs, higher refund transfer product fees, and other income.

This was partially offset by decreases in rental income and card and deposit fees.

Servicing fee income on custodial deposits totaled $7.5 million during the 2026 fiscal third quarter, as compared to $7.9 million for the same period of the prior year.

Noninterest income for the nine months ended June 30, 2026 increased to $281.7 million from $269.3 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.

Noninterest expense decreased 7% to $129.1 million in the third quarter of fiscal 2026, compared to $139.3 million for the same quarter last year.

The decrease was primarily attributable to reductions in card processing expense and lower legal and consulting expense.

These decreases were partially offset by increases in compensation and benefits and building and software expenses that directly correlate to the execution of the Company's long-term strategy, particularly investments in people, processes, and technology.

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

Approximately 68% of the deposit portfolio was subject to these rate-related processing expenses during the fiscal 2026 third quarter.

For the fiscal quarter ended June 30, 2026, contractual, rate-related processing expense was $23.3 million, as compared to $25.1 million for the fiscal quarter ended June 30, 2025.

Noninterest expense for the nine months ended June 30, 2026 decreased to $399.8 million from $415.3 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.

The Company recorded an income tax expense of $3.1 million, representing an effective tax rate of 9.5%, for the fiscal 2026 third quarter, compared to an income tax expense of $4.8 million, representing an effective tax rate of 10.2%, for the third quarter last fiscal year.

The current quarter decrease in income tax expense compared to the prior year quarter was primarily driven by a decrease in income.

The Company originated $5.3 million in renewable energy leases during the fiscal 2026 third quarter, resulting in $1.4 million in total net investment tax credits.

During the third quarter of fiscal 2025, the Company originated $2.1 million in renewable energy leases resulting in $0.2 million in total net investment tax credits.

For the nine months ended June 30, 2026, the Company originated $32.9 million in renewable energy leases, compared to $13.3 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.

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.

The Company recorded an income tax expense of $24.4 million, representing an effective tax rate of 15.1% for the nine months ended June 30, 2026, compared to an income tax expense of $27.0 million, or an effective tax rate of 15.4%, for the nine months ended June 30, 2025.

Asset Quality

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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;

The Company believes that the level of allowance for credit losses at June 30, 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.

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

(Dollars in thousands) March 31, 2026 September 30, 2025

(Dollars in thousands) June 30, 2026 September 30, 2025

Nonperforming Loans and Leases

14 unchanged sentences

(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.

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.

The Company's nonperforming assets at June 30, 2026 were $277.5 million, representing 3.79% 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 June 30, 2026 compared to September 30, 2025, was driven by an increase in nonperforming loans in the commercial finance and consumer finance portfolios.

The Company's nonperforming loans and leases at June 30, 2026 were $275.1 million, representing 5.28% of total gross loans and leases, compared to $99.1 million, or 2.05% of total gross loans and leases at September 30, 2025.

The primary reason for the increase in nonperforming commercial finance loans was related to certain renewable energy construction projects with a common developer.

The Company continues to work with other parties in these projects to bring them to completion.

Classified Assets .

6 unchanged sentences

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.

On the basis of management’s review of its loans, leases, and other assets, at June 30, 2026, the Company had classified loans and leases of $370.3 million as substandard, $21.2 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.

7 unchanged sentences

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.

The Company's ACL totaled $109.8 million at June 30, 2026, an increase compared to $53.3 million at September 30, 2025.

The increase in the ACL at June 30, 2026, when compared to September 30, 2025, was primarily due to increases of $30.1 million in the allowance related to the seasonal tax services portfolio and $27.6 million in the allowance related to the commercial finance portfolio.

The increase in the ACL in the commercial finance portfolio was primarily driven by specific reserves on two loans and an increase in the CECL reserve.

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

June 30, 2026 March 31, 2026 December 31, 2025 September 30, 2025 June 30, 2025

Commercial finance 1.71 % 1.36 % 1.16 % 1.18 % 1.27 %

4 unchanged sentences

Total loans and leases excluding tax services 1.57 % 1.31 % 1.17 % 1.14 % 1.60 %

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 Company's ACL as a percentage of total loans and leases increased to 2.15% at June 30, 2026 from 1.14% at September 30, 2025 and decreased from 2.23% at June 30, 2025.

The increase in the total loans and leases coverage ratio from September 30, 2025 was primarily driven by increases in the ACL related to the commercial finance portfolio and the tax services portfolio.

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 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.

6 unchanged sentences

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.

There were no significant changes to these critical accounting policies and estimates during the first nine months of fiscal 2026.

LIQUIDITY AND CAPITAL RESOURCES

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

At March 31, 2026, the Company had unfunded loan and lease commitments of $1.55 billion.

At June 30, 2026, the Company had unfunded loan and lease commitments of $1.72 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 liquidity sources as of June 30, 2026 include $149.4 million in cash and cash equivalents and $575.0 million 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 $2.71 billion in total available liquidity as of June 30, 2026.

Due to the characteristics of the Company's deposit portfolio, uninsured deposits remained less than 15% of total deposits during the fiscal 2026 third 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").

2 unchanged sentences

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.

At June 30, 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;

4 unchanged sentences

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

March 31, 2026

June 30, 2026

Tier 1 leverage capital ratio 9.66 % 9.91 % 4.00 % 5.00 %

9 unchanged sentences

Standardized Approach (1)

(Dollars in thousands) March 31, 2026 September 30, 2025

(Dollars in thousands) June 30, 2026 September 30, 2025

Total stockholders' equity $ 851,146 $ 857,454

21 unchanged sentences

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.

There were no material changes outside the ordinary course of our business in contractual obligations from September 30, 2025 through June 30, 2026.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis