Pathward Financial(CASH) - 2025 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's condensed consolidated financial statements, notes, and management's discussion Item 1. Financial Statements This item presents the company's condensed consolidated financial statements Condensed Consolidated Statements of Financial Condition Total assets decreased by 7.14% to $6.99 billion, primarily due to reduced securities and loans held for sale | Metric | March 31, 2025 (in thousands) | September 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :--------- | | Total assets | $6,994,786 | $7,532,017 | $(537,231) | -7.13% | | Cash and cash equivalents | $254,249 | $158,337 | $95,912 | 60.58% | | Securities available for sale | $1,411,520 | $1,741,221 | $(329,701) | -18.93% | | Loans held for sale | $45,767 | $691,688 | $(645,921) | -93.38% | | Loans and leases | $4,464,870 | $4,075,195 | $389,675 | 9.56% | | Total liabilities | $6,180,739 | $6,709,828 | $(529,089) | -7.88% | | Deposits | $5,819,209 | $5,875,085 | $(55,876) | -0.95% | | Short-term borrowings | $— | $377,000 | $(377,000) | -100.00% | | Total stockholders' equity | $814,047 | $822,189 | $(8,142) | -0.99% | Condensed Consolidated Statements of Operations Net income attributable to the parent increased by 7.21%, driven by higher net interest and noninterest income | Metric (in thousands, except EPS) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :-------------------------------- | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Net interest income | $136,279 | $128,634 | $7,645 | 5.94% | | Provision for credit loss | $35,266 | $29,744 | $5,522 | 18.57% | | Total noninterest income | $138,524 | $128,945 | $9,579 | 7.43% | | Total noninterest expense | $148,177 | $140,742 | $7,435 | 5.28% | | Net income attributable to parent | $74,957 | $69,918 | $5,039 | 7.21% | | Basic EPS | $3.16 | $2.74 | $0.42 | 15.33% | | Diluted EPS | $3.14 | $2.74 | $0.40 | 14.60% | | Metric (in thousands, except EPS) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :-------------------------------- | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Net interest income | $261,528 | $247,561 | $13,967 | 5.64% | | Provision for credit loss | $53,927 | $37,502 | $16,425 | 43.80% | | Total noninterest income | $195,902 | $181,706 | $14,196 | 7.81% | | Total noninterest expense | $275,973 | $261,819 | $14,154 | 5.41% | | Net income attributable to parent | $104,923 | $104,817 | $106 | 0.10% | | Basic EPS | $4.37 | $4.07 | $0.30 | 7.37% | | Diluted EPS | $4.35 | $4.07 | $0.28 | 6.88% | Condensed Consolidated Statements of Comprehensive Income (Loss) Total comprehensive income attributable to the parent significantly increased to $99.6 million | Metric (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :------------------------------------------ | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Net income before noncontrolling interest | $75,194 | $70,167 | $5,027 | 7.17% | | Change in net unrealized gain (loss) on debt securities | $25,517 | $(23,414) | $48,931 | -208.90% | | Total other comprehensive income (loss) | $24,606 | $(18,137) | $42,743 | -235.67% | | Comprehensive income attributable to parent | $99,563 | $51,781 | $47,782 | 92.28% | | Metric (in thousands) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :------------------------------------------ | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Net income before noncontrolling interest | $105,359 | $105,323 | $36 | 0.03% | | Change in net unrealized gain (loss) on debt securities | $(36,823) | $65,121 | $(101,944) | -156.54% | | Total other comprehensive income (loss) | $(12,917) | $48,873 | $(61,790) | -126.43% | | Comprehensive income attributable to parent | $92,006 | $153,690 | $(61,684) | -40.13% | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity slightly decreased due to common stock repurchases and increased comprehensive loss | Metric (in thousands) | Balance, September 30, 2024 (As Restated) | Balance, March 31, 2025 | Change (in thousands) | % Change | | :-------------------------------- | :---------------------------------------- | :---------------------- | :-------------------- | :--------- | | Total stockholders' equity | $822,189 | $814,047 | $(8,142) | -0.99% | | Cash dividends declared | N/A | $(2,392) | N/A | N/A | | Repurchases of common stock | N/A | $(102,447) | N/A | N/A | | Stock compensation | N/A | $5,072 | N/A | N/A | | Total other comprehensive loss | N/A | $(12,917) | N/A | N/A | | Net income | N/A | $104,923 | N/A | N/A | Condensed Consolidated Statements of Cash Flows The Company saw a net increase in cash and cash equivalents, driven by investing activities | Metric (in thousands) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :------------------------------------ | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Net cash provided by operating activities | $116,593 | $232,510 | $(115,917) | -49.85% | | Net cash provided by investing activities | $507,816 | $1,995 | $505,821 | 25354.44% | | Net cash used in financing activities | $(526,458) | $(262,236) | $(264,222) | 100.76% | | Net change in cash and cash equivalents | $95,912 | $(27,692) | $123,604 | -446.35% | | Cash and cash equivalents at end of period | $254,249 | $347,888 | $(93,639) | -26.92% | Notes to Condensed Consolidated Financial Statements This section provides detailed notes on accounting policies, divestitures, securities, and loans NOTE 1. BASIS OF PRESENTATION Interim financial statements adhere to U.S. GAAP and SEC rules, with reclassifications not affecting net income - Interim financial statements prepared under U.S. GAAP and SEC rules, with all necessary adjustments[27] - Reclassification of "Gain (Loss) on Sale of Loans and Leases" to "Secondary Market Revenue" for interim period ending March 31, 2025, with no impact on previously reported net income or financial condition[28] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED ACCOUNTING STANDARDS UPDATES ("ASU") Significant accounting policies are largely unchanged, with ASU 2023-07 effective and other ASUs pending - ASU 2023-07 (Segment Reporting) effective October 1, 2024, improves reportable segment disclosures but does not impact consolidated financial statements[29] - ASU 2023-09 (Income Taxes) effective October 1, 2025, requires enhanced income tax disclosures[31] - ASU 2024-03 (Expense Disaggregation) effective October 1, 2027, requires specified expense disaggregation disclosures[32][33] NOTE 3. DIVESTITURES The Company completed the sale of its commercial insurance premium finance business, recognizing a $15.0 million pre-tax gain - Completed sale of commercial insurance premium finance business on October 31, 2024[34] | Metric (in thousands) | Value | | :-------------------- | :---- | | Purchase price | $611,513 | | Premium on transaction | $31,200 | | Gain on divestitures | $15,044 | - Settlement adjustments during Q2 fiscal 2025 resulted in a $1.4 million decrease in the previously recognized gain[34] NOTE 4. SECURITIES The fair value of debt securities AFS decreased to $1.41 billion, driven by $217.9 million in sales | Security Type | March 31, 2025 (Fair Value, in thousands) | September 30, 2024 (Fair Value, in thousands) | Change (in thousands) | % Change | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------- | :--------- | | Total debt securities AFS | $1,411,520 | $1,741,221 | $(329,701) | -18.93% | | Total debt securities HTM | $26,492 | $30,236 | $(3,744) | -12.38% | | Gross Unrealized Losses (AFS) | $(217,398) | $(203,542) | $(13,856) | 6.81% | - Decrease in AFS securities driven by $217.9 million in sales to offset gains from divestitures and reposition the portfolio[37] - Management assessed all unrealized losses on AFS securities as due to adverse market conditions/interest rates, not credit loss, and does not intend to sell prior to recovery of amortized cost[37] NOTE 5. LOANS AND LEASES, NET Total gross loans and leases increased by 9.56% to $4.46 billion, with ACL increasing to $102.9 million | Loan Category (in thousands) | March 31, 2025 | September 30, 2024 | Change (in thousands) | % Change | | :--------------------------- | :------------- | :----------------- | :-------------------- | :--------- | | Total gross loans and leases | $4,464,870 | $4,075,195 | $389,675 | 9.56% | | Commercial finance | $3,524,755 | $3,295,599 | $229,156 | 6.95% | | Consumer finance | $246,202 | $248,800 | $(2,598) | -1.04% | | Tax services | $55,973 | $8,825 | $47,148 | 534.26% | | Warehouse finance | $643,124 | $517,847 | $125,277 | 24.19% | | Allowance for credit losses | $(102,890) | $(71,765) | $(31,125) | 43.37% | | ACL Activity (in thousands) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :-------------------------- | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Provision for credit losses | $53,771 | $37,031 | $16,740 | 45.21% | | Charge-offs | $(32,728) | $(31,186) | $(1,542) | 4.95% | | Recoveries | $10,082 | $8,582 | $1,500 | 17.48% | - Nonaccrual loans and leases increased to $36.0 million at March 31, 2025, from $26.4 million at September 30, 2024, primarily in commercial finance[71] NOTE 6. EARNINGS PER COMMON SHARE ("EPS") Basic EPS for the three months ended March 31, 2025, was $3.16, with diluted EPS at $3.14 | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 (As Restated) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | | :------------------------------------ | :-------------------------------- | :---------------------------------------------- | :-------------------------------- | :---------------------------------------------- | | Basic earnings per common share | $3.16 | $2.74 | $4.37 | $4.07 | | Diluted earnings per common share | $3.14 | $2.74 | $4.35 | $4.07 | | Total weighted-average basic common shares outstanding | 23,657,145 | 25,281,743 | 23,941,980 | 25,529,186 | | Total weighted-average diluted common shares outstanding | 23,776,023 | 25,311,144 | 24,039,020 | 25,555,656 | - Diluted EPS reflects the two-class method, as it was more dilutive than the treasury stock method[76] NOTE 7. RENTAL EQUIPMENT, NET Net book value of rental equipment slightly decreased to $202.2 million | Metric (in thousands) | March 31, 2025 | September 30, 2024 | Change (in thousands) | % Change | | :-------------------- | :------------- | :----------------- | :-------------------- | :--------- | | Net book value | $202,194 | $205,339 | $(3,145) | -1.53% | | Future Minimum Lease Payments (in thousands) | Amount | | :------------------------------------------- | :----- | | Remaining in 2025 | $21,322 | | 2026 | $36,044 | | 2027 | $27,855 | | 2028 | $19,116 | | 2029 | $12,939 | | Thereafter | $6,769 | | Total | $123,965 | NOTE 8. GOODWILL AND INTANGIBLE ASSETS Total goodwill decreased to $297.9 million due to $11.6 million derecognition | Metric (in thousands) | March 31, 2025 | September 30, 2024 | Change (in thousands) | % Change | | :-------------------- | :------------- | :----------------- | :-------------------- | :--------- | | Total goodwill | $297,928 | $309,505 | $(11,577) | -3.74% | - Goodwill derecognition of $11.6 million due to the sale of the commercial insurance premium finance business[80][81] | Intangible Asset (in thousands) | March 31, 2025 | September 30, 2024 | Change (in thousands) | % Change | | :------------------------------ | :------------- | :----------------- | :-------------------- | :--------- | | Total Intangible Assets | $14,064 | $16,589 | $(2,525) | -15.22% | NOTE 9. OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES Operating lease ROU assets and liabilities decreased, with a $0.5 million gain on remeasurement | Metric (in thousands) | March 31, 2025 | September 30, 2024 | Change (in thousands) | % Change | | :-------------------- | :------------- | :----------------- | :-------------------- | :--------- | | Operating lease ROU assets | $24,100 | $24,400 | $(300) | -1.23% | | Operating lease liabilities | $25,200 | $26,000 | $(800) | -3.08% | - Derecognition of lease ROU assets and liabilities from the commercial insurance premium finance business sale resulted in a $0.5 million gain on remeasurement[85] - Weighted-average remaining lease term for operating leases is 8.41 years at March 31, 2025[86] NOTE 10. STOCKHOLDERS' EQUITY The Company repurchased 1,277,664 common shares, with 5,722,336 remaining available - Repurchased 1,277,664 shares of common stock during the six months ended March 31, 2025, under share repurchase programs[87] - 5,722,336 shares of common stock remained available for repurchase as of March 31, 2025[88] - Repurchased 66,446 shares for employee tax withholding obligations during the six months ended March 31, 2025[89] NOTE 11. STOCK COMPENSATION The Company granted various stock awards and PSUs, with $11.7 million in unrecognized compensation | Award Type | Granted (Six Months Ended March 31, 2025) | Nonvested Outstanding (March 31, 2025) | | :-------------------- | :---------------------------------------- | :------------------------------------- | | Restricted Stock Awards | 15,600 | 83,546 | | Restricted Stock Units | 86,200 | 85,628 | | PSUs | 34,208 | 142,366 | - Unrecognized stock-based compensation expense of $11.7 million as of March 31, 2025, with a weighted average remaining recognition period of 1.78 years[97] NOTE 12. INCOME TAXES Income tax expense was $22.2 million, with an effective tax rate of 17.38% | Metric (in thousands) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :-------------------- | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Income tax expense | $22,171 | $24,623 | $(2,452) | -9.96% | | Effective tax rate | 17.38% | 18.95% | -1.57% | -8.28% | - The lower effective tax rate is primarily due to the effect of investment tax credits during fiscal year 2025[98] NOTE 13. REVENUE FROM CONTRACTS WITH CUSTOMERS Total revenue increased by 6.56% to $457.4 million, driven by refund transfer product fees | Revenue Category (in thousands) | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 (As Restated) | Change (in thousands) | % Change | | :------------------------------ | :-------------------------------- | :---------------------------------------------- | :-------------------- | :--------- | | Total Revenue | $457,430 | $429,267 | $28,163 | 6.56% | | Refund transfer product fees | $33,073 | $29,364 | $3,709 | 12.63% | | Refund advance and other tax fee income | $49,110 | $43,311 | $5,799 | 13.39% | | Card and deposit fees | $59,859 | $66,094 | $(6,235) | -9.43% | - Refund transfer fees are recognized immediately after the taxpayer's refund is disbursed[103] - Card and deposit fees are recognized as transactions occur or as services are performed[104][105] NOTE 14. SEGMENT REPORTING The Company reports across Consumer, Commercial, and Corporate Services/Other segments - Company operates through three reportable segments: Consumer (Partner Solutions), Commercial (Commercial Finance), and Corporate Services/Other (shared services, treasury, investment portfolio, warehouse finance, wholesale deposits, borrowings)[107] | Metric (in thousands) | Consumer (6M 2025) | Commercial (6M 2025) | Corporate Services/Other (6M 2025) | Total (6M 2025) | | :-------------------- | :----------------- | :------------------- | :--------------------------------- | :-------------- | | Net interest income | $156,694 | $85,280 | $19,554 | $261,528 | | Noninterest income | $147,629 | $39,357 | $8,916 | $195,902 | | Income (loss) before income tax expense | $141,533 | $46,932 | $(60,935) | $127,530 | | Total assets | $431,962 | $3,975,353 | $2,587,471 | $6,994,786 | | Total deposits | $5,633,529 | $140 | $185,540 | $5,819,209 | NOTE 15. FAIR VALUES OF FINANCIAL INSTRUMENTS Financial instruments are measured using a fair value hierarchy, with debt securities AFS primarily Level 2 - Fair value hierarchy categorizes inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[110][111] - Debt securities AFS are primarily Level 2, and marketable equity securities are Level 1[112][113] | Financial Instrument (in thousands) | March 31, 2025 (Fair Value) | September 30, 2024 (Fair Value) | | :---------------------------------- | :-------------------------- | :------------------------------ | | Debt securities available for sale | $1,411,520 | $1,741,221 | | Loans and leases | $4,418,831 | $4,036,490 | | Deposits | $5,819,118 | $5,874,994 | NOTE 16. SUBSEQUENT EVENTS Management identified no material subsequent events requiring recognition or disclosure - No material subsequent events identified after March 31, 2025, up to the filing date[121] NOTE 17. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS The Company restated its unaudited historical condensed consolidated financial statements to correct accounting errors - Restatement of unaudited historical condensed consolidated financial statements for March 31, 2024[122] - Corrections for errors in allowance for credit losses, interest income, provision for credit losses, and noninterest expense[122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of financial condition and results FORWARD-LOOKING STATEMENTS This section contains forward-looking statements subject to significant risks and uncertainties - Forward-looking statements are based on current information and assumptions, subject to significant risks and uncertainties[125] - Key risk factors include maintaining executive management, realizing growth opportunities, geopolitical conflicts, inflation, interest rate changes, regulatory actions, and technological risks[125] - The Company disclaims any obligation to update or revise forward-looking statements[126] GENERAL Pathward Financial, Inc. is a NASDAQ-listed bank holding company, analyzing financial condition and results - Pathward Financial, Inc. is a registered bank holding company, and its common stock trades on NASDAQ under "CASH"[127][128] - Prior period financial information for March 31, 2024, has been restated as described in Note 17[129] EXECUTIVE SUMMARY Pathward, N.A. was Certified™ by Great Place to Work®, with Q2 fiscal 2025 highlights including a 29% increase in tax income - Pathward®, N.A. became Certified™ by Great Place to Work® for the third year in a row[130] | Metric | Six Months Ended March 31, 2025 | Six Months Ended March 31, 2024 | Change | % Change | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :------- | :--------- | | Total tax services product income (net) | $47.6 million | $36.9 million | $10.7 million | 29.00% | | Total revenue (Q2 fiscal) | $274.8 million | $257.6 million | $17.2 million | 6.68% | | Net Interest Margin (NIM) (Q2 fiscal) | 7.12% | 6.77% | 0.35% | 5.17% | | Gross loans and leases (March 31, 2025 vs March 31, 2024, excluding divested business) | $4.46 billion | $3.88 billion | $0.58 billion | 15.00% | - Repurchased 575,804 shares of common stock at an average price of $78.11 during Q2 fiscal 2025[131] FINANCIAL CONDITION Total assets decreased to $6.99 billion due to reduced loans held for sale and securities AFS | Metric (in millions) | March 31, 2025 | September 30, 2024 | Change | % Change | | :------------------- | :------------- | :----------------- | :----- | :--------- | | Total assets | $6,994.8 | $7,532.0 | $(537.2) | -7.13% | | Cash and cash equivalents | $254.2 | $158.3 | $95.9 | 60.58% | | Investment securities | $1,442.8 | $1,774.3 | $(331.5) | -18.68% | | Loans held for sale | $45.8 | $691.7 | $(645.9) | -93.38% | | Total gross loans and leases | $4,464.9 | $4,075.2 | $389.7 | 9.56% | | Commercial finance loans | $3,524.8 | $3,295.6 | $229.2 | 6.95% | | Total deposits | $5,819.2 | $5,875.1 | $(55.9) | -0.95% | | Total borrowings | $33.4 | $410.4 | $(377.0) | -91.86% | | Stockholders' equity | $814.0 | $822.2 | $(8.2) | -0.99% | - The increase in cash and cash equivalents was primarily due to proceeds from the sale of the commercial insurance premium finance business and debt securities AFS, partially offset by repayment of short-term borrowings[137] - The Company managed $1.12 billion of off-balance sheet custodial deposits at March 31, 2025, earning servicing fee income[150] RESULTS OF OPERATIONS Net income for Q2 fiscal 2025 increased to $75.0 million, with diluted EPS of $3.14 | Metric (in millions, except EPS) | Q2 Fiscal 2025 | Q2 Fiscal 2024 (Restated) | Change | % Change | | :------------------------------- | :------------- | :------------------------ | :----- | :--------- | | Net income | $75.0 | $69.9 | $5.1 | 7.21% | | Diluted EPS | $3.14 | $2.74 | $0.40 | 14.60% | | Net interest income | $136.3 | $128.6 | $7.7 | 5.99% | | Net Interest Margin (NIM) | 7.12% | 6.77% | 0.35% | 5.17% | | Provision for credit losses | $35.3 | $29.7 | $5.6 | 18.86% | | Noninterest income | $138.5 | $128.9 | $9.6 | 7.45% | | Noninterest expense | $148.2 | $140.7 | $7.5 | 5.33% | | Effective tax rate | 17.7% | 19.4% | -1.7% | -8.76% | - Average interest-earning assets increased by $122.2 million to $7.76 billion in Q2 fiscal 2025, driven by cash and loan/lease balances, partially offset by decreased investment securities[156] - Secondary market revenue, refund advance, and other tax product income, and refund transfer product fees primarily drove the increase in noninterest income[161] - Card and deposit fee income decreased due to lower quarterly average deposit balances at partner banks and reduced servicing fee income from lower EFFR[162] Asset Quality Nonperforming assets decreased to $41.6 million (0.59% of total assets) | Metric (in thousands) | March 31, 2025 | September 30, 2024 | Change (in thousands) | % Change | | :------------------------------------ | :------------- | :----------------- | :-------------------- | :--------- | | Total nonperforming assets | $41,618 | $43,033 | $(1,415) | -3.29% | | Total nonperforming loans and leases | $39,806 | $41,562 | $(1,756) | -4.22% | | Nonaccruing loans and leases | $36,049 | $26,412 | $9,637 | 36.49% | | Accruing loans 90+ days delinquent | $3,757 | $15,150 | $(11,393) | -75.20% | | Classified loans & leases: Substandard | $202,900 | $180,900 | $22,000 | 12.16% | | Classified loans & leases: Doubtful | $5,000 | $10,300 | $(5,300) | -51.46% | | Allowance for Credit Losses (ACL) | $102,900 | $71,800 | $31,100 | 43.32% | - The decrease in nonperforming assets was primarily driven by a decrease in nonperforming loans in the seasonal tax services portfolio[174] - ACL as a percentage of total loans and leases increased to 2.30% at March 31, 2025, from 1.76% at September 30, 2024, due to seasonality in tax services and consumer finance portfolios[183] CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company's critical accounting policies and estimates remained without significant changes - No significant changes to critical accounting policies and estimates during the first six months of fiscal 2025[184] LIQUIDITY AND CAPITAL RESOURCES The Company's total available liquidity exceeded $3.89 billion, and both the Company and Bank remain well-capitalized - Primary sources of funds are deposits, borrowings, and payments on loans/securities[185] - Total available liquidity was over $3.89 billion at March 31, 2025, including cash, off-balance sheet custodial deposits, and FHLB/FRB access[186] - Uninsured deposits remained less than 15% of total deposits during Q2 fiscal 2025[186] | Capital Ratio | Company (March 31, 2025) | Bank (March 31, 2025) | Minimum to be Well Capitalized | | :------------------------ | :----------------------- | :-------------------- | :----------------------------- | | Tier 1 leverage capital ratio | 8.32% | 8.52% | 5.00% | | Common equity Tier 1 capital ratio | 13.64% | 14.25% | 6.50% | | Tier 1 capital ratio | 13.91% | 14.25% | 8.00% | | Total capital ratio | 15.57% | 15.51% | 10.00% | - The Company and Bank exceeded federal regulatory minimum capital requirements and were classified as well-capitalized at March 31, 2025[188] CONTRACTUAL OBLIGATIONS No material changes occurred to contractual obligations outside the ordinary course of business - No material changes to contractual obligations from September 30, 2024, through March 31, 2025[195] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item discusses the company's exposure to market risks, particularly interest rate risk Interest Rate Risk ("IRR") The Company actively manages interest rate risk using EAR and EVE analyses - The Company actively manages interest rate risk using Earnings at Risk (EAR) and Economic Value of Equity (EVE) analyses[203][205] | Scenario (March 31, 2025) | Net Interest Income (in thousands) | Percentage Change from Base | | :------------------------ | :--------------------------------- | :-------------------------- | | -200 bps parallel shift | $384,557 | -11.1% | | -100 bps parallel shift | $405,270 | -6.3% | | Base Case | $432,439 | —% | | +100 bps parallel shift | $459,790 | 6.3% | | +200 bps parallel shift | $485,814 | 12.3% | | Scenario (March 31, 2025) | Economic Value of Equity at Risk % Change from Base | | :------------------------ | :-------------------------------------------------- | | -200 bps parallel shift | -5.1% | | -100 bps parallel shift | -2.0% | | +100 bps parallel shift | 1.1% | | +200 bps parallel shift | 1.6% | - The economic value of equity position is expected to benefit from rising interest rates due to the large amount of noninterest-bearing funding[208] Item 4. Controls and Procedures This item addresses disclosure controls, material weaknesses, and internal control changes EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Management concluded disclosure controls were not effectively designed due to a material weakness - Disclosure controls and procedures were not effectively designed as of March 31, 2025[210] - A material weakness in internal control over financial reporting was identified[210] - Despite the material weakness, management believes the consolidated financial statements in this Form 10-Q fairly present the Company's financial position[211] REMEDIATION PLAN AND STATUS The Company is actively remediating the material weakness by engaging a consultant - Engaged a third-party technical accounting consultant to assist with identification, assessment, and accounting impacts for consumer lending program agreements[214] - Designed and is implementing a control enhancement for periodic review and validation of accounting policies for consumer lending program agreements[214] CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING No other material changes occurred in internal controls over financial reporting - No other material changes in internal controls over financial reporting during the second fiscal quarter, apart from the described material weakness and remediation[215] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings The Company has no material pending legal proceedings - No material pending legal proceedings or contemplated governmental proceedings[218] Item 1A. Risk Factors No material changes occurred to the risk factors - No material changes to risk factors during the six months ended March 31, 2025[219] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company repurchased 575,804 common shares, with 5,722,336 remaining available | Period (Fiscal 2025 Q2) | Total Number of Shares Purchased | Average Price Paid per Share | Shares Remaining Under Program | | :---------------------- | :------------------------------- | :--------------------------- | :----------------------------- | | January 1 to 31 | 305,900 | $76.80 | 5,992,240 | | February 1 to 28 | 269,904 | $79.59 | 5,722,336 | | March 1 to 31 | — | — | 5,722,336 | | Total | 575,804 | N/A | N/A | - 5,722,336 shares remained available for repurchase under the program as of March 31, 2025[222] Item 3. Defaults Upon Senior Securities This item is not applicable to the Company for the current reporting period - Not applicable[223] Item 4. Mine Safety Disclosures This item is not applicable to the Company for the current reporting period - Not applicable[225] Item 5. Other Information No directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangements - No adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or executive officers[227] Item 6. Exhibits Exhibits include Section 302 and 906 certifications and iXBRL financial information - Includes Section 302 and 906 certifications of Chief Executive Officer and Chief Financial Officer[229] - Financial information formatted in Inline Extensible Business Reporting Language (iXBRL) is provided[229] SIGNATURES The report is duly signed by Brett L. Pharr, CEO, and Gregory A. Sigrist, CFO - Report signed by Brett L. Pharr, CEO and Director, and Gregory A. Sigrist, EVP and CFO[233]