Pathward Financial NASDAQ: CASH reported third-quarter fiscal 2026 net income of $29 million, or $1.37 per diluted share, as executives said growth in Commercial Finance interest income and non-interest income was offset by elevated credit costs tied to a small number of loans.
CEO Brett Pharr said the quarter’s main outlier was credit, noting that Pathward recorded an increase in provision expense “largely driven by specific reserves on two loans and a CECL reserve build.” One of the loans had been discussed during last year’s June-quarter earnings call as moving to non-performing status with a potential workout path, while another was described as potentially associated with “a sophisticated fraud.”
“While this is certainly a disappointing outcome, credit events can and do occur in the world of lending,” Pharr said. “At this time, we believe these events are not indicative of a broader systemic issue within the portfolio.”
Credit issues drive provision increase
Pharr said Pathward’s non-performing loan ratio rose primarily because of renewable energy construction projects tied to a common developer. The company moved those loans to non-accrual status while it works with other parties to bring the projects to completion. Pharr said Pathward is not currently aware of other loans in its portfolio with a similar fact pattern.
During the question-and-answer portion of the call, Pharr said the non-performing renewable energy loans were associated with solar projects involving a single developer and multiple projects “in the process of assembly.” He said Pathward continues to participate in alternative energy lending, citing growing U.S. power demand, while evaluating sub-asset classes and adjusting its approach over time.
CFO Greg Sigrist said the majority of the quarter’s Commercial Finance provision was attributable to the two specific reserves and adjustments to the CECL reserve. He said the Commercial Finance credit provision totaled roughly $34 million, with about $28 million to $30 million tied to the issues discussed on the call. Sigrist said that represented about $1 per share of impact.
Sigrist also said roughly $100 million in past-due loans had come current since quarter-end. He said the larger loans discussed over the past year now have specific reserves established “as appropriate” to reflect expected proceeds.
Revenue trends show Commercial Finance growth
Pathward said its results reflected growth in core Commercial Finance, non-interest income and disciplined expense management. Sigrist said the October sale of the consumer finance portfolio reduced net interest income as expected because it eliminated grossed-up accounting for that portfolio.
Loans and leases at June 30 grew 8%, which Sigrist attributed to the company’s focus on “ensuring we have the right loans on the balance sheet.” Originations grew by $760 million in the quarter, primarily driven by growth in the Credit Solutions business from a new contract signed last year and expansion with current partners.
Net interest margin declined to 6.59%, while adjusted net interest margin was stable at 5.27%. Sigrist said new Commercial Finance loan production in the quarter carried a yield of 8.99%, compared with a loan portfolio yield of 7.42%, which he said creates potential tailwinds. He also said about $150 million of principal is expected to come off the securities portfolio over the next 12 months and could be recycled into higher-yielding assets.
Non-interest income increased 4% from the prior-year quarter. Sigrist highlighted the tax team’s performance, saying it generated nearly $2 million of year-over-year growth in total tax product revenue during the quarter as Pathward onboarded new tax offices and helped existing partners provide additional products.
Expenses decline, but technology and talent investment continues
Non-interest expense improved in the quarter, which Sigrist attributed to lower card processing expense and lower legal and consulting expenses. Those reductions were partially offset by spending tied to the company’s strategy, including investments in people, culture and technology.
Pharr said Pathward continues to focus on five strategic areas: maintaining an optimized balance sheet, using technology to support evolution and scalability, people and culture, risk and compliance infrastructure, and client experience. He noted that Pathward was named by U.S. News & World Report as one of the best companies to work for for 2026-2027 and was included on TIME’s inaugural list of America’s Best Companies 2026.
On technology, Pharr said Pathward has been building technology, risk and compliance capabilities to support a scalable platform. In response to an analyst question about artificial intelligence, he said the company already had a “very robust engineering department” because certain capabilities needed to be built internally, adding that AI could accelerate the company’s inclination to build rather than buy.
Partner Solutions pipeline remains active
Pharr said Pathward continues to see a “full” pipeline in its banking-as-a-service and Partner Solutions businesses, with both new partner opportunities and expansion opportunities. He said the company is being selective in choosing partners and that some new arrangements may generate revenue quickly, while others may contribute more meaningfully in fiscal 2027 and 2028.
After quarter-end, Pathward signed a contract extension with Clair, which Pharr described as an early wage access partner. Executives also pointed to opportunities in acquiring, money movement and government-guaranteed lending, including potential SBA-related opportunities.
Asked whether credit issues had affected partner conversations, Pharr said there was no connection between the credit book and the company’s payment solutions partners. “Those conversations are going well,” he said.
Guidance updated for fiscal 2026 and introduced for 2027
Pathward updated its fiscal 2026 diluted EPS guidance to a range of $7.80 to $8.20. The forecast assumes no additional rate changes during the year, an effective tax rate of 16% to 18% and expected share repurchases.
The company also introduced fiscal 2027 diluted EPS guidance of $9.50 to $10. The assumptions include no rate changes during the year, an effective tax rate of 18% to 22%, secondary market revenue of $5 million to $7 million per quarter and expected share repurchases equal to about 70% to 80% of net income.
Sigrist said factors that could push fiscal 2027 results toward the top of the range include faster ramping by new partners and continued strength in Credit Solutions volumes. He said unforeseen credit issues would be the main factor that could pressure results toward the lower end of the range.
As of June 30, Pathward reported $2.7 billion in liquidity. During the quarter, the company repurchased about 304,000 shares at an average price of $92.18, leaving 3.1 million shares available under its current repurchase program.
About Pathward Financial (NASDAQ:CASH)
Pathward Financial NASDAQ: CASH is a U.S.-based financial services company that operates through its wholly owned subsidiary, Pathward Bank. The company provides a range of banking and payment solutions designed for consumers, small businesses, community banks and fintech partners. Core offerings include deposit accounts, consumer and commercial lending, debit and prepaid card programs, digital banking platforms and treasury management services.
Through its banking charter, Pathward Financial delivers customizable payment solutions, including prepaid cards, payroll cards and benefit disbursement programs.
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