Pathward Financial, Inc. Announces Results for 2026 Fiscal Third Quarter

SIOUX FALLS, S.D.--(BUSINESS WIRE)--Pathward Financial, Inc. (“Pathward Financial” or the “Company”) (Nasdaq: CASH), a U.S.-based financial holding company driven by its purpose to power financial inclusion for all, today reported its unaudited results for the 2026 fiscal third quarter. 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.

CEO Brett Pharr said, "We saw changes in our credit performance this quarter primarily as a result of a few larger loans, one of which we began discussing last year. While this is certainly a disappointing outcome, credit events can and do occur in the world of lending. It’s unfortunate that these events occurred within an otherwise solid performing quarter and year thus far. During the quarter, we delivered higher interest income from commercial finance loans, higher noninterest income, and disciplined expense management that prioritized the execution of our strategy with an emphasis on people, processes and technology. We remain focused on supporting our partners and advancing our long-term strategy of being the trusted platform that enables our partners to thrive."

Company Highlights

• 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.

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

Tax Season

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 Company is very pleased with the performance in Tax Services during fiscal 2026, which was the result of significant work to grow this 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 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 $0.9 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.

Net Interest Income

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 $6.1 million year-over-year as the Company continues to have strong originations.

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 funds 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 net interest margin ("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. When including contractual, rate-related processing expense associated with deposits on the Company's balance sheet and excluding the gross interest income on consumer finance loans, NIM would have been 5.27% in the fiscal 2026 third quarter compared to 5.33% during the fiscal 2025 third quarter. See non-GAAP reconciliation table at the end of the press release. 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. The yield on the loan and lease portfolio was 7.99% compared to 9.33% for the comparable period last year and the TEY on the securities portfolio was 3.00% compared to 3.10% 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.

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. When including contractual, rate-related processing expense associated with deposits on the Company's balance sheet, the Company's overall cost of deposits was 1.43% in the fiscal 2026 third quarter, a decrease from 1.61% during the prior year quarter primarily reflecting a lower rate environment. See non-GAAP reconciliation table at the end of the press release.

Noninterest Income

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 $7.8 million for the fiscal quarter ended March 31, 2026, and $7.9 million for the same period of the prior year.

Noninterest Expense

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 effective federal funds rate ("EFFR") and reprices immediately upon a change in the EFFR. 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 $25.4 million for the fiscal quarter ended March 31, 2026, and $25.1 million for the fiscal quarter ended June 30, 2025.

Income Tax Expense

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's investment security balances at June 30, 2026 totaled $1.25 billion, as compared to $1.30 billion at March 31, 2026 and $1.40 billion at June 30, 2025. The year-over-year decrease was primarily related to normal paydown activity of investment security balances and the sale of investment securities available-for-sale during the fourth quarter of fiscal 2025.

Total gross loans and leases totaled $5.11 billion at June 30, 2026, as compared to $4.87 billion at March 31, 2026 and $4.74 billion at June 30, 2025. The drivers for the sequential quarter increase were increases in the commercial finance, warehouse finance, and consumer finance portfolios, partially offset by the seasonal decrease in the tax services portfolio. The year-over-year increase was due to growth in the commercial finance portfolio, 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 and tax services portfolio.

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 $210.2 million, or 5%, from March 31, 2026 and an increase of $504.8 million, or 13%, from June 30, 2025. The sequential quarter increase in the commercial finance portfolio was driven by a $165.1 million increase in term lending, a $37.5 million increase in asset-based lending, and a $31.3 million increase in SBA/USDA, partially offset by a $24.2 million decrease in other commercial finance and a $6.3 million decrease in lease financing. The year-over-year increase was primarily driven by an increase of $663.3 million in term lending and an increase of $86.8 million in asset-based lending, partially offset by a decrease of $106.9 million in SBA/USDA and a decrease of $103.8 million in other commercial finance. These changes are primarily the result of the Company's efforts to maintain an optimized balance sheet.

Asset Quality

The Company’s allowance for credit losses ("ACL") totaled $109.8 million at June 30, 2026, an increase compared to $98.3 million at March 31, 2026 and an increase compared to $106.0 million at June 30, 2025. The sequential increase in the ACL was primarily due to an increase of $18.0 million in the allowance related to the commercial finance portfolio, partially offset by a $5.2 million decrease in the allowance related to the seasonal tax portfolio, and a $1.4 million decrease in the allowance related to the consumer 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 current expected credit loss ("CECL") reserve.

The $3.8 million year-over-year increase in the ACL was primarily driven by a $25.4 million increase in the allowance related to the commercial finance portfolio, partially offset by a decrease in the allowance related to the consumer finance portfolio of $21.3 million.

The following table presents the Company's ACL as a percentage of its total loans and leases.

The Company's ACL as a percentage of total loans and leases increased to 2.15% at June 30, 2026 from 2.02% at March 31, 2026 and decreased from 2.23% at June 30, 2025. The sequential increase in the total loans and leases coverage ratio was primarily driven by an increase in the ACL related to the commercial finance 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 aforementioned sale of 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.

Activity in the ACL for the periods presented was as follows.

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 of $22.6 million, partially offset by decreases in the consumer finance portfolio of $3.0 million and in the tax services portfolio 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 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 were $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's past due loans and leases were as follows for the periods presented.

The Company's nonperforming assets at June 30, 2026 were $277.5 million, representing 3.79% of total assets, compared to $119.8 million, or 1.68% of total assets at March 31, 2026 and $74.7 million, or 1.03% of total assets at June 30, 2025.

The increase in the nonperforming assets as a percentage of total assets at June 30, 2026, compared to March 31, 2026, was driven by an increase in nonperforming loans in the commercial finance and consumer finance portfolios. When comparing the current period to the same period of the prior year, the increase was driven by an increase in nonperforming loans in the commercial finance portfolio, partially offset by a decrease in nonperforming loans in the consumer finance portfolio.

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 $117.7 million, or 2.39% of total gross loans and leases at March 31, 2026 and $71.3 million, or 1.49% of total gross loans and leases at June 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.

Deposits, Borrowings and Other Liabilities

The average balance of total deposits and interest-bearing liabilities was $6.25 billion for the quarter ended June 30, 2026, compared to $6.07 billion for the same period in the prior fiscal year. Total average deposits for the fiscal 2026 third quarter increased by $170.9 million to $6.17 billion compared to the same period in fiscal 2025. The increase in average deposits was primarily due to increases in noninterest-bearing deposits and money market deposits.

Total end-of-period deposits decreased 1% to $5.95 billion at June 30, 2026, from $6.01 billion at June 30, 2025. The decrease in end-of-period deposits was primarily driven by a decrease in noninterest-bearing deposits of $65.4 million, partially offset by an increase in interest-bearing checking deposits of $18.8 million.

As of June 30, 2026, the Company managed $575.0 million of customer deposits at other banks in its capacity as custodian, compared to $1.07 billion as of March 31, 2026 and $430.7 million as of June 30, 2025. These deposits provide the Company with the ability to earn servicing fee income, typically reflective of the EFFR.

Regulatory Capital

The Company and its subsidiary Pathward®, N.A. (the "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. Regulatory capital ratios of the Company and the Bank are stated in the table below. Regulatory capital is not affected by the unrealized loss on accumulated other comprehensive income (“AOCI”). The securities portfolio is primarily comprised of amortizing securities that should provide consistent cash flow.

The tables below include 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 analysis.

Investor Relations Contact
Darby Schoenfeld, CPA
SVP, Chief of Staff & Investor Relations
877-497-7497
investorrelations@pathward.com

Media Relations Contact
mediarelations@pathward.com