Pathward Financial (NASDAQ:CASH) released second-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.
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View the webcast at https://events.q4inc.com/attendee/222526753
Summary
Pathward Financial reported strong financial performance with net income of $72.9 million and EPS of $3.35 for Q2 FY2026. Non-interest income increased by 9%, driven by tax services and core card and deposit fees.
The company maintained its EPS guidance range of $8.55 to $9.05, highlighting continued success in tax services and a record number of independent tax offices.
Strategically, Pathward Financial focuses on asset rotation, investment in technology, and maintaining a strong risk and compliance framework. The company announced a three-year extension with Taba Pay post-quarter.
Operationally, the company saw a 13% increase in tax product revenue, with strong performance in refund transfer and refund advance products. They also reported favorable loss rates on refund advances.
The company prioritized share buybacks as the best use of capital, repurchasing approximately 855,000 shares in the quarter.
Despite a slight increase in non-performing loans, the company remains confident in a stable credit environment, with strong liquidity and a healthy loan pipeline.
Full Transcript
OPERATOR
Fiscal year 2026 Investor Conference Call during the presentation, all participants will be in a listen only mode. Following the prepared remarks, we will conduct a question and answer session. As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Darby Schoenfeld, Senior Vice President, Chief of Staff and Investor Relations. Please go ahead.
Darby Schoenfeld (Senior Vice President, Chief of Staff and Investor Relations)
Thank you Operator and welcome. With me today are Pafford Financial CEO Brett Farr and CFO Greg Sigris who will discuss our operating and financial results for the second quarter of fiscal year 2026, after which we will take your questions. Additional information including the earnings release, the investor presentation that accompanies our prepared remarks and supplemental slides may be found on our website@pathwardfinancial.com As a reminder, our comments may include forward looking statements. Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The Company undertakes no obligation to update any forward looking statements. Please refer to the cautionary language in the Earnings Release investor Presentation and in the Company’s filings with the securities and Exchange Commission, including our most recent filings, for additional information covering factors that could cause actual and anticipated results to change differ materially from the forward looking statements. Additionally, today we will be discussing certain non GAAP financial measures on this conference call. References to non GAAP measures are only provided to assist you in understanding the Company’s results and performance trends, particularly in competitive analysis. In order to make our adjusted net interest margin as comparable as possible, we have excluded the impact of the gross accounting methodology on our consumer loans and included contractual rate related processing expenses associated with deposits on the Company’s balance sheet. The historical numbers in the earnings presentation has also been updated to reflect this reconciliation for such non GAAP measures are included in the earnings Release and the appendix of the Investor presentation. Finally, all time periods referenced are fiscal quarters and fiscal years and all comparisons are to the prior year period unless otherwise noted. Now let me turn the call over to Brett Farr, our CEO.
Brett Farr (Chief Executive Officer)
Thanks Darby and welcome everyone to our Earnings Conference call. At the midpoint of our fiscal year, we continue to make good progress on our goals and execute on our long term strategy being the trusted platform that enables our partners to thrive. Our tax season is going very well with tax related products leading the way in revenue growth for the quarter. Additionally, new and existing partnerships announced last year are developing nicely and the partner solutions pipeline remains robust. Net interest income from our commercial finance loans also increased significantly as well. All in all, our core businesses remain healthy and we are pleased with the results achieved in the quarter. Continuing with some highlights, we reported net income of $72.9 million and earnings per diluted share of $3.35. Non interest income in the quarter grew 9% and represented 55% of our total revenue. This was primarily accomplished through numerous successes within tax Services and further supported by growth in our core card and deposit fees. Return metrics were also strong for the first six months of the year with return on average assets of 2.75% and return on average tangible equity of 40.69%. Just a reminder that these metrics generally hit their high point during this quarter due to the seasonality of the tax business. Finally, we are maintaining our guidance range of $8.55 to $9.05 earnings per diluted share. Our investments within Tax Services are paying off and we are very proud of all that the team was able to accomplish not only this quarter, but also in the planning and preparation that was undertaken to achieve the results that you see today. This year we operated with over 48,000 independent tax offices, which is another record for us and nearly double the number of offices from just five years ago. We are thankful to have cultivated such strong relationships with our existing tax partners and independent tax offices as well as new ones that have come on board. It is incredibly important to us, especially given the competitive nature of the space that they trust our people and the level of service they receive. We hope to inspire financial confidence and empower more people to navigate the tax system with clarity. Tax season can be the most significant financial event of the year for many families and through our products we aim to help individuals make informed decisions about their finances. This focus on empowering taxpayers and delivering transparent solutions drove increased engagement and improved financial performance within tax services. For the six months ending March 31, 2026, we increased total tax product revenue by 13%, led by a 13% increase in non interest income related to refund transfer products and refund advanced products. Additionally, refund advance originations increased by over $200 million this year. This brought total tax services revenue to $96 million. Loss rates on refund advances were also favorable when compared to last year due to our continued work on our underwriting models and data analytics capabilities. This led us to pre tax income of $62 million for tax services, an increase of 30%. We believe these outcomes reflect our commitment to empowering people and partners through innovative solutions, unlocking potential and fueling success for those we serve. We remain diligently focused on delivering on our strategy of being the trusted platform that enables our partners to thrive. As a reminder, this consists of five key focus areas in our fiscal 2026 first, we continue to favor asset rotation in areas where we believe we have a competitive advantage to deliver higher return on assets with an asset limit of $10 billion to remain below the Durbin Amendment exemption, we remain focused on creating balance sheet optionality. This should deliver increasing net interest income without growing the overall asset size and generate sustainable fee income in the form of secondary market revenue. Second, we invest regularly in technology and our run rate to help ensure that our platform undergoes the evolution and scalability needed to support our partners growth as they expand their reach with new products and markets. Third, we believe that people and culture are Pathwards most important assets, which is why I’m very proud to share with you that we once again earned the Great Place to work certification in 2026 for the fourth year in a row. Our culture is just as important as the outcome of our efforts at Pathward. We are guided by our core values, lead by example, find a better way, help others succeed, and dare to be great. These core elements, along with our talent anywhere approach, is what we believe sets us apart. Fourth, the consultative governance approach we take when it comes to our risk and compliance framework helps our partners manage an area that is often complex and difficult to navigate. We also continue to invest in this area to not only evolve with the regulatory environment, but also allow for scalability with our partners. Finally, our focus on the client experience is about supporting our partners for greater successes and revenue enablement. Our pipeline remains full and we are diligently working to bring more partners into the Pafford family and help those that we are already working with to do more. We are also happy to announce that in April after the quarter close, Pathward executed a three year extension with Taba Pay, a leading money movement platform. Now I’d like to turn it over to Greg who will take you through the financials.
Greg Sigris (Chief Financial Officer)
Thank you Brett. Overall, we are pleased with the financial performance in the quarter. As Brett mentioned, our tax season is off to a great start. This is the product of thoughtful planning and teamwork. We and we’re proud of what the team is accomplishing again this year. We’re equally pleased to see growth in partner solutions, which I’ll dive into a little deeper in a moment. First, let me start with revenue. As expected, the sale of the consumer finance portfolio back in October did impact net interest income given the elimination of the gross step accounting for that portfolio. Having said that, our strategy of balance sheet optimization continues to deliver solid Results with growth in our core commercial finance business, other parts of our strategy have enabled us to report solid results in non interest income, particularly in our tax products, as well as in core card and deposit fees. In our consolidated tax services, which consists of both our independent tax offices and tax partnerships, we saw an 18% increase in non interest income from refund, advance and other tax FEES and a 7% growth in revenue from refund transfers during the quarter. This is the direct result of significant work to grow this business, increase market share and evolve the underwriting model. Core card and deposit fee income, which excludes the servicing fees we earn on custodial deposits, grew 22%. We’re seeing a lot of growth through existing partners as well as increasing contributions from new contracts signed last year. Due to the continued backlog from the first government shutdown, we fell short of our goal range for secondary market revenues, but we believe this is primarily a timing impact and we expect to make up the difference in subsequent quarters. Non interest expense Improved in the quarter Outside of the impact from the sale of the consumer portfolio, the primary driver was lower card and processing expense due to lower rates, partially offset by an increase in compensation and benefits. Given the value we place on our people, we remain committed to investing in them as well as processes and technology, and we were still able to manage expenses well when compared to the prior year quarter. This led to net income of $72.9 million and earnings per diluted share of $3.35. Deposits held on the company’s balance sheet at March 31st were relatively flat versus a year ago. This is consistent with our balance sheet optimization strategy. Lower yielding assets such as securities declined and partner deposits were strong in the quarter. This allowed us to have over $250 million more in average custodial deposits than in the prior year quarter and also generated higher servicing fee income in the quarter. Loans and leases at March 31 grew 9%. Our focus on ensuring we have the right loans on the balance sheet was the primary driver of the increase, with a $588 million increase in our core commercial finance business, particularly in renewable energy and structured finance. Additionally, origination volumes were strong during the quarter with $367 million in commercial finance at yields higher than the March 31st portfolio yield and $945 million in consumer finance. This represents significant growth versus the same quarter last year and we were pleased by the growth in consumer finance originations, which was driven by the new contract we announced last year and commercial finance. Our loan pipeline remains strong despite timing delays in certain cases Stemming from the October 2025 government shutdown, net interest margin was 6.63% in the quarter. Our adjusted net interest margin was 5.32%, a 23 basis point improvement over the same quarter last year. This was primarily driven by lower rate related card expenses. Our non performing loans saw a modest increase to 2.39% and our allowance for credit loss ratio on commercial finance increased versus last year. This was driven by a mix of specific reserves and our CECL model which takes into account a number of factors including the macroeconomic environment as well as portfolio history over time. Our commercial finance portfolio metrics are being driven by a relatively small number of loans in comparison to our portfolio size and in different verticals. As we’ve mentioned before, we look at our credit metrics to a full year, look back and at March 31st our trailing twelve month net charge off rate was at or below the same metric at the end of every quarter in fiscal 2025 and still remains at the low end of our historical range. Lastly, we continue to believe that we are still in a relatively stable credit environment consistent with the past few quarters. Our liquidity remains strong with $2.7 billion available and we are extremely pleased with our position at this point in the year. During the quarter we repurchased approximately 855,000 shares at an average price of $84.15. This leaves 3.4 million shares still available for repurchase under the current stock repurchase program. This concludes our prepared remarks. Operator Please open the line for questions.
OPERATOR
We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one. Again, we ask that you pick up your handset when asking a question to allow for optimum sound quality if you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Tim Switzer with KBW.
Tim Switzer (Analyst)
Good afternoon. Thank you for taking question hey Tim. Hey Tim. So the first one I have, you guys just touched on it, but you up the buybacks quite a bit this quarter relative to what you’ve been doing recently. You still have a good …
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