Pathward outlines $8.25–$8.75 EPS target for 2026 while advancing new fintech partnerships

Earnings Call Insights: Pathward Financial, Inc. (CASH) Q4 2025

MANAGEMENT VIEW

* CEO Brett Pharr described 2025 as a pivotal year, highlighting the completion of the insurance premium finance business and transportation portfolio sales, the hiring of a new Chief People and Culture Officer, multiple new partner contracts, and several awards. Pharr reported, “We reported earnings per diluted share of $7.87 for the year, which was above the high end of the guidance range we provided last quarter and represents year-over-year growth of 9%.” Net income for the year was $185.9 million, driven by a 10% increase in noninterest income.
* Pharr detailed three new agreements this quarter: an agreement with Trustly to support their pay by bank product, a multiyear merchant acquiring sponsorship with Stripe, and a contract with Greenlight for family finance and team card issuing. In Credit Solutions, Pathward partnered with Upstart to offer personal loans through Upstart’s AI lending marketplace.
* “Based on our 2025 successes and what we are looking to deliver in 2026, we are maintaining our 2026 guidance for earnings per diluted share of $8.25 to $8.75,” Pharr stated.
* CFO Gregory Sigrist reported, “Net income for the quarter ended September 30 grew 16%, with earnings per diluted share growing 26% to $1.69. These results were primarily driven by strong growth in noninterest income of 13% compared to the prior year period.”
* Sigrist added, “During the quarter, we moved more than half of our held-for-investment consumer portfolio to held for sale due to an agreement to sell those loans in early October, which generated a $14.3 million release of our credit provision.”

OUTLOOK

* Management reiterated fiscal year 2026 EPS guidance of $8.25 to $8.75, assuming no rate cuts, an effective tax rate of 18% to 22%, and expected share repurchases. Pharr emphasized maintaining an optimized balance sheet, ongoing technology investment, talent recruitment, risk and compliance enhancements, and deepening client experience as central to the 2026 strategy.
* The company expects secondary market revenues to remain in the $5 million to $7 million per quarter range, despite opportunistic gains this quarter.
* Guidance language remains consistent with the prior quarter, with emphasis on sustaining momentum in partner growth and operational scalability.

FINANCIAL RESULTS

* The company reported net income for the year of $185.9 million and earnings per diluted share of $7.87, reflecting a 9% year-over-year increase. Net interest income grew 3% and noninterest income increased 10% for the year.
* Net interest margin for the quarter was 7.46%, and adjusted net interest margin was 6.04%. Loans and leases on September 30 were $4.7 billion, up from $4.1 billion the previous year, primarily from commercial finance verticals.
* The company generated a $14.3 million credit provision release from selling consumer loans, offset by a nearly $6 million loss from surrendering some bank-owned life insurance policies and optimizing the securities portfolio, resulting in $70 million of liquidity.
* Deposits on the balance sheet at quarter-end were $5.9 billion, a modest increase year-over-year, with custodial deposits held at partner banks at $210 million. The allowance for credit loss ratio on commercial finance was 118 basis points, with an annual net charge-off rate of 64 basis points.
* During the quarter, about 181,000 shares were repurchased at an average price of $82.95, bringing full year repurchases to nearly 2.1 million shares.

Q&A

* Timothy Switzer, Keefe, Bruyette, & Woods: Questioned the Upstart program's credit structure and exclusivity. CEO Pharr explained it aligns with other marketplace lending programs, with full credit indemnifications and a “hold period…30 days or less.” Sigrist confirmed loans are held for sale from origination. Pharr clarified the partnership is not exclusive.
* Switzer asked about higher secondary market revenue. Sigrist attributed it to “being opportunistic…decided to hit the bids,” and expects a return to the $5 million to $7 million range.
* Joseph Yanchunis, Raymond James: Inquired about early wage access loan demand and tax law changes. Pharr noted Intuit’s scale could significantly increase volume for partner Clair. Regarding tax business growth, Pharr said, “We don't have huge growth expectations. One reason is, we came off of a really good year.” Sigrist added that mid-single digit growth is typical.
* Yanchunis pressed on nonperforming loans. Pharr and Sigrist highlighted three loans make up about half of NPLs, all well collateralized, with expectations for resolution within one to three quarters.
* Yanchunis questioned share repurchase pace. Sigrist indicated a return to historic norms, “probably in that 80% to 90% payout ratio range.”

SENTIMENT ANALYSIS

* Analysts were inquisitive, focusing on new partnerships, credit quality, and the impact of recent tax law changes, with a neutral to slightly positive tone.
* Management’s prepared remarks were confident, highlighting achievements and reiterating guidance, while Q&A responses were detailed and reassuring. Pharr’s language conveyed confidence, particularly in strategy and partnership expansion.
* Compared to the previous quarter, the tone remained steady, with continued confidence from management and similar levels of analyst inquiry.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for fiscal year 2026 EPS is unchanged at $8.25 to $8.75. Strategic focus remains on balance sheet optimization, technology investment, and partner growth, with new partnerships highlighted this quarter (Stripe, Trustly, Upstart, Greenlight).
* Analysts in both quarters centered on credit trends, share repurchases, and partnership pipeline, with no significant shifts in focus or sentiment.
* Key metric changes include an increase in year-end loans and leases and a rise in noninterest income growth. Management’s confidence in navigating credit quality and nonperforming loans is consistent with the previous quarter.

RISKS AND CONCERNS

* Management acknowledged the impact of moving consumer loans to held for sale, which will put “downward pressure on both pretax income and our net interest margin in 2026.”
* Nonperforming loans increased due to one working capital loan, described as well collateralized, with management expecting resolution in the coming quarters.
* Elevated legal and consulting expenses were noted, driven by restatement costs, but are expected to decrease going forward.
* Lower custodial deposit balances are anticipated due to program runoff, expected to reduce servicing fees and noninterest income.

FINAL TAKEAWAY

Pathward Financial closed fiscal 2025 with strong earnings growth, expanded noninterest income, and several new fintech partnerships. Management outlined a steady strategic course for 2026, reaffirming EPS guidance of $8.25 to $8.75 and emphasizing operational optimization, technology investment, and partner expansion, while noting that asset sales and credit quality management will shape next year’s performance.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/cash/earnings/transcripts]

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