Pathward Financial, Inc. Common Stock 2026 Q4 Earnings Call

Please go ahead. Thank you, operator, and welcome.

With me today are Pathward Financial CEO Brett Pharr and CFO Greg Sigrist, who will discuss our operating and financial results for the fourth quarter and full fiscal year of 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 at 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. These statements speak only as of this date, and the company undertakes no obligation to update any forward-looking statement except as may be required by applicable law.

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 results to differ materially from those expressed or implied in 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 you to assist in understanding the company's results and performance. Additional information regarding these non-GAAP measures, as well as reconciliations, 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 Pharr, our CEO.

Thanks, Darby, and good evening, everyone. Thank you for joining our earnings call. We are looking forward to sharing our updates today, but I would like to start by taking a moment to reflect on an important milestone. This quarter marks five years since my first earnings call as CEO of Pathward. Looking back, it is remarkable to reflect on everything the Pathward team has accomplished together. We have navigated the challenges of COVID, rebranded the company as Pathward, expanded our executive team, and strategically reshaped our balance sheet, all while evolving our business and strengthening our position as a trusted platform that enables our partners to thrive. Through each chapter, one thing has remained constant, and that is the dedication and commitment of our employees. Our success has always been rooted in our people. Every day, talented employees across Pathward work with customers and businesses to enable financial availability, choice, and opportunity.

Their unwavering commitment to true partnership is what has enabled us to adapt, execute, and continue delivering for all of our stakeholders. I am very proud that we have continued to sustainably grow while staying true to our purpose of powering financial inclusion. That is not a coincidence. Our purpose continues to guide our strategy, and we believe that this diligent focus helps drive long-term value for our shareholders. While I find tremendous value in times of reflection, I am even more excited about what lies ahead. We have a strong foundation, a team that embodies our values and is committed to success, as well as a clear strategy to guide us forward. With that, let me spend a few minutes on our strategy. Then I will provide a quick update on credit before turning the call over to Greg. Fiscal 2026 was another important year of execution for Pathward.

We successfully advanced the strategic priorities we set out to accomplish last year, and this was by no means a small feat. We had some major wins across each area, starting with maintaining an optimized balance sheet. Commercial finance growth, combined with reductions in our lower-yielding securities portfolio, reflects our disciplined approach while remaining cognizant of our balance sheet capacity. We deployed capital where we believed it provided us with optionality or generated strong risk-adjusted returns. We made significant inroads in the Small Business Administration loan market, moving up within the top 20 SBA 7(a) program lenders in the country. Next, we continue to make investments in technology, risk, and compliance. We believe these continued investments will allow our partners, both present and future, to deliver with confidence as they leverage our expertise, infrastructure, and collaborative support.

The world is only moving faster, and we are proud to enable our partners by offering a broad suite of capabilities. Furthermore, we are very proud to have been recognized by a few different organizations throughout the year for our standout workforce and culture. We believe part of our success can be attributed to our talent anywhere approach. Through this talent strategy, we have been very successful in expanding our reach beyond local candidates as a remote-enabled employer and strengthening our ability to meet the evolving needs of our business. The last strategic priority is the client experience. We believe our partners see the value in Pathward's platform and our ability to grow alongside them.

Last quarter, we announced that we had renewed our relationship with Clair, a company that has empowered workforce management and payroll platforms to offer early access to earned wages to employees at no cost to employers. This quarter, we are pleased to announce that we have renewed our contract with longstanding partner H&R Block, extending our relationship through mid-2030. H&R Block has been a leader in the tax preparation industry for more than 70 years with a deep commitment to their clients, associates, and community. We are excited to continue to support them. We still see significant opportunity in our pipeline with both new and existing partners to build on this momentum by expanding the products and capabilities we deliver. As we look ahead to fiscal 2027, our strategy will remain consistent.

We believe the continuity in our strategy reflects the confidence that we have, both in the direction of the business and the progress we have made throughout fiscal 2026. Our focus is now on continuing to execute against these areas and building momentum across the organization. Importantly, we believe our diversified mix of partners, products, and capabilities remains a key differentiator at Pathward. We are not dependent on a single partner, industry, or market, which we believe delivers a resilient business model while providing multiple avenues for growth. Our broad suite of solutions allows us to create opportunities, deepen relationships, and deliver value. As a result, we believe we are well-positioned to capitalize on the opportunities in front of us. We continue to work through the renewable energy projects that we mentioned last quarter and still believe we have line of sight to bringing them to completion.

While we made significant progress during the quarter, these things take time. We will continue to provide transparency in connection with these credit items. Additionally, we continue to believe that these events are not indicative of a broader systemic issue within the portfolio. Aside from credits, we are very pleased with the results of the year. Now I'd like to turn it over to Greg, who will take you through the details of our financials and fiscal year 2027 guidance.

Thank you, Brett. We were pleased with the performance during the quarter as our core businesses delivered solid results. Starting with the balance sheet, our treasury-led model continues to deliver with growth of nearly $6 million in net interest income from our commercial finance business. We also delivered double-digit percentage growth in non-interest income, primarily due to an increase of almost $8 million in card and deposit fee income, the majority of which was driven by growth in the core payments business. Non-interest expense improved in the quarter as a result of disciplined expense management with lower legal and consulting expense. This was partially offset by building and software expense. Additionally, we will continue to make targeted investments in our people, processes, and technology to facilitate evolution and scalability.

Aside from the credit items Brett discussed, we are pleased with our full-year results, and equally important, how our teams delivered them. Their focus, collaboration, and consistent execution throughout the year drove strong performance across the business. Interest income growth in commercial finance was nearly $30 million, driven primarily by an increase in structured finance. Solid partner growth, combined with disciplined expense management led to full-year net income of $175.7 million, or $8.14 of diluted earnings per share. With that, our return metrics remain strong with a 230 basis point return on average assets and a 32.9% return on average tangible equity. We believe that these results reflect the quality of our business model, the discipline of our teams, and consistent execution. Not to mention our capacity to generate earnings and accrete capital to cover events as they arise.

We believe this continues to differentiate Pathward and provide a strong foundation as we enter fiscal 2027. While deposits held on the company's balance sheet at September 30 experienced a modest decrease versus a year ago, we held more than $400 million more in average custodial deposits. As a reminder, we do earn fee income on custodial deposits that is tied to the effective Fed funds rate. Average partner deposits were strong in the quarter, giving us the ability to generate additional servicing fee income. Loans and leases at September 30 grew 9%. We continue to be successful in growing structured finance, term lending, and SBA and USDA loans, as well as working capital asset-based lending. Adjusted net interest margin improved to 551 basis points in the fourth quarter as we continue to improve our earning asset mix and see the benefit of repricing.