Pathward NIM Declines as Commercial Credit Stress Mounts
Net interest income fell 8% to $112.9 million in the third fiscal quarter as the bank navigated the sale of its consumer finance portfolio.
Net interest income for Pathward Financial (CASH) fell 8% year-over-year to $112.9 million in the third fiscal quarter of 2026. The decline was primarily driven by an $11.6 million reduction in interest income from the consumer finance portfolio.
Net interest margin decreased to 6.59% from 7.43% in the prior year quarter, a shift resulting from the sale of the consumer finance portfolio in October 2025. The tax-equivalent yield on average interest-earning assets fell 86 basis points to 6.66%. Specifically, the yield on the loan and lease portfolio dropped to 7.99% from 9.33%. These pressures were partially offset by a lower rate environment, which brought the overall cost of deposits down to 1.43% from 1.61%.
Loan growth shifted toward the commercial sector. Total gross loans and leases rose to $5.11 billion at June 30, 2026, up from $4.74 billion a year earlier. This growth was led by the commercial finance portfolio, which increased 13% year-over-year to $4.32 billion, though this was offset by declines in warehouse finance, tax services, and consumer finance. New loan originations rose to $1.86 billion from $1.10 billion, fueled by a new consumer loan contract announced in fiscal 2025.
Credit quality deteriorated significantly during the quarter. The provision for credit losses rose to $28.3 million from $9.3 million in the prior year period, driven by a $22.6 million increase in the commercial finance portfolio. Net charge-offs followed a similar trajectory, increasing to $16.0 million from $6.1 million, with $15.9 million of those losses concentrated in commercial finance.
Nonperforming loans and leases reached $275.1 million at June 30, 2026, representing 5.28% of total gross loans and leases. This was a sharp increase from 2.39% at March 31, 2026, and 1.49% at June 30, 2025. The spike was primarily due to renewable energy construction projects associated with a common developer.
Noninterest income rose 4% to $76.7 million, supported by secondary market revenue. Meanwhile, noninterest expense fell 7% to $129.1 million as the bank reduced legal, consulting, and card processing costs.
Capital levels declined as the bank returned value to shareholders. The common equity Tier 1 capital ratio was 11.51% at June 30, 2026, down from 12.65% at March 31, 2026, and 12.87% a year prior. During the quarter, the bank repurchased 303,632 shares of common stock at an average price of $92.18.