Pathward Nonperforming Loans and Leases Reach 5.61% of Gross Loans and Leases

The Tip Desk · October 27, 2026 · 3 min read

Net interest income was $117.6 million in the fiscal fourth quarter as higher commercial finance interest income partly offset declines in warehouse finance interest income and credit-sponsorship interest income following an October 2025 portfolio sale.

Pathward Financial, Inc. (CASH), a U.S.-based financial holding company, reported net income of $38.6 million, or $1.85 a share, for the three months ended September 30, 2026, compared with $38.8 million, or $1.69 a share, a year earlier.

Net interest income was $117.6 million, down 8% from the year-ago quarter. The company attributed the decline to an $11.1 million reduction in interest income from the credit sponsorship portfolio after an October 2025 sale of a portfolio previously accounted for on a gross basis, and a $3.3 million reduction in warehouse finance interest income. Those declines were partly offset by a $5.6 million increase in interest income from commercial finance loans and leases, which the company said was driven by strong originations in structured finance.

Reported net interest margin fell to 6.79% from 7.46% a year earlier, primarily because of that credit sponsorship sale. Adjusted NIM, which includes contractual rate-related deposit processing expense and excludes gross credit sponsorship interest income, was 5.51% versus 5.43% in the year-ago quarter. The tax-equivalent yield on average interest-earning assets decreased 69 basis points to 6.87%. The loan and lease portfolio yield was 8.23% versus 9.25%. Average interest-earning assets rose $69.9 million to $6.87 billion.

Commercial finance loans, 87% of the loan and lease book, totaled $4.44 billion at September 30, 2026, up $517.0 million, or 13%, from a year earlier. New loan originations nearly doubled from $1.3 billion to $2.2 billion, primarily from increased credit sponsorship originations after a new fiscal 2025 contract and growth with current partners.

Noninterest income increased 12% to $65.6 million from $58.8 million a year earlier, driven by card and deposit fees and secondary market revenue. Card and deposit fees excluding custodial servicing fees increased $6.4 million. Servicing fee income on custodial deposits was $6.1 million. Custodial deposits at other banks were $630.0 million at period-end. Noninterest expense decreased 10% to $129.7 million from $144.8 million, on lower legal and consulting expense. Contractual rate-related processing expense was $23.0 million.

Credit quality deteriorated on a year-over-year basis. Nonperforming loans and leases were $289.3 million, or 5.61% of total gross loans and leases, versus $99.1 million, or 2.05%, at September 30, 2025. The company said the year-over-year increase was driven by higher nonperforming loans in commercial finance related to certain renewable energy construction projects with a common developer. Nonperforming assets were $290.4 million, or 4.00% of total assets.

The allowance for credit losses totaled $67.3 million at September 30, 2026, down from $109.8 million at June 30, 2026, on sequential declines in tax services, commercial finance, and credit sponsorship allowances. ACL as a percent of total loans and leases fell to 1.33% from 2.15%. Provision for credit losses was $10.3 million, versus a $6.4 million reversal a year earlier. Net charge-offs were $52.0 million, including $27.6 million in tax services, $20.3 million in commercial finance, and $4.1 million in credit sponsorship.

Average deposits decreased $42.8 million to $6.14 billion versus the year-ago quarter. End-of-period deposits fell 3% to $5.69 billion. Cost of funds for all deposits and borrowings averaged 0.08%. Adjusted cost of deposits was 1.40%.

The company repurchased 281,562 shares at an average price of $88.75, leaving 2,845,617 shares available under the repurchase program. The Company's CET1 capital ratio was 11.83% at September 30, 2026, preliminary pending completion and filing of the Company's and Bank's regulatory reports.

Chief Executive Officer Brett Pharr said the company continues to track and manage some credit items mentioned last quarter, while other areas of the business yielded positive results, including extended partner contracts, higher noninterest income, and growth in net interest income in commercial finance.