Q2 2026 Pathward Financial Inc Earnings Call

April 22, 2026

Operator 2: Ladies and gentlemen, thank you for standing by, and welcome to Pathward Financial's Second Quarter 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.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to Pathward Financial's Q2 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.

Speaker #1: 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.

Speaker #1: Please go ahead. Thank you, Operator, and welcome. With me today are PATHWARD Financial's CEO, Brett Pharr, and CFO, Greg Sigrist, who will discuss our operating and financial results for the second quarter of fiscal year 2026, after which we will take your questions.

Darby Schoenfeld: 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 Q2 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 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. The company undertakes no obligation to update any forward-looking statements. Please refer to the cautionary language in the earnings release, investor presentation, and 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 differ materially from the forward-looking statements.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: The company undertakes. No obligation to update any forward-looking statement. 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 differ materially from the forward-looking statement.

Darby Schoenfeld: 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 growth 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 have 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.

Speaker #1: 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.

Speaker #1: In order to make our adjusted net interest margin as comparable as possible, we have excluded the impact of the growth accounting methodology on our consumer loans and included contractual rate-related processing expenses associated with deposits on the company's balance sheet.

Speaker #1: The historical numbers in the earnings presentation have 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.

Speaker #1: 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.

Brett Pharr: 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.

Speaker #1: Thanks, Darby, and welcome, everyone. 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Brett Pharr: 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 H1 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.

Brett Pharr: 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 H1 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.

Speaker #1: 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%.

Speaker #1: 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.

Speaker #1: 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.

Brett Pharr: 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Brett Pharr: For the six months ending 31 March 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 Advance 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.

Speaker #1: 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 advance products.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Brett Pharr: 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Brett Pharr: Third, we believe that people and culture are Pathward's 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.

Speaker #1: Third, we believe that people and culture are PATHWARD's 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.

Speaker #1: 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.

Speaker #1: 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.

Speaker #1: 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.

Brett Pharr: 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 Pathward 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 closed, Pathward executed a three-year extension with TabaPay, a leading money movement platform. Now I'd like to turn it over to Greg, who will take you through the financials.

Speaker #1: Our pipeline remains full, and we are diligently working to bring more partners into the PATHWARD family and help those that we are already working with to do more.

Speaker #1: 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.

Speaker #1: Now I'd like to turn it over to Greg, who will take you through the financials.

Greg Sigrist: 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 was a product of thoughtful planning and teamwork, 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 grossed-up 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.

Speaker #2: 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.

Speaker #2: This was the product of thoughtful planning and teamwork, 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.

Speaker #2: 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 debt accounting for that portfolio.

Speaker #2: 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.

Greg Sigrist: In our consolidated tax services, which consist of both our independent tax offices and tax partnerships, we saw an 18% increase in noninterest 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. Noninterest expense improved in the quarter.

Speaker #2: In our consolidated tax services, which consist 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.

Speaker #2: This is the direct result of significant work to grow this business, increased 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%.

Speaker #2: 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.

Greg Sigrist: 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 31 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Greg Sigrist: 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 31 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.

Speaker #2: Loans and leases at March 31st 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.

Speaker #2: 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.

Speaker #2: 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.

Greg Sigrist: In Commercial Finance, our loan pipeline remained 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.

Speaker #2: In commercial finance, our loan pipeline remained strong despite timing delays in certain cases stemming from the October 2025 government shutdown. Net interest margin was 6.63% in the quarter.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Greg Sigrist: As we've mentioned before, we look at our credit metrics to a full-year look back. To 31 March, our trailing 12-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.

Speaker #2: As we've mentioned before, we looked at our credit metrics through a full-year lookback. And through March 31, our trailing 12-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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: This concludes our prepared remarks. Operator, please open the line for questions.

Operator 2: 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.

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.

Speaker #3: We will now begin the question and answer session. If you would like to ask a question, please press *1 to raise your hand.

Speaker #3: 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.

Speaker #3: 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 KDW.

Speaker #3: KBW.

Tim Switzer: Good afternoon. Thank you for taking questions.

Speaker #4: Good afternoon. Thank you for taking questions.

Greg Sigrist: Hey, Tim.

Brett Pharr: Hey, Tim.

Speaker #5: Hey, Tim.

Tim Switzer: The first one I have, you guys just touched on it, but you upped the buyback quite a bit this quarter relative to what you've been doing recently. You still have a good amount of capital, obviously a higher ROE. Is what you did this quarter, is that kind of repeatable for the rest of the year? What are your other priorities outside of organic growth and repurchases? Are there any other kind of M&A type businesses you're in discussions with?

Speaker #6: Hey, Tim.

Speaker #4: So the first one—I know you guys just touched on it—but you upped the buyback quite a bit this quarter. Relative to what you've been doing recently, you still have a good amount of capital, obviously a high ROE.

Speaker #4: Is what you did this quarter—is that kind of repeatable for the rest of the year? And what are your other priorities outside of organic growth and repurchases?

Speaker #4: Are there any other kind of M&A-type businesses you're in discussions with?

Greg Sigrist: Yeah, Tim, let me start, and Brett may jump in at the end. I think what you typically see throughout the years, you're going to see seasonality in that buyback in the number of shares and the dollar amount. It typically is correlated to our higher earnings quarters. The Q2 is always our highest buyback quarter on a relative basis. I would say, though, that the algorithm for the number of shares we buy, particularly early in the quarter, does get updated periodically. I think this quarter, in part, it was we took advantage of lower share prices as well. If it optically looked like we got a little bit ahead, it probably had something to do with that. Obviously very pleased with where we landed in the quarter on the buybacks.

Speaker #2: Yeah, Tim, let me start. And Brett may jump in at the end. But I think what you typically see throughout the years, you're going to see seasonality in that buyback, the number of shares in the dollar amount.

Speaker #2: It typically is correlated to our higher earnings quarter. So second quarter is always our highest buyback quarter. On a relative basis, I would say, though, that the algorithm for the number of shares we buy, particularly early in the quarter, does get updated periodically.

Speaker #2: And I think this quarter, in part, it was we took advantage of lower share prices as well. So, if it optically looked like we got a little bit ahead, it probably had something to do with that.

Speaker #2: Obviously, very pleased with where we landed in the quarter on the buybacks. But I think more broadly on the question of capital and capital allocation, I mean, I still continue to believe—and we continue to believe—that the share buybacks are still the highest and best use of capital at this point in time.

Greg Sigrist: I think more broadly on the question of capital and capital allocations, I still continue to believe and we continue to believe that the share buybacks are still the highest and best use of capital at this point in time. We obviously continue to look at a lot of things, but, and if that changes we'll at some point let you know, but I think it's still buybacks.

Speaker #2: We obviously continue to look at a lot of things, but if that changes, we'll at some point let you know. But I think it's still buybacks.

Brett Pharr: Yeah. Tim, it's Brett. Just sort of on the strategic elements of M&A, we're always looking to see what's out there. With our results, we've got a pretty high hurdle rate and obvious reasons we wouldn't be involved in much of a bank kind of situation. We look for things that you might buy versus build. We've just not seen anything over time that made any sense. The kind of capital utilization we're doing is the highest and best use in our mind at this moment.

Speaker #5: Yeah. And Tim, it's Brett. So just sort of on the strategic elements of M&A, I mean, we're always looking to see what's out there.

Speaker #5: But with our results, we got a pretty high hurdle rate. And obvious reasons we wouldn't be involved in much of a bank kind of situation.

Speaker #5: We look for things that you might buy versus build. But we've just not seen anything over time that made any sense. So the kind of capital utilization we're doing is the highest and best use in our mind at this moment.

Tim Switzer: Got it. Very clear. Another question I had, you guys mentioned, I remember it was last quarter or 2 quarters ago, about how the new programs you guys announced in 2025 would contribute mid to high single digits to card fees year over year, not even including some of the new lending partnerships you guys have. Now that we're a few quarters in, are you guys still on track for that? What have been kind of the puts and takes over the last few months, and where do you think that can go as we head into 2027?

Speaker #4: Got it. Very clear. And then the other another question I had, you guys mentioned I don't remember his last quarter two quarters ago. How the new programs you guys announced in '25 would contribute mid to high single digits to card fees year over year.

Speaker #4: Not even including some of the new lending partnerships you guys have. Now that we're a few quarters in, are you guys still on track for that?

Speaker #4: What have been kind of the puts and takes over the last few months? And where do you think that can go as we head into '27?

Brett Pharr: Yeah. Greg can talk about specifics if he wants to. You look at our card fee income year to date, that's part of the increase in the non-interest income. That's. We had those deals. We always talk about some of them take time to come on. We're now seeing the benefit of that come through the non-interest income line.

Speaker #5: Yeah. And Greg can talk about specifics. He wants to. But you look at our card fee income, year to date, that's part of the increase in the non-interest income.

Speaker #5: And that's that—we had those deals. We always talk about how some of them take time to come on. We're now seeing the benefit of that come through the non-interest income line.

Greg Sigrist: Yeah. As I said in my prepared remarks, year over year, the significant increase versus a year ago is largely organic.

Speaker #2: Yeah. But as I said in my prepared remarks year over year, the significant increase versus a year ago is largely organic. But as you would expect and as we've talked about, we've started to see some of the benefit of the new deals.

Greg Sigrist: As you would expect, and as we've talked about, we've started to see some of the benefit of the new deals. It's all about the speed to revenue. It still takes some time after you've signed the deals to, depending upon the product, to get those programs live, and get the programs ramped, and get them fully loaded. The guide we gave previously about what that looked like on a fully loaded basis still applies. We still think it's going to be a measurable increase into next year as those programs fully ramp.

Speaker #2: But it's all about the speed to revenue. It still takes some time after you've signed the deals, depending upon the product, to get those programs live, and get the programs ramped, and get them fully loaded.

Speaker #2: But the guide we gave previously about what that looked like on a fully loaded basis still applies. We still think it's going to be a measurable increase into next year as those programs fully ramp.

Tim Switzer: Okay, got it. Then the last one I have, and it might be a little too early to ask this question, and I don't know if we have enough details, but there's been this proposed executive order about banks being required to obtain citizenship info. That seems like a tricky situation, I guess, for some of the Banking-as-a-Service banks. What's the risk of needing to perform that for all the bank accounts you guys have, and how much could that cost? Then, because I know there's a lot in here, but on the other side of this, is there an opportunity at all for your prepaid card products? Do we know if those would be required to obtain citizenship info as well?

Speaker #4: Okay, got it. And then the last one I have—and it might be a little too early to ask this question, and I don't know if we have enough details—but there's been the proposed executive order about banks being required to obtain citizenship info.

Speaker #4: And that seems like a tricky situation, I guess, for some of the Basque banks. And what's the risk of needing to perform that for all the bank accounts you guys have?

Speaker #4: And how much could that cost? And then I know there's a lot in here, but on the other side of

Speaker #1: It . Is there an opportunity at all for your prepaid card products ? Like , do we know if those would be required to attain to obtain citizenship info as well ?

Brett Pharr: All right, Tim, so let's get in the weeds just a little bit. Obviously, we don't know what the rules are, right? That's part of it. You probably know that for any known owner of account, you have to collect something called CIP. We already have documentary and non-documentary pieces of information about our customers that we're required to get. An exception to that is if it's unregistered, like an unregistered gift card, that would not apply, and I would suspect in this case, it would not apply. We already have the processes in place with our partners to collect the necessary information like that. If there's something else that has to be collected, then we, like everybody else, would have to go and do that.

Speaker #2: All right , Tim , so let's get in the weeds just a little bit . Obviously , we don't want the rules are right .

Speaker #2: So, that's part of it. You probably know that, for any known owner of an account, you have to collect something called SIP.

Speaker #2: So we already have documentary and non-documentary pieces of information about our customers that were required to get an exception to that is if it's unregistered , like an unregistered gift card , that would not apply .

Speaker #2: And I would suspect in this case , it would not apply . But so we already have the processes in place with our partners to collect the necessary information like that .

Speaker #2: There's something else that has to be collected . Then you know

Brett Pharr: Till we know what the rules are, we don't know what the implications are, but the highways already exist to get that kind of information.

Tim Switzer: Okay. Are you able to tell us maybe what percent of your deposits or accounts would be part of that unregistered prepaid card business?

Brett Pharr: Yeah. I'm getting the heads that say we don't disclose that here, right? You can think about our business, right, in general, the kinds of things we have. If you're into gift card, it doesn't apply unless they specifically register it. Payroll card, obviously you know who it is. There's various kinds of things. We would have it on some, and we would not have it on others.

Greg Sigrist: Yeah. I think as we say broadly on just the topic of deposits, it's a well-diversified deposit base.

Brett Pharr: Right. It's going to be different.

Greg Sigrist: Over time, it evolves. Over time, as we continue to bring on new partners, it continues to diversify.

Brett Pharr: Right.

Greg Sigrist: Hopefully that helps you.

Tim Switzer: Yeah. Thanks for answering that. I'll jump back in the queue.

Brett Pharr: Thanks.

Greg Sigrist: Thanks, Tim.

Operator 2: Your next question comes from the line of Joe Yanchunis from Raymond James.

Operator: Your next question comes from the line of Joe Yanchunis from Raymond James.

Joe Yanchunis: Good afternoon.

Greg Sigrist: Hey, Joe.

Brett Pharr: Hey, Joe. Good afternoon.

Joe Yanchunis: I'd like to start with credit here, and I know you touched on it in your prepared remarks. NPL has ticked higher again this quarter. Can you provide some color on the underlying credits that drove this increase? I know you often tout your workout process which can take time. Do you have a sense for how much of this bucket was resolved inter-quarter?

Speaker #3: Credits that drove this increase. And I know you often tout your workout process, which can take time. So do you have a sense for how much of this bucket was resolved in order?

Speaker #2: So let me go through a big picture . So , you know , you recall we've got different asset classes . We always do collateral managed transactions .

Brett Pharr: Let me go through it big picture. You recall we've got different asset classes. We always do collateral managed transactions, so there's no unsecured, and we stay out of certain kinds of verticals that we do not think have good collateral attributes over time. We measure these things through the cycle, and Greg, in his comments, even talked about that. You always have some one-offs, right? You have to go through a workout. Workouts can be short. Workouts can be long, and they're uneven as you go through them. I don't know that we could answer the question if there were any had been resolved. They're all consistent with the way that we approach our collateral management program, and we've had consistent results with that literally for years that you can trace through.

Speaker #2: So there’s no unsecured, and we stay out of certain kinds of verticals that we do not think have good collateral attributes over time.

Speaker #2: We measure these things through the cycle. And Greg and his comments even talked about that. You always have some one-offs, right?

Speaker #2: So you have to go through a workout. Workouts can be short, you know, workouts can be long, and they're uneven as you go through them.

Speaker #2: So I don't know that we could answer the question if there are any been resolved . But there are all consistent with the way that we approach our collateral management program .

Speaker #2: And we've had consistent results with that . Literally for years that you can trace through . So again , to Greg's comments , I think in his remarks , you know , we're not seeing anything changing in the credit environment .

Brett Pharr: Again, to Greg's comments, I think in his remarks, we're not seeing anything changing in the credit environment. It's just one-off stories that happen in various asset classes.

Speaker #2: It's just the one-off stories that happen in various classes. Yeah.

Greg Sigrist: Yeah. Joe, just to walk you through a few of the metrics there, just broadly on the credit side. You probably saw when you get into it that on the past due side, the 30 to 59-day bucket increase, it went up by about $40 million. That was due to a limited number of loans that frankly came current after quarter end. That kind of factors into this equation too. You kind of get back to a more normalized level of past dues in that bucket. Then when you take that into account, overall past dues are pretty moderate. Then you mentioned the NPL ratio ticked up a bit, but then you need to disaggregate that a little bit. When you look at the non-accrual balances in the earnings release, those non-accrual balances actually came down about $5 million.

Speaker #4: And Joe , just to walk you through a few of the metrics there , just broadly on the credit side , you know , you probably saw when you get into it that on the , you know , past due side , the 30 to 59 day bucket increased , went up by about , you know , $40 million .

Speaker #4: That was due to a limited number of loans that, frankly, came current after quarter end. So that kind of factors into this equation too.

Speaker #4: So you kind of get back to more normalized level of past dues in that bucket . And then when you take that into account , overall past dues are pretty moderate .

Speaker #4: And then when you get , you mentioned the NPL ratio ticked up , it did , but then you need to disaggregate that a little bit .

Speaker #4: When you look at the nonaccrual balances in the earnings release, those nonaccrual balances actually came down about $5 million. That's the bucket that had some of the larger loans in it that we've been talking about in terms of resolution over the last couple of quarters.

Greg Sigrist: That's the bucket that had some of the larger loans in it that we've been talking about in terms of resolution over the last couple of quarters. What drove the NPL ratio up in the quarter, though, is that greater than 90 days past due and still accruing bucket. Which, that's really the broad stuff, normal course, collateral management and collection piece that Brett's talking about. That's a number of just our normal process, a number of smaller loans kind of drove that. In the quarter, what drove it up was that bucket, not anything that's larger in part of the resolution.

Speaker #4: What drove the NPL up ratio up in the quarter , though , is that greater than 90 days past due and still accruing bucket , which and that's really the broad stuff , you know , normal course collateral management and collection piece that Brett's talking about .

Speaker #4: So it's a number of just our normal process , a number of smaller loans kind of drove that . So in the quarter , what drove it up was that bucket .

Speaker #4: Not anything that's larger and part of the resolution.

Joe Yanchunis: Okay, that's helpful. Just kind of moving over to some provision, and then we'll move on to a different topic. The provision increased pretty materially in this quarter. How much of that increase was due to seasonal tax changes, organic growth versus underlying credit issues?

Speaker #5: Okay, that's helpful. And then, just kind of moving over to the

Speaker #3: Provision and then we'll move on to a different topic . So the provision increased , you pretty materially in this quarter . How much of that increase was due to , you know , seasonal changes , organic growth versus , you know , underlying credit issues

Greg Sigrist: Yeah. I think the line I focus on the most. I think we isolate the tax services provisioning in the document. I keep coming back to the Commercial Finance, which I addressed in my prepared remarks, right? It was a mix of both. There's certainly some specific reserving related to everything we talked about on the NPL side, but it's also just driven by our normal CECL process. Many quarters, it's driven by increase in the loan book, but this quarter it was more driven just by looking through and just taking a pragmatic view of where we're going to land on some of these credits. With the benefit of looking forward, we still believe this is a very, my words, benign, very stable credit environment. We're not seeing anything special in that.

Speaker #4: Yeah , I think the line I focus on the most , I mean , I think we isolate the tax services provisioning in the document .

Speaker #4: I keep coming back to the commercial finance, which I addressed in my prepared remarks. Right. It was a mix of both.

Speaker #4: There's certainly some specific reserving related to everything we talked about on the NPL side , but it's also just driven by our normal seasonal process .

Speaker #4: You know , many quarters is driven by increase in loan , the loan book . But this quarter it was more driven just by looking through and just taking a pragmatic view of where we're going to land on some of these credits , but with the benefit of , you know , looking forward , we still believe this is a very , you know , my words benign , you know , very stable credit environment .

Speaker #4: So we're not seeing anything special in that think the other thing I pointed to in my prepared remarks , though , is , you know , you've heard us say this for quite , quite a few quarters now .

Greg Sigrist: I think the other thing I pointed to in my prepared remarks, though, was, you've heard us say this for quite a few quarters now. We always look at the trailing 12-month NPLs or net charge-offs because that's a better barometer for this business, given how lumpy some of our workouts are and some of our recoveries are. When you kind of apply that backward-looking 12-quarter view to the net charge-offs this quarter, and frankly, the things driving some of the credit metrics, it's benign. It's well within our historic averages.

Speaker #4: We always look at the trailing 12 month NPLs or net charge offs , because , you know , that's a better barometer for this business , given how lumpy some of our workouts are and some of our recoveries are .

Speaker #4: So when you kind of apply that backwards looking , you know , 12 quarter view to the net charge offs this quarter , and frankly , the things driving some of the credit metrics , it's benign .

Speaker #4: It's well within our historic averages.

Brett Pharr: One of the things that's very important about our asset classes, Joe, is while in some industries, non-performing loans are a leading indicator and the net charge-offs are a lagging indicator. If you look at the correlation in our book for the past literally decade, that's not what happens. While you have non-performing loans, they generally tend to be more tightly secured. Even if you get a charge-off, you get a recovery. Look at that history through the cycle, and you'll see our net charge-offs are disconnected from our non-performing loans.

Speaker #2: One of the things that's very important about our asset classes, Joe, is while in some industries, non-performing loans are a leading indicator and the net charge-offs are a lagging indicator.

Speaker #2: If you look at the correlation in our book for the past literally decade , that's that's not what happens . And so while you have non-performing loans , they generally tend to be more tightly secured .

Speaker #2: And even if you get a charge-off, you get a recovery. So look at that history through the cycle, and you'll see our net charge-offs are disconnected from our non-performing loans.

Joe Yanchunis: Got it. I appreciate that. I'll ask one more before hopping back in the queue. You had mentioned subsequent to quarter end, you reached a contract extension with a partner, and sorry, I didn't catch the name during it. Generally speaking, how do economics change during the recontracting process? I understand that if the partner grows during the contract, you'll get more volume, but does the recontracting generally result in lower margins?

Speaker #3: Got it . I appreciate that , and I'll ask one more before hopping back in the queue . Yeah . So the you you had mentioned subsequent quarter end , you reached a contract extension with a partner and sorry , I didn't catch the name during it .

Speaker #3: Generally speaking , how do economics change during the Recontracting process ? You know , I understand that if a partner grows during the contract , you'll get more volume .

Speaker #3: But does the recontracting generally result in lower margins?

Brett Pharr: Every contract is different. There's a lot of contracts where you trade one thing for the other because that's what the partner wants to do. The classic example is if there's deposits involved and somebody wants a higher percentage of what we call contractual card service payments on it. Then we just charge more in transaction fees. The net economics for us are the same. A lot of it depends on whether they want to take interest rate risk or not. We can manage interest rate risk or they can manage it. There's always trade-offs. There's also trade-offs of if you want it longer, that'll probably be better economically. If you want it shorter, probably not as good economically. That's a general comment on them. Every contract negotiation is different, and there's not a standard sort of book approach to it.

Speaker #2: You know , every contract is different . And , you know , there's a lot of contracts where you trade for one thing for the other , because that's what the partner wants to do .

Speaker #2: So, you know, the classic example is if there's deposits involved and somebody wants a higher percentage of what we call contractual card service payments on it, but then we just charge more transaction fees.

Speaker #2: So, the net economics for us are the same. And a lot of it depends on whether they want to take interest rate risk or not.

Speaker #2: And you know , we can manage interest rate risk or they can manage it . So so there's always trade offs . There's also trade offs of , you know , if you want to longer , you know , that'll probably be better economically .

Speaker #2: If you want it shorter, probably not as good economically. So that's a general comment on them. So every contract negotiation is different.

Speaker #2: And there's not a standard, sort of book approach to it. And no, we're not seeing things generally go south on the margin side, because that's—and we did this a few years ago.

Brett Pharr: No, we're not seeing things generally go south on the margin side because that's and we did this a few years ago. That's the reason we didn't do a lot of transactions at one point was because the pricing was silly. Now we're seeing the kind of pricing we want to have.

Speaker #2: That's the reason we didn't do a lot of transactions at one point—because the pricing was silly. Now we're seeing the kind of pricing we want to have.

Greg Sigrist: Part of that too is we've feathered in the discipline to do risk-adjusted returns every time we do either a new partner or one of these renewals. There's a pricing team that looks at it to make sure it makes sense and it's sensical for us from an overall enterprise perspective.

Speaker #4: And part of that too , is we feathered it into the discipline to do risk adjusted returns every time we do either a new partner or one of these renewals .

Speaker #4: So there's a continuity, there's a pricing team that looks at it to make sure it makes sense and it's sensible for us from an overall enterprise perspective.

Joe Yanchunis: All right. That was very helpful. I will hop back in the queue, and we'll talk again soon.

Speaker #5: All right . That was very helpful .

Speaker #3: And I will hop back in the queue and we'll talk again soon .

Brett Pharr: Thanks, Joe.

Greg Sigrist: Thanks, Joe.

Speaker #4: Thanks .

Speaker #2: Thanks , Jo

Operator 2: Your next question comes from the line of Manuel Navas from Piper Sandler. Manuel, your line is open.

Operator: Your next question comes from the line of Manuel Navas from Piper Sandler. Manuel, your line is open.

Speaker #6: Your next question comes from the line of Manuel Navas from Piper Sandler Manuel , your line is open

Manuel Navas: Hey. Good afternoon. Is there any more color you could add about the partner pipeline? You said it was robust, just anything you can add there.

Speaker #7: Hey, is there any more color you could add? Good afternoon. Is there any more color you could add about the partner pipeline?

Speaker #7: You said it was robust. Is there anything you could add there?

Brett Pharr: Yeah. Well, we've been through these last several years where there was a period of time I alluded to a minute ago where there were some things that were going on in the industry that we really didn't want to participate in. A lot of that's gotten washed out. We've started talking in the last year and a half, that it's really picking up, and it's actually coming through with contracts. Yes, our pipeline is very strong. Part of that has to do with our breadth of product approach with our partners, where we'll do multiple kinds of products with the same partner. That's an advantage I think we have in the marketplace. We're continuing to have lots of new opportunities and new partners, as well as existing partners bringing on new products and new programs.

Speaker #2: Yeah , well , and you know , we've been through these last several years where , you know , there was a period of time , I alluded to it a minute ago where there were some things that were going on in the industry that we really didn't want to participate in .

Speaker #2: A lot of that's gotten washed out and we've started talking in the last , you know , year , year and a half that it's really picking up and it's actually coming through with contracts .

Speaker #2: And yes , our pipeline is very strong . Part of that has to do with our breadth of product approach , with our partners , where we'll do multiple kinds of products with the same partner .

Speaker #2: And that's an advantage . I think we have in the marketplace . And we're continuing to have lots of new opportunities and new partners , as well as existing partners , bringing on new products and new programs .

Brett Pharr: The pipeline is very strong, and part of it's because we think the dynamics and economics have returned back in our favor.

Speaker #2: So pipeline is very strong, and part of it is because, you know, we think the dynamics and economics have returned back in our favor.

Greg Sigrist: Yeah. The 22% increase in core card fee income from last year, that in part is new products with existing organic partners. No, I don't have the numbers to split it out for you. Again, that's just one outward sign that we're having success with our existing partners doing the multi-threaded approach on the product side, as Brett mentioned, in addition to, as he also mentioned, new partners, new products. We're really pleased with where we are right now.

Speaker #4: Yeah . And the 22% , you know , increase in your card fee income from last year , that in part is new products with existing organic , you know , partners .

Speaker #4: No , I don't have the numbers to split it out for you . But again , that's just one outward sign that we're having success with our existing partners doing the multi-threaded approach on the product side , as Brett mentioned .

Speaker #4: In addition to as he also mentioned , new new partners to new products . So , you know , we're , we're really pleased with where we are right now

Manuel Navas: That's helpful. Can you speak to some loan declines this quarter? I understand some of the seasonality there. How should we think about loan growth going forward? You talk about healthy pipelines in different of your loan lines. Can you speak to perhaps the mix of that growth as well going forward as you kind of reset the loan book to how you want it to end up?

Speaker #7: It's helpful . Can you speak to There was some loan decline this quarter . I understand some of the seasonality there . How should we think about loan growth going forward .

Speaker #7: You talk about healthy pipelines in different of your loan lines . Can you speak to perhaps the mix of that growth as well going forward as you kind of reset the loan book to how you want it to end up

Greg Sigrist: Let me work backwards on that. I think we like the verticals we're in. We've done some resetting over the last couple of years. We've exited a couple of verticals. When we think about the asset classes that we're in, we've been very purposeful with them. We've obviously used a risk-adjusted return approach with looking at credit through the cycle. I think the variance you saw in the quarter, though, was more of a timing issue. On the USDA side, there's probably a bit of a slowdown in the quarter just related to the government shutdown. The first shutdown with the government led to some slowdown on the USDA side, but I continue to believe that's just a timing issue. When I think about the rest of the asset classes more broadly, I think it's just more of a timing issue.

Speaker #4: Let me work backwards on that . I mean , I think we like the verticals we're in . You know , we've done some resetting over the last couple of years .

Speaker #4: We've exited a couple of verticals, but when we think about the asset classes that we're in, we've been very purposeful with them.

Speaker #4: We've obviously used a risk adjusted return approach with looking at credit through the cycle . I think the variance you saw in the quarter , though , was more of a timing issue on the USDA side , there's probably a bit of a slowdown in the quarter just related to the government shutdown .

Speaker #4: The first shutdown with the government led to some slowdown on the USDA side. But I continue to think that's just a timing issue.

Speaker #4: When I think about the rest of the asset class more broadly, I think it's just more of a timing issue. I would say our pipelines are still very full across the verticals.

Greg Sigrist: I would say our pipelines are still very full across the verticals. When I think about the balance of the year, I tend to focus more on the originations than I do the relative point estimate or average on the loan side. Why? This goes back to the treasury-led model and the fact that we're focused on the balance sheet velocity, which really means we could be down quarter on quarter too just because we sold a lot of stuff purposefully as part of that process. This quarter, it didn't have anything to do with that, again, because the USDA, they're still a little bit groggy. They're still a little bit gummed up.

Speaker #4: So, when I think about the balance of the year, I tend to focus more on the originations than I do the relative point estimate or average on the loan side.

Speaker #4: Y and this goes back to our , you know , the Treasury led model and the fact that we're focused on the balance sheet velocity , which really means we could be down quarter on quarter two just because we sold a lot of stuff purposefully as part of that process .

Speaker #4: This quarter , I didn't have anything to do with that again , because the USDA was , you know , there's still a little bit , you know , groggy there , still a little bit , you know , gummed up .

Greg Sigrist: When I think about going forward, I would expect to see some modest continued uptick in the quarters going forward in the products we're in with an eye toward, again, risk-adjusted returns across the verticals we're in at this point in time.

Speaker #4: But when I think about going forward , I would expect to see some modest continued uptick in the quarters going forward in the in the products we're in with an eye toward , again , risk adjusted returns across the verticals we're in at this point in time

Manuel Navas: Appreciate that. Any near-term guidance on the direction of the NIM? It stepped down on both the full version and then the adjusted level. Just how should we think of it going forward on either metric?

Speaker #7: I appreciate that any , any near-term guidance on the direction of the Nim , it stepped down on both the full , full version and then the adjusted level .

Speaker #7: Just kind of, how should we think of it going forward? On either metric?

Greg Sigrist: Yeah. Adjusted NIM is the one I would recommend. It's the one I look to because I believe it's the more accurate representation of the interest rate risk on our balance sheet because it kind of neutralizes for things that are not sitting in net interest expense, the contractual rate-related fees we pay to partners on deposits. That one was down in the quarter, but if you kind of go back, I think we have a time sequence someplace that'll show you that metric kind of back in time. You tend to always see seasonality in Q1 because of tax season. The balance sheet grows, and as a result, we tend to do some borrowings, wholesale borrowings at the margin to fund that. We don't need to fund it 12 months of the year, but we do fund it for 45 to 60 days of the year.

Speaker #4: Yeah , adjusted Nim is the one I would recommend . It's the one I look to because I believe it's the more accurate representation of the interest rate risk on our balance sheet , because it kind of neutralizes for things that are not sitting in , you net interest expense , you know , the contractual rate fees we paid our partners on deposits .

Speaker #4: That one was down in the quarter. But if you kind of go back, I think we have a time sequence someplace.

Speaker #4: It'll show you that metric kind of back in time. You tend to always see seasonality in the March quarter because of tax season.

Speaker #4: The balance sheet grows . And as a result , you know , we tend to do some borrowings , you know , wholesale borrowings at the margin to fund that .

Speaker #4: We don’t need to fund it 12 months of the year, but we do fund it for 45 to 60 days of the year.

Greg Sigrist: That tends to cause a little bit of a downtick in Q1. Looking ahead, though, and I appreciate you weren't on last quarter's call, and Manuel will say now, we really appreciate you joining the team here and joining the party. I still continue to believe we're stable to up, slightly trending up on the adjusted net interest margin. Why? I think we've proven, you can look at either metric over the last year. Rates are down, approaching 100 basis points in the last year. You look back to the adjusted NIM a year ago, we're up. I think it's proof that we're not sensitive to the short end of the curve. As we've said consistently, we are more sensitive to the middle part of the curve, 3 to 5-year, because that's where we price the fixed rate loans that we do have are priced there.

Speaker #4: So that tends to cause a little bit of a downtick in the March quarter . Looking ahead though , I mean , and I appreciate you weren't on last quarter's call and Emmanuel , I'll say now , I really appreciate you joining the team here and joining the party .

Speaker #4: I still continue to believe we're stable to to up slightly trending up on the net adjusted net interest margin . Y . I think we've proven you even look at the either metric over the last year .

Speaker #4: You know , rates are down . You know , nearly approaching 100 basis points in the last year . The adjusted you know , you look back to the adjusted M a year ago .

Speaker #4: Were up that kind of I think it's proof that we're not sensitive to the short end of the curve . And as we've said consistently , we are more sensitive to the middle part of the curve 3 to 5 year because that's where we price , you know , the fixed rate loans that we do have are priced there .

Greg Sigrist: As importantly, we still have roughly $200 million net for the next 12 months in the securities portfolio that it'll reprice, and it'll reprice likely into loans over that horizon. There's still a bit of fixed-rate loans that were put on before rates really ran up in 2022 that still are subject to repricing. That last one's becoming a smaller and smaller bucket, but it all leads down the path of, again, I still believe there's a modest tailwind there for us. I don't see with the current rate environment, current rate outlook, and the mix we've got, anything that would suggest otherwise.

Speaker #4: And as importantly, we still have roughly $200 million net for the next 12 months in the securities portfolio that we will, you know, it'll reprice and it'll reprice likely into loans over that horizon.

Speaker #4: And there's still a bit of fixed-rate loans that were put on before rates really ran up in 2022, that still are subject to repricing.

Speaker #4: And that last one is getting becoming a smaller and smaller bucket . But it all leads down the path of , you know , again , I still believe there's a modest tailwind there for us .

Speaker #4: I don't see, with the current rate environment, current rate outlook, and the mix, that we've got anything that would suggest otherwise.

Manuel Navas: I appreciate that. One last question on the tax season. I know there's about a month left in terms of what you haven't reported yet, but what are some of the learnings that you're going to apply to next year? Anything on new tax laws, where you can gain market share, kind of any of the priorities that you think you might set up for the next tax season?

Speaker #7: I appreciate that . One last question on the tax season . What's kind of I know there's about a month left in terms of what you have reported yet , but like , what are some of the learnings that you're going to apply to next year ?

Speaker #7: Anything on new tax laws where you can gain market share kind of any , any of the priorities that you think you might set up for the next tax season ?

Brett Pharr: Over the last several years, we have really done a good job of focusing on customer service with our EROs. Because of some disruption going on in the marketplace, it's given us a great opportunity to grab market share. We would hope we would continue to do the same thing next year. Now, this year got quite a boost from the new tax laws, interest in refunds, and the size of them, a lot of those kinds of things. That may not come next year. We still continue to believe we're having a better experience for our EROs, and so therefore we retain more and we'll be grabbing more in future years.

Speaker #2: You know, over the last several years, we have really done a good job of focusing on customer service with our Eeros.

Speaker #2: And because of some disruption going on in the marketplace, it's given us a great opportunity to grab market share, and we would hope we would continue to do the same thing next year.

Speaker #2: Now , this year got quite a boost from , you know , the new tax laws and interest in refunds . And , you know , the size of them .

Speaker #2: And a lot of those kinds of things. And that may not come next year. Still, we continue to believe we're having a better experience for our euros.

Speaker #2: And so, therefore, we retain more, and we'll be grabbing more in future years.

Manuel Navas: Thank you for the commentary.

Speaker #7: Thank you for the commentary .

Brett Pharr: Thanks.

Greg Sigrist: Thank you, Manuel.

Speaker #2: Thanks .

Speaker #4: Thank you . Manuel

Darby Schoenfeld: Lucas, are you there? I believe we have more questions still.

Speaker #8: Lucas, are you there? I believe we have more questions still.

Greg Sigrist: Yeah, everyone just bear with us for a moment. I think we're having some technical issues.

Speaker #4: Yeah. Everyone, just bear with us for a moment. I think we're having some technical issues.

Operator 3: Good afternoon. Thank you for bearing with us. Your next question comes from the line of Tim Switzer from KBW. Tim, your line is open. Please go ahead. Apologies, Tim. We're still dealing with technical issues. There you go. Try again now.

Operator: Good afternoon. Thank you for bearing with us. Your next question comes from the line of Tim Switzer from KBW. Tim, your line is open. Please go ahead. Apologies, Tim. We're still dealing with technical issues. There you go. Try again now.

Speaker #9: Good afternoon . Thank you for bearing with us . Your next question comes from the line of Tim Switzer from KBW . Tim , your line is open .

Speaker #9: Please go ahead Apologies , Tim . We're still dealing There you go . Try again . Now .

Tim Switzer: Okay. Yeah, thanks for letting me back. A quick one here. There's obviously been a lot of pullback from some competitors in the Banking-as-a-Service space due to the regulatory environment. Now that we're a few years through that, can you quantify? Maybe not quantify, but discuss if you're starting to see more competition coming in, and are there different types of players, or more players, in this space than there were previously in terms of like this is coming from beyond just banks now, as you guys also expand your offerings?

Speaker #1: Wow . Okay . Yeah . Thanks for letting me back . A quick one here . There's obviously been a lot of pullback from some competitors in the banking as a service space due to the regulatory environment .

Speaker #1: Now that we're a few years through that , you know , can you quantify it , maybe not quantify , but you discuss if you're starting to see more competition coming in and , you know , are there different types of players or more players in the space than there were previously in terms of like , this is coming from beyond just banks now , as you guys also expand your offerings .

Brett Pharr: Yeah. Let's talk about the elephant in the room, right? Which is, everybody's going and getting a bank charter right now. We might as well just hit that head on. Generally in our pipelines, we are not seeing the effect of that. There are those, including some of our partners that are getting charters, but in many cases they're getting sort of limited purpose charters, re-acknowledging to us, they're going to continue to do things with us. We think there'll be certain cases where people get charters and do that. Those that are going for full national charters, some of those things, there's a long way between here and them actually getting a bank opened and getting something up and running.

Speaker #2: Yeah . So , you know , let's talk about the elephant in the room , right ? Which is , you know , everybody's going and getting a bank charter right now .

Speaker #2: We might as well just hit that head-on. So generally, in our pipelines, we are not seeing the effect of that.

Speaker #2: There are those, including some of our partners, that are getting charters, but in many cases, they're getting sort of limited-purpose charters and re-engaging to us.

Speaker #2: They're going to continue to do things with us. So, you know, we think there'll be certain cases people get charters and do that.

Speaker #2: Those that are going for full national charters, some of those things, there's a long way between here and them actually getting a bank opened and getting something up and running.

Brett Pharr: My view is we're a couple of years out, and they'll probably arrive just in time from what might be the next administration, which will be an interesting experience. I think we've got a period of time here with runway on pipelines, and we're not seeing any impact yet from some of those kinds of things. I do believe there'll be some that are successful and two or three years from now, we'll have some more competitors that are in this space. We've been there before, and that's one of the reasons we're making sure we're serving partners well, giving them a wide breadth of product opportunities which are not easy to duplicate. Typically getting longer term contracts where we can, because switching costs are high, and we think that'll help us even if we hit another competitive wave that may happen here in a few years.

Speaker #2: So, you know, my view is we're a couple of years out, and they'll probably arrive just in time for what might be the next administration, which will be an interesting experience.

Speaker #2: So, I think we've got a period of time here with runway on pipelines, and we're not seeing any impact yet from some of those kinds of things.

Speaker #2: I do believe there'll be some that are successful in 2 or 3 years from now . We'll have some more competitors that are in this space , but we've been there before , and it's one of the reasons we're making sure we're , you know , serving partners well , giving them a wide breadth of product opportunities , which are not easy to duplicate , typically getting longer term contracts where we can because switching costs are high .

Speaker #2: And we think that'll help us, even if we hit another competitive wave that may happen here in a few years.

Tim Switzer: Interesting. Yeah, you did get ahead of my follow-up there on some of your partners going to get contracts. I got just one more here, and I think I asked this a couple of quarters ago too, but there's so much movement happening in this space right now, and the current administration's very open to it. Any recent developments you guys can share or talk about your level of interest in partnering with a stablecoin or some other digital asset company?

Speaker #1: Interesting . Yeah . You did . You did get ahead of my follow up there on some of your partners . Going to get contracts .

Speaker #1: So I got just one more here. And I think I asked this a couple quarters ago too, but there's so much movement happening in the space right now.

Speaker #1: And the current administration is very open to it. You know, any recent developments you guys can share, or, you know, talk about your level of interest in partnering with a stablecoin or some other digital asset company?

Brett Pharr: We're in the payments business, so we have to pay attention, right? We have our own views on stablecoin, how we're going to deal with that, think about that, et cetera. We are a partner-led model, and we're watching our partners, and as our partners come to us, we're engaging in various things, and that's not just stablecoin, that's many other different kinds of payments mechanisms that are happening. We'll continue to do that. We're watching it and participating in the dialogue, but it's not the kind of thing we're announcing, and we'll watch how our partners lead us.

Speaker #2: I mean , we're in the payments business , so we have to pay attention , right ? So we have our own views on stablecoin , how we're going to deal with that .

Speaker #2: Think about that , etcetera . But we are a partner led model and we're watching our partners and as our partners come to us , we're engaging in various things .

Speaker #2: And that's not just stablecoin, that's many other different kinds of payments mechanisms that are happening. And so, we'll continue to do that.

Speaker #2: But we're watching it and participating in the dialogue. But it's not the kind of thing we're announcing. And we'll watch our partners lead us.

Tim Switzer: Awesome. Thanks for taking my extra questions.

Speaker #1: Awesome. Thanks for taking the extra questions. Yep.

Brett Pharr: Yep.

Operator 3: Your next question comes from the line of Joe Yanchunis from Raymond James. Joe, your line is open. Please go ahead.

Operator: Your next question comes from the line of Joe Yanchunis from Raymond James. Joe, your line is open. Please go ahead.

Speaker #9: Your next question comes from the line of Joe from Raymond James. Joe, your line is open. Please go ahead.

Greg Sigrist: Hello again.

Joe Yanchunis: Hello again.

Speaker #3: Hello again .

Brett Pharr: Hey, Joe.

Brett Pharr: A few more questions from me here. I understand your partner pipeline's pretty full, cross-selling remains a big opportunity. Over the next, call it 12 to 18 months, do you expect to have more success cross-selling products or signing up new partners?

Joe Yanchunis: A few more questions from me here. I understand your partner pipeline's pretty full, cross-selling remains a big opportunity. Over the next, call it 12 to 18 months, do you expect to have more success cross-selling products or signing up new partners?

Speaker #2: Hey , Joe .

Speaker #3: So a few more questions for me here . So I understand your pipelines , your partner pipeline is pretty full . You know , cross-selling remains a big opportunity .

Speaker #3: You know , over the next call it 12 to 18 months . You know , do you expect to have more success cross-selling products or signing up new partners

Brett Pharr: It's hard to answer that question, and a lot of it depends on. We're going to be doing both, right? New ideas come in, et cetera. When you do a new partner and a new program, ramp up is slower. There's no doubt about that. Greg alluded to it earlier. Organic growth has been an awful lot of our growth recently, but we've got new things coming in. I don't know that I could put a 50/50 on it or something like that, but both of them are key parts of our overall strategy.

Speaker #2: You know , it's it's hard to answer that question . And a lot of it depends on I mean , we're going to be doing both , right ?

Speaker #2: New ideas come in , etc. when you do a new partner and a new program , you know , ramp up is slower , there's no doubt about that .

Speaker #2: Greg alluded to it earlier , organic growth has been an awful lot of our , you know , growth recently . But we've got new things coming in .

Speaker #2: So , you know , I , I don't know that I could put a 5050 on it or something like that , but it's both of them are a key parts of our overall strategy .

Greg Sigrist: Yeah, I'll answer just from a revenue growth perspective, not even the numbers, what's signed up. To Brett's point, I think you always get to revenue faster with existing partners, in part because of just the third party risk management you have to do once they're onboarded. It makes it a little easier. There's less. I think you also typically, when I think about the next 18 months, I still think that you're going to have a fair amount of revenue growth still going to come from existing partners, whether that's cross-selling to your worlds or multi-threaded to ours. I think when you get out past the 18 months is when you're still going to have the tailwind from new partners, new products.

Speaker #4: Yeah . I'll answer just from a revenue growth perspective , not even a numbers what signed up Inbreds point , I think you always get to revenue faster with existing partners , in part because of just the third party risk management .

Speaker #4: You have to do once they're onboarded , it makes it a little easier . And there's less . But I think you also typically when I think about the next 18 months , I still think that you're going to have a fair amount of revenue growth still going to come from existing partners , whether that's , you know , cross-selling to your words or , you know , multithreaded to ours .

Speaker #4: I think when you get out past the 18 months is when you're still going to have the tailwind from new partners, new products.

Tim Switzer: Okay. In that answer, you talked about onboarding partners and how it can take longer for new partners

Joe Yanchunis: Okay. In that answer, you talked about onboarding partners and how it can take longer for new partners

Speaker #3: Okay , and so , you know , in that answer , you talked about , you know , onboarding partners and how it can be take longer for new partners .

Joe Yanchunis: I guess, how has the time to onboard a new partner changed over now, versus, say, three years ago? I understand you have different products which might have different times. Just generally speaking, has that speed to market changed at all?

Speaker #3: I guess, how has the time to onboard a new partner changed over, you know, now versus, say, three years ago?

Speaker #3: And I understand you have different products which might have different times , but just generally speaking , has that speed to market , has that changed at all ?

Brett Pharr: Yeah. We've had a focus on speed to market, and that's part of what we're doing. Some of that is process improvement. Some of that is we're investing in technology and those kinds of things that will help with it. Sometimes, we're waiting on partners, right? You've got both of those things are going on, and you sort of took the words out of my mouth. It depends on the product. There's a few products you can turn on in a matter of weeks, right? There's others that can take quite a while to do it. It varies, but we have been focused on us improving the speed of that.

Speaker #2: You know, we've had a focus on speed to market, and that's part of what we're doing. Some of that is process improvement.

Speaker #2: Some of that is , you know , we're investing in technology and those kinds of things that that will help with it . And sometimes , you know , we're waiting on partners , right ?

Speaker #2: So you've got both of those things going on, and you sort of took the words out of my mouth. And it depends on the product.

Speaker #2: There's a few products you can turn on in a matter of weeks , right ? And there's others that can take quite a while to do it .

Speaker #2: So it varies , but we have been focused on improving the speed of that . But we just got to remember third party delivery is in fact third party delivery and there are frameworks that have to be put in place when you set that up .

Brett Pharr: We just got to remember, third-party delivery is, in fact, third-party delivery, and there are frameworks that have to be put in place when you set that up, and that's an important part of our overall program.

Greg Sigrist: Yeah. Speed to launching is different from speed to revenue because, again, we're not lifting and shifting programs that exist. These are not BIN transfers, right? So you're then beholden to the partner to actually ramp their programs, and that, again, varies by product. That's the other dimension that we work with partners on, but that's the way they manage their program.

Speaker #2: And that's an important part of our overall program.

Speaker #4: Yeah. And speed to launching is different from speed to revenue because, again, we're not lifting and shifting programs. It exists.

Speaker #4: These are not bin transfers , right ? So then you're then beholden to the partner to actually ramp their programs . And that again varies by product .

Speaker #4: But that's that's the other dimension that we work with partners on . But that's , that's their , the way they manage the program

Joe Yanchunis: That's fair. On the technology front, you're one of the major players in the banking-as-a-service space. Can you talk about the value of building your own technology versus using a third-party vendor?

Speaker #3: That's fair . And you know , on the technology front , I mean , you're one of the major players in the banking as a service space .

Speaker #3: Can you talk about the value of building your own technology versus using a third party vendor

Brett Pharr: Yeah. We spend a lot of time talking about that. Part of the issue is that the requirements for this business are fairly unique. The ability for, say, a service bureau to provide them, there's not sufficient scale for them to be interested in developing. We have to do a lot of things ourself, have done a lot of things in the past, and are rebuilding a lot of things now. The other thing is, and I'll just kind of go ahead and use the word everybody wants to use, which is AI, is being used a lot in our engineering space, to help speed up the time to develop various capabilities. That makes it even easier for us to build things ourselves internally, and I think that'll be a key part of the future. I'm not saying that software service providers aren't going away.

Speaker #2: Yeah , we spend a lot of time talking about that part of the issue is that the requirements for this business are fairly unique and the ability for , say , a service bureau to provide them , there's not sufficient scale for them to be interested in developing .

Speaker #2: So we have to do a lot of things ourselves. I have done a lot of things in the past and are rebuilding a lot of things now.

Speaker #2: The other thing is, and I'll just kind of go ahead and use the word everybody wants to use, which is AI, is being used a lot in our engineering space to help speed up the time to develop various capabilities.

Speaker #2: And that makes it even easier for us to build things ourselves internally. And I think that'll be a key part of the future.

Speaker #2: I'm not saying that software service providers are going away. I just think that there will be different kinds of use cases for different things.

Brett Pharr: I just think that there will be different kinds of use cases for different things. The things that are unique to our business, we will likely build ourselves.

Speaker #2: And the things that are unique to our business, we will likely build ourselves.

Joe Yanchunis: Okay. One more from me here. Just kind of taking a step back and looking at the broader BaaS space. What do you view the biggest potential risk to the industry? JPM seems to be focused on small businesses. They're kind of doubling down on that segment. How do you mitigate the risk of, say, one of the GSIBs starting to target lower-end consumers?

Speaker #3: Okay . And then one more for me here . You know , just kind of taking a step back and , looking at the broader based space .

Speaker #3: I mean , what do you view the biggest potential risk to the industry ? You know , we have PM seems to be focused on small businesses or kind of doubling down on that , that segment .

Speaker #3: But I mean, how do you handicap the risk of, say, one of the G-SIBs starting to target lower-end consumers?

Brett Pharr: Yeah. One of the key things here for the big banks is there sufficient scale, right? I don't see that happening, and I worked for one of those at one point, so I kind of know the conversations that went on in that space. I don't see that happening. I do think as we become less interchange product dependent oriented, which could happen over time, we'll face different kinds of competition. Again, being small, fast, and nimble is something that I think is of great value and is particularly important in this third-party delivery environment. We will have to adapt and change as product desires are coming in from our partners, which we're doing. That's why we like that wide breadth of products.

Speaker #2: Yeah, I mean, one of the key things here for the big banks is, is there sufficient scale, right? And I don't see that happening.

Speaker #2: And I worked for one of those at one point, so I kind of know the conversations that went on in that space.

Speaker #2: So I don't see that happening . I do think as we become less interchange product dependent , oriented , which could happen over time , we'll face different kinds of competition .

Speaker #2: But again, being small, fast, and nimble is something that I think is of great value and is particularly important in this third-party delivery environment.

Speaker #2: And so we will have to adapt and change as product desires are coming in from our partners, which we're doing. That's why we like that wide breadth of products.

Brett Pharr: I don't see one of the big banks coming in and trying to take over the low to moderate income or the digital-first, very young folks. There's just not enough scale in it.

Speaker #2: But I don't see , you know , one of the big banks coming in and trying to take over the low to moderate income or the digital firsts .

Speaker #2: Very young folks. It's just not enough scale in it.

Joe Yanchunis: Got it. Well, thank you, and I appreciate you taking my questions.

Speaker #3: Got it. Well, thank you, and I appreciate you taking my questions.

Brett Pharr: Thank you.

Greg Sigrist: Thanks, Joe.

Speaker #2: Thank you .

Operator 3: At this time, there are no further questions. I will now hand the call over to Brett Pharr, CEO, for closing remarks.

Operator: At this time, there are no further questions. I will now hand the call over to Brett Pharr, CEO, for closing remarks.

Speaker #4: Thanks , Joe .

Speaker #9: At this time, there are no further questions. I will now hand the call over to Brett Pharr, CEO, for closing remarks.

Brett Pharr: Thank you everyone for joining the call today. Have a good evening.

Speaker #2: Thank you, everyone, for joining the call today. Have a good evening.

Operator 3: This concludes today's call. Thank you for attending. You may now disconnect.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

Q2 2026 Pathward Financial Inc Earnings Call

Request DemoDemo

Pathward Financial

Earnings