Operator: Ladies and gentlemen, thank you for standing by and welcome to Pathward Financial's Q4 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. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again.
Operator: 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.
Darby Schoenfeld: 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 Q4 and full fiscal year of 2026, after which we will take your questions. Additional information, including the earnings release, the investor presentation that accompanies our prepared remarks, and supplemental slides may be found on our website at pathwardfinancial.com. As a reminder, our comments may include forward-looking statements.
Darby Schoenfeld: Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. These statements speak only as of this date, and the company undertakes no obligation to update any forward-looking statement except as may be required by applicable law.
Darby Schoenfeld: Please refer to the cautionary language in the earnings release, investor presentation, and in the company's filings with the Securities and Exchange Commission, including our most recent filings for additional information covering factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. Additionally, today, we will be discussing certain non-GAAP financial measures on this conference call. References to non-GAAP measures are only provided to you to assist in understanding the company's results and performance.
Darby Schoenfeld: Additional information regarding these non-GAAP measures, as well as reconciliations, are included in the earnings release and the appendix of the investor presentation. Finally, all time periods referenced are fiscal quarters and fiscal years, and all comparisons are to the prior year period unless otherwise noted. Now let me turn the call over to Brett Pharr, our CEO.
Brett Pharr: Thanks, Darby, and good evening, everyone. Thank you for joining our earnings call. We are looking forward to sharing our updates today, but I would like to start by taking a moment to reflect on an important milestone. This quarter marks five years since my first earnings call as CEO of Pathward. Looking back, it is remarkable to reflect on everything the Pathward team has accomplished together.
Brett Pharr: We have navigated the challenges of COVID, rebranded the company as Pathward, expanded our executive team, and strategically reshaped our balance sheet, all while evolving our business and strengthening our position as a trusted platform that enables our partners to thrive. Through each chapter, one thing has remained constant, and that is the dedication and commitment of our employees. Our success has always been rooted in our people. Every day, talented employees across Pathward work with customers and businesses to enable financial availability, choice, and opportunity.
Brett Pharr: Their unwavering commitment to true partnership is what has enabled us to adapt, execute, and continue delivering for all of our stakeholders. I am very proud that we have continued to sustainably grow while staying true to our purpose of powering financial inclusion. That is not a coincidence. Our purpose continues to guide our strategy, and we believe that this diligent focus helps drive long-term value for our shareholders.
Brett Pharr: While I find tremendous value in times of reflection, I am even more excited about what lies ahead. We have a strong foundation, a team that embodies our values and is committed to success, as well as a clear strategy to guide us forward. With that, let me spend a few minutes on our strategy. Then I will provide a quick update on credit before turning the call over to Greg. Fiscal 2026 was another important year of execution for Pathward.
Brett Pharr: We successfully advanced the strategic priorities we set out to accomplish last year, and this was by no means a small feat. We had some major wins across each area, starting with maintaining an optimized balance sheet. Commercial finance growth, combined with reductions in our lower-yielding securities portfolio, reflects our disciplined approach while remaining cognizant of our balance sheet capacity. We deployed capital where we believed it provided us with optionality or generated strong risk-adjusted returns. We made significant inroads in the Small Business Administration loan market, moving up within the top 20 SBA 7(a) program lenders in the country. Next, we continue to make investments in technology, risk, and compliance. We believe these continued investments will allow our partners, both present and future, to deliver with confidence as they leverage our expertise, infrastructure, and collaborative support.
Brett Pharr: The world is only moving faster, and we are proud to enable our partners by offering a broad suite of capabilities. Furthermore, we are very proud to have been recognized by a few different organizations throughout the year for our standout workforce and culture. We believe part of our success can be attributed to our talent anywhere approach. Through this talent strategy, we have been very successful in expanding our reach beyond local candidates as a remote-enabled employer and strengthening our ability to meet the evolving needs of our business. The last strategic priority is the client experience. We believe our partners see the value in Pathward's platform and our ability to grow alongside them.
Brett Pharr: Last quarter, we announced that we had renewed our relationship with Clair, a company that has empowered workforce management and payroll platforms to offer early access to earned wages to employees at no cost to employers. This quarter, we are pleased to announce that we have renewed our contract with longstanding partner H&R Block, extending our relationship through mid-2030. H&R Block has been a leader in the tax preparation industry for more than 70 years with a deep commitment to their clients, associates, and community. We are excited to continue to support them. We still see significant opportunity in our pipeline with both new and existing partners to build on this momentum by expanding the products and capabilities we deliver. As we look ahead to fiscal 2027, our strategy will remain consistent.
Brett Pharr: We believe the continuity in our strategy reflects the confidence that we have, both in the direction of the business and the progress we have made throughout fiscal 2026. Our focus is now on continuing to execute against these areas and building momentum across the organization. Importantly, we believe our diversified mix of partners, products, and capabilities remains a key differentiator at Pathward. We are not dependent on a single partner, industry, or market, which we believe delivers a resilient business model while providing multiple avenues for growth. Our broad suite of solutions allows us to create opportunities, deepen relationships, and deliver value. As a result, we believe we are well-positioned to capitalize on the opportunities in front of us. We continue to work through the renewable energy projects that we mentioned last quarter and still believe we have line of sight to bringing them to completion.
Brett Pharr: While we made significant progress during the quarter, these things take time. We will continue to provide transparency and connection with these credit items. Additionally, we continue to believe that these events are not indicative of a broader systemic issue within the portfolio. Aside from credits, we are very pleased with the results of the year. Now I would like to turn it over to Greg, who will take you through the details of our financials and fiscal year 2027 guidance.
Greg Sigrist: Thank you, Brett. We were pleased with the performance during the quarter as our core businesses delivered solid results. Starting with the balance sheet, our treasury-led model continues to deliver with growth of nearly $6 million in net interest income from our Commercial finance business. We also delivered double-digit percentage growth in non-interest income, primarily due to an increase of almost $8 million in card and deposit fee income, the majority of which was driven by growth in the core payments business. Non-interest expense improved in the quarter as a result of disciplined expense management with lower legal and consulting expense. This was partially offset by building and software expense. Additionally, we will continue to make targeted investments in our people, processes, and technology to facilitate evolution and scalability.
Greg Sigrist: Aside from the credit items Brett discussed, we are pleased with our full-year results and, equally important, how our teams delivered them. Their focus, collaboration, and consistent execution throughout the year drove strong performance across the business. Interest income growth in Commercial finance was nearly $30 million, driven primarily by an increase in structured finance. Solid partner growth, combined with disciplined expense management, led to full-year net income of $175.7 million, or $8.14 of diluted earnings per share. With that, our return metrics remain strong with a 230-basis-point return on average assets and a 32.9% return on average tangible equity. We believe that these results reflect the quality of our business model, the discipline of our teams, and consistent execution, not to mention our capacity to generate earnings and accrete capital to cover events as they arise.
Greg Sigrist: We believe this continues to differentiate Pathward and provide a strong foundation as we enter fiscal 2027. While deposits held on the company's balance sheet at 30 September experienced a modest decrease versus a year ago, we held more than $400 million more in average custodial deposits. As a reminder, we do earn fee income on custodial deposits that is tied to the effective Fed funds rate. Average partner deposits were strong in the quarter, giving us the ability to generate additional servicing fee income. Loans and leases at 30 September grew 9%. We continue to be successful in growing structured finance, term lending, and SBA and USDA loans, as well as working capital asset-based lending. Adjusted net interest margin improved to 551 basis points in the Q4 as we continue to improve our earning asset mix and see the benefit of repricing.
Greg Sigrist: Year-over-year loan originations increased from $1.3 billion to $2.2 billion, driven primarily by significant growth in our credit sponsorship business from both a new contract signed last year and expansion with current partners. Regarding credit, the non-performing loans and lease ratio did increase modestly to 5.61% sequentially. While there are always normal flows in and out, the increase was largely attributable to additional work being done to bring certain credits to completion. Net charge-offs were $52 million in the quarter, of which $20.3 million was associated with Commercial finance portfolio. We continue to expect credit to normalize in 2027 as we work down our non-performing loans. The strength of our balance sheet, along with our earnings and capital accretion power, allows for return of capital to shareholders.
Greg Sigrist: As of 30 September, our liquidity was $3.1 billion, and during the quarter, we were able to repurchase approximately 282,000 shares at an average share price of $88.75 for a total of over 2 million shares for the year. This leaves 2.8 million shares still available for repurchase under the current stock repurchase program. We are reiterating our fiscal year 2027 guidance range of $9.50 to $10 per share, which includes the following assumptions: No additional rate changes during the year, an effective tax rate of 18% to 22%, expected secondary market revenues between $5 to $7 million per quarter, and includes expected share repurchases. Lastly, a comment on expenses. As we have said, we will continue to invest in people, processes, and technology. In prior years, that has largely shown up as an investment ramping throughout the year.
Greg Sigrist: For fiscal 2027, we expect those investments to begin in the December quarter. This will manifest as additional hirings in Q1 that will increase the compensation and benefits run rate earlier in the year but will still hold the normal seasonal pattern. Similarly, we will continue to use consultants with modestly elevated spend in H1. This concludes our prepared remarks. Operator, please open the line for questions.
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 our roster of Q&A. Your first question comes from Tim Switzer with KBW. Tim, your line is now open. Please go ahead.
Tim Switzer: Hey, good afternoon. Thanks for taking my question.
Brett Pharr: Hey, Tim.
Tim Switzer: Sounds like good progress on the partnership side, the announcement with H&R Block and Clair and some other ones recently. I am curious on where do you think the new partners will be coming from, specific industries, and is it more on the credit sponsorship side, embedded finance, the card and debit business? Would love to get an update there.
Brett Pharr: Well, I think there is a variety of ways. It is pretty broad. One of the things we kind of emphasized is our diversified business model and product set. It is all of the above we are seeing. We have said it before, a lot come from potential new partners and also an awful lot of our increase in revenue comes from existing partners. But there is not one that I would single out and say that it is a higher percentage of it. This is all about the breadth and depth of our offerings, and our partners really want to understand that and be a part of it.
Tim Switzer: Okay. Do you guys feel like there are any areas right now where you need to invest a little bit more in to keep up with the competition in the BaaS and embedded finance space? Where are you directing most of your investment dollars right now?
Brett Pharr: Well, Greg, I'll get you to talk about this a little bit, but we've said for a while that we've been in our run rate investing in technology and enhancing the infrastructure and the backbone. Anything you want to add to that?
Greg Sigrist: No, I think that's right. It's more just staying contemporary with our clients to really help them support their own endeavors. As I said in my prepared remarks, we also invest on the risk and compliance side because with the onboarding we've done and just the increase in the volumes today and in the future, we just want to make sure that stays state-of-the-art and stays at the strength that we've had historically. So that's just an area we want to make sure we stay ahead of.
Tim Switzer: Okay. That's helpful. I want to ask a few on the credit side here. With the charge-offs this quarter, and I guess even the last few, which some of them were in the renewable energy space, were there any specific verticals or industries that these were concentrated in this quarter?
Brett Pharr: No, nothing specific that we would call out. A lot of this is related to transactions that we've already talked about before as we work through the process. So there's not anything new or any new kind of asset classes that we would bring to the table and say we're seeing things here.
Greg Sigrist: Yeah. Tim, I think the key point there, which Frederick kind of, I think the key point which you really touched on, though, is that the elevated charge-offs and frankly still the NPL and the NPL ratio, it is concentrated in the credits we have already talked about. I think importantly, we are making resolutions. You saw the past dues have declined. That is important to see, too. We have not seen any evidence that there is any other issues spreading across the portfolios.
Tim Switzer: Okay. I guess with the charge-off this quarter, we still see NPAs staying around the same level. Should we expect further charge-offs starting next year? What kind of assumptions should we have?
Brett Pharr: Keep in mind, and we talked last time about a number of the projects that we were going to take over and have to lead to completion. That means you fund the projects, and then eventually complete them, get them producing, and then you sell them. Well, for the existing portfolio, when you fund some of that construction, those dollars go into non-accrual until you sell the product.
Greg Sigrist: Yeah. But specifically on charge-offs, Tim, you have to separate and differentiate the charge-offs from when you take the specific reserves and how that kind of dovetails with the life cycle Brett just mentioned, right? The charge-offs you are seeing are a result of specific reserves that we have taken in prior quarters, and you have to differentiate that against our ongoing credit cost of credit, right? Which is what we provision for. We talked about last quarter, we see credit normalizing into 2027. What that really means is the cost of credit, which is our credit provisioning, I feel is going to migrate back to our historic levels. The charge-offs are a bit more episodic and they are tied to the idiosyncratic loans that we have talked about over the last year, frankly. But it is a byproduct of just the natural progress of working through some of those.
Tim Switzer: Okay. All right. My last one here, Brett, you just touched on this, but what kind of provision expense expectations are embedded within your guidance for 2027?
Greg Sigrist: Yeah. I touched on it last quarter, too, where I said we would normalize back to kind of the historic run rate. I think I said this last quarter, too. What that really means is if you focus solely on the commercial finance portfolio, the historic ACL ratio has been, you can see it in the deck, it is in there. But it could be down roughly 120 to 130 basis points is probably a normalized level. I think that is the starting point, and then anything up or below that is really just going to be more of a function of the mix of new production. What you saw this quarter, frankly, the provisioning in the quarter is really just provisioning for loan growth, depending upon what that mix was.
Greg Sigrist: That is the way I kind of see next year playing out is more akin to that 120 to 130 basis point range.
Tim Switzer: Okay. Since you are already near those levels, it seems like the provision going forward should be more for loan growth rather than credit deterioration.
Greg Sigrist: Based upon the facts we have right now, that is exactly the way we are feeling about it.
Tim Switzer: All right. Good to hear. Thanks for taking all my questions.
Greg Sigrist: Okay. Thank you.
Brett Pharr: Thanks, Tim.
Operator: Your next question from the line of Joseph Yanchunis with Raymond James. Your line is now open. Please go ahead.
Joseph Yanchunis: Good afternoon, guys. Thanks for taking my questions.
Brett Pharr: Hey, how you doing? Yep.
Joseph Yanchunis: I am doing well. New originations increased pretty meaningfully this quarter, largely driven by credit sponsorship, and you had referenced growth with existing partners. How much of that growth represents a new normalized run rate versus potentially some acceleration in specific programs? I am just kind of curious what you are seeing in the pipeline today that gives you confidence in that continued growth.
Greg Sigrist: Yeah. I believe that really represents the new run rate based upon the programs and the partners we have announced and onboarded. I think, you know, we tend to ramp into those programs more rapidly than an issuing partner or acquiring is pretty rapid, too. But I think that's the new normal. From here, it's really just growth in partner programs and then growth in the partner base.
Joseph Yanchunis: That's great to hear. Brett, having completed 5 years of earnings call for Pathward, and congratulations for that, I was hoping you could talk a little bit about the next 5 years. What do you think the themes will be in the BaaS space, and how do you expect consolidation in the regulatory environment will play out?
Brett Pharr: Well, I think there's a broad set of things there. Obviously, there's lots and continual change in all kinds of payments products. If you think about where we were 5 years ago and the products that we offered and provided, and then what we offer today is vastly different. I think 5 years from now, there will be a lot more of things that are, let's say, not just issuing and interchange related. That's going to continue to advance. Some of which are the products we are already doing, some of which are products that we do not even know about or that are coming. We have got to let all that play out. We have got to let AI play out. That's going to have a material impact on our industry. I think it's going to be more on the customer front end ultimately and how that shows up.
Brett Pharr: That's going to be a big part of think of 5 years out. I think we are in a period of time where some are looking at vertical integration. We are going to see if that's right or wrong, and I am not sure. I think there are pros and cons to that. I think we will watch that play out. That will not be 5 years, that will be 2 years. We will watch as that plays out. But very optimistic about this because this whole thing has always been about third-party delivery and about people being creative, innovative, entrepreneurial, upfront with the customer, and then us providing the infrastructure, the backbone behind it, obviously wrapped in risk and compliance. I just think that's a fabulous business model for whatever's coming. So excited about the future and we lead based on what our partners lead into.
Brett Pharr: We watch them and what they are doing, then we help support them to do that and often co-create. I think we will keep doing that.
Joseph Yanchunis: You mentioned the vertical integration in your answer there. I believe this question has come up on the past probably five or six earnings calls with you guys. With more fintechs considering their own charters and more banks building BaaS capabilities, what is the hardest aspect for a competitor to replicate? Do you think it is the regulatory infrastructure, product breadth, technology, or just the relationships?
Brett Pharr: It is the culture. The culture matters. There is a distinct reason that banks do banking, and our program managers do what they do. By the way, you cannot hire culture. You have to spend a lot of time creating it. I think the best business model has worked because the banks had the bank culture, and the program managers had the program manager culture. I think we have already had in the past household names that you know that tried vertical integration and failed. Some of them, as we go forward, will figure it out. Some of them have narrow-based charters that can let them do some things, so it will not be quite as hard.
Brett Pharr: But the fully vertical integrated model, I think it is hard to get up every day and have a culture that meets the needs of a banking infrastructure in the background and all the things you need on the front end as a program manager. As I said, you cannot hire that.
Joseph Yanchunis: That is a good point. Then one more from me here to bring Greg back in the fold. The securities portfolio continues to wind down. Now it is under $1.2 billion. I think you have about another $150 million cash flowing in fiscal 2027. Where would you like to see the portfolio settle out?
Greg Sigrist: We still keep it there largely as a reservoir of liquidity, just in case we need it. It is pledged. We borrow against it. That is part of how we fund tax season. Its reality is, I think we can let that run down to the $800 million to perhaps a billion-dollar range, and it will settle out there. We are in that environment, though, where rates are. I have said historically, we will take that $140 or $150 million of principal off the portfolio and reinvest it back into the loan book. The reality is, though, there is probably a benefit for us to buy a few securities along the way just to give us, in the event there is a down-rate scenario, a bit of coverage on the OCI front. I would not say it is going to be a lot, but I would say there might be a little bit there.
Greg Sigrist: That is still, in my view, we are going to normalize around that $800 to a billion range.
Joseph Yanchunis: All right, great. Well, thank you for taking my questions.
Brett Pharr: Thanks.
Greg Sigrist: Thanks, Joe.
Brett Pharr: Sure.
Operator: Your next question from the line of Manuel Navas with Piper Sandler. Your line is now open. Please go ahead.
Manuel Navas: Hey, good evening.
Greg Sigrist: Hi, Manuel.
Manuel Navas: With this higher rate environment, can you guys talk through. Also you had a NIM rebound this quarter. Can you just talk through what are some of the expectations from the September hike? How a potential December hike could impact your EPS trajectory? Also maybe touch on how this could show up potentially down the road in credit.
Greg Sigrist: Let me tackle the first one first. Then I may hand off to Brett so we can do a little tag team here. I will break it down maybe just broadly on the adjusted net interest margin, how I think about headwinds, tailwinds there. You touched on the September hike, the possibility of a December hike. More broadly, we have been fairly neutral from an asset liability perspective. So each 25-basis point rate cut or increase has been pretty close to pretty negligible. We, during the balance of 2026, did shift a little bit of new production toward floating rate loans, particularly tied to Prime. So that has put us at a moment in time at a slightly asset-sensitive position.
Greg Sigrist: So from this point, if we have a 25-basis point raise in December or the next meeting, it is perhaps $2 million pre-tax, maybe a little bit more for the full year. I point out it is at a point in time because a lot of that new production came from the renewable space, from the infrastructure space, and it is in the construction loans. I think we are probably at a high water mark of where those are going to be. So over time, as that portfolio comes down, also the treasury team is looking over the next notifying timeline. I think we will get the assets back to neutral certainly over the next couple of years. So I do not think this is a long-term trend. I think it is a short-term trend. But it is a trend that is helpful at this point in time, just given where the rate environment is going.
Greg Sigrist: I think the other tailwind, though, and we have talked about this consistently, is just the middle part of the curve. Roughly 35% of the book in new production is fixed rate loans, which price off of the 3 to 5-year part of the curve. With the curve 5-year touched 5% and then backed off a little bit. You think about the loan portfolio, which is currently book yielding around 3%, and you assume that we are taking $100 million or $150 million and recycling that. That is a pretty large tailwind for us as we continue to do that. Not to mention the fixed rate loans in the book that are continuing to reprice because some of those still came on pre-2022, which has been really great. You are obviously over time going to have some offsets.
Greg Sigrist: Cost of deposits will go up a little bit, but it is going to be more than offset with the rate environment. Did that make sense? I will assume yes, because you might be on mute, and I will hand it over to Brett.
Brett Pharr: Yeah. I think the other part of your question is really what does higher rates for longer mean from a credit perspective or an economic standpoint?
Manuel Navas: Yes.
Brett Pharr: You got to remember our asset-based lending and working capital portfolio actually benefits during that time because the commercial traditional C&I borrower that was at a bank now is even being either pushed out of the bank or cannot get credit. Then they start looking for alternatives, and that is where we step in. Actually, it is during higher rate and economic stressed environments where we get the better quality credit in the asset-based lending and working capital portfolio. So I only see that as kind of a dark view, but I only see that as a positive. When the economy slows down, we will pick up more opportunities in that space. Higher interest rates do have an impact in the energy infrastructure portfolio because you have to use a higher capital cost.
Brett Pharr: It impacts the value of the tax equity throughout the life cycle of the project, so more equity will have to come in. But these projects are at such a high rate of return that the incremental impact of the interest rates is not going to stop the projects. It will just reframe the capitalization that goes in upfront. So I do not expect there to be much there. In the consumer loan originations, our partners are operating in a space that is not Prime credit. As I often say, these people are always in a recession. So the interest rate costs are not going to be very material in that space, and they may be repaying it with benefits payments rather than income payments, but they will repay it anyway because of where they live and the part of the economy that you are in.
Brett Pharr: I am not worried about an economic downturn. I actually think our credit verticals are built for those kinds of things. They assume an economic downturn.
Manuel Navas: Is there a certain level of rate increases that you think would start impacting the demand for your product or your partners' origination levels and where it would impact some credit? Is it like 100 basis points from here? Just trying to ballpark that.
Brett Pharr: Well, let's suppose that the Prime goes up 200 basis points. That is going to slow down commercial business, and that is exactly where we would excel in the working capital and the asset-based lending. As I said, a 200 basis point increase in rates in the alternative energy and electricity infrastructure arena, it will change the economics. But because they are so rich, they will still be valid projects. You will just structure them differently. I do not expect that we will be impacted by a slowdown in that regard. In fact, in some ways, we might be positively impacted by it.
Manuel Navas: Okay. That's helpful. I appreciate that. Just about thoughts on your partner population. Do you have a sense of any that are actively pursuing national charters?
Brett Pharr: We have had conversations where a small subset of them have talked about it and may be pursuing it. One of the things you got to remember, if you're a private equity firm, it is very difficult to become a bank holding company. There's an awful lot of them that are in that category. There may be an exception here or there, but there's not any circumstance where we're having any kind of material threat from a partner because of it.
Greg Sigrist: Part of that is just the lack of concentrations in that partner base in the first place.
Brett Pharr: That's right.
Manuel Navas: That was going to be another question. I appreciate that your commentary that you're not dependent on any one customer. Do you have a sense for some sort of metric that you can track that? What's like your top three, top five, top 10 partners as a percentage of revenue?
Brett Pharr: Yeah. So let me give you this number. No partner represents more than 5% of Pathward revenue.
Manuel Navas: Okay. I appreciate that. One area that has been quite strong is the card fee line. It kind of bounces around quarter to quarter, but there is very solid year-over-year growth. How should I think about that fee line over the next year?
Greg Sigrist: Yeah. If I heard the question on the card fee income line, Karen, I am going to ask you, is the CD off balance sheet?
[Company Representative] (Pathward Financial): Yep. That excludes it, yeah.
Greg Sigrist: Yeah. I think really what you are looking at right now really sets the mark for going forward, and I think any variations from there are really just going to be volume-based from here with the partners who are onboarding, the pace, and the like. I think what you are seeing now. But keep in mind too, there is always seasonality in that line.
Manuel Navas: Yep
Greg Sigrist: as we bring on deposits in Q4, spin them out in the March quarter, the December quarter, on Q2. So you are going to see the normal seasonality in that, but there is always kind of the ebb and flow. There is always a low watermark as the tide comes in and out.
Manuel Navas: And then just one kind of wrap-up question on credit from me. You have the rest of the tax services, you ended that for the year, kind of the net charge-offs there. How do you view that next year? You have talked in the past about how that business performed better on credit. Do you have any other kind of look back on that you can apply for next year in terms of the tax services business itself?
Brett Pharr: I think we have said that for the last several years, we have continued to improve our underwriting, and that has shown up in the numbers. We will maintain the gains that we have gotten, but I doubt we will continue to improve at the same degree every year. So I would hope it is some better, but not as much better as it has been in past years.
Manuel Navas: Okay. I appreciate it. I will step back into the queue.
Brett Pharr: Thank you.
Operator: Your next question from the line of Tim Switzer with KBW. Your line is now open. Please go ahead.
Tim Switzer: Hey, thanks for letting me back through the queue. Greg, you actually just kind of answered one of the questions I had in terms of the seasonality. Obviously, we are going to get the bump in FQ1 next quarter. Has the seasonality for the rest of the quarters changed at all? For example, a really strong Q4, where it is typically down mid to high single digits, at least historically. Has growth from any individual partner or the onboarding of new partners changed that at all?
Greg Sigrist: Well, I think it is really the onboarding of new products and new partners, new products, and just that continued march of multi-threaded opportunities. That flattens out the seasonality a bit. I think with the prepaid card business, though, you still see deposits grow in the December quarter, and then you see the fee income, core fee income in the March quarter. I think you will always see that. But I think the continued march toward diversification of both products and partners helps to take away some of that seasonality, particularly in the Q4. I think that is what you have seen when you kind of track back. There is one nuance, though. We talked about this last quarter a little bit. We do receive some contractual volume-based incentive payments which can hit one quarter versus the next.
Greg Sigrist: That was kind of the explanation last quarter for why when you did the year-over-year fiscal 2024 was a little bit or 2025 was a bit above fiscal 2026. For a full-year basis, we feel like we are going to get those incentive payments, but that could skew one quarter to the next. That would be the only caveat to what I just said.
Tim Switzer: Got you. Okay. That makes sense. Then just qualitatively, are you able to kind of parse apart the acceleration we have seen year-over-year in fiscal 2026 on the card fees? How much of that is driven by new programs, new products, new partners versus older ones that were already in place in 2025?
Greg Sigrist: I think you are always going to see for the foreseeable future, growth year-over-year is still going to be driven more by existing partners. I think when you think back over the last four to six or eight quarters, it is a combination of just they are putting on new programs, but also adding new multi-threaded products to the mix. I think that is still historically, that is probably been 75% to 80% of the uplift year-over-year. Part of that is the new partners typically take a bit more time to onboard, plus part of which is going through the third-party onboarding process, which takes some time. We talked about how once we have gone through that process, it is a lot easier then to do multi-threaded with new partners.
Greg Sigrist: When I think out the next 12 months, I think revenue growth is still largely going to come from existing partners, perhaps a bit more uplift from new products with those partners. New partners, typically, unless it is credit sponsorship, which we can get uploaded a little faster. Acquiring, you can get those ramping a little faster. If it is issuing business, that typically takes longer. It is usually plus, as part of the issuing, they would have to ramp into those new programs, which really means you are talking the subsequent fiscal year before you really start to see uplift from that. The partners and the pipelines we have been talking about for new partner growth, that is just tailwind for us exiting 2027 and going into 2028 and 2029.
Tim Switzer: Got you. Okay. Thank you so much.
Greg Sigrist: You are welcome, Tim. Thanks for coming back.
Operator: We have reached the end of the Q&A session. I will now turn the call back to Brett Pharr, CEO, for closing remarks.
Brett Pharr: Thank you for joining the call this evening. We hope you have a good night.
Operator: This concludes today's call. Thank you for attending. You may now disconnect. This event has now concluded. Thank you for joining Pathward Financial Q4 2026 Conference Call. The line will disconnect automatically.
