Pathward's Credit Scare Tests Its Comeback Story

Pathward Financial missed fiscal third-quarter earnings and revenue estimates, with net income falling sharply amid rising credit losses and nonperforming loans. Despite the earnings miss and past accounting restatements, all three analysts covering the stock rate it a Buy with roughly 20% upside potential. Management cut fiscal 2026 EPS guidance but issued stronger initial fiscal 2027 guidance, suggesting current credit issues may be temporary rather than a lasting trend.

Pathward Financial NASDAQ: CASH has had its share of serious bumps over the past 14 months, including accounting restatements, a Nasdaq listing scare, and concerns about the credit quality of loans. Its fiscal third-quarter earnings report did nothing to settle things down. But still, analysts rate the company a Buy and project a strong 12-month upside. Management is confident of a strong 2027, and aggressive buybacks help strengthen the case. The stock is up nearly 17% year to date. For investors, it’s the numbers behind the reported results, and the potential for smoother roads ahead that make this company an interesting play.

Once known as Meta Financial Group, Pathward became a key piece of plumbing behind tax-refund advances, prepaid debit cards, and “banking-as-a-service” partnerships that let fintechs such as Upstart NASDAQ: UPST , Stripe, Trustly, and Greenlight offer bank products without becoming a bank. This niche bank, behind the scenes and based in Sioux Falls, South Dakota, has carved a specialty in ways the public rarely sees.

For its fiscal third quarter ended June 30, Pathward reported net income of $29 million , or $1.37 per diluted share , down sharply from $42.1 million, or $1.81 per share, a year earlier. Wall Street expected $1.95 per share, so the miss of 58 cents stung. Revenue of $189.6 million also missed the $191.2 million consensus. Behind the shortfall was a drop in net interest income for the period, not solely from operations, but still disappointing. The company reported that net interest income fell 8% to $112.9 million, largely from an $11.6 million drop after selling a consumer-finance portfolio last October. That sale also hit the company’s net interest margin, as it slipped to 6.59% from 7.43% a year earlier.

Offsetting some of that, however, interest income from commercial finance loans and leases rose $6.1 million year-over-year. Adding to the difficulty, the provision for credit losses jumped to $28.3 million from just $9.3 million a year ago, and nonperforming loans ballooned to roughly $275 from $117.7 million three months earlier. Management pointed to commercial loans for much of the increase, including a renewable-energy construction project tied to one developer, and a working-capital loan that CEO Brett Pharr called likely “a sophisticated fraud” on the earnings call.

Noninterest income rose 4% to $76.7 million, noninterest expenses fell 7% to $129.1 million, and the company kept buying back stock, repurchasing about 304,000 shar...