Pathward Financial, Inc. Announces Results for 2025 Fiscal Second Quarter

SIOUX FALLS, S.D.–(BUSINESS WIRE)–Pathward Financial, Inc. (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $74.3 million, or $3.11 per share, for the three months ended March 31, 2025, compared to net income of $65.3 million, or $2.56 per share, for the three months ended March 31, 2024.

CEO Brett Pharr said, “At the halfway point for the fiscal year, our businesses are healthy, and we are optimistic about the future. We have made significant progress toward our goals thanks in large part to the successful execution on our balance sheet strategy, which is allowing us to generate revenue above our asset size and means that we do not need to grow our balance sheet to grow revenues. This is evident in our financial performance during the quarter. We are also having a great tax season, which led the way to noninterest income growth for the quarter.”

Company Highlights and Business Developments

• On March 20, 2025, the Company’s subsidiary Pathward®, N.A. announced it became Certified™ by Great Place to Work® for the third year in a row. Great Place to Work describes itself as the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation.

Financial Highlights for the 2025 Fiscal Second Quarter

• Total tax services product income, net of losses and direct product expenses, increased 29% to $47.6 million from $36.9 million, when comparing the first six months of fiscal 2025 to the same period of the prior fiscal year.
• Total revenue for the second quarter was $262.9 million, an increase of $15.6 million, or 6%, compared to the same quarter in fiscal 2024, driven by an increase in both net interest income and noninterest income.
• Net interest margin (“NIM”) increased 27 basis points to 6.50% for the second quarter from 6.23% during the same period last year, primarily driven by increased yields and balances in the loan and lease portfolio and an improved earning asset mix from the continued balance sheet optimization. When including contractual, rate-related processing expenses associated with deposits on the Company’s balance sheet, NIM would have been 5.09% in the fiscal 2025 second quarter compared to 4.76% during the fiscal 2024 second quarter. See non-GAAP reconciliation table below.
• Total gross loans and leases at March 31, 2025 increased $55.5 million to $4.46 billion compared to March 31, 2024 and decreased $97.8 million when compared to December 31, 2024. When excluding the insurance premium finance loans, which sold during the first quarter of fiscal 2025, of $522.9 million at March 31, 2024, total gross loans and leases at March 31, 2025 increased $578.4 million, or 15%, when compared to March 31, 2024.
• During the 2025 fiscal second quarter, the Company repurchased 575,804 shares of common stock at an average share price of $78.11. As of March 31, 2025, there were 5,722,336 shares available for repurchase under the current common stock share repurchase program. 

Tax Season

For the six months ended March 31, 2025, total tax services product revenue was $85.0 million, an increase of 17% compared to the same period of the prior year. Total tax services product fee income increased by $9.5 million and net interest income on tax services loans increased $2.6 million, while total tax services product expense increased marginally when compared to the prior year.

Provision for credit losses for the tax services portfolio increased $0.9 million for the six months ended March 31, 2025 when compared to the same period of the prior year, primarily due to an increase in loan originations.

Total tax services product income, net of losses and direct product expenses, increased 29% to $47.6 million from $36.9 million, when comparing the first six months of fiscal 2025 to the same period of the prior fiscal year. This increase was primarily due to a 13% increase in independent tax office enrollments this tax season as compared to the prior year period.

For the 2025 tax season through March 31, 2025, Pathward originated $1.66 billion in refund advance loans compared to $1.56 billion during the 2024 tax season.

Net Interest Income

Net interest income for the second quarter of fiscal 2025 was $124.3 million, an increase of 5% from the same quarter in fiscal 2024. The increase was mainly attributable to increased yields and balances in the loan and lease portfolio and an improved earning asset mix, along with a reduction in funding costs.

The Company’s average interest-earning assets for the second quarter of fiscal 2025 increased by $125.3 million to $7.76 billion compared to the same quarter in fiscal 2024, due to increases in average outstanding balances of interest earning cash and total loan and lease balances, partially offset by a decrease in total investment securities. The second quarter average outstanding balance of loans and leases increased $185.2 million compared to the same quarter of the prior fiscal year, primarily due to increases in the warehouse finance and tax services portfolios, partially offset by decreases in the consumer finance and commercial finance loan portfolios. The decrease in the average outstanding balance of commercial finance loans and leases was primarily driven by the sale of the insurance premium finance loans during the first quarter of fiscal year 2025.

Fiscal 2025 second quarter NIM increased to 6.50% from 6.23% in the second fiscal quarter of 2024. When including contractual, rate-related processing expenses associated with deposits on the Company’s balance sheet, NIM would have been 5.09% in the second quarter compared to 4.76% during the fiscal 2024 second quarter. See non-GAAP reconciliation table below. The overall reported tax-equivalent yield (“TEY”) on average interest-earning assets increased 12 basis points to 6.81% compared to the prior year quarter, driven by an improved earning asset mix. The yield on the loan and lease portfolio was 8.59% compared to 8.43% for the comparable period last year and the TEY on the securities portfolio was 3.11% compared to 3.20% over that same period.

The Company’s cost of funds for all deposits and borrowings averaged 0.32% during the fiscal 2025 second quarter, as compared to 0.47% during the prior year quarter. The Company’s overall cost of deposits was 0.23% in the fiscal second quarter of 2025, as compared to 0.38% during the prior year quarter. When including contractual, rate-related processing expenses associated with deposits on the Company’s balance sheet, the Company’s overall cost of deposits was 1.75% in the fiscal 2025 second quarter, as compared to 1.95% during the prior year quarter. See non-GAAP reconciliation table below.

Noninterest Income

Fiscal 2025 second quarter noninterest income increased 7% to $138.5 million, compared to $128.9 million for the same period of the prior year. The increase in noninterest income when comparing the current period to the same period of the prior year was primarily driven by secondary market revenue, refund advance and other tax product income, and refund transfer product fees, partially offset by a loss on sale of investment securities, a reduction in card and deposit fees, and a loss on sale of divestiture related to closing business activities from the insurance premium finance business sale that occurred during the first quarter of the fiscal year.

The period-over-period decrease in card and deposit fee income was primarily related to lower quarterly average deposit balances held at partner banks along with lower servicing fee income due to a reduction in rates following reductions in the Effective Federal Funds Rate (“EFFR”). Servicing fee income on custodial deposits totaled $6.5 million during the 2025 fiscal second quarter, compared to $10.4 million for the same period of the prior year. For the fiscal quarter ended December 31, 2024, servicing fee income on custodial deposits totaled $4.5 million.

Noninterest Expense

Noninterest expense increased 1% to $142.5 million for the fiscal 2025 second quarter, from $140.4 million for the same quarter last year. The increase was primarily attributable to increases in operating lease equipment depreciation expense, other expense, refund transfer product expense, card processing expense, and occupancy and equipment expense. This increase was partially offset primarily by reductions in compensation and benefits expense, refund advance product expense, and impairment expense.

Card processing expense is primarily driven by rate-related agreements with Partner Solutions relationships. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally, this rate index is based on a percentage of the EFFR and reprices immediately upon a change in the EFFR. Approximately 62% of the deposit portfolio was subject to these rate-related processing expenses during the fiscal 2025 second quarter. For the fiscal quarter ended March 31, 2025, contractual, rate-related processing expenses were $28.4 million, as compared to $25.6 million for the fiscal quarter ended December 31, 2024, and $30.1 million for the fiscal quarter ended March 31, 2024.

Income Tax Expense

The Company recorded an income tax expense of $15.9 million, representing an effective tax rate of 17.6%, for the fiscal 2025 second quarter, compared to an income tax expense of $15.2 million, representing an effective tax rate of 18.9%, for the second quarter last fiscal year. The current quarter increase in income tax expense compared to the prior year quarter was primarily due to an increase in income.

The Company originated $1.9 million in renewable energy leases during the fiscal 2025 second quarter, resulting in $0.5 million in total net investment tax credits. During the second quarter of fiscal 2024, the Company originated $25.9 million in renewable energy leases resulting in $7.0 million in total net investment tax credits. For the six months ended March 31, 2025, the Company originated $11.2 million in renewable energy leases, compared to $38.1 million for the comparable prior year period. Investment tax credits related to renewable energy leases are recognized ratably based on income throughout each fiscal year.

The Company’s investment security balances at March 31, 2025 totaled $1.44 billion, as compared to $1.51 billion at December 31, 2024 and $1.81 billion at March 31, 2024. The sequential decrease was primarily related to the sale of $57.7 million of investment securities AFS during the second quarter of fiscal 2025. The year-over-year decrease was primarily related to the sale of investment securities AFS during both the second and first quarters of fiscal 2025.

Total gross loans and leases totaled $4.46 billion at March 31, 2025, as compared to $4.56 billion at December 31, 2024 and $4.41 billion at March 31, 2024. The drivers for the sequential decrease were reductions in the commercial finance and consumer finance loan portfolios, partially offset by increases in the warehouse finance and the seasonal tax services portfolios. The year-over-year increase was due to an increase in the warehouse finance portfolio, partially offset by decreases in the commercial finance, tax services, and consumer finance loan portfolios. When excluding the insurance premium finance loans, which sold during the first quarter of fiscal 2025, of $522.9 million at March 31, 2024, total gross loans and leases at March 31, 2025 increased $578.4 million, or 15%, when compared to March 31, 2024.

Commercial finance loans, which comprised 79% of the Company’s loan and lease portfolio, totaled $3.52 billion at March 31, 2025, reflecting a decrease of $91.9 million, or 3%, from December 31, 2024 and a decrease of $131.3 million, or 4%, from March 31, 2024. The sequential decrease was primarily driven by decreases of $140.0 million in factoring loans and $65.8 million in asset-based lending, partially offset by increases of $105.8 million in SBA/USDA and $30.9 million in term lending. The year-over-year decrease was primarily related to the sale of insurance premium finance loans during the first quarter of fiscal 2025 and a decrease of $111.9 million in factoring loans, partially offset by increases of $277.4 million in term lending, $141.3 million in SBA/USDA, and $112.9 million in asset-based lending. When excluding the insurance premium finance loans of $522.9 million at March 31, 2024, commercial finance loans at March 31, 2025 increased by $391.6 million when compared to March 31, 2024.

Asset Quality

The Company’s allowance for credit losses (“ACL”) totaled $78.4 million at March 31, 2025, an increase compared to $49.0 million at December 31, 2024 and a decrease compared to $80.8 million at March 31, 2024. The increase in the ACL at March 31, 2025, when compared to December 31, 2024, was primarily due to a $33.0 million increase in the allowance related to the seasonal tax services portfolio, partially offset by a $3.7 million decrease in the allowance related to the commercial finance portfolio.

The $2.4 million year-over-year decrease in the ACL was primarily driven by a $5.4 million decrease in the allowance related to the commercial finance portfolio, partially offset by a $2.3 million increase in the allowance related to the tax services portfolio.

The following table presents the Company’s ACL as a percentage of its total loans and leases.

The Company’s ACL as a percentage of total loans and leases increased to 1.75% at March 31, 2025 from 1.07% at December 31, 2024. The increase in the total loans and leases coverage ratio was primarily driven by seasonality in both the tax services portfolio and consumer finance portfolio.

Activity in the allowance for credit losses for the periods presented was as follows.

The Company recognized a provision for credit losses of $29.9 million for the quarter ended March 31, 2025, compared to $26.1 million for the comparable period in the prior fiscal year. The period-over-period increase in provision for credit losses was primarily due to increases in provision for credit losses in the commercial finance portfolio of $2.8 million and the seasonal tax services portfolio of $1.0 million. The Company recognized net charge-offs of $0.1 million for the quarter ended March 31, 2025, compared to net recoveries of $1.1 million for the quarter ended March 31, 2024. Net charge-offs attributable to the commercial finance portfolio for the current quarter were $6.9 million while recoveries of $6.8 million were recognized in the tax services portfolio. Net charge-offs attributable to the commercial finance portfolio for the same quarter of the prior year were $4.7 million, while recoveries of $5.8 million were recognized in the tax services portfolio.

The Company’s past due loans and leases were as follows for the periods presented.

The Company’s nonperforming assets at March 31, 2025 were $41.6 million, representing 0.59% of total assets, compared to $37.5 million, or 0.49% of total assets at December 31, 2024 and $37.2 million, or 0.50% of total assets at March 31, 2024.

The increase in the nonperforming assets as a percentage of total assets at March 31, 2025 compared to December 31, 2024, was driven by an increase in nonperforming loans in the commercial finance portfolio, partially offset by a slight decrease in nonperforming loans in the consumer finance portfolio. When comparing the current period to the same period of the prior year, the increase was driven by an increase in nonperforming loans in the commercial finance portfolio, partially offset by a decrease in nonperforming loans in the consumer finance portfolio.

The Company’s nonperforming loans and leases at March 31, 2025, were $39.8 million, representing 0.88% of total gross loans and leases, compared to $35.2 million, or 0.76% of total gross loans and leases at December 31, 2024 and $34.4 million, or 0.78% of total gross loans and leases at March 31, 2024.

Deposits, Borrowings and Other Liabilities

The average balance of total deposits and interest-bearing liabilities was $7.30 billion for the three-month period ended March 31, 2025, compared to $7.28 billion for the same period in the prior fiscal year. Total average deposits for the fiscal 2025 second quarter increased by $12.6 million to $7.18 billion compared to the same period in fiscal 2024. The increase in average deposits was primarily due to increases in noninterest bearing deposits and interest bearing checking, partially offset by a decrease in wholesale deposits.

Total end-of-period deposits decreased 9% to $5.82 billion at March 31, 2025, compared to $6.37 billion at March 31, 2024. The decrease in end-of-period deposits was primarily driven by decreases in noninterest-bearing deposits of $458.0 million, wholesale deposits of $100.9 million, and money market deposits of $10.0 million, partially offset by an increase in interest bearing checking deposits of $25.1 million.

As of March 31, 2025, the Company managed $1.12 billion of customer deposits at other banks in its capacity as custodian. These deposits provide the Company with the ability to earn servicing fee income, typically reflective of the EFFR. The sequential quarter increase in these customer deposits held at other banks reflects normal seasonal patterns during the second quarter of the fiscal year.

Regulatory Capital

The Company and its subsidiary Pathward®, N.A. (the “Bank”) remained above the federal regulatory minimum capital requirements at March 31, 2025, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies. Regulatory capital ratios of the Company and the Bank are stated in the table below. The decrease in Tier 1 leverage capital ratio for the period as compared to the sequential quarter is the result of higher quarterly average assets related to the Company’s seasonal tax business. The Bank’s Tier 1 leverage capital ratio using end of period assets of 10.49% better reflects the expected capital position of the Company post tax season. See non-GAAP reconciliation table below. Regulatory capital is not affected by the unrealized loss on accumulated other comprehensive income (“AOCI”). The securities portfolio is primarily comprised of amortizing securities that should provide consistent cash flow.

The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies.

Contacts

Investor Relations Contact
Darby Schoenfeld, CPA

SVP, Chief of Staff & Investor Relations

877-497-7497

[email protected]

Media Relations Contact
[email protected]

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