Meta Financial Lifts 2026 Outlook After Profits Jump

Meta Financial ((CASH)) has held its Q1 earnings call. Read on for the main highlights of the call.

Meta Financial’s latest earnings call struck a clearly upbeat tone as management pointed to robust profit growth, improving returns, and a solid balance sheet, while also acknowledging a handful of transitory headwinds. Net income and EPS rose sharply, fee income and loan originations are gaining traction, and the company lifted its 2026 earnings guidance. Against that, a one-off hit from a consumer finance portfolio sale weighed on reported net interest income, deposits ended the quarter slightly lower than a year ago, and nonperforming loans ticked up modestly. Overall, executives framed the quarter as evidence of strong underlying momentum with manageable execution risks tied mainly to partner ramp timing and tax season dynamics.

Strong Profitability and Higher EPS Targets

Meta Financial reported net income of $35.2 million and diluted EPS of $1.57, increases of 17% and 28% year over year, respectively, underscoring solid operating leverage. Management used the strength of the quarter to raise fiscal 2026 EPS guidance to a range of $8.55–$9.05, with a higher midpoint than previously communicated. That outlook assumes no additional interest-rate cuts, an effective tax rate between 18% and 22%, and continued share repurchases. The move signals confidence that current growth drivers—particularly in fee income and commercial lending—can sustain earnings expansion over the next two years.

Return Metrics Point to Enhanced Capital Efficiency

Return metrics moved higher, reinforcing the profitability story. Quarterly annualized return on average assets climbed to 1.87% from 1.61% a year ago, while return on average tangible equity rose to 26.7% from 25.5%. These gains suggest Meta Financial is not only growing earnings but doing so in a capital-efficient way, extracting more profit from its existing equity base. For investors, these elevated returns indicate a business model capable of generating attractive profitability without relying on outsized balance sheet growth.

Loan Growth Driven by Commercial Finance and Healthy Originations

Total loans and leases reached $5.0 billion, up from $4.6 billion a year earlier, with a clear shift toward commercial finance. Commercial finance loans increased by $531 million, while consumer finance loans declined by $148 million as the company reshapes its portfolio. Quarterly originations totaled a robust $1.9 billion—$678 million in commercial finance and $1.2 billion in consumer finance—highlighting strong demand and the bank’s ability to source new business. This mix shift toward commercial lending aligns with management’s focus on higher-yielding, relationship-based assets.

Core Fee Income Expansion and Partner Pipeline Momentum

Core card and deposit fee income grew solidly, even after excluding an expected roughly $1 million decline in servicing fees, illustrating the strength of Meta Financial’s fee-driven model. A new partner cohort announced in 2025 has begun contributing and is expected, at full run rate, to add a mid- to high-single-digit percentage boost to the card fee line. Management emphasized that the partner pipeline is “increasingly full,” signaling further upside in recurring fee income as these relationships ramp. This partner-led growth is a key pillar of the company’s strategy to diversify away from traditional spread income.

Net Interest Margin Improving Amid Balance Sheet Optimization

Adjusted net interest margin, excluding the impact of gross held-for-investment consumer loans, continued its upward trajectory, progressing from 5.11% a year ago to 5.31% last quarter and 5.49% in the latest period. Management is deliberately rotating out of securities and into loans, and is leveraging an originate-to-sell model to boost both net interest and noninterest income without materially expanding total assets. This balance sheet optimization strategy aims to enhance profitability while keeping risk and size in check, a combination that could support further NIM resilience even in a less favorable rate environment.

Strong Liquidity and Ongoing Share Repurchases

Liquidity remains a key strength, with $3.7 billion available, giving Meta Financial ample flexibility to fund growth or weather market volatility. The company repurchased approximately 652,000 shares during the quarter at an average price of $72.07, and still has about 4.3 million shares remaining under its authorization. These buybacks signal confidence in the intrinsic value of the stock and contribute to EPS growth by reducing the share count, an important factor underpinning the raised 2026 EPS guidance.

Tax Season Setup Supports Near-Term Growth

Management highlighted its preparation for the crucial tax season, entering the period with more than 11% growth in enrolled tax offices compared with last year. The company has renewed agreements with tax software partners and rolled out technology improvements designed to increase efficiency and capture additional revenue opportunities tied to expected changes in the 2025 tax code. This tax-related activity is a seasonal but meaningful driver of earnings, and management expects the expanded footprint and upgraded tech to translate into incremental revenue and margin benefits.

Consumer Finance Portfolio Sale Temporarily Weighs on NII

The sale of a consumer finance portfolio resulted in an $11.9 million reduction to net interest income in the quarter, a notable drag on reported results and on GAAP net interest margin. Management stressed that this impact is largely offset by lower provision expense and reduced other operating costs, arguing that the economic effect is more neutral than the NII headline suggests. Nonetheless, the transaction makes reported NIM look weaker than the underlying adjusted trend, and investors will need to look past this one-time distortion to assess the true margin trajectory.

Deposit Trends and Mix Shifts Create Some Pressure

Deposits on the balance sheet totaled $6.4 billion at quarter end, a $170 million decline from a year earlier, although average deposits for the quarter were approximately $90 million higher year over year. The end-of-period decline reflects mix changes and the influence of higher custodial deposit balances, which impacted overall deposit composition. While the modest year-over-year decline is not alarming, it does point to ongoing competition for deposits and the need to manage funding costs and mix carefully in a still-evolving rate environment.

Credit Quality Stable but Nonperforming Loans Edge Higher

Credit performance remains generally solid, though not without areas to monitor. Annualized net charge-offs, excluding tax services loans, were extremely low at roughly 2 basis points, and trailing 12‑month net charge-offs in commercial finance stood at 39 basis points. However, nonperforming loans increased slightly compared with the prior quarter. Management expects these elevated NPLs to resolve over several quarters, but investors should watch this metric as the loan book shifts further toward commercial exposures. For now, credit costs remain contained and supportive of earnings.

Timing Issues Hit Secondary Market and Rental Income

Noninterest income was pressured by softer secondary market revenue, which fell short of the target range largely because of timing tied to a government shutdown, according to management. The company expects this to reverse in subsequent quarters as delayed transactions catch up. Rental income also declined due to lower balances and fewer operating leases. While decreased rental income was partially offset by lower operating lease equipment depreciation on the expense side, it still weighed on reported noninterest income. These headwinds appear more timing- and mix-related than structural.

Guidance Hinges on Partner Ramp and Tax Season Outcomes

Management’s updated fiscal 2026 EPS guidance of $8.55–$9.05 reflects confidence in the business but comes with clear caveats. Achieving the higher end of the range will depend heavily on how quickly new and existing partners ramp their volumes and on the strength of upcoming tax seasons, both of which carry inherent uncertainty. The guidance also assumes no further interest-rate cuts and an 18%–22% effective tax rate, alongside continued balance sheet discipline and share repurchases. Key support for the outlook includes the demonstrated expansion in adjusted NIM, very low net charge-offs, healthy commercial loan growth, and robust liquidity. Still, investors should recognize that external factors and execution around partnerships could determine where within the range actual earnings land.

Meta Financial’s earnings call painted a picture of a company with solid momentum: earnings and returns are rising, fee income and commercial loans are expanding, and management is confident enough to lift its multi-year EPS targets while buying back stock. Short-term noise—from a one-off NII hit, slightly weaker headline deposits, and timing issues in secondary market and rental income—does not appear to undermine the broader trajectory. For investors, the story now centers on whether management can continue to execute on its partner strategy and navigate a critical tax season, which together will be key to delivering on the higher earnings bar set for 2026.