Earnings call transcript Q1 2023

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Pathward Financial's First Quarter Fiscal Year 2023 Investor Conference Call.

During the presentation, all participants will be in listening-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 Justin Schempp, Vice President of Investor Relations and Financial Reporting. ahead. go Please

Justin Schempp

quarter and Glen operator, discuss Financial's Brett first CEO, operating will which Thank your take and welcome. Deputy CFO, questions. fiscal the for Herrick; financial will XXXX, CFO, Pharr; after and we you, results Pathward of Sonja our Theisen

presentation pathwardfinancial.com. including the investor and on found a release information, be our Additional supplemental earnings may website at

Commission, risks anticipated statements may company reminder, forward-looking update the statements, information to to presentation, language to company's to statements. differ our the could the are factors respect Those periods. including refer the earnings forward-looking comments recent Exchange results include forward-looking uncertainties that results any cause with cautionary results a undertakes could future filings for our As and to covering cause most additional with for anticipated in to that materially release, actual investor actual filings and the subject including statement. no Please and and from obligation The differ. in Securities

we Reconciliations are be appendix the measures this non-GAAP the non-GAAP call. certain to conference non-GAAP will such performance discussing financial the investor to on only and trends. you results measures in References company's provided assist included understanding within for measures are presentation. today, of Additionally,

turn me Brett Pharr, our over let the Now, to call CEO.

Brett Pharr

per $XX.X of prior of $X.XX compared was well earnings per company Thank core quarter. you, rebranding up everyone, the $X.XX share for compared Core year the in joining quarter. prior was X% quarter million XXXX during in the performed impacts and income Pathward call. The to Financial's share the to earnings year first net $XX excluding million

simplification, optimization further points compared to quarter. pillars our in deposit optimization, to quarter helped net which prior of X.XX% X.XX% rose continued strategic our basis key and on of the for fiscal XXX margin, interest Our first the drive over asset expansion focus year operational

tangible average on equity top the return and in enabled that Our assets the achieve average amongst strategy us to industry. return on also are

at $X.X quarter December year. $X.X prior billion commercial X% Our from portfolio loans on grew billion, finance Total loan were The few of end. tax of downs of totaled $X timing a X% decrease in loans the and and loans billion sale leases reflects warehouse and year-over-year leases and total the relationship XX, student portfolio, year-over-year lending the decline pay our season portfolio. in in a

the year as loans a across quality of were ago. portfolio Credit X.XX% remains strong the same nonperforming as

confident environment, of potential our As quality we remain active we into our loan head a portfolio. in the recessionary management and collateral

the proficiency billion, of continues balance rate. program excess the sheet, demonstrate banks. by deposits earning equivalent sheet side effective liability the roughly the revenue averaged federal them $X.X to balance funds the to quarter, its our deposits company first On storing In off in at managing

a generating excess to addition In as serve deposits available revenue, also source readily of liquidity. these

billion As of other deposits a customer program due balance to elevated related and December XX, we off level had products. that stored of seasonably with $X.X cards holiday is gift banks, sheet

two during banking-as-a-service changing. As previous we of quarters, landscape market indicated the the the is have

legacy time We our of serve history us funding, steer experienced others to during continue are current transition. experience of attract and and industry clear With by and our in strong industry. we clientele banking-as-a-service, the risk in to capabilities receive using partners services diversified turmoil the our start-ups fewer compliance well believe long customers. this our see new to our continue and launching we While programs new

Consequently, the of efforts I'm rebrand, company we've Meta our the our the completed associated with $XX million quarter. $XX that during the Regarding original final announce received million to trademarks. happy remaining sale

it been well our We upon to Pathward provides. which customers look has under our brand customers and new name, value the forward serving be to pleased are by building partners. received We our

we believe financial XXXX, increased Looking to and fiscal ahead Consequently, to fiscal results. to delivering from be business our well rates, we our the model expect now to which XXXX per us continue $X.XX allows $X.XX benefit between year solid share. positioning us unique earnings range year guidance we have rising of remainder GAAP

are kicking for prepared tax Finally, season, well quarter. off we fiscal the in is which second

the We long a are in leader in history operational success have of serve franchise the tax business. a industry and supporting independent major

earnings in position us season. to and more experience look historical our forward call. We of Our economic unique operational this on the excellence to year's succeed next sharing environment

over will Now, additional Officer, to let Financial Herrick, Glen call detail provide our Chief the financials. me turn who on the quarter's

Glen Herrick

million per income share $XX.X quarter. or for quarter $X.XX the recorded the Thank $XX.X first down net million you, share, the prior in Total per was from Brett. GAAP $X or year

included As sale. the million the quarter first sale year's an the last of reminder, included year's $XX on gain the this fiscal Meta fiscal $XX initial gain with trademarks million quarter and associated remaining a

$XX.X million increase gains $XX the Adjusted any Excluding rebrand represents slightly onetime net prior report $X.XX million The forward. related X%. the quarter of rebrand activity to of and and with in share core does additional compared expenses income related to severance year-over-year earnings impacts a expect year. per business moving decreased financial expenses, the of associated for the not

X.XX%, Total of first Net the year quarter X.XX% the driven Pathward's XX% interest substantially net by fiscal grew quarter first to interest XXXX. income expansion the net year-over-year, margin increased margin. of in relative in recorded interest for

current interest sheet. net our margin balance our environment optimization expect to ongoing continue to of expand, We rate and given the

the the million from a Provision is expense increase quarter $X.X first million in $X.X prior year. of

prior the community from disposal provision benefited the $XX.X bank's with portfolio. remaining a year the However, reversal million associated bank of

million in year $XX.X declined income XXXX. to million prior the noninterest fiscal in from quarter year GAAP $XX.X

off of with associated balance to portfolio investment trademark increased $XX XXXX income in the fiscal increase million years on from current respectively, XXXX, sale was noninterest Excluding million the year money sheet and and year-over-year. large write-off. $XX fiscal Meanwhile, and first benefited losses gain The community XXXX's sale the XX% servicing. bank deposits line year the quarters attributed revenues

additional an increase total adjusting primarily to $XX.X side, $XXX.X at the from expenses, card On rate When This Other pace the of of XXXX, prior million attributable grew XX% million expenses represents XX% from a in environment. of grew quarter. rebrand mostly related items, year of $X.X $XXX.X million expense expenses GAAP resulted for X% expense increase noninterest of year-over-year. related the higher year-over-year. million rebrand excluding processing items

continuing The value to company capitalized, remains well shareholders. to while return

shares During XX, shares Through the average additional fiscal XXX,XXX the an repurchased of of $XX.XX. price at an XXXX the company repurchased an $XX.XX. first quarter, at XXX,XXX January price average company

mentioned, Brett increasing fiscal year we guidance for are As our XXXX.

X% half XXXX of rate and share For flat and the thereafter. expect fiscal the $X.XX between $X.XX. federal rises assumes guidance in remains year second year to GAAP per the earnings This funds we target

please concludes the questions. That our for prepared open remarks. line Operator,

Operator

you. Thank

Please Our first proceed. Frank question Schiraldi Piper of of comes from Sandler. the line

Frank Schiraldi

Hi guys.

Brett Pharr

Frank. Hey,

Frank Schiraldi

ask are linked thoughts it -- that? pretty to or quarter? on to wanted talk season just ask I good higher about Can about tax kind you Is guide. a little the early Just shaping wanted is driving what what's bit up change driving of

Brett Pharr

is think funds what Well, slight I there our Fed in thing original big beyond increase a the is, was. basis

we is tax expect made season the higher up that And -- competencies. to in so, show as is any bets prepared think yet. the experiencing one the starting well environment We macro that we are. we to tax haven't are And in This yields. always for on up our season for we're of positive, that core show but

mean, return I week. up early. too it's this IRS the just for opened So

too views to going season. early in So what's of make to it's us tax for any happen prospective

Frank Schiraldi

factoring kind here. growth finance talk Okay. And was have was thinking, just balances growth finance loan can what overall know from about commercial sure and might that you then, given for bit Not kind guide quarter of rate the I linked what a a of good here, little and for run ABL declined. imply the commercial you're flattish

Brett Pharr

more a likely classes will Working that recessionary the kinds in we where a behave of to get energy and alternative term of as our we're mix Conversely into it's various solar lending. hoping asset style financing to Again, There environment. there opportunities. bit financing in -- other going seems be growth be uptick slowdown are is in the of some for capital differently. a

I don't continually expect it take as like anything that that or off going have making to one it don't i.e. I asset and to we class plotting be expect either. So, rotation from dive to securities I another, we're think forward been, to

Frank Schiraldi

in I don't Okay. finance. the in have might still know think past you about And I growth of if commercial overall talked reasonable that's kind forward? sort double-digit of going bogey

Brett Pharr

assumption. low-double have the gradually we've Yeah, think, digits us. sure think talked through in term, But, perspective, I reasonable mean the some I reasonable a liquidity that's it long We and I about we a of quite that is getting that I that been to out. and cycles from that's want is washed for challenge yield mean, overtime make economic

Frank Schiraldi

the the it in quarter deposits like then seasonality. on heard unless given I And linked Okay. terms depository bit off balance of the are maybe -- wrong, some sheet side, boosted a sounded

in maybe So down from the those $X whatever, of billion at end such plus the is case, quarter. this come

and continue Just Fed wondering, -- that given can of of on the the What's thoughts asset the get or to I on pick the think you rest some funds you you opportunities and to to strategy it yields terms balance side? sheet how there on of there opportunity off Do bring it? think back overall? guess? you in that sheet, remains about balance Is sort up of

Brett Pharr

of couple Well, a things.

wiping my seasonality like economy comments, just in may fourth that and core more quarter minor highlighted liquidity the is our of some economy. advantages is some You're correct. in one of We general in what's be the and I in is this in a going level think there shrinkage on There core. that probably even think and the because do I out gradually that -- that's the

the balance don't keep next have -- that to asset balance is I rotation. rotation. do inflating the sheet to back pull on plenty on our sheet working plenty to don't of sheet money balance in We've no we until I the deposits we portfolio, of in that asset the got sense those size of there kind because need through fund and to securities the

Frank Schiraldi

And credit. makes That Okay. sense. lastly then on just

increase release Any losses in was and can provisioning about assume of you color I there? kind talked additional You about in and limiting talked relationship think give comfort you and the that finance the I your part increase it commercial relationship same, NPA. on side. hopefully on in in parcel one the

Brett Pharr

the in is, managed collateral collateral all about with is talk We're things. and a of I facility. credit. unsecured whether time working partners things kind it's something the liquidating might we nonperforming, of kinds capital at do even credit those though a are We behind or And equipment working experts it. one on don't there that, of Yeah, be

nonperforming the working it because we we're that is, that's just so with mean you doesn't have. in down means that And see What loss. a collateral

impacts negative any good continued of We're as the seeing We're performance seeing credit in yet. portfolio. not

and trends You always seeing to coming negative we're side the at any not true, have companies but going, that's all.

Frank Schiraldi

little -- that Okay. But or where in that a to that a color more loan? say can on… trying term is get capital, bit Just is you working

Brett Pharr

Glen, know we can do you that. know, I respond mean to want disclose what but we I that. don't on to

Glen Herrick

also And for is loan, than term Frank. a a I that's Yeah, NPLs would metric better note NPAs. that, us,

continue just go up, securities, we reduced shift earning As in percentage. are securities loans our assets from the to the to as NPAs we mix going

And our low. pretty numbers are

loan, so, And up our million or million feel outlook. million, about short get real it we confident term, we but $X can if spike $X $X

Frank Schiraldi

you. Thank great. Okay,

Brett Pharr

Frank. Thanks,

Glen Herrick

Thanks, Frank.

Operator

Thank you.

Tim Our proceed. of KBW. next from Please question comes Switzer

Tim Switzer

on taking Hey, Perito. Thanks good for my Mike afternoon. for question. I'm

Brett Pharr

How doing? are you

Tim Switzer

Good.

guess you prior on like well? term have walk the conversation those run lending, particularly as like collateral On the that pieces you we're loan terms, such just categories, the us and have of book, could your through kind different the factoring having, you higher some of some -- loss in guess as of I of the through and I on

Brett Pharr

have borrowing So, situation, either these it. have owes cases, one capital those you the least receivable we of of we've kind pre-approved where things. cases inventory a that unique, pre-planned way kinds do coming that are are we on customer interest money. on In often and that on of manage And a we the bank, in of debtor, in dominion receivables the where actually for funds, straight those the which accounts the are inventory least some base our the inventory. transactions, appraisals many things the depending buyers at or to for security us. obviously, have working is arena, all have we payments at the those. And we In In

So in of we would do liquidation. what we know event the

equipment arena, is. a it about little what In varies bit it

debt critical, mission and Some means and of reorganization that reaffirm pay in event equipment, it its is they're mission to critical of us. bankruptcy the going a the even which

relationships, and So that are third buyers have that we we advantage Or cultivate those we we emphasize that in on other ready who and regularly take for work a with cases, of lot. parties can relationships them. so

a lending. default assuming So, default and then traditional it's a was a -- It's how like C&I and get to going we not would not there in we be money. lose go out, there's if

in weakness particularly not working position. in is where because problem, actual of the generally, So it's there fraud, an because of collateral a the capital,

Tim Switzer

[Multiple you Speakers] And Okay.

Glen Herrick

And, Tim…

Tim Switzer

ahead. Go yeah. Oh,

Glen Herrick

Tim, I is Glen. also presentation deck. Page our this XX to would the refer investor on of

Some at deck, industry we around the commercial information. our have of additional finance information concentration then different some types the end of and

Tim Switzer

like just Great. use of your to to some book what would you stress and different test, in Yeah, the you of environments? on? loan an which portfolio are We're when get run that's guys like, variables how idea And the helpful. the you scenarios stressed react parts certain stress trying are of focusing

Brett Pharr

Yeah.

let in you at every you in that's look as it's are that people second. a tell always make debtor happen we we're paying adjust the what book, borrower we We the can industry is about answer decisions would I'll appropriately. do stressed. Particularly and strong look that if What our that. and that regular Glen, thing is, at concentrations, transaction looking industry that that, here again, I So, at credit certainly

of have wouldn't common XX occurred named ago and examples some out so, And receivables bankruptcies were we from fairly them. months recently, accept that high

this is space. not really a of be stress C&I. more might that's type arrangement to do. in It's so transaction thing So unique used traditional kind portfolio a conducive that you a to we Each in of

Tim Switzer

Okay. I got you.

Going start floors, to I have What like a expectations NIM two Like, guidance mean down? basis reasonable of is the basically. and for in expansion QX you points a and expect rate or it the is right, slowing last through interest back quarters you bit. little sort it that had again to the like QX, of all like you're NIM for the row XX should

Glen Herrick

this is Glen. Tim,

Brett Pharr

to you take want Glen, that?

Glen Herrick

the NIM Yeah. our continuing Like NIM move if where X% all we rates XXXX. by pass depends our gain growth will fiscal to But through at mix on we comes it remix things, the in all. balance didn't are said, that will That sheet year from. just comfortable

Tim Switzer

of serious you there isn't Okay. within color All Great. like right. the little assuming expectations And the on, a could guidance, provide bit deterioration? like have a economic you like

Glen Herrick

income We're by statement. line not guiding our on item

are revenues. so of fair our expenses, relates we by for And -- activity a we to bank, have have a amount variable driven expenses which that

revenue growth factored that And at so, our into grow core expenses what's correlated the the than our those guide. then rate are our with and half we And that's to is of revenue less have. our expenses goal

Tim Switzer

get back queue. helpful. that's Okay, you, Thank I'll in guys. the

Operator

conference that And quarter first concludes year call. XXXX Pathward you. Thank the Financial investor fiscal

You may you. now disconnect. Thank

Pathward Financial (CASH) 25 Jan 232023 Q1 Earnings call transcript