CASH - Earnings call 1 2024 | Pathward Financial, Inc.

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to Pathward's Financial's First Quarter Fiscal Year 2024 Investor Conference Call. [Operator Instructions]

Following the prepared remarks, we will conduct a Q&A session.

As a reminder, this conference call is being recorded. to Vice conference President like Darby over now Senior Schoenfeld, of would turn call the to I Investor Relations. ahead. go Please

Darby Schoenfeld

With the will first take CEO, Financial's of fiscal Sigrist, our are questions. which and quarter and today we after operating for Greg discuss who Brett results financial your XXXX, CFO, will me Pharr; Pathward

be Additional pathwardfinancial.com. remarks and prepared information, accompanies that our at the including website slides earnings found may presentation our release, the investor on supplemental

forward-looking include are statements, with As and a The may reminder, no to future and statements comments anticipated company to Those uncertainties actual obligation for differ. update subject including results results cause our respect risks to any anticipated undertakes that forward-looking periods. could to statements.

in in from differ presentation release, could Securities factors language the cause recent with our the covering and Please earnings the to statements. Exchange filings for anticipated refer and materially Commission, including filings that the actual and forward-looking most the investor company's information to additional cautionary results

Additionally, will this on non-GAAP conference certain today, financial be call. we measures discussing

of understanding investor measures are non-GAAP in assist included you non-GAAP performance company's the for results provided and in appendix to to are trends. measures only presentation. Reconciliations References the such the

are referenced Finally, all fiscal year all years, and are quarters time periods to unless noted. fiscal and otherwise comparisons period prior the

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

Brett Pharr

to quarter conference XXXX everyone, first call. our and welcome, Thank you, Darby,

our for one-stop for ensure in pleased finance groundwork one, first number the CFO, partners. off for quarter I want building deliver with laying our profile and goals this the have help the his are, to two, key year. in financial We're special by the provide environment. smart results and to a year bath Greg, into yields call to on to credit number our with a welcome shop earnings a our warm us. growth proper to very started commercial And Those

to deeper start some discussion I of quarter out highlights. get our want providing first business, into Before a I by

adjust net to quarter of of XXXX XX%. $X.XX we for the and as you separation for rebranding, the first $XX.X collectively remainder related share. the When trademarks, to the call, sale of and refer Net income increased efforts reported We what of expense, expenses on income will XX% million rebranding names and and per grew diluted gain EPS

margin Earnings driven an increase interest growth of XX net of basis to was our expansion through points. X.XX%,

adjusted NIM, processing X.XX%. rate-related Our grew including to expenses from X.XX%

by average and average assets on next equity X.XX% average quarter assets return on return was on return is and seasonality Our impacted for was tax tangible quarter. with season Remember that the revenue occurring XX.XX%. income

the we which For adjusted this year of was reference, are efforts, you for ROA if rebranding X.XX%, ahead it in our year. running but last was slightly first quarter of X.XX%,

to for of $X.XX guidance $X.XX are full we reiterating the earnings our share per Finally, year. range in

you will this Greg give color more on in his remarks.

would and that performance business but growth levels. deeper the balances we're year-over-year comment side and every finance and near we strong in the growth house, first asset total expect of of insurance of get significant the into when of with saw pretty December moment, the very loan want financial of year, On in the to some maintain these the the After enterprise. in trends. Greg see leases, drivers to did in especially quarter in XX year, to starting to a details the nearly across on a compared category will third premium our last growth quarters I normalize fourth we loans last

finance, verticals. structured there's especially in guarantee pipeline, a and the In strong energy government renewable

credits will for income the tax of not that generate type However, these renewable energy deals us. are transactions

in previously communicated, we included our year, will and be ITC for lower As than this last is believe we have opportunity guidance. our

steady. On credit, remains the our quality of portfolio

XX think improved primarily caused is last workout has due quarters. the ratio in a a to We that a basis the loans of X single this increase our nonperforming the points deal secret deal, sequentially, Our of business. sauce

ratio we very point typically generally to And or XX loans the the position experience a nonperforming This yields, the but range. we're rate our to recovery increase. net generated that X a an are XX may comfortable trends from has quarters these resolve time, time in with Our loan range. in charge-off and increase following annual in with to X that basis

portfolio in risk-adjusted the last are finance we're we the to and smart focus and the adding Finally, sheet this the call, our as accomplishing by proper we yields. growth, loans balance commercial mentioned have that on XXXX ensuring

This all an context. all and undertaking loans evaluate to continue we across this products, is of loan our in

and mix are interest asset to expanding capital an on net working strong. continues optimizing further towards our eye margin. performance with On our be Banking-as-a-Service, We

As typical from To in does XXXX. year fiscal our we remind base is end of this saw experience seasonality. growth quarter, deposits the deposit you,

the the then typically of in spent during the lowest the level quarter cards And get with is fiscal in sale season. deposits first again pattern grows second typical This holiday down Our with as from tax there balances the from gift seasonal see business. season growth usually then trend quarter at year-end. to our the

we of income. our trends, new also agreements partners This core in development translated From during performance partners. in fee a to card seasonal perspective, to X business with from the have Additionally, signed current seen we quarter. solid deposits increases has some

contemplated is believe strength speaks pipeline, the While the we our impact of which it healthy. to in be of this guidance to our today, already

of believe for and to under we in a be put product XX, long-standing we what position partner a with regulatory and the us January a in a competitive range extension that strong multiyear on The environment collaboration has industry. market development. on Additionally, in for expanded allows innovation programs BaaS announced offerings product

matched. part fee program are to this live. continues model, in believe be have income us longer our our cycle being a Based processes our on position to noninterest-bearing card and tend before the of a deals to year these we deposits large we on and However, our year X life go the have what put working strength fiscal much around years. with of balance value a regulatory of now average X.X decay benefit well later sides XXXX. sales of weighted deposits to that are with deposit due required sheet can in The Deals base a into

Our in loan X beneficial and weighted this a little over environment. to is securities We duration be portfolio's our average around life believe X is portfolio particularly years today's years.

to over Now who to the it through will like I'd turn financials. you take Greg,

Gregory Sigrist

$X.XX prior you, the prior net million $X.XX $X.X income for XX% year driven Adjusting activity year rebranding $XXX quarter. XXXX, This rate Thank of in or were of or fiscal from million impacts Brett. by increase grew EPS the the of increase XX% income, increased driven. primarily quarter quarter, interest These an volume and the net from both results the first which of during in is year. totaled XX%. an

increases The to of lending all our rate an the year through continue has result impact increase see fiscal the remain We flow focused in as pricing and portfolio on in categories. finance commercial our yields prior nearly been discipline. occurs, we repricing across

X.XX% prior increased leases of The card to loans X.XX% net since From company's in of for year. the margin XXXX. margin company's in grew When a to impacts related prior of from quarter the year's compared X.XX% first almost volume billion $X accounting rate quarter's X.XX% the of total contractual the increased end interest have the the and expenses adjusted perspective, quarter. interest net

at has interest end bridge yield to versus BaaS margin used which the of portfolio production finance, the was new a point in on and in a quarter the a from seasonal Net X.XX% benefited X.X% in of first BaaS the yields commercial Wholesale increasing quarter were XXXX. low for deposits deposits. the during deposits more moment. blended early

assets rates rate and continue we assets middle of as loans higher at able to remains curve the our stable. should are replace mature and them fairly reprice part assuming the with ahead, Looking earning to higher-yielding investments

Of would FOMC immediately reprice rate course, any deposits cuts. with rate-sensitive any

As of of at decrease X.XX%, same X.X% the time ACL last XX, ratio from had company a year. the December an coverage

premium and in from a ACL The quarter's quarter Our compared are income allowance of relatively generally a from shift declined million $XX finance only result USDA, a have group toward an X.XX% Noninterest increase year. slight million commercial ratio lower insurance finance year-over-year to first $XX.X last a has and prior last of the rate. coverage of the year declines mix X.X% X.XX%. which

final the the the company stemming In on rebrand. $XX recognized gain million the year's prior from sales quarter,

carbon to Additionally, deposit revenues $X deposits. lower driven of primarily by fee million, income fee service declined sheet lower off-balance levels in fee related

XX% deposits Treasury service income continue year-over-year. million growth on corresponding expense to and to as those to Noninterest back $XXX.X increased of from XXXX the deposits related higher to levels sheet we fiscal off-balance and deposits fund loan hold Department. sheet the year declined balance EIP our return expected, As

The offset impacts and our primarily not consulting This related compensation the increased XXXX. partially environment. by primarily legal recur contractual card increase did Rate higher was that expenses. related described driven earlier rate to that to also rate The expenses seasonality related expenses by in earnings. and Brett was higher due the rebrand card

QX to be earnings Our be our QX, deposit quarter. tends balance lowest quarter to tends whereas lowest

oftentimes While deposit in due balances that the not largely is quarter. generally increased to utilized in gift cards QX, are this

QX, we and balances utilized those spike see tax when into to income season and start Moving occurs. larger a get revenue when in

balance $X.X are income reflected billion last December decline increased tend to quarter. XX into QX from QX. revenue and and year's Finally, Deposits the at on sheet

of total the quarter, sheet an last rate. off-balance maintained to and banks, roughly income flat $XXX effective brought company were to off-balance deposits seasonality. sheet funds XX, around there billion deposits, Fed on due average first held year. from of last increasing the roughly of to partner billion, to $X -- $X.X During earning This at December equal the quarter deposits fee servicing million On

last balance this time that as to were sheet. The contributed our lease nearly loan $X same And fees the off is balance causing higher deposit by can managing that impact card balances that us be has this have and at we and seen year and deposits in [indiscernible] shifting this fund double balance sheet we increased interest to our of However, our to deposits lower the on expected, growth difference year, year. income. billion approximately

update, growth, deposits $X.X loans structured U.S. we $XXX expect ago. remainder holding $XXX Through category, every increases to billion, December are million commercial return we and unplanned finance including and of loan finance. were roughly XXXX, million insurance around an Total year across related stimulus finance growth premium in a As at $XXX programs. Treasury. December The in increase largest over fiscal from lending, strong the of XX% company at still XX, the to leases XX million deposits to saw the nearly term government with loan a of

USDA SBA XX. offset business which from driven increased primarily lease at slightly insurance Finance term finance the Commercial and billion loan $X.X was balances in and Sequentially, declines September premium the partially by expected was portfolio. Growth by lending in

From a liquidity perspective, Pathward continues to positioned. well be

our is balance billion you $X.X over have strong, available and Our sheet all when sources, in of in we liquidity. factor

the previously, mentioned matched X average life Brett in sides balance of As well sheet our weighted and duration. are

loss longer-term next down comprehensive During largely balance a flows improved the our cash quarter, securities position to reinvestment the nearly decrease to portfolio XX available million other We on drawing $XXX rates, the expect portfolio the over due would by continue $XX with accumulated approximately months. in the of related securities for million. to sheet,

[ stability subsidiary, including profile and funding rating our Also model. the were and by ratings the debt of ] during business for KBRA's Pathward, for which we strength and unsecured credit bank highlights affirmed A- pleased our of deposit the quarter,

quarter, XXX,XXX additional January of an XX, shares X average during of price average $XX.XX. through we have From approximately shares we price $XX.XX. January an the an XXX,XXX at repurchased at Finally, repurchased

of GAAP of guidance We $X.XX. share are earnings reiterating per year XXXX This a our $X.XX includes fiscal diluted number to assumptions.

XXXX. With sheet in expect to balances million. favor resulting full deposits $XXX due to the that largely to near of causing in the interest This year QX deposits, income mix loan we off-balance average lower loans deposits in expect the revenue fact average we off-balance fund of is growing remain sheet

XXXX, to compared securities full continue margin interest and along year full $XXX to our year cash net expect in asset given with to on margin pricing, expand flows our We adjusted higher-yielding in focus continued reinvested the million when net the interest assets. annual

estimate year. we to rate for the in our the of tax less XX% to for With be range effective XX% ITC, opportunity

that expect remain results. the to would we Lastly, our I strong our the like out businesses, continued across fundamentals in and to benefit financial see point would

to Brett comments. back Now I'd like turn to things some closing for

Brett Pharr

Thanks, Greg.

fiscal As think XXXX, I of the remainder is pursuing. about opportunities I forward look the Pathward to

that looking recurring We drives sustainable revenue BasS have us a in add net healthy income. front pipeline of and in are to

model underwriting business believe are capital assets adding returns we us provides balance risk-adjusted to the in a are that assets, we or environment. also as the We and I being but ensure are and for they as earning on It traditional on banks. Additionally, to optimization. enhance differentiated this not highly before, loans with us focus reliant mentioned leases, a puts right That position ones order are sheet sheet is when able maintaining this from capital deliver to in of balance grow. to

the delivering continue drive of to is us across the enhanced we strength coming future. years. pursuit in and put operating strategy revenue of this in in our invest and addition, technology further on growth company will delivering leverage human capital and ability in belief the organization X:X position In that in It to the the in an earnings give

begun. has season tax Finally,

and number of We look tax you our call. that open an line continue we giving This on forward update for providers products to to it concludes very grow Operator, the remarks. our early, independent While still questions. utilizing market increase did prepared share. our believe please we next is the

Operator

We with Sandler. Piper will [Operator Please Our proceed. question Q&A Instructions] begin first session. Frank today now from comes Schiraldi the

Frank Schiraldi

here reiterated Just was wondering a line -- you rate the outlook for changed the XXXX and obviously obviously, guide has on bottom bit. guys

So that you to seems down deposit when run terms just into in, costs And take rate close be expense like pretty in account environment. baked of might noninterest fairly wondering neutral you through what's the rate cuts. in

. speak to could So you please? just that,

Brett Pharr

there, close really pretty which I at have of one neutral, again, The mean benefit in latter in now, gives rates. I as the one. is down with the we the sheet move think we that And of to Yes. end and May. guidance, us right balance start I'll our rate April, it's only cut beginning

have extent So frankly. some probably from pulls to that that, Frank, forecast the we quite the upside forward,

Frank Schiraldi

finance in And term then you here. commercial as and good the stabilizes growth in finance maybe had premium pretty lending business

in to a pipeline think, here. sort the Just business What targeting I spoke near here? you of term the Brett, in think wondering, growth you you pretty . finance good are commercial

Brett Pharr

Yes.

at get a to pipeline right lending. the is I asset-based seeing price. We're in of a the lot more pretty going in We've some think the transactions you that It's yield the we're thinking increases trick right to about and that. with good be sure seen just more us. got that's make

with area, in has ABL. we that highlight while it would The tax I credits. say So I'd pretty these also business, pipeline mentioned that our well. energy structured solar help doesn't good finance alternative business got a as

Frank Schiraldi

it's just pretty economics to be And in same, to the the . the on opposed know XXXX as of or here, Advanced different or in then XXXX? game how tax product? rates be season might I here sense early any assumed but indication might changes Any loss any

Brett Pharr

think when second independent But Frank. we unique And there's could be what to the we will speak But you year don't end lot seeing. impact you quarter, went. to that give understanding are -- to always the share -- No, this be of of season know. of our how able around interesting those come signed preparers tax the an end at conversations up I tax more a we're the we'll it this market more kind nothing there's the you mean, told question opportunities. We and we know of it at is which is we already know, EROs, point. which

things to So you back cougars, if were there go the unique happening.

of unique, the nothing hope to business kind the be far, I it usual So and year.

Gregory Sigrist

we know that, monitoring both internally I drive is, a the Frank, down and underwriting year, add, loss put this would processes. rates of probably as into last mean, some And hope I'd thing of that year help do I lot since I only think effort we The well.

Frank Schiraldi

demographic the or outside finally, a . indicates sneak then the that color just any yield it Is on can as that putting of just if book you you're percentage maybe area And of pick you credit expect in looked if the there? one or more holdings, in reserve and wondering just like the I increased book change one could levels books. type quarter-over-quarter consumer tax finance a of on up

Gregory Sigrist

our Well, Frank. that is business partnership there, really

it have So does it seasonal. to a -- actually tax angle

think it dynamic don't that really to I candidly. So speaks broader than

Operator

today question Raymond comes with Spector Please from Eric next proceed. Our James.

Eric Spector

Eric the Feaster. is This David on line for

you some product touch Just and you the on those pipeline success? we on with . build-out banking could wondering like early initiatives stand the and be are of most the it [indiscernible] whether if where growth embedded cures access the you're having where where those, on [indiscernible]

Brett Pharr

involved that different all noninterest would we that time. mean is anything with verticals, beauty that most The in say getting I that them, I from those we'll very income. solutions payments Yes. We're things growing. are partners, faster keep that but material co-creating take cases, revenue and unique some much is we're of report these as not would in that

of And so products noninterest that's about NIM going years be is for in that's a to And one now, X we we income. that years exciting of X as how the things to with particularly continuing have on we is like focus arena, that dose income now from noninterest to very from where grow think heavier we're want or us.

Eric Spector

about grown potentially just the capital. then initiative growth has we've recently working And one talked

be interested think you any how in other lending you about curious Just and expanding that segments might into?

Brett Pharr

area some part was industries as some particularly it's we're various can transactions be growth and of lending, get kind continues a get are that what still And the where asset-based is very using I our capital to some the we kind collateral can it's To Yes, transactions, of and everybody, at do remind an really working collateral for of these opportunities is asset yield those where we good in yield. of like there's right heavily sauce. that I stress on as class. of the that secret Frank higher managed think there of liquid types when a

Eric Spector

sense. of makes then one cut And curious, just in rate that Okay, assumptions. just your question. kind one you talked I'm last about

few see how also. operations Just about will we to you deposits reprice a rate your will think begin loans curious but Obviously, as lower, cuts.

then that down? some maybe rates Just perspective, trajectory. businesses margin come on just could and other growth about from the maybe the provide think broader loan you how of And a how if would some . impact you curious assuming color

Brett Pharr

Yes.

things. Remember deposits, a I we down, of day accounting with are funds few down. So our the contracts goes in If the the that written deal way cost think our that the our down, cost it it. goes goes Fed

So that's the first that us. thing helps

in Secondly, advantage actually, time, term, we've drop down our intermediate in got side in NIM that over duration rates and general. on has some the a then the long obviously, and would so the a be the book short to it rapid in rates come

of dropping Rates rate standpoint, So a other -- activity foster more bode picture. products capital that's from credit for our our well as you and that about likely economic will think some but and might profitability would the we leasing working that the of have, which of doesn't products product, term box that become the view products thing other more they'll better. be

when we opportunities the more and with those. we'll deal loan rate another down environment whatever our comes us. of so of that's And beauties that's diversified down, portfolio may And one and one be the and is market of And the gives would do is others up. up, take one product

Operator

with Michael from Perito question Next comes KBW. today

Michael Perito

have talking of just thoughts wondering quarter. leverage tax tax of second there's there's lot operating here just of if the seasonality quick additional you guardrails if kind guidance and maybe . the fiscal annually I can expense I just tick questions follow-up, have answered, the kind we're kind give run but just you unchanged, the also expense tickup one but of can target just or a you financial additional guys Obviously, up around here. But think the the in I EPS of maybe growth us revenues, 'XX. expenses. kind missed the been in apologize X:X this, and for provide? on kind the Yes, any Any of rate if I and of in know asked

Brett Pharr

Well, to that QX pretty to always think I I guess understanding invest going actually and that is good is say what for a you us, operating X:X that continue I technology, which we're capital mentioned. would run leverage the in human is rate

which that little I definitely the go and that, you bit besides think of is you there. second years, can benefits at you also comp of one that, track, bit, little quarter, the up which the the just I and it seasonality beyond last was above in and a back is, tax couple really other pick have if look a but caveat it's think

investment, year, about than Over the I modest some balance other how I that's think think run continued of rate. the the

Michael Perito

Greg, as there would underwriting efficiency year -- target in to as in how a helpful. to That's the any tax look if you And some the is get that much be tax the about comment the back of of cost? maybe And terms there point? any is of the improved. think efficient I this you'd that around to some mentioned, Is going we prior products pickup expect at . business? pretty Or it's in you

Gregory Sigrist

we've that for is of I work fish going the with main keep [indiscernible] about We It's of it operations on lot of pretty think the a got to the to efficient. and about years as get, as ago it's and what and stabilize pleased the it's approach that technology to get. get. some refund and that several make did We area around -- ROs. the we good as going we're transfers in investments

pretty think the run rate indicators. good I are past So on years expense

Michael Perito

kind then of philosophical And just capital a question. Great.

don't how the answer not As to be a margin mean budgeting a XX or on that. consistently more the I sheet I here. in And of right answer mean do at you plays well growing you a here suggesting to point balance isn't of north you're a wrong need we XX% if in look longer. there guys this, are And a about really the sure buybacks, neutrality annually arrows I deployment? out months, significant. pumping of tools particularly or pretty of when creation capital out I'm at ROE does I that is moving thinking capital out. -- pieces but pretty ton. I few what necessarily guys, not the mean imagine you're terms kind quiver at the least

Just some around would we we fiscal of love updated next thoughts couple years? kind as as about think and of for 'XX that . your estimates the start

Brett Pharr

BXX use Mike, innovative something, know, Well, at business is that to a while changing And these up buy some you conversation. the we're than ROE point, level get in different some I'll time. we of on shares. of over that's prices get back and But can't capital an get what this better by buying we'll have an right into as better a not I use than our then for now, there But capital or shares. there's the will at stock, at be, capital. of a -- a

Michael Perito

for of a has of advantage, could always technology it the the that up. top say constant been feels guys. interesting Has guys right, non-bank -- all? those move guys but how great there I environment or opportunities of not build guess you And think And or be which can would like M&A. thing is that you as next not altered is kind maybe obviously, of thought be on on you about, would that leg there types at that one Is changed views I bank, your there's regulatory

not And the today? about in market are how necessarily M&A is the that? is wondering you guys where . that Just given thinking tool or

Brett Pharr

Well, I tool. it's think a

looking capital I things use to But tell a tool we've capital. I technology. we as all at. proper my the comment of kinds reiterate think looked would it's have and I we're of you, in about prior invest at

unique buy in emphasize properly, that a we of things at Fintech lot There's do word, fairly this are that those a and kind properly of they to something go is services able And We the just we and standards a niche caused does to being problems. layer limited. meet fairly it's had. looked I and needed lot what of that put we and middleware industry, didn't actually have in that and

the perspective? point X from decision a out would give actually is Decision there right what's . capital. is #X think advantage us anything of I point So there technology use an that

Operator

your time. Instructions]. are for There currently questions queue. you There are no waiting this no questions questions. Thank in [Operator at

the closing remarks. I'll for the So conference any back pass to team management

Brett Pharr

call. Thanks and the ends our for call this joining today,

Operator

This will call. you participation. for Thank all conference today's your conclude

now lines. disconnect your may You

Pathward Financial (CASH) 24 Jan 242024 Q1 Earnings call transcript