CASH - Earnings call transcript Q3 2024 | Pathward Financial, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Pathward Financial's Third Quarter Fiscal Year 2024 Investor Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

And I would now like to turn the conference over to Darby Schoenfeld, Senior Vice President, Chief of Staff and Investor Relations. Please go ahead.

Darby Schoenfeld

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

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

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

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

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

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

Brett Pharr

X set accomplish continue execute Darby, year. conference the with quarter results call. and XXXX welcome, We're to our first pleased to we our this out third what Thanks, very in on to and everyone, months

continue product quarter. us by some sheet of this results the balance talk focus and year. have from before I next to results. I management, to about deliver helped on offerings returns, But want We evolution risk-adjusted plan strategy, give financial focus into Our led continued solid our

diluted same to per driven were in share income compared year. and an increase last was interest income earnings net the through were quarter $X.XX. when Net million $XX.X Results XX% of

expanded X.XX%, and also both this respectively. includes which second NIM, to quarter year. year's quarter rate-related X.XX% were and to increases of We adjusted processing when last NIM the expense, compared and These contractual,

strong, Performance assets of and the X remained with of return metrics the equity return first XX.X%. average of for average on year tangible months on X.XX%

metrics were these reference, and year. the respectively, last for period For same XX.X%, X.XX% time

to the Finally, we are $X.XX narrowing fiscal for full guidance our $X.XX EPS year. to range in

assets been sheet, highest and asset that the the optimize proven side team the has to disciplined of On in very has returns. been have and balance sourcing risk-adjusted our the focus loans underwriting

We to in a also working government-guaranteed and loans, pipeline capital both see robust SBA continue and USDA.

new asset to in underwriting us while solid have system our capabilities originations seen and technology efforts costs. reducing through a maximize We and management that to create put efficiencies the enhance co-innovate. consumer process should In help we continue lending,

We and launch expect generating thrive. ad in additional us future, products partners growth for partners to well as enabling as the our to

can we being number In partner on deliver to of means or our partner banking, propositions. trusted clients value BaaS a a

issuing, across pioneers payments in decades a in which credit, for deep our forward-thinking leadership partner solutions positions our now, expand I moment. us financial experience. a We XXXX. and solutions, offer on with the the multiple we in including First, believe institutions, tax starting and were expand back business expertise to capability will We as issuing in space, of payments,

the right the sustainable We people Second, This we programs. an structure provide have believe we and operating tools. creates and excellence. that ensures right operational reliable

build Third, we strong partnerships.

with day valued. closely feel partners' and supported of work level to high ensure to We and our commitment success have enabling they them every a

a by This We offer have that we we has infrastructure. a a we continue risk generated mature be about. Finally, platform, and to led a optimistic approach. compliance governance-focused believe scalable pipeline partners

long reminder, a these a sales cycle. deals have As

now are would to that working fiscal benefit we anything be So XXXX expected on and beyond.

financial During cards and and we institutions, unions. previously or offered. to which product for the to finance of qualify announced we solutions do business transformation With clients now banks when traditional only their quarter, provide our provided prepaid solutions credit the can this not expansion expansion, a commercial financing that isn't also for

business institutions financial to provide offer their also We to clients. services ability merchant the

to strategy is Our that the thrive. be partners platform enables to trusted our

started end laid we were we continue and of As year for the towards look XXXX enterprise initiatives the to across will our fiscal foundation on and the of the get to XXXX, in execute that close many growth.

have First, but optimized the balance asset we mix. one only not an right-sized also sheet to need with

continue favor intend believe to to where rotation advantage a have return Looking ahead, on we higher asset we assets. deliver areas to to we competitive

their are grow we our scaling be innovation ensure the years reach markets. we products and ongoing new evolving of our partners in as as on been This Second, is capable regularly continue partners. technology expand forefront of to investing focus with with that for and has to will platform and a remain and our

year support that intend remain and the a testament spread a country. intentional with Talent certification we to XXXX row. And to Pathward's again that, Places a Anywhere believe to in are people a across to once we efforts in culture earned workforce the Work organization as Third, asset. We most the inclusion for Great important second

X according Our policies. to work of Talent were so X connected remote our employees approach Anywhere directly is to top our Pathward's strengths of workplace successful out that

regulatory a fiscal especially competitive the diluted our top. and more tone With has at continue and framework in us to and the been since industry is the this the is and of Finally, compliance a we $X have guidance to with be starts that what This in to environment. for $X.XX. strategy, provides share priority allows difficult year will this per it earnings a Pathward, XXXX range in with introduce built culture space, a us believe risk advantage we

will new guidance discuss and updated detail. over like more financials to in turn take who I'd and through Now to our Greg, the it you

Gregory Sigrist

and the to XX% prior Brett, be afternoon, our Net to quarter. interest you, income of results, Thank when everyone. year driver compared continues good a growing

focus to on which increasing loan the yields is on drive higher our helping continue and yield new to portfolio. the lease production We overall and returns, risk-adjusted

and quarter New last finance X.XX%. of production compared the loans the was X.XX% quarter from in yield quarterly on the to portfolio leases commercial yield on same

the the New to seasonal which production The and due yield a was risk. and margin lower past few the over in production premium yields both insurance net healthy lower yield interest interest expand in carry net focus adjusted impacted by period the increases over respectively, quarter. returns and risk-adjusted finance, showing the quarter the on margin have quarters renewal to March to tends higher X.XX% X.XX%, helped quarter in a

$X.X million the year, losses for increase last stemming Provision same quarter Finance compared million was credit primarily with for to our from the $X.X division. Commercial

mix and during benign growth increase environment, largely and Finance We are portfolio a provision still in the the quarter. the experiencing reflects in Commercial credit

card declined servicing to noninterest slightly, income our income to Noninterest diligently support monitor card quarter Total processing continues off add deposit in expenses levels fee from deposit last X% from primarily as banking and the same rate-related and FTEs income costs rate-related driven year expense versus deposits the higher due apart expenses responsibly of to increased with decrease a by lower to from growth. driven card prior balance year, partners. growth approximately reduced fee due compared when continued the last the year. increased custodial Noninterest expense primarily by sheet to company

at ago. sheet increase balance billion, of on $X.X from a Deposits totaled June year XX an $XXX million

at sheet $XXX to due on to balance compared $XXX hold deposits balance given levels last these banks partner Off were June leases. million of tax XXXX. and quarter support approximately deposits of million that the of sequentially held higher season deposits second XX to continue custodial during $XXX million declined as This We loans in elevated to growth year. totaled sheet

of trend to downward, We September quarter. out bottoming our end expect deposits around the seasonal continue their

and renewable leases including loans XX% at and finance, XX from increase working of totaled Total and from capital ago. stemmed USDA structured $X.X SBA, billion, year an primarily energy. Growth a June

as saw finance, consumer energy, seeing capital Commercial Compared As increased in leases Brett March million. premium pipelines as and and increases total in lending. renewable to XX, well balance working approximately $XXX in finance. healthy we warehouse We loans insurance mentioned, Finance are

of to into close we perspective, securities higher the rotate securities out and $XXX liquidity million billion and a months. our available for with assets, in flows in liquidity. portfolio position of strong balance earning approximately expect as the the remain to $X.X And XX down, with next drawing a sheet cash reinvestment part optimize over available we continued of continue From goal to

repurchased quarter, shares the we price during share $XX.XX. Finally, average of at an XXX,XXX approximately

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

reinvested as discipline yields which range first income the fee normal to focus effective those asset to year. risk-adjusted seasonal be given follow to higher-yielding tax year. on cash in card cased fiscal XX% XX% securities been and we earning tax flows, our for pipeline, the we core portfolio to continued returns, expect the of First, we And With to of estimate during has expect rate 'XX, full historical X loans. the into patterns fiscal quarters pricing our of be credit our exceed investment continue

'XX; share credit for XX% XXXX assumptions: share. heading investment are impact diluted based any tax neutral the XXXX of earnings to This one additional range We tax the cuts includes diluted an $X a also per to repurchases. per on rate muted fiscal into relatively stance; our effective cut in includes on net expected the year fiscal year in of guidance rate our given have would and share income volumes our following September expected introducing GAAP $X.XX guidance XX%

which into income. continue in Additionally, will we net our interest guidance also asset rotation, XXXX we have success the had believe account to scale takes

our also results slightly our additional follow weighted the to toward in half but the quarterly back typical We year. seasonality, earnings more expect be of

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

Operator

Our with first comes Tim from Switzer the KBW. company question

Timothy Switzer

side. expecting Very trends you macro maybe sure and there guys on you then be guidance. to hoped? And go you there's some doesn't on in like EPS puts come XXXX are you could available you talk helpful. in But the how takes discuss bit I'm you appreciate embedded about if what We little depending what expense would the that? levers outlook revenue a have and the Could revenue

Gregory Sigrist

And year. expansion next will know, have actually you we some. to for see FTE definitely of cost muted expense invest that living I and technology. to a I touch always mean going next are the through benefits. sure. Tim, Yes, guidance going there pull we're as fairly but comp capital in and see expecting human point, you're also to starting adjustments on going year, I'm normal just to

we're But you're spend, hard going to I as probably this et fairly P&L, to things going we tech across as of for on mean, tech side, saw see the a increase much rest we as the consulting can cetera. side. like really year self-fund work all that On to the the consistent of

a real we're to tight So eye going on keep it.

So for I pull items, increases total, side than living and there's nothing and really in significant on of cost other on the modest FTE some just inflationary forward you it.

card of years. to model trends out, expenses, based to historic rate-related have the you've going seen the that though, couple On upon in you're just last

see side or We say in of lot deposit how the uptick finance the and on of But a I pipelines drawn as also really informed starts I yet. side put But excited we BaaS to to you pull modest going through. that, do. balances, excitement the year deposits would that You're really to hasn't of keep us we'll seasonality into deposits Finance as next part consumer about necessarily in into we say pipeline would growth and you the the the a side. we're want latter the as Commercial go always into this half that evolves forward. have putting see BaaS on

Timothy Switzer

guys really minute helpful. That's spend this a you NPA. a tax Great. could quarter. a also business, is there's in discussing Okay. tick also excluding And up the Net charge-offs, higher then bit

are expectations guys loan little talk the you there bit forward? what about seeing I finance a what commercial think something. or Can going mentioned and you're your you

Gregory Sigrist

Yes.

ticking more the finance on a really, just On think, side. up it's I the little NPL, NPA dollar-wise, bit, consumer

have a we this program with XX. settle that contractually who We -- one June settle perspective. year, there's July up up from XX our We annually a manager typically by waterfall protects them us out pushed typically credit and to we that

without that. going We you're both increase consumer we're any at an So adequately potential what July expect path But to NPLs and here in the toward June loans consumer that exposures. exposure see XX. any for to related to wrap is up in additional feel it we reserved

Timothy Switzer

Okay.

I if on And off normal squeeze or like look And help the expect seasonality in of should what guys then sheet balance in 'XX? could Okay, bit in makes us a you one you give deposits average that sense. anything of more, guidance could do little outside QX?

Gregory Sigrist

I you quarter I for For year mean I see off you balance the fourth as sheet, our forward well. and I the commented I remarks, seasonally in just back would fourth don't would last that's in know, prepared going the into again, to BaaS overall, anything off fourth to think is deposits as speaking, my as for point low balance pull point sheet. untoward quarter quarter. and

going see are, we where to definitely from you're think June down I XX. So

pull-through year similar BaaS I think a for of the for the back mentioned deposits I the very But I ago, a as we quarters I trend into we next those it's of going very And way that year's I'm uptick to next impact year, would to with think existing ago. did couple deposits we're get just pipeline expecting if few first back result relative it year, half as happened we're next minutes as early half to the think really to current really so year. et BaaS modest will programs in loaded, see see programs, either hopeful the some you as on in cetera. much partners, But the not BaaS new in

Operator

Frank Schiraldi the Sandler. from is question next company Our Piper with

Frank Schiraldi

XXXX. still and asset higher-yielding on of sheet Just that balance you -- out talked the mix would rotation into expect growth It about into shift would guys seem favoring some still you loans. securities a

can to the Just you way off size growing curious of give terms faster maybe maybe that that securities higher-yielding books? bit. is the think Or about -- a it right in are little than rolling if loans

Gregory Sigrist

I to Frank. would Yes. continue, going I bit. I least, trends half, part see kind you're of year, little first bifurcate of would early it I again, the mean, a at say, historic mean

think focus continue deposits growing back half if on trend asset full that to see we're but Again, going loaded. expecting a So From both loans, programs, BaaS I loans. is think do XX% Historically current I to the up. the total just year. perspective, to XX%, for we're tick

But to I that. historically in assets growth. deposit muted. that on correspond think to to going again, total deposits going that you think we fairly haven't given scaling and you're And be I guidance know, see as it's you

to some We third be to and some expect fund because do I'm today, next part that. for hopeful helpful on growth. you probably deposit our can about So benefit tax that, eliminate more that we we season. uplift and it for typically BaaS have some I'm how going of think year, borrowings through if in you not any fund but to see wholesale that very self-fund we

Frank Schiraldi

around kind half some BaaS? guess and about smaller fee And commentary as the what's could speaking I year. your into on on the pipeline in the this more pickup modest uptick just in XXXX? banks even next of strong the revenues you. the pipeline obviously deposits with side service pipelines, banking pushed a Or business, kind Got is back seeing of in revenues in surprised, going deposits such Greg, the out that from of strong future further -- into -- periods, that is Is be XXXX for of

Brett Pharr

Frank, it's Brett.

won't one business. be the is lot actually of is that what about So in in trouble marketplace some I smaller this fintechs thing you're think to with a think seeing the

one put didn't in. to anyway. remind And was And early I big news, going in on mean as a able tell -- highly businesses we're are enough quality. to of in at. fleeing we going some unwinding And And that few just think they're in this. that's pipeline that's are phase, the happening kind else. those are someplace looking business because that what's so that's be there's on. place, doesn't it little we reading would our thing you there's bring it of that's And you we to a going this that be selective the that there whole can in because bit a existed just that of were any But the like kind are profitable that I

I in certainly if So but but your volume don't that pipeline not the has things some it's that many question, the been out there. answered are there all know

Gregory Sigrist

market can Yes. closing we're some quarter, touched of Brett's announcing Brett's we're I letting talked appropriate the too, that, And every well. excited the guys I just we're though. the use the it. I but get haircut think mean, that We're and the some that it's and about deals, what point think reason already think through of add and cycle. until business, deals, We being I expectations. on the cycle get we long -- the to to is some these let modest we're at we're And to word point, think, know pipeline selective it's very sales very kind about on completing we it, a you where to know until And that of I still through as I

just a in So again, much into optimistic, terms guidance we're pull being very it, we the for next how call year. but conservative of bit,

Frank Schiraldi

Great. down quarter-over-quarter. buybacks. were And ask could the I more The then levels if on I a one guess, bit significantly, just buyback

given And Is buyback, current where lot know year-over-year, the about run-up capital there's XXXX just got levels the just that does were stock? there. there if on change? do recent But there any in seasonality you've Greg, were obviously, You But include a how guide. so your authorization. curious mentioned, expectations in repurchases they -- out we I certainly think here up just

stock previous in quarters Just wondering from bit given we've tempering terms a just in are you maybe little that seen the where guys is. what activity if of

Gregory Sigrist

the does bit, one down not to full year. it the quarter, June a mean make current but buybacks Yes. I quarter were a -- to relates as little

I'd that make capital buybacks of in our So high forward. falls use that very I and continue still believe to capital and optimizing still committed point. just share best going to We're And category.

I think ratio historically, just to slowdown, buybacks put earnings we to buybacks. back you how to into it's our the of -- XX% of XX% roughly payout have equated on some in it, our been slight give perspective the terms a much

modestly. likely really to that's And For XX%. XX% come down range to think that's payout to XX% 'XX, I versus XX% to the

part looking you're here year, buybacks. Brett, X X -- have think opportunities. the deposit And I But to to look get you'd I'm of when the it. part a that big next about see it's think the need of building years, I the that middle But next the if that bit. growth loan back we us slightly. do latter X build behind when before I don't organic about the to the I of time So I a being by see the to to it to likely more several little get I'd capital deploy rather driver mean strategically. think is add of rather quarters, know into half out middle think we whether at levels I'd years, cetera, normalized able I et ahead anything go book, base, this that there's I out ahead and we into moderating

Brett Pharr

are And opportunities capital we was out we've think I to for healthy. got payout XX% exactly pretty and it. ratio that's balance XX% we'll But that there use where need sheet, No, the right. some

Operator

James. Feaster Raymond is question company Our with David from next the

David Feaster

industry? disruption as some that Just your that negotiations? heard positive about how maybe be And talked commentary you backup protection. up of impacts for how on does -- that of you and something your partnerships of curious, Do pricing the overall kind partners looking of prepared on contracts your this of think following seeing? in how a that I'm may some impact downside kind curious the remarks. does Is kind that I've some agreements. and for impact partners thoughts you're that's just partners a just I'm negotiations? just the

Brett Pharr

backup, we looking We're phone some happening. whale calls. those And juice looking through terribly I that it excited it's of partners have We -- something getting to not seeing. backup, one. for are for just We're Yes, want lot of their are There capacity some that's do a clearly to secondary they're they're wouldn't are coming we've it. say got being about that that the things going things. for is use second a are to

you have of work. conversations we volumes, to can of that every about some going And percentage things. we we have in to those a agreements, to how of is as one kinds there's get those expect agreements that's have minimums, custom. cases, There's And And it. in majority where

sophisticated can I in custom. managers better But have couple very have recognized, an I happening need mind, all things So banks doing because are those or new so program "Oh, a more it, if I much of out programs." keep

David Feaster

would you slide on at? What for about helpful. tech you being And looking is hoping it? I going to opportunity And are create I'm looking with system any curious, And all AI efficiencies. could then That's to AI a there days, Okay. I that. the how then these deck, across platform? do just new was your elaborate at rage you leverage that's you talked the you implementing guess guys

Brett Pharr

underwriting, installing Well, tools the there efficiencies we sales and available credit all those lot particularly our through what some let some say with and just of that what did in the with I money spend help management, but me help there's the and process a us it it's FTE Commercial There time that solutions competitive start said, we Finance reporting. management, And things. are putting way readily collateral counts will with commercial. you help in advantage, wouldn't basic that in packaged us but in will group. by kind it's to

the benefits some that. reap that's and starting happy of there, we're we're So in of to

comment simple to be everybody at you people And We action that due a reports the think that it. very used. the AI on example, as focused those got I hate a has think are the of view correct. can ways where that have very I'll But see I limited things. that the monthly, data, know, you writing there's moment. great it are is security, could be in about some adverse info controllers give your basic we

it You can and AI later get to process make according modify and it an initial then standard. start with an

So surface I efficiently started we time, haven't on I we even scratch bunch are that. there's out a of figure it. that like just to use to over how that. whole mean things But the hope

David Feaster

Okay. That's Look, And you locked then don't got of for still helpful. The one securities good growth you've is just deposit last there's that's in news challenge. up -- power earnings me. that the book. the lot a have a liquidity

the You've in I loan got and But to growth coming. earnings the point? appetite if for move appetite I got guess your deposit at fund that given that changed. there have, you've not just could just growth you -- loan accelerate. growth, the didn't that the rates is growth any securities for but sales for know increased hurting I mean had you're I that maybe this outlook

Gregory Sigrist

recycling I And saw No, just when in touched a the be David, we the to and real addition on with one that stays we we believe relates when tailwind going as the think there. a just an really and the even side. benefit be practical I I appetite the call our no, here book opportunity mean, it road down or think fairly curve. static, I really to opportunistic and us, securities the whole, really the then looking I that's as the it But specifically to thing But loan sheet the be the as flow just book, changed think pipelines. think the if of loans with rotate curve that, that, hasn't about shape hasn't and the combined level, market haven't at middle this is that on to we're does of yet cash loan to sales I long to as ability might for matter, in our balance into changed, mean part be candid. a as about

Brett Pharr

coming of counting to so I you, million be it's you think to we remind deposits. the right, out then not so flow, as I cash $XXX new that know the of the year, any a to securities loan self-funding, to are grow into book, book, portfolio, about able liquidity just putting this, And providing but that the think the sort and loan

Operator

That day. will participation call. conclude for Thank the conference enjoy your of your you rest and today's

Pathward Financial (CASH) 24 Jul 242024 Q3 Earnings call transcript