Pathward Financial(CASH) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net income of $35.2 million and earnings per diluted share of $1.57, representing increases of 17% and 28% respectively compared to the previous year [15] - Return on average assets was 1.87% and return on average tangible equity was 26.7%, up from 1.61% and 25.5% respectively in the same quarter last year [15] - Deposits totaled $6.4 billion, a decrease of $170 million year-over-year, primarily due to an increase in custodial deposits [15][16] - Average deposits during the quarter were approximately $90 million higher than the previous year [16] Business Line Data and Key Metrics Changes - Net interest income from commercial finance increased by $9.2 million due to higher balances and slightly higher yields [12][13] - Non-interest income showed solid results, particularly in core card and deposit fees, with growth attributed to new partners [14] - Loans and leases increased to $5 billion, driven by a $531 million increase in commercial finance loans, partially offset by a $148 million decrease in consumer finance loans [16] Market Data and Key Metrics Changes - The company experienced favorable deposit balances at multiple partners due to a strong holiday season and continued partner growth [16] - The government shutdown impacted secondary market revenues, but this is expected to recover in subsequent quarters [14][39] Company Strategy and Development Direction - The company aims to optimize its balance sheet by rotating from securities to loans, increasing net interest income without growing overall asset size [9] - Pathward is focused on financial inclusion, providing solutions for underserved and unbanked individuals and businesses [7] - The company is enhancing its operating model to better align with partners and support their growth [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in revenue growth from new partnerships and the upcoming tax season, anticipating benefits from changes in tax code [10][11] - The company is optimistic about the impact of new partner announcements and the normalization of pricing in the industry [36][37] - Management highlighted the importance of monitoring new partners and the potential for increased loan originations throughout the year [44] Other Important Information - The company repurchased approximately 652,000 shares at an average price of $72.07, with 4.3 million shares still available for repurchase [19] - The fiscal year 2026 guidance for EPS has been increased to a range of $8.55-$9.05 [19] Q&A Session Summary Question: What is the adjusted NIM trajectory for Q2? - Management indicated that the adjusted NIM for Q2 is expected to be around 5.31%, with potential for it to be flat to up depending on the macroeconomic environment [21][22] Question: Can you quantify the recovery recorded within net charge-offs? - Management stated that specific quantification of the recovery is not available, but aggregate numbers can be found in the earnings release [23] Question: How does the emergence of FinTechs obtaining bank charters impact the company? - Management believes that while there may be some competition, the scale and complexity of operations required to match Pathward's offerings will take time for new entrants [25][26] Question: What is the embedded growth from new partners? - Management expects mid to high single-digit contributions from new partners once programs are launched and live [32][33] Question: What factors will influence the updated guidance? - The timing of new partner contributions and the success of the tax season are key factors that could push results toward the higher end of the guidance [38][40]