Pathward Financial, Inc.

Ladies and gentlemen, thank you for standing by and welcome to Password Financial's third quarter fiscal year 2023 investor conference call. During the presentation, all participants will be in a listen-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 Darby Schoenfeld, Senior Vice President Head of Investor Relations. Please go ahead.

Thank you, Operator, and welcome. With me today are PathWord Financial's CEO, Brett Farr, and CFO, Glenn Herrick, who will discuss our operating and financial results for the third fiscal quarter of 2023, after which we will take your questions. Additional information, including the earnings release, the investor presentation that accompanies our prepared remarks, and supplemental slides may be found on our website at pathwordfinancial.com. As a reminder, our comments may include forward-looking statements, including with respect to anticipated results for future periods. Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ. The company undertakes no obligation to update any forward-looking statement. Please refer to the cautionary language in the earnings release, investor presentation, and in the company's filings with the Securities and Exchange Commission, including our most recent filings, for additional information covering factors that could cause actual and anticipated results to differ materially from the forward-looking statements. Additionally, today we will be discussing certain non-GAAP financial measures on this conference call. References to non-GAAP measures are only provided to assist you in understanding the company's results and performance trends. Reconciliations for such non-GAAP measures are included in the appendix of the investor presentation. Now let me turn the call over to Brett Farr, our CEO.

Thanks, Darby, and thanks, everyone, for joining us. As we start today, not news to anyone, the banking industry as a whole has come through some turbulent times. Last quarter, we talked about how our business model differentiated us, especially in these times. This quarter, I really want to share how those differentials translate into our strengths. Just a few examples. The industry has suffered from unstable deposits. We have not. Compression on net interest margin from rising interest rates throughout the industry. But even counting the increase in card expenses, we have a growing net interest margin, not a lower one. There are general loan related concerns, both demand and credit. But we have a collateral managed portfolio with diverse asset classes built for whatever may come. And importantly, we typically do not do CRE purpose lending. During these times, our business model puts us in the envious position of allowing us to be defensive while still having increasing returns. More about some details of this in the next few minutes. But first, the third quarter. Pathwork once again produced solid results consistent with our performance so far in fiscal year 2023. Our net income for the quarter was $45.1 million or $1.68 per diluted share. Both were significant increases when compared to the same quarter last year. We did this by growth in both net interest income and non-interest income. Our net interest margin grew to 6.18%, an increase of six basis points from last quarter, and a significant expansion, 142 basis points from the third quarter last year. While six basis points and sequential quarter NIM growth doesn't seem as large as you might expect, remember that last quarter includes the impact of our seasonal tax business, which can temporarily boost the net interest margin. Our adjusted NIM, considering rate-related card processing fees, was 4.88%. We are very pleased with this net interest margin performance and believe the steady trend upward will continue in 2024. Well, I turn my attention to the loan side of the business. We have a history of delivering proven solutions to small and medium-sized businesses and helping them meet specific financial goals. We also understand the challenges these businesses may face right now in efforts to secure the funding they need. How do we do that? We have a set of methods and controls that allow us to serve these clients safely, what I often refer to as collateral managed. We recently released a video on our LinkedIn page that we think tells the story well from the customer's perspective. So please take some time to check it out. Some specific asset highlights this quarter. We had significant growth in our insurance, streaming finance loans. We had expansion in our term lending and SBA USDA balances when compared to last quarter. We also saw an increase in the number of working capital originations. That's an area that we are especially optimistic about in this particular economic climate. I do want to make a comment on renewable energy loans. Recent times, we've had good demand and an increase in originations. But industry-wide, we are experiencing a slowdown in the pipeline as projects become less attractive due to rising interest rates. We expect this to continue into 2024, which will likely lead to lower originations and therefore a higher tax rate next year. This is already factored into the guidance we are introducing today. That being said, our various asset classes provide us the diversity that is built for economic cycles. In order to deliver on our strategic initiatives of optimizing our earning asset portfolio, sometimes we may grow working capital, other times it will be equipment finance, others it may be insurance premium finance. It may even mean that if some of our securities mature, we may reinvest those funds in other securities since rates have increased significantly. This kind of optionality helps us meet our strategic goals in a variety of environments. Now, a few words about Bass Partnerships and our deposits. If you listened to last quarter's call, you heard how we are different. Partnerships we have formed, continue to manage, and continue to source are integral to our financial inclusion purpose, but also provide stable deposits and coveted fee income. As the banking industry is experiencing rising deposit costs and or deposit outflows, this model is less impacted by the environment. We've built long-term relationships with a core group of companies that contribute significantly to our deposit stability These partnerships are pivotal to our success. Importantly, we are very careful and diligent in who we decide to work with. This is called smart defense. For example, during the recent expansion in fintechs, we made sure that those we were partnering with had a strong understanding of regulatory requirements and could survive their cash burn phase. We added very limited partners during that time. And notably, we stayed away from concentrating in any one industry. even establishing internal industry-specific limits. This allows us to focus on our current partners, maximize those partnerships, strengthen and deepen the existing relationships, and work together to expand and enhance product offerings. But we have added a few new partners and recently launched a few new programs or capabilities in conjunction with these new partners. We launched a new line of credit for consumers with Propel Holdings. We paired with Clare to offer spending and savings accounts, as well as earned wage advances. I'd also like to mention that we announced a new relationship with Phenix. We are their banking partner, supporting their launch as a payment processor. These new programs and associations may take time to deliver a meaningful impact to our deposit balances and revenue. This is why our model is built on long-term contracts. We are excited to strengthen our partnership network, and we continue to fulfill our purpose of increasing financial access for more Americans. Because of the partnerships Pathwork has formed and nurtured, most of our deposits are held in millions of retail card accounts with an average balance of less than $1,000. We have very few institutional accounts, and those we do have are typically cash collateral tied to loans within our commercial finance group. As a result, our non-interest-bearing deposits on the balance sheet have a weighted average life of over six years, based on our decay study. Just a comment on vast industry trends. The value of these deposits is significant, and we believe others in the industry are realizing that in the wake of recent events in banking. There are more banks entering the banking of the service space, But as recent news has reflected, they have not always invested in the regulatory framework needed. I believe there will be a bit of a regulatory cycle as these new entrants adjust to the third party demands, the cost of which will eventually be included in pricing. However, at the moment, we are seeing more competition on pricing, and we've continued to work very closely with our partners. This may lead to slightly higher card processing fees in 2024. But we believe we can continue to grow both our GAAP net interest margin and adjusted net interest margin, which includes these costs in 2024. This is also included in the guidance we introduced today. Before I turn things over to Glenn, I want to comment on our CFO search. We've made a lot of progress. We've had some very substantive discussions and have a strong candidate pipeline. It's our hope to announce something in the coming months. Now, I'll turn it over to Glenn to take us through our financial results.