Ladies and gentlemen, thank you for standing by, and welcome to the Pathward Financial Investor Conference Call for the Third Fiscal Quarter of 2022. 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 Justin Schempp, Vice President of Investor Relations and Financial Reporting. Please go ahead.

Thank you. And welcome to Pathward Financial's third fiscal quarter of 2022 conference call and webcast. On July 13, the company legally changed its name to Pathward Financial, and we will refer to ourselves as such throughout today's call. Our CEO, Brett Pharr; President, Anthony Sharett; and CFO, Glen Herrick will discuss our operating and financial results, after which we will take your questions. Additional information, including the earnings release and investor presentation, may be found on our website at pathwardfinancial.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 results to differ materially from the forward-looking statements. Additionally, today, we may 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 within the appendix of the investor presentation. Now, let me turn the call over to Brett Pharr, our CEO.

Thank you, everyone, for joining Pathward Financial's third fiscal quarter 2022 earnings call. I am pleased to host this call today, our first, using our company's new corporate name, which reflects our continued commitment to providing a path forward to people and businesses so they can reach the next stage of their financial journey. As Justin mentioned, our company legally changed its name to Pathward earlier this month. Our corporate name has changed, but the full transition to our new brand, including the launch of our new brand identity and website, is still underway, and we will complete it by calendar year end. Turning to our financial results. Net income was $22.4 million, down $16.3 million compared to $38.7 million in the same prior year period. Earnings per share for the quarter were $0.76, compared to $1.21 in the prior year. As previously disclosed, our earnings this year have been impacted by a slowdown in the renewable energy tax credit lending market, lower tax advanced demand than we assumed, and certain one-time branding and separation agreement expenses. We continue to benefit from our business model of using low-cost deposits from our banking-as-a-service business and lending them to a variety of commercial finance asset classes, allowing substantial capital return to our shareholders. This model will generate higher returns once the market lending rates begin to reflect the higher rate environment. We anticipate that our net interest margin will continue to expand as a result of our ongoing mix shift into higher interest-earning assets, coupled with higher overall rates on new business originations and increases to the variable loan portion of our existing portfolio. Our confidence in steadily growing earnings per share has never been higher. Like others in our industry, we are facing a challenging macroeconomic and geopolitical landscape. Third-quarter expenses were higher compared to the previous year as we incurred higher employee compensation costs as well as higher technology-related spending to enhance our capabilities to get ahead of market expectations and respond to industry-wide inflationary pressures. In response to these headwinds, we will concentrate our efforts to drive productivity and enhance efficiency. Our income tax rate was up compared to the second quarter due to delays in the development of renewable energy projects in our pipeline. As we've noted in the past, our income tax fluctuates primarily due to these projects. The solar construction market has been largely impacted by supply chain constraints, leading to lower volume levels and expectations, and as a result, we anticipate our tax rate to be higher than previously expected in the short term. To address credit in the current environment, we are pleased that our growing Commercial Finance portfolio remains healthy as reflected in our reduced allowance reserve rates. We continue to be confident in the ability of this well-diversified portfolio to perform even during a difficult economic environment as it has done historically. Our team has deep experience in hands-on collateral management, which has helped mitigate losses during previous cyclical downturns. Because of this hands-on collateral management, our ability to manage losses in the downturn far exceeds traditional commercial and industrial lending. Given the dynamic economic environment, we believe it will be helpful to provide guidance for the current and next fiscal year. We expect fiscal year 2023 GAAP earnings per share to be in the range of $5.25 to $5.75. When adjusting for certain nonrecurring items net of tax, we expect adjusted earnings per share to be in the range of $5.10 to $5.60. At this point, we will only be providing guidance for EPS and will not be addressing specifics on various income statement items. Glen will discuss our broad assumptions in more detail later. Now, let me turn the call over to our President, Anthony Sharett, to provide updates on our lines of business.

Thank you, Brett. Let me first update you on our banking-as-a-service business, which includes our payments, tech services, and consumer lending capabilities. We are prioritizing relationships that have more favorable, sustainable economics, which often means longer-term agreements with partners that use a broader suite of capabilities and multi-product solutions that we provide. A great example of this is our relationship with H&R Block, with whom we have an agreement in place through June of 2025. Consistent with these priorities, we are not renewing agreements with Liberty Tax and Jackson Hewitt. As a result, we expect taxpayer advance volumes to decline roughly 30% next year, which will impact fiscal year '23 revenue, but also will help reduce the magnitude of the seasonal volatility in our business. We do not expect any material impact to our refund transfer volumes, which we view as our core tax services payment solution. By exiting these two limited partnerships, we expect to gain extensive efficiencies over time, and it will allow us to focus our resources on our growing H&R Block and other banking-as-a-service partnerships. Changes in capital markets are also impacting our banking-as-a-service business. Recent pullbacks and investment funding of Neobanks and fintech firms are slowing opportunities in our pipeline. But new solutions and programs with legacy partners, which represent the majority of our banking-as-a-service business, remain strong and ongoing. Moving to credit quality, our total nonperforming loans and leases as a percentage of total loans and leases improved 24 basis points from the prior quarter to 0.71%. The allowance as a percentage of loans and leases decreased from 2.38% in the prior quarter to 2.04% in the current quarter, due in large part to the decrease in seasonal reserves for the tax services loan portfolio. Excluding the reserves for the tax loans, reserves dropped from 1.59% to 1.44%. As Brett mentioned, we are pleased with our team's ability to continue to grow the Commercial Finance portfolio. The loans and leases in the Commercial Finance portfolio were $2.9 billion at June 30, an increase of 14% from the third fiscal quarter last year. As we potentially enter a period of stagflation, characterized by low or negative growth coupled with higher interest rates and inflation, we continue to believe our Commercial Financial portfolio is well positioned. First, rising rates will result in higher yields on our new business and existing variable loan portfolios. Further, our customer base tends to expand as companies lose their traditional funding sources during the credit cycle, which favorably impacts our working capital lines such as asset-based lending and factoring. For these reasons, we expect continued strong loan growth and higher yields on the commercial portfolio going forward. Now, let me turn the call over to Glen Herrick, our CFO, to provide an overview of our financials.

Thank you, Anthony, and good afternoon, everyone. Net income for the quarter ended June 30 totaled $22.4 million, or $0.76 per share, a decrease of $16.3 million from the third quarter of fiscal year 2021. Excluding $3.4 million of rebranding-related expenses and $3.1 million of separation expenses, net of tax impact, our adjusted net income was $27.3 million for the quarter. The quarter's net interest income of $72.2 million represents a 5% increase from the prior year. Higher yields on the securities portfolio and greater Commercial Finance interest income more than offset the sale of the remaining community bank portfolio year-over-year. While we are seeing some growth in Commercial Finance yields, the yield beta to rate increases has been slower than we have expected thus far, likely due to excess liquidity in the market. In total, quarterly average loans and leases grew by $129 million, or 4%, driven by strong growth in the asset-based lending and factoring portfolios. Concurrently, interest expense was elevated this quarter beyond its traditional run rate, as the company accelerated $900,000 of interest expense associated with the retirement of the subordinated debt. Our balance sheet optimization, combined with higher yields and a reduction in excess cash from stimulus payments, helped drive the third quarter net interest margin to 4.76% compared to 3.75% in the prior year. Noninterest income of $54 million was down $8.5 million from the prior year. As Brett mentioned, the prior year's quarter benefited from greater card fee income associated with stimulus activity as well as the timing of last year's tax season. Furthermore, the company recorded fewer gains on loan sales in the current fiscal year, as the solar construction market has been impacted by supply chain constraints, leading to extended construction terms. For the nine months ended June 30, total tax product income net of losses and direct product expenses was $43.5 million, up from $40 million recorded in the prior year period. While taxpayer advances came in below our expectations, overall refund transfer volume grew 9% year-over-year. Looking ahead to next year, we expect strong refund transfer volumes and greater efficiency in our tax line of business as we exit the two aforementioned partnerships. Total noninterest expenses for the quarter increased 19% year-over-year. Excluding the $3.4 million of rebranding-related expenses, $3.1 million in separation costs, and $1.2 million in expenses related to the nonrenewal of the two tax partner agreements, core expenses increased 9% year-over-year. The increase in expenses generally stemmed from higher compensation caused by industry-wide inflationary pressures and greater technology spend to support current and future Commercial Finance growth. Additionally, the company started to incur higher card expenses under the rising rate environment. As interest rates rise, we will experience elevated card expenses with some partners associated with certain contractual agreements. However, we do expect the higher variable card expenses to be less than the corresponding revenue gains as interest income benefits from the higher rate environment and through additional fee income from off-balance-sheet deposits. Income tax expense in the third quarter increased to $7 million compared to $4.9 million in the prior year. These expenses correspond to effective tax rates of 22.6% and 11%, respectively. As mentioned previously, the increase is driven by reductions in renewable energy investment tax credits compared to the prior year. To expand further on the guidance Brett provided earlier in the call, we estimate fiscal year 2022 GAAP earnings per share to be in the range of $5.04 to $5.24 and fiscal year 2023 GAAP EPS to be in the range of $5.25 to $5.75. When adjusting for the gain on sale of trademarks, rebranding-related expenses, and separation expenses, the company expects fiscal year 2022 adjusted earnings per share to be in the range of $4.28 to $4.48 and fiscal year 2023 adjusted EPS to be in the range of $5.10 to $5.60. These estimates assume a Fed funds rate of 3.5% by September of 2023. Any increases above this level could positively impact our earnings, while our earnings may be negatively impacted if rates do not reach that expected level. As we mentioned in last quarter's call, the company retired the outstanding $75 million subordinated debt on May 15, 2022. The debt had recently moved out of its fixed-rate phase to a variable rate. As a result of the retirement, the company will save approximately $6 million of interest expense over the next year. Finally, the company remains well capitalized with a regulatory leverage ratio for the bank of 8.2%, and we remain committed to returning capital to shareholders. In July, we repurchased 306,000 shares at an average price of $40.74 through July 22. That concludes our prepared remarks. Operator, please open up the line for questions.

Thank you. Our first question is with Frank Schiraldi from Piper Sandler. Frank, your line is open.

Hi, Frank.

I wonder if you could provide some detail on whether the EPS guidance reflects a steady state environment regarding the macroeconomic conditions. Does it assume some deterioration in line with the economic outlook, or how do you consider that when providing the 2023 guidance?

Well, I think the first big picture piece of this is the yield question. And as we are helping everybody understand, our portfolio will not reprice as quickly as some might have thought. And the other thing what's going on, and Glen mentioned it in his comments, there’s extreme liquidity in the market. And so even though rates have moved up in theory, they've not moved up in practice. I'm talking about intermediate duration kind loans. So we do believe we're going to get obviously higher net interest margin and we're going to get the benefit of the yield, perhaps not as aggressively as some might have thought. And as we go through this period from a yield perspective, we'll sustain that benefit for a longer period of time than might have been thought even as we come down to a lower rate environment. So not really about the macroeconomic environment as much as it’s about the speed at which yield will pick up.

Okay. So it doesn't necessarily reflect an economic slowdown at all. It's just more subtle on the NIM side, I guess?

That's right.

Could you discuss why the market lending rates haven't increased as much as expected, considering the yields haven't moved higher? Is it due to liquidity or something else?

Yes. Again, that's kind of what we were talking about is banks are flush with deposits and they continue to be flushed with deposits. And so rates are reflective of why I can put it out for versus having it sit in Fed funds because I'm not having a problem gathering deposits. Now, I believe that's going to flip. And this is going to quickly turn. Then we'll have some pricing that's going on in the marketplace that's a little bit more like normal when there's a rate increase. We've never had a situation where you’ve got this kind of a rate increase with this much liquidity in the market. It's going to take a while through the system.

Okay. And then just on the announced exiting of those two relationships on the tax side, any sort of color you can give? I know you talked about the reduction in the refund advance product expected year-over-year, but you also talked about maybe picking up some efficiencies over time. So if we think about what the impact is to the bottom line on 2023 earnings, if you guys have that math for us?

Well, Anthony, why don't you talk a little bit about what you’re doing there and why? Then maybe, Glen, you can address any kind of math question?

Sure. As we mentioned earlier, we aim to concentrate on partner bases that offer extensive banking-as-a-service utilities for us. While we do not typically share details about partner economics, we anticipate that our taxpayer advanced volumes will decrease by approximately 30%. However, this impact has been accounted for in the Q3 guidance. We believe that over time, we will enhance our efficiency by reallocating these resources to improve our core enterprise operations. Additionally, do you think it will affect the bottom line?

Yes. And I think Anthony covered it there, Frank. We provided a fair amount of detail around the reduction in tax advances. We list out the components of the revenue and other items for our tax advances. And that's all factored into our overall guidance for fiscal year '23, where we will not have Jackson Hewitt and Liberty going forward. And then as you might assume, there are resources internally that we can either save or redeploy to higher growth, higher margin type of businesses.

I guess that's what I'm kind of getting at. I guess that's more down the road as opposed to baked into the idea that there are some offsets here, because there is some ability to do some other things that's more sort of down the road baked into 2023.

That's correct.

Okay. And then I think, Anthony, you mentioned this, the slowing pipeline as far as new partners, but the strength of existing partnerships on the banking-as-a-service side, and just wondered if you guys could maybe give any color into growth from here on the card fee side?

Let me take the start of that and then I'll pass it to you, Anthony. So, Frank, what we're seeing with our partners is a lot of new programs and a lot of new ideas coming out. Because of the macroeconomic environment and what’s going on, that’s pretty well understood in fintechs and some of the venture capital firms, the Neobanks, we’re seeing a little bit of a slowdown there. And that’s kind of playing its way out. I actually think there’ll be some of them that survive and come back strong. But we’re still seeing interest from our existing partners for large programs, new products, and new capabilities, and bringing those in. So Anthony, what would you add to that?

I think that’s well put. Again, as we look to optimize our core enterprise partners, even back to the last question, we're going to either be saving or redeploying resources to really grow and go wider and deeper with those partners. We have seen a pullback from Neobanks and fintechs because of the declines in investments in those companies. But we still do have a robust pipeline of opportunities, and those are the ones that we’re really going to focus on in our banking-as-a-service pipeline.

Okay. Thanks for all the color.

Thanks, Frank.

Next question is with Steve Moss from B. Riley Securities. Steve, your line is open.

Hi, Steve.

Maybe just starting here, were there any pricing demands from the tax partners that made the business less attractive and caused the change in business plans?

Well, I would say it really wasn't a pure pricing conversation. We really wanted to go to this portion of the industry where you're offering a breadth of products, not a single threaded product through a partner. Having a partner is an administrative proposition. If you can have two, three, or four products or capabilities going to the same partner, it gives you economies of scale that makes sense. Both of those arrangements were single product arrangements, and that’s what we’re trying to get away from.

Steve, this is Glen. I think you’re going to assume, though, that these contracts came up for renewal and Brett addressed the strategic thinking there. But you could also assume that as a single threaded product and a new contract or renewal, the new economics might not clear our return hurdles.

Right. And kind of on that point, I was going to go to next, is just is there a fundamental shift in the business outlook or maybe the business plans here after this year's unusual tax season?

I wouldn't say there’s a fundamental shift, but we are viewing the tax business as banking-as-a-service. We anticipate our engagement with the tax business will expand to include various consumer-related offerings. As Anthony pointed out, our partnership with H&R Block reflects this broader approach beyond just tax services.

Okay. On the tax credit side of the business, Glen, I think you mentioned that there will be a short-term impact from the tax credits. I'm curious if this extends into fiscal '23, and if it does, what are you assuming for a marginal tax rate in your guidance?

Go ahead, Glen.

Sure. It’s hard to predict, Steve, how long does this go? Now market color says there's still demand for projects out there. But between projects getting delayed, primarily supply chain, and other perhaps permitting issues, the whole market has seen a slowdown. So we're projecting roughly a low double-digit type tax rate for next year.

Okay. I would like to ask about the efficiency initiative. What types of cost savings are you targeting, and how should we approach expenses for the upcoming quarter?

Glen, go ahead.

Yes. We are actively seeking ways to improve our expense efficiencies and scalability as we transition away from two of our tax partners. We anticipate enhancing our efficiency ratio over time. While there may be some fluctuations in our business in the short term, we are committed to making improvements over time.

Okay. All right. Thank you very much for all the color.

Thank you.

Our next question is from Michael Perito from KBW. Michael, your line is open.

Hi. This is Mike's associate Andrew filling in for him. Thank you for taking my questions. First off, I just wanted to move to the credit side again. Are you making any changes to the underwriting process in the Commercial Finance or consumer loan portfolios yet? Or are you seeing any trends, whether it be inventory or cash flow or anything, starting to give you some concern given the macro uncertainty?

Well, if you remember, the majority of our exposure is in Commercial Finance, not traditional commercial and industrial, which is heavy collateral managed. And that is precisely what you want to have when you're entering into any kind of a downturn environment. So to answer your first question, are we changing anything? No. This is what you want to happen in this particular period of time. We are not seeing any real deterioration in our borrowers. We are starting to see some borrowers trying to leave traditional commercial banks because they've had covenant issues, et cetera, some of which may go all the way back to COVID. And so we're picking up. Some of our asset-based lending growth has been precisely due to that. On the consumer lending side, I'll remind you that the majority of our consumer lending portfolio is in some way credit enhanced, meaning that there's a waterfall approach or some other kind of arrangement. Again, with maybe one slight exception, we're not seeing much deterioration in that space either.

Great. Thank you. I appreciate the color there. And then just lastly for me, what kind of a balance sheet size do you expect kind of in the near term here and the next quarter? So do you think assets might shrink a bit more or just any sort of color there?

Glen, why don't you handle that?

Yes. We've talked about this in the past too. We expect to kind of move around between $6.5 billion to $7 billion for the foreseeable future.

Great. Thank you. I appreciate the time, and thanks for taking my questions.

Thank you.

At this time, there are no further questions. So I'd like to turn the conference back to the management team for any closing remarks.

We appreciate everybody attending today and appreciate the questions.

That concludes the Pathward Financial's third quarter fiscal year 2022 investor call. Thank you for your participation. You may now disconnect your lines.