Q3 2023 Pathward Financial Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to password Financial's third quarter fiscal <unk>.
<unk> 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'd 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 password financials, CEO , Brett Moyer and CFO Glen 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.
<unk> may be found on our website at Packard financial Dot 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 and reconciliations for such non-GAAP measures are included in the appendix of the Investor presentation now, let me turn the call over to Brett <unk>, our CEO . Thanks.
Thanks, Darby and thanks, everyone for joining us.
As we start today not news to anyone on the banking industry as a whole has come through some turbulent times last quarter, where you talked about how our business model differentiated us, especially in these times.
This quarter I really want to share how those differentials translated into our strengths.
Just a few examples.
The industry suffered from unstable deposits, we have not.
Pressure on net interest margin from rising interest rates throughout the industry.
But even counting the increase in current 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.
We're about some details of this in the next few minutes, but first the third quarter.
Patrick 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.
Those were significant increases when compared to the same quarter last year.
We did this by growth in both net interest income and noninterest income.
On our net interest margin grew to $6, one 8% an increase of six basis points from last quarter and a significant expansion of 142 basis points from the third quarter last year.
Six basis points in 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 eight 8%.
We are very pleased with its net interest margin performance and believe the steady trend upward will continue in 2024.
Well I'll 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 into an effort to secure the funding they need.
How do we do that.
We have a set of methods of controls that allow us to serve these clients safely what I often refer to as collateral managers.
We recently released a video on our Linkedin Page then 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 premium 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 don't 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.
To deliver on our strategic initiatives of optimizing our earning asset portfolio, sometimes we may grow working capital other times of the equipment finance others. It may be insurance premium finance and May even mean that at some of our securities mature we may reinvest those bonds and other securities since rates have increased significantly.
Kind of Optionality helps us meet our strategic goals and a variety of environments.
Now a few words about bass partnerships and our deposits.
If you listen to last quarter's call you heard how we are different partnerships, we have foreign continuing 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 <unk> deposit outflows. This model is less impacted by the environment.
We've built long term relationships with our 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 let's just call. It Smart Defence for example during.
During the recent expansion in Fintech, we made sure that those who are 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 existing relationships and work together to expand and enhanced product offerings.
While 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 Claire 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 Phoenix, 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 or a 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 partnership's password is formed and nurtured most of our deposits are held in millions of retail card accounts with an average balance of less than $1000.
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 noninterest bearing deposits on the balance sheet have a weighted average life of over six years based on our to case study.
Just to comment on bass 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 as a service space, but is recent news is 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 demand the cost of which will eventually be included in the 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 included these costs in 2024.
This is also included in the guidance we introduced today.
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.
Thank you Brett for the quarter ended June 30.
Net income totaled $45 $1 million or $1 68 per share an increase from $22 $4 million or 76 per share in the prior year's quarter.
Net interest income was $97 5 million for the third quarter of fiscal year 2023, an increase of 35% from the prior year quarter. This was driven by expansion in the net interest margin.
One 8% from 476%.
NIM expansion was driven by a 162 basis points expansion in loan and lease portfolio yields and an 82 basis point expansion in the yield on the securities portfolio.
Remember the bulk of our deposit costs are recorded as card processing expenses. If you include those expenses in our net interest margin calculation, our adjusted NIM would have been 488% compared to 489% last quarter and four.
Six 2% in the third quarter of last year.
Also keep in mind that the revenue we are earning on our off balance sheet deposits is not shown in the NIM, but in fee income.
We expect our net interest margin to continue to expand as we deliver on our strategic initiative of optimizing the interest earning portfolio and repricing of our assets in the current rate environment targeting appropriate yields.
Provision expense was $1 $8 million in the third quarter during the prior year quarter. The business recorded a credit of $1 3 million to provision primarily due to releases in the commercial finance portfolio.
As of June 30, the company had an ACL coverage rate of 2.0 or 1% compared to 2.04% at the same time last year.
ACL coverage in our commercial finance group was 1.35% compared to one 5% to 6% in the third quarter last year and 153% last quarter. The sequential decrease was driven by a mix shift towards insurance premium finance.
And SBA loans, which have a lower allowance rate.
Noninterest income increased 25% from their prior year quarter to $67 $7 million in the third quarter.
This increase was primarily driven by $14 $6 million of deposit servicing fee income.
<unk> with off balance sheet deposits.
Turning to expenses.
Total noninterest expenses grew 19% or $18 million from the prior year quarter.
The increase was primarily driven by $25 million of contractual card processing expenses related to the higher rate environment.
Total deposits, including on and off balance sheet increased $158 million or 2% from the prior year quarter to $7 1 billion.
Total deposits decreased from the linked quarter, primarily due to a seasonal decrease in tax return related deposits.
During the third quarter, we maintained an average of $1 $2 billion of deposits off balance sheet, earning fee income roughly equal to the effective fed funds rates at June 30 period end.
There were $781 million of deposits off balance sheet.
As mentioned last quarter, we service deposits related to government stimulus programs that will decline over the fourth quarter and throughout fiscal year 2024.
At June 30, roughly $970 million of these deposits remain.
These deposits continue to be slowly spent down while unclaimed balances are being returned to the U S Treasury.
Between July 2023, and the end of fiscal year 2024.
We expect to return close to $450 million of unclaimed deposits.
This reduction in our total deposit levels will lower the amount of funds, we hold off balance sheet and service for partner Bank.
Total loans and leases ended at $4 1 billion as of June 30, growing 9% from the last quarter and 10% from the prior year.
Euro over year increase was primarily driven by insurance premium finance.
Term lending and SBA and USDA loans.
Credit quality across the portfolio remains strong nonperforming loans of 93 basis points were up slightly from 76 basis points from the previous quarter and our net charge off rates remain stable.
We remain confident in our collateral management and the quality of our loan portfolio.
From a liquidity perspective, <unk> continues to be in a good position.
Our balance sheet is strong and the company holds $781 million in deposits off balance sheet.
In addition, we have cash and cash equivalents of $515 million.
<unk> Unpledged investment securities of $124 million.
<unk> borrowing capacity of $744 million.
And funds available through the fed discount window of $234 million.
When factoring in an unsecured funding and other wholesale funding option.
This gives us over $3 billion in available liquidity.
Our strong balance sheet and return levels allow us to continue to turn value to shareholders.
During the fiscal 2023 third quarter, we repurchased approximately 490000 shares at an average price of $43 83.
An additional 249000 shares of common stock at an average price of $50 23.
Were purchased in July through July 21, 2023.
We are increasing our guidance for fiscal year 2023 to a range of $5 60.
And $6 and GAAP earnings per diluted share.
We also expect the effective tax rate to be in the range of 10% to 14%.
We are also introducing fiscal year 2024 guidance of $6.
10 to $6 60 per diluted share.
This guidance includes the impact from declining AIP deposit balances.
Additionally, as Bret mentioned the market has seen slowing demand for renewable energy fundings, which will impact tax credits.
And we expect them to be lower in 2024 as a result, we expect our annual effective tax rate in fiscal year 2024 will be in the 16% to 20% range.
That concludes our prepared remarks, operator, please open the line for questions.
Thank you.
We will now begin the question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
Again press Star one to ask a question.
If you would like to remove your question. Please press star two.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question comes from the line of Frank <unk> with Piper Sandler Your line is now open.
Hi, everyone.
Wondering if you could.
<unk> talked about in terms of the 2024 guide the initial guide here.
Can you share with us any sort of macro backdrop that assumes including.
Interest rate outlook can you just sort of follow the forward curve in terms of.
In terms of outlook here and does it also include.
The potential for continued capital returned through buyback.
Hi, Frank this is Glen.
I guess can start.
Yes.
It does include generally the forward curve.
We're anticipating today's action by the by the fed as part of that.
That obviously factored into our guidance we talked about.
We're being <unk>.
A little cautious on investment tax credits in our renewable energy lending for next year. So we wanted to call out that component in.
Our guide as well as than the other business.
Conditions in macro events that Bret touched on in his section.
About capital and buybacks, yes.
Yes.
Our plan you can assume we continue to do.
Try to maintain our plan to maintain a consistent balance sheet and so what's the return levels that we have.
We would look to do continue buybacks.
At these price levels.
Okay.
And that fact, so that's that would be factored into guidance whatever your plans are there on the buybacks, yes, that's correct.
Okay.
And then just touching on a couple of things.
Renewable energy projects.
In 2024.
I guess I understand the higher interest rates and what that does for demand but.
There was this backlog maybe.
Given that there was <unk> 19 gain done for a while that might sort of offset or overcome that.
Is that just any more color on just your thoughts what's driving you guys to do.
Decrease your expectations are given these expectations for a decreased.
Energy projects and tax credits next year.
Yes, im trying to spread I mean, what we're seeing is a lot of these deals were funded with a mix of equity and debt.
The tax equity components of it in what's happening is because they're higher rates in the marketplace they'd have to have a whole lot more tax equity in it.
Investor Capital is just not coming into at least the size transactions that we generally operate with so that's why the pipeline is slowed down in these things as you can imagine.
Have a fairly long pipeline before they actually turned into a project and so we're just looking at our pipeline and having sort of realistic expectations about how much of that is going to happen next year.
Yeah.
Okay, Alright fair enough and then and then on the.
On the interest rate outlook and the margin.
Just wondering if you can talk about what sort of things youre doing.
The margin here from potential a potential down rate environment.
Or are you at the point now with where the variable loan.
The loan book is in.
Where the floors are that.
You can get some additional NIM expansion, even in some downward movement in rates. If it comes to that next year just kind of any.
Any color on Directionally, if we do get.
The forward curve.
Net.
If we do get rates sort of lining up with where the forward curve is now.
What are your thoughts on margin.
Yes, so frankly as Brad so one of the things that we like about our business models, we've got different asset classes in those different asset classes have different duration elements of it you'll note that we've been a little lean on the longer duration assets like equipment leasing.
What I would expect to happen as we go into the year, we will start trying to figure out how to do more of those because they have a longer life.
To do it and keep in mind I think.
Round numbers only about 25% of our assets re price in a given year or less and so <unk> got quite a bit of.
Opportunity to bring on a longer term assets that have a longer duration to help so we were pretty clear.
Slow on the way up and getting the margin.
And we should be slow on the way down on losing the margin and so Glenn.
Yes.
No.
Other thing is recall Frank as.
If and when rates do come down our card processing expenses that are rate related those fall off immediately so.
There is no lag to those so those reset.
Real time, which certainly give us a little.
And as well.
Okay, Great and then just lastly, if I could I was just trying to get a handle on loan growth here.
I think the linked quarter growth in the car.
Finance side was mostly insurance premium finance, which I assume that sort of growth rate is sustainable in that piece of the business.
And we all hear about the manufacturing slowdown.
On the macro side so.
How is that impacting the commercial finance business.
Your expectations are for.
For growth here, particularly.
Particularly in that business going forward.
Yes, I think Theres a few things one is.
Banks are pulling back and we think of that as being an opportunity. So we are seeing a little bit of that so so hopefully that's why I mentioned for example equipment leasing at the right time, we might be able to get into that a little more I've been saying for some time.
The working capital class should pick up as with this slowdown goes on in and we're not seeing it in the peer numbers, yet, but we're starting to see it in opportunities for origination in those because of the diligence involved in them can take 90 to 120 days start showing up as actual asset so so.
I think theres some opportunity the insurance premium finance grew did very well at this time I'm very impressed with what they've done that kind of growth Youre correct is not sustainable.
But we'd like to particularly with the yield we're getting to stay at that level for what is such a low risk asset class.
So I think it's more of a steady as it goes we'll be picking the asset classes that we can get the yield and get the business and certainly thinking about that duration opportunity before rates start going down.
Okay. So it sounds like you still expect growth in the commercial finance business going forward is that is that fair.
We will do next year.
I think thats right I, just don't know, which asset classes being yes, that's right.
Okay great.
That's all I had thank you.
Thanks Frank.
Thank you.
The next question comes from the line of Michael Perito with K B W. Your line is now open.
Hey, guys. Good afternoon, thanks for taking my questions.
Hey.
I had a couple a few things I wanted to touch on with you guys number one.
I appreciate some of this color on some of these new partnerships that you guys are launching I was wondering if you could maybe I realize this might be a little harder.
There arent a lot of them yet, but just on these line of credit for consumers with propeller and just generally kind of on just credit.
Agreements or contracts that you guys. Maybe you are starting to consider a bit more than.
But you have historically can you give us a sense of how you're trying to structure of the credit risk within these is there like a lot of indemnification built in or should we expect kind of as these things ramp up over time that there'll be some noise in the income statement in terms of maybe like higher yields on the NII, but thats, a densification of losses you'd like.
Spencer or fees like just trying to get a better sense of how youre structuring. These in and how we should think about them as they ramp realizing theres some time, but just trying to get ahead of it.
Yes, I appreciate the question we've been very consistent that we do not want to be exposed to make it consumer credit risk.
And so these agreements and any agreements like that that we're going to enter into are going to have appropriate credit enhancements moves might be of a different varieties. Some might be they are just short term on our balance sheet and then they get securitized away some might be waterfall structures like some might actually have credit enhancement guarantees that we can.
Rely on.
We do this because.
Consumer credit products are needed by our partners in the marketplace.
And they want to have a way to offer it.
Don't want to get this intermediate it with our other products because we don't have one and so that's one of the main reasons that we are in it now we're very optimistic about for example, the propel holdings partnership and what is going to do and we do make some economics on it but as you fully understand when you give up.
Credit ratio also give up the bulk of the economics.
It will be an income stream for us, but it won't be huge.
Got it.
And then I was also interested to see you guys mentioned the earned wage.
Advanced space with.
Claire.
Yes.
<unk> space have been starting to spend some more time there over the last nine months or so it seems like theres not a lot of bank market share look I know there is daily pay there is a couple of guys non banks that have some share and green dot has talked about doing stuff, but can you maybe give us a sense of is that a sizable opportunity for you guys. Do you think theres room for a bank to kind of take some share and make some money in the UWS space and just.
Would love some some high level thoughts as we think about you guys growing maybe with other partnerships in that in that area and that type of magnitude of that opportunity.
This is a new business and I think theres a lot yet to be learned in the industry. How big is it going to be how well it's going to re received I think there are certain regulatory questions that are going to be around it I think employers are going to have some perspective on it.
We like <unk> as a partner they are one of the few fintech startups that we engage with.
And right now, we're just going to ride this out with them and understand how well they can grow.
Obviously, it turns into a huge industry and the huge business, we might take those learnings and do it with others.
Right. Now. This is these are the things we do we watch things we plant seeds, we let them grow for a long time and Thats why were we think five seven years not necessarily next year for a lot of these programs what theyre going to produce.
Yes, so it sounds like between some of the credit stuff Youre doing in the AWS at this point, it's more about.
Protecting your share with critical customers that you have but into the future.
Certainly keeping a pulse on how the products perform and how the market evolves.
Would you willing to push forward in a larger way with some of those things.
You felt the opportunity was worthwhile.
Yes, I think that's right and we're also we're placing a bet on what we think is a really good partner that has the potential to grow significantly but.
It's yet to be seen if that happens.
Yes.
Cool Thanks, Brad could color and then just.
On the.
Maybe a question for Glen.
Since we only get to test you with these questions for so much longer here.
Just on the Opex side.
You got one more quarter in fiscal 'twenty three here.
Obviously, you guys have given the guide my guess is youre looking to reasonably.
Hold the efficiency ratio fairly stable, maybe improve it a little bit, but just what's kind of the.
The order of magnitude of things on the list to invest in for next year like what are some of the key areas, where you are allocating dollars and just generally I mean, how are you thinking about expense growth as an industry. Obviously, there has been a pretty tight lid on it but but as Brent as you pointed out I mean, you guys really are insulated from a lot of these pressure so there's definitely room to invest in gist.
Curious what you guys, maybe you might be investing in as we think to next year and what that rate of growth could look like.
So.
Yes.
As you'll recall, Mike, we really think about operating leverage here and at least over time growing our revenues.
Revenues at least two acts of expenses now certain periods and some of the spaces that we plan, yes, we have to make investments.
In those but.
I think in this environment.
Sure.
Lisa. This is today you could you could expect us to maintain expenses fairly tight to where we're at today and they will slowly grow as our revenues grow.
But not get too far.
Ahead of that.
Many of our expenses are variable in nature.
So those will go consistently with with revenue.
And then the rest of our expenses are where we make investments you can think of technology and risk management, primarily compliance.
Great and has the.
Sorry go ahead.
I was just going to add staying on top of both of those in and a lot of the technology investments are made in the compliance space as more and more attention is focused on banking as a service providers.
And consumer protection and small business protection.
Making sure you have up to date compliance systems. We believe is going to continue to be a competitive advantage and incredibly important.
Yes, yes, I mean, certainly certainly seems that way when you just look at this.
Kind of headlines.
So that makes sense and then just.
Lastly from me one.
Kind of a financial follow up to Frank's line of questioning and I apologize if I missed this but just are you able to give us just.
Kind of like a broad indication of the type of provisioning you assume in that 24 guide is is it reasonable to assume it's similar year on year, plus or minus to 'twenty three based on kind of the macro and the forward curve and everything you're assuming is that is that a reasonable assumption without getting too specific around numbers or is there something that could alter.
That that.
No we feel really good about our.
Yes, no. Thanks, Mike we feel really good about our credit position today.
And we are looking hard.
To see if there's something we're missing, but we feel comfortable I think Brad did a good job explaining and we're not taking credit risk in the consumer space.
We feel.
Feel confident in the way, we manage our collateral in the commercial finance space. So yeah.
Roughly similar levels of provisioning.
As some of that will depend on loan growth with the seasonal.
It takes a lot of that upfront, so where that lands will depend on how new originations are a little bit year over year, but yes, similar provisioning is a good assumption.
Okay.
Very good guys I really appreciate all the color and thanks for taking my question.
Thanks, Mike.
Thank you.
The next question comes from the line of David Feaster with Raymond James Your line is now open.
Hey, good afternoon everybody.
Hey, David.
Maybe just kind of following up on that last line of questioning obviously, so just looking at the 2024 guidance I'm curious from your perspective, obviously I mean look your crystal ball is as clear as mine is right now.
And I appreciate the commentary about assuming the forward curve and some of the thoughts on provisioning expenses, but I'm just curious what you think.
Is really the key driver of the differences between the achieve ability of the top end versus the low end of the range is it growth is at this credit cycle I'm just curious what do you what do you see as the biggest drivers between the top end and the low end of that range.
You know David there's so many factors.
Is the reason we have that kind of a wide of a range, but I would say.
The first thing is yield and margin.
Throughout this particular cycle.
I think we've been surprised on how thing we had to price loans compared to the way rates have risen and so it took a while for yield to really show up if in fact.
Banks are slowing down on our lending and we're able to do the kind of living I want to do which I would say is working capital we.
We will get the margin and we will be at the higher end of that that's one big thing.
Im not worried about credit if there's ever a time that we're strengths where credit is it's our collateral no unsecured debt, we have collateral manage everything.
Have any particular concerns about that and I did mention this.
The banking as a service partners, putting pressure on us we have long term contracts, but it's a function of them, bringing new business and do we have to make some concessions for them to get new business in here that might impact margins as well. So those are my big ones Glenn anything yet.
I think youre right.
The macro is.
If we start seeing more normalized loan beta yields.
That will certainly drive us to that top end.
As well as.
Just where demand for loan volume as and when that picks up.
And so we're certainly being somewhat cautious on how much loan.
Loan demand there will be.
In this environment.
And so youre kind of what you would expect your typical drivers David.
Okay, and then maybe just.
Following up on that.
Our conversation Yep.
I just wanted to point out.
The income tax credit, obviously, we were pretty cautious there.
That's a pretty good.
Chunk of earnings there year over year, and so to the extent that.
Renewable energy projects pick up the pace again.
That could be an opportunity as well.
Okay.
That's helpful. And then maybe just switching gears to the partner conversation again I'm. Just curious have you seen any impact on your partners.
From the bank failures at all and just the impact of the venture capital side and then maybe just more broadly how is the pipeline of partnerships look at this point and how negotiations or contracts are going today.
Sounds like just listening to your breath that may be the partners to some extent are getting a little bit of.
More aggressive in terms and maybe a bit more pricing power or is that a fair characterization.
Yes, I think in my comments, what I was alluding to is theres a lot more competitors that have jumped into the banking as a service business and they've done some thin pricing now a lot of cases, they did it with <unk>.
Fintech startups in fairly small things.
And we will see kind of what happens there, but some of the bigger partners are one are seeing some of the thin pricing that's out there and to the.
The fact that rates have moved up gives them a greater interest in the deposits, we have and that now all of a sudden they care about that a whole lot. So so I think those are the things that are kind of putting pressure on it now.
I mentioned it and I believe this is Ed.
Part of this is going to be a regulatory cycle. You can you can read all the newspaper articles about what's going on in this and some of the things have happened that are even very public reflected so I think there'll be a reversion back to the mean in 12 months to 18 months, but in the short term.
There's certainly some pressure here.
Yes, we have partners in the pipeline we have them all the time, we have some running to us because of regulatory issues at other institutions.
And so we try to take advantage of that and one of the problems for them when they come to US, though is they get a bit of sticker shock.
Because we don't do it as cheaply as people that did it before because they don't have the risk and compliance framework. So there is negotiations that go on in that so it's not all doom and gloom. We just wanted to make sure people understood. There is some margin pressure going on in the short term.
That makes sense and then I am just curious you've got in each.
Unique and interesting perspective, you play in a very broad set of segments across the country I'm. Just curious maybe as you step back and look at some of the trends and consumer behaviors, maybe with within your Fintech partnerships.
All the demand that youre seeing for credit from SBA and the commercial finance portfolio is there any anything interesting that you are seeing it just I guess in terms of the health of the consumer or the economy more broadly.
I'm just curious as you look at the tea leaves.
How do you think the health of the economy is in anything interesting you're seeing.
Well on the consumer side, what I would say is is remember that the bulk of our business is at the lower end of the economy.
And as one of my consumer credit people once told me, they're always in a recession.
And so theres no theres no real difference in the transactions they are still.
<unk> their groceries still go into the drugstore buying gas et cetera, and so we're not really seeing anything particular around that the deposits that are coming down or more because the AIP and the run off of tax deposits than anything else.
Conversely on the commercial finance side, there are industries that we serve where theyre not borrowing as much because they don't have as much activity going on.
Our transportation factoring business is off a bit and it's not because there is not available to borrow theres just less business, that's out there and less need for it.
And so youll see some of that in certain areas seeing some slowdown, but I would not say we've seen anything that is dramatic or certainly not anything that we saw like when COVID-19 first hit.
Fairly mild.
Okay. That's good color. Thank you.
Thank you.
And that concludes the password financial's third quarter fiscal year 2023 Investor Conference call.
Thank you.
Thank you.