Q1 2024 Pathward Financial Inc Earnings Call
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Ladies and gentlemen, thank you for standing by.
Work on the popular Financial's first quarter fiscal year, 'twenty 'twenty four Investor Conference call.
During the presentation, all participants will be in a listen only mode.
Following the prepared remarks, we will conduct a Q&A session.
As a reminder, this conference call is being recorded.
I would now like to turn the conference call over to Darby Schoenfeld. So.
Darby Schoenfeld: Our vice President of Investor Relations.
Darby Schoenfeld: Please go ahead.
Darby Schoenfeld: Thank you operator, Hello, welcome with me today are password financial CEO, Brett Farr, and CFO, Greg cigarettes, who will discuss our operating and financial results for the first quarter of fiscal 2024, after which we will take your questions.
Darby Schoenfeld: Additional information, including the earnings release, the Investor presentation that accompanies our prepared remarks and supplemental slides may be found on our website, a password financial dot com.
Darby Schoenfeld: As a reminder, our comments may include forward looking statements, including with respect to anticipated results for future periods.
Darby Schoenfeld: Those statements are subject to risks and uncertainties that could cause actual and anticipated results to differ.
Darby Schoenfeld: <unk> undertakes no obligation to update any forward looking statements.
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.
Darby Schoenfeld: On the conference call.
The non-GAAP measures are only provided to assist you in understanding the company's results and performance trends.
Darby Schoenfeld: Conciliations for such non-GAAP measures are included in the appendix of the Investor presentation.
Darby Schoenfeld: Finally, all time periods referenced are fiscal quarters and fiscal years and all comparisons are to the prior year period, unless otherwise noted now let me turn the call over to Brett Farr our CEO.
Brett Farr: Thank you Darby and welcome everyone to our first quarter 2024 conference call.
Greg Cigarettes: I wanted to provide a special warm welcome to Greg our CFO to his first earnings call with us.
Brett Farr: We're very pleased with our results in the quarter and have started off the year by laying the groundwork to deliver on our key goals for the year.
Brett Farr: Those are number one building back into a one stop shop for our partners.
Greg: Number two smart growth in commercial finance to help ensure proper yields an a credit profile for this financial environment.
Before I get into a deeper discussion of our business I wanted to start out by providing some first quarter highlights.
We reported net income of $27 $7 million and $1 <unk> per diluted share.
Greg: When you adjust the first quarter of 2023 for the gain on sale of names and trademarks expenses related to rebranding efforts in separation expense, what we would refer to collectively as rebranding for the remainder of the call.
Net income grew 19% and EPS increased 31%.
Darby Schoenfeld: Earnings growth was driven through expansion of our net interest margin to 623% an increase of 61 basis points.
Greg Cigarettes: Our adjusted NIM, including rate related processing expenses grew to $4, 71% from $4, 6% to 8%.
Greg Cigarettes: Our return on average assets for the quarter was 146% and return on average tangible equity was 33, 95% remember that return on average assets is impacted by seasonality with tax season revenue and income occurring next quarter.
Greg Cigarettes: For reference our OE in the first quarter of last year was 171%, but if you adjust it for our rebranding efforts. It was 142%, which we are running slightly ahead of this year.
Finally, we are reiterating our guidance range of $6 20 to $6 70 in earnings per share for the full year, Greg will give you more color on this in his remarks.
Greg Cigarettes: On the asset side of the house, we saw pretty significant growth in total loans and leases, especially when compared to the first quarter of last year with growth in nearly every loan category across the enterprise.
Greg Cigarettes: Greg will get deeper into the details of the drivers of our year over year financial performance in a moment, but I did want to comment on some of these trends.
After a very strong growth in insurance premium finance in the third and fourth quarters last year were starting to see that business normalizing.
Greg Cigarettes: We would expect to maintain balances near the December 31 levels.
Greg Cigarettes: In structured finance Theres, a strong pipeline, especially in the renewable energy and government guarantee verticals.
Greg: However, these renewable energy deals are not the type of transactions that will generate income tax credits for us as we have previously communicated we believe our opportunity for ITC will be lower than last year and this is included in our guidance.
On credit the quality of our portfolio remains steady.
Greg: Our nonperforming loans ratio has improved 38 basis points sequentially, primarily due to the work out of a deal a single deal that caused the increase in the last few quarters.
We think this is a secret sauce of our business our nonperforming loan ratio may increase from time to time, but we are typically in a position to resolve these loans in generally experience a recovery in the one or two quarters. Following the increase there.
Darby Schoenfeld: This has generated an annual net charge off rate trends in the 50 to 70 basis point range and with our yields were very comfortable with that range.
Darby Schoenfeld: Finally, as we mentioned in our last call in 2024 focus in commercial finance, the smart balance sheet growth.
Darby Schoenfeld: We are accomplishing this by ensuring that the loans, we are adding to the portfolio have the proper risk adjusted yields.
Darby Schoenfeld: This is an undertaking across all of our loan products and we convince continue to evaluate all loans in this context.
Darby Schoenfeld: We are working on optimizing our capital and asset mix with an eye towards further expanding net interest margin.
Darby Schoenfeld: On banking as a service our performance continues to be strong.
Darby Schoenfeld: As is typical this quarter, we saw a growth in deposits from the end of fiscal year 2023 to remind you of our deposit base does experienced seasonality.
Darby Schoenfeld: Our typical pattern is to see growth in the first quarter from the sale of gift cards during the holiday season.
Darby Schoenfeld: This thing grows again in the second quarter with our tax season business and then deposits typically trend down from there as the seasonal balances gets spent with the lowest level usually at fiscal year end.
Additionally, the seasonal trends, we all have also seen increases in deposits from some of our current partners. This has translated to solid performance in core card fee income.
From a business development perspective, we signed agreements with three new partners during the quarter.
Darby Schoenfeld: While the impact of this is already contemplated in our guidance today. It speaks of the strength of our pipeline, which we believe to be healthy.
Darby Schoenfeld: Additionally, on January 16th we announced a multiyear extension with a long standing partner that allows for collaboration on product innovation and expanded product offerings for a range of programs and market and under development.
Darby Schoenfeld: The regulatory environment has put us in what we believe to be a strong competitive position in the SaaS industry.
Darby Schoenfeld: However, these deals tend to have a much longer sales cycle due in large part to the regulatory processes that are required before a program and go live date.
Darby Schoenfeld: Deals we are working on now with benefit deposits and card fee income later, this year and into fiscal year 2025.
Darby Schoenfeld: The value of our deposit base continues to put us in what we believe to be a position of strength with the two sides of our balance sheet being well matched.
Based on hard to K model, our noninterest bearing deposits have a weighted average life of around five and a half years.
Darby Schoenfeld: Our loan portfolio has weighted average life is a little over two years and our securities portfolio duration is around five years.
Darby Schoenfeld: We believe this to be particularly beneficial in today's environment.
Greg: Now I'd like to turn it over to Greg who will take you through the financials.
Greg: Thank you Brett adjusting for the impacts of rebranding activity in the first quarter of fiscal year 2023, net income grew $4 5 million or 19%.
Greg: <unk> of $1 six increased 25.
Greg: Our 31% from the prior year quarter.
These results were driven primarily by an increase in net interest income, which totaled $110 million during the quarter, an increase of 31% from the prior year.
Darby Schoenfeld: This is both rate and volume driven we continue to see the impact of rate increases in the prior fiscal year flowed through our portfolio as repricing occurs and we remain focused on our pricing discipline.
The result has been an increase in yields across nearly all commercial finance lending categories.
Darby Schoenfeld: From a volume perspective, total loans and leases have increased almost $1 billion since the end of first quarter of 2023.
Darby Schoenfeld: The quarters net interest margin of six 3% grew from 560% in the prior year's quarter.
Darby Schoenfeld: When accounting for the impacts of the Companys contractual rate related card expenses. The company's adjusted net interest margin increased to $4, seven 1% compared to $4, 6% to 8% in the prior year.
Net interest margin has benefited from increasing the new production yields in commercial finance, which during the first quarter was a blended 893% versus a portfolio yield of eight 3% at the end of 2023.
Darby Schoenfeld: Wholesale deposits were used early in the quarter to bridge the seasonal low point for bass deposits and more on bass deposits in a moment.
Darby Schoenfeld: Looking ahead, our earning assets should continue to reprice at higher rates as loans and investments mature and we are able to replace them with higher yielding assets, assuming the middle part of the rate curve remains fairly stable of course.
Darby Schoenfeld: Any rate sensitive deposits would reprice immediately with any FMC rate cuts.
As of December 31, the company had an ACL coverage ratio of one 2% a decrease from one 5% at the same time last year.
Darby Schoenfeld: Our commercial finance group has an ACL coverage ratio of one 3% compared to $1 six 2% in the first quarter last year and only a slight increase from last quarter's $1 two 6%.
Darby Schoenfeld: The year over year declines are generally a result of a mix shift toward insurance premium finance and USDA, which have a relatively lower allowance rate.
Darby Schoenfeld: Noninterest income of $52 8 million declined $13 million from the prior year and.
In the prior year's quarter the company recognized the final $10 million gain on sale stemming from the rebrand. Additionally card and deposit fee income declined $7 million, driven primarily by lower servicing fee revenues related to lower levels of off balance sheet deposits as.
Darby Schoenfeld: As expected our off balance sheet deposits and corresponding servicing income related to those deposits declined from fiscal year 2023, as we hold higher levels on the balance sheet to fund loan growth and continued to return AIP deposits back to the Treasury Department.
Darby Schoenfeld: Noninterest expense of $119 $3 million increased 14% year over year.
Darby Schoenfeld: The increase was driven primarily by contractual rate related card expenses and higher compensation expenses.
Darby Schoenfeld: This was partially offset by legal and consulting related to the rebrand that did not recur in 2024.
Darby Schoenfeld: <unk> related card expenses increased primarily due to the higher rate environment.
Darby Schoenfeld: The seasonality that Brett described earlier also impacts our earnings our lowest earning quarter tends to be Q1, whereas Q4 tends to be our lowest deposit balance quarter.
Darby Schoenfeld: While deposit balances generally increase in Q1. This is largely due to gift cards that are oftentimes not utilized in the quarter.
Darby Schoenfeld: Moving into Q2, we see a larger spike in revenue and income when those balances start to get utilized and when tax season occurs finally.
Darby Schoenfeld: Revenue and income tend to decline into Q3 and Q4.
Darby Schoenfeld: Deposits at December 31 reflected on the balance sheet increased $1 1 billion from last year's quarter.
Darby Schoenfeld: During the first quarter. The company maintained an average of $379 million of off balance sheet deposits, earning servicing fee income roughly equal to the effective fed funds rate on.
Darby Schoenfeld: On December 31, there were $1 1 billion of deposits held at partner banks, increasing from last quarter due to seasonality.
This brought total on and off balance sheet deposits to around $8 billion roughly flat to last year.
Darby Schoenfeld: However at the same time last year, we were managing approximately double the deposits off balance sheet and as expected. This balance shifting is contributed to our lower card and deposit fees. This year.
Darby Schoenfeld: Yeah.
Darby Schoenfeld: The difference this year is that we have increased our loan and lease balances by nearly $1 billion.
Darby Schoenfeld: Causing us to hold more of our deposits on balance sheet to fund that growth and that impact can be seen in higher interest income.
Darby Schoenfeld: As an update at December 31.
Darby Schoenfeld: We're still holding roughly $838 million of deposits related to government stimulus programs.
Through the remainder of fiscal 2024, we expect to return around $310 million of unclaimed deposits to the U S Treasury.
Darby Schoenfeld: Total loans and leases at December 31 were $4 4 billion.
Darby Schoenfeld: A 26% increase from a year ago.
Darby Schoenfeld: The company saw strong growth across nearly every loan category, including over $700 million.
Darby Schoenfeld: In commercial finance loan growth.
Darby Schoenfeld: With the largest increases in term lending.
Darby Schoenfeld: Insurance premium finance and structured finance.
Darby Schoenfeld: Sequentially loan and lease balances increased slightly from $4 4 billion at September 30.
Darby Schoenfeld: Growth in commercial finance was driven primarily by term lending and the SBA USDA business, which was partially offset by expected declines in the insurance premium finance portfolio.
Darby Schoenfeld: From a liquidity perspective path, where continues to be well positioned our balance sheet is strong and when you factor in all of our sources, we have over $3 8 billion in available liquidity.
Darby Schoenfeld: As Brett mentioned previously the two sides of our balance sheet are well matched and weighted average life and duration.
Darby Schoenfeld: During the quarter due to a decrease in longer term rates our accumulated other comprehensive loss position on the balance sheet largely related to the securities portfolio improved by nearly $70 million.
Brett Farr: We would expect the securities portfolio to continue drawing down with approximately $300 million of cash flows available for reinvestment over the next 12 months.
Brett Farr: Also during the quarter, we were pleased by KBR as affirmed credit ratings for Patrick including the deposit in unsecured debt rating of a minus for our bank subsidiary, which highlights the strength and stability of our funding profile and business model.
Brett Farr: Finally during the quarter, we repurchased approximately 233000 shares at an average price of $47 25.
From January one through January 19th.
Brett Farr: We have repurchased an additional 342000 shares at an average price of $51 and one set.
Brett Farr: We are reiterating our fiscal year 2024, GAAP earnings per diluted share guidance of $6 20.
Brett Farr: To $6 70.
Brett Farr: This includes a number of assumptions.
Brett Farr: With growing loan balances, causing lower off balance sheet deposits, we expect the revenue mix to remain in favor of interest income in 2024.
Brett Farr: This is due to the fact that we expect deposits to largely fund loans, resulting in full year average off balance sheet deposits near the Q1 average of $379 million.
Brett Farr: We expect our full year net interest margin and adjusted net interest margin to continue to expand when compared to the full year 2023, given our continued focus on asset pricing along with the $300 million in annual securities cash flows reinvested into higher yielding assets.
Brett Farr: With less opportunity for ITC, we estimate our effective cash tax rate to be in the range of 16% to 20% for the year.
Brett Farr: Lastly, I would like to point out that the fundamentals remained strong across our businesses and we would expect to see the continued benefit in our financial results now I'd like to turn things back to Brett for some closing comments.
Brett Farr: Thanks, Greg as I think about the remainder of fiscal 2024, I look forward to the opportunities password is pursuing.
Brett Farr: We have a healthy pipeline in front of us and bass and are looking to add recurring revenue that drives sustainable net income.
Brett Farr: Additionally, as I mentioned before we are underwriting loans and leases, but are maintaining a focus on risk adjusted returns to ensure that when we are adding assets. They are the right ones for this environment.
Brett Farr: We believe this provides us with a highly differentiated business model from traditional banks.
Darby Schoenfeld: Not as reliant on capital our balance sheet to grow.
Darby Schoenfeld: It also puts us in the position of being able to enhance capital and earning assets in order to deliver our balance sheet optimization.
Darby Schoenfeld: In addition, we continue to invest in technology and human capital across the organization and pursuit of delivering two to one operating leverage in the coming years.
Darby Schoenfeld: It is our belief that delivering on this strategy will put the company in an enhanced position of strength and give us the ability to drive further growth in revenue and earnings in the future.
Finally tax season has begun while it is still very early we did increase the number of independent tax providers utilizing our products and believe that we continue to grow market share.
Darby Schoenfeld: We look forward to giving you an update on our next call.
Darby Schoenfeld: This concludes our prepared remarks, operator, please open the line for questions.
Darby Schoenfeld: We will now begin the Q&A session.
Darby Schoenfeld: If you'd like to ask a question. Please press star followed by one on your telephone keypad.
Darby Schoenfeld: Sure move your question Press Star followed by two.
Darby Schoenfeld: Our first question today comes from Frank Schiraldi with Piper Sandler.
Darby Schoenfeld: Please proceed.
Frank Joseph Schiraldi: Hey, good afternoon.
Frank Joseph Schiraldi: Just wondering on the <unk> you guys reiterated obviously bottom line guide here for 2024, and obviously the rate outlook has changed a bit. So just wondering what's baked in in terms of rate cuts and when you take into account.
Frank Joseph Schiraldi: The costs that run through noninterest expense it seems like you might be.
Frank Joseph Schiraldi: Pretty fairly close to neutral in the down rate environment. So could you just speak to that please.
Frank Joseph Schiraldi: Yes, I mean I'll start with the latter one the balance sheet is pretty close to neutral, which I think that gives us benefit as we move down the rates and right now in our guidance. We only have one rate cut in there and it's really at the innovate for beginning of May so to the extent that the.
Frank Joseph Schiraldi: Forecast pulls forward, Frank we probably have some upside from that quite frankly.
Frank Joseph Schiraldi: Yes.
Frank: Okay, Great and then.
Frank: You had pretty good growth in commercial finance.
Frank: In term lending and as the.
Frank: Premium finance business, maybe stabilizes here.
Brett Farr: Just wondering I think Brett you spoke to a pretty good pipeline here.
Brett: Sort of growth you think or are.
Brett: Are you targeting.
The commercial finance business in the near term here.
Brett Farr: Yes, I think we're going to be thinking a lot more about asset based lending.
Brett Farr: We've seen some increases in that we're seeing more of that in the pipeline.
Brett Farr: And thats pretty good yield with us.
Brett Farr: The trick is to make sure you get the right transactions at the right price. So I would highlight ABL I'd also say that our.
Brett Farr: Structured finance area, and we mentioned it.
It doesn't help with these tax credits the solar business and alternative energy business has got a pretty good pipeline as well.
Brett Farr: Okay great.
Brett Farr: And then I know, it's pretty early in the game here, but just any sense or any indication of how tax season might be the same might be different in 2024 as opposed to 2023.
Brett Farr: Any changes to economics or assumed loss rates here on the advanced product.
Brett Farr: No Brian I mean tax season that always is a interesting question at this point, we already told kind of what we know which as we signed up more <unk>. Those are the independent tax preparers, which could speak to our market share opportunities, but there.
Brett Farr: There is you don't know.
Brett Farr: It'll be when we come around to the end of the conversations at the end of the second quarter, we'll be able to give you a lot more impact and understanding of how a win but.
Brett Farr: There is nothing unique this year that we're seeing so if you go back to the Covid years, there were unique things happening. So so far nothing unique and I hope it to be business as usual kind of the year.
The only thing I'd, probably add Frank is I mean, I know since last year, we've put a lot of effort internally into both underwriting and monitoring processes and I do think we hope that that would that would help drive down some of the loss rates this year as well.
Yes.
Brett Farr: Got it okay.
Frank: And then finally, if I could sneak in just one more on the.
Consumer finance book outside of the the tax.
Frank: <unk>.
Darby Schoenfeld: It looked like reserve levels as a percentage of the book increased.
Darby Schoenfeld: Quarter over quarter.
Darby Schoenfeld: Just wondering if that indicates a change in.
Demographic or type of credit Youre, putting on the books is that one area. You expect you can pick up yield maybe or just.
Darby Schoenfeld: Any color there.
And that really is our is our partnership business airframe. So it actually does have a tax angle to it as seasonal so I don't think it really speaks to the broader.
Darby Schoenfeld: Dynamic than that candidly.
Darby Schoenfeld: Okay, Alright fair enough.
Darby Schoenfeld: Thanks, Okay.
Yes, Thanks, Brian and thanks, Brian.
Darby Schoenfeld: Okay.
Darby Schoenfeld: Our next question today comes from Eric Spector with Raymond James.
Darby Schoenfeld: Please proceed.
Eric Spector: Hey, good afternoon, everybody. This is Eric on the line for David Feaster.
Thanks for taking the questions.
Eric Spector: Hi.
Eric Spector: I was just wondering if you could touch on some of the growth initiatives and where we stand on those whether it be early ACTH fit now.
Hey, Jack.
Jack: To access the like curious where you are on the product build out pipeline.
Jack: Are you having the most success.
Jack: Yes, I mean, we're very much involved with different partners to creating unique solutions that are in all those quote faster payments verticals.
Jack: Verticals.
Jack: I would say that these things take time, we're getting some revenue from them, but not anything that.
We would report as material.
Jack: And we will keep growing at the beauty of that is that in most cases that is noninterest income and so thats very exciting for us and Thats one of the things we're continuing to focus on.
Jack: Is how we grow noninterest income with products like that in that arena, particularly as we think about whereas NIM going to be two years from now or three years from now we want to have a heavier dose of noninterest income.
Jack: Okay. That's helpful and then just.
Jack: One growth initiative, we've talked about recently is potentially growing working capital just just curious how you think about that and any other lending segments you might be interested in expanding into.
Jack: Yes.
Jack: And Frank was the <unk>.
Frank: Working capital is an area and asset based lending, particularly where we think there are some growth opportunities.
Frank: There continues to be some stress in various types of industries, where we can do some of these transactions that are higher yield.
Frank: Remind everybody you know that's a heavily collateral managed using liquid collateral.
Eric Spector: Very good at that as part of our secret sauce.
When I can get those and get the yield for the right kinds of transactions I really like that asset class.
Okay. Okay that makes sense and then just one last question just kind of curious you talked about one rate cut in your assumptions just curious how you think about your operations. If we begin to see a few rate cuts, obviously deposits will reprice lower but loans will also just curious maybe you could provide some color on just the <unk>.
Eric Spector: Margin trajectory and then from a broader perspective about.
How that would impact the loan growth and maybe some of the other businesses assuming rates come down.
Eric Spector: Yes, I think a few things remember that.
Eric Spector: The cost of our deposits the way our contracts are written in the accounting that we deal with that.
Eric Spector: Sure.
Eric Spector: If fed funds goes down the day it goes down our cost goes down so thats the first thing.
Eric Spector: Helps us secondly, we've got a book that has some duration.
And so actually in the short and intermediate term a rapid drop in rates would be to our advantage on the NIM side.
Over a long time, obviously than the rates come down in general so so from a from a rate and profitability standpoint, that's the picture.
Eric Spector: Rates dropping.
Eric Spector: We'll likely foster more economic activity that doesn't bode as well for our working capital product, which but other products that we have.
They will become more of the thing you might think about some of the leasing products and other term products.
Eric Spector: Our credit box view that would be better and so we would do more of those and Thats one of the beauties of our diversified loan product portfolio is when one is up another may be down in one zone and others up and that's we'll deal with whatever rate environment comes in to take the opportunities in the market gives us.
Eric Spector: Yes.
Eric Spector: Okay. That's helpful. Thanks for taking the questions and I'll step back.
Eric Spector: Our next question today comes from Michael Perito with K B W.
Eric Spector: Please proceed.
Eric Spector: Okay.
Eric Spector: Hey, guys good afternoon, Greg welcome.
Eric Spector: For taking my questions. Thank you.
Joining.
Eric Spector: I think a lot of the financial questions have been asked and answered and I apologize if I missed this but just one quick maybe follow up just around the seasonality.
Eric Spector: Kind of EPS annually here in the expenses, obviously, there was the tick up in tax revenues also the pick up of tax tax expense.
Eric Spector: The second quarter, but just wondering.
Eric Spector: If theres any kind of additional guidance or guardrails, you can give us on kind of the.
Eric Spector: Expense growth for fiscal 'twenty, four I know you guys.
Eric Spector: The two to one operating leverage target kind of unchanged, but just if we're talking maybe just run rate here and any additional thoughts you can provide.
Eric Spector: Sure.
Yes, what I would say is I think the Q1 is actually a pretty good run rate for us understanding that he is going to continue to invest in human capital and technology, which is at two to one operating leverage that you mentioned.
Eric Spector: I think it was really one other caveat there besides out which is in.
Darby Schoenfeld: In the second quarter, you definitely have a tax pick up a little bit, but it's also a little bit of comp and benefits just above and beyond that which I think if you can track. If you go back and look at the last couple of years with the seasonality there over the balance of the year other than some modest continued investments I think that's how I think about the run rate.
Greg Cigarettes: Alright, Thats helpful and is there any I think you mentioned Greg.
Greg Cigarettes: Greg Your comment about how you would expect maybe some of the underwriting around some of the tax products that can be improved is there any efficiency that you would target in the tax business. If we look back to the prior year in terms of the pickup in cluster or is that pretty much.
Greg Cigarettes: Okay.
At this point.
Greg Cigarettes: This is Brad I think it's about as efficient as going again.
Brad: We did a lot of work around the operations of that several years ago.
And we've got that pretty lean and mean for what we get and we're pleased with.
On the on the refund transfers and the approach of the arrows, it's about as good as it's going to get made.
Brad: <unk> made some investments in technology to stabilize that area and keep it efficient so I think.
Brad: In past years on the expense run rate of a pretty good indicators.
Brad: Great.
Brad: And then.
Brad: Just kind of a philosophical capital question.
Brad: Yes.
Brad: Look at a few of the moving pieces here I mean, you guys, particularly.
Brad: Margin neutrality plays out I mean, you are.
Brad: Youre pretty consistently pumping out of well north of 20% ROE annually on a balance sheet that that really is growing a ton.
Brad: Yes.
Brad: And I don't necessarily not suggesting a right answer a wrong answer to this but you know at what point do the buybacks.
Brad: When does there need to be more tools kind of or arrows in the quiver here in terms of capital deployment. I mean, how are you guys thinking about that Im sure Youre budgeting out at least 24 months, if not longer and I imagine the capital creation is pretty significant.
Brad: Just would love some updated thoughts around that as we kind of start your fiscal 'twenty four and as we think about estimates for the next couple of years.
Brad: Okay.
Brad: Well, Mike as you know we're in the innovative business that is changing over time.
There will be at some point some use of capital, but at these prices and for a while.
Brad: This level of stock there is not a better use of our capital than to buy the shares and we.
Brad: We get up into a fee of 12 or something that we will have a different conversation but.
Darby Schoenfeld: Right now I can't get an ROE on capital Thats better than what I'll get by buying back shares.
Darby Schoenfeld: Okay.
Darby Schoenfeld: And is there as you guys think about obviously not bank, but non bank.
Darby Schoenfeld: M&A.
Darby Schoenfeld: Has that environment or your or your views on those types of opportunities that would be maybe interesting changed or altered at all.
Sure.
Darby Schoenfeld: I guess, one thing I would say is there's always kind of that the constant thought of how you guys can.
Darby Schoenfeld: Not build on top of the regulatory advantage right, which has been a great moat for you guys and it feels like technology could be that next leg up just wondering how you guys are thinking about that in the M&A tool in that or we're not necessarily given where the market is today.
Eric Spector: Well I think it's a tool I think it is until we've looked at.
Eric Spector: I would reiterate my prior comment about capital in the proper use of capital.
Eric Spector: We're looking at all kinds of things as we invest in technology, we are in a fairly unique niche.
Eric Spector: And being able to go and buy something that properly and I emphasize that were properly does what we needed to do.
Eric Spector: It's fairly limited there is theres a lot of.
Eric Spector: Fintech kinds of things that have put middleware layer services in this industry and it's actually causes a lot of problems and we've looked at those and they just didn't meet the standards that we had so so I think the decision 0.1 is whats the right use of capital decision 0.2 is there anything out there that actually would give us.
Vantage and from a technology perspective.
Eric Spector: Great. Thank you guys for taking the questions and for the color I appreciate it.
Eric Spector: Thanks, Mike.
Eric Spector: Thank you for your questions.
Eric Spector: There are currently no questions in queue. So as a reminder, it is star one to ask a question.
There are no questions waiting at this time, so I'll pass the conference back to the management team for any closing remarks.
Eric Spector: Thanks for joining the call today and this ends our call.
This will conclude today's conference call. Thank you all for your participation you may now disconnect your line.
Eric Spector: Okay and this ends our call.