Pathward Financial, Inc. Common Stock Q3 2026 Earnings Call

As a reminder, this conference call is being recorded. I will now like to turn the conference call over to Darby Schoenfeld, Senior Vice President, Chief of Staff, and Investor Relations. Please go ahead. Thank you, operator, and welcome.

With me today are Pathward Financial CEO Brett Pharr and CFO Greg Sigrist, who will discuss our operating and financial results for the third quarter of fiscal 2026, after which we will take your questions. Additional information, including the earnings release, the investor presentation that accompanies our prepared remarks, and supplemental slides may be found on our website at pathwardfinancial.com. As a reminder, our comments may include forward-looking statements. 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 statement.

Additionally, today, we will be discussing certain non-GAAP financial measures on this call. References to non-GAAP measures are only provided to assist you in understanding the company's results and performance trends, particularly in competitive analysis. In order to make our adjusted net interest margin as comparable as possible, we have excluded the impact of the growth accounting methodology on our consumer finance loans and included contractual rate-related processing expenses associated with deposits on the company's balance sheet. Reconciliations for such non-GAAP measures are included in the earnings release and the appendix of the investor presentation. Finally, all time periods referenced are fiscal quarters and fiscal years, and all comparisons are to the prior year period, unless noted otherwise. Now let me turn the call over to Brett Pharr, our CEO.

Thanks, Darby, and welcome everyone to our third quarter 2026 earnings conference call. This evening, before I go through the quarter's highlights, I want to address the outlier of the quarter, credit. We had an increase in provision during the quarter, largely driven by specific reserves on two loans and a CECL reserve build. One loan we mentioned during the June quarter earnings call last year, which at that time was shifting to non-performing with a path to workout, and another loan we believe is associated with a sophisticated fraud. You may have also noticed that our non-performing loan ratio increased. This was primarily related to certain renewable energy construction projects tied to a common developer. We continue to work with the other parties involved in these projects to bring them to completion. However, while this work is ongoing, we have moved the loans to non-accrual status.

We are currently not aware of any other loans in our portfolio that have a similar unique fact pattern. While this is certainly a disappointing outcome, credit events can and do occur in the world of lending. It's unfortunate that we had these items happen within an otherwise solid-performing quarter and year thus far. We remain committed to providing transparency in connection with these credit items and continue our monitoring and oversight of the portfolio. At this time, we believe these events are not indicative of a broader systemic issue within the portfolio. With that context, we're pleased with the rest of the results achieved in the quarter. Across the organization, our team continues to deliver meaningful progress on our strategy, and over the past nine months, I am proud of what we have accomplished.

During the quarter, we generated $29 million of net income and diluted earnings per share of $1.37. At a very high level, we achieved growth and interest income from Commercial Finance loans, as well as non-interest income and continue to manage expenses well. Year-to-date return metrics remain strong, with return on average assets of 2.37% and return on average tangible equity of 34.29%. While our business model remains straightforward, we take deposits, lend money, and move money. We can currently provide a breadth of product offerings across all three verticals that are aimed at meeting our partners' needs. We also continue to expand our product suite and capabilities in order to provide multi-threaded solutions that enable our partners to thrive and continue to innovate new and exciting products for the end consumers. It is through this lens that our long-term strategy was curated.

Our strategy encompasses five focal areas: maintain an optimized balance sheet, leverage technology to facilitate evolution and scalability, people and culture, our important assets, consultative risk and compliance infrastructure, and client experience. We continue to make progress on all of these areas, but one I'd like to highlight is people and culture. We recently received a number of recognitions that reflect our diligent focus, which I'd like to acknowledge this evening. First, we were once again named as one of the best companies to work for by U.S. News & World Report for 2026, 2027, rated among the top companies on the finance and insurance list, as well as the Midwest list. Second, Pathward has been named to TIME's inaugural list of America's Best Companies 2026. These accolades serve as a testament to our employees' hard work and the culture that they live and build every day.

Congratulations to our employees on representing Pathward's values across the country. Second area I'd like to highlight is the client experience. As we continue to grow our business and expand our product set, this remains an area that calls for intentionality, discipline, and firm execution. In our Commercial Finance business line, this means we strive to set clear expectations and maintain consistent high-quality communication throughout each engagement. From initial contact to receiving funds, our goal is to make the client experience as seamless as possible. We believe this level of execution will strengthen our reputation, support high-quality referrals, and allow us to continue helping businesses reach their goals. In Partner Solutions, we aim to empower multi-threaded opportunities that help Fintechs, famous companies, and brands to launch, scale, and grow with confidence.

With a robust pipeline of opportunities to execute on, we view this as an imperative. We are working diligently to make sure that we deliver what our partners expect. Our pipeline consists of both new partners and expansion opportunities. We are excited to announce that after the quarter ended, we signed a contract extension with Clair. As part of enhancing the client experience, we continue to invest in people, processes, and technology. This includes building technology and risk and compliance capabilities to ensure we have scalable platform well into the future. This has never been more important as partners are searching for banks that can not only deliver across multiple products at scale, but also help them navigate an evolving regulatory environment.

Before I turn it over to Greg, I want to reiterate that while the credit events of the quarter are certainly unfortunate. We are working hard to resolve these loans, the growth of the business was solid. Greg? Thank you, Brett. With the exception of the credit metrics Brett mentioned, we are pleased with the financial performance in the quarter, which is marked by solid growth, delivering higher Commercial Finance interest income and non-interest income combined with disciplined expense management.

Starting with revenue, the sale of the consumer finance portfolio back in October impacted net interest income as expected, given the elimination of the grossed-up accounting for that portfolio. Having said that, our strategy of balance sheet optimization continues to deliver solid revenues with growth in our core Commercial Finance business. With the aim of favoring assets where we believe we have a competitive advantage, holding to our pricing discipline remains an imperative for us and not chasing volume for volume's sake. This is where we believe being governed by the treasury-led model serves us well at Pathward and continues to generate higher risk-adjusted returns.

Non-interest income increased 4% versus the same period last year. After a delay in secondary market revenues over the last few quarters, we are pleased to say that those sale volumes are catching up from earlier in the year. I want to take a moment to highlight the tax team's continued successes. They closed out their tax season during the quarter and had a phenomenal one at that. Their significant efforts produced third quarter year-over-year growth of nearly $2 million in total tax product revenue. From start to finish, the momentum from sales and marketing efforts led us to solid operational and financial performance as the team onboarded new tax offices and helped our existing partners provide additional products. We are very proud of all the team was able to accomplish.

Non-interest expense improved in the quarter as a result of disciplined expense management with lower card processing expense and lower legal and consulting expenses. These items were partially offset by expenses that directly correlate to the execution of our strategy with an emphasis on people and culture as well as technology to facilitate evolution and scalability. Deposits held on the company's balance sheet at June 30th were relatively flat versus a year ago. Lower yielding assets, such as securities declined and average Partner Solutions deposits were strong in the quarter. This allowed us to have nearly $100 million more in average custodial deposits than in the prior year's quarter. Loans and leases at June 30th grew 8%. Our focus on ensuring we have the right loans on the balance sheet was the primary driver of the increase.

While net interest margin declined to 6.59% in the quarter, the adjusted net interest margin was stable at 5.27%. Originations during the quarter grew $760 million, driven primarily by growth in our Credit Solutions business from both a new contract signed last year and expansion with current partners. Regarding credit, over the last year, we have been discussing a few larger loans that we are monitoring. As Brett mentioned, a specific reserve was established on one of the loans we referenced in prior quarters. We no longer believe we have a path to favorable resolution and have now prepared for liquidation. With that, the larger loans that we have discussed during the last year have specific reserves as appropriate established to reflect expected proceeds.

Additionally, we have also identified a working capital loan that we believe involves a sophisticated fraud within what we understand to be a viable operating company. Due to the fraud, it is possible there is a portion of the loan that we estimate may be uncollectible also resulting in a specific reserve. The majority of the provision related to Commercial Finance in the quarter can be attributed to the specific reserves on these two loans and adjustments to the CECL reserve. Additionally, while past dues have increased, there were roughly $100 million in loans that came current since quarter end. Brett mentioned that the increase in non-performing loans was primarily based on a set of loans with a common developer. Add in the loans that we have been discussing on this call, and that total constitutes the majority of the non-performing loans in the quarter.

The strength of our balance sheet, along with our earnings and capital accretion power, allow for return of capital to shareholders. As of June 30th, our liquidity was $2.7 billion, and during the quarter, we were able to repurchase approximately 304,000 shares at an average price of $92.18. This leaves 3.1 million shares still available for repurchase under the current stock repurchase program.

Now to update our fiscal year 2026 and initial fiscal year 2027 guidance. We are updating our fiscal 2026 guidance to an EPS range of $7.80-$8.20, which includes the following assumptions: No additional rank changes during the year, an effective tax rate of 16%-18%, and expected share repurchases. We are also introducing a fiscal year 2027 guidance range of $9.50-$10, which includes the following assumptions: No rate changes during the year, an effective tax rate of 18%-22%, expected secondary market revenues between $5 million-$7 million per quarter, and expected share repurchases of around 70%-80% of net income. This concludes our prepared remarks. Operator, please open the line for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile your Q&A roster. Your first question from the line of Tim Switzer with KBW. Your line is open. Please go ahead.

Hey, good afternoon. Thank you for taking my question.

Hey, Tim. Hey, Tim. Appreciate it.

By the way, ask as many questions as you want, you and all the guys, ask away.

Okay. Yeah, I'll go ahead. We might as well just start on the credit here. Looking for some clarity at first. For the two commercial loans that drove the provision, you said one of them was already moved to NPL in the June quarter of last year. Can you discuss what changed over the last year to either the borrower or collateral that resulted in the reserve? What's the outstanding balance now versus the reserve?

This is Brett. This particular transaction was in the assembly phase of being constructed. There were a number of problems with the participants in it. We thought we would be able to identify new additional buyers that would participate in it and lead it to completion. We've had these kinds of circumstances before, and that's kind of where we got it to. This one did not get to that, during the quarter, the facts changed, and we came to the conclusion that this was not going to reach its terminal value as a permanent ongoing enterprise, and it moved into liquidation. Of course, when you're liquidating equipment and those kinds of things in these circumstances, there's a different kind of economic result. That's what happened in this particular case.

We thought that we were going to be able to get it to where we could get it to completion with other participants, we did not get there.

Okay. Any color you can provide on the current outstanding balance and what the reserve level is right now?

I don't think we're going to get into specific dollars on this.

Yeah, I don't think we're going to get into any more detail on the loans. We've written it down to what we believe the net proceeds to be, which is common with all the loans that have been out there for the past year, what I'll call legacy loans. Again, the net balance of that's in the NPLs, and that's what we can tell you on the call.

Okay. Fair enough. Also in the same quarter last year, you guys mentioned that one of those loans that moved to NPL was a fraud. Is that related to the one related to fraud this quarter, or is that another separate loan? What's your confidence on the ability to recover the potential loss either through the collateral or maybe legal means?

This is a new thing that happened within this quarter. When you're in asset-based lending, from time to time, you run into these frauds, and then you go through a full liquidation process to the extent that you can. We go through the process and evaluate the collateral. This involves everything from field exams to having independent verifications, etc. We calculate what we believe the value will be as we liquidate and go through the process. We apply appropriate reserve as we have in this case with that. Generally, when these frauds happen, they happen very quickly, and then we have a team that comes in and assesses where we are and apply the appropriate reserve. This is not something that's been there for a while.

Helpful. Last one on the credit this quarter for the renewable energy loans. Was any of that kind of related to struggles with some of the changes made by the administration over the last year? Is this more kind of like idiosyncratic in the rest of the portfolio you still feel confident in?

Let's go back to the big picture here. The reason we're in these various different asset classes is the power needs of the U.S. are just expected to continue to grow and frankly are exploding, and I think everybody understands that. We're in different asset classes. We're in solar. We're in battery storage. We're in renewable natural gas. Each of those have different kinds of risks Each of them have a different kind of view from the current administration, etc. There are shifts that occur.

In this particular case, particularly solar, there was some speeding up to get some things done because of the expiring of tax credits. These are different asset classes that have different characteristics, and we manage those appropriately based on the individual projects that are there. Hopefully that answered your question. The big thing we need to remember is we need more electricity, and generally, these projects are very viable.

Okay. Is this a portfolio that you plan to continue growing? Maybe any color on the pace you plan to grow that over the next year or two?

We continue to be involved in alternative energy, yes, because there are a number of elements of that that are very advantageous. We're constantly evaluating sub-asset classes within it and where we might want to be and might not want to be, we've made some adjustments with that over time.

Okay. All right. That's helpful. I'll move on to another topic here on the banking-as-a-service pipeline. Any update you guys have on that? It looks like really good origination volume in the consumer loans, any color you can provide would be really helpful.

Yeah, we continue to say the pipeline is full. We're getting lots of sales calls, lots of opportunities. We're being selective in the partners that we work with. We've had some press releases over time that you have seen announcing these things. Some of them are quick revenue, some of them are longer-term revenue into 2027 and 2028. What we have now is in our guidance that we're providing for fiscal year 2027. The story is largely the same there. After several years back when things kind of lagged because of different players, that's sort of been cleaned up, now we've got lots of opportunities to go get business.

Okay. That's good to hear. One last one from me, and I'll jump back into queue. For the secondary market revenue, big jump up this quarter. I believe your commentary last quarter was that the government shutdown had an impact on your ability to sell those loans. Is that kind of a catch-up, and we'll get back to that $5 million-$7 million range in the next quarter?

Tim, that's exactly right. We were able to start moving some loans through the pipeline. We were probably one of the first to do so, and there's a lot of demand out there for the USDA loans, particularly the higher rate loans that we have. What we were able to do in the June quarter was catch up. Going forward, yes, we do expect $5 million-$7 million a quarter. I will tell you though, for the fourth quarter, the demand's still out there, we're probably going to trend to the higher end of that guidance for the fourth quarter of 2026.

Good to hear. All right. Thank you guys. You're welcome.

Your next question from the line of Joe Yanchunis with Raymond James. Your line is open. Please go ahead.

Good afternoon. Hi. Afternoon, Joe.

I was hoping to ask just a couple more questions on credit, although I think Tim covered most of them. While I understand these credit issues seem largely one-off in nature, but has this caused you to change any of your underwriting or monitoring methodology?

We're always monitoring how we look at these loans, whether you're talking about ones in asset-based lending or our approach to the alternative energy. I would say it's always evolving. As fraudsters get more sophisticated, we have to adjust things over time. This is not an episode. This is not a one and done. This is an ongoing process that we're engaged in and will continue to be engaged in as we watch this business. This is a particular niche expertise that we have, and we're constantly monitoring and evolving as we need to for market conditions.

All right. I appreciate that. If I heard you correctly, it sounded like the non-performing renewable energy credit was related to solar. Is that true? If so, how much solar exposure remains on the balance sheet?

Well, let me answer the first part. Yes, the non-performing loan addition is associated with solar projects that are single developer, et cetera, and it's multiple projects that are in the process of assembly. We're having to step in and help with the assembly of those projects. Exact dollar amount on the other question.

Well, I think the exact dollar amount, Joe, as we said on the call, it's the majority of the increase from the prior quarter. I would say the majority is you're probably closer to at least 75% or 80% of the increase over the prior quarter.

Okay. Let's move on from credit, huh? With the new fiscal 2027 guide, what are the main factors that would push results towards the top or bottom of the range?

Well, obviously getting to the higher end of the range, part of it's going to be the pace with which we pull through some of the new partners we've announced. Brett's already touched on it. Whether it's announced or what's in the guide right now, faster pace on our partners ramping those projects is going to help push us to the higher end of the guide. I think that one's an obvious. We've also obviously had some good success with Credit Solutions, the volumes there. If those volumes continue to trend higher, as we hope they do, but hope's not a strategy, I think that can push us a little higher on the guide as well, which is helpful. On the bottom end, I think that's part of your question too.

I think the biggest one on the bottom end is if there are unforeseen credit issues that we don't foresee today, which is why they're unforeseen, that would trend us to the bottom end.

All right, within this outlook, what drove the decision to lower your buyback ratio to that 70%-80% of net income? I guess, was part of this decision based on holding more capital for potential credit normalization?

No. I'll answer the last one part first. I think we're comfortable with the level of capital we're holding and where we're trending to. We're always trying to create just a bit of additional capital every quarter. I think we feel very comfortable, particularly where we're going to exit our fiscal year. We're hitting our targets where we want to be. For next year, I think the guide's 70-80. We might be opportunistic and bump it above the 80. Again, I don't think there's a need to build an additional layer related to credit if that's really where your question's coming from.

All right. That's helpful. You said growth with current partners contributed to really strong origination numbers. What products are you seeing the most traction with? Where are you still under-penetrated within your existing partner base?

Are you talking, Joe, on the Commercial Finance side, or are you talking about on payment side?

On both. Yeah. For example, we just did the announcement on Clair, which is an early wage access partner as a renewal of that business continues to grow.

We're seeing a lot of traction in that. In Commercial Finance, we're continuing to do a lot of the same things. Some of the emphasis we want to have is around government-guaranteed things. Example would be potential SBA types of opportunities that are there.

I think on the money movement side, it's really also just scaling some of the new partners we've announced on the acquiring side.

Okay. I'd say that's really the pull-through on that probably happened at a faster pace than we could've hoped, and that's a positive too.

Yeah. All right, gentlemen. Well, I appreciate you taking my question.

Thank you. Thanks, Joe. Your next question from the line of Manuel Navas with Piper Sandler.

Your line is now open. Please go ahead. Hey. Good afternoon.

Good afternoon, Manuel. I appreciate the new EPS guide.

Is there a portion of the decline this year that assumes some lower EPS of these current issues creeping into next quarter?

No. I think the guide for this year is really just acknowledging. I'll just take you through the numbers, let you know. We've said that the majority of the credit provisioning in the quarter related to specific reserves, and the CECL build. That all occurred in this quarter, and if you put numbers to it, you see in the press release that our credit provision in the quarter related to Commercial Finance was roughly $34 million. Of that's probably elevated by $28 million-$30 million related to the things we've talked about here, and that's about $1 per share. That's what weighed on reducing the guide. Obviously, when you do the math, you realize there's some upside that probably wasn't in the guide before. Again, I think that goes back to the success we've had with the acquiring volumes increasing some of the other things too.

Hopefully that answers the question.

Then that with next year's guide, it's kind of where consensus almost was. It's almost like next year's guide assumes that most of this is much more normalized credit performance from here. What gives you the confidence that there aren't more of these loans out there?

Well, we're always looking at the portfolio to see what's there, of course, the loans that are in the non-performing loans, we have a current view of the outcomes that are there. We continue to have our monitoring of our loans and making sure they're properly rated, and we'll go through all that process. If we knew that there were things that were coming, they would be reserved for, et cetera. No. We're in the lending business, you have to understand in the lending business, things happen. We don't see anything right now.

Yeah. I think to answer the first part of your question, if it was a part of the question, though. I do think that there's going to be a normalization, more of a reversion to the mean, and that's really what's baked into the assumptions here. If you kind of go back in time with, it being focused specifically on the Commercial Finance portfolio, I think that normalized ACL ratio's been in that 120-130 basis point range, that's what we've included in our guide.

Okay. Do your partners see this as well? Have any of your past credit events impacted partner growth before? How have you discussed these with partners in the past?

There's really no relationship between sort of our credit book and our, we'll call it payment solutions partners. No connection, we have no issues around that. One of the things we have to remember is that while we had unfortunate credit losses, we had substantial earnings still, right? If you compare us to other banks that might have credit losses, this is a reduction in net income, not an elimination of net income.

I hear you. What are your conversations like?

With our partners? They're very positive. We are working with our partners and expanding the breadth of products that we sell to them and work with them. They're very much going after a broad consumer share of wallet. Payments industry, as we understand, is in a great deal of innovation and change. We're a part of those conversations. We're excited to be engaged in that. In this particular sponsored banking, we're one of the premier players, and names small and great come to us and want to engage with us in those things. Those conversations are going well. The point should be made here is we had a fantastic year so far with all the things that we have. It's just unfortunate we had this one credit issue that has come through. Otherwise, all elements of the business are running very well.

Greg even mentioned the tax business and the big success we had in the tax season.

We've been looking at the card and deposit fee line as evidence of kind of building partner programs. It took a little bit of a step down linked quarter this quarter, but it's still elevated. Is that still kind of on target for the mid to high single digit growth on that line?

Yeah, I believe it is. In the quarter, it was down really more because of the quarter last year was a bit elevated. We do occasionally get some contractual revenues that are a bit lumpy, tied to things like incentives. That hit in the prior year quarter, and that usually hits at some point on the calendar year. You can't always predict what quarter you're going to hit the break point and have the confidence level on it. That's really what caused the year-on-year optics. Prospectively, yeah, we're still looking at that mid to high, probably I would even say high single-digit growth on core card fee income. We're still very positive on the business and the outlook there.

Kind of switching back a little bit to the guide. Is there any buyback limitation due to anything related to credit? It's just kind of your appetite and you can be as opportunistic as necessary if there's a share decline at any point?

Well, it really gets back fundamentally to our capital strategy and our capital plan. We've consciously, over the last three years, slowed down the buybacks to put away additional capital and in the process pushed our Tier 1 leverage ratio upwards of 10% or above. Since we already made that decision and have done that gives us the headroom here to be opportunistic without any limitations, at least with the facts and the environment we have right now.

Okay. We've talked a little bit about kind of a NIM or a core NIM outlook in the past. There's a lot of moving parts with it. Is there a part that you can kind of guide near term here? Which is the best way to look at it? Happy to consider any of the various ways to look at it going forward. I've thought of it as kind of flat. Look at the core adjusted NIM, it's down about five basis points. Just kind of thoughts on NIM and NII outlooks from here.

Yeah. The down versus the sequential quarter of a couple of basis points, I view that as being pretty stable. What really drove it down slightly were the non-accrual loans that went on in the quarter. Even with the non-accrual loans, we stayed pretty stable to the prior quarter. The other data point I would give you, though, is in the quarter, new loan production was pretty close to 9% for the new originations. It was at 8.99%. You compare that to the portfolio yield right now for loans of, I think it's 7.42%. That gives you a sense of some of the tailwinds we still have in the portfolio. We also, over the next 12 months, have $150 million of principal coming off of the securities portfolio. It's obviously a much lower book yield on that will get recycled and repriced.

That gives us a bit more tailwind, too. As we've talked about for the last several quarters, regardless of whether the Fed raises rates or lowers rates, my crystal ball is broken on that one right now, but we're still incredibly close to neutral on the short end of the curve. Any changes on the short end of the curve would have a very muted impact going forward on the net interest margin. More pointedly, the adjusted net interest margin. I hope that helps. Okay.

That is helpful. I'll step back into the queue. Thank you for the commentary.

Thank you, Manuel. Your next question from the line of Tim Switzer with KBW.

Your line is now open. Please go ahead. Hey, Tim.

Tim, if you're there, we can't hear you.

Yeah, you might be on mute, but welcome back.

Hey. Sorry, guys. Thanks for letting me back in. My follow-up was on the adjusted NIM trajectory. I think last quarter you guys mentioned that it should continue to maybe gradually move higher over time, can you quantify that at all? How would rate hikes impact, not necessarily just the adjusted NIM, but the whole income statement overall?

I might have already laid out some of this, sequentially down 2 basis points to me is stable. Being down was driven principally by the non-accrual loans that arose in the quarter. To be stable with that, I think is a pretty good thing. Going forward, though, again, 2 data points for you. New loan production in Commercial Finance for the quarter was 8.99%, that's versus a book yield of 7.42%. That'll give you some uplift and some tailwind going forward, assuming, again, we always talk about that middle part of the Treasury curve, the three- to five-year part of the curve. Obviously, there's been slope to the curve, which is helpful. Consistent as it relates to the short end of the curve, we are incredibly close to neutral.

Whether you have a 25 basis point cut or a 25 basis point increase, it's pretty negligible on EPS. The other one, again, just a reminder, it's the same storyline. There's roughly $150 million of principal balance expected to come off the securities portfolio over the next 12 months, that will get recycled back into higher yielding likely loans. There's going to be some tailwind there. Beyond that, I'm not really seeing any drivers one way or the other. I think those are the biggest drivers that are going to hit the P&L.

Okay, that's helpful. How should we think about core OpEx excluding the card processing expense going forward? It seems like there are a lot of moving pieces in FQ3.

Yeah. We have spent a lot of time over the last 2 quarters managing expenses pretty tightly, we're very pleased with what we've been able to do. I think you've seen the OpEx expenses trending down. We think about next year, you're obviously still going to see investments in people. We've talked about it consistently. It's for scalability. It's for really driving the platform that we need to succeed with the partners. It's people, processes, technology. I do think some of the drivers from a year ago, in terms of consulting and things like that, have kind of dropped off, that's a good thing. If I think about next year in terms of OpEx as a total, you're probably mid to high single digits as a total.

We're going to continue to work the non-interest expense down to the extent we can to fund the things that we know we want to do from a strategic perspective, like people and the platform.

Okay, great. The last question I have is in terms of M&A. Are there any areas you guys are interested in? Some of you've kind of talked about a little bit before, and I assume a lot of this is out of the bank space, but any updates you have there?

We always have our eyes open. As we've said before, things that we might have been interested in have had such high prices, we really haven't engaged. We're in a very sort of unique and innovative business, and we tend to have to do things more on a proprietary basis internally. It's not the kind of thing that somebody has built for us on the outside. Always willing, always interested, would always be looking for something that's accretive, but not anything that we've seen that we could talk about at all.

Okay, great. Thank you for taking all my questions.

Thanks, Tim. Thanks, Tim. We will now allow for any additional questions.

Please press *1 to rejoin the queue. Your next question comes from the line of Joe Yanchunis with Raymond James. Your line is now open.

Hey, thanks for letting me back in.

Please go ahead. Yeah. Thanks for letting me back in the queue.

I wanted to kind of piggyback off that last answer there. Has the kind of evolution of AI, has that changed your decision at all about owning the technology stack instead of using third parties at all?

Well, it's interesting. We already were in a situation where there were things that we had to do internally rather than purchasing them from suppliers. We have a very robust engineering department for that reason. AI has the potential to actually even accelerate that, so where we do more of that. You're going to be in a situation where you're going to be evaluating the economics of buying it, building it, and then as very common in the news, the related token costs that are associated with that. What's the right tool that goes with it? I think we were already on the side of building more than buying, and this may lean us more to that over time.

All right. Well, thanks for taking my follow-up.

All right. Thanks, Joe. We have reached the end of the Q&A session.

I will now turn the call back to Brett Pharr, CEO, for closing remarks.

Thank you everyone for joining today. Appreciate the questions. Have a great evening.

This concludes today's call. Thank you for attending.