PATHWARD FINANCIAL, INC. ANNOUNCES RESULTS FOR 2023 FISCAL THIRD QUARTER
Sioux Falls, S.D., July 26, 2023 - Pathward Financial, Inc. (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $45.1 million, or $1.68 per share, for the three months ended June 30, 2023, compared to net income of $22.4 million, or $0.76 per share, for the three months ended June 30, 2022. For the same period of the prior year, the Company recognized adjusted net income of $27.3 million, or $0.93 per share when excluding the impact of rebranding and separation expenses. See non-GAAP reconciliation table below.
CEO Brett Pharr said, “This quarter, Pathward once again produced solid results, consistent with our performance thus far in fiscal year 2023. Our results were driven by growth in net interest income and noninterest income compared to the same quarter in fiscal year 2022, with our net interest margin increasing to 6.18%. Our differentiated business model continues to deliver due to our stable deposit base and healthy commercial finance portfolio. Based on this performance, we are increasing our fiscal year 2023 GAAP earnings per diluted share guidance to $5.60 to $6.00 and introducing fiscal year 2024 GAAP earnings per diluted share guidance of $6.10 to $6.60.”
Company Highlights
•The Company launched a new line of credit for consumers with Propel Holdings Inc. and paired with Clair to offer spending and savings accounts as well as earned wage advances. Additionally, the Company announced a new partnership where it has become the banking partner to Finix to support their launch as a payments processor.
•On July 24, 2023, the Company published its third annual ESG report, which can be found on its website. The report documents the Company's progress over fiscal year 2022 showing the implementation plans, programs and policies that built on its culture as well as the Company's purpose to power Financial Inclusion for All.
Financial Highlights for the 2023 Fiscal Third Quarter
•Total revenue for the third quarter was $165.2 million, an increase of $39.1 million, or 31%, compared to the same quarter in fiscal 2022, driven by an increase in both net interest income and noninterest income.
•Net interest margin ("NIM") increased 142 basis points to 6.18% for the third quarter from 4.76% during the same period of last year primarily driven by increased yields and an improved earnings asset mix from the continued optimization of the portfolio.
•Total gross loans and leases at June 30, 2023 increased $384.3 million to $4.07 billion, compared to June 30, 2022 and increased $347.3 million, or 9%, when compared to March 31, 2023. The increase compared to the prior year quarter was primarily due to growth in the commercial finance portfolio, partially offset by a reduction in consumer finance loans driven by the sale of the $81.5 million student loan portfolio during the fiscal 2022 fourth quarter and a reduction in warehouse finance loans. The primary drivers for the increase on a linked quarter basis was growth in both commercial finance and consumer finance loans.
•During the 2023 fiscal third quarter, the Company repurchased 490,120 shares of common stock at an average share price of $43.83. An additional 248,550 shares of common stock at an average price of $50.23 were repurchased in July 2023 through July 21, 2023. As of July 21, 2023, there are 1,729,613 shares available for repurchase under the common stock share repurchase program announced during the fourth quarter of fiscal year 2021.
1
•The Company is raising fiscal year 2023 GAAP earnings per diluted share guidance to a range of $5.60 to $6.00. The Company is also introducing fiscal year 2024 GAAP earnings per diluted share guidance in the range of $6.10 to $6.60. See Outlook section below.
Tax Season Recap
For the nine months ended June 30, 2023, total tax services product revenue was $79.7 million, a decrease of 3% compared to the same period of the prior year. This was driven by a decrease in refund advance fee income partially offset by an increase in refund transfer fee income. Provision expense for refund advances increased 17% compared to the prior year. This increase was due to a mix shift from partnership channels to independent tax providers, which was expected.
Total tax services product income, net of losses and direct product expenses, decreased 19% to $35.3 million from $43.5 million, when comparing the first nine months of fiscal 2023 to the same period of the prior fiscal year. The overall decrease in tax services product income was primarily due to higher provision expense and the two tax partners that the Company did not renew heading into the 2023 tax season, as previously disclosed.
Net Interest Income
Net interest income for the third quarter of fiscal 2023 was $97.5 million, an increase of 35% from the same quarter in fiscal 2022. The increase was mainly attributable to increased yields, higher interest-earning asset balances and an improved earning asset mix.
The Company’s average interest-earning assets for the third fiscal quarter increased by $244.4 million to $6.33 billion compared with the same quarter in fiscal 2022, primarily due to growth in loans and leases and an increase in total investment balances, partially offset by a decrease in cash balances. The third quarter average outstanding balance of loans and leases increased $171.6 million compared to the same quarter of the prior fiscal year, primarily due to an increase in commercial finance loans, partially offset by decreases in consumer finance loans, warehouse finance loans, and tax services loans.
Fiscal 2023 third quarter NIM increased to 6.18% from 4.76% in the third fiscal quarter of last year. When including contractual card processing expense, NIM would have been 4.88% in the fiscal 2023 third quarter compared to 4.62% during the fiscal 2022 third quarter. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 142 basis points to 6.31% compared to the prior year quarter, driven by an increase in loan and lease, investment securities and cash yields. The yield on the loan and lease portfolio was 8.31% compared to 6.69% for the comparable period last year and the TEY on the securities portfolio was 2.96% compared to 2.14% over that same period.
The Company's cost of funds for all deposits and borrowings averaged 0.13% during the fiscal 2023 third quarter, as compared to 0.12% during the prior year quarter. The Company's overall cost of deposits was 0.01% in the fiscal third quarter of 2023, as compared to 0.01% during the prior year quarter. When including contractual card processing expense, the Company's overall cost of deposits was 1.41% in the fiscal 2023 third quarter, as compared to 0.16% during the prior year quarter.
Noninterest Income
Fiscal 2023 third quarter noninterest income increased to $67.7 million, compared to $54.0 million for the same period of the prior year. The increase was primarily attributable to increases in card and deposit fees, rental income and other income. The period-over-period increase was partially offset by a reduction in tax services fee income.
The increase in card and deposit fee income was primarily from servicing fee income on off-balance sheet deposits, which totaled $14.6 million during the 2023 fiscal third quarter, as compared to $18.2 million for the fiscal quarter ended March 31, 2023 and $0.5 million for the fiscal quarter ended June 30, 2022.
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Noninterest Expense
Noninterest expense increased 19% to $114.6 million for the fiscal 2023 third quarter, from $96.7 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, compensation expense, other expense, impairment expense, and operating lease equipment depreciation. The period-over-period increase was partially offset by a decrease in legal and consulting expense and tax services expense. During the third quarter of fiscal year 2023, the Company recognized $2.7 million of impairment expense related to an investment in its Pathward Venture Capital business.
The card processing expense increase was due to structured agreements with Banking as a Service ("BaaS") partners. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally this rate index averages between 50% to 85% of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 48% of the deposit portfolio was subject to these higher card processing expenses during the 2023 fiscal third quarter. For the fiscal quarter ended June 30, 2023, card processing expenses related to these structured agreements were $20.5 million, as compared to $20.4 million for the fiscal quarter ended March 31, 2023 and $2.2 million for the fiscal quarter ended June 30, 2022.
Income Tax Expense
The Company recorded an income tax expense of $3.2 million, representing an effective tax rate of 6.6%, for the fiscal 2023 third quarter, compared to income tax expense of $7.0 million, representing an effective tax rate of 22.6%, for the third quarter last fiscal year. The current quarter decrease in income tax expense was primarily due to an increase in investment tax credits recognized ratably when compared to the prior year quarter.
The Company originated $21.4 million in renewable energy leases during the fiscal 2023 third quarter, resulting in $5.8 million in total net investment tax credits. During the third quarter of fiscal 2022, the Company originated $4.4 million in renewable energy leases resulting in $1.0 million in total net investment tax credits. Investment tax credits related to renewable energy leases are recognized ratably based on income throughout each fiscal year. For the nine months ended June 30, 2023, the Company originated $50.9 million in renewable energy leases, compared to $26.9 million for the comparable prior year period. The timing and impact of future renewable energy tax credits are expected to vary from period to period, and the Company intends to undertake only those tax credit opportunities that meet the Company's underwriting and return criteria.
Outlook
The following forward-looking statements reflect the Company’s expectations as of the date of this release and are subject to substantial uncertainty. The Company's results may be materially affected by many factors, such as changes in economic conditions and customer demand, changes in interest rates, adverse developments in the financial services industry generally, inflation, competition, and other factors detailed below under “Forward-looking Statements.” Because the Company’s reported GAAP results include certain income and expense items that are not expected to continue indefinitely and may include additional elements that the Company cannot currently predict, the Company is also providing guidance on a non-GAAP or “adjusted” basis for fiscal year 2023. The Company is not currently aware of any such income or expense items expected to impact fiscal year 2024.
The Company is raising its fiscal year 2023 GAAP earnings per diluted share guidance and expects it to be in the range of $5.60 to $6.00. The Company expects its effective tax rate to range between 10% and 14% for fiscal year 2023. When adjusting for gain on sale of trademarks and rebrand related expenses, the Company expects fiscal year 2023 adjusted earnings per share to be in the range of $5.45 to $5.85. See non-GAAP reconciliation table below.
The Company is also introducing fiscal year 2024 GAAP earnings per diluted share guidance in the range of $6.10 to $6.60. As part of this guidance, the Company expects that its annual effective tax rate in fiscal year 2024 will range between 16% and 20%.
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Investments, Loans and Leases
(Dollars in thousands)
June 30, 2023
March 31, 2023
December 31, 2022
September 30, 2022
June 30, 2022
Total investments
$
1,951,996
$
1,864,276
$
1,888,343
$
1,924,551
$
2,000,400
Loans held for sale
Term lending
3,000
—
—
—
—
SBA/USDA
—
—
—
—
43,861
Consumer credit products
84,351
24,780
17,148
21,071
23,710
Total loans held for sale
87,351
24,780
17,148
21,071
67,571
Term lending
1,253,841
1,235,453
1,160,100
1,090,289
1,047,764
Asset based lending
373,160
377,965
359,516
351,696
402,506
Factoring
351,133
338,884
338,594
372,595
408,777
Lease financing
201,996
170,645
189,868
210,692
218,789
Insurance premium finance
666,265
437,700
436,977
479,754
481,219
SBA/USDA
422,389
405,612
357,084
359,238
215,510
Other commercial finance
171,954
166,402
164,734
159,409
173,338
Commercial finance
3,440,738
3,132,661
3,006,873
3,023,673
2,947,903
Consumer credit products
175,158
120,739
130,750
144,353
152,106
Other consumer finance
24,963
27,909
56,180
25,306
107,135
Consumer finance
200,121
148,648
186,930
169,659
259,241
Tax services
47,194
61,553
30,364
9,098
41,627
Warehouse finance
380,458
377,036
279,899
326,850
434,748
Total loans and leases
4,068,511
3,719,898
3,504,066
3,529,280
3,683,519
Net deferred loan origination costs
4,388
5,718
5,664
7,025
5,047
Total gross loans and leases
4,072,899
3,725,616
3,509,730
3,536,305
3,688,566
Allowance for credit losses
(81,916)
(84,304)
(52,592)
(45,947)
(75,206)
Total loans and leases, net
$
3,990,983
$
3,641,312
$
3,457,138
$
3,490,358
$
3,613,360
The Company's investment security balances at June 30, 2023 totaled $1.95 billion, as compared to $1.86 billion at March 31, 2023 and $2.00 billion at June 30, 2022.
Total gross loans and leases totaled $4.07 billion at June 30, 2023, as compared to $3.73 billion at March 31, 2023 and $3.69 billion at June 30, 2022. The primary driver for the increase on a linked quarter basis was due to increases in commercial finance, consumer finance, and warehouse finance, partially offset by a decrease in seasonal tax services loans. The year-over-year increase was primarily due to an increase in commercial finance loans and tax services loans, partially offset by a reduction in consumer finance loans driven by the sale of the student loan portfolio during the fiscal 2022 fourth quarter and a reduction in warehouse finance loans.
Commercial finance loans, which comprised 85% of the Company's loan and lease portfolio, totaled $3.44 billion at June 30, 2023, reflecting an increase of $308.1 million, or 10%, from March 31, 2023 and an increase of $492.8 million, or 17%, from June 30, 2022. The increase in commercial finance loans on linked quarter basis was primarily driven by a $228.6 million increase in the insurance premium finance portfolio. The increase in commercial finance loans when comparing the current period to the same period of the prior year was primarily driven by increases in the SBA/USDA, insurance premium finance, and term lending portfolios, partially offset by reductions in the factoring, asset-based lending, and lease financing portfolios.
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Asset Quality
The Company’s allowance for credit losses ("ACL") totaled $81.9 million at June 30, 2023, a decrease compared to $84.3 million at March 31, 2023 and an increase compared to $75.2 million at June 30, 2022. The decrease in the ACL at June 30, 2023, when compared to March 31, 2023, was primarily due to a $1.3 million decrease in the allowance related to the commercial finance portfolio and a $1.1 million decrease in the allowance related to the consumer finance portfolio.
The $6.7 million year-over-year increase in the ACL was primarily driven by a $10.5 million increase in the allowance related to the seasonal tax services portfolio and a $0.7 million increase in the allowance related to the commercial finance portfolio, partially offset by a decrease of $4.5 million in the allowance related to the consumer finance portfolio. The year-over-year increase in the allowance related to the seasonal tax services portfolio was primarily attributable to prior year charge-off activity related to a partner the Company did not renew after the 2022 tax season. The year-over-year decrease in the allowance related to the consumer finance portfolio was primarily attributable to the sale of the student loan portfolio during the fourth quarter of fiscal 2022.
The following table presents the Company's ACL as a percentage of its total loans and leases.
As of the Period Ended
(Unaudited)
June 30, 2023
March 31, 2023
December 31, 2022
September 30, 2022
June 30, 2022
Commercial finance
1.35
%
1.53
%
1.62
%
1.46
%
1.56
%
Consumer finance
0.92
%
1.99
%
1.54
%
0.86
%
2.44
%
Tax services
70.20
%
53.77
%
2.01
%
0.05
%
54.29
%
Warehouse finance
0.10
%
0.10
%
0.10
%
0.10
%
0.10
%
Total loans and leases
2.01
%
2.27
%
1.50
%
1.30
%
2.04
%
Total loans and leases excluding tax services
1.21
%
1.40
%
1.50
%
1.30
%
1.44
%
The Company's ACL as a percentage of total loans and leases decreased to 2.01% at June 30, 2023 from 2.27% at March 31, 2023. The decrease in the total loans and leases coverage ratio was primarily driven by the commercial finance and consumer finance portfolios, partially offset by an increase in the seasonal tax services portfolio. The decrease in the consumer finance portfolio was related to seasonal activity. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level.
Activity in the allowance for credit losses for the periods presented was as follows.
(Unaudited)
Three Months Ended
Nine Months Ended
(Dollars in thousands)
June 30, 2023
March 31, 2023
June 30, 2022
June 30, 2023
June 30, 2022
Beginning balance
$
84,304
$
52,592
$
88,552
$
45,947
$
68,281
Provision (reversal of) - tax services loans
(229)
31,422
(166)
32,830
28,093
Provision (reversal of) - all other loans and leases
2,059
5,264
(982)
15,549
3,386
Charge-offs - tax services loans
(404)
—
(7,998)
(2,135)
(8,253)
Charge-offs - all other loans and leases
(5,597)
(6,625)
(6,346)
(14,931)
(23,366)
Recoveries - tax services loans
671
1,063
6
2,432
2,757
Recoveries - all other loans and leases
1,112
588
2,140
2,224
4,308
Ending balance
$
81,916
$
84,304
$
75,206
$
81,916
$
75,206
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The Company recognized a provision for credit losses of $1.8 million for the quarter ended June 30, 2023, compared to a reversal of provision for credit losses expense of $1.3 million for the comparable period in the prior fiscal year. The increase in provision for credit losses during the current quarter compared to the prior year period was primarily driven by increases in the commercial finance portfolio. Net charge-offs were $4.2 million for the quarter ended June 30, 2023, compared to $12.2 million for the quarter ended June 30, 2022. Net charge-offs attributable to the commercial finance and consumer finance portfolios for the current quarter were $2.6 million and $1.9 million, respectively, while a recovery of $0.3 million was recognized in the tax services portfolio.
The Company's past due loans and leases were as follows for the periods presented.
As of June 30, 2023
Accruing and Nonaccruing Loans and Leases
Nonperforming Loans and Leases
(Dollars in thousands)
30-59 Days Past Due
60-89 Days Past Due
> 89 Days Past Due
Total Past Due
Current
Total Loans and Leases Receivable
> 89 Days Past Due and Accruing
Nonaccrual Balance
Total
Loans held for sale
$
10
$
—
$
—
$
10
$
87,341
$
87,351
$
—
$
—
$
—
Commercial finance
35,344
5,934
13,720
54,998
3,385,740
3,440,738
6,542
30,170
36,712
Consumer finance
2,538
2,050
2,087
6,675
193,446
200,121
2,087
—
2,087
Tax services
—
47,194
—
47,194
—
47,194
—
—
—
Warehouse finance
—
—
—
—
380,458
380,458
—
—
—
Total loans and leases held for investment
37,882
55,178
15,807
108,867
3,959,644
4,068,511
8,629
30,170
38,799
Total loans and leases
$
37,892
$
55,178
$
15,807
$
108,877
$
4,046,985
$
4,155,862
$
8,629
$
30,170
$
38,799
As of March 31, 2023
Accruing and Nonaccruing Loans and Leases
Nonperforming Loans and Leases
(Dollars in thousands)
30-59 Days Past Due
60-89 Days Past Due
> 89 Days Past Due
Total Past Due
Current
Total Loans and Leases Receivable
> 89 Days Past Due and Accruing
Nonaccrual Balance
Total
Loans held for sale
$
—
$
—
$
—
$
—
$
24,780
$
24,780
$
—
$
—
$
—
Commercial finance
34,065
4,159
11,125
49,349
3,083,312
3,132,661
5,724
19,585
25,309
Consumer finance
3,261
3,857
3,217
10,335
138,313
148,648
3,217
—
3,217
Tax services
639
—
—
639
60,914
61,553
—
—
—
Warehouse finance
—
—
—
—
377,036
377,036
—
—
—
Total loans and leases held for investment
37,965
8,016
14,342
60,323
3,659,575
3,719,898
8,941
19,585
28,526
Total loans and leases
$
37,965
$
8,016
$
14,342
$
60,323
$
3,684,355
$
3,744,678
$
8,941
$
19,585
$
28,526
The Company's nonperforming assets at June 30, 2023 were $40.8 million, representing 0.55% of total assets, compared to $30.1 million, or 0.44% of total assets at March 31, 2023 and $26.8 million, or 0.40% of total assets at June 30, 2022.
The Company's nonperforming loans and leases at June 30, 2023, were $38.8 million, representing 0.93% of total gross loans and leases, compared to $28.5 million, or 0.76% of total gross loans and leases at March 31, 2023 and $26.6 million, or 0.71% of total gross loans and leases at June 30, 2022.
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The increase in the nonperforming assets as a percentage of total assets at June 30, 2023 compared to March 31, 2023, was driven by an increase in nonperforming loans in the commercial finance portfolio, primarily due to one sizable relationship moving to nonaccrual during the current quarter. The increase was partially offset by a decrease in nonperforming loans in the consumer finance portfolio. When comparing the current period to the same period of the prior year, the increase in nonperforming assets was due to an increase in nonperforming loans in the commercial finance portfolio, partially offset by a decrease in nonperforming loans in the consumer finance portfolio.
The Company has various portfolios of consumer lending and tax services loans that present unique risks that are statistically managed. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for credit losses on these portfolios, and as such, these loans are not included in the asset classification table below. The Company's loans and leases held for investment by asset classification were as follows for the periods presented.
Asset Classification
(Dollars in thousands)
Pass
Watch
Special Mention
Substandard
Doubtful
Total
As of June 30, 2023
Commercial finance
$
2,692,865
$
459,885
$
84,450
$
189,743
$
13,795
$
3,440,738
Warehouse finance
380,458
—
—
—
—
380,458
Total loans and leases
$
3,073,323
$
459,885
$
84,450
$
189,743
$
13,795
$
3,821,196
Asset Classification
(Dollars in thousands)
Pass
Watch
Special Mention
Substandard
Doubtful
Total
As of March 31, 2023
Commercial finance
$
2,405,837
$
426,543
$
64,560
$
230,029
$
5,692
$
3,132,661
Warehouse finance
377,036
—
—
—
—
377,036
Total loans and leases
$
2,782,873
$
426,543
$
64,560
$
230,029
$
5,692
$
3,509,697
Deposits, Borrowings and Other Liabilities
Total average deposits for the fiscal 2023 third quarter increased by $154.2 million to $5.90 billion compared to the same period in fiscal 2022. The increase in average deposits was primarily due to increases in noninterest bearing deposits and money market deposits, partially offset by a decrease in savings deposits, wholesale deposits, and time deposits.
The average balance of total deposits and interest-bearing liabilities was $6.01 billion for the three-month period ended June 30, 2023, compared to $5.81 billion for the same period in the prior fiscal year, representing an increase of 3%.
Total end-of-period deposits increased 10% to $6.31 billion at June 30, 2023, compared to $5.71 billion at June 30, 2022. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $562.3 million and money market deposits of $45.1 million, partially offset by decreases in savings deposits of $7.8 million, certificate of deposits of $2.7 million, and wholesale deposits of $0.9 million.
As of June 30, 2023, the Company had $966.6 billion in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $349.4 million are on activated cards while $617.2 million are on inactivated cards. Between July 2023 and the end of fiscal year 2024, these card balances are expected to decrease by approximately $450 million as the Company actively returns unclaimed balances to the U.S. Treasury.
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As of June 30, 2023, the Company managed $781 million of customer deposits at other banks in its capacity as custodian. These deposits provide the Company with excess deposits that can earn record keeping service fee income, typically reflective of the EFFR.
Approximately 48% of the deposit balances at June 30, 2023 are subject to variable card processing expenses that are derived from the terms of contractual agreements with certain BaaS partners. These agreements are tied to a portion of a rate index, typically the EFFR.
Regulatory Capital
The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at June 30, 2023, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies. Regulatory capital ratios of the Company and the Bank are stated in the table below. Regulatory capital is not affected by the unrealized loss on accumulated other comprehensive income (“AOCI”). The securities portfolio is primarily comprised of amortizing securities that should provide consistent cash flow. The Company does not intend to sell these securities, or recognize the unrealized losses on its income statement, to fund future loan growth.
The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analysis.
As of the Periods Indicated
June 30, 2023(1)
March 31, 2023
December 31, 2022
September 30, 2022
June 30, 2022
Company
Tier 1 leverage capital ratio
8.41
%
7.53
%
8.37
%
8.10
%
8.23
%
Common equity Tier 1 capital ratio
11.52
%
12.05
%
12.31
%
12.07
%
11.87
%
Tier 1 capital ratio
11.79
%
12.35
%
12.63
%
12.39
%
12.19
%
Total capital ratio
13.45
%
14.06
%
14.29
%
13.88
%
13.44
%
Bank
Tier 1 leverage ratio
8.67
%
7.79
%
8.68
%
8.19
%
8.22
%
Common equity Tier 1 capital ratio
12.17
%
12.77
%
13.09
%
12.55
%
12.17
%
Tier 1 capital ratio
12.17
%
12.77
%
13.09
%
12.55
%
12.18
%
Total capital ratio
13.42
%
14.03
%
14.29
%
13.57
%
13.43
%
(1) June 30, 2023 percentages are preliminary pending completion and filing of the Company's regulatory reports. Regulatory capital ratios for periods presented reflect the Company's election of the five-year CECL transition for regulatory capital purposes.
8
The following table provides the non-GAAP financial measures used to compute certain of the ratios included in the table above, as well as a reconciliation of such non-GAAP financial measures to the most directly comparable financial measure in accordance with GAAP:
Standardized Approach(1)
As of the Periods Indicated
(Dollars in thousands)
June 30, 2023
March 31, 2023
December 31, 2022
September 30, 2022
June 30, 2022
Total stockholders' equity
$
677,721
$
673,244
$
659,133
$
645,140
$
724,774
Adjustments:
LESS: Goodwill, net of associated deferred tax liabilities
298,092
298,390
298,788
299,186
299,616
LESS: Certain other intangible assets
22,372
23,553
25,053
26,406
27,809
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards
12,157
13,219
16,641
17,968
11,978
LESS: Net unrealized gains (losses) on available for sale securities
(207,358)
(186,796)
(200,597)
(211,600)
(131,352)
LESS: Noncontrolling interest
(631)
(551)
(207)
(30)
665
ADD: Adoption of Accounting Standards Update 2016-13
2,017
2,017
2,017
2,689
10,011
Common Equity Tier 1(1)
555,106
527,446
521,472
515,899
526,069
Long-term borrowings and other instruments qualifying as Tier 1
13,661
13,661
13,661
13,661
13,661
Tier 1 minority interest not included in common equity Tier 1 capital
(454)
(404)
(138)
(20)
377
Total Tier 1 capital
568,313
540,703
534,995
529,540
540,107
Allowance for credit losses
60,489
55,058
50,853
43,623
55,506
Subordinated debentures, net of issuance costs
19,566
19,540
19,521
20,000
—
Total capital
$
648,368
$
615,301
$
650,369
$
593,163
$
595,613
(1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum CET1 ratio; those changes were fully phased in through the end of calendar year 2021.
The following table provides a reconciliation of tangible common equity and tangible common equity excluding AOCI, each of which is used in calculating tangible book value data, to Total Stockholders' Equity. Each of tangible common equity and tangible common equity excluding AOCI is a non-GAAP financial measure that is commonly used within the banking industry.
As of the Periods Indicated
(Dollars in thousands)
June 30, 2023
March 31, 2023
December 31, 2022
September 30, 2022
June 30, 2022
Total stockholders' equity
$
677,721
$
673,244
$
659,133
$
645,140
$
724,774
Less: Goodwill
309,505
309,505
309,505
309,505
309,505
Less: Intangible assets
21,830
22,998
24,433
25,691
27,088
Tangible common equity
346,386
340,741
325,195
309,944
388,181
Less: AOCI
(207,896)
(187,829)
(201,690)
(213,080)
(131,407)
Tangible common equity excluding AOCI
$
554,282
$
528,570
$
526,885
$
523,024
$
519,588
9
Conference Call
The Company will host a conference call and earnings webcast with a corresponding presentation at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Wednesday, July 26, 2023. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-833-470-1428 approximately 10 minutes prior to start time and reference access code 572170. A webcast replay will also be archived at www.pathwardfinancial.com for one year.
About Pathward Financial, Inc.
Pathward Financial, Inc.(Nasdaq: CASH) is a U.S.-based financial holding company driven by its purpose to power financial inclusion for all. Through our subsidiary, Pathward®, N.A., we strive to increase financial availability, choice, and opportunity across our Banking as a Service and Commercial Finance business lines. These strategic business lines provide end-to-end support to individuals and businesses. Learn more at www.pathwardfinancial.com.
Investor Relations Contact
Darby Schoenfeld, CPA
SVP, Investor Relations
877-497-7497
investorrelations@pathward.com
Media Relations Contact
mediarelations@pathward.com
10
Forward-Looking Statements
The Company and the Bank may from time to time make written or oral “forward-looking statements,” including statements contained in this press release, the Company’s filings with the Securities and Exchange Commission ("SEC"), the Company’s reports to stockholders, and in other communications by the Company and the Bank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.
You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results including our earnings per share guidance, future effective tax rate and related performance expectations; the performance of our securities portfolio; the impact of card balances related to government stimulus programs; customer retention; loan and other product demand; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; and technology. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the potential adverse effects of unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the military conflict between Russia and Ukraine; weather-related disasters, or public health events, such as the COVID-19 pandemic and any governmental or societal responses thereto; our ability to achieve brand recognition for the Bank equal to or greater than we enjoyed for MetaBank; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate, and their related impacts on macroeconomic conditions, customer behavior, or funding costs and or loan and securities portfolio; changes in tax laws; the strength of the United States' economy and the local economies in which the Company operates; adverse developments in the financial services industry generally such as recent bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer behavior; inflation, market, and monetary fluctuations; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value of these products and services by users; the Bank's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Bank's strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the Bank of its status as a well-capitalized institution; changes in consumer spending and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase.
The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2022, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason.
11
Condensed Consolidated Statements of Financial Condition (Unaudited)
(Dollars in Thousands, Except Share Data)
June 30, 2023
March 31, 2023
December 31, 2022
September 30, 2022
June 30, 2022
ASSETS
Cash and cash equivalents
$
515,271
$
432,598
$
369,169
$
388,038
$
157,260
Securities available for sale, at fair value
1,914,271
1,825,563
1,847,778
1,882,869
1,956,523
Securities held to maturity, at amortized cost
37,725
38,713
40,565
41,682
43,877
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost
30,890
29,387
28,812
28,812
28,812
Loans held for sale
87,351
24,780
17,148
21,071
67,571
Loans and leases
4,072,899
3,725,616
3,509,730
3,536,305
3,688,566
Allowance for credit losses
(81,916)
(84,304)
(52,592)
(45,947)
(75,206)
Accrued interest receivable
22,332
22,434
20,170
17,979
16,818
Premises, furniture, and equipment, net
38,601
39,735
41,029
41,710
42,076
Rental equipment, net
224,212
210,844
231,129
204,371
222,023
Goodwill and intangible assets
331,335
332,503
333,938
335,196
336,593
Other assets
265,654
270,387
272,349
295,324
243,265
Total assets
$
7,458,625
$
6,868,256
$
6,659,225
$
6,747,410
$
6,728,178
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits
6,306,976
5,902,696
5,789,132
5,866,037
5,710,799
Short-term borrowings
230,000
43,000
—
—
—
Long-term borrowings
34,178
34,543
34,977
36,028
16,616
Accrued expenses and other liabilities
209,750
214,773
175,983
200,205
275,989
Total liabilities
6,780,904
6,195,012
6,000,092
6,102,270
6,003,404
STOCKHOLDERS’ EQUITY
Preferred stock
—
—
—
—
—
Common stock, $.01 par value
266
271
282
288
294
Common stock, Nonvoting, $.01 par value
—
—
—
—
—
Additional paid-in capital
625,825
623,250
620,681
617,403
615,159
Retained earnings
267,100
245,046
246,891
245,394
244,686
Accumulated other comprehensive loss
(207,896)
(187,829)
(201,690)
(213,080)
(131,407)
Treasury stock, at cost
(6,943)
(6,943)
(6,824)
(4,835)
(4,623)
Total equity attributable to parent
678,352
673,795
659,340
645,170
724,109
Noncontrolling interest
(631)
(551)
(207)
(30)
665
Total stockholders’ equity
677,721
673,244
659,133
645,140
724,774
Total liabilities and stockholders’ equity
$
7,458,625
$
6,868,256
$
6,659,225
$
6,747,410
$
6,728,178
12
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended
Nine Months Ended
(Dollars in Thousands, Except Share and Per Share Data)
June 30, 2023
March 31, 2023
June 30, 2022
June 30, 2023
June 30, 2022
Interest and dividend income:
Loans and leases, including fees
$
81,242
$
83,879
$
62,541
$
233,517
$
203,115
Mortgage-backed securities
10,234
10,326
7,381
30,972
16,690
Other investments
7,870
10,482
3,984
24,604
12,169
99,346
104,687
73,906
289,093
231,974
Interest expense:
Deposits
164
2,096
94
2,402
400
FHLB advances and other borrowings
1,717
1,186
1,661
3,764
4,010
1,881
3,282
1,755
6,166
4,410
Net interest income
97,465
101,405
72,151
282,927
227,564
Provision for (reversal of) credit losses
1,773
36,763
(1,302)
48,312
31,186
Net interest income after provision for credit losses
95,692
64,642
73,453
234,615
196,378
Noninterest income:
Refund transfer product fees
8,262
30,205
10,289
39,144
38,674
Refund advance fee income
(927)
37,995
(20)
37,685
40,513
Card and deposit fees
39,708
42,087
24,935
119,513
76,825
Rental income
13,980
12,940
12,082
39,628
34,534
Gain on sale of securities
9
82
198
91
595
Gain on sale of trademarks
—
—
—
10,000
50,000
Gain (loss) on sale of other
812
(748)
1,239
566
(1,601)
Other income
5,889
4,477
5,271
13,921
10,811
Total noninterest income
67,733
127,038
53,994
260,548
250,351
Noninterest expense:
Compensation and benefits
47,402
47,547
45,091
137,966
128,364
Refund transfer product expense
1,727
7,863
2,457
9,695
8,855
Refund advance expense
239
1,603
(29)
1,869
2,156
Card processing
26,342
26,924
8,438
75,949
23,067
Occupancy and equipment expense
8,595
8,510
8,996
25,417
25,845
Operating lease equipment depreciation
10,517
14,719
9,145
34,864
26,331
Legal and consulting
5,089
4,921
11,724
19,469
27,279
Intangible amortization
1,168
1,435
1,532
3,861
5,188
Impairment expense
2,749
500
670
3,273
670
Other expense
10,750
13,114
8,626
34,410
34,491
Total noninterest expense
114,578
127,136
96,650
346,773
282,246
Income before income tax expense
48,847
64,544
30,797
148,390
164,483
Income tax expense
3,243
9,176
6,958
18,996
29,236
Net income before noncontrolling interest
45,604
55,368
23,839
129,394
135,247
Net income attributable to noncontrolling interest
508
597
1,448
1,685
2,281
Net income attributable to parent
$
45,096
$
54,771
$
22,391
$
127,709
$
132,966
Less: Allocation of Earnings to participating securities(1)
690
839
377
1,920
2,166
Net income attributable to common shareholders(1)
44,406
53,932
22,014
125,789
130,800
Earnings per common share:
Basic
$
1.69
$
1.99
$
0.76
$
4.63
$
4.44
Diluted
$
1.68
$
1.99
$
0.76
$
4.62
$
4.44
Shares used in computing earnings per common share:
Basic
26,346,693
27,078,048
28,868,136
27,152,773
29,444,979
Diluted
26,447,032
27,169,569
28,868,136
27,238,801
29,454,586
(1) Amounts presented are used in the two-class earnings per common share calculation.
13
Average Balances, Interest Rates and Yields
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and in rates. Only the yield/rate reflects tax-equivalent adjustments. Nonaccruing loans and leases have been included in the table as loans carrying a zero yield.
Three Months Ended June 30,
2023
2022
(Dollars in thousands)
Average Outstanding Balance
Interest Earned / Paid
Yield /
Rate(1)
Average Outstanding Balance
Interest Earned / Paid
Yield /
Rate(1)
Interest-earning assets:
Cash and fed funds sold
$
248,865
$
2,441
3.93
%
$
309,324
$
787
1.02
%
Mortgage-backed securities
1,533,122
10,234
2.68
%
1,395,149
7,381
2.12
%
Tax exempt investment securities
145,474
989
3.45
%
173,192
851
2.50
%
Asset-backed securities
188,039
2,120
4.52
%
210,815
750
1.43
%
Other investment securities
292,025
2,320
3.19
%
246,218
1,596
2.60
%
Total investments
2,158,660
15,663
2.96
%
2,025,374
10,578
2.14
%
Commercial finance
3,268,780
68,174
8.37
%
2,949,813
50,785
6.91
%
Consumer finance
225,470
4,665
8.30
%
300,352
4,964
6.63
%
Tax services
52,477
25
0.19
%
62,934
53
0.34
%
Warehouse finance
372,498
8,378
9.02
%
434,532
6,739
6.22
%
Total loans and leases
3,919,225
81,242
8.31
%
3,747,631
62,541
6.69
%
Total interest-earning assets
$
6,326,750
$
99,346
6.31
%
$
6,082,329
$
73,906
4.89
%
Noninterest-earning assets
574,840
695,468
Total assets
$
6,901,590
$
6,777,797
Interest-bearing liabilities:
Interest-bearing checking
$
339
$
—
0.22
%
$
292
$
—
0.33
%
Savings
69,310
7
0.04
%
82,989
7
0.03
%
Money markets
126,994
76
0.24
%
101,943
53
0.21
%
Time deposits
6,224
3
0.19
%
8,709
9
0.40
%
Wholesale deposits
5,794
78
5.38
%
8,554
25
1.19
%
Total interest-bearing deposits
208,661
164
0.32
%
202,487
94
0.19
%
Overnight fed funds purchased
78,320
1,057
5.42
%
19,353
72
1.50
%
Subordinated debentures
19,549
355
7.28
%
36,480
1,444
15.87
%
Other borrowings
14,850
305
8.24
%
17,056
145
3.40
%
Total borrowings
112,719
1,717
6.11
%
72,889
1,661
9.14
%
Total interest-bearing liabilities
321,380
1,881
2.35
%
275,376
1,755
2.56
%
Noninterest-bearing deposits
5,686,581
—
—
%
5,538,585
—
—
%
Total deposits and interest-bearing liabilities
$
6,007,961
$
1,881
0.13
%
$
5,813,961
$
1,755
0.12
%
Other noninterest-bearing liabilities
206,708
213,293
Total liabilities
6,214,669
6,027,254
Shareholders' equity
686,921
750,543
Total liabilities and shareholders' equity
$
6,901,590
$
6,777,797
Net interest income and net interest rate spread including noninterest-bearing deposits
$
97,465
6.19
%
$
72,151
4.77
%
Net interest margin
6.18
%
4.76
%
Tax-equivalent effect
0.02
%
0.01
%
Net interest margin, tax-equivalent(2)
6.20
%
4.77
%
(1) Tax rate used to arrive at the TEY for the three months ended June 30, 2023 and 2022 was 21%.
(2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes.
14
Selected Financial Information
As of and For the Three Months Ended
June 30, 2023
March 31, 2023
December 31, 2022
September 30, 2022
June 30, 2022
Equity to total assets
9.09
%
9.80
%
9.90
%
9.56
%
10.77
%
Book value per common share outstanding
$
25.54
$
24.88
$
23.36
$
22.41
$
24.69
Tangible book value per common share outstanding
$
13.05
$
12.59
$
11.53
$
10.77
$
13.22
Tangible book value per common share outstanding excluding AOCI
$
20.89
$
19.54
$
18.68
$
18.17
$
17.70
Common shares outstanding
26,539,272
27,055,727
28,211,239
28,788,124
29,356,707
Nonperforming assets to total assets
0.55
%
0.44
%
0.68
%
0.46
%
0.40
%
Nonperforming loans and leases to total loans and leases
0.93
%
0.76
%
1.16
%
0.82
%
0.71
%
Net interest margin
6.18
%
6.12
%
5.62
%
5.21
%
4.76
%
Net interest margin, tax-equivalent
6.20
%
6.14
%
5.64
%
5.23
%
4.77
%
Return on average assets
2.61
%
2.99
%
1.71
%
1.39
%
1.32
%
Return on average equity
26.26
%
32.68
%
17.18
%
12.82
%
11.93
%
Full-time equivalent employees
1,186
1,164
1,150
1,141
1,178
Non-GAAP Reconciliations
Adjusted Net Income and Adjusted Earnings Per Share
At and For the Three Months Ended
At and For the Nine Months Ended
(Dollars in Thousands, Except Share and Per Share Data)
June 30, 2023
March 31, 2023
June 30, 2022
June 30, 2023
June 30, 2022
Net Income - GAAP
$
45,096
$
54,771
$
22,391
$
127,709
$
132,966
Less: Gain on sale of trademarks
—
—
—
10,000
50,000
Less: Loss on disposal of certain mobile solar generators
—
(1,993)
—
(1,993)
—
Add: Accelerated depreciation on certain mobile solar generators
—
4,822
—
4,822
—
Add: Rebranding expenses
—
—
3,427
3,737
6,249
Add: Separation related expenses
—
—
3,116
11
4,080
Add: Impairment on Venture Capital investments
2,749
500
—
3,249
—
Add: Income tax effect resulting from the above listed items
(687)
(1,829)
(1,677)
(942)
9,965
Adjusted net income
$
47,158
$
60,257
$
27,257
$
130,579
$
103,260
Less: Adjusted allocation of earnings to participating securities
722
923
458
1,963
1,682
Adjusted Net income attributable to common shareholders
46,436
59,334
26,799
128,616
101,578
Weighted average diluted common shares outstanding
26,447,032
27,169,569
28,868,136
27,238,801
29,454,586
Adjusted earnings per common share - diluted
$
1.76
$
2.18
$
0.93
$
4.72
$
3.45
Adjusted Diluted Earnings Per Share Guidance
(Earnings per share amounts)
Fiscal Year Ended 2023 (Guidance)
Diluted earnings per share - GAAP
$5.60 - $6.00
Less: Net extraordinary items, net of tax(1)
$0.15
Diluted earnings per share - Adjusted
$5.45 - $5.85
(1) Includes gain on sale of trademarks and rebranding-related expenses.
