PATHWARD FINANCIAL, INC. ANNOUNCES RESULTS FOR 2024 FISCAL SECOND QUARTER
Sioux Falls, S.D., April 24, 2024 - Pathward Financial, Inc. (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $65.3 million, or $2.56 per share, for the three months ended March 31, 2024, compared to net income of $54.8 million, or $1.99 per share, for the three months ended March 31, 2023. For the fiscal quarter ended March 31, 2023, the Company recognized adjusted net income of $60.3 million, or $2.18 per share, when adjusting for the adverse financial impacts related to legacy mobile solar transactions and a venture capital investment impairment expense. See non-GAAP reconciliation table below.
CEO Brett Pharr said, “We continue to produce strong results by focusing on risk adjusted returns, enhancing our Banking as a Service offerings, and spending the off-season in tax services improving our data analytics, underwriting and monitoring processes. We delivered significant growth in net income and earnings per share through solid performance across the enterprise. The Pathward team continues to perform by maintaining our culture, focusing on risk and compliance, working closely with our partners, and embodying our purpose of financial inclusion. I am excited to be a part of this company and for what we can create in the future.”
Company Highlights
• On February 27, 2024, the Board of Directors (the "Board") of Pathward Financial appointed Neeraj Mehta as a member of the Board.
•On April 3, 2024, Pathward®, N.A. announced it became Certified™ by Great Place to Work® for the second year in a row. Great Place to Work describes itself as the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation.
Financial Highlights for the 2024 Fiscal Second Quarter
•Total revenue for the second quarter was $247.2 million, an increase of $18.8 million, or 8%, compared to the same quarter in fiscal 2023, driven by an increase in both net interest income and noninterest income.
•Net interest margin ("NIM") increased 11 basis points to 6.23% for the second quarter from 6.12% during the same period last year, primarily driven by increased yields on earning assets and an improved earning asset mix from the continued optimization of the portfolio. When including contractual, rate-related processing expense, NIM would have been 4.65% in the fiscal 2024 second quarter compared to 4.89% during the fiscal 2023 second quarter due to increases in rate-related card processing expenses from a higher rate environment. Servicing fee income on off-balance sheet deposits is not included in this calculation. See non-GAAP reconciliation table below.
•Total gross loans and leases at March 31, 2024 increased $683.8 million to $4.41 billion compared to March 31, 2023 and decreased $16.9 million when compared to December 31, 2023. The increase compared to the prior year quarter was due to growth across all loan portfolios. The primary driver for the sequential decrease was a reduction in the commercial and consumer finance loan portfolios, partially offset by growth in the warehouse finance and seasonal tax services loan portfolios.
1
•During the 2024 fiscal second quarter, the Company repurchased 764,185 shares of common stock at an average share price of $51.20. An additional 100,990 shares of common stock were repurchased at an average price of $49.47 in April 2024 through April 15, 2024. As of April 15, 2024, there were 7,568,673 shares available for repurchase under the current common stock share repurchase programs.
•The Company is narrowing its fiscal year 2024 GAAP earnings per diluted share guidance to a range of $6.30 to $6.60. See Outlook section below.
Tax Season
For the six months ended March 31, 2024, total tax services product revenue was $72.9 million, an increase of 1% compared to the same period of the prior year. Total tax services product fee income increased marginally compared to the prior year, while total tax services product expense and net interest income on tax services loans decreased.
Provision for credit losses for tax services portfolio decreased $6.5 million for the six months ended March 31, 2024 when compared to the same period of the prior year, due to improvements in data analytics, underwriting and monitoring.
Total tax services product income, net of losses and direct product expenses, increased 24% to $36.9 million from $29.7 million, when comparing the first six months of fiscal 2024 to the same period of the prior fiscal year.
For the 2024 tax season through March 31, 2024, Pathward originated $1.56 billion in refund advance loans compared to $1.46 billion during the 2023 tax season.
Net Interest Income
Net interest income for the second quarter of fiscal 2024 was $118.3 million, an increase of 17% from the same quarter in fiscal 2023. The increase was mainly attributable to increased yields, higher average interest-earning asset balances and an improved earning asset mix.
The Company’s average interest-earning assets for the second quarter of fiscal 2024 increased by $917.9 million to $7.64 billion compared to the same quarter in fiscal 2023, primarily due to growth in loans and leases and an increase in cash balances, partially offset by a decrease in total investment security balances. The second quarter average outstanding balance of loans and leases increased $889.1 million compared to the same quarter of the prior fiscal year, primarily due to an increase across all loan portfolios.
Fiscal 2024 second quarter NIM increased to 6.23% from 6.12% in the second fiscal quarter of last year. When including contractual, rate-related processing expense, NIM would have been 4.65% in the fiscal 2024 second quarter compared to 4.89% during the fiscal 2023 second quarter. See non-GAAP reconciliation table below. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 35 basis points to 6.69% compared to the prior year quarter, driven by an improved earning asset mix. The yield on the loan and lease portfolio was 8.43% compared to 8.47% for the comparable period last year and the TEY on the securities portfolio was 3.20% compared to 2.89% over that same period.
The Company's cost of funds for all deposits and borrowings averaged 0.47% during the fiscal 2024 second quarter, as compared to 0.21% during the prior year quarter. The Company's overall cost of deposits was 0.38% in the fiscal second quarter of 2024, as compared to 0.13% during the prior year quarter. When including contractual, rate-related processing expense, the Company's overall cost of deposits was 2.06% in the fiscal 2024 second quarter, as compared to 1.43% during the prior year quarter. See non-GAAP reconciliation table below.
Noninterest Income
Fiscal 2024 second quarter noninterest income increased 2% to $128.9 million, compared to $127.0 million for the same period of the prior year. The increase was primarily driven by an increase in refund advance fee income. The period-over-period increase was partially offset by a decrease in card and deposits fees.
2
The period-over-period decrease in card and deposit fee income was primarily related to servicing fee income on off-balance sheet deposits, which totaled $10.4 million during the 2024 fiscal second quarter, compared to $18.2 million for the same period of the prior year. The decrease in servicing fee income when compared to the prior year period was due to a reduction in off-balance sheet deposits. For the fiscal quarter ended December 31, 2023, servicing fee income on off-balance sheet deposits totaled $5.1 million.
Noninterest Expense
Noninterest expense increased 10% to $140.4 million for the fiscal 2024 second quarter, from $127.1 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, compensation and benefits expense, impairment expense, legal and consulting expense, and occupancy and equipment expense. The period-over-period increase was partially offset by decreases in operating lease equipment depreciation, other expense, refund transfer product expense, and intangible amortization expense.
The card processing expense increase was due to rate-related agreements with 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 is based on a percentage of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 56% of the deposit portfolio was subject to these rate-related processing expenses during the fiscal 2024 second quarter. For the fiscal quarter ended March 31, 2024, contractual, rate-related processing expenses were $30.1 million, as compared to $26.8 million for the fiscal quarter ended December 31, 2023, and $20.4 million for the fiscal quarter ended March 31, 2023.
Income Tax Expense
The Company recorded income tax expense of $15.2 million, representing an effective tax rate of 18.9%, for the fiscal 2024 second quarter, compared to $9.2 million, representing an effective tax rate of 14.2%, for the second quarter last fiscal year. The current quarter increase in income tax expense compared to the prior year quarter was primarily due to increased earnings and also a decrease in investment tax credits recognized ratably when compared to the prior year quarter.
The Company originated $25.9 million in renewable energy leases during the fiscal 2024 second quarter, resulting in $7.0 million in total net investment tax credits. During the second quarter of fiscal 2023, the Company originated $18.1 million in renewable energy leases resulting in $4.9 million in total net investment tax credits. For the six months ended March 31, 2024, the Company originated $38.1 million in renewable energy leases, compared to $29.5 million for the comparable prior year period. Investment tax credits related to renewable energy leases are recognized ratably based on income throughout each fiscal year.
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.”
The Company is narrowing its fiscal year 2024 GAAP earnings per diluted share guidance to a range of $6.30 to $6.60. As part of this guidance, the Company is reiterating its expectation that the annual effective tax rate in fiscal year 2024 will be in a range between 16% and 20%.
3
Investments, Loans and Leases
(Dollars in thousands)
March 31, 2024
December 31, 2023
September 30, 2023
June 30, 2023
March 31, 2023
Total investments
$
1,814,140
$
1,886,021
$
1,840,819
$
1,951,996
$
1,864,276
Loans held for sale
Term lending
1,977
2,500
—
3,000
—
Lease financing
—
778
—
—
—
SBA/USDA
7,372
—
—
—
—
Consumer finance
16,597
66,240
77,779
84,351
24,780
Total loans held for sale
25,946
69,518
77,779
87,351
24,780
Term lending
1,489,054
1,452,274
1,308,133
1,253,841
1,235,453
Asset-based lending
429,556
379,681
382,371
373,160
377,965
Factoring
336,442
335,953
358,344
351,133
338,884
Lease financing
168,616
188,889
183,392
201,996
170,645
Insurance premium finance
522,904
671,035
800,077
666,265
437,700
SBA/USDA
560,433
546,048
524,750
422,389
405,612
Other commercial finance
149,056
160,628
166,091
171,954
166,402
Commercial finance
3,656,061
3,734,508
3,723,158
3,440,738
3,132,661
Consumer finance
267,031
301,510
254,416
200,121
148,648
Tax services
84,502
33,435
5,192
47,194
61,553
Warehouse finance
394,814
349,911
376,915
380,458
377,036
Total loans and leases
4,402,408
4,419,364
4,359,681
4,068,511
3,719,898
Net deferred loan origination costs
6,977
6,917
6,435
4,388
5,718
Total gross loans and leases
4,409,385
4,426,281
4,366,116
4,072,899
3,725,616
Allowance for credit losses
(80,777)
(53,785)
(49,705)
(81,916)
(84,304)
Total loans and leases, net
$
4,328,608
$
4,372,496
$
4,316,411
$
3,990,983
$
3,641,312
The Company's investment security balances at March 31, 2024 totaled $1.81 billion, as compared to $1.89 billion at December 31, 2023 and $1.86 billion at March 31, 2023.
Total gross loans and leases totaled $4.41 billion at March 31, 2024, as compared to $4.43 billion at December 31, 2023 and $3.73 billion at March 31, 2023. The primary driver for the sequential decrease was a decrease in commercial finance loans and consumer finance loans. This was partially offset by an increase in warehouse finance loans and seasonal tax service loans. The year-over-year increase was due to growth across all loan portfolios.
Commercial finance loans, which comprised 83% of the Company's loan and lease portfolio, totaled $3.66 billion at March 31, 2024, reflecting a decrease of $78.4 million from December 31, 2023 and an increase of $523.4 million, or 17%, from March 31, 2023. The sequential decrease in commercial finance loans was primarily driven by a $148.1 million decrease in the insurance premium finance portfolio, a $20.3 million decrease in the lease financing portfolio, and a $11.6 million decrease in the other commercial finance portfolio, partially offset by increases in the asset-based lending, term lending, SBA/USDA, and factoring loan portfolios. 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 term lending, SBA/USDA, insurance premium finance, and asset-based lending portfolios, partially offset by reductions in the factoring, lease financing, and other commercial finance portfolios.
4
Asset Quality
The Company’s allowance for credit losses ("ACL") totaled $80.8 million at March 31, 2024, an increase compared to $53.8 million at December 31, 2023 and a decrease compared to $84.3 million at March 31, 2023. The increase in the ACL at March 31, 2024, when compared to December 31, 2023, was primarily due to a $31.0 million increase in the allowance related to the seasonal tax services portfolio, partially offset by a $4.3 million decrease in the allowance related to the commercial finance portfolio.
The $3.5 million year-over-year decrease in the ACL was primarily driven by a $3.6 million decrease in the allowance related to the commercial finance portfolio and a $1.5 million decrease in the allowance related to the seasonal tax services portfolio, partially offset by a $1.6 million increase in the allowance related to the consumer finance portfolio.
The following table presents the Company's ACL as a percentage of its total loans and leases.
As of the Period Ended
(Unaudited)
March 31, 2024
December 31, 2023
September 30, 2023
June 30, 2023
March 31, 2023
Commercial finance
1.21
%
1.30
%
1.26
%
1.35
%
1.53
%
Consumer finance
1.71
%
1.45
%
0.92
%
0.92
%
1.99
%
Tax services
37.31
%
1.52
%
0.04
%
70.20
%
53.77
%
Warehouse finance
0.10
%
0.10
%
0.10
%
0.10
%
0.10
%
Total loans and leases
1.83
%
1.22
%
1.14
%
2.01
%
2.27
%
Total loans and leases excluding tax services
1.14
%
1.21
%
1.14
%
1.21
%
1.40
%
The Company's ACL as a percentage of total loans and leases increased to 1.83% at March 31, 2024 from 1.22% at December 31, 2023. The increase in the total loans and leases coverage ratio was primarily driven by seasonality in both the tax services portfolio and consumer finance portfolio.
Activity in the allowance for credit losses for the periods presented was as follows.
(Unaudited)
Three Months Ended
Six Months Ended
(Dollars in thousands)
March 31, 2024
December 31, 2023
March 31, 2023
March 31, 2024
March 31, 2023
Beginning balance
$
53,785
$
49,705
$
52,592
$
49,705
$
45,947
Provision (reversal of) - tax services loans
25,221
1,356
31,422
26,577
33,059
Provision (reversal of) - all other loans and leases
684
8,210
5,264
8,894
13,490
Charge-offs - tax services loans
—
(1,145)
—
(1,145)
(1,731)
Charge-offs - all other loans and leases
(5,492)
(5,725)
(6,625)
(11,218)
(9,334)
Recoveries - tax services loans
5,800
294
1,063
6,094
1,761
Recoveries - all other loans and leases
779
1,090
588
1,870
1,112
Ending balance
$
80,777
$
53,785
$
84,304
$
80,777
$
84,304
5
The Company recognized a provision for credit losses of $26.1 million for the quarter ended March 31, 2024, compared to $36.8 million for the comparable period in the prior fiscal year. The period-over-period decrease in provision for credit losses was due to improvements in the Company's data analytics, underwriting and monitoring in the Independent Tax space along with a decrease in provision for credit losses in the commercial finance portfolio primarily due to a mix shift in the loan portfolio and a benign credit environment. The Company recognized net recoveries of $1.1 million for the quarter ended March 31, 2024, compared to net charge-offs of $5.0 million for the quarter ended March 31, 2023. Net charge-offs attributable to the commercial finance portfolio for the current quarter were $4.7 million, while recoveries of $5.8 million were recognized in the tax services portfolio. Net charge-offs attributable to the commercial finance and consumer finance portfolios for the same quarter of the prior year were $5.9 million and $0.2 million, respectively, while a recovery of $1.1 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 March 31, 2024
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
$
323
$
546
$
843
$
1,712
$
24,234
$
25,946
$
843
$
—
$
843
Commercial finance
36,482
23,986
15,596
76,064
3,579,997
3,656,061
2,679
27,781
30,460
Consumer finance
4,293
3,001
3,093
10,387
256,644
267,031
3,093
—
3,093
Tax services
1,123
—
—
1,123
83,379
84,502
—
—
—
Warehouse finance
—
—
—
—
394,814
394,814
—
—
—
Total loans and leases held for investment
41,898
26,987
18,689
87,574
4,314,834
4,402,408
5,772
27,781
33,553
Total loans and leases
$
42,221
$
27,533
$
19,532
$
89,286
$
4,339,068
$
4,428,354
$
6,615
$
27,781
$
34,396
As of December 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
$
1,173
$
786
$
661
$
2,620
$
66,898
$
69,518
$
661
$
—
$
661
Commercial finance
33,406
8,341
20,739
62,486
3,672,022
3,734,508
7,862
28,099
35,961
Consumer finance
4,258
3,345
2,859
10,462
291,048
301,510
2,859
—
2,859
Tax services
—
—
—
—
33,435
33,435
—
—
—
Warehouse finance
—
—
—
—
349,911
349,911
—
—
—
Total loans and leases held for investment
37,664
11,686
23,598
72,948
4,346,416
4,419,364
10,721
28,099
38,820
Total loans and leases
$
38,837
$
12,472
$
24,259
$
75,568
$
4,413,314
$
4,488,882
$
11,382
$
28,099
$
39,481
The Company's nonperforming assets at March 31, 2024 were $37.2 million, representing 0.50% of total assets, compared to $42.4 million, or 0.53% of total assets at December 31, 2023 and $30.1 million, or 0.44% of total assets at March 31, 2023.
The decrease in the nonperforming assets as a percentage of total assets at March 31, 2024 compared to December 31, 2023, was primarily driven by a decrease in nonperforming loans in the commercial finance portfolio, partially offset by an increase 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 primarily due to an increase in nonperforming loans in the commercial finance portfolio.
6
The Company's nonperforming loans and leases at March 31, 2024, were $34.4 million, representing 0.78% of total gross loans and leases, compared to $39.5 million, or 0.88% of total gross loans and leases at December 31, 2023 and $28.5 million, or 0.76% of total gross loans and leases at March 31, 2023.
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 March 31, 2024
Commercial finance
$
2,893,892
$
447,110
$
87,657
$
218,108
$
9,294
$
3,656,061
Warehouse finance
394,814
—
—
—
—
394,814
Total loans and leases
$
3,288,706
$
447,110
$
87,657
$
218,108
$
9,294
$
4,050,875
Asset Classification
(Dollars in thousands)
Pass
Watch
Special Mention
Substandard
Doubtful
Total
As of December 31, 2023
Commercial finance
$
2,895,451
$
535,057
$
96,172
$
197,682
$
10,146
$
3,734,508
Warehouse finance
349,911
—
—
—
—
349,911
Total loans and leases
$
3,245,362
$
535,057
$
96,172
$
197,682
$
10,146
$
4,084,419
Deposits, Borrowings and Other Liabilities
The average balance of total deposits and interest-bearing liabilities was $7.28 billion for the three-month period ended March 31, 2024, compared to $6.47 billion for the same period in the prior fiscal year, representing an increase of 13%. Total average deposits for the fiscal 2024 second quarter increased by $782.1 million to $7.17 billion compared to the same period in fiscal 2023. The increase in average deposits was due to increases in noninterest bearing deposits, wholesale deposits, and money market deposits, partially offset by decreases in savings and time deposits.
Total end-of-period deposits increased 8% to $6.37 billion at March 31, 2024, compared to $5.90 billion at March 31, 2023. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $329.4 million, wholesale deposits of $96.1 million, and money market deposits of $53.7 million, partially offset by slight decreases in savings and time deposits.
As of March 31, 2024, the Company had $740.8 million in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $323.3 million are on activated cards while $417.5 million are on inactivated cards. During the remainder of fiscal year 2024, these deposit balances are expected to decline by approximately $219 million as the Company actively returns unclaimed balances to the U.S. Treasury.
As of March 31, 2024, the Company managed $1.2 billion of customer deposits at other banks in its capacity as custodian. These deposits provide the Company with excess deposits that can earn servicing fee income, typically reflective of the EFFR.
7
Regulatory Capital
The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at March 31, 2024, 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. The decrease in Tier 1 leverage capital ratio for the period is the result of higher quarterly average assets related to the Company's seasonal tax business. The Bank's Tier 1 leverage capital ratio using end of period assets of 8.77% better reflects the expected capital position of the Company post tax season. See non-GAAP reconciliation 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
March 31, 2024(1)
December 31, 2023
September 30, 2023
June 30, 2023
March 31, 2023
Company
Tier 1 leverage capital ratio
7.75
%
7.96
%
8.11
%
8.40
%
7.53
%
Common equity Tier 1 capital ratio
12.30
%
11.43
%
11.25
%
11.52
%
12.05
%
Tier 1 capital ratio
12.56
%
11.69
%
11.50
%
11.79
%
12.35
%
Total capital ratio
14.21
%
13.12
%
12.84
%
13.45
%
14.06
%
Bank
Tier 1 leverage ratio
7.92
%
8.15
%
8.32
%
8.67
%
7.79
%
Common equity Tier 1 capital ratio
12.83
%
11.97
%
11.81
%
12.17
%
12.77
%
Tier 1 capital ratio
12.83
%
11.97
%
11.81
%
12.17
%
12.77
%
Total capital ratio
14.09
%
13.01
%
12.76
%
13.42
%
14.03
%
(1) March 31, 2024 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)
March 31, 2024
December 31, 2023
September 30, 2023
June 30, 2023
March 31, 2023
Total stockholders' equity
$
739,462
$
729,282
$
650,625
$
677,721
$
673,244
Adjustments:
LESS: Goodwill, net of associated deferred tax liabilities
296,889
297,283
297,679
298,092
298,390
LESS: Certain other intangible assets
19,146
20,093
21,228
22,372
23,553
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards
15,862
20,253
19,679
12,157
13,219
LESS: Net unrealized (losses) on available for sale securities
(205,460)
(187,901)
(254,294)
(207,358)
(186,796)
LESS: Noncontrolling interest
(420)
(510)
(1,005)
(631)
(551)
ADD: Adoption of Accounting Standards Update 2016-13
1,345
1,345
2,017
2,017
2,017
Common Equity Tier 1(1)
614,790
581,409
569,355
555,106
527,446
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
(311)
(410)
(826)
(454)
(404)
Total Tier 1 capital
628,140
594,660
582,190
568,313
540,703
Allowance for credit losses
62,715
53,037
47,960
60,489
55,058
Subordinated debentures, net of issuance costs
19,642
19,617
19,591
19,566
19,540
Total capital
$
710,497
$
667,314
$
649,741
$
648,368
$
615,301
(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.
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, April 24, 2024. 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 082173.
The Quarterly Investor Update slide presentation prepared for use in connection with the Company's conference call and earnings webcast is available under the Presentations link in the Investor Relations - Events & Presentations section of the Company's website at www.pathwardfinancial.com. A webcast replay will also be archived at www.pathwardfinancial.com for one year.
Upcoming Investor Events
•Jefferies Global FinTech Conference, June 12, 2024 | New York, NY
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,” "target," 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 diluted share guidance, annual effective tax rate and related performance expectations; progress on key strategic initiatives; expected results of our partnerships; impacts of our improved data analytics, underwriting and monitoring processes; our goals regarding the addition of recurring revenue and related expected performance impacts; expected nonperforming loan resolutions and net charge off rates; 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 conflicts in Ukraine and the Middle East, weather-related disasters, or public health events, such as pandemics, and any governmental or societal responses thereto; 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, funding costs and loan and securities portfolios; 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 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; our liquidity and capital positions, including the sufficiency of our liquidity; 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 and acceptance 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 borrowing, 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, 2023, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update, revise or clarify 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)
March 31, 2024
December 31, 2023
September 30, 2023
June 30, 2023
March 31, 2023
ASSETS
Cash and cash equivalents
$
347,888
$
671,630
$
375,580
$
515,271
$
432,598
Securities available for sale, at fair value
1,779,458
1,850,581
1,804,228
1,914,271
1,825,563
Securities held to maturity, at amortized cost
34,682
35,440
36,591
37,725
38,713
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost
25,844
23,694
28,210
30,890
29,387
Loans held for sale
25,946
69,518
77,779
87,351
24,780
Loans and leases
4,409,385
4,426,281
4,366,116
4,072,899
3,725,616
Allowance for credit losses
(80,777)
(53,785)
(49,705)
(81,916)
(84,304)
Accrued interest receivable
30,294
27,080
23,282
22,332
22,434
Premises, furniture, and equipment, net
37,266
38,270
39,160
38,601
39,735
Rental equipment, net
215,885
228,916
211,750
224,212
210,844
Goodwill and intangible assets
328,001
329,241
330,225
331,335
332,503
Other assets
283,245
280,571
292,327
265,654
270,387
Total assets
$
7,437,117
$
7,927,437
$
7,535,543
$
7,458,625
$
6,868,256
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits
6,368,344
6,936,055
6,589,182
6,306,976
5,902,696
Short-term borrowings
31,000
—
13,000
230,000
43,000
Long-term borrowings
33,373
33,614
33,873
34,178
34,543
Accrued expenses and other liabilities
264,938
228,486
248,863
209,750
214,773
Total liabilities
6,697,655
7,198,155
6,884,918
6,780,904
6,195,012
STOCKHOLDERS’ EQUITY
Preferred stock
—
—
—
—
—
Common stock, $.01 par value
254
260
262
266
271
Common stock, Nonvoting, $.01 par value
—
—
—
—
—
Additional paid-in capital
634,415
629,737
628,500
625,825
623,250
Retained earnings
317,964
293,463
278,655
267,100
245,046
Accumulated other comprehensive loss
(206,570)
(188,433)
(255,443)
(207,896)
(187,829)
Treasury stock, at cost
(6,181)
(5,235)
(344)
(6,943)
(6,943)
Total equity attributable to parent
739,882
729,792
651,630
678,352
673,795
Noncontrolling interest
(420)
(510)
(1,005)
(631)
(551)
Total stockholders’ equity
739,462
729,282
650,625
677,721
673,244
Total liabilities and stockholders’ equity
$
7,437,117
$
7,927,437
$
7,535,543
$
7,458,625
$
6,868,256
12
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended
Six Months Ended
(Dollars in Thousands, Except Share and Per Share Data)
March 31, 2024
December 31, 2023
March 31, 2023
March 31, 2024
March 31, 2023
Interest and dividend income:
Loans and leases, including fees
$
102,750
$
94,963
$
83,879
$
197,713
$
152,275
Mortgage-backed securities
9,998
10,049
10,326
20,047
20,738
Other investments
14,013
10,886
10,482
24,899
16,734
126,761
115,898
104,687
242,659
189,747
Interest expense:
Deposits
6,685
3,526
2,096
10,211
2,238
FHLB advances and other borrowings
1,775
2,336
1,186
4,111
2,047
8,460
5,862
3,282
14,322
4,285
Net interest income
118,301
110,036
101,405
228,337
185,462
Provision for credit loss
26,052
9,890
36,763
35,942
46,539
Net interest income after provision for credit loss
92,249
100,146
64,642
192,395
138,923
Noninterest income:
Refund transfer product fees
28,942
422
30,205
29,364
30,882
Refund advance fee income
43,200
111
37,995
43,311
38,612
Card and deposit fees
35,344
30,750
42,087
66,094
79,805
Rental income
13,720
13,459
12,940
27,179
25,648
Gain on sale of trademarks
—
—
—
—
10,000
Gain (loss) on sale of other
1,695
2,840
(666)
4,535
(164)
Other income
6,044
5,179
4,477
11,223
8,032
Total noninterest income
128,945
52,761
127,038
181,706
192,815
Noninterest expense:
Compensation and benefits
54,073
46,652
47,547
100,725
90,564
Refund transfer product expense
7,366
192
7,863
7,558
7,968
Refund advance expense
1,846
30
1,603
1,876
1,630
Card processing
35,163
34,584
26,924
69,747
49,607
Occupancy and equipment expense
9,293
8,848
8,510
18,141
16,822
Operating lease equipment depreciation
10,424
10,423
14,719
20,847
24,347
Legal and consulting
6,141
4,892
4,921
11,033
14,380
Intangible amortization
1,240
984
1,435
2,224
2,693
Impairment expense
2,013
—
500
2,013
524
Other expense
12,872
12,669
13,114
25,541
23,660
Total noninterest expense
140,431
119,274
127,136
259,705
232,195
Income before income tax expense
80,763
33,633
64,544
114,396
99,543
Income tax expense (benefit)
15,246
5,719
9,176
20,965
15,753
Net income before noncontrolling interest
65,517
27,914
55,368
93,431
83,790
Net income attributable to noncontrolling interest
249
257
597
506
1,177
Net income attributable to parent
$
65,268
$
27,657
$
54,771
$
92,925
$
82,613
Less: Allocation of Earnings to participating securities(1)
524
220
839
744
1,228
Net income attributable to common shareholders(1)
64,744
27,437
53,932
92,181
81,382
Earnings per common share:
Basic
$
2.56
$
1.06
$
1.99
$
3.61
$
2.95
Diluted
$
2.56
$
1.06
$
1.99
$
3.61
$
2.95
Shares used in computing earnings per common share:
Basic
25,281,743
25,776,845
27,078,048
25,529,186
27,555,197
Diluted
25,311,144
25,801,538
27,169,569
25,555,656
27,632,737
(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 March 31,
2024
2023
(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
$
616,288
$
7,422
4.84
%
$
564,656
$
5,843
4.20
%
Mortgage-backed securities
1,464,530
9,998
2.75
%
1,549,240
10,326
2.70
%
Tax exempt investment securities
132,733
932
3.57
%
149,912
990
3.39
%
Asset-backed securities
237,421
3,368
5.71
%
141,968
1,273
3.64
%
Other investment securities
281,695
2,291
3.27
%
298,030
2,376
3.23
%
Total investments
2,116,379
16,589
3.20
%
2,139,150
14,965
2.89
%
Commercial finance
3,650,845
74,330
8.19
%
3,056,293
60,765
8.06
%
Consumer finance
351,459
9,144
10.46
%
187,826
6,301
13.60
%
Tax services
493,168
9,014
7.35
%
448,659
10,555
9.54
%
Warehouse finance
407,703
10,262
10.12
%
321,334
6,258
7.90
%
Total loans and leases
4,903,175
102,750
8.43
%
4,014,112
83,879
8.47
%
Total interest-earning assets
$
7,635,842
$
126,761
6.69
%
$
6,717,918
$
104,687
6.34
%
Noninterest-earning assets
600,354
612,020
Total assets
$
8,236,196
$
7,329,938
Interest-bearing liabilities:
Interest-bearing checking
$
266
$
—
0.31
%
$
267
$
—
0.33
%
Savings
59,914
5
0.04
%
70,024
6
0.03
%
Money markets
190,143
598
1.26
%
125,193
71
0.23
%
Time deposits
5,027
4
0.29
%
6,948
2
0.11
%
Wholesale deposits
439,785
6,078
5.56
%
186,421
2,017
4.39
%
Total interest-bearing deposits
695,135
6,685
3.87
%
388,853
2,096
2.19
%
Overnight fed funds purchased
79,484
1,107
5.60
%
46,735
543
4.71
%
Subordinated debentures
19,625
355
7.27
%
19,523
354
7.34
%
Other borrowings
13,901
313
9.07
%
15,283
289
7.68
%
Total borrowings
113,010
1,775
6.32
%
81,541
1,186
5.90
%
Total interest-bearing liabilities
808,145
8,460
4.21
%
470,394
3,282
2.83
%
Noninterest-bearing deposits
6,473,538
—
—
%
5,997,739
—
—
%
Total deposits and interest-bearing liabilities
$
7,281,683
$
8,460
0.47
%
$
6,468,133
$
3,282
0.21
%
Other noninterest-bearing liabilities
223,560
191,360
Total liabilities
7,505,243
6,659,493
Shareholders' equity
730,953
670,445
Total liabilities and shareholders' equity
$
8,236,196
$
7,329,938
Net interest income and net interest rate spread including noninterest-bearing deposits
$
118,301
6.22
%
$
101,405
6.13
%
Net interest margin
6.23
%
6.12
%
Tax-equivalent effect
0.01
%
0.02
%
Net interest margin, tax-equivalent(2)
6.24
%
6.14
%
(1) Tax rate used to arrive at the TEY for the three months ended March 31, 2024 and 2023 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
March 31, 2024
December 31, 2023
September 30, 2023
June 30, 2023
March 31, 2023
Equity to total assets
9.94
%
9.20
%
8.63
%
9.09
%
9.80
%
Book value per common share outstanding
$
29.14
$
28.06
$
24.85
$
25.54
$
24.88
Tangible book value per common share outstanding
$
16.21
$
15.39
$
12.24
$
13.05
$
12.59
Common shares outstanding
25,377,986
25,988,230
26,183,583
26,539,272
27,055,727
Nonperforming assets to total assets
0.50
%
0.53
%
0.77
%
0.55
%
0.44
%
Nonperforming loans and leases to total loans and leases
0.78
%
0.88
%
1.26
%
0.93
%
0.76
%
Net interest margin
6.23
%
6.23
%
6.19
%
6.18
%
6.12
%
Net interest margin, tax-equivalent
6.24
%
6.24
%
6.21
%
6.20
%
6.14
%
Return on average assets
3.17
%
1.46
%
1.97
%
2.61
%
2.99
%
Return on average equity
35.72
%
16.87
%
21.12
%
26.26
%
32.68
%
Full-time equivalent employees
1,204
1,218
1,193
1,186
1,164
Non-GAAP Reconciliations
Adjusted Net Income and Adjusted Earnings Per Share
At and For the Three Months Ended
At and For the Six Months Ended
(Dollars in Thousands, Except Share and Per Share Data)
March 31, 2023
March 31, 2023
Net Income - GAAP
$
54,771
$
82,613
Less: Gain on sale of trademarks
—
10,000
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
—
3,737
Add: Separation related expenses
—
11
Add: Impairment on Venture Capital investments
500
500
Add: Income tax effect resulting from the above listed items
(1,829)
(253)
Adjusted net income
$
60,257
$
83,423
Less: Adjusted allocation of earnings to participating securities
923
1,241
Adjusted Net income attributable to common shareholders
59,334
82,182
Weighted average diluted common shares outstanding
27,169,569
27,632,737
Adjusted earnings per common share - diluted
$
2.18
$
2.97
15
Net Interest Margin and Cost of Deposits
At and For the Three Months Ended
(Dollars in thousands)
March 31, 2024
December 31, 2023
March 31, 2023
Average interest earning assets
$
7,635,842
$
7,031,922
$
6,717,918
Net interest income
$
118,301
$
110,036
$
101,405
Net interest margin
6.23
%
6.23
%
6.12
%
Quarterly average total deposits
$
7,168,673
$
6,558,190
$
6,386,592
Deposit interest expense
$
6,685
$
3,526
$
2,096
Cost of deposits
0.38
%
0.21
%
0.13
%
Adjusted Net Interest Margin and Adjusted Cost of Deposits
