PATHWARD FINANCIAL, INC. ANNOUNCES RESULTS FOR 2022 FISCAL FOURTH QUARTER AND FISCAL YEAR 2022
- Fiscal 2022 Fourth Quarter Net Income of $23.4 million, or $0.81 Per Diluted Share -
- Fiscal 2022 Net Income of $156.4 million, or $5.26 Per Diluted Share -
Sioux Falls, S.D., October 27, 2022 -- Pathward Financial, Inc.TM (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $23.4 million, or $0.81 per share, for the three months ended September 30, 2022, compared to net income of $15.9 million, or $0.50 per share, for the three months ended September 30, 2021. The Company reported net income of $156.4 million, or $5.26 per share, for the fiscal year ended September 30, 2022, compared to net income of $141.7 million, or $4.38 per share, for the fiscal year ended September 30, 2021. For the fiscal year ended September 30, 2022, the Company recognized return on average assets of 2.20% compared to 1.74% for the prior year period.
During the quarter, the Company recognized $6.9 million of pre-tax expenses related to rebranding efforts and $1.0 million of pre-tax separation related expenses. Excluding the impact of the rebranding and separation expenses, net of tax, the Company's adjusted net income for the quarter totaled $30.3 million, or $1.04 per share. For the fiscal year ended 2022, the Company recognized a gain on sale of Meta names and trademarks of $50.0 million, $13.1 million of pre-tax expenses related to rebranding efforts and $5.1 million of pre-tax separation related expenses. Excluding the impact of the gain on sale and rebranding and separation expenses, net of tax, the Company's adjusted net income for the 2022 fiscal year totaled $133.6 million, or $4.49 per share. See non-GAAP reconciliation table below.
“Fiscal 2022 was a landmark year for our organization as we renamed and unified our company under a single brand that reinforces our commitment to providing a path forward for individuals and businesses to reach the next stage of their financial journey," said CEO Brett Pharr.
"We are pleased with our results for the fiscal fourth quarter during which we delivered strong earnings per share growth. Our financial results continue to demonstrate that our optimization strategy will produce outsized returns of capital to shareholders."
"Looking ahead, we affirm our guidance for fiscal 2023: Our commercial finance loan portfolio is performing well and our credit quality metrics remain strong. We are starting to see the benefits of the rising rate environment in our loan yields, especially now that almost all of our variable rate loans are above their floors. Additionally, we believe our banking as a service business will continue to attract and maintain low-cost deposits while also generating steady fee income. Taken together, these factors position us well for fiscal 2023 and beyond," continued Pharr.
Business Highlights
•The Company announced today that Sonja Theisen, currently Executive Vice President of Governance, Risk and Compliance, has been appointed to succeed Glen Herrick as the Chief Financial Officer effective April 30, 2023. Ms. Theisen, who joined Pathward in 2013, has held leaderships roles across the organization including Chief Accounting Officer, Chief of Staff, and EVP of Governance, Risk and Compliance. Additional details can be found in the press release available at www.pathwardfinancial.com.
1
•On October 4, 2022, the Company announced the unveiling of its new corporate brand, marked by the transition to its new name, Pathward™, N.A. ("Pathward" or the "Bank"), and the launch of the Company's new website, Pathward.com. As part of the corporate rebrand, the Company recognized $6.9 million of pre-tax expenses related to rebranding efforts during the fourth quarter of fiscal 2022. The Company continues to estimate total rebranding expenses will range between $15 million to $20 million.
•As part of its strategy to continue to optimize interest-earning assets, the Company sold the entirety of its student loan portfolio during the fourth quarter of fiscal 2022. The sale generated an unfavorable pre-tax impact of approximately $0.5 million after netting the $4.3 million reversal of provision from the portfolio's allowance and the loss on sale of $4.8 million. The balance of the portfolio at time of sale was $81.5 million.
•On September 26, 2022, the Company announced the completion of a private placement of $20 million of its 6.625% Fixed-to-Floating Rate Subordinated Notes due 2032 to certain qualified institutional buyers and accredited investors. The Notes are intended to qualify as Tier 2 capital for regulatory capital purposes. The Company has used and intends to continue to use the net proceeds of the offering for general corporate purposes and repurchases of the Company's common stock.
•The Company announced on October 10, 2022 that the American Bankers Association ("ABA") Foundation awarded it the 2022 Community Commitment Award during the ABA's Annual Convention on October 4. Pathward's Community Impact Program partners with organizations that provide resources for the unbanked and underbanked and aid to historically marginalized populations. The Community Impact Program delivers on Pathward's purpose of powering financial inclusion for allTM by lifting up the communities it serves.
Financial Highlights for the 2022 Fiscal Fourth Quarter
•Total revenue for the fourth quarter was $123.2 million, an increase of $3.0 million, or 3%, compared to the same quarter in fiscal 2021, primarily driven by an increase in interest income, partially offset by a decrease in noninterest income.
•Net interest margin ("NIM") increased to 5.21% for the fourth quarter from 4.35% during the same period of last year. The prior year period was impacted by excess cash associated with the Company's participation in the U.S. Treasury Department's Economic Impact Program.
•Total gross loans and leases at September 30, 2022 decreased $79 million, to $3.53 billion, or 2%, compared to September 30, 2021 and decreased $154 million, or 4%, when compared to June 30, 2022. The decrease compared to the prior year quarter was primarily due the sale of all remaining community banking loans during the fiscal 2022 first quarter, the sale of the student loan portfolio during the fiscal 2022 fourth quarter, and a reduction in warehouse finance loans, partially offset by growth in the commercial finance portfolio. The primary driver for the decrease on a linked quarter basis was the sale of the student loan portfolio, a reduction in warehouse finance loans, and the seasonal decline in tax services loans.
•The Company resumed share repurchases on July 1, 2022, and during the fiscal 2022 fourth quarter repurchased 573,200 shares of common stock at an average share price of $37.05. An additional 396,100 shares of common stock at an average price of $35.16 were repurchased in October 2022 through October 13, 2022. As of October 13, 2022, there are 3,898,877 shares available for repurchase under the common stock share repurchase program announced during the fourth quarter of fiscal year 2021.
•The Company expects fiscal year 2023 GAAP earnings per share to be in the range of $5.25 to $5.75 and expects fiscal year 2023 adjusted earnings per share to be in the range of $5.10 to $5.60. See non-GAAP reconciliation table below.
Net Interest Income
Net interest income for the fourth quarter of fiscal 2022 was $79.8 million, an increase of 13% from the same quarter in fiscal 2021. The increase was mainly attributable to increased yields and an improved earning asset mix.
2
The fourth quarter average outstanding balance of loans and leases decreased $27.6 million compared to the same quarter of the prior year, primarily due to the sale of the remaining community bank and student loan portfolios, partially offset by increases in core loan and lease portfolios. The Company’s average interest-earning assets for the fourth quarter decreased by $364.8 million to $6.07 billion compared with the same quarter in fiscal 2021, primarily due to a reduction in cash balances as a result of high cash levels during the prior year period related to the Company's participation in government stimulus programs. The decrease in interest-earnings assets was partially offset by growth in total investments and core loans and leases.
Fiscal 2022 fourth quarter NIM increased to 5.21% from 4.35% in the fourth fiscal quarter of last year. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 81 basis points to 5.26% compared to the prior year quarter, primarily driven by an increase in loan and lease and investment securities yields, along with a decrease in lower-yielding cash balances. The yield on the loan and lease portfolio was 7.12% compared to 6.93% for the comparable period last year and the TEY on the securities portfolio was 2.56% compared to 1.50% over that same period.
The Company's cost of funds for all deposits and borrowings averaged 0.03% during the fiscal 2022 fourth quarter, as compared to 0.09% during the prior year quarter. The Company's overall cost of deposits was 0.01% in the fiscal fourth quarter of 2022, the same as the prior year quarter.
Noninterest Income
Fiscal 2022 fourth quarter noninterest income decreased to $43.5 million, compared to $49.5 million for the same period of the prior year. The decrease was driven by a reduction in other income, a reduction in gain on sale of other, and a loss on sale of investments. These decreases were partially offset by an increase in payments fee income.
The reduction in gain on sale of other was primarily driven by the loss on the sale of the student loan portfolio during the quarter along with the Company recording fewer gains on loan sales as the SBA and USDA sale volumes have been impacted by supply chain constraints within the solar construction market. The decrease in other income was primarily related to a net unrealized gain of $4.1 million during the prior year period related to the MoneyLion investment. The $1.9 million loss on sale of investment was related to a sale of a venture capital investment. The increase in payment fee income was primarily from servicing fee income on off-balance sheet deposits, which increased $5.9 million during the 2022 fiscal fourth quarter compared to the same period of the prior year and increased $5.4 million compared to the fiscal 2022 third quarter.
Noninterest Expense
Noninterest expense increased 10% to $103.0 million for the fiscal 2022 fourth quarter, from $93.6 million for the same quarter last year. The increase in expense was primarily driven by an increase in card processing expense and compensation expense. During the fiscal 2022 fourth quarter, the Company recognized $6.9 million in rebranding expenses and $1.0 million in separation related expenses.
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 37% of the deposit portfolio was subject to these higher card processing expenses. For the fiscal quarter ended September 30, 2022, card processing expenses related to these structured agreements were $7.4 million, as compared to $2.2 million for the fiscal quarter ended June 30, 2022 and $0.2 million for the fiscal quarter ended September 30, 2021.
Income Tax Expense
The Company recorded an income tax benefit of $1.3 million, representing an effective tax rate of (5.7%), for the fiscal 2022 fourth quarter, compared to income tax expense $1.1 million, representing an effective tax rate of 6.5%, for the fourth quarter last year. The current quarter decrease in income tax expense was primarily due to an increase in renewable energy investment tax credit lending volume compared to the prior year period.
3
The Company originated $35.9 million in solar leases during the fiscal 2022 fourth quarter, resulting in $9.6 million in total net investment tax credits. During the fourth quarter of fiscal 2021, the Company originated $29.1 million in solar leases resulting in $7.6 million in total net investment tax credits. Investment tax credits related to solar leases are recognized ratably based on income throughout each fiscal year. For the fiscal year ended September 30, 2022, the Company originated $62.8 million in solar leases, compared to $101.1 million for the comparable prior year period. The timing and impact of future solar 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, inflation, uncertainty regarding the COVID-19 pandemic, 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.
The Company expects fiscal year 2023 GAAP earnings per share to be in the range of $5.25 to $5.75. When adjusting for gain on sale of trademarks, rebrand related expenses, and separation related expenses, the Company expects fiscal year 2023 adjusted earnings per share to be in the range of $5.10 to $5.60. See non-GAAP reconciliation table below.
Investments, Loans and Leases
(Dollars in thousands)
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
Total investments
$
1,924,551
$
2,000,400
$
2,090,765
$
1,833,733
$
1,921,568
Loans held for sale
Consumer credit products
21,071
23,710
23,670
20,728
23,111
SBA/USDA
—
43,861
7,740
15,454
33,083
Total loans held for sale
21,072
67,571
31,410
36,182
56,194
Term lending
1,090,289
1,047,764
1,111,076
1,038,378
961,019
Asset based lending
351,696
402,506
382,355
337,236
300,225
Factoring
372,595
408,777
394,865
402,972
363,670
Lease financing
210,692
218,789
235,397
245,315
266,050
Insurance premium finance
479,754
481,219
403,681
385,473
428,867
SBA/USDA
359,238
215,510
214,195
209,521
247,756
Other commercial finance
159,409
173,338
173,260
178,853
157,908
Commercial finance
3,023,673
2,947,903
2,914,829
2,797,748
2,725,495
Consumer credit products
144,353
152,106
171,847
173,343
129,251
Other consumer finance
25,306
107,135
111,922
144,412
123,606
Consumer finance
169,659
259,241
283,769
317,755
252,857
Tax services
9,098
41,627
85,999
100,272
10,405
Warehouse finance
326,850
434,748
441,496
466,831
419,926
Community banking
—
—
—
—
199,132
Total loans and leases
3,529,280
3,683,519
3,726,093
3,682,606
3,607,815
Net deferred loan origination costs
7,025
5,047
4,097
1,655
1,748
Total gross loans and leases
3,536,305
3,688,566
3,730,190
3,684,261
3,609,563
Allowance for credit losses
(45,947)
(75,206)
(88,552)
(67,623)
(68,281)
Total loans and leases, net
$
3,490,358
$
3,613,360
$
3,641,638
$
3,616,638
$
3,541,282
4
The Company's investment security balances at September 30, 2022 totaled $1.92 billion, as compared to $2.00 billion at June 30, 2022 and $1.92 billion at September 30, 2021.
Total gross loans and leases totaled $3.54 billion at September 30, 2022, as compared to $3.69 billion at June 30, 2022 and $3.61 billion at September 30, 2021. The primary driver for the decrease on a linked quarter basis was a decrease in consumer finance loans, a reduction in warehouse finance loans, and the seasonal decline in the tax services portfolio, partially offset by an increase in the commercial finance portfolio. The year-over-year decrease was primarily due the sale of all remaining community banking loans during the fiscal 2022 first quarter, the sale of the student loan portfolio during the fiscal 2022 fourth quarter, and a reduction in warehouse finance loans, partially offset by growth in our commercial finance portfolio.
Commercial finance loans, which comprised 86% of the Company's gross loan and lease portfolio, totaled $3.02 billion at September 30, 2022, reflecting growth of $75.8 million, or 3%, from June 30, 2022 and $298.2 million, or 11%, from September 30, 2021.
When excluding PPP loans, the community bank portfolio and the student loan portfolio, total loans and leases grew 9% at September 30, 2022 when compared to the same period of the prior year.
Asset Quality
The Company’s allowance for credit losses ("ACL") totaled $45.9 million at September 30, 2022, a decrease compared to $75.2 million at June 30, 2022 and a decrease from $68.3 million at September 30, 2021. The decrease in the ACL at September 30, 2022, when compared to June 30, 2022, was primarily due to a $22.6 million decrease in the seasonal tax services loan portfolio, and to a lesser extent, a $4.8 million decrease in the consumer finance portfolio and a $1.7 million decrease in the commercial finance portfolio. The decrease in the consumer finance portfolio was primarily attributable to the sale of the student loan portfolio.
The $22.3 million year-over-year decrease in the ACL was primarily driven by a $12.3 million decrease attributable to the disposition of the community banking portfolio, along with a $5.9 million decrease in the consumer finance portfolio and a $4.1 million decrease in the commercial 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)
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
Commercial finance
1.46
%
1.56
%
1.66
%
2.04
%
1.77
%
Consumer finance
0.86
%
2.44
%
3.18
%
2.70
%
2.91
%
Tax services
0.05
%
54.29
%
35.76
%
1.60
%
0.02
%
Warehouse finance
0.10
%
0.10
%
0.10
%
0.10
%
0.10
%
Community banking
—
%
—
%
—
%
—
%
6.16
%
Total loans and leases
1.30
%
2.04
%
2.38
%
1.84
%
1.89
%
Total loans and leases excluding tax services
1.30
%
1.44
%
1.59
%
1.84
%
1.89
%
The Company's ACL as a percentage of total loans and leases decreased to 1.30% at September 30, 2022 from 2.04% at June 30, 2022. The decrease in the total loans and leases coverage ratio was primarily driven by the seasonal tax services loan portfolio, along with a decrease in the coverage ratio for both the commercial and consumer finance portfolios. The drop in the consumer finance portfolio coverage ratio was attributable to the sale of the student loan portfolio. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level.
5
Activity in the allowance for credit losses for the periods presented was as follows.
(Unaudited)
Three Months Ended
Twelve Months Ended
(Dollars in thousands)
September 30, 2022
June 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Beginning balance
$
75,206
$
88,552
$
91,208
$
68,281
$
56,188
Adoption of CECL accounting standard
—
—
—
—
12,773
Provision (reversal of) - tax services loans
—
(166)
457
28,093
33,276
Provision (reversal of) - all other loans and leases
(2,617)
(982)
8,368
769
16,663
Charge-offs - tax services loans
(22,599)
(7,998)
(24,849)
(30,852)
(34,354)
Charge-offs - all other loans and leases
(6,844)
(6,346)
(7,635)
(30,210)
(22,920)
Recoveries - tax services loans
5
6
51
2,762
1,078
Recoveries - all other loans and leases
2,796
2,140
681
7,104
5,577
Ending balance
$
45,947
$
75,206
$
68,281
$
45,947
$
68,281
The Company recognized a reversal of provision for credit losses of $2.6 million for the quarter ended September 30, 2022, compared to $8.8 million of provision for credit losses expense for the comparable period in the prior fiscal year. The reversal of provision for credit losses during the current quarter was primarily driven by the student loan sale and commercial finance recoveries. Net charge-offs were $26.6 million for the quarter ended September 30, 2022, compared to $31.8 million for the quarter ended September 30, 2021. Net charge-offs attributable to the tax services, commercial finance, and consumer finance portfolios for the quarter were $22.6 million, $3.4 million, and $0.6 million, respectively.
The Company's past due loans and leases were as follows for the periods presented.
As of September 30, 2022
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
$
—
$
—
$
—
$
—
$
21,071
$
21,071
$
—
$
—
$
—
Commercial finance
24,881
6,208
7,868
38,957
2,984,716
3,023,673
4,142
13,375
17,517
Consumer finance
3,322
2,609
2,793
8,724
160,935
169,659
2,793
—
2,793
Tax services
—
—
8,873
8,873
225
9,098
8,873
—
8,873
Warehouse finance
—
—
—
—
326,850
326,850
—
—
—
Total loans and leases held for investment
28,203
8,817
19,534
56,554
3,472,726
3,529,280
15,808
13,375
29,183
Total loans and leases
$
28,203
$
8,817
$
19,534
$
56,554
$
3,493,797
$
3,550,351
$
15,808
$
13,375
$
29,183
6
As of June 30, 2022
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
$
—
$
—
$
—
$
—
$
67,571
$
67,571
$
—
$
—
$
—
Commercial finance
15,426
4,155
9,195
28,776
2,919,127
2,947,903
3,519
19,603
23,122
Consumer finance
3,808
3,476
3,501
10,785
248,456
259,241
3,501
—
3,501
Tax services
—
41,627
—
41,627
—
41,627
—
—
—
Warehouse finance
—
—
—
—
434,748
434,748
—
—
—
Total loans and leases held for investment
19,234
49,258
12,696
81,188
3,602,331
3,683,519
7,020
19,603
26,623
Total loans and leases
$
19,234
$
49,258
$
12,696
$
81,188
$
3,669,902
$
3,751,090
$
7,020
$
19,603
$
26,623
The Company's nonperforming assets at September 30, 2022 were $30.9 million, representing 0.46% of total assets, compared to $26.8 million, or 0.40% of total assets at June 30, 2022 and $61.8 million, or 0.92% of total assets at September 30, 2021.
The Company's nonperforming loans and leases at September 30, 2022, were $29.2 million, representing 0.82% of total gross loans and leases, compared to $26.6 million, or 0.71% of total gross loans and leases at June 30, 2022 and $55.9 million, or 1.52% of total gross loans and leases at September 30, 2021.
The increase in the nonperforming assets as a percentage of total assets at September 30, 2022 compared to June 30, 2022, was driven by an increase in nonperforming loans in the tax services portfolio, which is due to seasonal timing. This increase was partially offset by decreases within the commercial and consumer finance portfolios. When comparing the current period to the same period of the prior year, the decrease in nonperforming assets was due to a decrease in nonperforming assets in the community bank and commercial finance portfolios, partially offset by slight increases in nonperforming loans in the consumer and tax finance portfolios.
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 September 30, 2022
Commercial finance
$
2,254,579
$
469,638
$
91,754
$
203,680
$
4,022
$
3,023,673
Warehouse finance
294,350
—
32,500
—
—
326,850
Total loans and leases
$
2,548,929
$
469,638
$
124,254
$
203,680
$
4,022
$
3,350,523
Asset Classification
(Dollars in thousands)
Pass
Watch
Special Mention
Substandard
Doubtful
Total
As of June 30, 2022
Commercial finance
$
2,182,712
$
462,392
$
125,249
$
172,696
$
4,854
$
2,947,903
Warehouse finance
434,748
—
—
—
—
434,748
Total loans and leases
$
2,617,460
$
462,392
$
125,249
$
172,696
$
4,854
$
3,382,651
7
Deposits, Borrowings and Other Liabilities
Total average deposits for the fiscal 2022 fourth quarter decreased by $311.8 million to $5.77 billion compared to the same period in fiscal 2021. The decrease in average deposits was primarily due to decreases in interest-bearing deposits, wholesale deposits, savings deposits, and noninterest-bearing deposits, partially offset by an increase in money market deposits. The Company's deposit balances are seasonally lower during the fiscal fourth quarter. Additionally, prior period deposit balances were elevated due to the Company's participation in government stimulus programs.
The average balance of total deposits and interest-bearing liabilities was $5.80 billion for the three-month period ended September 30, 2022, compared to $6.17 billion for the same period in the prior fiscal year, representing a decrease of 6%.
Total end-of-period deposits increased 6% to $5.87 billion at September 30, 2022, compared to $5.51 billion at September 30, 2021. The increase in end-of-period deposits was primarily driven by an increase in noninterest-bearing deposits of $628.9 million, partially offset by a decrease in interest-bearing checking of $254.3 million and a decrease in wholesale deposits of $73.6 million.
As of September 30, 2022, the Company managed $1.31 billion 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 37% of the deposit balances at September 30, 2022 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 the Bank remained above the federal regulatory minimum capital requirements at September 30, 2022, 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 made up of nearly all amortizing securities that should provide consistent cash flow and is not expected to require sales to realize the losses 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
September 30, 2022(1)
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
Company
Tier 1 leverage capital ratio
8.10
%
8.23
%
6.80
%
7.39
%
7.67
%
Common equity Tier 1 capital ratio
12.07
%
11.87
%
11.26
%
10.88
%
12.12
%
Tier 1 capital ratio
12.39
%
12.19
%
11.58
%
11.20
%
12.46
%
Total capital ratio
13.88
%
13.44
%
14.16
%
13.80
%
15.45
%
Bank
Tier 1 leverage ratio
8.19
%
8.22
%
7.79
%
8.52
%
8.69
%
Common equity Tier 1 capital ratio
12.55
%
12.17
%
13.26
%
12.90
%
14.11
%
Tier 1 capital ratio
12.55
%
12.18
%
13.26
%
12.91
%
14.13
%
Total capital ratio
13.57
%
13.43
%
14.52
%
14.16
%
15.38
%
(1) September 30, 2022 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)
(Dollars in thousands)
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
Total stockholders' equity
$
645,140
$
724,774
$
763,406
$
826,157
$
871,884
Adjustments:
LESS: Goodwill, net of associated deferred tax liabilities
299,186
299,616
299,983
300,382
300,780
LESS: Certain other intangible assets
26,406
27,809
30,007
32,294
33,572
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards
17,968
11,978
13,404
19,855
22,801
LESS: Net unrealized gains (losses) on available for sale securities
(211,600)
(131,352)
(69,838)
403
7,344
LESS: Noncontrolling interest
(30)
665
322
642
1,155
ADD: Adoption of Accounting Standards Update 2016-13
2,689
10,011
13,387
6,527
8,202
Common Equity Tier 1(1)
515,899
526,069
502,915
479,108
514,434
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
(20)
377
208
444
747
Total Tier 1 capital
529,540
540,107
516,784
493,213
528,842
Allowance for credit losses
43,623
55,506
56,051
55,125
53,159
Subordinated debentures, net of issuance costs
20,000
—
59,256
59,220
73,980
Total capital
$
593,163
$
595,613
$
632,091
$
607,558
$
655,981
(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.
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
Total stockholders' equity
$
645,140
$
724,774
$
763,406
$
826,157
$
871,884
Less: Goodwill
309,505
309,505
309,505
309,505
309,505
Less: Intangible assets
25,691
27,088
29,290
31,661
33,148
Tangible common equity
309,944
388,181
424,611
484,991
529,231
Less: AOCI
(213,080)
(131,407)
(69,374)
724
7,599
Tangible common equity excluding AOCI
$
523,024
$
519,588
$
493,985
$
484,267
$
521,632
9
Conference Call
The Company will host a conference call and earnings webcast at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Thursday, October 27, 2022. 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 1-844-200-6205 (International: +1-929-526-1599) approximately 10 minutes prior to start time and reference access code 372192. A webcast replay will also be archived at www.pathwardfinancial.com for one year.
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
Justin Schempp
877-497-7497
jschempp@pathward.com
Media Relations Contact
mediarelations@pathward.com
10
Forward-Looking Statements
The Company and Pathward 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 SEC, the Company’s reports to stockholders, and in other communications by the Company and Pathward, 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; the impact of measures expected to increase efficiencies or reduce expenses; the timing of and expenses related to our new brand rollout; customer retention; loan and other product demand; expectations concerning acquisitions and divestitures; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; technology; and the Company's employees. 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 the ongoing COVID-19 pandemic and any governmental or societal responses thereto, or other unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the military conflict between Russia and Ukraine; our ability to achieve brand recognition for Pathward equal to or greater than we have 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; changes in tax laws; the strength of the United States' economy, and the local economies in which the Company operates; 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; Pathward'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 Pathward’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 Pathward 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, 2021, 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)
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
ASSETS
Cash and cash equivalents
$
388,038
$
157,260
$
237,680
$
1,230,100
$
314,019
Securities available for sale, at fair value
1,882,869
1,956,523
2,043,478
1,782,739
1,864,899
Securities held to maturity, at amortized cost
41,682
43,877
47,287
50,994
56,669
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost
28,812
28,812
28,812
28,400
28,400
Loans held for sale
21,071
67,571
31,410
36,182
56,194
Loans and leases
3,536,305
3,688,566
3,730,190
3,684,261
3,609,563
Allowance for credit losses
(45,947)
(75,206)
(88,552)
(67,623)
(68,281)
Accrued interest receivable
17,979
16,818
19,115
17,240
16,254
Premises, furniture, and equipment, net
41,710
42,076
43,167
44,130
44,888
Rental equipment, net
204,371
222,023
213,033
234,693
213,116
Goodwill and intangible assets
335,196
336,593
338,795
341,166
342,653
Other assets
295,324
243,266
242,823
227,376
212,276
Total assets
$
6,747,410
$
6,728,178
$
6,887,239
$
7,609,658
$
6,690,650
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits
5,866,037
5,710,799
5,829,886
6,525,569
5,514,971
Long-term borrowings
36,028
16,616
91,386
92,274
92,834
Accrued expenses and other liabilities
200,205
275,989
202,561
165,658
210,961
Total liabilities
6,102,270
6,003,404
6,123,833
6,783,501
5,818,766
STOCKHOLDERS’ EQUITY
Preferred stock
—
—
—
—
—
Common stock, $.01 par value
288
294
294
301
317
Common stock, Nonvoting, $.01 par value
—
—
—
—
—
Additional paid-in capital
617,403
615,159
612,917
610,816
604,484
Retained earnings
245,394
244,686
223,760
217,992
259,189
Accumulated other comprehensive income (loss)
(213,080)
(131,407)
(69,374)
724
7,599
Treasury stock, at cost
(4,835)
(4,623)
(4,513)
(4,318)
(860)
Total equity attributable to parent
645,170
724,109
763,084
825,515
870,729
Noncontrolling interest
(30)
665
322
642
1,155
Total stockholders’ equity
645,140
724,774
763,406
826,157
871,884
Total liabilities and stockholders’ equity
$
6,747,410
$
6,728,178
$
6,887,239
$
7,609,658
$
6,690,650
12
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended
Twelve Months Ended
(Dollars in Thousands, Except Share and Per Share Data)
September 30, 2022
June 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Interest and dividend income:
Loans and leases, including fees
$
64,963
$
62,541
$
63,665
$
268,078
$
256,080
Mortgage-backed securities
10,155
7,381
3,979
26,846
12,155
Other investments
5,104
3,984
4,412
17,272
17,619
80,222
73,906
72,056
312,196
285,854
Interest expense:
Deposits
99
94
164
500
1,593
FHLB advances and other borrowings
363
1,661
1,225
4,372
5,270
462
1,755
1,389
4,872
6,863
Net interest income
79,760
72,151
70,667
307,324
278,991
Provision for credit losses
(2,648)
(1,302)
8,775
28,538
49,766
Net interest income after provision for credit losses
82,408
73,453
61,892
278,786
229,225
Noninterest income:
Refund transfer product fees
1,135
10,289
2,567
39,809
37,967
Refund advance fee income
44
(20)
226
40,557
47,639
Payments card and deposit fees
28,609
24,673
25,541
104,684
107,182
Other bank and deposit fees
299
262
230
1,049
939
Rental income
12,024
12,082
9,709
46,558
39,416
Gain (loss) on sale of securities
(1,882)
198
—
(1,287)
6
Gain on sale of trademarks
—
—
—
50,000
—
Gain (loss) on sale of other
(3,319)
1,239
580
(4,920)
11,515
Other income
6,546
5,271
10,689
17,357
26,240
Total noninterest income
43,456
53,994
49,542
293,807
270,904
Noninterest expense:
Compensation and benefits
42,762
45,091
36,222
171,126
151,090
Refund transfer product expense
52
2,457
3,219
8,908
11,861
Refund advance expense
1
(29)
30
2,157
2,564
Card processing
15,718
8,438
7,063
38,785
27,201
Occupancy and equipment expense
9,064
8,996
8,252
34,909
29,269
Operating lease equipment depreciation
9,306
9,145
7,865
35,636
30,987
Legal and consulting
13,355
11,724
14,369
40,634
31,341
Intangible amortization
1,397
1,532
1,761
6,585
8,545
Impairment expense
—
670
601
670
2,818
Other expense
11,375
8,626
14,232
45,865
48,007
Total noninterest expense
103,030
96,650
93,614
385,275
343,683
Income before income tax expense
22,834
30,797
17,820
187,318
156,446
Income tax expense (benefit)
(1,272)
6,958
1,101
27,964
10,701
Net income before noncontrolling interest
24,106
23,839
16,719
159,354
145,745
Net income attributable to noncontrolling interest
686
1,448
816
2,968
4,037
Net income attributable to parent
$
23,420
$
22,391
$
15,903
$
156,386
$
141,708
Less: Allocation of Earnings to participating securities(1)
393
377
297
2,566
2,698
Net income attributable to common shareholders(1)
23,027
22,014
15,606
153,821
139,010
Earnings per common share:
Basic
$
0.81
$
0.76
$
0.50
$
5.26
$
4.38
Diluted
$
0.81
$
0.76
$
0.50
$
5.26
$
4.38
Shares used in computing earnings per common share:
Basic
28,581,236
28,868,136
31,280,162
29,227,071
31,729,596
Diluted
28,581,236
28,868,136
31,299,555
29,232,247
31,751,522
(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 September 30,
2022
2021
(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
$
275,344
$
1,467
2.11
%
$
852,122
$
1,248
0.58
%
Mortgage-backed securities
1,583,415
10,155
2.54
%
1,049,258
3,979
1.50
%
Tax exempt investment securities
165,718
990
3.00
%
232,006
772
1.67
%
Asset-backed securities
167,053
854
2.03
%
400,507
1,199
1.19
%
Other investment securities
263,615
1,792
2.70
%
258,367
1,193
1.83
%
Total investments
2,179,801
13,791
2.56
%
1,940,138
7,143
1.50
%
Commercial finance
2,960,988
54,325
7.28
%
2,690,064
48,285
7.12
%
Consumer finance
234,295
4,128
6.99
%
258,043
4,308
6.62
%
Tax services
35,484
(148)
(1.65)
%
37,174
165
1.76
%
Warehouse finance
387,910
6,658
6.81
%
388,477
6,332
6.47
%
Community banking
—
—
—
%
272,554
4,575
6.66
%
Total loans and leases
3,618,678
64,963
7.12
%
3,646,312
63,665
6.93
%
Total interest-earning assets
$
6,073,822
$
80,222
5.26
%
$
6,438,572
$
72,056
4.45
%
Noninterest-earning assets
657,498
822,592
Total assets
$
6,731,321
$
7,261,164
Interest-bearing liabilities:
Interest-bearing checking(2)
$
380
$
—
0.33
%
$
243,005
$
—
—
%
Savings
67,937
6
0.04
%
89,110
5
0.02
%
Money markets
104,570
55
0.21
%
67,083
58
0.34
%
Time deposits
7,969
5
0.23
%
10,218
21
0.81
%
Wholesale deposits
6,479
32
1.98
%
77,506
80
0.41
%
Total interest-bearing deposits
187,335
99
0.21
%
486,922
164
0.13
%
Overnight fed funds purchased
15,511
100
2.56
%
—
—
—
%
Subordinated debentures
1,739
29
6.72
%
73,951
1,065
5.71
%
Other borrowings
16,397
234
5.66
%
19,299
160
3.29
%
Total borrowings
33,647
363
4.29
%
93,250
1,225
5.21
%
Total interest-bearing liabilities
220,981
462
0.83
%
580,172
1,390
0.95
%
Noninterest-bearing deposits
5,577,713
—
—
%
5,589,946
—
—
%
Total deposits and interest-bearing liabilities
$
5,798,694
$
462
0.03
%
$
6,170,118
$
1,390
0.09
%
Other noninterest-bearing liabilities
201,711
204,726
Total liabilities
6,000,404
6,374,844
Shareholders' equity
730,916
886,320
Total liabilities and shareholders' equity
$
6,731,321
$
7,261,164
Net interest income and net interest rate spread including noninterest-bearing deposits
$
79,760
5.23
%
$
70,667
4.36
%
Net interest margin
5.21
%
4.35
%
Tax-equivalent effect
0.02
%
0.01
%
Net interest margin, tax-equivalent(3)
5.23
%
4.37
%
(1) Tax rate used to arrive at the TEY for the three months ended September 30, 2022 and 2021 was 21%.
(2) At September 30, 2021, $242.7 million of the total balance were interest-bearing deposits where interest expense was paid by a third party and not by the Company. On October 1, 2021, the Company reclassified the balances related to that program to noninterest bearing checking due to the product moving to noninterest bearing.
(3) 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
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
Equity to total assets
9.56
%
10.77
%
11.08
%
10.86
%
13.03
%
Book value per common share outstanding
$
22.41
$
24.69
$
26.00
$
27.46
$
27.53
Tangible book value per common share outstanding
$
10.77
$
13.22
$
14.46
$
16.12
$
16.71
Tangible book value per common share outstanding excluding AOCI
$
18.17
$
17.70
$
16.82
$
16.10
$
16.47
Common shares outstanding
28,788,124
29,356,707
29,362,844
30,080,717
31,669,952
Nonperforming assets to total assets
0.46
%
0.40
%
0.56
%
0.58
%
0.92
%
Nonperforming loans and leases to total loans and leases
0.82
%
0.71
%
0.95
%
1.16
%
1.52
%
Net interest margin
5.21
%
4.76
%
4.80
%
4.59
%
4.35
%
Net interest margin, tax-equivalent
5.23
%
4.77
%
4.81
%
4.61
%
4.37
%
Return on average assets
1.39
%
1.32
%
2.49
%
3.49
%
0.88
%
Return on average equity
12.82
%
11.93
%
24.16
%
29.69
%
7.18
%
Full-time equivalent employees
1,141
1,178
1,167
1,140
1,124
Non-GAAP Reconciliations
Adjusted Net Income and Adjusted Earnings Per Share
At and For the Three Months Ended
At and For the Year Ended
(Dollars in Thousands, Except Share and Per Share Data)
September 30, 2022
June 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Net Income - GAAP
$
23,420
$
22,391
$
15,903
$
156,386
$
141,708
Less: Gain on sale of trademarks
—
—
—
50,000
—
Add: Rebranding expenses
6,899
3,427
—
13,148
—
Add: Separation related expenses
1,029
3,116
36
5,109
2,545
Add: Income tax effect resulting from gain on sale of trademarks and rebranding and separation expenses
(1,029)
(1,677)
(9)
8,936
(636)
Adjusted net income
$
30,319
$
27,257
$
15,930
$
133,579
$
143,617
Less: Adjusted allocation of earnings to participating securities
508
458
297
2,191
2,734
Adjusted Net income attributable to common shareholders
29,811
26,799
15,633
131,388
140,883
Weighted average diluted common shares outstanding
28,581,236
28,868,136
31,299,555
29,232,247
31,751,522
Adjusted earnings per common share - diluted
$
1.04
$
0.93
$
0.50
$
4.49
$
4.44
Adjusted Diluted Earnings Per Share Guidance
Fiscal Year Ended
(Earnings per share amounts)
2022 (Actual)
2023 (Guidance)
Diluted earnings per share - GAAP
$
5.26
$5.25 - $5.75
Less: Net extraordinary items, net of tax(1)
$0.77
$0.15
Diluted earnings per share - Adjusted
$
4.49
$5.10 - $5.60
(1) Includes gain on sale of trademarks, rebrand related expenses and separation related expenses.
