PATHWARD FINANCIAL, INC.™ ANNOUNCES RESULTS FOR 2022 FISCAL THIRD QUARTER
- Fiscal 2022 Third Quarter Net Income of $22.4 million, or $0.76 Per Diluted Share -
- Reinstates Guidance, With Fiscal 2023 GAAP EPS Range of $5.25 to $5.75 -
Sioux Falls, S.D., July 27, 2022 -- Pathward Financial, Inc.TM, (“Pathward Financial” or the “Company”) (Nasdaq: CASH), formally known as Meta Financial Group, Inc., reported net income of $22.4 million, or $0.76 per share, for the three months ended June 30, 2022, compared to net income of $38.7 million, or $1.21 per share, for the three months ended June 30, 2021. During the quarter the Company recognized $3.4 million of pre-tax expenses related to rebranding efforts and $3.1 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 $27.3 million, or $0.93 per share. See non-GAAP reconciliation table below.
CEO Brett Pharr said, “We continue to benefit from low-cost deposits provided from our banking-as-a-service business to fund our various asset class opportunities in Commercial Finance. This model will generate higher returns once the market lending rates begin to reflect the higher rate environment. Our third-quarter results were impacted by a slowdown in the renewable energy tax credit lending market and one-time expenses related to rebranding and efficiency initiatives. While certain revenues were down due to the prior-year benefiting from stimulus-related card fee income and the delayed start of last year’s tax season, we are pleased with the continued growth of our Commercial Finance portfolio and its credit quality”
“As we potentially enter a recessionary period, we believe Pathward Financial is positioned to perform well, as we would benefit from higher yields on our new business and existing variable loan portfolios while typically experiencing growth in our working capital lines,” Pharr added.
Business Development Highlights for the 2022 Fiscal Third Quarter
•On July 13, 2022, the Company announced it changed its name to Pathward Financial, Inc.™, and its bank subsidiary, MetaBank®, N.A., changed its name to Pathward™, N.A. ("Pathward" or the "Bank"). Certain changes were made immediately, with a full transition to Pathward expected by the end of this calendar year, including the launch of a new brand identity and website. The Company recognized $3.4 million of pre-tax expenses related to rebranding efforts during the third quarter of fiscal 2022. The Company continues to estimate total rebranding expenses will range between $15 million to $20 million.
•As part of the Company's priority to work with partners that use a broader suite of the capabilities and multi-product solutions that it provides, the Company will not be renewing its agreements with Liberty Tax and Jackson Hewitt. This change is expected to boost operational efficiencies over time. Taxpayer advance volumes are expected to be reduced by approximately 30% next year. No significant impact is anticipated to refund transfer volumes. During the quarter, the Company recognized $1.2 million of pre-tax one-time partner termination related expenses.
Financial Highlights for the 2022 Fiscal Third Quarter
•Total revenue for the third quarter was $126.1 million, a decrease of $4.8 million, or 4%, compared to the same quarter in fiscal 2021, primarily driven by a decrease in noninterest income, partially offset by an increase in interest income.
•Net interest income for the third quarter was $72.2 million, an increase of $3.7 million compared to $68.5 million in the third quarter last year.
1
•Net interest margin ("NIM") increased to 4.76% for the third quarter from 3.75% 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 June 30, 2022 increased $188 million, to $3.68 billion, or 5%, compared to June 30, 2021 and decreased $43 million, or 1%, when compared to March 31, 2022. The increase compared to the prior year quarter was primarily driven by growth in our commercial finance portfolio, partially offset by the sale of all remaining community banking loans during the fiscal 2022 first quarter. The primary driver for the decrease on a linked quarter basis was the seasonal decline in tax services loans.
•The Company originated $4.4 million in aggregate principal of renewable energy loan financing for the third quarter of fiscal 2022, resulting in $1.0 million in total net investment tax credits. During the third quarter of fiscal 2021. the Company originated $13.5 million in aggregate principle of renewable energy loan financing resulting in $3.4 million in total net investment tax credits.
•On May 15, 2022, the Company retired the outstanding $75.0 million subordinated debt, which was due August 15, 2026. As a result of the retirement, the Company will save more than $4 million of interest expense per year.
•The Company resumed share repurchases on July 1, 2022, and through July 22, 2022, the Company repurchased 305,700 shares of common stock at an average share price of $40.74. There are 4,562,477 shares available for repurchase under the common stock share repurchase program announced during the fourth quarter of fiscal year 2021.
•The Company reinstated guidance and expects fiscal year 2023 GAAP earnings per share to be in the range of $5.25 and $5.75. The Company expects fiscal year 2023 adjusted earnings per share to be in the range of $5.10 and $5.60. See non-GAAP reconciliation table below.
Tax Season Recap
During the third quarter of fiscal 2022, total tax services product revenue was $10.3 million, compared to $13.6 million in the prior year quarter. Total tax services product income, net of losses and direct product expenses, increased 9% to $43.5 million from $40.0 million, when comparing the first nine months of fiscal 2022 to the same period of the prior fiscal year.
While taxpayer advances came in below the Company's expectations, overall refund transfer revenues grew 9% year-over-year. Looking ahead to next year, the Company continues to expect strong refund transfer volumes and greater efficiency in its Tax line of business as a result of the non-renewal of the Company's two aforementioned tax partner relationships.
Net Interest Income
Net interest income for the third quarter of fiscal 2022 was $72.2 million, an increase of 5% from the same quarter in fiscal 2021. The increase was mainly attributable to investment interest income, an improved earning asset mix, and increased loan balances.
The third quarter average outstanding balance of loans and leases increased $128.9 million compared to the same quarter of the prior year, primarily due to increases in our core loan and lease portfolios, partially offset by the sale of the remaining community bank portfolio. The Company’s average interest-earning assets for the third quarter decreased by $1.23 billion to $6.08 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 total loans and leases.
2
Fiscal 2022 third quarter NIM increased to 4.76% from 3.75% in the third quarter of last year. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 104 basis points to 4.89% compared to the prior year quarter, primarily driven by a decrease in lower-yielding cash balances. Growth in loan and lease and investment securities balances also contributed to the year-over-year TEY increase. The yield on the loan and lease portfolio was 6.69% compared to 6.90% for the comparable period last year and the TEY on the securities portfolio was 2.14% compared to 1.62% over that same period.
The Company's cost of funds for all deposits and borrowings averaged 0.12% during the fiscal 2022 third quarter, as compared to 0.09% during the prior year quarter. The increase in cost of funds was primarily related to accelerated interest expense of $0.9 million during the fiscal 2022 third quarter associated with the retirement of the subordinated debt. The Company's overall cost of deposits was 0.01% in the fiscal third quarter of 2022, the same as the prior year quarter.
Noninterest Income
Fiscal 2022 third quarter noninterest income decreased to $54.0 million, compared to $62.5 million for the same period of the prior year. The decrease was driven by a reduction in gain on sale of loan and leases by $4.8 million, a decrease in payments fee income of $4.5 million, and a decrease in tax services product fee income of $2.7 million. These decreases were partially offset by an increase in rental income of $2.1 million and an increase in other income of $1.3 million. The prior year’s quarter benefited from greater card fee income associated with stimulus activity as well as a delayed tax season. Furthermore, the company recorded fewer gains on loan sales in the current fiscal year as the SBA and USDA sale volumes have been impacted by supply chain constraints within the solar construction market.
Noninterest Expense
Noninterest expense increased 19% to $96.7 million for the fiscal 2022 third quarter, from $81.5 million for the same quarter last year. The increase in expense was primarily driven by an increase in compensation expense, legal and consulting expense, card processing, occupancy and equipment expense, and operating lease equipment depreciation. These increases were partially offset by a decrease in other expense. Compensation expense for the third quarter of fiscal 2022 includes $3.1 million of separation-related expenses stemming from expense reduction initiatives. In addition, the Company recognized $3.4 million in rebranding expenses and $1.2 million in expenses related to the non-renewal of the aforementioned tax partner agreements.
Income Tax Expense
The Company recorded income tax expense of $7.0 million, representing an effective tax rate of 22.6%, for the fiscal 2022 third quarter, compared to $4.9 million, representing an effective tax rate of 11.0%, for the third quarter last year. The current quarter increase in income tax expense was primarily due to a reduction in renewable energy investment tax credit lending volume compared to the prior year period.
The Company originated $4.4 million in solar leases during the fiscal 2022 third quarter, compared to $13.5 million in last year's third quarter. Investment tax credits related to solar leases are recognized ratably based on income throughout each fiscal year. For the nine months ended June 30, 2022, the Company originated $26.9 million in solar leases, compared to $72.0 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.
3
The Company reinstated guidance and expects fiscal year 2022 GAAP earnings per share to be in the range of $5.04 and $5.24 and fiscal year 2023 GAAP earnings per share to be in the range of $5.25 and $5.75. This guidance assumes a Fed Funds rate of 3.5% by September of 2023.
When adjusting for gain on sale of trademarks, rebrand related expenses, and separation related expenses, the Company expects fiscal year 2022 adjusted earnings per share to be in the range of $4.28 and $4.48 and fiscal year 2023 adjusted earnings per share to be in the range of $5.10 and $5.60. See non-GAAP reconciliation table below.
Investments, Loans and Leases
(dollars in thousands)
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
June 30, 2021
Total investments
$
2,000,400
$
2,090,765
$
1,833,733
$
1,921,568
$
1,981,852
Loans held for sale
Consumer credit products
23,710
23,670
20,728
23,111
12,582
SBA/USDA
43,861
7,740
15,454
33,083
57,208
Community bank
—
—
—
—
18,115
Total loans held for sale
67,571
31,410
36,182
56,194
87,905
Term lending
1,047,764
1,111,076
1,038,378
961,019
920,279
Asset based lending
402,506
382,355
337,236
300,225
263,237
Factoring
408,777
394,865
402,972
363,670
320,629
Lease financing
218,789
235,397
245,315
266,050
282,940
Insurance premium finance
481,219
403,681
385,473
428,867
417,652
SBA/USDA
215,510
214,195
209,521
247,756
263,709
Other commercial finance
173,338
173,260
178,853
157,908
118,081
Commercial finance
2,947,903
2,914,829
2,797,748
2,725,495
2,586,527
Consumer credit products
152,106
171,847
173,343
129,251
105,440
Other consumer finance
107,135
111,922
144,412
123,606
122,316
Consumer finance
259,241
283,769
317,755
252,857
227,756
Tax services
41,627
85,999
100,272
10,405
41,268
Warehouse finance
434,748
441,496
466,831
419,926
335,704
Community banking
—
—
—
199,132
303,984
Total loans and leases
3,683,519
3,726,093
3,682,606
3,607,815
3,495,239
Net deferred loan origination costs
5,047
4,097
1,655
1,748
1,431
Total gross loans and leases
3,688,566
3,730,190
3,684,261
3,609,563
3,496,670
Allowance for credit losses
(75,206)
(88,552)
(67,623)
(68,281)
(91,208)
Total loans and leases, net
$
3,613,360
$
3,641,638
$
3,616,638
$
3,541,282
$
3,405,462
The Company's investment security balances at June 30, 2022 totaled $2.00 billion, as compared to $2.09 billion at March 31, 2022 and $1.98 billion at June 30, 2021.
Total gross loans and leases totaled $3.69 billion at June 30, 2022, as compared to $3.73 billion at March 31, 2022 and $3.50 billion at June 30, 2021. The primary driver for the decrease on a linked quarter basis was the seasonal tax services portfolio, along with a reduction in consumer finance loans, partially offset by an increase in the commercial finance portfolio. The year-over-year increase was primarily driven by increases within commercial finance, warehouse finance, and consumer finance, partially offset by the sale of all remaining community bank loans.
Commercial finance loans, which comprised 80% of the Company's gross loan and lease portfolio, totaled $2.95 billion at June 30, 2022, reflecting growth of $33.1 million, or 1%, from March 31, 2022 and $361.4 million, or 14%, from June 30, 2021.
4
As of June 30, 2022, the Company had 79 loans outstanding with total loan balances of $21.1 million originated as part of the Paycheck Protection Program ("PPP"), compared with total loan balances of $43.0 million at March 31, 2022 and $143.3 million at June 30, 2021. In total, approximately 90% of the PPP loan balances were forgiven through June 30, 2022.
When excluding PPP loans and the community bank portfolio, total loans and leases grew 20% at June 30, 2022 when compared to the same period of the prior year.
Asset Quality
The Company’s allowance for credit losses ("ACL") totaled $75.2 million at June 30, 2022, a decrease compared to $88.6 million at March 31, 2022 and a decrease from $91.2 million at June 30, 2021. The decrease in the ACL at June 30, 2022, when compared to March 31, 2022, was primarily due to a $8.2 million decrease in the seasonal tax services loan portfolio, and to a lesser extent, a $2.7 million decrease in the consumer finance portfolio and a $2.5 million decrease in the commercial finance portfolio.
The $16.0 million year-over-year decrease in the ACL was primarily driven by a $13.2 million decrease attributable to the disposition of the community banking portfolio, along with a $2.4 million decrease in the consumer finance portfolio and a $1.7 million decrease in the tax services portfolio. These decreases were partially offset by a $1.2 million increase within the commercial finance portfolio, which reflects the year-over-year loan and lease growth.
The following table presents the Company's ACL as a percentage of its total loans and leases.
As of the Period Ended
(Unaudited)
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
June 30, 2021
Commercial finance
1.56
%
1.66
%
2.04
%
1.77
%
1.73
%
Consumer finance
2.44
%
3.18
%
2.70
%
2.91
%
3.80
%
Tax services
54.29
%
35.76
%
1.60
%
0.02
%
58.99
%
Warehouse finance
0.10
%
0.10
%
0.10
%
0.10
%
0.10
%
Community banking
—
%
—
%
—
%
6.16
%
4.36
%
Total loans and leases
2.04
%
2.38
%
1.84
%
1.89
%
2.61
%
Total loans and leases excluding tax services
1.44
%
1.59
%
1.84
%
1.90
%
1.94
%
The Company's ACL as a percentage of total loans and leases decreased to 2.04% at June 30, 2022 from 2.38% at March 31, 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 Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level.
Activity in the allowance for credit losses for the periods presented was as follows.
(Unaudited)
Three Months Ended
Nine Months Ended
(Dollars in thousands)
June 30, 2022
March 31, 2022
June 30, 2021
June 30, 2022
June 30, 2021
Beginning balance
$
88,552
$
67,623
$
98,892
$
68,281
$
56,188
Adoption of CECL accounting standard
—
—
—
—
12,773
Provision (reversal of) - tax services loans
(166)
28,972
4,685
28,093
32,819
Provision (reversal of) - all other loans and leases
(982)
3,183
(36)
3,386
8,294
Charge-offs - tax services loans
(7,998)
—
(9,505)
(8,253)
(9,505)
Charge-offs - all other loans and leases
(6,346)
(12,415)
(5,360)
(23,366)
(15,284)
Recoveries - tax services loans
6
184
17
2,757
1,027
Recoveries - all other loans and leases
2,140
1,005
2,515
4,308
4,896
Ending balance
$
75,206
$
88,552
$
91,208
$
75,206
$
91,208
5
The Company recognized a reversal of provision for credit losses of $1.3 million for the quarter ended June 30, 2022, compared to $4.6 million of provision for credit losses expense for the comparable period in the prior fiscal year. Net charge-offs were $12.2 million for the quarter ended June 30, 2022, compared to $12.3 million for the quarter ended June 30, 2021. Net charge-offs attributable to the tax services, consumer finance, and commercial finance portfolios for the quarter were $8.0 million, $2.3 million, and $1.9 million, respectively.
The Company's past due loans and leases were as follows for the periods presented.
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
As of March 31, 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
$
—
$
—
$
—
$
—
$
31,410
$
31,410
$
—
$
—
$
—
Commercial finance
24,631
2,574
11,994
39,199
2,875,630
2,914,829
5,701
25,327
31,028
Consumer finance
5,829
5,475
4,814
16,118
267,651
283,769
4,814
—
4,814
Tax services
830
—
—
830
85,169
85,999
—
—
—
Warehouse finance
—
—
—
—
441,496
441,496
—
—
—
Total loans and leases held for investment
31,290
8,049
16,808
56,147
3,669,946
3,726,093
10,515
25,327
35,842
Total loans and leases
$
31,290
$
8,049
$
16,808
$
56,147
$
3,701,356
$
3,757,503
$
10,515
$
25,327
$
35,842
The Company's nonperforming assets at June 30, 2022 were $26.8 million, representing 0.40% of total assets, compared to $38.3 million, or 0.56% of total assets at March 31, 2022 and $45.1 million, or 0.64% of total assets at June 30, 2021. The decrease in the nonperforming assets as a percentage of total assets at June 30, 2022 compared to March 31, 2022, was driven by decreases in nonperforming assets in 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 portfolio, partially offset by an increase in nonperforming assets in the commercial and consumer finance portfolios.
The Company's nonperforming loans and leases at June 30, 2022, were $26.6 million, representing 0.71% of total gross loans and leases, compared to $35.8 million, or 0.95% of total gross loans and leases at March 31, 2022 and $41.9 million, or 1.17% of total gross loans and leases at June 30, 2021. The decreases are related to the aforementioned decrease in nonperforming assets in the community bank portfolio, partially offset by an increase in nonperforming assets in the commercial and consumer finance portfolios.
6
The Company has various portfolios of consumer lending and tax services loans that present unique risks that are statistically managed. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for credit losses on these portfolios, and as such, these loans are not included in the asset classification table below. The Company's loans and leases held for investment by asset classification were as follows for the periods presented.
Asset Classification
(Dollars in thousands)
Pass
Watch
Special Mention
Substandard
Doubtful
Total
As of June 30, 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
Asset Classification
(Dollars in thousands)
Pass
Watch
Special Mention
Substandard
Doubtful
Total
As of March 31, 2022
Commercial finance
$
2,171,206
$
430,240
$
141,497
$
167,882
$
4,004
$
2,914,829
Warehouse finance
441,496
—
—
—
—
441,496
Total loans and leases
$
2,612,702
$
430,240
$
141,497
$
167,882
$
4,004
$
3,356,325
Deposits, Borrowings and Other Liabilities
Total average deposits for the fiscal 2022 third quarter decreased by $1.24 billion to $5.74 billion compared to the same period in fiscal 2021. The decrease in average deposits was primarily due to a decrease in noninterest-bearing deposits of $841.8 million, a decrease in interesting-bearing deposits of $336.3 million, and to a lesser extent, decreases within wholesale, savings, and time deposits, partially offset by an increase in money market deposits.
The average balance of total deposits and interest-bearing liabilities was $5.81 billion for the three-month period ended June 30, 2022, compared to $7.08 billion for the same period in the prior fiscal year, representing a decrease of 18%.
Total end-of-period deposits decreased 3% to $5.71 billion at June 30, 2022, compared to $5.89 billion at June 30, 2021. The decrease in end-of-period deposits was primarily driven by a decrease in interest-bearing checking of $255.2 million and a decrease in wholesale deposits of $72.2 million, partially off-set by an increase in noninterest-bearing deposits of $134.7 million.
As of June 30, 2022, the Company managed $1.22 billion of customer deposits at other banks in its capacity as custodian.
Regulatory Capital
The Company and Pathward remained above the federal regulatory minimum capital requirements at June 30, 2022, 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.
7
As of the Periods Indicated
June 30, 2022(1)
March 31, 2022
December 31, 2021
September 30, 2021
June 30, 2021
Company
Tier 1 leverage capital ratio
8.23
%
6.80
%
7.39
%
7.67
%
6.85
%
Common equity Tier 1 capital ratio
11.87
%
11.26
%
10.88
%
12.12
%
12.76
%
Tier 1 capital ratio
12.19
%
11.58
%
11.20
%
12.46
%
13.11
%
Total capital ratio
13.44
%
14.16
%
13.80
%
15.45
%
16.18
%
Pathward
Tier 1 leverage ratio
8.22
%
7.79
%
8.52
%
8.69
%
7.83
%
Common equity Tier 1 capital ratio
12.17
%
13.26
%
12.90
%
14.11
%
14.94
%
Tier 1 capital ratio
12.18
%
13.26
%
12.91
%
14.13
%
14.96
%
Total capital ratio
13.43
%
14.52
%
14.16
%
15.38
%
16.22
%
(1) June 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.
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)
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
June 30, 2021
Total stockholders' equity
$
724,774
$
763,406
$
826,157
$
871,884
$
876,633
Adjustments:
LESS: Goodwill, net of associated deferred tax liabilities
299,616
299,983
300,382
300,780
301,179
LESS: Certain other intangible assets
27,809
30,007
32,294
33,572
35,100
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards
11,978
13,404
19,855
22,801
17,753
LESS: Net unrealized gains (losses) on available for sale securities
(131,352)
(69,838)
403
7,344
14,750
LESS: Noncontrolling interest
665
322
642
1,155
1,490
ADD: Adoption of Accounting Standards Update 2016-13
10,011
13,387
6,527
8,202
10,439
Common Equity Tier 1(1)
526,069
502,915
479,108
514,434
520,274
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
377
208
444
747
932
Total Tier 1 capital
540,107
516,784
493,213
528,842
534,867
Allowance for credit losses
55,506
56,051
55,125
53,159
51,317
Subordinated debentures (net of issuance costs)
—
59,256
59,220
73,980
73,936
Total capital
$
595,613
$
632,091
$
607,558
$
655,981
$
660,119
(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.
8
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.
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
June 30, 2021
Total stockholders' equity
$
724,774
$
763,406
$
826,157
$
871,884
$
876,633
Less: Goodwill
309,505
309,505
309,505
309,505
309,505
Less: Intangible assets
27,088
29,290
31,661
33,148
34,898
Tangible common equity
388,181
424,611
484,991
529,231
532,230
Less: AOCI
(131,407)
(69,374)
724
7,599
15,222
Tangible common equity excluding AOCI
$
519,588
$
493,985
$
484,267
$
521,632
$
517,008
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, July 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 943947. A webcast replay will also be archived at www.pathwardfinancial.com for one year.
9
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; successfully completing our announced rebranding and 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.
10
Condensed Consolidated Statements of Financial Condition (Unaudited)
(Dollars in Thousands, Except Share Data)
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
June 30, 2021
ASSETS
Cash and cash equivalents
$
157,260
$
237,680
$
1,230,100
$
314,019
$
720,243
Securities available for sale, at fair value
1,956,523
2,043,478
1,782,739
1,864,899
1,917,605
Securities held to maturity, at amortized cost
43,877
47,287
50,994
56,669
64,247
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost
28,812
28,812
28,400
28,400
28,433
Loans held for sale
67,571
31,410
36,182
56,194
87,905
Loans and leases
3,688,566
3,730,190
3,684,261
3,609,563
3,496,670
Allowance for credit losses
(75,206)
(88,552)
(67,623)
(68,281)
(91,208)
Accrued interest receivable
16,818
19,115
17,240
16,254
16,230
Premises, furniture, and equipment, net
42,076
43,167
44,130
44,888
44,107
Rental equipment, net
222,023
213,033
234,693
213,116
211,368
Foreclosed real estate and repossessed assets, net
13
112
298
2,077
1,204
Goodwill and intangible assets
336,593
338,795
341,166
342,653
344,403
Prepaid assets
11,408
15,264
17,007
10,513
7,482
Other assets
231,844
227,448
210,071
199,686
203,123
Total assets
$
6,728,178
$
6,887,239
$
7,609,658
$
6,690,650
$
7,051,812
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits
5,710,799
5,829,886
6,525,569
5,514,971
5,888,871
Long-term borrowings
16,616
91,386
92,274
92,834
93,634
Accrued expenses and other liabilities
275,989
202,561
165,658
210,961
192,674
Total liabilities
6,003,404
6,123,833
6,783,501
5,818,766
6,175,179
STOCKHOLDERS’ EQUITY
Preferred stock
—
—
—
—
—
Common stock, $.01 par value
294
294
301
317
319
Common stock, Nonvoting, $.01 par value
—
—
—
—
—
Additional paid-in capital
615,159
612,917
610,816
604,484
602,720
Retained earnings
244,686
223,760
217,992
259,189
262,578
Accumulated other comprehensive income (loss)
(131,407)
(69,374)
724
7,599
15,222
Treasury stock, at cost
(4,623)
(4,513)
(4,318)
(860)
(5,696)
Total equity attributable to parent
724,109
763,084
825,515
870,729
875,143
Noncontrolling interest
665
322
642
1,155
1,490
Total stockholders’ equity
724,774
763,406
826,157
871,884
876,633
Total liabilities and stockholders’ equity
$
6,728,178
$
6,887,239
$
7,609,658
$
6,690,650
$
7,051,812
11
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands, Except Share and Per Share Data)
Three Months Ended
Nine Months Ended
June 30, 2022
March 31, 2022
June 30, 2021
June 30, 2022
June 30, 2021
Interest and dividend income:
Loans and leases, including fees
$
62,541
$
75,540
$
62,287
$
203,115
$
192,415
Mortgage-backed securities
7,381
5,446
3,446
16,690
8,176
Other investments
3,984
4,191
4,250
12,169
13,207
73,906
85,177
69,983
231,974
213,798
Interest expense:
Deposits
94
165
188
400
1,429
FHLB advances and other borrowings
1,661
1,212
1,320
4,010
4,045
1,755
1,377
1,508
4,410
5,474
Net interest income
72,151
83,800
68,475
227,564
208,324
Provision (reversal of) for credit losses
(1,302)
32,302
4,612
31,186
40,991
Net interest income after provision for credit losses
73,453
51,498
63,863
196,378
167,333
Noninterest income:
Refund transfer product fees
10,289
27,805
12,073
38,674
35,400
Tax advance product fees
(20)
39,299
891
40,513
47,413
Payments card and deposit fees
24,673
26,270
29,203
76,075
81,641
Other bank and deposit fees
262
250
338
750
709
Rental income
12,082
11,375
9,976
34,534
29,707
Gain on sale of securities
198
260
—
595
6
Gain on sale of trademarks
—
—
—
50,000
—
Gain (loss) on sale of other
1,239
626
5,955
(1,601)
10,935
Other income
5,271
3,881
4,017
10,811
15,550
Total noninterest income
53,994
109,766
62,453
250,351
221,361
Noninterest expense:
Compensation and benefits
45,091
45,047
38,604
128,364
114,867
Refund transfer product expense
2,457
6,260
2,435
8,855
8,642
Tax advance product expense
(29)
2,002
(25)
2,156
2,534
Card processing
8,438
7,457
6,809
23,067
20,138
Occupancy and equipment expense
8,996
8,500
7,381
25,845
21,017
Operating lease equipment depreciation
9,145
8,737
8,122
26,331
23,122
Legal and consulting
11,724
9,347
5,680
27,279
16,972
Intangible amortization
1,532
2,169
2,013
5,188
6,784
Impairment expense
670
—
505
670
2,217
Other expense
8,626
13,641
9,999
34,491
33,775
Total noninterest expense
96,650
103,160
81,523
282,246
250,068
Income before income tax expense
30,797
58,104
44,793
164,483
138,626
Income tax expense
6,958
8,002
4,934
29,236
9,600
Net income before noncontrolling interest
23,839
50,102
39,859
135,247
129,026
Net income attributable to noncontrolling interest
1,448
851
1,158
2,281
3,221
Net income attributable to parent
$
22,391
$
49,251
$
38,701
$
132,966
$
125,805
Less: Allocation of Earnings to participating securities(1)
377
815
729
2,166
2,411
Net income attributable to common shareholders(1)
22,014
48,436
37,972
130,800
123,394
Earnings per common share:
Basic
$
0.76
$
1.66
$
1.21
$
4.44
$
3.87
Diluted
$
0.76
$
1.66
$
1.21
$
4.44
$
3.87
Shares used in computing earnings per common share:
Basic
28,868,136
29,212,301
31,320,893
29,444,979
31,880,653
Diluted
28,868,136
29,224,362
31,338,947
29,454,586
31,900,597
(1) Amounts presented are used in the two-class earnings per common share calculation.
12
Average Balances, Interest Rates and Yields
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and in rates. Only the yield/rate reflects tax-equivalent adjustments. Nonaccruing loans and leases have been included in the table as loans carrying a zero yield.
Three Months Ended June 30,
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
$
309,324
$
787
1.02
%
$
1,867,988
$
528
0.11
%
Mortgage-backed securities
1,395,149
7,381
2.12
%
882,042
3,446
1.57
%
Tax exempt investment securities
173,192
851
2.50
%
263,401
884
1.70
%
Asset-backed securities
210,815
750
1.43
%
438,163
1,651
1.51
%
Other investment securities
246,218
1,596
2.60
%
246,493
1,187
1.93
%
Total investments
2,025,374
10,578
2.14
%
1,830,099
7,168
1.62
%
Commercial finance
2,949,813
50,785
6.91
%
2,616,942
48,641
7.46
%
Consumer finance
300,352
4,964
6.63
%
241,813
3,916
6.50
%
Tax services
62,934
53
0.34
%
91,804
604
2.64
%
Warehouse finance
434,532
6,739
6.22
%
332,759
5,151
6.21
%
Community banking
—
—
—
%
335,415
3,975
4.75
%
Total loans and leases
3,747,631
62,541
6.69
%
3,618,733
62,287
6.90
%
Total interest-earning assets
$
6,082,329
$
73,906
4.89
%
$
7,316,820
$
69,983
3.85
%
Noninterest-earning assets
695,468
841,738
Total assets
$
6,777,797
$
8,158,558
Interest-bearing liabilities:
Interest-bearing checking(2)
$
292
$
—
0.33
%
$
336,576
$
—
—
%
Savings
82,989
7
0.03
%
107,803
5
0.02
%
Money markets
101,943
53
0.21
%
58,517
66
0.45
%
Time deposits
8,709
9
0.40
%
11,877
27
0.91
%
Wholesale deposits
8,554
25
1.19
%
86,295
90
0.42
%
Total interest-bearing deposits
202,487
94
0.19
%
601,068
188
0.13
%
Overnight fed funds purchased
19,353
72
1.50
%
11
—
0.25
%
Subordinated debentures
36,480
1,444
15.87
%
73,907
1,148
6.23
%
Other borrowings
17,056
145
3.40
%
20,657
172
3.35
%
Total borrowings
72,889
1,661
9.14
%
94,575
1,320
5.60
%
Total interest-bearing liabilities
275,376
1,755
2.56
%
695,643
1,508
0.87
%
Noninterest-bearing deposits
5,538,585
—
—
%
6,380,371
—
—
%
Total deposits and interest-bearing liabilities
$
5,813,961
$
1,755
0.12
%
$
7,076,014
$
1,508
0.09
%
Other noninterest-bearing liabilities
213,293
225,862
Total liabilities
6,027,254
7,301,876
Shareholders' equity
750,543
856,682
Total liabilities and shareholders' equity
$
6,777,797
$
8,158,558
Net interest income and net interest rate spread including noninterest-bearing deposits
$
72,151
4.77
%
$
68,475
3.76
%
Net interest margin
4.76
%
3.75
%
Tax-equivalent effect
0.01
%
0.02
%
Net interest margin, tax-equivalent(3)
4.77
%
3.77
%
(1) Tax rate used to arrive at the TEY for the three months ended June 30, 2022 and 2021 was 21%.
(2) At June 30, 2021, $336.2 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.
13
Selected Financial Information
As of and For the Three Months Ended
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
June 30, 2021
Equity to total assets
10.77
%
11.08
%
10.86
%
13.03
%
12.43
%
Book value per common share outstanding
$
24.69
$
26.00
$
27.46
$
27.53
$
27.46
Tangible book value per common share outstanding
$
13.22
$
14.46
$
16.12
$
16.71
$
16.67
Tangible book value per common share outstanding excluding AOCI
$
17.70
$
16.82
$
16.10
$
16.47
$
16.20
Common shares outstanding
29,356,707
29,362,844
30,080,717
31,669,952
31,919,780
Nonperforming assets to total assets
0.40
%
0.56
%
0.58
%
0.92
%
0.64
%
Nonperforming loans and leases to total loans and leases
0.71
%
0.95
%
1.16
%
1.52
%
1.17
%
Net interest margin
4.76
%
4.80
%
4.59
%
4.35
%
3.75
%
Net interest margin, tax-equivalent
4.77
%
4.81
%
4.61
%
4.37
%
3.77
%
Return on average assets
1.32
%
2.49
%
3.49
%
0.88
%
1.90
%
Return on average equity
11.93
%
24.16
%
29.69
%
7.18
%
18.07
%
Full-time equivalent employees
1,178
1,167
1,140
1,124
1,109
Non-GAAP Reconciliations
Adjusted Net Income and Adjusted Earnings Per Share
At and For the Three Months Ended
At and For the Nine Months Ended
Dollars in Thousands, Except Share and Per Share Data
June 30, 2022
March 31, 2022
June 30, 2021
June 30, 2022
June 30, 2021
Net Income - GAAP
$
22,391
$
49,251
$
38,701
$
132,966
$
125,805
Less: Gain on sale of trademarks
—
—
—
50,000
—
Add: Rebranding expenses
3,427
2,819
—
6,249
—
Add: Separation related expenses
3,116
878
1,161
4,080
2,509
Add: Income tax effect resulting from gain on sale of trademarks and rebranding and separation expenses
(1,677)
(930)
(290)
9,965
(627)
Adjusted net income
$
27,257
$
52,018
$
39,572
$
103,260
$
127,687
Less: Adjusted allocation of earnings to participating securities
458
861
746
1,682
2,447
Adjusted Net income attributable to common shareholders
26,799
51,157
38,826
101,578
125,240
Weighted average diluted common shares outstanding
28,868,136
29,224,362
31,338,947
29,454,586
31,900,597
Adjusted earnings per common share - diluted
$
0.93
$
1.75
$
1.24
$
3.45
$
3.93
Adjusted Diluted Earnings Per Share Guidance
Fiscal Year Ended
(Earnings per share amounts)
2022
2023
Diluted earnings per share - GAAP
$5.04 - $5.24
$5.25 - $5.75
Less: Net nonrecurring items, net of tax(1)
$0.76
$0.15
Diluted earnings per share - Adjusted
$4.28 - $4.48
$5.10 - $5.60
(1) Includes gain on sale of trademarks, rebrand related expenses and separation related expenses.
14
Efficiency Ratio
For the Last Twelve Months Ended
(Dollars in thousands)
June 30, 2022
March 31, 2022
December 31, 2021
September 30, 2021
June 30, 2021
Noninterest expense: GAAP
$
375,860
$
360,733
$
353,544
$
343,683
$
330,352
Net interest income
298,231
294,555
284,605
278,991
272,837
Noninterest income
299,893
308,352
312,039
270,903
262,111
Total revenue: GAAP
$
598,124
$
602,907
$
596,644
$
549,894
$
534,948
Efficiency ratio
62.84
%
59.83
%
59.26
%
62.50
%
61.75
%
Adjusted Efficiency Ratio
Noninterest expense: GAAP
$
375,860
$
360,733
$
353,544
$
343,683
$
330,352
Less: Rebranding expenses
6,249
2,822
3
—
—
Adjusted noninterest expense
369,611
357,911
353,341
343,683
330,352
Net interest income
298,231
294,555
284,605
278,991
272,837
Noninterest income
299,893
308,352
312,039
270,903
262,111
Less: Gain on sale of trademarks
50,000
50,000
50,000
—
—
Total adjusted revenue
$
548,124
$
552,907
$
546,644
$
549,984
$
534,948
Adjusted efficiency ratio
67.43
%
64.73
%
64.67
%
62.50
%
61.75
%
15
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 the individuals and businesses who are powering the everyone economy. Learn more at www.pathwardfinancial.com.
