Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil EL&P Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries Pathward Financial, Inc. Announces Results for 2023 Fiscal Second Quarter By: Pathward Financial, Inc. via Business Wire April 26, 2023 at 16:10 PM EDT Net Income of $54.8 million, or $1.99 Per Diluted Share Reaffirms Fiscal Year 2023 EPS Guidance Pathward Financial, Inc. (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $54.8 million, or $1.99 per share, for the three months ended March 31, 2023, compared to net income of $49.3 million, or $1.66 per share, for the three months ended March 31, 2022. During the quarter, when adjusting for the adverse financial impacts related to legacy mobile solar transactions and a venture capital investment impairment expense, the Company recognized adjusted net income of $60.3 million, or $2.18 per share. For the same period of the prior year, the Company recognized adjusted net income of $52.0 million, or $1.75 per share when excluding the impact of rebranding and separation expenses. See non-GAAP reconciliation table below. CEO Brett Pharr said, “Pathward generated solid results during the second quarter driven by the continued expansion of our net interest margin and higher non-interest income. We continue to benefit from servicing fee income on our off-balance deposits and see increases in the average yield on our interest-earnings assets as they reprice. We are very pleased that this year's tax season has performed above our initial expectations through the end of March. Based on these results, we are reaffirming our fiscal year 2023 GAAP earnings per diluted share guidance of $5.55 to $5.95, despite the $7.3 million adverse pre-tax impacts during the quarter.” Company Highlights On April 5, 2023, Pathward®, N.A. announced it became Certified™ by Great Place to Work® for the first time. Great Place to Work holds itself out as the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation. On February 28, 2023, the Board of Directors (the "Board") of Pathward Financial appointed Christopher Perretta as a member of the Board. Financial Highlights for the 2023 Fiscal Second Quarter Total revenue for the second quarter was $228.4 million, an increase of $34.9 million, or 18%, compared to the same quarter in fiscal 2022, driven by an increase in both noninterest income and net interest income. Net interest margin ("NIM") increased 132 basis points to 6.12% for the second quarter from 4.80% during the same period of last year primarily driven by an increase in loan and lease and investment securities yields. Total gross loans and leases at March 31, 2023 decreased $4.6 million to $3.73 billion, compared to March 31, 2022 and increased $215.9 million, or 6%, when compared to December 31, 2022. The decrease compared to the prior year quarter was primarily due to a reduction in consumer finance loans driven by the sale of the $81.5 million student loan portfolio during the fiscal 2022 fourth quarter and a reduction in warehouse finance loans, partially offset by growth in the commercial finance portfolio. The primary drivers for the increase on a linked quarter basis was growth in commercial finance and warehouse finance loans. During the 2023 fiscal second quarter, the Company recognized a total of $6.8 million in pre-tax adverse financial impacts attributable to the disposal or change in depreciable life of several mobile solar generators related to a single relationship. In fiscal year 2019, the business incurred a large impairment expense associated with one company with which it had legacy transactions that turned out to be fraudulent. At that time, the assets were written down to their market value and redeployed under an equipment lease agreement to new participants. Upon the return of the leased assets, the Company performed a due diligence assessment, which led to the determination to dispose certain generators based on their condition and adjust the depreciable life for the remaining generators to better reflect the service period based on market conditions and advancements in technology. This was an isolated event limited to this equipment and is not indicative of the remaining Rental Equipment portfolio. The remaining value of the generators on the balance sheet is $1.3 million. During the 2023 fiscal second quarter, the Company repurchased 1,172,700 shares of common stock at an average share price of $46.60. As of April 21, 2023, there are 2,468,283 shares available for repurchase under the common stock share repurchase program announced during the fourth quarter of fiscal year 2021. The Company reaffirms fiscal year 2023 GAAP earnings per share guidance and continues to expect it to be in the range of $5.55 to $5.95. See Outlook section and non-GAAP reconciliation table below. Tax Season For the six months ended March 31, 2023, total tax services product revenue was $72.4 million, an increase of 2% compared to the same period of the prior year. Total tax services product fee income, total tax services product expense, and net interest income on tax services loans all increased slightly compared to the prior year period. Total tax services product income, net of losses and direct product expenses, decreased 14% to $29.7 million from $34.4 million, when comparing the first six months of fiscal 2023 to the same period of the prior fiscal year. For the 2023 tax season, Pathward originated $1.46 billion in refund advance loans compared to $1.83 billion during the 2022 tax season. When excluding the two partners the Company did not renew after the 2022 tax season, loan originations increased $116.2 million this tax season compared to the previous year. Net Interest Income Net interest income for the second quarter of fiscal 2023 was $101.4 million, an increase of 21% from the same quarter in fiscal 2022. The increase was mainly attributable to increased yields and an improved earning asset mix. The second quarter average outstanding balance of loans and leases decreased $230.5 million compared to the same quarter of the prior fiscal year, primarily due to a reduction in tax services loans, warehouse finance loans, and consumer finance loans, partially offset by an increase in commercial finance loans. The Company’s average interest-earning assets for the second fiscal quarter decreased by $364.5 million to $6.72 billion compared with the same quarter in fiscal 2022, primarily due to a reduction in cash balances as a result of elevated cash levels during the prior year period related to the Company's participation in government stimulus programs and a decrease in total investment balances. The decrease in cash and investment balances was partially offset by growth in commercial finance loans and leases. Fiscal 2023 second quarter NIM increased to 6.12% from 4.80% in the second fiscal quarter of last year. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 145 basis points to 6.34% compared to the prior year quarter, primarily driven by an increase in loan and lease and investment securities yields, along with a decrease in cash balances. The yield on the loan and lease portfolio was 8.47% compared to 7.22% for the comparable period last year and the TEY on the securities portfolio was 2.89% compared to 1.83% over that same period. The Company's cost of funds for all deposits and borrowings averaged 0.21% during the fiscal 2023 second quarter, as compared to 0.08% during the prior year quarter. The Company's overall cost of deposits was 0.13% in the fiscal second quarter of 2023, as compared to 0.01% during the prior year quarter. Noninterest Income Fiscal 2023 second quarter noninterest income increased to $127.0 million, compared to $109.8 million for the same period of the prior year. The increase was primarily attributable to increases in card and deposit fees, rental income, tax product fee income, and other income. The period-over-period increase was partially offset by reductions in gain (loss) on sale of other and gain on sale of investments. Included in gain (loss) on sale of other during the quarter, was a $2.0 million loss on the disposal of mobile solar generators in connection with the aforementioned legacy solar transactions. The increase in card and deposit fee income was primarily from servicing fee income on off-balance sheet deposits, which totaled $18.2 million during the 2023 fiscal second quarter, as compared to $12.9 million for the fiscal quarter ended December 31, 2022 and an insignificant amount for the fiscal quarter ended March 31, 2022. Noninterest Expense Noninterest expense increased 23% to $127.1 million for the fiscal 2023 second quarter, from $103.2 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, operating lease equipment depreciation, compensation expense, total tax services expense, and impairment expense. The period over period increase was partially offset by decreases in legal and consulting expense, amortization expense, and other expense. The increase in operating lease equipment depreciation was due to $4.8 million of accelerated depreciation on mobile solar generators in connection with the aforementioned legacy mobile solar transactions. During the second quarter of fiscal year 2023, the Company recognized $0.5 million of impairment expense related to an investment in its Pathward Venture Capital business. The card processing expense increase was due to structured agreements with banking as a service ("BaaS") partners. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally this rate index averages between 50% to 85% of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 47% of the deposit portfolio was subject to these higher card processing expenses. For the fiscal quarter ended March 31, 2023, card processing expenses related to these structured agreements were $20.4 million, as compared to $14.0 million for the fiscal quarter ended December 31, 2022 and $0.2 million for the fiscal quarter ended March 31, 2022. Income Tax Expense The Company recorded an income tax expense of $9.2 million, representing an effective tax rate of 14.2%, for the fiscal 2023 second quarter, compared to income tax expense of $8.0 million, representing an effective tax rate of 13.8%, for the second quarter last fiscal year. The current quarter increase in income tax expense was primarily due to increased earnings. The Company originated $18.1 million in solar leases during the fiscal 2023 second quarter, resulting in $4.9 million in total net investment tax credits. During the second quarter of fiscal 2022, the Company originated $1.3 million in solar leases resulting in $0.3 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 six months ended March 31, 2023, the Company originated $29.5 million in solar leases, compared to $22.5 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, adverse developments in the financial services industry generally, 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 reaffirms fiscal year 2023 GAAP earnings per share guidance and continues to expect it to be in the range of $5.55 to $5.95. When adjusting for gain on sale of trademarks and rebrand related expenses, the Company expects fiscal year 2023 adjusted earnings per share to be in the range of $5.40 to $5.80. See non-GAAP reconciliation table below. Investments, Loans and Leases (Dollars in thousands) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Total investments $ 1,864,276 $ 1,888,343 $ 1,924,551 $ 2,000,400 $ 2,090,765 Loans held for sale Consumer credit products 24,780 17,148 21,071 23,710 23,670 SBA/USDA — — — 43,861 7,740 Total loans held for sale 24,780 17,148 21,071 67,571 31,410 Term lending 1,235,453 1,160,100 1,090,289 1,047,764 1,111,076 Asset based lending 377,965 359,516 351,696 402,506 382,355 Factoring 338,884 338,594 372,595 408,777 394,865 Lease financing 170,645 189,868 210,692 218,789 235,397 Insurance premium finance 437,700 436,977 479,754 481,219 403,681 SBA/USDA 405,612 357,084 359,238 215,510 214,195 Other commercial finance 166,402 164,734 159,409 173,338 173,260 Commercial finance 3,132,661 3,006,873 3,023,673 2,947,903 2,914,829 Consumer credit products 120,739 130,750 144,353 152,106 171,847 Other consumer finance 27,909 56,180 25,306 107,135 111,922 Consumer finance 148,648 186,930 169,659 259,241 283,769 Tax services 61,553 30,364 9,098 41,627 85,999 Warehouse finance 377,036 279,899 326,850 434,748 441,496 Total loans and leases 3,719,898 3,504,066 3,529,280 3,683,519 3,726,093 Net deferred loan origination costs 5,718 5,664 7,025 5,047 4,097 Total gross loans and leases 3,725,616 3,509,730 3,536,305 3,688,566 3,730,190 Allowance for credit losses (84,304 ) (52,592 ) (45,947 ) (75,206 ) (88,552 ) Total loans and leases, net $ 3,641,312 $ 3,457,138 $ 3,490,358 $ 3,613,360 $ 3,641,638 The Company's investment security balances at March 31, 2023 totaled $1.86 billion, as compared to $1.89 billion at December 31, 2022 and $2.09 billion at March 31, 2022. Total gross loans and leases totaled $3.73 billion at March 31, 2023, as compared to $3.51 billion at December 31, 2022 and $3.73 billion at March 31, 2022. The primary driver for the increase on a linked quarter basis was due to increases in commercial finance, warehouse finance, and the seasonal tax services portfolio, partially offset by a decrease in the consumer finance portfolio. The year-over-year decrease was primarily due a reduction in consumer finance loans driven by the sale of the student loan portfolio during the fiscal 2022 fourth quarter, a reduction in warehouse finance loans, and a reduction in seasonal tax services loans, partially offset by growth in our commercial finance portfolio. Commercial finance loans, which comprised 84% of the Company's gross loan and lease portfolio, totaled $3.13 billion at March 31, 2023, reflecting an increase of $125.8 million, or 4%, from December 31, 2022 and an increase of $217.8 million, or 7%, from March 31, 2022. Asset Quality The Company’s allowance for credit losses ("ACL") totaled $84.3 million at March 31, 2023, an increase compared to $52.6 million at December 31, 2022 and a decrease from $88.6 million at March 31, 2022. The increase in the ACL at March 31, 2023, when compared to December 31, 2022, was primarily due to a $32.5 million increase in the allowance related to the seasonal tax services portfolio, partially offset by a $0.9 million decrease in the allowance related to the commercial finance portfolio. The $4.2 million year-over-year decrease in the ACL was primarily driven by a $6.0 million decrease in the allowance related to the consumer finance portfolio and a $0.5 million decrease in the allowance related to the commercial finance portfolio, partially offset by a $2.3 million increase in the allowance related to the seasonal tax services portfolio. The year-over-year decrease in the allowance related to the consumer finance portfolio was primarily attributable to the sale of the student loan portfolio during the fourth quarter of fiscal 2022. The following table presents the Company's ACL as a percentage of its total loans and leases. As of the Period Ended (Unaudited) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Commercial finance 1.53 % 1.62 % 1.46 % 1.56 % 1.66 % Consumer finance 1.99 % 1.54 % 0.86 % 2.44 % 3.18 % Tax services 53.77 % 2.01 % 0.05 % 54.29 % 35.76 % Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % Total loans and leases 2.27 % 1.50 % 1.30 % 2.04 % 2.38 % Total loans and leases excluding tax services 1.40 % 1.50 % 1.30 % 1.44 % 1.59 % The Company's ACL as a percentage of total loans and leases increased to 2.27% at March 31, 2023 from 1.50% at December 31, 2022. The increase in the total loans and leases coverage ratio was primarily driven by the seasonal tax services portfolio, and to a lesser extent the consumer finance portfolio. The increase in the consumer finance was related to seasonal activity. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level. Activity in the allowance for credit losses for the periods presented was as follows. (Unaudited) Three Months Ended Six Months Ended (Dollars in thousands) March 31, 2023 December 31, 2022 March 31, 2022 March 31, 2023 March 31, 2022 Beginning balance $ 52,592 $ 45,947 $ 67,623 $ 45,947 $ 68,281 Provision (reversal of) - tax services loans 31,422 1,637 28,972 33,059 28,259 Provision (reversal of) - all other loans and leases 5,264 8,226 3,183 13,490 4,368 Charge-offs - tax services loans — (1,731 ) — (1,731 ) (254 ) Charge-offs - all other loans and leases (6,625 ) (2,708 ) (12,415 ) (9,334 ) (17,021 ) Recoveries - tax services loans 1,063 698 184 1,761 2,750 Recoveries - all other loans and leases 588 523 1,005 1,112 2,169 Ending balance $ 84,304 $ 52,592 $ 88,552 $ 84,304 $ 88,552 The Company recognized a provision for credit losses of $36.8 million for the quarter ended March 31, 2023, compared to $32.3 million of provision for credit losses expense for the comparable period in the prior fiscal year. The increase in provision for credit losses during the current quarter compared to the prior year period was primarily driven by increases in the commercial finance portfolio and the seasonal tax services portfolio. Net charge-offs were $5.0 million for the quarter ended March 31, 2023, compared to $11.2 million for the quarter ended March 31, 2022. Net charge-offs attributable to the commercial finance and consumer finance portfolios for the current quarter were $5.9 million and $0.2 million, respectively, while a recovery of $1.1 million was recognized in the tax services portfolio. The Company's past due loans and leases were as follows for the periods presented. As of March 31, 2023 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ — $ — $ — $ — $ 24,780 $ 24,780 $ — $ — $ — Commercial finance 34,065 4,159 11,125 49,349 3,083,312 3,132,661 5,724 19,585 25,309 Consumer finance 3,261 3,857 3,217 10,335 138,313 148,648 3,217 — 3,217 Tax services 639 — — 639 60,914 61,553 — — — Warehouse finance — — — — 377,036 377,036 — — — Total loans and leases held for investment 37,965 8,016 14,342 60,323 3,659,575 3,719,898 8,941 19,585 28,526 Total loans and leases $ 37,965 $ 8,016 $ 14,342 $ 60,323 $ 3,684,355 $ 3,744,678 $ 8,941 $ 19,585 $ 28,526 As of December 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 $ — $ — $ — $ — $ 17,148 $ 17,148 $ — $ — $ — Commercial finance 19,974 11,729 17,280 48,983 2,957,890 3,006,873 13,281 25,077 38,358 Consumer finance 2,757 2,533 2,493 7,783 179,147 186,930 2,493 — 2,493 Tax services — — — — 30,364 30,364 — — — Warehouse finance — — — — 279,899 279,899 — — — Total loans and leases held for investment 22,731 14,262 19,773 56,766 3,447,300 3,504,066 15,774 25,077 40,851 Total loans and leases $ 22,731 $ 14,262 $ 19,773 $ 56,766 $ 3,464,448 $ 3,521,214 $ 15,774 $ 25,077 $ 40,851 The Company's nonperforming assets at March 31, 2023 were $30.1 million, representing 0.44% of total assets, compared to $45.0 million, or 0.68% of total assets at December 31, 2022 and $38.3 million, or 0.56% of total assets at March 31, 2022. The Company's nonperforming loans and leases at March 31, 2023, were $28.5 million, representing 0.76% of total gross loans and leases, compared to $40.9 million, or 1.16% of total gross loans and leases at December 31, 2022 and $35.8 million, or 0.95% of total gross loans and leases at March 31, 2022. The decrease in the nonperforming assets as a percentage of total assets at March 31, 2023 compared to December 31, 2022, was driven by a decrease in nonperforming loans in the commercial finance portfolio, primarily due to one sizable relationship becoming current and a partial charge-off and pay down of another lending relationship during the period. The decrease was partially offset by an increase in nonperforming loans in the consumer finance portfolio. When comparing the current period to the same period of the prior year, the decrease in nonperforming assets was due to a decrease in nonperforming loans in the commercial finance and consumer 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 March 31, 2023 Commercial finance $ 2,405,837 $ 426,543 $ 64,560 $ 230,029 $ 5,692 $ 3,132,661 Warehouse finance 377,036 — — — — 377,036 Total loans and leases $ 2,782,873 $ 426,543 $ 64,560 $ 230,029 $ 5,692 $ 3,509,697 Asset Classification (Dollars in thousands) Pass Watch Special Mention Substandard Doubtful Total As of December 31, 2022 Commercial finance $ 2,277,687 $ 441,453 $ 84,445 $ 199,401 $ 3,887 $ 3,006,873 Warehouse finance 279,899 — — — — 279,899 Total loans and leases $ 2,557,586 $ 441,453 $ 84,445 $ 199,401 $ 3,887 $ 3,286,772 Deposits, Borrowings and Other Liabilities Total average deposits for the fiscal 2023 second quarter decreased by $292.8 million to $6.39 billion compared to the same period in fiscal 2022. The decrease in average deposits was primarily due to decreases in noninterest bearing deposits and savings deposits, partially offset by an increase in money market deposits and wholesale deposits. 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 $6.47 billion for the three-month period ended March 31, 2023, compared to $6.87 billion for the same period in the prior fiscal year, representing a decrease of 6%. Total end-of-period deposits increased 1% to $5.90 billion at March 31, 2023, compared to $5.83 billion at March 31, 2022. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $72.3 million and money market deposits of $25.0 million, partially offset by decreases in savings deposits of $18.4 million, wholesale deposits of $3.5 million, and savings deposits of $2.6 million. As of March 31, 2023, the Company had $1.0 billion in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $359.2 million are on activated cards while $645.1 million are on inactivated cards. These card balances are expected to decrease by approximately $500 million over the next 18 months as recipients continue to spend them and the Company begins to return unclaimed balances to the U.S. Treasury. As of March 31, 2023, the Company managed $1.96 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 47% of the deposit balances at March 31, 2023 are subject to variable card processing expenses that are derived from the terms of contractual agreements with certain BaaS partners. These agreements are tied to a portion of a rate index, typically the EFFR. Regulatory Capital The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at March 31, 2023, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies. Regulatory capital ratios of the Company and the Bank are stated in the table below. The decrease in Tier 1 leverage capital ratio for the period is the result of higher quarterly average assets related to its seasonal tax business. The Bank Tier 1 leverage capital ratio using end of period assets of 8.32% better reflects the expected capital position post tax season. See non-GAAP reconciliation table below. Regulatory Capital is not affected by the unrealized loss on accumulated other comprehensive income (“AOCI”). The securities portfolio is primarily comprised of amortizing securities that should provide consistent cash flow. The Company does not intend to sell these securities, or recognize the unrealized losses on its income statement, to fund future loan growth. The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analysis. As of the Periods Indicated March 31, 2023(1) December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Company Tier 1 leverage capital ratio 7.53 % 8.37 % 8.10 % 8.23 % 6.80 % Common equity Tier 1 capital ratio 12.05 % 12.31 % 12.07 % 11.87 % 11.26 % Tier 1 capital ratio 12.35 % 12.63 % 12.39 % 12.19 % 11.58 % Total capital ratio 14.06 % 14.29 % 13.88 % 13.44 % 14.16 % Bank Tier 1 leverage ratio 7.79 % 8.68 % 8.19 % 8.22 % 7.79 % Common equity Tier 1 capital ratio 12.77 % 13.09 % 12.55 % 12.17 % 13.26 % Tier 1 capital ratio 12.77 % 13.09 % 12.55 % 12.18 % 13.26 % Total capital ratio 14.03 % 14.29 % 13.57 % 13.43 % 14.52 % (1) March 31, 2023 percentages are preliminary pending completion and filing of the Company's regulatory reports. Regulatory capital ratios for periods presented reflect the Company's election of the five-year CECL transition for regulatory capital purposes. 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) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Total stockholders' equity $ 673,244 $ 659,133 $ 645,140 $ 724,774 $ 763,406 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 298,390 298,788 299,186 299,616 299,983 LESS: Certain other intangible assets 23,553 25,053 26,406 27,809 30,007 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 13,219 16,641 17,968 11,978 13,404 LESS: Net unrealized gains (losses) on available for sale securities (186,796 ) (200,597 ) (211,600 ) (131,352 ) (69,838 ) LESS: Noncontrolling interest (551 ) (207 ) (30 ) 665 322 ADD: Adoption of Accounting Standards Update 2016-13 2,017 2,017 2,689 10,011 13,387 Common Equity Tier 1(1) 527,446 521,472 515,899 526,069 502,915 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 (404 ) (138 ) (20 ) 377 208 Total Tier 1 capital 540,703 534,995 529,540 540,107 516,784 Allowance for credit losses 55,058 50,853 43,623 55,506 56,051 Subordinated debentures, net of issuance costs 19,540 19,521 20,000 — 59,256 Total capital $ 615,301 $ 650,369 $ 593,163 $ 595,613 $ 632,091 (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. March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Total stockholders' equity $ 673,244 $ 659,133 $ 645,140 $ 724,774 $ 763,406 Less: Goodwill 309,505 309,505 309,505 309,505 309,505 Less: Intangible assets 22,998 24,433 25,691 27,088 29,290 Tangible common equity 340,741 325,195 309,944 388,181 424,611 Less: AOCI (187,829 ) (201,690 ) (213,080 ) (131,407 ) (69,374 ) Tangible common equity excluding AOCI $ 528,570 $ 526,885 $ 523,024 $ 519,588 $ 493,985 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 Wednesday, April 26, 2023. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-833-470-1428 (International: +1-929-526-1599) approximately 10 minutes prior to start time and reference access code 909186. A webcast replay will also be archived at www.pathwardfinancial.com for one year. About Pathward Financial, Inc. Pathward Financial, Inc.(Nasdaq: CASH) is a U.S.-based financial holding company driven by its purpose to power financial inclusion for all. Through our subsidiary, Pathward®, N.A., we strive to increase financial availability, choice, and opportunity across our Banking as a Service and Commercial Finance business lines. These strategic business lines provide end-to-end support to individuals and businesses. Learn more at www.pathwardfinancial.com. Forward-Looking Statements The Company and the Bank may from time to time make written or oral “forward-looking statements,” including statements contained in this press release, the Company’s filings with the SEC, the Company’s reports to stockholders, and in other communications by the Company and the Bank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results including our earnings per share guidance and related performance expectations; the impact of measures expected to increase efficiencies or reduce expenses; 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 the Bank equal to or greater than we enjoyed for MetaBank; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate; changes in tax laws; the strength of the United States' economy and the local economies in which the Company operates; adverse developments in the financial services industry generally such as the recent bank failures; inflation, market, and monetary fluctuations; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value of these products and services by users; the Bank's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Bank's strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the Bank of its status as a well-capitalized institution; changes in consumer spending and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase. The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2022, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason. Condensed Consolidated Statements of Financial Condition (Unaudited) (Dollars in Thousands, Except Share Data) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 ASSETS Cash and cash equivalents $ 432,598 $ 369,169 $ 388,038 $ 157,260 $ 237,680 Securities available for sale, at fair value 1,825,563 1,847,778 1,882,869 1,956,523 2,043,478 Securities held to maturity, at amortized cost 38,713 40,565 41,682 43,877 47,287 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 29,387 28,812 28,812 28,812 28,812 Loans held for sale 24,780 17,148 21,071 67,571 31,410 Loans and leases 3,725,616 3,509,730 3,536,305 3,688,566 3,730,190 Allowance for credit losses (84,304 ) (52,592 ) (45,947 ) (75,206 ) (88,552 ) Accrued interest receivable 22,434 20,170 17,979 16,818 19,115 Premises, furniture, and equipment, net 39,735 41,029 41,710 42,076 43,167 Rental equipment, net 210,844 231,129 204,371 222,023 213,033 Goodwill and intangible assets 332,503 333,938 335,196 336,593 338,795 Other assets 270,387 272,349 295,324 243,265 242,824 Total assets $ 6,868,256 $ 6,659,225 $ 6,747,410 $ 6,728,178 $ 6,887,239 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits 5,902,696 5,789,132 5,866,037 5,710,799 5,829,886 Short-term borrowings 43,000 — — — — Long-term borrowings 34,543 34,977 36,028 16,616 91,386 Accrued expenses and other liabilities 214,773 175,983 200,205 275,989 202,561 Total liabilities 6,195,012 6,000,092 6,102,270 6,003,404 6,123,833 STOCKHOLDERS’ EQUITY Preferred stock — — — — — Common stock, $.01 par value 271 282 288 294 294 Common stock, Nonvoting, $.01 par value — — — — — Additional paid-in capital 623,250 620,681 617,403 615,159 �� 612,917 Retained earnings 245,046 246,891 245,394 244,686 223,760 Accumulated other comprehensive loss (187,829 ) (201,690 ) (213,080 ) (131,407 ) (69,374 ) Treasury stock, at cost (6,943 ) (6,824 ) (4,835 ) (4,623 ) (4,513 ) Total equity attributable to parent 673,795 659,340 645,170 724,109 763,084 Noncontrolling interest (551 ) (207 ) (30 ) 665 322 Total stockholders’ equity 673,244 659,133 645,140 724,774 763,406 Total liabilities and stockholders’ equity $ 6,868,256 $ 6,659,225 $ 6,747,410 $ 6,728,178 $ 6,887,239 Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Six Months Ended (Dollars in Thousands, Except Share and Per Share Data) March 31, 2023 December 31, 2022 March 31, 2022 March 31, 2023 March 31, 2022 Interest and dividend income: Loans and leases, including fees $ 83,879 $ 68,396 $ 75,540 $ 152,275 $ 140,575 Mortgage-backed securities 10,326 10,412 5,446 20,738 9,310 Other investments 10,482 6,252 4,191 16,734 8,183 104,687 85,060 85,177 189,747 158,068 Interest expense: Deposits 2,096 142 165 2,238 306 FHLB advances and other borrowings 1,186 861 1,212 2,047 2,349 3,282 1,003 1,377 4,285 2,655 Net interest income 101,405 84,057 83,800 185,462 155,413 Provision for credit losses 36,763 9,776 32,302 46,539 32,488 Net interest income after provision for credit losses 64,642 74,281 51,498 138,923 122,925 Noninterest income: Refund transfer product fees 30,205 677 27,805 30,882 28,384 Refund advance fee income 37,995 617 39,299 38,612 40,532 Card and deposit fees 42,087 37,718 26,520 79,805 51,889 Rental income 12,940 12,708 11,375 25,648 22,452 Gain (loss) on sale of securities 82 — 260 82 397 Gain on sale of trademarks — 10,000 — 10,000 50,000 Gain (loss) on sale of other (748 ) 502 626 (246 ) (2,839 ) Other income 4,477 3,555 3,881 8,032 5,542 Total noninterest income 127,038 65,777 109,766 192,815 196,357 Noninterest expense: Compensation and benefits 47,547 43,017 45,047 90,564 83,272 Refund transfer product expense 7,863 105 6,260 7,968 6,398 Refund advance expense 1,603 27 2,002 1,630 2,185 Card processing 26,924 22,683 7,457 49,607 14,629 Occupancy and equipment expense 8,510 8,312 8,500 16,822 16,849 Operating lease equipment depreciation 14,719 9,628 8,737 24,347 17,185 Legal and consulting 4,921 9,459 9,347 14,380 15,555 Intangible amortization 1,435 1,258 2,169 2,693 3,657 Impairment expense 500 24 — 524 — Other expense 13,114 10,546 13,641 23,660 25,866 Total noninterest expense 127,136 105,059 103,160 232,195 185,596 Income before income tax expense 64,544 34,999 58,104 99,543 133,686 Income tax expense (benefit) 9,176 6,577 8,002 15,753 22,278 Net income before noncontrolling interest 55,368 28,422 50,102 83,790 111,408 Net income (loss) attributable to noncontrolling interest 597 580 851 1,177 833 Net income attributable to parent $ 54,771 $ 27,842 $ 49,251 $ 82,613 $ 110,575 Less: Allocation of Earnings to participating securities(1) 839 402 815 1,228 1,773 Net income attributable to common shareholders(1) 53,932 27,440 48,436 81,382 108,802 Earnings per common share: Basic $ 1.99 $ 0.98 $ 1.66 $ 2.95 $ 3.66 Diluted $ 1.99 $ 0.98 $ 1.66 $ 2.95 $ 3.66 Shares used in computing earnings per common share: Basic 27,078,048 28,024,541 29,212,301 27,555,197 29,731,797 Diluted 27,169,569 28,086,823 29,224,362 27,632,737 29,748,832 (1) Amounts presented are used in the two-class earnings per common share calculation. Average Balances, Interest Rates and Yields The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and in rates. Only the yield/rate reflects tax-equivalent adjustments. Nonaccruing loans and leases have been included in the table as loans carrying a zero yield. Three Months Ended March 31, 2023 2022 (Dollars in thousands) Average Outstanding Balance Interest Earned / Paid Yield / Rate(1) Average Outstanding Balance Interest Earned / Paid Yield / Rate(1) Interest-earning assets: Cash and fed funds sold $ 564,656 $ 5,843 4.20 % $ 810,857 $ 721 0.36 % Mortgage-backed securities 1,549,240 10,326 2.70 % 1,184,377 5,446 1.86 % Tax exempt investment securities 149,912 990 3.39 % 189,213 903 2.45 % Asset-backed securities 141,968 1,273 3.64 % 370,671 1,142 1.25 % Other investment securities 298,030 2,376 3.23 % 282,655 1,425 2.05 % Total investments 2,139,150 14,965 2.89 % 2,026,916 8,916 1.83 % Commercial finance 3,056,293 60,765 8.06 % 2,852,147 48,872 6.95 % Consumer finance 187,826 6,301 13.60 % 331,033 7,892 9.67 % Tax services 448,659 10,555 9.54 % 594,166 11,599 7.92 % Warehouse finance 321,334 6,258 7.90 % 467,298 7,177 6.23 % Total loans and leases 4,014,112 83,879 8.47 % 4,244,644 75,540 7.22 % Total interest-earning assets $ 6,717,918 $ 104,687 6.34 % $ 7,082,417 $ 85,177 4.89 % Noninterest-earning assets 612,020 814,151 Total assets $ 7,329,938 $ 7,896,568 Interest-bearing liabilities: Interest-bearing checking $ 267 $ — 0.33 % $ 289 $ — 0.32 % Savings 70,024 6 0.03 % 82,902 6 0.03 % Money markets 125,193 71 0.23 % 102,473 53 0.21 % Time deposits 6,948 2 0.11 % 8,682 10 0.49 % Wholesale deposits 186,421 2,017 4.39 % 173,493 96 0.22 % Total interest-bearing deposits 388,853 2,096 2.19 % 367,839 165 0.18 % Overnight fed funds purchased 46,735 543 4.71 % 95,700 62 0.26 % Subordinated debentures 19,523 354 7.34 % 74,040 1,002 5.49 % Other borrowings 15,283 289 7.68 % 17,874 148 3.35 % Total borrowings 81,541 1,186 5.90 % 187,614 1,212 2.62 % Total interest-bearing liabilities 470,394 3,282 2.83 % 555,453 1,377 1.01 % Noninterest-bearing deposits 5,997,739 — — % 6,311,583 — — % Total deposits and interest-bearing liabilities $ 6,468,133 $ 3,282 0.21 % $ 6,867,036 $ 1,377 0.08 % Other noninterest-bearing liabilities 191,360 213,982 Total liabilities 6,659,493 7,081,018 Shareholders' equity 670,445 815,550 Total liabilities and shareholders' equity $ 7,329,938 $ 7,896,568 Net interest income and net interest rate spread including noninterest-bearing deposits $ 101,405 6.13 % $ 83,800 4.81 % Net interest margin 6.12 % 4.80 % Tax-equivalent effect 0.02 % 0.01 % Net interest margin, tax-equivalent(2) 6.14 % 4.81 % (1) Tax rate used to arrive at the TEY for the three months ended March 31, 2023 and 2022 was 21%. (2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes. Selected Financial Information As of and For the Three Months Ended March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Equity to total assets 9.80 % 9.90 % 9.56 % 10.77 % 11.08 % Book value per common share outstanding $ 24.88 $ 23.36 $ 22.41 $ 24.69 $ 26.00 Tangible book value per common share outstanding $ 12.59 $ 11.53 $ 10.77 $ 13.22 $ 14.46 Tangible book value per common share outstanding excluding AOCI $ 19.54 $ 18.68 $ 18.17 $ 17.70 $ 16.82 Common shares outstanding 27,055,727 28,211,239 28,788,124 29,356,707 29,362,844 Nonperforming assets to total assets 0.44 % 0.68 % 0.46 % 0.40 % 0.56 % Nonperforming loans and leases to total loans and leases 0.76 % 1.16 % 0.82 % 0.71 % 0.95 % Net interest margin 6.12 % 5.62 % 5.21 % 4.76 % 4.80 % Net interest margin, tax-equivalent 6.14 % 5.64 % 5.23 % 4.77 % 4.81 % Return on average assets 2.99 % 1.71 % 1.39 % 1.32 % 2.49 % Return on average equity 32.68 % 17.18 % 12.82 % 11.93 % 24.16 % Full-time equivalent employees 1,164 1,150 1,141 1,178 1,167 Non-GAAP Reconciliations Adjusted Net Income and Adjusted Earnings Per Share At and For the Three Months Ended At and For the Six Months Ended (Dollars in Thousands, Except Share and Per Share Data) March 31, 2023 December 31, 2022 March 31, 2022 March 31, 2023 March 31, 2022 Net Income - GAAP $ 54,771 $ 27,842 $ 49,251 $ 82,613 $ 110,575 Less: Gain on sale of trademarks — 10,000 — 10,000 50,000 Less: Loss on disposal of certain mobile solar generators (1,993 ) — — (1,993 ) — Add: Accelerated depreciation on certain mobile solar generators 4,822 — — 4,822 — Add: Rebranding expenses — 3,737 2,819 3,737 2,822 Add: Separation related expenses — 11 878 11 965 Add: Impairment on Venture Capital investments 500 — — 500 — Add: Income tax effect resulting from the above listed items (1,829 ) 1,575 (930 ) (253 ) 11,641 Adjusted net income $ 60,257 $ 23,165 $ 52,018 $ 83,423 $ 76,002 Less: Adjusted allocation of earnings to participating securities 923 335 861 1,241 1,218 Adjusted Net income attributable to common shareholders 59,334 22,830 51,157 82,182 74,784 Weighted average diluted common shares outstanding 27,169,569 28,086,823 29,224,362 27,632,737 29,748,832 Adjusted earnings per common share - diluted $ 2.18 $ 0.81 $ 1.75 $ 2.97 $ 2.51 Adjusted Diluted Earnings Per Share Guidance (Earnings per share amounts) Fiscal Year Ended 2023 (Guidance) Diluted earnings per share - GAAP $5.55 - $5.95 Less: Net extraordinary items, net of tax(1) $0.15 Diluted earnings per share - Adjusted $5.40 - $5.80 (1) Includes gain on sale of trademarks and rebranding-related expenses. Pathward, N.A. Period-end Tier 1 Leverage (Dollars in thousands) March 31, 2023 Total stockholders' equity $ 705,060 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 298,390 LESS: Certain other intangible assets 23,553 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 13,219 LESS: Net unrealized gains (losses) on available for sale securities (186,796 ) LESS: Noncontrolling interest (551 ) ADD: Adoption of Accounting Standards Update 2016-13 2,017 Common Equity Tier 1 559,262 Tier 1 minority interest not included in common equity Tier 1 capital — Total Tier 1 capital $ 559,262 Total Assets (Quarter Average) $ 7,331,497 ADD: Available for sale securities amortized cost 244,799 ADD: Deferred tax (61,665 ) ADD: Adoption of Accounting Standards Updated 2016-13 2,017 LESS: Deductions from CET1 335,162 Adjusted total assets $ 7,181,486 Pathward, N.A. Regulatory Tier 1 Leverage 7.79 % Total Assets (Period End) $ 6,869,121 ADD: Available for sale securities amortized cost 249,694 ADD: Deferred tax (62,898 ) ADD: Adoption of Accounting Standards Updated 2016-13 2,017 LESS: Deductions from CET1 335,162 Adjusted total assets $ 6,722,772 Pathward, N.A. Period-end Tier 1 Leverage 8.32 % View source version on businesswire.com: https://www.businesswire.com/news/home/20230426005784/en/Contacts Investor Relations Contact Darby Schoenfeld, CPA SVP, Investor Relations 877-497-7497 InvestorRelations@pathward.com Media Relations Contact mediarelations@pathward.com Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. By accessing this page, you agree to the following Privacy Policy and Terms and Conditions.
Pathward Financial, Inc. Announces Results for 2023 Fiscal Second Quarter By: Pathward Financial, Inc. via Business Wire April 26, 2023 at 16:10 PM EDT Net Income of $54.8 million, or $1.99 Per Diluted Share Reaffirms Fiscal Year 2023 EPS Guidance Pathward Financial, Inc. (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $54.8 million, or $1.99 per share, for the three months ended March 31, 2023, compared to net income of $49.3 million, or $1.66 per share, for the three months ended March 31, 2022. During the quarter, when adjusting for the adverse financial impacts related to legacy mobile solar transactions and a venture capital investment impairment expense, the Company recognized adjusted net income of $60.3 million, or $2.18 per share. For the same period of the prior year, the Company recognized adjusted net income of $52.0 million, or $1.75 per share when excluding the impact of rebranding and separation expenses. See non-GAAP reconciliation table below. CEO Brett Pharr said, “Pathward generated solid results during the second quarter driven by the continued expansion of our net interest margin and higher non-interest income. We continue to benefit from servicing fee income on our off-balance deposits and see increases in the average yield on our interest-earnings assets as they reprice. We are very pleased that this year's tax season has performed above our initial expectations through the end of March. Based on these results, we are reaffirming our fiscal year 2023 GAAP earnings per diluted share guidance of $5.55 to $5.95, despite the $7.3 million adverse pre-tax impacts during the quarter.” Company Highlights On April 5, 2023, Pathward®, N.A. announced it became Certified™ by Great Place to Work® for the first time. Great Place to Work holds itself out as the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation. On February 28, 2023, the Board of Directors (the "Board") of Pathward Financial appointed Christopher Perretta as a member of the Board. Financial Highlights for the 2023 Fiscal Second Quarter Total revenue for the second quarter was $228.4 million, an increase of $34.9 million, or 18%, compared to the same quarter in fiscal 2022, driven by an increase in both noninterest income and net interest income. Net interest margin ("NIM") increased 132 basis points to 6.12% for the second quarter from 4.80% during the same period of last year primarily driven by an increase in loan and lease and investment securities yields. Total gross loans and leases at March 31, 2023 decreased $4.6 million to $3.73 billion, compared to March 31, 2022 and increased $215.9 million, or 6%, when compared to December 31, 2022. The decrease compared to the prior year quarter was primarily due to a reduction in consumer finance loans driven by the sale of the $81.5 million student loan portfolio during the fiscal 2022 fourth quarter and a reduction in warehouse finance loans, partially offset by growth in the commercial finance portfolio. The primary drivers for the increase on a linked quarter basis was growth in commercial finance and warehouse finance loans. During the 2023 fiscal second quarter, the Company recognized a total of $6.8 million in pre-tax adverse financial impacts attributable to the disposal or change in depreciable life of several mobile solar generators related to a single relationship. In fiscal year 2019, the business incurred a large impairment expense associated with one company with which it had legacy transactions that turned out to be fraudulent. At that time, the assets were written down to their market value and redeployed under an equipment lease agreement to new participants. Upon the return of the leased assets, the Company performed a due diligence assessment, which led to the determination to dispose certain generators based on their condition and adjust the depreciable life for the remaining generators to better reflect the service period based on market conditions and advancements in technology. This was an isolated event limited to this equipment and is not indicative of the remaining Rental Equipment portfolio. The remaining value of the generators on the balance sheet is $1.3 million. During the 2023 fiscal second quarter, the Company repurchased 1,172,700 shares of common stock at an average share price of $46.60. As of April 21, 2023, there are 2,468,283 shares available for repurchase under the common stock share repurchase program announced during the fourth quarter of fiscal year 2021. The Company reaffirms fiscal year 2023 GAAP earnings per share guidance and continues to expect it to be in the range of $5.55 to $5.95. See Outlook section and non-GAAP reconciliation table below. Tax Season For the six months ended March 31, 2023, total tax services product revenue was $72.4 million, an increase of 2% compared to the same period of the prior year. Total tax services product fee income, total tax services product expense, and net interest income on tax services loans all increased slightly compared to the prior year period. Total tax services product income, net of losses and direct product expenses, decreased 14% to $29.7 million from $34.4 million, when comparing the first six months of fiscal 2023 to the same period of the prior fiscal year. For the 2023 tax season, Pathward originated $1.46 billion in refund advance loans compared to $1.83 billion during the 2022 tax season. When excluding the two partners the Company did not renew after the 2022 tax season, loan originations increased $116.2 million this tax season compared to the previous year. Net Interest Income Net interest income for the second quarter of fiscal 2023 was $101.4 million, an increase of 21% from the same quarter in fiscal 2022. The increase was mainly attributable to increased yields and an improved earning asset mix. The second quarter average outstanding balance of loans and leases decreased $230.5 million compared to the same quarter of the prior fiscal year, primarily due to a reduction in tax services loans, warehouse finance loans, and consumer finance loans, partially offset by an increase in commercial finance loans. The Company’s average interest-earning assets for the second fiscal quarter decreased by $364.5 million to $6.72 billion compared with the same quarter in fiscal 2022, primarily due to a reduction in cash balances as a result of elevated cash levels during the prior year period related to the Company's participation in government stimulus programs and a decrease in total investment balances. The decrease in cash and investment balances was partially offset by growth in commercial finance loans and leases. Fiscal 2023 second quarter NIM increased to 6.12% from 4.80% in the second fiscal quarter of last year. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 145 basis points to 6.34% compared to the prior year quarter, primarily driven by an increase in loan and lease and investment securities yields, along with a decrease in cash balances. The yield on the loan and lease portfolio was 8.47% compared to 7.22% for the comparable period last year and the TEY on the securities portfolio was 2.89% compared to 1.83% over that same period. The Company's cost of funds for all deposits and borrowings averaged 0.21% during the fiscal 2023 second quarter, as compared to 0.08% during the prior year quarter. The Company's overall cost of deposits was 0.13% in the fiscal second quarter of 2023, as compared to 0.01% during the prior year quarter. Noninterest Income Fiscal 2023 second quarter noninterest income increased to $127.0 million, compared to $109.8 million for the same period of the prior year. The increase was primarily attributable to increases in card and deposit fees, rental income, tax product fee income, and other income. The period-over-period increase was partially offset by reductions in gain (loss) on sale of other and gain on sale of investments. Included in gain (loss) on sale of other during the quarter, was a $2.0 million loss on the disposal of mobile solar generators in connection with the aforementioned legacy solar transactions. The increase in card and deposit fee income was primarily from servicing fee income on off-balance sheet deposits, which totaled $18.2 million during the 2023 fiscal second quarter, as compared to $12.9 million for the fiscal quarter ended December 31, 2022 and an insignificant amount for the fiscal quarter ended March 31, 2022. Noninterest Expense Noninterest expense increased 23% to $127.1 million for the fiscal 2023 second quarter, from $103.2 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, operating lease equipment depreciation, compensation expense, total tax services expense, and impairment expense. The period over period increase was partially offset by decreases in legal and consulting expense, amortization expense, and other expense. The increase in operating lease equipment depreciation was due to $4.8 million of accelerated depreciation on mobile solar generators in connection with the aforementioned legacy mobile solar transactions. During the second quarter of fiscal year 2023, the Company recognized $0.5 million of impairment expense related to an investment in its Pathward Venture Capital business. The card processing expense increase was due to structured agreements with banking as a service ("BaaS") partners. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally this rate index averages between 50% to 85% of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 47% of the deposit portfolio was subject to these higher card processing expenses. For the fiscal quarter ended March 31, 2023, card processing expenses related to these structured agreements were $20.4 million, as compared to $14.0 million for the fiscal quarter ended December 31, 2022 and $0.2 million for the fiscal quarter ended March 31, 2022. Income Tax Expense The Company recorded an income tax expense of $9.2 million, representing an effective tax rate of 14.2%, for the fiscal 2023 second quarter, compared to income tax expense of $8.0 million, representing an effective tax rate of 13.8%, for the second quarter last fiscal year. The current quarter increase in income tax expense was primarily due to increased earnings. The Company originated $18.1 million in solar leases during the fiscal 2023 second quarter, resulting in $4.9 million in total net investment tax credits. During the second quarter of fiscal 2022, the Company originated $1.3 million in solar leases resulting in $0.3 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 six months ended March 31, 2023, the Company originated $29.5 million in solar leases, compared to $22.5 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, adverse developments in the financial services industry generally, 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 reaffirms fiscal year 2023 GAAP earnings per share guidance and continues to expect it to be in the range of $5.55 to $5.95. When adjusting for gain on sale of trademarks and rebrand related expenses, the Company expects fiscal year 2023 adjusted earnings per share to be in the range of $5.40 to $5.80. See non-GAAP reconciliation table below. Investments, Loans and Leases (Dollars in thousands) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Total investments $ 1,864,276 $ 1,888,343 $ 1,924,551 $ 2,000,400 $ 2,090,765 Loans held for sale Consumer credit products 24,780 17,148 21,071 23,710 23,670 SBA/USDA — — — 43,861 7,740 Total loans held for sale 24,780 17,148 21,071 67,571 31,410 Term lending 1,235,453 1,160,100 1,090,289 1,047,764 1,111,076 Asset based lending 377,965 359,516 351,696 402,506 382,355 Factoring 338,884 338,594 372,595 408,777 394,865 Lease financing 170,645 189,868 210,692 218,789 235,397 Insurance premium finance 437,700 436,977 479,754 481,219 403,681 SBA/USDA 405,612 357,084 359,238 215,510 214,195 Other commercial finance 166,402 164,734 159,409 173,338 173,260 Commercial finance 3,132,661 3,006,873 3,023,673 2,947,903 2,914,829 Consumer credit products 120,739 130,750 144,353 152,106 171,847 Other consumer finance 27,909 56,180 25,306 107,135 111,922 Consumer finance 148,648 186,930 169,659 259,241 283,769 Tax services 61,553 30,364 9,098 41,627 85,999 Warehouse finance 377,036 279,899 326,850 434,748 441,496 Total loans and leases 3,719,898 3,504,066 3,529,280 3,683,519 3,726,093 Net deferred loan origination costs 5,718 5,664 7,025 5,047 4,097 Total gross loans and leases 3,725,616 3,509,730 3,536,305 3,688,566 3,730,190 Allowance for credit losses (84,304 ) (52,592 ) (45,947 ) (75,206 ) (88,552 ) Total loans and leases, net $ 3,641,312 $ 3,457,138 $ 3,490,358 $ 3,613,360 $ 3,641,638 The Company's investment security balances at March 31, 2023 totaled $1.86 billion, as compared to $1.89 billion at December 31, 2022 and $2.09 billion at March 31, 2022. Total gross loans and leases totaled $3.73 billion at March 31, 2023, as compared to $3.51 billion at December 31, 2022 and $3.73 billion at March 31, 2022. The primary driver for the increase on a linked quarter basis was due to increases in commercial finance, warehouse finance, and the seasonal tax services portfolio, partially offset by a decrease in the consumer finance portfolio. The year-over-year decrease was primarily due a reduction in consumer finance loans driven by the sale of the student loan portfolio during the fiscal 2022 fourth quarter, a reduction in warehouse finance loans, and a reduction in seasonal tax services loans, partially offset by growth in our commercial finance portfolio. Commercial finance loans, which comprised 84% of the Company's gross loan and lease portfolio, totaled $3.13 billion at March 31, 2023, reflecting an increase of $125.8 million, or 4%, from December 31, 2022 and an increase of $217.8 million, or 7%, from March 31, 2022. Asset Quality The Company’s allowance for credit losses ("ACL") totaled $84.3 million at March 31, 2023, an increase compared to $52.6 million at December 31, 2022 and a decrease from $88.6 million at March 31, 2022. The increase in the ACL at March 31, 2023, when compared to December 31, 2022, was primarily due to a $32.5 million increase in the allowance related to the seasonal tax services portfolio, partially offset by a $0.9 million decrease in the allowance related to the commercial finance portfolio. The $4.2 million year-over-year decrease in the ACL was primarily driven by a $6.0 million decrease in the allowance related to the consumer finance portfolio and a $0.5 million decrease in the allowance related to the commercial finance portfolio, partially offset by a $2.3 million increase in the allowance related to the seasonal tax services portfolio. The year-over-year decrease in the allowance related to the consumer finance portfolio was primarily attributable to the sale of the student loan portfolio during the fourth quarter of fiscal 2022. The following table presents the Company's ACL as a percentage of its total loans and leases. As of the Period Ended (Unaudited) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Commercial finance 1.53 % 1.62 % 1.46 % 1.56 % 1.66 % Consumer finance 1.99 % 1.54 % 0.86 % 2.44 % 3.18 % Tax services 53.77 % 2.01 % 0.05 % 54.29 % 35.76 % Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % Total loans and leases 2.27 % 1.50 % 1.30 % 2.04 % 2.38 % Total loans and leases excluding tax services 1.40 % 1.50 % 1.30 % 1.44 % 1.59 % The Company's ACL as a percentage of total loans and leases increased to 2.27% at March 31, 2023 from 1.50% at December 31, 2022. The increase in the total loans and leases coverage ratio was primarily driven by the seasonal tax services portfolio, and to a lesser extent the consumer finance portfolio. The increase in the consumer finance was related to seasonal activity. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level. Activity in the allowance for credit losses for the periods presented was as follows. (Unaudited) Three Months Ended Six Months Ended (Dollars in thousands) March 31, 2023 December 31, 2022 March 31, 2022 March 31, 2023 March 31, 2022 Beginning balance $ 52,592 $ 45,947 $ 67,623 $ 45,947 $ 68,281 Provision (reversal of) - tax services loans 31,422 1,637 28,972 33,059 28,259 Provision (reversal of) - all other loans and leases 5,264 8,226 3,183 13,490 4,368 Charge-offs - tax services loans — (1,731 ) — (1,731 ) (254 ) Charge-offs - all other loans and leases (6,625 ) (2,708 ) (12,415 ) (9,334 ) (17,021 ) Recoveries - tax services loans 1,063 698 184 1,761 2,750 Recoveries - all other loans and leases 588 523 1,005 1,112 2,169 Ending balance $ 84,304 $ 52,592 $ 88,552 $ 84,304 $ 88,552 The Company recognized a provision for credit losses of $36.8 million for the quarter ended March 31, 2023, compared to $32.3 million of provision for credit losses expense for the comparable period in the prior fiscal year. The increase in provision for credit losses during the current quarter compared to the prior year period was primarily driven by increases in the commercial finance portfolio and the seasonal tax services portfolio. Net charge-offs were $5.0 million for the quarter ended March 31, 2023, compared to $11.2 million for the quarter ended March 31, 2022. Net charge-offs attributable to the commercial finance and consumer finance portfolios for the current quarter were $5.9 million and $0.2 million, respectively, while a recovery of $1.1 million was recognized in the tax services portfolio. The Company's past due loans and leases were as follows for the periods presented. As of March 31, 2023 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ — $ — $ — $ — $ 24,780 $ 24,780 $ — $ — $ — Commercial finance 34,065 4,159 11,125 49,349 3,083,312 3,132,661 5,724 19,585 25,309 Consumer finance 3,261 3,857 3,217 10,335 138,313 148,648 3,217 — 3,217 Tax services 639 — — 639 60,914 61,553 — — — Warehouse finance — — — — 377,036 377,036 — — — Total loans and leases held for investment 37,965 8,016 14,342 60,323 3,659,575 3,719,898 8,941 19,585 28,526 Total loans and leases $ 37,965 $ 8,016 $ 14,342 $ 60,323 $ 3,684,355 $ 3,744,678 $ 8,941 $ 19,585 $ 28,526 As of December 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 $ — $ — $ — $ — $ 17,148 $ 17,148 $ — $ — $ — Commercial finance 19,974 11,729 17,280 48,983 2,957,890 3,006,873 13,281 25,077 38,358 Consumer finance 2,757 2,533 2,493 7,783 179,147 186,930 2,493 — 2,493 Tax services — — — — 30,364 30,364 — — — Warehouse finance — — — — 279,899 279,899 — — — Total loans and leases held for investment 22,731 14,262 19,773 56,766 3,447,300 3,504,066 15,774 25,077 40,851 Total loans and leases $ 22,731 $ 14,262 $ 19,773 $ 56,766 $ 3,464,448 $ 3,521,214 $ 15,774 $ 25,077 $ 40,851 The Company's nonperforming assets at March 31, 2023 were $30.1 million, representing 0.44% of total assets, compared to $45.0 million, or 0.68% of total assets at December 31, 2022 and $38.3 million, or 0.56% of total assets at March 31, 2022. The Company's nonperforming loans and leases at March 31, 2023, were $28.5 million, representing 0.76% of total gross loans and leases, compared to $40.9 million, or 1.16% of total gross loans and leases at December 31, 2022 and $35.8 million, or 0.95% of total gross loans and leases at March 31, 2022. The decrease in the nonperforming assets as a percentage of total assets at March 31, 2023 compared to December 31, 2022, was driven by a decrease in nonperforming loans in the commercial finance portfolio, primarily due to one sizable relationship becoming current and a partial charge-off and pay down of another lending relationship during the period. The decrease was partially offset by an increase in nonperforming loans in the consumer finance portfolio. When comparing the current period to the same period of the prior year, the decrease in nonperforming assets was due to a decrease in nonperforming loans in the commercial finance and consumer 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 March 31, 2023 Commercial finance $ 2,405,837 $ 426,543 $ 64,560 $ 230,029 $ 5,692 $ 3,132,661 Warehouse finance 377,036 — — — — 377,036 Total loans and leases $ 2,782,873 $ 426,543 $ 64,560 $ 230,029 $ 5,692 $ 3,509,697 Asset Classification (Dollars in thousands) Pass Watch Special Mention Substandard Doubtful Total As of December 31, 2022 Commercial finance $ 2,277,687 $ 441,453 $ 84,445 $ 199,401 $ 3,887 $ 3,006,873 Warehouse finance 279,899 — — — — 279,899 Total loans and leases $ 2,557,586 $ 441,453 $ 84,445 $ 199,401 $ 3,887 $ 3,286,772 Deposits, Borrowings and Other Liabilities Total average deposits for the fiscal 2023 second quarter decreased by $292.8 million to $6.39 billion compared to the same period in fiscal 2022. The decrease in average deposits was primarily due to decreases in noninterest bearing deposits and savings deposits, partially offset by an increase in money market deposits and wholesale deposits. 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 $6.47 billion for the three-month period ended March 31, 2023, compared to $6.87 billion for the same period in the prior fiscal year, representing a decrease of 6%. Total end-of-period deposits increased 1% to $5.90 billion at March 31, 2023, compared to $5.83 billion at March 31, 2022. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $72.3 million and money market deposits of $25.0 million, partially offset by decreases in savings deposits of $18.4 million, wholesale deposits of $3.5 million, and savings deposits of $2.6 million. As of March 31, 2023, the Company had $1.0 billion in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $359.2 million are on activated cards while $645.1 million are on inactivated cards. These card balances are expected to decrease by approximately $500 million over the next 18 months as recipients continue to spend them and the Company begins to return unclaimed balances to the U.S. Treasury. As of March 31, 2023, the Company managed $1.96 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 47% of the deposit balances at March 31, 2023 are subject to variable card processing expenses that are derived from the terms of contractual agreements with certain BaaS partners. These agreements are tied to a portion of a rate index, typically the EFFR. Regulatory Capital The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at March 31, 2023, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies. Regulatory capital ratios of the Company and the Bank are stated in the table below. The decrease in Tier 1 leverage capital ratio for the period is the result of higher quarterly average assets related to its seasonal tax business. The Bank Tier 1 leverage capital ratio using end of period assets of 8.32% better reflects the expected capital position post tax season. See non-GAAP reconciliation table below. Regulatory Capital is not affected by the unrealized loss on accumulated other comprehensive income (“AOCI”). The securities portfolio is primarily comprised of amortizing securities that should provide consistent cash flow. The Company does not intend to sell these securities, or recognize the unrealized losses on its income statement, to fund future loan growth. The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analysis. As of the Periods Indicated March 31, 2023(1) December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Company Tier 1 leverage capital ratio 7.53 % 8.37 % 8.10 % 8.23 % 6.80 % Common equity Tier 1 capital ratio 12.05 % 12.31 % 12.07 % 11.87 % 11.26 % Tier 1 capital ratio 12.35 % 12.63 % 12.39 % 12.19 % 11.58 % Total capital ratio 14.06 % 14.29 % 13.88 % 13.44 % 14.16 % Bank Tier 1 leverage ratio 7.79 % 8.68 % 8.19 % 8.22 % 7.79 % Common equity Tier 1 capital ratio 12.77 % 13.09 % 12.55 % 12.17 % 13.26 % Tier 1 capital ratio 12.77 % 13.09 % 12.55 % 12.18 % 13.26 % Total capital ratio 14.03 % 14.29 % 13.57 % 13.43 % 14.52 % (1) March 31, 2023 percentages are preliminary pending completion and filing of the Company's regulatory reports. Regulatory capital ratios for periods presented reflect the Company's election of the five-year CECL transition for regulatory capital purposes. 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) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Total stockholders' equity $ 673,244 $ 659,133 $ 645,140 $ 724,774 $ 763,406 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 298,390 298,788 299,186 299,616 299,983 LESS: Certain other intangible assets 23,553 25,053 26,406 27,809 30,007 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 13,219 16,641 17,968 11,978 13,404 LESS: Net unrealized gains (losses) on available for sale securities (186,796 ) (200,597 ) (211,600 ) (131,352 ) (69,838 ) LESS: Noncontrolling interest (551 ) (207 ) (30 ) 665 322 ADD: Adoption of Accounting Standards Update 2016-13 2,017 2,017 2,689 10,011 13,387 Common Equity Tier 1(1) 527,446 521,472 515,899 526,069 502,915 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 (404 ) (138 ) (20 ) 377 208 Total Tier 1 capital 540,703 534,995 529,540 540,107 516,784 Allowance for credit losses 55,058 50,853 43,623 55,506 56,051 Subordinated debentures, net of issuance costs 19,540 19,521 20,000 — 59,256 Total capital $ 615,301 $ 650,369 $ 593,163 $ 595,613 $ 632,091 (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. March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Total stockholders' equity $ 673,244 $ 659,133 $ 645,140 $ 724,774 $ 763,406 Less: Goodwill 309,505 309,505 309,505 309,505 309,505 Less: Intangible assets 22,998 24,433 25,691 27,088 29,290 Tangible common equity 340,741 325,195 309,944 388,181 424,611 Less: AOCI (187,829 ) (201,690 ) (213,080 ) (131,407 ) (69,374 ) Tangible common equity excluding AOCI $ 528,570 $ 526,885 $ 523,024 $ 519,588 $ 493,985 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 Wednesday, April 26, 2023. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-833-470-1428 (International: +1-929-526-1599) approximately 10 minutes prior to start time and reference access code 909186. A webcast replay will also be archived at www.pathwardfinancial.com for one year. About Pathward Financial, Inc. Pathward Financial, Inc.(Nasdaq: CASH) is a U.S.-based financial holding company driven by its purpose to power financial inclusion for all. Through our subsidiary, Pathward®, N.A., we strive to increase financial availability, choice, and opportunity across our Banking as a Service and Commercial Finance business lines. These strategic business lines provide end-to-end support to individuals and businesses. Learn more at www.pathwardfinancial.com. Forward-Looking Statements The Company and the Bank may from time to time make written or oral “forward-looking statements,” including statements contained in this press release, the Company’s filings with the SEC, the Company’s reports to stockholders, and in other communications by the Company and the Bank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results including our earnings per share guidance and related performance expectations; the impact of measures expected to increase efficiencies or reduce expenses; 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 the Bank equal to or greater than we enjoyed for MetaBank; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate; changes in tax laws; the strength of the United States' economy and the local economies in which the Company operates; adverse developments in the financial services industry generally such as the recent bank failures; inflation, market, and monetary fluctuations; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value of these products and services by users; the Bank's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Bank's strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the Bank of its status as a well-capitalized institution; changes in consumer spending and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase. The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2022, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason. Condensed Consolidated Statements of Financial Condition (Unaudited) (Dollars in Thousands, Except Share Data) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 ASSETS Cash and cash equivalents $ 432,598 $ 369,169 $ 388,038 $ 157,260 $ 237,680 Securities available for sale, at fair value 1,825,563 1,847,778 1,882,869 1,956,523 2,043,478 Securities held to maturity, at amortized cost 38,713 40,565 41,682 43,877 47,287 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 29,387 28,812 28,812 28,812 28,812 Loans held for sale 24,780 17,148 21,071 67,571 31,410 Loans and leases 3,725,616 3,509,730 3,536,305 3,688,566 3,730,190 Allowance for credit losses (84,304 ) (52,592 ) (45,947 ) (75,206 ) (88,552 ) Accrued interest receivable 22,434 20,170 17,979 16,818 19,115 Premises, furniture, and equipment, net 39,735 41,029 41,710 42,076 43,167 Rental equipment, net 210,844 231,129 204,371 222,023 213,033 Goodwill and intangible assets 332,503 333,938 335,196 336,593 338,795 Other assets 270,387 272,349 295,324 243,265 242,824 Total assets $ 6,868,256 $ 6,659,225 $ 6,747,410 $ 6,728,178 $ 6,887,239 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits 5,902,696 5,789,132 5,866,037 5,710,799 5,829,886 Short-term borrowings 43,000 — — — — Long-term borrowings 34,543 34,977 36,028 16,616 91,386 Accrued expenses and other liabilities 214,773 175,983 200,205 275,989 202,561 Total liabilities 6,195,012 6,000,092 6,102,270 6,003,404 6,123,833 STOCKHOLDERS’ EQUITY Preferred stock — — — — — Common stock, $.01 par value 271 282 288 294 294 Common stock, Nonvoting, $.01 par value — — — — — Additional paid-in capital 623,250 620,681 617,403 615,159 �� 612,917 Retained earnings 245,046 246,891 245,394 244,686 223,760 Accumulated other comprehensive loss (187,829 ) (201,690 ) (213,080 ) (131,407 ) (69,374 ) Treasury stock, at cost (6,943 ) (6,824 ) (4,835 ) (4,623 ) (4,513 ) Total equity attributable to parent 673,795 659,340 645,170 724,109 763,084 Noncontrolling interest (551 ) (207 ) (30 ) 665 322 Total stockholders’ equity 673,244 659,133 645,140 724,774 763,406 Total liabilities and stockholders’ equity $ 6,868,256 $ 6,659,225 $ 6,747,410 $ 6,728,178 $ 6,887,239 Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Six Months Ended (Dollars in Thousands, Except Share and Per Share Data) March 31, 2023 December 31, 2022 March 31, 2022 March 31, 2023 March 31, 2022 Interest and dividend income: Loans and leases, including fees $ 83,879 $ 68,396 $ 75,540 $ 152,275 $ 140,575 Mortgage-backed securities 10,326 10,412 5,446 20,738 9,310 Other investments 10,482 6,252 4,191 16,734 8,183 104,687 85,060 85,177 189,747 158,068 Interest expense: Deposits 2,096 142 165 2,238 306 FHLB advances and other borrowings 1,186 861 1,212 2,047 2,349 3,282 1,003 1,377 4,285 2,655 Net interest income 101,405 84,057 83,800 185,462 155,413 Provision for credit losses 36,763 9,776 32,302 46,539 32,488 Net interest income after provision for credit losses 64,642 74,281 51,498 138,923 122,925 Noninterest income: Refund transfer product fees 30,205 677 27,805 30,882 28,384 Refund advance fee income 37,995 617 39,299 38,612 40,532 Card and deposit fees 42,087 37,718 26,520 79,805 51,889 Rental income 12,940 12,708 11,375 25,648 22,452 Gain (loss) on sale of securities 82 — 260 82 397 Gain on sale of trademarks — 10,000 — 10,000 50,000 Gain (loss) on sale of other (748 ) 502 626 (246 ) (2,839 ) Other income 4,477 3,555 3,881 8,032 5,542 Total noninterest income 127,038 65,777 109,766 192,815 196,357 Noninterest expense: Compensation and benefits 47,547 43,017 45,047 90,564 83,272 Refund transfer product expense 7,863 105 6,260 7,968 6,398 Refund advance expense 1,603 27 2,002 1,630 2,185 Card processing 26,924 22,683 7,457 49,607 14,629 Occupancy and equipment expense 8,510 8,312 8,500 16,822 16,849 Operating lease equipment depreciation 14,719 9,628 8,737 24,347 17,185 Legal and consulting 4,921 9,459 9,347 14,380 15,555 Intangible amortization 1,435 1,258 2,169 2,693 3,657 Impairment expense 500 24 — 524 — Other expense 13,114 10,546 13,641 23,660 25,866 Total noninterest expense 127,136 105,059 103,160 232,195 185,596 Income before income tax expense 64,544 34,999 58,104 99,543 133,686 Income tax expense (benefit) 9,176 6,577 8,002 15,753 22,278 Net income before noncontrolling interest 55,368 28,422 50,102 83,790 111,408 Net income (loss) attributable to noncontrolling interest 597 580 851 1,177 833 Net income attributable to parent $ 54,771 $ 27,842 $ 49,251 $ 82,613 $ 110,575 Less: Allocation of Earnings to participating securities(1) 839 402 815 1,228 1,773 Net income attributable to common shareholders(1) 53,932 27,440 48,436 81,382 108,802 Earnings per common share: Basic $ 1.99 $ 0.98 $ 1.66 $ 2.95 $ 3.66 Diluted $ 1.99 $ 0.98 $ 1.66 $ 2.95 $ 3.66 Shares used in computing earnings per common share: Basic 27,078,048 28,024,541 29,212,301 27,555,197 29,731,797 Diluted 27,169,569 28,086,823 29,224,362 27,632,737 29,748,832 (1) Amounts presented are used in the two-class earnings per common share calculation. Average Balances, Interest Rates and Yields The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and in rates. Only the yield/rate reflects tax-equivalent adjustments. Nonaccruing loans and leases have been included in the table as loans carrying a zero yield. Three Months Ended March 31, 2023 2022 (Dollars in thousands) Average Outstanding Balance Interest Earned / Paid Yield / Rate(1) Average Outstanding Balance Interest Earned / Paid Yield / Rate(1) Interest-earning assets: Cash and fed funds sold $ 564,656 $ 5,843 4.20 % $ 810,857 $ 721 0.36 % Mortgage-backed securities 1,549,240 10,326 2.70 % 1,184,377 5,446 1.86 % Tax exempt investment securities 149,912 990 3.39 % 189,213 903 2.45 % Asset-backed securities 141,968 1,273 3.64 % 370,671 1,142 1.25 % Other investment securities 298,030 2,376 3.23 % 282,655 1,425 2.05 % Total investments 2,139,150 14,965 2.89 % 2,026,916 8,916 1.83 % Commercial finance 3,056,293 60,765 8.06 % 2,852,147 48,872 6.95 % Consumer finance 187,826 6,301 13.60 % 331,033 7,892 9.67 % Tax services 448,659 10,555 9.54 % 594,166 11,599 7.92 % Warehouse finance 321,334 6,258 7.90 % 467,298 7,177 6.23 % Total loans and leases 4,014,112 83,879 8.47 % 4,244,644 75,540 7.22 % Total interest-earning assets $ 6,717,918 $ 104,687 6.34 % $ 7,082,417 $ 85,177 4.89 % Noninterest-earning assets 612,020 814,151 Total assets $ 7,329,938 $ 7,896,568 Interest-bearing liabilities: Interest-bearing checking $ 267 $ — 0.33 % $ 289 $ — 0.32 % Savings 70,024 6 0.03 % 82,902 6 0.03 % Money markets 125,193 71 0.23 % 102,473 53 0.21 % Time deposits 6,948 2 0.11 % 8,682 10 0.49 % Wholesale deposits 186,421 2,017 4.39 % 173,493 96 0.22 % Total interest-bearing deposits 388,853 2,096 2.19 % 367,839 165 0.18 % Overnight fed funds purchased 46,735 543 4.71 % 95,700 62 0.26 % Subordinated debentures 19,523 354 7.34 % 74,040 1,002 5.49 % Other borrowings 15,283 289 7.68 % 17,874 148 3.35 % Total borrowings 81,541 1,186 5.90 % 187,614 1,212 2.62 % Total interest-bearing liabilities 470,394 3,282 2.83 % 555,453 1,377 1.01 % Noninterest-bearing deposits 5,997,739 — — % 6,311,583 — — % Total deposits and interest-bearing liabilities $ 6,468,133 $ 3,282 0.21 % $ 6,867,036 $ 1,377 0.08 % Other noninterest-bearing liabilities 191,360 213,982 Total liabilities 6,659,493 7,081,018 Shareholders' equity 670,445 815,550 Total liabilities and shareholders' equity $ 7,329,938 $ 7,896,568 Net interest income and net interest rate spread including noninterest-bearing deposits $ 101,405 6.13 % $ 83,800 4.81 % Net interest margin 6.12 % 4.80 % Tax-equivalent effect 0.02 % 0.01 % Net interest margin, tax-equivalent(2) 6.14 % 4.81 % (1) Tax rate used to arrive at the TEY for the three months ended March 31, 2023 and 2022 was 21%. (2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes. Selected Financial Information As of and For the Three Months Ended March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Equity to total assets 9.80 % 9.90 % 9.56 % 10.77 % 11.08 % Book value per common share outstanding $ 24.88 $ 23.36 $ 22.41 $ 24.69 $ 26.00 Tangible book value per common share outstanding $ 12.59 $ 11.53 $ 10.77 $ 13.22 $ 14.46 Tangible book value per common share outstanding excluding AOCI $ 19.54 $ 18.68 $ 18.17 $ 17.70 $ 16.82 Common shares outstanding 27,055,727 28,211,239 28,788,124 29,356,707 29,362,844 Nonperforming assets to total assets 0.44 % 0.68 % 0.46 % 0.40 % 0.56 % Nonperforming loans and leases to total loans and leases 0.76 % 1.16 % 0.82 % 0.71 % 0.95 % Net interest margin 6.12 % 5.62 % 5.21 % 4.76 % 4.80 % Net interest margin, tax-equivalent 6.14 % 5.64 % 5.23 % 4.77 % 4.81 % Return on average assets 2.99 % 1.71 % 1.39 % 1.32 % 2.49 % Return on average equity 32.68 % 17.18 % 12.82 % 11.93 % 24.16 % Full-time equivalent employees 1,164 1,150 1,141 1,178 1,167 Non-GAAP Reconciliations Adjusted Net Income and Adjusted Earnings Per Share At and For the Three Months Ended At and For the Six Months Ended (Dollars in Thousands, Except Share and Per Share Data) March 31, 2023 December 31, 2022 March 31, 2022 March 31, 2023 March 31, 2022 Net Income - GAAP $ 54,771 $ 27,842 $ 49,251 $ 82,613 $ 110,575 Less: Gain on sale of trademarks — 10,000 — 10,000 50,000 Less: Loss on disposal of certain mobile solar generators (1,993 ) — — (1,993 ) — Add: Accelerated depreciation on certain mobile solar generators 4,822 — — 4,822 — Add: Rebranding expenses — 3,737 2,819 3,737 2,822 Add: Separation related expenses — 11 878 11 965 Add: Impairment on Venture Capital investments 500 — — 500 — Add: Income tax effect resulting from the above listed items (1,829 ) 1,575 (930 ) (253 ) 11,641 Adjusted net income $ 60,257 $ 23,165 $ 52,018 $ 83,423 $ 76,002 Less: Adjusted allocation of earnings to participating securities 923 335 861 1,241 1,218 Adjusted Net income attributable to common shareholders 59,334 22,830 51,157 82,182 74,784 Weighted average diluted common shares outstanding 27,169,569 28,086,823 29,224,362 27,632,737 29,748,832 Adjusted earnings per common share - diluted $ 2.18 $ 0.81 $ 1.75 $ 2.97 $ 2.51 Adjusted Diluted Earnings Per Share Guidance (Earnings per share amounts) Fiscal Year Ended 2023 (Guidance) Diluted earnings per share - GAAP $5.55 - $5.95 Less: Net extraordinary items, net of tax(1) $0.15 Diluted earnings per share - Adjusted $5.40 - $5.80 (1) Includes gain on sale of trademarks and rebranding-related expenses. Pathward, N.A. Period-end Tier 1 Leverage (Dollars in thousands) March 31, 2023 Total stockholders' equity $ 705,060 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 298,390 LESS: Certain other intangible assets 23,553 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 13,219 LESS: Net unrealized gains (losses) on available for sale securities (186,796 ) LESS: Noncontrolling interest (551 ) ADD: Adoption of Accounting Standards Update 2016-13 2,017 Common Equity Tier 1 559,262 Tier 1 minority interest not included in common equity Tier 1 capital — Total Tier 1 capital $ 559,262 Total Assets (Quarter Average) $ 7,331,497 ADD: Available for sale securities amortized cost 244,799 ADD: Deferred tax (61,665 ) ADD: Adoption of Accounting Standards Updated 2016-13 2,017 LESS: Deductions from CET1 335,162 Adjusted total assets $ 7,181,486 Pathward, N.A. Regulatory Tier 1 Leverage 7.79 % Total Assets (Period End) $ 6,869,121 ADD: Available for sale securities amortized cost 249,694 ADD: Deferred tax (62,898 ) ADD: Adoption of Accounting Standards Updated 2016-13 2,017 LESS: Deductions from CET1 335,162 Adjusted total assets $ 6,722,772 Pathward, N.A. Period-end Tier 1 Leverage 8.32 % View source version on businesswire.com: https://www.businesswire.com/news/home/20230426005784/en/Contacts Investor Relations Contact Darby Schoenfeld, CPA SVP, Investor Relations 877-497-7497 InvestorRelations@pathward.com Media Relations Contact mediarelations@pathward.com
Pathward Financial, Inc. (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $54.8 million, or $1.99 per share, for the three months ended March 31, 2023, compared to net income of $49.3 million, or $1.66 per share, for the three months ended March 31, 2022. During the quarter, when adjusting for the adverse financial impacts related to legacy mobile solar transactions and a venture capital investment impairment expense, the Company recognized adjusted net income of $60.3 million, or $2.18 per share. For the same period of the prior year, the Company recognized adjusted net income of $52.0 million, or $1.75 per share when excluding the impact of rebranding and separation expenses. See non-GAAP reconciliation table below. CEO Brett Pharr said, “Pathward generated solid results during the second quarter driven by the continued expansion of our net interest margin and higher non-interest income. We continue to benefit from servicing fee income on our off-balance deposits and see increases in the average yield on our interest-earnings assets as they reprice. We are very pleased that this year's tax season has performed above our initial expectations through the end of March. Based on these results, we are reaffirming our fiscal year 2023 GAAP earnings per diluted share guidance of $5.55 to $5.95, despite the $7.3 million adverse pre-tax impacts during the quarter.” Company Highlights On April 5, 2023, Pathward®, N.A. announced it became Certified™ by Great Place to Work® for the first time. Great Place to Work holds itself out as the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation. On February 28, 2023, the Board of Directors (the "Board") of Pathward Financial appointed Christopher Perretta as a member of the Board. Financial Highlights for the 2023 Fiscal Second Quarter Total revenue for the second quarter was $228.4 million, an increase of $34.9 million, or 18%, compared to the same quarter in fiscal 2022, driven by an increase in both noninterest income and net interest income. Net interest margin ("NIM") increased 132 basis points to 6.12% for the second quarter from 4.80% during the same period of last year primarily driven by an increase in loan and lease and investment securities yields. Total gross loans and leases at March 31, 2023 decreased $4.6 million to $3.73 billion, compared to March 31, 2022 and increased $215.9 million, or 6%, when compared to December 31, 2022. The decrease compared to the prior year quarter was primarily due to a reduction in consumer finance loans driven by the sale of the $81.5 million student loan portfolio during the fiscal 2022 fourth quarter and a reduction in warehouse finance loans, partially offset by growth in the commercial finance portfolio. The primary drivers for the increase on a linked quarter basis was growth in commercial finance and warehouse finance loans. During the 2023 fiscal second quarter, the Company recognized a total of $6.8 million in pre-tax adverse financial impacts attributable to the disposal or change in depreciable life of several mobile solar generators related to a single relationship. In fiscal year 2019, the business incurred a large impairment expense associated with one company with which it had legacy transactions that turned out to be fraudulent. At that time, the assets were written down to their market value and redeployed under an equipment lease agreement to new participants. Upon the return of the leased assets, the Company performed a due diligence assessment, which led to the determination to dispose certain generators based on their condition and adjust the depreciable life for the remaining generators to better reflect the service period based on market conditions and advancements in technology. This was an isolated event limited to this equipment and is not indicative of the remaining Rental Equipment portfolio. The remaining value of the generators on the balance sheet is $1.3 million. During the 2023 fiscal second quarter, the Company repurchased 1,172,700 shares of common stock at an average share price of $46.60. As of April 21, 2023, there are 2,468,283 shares available for repurchase under the common stock share repurchase program announced during the fourth quarter of fiscal year 2021. The Company reaffirms fiscal year 2023 GAAP earnings per share guidance and continues to expect it to be in the range of $5.55 to $5.95. See Outlook section and non-GAAP reconciliation table below. Tax Season For the six months ended March 31, 2023, total tax services product revenue was $72.4 million, an increase of 2% compared to the same period of the prior year. Total tax services product fee income, total tax services product expense, and net interest income on tax services loans all increased slightly compared to the prior year period. Total tax services product income, net of losses and direct product expenses, decreased 14% to $29.7 million from $34.4 million, when comparing the first six months of fiscal 2023 to the same period of the prior fiscal year. For the 2023 tax season, Pathward originated $1.46 billion in refund advance loans compared to $1.83 billion during the 2022 tax season. When excluding the two partners the Company did not renew after the 2022 tax season, loan originations increased $116.2 million this tax season compared to the previous year. Net Interest Income Net interest income for the second quarter of fiscal 2023 was $101.4 million, an increase of 21% from the same quarter in fiscal 2022. The increase was mainly attributable to increased yields and an improved earning asset mix. The second quarter average outstanding balance of loans and leases decreased $230.5 million compared to the same quarter of the prior fiscal year, primarily due to a reduction in tax services loans, warehouse finance loans, and consumer finance loans, partially offset by an increase in commercial finance loans. The Company’s average interest-earning assets for the second fiscal quarter decreased by $364.5 million to $6.72 billion compared with the same quarter in fiscal 2022, primarily due to a reduction in cash balances as a result of elevated cash levels during the prior year period related to the Company's participation in government stimulus programs and a decrease in total investment balances. The decrease in cash and investment balances was partially offset by growth in commercial finance loans and leases. Fiscal 2023 second quarter NIM increased to 6.12% from 4.80% in the second fiscal quarter of last year. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 145 basis points to 6.34% compared to the prior year quarter, primarily driven by an increase in loan and lease and investment securities yields, along with a decrease in cash balances. The yield on the loan and lease portfolio was 8.47% compared to 7.22% for the comparable period last year and the TEY on the securities portfolio was 2.89% compared to 1.83% over that same period. The Company's cost of funds for all deposits and borrowings averaged 0.21% during the fiscal 2023 second quarter, as compared to 0.08% during the prior year quarter. The Company's overall cost of deposits was 0.13% in the fiscal second quarter of 2023, as compared to 0.01% during the prior year quarter. Noninterest Income Fiscal 2023 second quarter noninterest income increased to $127.0 million, compared to $109.8 million for the same period of the prior year. The increase was primarily attributable to increases in card and deposit fees, rental income, tax product fee income, and other income. The period-over-period increase was partially offset by reductions in gain (loss) on sale of other and gain on sale of investments. Included in gain (loss) on sale of other during the quarter, was a $2.0 million loss on the disposal of mobile solar generators in connection with the aforementioned legacy solar transactions. The increase in card and deposit fee income was primarily from servicing fee income on off-balance sheet deposits, which totaled $18.2 million during the 2023 fiscal second quarter, as compared to $12.9 million for the fiscal quarter ended December 31, 2022 and an insignificant amount for the fiscal quarter ended March 31, 2022. Noninterest Expense Noninterest expense increased 23% to $127.1 million for the fiscal 2023 second quarter, from $103.2 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, operating lease equipment depreciation, compensation expense, total tax services expense, and impairment expense. The period over period increase was partially offset by decreases in legal and consulting expense, amortization expense, and other expense. The increase in operating lease equipment depreciation was due to $4.8 million of accelerated depreciation on mobile solar generators in connection with the aforementioned legacy mobile solar transactions. During the second quarter of fiscal year 2023, the Company recognized $0.5 million of impairment expense related to an investment in its Pathward Venture Capital business. The card processing expense increase was due to structured agreements with banking as a service ("BaaS") partners. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally this rate index averages between 50% to 85% of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 47% of the deposit portfolio was subject to these higher card processing expenses. For the fiscal quarter ended March 31, 2023, card processing expenses related to these structured agreements were $20.4 million, as compared to $14.0 million for the fiscal quarter ended December 31, 2022 and $0.2 million for the fiscal quarter ended March 31, 2022. Income Tax Expense The Company recorded an income tax expense of $9.2 million, representing an effective tax rate of 14.2%, for the fiscal 2023 second quarter, compared to income tax expense of $8.0 million, representing an effective tax rate of 13.8%, for the second quarter last fiscal year. The current quarter increase in income tax expense was primarily due to increased earnings. The Company originated $18.1 million in solar leases during the fiscal 2023 second quarter, resulting in $4.9 million in total net investment tax credits. During the second quarter of fiscal 2022, the Company originated $1.3 million in solar leases resulting in $0.3 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 six months ended March 31, 2023, the Company originated $29.5 million in solar leases, compared to $22.5 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, adverse developments in the financial services industry generally, 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 reaffirms fiscal year 2023 GAAP earnings per share guidance and continues to expect it to be in the range of $5.55 to $5.95. When adjusting for gain on sale of trademarks and rebrand related expenses, the Company expects fiscal year 2023 adjusted earnings per share to be in the range of $5.40 to $5.80. See non-GAAP reconciliation table below. Investments, Loans and Leases (Dollars in thousands) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Total investments $ 1,864,276 $ 1,888,343 $ 1,924,551 $ 2,000,400 $ 2,090,765 Loans held for sale Consumer credit products 24,780 17,148 21,071 23,710 23,670 SBA/USDA — — — 43,861 7,740 Total loans held for sale 24,780 17,148 21,071 67,571 31,410 Term lending 1,235,453 1,160,100 1,090,289 1,047,764 1,111,076 Asset based lending 377,965 359,516 351,696 402,506 382,355 Factoring 338,884 338,594 372,595 408,777 394,865 Lease financing 170,645 189,868 210,692 218,789 235,397 Insurance premium finance 437,700 436,977 479,754 481,219 403,681 SBA/USDA 405,612 357,084 359,238 215,510 214,195 Other commercial finance 166,402 164,734 159,409 173,338 173,260 Commercial finance 3,132,661 3,006,873 3,023,673 2,947,903 2,914,829 Consumer credit products 120,739 130,750 144,353 152,106 171,847 Other consumer finance 27,909 56,180 25,306 107,135 111,922 Consumer finance 148,648 186,930 169,659 259,241 283,769 Tax services 61,553 30,364 9,098 41,627 85,999 Warehouse finance 377,036 279,899 326,850 434,748 441,496 Total loans and leases 3,719,898 3,504,066 3,529,280 3,683,519 3,726,093 Net deferred loan origination costs 5,718 5,664 7,025 5,047 4,097 Total gross loans and leases 3,725,616 3,509,730 3,536,305 3,688,566 3,730,190 Allowance for credit losses (84,304 ) (52,592 ) (45,947 ) (75,206 ) (88,552 ) Total loans and leases, net $ 3,641,312 $ 3,457,138 $ 3,490,358 $ 3,613,360 $ 3,641,638 The Company's investment security balances at March 31, 2023 totaled $1.86 billion, as compared to $1.89 billion at December 31, 2022 and $2.09 billion at March 31, 2022. Total gross loans and leases totaled $3.73 billion at March 31, 2023, as compared to $3.51 billion at December 31, 2022 and $3.73 billion at March 31, 2022. The primary driver for the increase on a linked quarter basis was due to increases in commercial finance, warehouse finance, and the seasonal tax services portfolio, partially offset by a decrease in the consumer finance portfolio. The year-over-year decrease was primarily due a reduction in consumer finance loans driven by the sale of the student loan portfolio during the fiscal 2022 fourth quarter, a reduction in warehouse finance loans, and a reduction in seasonal tax services loans, partially offset by growth in our commercial finance portfolio. Commercial finance loans, which comprised 84% of the Company's gross loan and lease portfolio, totaled $3.13 billion at March 31, 2023, reflecting an increase of $125.8 million, or 4%, from December 31, 2022 and an increase of $217.8 million, or 7%, from March 31, 2022. Asset Quality The Company’s allowance for credit losses ("ACL") totaled $84.3 million at March 31, 2023, an increase compared to $52.6 million at December 31, 2022 and a decrease from $88.6 million at March 31, 2022. The increase in the ACL at March 31, 2023, when compared to December 31, 2022, was primarily due to a $32.5 million increase in the allowance related to the seasonal tax services portfolio, partially offset by a $0.9 million decrease in the allowance related to the commercial finance portfolio. The $4.2 million year-over-year decrease in the ACL was primarily driven by a $6.0 million decrease in the allowance related to the consumer finance portfolio and a $0.5 million decrease in the allowance related to the commercial finance portfolio, partially offset by a $2.3 million increase in the allowance related to the seasonal tax services portfolio. The year-over-year decrease in the allowance related to the consumer finance portfolio was primarily attributable to the sale of the student loan portfolio during the fourth quarter of fiscal 2022. The following table presents the Company's ACL as a percentage of its total loans and leases. As of the Period Ended (Unaudited) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Commercial finance 1.53 % 1.62 % 1.46 % 1.56 % 1.66 % Consumer finance 1.99 % 1.54 % 0.86 % 2.44 % 3.18 % Tax services 53.77 % 2.01 % 0.05 % 54.29 % 35.76 % Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % Total loans and leases 2.27 % 1.50 % 1.30 % 2.04 % 2.38 % Total loans and leases excluding tax services 1.40 % 1.50 % 1.30 % 1.44 % 1.59 % The Company's ACL as a percentage of total loans and leases increased to 2.27% at March 31, 2023 from 1.50% at December 31, 2022. The increase in the total loans and leases coverage ratio was primarily driven by the seasonal tax services portfolio, and to a lesser extent the consumer finance portfolio. The increase in the consumer finance was related to seasonal activity. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level. Activity in the allowance for credit losses for the periods presented was as follows. (Unaudited) Three Months Ended Six Months Ended (Dollars in thousands) March 31, 2023 December 31, 2022 March 31, 2022 March 31, 2023 March 31, 2022 Beginning balance $ 52,592 $ 45,947 $ 67,623 $ 45,947 $ 68,281 Provision (reversal of) - tax services loans 31,422 1,637 28,972 33,059 28,259 Provision (reversal of) - all other loans and leases 5,264 8,226 3,183 13,490 4,368 Charge-offs - tax services loans — (1,731 ) — (1,731 ) (254 ) Charge-offs - all other loans and leases (6,625 ) (2,708 ) (12,415 ) (9,334 ) (17,021 ) Recoveries - tax services loans 1,063 698 184 1,761 2,750 Recoveries - all other loans and leases 588 523 1,005 1,112 2,169 Ending balance $ 84,304 $ 52,592 $ 88,552 $ 84,304 $ 88,552 The Company recognized a provision for credit losses of $36.8 million for the quarter ended March 31, 2023, compared to $32.3 million of provision for credit losses expense for the comparable period in the prior fiscal year. The increase in provision for credit losses during the current quarter compared to the prior year period was primarily driven by increases in the commercial finance portfolio and the seasonal tax services portfolio. Net charge-offs were $5.0 million for the quarter ended March 31, 2023, compared to $11.2 million for the quarter ended March 31, 2022. Net charge-offs attributable to the commercial finance and consumer finance portfolios for the current quarter were $5.9 million and $0.2 million, respectively, while a recovery of $1.1 million was recognized in the tax services portfolio. The Company's past due loans and leases were as follows for the periods presented. As of March 31, 2023 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ — $ — $ — $ — $ 24,780 $ 24,780 $ — $ — $ — Commercial finance 34,065 4,159 11,125 49,349 3,083,312 3,132,661 5,724 19,585 25,309 Consumer finance 3,261 3,857 3,217 10,335 138,313 148,648 3,217 — 3,217 Tax services 639 — — 639 60,914 61,553 — — — Warehouse finance — — — — 377,036 377,036 — — — Total loans and leases held for investment 37,965 8,016 14,342 60,323 3,659,575 3,719,898 8,941 19,585 28,526 Total loans and leases $ 37,965 $ 8,016 $ 14,342 $ 60,323 $ 3,684,355 $ 3,744,678 $ 8,941 $ 19,585 $ 28,526 As of December 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 $ — $ — $ — $ — $ 17,148 $ 17,148 $ — $ — $ — Commercial finance 19,974 11,729 17,280 48,983 2,957,890 3,006,873 13,281 25,077 38,358 Consumer finance 2,757 2,533 2,493 7,783 179,147 186,930 2,493 — 2,493 Tax services — — — — 30,364 30,364 — — — Warehouse finance — — — — 279,899 279,899 — — — Total loans and leases held for investment 22,731 14,262 19,773 56,766 3,447,300 3,504,066 15,774 25,077 40,851 Total loans and leases $ 22,731 $ 14,262 $ 19,773 $ 56,766 $ 3,464,448 $ 3,521,214 $ 15,774 $ 25,077 $ 40,851 The Company's nonperforming assets at March 31, 2023 were $30.1 million, representing 0.44% of total assets, compared to $45.0 million, or 0.68% of total assets at December 31, 2022 and $38.3 million, or 0.56% of total assets at March 31, 2022. The Company's nonperforming loans and leases at March 31, 2023, were $28.5 million, representing 0.76% of total gross loans and leases, compared to $40.9 million, or 1.16% of total gross loans and leases at December 31, 2022 and $35.8 million, or 0.95% of total gross loans and leases at March 31, 2022. The decrease in the nonperforming assets as a percentage of total assets at March 31, 2023 compared to December 31, 2022, was driven by a decrease in nonperforming loans in the commercial finance portfolio, primarily due to one sizable relationship becoming current and a partial charge-off and pay down of another lending relationship during the period. The decrease was partially offset by an increase in nonperforming loans in the consumer finance portfolio. When comparing the current period to the same period of the prior year, the decrease in nonperforming assets was due to a decrease in nonperforming loans in the commercial finance and consumer 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 March 31, 2023 Commercial finance $ 2,405,837 $ 426,543 $ 64,560 $ 230,029 $ 5,692 $ 3,132,661 Warehouse finance 377,036 — — — — 377,036 Total loans and leases $ 2,782,873 $ 426,543 $ 64,560 $ 230,029 $ 5,692 $ 3,509,697 Asset Classification (Dollars in thousands) Pass Watch Special Mention Substandard Doubtful Total As of December 31, 2022 Commercial finance $ 2,277,687 $ 441,453 $ 84,445 $ 199,401 $ 3,887 $ 3,006,873 Warehouse finance 279,899 — — — — 279,899 Total loans and leases $ 2,557,586 $ 441,453 $ 84,445 $ 199,401 $ 3,887 $ 3,286,772 Deposits, Borrowings and Other Liabilities Total average deposits for the fiscal 2023 second quarter decreased by $292.8 million to $6.39 billion compared to the same period in fiscal 2022. The decrease in average deposits was primarily due to decreases in noninterest bearing deposits and savings deposits, partially offset by an increase in money market deposits and wholesale deposits. 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 $6.47 billion for the three-month period ended March 31, 2023, compared to $6.87 billion for the same period in the prior fiscal year, representing a decrease of 6%. Total end-of-period deposits increased 1% to $5.90 billion at March 31, 2023, compared to $5.83 billion at March 31, 2022. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $72.3 million and money market deposits of $25.0 million, partially offset by decreases in savings deposits of $18.4 million, wholesale deposits of $3.5 million, and savings deposits of $2.6 million. As of March 31, 2023, the Company had $1.0 billion in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $359.2 million are on activated cards while $645.1 million are on inactivated cards. These card balances are expected to decrease by approximately $500 million over the next 18 months as recipients continue to spend them and the Company begins to return unclaimed balances to the U.S. Treasury. As of March 31, 2023, the Company managed $1.96 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 47% of the deposit balances at March 31, 2023 are subject to variable card processing expenses that are derived from the terms of contractual agreements with certain BaaS partners. These agreements are tied to a portion of a rate index, typically the EFFR. Regulatory Capital The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at March 31, 2023, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies. Regulatory capital ratios of the Company and the Bank are stated in the table below. The decrease in Tier 1 leverage capital ratio for the period is the result of higher quarterly average assets related to its seasonal tax business. The Bank Tier 1 leverage capital ratio using end of period assets of 8.32% better reflects the expected capital position post tax season. See non-GAAP reconciliation table below. Regulatory Capital is not affected by the unrealized loss on accumulated other comprehensive income (“AOCI”). The securities portfolio is primarily comprised of amortizing securities that should provide consistent cash flow. The Company does not intend to sell these securities, or recognize the unrealized losses on its income statement, to fund future loan growth. The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analysis. As of the Periods Indicated March 31, 2023(1) December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Company Tier 1 leverage capital ratio 7.53 % 8.37 % 8.10 % 8.23 % 6.80 % Common equity Tier 1 capital ratio 12.05 % 12.31 % 12.07 % 11.87 % 11.26 % Tier 1 capital ratio 12.35 % 12.63 % 12.39 % 12.19 % 11.58 % Total capital ratio 14.06 % 14.29 % 13.88 % 13.44 % 14.16 % Bank Tier 1 leverage ratio 7.79 % 8.68 % 8.19 % 8.22 % 7.79 % Common equity Tier 1 capital ratio 12.77 % 13.09 % 12.55 % 12.17 % 13.26 % Tier 1 capital ratio 12.77 % 13.09 % 12.55 % 12.18 % 13.26 % Total capital ratio 14.03 % 14.29 % 13.57 % 13.43 % 14.52 % (1) March 31, 2023 percentages are preliminary pending completion and filing of the Company's regulatory reports. Regulatory capital ratios for periods presented reflect the Company's election of the five-year CECL transition for regulatory capital purposes. 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) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Total stockholders' equity $ 673,244 $ 659,133 $ 645,140 $ 724,774 $ 763,406 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 298,390 298,788 299,186 299,616 299,983 LESS: Certain other intangible assets 23,553 25,053 26,406 27,809 30,007 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 13,219 16,641 17,968 11,978 13,404 LESS: Net unrealized gains (losses) on available for sale securities (186,796 ) (200,597 ) (211,600 ) (131,352 ) (69,838 ) LESS: Noncontrolling interest (551 ) (207 ) (30 ) 665 322 ADD: Adoption of Accounting Standards Update 2016-13 2,017 2,017 2,689 10,011 13,387 Common Equity Tier 1(1) 527,446 521,472 515,899 526,069 502,915 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 (404 ) (138 ) (20 ) 377 208 Total Tier 1 capital 540,703 534,995 529,540 540,107 516,784 Allowance for credit losses 55,058 50,853 43,623 55,506 56,051 Subordinated debentures, net of issuance costs 19,540 19,521 20,000 — 59,256 Total capital $ 615,301 $ 650,369 $ 593,163 $ 595,613 $ 632,091 (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. March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Total stockholders' equity $ 673,244 $ 659,133 $ 645,140 $ 724,774 $ 763,406 Less: Goodwill 309,505 309,505 309,505 309,505 309,505 Less: Intangible assets 22,998 24,433 25,691 27,088 29,290 Tangible common equity 340,741 325,195 309,944 388,181 424,611 Less: AOCI (187,829 ) (201,690 ) (213,080 ) (131,407 ) (69,374 ) Tangible common equity excluding AOCI $ 528,570 $ 526,885 $ 523,024 $ 519,588 $ 493,985 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 Wednesday, April 26, 2023. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-833-470-1428 (International: +1-929-526-1599) approximately 10 minutes prior to start time and reference access code 909186. A webcast replay will also be archived at www.pathwardfinancial.com for one year. About Pathward Financial, Inc. Pathward Financial, Inc.(Nasdaq: CASH) is a U.S.-based financial holding company driven by its purpose to power financial inclusion for all. Through our subsidiary, Pathward®, N.A., we strive to increase financial availability, choice, and opportunity across our Banking as a Service and Commercial Finance business lines. These strategic business lines provide end-to-end support to individuals and businesses. Learn more at www.pathwardfinancial.com. Forward-Looking Statements The Company and the Bank may from time to time make written or oral “forward-looking statements,” including statements contained in this press release, the Company’s filings with the SEC, the Company’s reports to stockholders, and in other communications by the Company and the Bank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results including our earnings per share guidance and related performance expectations; the impact of measures expected to increase efficiencies or reduce expenses; 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 the Bank equal to or greater than we enjoyed for MetaBank; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate; changes in tax laws; the strength of the United States' economy and the local economies in which the Company operates; adverse developments in the financial services industry generally such as the recent bank failures; inflation, market, and monetary fluctuations; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value of these products and services by users; the Bank's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Bank's strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the Bank of its status as a well-capitalized institution; changes in consumer spending and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase. The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2022, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason. Condensed Consolidated Statements of Financial Condition (Unaudited) (Dollars in Thousands, Except Share Data) March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 ASSETS Cash and cash equivalents $ 432,598 $ 369,169 $ 388,038 $ 157,260 $ 237,680 Securities available for sale, at fair value 1,825,563 1,847,778 1,882,869 1,956,523 2,043,478 Securities held to maturity, at amortized cost 38,713 40,565 41,682 43,877 47,287 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 29,387 28,812 28,812 28,812 28,812 Loans held for sale 24,780 17,148 21,071 67,571 31,410 Loans and leases 3,725,616 3,509,730 3,536,305 3,688,566 3,730,190 Allowance for credit losses (84,304 ) (52,592 ) (45,947 ) (75,206 ) (88,552 ) Accrued interest receivable 22,434 20,170 17,979 16,818 19,115 Premises, furniture, and equipment, net 39,735 41,029 41,710 42,076 43,167 Rental equipment, net 210,844 231,129 204,371 222,023 213,033 Goodwill and intangible assets 332,503 333,938 335,196 336,593 338,795 Other assets 270,387 272,349 295,324 243,265 242,824 Total assets $ 6,868,256 $ 6,659,225 $ 6,747,410 $ 6,728,178 $ 6,887,239 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits 5,902,696 5,789,132 5,866,037 5,710,799 5,829,886 Short-term borrowings 43,000 — — — — Long-term borrowings 34,543 34,977 36,028 16,616 91,386 Accrued expenses and other liabilities 214,773 175,983 200,205 275,989 202,561 Total liabilities 6,195,012 6,000,092 6,102,270 6,003,404 6,123,833 STOCKHOLDERS’ EQUITY Preferred stock — — — — — Common stock, $.01 par value 271 282 288 294 294 Common stock, Nonvoting, $.01 par value — — — — — Additional paid-in capital 623,250 620,681 617,403 615,159 �� 612,917 Retained earnings 245,046 246,891 245,394 244,686 223,760 Accumulated other comprehensive loss (187,829 ) (201,690 ) (213,080 ) (131,407 ) (69,374 ) Treasury stock, at cost (6,943 ) (6,824 ) (4,835 ) (4,623 ) (4,513 ) Total equity attributable to parent 673,795 659,340 645,170 724,109 763,084 Noncontrolling interest (551 ) (207 ) (30 ) 665 322 Total stockholders’ equity 673,244 659,133 645,140 724,774 763,406 Total liabilities and stockholders’ equity $ 6,868,256 $ 6,659,225 $ 6,747,410 $ 6,728,178 $ 6,887,239 Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Six Months Ended (Dollars in Thousands, Except Share and Per Share Data) March 31, 2023 December 31, 2022 March 31, 2022 March 31, 2023 March 31, 2022 Interest and dividend income: Loans and leases, including fees $ 83,879 $ 68,396 $ 75,540 $ 152,275 $ 140,575 Mortgage-backed securities 10,326 10,412 5,446 20,738 9,310 Other investments 10,482 6,252 4,191 16,734 8,183 104,687 85,060 85,177 189,747 158,068 Interest expense: Deposits 2,096 142 165 2,238 306 FHLB advances and other borrowings 1,186 861 1,212 2,047 2,349 3,282 1,003 1,377 4,285 2,655 Net interest income 101,405 84,057 83,800 185,462 155,413 Provision for credit losses 36,763 9,776 32,302 46,539 32,488 Net interest income after provision for credit losses 64,642 74,281 51,498 138,923 122,925 Noninterest income: Refund transfer product fees 30,205 677 27,805 30,882 28,384 Refund advance fee income 37,995 617 39,299 38,612 40,532 Card and deposit fees 42,087 37,718 26,520 79,805 51,889 Rental income 12,940 12,708 11,375 25,648 22,452 Gain (loss) on sale of securities 82 — 260 82 397 Gain on sale of trademarks — 10,000 — 10,000 50,000 Gain (loss) on sale of other (748 ) 502 626 (246 ) (2,839 ) Other income 4,477 3,555 3,881 8,032 5,542 Total noninterest income 127,038 65,777 109,766 192,815 196,357 Noninterest expense: Compensation and benefits 47,547 43,017 45,047 90,564 83,272 Refund transfer product expense 7,863 105 6,260 7,968 6,398 Refund advance expense 1,603 27 2,002 1,630 2,185 Card processing 26,924 22,683 7,457 49,607 14,629 Occupancy and equipment expense 8,510 8,312 8,500 16,822 16,849 Operating lease equipment depreciation 14,719 9,628 8,737 24,347 17,185 Legal and consulting 4,921 9,459 9,347 14,380 15,555 Intangible amortization 1,435 1,258 2,169 2,693 3,657 Impairment expense 500 24 — 524 — Other expense 13,114 10,546 13,641 23,660 25,866 Total noninterest expense 127,136 105,059 103,160 232,195 185,596 Income before income tax expense 64,544 34,999 58,104 99,543 133,686 Income tax expense (benefit) 9,176 6,577 8,002 15,753 22,278 Net income before noncontrolling interest 55,368 28,422 50,102 83,790 111,408 Net income (loss) attributable to noncontrolling interest 597 580 851 1,177 833 Net income attributable to parent $ 54,771 $ 27,842 $ 49,251 $ 82,613 $ 110,575 Less: Allocation of Earnings to participating securities(1) 839 402 815 1,228 1,773 Net income attributable to common shareholders(1) 53,932 27,440 48,436 81,382 108,802 Earnings per common share: Basic $ 1.99 $ 0.98 $ 1.66 $ 2.95 $ 3.66 Diluted $ 1.99 $ 0.98 $ 1.66 $ 2.95 $ 3.66 Shares used in computing earnings per common share: Basic 27,078,048 28,024,541 29,212,301 27,555,197 29,731,797 Diluted 27,169,569 28,086,823 29,224,362 27,632,737 29,748,832 (1) Amounts presented are used in the two-class earnings per common share calculation. Average Balances, Interest Rates and Yields The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and in rates. Only the yield/rate reflects tax-equivalent adjustments. Nonaccruing loans and leases have been included in the table as loans carrying a zero yield. Three Months Ended March 31, 2023 2022 (Dollars in thousands) Average Outstanding Balance Interest Earned / Paid Yield / Rate(1) Average Outstanding Balance Interest Earned / Paid Yield / Rate(1) Interest-earning assets: Cash and fed funds sold $ 564,656 $ 5,843 4.20 % $ 810,857 $ 721 0.36 % Mortgage-backed securities 1,549,240 10,326 2.70 % 1,184,377 5,446 1.86 % Tax exempt investment securities 149,912 990 3.39 % 189,213 903 2.45 % Asset-backed securities 141,968 1,273 3.64 % 370,671 1,142 1.25 % Other investment securities 298,030 2,376 3.23 % 282,655 1,425 2.05 % Total investments 2,139,150 14,965 2.89 % 2,026,916 8,916 1.83 % Commercial finance 3,056,293 60,765 8.06 % 2,852,147 48,872 6.95 % Consumer finance 187,826 6,301 13.60 % 331,033 7,892 9.67 % Tax services 448,659 10,555 9.54 % 594,166 11,599 7.92 % Warehouse finance 321,334 6,258 7.90 % 467,298 7,177 6.23 % Total loans and leases 4,014,112 83,879 8.47 % 4,244,644 75,540 7.22 % Total interest-earning assets $ 6,717,918 $ 104,687 6.34 % $ 7,082,417 $ 85,177 4.89 % Noninterest-earning assets 612,020 814,151 Total assets $ 7,329,938 $ 7,896,568 Interest-bearing liabilities: Interest-bearing checking $ 267 $ — 0.33 % $ 289 $ — 0.32 % Savings 70,024 6 0.03 % 82,902 6 0.03 % Money markets 125,193 71 0.23 % 102,473 53 0.21 % Time deposits 6,948 2 0.11 % 8,682 10 0.49 % Wholesale deposits 186,421 2,017 4.39 % 173,493 96 0.22 % Total interest-bearing deposits 388,853 2,096 2.19 % 367,839 165 0.18 % Overnight fed funds purchased 46,735 543 4.71 % 95,700 62 0.26 % Subordinated debentures 19,523 354 7.34 % 74,040 1,002 5.49 % Other borrowings 15,283 289 7.68 % 17,874 148 3.35 % Total borrowings 81,541 1,186 5.90 % 187,614 1,212 2.62 % Total interest-bearing liabilities 470,394 3,282 2.83 % 555,453 1,377 1.01 % Noninterest-bearing deposits 5,997,739 — — % 6,311,583 — — % Total deposits and interest-bearing liabilities $ 6,468,133 $ 3,282 0.21 % $ 6,867,036 $ 1,377 0.08 % Other noninterest-bearing liabilities 191,360 213,982 Total liabilities 6,659,493 7,081,018 Shareholders' equity 670,445 815,550 Total liabilities and shareholders' equity $ 7,329,938 $ 7,896,568 Net interest income and net interest rate spread including noninterest-bearing deposits $ 101,405 6.13 % $ 83,800 4.81 % Net interest margin 6.12 % 4.80 % Tax-equivalent effect 0.02 % 0.01 % Net interest margin, tax-equivalent(2) 6.14 % 4.81 % (1) Tax rate used to arrive at the TEY for the three months ended March 31, 2023 and 2022 was 21%. (2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes. Selected Financial Information As of and For the Three Months Ended March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Equity to total assets 9.80 % 9.90 % 9.56 % 10.77 % 11.08 % Book value per common share outstanding $ 24.88 $ 23.36 $ 22.41 $ 24.69 $ 26.00 Tangible book value per common share outstanding $ 12.59 $ 11.53 $ 10.77 $ 13.22 $ 14.46 Tangible book value per common share outstanding excluding AOCI $ 19.54 $ 18.68 $ 18.17 $ 17.70 $ 16.82 Common shares outstanding 27,055,727 28,211,239 28,788,124 29,356,707 29,362,844 Nonperforming assets to total assets 0.44 % 0.68 % 0.46 % 0.40 % 0.56 % Nonperforming loans and leases to total loans and leases 0.76 % 1.16 % 0.82 % 0.71 % 0.95 % Net interest margin 6.12 % 5.62 % 5.21 % 4.76 % 4.80 % Net interest margin, tax-equivalent 6.14 % 5.64 % 5.23 % 4.77 % 4.81 % Return on average assets 2.99 % 1.71 % 1.39 % 1.32 % 2.49 % Return on average equity 32.68 % 17.18 % 12.82 % 11.93 % 24.16 % Full-time equivalent employees 1,164 1,150 1,141 1,178 1,167 Non-GAAP Reconciliations Adjusted Net Income and Adjusted Earnings Per Share At and For the Three Months Ended At and For the Six Months Ended (Dollars in Thousands, Except Share and Per Share Data) March 31, 2023 December 31, 2022 March 31, 2022 March 31, 2023 March 31, 2022 Net Income - GAAP $ 54,771 $ 27,842 $ 49,251 $ 82,613 $ 110,575 Less: Gain on sale of trademarks — 10,000 — 10,000 50,000 Less: Loss on disposal of certain mobile solar generators (1,993 ) — — (1,993 ) — Add: Accelerated depreciation on certain mobile solar generators 4,822 — — 4,822 — Add: Rebranding expenses — 3,737 2,819 3,737 2,822 Add: Separation related expenses — 11 878 11 965 Add: Impairment on Venture Capital investments 500 — — 500 — Add: Income tax effect resulting from the above listed items (1,829 ) 1,575 (930 ) (253 ) 11,641 Adjusted net income $ 60,257 $ 23,165 $ 52,018 $ 83,423 $ 76,002 Less: Adjusted allocation of earnings to participating securities 923 335 861 1,241 1,218 Adjusted Net income attributable to common shareholders 59,334 22,830 51,157 82,182 74,784 Weighted average diluted common shares outstanding 27,169,569 28,086,823 29,224,362 27,632,737 29,748,832 Adjusted earnings per common share - diluted $ 2.18 $ 0.81 $ 1.75 $ 2.97 $ 2.51 Adjusted Diluted Earnings Per Share Guidance (Earnings per share amounts) Fiscal Year Ended 2023 (Guidance) Diluted earnings per share - GAAP $5.55 - $5.95 Less: Net extraordinary items, net of tax(1) $0.15 Diluted earnings per share - Adjusted $5.40 - $5.80 (1) Includes gain on sale of trademarks and rebranding-related expenses. Pathward, N.A. Period-end Tier 1 Leverage (Dollars in thousands) March 31, 2023 Total stockholders' equity $ 705,060 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 298,390 LESS: Certain other intangible assets 23,553 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 13,219 LESS: Net unrealized gains (losses) on available for sale securities (186,796 ) LESS: Noncontrolling interest (551 ) ADD: Adoption of Accounting Standards Update 2016-13 2,017 Common Equity Tier 1 559,262 Tier 1 minority interest not included in common equity Tier 1 capital — Total Tier 1 capital $ 559,262 Total Assets (Quarter Average) $ 7,331,497 ADD: Available for sale securities amortized cost 244,799 ADD: Deferred tax (61,665 ) ADD: Adoption of Accounting Standards Updated 2016-13 2,017 LESS: Deductions from CET1 335,162 Adjusted total assets $ 7,181,486 Pathward, N.A. Regulatory Tier 1 Leverage 7.79 % Total Assets (Period End) $ 6,869,121 ADD: Available for sale securities amortized cost 249,694 ADD: Deferred tax (62,898 ) ADD: Adoption of Accounting Standards Updated 2016-13 2,017 LESS: Deductions from CET1 335,162 Adjusted total assets $ 6,722,772 Pathward, N.A. Period-end Tier 1 Leverage 8.32 % View source version on businesswire.com: https://www.businesswire.com/news/home/20230426005784/en/
Investor Relations Contact Darby Schoenfeld, CPA SVP, Investor Relations 877-497-7497 InvestorRelations@pathward.com Media Relations Contact mediarelations@pathward.com