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 2024 Fiscal First Quarter By: Pathward Financial, Inc. via Business Wire January 24, 2024 at 16:10 PM EST Pathward Financial, Inc. (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $27.7 million, or $1.06 per share, for the three months ended December 31, 2023, compared to net income of $27.8 million, or $0.98 per share, for the three months ended December 31, 2022. For the fiscal quarter ended December 31, 2022, the Company recognized adjusted net income of $23.2 million, or $0.81 per share, when adjusting for the gain on sale of names and trademarks, expenses related to rebranding efforts and separation expense. See non-GAAP reconciliation table below. CEO Brett Pharr said, “We are very pleased with our results in the first quarter and have started off the year by laying the groundwork to deliver on our strategic goals for the year – building Banking as a Service ("BaaS") into a one stop shop for our partners and smart growth in Commercial Finance to help ensure appropriate yields for the financial environment. We delivered net interest income growth of 31% compared to the prior year’s quarter and continue to be in a strong liquidity position. Looking forward, we have a healthy BaaS pipeline and are aiming to add recurring fee revenue that will drive sustainable net income.” Company Highlights On January 16, 2024, the Company announced a multi-year extension with an a long-standing partner that allows for collaboration on product innovation and expanded product offerings for a range of programs in market and under development. Financial Highlights for the 2024 Fiscal First Quarter Total revenue for the first quarter was $162.8 million, an increase of $13.0 million, or 9%, compared to the same quarter in fiscal 2023, driven by an increase in net interest income, partially offset by a decrease in noninterest income. Net interest margin ("NIM") increased 61 basis points to 6.23% for the first quarter from 5.62% during the same period last year, primarily driven by increased yields and an improved earning asset mix from the continued optimization of the portfolio. When including contractual, rate-related processing expense, NIM would have been 4.71% in the fiscal 2024 first quarter compared to 4.68% during the fiscal 2023 first quarter. See non-GAAP reconciliation table below. Total gross loans and leases at December 31, 2023 increased $916.6 million to $4.43 billion compared to December 31, 2022 and increased $60.2 million when compared to September 30, 2023. The increase compared to the prior year quarter was primarily due to growth in the commercial, consumer, and warehouse finance loan portfolios. The primary driver for the sequential increase was growth in seasonal consumer finance loans related to a tax partnership. During the 2024 fiscal first quarter, the Company repurchased 232,588 shares of common stock at an average share price of $47.25. An additional 342,300 shares of common stock were repurchased at an average price of $51.01 in January 2024 through January 19, 2024. As of January 19, 2024, there were 8,091,548 shares available for repurchase under the current common stock share repurchase programs. The Company is reiterating fiscal year 2024 GAAP earnings per diluted share guidance of $6.20 to $6.70. See Outlook section below. Net Interest Income Net interest income for the first quarter of fiscal 2024 was $110.0 million, an increase of 31% from the same quarter in fiscal 2023. The increase was mainly attributable to increased yields, higher interest-earning asset balances and an improved earning asset mix. The Company’s average interest-earning assets for the first quarter of fiscal 2024 increased by $1.10 billion to $7.03 billion compared to the same quarter in fiscal 2023, primarily due to growth in loans and leases and an increase in cash balances, partially offset by a decrease in total investment security balances. The first quarter average outstanding balance of loans and leases increased $1.01 billion compared to the same quarter of the prior fiscal year, primarily due to an increase in commercial, consumer, and warehouse finance portfolios. Fiscal 2024 first quarter NIM increased to 6.23% from 5.62% in the first fiscal quarter of last year. When including contractual, rate-related processing expense, NIM would have been 4.71% in the fiscal 2024 first quarter compared to 4.68% during the fiscal 2023 first quarter. See non-GAAP reconciliation table below. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 87 basis points to 6.57% compared to the prior year quarter, driven by an increase in loan and lease, investment securities and cash yields. The yield on the loan and lease portfolio was 8.33% compared to 7.70% for the comparable period last year and the TEY on the securities portfolio was 3.15% compared to 2.76% over that same period. The Company's cost of funds for all deposits and borrowings averaged 0.35% during the fiscal 2024 first quarter, as compared to 0.07% during the prior year quarter. The Company's overall cost of deposits was 0.21% in the fiscal first quarter of 2024, as compared to 0.01% during the prior year quarter. When including contractual, rate-related processing expense, the Company's overall cost of deposits was 1.84% in the fiscal 2024 first quarter, as compared to 1.00% during the prior year quarter. See non-GAAP reconciliation table below. Noninterest Income Fiscal 2024 first quarter noninterest income decreased 20% to $52.8 million, compared to $65.8 million for the same period of the prior year. The decrease was primarily attributable to the $10.0 million gain on sale of trademarks recognized during the prior year period, along with a decrease in card and deposit fees. The period-over-period decrease was partially offset by increases in gain on sale of other, other income, and rental income. The increase in gain on sale of other was driven by a $2.5 million gain related to an investment in the Pathward Venture Capital business. The decrease in card and deposit fee income was primarily related to servicing fee income on off-balance sheet deposits, which totaled $5.1 million during the 2024 fiscal first quarter, as compared to $7.8 million for the fiscal quarter ended September 30, 2023 and $12.9 million for the same period of the prior year. The decrease in servicing fee income was due to a reduction in off-balance sheet deposits that the Company manages at other banks. Noninterest Expense Noninterest expense increased 14% to $119.3 million for the fiscal 2024 first quarter, from $105.1 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, compensation and benefits expense, other expense, operating lease equipment depreciation, and occupancy and equipment expense. The period-over-period increase was partially offset by a decrease in legal and consulting expense. The card processing expense increase was due to rate-related agreements with BaaS partners. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally, this rate index is based on a percentage of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 53% of the deposit portfolio was subject to these rate-related processing expenses during the fiscal 2024 first quarter. For the fiscal quarter ended December 31, 2023, contractual, rate-related processing expenses were $26.8 million, as compared to $22.5 million for the fiscal quarter ended September 30, 2023, and $14.0 million for the fiscal quarter ended December 31, 2022. Income Tax Expense The Company recorded income tax expense of $5.7 million, representing an effective tax rate of 17.0%, for the fiscal 2024 first quarter, compared to $6.6 million, representing an effective tax rate of 18.8%, for the first quarter last fiscal year. The current quarter decrease in income tax expense compared to the prior year quarter was primarily due to an increase in investment tax credits recognized ratably. The Company originated $12.2 million in renewable energy leases during the fiscal 2024 first quarter, resulting in $4.4 million in total net investment tax credits. During the first quarter of fiscal 2023, the Company originated $11.4 million in renewable energy leases resulting in $3.1 million in total net investment tax credits. Investment tax credits related to renewable energy leases are recognized ratably based on income throughout each fiscal year. Outlook The following forward-looking statements reflect the Company’s expectations as of the date of this release and are subject to substantial uncertainty. The Company's results may be materially affected by many factors, such as changes in economic conditions and customer demand, changes in interest rates, adverse developments in the financial services industry generally, inflation, competition, and other factors detailed below under “Forward-looking Statements.” The Company is reiterating fiscal year 2024 GAAP earnings per diluted share guidance of $6.20 to $6.70. As part of this guidance, the Company is reiterating its annual effective tax rate in fiscal year 2024 to a range between 16% and 20%. Investments, Loans and Leases (Dollars in thousands) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Total investments $ 1,886,021 $ 1,840,819 $ 1,951,996 $ 1,864,276 $ 1,888,343 Loans held for sale Term lending 2,500 — 3,000 — — Lease financing 778 — — — — Consumer Finance 66,240 77,779 84,351 24,780 17,148 Total loans held for sale 69,518 77,779 87,351 24,780 17,148 Term lending 1,452,274 1,308,133 1,253,841 1,235,453 1,160,100 Asset-based lending 379,681 382,371 373,160 377,965 359,516 Factoring 335,953 358,344 351,133 338,884 338,594 Lease financing 188,889 183,392 201,996 170,645 189,868 Insurance premium finance 671,035 800,077 666,265 437,700 436,977 SBA/USDA 546,048 524,750 422,389 405,612 357,084 Other commercial finance 160,628 166,091 171,954 166,402 164,734 Commercial finance 3,734,508 3,723,158 3,440,738 3,132,661 3,006,873 Consumer finance 301,510 254,416 200,121 148,648 186,930 Tax services 33,435 5,192 47,194 61,553 30,364 Warehouse finance 349,911 376,915 380,458 377,036 279,899 Total loans and leases 4,419,364 4,359,681 4,068,511 3,719,898 3,504,066 Net deferred loan origination costs 6,917 6,435 4,388 5,718 5,664 Total gross loans and leases 4,426,281 4,366,116 4,072,899 3,725,616 3,509,730 Allowance for credit losses (53,785 ) (49,705 ) (81,916 ) (84,304 ) (52,592 ) Total loans and leases, net $ 4,372,496 $ 4,316,411 $ 3,990,983 $ 3,641,312 $ 3,457,138 The Company's investment security balances at December 31, 2023 totaled $1.89 billion, as compared to $1.84 billion at September 30, 2023 and $1.89 billion at December 31, 2022. Total gross loans and leases totaled $4.43 billion at December 31, 2023, as compared to $4.37 billion at September 30, 2023 and $3.51 billion at December 31, 2022. The primary drivers for the sequential increase were an increase in consumer finance loans, seasonal tax services loans, and commercial finance loans. This was partially offset by a decrease in warehouse finance loans. The year-over-year increase was due to increases in commercial finance, consumer finance, warehouse finance, and seasonal tax services loans. Commercial finance loans, which comprised 85% of the Company's loan and lease portfolio, totaled $3.73 billion at December 31, 2023, reflecting an increase of $11.4 million from September 30, 2023 and an increase of $727.6 million, or 24%, from December 31, 2022. The sequential increase in commercial finance loans was primarily driven by a $144.1 million increase in the term lending portfolio and a $21.3 million increase in the SBA/USDA portfolio, partially offset by a $129.0 million decrease in the insurance premium finance portfolio. The increase in commercial finance loans when comparing the current period to the same period of the prior year was primarily driven by increases in the term lending, insurance premium finance, SBA/USDA, and asset-based lending portfolios, partially offset by reductions in the factoring and other commercial finance portfolios. Asset Quality The Company’s allowance for credit losses ("ACL") totaled $53.8 million at December 31, 2023, an increase compared to $49.7 million at September 30, 2023 and an increase compared to $52.6 million at December 31, 2022. The increase in the ACL at December 31, 2023, when compared to September 30, 2023, was primarily due to a $2.0 million increase in the allowance related to the consumer finance portfolio and a $1.6 million increase in the allowance related to the commercial finance portfolio. The $1.2 million year-over-year increase in the ACL was primarily driven by a $1.5 million increase in the allowance related to the consumer finance portfolio and a $0.1 million increase in the allowance related to the warehouse finance portfolio, partially offset by a $0.3 million decrease in the allowance related to the commercial finance portfolio and a $0.1 million decrease in the allowance related to the seasonal tax services portfolio. The year-over-year increase in the allowance related to the consumer finance portfolio was primarily attributable to seasonal activity and loan growth in the portfolio. The following table presents the Company's ACL as a percentage of its total loans and leases. As of the Period Ended (Unaudited) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Commercial finance 1.30 % 1.26 % 1.35 % 1.53 % 1.62 % Consumer finance 1.45 % 0.92 % 0.92 % 1.99 % 1.54 % Tax services 1.51 % 0.04 % 70.20 % 53.77 % 2.01 % Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % Total loans and leases 1.22 % 1.14 % 2.01 % 2.27 % 1.50 % Total loans and leases excluding tax services 1.21 % 1.14 % 1.21 % 1.40 % 1.50 % The Company's ACL as a percentage of total loans and leases increased to 1.22% at December 31, 2023 from 1.14% at September 30, 2023. The increase in the total loans and leases coverage ratio was primarily driven by an increase in the consumer finance portfolio due to seasonal activity and an increase in the seasonal tax services portfolio. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level. Activity in the allowance for credit losses for the periods presented was as follows. (Unaudited) Three Months Ended (Dollars in thousands) December 31, 2023 September 30, 2023 December 31, 2022 Beginning balance $ 49,705 $ 81,916 $ 45,947 Provision (reversal of) - tax services loans 1,356 2,945 1,637 Provision (reversal of) - all other loans and leases 8,210 6,124 8,226 Charge-offs - tax services loans (1,145 ) (36,606 ) (1,731 ) Charge-offs - all other loans and leases (5,725 ) (6,227 ) (2,708 ) Recoveries - tax services loans 294 531 698 Recoveries - all other loans and leases 1,090 1,022 523 Ending balance $ 53,785 $ 49,705 $ 52,592 The Company recognized a provision for credit losses of $9.9 million for the quarter ended December 31, 2023, compared to $9.8 million for the comparable period in the prior fiscal year. Net charge-offs were $5.5 million for the quarter ended December 31, 2023, compared to $3.2 million for the quarter ended December 31, 2022. Net charge-offs attributable to the commercial finance, tax services, and consumer finance portfolios for the current quarter were $4.6 million, $0.8 million, and $0.1 million, respectively. Net charge-offs attributable to the commercial finance, tax services, and consumer finance portfolios for the same quarter of the prior year were $2.0 million, $1.0 million, and $0.2 million, respectively. The Company's past due loans and leases were as follows for the periods presented. As of December 31, 2023 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ 1,173 $ 786 $ 661 $ 2,620 $ 66,898 $ 69,518 $ 661 $ — $ 661 Commercial finance 33,406 8,341 20,854 62,601 3,671,907 3,734,508 7,977 28,099 36,076 Consumer finance 4,258 3,345 2,859 10,462 291,048 301,510 2,859 — 2,859 Tax services — — — — 33,435 33,435 — — — Warehouse finance — — — — 349,911 349,911 — — — Total loans and leases held for investment 37,664 11,686 23,713 73,063 4,346,301 4,419,364 10,836 28,099 38,935 Total loans and leases $ 38,837 $ 12,472 $ 24,374 $ 75,683 $ 4,413,199 $ 4,488,882 $ 11,497 $ 28,099 $ 39,596 As of September 30, 2023 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ 626 $ 549 $ 306 $ 1,481 $ 76,298 $ 77,779 $ 306 $ — $ 306 Commercial finance 23,434 9,143 20,352 52,929 3,670,229 3,723,158 11,242 37,372 48,614 Consumer finance 2,992 2,425 2,210 7,627 246,789 254,416 2,210 — 2,210 Tax services — — 5,082 5,082 110 5,192 5,082 — 5,082 Warehouse finance — — — — 376,915 376,915 — — — Total loans and leases held for investment 26,426 11,568 27,644 65,638 4,294,043 4,359,681 18,534 37,372 55,906 Total loans and leases $ 27,052 $ 12,117 $ 27,950 $ 67,119 $ 4,370,341 $ 4,437,460 $ 18,840 $ 37,372 $ 56,212 The Company's nonperforming assets at December 31, 2023 were $42.4 million, representing 0.53% of total assets, compared to $58.0 million, or 0.77% of total assets at September 30, 2023 and $45.0 million, or 0.68% of total assets at December 31, 2022. The decrease in the nonperforming assets as a percentage of total assets at December 31, 2023 compared to September 30, 2023, was primarily driven by a workout of a previously announced relationship within the commercial finance portfolio. When comparing the current period to the same period of the prior year, the decrease in nonperforming assets was primarily due to a decrease in nonperforming loans in the commercial finance portfolio, partially offset by a slight increase in nonperforming loans in the consumer finance portfolio. The Company's nonperforming loans and leases at December 31, 2023, were $39.6 million, representing 0.88% of total gross loans and leases, compared to $56.2 million, or 1.26% of total gross loans and leases at September 30, 2023 and $40.9 million, or 1.16% of total gross loans and leases at December 31, 2022. 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 December 31, 2023 Commercial finance $ 2,895,451 $ 544,287 $ 86,942 $ 197,682 $ 10,146 $ 3,734,508 Warehouse finance 349,911 — — — — 349,911 Total loans and leases $ 3,245,362 $ 544,287 $ 86,942 $ 197,682 $ 10,146 $ 4,084,419 Asset Classification (Dollars in thousands) Pass Watch Special Mention Substandard Doubtful Total As of September 30, 2023 Commercial finance $ 2,845,587 $ 559,112 $ 102,111 $ 208,193 $ 8,155 $ 3,723,158 Warehouse finance 376,915 — — — — 376,915 Total loans and leases $ 3,222,502 $ 559,112 $ 102,111 $ 208,193 $ 8,155 $ 4,100,073 Deposits, Borrowings and Other Liabilities Total average deposits for the fiscal 2024 first quarter increased by $921.5 million to $6.56 billion compared to the same period in fiscal 2023. The increase in average deposits was primarily due to increases in noninterest bearing deposits, wholesale deposits, and money market deposits partially offset by a decrease in savings deposits and time deposits. The average balance of total deposits and interest-bearing liabilities was $6.71 billion for the three-month period ended December 31, 2023, compared to $5.70 billion for the same period in the prior fiscal year, representing an increase of 18%. Total end-of-period deposits increased 20% to $6.94 billion at December 31, 2023, compared to $5.79 billion at December 31, 2022. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $969.7 million, wholesale deposits of $136.0 million, and money market deposits of $51.4 million, partially offset by decreases in savings deposits of $8.2 million and time deposits of $2.0 million. As of December 31, 2023, the Company had $837.6 million in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $334.5 million are on activated cards while $503.1 million are on inactivated cards. During the remainder of fiscal year 2024, these deposit balances are expected to decline by approximately $310 million as the Company actively returns unclaimed balances to the U.S. Treasury. As of December 31, 2023, the Company managed $1.1 billion of customer deposits at other banks in its capacity as custodian. These deposits provide the Company with excess deposits that can earn servicing fee income, typically reflective of the EFFR. Regulatory Capital The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at December 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. 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 December 31, 2023(1) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Company Tier 1 leverage capital ratio 7.96 % 8.11 % 8.40 % 7.53 % 8.37 % Common equity Tier 1 capital ratio 11.43 % 11.25 % 11.52 % 12.05 % 12.31 % Tier 1 capital ratio 11.69 % 11.50 % 11.79 % 12.35 % 12.63 % Total capital ratio 13.12 % 12.84 % 13.45 % 14.06 % 14.29 % Bank Tier 1 leverage ratio 8.15 % 8.32 % 8.67 % 7.79 % 8.68 % Common equity Tier 1 capital ratio 11.97 % 11.81 % 12.17 % 12.77 % 13.09 % Tier 1 capital ratio 11.97 % 11.81 % 12.17 % 12.77 % 13.09 % Total capital ratio 13.01 % 12.76 % 13.42 % 14.03 % 14.29 % (1) December 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) As of the Periods Indicated (Dollars in thousands) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Total stockholders' equity $ 729,282 $ 650,625 $ 677,721 $ 673,244 $ 659,133 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 297,283 297,679 298,092 298,390 298,788 LESS: Certain other intangible assets 20,093 21,228 22,372 23,553 25,053 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 20,253 19,679 12,157 13,219 16,641 LESS: Net unrealized (losses) on available for sale securities (187,901 ) (254,294 ) (207,358 ) (186,796 ) (200,597 ) LESS: Noncontrolling interest (510 ) (1,005 ) (631 ) (551 ) (207 ) ADD: Adoption of Accounting Standards Update 2016-13 1,345 2,017 2,017 2,017 2,017 Common Equity Tier 1(1) 581,409 569,355 555,106 527,446 521,472 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 (410 ) (826 ) (454 ) (404 ) (138 ) Total Tier 1 capital 594,660 582,190 568,313 540,703 534,995 Allowance for credit losses 53,037 47,960 60,489 55,058 50,853 Subordinated debentures, net of issuance costs 19,617 19,591 19,566 19,540 19,521 Total capital $ 667,314 $ 649,741 $ 648,368 $ 615,301 $ 650,369 (1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum CET1 ratio; those changes were fully phased in through the end of calendar year 2021. The following table provides a reconciliation of tangible common equity and tangible common equity excluding AOCI, each of which is used in calculating tangible book value data, to Total Stockholders' Equity. Each of tangible common equity and tangible common equity excluding AOCI is a non-GAAP financial measure that is commonly used within the banking industry. As of the Periods Indicated (Dollars in thousands) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Total stockholders' equity $ 729,282 $ 650,625 $ 677,721 $ 673,244 $ 659,133 Less: Goodwill 309,505 309,505 309,505 309,505 309,505 Less: Intangible assets 19,736 20,720 21,830 22,998 24,433 Tangible common equity 400,041 320,400 346,386 340,741 325,195 Less: AOCI (188,433 ) (255,443 ) (207,896 ) (187,829 ) (201,690 ) Tangible common equity excluding AOCI $ 588,474 $ 575,843 $ 554,282 $ 528,570 $ 526,885 Conference Call The Company will host a conference call and earnings webcast with a corresponding presentation at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Wednesday, January 24, 2024. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-833-470-1428 approximately 10 minutes prior to start time and reference access code 388353. The Quarterly Investor Update slide presentation prepared for use in connection with the Company's conference call and earnings webcast is available under the Presentations link in the Investor Relations - Events & Presentations section of the Company's website at www.pathwardfinancial.com. A webcast replay will also be archived at www.pathwardfinancial.com for one year. Upcoming Investor Events KBW Winter Financial Services Conference, Feb. 14-16, 2024 | Boca Raton, FL Piper Sandler 2024 Western Financial Services Conference, Feb. 28-Mar. 1, 2024 | Las Vegas, NV Raymond James 2024 Institutional Investors Conference, Mar. 3-6, 2024 | Orlando, FL 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 Securities and Exchange Commission ("SEC"), the Company’s reports to stockholders, and in other communications by the Company and the Bank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” "target," or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results including our earnings per diluted share guidance, annual effective tax rate and related performance expectations; progress on key strategic initiatives; expected results of our partnerships; our goals regarding the addition of recurring revenue and related expected performance impacts; expected nonperforming loan resolutions and net charge off rates; the performance of our securities portfolio; the impact of card balances related to government stimulus programs; customer retention; loan and other product demand; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; and technology. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the potential adverse effects of unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the military conflicts in Ukraine and the Middle East, weather-related disasters, or public health events, such as the COVID-19 pandemic, and any governmental or societal responses thereto; our ability to achieve brand recognition for the Bank equal to or greater than we enjoyed for MetaBank; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate, and their related impacts on macroeconomic conditions, customer behavior, funding costs and loan and securities portfolios; changes in tax laws; the strength of the United States' economy and the local economies in which the Company operates; adverse developments in the financial services industry generally such as bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer behavior; inflation, market, and monetary fluctuations; our liquidity and capital positions, including the sufficiency of our liquidity; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value and acceptance of these products and services by users; the Bank's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Bank's strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the Bank of its status as a well-capitalized institution; changes in consumer spending and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase. The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2023, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update, revise or clarify any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason. Condensed Consolidated Statements of Financial Condition (Unaudited) (Dollars in Thousands, Except Share Data) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 ASSETS Cash and cash equivalents $ 671,630 $ 375,580 $ 515,271 $ 432,598 $ 369,169 Securities available for sale, at fair value 1,850,581 1,804,228 1,914,271 1,825,563 1,847,778 Securities held to maturity, at amortized cost 35,440 36,591 37,725 38,713 40,565 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 23,694 28,210 30,890 29,387 28,812 Loans held for sale 69,518 77,779 87,351 24,780 17,148 Loans and leases 4,426,281 4,366,116 4,072,899 3,725,616 3,509,730 Allowance for credit losses (53,785 ) (49,705 ) (81,916 ) (84,304 ) (52,592 ) Accrued interest receivable 27,080 23,282 22,332 22,434 20,170 Premises, furniture, and equipment, net 38,270 39,160 38,601 39,735 41,029 Rental equipment, net 228,916 211,750 224,212 210,844 231,129 Goodwill and intangible assets 329,241 330,225 331,335 332,503 333,938 Other assets 280,571 292,327 265,654 270,387 272,349 Total assets $ 7,927,437 $ 7,535,543 $ 7,458,625 $ 6,868,256 $ 6,659,225 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits 6,936,055 6,589,182 6,306,976 5,902,696 5,789,132 Short-term borrowings — 13,000 230,000 43,000 — Long-term borrowings 33,614 33,873 34,178 34,543 34,977 Accrued expenses and other liabilities 228,486 248,863 209,750 214,773 175,983 Total liabilities 7,198,155 6,884,918 6,780,904 6,195,012 6,000,092 STOCKHOLDERS’ EQUITY Preferred stock — — — — — Common stock, $.01 par value 260 262 266 271 282 Common stock, Nonvoting, $.01 par value — — — — — Additional paid-in capital 629,737 628,500 625,825 623,250 620,681 Retained earnings 293,463 278,655 267,100 245,046 246,891 Accumulated other comprehensive loss (188,433 ) (255,443 ) (207,896 ) (187,829 ) (201,690 ) Treasury stock, at cost (5,235 ) (344 ) (6,943 ) (6,943 ) (6,824 ) Total equity attributable to parent 729,792 651,630 678,352 673,795 659,340 Noncontrolling interest (510 ) (1,005 ) (631 ) (551 ) (207 ) Total stockholders’ equity 729,282 650,625 677,721 673,244 659,133 Total liabilities and stockholders’ equity $ 7,927,437 $ 7,535,543 $ 7,458,625 $ 6,868,256 $ 6,659,225 Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended (Dollars in Thousands, Except Share and Per Share Data) December 31, 2023 September 30, 2023 December 31, 2022 Interest and dividend income: Loans and leases, including fees $ 94,963 $ 90,085 $ 68,396 Mortgage-backed securities 10,049 10,225 10,412 Other investments 10,886 9,332 6,252 115,898 109,642 85,060 Interest expense: Deposits 3,526 1,954 142 FHLB advances and other borrowings 2,336 2,754 861 5,862 4,708 1,003 Net interest income 110,036 104,934 84,057 Provision for credit loss 9,890 9,042 9,776 Net interest income after provision for credit loss 100,146 95,892 74,281 Noninterest income: Refund transfer product fees 422 308 677 Refund advance fee income 111 (252 ) 617 Card and deposit fees 30,750 31,233 37,718 Rental income 13,459 14,562 12,708 Gain on sale of trademarks — — 10,000 Gain on sale of other 2,840 2,006 502 Other income 5,179 8,194 3,555 Total noninterest income 52,761 56,051 65,777 Noninterest expense: Compensation and benefits 46,652 46,352 43,017 Refund transfer product expense 192 28 105 Refund advance expense 30 (6 ) 27 Card processing 34,584 29,549 22,683 Occupancy and equipment expense 8,848 9,274 8,312 Operating lease equipment depreciation 10,423 10,846 9,628 Legal and consulting 4,892 7,633 9,459 Intangible amortization 984 1,110 1,258 Impairment expense — — 24 Other expense 12,669 13,416 10,546 Total noninterest expense 119,274 118,202 105,059 Income before income tax expense 33,633 33,741 34,999 Income tax expense (benefit) 5,719 (2,672 ) 6,577 Net income before noncontrolling interest 27,914 36,413 28,422 Net income attributable to noncontrolling interest 257 507 580 Net income attributable to parent $ 27,657 $ 35,906 $ 27,842 Less: Allocation of Earnings to participating securities(1) 220 531 402 Net income attributable to common shareholders(1) 27,437 35,374 27,440 Earnings per common share: Basic $ 1.06 $ 1.37 $ 0.98 Diluted $ 1.06 $ 1.36 $ 0.98 Shares used in computing earnings per common share: Basic 25,776,845 25,883,807 28,024,541 Diluted 25,801,538 25,991,449 28,086,823 (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 December 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 $ 337,975 $ 4,103 4.83 % $ 226,004 $ 1,716 3.01 % Mortgage-backed securities 1,486,854 10,049 2.69 % 1,571,022 10,412 2.63 % Tax exempt investment securities 136,470 930 3.43 % 154,754 980 3.18 % Asset-backed securities 250,172 3,565 5.67 % 155,988 1,149 2.92 % Other investment securities 284,625 2,288 3.20 % 301,738 2,407 3.17 % Total investments 2,158,121 16,832 3.15 % 2,183,503 14,948 2.76 % Commercial finance 3,762,910 75,345 7.97 % 3,010,868 58,100 7.66 % Consumer finance 362,935 10,585 11.60 % 198,372 4,313 8.63 % Tax services 28,050 (11 ) (0.16 ) % 25,231 57 0.90 % Warehouse finance 381,931 9,044 9.42 % 290,454 5,926 8.09 % Total loans and leases 4,535,826 94,963 8.33 % 3,524,924 68,396 7.70 % Total interest-earning assets $ 7,031,922 $ 115,898 6.57 % $ 5,934,431 $ 85,059 5.70 % Noninterest-earning assets 543,418 589,580 Total assets $ 7,575,340 $ 6,524,011 Interest-bearing liabilities: Interest-bearing checking $ 426 $ — 0.34 % $ 447 $ — 0.33 % Savings 54,783 6 0.04 % 62,607 6 0.04 % Money markets 183,255 576 1.25 % 138,872 78 0.22 % Time deposits 5,517 4 0.25 % 7,199 2 0.11 % Wholesale deposits 211,281 2,940 5.54 % 5,712 56 3.89 % Total interest-bearing deposits 455,262 3,526 3.08 % 214,837 142 0.26 % Overnight fed funds purchased 117,153 1,656 5.62 % 24,783 244 3.91 % Subordinated debentures 19,600 357 7.24 % 19,593 357 7.22 % Other borrowings 14,178 323 9.07 % 15,817 260 6.53 % Total borrowings 150,931 2,336 6.16 % 60,193 861 5.67 % Total interest-bearing liabilities 606,193 5,862 3.85 % 275,030 1,003 1.45 % Noninterest-bearing deposits 6,102,928 — — % 5,421,821 — — % Total deposits and interest-bearing liabilities $ 6,709,121 $ 5,862 0.35 % $ 5,696,851 $ 1,003 0.07 % Other noninterest-bearing liabilities 210,468 178,789 Total liabilities 6,919,589 5,875,640 Shareholders' equity 655,751 648,371 Total liabilities and shareholders' equity $ 7,575,340 $ 6,524,011 Net interest income and net interest rate spread including noninterest-bearing deposits $ 110,036 6.22 % $ 84,057 5.63 % Net interest margin 6.23 % 5.62 % Tax-equivalent effect 0.01 % 0.02 % Net interest margin, tax-equivalent(2) 6.24 % 5.64 % (1) Tax rate used to arrive at the TEY for the three months ended December 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 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Equity to total assets 9.20 % 8.63 % 9.09 % 9.80 % 9.90 % Book value per common share outstanding $ 28.06 $ 24.85 $ 25.54 $ 24.88 $ 23.36 Tangible book value per common share outstanding $ 15.39 $ 12.24 $ 13.05 $ 12.59 $ 11.53 Tangible book value per common share outstanding excluding AOCI $ 22.64 $ 21.99 $ 20.89 $ 19.54 $ 18.68 Common shares outstanding 25,988,230 26,183,583 26,539,272 27,055,727 28,211,239 Nonperforming assets to total assets 0.53 % 0.77 % 0.55 % 0.44 % 0.68 % Nonperforming loans and leases to total loans and leases 0.88 % 1.26 % 0.93 % 0.76 % 1.16 % Net interest margin 6.23 % 6.19 % 6.18 % 6.12 % 5.62 % Net interest margin, tax-equivalent 6.24 % 6.21 % 6.20 % 6.14 % 5.64 % Return on average assets 1.46 % 1.97 % 2.61 % 2.99 % 1.71 % Return on average equity 16.87 % 21.12 % 26.26 % 32.68 % 17.18 % Full-time equivalent employees 1,218 1,193 1,186 1,164 1,150 Non-GAAP Reconciliations Adjusted Net Income and Adjusted Earnings Per Share At and For the Three Months Ended (Dollars in Thousands, Except Share and Per Share Data) December 31, 2022 Net Income - GAAP $ 27,842 Less: Gain on sale of trademarks 10,000 Add: Rebranding expenses 3,737 Add: Separation related expenses 11 Add: Income tax effect resulting from the above listed items 1,575 Adjusted net income $ 23,165 Less: Adjusted allocation of earnings to participating securities 335 Adjusted Net income attributable to common shareholders 22,830 Weighted average diluted common shares outstanding 28,086,823 Adjusted earnings per common share - diluted $ 0.81 Net Interest Margin and Cost of Deposits At and For the Three Months Ended (Dollars in thousands) December 31, 2023 September 30, 2023 December 31, 2022 Average interest earning assets $ 7,031,922 $ 6,724,185 $ 5,934,431 Net interest income $ 110,036 $ 104,935 $ 84,057 Net interest margin 6.23 % 6.19 % 5.62 % Quarterly average total deposits $ 6,558,190 $ 6,204,934 $ 5,636,658 Deposit interest expense $ 3,526 $ 1,954 $ 142 Cost of deposits 0.21 % 0.12 % 0.01 % Adjusted Net Interest Margin and Adjusted Cost of Deposits Average interest earning assets $ 7,031,922 $ 6,724,185 $ 5,934,431 Net interest income 110,036 104,935 84,057 Less: Contractual, rate-related processing expense 26,793 22,473 13,985 Adjusted net interest income $ 83,243 $ 82,462 $ 70,072 Adjusted net interest margin 4.71 % 4.87 % 4.68 % Average total deposits $ 6,558,190 $ 6,204,934 $ 5,636,658 Deposit interest expense 3,526 1,954 142 Add: Contractual, rate-related processing expense 26,793 22,473 13,985 Adjusted deposit expense $ 30,319 $ 24,427 $ 14,128 Adjusted cost of deposits 1.84 % 1.56 % 1.00 % View source version on businesswire.com: https://www.businesswire.com/news/home/20240124253288/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. 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Pathward Financial, Inc. Announces Results for 2024 Fiscal First Quarter By: Pathward Financial, Inc. via Business Wire January 24, 2024 at 16:10 PM EST Pathward Financial, Inc. (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $27.7 million, or $1.06 per share, for the three months ended December 31, 2023, compared to net income of $27.8 million, or $0.98 per share, for the three months ended December 31, 2022. For the fiscal quarter ended December 31, 2022, the Company recognized adjusted net income of $23.2 million, or $0.81 per share, when adjusting for the gain on sale of names and trademarks, expenses related to rebranding efforts and separation expense. See non-GAAP reconciliation table below. CEO Brett Pharr said, “We are very pleased with our results in the first quarter and have started off the year by laying the groundwork to deliver on our strategic goals for the year – building Banking as a Service ("BaaS") into a one stop shop for our partners and smart growth in Commercial Finance to help ensure appropriate yields for the financial environment. We delivered net interest income growth of 31% compared to the prior year’s quarter and continue to be in a strong liquidity position. Looking forward, we have a healthy BaaS pipeline and are aiming to add recurring fee revenue that will drive sustainable net income.” Company Highlights On January 16, 2024, the Company announced a multi-year extension with an a long-standing partner that allows for collaboration on product innovation and expanded product offerings for a range of programs in market and under development. Financial Highlights for the 2024 Fiscal First Quarter Total revenue for the first quarter was $162.8 million, an increase of $13.0 million, or 9%, compared to the same quarter in fiscal 2023, driven by an increase in net interest income, partially offset by a decrease in noninterest income. Net interest margin ("NIM") increased 61 basis points to 6.23% for the first quarter from 5.62% during the same period last year, primarily driven by increased yields and an improved earning asset mix from the continued optimization of the portfolio. When including contractual, rate-related processing expense, NIM would have been 4.71% in the fiscal 2024 first quarter compared to 4.68% during the fiscal 2023 first quarter. See non-GAAP reconciliation table below. Total gross loans and leases at December 31, 2023 increased $916.6 million to $4.43 billion compared to December 31, 2022 and increased $60.2 million when compared to September 30, 2023. The increase compared to the prior year quarter was primarily due to growth in the commercial, consumer, and warehouse finance loan portfolios. The primary driver for the sequential increase was growth in seasonal consumer finance loans related to a tax partnership. During the 2024 fiscal first quarter, the Company repurchased 232,588 shares of common stock at an average share price of $47.25. An additional 342,300 shares of common stock were repurchased at an average price of $51.01 in January 2024 through January 19, 2024. As of January 19, 2024, there were 8,091,548 shares available for repurchase under the current common stock share repurchase programs. The Company is reiterating fiscal year 2024 GAAP earnings per diluted share guidance of $6.20 to $6.70. See Outlook section below. Net Interest Income Net interest income for the first quarter of fiscal 2024 was $110.0 million, an increase of 31% from the same quarter in fiscal 2023. The increase was mainly attributable to increased yields, higher interest-earning asset balances and an improved earning asset mix. The Company’s average interest-earning assets for the first quarter of fiscal 2024 increased by $1.10 billion to $7.03 billion compared to the same quarter in fiscal 2023, primarily due to growth in loans and leases and an increase in cash balances, partially offset by a decrease in total investment security balances. The first quarter average outstanding balance of loans and leases increased $1.01 billion compared to the same quarter of the prior fiscal year, primarily due to an increase in commercial, consumer, and warehouse finance portfolios. Fiscal 2024 first quarter NIM increased to 6.23% from 5.62% in the first fiscal quarter of last year. When including contractual, rate-related processing expense, NIM would have been 4.71% in the fiscal 2024 first quarter compared to 4.68% during the fiscal 2023 first quarter. See non-GAAP reconciliation table below. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 87 basis points to 6.57% compared to the prior year quarter, driven by an increase in loan and lease, investment securities and cash yields. The yield on the loan and lease portfolio was 8.33% compared to 7.70% for the comparable period last year and the TEY on the securities portfolio was 3.15% compared to 2.76% over that same period. The Company's cost of funds for all deposits and borrowings averaged 0.35% during the fiscal 2024 first quarter, as compared to 0.07% during the prior year quarter. The Company's overall cost of deposits was 0.21% in the fiscal first quarter of 2024, as compared to 0.01% during the prior year quarter. When including contractual, rate-related processing expense, the Company's overall cost of deposits was 1.84% in the fiscal 2024 first quarter, as compared to 1.00% during the prior year quarter. See non-GAAP reconciliation table below. Noninterest Income Fiscal 2024 first quarter noninterest income decreased 20% to $52.8 million, compared to $65.8 million for the same period of the prior year. The decrease was primarily attributable to the $10.0 million gain on sale of trademarks recognized during the prior year period, along with a decrease in card and deposit fees. The period-over-period decrease was partially offset by increases in gain on sale of other, other income, and rental income. The increase in gain on sale of other was driven by a $2.5 million gain related to an investment in the Pathward Venture Capital business. The decrease in card and deposit fee income was primarily related to servicing fee income on off-balance sheet deposits, which totaled $5.1 million during the 2024 fiscal first quarter, as compared to $7.8 million for the fiscal quarter ended September 30, 2023 and $12.9 million for the same period of the prior year. The decrease in servicing fee income was due to a reduction in off-balance sheet deposits that the Company manages at other banks. Noninterest Expense Noninterest expense increased 14% to $119.3 million for the fiscal 2024 first quarter, from $105.1 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, compensation and benefits expense, other expense, operating lease equipment depreciation, and occupancy and equipment expense. The period-over-period increase was partially offset by a decrease in legal and consulting expense. The card processing expense increase was due to rate-related agreements with BaaS partners. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally, this rate index is based on a percentage of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 53% of the deposit portfolio was subject to these rate-related processing expenses during the fiscal 2024 first quarter. For the fiscal quarter ended December 31, 2023, contractual, rate-related processing expenses were $26.8 million, as compared to $22.5 million for the fiscal quarter ended September 30, 2023, and $14.0 million for the fiscal quarter ended December 31, 2022. Income Tax Expense The Company recorded income tax expense of $5.7 million, representing an effective tax rate of 17.0%, for the fiscal 2024 first quarter, compared to $6.6 million, representing an effective tax rate of 18.8%, for the first quarter last fiscal year. The current quarter decrease in income tax expense compared to the prior year quarter was primarily due to an increase in investment tax credits recognized ratably. The Company originated $12.2 million in renewable energy leases during the fiscal 2024 first quarter, resulting in $4.4 million in total net investment tax credits. During the first quarter of fiscal 2023, the Company originated $11.4 million in renewable energy leases resulting in $3.1 million in total net investment tax credits. Investment tax credits related to renewable energy leases are recognized ratably based on income throughout each fiscal year. Outlook The following forward-looking statements reflect the Company’s expectations as of the date of this release and are subject to substantial uncertainty. The Company's results may be materially affected by many factors, such as changes in economic conditions and customer demand, changes in interest rates, adverse developments in the financial services industry generally, inflation, competition, and other factors detailed below under “Forward-looking Statements.” The Company is reiterating fiscal year 2024 GAAP earnings per diluted share guidance of $6.20 to $6.70. As part of this guidance, the Company is reiterating its annual effective tax rate in fiscal year 2024 to a range between 16% and 20%. Investments, Loans and Leases (Dollars in thousands) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Total investments $ 1,886,021 $ 1,840,819 $ 1,951,996 $ 1,864,276 $ 1,888,343 Loans held for sale Term lending 2,500 — 3,000 — — Lease financing 778 — — — — Consumer Finance 66,240 77,779 84,351 24,780 17,148 Total loans held for sale 69,518 77,779 87,351 24,780 17,148 Term lending 1,452,274 1,308,133 1,253,841 1,235,453 1,160,100 Asset-based lending 379,681 382,371 373,160 377,965 359,516 Factoring 335,953 358,344 351,133 338,884 338,594 Lease financing 188,889 183,392 201,996 170,645 189,868 Insurance premium finance 671,035 800,077 666,265 437,700 436,977 SBA/USDA 546,048 524,750 422,389 405,612 357,084 Other commercial finance 160,628 166,091 171,954 166,402 164,734 Commercial finance 3,734,508 3,723,158 3,440,738 3,132,661 3,006,873 Consumer finance 301,510 254,416 200,121 148,648 186,930 Tax services 33,435 5,192 47,194 61,553 30,364 Warehouse finance 349,911 376,915 380,458 377,036 279,899 Total loans and leases 4,419,364 4,359,681 4,068,511 3,719,898 3,504,066 Net deferred loan origination costs 6,917 6,435 4,388 5,718 5,664 Total gross loans and leases 4,426,281 4,366,116 4,072,899 3,725,616 3,509,730 Allowance for credit losses (53,785 ) (49,705 ) (81,916 ) (84,304 ) (52,592 ) Total loans and leases, net $ 4,372,496 $ 4,316,411 $ 3,990,983 $ 3,641,312 $ 3,457,138 The Company's investment security balances at December 31, 2023 totaled $1.89 billion, as compared to $1.84 billion at September 30, 2023 and $1.89 billion at December 31, 2022. Total gross loans and leases totaled $4.43 billion at December 31, 2023, as compared to $4.37 billion at September 30, 2023 and $3.51 billion at December 31, 2022. The primary drivers for the sequential increase were an increase in consumer finance loans, seasonal tax services loans, and commercial finance loans. This was partially offset by a decrease in warehouse finance loans. The year-over-year increase was due to increases in commercial finance, consumer finance, warehouse finance, and seasonal tax services loans. Commercial finance loans, which comprised 85% of the Company's loan and lease portfolio, totaled $3.73 billion at December 31, 2023, reflecting an increase of $11.4 million from September 30, 2023 and an increase of $727.6 million, or 24%, from December 31, 2022. The sequential increase in commercial finance loans was primarily driven by a $144.1 million increase in the term lending portfolio and a $21.3 million increase in the SBA/USDA portfolio, partially offset by a $129.0 million decrease in the insurance premium finance portfolio. The increase in commercial finance loans when comparing the current period to the same period of the prior year was primarily driven by increases in the term lending, insurance premium finance, SBA/USDA, and asset-based lending portfolios, partially offset by reductions in the factoring and other commercial finance portfolios. Asset Quality The Company’s allowance for credit losses ("ACL") totaled $53.8 million at December 31, 2023, an increase compared to $49.7 million at September 30, 2023 and an increase compared to $52.6 million at December 31, 2022. The increase in the ACL at December 31, 2023, when compared to September 30, 2023, was primarily due to a $2.0 million increase in the allowance related to the consumer finance portfolio and a $1.6 million increase in the allowance related to the commercial finance portfolio. The $1.2 million year-over-year increase in the ACL was primarily driven by a $1.5 million increase in the allowance related to the consumer finance portfolio and a $0.1 million increase in the allowance related to the warehouse finance portfolio, partially offset by a $0.3 million decrease in the allowance related to the commercial finance portfolio and a $0.1 million decrease in the allowance related to the seasonal tax services portfolio. The year-over-year increase in the allowance related to the consumer finance portfolio was primarily attributable to seasonal activity and loan growth in the portfolio. The following table presents the Company's ACL as a percentage of its total loans and leases. As of the Period Ended (Unaudited) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Commercial finance 1.30 % 1.26 % 1.35 % 1.53 % 1.62 % Consumer finance 1.45 % 0.92 % 0.92 % 1.99 % 1.54 % Tax services 1.51 % 0.04 % 70.20 % 53.77 % 2.01 % Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % Total loans and leases 1.22 % 1.14 % 2.01 % 2.27 % 1.50 % Total loans and leases excluding tax services 1.21 % 1.14 % 1.21 % 1.40 % 1.50 % The Company's ACL as a percentage of total loans and leases increased to 1.22% at December 31, 2023 from 1.14% at September 30, 2023. The increase in the total loans and leases coverage ratio was primarily driven by an increase in the consumer finance portfolio due to seasonal activity and an increase in the seasonal tax services portfolio. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level. Activity in the allowance for credit losses for the periods presented was as follows. (Unaudited) Three Months Ended (Dollars in thousands) December 31, 2023 September 30, 2023 December 31, 2022 Beginning balance $ 49,705 $ 81,916 $ 45,947 Provision (reversal of) - tax services loans 1,356 2,945 1,637 Provision (reversal of) - all other loans and leases 8,210 6,124 8,226 Charge-offs - tax services loans (1,145 ) (36,606 ) (1,731 ) Charge-offs - all other loans and leases (5,725 ) (6,227 ) (2,708 ) Recoveries - tax services loans 294 531 698 Recoveries - all other loans and leases 1,090 1,022 523 Ending balance $ 53,785 $ 49,705 $ 52,592 The Company recognized a provision for credit losses of $9.9 million for the quarter ended December 31, 2023, compared to $9.8 million for the comparable period in the prior fiscal year. Net charge-offs were $5.5 million for the quarter ended December 31, 2023, compared to $3.2 million for the quarter ended December 31, 2022. Net charge-offs attributable to the commercial finance, tax services, and consumer finance portfolios for the current quarter were $4.6 million, $0.8 million, and $0.1 million, respectively. Net charge-offs attributable to the commercial finance, tax services, and consumer finance portfolios for the same quarter of the prior year were $2.0 million, $1.0 million, and $0.2 million, respectively. The Company's past due loans and leases were as follows for the periods presented. As of December 31, 2023 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ 1,173 $ 786 $ 661 $ 2,620 $ 66,898 $ 69,518 $ 661 $ — $ 661 Commercial finance 33,406 8,341 20,854 62,601 3,671,907 3,734,508 7,977 28,099 36,076 Consumer finance 4,258 3,345 2,859 10,462 291,048 301,510 2,859 — 2,859 Tax services — — — — 33,435 33,435 — — — Warehouse finance — — — — 349,911 349,911 — — — Total loans and leases held for investment 37,664 11,686 23,713 73,063 4,346,301 4,419,364 10,836 28,099 38,935 Total loans and leases $ 38,837 $ 12,472 $ 24,374 $ 75,683 $ 4,413,199 $ 4,488,882 $ 11,497 $ 28,099 $ 39,596 As of September 30, 2023 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ 626 $ 549 $ 306 $ 1,481 $ 76,298 $ 77,779 $ 306 $ — $ 306 Commercial finance 23,434 9,143 20,352 52,929 3,670,229 3,723,158 11,242 37,372 48,614 Consumer finance 2,992 2,425 2,210 7,627 246,789 254,416 2,210 — 2,210 Tax services — — 5,082 5,082 110 5,192 5,082 — 5,082 Warehouse finance — — — — 376,915 376,915 — — — Total loans and leases held for investment 26,426 11,568 27,644 65,638 4,294,043 4,359,681 18,534 37,372 55,906 Total loans and leases $ 27,052 $ 12,117 $ 27,950 $ 67,119 $ 4,370,341 $ 4,437,460 $ 18,840 $ 37,372 $ 56,212 The Company's nonperforming assets at December 31, 2023 were $42.4 million, representing 0.53% of total assets, compared to $58.0 million, or 0.77% of total assets at September 30, 2023 and $45.0 million, or 0.68% of total assets at December 31, 2022. The decrease in the nonperforming assets as a percentage of total assets at December 31, 2023 compared to September 30, 2023, was primarily driven by a workout of a previously announced relationship within the commercial finance portfolio. When comparing the current period to the same period of the prior year, the decrease in nonperforming assets was primarily due to a decrease in nonperforming loans in the commercial finance portfolio, partially offset by a slight increase in nonperforming loans in the consumer finance portfolio. The Company's nonperforming loans and leases at December 31, 2023, were $39.6 million, representing 0.88% of total gross loans and leases, compared to $56.2 million, or 1.26% of total gross loans and leases at September 30, 2023 and $40.9 million, or 1.16% of total gross loans and leases at December 31, 2022. 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 December 31, 2023 Commercial finance $ 2,895,451 $ 544,287 $ 86,942 $ 197,682 $ 10,146 $ 3,734,508 Warehouse finance 349,911 — — — — 349,911 Total loans and leases $ 3,245,362 $ 544,287 $ 86,942 $ 197,682 $ 10,146 $ 4,084,419 Asset Classification (Dollars in thousands) Pass Watch Special Mention Substandard Doubtful Total As of September 30, 2023 Commercial finance $ 2,845,587 $ 559,112 $ 102,111 $ 208,193 $ 8,155 $ 3,723,158 Warehouse finance 376,915 — — — — 376,915 Total loans and leases $ 3,222,502 $ 559,112 $ 102,111 $ 208,193 $ 8,155 $ 4,100,073 Deposits, Borrowings and Other Liabilities Total average deposits for the fiscal 2024 first quarter increased by $921.5 million to $6.56 billion compared to the same period in fiscal 2023. The increase in average deposits was primarily due to increases in noninterest bearing deposits, wholesale deposits, and money market deposits partially offset by a decrease in savings deposits and time deposits. The average balance of total deposits and interest-bearing liabilities was $6.71 billion for the three-month period ended December 31, 2023, compared to $5.70 billion for the same period in the prior fiscal year, representing an increase of 18%. Total end-of-period deposits increased 20% to $6.94 billion at December 31, 2023, compared to $5.79 billion at December 31, 2022. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $969.7 million, wholesale deposits of $136.0 million, and money market deposits of $51.4 million, partially offset by decreases in savings deposits of $8.2 million and time deposits of $2.0 million. As of December 31, 2023, the Company had $837.6 million in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $334.5 million are on activated cards while $503.1 million are on inactivated cards. During the remainder of fiscal year 2024, these deposit balances are expected to decline by approximately $310 million as the Company actively returns unclaimed balances to the U.S. Treasury. As of December 31, 2023, the Company managed $1.1 billion of customer deposits at other banks in its capacity as custodian. These deposits provide the Company with excess deposits that can earn servicing fee income, typically reflective of the EFFR. Regulatory Capital The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at December 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. 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 December 31, 2023(1) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Company Tier 1 leverage capital ratio 7.96 % 8.11 % 8.40 % 7.53 % 8.37 % Common equity Tier 1 capital ratio 11.43 % 11.25 % 11.52 % 12.05 % 12.31 % Tier 1 capital ratio 11.69 % 11.50 % 11.79 % 12.35 % 12.63 % Total capital ratio 13.12 % 12.84 % 13.45 % 14.06 % 14.29 % Bank Tier 1 leverage ratio 8.15 % 8.32 % 8.67 % 7.79 % 8.68 % Common equity Tier 1 capital ratio 11.97 % 11.81 % 12.17 % 12.77 % 13.09 % Tier 1 capital ratio 11.97 % 11.81 % 12.17 % 12.77 % 13.09 % Total capital ratio 13.01 % 12.76 % 13.42 % 14.03 % 14.29 % (1) December 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) As of the Periods Indicated (Dollars in thousands) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Total stockholders' equity $ 729,282 $ 650,625 $ 677,721 $ 673,244 $ 659,133 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 297,283 297,679 298,092 298,390 298,788 LESS: Certain other intangible assets 20,093 21,228 22,372 23,553 25,053 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 20,253 19,679 12,157 13,219 16,641 LESS: Net unrealized (losses) on available for sale securities (187,901 ) (254,294 ) (207,358 ) (186,796 ) (200,597 ) LESS: Noncontrolling interest (510 ) (1,005 ) (631 ) (551 ) (207 ) ADD: Adoption of Accounting Standards Update 2016-13 1,345 2,017 2,017 2,017 2,017 Common Equity Tier 1(1) 581,409 569,355 555,106 527,446 521,472 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 (410 ) (826 ) (454 ) (404 ) (138 ) Total Tier 1 capital 594,660 582,190 568,313 540,703 534,995 Allowance for credit losses 53,037 47,960 60,489 55,058 50,853 Subordinated debentures, net of issuance costs 19,617 19,591 19,566 19,540 19,521 Total capital $ 667,314 $ 649,741 $ 648,368 $ 615,301 $ 650,369 (1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum CET1 ratio; those changes were fully phased in through the end of calendar year 2021. The following table provides a reconciliation of tangible common equity and tangible common equity excluding AOCI, each of which is used in calculating tangible book value data, to Total Stockholders' Equity. Each of tangible common equity and tangible common equity excluding AOCI is a non-GAAP financial measure that is commonly used within the banking industry. As of the Periods Indicated (Dollars in thousands) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Total stockholders' equity $ 729,282 $ 650,625 $ 677,721 $ 673,244 $ 659,133 Less: Goodwill 309,505 309,505 309,505 309,505 309,505 Less: Intangible assets 19,736 20,720 21,830 22,998 24,433 Tangible common equity 400,041 320,400 346,386 340,741 325,195 Less: AOCI (188,433 ) (255,443 ) (207,896 ) (187,829 ) (201,690 ) Tangible common equity excluding AOCI $ 588,474 $ 575,843 $ 554,282 $ 528,570 $ 526,885 Conference Call The Company will host a conference call and earnings webcast with a corresponding presentation at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Wednesday, January 24, 2024. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-833-470-1428 approximately 10 minutes prior to start time and reference access code 388353. The Quarterly Investor Update slide presentation prepared for use in connection with the Company's conference call and earnings webcast is available under the Presentations link in the Investor Relations - Events & Presentations section of the Company's website at www.pathwardfinancial.com. A webcast replay will also be archived at www.pathwardfinancial.com for one year. Upcoming Investor Events KBW Winter Financial Services Conference, Feb. 14-16, 2024 | Boca Raton, FL Piper Sandler 2024 Western Financial Services Conference, Feb. 28-Mar. 1, 2024 | Las Vegas, NV Raymond James 2024 Institutional Investors Conference, Mar. 3-6, 2024 | Orlando, FL 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 Securities and Exchange Commission ("SEC"), the Company’s reports to stockholders, and in other communications by the Company and the Bank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” "target," or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results including our earnings per diluted share guidance, annual effective tax rate and related performance expectations; progress on key strategic initiatives; expected results of our partnerships; our goals regarding the addition of recurring revenue and related expected performance impacts; expected nonperforming loan resolutions and net charge off rates; the performance of our securities portfolio; the impact of card balances related to government stimulus programs; customer retention; loan and other product demand; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; and technology. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the potential adverse effects of unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the military conflicts in Ukraine and the Middle East, weather-related disasters, or public health events, such as the COVID-19 pandemic, and any governmental or societal responses thereto; our ability to achieve brand recognition for the Bank equal to or greater than we enjoyed for MetaBank; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate, and their related impacts on macroeconomic conditions, customer behavior, funding costs and loan and securities portfolios; changes in tax laws; the strength of the United States' economy and the local economies in which the Company operates; adverse developments in the financial services industry generally such as bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer behavior; inflation, market, and monetary fluctuations; our liquidity and capital positions, including the sufficiency of our liquidity; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value and acceptance of these products and services by users; the Bank's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Bank's strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the Bank of its status as a well-capitalized institution; changes in consumer spending and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase. The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2023, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update, revise or clarify any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason. Condensed Consolidated Statements of Financial Condition (Unaudited) (Dollars in Thousands, Except Share Data) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 ASSETS Cash and cash equivalents $ 671,630 $ 375,580 $ 515,271 $ 432,598 $ 369,169 Securities available for sale, at fair value 1,850,581 1,804,228 1,914,271 1,825,563 1,847,778 Securities held to maturity, at amortized cost 35,440 36,591 37,725 38,713 40,565 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 23,694 28,210 30,890 29,387 28,812 Loans held for sale 69,518 77,779 87,351 24,780 17,148 Loans and leases 4,426,281 4,366,116 4,072,899 3,725,616 3,509,730 Allowance for credit losses (53,785 ) (49,705 ) (81,916 ) (84,304 ) (52,592 ) Accrued interest receivable 27,080 23,282 22,332 22,434 20,170 Premises, furniture, and equipment, net 38,270 39,160 38,601 39,735 41,029 Rental equipment, net 228,916 211,750 224,212 210,844 231,129 Goodwill and intangible assets 329,241 330,225 331,335 332,503 333,938 Other assets 280,571 292,327 265,654 270,387 272,349 Total assets $ 7,927,437 $ 7,535,543 $ 7,458,625 $ 6,868,256 $ 6,659,225 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits 6,936,055 6,589,182 6,306,976 5,902,696 5,789,132 Short-term borrowings — 13,000 230,000 43,000 — Long-term borrowings 33,614 33,873 34,178 34,543 34,977 Accrued expenses and other liabilities 228,486 248,863 209,750 214,773 175,983 Total liabilities 7,198,155 6,884,918 6,780,904 6,195,012 6,000,092 STOCKHOLDERS’ EQUITY Preferred stock — — — — — Common stock, $.01 par value 260 262 266 271 282 Common stock, Nonvoting, $.01 par value — — — — — Additional paid-in capital 629,737 628,500 625,825 623,250 620,681 Retained earnings 293,463 278,655 267,100 245,046 246,891 Accumulated other comprehensive loss (188,433 ) (255,443 ) (207,896 ) (187,829 ) (201,690 ) Treasury stock, at cost (5,235 ) (344 ) (6,943 ) (6,943 ) (6,824 ) Total equity attributable to parent 729,792 651,630 678,352 673,795 659,340 Noncontrolling interest (510 ) (1,005 ) (631 ) (551 ) (207 ) Total stockholders’ equity 729,282 650,625 677,721 673,244 659,133 Total liabilities and stockholders’ equity $ 7,927,437 $ 7,535,543 $ 7,458,625 $ 6,868,256 $ 6,659,225 Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended (Dollars in Thousands, Except Share and Per Share Data) December 31, 2023 September 30, 2023 December 31, 2022 Interest and dividend income: Loans and leases, including fees $ 94,963 $ 90,085 $ 68,396 Mortgage-backed securities 10,049 10,225 10,412 Other investments 10,886 9,332 6,252 115,898 109,642 85,060 Interest expense: Deposits 3,526 1,954 142 FHLB advances and other borrowings 2,336 2,754 861 5,862 4,708 1,003 Net interest income 110,036 104,934 84,057 Provision for credit loss 9,890 9,042 9,776 Net interest income after provision for credit loss 100,146 95,892 74,281 Noninterest income: Refund transfer product fees 422 308 677 Refund advance fee income 111 (252 ) 617 Card and deposit fees 30,750 31,233 37,718 Rental income 13,459 14,562 12,708 Gain on sale of trademarks — — 10,000 Gain on sale of other 2,840 2,006 502 Other income 5,179 8,194 3,555 Total noninterest income 52,761 56,051 65,777 Noninterest expense: Compensation and benefits 46,652 46,352 43,017 Refund transfer product expense 192 28 105 Refund advance expense 30 (6 ) 27 Card processing 34,584 29,549 22,683 Occupancy and equipment expense 8,848 9,274 8,312 Operating lease equipment depreciation 10,423 10,846 9,628 Legal and consulting 4,892 7,633 9,459 Intangible amortization 984 1,110 1,258 Impairment expense — — 24 Other expense 12,669 13,416 10,546 Total noninterest expense 119,274 118,202 105,059 Income before income tax expense 33,633 33,741 34,999 Income tax expense (benefit) 5,719 (2,672 ) 6,577 Net income before noncontrolling interest 27,914 36,413 28,422 Net income attributable to noncontrolling interest 257 507 580 Net income attributable to parent $ 27,657 $ 35,906 $ 27,842 Less: Allocation of Earnings to participating securities(1) 220 531 402 Net income attributable to common shareholders(1) 27,437 35,374 27,440 Earnings per common share: Basic $ 1.06 $ 1.37 $ 0.98 Diluted $ 1.06 $ 1.36 $ 0.98 Shares used in computing earnings per common share: Basic 25,776,845 25,883,807 28,024,541 Diluted 25,801,538 25,991,449 28,086,823 (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 December 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 $ 337,975 $ 4,103 4.83 % $ 226,004 $ 1,716 3.01 % Mortgage-backed securities 1,486,854 10,049 2.69 % 1,571,022 10,412 2.63 % Tax exempt investment securities 136,470 930 3.43 % 154,754 980 3.18 % Asset-backed securities 250,172 3,565 5.67 % 155,988 1,149 2.92 % Other investment securities 284,625 2,288 3.20 % 301,738 2,407 3.17 % Total investments 2,158,121 16,832 3.15 % 2,183,503 14,948 2.76 % Commercial finance 3,762,910 75,345 7.97 % 3,010,868 58,100 7.66 % Consumer finance 362,935 10,585 11.60 % 198,372 4,313 8.63 % Tax services 28,050 (11 ) (0.16 ) % 25,231 57 0.90 % Warehouse finance 381,931 9,044 9.42 % 290,454 5,926 8.09 % Total loans and leases 4,535,826 94,963 8.33 % 3,524,924 68,396 7.70 % Total interest-earning assets $ 7,031,922 $ 115,898 6.57 % $ 5,934,431 $ 85,059 5.70 % Noninterest-earning assets 543,418 589,580 Total assets $ 7,575,340 $ 6,524,011 Interest-bearing liabilities: Interest-bearing checking $ 426 $ — 0.34 % $ 447 $ — 0.33 % Savings 54,783 6 0.04 % 62,607 6 0.04 % Money markets 183,255 576 1.25 % 138,872 78 0.22 % Time deposits 5,517 4 0.25 % 7,199 2 0.11 % Wholesale deposits 211,281 2,940 5.54 % 5,712 56 3.89 % Total interest-bearing deposits 455,262 3,526 3.08 % 214,837 142 0.26 % Overnight fed funds purchased 117,153 1,656 5.62 % 24,783 244 3.91 % Subordinated debentures 19,600 357 7.24 % 19,593 357 7.22 % Other borrowings 14,178 323 9.07 % 15,817 260 6.53 % Total borrowings 150,931 2,336 6.16 % 60,193 861 5.67 % Total interest-bearing liabilities 606,193 5,862 3.85 % 275,030 1,003 1.45 % Noninterest-bearing deposits 6,102,928 — — % 5,421,821 — — % Total deposits and interest-bearing liabilities $ 6,709,121 $ 5,862 0.35 % $ 5,696,851 $ 1,003 0.07 % Other noninterest-bearing liabilities 210,468 178,789 Total liabilities 6,919,589 5,875,640 Shareholders' equity 655,751 648,371 Total liabilities and shareholders' equity $ 7,575,340 $ 6,524,011 Net interest income and net interest rate spread including noninterest-bearing deposits $ 110,036 6.22 % $ 84,057 5.63 % Net interest margin 6.23 % 5.62 % Tax-equivalent effect 0.01 % 0.02 % Net interest margin, tax-equivalent(2) 6.24 % 5.64 % (1) Tax rate used to arrive at the TEY for the three months ended December 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 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Equity to total assets 9.20 % 8.63 % 9.09 % 9.80 % 9.90 % Book value per common share outstanding $ 28.06 $ 24.85 $ 25.54 $ 24.88 $ 23.36 Tangible book value per common share outstanding $ 15.39 $ 12.24 $ 13.05 $ 12.59 $ 11.53 Tangible book value per common share outstanding excluding AOCI $ 22.64 $ 21.99 $ 20.89 $ 19.54 $ 18.68 Common shares outstanding 25,988,230 26,183,583 26,539,272 27,055,727 28,211,239 Nonperforming assets to total assets 0.53 % 0.77 % 0.55 % 0.44 % 0.68 % Nonperforming loans and leases to total loans and leases 0.88 % 1.26 % 0.93 % 0.76 % 1.16 % Net interest margin 6.23 % 6.19 % 6.18 % 6.12 % 5.62 % Net interest margin, tax-equivalent 6.24 % 6.21 % 6.20 % 6.14 % 5.64 % Return on average assets 1.46 % 1.97 % 2.61 % 2.99 % 1.71 % Return on average equity 16.87 % 21.12 % 26.26 % 32.68 % 17.18 % Full-time equivalent employees 1,218 1,193 1,186 1,164 1,150 Non-GAAP Reconciliations Adjusted Net Income and Adjusted Earnings Per Share At and For the Three Months Ended (Dollars in Thousands, Except Share and Per Share Data) December 31, 2022 Net Income - GAAP $ 27,842 Less: Gain on sale of trademarks 10,000 Add: Rebranding expenses 3,737 Add: Separation related expenses 11 Add: Income tax effect resulting from the above listed items 1,575 Adjusted net income $ 23,165 Less: Adjusted allocation of earnings to participating securities 335 Adjusted Net income attributable to common shareholders 22,830 Weighted average diluted common shares outstanding 28,086,823 Adjusted earnings per common share - diluted $ 0.81 Net Interest Margin and Cost of Deposits At and For the Three Months Ended (Dollars in thousands) December 31, 2023 September 30, 2023 December 31, 2022 Average interest earning assets $ 7,031,922 $ 6,724,185 $ 5,934,431 Net interest income $ 110,036 $ 104,935 $ 84,057 Net interest margin 6.23 % 6.19 % 5.62 % Quarterly average total deposits $ 6,558,190 $ 6,204,934 $ 5,636,658 Deposit interest expense $ 3,526 $ 1,954 $ 142 Cost of deposits 0.21 % 0.12 % 0.01 % Adjusted Net Interest Margin and Adjusted Cost of Deposits Average interest earning assets $ 7,031,922 $ 6,724,185 $ 5,934,431 Net interest income 110,036 104,935 84,057 Less: Contractual, rate-related processing expense 26,793 22,473 13,985 Adjusted net interest income $ 83,243 $ 82,462 $ 70,072 Adjusted net interest margin 4.71 % 4.87 % 4.68 % Average total deposits $ 6,558,190 $ 6,204,934 $ 5,636,658 Deposit interest expense 3,526 1,954 142 Add: Contractual, rate-related processing expense 26,793 22,473 13,985 Adjusted deposit expense $ 30,319 $ 24,427 $ 14,128 Adjusted cost of deposits 1.84 % 1.56 % 1.00 % View source version on businesswire.com: https://www.businesswire.com/news/home/20240124253288/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 $27.7 million, or $1.06 per share, for the three months ended December 31, 2023, compared to net income of $27.8 million, or $0.98 per share, for the three months ended December 31, 2022. For the fiscal quarter ended December 31, 2022, the Company recognized adjusted net income of $23.2 million, or $0.81 per share, when adjusting for the gain on sale of names and trademarks, expenses related to rebranding efforts and separation expense. See non-GAAP reconciliation table below. CEO Brett Pharr said, “We are very pleased with our results in the first quarter and have started off the year by laying the groundwork to deliver on our strategic goals for the year – building Banking as a Service ("BaaS") into a one stop shop for our partners and smart growth in Commercial Finance to help ensure appropriate yields for the financial environment. We delivered net interest income growth of 31% compared to the prior year’s quarter and continue to be in a strong liquidity position. Looking forward, we have a healthy BaaS pipeline and are aiming to add recurring fee revenue that will drive sustainable net income.” Company Highlights On January 16, 2024, the Company announced a multi-year extension with an a long-standing partner that allows for collaboration on product innovation and expanded product offerings for a range of programs in market and under development. Financial Highlights for the 2024 Fiscal First Quarter Total revenue for the first quarter was $162.8 million, an increase of $13.0 million, or 9%, compared to the same quarter in fiscal 2023, driven by an increase in net interest income, partially offset by a decrease in noninterest income. Net interest margin ("NIM") increased 61 basis points to 6.23% for the first quarter from 5.62% during the same period last year, primarily driven by increased yields and an improved earning asset mix from the continued optimization of the portfolio. When including contractual, rate-related processing expense, NIM would have been 4.71% in the fiscal 2024 first quarter compared to 4.68% during the fiscal 2023 first quarter. See non-GAAP reconciliation table below. Total gross loans and leases at December 31, 2023 increased $916.6 million to $4.43 billion compared to December 31, 2022 and increased $60.2 million when compared to September 30, 2023. The increase compared to the prior year quarter was primarily due to growth in the commercial, consumer, and warehouse finance loan portfolios. The primary driver for the sequential increase was growth in seasonal consumer finance loans related to a tax partnership. During the 2024 fiscal first quarter, the Company repurchased 232,588 shares of common stock at an average share price of $47.25. An additional 342,300 shares of common stock were repurchased at an average price of $51.01 in January 2024 through January 19, 2024. As of January 19, 2024, there were 8,091,548 shares available for repurchase under the current common stock share repurchase programs. The Company is reiterating fiscal year 2024 GAAP earnings per diluted share guidance of $6.20 to $6.70. See Outlook section below. Net Interest Income Net interest income for the first quarter of fiscal 2024 was $110.0 million, an increase of 31% from the same quarter in fiscal 2023. The increase was mainly attributable to increased yields, higher interest-earning asset balances and an improved earning asset mix. The Company’s average interest-earning assets for the first quarter of fiscal 2024 increased by $1.10 billion to $7.03 billion compared to the same quarter in fiscal 2023, primarily due to growth in loans and leases and an increase in cash balances, partially offset by a decrease in total investment security balances. The first quarter average outstanding balance of loans and leases increased $1.01 billion compared to the same quarter of the prior fiscal year, primarily due to an increase in commercial, consumer, and warehouse finance portfolios. Fiscal 2024 first quarter NIM increased to 6.23% from 5.62% in the first fiscal quarter of last year. When including contractual, rate-related processing expense, NIM would have been 4.71% in the fiscal 2024 first quarter compared to 4.68% during the fiscal 2023 first quarter. See non-GAAP reconciliation table below. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 87 basis points to 6.57% compared to the prior year quarter, driven by an increase in loan and lease, investment securities and cash yields. The yield on the loan and lease portfolio was 8.33% compared to 7.70% for the comparable period last year and the TEY on the securities portfolio was 3.15% compared to 2.76% over that same period. The Company's cost of funds for all deposits and borrowings averaged 0.35% during the fiscal 2024 first quarter, as compared to 0.07% during the prior year quarter. The Company's overall cost of deposits was 0.21% in the fiscal first quarter of 2024, as compared to 0.01% during the prior year quarter. When including contractual, rate-related processing expense, the Company's overall cost of deposits was 1.84% in the fiscal 2024 first quarter, as compared to 1.00% during the prior year quarter. See non-GAAP reconciliation table below. Noninterest Income Fiscal 2024 first quarter noninterest income decreased 20% to $52.8 million, compared to $65.8 million for the same period of the prior year. The decrease was primarily attributable to the $10.0 million gain on sale of trademarks recognized during the prior year period, along with a decrease in card and deposit fees. The period-over-period decrease was partially offset by increases in gain on sale of other, other income, and rental income. The increase in gain on sale of other was driven by a $2.5 million gain related to an investment in the Pathward Venture Capital business. The decrease in card and deposit fee income was primarily related to servicing fee income on off-balance sheet deposits, which totaled $5.1 million during the 2024 fiscal first quarter, as compared to $7.8 million for the fiscal quarter ended September 30, 2023 and $12.9 million for the same period of the prior year. The decrease in servicing fee income was due to a reduction in off-balance sheet deposits that the Company manages at other banks. Noninterest Expense Noninterest expense increased 14% to $119.3 million for the fiscal 2024 first quarter, from $105.1 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, compensation and benefits expense, other expense, operating lease equipment depreciation, and occupancy and equipment expense. The period-over-period increase was partially offset by a decrease in legal and consulting expense. The card processing expense increase was due to rate-related agreements with BaaS partners. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally, this rate index is based on a percentage of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 53% of the deposit portfolio was subject to these rate-related processing expenses during the fiscal 2024 first quarter. For the fiscal quarter ended December 31, 2023, contractual, rate-related processing expenses were $26.8 million, as compared to $22.5 million for the fiscal quarter ended September 30, 2023, and $14.0 million for the fiscal quarter ended December 31, 2022. Income Tax Expense The Company recorded income tax expense of $5.7 million, representing an effective tax rate of 17.0%, for the fiscal 2024 first quarter, compared to $6.6 million, representing an effective tax rate of 18.8%, for the first quarter last fiscal year. The current quarter decrease in income tax expense compared to the prior year quarter was primarily due to an increase in investment tax credits recognized ratably. The Company originated $12.2 million in renewable energy leases during the fiscal 2024 first quarter, resulting in $4.4 million in total net investment tax credits. During the first quarter of fiscal 2023, the Company originated $11.4 million in renewable energy leases resulting in $3.1 million in total net investment tax credits. Investment tax credits related to renewable energy leases are recognized ratably based on income throughout each fiscal year. Outlook The following forward-looking statements reflect the Company’s expectations as of the date of this release and are subject to substantial uncertainty. The Company's results may be materially affected by many factors, such as changes in economic conditions and customer demand, changes in interest rates, adverse developments in the financial services industry generally, inflation, competition, and other factors detailed below under “Forward-looking Statements.” The Company is reiterating fiscal year 2024 GAAP earnings per diluted share guidance of $6.20 to $6.70. As part of this guidance, the Company is reiterating its annual effective tax rate in fiscal year 2024 to a range between 16% and 20%. Investments, Loans and Leases (Dollars in thousands) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Total investments $ 1,886,021 $ 1,840,819 $ 1,951,996 $ 1,864,276 $ 1,888,343 Loans held for sale Term lending 2,500 — 3,000 — — Lease financing 778 — — — — Consumer Finance 66,240 77,779 84,351 24,780 17,148 Total loans held for sale 69,518 77,779 87,351 24,780 17,148 Term lending 1,452,274 1,308,133 1,253,841 1,235,453 1,160,100 Asset-based lending 379,681 382,371 373,160 377,965 359,516 Factoring 335,953 358,344 351,133 338,884 338,594 Lease financing 188,889 183,392 201,996 170,645 189,868 Insurance premium finance 671,035 800,077 666,265 437,700 436,977 SBA/USDA 546,048 524,750 422,389 405,612 357,084 Other commercial finance 160,628 166,091 171,954 166,402 164,734 Commercial finance 3,734,508 3,723,158 3,440,738 3,132,661 3,006,873 Consumer finance 301,510 254,416 200,121 148,648 186,930 Tax services 33,435 5,192 47,194 61,553 30,364 Warehouse finance 349,911 376,915 380,458 377,036 279,899 Total loans and leases 4,419,364 4,359,681 4,068,511 3,719,898 3,504,066 Net deferred loan origination costs 6,917 6,435 4,388 5,718 5,664 Total gross loans and leases 4,426,281 4,366,116 4,072,899 3,725,616 3,509,730 Allowance for credit losses (53,785 ) (49,705 ) (81,916 ) (84,304 ) (52,592 ) Total loans and leases, net $ 4,372,496 $ 4,316,411 $ 3,990,983 $ 3,641,312 $ 3,457,138 The Company's investment security balances at December 31, 2023 totaled $1.89 billion, as compared to $1.84 billion at September 30, 2023 and $1.89 billion at December 31, 2022. Total gross loans and leases totaled $4.43 billion at December 31, 2023, as compared to $4.37 billion at September 30, 2023 and $3.51 billion at December 31, 2022. The primary drivers for the sequential increase were an increase in consumer finance loans, seasonal tax services loans, and commercial finance loans. This was partially offset by a decrease in warehouse finance loans. The year-over-year increase was due to increases in commercial finance, consumer finance, warehouse finance, and seasonal tax services loans. Commercial finance loans, which comprised 85% of the Company's loan and lease portfolio, totaled $3.73 billion at December 31, 2023, reflecting an increase of $11.4 million from September 30, 2023 and an increase of $727.6 million, or 24%, from December 31, 2022. The sequential increase in commercial finance loans was primarily driven by a $144.1 million increase in the term lending portfolio and a $21.3 million increase in the SBA/USDA portfolio, partially offset by a $129.0 million decrease in the insurance premium finance portfolio. The increase in commercial finance loans when comparing the current period to the same period of the prior year was primarily driven by increases in the term lending, insurance premium finance, SBA/USDA, and asset-based lending portfolios, partially offset by reductions in the factoring and other commercial finance portfolios. Asset Quality The Company’s allowance for credit losses ("ACL") totaled $53.8 million at December 31, 2023, an increase compared to $49.7 million at September 30, 2023 and an increase compared to $52.6 million at December 31, 2022. The increase in the ACL at December 31, 2023, when compared to September 30, 2023, was primarily due to a $2.0 million increase in the allowance related to the consumer finance portfolio and a $1.6 million increase in the allowance related to the commercial finance portfolio. The $1.2 million year-over-year increase in the ACL was primarily driven by a $1.5 million increase in the allowance related to the consumer finance portfolio and a $0.1 million increase in the allowance related to the warehouse finance portfolio, partially offset by a $0.3 million decrease in the allowance related to the commercial finance portfolio and a $0.1 million decrease in the allowance related to the seasonal tax services portfolio. The year-over-year increase in the allowance related to the consumer finance portfolio was primarily attributable to seasonal activity and loan growth in the portfolio. The following table presents the Company's ACL as a percentage of its total loans and leases. As of the Period Ended (Unaudited) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Commercial finance 1.30 % 1.26 % 1.35 % 1.53 % 1.62 % Consumer finance 1.45 % 0.92 % 0.92 % 1.99 % 1.54 % Tax services 1.51 % 0.04 % 70.20 % 53.77 % 2.01 % Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % Total loans and leases 1.22 % 1.14 % 2.01 % 2.27 % 1.50 % Total loans and leases excluding tax services 1.21 % 1.14 % 1.21 % 1.40 % 1.50 % The Company's ACL as a percentage of total loans and leases increased to 1.22% at December 31, 2023 from 1.14% at September 30, 2023. The increase in the total loans and leases coverage ratio was primarily driven by an increase in the consumer finance portfolio due to seasonal activity and an increase in the seasonal tax services portfolio. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level. Activity in the allowance for credit losses for the periods presented was as follows. (Unaudited) Three Months Ended (Dollars in thousands) December 31, 2023 September 30, 2023 December 31, 2022 Beginning balance $ 49,705 $ 81,916 $ 45,947 Provision (reversal of) - tax services loans 1,356 2,945 1,637 Provision (reversal of) - all other loans and leases 8,210 6,124 8,226 Charge-offs - tax services loans (1,145 ) (36,606 ) (1,731 ) Charge-offs - all other loans and leases (5,725 ) (6,227 ) (2,708 ) Recoveries - tax services loans 294 531 698 Recoveries - all other loans and leases 1,090 1,022 523 Ending balance $ 53,785 $ 49,705 $ 52,592 The Company recognized a provision for credit losses of $9.9 million for the quarter ended December 31, 2023, compared to $9.8 million for the comparable period in the prior fiscal year. Net charge-offs were $5.5 million for the quarter ended December 31, 2023, compared to $3.2 million for the quarter ended December 31, 2022. Net charge-offs attributable to the commercial finance, tax services, and consumer finance portfolios for the current quarter were $4.6 million, $0.8 million, and $0.1 million, respectively. Net charge-offs attributable to the commercial finance, tax services, and consumer finance portfolios for the same quarter of the prior year were $2.0 million, $1.0 million, and $0.2 million, respectively. The Company's past due loans and leases were as follows for the periods presented. As of December 31, 2023 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ 1,173 $ 786 $ 661 $ 2,620 $ 66,898 $ 69,518 $ 661 $ — $ 661 Commercial finance 33,406 8,341 20,854 62,601 3,671,907 3,734,508 7,977 28,099 36,076 Consumer finance 4,258 3,345 2,859 10,462 291,048 301,510 2,859 — 2,859 Tax services — — — — 33,435 33,435 — — — Warehouse finance — — — — 349,911 349,911 — — — Total loans and leases held for investment 37,664 11,686 23,713 73,063 4,346,301 4,419,364 10,836 28,099 38,935 Total loans and leases $ 38,837 $ 12,472 $ 24,374 $ 75,683 $ 4,413,199 $ 4,488,882 $ 11,497 $ 28,099 $ 39,596 As of September 30, 2023 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ 626 $ 549 $ 306 $ 1,481 $ 76,298 $ 77,779 $ 306 $ — $ 306 Commercial finance 23,434 9,143 20,352 52,929 3,670,229 3,723,158 11,242 37,372 48,614 Consumer finance 2,992 2,425 2,210 7,627 246,789 254,416 2,210 — 2,210 Tax services — — 5,082 5,082 110 5,192 5,082 — 5,082 Warehouse finance — — — — 376,915 376,915 — — — Total loans and leases held for investment 26,426 11,568 27,644 65,638 4,294,043 4,359,681 18,534 37,372 55,906 Total loans and leases $ 27,052 $ 12,117 $ 27,950 $ 67,119 $ 4,370,341 $ 4,437,460 $ 18,840 $ 37,372 $ 56,212 The Company's nonperforming assets at December 31, 2023 were $42.4 million, representing 0.53% of total assets, compared to $58.0 million, or 0.77% of total assets at September 30, 2023 and $45.0 million, or 0.68% of total assets at December 31, 2022. The decrease in the nonperforming assets as a percentage of total assets at December 31, 2023 compared to September 30, 2023, was primarily driven by a workout of a previously announced relationship within the commercial finance portfolio. When comparing the current period to the same period of the prior year, the decrease in nonperforming assets was primarily due to a decrease in nonperforming loans in the commercial finance portfolio, partially offset by a slight increase in nonperforming loans in the consumer finance portfolio. The Company's nonperforming loans and leases at December 31, 2023, were $39.6 million, representing 0.88% of total gross loans and leases, compared to $56.2 million, or 1.26% of total gross loans and leases at September 30, 2023 and $40.9 million, or 1.16% of total gross loans and leases at December 31, 2022. 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 December 31, 2023 Commercial finance $ 2,895,451 $ 544,287 $ 86,942 $ 197,682 $ 10,146 $ 3,734,508 Warehouse finance 349,911 — — — — 349,911 Total loans and leases $ 3,245,362 $ 544,287 $ 86,942 $ 197,682 $ 10,146 $ 4,084,419 Asset Classification (Dollars in thousands) Pass Watch Special Mention Substandard Doubtful Total As of September 30, 2023 Commercial finance $ 2,845,587 $ 559,112 $ 102,111 $ 208,193 $ 8,155 $ 3,723,158 Warehouse finance 376,915 — — — — 376,915 Total loans and leases $ 3,222,502 $ 559,112 $ 102,111 $ 208,193 $ 8,155 $ 4,100,073 Deposits, Borrowings and Other Liabilities Total average deposits for the fiscal 2024 first quarter increased by $921.5 million to $6.56 billion compared to the same period in fiscal 2023. The increase in average deposits was primarily due to increases in noninterest bearing deposits, wholesale deposits, and money market deposits partially offset by a decrease in savings deposits and time deposits. The average balance of total deposits and interest-bearing liabilities was $6.71 billion for the three-month period ended December 31, 2023, compared to $5.70 billion for the same period in the prior fiscal year, representing an increase of 18%. Total end-of-period deposits increased 20% to $6.94 billion at December 31, 2023, compared to $5.79 billion at December 31, 2022. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $969.7 million, wholesale deposits of $136.0 million, and money market deposits of $51.4 million, partially offset by decreases in savings deposits of $8.2 million and time deposits of $2.0 million. As of December 31, 2023, the Company had $837.6 million in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $334.5 million are on activated cards while $503.1 million are on inactivated cards. During the remainder of fiscal year 2024, these deposit balances are expected to decline by approximately $310 million as the Company actively returns unclaimed balances to the U.S. Treasury. As of December 31, 2023, the Company managed $1.1 billion of customer deposits at other banks in its capacity as custodian. These deposits provide the Company with excess deposits that can earn servicing fee income, typically reflective of the EFFR. Regulatory Capital The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at December 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. 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 December 31, 2023(1) September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Company Tier 1 leverage capital ratio 7.96 % 8.11 % 8.40 % 7.53 % 8.37 % Common equity Tier 1 capital ratio 11.43 % 11.25 % 11.52 % 12.05 % 12.31 % Tier 1 capital ratio 11.69 % 11.50 % 11.79 % 12.35 % 12.63 % Total capital ratio 13.12 % 12.84 % 13.45 % 14.06 % 14.29 % Bank Tier 1 leverage ratio 8.15 % 8.32 % 8.67 % 7.79 % 8.68 % Common equity Tier 1 capital ratio 11.97 % 11.81 % 12.17 % 12.77 % 13.09 % Tier 1 capital ratio 11.97 % 11.81 % 12.17 % 12.77 % 13.09 % Total capital ratio 13.01 % 12.76 % 13.42 % 14.03 % 14.29 % (1) December 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) As of the Periods Indicated (Dollars in thousands) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Total stockholders' equity $ 729,282 $ 650,625 $ 677,721 $ 673,244 $ 659,133 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 297,283 297,679 298,092 298,390 298,788 LESS: Certain other intangible assets 20,093 21,228 22,372 23,553 25,053 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 20,253 19,679 12,157 13,219 16,641 LESS: Net unrealized (losses) on available for sale securities (187,901 ) (254,294 ) (207,358 ) (186,796 ) (200,597 ) LESS: Noncontrolling interest (510 ) (1,005 ) (631 ) (551 ) (207 ) ADD: Adoption of Accounting Standards Update 2016-13 1,345 2,017 2,017 2,017 2,017 Common Equity Tier 1(1) 581,409 569,355 555,106 527,446 521,472 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 (410 ) (826 ) (454 ) (404 ) (138 ) Total Tier 1 capital 594,660 582,190 568,313 540,703 534,995 Allowance for credit losses 53,037 47,960 60,489 55,058 50,853 Subordinated debentures, net of issuance costs 19,617 19,591 19,566 19,540 19,521 Total capital $ 667,314 $ 649,741 $ 648,368 $ 615,301 $ 650,369 (1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum CET1 ratio; those changes were fully phased in through the end of calendar year 2021. The following table provides a reconciliation of tangible common equity and tangible common equity excluding AOCI, each of which is used in calculating tangible book value data, to Total Stockholders' Equity. Each of tangible common equity and tangible common equity excluding AOCI is a non-GAAP financial measure that is commonly used within the banking industry. As of the Periods Indicated (Dollars in thousands) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Total stockholders' equity $ 729,282 $ 650,625 $ 677,721 $ 673,244 $ 659,133 Less: Goodwill 309,505 309,505 309,505 309,505 309,505 Less: Intangible assets 19,736 20,720 21,830 22,998 24,433 Tangible common equity 400,041 320,400 346,386 340,741 325,195 Less: AOCI (188,433 ) (255,443 ) (207,896 ) (187,829 ) (201,690 ) Tangible common equity excluding AOCI $ 588,474 $ 575,843 $ 554,282 $ 528,570 $ 526,885 Conference Call The Company will host a conference call and earnings webcast with a corresponding presentation at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Wednesday, January 24, 2024. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-833-470-1428 approximately 10 minutes prior to start time and reference access code 388353. The Quarterly Investor Update slide presentation prepared for use in connection with the Company's conference call and earnings webcast is available under the Presentations link in the Investor Relations - Events & Presentations section of the Company's website at www.pathwardfinancial.com. A webcast replay will also be archived at www.pathwardfinancial.com for one year. Upcoming Investor Events KBW Winter Financial Services Conference, Feb. 14-16, 2024 | Boca Raton, FL Piper Sandler 2024 Western Financial Services Conference, Feb. 28-Mar. 1, 2024 | Las Vegas, NV Raymond James 2024 Institutional Investors Conference, Mar. 3-6, 2024 | Orlando, FL 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 Securities and Exchange Commission ("SEC"), the Company’s reports to stockholders, and in other communications by the Company and the Bank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” "target," or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results including our earnings per diluted share guidance, annual effective tax rate and related performance expectations; progress on key strategic initiatives; expected results of our partnerships; our goals regarding the addition of recurring revenue and related expected performance impacts; expected nonperforming loan resolutions and net charge off rates; the performance of our securities portfolio; the impact of card balances related to government stimulus programs; customer retention; loan and other product demand; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; and technology. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the potential adverse effects of unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the military conflicts in Ukraine and the Middle East, weather-related disasters, or public health events, such as the COVID-19 pandemic, and any governmental or societal responses thereto; our ability to achieve brand recognition for the Bank equal to or greater than we enjoyed for MetaBank; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate, and their related impacts on macroeconomic conditions, customer behavior, funding costs and loan and securities portfolios; changes in tax laws; the strength of the United States' economy and the local economies in which the Company operates; adverse developments in the financial services industry generally such as bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer behavior; inflation, market, and monetary fluctuations; our liquidity and capital positions, including the sufficiency of our liquidity; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value and acceptance of these products and services by users; the Bank's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Bank's strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the Bank of its status as a well-capitalized institution; changes in consumer spending and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase. The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2023, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update, revise or clarify any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason. Condensed Consolidated Statements of Financial Condition (Unaudited) (Dollars in Thousands, Except Share Data) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 ASSETS Cash and cash equivalents $ 671,630 $ 375,580 $ 515,271 $ 432,598 $ 369,169 Securities available for sale, at fair value 1,850,581 1,804,228 1,914,271 1,825,563 1,847,778 Securities held to maturity, at amortized cost 35,440 36,591 37,725 38,713 40,565 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 23,694 28,210 30,890 29,387 28,812 Loans held for sale 69,518 77,779 87,351 24,780 17,148 Loans and leases 4,426,281 4,366,116 4,072,899 3,725,616 3,509,730 Allowance for credit losses (53,785 ) (49,705 ) (81,916 ) (84,304 ) (52,592 ) Accrued interest receivable 27,080 23,282 22,332 22,434 20,170 Premises, furniture, and equipment, net 38,270 39,160 38,601 39,735 41,029 Rental equipment, net 228,916 211,750 224,212 210,844 231,129 Goodwill and intangible assets 329,241 330,225 331,335 332,503 333,938 Other assets 280,571 292,327 265,654 270,387 272,349 Total assets $ 7,927,437 $ 7,535,543 $ 7,458,625 $ 6,868,256 $ 6,659,225 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits 6,936,055 6,589,182 6,306,976 5,902,696 5,789,132 Short-term borrowings — 13,000 230,000 43,000 — Long-term borrowings 33,614 33,873 34,178 34,543 34,977 Accrued expenses and other liabilities 228,486 248,863 209,750 214,773 175,983 Total liabilities 7,198,155 6,884,918 6,780,904 6,195,012 6,000,092 STOCKHOLDERS’ EQUITY Preferred stock — — — — — Common stock, $.01 par value 260 262 266 271 282 Common stock, Nonvoting, $.01 par value — — — — — Additional paid-in capital 629,737 628,500 625,825 623,250 620,681 Retained earnings 293,463 278,655 267,100 245,046 246,891 Accumulated other comprehensive loss (188,433 ) (255,443 ) (207,896 ) (187,829 ) (201,690 ) Treasury stock, at cost (5,235 ) (344 ) (6,943 ) (6,943 ) (6,824 ) Total equity attributable to parent 729,792 651,630 678,352 673,795 659,340 Noncontrolling interest (510 ) (1,005 ) (631 ) (551 ) (207 ) Total stockholders’ equity 729,282 650,625 677,721 673,244 659,133 Total liabilities and stockholders’ equity $ 7,927,437 $ 7,535,543 $ 7,458,625 $ 6,868,256 $ 6,659,225 Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended (Dollars in Thousands, Except Share and Per Share Data) December 31, 2023 September 30, 2023 December 31, 2022 Interest and dividend income: Loans and leases, including fees $ 94,963 $ 90,085 $ 68,396 Mortgage-backed securities 10,049 10,225 10,412 Other investments 10,886 9,332 6,252 115,898 109,642 85,060 Interest expense: Deposits 3,526 1,954 142 FHLB advances and other borrowings 2,336 2,754 861 5,862 4,708 1,003 Net interest income 110,036 104,934 84,057 Provision for credit loss 9,890 9,042 9,776 Net interest income after provision for credit loss 100,146 95,892 74,281 Noninterest income: Refund transfer product fees 422 308 677 Refund advance fee income 111 (252 ) 617 Card and deposit fees 30,750 31,233 37,718 Rental income 13,459 14,562 12,708 Gain on sale of trademarks — — 10,000 Gain on sale of other 2,840 2,006 502 Other income 5,179 8,194 3,555 Total noninterest income 52,761 56,051 65,777 Noninterest expense: Compensation and benefits 46,652 46,352 43,017 Refund transfer product expense 192 28 105 Refund advance expense 30 (6 ) 27 Card processing 34,584 29,549 22,683 Occupancy and equipment expense 8,848 9,274 8,312 Operating lease equipment depreciation 10,423 10,846 9,628 Legal and consulting 4,892 7,633 9,459 Intangible amortization 984 1,110 1,258 Impairment expense — — 24 Other expense 12,669 13,416 10,546 Total noninterest expense 119,274 118,202 105,059 Income before income tax expense 33,633 33,741 34,999 Income tax expense (benefit) 5,719 (2,672 ) 6,577 Net income before noncontrolling interest 27,914 36,413 28,422 Net income attributable to noncontrolling interest 257 507 580 Net income attributable to parent $ 27,657 $ 35,906 $ 27,842 Less: Allocation of Earnings to participating securities(1) 220 531 402 Net income attributable to common shareholders(1) 27,437 35,374 27,440 Earnings per common share: Basic $ 1.06 $ 1.37 $ 0.98 Diluted $ 1.06 $ 1.36 $ 0.98 Shares used in computing earnings per common share: Basic 25,776,845 25,883,807 28,024,541 Diluted 25,801,538 25,991,449 28,086,823 (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 December 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 $ 337,975 $ 4,103 4.83 % $ 226,004 $ 1,716 3.01 % Mortgage-backed securities 1,486,854 10,049 2.69 % 1,571,022 10,412 2.63 % Tax exempt investment securities 136,470 930 3.43 % 154,754 980 3.18 % Asset-backed securities 250,172 3,565 5.67 % 155,988 1,149 2.92 % Other investment securities 284,625 2,288 3.20 % 301,738 2,407 3.17 % Total investments 2,158,121 16,832 3.15 % 2,183,503 14,948 2.76 % Commercial finance 3,762,910 75,345 7.97 % 3,010,868 58,100 7.66 % Consumer finance 362,935 10,585 11.60 % 198,372 4,313 8.63 % Tax services 28,050 (11 ) (0.16 ) % 25,231 57 0.90 % Warehouse finance 381,931 9,044 9.42 % 290,454 5,926 8.09 % Total loans and leases 4,535,826 94,963 8.33 % 3,524,924 68,396 7.70 % Total interest-earning assets $ 7,031,922 $ 115,898 6.57 % $ 5,934,431 $ 85,059 5.70 % Noninterest-earning assets 543,418 589,580 Total assets $ 7,575,340 $ 6,524,011 Interest-bearing liabilities: Interest-bearing checking $ 426 $ — 0.34 % $ 447 $ — 0.33 % Savings 54,783 6 0.04 % 62,607 6 0.04 % Money markets 183,255 576 1.25 % 138,872 78 0.22 % Time deposits 5,517 4 0.25 % 7,199 2 0.11 % Wholesale deposits 211,281 2,940 5.54 % 5,712 56 3.89 % Total interest-bearing deposits 455,262 3,526 3.08 % 214,837 142 0.26 % Overnight fed funds purchased 117,153 1,656 5.62 % 24,783 244 3.91 % Subordinated debentures 19,600 357 7.24 % 19,593 357 7.22 % Other borrowings 14,178 323 9.07 % 15,817 260 6.53 % Total borrowings 150,931 2,336 6.16 % 60,193 861 5.67 % Total interest-bearing liabilities 606,193 5,862 3.85 % 275,030 1,003 1.45 % Noninterest-bearing deposits 6,102,928 — — % 5,421,821 — — % Total deposits and interest-bearing liabilities $ 6,709,121 $ 5,862 0.35 % $ 5,696,851 $ 1,003 0.07 % Other noninterest-bearing liabilities 210,468 178,789 Total liabilities 6,919,589 5,875,640 Shareholders' equity 655,751 648,371 Total liabilities and shareholders' equity $ 7,575,340 $ 6,524,011 Net interest income and net interest rate spread including noninterest-bearing deposits $ 110,036 6.22 % $ 84,057 5.63 % Net interest margin 6.23 % 5.62 % Tax-equivalent effect 0.01 % 0.02 % Net interest margin, tax-equivalent(2) 6.24 % 5.64 % (1) Tax rate used to arrive at the TEY for the three months ended December 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 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 Equity to total assets 9.20 % 8.63 % 9.09 % 9.80 % 9.90 % Book value per common share outstanding $ 28.06 $ 24.85 $ 25.54 $ 24.88 $ 23.36 Tangible book value per common share outstanding $ 15.39 $ 12.24 $ 13.05 $ 12.59 $ 11.53 Tangible book value per common share outstanding excluding AOCI $ 22.64 $ 21.99 $ 20.89 $ 19.54 $ 18.68 Common shares outstanding 25,988,230 26,183,583 26,539,272 27,055,727 28,211,239 Nonperforming assets to total assets 0.53 % 0.77 % 0.55 % 0.44 % 0.68 % Nonperforming loans and leases to total loans and leases 0.88 % 1.26 % 0.93 % 0.76 % 1.16 % Net interest margin 6.23 % 6.19 % 6.18 % 6.12 % 5.62 % Net interest margin, tax-equivalent 6.24 % 6.21 % 6.20 % 6.14 % 5.64 % Return on average assets 1.46 % 1.97 % 2.61 % 2.99 % 1.71 % Return on average equity 16.87 % 21.12 % 26.26 % 32.68 % 17.18 % Full-time equivalent employees 1,218 1,193 1,186 1,164 1,150 Non-GAAP Reconciliations Adjusted Net Income and Adjusted Earnings Per Share At and For the Three Months Ended (Dollars in Thousands, Except Share and Per Share Data) December 31, 2022 Net Income - GAAP $ 27,842 Less: Gain on sale of trademarks 10,000 Add: Rebranding expenses 3,737 Add: Separation related expenses 11 Add: Income tax effect resulting from the above listed items 1,575 Adjusted net income $ 23,165 Less: Adjusted allocation of earnings to participating securities 335 Adjusted Net income attributable to common shareholders 22,830 Weighted average diluted common shares outstanding 28,086,823 Adjusted earnings per common share - diluted $ 0.81 Net Interest Margin and Cost of Deposits At and For the Three Months Ended (Dollars in thousands) December 31, 2023 September 30, 2023 December 31, 2022 Average interest earning assets $ 7,031,922 $ 6,724,185 $ 5,934,431 Net interest income $ 110,036 $ 104,935 $ 84,057 Net interest margin 6.23 % 6.19 % 5.62 % Quarterly average total deposits $ 6,558,190 $ 6,204,934 $ 5,636,658 Deposit interest expense $ 3,526 $ 1,954 $ 142 Cost of deposits 0.21 % 0.12 % 0.01 % Adjusted Net Interest Margin and Adjusted Cost of Deposits Average interest earning assets $ 7,031,922 $ 6,724,185 $ 5,934,431 Net interest income 110,036 104,935 84,057 Less: Contractual, rate-related processing expense 26,793 22,473 13,985 Adjusted net interest income $ 83,243 $ 82,462 $ 70,072 Adjusted net interest margin 4.71 % 4.87 % 4.68 % Average total deposits $ 6,558,190 $ 6,204,934 $ 5,636,658 Deposit interest expense 3,526 1,954 142 Add: Contractual, rate-related processing expense 26,793 22,473 13,985 Adjusted deposit expense $ 30,319 $ 24,427 $ 14,128 Adjusted cost of deposits 1.84 % 1.56 % 1.00 % View source version on businesswire.com: https://www.businesswire.com/news/home/20240124253288/en/
Investor Relations Contact Darby Schoenfeld, CPA SVP, Investor Relations 877-497-7497 investorrelations@pathward.com Media Relations Contact mediarelations@pathward.com