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 Second Quarter By: Pathward Financial, Inc. via Business Wire April 24, 2024 at 16:10 PM EDT Pathward Financial, Inc. (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $65.3 million, or $2.56 per share, for the three months ended March 31, 2024, compared to net income of $54.8 million, or $1.99 per share, for the three months ended March 31, 2023. For the fiscal quarter ended March 31, 2023, the Company recognized adjusted net income of $60.3 million, or $2.18 per share, when adjusting for the adverse financial impacts related to legacy mobile solar transactions and a venture capital investment impairment expense. See non-GAAP reconciliation table below. CEO Brett Pharr said, “We continue to produce strong results by focusing on risk adjusted returns, enhancing our Banking as a Service offerings, and spending the off-season in tax services improving our data analytics, underwriting and monitoring processes. We delivered significant growth in net income and earnings per share through solid performance across the enterprise. The Pathward team continues to perform by maintaining our culture, focusing on risk and compliance, working closely with our partners, and embodying our purpose of financial inclusion. I am excited to be a part of this company and for what we can create in the future.” Company Highlights On February 27, 2024, the Board of Directors (the "Board") of Pathward Financial appointed Neeraj Mehta as a member of the Board. On April 3, 2024, Pathward®, N.A. announced it became Certified™ by Great Place to Work® for the second year in a row. Great Place to Work describes itself as the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation. Financial Highlights for the 2024 Fiscal Second Quarter Total revenue for the second quarter was $247.2 million, an increase of $18.8 million, or 8%, compared to the same quarter in fiscal 2023, driven by an increase in both net interest income and noninterest income. Net interest margin ("NIM") increased 11 basis points to 6.23% for the second quarter from 6.12% during the same period last year, primarily driven by increased yields on earning assets and an improved earning asset mix from the continued optimization of the portfolio. When including contractual, rate-related processing expense, NIM would have been 4.65% in the fiscal 2024 second quarter compared to 4.89% during the fiscal 2023 second quarter due to increases in rate-related card processing expenses from a higher rate environment. Servicing fee income on off-balance sheet deposits is not included in this calculation. See non-GAAP reconciliation table below. Total gross loans and leases at March 31, 2024 increased $683.8 million to $4.41 billion compared to March 31, 2023 and decreased $16.9 million when compared to December 31, 2023. The increase compared to the prior year quarter was due to growth across all loan portfolios. The primary driver for the sequential decrease was a reduction in the commercial and consumer finance loan portfolios, partially offset by growth in the warehouse finance and seasonal tax services loan portfolios. During the 2024 fiscal second quarter, the Company repurchased 764,185 shares of common stock at an average share price of $51.20. An additional 100,990 shares of common stock were repurchased at an average price of $49.47 in April 2024 through April 15, 2024. As of April 15, 2024, there were 7,568,673 shares available for repurchase under the current common stock share repurchase programs. The Company is narrowing its fiscal year 2024 GAAP earnings per diluted share guidance to a range of $6.30 to $6.60. See Outlook section below. Tax Season For the six months ended March 31, 2024, total tax services product revenue was $72.9 million, an increase of 1% compared to the same period of the prior year. Total tax services product fee income increased marginally compared to the prior year, while total tax services product expense and net interest income on tax services loans decreased. Provision for credit losses for tax services portfolio decreased $6.5 million for the six months ended March 31, 2024 when compared to the same period of the prior year, due to improvements in data analytics, underwriting and monitoring. Total tax services product income, net of losses and direct product expenses, increased 24% to $36.9 million from $29.7 million, when comparing the first six months of fiscal 2024 to the same period of the prior fiscal year. For the 2024 tax season through March 31, 2024, Pathward originated $1.56 billion in refund advance loans compared to $1.46 billion during the 2023 tax season. Net Interest Income Net interest income for the second quarter of fiscal 2024 was $118.3 million, an increase of 17% from the same quarter in fiscal 2023. The increase was mainly attributable to increased yields, higher average interest-earning asset balances and an improved earning asset mix. The Company’s average interest-earning assets for the second quarter of fiscal 2024 increased by $917.9 million to $7.64 billion compared to the same quarter in fiscal 2023, primarily due to growth in loans and leases and an increase in cash balances, partially offset by a decrease in total investment security balances. The second quarter average outstanding balance of loans and leases increased $889.1 million compared to the same quarter of the prior fiscal year, primarily due to an increase across all loan portfolios. Fiscal 2024 second quarter NIM increased to 6.23% from 6.12% in the second fiscal quarter of last year. When including contractual, rate-related processing expense, NIM would have been 4.65% in the fiscal 2024 second quarter compared to 4.89% during the fiscal 2023 second quarter. See non-GAAP reconciliation table below. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 35 basis points to 6.69% compared to the prior year quarter, driven by an improved earning asset mix. The yield on the loan and lease portfolio was 8.43% compared to 8.47% for the comparable period last year and the TEY on the securities portfolio was 3.20% compared to 2.89% over that same period. The Company's cost of funds for all deposits and borrowings averaged 0.47% during the fiscal 2024 second quarter, as compared to 0.21% during the prior year quarter. The Company's overall cost of deposits was 0.38% in the fiscal second quarter of 2024, as compared to 0.13% during the prior year quarter. When including contractual, rate-related processing expense, the Company's overall cost of deposits was 2.06% in the fiscal 2024 second quarter, as compared to 1.43% during the prior year quarter. See non-GAAP reconciliation table below. Noninterest Income Fiscal 2024 second quarter noninterest income increased 2% to $128.9 million, compared to $127.0 million for the same period of the prior year. The increase was primarily driven by an increase in refund advance fee income. The period-over-period increase was partially offset by a decrease in card and deposits fees. The period-over-period decrease in card and deposit fee income was primarily related to servicing fee income on off-balance sheet deposits, which totaled $10.4 million during the 2024 fiscal second quarter, compared to $18.2 million for the same period of the prior year. The decrease in servicing fee income when compared to the prior year period was due to a reduction in off-balance sheet deposits. For the fiscal quarter ended December 31, 2023, servicing fee income on off-balance sheet deposits totaled $5.1 million. Noninterest Expense Noninterest expense increased 10% to $140.4 million for the fiscal 2024 second quarter, from $127.1 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, compensation and benefits expense, impairment expense, legal and consulting expense, and occupancy and equipment expense. The period-over-period increase was partially offset by decreases in operating lease equipment depreciation, other expense, refund transfer product expense, and intangible amortization expense. The card processing expense increase was due to rate-related agreements with BaaS partners. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally, this rate index is based on a percentage of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 56% of the deposit portfolio was subject to these rate-related processing expenses during the fiscal 2024 second quarter. For the fiscal quarter ended March 31, 2024, contractual, rate-related processing expenses were $30.1 million, as compared to $26.8 million for the fiscal quarter ended December 31, 2023, and $20.4 million for the fiscal quarter ended March 31, 2023. Income Tax Expense The Company recorded income tax expense of $15.2 million, representing an effective tax rate of 18.9%, for the fiscal 2024 second quarter, compared to $9.2 million, representing an effective tax rate of 14.2%, for the second quarter last fiscal year. The current quarter increase in income tax expense compared to the prior year quarter was primarily due to increased earnings and also a decrease in investment tax credits recognized ratably when compared to the prior year quarter. The Company originated $25.9 million in renewable energy leases during the fiscal 2024 second quarter, resulting in $7.0 million in total net investment tax credits. During the second quarter of fiscal 2023, the Company originated $18.1 million in renewable energy leases resulting in $4.9 million in total net investment tax credits. For the six months ended March 31, 2024, the Company originated $38.1 million in renewable energy leases, compared to $29.5 million for the comparable prior year period. Investment tax credits related to renewable energy leases are recognized ratably based on income throughout each fiscal year. Outlook The following forward-looking statements reflect the Company’s expectations as of the date of this release and are subject to substantial uncertainty. The Company's results may be materially affected by many factors, such as changes in economic conditions and customer demand, changes in interest rates, adverse developments in the financial services industry generally, inflation, competition, and other factors detailed below under “Forward-looking Statements.” The Company is narrowing its fiscal year 2024 GAAP earnings per diluted share guidance to a range of $6.30 to $6.60. As part of this guidance, the Company is reiterating its expectation that the annual effective tax rate in fiscal year 2024 will be in a range between 16% and 20%. Investments, Loans and Leases (Dollars in thousands) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Total investments $ 1,814,140 $ 1,886,021 $ 1,840,819 $ 1,951,996 $ 1,864,276 Loans held for sale Term lending 1,977 2,500 — 3,000 — Lease financing — 778 — — — SBA/USDA 7,372 — — — — Consumer finance 16,597 66,240 77,779 84,351 24,780 Total loans held for sale 25,946 69,518 77,779 87,351 24,780 Term lending 1,489,054 1,452,274 1,308,133 1,253,841 1,235,453 Asset-based lending 429,556 379,681 382,371 373,160 377,965 Factoring 336,442 335,953 358,344 351,133 338,884 Lease financing 168,616 188,889 183,392 201,996 170,645 Insurance premium finance 522,904 671,035 800,077 666,265 437,700 SBA/USDA 560,433 546,048 524,750 422,389 405,612 Other commercial finance 149,056 160,628 166,091 171,954 166,402 Commercial finance 3,656,061 3,734,508 3,723,158 3,440,738 3,132,661 Consumer finance 267,031 301,510 254,416 200,121 148,648 Tax services 84,502 33,435 5,192 47,194 61,553 Warehouse finance 394,814 349,911 376,915 380,458 377,036 Total loans and leases 4,402,408 4,419,364 4,359,681 4,068,511 3,719,898 Net deferred loan origination costs 6,977 6,917 6,435 4,388 5,718 Total gross loans and leases 4,409,385 4,426,281 4,366,116 4,072,899 3,725,616 Allowance for credit losses (80,777 ) (53,785 ) (49,705 ) (81,916 ) (84,304 ) Total loans and leases, net $ 4,328,608 $ 4,372,496 $ 4,316,411 $ 3,990,983 $ 3,641,312 The Company's investment security balances at March 31, 2024 totaled $1.81 billion, as compared to $1.89 billion at December 31, 2023 and $1.86 billion at March 31, 2023. Total gross loans and leases totaled $4.41 billion at March 31, 2024, as compared to $4.43 billion at December 31, 2023 and $3.73 billion at March 31, 2023. The primary driver for the sequential decrease was a decrease in commercial finance loans and consumer finance loans. This was partially offset by an increase in warehouse finance loans and seasonal tax service loans. The year-over-year increase was due to growth across all loan portfolios. Commercial finance loans, which comprised 83% of the Company's loan and lease portfolio, totaled $3.66 billion at March 31, 2024, reflecting a decrease of $78.4 million from December 31, 2023 and an increase of $523.4 million, or 17%, from March 31, 2023. The sequential decrease in commercial finance loans was primarily driven by a $148.1 million decrease in the insurance premium finance portfolio, a $20.3 million decrease in the lease financing portfolio, and a $11.6 million decrease in the other commercial finance portfolio, partially offset by increases in the asset-based lending, term lending, SBA/USDA, and factoring loan portfolios. The increase in commercial finance loans when comparing the current period to the same period of the prior year was primarily driven by increases in the term lending, SBA/USDA, insurance premium finance, and asset-based lending portfolios, partially offset by reductions in the factoring, lease financing, and other commercial finance portfolios. Asset Quality The Company’s allowance for credit losses ("ACL") totaled $80.8 million at March 31, 2024, an increase compared to $53.8 million at December 31, 2023 and a decrease compared to $84.3 million at March 31, 2023. The increase in the ACL at March 31, 2024, when compared to December 31, 2023, was primarily due to a $31.0 million increase in the allowance related to the seasonal tax services portfolio, partially offset by a $4.3 million decrease in the allowance related to the commercial finance portfolio. The $3.5 million year-over-year decrease in the ACL was primarily driven by a $3.6 million decrease in the allowance related to the commercial finance portfolio and a $1.5 million decrease in the allowance related to the seasonal tax services portfolio, partially offset by a $1.6 million increase in the allowance related to the consumer finance portfolio. The following table presents the Company's ACL as a percentage of its total loans and leases. As of the Period Ended (Unaudited) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Commercial finance 1.21 % 1.30 % 1.26 % 1.35 % 1.53 % Consumer finance 1.71 % 1.45 % 0.92 % 0.92 % 1.99 % Tax services 37.31 % 1.52 % 0.04 % 70.20 % 53.77 % Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % Total loans and leases 1.83 % 1.22 % 1.14 % 2.01 % 2.27 % Total loans and leases excluding tax services 1.14 % 1.21 % 1.14 % 1.21 % 1.40 % The Company's ACL as a percentage of total loans and leases increased to 1.83% at March 31, 2024 from 1.22% at December 31, 2023. The increase in the total loans and leases coverage ratio was primarily driven by seasonality in both the tax services portfolio and consumer finance portfolio. Activity in the allowance for credit losses for the periods presented was as follows. (Unaudited) Three Months Ended Six Months Ended (Dollars in thousands) March 31, 2024 December 31, 2023 March 31, 2023 March 31, 2024 March 31, 2023 Beginning balance $ 53,785 $ 49,705 $ 52,592 $ 49,705 $ 45,947 Provision (reversal of) - tax services loans 25,221 1,356 31,422 26,577 33,059 Provision (reversal of) - all other loans and leases 684 8,210 5,264 8,894 13,490 Charge-offs - tax services loans — (1,145 ) — (1,145 ) (1,731 ) Charge-offs - all other loans and leases (5,492 ) (5,725 ) (6,625 ) (11,218 ) (9,334 ) Recoveries - tax services loans 5,800 294 1,063 6,094 1,761 Recoveries - all other loans and leases 779 1,090 588 1,870 1,112 Ending balance $ 80,777 $ 53,785 $ 84,304 $ 80,777 $ 84,304 The Company recognized a provision for credit losses of $26.1 million for the quarter ended March 31, 2024, compared to $36.8 million for the comparable period in the prior fiscal year. The period-over-period decrease in provision for credit losses was due to improvements in the Company's data analytics, underwriting and monitoring in the Independent Tax space along with a decrease in provision for credit losses in the commercial finance portfolio primarily due to a mix shift in the loan portfolio and a benign credit environment. The Company recognized net recoveries of $1.1 million for the quarter ended March 31, 2024, compared to net charge-offs of $5.0 million for the quarter ended March 31, 2023. Net charge-offs attributable to the commercial finance portfolio for the current quarter were $4.7 million, while recoveries of $5.8 million were recognized in the tax services portfolio. Net charge-offs attributable to the commercial finance and consumer finance portfolios for the same quarter of the prior year were $5.9 million and $0.2 million, respectively, while a recovery of $1.1 million was recognized in the tax services portfolio. The Company's past due loans and leases were as follows for the periods presented. As of March 31, 2024 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ 323 $ 546 $ 843 $ 1,712 $ 24,234 $ 25,946 $ 843 $ — $ 843 Commercial finance 36,482 23,986 15,596 76,064 3,579,997 3,656,061 2,679 27,781 30,460 Consumer finance 4,293 3,001 3,093 10,387 256,644 267,031 3,093 — 3,093 Tax services 1,123 — — 1,123 83,379 84,502 — — — Warehouse finance — — — — 394,814 394,814 — — — Total loans and leases held for investment 41,898 26,987 18,689 87,574 4,314,834 4,402,408 5,772 27,781 33,553 Total loans and leases $ 42,221 $ 27,533 $ 19,532 $ 89,286 $ 4,339,068 $ 4,428,354 $ 6,615 $ 27,781 $ 34,396 As of December 31, 2023 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ 1,173 $ 786 $ 661 $ 2,620 $ 66,898 $ 69,518 $ 661 $ — $ 661 Commercial finance 33,406 8,341 20,739 62,486 3,672,022 3,734,508 7,862 28,099 35,961 Consumer finance 4,258 3,345 2,859 10,462 291,048 301,510 2,859 — 2,859 Tax services — — — — 33,435 33,435 — — — Warehouse finance — — — — 349,911 349,911 — — — Total loans and leases held for investment 37,664 11,686 23,598 72,948 4,346,416 4,419,364 10,721 28,099 38,820 Total loans and leases $ 38,837 $ 12,472 $ 24,259 $ 75,568 $ 4,413,314 $ 4,488,882 $ 11,382 $ 28,099 $ 39,481 The Company's nonperforming assets at March 31, 2024 were $37.2 million, representing 0.50% of total assets, compared to $42.4 million, or 0.53% of total assets at December 31, 2023 and $30.1 million, or 0.44% of total assets at March 31, 2023. The decrease in the nonperforming assets as a percentage of total assets at March 31, 2024 compared to December 31, 2023, was primarily driven by a decrease in nonperforming loans in the commercial finance portfolio, partially offset by an increase in nonperforming loans in the consumer finance portfolio. When comparing the current period to the same period of the prior year, the increase in nonperforming assets was primarily due to an increase in nonperforming loans in the commercial finance portfolio. The Company's nonperforming loans and leases at March 31, 2024, were $34.4 million, representing 0.78% of total gross loans and leases, compared to $39.5 million, or 0.88% of total gross loans and leases at December 31, 2023 and $28.5 million, or 0.76% of total gross loans and leases at March 31, 2023. The Company has various portfolios of consumer lending and tax services loans that present unique risks that are statistically managed. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for credit losses on these portfolios, and as such, these loans are not included in the asset classification table below. The Company's loans and leases held for investment by asset classification were as follows for the periods presented. Asset Classification (Dollars in thousands) Pass Watch Special Mention Substandard Doubtful Total As of March 31, 2024 Commercial finance $ 2,893,892 $ 447,110 $ 87,657 $ 218,108 $ 9,294 $ 3,656,061 Warehouse finance 394,814 — — — — 394,814 Total loans and leases $ 3,288,706 $ 447,110 $ 87,657 $ 218,108 $ 9,294 $ 4,050,875 Asset Classification (Dollars in thousands) Pass Watch Special Mention Substandard Doubtful Total As of December 31, 2023 Commercial finance $ 2,895,451 $ 535,057 $ 96,172 $ 197,682 $ 10,146 $ 3,734,508 Warehouse finance 349,911 — — — — 349,911 Total loans and leases $ 3,245,362 $ 535,057 $ 96,172 $ 197,682 $ 10,146 $ 4,084,419 Deposits, Borrowings and Other Liabilities The average balance of total deposits and interest-bearing liabilities was $7.28 billion for the three-month period ended March 31, 2024, compared to $6.47 billion for the same period in the prior fiscal year, representing an increase of 13%. Total average deposits for the fiscal 2024 second quarter increased by $782.1 million to $7.17 billion compared to the same period in fiscal 2023. The increase in average deposits was due to increases in noninterest bearing deposits, wholesale deposits, and money market deposits, partially offset by decreases in savings and time deposits. Total end-of-period deposits increased 8% to $6.37 billion at March 31, 2024, compared to $5.90 billion at March 31, 2023. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $329.4 million, wholesale deposits of $96.1 million, and money market deposits of $53.7 million, partially offset by slight decreases in savings and time deposits. As of March 31, 2024, the Company had $740.8 million in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $323.3 million are on activated cards while $417.5 million are on inactivated cards. During the remainder of fiscal year 2024, these deposit balances are expected to decline by approximately $219 million as the Company actively returns unclaimed balances to the U.S. Treasury. As of March 31, 2024, the Company managed $1.2 billion of customer deposits at other banks in its capacity as custodian. These deposits provide the Company with excess deposits that can earn servicing fee income, typically reflective of the EFFR. Regulatory Capital The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at March 31, 2024, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies. Regulatory capital ratios of the Company and the Bank are stated in the table below. The decrease in Tier 1 leverage capital ratio for the period is the result of higher quarterly average assets related to the Company's seasonal tax business. The Bank's Tier 1 leverage capital ratio using end of period assets of 8.77% better reflects the expected capital position of the Company post tax season. See non-GAAP reconciliation table below. Regulatory capital is not affected by the unrealized loss on accumulated other comprehensive income (“AOCI”). The securities portfolio is primarily comprised of amortizing securities that should provide consistent cash flow. The Company does not intend to sell these securities, or recognize the unrealized losses on its income statement, to fund future loan growth. The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analysis. As of the Periods Indicated March 31, 2024(1) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Company Tier 1 leverage capital ratio 7.75 % 7.96 % 8.11 % 8.40 % 7.53 % Common equity Tier 1 capital ratio 12.30 % 11.43 % 11.25 % 11.52 % 12.05 % Tier 1 capital ratio 12.56 % 11.69 % 11.50 % 11.79 % 12.35 % Total capital ratio 14.21 % 13.12 % 12.84 % 13.45 % 14.06 % Bank Tier 1 leverage ratio 7.92 % 8.15 % 8.32 % 8.67 % 7.79 % Common equity Tier 1 capital ratio 12.83 % 11.97 % 11.81 % 12.17 % 12.77 % Tier 1 capital ratio 12.83 % 11.97 % 11.81 % 12.17 % 12.77 % Total capital ratio 14.09 % 13.01 % 12.76 % 13.42 % 14.03 % (1) March 31, 2024 percentages are preliminary pending completion and filing of the Company's regulatory reports. Regulatory capital ratios for periods presented reflect the Company's election of the five-year CECL transition for regulatory capital purposes. The following table provides the non-GAAP financial measures used to compute certain of the ratios included in the table above, as well as a reconciliation of such non-GAAP financial measures to the most directly comparable financial measure in accordance with GAAP: Standardized Approach(1) As of the Periods Indicated (Dollars in thousands) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Total stockholders' equity $ 739,462 $ 729,282 $ 650,625 $ 677,721 $ 673,244 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 296,889 297,283 297,679 298,092 298,390 LESS: Certain other intangible assets 19,146 20,093 21,228 22,372 23,553 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 15,862 20,253 19,679 12,157 13,219 LESS: Net unrealized (losses) on available for sale securities (205,460 ) (187,901 ) (254,294 ) (207,358 ) (186,796 ) LESS: Noncontrolling interest (420 ) (510 ) (1,005 ) (631 ) (551 ) ADD: Adoption of Accounting Standards Update 2016-13 1,345 1,345 2,017 2,017 2,017 Common Equity Tier 1(1) 614,790 581,409 569,355 555,106 527,446 Long-term borrowings and other instruments qualifying as Tier 1 13,661 13,661 13,661 13,661 13,661 Tier 1 minority interest not included in common equity Tier 1 capital (311 ) (410 ) (826 ) (454 ) (404 ) Total Tier 1 capital 628,140 594,660 582,190 568,313 540,703 Allowance for credit losses 62,715 53,037 47,960 60,489 55,058 Subordinated debentures, net of issuance costs 19,642 19,617 19,591 19,566 19,540 Total capital $ 710,497 $ 667,314 $ 649,741 $ 648,368 $ 615,301 (1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum CET1 ratio; those changes were fully phased in through the end of calendar year 2021. Conference Call The Company will host a conference call and earnings webcast with a corresponding presentation at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Wednesday, April 24, 2024. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-833-470-1428 approximately 10 minutes prior to start time and reference access code 082173. The Quarterly Investor Update slide presentation prepared for use in connection with the Company's conference call and earnings webcast is available under the Presentations link in the Investor Relations - Events & Presentations section of the Company's website at www.pathwardfinancial.com. A webcast replay will also be archived at www.pathwardfinancial.com for one year. Upcoming Investor Events Jefferies Global FinTech Conference, June 12, 2024 | New York, NY About Pathward Financial, Inc. Pathward Financial, Inc. (Nasdaq: CASH) is a U.S.-based financial holding company driven by its purpose to power financial inclusion for all. Through our subsidiary, Pathward®, N.A., we strive to increase financial availability, choice, and opportunity across our Banking as a Service and Commercial Finance business lines. These strategic business lines provide end-to-end support to individuals and businesses. Learn more at www.pathwardfinancial.com. Forward-Looking Statements The Company and the Bank may from time to time make written or oral “forward-looking statements,” including statements contained in this press release, the Company’s filings with the Securities and Exchange Commission ("SEC"), the Company’s reports to stockholders, and in other communications by the Company and the Bank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” "target," or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results including our earnings per diluted share guidance, annual effective tax rate and related performance expectations; progress on key strategic initiatives; expected results of our partnerships; impacts of our improved data analytics, underwriting and monitoring processes; our goals regarding the addition of recurring revenue and related expected performance impacts; expected nonperforming loan resolutions and net charge off rates; the performance of our securities portfolio; the impact of card balances related to government stimulus programs; customer retention; loan and other product demand; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; and technology. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the potential adverse effects of unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the military conflicts in Ukraine and the Middle East, weather-related disasters, or public health events, such as pandemics, and any governmental or societal responses thereto; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate, and their related impacts on macroeconomic conditions, customer behavior, funding costs and loan and securities portfolios; changes in tax laws; the strength of the United States' economy and the local economies in which the Company operates; adverse developments in the financial services industry generally such as bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer behavior; inflation, market, and monetary fluctuations; our liquidity and capital positions, including the sufficiency of our liquidity; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value and acceptance of these products and services by users; the Bank's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Bank's strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the Bank of its status as a well-capitalized institution; changes in consumer borrowing, spending and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase. The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2023, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update, revise or clarify any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason. Condensed Consolidated Statements of Financial Condition (Unaudited) (Dollars in Thousands, Except Share Data) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 ASSETS Cash and cash equivalents $ 347,888 $ 671,630 $ 375,580 $ 515,271 $ 432,598 Securities available for sale, at fair value 1,779,458 1,850,581 1,804,228 1,914,271 1,825,563 Securities held to maturity, at amortized cost 34,682 35,440 36,591 37,725 38,713 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 25,844 23,694 28,210 30,890 29,387 Loans held for sale 25,946 69,518 77,779 87,351 24,780 Loans and leases 4,409,385 4,426,281 4,366,116 4,072,899 3,725,616 Allowance for credit losses (80,777 ) (53,785 ) (49,705 ) (81,916 ) (84,304 ) Accrued interest receivable 30,294 27,080 23,282 22,332 22,434 Premises, furniture, and equipment, net 37,266 38,270 39,160 38,601 39,735 Rental equipment, net 215,885 228,916 211,750 224,212 210,844 Goodwill and intangible assets 328,001 329,241 330,225 331,335 332,503 Other assets 283,245 280,571 292,327 265,654 270,387 Total assets $ 7,437,117 $ 7,927,437 $ 7,535,543 $ 7,458,625 $ 6,868,256 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits 6,368,344 6,936,055 6,589,182 6,306,976 5,902,696 Short-term borrowings 31,000 — 13,000 230,000 43,000 Long-term borrowings 33,373 33,614 33,873 34,178 34,543 Accrued expenses and other liabilities 264,938 228,486 248,863 209,750 214,773 Total liabilities 6,697,655 7,198,155 6,884,918 6,780,904 6,195,012 STOCKHOLDERS’ EQUITY Preferred stock — — — — — Common stock, $.01 par value 254 260 262 266 271 Common stock, Nonvoting, $.01 par value — — — — — Additional paid-in capital 634,415 629,737 628,500 625,825 623,250 Retained earnings 317,964 293,463 278,655 267,100 245,046 Accumulated other comprehensive loss (206,570 ) (188,433 ) (255,443 ) (207,896 ) (187,829 ) Treasury stock, at cost (6,181 ) (5,235 ) (344 ) (6,943 ) (6,943 ) Total equity attributable to parent 739,882 729,792 651,630 678,352 673,795 Noncontrolling interest (420 ) (510 ) (1,005 ) (631 ) (551 ) Total stockholders’ equity 739,462 729,282 650,625 677,721 673,244 Total liabilities and stockholders’ equity $ 7,437,117 $ 7,927,437 $ 7,535,543 $ 7,458,625 $ 6,868,256 Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Six Months Ended (Dollars in Thousands, Except Share and Per Share Data) March 31, 2024 December 31, 2023 March 31, 2023 March 31, 2024 March 31, 2023 Interest and dividend income: Loans and leases, including fees $ 102,750 $ 94,963 $ 83,879 $ 197,713 $ 152,275 Mortgage-backed securities 9,998 10,049 10,326 20,047 20,738 Other investments 14,013 10,886 10,482 24,899 16,734 126,761 115,898 104,687 242,659 189,747 Interest expense: Deposits 6,685 3,526 2,096 10,211 2,238 FHLB advances and other borrowings 1,775 2,336 1,186 4,111 2,047 8,460 5,862 3,282 14,322 4,285 Net interest income 118,301 110,036 101,405 228,337 185,462 Provision for credit loss 26,052 9,890 36,763 35,942 46,539 Net interest income after provision for credit loss 92,249 100,146 64,642 192,395 138,923 Noninterest income: Refund transfer product fees 28,942 422 30,205 29,364 30,882 Refund advance fee income 43,200 111 37,995 43,311 38,612 Card and deposit fees 35,344 30,750 42,087 66,094 79,805 Rental income 13,720 13,459 12,940 27,179 25,648 Gain on sale of trademarks — — — — 10,000 Gain (loss) on sale of other 1,695 2,840 (666 ) 4,535 (164 ) Other income 6,044 5,179 4,477 11,223 8,032 Total noninterest income 128,945 52,761 127,038 181,706 192,815 Noninterest expense: Compensation and benefits 54,073 46,652 47,547 100,725 90,564 Refund transfer product expense 7,366 192 7,863 7,558 7,968 Refund advance expense 1,846 30 1,603 1,876 1,630 Card processing 35,163 34,584 26,924 69,747 49,607 Occupancy and equipment expense 9,293 8,848 8,510 18,141 16,822 Operating lease equipment depreciation 10,424 10,423 14,719 20,847 24,347 Legal and consulting 6,141 4,892 4,921 11,033 14,380 Intangible amortization 1,240 984 1,435 2,224 2,693 Impairment expense 2,013 — 500 2,013 524 Other expense 12,872 12,669 13,114 25,541 23,660 Total noninterest expense 140,431 119,274 127,136 259,705 232,195 Income before income tax expense 80,763 33,633 64,544 114,396 99,543 Income tax expense (benefit) 15,246 5,719 9,176 20,965 15,753 Net income before noncontrolling interest 65,517 27,914 55,368 93,431 83,790 Net income attributable to noncontrolling interest 249 257 597 506 1,177 Net income attributable to parent $ 65,268 $ 27,657 $ 54,771 $ 92,925 $ 82,613 Less: Allocation of Earnings to participating securities(1) 524 220 839 744 1,228 Net income attributable to common shareholders(1) 64,744 27,437 53,932 92,181 81,382 Earnings per common share: Basic $ 2.56 $ 1.06 $ 1.99 $ 3.61 $ 2.95 Diluted $ 2.56 $ 1.06 $ 1.99 $ 3.61 $ 2.95 Shares used in computing earnings per common share: Basic 25,281,743 25,776,845 27,078,048 25,529,186 27,555,197 Diluted 25,311,144 25,801,538 27,169,569 25,555,656 27,632,737 (1) Amounts presented are used in the two-class earnings per common share calculation. Average Balances, Interest Rates and Yields The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and in rates. Only the yield/rate reflects tax-equivalent adjustments. Nonaccruing loans and leases have been included in the table as loans carrying a zero yield. Three Months Ended March 31, 2024 2023 (Dollars in thousands) Average Outstanding Balance Interest Earned / Paid Yield / Rate(1) Average Outstanding Balance Interest Earned / Paid Yield / Rate(1) Interest-earning assets: Cash and fed funds sold $ 616,288 $ 7,422 4.84 % $ 564,656 $ 5,843 4.20 % Mortgage-backed securities 1,464,530 9,998 2.75 % 1,549,240 10,326 2.70 % Tax exempt investment securities 132,733 932 3.57 % 149,912 990 3.39 % Asset-backed securities 237,421 3,368 5.71 % 141,968 1,273 3.64 % Other investment securities 281,695 2,291 3.27 % 298,030 2,376 3.23 % Total investments 2,116,379 16,589 3.20 % 2,139,150 14,965 2.89 % Commercial finance 3,650,845 74,330 8.19 % 3,056,293 60,765 8.06 % Consumer finance 351,459 9,144 10.46 % 187,826 6,301 13.60 % Tax services 493,168 9,014 7.35 % 448,659 10,555 9.54 % Warehouse finance 407,703 10,262 10.12 % 321,334 6,258 7.90 % Total loans and leases 4,903,175 102,750 8.43 % 4,014,112 83,879 8.47 % Total interest-earning assets $ 7,635,842 $ 126,761 6.69 % $ 6,717,918 $ 104,687 6.34 % Noninterest-earning assets 600,354 612,020 Total assets $ 8,236,196 $ 7,329,938 Interest-bearing liabilities: Interest-bearing checking $ 266 $ — 0.31 % $ 267 $ — 0.33 % Savings 59,914 5 0.04 % 70,024 6 0.03 % Money markets 190,143 598 1.26 % 125,193 71 0.23 % Time deposits 5,027 4 0.29 % 6,948 2 0.11 % Wholesale deposits 439,785 6,078 5.56 % 186,421 2,017 4.39 % Total interest-bearing deposits 695,135 6,685 3.87 % 388,853 2,096 2.19 % Overnight fed funds purchased 79,484 1,107 5.60 % 46,735 543 4.71 % Subordinated debentures 19,625 355 7.27 % 19,523 354 7.34 % Other borrowings 13,901 313 9.07 % 15,283 289 7.68 % Total borrowings 113,010 1,775 6.32 % 81,541 1,186 5.90 % Total interest-bearing liabilities 808,145 8,460 4.21 % 470,394 3,282 2.83 % Noninterest-bearing deposits 6,473,538 — — % 5,997,739 — — % Total deposits and interest-bearing liabilities $ 7,281,683 $ 8,460 0.47 % $ 6,468,133 $ 3,282 0.21 % Other noninterest-bearing liabilities 223,560 191,360 Total liabilities 7,505,243 6,659,493 Shareholders' equity 730,953 670,445 Total liabilities and shareholders' equity $ 8,236,196 $ 7,329,938 Net interest income and net interest rate spread including noninterest-bearing deposits $ 118,301 6.22 % $ 101,405 6.13 % Net interest margin 6.23 % 6.12 % Tax-equivalent effect 0.01 % 0.02 % Net interest margin, tax-equivalent(2) 6.24 % 6.14 % (1) Tax rate used to arrive at the TEY for the three months ended March 31, 2024 and 2023 was 21%. (2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes. Selected Financial Information As of and For the Three Months Ended March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Equity to total assets 9.94 % 9.20 % 8.63 % 9.09 % 9.80 % Book value per common share outstanding $ 29.14 $ 28.06 $ 24.85 $ 25.54 $ 24.88 Tangible book value per common share outstanding $ 16.21 $ 15.39 $ 12.24 $ 13.05 $ 12.59 Common shares outstanding 25,377,986 25,988,230 26,183,583 26,539,272 27,055,727 Nonperforming assets to total assets 0.50 % 0.53 % 0.77 % 0.55 % 0.44 % Nonperforming loans and leases to total loans and leases 0.78 % 0.88 % 1.26 % 0.93 % 0.76 % Net interest margin 6.23 % 6.23 % 6.19 % 6.18 % 6.12 % Net interest margin, tax-equivalent 6.24 % 6.24 % 6.21 % 6.20 % 6.14 % Return on average assets 3.17 % 1.46 % 1.97 % 2.61 % 2.99 % Return on average equity 35.72 % 16.87 % 21.12 % 26.26 % 32.68 % Full-time equivalent employees 1,204 1,218 1,193 1,186 1,164 Non-GAAP Reconciliations Adjusted Net Income and Adjusted Earnings Per Share At and For the Three Months Ended At and For the Six Months Ended (Dollars in Thousands, Except Share and Per Share Data) March 31, 2023 March 31, 2023 Net Income - GAAP $ 54,771 $ 82,613 Less: Gain on sale of trademarks — 10,000 Less: Loss on disposal of certain mobile solar generators (1,993 ) (1,993 ) Add: Accelerated depreciation on certain mobile solar generators 4,822 4,822 Add: Rebranding expenses — 3,737 Add: Separation related expenses — 11 Add: Impairment on Venture Capital investments 500 500 Add: Income tax effect resulting from the above listed items (1,829 ) (253 ) Adjusted net income $ 60,257 $ 83,423 Less: Adjusted allocation of earnings to participating securities 923 1,241 Adjusted Net income attributable to common shareholders 59,334 82,182 Weighted average diluted common shares outstanding 27,169,569 27,632,737 Adjusted earnings per common share - diluted $ 2.18 $ 2.97 Net Interest Margin and Cost of Deposits At and For the Three Months Ended (Dollars in thousands) March 31, 2024 December 31, 2023 March 31, 2023 Average interest earning assets $ 7,635,842 $ 7,031,922 $ 6,717,918 Net interest income $ 118,301 $ 110,036 $ 101,405 Net interest margin 6.23 % 6.23 % 6.12 % Quarterly average total deposits $ 7,168,673 $ 6,558,190 $ 6,386,592 Deposit interest expense $ 6,685 $ 3,526 $ 2,096 Cost of deposits 0.38 % 0.21 % 0.13 % Adjusted Net Interest Margin and Adjusted Cost of Deposits Average interest earning assets $ 7,635,842 $ 7,031,922 $ 6,717,918 Net interest income 118,301 110,036 101,405 Less: Contractual, rate-related processing expense 30,094 26,793 20,369 Adjusted net interest income $ 88,207 $ 83,243 $ 81,036 Adjusted net interest margin 4.65 % 4.71 % 4.89 % Average total deposits $ 7,168,673 $ 6,558,190 $ 6,386,592 Deposit interest expense 6,685 3,526 2,096 Add: Contractual, rate-related processing expense 30,094 26,793 20,369 Adjusted deposit expense $ 36,779 $ 30,319 $ 22,465 Adjusted cost of deposits 2.06 % 1.84 % 1.43 % Pathward, N.A. Period-end Tier 1 Leverage (Dollars in thousands) March 31, 2024 Total stockholders' equity $ 765,910 Adjustments: Less: Goodwill, net of associated deferred tax liabilities 296,888 Less: Certain other intangible assets 19,145 Less: Net deferred tax assets from operating loss and tax credit carry-forwards 15,862 Less: Net unrealized gains (losses) on available for sale securities (205,460 ) Less: Noncontrolling interest (420 ) Add: Adoption of Accounting Standards Update 2016-13 1,345 Common Equity Tier 1 641,240 Tier 1 minority interest not included in common equity Tier 1 capital — Total Tier 1 capital $ 641,240 Total Assets (Quarter Average) $ 8,229,652 Add: Available for sale securities amortized cost 266,591 Add: Deferred tax (66,675 ) Add: Adoption of Accounting Standards Updated 2016-13 1,345 Less: Deductions from CET1 331,895 Adjusted total assets $ 8,099,018 Pathward, N.A. Regulatory Tier 1 Leverage 7.92 % Total Assets (Period End) $ 7,435,034 Add: Available for sale securities amortized cost 273,983 Add: Deferred tax (68,523 ) Add: Adoption of Accounting Standards Updated 2016-13 1,345 Less: Deductions from CET1 331,895 Adjusted total assets $ 7,309,944 Pathward, N.A. Period-end Tier 1 Leverage 8.77 % View source version on businesswire.com: https://www.businesswire.com/news/home/20240424036567/en/Contacts Investor Relations Contact Darby Schoenfeld, CPA SVP, Investor Relations 877-497-7497 investorrelations@pathward.com Media Relations Contact mediarelations@pathward.com Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. By accessing this page, you agree to the following Privacy Policy and Terms and Conditions.
Pathward Financial, Inc. Announces Results for 2024 Fiscal Second Quarter By: Pathward Financial, Inc. via Business Wire April 24, 2024 at 16:10 PM EDT Pathward Financial, Inc. (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $65.3 million, or $2.56 per share, for the three months ended March 31, 2024, compared to net income of $54.8 million, or $1.99 per share, for the three months ended March 31, 2023. For the fiscal quarter ended March 31, 2023, the Company recognized adjusted net income of $60.3 million, or $2.18 per share, when adjusting for the adverse financial impacts related to legacy mobile solar transactions and a venture capital investment impairment expense. See non-GAAP reconciliation table below. CEO Brett Pharr said, “We continue to produce strong results by focusing on risk adjusted returns, enhancing our Banking as a Service offerings, and spending the off-season in tax services improving our data analytics, underwriting and monitoring processes. We delivered significant growth in net income and earnings per share through solid performance across the enterprise. The Pathward team continues to perform by maintaining our culture, focusing on risk and compliance, working closely with our partners, and embodying our purpose of financial inclusion. I am excited to be a part of this company and for what we can create in the future.” Company Highlights On February 27, 2024, the Board of Directors (the "Board") of Pathward Financial appointed Neeraj Mehta as a member of the Board. On April 3, 2024, Pathward®, N.A. announced it became Certified™ by Great Place to Work® for the second year in a row. Great Place to Work describes itself as the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation. Financial Highlights for the 2024 Fiscal Second Quarter Total revenue for the second quarter was $247.2 million, an increase of $18.8 million, or 8%, compared to the same quarter in fiscal 2023, driven by an increase in both net interest income and noninterest income. Net interest margin ("NIM") increased 11 basis points to 6.23% for the second quarter from 6.12% during the same period last year, primarily driven by increased yields on earning assets and an improved earning asset mix from the continued optimization of the portfolio. When including contractual, rate-related processing expense, NIM would have been 4.65% in the fiscal 2024 second quarter compared to 4.89% during the fiscal 2023 second quarter due to increases in rate-related card processing expenses from a higher rate environment. Servicing fee income on off-balance sheet deposits is not included in this calculation. See non-GAAP reconciliation table below. Total gross loans and leases at March 31, 2024 increased $683.8 million to $4.41 billion compared to March 31, 2023 and decreased $16.9 million when compared to December 31, 2023. The increase compared to the prior year quarter was due to growth across all loan portfolios. The primary driver for the sequential decrease was a reduction in the commercial and consumer finance loan portfolios, partially offset by growth in the warehouse finance and seasonal tax services loan portfolios. During the 2024 fiscal second quarter, the Company repurchased 764,185 shares of common stock at an average share price of $51.20. An additional 100,990 shares of common stock were repurchased at an average price of $49.47 in April 2024 through April 15, 2024. As of April 15, 2024, there were 7,568,673 shares available for repurchase under the current common stock share repurchase programs. The Company is narrowing its fiscal year 2024 GAAP earnings per diluted share guidance to a range of $6.30 to $6.60. See Outlook section below. Tax Season For the six months ended March 31, 2024, total tax services product revenue was $72.9 million, an increase of 1% compared to the same period of the prior year. Total tax services product fee income increased marginally compared to the prior year, while total tax services product expense and net interest income on tax services loans decreased. Provision for credit losses for tax services portfolio decreased $6.5 million for the six months ended March 31, 2024 when compared to the same period of the prior year, due to improvements in data analytics, underwriting and monitoring. Total tax services product income, net of losses and direct product expenses, increased 24% to $36.9 million from $29.7 million, when comparing the first six months of fiscal 2024 to the same period of the prior fiscal year. For the 2024 tax season through March 31, 2024, Pathward originated $1.56 billion in refund advance loans compared to $1.46 billion during the 2023 tax season. Net Interest Income Net interest income for the second quarter of fiscal 2024 was $118.3 million, an increase of 17% from the same quarter in fiscal 2023. The increase was mainly attributable to increased yields, higher average interest-earning asset balances and an improved earning asset mix. The Company’s average interest-earning assets for the second quarter of fiscal 2024 increased by $917.9 million to $7.64 billion compared to the same quarter in fiscal 2023, primarily due to growth in loans and leases and an increase in cash balances, partially offset by a decrease in total investment security balances. The second quarter average outstanding balance of loans and leases increased $889.1 million compared to the same quarter of the prior fiscal year, primarily due to an increase across all loan portfolios. Fiscal 2024 second quarter NIM increased to 6.23% from 6.12% in the second fiscal quarter of last year. When including contractual, rate-related processing expense, NIM would have been 4.65% in the fiscal 2024 second quarter compared to 4.89% during the fiscal 2023 second quarter. See non-GAAP reconciliation table below. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 35 basis points to 6.69% compared to the prior year quarter, driven by an improved earning asset mix. The yield on the loan and lease portfolio was 8.43% compared to 8.47% for the comparable period last year and the TEY on the securities portfolio was 3.20% compared to 2.89% over that same period. The Company's cost of funds for all deposits and borrowings averaged 0.47% during the fiscal 2024 second quarter, as compared to 0.21% during the prior year quarter. The Company's overall cost of deposits was 0.38% in the fiscal second quarter of 2024, as compared to 0.13% during the prior year quarter. When including contractual, rate-related processing expense, the Company's overall cost of deposits was 2.06% in the fiscal 2024 second quarter, as compared to 1.43% during the prior year quarter. See non-GAAP reconciliation table below. Noninterest Income Fiscal 2024 second quarter noninterest income increased 2% to $128.9 million, compared to $127.0 million for the same period of the prior year. The increase was primarily driven by an increase in refund advance fee income. The period-over-period increase was partially offset by a decrease in card and deposits fees. The period-over-period decrease in card and deposit fee income was primarily related to servicing fee income on off-balance sheet deposits, which totaled $10.4 million during the 2024 fiscal second quarter, compared to $18.2 million for the same period of the prior year. The decrease in servicing fee income when compared to the prior year period was due to a reduction in off-balance sheet deposits. For the fiscal quarter ended December 31, 2023, servicing fee income on off-balance sheet deposits totaled $5.1 million. Noninterest Expense Noninterest expense increased 10% to $140.4 million for the fiscal 2024 second quarter, from $127.1 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, compensation and benefits expense, impairment expense, legal and consulting expense, and occupancy and equipment expense. The period-over-period increase was partially offset by decreases in operating lease equipment depreciation, other expense, refund transfer product expense, and intangible amortization expense. The card processing expense increase was due to rate-related agreements with BaaS partners. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally, this rate index is based on a percentage of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 56% of the deposit portfolio was subject to these rate-related processing expenses during the fiscal 2024 second quarter. For the fiscal quarter ended March 31, 2024, contractual, rate-related processing expenses were $30.1 million, as compared to $26.8 million for the fiscal quarter ended December 31, 2023, and $20.4 million for the fiscal quarter ended March 31, 2023. Income Tax Expense The Company recorded income tax expense of $15.2 million, representing an effective tax rate of 18.9%, for the fiscal 2024 second quarter, compared to $9.2 million, representing an effective tax rate of 14.2%, for the second quarter last fiscal year. The current quarter increase in income tax expense compared to the prior year quarter was primarily due to increased earnings and also a decrease in investment tax credits recognized ratably when compared to the prior year quarter. The Company originated $25.9 million in renewable energy leases during the fiscal 2024 second quarter, resulting in $7.0 million in total net investment tax credits. During the second quarter of fiscal 2023, the Company originated $18.1 million in renewable energy leases resulting in $4.9 million in total net investment tax credits. For the six months ended March 31, 2024, the Company originated $38.1 million in renewable energy leases, compared to $29.5 million for the comparable prior year period. Investment tax credits related to renewable energy leases are recognized ratably based on income throughout each fiscal year. Outlook The following forward-looking statements reflect the Company’s expectations as of the date of this release and are subject to substantial uncertainty. The Company's results may be materially affected by many factors, such as changes in economic conditions and customer demand, changes in interest rates, adverse developments in the financial services industry generally, inflation, competition, and other factors detailed below under “Forward-looking Statements.” The Company is narrowing its fiscal year 2024 GAAP earnings per diluted share guidance to a range of $6.30 to $6.60. As part of this guidance, the Company is reiterating its expectation that the annual effective tax rate in fiscal year 2024 will be in a range between 16% and 20%. Investments, Loans and Leases (Dollars in thousands) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Total investments $ 1,814,140 $ 1,886,021 $ 1,840,819 $ 1,951,996 $ 1,864,276 Loans held for sale Term lending 1,977 2,500 — 3,000 — Lease financing — 778 — — — SBA/USDA 7,372 — — — — Consumer finance 16,597 66,240 77,779 84,351 24,780 Total loans held for sale 25,946 69,518 77,779 87,351 24,780 Term lending 1,489,054 1,452,274 1,308,133 1,253,841 1,235,453 Asset-based lending 429,556 379,681 382,371 373,160 377,965 Factoring 336,442 335,953 358,344 351,133 338,884 Lease financing 168,616 188,889 183,392 201,996 170,645 Insurance premium finance 522,904 671,035 800,077 666,265 437,700 SBA/USDA 560,433 546,048 524,750 422,389 405,612 Other commercial finance 149,056 160,628 166,091 171,954 166,402 Commercial finance 3,656,061 3,734,508 3,723,158 3,440,738 3,132,661 Consumer finance 267,031 301,510 254,416 200,121 148,648 Tax services 84,502 33,435 5,192 47,194 61,553 Warehouse finance 394,814 349,911 376,915 380,458 377,036 Total loans and leases 4,402,408 4,419,364 4,359,681 4,068,511 3,719,898 Net deferred loan origination costs 6,977 6,917 6,435 4,388 5,718 Total gross loans and leases 4,409,385 4,426,281 4,366,116 4,072,899 3,725,616 Allowance for credit losses (80,777 ) (53,785 ) (49,705 ) (81,916 ) (84,304 ) Total loans and leases, net $ 4,328,608 $ 4,372,496 $ 4,316,411 $ 3,990,983 $ 3,641,312 The Company's investment security balances at March 31, 2024 totaled $1.81 billion, as compared to $1.89 billion at December 31, 2023 and $1.86 billion at March 31, 2023. Total gross loans and leases totaled $4.41 billion at March 31, 2024, as compared to $4.43 billion at December 31, 2023 and $3.73 billion at March 31, 2023. The primary driver for the sequential decrease was a decrease in commercial finance loans and consumer finance loans. This was partially offset by an increase in warehouse finance loans and seasonal tax service loans. The year-over-year increase was due to growth across all loan portfolios. Commercial finance loans, which comprised 83% of the Company's loan and lease portfolio, totaled $3.66 billion at March 31, 2024, reflecting a decrease of $78.4 million from December 31, 2023 and an increase of $523.4 million, or 17%, from March 31, 2023. The sequential decrease in commercial finance loans was primarily driven by a $148.1 million decrease in the insurance premium finance portfolio, a $20.3 million decrease in the lease financing portfolio, and a $11.6 million decrease in the other commercial finance portfolio, partially offset by increases in the asset-based lending, term lending, SBA/USDA, and factoring loan portfolios. The increase in commercial finance loans when comparing the current period to the same period of the prior year was primarily driven by increases in the term lending, SBA/USDA, insurance premium finance, and asset-based lending portfolios, partially offset by reductions in the factoring, lease financing, and other commercial finance portfolios. Asset Quality The Company’s allowance for credit losses ("ACL") totaled $80.8 million at March 31, 2024, an increase compared to $53.8 million at December 31, 2023 and a decrease compared to $84.3 million at March 31, 2023. The increase in the ACL at March 31, 2024, when compared to December 31, 2023, was primarily due to a $31.0 million increase in the allowance related to the seasonal tax services portfolio, partially offset by a $4.3 million decrease in the allowance related to the commercial finance portfolio. The $3.5 million year-over-year decrease in the ACL was primarily driven by a $3.6 million decrease in the allowance related to the commercial finance portfolio and a $1.5 million decrease in the allowance related to the seasonal tax services portfolio, partially offset by a $1.6 million increase in the allowance related to the consumer finance portfolio. The following table presents the Company's ACL as a percentage of its total loans and leases. As of the Period Ended (Unaudited) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Commercial finance 1.21 % 1.30 % 1.26 % 1.35 % 1.53 % Consumer finance 1.71 % 1.45 % 0.92 % 0.92 % 1.99 % Tax services 37.31 % 1.52 % 0.04 % 70.20 % 53.77 % Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % Total loans and leases 1.83 % 1.22 % 1.14 % 2.01 % 2.27 % Total loans and leases excluding tax services 1.14 % 1.21 % 1.14 % 1.21 % 1.40 % The Company's ACL as a percentage of total loans and leases increased to 1.83% at March 31, 2024 from 1.22% at December 31, 2023. The increase in the total loans and leases coverage ratio was primarily driven by seasonality in both the tax services portfolio and consumer finance portfolio. Activity in the allowance for credit losses for the periods presented was as follows. (Unaudited) Three Months Ended Six Months Ended (Dollars in thousands) March 31, 2024 December 31, 2023 March 31, 2023 March 31, 2024 March 31, 2023 Beginning balance $ 53,785 $ 49,705 $ 52,592 $ 49,705 $ 45,947 Provision (reversal of) - tax services loans 25,221 1,356 31,422 26,577 33,059 Provision (reversal of) - all other loans and leases 684 8,210 5,264 8,894 13,490 Charge-offs - tax services loans — (1,145 ) — (1,145 ) (1,731 ) Charge-offs - all other loans and leases (5,492 ) (5,725 ) (6,625 ) (11,218 ) (9,334 ) Recoveries - tax services loans 5,800 294 1,063 6,094 1,761 Recoveries - all other loans and leases 779 1,090 588 1,870 1,112 Ending balance $ 80,777 $ 53,785 $ 84,304 $ 80,777 $ 84,304 The Company recognized a provision for credit losses of $26.1 million for the quarter ended March 31, 2024, compared to $36.8 million for the comparable period in the prior fiscal year. The period-over-period decrease in provision for credit losses was due to improvements in the Company's data analytics, underwriting and monitoring in the Independent Tax space along with a decrease in provision for credit losses in the commercial finance portfolio primarily due to a mix shift in the loan portfolio and a benign credit environment. The Company recognized net recoveries of $1.1 million for the quarter ended March 31, 2024, compared to net charge-offs of $5.0 million for the quarter ended March 31, 2023. Net charge-offs attributable to the commercial finance portfolio for the current quarter were $4.7 million, while recoveries of $5.8 million were recognized in the tax services portfolio. Net charge-offs attributable to the commercial finance and consumer finance portfolios for the same quarter of the prior year were $5.9 million and $0.2 million, respectively, while a recovery of $1.1 million was recognized in the tax services portfolio. The Company's past due loans and leases were as follows for the periods presented. As of March 31, 2024 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ 323 $ 546 $ 843 $ 1,712 $ 24,234 $ 25,946 $ 843 $ — $ 843 Commercial finance 36,482 23,986 15,596 76,064 3,579,997 3,656,061 2,679 27,781 30,460 Consumer finance 4,293 3,001 3,093 10,387 256,644 267,031 3,093 — 3,093 Tax services 1,123 — — 1,123 83,379 84,502 — — — Warehouse finance — — — — 394,814 394,814 — — — Total loans and leases held for investment 41,898 26,987 18,689 87,574 4,314,834 4,402,408 5,772 27,781 33,553 Total loans and leases $ 42,221 $ 27,533 $ 19,532 $ 89,286 $ 4,339,068 $ 4,428,354 $ 6,615 $ 27,781 $ 34,396 As of December 31, 2023 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ 1,173 $ 786 $ 661 $ 2,620 $ 66,898 $ 69,518 $ 661 $ — $ 661 Commercial finance 33,406 8,341 20,739 62,486 3,672,022 3,734,508 7,862 28,099 35,961 Consumer finance 4,258 3,345 2,859 10,462 291,048 301,510 2,859 — 2,859 Tax services — — — — 33,435 33,435 — — — Warehouse finance — — — — 349,911 349,911 — — — Total loans and leases held for investment 37,664 11,686 23,598 72,948 4,346,416 4,419,364 10,721 28,099 38,820 Total loans and leases $ 38,837 $ 12,472 $ 24,259 $ 75,568 $ 4,413,314 $ 4,488,882 $ 11,382 $ 28,099 $ 39,481 The Company's nonperforming assets at March 31, 2024 were $37.2 million, representing 0.50% of total assets, compared to $42.4 million, or 0.53% of total assets at December 31, 2023 and $30.1 million, or 0.44% of total assets at March 31, 2023. The decrease in the nonperforming assets as a percentage of total assets at March 31, 2024 compared to December 31, 2023, was primarily driven by a decrease in nonperforming loans in the commercial finance portfolio, partially offset by an increase in nonperforming loans in the consumer finance portfolio. When comparing the current period to the same period of the prior year, the increase in nonperforming assets was primarily due to an increase in nonperforming loans in the commercial finance portfolio. The Company's nonperforming loans and leases at March 31, 2024, were $34.4 million, representing 0.78% of total gross loans and leases, compared to $39.5 million, or 0.88% of total gross loans and leases at December 31, 2023 and $28.5 million, or 0.76% of total gross loans and leases at March 31, 2023. The Company has various portfolios of consumer lending and tax services loans that present unique risks that are statistically managed. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for credit losses on these portfolios, and as such, these loans are not included in the asset classification table below. The Company's loans and leases held for investment by asset classification were as follows for the periods presented. Asset Classification (Dollars in thousands) Pass Watch Special Mention Substandard Doubtful Total As of March 31, 2024 Commercial finance $ 2,893,892 $ 447,110 $ 87,657 $ 218,108 $ 9,294 $ 3,656,061 Warehouse finance 394,814 — — — — 394,814 Total loans and leases $ 3,288,706 $ 447,110 $ 87,657 $ 218,108 $ 9,294 $ 4,050,875 Asset Classification (Dollars in thousands) Pass Watch Special Mention Substandard Doubtful Total As of December 31, 2023 Commercial finance $ 2,895,451 $ 535,057 $ 96,172 $ 197,682 $ 10,146 $ 3,734,508 Warehouse finance 349,911 — — — — 349,911 Total loans and leases $ 3,245,362 $ 535,057 $ 96,172 $ 197,682 $ 10,146 $ 4,084,419 Deposits, Borrowings and Other Liabilities The average balance of total deposits and interest-bearing liabilities was $7.28 billion for the three-month period ended March 31, 2024, compared to $6.47 billion for the same period in the prior fiscal year, representing an increase of 13%. Total average deposits for the fiscal 2024 second quarter increased by $782.1 million to $7.17 billion compared to the same period in fiscal 2023. The increase in average deposits was due to increases in noninterest bearing deposits, wholesale deposits, and money market deposits, partially offset by decreases in savings and time deposits. Total end-of-period deposits increased 8% to $6.37 billion at March 31, 2024, compared to $5.90 billion at March 31, 2023. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $329.4 million, wholesale deposits of $96.1 million, and money market deposits of $53.7 million, partially offset by slight decreases in savings and time deposits. As of March 31, 2024, the Company had $740.8 million in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $323.3 million are on activated cards while $417.5 million are on inactivated cards. During the remainder of fiscal year 2024, these deposit balances are expected to decline by approximately $219 million as the Company actively returns unclaimed balances to the U.S. Treasury. As of March 31, 2024, the Company managed $1.2 billion of customer deposits at other banks in its capacity as custodian. These deposits provide the Company with excess deposits that can earn servicing fee income, typically reflective of the EFFR. Regulatory Capital The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at March 31, 2024, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies. Regulatory capital ratios of the Company and the Bank are stated in the table below. The decrease in Tier 1 leverage capital ratio for the period is the result of higher quarterly average assets related to the Company's seasonal tax business. The Bank's Tier 1 leverage capital ratio using end of period assets of 8.77% better reflects the expected capital position of the Company post tax season. See non-GAAP reconciliation table below. Regulatory capital is not affected by the unrealized loss on accumulated other comprehensive income (“AOCI”). The securities portfolio is primarily comprised of amortizing securities that should provide consistent cash flow. The Company does not intend to sell these securities, or recognize the unrealized losses on its income statement, to fund future loan growth. The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analysis. As of the Periods Indicated March 31, 2024(1) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Company Tier 1 leverage capital ratio 7.75 % 7.96 % 8.11 % 8.40 % 7.53 % Common equity Tier 1 capital ratio 12.30 % 11.43 % 11.25 % 11.52 % 12.05 % Tier 1 capital ratio 12.56 % 11.69 % 11.50 % 11.79 % 12.35 % Total capital ratio 14.21 % 13.12 % 12.84 % 13.45 % 14.06 % Bank Tier 1 leverage ratio 7.92 % 8.15 % 8.32 % 8.67 % 7.79 % Common equity Tier 1 capital ratio 12.83 % 11.97 % 11.81 % 12.17 % 12.77 % Tier 1 capital ratio 12.83 % 11.97 % 11.81 % 12.17 % 12.77 % Total capital ratio 14.09 % 13.01 % 12.76 % 13.42 % 14.03 % (1) March 31, 2024 percentages are preliminary pending completion and filing of the Company's regulatory reports. Regulatory capital ratios for periods presented reflect the Company's election of the five-year CECL transition for regulatory capital purposes. The following table provides the non-GAAP financial measures used to compute certain of the ratios included in the table above, as well as a reconciliation of such non-GAAP financial measures to the most directly comparable financial measure in accordance with GAAP: Standardized Approach(1) As of the Periods Indicated (Dollars in thousands) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Total stockholders' equity $ 739,462 $ 729,282 $ 650,625 $ 677,721 $ 673,244 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 296,889 297,283 297,679 298,092 298,390 LESS: Certain other intangible assets 19,146 20,093 21,228 22,372 23,553 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 15,862 20,253 19,679 12,157 13,219 LESS: Net unrealized (losses) on available for sale securities (205,460 ) (187,901 ) (254,294 ) (207,358 ) (186,796 ) LESS: Noncontrolling interest (420 ) (510 ) (1,005 ) (631 ) (551 ) ADD: Adoption of Accounting Standards Update 2016-13 1,345 1,345 2,017 2,017 2,017 Common Equity Tier 1(1) 614,790 581,409 569,355 555,106 527,446 Long-term borrowings and other instruments qualifying as Tier 1 13,661 13,661 13,661 13,661 13,661 Tier 1 minority interest not included in common equity Tier 1 capital (311 ) (410 ) (826 ) (454 ) (404 ) Total Tier 1 capital 628,140 594,660 582,190 568,313 540,703 Allowance for credit losses 62,715 53,037 47,960 60,489 55,058 Subordinated debentures, net of issuance costs 19,642 19,617 19,591 19,566 19,540 Total capital $ 710,497 $ 667,314 $ 649,741 $ 648,368 $ 615,301 (1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum CET1 ratio; those changes were fully phased in through the end of calendar year 2021. Conference Call The Company will host a conference call and earnings webcast with a corresponding presentation at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Wednesday, April 24, 2024. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-833-470-1428 approximately 10 minutes prior to start time and reference access code 082173. The Quarterly Investor Update slide presentation prepared for use in connection with the Company's conference call and earnings webcast is available under the Presentations link in the Investor Relations - Events & Presentations section of the Company's website at www.pathwardfinancial.com. A webcast replay will also be archived at www.pathwardfinancial.com for one year. Upcoming Investor Events Jefferies Global FinTech Conference, June 12, 2024 | New York, NY About Pathward Financial, Inc. Pathward Financial, Inc. (Nasdaq: CASH) is a U.S.-based financial holding company driven by its purpose to power financial inclusion for all. Through our subsidiary, Pathward®, N.A., we strive to increase financial availability, choice, and opportunity across our Banking as a Service and Commercial Finance business lines. These strategic business lines provide end-to-end support to individuals and businesses. Learn more at www.pathwardfinancial.com. Forward-Looking Statements The Company and the Bank may from time to time make written or oral “forward-looking statements,” including statements contained in this press release, the Company’s filings with the Securities and Exchange Commission ("SEC"), the Company’s reports to stockholders, and in other communications by the Company and the Bank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” "target," or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results including our earnings per diluted share guidance, annual effective tax rate and related performance expectations; progress on key strategic initiatives; expected results of our partnerships; impacts of our improved data analytics, underwriting and monitoring processes; our goals regarding the addition of recurring revenue and related expected performance impacts; expected nonperforming loan resolutions and net charge off rates; the performance of our securities portfolio; the impact of card balances related to government stimulus programs; customer retention; loan and other product demand; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; and technology. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the potential adverse effects of unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the military conflicts in Ukraine and the Middle East, weather-related disasters, or public health events, such as pandemics, and any governmental or societal responses thereto; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate, and their related impacts on macroeconomic conditions, customer behavior, funding costs and loan and securities portfolios; changes in tax laws; the strength of the United States' economy and the local economies in which the Company operates; adverse developments in the financial services industry generally such as bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer behavior; inflation, market, and monetary fluctuations; our liquidity and capital positions, including the sufficiency of our liquidity; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value and acceptance of these products and services by users; the Bank's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Bank's strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the Bank of its status as a well-capitalized institution; changes in consumer borrowing, spending and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase. The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2023, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update, revise or clarify any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason. Condensed Consolidated Statements of Financial Condition (Unaudited) (Dollars in Thousands, Except Share Data) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 ASSETS Cash and cash equivalents $ 347,888 $ 671,630 $ 375,580 $ 515,271 $ 432,598 Securities available for sale, at fair value 1,779,458 1,850,581 1,804,228 1,914,271 1,825,563 Securities held to maturity, at amortized cost 34,682 35,440 36,591 37,725 38,713 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 25,844 23,694 28,210 30,890 29,387 Loans held for sale 25,946 69,518 77,779 87,351 24,780 Loans and leases 4,409,385 4,426,281 4,366,116 4,072,899 3,725,616 Allowance for credit losses (80,777 ) (53,785 ) (49,705 ) (81,916 ) (84,304 ) Accrued interest receivable 30,294 27,080 23,282 22,332 22,434 Premises, furniture, and equipment, net 37,266 38,270 39,160 38,601 39,735 Rental equipment, net 215,885 228,916 211,750 224,212 210,844 Goodwill and intangible assets 328,001 329,241 330,225 331,335 332,503 Other assets 283,245 280,571 292,327 265,654 270,387 Total assets $ 7,437,117 $ 7,927,437 $ 7,535,543 $ 7,458,625 $ 6,868,256 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits 6,368,344 6,936,055 6,589,182 6,306,976 5,902,696 Short-term borrowings 31,000 — 13,000 230,000 43,000 Long-term borrowings 33,373 33,614 33,873 34,178 34,543 Accrued expenses and other liabilities 264,938 228,486 248,863 209,750 214,773 Total liabilities 6,697,655 7,198,155 6,884,918 6,780,904 6,195,012 STOCKHOLDERS’ EQUITY Preferred stock — — — — — Common stock, $.01 par value 254 260 262 266 271 Common stock, Nonvoting, $.01 par value — — — — — Additional paid-in capital 634,415 629,737 628,500 625,825 623,250 Retained earnings 317,964 293,463 278,655 267,100 245,046 Accumulated other comprehensive loss (206,570 ) (188,433 ) (255,443 ) (207,896 ) (187,829 ) Treasury stock, at cost (6,181 ) (5,235 ) (344 ) (6,943 ) (6,943 ) Total equity attributable to parent 739,882 729,792 651,630 678,352 673,795 Noncontrolling interest (420 ) (510 ) (1,005 ) (631 ) (551 ) Total stockholders’ equity 739,462 729,282 650,625 677,721 673,244 Total liabilities and stockholders’ equity $ 7,437,117 $ 7,927,437 $ 7,535,543 $ 7,458,625 $ 6,868,256 Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Six Months Ended (Dollars in Thousands, Except Share and Per Share Data) March 31, 2024 December 31, 2023 March 31, 2023 March 31, 2024 March 31, 2023 Interest and dividend income: Loans and leases, including fees $ 102,750 $ 94,963 $ 83,879 $ 197,713 $ 152,275 Mortgage-backed securities 9,998 10,049 10,326 20,047 20,738 Other investments 14,013 10,886 10,482 24,899 16,734 126,761 115,898 104,687 242,659 189,747 Interest expense: Deposits 6,685 3,526 2,096 10,211 2,238 FHLB advances and other borrowings 1,775 2,336 1,186 4,111 2,047 8,460 5,862 3,282 14,322 4,285 Net interest income 118,301 110,036 101,405 228,337 185,462 Provision for credit loss 26,052 9,890 36,763 35,942 46,539 Net interest income after provision for credit loss 92,249 100,146 64,642 192,395 138,923 Noninterest income: Refund transfer product fees 28,942 422 30,205 29,364 30,882 Refund advance fee income 43,200 111 37,995 43,311 38,612 Card and deposit fees 35,344 30,750 42,087 66,094 79,805 Rental income 13,720 13,459 12,940 27,179 25,648 Gain on sale of trademarks — — — — 10,000 Gain (loss) on sale of other 1,695 2,840 (666 ) 4,535 (164 ) Other income 6,044 5,179 4,477 11,223 8,032 Total noninterest income 128,945 52,761 127,038 181,706 192,815 Noninterest expense: Compensation and benefits 54,073 46,652 47,547 100,725 90,564 Refund transfer product expense 7,366 192 7,863 7,558 7,968 Refund advance expense 1,846 30 1,603 1,876 1,630 Card processing 35,163 34,584 26,924 69,747 49,607 Occupancy and equipment expense 9,293 8,848 8,510 18,141 16,822 Operating lease equipment depreciation 10,424 10,423 14,719 20,847 24,347 Legal and consulting 6,141 4,892 4,921 11,033 14,380 Intangible amortization 1,240 984 1,435 2,224 2,693 Impairment expense 2,013 — 500 2,013 524 Other expense 12,872 12,669 13,114 25,541 23,660 Total noninterest expense 140,431 119,274 127,136 259,705 232,195 Income before income tax expense 80,763 33,633 64,544 114,396 99,543 Income tax expense (benefit) 15,246 5,719 9,176 20,965 15,753 Net income before noncontrolling interest 65,517 27,914 55,368 93,431 83,790 Net income attributable to noncontrolling interest 249 257 597 506 1,177 Net income attributable to parent $ 65,268 $ 27,657 $ 54,771 $ 92,925 $ 82,613 Less: Allocation of Earnings to participating securities(1) 524 220 839 744 1,228 Net income attributable to common shareholders(1) 64,744 27,437 53,932 92,181 81,382 Earnings per common share: Basic $ 2.56 $ 1.06 $ 1.99 $ 3.61 $ 2.95 Diluted $ 2.56 $ 1.06 $ 1.99 $ 3.61 $ 2.95 Shares used in computing earnings per common share: Basic 25,281,743 25,776,845 27,078,048 25,529,186 27,555,197 Diluted 25,311,144 25,801,538 27,169,569 25,555,656 27,632,737 (1) Amounts presented are used in the two-class earnings per common share calculation. Average Balances, Interest Rates and Yields The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and in rates. Only the yield/rate reflects tax-equivalent adjustments. Nonaccruing loans and leases have been included in the table as loans carrying a zero yield. Three Months Ended March 31, 2024 2023 (Dollars in thousands) Average Outstanding Balance Interest Earned / Paid Yield / Rate(1) Average Outstanding Balance Interest Earned / Paid Yield / Rate(1) Interest-earning assets: Cash and fed funds sold $ 616,288 $ 7,422 4.84 % $ 564,656 $ 5,843 4.20 % Mortgage-backed securities 1,464,530 9,998 2.75 % 1,549,240 10,326 2.70 % Tax exempt investment securities 132,733 932 3.57 % 149,912 990 3.39 % Asset-backed securities 237,421 3,368 5.71 % 141,968 1,273 3.64 % Other investment securities 281,695 2,291 3.27 % 298,030 2,376 3.23 % Total investments 2,116,379 16,589 3.20 % 2,139,150 14,965 2.89 % Commercial finance 3,650,845 74,330 8.19 % 3,056,293 60,765 8.06 % Consumer finance 351,459 9,144 10.46 % 187,826 6,301 13.60 % Tax services 493,168 9,014 7.35 % 448,659 10,555 9.54 % Warehouse finance 407,703 10,262 10.12 % 321,334 6,258 7.90 % Total loans and leases 4,903,175 102,750 8.43 % 4,014,112 83,879 8.47 % Total interest-earning assets $ 7,635,842 $ 126,761 6.69 % $ 6,717,918 $ 104,687 6.34 % Noninterest-earning assets 600,354 612,020 Total assets $ 8,236,196 $ 7,329,938 Interest-bearing liabilities: Interest-bearing checking $ 266 $ — 0.31 % $ 267 $ — 0.33 % Savings 59,914 5 0.04 % 70,024 6 0.03 % Money markets 190,143 598 1.26 % 125,193 71 0.23 % Time deposits 5,027 4 0.29 % 6,948 2 0.11 % Wholesale deposits 439,785 6,078 5.56 % 186,421 2,017 4.39 % Total interest-bearing deposits 695,135 6,685 3.87 % 388,853 2,096 2.19 % Overnight fed funds purchased 79,484 1,107 5.60 % 46,735 543 4.71 % Subordinated debentures 19,625 355 7.27 % 19,523 354 7.34 % Other borrowings 13,901 313 9.07 % 15,283 289 7.68 % Total borrowings 113,010 1,775 6.32 % 81,541 1,186 5.90 % Total interest-bearing liabilities 808,145 8,460 4.21 % 470,394 3,282 2.83 % Noninterest-bearing deposits 6,473,538 — — % 5,997,739 — — % Total deposits and interest-bearing liabilities $ 7,281,683 $ 8,460 0.47 % $ 6,468,133 $ 3,282 0.21 % Other noninterest-bearing liabilities 223,560 191,360 Total liabilities 7,505,243 6,659,493 Shareholders' equity 730,953 670,445 Total liabilities and shareholders' equity $ 8,236,196 $ 7,329,938 Net interest income and net interest rate spread including noninterest-bearing deposits $ 118,301 6.22 % $ 101,405 6.13 % Net interest margin 6.23 % 6.12 % Tax-equivalent effect 0.01 % 0.02 % Net interest margin, tax-equivalent(2) 6.24 % 6.14 % (1) Tax rate used to arrive at the TEY for the three months ended March 31, 2024 and 2023 was 21%. (2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes. Selected Financial Information As of and For the Three Months Ended March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Equity to total assets 9.94 % 9.20 % 8.63 % 9.09 % 9.80 % Book value per common share outstanding $ 29.14 $ 28.06 $ 24.85 $ 25.54 $ 24.88 Tangible book value per common share outstanding $ 16.21 $ 15.39 $ 12.24 $ 13.05 $ 12.59 Common shares outstanding 25,377,986 25,988,230 26,183,583 26,539,272 27,055,727 Nonperforming assets to total assets 0.50 % 0.53 % 0.77 % 0.55 % 0.44 % Nonperforming loans and leases to total loans and leases 0.78 % 0.88 % 1.26 % 0.93 % 0.76 % Net interest margin 6.23 % 6.23 % 6.19 % 6.18 % 6.12 % Net interest margin, tax-equivalent 6.24 % 6.24 % 6.21 % 6.20 % 6.14 % Return on average assets 3.17 % 1.46 % 1.97 % 2.61 % 2.99 % Return on average equity 35.72 % 16.87 % 21.12 % 26.26 % 32.68 % Full-time equivalent employees 1,204 1,218 1,193 1,186 1,164 Non-GAAP Reconciliations Adjusted Net Income and Adjusted Earnings Per Share At and For the Three Months Ended At and For the Six Months Ended (Dollars in Thousands, Except Share and Per Share Data) March 31, 2023 March 31, 2023 Net Income - GAAP $ 54,771 $ 82,613 Less: Gain on sale of trademarks — 10,000 Less: Loss on disposal of certain mobile solar generators (1,993 ) (1,993 ) Add: Accelerated depreciation on certain mobile solar generators 4,822 4,822 Add: Rebranding expenses — 3,737 Add: Separation related expenses — 11 Add: Impairment on Venture Capital investments 500 500 Add: Income tax effect resulting from the above listed items (1,829 ) (253 ) Adjusted net income $ 60,257 $ 83,423 Less: Adjusted allocation of earnings to participating securities 923 1,241 Adjusted Net income attributable to common shareholders 59,334 82,182 Weighted average diluted common shares outstanding 27,169,569 27,632,737 Adjusted earnings per common share - diluted $ 2.18 $ 2.97 Net Interest Margin and Cost of Deposits At and For the Three Months Ended (Dollars in thousands) March 31, 2024 December 31, 2023 March 31, 2023 Average interest earning assets $ 7,635,842 $ 7,031,922 $ 6,717,918 Net interest income $ 118,301 $ 110,036 $ 101,405 Net interest margin 6.23 % 6.23 % 6.12 % Quarterly average total deposits $ 7,168,673 $ 6,558,190 $ 6,386,592 Deposit interest expense $ 6,685 $ 3,526 $ 2,096 Cost of deposits 0.38 % 0.21 % 0.13 % Adjusted Net Interest Margin and Adjusted Cost of Deposits Average interest earning assets $ 7,635,842 $ 7,031,922 $ 6,717,918 Net interest income 118,301 110,036 101,405 Less: Contractual, rate-related processing expense 30,094 26,793 20,369 Adjusted net interest income $ 88,207 $ 83,243 $ 81,036 Adjusted net interest margin 4.65 % 4.71 % 4.89 % Average total deposits $ 7,168,673 $ 6,558,190 $ 6,386,592 Deposit interest expense 6,685 3,526 2,096 Add: Contractual, rate-related processing expense 30,094 26,793 20,369 Adjusted deposit expense $ 36,779 $ 30,319 $ 22,465 Adjusted cost of deposits 2.06 % 1.84 % 1.43 % Pathward, N.A. Period-end Tier 1 Leverage (Dollars in thousands) March 31, 2024 Total stockholders' equity $ 765,910 Adjustments: Less: Goodwill, net of associated deferred tax liabilities 296,888 Less: Certain other intangible assets 19,145 Less: Net deferred tax assets from operating loss and tax credit carry-forwards 15,862 Less: Net unrealized gains (losses) on available for sale securities (205,460 ) Less: Noncontrolling interest (420 ) Add: Adoption of Accounting Standards Update 2016-13 1,345 Common Equity Tier 1 641,240 Tier 1 minority interest not included in common equity Tier 1 capital — Total Tier 1 capital $ 641,240 Total Assets (Quarter Average) $ 8,229,652 Add: Available for sale securities amortized cost 266,591 Add: Deferred tax (66,675 ) Add: Adoption of Accounting Standards Updated 2016-13 1,345 Less: Deductions from CET1 331,895 Adjusted total assets $ 8,099,018 Pathward, N.A. Regulatory Tier 1 Leverage 7.92 % Total Assets (Period End) $ 7,435,034 Add: Available for sale securities amortized cost 273,983 Add: Deferred tax (68,523 ) Add: Adoption of Accounting Standards Updated 2016-13 1,345 Less: Deductions from CET1 331,895 Adjusted total assets $ 7,309,944 Pathward, N.A. Period-end Tier 1 Leverage 8.77 % View source version on businesswire.com: https://www.businesswire.com/news/home/20240424036567/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 $65.3 million, or $2.56 per share, for the three months ended March 31, 2024, compared to net income of $54.8 million, or $1.99 per share, for the three months ended March 31, 2023. For the fiscal quarter ended March 31, 2023, the Company recognized adjusted net income of $60.3 million, or $2.18 per share, when adjusting for the adverse financial impacts related to legacy mobile solar transactions and a venture capital investment impairment expense. See non-GAAP reconciliation table below. CEO Brett Pharr said, “We continue to produce strong results by focusing on risk adjusted returns, enhancing our Banking as a Service offerings, and spending the off-season in tax services improving our data analytics, underwriting and monitoring processes. We delivered significant growth in net income and earnings per share through solid performance across the enterprise. The Pathward team continues to perform by maintaining our culture, focusing on risk and compliance, working closely with our partners, and embodying our purpose of financial inclusion. I am excited to be a part of this company and for what we can create in the future.” Company Highlights On February 27, 2024, the Board of Directors (the "Board") of Pathward Financial appointed Neeraj Mehta as a member of the Board. On April 3, 2024, Pathward®, N.A. announced it became Certified™ by Great Place to Work® for the second year in a row. Great Place to Work describes itself as the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation. Financial Highlights for the 2024 Fiscal Second Quarter Total revenue for the second quarter was $247.2 million, an increase of $18.8 million, or 8%, compared to the same quarter in fiscal 2023, driven by an increase in both net interest income and noninterest income. Net interest margin ("NIM") increased 11 basis points to 6.23% for the second quarter from 6.12% during the same period last year, primarily driven by increased yields on earning assets and an improved earning asset mix from the continued optimization of the portfolio. When including contractual, rate-related processing expense, NIM would have been 4.65% in the fiscal 2024 second quarter compared to 4.89% during the fiscal 2023 second quarter due to increases in rate-related card processing expenses from a higher rate environment. Servicing fee income on off-balance sheet deposits is not included in this calculation. See non-GAAP reconciliation table below. Total gross loans and leases at March 31, 2024 increased $683.8 million to $4.41 billion compared to March 31, 2023 and decreased $16.9 million when compared to December 31, 2023. The increase compared to the prior year quarter was due to growth across all loan portfolios. The primary driver for the sequential decrease was a reduction in the commercial and consumer finance loan portfolios, partially offset by growth in the warehouse finance and seasonal tax services loan portfolios. During the 2024 fiscal second quarter, the Company repurchased 764,185 shares of common stock at an average share price of $51.20. An additional 100,990 shares of common stock were repurchased at an average price of $49.47 in April 2024 through April 15, 2024. As of April 15, 2024, there were 7,568,673 shares available for repurchase under the current common stock share repurchase programs. The Company is narrowing its fiscal year 2024 GAAP earnings per diluted share guidance to a range of $6.30 to $6.60. See Outlook section below. Tax Season For the six months ended March 31, 2024, total tax services product revenue was $72.9 million, an increase of 1% compared to the same period of the prior year. Total tax services product fee income increased marginally compared to the prior year, while total tax services product expense and net interest income on tax services loans decreased. Provision for credit losses for tax services portfolio decreased $6.5 million for the six months ended March 31, 2024 when compared to the same period of the prior year, due to improvements in data analytics, underwriting and monitoring. Total tax services product income, net of losses and direct product expenses, increased 24% to $36.9 million from $29.7 million, when comparing the first six months of fiscal 2024 to the same period of the prior fiscal year. For the 2024 tax season through March 31, 2024, Pathward originated $1.56 billion in refund advance loans compared to $1.46 billion during the 2023 tax season. Net Interest Income Net interest income for the second quarter of fiscal 2024 was $118.3 million, an increase of 17% from the same quarter in fiscal 2023. The increase was mainly attributable to increased yields, higher average interest-earning asset balances and an improved earning asset mix. The Company’s average interest-earning assets for the second quarter of fiscal 2024 increased by $917.9 million to $7.64 billion compared to the same quarter in fiscal 2023, primarily due to growth in loans and leases and an increase in cash balances, partially offset by a decrease in total investment security balances. The second quarter average outstanding balance of loans and leases increased $889.1 million compared to the same quarter of the prior fiscal year, primarily due to an increase across all loan portfolios. Fiscal 2024 second quarter NIM increased to 6.23% from 6.12% in the second fiscal quarter of last year. When including contractual, rate-related processing expense, NIM would have been 4.65% in the fiscal 2024 second quarter compared to 4.89% during the fiscal 2023 second quarter. See non-GAAP reconciliation table below. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 35 basis points to 6.69% compared to the prior year quarter, driven by an improved earning asset mix. The yield on the loan and lease portfolio was 8.43% compared to 8.47% for the comparable period last year and the TEY on the securities portfolio was 3.20% compared to 2.89% over that same period. The Company's cost of funds for all deposits and borrowings averaged 0.47% during the fiscal 2024 second quarter, as compared to 0.21% during the prior year quarter. The Company's overall cost of deposits was 0.38% in the fiscal second quarter of 2024, as compared to 0.13% during the prior year quarter. When including contractual, rate-related processing expense, the Company's overall cost of deposits was 2.06% in the fiscal 2024 second quarter, as compared to 1.43% during the prior year quarter. See non-GAAP reconciliation table below. Noninterest Income Fiscal 2024 second quarter noninterest income increased 2% to $128.9 million, compared to $127.0 million for the same period of the prior year. The increase was primarily driven by an increase in refund advance fee income. The period-over-period increase was partially offset by a decrease in card and deposits fees. The period-over-period decrease in card and deposit fee income was primarily related to servicing fee income on off-balance sheet deposits, which totaled $10.4 million during the 2024 fiscal second quarter, compared to $18.2 million for the same period of the prior year. The decrease in servicing fee income when compared to the prior year period was due to a reduction in off-balance sheet deposits. For the fiscal quarter ended December 31, 2023, servicing fee income on off-balance sheet deposits totaled $5.1 million. Noninterest Expense Noninterest expense increased 10% to $140.4 million for the fiscal 2024 second quarter, from $127.1 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, compensation and benefits expense, impairment expense, legal and consulting expense, and occupancy and equipment expense. The period-over-period increase was partially offset by decreases in operating lease equipment depreciation, other expense, refund transfer product expense, and intangible amortization expense. The card processing expense increase was due to rate-related agreements with BaaS partners. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally, this rate index is based on a percentage of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 56% of the deposit portfolio was subject to these rate-related processing expenses during the fiscal 2024 second quarter. For the fiscal quarter ended March 31, 2024, contractual, rate-related processing expenses were $30.1 million, as compared to $26.8 million for the fiscal quarter ended December 31, 2023, and $20.4 million for the fiscal quarter ended March 31, 2023. Income Tax Expense The Company recorded income tax expense of $15.2 million, representing an effective tax rate of 18.9%, for the fiscal 2024 second quarter, compared to $9.2 million, representing an effective tax rate of 14.2%, for the second quarter last fiscal year. The current quarter increase in income tax expense compared to the prior year quarter was primarily due to increased earnings and also a decrease in investment tax credits recognized ratably when compared to the prior year quarter. The Company originated $25.9 million in renewable energy leases during the fiscal 2024 second quarter, resulting in $7.0 million in total net investment tax credits. During the second quarter of fiscal 2023, the Company originated $18.1 million in renewable energy leases resulting in $4.9 million in total net investment tax credits. For the six months ended March 31, 2024, the Company originated $38.1 million in renewable energy leases, compared to $29.5 million for the comparable prior year period. Investment tax credits related to renewable energy leases are recognized ratably based on income throughout each fiscal year. Outlook The following forward-looking statements reflect the Company’s expectations as of the date of this release and are subject to substantial uncertainty. The Company's results may be materially affected by many factors, such as changes in economic conditions and customer demand, changes in interest rates, adverse developments in the financial services industry generally, inflation, competition, and other factors detailed below under “Forward-looking Statements.” The Company is narrowing its fiscal year 2024 GAAP earnings per diluted share guidance to a range of $6.30 to $6.60. As part of this guidance, the Company is reiterating its expectation that the annual effective tax rate in fiscal year 2024 will be in a range between 16% and 20%. Investments, Loans and Leases (Dollars in thousands) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Total investments $ 1,814,140 $ 1,886,021 $ 1,840,819 $ 1,951,996 $ 1,864,276 Loans held for sale Term lending 1,977 2,500 — 3,000 — Lease financing — 778 — — — SBA/USDA 7,372 — — — — Consumer finance 16,597 66,240 77,779 84,351 24,780 Total loans held for sale 25,946 69,518 77,779 87,351 24,780 Term lending 1,489,054 1,452,274 1,308,133 1,253,841 1,235,453 Asset-based lending 429,556 379,681 382,371 373,160 377,965 Factoring 336,442 335,953 358,344 351,133 338,884 Lease financing 168,616 188,889 183,392 201,996 170,645 Insurance premium finance 522,904 671,035 800,077 666,265 437,700 SBA/USDA 560,433 546,048 524,750 422,389 405,612 Other commercial finance 149,056 160,628 166,091 171,954 166,402 Commercial finance 3,656,061 3,734,508 3,723,158 3,440,738 3,132,661 Consumer finance 267,031 301,510 254,416 200,121 148,648 Tax services 84,502 33,435 5,192 47,194 61,553 Warehouse finance 394,814 349,911 376,915 380,458 377,036 Total loans and leases 4,402,408 4,419,364 4,359,681 4,068,511 3,719,898 Net deferred loan origination costs 6,977 6,917 6,435 4,388 5,718 Total gross loans and leases 4,409,385 4,426,281 4,366,116 4,072,899 3,725,616 Allowance for credit losses (80,777 ) (53,785 ) (49,705 ) (81,916 ) (84,304 ) Total loans and leases, net $ 4,328,608 $ 4,372,496 $ 4,316,411 $ 3,990,983 $ 3,641,312 The Company's investment security balances at March 31, 2024 totaled $1.81 billion, as compared to $1.89 billion at December 31, 2023 and $1.86 billion at March 31, 2023. Total gross loans and leases totaled $4.41 billion at March 31, 2024, as compared to $4.43 billion at December 31, 2023 and $3.73 billion at March 31, 2023. The primary driver for the sequential decrease was a decrease in commercial finance loans and consumer finance loans. This was partially offset by an increase in warehouse finance loans and seasonal tax service loans. The year-over-year increase was due to growth across all loan portfolios. Commercial finance loans, which comprised 83% of the Company's loan and lease portfolio, totaled $3.66 billion at March 31, 2024, reflecting a decrease of $78.4 million from December 31, 2023 and an increase of $523.4 million, or 17%, from March 31, 2023. The sequential decrease in commercial finance loans was primarily driven by a $148.1 million decrease in the insurance premium finance portfolio, a $20.3 million decrease in the lease financing portfolio, and a $11.6 million decrease in the other commercial finance portfolio, partially offset by increases in the asset-based lending, term lending, SBA/USDA, and factoring loan portfolios. The increase in commercial finance loans when comparing the current period to the same period of the prior year was primarily driven by increases in the term lending, SBA/USDA, insurance premium finance, and asset-based lending portfolios, partially offset by reductions in the factoring, lease financing, and other commercial finance portfolios. Asset Quality The Company’s allowance for credit losses ("ACL") totaled $80.8 million at March 31, 2024, an increase compared to $53.8 million at December 31, 2023 and a decrease compared to $84.3 million at March 31, 2023. The increase in the ACL at March 31, 2024, when compared to December 31, 2023, was primarily due to a $31.0 million increase in the allowance related to the seasonal tax services portfolio, partially offset by a $4.3 million decrease in the allowance related to the commercial finance portfolio. The $3.5 million year-over-year decrease in the ACL was primarily driven by a $3.6 million decrease in the allowance related to the commercial finance portfolio and a $1.5 million decrease in the allowance related to the seasonal tax services portfolio, partially offset by a $1.6 million increase in the allowance related to the consumer finance portfolio. The following table presents the Company's ACL as a percentage of its total loans and leases. As of the Period Ended (Unaudited) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Commercial finance 1.21 % 1.30 % 1.26 % 1.35 % 1.53 % Consumer finance 1.71 % 1.45 % 0.92 % 0.92 % 1.99 % Tax services 37.31 % 1.52 % 0.04 % 70.20 % 53.77 % Warehouse finance 0.10 % 0.10 % 0.10 % 0.10 % 0.10 % Total loans and leases 1.83 % 1.22 % 1.14 % 2.01 % 2.27 % Total loans and leases excluding tax services 1.14 % 1.21 % 1.14 % 1.21 % 1.40 % The Company's ACL as a percentage of total loans and leases increased to 1.83% at March 31, 2024 from 1.22% at December 31, 2023. The increase in the total loans and leases coverage ratio was primarily driven by seasonality in both the tax services portfolio and consumer finance portfolio. Activity in the allowance for credit losses for the periods presented was as follows. (Unaudited) Three Months Ended Six Months Ended (Dollars in thousands) March 31, 2024 December 31, 2023 March 31, 2023 March 31, 2024 March 31, 2023 Beginning balance $ 53,785 $ 49,705 $ 52,592 $ 49,705 $ 45,947 Provision (reversal of) - tax services loans 25,221 1,356 31,422 26,577 33,059 Provision (reversal of) - all other loans and leases 684 8,210 5,264 8,894 13,490 Charge-offs - tax services loans — (1,145 ) — (1,145 ) (1,731 ) Charge-offs - all other loans and leases (5,492 ) (5,725 ) (6,625 ) (11,218 ) (9,334 ) Recoveries - tax services loans 5,800 294 1,063 6,094 1,761 Recoveries - all other loans and leases 779 1,090 588 1,870 1,112 Ending balance $ 80,777 $ 53,785 $ 84,304 $ 80,777 $ 84,304 The Company recognized a provision for credit losses of $26.1 million for the quarter ended March 31, 2024, compared to $36.8 million for the comparable period in the prior fiscal year. The period-over-period decrease in provision for credit losses was due to improvements in the Company's data analytics, underwriting and monitoring in the Independent Tax space along with a decrease in provision for credit losses in the commercial finance portfolio primarily due to a mix shift in the loan portfolio and a benign credit environment. The Company recognized net recoveries of $1.1 million for the quarter ended March 31, 2024, compared to net charge-offs of $5.0 million for the quarter ended March 31, 2023. Net charge-offs attributable to the commercial finance portfolio for the current quarter were $4.7 million, while recoveries of $5.8 million were recognized in the tax services portfolio. Net charge-offs attributable to the commercial finance and consumer finance portfolios for the same quarter of the prior year were $5.9 million and $0.2 million, respectively, while a recovery of $1.1 million was recognized in the tax services portfolio. The Company's past due loans and leases were as follows for the periods presented. As of March 31, 2024 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ 323 $ 546 $ 843 $ 1,712 $ 24,234 $ 25,946 $ 843 $ — $ 843 Commercial finance 36,482 23,986 15,596 76,064 3,579,997 3,656,061 2,679 27,781 30,460 Consumer finance 4,293 3,001 3,093 10,387 256,644 267,031 3,093 — 3,093 Tax services 1,123 — — 1,123 83,379 84,502 — — — Warehouse finance — — — — 394,814 394,814 — — — Total loans and leases held for investment 41,898 26,987 18,689 87,574 4,314,834 4,402,408 5,772 27,781 33,553 Total loans and leases $ 42,221 $ 27,533 $ 19,532 $ 89,286 $ 4,339,068 $ 4,428,354 $ 6,615 $ 27,781 $ 34,396 As of December 31, 2023 Accruing and Nonaccruing Loans and Leases Nonperforming Loans and Leases (Dollars in thousands) 30-59 Days Past Due 60-89 Days Past Due > 89 Days Past Due Total Past Due Current Total Loans and Leases Receivable > 89 Days Past Due and Accruing Nonaccrual Balance Total Loans held for sale $ 1,173 $ 786 $ 661 $ 2,620 $ 66,898 $ 69,518 $ 661 $ — $ 661 Commercial finance 33,406 8,341 20,739 62,486 3,672,022 3,734,508 7,862 28,099 35,961 Consumer finance 4,258 3,345 2,859 10,462 291,048 301,510 2,859 — 2,859 Tax services — — — — 33,435 33,435 — — — Warehouse finance — — — — 349,911 349,911 — — — Total loans and leases held for investment 37,664 11,686 23,598 72,948 4,346,416 4,419,364 10,721 28,099 38,820 Total loans and leases $ 38,837 $ 12,472 $ 24,259 $ 75,568 $ 4,413,314 $ 4,488,882 $ 11,382 $ 28,099 $ 39,481 The Company's nonperforming assets at March 31, 2024 were $37.2 million, representing 0.50% of total assets, compared to $42.4 million, or 0.53% of total assets at December 31, 2023 and $30.1 million, or 0.44% of total assets at March 31, 2023. The decrease in the nonperforming assets as a percentage of total assets at March 31, 2024 compared to December 31, 2023, was primarily driven by a decrease in nonperforming loans in the commercial finance portfolio, partially offset by an increase in nonperforming loans in the consumer finance portfolio. When comparing the current period to the same period of the prior year, the increase in nonperforming assets was primarily due to an increase in nonperforming loans in the commercial finance portfolio. The Company's nonperforming loans and leases at March 31, 2024, were $34.4 million, representing 0.78% of total gross loans and leases, compared to $39.5 million, or 0.88% of total gross loans and leases at December 31, 2023 and $28.5 million, or 0.76% of total gross loans and leases at March 31, 2023. The Company has various portfolios of consumer lending and tax services loans that present unique risks that are statistically managed. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for credit losses on these portfolios, and as such, these loans are not included in the asset classification table below. The Company's loans and leases held for investment by asset classification were as follows for the periods presented. Asset Classification (Dollars in thousands) Pass Watch Special Mention Substandard Doubtful Total As of March 31, 2024 Commercial finance $ 2,893,892 $ 447,110 $ 87,657 $ 218,108 $ 9,294 $ 3,656,061 Warehouse finance 394,814 — — — — 394,814 Total loans and leases $ 3,288,706 $ 447,110 $ 87,657 $ 218,108 $ 9,294 $ 4,050,875 Asset Classification (Dollars in thousands) Pass Watch Special Mention Substandard Doubtful Total As of December 31, 2023 Commercial finance $ 2,895,451 $ 535,057 $ 96,172 $ 197,682 $ 10,146 $ 3,734,508 Warehouse finance 349,911 — — — — 349,911 Total loans and leases $ 3,245,362 $ 535,057 $ 96,172 $ 197,682 $ 10,146 $ 4,084,419 Deposits, Borrowings and Other Liabilities The average balance of total deposits and interest-bearing liabilities was $7.28 billion for the three-month period ended March 31, 2024, compared to $6.47 billion for the same period in the prior fiscal year, representing an increase of 13%. Total average deposits for the fiscal 2024 second quarter increased by $782.1 million to $7.17 billion compared to the same period in fiscal 2023. The increase in average deposits was due to increases in noninterest bearing deposits, wholesale deposits, and money market deposits, partially offset by decreases in savings and time deposits. Total end-of-period deposits increased 8% to $6.37 billion at March 31, 2024, compared to $5.90 billion at March 31, 2023. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $329.4 million, wholesale deposits of $96.1 million, and money market deposits of $53.7 million, partially offset by slight decreases in savings and time deposits. As of March 31, 2024, the Company had $740.8 million in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $323.3 million are on activated cards while $417.5 million are on inactivated cards. During the remainder of fiscal year 2024, these deposit balances are expected to decline by approximately $219 million as the Company actively returns unclaimed balances to the U.S. Treasury. As of March 31, 2024, the Company managed $1.2 billion of customer deposits at other banks in its capacity as custodian. These deposits provide the Company with excess deposits that can earn servicing fee income, typically reflective of the EFFR. Regulatory Capital The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at March 31, 2024, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies. Regulatory capital ratios of the Company and the Bank are stated in the table below. The decrease in Tier 1 leverage capital ratio for the period is the result of higher quarterly average assets related to the Company's seasonal tax business. The Bank's Tier 1 leverage capital ratio using end of period assets of 8.77% better reflects the expected capital position of the Company post tax season. See non-GAAP reconciliation table below. Regulatory capital is not affected by the unrealized loss on accumulated other comprehensive income (“AOCI”). The securities portfolio is primarily comprised of amortizing securities that should provide consistent cash flow. The Company does not intend to sell these securities, or recognize the unrealized losses on its income statement, to fund future loan growth. The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analysis. As of the Periods Indicated March 31, 2024(1) December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Company Tier 1 leverage capital ratio 7.75 % 7.96 % 8.11 % 8.40 % 7.53 % Common equity Tier 1 capital ratio 12.30 % 11.43 % 11.25 % 11.52 % 12.05 % Tier 1 capital ratio 12.56 % 11.69 % 11.50 % 11.79 % 12.35 % Total capital ratio 14.21 % 13.12 % 12.84 % 13.45 % 14.06 % Bank Tier 1 leverage ratio 7.92 % 8.15 % 8.32 % 8.67 % 7.79 % Common equity Tier 1 capital ratio 12.83 % 11.97 % 11.81 % 12.17 % 12.77 % Tier 1 capital ratio 12.83 % 11.97 % 11.81 % 12.17 % 12.77 % Total capital ratio 14.09 % 13.01 % 12.76 % 13.42 % 14.03 % (1) March 31, 2024 percentages are preliminary pending completion and filing of the Company's regulatory reports. Regulatory capital ratios for periods presented reflect the Company's election of the five-year CECL transition for regulatory capital purposes. The following table provides the non-GAAP financial measures used to compute certain of the ratios included in the table above, as well as a reconciliation of such non-GAAP financial measures to the most directly comparable financial measure in accordance with GAAP: Standardized Approach(1) As of the Periods Indicated (Dollars in thousands) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Total stockholders' equity $ 739,462 $ 729,282 $ 650,625 $ 677,721 $ 673,244 Adjustments: LESS: Goodwill, net of associated deferred tax liabilities 296,889 297,283 297,679 298,092 298,390 LESS: Certain other intangible assets 19,146 20,093 21,228 22,372 23,553 LESS: Net deferred tax assets from operating loss and tax credit carry-forwards 15,862 20,253 19,679 12,157 13,219 LESS: Net unrealized (losses) on available for sale securities (205,460 ) (187,901 ) (254,294 ) (207,358 ) (186,796 ) LESS: Noncontrolling interest (420 ) (510 ) (1,005 ) (631 ) (551 ) ADD: Adoption of Accounting Standards Update 2016-13 1,345 1,345 2,017 2,017 2,017 Common Equity Tier 1(1) 614,790 581,409 569,355 555,106 527,446 Long-term borrowings and other instruments qualifying as Tier 1 13,661 13,661 13,661 13,661 13,661 Tier 1 minority interest not included in common equity Tier 1 capital (311 ) (410 ) (826 ) (454 ) (404 ) Total Tier 1 capital 628,140 594,660 582,190 568,313 540,703 Allowance for credit losses 62,715 53,037 47,960 60,489 55,058 Subordinated debentures, net of issuance costs 19,642 19,617 19,591 19,566 19,540 Total capital $ 710,497 $ 667,314 $ 649,741 $ 648,368 $ 615,301 (1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum CET1 ratio; those changes were fully phased in through the end of calendar year 2021. Conference Call The Company will host a conference call and earnings webcast with a corresponding presentation at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Wednesday, April 24, 2024. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-833-470-1428 approximately 10 minutes prior to start time and reference access code 082173. The Quarterly Investor Update slide presentation prepared for use in connection with the Company's conference call and earnings webcast is available under the Presentations link in the Investor Relations - Events & Presentations section of the Company's website at www.pathwardfinancial.com. A webcast replay will also be archived at www.pathwardfinancial.com for one year. Upcoming Investor Events Jefferies Global FinTech Conference, June 12, 2024 | New York, NY About Pathward Financial, Inc. Pathward Financial, Inc. (Nasdaq: CASH) is a U.S.-based financial holding company driven by its purpose to power financial inclusion for all. Through our subsidiary, Pathward®, N.A., we strive to increase financial availability, choice, and opportunity across our Banking as a Service and Commercial Finance business lines. These strategic business lines provide end-to-end support to individuals and businesses. Learn more at www.pathwardfinancial.com. Forward-Looking Statements The Company and the Bank may from time to time make written or oral “forward-looking statements,” including statements contained in this press release, the Company’s filings with the Securities and Exchange Commission ("SEC"), the Company’s reports to stockholders, and in other communications by the Company and the Bank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” "target," or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results including our earnings per diluted share guidance, annual effective tax rate and related performance expectations; progress on key strategic initiatives; expected results of our partnerships; impacts of our improved data analytics, underwriting and monitoring processes; our goals regarding the addition of recurring revenue and related expected performance impacts; expected nonperforming loan resolutions and net charge off rates; the performance of our securities portfolio; the impact of card balances related to government stimulus programs; customer retention; loan and other product demand; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; and technology. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the potential adverse effects of unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the military conflicts in Ukraine and the Middle East, weather-related disasters, or public health events, such as pandemics, and any governmental or societal responses thereto; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate, and their related impacts on macroeconomic conditions, customer behavior, funding costs and loan and securities portfolios; changes in tax laws; the strength of the United States' economy and the local economies in which the Company operates; adverse developments in the financial services industry generally such as bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer behavior; inflation, market, and monetary fluctuations; our liquidity and capital positions, including the sufficiency of our liquidity; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value and acceptance of these products and services by users; the Bank's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Bank's strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the Bank of its status as a well-capitalized institution; changes in consumer borrowing, spending and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase. The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2023, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update, revise or clarify any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason. Condensed Consolidated Statements of Financial Condition (Unaudited) (Dollars in Thousands, Except Share Data) March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 ASSETS Cash and cash equivalents $ 347,888 $ 671,630 $ 375,580 $ 515,271 $ 432,598 Securities available for sale, at fair value 1,779,458 1,850,581 1,804,228 1,914,271 1,825,563 Securities held to maturity, at amortized cost 34,682 35,440 36,591 37,725 38,713 Federal Reserve Bank and Federal Home Loan Bank Stock, at cost 25,844 23,694 28,210 30,890 29,387 Loans held for sale 25,946 69,518 77,779 87,351 24,780 Loans and leases 4,409,385 4,426,281 4,366,116 4,072,899 3,725,616 Allowance for credit losses (80,777 ) (53,785 ) (49,705 ) (81,916 ) (84,304 ) Accrued interest receivable 30,294 27,080 23,282 22,332 22,434 Premises, furniture, and equipment, net 37,266 38,270 39,160 38,601 39,735 Rental equipment, net 215,885 228,916 211,750 224,212 210,844 Goodwill and intangible assets 328,001 329,241 330,225 331,335 332,503 Other assets 283,245 280,571 292,327 265,654 270,387 Total assets $ 7,437,117 $ 7,927,437 $ 7,535,543 $ 7,458,625 $ 6,868,256 LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES Deposits 6,368,344 6,936,055 6,589,182 6,306,976 5,902,696 Short-term borrowings 31,000 — 13,000 230,000 43,000 Long-term borrowings 33,373 33,614 33,873 34,178 34,543 Accrued expenses and other liabilities 264,938 228,486 248,863 209,750 214,773 Total liabilities 6,697,655 7,198,155 6,884,918 6,780,904 6,195,012 STOCKHOLDERS’ EQUITY Preferred stock — — — — — Common stock, $.01 par value 254 260 262 266 271 Common stock, Nonvoting, $.01 par value — — — — — Additional paid-in capital 634,415 629,737 628,500 625,825 623,250 Retained earnings 317,964 293,463 278,655 267,100 245,046 Accumulated other comprehensive loss (206,570 ) (188,433 ) (255,443 ) (207,896 ) (187,829 ) Treasury stock, at cost (6,181 ) (5,235 ) (344 ) (6,943 ) (6,943 ) Total equity attributable to parent 739,882 729,792 651,630 678,352 673,795 Noncontrolling interest (420 ) (510 ) (1,005 ) (631 ) (551 ) Total stockholders’ equity 739,462 729,282 650,625 677,721 673,244 Total liabilities and stockholders’ equity $ 7,437,117 $ 7,927,437 $ 7,535,543 $ 7,458,625 $ 6,868,256 Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended Six Months Ended (Dollars in Thousands, Except Share and Per Share Data) March 31, 2024 December 31, 2023 March 31, 2023 March 31, 2024 March 31, 2023 Interest and dividend income: Loans and leases, including fees $ 102,750 $ 94,963 $ 83,879 $ 197,713 $ 152,275 Mortgage-backed securities 9,998 10,049 10,326 20,047 20,738 Other investments 14,013 10,886 10,482 24,899 16,734 126,761 115,898 104,687 242,659 189,747 Interest expense: Deposits 6,685 3,526 2,096 10,211 2,238 FHLB advances and other borrowings 1,775 2,336 1,186 4,111 2,047 8,460 5,862 3,282 14,322 4,285 Net interest income 118,301 110,036 101,405 228,337 185,462 Provision for credit loss 26,052 9,890 36,763 35,942 46,539 Net interest income after provision for credit loss 92,249 100,146 64,642 192,395 138,923 Noninterest income: Refund transfer product fees 28,942 422 30,205 29,364 30,882 Refund advance fee income 43,200 111 37,995 43,311 38,612 Card and deposit fees 35,344 30,750 42,087 66,094 79,805 Rental income 13,720 13,459 12,940 27,179 25,648 Gain on sale of trademarks — — — — 10,000 Gain (loss) on sale of other 1,695 2,840 (666 ) 4,535 (164 ) Other income 6,044 5,179 4,477 11,223 8,032 Total noninterest income 128,945 52,761 127,038 181,706 192,815 Noninterest expense: Compensation and benefits 54,073 46,652 47,547 100,725 90,564 Refund transfer product expense 7,366 192 7,863 7,558 7,968 Refund advance expense 1,846 30 1,603 1,876 1,630 Card processing 35,163 34,584 26,924 69,747 49,607 Occupancy and equipment expense 9,293 8,848 8,510 18,141 16,822 Operating lease equipment depreciation 10,424 10,423 14,719 20,847 24,347 Legal and consulting 6,141 4,892 4,921 11,033 14,380 Intangible amortization 1,240 984 1,435 2,224 2,693 Impairment expense 2,013 — 500 2,013 524 Other expense 12,872 12,669 13,114 25,541 23,660 Total noninterest expense 140,431 119,274 127,136 259,705 232,195 Income before income tax expense 80,763 33,633 64,544 114,396 99,543 Income tax expense (benefit) 15,246 5,719 9,176 20,965 15,753 Net income before noncontrolling interest 65,517 27,914 55,368 93,431 83,790 Net income attributable to noncontrolling interest 249 257 597 506 1,177 Net income attributable to parent $ 65,268 $ 27,657 $ 54,771 $ 92,925 $ 82,613 Less: Allocation of Earnings to participating securities(1) 524 220 839 744 1,228 Net income attributable to common shareholders(1) 64,744 27,437 53,932 92,181 81,382 Earnings per common share: Basic $ 2.56 $ 1.06 $ 1.99 $ 3.61 $ 2.95 Diluted $ 2.56 $ 1.06 $ 1.99 $ 3.61 $ 2.95 Shares used in computing earnings per common share: Basic 25,281,743 25,776,845 27,078,048 25,529,186 27,555,197 Diluted 25,311,144 25,801,538 27,169,569 25,555,656 27,632,737 (1) Amounts presented are used in the two-class earnings per common share calculation. Average Balances, Interest Rates and Yields The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and in rates. Only the yield/rate reflects tax-equivalent adjustments. Nonaccruing loans and leases have been included in the table as loans carrying a zero yield. Three Months Ended March 31, 2024 2023 (Dollars in thousands) Average Outstanding Balance Interest Earned / Paid Yield / Rate(1) Average Outstanding Balance Interest Earned / Paid Yield / Rate(1) Interest-earning assets: Cash and fed funds sold $ 616,288 $ 7,422 4.84 % $ 564,656 $ 5,843 4.20 % Mortgage-backed securities 1,464,530 9,998 2.75 % 1,549,240 10,326 2.70 % Tax exempt investment securities 132,733 932 3.57 % 149,912 990 3.39 % Asset-backed securities 237,421 3,368 5.71 % 141,968 1,273 3.64 % Other investment securities 281,695 2,291 3.27 % 298,030 2,376 3.23 % Total investments 2,116,379 16,589 3.20 % 2,139,150 14,965 2.89 % Commercial finance 3,650,845 74,330 8.19 % 3,056,293 60,765 8.06 % Consumer finance 351,459 9,144 10.46 % 187,826 6,301 13.60 % Tax services 493,168 9,014 7.35 % 448,659 10,555 9.54 % Warehouse finance 407,703 10,262 10.12 % 321,334 6,258 7.90 % Total loans and leases 4,903,175 102,750 8.43 % 4,014,112 83,879 8.47 % Total interest-earning assets $ 7,635,842 $ 126,761 6.69 % $ 6,717,918 $ 104,687 6.34 % Noninterest-earning assets 600,354 612,020 Total assets $ 8,236,196 $ 7,329,938 Interest-bearing liabilities: Interest-bearing checking $ 266 $ — 0.31 % $ 267 $ — 0.33 % Savings 59,914 5 0.04 % 70,024 6 0.03 % Money markets 190,143 598 1.26 % 125,193 71 0.23 % Time deposits 5,027 4 0.29 % 6,948 2 0.11 % Wholesale deposits 439,785 6,078 5.56 % 186,421 2,017 4.39 % Total interest-bearing deposits 695,135 6,685 3.87 % 388,853 2,096 2.19 % Overnight fed funds purchased 79,484 1,107 5.60 % 46,735 543 4.71 % Subordinated debentures 19,625 355 7.27 % 19,523 354 7.34 % Other borrowings 13,901 313 9.07 % 15,283 289 7.68 % Total borrowings 113,010 1,775 6.32 % 81,541 1,186 5.90 % Total interest-bearing liabilities 808,145 8,460 4.21 % 470,394 3,282 2.83 % Noninterest-bearing deposits 6,473,538 — — % 5,997,739 — — % Total deposits and interest-bearing liabilities $ 7,281,683 $ 8,460 0.47 % $ 6,468,133 $ 3,282 0.21 % Other noninterest-bearing liabilities 223,560 191,360 Total liabilities 7,505,243 6,659,493 Shareholders' equity 730,953 670,445 Total liabilities and shareholders' equity $ 8,236,196 $ 7,329,938 Net interest income and net interest rate spread including noninterest-bearing deposits $ 118,301 6.22 % $ 101,405 6.13 % Net interest margin 6.23 % 6.12 % Tax-equivalent effect 0.01 % 0.02 % Net interest margin, tax-equivalent(2) 6.24 % 6.14 % (1) Tax rate used to arrive at the TEY for the three months ended March 31, 2024 and 2023 was 21%. (2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes. Selected Financial Information As of and For the Three Months Ended March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Equity to total assets 9.94 % 9.20 % 8.63 % 9.09 % 9.80 % Book value per common share outstanding $ 29.14 $ 28.06 $ 24.85 $ 25.54 $ 24.88 Tangible book value per common share outstanding $ 16.21 $ 15.39 $ 12.24 $ 13.05 $ 12.59 Common shares outstanding 25,377,986 25,988,230 26,183,583 26,539,272 27,055,727 Nonperforming assets to total assets 0.50 % 0.53 % 0.77 % 0.55 % 0.44 % Nonperforming loans and leases to total loans and leases 0.78 % 0.88 % 1.26 % 0.93 % 0.76 % Net interest margin 6.23 % 6.23 % 6.19 % 6.18 % 6.12 % Net interest margin, tax-equivalent 6.24 % 6.24 % 6.21 % 6.20 % 6.14 % Return on average assets 3.17 % 1.46 % 1.97 % 2.61 % 2.99 % Return on average equity 35.72 % 16.87 % 21.12 % 26.26 % 32.68 % Full-time equivalent employees 1,204 1,218 1,193 1,186 1,164 Non-GAAP Reconciliations Adjusted Net Income and Adjusted Earnings Per Share At and For the Three Months Ended At and For the Six Months Ended (Dollars in Thousands, Except Share and Per Share Data) March 31, 2023 March 31, 2023 Net Income - GAAP $ 54,771 $ 82,613 Less: Gain on sale of trademarks — 10,000 Less: Loss on disposal of certain mobile solar generators (1,993 ) (1,993 ) Add: Accelerated depreciation on certain mobile solar generators 4,822 4,822 Add: Rebranding expenses — 3,737 Add: Separation related expenses — 11 Add: Impairment on Venture Capital investments 500 500 Add: Income tax effect resulting from the above listed items (1,829 ) (253 ) Adjusted net income $ 60,257 $ 83,423 Less: Adjusted allocation of earnings to participating securities 923 1,241 Adjusted Net income attributable to common shareholders 59,334 82,182 Weighted average diluted common shares outstanding 27,169,569 27,632,737 Adjusted earnings per common share - diluted $ 2.18 $ 2.97 Net Interest Margin and Cost of Deposits At and For the Three Months Ended (Dollars in thousands) March 31, 2024 December 31, 2023 March 31, 2023 Average interest earning assets $ 7,635,842 $ 7,031,922 $ 6,717,918 Net interest income $ 118,301 $ 110,036 $ 101,405 Net interest margin 6.23 % 6.23 % 6.12 % Quarterly average total deposits $ 7,168,673 $ 6,558,190 $ 6,386,592 Deposit interest expense $ 6,685 $ 3,526 $ 2,096 Cost of deposits 0.38 % 0.21 % 0.13 % Adjusted Net Interest Margin and Adjusted Cost of Deposits Average interest earning assets $ 7,635,842 $ 7,031,922 $ 6,717,918 Net interest income 118,301 110,036 101,405 Less: Contractual, rate-related processing expense 30,094 26,793 20,369 Adjusted net interest income $ 88,207 $ 83,243 $ 81,036 Adjusted net interest margin 4.65 % 4.71 % 4.89 % Average total deposits $ 7,168,673 $ 6,558,190 $ 6,386,592 Deposit interest expense 6,685 3,526 2,096 Add: Contractual, rate-related processing expense 30,094 26,793 20,369 Adjusted deposit expense $ 36,779 $ 30,319 $ 22,465 Adjusted cost of deposits 2.06 % 1.84 % 1.43 % Pathward, N.A. Period-end Tier 1 Leverage (Dollars in thousands) March 31, 2024 Total stockholders' equity $ 765,910 Adjustments: Less: Goodwill, net of associated deferred tax liabilities 296,888 Less: Certain other intangible assets 19,145 Less: Net deferred tax assets from operating loss and tax credit carry-forwards 15,862 Less: Net unrealized gains (losses) on available for sale securities (205,460 ) Less: Noncontrolling interest (420 ) Add: Adoption of Accounting Standards Update 2016-13 1,345 Common Equity Tier 1 641,240 Tier 1 minority interest not included in common equity Tier 1 capital — Total Tier 1 capital $ 641,240 Total Assets (Quarter Average) $ 8,229,652 Add: Available for sale securities amortized cost 266,591 Add: Deferred tax (66,675 ) Add: Adoption of Accounting Standards Updated 2016-13 1,345 Less: Deductions from CET1 331,895 Adjusted total assets $ 8,099,018 Pathward, N.A. Regulatory Tier 1 Leverage 7.92 % Total Assets (Period End) $ 7,435,034 Add: Available for sale securities amortized cost 273,983 Add: Deferred tax (68,523 ) Add: Adoption of Accounting Standards Updated 2016-13 1,345 Less: Deductions from CET1 331,895 Adjusted total assets $ 7,309,944 Pathward, N.A. Period-end Tier 1 Leverage 8.77 % View source version on businesswire.com: https://www.businesswire.com/news/home/20240424036567/en/
Investor Relations Contact Darby Schoenfeld, CPA SVP, Investor Relations 877-497-7497 investorrelations@pathward.com Media Relations Contact mediarelations@pathward.com