Pathward Financial, Inc. Announces Results for 2023 Fiscal Second Quarter

Net Income of $54.8 million, or $1.99 Per Diluted Share

Reaffirms Fiscal Year 2023 EPS Guidance

Pathward Financial, Inc. (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $54.8 million, or $1.99 per share, for the three months ended March 31, 2023, compared to net income of $49.3 million, or $1.66 per share, for the three months ended March 31, 2022.

During the quarter, when adjusting for the adverse financial impacts related to legacy mobile solar transactions and a venture capital investment impairment expense, the Company recognized adjusted net income of $60.3 million, or $2.18 per share. For the same period of the prior year, the Company recognized adjusted net income of $52.0 million, or $1.75 per share when excluding the impact of rebranding and separation expenses. See non-GAAP reconciliation table below.

CEO Brett Pharr said, “Pathward generated solid results during the second quarter driven by the continued expansion of our net interest margin and higher non-interest income. We continue to benefit from servicing fee income on our off-balance deposits and see increases in the average yield on our interest-earnings assets as they reprice. We are very pleased that this year's tax season has performed above our initial expectations through the end of March. Based on these results, we are reaffirming our fiscal year 2023 GAAP earnings per diluted share guidance of $5.55 to $5.95, despite the $7.3 million adverse pre-tax impacts during the quarter.”

Company Highlights

  • On April 5, 2023, Pathward®, N.A. announced it became Certified™ by Great Place to Work® for the first time. Great Place to Work holds itself out as the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation.
  • On February 28, 2023, the Board of Directors (the "Board") of Pathward Financial appointed Christopher Perretta as a member of the Board.

Financial Highlights for the 2023 Fiscal Second Quarter

  • Total revenue for the second quarter was $228.4 million, an increase of $34.9 million, or 18%, compared to the same quarter in fiscal 2022, driven by an increase in both noninterest income and net interest income.
  • Net interest margin ("NIM") increased 132 basis points to 6.12% for the second quarter from 4.80% during the same period of last year primarily driven by an increase in loan and lease and investment securities yields.
  • Total gross loans and leases at March 31, 2023 decreased $4.6 million to $3.73 billion, compared to March 31, 2022 and increased $215.9 million, or 6%, when compared to December 31, 2022. The decrease compared to the prior year quarter was primarily due to a reduction in consumer finance loans driven by the sale of the $81.5 million student loan portfolio during the fiscal 2022 fourth quarter and a reduction in warehouse finance loans, partially offset by growth in the commercial finance portfolio. The primary drivers for the increase on a linked quarter basis was growth in commercial finance and warehouse finance loans.
  • During the 2023 fiscal second quarter, the Company recognized a total of $6.8 million in pre-tax adverse financial impacts attributable to the disposal or change in depreciable life of several mobile solar generators related to a single relationship. In fiscal year 2019, the business incurred a large impairment expense associated with one company with which it had legacy transactions that turned out to be fraudulent. At that time, the assets were written down to their market value and redeployed under an equipment lease agreement to new participants. Upon the return of the leased assets, the Company performed a due diligence assessment, which led to the determination to dispose certain generators based on their condition and adjust the depreciable life for the remaining generators to better reflect the service period based on market conditions and advancements in technology. This was an isolated event limited to this equipment and is not indicative of the remaining Rental Equipment portfolio. The remaining value of the generators on the balance sheet is $1.3 million.
  • During the 2023 fiscal second quarter, the Company repurchased 1,172,700 shares of common stock at an average share price of $46.60. As of April 21, 2023, there are 2,468,283 shares available for repurchase under the common stock share repurchase program announced during the fourth quarter of fiscal year 2021.
  • The Company reaffirms fiscal year 2023 GAAP earnings per share guidance and continues to expect it to be in the range of $5.55 to $5.95. See Outlook section and non-GAAP reconciliation table below.

Tax Season

For the six months ended March 31, 2023, total tax services product revenue was $72.4 million, an increase of 2% compared to the same period of the prior year. Total tax services product fee income, total tax services product expense, and net interest income on tax services loans all increased slightly compared to the prior year period.

Total tax services product income, net of losses and direct product expenses, decreased 14% to $29.7 million from $34.4 million, when comparing the first six months of fiscal 2023 to the same period of the prior fiscal year.

For the 2023 tax season, Pathward originated $1.46 billion in refund advance loans compared to $1.83 billion during the 2022 tax season. When excluding the two partners the Company did not renew after the 2022 tax season, loan originations increased $116.2 million this tax season compared to the previous year.

Net Interest Income

Net interest income for the second quarter of fiscal 2023 was $101.4 million, an increase of 21% from the same quarter in fiscal 2022. The increase was mainly attributable to increased yields and an improved earning asset mix.

The second quarter average outstanding balance of loans and leases decreased $230.5 million compared to the same quarter of the prior fiscal year, primarily due to a reduction in tax services loans, warehouse finance loans, and consumer finance loans, partially offset by an increase in commercial finance loans. The Company’s average interest-earning assets for the second fiscal quarter decreased by $364.5 million to $6.72 billion compared with the same quarter in fiscal 2022, primarily due to a reduction in cash balances as a result of elevated cash levels during the prior year period related to the Company's participation in government stimulus programs and a decrease in total investment balances. The decrease in cash and investment balances was partially offset by growth in commercial finance loans and leases.

Fiscal 2023 second quarter NIM increased to 6.12% from 4.80% in the second fiscal quarter of last year. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 145 basis points to 6.34% compared to the prior year quarter, primarily driven by an increase in loan and lease and investment securities yields, along with a decrease in cash balances. The yield on the loan and lease portfolio was 8.47% compared to 7.22% for the comparable period last year and the TEY on the securities portfolio was 2.89% compared to 1.83% over that same period.

The Company's cost of funds for all deposits and borrowings averaged 0.21% during the fiscal 2023 second quarter, as compared to 0.08% during the prior year quarter. The Company's overall cost of deposits was 0.13% in the fiscal second quarter of 2023, as compared to 0.01% during the prior year quarter.

Noninterest Income

Fiscal 2023 second quarter noninterest income increased to $127.0 million, compared to $109.8 million for the same period of the prior year. The increase was primarily attributable to increases in card and deposit fees, rental income, tax product fee income, and other income. The period-over-period increase was partially offset by reductions in gain (loss) on sale of other and gain on sale of investments.

Included in gain (loss) on sale of other during the quarter, was a $2.0 million loss on the disposal of mobile solar generators in connection with the aforementioned legacy solar transactions.

The increase in card and deposit fee income was primarily from servicing fee income on off-balance sheet deposits, which totaled $18.2 million during the 2023 fiscal second quarter, as compared to $12.9 million for the fiscal quarter ended December 31, 2022 and an insignificant amount for the fiscal quarter ended March 31, 2022.

Noninterest Expense

Noninterest expense increased 23% to $127.1 million for the fiscal 2023 second quarter, from $103.2 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, operating lease equipment depreciation, compensation expense, total tax services expense, and impairment expense. The period over period increase was partially offset by decreases in legal and consulting expense, amortization expense, and other expense. The increase in operating lease equipment depreciation was due to $4.8 million of accelerated depreciation on mobile solar generators in connection with the aforementioned legacy mobile solar transactions. During the second quarter of fiscal year 2023, the Company recognized $0.5 million of impairment expense related to an investment in its Pathward Venture Capital business.

The card processing expense increase was due to structured agreements with banking as a service ("BaaS") partners. The amount of expense paid under those agreements is based on an agreed upon rate index that varies depending on the deposit levels, floor rates, market conditions, and other performance conditions. Generally this rate index averages between 50% to 85% of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 47% of the deposit portfolio was subject to these higher card processing expenses. For the fiscal quarter ended March 31, 2023, card processing expenses related to these structured agreements were $20.4 million, as compared to $14.0 million for the fiscal quarter ended December 31, 2022 and $0.2 million for the fiscal quarter ended March 31, 2022.

Income Tax Expense

The Company recorded an income tax expense of $9.2 million, representing an effective tax rate of 14.2%, for the fiscal 2023 second quarter, compared to income tax expense of $8.0 million, representing an effective tax rate of 13.8%, for the second quarter last fiscal year. The current quarter increase in income tax expense was primarily due to increased earnings.

The Company originated $18.1 million in solar leases during the fiscal 2023 second quarter, resulting in $4.9 million in total net investment tax credits. During the second quarter of fiscal 2022, the Company originated $1.3 million in solar leases resulting in $0.3 million in total net investment tax credits. Investment tax credits related to solar leases are recognized ratably based on income throughout each fiscal year. For the six months ended March 31, 2023, the Company originated $29.5 million in solar leases, compared to $22.5 million for the comparable prior year period. The timing and impact of future solar tax credits are expected to vary from period to period, and the Company intends to undertake only those tax credit opportunities that meet the Company's underwriting and return criteria.

Outlook

The following forward-looking statements reflect the Company’s expectations as of the date of this release and are subject to substantial uncertainty. The Company's results may be materially affected by many factors, such as changes in economic conditions and customer demand, changes in interest rates, adverse developments in the financial services industry generally, inflation, uncertainty regarding the COVID-19 pandemic, and other factors detailed below under “Forward-looking Statements.” Because the Company’s reported GAAP results include certain income and expense items that are not expected to continue indefinitely and may include additional elements that the Company cannot currently predict, the Company is also providing guidance on a non-GAAP or “adjusted” basis.

The Company reaffirms fiscal year 2023 GAAP earnings per share guidance and continues to expect it to be in the range of $5.55 to $5.95. When adjusting for gain on sale of trademarks and rebrand related expenses, the Company expects fiscal year 2023 adjusted earnings per share to be in the range of $5.40 to $5.80. See non-GAAP reconciliation table below.

Investments, Loans and Leases

(Dollars in thousands)

March 31, 2023

 

December 31, 2022

 

September 30, 2022

 

June 30, 2022

 

March 31, 2022

Total investments

$

1,864,276

 

 

$

1,888,343

 

 

$

1,924,551

 

 

$

2,000,400

 

 

$

2,090,765

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

 

 

 

 

 

 

 

 

Consumer credit products

 

24,780

 

 

 

17,148

 

 

 

21,071

 

 

 

23,710

 

 

 

23,670

 

SBA/USDA

 

 

 

 

 

 

 

 

 

 

43,861

 

 

 

7,740

 

Total loans held for sale

 

24,780

 

 

 

17,148

 

 

 

21,071

 

 

 

67,571

 

 

 

31,410

 

 

 

 

 

 

 

 

 

 

 

Term lending

 

1,235,453

 

 

 

1,160,100

 

 

 

1,090,289

 

 

 

1,047,764

 

 

 

1,111,076

 

Asset based lending

 

377,965

 

 

 

359,516

 

 

 

351,696

 

 

 

402,506

 

 

 

382,355

 

Factoring

 

338,884

 

 

 

338,594

 

 

 

372,595

 

 

 

408,777

 

 

 

394,865

 

Lease financing

 

170,645

 

 

 

189,868

 

 

 

210,692

 

 

 

218,789

 

 

 

235,397

 

Insurance premium finance

 

437,700

 

 

 

436,977

 

 

 

479,754

 

 

 

481,219

 

 

 

403,681

 

SBA/USDA

 

405,612

 

 

 

357,084

 

 

 

359,238

 

 

 

215,510

 

 

 

214,195

 

Other commercial finance

 

166,402

 

 

 

164,734

 

 

 

159,409

 

 

 

173,338

 

 

 

173,260

 

Commercial finance

 

3,132,661

 

 

 

3,006,873

 

 

 

3,023,673

 

 

 

2,947,903

 

 

 

2,914,829

 

Consumer credit products

 

120,739

 

 

 

130,750

 

 

 

144,353

 

 

 

152,106

 

 

 

171,847

 

Other consumer finance

 

27,909

 

 

 

56,180

 

 

 

25,306

 

 

 

107,135

 

 

 

111,922

 

Consumer finance

 

148,648

 

 

 

186,930

 

 

 

169,659

 

 

 

259,241

 

 

 

283,769

 

Tax services

 

61,553

 

 

 

30,364

 

 

 

9,098

 

 

 

41,627

 

 

 

85,999

 

Warehouse finance

 

377,036

 

 

 

279,899

 

 

 

326,850

 

 

 

434,748

 

 

 

441,496

 

Total loans and leases

 

3,719,898

 

 

 

3,504,066

 

 

 

3,529,280

 

 

 

3,683,519

 

 

 

3,726,093

 

Net deferred loan origination costs

 

5,718

 

 

 

5,664

 

 

 

7,025

 

 

 

5,047

 

 

 

4,097

 

Total gross loans and leases

 

3,725,616

 

 

 

3,509,730

 

 

 

3,536,305

 

 

 

3,688,566

 

 

 

3,730,190

 

Allowance for credit losses

 

(84,304

)

 

 

(52,592

)

 

 

(45,947

)

 

 

(75,206

)

 

 

(88,552

)

Total loans and leases, net

$

3,641,312

 

 

$

3,457,138

 

 

$

3,490,358

 

 

$

3,613,360

 

 

$

3,641,638

 

The Company's investment security balances at March 31, 2023 totaled $1.86 billion, as compared to $1.89 billion at December 31, 2022 and $2.09 billion at March 31, 2022.

Total gross loans and leases totaled $3.73 billion at March 31, 2023, as compared to $3.51 billion at December 31, 2022 and $3.73 billion at March 31, 2022. The primary driver for the increase on a linked quarter basis was due to increases in commercial finance, warehouse finance, and the seasonal tax services portfolio, partially offset by a decrease in the consumer finance portfolio. The year-over-year decrease was primarily due a reduction in consumer finance loans driven by the sale of the student loan portfolio during the fiscal 2022 fourth quarter, a reduction in warehouse finance loans, and a reduction in seasonal tax services loans, partially offset by growth in our commercial finance portfolio.

Commercial finance loans, which comprised 84% of the Company's gross loan and lease portfolio, totaled $3.13 billion at March 31, 2023, reflecting an increase of $125.8 million, or 4%, from December 31, 2022 and an increase of $217.8 million, or 7%, from March 31, 2022.

Asset Quality

The Company’s allowance for credit losses ("ACL") totaled $84.3 million at March 31, 2023, an increase compared to $52.6 million at December 31, 2022 and a decrease from $88.6 million at March 31, 2022. The increase in the ACL at March 31, 2023, when compared to December 31, 2022, was primarily due to a $32.5 million increase in the allowance related to the seasonal tax services portfolio, partially offset by a $0.9 million decrease in the allowance related to the commercial finance portfolio.

The $4.2 million year-over-year decrease in the ACL was primarily driven by a $6.0 million decrease in the allowance related to the consumer finance portfolio and a $0.5 million decrease in the allowance related to the commercial finance portfolio, partially offset by a $2.3 million increase in the allowance related to the seasonal tax services portfolio. The year-over-year decrease in the allowance related to the consumer finance portfolio was primarily attributable to the sale of the student loan portfolio during the fourth quarter of fiscal 2022.

The following table presents the Company's ACL as a percentage of its total loans and leases.

 

As of the Period Ended

(Unaudited)

March 31,

2023

December 31,

2022

September 30,

2022

June 30,

2022

March 31,

2022

Commercial finance

1.53 %

1.62 %

1.46 %

1.56 %

1.66 %

Consumer finance

1.99 %

1.54 %

0.86 %

2.44 %

3.18 %

Tax services

53.77 %

2.01 %

0.05 %

54.29 %

35.76 %

Warehouse finance

0.10 %

0.10 %

0.10 %

0.10 %

0.10 %

Total loans and leases

2.27 %

1.50 %

1.30 %

2.04 %

2.38 %

Total loans and leases excluding tax services

1.40 %

1.50 %

1.30 %

1.44 %

1.59 %

The Company's ACL as a percentage of total loans and leases increased to 2.27% at March 31, 2023 from 1.50% at December 31, 2022. The increase in the total loans and leases coverage ratio was primarily driven by the seasonal tax services portfolio, and to a lesser extent the consumer finance portfolio. The increase in the consumer finance was related to seasonal activity. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level.

Activity in the allowance for credit losses for the periods presented was as follows.

(Unaudited)

Three Months Ended

 

Six Months Ended

(Dollars in thousands)

March 31,

2023

December 31,

2022

March 31,

2022

 

March 31,

2023

March 31,

2022

Beginning balance

$

52,592

 

$

45,947

 

$

67,623

 

 

$

45,947

 

$

68,281

 

Provision (reversal of) - tax services loans

 

31,422

 

 

1,637

 

 

28,972

 

 

 

33,059

 

 

28,259

 

Provision (reversal of) - all other loans and leases

 

5,264

 

 

8,226

 

 

3,183

 

 

 

13,490

 

 

4,368

 

Charge-offs - tax services loans

 

 

 

(1,731

)

 

 

 

 

(1,731

)

 

(254

)

Charge-offs - all other loans and leases

 

(6,625

)

 

(2,708

)

 

(12,415

)

 

 

(9,334

)

 

(17,021

)

Recoveries - tax services loans

 

1,063

 

 

698

 

 

184

 

 

 

1,761

 

 

2,750

 

Recoveries - all other loans and leases

 

588

 

 

523

 

 

1,005

 

 

 

1,112

 

 

2,169

 

Ending balance

$

84,304

 

$

52,592

 

$

88,552

 

 

$

84,304

 

$

88,552

 

The Company recognized a provision for credit losses of $36.8 million for the quarter ended March 31, 2023, compared to $32.3 million of provision for credit losses expense for the comparable period in the prior fiscal year. The increase in provision for credit losses during the current quarter compared to the prior year period was primarily driven by increases in the commercial finance portfolio and the seasonal tax services portfolio. Net charge-offs were $5.0 million for the quarter ended March 31, 2023, compared to $11.2 million for the quarter ended March 31, 2022. Net charge-offs attributable to the commercial finance and consumer finance portfolios for the current quarter were $5.9 million and $0.2 million, respectively, while a recovery of $1.1 million was recognized in the tax services portfolio.

The Company's past due loans and leases were as follows for the periods presented.

As of March 31, 2023

Accruing and Nonaccruing Loans and Leases

 

Nonperforming Loans and Leases

(Dollars in thousands)

30-59 Days Past Due

 

60-89 Days Past Due

 

> 89 Days Past Due

 

Total Past Due

 

Current

 

Total Loans and Leases Receivable

 

> 89 Days Past Due and Accruing

 

Nonaccrual Balance

 

Total

Loans held for sale

$

 

$

 

$

 

$

 

$

24,780

 

$

24,780

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial finance

 

34,065

 

 

4,159

 

 

11,125

 

 

49,349

 

 

3,083,312

 

 

3,132,661

 

 

5,724

 

 

19,585

 

 

25,309

Consumer finance

 

3,261

 

 

3,857

 

 

3,217

 

 

10,335

 

 

138,313

 

 

148,648

 

 

3,217

 

 

 

 

3,217

Tax services

 

639

 

 

 

 

 

 

639

 

 

60,914

 

 

61,553

 

 

 

 

 

 

Warehouse finance

 

 

 

 

 

 

 

 

 

377,036

 

 

377,036

 

 

 

 

 

 

Total loans and leases held for investment

 

37,965

 

 

8,016

 

 

14,342

 

 

60,323

 

 

3,659,575

 

 

3,719,898

 

 

8,941

 

 

19,585

 

 

28,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans and leases

$

37,965

 

$

8,016

 

$

14,342

 

$

60,323

 

$

3,684,355

 

$

3,744,678

 

$

8,941

 

$

19,585

 

$

28,526

As of December 31, 2022

Accruing and Nonaccruing Loans and Leases

 

Nonperforming Loans and Leases

(Dollars in thousands)

30-59 Days Past Due

 

60-89 Days Past Due

 

> 89 Days Past Due

 

Total Past Due

 

Current

 

Total Loans and Leases Receivable

 

> 89 Days Past Due and Accruing

 

Nonaccrual Balance

 

Total

Loans held for sale

$

 

$

 

$

 

$

 

$

17,148

 

$

17,148

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial finance

 

19,974

 

 

11,729

 

 

17,280

 

 

48,983

 

 

2,957,890

 

 

3,006,873

 

 

13,281

 

 

25,077

 

 

38,358

Consumer finance

 

2,757

 

 

2,533

 

 

2,493

 

 

7,783

 

 

179,147

 

 

186,930

 

 

2,493

 

 

 

 

2,493

Tax services

 

 

 

 

 

 

 

 

 

30,364

 

 

30,364

 

 

 

 

 

 

Warehouse finance

 

 

 

 

 

 

 

 

 

279,899

 

 

279,899

 

 

 

 

 

 

Total loans and leases held for investment

 

22,731

 

 

14,262

 

 

19,773

 

 

56,766

 

 

3,447,300

 

 

3,504,066

 

 

15,774

 

 

25,077

 

 

40,851

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans and leases

$

22,731

 

$

14,262

 

$

19,773

 

$

56,766

 

$

3,464,448

 

$

3,521,214

 

$

15,774

 

$

25,077

 

$

40,851

The Company's nonperforming assets at March 31, 2023 were $30.1 million, representing 0.44% of total assets, compared to $45.0 million, or 0.68% of total assets at December 31, 2022 and $38.3 million, or 0.56% of total assets at March 31, 2022.

The Company's nonperforming loans and leases at March 31, 2023, were $28.5 million, representing 0.76% of total gross loans and leases, compared to $40.9 million, or 1.16% of total gross loans and leases at December 31, 2022 and $35.8 million, or 0.95% of total gross loans and leases at March 31, 2022.

The decrease in the nonperforming assets as a percentage of total assets at March 31, 2023 compared to December 31, 2022, was driven by a decrease in nonperforming loans in the commercial finance portfolio, primarily due to one sizable relationship becoming current and a partial charge-off and pay down of another lending relationship during the period. The decrease was partially offset by an increase in nonperforming loans in the consumer finance portfolio. When comparing the current period to the same period of the prior year, the decrease in nonperforming assets was due to a decrease in nonperforming loans in the commercial finance and consumer finance portfolios.

The Company has various portfolios of consumer lending and tax services loans that present unique risks that are statistically managed. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for credit losses on these portfolios, and as such, these loans are not included in the asset classification table below. The Company's loans and leases held for investment by asset classification were as follows for the periods presented.

 

Asset Classification

(Dollars in thousands)

Pass

Watch

Special Mention

Substandard

Doubtful

Total

As of March 31, 2023

 

 

 

 

 

 

Commercial finance

$

2,405,837

$

426,543

$

64,560

$

230,029

$

5,692

$

3,132,661

Warehouse finance

 

377,036

 

 

 

 

 

377,036

Total loans and leases

$

2,782,873

$

426,543

$

64,560

$

230,029

$

5,692

$

3,509,697

 

Asset Classification

(Dollars in thousands)

Pass

Watch

Special Mention

Substandard

Doubtful

Total

As of December 31, 2022

 

Commercial finance

$

2,277,687

$

441,453

$

84,445

$

199,401

$

3,887

$

3,006,873

Warehouse finance

 

279,899

 

 

 

 

 

279,899

Total loans and leases

$

2,557,586

$

441,453

$

84,445

$

199,401

$

3,887

$

3,286,772

Deposits, Borrowings and Other Liabilities

Total average deposits for the fiscal 2023 second quarter decreased by $292.8 million to $6.39 billion compared to the same period in fiscal 2022. The decrease in average deposits was primarily due to decreases in noninterest bearing deposits and savings deposits, partially offset by an increase in money market deposits and wholesale deposits. Prior period deposit balances were elevated due to the Company's participation in government stimulus programs.

The average balance of total deposits and interest-bearing liabilities was $6.47 billion for the three-month period ended March 31, 2023, compared to $6.87 billion for the same period in the prior fiscal year, representing a decrease of 6%.

Total end-of-period deposits increased 1% to $5.90 billion at March 31, 2023, compared to $5.83 billion at March 31, 2022. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $72.3 million and money market deposits of $25.0 million, partially offset by decreases in savings deposits of $18.4 million, wholesale deposits of $3.5 million, and savings deposits of $2.6 million.

As of March 31, 2023, the Company had $1.0 billion in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $359.2 million are on activated cards while $645.1 million are on inactivated cards. These card balances are expected to decrease by approximately $500 million over the next 18 months as recipients continue to spend them and the Company begins to return unclaimed balances to the U.S. Treasury.

As of March 31, 2023, the Company managed $1.96 billion of customer deposits at other banks in its capacity as custodian. These deposits provide the Company with excess deposits that can earn record keeping service fee income, typically reflective of the EFFR.

Approximately 47% of the deposit balances at March 31, 2023 are subject to variable card processing expenses that are derived from the terms of contractual agreements with certain BaaS partners. These agreements are tied to a portion of a rate index, typically the EFFR.

Regulatory Capital

The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at March 31, 2023, and continued to be classified as well-capitalized, and in good standing with the regulatory agencies. Regulatory capital ratios of the Company and the Bank are stated in the table below. The decrease in Tier 1 leverage capital ratio for the period is the result of higher quarterly average assets related to its seasonal tax business. The Bank Tier 1 leverage capital ratio using end of period assets of 8.32% better reflects the expected capital position post tax season. See non-GAAP reconciliation table below. Regulatory Capital is not affected by the unrealized loss on accumulated other comprehensive income (“AOCI”). The securities portfolio is primarily comprised of amortizing securities that should provide consistent cash flow. The Company does not intend to sell these securities, or recognize the unrealized losses on its income statement, to fund future loan growth.

The tables below include certain non-GAAP financial measures that are used by investors, analysts and bank regulatory agencies to assess the capital position of financial services companies. Management reviews these measures along with other measures of capital as part of its financial analysis.

As of the Periods Indicated

March 31,

2023(1)

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

Company

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital ratio

7.53 %

 

8.37 %

 

8.10 %

 

8.23 %

 

6.80 %

Common equity Tier 1 capital ratio

12.05 %

 

12.31 %

 

12.07 %

 

11.87 %

 

11.26 %

Tier 1 capital ratio

12.35 %

 

12.63 %

 

12.39 %

 

12.19 %

 

11.58 %

Total capital ratio

14.06 %

 

14.29 %

 

13.88 %

 

13.44 %

 

14.16 %

Bank

 

 

 

 

 

 

 

 

 

Tier 1 leverage ratio

7.79 %

 

8.68 %

 

8.19 %

 

8.22 %

 

7.79 %

Common equity Tier 1 capital ratio

12.77 %

 

13.09 %

 

12.55 %

 

12.17 %

 

13.26 %

Tier 1 capital ratio

12.77 %

 

13.09 %

 

12.55 %

 

12.18 %

 

13.26 %

Total capital ratio

14.03 %

 

14.29 %

 

13.57 %

 

13.43 %

 

14.52 %

(1) March 31, 2023 percentages are preliminary pending completion and filing of the Company's regulatory reports. Regulatory capital ratios for periods presented reflect the Company's election of the five-year CECL transition for regulatory capital purposes.

The following table provides the non-GAAP financial measures used to compute certain of the ratios included in the table above, as well as a reconciliation of such non-GAAP financial measures to the most directly comparable financial measure in accordance with GAAP:

 

Standardized Approach(1)

(Dollars in thousands)

March 31,

2023

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

Total stockholders' equity

$

673,244

 

 

$

659,133

 

 

$

645,140

 

 

$

724,774

 

 

$

763,406

 

Adjustments:

 

 

 

 

 

 

 

 

 

LESS: Goodwill, net of associated deferred tax liabilities

 

298,390

 

 

 

298,788

 

 

 

299,186

 

 

 

299,616

 

 

 

299,983

 

LESS: Certain other intangible assets

 

23,553

 

 

 

25,053

 

 

 

26,406

 

 

 

27,809

 

 

 

30,007

 

LESS: Net deferred tax assets from operating loss and tax credit carry-forwards

 

13,219

 

 

 

16,641

 

 

 

17,968

 

 

 

11,978

 

 

 

13,404

 

LESS: Net unrealized gains (losses) on available for sale securities

 

(186,796

)

 

 

(200,597

)

 

 

(211,600

)

 

 

(131,352

)

 

 

(69,838

)

LESS: Noncontrolling interest

 

(551

)

 

 

(207

)

 

 

(30

)

 

 

665

 

 

 

322

 

ADD: Adoption of Accounting Standards Update 2016-13

 

2,017

 

 

 

2,017

 

 

 

2,689

 

 

 

10,011

 

 

 

13,387

 

Common Equity Tier 1(1)

 

527,446

 

 

 

521,472

 

 

 

515,899

 

 

 

526,069

 

 

 

502,915

 

Long-term borrowings and other instruments qualifying as Tier 1

 

13,661

 

 

 

13,661

 

 

 

13,661

 

 

 

13,661

 

 

 

13,661

 

Tier 1 minority interest not included in common equity Tier 1 capital

 

(404

)

 

 

(138

)

 

 

(20

)

 

 

377

 

 

 

208

 

Total Tier 1 capital

 

540,703

 

 

 

534,995

 

 

 

529,540

 

 

 

540,107

 

 

 

516,784

 

Allowance for credit losses

 

55,058

 

 

 

50,853

 

 

 

43,623

 

 

 

55,506

 

 

 

56,051

 

Subordinated debentures, net of issuance costs

 

19,540

 

 

 

19,521

 

 

 

20,000

 

 

 

 

 

 

59,256

 

Total capital

$

615,301

 

 

$

650,369

 

 

$

593,163

 

 

$

595,613

 

 

$

632,091

 

(1) Capital ratios were determined using the Basel III capital rules that became effective on January 1, 2015. Basel III revised the definition of capital, increased minimum capital ratios, and introduced a minimum CET1 ratio; those changes were fully phased in through the end of calendar year 2021.

The following table provides a reconciliation of tangible common equity and tangible common equity excluding AOCI, each of which is used in calculating tangible book value data, to Total Stockholders' Equity. Each of tangible common equity and tangible common equity excluding AOCI is a non-GAAP financial measure that is commonly used within the banking industry.

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

Total stockholders' equity

$

673,244

 

 

$

659,133

 

 

$

645,140

 

 

$

724,774

 

 

$

763,406

 

Less: Goodwill

 

309,505

 

 

 

309,505

 

 

 

309,505

 

 

 

309,505

 

 

 

309,505

 

Less: Intangible assets

 

22,998

 

 

 

24,433

 

 

 

25,691

 

 

 

27,088

 

 

 

29,290

 

Tangible common equity

 

340,741

 

 

 

325,195

 

 

 

309,944

 

 

 

388,181

 

 

 

424,611

 

Less: AOCI

 

(187,829

)

 

 

(201,690

)

 

 

(213,080

)

 

 

(131,407

)

 

 

(69,374

)

Tangible common equity excluding AOCI

$

528,570

 

 

$

526,885

 

 

$

523,024

 

 

$

519,588

 

 

$

493,985

 

Conference Call

The Company will host a conference call and earnings webcast at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Wednesday, April 26, 2023. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-833-470-1428 (International: +1-929-526-1599) approximately 10 minutes prior to start time and reference access code 909186. A webcast replay will also be archived at www.pathwardfinancial.com for one year.

About Pathward Financial, Inc.

Pathward Financial, Inc.(Nasdaq: CASH) is a U.S.-based financial holding company driven by its purpose to power financial inclusion for all. Through our subsidiary, Pathward®, N.A., we strive to increase financial availability, choice, and opportunity across our Banking as a Service and Commercial Finance business lines. These strategic business lines provide end-to-end support to individuals and businesses. Learn more at www.pathwardfinancial.com.

Forward-Looking Statements

The Company and the Bank may from time to time make written or oral “forward-looking statements,” including statements contained in this press release, the Company’s filings with the SEC, the Company’s reports to stockholders, and in other communications by the Company and the Bank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results including our earnings per share guidance and related performance expectations; the impact of measures expected to increase efficiencies or reduce expenses; customer retention; loan and other product demand; expectations concerning acquisitions and divestitures; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; technology; and the Company's employees. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the potential adverse effects of the ongoing COVID-19 pandemic and any governmental or societal responses thereto, or other unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the military conflict between Russia and Ukraine; our ability to achieve brand recognition for the Bank equal to or greater than we enjoyed for MetaBank; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate; changes in tax laws; the strength of the United States' economy and the local economies in which the Company operates; adverse developments in the financial services industry generally such as the recent bank failures; inflation, market, and monetary fluctuations; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value of these products and services by users; the Bank's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Bank's strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by the Bank of its status as a well-capitalized institution; changes in consumer spending and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase.

The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2022, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason.

 

Condensed Consolidated Statements of Financial Condition (Unaudited)

 

(Dollars in Thousands, Except Share Data)

March 31,

2023

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

ASSETS

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

432,598

 

 

$

369,169

 

 

$

388,038

 

 

$

157,260

 

 

$

237,680

 

Securities available for sale, at fair value

 

1,825,563

 

 

 

1,847,778

 

 

 

1,882,869

 

 

 

1,956,523

 

 

 

2,043,478

 

Securities held to maturity, at amortized cost

 

38,713

 

 

 

40,565

 

 

 

41,682

 

 

 

43,877

 

 

 

47,287

 

Federal Reserve Bank and Federal Home Loan Bank Stock, at cost

 

29,387

 

 

 

28,812

 

 

 

28,812

 

 

 

28,812

 

 

 

28,812

 

Loans held for sale

 

24,780

 

 

 

17,148

 

 

 

21,071

 

 

 

67,571

 

 

 

31,410

 

Loans and leases

 

3,725,616

 

 

 

3,509,730

 

 

 

3,536,305

 

 

 

3,688,566

 

 

 

3,730,190

 

Allowance for credit losses

 

(84,304

)

 

 

(52,592

)

 

 

(45,947

)

 

 

(75,206

)

 

 

(88,552

)

Accrued interest receivable

 

22,434

 

 

 

20,170

 

 

 

17,979

 

 

 

16,818

 

 

 

19,115

 

Premises, furniture, and equipment, net

 

39,735

 

 

 

41,029

 

 

 

41,710

 

 

 

42,076

 

 

 

43,167

 

Rental equipment, net

 

210,844

 

 

 

231,129

 

 

 

204,371

 

 

 

222,023

 

 

 

213,033

 

Goodwill and intangible assets

 

332,503

 

 

 

333,938

 

 

 

335,196

 

 

 

336,593

 

 

 

338,795

 

Other assets

 

270,387

 

 

 

272,349

 

 

 

295,324

 

 

 

243,265

 

 

 

242,824

 

Total assets

$

6,868,256

 

 

$

6,659,225

 

 

$

6,747,410

 

 

$

6,728,178

 

 

$

6,887,239

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

Deposits

 

5,902,696

 

 

 

5,789,132

 

 

 

5,866,037

 

 

 

5,710,799

 

 

 

5,829,886

 

Short-term borrowings

 

43,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term borrowings

 

34,543

 

 

 

34,977

 

 

 

36,028

 

 

 

16,616

 

 

 

91,386

 

Accrued expenses and other liabilities

 

214,773

 

 

 

175,983

 

 

 

200,205

 

 

 

275,989

 

 

 

202,561

 

Total liabilities

 

6,195,012

 

 

 

6,000,092

 

 

 

6,102,270

 

 

 

6,003,404

 

 

 

6,123,833

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $.01 par value

 

271

 

 

 

282

 

 

 

288

 

 

 

294

 

 

 

294

 

Common stock, Nonvoting, $.01 par value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

623,250

 

 

 

620,681

 

 

 

617,403

 

 

 

615,159

 

 

��

612,917

 

Retained earnings

 

245,046

 

 

 

246,891

 

 

 

245,394

 

 

 

244,686

 

 

 

223,760

 

Accumulated other comprehensive loss

 

(187,829

)

 

 

(201,690

)

 

 

(213,080

)

 

 

(131,407

)

 

 

(69,374

)

Treasury stock, at cost

 

(6,943

)

 

 

(6,824

)

 

 

(4,835

)

 

 

(4,623

)

 

 

(4,513

)

Total equity attributable to parent

 

673,795

 

 

 

659,340

 

 

 

645,170

 

 

 

724,109

 

 

 

763,084

 

Noncontrolling interest

 

(551

)

 

 

(207

)

 

 

(30

)

 

 

665

 

 

 

322

 

Total stockholders’ equity

 

673,244

 

 

 

659,133

 

 

 

645,140

 

 

 

724,774

 

 

 

763,406

 

Total liabilities and stockholders’ equity

$

6,868,256

 

 

$

6,659,225

 

 

$

6,747,410

 

 

$

6,728,178

 

 

$

6,887,239

 

 

Condensed Consolidated Statements of Operations (Unaudited)

 

 

Three Months Ended

 

Six Months Ended

(Dollars in Thousands, Except Share and Per Share Data)

March 31,

2023

 

December 31,

2022

 

March 31,

2022

 

March 31,

2023

 

March 31,

2022

Interest and dividend income:

 

 

 

 

 

 

 

 

 

Loans and leases, including fees

$

83,879

 

 

$

68,396

 

$

75,540

 

$

152,275

 

 

$

140,575

 

Mortgage-backed securities

 

10,326

 

 

 

10,412

 

 

 

5,446

 

 

 

20,738

 

 

 

9,310

 

Other investments

 

10,482

 

 

 

6,252

 

 

 

4,191

 

 

 

16,734

 

 

 

8,183

 

 

 

104,687

 

 

 

85,060

 

 

 

85,177

 

 

 

189,747

 

 

 

158,068

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

2,096

 

 

 

142

 

 

 

165

 

 

 

2,238

 

 

 

306

 

FHLB advances and other borrowings

 

1,186

 

 

 

861

 

 

 

1,212

 

 

 

2,047

 

 

 

2,349

 

 

 

3,282

 

 

 

1,003

 

 

 

1,377

 

 

 

4,285

 

 

 

2,655

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

101,405

 

 

 

84,057

 

 

 

83,800

 

 

 

185,462

 

 

 

155,413

 

 

 

 

 

 

 

 

 

 

 

Provision for credit losses

 

36,763

 

 

 

9,776

 

 

 

32,302

 

 

 

46,539

 

 

 

32,488

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for credit losses

 

64,642

 

 

 

74,281

 

 

 

51,498

 

 

 

138,923

 

 

 

122,925

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

Refund transfer product fees

 

30,205

 

 

 

677

 

 

 

27,805

 

 

 

30,882

 

 

 

28,384

 

Refund advance fee income

 

37,995

 

 

 

617

 

 

 

39,299

 

 

 

38,612

 

 

 

40,532

 

Card and deposit fees

 

42,087

 

 

 

37,718

 

 

 

26,520

 

 

 

79,805

 

 

 

51,889

 

Rental income

 

12,940

 

 

 

12,708

 

 

 

11,375

 

 

 

25,648

 

 

 

22,452

 

Gain (loss) on sale of securities

 

82

 

 

 

 

 

 

260

 

 

 

82

 

 

 

397

 

Gain on sale of trademarks

 

 

 

 

10,000

 

 

 

 

 

 

10,000

 

 

 

50,000

 

Gain (loss) on sale of other

 

(748

)

 

 

502

 

 

 

626

 

 

 

(246

)

 

 

(2,839

)

Other income

 

4,477

 

 

 

3,555

 

 

 

3,881

 

 

 

8,032

 

 

 

5,542

 

Total noninterest income

 

127,038

 

 

 

65,777

 

 

 

109,766

 

 

 

192,815

 

 

 

196,357

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

47,547

 

 

 

43,017

 

 

 

45,047

 

 

 

90,564

 

 

 

83,272

 

Refund transfer product expense

 

7,863

 

 

 

105

 

 

 

6,260

 

 

 

7,968

 

 

 

6,398

 

Refund advance expense

 

1,603

 

 

 

27

 

 

 

2,002

 

 

 

1,630

 

 

 

2,185

 

Card processing

 

26,924

 

 

 

22,683

 

 

 

7,457

 

 

 

49,607

 

 

 

14,629

 

Occupancy and equipment expense

 

8,510

 

 

 

8,312

 

 

 

8,500

 

 

 

16,822

 

 

 

16,849

 

Operating lease equipment depreciation

 

14,719

 

 

 

9,628

 

 

 

8,737

 

 

 

24,347

 

 

 

17,185

 

Legal and consulting

 

4,921

 

 

 

9,459

 

 

 

9,347

 

 

 

14,380

 

 

 

15,555

 

Intangible amortization

 

1,435

 

 

 

1,258

 

 

 

2,169

 

 

 

2,693

 

 

 

3,657

 

Impairment expense

 

500

 

 

 

24

 

 

 

 

 

 

524

 

 

 

 

Other expense

 

13,114

 

 

 

10,546

 

 

 

13,641

 

 

 

23,660

 

 

 

25,866

 

Total noninterest expense

 

127,136

 

 

 

105,059

 

 

 

103,160

 

 

 

232,195

 

 

 

185,596

 

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

 

64,544

 

 

 

34,999

 

 

 

58,104

 

 

 

99,543

 

 

 

133,686

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

9,176

 

 

 

6,577

 

 

 

8,002

 

 

 

15,753

 

 

 

22,278

 

 

 

 

 

 

 

 

 

 

 

Net income before noncontrolling interest

 

55,368

 

 

 

28,422

 

 

 

50,102

 

 

 

83,790

 

 

 

111,408

 

Net income (loss) attributable to noncontrolling interest

 

597

 

 

 

580

 

 

 

851

 

 

 

1,177

 

 

 

833

 

Net income attributable to parent

$

54,771

 

 

$

27,842

 

 

$

49,251

 

 

$

82,613

 

 

$

110,575

 

 

 

 

 

 

 

 

 

 

 

Less: Allocation of Earnings to participating securities(1)

 

839

 

 

 

402

 

 

 

815

 

 

 

1,228

 

 

 

1,773

 

Net income attributable to common shareholders(1)

 

53,932

 

 

 

27,440

 

 

 

48,436

 

 

 

81,382

 

 

 

108,802

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

$

1.99

 

 

$

0.98

 

 

$

1.66

 

 

$

2.95

 

 

$

3.66

 

Diluted

$

1.99

 

 

$

0.98

 

 

$

1.66

 

 

$

2.95

 

 

$

3.66

 

Shares used in computing earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

27,078,048

 

 

 

28,024,541

 

 

 

29,212,301

 

 

 

27,555,197

 

 

 

29,731,797

 

Diluted

 

27,169,569

 

 

 

28,086,823

 

 

 

29,224,362

 

 

 

27,632,737

 

 

 

29,748,832

 

(1) Amounts presented are used in the two-class earnings per common share calculation.

Average Balances, Interest Rates and Yields

The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and in rates. Only the yield/rate reflects tax-equivalent adjustments. Nonaccruing loans and leases have been included in the table as loans carrying a zero yield.

Three Months Ended March 31,

2023

 

2022

(Dollars in thousands)

Average

Outstanding

Balance

 

Interest

Earned /

Paid

 

Yield /

Rate(1)

 

Average

Outstanding

Balance

 

Interest

Earned /

Paid

 

Yield /

Rate(1)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and fed funds sold

$

564,656

 

$

5,843

 

4.20

%

 

$

810,857

 

$

721

 

0.36

%

Mortgage-backed securities

 

1,549,240

 

 

 

10,326

 

 

2.70

%

 

 

1,184,377

 

 

 

5,446

 

 

1.86

%

Tax exempt investment securities

 

149,912

 

 

 

990

 

 

3.39

%

 

 

189,213

 

 

 

903

 

 

2.45

%

Asset-backed securities

 

141,968

 

 

 

1,273

 

 

3.64

%

 

 

370,671

 

 

 

1,142

 

 

1.25

%

Other investment securities

 

298,030

 

 

 

2,376

 

 

3.23

%

 

 

282,655

 

 

 

1,425

 

 

2.05

%

Total investments

 

2,139,150

 

 

 

14,965

 

 

2.89

%

 

 

2,026,916

 

 

 

8,916

 

 

1.83

%

Commercial finance

 

3,056,293

 

 

 

60,765

 

 

8.06

%

 

 

2,852,147

 

 

 

48,872

 

 

6.95

%

Consumer finance

 

187,826

 

 

 

6,301

 

 

13.60

%

 

 

331,033

 

 

 

7,892

 

 

9.67

%

Tax services

 

448,659

 

 

 

10,555

 

 

9.54

%

 

 

594,166

 

 

 

11,599

 

 

7.92

%

Warehouse finance

 

321,334

 

 

 

6,258

 

 

7.90

%

 

 

467,298

 

 

 

7,177

 

 

6.23

%

Total loans and leases

 

4,014,112

 

 

 

83,879

 

 

8.47

%

 

 

4,244,644

 

 

 

75,540

 

 

7.22

%

Total interest-earning assets

$

6,717,918

 

 

$

104,687

 

 

6.34

%

 

$

7,082,417

 

 

$

85,177

 

 

4.89

%

Noninterest-earning assets

 

612,020

 

 

 

 

 

 

 

814,151

 

 

 

 

 

Total assets

$

7,329,938

 

 

 

 

 

 

$

7,896,568

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing checking

$

267

 

 

$

 

 

0.33

%

 

$

289

 

 

$

 

 

0.32

%

Savings

 

70,024

 

 

 

6

 

 

0.03

%

 

 

82,902

 

 

 

6

 

 

0.03

%

Money markets

 

125,193

 

 

 

71

 

 

0.23

%

 

 

102,473

 

 

 

53

 

 

0.21

%

Time deposits

 

6,948

 

 

 

2

 

 

0.11

%

 

 

8,682

 

 

 

10

 

 

0.49

%

Wholesale deposits

 

186,421

 

 

 

2,017

 

 

4.39

%

 

 

173,493

 

 

 

96

 

 

0.22

%

Total interest-bearing deposits

 

388,853

 

 

 

2,096

 

 

2.19

%

 

 

367,839

 

 

 

165

 

 

0.18

%

Overnight fed funds purchased

 

46,735

 

 

 

543

 

 

4.71

%

 

 

95,700

 

 

 

62

 

 

0.26

%

Subordinated debentures

 

19,523

 

 

 

354

 

 

7.34

%

 

 

74,040

 

 

 

1,002

 

 

5.49

%

Other borrowings

 

15,283

 

 

 

289

 

 

7.68

%

 

 

17,874

 

 

 

148

 

 

3.35

%

Total borrowings

 

81,541

 

 

 

1,186

 

 

5.90

%

 

 

187,614

 

 

 

1,212

 

 

2.62

%

Total interest-bearing liabilities

 

470,394

 

 

 

3,282

 

 

2.83

%

 

 

555,453

 

 

 

1,377

 

 

1.01

%

Noninterest-bearing deposits

 

5,997,739

 

 

 

 

 

%

 

 

6,311,583

 

 

 

 

 

%

Total deposits and interest-bearing liabilities

$

6,468,133

 

 

$

3,282

 

 

0.21

%

 

$

6,867,036

 

 

$

1,377

 

 

0.08

%

Other noninterest-bearing liabilities

 

191,360

 

 

 

 

 

 

 

213,982

 

 

 

 

 

Total liabilities

 

6,659,493

 

 

 

 

 

 

 

7,081,018

 

 

 

 

 

Shareholders' equity

 

670,445

 

 

 

 

 

 

 

815,550

 

 

 

 

 

Total liabilities and shareholders' equity

$

7,329,938

 

 

 

 

 

 

$

7,896,568

 

 

 

 

 

Net interest income and net interest rate spread including noninterest-bearing deposits

 

 

$

101,405

 

 

6.13

%

 

 

 

$

83,800

 

 

4.81

%

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin

 

 

 

 

6.12

%

 

 

 

 

 

4.80

%

Tax-equivalent effect

 

 

 

 

0.02

%

 

 

 

 

 

0.01

%

Net interest margin, tax-equivalent(2)

 

 

 

 

6.14

%

 

 

 

 

 

4.81

%

(1) Tax rate used to arrive at the TEY for the three months ended March 31, 2023 and 2022 was 21%.

(2) Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes.

 

Selected Financial Information

 

As of and For the Three Months Ended

March 31,

2023

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

Equity to total assets

 

9.80

%

 

 

9.90

%

 

 

9.56

%

 

 

10.77

%

 

 

11.08

%

Book value per common share outstanding

$

24.88

 

 

$

23.36

 

 

$

22.41

 

 

$

24.69

 

 

$

26.00

 

Tangible book value per common share outstanding

$

12.59

 

 

$

11.53

 

 

$

10.77

 

 

$

13.22

 

 

$

14.46

 

Tangible book value per common share outstanding excluding AOCI

$

19.54

 

 

$

18.68

 

 

$

18.17

 

 

$

17.70

 

 

$

16.82

 

Common shares outstanding

 

27,055,727

 

 

 

28,211,239

 

 

 

28,788,124

 

 

 

29,356,707

 

 

 

29,362,844

 

Nonperforming assets to total assets

 

0.44

%

 

 

0.68

%

 

 

0.46

%

 

 

0.40

%

 

 

0.56

%

Nonperforming loans and leases to total loans and leases

 

0.76

%

 

 

1.16

%

 

 

0.82

%

 

 

0.71

%

 

 

0.95

%

Net interest margin

 

6.12

%

 

 

5.62

%

 

 

5.21

%

 

 

4.76

%

 

 

4.80

%

Net interest margin, tax-equivalent

 

6.14

%

 

 

5.64

%

 

 

5.23

%

 

 

4.77

%

 

 

4.81

%

Return on average assets

 

2.99

%

 

 

1.71

%

 

 

1.39

%

 

 

1.32

%

 

 

2.49

%

Return on average equity

 

32.68

%

 

 

17.18

%

 

 

12.82

%

 

 

11.93

%

 

 

24.16

%

Full-time equivalent employees

 

1,164

 

 

 

1,150

 

 

 

1,141

 

 

 

1,178

 

 

 

1,167

 

 

Non-GAAP Reconciliations

 

Adjusted Net Income and Adjusted Earnings Per Share

At and For the Three Months Ended

 

At and For the Six Months Ended

(Dollars in Thousands, Except Share and Per Share Data)

March 31,

2023

December 31,

2022

March 31,

2022

 

March 31,

2023

March 31,

2022

Net Income - GAAP

$

54,771

 

$

27,842

$

49,251

 

 

$

82,613

 

$

110,575

Less: Gain on sale of trademarks

 

 

 

10,000

 

 

 

 

 

10,000

 

 

50,000

 

Less: Loss on disposal of certain mobile solar generators

 

(1,993

)

 

 

 

 

 

 

(1,993

)

 

 

Add: Accelerated depreciation on certain mobile solar generators

 

4,822

 

 

 

 

 

 

 

4,822

 

 

 

Add: Rebranding expenses

 

 

 

3,737

 

 

2,819

 

 

 

3,737

 

 

2,822

 

Add: Separation related expenses

 

 

 

11

 

 

878

 

 

 

11

 

 

965

 

Add: Impairment on Venture Capital investments

 

500

 

 

 

 

 

 

 

500

 

 

 

Add: Income tax effect resulting from the above listed items

 

(1,829

)

 

1,575

 

 

(930

)

 

 

(253

)

 

11,641

 

Adjusted net income

$

60,257

 

$

23,165

 

$

52,018

 

 

$

83,423

 

$

76,002

 

Less: Adjusted allocation of earnings to participating securities

 

923

 

 

335

 

 

861

 

 

 

1,241

 

 

1,218

 

Adjusted Net income attributable to common shareholders

 

59,334

 

 

22,830

 

 

51,157

 

 

 

82,182

 

 

74,784

 

Weighted average diluted common shares outstanding

 

27,169,569

 

 

28,086,823

 

 

29,224,362

 

 

 

27,632,737

 

 

29,748,832

 

Adjusted earnings per common share - diluted

$

2.18

 

$

0.81

 

$

1.75

 

 

$

2.97

 

$

2.51

 

 

Adjusted Diluted Earnings Per Share Guidance

 

(Earnings per share amounts)

Fiscal Year Ended 2023 (Guidance)

Diluted earnings per share - GAAP

$5.55 - $5.95

Less: Net extraordinary items, net of tax(1)

$0.15

Diluted earnings per share - Adjusted

$5.40 - $5.80

(1) Includes gain on sale of trademarks and rebranding-related expenses.

 

Pathward, N.A. Period-end Tier 1 Leverage

 

(Dollars in thousands)

March 31, 2023

Total stockholders' equity

$

705,060

 

Adjustments:

 

LESS: Goodwill, net of associated deferred tax liabilities

 

298,390

 

LESS: Certain other intangible assets

 

23,553

 

LESS: Net deferred tax assets from operating loss and tax credit carry-forwards

 

13,219

 

LESS: Net unrealized gains (losses) on available for sale securities

 

(186,796

)

LESS: Noncontrolling interest

 

(551

)

ADD: Adoption of Accounting Standards Update 2016-13

 

2,017

 

Common Equity Tier 1

 

559,262

 

Tier 1 minority interest not included in common equity Tier 1 capital

 

 

Total Tier 1 capital

$

559,262

 

 

 

Total Assets (Quarter Average)

$

7,331,497

 

ADD: Available for sale securities amortized cost

 

244,799

 

ADD: Deferred tax

 

(61,665

)

ADD: Adoption of Accounting Standards Updated 2016-13

 

2,017

 

LESS: Deductions from CET1

 

335,162

 

Adjusted total assets

$

7,181,486

 

Pathward, N.A. Regulatory Tier 1 Leverage

 

7.79

%

 

 

Total Assets (Period End)

$

6,869,121

 

ADD: Available for sale securities amortized cost

 

249,694

 

ADD: Deferred tax

 

(62,898

)

ADD: Adoption of Accounting Standards Updated 2016-13

 

2,017

 

LESS: Deductions from CET1

 

335,162

 

Adjusted total assets

$

6,722,772

 

Pathward, N.A. Period-end Tier 1 Leverage

 

8.32

%

 

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