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Pathward Financial, Inc.™ Announces Results for 2022 Fiscal Third Quarter

Business Wire - Wed Jul 27, 3:10PM CDT

Pathward Financial, Inc.TM,(“Pathward Financial” or the “Company”) (Nasdaq: CASH), formally known as Meta Financial Group, Inc., reported net income of $22.4 million, or $0.76 per share, for the three months ended June 30, 2022, compared to net income of $38.7 million, or $1.21 per share, for the three months ended June 30, 2021. During the quarter the Company recognized $3.4 million of pre-tax expenses related to rebranding efforts and $3.1 million of pre-tax separation related expenses. Excluding the impact of the rebranding and separation expenses, net of tax, the Company's adjusted net income for the quarter totaled $27.3 million, or $0.93 per share. See non-GAAP reconciliation table below.

CEO Brett Pharr said, “We continue to benefit from low-cost deposits provided from our banking-as-a-service business to fund our various asset class opportunities in Commercial Finance. This model will generate higher returns once the market lending rates begin to reflect the higher rate environment. Our third-quarter results were impacted by a slowdown in the renewable energy tax credit lending market and one-time expenses related to rebranding and efficiency initiatives. While certain revenues were down due to the prior-year benefiting from stimulus-related card fee income and the delayed start of last year’s tax season, we are pleased with the continued growth of our Commercial Finance portfolio and its credit quality”

“As we potentially enter a recessionary period, we believe Pathward Financial is positioned to perform well, as we would benefit from higher yields on our new business and existing variable loan portfolios while typically experiencing growth in our working capital lines,” Pharr added.

Business Development Highlights for the 2022 Fiscal Third Quarter

  • On July 13, 2022, the Company announced it changed its name to Pathward Financial, Inc.™, and its bank subsidiary, MetaBank®, N.A., changed its name to Pathward™, N.A. ("Pathward" or the "Bank"). Certain changes were made immediately, with a full transition to Pathward expected by the end of this calendar year, including the launch of a new brand identity and website. The Company recognized $3.4 million of pre-tax expenses related to rebranding efforts during the third quarter of fiscal 2022. The Company continues to estimate total rebranding expenses will range between $15 million to $20 million.
  • As part of the Company's priority to work with partners that use a broader suite of the capabilities and multi-product solutions that it provides, the Company will not be renewing its agreements with Liberty Tax and Jackson Hewitt. This change is expected to boost operational efficiencies over time. Taxpayer advance volumes are expected to be reduced by approximately 30% next year. No significant impact is anticipated to refund transfer volumes. During the quarter, the Company recognized $1.2 million of pre-tax one-time partner termination related expenses.

Financial Highlights for the 2022 Fiscal Third Quarter

  • Total revenue for the third quarter was $126.1 million, a decrease of $4.8 million, or 4%, compared to the same quarter in fiscal 2021, primarily driven by a decrease in noninterest income, partially offset by an increase in interest income.
  • Net interest income for the third quarter was $72.2 million, an increase of $3.7 million compared to $68.5 million in the third quarter last year.
  • Net interest margin ("NIM") increased to 4.76% for the third quarter from 3.75% during the same period of last year. The prior year period was impacted by excess cash associated with the Company's participation in the U.S. Treasury Department's Economic Impact Program.
  • Total gross loans and leases at June 30, 2022 increased $188 million, to $3.68 billion, or 5%, compared to June 30, 2021 and decreased $43 million, or 1%, when compared to March 31, 2022. The increase compared to the prior year quarter was primarily driven by growth in our commercial finance portfolio, partially offset by the sale of all remaining community banking loans during the fiscal 2022 first quarter. The primary driver for the decrease on a linked quarter basis was the seasonal decline in tax services loans.
  • The Company originated $4.4 million in aggregate principal of renewable energy loan financing for the third quarter of fiscal 2022, resulting in $1.0 million in total net investment tax credits. During the third quarter of fiscal 2021. the Company originated $13.5 million in aggregate principle of renewable energy loan financing resulting in $3.4 million in total net investment tax credits.
  • On May 15, 2022, the Company retired the outstanding $75.0 million subordinated debt, which was due August 15, 2026. As a result of the retirement, the Company will save more than $4 million of interest expense per year.
  • The Company resumed share repurchases on July 1, 2022, and through July 22, 2022, the Company repurchased 305,700 shares of common stock at an average share price of $40.74. There are 4,562,477 shares available for repurchase under the common stock share repurchase program announced during the fourth quarter of fiscal year 2021.
  • The Company reinstated guidance and expects fiscal year 2023 GAAP earnings per share to be in the range of $5.25 and $5.75. The Company expects fiscal year 2023 adjusted earnings per share to be in the range of $5.10 and $5.60. See non-GAAP reconciliation table below.

Tax Season Recap

During the third quarter of fiscal 2022, total tax services product revenue was $10.3 million, compared to $13.6 million in the prior year quarter. Total tax services product income, net of losses and direct product expenses, increased 9% to $43.5 million from $40.0 million, when comparing the first nine months of fiscal 2022 to the same period of the prior fiscal year.

While taxpayer advances came in below the Company's expectations, overall refund transfer revenues grew 9% year-over-year. Looking ahead to next year, the Company continues to expect strong refund transfer volumes and greater efficiency in its Tax line of business as a result of the non-renewal of the Company's two aforementioned tax partner relationships.

Net Interest Income

Net interest income for the third quarter of fiscal 2022 was $72.2 million, an increase of 5% from the same quarter in fiscal 2021. The increase was mainly attributable to investment interest income, an improved earning asset mix, and increased loan balances.

The third quarter average outstanding balance of loans and leases increased $128.9 million compared to the same quarter of the prior year, primarily due to increases in our core loan and lease portfolios, partially offset by the sale of the remaining community bank portfolio. The Company’s average interest-earning assets for the third quarter decreased by $1.23 billion to $6.08 billion compared with the same quarter in fiscal 2021, primarily due to a reduction in cash balances as a result of high cash levels during the prior year period related to the Company's participation in government stimulus programs. The decrease in interest-earnings assets was partially offset by growth in total investments and total loans and leases.

Fiscal 2022 third quarter NIM increased to 4.76% from 3.75% in the third quarter of last year. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 104 basis points to 4.89% compared to the prior year quarter, primarily driven by a decrease in lower-yielding cash balances. Growth in loan and lease and investment securities balances also contributed to the year-over-year TEY increase. The yield on the loan and lease portfolio was 6.69% compared to 6.90% for the comparable period last year and the TEY on the securities portfolio was 2.14% compared to 1.62% over that same period.

The Company's cost of funds for all deposits and borrowings averaged 0.12% during the fiscal 2022 third quarter, as compared to 0.09% during the prior year quarter. The increase in cost of funds was primarily related to accelerated interest expense of $0.9 million during the fiscal 2022 third quarter associated with the retirement of the subordinated debt. The Company's overall cost of deposits was 0.01% in the fiscal third quarter of 2022, the same as the prior year quarter.

Noninterest Income

Fiscal 2022 third quarter noninterest income decreased to $54.0 million, compared to $62.5 million for the same period of the prior year. The decrease was driven by a reduction in gain on sale of loan and leases by $4.8 million, a decrease in payments fee income of $4.5 million, and a decrease in tax services product fee income of $2.7 million. These decreases were partially offset by an increase in rental income of $2.1 million and an increase in other income of $1.3 million. The prior year’s quarter benefited from greater card fee income associated with stimulus activity as well as a delayed tax season. Furthermore, the company recorded fewer gains on loan sales in the current fiscal year as the SBA and USDA sale volumes have been impacted by supply chain constraints within the solar construction market.

Noninterest Expense

Noninterest expense increased 19% to $96.7 million for the fiscal 2022 third quarter, from $81.5 million for the same quarter last year. The increase in expense was primarily driven by an increase in compensation expense, legal and consulting expense, card processing, occupancy and equipment expense, and operating lease equipment depreciation. These increases were partially offset by a decrease in other expense. Compensation expense for the third quarter of fiscal 2022 includes $3.1 million of separation-related expenses stemming from expense reduction initiatives. In addition, the Company recognized $3.4 million in rebranding expenses and $1.2 million in expenses related to the non-renewal of the aforementioned tax partner agreements.

Income Tax Expense

The Company recorded income tax expense of $7.0 million, representing an effective tax rate of 22.6%, for the fiscal 2022 third quarter, compared to $4.9 million, representing an effective tax rate of 11.0%, for the third quarter last year. The current quarter increase in income tax expense was primarily due to a reduction in renewable energy investment tax credit lending volume compared to the prior year period.

The Company originated $4.4 million in solar leases during the fiscal 2022 third quarter, compared to $13.5 million in last year's third quarter. Investment tax credits related to solar leases are recognized ratably based on income throughout each fiscal year. For the nine months ended June 30, 2022, the Company originated $26.9 million in solar leases, compared to $72.0 million for the comparable prior year period. The timing and impact of future solar tax credits are expected to vary from period to period, and the Company intends to undertake only those tax credit opportunities that meet the Company's underwriting and return criteria.

Outlook

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

The Company reinstated guidance and expects fiscal year 2022 GAAP earnings per share to be in the range of $5.04 and $5.24 and fiscal year 2023 GAAP earnings per share to be in the range of $5.25 and $5.75. This guidance assumes a Fed Funds rate of 3.5% by September of 2023.

When adjusting for gain on sale of trademarks, rebrand related expenses, and separation related expenses, the Company expects fiscal year 2022 adjusted earnings per share to be in the range of $4.28 and $4.48 and fiscal year 2023 adjusted earnings per share to be in the range of $5.10 and $5.60. See non-GAAP reconciliation table below.

Investments, Loans and Leases

(dollars in thousands)

June 30, 2022

 

March 31, 2022

 

December 31, 2021

 

September 30, 2021

 

June 30, 2021

Total investments

$

2,000,400

 

 

$

2,090,765

 

 

$

1,833,733

 

 

$

1,921,568

 

 

$

1,981,852

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

 

 

 

 

 

 

 

 

Consumer credit products

 

23,710

 

 

 

23,670

 

 

 

20,728

 

 

 

23,111

 

 

 

12,582

 

SBA/USDA

 

43,861

 

 

 

7,740

 

 

 

15,454

 

 

 

33,083

 

 

 

57,208

 

Community bank

 

 

 

 

 

 

 

 

 

 

 

 

 

18,115

 

Total loans held for sale

 

67,571

 

 

 

31,410

 

 

 

36,182

 

 

 

56,194

 

 

 

87,905

 

 

 

 

 

 

 

 

 

 

 

Term lending

 

1,047,764

 

 

 

1,111,076

 

 

 

1,038,378

 

 

 

961,019

 

 

 

920,279

 

Asset based lending

 

402,506

 

 

 

382,355

 

 

 

337,236

 

 

 

300,225

 

 

 

263,237

 

Factoring

 

408,777

 

 

 

394,865

 

 

 

402,972

 

 

 

363,670

 

 

 

320,629

 

Lease financing

 

218,789

 

 

 

235,397

 

 

 

245,315

 

 

 

266,050

 

 

 

282,940

 

Insurance premium finance

 

481,219

 

 

 

403,681

 

 

 

385,473

 

 

 

428,867

 

 

 

417,652

 

SBA/USDA

 

215,510

 

 

 

214,195

 

 

 

209,521

 

 

 

247,756

 

 

 

263,709

 

Other commercial finance

 

173,338

 

 

 

173,260

 

 

 

178,853

 

 

 

157,908

 

 

 

118,081

 

Commercial finance

 

2,947,903

 

 

 

2,914,829

 

 

 

2,797,748

 

 

 

2,725,495

 

 

 

2,586,527

 

Consumer credit products

 

152,106

 

 

 

171,847

 

 

 

173,343

 

 

 

129,251

 

 

 

105,440

 

Other consumer finance

 

107,135

 

 

 

111,922

 

 

 

144,412

 

 

 

123,606

 

 

 

122,316

 

Consumer finance

 

259,241

 

 

 

283,769

 

 

 

317,755

 

 

 

252,857

 

 

 

227,756

 

Tax services

 

41,627

 

 

 

85,999

 

 

 

100,272

 

 

 

10,405

 

 

 

41,268

 

Warehouse finance

 

434,748

 

 

 

441,496

 

 

 

466,831

 

 

 

419,926

 

 

 

335,704

 

Community banking

 

 

 

 

 

 

 

 

 

 

199,132

 

 

 

303,984

 

Total loans and leases

 

3,683,519

 

 

 

3,726,093

 

 

 

3,682,606

 

 

 

3,607,815

 

 

 

3,495,239

 

Net deferred loan origination costs

 

5,047

 

 

 

4,097

 

 

 

1,655

 

 

 

1,748

 

 

 

1,431

 

Total gross loans and leases

 

3,688,566

 

 

 

3,730,190

 

 

 

3,684,261

 

 

 

3,609,563

 

 

 

3,496,670

 

Allowance for credit losses

 

(75,206

)

 

 

(88,552

)

 

 

(67,623

)

 

 

(68,281

)

 

 

(91,208

)

Total loans and leases, net

$

3,613,360

 

 

$

3,641,638

 

 

$

3,616,638

 

 

$

3,541,282

 

 

$

3,405,462

 

The Company's investment security balances at June 30, 2022 totaled $2.00 billion, as compared to $2.09 billion at March 31, 2022 and $1.98 billion at June 30, 2021.

Total gross loans and leases totaled $3.69 billion at June 30, 2022, as compared to $3.73 billion at March 31, 2022 and $3.50 billion at June 30, 2021. The primary driver for the decrease on a linked quarter basis was the seasonal tax services portfolio, along with a reduction in consumer finance loans, partially offset by an increase in the commercial finance portfolio. The year-over-year increase was primarily driven by increases within commercial finance, warehouse finance, and consumer finance, partially offset by the sale of all remaining community bank loans.

Commercial finance loans, which comprised 80% of the Company's gross loan and lease portfolio, totaled $2.95 billion at June 30, 2022, reflecting growth of $33.1 million, or 1%, from March 31, 2022 and $361.4 million, or 14%, from June 30, 2021.

As of June 30, 2022, the Company had 79 loans outstanding with total loan balances of $21.1 million originated as part of the Paycheck Protection Program ("PPP"), compared with total loan balances of $43.0 million at March 31, 2022 and $143.3 million at June 30, 2021. In total, approximately 90% of the PPP loan balances were forgiven through June 30, 2022.

When excluding PPP loans and the community bank portfolio, total loans and leases grew 20% at June 30, 2022 when compared to the same period of the prior year.

Asset Quality

The Company’s allowance for credit losses ("ACL") totaled $75.2 million at June 30, 2022, a decrease compared to $88.6 million at March 31, 2022 and a decrease from $91.2 million at June 30, 2021. The decrease in the ACL at June 30, 2022, when compared to March 31, 2022, was primarily due to a $8.2 million decrease in the seasonal tax services loan portfolio, and to a lesser extent, a $2.7 million decrease in the consumer finance portfolio and a $2.5 million decrease in the commercial finance portfolio.

The $16.0 million year-over-year decrease in the ACL was primarily driven by a $13.2 million decrease attributable to the disposition of the community banking portfolio, along with a $2.4 million decrease in the consumer finance portfolio and a $1.7 million decrease in the tax services portfolio. These decreases were partially offset by a $1.2 million increase within the commercial finance portfolio, which reflects the year-over-year loan and lease growth.

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

 

As of the Period Ended

(Unaudited)

June 30,

2022

March 31,

2022

December 31,

2021

September 30,

2021

June 30,

2021

Commercial finance

1.56

%

1.66

%

2.04

%

1.77

%

1.73

%

Consumer finance

2.44

%

3.18

%

2.70

%

2.91

%

3.80

%

Tax services

54.29

%

35.76

%

1.60

%

0.02

%

58.99

%

Warehouse finance

0.10

%

0.10

%

0.10

%

0.10

%

0.10

%

Community banking

%

%

%

6.16

%

4.36

%

Total loans and leases

2.04

%

2.38

%

1.84

%

1.89

%

2.61

%

Total loans and leases excluding tax services

1.44

%

1.59

%

1.84

%

1.90

%

1.94

%

The Company's ACL as a percentage of total loans and leases decreased to 2.04% at June 30, 2022 from 2.38% at March 31, 2022. The decrease in the total loans and leases coverage ratio was primarily driven by the seasonal tax services loan portfolio, along with a decrease in the coverage ratio for both the commercial and consumer finance portfolios. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level.

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

(Unaudited)

Three Months Ended

 

Nine Months Ended

(Dollars in thousands)

June 30,

2022

March 31,

2022

June 30,

2021

 

June 30,

2022

June 30,

2021

Beginning balance

$

88,552

 

$

67,623

 

$

98,892

 

 

$

68,281

 

$

56,188

 

Adoption of CECL accounting standard

 

 

 

 

 

 

 

 

 

 

12,773

 

Provision (reversal of) - tax services loans

 

(166

)

 

28,972

 

 

4,685

 

 

 

28,093

 

 

32,819

 

Provision (reversal of) - all other loans and leases

 

(982

)

 

3,183

 

 

(36

)

 

 

3,386

 

 

8,294

 

Charge-offs - tax services loans

 

(7,998

)

 

 

 

(9,505

)

 

 

(8,253

)

 

(9,505

)

Charge-offs - all other loans and leases

 

(6,346

)

 

(12,415

)

 

(5,360

)

 

 

(23,366

)

 

(15,284

)

Recoveries - tax services loans

 

6

 

 

184

 

 

17

 

 

 

2,757

 

 

1,027

 

Recoveries - all other loans and leases

 

2,140

 

 

1,005

 

 

2,515

 

 

 

4,308

 

 

4,896

 

Ending balance

$

75,206

 

$

88,552

 

$

91,208

 

 

$

75,206

 

$

91,208

 

The Company recognized a reversal of provision for credit losses of $1.3 million for the quarter ended June 30, 2022, compared to $4.6 million of provision for credit losses expense for the comparable period in the prior fiscal year. Net charge-offs were $12.2 million for the quarter ended June 30, 2022, compared to $12.3 million for the quarter ended June 30, 2021. Net charge-offs attributable to the tax services, consumer finance, and commercial finance portfolios for the quarter were $8.0 million, $2.3 million, and $1.9 million, respectively.

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

As of June 30, 2022

Accruing and Nonaccruing Loans and Leases

 

Nonperforming Loans and Leases

(Dollars in thousands)

30-59

Days Past

Due

 

60-89

Days Past

Due

 

> 89 Days

Past Due

 

Total Past

Due

 

Current

 

Total Loans

and Leases

Receivable

 

> 89 Days

Past Due

and

Accruing

 

Nonaccrual

Balance

 

Total

Loans held for sale

$

 

$

 

$

 

$

 

$

67,571

 

$

67,571

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial finance

 

15,426

 

 

4,155

 

 

9,195

 

 

28,776

 

 

2,919,127

 

 

2,947,903

 

 

3,519

 

 

19,603

 

 

23,122

Consumer finance

 

3,808

 

 

3,476

 

 

3,501

 

 

10,785

 

 

248,456

 

 

259,241

 

 

3,501

 

 

 

 

3,501

Tax services

 

 

 

41,627

 

 

 

 

41,627

 

 

 

 

41,627

 

 

 

 

 

 

Warehouse finance

 

 

 

 

 

 

 

 

 

434,748

 

 

434,748

 

 

 

 

 

 

Total loans and leases held for investment

 

19,234

 

 

49,258

 

 

12,696

 

 

81,188

 

 

3,602,331

 

 

3,683,519

 

 

7,020

 

 

19,603

 

 

26,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans and leases

$

19,234

 

$

49,258

 

$

12,696

 

$

81,188

 

$

3,669,902

 

$

3,751,090

 

$

7,020

 

$

19,603

 

$

26,623

As of March 31, 2022

Accruing and Nonaccruing Loans and Leases

 

Nonperforming Loans and Leases

(Dollars in thousands)

30-59

Days Past

Due

 

60-89

Days Past

Due

 

> 89 Days

Past Due

 

Total Past

Due

 

Current

 

Total Loans

and Leases

Receivable

 

> 89 Days

Past Due

and

Accruing

 

Nonaccrual

Balance

 

Total

Loans held for sale

$

 

$

 

$

 

$

 

$

31,410

 

$

31,410

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial finance

 

24,631

 

 

2,574

 

 

11,994

 

 

39,199

 

 

2,875,630

 

 

2,914,829

 

 

5,701

 

 

25,327

 

 

31,028

Consumer finance

 

5,829

 

 

5,475

 

 

4,814

 

 

16,118

 

 

267,651

 

 

283,769

 

 

4,814

 

 

 

 

4,814

Tax services

 

830

 

 

 

 

 

 

830

 

 

85,169

 

 

85,999

 

 

 

 

 

 

Warehouse finance

 

 

 

 

 

 

 

 

 

441,496

 

 

441,496

 

 

 

 

 

 

Total loans and leases held for investment

 

31,290

 

 

8,049

 

 

16,808

 

 

56,147

 

 

3,669,946

 

 

3,726,093

 

 

10,515

 

 

25,327

 

 

35,842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans and leases

$

31,290

 

$

8,049

 

$

16,808

 

$

56,147

 

$

3,701,356

 

$

3,757,503

 

$

10,515

 

$

25,327

 

$

35,842

The Company's nonperforming assets at June 30, 2022 were $26.8 million, representing 0.40% of total assets, compared to $38.3 million, or 0.56% of total assets at March 31, 2022 and $45.1 million, or 0.64% of total assets at June 30, 2021. The decrease in the nonperforming assets as a percentage of total assets at June 30, 2022 compared to March 31, 2022, was driven by decreases in nonperforming assets in the commercial and consumer finance portfolios. When comparing the current period to the same period of the prior year, the decrease in nonperforming assets was due to a decrease in nonperforming assets in the community bank portfolio, partially offset by an increase in nonperforming assets in the commercial and consumer finance portfolios.

The Company's nonperforming loans and leases at June 30, 2022, were $26.6 million, representing 0.71% of total gross loans and leases, compared to $35.8 million, or 0.95% of total gross loans and leases at March 31, 2022 and $41.9 million, or 1.17% of total gross loans and leases at June 30, 2021. The decreases are related to the aforementioned decrease in nonperforming assets in the community bank portfolio, partially offset by an increase in nonperforming assets in the commercial and consumer finance portfolios.

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

 

Asset Classification

(Dollars in thousands)

Pass

Watch

Special

Mention

Substandard

Doubtful

Total

As of June 30, 2022

 

 

 

 

 

 

Commercial finance

$

2,182,712

$

462,392

$

125,249

$

172,696

$

4,854

$

2,947,903

Warehouse finance

 

434,748

 

 

 

 

 

434,748

Total loans and leases

$

2,617,460

$

462,392

$

125,249

$

172,696

$

4,854

$

3,382,651

 

Asset Classification

(Dollars in thousands)

Pass

Watch

Special

Mention

Substandard

Doubtful

Total

As of March 31, 2022

 

Commercial finance

$

2,171,206

$

430,240

$

141,497

$

167,882

$

4,004

$

2,914,829

Warehouse finance

 

441,496

 

 

 

 

 

441,496

Total loans and leases

$

2,612,702

$

430,240

$

141,497

$

167,882

$

4,004

$

3,356,325

Deposits, Borrowings and Other Liabilities

Total average deposits for the fiscal 2022 third quarter decreased by $1.24 billion to $5.74 billion compared to the same period in fiscal 2021. The decrease in average deposits was primarily due to a decrease in noninterest-bearing deposits of $841.8 million, a decrease in interesting-bearing deposits of $336.3 million, and to a lesser extent, decreases within wholesale, savings, and time deposits, partially offset by an increase in money market deposits.

The average balance of total deposits and interest-bearing liabilities was $5.81 billion for the three-month period ended June 30, 2022, compared to $7.08 billion for the same period in the prior fiscal year, representing a decrease of 18%.

Total end-of-period deposits decreased 3% to $5.71 billion at June 30, 2022, compared to $5.89 billion at June 30, 2021. The decrease in end-of-period deposits was primarily driven by a decrease in interest-bearing checking of $255.2 million and a decrease in wholesale deposits of $72.2 million, partially off-set by an increase in noninterest-bearing deposits of $134.7 million.

As of June 30, 2022, the Company managed $1.22 billion of customer deposits at other banks in its capacity as custodian.

Regulatory Capital

The Company and Pathward remained above the federal regulatory minimum capital requirements at June 30, 2022, continued to be classified as well-capitalized, and in good standing with the regulatory agencies. Regulatory capital ratios of the Company and the Bank are stated in the table below. Regulatory Capital is not affected by the unrealized loss on accumulated other comprehensive income (“AOCI”). The securities portfolio is made up of nearly all amortizing securities that should provide consistent cash flow and is not expected to require sales to realize the losses to fund future loan growth.

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

As of the Periods Indicated

June 30,

2022(1)

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

 

June 30,

2021

Company

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital ratio

8.23

%

 

6.80

%

 

7.39

%

 

7.67

%

 

6.85

%

Common equity Tier 1 capital ratio

11.87

%

 

11.26

%

 

10.88

%

 

12.12

%

 

12.76

%

Tier 1 capital ratio

12.19

%

 

11.58

%

 

11.20

%

 

12.46

%

 

13.11

%

Total capital ratio

13.44

%

 

14.16

%

 

13.80

%

 

15.45

%

 

16.18

%

Pathward

 

 

 

 

 

 

 

 

 

Tier 1 leverage ratio

8.22

%

 

7.79

%

 

8.52

%

 

8.69

%

 

7.83

%

Common equity Tier 1 capital ratio

12.17

%

 

13.26

%

 

12.90

%

 

14.11

%

 

14.94

%

Tier 1 capital ratio

12.18

%

 

13.26

%

 

12.91

%

 

14.13

%

 

14.96

%

Total capital ratio

13.43

%

 

14.52

%

 

14.16

%

 

15.38

%

 

16.22

%

(1) June 30, 2022 percentages are preliminary pending completion and filing of the Company's regulatory reports. Regulatory capital ratios for periods presented reflect the Company's election of the five-year CECL transition for regulatory capital purposes.

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

 

Standardized Approach(1)

(Dollars in thousands)

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

 

June 30,

2021

Total stockholders' equity

$

724,774

 

 

$

763,406

 

 

$

826,157

 

$

871,884

 

$

876,633

Adjustments:

 

 

 

 

 

 

 

 

 

LESS: Goodwill, net of associated deferred tax liabilities

 

299,616

 

 

 

299,983

 

 

 

300,382

 

 

300,780

 

 

301,179

LESS: Certain other intangible assets

 

27,809

 

 

 

30,007

 

 

 

32,294

 

 

33,572

 

 

35,100

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

 

11,978

 

 

 

13,404

 

 

 

19,855

 

 

22,801

 

 

17,753

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

 

(131,352

)

 

 

(69,838

)

 

 

403

 

 

7,344

 

 

14,750

LESS: Noncontrolling interest

 

665

 

 

 

322

 

 

 

642

 

 

1,155

 

 

1,490

ADD: Adoption of Accounting Standards Update 2016-13

 

10,011

 

 

 

13,387

 

 

 

6,527

 

 

8,202

 

 

10,439

Common Equity Tier 1(1)

 

526,069

 

 

 

502,915

 

 

 

479,108

 

 

514,434

 

 

520,274

Long-term borrowings and other instruments qualifying as Tier 1

 

13,661

 

 

 

13,661

 

 

 

13,661

 

 

13,661

 

 

13,661

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

 

377

 

 

 

208

 

 

 

444

 

 

747

 

 

932

Total Tier 1 capital

 

540,107

 

 

 

516,784

 

 

 

493,213

 

 

528,842

 

 

534,867

Allowance for credit losses

 

55,506

 

 

 

56,051

 

 

 

55,125

 

 

53,159

 

 

51,317

Subordinated debentures (net of issuance costs)

 

 

 

 

59,256

 

 

 

59,220

 

 

73,980

 

 

73,936

Total capital

$

595,613

 

 

$

632,091

 

 

$

607,558

 

$

655,981

 

$

660,119

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

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

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

 

June 30,

2021

Total stockholders' equity

$

724,774

 

 

$

763,406

 

 

$

826,157

 

$

871,884

 

$

876,633

Less: Goodwill

 

309,505

 

 

 

309,505

 

 

 

309,505

 

 

309,505

 

 

309,505

Less: Intangible assets

 

27,088

 

 

 

29,290

 

 

 

31,661

 

 

33,148

 

 

34,898

Tangible common equity

 

388,181

 

 

 

424,611

 

 

 

484,991

 

 

529,231

 

 

532,230

Less: AOCI

 

(131,407

)

 

 

(69,374

)

 

 

724

 

 

7,599

 

 

15,222

Tangible common equity excluding AOCI

$

519,588

 

 

$

493,985

 

 

$

484,267

 

$

521,632

 

$

517,008

Conference Call

The Company will host a conference call and earnings webcast at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Thursday, July 27, 2022. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-844-200-6205 (International: +1-929-526-1599) approximately 10 minutes prior to start time and reference access code 943947. A webcast replay will also be archived at www.pathwardfinancial.com for one year.

Forward-Looking Statements

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

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

The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2021, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason.

Condensed Consolidated Statements of Financial Condition (Unaudited)

(Dollars in Thousands, Except Share Data)

 

 

 

 

 

 

 

 

 

 

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

 

June 30,

2021

ASSETS

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

157,260

 

 

$

237,680

 

 

$

1,230,100

 

 

$

314,019

 

 

$

720,243

 

Securities available for sale, at fair value

 

1,956,523

 

 

 

2,043,478

 

 

 

1,782,739

 

 

 

1,864,899

 

 

 

1,917,605

 

Securities held to maturity, at amortized cost

 

43,877

 

 

 

47,287

 

 

 

50,994

 

 

 

56,669

 

 

 

64,247

 

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

 

28,812

 

 

 

28,812

 

 

 

28,400

 

 

 

28,400

 

 

 

28,433

 

Loans held for sale

 

67,571

 

 

 

31,410

 

 

 

36,182

 

 

 

56,194

 

 

 

87,905

 

Loans and leases

 

3,688,566

 

 

 

3,730,190

 

 

 

3,684,261

 

 

 

3,609,563

 

 

 

3,496,670

 

Allowance for credit losses

 

(75,206

)

 

 

(88,552

)

 

 

(67,623

)

 

 

(68,281

)

 

 

(91,208

)

Accrued interest receivable

 

16,818

 

 

 

19,115

 

 

 

17,240

 

 

 

16,254

 

 

 

16,230

 

Premises, furniture, and equipment, net

 

42,076

 

 

 

43,167

 

 

 

44,130

 

 

 

44,888

 

 

 

44,107

 

Rental equipment, net

 

222,023

 

 

 

213,033

 

 

 

234,693

 

 

 

213,116

 

 

 

211,368

 

Foreclosed real estate and repossessed assets, net

 

13

 

 

 

112

 

 

 

298

 

 

 

2,077

 

 

 

1,204

 

Goodwill and intangible assets

 

336,593

 

 

 

338,795

 

 

 

341,166

 

 

 

342,653

 

 

 

344,403

 

Prepaid assets

 

11,408

 

 

 

15,264

 

 

 

17,007

 

 

 

10,513

 

 

 

7,482

 

Other assets

 

231,844

 

 

 

227,448

 

 

 

210,071

 

 

 

199,686

 

 

 

203,123

 

Total assets

$

6,728,178

 

 

$

6,887,239

 

 

$

7,609,658

 

 

$

6,690,650

 

 

$

7,051,812

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

Deposits

 

5,710,799

 

 

 

5,829,886

 

 

 

6,525,569

 

 

 

5,514,971

 

 

 

5,888,871

 

Long-term borrowings

 

16,616

 

 

 

91,386

 

 

 

92,274

 

 

 

92,834

 

 

 

93,634

 

Accrued expenses and other liabilities

 

275,989

 

 

 

202,561

 

 

 

165,658

 

 

 

210,961

 

 

 

192,674

 

Total liabilities

 

6,003,404

 

 

 

6,123,833

 

 

 

6,783,501

 

 

 

5,818,766

 

 

 

6,175,179

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $.01 par value

 

294

 

 

 

294

 

 

 

301

 

 

 

317

 

 

 

319

 

Common stock, Nonvoting, $.01 par value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

615,159

 

 

 

612,917

 

 

 

610,816

 

 

 

604,484

 

 

 

602,720

 

Retained earnings

 

244,686

 

 

 

223,760

 

 

 

217,992

 

 

 

259,189

 

 

 

262,578

 

Accumulated other comprehensive income (loss)

 

(131,407

)

 

 

(69,374

)

 

 

724

 

 

 

7,599

 

 

 

15,222

 

Treasury stock, at cost

 

(4,623

)

 

 

(4,513

)

 

 

(4,318

)

 

 

(860

)

 

 

(5,696

)

Total equity attributable to parent

 

724,109

 

 

 

763,084

 

 

 

825,515

 

 

 

870,729

 

 

 

875,143

 

Noncontrolling interest

 

665

 

 

 

322

 

 

 

642

 

 

 

1,155

 

 

 

1,490

 

Total stockholders’ equity

 

724,774

 

 

 

763,406

 

 

 

826,157

 

 

 

871,884

 

 

 

876,633

 

Total liabilities and stockholders’ equity

$

6,728,178

 

 

$

6,887,239

 

 

$

7,609,658

 

 

$

6,690,650

 

 

$

7,051,812

 

Condensed Consolidated Statements of Operations (Unaudited)

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

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

June 30, 2022

 

March 31, 2022

 

June 30, 2021

 

June 30, 2022

 

June 30, 2021

Interest and dividend income:

 

 

 

 

 

 

 

 

 

Loans and leases, including fees

$

62,541

 

 

$

75,540

 

$

62,287

 

 

$

203,115

 

 

$

192,415

Mortgage-backed securities

 

7,381

 

 

 

5,446

 

 

3,446

 

 

 

16,690

 

 

 

8,176

Other investments

 

3,984

 

 

 

4,191

 

 

4,250

 

 

 

12,169

 

 

 

13,207

 

 

73,906

 

 

 

85,177

 

 

69,983

 

 

 

231,974

 

 

 

213,798

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

94

 

 

 

165

 

 

188

 

 

 

400

 

 

 

1,429

FHLB advances and other borrowings

 

1,661

 

 

 

1,212

 

 

1,320

 

 

 

4,010

 

 

 

4,045

 

 

1,755

 

 

 

1,377

 

 

1,508

 

 

 

4,410

 

 

 

5,474

 

 

 

 

 

 

 

 

 

 

Net interest income

 

72,151

 

 

 

83,800

 

 

68,475

 

 

 

227,564

 

 

 

208,324

 

 

 

 

 

 

 

 

 

 

Provision (reversal of) for credit losses

 

(1,302

)

 

 

32,302

 

 

4,612

 

 

 

31,186

 

 

 

40,991

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for credit losses

 

73,453

 

 

 

51,498

 

 

63,863

 

 

 

196,378

 

 

 

167,333

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

Refund transfer product fees

 

10,289

 

 

 

27,805

 

 

12,073

 

 

 

38,674

 

 

 

35,400

Tax advance product fees

 

(20

)

 

 

39,299

 

 

891

 

 

 

40,513

 

 

 

47,413

Payments card and deposit fees

 

24,673

 

 

 

26,270

 

 

29,203

 

 

 

76,075

 

 

 

81,641

Other bank and deposit fees

 

262

 

 

 

250

 

 

338

 

 

 

750

 

 

 

709

Rental income

 

12,082

 

 

 

11,375

 

 

9,976

 

 

 

34,534

 

 

 

29,707

Gain on sale of securities

 

198

 

 

 

260

 

 

 

 

 

595

 

 

 

6

Gain on sale of trademarks

 

 

 

 

 

 

 

 

 

50,000

 

 

 

Gain (loss) on sale of other

 

1,239

 

 

 

626

 

 

5,955

 

 

 

(1,601

)

 

 

10,935

Other income

 

5,271

 

 

 

3,881

 

 

4,017

 

 

 

10,811

 

 

 

15,550

Total noninterest income

 

53,994

 

 

 

109,766

 

 

62,453

 

 

 

250,351

 

 

 

221,361

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

45,091

 

 

 

45,047

 

 

38,604

 

 

 

128,364

 

 

 

114,867

Refund transfer product expense

 

2,457

 

 

 

6,260

 

 

2,435

 

 

 

8,855

 

 

 

8,642

Tax advance product expense

 

(29

)

 

 

2,002

 

 

(25

)

 

 

2,156

 

 

 

2,534

Card processing

 

8,438

 

 

 

7,457

 

 

6,809

 

 

 

23,067

 

 

 

20,138

Occupancy and equipment expense

 

8,996

 

 

 

8,500

 

 

7,381

 

 

 

25,845

 

 

 

21,017

Operating lease equipment depreciation

 

9,145

 

 

 

8,737

 

 

8,122

 

 

 

26,331

 

 

 

23,122

Legal and consulting

 

11,724

 

 

 

9,347

 

 

5,680

 

 

 

27,279

 

 

 

16,972

Intangible amortization

 

1,532

 

 

 

2,169

 

 

2,013

 

 

 

5,188

 

 

 

6,784

Impairment expense

 

670

 

 

 

 

 

505

 

 

 

670

 

 

 

2,217

Other expense

 

8,626

 

 

 

13,641

 

 

9,999

 

 

 

34,491

 

 

 

33,775

Total noninterest expense

 

96,650

 

 

 

103,160

 

 

81,523

 

 

 

282,246

 

 

 

250,068

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

 

30,797

 

 

 

58,104

 

 

44,793

 

 

 

164,483

 

 

 

138,626

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

6,958

 

 

 

8,002

 

 

4,934

 

 

 

29,236

 

 

 

9,600

 

 

 

 

 

 

 

 

 

 

Net income before noncontrolling interest

 

23,839

 

 

 

50,102

 

 

39,859

 

 

 

135,247

 

 

 

129,026

Net income attributable to noncontrolling interest

 

1,448

 

 

 

851

 

 

1,158

 

 

 

2,281

 

 

 

3,221

Net income attributable to parent

$

22,391

 

 

$

49,251

 

$

38,701

 

 

$

132,966

 

 

$

125,805

 

 

 

 

 

 

 

 

 

 

Less: Allocation of Earnings to participating securities(1)

 

377

 

 

 

815

 

 

729

 

 

 

2,166

 

 

 

2,411

Net income attributable to common shareholders(1)

 

22,014

 

 

 

48,436

 

 

37,972

 

 

 

130,800

 

 

 

123,394

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

$

0.76

 

 

$

1.66

 

$

1.21

 

 

$

4.44

 

 

$

3.87

Diluted

$

0.76

 

 

$

1.66

 

$

1.21

 

 

$

4.44

 

 

$

3.87

Shares used in computing earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

28,868,136

 

 

 

29,212,301

 

 

31,320,893

 

 

 

29,444,979

 

 

 

31,880,653

Diluted

 

28,868,136

 

 

 

29,224,362

 

 

31,338,947

 

 

 

29,454,586

 

 

 

31,900,597

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

Average Balances, Interest Rates and Yields

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

Three Months Ended June 30,

2022

 

2021

(Dollars in thousands)

Average

Outstanding

Balance

 

Interest

Earned /

Paid

 

Yield /

Rate(1)

 

Average

Outstanding

Balance

 

Interest

Earned /

Paid

 

Yield /

Rate(1)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and fed funds sold

$

309,324

 

$

787

 

1.02

%

 

$

1,867,988

 

$

528

 

0.11

%

Mortgage-backed securities

 

1,395,149

 

 

7,381

 

2.12

%

 

 

882,042

 

 

3,446

 

1.57

%

Tax exempt investment securities

 

173,192

 

 

851

 

2.50

%

 

 

263,401

 

 

884

 

1.70

%

Asset-backed securities

 

210,815

 

 

750

 

1.43

%

 

 

438,163

 

 

1,651

 

1.51

%

Other investment securities

 

246,218

 

 

1,596

 

2.60

%

 

 

246,493

 

 

1,187

 

1.93

%

Total investments

 

2,025,374

 

 

10,578

 

2.14

%

 

 

1,830,099

 

 

7,168

 

1.62

%

Commercial finance

 

2,949,813

 

 

50,785

 

6.91

%

 

 

2,616,942

 

 

48,641

 

7.46

%

Consumer finance

 

300,352

 

 

4,964

 

6.63

%

 

 

241,813

 

 

3,916

 

6.50

%

Tax services

 

62,934

 

 

53

 

0.34

%

 

 

91,804

 

 

604

 

2.64

%

Warehouse finance

 

434,532

 

 

6,739

 

6.22

%

 

 

332,759

 

 

5,151

 

6.21

%

Community banking

 

 

 

 

%

 

 

335,415

 

 

3,975

 

4.75

%

Total loans and leases

 

3,747,631

 

 

62,541

 

6.69

%

 

 

3,618,733

 

 

62,287

 

6.90

%

Total interest-earning assets

$

6,082,329

 

$

73,906

 

4.89

%

 

$

7,316,820

 

$

69,983

 

3.85

%

Noninterest-earning assets

 

695,468

 

 

 

 

 

 

841,738

 

 

 

 

Total assets

$

6,777,797

 

 

 

 

 

$

8,158,558

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing checking(2)

$

292

 

$

 

0.33

%

 

$

336,576

 

$

 

%

Savings

 

82,989

 

 

7

 

0.03

%

 

 

107,803

 

 

5

 

0.02

%

Money markets

 

101,943

 

 

53

 

0.21

%

 

 

58,517

 

 

66

 

0.45

%

Time deposits

 

8,709

 

 

9

 

0.40

%

 

 

11,877

 

 

27

 

0.91

%

Wholesale deposits

 

8,554

 

 

25

 

1.19

%

 

 

86,295

 

 

90

 

0.42

%

Total interest-bearing deposits

 

202,487

 

 

94

 

0.19

%

 

 

601,068

 

 

188

 

0.13

%

Overnight fed funds purchased

 

19,353

 

 

72

 

1.50

%

 

 

11

 

 

 

0.25

%

Subordinated debentures

 

36,480

 

 

1,444

 

15.87

%

 

 

73,907

 

 

1,148

 

6.23

%

Other borrowings

 

17,056

 

 

145

 

3.40

%

 

 

20,657

 

 

172

 

3.35

%

Total borrowings

 

72,889

 

 

1,661

 

9.14

%

 

 

94,575

 

 

1,320

 

5.60

%

Total interest-bearing liabilities

 

275,376

 

 

1,755

 

2.56

%

 

 

695,643

 

 

1,508

 

0.87

%

Noninterest-bearing deposits

 

5,538,585

 

 

 

%

 

 

6,380,371

 

 

 

%

Total deposits and interest-bearing liabilities

$

5,813,961

 

$

1,755

 

0.12

%

 

$

7,076,014

 

$

1,508

 

0.09

%

Other noninterest-bearing liabilities

 

213,293

 

 

 

 

 

 

225,862

 

 

 

 

Total liabilities

 

6,027,254

 

 

 

 

 

 

7,301,876

 

 

 

 

Shareholders' equity

 

750,543

 

 

 

 

 

 

856,682

 

 

 

 

Total liabilities and shareholders' equity

$

6,777,797

 

 

 

 

 

$

8,158,558

 

 

 

 

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

 

 

$

72,151

 

4.77

%

 

 

 

$

68,475

 

3.76

%

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin

 

 

 

 

4.76

%

 

 

 

 

 

3.75

%

Tax-equivalent effect

 

 

 

 

0.01

%

 

 

 

 

 

0.02

%

Net interest margin, tax-equivalent(3)

 

 

 

 

4.77

%

 

 

 

 

 

3.77

%

(1) Tax rate used to arrive at the TEY for the three months ended June 30, 2022 and 2021 was 21%.

(2) At June 30, 2021, $336.2 million of the total balance were interest-bearing deposits where interest expense was paid by a third party and not by the Company. On October 1, 2021, the Company reclassified the balances related to that program to noninterest bearing checking due to the product moving to noninterest bearing.

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

Selected Financial Information

As of and For the Three Months Ended

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

 

June 30,

2021

Equity to total assets

 

10.77

%

 

 

11.08

%

 

 

10.86

%

 

 

13.03

%

 

 

12.43

%

Book value per common share outstanding

$

24.69

 

 

$

26.00

 

 

$

27.46

 

 

$

27.53

 

 

$

27.46

 

Tangible book value per common share outstanding

$

13.22

 

 

$

14.46

 

 

$

16.12

 

 

$

16.71

 

 

$

16.67

 

Tangible book value per common share outstanding excluding AOCI

$

17.70

 

 

$

16.82

 

 

$

16.10

 

 

$

16.47

 

 

$

16.20

 

Common shares outstanding

 

29,356,707

 

 

 

29,362,844

 

 

 

30,080,717

 

 

 

31,669,952

 

 

 

31,919,780

 

Nonperforming assets to total assets

 

0.40

%

 

 

0.56

%

 

 

0.58

%

 

 

0.92

%

 

 

0.64

%

Nonperforming loans and leases to total loans and leases

 

0.71

%

 

 

0.95

%

 

 

1.16

%

 

 

1.52

%

 

 

1.17

%

Net interest margin

 

4.76

%

 

 

4.80

%

 

 

4.59

%

 

 

4.35

%

 

 

3.75

%

Net interest margin, tax-equivalent

 

4.77

%

 

 

4.81

%

 

 

4.61

%

 

 

4.37

%

 

 

3.77

%

Return on average assets

 

1.32

%

 

 

2.49

%

 

 

3.49

%

 

 

0.88

%

 

 

1.90

%

Return on average equity

 

11.93

%

 

 

24.16

%

 

 

29.69

%

 

 

7.18

%

 

 

18.07

%

Full-time equivalent employees

 

1,178

 

 

 

1,167

 

 

 

1,140

 

 

 

1,124

 

 

 

1,109

 

Non-GAAP Reconciliations

Adjusted Net Income and Adjusted Earnings Per Share

At and For the Three Months Ended

 

At and For the Nine Months Ended

Dollars in Thousands, Except Share and Per Share Data

June 30,

2022

March 31,

2022

June 30,

2021

 

June 30,

2022

June 30,

2021

Net Income - GAAP

$

22,391

 

$

49,251

 

$

38,701

 

 

$

132,966

$

125,805

 

Less: Gain on sale of trademarks

 

 

 

 

 

 

 

 

50,000

 

 

Add: Rebranding expenses

 

3,427

 

 

2,819

 

 

 

 

 

6,249

 

 

Add: Separation related expenses

 

3,116

 

 

878

 

 

1,161

 

 

 

4,080

 

2,509

 

Add: Income tax effect resulting from gain on sale of trademarks and rebranding and separation expenses

 

(1,677

)

 

(930

)

 

(290

)

 

 

9,965

 

(627

)

Adjusted net income

$

27,257

 

$

52,018

 

$

39,572

 

 

$

103,260

$

127,687

 

Less: Adjusted allocation of earnings to participating securities

 

458

 

 

861

 

 

746

 

 

 

1,682

 

2,447

 

Adjusted Net income attributable to common shareholders

 

26,799

 

 

51,157

 

 

38,826

 

 

 

101,578

 

125,240

 

Weighted average diluted common shares outstanding

 

28,868,136

 

 

29,224,362

 

 

31,338,947

 

 

 

29,454,586

 

31,900,597

 

Adjusted earnings per common share - diluted

$

0.93

 

$

1.75

 

$

1.24

 

 

$

3.45

$

3.93

 

Adjusted Diluted Earnings Per Share Guidance

Fiscal Year Ended

(Earnings per share amounts)

2022

 

2023

Diluted earnings per share - GAAP

$5.04 - $5.24

 

$5.25 - $5.75

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

$0.76

 

$0.15

Diluted earnings per share - Adjusted

$4.28 - $4.48

 

$5.10 - $5.60

(1) Includes gain on sale of trademarks, rebrand related expenses and separation related expenses.

Efficiency Ratio

For the Last Twelve Months Ended

(Dollars in thousands)

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

 

June 30,

2021

Noninterest expense: GAAP

$

375,860

 

 

$

360,733

 

 

$

353,544

 

 

$

343,683

 

 

$

330,352

 

Net interest income

 

298,231

 

 

 

294,555

 

 

 

284,605

 

 

 

278,991

 

 

 

272,837

 

Noninterest income

 

299,893

 

 

 

308,352

 

 

 

312,039

 

 

 

270,903

 

 

 

262,111

 

Total revenue: GAAP

$

598,124

 

 

$

602,907

 

 

$

596,644

 

 

$

549,894

 

 

$

534,948

 

Efficiency ratio

 

62.84

%

 

 

59.83

%

 

 

59.26

%

 

 

62.50

%

 

 

61.75

%

 

 

 

 

 

 

 

 

 

 

Adjusted Efficiency Ratio

 

 

 

 

 

 

 

 

 

Noninterest expense: GAAP

$

375,860

 

 

$

360,733

 

 

$

353,544

 

 

$

343,683

 

 

$

330,352

 

Less: Rebranding expenses

 

6,249

 

 

 

2,822

 

 

 

3

 

 

 

 

 

 

 

Adjusted noninterest expense

 

369,611

 

 

 

357,911

 

 

 

353,341

 

 

 

343,683

 

 

 

330,352

 

Net interest income

 

298,231

 

 

 

294,555

 

 

 

284,605

 

 

 

278,991

 

 

 

272,837

 

Noninterest income

 

299,893

 

 

 

308,352

 

 

 

312,039

 

 

 

270,903

 

 

 

262,111

 

Less: Gain on sale of trademarks

 

50,000

 

 

 

50,000

 

 

 

50,000

 

 

 

 

 

 

 

Total adjusted revenue

$

548,124

 

 

$

552,907

 

 

$

546,644

 

 

$

549,984

 

 

$

534,948

 

Adjusted efficiency ratio

 

67.43

%

 

 

64.73

%

 

 

64.67

%

 

 

62.50

%

 

 

61.75

%

About Pathward Financial, Inc.

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

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