- Net Income of $27.8 million, or $0.98 Per
Diluted Share -
- Raises Fiscal 2023 GAAP EPS Guidance Range
to $5.55-$5.95 -
Pathward Financial, Inc.™ (“Pathward Financial” or the
“Company”) (Nasdaq: CASH) reported net income of $27.8 million, or
$0.98 per share, for the three months ended December 31, 2022,
compared to net income of $61.3 million, or $2.00 per share, for
the three months ended December 31, 2021.
During the quarter, when adjusting for the gain on sale of names
and trademarks, expenses related to rebranding efforts and
separation expense, the Company recognized adjusted net income of
$23.2 million, or $0.81 per share. For the same period of the prior
year, the Company recognized adjusted net income of $24.0 million,
or $0.78 per share when excluding the impact of the gain on sale of
trademarks and rebranding and separation expenses. See non-GAAP
reconciliation table below.
CEO Brett Pharr said, “Pathward Financial performed well during
the first fiscal quarter of 2023. Commercial Finance loans grew 7
percent compared to the prior year period, and credit quality
across the portfolio remains strong. As we head into a potential
recessionary environment, we are confident in our active collateral
management and the quality of our loan portfolio. At the same time,
our broad range of partners enables us to excel in the Banking as a
Service industry, even during economic downtimes. Primarily as a
result of the rising interest rate environment, we are pleased to
raise our fiscal year 2023 GAAP EPS range, and our unique business
model positions us well for the remainder of the year.”
Business Highlights
- During the first quarter of fiscal year 2023, the Company
recognized the remaining $10.0 million as part of the agreement
with Beige Key, LLC to cease all use of the Meta name and
trademarks. The $10.0 million was recognized as noninterest income
as a gain on sale of names and trademarks. As part of the corporate
rebrand, the Company recognized $3.7 million of pre-tax expenses
related to rebranding efforts during the first quarter of fiscal
2023. Since the first quarter of fiscal year 2022 through the first
quarter of fiscal year 2023, the Company has recognized $16.9
million in expenses related to rebranding efforts. The Company does
not anticipate any further material expenses related to rebranding
efforts.
Financial Highlights for the 2023 Fiscal First
Quarter
- Total revenue for the first quarter was $149.8 million, a
decrease of $8.4 million, or 5%, compared to the same quarter in
fiscal 2022, primarily driven by the $50.0 million gain on sale of
names and trademarks recognized during the prior year period,
partially offset by an increase in interest income and the $10.0
million gain on sale of names and trademarks recognized during the
first quarter of fiscal year 2023.
- Net interest margin ("NIM") increased 103 basis points to 5.62%
for the first quarter from 4.59% 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 December 31, 2022 decreased
$174.5 million, or 5%, to $3.51 billion, compared to December 31,
2021 and decreased $26.6 million, or 1%, when compared to September
30, 2022. The decrease compared to the prior year quarter was
primarily due to a reduction in warehouse finance loans and the
sale of the $81.5 million student loan portfolio during the fiscal
2022 fourth quarter, partially offset by growth in the commercial
finance portfolio. The primary driver for the decrease on a linked
quarter basis was the reduction in warehouse finance loans.
- During the fiscal 2023 first quarter, the Company repurchased
653,994 shares of common stock at an average share price of $38.10.
An additional 478,200 shares of common stock at an average price of
$45.45 were repurchased in January 2023 through January 20, 2023.
As of January 20, 2023, there are 3,162,783 shares available for
repurchase under the common stock share repurchase program
announced during the fourth quarter of fiscal year 2021.
- The Company expects fiscal year 2023 GAAP earnings per share to
be in the range of $5.55 to $5.95. See Outlook section and non-GAAP
reconciliation table below.
Net Interest Income
Net interest income for the first quarter of fiscal 2023 was
$84.1 million, an increase of 17% from the same quarter in fiscal
2022. The increase was mainly attributable to increased yields and
an improved earning asset mix.
The first quarter average outstanding balance of loans and
leases decreased $182.1 million compared to the same quarter of the
prior fiscal year, primarily due to a reduction in warehouse
finance loans and the sales of the remaining community bank and
student loan portfolios, partially offset by an increase in the
commercial finance loans. The Company’s average interest-earning
assets for the first fiscal quarter decreased by $249.2 million to
$5.93 billion compared with the same quarter in fiscal 2022,
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 commercial finance loans and leases.
Fiscal 2023 first quarter NIM increased to 5.62% from 4.59% in
the first fiscal quarter of last year. The overall reported
tax-equivalent yield (“TEY”) on average earning asset yields
increased 101 basis points to 5.70% compared to the prior year
quarter, primarily driven by an increase in loan and lease and
investment securities yields, along with a decrease in
lower-yielding cash balances. The yield on the loan and lease
portfolio was 7.70% compared to 6.96% for the comparable period
last year and the TEY on the securities portfolio was 2.76%
compared to 1.58% over that same period.
The Company's cost of funds for all deposits and borrowings
averaged 0.07% during the fiscal 2023 first quarter, as compared to
0.08% during the prior year quarter. The Company's overall cost of
deposits was 0.01% in the fiscal first quarter of 2023, the same as
the prior year quarter.
Noninterest Income
Fiscal 2023 first quarter noninterest income decreased to $65.8
million, compared to $86.6 million for the same period of the prior
year. The decrease was primarily attributable to the gain on sale
of names and trademarks as the Company recognized a $10.0 million
gain during the current quarter as compared to a $50.0 million gain
during the same period of the prior year. The period over period
decrease was partially offset by increases in card and deposit fee
income, gain on sale of other, other income and rental income.
The increase in card and deposit fee income was primarily from
servicing fee income on off-balance sheet deposits, which totaled
$12.9 million during the 2023 fiscal first quarter, as compared to
$5.9 million for the fiscal quarter ended September 30, 2022 and an
insignificant amount for the fiscal quarter ended December 31,
2021.
Noninterest Expense
Noninterest expense increased 27% to $105.1 million for the
fiscal 2023 first quarter, from $82.4 million for the same quarter
last year. The increase was primarily attributable to increases in
card processing expense, compensation expense, legal and consulting
expense, and operating lease equipment depreciation.
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 43% of the deposit portfolio
was subject to these higher card processing expenses. For the
fiscal quarter ended December 31, 2022, card processing expenses
related to these structured agreements were $14.0 million, as
compared to $7.4 million for the fiscal quarter ended September 30,
2022 and $0.1 million for the fiscal quarter ended December 31,
2021.
Income Tax Expense
The Company recorded an income tax expense of $6.6 million,
representing an effective tax rate of 18.8%, for the fiscal 2023
first quarter, compared to income tax expense of $14.3 million,
representing an effective tax rate of 18.9%, for the first quarter
last fiscal year. The current quarter decrease in income tax
expense was primarily due to decreased earnings.
The Company originated $11.4 million in solar leases during the
fiscal 2023 first quarter, resulting in $3.1 million in total net
investment tax credits. During the first quarter of fiscal 2022,
the Company originated $21.2 million in solar leases resulting in
$5.7 million in total net investment tax credits. Investment tax
credits related to solar leases are recognized ratably based on
income throughout each fiscal year. 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 expects fiscal year 2023 GAAP earnings per share to
be in the range of $5.55 to $5.95. When adjusting for gain on sale
of trademarks, rebrand related expenses, and separation 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)
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
Total investments
$
1,888,343
$
1,924,551
$
2,000,400
$
2,090,765
$
1,833,733
Loans held for sale
Consumer credit products
17,148
21,071
23,710
23,670
20,728
SBA/USDA
—
—
43,861
7,740
15,454
Total loans held for sale
17,148
21,072
67,571
31,410
36,182
Term lending
1,160,100
1,090,289
1,047,764
1,111,076
1,038,378
Asset based lending
359,516
351,696
402,506
382,355
337,236
Factoring
338,594
372,595
408,777
394,865
402,972
Lease financing
189,868
210,692
218,789
235,397
245,315
Insurance premium finance
436,977
479,754
481,219
403,681
385,473
SBA/USDA
357,084
359,238
215,510
214,195
209,521
Other commercial finance
164,734
159,409
173,338
173,260
178,853
Commercial finance
3,006,873
3,023,673
2,947,903
2,914,829
2,797,748
Consumer credit products
130,750
144,353
152,106
171,847
173,343
Other consumer finance
56,180
25,306
107,135
111,922
144,412
Consumer finance
186,930
169,659
259,241
283,769
317,755
Tax services
30,364
9,098
41,627
85,999
100,272
Warehouse finance
279,899
326,850
434,748
441,496
466,831
Total loans and leases
3,504,066
3,529,280
3,683,519
3,726,093
3,682,606
Net deferred loan origination costs
5,664
7,025
5,047
4,097
1,655
Total gross loans and leases
3,509,730
3,536,305
3,688,566
3,730,190
3,684,261
Allowance for credit losses
(52,592
)
(45,947
)
(75,206
)
(88,552
)
(67,623
)
Total loans and leases, net
$
3,457,138
$
3,490,358
$
3,613,360
$
3,641,638
$
3,616,638
The Company's investment security balances at December 31, 2022
totaled $1.89 billion, as compared to $1.92 billion at September
30, 2022 and $1.83 billion at December 31, 2021.
Total gross loans and leases totaled $3.51 billion at December
31, 2022, as compared to $3.54 billion at September 30, 2022 and
$3.68 billion at December 31, 2021. The primary driver for the
decrease on a linked quarter basis was a reduction in warehouse
finance loans and commercial finance loans, partially offset by an
increase in the consumer finance portfolio and the seasonal
increase in tax services loans. The year-over-year decrease was
primarily due a reduction in warehouse finance loans, the sale of
the student loan portfolio during the fiscal 2022 fourth quarter
and a reduction in seasonal tax services loans, partially offset by
growth in our commercial finance portfolio.
Commercial finance loans, which comprised 86% of the Company's
gross loan and lease portfolio, totaled $3.01 billion at December
31, 2022, reflecting a reduction of $16.8 million, or 1%, from
September 30, 2022 and an increase of $209.1 million, or 7%, from
December 31, 2021.
Asset Quality
The Company’s allowance for credit losses ("ACL") totaled $52.6
million at December 31, 2022, an increase compared to $45.9 million
at September 30, 2022 and a decrease from $67.6 million at December
31, 2021. The increase in the ACL at December 31, 2022, when
compared to September 30, 2022, was primarily due to a $4.7 million
increase in the commercial finance portfolio, a $1.4 million
increase in the consumer finance portfolio and a $0.6 million
increase in the seasonal tax services loan portfolio.
The $15.0 million year-over-year decrease in the ACL was
primarily driven by a $8.1 million decrease in the commercial
finance portfolio, a $5.7 million decrease in the consumer finance
portfolio and a $1.0 million decrease in the tax services
portfolio. The year-over-year decrease in the commercial finance
portfolio was primarily due to a reduction in specific reserves on
two individually evaluated loans during the second quarter of
fiscal 2022 while the decrease in 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)
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
Commercial finance
1.62%
1.46%
1.56%
1.66%
2.04%
Consumer finance
1.54%
0.86%
2.44%
3.18%
2.70%
Tax services
2.01%
0.05%
54.29%
35.76%
1.60%
Warehouse finance
0.10%
0.10%
0.10%
0.10%
0.10%
Total loans and leases
1.50%
1.30%
2.04%
2.38%
1.84%
Total loans and leases excluding tax
services
1.50%
1.30%
1.44%
1.59%
1.84%
The Company's ACL as a percentage of total loans and leases
increased to 1.50% at December 31, 2022 from 1.30% at September 30,
2022. The increase in the total loans and leases coverage ratio was
primarily driven by the commercial and consumer finance portfolios.
The increase in the commercial finance coverage ratio was primarily
due to a specific reserve on an individually evaluated loan
relationship while the increase in 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
(Dollars in thousands)
December 31, 2022
September 30, 2022
December 31, 2021
Beginning balance
$
45,947
$
75,206
$
68,281
Provision (reversal of) - tax services
loans
1,637
—
(714
)
Provision (reversal of) - all other loans
and leases
8,226
(2,617
)
1,184
Charge-offs - tax services loans
(1,731
)
(22,599
)
(254
)
Charge-offs - all other loans and
leases
(2,708
)
(6,844
)
(4,605
)
Recoveries - tax services loans
698
5
2,567
Recoveries - all other loans and
leases
523
2,796
1,164
Ending balance
$
52,592
$
45,947
$
67,623
The Company recognized a provision for credit losses of $9.8
million for the quarter ended December 31, 2022, compared to $0.2
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 the release of provision for credit
losses related to the community bank portfolio during the prior
year period. Net charge-offs were $3.2 million for the quarter
ended December 31, 2022, compared to $1.1 million for the quarter
ended December 31, 2021. Net charge-offs attributable to the
commercial finance, tax services, and consumer finance portfolios
for the current quarter were $2.0 million, $1.0 million, and $0.2
million, respectively.
The Company's past due loans and leases were as follows for the
periods presented.
As of December 31, 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
As of September 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
$
—
$
—
$
—
$
—
$
21,071
$
21,071
$
—
$
—
$
—
Commercial finance
24,881
6,208
7,868
38,957
2,984,716
3,023,673
4,142
13,375
17,517
Consumer finance
3,322
2,609
2,793
8,724
160,935
169,659
2,793
—
2,793
Tax services
—
—
8,873
8,873
225
9,098
8,873
—
8,873
Warehouse finance
—
—
—
—
326,850
326,850
—
—
—
Total loans and leases held for
investment
28,203
8,817
19,534
56,554
3,472,726
3,529,280
15,808
13,375
29,183
Total loans and leases
$
28,203
$
8,817
$
19,534
$
56,554
$
3,493,797
$
3,550,351
$
15,808
$
13,375
$
29,183
The Company's nonperforming assets at December 31, 2022 were
$45.0 million, representing 0.68% of total assets, compared to
$30.9 million, or 0.46% of total assets at September 30, 2022 and
$44.3 million, or 0.58% of total assets at December 31, 2021.
The Company's nonperforming loans and leases at December 31,
2022, were $40.9 million, representing 1.16% of total gross loans
and leases, compared to $29.2 million, or 0.82% of total gross
loans and leases at September 30, 2022 and $43.2 million, or 1.16%
of total gross loans and leases at December 31, 2021.
The increase in the nonperforming assets as a percentage of
total assets at December 31, 2022 compared to September 30, 2022,
was driven by an increase in nonperforming loans in the commercial
finance portfolio, primarily due to one lending relationship that
moved to nonperforming during the period. The increase was
partially offset by a decrease in nonperforming tax services loans
due to seasonal timing. When comparing the current period to the
same period of the prior year, the slight increase in nonperforming
assets was due to an increase in nonperforming loans in the
consumer finance portfolio.
The Company has various portfolios of consumer lending and tax
services loans that present unique risks that are statistically
managed. Due to the unique risks associated with these portfolios,
the Company monitors other credit quality indicators in their
evaluation of the appropriateness of the allowance for credit
losses on these portfolios, and as such, these loans are not
included in the asset classification table below. The Company's
loans and leases held for investment by asset classification were
as follows for the periods presented.
Asset Classification
(Dollars in thousands)
Pass
Watch
Special Mention
Substandard
Doubtful
Total
As of December 31, 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
Asset Classification
(Dollars in thousands)
Pass
Watch
Special Mention
Substandard
Doubtful
Total
As of September 30, 2022
Commercial finance
$
2,254,579
$
469,638
$
91,754
$
203,680
$
4,022
$
3,023,673
Warehouse finance
294,350
—
32,500
—
—
326,850
Total loans and leases
$
2,548,929
$
469,638
$
124,254
$
203,680
$
4,022
$
3,350,523
Deposits, Borrowings and Other Liabilities
Total average deposits for the fiscal 2023 first quarter
decreased by $284.7 million to $5.64 billion compared to the same
period in fiscal 2022. The decrease in average deposits was
primarily due to decreases in noninterest bearing deposits,
wholesale deposits and savings deposits, partially offset by an
increase in money market 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 $5.70 billion for the three-month period ended
December 31, 2022, compared to $6.01 billion for the same period in
the prior fiscal year, representing a decrease of 5%.
Total end-of-period deposits decreased 11% to $5.79 billion at
December 31, 2022, compared to $6.53 billion at December 31, 2021.
The decrease in end-of-period deposits was primarily driven by a
decrease in noninterest-bearing deposits of $690.5 million and
wholesale deposits of $60.8 million.
As of December 31, 2022, the Company managed $2.23 billion of
customer deposits at other banks in its capacity as custodian. The
balance of these deposits increased as of December 31, 2022 as
compared to September 30, 2022 primarily due to seasonal activity.
These deposits provide the Company with excess deposits that can
earn record keeping service fee income, typically reflective of the
EFFR.
Approximately 43% of the deposit balances at December 31, 2022
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 December 31, 2022, and continued to be classified as
well-capitalized, and in good standing with the regulatory
agencies. Regulatory capital ratios of the Company and the Bank are
stated in the table below. Regulatory Capital is not affected by
the unrealized loss on accumulated other comprehensive income
(“AOCI”). The securities portfolio is 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
December 31, 2022(1)
September 30, 2022
June 30, 2022
March 31, 2022
December 31,
2021
Company
Tier 1 leverage capital ratio
8.37
%
8.10
%
8.23
%
6.80
%
7.39
%
Common equity Tier 1 capital ratio
12.31
%
12.07
%
11.87
%
11.26
%
10.88
%
Tier 1 capital ratio
12.63
%
12.39
%
12.19
%
11.58
%
11.20
%
Total capital ratio
14.29
%
13.88
%
13.44
%
14.16
%
13.80
%
Bank
Tier 1 leverage ratio
8.68
%
8.19
%
8.22
%
7.79
%
8.52
%
Common equity Tier 1 capital ratio
13.09
%
12.55
%
12.17
%
13.26
%
12.90
%
Tier 1 capital ratio
13.09
%
12.55
%
12.18
%
13.26
%
12.91
%
Total capital ratio
14.29
%
13.57
%
13.43
%
14.52
%
14.16
%
(1) December 31, 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)
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
Total stockholders' equity
$
659,133
$
645,140
$
724,774
$
763,406
$
826,157
Adjustments:
LESS: Goodwill, net of associated deferred
tax liabilities
298,788
299,186
299,616
299,983
300,382
LESS: Certain other intangible assets
25,053
26,406
27,809
30,007
32,294
LESS: Net deferred tax assets from
operating loss and tax credit carry-forwards
16,641
17,968
11,978
13,404
19,855
LESS: Net unrealized gains (losses) on
available for sale securities
(200,597
)
(211,600
)
(131,352
)
(69,838
)
403
LESS: Noncontrolling interest
(207
)
(30
)
665
322
642
ADD: Adoption of Accounting Standards
Update 2016-13
2,017
2,689
10,011
13,387
6,527
Common Equity Tier 1(1)
521,472
515,899
526,069
502,915
479,108
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
(138
)
(20
)
377
208
444
Total Tier 1 capital
534,995
529,540
540,107
516,784
493,213
Allowance for credit losses
50,853
43,623
55,506
56,051
55,125
Subordinated debentures, net of issuance
costs
19,521
20,000
—
59,256
59,220
Total capital
$
650,369
$
593,163
$
595,613
$
632,091
$
607,558
(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.
December
31,2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
Total stockholders' equity
$
659,133
$
645,140
$
724,774
$
763,406
$
826,157
Less: Goodwill
309,505
309,505
309,505
309,505
309,505
Less: Intangible assets
24,433
25,691
27,088
29,290
31,661
Tangible common equity
325,195
309,944
388,181
424,611
484,991
Less: AOCI
(201,690
)
(213,080
)
(131,407
)
(69,374
)
724
Tangible common equity excluding AOCI
$
526,885
$
523,024
$
519,588
$
493,985
$
484,267
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,
January 25, 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
1-844-200-6205 (International: +1-929-526-1599) approximately 10
minutes prior to start time and reference access code 611903. A
webcast replay will also be archived at www.pathwardfinancial.com
for one year.
Upcoming Investor Events
- KBW Winter Financial Services Conference, Feb 16, 2023 | Boca
Raton, FL
About Pathward Financial, Inc.™
Pathward Financial, Inc.™ (Nasdaq: CASH) is a U.S.-based
financial holding company driven by its purpose to power financial
inclusion for all™. Through our subsidiary, Pathward™, N.A., we
strive to increase financial availability, choice, and opportunity
across our Banking as a Service and Commercial Finance business
lines. These strategic business lines provide end-to-end support to
individuals and businesses. Learn more at
www.pathwardfinancial.com.
Forward-Looking Statements
The Company and the Bank may from time to time make written or
oral “forward-looking statements,” including statements contained
in this press release, the Company’s filings with the 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 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; 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)
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
ASSETS
Cash and cash equivalents
$
369,169
$
388,038
$
157,260
$
237,680
$
1,230,100
Securities available for sale, at fair
value
1,847,778
1,882,869
1,956,523
2,043,478
1,782,739
Securities held to maturity, at amortized
cost
40,565
41,682
43,877
47,287
50,994
Federal Reserve Bank and Federal Home Loan
Bank Stock, at cost
28,812
28,812
28,812
28,812
28,400
Loans held for sale
17,148
21,071
67,571
31,410
36,182
Loans and leases
3,509,730
3,536,305
3,688,566
3,730,190
3,684,261
Allowance for credit losses
(52,592
)
(45,947
)
(75,206
)
(88,552
)
(67,623
)
Accrued interest receivable
20,170
17,979
16,818
19,115
17,240
Premises, furniture, and equipment,
net
41,029
41,710
42,076
43,167
44,130
Rental equipment, net
231,129
204,371
222,023
213,033
234,693
Goodwill and intangible assets
333,938
335,196
336,593
338,795
341,166
Other assets
272,349
295,324
243,265
242,824
227,376
Total assets
$
6,659,225
$
6,747,410
$
6,728,178
$
6,887,239
$
7,609,658
LIABILITIES AND STOCKHOLDERS’
EQUITY
LIABILITIES
Deposits
5,789,132
5,866,037
5,710,799
5,829,886
6,525,569
Long-term borrowings
34,977
36,028
16,616
91,386
92,274
Accrued expenses and other liabilities
175,983
200,205
275,989
202,561
165,658
Total liabilities
6,000,092
6,102,270
6,003,404
6,123,833
6,783,501
STOCKHOLDERS’ EQUITY
Preferred stock
—
—
—
—
—
Common stock, $.01 par value
282
288
294
294
301
Common stock, Nonvoting, $.01 par
value
—
—
—
—
—
Additional paid-in capital
620,681
617,403
615,159
612,917
610,816
Retained earnings
246,891
245,394
244,686
223,760
217,992
Accumulated other comprehensive income
(loss)
(201,690
)
(213,080
)
(131,407
)
(69,374
)
724
Treasury stock, at cost
(6,824
)
(4,835
)
(4,623
)
(4,513
)
(4,318
)
Total equity attributable to
parent
659,340
645,170
724,109
763,084
825,515
Noncontrolling interest
(207
)
(30
)
665
322
642
Total stockholders’ equity
659,133
645,140
724,774
763,406
826,157
Total liabilities and stockholders’
equity
$
6,659,225
$
6,747,410
$
6,728,178
$
6,887,239
$
7,609,658
Condensed Consolidated Statements of
Operations (Unaudited)
Three Months Ended
(Dollars in Thousands, Except Share and
Per Share Data)
December 31, 2022
September 30, 2022
December 31, 2021
Interest and dividend income:
Loans and leases, including fees
$
68,396
$
64,963
$
65,035
Mortgage-backed securities
10,412
10,155
3,864
Other investments
6,252
5,104
3,992
85,060
80,222
72,891
Interest expense:
Deposits
142
99
141
FHLB advances and other borrowings
861
363
1,137
1,003
462
1,278
Net interest income
84,057
79,760
71,613
Provision for credit losses
9,776
(2,648
)
186
Net interest income after provision for
credit losses
74,281
82,408
71,427
Noninterest income:
Refund transfer product fees
677
1,135
579
Refund advance fee income
617
44
1,233
Card and deposit fees
37,718
28,908
25,369
Rental income
12,708
12,024
11,077
Gain (loss) on sale of securities
—
(1,882
)
137
Gain on sale of trademarks
10,000
—
50,000
Gain (loss) on sale of other
502
(3,319
)
(3,465
)
Other income
3,555
6,546
1,661
Total noninterest income
65,777
43,456
86,591
Noninterest expense:
Compensation and benefits
43,017
42,762
38,225
Refund transfer product expense
105
52
138
Refund advance expense
27
1
183
Card processing
22,683
15,718
7,172
Occupancy and equipment expense
8,312
9,064
8,349
Operating lease equipment depreciation
9,628
9,306
8,449
Legal and consulting
9,459
13,355
6,208
Intangible amortization
1,258
1,397
1,488
Impairment expense
24
—
—
Other expense
10,546
11,375
12,224
Total noninterest expense
105,059
103,030
82,436
Income before income tax
expense
34,999
22,834
75,582
Income tax expense (benefit)
6,577
(1,272
)
14,276
Net income before noncontrolling
interest
28,422
24,106
61,306
Net income attributable to noncontrolling
interest
580
686
(18
)
Net income attributable to
parent
$
27,842
$
23,420
$
61,324
Less: Allocation of Earnings to
participating securities(1)
402
393
953
Net income attributable to common
shareholders(1)
27,440
23,027
60,371
Earnings per common share:
Basic
$
0.98
$
0.81
$
2.00
Diluted
$
0.98
$
0.81
$
2.00
Shares used in computing earnings per
common share:
Basic
28,024,541
28,581,236
30,238,621
Diluted
28,086,823
28,581,236
30,260,655
(1) Amounts presented are used in the
two-class earnings per common share calculation.
Average Balances, Interest Rates and
Yields
The following table presents, for the periods indicated, the
total dollar amount of interest income from average
interest-earning assets and the resulting yields, as well as the
interest expense on average interest-bearing liabilities, expressed
both in dollars and in rates. Only the yield/rate reflects
tax-equivalent adjustments. Nonaccruing loans and leases have been
included in the table as loans carrying a zero yield.
Three Months Ended December 31,
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
$
226,004
$
1,716
3.01
%
$
594,614
$
560
0.37
%
Mortgage-backed securities
1,571,022
10,412
2.63
%
1,007,030
3,864
1.52
%
Tax exempt investment securities
154,754
980
3.18
%
207,621
820
1.98
%
Asset-backed securities
155,988
1,149
2.92
%
387,567
1,152
1.18
%
Other investment securities
301,739
2,407
3.17
%
279,839
1,460
2.07
%
Total investments
2,183,503
14,948
2.76
%
1,882,057
7,296
1.58
%
Commercial finance
3,010,868
58,100
7.66
%
2,775,394
49,021
7.01
%
Consumer finance
198,372
4,313
8.63
%
316,573
6,114
7.66
%
Tax services
25,230
57
0.90
%
33,604
1,474
17.40
%
Warehouse finance
290,454
5,926
8.09
%
443,506
6,901
6.17
%
Community banking
—
—
—
%
137,898
1,525
4.39
%
Total loans and leases
3,524,924
68,396
7.70
%
3,706,975
65,035
6.96
%
Total interest-earning assets
$
5,934,431
$
85,060
5.70
%
$
6,183,646
$
72,891
4.69
%
Noninterest-earning assets
589,580
839,854
Total assets
$
6,524,011
$
7,023,500
Interest-bearing liabilities:
Interest-bearing checking
$
447
$
—
0.33
%
$
389
$
—
0.32
%
Savings
62,607
6
0.04
%
80,765
5
0.03
%
Money markets
138,872
78
0.22
%
75,664
52
0.27
%
Time deposits
7,199
2
0.11
%
8,619
15
0.67
%
Wholesale deposits
5,712
56
3.89
%
67,384
69
0.41
%
Total interest-bearing deposits
214,837
142
0.26
%
232,821
141
0.24
%
Overnight fed funds purchased
24,783
244
3.91
%
327
—
0.31
%
Subordinated debentures
19,593
357
7.22
%
73,995
986
5.28
%
Other borrowings
15,817
260
6.53
%
18,636
151
3.22
%
Total borrowings
60,193
861
5.67
%
92,958
1,137
4.85
%
Total interest-bearing
liabilities
275,030
1,003
1.45
%
325,779
1,278
1.56
%
Noninterest-bearing deposits
5,421,821
—
—
%
5,688,563
—
—
%
Total deposits and interest-bearing
liabilities
$
5,696,851
$
1,003
0.07
%
$
6,014,342
$
1,278
0.08
%
Other noninterest-bearing liabilities
178,789
182,916
Total liabilities
5,875,640
6,197,258
Shareholders' equity
648,371
826,242
Total liabilities and shareholders'
equity
$
6,524,011
$
7,023,500
Net interest income and net interest rate
spread including noninterest-bearing deposits
$
84,057
5.63
%
$
71,613
4.61
%
Net interest margin
5.62
%
4.59
%
Tax-equivalent effect
0.02
%
0.02
%
Net interest margin,
tax-equivalent(2)
5.64
%
4.61
%
(1) Tax rate used to arrive at the TEY for
the three months ended December 31, 2022 and 2021 was 21%.
(2) Net interest margin expressed on a
fully-taxable-equivalent basis ("net interest margin,
tax-equivalent") is a non-GAAP financial measure. The
tax-equivalent adjustment to net interest income recognizes the
estimated income tax savings when comparing taxable and tax-exempt
assets and adjusting for federal and state exemption of interest
income. The Company believes that it is a standard practice in the
banking industry to present net interest margin expressed on a
fully taxable equivalent basis and, accordingly, believes the
presentation of this non-GAAP financial measure may be useful for
peer comparison purposes.
Selected Financial Information
As of and For the Three Months
Ended
December 31,
2022
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
Equity to total assets
9.90
%
9.56
%
10.77
%
11.08
%
10.86
%
Book value per common share
outstanding
$
23.36
$
22.41
$
24.69
$
26.00
$
27.46
Tangible book value per common share
outstanding
$
11.53
$
10.77
$
13.22
$
14.46
$
16.12
Tangible book value per common share
outstanding excluding AOCI
$
18.68
$
18.17
$
17.70
$
16.82
$
16.10
Common shares outstanding
28,211,239
28,788,124
29,356,707
29,362,844
30,080,717
Nonperforming assets to total assets
0.68
%
0.46
%
0.40
%
0.56
%
0.58
%
Nonperforming loans and leases to total
loans and leases
1.16
%
0.82
%
0.71
%
0.95
%
1.16
%
Net interest margin
5.62
%
5.21
%
4.76
%
4.80
%
4.59
%
Net interest margin, tax-equivalent
5.64
%
5.23
%
4.77
%
4.81
%
4.61
%
Return on average assets
1.71
%
1.39
%
1.32
%
2.49
%
3.49
%
Return on average equity
17.18
%
12.82
%
11.93
%
24.16
%
29.69
%
Full-time equivalent employees
1,150
1,141
1,178
1,167
1,140
Non-GAAP Reconciliations
Adjusted Net Income and Adjusted
Earnings Per Share
At and For the Three Months
Ended
(Dollars in Thousands, Except Share and
Per Share Data)
December 31,
2022
September 30,
2022
December 31,
2021
Net Income - GAAP
$
27,842
$
23,420
$
61,324
Less: Gain on sale of trademarks
10,000
—
50,000
Add: Rebranding expenses
3,737
6,899
3
Add: Separation related expenses
11
1,029
86
Add: Income tax effect resulting from gain
on sale of trademarks and rebranding and separation expenses
1,575
(1,029
)
12,572
Adjusted net income
$
23,165
$
30,319
$
23,985
Less: Adjusted allocation of earnings to
participating securities
335
508
373
Adjusted Net income attributable to common
shareholders
22,830
29,811
23,612
Weighted average diluted common shares
outstanding
28,086,823
28,581,236
30,260,655
Adjusted earnings per common share -
diluted
$
0.81
$
1.04
$
0.78
Adjusted Diluted Earnings Per Share
Guidance
Fiscal Year Ended
(Earnings per share amounts)
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,
rebrand related expenses and separation related expenses.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230125005693/en/
Investor Relations Contact Justin Schempp 877-497-7497
jschempp@pathward.com
Media Relations Contact mediarelations@pathward.com
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