8-K
PATHWARD FINANCIAL, INC. (CASH)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 27, 2022
PATHWARD FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 0-22140 | 42-1406262 |
|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
5501 South Broadband Lane, Sioux Falls, South Dakota 57108
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (877) 497-7497
Meta Financial Group, Inc.
(Former name or former address, if changed since last report.)
| Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: | |
|---|---|
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d- 2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $.01 par value | CASH | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On July 27, 2022, the Registrant issued a press release announcing its results of operations and financial condition as of and for the three and nine months ended June 30, 2022. A copy of the press release is attached as Exhibit 99.1 to this report and is incorporated into this Item 2.02 by reference.
The information in this Item 2.02, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities thereof, nor shall it be deemed to be incorporated by reference in any filing under the Exchange Act or under the Securities Act of 1933, as amended (the "Securities Act"), except to the extent specifically provided in any such filing.
Item 7.01 Regulation FD Disclosure.
Information is being furnished herein in Exhibit 99.2 with respect to the Investor Update slide presentation prepared for use with the press release. While most of the selected financial information furnished herein is derived from the Company’s consolidated financial statements and related notes prepared in accordance with generally accepted accounting principles ("GAAP") and management’s discussion and analysis of financial condition and results of operations included, or to be included, in the Company’s reports on Forms 10-K and 10-Q, this information includes selected financial and operational information through the third quarter of fiscal year 2022 and does not represent a complete set of financial statement and related notes prepared in conformity with GAAP. The Company’s annual financial statements are subject to independent audit. The Investor Update slide presentation is dated July 27, 2022 and the Company does not undertake to update the materials after that date.
The information in this Item 7.01, including Exhibit 99.2, shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities thereof, nor shall it be deemed to be incorporated by reference in any filing under the Exchange Act or under the Securities Act, except to the extent specifically provided in any such filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
| Exhibit Number | Description of Exhibit |
|---|---|
| 99.1 | Press Release of Pathward Financial, Inc., dated July 27, 2022 regarding the results of operations and financial condition. |
| 99.2 | Investor Update slide presentation for the Third Quarter of Fiscal Year 2022, dated July 27, 2022, prepared for use with the Press Release. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| PATHWARD FINANCIAL, INC. | ||
|---|---|---|
| Date: July 27, 2022 | By: | /s/ Glen W. Herrick |
| Glen W. Herrick | ||
| Executive Vice President and Chief Financial Officer |
Document
Exhibit 99.1
PATHWARD FINANCIAL, INC.™ ANNOUNCES RESULTS FOR 2022 FISCAL THIRD QUARTER
Fiscal 2022 Third Quarter Net Income of $22.4 million, or $0.76 Per Diluted Share -
Reinstates Guidance, With Fiscal 2023 GAAP EPS Range of $5.25 to $5.75 -
Sioux Falls, S.D., July 27, 2022 -- 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,<br>2021 | September 30,<br>2021 | June 30,<br>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,<br>2022 | March 31,<br>2022 | December 31,<br>2021 | September 30,<br>2021 | June 30,<br>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,<br>2022 | March 31,<br>2022 | December 31,<br>2021 | September 30,<br>2021 | June 30,<br>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<br>Outstanding<br>Balance | Interest<br>Earned /<br>Paid | Yield /<br><br>Rate(1) | Average<br>Outstanding<br>Balance | Interest<br>Earned /<br>Paid | Yield /<br><br>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,<br>2022 | March 31,<br>2022 | December 31,<br>2021 | September 30,<br>2021 | June 30,<br>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,<br>2022 | March 31,<br>2022 | June 30,<br>2021 | June 30,<br>2022 | June 30,<br>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,<br>2022 | March 31,<br>2022 | December 31,<br>2021 | September 30,<br>2021 | June 30,<br>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.
| Investor Relations Contact |
|---|
| Justin Schempp |
| 877-497-7497 |
| jschempp@metabank.com |
| Media Relations Contact |
| mediarelations@metabank.com |
16
a3qfy22irquarterlydeck_0
QUARTERLY INVESTOR UPDATE THIRD QUARTER FISCAL YEAR 2022 Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation 1
FORWARD LOOKING STATEMENTS 2 This investor update contains “forward-looking statements” 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. 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; 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 loan and lease 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 currently 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 business, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of the Company’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; 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; and the other factors described 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 by the Company with the Securities and Exchange Commission (“SEC”). The forward-looking statements included herein speak only as of the date of this investor update. 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. Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation
3 WE STRIVE TO INCREASE FINANCIAL AVAILABILITY, CHOICE, AND OPPORTUNITY THROUGH FINANCIAL EMPOWERMENT. We work to disrupt traditional banking norms by developing partnerships with fintechs, affinity groups, government agencies, and other banks to make a range of quality financial products and services available to the communities we serve nationally. Our national bank charter, coordination with regulators, and deep understanding of risk mitigation and compliance allows us to guide our partners and deliver the financial products and services that meet the needs of those who need them most. We believe in financial inclusion for allTM. Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation
Optimize Interest-Earning Assets Optimize Deposits Optimize Operating Efficiencies Efficiency ratio of 62.84% compared to 61.75% as of June 30, 2021.1 • Drive long-term simplification and optimization of existing business platforms. • Exiting two tax partner relationships, driving simplification and anticipated expense efficiencies over time. • Acted on expense reduction initiatives which resulted in $3.1 million in separation agreement expenses for the June 30, 2022 quarter. Total deposits fell by $178 million, or 3%, from June 30, 2021 • Reduced wholesale deposits by 92% from June 30, 2021. • Achieved 0.12% cost of funds from all deposits and borrowings. Continued focus on growing commercial finance business lines. • Grew commercial finance loans by $361 million, or 14%, from June 30, 2021. • Cash and cash equivalents dropped by $563 million from June 30, 2021. • Divestment from the Community Banking loans led to reduction of $304 million from June 30, 2021 THIRD QUARTER BUSINESS HIGHLIGHTS & KEY STRATEGIC INITIATIVES 4Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation 1Adjusted efficiency ratio (excluding the gain on sale of trademarks and rebranding expenses) for the twelve months ended June 30, 2022 was 67.43%. See appendix for Non-GAAP financial measures reconciliations.
OTHER BUSINESS DEVELOPMENTS THIRD QUARTER ENDED JUNE 30, 2022 5Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation • On July 13, 2022, the Company announced it is changing its name to Pathward Financial, Inc.TM, and its bank subsidiary, MetaBank, N.A., will be changing its name to PathwardTM, N.A. – 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 will continue to serve its customers under existing brand names during the transition. – The Company recognized $3.4 million of pre-tax expenses related to rebranding efforts during the third quarter of fiscal 2022 and $6.2 million fiscal year to date. The Company estimates total rebranding expenses will range between $15 million to $20 million. – More information can be found at www.pathwardfinancial.com • As part of the Company's priority to work with partners who offer their customers a broader suite of 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 third quarter, the Company recognized $1.2 million of pre-tax one-time partner termination related expenses.
EARNINGS GUIDANCE • Fiscal Year 2023 earnings assume a Fed Funds rate of 3.50% by September 2023 The Company’s expectations are as of the date of this presentation and are subject to substantial uncertainty. Our 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 in our “Forward-looking Statements.” Pathward Financial Group, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation 6 (Earnings per share amounts) Fiscal Year 2022 Fiscal Year 2023 Diluted earnings per share - GAAP $5.04 – $5.24 $5.25 - $5.75 Less: Net nonrecurring items, net of tax1 $0.76 $0.15 Diluted earnings per share - Adjusted $4.28 - $4.48 $5.10 - $5.60 1 Includes gain on sale of trademarks, rebrand related expenses and separation agreement related expenses.
SUMMARY FINANCIAL RESULTS THIRD QUARTER ENDED JUNE 30, 2022 7 1 Amounts presented are used in the two-class earnings per common share calculation. INCOME STATEMENT ($ in thousands, except per share data) 3Q21 2Q22 3Q22 Net interest income 68,475 83,800 72,151 Provision for credit losses 4,612 32,302 (1,302) Total noninterest income 62,453 109,766 53,994 Total noninterest expense 81,523 103,160 96,650 Net income before taxes 44,793 58,104 30,797 Income tax expense (benefit) 4,934 8,002 6,958 Net income before non-controlling interest 39,859 50,102 23,839 Net income (loss)attributable to non-controlling interest 1,158 851 1,448 Net income attributable to parent 38,701 49,251 22,391 Less: Allocation of earnings to participating securities1 729 815 377 Net income attributable to common shareholders1 37,972 48,436 22,014 Earnings per share, diluted $1.21 $1.66 0.76 Average diluted shares 31,338,947 29,224,362 28,868,136 Revenue of $126.1 million, a 4% decrease compared to $130.9 million for the same quarter in fiscal 2021. • Net interest income was $72.2 million, a $3.7 million increase compared to $68.5 million in the prior year, due to an improved earning asset mix and increased balances. • Gain on sale of loans and leases down $4.8 million from prior year, due to lower sales volumes stemming from supply chain constraints in the solar market. • Payments card and deposit fee income reduced $4.5 million primarily due to elevated government stimulus-related activity in the prior year. • Tax season product fee income decreased $2.7 million compared to the prior year, due largely to the delayed start in last year’s tax season. Noninterest expense of $96.7 million, an increase of 19% compared to $81.5 million for the fiscal 2021 third quarter. • The increase in expense was primarily driven by compensation expense, consulting expense and card processing. • Expenses for the third quarter of fiscal 2022 included $3.4 million related to rebranding and $3.1 million related to separation agreements, and $1.2 million in expenses related to non-renewal of tax partner agreements. Up 9% when excluding these one-time expenses. Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation
2022 TAX SEASON RECAP 8 Refund advances (“RAs”) and refund-transfers (“RTs”) leverage banking-as-a-service (“BaaS”) infrastructure and are core to our Pathwardmission, as they allow consumers quicker access to their money. • RA originations of $1.83 billion compared to $1.79 billion in the 2021 tax season. – Customer appetite for refund advances tempered in the 2022 tax season by remaining government stimulus funds. – Approximate average loan size of $1,263 compared to $1,323 in 2021. • RT volumes and RT product income for the overall tax season are expected to end higher than last year Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation Tax Season ramps up during the first fiscal quarter, peaks during the second fiscal quarter, and wraps up during the third fiscal quarter. As a result, performance for the nine months ended June 30th is a better reflection on the overall performance for tax season as it alleviates timing differences between quarters. However, delays experienced in the 2021 tax season caused some additional amounts of revenues and expenses to be recognized in the third and fourth fiscal quarters TAX SERVICES ECONOMICS Three Months Ended Nine Months Ended ($ in millions) June 30, 2022 June 30, 2021 % Change June 30, 2022 June 30, 2021 % Change Net interest income (expense) 0.05 0.61 (91%) 3.39 1.03 229% Tax advance product income (0.02) 0.89 (102%) 40.51 47.41 (15%) RT product income 10.29 12.07 (15%) 38.67 35.40 9% Total revenue 10.32 13.57 (24%) 82.57 83.84 (2%) Total expense 2.43 2.41 1% 11.01 11.18 (1%) Provision for credit losses (0.17) 4.69 (104%) 28.09 32.82 (14%) Net income, pre-tax 8.06 6.47 25% 43.47 39.85 9% Total refund advance originations - - $1,834 $ 1,793 2% Approximate loss rate¹ (9 months) 1.67 % 1.83 % 1 Approximate loss rate calculated by taking provision for loan & lease losses divided by total refund advance originations. FY22 value excludes large recovery in Q1 for FY21 season.
$- $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 3Q21 2Q22 3Q22 Payments Tax Services Consumer Lending BaaS CAPABILITIES GENERATE LOW-COST DEPOSITS AND REVENUE 9 BaaS revenue Average Payments Deposits* ($ in billions) 36% 58% 32% % of Total Revenue ($ in millions) *Deposit balances includes stimulus-related deposits as a result of Economic Impact Payments (“EIP”) disbursed in 2021 and 2022. BaaS deposits Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation $6.67 $6.33 $5.56 $2.076 $1.47 $1.39 $0.13 $0.02 $0.02 3Q21 2Q22 3Q22 BaaS Off Balance Sheet EIP
BALANCE SHEET HIGHLIGHTS THIRD QUARTER ENDED JUNE 30, 2022 10 BALANCE SHEET PERIOD ENDING ($ in thousands) 3Q21 2Q22 3Q22 Cash and cash equivalents 720,243 237,680 157,260 Investments 1,981,852 2,090,765 2,000,400 Loans held for sale 87,905 31,410 67,571 Loans and leases (HFI)1 3,496,670 3,730,190 3,688,566 Allowance for credit losses (91,208) (88,552) (75,206) Other assets 856,350 885,746 889,587 Total assets 7,051,812 6,887,239 6,728,178 Total deposits 5,888,871 5,829,886 5,710,799 Total borrowings 93,634 91,386 16,616 Other liabilities 192,674 202,561 275,989 Total liabilities 6,175,179 6,123,833 6,003,404 Total stockholders’ equity 876,633 763,406 724,774 Total liabilities and stockholders’ equity 7,051,812 6,887,239 6,728,178 Loans (HFI) / Deposits 59 % 64 % 65 % Net Interest Margin 3.75 % 4.80 % 4.76 % Return on Average Assets 1.90 % 2.49 % 1.32 % Return on Average Equity 18.07 % 24.16 % 11.93 % 1Includes $143.3 million, $43.0 million, and $21.1 million of PPP loans in 3Q21, 2Q22, and 3Q22, respectively. The effects of government stimulus programs have had a significant impact on the Company’s balance sheet. These programs include EIP, enhanced unemployment benefits that flow through to existing prepaid card programs, and Paycheck Protection Program (“PPP”) loans. Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation
Quarterly Average Earning Asset Mix % in charts represent % of total interest earning assetsAt the Quarter Ended JUN 30, 2021 JUN 30, 2022 ($ in thousands) 3 Q 2 1 3 Q 2 2 Y/Y Δ COMMERCIAL FINANCE 2,586,527 2,947,903 14% Term lending 920,279 1,047,764 14% Asset-based lending 263,237 402,506 53% Factoring 320,629 408,777 27% Lease financing 282,940 218,789 (23)% Insurance premium finance 417,652 481,219 15% SBA/USDA¹ 263,709 215,510 (18)% Other commercial finance 118,081 173,338 47% CONSUMER LENDING 227,756 259,241 14% Consumer credit programs 105,440 152,106 44% Other consumer lending 122,316 107,135 (12)% TAX SERVICES 41,268 41,627 1% WAREHOUSE FINANCE 335,704 434,748 30% COMMUNITY BANKING 303,984 - (100)% TOTAL GROSS LOANS & LEASES HFI 3,495,239 3,683,519 5% TOTAL GROSS LOANS & LEASES HFS 87,905 67,571 (23)% CASH & INVESTMENTS 2,635,758 2,293,850 (13)% TOTAL EARNING ASSETS 6,220,333 6,049,987 (3)% RENTAL EQUIPMENT, NET 211,368 222,023 5% 1Includes balances of $143.3 million in PPP loans at June 30, 2021 and $21.1 million at June 30, 2022. DIVERSIFIED EARNING ASSET PORTFOLIO 11 40% 47% 56% 3% 5% 5% 1% 8% 1% 5% 51% 40% 38% 3Q21 2Q22 3Q22 Commercial Finance & Warehouse Finance Target: >55% Consumer Target: <15% Tax Services Community Bank Target: 0% Cash & Investments Target: <20% The effects of government stimulus programs in 2020 and 2021 have had a significant impact on the Company’s cash balances. Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation
OVERVIEW OF LOAN PORTFOLIO 12 ($ in millions) Business Line Balance Sheet Category 3Q21 2Q22 3Q22 MRQ Yield Commercial Finance Commercial Finance Guaranteed portion of US govt SBA/USDA loans SBA/USDA 71.9 61.7 59.3 Unguaranteed portion of US govt SBA/USDA loans SBA/USDA 48.6 109.5 135.1 Paycheck Protection Program (PPP) loans SBA/USDA 143.3 43.0 21.1 Renewable energy debt financing¹ (term lending only) Term lending 231.2 273.7 212.6 Other Term lending 218.3 310.0 294.7 TOTAL 713.2 797.9 732.4 5.22% Equipment Finance Large ticket Lease Financing 247.0 205.8 192.7 Term lending 195.9 261.4 268.1 Small ticket Lease Financing 27.6 18.6 16.3 Term lending 274.9 265.9 263.0 Other Lease Financing 8.3 11.0 9.7 TOTAL 753.7 762.7 732.8 6.97% Working Capital Asset-Based Lending 263.2 382.4 402.5 Factoring 320.6 394.9 408.8 TOTAL 583.8 777.3 811.3 9.93% Specialty Finance Insurance Premium Finance 417.7 403.7 481.2 Other commercial finance 118.1 173.3 173.3 TOTAL 535.8 577.0 654.5 5.18% Consumer Lending Consumer credit programs Consumer credit programs 105.4 171.8 152.1 Private student loans Other consumer finance 101.4 87.1 83.3 Other consumer lending Other consumer finance 20.9 24.8 23.8 TOTAL 227.7 283.7 259.2 6.63% Tax Services Tax preparer loans Tax Services 0.3 5.9 - Refund advance loans Tax Services 41.0 80.1 41.6 TOTAL 41.3 86.0 41.6 0.34% Corporate Warehouse Finance 335.7 441.5 434.7 Community Banking 304.0 - - TOTAL 639.7 441.5 434.7 6.22% Total Lending Portfolio (HFI) 3,495.2 3,726.1 3,683.5 6.69% Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation 1Total renewable energy debt financing outstanding was $373.1 million in 3Q22. Majority of balances in term lending balance sheet category.
COMMERCIAL FINANCE INDUSTRY CONCENTRATIONS1 13Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation 1Total renewable energy debt financing outstanding was $401.2 million in 2Q22. Majority of balances in term lending balance sheet category. Transportation and Warehousing Manufacturing Utilities Wholesale Trade Health Care and Social Assistance Construction Finance and Insurance Admin. and Support and Waste Management and Remediation Services Mining, Quarrying, and Oil and Gas Extraction Professional, Scientific, and Technical Services Retail Trade Accommodation and Food Services Real Estate and Rental and Leasing Other Services (except Public Administration) Information Arts, Entertainment, and Recreation Management of Companies and Enterprises Agriculture, Forestry, Fishing and Hunting Public Administration Educational Services $- $100 $200 $300 $400 $ in millions 1 Distribution by NAICS codes; excludes certain joint ventures; calculated based on aggregate principal amount of commercial finance loans and leases; includes operating lease rental equipment of $222.0M MANUFACTURING 40% Asset-based lending 25% Lease financing 17% Term Lending 15% Factoring 3% Other TRANSPORTATION & WAREHOUSING 69% Factoring 21% Term lending 7% Lease Financing 3% Asset-based lending UTILITIES 65% Term lending 24% SBA/USDA 6% Rental equipment, net 5% Other
$2.8 $7.0 $3.4 $11.4 $4.2 0.32% 0.77% 0.37% 1.25% 0.46% 3Q21 4Q21 1Q22 2Q22 3Q222 Period Ended Adj. NCOs Adj. NCOs / Adj. Average Loans Adjusted Net Charge-Offs (“NCOs”)¹ Excludes Tax Services NCOs and Related Seasonal Average Loans ($ in millions) KEY CREDIT METRICS • Annualized adjusted net charge-offs1: – 0.46% of average loans in 2Q22 – 0.71% of average loans over last 12 months • Allowance for credit loss of $75.2 million, or 2.04% of total loans and leases, a 57bps decrease from the prior year. • When excluding tax reserves, allowance for credit loss of $52.6 million, or 1.44% of total loans and leases, a 15bps decrease from the sequential quarter. • 2Q22 net charge-offs were higher than historical trends due to charge-offs of two sizable factoring relationships. • NPAs / NPLs reductions driven by improvements across all portfolios. $45.1 $61.8 $44.3 $38.3 $26.8 0.64% 0.92% 0.58% 0.56% 0.40% 3Q21 4Q21 1Q22 2Q22 3Q222 Period Ended NPAs NPAs / Total Assets ASSET QUALITY 14 1 Non-GAAP financial measures, see appendix for reconciliations. Tax Services NCOs and related seasonal average loans are excluded to adjust for the cyclicality of activity related to the overall economics of the tax services business line. $41.9 $55.9 $43.2 $35.8 $26.6 1.17% 1.52% 1.16% 0.95% 0.71% 3Q21 4Q21 1Q22 2Q22 3Q222 Period Ended NPLs NPLs / Total Loans Nonperforming Assets (“NPAs”) ($ in millions) Nonperforming Loans (“NPLs”) ($ in millions) Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation
-10% 5% 20% 35% -100 +100 +200 +300 Parallel Shock Ramp 1 Fixed rate securities, loans and leases are shown for contractual periods. -2,000 0 2,000 4,000 Month 1-12 Month 13-36 Month 37-60 Month 61-180 V o lu m e ( $ M M ) Period Variance Total Assets Total Liabilities INTEREST RATE RISK MANAGEMENT JUNE 30, 2022 15 2% 25% 10% 63% • Focus is on selectively adding duration to improve yield and protect margin against falling rates. • Interest rate risk shows asset sensitive balance sheet; net interest income modeled under an instantaneous, parallel rate shock and a gradual parallel ramp. • Management employs rigorous modeling techniques under a variety of yield curve shapes, twists and ramps. Fixed Rate > 1 Year 12-Month Interest Rate Sensitivity from Base Net Interest Income Earning Asset Pricing Attributes1 Asset/Liability Gap Analysis Fixed Rate < 1 Year Floating or Variable Federal Reserve Bank Deposits (Floating or Variable) Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation
6.85% 7.67% 7.39% 6.80% 8.23% 7.83% 8.69% 8.52% 7.79% 8.22% 3Q21 4Q21 1Q22 2Q22 3Q22 CAPITAL AND SOURCES OF LIQUIDITY REGULATORY CAPITAL AS OF JUNE 30, 2022 Minimum Requirement to be Well-Capitalized under Prompt Corrective Action Provisions Pathward Financial, Inc. Pathward, N.A. Capital Ratio Trends At June 30, 2022¹ Pathward Financial, Inc. Pathward, N.A. Tier 1 Leverage 8.23% 8.22% Common Equity Tier 1 11.87% 12.17% Tier 1 Capital 12.19% 12.18% Total Capital 13.44% 13.43% Pathward remains well-capitalized. Tier 1 Leverage ratios impacted from government stimulus programs during fiscal 2020 and fiscal 2021. Capital levels have returned to a more normalized rate. Primary & Secondary Liquidity Sources ($ in millions) Cash and Cash Equivalents $155 Unpledged Investment Securities $250 FHLB Borrowing Capacity $665 Funds Available through Fed Discount Window $215 PPP Loan Collateral $15 Unsecured Lines of Credit $1,005 - $1,095 Deposit Balances Held at Other Banks $1,219 16.18% 15.45% 13.80% 14.16% 13.44% 16.22% 15.38% 14.16% 14.52% 13.43% 3Q21 4Q21 1Q22 2Q22 3Q22 10% 5% 16 Total Capital Ratio Tier 1 Leverage Ratio 1 Regulatory capital reflects the Company's election of the five-year CECL transition for regulatory capital purposes. Amounts are preliminary pending completion and filing of the Company's regulatory reports. ² Non-GAAP measure, see appendix for reconciliations. Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation
APPENDIX 17Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation
NON-GAAP RECONCILIATION 18Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation Adjusted Net Income and Adjusted Earnings Per Share For the quarter ended For the nine months ended ($ in thousands, except per share data) 3Q21 2Q22 3Q22 3Q21 3Q22 Net income - GAAP 38,701 49,251 22,391 125,805 132,966 Less: Gain on sale of trademarks - - - - 50,000 Add: Rebranding Expenses - 2,819 3,427 - 6,249 Add: Separation related expenses 1,161 878 3,116 2,509 4,080 Add: Income tax effect (290) (930) (1,677) (627) 9,965 Adjusted Net Income 39,572 52,018 27,257 127,687 103,260 Less: Allocation of earnings to participating securities1 746 861 458 2,447 1,682 Adjusted net income attributable to common shareholders 38,826 51,157 26,799 125,240 101,578 Adjusted earnings per common share, diluted $1.24 $1.75 $0.93 $3.93 $3.45 Average diluted shares 31,338,947 29,224,362 28,868,136 31,900,597 29,454,586 1 Amounts presented are used in the two-class earnings per common share calculation.
1 Tax Services NCOs and average loans are excluded to adjust for the cyclicality of activity related to the overall economics of the Company's tax services business line. 19 For the quarter ended ($ in thousands) Jun 30, 2021 Sep 30, 2021 Dec 31, 2021 Mar 31, 2022 Jun 30, 2022 Net Charge-offs 12,333 31,753 1,129 11,226 12,198 Less: Tax services net charge-offs 9,488 24,798 (2,313) (183) 7,992 Adjusted Net Charge-offs 2,845 6,955 3,442 11,409 4,206 Quarterly Average Loans and Leases 3,618,733 3,646,312 3,706,975 4,244,644 3,747,631 Less: Quarterly Average Tax Services Loans 91,804 31,174 33,604 594,166 62,934 Adjusted Quarterly Average Loans and Leases 3,526,929 3,609,138 3,673,371 3,650,478 3,684,697 Annualized NCOs/Average Loans and Leases 1.36% 3.48% 0.12% 1.06% 1.30% Adjusted Annualized NCOs/Adjusted Average Loans and Leases1 0.32% 0.77% 0.37% 1.25% 0.46% Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation NON-GAAP RECONCILIATION Adjusted Annualized NCOs and Adjusted Loans and Leases
FINANCIAL MEASURE RECONCILIATIONS 20Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation For the last twelve months ended ($ in thousands) Jun 30, 2021 Sep 30, 2021 Dec 31, 2021 Mar 31, 2022 Jun 30, 2022 Noninterest Expense - GAAP 330,352 343,683 353,544 360,733 375,860 Net Interest Income 272,837 278,991 284,605 294,555 298,231 Noninterest Income 262,111 270,903 312,039 308,352 299,893 Total Revenue: GAAP 534,948 549,894 596,644 602,907 598,124 Efficiency Ratio, LTM 61.75% 62.50% 59.26% 59.83% 62.84% For the last twelve months ended ($ in thousands) Jun 30, 2021 Sep 30, 2021 Dec 31, 2021 Mar 31, 2022 Jun 30, 2022 Noninterest Expense - GAAP 330,352 343,683 353,544 360,733 375,860 Less: Rebranding Expenses - - 3 2,822 6,249 Adjusted noninterest Expense 330,352 343,683 353,541 357,911 369,611 Net Interest Income 272,837 278,991 284,605 294,555 298,231 Noninterest Income 262,111 270,903 312,039 308,352 299,893 Less: Gain on sale of trademarks - - 50,000 50,000 50,000 Total Adjusted Revenue: 534,948 549,894 546,644 552,907 548,124 Efficiency Ratio, LTM 61.75% 62.50% 64.67% 64.73% 67.43% Efficiency Ratio Adjusted Efficiency Ratio