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): January 25, 2023
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
| 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 January 25, 2023, the Registrant issued a press release announcing its results of operations and financial condition as of and for the three months ended December 31, 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 first quarter of fiscal year 2023 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 January 25, 2023 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 January 25, 2023 regarding the results of operations and financial condition. |
| 99.2 | Investor Update slide presentation for the First Quarter of Fiscal Year 2023, dated January 25, 2023, 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: January 25, 2023 | 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 2023 FISCAL FIRST QUARTER
Net Income of $27.8 million, or $0.98 Per Diluted Share -
Raises Fiscal 2023 GAAP EPS Guidance Range to $5.55-$5.95 -
Sioux Falls, S.D., January 25, 2023 -- Pathward Financial, Inc.TM (“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,<br>2022 | March 31,<br>2022 | December 31,<br>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,<br>2022 | September 30,<br>2022 | June 30,<br>2022 | March 31,<br>2022 | December 31,<br>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,<br>2022 | September 30,<br>2022 | June 30,<br>2022 | March 31,<br>2022 | December 31,<br>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.
| Investor Relations Contact |
|---|
| Justin Schempp |
| 877-497-7497 |
| jschempp@pathward.com |
| Media Relations Contact |
| mediarelations@pathward.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<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 | $ | 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,<br>2022 | September 30,<br>2022 | June 30,<br>2022 | March 31,<br>2022 | December 31,<br>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,<br>2022 | September 30,<br>2022 | December 31,<br>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.
15
a1qfy23irquarterlydeck_0
Quarterly Investor Update FIRST QUARTER F ISCAL YEAR 2023 Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation2 FORWARD LOOKING STATEMENTS This investor update contains “forward-looking statements” which are made in good faith by Pathward Financial, Inc.TM (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 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 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; 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; the ability of the Company’s subsidiary Pathward™, N.A. (“Pathward”) 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, 2022 and in other filings made by the Company with the Securities and Exchange Commission (“SEC”). 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 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 Since our founding, we have worked to advance financial inclusion. We seek out diverse partners, including fintechs, affinity groups, government agencies, and other banks and work with them to identify markets where people and businesses are underserved. Our national bank charter, coordination with regulators, and deep understanding of risk mitigation and compliance allow us to guide our partners and deliver financial products, services and funding to the people and businesses who need them the most. We are powering financial inclusion for allTM. AT PATHWARD, LEADING THE WAY TO FINANCIAL ACCESS IS THE HEART OF OUR BUSINESS. 3
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation4 Pathward’s Unique Business Model Pathward’s resilient model secures low-cost funding1 via BaaS payments relationships, earns an outsized proportion of consistent payment fees, and operates a collateralized lending platform that outperforms in down-cycles BaaS Payments Platform Funding BaaS Payments Platform Fees Asset-Backed Lending Income 1 See slide 13 (Low-cost Deposits) for additional detail on deposit costs.
2 3 4 1 Record of strong earnings growth and profitability above banking industry averages Resilient Commercial Finance loan portfolio produces attractive returns throughout economic cycles Experienced leader in fast-growing Banking as a Service (BaaS) sector, with diversified portfolio of high-quality financial partners Highly advantageous national bank charter, with well-developed risk mitigation and compliance capabilities Why Invest? Excess capital generating business enables ongoing return of value to shareholders 5
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation6 Record of Strong Earnings Growth and Profitability1 2.20% 1.71% 1.12% 1.55% 1.45% 1.74% 1.88% 1.42% 2018 2019 2020 2021 2022 YTD23 Return on Average Assets2 ROAA inclusive of one-time items Net Interest Margin Return on Average Tangible Equity2 35.42% 35.51% 16.78% 22.34% 21.87% 28.66% 30.25% 29.55% 2018 2019 2020 2021 2022 YTD23 ROATE inclusive of one-time items Earnings Per Common Share $5.26 $0.98 $1.67 $2.49 $2.94 $4.38 $4.49 $0.81$0.16 $0.39 $0.56 $0.84 $0.78 2018 2019 2020 2021 2022 YTD23 EPS inclusive of one-time items 1FY18-FY21 display GAAP earnings; FY22 and YTD23 reflect GAAP and Adjusted earnings. See appendix for non-GAAP reconciliations 3.14% 4.91% 4.09% 3.83% 4.84% 5.62% 2018 2019 2020 2021 2022 YTD23 1st Quarter Earnings 2YTD23 is annualized.
Pathward’s track record of profitability, combined with its commitment to maintaining the size of its balance sheet, enables the return of the majority of earnings through repurchases and dividends. Targeting regulatory capital leverage ratio above 8% and total risk weighted capital ratio above 12%. Paid dividend every quarter dating back to 1994. Executed $24.9 million of share repurchases in 1Q23. Pathward Financial, Inc, (Nasdaq: CASH) | Quarterly Investor Presentation7 Return of Capital to Shareholders HIGHLIGHTS Generation of Excess Capital Enables Ongoing Return of Value to Shareholders $448.2M TOTAL SHARE REPURCHASES 1Q19 TO 1Q23 $28.7M TOTAL DIVIDENDS PAID 1Q19 TO 1Q23 Capital Returned to Shareholders Note: Repurchased common shares include shares withheld to cover income taxes owed by participants related to share-based incentive plans. 39,405,508 28,211,239 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 Common Shares Outstanding
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation8 Continued Progress on Key Strategic Initiatives OPTIMIZE INTEREST-EARNING PORTFOLIO, TO EMPHASIZE HIGHER -RETURN ASSETS • Improved yield on earning assets to 5.70% for 1Q23 as compared to 4.69% for 1Q22. • Grew commercial finance loans by $209 million, or 7%, from December 31, 2021. • $1.9 billion securities portfolio provides cash flow for future commercial finance loan growth. OPTIMIZE DEPOSIT MIX, TO MAINTAIN A STABLE, LOW - COST DEPOSIT BASE • Low cost of deposits2 driven by high levels of noninterest deposits (96% of total deposits). • Achieved 0.07% cost of funds from all deposits and borrowings and total cost of deposits of 0.01% for 1Q232. • $2.23 billion of off-balance sheet customer deposits in custody of program banks. • Prioritizing acquisition of stable BaaS deposits, which can generate higher levels of fee income. TARGET OF 2X OPER ATING LEVER AGE 1 Adjusted efficiency ratio (excluding the gain on sale of trademarks and rebranding expenses) for the twelve months ended December 31, 2022 was 67.10%. See appendix for Non-GAAP financial measures reconciliations. 2 See slide 13 (Low-cost Deposits) for additional detail on deposit costs. • Efficiency ratio of 68.81% compared to 59.26% as of December 31, 2021.1 • Ongoing initiatives to drive long-term simplification and optimize existing business platforms through the establishment of a business transformation office.
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation9 Fiscal Year 2023 Earnings Guidance 1 Includes gain on sale of trademarks and rebranding-related expenses. 2 The percentage change is calculated by using the midpoint of the respective ranges. (Earnings per share amounts) Prior Updated % Change2 Diluted earnings per share - GAAP $5.25 - $5.75 $5.55 - $5.95 5% Less: Net extraordinary items, net of tax1 $0.15 $0.15 Diluted earnings per share - Adjusted $5.10 - $5.60 $5.40 - $5.85 5% KEY DRIVERS OF EARNINGS PER SHARE GROW TH Commercial Finance growth while maintaining collateral- based lending discipline Maintain leadership in BaaS producing fee income and low- cost deposits3 Expansion of Net Interest Margin Continued share repurchases 3 See slide 13 (Low-cost Deposits) for additional detail on deposit costs.
Pathward Financial, Inc, (Nasdaq: CASH) | Quarterly Investor Presentation10 Summary Financial Results First Quarter Ended December 31, 2022 INCOME STATEMENT ($ in thousands, except per share data) 1Q22 4Q22 1Q23 Net interest income 71,613 79,760 84,057 Provision for credit losses 186 (2,648) 9,776 Total noninterest income 86,591 43,456 65,777 Total noninterest expense 82,436 103,030 105,059 Net income before taxes 75,582 22,834 34,999 Income tax expense (benefit) 14,276 (1,272) 6,577 Net income before non-controlling interest 61,306 24,106 28,422 Net income (loss) attributable to non-controlling interest (18) 686 580 Net income attributable to parent 61,324 23,420 27,842 Less: Allocation of earnings to participating securities1 953 393 402 Net income attributable to common shareholders1 60,371 23,027 27,440 Earnings per share, diluted $2.00 $0.81 $0.98 Average diluted shares 30,260,655 28,581,236 28,086,823 Revenue of $149.8 million, a 5% decrease compared to $158.2 million for the same quarter in fiscal 2022. • First quarter 2023 and 2022 include trademark sale gains of $10 million and $50 million, respectively. • Net interest income increased $12.4 million compared to the prior year due to increased yields and an improved earning asset mix. • Card and deposit fee income increased $12.3 million, which included $12.9 million from servicing fee income on off-balance sheet deposits. • 1Q22 includes losses on the Community Bank portfolio sale and a venture capital investment. Noninterest expense of $105.1 million, an increase of 27% compared to $82.4 million for the fiscal 2022 first quarter. • The increase in expense was primarily driven by compensation, rebranding costs and contractual card processing expenses. • Card processing expenses related to structured agreements with BaaS partners were $14.0 million for the quarter, as compared to $0.1 million in the prior year. • Expenses for the first quarter of 2023 included $3.7 million related to rebranding. Noninterest expense was up 23% over the prior year quarter when excluding these one-time expenses for the quarter. 1 Amounts presented are used in the two-class earnings per common share calculation.
Pathward Financial Inc. (Nasdaq: CASH) | Quarterly Investor Presentation11 Balance Sheet Highlights First Quarter Ended December 31, 2022 BALANCE SHEET PERIOD ENDING ($ in thousands) 1Q22 4Q22 1Q23 Cash and cash equivalents 1,230,100 388,038 369,169 Investments 1,833,733 1,924,551 1,888,343 Loans held for sale 36,182 21,071 17,148 Loans and leases (HFI) 3,684,261 3,536,305 3,509,730 Allowance for credit losses (67,623) (45,947) (52,592) Other assets 893,005 923,392 927,427 Total assets 7,609,658 6,747,410 6,659,225 Total deposits 6,525,569 5,866,037 5,789,132 Total borrowings 92,274 36,028 34,977 Other liabilities 165,658 200,205 175,983 Total liabilities 6,783,501 6,102,270 6,000,092 Total stockholders’ equity 826,157 645,140 659,133 Total liabilities and stockholders’ equity 7,609,658 6,747,410 6,659,225 Loans (HFI) / Deposits 56 % 60 % 61% Net Interest Margin 4.59 % 5.21 % 5.62% Return on Average Assets 3.49 % 1.39 % 1.71% Return on Average Equity 29.69 % 12.82 % 17.18%
Deposits held on Balance Sheet Pathward’s BaaS business generates fee income and low-cost deposits leading to high levels of noninterest- bearing deposits (96% of total deposits). The BaaS business’ ability to attract and maintain these low-cost deposits provides a powerful competitive advantage. Noninterest-bearing deposits as a percentage of total deposits has increased every year since 2018, from 54% in 4Q18 to 96% as of 1Q23. $2.23 billion of off-balance sheet customer deposits currently held in custody at program banks. These off- balance sheet deposits earn recordkeeping service fee income, typically reflective of the Effective Fed Funds Rate. 1Q23 deposits elevated due to seasonal holiday- related gift cards and other products. Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation12 Low-cost Deposits HIGHLIGHTS Deposit Breakdown End of Period Deposits ($B) 7.1 7.2 8.0 1.3 1.4 1.7 2.4 3.2 4.4 4.3 5.0 5.5 5.9 5.8 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 1Q23 Total Deposits, including those held at program banks 96.37% 3.51% 0.12% Non Interest Bearing Deposits Interest Bearing Non- Time Deposits Time Deposits
Pathward is benefitting from the deposit optimization strategy that included transitioning away from higher cost interest-bearing wholesale deposits in favor of growing BaaS deposits. As of December 31, 2022, approximately 43% of the deposit balances were subject to variable card processing expenses, derived from contractual agreements with certain BaaS partners tied to a rate index, typically the Effective Fed Funds Rate. Contractual card processing costs are more impactful in today’s environment than they were in 2019-2021 due to the meaningful growth in BaaS deposits. These costs reprice immediately upon a change in the applicable rate index, leading to an instant cost increase as compared to the earning-asset yields that will generally experience more of a lag in repricing. Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation13 Low-cost Deposits HIGHLIGHTS Cost of Deposits 1.03% 0.99% 1.99% 0.26% 0.91% 0.01% 2.22% 3.65% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 Total Cost Including Contractual Card Processing Expense Cost of Interest Bearing Deposits Cost of Total Deposits Quarterly Average Effective Fed Funds Rate
Noninterest income continues to represent greater than 40% of total revenue. Majority of non-interest income fees are generated by the Company’s BaaS business line. Other major items include leasing rental income and other loan & lease fees. Pathward’s large fee income base provides stability through interest rate and credit cycles, while propelling continued revenue growth. In the first quarter of Fiscal Year 2023, the Company recognized $10 million of fee income associated with the sale of the Meta trademarks. Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation14 Diversified Noninterest Income Streams HIGHLIGHTS Refund Transfer Product Fees 1% Refund Advance Product Fees 1% Card and Deposit Fees 68% Rental Income 23% Other Income 7% FY23 Noninterest Income Breakdown1 1 Excludes gain on sale of trademarks. Noninterest income 40% Net interest income 60% FY23 Revenue Breakdown1
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation 15 Overview of Loan Portfolio ($ in millions) Business Line Balance Sheet Category 1Q22 4Q22 1Q23 MRQ Yield % of Total Commercial Finance Structured Finance Guaranteed portion of US govt SBA/USDA loans SBA/USDA 44.6 194.9 196.0 Unguaranteed portion of US govt SBA/USDA loans SBA/USDA 101.1 150.8 152.3 Paycheck Protection Program (PPP) loans SBA/USDA 63.8 13.5 8.8 Renewable energy debt financing¹ (term lending only) Term lending 273.4 153.9 114.7 Other Term lending 291.7 353.5 365.5 TOTAL 774.6 866.6 837.3 5.55% 24% Equipment Finance Large ticket Lease financing 213.7 187.6 170.1 Term lending 203.7 340.0 444.4 Small ticket Lease financing 21.6 14.2 12.0 Term lending 269.6 242.9 235.5 Other Lease financing 10.0 8.9 7.7 TOTAL 718.6 793.6 869.7 6.69% 25% Working Capital Asset-based lending 337.2 351.7 359.5 Factoring 403.0 372.6 338.6 TOTAL 740.2 724.3 698.1 12.53% 20% Specialty Finance Insurance premium finance 385.5 479.8 437.0 Other commercial finance 178.9 159.4 164.7 TOTAL 564.3 639.2 601.7 5.99% 17% Consumer Lending Consumer credit programs Consumer credit programs 173.3 144.4 130.8 Private student loans Other consumer finance 92.0 - - Other consumer lending Other consumer finance 52.4 25.3 56.2 TOTAL 317.8 169.7 187.0 8.63% 5% Tax Services Tax preparer loans Tax services 73.6 0.2 30.4 Refund advance loans Tax services 26.7 8.9 - TOTAL 100.3 9.1 30.4 < 1% 1% Corporate Warehouse finance 466.8 326.9 279.9 TOTAL 466.8 326.9 279.9 8.09% 8% Total Lending Portfolio (HFI) 3,682.6 3,529.3 3,504.1 7.70% 100% 1Total renewable energy debt financing outstanding was $361.9 million as of 1Q23. Majority of balances in term lending balance sheet category.
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation16 Commercial Finance Attributes by Asset Class WORKING CAPITAL FINANCE • Provides working capital for new or growing companies to meet short-term operational requirements • Primarily variable rate loans with majority of floors at or above 6% • Bank typically has dominion of funds • Heavily collateral-managed • Historically excels during economic downturns EQUIPMENT FINANCE • Loan and lease financing to provide access to needed equipment • Typically secured with mission- critical equipment • Borrowers range from start-up companies to investment grade companies • Primarily fixed rate loans and leases • Flexibility to sell direct originations to secondary market STRUCTURED FINANCE • Funding to small and midsized businesses and rural borrowers to fund growth, expansion, and restructuring • SBA, USDA, and conventional loans with fixed or variable interest rates • Debt refinance, leveraged acquisitions, and alternative energy project finance • SBA and USDA guarantees can be sold on the secondary market INSUR ANCE PREMIUM FINANCE • Short-term financing to facilitate the purchase of property, casualty, and liability insurance premiums • Average term of 10 months • Fixed rate loans • Collateralized by insurance premiums • Very low historical loss rate
As of December 31, 2022, $1.2B, or 35% of loans and leases contained floating or variable interest rates. Of these, $0.9B are tied to Fed Funds or Prime, with the remaining tied to either LIBOR or the CMT. Of the $1.2B variable interest rate loans, approximately 71% utilized floor rates in some capacity. As of December 31, 2022, all variable loans with floors were at or above their floors. This compares to 99% as of September 30, 2022, and 73% as of December 31, 2021. Due to the recent sharp rise in interest rates, asset mix changes and overall market conditions, a lag is expected before new and existing loans fully reprice. Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation17 Loan Portfolio Interest Rate Sensitivity HIGHLIGHTS 1 Fixed rate loans and leases are shown for contractual periods. 35% 16% 49% Fixed Rate > 1 Year Total Loan and Lease Portfolio Pricing Attributes1 Fixed Rate < 1 Year Floating or Variable Net Interest Margin and Loan Yields 4.94% 4.78% 3.28% 3.77% 4.65% 3.07% 3.75% 4.35% 4.59% 4.80% 4.76% 5.21% 5.62% 4.92% 4.71% 3.28% 3.77% 4.64% 3.06% 3.75% 4.34% 4.59% 4.79% 4.62% 4.73% 4.68% 7.32% 6.76% 6.65% 6.98% 7.00% 6.74% 6.90% 6.93% 6.96% 7.22% 6.69% 7.12% 7.70% 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 NIM Non-GAAP NIM Loan Yields 1 Declines in NIM in FY20 and FY21 associated with elevated cash balances from government stimulus programs 2 Non-GAAP NIM includes contractual card processing expenses associated with higher interest rates 1 2
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation18 Interest Rate Risk Management December 31, 2022 -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 Asset/Liability Gap Analysis 1 Fixed rate securities, loans and leases are shown for contractual periods. 6% 23% 10% 61% Fixed Rate > 1 Year Earning Asset Pricing Attributes1 Fixed Rate < 1 Year Floating or Variable Federal Reserve Bank Deposits (Floating or Variable) • Data presented on this page is reflective of the company’s asset mix at a point in time and calculated for regulatory purposes. Future rate changes would impact a multitude of variables beyond the company’s control, and as a result, the data presented is not intended to be used for forward-looking modeling purposes. • Management’s focus is on selectively adding duration to improve yield and protect margin against falling rates. • Interest rate risk modeling shows asset sensitive balance sheet; net interest income graph shows impact of an instantaneous, parallel rate shock, a gradual parallel ramp, and an alternative view. • Management employs rigorous modeling techniques under a variety of yield curve shapes, twists and ramps. -10% 5% 20% 35% -100 +100 +200 +300 Parallel Shock Ramp Alternative Year 1 12-Month Interest Rate Sensitivity from Base Net Interest Income Parallel Shock is a statutorily required calculation of the impact of an immediate rise in rates, assuming other variables remain unchanged. Ramp reflects additional modeling of more gradual increases in interest rates. Alternative Year 1 mirrors the Parallel Shock scenario with the additional incorporation of the company’s card fee income and card processing expenses impacted by interest rates.
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation19 Asset Quality $3.4 $11.4 $4.2 $4.1 $2.2 0.37% 1.25% 0.46% 0.45% 0.25% 0.48% 0.68% 0.71% 0.63% 0.61% 1Q22 2Q22 3Q22 4Q22 1Q23 Period Ended Adj. NCOs Adj. NCOs / Adj. Average Loans Adj. NCOs / Adj. Average Loans - LTM Adjusted Net Charge-Offs (“NCOs”)1 Excludes Tax Services NCOs and Related Seasonal Average Loans ($ in millions) KEY CREDIT METRICS • Annualized adjusted net charge-offs1: – 0.25% of average loans in 1Q23 – 0.61% of average loans over last 12 months • Allowance for credit loss of $52.6 million, or 1.50% of total loans and leases, a 34bps decrease from the prior year. • Increase in the 1Q23 allowance for credit loss compared to 4Q22 was attributable to an increase in the commercial finance coverage ratio due to the specific reserve on an individually evaluated loan relationship. • The increase in NPAs / NPLs was driven by an increase in nonperforming commercial finance loans. Tax services and consumer finance both improved in 1Q23 as compared to 4Q22. $44.3 $38.3 $26.8 $30.9 $45.0 0.58% 0.56% 0.40% 0.46% 0.68% 1Q22 2Q22 3Q22 4Q22 1Q23 Period Ended NPAs NPAs / Total Assets 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. $43.2 $35.8 $26.6 $29.2 $40.9 1.16% 0.95% 0.71% 0.82% 1.16% 1Q22 2Q22 3Q22 4Q22 1Q23 Period Ended NPLs NPLs / Total Loans Nonperforming Assets (“NPAs”) ($ in millions) Nonperforming Loans (“NPLs”) ($ in millions)
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation20 Capital and Sources of Liquidity Regulatory Capital as of December 31, 2022 At December 31, 2022¹ Pathward Financial, Inc. Pathward, N.A. Tier 1 Leverage 8.37% 8.68% Common Equity Tier 1 12.31% 13.09% Tier 1 Capital 12.63% 13.09% Total Capital 14.29% 14.29% Primary & Secondary Liquidity Sources ($ in millions) Cash and Cash Equivalents $370 Unpledged Investment Securities $165 FHLB Borrowing Capacity $675 Funds Available through Fed Discount Window $200 PPP Loan Collateral $7 Unsecured Lines of Credit $580 - $625 Deposit Balances Held at Other Banks $2,228 1 Regulatory capital reflects the Company's election of the five-year CECL transition for regulatory capital purposes. Amounts are preliminary pending completion and filing of the Company's regulatory reports. . 7.39% 6.80% 8.23% 8.10% 8.37%8.52% 7.79% 8.22% 8.19% 8.68% 1Q22 2Q22 3Q22 4Q22 1Q23 Tier 1 Leverage Ratio 13.80% 14.16% 13.44% 13.88% 14.29%14.16% 14.52% 13.43% 13.57% 14.29% 1Q22 2Q22 3Q22 4Q22 1Q23 Total Capital Ratio Pathward Financial, Inc. Pathward, N.A. Minimum Requirement to be Well-Capitalized under Prompt Corrective Action Provisions
APPENDIX
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation22 Non-GAAP Reconciliation Adjusted Net Income and Adjusted Earnings Per Share For the quarter ended ($ in thousands, except per share data) 1Q22 4Q22 1Q23 Net income - GAAP 61,324 23.420 27,842 Less: Gain on sale of trademarks 50,000 - 10,000 Add: Rebranding Expenses 3 6,899 3,737 Add: Separation related expenses 86 1,029 11 Add: Income tax effect 12,572 (1,029) 1,575 Adjusted Net Income 23,985 30,319 23,165 Less: Allocation of earnings to participating securities1 373 508 335 Adjusted net income attributable to common shareholders 23,612 29,811 22,830 Adjusted earnings per common share, diluted $0.78 $1.04 $0.81 Average diluted shares 30,260,655 28,581,236 28,086,823 1 Amounts presented are used in the two-class earnings per common share calculation.
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation23 Non-GAAP Reconciliation 1 Tax Services NCOs and average loans are excluded to adjust for the cyclicality of activity related to the overall economics of the Company's tax services business line. For the quarter ended ($ in thousands) Dec 31, 2021 Mar 31, 2022 Jun 30, 2022 Sep 30, 2022 Dec 31, 2022 Net Charge-offs 1,129 11,226 12,198 26,664 3,217 Less: Tax services net charge-offs (2,313) (183) 7,992 22,594 1,033 Adjusted Net Charge-offs 3,442 11,409 4,206 4,050 2,184 Quarterly Average Loans and Leases 3,706,975 4,244,644 3,747,631 3,618,678 3,524,924 Less: Quarterly Average Tax Services Loans 33,604 594,166 62,934 35,484 25,231 Adjusted Quarterly Average Loans and Leases 3,673,371 3,650,478 3,684,697 3,583,194 3,499,693 Annualized NCOs/Average Loans and Leases 0.12% 1.06% 1.30% 2.95% 0.37% Adjusted Annualized NCOs/Adjusted Average Loans and Leases1 0.37% 1.25% 0.46% 0.45% 0.25% Adjusted Annualized NCOs and Adjusted Loans and Leases
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation24 Non-GAAP Reconciliation For the last twelve months ended ($ in thousands) Dec 31, 2021 Mar 31, 2022 Jun 30, 2022 Sep 30, 2022 Dec 31, 2022 Noninterest Expense - GAAP 353,544 360,733 375,860 385,275 407,899 Net Interest Income 284,605 294,555 298,231 307,324 319,768 Noninterest Income 312,039 308,352 299,893 293,807 272,993 Total Revenue: GAAP 596,644 602,907 598,124 601,131 592,761 Efficiency Ratio, LTM 59.26% 59.83% 62.84% 64.09% 68.81% For the last twelve months ended ($ in thousands) Dec 31, 2021 Mar 31, 2022 Jun 30, 2022 Sep 30, 2022 Dec 31, 2022 Noninterest Expense - GAAP 353,544 360,733 375,860 385,275 407,899 Less: Rebranding Expenses 3 2,822 6,249 13,148 16,883 Adjusted noninterest Expense 353,541 357,911 369,611 372,127 391,016 Net Interest Income 284,605 294,555 298,231 307,324 319,768 Noninterest Income 312,039 308,352 299,893 293,807 272,993 Less: Gain on sale of trademarks 50,000 50,000 50,000 50,000 10,000 Total Adjusted Revenue: 546,644 552,907 548,124 551,131 582,761 Efficiency Ratio, LTM 64.67% 64.73% 67.43% 67.52% 67.10% Efficiency Ratio Adjusted Efficiency Ratio
Pathward Financial, Inc. (Nasdaq: CASH) | Quarterly Investor Presentation25 Commercial Finance Concentrations by Industry1 Manufacturing Utilities Transportation and Warehousing Wholesale Trade Finance and Insurance Other Services (except Public Administration) Health Care and Social Assistance Construction Mining, Quarrying, and Oil and Gas Extraction Nonclassifiable Establishments Administrative and Support and Waste Management and Remediation… Professional, Scientific, and Technical Services Real Estate and Rental and Leasing Accommodation and Food Services Retail Trade Information Arts, Entertainment, and Recreation Agriculture, Forestry, Fishing and Hunting Educational Services Management of Companies and Enterprises Public Administration $- $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 $231.1M MANUFACTURING 47% Asset-based lending 14% Factoring 14% Term lending 13% Lease financing 12% Other TRANSPORTATION & WAREHOUSING 58% Factoring 18% Term lending 17% Insurance premium finance 7% Other UTILITIES 57% SBA/USDA 36% Term lending 6% Rental equipment, net 1% Other