Pathward Financial Inc.

07/24/2024 | Press release | Distributed by Public on 07/24/2024 14:18

Pathward Financial, Inc. Announces Results for 2024 Fiscal Third Quarter

SIOUX FALLS, S.D.--(BUSINESS WIRE)-- Pathward Financial, Inc.("Pathward Financial" or the "Company") (Nasdaq: CASH) reported net income of $41.8 million, or $1.66 per share, for the three months ended June 30, 2024, compared to net income of $45.1 million, or $1.68 per share, for the three months ended June 30, 2023.

CEO Brett Pharr said, "We are very pleased with our results in the first nine months of fiscal 2024 and continue to execute on what we set out to accomplish this year. Our focus on balance sheet management led by risk adjusted returns and continued evolution of our product offerings have helped us deliver solid financial results. We will continue to build on this foundation next year as we execute on our strategy to be the trusted platform that enables our partners to thrive and allows us to grow with them."

Company Highlights

  • On April 30, 2024, Pathward Financial was recognized among Keefe, Bruyette & Woods, Inc. (also known as "KBW") honor roll list of the top banks producing "industry-leading and consistent earnings growth for investors."
  • During the quarter, Pathward announced the expansion and transformation of its Solutions for Financial Institutions, which previously only provided prepaid cards to banks and credit unions. With this expansion, Pathward can now also provide Commercial Finance Solutions to their business clients that do not qualify for traditional financing or when a product isn't offered. Pathward also provides Financial Institutions the ability to offer merchant services to business clients.

Financial Highlights for the 2024 Fiscal Third Quarter

  • Total revenue for the third quarter was $176.7 million, an increase of $11.5 million, or 7%, compared to the same quarter in fiscal 2023, driven by an increase in net interest income, partially offset by a reduction in noninterest income.
  • Net interest margin ("NIM") increased 38 basis points to 6.56% for the third quarter from 6.18% during the same period last year, primarily driven by increased yields on earning assets and an improved earning asset mix from the continued optimization of the portfolio. When including contractual, rate-related processing expense, NIM would have been 4.92% in the fiscal 2024 third quarter compared to 4.88% during the fiscal 2023 third quarter. Servicing fee income on off-balance sheet custodial deposits is not included in this calculation. See non-GAAP reconciliation table below.
  • Total gross loans and leases at June 30, 2024 increased $539.7 million to $4.61 billion compared to June 30, 2023 and increased $203.2 million when compared to March 31, 2024. The increase compared to the prior year quarter was due to growth across the commercial finance, consumer finance, and warehouse finance loan portfolios, partially offset by a slight reduction in the seasonal tax services portfolio. The primary driver for the sequential increase was growth in the commercial and warehouse finance loan portfolios, partially offset by a reduction in the consumer finance and seasonal tax services loan portfolios.
  • During the 2024 fiscal third quarter, the Company repurchased 286,920 shares of common stock at an average share price of $52.24. As of June 30, 2024, there were 7,382,743 shares available for repurchase under the current common stock share repurchase programs.

Tax Season

For the nine months ended June 30, 2024, total tax services product revenue was $82.0 million, an increase of 3% compared to the same period of the prior year. The increase in revenue was primarily driven by an increase in refund advance fee income, partially offset by decreases in net interest income and refund transfer product fees. Provision for credit losses for tax services portfolio decreased $9.5 million for the nine months ended June 30, 2024 when compared to the same period of the prior year, due to improvements in data analytics, underwriting and monitoring.

Total tax services product income, net of losses and direct product expenses, increased 33% to $47.1 million from $35.3 million, when comparing the first nine months of fiscal 2024 to the same period of the prior fiscal year.

Net Interest Income

Net interest income for the third quarter of fiscal 2024 was $110.9 million, an increase of 14% from the same quarter in fiscal 2023. The increase was mainly attributable to increased yields, higher average interest-earning asset balances and an improved earning asset mix.

The Company's average interest-earning assets for the third quarter of fiscal 2024 increased by $475.1 million to $6.80 billion compared to the same quarter in fiscal 2023, due to growth in loans and leases, partially offset by a decrease in total investment security balances and a decrease in cash balances. The third quarter average outstanding balance of loans and leases increased $587.4 million compared to the same quarter of the prior fiscal year, due to an increase across all loan portfolios.

Fiscal 2024 third quarter NIM increased to 6.56% from 6.18% in the third fiscal quarter of last year. When including contractual, rate-related processing expense, NIM would have been 4.92% in the fiscal 2024 third quarter compared to 4.88% during the fiscal 2023 third quarter. See non-GAAP reconciliation table below. The overall reported tax-equivalent yield ("TEY") on average earning asset yields increased 44 basis points to 6.75% compared to the prior year quarter, driven by an improved earning asset mix. The yield on the loan and lease portfolio was 8.56% compared to 8.31% for the comparable period last year and the TEY on the securities portfolio was 3.16% compared to 2.96% over that same period.

The Company's cost of funds for all deposits and borrowings averaged 0.20% during the fiscal 2024 third quarter, as compared to 0.13% during the prior year quarter. The Company's overall cost of deposits was 0.11% in the fiscal third quarter of 2024, as compared to 0.01% during the prior year quarter. When including contractual, rate-related processing expense, the Company's overall cost of deposits was 1.88% in the fiscal 2024 third quarter, as compared to 1.41% during the prior year quarter. See non-GAAP reconciliation table below.

Noninterest Income

Fiscal 2024 third quarter noninterest income decreased 3% to $65.9 million, compared to $67.7 million for the same period of the prior year. The decrease was primarily driven by a decrease in card and deposit fees. The period-over-period decrease was partially offset by an increase in gain on sale of other and tax services product fees.

The period-over-period decrease in card and deposit fee income was primarily related to lower servicing fee income due to a reduction in custodial deposits. Servicing fee totaled $8.6 million during the 2024 fiscal third quarter, compared to $14.6 million for the same period of the prior year. For the fiscal quarter ended March 31, 2024, servicing fee income on custodial deposits totaled $10.4 million.

Noninterest Expense

Noninterest expense increased 8% to $123.7 million for the fiscal 2024 third quarter, from $114.6 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, other expense and compensation and benefits. The period-over-period increase was partially offset by a decrease in impairment expense.

The card processing expense increase was due to rate-related agreements with 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 is based on a percentage of the Effective Federal Funds Rate ("EFFR") and reprices immediately upon a change in the EFFR. Approximately 57% of the deposit portfolio was subject to these rate-related processing expenses during the fiscal 2024 third quarter. For the fiscal quarter ended June 30, 2024, contractual, rate-related processing expenses were $27.6 million, as compared to $30.1 million for the fiscal quarter ended March 31, 2024, and $20.5 million for the fiscal quarter ended June 30, 2023.

Income Tax Expense

The Company recorded income tax expense of $5.1 million, representing an effective tax rate of 10.9%, for the fiscal 2024 third quarter, compared to $3.2 million, representing an effective tax rate of 6.6%, for the third quarter last fiscal year. The current quarter increase in income tax expense compared to the prior year quarter was primarily due to a decrease in investment tax credits recognized ratably when compared to the prior year quarter.

The Company originated $4.3 million in renewable energy leases during the fiscal 2024 third quarter, resulting in $1.2 million in total net investment tax credits. During the third quarter of fiscal 2023, the Company originated $21.4 million in renewable energy leases resulting in $5.8 million in total net investment tax credits. For the nine months ended June 30, 2024, the Company originated $42.4 million in renewable energy leases, compared to $50.9 million for the comparable prior year period. Investment tax credits related to renewable energy leases are recognized ratably based on income throughout each fiscal year.

Investments, Loans and Leases

(Dollars in thousands)

June 30,

2024

March 31,

2024

December 31,

2023

September 30,

2023

June 30,

2023

Total investments

$

1,759,486

$

1,814,140

$

1,886,021

$

1,840,819

$

1,951,996

Loans held for sale

Term lending

-

1,977

2,500

-

3,000

Lease financing

-

-

778

-

-

SBA/USDA

7,030

7,372

-

-

-

Consumer finance

22,350

16,597

66,240

77,779

84,351

Total loans held for sale

29,380

25,946

69,518

77,779

87,351

Term lending

1,533,722

1,489,054

1,452,274

1,308,133

1,253,841

Asset-based lending

473,289

429,556

379,681

382,371

373,160

Factoring

350,740

336,442

335,953

358,344

351,133

Lease financing

155,044

168,616

188,889

183,392

201,996

Insurance premium finance

617,054

522,904

671,035

800,077

666,265

SBA/USDA

563,689

560,433

546,048

524,750

422,389

Other commercial finance

166,653

149,056

160,628

166,091

171,954

Commercial finance

3,860,191

3,656,061

3,734,508

3,723,158

3,440,738

Consumer finance

253,358

267,031

301,510

254,416

200,121

Tax services

43,184

84,502

33,435

5,192

47,194

Warehouse finance

449,962

394,814

349,911

376,915

380,458

Total loans and leases

4,606,695

4,402,408

4,419,364

4,359,681

4,068,511

Net deferred loan origination costs

5,857

6,977

6,917

6,435

4,388

Total gross loans and leases

4,612,552

4,409,385

4,426,281

4,366,116

4,072,899

Allowance for credit losses

(79,836

)

(80,777

)

(53,785

)

(49,705

)

(81,916

)

Total loans and leases, net

$

4,532,716

$

4,328,608

$

4,372,496

$

4,316,411

$

3,990,983

The Company's investment security balances at June 30, 2024 totaled $1.76 billion, as compared to $1.81 billion at March 31, 2024 and $1.95 billion at June 30, 2023.

Total gross loans and leases totaled $4.61 billion at June 30, 2024, as compared to $4.41 billion at March 31, 2024 and $4.07 billion at June 30, 2023. The primary driver for the sequential increase was growth in commercial finance loans and warehouse finance loans. This was partially offset by reductions in consumer finance loans and seasonal tax service loans. The year-over-year increase was due to growth across the commercial finance, consumer finance, and warehouse finance loan portfolios, partially offset by a decrease in the seasonal tax services portfolio.

Commercial finance loans, which comprised 84% of the Company's loan and lease portfolio, totaled $3.86 billion at June 30, 2024, reflecting an increase of $204.1 million from March 31, 2024 and an increase of $419.5 million, or 12%, from June 30, 2023. The sequential increase in commercial finance loans was primarily driven by a $94.2 million increase in the insurance premium finance portfolio, a $44.7 million increase in the term lending portfolio, and a $43.7 million increase in the asset-based lending portfolio, partially offset by a decrease in the lease financing portfolio. The increase in commercial finance loans when comparing the current period to the same period of the prior year was primarily driven by increases in the term lending, SBA/USDA, and asset-based lending portfolios, partially offset by reductions in the insurance premium finance, lease financing, and other commercial finance portfolios.

Asset Quality

The Company's allowance for credit losses ("ACL") totaled $79.8 million at June 30, 2024, a decrease compared to $80.8 million at March 31, 2024 and a decrease compared to $81.9 million at June 30, 2023. The decrease in the ACL at June 30, 2024, when compared to March 31, 2024, was primarily due to a $2.9 million decrease in the allowance related to the seasonal tax services portfolio, partially offset by a $1.1 million increase in the allowance related to the consumer finance portfolio and a $0.8 million increase in the allowance related to the commercial finance portfolio.

The $2.1 million year-over-year decrease in the ACL was primarily driven by a $4.5 million decrease in the allowance related to the seasonal tax services portfolio and a $1.5 million decrease in the allowance related to the commercial finance portfolio, partially offset by a $3.8 million increase in the allowance related to the consumer finance portfolio.

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,

2024

March 31,

2024

December 31,

2023

September 30,

2023

June 30,

2023

Commercial finance

1.17

%

1.21

%

1.30

%

1.26

%

1.35

%

Consumer finance

2.23

%

1.71

%

1.45

%

0.92

%

0.92

%

Tax services

66.35

%

37.31

%

1.52

%

0.04

%

70.20

%

Warehouse finance

0.10

%

0.10

%

0.10

%

0.10

%

0.10

%

Total loans and leases

1.73

%

1.83

%

1.22

%

1.14

%

2.01

%

Total loans and leases excluding tax services

1.12

%

1.14

%

1.21

%

1.14

%

1.21

%

The Company's ACL as a percentage of total loans and leases decreased to 1.73% at June 30, 2024 from 1.83% at March 31, 2024. The decrease in the total loans and leases coverage ratio was primarily driven by the commercial finance portfolio, partially offset by increases in both the seasonal tax services portfolio and consumer finance portfolio. The decrease in the commercial finance loan and lease coverage ratio was due a mix shift within the portfolio with higher balances in term lending and SBA/USDA loans, which typically carry lower reserve rates.

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,

2024

March 31,

2024

June 30,

2023

June 30,

2024

June 30,

2023

Beginning balance

$

80,777

$

53,785

$

84,304

$

49,705

$

45,947

Provision (reversal of) - tax services loans

(3,285

)

25,221

(229

)

23,292

32,830

Provision (reversal of) - all other loans and leases

8,926

684

2,059

17,820

15,549

Charge-offs - tax services loans

(820

)

-

(404

)

(1,965

)

(2,135

)

Charge-offs - all other loans and leases

(7,772

)

(5,492

)

(5,597

)

(18,990

)

(14,931

)

Recoveries - tax services loans

1,230

5,800

671

7,324

2,432

Recoveries - all other loans and leases

780

779

1,112

2,650

2,224

Ending balance

$

79,836

$

80,777

$

81,916

$

79,836

$

81,916

The Company recognized a provision for credit losses of $5.9 million for the quarter ended June 30, 2024, compared to $1.8 million for the comparable period in the prior fiscal year. The period-over-period increase in provision for credit losses was primarily due to an increase in provision for credit losses in the commercial finance portfolio of $6.5 million, partially offset by a decrease of $3.1 million in the tax services portfolio. The Company recognized net charge-offs of $6.6 million for the quarter ended June 30, 2024, compared to net charge-offs of $4.2 million for the quarter ended June 30, 2023. Net charge-offs attributable to the commercial finance portfolio for the current quarter were $7.0 million, while net recoveries of $0.4 million were recognized in the tax services portfolio. Net charge-offs attributable to the consumer finance portfolio for the current quarter were insignificant. Net charge-offs attributable to the commercial finance and consumer finance portfolios for the same quarter of the prior year were $2.6 million and $1.9 million, respectively, while a net recovery of $0.3 million was recognized in the tax services portfolio.

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

As of June 30, 2024

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

$

-

$

-

$

-

$

-

$

29,380

$

29,380

$

-

$

-

$

-

Commercial finance

28,224

7,348

17,071

52,643

3,807,548

3,860,191

8,427

27,613

36,040

Consumer finance

4,496

3,534

8,588

16,618

236,740

253,358

8,588

-

8,588

Tax services

-

43,184

-

43,184

-

43,184

-

-

-

Warehouse finance

-

-

-

-

449,962

449,962

-

-

-

Total loans and leases held for investment

32,720

54,066

25,659

112,445

4,494,250

4,606,695

17,015

27,613

44,628

Total loans and leases

$

32,720

$

54,066

$

25,659

$

112,445

$

4,523,629

$

4,636,074

$

17,015

$

27,613

$

44,628

As of March 31, 2024

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

$

323

$

546

$

843

$

1,712

$

24,234

$

25,946

$

843

$

-

$

843

Commercial finance

36,482

23,986

15,596

76,064

3,579,997

3,656,061

2,679

27,781

30,460

Consumer finance

4,293

3,001

3,093

10,387

256,644

267,031

3,093

-

3,093

Tax services

1,123

-

-

1,123

83,379

84,502

-

-

-

Warehouse finance

-

-

-

-

394,814

394,814

-

-

-

Total loans and leases held for investment

41,898

26,987

18,689

87,574

4,314,834

4,402,408

5,772

27,781

33,553

Total loans and leases

$

42,221

$

27,533

$

19,532

$

89,286

$

4,339,068

$

4,428,354

$

6,615

$

27,781

$

34,396

The Company's nonperforming assets at June 30, 2024 were $46.3 million, representing 0.61% of total assets, compared to $37.2 million, or 0.50% of total assets at March 31, 2024 and $40.8 million, or 0.55% of total assets at June 30, 2023.

The increase in the nonperforming assets as a percentage of total assets at June 30, 2024 compared to March 31, 2024, was primarily driven by an increase in nonperforming loans in the commercial finance portfolio and an increase in nonperforming loans in the consumer finance portfolio due to seasonal activity. When comparing the current period to the same period of the prior year, the increase in nonperforming assets was primarily due to an increase in nonperforming loans in the consumer finance portfolio.

The Company's nonperforming loans and leases at June 30, 2024, were $44.6 million, representing 0.96% of total gross loans and leases, compared to $34.4 million, or 0.78% of total gross loans and leases at March 31, 2024 and $38.8 million, or 0.93% of total gross loans and leases at June 30, 2023.

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, 2024

Commercial finance

$

3,058,737

$

537,278

$

63,523

$

192,473

$

8,180

$

3,860,191

Warehouse finance

449,962

-

-

-

-

449,962

Total loans and leases

$

3,508,699

$

537,278

$

63,523

$

192,473

$

8,180

$

4,310,153

Asset Classification

(Dollars in thousands)

Pass

Watch

Special

Mention

Substandard

Doubtful

Total

As of March 31, 2024

Commercial finance

$

2,893,892

$

447,110

$

87,657

$

218,108

$

9,294

$

3,656,061

Warehouse finance

394,814

-

-

-

-

394,814

Total loans and leases

$

3,288,706

$

447,110

$

87,657

$

218,108

$

9,294

$

4,050,875

Deposits, Borrowings and Other Liabilities

The average balance of total deposits and interest-bearing liabilities was $6.35 billion for the three-month period ended June 30, 2024, compared to $6.01 billion for the same period in the prior fiscal year, representing an increase of 6%. Total average deposits for the fiscal 2024 third quarter increased by $365.7 million to $6.26 billion compared to the same period in fiscal 2023. The increase in average deposits was due to increases in noninterest bearing deposits, wholesale deposits, and money market deposits, partially offset by decreases in savings and time deposits.

Total end-of-period deposits increased 2% to $6.43 billion at June 30, 2024, compared to $6.31 billion at June 30, 2023. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $74.0 million, wholesale deposits of $37.6 million, and money market deposits of $23.1 million, partially offset by decreases in savings and time deposits.

As of June 30, 2024, the Company had $575.7 million in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $236.9 million are on activated cards while $338.8 million are on inactivated cards. During the remainder of fiscal year 2024, these deposit balances are expected to decline by approximately $180 million as the Company actively returns unclaimed balances to the U.S. Treasury.

As of June 30, 2024, the Company managed $352.8 million of customer deposits at other banks in its capacity as custodian. These deposits provide the Company with the ability to earn servicing fee income, typically reflective of the EFFR. The sequential quarter decrease in these customer deposits held at other banks was primarily due to the Company retaining more deposits on its balance sheet as a result of the funding of loan growth by the Company during the current quarter.

Regulatory Capital

The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at June 30, 2024, 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 primarily comprised of amortizing securities that should provide consistent cash flow. The Company does not intend to sell these securities, or recognize the unrealized losses on its income statement, to fund future loan growth.

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

As of the Periods Indicated

June 30,

2024(1)

March 31,

2024

December 31,

2023

September 30,

2023

June 30,

2023

Company

Tier 1 leverage capital ratio

9.13

%

7.75

%

7.96

%

8.11

%

8.40

%

Common equity Tier 1 capital ratio

12.44

%

12.30

%

11.43

%

11.25

%

11.52

%

Tier 1 capital ratio

12.70

%

12.56

%

11.69

%

11.50

%

11.79

%

Total capital ratio

14.33

%

14.21

%

13.12

%

12.84

%

13.45

%

Bank

Tier 1 leverage ratio

9.36

%

7.92

%

8.15

%

8.32

%

8.67

%

Common equity Tier 1 capital ratio

13.02

%

12.83

%

11.97

%

11.81

%

12.17

%

Tier 1 capital ratio

13.02

%

12.83

%

11.97

%

11.81

%

12.17

%

Total capital ratio

14.27

%

14.09

%

13.01

%

12.76

%

13.42

%

(1)

June 30, 2024 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)

As of the Periods Indicated

(Dollars in thousands)

June 30,

2024

March 31,

2024

December 31,

2023

September 30,

2023

June 30,

2023

Total stockholders' equity

$

765,248

$

739,462

$

729,282

$

650,625

$

677,721

Adjustments:

LESS: Goodwill, net of associated deferred tax liabilities

296,496

296,889

297,283

297,679

298,092

LESS: Certain other intangible assets

18,315

19,146

20,093

21,228

22,372

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

11,880

15,862

20,253

19,679

12,157

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

(206,584

)

(205,460

)

(187,901

)

(254,294

)

(207,358

)

LESS: Noncontrolling interest

(506

)

(420

)

(510

)

(1,005

)

(631

)

ADD: Adoption of Accounting Standards Update 2016-13

1,345

1,345

1,345

2,017

2,017

Common Equity Tier 1(1)

646,992

614,790

581,409

569,355

555,106

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

(374

)

(311

)

(410

)

(826

)

(454

)

Total Tier 1 capital

660,279

628,140

594,660

582,190

568,313

Allowance for credit losses

65,182

62,715

53,037

47,960

60,489

Subordinated debentures, net of issuance costs

19,668

19,642

19,617

19,591

19,566

Total capital

$

745,129

$

710,497

$

667,314

$

649,741

$

648,368

(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.

Conference Call

The Company will host a conference call and earnings webcast with a corresponding presentation at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Wednesday, July 24, 2024. The live webcast of the call can be accessed from Pathward's Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-833-470-1428 approximately 10 minutes prior to start time and reference access code 059075.

The Quarterly Investor Update slide presentation prepared for use in connection with the Company's conference call and earnings webcast is available under the Presentations link in the Investor Relations - Events & Presentations section of the Company's website at www.pathwardfinancial.com. A webcast replay will also be archived at www.pathwardfinancial.com for one year.

Upcoming Investor Events

  • Raymond James U.S. Bank and Banking on Tech Conference, Sept. 5, 2024 | Chicago, IL

About Pathward Financial, Inc.

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

Forward-Looking Statements

The Company and the Bank may from time to time make written or oral "forward-looking statements," including statements contained in this press release, the Company's filings with the Securities and Exchange Commission ("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," "target," 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 diluted share guidance, annual effective tax rate and related performance expectations; progress on key strategic initiatives; expected results of our partnerships; impacts of our improved data analytics, underwriting and monitoring processes; expected nonperforming loan resolutions and net charge off rates; the performance of our securities portfolio; the impact of card balances related to government stimulus programs; customer retention; loan and other product demand; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; and technology. 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 unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the military conflicts in Ukraine and the Middle East, weather-related disasters, or public health events, such as pandemics, and any governmental or societal responses thereto; 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, and their related impacts on macroeconomic conditions, customer behavior, funding costs and loan and securities portfolios; changes in tax laws; the strength of the United States' economy and the local economies in which the Company operates; adverse developments in the financial services industry generally such as bank failures, responsive measures to mitigate and manage such developments, related supervisory and regulatory actions and costs, and related impacts on customer behavior; inflation, market, and monetary fluctuations; our liquidity and capital positions, including the sufficiency of our liquidity; 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 and acceptance 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 borrowing, 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, 2023, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update, revise or clarify 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,

2024

March 31,

2024

December 31,

2023

September 30,

2023

June 30,

2023

ASSETS

Cash and cash equivalents

$

298,926

$

347,888

$

671,630

$

375,580

$

515,271

Securities available for sale, at fair value

1,725,460

1,779,458

1,850,581

1,804,228

1,914,271

Securities held to maturity, at amortized cost

34,026

34,682

35,440

36,591

37,725

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

24,449

25,844

23,694

28,210

30,890

Loans held for sale

29,380

25,946

69,518

77,779

87,351

Loans and leases

4,612,552

4,409,385

4,426,281

4,366,116

4,072,899

Allowance for credit losses

(79,836

)

(80,777

)

(53,785

)

(49,705

)

(81,916

)

Accrued interest receivable

31,755

30,294

27,080

23,282

22,332

Premises, furniture, and equipment, net

36,953

37,266

38,270

39,160

38,601

Rental equipment, net

209,544

215,885

228,916

211,750

224,212

Goodwill and intangible assets

327,018

328,001

329,241

330,225

331,335

Other assets

280,053

283,245

280,571

292,327

265,654

Total assets

$

7,530,280

$

7,437,117

$

7,927,437

$

7,535,543

$

7,458,625

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Deposits

6,431,516

6,368,344

6,936,055

6,589,182

6,306,976

Short-term borrowings

-

31,000

-

13,000

230,000

Long-term borrowings

33,329

33,373

33,614

33,873

34,178

Accrued expenses and other liabilities

300,187

264,938

228,486

248,863

209,750

Total liabilities

6,765,032

6,697,655

7,198,155

6,884,918

6,780,904

STOCKHOLDERS' EQUITY

Preferred stock

-

-

-

-

-

Common stock, $.01 par value

251

254

260

262

266

Common stock, Nonvoting, $.01 par value

-

-

-

-

-

Additional paid-in capital

636,284

634,415

629,737

628,500

625,825

Retained earnings

343,392

317,964

293,463

278,655

267,100

Accumulated other comprehensive loss

(207,992

)

(206,570

)

(188,433

)

(255,443

)

(207,896

)

Treasury stock, at cost

(6,181

)

(6,181

)

(5,235

)

(344

)

(6,943

)

Total equity attributable to parent

765,754

739,882

729,792

651,630

678,352

Noncontrolling interest

(506

)

(420

)

(510

)

(1,005

)

(631

)

Total stockholders' equity

765,248

739,462

729,282

650,625

677,721

Total liabilities and stockholders' equity

$

7,530,280

$

7,437,117

$

7,927,437

$

7,535,543

$

7,458,625

Condensed Consolidated Statements of Operations (Unaudited)

Three Months Ended

Nine Months Ended

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

June 30,

2024

March 31,

2024

June 30,

2023

June 30,

2024

June 30,

2023

Interest and dividend income:

Loans and leases, including fees

$

95,871

$

102,750

$

81,242

$

293,584

$

233,517

Mortgage-backed securities

9,748

9,998

10,234

29,795

30,972

Other investments

8,323

14,013

7,870

33,222

24,604

113,942

126,761

99,346

356,601

289,093

Interest expense:

Deposits

1,689

6,685

164

11,900

2,402

FHLB advances and other borrowings

1,394

1,775

1,717

5,505

3,764

3,083

8,460

1,881

17,405

6,166

Net interest income

110,859

118,301

97,465

339,196

282,927

Provision for credit loss

5,881

26,052

1,773

41,823

48,312

Net interest income after provision for credit loss

104,978

92,249

95,692

297,373

234,615

Noninterest income:

Refund transfer product fees

9,111

28,942

8,262

38,475

39,144

Refund advance fee income

(67

)

43,200

(927

)

43,244

37,685

Card and deposit fees

33,408

35,344

39,708

99,502

119,513

Rental income

13,779

13,720

13,980

40,958

39,628

Gain on sale of trademarks

-

-

-

-

10,000

Gain on sale of other

4,675

1,695

821

9,210

657

Other income

4,965

6,044

5,889

16,188

13,921

Total noninterest income

65,871

128,945

67,733

247,577

260,548

Noninterest expense:

Compensation and benefits

48,449

54,073

47,402

149,174

137,966

Refund transfer product expense

2,136

7,366

1,727

9,694

9,695

Refund advance expense

47

1,846

239

1,923

1,869

Card processing

34,314

35,163

26,342

104,061

75,949

Occupancy and equipment expense

9,070

9,293

8,595

27,211

25,417

Operating lease equipment depreciation

10,465

10,424

10,517

31,312

34,864

Legal and consulting

5,410

6,141

5,089

16,443

19,469

Intangible amortization

983

1,240

1,168

3,207

3,861

Impairment expense

999

2,013

2,749

3,012

3,273

Other expense

11,806

12,872

10,750

37,347

34,410

Total noninterest expense

123,679

140,431

114,578

383,384

346,773

Income before income tax expense

47,170

80,763

48,847

161,566

148,390

Income tax expense

5,123

15,246

3,243

26,088

18,996

Net income before noncontrolling interest

42,047

65,517

45,604

135,478

129,394

Net income attributable to noncontrolling interest

212

249

508

718

1,685

Net income attributable to parent

$

41,835

$

65,268

$

45,096

$

134,760

$

127,709

Less: Allocation of Earnings to participating securities(1)

432

524

690

1,180

1,920

Net income attributable to common shareholders(1)

41,403

64,744

44,406

133,580

125,789

Earnings per common share:

Basic

$

1.66

$

2.56

$

1.69

$

5.27

$

4.63

Diluted

$

1.66

$

2.56

$

1.68

$

5.27

$

4.62

Shares used in computing earnings per common share:

Basic

24,946,085

25,281,743

26,346,693

25,335,621

27,152,773

Diluted

24,979,818

25,311,144

26,447,032

25,364,642

27,238,801

(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,

2024

2023

(Dollars in thousands)

Average

Outstanding

Balance

Interest

Earned /

Paid

Yield /

Rate(1)

Average

Outstanding

Balance

Interest

Earned /

Paid

Yield /

Rate(1)

Interest-earning assets:

Cash and fed funds sold

$

224,987

$

2,053

3.67

%

$

248,865

$

2,441

3.93

%

Mortgage-backed securities

1,438,683

9,748

2.73

%

1,533,122

10,234

2.68

%

Tax exempt investment securities

128,117

911

3.62

%

145,474

989

3.45

%

Asset-backed securities

220,461

3,148

5.74

%

188,039

2,120

4.52

%

Other investment securities

282,966

2,211

3.14

%

292,025

2,320

3.19

%

Total investments

2,070,227

16,018

3.16

%

2,158,660

15,663

2.96

%

Commercial finance

3,756,152

78,353

8.39

%

3,268,780

68,174

8.37

%

Consumer finance

286,476

6,865

9.64

%

225,470

4,665

8.30

%

Tax services

56,836

55

0.39

%

52,477

25

0.19

%

Warehouse finance

407,210

10,598

10.47

%

372,498

8,378

9.02

%

Total loans and leases

4,506,674

95,871

8.56

%

3,919,225

81,242

8.31

%

Total interest-earning assets

$

6,801,888

$

113,942

6.75

%

$

6,326,750

$

99,346

6.31

%

Noninterest-earning assets

537,525

574,840

Total assets

$

7,339,413

$

6,901,590

Interest-bearing liabilities:

Interest-bearing checking

$

684

$

-

0.14

%

$

339

$

-

0.22

%

Savings

56,565

3

0.02

%

69,310

7

0.04

%

Money markets

178,255

584

1.32

%

126,994

76

0.24

%

Time deposits

4,265

3

0.32

%

6,224

3

0.19

%

Wholesale deposits

74,167

1,099

5.96

%

5,794

78

5.38

%

Total interest-bearing deposits (a)

313,936

1,689

2.16

%

208,661

164

0.32

%

Overnight fed funds purchased

52,374

730

5.61

%

78,320

1,057

5.42

%

Subordinated debentures

19,651

355

7.26

%

19,549

355

7.28

%

Other borrowings

13,705

309

9.07

%

14,850

305

8.24

%

Total borrowings

85,730

1,394

6.54

%

112,719

1,717

6.11

%

Total interest-bearing liabilities

399,666

3,083

3.10

%

321,380

1,881

2.35

%

Noninterest-bearing deposits (b)

5,947,054

-

-

%

5,686,581

-

-

%

Total deposits and interest-bearing liabilities

$

6,346,720

$

3,083

0.20

%

$

6,007,961

$

1,881

0.13

%

Other noninterest-bearing liabilities

252,763

206,708

Total liabilities

6,599,483

6,214,669

Shareholders' equity

739,930

686,921

Total liabilities and shareholders' equity

$

7,339,413

$

6,901,590

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

$

110,859

6.56

%

$

97,465

6.19

%

Net interest margin

6.56

%

6.18

%

Tax-equivalent effect

0.01

%

0.02

%

Net interest margin, tax-equivalent(2)

6.57

%

6.20

%

Total cost of deposits (a+b)

6,260,990

1,689

0.11

%

5,895,242

164

0.01

%

(1)

Tax rate used to arrive at the TEY for the three months ended June 30, 2024 and 2023 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

June 30,

2024

March 31,

2024

December 31,

2023

September 30,

2023

June 30,

2023

Equity to total assets

10.16

%

9.94

%

9.20

%

8.63

%

9.09

%

Book value per common share outstanding

$

30.51

$

29.14

$

28.06

$

24.85

$

25.54

Tangible book value per common share outstanding

$

17.47

$

16.21

$

15.39

$

12.24

$

13.05

Common shares outstanding

25,085,230

25,377,986

25,988,230

26,183,583

26,539,272

Nonperforming assets to total assets

0.61

%

0.50

%

0.53

%

0.77

%

0.55

%

Nonperforming loans and leases to total loans and leases

0.96

%

0.78

%

0.88

%

1.26

%

0.93

%

Net interest margin

6.56

%

6.23

%

6.23

%

6.19

%

6.18

%

Net interest margin, tax-equivalent

6.57

%

6.24

%

6.24

%

6.21

%

6.20

%

Return on average assets

2.28

%

3.17

%

1.46

%

1.97

%

2.61

%

Return on average equity

22.62

%

35.72

%

16.87

%

21.12

%

26.26

%

Full-time equivalent employees

1,232

1,204

1,218

1,193

1,186

Net Interest Margin and Cost of Deposits

At and For the Three Months Ended

(Dollars in thousands)

June 30,

2024

March 31,

2024

June 30,

2023

Average interest earning assets

$

6,801,888

$

7,635,842

$

6,326,750

Net interest income

$

110,859

$

118,301

$

97,465

Net interest margin

6.56

%

6.23

%

6.18

%

Quarterly average total deposits

$

6,260,990

$

7,168,673

$

5,895,242

Deposit interest expense

$

1,689

$

6,685

$

164

Cost of deposits

0.11

%

0.38

%

0.01

%

Adjusted Net Interest Margin and Adjusted Cost of Deposits

Average interest earning assets

$

6,801,888

$

7,635,842

$

6,326,750

Net interest income

110,859

118,301

97,465

Less: Contractual, rate-related processing expense

27,595

30,094

20,528

Adjusted net interest income

$

83,264

$

88,207

$

76,937

Adjusted net interest margin

4.92

%

4.65

%

4.88

%

Average total deposits

$

6,260,990

$

7,168,673

$

5,895,242

Deposit interest expense

1,689

6,685

164

Add: Contractual, rate-related processing expense

27,595

30,094

20,528

Adjusted deposit expense

$

29,284

$

36,779

$

20,692

Adjusted cost of deposits

1.88

%

2.06

%

1.41

%

Investor Relations
Darby Schoenfeld, CPA
SVP, Chief of Staff & Investor Relations
877-497-7497
[email protected]

Media Relations
[email protected]

Source: Pathward Financial, Inc