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
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240724373717/en/
Investor Relations Darby Schoenfeld, CPA SVP, Chief of
Staff & Investor Relations 877-497-7497
investorrelations@pathward.com
Media Relations mediarelations@pathward.com
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