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Pathward Financial, Inc. Announces Results for 2022 Fiscal Fourth Quarter and Fiscal Year 2022

- Fiscal 2022 Fourth Quarter Net Income of $23.4 million, or $0.81 Per Diluted Share -

- Fiscal 2022 Net Income of $156.4 million, or $5.26 Per Diluted Share -

Pathward Financial, Inc.™ (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $23.4 million, or $0.81 per share, for the three months ended September 30, 2022, compared to net income of $15.9 million, or $0.50 per share, for the three months ended September 30, 2021. The Company reported net income of $156.4 million, or $5.26 per share, for the fiscal year ended September 30, 2022, compared to net income of $141.7 million, or $4.38 per share, for the fiscal year ended September 30, 2021. For the fiscal year ended September 30, 2022, the Company recognized return on average assets of 2.20% compared to 1.74% for the prior year period.

During the quarter, the Company recognized $6.9 million of pre-tax expenses related to rebranding efforts and $1.0 million of pre-tax separation related expenses. Excluding the impact of the rebranding and separation expenses, net of tax, the Company's adjusted net income for the quarter totaled $30.3 million, or $1.04 per share. For the fiscal year ended 2022, the Company recognized a gain on sale of Meta names and trademarks of $50.0 million, $13.1 million of pre-tax expenses related to rebranding efforts and $5.1 million of pre-tax separation related expenses. Excluding the impact of the gain on sale and rebranding and separation expenses, net of tax, the Company's adjusted net income for the 2022 fiscal year totaled $133.6 million, or $4.49 per share. See non-GAAP reconciliation table below.

“Fiscal 2022 was a landmark year for our organization as we renamed and unified our company under a single brand that reinforces our commitment to providing a path forward for individuals and businesses to reach the next stage of their financial journey," said CEO Brett Pharr.

"We are pleased with our results for the fiscal fourth quarter during which we delivered strong earnings per share growth. Our financial results continue to demonstrate that our optimization strategy will produce outsized returns of capital to shareholders."

"Looking ahead, we affirm our guidance for fiscal 2023: Our commercial finance loan portfolio is performing well and our credit quality metrics remain strong. We are starting to see the benefits of the rising rate environment in our loan yields, especially now that almost all of our variable rate loans are above their floors. Additionally, we believe our banking as a service business will continue to attract and maintain low-cost deposits while also generating steady fee income. Taken together, these factors position us well for fiscal 2023 and beyond," continued Pharr.

Business Highlights

  • The Company announced today that Sonja Theisen, currently Executive Vice President of Governance, Risk and Compliance, has been appointed to succeed Glen Herrick as the Chief Financial Officer effective April 30, 2023. Ms. Theisen, who joined Pathward in 2013, has held leaderships roles across the organization including Chief Accounting Officer, Chief of Staff, and EVP of Governance, Risk and Compliance. Additional details can be found in the press release available at www.pathwardfinancial.com.
  • On October 4, 2022, the Company announced the unveiling of its new corporate brand, marked by the transition to its new name, Pathward™, N.A. ("Pathward" or the "Bank"), and the launch of the Company's new website, Pathward.com. As part of the corporate rebrand, the Company recognized $6.9 million of pre-tax expenses related to rebranding efforts during the fourth quarter of fiscal 2022. The Company continues to estimate total rebranding expenses will range between $15 million to $20 million.
  • As part of its strategy to continue to optimize interest-earning assets, the Company sold the entirety of its student loan portfolio during the fourth quarter of fiscal 2022. The sale generated an unfavorable pre-tax impact of approximately $0.5 million after netting the $4.3 million reversal of provision from the portfolio's allowance and the loss on sale of $4.8 million. The balance of the portfolio at time of sale was $81.5 million.
  • On September 26, 2022, the Company announced the completion of a private placement of $20 million of its 6.625% Fixed-to-Floating Rate Subordinated Notes due 2032 to certain qualified institutional buyers and accredited investors. The Notes are intended to qualify as Tier 2 capital for regulatory capital purposes. The Company has used and intends to continue to use the net proceeds of the offering for general corporate purposes and repurchases of the Company's common stock.
  • The Company announced on October 10, 2022 that the American Bankers Association ("ABA") Foundation awarded it the 2022 Community Commitment Award during the ABA's Annual Convention on October 4. Pathward's Community Impact Program partners with organizations that provide resources for the unbanked and underbanked and aid to historically marginalized populations. The Community Impact Program delivers on Pathward's purpose of powering financial inclusion for all™ by lifting up the communities it serves.

Financial Highlights for the 2022 Fiscal Fourth Quarter

  • Total revenue for the fourth quarter was $123.2 million, an increase of $3.0 million, or 3%, compared to the same quarter in fiscal 2021, primarily driven by an increase in interest income, partially offset by a decrease in noninterest income.
  • Net interest margin ("NIM") increased to 5.21% for the fourth quarter from 4.35% 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 September 30, 2022 decreased $79 million, to $3.53 billion, or 2%, compared to September 30, 2021 and decreased $154 million, or 4%, when compared to June 30, 2022. The decrease compared to the prior year quarter was primarily due the sale of all remaining community banking loans during the fiscal 2022 first quarter, the sale of the student loan portfolio during the fiscal 2022 fourth quarter, and a reduction in warehouse finance loans, partially offset by growth in the commercial finance portfolio. The primary driver for the decrease on a linked quarter basis was the sale of the student loan portfolio, a reduction in warehouse finance loans, and the seasonal decline in tax services loans.
  • The Company resumed share repurchases on July 1, 2022, and during the fiscal 2022 fourth quarter repurchased 573,200 shares of common stock at an average share price of $37.05. An additional 396,100 shares of common stock at an average price of $35.16 were repurchased in October 2022 through October 13, 2022. As of October 13, 2022, there are 3,898,877 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 $5.25 to $5.75 and expects fiscal year 2023 adjusted earnings per share to be in the range of $5.10 to $5.60. See non-GAAP reconciliation table below. 

Net Interest Income

Net interest income for the fourth quarter of fiscal 2022 was $79.8 million, an increase of 13% from the same quarter in fiscal 2021. The increase was mainly attributable to increased yields and an improved earning asset mix.

The fourth quarter average outstanding balance of loans and leases decreased $27.6 million compared to the same quarter of the prior year, primarily due to the sale of the remaining community bank and student loan portfolios, partially offset by increases in core loan and lease portfolios. The Company’s average interest-earning assets for the fourth quarter decreased by $364.8 million to $6.07 billion compared with the same quarter in fiscal 2021, primarily due to a reduction in cash balances as a result of high cash levels during the prior year period related to the Company's participation in government stimulus programs. The decrease in interest-earnings assets was partially offset by growth in total investments and core loans and leases.

Fiscal 2022 fourth quarter NIM increased to 5.21% from 4.35% in the fourth fiscal quarter of last year. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 81 basis points to 5.26% 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 7.12% compared to 6.93% for the comparable period last year and the TEY on the securities portfolio was 2.56% compared to 1.50% over that same period.

The Company's cost of funds for all deposits and borrowings averaged 0.03% during the fiscal 2022 fourth quarter, as compared to 0.09% during the prior year quarter. The Company's overall cost of deposits was 0.01% in the fiscal fourth quarter of 2022, the same as the prior year quarter.

Noninterest Income

Fiscal 2022 fourth quarter noninterest income decreased to $43.5 million, compared to $49.5 million for the same period of the prior year. The decrease was driven by a reduction in other income, a reduction in gain on sale of other, and a loss on sale of investments. These decreases were partially offset by an increase in payments fee income.

The reduction in gain on sale of other was primarily driven by the loss on the sale of the student loan portfolio during the quarter along with the Company recording fewer gains on loan sales as the SBA and USDA sale volumes have been impacted by supply chain constraints within the solar construction market. The decrease in other income was primarily related to a net unrealized gain of $4.1 million during the prior year period related to the MoneyLion investment. The $1.9 million loss on sale of investment was related to a sale of a venture capital investment. The increase in payment fee income was primarily from servicing fee income on off-balance sheet deposits, which increased $5.9 million during the 2022 fiscal fourth quarter compared to the same period of the prior year and increased $5.4 million compared to the fiscal 2022 third quarter.

Noninterest Expense

Noninterest expense increased 10% to $103.0 million for the fiscal 2022 fourth quarter, from $93.6 million for the same quarter last year. The increase in expense was primarily driven by an increase in card processing expense and compensation expense. During the fiscal 2022 fourth quarter, the Company recognized $6.9 million in rebranding expenses and $1.0 million in separation related expenses.

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 37% of the deposit portfolio was subject to these higher card processing expenses. For the fiscal quarter ended September 30, 2022, card processing expenses related to these structured agreements were $7.4 million, as compared to $2.2 million for the fiscal quarter ended June 30, 2022 and $0.2 million for the fiscal quarter ended September 30, 2021.

Income Tax Expense

The Company recorded an income tax benefit of $1.3 million, representing an effective tax rate of (5.7%), for the fiscal 2022 fourth quarter, compared to income tax expense $1.1 million, representing an effective tax rate of 6.5%, for the fourth quarter last year. The current quarter decrease in income tax expense was primarily due to an increase in renewable energy investment tax credit lending volume compared to the prior year period.

The Company originated $35.9 million in solar leases during the fiscal 2022 fourth quarter, resulting in $9.6 million in total net investment tax credits. During the fourth quarter of fiscal 2021, the Company originated $29.1 million in solar leases resulting in $7.6 million in total net investment tax credits. Investment tax credits related to solar leases are recognized ratably based on income throughout each fiscal year. For the fiscal year ended September 30, 2022, the Company originated $62.8 million in solar leases, compared to $101.1 million for the comparable prior year period. The timing and impact of future solar tax credits are expected to vary from period to period, and the Company intends to undertake only those tax credit opportunities that meet the Company's underwriting and return criteria.

Outlook

The following forward-looking statements reflect the Company’s expectations as of the date of this release, and are subject to substantial uncertainty. The Company's results may be materially affected by many factors, such as changes in economic conditions and customer demand, changes in interest rates, inflation, uncertainty regarding the COVID-19 pandemic, and other factors detailed below under “Forward-looking Statements.” Because the Company’s reported GAAP results include certain income and expense items that are not expected to continue indefinitely and may include additional elements that the Company cannot currently predict, the Company is also providing guidance on a non-GAAP or “adjusted” basis.

The Company expects fiscal year 2023 GAAP earnings per share to be in the range of $5.25 to $5.75. 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 $5.10 to $5.60. See non-GAAP reconciliation table below.

Investments, Loans and Leases

(Dollars in thousands)

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

Total investments

$

1,924,551

 

 

$

2,000,400

 

 

$

2,090,765

 

 

$

1,833,733

 

 

$

1,921,568

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

 

 

 

 

 

 

 

 

Consumer credit products

 

21,071

 

 

 

23,710

 

 

 

23,670

 

 

 

20,728

 

 

 

23,111

 

SBA/USDA

 

 

 

 

43,861

 

 

 

7,740

 

 

 

15,454

 

 

 

33,083

 

Total loans held for sale

 

21,072

 

 

 

67,571

 

 

 

31,410

 

 

 

36,182

 

 

 

56,194

 

 

 

 

 

 

 

 

 

 

 

Term lending

 

1,090,289

 

 

 

1,047,764

 

 

 

1,111,076

 

 

 

1,038,378

 

 

 

961,019

 

Asset based lending

 

351,696

 

 

 

402,506

 

 

 

382,355

 

 

 

337,236

 

 

 

300,225

 

Factoring

 

372,595

 

 

 

408,777

 

 

 

394,865

 

 

 

402,972

 

 

 

363,670

 

Lease financing

 

210,692

 

 

 

218,789

 

 

 

235,397

 

 

 

245,315

 

 

 

266,050

 

Insurance premium finance

 

479,754

 

 

 

481,219

 

 

 

403,681

 

 

 

385,473

 

 

 

428,867

 

SBA/USDA

 

359,238

 

 

 

215,510

 

 

 

214,195

 

 

 

209,521

 

 

 

247,756

 

Other commercial finance

 

159,409

 

 

 

173,338

 

 

 

173,260

 

 

 

178,853

 

 

 

157,908

 

Commercial finance

 

3,023,673

 

 

 

2,947,903

 

 

 

2,914,829

 

 

 

2,797,748

 

 

 

2,725,495

 

Consumer credit products

 

144,353

 

 

 

152,106

 

 

 

171,847

 

 

 

173,343

 

 

 

129,251

 

Other consumer finance

 

25,306

 

 

 

107,135

 

 

 

111,922

 

 

 

144,412

 

 

 

123,606

 

Consumer finance

 

169,659

 

 

 

259,241

 

 

 

283,769

 

 

 

317,755

 

 

 

252,857

 

Tax services

 

9,098

 

 

 

41,627

 

 

 

85,999

 

 

 

100,272

 

 

 

10,405

 

Warehouse finance

 

326,850

 

 

 

434,748

 

 

 

441,496

 

 

 

466,831

 

 

 

419,926

 

Community banking

 

 

 

 

 

 

 

 

 

 

 

 

 

199,132

 

Total loans and leases

 

3,529,280

 

 

 

3,683,519

 

 

 

3,726,093

 

 

 

3,682,606

 

 

 

3,607,815

 

Net deferred loan origination costs

 

7,025

 

 

 

5,047

 

 

 

4,097

 

 

 

1,655

 

 

 

1,748

 

Total gross loans and leases

 

3,536,305

 

 

 

3,688,566

 

 

 

3,730,190

 

 

 

3,684,261

 

 

 

3,609,563

 

Allowance for credit losses

 

(45,947

)

 

 

(75,206

)

 

 

(88,552

)

 

 

(67,623

)

 

 

(68,281

)

Total loans and leases, net

$

3,490,358

 

 

$

3,613,360

 

 

$

3,641,638

 

 

$

3,616,638

 

 

$

3,541,282

 

 

The Company's investment security balances at September 30, 2022 totaled $1.92 billion, as compared to $2.00 billion at June 30, 2022 and $1.92 billion at September 30, 2021.

Total gross loans and leases totaled $3.54 billion at September 30, 2022, as compared to $3.69 billion at June 30, 2022 and $3.61 billion at September 30, 2021. The primary driver for the decrease on a linked quarter basis was a decrease in consumer finance loans, a reduction in warehouse finance loans, and the seasonal decline in the tax services portfolio, partially offset by an increase in the commercial finance portfolio. The year-over-year decrease was primarily due the sale of all remaining community banking loans during the fiscal 2022 first quarter, the sale of the student loan portfolio during the fiscal 2022 fourth quarter, and a reduction in warehouse finance 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 $3.02 billion at September 30, 2022, reflecting growth of $75.8 million, or 3%, from June 30, 2022 and $298.2 million, or 11%, from September 30, 2021.

When excluding PPP loans, the community bank portfolio and the student loan portfolio, total loans and leases grew 9% at September 30, 2022 when compared to the same period of the prior year.

Asset Quality

The Company’s allowance for credit losses ("ACL") totaled $45.9 million at September 30, 2022, a decrease compared to $75.2 million at June 30, 2022 and a decrease from $68.3 million at September 30, 2021. The decrease in the ACL at September 30, 2022, when compared to June 30, 2022, was primarily due to a $22.6 million decrease in the seasonal tax services loan portfolio, and to a lesser extent, a $4.8 million decrease in the consumer finance portfolio and a $1.7 million decrease in the commercial finance portfolio. The decrease in the consumer finance portfolio was primarily attributable to the sale of the student loan portfolio.

The $22.3 million year-over-year decrease in the ACL was primarily driven by a $12.3 million decrease attributable to the disposition of the community banking portfolio, along with a $5.9 million decrease in the consumer finance portfolio and a $4.1 million decrease in the commercial 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)

September 30,

2022

June 30,

2022

March 31,

2022

December 31,

2021

September 30,

2021

Commercial finance

1.46

%

1.56

%

1.66

%

2.04

%

1.77

%

Consumer finance

0.86

%

2.44

%

3.18

%

2.70

%

2.91

%

Tax services

0.05

%

54.29

%

35.76

%

1.60

%

0.02

%

Warehouse finance

0.10

%

0.10

%

0.10

%

0.10

%

0.10

%

Community banking

%

%

%

%

6.16

%

Total loans and leases

1.30

%

2.04

%

2.38

%

1.84

%

1.89

%

Total loans and leases excluding tax services

1.30

%

1.44

%

1.59

%

1.84

%

1.89

%

 

The Company's ACL as a percentage of total loans and leases decreased to 1.30% at September 30, 2022 from 2.04% at June 30, 2022. The decrease in the total loans and leases coverage ratio was primarily driven by the seasonal tax services loan portfolio, along with a decrease in the coverage ratio for both the commercial and consumer finance portfolios. The drop in the consumer finance portfolio coverage ratio was attributable to the sale of the student loan portfolio. 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

 

Twelve Months Ended

(Dollars in thousands)

September 30,

2022

June 30,

2022

September 30,

2021

 

September 30,

2022

September 30,

2021

Beginning balance

$

75,206

 

$

88,552

 

$

91,208

 

 

$

68,281

 

$

56,188

 

Adoption of CECL accounting standard

 

 

 

 

 

 

 

 

 

 

12,773

 

Provision (reversal of) - tax services loans

 

 

 

(166

)

 

457

 

 

 

28,093

 

 

33,276

 

Provision (reversal of) - all other loans and leases

 

(2,617

)

 

(982

)

 

8,368

 

 

 

769

 

 

16,663

 

Charge-offs - tax services loans

 

(22,599

)

 

(7,998

)

 

(24,849

)

 

 

(30,852

)

 

(34,354

)

Charge-offs - all other loans and leases

 

(6,844

)

 

(6,346

)

 

(7,635

)

 

 

(30,210

)

 

(22,920

)

Recoveries - tax services loans

 

5

 

 

6

 

 

51

 

 

 

2,762

 

 

1,078

 

Recoveries - all other loans and leases

 

2,796

 

 

2,140

 

 

681

 

 

 

7,104

 

 

5,577

 

Ending balance

$

45,947

 

$

75,206

 

$

68,281

 

 

$

45,947

 

$

68,281

 

 

The Company recognized a reversal of provision for credit losses of $2.6 million for the quarter ended September 30, 2022, compared to $8.8 million of provision for credit losses expense for the comparable period in the prior fiscal year. The reversal of provision for credit losses during the current quarter was primarily driven by the student loan sale and commercial finance recoveries. Net charge-offs were $26.6 million for the quarter ended September 30, 2022, compared to $31.8 million for the quarter ended September 30, 2021. Net charge-offs attributable to the tax services, commercial finance, and consumer finance portfolios for the quarter were $22.6 million, $3.4 million, and $0.6 million, respectively.

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

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

 

As of June 30, 2022

Accruing and Nonaccruing Loans and Leases

 

Nonperforming Loans and Leases

(Dollars in thousands)

30-59

Days Past

Due

 

60-89

Days Past

Due

 

> 89 Days

Past Due

 

Total Past

Due

 

Current

 

Total Loans

and Leases

Receivable

 

> 89 Days

Past Due

and

Accruing

 

Nonaccrual

Balance

 

Total

Loans held for sale

$

 

$

 

$

 

$

 

$

67,571

 

$

67,571

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial finance

 

15,426

 

 

4,155

 

 

9,195

 

 

28,776

 

 

2,919,127

 

 

2,947,903

 

 

3,519

 

 

19,603

 

 

23,122

Consumer finance

 

3,808

 

 

3,476

 

 

3,501

 

 

10,785

 

 

248,456

 

 

259,241

 

 

3,501

 

 

 

 

3,501

Tax services

 

 

 

41,627

 

 

 

 

41,627

 

 

 

 

41,627

 

 

 

 

 

 

Warehouse finance

 

 

 

 

 

 

 

 

 

434,748

 

 

434,748

 

 

 

 

 

 

Total loans and leases held for investment

 

19,234

 

 

49,258

 

 

12,696

 

 

81,188

 

 

3,602,331

 

 

3,683,519

 

 

7,020

 

 

19,603

 

 

26,623

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans and leases

$

19,234

 

$

49,258

 

$

12,696

 

$

81,188

 

$

3,669,902

 

$

3,751,090

 

$

7,020

 

$

19,603

 

$

26,623

 

The Company's nonperforming assets at September 30, 2022 were $30.9 million, representing 0.46% of total assets, compared to $26.8 million, or 0.40% of total assets at June 30, 2022 and $61.8 million, or 0.92% of total assets at September 30, 2021.

The Company's nonperforming loans and leases at September 30, 2022, were $29.2 million, representing 0.82% of total gross loans and leases, compared to $26.6 million, or 0.71% of total gross loans and leases at June 30, 2022 and $55.9 million, or 1.52% of total gross loans and leases at September 30, 2021.

The increase in the nonperforming assets as a percentage of total assets at September 30, 2022 compared to June 30, 2022, was driven by an increase in nonperforming loans in the tax services portfolio, which is due to seasonal timing. This increase was partially offset by decreases within the commercial and consumer finance portfolios. When comparing the current period to the same period of the prior year, the decrease in nonperforming assets was due to a decrease in nonperforming assets in the community bank and commercial finance portfolios, partially offset by slight increases in nonperforming loans in the consumer and tax finance portfolios.

The Company has various portfolios of consumer lending and tax services loans that present unique risks that are statistically managed. Due to the unique risks associated with these portfolios, the Company monitors other credit quality indicators in their evaluation of the appropriateness of the allowance for credit losses on these portfolios, and as such, these loans are not included in the asset classification table below. The Company's loans and leases held for investment by asset classification were as follows for the periods presented.

 

Asset Classification

(Dollars in thousands)

Pass

Watch

Special

Mention

Substandard

Doubtful

Total

As of 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

 

 

Asset Classification

(Dollars in thousands)

Pass

Watch

Special

Mention

Substandard

Doubtful

Total

As of June 30, 2022

 

Commercial finance

$

2,182,712

$

462,392

$

125,249

$

172,696

$

4,854

$

2,947,903

Warehouse finance

 

434,748

 

 

 

 

 

434,748

Total loans and leases

$

2,617,460

$

462,392

$

125,249

$

172,696

$

4,854

$

3,382,651

 

Deposits, Borrowings and Other Liabilities

Total average deposits for the fiscal 2022 fourth quarter decreased by $311.8 million to $5.77 billion compared to the same period in fiscal 2021. The decrease in average deposits was primarily due to decreases in interest-bearing deposits, wholesale deposits, savings deposits, and noninterest-bearing deposits, partially offset by an increase in money market deposits. The Company's deposit balances are seasonally lower during the fiscal fourth quarter. Additionally, 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 $5.80 billion for the three-month period ended September 30, 2022, compared to $6.17 billion for the same period in the prior fiscal year, representing a decrease of 6%.

Total end-of-period deposits increased 6% to $5.87 billion at September 30, 2022, compared to $5.51 billion at September 30, 2021. The increase in end-of-period deposits was primarily driven by an increase in noninterest-bearing deposits of $628.9 million, partially offset by a decrease in interest-bearing checking of $254.3 million and a decrease in wholesale deposits of $73.6 million.

As of September 30, 2022, the Company managed $1.31 billion of customer deposits at other banks in its capacity as custodian. These deposits provide the Company with excess deposits that can earn record keeping service fee income, typically reflective of the EFFR.

Approximately 37% of the deposit balances at September 30, 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 the Bank remained above the federal regulatory minimum capital requirements at September 30, 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

September 30,

2022(1)

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

Company

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital ratio

8.10

%

 

8.23

%

 

6.80

%

 

7.39

%

 

7.67

%

Common equity Tier 1 capital ratio

12.07

%

 

11.87

%

 

11.26

%

 

10.88

%

 

12.12

%

Tier 1 capital ratio

12.39

%

 

12.19

%

 

11.58

%

 

11.20

%

 

12.46

%

Total capital ratio

13.88

%

 

13.44

%

 

14.16

%

 

13.80

%

 

15.45

%

Bank

 

 

 

 

 

 

 

 

 

Tier 1 leverage ratio

8.19

%

 

8.22

%

 

7.79

%

 

8.52

%

 

8.69

%

Common equity Tier 1 capital ratio

12.55

%

 

12.17

%

 

13.26

%

 

12.90

%

 

14.11

%

Tier 1 capital ratio

12.55

%

 

12.18

%

 

13.26

%

 

12.91

%

 

14.13

%

Total capital ratio

13.57

%

 

13.43

%

 

14.52

%

 

14.16

%

 

15.38

%

(1)

September 30, 2022 percentages are preliminary pending completion and filing of the Company's regulatory reports. Regulatory capital ratios for periods presented reflect the Company's election of the five-year CECL transition for regulatory capital purposes.

 
 

The following table provides the non-GAAP financial measures used to compute certain of the ratios included in the table above, as well as a reconciliation of such non-GAAP financial measures to the most directly comparable financial measure in accordance with GAAP:

 

Standardized Approach(1)

(Dollars in thousands)

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

Total stockholders' equity

$

645,140

 

 

$

724,774

 

 

$

763,406

 

 

$

826,157

 

$

871,884

Adjustments:

 

 

 

 

 

 

 

 

 

LESS: Goodwill, net of associated deferred tax liabilities

 

299,186

 

 

 

299,616

 

 

 

299,983

 

 

 

300,382

 

 

300,780

LESS: Certain other intangible assets

 

26,406

 

 

 

27,809

 

 

 

30,007

 

 

 

32,294

 

 

33,572

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

 

17,968

 

 

 

11,978

 

 

 

13,404

 

 

 

19,855

 

 

22,801

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

 

(211,600

)

 

 

(131,352

)

 

 

(69,838

)

 

 

403

 

 

7,344

LESS: Noncontrolling interest

 

(30

)

 

 

665

 

 

 

322

 

 

 

642

 

 

1,155

ADD: Adoption of Accounting Standards Update 2016-13

 

2,689

 

 

 

10,011

 

 

 

13,387

 

 

 

6,527

 

 

8,202

Common Equity Tier 1(1)

 

515,899

 

 

 

526,069

 

 

 

502,915

 

 

 

479,108

 

 

514,434

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

 

(20

)

 

 

377

 

 

 

208

 

 

 

444

 

 

747

Total Tier 1 capital

 

529,540

 

 

 

540,107

 

 

 

516,784

 

 

 

493,213

 

 

528,842

Allowance for credit losses

 

43,623

 

 

 

55,506

 

 

 

56,051

 

 

 

55,125

 

 

53,159

Subordinated debentures, net of issuance costs

 

20,000

 

 

 

 

 

 

59,256

 

 

 

59,220

 

 

73,980

Total capital

$

593,163

 

 

$

595,613

 

 

$

632,091

 

 

$

607,558

 

$

655,981

(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.

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

Total stockholders' equity

$

645,140

 

 

$

724,774

 

 

$

763,406

 

 

$

826,157

 

$

871,884

Less: Goodwill

 

309,505

 

 

 

309,505

 

 

 

309,505

 

 

 

309,505

 

 

309,505

Less: Intangible assets

 

25,691

 

 

 

27,088

 

 

 

29,290

 

 

 

31,661

 

 

33,148

Tangible common equity

 

309,944

 

 

 

388,181

 

 

 

424,611

 

 

 

484,991

 

 

529,231

Less: AOCI

 

(213,080

)

 

 

(131,407

)

 

 

(69,374

)

 

 

724

 

 

7,599

Tangible common equity excluding AOCI

$

523,024

 

 

$

519,588

 

 

$

493,985

 

 

$

484,267

 

$

521,632

 
 

Conference Call

The Company will host a conference call and earnings webcast at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Thursday, October 27, 2022. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-844-200-6205 (International: +1-929-526-1599) approximately 10 minutes prior to start time and reference access code 372192. A webcast replay will also be archived at www.pathwardfinancial.com for one year.

Upcoming Investor Events

  • KBW Winter Financial Services Conference, Feb 16, 2023 | Boca Raton, FL

About Pathward Financial, Inc.™

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

Forward-Looking Statements

The Company and Pathward may from time to time make written or oral “forward-looking statements,” including statements contained in this press release, the Company’s filings with the SEC, the Company’s reports to stockholders, and in other communications by the Company and Pathward, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

You can identify forward-looking statements by words such as “may,” “hope,” “will,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential,” “continue,” “could,” “future,” or the negative of those terms, or other words of similar meaning or similar expressions. You should carefully read statements that contain these words because they discuss our future expectations or state other “forward-looking” information. These forward-looking statements are based on information currently available to us and assumptions about future events, and include statements with respect to the Company’s beliefs, expectations, estimates, and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond the Company’s control. Such risks, uncertainties and other factors may cause our actual growth, results of operations, financial condition, cash flows, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Such statements address, among others, the following subjects: future operating results; the impact of measures expected to increase efficiencies or reduce expenses; the timing of and expenses related to our new brand rollout; customer retention; loan and other product demand; expectations concerning acquisitions and divestitures; new products and services; credit quality; the level of net charge-offs and the adequacy of the allowance for credit losses; technology; and the Company's employees. The following factors, among others, could cause the Company's financial performance and results of operations to differ materially from the expectations, estimates, and intentions expressed in such forward-looking statements: maintaining our executive management team; expected growth opportunities may not be realized or may take longer to realize than expected; the potential adverse effects of the ongoing COVID-19 pandemic and any governmental or societal responses thereto, or other unusual and infrequently occurring events, including the impact on financial markets from geopolitical conflicts such as the military conflict between Russia and Ukraine; our ability to achieve brand recognition for Pathward equal to or greater than we have enjoyed for MetaBank; our ability to successfully implement measures designed to reduce expenses and increase efficiencies; changes in trade, monetary, and fiscal policies and laws, including actual changes in interest rates and the Fed Funds rate; changes in tax laws; the strength of the United States' economy, and the local economies in which the Company operates; inflation, market, and monetary fluctuations; the timely and efficient development of new products and services offered by the Company or its strategic partners, as well as risks (including reputational and litigation) attendant thereto, and the perceived overall value of these products and services by users; Pathward's ability to maintain its Durbin Amendment exemption; the risks of dealing with or utilizing third parties, including, in connection with the Company’s prepaid card and tax refund advance businesses, the risk of reduced volume of refund advance loans as a result of reduced customer demand for or usage of Pathward’s strategic partners’ refund advance products; our relationship with, and any actions which may be initiated by, our regulators; changes in financial services laws and regulations, including laws and regulations relating to the tax refund industry and the insurance premium finance industry; technological changes, including, but not limited to, the protection of our electronic systems and information; the impact of acquisitions and divestitures; litigation risk; the growth of the Company’s business, as well as expenses related thereto; continued maintenance by Pathward of its status as a well-capitalized institution; changes in consumer spending and saving habits; losses from fraudulent or illegal activity; technological risks and developments and cyber threats, attacks, or events; and the success of the Company at maintaining its high quality asset level and managing and collecting assets of borrowers in default should problem assets increase.

The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2021, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason.

 
 
 
 

Condensed Consolidated Statements of Financial Condition (Unaudited)

 

(Dollars in Thousands, Except Share Data)

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

ASSETS

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

388,038

 

 

$

157,260

 

 

$

237,680

 

 

$

1,230,100

 

 

$

314,019

 

Securities available for sale, at fair value

 

1,882,869

 

 

 

1,956,523

 

 

 

2,043,478

 

 

 

1,782,739

 

 

 

1,864,899

 

Securities held to maturity, at amortized cost

 

41,682

 

 

 

43,877

 

 

 

47,287

 

 

 

50,994

 

 

 

56,669

 

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

 

28,812

 

 

 

28,812

 

 

 

28,812

 

 

 

28,400

 

 

 

28,400

 

Loans held for sale

 

21,071

 

 

 

67,571

 

 

 

31,410

 

 

 

36,182

 

 

 

56,194

 

Loans and leases

 

3,536,305

 

 

 

3,688,566

 

 

 

3,730,190

 

 

 

3,684,261

 

 

 

3,609,563

 

Allowance for credit losses

 

(45,947

)

 

 

(75,206

)

 

 

(88,552

)

 

 

(67,623

)

 

 

(68,281

)

Accrued interest receivable

 

17,979

 

 

 

16,818

 

 

 

19,115

 

 

 

17,240

 

 

 

16,254

 

Premises, furniture, and equipment, net

 

41,710

 

 

 

42,076

 

 

 

43,167

 

 

 

44,130

 

 

 

44,888

 

Rental equipment, net

 

204,371

 

 

 

222,023

 

 

 

213,033

 

 

 

234,693

 

 

 

213,116

 

Goodwill and intangible assets

 

335,196

 

 

 

336,593

 

 

 

338,795

 

 

 

341,166

 

 

 

342,653

 

Other assets

 

295,324

 

 

 

243,266

 

 

 

242,823

 

 

 

227,376

 

 

 

212,276

 

Total assets

$

6,747,410

 

 

$

6,728,178

 

 

$

6,887,239

 

 

$

7,609,658

 

 

$

6,690,650

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

Deposits

 

5,866,037

 

 

 

5,710,799

 

 

 

5,829,886

 

 

 

6,525,569

 

 

 

5,514,971

 

Long-term borrowings

 

36,028

 

 

 

16,616

 

 

 

91,386

 

 

 

92,274

 

 

 

92,834

 

Accrued expenses and other liabilities

 

200,205

 

 

 

275,989

 

 

 

202,561

 

 

 

165,658

 

 

 

210,961

 

Total liabilities

 

6,102,270

 

 

 

6,003,404

 

 

 

6,123,833

 

 

 

6,783,501

 

 

 

5,818,766

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $.01 par value

 

288

 

 

 

294

 

 

 

294

 

 

 

301

 

 

 

317

 

Common stock, Nonvoting, $.01 par value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

617,403

 

 

 

615,159

 

 

 

612,917

 

 

 

610,816

 

 

 

604,484

 

Retained earnings

 

245,394

 

 

 

244,686

 

 

 

223,760

 

 

 

217,992

 

 

 

259,189

 

Accumulated other comprehensive income (loss)

 

(213,080

)

 

 

(131,407

)

 

 

(69,374

)

 

 

724

 

 

 

7,599

 

Treasury stock, at cost

 

(4,835

)

 

 

(4,623

)

 

 

(4,513

)

 

 

(4,318

)

 

 

(860

)

Total equity attributable to parent

 

645,170

 

 

 

724,109

 

 

 

763,084

 

 

 

825,515

 

 

 

870,729

 

Noncontrolling interest

 

(30

)

 

 

665

 

 

 

322

 

 

 

642

 

 

 

1,155

 

Total stockholders’ equity

 

645,140

 

 

 

724,774

 

 

 

763,406

 

 

 

826,157

 

 

 

871,884

 

Total liabilities and stockholders’ equity

$

6,747,410

 

 

$

6,728,178

 

 

$

6,887,239

 

 

$

7,609,658

 

 

$

6,690,650

 

 
 
 
 
 

Condensed Consolidated Statements of Operations (Unaudited) 

 

 

Three Months Ended

 

Twelve Months Ended

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

September 30,

2022

 

June 30,

2022

 

September 30,

2021

 

September 30,

2022

 

September 30,

2021

Interest and dividend income:

 

 

 

 

 

 

 

 

 

Loans and leases, including fees

$

64,963

 

 

$

62,541

 

 

$

63,665

 

$

268,078

 

 

$

256,080

Mortgage-backed securities

 

10,155

 

 

 

7,381

 

 

 

3,979

 

 

26,846

 

 

 

12,155

Other investments

 

5,104

 

 

 

3,984

 

 

 

4,412

 

 

17,272

 

 

 

17,619

 

 

80,222

 

 

 

73,906

 

 

 

72,056

 

 

312,196

 

 

 

285,854

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

99

 

 

 

94

 

 

 

164

 

 

500

 

 

 

1,593

FHLB advances and other borrowings

 

363

 

 

 

1,661

 

 

 

1,225

 

 

4,372

 

 

 

5,270

 

 

462

 

 

 

1,755

 

 

 

1,389

 

 

4,872

 

 

 

6,863

 

 

 

 

 

 

 

 

 

 

Net interest income

 

79,760

 

 

 

72,151

 

 

 

70,667

 

 

307,324

 

 

 

278,991

 

 

 

 

 

 

 

 

 

 

Provision for credit losses

 

(2,648

)

 

 

(1,302

)

 

 

8,775

 

 

28,538

 

 

 

49,766

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for credit losses

 

82,408

 

 

 

73,453

 

 

 

61,892

 

 

278,786

 

 

 

229,225

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

Refund transfer product fees

 

1,135

 

 

 

10,289

 

 

 

2,567

 

 

39,809

 

 

 

37,967

Refund advance fee income

 

44

 

 

 

(20

)

 

 

226

 

 

40,557

 

 

 

47,639

Payments card and deposit fees

 

28,609

 

 

 

24,673

 

 

 

25,541

 

 

104,684

 

 

 

107,182

Other bank and deposit fees

 

299

 

 

 

262

 

 

 

230

 

 

1,049

 

 

 

939

Rental income

 

12,024

 

 

 

12,082

 

 

 

9,709

 

 

46,558

 

 

 

39,416

Gain (loss) on sale of securities

 

(1,882

)

 

 

198

 

 

 

 

 

(1,287

)

 

 

6

Gain on sale of trademarks

 

 

 

 

 

 

 

 

 

50,000

 

 

 

Gain (loss) on sale of other

 

(3,319

)

 

 

1,239

 

 

 

580

 

 

(4,920

)

 

 

11,515

Other income

 

6,546

 

 

 

5,271

 

 

 

10,689

 

 

17,357

 

 

 

26,240

Total noninterest income

 

43,456

 

 

 

53,994

 

 

 

49,542

 

 

293,807

 

 

 

270,904

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

42,762

 

 

 

45,091

 

 

 

36,222

 

 

171,126

 

 

 

151,090

Refund transfer product expense

 

52

 

 

 

2,457

 

 

 

3,219

 

 

8,908

 

 

 

11,861

Refund advance expense

 

1

 

 

 

(29

)

 

 

30

 

 

2,157

 

 

 

2,564

Card processing

 

15,718

 

 

 

8,438

 

 

 

7,063

 

 

38,785

 

 

 

27,201

Occupancy and equipment expense

 

9,064

 

 

 

8,996

 

 

 

8,252

 

 

34,909

 

 

 

29,269

Operating lease equipment depreciation

 

9,306

 

 

 

9,145

 

 

 

7,865

 

 

35,636

 

 

 

30,987

Legal and consulting

 

13,355

 

 

 

11,724

 

 

 

14,369

 

 

40,634

 

 

 

31,341

Intangible amortization

 

1,397

 

 

 

1,532

 

 

 

1,761

 

 

6,585

 

 

 

8,545

Impairment expense

 

 

 

 

670

 

 

 

601

 

 

670

 

 

 

2,818

Other expense

 

11,375

 

 

 

8,626

 

 

 

14,232

 

 

45,865

 

 

 

48,007

Total noninterest expense

 

103,030

 

 

 

96,650

 

 

 

93,614

 

 

385,275

 

 

 

343,683

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

 

22,834

 

 

 

30,797

 

 

 

17,820

 

 

187,318

 

 

 

156,446

 

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

(1,272

)

 

 

6,958

 

 

 

1,101

 

 

27,964

 

 

 

10,701

 

 

 

 

 

 

 

 

 

 

Net income before noncontrolling interest

 

24,106

 

 

 

23,839

 

 

 

16,719

 

 

159,354

 

 

 

145,745

Net income attributable to noncontrolling interest

 

686

 

 

 

1,448

 

 

 

816

 

 

2,968

 

 

 

4,037

Net income attributable to parent

$

23,420

 

 

$

22,391

 

 

$

15,903

 

$

156,386

 

 

$

141,708

 

 

 

 

 

 

 

 

 

 

Less: Allocation of Earnings to participating securities(1)

 

393

 

 

 

377

 

 

 

297

 

 

2,566

 

 

 

2,698

Net income attributable to common shareholders(1)

 

23,027

 

 

 

22,014

 

 

 

15,606

 

 

153,821

 

 

 

139,010

Earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

$

0.81

 

 

$

0.76

 

 

$

0.50

 

$

5.26

 

 

$

4.38

Diluted

$

0.81

 

 

$

0.76

 

 

$

0.50

 

$

5.26

 

 

$

4.38

Shares used in computing earnings per common share:

 

 

 

 

 

 

 

 

 

Basic

 

28,581,236

 

 

 

28,868,136

 

 

 

31,280,162

 

 

29,227,071

 

 

 

31,729,596

Diluted

 

28,581,236

 

 

 

28,868,136

 

 

 

31,299,555

 

 

29,232,247

 

 

 

31,751,522

(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 September 30,

2022

 

2021

(Dollars in thousands)

Average

Outstanding

Balance

 

Interest

Earned /

Paid

 

Yield /

Rate(1)

 

Average

Outstanding

Balance

 

Interest

Earned /

Paid

 

Yield /

Rate(1)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and fed funds sold

$

275,344

 

$

1,467

 

 

2.11

%

 

$

852,122

 

$

1,248

 

0.58

%

Mortgage-backed securities

 

1,583,415

 

 

10,155

 

 

2.54

%

 

 

1,049,258

 

 

3,979

 

1.50

%

Tax exempt investment securities

 

165,718

 

 

990

 

 

3.00

%

 

 

232,006

 

 

772

 

1.67

%

Asset-backed securities

 

167,053

 

 

854

 

 

2.03

%

 

 

400,507

 

 

1,199

 

1.19

%

Other investment securities

 

263,615

 

 

1,792

 

 

2.70

%

 

 

258,367

 

 

1,193

 

1.83

%

Total investments

 

2,179,801

 

 

13,791

 

 

2.56

%

 

 

1,940,138

 

 

7,143

 

1.50

%

Commercial finance

 

2,960,988

 

 

54,325

 

 

7.28

%

 

 

2,690,064

 

 

48,285

 

7.12

%

Consumer finance

 

234,295

 

 

4,128

 

 

6.99

%

 

 

258,043

 

 

4,308

 

6.62

%

Tax services

 

35,484

 

 

(148

)

 

(1.65

)%

 

 

37,174

 

 

165

 

1.76

%

Warehouse finance

 

387,910

 

 

6,658

 

 

6.81

%

 

 

388,477

 

 

6,332

 

6.47

%

Community banking

 

 

 

 

 

%

 

 

272,554

 

 

4,575

 

6.66

%

Total loans and leases

 

3,618,678

 

 

64,963

 

 

7.12

%

 

 

3,646,312

 

 

63,665

 

6.93

%

Total interest-earning assets

$

6,073,822

 

$

80,222

 

 

5.26

%

 

$

6,438,572

 

$

72,056

 

4.45

%

Noninterest-earning assets

 

657,498

 

 

 

 

 

 

822,592

 

 

 

 

Total assets

$

6,731,321

 

 

 

 

 

$

7,261,164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing checking(2)

$

380

 

$

 

 

0.33

%

 

$

243,005

 

$

 

%

Savings

 

67,937

 

 

6

 

 

0.04

%

 

 

89,110

 

 

5

 

0.02

%

Money markets

 

104,570

 

 

55

 

 

0.21

%

 

 

67,083

 

 

58

 

0.34

%

Time deposits

 

7,969

 

 

5

 

 

0.23

%

 

 

10,218

 

 

21

 

0.81

%

Wholesale deposits

 

6,479

 

 

32

 

 

1.98

%

 

 

77,506

 

 

80

 

0.41

%

Total interest-bearing deposits

 

187,335

 

 

99

 

 

0.21

%

 

 

486,922

 

 

164

 

0.13

%

Overnight fed funds purchased

 

15,511

 

 

100

 

 

2.56

%

 

 

 

 

 

%

Subordinated debentures

 

1,739

 

 

29

 

 

6.72

%

 

 

73,951

 

 

1,065

 

5.71

%

Other borrowings

 

16,397

 

 

234

 

 

5.66

%

 

 

19,299

 

 

160

 

3.29

%

Total borrowings

 

33,647

 

 

363

 

 

4.29

%

 

 

93,250

 

 

1,225

 

5.21

%

Total interest-bearing liabilities

 

220,981

 

 

462

 

 

0.83

%

 

 

580,172

 

 

1,390

 

0.95

%

Noninterest-bearing deposits

 

5,577,713

 

 

 

 

%

 

 

5,589,946

 

 

 

%

Total deposits and interest-bearing liabilities

$

5,798,694

 

$

462

 

 

0.03

%

 

$

6,170,118

 

$

1,390

 

0.09

%

Other noninterest-bearing liabilities

 

201,711

 

 

 

 

 

 

204,726

 

 

 

 

Total liabilities

 

6,000,404

 

 

 

 

 

 

6,374,844

 

 

 

 

Shareholders' equity

 

730,916

 

 

 

 

 

 

886,320

 

 

 

 

Total liabilities and shareholders' equity

$

6,731,321

 

 

 

 

 

$

7,261,164

 

 

 

 

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

 

 

$

79,760

 

 

5.23

%

 

 

 

$

70,667

 

4.36

%

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin

 

 

 

 

5.21

%

 

 

 

 

 

4.35

%

Tax-equivalent effect

 

 

 

 

0.02

%

 

 

 

 

 

0.01

%

Net interest margin, tax-equivalent(3)

 

 

 

 

5.23

%

 

 

 

 

 

4.37

%

(1)

Tax rate used to arrive at the TEY for the three months ended September 30, 2022 and 2021 was 21%.

(2)

At September 30, 2021, $242.7 million of the total balance were interest-bearing deposits where interest expense was paid by a third party and not by the Company. On October 1, 2021, the Company reclassified the balances related to that program to noninterest bearing checking due to the product moving to noninterest bearing. 

(3)

Net interest margin expressed on a fully-taxable-equivalent basis ("net interest margin, tax-equivalent") is a non-GAAP financial measure. The tax-equivalent adjustment to net interest income recognizes the estimated income tax savings when comparing taxable and tax-exempt assets and adjusting for federal and state exemption of interest income. The Company believes that it is a standard practice in the banking industry to present net interest margin expressed on a fully taxable equivalent basis and, accordingly, believes the presentation of this non-GAAP financial measure may be useful for peer comparison purposes. 

 
 
 
 
 

Selected Financial Information 

 

As of and For the Three Months Ended

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

Equity to total assets

 

9.56

%

 

 

10.77

%

 

 

11.08

%

 

 

10.86

%

 

 

13.03

%

Book value per common share outstanding

$

22.41

 

 

$

24.69

 

 

$

26.00

 

 

$

27.46

 

 

$

27.53

 

Tangible book value per common share outstanding

$

10.77

 

 

$

13.22

 

 

$

14.46

 

 

$

16.12

 

 

$

16.71

 

Tangible book value per common share outstanding excluding AOCI

$

18.17

 

 

$

17.70

 

 

$

16.82

 

 

$

16.10

 

 

$

16.47

 

Common shares outstanding

 

28,788,124

 

 

 

29,356,707

 

 

 

29,362,844

 

 

 

30,080,717

 

 

 

31,669,952

 

Nonperforming assets to total assets

 

0.46

%

 

 

0.40

%

 

 

0.56

%

 

 

0.58

%

 

 

0.92

%

Nonperforming loans and leases to total loans and leases

 

0.82

%

 

 

0.71

%

 

 

0.95

%

 

 

1.16

%

 

 

1.52

%

Net interest margin

 

5.21

%

 

 

4.76

%

 

 

4.80

%

 

 

4.59

%

 

 

4.35

%

Net interest margin, tax-equivalent

 

5.23

%

 

 

4.77

%

 

 

4.81

%

 

 

4.61

%

 

 

4.37

%

Return on average assets

 

1.39

%

 

 

1.32

%

 

 

2.49

%

 

 

3.49

%

 

 

0.88

%

Return on average equity

 

12.82

%

 

 

11.93

%

 

 

24.16

%

 

 

29.69

%

 

 

7.18

%

Full-time equivalent employees

 

1,141

 

 

 

1,178

 

 

 

1,167

 

 

 

1,140

 

 

 

1,124

 

 
 
 

Non-GAAP Reconciliations 

 

Adjusted Net Income and Adjusted Earnings Per Share

At and For the Three Months Ended

 

At and For the Year Ended

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

September 30,

2022

June 30,

2022

September 30,

2021

 

September 30,

2022

September 30,

2021

Net Income - GAAP

$

23,420

 

$

22,391

 

$

15,903

 

 

$

156,386

$

141,708

 

Less: Gain on sale of trademarks

 

 

 

 

 

 

 

 

50,000

 

 

Add: Rebranding expenses

 

6,899

 

 

3,427

 

 

 

 

 

13,148

 

 

Add: Separation related expenses

 

1,029

 

 

3,116

 

 

36

 

 

 

5,109

 

2,545

 

Add: Income tax effect resulting from gain on sale of trademarks and rebranding and separation expenses

 

(1,029

)

 

(1,677

)

 

(9

)

 

 

8,936

 

(636

)

Adjusted net income

$

30,319

 

$

27,257

 

$

15,930

 

 

$

133,579

$

143,617

 

Less: Adjusted allocation of earnings to participating securities

 

508

 

 

458

 

 

297

 

 

 

2,191

 

2,734

 

Adjusted Net income attributable to common shareholders

 

29,811

 

 

26,799

 

 

15,633

 

 

 

131,388

 

140,883

 

Weighted average diluted common shares outstanding

 

28,581,236

 

 

28,868,136

 

 

31,299,555

 

 

 

29,232,247

 

31,751,522

 

Adjusted earnings per common share - diluted

$

1.04

 

$

0.93

 

$

0.50

 

 

$

4.49

$

4.44

 

 
 
 

Adjusted Diluted Earnings Per Share Guidance

Fiscal Year Ended

(Earnings per share amounts)

2022 (Actual)

 

2023 (Guidance)

Diluted earnings per share - GAAP

$

5.26

 

$5.25 - $5.75

Less: Net extraordinary items, net of tax(1)

$0.77

 

$0.15

Diluted earnings per share - Adjusted

$

4.49

 

$5.10 - $5.60

(1)

Includes gain on sale of trademarks, rebrand related expenses and separation related expenses.

 
 
 

Efficiency Ratio

For the Last Twelve Months Ended

(Dollars in thousands)

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

Noninterest expense: GAAP

$

385,275

 

 

$

375,860

 

 

$

360,733

 

 

$

353,544

 

 

$

343,683

 

Net interest income

 

307,324

 

 

 

298,231

 

 

 

294,555

 

 

 

284,605

 

 

 

278,991

 

Noninterest income

 

293,807

 

 

 

299,893

 

 

 

308,352

 

 

 

312,039

 

 

 

270,903

 

Total revenue: GAAP

$

601,131

 

 

$

598,124

 

 

$

602,907

 

 

$

596,644

 

 

$

549,894

 

Efficiency ratio

 

64.09

%

 

 

62.84

%

 

 

59.83

%

 

 

59.26

%

 

 

62.50

%

 

 

 

 

 

 

 

 

 

 

Adjusted Efficiency Ratio

 

 

 

 

 

 

 

 

 

Noninterest expense: GAAP

$

385,275

 

 

$

375,860

 

 

$

360,733

 

 

$

353,544

 

 

$

343,683

 

Less: Rebranding expenses

 

13,148

 

 

 

6,249

 

 

 

2,822

 

 

 

3

 

 

 

 

Adjusted noninterest expense

 

372,127

 

 

 

369,611

 

 

 

357,911

 

 

 

353,341

 

 

 

343,683

 

Net interest income

 

307,324

 

 

 

298,231

 

 

 

294,555

 

 

 

284,605

 

 

 

278,991

 

Noninterest income

 

293,807

 

 

 

299,893

 

 

 

308,352

 

 

 

312,039

 

 

 

270,903

 

Less: Gain on sale of trademarks

 

50,000

 

 

 

50,000

 

 

 

50,000

 

 

 

50,000

 

 

 

 

Total adjusted revenue

$

551,131

 

 

$

548,124

 

 

$

552,907

 

 

$

546,644

 

 

$

549,984

 

Adjusted efficiency ratio

 

67.52

%

 

 

67.43

%

 

 

64.73

%

 

 

64.67

%

 

 

62.50

%

 
 

 

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