Pathward Financial(US:CASH)2025-11-25 22:22Credit Losses and Loan Performance - The allowance for credit losses (ACL) decreased to $53.3 million as of September 30, 2025, from $71.8 million as of September 30, 2024, reflecting a decrease in the total loan and lease coverage ratio from 1.76% to 1.14%[68] - Total charge-offs for the fiscal year ended September 30, 2025, were $90.9 million, compared to $95.2 million for the previous year, with net charge-offs of $74.99 million[65] - The ratio of net charge-offs to average loans outstanding during the period was 1.55% for 2025, down from 1.78% in 2024[65] - The company's commercial finance net loan charge-offs were $24.15 million, representing 0.6% of average loans, while consumer finance net loan charge-offs were $28.74 million, or 10.2% of average loans[67] - The ratio of total nonaccrual loans to total loans outstanding increased to 1.68% as of September 30, 2025, from 0.55% in the previous year[68] - The company expects to continue monitoring the ACL and adjust as necessary to maintain an appropriate level in future periods[68] Investment Securities - The company's total investment securities decreased to $1.55 billion as of September 30, 2025, from $1.98 billion in the previous year, with 86.6% of these securities pledged to secure various obligations[71] - The fair value of debt securities available for sale (AFS) decreased by $413.4 million to $1.33 billion as of September 30, 2025, compared to $1.74 billion in 2024[74] - As of September 30, 2025, the total debt securities available for sale (AFS) amounted to $388.723 million, with a weighted average yield of 3.78%[77] - The total mortgage-backed securities (MBS) AFS reached $1.129 billion, with a weighted average yield of 2.79%[78] Deposits and Funding - The Company reported $5.67 billion in deposits attributable to the Consumer segment, primarily from prepaid debit cards and stored value products[89] - Total deposits as of September 30, 2025, were $5.887 billion, showing a slight increase from $5.875 billion in the previous year[92] - Approximately 95.5% of the deposit portfolio consisted of noninterest-bearing checking accounts, totaling $5.62 billion[92] - As of September 30, 2025, the Company had $326 million in deposits related to government stimulus funds, with $161.5 million on activated cards[88] - The total time certificates of deposit were $2.636 million, with no wholesale certificates included as of September 30, 2025[92] - As of September 30, 2025, the Company had $2.636 million in total certificates of deposit, with $1.636 million maturing in the next 3 months, representing 62.1% of the total[95] - The Company had $9.0 million in overnight borrowings and the ability to borrow an additional approximately $1.02 billion from the FHLB as of September 30, 2025[99] - At September 30, 2025, debt securities with fair values of approximately $385.5 million and $955.3 million were pledged as collateral to the FRB and the FHLB, respectively[100] Regulatory and Compliance - The Bank is subject to regulations from the Consumer Financial Protection Bureau, which has authority over consumer financial products and services[133] - The Dodd-Frank Act includes provisions that restrict interchange fees for certain debit card issuers, although the Bank is currently exempt due to its asset size[134] - The Bank's legal lending limit totals 15% of its capital and surplus, plus an additional 10% if fully secured by readily marketable collateral[141] - The Bank elected to phase in the regulatory capital impact of CECL over a three-year period that began on October 1, 2022, and ends on September 30, 2025[137] - The Company and the Bank must maintain a capital conservation buffer of 2.5% above minimum risk-based capital requirements[165] - The Bank's board of directors may not declare dividends if it would result in the Bank being undercapitalized under the OCC's PCA rule[178] - The federal banking agencies proposed amendments to update AML and CFT program requirements in July 2024[155] Employee and Workforce - The Company reported a decrease in total employees from 1,244 in September 2024 to 1,182 in September 2025, representing a reduction of approximately 4.98%[202] - The Company’s workforce composition shows a decline in full-time employees from 1,239 to 1,177, a decrease of 5.00%[202] - The Company has implemented a "Talent Anywhere" recruitment strategy to expand its talent pool beyond local candidates[204] - The Company is committed to employee health and safety, providing various health and well-being programs[209] Business Operations and Risks - The Company faces significant competition from various financial institutions, including commercial banks and fintech companies, which may have greater resources and offer more competitive rates[243] - The Company’s Partner Solutions business line competes nationally with large commercial banks and electronic payments processors[199] - The Company derives a significant percentage of its deposits, total assets, and income from deposit accounts generated through Payments' customer relationships, particularly from a limited number of program manager relationships[254] - If a significant program manager relationship were terminated or revenues associated with it significantly decreased, it could materially reduce the Company's deposits, assets, and income[255] - The Company is exposed to fraud losses from customer accounts, which may lead to customer disputed transactions and could materially and adversely affect its financial condition[256] - The Company plans to pursue organic growth while evaluating potential acquisitions and expansion opportunities, but may not sustain its historical growth rate[262] - New lines of business or products may subject the Company to additional risks, including increased regulatory requirements and potential losses if not managed effectively[269] - The Company may incur losses due to fraudulent acts or errors by third parties or employees, which could adversely impact its financial results[273] - An impairment charge of goodwill or other intangibles could have a material adverse impact on the Company's financial condition and results of operations[271] - The Company's operations depend on third-party relationships, and any disruption in these relationships could adversely affect its business[249] Cybersecurity and Data Protection - The company collects significant volumes of sensitive personal information, and any security breaches could result in financial losses and damage to its reputation[276] - Cybersecurity risks have increased due to greater reliance on remote working, and the company cannot assure that its safeguards will prevent all breaches[278] - Non-compliance with privacy and data protection laws could result in regulatory sanctions and adversely affect the company's financial performance[280] - System failures and technological interruptions could negatively impact the company's ability to retain customers and affect its financial condition[282] - Delays in tax refund processing could lead to reputational damage and reduced acceptance of the company's products and services[284] Financial Performance and Dividends - The Bank's deposit insurance assessment rate was 6 basis points as of September 30, 2025, down from 7 basis points in 2024 and 2023[145] - The Bank's deposit insurance premium expense totaled $4.5 million for 2025, $5.3 million for 2024, and $4.3 million for 2023[145] - The Company paid cash dividends of $159.5 million to the Company during fiscal 2025 to fund share repurchases under authorized programs[179] - The Company has a stock repurchase program authorized to repurchase up to 7,000,000 shares of common stock by September 30, 2028[179] - As of September 30, 2025, the Bank exceeded all regulatory capital requirements and was designated as "well capitalized" under federal guidelines[167] - The Bank had $5.0 million in Federal Home Loan Bank (FHLB) stock as of September 30, 2025, in compliance with the FHLB of Des Moines' requirement[184] - For the fiscal year ended September 30, 2025, dividends paid by the FHLB to the Bank totaled $0.6 million[184] - The Bank paid standard assessments of $655,404 to the OCC during the fiscal year ended September 30, 2025[162] - The Bank received a "Satisfactory" rating during its most recent CRA Performance Evaluation dated January 29, 2024[181]