Pathward Financial, Inc. Announces Results for 2023 Fiscal Second Quarter

Rhea-AI Summary

Pathward Financial (CASH) reported a net income of $54.8 million or $1.99 per share for Q2 2023, up from $49.3 million or $1.66 per share a year earlier. When adjusted for legacy transaction impacts, net income was $60.3 million or $2.18 per share. The company’s total revenue increased to $228.4 million, an 18% rise year-over-year. Net interest margin surged 132 basis points to 6.12% due to rising yields on loans and investments. However, total gross loans decreased $4.6 million year-over-year. Pathward reaffirmed its full-year 2023 EPS guidance of $5.55 to $5.95, despite incurring $7.3 million in adverse financial impacts this quarter. The company also repurchased 1.17 million shares at an average price of $46.60.

Positive

• Net income increased by $5.5 million year-over-year.
• Adjusted net income rose to $60.3 million, reflecting strong operational performance.
• Total revenue for the quarter reached $228.4 million, an 18% increase.
• Net interest margin improved to 6.12%, up from 4.80% last year.

Negative

• Total gross loans decreased by $4.6 million year-over-year.
• The company recognized $6.8 million in adverse financial impacts from legacy transactions.

Net Income of $54.8 million, or $1.99 Per Diluted Share

Reaffirms Fiscal Year 2023 EPS Guidance

SIOUX FALLS, S.D.--(BUSINESS WIRE)-- Pathward Financial, Inc. (“Pathward Financial” or the “Company”) (Nasdaq: CASH) reported net income of $54.8 million, or $1.99 per share, for the three months ended March 31, 2023, compared to net income of $49.3 million, or $1.66 per share, for the three months ended March 31, 2022.

During the quarter, when adjusting for the adverse financial impacts related to legacy mobile solar transactions and a venture capital investment impairment expense, the Company recognized adjusted net income of $60.3 million, or $2.18 per share. For the same period of the prior year, the Company recognized adjusted net income of $52.0 million, or $1.75 per share when excluding the impact of rebranding and separation expenses. See non-GAAP reconciliation table below.

CEO Brett Pharr said, “Pathward generated solid results during the second quarter driven by the continued expansion of our net interest margin and higher non-interest income. We continue to benefit from servicing fee income on our off-balance deposits and see increases in the average yield on our interest-earnings assets as they reprice. We are very pleased that this year's tax season has performed above our initial expectations through the end of March. Based on these results, we are reaffirming our fiscal year 2023 GAAP earnings per diluted share guidance of $5.55 to $5.95, despite the $7.3 million adverse pre-tax impacts during the quarter.”

Company Highlights

• On April 5, 2023, Pathward®, N.A. announced it became Certified™ by Great Place to Work® for the first time. Great Place to Work holds itself out as the global authority on workplace culture, employee experience, and the leadership behaviors proven to deliver market-leading revenue, employee retention and increased innovation.
• On February 28, 2023, the Board of Directors (the "Board") of Pathward Financial appointed Christopher Perretta as a member of the Board.

Financial Highlights for the 2023 Fiscal Second Quarter

• Total revenue for the second quarter was $228.4 million, an increase of $34.9 million, or 18%, compared to the same quarter in fiscal 2022, driven by an increase in both noninterest income and net interest income.
• Net interest margin ("NIM") increased 132 basis points to 6.12% for the second quarter from 4.80% during the same period of last year primarily driven by an increase in loan and lease and investment securities yields.
• Total gross loans and leases at March 31, 2023 decreased $4.6 million to $3.73 billion, compared to March 31, 2022 and increased $215.9 million, or 6%, when compared to December 31, 2022. The decrease compared to the prior year quarter was primarily due to a reduction in consumer finance loans driven by the sale of the $81.5 million 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 drivers for the increase on a linked quarter basis was growth in commercial finance and warehouse finance loans.
• During the 2023 fiscal second quarter, the Company recognized a total of $6.8 million in pre-tax adverse financial impacts attributable to the disposal or change in depreciable life of several mobile solar generators related to a single relationship. In fiscal year 2019, the business incurred a large impairment expense associated with one company with which it had legacy transactions that turned out to be fraudulent. At that time, the assets were written down to their market value and redeployed under an equipment lease agreement to new participants. Upon the return of the leased assets, the Company performed a due diligence assessment, which led to the determination to dispose certain generators based on their condition and adjust the depreciable life for the remaining generators to better reflect the service period based on market conditions and advancements in technology. This was an isolated event limited to this equipment and is not indicative of the remaining Rental Equipment portfolio. The remaining value of the generators on the balance sheet is $1.3 million.
• During the 2023 fiscal second quarter, the Company repurchased 1,172,700 shares of common stock at an average share price of $46.60. As of April 21, 2023, there are 2,468,283 shares available for repurchase under the common stock share repurchase program announced during the fourth quarter of fiscal year 2021.
• The Company reaffirms fiscal year 2023 GAAP earnings per share guidance and continues to expect it to be in the range of $5.55 to $5.95. See Outlook section and non-GAAP reconciliation table below.

Tax Season

For the six months ended March 31, 2023, total tax services product revenue was $72.4 million, an increase of 2% compared to the same period of the prior year. Total tax services product fee income, total tax services product expense, and net interest income on tax services loans all increased slightly compared to the prior year period.

Total tax services product income, net of losses and direct product expenses, decreased 14% to $29.7 million from $34.4 million, when comparing the first six months of fiscal 2023 to the same period of the prior fiscal year.

For the 2023 tax season, Pathward originated $1.46 billion in refund advance loans compared to $1.83 billion during the 2022 tax season. When excluding the two partners the Company did not renew after the 2022 tax season, loan originations increased $116.2 million this tax season compared to the previous year.

Net Interest Income

Net interest income for the second quarter of fiscal 2023 was $101.4 million, an increase of 21% from the same quarter in fiscal 2022. The increase was mainly attributable to increased yields and an improved earning asset mix.

The second quarter average outstanding balance of loans and leases decreased $230.5 million compared to the same quarter of the prior fiscal year, primarily due to a reduction in tax services loans, warehouse finance loans, and consumer finance loans, partially offset by an increase in commercial finance loans. The Company’s average interest-earning assets for the second fiscal quarter decreased by $364.5 million to $6.72 billion compared with the same quarter in fiscal 2022, primarily due to a reduction in cash balances as a result of elevated cash levels during the prior year period related to the Company's participation in government stimulus programs and a decrease in total investment balances. The decrease in cash and investment balances was partially offset by growth in commercial finance loans and leases.

Fiscal 2023 second quarter NIM increased to 6.12% from 4.80% in the second fiscal quarter of last year. The overall reported tax-equivalent yield (“TEY”) on average earning asset yields increased 145 basis points to 6.34% compared to the prior year quarter, primarily driven by an increase in loan and lease and investment securities yields, along with a decrease in cash balances. The yield on the loan and lease portfolio was 8.47% compared to 7.22% for the comparable period last year and the TEY on the securities portfolio was 2.89% compared to 1.83% over that same period.

The Company's cost of funds for all deposits and borrowings averaged 0.21% during the fiscal 2023 second quarter, as compared to 0.08% during the prior year quarter. The Company's overall cost of deposits was 0.13% in the fiscal second quarter of 2023, as compared to 0.01% during the prior year quarter.

Noninterest Income

Fiscal 2023 second quarter noninterest income increased to $127.0 million, compared to $109.8 million for the same period of the prior year. The increase was primarily attributable to increases in card and deposit fees, rental income, tax product fee income, and other income. The period-over-period increase was partially offset by reductions in gain (loss) on sale of other and gain on sale of investments.

Included in gain (loss) on sale of other during the quarter, was a $2.0 million loss on the disposal of mobile solar generators in connection with the aforementioned legacy solar transactions.

The increase in card and deposit fee income was primarily from servicing fee income on off-balance sheet deposits, which totaled $18.2 million during the 2023 fiscal second quarter, as compared to $12.9 million for the fiscal quarter ended December 31, 2022 and an insignificant amount for the fiscal quarter ended March 31, 2022.

Noninterest Expense

Noninterest expense increased 23% to $127.1 million for the fiscal 2023 second quarter, from $103.2 million for the same quarter last year. The increase was primarily attributable to increases in card processing expense, operating lease equipment depreciation, compensation expense, total tax services expense, and impairment expense. The period over period increase was partially offset by decreases in legal and consulting expense, amortization expense, and other expense. The increase in operating lease equipment depreciation was due to $4.8 million of accelerated depreciation on mobile solar generators in connection with the aforementioned legacy mobile solar transactions. During the second quarter of fiscal year 2023, the Company recognized $0.5 million of impairment expense related to an investment in its Pathward Venture Capital business.

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 47% of the deposit portfolio was subject to these higher card processing expenses. For the fiscal quarter ended March 31, 2023, card processing expenses related to these structured agreements were $20.4 million, as compared to $14.0 million for the fiscal quarter ended December 31, 2022 and $0.2 million for the fiscal quarter ended March 31, 2022.

Income Tax Expense

The Company recorded an income tax expense of $9.2 million, representing an effective tax rate of 14.2%, for the fiscal 2023 second quarter, compared to income tax expense of $8.0 million, representing an effective tax rate of 13.8%, for the second quarter last fiscal year. The current quarter increase in income tax expense was primarily due to increased earnings.

The Company originated $18.1 million in solar leases during the fiscal 2023 second quarter, resulting in $4.9 million in total net investment tax credits. During the second quarter of fiscal 2022, the Company originated $1.3 million in solar leases resulting in $0.3 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 six months ended March 31, 2023, the Company originated $29.5 million in solar leases, compared to $22.5 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, adverse developments in the financial services industry generally, 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 reaffirms fiscal year 2023 GAAP earnings per share guidance and continues to expect it to be in the range of $5.55 to $5.95. When adjusting for gain on sale of trademarks and rebrand related expenses, the Company expects fiscal year 2023 adjusted earnings per share to be in the range of $5.40 to $5.80. See non-GAAP reconciliation table below.

Investments, Loans and Leases

(Dollars in thousands)	March 31, 2023				December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022
Total investments	$	1,864,276			$	1,888,343			$	1,924,551			$	2,000,400			$	2,090,765
Loans held for sale
Consumer credit products		24,780				17,148				21,071				23,710				23,670
SBA/USDA		—				—				—				43,861				7,740
Total loans held for sale		24,780				17,148				21,071				67,571				31,410
Term lending		1,235,453				1,160,100				1,090,289				1,047,764				1,111,076
Asset based lending		377,965				359,516				351,696				402,506				382,355
Factoring		338,884				338,594				372,595				408,777				394,865
Lease financing		170,645				189,868				210,692				218,789				235,397
Insurance premium finance		437,700				436,977				479,754				481,219				403,681
SBA/USDA		405,612				357,084				359,238				215,510				214,195
Other commercial finance		166,402				164,734				159,409				173,338				173,260
Commercial finance		3,132,661				3,006,873				3,023,673				2,947,903				2,914,829
Consumer credit products		120,739				130,750				144,353				152,106				171,847
Other consumer finance		27,909				56,180				25,306				107,135				111,922
Consumer finance		148,648				186,930				169,659				259,241				283,769
Tax services		61,553				30,364				9,098				41,627				85,999
Warehouse finance		377,036				279,899				326,850				434,748				441,496
Total loans and leases		3,719,898				3,504,066				3,529,280				3,683,519				3,726,093
Net deferred loan origination costs		5,718				5,664				7,025				5,047				4,097
Total gross loans and leases		3,725,616				3,509,730				3,536,305				3,688,566				3,730,190
Allowance for credit losses		(84,304	)			(52,592	)			(45,947	)			(75,206	)			(88,552	)
Total loans and leases, net	$	3,641,312			$	3,457,138			$	3,490,358			$	3,613,360			$	3,641,638

The Company's investment security balances at March 31, 2023 totaled $1.86 billion, as compared to $1.89 billion at December 31, 2022 and $2.09 billion at March 31, 2022.

Total gross loans and leases totaled $3.73 billion at March 31, 2023, as compared to $3.51 billion at December 31, 2022 and $3.73 billion at March 31, 2022. The primary driver for the increase on a linked quarter basis was due to increases in commercial finance, warehouse finance, and the seasonal tax services portfolio, partially offset by a decrease in the consumer finance portfolio. The year-over-year decrease was primarily due a reduction in consumer finance loans driven by the sale of the student loan portfolio during the fiscal 2022 fourth quarter, a reduction in warehouse finance loans, and a reduction in seasonal tax services loans, partially offset by growth in our commercial finance portfolio.

Commercial finance loans, which comprised 84% of the Company's gross loan and lease portfolio, totaled $3.13 billion at March 31, 2023, reflecting an increase of $125.8 million, or 4%, from December 31, 2022 and an increase of $217.8 million, or 7%, from March 31, 2022.

Asset Quality

The Company’s allowance for credit losses ("ACL") totaled $84.3 million at March 31, 2023, an increase compared to $52.6 million at December 31, 2022 and a decrease from $88.6 million at March 31, 2022. The increase in the ACL at March 31, 2023, when compared to December 31, 2022, was primarily due to a $32.5 million increase in the allowance related to the seasonal tax services portfolio, partially offset by a $0.9 million decrease in the allowance related to the commercial finance portfolio.

The $4.2 million year-over-year decrease in the ACL was primarily driven by a $6.0 million decrease in the allowance related to the consumer finance portfolio and a $0.5 million decrease in the allowance related to the commercial finance portfolio, partially offset by a $2.3 million increase in the allowance related to the seasonal tax services portfolio. The year-over-year decrease in the allowance related to the consumer finance portfolio was primarily attributable to the sale of the student loan portfolio during the fourth quarter of fiscal 2022.

The following table presents the Company's ACL as a percentage of its total loans and leases.

		As of the Period Ended
(Unaudited)		March 31, 2023		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022
Commercial finance		1.53 %		1.62 %		1.46 %		1.56 %		1.66 %
Consumer finance		1.99 %		1.54 %		0.86 %		2.44 %		3.18 %
Tax services		53.77 %		2.01 %		0.05 %		54.29 %		35.76 %
Warehouse finance		0.10 %		0.10 %		0.10 %		0.10 %		0.10 %
Total loans and leases		2.27 %		1.50 %		1.30 %		2.04 %		2.38 %
Total loans and leases excluding tax services		1.40 %		1.50 %		1.30 %		1.44 %		1.59 %

The Company's ACL as a percentage of total loans and leases increased to 2.27% at March 31, 2023 from 1.50% at December 31, 2022. The increase in the total loans and leases coverage ratio was primarily driven by the seasonal tax services portfolio, and to a lesser extent the consumer finance portfolio. The increase in the consumer finance was related to seasonal activity. The Company expects to continue to diligently monitor the ACL and adjust as necessary in future periods to maintain an appropriate and supportable level.

Activity in the allowance for credit losses for the periods presented was as follows.

(Unaudited)		Three Months Ended												Six Months Ended
(Dollars in thousands)		March 31, 2023				December 31, 2022				March 31, 2022				March 31, 2023				March 31, 2022
Beginning balance		$	52,592			$	45,947			$	67,623			$	45,947			$	68,281
Provision (reversal of) - tax services loans			31,422				1,637				28,972				33,059				28,259
Provision (reversal of) - all other loans and leases			5,264				8,226				3,183				13,490				4,368
Charge-offs - tax services loans			—				(1,731	)			—				(1,731	)			(254	)
Charge-offs - all other loans and leases			(6,625	)			(2,708	)			(12,415	)			(9,334	)			(17,021	)
Recoveries - tax services loans			1,063				698				184				1,761				2,750
Recoveries - all other loans and leases			588				523				1,005				1,112				2,169
Ending balance		$	84,304			$	52,592			$	88,552			$	84,304			$	88,552

The Company recognized a provision for credit losses of $36.8 million for the quarter ended March 31, 2023, compared to $32.3 million of provision for credit losses expense for the comparable period in the prior fiscal year. The increase in provision for credit losses during the current quarter compared to the prior year period was primarily driven by increases in the commercial finance portfolio and the seasonal tax services portfolio. Net charge-offs were $5.0 million for the quarter ended March 31, 2023, compared to $11.2 million for the quarter ended March 31, 2022. Net charge-offs attributable to the commercial finance and consumer finance portfolios for the current quarter were $5.9 million and $0.2 million, respectively, while a recovery of $1.1 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 March 31, 2023	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	$	—		$	—		$	—		$	—		$	24,780		$	24,780		$	—		$	—		$	—
Commercial finance		34,065			4,159			11,125			49,349			3,083,312			3,132,661			5,724			19,585			25,309
Consumer finance		3,261			3,857			3,217			10,335			138,313			148,648			3,217			—			3,217
Tax services		639			—			—			639			60,914			61,553			—			—			—
Warehouse finance		—			—			—			—			377,036			377,036			—			—			—
Total loans and leases held for investment		37,965			8,016			14,342			60,323			3,659,575			3,719,898			8,941			19,585			28,526
Total loans and leases	$	37,965		$	8,016		$	14,342		$	60,323		$	3,684,355		$	3,744,678		$	8,941		$	19,585		$	28,526

As of December 31, 2022	Accruing and Nonaccruing Loans and Leases																		Nonperforming Loans and Leases
(Dollars in thousands)	30-59 Days Past Due			60-89 Days Past Due			> 89 Days Past Due			Total Past Due			Current			Total Loans and Leases Receivable			> 89 Days Past Due and Accruing			Nonaccrual Balance			Total
Loans held for sale	$	—		$	—		$	—		$	—		$	17,148		$	17,148		$	—		$	—		$	—
Commercial finance		19,974			11,729			17,280			48,983			2,957,890			3,006,873			13,281			25,077			38,358
Consumer finance		2,757			2,533			2,493			7,783			179,147			186,930			2,493			—			2,493
Tax services		—			—			—			—			30,364			30,364			—			—			—
Warehouse finance		—			—			—			—			279,899			279,899			—			—			—
Total loans and leases held for investment		22,731			14,262			19,773			56,766			3,447,300			3,504,066			15,774			25,077			40,851
Total loans and leases	$	22,731		$	14,262		$	19,773		$	56,766		$	3,464,448		$	3,521,214		$	15,774		$	25,077		$	40,851

The Company's nonperforming assets at March 31, 2023 were $30.1 million, representing 0.44% of total assets, compared to $45.0 million, or 0.68% of total assets at December 31, 2022 and $38.3 million, or 0.56% of total assets at March 31, 2022.

The Company's nonperforming loans and leases at March 31, 2023, were $28.5 million, representing 0.76% of total gross loans and leases, compared to $40.9 million, or 1.16% of total gross loans and leases at December 31, 2022 and $35.8 million, or 0.95% of total gross loans and leases at March 31, 2022.

The decrease in the nonperforming assets as a percentage of total assets at March 31, 2023 compared to December 31, 2022, was driven by a decrease in nonperforming loans in the commercial finance portfolio, primarily due to one sizable relationship becoming current and a partial charge-off and pay down of another lending relationship during the period. The decrease was partially offset by an increase in nonperforming loans in the consumer finance portfolio. 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 loans in the commercial finance and consumer 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 March 31, 2023
Commercial finance		$	2,405,837		$	426,543		$	64,560		$	230,029		$	5,692		$	3,132,661
Warehouse finance			377,036			—			—			—			—			377,036
Total loans and leases		$	2,782,873		$	426,543		$	64,560		$	230,029		$	5,692		$	3,509,697

		Asset Classification
(Dollars in thousands)		Pass			Watch			Special Mention			Substandard			Doubtful			Total
As of December 31, 2022
Commercial finance		$	2,277,687		$	441,453		$	84,445		$	199,401		$	3,887		$	3,006,873
Warehouse finance			279,899			—			—			—			—			279,899
Total loans and leases		$	2,557,586		$	441,453		$	84,445		$	199,401		$	3,887		$	3,286,772

Deposits, Borrowings and Other Liabilities

Total average deposits for the fiscal 2023 second quarter decreased by $292.8 million to $6.39 billion compared to the same period in fiscal 2022. The decrease in average deposits was primarily due to decreases in noninterest bearing deposits and savings deposits, partially offset by an increase in money market deposits and wholesale deposits. Prior period deposit balances were elevated due to the Company's participation in government stimulus programs.

The average balance of total deposits and interest-bearing liabilities was $6.47 billion for the three-month period ended March 31, 2023, compared to $6.87 billion for the same period in the prior fiscal year, representing a decrease of 6%.

Total end-of-period deposits increased 1% to $5.90 billion at March 31, 2023, compared to $5.83 billion at March 31, 2022. The increase in end-of-period deposits was primarily driven by increases in noninterest-bearing deposits of $72.3 million and money market deposits of $25.0 million, partially offset by decreases in savings deposits of $18.4 million, wholesale deposits of $3.5 million, and savings deposits of $2.6 million.

As of March 31, 2023, the Company had $1.0 billion in deposits related to government stimulus programs. Of the total amount of government stimulus program deposits, $359.2 million are on activated cards while $645.1 million are on inactivated cards. These card balances are expected to decrease by approximately $500 million over the next 18 months as recipients continue to spend them and the Company begins to return unclaimed balances to the U.S. Treasury.

As of March 31, 2023, the Company managed $1.96 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 47% of the deposit balances at March 31, 2023 are subject to variable card processing expenses that are derived from the terms of contractual agreements with certain BaaS partners. These agreements are tied to a portion of a rate index, typically the EFFR.

Regulatory Capital

The Company and its subsidiary Pathward®, N.A. (the "Bank") remained above the federal regulatory minimum capital requirements at March 31, 2023, 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. The decrease in Tier 1 leverage capital ratio for the period is the result of higher quarterly average assets related to its seasonal tax business. The Bank Tier 1 leverage capital ratio using end of period assets of 8.32% better reflects the expected capital position post tax season. See non-GAAP reconciliation 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	March 31, 2023(1)		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022
Company
Tier 1 leverage capital ratio	7.53 %		8.37 %		8.10 %		8.23 %		6.80 %
Common equity Tier 1 capital ratio	12.05 %		12.31 %		12.07 %		11.87 %		11.26 %
Tier 1 capital ratio	12.35 %		12.63 %		12.39 %		12.19 %		11.58 %
Total capital ratio	14.06 %		14.29 %		13.88 %		13.44 %		14.16 %
Bank
Tier 1 leverage ratio	7.79 %		8.68 %		8.19 %		8.22 %		7.79 %
Common equity Tier 1 capital ratio	12.77 %		13.09 %		12.55 %		12.17 %		13.26 %
Tier 1 capital ratio	12.77 %		13.09 %		12.55 %		12.18 %		13.26 %
Total capital ratio	14.03 %		14.29 %		13.57 %		13.43 %		14.52 %

(1) March 31, 2023 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)	March 31, 2023				December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022
Total stockholders' equity	$	673,244			$	659,133			$	645,140			$	724,774			$	763,406
Adjustments:
LESS: Goodwill, net of associated deferred tax liabilities		298,390				298,788				299,186				299,616				299,983
LESS: Certain other intangible assets		23,553				25,053				26,406				27,809				30,007
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards		13,219				16,641				17,968				11,978				13,404
LESS: Net unrealized gains (losses) on available for sale securities		(186,796	)			(200,597	)			(211,600	)			(131,352	)			(69,838	)
LESS: Noncontrolling interest		(551	)			(207	)			(30	)			665				322
ADD: Adoption of Accounting Standards Update 2016-13		2,017				2,017				2,689				10,011				13,387
Common Equity Tier 1(1)		527,446				521,472				515,899				526,069				502,915
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		(404	)			(138	)			(20	)			377				208
Total Tier 1 capital		540,703				534,995				529,540				540,107				516,784
Allowance for credit losses		55,058				50,853				43,623				55,506				56,051
Subordinated debentures, net of issuance costs		19,540				19,521				20,000				—				59,256
Total capital	$	615,301			$	650,369			$	593,163			$	595,613			$	632,091

(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.

	March 31, 2023				December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022
Total stockholders' equity	$	673,244			$	659,133			$	645,140			$	724,774			$	763,406
Less: Goodwill		309,505				309,505				309,505				309,505				309,505
Less: Intangible assets		22,998				24,433				25,691				27,088				29,290
Tangible common equity		340,741				325,195				309,944				388,181				424,611
Less: AOCI		(187,829	)			(201,690	)			(213,080	)			(131,407	)			(69,374	)
Tangible common equity excluding AOCI	$	528,570			$	526,885			$	523,024			$	519,588			$	493,985

Conference Call

The Company will host a conference call and earnings webcast at 4:00 p.m. Central Time (5:00 p.m. Eastern Time) on Wednesday, April 26, 2023. The live webcast of the call can be accessed from Pathward’s Investor Relations website at www.pathwardfinancial.com. Telephone participants may access the conference call by dialing 1-833-470-1428 (International: +1-929-526-1599) approximately 10 minutes prior to start time and reference access code 909186. A webcast replay will also be archived at www.pathwardfinancial.com for one year.

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 SEC, the Company’s reports to stockholders, and in other communications by the Company and the Bank, which are made in good faith by the Company pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

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

The foregoing list of factors is not exclusive. We caution you not to place undue reliance on these forward-looking statements. The forward-looking statements included in this press release speak only as of the date hereof. Additional discussions of factors affecting the Company’s business and prospects are reflected under the caption “Risk Factors” and in other sections of the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended September 30, 2022, and in other filings made with the SEC. The Company expressly disclaims any intent or obligation to update any forward-looking statements, whether written or oral, that may be made from time to time by or on behalf of the Company or its subsidiaries, whether as a result of new information, changed circumstances, or future events or for any other reason.

Condensed Consolidated Statements of Financial Condition (Unaudited)
(Dollars in Thousands, Except Share Data)	March 31, 2023				December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022
ASSETS
Cash and cash equivalents	$	432,598			$	369,169			$	388,038			$	157,260			$	237,680
Securities available for sale, at fair value		1,825,563				1,847,778				1,882,869				1,956,523				2,043,478
Securities held to maturity, at amortized cost		38,713				40,565				41,682				43,877				47,287
Federal Reserve Bank and Federal Home Loan Bank Stock, at cost		29,387				28,812				28,812				28,812				28,812
Loans held for sale		24,780				17,148				21,071				67,571				31,410
Loans and leases		3,725,616				3,509,730				3,536,305				3,688,566				3,730,190
Allowance for credit losses		(84,304	)			(52,592	)			(45,947	)			(75,206	)			(88,552	)
Accrued interest receivable		22,434				20,170				17,979				16,818				19,115
Premises, furniture, and equipment, net		39,735				41,029				41,710				42,076				43,167
Rental equipment, net		210,844				231,129				204,371				222,023				213,033
Goodwill and intangible assets		332,503				333,938				335,196				336,593				338,795
Other assets		270,387				272,349				295,324				243,265				242,824
Total assets	$	6,868,256			$	6,659,225			$	6,747,410			$	6,728,178			$	6,887,239
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Deposits		5,902,696				5,789,132				5,866,037				5,710,799				5,829,886
Short-term borrowings		43,000				—				—				—				—
Long-term borrowings		34,543				34,977				36,028				16,616				91,386
Accrued expenses and other liabilities		214,773				175,983				200,205				275,989				202,561
Total liabilities		6,195,012				6,000,092				6,102,270				6,003,404				6,123,833
STOCKHOLDERS’ EQUITY
Preferred stock		—				—				—				—				—
Common stock, $.01 par value		271				282				288				294				294
Common stock, Nonvoting, $.01 par value		—				—				—				—				—
Additional paid-in capital		623,250				620,681				617,403				615,159				612,917
Retained earnings		245,046				246,891				245,394				244,686				223,760
Accumulated other comprehensive loss		(187,829	)			(201,690	)			(213,080	)			(131,407	)			(69,374	)
Treasury stock, at cost		(6,943	)			(6,824	)			(4,835	)			(4,623	)			(4,513	)
Total equity attributable to parent		673,795				659,340				645,170				724,109				763,084
Noncontrolling interest		(551	)			(207	)			(30	)			665				322
Total stockholders’ equity		673,244				659,133				645,140				724,774				763,406
Total liabilities and stockholders’ equity	$	6,868,256			$	6,659,225			$	6,747,410			$	6,728,178			$	6,887,239

Condensed Consolidated Statements of Operations (Unaudited)
	Three Months Ended												Six Months Ended
(Dollars in Thousands, Except Share and Per Share Data)	March 31, 2023				December 31, 2022				March 31, 2022				March 31, 2023				March 31, 2022
Interest and dividend income:
Loans and leases, including fees	$	83,879			$	68,396			$	75,540			$	152,275			$	140,575
Mortgage-backed securities		10,326				10,412				5,446				20,738				9,310
Other investments		10,482				6,252				4,191				16,734				8,183
		104,687				85,060				85,177				189,747				158,068
Interest expense:
Deposits		2,096				142				165				2,238				306
FHLB advances and other borrowings		1,186				861				1,212				2,047				2,349
		3,282				1,003				1,377				4,285				2,655
Net interest income		101,405				84,057				83,800				185,462				155,413
Provision for credit losses		36,763				9,776				32,302				46,539				32,488
Net interest income after provision for credit losses		64,642				74,281				51,498				138,923				122,925
Noninterest income:
Refund transfer product fees		30,205				677				27,805				30,882				28,384
Refund advance fee income		37,995				617				39,299				38,612				40,532
Card and deposit fees		42,087				37,718				26,520				79,805				51,889
Rental income		12,940				12,708				11,375				25,648				22,452
Gain (loss) on sale of securities		82				—				260				82				397
Gain on sale of trademarks		—				10,000				—				10,000				50,000
Gain (loss) on sale of other		(748	)			502				626				(246	)			(2,839	)
Other income		4,477				3,555				3,881				8,032				5,542
Total noninterest income		127,038				65,777				109,766				192,815				196,357
Noninterest expense:
Compensation and benefits		47,547				43,017				45,047				90,564				83,272
Refund transfer product expense		7,863				105				6,260				7,968				6,398
Refund advance expense		1,603				27				2,002				1,630				2,185
Card processing		26,924				22,683				7,457				49,607				14,629
Occupancy and equipment expense		8,510				8,312				8,500				16,822				16,849
Operating lease equipment depreciation		14,719				9,628				8,737				24,347				17,185
Legal and consulting		4,921				9,459				9,347				14,380				15,555
Intangible amortization		1,435				1,258				2,169				2,693				3,657
Impairment expense		500				24				—				524				—
Other expense		13,114				10,546				13,641				23,660				25,866
Total noninterest expense		127,136				105,059				103,160				232,195				185,596
Income before income tax expense		64,544				34,999				58,104				99,543				133,686
Income tax expense (benefit)		9,176				6,577				8,002				15,753				22,278
Net income before noncontrolling interest		55,368				28,422				50,102				83,790				111,408
Net income (loss) attributable to noncontrolling interest		597				580				851				1,177				833
Net income attributable to parent	$	54,771			$	27,842			$	49,251			$	82,613			$	110,575
Less: Allocation of Earnings to participating securities(1)		839				402				815				1,228				1,773
Net income attributable to common shareholders(1)		53,932				27,440				48,436				81,382				108,802
Earnings per common share:
Basic	$	1.99			$	0.98			$	1.66			$	2.95			$	3.66
Diluted	$	1.99			$	0.98			$	1.66			$	2.95			$	3.66
Shares used in computing earnings per common share:
Basic		27,078,048				28,024,541				29,212,301				27,555,197				29,731,797
Diluted		27,169,569				28,086,823				29,224,362				27,632,737				29,748,832

(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 March 31,	2023											2022
(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	$	564,656			$	5,843			4.20	%		$	810,857			$	721			0.36	%
Mortgage-backed securities		1,549,240				10,326			2.70	%			1,184,377				5,446			1.86	%
Tax exempt investment securities		149,912				990			3.39	%			189,213				903			2.45	%
Asset-backed securities		141,968				1,273			3.64	%			370,671				1,142			1.25	%
Other investment securities		298,030				2,376			3.23	%			282,655				1,425			2.05	%
Total investments		2,139,150				14,965			2.89	%			2,026,916				8,916			1.83	%
Commercial finance		3,056,293				60,765			8.06	%			2,852,147				48,872			6.95	%
Consumer finance		187,826				6,301			13.60	%			331,033				7,892			9.67	%
Tax services		448,659				10,555			9.54	%			594,166				11,599			7.92	%
Warehouse finance		321,334				6,258			7.90	%			467,298				7,177			6.23	%
Total loans and leases		4,014,112				83,879			8.47	%			4,244,644				75,540			7.22	%
Total interest-earning assets	$	6,717,918			$	104,687			6.34	%		$	7,082,417			$	85,177			4.89	%
Noninterest-earning assets		612,020											814,151
Total assets	$	7,329,938										$	7,896,568
Interest-bearing liabilities:
Interest-bearing checking	$	267			$	—			0.33	%		$	289			$	—			0.32	%
Savings		70,024				6			0.03	%			82,902				6			0.03	%
Money markets		125,193				71			0.23	%			102,473				53			0.21	%
Time deposits		6,948				2			0.11	%			8,682				10			0.49	%
Wholesale deposits		186,421				2,017			4.39	%			173,493				96			0.22	%
Total interest-bearing deposits		388,853				2,096			2.19	%			367,839				165			0.18	%
Overnight fed funds purchased		46,735				543			4.71	%			95,700				62			0.26	%
Subordinated debentures		19,523				354			7.34	%			74,040				1,002			5.49	%
Other borrowings		15,283				289			7.68	%			17,874				148			3.35	%
Total borrowings		81,541				1,186			5.90	%			187,614				1,212			2.62	%
Total interest-bearing liabilities		470,394				3,282			2.83	%			555,453				1,377			1.01	%
Noninterest-bearing deposits		5,997,739				—			—	%			6,311,583				—			—	%
Total deposits and interest-bearing liabilities	$	6,468,133			$	3,282			0.21	%		$	6,867,036			$	1,377			0.08	%
Other noninterest-bearing liabilities		191,360											213,982
Total liabilities		6,659,493											7,081,018
Shareholders' equity		670,445											815,550
Total liabilities and shareholders' equity	$	7,329,938										$	7,896,568
Net interest income and net interest rate spread including noninterest-bearing deposits					$	101,405			6.13	%						$	83,800			4.81	%
Net interest margin									6.12	%										4.80	%
Tax-equivalent effect									0.02	%										0.01	%
Net interest margin, tax-equivalent(2)									6.14	%										4.81	%

(1) Tax rate used to arrive at the TEY for the three months ended March 31, 2023 and 2022 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	March 31, 2023				December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022
Equity to total assets		9.80	%			9.90	%			9.56	%			10.77	%			11.08	%
Book value per common share outstanding	$	24.88			$	23.36			$	22.41			$	24.69			$	26.00
Tangible book value per common share outstanding	$	12.59			$	11.53			$	10.77			$	13.22			$	14.46
Tangible book value per common share outstanding excluding AOCI	$	19.54			$	18.68			$	18.17			$	17.70			$	16.82
Common shares outstanding		27,055,727				28,211,239				28,788,124				29,356,707				29,362,844
Nonperforming assets to total assets		0.44	%			0.68	%			0.46	%			0.40	%			0.56	%
Nonperforming loans and leases to total loans and leases		0.76	%			1.16	%			0.82	%			0.71	%			0.95	%
Net interest margin		6.12	%			5.62	%			5.21	%			4.76	%			4.80	%
Net interest margin, tax-equivalent		6.14	%			5.64	%			5.23	%			4.77	%			4.81	%
Return on average assets		2.99	%			1.71	%			1.39	%			1.32	%			2.49	%
Return on average equity		32.68	%			17.18	%			12.82	%			11.93	%			24.16	%
Full-time equivalent employees		1,164				1,150				1,141				1,178				1,167

Non-GAAP Reconciliations
Adjusted Net Income and Adjusted Earnings Per Share		At and For the Three Months Ended												At and For the Six Months Ended
(Dollars in Thousands, Except Share and Per Share Data)		March 31, 2023				December 31, 2022				March 31, 2022				March 31, 2023				March 31, 2022
Net Income - GAAP		$	54,771			$	27,842			$	49,251			$	82,613			$	110,575
Less: Gain on sale of trademarks			—				10,000				—				10,000				50,000
Less: Loss on disposal of certain mobile solar generators			(1,993	)			—				—				(1,993	)			—
Add: Accelerated depreciation on certain mobile solar generators			4,822				—				—				4,822				—
Add: Rebranding expenses			—				3,737				2,819				3,737				2,822
Add: Separation related expenses			—				11				878				11				965
Add: Impairment on Venture Capital investments			500				—				—				500				—
Add: Income tax effect resulting from the above listed items			(1,829	)			1,575				(930	)			(253	)			11,641
Adjusted net income		$	60,257			$	23,165			$	52,018			$	83,423			$	76,002
Less: Adjusted allocation of earnings to participating securities			923				335				861				1,241				1,218
Adjusted Net income attributable to common shareholders			59,334				22,830				51,157				82,182				74,784
Weighted average diluted common shares outstanding			27,169,569				28,086,823				29,224,362				27,632,737				29,748,832
Adjusted earnings per common share - diluted		$	2.18			$	0.81			$	1.75			$	2.97			$	2.51

Adjusted Diluted Earnings Per Share Guidance
(Earnings per share amounts)	Fiscal Year Ended 2023 (Guidance)
Diluted earnings per share - GAAP	$5.55 - $5.95
Less: Net extraordinary items, net of tax(1)	$0.15
Diluted earnings per share - Adjusted	$5.40 - $5.80

(1) Includes gain on sale of trademarks and rebranding-related expenses.

Pathward, N.A. Period-end Tier 1 Leverage
(Dollars in thousands)	March 31, 2023
Total stockholders' equity	$	705,060
Adjustments:
LESS: Goodwill, net of associated deferred tax liabilities		298,390
LESS: Certain other intangible assets		23,553
LESS: Net deferred tax assets from operating loss and tax credit carry-forwards		13,219
LESS: Net unrealized gains (losses) on available for sale securities		(186,796	)
LESS: Noncontrolling interest		(551	)
ADD: Adoption of Accounting Standards Update 2016-13		2,017
Common Equity Tier 1		559,262
Tier 1 minority interest not included in common equity Tier 1 capital		—
Total Tier 1 capital	$	559,262
Total Assets (Quarter Average)	$	7,331,497
ADD: Available for sale securities amortized cost		244,799
ADD: Deferred tax		(61,665	)
ADD: Adoption of Accounting Standards Updated 2016-13		2,017
LESS: Deductions from CET1		335,162
Adjusted total assets	$	7,181,486
Pathward, N.A. Regulatory Tier 1 Leverage		7.79	%
Total Assets (Period End)	$	6,869,121
ADD: Available for sale securities amortized cost		249,694
ADD: Deferred tax		(62,898	)
ADD: Adoption of Accounting Standards Updated 2016-13		2,017
LESS: Deductions from CET1		335,162
Adjusted total assets	$	6,722,772
Pathward, N.A. Period-end Tier 1 Leverage		8.32	%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230426005784/en/

Investor Relations Contact

Darby Schoenfeld, CPA

SVP, Investor Relations

877-497-7497

InvestorRelations@pathward.com

Media Relations Contact

mediarelations@pathward.com

Source: Pathward Financial, Inc.

FAQ

What was Pathward Financial's net income for Q2 2023?

Pathward Financial reported a net income of $54.8 million for Q2 2023.

What is the EPS guidance for Pathward Financial in 2023?

Pathward Financial reaffirmed its EPS guidance for fiscal year 2023 as $5.55 to $5.95.

How much revenue did Pathward Financial generate in Q2 2023?

Pathward Financial generated $228.4 million in revenue for Q2 2023.

What is the significance of the net interest margin for Pathward Financial?

The net interest margin for Pathward Financial increased to 6.12% in Q2 2023, indicating improved profitability on loans and investments.

Did Pathward Financial repurchase any shares in Q2 2023?

Yes, Pathward Financial repurchased 1,172,700 shares at an average price of $46.60 in Q2 2023.