KBRA Affirms Ratings for Pathward Financial, Inc.

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Sioux Falls, South Dakota based Pathward Financial, Inc. (NASDAQ: CASH) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for its subsidiary, Pathward, National Association. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

KBRA maintains a favorable view towards CASH’s capital profile, largely stemming from its distinct business model that generates peer-leading earnings. Moreover, given the company’s assumed asset cap (related to the Durbin amendment and its impact should the bank surpass $10 billion in assets) and shorter duration loan portfolio, CASH has a unique ability to rapidly build capital should the need arise. Overall, CASH has generally managed its risk-based capital ratios in-line with rated peers including a CET1 ratio that has tracked in the upper 12% range in recent quarters. The company’s differentiated earnings profile includes peer-leading fee revenues and an above-average NIM, despite an earning asset mix less concentrated in loans (average loans represented 73% of average earning assets in F4Q25). Through its partner solutions business line, CASH has four primary sources of fee income, with card and deposit fees its leading driver at roughly 38% of total noninterest income. Refund advance and refund transfer fees from its tax services business, SBA/USDA loan sale revenues and rental income also contribute meaningful fee revenues. Overall, noninterest income has consistently tracked over 40% of annual revenues, with CASH reporting nearly $300 million in FY25 (excludes $31 million gain on sale of its insurance premium business), or 3.9% of average assets.

CASH’s lower funding costs are largely a function of its unique deposit base with the bulk of its deposits coming from its Partner Solutions business line with an average adjusted cost of deposit of 1.58% for F4Q25 (includes rate related card processing expenses). The combination of its lower funding costs and higher yielding loan portfolio (9.32% for F4Q25) enables the company’s strong adjusted NIM (6.04% for F4Q25). KBRA recognizes the higher risk nature of the loan portfolio which is concentrated in commercial finance loans, though considers the risk well managed with loss rates, while elevated, rather consistent (NCO ratio on commercial finance portfolio has tracked between 0.5% - 0.7% since 2019).

Rating Sensitivities

The Stable Outlook reflects KBRA's view that a rating change is unlikely over the medium term. Significant credit deterioration, with loss rates well above historical norms, or more aggressive management of capital with ratios tracking measurably below current levels, or the loss of a strategically important paycard partner, materially impacting its partner solutions business, could result in negative rating action.

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