KBRA Affirms Ratings for CRB Group, Inc. and Revises Outlook to Stable

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Fort Lee, New Jersey-based CRB Group, Inc. (“CRB”) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its subsidiary, Cross River Bank. The Outlook for all long-term ratings is revised to Stable from Negative.

Key Credit Considerations

The revision to a Stable Outlook is primarily related to the material improvement in capital ratios, including a more than 100 bp rise in the company’s CET1 ratio from YE23 to 11.3% at 4Q24. We recognize that the increase in risk-based capital ratios was, in large part, driven by a reduction in risk-weighted assets, which can experience some volatility due to the nature of the MPL business line, though the company also reported a meaningful increase to its leverage ratio (up 50 bps to 7.7%) with a continued upward trend in this ratio expected to continue in 2025. While still performing below the rated peer average, CRB reported a return to profitability in 2024 with greater stability expected over the medium term as the company continues to better diversify its revenues, reducing its concentration in the rather volatile MPL business line (MPL revenues represented approximately 53% of total revenues in 2024 as compared to 61% in 2023). Moreover, while the improved risk adjusted margin for the company’s MPL business (12.2% in 2024 as compared to 3.2% in 2023) was largely related to the more favorable interest rate environment (stable throughout most of 2024, followed by rate decreases in 4Q24), CRB has implemented a hedging strategy that should minimize certain inherent interest rate risks associated with this business segment.

Greater revenue diversification was largely driven by growth in its commercial banking group and payments/BaaS revenues, which combined, represented approximately 24% of total revenues in 2024 (as compared to 21% in 2023). Importantly, CRB has shifted its payments/BaaS growth strategy to focus on larger, more established companies, presenting greater opportunities for volume growth in this space. CRB’s funding remains concentrated in both single name exposure through its BaaS/payments deposits as well as wholesale funding, namely brokered deposits, which represented roughly 50% of total deposits at 4Q24. As such, CRB’s total funding costs track nearly 150 bps above the rated peer average (4.01%), though the company has recently rolled out a prepaid card product which, over time, should provide meaningful lower-cost deposits.

Rating Sensitivities

The Stable Outlook reflects KBRA's view that a rating change is unlikely over the medium term. However, the favorable execution of its strategy, adding meaningful revenue diversification as well as significantly reducing its reliance on wholesale funding sources, with earnings consistently tracking more in-line with higher rated peers, could result in positive rating momentum over time. Conversely, should CRB return to a more aggressive capital management strategy, or should a material deterioration in consumer credit impact the profitability of the MPL business, downward pressure on the ratings could result. Moreover, the loss of a strategically important partner, either from a funding perspective or revenue perspective, could result in negative rating action.

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