Kroll Bond Rating Agency (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 Meta Financial Group, 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, MetaBank, National Association. Moreover, the Outlook for all long-term ratings is Stable.

Key Credit Considerations

CASH's diverse and rather unique revenue mix is a key strength supporting the company's above-average ratings. Noninterest income, primarily comprised of various stable fee revenue sources, has historically totaled over 40% of annual revenues, largely driven by CASH's robust payments division as well as its various tax services related products. Additionally, the payments division generates the majority of the company's funding with noninterest bearing accounts comprising over 85% of total deposits and total deposit costs at 0.39% for the company's fiscal year ended 9/30/2020. This dynamic has benefitted the company's earnings through its comparatively higher margins despite a lower concentration of loans in earning assets (52% at 9/30/20) as well as the large amount of cash assets on the balance sheet for FY20 related to the company's participation in the economic impact payments program, which materially lowered NIM (4.12% for FY20 as compared to 5.02% in FY19). CASH's risk profile is somewhat elevated due to an increasing concentration in higher-risk commercial finance loans, as demonstrated in the company's recent year above-average loss rates (NCO ratio of 0.47% in FY20, excluding tax service loan losses). Outside of its moderately elevated credit costs (provision expenses were 0.90% of average assets for FY20), the company's operating expenses has tracked well above peers at 4.4% of average assets for FY20, a factor of CASH's payments division, somewhat offset by the robust fee revenues it generates. CASH has generated strong earnings with returns on risk weighted assets tracking over 2% in recent years. With risk weighted capital measures largely in line with rated peers, KBRA views CASH's capital position as adequate despite rather volatile core capital measures, largely due to seasonal fluctuations in the balance sheet related to its refund advance tax loans and inflow of EIP deposits.

Rating Sensitivities

Material deterioration in credit quality with loss rates above peer averages - particularly within commercial finance - impacting the profitability of the company and decreasing capital measures below targeted levels, could negatively affect ratings. Additionally, the loss of multiple partnerships within the payments space that significantly lower future company revenues could also impact ratings.

ESG Considerations

KBRA's ratings incorporate all material credit factors including those that relate to Environmental, Social and Governance (ESG) factors. While ESG factors may influence ratings, it is important to underscore that KBRA's ratings do not incorporate value-based judgments. Throughout our analysis, KBRA captures the impact of ESG factors in the same manner as all other credit-relevant factors. More information on ESG Considerations for the Financial Institutions sector can be found here. Among the ESG factors that have impact on this rating analysis are the sound risk management practices of the company.

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KBRA continues to monitor the potential direct and indirect effects of the coronavirus disease (COVID-19) on the banking and other sectors. Please refer to our publication U.S. Bank 3Q 2020 Ratings Compendium for our latest thoughts.

The ratings are based on KBRA's Bank and Bank Holding Company Global Rating Methodology published on October 16, 2019.

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Analytical Contacts

Jason Szelc, Senior Director (Lead Analyst)

+1 (301) 969-3187

jszelc@kbra.com

Bryan So, Director

+1 (301) 969-3246

bso@kbra.com

Joe Scott, Managing Director (Rating Committee Chair)

+1 (646) 731-2438

jscott@kbra.com

Business Development Contact

Nish Kumar, Senior Director

+1 (646) 731-3372

nkumar@kbra.com

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Forms located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Forms referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.

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