Pathward Financial, Inc. (Pathward) operates as the bank holding company for Pathward, National Association (the bank) that provides various financial services.
As a nationwide provider of banking as a service (BaaS) solutions and commercial finance products, the company has offices across the country.
The business of the company is to collaborate with partners through the BaaS business line to provide solutions that attract stable deposits and generate fee income. The deposits are primarily i...
Pathward Financial, Inc. (Pathward) operates as the bank holding company for Pathward, National Association (the bank) that provides various financial services.
As a nationwide provider of banking as a service (BaaS) solutions and commercial finance products, the company has offices across the country.
The business of the company is to collaborate with partners through the BaaS business line to provide solutions that attract stable deposits and generate fee income. The deposits are primarily invested into loan and lease products offered through the Commercial Finance business line. In addition to originating loans and leases, the company occasionally contracts to sell loans, such as consumer credit product loans, government guaranteed loans, and other commercial loans to third party buyers. It also sells and purchases loan participations from time to time to and from other financial institutions, as well as mortgage-backed securities (MBS) and other investments permissible under applicable regulations.
Segments
The company operates through three segments: Consumer, Commercial, and Corporate Services/Other.
The Consumer segment includes the BaaS business line, which collaborates with partners to navigate payment and lending needs. With capabilities ranging from prepaid cards and deposit accounts to payment processing and consumer lending, the company empowers its partners to deliver programs that provide a financial path forward for all.
The company offers the following innovative solutions: payment, issuing, credit, and tax. Payment solutions accepts and processes payments for all customers' personal and business needs. The company moves funds daily through high speed banking rails, including Automated Clearing House (ACH), wire transfers, and push to debit. With its issuing solutions, Pathward is one of the leading debit and prepaid card issuers in the country and holds funds for the programs of its partners in order to provide the consumer protections of a traditional bank account. Credit solutions enable the bank's partners' lending solutions that serve the borrowing needs of customers in a diverse credit pool. Tax solutions offer tax-related financial products, such as electronic refund advances and refund transfers, that ease the pressure of tax season and help over 30,000 independent tax offices stay competitive in a crowded marketplace.
The Commercial segment includes the company's Commercial Finance business line, which helps businesses access funds they need to launch, operate, and grow. Pathward's innovative approach and customized financial products offer the flexibility traditional bank products cannot. This diverse range of commercial finance products is available through the following lending solutions: working capital, equipment finance, structured finance, and insurance premium finance.
Working capital provides ready cash for liquidity needs to new or growing companies or companies in cyclical or seasonal industries. Working capital financing is secured by business collateral (assets), such as accounts receivable, inventory, and equipment. Equipment finance provides financing in the form of leases and loans for equipment needs. Structured finance assists small- and mid-sized business and rural borrowers to fund growth, expansion, and restructuring. Products include alternative energy financing, conventional loans, and loans administered through partnerships with the Small Business Administration (SBA) and the United States Department of Agriculture (USDA). Insurance premium finance is short-term financing to facilitate the purchase of property, casualty, and liability insurance premiums.
The Corporate Services/Other segment includes certain shared services, as well as treasury related functions, such as the investment portfolio, warehouse finance, wholesale deposits, and borrowings.
The company's corporate headquarters is located in Sioux Falls, South Dakota. The company has non-branch offices from which its BaaS and Commercial Finance business lines operate. The BaaS business line operates out of the company's corporate headquarters along with additional offices in Louisville, Kentucky and Easton, Pennsylvania. The Commercial Finance business line operates out of offices in Troy, Michigan; Newport Beach, California; Franklin, Tennessee; Addison, Texas; and Toronto, Ontario, Canada. The company has corporate and shared services offices located in Scottsdale, Arizona and Washington, D.C.
Other Subsidiaries
Pathward Venture Capital, LLC (Pathward Venture Capital), a wholly-owned service corporation subsidiary of the bank was formed in 2017 for the purpose of making minority equity investments. Pathward Venture Capital focuses on investing in companies in the financial services industry.
First Midwest Financial Capital Trust I, a wholly-owned subsidiary of the company, was established in July 2001 and Crestmark Capital Trust I, a wholly-owned subsidiary of the company and acquired by it in August 2018, was established in June 2005. Both subsidiaries were established for the purpose of issuing trust preferred securities.
Lending Activities
The company focuses its lending activities on the origination of commercial finance loans and leases, consumer finance loans, and tax services loans.
Commercial Finance
The company's Commercial Finance business line offers a variety of products through its working capital, equipment finance, structured finance, and insurance premium finance lending solutions. These products include term lending, asset-based lending, factoring, lease financing, insurance premium finance, government guaranteed lending, and other commercial finance products offered on a nationwide basis.
Term Lending: The bank originates a variety of collateralized conventional term loans and notes receivable. While terms range from three years to 25 years, the weighted average life of these loans is approximately 53 months. These term loans may be secured by equipment, recurring revenue streams, or real estate.
Asset-Based Lending: The bank provides asset-based loans secured by short-term assets, such as accounts receivable and inventory. Asset-based loans may also be secured by equipment supported by third party independent appraisals. The primary sources of repayment are the collection of the receivables and/or the sale of the inventory securing the loan, as well as the operating income of the borrower.
Factoring: The bank provides factoring lending where customers provide detailed accounts receivable reporting for lending arrangements.
Lease Financing: The bank provides creative, flexible lease solutions for equipment needs of its customers. Leases that transfer substantially all of the benefits and risks of ownership to the lessee are accounted for as sales-type or direct financing leases. Lease maturities are generally no greater than 84 months.
Insurance Premium Finance: The bank provides, on a national basis, short-term, primarily collateralized financing to facilitate the commercial customers' purchase of insurance for various forms of risk, otherwise known as insurance premium financing. This includes, but is not limited to, policies for commercial property, casualty, and liability risk. Premiums are advanced either directly to the insurance carrier or through an intermediary/broker and repaid by the policyholder with interest during the policy term.
SBA and USDA: The bank originates loans through programs partially guaranteed by the SBA or USDA. SBA loans are made to small businesses and professionals. Generally, the bank provides USDA loans to alternative energy project developers and the hotel industry. Certain guaranteed portions of these loans may be sold to the secondary market.
Other Commercial Finance: Included in this category of loans are the company's healthcare receivables loan portfolio primarily comprising loans to individuals for medical services received. The majority of these loans are guaranteed by the hospital providing the service to the debtor and this guarantee serves to reduce credit risk as the guarantors agree to repurchase severely delinquent loans. Credit risk is minimized on these loans based on the guarantor's repurchase agreement. This loan category also includes commercial real estate loans.
Consumer Finance
The bank offers a variety of installment and revolving consumer lending products through its credit solutions. The bank designs its credit program relationships with certain desired outcomes, including liquidity, credit protection, and risk retention by the program partner. Certain loans are sold to third parties based on terms and conditions within the Program Agreement.
Tax Services
The bank's BaaS business line offers tax solutions, which include short-term refund advance loans and short-term electronic return originator (ERO) advance loans.
Refund Advance Loans: Refund advance loans are unsecured loans to taxpayers that are determined to be eligible based on underwriting criteria designed for this product.
ERO Advance Loans: ERO advance loans are unsecured advances that are typically utilized by tax preparers to purchase tax preparation software and to prepare tax office operations for the upcoming tax season. EROs go through an underwriting process to determine eligibility. Collection on ERO advances begins once the ERO begins to process refund transfers. Generally, the bank will charge off the balance of an ERO advance loan if there is a balance at the end of June, or when collection of principal becomes doubtful.
Warehouse Finance
The bank participates in several collateral-based warehouse lines of credit whereby it is in a senior, secured position as the first out participant. These facilities are primarily collateralized by consumer receivables, with the bank holding a senior collateral position enhanced by a subordinate party structure.
Investment Activities
As of September 30, 2023, the company's investment portfolio included corporate securities, asset-backed securities, SBA securities, obligations of states and political subdivisions, and non-bank qualified obligations of states and political subdivisions.
Mortgage-Backed Securities
As of September 30, 2023, the company's mortgage-backed and related securities portfolio included securities issued by the U.S. Government agencies or instrumentalities, including those of Farmer Mac, Freddie Mac, Fannie Mae, and Ginnie Mae along with private label institutions.
Deposits
The company offers a variety of deposit accounts having a wide range of interest rates and terms. The company's deposits primarily consist of demand deposit accounts, savings accounts, and money market savings accounts, many of which are related to the BaaS business line.
Payment, Issuing, and Tax Solutions
The company's core capabilities of payment, issuing, and tax solutions focus on innovation in the fintech industry by providing solid banking infrastructure, proven tech resource partners, and high-energy collaboration that enables its partners to deliver banking programs that meet their customers' demands. The BaaS business line offers multiple payment solutions that are marketed to consumers and businesses nationwide through financial institutions and other commercial entities. Overall, the products and services offered by the company are generally designed to facilitate the processing and settlement of authorized electronic transactions involving the movement of funds.
Payment Solutions
Acquiring Sponsorship: Payment solutions include the acceptance, processing, and settlement of credit card and debit card payments by an acquiring bank on behalf of merchants. Pathward acts as an acquiring bank to sponsor acquiring activity on behalf of merchant customers by leveraging partnerships with partners who act as merchant processors, third-party service providers, ISOs, and/or payment facilitators to identify, onboard, and support merchant customers.
Money Movement Solutions: Pathward provides the financing operations for Automated Clearing House (ACH) transactions, disburse to debit (through Visa Direct or Mastercard Send), wire or check processing which enable the faster, almost instantaneous movement of funds from sender to receiver. Pathward is a Nacha Top 25 bank for receiving and originating payments.
ATM Sponsorship: The company sponsors ATM independent sales organizations (ISOs) into various networks and provides associated sponsorships of encryption support organizations and third-party processors in the support of the financial institutions and the ATM ISO sponsorships. Sponsorship consists of the review and oversight of entities participating in debit and credit networks. In certain instances, Pathward also has certain leasehold interests in certain ATMs which require bank ownership and registration for compliance with applicable state law.
Pathward provides financial processing services for approximately 60% of freestanding ATMs nationwide providing consumers with access to funds at ATMs frequently found in malls, retail chains, convenience stores, events, fairs, and other small business locations across the U.S.
Issuing Solutions
Prepaid Cards: Similar to traditional debit cards, prepaid cards are embedded with a magnetic stripe, which encodes relevant card data (which may or may not include information about the user and/or purchaser of such card), and an EMV chip, which is equipped with a microprocessor chip and the technology used to authenticate chip card transactions. Virtual prepaid cards are used in both the consumer space, for example as a gift card, and in the commercial arena to facilitate accounts payable and vendor payments.
The funds associated with such cards are typically held in pooled accounts at the bank representing the aggregate value of all cards issued in connection with particular products or programs. Pathward is one of the leading prepaid card issuers in the United States.
The prepaid card business can generally be divided into two program categories: Consumer Use and Business or Commercial Use products. These programs are typically offered through a third-party relationship.
Consumer Use: Examples of consumer use prepaid card programs include payroll, general purpose reloadable (GPR), reward, gift and benefit/HSA cards. Payroll cards are a product whereby an employee's payroll is loaded to the card by their employer via direct deposit. GPR cards are usually distributed by retailers and can be reloaded an indefinite number of times at participating retail load networks. Other examples of reloadable cards are travel cards, which are used in place of traveler's checks and can be reloaded a predetermined number of times, as well as tax-related cards where a taxpayer's refund is placed on the card. Reloadable cards are generally open-loop cards that consumers can use to obtain cash at ATMs or purchase goods and services wherever such cards are accepted for payment.
Business or Commercial Use: Prepaid cards are also frequently used by businesses for travel and entertainment, accounts payable and business-to-business (B2B) settlement products. For example, virtual prepaid cards are used to facilitate one-time payments between a company and its vendors for monthly settlement. Travel and entertainment cards, alternatively, are reloadable by the company for use by its employees to travel for business.
Consumer Banking Solutions: Partners looking to offer financial services in an ecosystem typically employ a demand deposit account (DDA), savings account or debit card, or combination thereof. Pathward facilitates their ability to establish a direct deposit relationship with consumers, complete with online acceptance and digital funds transfer, as well as options, such as overdraft protection in times of income shortfalls and the overall benefit of improved money management.
Tax Solutions
Under the Refund Transfer program, the bank opens a temporary bank account for each customer who is receiving an income tax refund and elects to defer payment of his or her tax preparation fees. After, the IRS and any state income tax authorities transfer the refund into the customer's account, the net funds are transferred to the customer. The temporary deposit account remains available for use for two tax years, which allows for additional payments to be received in addition to federal and state refunds, and then the account is closed.
Regulation and Supervision
As a national bank, the bank is supervised and examined by the Office of the Comptroller of the Currency (OCC), as its primary federal regulator, and the Federal Deposit Insurance Corporation (FDIC), the federal agency that administers the Deposit Insurance Fund (DIF).
As a bank holding company (BHC), the company is supervised and examined by the Federal Reserve Bank (FRB).
In addition to regulation and supervision by the FRB, the company is a reporting company under the Securities Exchange Act of 1934, as amended (the Exchange Act), and is required to file reports with the Securities and Exchange Commission (SEC) and otherwise comply with federal securities laws.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the bank is subject to regulations promulgated by the Consumer Financial Protection Bureau (the Bureau).
The bank is a national bank that is subject to broad federal regulation and oversight extending to all of its operations by its primary federal regulator, the OCC, and by its deposit insurer, the FDIC.
The bank derives its lending and investment powers from the National Bank Act (NBA) and the OCC's implementing regulations promulgated thereunder.
The bank is a member of the DIF, which is administered by the FDIC. While not the bank's primary federal regulator, the FDIC, as insurer of the bank's deposits, imposes deposit insurance premiums and is authorized to conduct examinations of and to require reporting by FDIC-insured institutions.
The bank must comply with Sections 23A and 23B of the Federal Reserve Act relative to transactions with 'affiliates', generally defined to mean any company that controls or is under common control with the institution (as such, the company is an affiliate of the bank for these purposes).
Under the Community Reinvestment Act, the bank is evaluated periodically by its primary federal banking regulator to determine if it is meeting its continuing and affirmative obligations consistent with its safe and sound operation, to help meet the credit needs of its assessment areas, including low- and moderate-income neighborhoods.
The bank is a member of the Federal Home Loan Bank (FHLB) system through the FHLB of Des Moines.
The bank is also subject to a variety of other regulations with respect to its business operations, including but not limited to, the Truth in Lending Act, the Truth in Savings Act, the Consumer Leasing Act, the Equal Credit Opportunity Act, the Electronic Funds Transfer Act, the Military Lending Act, the Servicemembers' Civil Relief Act, the Fair Housing Act, the Fair Debt Collection Practices Act, the Telephone Consumer Protection Act, the Controlling the Assault of Non-Solicited Pornography and Marketing Act, and the Fair Credit Reporting Act.
The company is subject to examination, supervision, and certain reporting requirements by the Federal Reserve, which has responsibility for the primary regulation and supervision of all BHCs, including the company, under the Bank Holding Company Act (BHCA).
The company is subject to oversight by the SEC, NASDAQ and various state securities regulators.
History
The company was founded in 1954. It was incorporated in 1993 in Delaware. The company was formerly known as Meta Financial Group, Inc. and changed its name to Pathward Financial, Inc. in 2022.
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