KBRA Affirms Ratings for Idaho Central Credit Union

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 K3 for Chubbuck, Idaho-based Idaho Central Credit Union (“Idaho Central” or "ICCU" or “the credit union”). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

Idaho Central’s ratings are supported by a tenured executive management team with a solid earnings track record and a robust membership base driven by the dynamic deposit franchise throughout economically divergent MSAs in Idaho and Washington, both trending positively. ICCU’s earnings are underpinned by its strong consumer focused deposit base as core deposits represented 82% of total funding at 2Q24. Despite elevated funding costs (2.66% at 2Q24) attributable to the credit union’s funding model, the margin has been supported by increased earning asset yields as loans accounted for 87% of total assets as of 2Q24, thus generating an average ROA for the last four quarters of 0.92% and 1.37% over the last five years. The credit union has a diversified revenue model with spread income complemented by solid fee revenue with a five-year average noninterest income to total revenue of 44% primarily generated through solid fee and CUSO income; however, the Durbin Amendment becomes effective in 3Q24, which is expected to negatively impact annual revenue by less than 1%. Nonetheless, given solid revenue levels and contained expenses, Idaho Central has maintained an efficiency ratio averaging 66% over the last five years, which is, in our view, adequate for the rating category. Asset quality metrics are also viewed as adequate, which we attribute to management’s conservative underwriting and stability in most consumer loan categories. Albeit, given the higher interest rate environment, ICCU has experienced an uptick in charge-offs in more recent quarters (0.38% at 2Q24), given the concentration in consumer loans. Although below similarly sized peers, loan loss reserve of 0.63% adequately covers NPAs by 175% at 2Q24. The capital profile has broadly lagged most peers, particularly in its net worth ratio hovering near 8% prior to its $80 million subordinated debt issuance in 4Q23. However, ICCU has grown capital in 1H24 with retained earnings and reduced balance sheet growth. Going forward, KBRA expects ICCU to maintain similar capital levels corresponding with its earnings base and management of growth.

Rating Sensitivities

A rating upgrade is unlikely over the intermediate term. However, consistently generating ROA around 1.0%, improved capital metrics, and maintaining solid credit quality metrics may result in positive rating momentum over time. Downward pressure on capital metrics, notably sustaining a net worth ratio below 8.0%, a material deterioration in credit costs resulting in elevated charge-offs, weakened profitability, or material deposit outflows could negatively impact the ratings.

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