KBRA Affirms Ratings for Truliant Federal Credit Union
1 Nov 2023 | New York
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 Winston-Salem, North Carolina-based Truliant Federal Credit Union (“Truliant” or "TFCU" or “the credit union”). The Outlook for all long-term ratings is Stable.
Key Credit Considerations
The ratings are supported by a seasoned management team with a mix of credit union and banking experience, a tax advantaged business model, and the granular/lower risk nature of the consumer-oriented balance sheet with more than two-thirds of total loans in auto and residential mortgages. TFCU’s strong consumer banking focus is a key driver of its sound funding profile that is 98% funded by member shares comprised of a granular deposit base with 95% of total deposits classified as insured (i.e. <=$250,00). Furthermore, the credit union has ample access to liquidity and has not experienced material deposit outflows in recent periods, dissimilar to many regional credit union and bank counterparts, with deposit growth oriented towards share certificates. With respect to earnings, the credit union has a diversified revenue stream complemented by solid fee revenue with a 5-year average noninterest income to total revenue of 36% primarily through stable sources including account fees, interchange fees, and service income from insurance, trust, and estate planning. Truliant’s balance sheet has benefited from the rising rate environment driven by NIM expansion that peaked in 4Q22 at 4.16% and has remained relatively stable at 4.15% as of 3Q23. A key driver of NIM has been average loan yields that have been more consistent with that of banks $1 billion-$10 billion in assets and the auto loan portfolio’s average life of ~22 months. NCOs and NPAs typically run higher than similarly rated banks due to the inherent nature of the credit union model with TFCU’s five-year average NCO (0.62%) and NPA (0.45%) ratios, which are adversely impacted by the unsecured loans. KBRA views the credit union’s LLR of 0.86% as adequate at 1.3x NPAs at 3Q23. TFCU adopted the total risk based capital (RBC) (12.7%) adequacy measure and has a ~270 bps buffer over the minimum for well capitalized for both the RBC and net worth capital ratio (9.8%) to support moderate growth.
A rating upgrade is unlikely over the medium term, however, improved scale and geographic diversification, as well as maintaining solid profitability metrics, strong capital, and stable credit consistent with the higher rating category, could result in positive rating momentum over time. While a rating downgrade is unlikely over the near term, should downward pressure on capital measures arise or should unexpected material deterioration in credit cause elevated loss rates and impact the profitability of the credit union, negative rating action could result.
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