KBRA Affirms Ratings for VyStar 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 Jacksonville, Florida based VyStar Credit Union (“VyStar” or “VCU”) (“the credit union”). The Outlook for all long-term ratings is Negative.

Key Credit Considerations

The maintenance of the Negative Outlook reflects our expectation that VCU must establish a sustained track record of profitability, while demonstrating stabilization in asset quality metrics and incrementally rebuild capital levels. Nonetheless, we recognize the improving earnings profile supported by solid NIM expansion which benefits from a solid core funding base, meaningful fee income contributions, and a normalized reserve build. Profitability has continued to strengthen over the course of the year with ROA at 0.39% for 9M25, and more recently, 0.60% for 3Q25. The ratings are supported by an attractive deposit base largely comprised of member deposits that compare favorably with rated credit unions. The conservative liquidity profile limits reliance on wholesale funding and helps support a strong core deposit base, which benefits from a relatively low cost of deposits (1.44% in 3Q25). Further, VCU’s earnings profile is enhanced by a meaningful noninterest income level that accounts for 31% of operating revenues is supported by durable and diversified source of revenue from mortgage banking, wealth advisory, and insurance, and tracks above the credit union median. Overall, asset quality remains pressured with an NPA ratio of 1.07%, and NCOs at ~1.0%. Due to the inherent nature of the credit union and exposure to consumer-oriented loans in the portfolio, NCOs and NPAs typically run higher than that of similarly rated banks. That said, the delinquency ratio also continued to trend higher to 1.40% at 3Q25. Management continues to resolve the commercial credit problems and strengthens overall portfolio performance. Mortgage delinquencies are ~75 bps and have performed better than national average. Management is seeing stabilization in the consumer and credit card portfolio while experiencing increases in delinquency in the mortgage and commercial portfolios. Commercial delinquency trends are well-above expectations is largely related to a handful of idiosyncratic relationships that carry large balances and contribute to the majority of the credit degradation. Management emphasized strong risk mitigation within these portfolio with favorable LTVs and expects no meaningful loss content. Credit exposures across the portfolio have low LTVs and strong DSCR. While both the NPAs and NCOs are above the credit union median, we note that the loan loss reserve level at 1.52% is well above the credit union median of 1.21%. Following the 2024 net loss (ROA (0.58%)) from outsized credit costs related to asset quality deterioration within consumer indirect portfolio, VCU's capital profile has since improved steadily, reflected in its net worth ratio of 8.7% at 3Q25 and KBRA expects VCU to gradually strengthen its capital levels supported by sustained internal capital generation driven by improving profitability and stable asset quality.

Rating Sensitivities

A return to Stable Outlook could occur from stabilized credit quality combined with sustained profitability trends and continued rebuild of regulatory capital metrics. Continued credit issues with further degradation resulting in higher credit costs constraining the earnings profile and impacting capital levels could pressure the ratings.

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Methodologies