KBRA Assigns Ratings to Idaho Central Credit Union

KBRA assigns deposit and senior unsecured debt ratings of BBB, a subordinated debt rating of BBB-, and short-term deposit and debt ratings of K3 to 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 tenured, strong executive management and a robust membership base supported by the dynamic deposit franchise throughout growing, durable and economically divergent operational MSAs. Additionally, ICCU’s dispersed/granular risk profile is highlighted by a consumer oriented balance sheet and is reflective of a favorable credit loss history. ICCU has ample access to liquidity and has not experienced material deposit outflows in recent periods, dissimilar to many regional credit union and banking counterparts. The credit union has nearly $2.2 billion in available liquidity as of 2Q23, representing nearly 20% of total assets and over 200% of uninsured deposits. The credit union has solid levels of noninterest income, averaging 45% of total revenue since 2018, historically bolstered by mortgage banking and deposit servicing income. Noninterest income is expected to decline to levels near 25% of total revenue as the residential market activity normalizes from peak 2020/2021 volumes. The consumer banking division partially supports the funding profile, representing 85% of durable member deposits funded by member shares. However, ICCU sustains a higher than peer reliance on noncore funding sources through FHLB and brokered deposits. As a result, the credit union’s cost of total funding was nearly 2.15% during 2Q23 (~1.30% in 2019). ICCU’s asset quality has been consistent with manageable levels of NPAs and NCOs while also reflecting stability in most consumer loan categories. NCOs traditionally hover near 10 bps to 40 bps, slightly above many commercially oriented banks. Furthermore, NCOs peaked at 44 bps in 2019 and have averaged nearly 27 bps since 2018. The capital profile has broadly lagged most peers, reflected in its net worth ratio hovering near 8% since 2018 and a current RBC ratio of 10.2%. Going forward, the expectation is that ICCU will build capital levels corresponding with their consistent earnings base and the effective management of RWA growth.

Rating Sensitivities

A ratings upgrade is unlikely over the medium term. Meanwhile, downward pressure on capital metrics (sustained net worth ratio of less than 8.0%) could have an impact on the ratings. An unexpected material deterioration in credit costs causing elevated charge offs, weakened profitability metrics of any variety (provisioning, funding costs, etc.), or material deposit outflows could also negatively impact the ratings.

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Methodologies