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 for Anchorage, Alaska-based Alaska USA Federal Credit Union (“Alaska USA” or “the credit union”). The Outlook for all long-term ratings is Stable.
Alaska USA’s ratings are supported by a seasoned management team with a strong track record serving the military community and a diverse, regional market with an expansive membership base and growing scale. The credit union also benefits from the tax-advantaged revenue streams, and the granular/lower risk nature of the consumer-oriented balance sheet with approximately three-fourths of total loans in prime new and used auto and residential mortgages. The credit union has a diversified revenue stream complimented by solid fee revenue with a 5-year average noninterest income to total revenue of 40% primarily through account and interchange fees. Alaska USA has also deepened its non-spread revenue with the addition of two insurance brokerage firms over the last two years partially offsetting the decline in mortgage origination income. Alaska USA’s strong consumer banking profile is a key driver in its sound funding base which is 88% core funded by member shares. The credit union’s cost of interest-bearing deposits has also historically fallen below rated peers serving to partially offset lower asset yields from lower risk lending categories. NCOs and NPAs typically run higher than similarly rated banks due to the inherent nature of the credit union model with Alaska USA’s 5-year average NCO (0.31%) and NPAs (0.74%), which are adversely impacted by the unsecured loans in the portfolio. Alaska USA has navigated the COVID-19 pandemic well, relative to many credit union peers with peak NCOs of 0.35% in 2020. KBRA views the credit union’s LLR of 0.35% as adequate at 0.65x NPAs at 4Q22 considering the loan portfolio collateral, granularity and short-term nature. KBRA notes Alaska USA’s significant growth since the onset of the pandemic which has been primarily organic focused in 1-4 family and auto loans. The credit union has boosted its loan-to-deposit ratio to 100%, up from 86% in 4Q19. Despite the increased balance sheet leverage, Alaska USA still maintains a net worth ratio (NWR) of 9.3% which is a 230-bps buffer over the minimum for well-capitalized. The credit union has elected the Complex Credit Union Leverage Ratio (CCULR), in lieu of the Total Risk-Based Capital ratio, which is 9.3% at 4Q22 and only slightly above the 9.0% minimum. Historically, the credit union has managed its NWR below industry aggregate between 9.0% - 9.6% from 2012 to 2019.
The ratings are based on KBRA’s Bank & Bank Holding Company Global Rating Methodology published on November 8, 2021 and KBRA’s ESG Global Rating Methodology published on June 16, 2021.
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Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
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Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.
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