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 North Liberty, Iowa-based GreenState Credit Union (“GreenState” or “GCU”) (“the credit union”). The Outlook for all long-term ratings is Stable.

GreenState’s ratings are supported by its well-executed credit union model that benefits from its extensive membership base and growing scale and an experienced and seasoned management team that includes both credit union and banking experience. However, GCU has experienced rapid asset growth of 28% CAGR for the last 5 years and has more than doubled in size since 2017, increasing reliance on non-core funding with core deposits accounting for only 55% of total funding as of 3Q22. The credit union has a fairly diversified revenue stream complemented by solid fee revenue with a 3-year average noninterest income to total revenue of almost 25%, bolstered through strong levels of mortgage banking and servicing income and supported through interchange fees and financial service income. Going forward, noninterest income is expected to decline to levels less than 20% of total revenue in 2023 and beyond, as the residential market stabilizes and GCU’s impact from the Durbin Amendment. GCU 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 1.40% during 3Q22 (~2.00% in 2019). The credit union also maintains a granular/diversified risk nature of the consumer-oriented balance sheet and solid credit loss history further bolsters GCU’s credit profile. Overall, asset quality has been consistent with manageable NPAs and NCOs while also reflecting stability within classified and criticized loans migration, forming traditionally into more predictable NPAs and NCOs ratios given the granularity within the loan portfolio. NCOs traditionally hover near 40 bps to 60 bps, slightly above many commercially oriented banks. Furthermore, NCOs are at 60 bps and have averaged nearly 40 bps since 2001. GCU has a stable regulatory capital profile, albeit below peer averages, reflected in its net worth ratio ranging between 8% – 10% from 2017 to 3Q22 and a current RBC ratio of 10.3%. Going forward, the expectation is that GCU will maintain higher capital levels corresponding with their consistent earnings base and anticipated growth trajectory.

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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Disclosures

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.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here. Information on the meaning of each rating category can be located here.

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.

About KBRA

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