KBRA Says Bank Buy Won’t Hurt Global CU's Ratings

A bond rating agency has given Global Federal Credit Union of Anchorage, Alaska its version of a blessing in its plan to spend $231.2 million to buy a $1.5 billion Seattle-area bank later this year.

A report released Tuesday by the Kroll Bond Rating Agency (KBRA) said the all-cash purchase of First Financial Northwest Bank at a price that is 1.37 times its tangible book value would not affect KBRA’s debt ratings of Global ($11.8 billion in assets, 753,791 members). If regulators approve the deal, it is expected to close in the fourth quarter.

“Overall, we view integration risks as comparatively minimal for this in-market deal, while also recognizing the strong cultural alignment between the two institutions,” the report said.

The purchase announced Jan. 11 would be Global’s first bank acquisition, and the largest credit union purchase of a bank.

“We consider the planned acquisition to be strategically favorable building market density in the economic vibrant western region of Washington where the company first began operations in the state 40 years ago. We believe the expansion will further strengthen the credit union’s member relationships and its ability to provide business and commercial services to its membership base along with the addition of 15 physical branches,” the report said.

“Additionally, the credit union anticipates typical cost save opportunities related to the acquisition,” it said.

The planned bank purchase came after Global cut 460 jobs from April through September 2023, including 227 jobs in the third quarter of 2023.

A Dec. 4 KBRA report said Global’s operating costs had escalated after August 2022, when Global, then known as Alaska USA Federal Credit Union, acquired Global Credit Union of Spokane, Wash., which had $624.6 million in assets and 46,323 members. KBRA said Global management had cost-cutting plans that it expects will cut salary expense by about $15 million a year.

Under the purchase and assumption agreement, Global would buy substantially all assets and assume substantially all the liabilities of the bank, including about $69 million interest rate mark to market.

NCUA data showed Global lost $210,987 from January through September 2023, which works out to zero ROA, compared with 0.71% a year earlier. A November 2023 investor presentation showed the bank’s ROA ranged from 0.57% in 2023’s first quarter to 1.06% in the third quarter.

“The potential deal should be accretive to Global’s earnings, potentially adding (about) $20 million to $30 million to net income annually,” KBRA said.

The bank’s loan portfolio is heavily commercial. The investor presentation showed that 58% of its $1.17 billion in loans as of Sept. 30 were backed by commercial real estate. The remaining 42% of loans were backed by one- to four-unit real estate, but how much of that is rental property is unclear.

KBRA said the bank’s loan quality is pristine, and when combined, the credit union’s portfolio would remain consumer focused.

The proposed acquisition would also add $1.2 billion in deposits with 40% of them in time deposits. KBRA said the purchase might raise funding costs because the bank’s average cost of deposits was an annualized 2.98% of average assets in the third quarter, compared with Global’s 1.10%.

“Nonetheless, we expect Global will continue to maintain a strong, member focused, granular core deposit base, which given its wide geographic diversity (dispersed across five states) should be able to replace FFNW’s higher cost deposits over time,” KBRA said.

KBRA said the regulatory hurdles might be lower because more than 95% of the bank’s customers are currently eligible to join Global because its field of membership includes residents of the state of Washington.