Moody's Lowers Outlook on First Republic Bank (FRC) to Negative
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Moody's Investors Service affirmed First Republic Bank's (NYSE: FRC) long- and short-term deposit ratings of A3 and Prime-2, respectively. At the same time, the rating agency affirmed the bank's standalone bank financial strength rating (BFSR)/baseline credit assessment (BCA) at C/a3. The rating outlook was changed to negative from stable.
Affirmations:
..Issuer: First Republic Bank
.... Bank Financial Strength Rating, Affirmed C (a3/a3)
.... Issuer Rating, Affirmed A3
.... OSO Rating, Affirmed A3/P-2
.... Deposit Rating, Affirmed A3/P-2
....Non-cumulative Preferred Stock, Affirmed Baa3 (hyb)
RATINGS RATIONALE
Moody's said that the rating affirmation was based on First Republic's consistent strong financial performance, particularly its very good asset quality record, as well as its sustainable niche business model focused on banking affluent households and businesses in select coastal urban markets.
First Republic's asset quality continues to be above-average relative to same-rated peers with annual net charge-offs of 0.05% and nonperforming assets (nonaccruals, 90+ days past due, other real estate, and accruing troubled debt restructured loans) equal to 2% of tangible common equity and reserves as of December 31, 2013. Moody's believes that First Republic's strong asset quality metrics result from its conservative underwriting. For example, the loan-to values at origination for its single family residential, multifamily, and commercial real estate loans were low at 59%, 57%, and, 54%, respectively, as of September 30, 2013, which is consistent with or better than earlier periods. Moody's noted that the maintenance of First Republic's strong asset quality performance is also supported by its organic growth, which has not involved new products or geographies in recent years. Moody's added that First Republic is also well-positioned with regards to its profitability and capital metrics, which are in the top half of its peer group.
The outlook change to negative from stable was based on potential credit challenges stemming from First Republic Bank's above-average loan growth, which was a high 22% in 2013. More specifically, there are inherent tensions between maintaining prudent underwriting standards and sustaining significant loan growth - particularly in light of growing competition among banks. Also, high growth rates can test risk oversight frameworks that have, to date, helped sustain the bank's above-average asset quality performance. Therefore, First Republic's future asset quality performance could deteriorate, weakening one of the bank's key credit strengths.
The principal methodology used in this rating was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Affirmations:
..Issuer: First Republic Bank
.... Bank Financial Strength Rating, Affirmed C (a3/a3)
.... Issuer Rating, Affirmed A3
.... OSO Rating, Affirmed A3/P-2
.... Deposit Rating, Affirmed A3/P-2
....Non-cumulative Preferred Stock, Affirmed Baa3 (hyb)
RATINGS RATIONALE
Moody's said that the rating affirmation was based on First Republic's consistent strong financial performance, particularly its very good asset quality record, as well as its sustainable niche business model focused on banking affluent households and businesses in select coastal urban markets.
First Republic's asset quality continues to be above-average relative to same-rated peers with annual net charge-offs of 0.05% and nonperforming assets (nonaccruals, 90+ days past due, other real estate, and accruing troubled debt restructured loans) equal to 2% of tangible common equity and reserves as of December 31, 2013. Moody's believes that First Republic's strong asset quality metrics result from its conservative underwriting. For example, the loan-to values at origination for its single family residential, multifamily, and commercial real estate loans were low at 59%, 57%, and, 54%, respectively, as of September 30, 2013, which is consistent with or better than earlier periods. Moody's noted that the maintenance of First Republic's strong asset quality performance is also supported by its organic growth, which has not involved new products or geographies in recent years. Moody's added that First Republic is also well-positioned with regards to its profitability and capital metrics, which are in the top half of its peer group.
The outlook change to negative from stable was based on potential credit challenges stemming from First Republic Bank's above-average loan growth, which was a high 22% in 2013. More specifically, there are inherent tensions between maintaining prudent underwriting standards and sustaining significant loan growth - particularly in light of growing competition among banks. Also, high growth rates can test risk oversight frameworks that have, to date, helped sustain the bank's above-average asset quality performance. Therefore, First Republic's future asset quality performance could deteriorate, weakening one of the bank's key credit strengths.
The principal methodology used in this rating was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
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