Fitch Upgrades First Republic Bank's Ratings at 'A-/F1' Following Peer Review; Outlook Stable

Wed Feb 5, 2014 4:44pm EST

Related Topics

(The following statement was released by the rating agency) NEW YORK, February 05 (Fitch) Fitch Ratings has upgraded First Republic Bank's (FRC's) ratings to 'A-'/'F1' from 'BBB+'/'F2'. The Rating Outlook was revised to Stable from Positive. The rating upgrade reflects the company's strong franchise, superior asset quality through the cycle, and stable operating performance. These strengths are balanced against FRC's geographically concentrated businesses and liquidity risk profile. FRC's Stable Outlook reflects Fitch's expectation that asset quality remains strong, liquidity does not materially weaken and earnings will face headwinds in the near term. KEY RATING DRIVERS - IDRS, VRs, AND SENIOR DEBT FRC is heavily focused on relationship banking. FRC uses residential mortgage lending, largely to the luxury and high-end housing segment, as a feeder to its private banking and wealth management activities. This business model has produced stable operating results and solid asset quality metrics through credit cycles. FRC's primary ratings strength is asset quality. FRC has the lowest NPA levels amongst the entire mid-tier bank group, which is not unusual for the company. Fitch views FRC's strong asset quality as a product of solid core management team, good underwriting practices, high-net worth clientele and strong local markets. Although, Fitch expects FRC's credit quality to remain relatively unchanged in the near term, we remain cautious on the rapidly rising home values in FRC's home location in San Francisco. FRC's loan to deposit ratio remains elevated and ranks in the highest quartile amongst the mid-tier banks. While Fitch views FRC's loan to deposit ratio as a credit negative, the agency's view is balanced by FRC's relational banking strategy which tends to generate sticky deposits. Capital levels are relatively flat year over year. Fitch expects FRC's capital levels to remain relatively unchanged as the bank is still technically considered a de novo bank and is subject to elevated capital requirements. RATING SENSITIVITIES - IDRS, VRs, AND SENIOR DEBT Ratings upgrade is unlikely given FRC's geographic concentration to California and its liquidity profile. Conversely, negative rating pressure could build if liquidity risk increases significantly or if its key markets such as San Francisco experience significant economic weakness. KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES FRC'S preferred stock notched below its VR to reflect loss severity and an assessment of increment non-performance risk. RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES FRC's Preferred stock rating is sensitive to changes in FRC's VR. Rating sensitivities for the VR are listed above. KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR FRC's Support Rating and Support Rating Floor of '5' and 'NF' reflect Fitch's view that the company is unlikely to procure extraordinary support should such support be needed. KEY RATING SENSITIVITIES- SUPPORT RATING AND SUPPORT RATING FLOOR FRC's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need. Fitch Ratings reviewed FRC's ratings as part of the mid-tier regional bank review. The 19 banks in today's review include: Associated Banc-Corp (ASBC), BOK Financial Corp (BOKF), Cathay General Bancorp (CATY), City National Bancorp (CYN),Cullen/Frost Bankers, Inc (CFR), East West Bancorp, Inc. (EWBC), First Horizon National Corp (FHN), First National of Nebraska, Inc. (FNNI), First Niagara Financial Group, Inc. (FNFG), First Republic Bank (FRC), First Merit (FMER), Fulton Financial Corp (FULT), Hancock Holding Company (HBHC), People's United Financial, Inc. (PBCT), Synovus Financial Corp (SNV), TCF Financial Corp (TCB), UMB Financial Corporation (UMB), Webster Financial Corp (WBS), Wintrust (WTFC). Fitch has upgraded and revised the Outlooks to Stable for the following ratings: First Republic Bank --Long-term IDR to 'A-' from 'BBB+'; Outlook Stable --Short-term IDR to 'F1' from 'F2'; --Viability Rating to 'a-' from 'bbb+'; --Long-term deposit to 'A' from 'A-'; --Short-Term deposits to 'F1' from 'F2'; --Preferred stock to 'BB' from 'BB-'; Fitch has affirmed the following ratings: First Republic Bank --Support Floor 'NF'; --Support '5'. Contact: Primary Analyst Jaymin Berg, CPA Director +1-212-908-0368 Fitch Ratings, Inc. One State Street Plaza New York, NY 10004 Secondary Analyst Ryan Doyle Director +1-212-908-9162 Committee Chairperson Christopher Wolfe Managing Director +1-212-908-0771 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: --‘2014 Outlook: U.S. Banks’ (Nov. 21, 2013); --‘U.S. Banks: Liquidity and Deposit Funding (Aug. 08, 2013); --‘U.S. Banks: Interest Rate Risks (What Happens When Rates Rise)’ (June 18, 2013); --‘U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In?’ (July 11, 2013); --‘Global Trading and Universal Banks - Periodic Review’ (Dec. 12, 2013); --‘Fitch Fundamentals Index - U.S.; Index Trend Analysis 4Q13’ (Jan. 15, 2013); --‘Risk Radar Global - Q313’ (Sept. 05, 2013); --‘Fitch Global Corporate Rating Activity – Third Quarter 2013’ (Dec. 5, 2013); --‘U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain)’ (Jan. 27, 2014); --‘Global Financial Institutions Rating Criteria’ (Jan. 31, 2014); --‘Assessing and Rating Bank Subordinated and Hybrid Securities’ (Jan. 31, 2014). Applicable Criteria and Related Research: 2014 Outlook: U.S. Banks here U.S. Banks: Liquidity and Deposit Funding here U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) here U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? here Global Trading and Universal Banks - Periodic Review here Fitch Fundamentals Index here Risk Radar Global - Q313 here Fitch Global Corporate Rating Activity —Third-Quarter 2013 here U.S. Banking Quarterly Comment: 4Q13 (Earnings Continue to Tick Up, but Challenges Remain) here Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities Criteria here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

FILED UNDER: