First Republic Bank -- Moody's affirms First Republic's ratings (Baa1 stable), outlook remains stable

Rating Action: Moody's affirms First Republic's ratings (Baa1 stable), outlook remains stableGlobal Credit Research - 17 Mar 2021New York, March 17, 2021 -- Moody's Investors Service ("Moody's") has affirmed First Republic Bank's ("First Republic") Baa1 issuer rating and A1/Prime-1 long- and short-term deposit ratings together with its a3 baseline credit assessment (BCA). The rating outlook for First Republic Bank remains stable.The following ratings and assessments have been affirmed:Issuer: First Republic Bank.... Baseline Credit Assessment, affirmed a3.... Adjusted Baseline Credit Assessment, affirmed a3.... Long-term deposit rating, affirmed A1, stable.... Short-term deposit rating, affirmed P-1.... Long-term Counterparty Risk Assessment, affirmed A2(cr).... Short-term Counterparty Risk Assessment, affirmed P-1(cr).... Long-term Counterparty Risk Rating, affirmed A3.... Short-term Counterparty Risk Rating, affirmed P-2.... Long-term issuer rating, affirmed Baa1, stable.... Senior unsecured debt rating, affirmed Baa1, stable.... Subordinate debt rating, affirmed Baa1.... Preferred stock non-cumulative, affirmed Baa3(hyb) ..Outlook Actions: ....Outlook, Remains Stable RATINGS RATIONALE The ratings affirmation reflects First Republic Bank's consistent, solid financial performance, particularly its strong asset quality record, stable capitalization and profitability and ample core deposit funding. First Republic's stable financial performance is supported by the sustainability of its niche business model focused on banking affluent households in addition to commercial businesses in select coastal urban markets. First Republic's banking franchise is centered on its service culture, niche lending products, and selective markets banking high net worth clients.First Republic has a strong historical asset quality record with minimal net charge-offs and very low nonperforming assets. Moody's believes this is a function of the bank's consistent, conservative underwriting and focused lending strategy. These factors help mitigate the risks associated with First Republic's sizable commercial real estate (CRE) exposure and high pace of loan growth, which remain its key credit challenges. First Republic's CRE portfolio was 2.4 times its tangible common equity (TCE) base as of year-end 2020, among the highest of Moody's rated US banks. The majority of its CRE exposure is multifamily, 57% of CRE at year-end 2020, an asset class the bank has a good track record and demonstrated good underwriting. The same expertise and conservative underwriting characteristics apply to residential mortgages, which accounted for the bulk of First Republic's above-peers loan growth. Its total loan portfolio grew by 24% in 2020 and 20% in 2019. For residential mortgage loans originated in 2019 and 2020, the median loan-to-value was low at 59% and the median FICO score was high at 777.Despite rapid loan growth, First Republic's capitalization has been supported by periodic common equity raises. Even so, First Republic's Moody's-adjusted TCE as a percentage of risk-weighted assets (Moody's TCE ratio) has declined in recent years. At 31 December 2020, the bank's Moody's TCE ratio was 9.73% compared to 9.97% at year-end 2019 and 10.52% at year-end 2018. First Republic's capitalization is supported by its capital generation, limited shareholder payouts, and importantly, its issuance of common equity. First Republic added roughly $515 million in 2020 and $332 million in March 2021 in common equity, supporting the bank's TCE ratios despite its outsized growth. These actions support our favorable view of the bank's capital management and protects creditors against unexpected losses.First Republic has also funded its outsized loan growth through its ability to organically grow its core deposit base, sustaining its funding profile. In 2020, First Republic's deposit growth of 28% exceeded its loan growth by 1.1 times. As a result, the bank does not rely on a material amount of confidence-sensitive wholesale funding, resulting in limited refinancing risk. Moody's expects the bank will continue to organically grow its core deposit base and preserve its strong funding profile.First Republic's business model has resulted in stable profitability through changing interest rate environments. Therefore, Moody's expects First Republic's profitability to be resilient to continued low interest rates. Additionally, First Republic's profitability has been supported by its very low credit costs historically, which Moody's expects to continue.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSUpward rating pressure could emerge if First Republic improved its capital position and profitability while moderating its loan growth and maintaining its core deposit funding.Signals that suggest First Republic has loosened its underwriting standards or expansion into new lending products or geographies could cause a negative rating action. Weakening capitalization could be another source of downward rating pressure.The principal methodology used in these ratings was Banks Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. 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Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Megan Fox AVP-Analyst Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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