On Tuesday, Moody's Investors Service, the ratings arm of
), downgraded its outlook on
First Republic Bank
) to 'Negative' from 'Stable.' The downward revision was
propelled by the uncertainty over First Republic Bank's
capability in meeting prudent underwriting standards while
maintaining significant loan growth.
However, the rating agency affirmed the bank's standalone bank
financial strength rating (BFSR)/baseline credit assessment (BCA)
at C/a3 along with reaffirmation of the long and short-term
deposit ratings at A3 and Prime-2, respectively.
Rationale Behind Downgrade
The downgrade by the rating agency follows First Republic Bank's
above-average loan growth which came in at 22% in 2013. Moody's
concerns stem due to ongoing competition among banks, which might
restrict First Republic Bank to maintaining such high loan
Moreover, the rating agency believes such high loan growth rates
might risk the bank's above-average asset quality performance.
Therefore, the rating agency has come up with the downgrade.
Notably, First Republic Bank's asset quality remains above
average when compared with peers as of Dec 31, 2013, reflecting
the bank's prudent underwriting standards. Specifically, net
charge-offs came in at 0.05% and nonperforming assets equaled 2%
of tangible common equity and reserves as of Dec 31, 2013.
Moody's believes First Republic Bank's organic growth supports
its strong asset quality performance and the bank is well placed
with a solid capital position and consistent profitability.
Therefore, the agency has reaffirmed the abovementioned ratings.
The rating revisions are valuable for companies as this plays a
major role in preserving investor confidence in the stock and
help boost its creditworthiness in the market.
Though a sound capital position, improving credit quality and
strategic business models will bode well in the long run for
First Republic Bank, we believe the unsettled economy, still low
interest rate environment and stringent regulatory issues remain
matters of concern.
Currently, First Republic Bank carries a Zacks Rank #3 (Hold).
Some better-ranked banks include
Central Valley Community Bancorp
) with a Zacks Rank #1 (Strong Buy).
CENTRAL VLY COM (CVCY): Free Stock Analysis
FIRST REP BK SF (FRC): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
PREFERRED BANK (PFBC): Free Stock Analysis
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