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First Republic Bank -- Moody's affirms First Republic Bank's assessment as a Strong originator of prime jumbo residential mortgage loans

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Announcement: Moody's affirms First Republic Bank's assessment as a Strong originator of prime jumbo residential mortgage loans

Global Credit Research - 04 Dec 2020

New York, December 04, 2020 -- Moody's Investors Service (Moody's) affirmed First Republic Bank's (FRB) assessment as a Strong originator of prime jumbo residential mortgage loans.

Established in 1985, First Republic Bank (FRB) is a commercial bank that operates in the private banking and private wealth management niche primarily in coastal urban centers. FRB has been consistently profitable since 1985 and has approximately $116.3 billion in total bank assets as of 31 December 2019.

Due to its wealth management customer base, FRB is able to have significant insight into the financial profile of its customers and, as a result, underwrite higher quality loans.

ASSESSMENT RATIONALE

We assess FRB's underwriting and valuation practices as Strong. FRB has an experienced and tenured underwriting team in addition to a strong loan approval process. FRB has a robust appraisal approval process in addition to an in-house appraisal team which provides quality control. The majority of subject properties are within a known geographic area where FRB has strong local knowledge.

Our assessment of FRB's early loan performance is affirmed at Strong due to low delinquencies and minimal early payment defaults.

FRB's credit risk management is affirmed at Strong. The bank continues to retain the servicing on all loans sold which allows them to track performance through the life of the loan. FRB's quality control results are also reviewed for adverse risk trends. During COVID-19, similar to other originators we assess, FRB tightened some of their credit criteria by reducing loan to value ratios and temporarily halting various programs.

We affirm FRB's sales and marketing as Strong. Loan officers take a high touch, hands-on approach with borrowers and there is a very strong link between loan officer compensation and performance. Also, borrowers are consistently sourced from existing relationships.

FRB's closing practices continue to be assessed at Strong due to the automation of data upload from FRB's loan origination to its servicing system and the bank's dedicated trailing document procurement team.

Our assessment for FRB's financial strength is affirmed at Above Average. FRB has been consistently profitable with minimal losses in its single family residential portfolio. The bank operates in a sustainable niche business model focused on affluent households and businesses in coastal urban markets. However, FRB has a weaker-than-peer liquidity profile due to low level of liquid resources.

FRB's management and staffing continues to be assessed as Strong. FRB has a highly experienced and well tenured senior management team as well as an extensive training program.

We affirm FRB's oversight as Above Average. Although FRB has solid quality control (QC) processes and governance, the company's number of quality control samples continue to be lower than peers despite increasing from 7.5% to 15% since the last review period.

Our assessment for FRB's legal and compliance functions is affirmed at Strong. FRB has a well-rounded and dedicated compliance team and large in-house legal team. There was no material litigation during the review period.

We continue to assess FRB's technology as Strong. FRB has a highly customized loan origination system, strong information and cybersecurity policies, and a thorough disaster recovery plan. FRB has not experienced any business interruptions due to workplace disruptions due to COVID-19.

The framework used in this analysis was "Originator Assessments for Residential Mortgage Loans" published in December 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1122178. Alternatively, please see the Framework list at https://www.moodys.com/research/Listof-NCRA-Frameworks--PBC_1178235 for a copy of this framework.

Please see www.moodys.com for any updates on changes to the lead analyst and to the Moody's legal entity that has issued the assessment.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Cinthia Chung-Yip Associate Lead Analyst Structured Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 William Fricke VP - Senior Credit Officer Structured Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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