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KBRA Affirms Ratings for TIAA FSB Holdings, Inc. and Assigns Additional Ratings for TIAA, FSB
[June 12, 2019]

KBRA Affirms Ratings for TIAA FSB Holdings, Inc. and Assigns Additional Ratings for TIAA, FSB

Kroll Bond Rating Agency (KBRA) affirms the senior unsecured debt rating of A+, subordinated debt rating of A, and short-term debt rating of K1 for Jacksonville, FL based TIAA FSB Holdings, Inc. Additionally, KBRA affirms the deposit rating of AA-, subordinated debt rating of A+, and short-term deposit rating of K1+ for the lead bank subsidiary TIAA, FSB ("the Bank"). KBRA also assigns a senior unsecured debt rating of AA- and short-term debt rating of K1+ for TIAA, FSB. The Outlook for all long-term ratings is Stable.

TIAA FSB Holdings, Inc. and its operating subsidiary, TIAA, FSB, were formed out of the 2017 acquisition of EverBank Financial Corp by Teachers Insurance and Annuity Association of America ("TIAA") and the merger of its subsidiary bank into EverBank. The resulting institution is a wholly owned subsidiary of TIAA and, as such, the Bank's credit profile benefits from the explicit ownership support from the parent insurance company. With total assets of ~$38 billion, the successor Bank largely follows the same business lines that defined the legacy EverBank and include differentiated specialty lending businesses, notably mortgage warehouse and equipment and lender finance, in addition to national residential mortgage origination (both retail and correspondent) and commercial lending platforms. The loan portfolio is split between consumer (~60%) and commercial lending, though is slightly weighted towards residential mortgage exposure between the consumer mortgage origination, GNMA pool buyouts, home equity lending, and mortgage warehouse financing. TIAA, FSB operates a branch-lite model with nationwide consumer and commercial deposit platforms. Going forward, KBRA anticipates that the Bank will continue to leverage both the TIAA participant base as well as TIAA institutional clients to provide meaningful growth in the deposit base as it strives to serve its dual mandate to provide comprehensive banking services and an enhanced banking experience to TIAA participants and institutions as well as provide a meaningful return on operations for the TIAA parent organization.

The Bank completed two recent transactions to better align with its mandate identified above. In 4Q18, the Bank purchased a healthcare equipment leasing portfolio from GE Healthcare's financing subsidiary totaling ~$1.5 billion UPB. Additionally, the Bank entered into a sourcing relationship with GE Healthcare for future lending/leasing. The Bank views this transaction as an opportunity to make meaningful inroads into the healthcare space, particularly in not-for-profit and teaching hospitals, aligning well with the broader TIAA mission, while bringing additional scale to its preexisting leasing platform. In 1Q19, TIAA, FSB announced its intent to divest from its retail branch mortgage delivery channel encompassing all of its retail sals offices and several operations support centers. Concurrently, an agreement was reached with US Bank to acquire a portion of the divested retail centers and operations centers. Notably, no lending assets (loans or MSRs) are included in the transaction. The realignment is expected to provide net positive benefit as cost savings are expected to outstrip lost production revenue, allowing the Bank to reinvest in continual improvements to its digital retail direct channel, targeted primarily to TIAA participants. Among the most notable synergies coming out of the Bank has been the ability to provide trust and custodial services within the TIAA ecosystem. Per the A.M. Publishing 2018 Trust Performance Report, TIAA, FSB's trust division is the 25th largest amongst U.S. domestic trust companies with ~$198 billion under administration/custody as of year-end 2018. Additionally, the Bank's trust division has been identified as one of the fastest growing trust services providers in the U.S. It should be noted that TIAA, FSB is the only line of business within the TIAA ecosystem with the ability to provide trust services. KBRA views this particular business line as additive to the Bank's credit profile as it provides a potentially significant source of stable fee income.

The ratings are supported by the substantial source of strength garnered through the ownership by TIAA, as well as the expanded access to products, services, and the customer base, along with the potential, and in some cases, already developing, synergistic opportunities for cross-over with TIAA clients, notably its ability to provide trust services across TIAA's ecosystem. Further, the legacy EverBank management team has remained largely intact, a team which had successfully guided the predecessor institution to 20+ years of consecutive profitability and strong performance post-financial crisis, in part, by relying upon its branch-lite delivery model and scalable infrastructure. The ratings are constrained by the ongoing integration risks that exist with the merger of two large, complex institutions, risks that are expected to remain in place through the duration of the integration period. Additional constraints include the Bank's high balance sheet correlation to mortgage and, more generally, real estate-related assets as well as a heavy reliance upon noncore funding, though the latter is partially mitigated by subset of shorter duration mortgage-related assets. The Stable Outlook for the long-term ratings reflects the Bank's ongoing integration and synergizing efforts with TIAA in line with projected timelines and outcomes as communicated by the Bank's management. Through the remainder of the integration period (to be completed in 2020), KBRA does not foresee any significant migration, positive or negative, in the Bank's credit profile, absent an unforeseen critical disruption in the integration process.

The ratings are based on KBRA's Global Bank and Bank Holding Company Rating Methodology published on February 19, 2016.


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About KBRA and KBRA Europe

KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.

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