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

NEW YORK–(BUSINESS WIRE)–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 sales 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 25^th 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.

Contacts

Analytical:
M Scott Durant, Director
(301)
969-3248
sdurant@kbra.com

Joe Scott, Managing Director
(646) 731-2438
jscott@kbra.com

Shannon Servaes, CFA, CPA, Senior Director
(301) 969-3247
sservaes@kbra.com