KBRA Affirms Ratings for First Mutual Holding Co.
12 Jan 2024 | New York
KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Lakewood, Ohio-based First Mutual Holding Co. ("FMHC" or “the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its primary subsidiary, First Federal Savings and Loan Association of Lakewood ("FFL" or "the bank"). The Outlook for all long-term ratings is Stable.
The ratings are supported by FMHC’s experienced management team that executes a well-defined strategy within the parameters of a moderate risk appetite, as well as the company’s continued cost saving synergies among affiliates. In addition, the bank’s asset quality reflects solid performance, including a below peer NPA ratio and exhibiting de minimis net credit losses on a multi-year basis.
Reflected by trends in recent years, the bank’s overall earnings performance is closely tied to the mortgage banking environment with YTD3Q23 earnings more closely aligned with pre-pandemic levels, as the fiscal policy normalized. The modest NIM compression in recent quarters is primarily tied to the interest rate risk imbalance that emanated from the lower-risk and lower-yielding loan portfolio (65% are fixed rate) and the sharply increased funding cost.
FFL’s capital ratios declined from historically stable levels and now are slightly below rated peers, driven by weakened earnings and meaningful loan growth (YTD3Q23 growth rate of 10%, although the majority of which are residential mortgages). However, the negative trend is likely to be reversed as a result of limited RWA growth.
The ratings are also constrained by the limited on- and off-balance sheet flexibility, as evidenced by the below-peer level of investment securities portfolio (8% of total assets) as well as the above-peer level of asset encumbrance (68% of total assets are pledged).
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