DBRS Morningstar Confirms Ratings on 1st Financial Credit Card Master Note Trust III, Series 2013-II

DBRS, Inc. (DBRS Morningstar) confirmed the ratings on four classes of notes issued by 1st Financial Credit Card Master Note Trust III, Series 2013-II (the Trust) as follows:

-- Series 2013-II Notes, Class A at AAA (sf)
-- Series 2013-II Notes, Class B at AA (high) (sf)
-- Series 2013-II Notes, Class C at A (high) (sf)
-- Series 2013-II Notes, Class D at BBB (high) (sf)

The rating confirmations are based on a review by DBRS Morningstar of the following considerations:

-- An Amendment regarding the extension of the maturity date and embedding index language.
-- The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary “Baseline Macroeconomic Scenarios for Rated Sovereigns: September 2022 Update,” published on September 19, 2022. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.
-- The performance and quality of the credit card receivables pool.
-- DBRS Morningstar has performed an operational risk review to assess the capability of 1st Financial Bank USA’s (1st Financial) origination and servicing functions in Dakota Dunes, South Dakota. DBRS Morningstar deems 1st Financial to be an acceptable originator and servicer.
-- DBRS Morningstar revised its base-case charge-off assumptions for each class DBRS Morningstar rates. Multiple factors led to this increased rate: a gradual increase in charge-offs in the Trust portfolio and an overall increase in the expected charge-off rate assumption as a result of the expected impact of the coronavirus crisis.
-- The transaction’s form and sufficiency of available credit enhancement. Overcollateralization, subordination, spread accounts, and excess spread create credit enhancement levels and liquidity that are commensurate with the ratings.
-- Transaction cash flows are sufficient to repay investors under all respective stress scenarios in accordance with the terms of each respective series’ transaction documents.
-- The legal structure and expected legal opinions that are consistent with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Notes:
The principal methodology is Rating U.S. Credit Card Asset-Backed Securities (August 8, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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