Fitch Affirms Bermuda Commercial Bank at 'BBB-; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the Long- and Short-term Issuer Default Ratings (IDRs) of Bermuda Commercial Bank (BCB) at 'BBB-/F3'. The Ratings Outlook is Stable. A complete list of ratings follows at the end of this release.

The affirmation of BCB's IDRs, VR and Stable Outlook reflects the company's liquid balance sheet and its strong capital position. The company's unusually strong liquidity profile and capital levels have a high influence on BCB's investment grade rating.

KEY RATING DRIVERS

IDRS AND VR

BCB's IDRs and VR reflect the company's very liquid balance sheet relative to its bank peers in Bermuda and the community bank peer group in the U.S. With average cash on hand averaging 44% of total assets over the last five years, Fitch views BCB's balance sheet as sufficient to weather through a liquidity crisis, although such an event is considered unlikely.

BCB's capital levels, on a tangible and risk adjusted basis, continue to be strong. Fitch Core Capital relative to risk-weighted assets was 27.43% at Sept. 30, 2014, and much higher than most banks in Fitch's rated universe. In Fitch's view, the company should maintain high levels of capital due to BCB's limited business diversity, large investment portfolio and customer concentrations in its deposits profile.

Offsetting these positive factors, Fitch views the company's investment securities book as high risk and concentrated. The company securities book accounted for 45% of total assets. Although Fitch believes that the company has taken steps to improve its risk management related to the investment portfolio, enhancements should continue in order to support the current ratings and Outlook. Positively, the company has made efforts to reduce its level of concentration risk in the securities portfolio. The largest 20 investment holdings account for 50% as of period Dec. 31, 2014. Further, BCB has continued to sell certain securities as it repositions the portfolio for better credit quality, liquidity and risk adjusted yields. Due to new global liquidity requirements, it is anticipated that the bank will continue reviewing its securities holdings.

Management has been proactive in improving its non-interest revenue stream demonstrated by the company's acquisitions of trust and corporate administration service companies over the last two years. This strategy has resulted in a 12% revenue increase year-over-year. Nonetheless, Fitch believes that despite the strong momentum, BCB will face challenges to significantly grow this business given its small market share relative to its competitors on the island.

SUPPORT RATING AND SUPPORT RATING FLOOR

BCB's Support Rating of '5' and Support Rating Floor of 'NF' reflect Fitch's view that BCB is not systemically important in the local Bermuda market and therefore, Fitch believes the probability of support is unlikely. IDRs and VRs do not incorporate any support for BCB.

RATING SENSITIVITIES

IDRS, AND VR

Fitch believes that the current ratings are at the high-end of their potential range given BCB's scale of operations and limited diversity. In Fitch's view, BCB's underlying fundamentals such as franchise value and limited business model are more reflective of a 'bb' range viability rating. Thus, Fitch considers BCB's high capital and liquidity levels to offset what would otherwise suggest a sub-investment grade rating.

Fitch would consider a rating downgrade if average on-balance sheet cash liquidity, as defined as cash to total assets were to decline below 30% and/or if Fitch Core Capital to Risk Weight Assets fell below 20% absent a positive change in its strategic direction and investment portfolio.

Additionally, a significant increase in credit or market risks including a rise in concentrations in the securities portfolio, and/or any acquisition that results in a shift toward a riskier business mix could also result in a rating downgrade.

Fitch affirms the following:

Bermuda Commercial Bank

--Long-term IDR at 'BBB-'; Outlook Stable;

--Short-term IDR at 'F3';

--Viability Rating at 'bbb-';

--Support at `5';

--Support Floor at 'NF'

Additional information is available on www.fitchratings.com

Applicable Criteria

Global Bank Rating Criteria (pub. 20 Mar 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=863501

Additional Disclosures

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=986043

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150608006526/en/

Fitch Ratings
Primary Analyst
Doriana Gamboa
Senior Director
+1-212-908-0865
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Julie Solar
Senior Director
+1-312-368-5472
or
Committee Chairperson
Joo-Yung Lee
Managing Director
+1-212-908-0560
or
Media Relations:
Alyssa Castelli, +1 212-908-0540, New York
[email protected]
or
Peter Fitzpatrick, +44 20 3530 1103, London
[email protected]

Source: Fitch Ratings

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