Fitch Ratings has affirmed Bank of N.T. Butterfield & Son Limited's
(BNTB) long-term Issuer Default Ratings (IDR) at 'A-' and Viability
Rating (VR) at 'bb+'. The Rating Outlook remains Stable. The affirmation
of BNTB's IDR reflects BNTB's Support Rating Floor of 'A-' due to its
systemic importance, and demonstrated support from the Bermudian
government given its guarantee on the principal and interest payments of
BNTB's outstanding preferred stock. A complete list of ratings is
provided at the end of this release.
The affirmation of BNTB's VR reflects its liquid balance sheet, strong
capital levels, diversified revenue stream and return to profitability,
offset by significant product concentration in residential lending and
geographic concentration in Bermuda. Further, given BNTB's market
position, the company has some large exposures in its commercial loan
portfolio. Macro indicators reflect that Bermuda's economy has been
contracting, unemployment levels remain high and the housing market has
experienced price depreciation with an expected decline for 2012.
Although the company is facing some asset quality pressures, Fitch
believes that the level of net losses from its loan portfolios should
remain manageable. Fitch notes that BNTB's non-performing assets (NPAs)
remain high at 3.46% for year-end 2011 compared to the company's
normalized levels of NPAs, which is typically below 1%. Nonetheless, the
elevated level of non-performers has not translated into heavy losses as
net charge-offs (NCOs; as calculated by Fitch) remain relatively low at
47 basis points (bps) for year-end 2011.
Fitch believes BNTB has returned to a sustainable level of profitability
after being recapitalized in 2010 following significant losses in its
investment securities portfolio. More recently, management has divested
non-core business lines and subsidiaries, while shifting its focus on
expansion in the UK and Guernsey to clients with ties to Bermuda. The
company has also invested in its information technology infrastructure
which should provide operating efficiencies and cost savings in future
periods.