KEY RATING DRIVERS - IDRS AND SENIOR DEBT
CBSS' IDR reflects the higher of its support-driven IDR or its standalone rating, the
RATING SENSITIVITIES - IDRS AND SENIOR DEBT
Since CBSS' ratings and Outlook are correlated with those of BBVA, changes in BBVA's ratings may result in changes to CBSS' IDRs and Outlook. BBVA's Rating Outlook is Stable.
KEY RATING DRIVERS -
The capital profile remains strong, with a high Tier 1 common ratio (under Basel I) and tangible common equity-to-tangible assets of 11.39% and 9.5%, respectively, at YE2013. These ratios compare well to other large regional banks. CBSS received no objection to its capital plan under the 2014 CCAR process, the first time CBSS participated in the formal CCAR stress testing. CBSS requested to upstream a modest semi-annual common dividend of approximately
Asset quality ratios also continue to improve in line with industry trends, while nonperforming asset levels remain very manageable. Nonperforming balances are below peer averages, with net charge-offs (NCOs) also comparing favourably. Fitch attributes some of the better relative performance to the geographic make-up of the bank's loan portfolio. A relatively high percentage of loans are in
CBSS' recent earnings performance reflects a vast improvement over the losses reported during the prior years, which were weighed down by large goodwill impairment charges and elevated provision expenses. Despite the recent improvement, Fitch notes that CBSS' reported earnings still lag peer averages. When pushed-down goodwill is also excluded from ratios, adjusted return on assets (ROA) improves by approximately 4 basis points (bps) to 67bps, though this is below the peer average of approximately 110bps in first quarter 2014 (1Q'14).
Fitch also notes that CBSS' earnings include a meaningful benefit from reserve releases. In 2013, reserve releases, or the amount of NCOs that exceeded provision expenses, were 17% of pre-tax income. This amount is approximately 50% higher than the average for large regional banks.
Fitch expects reserve releases to diminish over time for the industry as reserve levels approach more historical coverage levels, and loan growth resumes more normalized levels. As CBSS begins to provision at more normalized levels, this could impact profitability measures.
CBSS' performance is also affected by purchase accounting accretion (PAA) related to the acquisition of Guaranty, namely in the net interest margin (NIM). The reported NIM includes approximately 30bps of PAA, which will ultimately dissipate over time, as will the indemnification asset.
RATING SENSITIVITIES -
CBSS' ratings are sensitive to those drivers that would impact the
KEY RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING
CBSS is strategically important to, but not considered a core subsidiary of BBVA by Fitch. CBSS' IDR reflects the higher of its support-driven IDR or
In the event Fitch views CBSS as no longer strategically important to BBVA, its support rating could be downgraded. If the support rating were downgraded, CBSS'
KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt and other hybrid securities issued by CBSS and by various issuing vehicles are all notched down from CBSS' or its bank subsidiaries'
KEY RATING DRIVERS AND SENSITIVITIES - HOLDING COMPANY
CBSS' IDR and
KEY RATING DRIVERS AND SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS
CBSS' uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default. The ratings of long- and short-term deposits issued by CBSS and its subsidiaries are primarily sensitive to any change in CBSS' long- and short-term IDRs.
The following ratings are upgraded:
--Long-term IDR to 'BBB+' from 'BBB'; Outlook Stable.
--Long-term IDR to 'BBB+' from 'BBB'; Outlook Stable;
--Long-term deposits to 'A-' from 'BBB+';
--Senior unsecured to 'BBB+' from 'BBB'.
The following ratings are affirmed:
--Support at '2';
--Short-term IDR at 'F2'.
--Short-term IDR at 'F2';
--Short-term deposits at 'F2';
--Support at '2';
--Subordinated debt at 'BBB-'.
TexasBanc Capital Trust I
--Preferred stock at 'BB-'
Additional information is available on www.fitchratings.com
'Global Financial Institutions Rating Criteria (
'Rating FI Subsidiaries and Holding Companies (
'Assessing and Rating Bank Subordinated and Hybrid Securities Criteria (
'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles (
'U.S. Banking Quarterly Comment: 1Q14 (
'Fitch Fundamentals Index 1Q14 (
Fitch Fundamentals Index 1Q14
U.S. Banking Quarterly Comment: 1Q14
U.S. Bank HoldCos & OpCos: Evolving Risk Profiles
Assessing and Rating Bank Subordinated and Hybrid Securities Criteria
Rating FI Subsidiaries and Holding Companies
Global Financial Institutions Rating Criteria
Source: Fitch Ratings
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