KEY RATING DRIVERS - IDRs,
BNSC's IDRs are currently constrained by low levels of profitability, its geographic and product concentration to the South Florida CRE market, and exposure to non-domestic credit markets. Conversely, the capital base and stable funding profile provide support to the credit profile and ratings. Although credit performance has remained solid over the past seven quarters and dramatically improved since the financial crisis, asset quality indicators may be benefitting from the rapid loan portfolio growth BNSC has experienced since 2011.
BNSC remained profitable during 2013, although earnings have trended downward since 2011 and are considered a key rating constraint. BNSC reported an ROA of just 33bps in 2013. Earnings were constrained by very high operating expenses due to elevated levels of personnel and occupancy expenses associated with hiring executive level and BSA related employees during 2013. Fitch expects that operating costs are likely to continue to constrain earnings potential in the near term as additional costs associated with the BSA remediation program will weigh heavily on earnings throughout 2014. Fitch also expects the NIM to decline in the near term due to the diminishing impact of discount accretion related to the purchase of loans from
Fitch considers BNSC's credit risk profile to be reflective of the rating. The company has exhibited strong growth, particularly in CRE and commercial credits, in recent years. Moreover, Fitch also considers BNSC to be product and geographically concentrated as CRE represents 400% of capital and is mainly in the Miami-Dade MSA. While the South Florida CRE market has exhibited slowly stabilizing real estate values, the office real estate sector, which is a sizeable portion of the CRE portfolio, has not exhibited any material level of recovery.
Fitch also remains concerned about BNSC's increasing exposure to commercial and CRE credits in
BNSC's credit quality has improved. Asset quality indicators compare positively to that of similarly rated peers; however, Fitch believes the measures may be understated given that the portfolio is relatively unseasoned due to level of loan growth in recent years. In the first quarter of 2014, total nonperforming assets (inclusive of accruing TDRs) have declined to 277 bps of loans and foreclosed real estate through a combination of pay downs, loan sales and workout strategies, while NCOs have averaged three bps of loans over the past four quarters. These measures are well below the peak levels experienced during the financial crisis of roughly 9.83% and 1.80%, respectively.
BNSC's credit rating benefits from a solid capital structure. As of year-end 2013, the company's Fitch core capital/risk-weighted assets ratio was 13.37% and its tangible common equity/tangible assets ratio was 9.4%. Fitch considers the capital base sufficient to support risks within the business mix; however, further balance sheet growth coupled with limited profitability have the potential to adversely impact capital ratios. Moreover, the lack of access to external capital is considered a rating constraint.
Fitch views BNSC's funding profile favorably. The funding structure is largely core deposit driven, and benefits from a high volume of international deposits which make up 61% of total deposits. The majority of international funding is sourced from Venezuelan depositors who have turned to U.S. banks as a safe haven. These deposits typically have a very low attrition rate, limited rate sensitivity and provide a stable source of low cost funding. In an effort to reduce reliance on Venezuelan funding, management has been working to grow domestic deposits in conjunction with loan growth. Fitch views the diversification of funding sources positively. Although the loan portfolio has grown significantly since 2011, balance sheet leverage remains below peer levels as loans makeup 75.5% of deposits. Furthermore, BNSC maintains a high level of liquid assets to support immediate cash needs. Fitch believes BNSC is well positioned to maintain its liquidity position, fund impending growth/runoff and address any potential shortfalls in the normal course of business.
Fitch views BNSC's relationship with the
The Stable Outlook reflects BNSC's stable credit performance and lowered growth expectations in light of the shift in strategy toward addressing issues related to BSA/AML oversight. Going forward, management anticipates controlled growth in key business segments with no expectations for further acquisitions over the near-term.
RATING SENSITIVITIES - IDRs,
Sustained and improved profitability combined with the maintenance of strong credit performance and credit profit would be considered positive rating drivers.
Given BNSC's ratings are relatively low on the rating scale, Fitch does not envision much downward rating pressure. However, ratings could be negatively affected if BNSC continues to grow in high risk lending segments, in excess of manageable levels or if Fitch believes that growth is a result of compromised underwriting. Considering the recent trends and updated growth plans, Fitch considers this a relatively low likelihood.
Fitch notes that there is risk in Venezuelan depositors seeking other U.S. based-banking institutions to deposit their monies in the event of concern regarding BNSC or the
KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
BNSC has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, BNSC is not systemically important and therefore, the probability of support is unlikely. The IDRs and VRs do not incorporate any support. Historically, BNSC's principal shareholders have demonstrated a willingness to provide capital; however, Fitch's rating analysis does not assume capital support from the shareholders
RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
BNSC's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.
KEY RATING DRIVERS - LONG AND SHORT-TERM DEPOSIT RATINGS
BNSC's uninsured deposit ratings are rated one notch higher than the company's IDR because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.
RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The ratings of long- and short-term deposits issued by BNSC are primarily sensitive to any change in BNSC's long- and short-term IDRs.
Fitch affirms the following ratings:
--Long-term IDR at 'B+'; Outlook Stable;
--Short-term IDR at 'B';
--Long-term deposits at 'BB-';
--Short-term deposits at 'B';
--Viability at 'b+';
--Support at '5';
--Support Floor at 'NF'.
Additional information is available at 'www.fitchratings.com'.
--'Global Financial Institutions Rating Criteria' (
--'Rating FI Subsidiaries and Holding Companies' (
Global Financial Institutions Rating Criteria
Rating FI Subsidiaries and Holding Companies
Source: Fitch Ratings
Most Popular Stories
- Study: Recessions Can Postpone Motherhood Forever
- Washington's 'The Equalizer' Debuts With $35 Million
- Hispanic Entrepreneurs Short-changed in Texas
- Effort to Oust Assad Put on Hold
- Hispanics Carry Big Clout: Census
- Los Angeles Set to Host Small Business Summit
- White House Intruder Got Farther Than Reported
- Qantas Puts World's Largest Plane on Longest Route
- Chicago Flight Delays: Questions Answered
- Jeb Bush: GOP Senate Would 'Fix a Few Things'