Guam – [BUSINESS WIRE] – Fitch Ratings today affirmed the long-term Issuer Default Rating (IDR) of Bank of Guam (BOG) at ‘BBB’. The Rating Outlook has been revised to Negative from Stable. Additionally, ratings have been assigned to BankGuam Holding Company (BGHC). A full list of ratings follows at the end of this release.
RATING ACTION AND RATIONALE
The affirmation of BOG’s IDR and Viability Rating (VR) reflects its solid core deposit base, significant franchise within Guam, and modestly improved asset quality. These attributes are offset by weaker-than-peer profitability metrics, diminished tangible equity measures and rapid credit growth outside the bank’s core market.
Because of the aforementioned growth, Fitch has revised the Outlook to Negative from Stable. Although the bank has had a presence within California for a number of years, the loan portfolio nearly doubled during 2012 to represent 20% of consolidated loans. Other portfolio growth consisted of the acquisition of $100 million in consumer loans from Wells Fargo Financial as credit demand in Guam has been very modest. Fitch views the California growth cautiously as, for many banks, a disproportionate amount of problems emanate from expansion outside of core markets.
RATING DRIVERS AND SENSITIVITIES – VRs and IDRs
Notwithstanding the stability of BOG’s core franchise, BOG’s ratings are highly sensitive to the growth and performance of its California loan book, as these have relatively less seasoning. Should growth in this portfolio accelerate beyond current levels or experience sustained worsening in asset quality, BOG’s ratings would likely be downgraded. BOG’s ratings would also be sensitive to capital measures, particularly the tangible common equity decline of at least 7% of tangible assets. Conversely, the Outlook could be returned to Stable if the California credit expansion slows and the bank is able to demonstrate longer term stable performance in this loan book. Fitch would also expect profitability and capitalization metrics to improve for the bank to achieve a Stable Outlook.
RATING DRIVERS AND SENSITIVITIES – Support and Support Rating Floors
BOG and BGHC have Support Ratings of ‘5’ and Support Rating Floors of ‘NF’. Fitch believes that they are not systemically important and therefore, the probability of support is unlikely. The IDRs and VRs do not incorporate any support.
RATING DRIVERS AND SENSITIVITIES – Holding Company
BOG is BGHC’s principal subsidiary and is considered core to the parent which supports equalized ratings between the bank subsidiary and the holding company. IDRs and VRs are equalized with those of the bank reflecting its role as the bank holding company. Double leverage is low at 100% at BGHC and overall debt is very minimal.
Fitch has taken the following rating actions:
Bank of Guam
–Long-term IDR affirmed at ‘BBB’; Outlook Revised to Negative from Stable;
–Short-term IDR affirmed at ‘F2’;
–Viability rating affirmed at ‘bbb’
–Support rating affirmed at ‘5’;
–Support rating floor affirmed at ‘NF’;
–Long-term deposits affirmed at ‘BBB+’;
–Short-term deposits affirmed at ‘F2’.
Fitch has assigned the following ratings:
BankGuam Holding Company
–Long-term IDR ‘BBB’; Outlook Negative;
–Short-term IDR ‘F2’;
–Viability rating ‘bbb’;
–Support rating ‘5’;
–Support rating floor ‘NF’.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.