Fitch Affirms Bank of N.T. Butterfield’s IDRs at ‘A-/F1’; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed Bank of N.T. Butterfield & Son Limited's (BNTB) long-term Issuer Default Rating (IDR) at 'A-' and short-term IDR at 'F1'. The Rating Outlook is Stable. Fitch has also withdrawn the 'F' Individual rating and assigned a new Individual rating of 'C/D'. A complete ratings list follows this release.

BNTB's Individual rating of 'C/D' reflects its improving overall financial condition tempered by its remaining challenges. Currently, notable strengths include a liquid balance sheet and solid capital ratios. Also, BNTB has greater revenue diversity compared with many small banks due to its asset management, trust and custody businesses. Concerns remain particularly regarding weak profitability. After large losses in 2010, BNTB reported small profits in the first quarter of 2011 (1Q'11). The performance outlook is brightening owing to diminishing loan portfolio problems and a gradually improving net interest margin (NIM). However, BNTB's profitability is expected by Fitch to remain comparatively weak at least in the near term. In addition, BNTB is relatively small and geographically concentrated compared with many international banks. The economy of BNTB's home market of Bermuda has a large reliance on the insurance industry and to a lesser extent, tourism.

In early 2010, BNTB suffered from large charges associated with its portfolio of structured securities. Consequently, a restructuring took place including the issuance of $550 million of new equity and the sale of the bulk of the structured securities portfolio. The recapitalization was led by the Carlyle Group and CIBC. Currently, CIBC and the Carlyle Group are the largest shareholders with ownership of 18.8% and 17.4%, respectively. Post recapitalization, key management changes were made including CEO, CFO and chief risk officer combined with the addition of new board members with considerable banking expertise.

BNTB's long-term IDR is at its support floor of 'A-' based the bank's systemic importance in Bermuda and the local government's demonstrated support to preserve the financial stability of its largest local bank. In March 2009, the Bermudian government guaranteed the principal and dividend payments of the bank's $200 million preferred stock issuance. Consequently, the rating of this particular issue remains in line with Bermuda's sovereign foreign currency IDR of 'AA+', Stable Outlook.

IDRs could be adversely affected if Fitch's view of the willingness and/or capacity of the Bermudian government to support BNTB in the event of need changes. An upgrade of the Individual rating is possible if BNTB establishes a track record of profitability while maintaining solid liquidity and capital strength. Conversely, a downgrade of the Individual rating could occur in the event of significant deterioration of financial performance, asset quality and/or capital position.

BNTB is the leading local bank in Bermuda with total assets of just under $10 billion. BNTB's core strategy is to provide community banking services in Bermuda, Barbados and Cayman as well as wealth management services including asset management, private banking and trust services. Assets under management total $6.1 billion including $2.5 billion of discretionary assets under management (AUM) and $3.6 billion in the Butterfield funds (a mix of money market, fixed income and equity funds).

Fitch has affirmed the following ratings with a Stable Outlook:

Bank of N.T. Butterfield & Son

--Long-term IDR at 'A-';

--Short-term IDR at 'F1';

--Preferred stock at 'AA+';

--Subordinated debt at 'BBB+';

--Support rating at '1';

--Support floor at 'A-'.

Fitch has withdrawn the 'F' Individual rating and assigned the following rating:

--Individual rating 'C/D'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Global Financial Institutions Rating Criteria' (Aug. 16, 2010);

--'Short-Term Ratings Criteria for Corporate Finance' (Nov. 2, 2010).

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685

Short-Term Ratings Criteria for Corporate Finance ??? Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726

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, Inc.
One State Street Plaza
New York, NY 10004
Primary AnalystJoseph Scott, +1-212-908-0624
Senior Director
or
Secondary AnalystDoriana Gamboa, +1-212-908-0369
Director
or
Committee ChairpersonChristopher Wolfe, +1-212-908-0771
Managing Director
or
Media RelationsBrian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

<p>

Source: Fitch Ratings