NEW YORK--(BUSINESS WIRE)--Fitch Ratings has upgraded Emigrant Bancorp's (EMIG) long-term IDR to 'B' from 'B-'. The Ratings Outlook remains Stable. A full list of ratings follows at the end of this release.
RATING ACTION AND RATIONALE
The upgrade of EMIG's ratings reflects both the continued improvement of asset quality metrics as well as the additional capital provided by the sale of its branch network. Fitch recognizes that the branch sale does not constitute core earnings and core profitability remains a weakness for EMIG.
That said, the branch sale provides additional flexibility to deal with its 2014 senior debt maturities as well as outstanding TARP. EMIG's rating strengths are balanced against the company's elevated non-performing asset (NPA) levels. Also taken into account is EMIG's evolving business initiatives and 'key man' risk in the form of the company's chairman and CEO, Howard Milstein.
That being said, the Milstein family has contributed a significant amount of capital to the bank over the last few years. The Stable Outlook reflects Fitch's expectation that EMIG will continue to gradually reduce NPA levels while increasing core earnings in the medium term.
RATING DRIVERS AND SENSITIVITIES
Asset quality metrics are improving, though NPAs remain stubbornly high. NPAs are driven primarily EMIG's residential portfolio. Fitch expects NPAs to remain elevated as the judicial foreclosure process limits the speed at which lenders can resolve problem residential mortgages in New York. That said, credit losses for this portfolio have remained manageable as most of the mortgages have relatively low LTVs.
Core earnings continue to struggle at EMIG. However, the branch sale is expected to reduce overhead costs and be net-additive to core earnings in the near term. Fitch expects that the low interest rate environment will keep putting pressure on earnings and margins for the foreseeable future. To combat margin pressures, EMIG has placed strategic focus on building up its fee income businesses.
These businesses include HPM Partners (investment advisor/wealth management), Personal Risk Management (insurance brokerage), NYPB&T (wealth management and trust services) and Galatioto Sports Partners (sports M&A advisory boutique), and Fiduciary Network. Fitch expects that its fee income businesses will likely take some time to add meaningful incremental earnings growth given the deep relationships needed in private banking and wealth management.
As the economic environment worsened during the credit cycle, EMIG shifted its focus to commercial lending through a number of different channels. EMIG offers a number of different commercial lending products including fine arts lending, sports lending, CRE bridge loans and private equity sponsored cash flow loans. Additionally, EMIG participates in the syndicated loan market. Each of these lending channels has limited exposure on its own. Collectively, however, they represent a nearly one-quarter of the loan portfolio. Any deterioration in these portfolios could result in negative ratings pressure.
Given elevated NPAs and evolving business initiatives, Fitch expects EMIG will operate with elevated tangible capital ratios. Any meaningful reduction to tangible capital levels in the near term could place negative pressure on its current ratings. Additionally, any deterioration to asset quality metrics could result in Fitch downgrading the EMIG's ratings. Conversely, Fitch may take positive ratings action if core earnings improve, asset quality strengthens and new business reach scale in terms of profitability.
Fitch continues to rate the holding company one notch below its bank subsidiaries due to forthcoming maturity of $200 million of senior notes in June 2014. EMIG's parent, New York Private Bank & Trust (NYPBT), also has $276 million of preferred stock outstanding under the TARP. The interest rates on the EMIG's TARP shares are scheduled to step up to a 9% coupon from 5% in 2014. The rating of the holding company would likely be equalized with the bank once these obligations are addressed.
KEY RATING DRIVERS - Support and Support Rating Floors:
EMIG and subsidiaries 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 Viability Ratings (VRs) do not incorporate any external support.
RATING SENSITIVITIES - Support and Support Rating Floors:
Fitch does not anticipate changes to the Support Ratings or Support Rating Floors given size and the lack of systemic importance of the niche bank group.
KEY RATING DRIVERS - Subordinated Debt and Other Hybrid Securities:
Subordinated debt and other hybrid capital issued by the trust banks and by various issuing vehicles are all notched down from the holding company or its bank subsidiaries' VRs. This is in accordance with Fitch's assessment of each instrument's respective nonperformance and relative loss severity risk profiles.
RATING SENSITIVITIES - Subordinated Debt and Other Hybrid Securities:
Ratings are primarily sensitive to any change in the VRs, where the notching would be realigned in conjunction with any change in the VR.
KEY RATING DRIVERS - Subsidiary and Affiliated Company Rating:
Fitch continues to rate the EMIG one notch below its Emigrant Bank subsidiary due to forthcoming maturity of $200 million of senior notes in June 2014 in addition to outstanding TARP monies from the U.S. department of treasury.
RATING SENSITIVITIES - Subsidiary and Affiliated Company Rating:
Ratings are primarily sensitive to any change in the VRs of the associated bank subsidiaries
Fitch has upgraded the following ratings with a Stable Outlook.
Emigrant Bancorp Inc.:
--Long-term IDR to 'B' from 'B-',
--VR to 'b' from 'b-'.
Emigrant Bank
--Long-term IDR to 'B+' from 'B',
--VR to 'b+' from 'b';
--Long-term Deposits to 'BB-' from 'B+/RR3'.
Emigrant Mercantile Bank
--Long-term IDR to 'B+' from 'B'.
Fitch has affirmed the following ratings:
Emigrant Bancorp Inc.:
--Short-Term IDR at 'B'
--Senior Debt at 'CCC/RR6';
--Support at '5';
--Support Floor at 'NF'.
Emigrant Bank
--Short-Term IDR at 'B';
--Short-Term Deposits at 'B';
--Support at '5';
--Support Floor at 'NF'.
Emigrant Mercantile Bank
--Short-Term IDR at 'B';
--Support at '5';
--Support Floor at 'NF'.
Emigrant Capital Trust I
Emigrant Capital Trust II
--Preferred Stock at 'CC/RR6'.
Following the merger into Emigrant Bank, Fitch has withdrawn the ratings for the following:
Emigrant Savings Bank - Bronx/Westchester
--Long-term IDR at 'B',
--VR at 'b';
--Long-term Deposits at 'B+/RR3'.
--Short-Term IDR at 'B';
--Short-Term Deposits at 'B';
--Support at '5';
--Support Floor at 'NF'
Emigrant Savings Bank - Brooklyn/Queens
--Long-term IDR at 'B',
--VR at 'b';
--Long-term Deposits at 'B+/RR3'.
--Short-Term IDR at 'B';
--Short-Term Deposits at 'B';
--Support at '5';
--Support Floor at 'NF'
Emigrant Savings Bank - Manhattan
--Long-term IDR at 'B',
--VR at 'b';
--Long-term Deposits at 'B+/RR3'.
--Short-Term IDR at 'B';
--Short-Term Deposits at 'B';
--Support at '5';
--Support Floor at 'NF'.
Emigrant Savings Bank - Long Island
--Long-term IDR at 'B',
--VR at 'b';
--Long-term Deposits at 'B+/RR3'.
--Short-Term IDR at 'B';
--Short-Term Deposits at 'B';
--Support at '5';
--Support Floor at '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.
In addition to the source(s) of information identified in Fitch's Master Criteria, these actions were additionally informed by information provided by the companies.
Applicable Criteria and Related Research:
--'Risk Radar - Global' (April 04, 2013);
--'U.S. Banking Quarterly Comment: 4Q12' (Feb. 21, 2013);
--'U.S. Housing Finance GSEs: Where to from Here (Feb. 28, 2013)
--'U.S. Banks: Rationalizing the Branch Network (Witness the Incredible Shrinking Branch Network)' (Sept. 17, 2012)
--'Global Financial Institutions Rating Criteria' (Aug. 15, 2012);
--'Treatment of Unrealized Losses in U.S. Bank Capital Rule Proposal (Pro-Cyclical Capital Policy to Create Greater Capital Volatility for Banks)' (Aug. 7, 2012);
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);
--'Assessing and Rating Bank Subordinated and Hybrid Securities' (Dec. 05, 2012);
--'Recovery Ratings for Financial Institutions' (Aug. 15, 2012).
Applicable Criteria and Related Research
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686181
Risk Radar - Global
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=703937
U.S. Banking Quarterly Comment: 4Q12
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=701972
U.S. Housing Finance GSEs: Where to from Here
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=700032
U.S. Banks: Rationalizing the Branch Network (Witness the Incredible Shrinking Branch Network)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=688330
Treatment of Unrealized Losses in U.S. Bank Capital Rule Proposal (Pro-Cyclical Capital Policy to Create Greater Capital Volatility for Banks)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685638
Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
Assessing and Rating Bank Subordinated and Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=695542
Recovery Ratings for Financial Institutions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686295
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