OREANDA-NEWS. Fitch Ratings upgraded the Issuer Default Ratings (IDR) for Emigrant Bancorp (EMIG) to 'BB' from 'BB-'. The Rating Outlook remains Stable.

Fitch reviewed EMIG as part of its Niche Bank Peer Review, which also includes Astoria Financial Corporation, Inc., Dime Community Bancshares, Inc. and New York Community Bancorp, Inc.

Niche banks are defined by their narrow business models, limited deposit franchises and geographic concentrations. Fitch views these limitations as ratings constraints across the peer group. The group is composed of banks with total assets ranging from \$4 billion to \$49 billion that lend primarily in the New York City metropolitan residential real estate market.

KEY RATING DRIVERS - IDRS, VRs AND SENIOR DEBT

EMIG's rating upgrade and Stable Outlook reflects the company's solid capital levels, declining NPAs and stabilizing profitability. These attributes are balanced against EMIG's modest franchise, elevated credit loss through the cycle and relatively higher risk appetite compared to peers.

EMIG's capital levels are the company's primary ratings strength. EMIG's capital levels continue to grow through retained earnings as dividend payout ratios remain low. EMIG can afford to limit dividend payouts given the company's private ownership. Fitch's rating and Stable Outlook assumes the maintenance of strong capital levels as the company looks to build its wealth management and private banking businesses.

EMIG's continued profitability has been another bright spot for the company. Although core return on average assets ranks below many higher rated peers, the company has posted positive earnings since 2010 and has bolstered the company's capital position. Fitch estimates that core return on average assets is approximately 60bps and should run at that level in the near term. Fitch views rising interest rates or credit deterioration as the potential risks to EMIG's current earnings profile.

Because EMIG sold its retail branch network in 2013, the company's deposit franchise is limited to its online savings platforms as its primary source of deposit gathering. The deposit platforms have been a good source of funding for the company to date. However, online savings accounts are typically more price sensitive, especially as rates rises, which could negatively impact earnings.

Fitch views EMIG's franchise as a primary rating constraint for the company. With EMIG moving away from brick and mortar retail branches, the company's primary products are commercial products. Many of commercial products are syndications or broker originated deals that have limited relationship value and limited opportunities for cross selling. Presently, EMIG is placing strategic focus on building up its fee income businesses such as wealth management and private banking. Fitch believes this process will take some time to add meaningful incremental earnings growth given the deep relationships needed in private banking and wealth management.

Despite EMIG's relatively modest franchise, EMIG operates a number of different business lines, some of which have higher risk profiles such as leveraged lending. Fitch views, EMIG's risk profile as another rating constraint for the company. Although current credit costs remain low for the company, nonperforming assets are high and the commercial portfolio generated significant losses through the credit cycle and could be a similar source of credit costs in a weak economy.

RATING SENSITIVITIES - IDRS and VRs and SENIOR DEBT

Fitch expects that near term rating improvement is unlikely. Over the long term, EMIG's ratings are sensitive to the company's ability to build up its wealth management franchise. To the extent that Fitch observes stable and meaningful fee income from its wealth management business while maintaining strong capital levels and improving NPAs, Fitch could see positive rating momentum. However, Fitch believes wealth management growth is a longer term proposition given the deep relationships needed in private banking and wealth management.
Conversely, Fitch considers a decline in capital ratios to be a key rating factor. Fitch's rating incorporates a view that EMIG's tangible common equity ratio of 12.8% will not deviate materially from this level. Should tangible common equity levels fall to near peer bank levels, Fitch could take negative rating action.

KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

EMIG's trust preferred issuances are notched below EMIG's VR. The notch differential reflects loss severity and an assessment of increment non-performance risk.

RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

EMIG's trust preferred issuances are sensitive to changes in EMIG's VR. The rating sensitivities for the VR are listed above.

KEY RATING DRIVERS - HOLDING COMPANY

EMIG's IDR and VR are equalized with those of its bank subsidiaries reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.

RATING SENSITIVITIES - HOLDING COMPANY

Should EMIG begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of its bank subsidiaries.

KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGS

EMIG's 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.

KEY RATING SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS

The ratings of long- and short-term deposits issued by EMIG and its subsidiaries are primarily sensitive to any change in EMIG's long- and short-term IDRs.

KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR

EMIG's Support Rating and Support Rating Floor of '5' and 'NF' reflect Fitch's view that the company is unlikely to procure extraordinary support should such support be needed.

RATING SENSITIVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR

EMIG's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.

Fitch has upgraded the following ratings with a Stable Outlook.

Emigrant Bancorp
--Long-term IDR to 'BB' from 'BB-';
--Viability Rating to 'bb' from 'bb-';

Emigrant Bank
--Long-term IDR to 'BB' from 'BB-';
--Viability Rating to 'bb' from 'bb-';
--Long-term deposits to 'BB+' from 'BB'

Emigrant Mercantile Bank
--Long-term IDR to 'BB' from 'BB-'

Emigrant Capital Trust I & II
--Trust preferred stock to 'B+' from 'B'.

Fitch has affirmed the following ratings with a Stable Outlook.
Emigrant Bancorp
--Short-term IDR 'at 'B';
--Support Rating at '5';
--Support Rating Floor at 'NF'.

Emigrant Bank
--Short-term IDR at 'B';
--Support Rating at '5';
--Support Rating Floor at 'NF';
--Short-term deposits at 'B'.

Emigrant Mercantile Bank
--Short-term IDR at 'B';
--Support Rating at '5';
--Support Rating Floor at 'NF'.