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TEXT-Fitch affirms Bank of Guam's IDR at 'BBB'
April 5, 2012 / 1:42 PM / 6 years ago

TEXT-Fitch affirms Bank of Guam's IDR at 'BBB'

April 5 - Fitch Ratings has affirmed the long-term and short-term Issuer
Default Ratings (IDRs) of the Bank of Guam at 'BBB' and 'F2', respectively. The
Rating Outlook is Stable. A complete list of rating actions follows at the end
of this release.	
The affirmation of Bank of Guam's ratings and its Stable Outlook largely
reflects the bank's solid core capital position, as well as its dominant market
share in Guam and the surrounding island regions, which provides the company
with a stable core funding base and drives its profitability. Because of the
relative strength of the Guam economy versus the U.S. mainland, Bank of Guam has
had historically sound asset quality with low credit losses, although impaired
loans have increased modestly recently. The bank's borrower and geographic
concentrations limit potential upside to its ratings.	
Bank of Guam holds approximately 33% of deposits in Guam. This dominant market
position gives it a degree of pricing power, providing the bank with a lost cost
funding base, aiding its net interest margin. In order to combat the adverse
impact of lower interest rates, the bank acquired $100 million in residential
mortgage and other consumer loans from Wells Fargo Finance in December 2011.
Because of the higher-yielding nature of these credits, margins and
profitability should improve in 2012. Fitch believes that the risks of this
transaction have been controlled.	
BOG's profitability is comparatively weak given its high cost operating
structure. Net income was relatively flat in 2011 at $6 million, but returns
diminished due to declining margins, a high cost structure related to the bank's
widespread franchise which increases communication, technology and utility costs
and weaker margins. The bank's historically high dividend payout ratio (72% in
2011) inhibits capital generation and capital measures deteriorated moderately
(Fitch Core Capital of 11.69% at end-2011) but remain adequate given solid asset
quality. Net credit losses were flat with the previous year at 0.46% of average
loans and impaired loans improved as a percentage of the portfolio to 2.80%, in
part due to the loan purchase noted above.	
The ratings for Bank of Guam have limited upside potential given the bank's
narrow business mix, as well as geographic and borrower concentrations, and
modest profitability. The bank's ratings could be downgraded if military
spending or tourism on Guam were to falter for a prolonged period. This could
result in asset quality deterioration, likely related to the worsening of one of
its large borrower relationships. Additionally, Bank of Guam's ratings could be
negatively impacted if the adverse profitability and capital trends are not
reversed in 2012.	
Bank of Guam, headquartered in Hagatna, Guam is a $1.1 billion FDIC insured
bank. The bank provides financial services to the U.S. territory of Guam and the
surrounding island regions through its 24 branch offices. Bank of Guam also
maintains a branch office in San Francisco.	
Fitch affirms Bank of Guam's ratings as follows:	
--Long-term IDR at 'BBB'; Outlook Stable;	
--Short-term IDR at 'F2';	
--Viability at 'bbb';	
--Support at '5';	
--Support Rating Floor at 'NF';	
--Long-term deposits at 'BBB+';	
--Short-term deposits at 'F2'.	
Additional information is available at ''. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.	
Applicable Criteria and Related Research:	
--'Global Financial Institutions Rating Criteria' (Aug. 16, 2011).	
In addition to the source (s) of information identified in Fitch's Global
Financial Institutions Rating Criteria, this action was additionally informed by
information provided by the company.	
Applicable Criteria and Related Research:	
Global Financial Institutions Rating Criteria

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