KBRA Assigns Ratings to Cape Cod Five Mutual Company

Kroll Bond Rating Agency (KBRA) assigns a senior unsecured debt rating of BBB, a subordinated debt rating of BBB-, and a short-term debt rating of K3 for Hyannis, Massachusetts-based Cape Cod Five Mutual Company ("Cape Cod Five", "CCFMC" or "the company"). In addition, KBRA assigns deposit and senior unsecured debt ratings of BBB+, a subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 for its subsidiary, The Cape Cod Five Cents Savings Bank. The Outlook for all long-term ratings is Stable.

The ratings are supported by an experienced management team that KBRA views as capable of executing stable growth going forward. The company has developed solid fee revenue generation through trust services, treasury management services, and mortgage servicing and sales (~20% since 2015). This revenue diversification is considered a core driver and differentiator relative to the bank's peer group. Although ROA is considered to be below peer averages (below 1% since 2015), this metric is more in line on a risk adjusted basis (~1.3% RORWA in 2Q20). The company reflects moderately low exposures to pandemic impacted industries (~10% of total loans or 89% of total risk-based capital) with ~17% of the loan portfolio in active deferral as of 2Q20. Relatedly, the loan mix is nearly 67% centered in residential loans with ~18% in CRE loans. CCFMC reflects minimal exposure to construction, office, and multifamily categories. As a function of the lower risk, lower yield loan mix, the company's charge-offs have historically been negligible and immaterial throughout the pre-COVID-19 benign credit environment. In addition, the company significantly outperformed its peers with NCOs peaking at just 19 bps in 2009 during the global financial crisis. CCFMC reflects a strong deposit franchise as core funding represents nearly 90% of total liabilities. The low-cost deposit franchise has provided NIM stability (low - 3.00% range since 2015). KBRA recognizes management's ability to grow lower cost deposits despite competition. Additionally, the company operates in a cyclical and seasonal economic environment somewhat dependent on vacation and retirement industries. The Stable Outlook further reflects KBRA's view toward the lower risk balance sheet composition along with lower, yet consistent earnings power combined with solid capital levels. Given its overall comparatively lower risk profile with current reserve/loans (0.86%) and strong capital levels, CCFMC appears comfortably prepared to absorb potential credit losses.

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KBRA continues to monitor the potential direct and indirect effects of the coronavirus on the banking sector, among others. Please refer to our publication U.S. Bank 2Q 2020 Ratings Compendium for our latest thoughts.

The ratings are based on KBRA's Bank & Bank Holding Company Global Rating Methodology published on October 16, 2019.

Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.