September 5, 2017 / 9:12 PM / in a year

Fitch Affirms CVB Financial Corp's LT IDR at 'BBB'; Outlook Revised to Positive

(The following statement was released by the rating agency) NEW YORK, September 05 (Fitch) Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDR) and Viability Rating (VR) of CVB Financial Corp. (CVB) and its primary bank subsidiary, Citizens Business Bank, at 'BBB'. The Rating Outlook has been revised to Positive from Stable. See the full list of rating actions at the end of this release. KEY RATING DRIVERS IDR and VR Fitch views CVB's solid earnings profile as a key rating strength, evidenced by its 40-quarter return on average assets (ROAA) of 1.19%, the highest among the Fitch Large Community Bank peers. Furthermore, the stability of earnings as measured by the standard deviation is also among the best for the peer group. Offsetting this strength is a concentrated revenue profile that consisted of only 13% non-interest income during the first six months of 2017. Fitch calculates a nonperforming asset ratio (inclusive of accruing troubled debt restructurings) of 0.71% as of second quarter 2017 (2Q17), lower than the 1.04% reported a year prior and a significant improvement from the 1.8% level reported for FYE2015. This improvement comes despite CVB maintaining a 40-quarter average net charge-off ratio of only 27bps. This track record reflects CVB's sound loan underwriting and moderate risk appetite that allowed CVB to perform well despite the challenges in California during the Great Recession. Fitch recognizes that CVB's loan portfolio is now less concentrated in construction loans relative to pre-recession levels. This improves the overall credit risk in the loan portfolio, since large construction loans were the main drivers of credit loss severity during the most recent credit cycle. Furthermore, Fitch notes that some of the risks associated with the California drought have now moderated due to increased reservoir levels and water allocations to CVB's dairy and agribusiness customers. The rating also reflects CVB's strong capital position. CVB has the highest tangible common equity-to-tangible assets (TCE/TA) ratio in the Large Community Bank peer group that stood at 11.3% as of 2Q17. Fitch views CVB's conservative capital management practices as an important offset for the product and geographic concentrations in the bank loan portfolio. CVB's regulatory commercial real estate loan (CRE) concentration was 230% of total risk-based capital as of 2Q17, a level that Fitch views as manageable. As CVB approaches $10 billion in assets, management has indicated that they will continue to seek scale to manage the expense burden associated with increased regulatory compliance costs. Consistent with CVB's acquisitive strategy, the current rating action incorporates the possibility of a future acquisition. Management has publicly expressed the appetite for a deal as large as $4 billion in assets, although management has stringent criteria for such a deal, including that the target bank should be in the state of California within CVB's existing or adjacent markets, and have a similar business model and customer base as CVB. Accordingly, the rating and Outlook assume that CVB will adhere to its criteria and that the deal will be structured in a way that capital dilution as well as overall CRE concentration remains manageable and in line with our expectations for the rating level. CVB continues to maintain the lowest cost of deposits in the Fitch Large Community Bank peer group which was only 9bps at 1Q17. CVB's successful gathering of a relatively high proportion of non-interest bearing deposits and operating accounts from small business customers is a rating strength. However, this strength is partially offset by CVB's high reliance on spread revenue relative to peers and what tends to be a more concentrated deposit base. CVB's loan-to-deposit ratio stood at 70% as of 2Q17, one of the lowest in its peer group and a level that provides headroom for optimization of the deposit mix in a rising rate environment. The rating therefore incorporates an increase in the loan-to-deposit ratio over the near- to medium-term, although Fitch assumes that liquidity will continue to be managed conservatively. CVB's ratings remain constrained by its relatively limited geographic footprint, which is concentrated in Southern and Central California. Like other community banks, this concentration exposes CVB to a regional economic shock. Additionally, CVB's loan portfolio is concentrated in CRE lending products which makes up approximately 70% of the bank's loan portfolio. SUPPORT RATING AND SUPPORT RATING FLOOR CVB has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, CVB is not systemically important and, therefore, the probability of support is unlikely. The IDRs and VRs do not incorporate any support. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES CVB Statutory Trust III's trust preferred stock is notched four levels below CVB's VR. These ratings are in accordance with Fitch's criteria and assessment of the instruments' non-performance and loss severity risk profiles. Thus, these ratings have been upgraded due to the upgrade of the VR. The preferred stock is notched 2x from the VR for loss severity, and 2x for non-performance. HOLDING COMPANY The IDR and VR of CVB are equalized with its operating company, Citizens Business Bank, 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. Ratings are also equalized reflecting Fitch's view of the very close correlation between holding company and subsidiary failure and default probabilities. LONG- AND SHORT-TERM DEPOSIT RATINGS CVB's uninsured deposit ratings at the subsidiary banks 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. RATING SENSITIVITIES IDRS and VR Current positive rating momentum is premised on Fitch's expectation that over the near- to mid-term, CVB will continue to report earnings that are in line with or better than higher rated peers all the while adhering to its disciplined growth and capital management strategy. To the extent that Fitch observes continued strong earnings, capital management in line with our expectations, and credit performance that aligns with higher rated peers, positive rating action could be taken. The rating and Outlook also incorporate a future bank acquisition provided such a deal is in line with our aforementioned expectations and provided it fits the criteria communicated publicly by CVB. Positive rating momentum will only be maintained if capital management through an acquisition is in line with our expectations. Specifically, should capital be managed more aggressively such that CVB's TCE/TA ratio falls below 8%, Fitch would reassess the current level and Outlook to determine if it is still appropriate. Fitch believes that asset quality improvement will moderate going forward and could even reverse nominally, as credit metrics are expected to normalize across the industry. The rating and Outlook incorporate our expectation that CVB's credit performance will be in line with both equally and higher rated peers, especially those banks operating in CVB's market. However, if CVB's credit trends reverse materially and do not remain in line with expectations, particularly if large loans become impaired, negative rating action could be taken. SUPPORT RATING AND SUPPORT RATING FLOOR CVB's Support Rating and Support Rating Floor are sensitive to Fitch's assumption as to capacity to procure extraordinary support in case of need. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES All hybrid capital issued by CVB and its subsidiaries is notched down from the VRs of CVB in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably. Their ratings are primarily sensitive to any change in the VRs of CVB. HOLDING COMPANY While not currently expected, if CVB became undercapitalized or management increases the level of double leverage significantly, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. LONG- AND SHORT-TERM DEPOSITS The ratings of long- and short-term deposits issued by CVB and its subsidiaries are primarily sensitive to any change in the company's IDR. This means that should rating action be taken on the Long-Term IDR, deposit ratings could be similarly impacted. Fitch has affirmed the following ratings and revised the Outlooks to Positive from Stable: CVB Financial Corp. --Long-Term IDR at 'BBB'; Outlook Positive; --Viability Rating at 'bbb'; --Short-Term IDR at 'F2'; --Support at '5'; --Support Rating at 'NF' Citizens Business Bank --Long-Term IDR at 'BBB'; Outlook Positive; --Long-term deposit at 'BBB+'; --Short-Term IDR at 'F2'; --Short-term deposit rating at 'F2'; --Viability Rating at 'bbb'; --Support floor at 'NF'; --Support at '5'. CVB Statutory Trust III --Preferred stock at 'BB-'. Contact: Primary Analyst Johannes Moller, CFA Associate Director +1-646-582-4954 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Bain Rumohr, CFA Director +1-312-368-3153 Committee Chairperson Justin Fuller, CFA Senior Director +1-312-368-2057 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below