Sep. 28, 2009 (Business Wire) -- Fitch Ratings has affirmed the 'BBB+' long-term Issuer Default Rating (IDR) and 'F2' short-term IDR of CVB Financial Corp. (CVB) and its principal banking subsidiary, Citizens Business Bank. At the same time, Fitch has downgraded the Individual rating for both entities to 'B/C' from 'B'. The Rating Outlook remains Negative. A complete list of ratings is provided at the end of this release.
Fitch's affirmation of CVB's ratings reflects the company's modestly weaker, albeit resilient asset quality, continued profitability, and healthy capital position. CVB's capital position was augmented by a recent issuance of common stock ($132.5 million) which allowed the company to repay its preferred stock ($130 million) issued to the U.S. Treasury, as per its Capital Purchase Program (CPP). The company has been able to maintain profitability given its strong net interest margin, manageable credit costs and good operating efficiency. The company also benefits from a good core deposit base, which is comprised of a sizeable amount of non-interest bearing accounts.
To date, the company's stringent underwriting discipline has helped the company avoid major credit problems. However, Fitch is concerned that material credit pressure will persist in many of CVB's main markets, including the Inland Empire and Central Valley of California in particular. While the level of problem credits and credit losses have remained manageable and CVB has outperformed many of its peers, Fitch remains concerned by size of the company's exposure to commercial real estate (CRE), representing over 50% of total loans. Fitch anticipates that deterioration in CRE will be a more significant contributor to credit problems for the overall banking industry over the next several quarters. CVB's relative exposure to CRE in troubled markets heightens the prospect of increased credit stress in the future.
Additionally, CVB has a number of sizeable borrower concentrations that are potential sources of credit volatility as well. Given these concerns, Fitch believes the company could face more material credit pressure, negatively affecting the company's earnings performance. As such, Fitch has downgraded the Individual rating of the company. The maintenance of the Negative Outlook reflects concern that asset quality deterioration could escalate beyond Fitch's current expectations should the economic downturn persist longer and deeper than anticipated. Mitigating these concerns is the company's current healthy capital base, which Fitch believes should be sufficient to absorb potential future losses that could occur while maintaining capital in excess of minimum regulatory guidelines.
Fitch has also widened the notching on CVB's outstanding hybrid equity. As discussed in Fitch's press release, 'Expectations for Higher Loan Losses Driving U.S.
