OREANDA-NEWS. Fitch Ratings has affirmed the long-term Issuer Default Ratings (IDR) and Viability Rating (VR) of CVB Financial Corp. (CVBF) and its primary bank subsidiary, Citizens Business Bank, at 'BBB'. The Rating Outlook remains Stable. A complete list of ratings is provided at the end of this release.

KEY RATING DRIVERS

IDR and VR
The affirmation of CVBF's ratings reflects the company's strong financial performance, stable asset quality and the maintenance of solid capital levels. The Stable Outlook reflects Fitch's expectation that CVBF will continue to generate sufficient, albeit spread-reliant core earnings, and grow both organically and with targeted, strategic acquisitions. Moreover, the Stable Outlook reflects Fitch's expectation that CVBF will adequately manage credit risks related to its agricultural portfolio in the midst of the California drought.

CVBF's earnings continue to be some of the highest and most consistent within the community bank peer group as well as in Fitch's rating universe. The company's return on assets (ROA) over the past five quarters has averaged over 1.2%, driven by a fairly stable net interest margin (NIM), good cost controls and steady asset quality. Fitch notes that the five-quarter average would be even higher if FHLB debt-termination expense of around \\$14 million taken in first quarter 2015 (1Q15) was excluded. The action should aid the company's NIM going forward as the weighted average rate paid on the final \\$200 million FHLB advance was 4.5%, significantly higher than CVBF's other funding costs.

Even with consistent and high earnings, Fitch continues to view CVBF's earnings profile as a rating constraint. The company primarily relies on spread income for revenue generation. Net interest income through 2Q15 accounted for 88% of core revenue. This adversely compares to the community bank average of between 70%-75%. This presents an elevated risk of earnings deterioration in the event of material NIM compression.

CVBF's ratings also remain confined to their current levels given the company's asset type and geographic concentrations. Loans secured by commercial real estate (CRE) account for just under 70% of total loans and are largely concentrated in California's Los Angeles County, Central Valley and the Inland Empire. Similar to others in the community bank peer group, Fitch believes that CVBF's concentrations make the company susceptible to idiosyncratic risks and disproportional amounts of credit volatility.

Still, Fitch believes CVBF's risk appetite is relatively conservative and views it as a rating strength and supports the current rating. Fitch views CVBF's risk management practices and underwriting as above average when considering the asset class and geographic concentration inherent in its balance sheet. Fitch notes that on average, CVBF's net charge-offs (NCOs) have consistently been lower than the industry and higher rated peers over the long term, pointing toward sound underwriting practices.

CVBF's level of nonperforming assets (NPAs) remains elevated relative to similarly rated banks in Fitch's rated universe. CVBF's NPA ratio of 2.0% is the highest in the community bank peer group but down from over 3.2% at 2Q14. However, Fitch notes that CVBF's level of accruing troubled debt restructures (TDRs) remains a large portion of the bank's NPAs. At 2Q15, CVBF's accruing TDRs totalled \\$45 million, or 60% of total NPAs.

Fitch attributes part of this to CVBF's conservatism in not only recognizing TDRs but also making sure a commercial credit has been cured under current market terms and conditions before taking it off TDR status. Therefore, Fitch expects NPAs to remain elevated versus similarly rated peers while the credit costs remain relatively lower.

NPAs could also be pressured by worsening credit quality in CVBF's dairy & livestock and agribusiness loan portfolio . These loans account for around 5% of the bank's total loan portfolio. The operating footprint in which CVBF operates has been experiencing significant drought conditions over the last few years, which has resulted in tighter operating margins and altered farmer's strategic plans. While CVBF's dairy & livestock and agribusiness loan portfolio has exhibited strong credit metrics over recent periods, Fitch expects some pressure going forward if similar operating conditions persist.

CVBF's liquidity and funding profile remain solid. The company consistently manages its loan-to-deposit ratio below the community bank peer group median which typically falls between 70%-80%. Fitch considers CVBF's ability to attract high-quality, low-cost deposits as a core competency and a ratings strength. Core deposits account for nearly 90% of total deposits based on regulatory definitions.

Capital continues to be strong compared to similarly rated peers. Still, Fitch notes that given the bank's product and geographic concentration, robust capital levels are needed to support the current rating. Core capital levels, measured by Fitch Core Capital to Assets remains toward the top end of the peer group as do risk-based measures. Fitch expects CVBF to manage capital down over the intermediate term through acquisitions and organic growth. This expectation is reflected in today's rating action.

SUPPORT RATING AND SUPPORT RATING FLOOR
CVBF has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, CVBF 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
CVBF's preferred stock is notched five levels below its 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 affirmed due to the affirmation of the VR. CVBF's preferred stock is notched 2x from the VR for loss severity, and 3x for non-performance.

HOLDING COMPANY
The IDR and VR of CVBF 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.

LONG- AND SHORT-TERM DEPOSIT RATINGS
CVBF's uninsured deposit ratings at the subsidiary banks are rated one notch higher than the company's Issuer Default Rating (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
Fitch views CVBF's ratings as well-situated at 'BBB' and believes rating upside is limited over the near- to intermediate-term given its asset and geographic concentrations as well as its earnings profile. However, better portfolio and business diversity over the long term could have positive implications provided the company maintains its conservative risk management practices.

Fitch believes that asset quality improvement will moderate going forward and could even reverse nominally as credit metrics normalize. However, if CVBF's credit trends reverse materially, particularly if large loans become impaired or the agricultural portfolio deteriorates materially due to drought conditions, negative rating action could be taken. Moreover, if capital management were to become more aggressive than Fitch's expectations in payout levels or through acquisitions, negative rating action could ensue, although this is not expected.

SUPPORT RATING AND SUPPORT RATING FLOOR
CVBF'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 CVBF and its subsidiaries is notched down from the VRs of CVBF 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 CVBF.

HOLDING COMPANY
If CVBF became undercapitalized or increased 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 CVBF and its subsidiaries are primarily sensitive to any change in the company's IDR. This means that should a long-term IDR be downgraded, deposit ratings could be similarly impacted.

The following ratings have been affirmed with a Stable Outlook:

CVB Financial Corp.
--Long-term Issuer Default Rating (IDR) at 'BBB';
--Short-term IDR at 'F2';
--Viability Rating at 'bbb';
--Support at floor 'NF';
--Support at '5'.

Citizens Business Bank
--Long-term IDR at 'BBB';
--Long-term deposit at 'BBB+';
--Short-term IDR at 'F2';
--Short-term deposit at 'F2';
--Viability Rating at 'bbb';
--Support floor at 'NF';
--Support at '5'.

CVB Statutory Trust III
--Preferred stock at 'BB-'.