Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of
Fitch has also affirmed the Short-Term IDR's at 'F2'. The Ratings Outlook remains Stable reflecting Fitch's belief that CVBF's financial metrics will remain consistent with 'BBB+' rated peers during the Outlook horizon of 12-24 months.
Fitch has withdrawn CVBF's and CBB's Support Ratings and Support Rating Floors as they are no longer relevant to the agency's coverage following the publication of Fitch's updated 'Bank Rating Criteria' on
Key Rating Drivers
Ratings Affirmed; Outlook Stable: In
Strong and Consistent Earnings: CVBF's operating profit to risk weighted assets (RWA) and return on average assets over the past 10 years have been among the highest and most consistent among Fitch's rated universe of banks in the
Capital Level Above Peers': Fitch views CVBF's historically conservative capital management practices as important offsets for the product and geographic concentrations in the bank's loan portfolio. Although CVBF's common equity Tier 1 ratio (CET1) decreased 130bps yoy to 13.6% at 1Q22 from both its January acquisition of
Solid Asset Quality Measures: CVBF's asset quality measures remained solid in 2021. Fitch-calculated impaired loans (NPLs; inclusive of accruing TDRs) of 0.14% of loans improved slightly yoy and continue to reflect headroom in the assigned 'bbb+' factor score. Net chargeoffs during 2021 and 2020 were minimal, which followed six years of net recoveries.
Low Cost of Deposits and Strong Liquidity: CVBF has maintained the lowest cost of deposits in Fitch's large community bank peer group, which, at only 4bps in 2021, is a competitive advantage relative to peers. The bank's relationship strategy has resulted in a high proportion of non-interest-bearing deposits and operating accounts from small business customers.
Concentrated Business Model: CVBF's ratings remain constrained by its relatively limited geographic footprint, which, including its January acquisition of
Holding Company: CVBF's VR is equalized with those of its operating companies and banks, namely CBB, reflecting its role as the bank holding company, which is mandated in the
Government Support Rating: CVBF's and CBB's Government Support Rating is 'No Support'. In Fitch's view, the probability of support is unlikely.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
CVBF's capital management has historically been a rating strength, and the bank's capital levels have been consistently above peers. Fitch expects that CVBF will continue to manage its capital above peers given the company's geographic and CRE concentration. CET1 levels below 12% for several quarters without a credible plan to rebuild it to 12% or higher could lead to a review of the ratings.
CVBF's ratings reflect the expectation that the company's earnings will continue to consistently outperform peers driven by its competitive advantage of lower credit and funding costs relative to peers. Because CVBF's Earnings & Profitability factor score of 'bbb+' exceeds that of peers, levels of operating profit to risk-weighted assets at or below peer levels for several quarters could lead to a Negative Outlook or a lower rating.
While some deterioration in asset quality metrics is assumed given CVBF's CRE exposure, Fitch expects CVBF's asset quality measures to remain above-average. Levels of impaired loans above 2% of total loans could lead to a Negative Outlook or a lower rating.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
While Fitch considers a credit upgrade unlikely in the current environment, positive rating momentum could develop over time through increased loan, geographic and/or revenue diversification, provided this diversification is achieved prudently without significantly increasing its risk appetite.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Long- and Short-Term Deposit Ratings: CBB's long-term deposits are rated one notch higher than the bank's IDR because
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Long- and Short-Term Deposit Ratings: The long- and short-term deposit ratings are sensitive to any negative change to CBB's Long- and Short-Term IDRs.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Long- and Short-Term Deposit Ratings: The long- and short-term deposit ratings are sensitive to any positive change to CBB's Long- and Short-Term IDRs.
SUBSIDIARIES & AFFILIATES: KEY RATING DRIVERS
Given the close correlation between holding company and subsidiary failure and default probabilities noted above, the same factors drive both CBB and CVBF's ratings.
SUBSIDIARIES AND AFFILIATES: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Long- and Short-Term Deposit Ratings: The long- and short-term deposit ratings are sensitive to any negative change to CBB's Long- and Short-Term IDRs.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Long- and Short-Term Deposit Ratings: The long- and short-term deposit ratings are sensitive to any positive change to CBB's Long- and Short-Term IDRs.
VR ADJUSTMENTS
The Asset Quality score of 'bbb+' has been assigned below the 'aa' category implied score and incorporates a negative adjustment for concentration exposures. The Earnings and Profitability score of 'bbb+' has been assigned below the 'a' category implied score and incorporates a negative adjustment for revenue diversification. The Capital and Leverage score of 'bbb+' has been assigned below the 'a' category implied score and incorporates a negative adjustment for risk and business model and historical and future metrics. The Funding and Liquidity score of 'bbb+' has been assigned below the 'a' category implied score and incorporates a negative adjustment for contingent market access.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg.
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RATINGS KEY OUTLOOK WATCH
Positive
Negative
Evolving
Stable
Long Term/Short Term Issuer Default Rating displayed in orange denotes
Where there was a review with no rating action (Review - No Action), please refer to the 'Latest Rating Action Commentary' for an explanation of key rating drivers
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Rating Action Commentary
Fitch Affirms GSMS 2020-GC47
Fri
Fitch Ratings -
RATING ACTIONS
Entity / Debt
Rating
Prior
A-1 36258RAY9
LT
AAAsf
Affirmed
AAAsf
A-4 36258RAZ6
LT
AAAsf
Affirmed
AAAsf
A-5 36258RBA0
LT
AAAsf
Affirmed
AAAsf
LT
AAAsf
Affirmed
AAAsf
A-S 36258RBE2
LT
AAAsf
Affirmed
AAAsf
B 36258RBF9
LT
AA-sf
Affirmed
AA-sf
C 36258RBG7
LT
A-sf
Affirmed
A-sf
D 36258RAA1
LT
BBBsf
Affirmed
BBBsf
E 36258RAE3
LT
BBB-sf
Affirmed
BBB-sf
Page
of 2
VIEW ADDITIONAL RATING DETAILS
KEY RATING DRIVERS
Stable Loss Expectations: The majority of the pool continues to exhibit stable performance and loss expectations remain in line with Fitch's expectations at issuance. Three loans (9.2% of pool) are considered Fitch Loans of Concern (FLOCs), two (7.8%) of which are in the top 15; one is secured by an office property with near-term rollover and higher expenses and two are secured by multifamily properties which suffered declines in performance due to the pandemic.
The largest FLOC, PNC Center (4.2% of pool), is secured by a 498,905 sf office property located in
Additionally, approximately 16% of the NRA rolls in the near-term, comprising 9.4% in 2022 and 6.1% in 2023, including the fourth largest tenant,
The next largest FLOC,
Minimal Change to Credit Enhancement: As of the
Investment-Grade Credit Opinion Loans: Six loans (37.8% of pool) received investment-grade credit opinions at issuance.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Downgrades would occur with an increase in pool-level losses from underperforming or specially serviced loans. Downgrades to the 'AAsf' and 'AAAsf' categories are not expected given their position in the capital structure, sufficient credit enhancement (CE) relative to expected losses and continued amortization, but may occur if interest shortfalls affect these classes or if a high proportion of the pool defaults and expected losses increase considerably.
Downgrades to the 'BBBsf' and 'Asf' categories would occur should overall pool losses increase significantly and/or one or more of the larger FLOCs have an outsized loss, which would erode CE. Downgrades to the 'Bsf' and 'BBsf' categories would occur should loss expectations increase from continued performance decline of the FLOCs and/or loans default or transfer to special servicing.
Fitch has identified both a baseline and a worse-than-expected, adverse stagflation scenario based on fallout from the
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Sensitivity factors that lead to upgrades would include stable to improved asset performance coupled with paydown and/or defeasance. Upgrades of the 'Asf' and 'AAsf' categories may occur with significant improvement in CE and/or defeasance; however, adverse selection, increased concentrations and further underperformance of the larger FLOCs or loans impacted by the coronavirus pandemic could cause this trend to reverse.
Upgrades to the 'BBBsf' category would be limited based on sensitivity to concentrations or the potential for future concentration. Classes would not be upgraded to 'Asf' if there is a likelihood for interest shortfalls. Upgrades to the 'Bsf' and 'BBsf' categories are not likely until the later years in a transaction and only if the performance of the remaining pool is stable and/or properties vulnerable to the coronavirus return to pre-pandemic levels, and there is sufficient CE to the classes.
Best/Worst Case Rating Scenario
International scale credit ratings of Structured Finance transactions have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of seven notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of seven notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Additional information is available on www.fitchratings.com
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