DBRS Morningstar Takes Numerous Rating Actions on Concentra Bank Following Acquisition by Equitable Bank

DBRS Limited (DBRS Morningstar) has today taken a number of rating actions following the completion of the acquisition of Concentra Bank (Concentra or the Bank) by Equitable Bank (Equitable; rated BBB with a Positive trend by DBRS Morningstar). DBRS Morningstar has equalized Concentra’s ratings and trends with the ratings and trends of Equitable, downgrading Concentra’s Long-Term Issuer Rating, Long-Term Senior Debt Rating, and Long-Term Deposits Rating to BBB with a Positive trend from A (low). Concurrently, DBRS Morningstar also downgraded the Short-Term Issuer Rating and Short-Term Instruments Rating to R-2 (high) with a Positive trend from R-1 (low). These actions remove Concentra’s ratings from Under Review with Negative Implications where they were placed on February 7, 2022.

KEY RATING CONSIDERATIONS
Following the close of the acquisition, DBRS Morningstar considers Concentra as a core banking subsidiary of Equitable. This is a key element underpinning the equalization of Concentra’s ratings with those of Equitable. Concentra’s ratings will be maintained since Equitable will operate with two bank charters for the foreseeable future. Customary regulatory approvals would be required for any amalgamation of Concentra with Equitable.

Equitable becomes Canada’s seventh largest independent Canadian bank by assets, directly and indirectly serving more than 5 million Canadians. The new combined entity will have increased scale in core product lines, funding and revenue diversification, and reach, with over 1,800 employees. The integration of Concentra is expected to be immediately accretive to earnings. The combined entity is expected to continue serving Concentra’s community partners and customers, which include credit union members, with an enhanced service offering and strong growth platform.

RATING DRIVERS
As a fully owned banking subsidiary, Concentra’s ratings would move in tandem with Equitable’s ratings. If Equitable continues to diversify its funding sources while maintaining sound credit fundamentals, the ratings would be upgraded. Conversely, the ratings would be downgraded if there were material operational issues with the acquisition integration. Significant losses in the loan portfolio as a result of unforeseen weakness in underwriting and/or risk management, disproportionate growth in commercial originations that weaken the Bank’s risk profile, or substantive funding pressure caused by deposit outflows would also result in a ratings downgrade.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Rating actions on Equitable Bank are likely to have an impact on this rating. ESG factors that have a significant or relevant effect on the credit analysis of Equitable Bank are discussed separately at https://www.dbrsmorningstar.com/issuers/18307.

There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 23, 2022; https://www.dbrsmorningstar.com/research/398692). In addition DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings, https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022) in its consideration of ESG factors.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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