DBRS Confirms Equitable Bank Rating at BBB, Stable Trend

DBRS has today confirmed the BBB ratings on the Deposits and Senior Debt and Issuer Rating of Equitable Bank (the Bank), and confirmed the rating of BBB (low) on the Bank’s Subordinated Debt. The BBB (low) Deposits and Senior Debt rating on its parent, Equitable Group Inc. (the Holding Company; collectively, Equitable or the Company), has also been confirmed. All trends are Stable.

Asset quality is a key ratings driver for the Company. DBRS utilized its structured finance residential mortgage-backed securities (RMBS) model to assess the quality of Equitable’s uninsured residential mortgages, while also running the uninsured portion of the commercial portfolio through DBRS’s commercial mortgage-backed securities (CMBS) model. The model results support the conclusion that Equitable is adequately capitalized to support its current ratings based on a runoff scenario. Supplementing this conclusion with additional analysis, DBRS believes Equitable is also adequately capitalized as a going-concern lender.

The asset quality is also evidenced by the Company’s history of low charge-offs, driven largely by the secured nature of the loan book. Equitable’s small size results in a number of concentration-related risks, including geographic loan concentration and limited funding sources (brokered deposits and securitization). Equitable has developed some niche business areas where it is competitive and does not face overwhelming competition. However, the portfolio composition of alternative residential mortgages, small commercial mortgages and larger commercial mortgages (predominantly multifamily residential) has the potential to be problematic in a difficult environment as a result of concentration in the real estate market; DBRS notes that as the recent downturn was sharp but short in both Ontario and Alberta, the market was not adequately shocked to accurately gauge sensitivity.

The Bank’s Deposits and Senior Debt rating of BBB comprises an intrinsic assessment of BBB, and a support assessment of SA3, which reflects the expectation of no timely external support. The Holding Company’s senior rating reflects the structural subordination relative to the Bank.

Notes:
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are the Global Methodology for Rating Banks and Banking Organisations (June 2012), Criteria: Support Assessment for Banks and Banking Organisations (January 2014), Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (December 2013) and Rating Holding Companies and Their Subsidiaries (January 2014) which can be found on DBRS’s website at www.dbrs.com under Methodologies.

The sources of information used for this rating include company documents. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.