Sohail Ahmer, CFA

Transcription

1 Rating Report Concentra Bank Ratings Rating Considerations Franchise Strength: Concentra Bank s (Concentra or the Bank) franchise strength is determined by its utility to the credit union system in Canada (except Québec), which includes 275 credit unions nationally holding over $200 billion in assets. As the main provider of wholesale banking, capital markets and trust services to the majority of credit unions in Canada, and having developed requisite expertise, DBRS believes it would be difficult for individual credit unions to find a cost-effective replacement to Concentra. Earnings Power: Relatively stable recurring earnings characterised by an increasing proportion of fee-based income, though earnings remain susceptible to spikes in provisioning expense and fair value adjustments. Risk Profile: Generally good asset quality with low history of loan losses on the residential mortgage portfolio. However, the risk profile is changing with greater willingness to acquire third-party underwritten Alt-A and unsecured consumer loans portfolios. Sohail Ahmer, CFA sahmer@dbrs.com Maria-Gabriella Khoury, CFA mkhoury@dbrs.com Issuer Debt Rating Rating Action Trend Concentra Bank Long-Term Issuer Rating A (low) Confirmed Stable Concentra Bank Long-Term Senior Debt A (low) Confirmed Stable Concentra Bank Short-Term Issuer Rating R-1 (low) Confirmed Stable Concentra Bank Short-Term Instruments R-1 (low) Confirmed Stable Funding and Liquidity: Funding is largely generated through wholesale sources and overnight deposits, and hence susceptible to flight risk. However, wholesale maturities are staggered, enabling Concentra to manage its liquidity needs. Capitalization: Capitalization has been weakening, although the capital cushion remains sufficient to absorb losses around historical levels. Sources of new CET1 capital is largely limited to internal equity generation, which has been strong. Rating Drivers Factors with Positive Rating Implications Though unlikely over the intermediate term, positive rating pressure could arise as a result of positive developments in the ratings of Credit Union Central of Saskatchewan (SaskCentral). Improvement in Concentra s fundamentals, which could be driven by greater fee-based income and enhancement of current business lines. Factors with Negative Rating Implications An erosion in asset quality and increased exposure to riskier credits. Sustained weakness in internal equity generation. Increased reliance on brokered deposits. Changes in the assessment of SaskCentral s ability or willingness to provide support. Increased purchases of non-relationship loans outside the credit union system.

2 Rating Report Concentra Bank DBRS.COM 2 Financial Information For the Year Ended December 31 (IFRS) ($ millions) Return on Average Equity 6.72% 7.04% 8.12% 9.95% 12.92% Efficiency Ratio 49.26% 59.70% 55.44% 51.55% 54.18% Net Interest Margin 0.92% 0.95% 1.06% 1.18% 1.23% Common Equity Tier 1 Ratio* 10.20% 11.60% 13.20% 13.30% N/A Net Impaired Loans / Total Net Loans 0.18% 0.23% 0.31% 0.56% 0.12% Loan Loss Provision/Average Net Loans 0.20% 0.04% 0.13% 0.11% 0.08% Income before Provisions & Taxes ($) Net Income ($) Total Equity ($) Total Assets ($) 9,437 7,800 6,746 6,058 5,820 *Basel III capital framework applied beginning in 2013, former figures are under Basel II Source: Company reports, DBRS Issuer Description Concentra acts as the main provider of wholesale financial, capital markets and trust services to credit unions in Canada (except Québec), which includes 275 institutions nationally holding over $200 billion in assets. In addition, Concentra offers credit unions investment opportunities outside of their franchise areas, providing them with some yield pick-up and asset diversification. As of January 1, 2017, Concentra obtained a federal banking licence and began operating as a Schedule I chartered bank. Concentra is indirectly owned by credit unions through their Centrals. SaskCentral holds the majority (84%) economic and voting interest in Concentra, while the remaining 16% is divided between credit unions across Canada. Rating Rationale On September 28, 2017, DBRS Limited (DBRS) confirmed Concentra Bank s (Concentra or the Bank) Long-Term Issuer Rating and Long-Term Deposits rating at A (low) and its Short-Term Issuer Rating and Short-Term Instruments rating at R-1 (low). All trends are Stable. The Support Assessment has been revised from SA2 to SA1. This revision is a consequence of a change in Concentra s ownership structure, under which the voting interest of its parent, SaskCentral (rated R-1 (low) with a Stable trend by DBRS), has increased from 47% to 84%. SaskCentral s voting interest is now the same as its 84% economic interest. The increase in control became effective after Concentra Financial Services Association (CFSA) obtained a federal banking licence and began operating as Concentra Bank on January 1, SaskCentral will begin reporting on a consolidated basis, including Concentra, in December As SaskCentral now has majority control and greater responsibility for Concentra s business activities and strategy, DBRS considers Concentra to be a subsidiary of SaskCentral in determining its Support Assessment. Concentra s franchise position reflects its role in meeting certain wholesale banking and trust service needs of credit unions across Canada. This capacity is expected to be enhanced through Concentra s bank charter. Concentra is indirectly owned by credit unions in other provinces through their Centrals, which own the majority of the remaining 16% stake. Prior to Concentra s charter change, SaskCentral s voting interest was constrained and the non-saskatchewan-based Centrals had a majority voting interest in Concentra. CFSA was created in 2005 as a result of SaskCentral decoupling its wholesale services and transferring them to CFSA, while retaining the responsibility of managing the provincial credit union mandatory liquidity pool. Overall, Concentra serves credit unions nationally. In confirming Concentra s ratings, DBRS considered not only the change in control, but also Concentra s continued solid performance. DBRS views the Bank s recurring earnings as solid, but susceptible to some volatility through fair value adjustments in its investment book and occasional spikes in its provisioning expense related to commercial loan concentrations in energy and resource-dependent provinces in Canada. DBRS notes that while there can be some volatility from quarter to quarter, annual results have been improving over the past several years despite the low interest rate environment. Most recently, Concentra reported Q net income of $9.2 million, an 8.2% quarter-over-quarter increase despite stable revenues, resulting from gains booked on the sale of securities. DBRS views Concentra s asset quality as generally strong, but risk exposure is increasing in some smaller segments. The level of impaired loans remains low at 0.3% of gross loans in 2016 and provisioning has absorbed only 14% of income before provisions and taxes over the last five years. Contributing to this performance is the composition of the Bank s balance sheet, with over half of total loans in low-risk, secured residential mortgages, which are predominantly funded through securitizations. Commercial lending, which Concentra supports

3 Rating Report Concentra Bank DBRS.COM 3 through loan purchases from credit unions and by enabling credit unions to participate in larger deals, is also predominantly secured, contributing to low loss rates. DBRS notes that the Bank s balance sheet risk is likely to be increasing, as its appetite for Alt-A residential mortgages and unsecured consumer lending has increased. Although these segments remain relatively small components of its overall balance sheet, Concentra sources these exposures from third parties, rather than credit unions. Thus, weakness in underwriting practices outside of the Bank s control could lead to increased provisioning and loan losses. However, DBRS recognizes that Concentra reserves the right to decline loans that fail to meet acceptable credit criteria as provided by Concentra to its origination agents. Concentra obtains the majority of its funding from overnight deposits from the credit union system, broker-sourced deposits and longerterm securitizations. While broker deposits allows better management of duration risk, increasing reliance on these exposes Concentra to deposit outflows. In DBRS s opinion, the Bank s reliance on wholesale funding increases its susceptibility to liquidity events that could severely restrict access to market funding and stress liquidity. Positively, DBRS notes that there is limited duration mismatch and liquidity is solid. DBRS considers that Concentra is reasonably capitalized and its capital cushion is sufficient to absorb losses in a stressed scenario. DBRS notes that Concentra s capitalization dipped to 10.2% in 2016, from 11.6% in 2015, partly as a result of an increase in risk-weighted assets resulting from the Bank s acquisition of an unsecured consumer loan portfolio. By Q2 2017, the Bank had improved its CET1 ratio back to 11.8% and intends to continue to strengthen its capital base through retained earnings. Given that Concentra s owners are credit unions, DBRS notes that the primary source of new CET1 capital is limited to internal equity generation. Franchise Strength DBRS views the Concentra s franchise strength as being driven by its importance to the credit union system as an important provider of wholesale and capital markets services. DBRS views Concentra s franchise strength as being determined by its utility to the credit union system in Canada (except Québec), which includes 275 credit unions nationally holding over $200 billion in assets. As Concentra is the main provider of wholesale financial and trust services to the majority of credit unions in Canada, having developed wholesale banking expertise, it would be difficult for individual credit unions to find a cost-effective replacement. Also, through its operations Concentra offers credit unions investment opportunities outside of their franchise areas, providing them with some yield pick-up and asset diversification. Concentra is indirectly owned by credit unions through their Centrals. As of January 1, 2017, SaskCentral holds the majority (84%) economic and voting interest in Concentra, while the remaining 16% is divided between credit unions across Canada. Prior to obtaining a federal licence, non-saskatchewan-based credit unions had majority voting interest in Concentra, which has now been materially diluted. DBRS notes that if, at some future date, non-saskatchewan-based credit unions should feel Concentra is not serving their interest, they will have limited means to effect change at Concentra. Additionally, while Concentra aims to be owned by credit unions and operate on cooperative principles, a significant change in ownership structure at Concentra could alter existing incentive structure and would require DBRS to re-evaluate Concentra s franchise strength and risk appetites, with potential implications for Concentra s ratings. In assessing Concentra s product range, DBRS notes that, while credit unions are generally restricted from transacting outside their provincial boundaries, through its wholesale operations Concentra is able to provide them with a national reach. Additionally, by consolidating wholesale banking expertise and investments from credit union under one roof, Concentra can realize attractive terms in wholesale markets that smaller credit unions would find onerous to achieve. Concentra s management believes conversion to a Schedule I bank will allow them greater market access that would not have been possible as a provincially regulated entity. Primarily, Concentra operates through two business lines, Wholesale and Trust: Wholesale: Through this segment, Concentra enables credit unions to invest in pools of mortgage and commercial loans, which are either acquired outright or accessed via a syndicate. Concentra is looking to extend its range of products to include pools of consumer loans. Additionally, Concentra facilitates credit unions participation in the National Housing Act Mortgage-Backed Securities (NHA-MBS) program by providing them with requisite expertise and administrative support. The commercial leasing segment offers commercial equipment financing and origination expertise, and through its capital markets function Concentra offers term deposit products, foreign exchange products and asset liability management consulting services, and acts as a counterparty to derivatives instruments on behalf of credit unions. Trust: These are services credit unions are not allowed to offer directly and include administration of registered plans, corporate trust services, and planning and administrative services related to estates and trusts. Trust services are provided through a wholly owned subsidiary, Concentra Trust.

4 Rating Report Concentra Bank DBRS.COM 4 Positively, DBRS notes that management level changes at Concentra in 2017 have been aimed at creating a team that is experienced in wholesale banking functions. Ken Kosolofski, Concentra s president and CEO for seven years, announced his retirement effective While a search for a permanent CEO is underway, Brian Guillemin (EVP Corporate Services) has been appointed as interim president and CEO effective September 29, The interim CFO position has been filled on a permanent basis by Paul Masterson, who has over 25 years of banking experience in Canada, the U.K. and the United States. In DBRS s opinion, Concentra s competitive position remains solid as it is the main institution serving wholesale needs of credit unions in Canada. Also, as the credit union industry structure evolves, there is the possibility of common services used by credit unions, not related to liquidity, being consolidated under Concentra, further strengthening Concentra s franchise. Earnings Power In DBRS s assessment, Concentra generates relatively stable recurring earnings and exhibits adequate good cost control. Concentra operates on cooperative principles under which its objective is not to maximize profits but rather to provide wholesale banking, trust and consulting services to the credit union system while generating reasonable return on equity. In DBRS s opinion, this incentivizes Concentra to limit high-risk activities, which should help mitigate excessive earnings volatility. DBRS notes that net interest income forms the bulk of operating revenues for Concentra, and though the proportion of non-interest income has been improving, it remains still low, making recurring earnings susceptible to sharp interest rate movements. Fee-based income is driven by asset under administration (AUA) and trust services. In 2016 AUA stood at $31 billion, an increase of 9.5% over the prior year. DBRS recognizes that fee-based services are a potential growth opportunity for Concentra given the aging demographics of the credit union membership base, which seeks trust and estate planning services. Overall, DBRS recognizes that while profitability has been under pressure, given the low rate environment, recurring earnings have been relatively stable.

5 Rating Report Concentra Bank DBRS.COM 5 DBRS notes that provision for credit losses (PCLs) spiked in 2016 from the recognition of collective allowances resulting from the acquisition of an unsecured consumer loans portfolio valued at $386.2 million from a major bank, and the impact of ongoing weakness in the oil and gas sector on the leasing and hospitality sectors. Additionally, it should be noted that provisions in 2015 were below normal because of recoveries on two previously written-off commercial mortgages. In DBRS s assessment, adjusting for the 2015 recoveries and PCLs from the new consumer portfolio, 2016 PCLs were still up 100% compared to average PCLs over a three-year period from 2015 to DBRS recognizes that at current levels provisioning expense is manageable but could worsen, should Concentra continue to increase exposures to riskier sectors or should energy and resource prices weaken. DBRS views operating efficiency as solid. The wholesale banking business model is not resource-intensive, particularly given the availability of a captive market of credit unions, and it is likely that Concentra will maintain its top-tier efficiency over the intermediate term. Risk Profile While DBRS views positively Concentra s predominant exposure to lower-risk asset-backed lending, DBRS remains cautious of Concentra s commercial mortgage and unsecured exposures.

6 Rating Report Concentra Bank DBRS.COM 6 While credit quality has generally improved, Concentra s risk appetite appears to be on an uptrend. In DBRS s opinion, this is in part being driven by member credit unions seeking higher-yielding investment conduits through Concentra as Concentra assists member credit unions in accessing wholesale markets by securitizing loan assets they have originated. Conversely, Concentra purchases loans from third parties or takes part in syndicated deals and sells down these exposures to the credit union network. Demand from the credit union systems for higher-yielding assets could lead to Concentra partaking in riskier deals and asset classes. Positively, DBRS notes that through its national reach, Concentra maintains a geographically diverse portfolio of assets, providing credit unions with exposure to out-of-province retail and commercial assets enabling credit unions to diversify their loan assets. Concentra no longer originates loans and legacy self-originated loans on its balance sheet are few.

7 Rating Report Concentra Bank DBRS.COM 7 Residential mortgages largely represent loans that have been sourced from within the credit union system that are then securitized either through CMHC s NHA-MBS or Canada Mortgage Bond (CMB) programs. These assets can also include Alt-A mortgages purchased from third parties. Positively, DBRS notes that the majority of the residential mortgage portfolio (88%) is insured, exposure to HELOCs is negligible and the average loan-to-value ratio on the portfolio stood at 75% in The credit quality is strong within the residential mortgage portfolio and impaired loans represent 0.08% of gross loans. DBRS notes that Concentra has been participating in the Alt-A segment of the residential mortgage market for twenty years through the purchase of loans originated serviced by a third party. These are not sub-prime loans, but represent borrowers with non-regular incomes or those that have experienced life-changing events (such as a divorce) that restrict them from accessing mortgage agreements with the large Canadian banks. As at Q2 2017, Concentra held about $491 million in Alt-A mortgages in its portfolio or 5% of the total mortgage book. All mortgages are compliant with the Office of the Superintendent of Financial Institutions (OSFI) guidelines, and while Concentra relies on due diligence conducted by the third party, it also conducts its own due diligence on a sample of the files purchased. Concentra has limited its Alt-A exposure to $900 million and wants to build this book gradually, and will continue to rely on third parties to originate and service the loans. As noted earlier, this strategy is being driven by credit unions who have expressed interest in purchasing these loans, as it provides them with some yield pick-up and asset diversification. DBRS notes that while the residential portfolio is fairly well-diversified geographically, there is a disproportionately large proportion of exposure in Alberta. The economy in Alberta is susceptible to volatility based on movements in energy and resource prices, though with an increasing manufacturing base, these risks are trending down. Also, house price inflation in Alberta has been in sync with economic fundamentals and there do not appear to be signs of over-valuation in key markets in Alberta. The purchase of the unsecured consumer lending portfolio has added a new dimension to retail credit risk for Concentra. Currently, the size of this portfolio is small at 5% of gross loans, of which 0.2% are classified as impaired. Going forward, Concentra continues to assess potential opportunities to further diversify its business model through portfolio purchases and continued investments in its smaller business lines. Wholesale risk is largely associated with commercial loans and finance leases, representing 18.3% of gross loans in 2016, the majority of which are asset-backed through property and equipment. Commercial loans are also largely sourced through the credit union system or purchased from third parties and are concentrated in Ontario (35%) and the resource-dependent provinces of Saskatchewan (27%) and Alberta (18%). DBRS notes that Concentra s commercial lending exposure is its main source of asset impairment. In 2016, the Gross Impaired Loans (GILs) ratio for this segment was 1.50%, an increase of 33 basis points over the prior year. Finance leases contributed to the majority of the increase in loan impairment, with the GILs ratio increasing from 0.3% in 2015 to 2.6% in This is likely related to weakness in the energy and resources sectors and its impact on borrowers in Alberta and Saskatchewan. In its ratings considerations, DBRS realizes that commercial loans tend to have large single-party exposures and can cause spikes in loan impairments should a small number of accounts go delinquent. However, despite being the main source of impairment, the leasing segment represented a small 2.5% of gross loans in Through its limited capital markets operations, Concentra is exposed to some market risk. Concentra provides credit unions with the capital markets expertise they lack. This includes foreign exchange contracts and plain vanilla interest rate swaps for ALM purposes entered into with major financial institutions.

8 Rating Report Concentra Bank DBRS.COM 8 Funding and Liquidity DBRS views Concentra s funding position to be well-managed and liquidity as sufficient, but remains cautious on over-reliance on wholesale funding. Positively, DBRS notes that asset liability duration mismatch is limited and liquidity position is sufficient. The majority of funding for Concentra is sourced from wholesale funding, mainly non-retail deposits. As such, Concentra s loan-to-deposit ratio has been increasing over the previous two years and is now the highest among its peer group (small to medium-sized Schedule I banks). DBRS cautions that heavy reliance on wholesale funding exposes Concentra to market events that could restrict funding sources and stress liquidity. In DBRS s opinion, Concentra is exposed to some flight risk, as it does not hold retail-sourced deposits. Wholesale deposits are brokersourced institutional deposits, accounting for 67% of total deposits, and mostly consist of non-redeemable instruments. About 58% of wholesale deposits mature after one year, while 9% are redeemable on demand. Positively, DBRS notes that while these are rate-sensitive deposits, maturities are staggered so as to restrict excessive outflows at any given point in time, and that Concentra does not have exposure to volatile High Interest Savings Accounts (HISA). Credit union deposits represent 27% of total deposits and constitute excess liquidity in the credit union system, implying that should market-related events impact credit union liquidity, these deposits could be withdrawn. Also, DBRS notes that a significant portion of these deposits are overnight in nature and can be volatile, sometimes based on the agricultural cycle. Overnight deposits from credit unions represented 10% of total deposits.

9 Rating Report Concentra Bank DBRS.COM 9 DBRS notes that Concentra has been sourcing increased amounts of funding using the NHA-MBS and CMB programs under which it can secure lower-cost funding by selling pools of insured mortgages. Though this has helped increase the duration of liabilities, and has reduced interest rate risk, it does expose Concentra to elevated risks in certain Canadian housing markets. In DBRS s opinion, a significant and sustained correction in real estate prices could negatively impact demand for Canadian mortgage assets and create a challenging environment for institutions like Concentra looking to refinance CMB issues on maturity. Positively, DBRS notes that Concentra monitors and manages its liquidity using OSFI guidelines which are Basel III compliant. As at Q2 2017, LCR was significantly above the policy limit, which is higher than the 100% minimum regulatory requirement. To bolster its liquidity position, Concentra maintains short-term funding programs (commercial paper and repos), in addition to lines of credit with SaskCentral and a banking syndicate for cash management and emergency liquidity purposes. In DBRS s opinion, there is limited duration mismatch, resulting in manageable interest rate risk. Qualifying liquid assets for regulatory purposes totalled $1.3 billion in 2016, a small decline of 3% from the prior year. This compares well with debt maturities of roughly $1.0 billion over a twelve-month period, resulting in manageable refinance risk. Capitalization In DBRS s assessment, Concentra has sufficient capital cushion and reasonable rates of internal equity generation, but DBRS notes that capitalization levels have been weakening.

10 Rating Report Concentra Bank DBRS.COM DBRS notes that while capitalization has been weakening, it remains ahead of minimum regulatory requirements. Capital ratios declined in 2016 because of an increase in risk-weighted assets (RWAs) resulting from the acquisition of the unsecured consumer loans portfolio. Over Q2 2017, the CET 1 ratio improved to 11.8% and it is Concentra s intention to strengthen its capital base. Additionally, capital management is based on an OSFI-prescribed Basel III compliant approach and capital ratios are calculated on an all-in basis. While Concentra may consider raising capital outside of the credit union system, possibly Tier 2 capital, currently sources of fresh capital are limited to internal equity generation, which has been weakening. However, in order to support growth, Concentra has the option of sourcing capital from credit unions and restricting dividend payments. In DBRS s opinion, asset growth and mix will likely be constrained by Concentra s ability to generate fresh capital.

11 Rating Report Concentra Bank DBRS.COM Concentra Bank Financial Information For the Year Ended December 31 (IFRS) Balance Sheet ($ thousands) Cash 194,379 53,713 80,163 84,914 22,941 Securities 1,434,144 1,426,479 1,164,538 1,067,605 1,040,163 Loans Receivable 7,696,613 6,223,756 5,448,613 4,853,565 4,699,310 Total Assets 9,436,734 7,799,706 6,746,485 6,058,077 5,820,128 Deposits 4,206,923 4,205,254 3,834,471 3,109,676 2,707,401 Securitization Liabilities 4,314,901 2,966,362 2,298,478 2,309,426 2,472,020 Total Liabilities 9,002,541 7,374,901 6,452,119 5,780,755 5,562,521 Total Equity 434, , , , ,607 Income Statement ($ thousands) Net Interest Income 78,468 68,309 67,399 69,449 69,395 Non-Interest Income 26,842 23,164 18,651 15,759 18,279 Total Revenue 105,310 91,473 86,050 85,208 87,674 Operating Expenses 51,873 54,607 47,706 43,921 47,505 Income before Income Taxes 39,353 34,694 31,508 35,968 36,731 Income Tax Expense 10,494 9,393 8,301 9,345 4,771 Net Income 28,859 25,301 23,207 26,623 31,960 Profitability Net Interest Margin 0.92% 0.95% 1.06% 1.18% 1.23% Net Interest Income/ Operating Revenue 74.5% 74.7% 78.3% 81.5% 79.2% Efficiency Ratio 49.3% 59.7% 55.4% 51.5% 54.2% Provisions/IBPT 26.4% 5.9% 17.8% 12.9% 8.6% Operating Leverage 20.13% -8.16% -7.63% 4.73% 8.72% Return on Average Equity 6.72% 7.04% 8.12% 9.95% 12.92% Return on Average Assets 0.33% 0.35% 0.36% 0.45% 0.56% Risk Profile Loan Loss Provision/Average Net Loans 0.20% 0.04% 0.13% 0.11% 0.08% Net Write-offs/Average Net Loans 0.01% -0.01% 0.03% 0.10% 0.11% Gross Impaired Loans/ Gross Loans 0.30% 0.29% 0.47% 0.67% 0.22% GILs/Common Equity + Reserves 4.95% 4.11% 8.10% 11.21% 3.78% Loan Loss Allowances / GILs 125.7% 90.6% 79.6% 43.8% 134.8% Funding & Liquidity Gross Loans/Total Deposits 183.3% 148.1% 142.3% 156.1% 173.6% Demand Deposits/Total Deposits 20.2% 20.0% 20.8% 19.4% 22.5% Liquid Assets/Short Term Debt & Deposits 38.7% 35.2% 32.5% 37.1% 39.3% Capitalization Common Equity Tier 1 Ratio* 10.2% 11.6% 13.2% 13.3% N/A Tier 1 Capital Ratio* 13.9% 16.2% 13.3% 13.5% 12.7% Total Regulatory Capital Ratio* 14.8% 17.6% 17.8% 18.9% 19.1% Total Equity/Total Assets 4.60% 5.45% 4.36% 4.58% 4.43% Tangible Common Equity/ Risk Weighted Assets 14.8% 17.1% 14.4% 14.6% 14.3% Total Risk Weighted Assets/Total Assets 31.0% 31.8% 30.3% 31.3% 31.0% Adjusted Internal Equity Growth 3.4% 5.9% 7.0% 8.0% 10.6% * Under Basel III all-in basis beginning in 2013

12 Rating Report Concentra Bank DBRS.COM Mid-Sized Banks Comps - YE Financial Information Bank of China HSBC CWB Laurentian Concentra (IFRS data in CAD$ millions) Return on Average Equity 4.5% 10.7% 8.9% 8.5% 6.7% Efficiency Ratio 60.4% 60.4% 46.7% 74.2% 49.3% Net Interest Margin 1.3% 0.9% 2.5% 1.5% 0.9% Common Equity Tier 1 Ratio 21.8% 10.5% 9.2% 8.0% 10.2% Net Impaired Loans/ Total Net Loans 0.0% 0.5% 0.5% 0.3% 0.2% Loan Loss Provisions/Average Net Loans 0.4% 0.2% 0.4% 0.1% 0.2% Income before Provisions & Taxes ($) $ 21 $ 822 $ 336 $ 231 $ 53 Net Income ($) $ 16 $ 524 $ 189 $ 152 $ 29 Common Equity ($) $ 526 $ 4,565 $ 2,078 $ 1,633 $ 434 Total Assets ($) $ 3,125 $ 94,657 $ 25,223 $ 43,006 $ 9,437 Earning Power Ratios (IFRS data in CAD$ millions) Return on Average Common Equity N/A 10.7% 9.2% 9.2% N/A Return on Average Equity 4.5% 9.7% 8.9% 8.5% 6.7% Return on Average Assets 0.6% 0.6% 1.2% 0.4% 0.3% Provisions/IBPT 23.7% 13.0% 23.5% 14.5% 26.4% Efficiency Ratio 60.4% 60.4% 46.7% 74.2% 49.3% IBPT/RWA 1.1% 1.9% 1.7% 1.3% 1.8% Operating Profit/ Operating Revenue 39.6% 39.6% 39.1% 21.6% 50.7% Non-Interest Income/Total Revenue 39.8% 45.8% 11.0% 35.6% 25.5% Effective Tax Rate 25.2% 26.7% 26.4% 23.0% 26.7% Net Interest Margin 1.3% 0.9% 2.5% 1.5% 0.9% Risk Profile Ratios (IFRS data in CAD$ millions) Loan Loss Provisions/Average Net Loans 0.4% 0.2% 0.4% 0.1% 0.20% Loan Loss Provisions/Gross Loans 0.3% 0.2% 0.4% 0.1% 0.2% Net Write-Offs/Average Net Loans 0.0% 0.4% 0.3% 0.1% 0.0% Gross Impaired Loans/ Gross Loans 0.0% 1.4% 0.6% 0.4% 0.3% GILs/IBPT 0.0% 83.2% 37.8% 57.3% 42.8% Net Impaired Loans/ Total Net Loans 0.0% 0.5% 0.5% 0.3% 0.2% Loan Loss Allowance / Total Gross Loans 0.7% 0.9% 0.6% 0.3% 0.4% Loan Loss Allowances / GILs 0.0% 64.2% 100.0% 83.6% 125.7% Funding & Liquidity Ratios (IFRS data in CAD$ millions) Net Customer Loans/Total Deposits 89.3% 83.3% 103.6% 120.7% % Net Customer Loans/ Total Funding 87.9% 66.4% 97.8% 95.0% 86.2% Liquid Assets/Total Assets 27.1% 26.7% 10.4% 13.6% 17.3% Capitalization Ratios (IFRS data in CAD$ millions) Common Equity Tier 1 Ratio 21.8% 10.5% 9.2% 8.0% 10.20% Tier 1 Ratio 21.8% 12.5% 11.0% 9.9% 13.9% Tangible Common Equity/ Risk Weighted Assets N/A 10.7% 9.1% 8.8% 14.8% Total Equity/Total Assets 16.8% 5.7% 9.3% 4.6% 4.6% Total Common Equity/Total Assets N/A 4.8% 8.2% 3.8% N/A Total Risk Weighted Assets/Total Assets 77.4% 44.4% 80.7% 41.7% 31.0% Total Dividend Payout N/A 72.3% 46.2% 57.2% 49.3% Common Dividend Payout N/A 70.2% 43.0% 53.1% N/A

13 Rating Report Concentra Bank DBRS.COM Rating Methodology and Approach The applicable methodology is Global Methodology for Rating Banks and Banking Organizations (May 2017), which can be found on the DBRS website under Methodologies. Ratings Issuer Debt Rating Rating Action Trend Concentra Bank Long-Term Issuer Rating A (low) Confirmed Stable Concentra Bank Long-Term Senior Debt A (low) Confirmed Stable Concentra Bank Short-Term Issuer Rating R-1 (low) Confirmed Stable Concentra Bank Short-Term Instruments R-1 (low) Confirmed Stable Rating History Current Long-Term Issuer Rating A (low) A (low) A (low) A (low) NR NR Long-Term Deposits A (low) NR NR NR NR NR Short-Term Issuer Rating R-1 (low) NR NR NR NR NR Short-Term Instruments R-1 (low) R-1 (low) R-1 (low) R-1 (low) R-1 (low) R-1 (low) Previous Report Concentra Financial Services Association: Rating Report, October 24, Notes: All figures are in Canadian dollars unless otherwise noted. For the definition of Issuer Rating, please refer to Rating Definitions under Rating Policy on Generally, Issuer Ratings apply to all senior unsecured obligations of an applicable issuer, except when an issuer has a significant or unique level of secured debt. The DBRS group of companies consists of DBRS, Inc. (Delaware, U.S.)(NRSRO, DRO affiliate); DBRS Limited (Ontario, Canada)(DRO, NRSRO affiliate); DBRS Ratings Limited (England and Wales)(CRA, NRSRO affiliate, DRO affiliate); and DBRS Ratings México, Institución Calificadora de Valores S.A. de C.V. (Mexico)(CRA, NRSRO affiliate, DRO affiliate). Please note that DBRS Ratings Limited was registered as an NRSRO affiliate on July 14, For more information on regulatory registrations, recognitions and approvals, please see: , DBRS. All rights reserved. The information upon which DBRS ratings and reports are based is obtained by DBRS from sources DBRS believes to be reliable. DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance. The extent of any factual investigation or independent verification depends on facts and circumstances. DBRS ratings, reports and any other information provided by DBRS are provided as is and without representation or warranty of any kind. DBRS hereby disclaims any representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, fitness for any particular purpose or non-infringement of any of such information. In no event shall DBRS or its directors, officers, employees, independent contractors, agents and representatives (collectively, DBRS Representatives) be liable (1) for any inaccuracy, delay, loss of data, interruption in service, error or omission or for any damages resulting therefrom, or (2) for any direct, indirect, incidental, special, compensatory or consequential damages arising from any use of ratings and rating reports or arising from any error (negligent or otherwise) or other circumstance or contingency within or outside the control of DBRS or any DBRS Representative, in connection with or related to obtaining, collecting, compiling, analyzing, interpreting, communicating, publishing or delivering any such information. Ratings and other opinions issued by DBRS are, and must be construed solely as, statements of opinion and not statements of fact as to credit worthiness or recommendations to purchase, sell or hold any securities. A report providing a DBRS rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. DBRS receives compensation for its rating activities from issuers, insurers, guarantors and/or underwriters of debt securities for assigning ratings and from subscribers to its website. DBRS is not responsible for the content or operation of third party websites accessed through hypertext or other computer links and DBRS shall have no liability to any person or entity for the use of such third party websites. This publication may not be reproduced, retransmitted or distributed in any form without the prior written consent of DBRS. ALL DBRS RATINGS ARE SUBJECT TO DISCLAIMERS AND CERTAIN LIMITATIONS. PLEASE READ THESE DISCLAIMERS AND LIMITATIONS AT ADDITIONAL INFORMATION REGARDING DBRS RATINGS, INCLUDING DEFINITIONS, POLICIES AND METHODOLOGIES, ARE AVAILABLE ON