TORONTO, Feb. 28, 2024 /CNW/ – EQB Inc. (TSX:EQB) (TSX:EQB) today reported earnings for the three months ended January 31, 2024, that reflected strong and resilient first quarter performance driven by growth in loans under management, margin expansion, higher non-interest revenue, EQ Bank customer growth and continued effective risk management. EQB also announced a 20% y/y common share dividend increase and reaffirmed its previous earnings guidance for 2024 anchored in the ongoing achievement of greater than 15% ROE.
EQB changed its fiscal year in 2023 to end October 31, resulting in a one-time 10-month transition year and a four-month final quarter of 2023. As a result, the comparisons below are shown year-over-year from December 31, 2022, as the most similar and comparable three-month period (“y/y”). Note the current period includes the acquisition of a majority interest of ACM Advisors that closed on December 14, 2023, and the comparative period includes the acquisition of Concentra Bank that closed on November 1, 2022 – both within quarters for partial results.
Adjusted ROE1 Q1 15.6% (reported Q1 15.0%)
Total AUM + AUA2 $119 billion, +7% q/q, +16% y/y
Revenue $299 million, +27% y/y
Adjusted Net income $108 million, +17% y/y (reported $104 million, +128% y/y)
Adjusted diluted EPS1 Q1 $2.76, +12% y/y (reported Q1 $2.66, +124% y/y)
Book value per share $71.33, +1% q/q, +14% y/y
Common share dividends $0.42 per share, +5% q/q, +20% y/y
Net interest margin (NIM) 2.01%, +1 bps q/q, +16 bps y/y
EQ Bank customer growth +6% q/q and 38% y/y to over 426,000 customers
Total capital ratio 15.4% with CET1 of 14.2%; Equitable Bank’s Liquidity Coverage Ratio well in excess of the regulatory minimum of 100%3
“EQB delivered first quarter results consistent with our long-term value creation approach with ROE above 15%. This performance is particularly encouraging in the context of the slow housing market in the face of Bank of Canada monetary tightening,” said Andrew Moor, president and CEO, EQB. “Moreover, Canadians are increasingly embracing our Challenger Bank approach to business. EQ Bank, our award-winning digital bank, is attracting new customers at an accelerated daily pace aided by the launch of our national “Second Chance” campaign. The campaign is getting people to ask why so many of us still bank with our first-ever financial institution when we celebrate choice and have changed providers to get a better deal in so many other categories. Brought to life by Eugene and Dan Levy in English Canada and Diane Lavallée and Laurence Leboeuf in Québec, “Second Chance” is a key element of building our brand value, and I am thrilled by its success so far.”
1 Adjusted measures and ratios are Non-Generally Accepted Accounting Principles (GAAP) measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported measures and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the Concentra Bank and ACM acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see the “Non-GAAP financial measures and ratios” section.
2 These are non-GAAP measures, see the “Non-GAAP financial measures and ratios” section.
3 At January 31, 2024, Equitable Bank’s liquid assets held for regulatory purposes was $3.7 billion, surpassing the Bank’s minimum required policy liquidity. For additional information, see EQB’s Management’s Discussion & Analysis.
EQ Bank customers +38% y/y with deposits of $8.3 billion
EQ Bank customer base grew +6% q/q and +38% y/y to 426,000. EQ Bank launched its “Second Chance” campaign across English Canada on January 4, and “Deuxième chance” across Québec on February 6, encouraging Canadians to move on from their first-ever bank accounts to EQ Bank/Banque EQ’s Personal Account that combines the best features of chequing with no fees and high interest
EQ Bank will continue to challenge the status quo by launching Canada’s first all-digital Small Business banking services to help business owners save and earn more through an easy, secure and differentiated experience
Personal Banking loans under management +1% q/q to $32.7 billion with strong retention
Single family portfolio increased to $30.2 billion as at January 31, 2024, as customer retention increased while new originations moderated as a result of a slower housing market caused by Bank of Canada interest rate increases since 2022. Single family uninsured +2% q/q and +4% y/y.
Decumulation lending assets (including reverse mortgages and insurance lending) +9% q/q and +55% y/y to $1.6 billion, with growth accelerating as a result of successful consumer advertising that bolstered public awareness, strong broker service and value to the borrower
Commercial Banking loans under management +1.3 billion q/q to $31.2 billion
The Bank continues to prioritize multi-unit residential lending in major cities across the country with more than 70% of its total commercial loans under management (“LUM”) insured through various CMHC programs. Insured multi-unit residential LUM +6% q/q and +34% y/y to $21.1 billion
The Canadian commercial office real estate market continues to experience significant economic challenges; however, as part of the Bank’s risk appetite, only ~1% of the Bank’s loan assets are associated with offices, and those balances declined in the first quarter. Equitable Bank’s office lending is mostly restricted to properties located in major urban centres and to smaller buildings, for example those with professional service providers
Provisions in first quarter reflect credit risk at this point in the cycle
The Bank is appropriately reserved for credit losses with net allowances as a percentage of total loan assets of 22 bps at January 31, 2024, compared to 22 bps at October 31, 2023, and 18 bps at December 31, 2022
Provision for credit losses (PCL) of $15.5 million in Q1 reflecting the impacts of both future expected losses driven by macroeconomic forecasts and loss modelling, and increased provisions of $17.3 million associated with Stage 3, two-thirds of which was driven by the equipment financing business. Net impaired loans increased to 94 bps of total loan assets at January 31, 2024, +18 bps from October 31, 2023, and +66 bps from December 31, 2022
Stable, diversified and growing funding with more than 95% term or insured
Equitable Bank increased total deposits in Q1 to $31.8 billion, +1% q/q and +3% y/y
Equitable Bank holds $3.7 billion in liquid assets for regulatory purposes. Liquid assets cover 63% of all demand deposits with sufficient contingency funding available to cover the balance
Equitable Bank’s new Bearer Deposit Note (BDN) program continues to add funding diversification. Since being launched in Q4, it has now grown to nearly $500 million in funding
EQB increases common share dividend
EQB’s Board of Directors declared a dividend of $0.42 per common share payable on March 28, 2024, to shareholders of record as of March 15, 2024, representing a 5% increase from the dividend paid in December 2023 and 20% above the payment made in February 2023. EQB’s Board of Directors amended the Dividend Reinvestment Program (DRIP) to remove the 2% discount
The Board also declared a quarterly dividend of $0.373063 per preferred share, payable on March 28, 2024, to shareholders of record at the close of business March 15, 2024
For the purposes of the Income Tax Act (Canada) and any similar provincial legislation, dividends declared are eligible dividends, unless otherwise indicated
“This is an important time for EQB as we consistently build our business, which expanded to include ACM Advisors in the first quarter, providing access to an attractive wealth management market niche,” said Chadwick Westlake, CFO, EQB. “We delivered on our commitment to allocate capital and manage risk in order to consistently generate greater than 15% ROE. Notwithstanding the challenging economic backdrop, our strategy and growing diversification resulted in solid execution. We continue to believe the second half of 2024 will be even stronger, and based on this and Q1 results, we are reaffirming our 2024 guidance. It’s a standout time for EQB, and our distinct approach to creating value and enriching lives.”
Analyst conference call and webcast: 10:00 a.m. Eastern February 29, 2024
EQB’s Andrew Moor, president and CEO, Chadwick Westlake, CFO, and Marlene Lenarduzzi, CRO, will host the company’s first quarter conference call and webcast. The listen-only webcast with accompanying slides will be available at: eqb.investorroom.com. To access the conference call with operator assistance, dial 416-764-8609 five minutes prior to the start time.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheet (unaudited)
($000s) As at
January 31, 2024
October 31, 2023
December 31, 2022
Assets:
Cash and cash equivalents
543,759
549,474
495,106
Restricted cash
662,759
767,195
737,656
Securities purchased under reverse repurchase agreements
805,612
908,833
200,432
Investments
2,025,978
2,120,645
2,289,618
Loans – Personal
32,680,816
32,390,527
31,996,950
Loans – Commercial
15,111,488
14,970,604
14,513,265
Securitization retained interests
607,822
559,271
373,455
Deferred tax assets
14,871
14,230
–
Other assets
645,770
652,675
538,475
Total assets
53,098,875
52,933,454
51,144,957
Liabilities and Shareholders’ Equity
Liabilities:
Deposits
32,245,509
31,996,450
31,051,813
Securitization liabilities
15,389,417
14,501,161
15,023,627
Obligations under repurchase agreements
482,574
1,128,238
665,307
Deferred tax liabilities
141,543
128,436
72,675
Funding facilities
1,332,903
1,731,587
1,239,704
Other liabilities
589,879
602,039
556,876
Total liabilities
50,181,825
50,087,911
48,610,002
Shareholders’ equity:
Preferred shares
181,411
181,411
181,411
Common shares
489,944
471,014
462,561
Contributed (deficit) surplus
(23,055)
12,795
11,445
Retained earnings
2,272,116
2,185,480
1,870,100
Accumulated other comprehensive (loss) income
(15,826)
(5,157)
9,438
2,904,590
2,845,543
2,534,955
Non-controlling interests
12,460
–
–
Total equity
2,917,050
2,845,543
2,534,955
Total liabilities and equity
53,098,875
52,933,454
51,144,957
Consolidated statement of income (unaudited)
($000s, except per share amounts) Three-month period ended
January 31, 2024
December 31, 2022
Interest income:
Loans – Personal
468,954
327,596
Loans – Commercial
262,881
218,428
Investments
17,876
10,754
Other
22,099
19,298
771,810
576,076
Interest expense:
Deposits
358,562
244,413
Securitization liabilities
127,253
93,163
Funding facilities
15,283
11,008
Other
14,702
9,167
515,800
357,751
Net interest income
256,010
218,325
Non-interest revenue:
Fees and other income
16,615
10,503
Net gains (losses) on loans and investments
4,993
(5,213)
Gain on sale and income from retained interests
19,409
9,247
Net gains on securitization activities and derivatives
1,745
1,845
42,762
16,382
Revenue
298,772
234,707
Provision for credit losses
15,535
26,796
Revenue after provision for credit losses
283,237
207,911
Non-interest expenses:
Compensation and benefits
65,369
64,999
Other
74,116
74,181
139,485
139,180
Income before income taxes
143,752
68,731
Income taxes:
Current
38,534
22,154