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EQB Reports Continued Strong Lending Growth and Core Earnings, Assets under Management up to $45.8 Billion, Increases Dividend

EQB Reports Continued Strong Lending Growth and Core Earnings, Assets under Management up to $45.8 Billion, Increases Dividend

EQB Reports Continued Strong Lending Growth and Core Earnings, Assets under Management up to $45.8 Billion, Increases Dividend

PR Newswire

TORONTO, Aug. 9, 2022

Full-Year 2022 Guidance for Key Metrics Confirmed

TORONTO, Aug. 9, 2022 /PRNewswire/ - EQB Inc. (TSX: EQB) (TSX: EQB.PR.C) (TSX: EQB.R) (EQB) today reported earnings for the three and six months ended June 30, 2022 that reflected strong Q2 performance in core operations including record quarterly net interest income but with revenue growth offset at the bottom line by mark-to-market and fair value adjustments to non-interest income due to the impact of significant declines in North American equity markets on its strategic investment and security portfolios.  

EQB Logo (CNW Group/EQB Inc.)

Core Personal and Commercial business performance in Q2 featured conventional lending growth of 36% year over year, adjusted quarterly net interest income2 up 18%, margins in line with 2022 guidance and fee-based income up 41%. However, after reflecting the decline in non-interest income, Q2 adjusted earnings2 were held to $1.75 diluted and adjusted ROE2 was 12.1%. EQB deploys capital to strategic fintech investments to gain access to early-stage technologies and innovative business models. Changes in their fair value and other derivatives are not indicative of core business performance.

Q2 adjusted net interest income2 +$25.8 million or +18% to $167.6 million (reported +$24.8 million or +17%)
offset by $12.6 million in value adjustments on securities/strategic investments and derivatives

 •     Adjusted earnings2 -13% to $61.5 million, reported earnings -17% y/y to $58.8 million

 •     Adjusted diluted EPS2 -13% to $1.75, reported diluted EPS -17% to $1.67

 •     Adjusted NIM2 1.81% consistent to Q2 2021, reported NIM1 1.80%, -1 bps y/y

 •     Adjusted ROE2 12.1%, reported ROE 11.6%

Conventional loan1 momentum continued through Q2

 •     Conventional loans1 +36% y/y to $24.1 billion

 •     Single family alternative +35% y/y to $16.3 billion

 •     Decumulation loans +200% y/y to $495 million

 •     Commercial Finance Group +28% y/y to
        $4.5 billion, Specialized Finance +107% y/y to $739 million,
        and Equipment Leases +40% y/y to $902 million

 •      Assets Under Management (AUM)1 +21% y/y to $45.8 million

EQ Bank adds 58,000 customers y/y



Year-to-date EQB set an all-time record for earnings, with 15.6% adjusted ROE2 (reported 14.9%) and on-target core business performance including
growth in net interest margins and a stable, well-provisioned credit portfolio. These results supported another dividend increase. 



YTD earnings reflect margin, asset growth

 •     Adjusted earnings2 +10% y/y to $153.9 million, reported earnings +5% y/y to $146.8 million

 •     Adjusted diluted EPS2 +10% y/y to $4.40, reported diluted EPS +5% to $4.19

 •     Adjusted net interest income2 +20% y/y to $330.7 million

 •     Adjusted NIM2 1.84%, +5 bps y/y, reported NIM1.83%, +4 bps y/y

Record BVPS, YTD Adjusted ROE2 ahead of guidance

 •     Adjusted ROE2 15.6%, reported ROE 14.9%

 •     Book value per share +16% to $59.25

Strong credit metrics from long-term prudence

 •     Net impaired loans -23 bps y/y to 0.18% of total assets

Capital ratios support strategy, growth in dividends

 •     CETI ratio 13.5%, 0.5% above guidance

1. These are Non-Generally Accepted Accounting Principles (GAAP) measures, see the "Non-GAAP financial measures and ratios" section. 2 Adjusted measures and ratios are Non-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 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.

"EQB's core businesses delivered strong, on-plan performance despite market headwinds that impacted second quarter non-interest income in the form of mark-to-market adjustments. In alignment with our ROE targets, we generated risk-managed growth in our now $24 billion conventional loan1 portfolios of 36% year over year and 7% since March. Consistent with our established risk management practices, we also continued to proactively adjust our underwriting approach across the business to respond to elevated risks from inflation, the Bank of Canada's response to inflation and our expectations of changing collateral values. That said, as we exited the quarter, the fundamental forces that provide a solid foundation for our business – including strong demand for housing in Canada's major urban centers fueled by population growth, and our distinctive position as Canada's Challenger Bank –  remain firmly in place," said Andrew Moor, President and CEO. "Priorities for the current quarter include the introduction of EQ Bank's payment card, the launch of EQ Bank in Québec and readying ourselves to acquire Concentra Bank which will add significant scale and opportunity to serve more Canadians."

Record YTD performance has EQB on track to meet 2022 guidance

  • Although growth in conventional asset originations is expected to moderate in the second half of 2022 on risk-managed actions taken by EQB over the first two quarters, EQB today expressed confidence in stated annual guidance for the full-year 2022 of +12-15% in total lending portfolio growth (YTD 21%), +8-10% adjusted EPS2 growth (YTD +10%), adjusted ROE2 of 15%+ (YTD 15.6%), adjusted pre-provision, pre-tax income2 +12% (YTD +12%), book value per share +12% (YTD +16%) and CET1 13%+ (June 30, 2022 13.5%)
  • Guidance was reaffirmed based on outperformance in the first half of 2022, and will be supported by EQB's asset diversification and pricing strategies and the potential that rising interest rates will increase mortgage renewal and retention

Net interest income moves higher with stable margins

  • Q2 adjusted net interest income2 +18% y/y to $167.6 million (+17% or $166.7 million reported) driven by growth in average asset balances
  • Q2 adjusted net interest margin2 (NIM) of 1.81% (1.80% reported) was on target with 2022 guidance (flat to 2021), primarily reflecting growth in higher-yielding conventional loans1 but with lower prepayment income
  • Full-year 2022 outlook for NIM expected to remain stable with an anticipated decline in prepayment income brought on by rising interest rates offset by asset diversification, pricing strategies and continued funding diversification

1. These are non-GAAP measures, see the "Non-GAAP financial measures and ratios" section. 2 Adjusted measures and ratios are Non-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 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.

Non-interest income reflects mark-to-market, fair value adjustments

  • Q2 fees and other income +41% y/y to $7.9 million reflecting growth in loan portfolio and origination/servicing fees
  • Severe capital market volatility led to mark-to-market losses of $8.7 million on EQB's strategic investment portfolio. This portfolio was conceived and constructed to enable EQB's subsidiary, Equitable Bank to gain exposure to innovative business models and early-stage technologies that are accretive to Equitable Bank's position as Canada's Challenger Bank
  • EQB expects volatility to continue in the second half of 2022, but this does not reflect the underlying strategic value of these investments
  • EQB expects fees and other income to increase in line with the total portfolio and gains on securitization activity to remain stable or increase relative to Q2 2022
  • Q2 gains on securitization income were $2.2 million compared to $8.6 million a year ago due to decreased derecognition volumes and a decline in gain-on-sale margin from historically high levels; EQB expects to see a modest recovery in such income in the last half of 2022

Continued investment in Challenger innovations across people, process, and platforms

  • Adjusted non-interest expenses1 in Q2 +16% y/y to $75.6 million driven by growth in assets and investments in capabilities to advance EQB's strategic innovation agenda; management continues to expect operating leverage in 2022 to be flat on average
  • YTD, EQB's banking operations remain the most efficient of any Canadian bank at 41.1% adjusted efficiency ratio1 (43.6% reported), but elevated in Q2 to 45.8% adjusted1 (47.7% reported), due primarily to the reduction in total quarterly revenue driven by mark-to-market and fair-value losses

Personal Banking asset growth +19% y/y to record $24.0 billion  

  • Single-family alternative portfolio +35% y/y and +6% q/q to $16.3 billion (2022 annual guidance +12-15%) supported by higher originations and a 1.9% decline in the loan attrition rate
  • Single-family alternative growth expected to slow in the latter half of 2022, reflecting market conditions
  • Reverse mortgage assets +231% y/y to $421 million and +38% q/q (2022 annual guidance +150%) reflecting expanded distribution and increasing brand awareness of Equitable Bank as an attractive provider of reverse mortgages to Canadians nearing or in retirement as well as growth in this market
  • Insurance lending (CSV) +95% y/y to $73 million and +24% q/q (2022 annual guidance +100%) as growth was assisted by partnerships with nine leading insurers and the recent introduction of Immediate Financing Arrangement, a product available to whole life insurance policy holders to immediately access 100% of their total annual premium as equity

1 Adjusted measures and ratios are Non-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 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.

Commercial Banking asset growth +25% y/y to $12.1 billion

  • Commercial Finance Group loan portfolio +28% y/y and +10% q/q to $4.5 billion (2022 annual guidance +10-15%), Business Enterprise Solutions +22% y/y and +6% q/q to $1.2 billion (2022 annual guidance +10-15%) and Specialized Finance +107% y/y and +3% q/q to $739 million (2022 annual guidance +20-30%)
  • Equipment leasing portfolio +40% y/y and +17% q/q to approximately $900 million (2022 annual guidance +10-15%) with 67% of new assets comprised of high credit-quality prime leases
  • Insured Multi-unit residential portfolio +15% y/y and +14% q/q to $4.8 billion (2022 guidance 0-5%)

Strong capital and liquidity positions

  • Liquid assets1 were $3.1 billion or 7.8% of total assets at June 30, 2022, a prudent level that reflects anticipated cash needs for upcoming quarters, compared to $2.9 billion or 9.1% a year ago when pandemic-related uncertainties were much higher
  • Retail and securitization funding markets remain liquid and efficient and with rising interest rates deposit markets are expected to see even more positive inflow
  • Equitable Bank's Common Equity Tier 1 ratio was 13.5% at June 30, 2022 (unchanged from March 31, 2022) and compared to 14.4 % at June 30, 2021, reflecting its success in deploying capital organically
  • Total risk-weighted assets +29% y/y and +5% q/q to $14.8 billion

Credit quality indicators reflect long-term prudence, risk management responsiveness

  • PCL was $5.2 million in Q2 2022 due to portfolio growth and as macroeconomic forecasts and loss modelling considered the impact of rising interest rates and geopolitical tensions compared to a net benefit of $2.0 million in Q2 2021 when future expected losses recorded in 2020 were released because of improving macroeconomic variables
  • Allowances now approximate pre-pandemic levels and PCL is expected to be consistent with Q2 levels and grow with the size of the portfolio assuming economic forecasts prove to be accurate
  • Net impaired loans declined to 0.18% of total assets at June 30, 2022 from 0.41% at June 30, 2021 – reflecting net reductions across single family mortgages ($17.5 million), conventional commercial loans ($36.7 million), and equipment leases ($2.7 million) over the past 12 months – and also declined from 0.22% at March 31, 2022 due to the discharge of one delinquent commercial loan
  • EQB is well reserved for credit losses with allowances as a percentage of total loan assets of 14 bps at June 30, 2022 compared to 19 bps at June 30, 2021
  • Realized losses were less than 1 basis point of total loan assets or $2.4 million YTD – better than its industry-leading 10-year credit history – compared to $6.6 million or 2 basis points a year ago

1 These are non-GAAP measures, see the "Non-GAAP financial measures and ratios" section.

Equitable Bank continued to diversify its sources of funding and optimize costs of funds

  • During the second quarter (May 27, 2022), Equitable Bank completed its second legislative covered bond issuance of €300 million. Due May 27, 2025, the bonds were issued with an AA rating at a spread of 20 basis points over EUR mid swaps and are listed on the Irish Stock Exchange (Euronext Dublin)
  • Equitable Bank plans a series of covered bond issuances and expects its capacity for such issuances to increase when the agreement to acquire Concentra Bank closes. Inclusive of all costs, the bonds represent Equitable Bank's lowest cost of wholesale funding
  • Excluding EQ Bank deposits, Equitable Bank's total other deposit principal was +34% y/y and +8% q/q to $15.9 billion at June 30, 2022 and included its Deposit Note program of $1.9 billion

EQ Bank deposits +16% y/y to record $7.6 billion with attractive economics

  • EQ Bank expanded its customer base by +26% y/y to 279,939 (with nearly 14,000 new customers in the second quarter alone) and during July, increased its customer base to approximately 285,000
  • As more Canadians take advantage of EQ Bank's best-in-class digital experience and increase product usage (as they did with +80% y/y growth in digital transactions in Q2 and +6% growth in products held per customer/y), EQ Bank is benefiting from improved economics as customer lifetime value grows with rising alternative funding, while customer acquisition costs remain stable, even while EQ Bank pays competitive deposit rates with no everyday fees
  • EQ Bank deposits +16% y/y and +5% q/q (2022 annual guidance +20-30%) to $7.6 billion

EQ Bank poised to introduce payment card, serve customers in Québec

  • This fall will see the introduction of the EQ Bank payment card, which will allow customers to make purchases wherever Mastercard are accepted. This payments experience will complement current offerings and the new functionality will allow Canadians to use EQ Bank for the majority of their day-to-day banking needs as a primary bank
  • EQ Bank services are also coming to Québec this fall, an important step for EQB, which has proudly served Québec customers through the brokered deposit and brokered mortgage channels for many years and has participated in the local economy as an employer of talented Challengers in its Montréal office since 2010

Equitable Bank continues to prepare for the closing of the Concentra Bank acquisition

  • On February 7, 2022, Equitable Bank announced that it entered into a definitive agreement, as well as supporting agreements, to acquire Concentra Bank, Canada's 13th largest Schedule I bank by assets, subject to customary closing conditions and regulatory approvals
  • During the second quarter, Equitable Bank received unconditional clearance from the Competition Bureau Canada in the form of an advance ruling issued in connection with the acquisition
  • Equitable Bank and Concentra Bank have jointly formed a Transformation Management Office with dedicated resources to develop detailed integration plans in advance of closing while both banks continue to operate independently in serving customers

EQB announces +7% q/q increase in Common Share Dividend or +68% y/y

  • EQB's Board of Directors declared a common share dividend of $0.31 per common share or $1.24 annualized, payable on September 30, 2022 to shareholders of record September 15, 2022
  • The three dividend increases announced since the beginning of 2022 reflect EQB's philosophy of growing the dividend while maintaining a payout ratio that is much lower than other Canadian banks and using retained capital to fuel portfolio growth with high future ROE
  • EQB's Board also declared a quarterly dividend of $0.373063 per preferred share, payable on September 30, 2022 to shareholders of record at the close of business September 15, 2022
  • EQB dividends are designated as eligible dividends for the purposes of the Income Tax Act (Canada) and any similar provincial and territorial legislation

Normal course issuer bid (NCIB)

  • EQB'sNCIB allows it to repurchase up to 2,325,951 of its common shares and 289,340 of its non-cumulative 5-year reset preferred shares Series 3, representing approximately 10% of its public float as at December 10, 2021 prior to December 10, 2022. During Q2, EQB repurchased and cancelled 7,600 preferred shares at an average price of $24.93. No common shares were purchased during the first six months of 2022

"What is important to us is to drive results in our core personal and commercial business lines. In this regard, we have identified high-quality opportunities short and long term where our risk-managed capital allocation decisions will position EQB to continuously achieve our ROE target of 15% to 17%. From the perspective of our strategic investment portfolio, market-driven fluctuations reflected in the second quarter do not change the business value of these investments as they give us access to leading-edge knowledge, technologies and capabilities and, as recently as Q1, allowed us to capture significant gains. Putting all the component pieces of our outlook together, we look forward to proving the resiliency of our business model and consistency of our Challenger purpose through this next stage of the economic cycle while delivering on our full-year guidance," said Chadwick Westlake, EQB's Chief Financial Officer.

Analyst conference call and webcast: 8:30 a.m. ET Eastern August 10, 2022
EQB will host its second quarter conference call and webcast on Wednesday August 10, 2022.  To access the call live, please dial (416) 764-8609 five minutes prior to the start time. The listen-only webcast with accompanying slides will be available at eqbank.investorroom.com/events-webcasts.

Call archive
A replay of the call will be available until August 24, 2022 at midnight at (416) 764-8677 (passcode 542700 followed by the number sign). Alternatively, the webcast will be archived on EQB's website.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Consolidated balance sheets (unaudited)

($000s) As at

June 30, 2022

December 31, 2021

June 30, 2021

Assets:




Cash and cash equivalents

539,509

773,251

591,752

Restricted cash

557,283

462,164

507,295

Securities purchased under reverse repurchase agreements


420,009

550,030

100,015

Investments

1,097,004

1,033,438

859,925

Loans – Personal

24,122,303

22,421,603

20,225,222

Loans – Commercial

12,123,469

10,479,159

9,667,652

Securitization retained interests

227,013

207,889

203,491

Other assets

331,168

231,536

186,901


39,417,758

36,159,070

32,342,253

Liabilities and Shareholders' Equity




Liabilities:




Deposits

23,708,958

20,856,383

18,588,223

Securitization liabilities

11,366,847

11,375,020

11,483,635

Obligations under repurchase agreements

814,494

1,376,763

201,271

Deferred tax liabilities

64,180

63,141

67,520

Funding facilities

711,380

200,128

-

Subscription receipts

230,821

-

-

Other liabilities

426,527

335,001

200,067


37,323,207

34,206,436

30,540,716

Shareholders' equity:




Preferred shares

70,424

70,607

72,001

Common shares

234,372

230,160

224,997

Contributed surplus

10,106

8,693

8,237

Retained earnings

1,773,658

1,650,757

1,513,118

Accumulated other comprehensive income (loss)

5,991

(7,583)

(16,816)


2,094,551

1,952,634

1,801,537


39,417,758

36,159,070

32,342,253






Consolidated statements of income (unaudited)

($000s, except per share amounts)

Three months ended

Six months ended


June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Interest income:





Loans – Personal

190,830

164,363

364,610

325,420

Loans – Commercial

133,540

103,169

249,286

204,427

Investments

3,351

3,824

7,206

6,723

Other

5,558

2,606

8,417

5,226


333,279

273,962

629,519

541,796

Interest expense:





Deposits

110,413

76,693

194,885

154,478

Securitization liabilities

53,741

55,278

103,031

111,170

Funding facilities

2,468

152

2,774

343


166,622

132,123

300,690

265,991

Net interest income

166,657

141,839

328,829

275,805

Non-interest income:





Fees and other income

7,866

5,598

13,899

11,173

Net (losses) gains on loans and investments

(16,839)

4,907

(12,041)

3,446

Gains on securitization activities and income from
securitization retained interests

6,445

6,430

21,060

18,520


(2,528)

16,935

22,918

33,139

Revenue

164,129

158,774

351,747

308,944

Provision for credit losses

5,233

(1,982)

5,108

(2,754)

Revenue after provision for credit losses

158,896

160,756

346,639

311,698

Non-interest expenses:





Compensation and benefits

40,067

32,396

76,839

61,369

Other

38,209

32,594

76,370

60,938


78,276

64,990

153,209

122,307

Income before income taxes

80,620

95,766

193,430

189,391

Income taxes:





Current

22,091

20,698

45,607

42,740

Deferred

(307)

4,267

1,040

6,656


21,784

24,965

46,647

49,396

Net income

58,836

70,801

146,783

139,995

Dividends on preferred shares

1,086

1,111

2,175

2,225

Net income available to common shareholders

57,750

69,690

144,608

137,770






Earnings per share:





Basic

1.69

2.05

4.24

4.07

Diluted

1.67

2.02

4.19

4.01

Consolidated statements of comprehensive income (unaudited)

($000s)

Three months ended

Six months ended


June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Net income

58,836

70,801

146,783

139,995

Other comprehensive income – items that will be reclassified
subsequently to income:





Debt instruments at Fair Value through Other Comprehensive
Income:





Reclassification of losses from AOCI on sale of investment

(926)

-

(926)

-

Net unrealized losses from change in fair value

(8,011)

(1,570)

(29,380)

(3,228)

Reclassification of net losses to income

2,729

178

5,006

1,317

Other comprehensive income – items that will not be
reclassified subsequently to income:





Equity instruments designated at Fair Value through Other
Comprehensive Income:





Net unrealized (losses) gains from change in fair value

(5,278)

6,374

(6,703)

16,102

     Reclassification of net losses to retained earnings

1,836

-

3,045

-


(9,650)

4,982

(28,958)

14,191

Income tax recovery (expense)

2,531

(1,307)

7,594

(3,725)


(7,119)

3,675

(21,364)

10,466

Cash flow hedges:





Net unrealized gains from change in fair value

19,668

2,155

45,909

16,065

Reclassification of net losses (gains) to income

1,944

231

2,373

(234)


21,612

2,386

48,282

15,831

Income tax expense

(5,667)

(628)

(12,660)

(4,161)


15,945

1,758

35,622

11,670

Total other comprehensive income

8,826

5,433

14,258

22,136

Total comprehensive income

67,662

76,234

161,041

162,131

Consolidated statements of changes in shareholders' equity (unaudited)

($000s) Three month period ended  

June 30, 2022



Preferred
Shares

Common
Shares

Contributed
Surplus

Retained
Earnings

Accumulated other

comprehensive income (loss)



Cash Flow
Hedges

Financial
Instruments
at FVOCI

Total

Total


Balance, beginning
of period

70,607

232,854

9,357

1,727,169

20,357

(22,508)

(2,151)

2,037,836


Net Income

-

-

-

58,836

-

-

-

58,836


Realized Loss on Sale of
investment securities

-

-

-

(1,355)

-

(684)

(684)

(2,039)


Other comprehensive
income, net of tax

-

-

-

-

15,945

(7,119)

8,826

8,826


Exercise of stock options

-

1,463

-

-

-

-

-

1,463


Purchase of treasury
preferred shares

(183)

-

-

-

-

-

-

(183)


Net loss on cancellation of
treasury preferred shares

-

-

-

(6)

-

-

-

(6)


Dividends:










Preferred shares

-

-

-

(1,086)

-

-

-

(1,086)


Common shares

-

-

-

(9,900)

-

-

-

(9,900)


Stock-based

Compensation

-

-

804

-

-

-

-

804


Transfer relating to the

exercise of stock options

-

55

(55)

-

-

-

-

-


Balance, end of period

70,424

234,372

10,106

1,773,658

36,302

(30,311)

5,991

2,094,551


($000s) Three month period ended                                                                                                                                            June 30, 2021


Balance, beginning
of period

72,194

224,397

7,722

1,449,715

(10,031)

(12,218)

(22,249)

1,731,779


Net Income

-

-

-

70,801

-

-

-

70,801


Other comprehensive
income, net of tax

-

-

-

-

1,758

3,675

5,433

5,433


Exercise of stock options

-

489

-

-

-

-

-

489


Purchase of treasury

preferred shares

(193)

-

-

-

-

-

-

(193)


Net loss on cancellation of

treasury preferred shares

-

-

-

(10)

-

-

-

(10)


Dividends:










    Preferred shares

-

-

-

(1,111)

-

-

-

(1,111)


    Common shares

-

-

-

(6,277)

-

-

-

(6,277)


Stock-based

compensation

-

-

626

-

-

-

-

626


Transfer relating to the

exercise of stock options

-

111

(111)

-

-

-

-

-


Balance, end of period

72,001

224,997

8,237

1,513,118

(8,273)

(8,543)

(16,816)

1,801,537













Consolidated statements of changes in shareholders' equity (unaudited)

($000s) Six month period ended

June 30, 2022



Preferred
Shares

Common
Shares

Contributed
Surplus

Retained
Earnings

Accumulated other

comprehensive income (loss)


Cash Flow
Hedges

Financial
Instruments
at FVOCI

Total

Total


Balance, beginning
of period

70,607

230,160

8,693

1,650,757

680

(8,263)

(7,583)

1,952,634


Net Income

-

-

-

146,783

-

-

-

146,783


Realized loss on sale of
investment securities

-

-

-

(2,251)

-

(684)

(684)

(2,935)


Other comprehensive
income, net of tax

-

-

-

-

35,622

(21,364)

14,258

14,258


Exercise of stock options

-

3,867

-

-

-

-

-

3,867


Purchase of treasury
preferred shares

(183)

-

-

-

-

-

-

(183)


Net loss on cancellation of
treasury preferred shares

-

-

-

(6)

-

-

-

(6)


Dividends:










Preferred shares

-

-

-

(2,175)

-

-

-

(2,175)


Common shares

-

-

-

(19,450)

-

-

-

(19,450)


Stock-based

compensation

-

-

1,758

-

-

-

-

1,758


Transfer relating to the

exercise of stock options

-

345

(345)

-

-

-

-

-


Balance, end of period

70,424

234,372

10,106

1,773,658

36,302

(30,311)

5,991

2,094,551


($000s) Six month period ended                                                                                                                                                 June 30, 2021


Balance, beginning
of period

72,477

218,166

8,092

1,387,919

(19,943)

(19,009)

(38,952)

1,647,702


Net Income

-

-

-

139,995

-

-

-

139,995


Other comprehensive
income, net of tax

-

-

-

-

11,670

10,466

22,136

22,136


Exercise of stock options

-

5,715

-

-

-

-

-

5,715


Purchase of treasury

preferred shares

(476)

-

-

-

-

-

-

(476)


Net loss on cancellation of

treasury preferred shares

-

-

-

(20)

-

-

-

(20)


Dividends:










    Preferred shares

-

-

-

(2,225)

-

-

-

(2,225)


    Common shares

-

-

-

(12,551)

-

-

-

(12,551)


Stock-based

compensation

-

-

1,261

-

-

-

-

1,261


Transfer relating to the

exercise of stock options

-

1,116

(1,116)

-

-

-

-

-


Balance, end of period

72,001

224,997

8,237

1,513,118

(8,273)

(8,543)

(16,816)

1,801,537













Consolidated statements of cash flows (unaudited) 

($000s) 

Three months ended

Six months ended

Three and six month periods ended

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

CASH FLOWS FROM OPERATING ACTIVITIES





Net income

58,836

70,801

146,783

139,995

Adjustments for non-cash items in net income:





Financial instruments at fair value through income

3,103

1,778

1,376

(5,612)

Amortization of premiums/discount on investments

330

28

630

46

Amortization of capital assets and intangible costs

9,211

7,897

18,044

15,234

Provision for credit losses

5,233

(1,982)

5,108

(2,754)

Securitization gains

(1,620)

(8,177)

(6,248)

(12,355)

Stock-based compensation

804

626

1,758

1,261

Income taxes

21,784

24,965

46,647

49,396

Securitization retained interests

12,742

11,221

25,160

21,900

Changes in operating assets and liabilities:





Restricted cash

(108,652)

25,398

(95,119)

(3,256)

Securities purchased under reverse repurchase agreements

(420,009)

250,022

130,021

350,188

Loans receivable, net of securitizations

(2,000,934)

(1,025,059)

(3,344,734)

(1,672,166)

Other assets

3,162

(709)

(1,105)

5,198

Deposits

1,493,378

980,721

2,903,026

2,008,887

Securitization liabilities

401,333

(247,738)

(227)

(508,067)

Obligations under repurchase agreements

(65,709)

201,271

(562,269)

(50,606)

Funding facilities

386,805

-

511,252

-

Subscription receipts

435

-

230,821

-

Other liabilities

(33,605)

(23,931)

13,092

11,647

Income taxes paid

(28,616)

(15,306)

(93,658)

(32,531)

Cash flows (used in) from operating activities

(261,989)

251,826

(69,642)

316,405

CASH FLOWS FROM FINANCING ACTIVITIES





Proceeds from issuance of common shares

1,463

489

3,867

5,715

Dividends paid on preferred shares

(1,086)

(1,111)

(2,176)

(2,225)

Dividends paid on common shares

(9,900)

(6,277)

(19,450)

(12,551)

Cash flows used in financing activities

(9,523)

(6,899)

(17,759)

(9,061)

CASH FLOWS FROM INVESTING ACTIVITIES





Purchase of investments

(926)

(453,543)

(58,826)

(484,850)

Proceeds on sale or redemption of investments

122,300

213,111

233,768

229,466

Net change in Canada Housing Trust re-investment accounts

(21,882)

336

(295,103)

(89)

Purchase of capital assets and system development costs

(13,752)

(9,346)

(26,180)

(17,862)

Cash flows from (used in) investing activities

85,740

(249,442)

(146,341)

(273,335)

Net (decrease) increase in cash and cash equivalents

(185,772)

(4,515)

(233,742)

34,009

Cash and cash equivalents, beginning of period

725,281

596,267

773,251

557,743

Cash and cash equivalents, end of period

539,509

591,752

539,509

591,752

Cash flows from operating activities include:





Interest received

289,106

250,337

560,154

508,152

Interest paid

(143,009)

(134,229)

(265,080)

(274,186)

Dividends received

899

1,434

2,170

2,916

About EQB Inc.

EQB Inc. trades on the Toronto Stock Exchange (TSX: EQB, EQB.PR.C and EQB.R) and serves more than 360,000 Canadians through its wholly owned subsidiary Equitable Bank, Canada's Challenger Bank™. Equitable Bank has a clear mandate to drive change in Canadian banking to enrich people's lives. Founded over 50 years ago, Equitable Bank provides diversified personal and commercial banking and through its EQ Bank platform (eqbank.ca), it has been named the top Schedule I Bank in Canada on the Forbes World's Best Banks 2022 and 2021 lists. Please visit equitablebank.ca for details.

Cautionary Note Regarding Forward-Looking Statements

Statements made by EQB in the sections of this news release, in other filings with Canadian securities regulators and in other communications include forward-looking statements within the meaning of applicable securities laws (forward-looking statements).  These statements include, but are not limited to, statements about EQB's objectives, strategies and initiatives, financial performance expectations and other statements made herein, whether with respect to EQB's businesses or the Canadian economy.  Generally, forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "planned", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases which state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved", or other similar expressions of future or conditional verbs.  Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, closing of transactions, performance or achievements of EQB to be materially different from those expressed or implied by such forward-looking statements, including but not limited to risks related to capital markets and additional funding requirements, fluctuating interest rates and general economic conditions, legislative and regulatory developments, changes in accounting standards, the nature of our customers and rates of default, and competition as well as those factors discussed under the heading "Risk Management" in the MD&A and in EQB's documents filed on SEDAR at www.sedar.com.  All material assumptions used in making forward-looking statements are based on management's knowledge of current business conditions and expectations of future business conditions and trends, including their knowledge of the current credit, interest rate and liquidity conditions affecting EQB and the Canadian economy.  Although EQB believes the assumptions used to make such statements are reasonable at this time and has attempted to identify in its continuous disclosure documents important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.  Certain material assumptions are applied by EQB in making forward-looking statements, including without limitation, assumptions regarding its continued ability to fund its mortgage business, a continuation of the current level of economic uncertainty that affects real estate market conditions, continued acceptance of its products in the marketplace, as well as no material changes in its operating cost structure and the current tax regime.  There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.  Accordingly, readers should not place undue reliance on forward-looking statements.  EQB does not undertake to update any forward-looking statements that are contained herein, except in accordance with applicable securities laws.

Non-Generally Accepted Accounting Principles (GAAP) Financial Measures and Ratios

In addition to GAAP prescribed measures, this news release references certain non-GAAP measures, including adjusted financial results, that we believe provide useful information to investors regarding EQB's financial condition and results of operations. Readers are cautioned that non-GAAP measures often do not have any standardized meaning, and therefore, are unlikely to be comparable to similar measures presented by other companies.

Adjusted financial results

On February 7, 2022, Equitable Bank announced that it entered into a definitive agreement to acquire a majority interest in Concentra Bank (Concentra), subject to customary closing conditions and regulatory approvals, and is expected to close later in 2022. As a result of the announced agreement, Equitable Bank has incurred certain acquisition costs beginning in Q4 2021.  To enhance comparability between reporting periods, increase consistency with other financial institutions, and provide the reader with a better understanding of EQB's performance, adjusted results were introduced starting in Q1 2022. Adjusted results are non-GAAP financial measures.

Adjustments impacting current and prior periods:

Concentra acquisition/integration costs, pre-tax:

  • Q2 2022 – $2.7 million of acquisition and integration related costs and $0.9 million of interest expenses paid to subscription receipt holders1; and
  • Q1 2022 – $5.1 million of acquisition and integration related costs and $0.9 million of interest expenses paid to subscription receipt holders.

The following table presents a reconciliation of GAAP reported financial results to non-GAAP adjusted financial results.

___________________________

1. The interest expense refers to the dividend equivalent amount paid to subscription receipt holders.  The subscription receipt holders are entitled to receive a payment equal to the common share dividend declared multiplied by the number of subscription receipts held on the common share dividend payment date.  These subscription receipts will be converted into common shares at a 1:1 ratio upon the closing of the Concentra acquisition. The net proceeds from the issuance are held in an escrow account and the interest income earned is not recognized until the closing date.  In the event that the acquisition does not close, the interest that accrues to the investment will be paid to the subscription receipt holders, along with the return of their initial investment.

 

Reconciliation of reported and adjusted
financial results

As at or for the three months ended


For the six months ended


30-Jun-22

31-Mar-22

30-Jun-21


30-Jun-22

30-Jun-21

Reported financial results ($thousands)







Net interest income

166,657

162,172

141,839


328,829

275,805

Non-interest income

(2,528)

25,446

16,935


22,918

33,139

Revenue

164,129

187,618

158,774


351,747

308,944

Non-interest expense

78,276

74,933

64,990


153,209

122,307

Pre-provision pre-tax income

85,853

112,685

93,784


198,538

186,637

Provision for credit loss

5,233

(125)

(1,982)


5,108

(2,754)

Income tax expense

21,784

24,863

24,965


46,647

49,396

Net income

58,836

87,947

70,801


146,783

139,995

Net income available to common shareholders

57,750

86,858

69,690


144,608

137,770

Adjustments ($ thousands)







Interest expenses – paid to subscription
receipt holders(1)



-


1,861

-

947

914

Non-interest expenses –
acquisition/integration related costs



-


7,842

-

2,709

5,133

Pre-tax adjustments

3,656

6,047

-


9,703

-

Income tax expense(2)

958

1,584

-


2,542

-

Post-tax adjustments

2,698

4,463

-


7,161

-

Adjusted financial results ($ thousands)







Net interest income

167,604

163,086

141,839


330,690

275,805

Non-interest income

(2,528)

25,446

16,935


22,918

33,139

Revenue

165,076

188,532

158,774


353,608

308,944

Non-interest expense

75,567

69,800

64,990


145,367

122,307

Pre-provision pre-tax income

89,509

118,732

93,784


208,241

186,637

Provision for credit loss

5,233

(125)

(1,982)


5,108

(2,754)

Income tax expense

22,742

26,447

24,965


49,189

49,396

Net income

61,534

92,410

70,801


153,944

139,995

Net income available to common shareholders

60,448

91,321

69,690


151,769

137,770

Diluted earnings per share ($, except number
of shares)







Weighted average number of diluted common
shares outstanding

34,479,387

34,545,393

34,434,216


34,512,207

34,374,572

Diluted earnings per share - reported

1.67

2.51

2.02


4.19

4.01

Diluted earnings per share - adjusted

1.75

2.64

2.02


4.40

4.01

Impact of adjustments on diluted earnings per share

0.08

0.13

-


0.22

-

(1) The interest expense refers to the dividend equivalent amount paid to subscription receipt holders.  The subscription receipt holders are entitled to receive a payment equal to the common share dividend declared multiplied by the number of subscription receipts held on the common share dividend payment date.  These subscription receipts will be converted into common shares at a 1:1 ratio upon the closing of the Concentra acquisition. The net proceeds from the issuance are held in an escrow account and the interest income earned is not recognized until the closing date.  In the event that the acquisition does not close, the interest that accrues to the investment will be paid to the subscription receipt holders, along with the return of their initial investment. (2) Income tax expense associated with non-GAAP adjustment was calculated based on the statutory tax rate applicable for that period.

In addition to the adjusted results that are presented above, additional adjusted financial measures and ratios are disclosed as follows:

•  Reconciliation of adjusted efficiency ratio

($000s, except percentages) 



For the three months ended


For the six months ended



30-Jun-22

31-Mar-22

Change

30-Jun-21

Change


30-Jun-22

30-Jun-21

Change

Non-interest expenses – reported



78,276


74,933

4 %


64,990

20 %


153,209


122,307

25 %

Adjustments on a pre-tax basis:

     Non-interest expenses – 

     acquisition/integration related costs



(2,709)


(5,133)

(47 %)


-

        N/A


(7,842)


-

N/A

Non-interest expenses – adjusted



75,567


69,800

8 %


64,990

16 %


145,367


122,307

19 %

Revenue – reported















Adjustment on a pre-tax basis:



164,129


187,618

(13 %)


158,774

3 %


351,747


308,944

14 %

     Interest expenses – paid to

     subscription receipt holders



947


914

4 %


-

N/A


1,861


-

N/A

Revenue – adjusted



165,076


188,532

(12 %)


158,774

4 %


353,608


308,944

14 %

Efficiency ratio – adjusted



45.8 %


37.0 %

8.8 %


40.9 %

4.9 %


41.1 %


39.6 %

1.5 %




















  • Reconciliation of adjusted return on equity (ROE)

 ($000s, except percentages) 



For the three months ended


For the six months ended


30-Jun-22

31-Mar-22

Change

30-Jun-21

Change


30-Jun-22

30-Jun-21

Change

Net income available to common
shareholders – reported

57,750

86,858

(34 %)

69,690

(17 %)


144,608

137,770

5 %

Adjustments on an after-tax basis:

     Costs associated with Concentra

     acquisition

2,698

4,463

(40 %)

-

N/A


7,161

-

N/A

Net income available to common
shareholders – adjusted

60,448

91,321

(34 %)

69,690

(13 %)


151,769

137,770

10 %

Weighted average common equity
outstanding – adjusted

2,001,383

1,926,646

4 %

1,694,570

18 %


1,956,738

1,653,599

18 %

Return on equity - adjusted

12.1 %

19.2 %

(7.1 %)

16.5 %

(4.4 %)


15.6 %

16.8 %

(1.2 %)













Other non-GAAP financial measures and ratios

  • Assets under management (AUM): is the sum of total assets reported on the consolidated balance sheet and loan principal derecognized but still managed by EQB.

($000s)

30-Jun-22

31-Mar-22

Change

30-Jun-21

Change

Total assets on the consolidated balance sheet

39,417,758

37,149,968

6 %

32,342,253

22 %

Loan principal derecognized

6,349,413

6,272,342

1 %

5,585,644

14 %

Assets under management

45,767,171

43,422,310

5 %

37,927,897

21 %

  • Conventional loans: are the total on-balance sheet loan principal excluding Prime single family and Insured multi-unit residential mortgages.

($000s)

30-Jun-22

31-Mar-22

Change

30-Jun-21

Change

Alternative single family mortgages

16,264,259

15,399,287

6 %

12,058,136

35 %

Reverse mortgages

421,406

304,285

38 %

127,138

231 %

Cash surrender value loans

73,219

59,196

24 %

37,566

95 %

Total Conventional loans – Personal

16,758,884

15,762,768

6 %

12,222,840

37 %







Business Enterprise Solutions

1,228,665

1,154,573

6 %

1,011,089

22 %

Commercial Finance Group

4,516,012

4,111,394

10 %

3,538,869

28 %

Specialized finance

738,675

714,856

3 %

357,257

107 %

Equipment leasing

902,054

772,868

17 %

643,095

40 %

Total Conventional loans – Commercial

7,385,406

6,753,691

9 %

5,550,310

33 %

Total Conventional loans

24,144,290

22,516,459

7 %

17,773,150

36 %

  • Liquid assets: is a measure of EQB's cash or assets that can be readily converted into cash, which are held for the purposes of funding loans, deposit maturities, and the ability to collect other receivables and settle other obligations.
  • Loans under management (LUM): is the sum of loan principal reported on the consolidated balance sheet and loan principal derecognized but still managed by EQB.
  • Net interest margin (NIM): this profitability measure is calculated on an annualized basis by dividing net interest income by the average total interest earning assets for the period.
  • Pre-provision pre-tax income: is the difference between revenue and non-interest expenses.

 

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SOURCE EQB Inc.