News Releases

Equitable Group Reports Record Quarterly and Annual Earnings, Increases Dividend

TORONTO, Feb. 24, 2020 /CNW/ - Equitable Group Inc. (TSX: EQB and EQB.PR.C) ("Equitable" or the "Company") today reported record earnings for the three and twelve months ended December 31, 2019 on the strength of diversified growth in its wholly owned subsidiary, Equitable Bank ("Canada's Challenger Bank™" or "Bank") and the contribution of Bennington Financial Corp. ("Bennington").

Equitable Group Inc. (CNW Group/Equitable Group Inc.)

FOURTH QUARTER HIGHLIGHTS

  • Adjusted Diluted earnings per share were a quarterly record $3.22, up 21% from $2.66 in Q4 2018.
  • Adjusted Return on Shareholders' Equity was 15.9% compared to 14.7% in Q4 2018.

 

Reported Diluted earnings per share ("EPS") were $3.21 and reported Return on Shareholders' Equity ("ROE") was 15.9% in Q4 2019 and $2.33 and 12.9% in Q4 2018. The Company's reported results for Q4 2019 include $0.3 million (Q4 2018 – $7.4 million) of pre-tax mark-to-market losses on certain security investments and derivative financial instruments.

2019 ANNUAL HIGHLIGHTS

  • Adjusted Diluted EPS was an annual record $12.29, up 22% from $10.10 in 2018.
  • Adjusted ROE was 15.9% compared to 14.7% in 2018.
  • Retail loan principal outstanding at December 31, 2019 was $18.3 billion, up 13% from $16.1 billion a year ago on growth in all retail asset categories.
  • Commercial loan principal outstanding at December 31, 2019 was $8.3 billion, up 13% from $7.3 billion a year ago as a result of organic growth and the acquisition of Bennington.
  • The Provision for Credit Losses ("PCL") was $18.4 million or 0.07% of average loan principal outstanding.
  • Deposits at December 31, 2019 were $15.2 billion, up 13% from $13.5 billion a year ago and included 22% or $478 million year-over-year growth in EQ Bank deposits.
  • The Bank's Common Equity Tier 1 Capital Ratio at December 31, 2019 was 13.6% compared to 13.5% at December 31, 2018 as the Bank rebuilt capital to above the middle of its target range after the Bennington acquisition in January 2019.

 

2019 reported Diluted EPS and ROE were $11.97 and 15.5% respectively, compared to $9.67 and 14.1% in 2018. Reported results include $1.6 million of pre-tax mark-to-market losses on certain security investments and derivative financial instruments (2018 – $3.9 million), as well as a one-time, $5.7 million IFRS 9-related provision for credit losses on performing equipment leases recorded immediately after the Bennington acquisition. 2018 reported results included a $5.9 million pre-tax write-down of unamortized up-front costs associated with the reduction in the size of the Bank's secured backstop facility.

DIVIDEND DECLARATIONS

The Board of Directors ("Board") today declared a dividend of $0.37 per common share, payable on March 27, 2020 to common shareholders of record at the close of business March 13, 2020. This 23% increase over the dividend declared in February 2019 reflects the Board's commitment to growing Equitable's dividend at a rate of between 20% and 25% over the next five years. Even with this faster pace of dividend growth, the Bank is expected to retain sufficient capital to support strong business growth. The Board also suspended the common share DRIP due to the strength of the Bank's capital position and its confidence in building sufficient capital organically to support Equitable's growth.

The Board declared a quarterly dividend in the amount of $0.373063 per preferred share, payable on March 27, 2020, to preferred shareholders of record at the close of business on March 13, 2020. 

COMMENTARY ON PERFORMANCE AND OUTLOOK

"2019 capped a decade of superior value creation as Equitable delivered a total shareholder return of 500%, the highest of any Bank in the TSX Composite," said Andrew Moor, President and Chief Executive Officer. "I am incredibly proud of our team for their efforts and the collaboration required to make these results a reality. We continue to cement our position as Canada's Challenger Bank by introducing new services that are consistently improving the everyday banking experience of Canadians. The number of green shoots now in place across the Bank, particularly at EQ Bank, has enhanced and diversified our growth opportunities. The focus is always on finding more ways to bring greater value to our customers and I'm particularly excited by the progress made with our innovative EQ Bank platform in 2019. This includes the recent launch of transformative international money transfers, the migration of our core banking infrastructure to the cloud, and the 35% growth in the EQ Bank customer base. Further, the traction we achieved with our insurance-based line of credit, reverse mortgage and equipment leasing businesses has me believing in their long-term potential more than ever. To continue building both our new and established businesses and to position Equitable for the open banking era, we plan to significantly increase our investment spending in 2020. This is a decision we are taking with great confidence knowing that we can continue to deliver more and more value for Canadians as the banking landscape shifts in the favour of the consumer."

EQ Bank also recently crossed the 100,000 customer mark, providing further evidence that a growing number of Canadians want more from their bank: better savings; simpler transactions; fewer headaches. "Our vision from the very beginning has been to provide a better banking experience that gives Canadians far more value by challenging the status quo and bringing a no-nonsense approach to the way people do their everyday banking." said Moor. "We're excited to see more people choosing to bank differently."

In 2020, Equitable's 50th year of serving Canadians, management anticipates that earnings growth will outpace that of the broader Canadian banking industry, based on consensus forecasts for other banks.   Management expects earnings to increase in the range of 4% to 8% in 2020 as a result of loan growth, stable margins and low provisions for credit losses.  The expected earnings growth rate will be below Equitable's longer-term average due to significant planned investments in the Bank's digital platform, emerging lending businesses and IT capabilities.  Adjusted ROE should be between 14% and 16%, slightly lower than 2019 due to higher levels of capital and slightly lower earnings growth expectations.

Management's complete business outlook can be found in Management's Discussion and Analysis ("MD&A") for the three and twelve months ended December 31, 2019 which is available on SEDAR and on Equitable's website.

CONFERENCE CALL AND WEBCAST

Equitable will hold its fourth quarter conference call and webcast at 8:30 a.m. ET Tuesday, February 25, 2020. To access the call live, please dial (647) 427-7450 five minutes prior to the start time. The listen-only webcast with accompanying slides will be available at www.equitablebank.ca under Investor Relations. The call will be hosted by Andrew Moor, President and Chief Executive Officer.

A replay of the call will be available until March 3, 2020 at midnight and it can be accessed by dialing (416) 849-0833 and entering passcode 1180468 followed by the number sign. Alternatively, the call will be archived on the Company's website for three months.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

CONSOLIDATED BALANCE SHEETS

($ THOUSANDS)

           

As at December 31

 

2019

2018

         

Assets

         

Cash and cash equivalents

 

$

508,853

$

477,243

Restricted cash

   

462,992

 

327,097

Securities purchased under reverse repurchase agreements

   

150,069

 

250,000

Investments

   

362,611

 

193,399

Loans – Retail(1)

   

18,359,805

 

16,203,137

Loans – Commercial(1)

   

8,248,025

 

7,323,267

Securitization retained interests

   

139,009

 

115,331

Other assets

   

161,088

 

147,671

   

$

28,392,452

$

25,037,145

           

Liabilities and Shareholders' Equity

         

Liabilities:

         

Deposits

 

$

15,442,207

$

13,668,521

Securitization liabilities

   

10,706,956

 

9,236,045

Obligations under repurchase agreements

   

507,044

 

342,010

Deferred tax liabilities

   

54,689

 

42,610

Other liabilities

   

213,842

 

177,961

Bank facilities

   

-

 

289,971

     

26,924,738

 

23,757,118

           

Shareholders' Equity:

         

Preferred shares

   

72,557

 

72,557

Common shares

   

213,277

 

200,792

Contributed surplus

   

6,973

 

7,035

Retained earnings

   

1,193,493

 

1,014,559

Accumulated other comprehensive loss

   

(18,586)

 

(14,916)

     

1,467,714

 

1,280,027

   

$

28,392,452

$

25,037,145

(1)

Effective January 1, 2019, the Company has changed the presentation of its loan products.  Prior year presentation has been updated accordingly.

 

CONSOLIDATED STATEMENTS OF INCOME

($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)

             

Years ended December 31

 

2019

2018

             

Interest income:

         

Loans – Retail(1)

   

$

685,964

$

541,586

Loans – Commercial(1)

     

395,860

 

294,764

Investments

     

8,671

 

5,867

Other

     

26,315

 

17,846

       

1,116,810

 

860,063

Interest expense:

         

Deposits

     

385,197

 

290,991

Securitization liabilities

     

256,364

 

191,866

Bank facilities

     

7,319

 

24,242

Other

     

5,282

 

4,583

       

654,162

 

511,682

Net interest income

   

462,648

 

348,381

Provision for credit losses

   

18,394

 

2,083

Net interest income after provision for credit losses

   

444,254

 

346,298

Other income:

         

Fees and other income

     

23,855

 

21,229

Net loss on investments

     

(973)

 

(3,855)

Gains on securitization activities and income from securitization retained interests

     

11,534

 

10,285

       

34,416

 

27,659

Net interest and other income

   

478,670

 

373,957

Non-interest expenses:

         

Compensation and benefits

     

101,651

 

77,062

Other

     

97,922

 

72,301

       

199,573

 

149,363

Income before income taxes

   

279,097

 

224,594

Income taxes:

         

Current

     

73,877

 

54,374

Deferred

     

(1,259)

 

4,594

       

72,618

 

58,968

Net income

 

$

206,479

$

165,626

Dividends on preferred shares

   

4,691

 

4,763

Net income available to common shareholders

 

$

201,788

$

160,863

           

Earnings per share

         

Basic

   

$

12.10

$

9.73

Diluted

   

$

11.97

$

9.67

(1)

Effective January 1, 2019, the Company has changed the presentation of its loan products.  Prior year presentation has been updated accordingly.

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ THOUSANDS)

           

Years ended December 31

 

2019

2018

           

Net income

 

$

206,479

$

165,626

           

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

         

Debt instruments at Fair Value through Other Comprehensive Income:

         

Net unrealized gains from change in fair value

   

554

 

37

Reclassification of net (gains) losses to income

   

(315)

 

17

           

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 from change in fair value

   

(1,320)

 

(14,505)

Reclassification of net (gains) losses to retained earnings

   

(638)

 

11

     

(1,719)

 

(14,440)

Income tax recovery

   

457

 

3,831

     

(1,262)

 

(10,609)

           

Cash flow hedges:

         

Net unrealized losses from change in fair value

   

(894)

 

(2,971)

Reclassification of net (gains) losses to income

   

(2,388)

 

2,285

     

(3,282)

 

(686)

Income tax recovery

   

874

 

182

     

(2,408)

 

(504)

Total other comprehensive loss

   

(3,670)

 

(11,113)

Total comprehensive income

 

$

202,809

$

154,513

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

($ THOUSANDS)

                                     
                 

2019

               

Accumulated other

 
                       

comprehensive

   
               

 income (loss)

 
     

Preferred

Common

Contributed

Retained

Cash flow

Financial  instruments

     
   

shares

shares

surplus

earnings

hedges

at FVOCI

 

Total

 

Total

                                     

Balance, beginning of year

 

$

72,557

$

200,792

$

7,035

$

1,014,559

$

2,649

$

(17,565)

$

(14,916)

$

1,280,027

Cumulative effect of adopting IFRS 16

   

-

 

-

 

-

 

(840)

 

-

 

-

 

-

 

(840)

Restated balance as at January 1, 2019

   

72,557

 

200,792

 

7,035

 

1,013,719

 

2,649

 

(17,565)

 

(14,916)

 

1,279,187

Net income

   

-

 

-

 

-

 

206,479

 

-

 

-

 

-

 

206,479

Transfer of losses on sale of equity instruments

   

-

 

-

 

-

 

(469)

 

-

 

-

 

-

 

(469)

Other comprehensive loss, net of tax

   

-

 

-

 

-

 

-

 

(2,408)

 

(1,262)

 

(3,670)

 

(3,670)

Exercise of stock options

   

-

 

10,825

 

-

 

-

 

-

 

-

 

-

 

10,825

Dividends:

                                 

Preferred shares

     

-

 

-

 

-

 

(4,691)

 

-

 

-

 

-

 

(4,691)

Common shares

     

-

 

-

 

-

 

(21,545)

 

-

 

-

 

-

 

(21,545)

Stock-based compensation

   

-

 

-

 

1,598

 

-

 

-

 

-

 

-

 

1,598

Transfer relating to the exercise of stock options

   

-

 

1,660

 

(1,660)

 

-

 

-

 

-

 

-

 

-

Balance, end of year

 

$

72,557

$

213,277

$

6,973

$

1,193,493

$

241

$

(18,827)

$

(18,586)

$

1,467,714

                                     
                                   

2018

               

Accumulated other

 
                       

comprehensive

   
               

 income (loss)

 
                           

Financial

       
     

Preferred

Common

Contributed

Retained

Cash flow

instruments

     
   

shares

shares

surplus

earnings

hedges

at FVOCI

 

Total

 

Total

                                     

Balance, beginning of year

 

$

72,557

$

198,660

$

6,012

$

866,109

$

3,153

$

(8,374)

$

(5,221)

$

1,138,117

Cumulative effect of adopting IFRS 9

   

-

 

-

 

-

 

5,450

 

-

 

1,418

 

1,418

 

6,868

Restated balance as at January 1, 2018

   

72,557

 

198,660

 

6,012

 

871,559

 

3,153

 

(6,956)

 

(3,803)

 

1,144,985

Net income

   

-

 

-

 

-

 

165,626

 

-

 

-

 

-

 

165,626

Transfer of losses on sale of equity instruments

   

-

 

-

 

-

 

(9)

 

-

 

-

 

-

 

(9)

Other comprehensive loss, net of tax

   

-

 

-

 

-

 

-

 

(504)

 

(10,609)

 

(11,113)

 

(11,113)

Exercise of stock options

   

-

 

1,780

 

-

 

-

 

-

 

-

 

-

 

1,780

Dividends:

                                 

Preferred shares

     

-

 

-

 

-

 

(4,763)

 

-

 

-

 

-

 

(4,763)

Common shares

     

-

 

-

 

-

 

(17,854)

 

-

 

-

 

-

 

(17,854)

Stock-based compensation

   

-

 

-

 

1,375

 

-

 

-

 

-

 

-

 

1,375

Transfer relating to the exercise of stock options

   

-

 

352

 

(352)

 

-

 

-

 

-

 

-

 

-

Balance, end of year

 

$

72,557

$

200,792

$

7,035

$

1,014,559

$

2,649

$

(17,565)

$

(14,916)

$

1,280,027

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ THOUSANDS)

             

Years ended December 31

 

2019

2018

CASH FLOWS FROM OPERATING ACTIVITIES

         

Net income

 

$

206,479

$

165,626

Adjustments for non-cash items in net income:

         

Financial instruments at fair value through income

     

15,175

 

7,532

Amortization of premiums/discount on investments

     

2,415

 

7,829

Amortization of capital assets and intangible costs

     

16,999

 

9,454

Provision for credit losses

     

18,394

 

2,083

Securitization gains

     

(9,888)

 

(9,025)

Stock-based compensation

     

1,598

 

1,375

Income taxes

     

72,618

 

58,968

Securitization retained interests

     

31,736

 

28,481

Changes in operating assets and liabilities:

         

Restricted cash

     

(93,317)

 

38,941

Securities purchased under reverse repurchase agreements

     

99,931

 

(250,000)

Loans receivable, net of securitizations

     

(2,713,778)

 

(4,248,509)

Other assets

     

41,192

 

(36,838)

Deposits

     

1,763,225

 

2,544,335

Securitization liabilities

     

1,081,924

 

1,670,057

Obligations under repurchase agreements

     

165,034

 

(109,991)

Bank facilities

     

(320,421)

 

161,100

Other liabilities

     

(23,108)

 

(11,111)

Income taxes paid

   

(48,510)

 

(60,663)

Cash flows from (used in) operating activities

   

307,698

 

(30,356)

CASH FLOWS FROM FINANCING ACTIVITIES

         

Proceeds from issuance of common shares

     

10,825

 

1,780

Dividends paid on preferred shares

     

(4,691)

 

(4,763)

Dividends paid on common shares

     

(26,180)

 

(17,343)

Cash flows used in financing activities

   

(20,046)

 

(20,326)

CASH FLOWS FROM INVESTING ACTIVITIES

         

Purchase of investments

     

(259,181)

 

(112,760)

Acquisition of subsidiary

     

(46,772)

 

-

Proceeds on sale or redemption of investments

     

110,519

 

238

Net change in Canada Housing Trust re-investment accounts

     

(39,848)

 

(57)

Purchase of capital assets and system development costs

     

(20,127)

 

(20,426)

Cash flows used in investing activities

   

(255,409)

 

(133,005)

Net increase (decrease) in cash and cash equivalents

   

32,243

 

(183,687)

Cash and cash equivalents, beginning of year

   

476,610

 

660,930

Cash and cash equivalents, end of year

 

$

508,853

$

477,243

             

Cash flows from operating activities include:

         

Interest received

 

$

1,073,829

$

842,060

Interest paid

   

(536,734)

 

(383,522)

Dividends received

   

6,688

 

5,827

 

ABOUT EQUITABLE GROUP INC.

Equitable Group Inc. is a growing Canadian financial services business that operates through its wholly-owned subsidiary, Equitable Bank. Equitable Bank, Canada's Challenger Bank™, has grown to become one of the nine Schedule I banks included in the TSX Composite Index through its proven branchless approach and customer service focus in providing residential lending, commercial lending and savings solutions to Canadians. EQ Bank, the digital banking platform offered by Equitable Bank, provides state-of-the-art digital banking services. The EQ Bank Savings Plus Account reimagines banking for Canadians by offering the functionality of a chequing account to perform daily banking with ease, as well as a great everyday interest rate to help transactional balances grow into bigger savings. From unlimited Interac® e-Transfers and bill payments to payroll deposits and no monthly fees, everyday banking is now a richer prospect for Canadians. Equitable Bank employs over 900 dedicated professionals across the country. For more information about Equitable Bank and its products, please visit equitablebank.ca.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements made by the Company 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 the Company's objectives, strategies and initiatives, financial performance expectations and other statements made herein, whether with respect to the Company'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 the Company 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 the Company'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 the Company and the Canadian economy. Although the Company 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 the Company 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. The Company 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

This news release references certain non-GAAP measures such as Adjusted Diluted earnings per share, Adjusted Return on Shareholders' Equity, Reported Return on Shareholders' Equity, Provision for credit losses – rate, and Common Equity Tier 1 Capital Ratio that management believes provide useful information to investors regarding the Company's financial condition and results of operations. The "NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") FINANCIAL MEASURES" section of the Company's fourth quarter 2019 MD&A provides a detailed description of each non-GAAP measure and should be read in conjunction with this release. The MD&A also provides a reconciliation between all non-GAAP measures and the most directly comparable GAAP measure, where applicable. Readers are cautioned that non-GAAP measures often do not have any standardized meaning, and therefore, may not be comparable to similar measures presented by other companies.

 

SOURCE Equitable Group Inc.

For further information: Andrew Moor, President and Chief Executive Officer, 416-515-7000; Tim Wilson, Senior Vice President and Chief Financial Officer, 416-515-7000