Quarterly Results

First Quarter 2020
Equitable Group Reports Q1 2020 Earnings

TORONTO, May 13, 2020 /CNW/ - Equitable Group Inc. (TSX: EQB and EQB.PR.C) ("Equitable,"  "Company" or "Bank") today reported its financial results for the three months ended March 31, 2020, including adjusted earnings of $29.9 million. The Bank also reported continued strength in both its liquidity and capital positions.

"COVID-19 has caused unparalleled global economic and social disruption over the past several months and on behalf of all of us at Equitable, I extend our deepest sympathies to everyone directly affected by the pandemic and our thanks to health-care workers and others who continue to deliver essential services during the crisis," said Andrew Moor, President and Chief Executive Officer. "I also express heartfelt gratitude to our business partners and customers for their ongoing patronage and confidence in our Bank."

Equitable opened 2020 with a positive outlook and detailed plan to build on its 10-year track record of performance, which it was executing well before the pandemic disrupted the economy. The Bank responded quickly by enhancing liquidity, stress testing to ensure it is positioned to manage through a range of possible and extreme downside scenarios, and adjusting credit parameters.  While earnings were reduced by forward-looking provisions for credit losses made under the IFRS 9 accounting standard, Equitable remained profitable and the Bank's CET1 ratio was at the mid-point of its target range at quarter end. Based on its structural advantages and strong risk management culture, Equitable is well positioned for the future.  

FIRST QUARTER HIGHLIGHTS

  • The Bank's Common Equity Tier 1 Capital Ratio at March 31, 2020 was 13.5% compared to 12.9% at March 31, 2019 and 13.6% at December 31, 2019.
  • Liquid assets were $2.3 billion or 7.8% of total assets as at March 31, 2020 compared to $1.7 billion or 6.0% of assets at December 31, 2019, as the Bank assumed a more conservative posture in light of current economic uncertainty.
  • The Provision for Credit Losses ("PCL") increased to $35.7 million primarily due to a decline in macroeconomic assumptions used to estimate future credit losses.
  • Adjusted Diluted earnings per share were $1.70, down 38% from $2.72 in Q1 2019.
  • Adjusted Return on Shareholders' Equity was 8.4% compared to 15.0% in Q1 2019.
  • Deposits at March 31, 2020 were $15.5 billion, up 6% from $14.6 billion a year ago.
  • EQ Bank, Equitable's award-winning digital bank platform, experienced 22% year-over-year growth in deposits on a 38% increase in its customer base which now stands at over 110,000.
  • Retail loan principal outstanding at March 31, 2020 was $18.5 billion, up 11% from $16.6 billion a year ago on growth in all retail asset categories.
  • Commercial loan principal outstanding at March 31, 2020 was $8.3 billion, up 7% from $7.7 billion a year ago as a result of growth in all commercial asset categories.

Reported Diluted earnings per share ("EPS") were $1.46 and reported Return on Shareholders' Equity ("ROE") was 7.2% in Q1 2020 and $2.42 and 13.4% in Q1 2019.  Reported results for Q1 2020 include $5.4 million of net mark-to-market losses on certain security investments, loans and derivative financial instruments related to securitization activities.

DIVIDEND DECLARATIONS

The Board of Directors ("Board") today declared a dividend of $0.37 per common share, payable on June 30, 2020 to common shareholders of record at the close of business June 15, 2020, unchanged from the dividend paid in March 2020 but a 19% increase over the dividend declared in May 2019.  In July 2019, Equitable announced its intention to grow our dividend at a rate between 20% and 25% for each of the next five years.  The Board has now put these planned increases on hold because of regulatory guidance to the banking industry by the Office of the Superintendent of Financial Institutions ("OSFI") to support the financial and operational resilience of all federally regulated banks including Equitable Bank. 

The Board declared a quarterly dividend in the amount of $0.373063 per preferred share, payable on June 30, 2020 to preferred shareholders of record at the close of business on June 15, 2020

COMMENTARY ON PERFORMANCE AND OUTLOOK

"COVID-19 and the related economic consequences are having a wide-ranging impact on the lives and livelihoods of Canadians. I am delighted with the way our people have responded to this unprecedented situation by displaying the utmost professionalism and compassion in helping the Bank's customers when they needed us most," said Mr. Moor. "As an essential institution, Equitable Bank is playing its part in supporting our customers, communities and employees, while managing risks for our shareholders and continuing to advance our position as Canada's Challenger Bank."

"From a financial perspective, Equitable entered 2020 in a rock-solid position with one of the highest CET1 ratios of any bank in Canada," added Mr. Moor. "We completed the first quarter in much the same way by taking swift and decisive actions to enhance our liquidity, reduce risk and improve our already strong capital position."

While Q1 earnings were understandably lower than a year ago due to higher PCLs, margins were in line with management's expectations, we saw accelerated adoption of digital banking technology through EQ Bank and loan growth was on target. Equitable's loan portfolio was built on prudent lending practices. Almost all loans are secured by first-position charges, 52% of loans under management are insured, and the weighted average LTV of it's the Bank's uninsured residential mortgage book is 64%.

"I am confident in the future of our Bank," said Mr. Moor. "We do expect that one of the longer-lasting impacts of the current pandemic will be to accelerate the adoption of digital banking.  EQ Bank is well positioned to thrive in this digital world with our modern cloud-based architecture and open approach to working with other financial services businesses."

Management's updated business outlook can be found in Management's Discussion and Analysis ("MD&A") for the three months ended March 31, 2020 which is available on SEDAR and on Equitable's website.  As a result of the COVID-19 pandemic, we are withdrawing the full year 2020 outlook that we provided in our Q4 2019 MD&A published on February 24, 2020.

CONFERENCE CALL AND WEBCAST

Equitable will hold its first quarter conference call and webcast at 10:00 a.m. ET Thursday, May 14, 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 May 21, 2020 at midnight and it can be accessed by dialing (416) 849-0833 and entering passcode 6198080 followed by the number sign. Alternatively, the call will be archived on the Company's website for three months.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

                       

CONSOLIDATED BALANCE SHEETS (unaudited)

AS AT MARCH 31, 2020

With comparative figures as at December 31, 2019 and March 31, 2019

($ THOUSANDS)

                       
         

March 31, 2020

   

December 31, 2019

   

March 31, 2019

                       

Assets:

                     

Cash and cash equivalents

     

$

737,335

 

$

508,853

 

$

486,422

Restricted cash

       

390,398

   

462,992

   

381,144

Securities purchased under reverse repurchase agreements

       

499,966

   

150,069

   

547,620

Investments

       

410,639

   

362,611

   

198,321

Loans – Retail

       

18,552,216

   

18,359,805

   

16,734,424

Loans – Commercial

       

8,229,032

   

8,248,025

   

7,712,028

Securitization retained interests

       

145,850

   

139,009

   

119,183

Other assets

       

188,443

   

161,088

   

148,322

       

$

29,153,879

 

$

28,392,452

 

$

26,327,464

                       

Liabilities and Shareholders' Equity

                     

Liabilities:

                     

   Deposits

     

$

15,695,407

 

$

15,442,207

 

$

14,821,107

   Securitization liabilities

       

10,777,497

   

10,706,956

   

9,926,375

   Obligations under repurchase agreements

       

429,347

   

507,044

   

-

   Deferred tax liabilities

       

48,117

   

54,689

   

59,366

   Other liabilities

       

252,822

   

213,842

   

206,648

   Bank facilities

       

499,988

   

-

   

-

         

27,703,178

   

26,924,738

   

25,013,496

                       

Shareholders' equity:

                     

   Preferred shares

       

72,557

   

72,557

   

72,557

   Common shares

       

213,701

   

213,277

   

204,492

   Contributed surplus

       

7,405

   

6,973

   

6,907

   Retained earnings

       

1,212,125

   

1,193,493

   

1,049,208

   Accumulated other comprehensive loss

       

(55,087)

   

(18,586)

   

(19,196)

         

1,450,701

   

1,467,714

   

1,313,968

       

$

29,153,879

 

$

28,392,452

 

$

26,327,464

 

CONSOLIDATED STATEMENTS OF INCOME (unaudited)

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2020

With comparative figures for the three month period ended March 31, 2019

($ THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                 
       

Three months ended

         

   March 31, 2020

   

March 31, 2019

                 

Interest income:

               

     Loans – Retail

     

$

181,557

 

$

159,222

     Loans – Commercial

       

100,206

   

97,629

     Investments

       

2,488

   

1,821

     Other

       

5,947

   

5,934

         

290,198

   

264,606

Interest expense:

               

     Deposits

       

101,820

   

93,696

     Securitization liabilities

       

67,021

   

62,903

     Bank facilities

       

1,206

   

2,655

         

170,047

   

159,254

Net interest income

       

120,151

   

105,352

Provision for credit losses

       

35,687

   

9,628

Net interest income after provision for credit losses

       

84,464

   

95,724

Other income:

               

     Fees and other income

       

6,723

   

5,644

     Net loss on loans and investments

       

(8,531)

   

(821)

     Gains on securitization activities and income from securitization retained interests

       

6,502

   

2,065

         

4,694

   

6,888

Net interest and other income

       

89,158

   

102,612

Non-interest expenses:

               

     Compensation and benefits

       

26,895

   

24,284

     Other

       

27,285

   

21,827

         

54,180

   

46,111

Income before income taxes

       

34,978

   

56,501

Income taxes:

               

     Current

       

15,580

   

13,576

     Deferred

       

(6,572)

   

1,264

         

9,008

   

14,840

Net income

     

$

25,970

 

$

41,661

 Dividends on preferred shares

       

1,119

   

1,191

 Net income available to common shareholders

     

$

24,851

 

$

40,470

                 

Earnings per share:

               

     Basic

     

$

1.48

 

$

2.44

     Diluted

     

$

1.46

 

$

2.42

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2020

With comparative figures for the three month period ended March 31, 2019

($ THOUSANDS)

                 
       

Three months ended

         

  March 31, 2020

   

March 31, 2019

                 

Net income

     

$

25,970

 

$

41,661

                 

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

               

Debt instruments at Fair Value through Other Comprehensive Income:

               

Net unrealized (losses) gains from change in fair value

       

(825)

   

402

Reclassification of net losses to income

       

(668)

   

-

                 

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

       

(22,908)

   

(1,832)

Reclassification of net gains to retained earnings

       

-

   

11

         

(24,401)

   

(1,419)

Income tax recovery

       

6,447

   

377

         

(17,954)

   

(1,042)

                 

Cash flow hedges:

               

Net unrealized losses from change in fair value

       

(28,061)

   

(4,589)

Reclassification of net losses to income

       

2,855

   

179

         

(25,206)

   

(4,410)

Income tax recovery

       

6,659

   

1,172

         

(18,547)

   

(3,238)

Total other comprehensive loss

       

(36,501)

   

(4,280)

Total comprehensive (loss) income

     

$

(10,531)

 

$

37,381

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2020

With comparative figures for the three month period ended March 31, 2019

($ THOUSANDS)

                                   
                 

March 31, 2020

           

Accumulated other

comprehensive

income (loss)

   
   

Preferred shares

Common shares

Contributed surplus

Retained earnings

Cash flow hedges

Financial instruments at FVOCI

 

Total

 

Total

                                   

Balance, beginning of period

 

$

72,557

$

213,277

$

6,973

$

1,193,493

$

241

$

(18,827)

$

(18,586)

$

1,467,714

Net income

   

-

 

-

 

-

 

25,970

 

-

 

-

 

-

 

25,970

Other comprehensive loss, net of tax

   

-

 

-

 

-

 

-

 

(18,547)

 

(17,954)

 

(36,501)

 

(36,501)

Exercise of stock options

   

-

 

357

 

-

 

-

 

-

 

-

 

-

 

357

Dividends:

                                 

     Preferred shares

   

-

 

-

 

-

 

(1,119)

 

-

 

-

 

-

 

(1,119)

     Common shares

   

-

 

-

 

-

 

(6,219)

 

-

 

-

 

-

 

(6,219)

Stock-based compensation

   

-

 

-

 

499

 

-

 

-

 

-

 

-

 

499

Transfer relating to the exercise of stock options

   

-

 

67

 

(67)

 

-

 

-

 

-

 

-

 

-

Balance, end of period

 

$

72,557

$

213,701

$

7,405

$

1,212,125

$

(18,306)

$

(36,781)

$

(55,087)

$

1,450,701

                                   
                                   
                 

March 31, 2019

           

Accumulated other

comprehensive

income (loss)

   
   

Preferred shares

Common shares

Contributed surplus

Retained earnings

Cash flow

hedges

Financial

instruments at FVOCI

 

Total

 

Total

                                   

Balance, beginning of period

 

$

72,557

$

200,792

$

7,035

$

1,014,559

$

2,649

$

(17,565)

$

(14,916)

$

1,280,027

Cumulative effect of adopting IFRS 16(1)

   

-

 

-

 

-

 

(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

   

-

 

-

 

-

 

41,661

 

-

 

-

 

-

 

41,661

Transfer of gains on sale of equity instruments

   

-

 

-

 

-

 

8

 

-

 

(8)

 

(8)

 

-

Other comprehensive loss, net of tax

   

-

 

-

 

-

 

-

 

(3,238)

 

(1,034)

 

(4,272)

 

(4,272)

Exercise of stock options

   

-

 

3,133

 

-

 

-

 

-

 

-

 

-

 

3,133

Dividends:

                                 

     Preferred shares

   

-

 

-

 

-

 

(1,191)

 

-

 

-

 

-

 

(1,191)

     Common shares

   

-

 

-

 

-

 

(4,989)

 

-

 

-

 

-

 

(4,989)

Stock-based compensation

   

-

 

-

 

439

 

-

 

-

 

-

 

-

 

439

Transfer relating to the exercise of stock options

   

-

 

567

 

(567)

 

-

 

-

 

-

 

-

 

-

Balance, end of period

 

$

72,557

$

204,492

$

6,907

$

1,049,208

$

(589)

$

(18,607)

$

(19,196)

$

1,313,968

   

(1)

The Company adopted IFRS 16 effective January 1, 2019 using the modified retrospective approach, with the cumulative effect of initially applying the standard recognized in opening retained earnings at the date of initial application.  The adjustment of $840 is net of tax.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2020

With comparative figures for the three month period ended March 31, 2019

($ THOUSANDS)

               
     

Three months ended

       

March 31, 2020

   

March 31, 2019

CASH FLOWS FROM OPERATING ACTIVITIES

             

Net income for the period

   

$

25,970

 

$

41,661

Adjustments for non-cash items in net income:

             

    Financial instruments at fair value through income

     

13,362

   

2,075

    Amortization of premiums/discount on investments

     

309

   

1,329

    Amortization of capital assets and intangible costs

     

5,231

   

3,898

    Provision for credit losses

     

35,687

   

9,628

    Securitization gains

     

(2,767)

   

(1,780)

    Stock-based compensation

     

499

   

439

    Income taxes

     

9,008

   

14,840

Securitization retained interests

     

8,480

   

7,334

Changes in operating assets and liabilities:

             

    Restricted cash

     

72,594

   

(11,469)

    Securities purchased under reverse repurchase agreements

     

(349,897)

   

(297,620)

    Loans receivable, net of securitizations

     

(205,567)

   

(499,679)

    Other assets

     

(2,470)

   

50,466

    Deposits

     

235,874

   

1,138,365

    Securitization liabilities

     

66,119

   

300,697

    Obligations under repurchase agreements

     

(77,697)

   

(342,010)

    Bank facilities

     

499,988

   

(320,421)

    Other liabilities

     

21,860

   

(7,207)

Income taxes paid

     

(37,499)

   

(13,157)

Cash flows from operating activities

     

319,084

   

77,389

CASH FLOWS FROM FINANCING ACTIVITIES

             

Proceeds from issuance of common shares

     

357

   

3,133

Dividends paid on preferred shares

     

(1,119)

   

(1,191)

Dividends paid on common shares

     

(6,219)

   

(9,623)

Cash flows used in financing activities

     

(6,981)

   

(7,681)

CASH FLOWS FROM INVESTING ACTIVITIES

             

Purchase of investments

     

(115,962)

   

(12,507)

Acquisition of subsidiary

     

-

   

(47,065)

Proceeds on sale or redemption of investments

     

62,181

   

4,140

Net change in Canada Housing Trust re-investment accounts

     

(23,670)

   

136

Purchase of capital assets and system development costs

     

(6,170)

   

(4,600)

Cash flows used in investing activities

     

(83,621)

   

(59,896)

Net increase in cash and cash equivalents

     

228,482

   

9,812

Cash and cash equivalents, beginning of period

     

508,853

   

476,610

Cash and cash equivalents, end of period

   

$

737,335

 

$

486,422

               

Cash flows from operating activities include:

             

Interest received

   

$

280,309

 

$

256,470

Interest paid

     

(143,095)

   

(100,160)

Dividends received

     

1,554

   

1,553

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 the country's ninth largest independent Schedule I bank 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 and winner of Celent's 2020 Model Bank Award for Banking in the Cloud, 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, an innovative international money transfer service 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, Liquid Assets, 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 first quarter 2020 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