News

EQB Reports Record Q3 Earnings on Margin Expansion, AUM Surpasses $47B, Board Declares Fourth Consecutive Quarterly Dividend Increase and Appoints New Directors

Initial 2023 guidance shows ROE performance to continue including the benefit of Concentra Bank

TORONTO, Nov. 8, 2022 /CNW/ - EQB Inc. (TSX: EQB) (TSX: EQB.PR.C) ("EQB") today reported its financial results for the three and nine months ended September 30, 2022, that were driven by strong conventional lending, customer account and core earnings growth with rigorous margin management. It also issued preliminary guidance for 2023 that incorporates the initial contributions of its Concentra Bank acquisition that closed on November 1, 2022.

Record Q3 results reflected growth in core businesses aligned to 2022 guidance across Personal and Commercial Banking portfolios, stable provisions for credit losses, resilient capital, and the margin benefit of funding diversification including EQ Bank deposits and covered bonds. Compared to Q2 2022, non-interest revenue increased particularly due to growth in the Bank's core revenue from insured multi-family securitization, outpacing the impacts of headwinds that led to non-core mark-to-market adjustments in strategic investments and fair value adjustments.

Q3 adjusted net interest income1 reaches record $187 million, +24% y/y 
(reported $186 million, +23%
y/y) on core revenue growth, margin expansion

  • Adjusted earnings1 +13% y/y to $82.1 million, (reported earnings +7% y/y to $77.6 million)
  • Adjusted diluted EPS1 +14% y/y to $2.35, (reported diluted EPS +7% to $2.22)
  • Adjusted NIM1,2 1.94% +11 basis points y/y, (reported NIM2 1.93%, +10 bps y/y)
  • Adjusted ROE1 15.6%, (reported ROE 14.8%)

 Conventional loan2 growth across all asset classes

  • Conventional loans2 +29% y/y to $25.1 billion
  • Single family alternative +24% y/y to $16.5 billion
  • Decumulation loans +174% y/y to $594 million
  • Commercial Finance Group +33% y/y to $5.0 billion,
    Specialized Finance +48% y/y to $750 million, and
    Equipment Leases +42% y/y to $965 million
  • Assets Under Management (AUM) +18% y/y to $47.3 billion

EQ Bank customer accounts grow to over 290,000
with digital transactions +63% y/y

Year-to-date, EQB set an all-time record for earnings, adjusted pre-provision, pre-tax earnings1 and book value per share. These results are tracking ahead of annual guidance and supported today's announcement of a sequential common share dividend increase of 7%.

YTD adjusted net interest income1 reaches record $518 million, +21% y/y 
(reported $515 million, +21%)

  • Adjusted earnings1 +11% y/y to $236.1 million, (reported earnings +6% y/y to $224.4 million)
  • Adjusted diluted EPS1 +11% y/y to $6.75, (reported diluted EPS +5% to $6.41)
  • Adjusted NIM1,2 1.87%, +6 bps y/y, (reported NIM2 1.86%, +5 bps y/y)

 

Strong credit metrics reflect effective risk
management in a changing economy

  • Net impaired loans 0.23% of total assets
    unchanged from 2021

Capital ratios support strategy, growth in dividends

  • CET1 ratio 13.3%
  • YTD dividends declared $0.88 per share, +59% y/y

Record BVPS, YTD Adjusted ROE1 tracking to guidance

  • Adjusted ROE1 15.6%, (reported ROE 14.9%)
  • Book value per share +16% to $61.14

1 Adjusted measures and ratios are Non-Generally Accepted Accounting Principles (GAAP) measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported measures and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the Concentra Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see the "Non-GAAP financial measures and ratios" section. 2. These are non-GAAP measures, see the "Non-GAAP financial measures and ratios" section.


"On November 1st, we became the 7th largest independent bank in Canada by assets with the successful closing of our Concentra acquisition, now taking us to a pro forma $100 billion in combined assets under management and assets under administration.  I can't think of a better way to begin this exciting next chapter than with the momentum generated on an organic basis in the third quarter. We grew conventional loans 29% year-over-year or $5.6 billion without deviating from our proven methods of assessing credit worthiness and contribution to ROE. With interest rates rising, our high standards for loan quality have never been more necessary or appropriate. This performance, bolstered by our focus on margin management, will propel future earnings. Most important, growth in our customer base presents additional opportunities to live up to our Challenger Bank purpose of driving change in banking to enrich people's lives," said Andrew Moor, President and CEO. "Now, as we integrate Concentra, and pursue our 2023 performance targets, this purpose takes on additional meaning as we welcome new employees, customers and credit union partners and work to realize the substantial benefits of the transaction."

Record YTD performance puts full-year organic growth guidance in range

  • Although the fourth quarter will include various impacts of the Concentra acquisition, EQB today expressed confidence that it will achieve existing adjusted guidance for the full-year 2022 (pre‑Concentra) of 12-15% in total lending portfolio growth on an organic basis (YTD 17%), +8‑10% adjusted EPS1 growth (YTD +11%), adjusted ROE1 of 15%+ (YTD 15.6%), adjusted pre-provision, pre-tax income1 12%+ (YTD +16%), book value per share 12%+ (YTD +16%) and CET1 of 13%+ (September 20, 2022, 13.3%)
  • EQB's risk mitigation strategies continue to deliver leading credit performance and protect the business as markets adjust to higher interest rates
  • See "Preliminary 2023 guidance" in the EQB Q3 2022 MD&A for additional information on performance expectations inclusive of the impact of the Concentra acquisition

Net interest income increases to all-time record on growth in portfolio and NIM

  • Q3 adjusted1 net interest income +24% y/y to $187.3 million (+23% to $186.3 million reported) driven by growth across conventional loans and expanding margins
  • Q3 adjusted net interest margin1 (NIM) of 1.94% (1.93% reported) was higher than any quarter in history, 13bps higher than last quarter, and well-ahead of 2022 guidance (flat to moderate expansion from 2021) due to growth of conventional lending asset mix and benefits of funding diversification. EQB is confident around holding strong margins, especially considering the growing benefits of EQB's growing deposit franchise and covered bond programs

1 Adjusted measures and ratios are Non-Generally Accepted Accounting Principles (GAAP) measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported measures and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the Concentra Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see the "Non-GAAP financial measures and ratios" section. 2. These are non-GAAP measures, see the "Non-GAAP financial measures and ratios" section.


Non-interest revenue improves from a loss in Q2 2022 to net revenue of $9.5 million  

  • Core non-interest revenue was $17.0 million in Q3, an increase of $6.9 million, with fee-based revenue of $6.7 million and growing contributions from EQB's insured multi-family lending business, delivering $10.3 million in Q3 alone
  • Strategic investment market-to-market revenue contributed a decline of -$7.4 million in Q3 reflecting equity market conditions. Strategic investments, while non-core to earnings, are expected to continue to yield overall positive returns and ROE well-above internal hurdle rates during the investment period

Personal Banking conventional lending +27% y/y with reverse mortgages +194% y/y  

  • Single-family alternative portfolio +24% y/y to $16.5 billion (2022 annual guidance +12-15%) led by first half originations and a 0.3% decline in the loan attrition rate. Despite slowing demand for housing in the third quarter on higher interest rates, the portfolio grew 1% from Q2 2022
  • Reverse mortgage assets grew +194% y/y to $514 million (2022 annual guidance +150%) and +22% q/q. Growth reflected expanded distribution, increasing brand awareness among those Canadians nearing or in retirement, and market growth
  • Insurance lending +91% y/y to $80 million (2022 annual guidance +100%) and +9% q/q as EQB's solutions including the Immediate Financing Arrangement begin to gain broader distribution with nine of Canada's leading insurance companies

Commercial Banking assets +24% y/y to $12.5 billion, well-ahead of target

  • Commercial Finance Group loan portfolio +33% y/y to $5.0 billion (2022 annual guidance +10-15%) and +10% q/q with Business Enterprise Solutions +26% y/y to $1.3 billion (2022 annual guidance +10-15%) and +7% q/q. EQB's Specialized Finance business +48% y/y to $750 million (2022 annual guidance +20-30%)
  • Bennington equipment leasing portfolio +42% y/y to $965 million (2022 annual guidance +10-15%) and +7% q/q
  • EQB continues to grow its insured multi-family residential loans under management by $527 million in Q3 (+4.7% q/q and +17.9% y/y). Gains on securitization in this portfolio contributed $10.3 million in Q3 due to derecognition activity

Credit quality indicators reflect prudence in a higher interest rate environment 

  • EQB provisioned $5.4 million for credit losses (PCL) in Q3 to account for continued portfolio growth, evolving macroeconomic forecasts and loss modelling that contemplates further increases in interest rates plus various scenarios for economic performance
  • Net impaired loans were 0.23% of total assets at September 30, 2022, up from 0.18% at June 30, 2022, but still lower than the prior eight quarters
  • Realized losses for Q3 were less than 1 basis point of total loan assets ($1.8 million), better than its industry-leading 10-year credit history, compared to 1 basis points a year ago ($1.2 million)
  • EQB remains well reserved for credit losses with allowances as a percentage of total loan assets of 15 bps at September 30, 2022. PCL in Q4 is expected to be in a similar range sequentially, assuming no significant deterioration to the macroeconomic environment beyond expectations

EQ Bank customers +23% y/y, deposits consistent at $7.6 billion  

  • EQ Bank expanded its customer base by +23% y/y to over 290,000 and during October, further increased its customer base to over 295,000. EQ Bank will soon launch in Quebec, offering its Make Bank value proposition across all-digital deposit and savings products
  • EQ Bank total deposits are expected to end 2022 below guidance, due to the bank's focus on margin management. EQ Bank consistently offers everyday great rates to all customers, it focuses on building and expanding value to Canadians, and does not aim to match high-rate short term competitive campaigns and gimmicks
  • EQ Bank customer engagement remained high in Q3 (digital transactions +63% y/y and products held +15% y/y) and recent enhancements to its artificial intelligence enabled "selfie-ID" account opening process improved onboarding for new customers
  • In October, EQ Bank introduced its first payment card in Beta with an initial group of customers with strong positive early feedback. EQB generated its first payments-as-a-service revenue (BIN-Banking Identification Number sponsorship) revenue through a white-label agreement with an innovative global payments fintech. As a regulated financial institution, Equitable Bank can now issue payment cards on behalf of fintechs and in turn participate in payments revenue

Equitable Bank continues to diversify funding sources, optimize cost of funds

  • Subsequent to Q3, on October 5, 2022, Equitable Bank announced that its offering of €250 million 3­year covered bonds was oversubscribed at an attractive spread of 37 basis points over the Euro mid-swap rate. This brings the total issuance for 2022 to €550 million, well ahead of management's goal. Inclusive of all costs, covered bonds remain the lowest cost of wholesale funding available to the Bank. With the completion of the Concentra acquisition, the Bank now has additional covered bond issuance capacity
  • Equitable Bank's other deposit principal (excluding EQ Bank deposits) +27% y/y and +2% q/q to $16.3 billion at September 30, 2022, including its Deposit Note program of $1.7 billion

Strong capital and liquidity positions

  • Equitable Bank's Common Equity Tier 1 ratio was 13.3% at September 30, 2022 (compared to 13.5% at June 30, 2022 and 13.7% a year ago), reflecting success in deploying capital organically, at total risk-weighted assets +24% y/y and +5% q/q to $15.5 billion
  • Liquid assets1 were $3.2 billion or 8.0% of total assets at September 30, 2022 reflecting anticipated cash needs for upcoming quarters, compared to $3.1 billion or 7.8% of total assets at June 30, 2022 and $3.2 billion (9.3% of assets a year ago)
  • Retail and securitization funding markets remain liquid and efficient and with rising interest rates deposit markets are expected to continue to see positive inflows

EQB announces +7% q/q increase in common share dividend for the quarter, +78% y/y

  • EQB's Board of Directors declared a common share dividend of $0.33 per common share or $1.32 annualized, payable on December 30, 2022 to shareholders of record December 15, 2022. The four dividend increases announced in 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 growth with high ROE
  • EQB's Board also declared a quarterly dividend of $0.373063 per preferred share, payable on December 30, 2022 to shareholders of record at the close of business December 15, 2022

Concentra Bank integration underway following November 1, 2022 closing

  • On February 7, 2022, Equitable Bank entered into a definitive agreement, as well as supporting agreements, to acquire Concentra Bank, Canada's 13th largest Schedule I bank by assets. During the third quarter, the federal Minister of Finance approved the acquisition and on November 1, the remaining conditions were successfully met as described in a news release issued that day
  • Using the detailed plans formulated by a Transformation Management Office over the past nine months, management is now engaged in integration activities aligned to the full achievement of previously announced synergy objectives, earnings accretion, customer service and joint value creation with credit unions and new partners
  • EQB's Q4 2022 results will include two months of contribution from Concentra, which are expected to include one-time financial impacts associated with the purchase transaction and integration. Going forward, EQB will provide consolidated results for Equitable Bank that will include the contributions of Concentra Bank and Concentra Trust

EQB publishes preliminary 2023 adjusted guidance including Concentra Bank

  • With the introduction of the Concentra integration during 2023, currently the bank expects to be able to deliver ROE in the range of 15%+, diluted EPS growth 10-15%+, pre-provision pre-tax earnings of 25-35%, BVPS growth of 12-15% and consistent stable CET1 of 13%+
  • Please refer to the Q3 EQB MD&A for preliminary balance sheet growth ranges. Note, guidance includes contributions from Concentra. Per share amounts also include the increase in the count of common shares and associated book value of contributed equity related to the acquisition.

"We've reinforced that EQB's operating model is designed to perform across economic cycles, and this resilience translated again in Q3. The balance sheet, credit and capital are well positioned, diversified and performing to plan. Combined with our team's exceptional focus on ROE and margin management, we believe 2022 will close out on track or ahead of guidance, and we will enter 2023 from a point of strength, including with the addition of Concentra Bank.  We will refine our 2023 guidance with Q4 results in February 2023 after operating Concentra Bank for a few months and managing through continued macroeconomic developments. That said, achieving 2023 guidance will be tremendously rewarding to all stakeholders as Canada's Challenger Bank takes its place among the country's largest financial institutions," said Chadwick Westlake, EQB's Chief Financial Officer.

Equitable Bank announces appointment of three deeply experienced, independent directors, effective immediately taking the Board to 12 independent directors

  • Carolyn Schuetz is an accomplished executive with more than 30 years of global experience in financial services. Having spent 16 years at HSBC, most recently as the Chief Operating Officer for Group Retail Banking and Wealth Management, she brings deep operational expertise and a proven track record of delivering large-scale transformational change in complex, highly regulated industries. She serves on the board of OakNorth Bank plc, a UK-regulated private FinTech bank and Altus Group Limited, which provides the global corporate real estate industry with intelligence-as-a-service solutions to maximize returns and reduce risk. Ms. Schuetz holds a Bachelor of Mathematics from the University of Waterloo, is a Chartered Professional Accountant and has an MBA from Stanford
  • Marcos Lopez is the former CEO of Solium Capital Inc. (now Shareworks by Morgan Stanley). His long stewardship of Solium culminated in its acquisition by Morgan Stanley for $1.1 billion. Under his leadership, Solium's Shareworks platform evolved into a world-class suite of products and services used by more than 3,000 companies worldwide. After Solium was acquired by Morgan Stanley, he became Co-Head of Morgan Stanley at Work, ensuring a successful integration of the business and ultimately helping create the largest employee share plan administration business globally. Before becoming Solium's CEO, he was the co-founder of Bitonic Solutions Inc. Mr. Lopez holds a Bachelor's Degree in Computer Science from the University of Calgary, and was the 2012 recipient of the Ernst & Young Entrepreneur of the Year award for the technology sector, Western Canada
  • Michael Hanley is a Corporate Director with over 25 years of experience in leadership roles and corporate governance. He serves on the Board of Directors and acts as chair of the audit committee of LyondellBasell Industries N.V., where he is also a member of the Compensation and Talent Development Committee. In addition, he is the Lead Director of Nuvei Corporation and a member of the Board of Directors of ExCellThera Inc. Previously, Mr. Hanley served as a member of the Board of Directors, the audit committee and the human resources and compensation committee of Industrial Alliance Insurance and Financial Services Inc. and the Board of Directors and the audit committee of Le Groupe Jean Coutu (PJC) Inc. Earlier in his career, Mr. Hanley was Senior Vice-President Operations and Strategic Initiatives at National Bank of Canada and held a number of positions at Alcan Inc., including Executive Vice-President and Chief Financial Officer, and President and CEO of the Global Bauxite and Alumina business group. He also served as Chief Financial Officer of two other Canadian public companies, Gaz Métro (now Energir) and St-Laurent Paperboard Inc. Mr. Hanley is a Chartered Professional Accountant and member of the Ordre des comptables professionnels agrees du Québec (CPA) since 1987
  • Today's announcement also reflects the Board's focus on preparing for future retirements. Having reached the 12-year term limit set out in our policies, David LeGresley and Lynn McDonald will not stand for re-election as Directors at the 2023 AGM. Accordingly, Mr. Lopez and Mr. Hanley were also appointed to the EQB Inc. Board of Directors immediately and Ms. Schuetz will stand for election to the EQB Inc. Board at the 2023 AGM.

"As Canada's 7th largest independent Canadian bank by assets, Equitable Bank's scope and scale dictate that we enhance our governance, which is exactly what the appointments of these accomplished leaders achieves," said David LeGresley, Chair of the Board of Equitable Bank. "Their presence will be accretive to our deliberations as Canada's Challenger Bank embarks on its next chapter of growth, service and performance. I welcome Carolyn, Marcos and Michael and look forward to the contributions they will make to our Bank's broader purpose of enriching people's lives."

Analyst conference call and webcast: 8:30 a.m. ET Eastern November 9, 2022 
EQB will host its third quarter conference call and webcast on Wednesday November 9, 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 November 23, 2022 at midnight at (416) 764-8677 (passcode 753301 followed by the number sign). Alternatively, the webcast will be archived on the Bank's Investor Relations website.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance sheets (unaudited)





($000s) As at

September 30, 2022

December 31, 2021

September 30, 2021

Assets:




Cash and cash equivalents

298,999

773,251

646,501

Restricted cash

547,836

462,164

466,641

Securities purchased under reverse repurchase agreements                                               

750,072

550,030

600,007

Investments

1,092,628

1,033,438

829,561

Loans – Personal

24,343,276

22,421,603

21,413,300

Loans – Commercial

12,448,825

10,479,159

10,061,492

Securitization retained interests

276,464

207,889

204,820

Other assets

392,009

231,536

202,745


40,150,109

36,159,070

34,425,067

Liabilities and shareholders' equity




Liabilities:




   Deposits

24,048,937

20,856,383

19,932,120

   Securitization liabilities

11,611,083

11,375,020

11,195,418

   Obligations under repurchase agreements

748,881

1,376,763

804,300

   Deferred tax liabilities

75,755

63,141

70,118

   Funding facilities

800,283

200,128

330,479

   Subscription receipts

232,018

-

-

   Other liabilities

471,499

335,001

221,354


37,988,456

34,206,436

32,553,789

Shareholders' equity:




   Preferred shares

70,424

70,607

71,195

   Common shares

236,368

230,160

228,645

   Contributed surplus

10,908

8,693

8,272

   Retained earnings

1,839,561

1,650,757

1,578,128

   Accumulated other comprehensive income (loss)

4,392

(7,583)

(14,962)


2,161,653

1,952,634

1,871,278


40,150,109

36,159,070

34,425,067


Consolidated statements of income
 (unaudited)




($000s, except per share amounts)

Three months ended

Nine months ended


September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Interest income:





Loans – Personal

225,502

165,171

590,112

490,591

Loans – Commercial

172,579

107,203

421,865

311,630

Investments

3,377

4,223

10,583

10,946

Other

9,178

2,209

17,595

7,435


410,636

278,806

1,040,155

820,602

Interest expense:





Deposits

153,638

75,358

348,523

229,836

Securitization liabilities

64,567

52,269

167,598

163,439

Funding facilities

6,180

327

8,954

670


224,385

127,954

525,075

393,945

Net interest income

186,251

150,852

515,080

426,657

Non-interest revenue:





Fees and other income

6,679

5,629

20,578

16,802

Net (loss) gain on loans and investments

(7,697)

4,569

(19,738)

8,015

Gains on securitization activities and income
from securitization retained interests

10,499

1,050

31,559

19,570


9,481

11,248

32,399

44,387

Revenue

195,732

162,100

547,479

471,044

Provision for credit losses

5,354

(3,500)

10,462

(6,254)

Revenue after provision for credit losses

190,378

165,600

537,017

477,298

Non-interest expenses:





Compensation and benefits

41,767

33,430

118,606

94,799

Other

42,315

34,012

118,685

94,950


84,082

67,442

237,291

189,749

Income before income taxes

106,296

98,158

299,726

287,549

Income taxes:





Current

17,142

23,102

62,749

65,842

Deferred

11,575

2,583

12,615

9,239


28,717

25,685

75,364

75,081

Net income

77,579

72,473

224,362

212,468

Dividends on preferred shares

1,086

1,099

3,261

3,324

Net income available to common shareholders

76,493

71,374

221,101

209,144






Earnings per share:





Basic

2.24

2.10

6.48

6.17

Diluted

2.22

2.07

6.41

6.08








Consolidated statements of comprehensive income (unaudited)





($000s)


Three months ended

Nine months ended



September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Net income


77,579

72,473

224,362

212,468

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


(84)

-

(1,010)

-

Net unrealized (losses) from change in fair value


(2,510)

(502)

(31,890)

(3,730)

Reclassification of net losses (gains) to income


1,324

(1,264)

6,330

54

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     


(4,910)

1,151

(11,613)

17,253

Reclassification of net losses to retained earnings


-

-

3,045

-



(6,180)

(615)

(35,138)

13,577

Income tax recovery (expense)


1,625

163

9,218

(3,566)



(4,555)

(452)

(25,920)

10,011

Cash flow hedges:






Net unrealized gains from change in fair value


2,967

3,189

48,876

19,254

Reclassification of net losses (gains) to income


1,126

(61)

3,499

(295)



4,093

3,128

52,375

18,959

Income tax (expense)


(1,075)

(822)

(13,735)

(4,980)



3,018

2,306

38,640

13,979

Total other comprehensive (loss) income


(1,537)

1,854

12,720

23,990

Total comprehensive income


76,042

74,327

237,082

236,458


Consolidated statements of changes in shareholders' equity (unaudited)



($000s) Three month period ended

September 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

70,424

234,372

10,106

1,773,658

36,302

(30,311)

5,991

2,094,551

Net Income

-

-

-

77,579

-

-

-

77,579

Transfer of Losses of AOCI to Retained Earnings

-

-

-

-

-

(62)

(62)

(62)

Other comprehensive income, net of tax

-

-

-

-

3,018

(4,555)

(1,537)

(1,537)

Exercise of stock options

-

1,974

-

-

-

-

-

1,974

Dividends:









Preferred shares

-

-

-

(1,086)

-

-

-

(1,086)

Common shares

-

-

-

(10,590)

-

-

-

(10,590)

Stock-based compensation

-

-

824

-

-

-

-

824

Transfer relating to the exercise of stock options

-

22

(22)

-

-

-

-

-

Balance, end of period

70,424

236,368

10,908

1,839,561

39,320

(34,928)

4,392

2,161,653

($000s) Three month period ended                                                                                                                                                            








September 30, 2021

Balance, beginning of period

72,001

224,997

8,237

1,513,118

(8,273)

(8,543)

(16,816)

1,801,537

Net Income

-

-

-

72,473

-

-

-

72,473

Other comprehensive income, net of tax

-

-

-

-

2,306

(452)

1,854

1,854

Exercise of stock options

-

3,060

-

-

-

-

-

3,060

Purchase of treasury

preferred shares

(806)

-

-

-

-

-

-

(806)

Net loss on cancellation of treasury preferred shares

-

-

-

(71)

-

-

-

(71)

Dividends:









Preferred shares

-

-

-

(1,099)

-

-

-

(1,099)

Common shares

-

-

-

(6,293)

-

-

-

(6,293)

Stock-based compensation

-

-

623

-

-

-

-

623

Transfer relating to the exercise of stock options

-

588

(588)

-

-

-

-

-

Balance, end of period

71,195

228,645

8,272

1,578,128

(5,967)

(8,995)

(14,962)

1,871,278











Consolidated statements of changes in shareholders' equity (unaudited)



($000s) Nine month period ended                                                                                                                                                              

September 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

-

-

-

224,362

-

-

-

224,362

Realized Loss on Sale of Shares

-

-

-

(2,251)

-

-

-

(2,251)

Transfer of Losses of AOCI to Retained Earnings

-

-

-

-

-

(745)

(745)

(745)

Other comprehensive income,

net of tax

-

-

-

-

38,640

(25,920)

12,720

12,720

Exercise of stock options

-

5,841

-

-

-

-

-

5,841

Purchase of treasury preferred shares

(183)

-

-

-

-

-

-

(183)

Net loss on cancellation of

treasury preferred shares

-

-

-

(6)

-

-

-

(6)

Dividends:









Preferred shares

-

-

-

(3,261)

-

-

-

(3,261)

Common shares

-

-

-

(30,040)

-

-

-

(30,040)

Stock-based compensation

-

-

2,582

-

-

-

-

2,582

Transfer relating to the exercise

of stock options

-

367

(367)

-

-

-

-

-

Balance, end of period

70,424

236,368

10,908

1,839,561

39,320

(34,928)

4,392

2,161,653

($000s) Nine month period ended                                                                                                                                                             

 September 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

-

-

-

212,468

-

-

-

212,468

Other comprehensive income,

net of tax

-

-

-

-

13,979

10,011

23,990

23,990

Exercise of stock options

-

8,775

-

-

-

-

-

8,775

Purchase of treasury preferred shares

(1,282)

-

-

-

-

-

-

(1,282)

Net loss on cancellation of

treasury preferred shares

-

-

-

(91)

-

-

-

(91)

Dividends:









Preferred shares

-

-

-

(3,324)

-

-

-

(3,324)

Common shares

-

-

-

(18,844)

-

-

-

(18,844)

Stock-based compensation

-

-

1,884

-

-

-

-

1,884

Transfer relating to the exercise

of stock options

-

1,704

(1,704)

-

-

-

-

-

Balance, end of period

71,195

228,645

8,272

1,578,128

(5,964)

(8,998)

(14,962)

1,871,278











Consolidated statements of cash flows (unaudited)




  ($000s)

Three months ended

Nine months ended

Three and nine month periods ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

CASH FLOWS FROM OPERATING ACTIVITIES





Net income

77,579

72,473

224,362

212,468

Adjustments for non-cash items in net income:





Financial instruments at fair value through income

(3,990)

(5,240)

(2,614)

(10,852)

Amortization of premiums/discount on investments

311

22

941

68

Amortization of capital assets and intangible costs

9,696

8,555

27,740

23,789

Provision for credit losses

5,354

(3,500)

10,462

(6,254)

Securitization gains

(8,973)

(3,084)

(15,221)

(15,439)

Stock-based compensation

824

623

2,582

1,884

Income taxes

28,717

25,685

75,364

75,081

Securitization retained interests

13,477

11,395

38,637

33,295

Changes in operating assets and liabilities:





  Restricted cash

9,447

40,654

(85,672)

37,398

      Securities purchased under reverse repurchase          

     agreements

(330,063)

(499,992)

(200,042)

(149,804)

Loans receivable, net of securitizations

(577,886)

(1,588,722)

(3,922,620)

(3,260,888)

Other assets

(6,277)

(8,276)

(7,382)

(3,078)

Deposits

382,733

1,350,465

3,285,759

3,359,352

Securitization liabilities

245,281

(284,294)

245,054

(792,361)

Obligations under repurchase agreements

(65,613)

603,029

(627,882)

552,423

Funding facilities

88,903

330,479

600,155

330,479

Subscription receipts

1,197

-

232,018

-

Other liabilities

(34,422)

3,544

(21,331)

15,191

   Income taxes paid

(31,958)

(10,485)

(125,616)

(43,016)

Cash flows (used in) from operating activities

(195,663)

43,331

(265,306)

359,736

CASH FLOWS FROM FINANCING ACTIVITIES





Proceeds from issuance of common shares

1,974

3,060

5,841

8,775

Dividends paid on preferred shares

(1,086)

(1,099)

(3,261)

(3,324)

Dividends paid on common shares

(10,590)

(6,293)

(30,040)

(18,844)

Cash flows used in financing activities

(9,702)

(4,332)

(27,460)

(13,393)

CASH FLOWS FROM INVESTING ACTIVITIES





Purchase of investments

(8,466)

(189,056)

(67,292)

(673,906)

Proceeds on sale or redemption of investments

44,150

244,963

277,918

474,429

Net change in Canada Housing Trust re-investment accounts

(51,141)

(29,530)

(346,244)

(29,619)

Purchase of capital assets and system development costs

(19,688)

(10,627)

(45,868)

(28,489)

Cash flows (used in) from investing activities

(35,145)

15,750

(181,486)

(257,585)

Net (decrease) increase in cash and cash equivalents

(240,510)

54,749

(474,252)

88,758

Cash and cash equivalents, beginning of period

539,509

591,752

773,251

557,743

Cash and cash equivalents, end of period

298,999

646,501

298,999

646,501

Cash flows from operating activities include:





Interest received

362,766

256,184

922,920

764,336

Interest paid

(152,137)

(112,378)

(417,217)

(386,564)

Dividends received

859

1,198

3,029

4,114


About EQB Inc.

EQB trades on the Toronto Stock Exchange (TSX: EQB and EQB.PR.C) and serves more than 370,000 Canadians through its wholly owned subsidiary Equitable Bank, Canada's Challenger Bank™. Equitable Banks wholly owned subsidiary Concentra Bank supports credit unions across Canada that serve more than 5 million members. Equitable Bank has over $100 billion in combined assets under management and administration, with a clear mandate to drive change in Canadian banking to enrich people's lives.  Founded over 50 years ago, Canada's Challenger Bank™ provides diversified personal and commercial banking and through its EQ Bank platform (eqbank.ca) 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.

Investor contact:
Richard Gill
Vice President, Corporate Development & Investor Relations
investor_enquiry@eqbank.ca

 

Media contact:
Jessica Kosmack
Senior Manager, Communications
jkosmack@eqbank.ca


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 a definitive agreement to acquire a majority interest in Concentra Bank (Concentra), subject to customary closing conditions and regulatory approvals. On September 28, 2022, the Bank received approval from the Ministry of Finance to acquire Concentra and subsequently closed the transaction on November 1, 2022. The EQB.R subscription receipts were converted to common shares and proceeds were used to fund the transaction. Beginning in Q4 2021, Equitable Bank incurred certain acquisition costs. 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:

  • Q3 2022 – $5.2 million of acquisition and integration related costs and $1.0 million of interest expense paid to subscription receipt holders(1), and
  • Q2 2022 – $2.7 million of acquisition and integration related costs and $0.9 million of interest expenses paid to subscription receipt holders.

 

(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 were converted into common shares at a 1:1 ratio upon the closing of the Concentra acquisition. The net proceeds from the issuance were held in an escrow account and the interest income earned is not recognized until the closing date. 

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





Reconciliation of reported and adjusted financial results

As at or for the three months ended


For the nine months ended


30-Sep-22

30-Jun-22

30-Sep-21


30-Sep-22

30-Sep-21

Reported financial results ($thousands)







Net interest income

186,251

166,657

150,852


515,080

426,657

Non-interest revenue

9,481

(2,528)

11,248


32,399

44,387

Revenue

195,732

164,129

162,100


547,479

471,044

Non-interest expense

84,082

78,276

67,442


237,291

189,749

Pre-provision pre-tax income

111,650

85,853

94,658


310,188

281,295

Provision for credit loss

5,354

5,233

(3,500)


10,462

(6,254)

Income tax expense

28,717

21,784

25,685


75,364

75,081

Net income

77,579

58,836

72,473


224,362

212,468

Net income available to common shareholders

76,493

57,750

71,374


221,101

209,144

Adjustments ($ thousands)







Interest expenses – paid to subscription receipt holders(1)

1,013

947

-


2,874

-

Non-interest expenses – acquisition / integration related costs

5,179

2,709

-


13,021

-

Pre-tax adjustments

6,192

3,656

-


15,895

-

Income tax expense(2)

1,622

958

-


4,165

-

Post-tax adjustments

4,570

2,698

-


11,730

-

Adjusted financial results ($ thousands)







Net interest income

187,264

167,604

150,852


517,954

426,657

Non-interest revenue

9,481

(2,528)

11,248


32,399

44,387

Revenue

196,745

165,076

162,100


550,353

471,044

Non-interest expense

78,903

75,567

67,442


224,270

189,749

Pre-provision pre-tax income

117,842

89,509

94,658


326,083

281,295

Provision for credit loss

5,354

5,233

(3,500)


10,462

(6,254)

Income tax expense

30,339

22,742

25,685


79,528

75,081

Net income

82,149

61,534

72,473


236,093

212,468

Net income available to common shareholders

81,063

60,448

71,374


232,831

209,144

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







Weighted average number of diluted common shares outstanding

34,450,617

34,479,387

34,492,008


34,491,452

34,414,146

Diluted earnings per share - reported

2.22

1.67

2.07


6.41

6.08

Diluted earnings per share - adjusted

2.35

1.75

2.07


6.75

6.08

Impact of adjustments on diluted earnings per share

0.13

0.08

-


0.34

-


(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 were 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. (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 nine months ended



30-Sep-22

30-Jun-22

Change

30-Sep-21

Change

30-Sep-22

30-Sep-21

Change

Non-interest expenses – reported


84,082

78,276

7 %

67,442

25 %

237,291

189,749

25 %

Adjustments on a pre-tax basis:

     Non-interest expenses – 

     acquisition/integration related costs


(5,179)

 

(2,709)

91 %

-

        N/A

(13,021)

-

N/A

Non-interest expenses – adjusted


78,903

75,567

4 %

67,442

17 %

224,270

189,749

18 %

Revenue – reported


195,732

164,129

19 %

162,100

21 %

547,479

471,044

16 %

Adjustment on a pre-tax basis:










     Interest expenses – paid to

     subscription receipt holders


1,013

947

7 %

-

N/A

2,874

-

N/A

Revenue – adjusted


196,745

165,076

19 %

162,100

21 %

550,353

471,044

17 %

Efficiency ratio – adjusted


40.1 %

45.8 %

(5.7 %)

41.6 %

(1.5 %)

40.8 %

40.3 %

0.5 %

 

Reconciliation of adjusted return on equity (ROE)




 ($000s, except percentages) 

For the three months ended

For the nine months ended


30-Sep-22

30-Jun-22

Change

30-Sep-21

Change

30-Sep-22

30-Sep-21

Change

Net income available to common shareholders – reported

76,493

57,750

32 %

71,374

7 %

221,101

209,144

6 %

Adjustments on an after-tax basis:

     Costs associated with Concentra

     acquisition

4,570

2,698

69 %

-

N/A

11,730

-

N/A

Net income available to common shareholders – adjusted

81,063

60,448

34 %

71,374

14 %

232,831

209,144

11 %

Weighted average common equity outstanding – adjusted

2,066,734

2,001,383

3 %

1,764,632

17 %

1,992,412

1,688,350

18 %

Return on equity - adjusted

15.6 %

12.1 %

3.5 %

16.0 %

(0.4 %)

15.6 %

16.6 %

(1.0 %)











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-Sep-22

30-Jun-22

Change

30-Sep-21

Change

Total assets on the consolidated balance sheet

40,150,109

39,417,758

2 %

34,425,067

17 %

Loan principal derecognized

7,181,301

6,349,413

13 %

5,746,788

25 %

Assets under management

47,331,410

45,767,171

3 %

40,171,855

18 %


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







($000s)

30-Sep-22

30-Jun-22

Change

30-Sep-21

Change

Alternative single-family mortgages

16,492,710

16,264,259

1 %

13,262,144

24 %

Reverse mortgages

514,020

421,406

22 %

174,844

194 %

Insurance lending

79,610

73,219

9 %

41,625

91 %

Total Conventional loans – Personal

17,086,340

16,758,884

2 %

13,478,613

27 %







Business Enterprise Solutions

1,318,727

1,228,665

7 %

1,043,089

26 %

Commercial Finance Group

4,973,158

4,516,012

10 %

3,736,987

33 %

Specialized finance

750,322

738,675

2 %

506,268

48 %

Equipment leasing

965,155

902,054

7 %

680,642

42 %

Total Conventional loans – Commercial        

8,007,362

7,385,406

8 %

5,966,986

34 %

Total Conventional loans

25,093,702

24,144,290

4 %

19,445,599

29 %


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.

SOURCE EQB Inc.

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