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EQB delivers ROE ahead of target with record quarterly revenue and pre-provision pre-tax earnings and a 7% q/q and 22% y/y dividend increase
TORONTO, May 29, 2024 /CNW/ - EQB Inc. (TSX: EQB) (TSX: EQB.PR.C) today reported record revenue and pre-provision, pre-tax earnings for the three and six months ended April 30, 2024 that reflected growth in revenue from margin expansion and higher non-interest revenue including a full quarter of results from ACM Advisors, increasing loans under management and EQ Bank customers and deposits. Equitable Bank reported a net reduction in total Gross Impaired Loans (GILs) from the first quarter driven by a 22% reduction in commercial banking GILs.
EQB changed its fiscal year in 2023 to end October 31, resulting in a one-time 10-month transition year and a four-month final quarter of 2023. As a result, the comparisons below are shown year-over-year from the first quarter ending March 31, 2023, as the most similar and comparable three-month period ("y/y").
Second quarter 2024 compared to first quarter of 2024 and 2023:
Adjusted ROE1 15.9% (reported 15.1%)
Adjusted diluted EPS1 $2.81, +2% q/q, +7% y/y (reported $2.67, +0.4% q/q, +4% y/y)
Revenue $317 million, +6% q/q, +20% y/y
Net Interest Margin 2.11%, +10 bps q/q, +16 bps y/y
PPPT: $173.5 million, +5% q/q, +20% y/y (reported $166.2 million, +4% q/q, +18% y/y)
Adjusted net income1 $111 million, +2% q/q, +9% y/y (reported $106 million, +1% q/q, +6% y/y)
Total AUM + AUA2 $123.5 billion, +4% q/q, +18% y/y
EQ Bank customer growth +7% q/q and +36% y/y to over 457,000 customers
Book value per share $73.73, +3% q/q, +14% y/y
Common share dividends $0.45 per share, +7% q/q, +22% y/y
Total capital ratio 15.3% with CET1 of 14.1%
Six months ended April 30, 2024 compared to six months ended March 31, 2023:
Adjusted ROE1 15.7% (reported 15.0%)
Adjusted diluted EPS1 $5.57, +9% y/y (reported $5.33, +41% y/y)
Adjusted net income1 $219.4 million, +13% y/y (reported $210.1 million, +45% y/y)
"The execution of our Challenger Bank strategy, guided by our approach to managing risk and allocating capital, is clearly and sustainably delivering exceptional customer and shareholder value," said Andrew Moor, president and CEO. "With the momentum of our Second Chance campaign, over 31,000 new EQ Bank customers joined us for a discernably better banking experience. Arrears in the commercial loan book improved in the quarter, as expected, and we continue to expect moderation in PCLs in the second half of 2024. Continuing development of our EQ Bank digital banking platform with the launches of an innovative Notice Deposit Savings Account and EQ Bank for small business position us to deliver even more value for more customers and expand the value of the Bank's franchise."
1 Adjusted measures and ratios are Non-Generally Accepted Accounting Principles (GAAP) measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported measures and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the Concentra Bank and ACM acquisition and integration related costs and other non-recurring items which management determines would have a significant impact on a reader's assessment of business performance. 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.
EQ Bank added over 31,000 customers in Q2 growing to 457,000, +7% q/q and +36% y/y
The "Second Chance" marketing campaign across English Canada with Eugene and Dan Levy and "Deuxième chance" across Québec with Diane Lavallée et Laurence Leboeuf continued to encourage Canadians to move on from their first-ever bank accounts to EQ Bank / Banque EQ's Personal Account that combines the best features of high interest chequing with no fees
EQ Bank continues to challenge the status quo with the launch of an innovative Notice Deposit Savings Account, providing Canadians a new way to earn higher rates on their savings
An invite-only launch of EQ Bank's Small Business banking solution was completed at the end of Q2, that will help Canadians manage day-to-day transactions, save and earn more with an easy, secure and differentiated experience. Later this summer this experience will be available to millions of eligible small business owners across Canada
Strong funding growth and diversification with EQ Bank increasing 4% q/q to $8.7 billion
Equitable Bank total deposits remain more than 95% term or insured and increased +6% q/q and +7% y/y to $33.6 billion, with EQ Bank deposits increasing $325 million in the second quarter
On April 8, Equitable Bank issued a $300 million fixed rate deposit note. This was the bank's first issuance since 2022. The offer was 4.2 times oversubscribed and attracted a record 47 investors of which one-third were new to the Equitable Bank program. The successful issuance led to significant narrowing of the bank's credit spread
On April 23, Equitable Bank completed the first-ever European Social Covered Bond issued by a Canadian Bank, raising a benchmark €500 million (CAD $735 million) in an 8 times over-subscribed issuance with 100+ investors of which approximately two-thirds are new to Equitable Bank's Covered Bond Programme. Social bond issuance is a natural extension of the Bank's sustainable business practices that enables it to further support lending activities with a social benefit
Equitable Bank holds $4.5 billion in liquid assets for regulatory purposes, which cover 74% of all demand deposits with sufficient contingency funding available to cover the balance
Personal Banking loans under management reach $32.8 billion with strong retention
Single family uninsured portfolio increased to $19.9 billion, +0.5% q/q, as strong customer retention offset the impact of slower housing market activity on new originations
Decumulation lending assets (including reverse mortgages and insurance lending) +10% q/q and +57% y/y to $1.7 billion, with growth accelerating as a result of successful consumer advertising that bolstered public awareness, strong broker service and value to the borrower
Commercial Banking loans under management +$1.5 billion q/q to $32.7 billion
The Bank continues to prioritize multi-unit residential lending in major cities across the country with nearly 77% of its total commercial loans under management ("LUM") insured through various CMHC programs. Insured multi-unit residential LUM +7% q/q and +35% y/y to $22.6 billion
The Canadian commercial office real estate market continues to experience significant economic challenges; however, as part of the Bank's risk appetite, only ~1% of the Bank's loan assets are associated with offices, and those balances declined in the quarter. Equitable Bank's office lending is mostly restricted to properties located in major urban centres and to smaller buildings
Provisions reflect credit risk at this point in the cycle, expected to moderate
The Bank is appropriately reserved for credit losses with net allowances as a percentage of total loan assets of 23 bps, compared to 22 bps at January 31, 2024, and 19 bps at March 31, 2023
Provision for credit losses (PCL) of $22.2 million in Q2 reflected the impacts of both future expected losses driven by macroeconomic forecasts and loss modelling, Stage 3 provisions of $11.1 million associated with residential and commercial lending, and provisions of $14.0 million associated with the equipment financing business. Realized loan losses excluding equipment financing were $1.8 million for the quarter, representing 0.4bps of lending assets
Net impaired loans decreased by $10.8 million to $441.9 million, representing 92 bps of total loan assets compared to 94 bps at January 31, 2024, and +60 bps from March 31, 2023. Net commercial impaired loans (excl. equipment financing) declined by $68.4 million to 133 bps from 183 bps at January 31, 2024 and up from 57 bps at March 31, 2023 with several commercial loans resolving
EQB increases common share dividend
EQB's Board of Directors declared a dividend of $0.45 per common share payable on June 28, 2024, to shareholders of record as of June 14, 2024, representing a +7% increase from the dividend paid in March 2024 and 22% above the payment made in June 2023
The Board declared a quarterly dividend of $0.373063 per preferred share, payable on June 28, 2024, to shareholders of record at the close of business June 14, 2024
For the purposes of the Income Tax Act (Canada) and any similar provincial legislation, dividends declared are eligible dividends, unless otherwise indicated
"The first half of 2024 has been trending to our expectations with strong revenue, earnings growth and ROE well-above target at nearly 16% year-to-date. This reflects how the EQB business model is positioned to perform across economic cycles. We have momentum for strong performance in the second half of the year and have high confidence in the quality of our credit book. We are continuing to invest in growing the long-term value of our Challenger franchise and are pleased to be rewarding our shareholders with another consecutive dividend increase," said Chadwick Westlake, CFO, EQB.
Analyst conference call and webcast: 10:00 a.m. Eastern May 30, 2024
EQB's Andrew Moor, president and CEO, Chadwick Westlake, CFO, and Marlene Lenarduzzi, CRO, will host the company's second quarter conference call and webcast. The listen-only webcast with accompanying slides will be available at: eqb.investorroom.com. To access the conference call with operator assistance, dial 416-764-8609 five minutes prior to the start time.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheet (unaudited)
($000s) As at
April 30, 2024
October 31, 2023
March 31, 2023
Assets:
Cash and cash equivalents
657,219
549,474
345,621
Restricted cash
783,148
767,195
666,530
Securities purchased under reverse repurchase agreements
1,399,955
908,833
732,608
Investments
1,817,916
2,120,645
2,483,604
Loans – Personal
32,823,421
32,390,527
32,183,036
Loans – Commercial
15,085,481
14,970,604
14,397,192
Securitization retained interests
663,593
559,271
410,441
Deferred tax assets
14,921
14,230
15,024
Other assets
694,542
652,675
558,962
Total assets
53,940,196
52,933,454
51,793,018
Liabilities and Shareholders' Equity
Liabilities:
Deposits
34,123,703
31,996,450
31,589,063
Securitization liabilities
15,181,341
14,501,161
15,311,657
Obligations under repurchase agreements
-
1,128,238
904,658
Deferred tax liabilities
148,549
128,436
92,417
Funding facilities
839,841
1,731,587
768,717
Other liabilities
630,954
602,039
515,871
Total liabilities
50,924,388
50,087,911
49,182,383
Shareholders' Equity:
Preferred shares
181,411
181,411
181,411
Common shares
495,707
471,014
463,862
Contributed (deficit) surplus
(24,811)
12,795
12,002
Retained earnings
2,359,116
2,185,480
1,954,394
Accumulated other comprehensive loss
(7,804)
(5,157)
(1,034)
3,003,619
2,845,543
2,610,635
Non-controlling interests
12,189
-
-
Total equity
3,015,808
2,845,543
2,610,635
Total liabilities and equity
53,940,196
52,933,454
51,793,018
Consolidated statement of income (unaudited)
Three months ended
Six months ended
($000s, except per share amounts)
April 30, 2024
March 31, 2023
April 30, 2024
March 31, 2023
Interest income:
Loans – Personal
482,299
391,816
951,253
719,412
Loans – Commercial
257,842
241,768
520,723
460,196
Investments
16,879
21,893
34,755
32,647
Other
27,209
17,352
49,308
36,650
784,229
672,829
1,556,039
1,248,905
Interest expense:
Deposits
366,002
293,231
724,564
537,644
Securitization liabilities
131,776
118,174
259,029
211,337
Funding facilities
13,521
7,918
28,804
18,942
Other
5,592
12,709
20,294
21,860
516,891
432,032
1,032,691
789,783
Net interest income
267,338
240,797
523,348
459,122
Non-interest revenue:
Fees and other income
20,564
13,898
37,179
24,401
Net gains (losses) on loans and investments
7,129
(3,300)
12,122
(8,514)
Gain on sale and income from retained interests
23,177
14,332
42,586
23,579
Net (losses) gains on securitization activities and
derivatives
(1,548)
2,104
197
3,950
49,322
27,034
92,084
43,416
Revenue
316,660
267,831
615,432
502,538
Provision for credit losses
22,217
6,248
37,752
33,044
Revenue after provision for credit losses
294,443
261,583
577,680
469,494
Non-interest expenses:
Compensation and benefits
66,961
58,362
132,330
123,361
Other
83,459
68,186
157,575
142,367
150,420
126,548
289,905
265,728
Income before income taxes
144,023
135,035
287,775
203,766
Income taxes:
Current
32,734
28,651
71,268
50,805
Deferred
5,573
6,865
6,409
7,623
38,307
35,516
77,677
58,428
Net income
105,716
99,519
210,098
145,338
Dividends on preferred shares
2,346
2,318
4,703
4,623
Net income available to common shareholders and non-
controlling interests
103,370
97,201
205,395
140,715
Net income attributable to:
Common shareholders
103,041
97,201
204,916
140,715
Non-controlling interests
329
-
479
-
103,370
97,201
205,395
140,715
Earnings per share:
Basic
2.70
2.58
5.38
3.81
Diluted
2.67
2.56
5.33
3.78
Consolidated statement of comprehensive income (unaudited)
Three months ended
Six months ended
($000s)
April 30, 2024
March 31, 2023
April 30, 2024
March 31, 2023
Net income
105,716
99,519
210,098
145,338
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 investments
(30)
-
(143)
-
Net unrealized (losses) gains from change in fair value
(16,240)
14,974
25,321
13,186
Reclassification of net losses (gains) to income
17,217
(12,205)
(18,497)
(8,220)
Other comprehensive income – items that will not be reclassified subsequently to income:
Equity instruments designated at Fair Value through Other Comprehensive Income:
Reclassification of gains from AOCI on sale of investments
-
-
-
604
Net unrealized gains (losses) from change in fair value
3,132
(793)
1,552
(2,336)
Reclassification of net (gains) losses to retained earnings
-