TORONTO, Aug. 28, 2024 /PRNewswire/ - EQB Inc. (TSX:EQB) (TSX:EQB) today reported record revenue and earnings1 for the three and nine months ended July 31, 2024, that reflect growth in net interest income, loans under management and higher non-interest revenue reaching 17% of total revenue in the quarter, including contributions from its alternative asset management platform, ACM Advisors.
EQB changed its fiscal year in 2023 to end October 31, resulting in a one-time ten-month transition year and a four-month final quarter of 2023. As a result, the comparisons below are shown year-over-year from the second quarter ending June 30, 2023, as the most similar and comparable three-month period ("y/y").
Third quarter 2024 compared to second quarter of 2024 and 2023:
Adjusted ROE2 15.9% (reported 15.2%)
Adjusted diluted EPS2 $2.96, +5% q/q, -1% y/y (reported $2.84, +6% q/q, -16% y/y)
Revenue $327.2 million, +3% q/q, +15% y/y
Net interest margin2 2.09%, -2 bps q/q, +10 bps y/y
PPPT4 $181.5 million, +5% q/q, +12% y/y (reported $176.7 million, +6% q/q, -5% y/y)
Adjusted net income2 $117.2 million, +6% q/q, +1% y/y (reported $112.2 million, +6% q/q, -14% y/y)
Total AUM + AUA2 $125.4 billion, +2% q/q, +16% y/y
EQ Bank customer growth +6% q/q and +32% y/y to over 485,000 customers
Book value per share $75.67, +3% q/q, +12% y/y
Common share dividends $0.47 per share declared, increasing 2 cents or +4% q/q, +24% y/y
Total capital ratio 16.6% with CET1 of 14.7%
Nine months ended July 31, 2024, compared to nine months ended June 30, 2023:
Adjusted ROE2 15.7% (reported 15.1%)
Adjusted diluted EPS2 $8.53, +6% y/y (reported $8.17, +14% y/y)
Adjusted net income2 $336.6 million, +9% y/y (reported $322.3 million, +17% y/y)
"This was another quarter of strong financial performance from Canada's Challenger Bank™ despite the moderating effects of higher interest rates on real estate market activity," said Andrew Moor, president and CEO, EQB. "Highlights included sequential earnings growth, ROE above our 15% target – consistent with our 10-year average – and continued expansion of EQ Bank's customer base driven most recently by consumer demand for our new Notice Savings Account, the first-of-its-kind-in Canada with no fees or minimum balance requirements. PCLs also improved in line with our expectations, and we anticipate continued progress now that monetary policy is normalizing. This emerging backdrop is conducive to the return of more pronounced asset growth in fiscal 2025 as we help Canadians meet their needs for all forms of housing in a supply-constrained environment."
1 Record quarterly performance excludes Q4 2023 which had four months due to the change of EQB's fiscal year to end October 31.
2 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.
3 These are non-GAAP measures, see the "Non-GAAP financial measures and ratios" section.
4 PPPT represents pre-provision-pre-tax income, a non-GAAP measure of financial performanc
EQ Bank welcomes over 28,000 customers in Q3 growing to 485,000, +6% q/q and +32% 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 led to a substantial increase in consumer awareness of EQ Bank and supported the rapid growth of new customer accounts as Canadians explored the advantages that accrue from using all-digital, interest-bearing accounts with no fees on everyday banking.
The recently launched and first-of-its-kind Notice Savings Account, with no fees or minimum balance requirements, pairs high interest rates with the flexibility to withdraw on short notice. It has proven to be attractive to both existing and new customers who now benefit from greater diversity in the savings product landscape.
Personal Banking loans under management reach $32.5 billion with strong retention
The single-family uninsured portfolio remained steady q/q at $19.8 billion, as strong customer retention offset the impact of slower housing market activity on new originations.
Decumulation lending assets (including reverse mortgages and insurance lending) +11% q/q and +56% y/y to $1.9 billion with growth accelerating as a result of successful consumer advertising that bolstered public awareness, strong broker service and value to borrowers.
The innovative Laneway House Mortgage, introduced subsequent to quarter-end, diversifies the Bank's single-family solutions portfolio and improves options to borrowers in urban centres while helping to address access to housing. This dedicated construction financing loan, available through broker partners, supports Canadians wishing to expand living space, add additional rental income streams or downsize in place through secondary suites.
Commercial Banking loans under management +$1.6 billion q/q to $34.4 billion
EQB continues to prioritize insured multi-unit residential lending in major cities across the country with nearly 80% of its total commercial loans under management (LUM) insured through various CMHC programs. Insured multi-unit residential LUM +7% q/q and +33% y/y to $24.1 billion.
As a result of the Bank's lending focus on properties where people live, it has very limited exposure to the Canadian commercial office real estate market (~0.5% of loan assets) and those balances declined in the quarter. Consistent with the Bank's long-term risk appetite, commercial office lending is generally confined to multi-tenanted, mixed-used properties occupied by medical and professional businesses.
Provisions reflect credit risk at this point in the cycle
The Bank is appropriately reserved for credit losses with net allowances as a percentage of total loan assets of 26 bps, compared to 23 bps at April 30, 2024, and 20 bps at June 30, 2023.
Adjusted provision for credit losses (PCL)2 of $19.6 million (reported $21.3 million in Q3) reflected the impacts of improving macroeconomic forecasts and expected credit loss modelling, Stage 3 provisions of $4.5 million associated with residential and commercial lending and $16.0 million associated with the equipment financing business. Realized losses excluding equipment financing were $1.4 million, annualized 1 bp of lending assets.
Net impaired loans increased by $84.7 million to $526.6 million, which corresponds to 109 bps of total loan assets compared to 92 bps at April 30, 2024, and 47 bps from June 30, 2023. This increase is attributed to increases in Commercial lending with ~60% related to two commercial loans where the Bank does not expect to incur losses, as well as equipment finance and single-family residential.
EQB increases common share dividend
EQB's Board of Directors declared a dividend of $0.47 per common share payable on September 30, 2024, to shareholders of record as of September 13, 2024, representing a 4% increase from the dividend paid in June 2024 and 24% above the payment made in September 2023.
On August 28, 2024, EQB's Board suspended the Dividend Reinvestment Plan (DRIP) due to the strength of the Bank's capital position and ability to confidently generate sufficient capital over the medium to long-term to support the growth of the Bank. EQB maintains the right to reinstate the DRIP in future periods.
The Board declared a quarterly dividend of $0.373063 per preferred share, payable on September 30, 2024, to shareholders of record at the close of business September 13, 2024.
For the purposes of the Income Tax Act (Canada) and any similar provincial legislation, dividends declared are eligible dividends, unless otherwise indicated.
EQB preferred share redemption
On September 30, 2024, EQB will redeem all of the 2,911,800 outstanding shares of its Non-Cumulative 5-Year Rate Reset Preferred Shares, Series 3 (the "Series 3 Preferred Shares"). The redemption price per share for the Series 3 Preferred Shares will be $25.00 for each Series 3 Preferred Share of the Company.
The Series 3 Preferred Shares are currently listed for trading on the Toronto Stock Exchange under the symbol EQB.PR.C and will be de-listed from the TSX, as at the close of trading on September 30, 2024. Beneficial holders of Series 3 Preferred Shares should contact the financial institution, broker or other intermediary through which they hold these shares to confirm how they will receive their redemption proceeds.
Fiscal 2024 earnings guidance now reflects year-to-date results with reaffirmed 15%+ ROE
With three quarters of the fiscal year complete, EQB today reaffirmed previously stated annual guidance for adjusted ROE of 15%+, as well as for pre-provision pre-tax income, dividend growth and CET1 capital.
Full year range for EPS, now $11.50-$11.75, and book value per share growth, now 11-13%, incorporate year-to-date results and trends including credit provision experience and for book value, includes the liability associated with the option EQB has to acquire the remaining interest in ACM.
"With three quarters of the fiscal year complete, we are trending well relative to expectations with record quarterly revenue and another quarter of ROE at nearly 16%," said Chadwick Westlake, CFO, EQB. "We've built a resilient and diverse business model that should gain even more traction as economic activity improves and we enter a lower rate environment with higher consumer confidence. We remain focused on allocating capital to benefit long-term franchise value, while increasing our emphasis on business mix and operational effectiveness as we scale EQB."
Analyst conference call and webcast: 7:00 a.m. ET August 29, 2024EQB's Andrew Moor, president and CEO, Chadwick Westlake, CFO, and Marlene Lenarduzzi, CRO, will host the company's third 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.
EQB renews its base shelf prospectusEQB has renewed its existing base shelf prospectus effective August 27, 2024, and filed and obtained a receipt for a short form base shelf prospectus (the "Shelf Prospectus") with the Securities Commissions in each of the provinces and territories of Canada. With the Shelf Prospectus, EQB is allowed to make public offerings of common shares, preferred shares, debt securities, subscription receipts, warrants, share purchase contracts and units (the "Securities") during the 25‐month period that the Shelf Prospectus is effective. The Securities may be offered in one or more offerings, separately or together, in separate series, in amounts, at prices and on terms to be determined based on market conditions at the time of sale, and set forth in an accompanying prospectus supplement. EQB has filed the Shelf Prospectus in order to maintain financial flexibility and to have the ability to offer Securities on an accelerated basis to fund current and future growth of the business. A copy of the Shelf Prospectus is available under the Company's profile on www.sedarplus.ca.
This news release does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of Securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. Further, this news release does not constitute an offer to sell or the solicitation of an offer to buy in the United States and the Securities referred to in this news release may not be offered or sold in the United States absent registration under the U.S. Securities Act of 1933 or pursuant to an applicable exemption from the registration requirements under the U.S. Securities Act of 1933 and applicable state securities laws.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheet (unaudited)
($000s) As at
July 31, 2024
October 31, 2023
June 30, 2023
Assets:
Cash and cash equivalents
509,608
549,474
373,492
Restricted cash
904,196
767,195
870,247
Securities purchased under reverse repurchase agreements
1,339,578
908,833
1,208,930
Investments
1,806,413
2,120,645
2,235,530
Loans – Personal
32,584,931
32,390,527
32,333,611
Loans – Commercial
15,372,643
14,970,604
15,103,519
Securitization retained interests
738,986
559,271
474,542
Deferred tax assets
30,481
14,230
14,392
Other assets
782,900
652,675
704,440
Total assets
54,069,736
52,933,454
53,318,703
Liabilities and Shareholders' Equity
Liabilities:
Deposits
33,258,969
31,996,450
32,137,347
Securitization liabilities
14,919,830
14,501,161
15,397,103
Obligations under repurchase agreements
-
1,128,238
875,718
Deferred tax liabilities
161,025
128,436
106,723
Funding facilities
1,803,221
1,731,587
1,487,008
Other liabilities
681,213
602,039
594,952
Total liabilities
50,824,258
50,087,911
50,598,851
Shareholders' Equity:
Preferred shares
181,411
181,411
181,411
Common shares
501,594
471,014
466,711
Other equity instruments
147,808
-
-
Contributed (deficit) surplus
(25,801)
12,795
12,668
Retained earnings
2,432,426
2,185,480
2,065,478
Accumulated other comprehensive loss
(3,964)
(5,157)
(6,416)
3,233,474
2,845,543
2,719,852
Non-controlling interests
12,004
-
-
Total equity
3,245,478
2,845,543
2,719,852
Total liabilities and equity
54,069,736
52,933,454
53,318,703
Consolidated statement of income (unaudited)
Three months ended
Nine months ended
($000s, except per share amounts)
July 31, 2024
June 30, 2023
July 31, 2024
June 30, 2023
Interest income:
Loans – Personal
501,420
420,578
1,452,673
1,139,990
Loans – Commercial
256,788
256,731
777,511
716,927
Investments
16,432
18,856
51,187
51,503
Other
32,210
21,083
81,518
57,733
806,850
717,248
2,362,889
1,966,153
Interest expense:
Deposits
387,208
322,503
1,111,772
860,147
Securitization liabilities
132,810
118,416
391,839
329,753
Funding facilities
12,773
11,891
41,577
30,817
Other
2,692
12,739
22,986
34,615
535,483
465,549
1,568,174
1,255,332
Net interest income
271,367
251,699
794,715
710,821
Non-interest revenue:
Fees and other income
22,561
14,489
59,740
38,890
Net gains on loans and investments
6,145
29,659
18,267
21,145
Gain on sale and income from retained interests
22,755
16,104
65,341
39,683
Net gains on securitization activities and derivatives
4,410
596
4,607
4,546
55,871
60,848
147,955
104,264
Revenue
327,238
312,547
942,670
815,085
Provision for credit losses
21,274
13,042
59,026
46,086
Revenue after provision for credit losses
305,964
299,505
883,644
768,999
Non-interest expenses:
Compensation and benefits
69,912
59,707
202,242
183,068
Other
80,657
67,323
238,232
209,690
150,569
127,030
440,474
392,758
Income before income taxes
155,395
172,475
443,170
376,241
Income taxes:
Current
44,083
26,612
115,351
77,417
Deferred
(842)
14,938
5,567
22,561
43,241
41,550
120,918
99,978
Net income
112,154
130,925
322,252
276,263
Dividends on preferred shares
2,351
2,331
7,054
6,954
Net income available to common shareholders and non-controlling interests
109,803
128,594
315,198
269,309
Net income attributable to:
Common shareholders
109,538
128,594
314,454
269,309
Non-controlling interests
265
-
744
-
109,803
128,594
315,198
269,309
Earnings per share:
Basic
2.86
3.41
8.24
7.24
Diluted
2.84
3.39
8.17
7.18
Consolidated statement of comprehensive income (unaudited)
Three months ended
Nine months ended
($000s)
July 31, 2024
June 30, 2023
July 31, 2024
June 30, 2023
Net income
112,154
130,925
322,252
276,263
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
(1,591)
-
(1,734)
-
Net unrealized gains (losses) gains from change in fair value
34,658
(31,474)
59,979
(19,372)
Reclassification of net (gains) losses to income
(29,687)
32,302
(48,184)
25,165
Other comprehensive income – items that will not be reclassified subsequently to income:
Equity instruments designated at Fair Value through Other Comprehensive Income:
Reclassification of (losses) gains from AOCI on sale of investments
(25,599)
-
(25,599)
604
Net unrealized gains (losses) from change in fair value
534
(30,989)
2,086
(33,325)
Reclassification of net losses to retained earnings
26,089
4,936
26,089
5,712
4,404
(25,225)
12,637
(21,216)
Income tax (expense) recovery
(1,194)
7,005
(3,427)
6,279
3,210
(18,220)
9,210
(14,937)
Cash flow hedges:
Net unrealized (losses) gains from change in fair value
(23,284)
28,856
(23,553)
18,090
Reclassification of net gains to income
(2,844)
(11,082)
(14,608)
(13,100)
(26,128)
17,774
(38,161)
4,990
Income ...
