EQB Inc. T.EQB

Alternate Symbol(s): T.EQB.P.C | EQGPF

Financial Services

EQB Inc. operates through its wholly owned subsidiary Equitable Bank. Equitable Bank provides diversified personal and commercial banking through its EQ Bank platform. The Company operates through two main divisions: Personal Banking and Commercial Banking. Its Personal Banking segment consists of deposits, single family residential mortgage loans, home equity lines of credit, reverse mortgages, insurance lending, and payment infrastructure partnerships. Its savings products are offered through EQ Bank, Equitable Bank, Equitable Trust, and a network of independent financial planners and brokers. Its Commercial Banking segment lends loans through a network of mortgage and leasing brokers, lending partners, and other financial institutions. Commercial loans involve lending on multi-unit residential, industrial and office buildings, and other commercial properties. It also specializes in the creation, structuring, and management of pooled Canadian commercial mortgage funds.

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EQB Inc.

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Post by retiredcfon May 04, 2023 12:51pm

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Post# 35430410

TD Raises Target

EQB Inc.

(EQB-T) C$62.38

NIM Continues to Surprise to the Upside

Event

Q1/23 Conference Call

Impact: POSITIVE

Similar to last quarter, EQB beat estimates on the back of stronger-than- expected NIM. Non-interest income was also strong, and PCLs were lower than expected. We have increased our estimates to reflect a higher NIM and non-interest income outlook, offset by a higher expense outlook. Our 16% EPS growth forecast for 2023 is now slightly above guidance (10-15%). Our target moves up to $87 (from $85), and we reiterate our BUY rating.

EQB appears to have high liquidity levels, and its deliberate funding diversification should serve it well. We were encouraged to see deposit growth (1.4% q/q) slightly ahead of on-balance-sheet loan growth (nil q/q). Management notes its funding is well-diversified, 95% is insured or term deposits, and they limit concentration risk ($200k maximum deposits per EQ Bank account). The company's LCR is apparently significantly above the regulatory minimum (100%) and average for the DSIBs (131%).

Arrears are moving higher but remain low in absolute terms. 32bps (of mortgages) compare with 28bps q/q, 22bps y/y, and 44bps pre-pandemic (28bps average since 2010). Management believes credit is normalizing. There are a handful of commercial arrears that are expected to work themselves out, and provisioning against them is immaterial. Construction loans are typically multi-unit (apartments) and condo developments, with 37% of this $2.7bln portfolio insured.

A higher NIM outlook is the primary factor behind our higher earnings outlook. Management cited several factors for the recent NIM expansion, including higher prepayment income, asset yield growth, faster repricing of Concentra assets, and EQ Bank's low deposit beta.
EQB is trading at 1.0x P/B and 5.8x P/E (4QF), below L5Y averages of 1.1x and 6.9x, respectively.

TD Investment Conclusion

NIM continues to surprise to the upside, which is in part driving our constructive EPS growth forecast for 2023. EQB looks well-positioned from a funding and liquidity perspective. Loan growth is expected to be muted in 2023 (we are in line with guidance). Credit trends are normalizing back towards pre-pandemic levels, which is reasonable, in our view.