Equitable Reports Record Q2 Earnings, Digital Growth, Proposed Stock Split
Canada's Challenger Bank™ Matches Ambitious Growth Targets with Strong Execution
TORONTO, July 28, 2021 /CNW/ - Equitable Group Inc. (TSX: EQB) (TSX: EQB.PR.C) ("Equitable" or the "Bank") today reported record earnings for the three and six months ended June 30, 2021, as Equitable Bank (Canada's Challenger Bank™) continued to deliver on its ambitious annual growth targets while investing in the expansion of its services and technology to drive change that enriches the lives of Canadians.
Q2 Net Earnings $70.8 million, +$18.3 million or +35% from 2020
- Q2 diluted EPS $4.05, +33% from Q2 2020
ROE 16.5% with $100 million in Excess Capital
- Q2 ROE towards high end of 15-17% target, and 1.8% better than 14.7% in Q2 2020
- CET1 14.4% vs. mid-point target of 13.5%, or excess capital of nearly $6 per share
- Efficiency remaining in target range of 39-41% at 40.9% in Q2 and 39.6% YTD
Book Value Surpasses $100 per share
- Book value +20% y/y to $101.94 per share and +$4.08 or +4% from Q1 2021
Customers and Digital – Growing & Deepening
- Now serving nearly 300,000 Canadians, with EQ Bank digital customers +79% y/y to 222,000 and deposits +99% y/y to over $6.5 billion
- Digital transactions +101% y/y, average products per customer +44%, customer lifetime value more than 10 times higher than account acquisition costs
Conventional Lending Driving Asset Growth
- Loans under management +9% y/y to $35.4 billion
- Single family alternative loan originations +200% y/y to $1.8 billion, reverse mortgage originations +318% y/y to $45 million, and Commercial loan originations +16% y/y to $0.7 billion
"Earlier this year, we significantly upgraded our growth forecast and in so doing, challenged ourselves to do more for customers, partners, and shareholders. Through Q2, Equitable delivered to this guidance. On the strength of great execution by our team and meaningful innovations in our challenger bank services, each area of the Bank registered growth. EQ Bank deposits grew 99% over 2020 to a record $6.5 billion, an indication that digital services like our new US Dollar Account are driving the kind of change that enriches the lives of our customers. This past quarter was also an excellent illustration of how we're positioning to drive future earnings, with double-digit loan origination growth reflecting strong contributions from alternative single family, reverse mortgages, Cash Surrender Value lines of credit and conventional commercial loans where Equitable stands out for responsive service, effective underwriting, and risk management. For shareholders, Q2 featured record earnings, high ROE, and an industry best efficiency ratio, even as we purposely drive higher investment to seed future growth. With the tailwinds of an improving economy and the positive impact of service expansions, Equitable is in a great position to realize its objectives this year and beyond, on behalf of almost 300,000 customers, our valued shareholders, and business partners," said Andrew Moor, President and Chief Executive Officer.
Record Results Put Equitable on Pace to Achieve Ambitious 2021 Outlook
- Equitable raised its outlook for 2021 in May and based on growth trends in Q2 and through the first half of the year, the Bank is running on or ahead of that guidance.
- EQ Bank deposit growth of 43% or $2.0 billion since December 31, 2020 compares to full year targeted growth of 30-50%.
- Total loan growth of 8% year over year and 6% or $1.6 billion since December 31, 2020 compares to full year targeted growth of 8-12%.
- Conventional Commercial and Personal loan growth positively impacted earnings in Q2 and is expected to create additional momentum for earnings growth in 2022.
EQ Bank Now Serves approximately 222,000 Canadians, Deposits Exceed $6.5 Billion
- EQ Bank deposits increased 99% year over year to over $6.5 billion at June 30, 2021, reflecting customer growth and the growing popularity of services including the recently launched EQ Bank US Dollar Account and Mortgage Marketplace.
- EQ Bank term deposits increased 267% year over year and 191% during the second quarter.
- Transactions on the platform increased 101% over Q2 last year, while products per customer grew 44%, both indications of strong and growing customer engagement.
New EQ Bank US Dollar Account Expands Challenger Bank Services
- In June, EQ Bank added a US Dollar Account to its ever-expanding suite of smarter digital banking products, making it simpler, faster, and more economic to purchase, hold and transfer US dollars internationally with complete digital account opening and usage, that eliminates monthly fees and paperwork. This account offers a very competitive U.S. and Canadian currency exchange rate that also adds fee-based revenue for Equitable.
- The same interest rate is available on the recently introduced Equitable Bank U.S. High Interest Savings Account. The introduction of these new US dollar products is based on the Bank's recognition that Canadians need smarter options to more easily grow their US funds and the opportunity created by the recent extension of CDIC coverage to foreign currency accounts.
- During the quarter, EQ Bank added more currencies to its innovative and cost-effective international money transfer service, bringing the total to 45 currencies at the end of Q2.
Equitable Bank Receives CMHC Approval to Launch $2 Billion Covered Bond Program
- Subsequent to quarter end, the Bank was very pleased to announce that CMHC approved Equitable's $2 billion legislative covered bond program, which will contribute to lower cost of funds and become an important part of the Bank's funding diversification plan.
- The first issuance of approximately €250-€300 million is expected early this fall. Equitable's covered bonds will be senior, unsecured and unconditional obligations of Equitable Bank and will rank pari passu in right of payment with all of the Bank's deposit liabilities.
Total Deposits Top $18.4 Billion on Diversified Customer and Channel Growth
- Equitable Bank's total deposits were up 18% year over year to $18.4 billion from $15.6 billion a year ago, and up 6% within the second quarter.
- Equitable Bank's Deposit Note Program reached $1.05 billion during the quarter – 197% higher than a year ago – with the successful offering of an additional $150 million principal amount of 1.774% fixed rate notes maturing September 21, 2023, priced at 90 basis points over the interpolated Government of Canada curve (representing the lowest ever spread with a re-opening yield of 1.384%). The offering was approximately four times oversubscribed, reflecting the Bank's strong credit performance.
Loans Under Management Reach $35.4 Billion with Strong Growth in Alternative Single Family and Conventional Commercial
- Loans Under Management increased 9% since Q2 2020 or $3.0 billion – driven by growth in all Personal and Commercial segment business lines – and grew 4%, or $1.2 billion, in Q2 2021 alone.
- Loan principal for the Personal Bank grew 6% year over year to $20.1 billion on origination growth of 34% or $569 million, while Commercial loan principal increased 12% to $9.7 billion with originations up 46% or $431 million.
- Alternative single family mortgage principal, a key driver of the Bank's Personal segment earnings, generated record originations of $1.8 billion in Q2, three times higher than the average a year ago, with assets now totaling $12.1 billion (2021 growth target 12-15%).
- Growth in the Commercial Bank's portfolio included a 14% year over year increase in Commercial Finance Group loans (full-year target 20-25%), a 9% increase in Business Enterprise Solutions (full-year target 7-10%), a 9% increase in Multi-unit Insured (full-year target a slight decline), a 31% increase in Specialized Finance (full-year target 20-25%) and a 24% increase in Equipment Leasing (full-year target 5-8%).
- Assets under management reached a record $37.9 billion, up 9% over the past 12-months (and 3% from Q1 2021) reflecting broad-based growth.
Wealth Decumulation Book Reaches $165 Million, On Track to 2021 200%+ Target
- Equitable Bank's Wealth Decumulation business increased assets by more than two-fold year over year to $165 million.
- Reverse mortgage loans increased 273% year over year (full-year growth target 200%+) to $127 milliondue to expanded market share and differentiated product terms and features that appeal to a larger audience of Canadian mortgage advisors and clients.
- CSV loans increased 180% year over year (full-year target 150%+) while distribution continues to increase to include new lending arrangements finalized with Sun Life and Manulife and, subsequent to quarter end, a partnership with Desjardins Insurance whereby qualifying policyholders can access Equitable Bank's market-leading product.
Credit Metrics Reflect Long-Term Prudence, Q2 Reserve Release $5.3 Million
- Reserve releases amounted to $5.3 million in Q2 (or $0.23 per share), reflecting an improvement in macroeconomic forecasts used for loss modelling and the large provision for credit losses (PCL) taken a year ago.
- PCL was a net benefit of $2.0 million in Q2 2021 (Q1 2021 – $0.8 million), as future expected losses accrued in 2020 were recorded in Q1 and Q2 2020.
- Net impaired loans declined to 0.41% of total loan assets at June 30, 2021 compared to 0.54% a year ago reflecting a reduction of $29.0 million year over year. At June 30, 2021, net impaired loans were higher than 0.36% in Q1 2021 because of the addition of two commercial loans – $23.1 million in Albertawhich was fully repaid in July 2021 and $8.9 million in Manitoba – and despite net reductions in impaired single family mortgages and equipment leases. The loan in Manitoba has an LTV of 59% and no loss is expected.
- Equitable remains well reserved for credit losses with allowances as a percentage of total loan assets equaling 19 bps at June 30, 2021 reflecting a decrease in allowances in stage 2 and 3 over last year.
- Stage 3 allowances dropped by $2.9 million year over year and $0.8 million since Q1 2021.
- Realized losses remained low at $4.1 million or 6 basis points relative to total loan assets.
Strong Capital and Liquidity Combined with Positive Credit Rating
- Liquid assets were $2.9 billion or 9.1% of total assets at June 30, 2021, compared to $1.9 billion or 6.4% a year ago, a level that is sufficient for the Bank to meet its upcoming obligations even in the unlikely event of further pandemic disruptions in financial markets. Retail and securitization funding markets remain liquid and efficient.
- In a report published on May 26, 2021, Fitch Ratings assigned long-term and short-term ratings of 'BBB-'/'F3' respectively to Equitable Bank, with a stable outlook and noted the Bank's capital ratios are higher than many larger bank peers.
ESG – Meaningful Progress in Scope 3 Measurement and Diversity Goals
- Following completion of Scope 1 and 2 greenhouse gas ("GHG") emissions inventory, the Bank quantified emissions from all Scope 3 categories in Q2, including financed emissions.
- The Scope 3 GHG emissions were quantified using calculation approaches and methodologies from the GHG Protocol and the Partnership for Carbon Accounting Financials (PCAF), and supported by external partner WSP Canada.
- Equitable looks forward to disclosing targets and progress on climate risk and diversity initiatives in our Environmental, Social and Governance annual report next year.
Proposed Two-for-One Stock Split Reflects Growing Market Recognition of Value
- Equitable plans to implement a two-for-one split of issued and outstanding common stock to make ownership more accessible for investors. It intends to use the push-out method whereby shareholders receive additional or replacement security certificates.
- This proposal has been approved by Equitable's Board of Directors and is subject to shareholder and regulatory approval.
- Further details on the proposal and key dates for shareholders will be included in the special shareholder meeting announcement in August 2021.
Board of Directors Declares Dividends for Third Quarter 2021
- A dividend of $0.37 per common share will be paid on September 30, 2021 to common shareholders of record at the close of business September 15, 2021.
- A dividend of $0.373063 per preferred share will be paid on September 30, 2021 to preferred shareholders of record at the close of business on September 15, 2021.
- The dividend rate was unchanged from 2020 reflecting regulatory guidance from OSFI to all federally regulated banks. The Bank intends to resume its previously announced dividend increases once regulatory restrictions are lifted.
"As a leading digital bank, Equitable is challenging not just to enrich lives today or next quarter but for the long term and we are guided accordingly as we plan and invest in our people, technology, customer service innovations and business partnerships," said Mr. Moor. "In that context, the remaining months of 2021 will feature growth that we expect will hit our targets for the year, but also platform expansions that will set us up for another strong year in 2022."