Equitable Group posts best earnings ever

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Raises dividend after reverse mortgage assets surge 262 percent

Equitable Group Inc. will increase its quarterly dividend after posting its best-ever quarter on strong lending growth. Equitable Group Inc. will increase its quarterly dividend after posting its best-ever quarter on strong lending growth. Photo by Reuters

Equitable Group Inc. will increase its quarterly dividend after posting its best-ever quarter on strong lending growth, showing that the slowdown in the mortgage market has not yet bitten into the challenger bank’s bottom line.

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EQ Bank reported earnings for the three months ended March 31, up 27 percent to $87.9 million, or diluted earnings per share of $2.51. This comes as the company’s conventional credit segment grew 35 percent year over year to $22.5 billion.

The company announced a dividend of $0.29 per common share (or $1.16 on an annualized basis), payable June 30. This amount represents a 57 percent increase over the dividend of $0.185 declared a year ago and a four percent increase over the dividend declared during the Company’s fourth quarter earnings in February 2022.

In the news release accompanying the results, Andrew Moor, EQ Bank’s President and Chief Executive Officer, said that EQ’s Challenger Bank approach was validated this quarter, with lending activity posting double-digit growth and the best lending metrics since it was announced March 15 joined the company years ago.

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“Equitable has gotten off to a fast start this year as our strategy of building higher-margin conventional assets and further diversifying our balance sheet resulted in the best quarterly earnings performance in our history,” Moor said during a conference call Wednesday morning.

Moor added that decumulation loans, which provide cash flow for retirement, are up 216 percent annually to $363 million. One such segment was the company’s reverse mortgage product, where assets grew 262 percent year over year to $304 million.

“It is clear to all of us on this conference call that the economic and geopolitical environment has changed dramatically in recent weeks and introduced new uncertainties,” Moor continued. “Without downplaying these risks … there are still important fundamentals to support progress into Canada in general and housing demand in particular, including high employment and immigration.”

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Moor also expressed optimism about the federal government’s progress on open banking, which is expected to roll out in 2023.

“I am also excited about the federal government’s appointment of a new leader for Open Banking as our country moves closer to giving Canadians access to valuable new choices and more control over their financial lives,” Moor said.

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The bank noted it was on track to complete its $470 million acquisition of Saskatoon-based Concentra Bank, which the company announced in February, as part of a strategy to help the digital-only challenger bank to accelerate their growth plans. At the end of February, EQ Bank submitted an application to the Office of the Superintendent of Financial Institutions to acquire a majority stake in Concentra, which is still under review.

Amid a rising interest rate environment, lenders’ mortgage segments have received more attention as Canada sees a slowdown in real estate demand in key markets such as Toronto and Vancouver. Rival lender Home Capital Group Inc. saw earnings slump in the first quarter as the company’s chief pointed to headwinds in the mortgage market, the full impact of which may not materialize until later in the year.

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While National Bank analyst Jaeme Gloyn expects EQ Bank to continue growing robustly in the medium term, he reiterated his cautious stance on the mortgage market and financial services companies.

During Wednesday morning’s conference call, Moor noted that he sees this as less of a concern for his business as customers qualified for the stress test.

“Remember, all of these mortgages are eligible for the stress test of two percent above the contract rate or benchmark interest rates (which are) significantly higher than customers are actually paying today,” Moor said. “So the thesis is that our customers have enough cushion to absorb these higher rates.”

Moor also noted that the company lost some market share in the single-family home mortgage business on the underwriting side during the first quarter, although portfolio growth remained robust.

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