EQB.PR.C EQB Inc

TORONTO, May 29, 2024 /PRNewswire/ - 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."

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)

Consolidated statement of income (unaudited)

Consolidated statement of comprehensive income (unaudited)

Consolidated statement of changes in shareholders' equity (unaudited)

Consolidated statement of cash flows (unaudited)

About EQB Inc.

EQB Inc. (TSX: EQB and EQB.PR.C) is a leading digital financial services company with $123 billion in combined assets under management and administration (as at April 30, 2024). It offers banking services through Equitable Bank, a wholly owned subsidiary and Canada's seventh largest bank by assets, and wealth management through ACM Advisors, a majority owned subsidiary specializing in alternative assets. As Canada's Challenger Bank™, Equitable Bank has a clear mission to drive change in Canadian banking to enrich people's lives. It leverages technology to deliver exceptional personal and commercial banking experiences and services to over 639,000 customers and more than six million credit union members through its businesses. Through its digital EQ Bank platform (eqbank.ca), its customers have named it one of Canada's top banks on the Forbes World's Best Banks list since 2021.

Please visit eqb.investorroom.com for more details.

Investor contact:
David Lee
Associate Director, Investor Relations
investor_enquiry@eqb.com 

Media contact:
Maggie Hall
Director, PR & Communications
maggie.hall@eqbank.ca  

Cautionary Note Regarding Forward-Looking Statements

Statements made by EQB in the sections of this news release, in other filings with Canadian securities regulators and in other communications include forward-looking statements within the meaning of applicable securities laws (forward-looking statements). These statements include, but are not limited to, statements about EQB's objectives, strategies and initiatives, financial performance expectations and other statements made herein, whether with respect to EQB's businesses or the Canadian economy. Generally, forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "planned", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases which state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved", or other similar expressions of future or conditional verbs. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, closing of transactions, performance or achievements of EQB to be materially different from those expressed or implied by such forward-looking statements, including but not limited to risks related to capital markets and additional funding requirements, fluctuating interest rates and general economic conditions, legislative and regulatory developments, changes in accounting standards, the nature of our customers and rates of default, and competition as well as those factors discussed under the heading "Risk Management" in the MD&A and in EQB's documents filed on SEDAR at www.sedar.com. All material assumptions used in making forward-looking statements are based on management's knowledge of current business conditions and expectations of future business conditions and trends, including their knowledge of the current credit, interest rate and liquidity conditions affecting EQB and the Canadian economy. Although EQB believes the assumptions used to make such statements are reasonable at this time and has attempted to identify in its continuous disclosure documents important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Certain material assumptions are applied by EQB in making forward-looking statements, including without limitation, assumptions regarding its continued ability to fund its mortgage business, a continuation of the current level of economic uncertainty that affects real estate market conditions, continued acceptance of its products in the marketplace, as well as no material changes in its operating cost structure and the current tax regime. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. EQB does not undertake to update any forward-looking statements that are contained herein, except in accordance with applicable securities laws.

Non-Generally Accepted Accounting Principles (GAAP) Financial Measures and Ratios

In addition to GAAP prescribed measures, this news release references certain non-GAAP measures, including adjusted financial results, that we believe provide useful information to investors regarding EQB's financial condition and results of operations. Readers are cautioned that non-GAAP measures often do not have any standardized meaning, and therefore, are unlikely to be comparable to similar measures presented by other companies.

Adjustments listed below are presented on a pre-tax basis:

• $5.7 million non-recurring expenses and acquisition and integration-related costs associated with Concentra and ACM; and
• $1.6 million intangible asset amortization.

• $2.1 million acquisition and integration-related costs associated with Concentra and ACM, and
• $3.4 million intangible asset amortization.

• $3.2 million net fair value amortization adjustments,
• $4.7 million acquisition and integration-related costs, and
• $1.5 million intangible asset amortization.

The following table presents a reconciliation of GAAP reported financial results to non-GAAP adjusted financial results.

Other non-GAAP financial measures and ratios:

• Adjusted return on equity (ROE) is calculated on an annualized basis and is defined as adjusted net income available to common shareholders as a percentage of weighted average common shareholders' equity (reported) outstanding during the period.
• Assets under administration (AUA): is sum of (1) assets over which EQB's subsidiaries have been named as trustee, custodian, executor, administrator, or other similar role; (2) loans held by credit unions for which EQB's subsidiaries act as servicer.
• Assets under management (AUM): is the sum of total balance sheet assets, loan principal derecognized but still managed by EQB, and assets managed on behalf on investors.
• Liquid assets: is a measure of EQB's cash or assets that can be readily converted into cash, which are held for the purposes of funding loans, deposit maturities, and the ability to collect other receivables and settle other obligations.
• Loans under management (LUM): is the sum of loan principal reported on the consolidated balance sheet and loan principal derecognized but still managed by EQB.
• Net interest margin (NIM): this profitability measure is calculated on an annualized basis by dividing net interest income by the average total interest earning assets for the period.
• Pre-provision pre-tax income (PPPT): this is the difference between revenue and non-interest expenses.
• Total loan assets: this is calculated on a gross basis (prior to allowance for credit losses) as the sum of both Loans – Personal and Loans – Commercial on the balance sheet and adding their associated allowance for credit losses.

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SOURCE EQB Inc.