TORONTO, Feb. 16,
2023 /PRNewswire/ - EQB Inc. (TSX: EQB)
(TSX: EQB.PR.C) (EQB) today reported financial results for the
three and twelve months ended December 31,
2022.
Results in both periods reflected strong organic lending
growth and margins with low loan losses that enabled EQB to achieve
its key 2022 performance guidance including adjusted ROE and
earnings. The fourth quarter included two months of results from
Concentra Bank, which was acquired on November 1, 2022. The acquisition immediately
added portfolio and revenue growth, with broad earnings
diversification and distribution benefits. In addition, and as
expected, closing the acquisition resulted in significant one-time
charges to reported results, including standard accounting-related
impacts primarily due to integration charges and the
acquisition-related accounting of expected future credit losses
required under IFRS 9. Please see EQB's Q4 2022 Management's
Discussion and Analysis (MD&A) for details.
- Adjusted ROE1 15.9% in Q4 and 15.7% in 2022
ahead of adjusted guidance of 15%+ (reported 7.7% in Q4 and 12.9%
for 2022)
- Adjusted diluted EPS1 $2.46 in Q4 (+7% y/y) and $9.17 in 2022 (+9%) achieving 2022 adjusted
guidance of 8-10% (reported $1.19
diluted in Q4 and $7.55 for 2022),
including the impact of higher weighted average common shares
following the conversion of subscription receipts to common shares
in Q4
- Common share dividends declared $1.21 per share in 2022, +64% y/y
- Total capital 15.1% with CET1 of 13.7% vs. CET1 guidance
of 13%+
- Conventional loans2 $30.3 billion, +43% y/y, AUM2
$61.6 billion (+47% y/y),
AUA2 $41.2 billion
(nil in 2021)
- EQ Bank customer growth +23% y/y to 308,286 with
approximately $7.9 billion in
deposits (+14% y/y)
- Change in financial reporting year EQB will move to a
fiscal year ending October 31, 2023 -
details to be shared at the May 2023
Annual General Meeting
"2022 was a pivotal year as we became Canada's 7th largest independent
bank with nearly $103 billion in combined assets under
management and assets under administration following the closing of
the Concentra Bank acquisition. But what made 2022 most memorable
was the opportunity to deliver better banking experiences to many
more people in Canada. Among the
highlights was the launch of EQ Bank in Québec in December 2022, where we are rapidly gaining new
customers. Momentum continued in January with the launch of the EQ
Bank Card, with tens of thousands already ordered by customers.
While expanding services and digital solutions, we once again
delivered on our ROE North Star at
15.7% adjusted for 2022 and with it, extended our decades-long
track record of consistent value creation. Our Challenger Bank
workforce deserves full marks for achieving these results while
completing a large acquisition and expertly addressing heightened
economic risk. Our task now is clear, make 2023 our best year yet
by continuing to drive change in Canadian banking and keeping
customer service at the heart of our efforts," said Andrew Moor, President and Chief Executive
Officer.
Diversified revenue +22% y/y on conventional asset expansion,
margin management
- Adjusted Q4 revenue1 +37% y/y to $235.1 million and for 2022 +22% to $785.4 million (Q4 reported $234.7 million, 2022 $782.2 million)
- Adjusted Net Interest Income (NII)1 for Q4 +40% y/y
to $218.8 million (Q4 reported NII
$218.3 million) driven by asset
growth across Personal and Commercial conventional loans.Annual
adjusted NII increased 26% y/y supported by portfolio growth and a
6 bps y/y increase in Net Interest Margin1 to 1.87%
as asset mix shifted towards higher-spread conventional loans and
as asset yields increased faster than diversified cost of
funds
- Non-interest revenue +3% y/y to $16.4
million for Q4 and +73% from Q3 2022, benefitting from the
fee income from the new Concentra Trust business through Concentra
Bank and multi-family insured
Personal Banking conventional
loans2 +43% y/y to $21.1 billion
- Single-family alternative portfolio +34% y/y to $19.2 billion and 17% q/q following EQB's
consistent and prudent approach to credit risk management. Organic
2022 growth y/y was +15% relative to annual guidance +12-15%
- Reverse mortgage assets +249% y/y to $860 million and +68% q/q. Growth reflected
expanded distribution, increasing brand awareness of Equitable
Bank's solution among Canadians nearing or in retirement, and
growing share of an expanding market
- Insurance lending assets +80% y/y to $88
million (2022 annual guidance +100%) and +11% q/q. New loan
originations exceeded growth targets, but the portfolio was
impacted by repayment activity given the substantial increases in
the prime interest rate
Commercial Banking conventional
loans2 +44% y/y to $9.2 billion
- Commercial Finance Group loan portfolio +43% y/y to
$5.6 billion and +13% q/q. Organic
growth y/y was 26.5% relative to 2022 annual guidance of +10-15%;
Business Enterprise Solutions +22% y/y to $1.3 billion and +1% q/q. Organic growth y/y was
22% relative to 2022 annual guidance of +10-15%; Specialized
Finance business +52% y/y to $1
billion and +31% q/q relative to 2022 annual guidance of
+20-30%)
- Equipment financing assets +72% y/y to $1.3 billion and +31% q/q. Excluding Concentra,
growth y/y was 34% relative to 2022 annual guidance of +10-15%.
This growth includes the addition of $280
million in Concentra Bank prime equipment financing assets
in Q4
- Insured multi-unit residential loans under management +30% y/y
to $5.3 billion and +20% q/q. Gains
on securitization in this portfolio contributed $8 million to non-interest revenue in Q4
Credit quality indicators reflect prudence in a higher
interest rate environment
- Adjusted provision for credit losses (PCL) 1
$7.8 million in Q4 to account for
continued organic portfolio growth, changing macroeconomic
forecasts and loss modelling. This includes the acquired Concentra
Bank portfolio (reported Q4 PCL was $26.8
million, including a provision related to the required
accounting treatment of acquired loans—please see the Non-GAAP
financial measures and ratios section herein)
- Net impaired loans 0.28% of total assets at December 31, 2022, +1 bps from prior year and +5
bps sequentially. Compared to Q3, the net impaired loan increase
was primarily attributable to one significant loan where EQB does
not expect any loss. Annualized realized loss rate for Q4 were 3
bps of total loan assets ($3.2
million), compared to 2 bps y/y ($1.8
million)
- EQB remains well reserved for credit losses with allowances as
a percentage of total loan assets of 18 bps at December 31, 2022, elevated above prior quarters
in part due to addition of Concentra Bank portfolios including the
new consumer lending portfolio. Provisions for credit losses in
2023 is expected to be driven primarily due to portfolio growth,
providing that market conditions unfold as anticipated in current
economic forecasts
EQ Bank customers +23% y/y, deposits +14%
- EQ Bank customer base reached more than 308,000 in 2022 with
strong momentum early in 2023
- EQ Bank customer everyday engagement reached an all-time high
of 48% in Q4 (frequency of digital transactions +43% y/y and
accounts held per customer +28% y/y)
- EQ Bank is positioned for continued growth following the launch
of the EQ Bank Card in early January
2023, giving customers more solutions to meet their everyday
banking needs, including the advantages of fee-free cash
withdrawals at any ATM nationally, no foreign exchange fees on
international purchases and cashback
Concentra Bank contributed to results in Q4 and added
$13 billion in AUM
- Upon closing November 1, 2022,
Concentra Bank introduced complementary asset growth,
diversification in funding and revenue sources and enhanced
distribution capabilities for Equitable Bank
- The integration of Concentra Bank's conventional
loan2 portfolio added $4.9
billion or 23% to Q4 2022 conventional loan y/y growth of
43%, as well as a consumer lending portfolio related to fintech
partnerships.
- Integration costs and synergy realization are tracking to plan
with synergy realization adding to performance in 2023 and
2024
EQB announces +6% q/q increase in common share dividend for
Q1 2023
- EQB's Board of Directors declared a common share dividend of
$0.35 per common share or
$1.40 annualized, payable on
March 31, 2023 to shareholders of
record as of March 15, 2023. This
represents a 6% increase from the dividend declared in November 2022 and a 25% increase from Q1 2022 and
reflects EQB's philosophy of growing the dividend while maintaining
a payout ratio that is much lower than other Canadian banks and
using retained capital to fuel growth
- EQB's Board also declared a quarterly dividend of $0.373063 per preferred share, payable on
March 31, 2023 to shareholders of
record at the close of business March 15,
2023
EQB confirms guidance for 2023 including 15%+ ROE, adjusted
diluted EPS 10%-15%
- EQB's twelve-month 2023 guidance can be found in the Q4
2022 Management discussion and Analysis (MD&A). Guidance
measures are based on adjusted results for ROE, pre-provision
pre-tax earnings (PPPT), diluted EPS, dividend growth, book value
per share growth and a CETI ratio of 13%+, as well as balance sheet
growth ranges—all inclusive of Concentra Bank
Board of Directors moves EQB's financial reporting year
to October
31st
- In keeping with industry practice for Canadian Banks, and
reflecting the scale and diversification of Equitable Bank, EQB
will transition its financial reporting year to end on October 31, 2023, with the first day of fiscal
2024 commencing November 1, 2023
- Current growth guidance for 2023 is based on 12 months and will
be adjusted later in 2023 to reflect a 10-month fiscal year
transition
- More details will be shared at the EQB Annual General Meeting
in May
"EQB has been proven to deliver industry-leading performance
across economic cycles and we're expressing confidence in this
trend by reaffirming 2023 guidance, most importantly 15%+ adjusted
ROE. Guided by financial discipline, robust risk management and a
differentiated customer service mission that is fundamentally
changing Canadian banking, we intend to capitalize on the
additional strength afforded by our new level of scale and
diversification achieved in 2022. While we have taken heightened
economic risks into account, our credit book is in great shape, our
risk appetite is consistent and we continue to expect to operate
with our track record of low credit losses. The bottom line is that
Canada's Challenger Bank has never
been stronger or more capable of fulfilling its purpose of driving
change in Canadian banking to enrich people's lives," said
Chadwick Westlake, EQB's Chief
Financial Officer.
Analyst conference call and webcast: 8:30 a.m. ET Eastern February 17, 2023
EQB will host its third
quarter conference call and webcast on Friday, February 17, 2023. To access the call
with operator assistance, dial (416) 764-8609 five minutes
prior to the start time. Or to join without operator assistance,
you may register your phone number up to 15 minutes in advance of
start time to receive an automatic call-back connection to the
conference at: click to register
here.
Call archive
The webcast will be archived on EQB's
Investor Relations website. A replay of the call will be available
until midnight March 3, 2023 at (416)
764-8677 (passcode 570770 followed by the number sign).
1 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 acquisition and integration related costs. For
additional information and a reconciliation of reported results to
adjusted results, see the "Non-GAAP financial measures and ratios"
section. 2. These are non-GAAP measures, see the "Non-GAAP
financial measures and ratios" section.
|
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheet
($000s) As at December
31
|
2022
|
2021
|
Assets:
|
|
|
Cash and cash
equivalents
|
495,106
|
773,251
|
Restricted
cash
|
737,656
|
462,164
|
Securities purchased
under reverse repurchase agreements
|
200,432
|
550,030
|
Investments
|
2,289,618
|
1,033,438
|
Loans –
Personal
|
31,996,950
|
22,421,603
|
Loans –
Commercial
|
14,513,265
|
10,479,159
|
Securitization
retained interests
|
373,455
|
207,889
|
Other
assets
|
538,475
|
231,536
|
|
51,144,957
|
36,159,070
|
Liabilities and
shareholders' equity
|
|
|
Liabilities:
|
|
|
Deposits
|
31,051,813
|
20,856,383
|
Securitization liabilities
|
15,023,627
|
11,375,020
|
Obligations under repurchase agreements
|
665,307
|
1,376,763
|
Deferred
tax liabilities
|
72,675
|
63,141
|
Funding
facilities
|
1,239,704
|
200,128
|
Other
liabilities
|
556,876
|
335,001
|
|
48,610,002
|
34,206,436
|
Shareholders'
equity:
|
|
|
Preferred
shares
|
181,411
|
70,607
|
Common
shares
|
462,561
|
230,160
|
Contributed surplus
|
11,445
|
8,693
|
Retained
earnings
|
1,870,100
|
1,650,757
|
Accumulated other comprehensive income (loss)
|
9,438
|
(7,583)
|
|
2,534,955
|
1,952,634
|
|
51,144,957
|
36,159,070
|
Consolidated statement of income
($000s, except per
share amounts) Years ended December 31
|
2022
|
2021
|
Interest
income:
Loans – Personal
Loans – Commercial
Investments
Other
|
917,708
640,293
21,337
36,893
|
660,945
422,392
14,437
9,546
|
|
1,616,231
|
1,107,320
|
Interest
expense:
Deposits
Securitization liabilities
Funding facilities
Other
|
578,998
260,761
19,979
23,088
|
307,684
214,535
901
1,591
|
|
882,826
|
524,711
|
Net interest income:
Fees and other income
Net (loss)
gain on loans and investments
Gains on securitization activities and income from
securitization retained interests
|
733,405
31,055
(25,689)
43,415
|
582,609
22,157
16,358
21,783
|
|
48,781
|
60,298
|
Revenue
Provision for credit losses
(recoveries)
|
782,186
37,258
|
642,907
(7,674)
|
Revenue after provision for credit losses
Non-interest expenses:
Compensation and benefits
Other
|
744,928
183,605
192,866
|
650,581
128,965
131,211
|
|
376,471
|
260,176
|
Income before
income taxes
Income
taxes:
Current
Deferred
|
368,457
84,903
13,373
|
390,405
95,562
2,313
|
|
98,276
|
97,875
|
Net income
|
270,181
|
292,530
|
Dividends on preferred shares
|
5,566
|
4,413
|
Net income available to common shareholders
|
264,615
|
288,117
|
Earnings per
share:
|
|
|
Basic
|
7.63
|
8.49
|
Diluted
|
7.55
|
8.36
|
Consolidated statement of comprehensive income
($000s) Years ended
December 31
|
2022
|
2021
|
Net income
|
270,181
|
292,530
|
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 investment
Net unrealized losses
from change in fair value
Reclassification of net losses
to income
Other comprehensive income – items that will not be
reclassified
subsequently to income
Equity instruments designated at Fair Value through
Other
Comprehensive
Income:
Reclassification of
gains from AOCI on sale of investment
Net unrealized (losses) gains
from change in fair value
Reclassification of net
losses (gains) to retained earnings
|
(1,010)
(33,678)
10,315
604
(13,156)
3,843
|
-
(6,585)
929
-
20,244
(13)
|
Income tax recovery (expense)
|
(33,082)
9,033
|
14,575
(3,829)
|
|
(24,049)
|
10,746
|
Cash flow hedges:
Net unrealized gains
from change in fair value
Reclassification of net losses
to income
|
53,926
2,103
|
27,031
941
|
Income tax
expense
|
56,029
(14,693)
|
27,972
(7,349)
|
|
41,336
|
20,623
|
Total other comprehensive income
|
17,287
|
31,369
|
Total comprehensive income
|
287,468
|
323,899
|
Consolidated Statement of Changes in Shareholders' Equity
($000s)
|
2022
|
|
Preferred
shares
|
Common
shares
|
Contributed
surplus
|
Retained
earnings
|
Accumulated other comprehensive
income (loss)
|
Total
|
Cash flow
hedges
|
Financial
instruments
at FVOCI
|
Total
|
Balance, beginning of year
Net income
Realized losses on sale
of shares
Transfer of AOCI losses
to retained earnings
Investment elimination
on acquisition
Other comprehensive income, net of tax
Common shares
issued
Exercise of stock options
Purchase of treasury preferred shares
Net loss on
cancellation of treasury preferred shares
Dividend payout from
principal
Dividends:
Preferred shares
Common shares
Stock-based compensation
Transfer relating to the exercise
of stock options
Shares on
acquisition
|
70,607
-
-
-
-
-
-
-
(183)
-
-
-
-
-
-
110,987
|
230,160
-
-
-
-
-
223,112
9,274
-
-
(655)
-
-
-
670
-
|
8,693
-
-
-
-
-
-
-
-
-
-
-
-
3,422
(670)
-
|
1,650,757
270,181
(2,839)
-
-
-
-
-
-
(6)
-
(5,566)
(42,427)
-
-
-
|
680
-
-
-
-
41,336
-
-
-
-
-
-
-
-
-
-
|
(8,263)
-
-
(299)
33
(24,049)
-
-
-
-
-
-
-
-
-
-
|
(7,583)
-
-
(299)
33
17,287
-
-
-
-
-
-
-
-
-
-
|
1,952,634
270,181
(2,839)
(299)
33
17,287
223,112
9,274
(183)
(6)
(655)
(5,566)
(42,427)
3,422
-
110,987
|
Balance, end of year
|
181,411
|
462,561
|
11,445
|
1,870,100
|
42,016
|
(32,578)
|
9,438
|
2,534,955
|
($000s)
|
2021
|
|
Preferred
shares
|
Common
shares
|
Contributed
surplus
|
Retained
earnings
|
Accumulated other comprehensive
income (loss)
|
Total
|
Cash flow
hedges
|
Financial
instruments
at FVOCI
|
Total
|
Balance, beginning of year
Net income
Transfer of gains from
sale of equity instruments
Other comprehensive income, net of tax
Exercise of stock options
Purchase of treasury preferred shares
Net loss on
cancellation of treasury preferred shares
Dividends:
Preferred shares
Common shares
Stock-based
compensation
Transfer relating to the exercise
of stock options
|
72,477
-
-
-
-
(1,870)
-
-
-
-
-
|
218,166
-
-
-
10,056
-
-
-
-
-
1,938
|
8,092
-
-
-
-
-
-
-
-
2,539
(1,938)
|
1,387,919
292,530
13
-
-
-
(145)
(4,413)
(25,147)
-
-
|
(19,943)
-
-
20,623
-
-
-
-
-
-
-
|
(19,009)
-
-
10,746
-
-
-
-
-
-
-
|
(38,952)
-
-
31,369
-
-
-
-
-
-
-
|
1,647,702
292,530
13
31,369
10,056
(1,870)
(145)
(4,413)
(25,147)
2,539
-
|
Balance, end of year
|
70,607
|
230,160
|
8,693
|
1,650,757
|
680
|
(8,263)
|
(7,583)
|
1,952,634
|
Consolidated Statement of Cash Flows
($000s) Years ended
December 31
|
2022
|
2021
|
CASH FLOWS
FROM OPERATING ACTIVITIES
|
|
|
Net income
|
270,181
|
292,530
|
Adjustments for non-cash items in net income:
|
|
|
Financial instruments at fair value through profit
or loss
|
(10,816)
|
(10,608)
|
Amortization of premiums/discount on investments
|
1,215
|
190
|
Amortization of capital assets
and intangible costs
|
46,870
|
32,672
|
Provision for credit losses
|
37,258
|
(7,674)
|
Securitization gains
|
(22,418)
|
(18,192)
|
Stock-based compensation
|
3,422
|
2,539
|
Income taxes
|
98,276
|
97,875
|
Securitization retained interests
|
53,834
|
45,257
|
Changes in operating assets
and liabilities:
|
|
|
Restricted cash
|
(193,620)
|
41,875
|
Securities purchased under reverse repurchase agreements
|
349,598
|
(99,827)
|
Loans receivable, net of securitizations
|
(5,061,011)
|
(4,712,973)
|
Other assets
|
168,660
|
4,957
|
Deposits
|
3,702,998
|
4,287,128
|
Securitization liabilities
|
925,452
|
(616,502)
|
Obligations under
repurchase agreements
|
(711,456)
|
1,124,886
|
Funding
facilities
|
685,469
|
200,128
|
Other liabilities
|
(157,502)
|
82,498
|
Income taxes paid
|
(156,525)
|
(53,501)
|
Cash flows from operating activities
|
29,885
|
693,258
|
CASH FLOWS
FROM FINANCING ACTIVITIES
|
|
|
Proceeds from issuance of common shares
|
231,731
|
10,056
|
Term loan
facility
|
275,000
|
-
|
Dividends paid on preferred shares
|
(5,566)
|
(4,413)
|
Dividends paid on common
shares
|
(42,427)
|
(25,147)
|
Cash flows from
(used in) financing activities
|
458,738
|
(19,504)
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
Purchase of investments
|
(585,721)
|
(941,944)
|
Investment in
subsidiary
|
(495,369)
|
-
|
Proceeds from
sale or redemption of investments
|
559,680
|
562,039
|
Net change
in Canada Housing
Trust re-investment accounts
|
(168,787)
|
(39,767)
|
Purchase of capital assets
and system development costs
|
(76,571)
|
(38,574)
|
Cash flows used in investing activities
|
(766,768)
|
(458,246)
|
Net (decrease)
increase in cash and cash equivalents
|
(278,145)
|
215,508
|
Cash and cash equivalents, beginning of year
|
773,251
|
557,743
|
Cash and cash equivalents, end of year
|
495,106
|
773,251
|
Cash flows
from operating activities include:
|
|
|
Interest received
|
1,437,499
|
1,026,279
|
Interest paid
|
(560,656)
|
(518,080)
|
Dividends received
|
4,074
|
21,372
|
About EQB Inc.
EQB Inc. trades on the Toronto Stock Exchange (TSX: EQB and
EQB.PR.C) and serves more than 488,000 Canadians through its wholly
owned subsidiary Equitable Bank, Canada's Challenger Bank™.
Equitable Bank's wholly owned subsidiary Concentra Bank
supports credit unions across Canada that serve more than 5 million members.
EQB has nearly $103 billion in
combined assets under management and administration, with a clear
mandate to drive change in Canadian banking to enrich people's
lives. Founded more than 50 years ago, Canada's Challenger Bank™ provides diversified
personal and commercial banking and through its EQ Bank platform
(eqbank.ca) and has been named the Top Schedule I Bank in
Canada on the Forbes World's Best
Banks 2022 and 2021 lists. Please visit equitablebank.ca for
details.
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.
Adjusted financial results
Concentra acquisition
On February 7, 2022, Equitable
Bank announced a definitive agreement to acquire a majority
interest in Concentra Bank, subject to customary closing conditions
and regulatory approvals. On September 28,
2022, Equitable Bank received approval from the Ministry of
Finance to acquire Concentra Bank and subsequently closed the
transaction on November 1, 2022.
At the close of the transaction, EQB.R subscription receipts
were converted to common shares and proceeds were used to fund the
acquisition. To support the transaction and integration, Equitable
Bank incurred certain acquisition costs since Q4 2021. In addition,
the assets acquired from Concentra Bank and the liabilities
retained were fair valued in accordance with the accounting
standards. These acquisition-related fair value adjustments will be
amortized over the term of these loans or liabilities, impacting
reported net interest income, which began in Q4 2022. In addition,
a Stage 1 provision was also set up for the performing loans
acquired, which also was recorded through the income statement in
the fourth quarter.
Income tax
The federal government has introduced an increase in the
corporate tax rate of 1.5% for bank and life insurance groups for
taxation years that end after April 7,
2022. It was levied on the portion of taxable income that
exceeds 100 million. As a result, a one-time tax impact was
recorded in the income statement related to deferred tax
liabilities due to the change in tax rate.
Adjustments impacting current and prior periods:
To enhance comparability between reporting periods, increase
consistency with other financial institutions, and provide the
reader with a better understanding of EQB's performance, adjusted
results were introduced starting in Q1 2022. Adjusted results are
non-GAAP financial measures.
Adjustments listed below are presented on a pre-tax basis:
2022
- $2.2 million interest earned on
the escrow account where the proceeds of the subscription receipts
are held(1),
- $49.9 million acquisition and
integration-related costs,
- $19.0 million provision credit
for credit losses recorded on purchased loan portfolios,
- $3.3 million net fair value
related amortization recorded for November and December 2022,
- $2.2 million interest expenses
paid to subscription receipt holders(2), and
- $3.8 million future tax expenses
true-up due to increase in tax rate.
2021
- $0.7 million of acquisition and
integration-related costs.
(1) The net proceeds
from the issuance of subscription receipts were held in an escrow
account and the interest income earned was recognized upon closing
of the Concentra acquisition. (2) The interest expense refers to
the dividend equivalent amount paid to subscription receipt
holders. The subscription receipt holders are entitled to receive a
payment equal to the common share dividend declared multiplied by
the number of subscription receipts held on the common share
dividend payment date. These subscription receipts were converted
into common shares at a 1:1 ratio upon the closing of the Concentra
acquisition.
|
The following table presents a reconciliation of GAAP reported
financial results to non-GAAP adjusted financial results. For
additional adjusted measures and information regarding non-GAAP
financial measures, please refer to the Non-GAAP financial measures
and ratios section of this MD&A.
|
As at or for the
three months ended
|
For the year
ended
|
($000, except share and
per share amounts)
|
31-Dec-22
|
30-Sep-22
|
31-Dec-21
|
|
31-Dec-22
|
31-Dec-21
|
|
Reported
results
|
|
|
|
|
|
|
|
Net interest
income
|
218,325
|
186,251
|
155,952
|
|
733,405
|
582,609
|
|
Non-interest
revenue
|
16,382
|
9,481
|
15,911
|
|
48,781
|
60,298
|
|
Revenue
|
234,707
|
195,732
|
171,863
|
|
782,186
|
642,907
|
|
Non-interest
expense
|
139,180
|
84,082
|
70,427
|
|
376,471
|
260,176
|
|
Pre-provision pre-tax
income(5)
|
95,527
|
111,650
|
101,436
|
|
405,715
|
382,731
|
|
Provision for credit
loss (recoveries)
|
26,796
|
5,354
|
(1,420)
|
|
37,258
|
(7,674)
|
|
Income tax
expense
|
22,912
|
28,717
|
22,794
|
|
98,276
|
97,875
|
|
Net
income
|
45,819
|
77,579
|
80,062
|
|
270,181
|
292,530
|
|
Net income available to
common shareholders
|
43,514
|
76,493
|
78,973
|
|
264,615
|
288,117
|
|
Adjustments
|
|
|
|
|
|
|
|
Net interest income –
earned on the escrow account(1)
|
(2,220)
|
-
|
-
|
|
(2,220)
|
-
|
|
Net interest income –
fair value amortization
|
3,324
|
-
|
-
|
|
3,324
|
-
|
|
Net interest income –
paid to subscription receipt holders(2)
|
(654)
|
1,013
|
-
|
|
2,220
|
-
|
|
Non-interest revenue –
fair value amortization
|
(65)
|
-
|
-
|
|
(65)
|
-
|
|
Non-interest expenses –
acquisition-related costs
|
(36,921)
|
(5,179)
|
(725)
|
|
(49,942)
|
(725)
|
|
Provision for credit
loss – purchased loans
|
(19,020)
|
-
|
-
|
|
(19,020)
|
-
|
|
Pre-tax
adjustments
|
56,326
|
6,192
|
725
|
|
72,221
|
725
|
|
Income tax expense –
tax impact on above adjustments(3)
|
15,271
|
1,622
|
190
|
|
19,435
|
190
|
|
Income tax expense –
tax true-up
|
(5,621)
|
-
|
-
|
|
(3,769)
|
-
|
|
Post-tax
adjustments
|
46,676
|
4,570
|
535
|
|
56,555
|
535
|
|
Adjusted
results
|
|
|
|
|
|
|
|
Net interest
income
|
218,775
|
187,264
|
155,952
|
|
736,729
|
582,609
|
|
Non-interest
revenue
|
16,317
|
9,481
|
15,911
|
|
48,716
|
60,298
|
|
Revenue
|
235,092
|
196,745
|
171,863
|
|
785,445
|
642,907
|
|
Non-interest
expense
|
102,259
|
78,903
|
69,702
|
|
326,529
|
259,451
|
|
Pre-provision pre-tax
income(5)
|
132,833
|
117,842
|
102,161
|
|
458,916
|
383,456
|
|
Provision for credit
loss (recoveries)
|
7,776
|
5,354
|
(1,420)
|
|
18,238
|
(7,674)
|
|
Income tax
expense
|
32,562
|
30,339
|
22,984
|
|
113,942
|
98,065
|
|
Net
income
|
92,495
|
82,149
|
80,597
|
|
326,736
|
293,065
|
|
Net income available to
common shareholders
|
90,190
|
81,063
|
79,508
|
|
321,170
|
288,652
|
|
Diluted earnings per
share
|
|
|
|
|
|
|
|
Weighted average number
of diluted common shares outstanding
|
36,632,711
|
34,450,617
|
34,538,314
|
|
35,031,166
|
34,445,443
|
|
Diluted earnings per
share – reported
|
1.19
|
2.22
|
2.29
|
|
7.55
|
8.37
|
|
Diluted earnings per
share – adjusted(4)
|
2.46
|
2.35
|
2.30
|
|
9.17
|
8.38
|
|
Diluted earnings per
share – adjustment impact
|
1.27
|
0.13
|
0.01
|
|
1.62
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
(1) The net proceeds
from the issuance of subscription receipts were held in an escrow
account and the interest income earned was recognized upon closing
of the Concentra acquisition. (2) The interest expense refers to
the dividend equivalent amount paid to subscription receipt
holders. The subscription receipt holders are entitled to receive a
payment equal to the common share dividend declared multiplied by
the number of subscription receipts held on the common share
dividend payment date. These subscription receipts were converted
into common shares at a 1:1 ratio upon the closing of the Concentra
acquisition. (3) Income tax expense associated with non-GAAP
adjustment was calculated based on the statutory tax rate
applicable for that period, taking into account the federal tax
rate increase. (4) The sum of the adjusted four quarters does not
equal the annual EPS due to share count changes and an income tax
adjustment recorded in Q4. (5) This is a non-GAAP measures, see
Non-GAAP financial measures and ratios section.
|
Other non-GAAP financial measures and ratios
- Adjusted return on equity (ROE): it 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 Concentra Bank has been named as trustee, custodian,
executor, administrator or other similar role; (2) loans held by
credit unions for which Concentra Bank acts as servicer.
- Assets under management (AUM): is the sum of total
assets reported on the consolidated balance sheet and loan
principal derecognized but still managed by EQB.
($000s)
|
31-Dec-22
|
31-Dec-21
|
Change
|
31-Dec-20
|
Change
|
Total assets on the
consolidated balance sheet
|
51,144,957
|
36,159,070
|
41 %
|
30,746,318
|
66 %
|
Loan principal
derecognized
|
10,424,114
|
5,860,830
|
78 %
|
5,189,264
|
101 %
|
Assets under
management
|
61,569,071
|
42,019,900
|
47 %
|
35,935,582
|
71 %
|
- Conventional loans: are the total on-balance sheet loan
principal excluding prime single family and insured multi-unit
residential mortgages.
($000s)
|
31-Dec-22
|
31-Dec-21
|
Change
|
31-Dec-20
|
Change
|
Alternative
single-family mortgages
|
19,227,589
|
14,392,904
|
34 %
|
11,050,456
|
74 %
|
Reverse
mortgages
|
863,708
|
247,363
|
249 %
|
58,246
|
1,383 %
|
Insurance
lending
|
88,242
|
49,142
|
80 %
|
26,732
|
230 %
|
Consumer
lending
|
891,656
|
-
|
N/A
|
-
|
N/A
|
Total Conventional
loans – Personal
|
21,071,195
|
14,689,409
|
43 %
|
11,135,434
|
89 %
|
|
|
|
|
|
|
Business Enterprise
Solutions
|
1,327,917
|
1,086,826
|
22 %
|
936,363
|
42 %
|
Commercial Finance
Group
|
5,630,603
|
3,942,836
|
43 %
|
3,239,959
|
74 %
|
Specialized
finance
|
981,246
|
645,588
|
52 %
|
290,191
|
238 %
|
Equipment
financing
|
1,262,584
|
732,682
|
72 %
|
558,987
|
126 %
|
Total Conventional
loans – Commercial
|
9,202,350
|
6,407,932
|
44 %
|
5,025,500
|
83 %
|
Total Conventional
loans
|
30,273,545
|
21,097,341
|
43 %
|
16,160,934
|
87 %
|
- 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: this is the difference
between revenue and non-interest expenses.
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SOURCE EQB Inc.