Despite a slowdown in the housing market at the end of the first quarter, Equitable Group recorded its best quarter ever with net profit up 27% on strong origination growth.
He also expects the strong growth to continue through 2022, due to a variety of factors.
“…we are not the market, and we expect our own momentum to continue through our traditionally busy spring and summer months,” Chief Financial Officer Chadwick Westlake said.
Chairman and CEO Andrew Moor explained that this is partly due to diversification. “Equitable quickly exited the starting gate this year as part of our strategy to develop higher margin conventional assets and further diversify our balance sheet, resulting in the best quarterly performance in our history.”
In addition to being named Canada’s Best Schedule I Bank by Forbes last month for the second consecutive year, the bank also achieved reverse mortgage growth of over 262%, as well as a 29 % of mounts.
First Quarter Earnings Report Highlights
- 1st quarter net income: $88 million (+27% YoY)
- Assets under administration: $43.4 billion (+18%)
- Loan originations: $3.5 billion (+29%)
- Net interest margin: 1.86% (+9 bps)
- Reverse mortgages: $247 million (+325%)
Notables of his calling
Moor made the following comments on a variety of topics:
- On Equitable’s reverse mortgage portfolio: “Our Reverse Mortgage business represents a larger share of the decumulation growth platform, and it too is rapidly advancing in the asset market share profile with 262% year-on-year growth. another, the portfolio exceeding $300 million.”
- On the acquisition of Concentra Bank: “The financing for the purchase is in place. We have made the required submissions for regulatory approval and continue to expect closing in the second half of the year…we recently received approval from Canada’s Competition Bureau, which is an important first step.
- On the bank’s technological innovation, in particular the rollout of a new EQ Bank account opening process using informed artificial intelligence to allow customers to verify their government-issued ID. “We’ve long sought to reduce friction in digital account openings for our customers, and informed AI takes convenience to our whole new level,” said Moor.
- On the launch of Equitable Connect in the first quarter, a cloud-based fulfillment portal that simplifies mortgage document management for brokers. “It improves our visibility and speeds up mortgage approvals,” Moor explained. “The idea for Equitable Connect was born from listening to our mortgage broker partners and finding ways to support their effectiveness in the marketplace…Because Equitable Connect is cloud-based, it is accessible n anywhere, anytime on any device. This is important for brokers and our team.
- On the launch plans in Quebec: “…we will launch Quebec this year…I think it will probably be better in terms of deposits per capita than the rest of Canada once we reach maturity. But obviously there’s a curve that we have to jump over and build our brand and our franchise and show the people and the customers there that we can do well for them, we’re excited for this opportunity. Quebec is estimated to have the second largest household deposit market at $290 billion.
- On the impact of rising rates on demand for mortgages in the alternative space: “Many or some of our clients may have qualified a year ago in a low interest rate environment that will no longer be eligible going forward… And of course the Alt market is such a small percentage of the main market that any change in these main flows can have a significant leverage effect on demand, which I think is why … we’re seeing surprisingly good demand.
- On the impact of rising rates on customers’ ability to make payments: “we’ve actually taken a deep dive into this recently…and we’re quite comfortable with the fact that in the planned banking changes, there’s a very small percentage of our book that’s starting to get swayed…let’s remember that all of these mortgages have qualified for the stress of 2% test above the contract rate or the benchmark rates are significantly higher than what our clients are actually paying today, so the thesis is that our client has enough cushion to absorb these higher rates.”
- Chief Financial Officer Chadwick Westlake said that while the bank is focused on conventional lending, “the consistent performance of our insured multi-family portfolio, where assets grew 2% year-over-year, is also contributing to diversification. of our revenues, to the stability and solidity of the ROE”.
- Equitable saw an increase of nearly $300 million in deposits in the quarter, while its $12 billion brokerage deposit business saw double-digit year-over-year growth.
- A headwind the bank faces is an expected drop in prepayment revenue due to rising rates, Westlake noted.
- Equitable released an additional $100,000 from its provisions for credit losses in the first quarter, a significant reduction from the $1.4 million released from its provisions for credit losses in the fourth quarter.
- Net impaired loans fell to 22 basis points in the first quarter from 27 basis points in the fourth quarter and 36 basis points a year ago, “reflecting a reduction of $26.8 million year over the other from single-family mortgages and a $6.9 million reduction in equipment leases,” Westlake said.
- Moor said the bank’s 2022 forecast for its alternative mortgage portfolio calls for growth of 12% to 15%.
- “It is evident to all of us on this call that the economic and geopolitical environment has changed dramatically over the past few weeks to introduce new uncertainties,” Moor said. “Without minimizing these risks… there are important fundamentals still firmly in place to support the progress of Canada in general and housing demand in particular, including strong employment and immigration.
- Weighing all of these factors and knowing that we have deliberately built the bank and our model to prepare for times like this, I think our outlook for growth and performance remains very positive,” added Moor. “In fact, I would say that with an incredible first quarter that puts us ahead of our goal to start 2022 in conventional lending, combined with a strong pipeline of funding applications and commitments…we have a good confidence in our existing loan growth forecasts and our ability to deliver an ROE above 15% for 2022.”
Source: Q1 Earnings Call Transcript
To note: Transcripts are provided as is by the companies and/or third-party sources, and their accuracy cannot be guaranteed to be 100%.