Back to top

Equitable Group Reports Record Results, Increases Dividend and Announces Intention to Increase Rate of Dividend Growth

JUL. 30, 2019

TORONTO, July 30, 2019 /CNW/ - Equitable Group Inc. (TSX: EQB and EQB.PR.C) ("Equitable" or the "Company") today reported record financial results for the three and six months ended June 30, 2019 on the strength of diversified growth in its wholly owned subsidiary, Equitable Bank (the "Bank" or "Canada's Challenger Bank™") and the contribution of Bennington Financial Corp. ("Bennington").  It also announced its intention to grow its dividend at a rate of 20% to 25% per annum in each of the next five years, up from its previously stated target of more than 10% per year.

SECOND QUARTER HIGHLIGHTS

  • Adjusted Diluted earnings per share were a record $3.18, up 31% from $2.43 in Q2 2018.
  • Adjusted Return on Shareholders' Equity was 16.9% compared to 14.4% in Q2 2018.
  • Retail loan principal outstanding at June 30, 2019 was $16.9 billion, up 23% from $13.8 billion a year ago on strong originations and low attrition.
  • Commercial loan principal outstanding at June 30, 2019 was $7.9 billion, up 19% from $6.6 billion a year ago as a result of organic growth and the acquisition of Bennington.
  • Deposits at June 30, 2019 were $14.5 billion, up 18% from $12.4 billion a year ago and included increases in both EQ Bank and brokered deposits.
  • The Bank's Common Equity Tier 1 Capital Ratio at June 30, 2019 was 13.1% compared to 12.9% at March 31, 2019 as the Bank strengthened its capital position following the Bennington acquisition.
  • DBRS Limited confirms Equitable Bank's rating at BBB and improves trending to Positive from Stable.

 

Q2 2019 reported Diluted earnings per share ("EPS") were $3.15 and reported Return on Shareholders' Equity ("ROE") was 16.8%.  Adjusted results exclude $0.7 million of net mark-to-market losses on certain security investments and derivative transactions related to securitization.

INCREASES DIVIDEND AND ANNOUNCES DIVIDEND INCREASE POLICY

The Board of Directors (the "Board") today declared a dividend of $0.33 per common share, payable on September 30, 2019 to common shareholders of record at the close of business September 13, 2019.  This 22% increase over the dividend declared in August 2018 is in keeping with the commitment the Board of Directors is now making to growing Equitable's dividend at a rate of between 20% to 25% in each of the next five years.

Equitable's franchise has grown and strengthened materially over the past number of years.  The Bank has entered new business lines and established its position as Canada's Challenger BankTM, while maintaining a strong capital position and generating high ROEs.  Given this improved position, management and the Board  considered changes to Equitable's dividend philosophy and evaluated the impact of various approaches to dividend levels on Equitable's stakeholders.  The conclusion was that increasing the rate of capital allocation to dividends is now the right decision for the Company.  Even with this faster pace of dividend growth, the Bank should maintain a strong capital position and retain sufficient capital to support strong business growth.

The Board also declared a quarterly dividend in the amount of $0.396875 per preferred share, payable on September 30, 2019, to preferred shareholders of record at the close of business September 13, 2019.

COMMENTARY ON PERFORMANCE AND OUTLOOK

"Q2 was another great quarter that reflected Equitable's broader customer reach and growing consumer affinity for our Challenger Bank services," said Andrew Moor, President and Chief Executive Officer.  "Some 81,000 Canadians now count on EQ Bank for best-in-class digital banking, a 33% year-over-year increase driven by well-received upgrades to our customer onboarding process, as well as to our mobile and web functionality.  Both our retail and commercial businesses set new all-time highs for assets by executing well on their growth plans and maintaining strong credit quality.  We've started to deploy more of the Bank's funding sources to Bennington and have been able to grow the leasing portfolio by 7% in the first half of the year.  In combination, these advancements generated record profitability for Equitable and added to its foundation as a future-ready bank providing exceptional service and compelling value."

Equitable's primary financial and operating metrics point to strength in its business fundamentals and ability to deliver on key strategic objectives.  Based on current assessments, management expects that loans will grow at a rate between 12% and 14% over 2018, earnings will increase between 15% and 17% year-over-year, and ROE will be between 15% and 16%.  The Bank also continues to add to its capital position organically such that its CET1 ratio is expected to return to the mid-point of management's target range of 13%-14% by the end of 2019.

During the second quarter, Equitable renewed its $400 million secured backstop for a two-year period at a lower cost.  As a result of this development, quarterly interest expenses will decline further in Q3, by $0.8 million compared to Q2 and $1.6 million compared to Q1.

Management's complete business outlook can be found in Management's Discussion and Analysis ("MD&A") for the three and six months ended June 30, 2019, which is available on SEDAR and on Equitable's website.

CONFERENCE CALL AND WEBCAST

Equitable will hold its second quarter conference call and webcast at 8:30 a.m. ET Wednesday July 31, 2019.  To access the call live, please dial (647) 427-7450 five minutes prior to the start time.  The listen-only webcast with accompanying slides will be available at www.equitablebank.ca under Investor Relations.  The call will be hosted by Andrew Moor, President and Chief Executive Officer.

A replay of the call will be available until August 7, 2019 at midnight and it can be accessed by dialing (416) 849-0833 and entering passcode 2869878 followed by the number sign.  Alternatively, the call will be archived on the Company's website for three months.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS















CONSOLIDATED BALANCE SHEETS (unaudited)










AS AT JUNE 30, 2019










With comparative figures as at December 31, 2018 and June 30, 2018










($ THOUSANDS)























June 30, 2019



December 31, 2018



June 30, 2018











Assets:










Cash and cash equivalents


$

424,422


$

477,243


$

793,688

Restricted cash



462,438



327,097



347,285

Securities purchased under reverse repurchase agreements



125,069



250,000



-

Investments



196,699



193,399



155,048

Loans – Retail(1)



17,014,738



16,203,137



13,874,941

Loans – Commercial(1)



7,853,171



7,323,267



6,580,436

Securitization retained interests



124,561



115,331



109,191

Other assets



160,103



147,671



84,132



$

26,361,201


$

25,037,145


$

21,944,721











Liabilities and Shareholders' Equity










Liabilities:










   Deposits


$

14,720,700


$

13,668,521


$

12,476,974

   Securitization liabilities



10,024,334



9,236,045



7,584,327

   Obligations under repurchase agreements



-



342,010



202,928

   Deferred tax liabilities



58,100



42,610



38,735

   Other liabilities



198,421



177,961



177,994

   Bank facilities



-



289,971



250,811




25,001,555



23,757,118



20,731,769











Shareholders' equity:










   Preferred shares



72,557



72,557



72,557

   Common shares



206,039



200,792



199,305

   Contributed surplus



7,132



7,035



6,612

   Retained earnings



1,096,231



1,014,559



938,122

   Accumulated other comprehensive loss



(22,313)



(14,916)



(3,644)




1,359,646



1,280,027



1,212,952



$

26,361,201


$

25,037,145


$

21,944,721











(1) 

Effective January 1, 2019, the Company has changed the presentation of its loan products.  Prior period presentation has been updated accordingly.

 











CONSOLIDATED STATEMENTS OF INCOME (unaudited)





FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2019





With comparative figures for the three and six month periods ended June 30, 2018





($THOUSANDS, EXCEPT PER SHARE AMOUNTS)

























Three months ended

Six months ended




June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018












Interest income:











     Loans – Retail(1)



$

168,136

$

129,327

$

327,358

$

251,795

     Loans – Commercial(1)




98,208


70,259


195,837


135,782

     Investments




2,084


1,500


3,905


2,546

     Other




6,724


4,163


12,658


7,968





275,152


205,249


539,758


398,091

Interest expense:











     Deposits




96,280


69,392


189,976


131,676

     Securitization liabilities




62,653


44,825


125,556


88,387

     Bank facilities




1,897


11,536


4,552


17,262





160,830


125,753


320,084


237,325

Net interest income




114,322


79,496


219,674


160,766

Provision for credit losses




1,386


168


11,014


938

Net interest income after provision for credit losses




112,936


79,328


208,660


159,828

Other income:











     Fees and other income




5,900


6,547


11,544


11,924

     Net gain/(loss) on investments




76


138


(745)


(232)

     Gains on securitization activities and income from

        securitization retained interests




2,497


3,024


4,562


5,961





8,473


9,709


15,361


17,653

Net interest and other income




121,409


89,037


224,021


177,481

Non-interest expenses:











     Compensation and benefits




25,751


19,032


50,035


37,635

     Other




22,745


19,491


44,572


34,698





48,496


38,523


94,607


72,333

Income before income taxes




72,913


50,514


129,414


105,148

Income taxes:











     Current




17,861


12,404


31,437


26,724

     Deferred




1,030


573


2,294


720





18,891


12,977


33,731


27,444

Net income



$

54,022

$

37,537

$

95,683

$

77,704

Dividends on preferred shares




1,191


1,191


2,382


2,382

Net income available to common shareholders



$

52,831

$

36,346

$

93,301

$

75,322












Earnings per share:











     Basic



$

3.17

$

2.20

$

5.62

$

4.56

     Diluted



$

3.15

$

2.19

$

5.57

$

4.53












(1) 

Effective January 1, 2019, the Company has changed the presentation of its loan products. Prior period presentation has been updated accordingly.

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)





FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2019

With comparative figures for the three and six month periods ended June 30, 2018





($ THOUSANDS)

























Three months ended

Six months ended



June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018












Net income



$

54,022

$

37,537

$

95,683

$

77,704












Other comprehensive income – items that will be

   reclassified subsequently to income:











Debt instruments at Fair Value through Other

    Comprehensive Income:











Net unrealized gains/(losses) from change in fair value




143


(23)


545


(26)

Reclassification of net gains to income




(162)


-


(162)


-












Other comprehensive income – items that will not be

  reclassified subsequently to income:











Equity instruments designated at Fair Value through

    Other Comprehensive Income:











Net unrealized losses from change in fair value




(1,668)


(1,117)


(3,499)


(228)

Reclassification of net losses to retained earnings




(646)


-


(638)


(6)





(2,333)


(1,140)


(3,754)


(260)

Income tax recovery




620


302


999


69





(1,713)


(838)


(2,755)


(191)












Cash flow hedges:











Net unrealized losses from change in fair value




(1,856)


(364)


(6,445)


(969)

Reclassification of net (gains)/losses to income




(56)


291


123


1,445





(1,912)


(73)


(6,322)


476

Income tax recovery/(expense)




508


19


1,680


(126)





(1,404)


(54)


(4,642)


350

Total other comprehensive (loss)/income




(3,117)


(892)


(7,397)


159

Total comprehensive income



$

50,905

$

36,645

$

88,286

$

77,863












 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2019











With comparative figures for the three month period ended June 30, 2018











($ THOUSANDS)














































June 30, 2019











Accumulated other

comprehensive

income (loss)





Preferred shares

Common shares

Contributed surplus

Retained earnings

Cash flow hedges

Financial instruments at FVOCI


Total


Total



















Balance, beginning of period


$

72,557

$

204,492

$

6,907

$

1,049,208

$

(589)

$

(18,607)

$

(19,196)

$

1,313,968

Net income



-


-


-


54,022


-


-


-


54,022

Transfer of losses on sale of equity

     instruments



-


-


-


(646)


-


646


646


-

Other comprehensive loss, net of tax



-


-


-


-


(1,404)


(2,359)


(3,763)


(3,763)

Exercise of stock options



-


1,399


-


-


-


-


-


1,399

Dividends:


















     Preferred shares



-


-


-


(1,191)


-


-


-


(1,191)

     Common shares



-


-


-


(5,162)


-


-


-


(5,162)

Stock-based compensation



-


-


373


-


-


-


-


373

Transfer relating to the exercise of

     stock options



-


148


(148)


-


-


-


-


-

Balance, end of period


$

72,557

$

206,039

$

7,132

$

1,096,231

$

(1,993)

$

(20,320)

$

(22,313)

$

1,359,646















































June 30, 2018











Accumulated other

comprehensive

income (loss)





Preferred shares

Common shares

Contributed surplus

Retained earnings

Cash flow

hedges

Financial

instruments at FVOCI


Total


Total



















Balance, beginning of period


$

72,557

$

199,123

$

6,309

$

906,235

$

3,557

$

(6,309)

$

(2,752)

$

1,181,472

Net income



-


-


-


37,537


-


-


-


37,537

Other comprehensive loss, net of tax



-


-


-


-


(54)


(838)


(892)


(892)

Exercise of stock options



-


151


-


-


-


-


-


151

Dividends:


















     Preferred shares



-


-


-


(1,191)


-


-


-


(1,191)

     Common shares



-


-


-


(4,459)


-


-


-


(4,459)

Stock-based compensation



-


-


334


-


-


-


-


334

Transfer relating to the exercise of

     stock options



-


31


(31)


-


-


-


-


-

Balance, end of period


$

72,557

$

199,305

$

6,612

$

938,122

$

3,503

$

(7,147)

$

(3,644)

$

1,212,952



































 

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2019











With comparative figures for the six month period ended June 30, 2018











($ THOUSANDS)














































June 30, 2019











Accumulated other

comprehensive

income (loss)





Preferred shares

Common shares

Contributed surplus

Retained earnings

Cash flow hedges

Financial instruments at FVOCI


Total


Total



















Balance, beginning of period


$

72,557

$

200,792

$

7,035

$

1,014,559

$

2,649

$

(17,565)

$

(14,916)

$

1,280,027

Cumulative effect of adopting IFRS 16(1)



-


-


-


(840)


-


-


-


(840)

Restated balance as at January 1, 2019



72,557


200,792


7,035


1,013,719


2,649


(17,565)


(14,916)


1,279,187

Net income



-


-


-


95,683


-


-


-


95,683

Transfer of losses on sale of equity

     instruments



-


-


-


(638)


-


638


638


-

Other comprehensive loss, net of tax



-


-


-


-


(4,642)


(3,393)


(8,035)


(8,035)

Exercise of stock options



-


4,532


-


-


-


-


-


4,532

Dividends:


















     Preferred shares



-


-


-


(2,382)


-


-


-


(2,382)

     Common shares



-


-


-


(10,151)


-


-


-


(10,151)

Stock-based compensation



-


-


812


-


-


-


-


812

Transfer relating to the exercise of

     stock options



-


715


(715)


-


-


-


-


-

Balance, end of period


$

72,557

$

206,039

$

7,132

$

1,096,231

$

(1,993)

$

(20,320)

$

(22,313)

$

1,359,646















































June 30, 2018











Accumulated other

comprehensive

income (loss)





Preferred shares

Common shares

Contributed surplus

Retained earnings

Cash flow

hedges

Financial

instruments at FVOCI


Total


Total



















Balance, beginning of period


$

72,557

$

198,660

$

6,012

$

866,109

$

3,153

$

(8,374)

$

(5,221)

$

1,138,117

Cumulative effect of adopting IFRS 9



-


-


-


5,450


-


1,418


1,418


6,868

Restated balance as at January 1, 2018



72,557


198,660


6,012


871,559


3,153


(6,956)


(3,803)


1,144,985

Net income



-


-


-


77,704


-


-


-


77,704

Transfer of losses on sale of equity

     instruments



-


-


-


(6)


-


-


-


(6)

Other comprehensive income, net of tax



-


-


-


-


350


(191)


159


159

Exercise of stock options



-


525


-


-


-


-


-


525

Dividends:


















     Preferred shares



-


-


-


(2,382)


-


-


-


(2,382)

     Common shares



-


-


-


(8,753)


-


-


-


(8,753)

Stock-based compensation



-


-


720


-


-


-


-


720

Transfer relating to the exercise of

     stock options



-


120


(120)


-


-


-


-


-

Balance, end of period


$

72,557

$

199,305

$

6,612

$

938,122

$

3,503

$

(7,147)

$

(3,644)

$

1,212,952




















(1) 

The Company adopted IFRS 16 effective January 1, 2019 using the modified retrospective approach, with the cumulative effect of initially applying the standard recognized in opening retained earnings at the date of initial application.  The adjustment of $840 is net of tax.



CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2019

With comparative figures for the three and six month periods ended June 30, 2018

($ THOUSANDS)






















Three months ended

Six months ended



June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018

CASH FLOWS FROM OPERATING ACTIVITIES










Net income for the period


$

54,022

$

37,537

$

95,683

$

77,704

Adjustments for non-cash items in net income:










    Financial instruments at fair value through income



3,148


(6,985)


5,223


(3,720)

    Amortization of premiums/discount on investments



263


2,247


1,592


4,537

    Amortization of capital assets and intangible costs



4,186


2,424


8,084


4,759

    Provision for credit losses



1,386


168


11,014


938

    Securitization gains



(2,581)


(3,024)


(4,360)


(5,961)

    Stock-based compensation



373


334


812


720

    Income taxes



18,891


12,977


33,731


27,444

    Securitization retained interests



7,705


6,966


15,039


13,700

Changes in operating assets and liabilities:










    Restricted cash



(81,294)


(14,188)


(92,763)


18,753

    Securities purchased under reverse repurchase agreements



422,552


-


124,932


-

    Loans, net of securitizations



(439,781)


(777,267)


(939,460)


(1,152,404)

    Other assets



(6,137)


9,954


44,329


15,256

    Deposits



(104,893)


478,126


1,033,472


1,364,963

    Securitization liabilities



97,473


29,380


398,169


19,093

    Obligations under repurchase agreements



-


98,276


(342,010)


(249,073)

    Bank facilities



-


250,811


(320,421)


121,940

    Other liabilities



(13,104)


4,595


(20,311)


(20,146)

Income taxes paid



(12,534)


(15,355)


(25,691)


(33,698)

Cash flows (used in)/from operating activities



(50,325)


116,976


27,064


204,805

CASH FLOWS FROM FINANCING ACTIVITIES










Proceeds from issuance of common shares



1,399


151


4,532


525

Dividends paid on preferred shares



(1,191)


(1,191)


(2,382)


(2,382)

Dividends paid on common shares



(5,163)


(4,294)


(14,786)


(8,418)

Cash flows used in financing activities



(4,955)


(5,334)


(12,636)


(10,275)

CASH FLOWS FROM INVESTING ACTIVITIES










Purchase of investments



(20,876)


(9,952)


(33,383)


(52,622)

Acquisition of subsidiary



293


-


(46,772)


-

Proceeds on sale or redemption of investments



18,409


-


22,548


45

Net change in Canada Housing Trust re-investment Accounts



19


19


155


38

Purchase of capital assets and system development costs



(4,565)


(6,380)


(9,164)


(9,233)

Cash flows used in investing activities



(6,720)


(16,313)


(66,616)


(61,772)

Net (decrease)/increase in cash and cash equivalents



(62,000)


95,329


(52,188)


132,758

Cash and cash equivalents, beginning of period



486,422


698,359


476,610


660,930

Cash and cash equivalents, end of period


$

424,422

$

793,688

$

424,422

$

793,688











Cash flows from operating activities include:










Interest received


$

258,560

$

199,575

$

515,030

$

390,844

Interest paid



(104,969)


(80,334)


(205,129)


(144,237)

Dividends received



2,061


1,472


3,614


2,574

 


ABOUT EQUITABLE GROUP INC.  

Equitable Group Inc. is a growing Canadian financial services business that operates through its wholly-owned subsidiary, Equitable Bank.  Equitable Bank, Canada's Challenger BankTM, is the country's ninth largest independent Schedule I bank and offers a diverse suite of residential lending, commercial lending and savings solutions to Canadians.  Through its proven branchless approach and customer service focus, Equitable Bank has grown to approximately $31 billion of Assets Under Management.  EQ Bank, the digital banking arm of Equitable Bank, provides state-of-the-art digital banking services to over 81,000 Canadians and was the 2018 recipient of the Best Mobile App in Canada at the World Finance Digital Banking Awards.  The EQ Bank Savings Plus Account reimagines banking for Canadians by offering the functionality of a chequing account to perform daily banking with ease, as well as a great everyday interest rate – currently 2.30% – to help transactional balances grow into bigger savings.  From unlimited Interac® e-Transfers and bill payments to payroll deposits and no monthly fees, everyday banking is now a richer prospect for Canadians.  Equitable Bank employs over 800 dedicated professionals across the country and is a 2019 recipient of Canada's Best Employer Platinum Award, the highest bestowed by AON Hewitt.  For more information about Equitable Bank and its products, please visit equitablebank.ca.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements made by the Company 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 the Company's objectives, strategies and initiatives, financial performance expectations and other statements made herein, whether with respect to the Company'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 the Company 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 the Company'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 the Company and the Canadian economy.  Although the Company 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 the Company 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.  The Company 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

This news release references certain non-GAAP measures such as Adjusted Diluted earnings per share, Adjusted Return on Shareholders' Equity, Reported Return on Shareholders' Equity, Common Equity Tier 1 Capital Ratio, and Assets Under Management that management believes provide useful information to investors regarding the Company's financial condition and results of operations.  The "NON-GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") FINANCIAL MEASURES" section of the Company's second quarter 2019 MD&A provides a detailed description of each non-GAAP measure and should be read in conjunction with this release.  The MD&A also provides a reconciliation between all non-GAAP measures and the most directly comparable GAAP measure, where applicable.  Readers are cautioned that non-GAAP measures often do not have any standardized meaning, and therefore, may not be comparable to similar measures presented by other companies.

SOURCE Equitable Group Inc.