Equitable Bank saw conventional loan growth increase 36% year-over-year in the second quarter, but says activity is expected to ease through the remainder of the year.

In its second-quarter earnings, Equitable Bank also reported a $2.5-million net loss due primarily to losses on certain strategic investments.

The bank reported an increase in net interest income of 18% compared to last year, while its alternative single-family portfolio was up 35% year-over-year, “driven by higher originations and deploying in loan attrition.”

“We performed in line with our own industry-leading track record on credit and we added thousands of new EQ Bank customers,” CEO Andrew Moor said during the earnings conference call. “And yet, this is a tough quarter to report. Despite taking a by-the-book approach to achieving and ultimately delivering strong core earnings growth, our efforts within Q2 were offset by mark-to-market declines, primarily in our strategic investment portfolios due to a down-draft in North American equity markets.”

In his comments, Moor elaborated on some “tactical adjustments” made in response to the heightened economic and market risks.

The bank also announced the completion of another step as part of its acquisition of Concentra Bank, after receiving unconditional clearance from the Competition Bureau of Canada in the quarter.

“Equitable Bank and Concentra Bank have jointly formed a Transformation Management Office with dedicated resources to develop detailed integration plans in advance of closing while both banks continue to operate independently in serving customers,” the bank noted in its release.

Highlights from the Q2 earnings report

• Q2 net income: $58.8 million (-17% YoY)
• Assets under administration: $45.8 billion (+21%)
• Conventional loan originations: $24.1 billion (+36%)
• Single-family alternative portfolio: $16.3 billion (+35%)
• Net interest margin: 1.81% (-1 bp)
• Reverse mortgage loans: $421 million (+231%)

Notables from its call

CEO Andrew Moor made the following comments on a variety of subjects:

• On Equitable Bank’s forecast: “We’ve seen a variety of market forecasts; all point to sales volume declines of varying proportions. Well, those forecasts and our own risk appetite suggest that origination in our personal and commercial bank segments will most likely reduce from last year, I think context is important. We expect a reduction compared to the very strong originations posted…in the past few quarters in both segments, but even with that we expect to achieve on-guidance conventional portfolio growth by the time our books closed on December 31.”

• On expectations for origination growth: “[Since] applications [are] pre-date closing, we continue to see strong closings in loans right through quarter-end and we’ve definitely seen a bit of slowdown continuing in terms of new applications through July here. But it is still a bit spotty….There’s definitely activity in the real-estate market contrary to some of the commentary we are getting, but we are seeing a bit of a slowdown to stop the quarter.”

• On the average loan-to-values: “The average LTV on the bank’s uninsured residential mortgage portfolio was 57% at the end of June. While house price declines would naturally cause that ratio to increase, we still have plenty of protection. That said, and to be prudent, we ratcheted back on the LTVs in…suburban areas in Ontario, adjusted debt-service coverage ratios on certain mortgage products, and we are taking a more cautious view to refinancing. To be clear, these are tactical moves consistent with our past practice, not a whole set of changes in our already sound approach.”

• On its reverse mortgage portfolio: “Year-over-year, our reverse mortgage portfolio grew nearly 2.5x the $421 million and 38% in the second quarter alone, with June being our best month for originations yet. While this business is not as closely correlated to housing market trends…we also made tactical moves to tighten up our reverse mortgage lending approaches.”

• On EQ Bank’s launch in Quebec later in 2022: “[This is] a move that will leverage our proven technology to bring a differentiated value proposition to a large, digitally savvy population. Equitable Bank has a really good customer following compared to our broker deposit and broker mortgage businesses. [This] will allow us to build on EQ Bank’s recent momentum, which featured year-over-year growth in our customer base of 26%, including over 13,000 new customers in the second quarter.”

Source: Q2 earnings call transcript

Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.

Correction: An earlier version of this story suggested that Equitable Bank’s acquisition of Concentra Bank was completed in the quarter. While the acquisition received unconditional clearance from the Competition Bureau of Canada, the deal has yet to close.

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Last modified: August 17, 2022