Equitable Bank reports strong mortgage growth in Q3, but expects “downshift” into 2023
In the face of a slowing housing market, Equitable Bank reported strong third-quarter earnings results.
The bank—now the seventh-largest independent bank in Canada—saw conventional loan growth increase 29% year-over-year, slightly off the 36% year-over-year growth rate reported in Q2. By comparison, however, both Home Capital and First National reported year-over-year decreases in originations in Q3.
“We’ve reinforced that EQB’s operating model is designed to perform across economic cycles, and this resilience translated again in Q3,” said President and CEO Andrew Moor. “The balance sheet, credit and capital are well-positioned, diversified and performing to plan. Combined with our team’s exceptional focus on ROE and margin management, we believe 2022 will close out on track or ahead of guidance, and we will enter 2023 from a point of strength.”
Moor acknowledged activity is expected to slow into the first half of the year, but that the underlying demand is being deferred, likely until the second half of 2023.
“But we certainly [see] houses [being] purchased, there’s always demand as people get into the housing formation stage of their life, [as] children arrive, [as] they need to buy a bigger house with another bedroom and so on,” Moor said. “So really, we’re going to see a little bit of deferred activity in the housing market, and we are anticipating by the end of next year we’ll be back to a more normal cadence.”
Equitable also finalized its $200-million acquisition of Saskatchewan-based Concentra Bank, which was first announced in February. That brings Equitable to more than $100 billion in combined assets under management.
Single-family alternative portfolio: $16.5 billion (+24%)
Net interest margin: 1.94% (+11 bps)
Reverse mortgage loans: $514 million (+194%)
Notables from its call
CEO Andrew Moor commented on the following topics during the company’s earnings call:
On the potential for an increase in defaults: “As a reminder, the key driver of default is unemployment. Tilting the economy into recession could change the picture. But with a million jobs going unfilled, increasing immigration targets from the federal government, and our emphasis on urban centres where employment source is diverse [provides] strong downside protection.”
On average loan-to-values (LTVs): “Even with recent house price declines, the average LTV on our uninsured single-family portfolio of 63% provides a very comfortable cushion.”
On extending amortizations: “So, first of all, we’re not doing that. We don’t offer mortgages over 30 years…We are seeing participants in the market extending amortization in order to make mortgages more affordable. That doesn’t seem prudent, frankly, to us, and it’s not a road we’ve chosen to go down, although there is competitive pressure there, but just doesn’t feel sensible.”
On Equitable’s reverse mortgage portfolio: “The fact that our 2023 guidance shows 60% to 80% expansion in the reverse mortgage portfolio simply underscores the tremendous growth potential of this franchise.”
On the finalization of the Concentra acquisition: “Our top priority is optimizing [and] differentiating value to credit unions and to the more than five million members they serve, while integrating Concentra to achieve all of the scale of synergy benefits communicated last February…I’ve been busy working on the phones reaching out to the…traditional partners of Concentra. And I would say there’s general support for the transaction. In some quarters, there’s obviously some skepticism about a Toronto-based bank buying a Prairie bank with a long and storied history in the credit union system. So, I think some are watching us. We’ve got to walk the walk and make sure that we deliver against the commitments that we’re making to people. And I’m committed to doing that.”