EQB sees mortgage growth moderating following ‘tough’ quarterly report

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Challenger bank EQB Inc. is expecting growth in conventional loan originations to moderate over the rest of the year as a real estate slowdown weighs on demand.

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In an interview on Wednesday, chief executive Andrew Moor said Equitable Bank — the company’s schedule I bank — has seen some slowing in activity in terms of new mortgage applications, but that that was to be expected with rapidly rising interest rates.

“Clearly, homebuyers are sitting on the sidelines a little bit more,” Moor said, adding that the bank saw weaker results in Ontario, which makes up more than half of its business, while provinces in the west were stronger.

EQB, formerly Equitable Group Inc., nevertheless maintained its full-year guidance for 2022, expressing confidence in meeting its objectives despite sector volatility.

The bank added that it has taken “risk-managed actions” over the first two quarters, which Moor said include being more cautious in areas further from city centres.

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“We’ve been just trimming back a little bit in our risk appetite in some of those areas,” he said.

EQB said it also continued to proactively adjust its underwriting approach to respond to elevated risks from inflation, the Bank of Canada’s response to inflation and its expectations of changing collateral values.

This is a tough quarter report

Andrew Moor

Although still expecting EQB to deliver on its growth targets, some analysts are taking a cautious stance on the mortgage finance sector as risk remains elevated.

“Several factors represent downside risks that will continue to constrain sector valuations and share price performance near term, such as rising regulatory and policy uncertainty, rapid rise in interest rates, and housing market risk,” said Jaeme Gloyn, an analyst at National Bank of Canada Financial Inc., in a note to clients.

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Gloyn cut his estimated target price to $73 per share from $75, while maintaining an “outperform” rating on the stock.

EQB reported strong performance on quarterly net interest income on Tuesday with an all-time record of 15.6 per cent return on equity for the year-to-date period. Conventional lending growth in its core operations grew 36 per cent, year over year.

However, Equitable said severe capital market volatility led to mark-to-market losses of $8.7 million on its non-interest income investment portfolio, which it said was conceived so Equitable Bank can gain access to early-stage technologies.

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Moor said the bank is “very much fintech-enabled” and they’ve invested in some of the leading fintechs in Canada, including Borrowell and Wealthsimple.

“This is a tough quarter report. Despite taking a by-the-book approach to achieve and ultimately deliver strong core earnings growth, our efforts put in Q2 are offset by mark-to-market declines primarily in our strategic investment portfolios due to a downdraft in North American equity markets,” Moor said during Wednesday’s earnings call.

EQB said it expects volatility to continue in the second half of 2022, but this does not reflect the underlying strategic value of these investments.

The bank’s adjusted diluted earnings per share for the three months ended June 30 were $1.75, down from $2.64 a year ago.

For the current quarter, Moor said EQB is prioritizing its introduction of EQ Bank’s payment card, the launch of EQ Bank in Québec and its acquisition of Concentra Bank, which is expected to close later in the year.

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