Equitable Bank reports record earnings as rental construction loans post strong growth

Multi-unit loans under management up 11 per cent

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The parent company of alternative mortgage lender Equitable Bank reported record annual results for its 2023 fiscal year, with its fast-growing multi-unit lending space among the bright spots.

EQB Inc. changed its reporting period to align with the rest of the Canadian banking sector, making comparisons with other periods difficult. But in its fiscal fourth quarter period, which consisted of the four months ending Oct. 31, the company reported adjusted net income of $147 million and adjusted diluted earnings of $3.80 per share.

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For the 10 months ended Oct. 31, net income was $371.59 million, up from $270.18 million for the full year ended Dec. 31 2022.

Equitable Bank said that its commercial lending operation is primarily financing the development and renovation of rental housing and the construction of condominium buildings in Canada’s major cities.

The bank has $20 billion in multi-unit loans under management, marking a sequential quarterly increase of 11 per cent and a year-over-year increase of 27 per cent, EQB chief executive Andrew Moor said during the conference call.

Out of this amount, $15 billion is insured against default through Canada Mortgage and Housing Corp.’s mortgage bond and NHA Mortgage Backed Securities programs. The assets are recognized when they are securitized and sold, leading to upfront non-interest revenue. In the fourth quarter, this revenue amounted to $25.9 million, and for fiscal year 2023, it reached $56 million, doubling year over year.

In August, CMHC revealed a temporary reduction in dividend payments to the federal government, redirecting the funds toward supporting rental housing construction

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“We’re definitely seeing lots of demand from our clients to build purpose-built rentals to deal with this shortage of housing supply,” Moor said. “CMHC needs to retain capital on its balance sheet to support its activities in supporting the building of apartments. Holding back dividend to build capital to have more capacity to absorb any losses should they arise, makes a lot of sense.”

During the bank’s fourth-quarter earnings call, Moor said the outlook for the space remained bullish.

“(We expect) we will again realize strong earnings with associated securitization activities with actions by the federal government to support that guidance, including the increase in the Canada Mortgage program to fund multi-unit projects insured by CMHC, which the government believes will stimulate up to 30,000 more rental apartments being built per year,” he said.

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EQ Bank said its customer base grew by nine per cent since the last quarter and by 30 per cent year over year. The report attributes the surge to the rising popularity of the Savings Plus Account, which functions like a high-interest checking account.

Additionally, the introduction of new digital offerings, such as the EQ Bank First Home Savings Account (FHSA), the EQ Bank Card, and expanded services in Québec, contributed to this accelerated growth in daily account openings in 2023.

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