Equitable Bank exec talks lender's bumper Q2 earnings

'We continue to believe that the best way in this country to get a mortgage is through a mortgage broker'

Equitable Bank exec talks lender's bumper Q2 earnings

Equitable Bank posted its highest-ever quarterly earnings per share in its Q2 financial results, a performance described by a leading executive at the company as a vindication of its approach to business in a turbulent financial environment.

Mahima Poddar (pictured), senior vice president and group head, personal banking at Equitable, told Canadian Mortgage Professional that the results, revealed in recent weeks, were a point of pride for the company against the backdrop of that uncertain market.

“Especially in a challenging real estate market, it’s been really rewarding to see where the results are: all-time quarterly record earnings of $115.5 million, ROE [return on equity] of 18.3%,” she said.

“The other metric that we also looked at was shareholder returns compared to other financial institutions, and Equitable also had the highest-tenured shareholder return on the TSX and S&P 500 of all banks. Again, that’s something that we’re really proud of.”

That volatile economic landscape has contributed to an unsurprising slowdown in single-family mortgage application volumes at Equitable, although that’s been countered somewhat by a stronger trend of renewals than in the past because customers are opting to stay in their homes.

Poddar pointed to reasons for optimism on the housing front, including the likelihood that the Bank of Canada is at or nearing the end of rate hikes and a recent resurgence in home prices following their 2022 dip.

“From a credit risk perspective, the housing market has gone through a correction, and it seems as though prices have now not only bottomed out, but they’re showing signs of improvement,” she said.

“And so it gives us confidence that there is a floor to house prices that in terms of our credit outlook sets us up for a better position. Affordability will continue to be a challenge, but we know that house prices have bottomed out and so there is a hedge there in terms of credit.”

The bank has been bolstered by a diversified funding stack, she added, that’s seen the addition of wholesale options such as covered bonds – helping the loan book yield grow faster than the cost of funds and contribute to wider margins.

Mortgage brokers a key part of company’s growth plans

Equitable only issues alternative-A mortgages through the mortgage broker channel, a factor that makes the broker community “critical” to its business, according to Poddar.

“We continue to believe that the best way in this country to get a mortgage is through a mortgage broker,” she said. “We’ve seen massive increases in market share originations through brokers and believe that’s the right thing for the consumer, especially when you consider challenges like affordability and the complexity, especially of a first-time home, purchase.”

Indeed, the company is doubling down on its conviction in brokers as the best distribution channel, Poddar said, implementing new technology to improve documentation exchange with brokers and putting in place a new loan origination platform to streamline service, turnaround times, and integration with their chosen platforms.

Is the end in sight for Canada’s mortgage market turbulence?

On the direct-to-consumer side, meanwhile, Equitable also saw significant growth through its online-only platform EQ Bank, whose adjusted net interest income surged to $251.7 million, up 50% over the same time last year.

Customer growth has accelerated in that space, jumping 31% year over year, with recent months seeing the rollout of an all-digital iteration of the government’s first-home savings account on the EQ Bank platform.

Ultimately, there’s a “light at the end of the tunnel” in sight for Canada’s mortgage market, according to Poddar, with Bank of Canada rate cuts – although not imminent – plausible by the second half of 2024.

“The other piece I from a payment shock at renewal – and that’s been the component that we’ve been most worried about for borrowers,” she said. “And borrowers have continued to be really resilient, so we haven’t really seen a material increase in arrears.

“For us, specifically at Equitable, the terms in our mortgages tend to be shorter and so the actual payment shock that borrowers are feeling is declining quite rapidly as time goes on, because most of them have already gone through a renewal cycle.”

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