Table of Contents
3 Management’s discussion and analysis of financial
62 Derivative financial instruments
condition and results of operations
3 Cautionary note regarding forward-looking statements
63 Off-balance sheet activities
5 Selected financials and other highlights
63 Related party transactions
7 Business overview
63 Risk management
8
Investing in EQB – High Performance with Strong Capital
81 Share information
9 Equitable Bank’s Focus on ESG – And First Schedule 1
81 Disclosure controls and procedures
Canadian Bank to Disclose Scope 3 Emissions
10 Economic and business outlook
81
Internal control over financial reporting
16 Strategic priorities and partnerships
82 Changes in internal control over financial reporting
18 Differentiated approach to capital allocation
82 Non-generally accepted accounting principles (GAAP)
financial measures
24 Announced agreement to acquire Concentra Bank
85 Reports and consolidated financial statements
25 Capital, liquidity and funding
86 Management’s responsibility for financial reporting
28 COVID-19 impact
87
Independent auditors’ report
30 Financial and strategic initiatives results
92 Consolidated balance sheets
32 Personal Banking
35 Commercial Banking
93 Consolidated statements of income
94 Consolidated statements of comprehensive income
38 Financial review – earnings
95 Consolidated statements of changes in shareholders’ equity
41 Financial review – balance sheet
97 Consolidated statements of cash flows
52 Fourth quarter overview
98 Notes to consolidated financial statements
61 Accounting policy changes
159 Directors and executive officers
61 Critical accounting estimates
160 Shareholder and corporate information
Page. 3
Management’s discussion and analysis of financial
condition and results of operations
For the three months and year ended December 31, 2021
Management’s Discussion and Analysis (MD&A) is provided to enable readers to assess the financial position and the
results of the consolidated operations of Equitable Group Inc. (Equitable or the Bank) for the three months (quarter) and
year ended December 31, 2021. This MD&A should be read in conjunction with Equitable’s unaudited interim
consolidated financial statements for the fourth quarter (see Tables 25-27 in the Fourth Quarter Overview section of this
report) and the audited consolidated financial statements and accompanying notes for the year ended December 31,
2021. All amounts are in Canadian dollars. This report, and the information provided herein, is dated as at February 7,
2022. Equitable’s continuous disclosure materials, including interim filings, annual MD&A and Consolidated Financial
Statements, Annual Information Form, Notice of Annual Meeting of Shareholders and Proxy Circular are available on the
Bank’s website at www.equitablebank.ca and on SEDAR at www.sedar.com.
On October 25, 2021, we split our common shares on a two-for-one basis. All common share numbers and per common
share amounts presented in this MD&A have been retroactively adjusted to reflect this share split.
Cautionary note regarding forward-looking statements
Statements made by Equitable in the sections of this report including those entitled “Business Overview”, “Investing in EQB
– High Performance with Strong Capital”, “Equitable Bank’s Focus on ESG – And First Schedule 1 Canadian to Disclose Scope 3
Emissions”, “Economic and Business Outlook”, “ Strategic Priorities and Partnerships”, “Differentiated Approach to Capital
Allocation”, “Announced Agreement to Acquire Concentra Bank”, “Capital, Liquidity and Funding”, “COVID-19 Impact”, “Financial
and Strategic Initiatives Results”, “Personal Banking”, Commercial Banking”, “Provision for Credit Losses”, “Credit Quality and
Allowance for Credit Losses”, “Liquidity Investments and Equity Securities”, “Deposits”, “Capital Management – Equitable Bank”,
“Fourth Quarter Overview”, “Risk management”, in other filings with Canadian securities regulators and in other
communications include forward-looking statements within the meaning of applicable securities laws (“forward-looking
statements”). These statements include, but are not limited to, statements about Equitable’s objectives, strategies and
initiatives, financial performance expectations and other statements made herein, whether with respect to Equitable’s
businesses or the Canadian economy. Generally, forward-looking statements can be identified by the use of forward-
looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “planned”,
“estimates”, “forecasts”, “outlook”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such
words and phrases which state that certain actions, events or results “may”, “could”, “would”, “should”, “might” or “will be
taken”, “occur”, “be achieved”, “will likely” or other similar expressions of future or conditional verbs.
Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause
actual results, level of activity, closing of transactions, performance or achievements of Equitable to be materially
different from those expressed or implied by such forward- looking statements, including but not limited to risks
related to capital markets and additional funding requirements, fluctuating interest rates and general economic
conditions including, without limitation, impacts as a result of COVID-19, legislative and regulatory developments,
changes in accounting standards, the nature of our customers and rates of default, and competition as well as those
factors discussed under the heading “Risk Management” herein and in the Bank’s documents filed on SEDAR at
www.sedar.com.
All material assumptions used in making forward- looking statements are based on management’s knowledge of
current business conditions and expectations of future business conditions and trends, including their knowledge of
the current credit, interest rate, and liquidity conditions affecting Equitable and the Canadian economy. Although
Equitable believes the assumptions used to make such statements are reasonable at this time and has attempted to
Page. 4
identify in its continuous disclosure documents important factors that could cause actual results to differ materially
from those contained in forward-looking statements, there may be other factors that cause results not to be
as anticipated, estimated or intended. Certain material assumptions are applied by Equitable in making forward-looking
statements, including without limitation, assumptions regarding its continued ability to fund its loan business, a
continuation of the current level of economic uncertainty that affects real estate market conditions including, without
limitation, impacts as a result of COVID-19, continued acceptance of its products in the marketplace, as well as no
material changes in its operating cost structure and the current tax regime. There can be no assurance that such
statements will prove to be accurate, as actual results and future events could differ materially from those anticipated
in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Equitable
does not undertake to update any forward-looking statements that are contained herein, except in accordance with
applicable securities laws.
Page. 5
Select financial and other highlights
Operating results ($ thousands)
Net interest income
Non-interest income
Revenue
Non-interest expenses
Pre-provision pre-tax income(1)
Provision for credit losses
Income tax expense
Net income
Operating performance
Earnings per share – basic ($)
Earnings per share – diluted ($)
Return on equity (%)(1)
Efficiency ratio (%)(1)(2)
Operating leverage (%)(1)
Net interest margin (%)(1)
Select balance sheet and other information
($ millions)
Total assets
Assets under management(1)
Loans receivable
Loans under management(1)
Total deposits
Total EQ Bank deposits
Total other deposits
Total risk-weighted assets(1)
Common shareholders' equity
Credit quality (%)
Provision for credit losses – rate(1)
Net impaired loans as a % of total loan assets
Allowance for credit losses as a % of total loan
assets
Common share information
Common share price – close ($)
Book value per common share ($)(1)
Common shares outstanding
Common share market capitalization ($ millions)
Dividends declared per:
Common share ($)
Preferred share ($)
Dividend yield(1) – common shares (%)(1)
Capital ratios and leverage ratio (%)(1)
Common equity tier 1 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio
Business information
Employees – full-time equivalent
Revenue per full-time equivalent
($ thousands)
EQ Bank customers
31-Dec-21
31-Dec-20
31-Dec-19
2021 vs. 2020
As at or for the years ended
582,609
60,298
642,907
260,176
382,731
(7,674)
97,875
292,530
8.49
8.36
16.7
40.5
(6.0)
1.81
36,159
42,020
32,901
38,663
20,695
6,968
13,727
13,310
1,882
(0.03)
0.27
0.15
497,406
59,427
556,833
214,060
342,773
42,280
76,689
223,804
6.52
6.47
14.8
38.4
4.7
1.70
30,746
35,936
28,272
33,347
16,376
4,556
11,820
10,426
1,575
0.15
0.42
0.23
462,648
34,416
497,064
199,573
297,491
18,394
72,618
206,479
6.05
5.99
15.5
40.2
(1.4)
1.74
28,392
33,005
26,608
31,123
15,232
2,667
12,565
9,761
1,395
0.07
0.44
0.14
85,203
871
86,074
46,116
39,958
(49,954)
21,186
68,726
1.97
1.89
N/A
N/A
N/A
N/A
5,413
6,084
4,629
5,316
4,319
2,412
1,907
2,884
307
N/A
N/A
N/A
68.91
55.24
34,070,810
2,348
50.50
46.68
33,748,148
1,704
54.68
41.53
33,595,186
1,837
18.41
8.56
322,662
644
0.74
1.49
1.4
13.3
13.9
14.2
4.9
1,161
0.74
1.49
1.8
14.6
15.3
15.8
5.1
925
0.65
1.56
1.5
13.6
14.4
14.7
4.9
871
-
-
N/A
N/A
N/A
N/A
N/A
236
554
250,423
602
173,399
571
95,535
(48)
77,024
17%
1%
15%
22%
12%
(118%)
28%
31%
30%
29%
1.9%
2.1%
(10.7%)
0.11%
18%
17%
16%
16%
26%
53%
16%
28%
19%
(0.18%)
(0.15%)
(0.08%)
36%
18%
1%
38%
0%
0%
-
(1.3%)
(1.4%)
(1.6%)
(0.2%)
26%
(8%)
44%
(1) See Non-Generally Accepted Accounting Principles (GAAP) financial measures section of this MD&A. (2) Increases in this ratio reflect reduced
efficiencies, whereas decreases reflect improved efficiencies.
Page. 6
Select financial highlights
Operating results ($ thousands)
Net interest income
Non-interest income
Revenue
Non-interest expenses
Pre-provision pre-tax income
Provision for credit losses
Income taxes
Net income
Operating performance
Earnings per share – basic ($)
Earnings per share – diluted ($)
Return on equity (%)
Efficiency ratio (%)
YTD Operating leverage (%)
Net interest margin (%)
Select balance sheet and other
information ($ millions)
Total assets
Assets under management
Loans receivable
Loans under management
Total deposits
Total EQ Bank deposits
Total other deposits
Total risk-weighted assets
Common shareholders' equity
Credit quality (%)
Provision for credit losses – rate
Net impaired loans as a % of total
loan assets
Allowance for credit losses as a % of
total loan assets
Common share information
Common share price – close ($)
Book value per common share ($)
Common shares outstanding
Common share market
capitalization ($ millions)
Dividends declared per:
Common share ($)
Preferred share ($)
Dividend yield – common shares (%)
Capital ratios and leverage ratio
(%)
Common Equity Tier 1 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio
Q4
155,952
15,911
171,863
70,427
101,436
(1,420)
22,795
80,061
2.32
2.29
17.0
41.0
(6.0)
1.81
36,159
42,020
32,901
38,663
20,695
6,968
13,727
13,310
1,882
2021
Q3
Q2
Q1
Q4
2020
Q3
Q2
Q1
150,852
11,248
162,100
67,442
94,658
(3,500)
25,685
72,473
141,839
16,935
158,774
64,990
93,784
(1,982)
24,965
70,801
133,966
16,204
150,170
57,317
92,853
(772)
24,431
69,194
131,117
20,833
151,950
55,348
96,602
103
25,075
71,424
127,431
21,277
148,708
53,065
95,643
(2,357)
24,072
73,928
118,707
12,623
131,330
51,467
79,863
8,847
18,534
52,482
120,151
4,694
124,845
54,180
70,665
35,687
9,008
25,970
2.10
2.07
16.0
41.6
(3.3)
1.83
34,425
40,172
31,475
37,121
19,758
6,914
12,844
12,427
1,800
2.05
2.02
16.5
40.9
4.8
1.81
32,342
37,928
29,893
35,373
18,413
6,531
11,882
11,461
1,730
2.01
1.98
17.1
38.2
14.5
1.77
31,355
36,742
28,892
34,174
17,427
5,798
11,629
10,911
1,660
2.09
2.07
18.2
36.4
4.7
1.74
30,746
35,936
28,272
33,347
16,376
4,556
11,820
10,426
1,575
2.17
2.15
19.8
35.7
2.2
1.69
30,447
35,511
27,592
32,551
16,373
4,319
12,054
10,180
1,501
1.53
1.52
14.7
39.2
(2.7)
1.64
29,957
34,662
27,709
32,331
15,636
3,288
12,348
9,936
1,427
0.74
0.73
7.2
43.4
(6.3)
1.71
29,154
33,936
26,781
31,496
15,475
2,707
12,768
9,916
1,378
(0.02)
(0.05)
(0.03)
(0.01)
0.001
(0.03)
0.13
0.54
0.27
0.23
0.41
0.36
0.42
0.33
0.54
0.47
0.15
0.17
0.19
0.22
0.23
0.25
0.27
0.26
68.91
55.24
29.04
41.00
34,070,810 34,029,266 33,932,814 33,917,172 33,748,148 33,644,488 33,614,634 33,614,634
37.55
44.62
66.52
50.97
35.70
42.45
63.10
48.93
50.50
46.68
71.45
52.90
2,348
2,431
2,257
2,140
1,704
1,263
1,200
976
0.19
0.37
1.0
13.3
13.9
14.2
4.9
0.19
0.37
1.0
13.7
14.3
14.6
5.0
0.19
0.37
1.1
14.4
15.0
15.4
5.2
0.19
0.37
1.2
14.5
15.2
15.6
5.1
0.19
0.37
1.6
14.6
15.3
15.8
5.1
0.19
0.37
1.9
14.3
15.0
15.5
4.9
0.19
0.37
2.3
14.0
14.7
15.2
4.8
0.19
0.37
1.6
13.5
14.3
14.7
4.7
Page. 7
Business overview
Equitable Group Inc. (TSX: EQB and EQB.PR.C) operates
nimble, which allows us to act quickly and profitably on
through its wholly owned subsidiary, Equitable Bank,
Canada's Challenger BankTM. We serve Canadians
through two business lines – Personal Banking and
Commercial Banking – and with recognized brands
including EQ Bank, chosen by Forbes as Canada’s #1 bank
in 2021. Equitable Bank’s purpose is to driving change in
Canadian banking to enrich people’s lives.
new opportunities.
Our EQ Bank digital platform is the first born all digital
bank in Canada, and the first to move to a cloud-based
system. Our technology is proven, differentiated and
supports cost-effective product development and fintech
collaborations. We rely on cloud and API-first design
principles which differentiates us from larger banks with
Equitable is regulated by the Office of the Superintendent
legacy technology systems. Our scale enables us to move
of Financial Institutions Canada (OSFI) and serve more
quickly and build on our technology platform.
than 325,000 Canadians with assets under management
of over $42 billion. Equitable is a member of the S&P/TSX
Composite, the S&P/TSX Bank, S&P/TSX Dividend
Aristocrats, S&P/TSX Small Cap, S&P Canada BMI, and
MSCI Small Cap (Canada) indices.
We adopted a fintech mindset several years ago and
collaborate with partners to innovate with a view to
providing best-in-class digital services to Canadian
consumers across commonly used banking products. Our
relationships with market leaders like Wise, Nesto,
Canadians choose Equitable Bank for smarter products,
Ratehub, Flinks, Borrowell, and others have become
with exceptional service. To deliver both, we choose to
cornerstones for reaching new customers and delivering
specialize in market segments where we can improve the
extra value to our accountholders.
banking experience and operate with sustainable
competitive advantage. As a challenger bank, we rethink
conventional approaches, and push for smarter ways to
do business that benefit our customers and our Bank. In
practice, we differentiate by providing a host of
challenger bank deposit services, alternative single-family
lending, reverse mortgage lending, insurance lending,
specialized commercial financing and equipment leasing.
Our challenger mindset has allowed us to become a
leading alternative single family residential lender in
Canada and the country’s largest multi-residential insured
lender. Our innovations in the independent mortgage
broker channel reflects
our long-term focus on
providing great service.
As a branchless digital
bank, we stay lean and
Another differentiating factor in our business model
compared to other challenger banks around the world is
our ability to consistently and profitably deploy deposits
within our lending operations. We operate with an
integrated balance sheet and lend across a growing range
of personal and commercial asset categories. Our
approach to diversifying assets and deposit funding
sources allows us to achieve our corporate growth
objectives and reduces our risk profile.
The foundation of the Equitable Bank’s successes rests
with our talented teams. We employ over 1,100
Challengers who are aligned to drive change in Canadian
banking. Equitable Bank’s inclusive, welcoming, and
pride-inducing workplace has earned it the honour of
being recognized as one of the top 50 organizations on
this year's Best Workplaces™ in Canada List.
Page. 8
Investing in EQB – High Performance with Strong
Capital
Equitable has significantly outperformed our peer group averages over the past ten years with a priority focus on Return
on Equity (ROE) as our north star financial objective.
Capital Strength
Equitable Bank has one of the highest CET1 ratios of all Canadian banks, despite being measured under the less
favourable standardized risk weight model.
Page. 9
Equitable Bank’s Focus on ESG – And First Schedule I
Canadian Bank to Disclose Scope 3 Emissions
To achieve our purpose of enriching people’s lives as Canada’s Challenger Bank, we follow best Environmental, Social
and Governance (ESG) practices but also make decisions differently than some other institutions. The result has been
positive for all stakeholders.
Our approach begins with our Board of Directors. The members of our Board challenge our strategy in all its forms with
particular focus on risk management, talent development, recruitment and retention, equity diversity and inclusion (EDI)
and environmental and social governance. We see these areas as fundamental to the Equitable Bank’s sustainability and
future success. Through their actions, our Board has built a strong governance framework designed to create value for
stakeholders, enhance long-term corporate sustainability and reduce business risk.
We understand that good governance is not just about structure or framework – it is about invested people acting in a
principled manner to move forward together, which is what we did in 2021. We are particularly proud of the strides
made during the year in developing an environmental roadmap and putting substance behind our pledges. As a result,
we became the first Schedule I Canadian bank to disclose our entire Scope 3 GHG emissions portfolio (539,711 tonnes of
carbon dioxide equivalent (tCO2e) arising from our own operations as well as from our lending portfolio (otherwise
known as financed emissions). This significant accomplishment was enabled by Equitable Bank's sophisticated data
management systems and comprehensive understanding of customers' business activities. Tracking in the prior year
showed that our Scope 1 and Scope 2 GHG emissions were 553 tCO2e, an amount we fully offset through the purchase
of Verified Carbon Standard (VCS) emission reduction credits in 2021. As a digital bank, our emissions per dollar of
revenue are far below branch-based banks in Canada but we intend to continue to challenge ourselves to do more for
Page. 10
the environment in future years. In 2022, we are particularly focused on working with suppliers to reduce the GHG
emissions associated with our operations.
Equity, diversity and inclusion are critically important to our success and sustainability. Our Board is committed to
supporting the development of a diverse, equitable and inclusive workplace culture and an environment that is actively
anti-racist. This commitment is shared by the Management Committee of the Bank which is accountable for
performance. Today, we are proud to operate with a diverse Board of Directors (50% of independent members are
women) and a diverse workforce (50% of whom self-identify as a member of a visible minority or racialized group). At
Equitable, everyone is respected equally, and offered equal opportunities in our workplace.
We encourage all stakeholders to review our 2022 ESG report and 2022 Management Information Circular at
www.equitablebank.ca for more information. Both documents will be published this spring. Our ESG report will reflect
upon our recent experiences with investors, rating agencies, regulators, and other stakeholders to address ESG issues.
Economic and business outlook
Equitable Bank’s consistently strong capital and liquidity, coupled with a robust risk management framework, as well as
diversified sources and uses of capital, position us to grow profitably and in a risk-managed way even in challenging
economic environments. Equitable demonstrated its resilient performance in the pandemic-challenged years of 2020
and 2021.
To develop our 2022 business plans and drive our credit-loss models, we leveraged Moody’s Analytics and statistics
published by the Bank of Canada and Statistic Canada for information on general economic indicators. For general
business guidance and projections, we also considered consensus estimates from Canadian bank economists.
General Guiding Economic Outlook
The COVID-19 global pandemic has triggered uncertainty and significant shifts in forecasts of growth.
Key indicator
20211
2022
Expectation1
Comments
GDP Growth
4.5%
3.5 – 4%
Continued growth in national economy carrying
Unemployment
5.9%
5.6 – 6.0%
over from 2021 due to consumption growth
from pent-up demand and business
investment. Service sector growth expected to
be strong, solid goods consumption due to
dissipating supply chain constraints
Labour growth in the past few months is
leading to unemployment rate returning to pre-
pandemic levels. Labour shortages expected to
persist until early 2023, pushing up average
wages. Productivity rates remain lower but are
expected to increase as restrictions lift and
normal operations resume
(1) Sources: The Bank of Canada, Statistics Canada, Moody’s Analytics, Canadian Bank Economics Reports
Page. 11
Key indicator
20211
2022
Expectation1
Comments
House Price Index (HPI)
10.3%
6.0 – 7.5%
Consumer Price Index (CPI)
3.4%
2.1 – 3.5%
Immigration
401,000
411,000
Limited supply, increased prices, and higher
interest rates are expected to slow housing
sales in 2022, although housing turnover in
resale markets will continue to remain
elevated above normal levels.
The Bank of Canada expects inflation to be
elevated in the first half of 2022, and start to
ease back towards target levels late 2022.
Well up from 185,000 in 2020. Some
expectations that the 411,000 target from the
Government of Canada will increase even
higher than the current 411,000. 2023 target
remains 421,000
The Bank of Canada (BoC) uses monetary tools to maintain price stability within targeted levels. In recent years, the BoC
has reduced interest rates to historically low levels (0.25% since March 2020) and engaged in buying Government of
Canada bonds (known as Quantitative Easing) to offset the impact of the pandemic on the nation’s economy and
support the liquidity of the financial system. Due to a strong economic recovery in 2021 and the highest level of inflation
in 30 years, the BoC recently signaled a change in monetary policy. In the fall of 2021, it curtailed what it called its
“extraordinary monetary policy support” in the form of bond purchasing. In its first policy interest rate announcement of
2022 (on January 26), the BoC kept its overnight rate at 0.25% but noted that interest rates “will need to increase, with
the timing and pace of those increases guided by the BoC’s commitment to achieving” its 2% inflation target. The BoC
also noted in its January 2022 report that elevated housing market activity continues to put upward pressure on prices.
Like other banks, we may not consistently realize our financial performance goals if business or competitive conditions,
funding availability, capacity in securitization markets, the regulatory environment, the housing market, the economic
impact of COVID-19, or general economic conditions differ from expectations.
Digital
Digital adoption continues to grow. More than 76%2 of Canadian customers are using online and mobile banking to
conduct most of their banking transactions. The ease and convenience of digital has also led customers to interact more
frequently with their banks, with over 61%3 interacting at least once a week up from 50%4, with an expectation of this to
continue to grow as an addressable market.
(1) Sources: The Bank of Canada, Statistics Canada, Moody’s Analytics, Canadian Bank Economics Reports
(2) https://cba.ca/technology-and-banking
(3) https://www.pwc.com/us/en/industries/banking-capital-markets/library/digital-banking-consumer-survey.html
(4) https://www.accenture.com/ca-en/insights/banking/consumer-study-making-digital-banking-more-human?src=SOMS
Page. 12
We are aware and sensitive to the fact that different age groups have unique preferences and different expectations of
their digital banking experiences. A recent US survey by EY found that 51%1 of consumers born between 1997 and 2011
(Gen Z) name a fintech company as their most trusted financial brand rather than a bank. This likely reflects the fact that
the Gen Z cohort has grown up in the fintech era. In thinking about the future, we keep close watch to understand
consumer preferences and expectations. As a digital-first Challenger Bank, we believe we have a natural advantage. We
look to align our practices to what our customers want and expect. It is why we put a premium on functionality and ease
of use, provide superior deposit rates, low and no-cost banking services with transparent terms and invest in
meaningful innovations that create customer engagement. We also believe Canadians of all ages prefer working with
digital banks that share their personal values and social concerns. By keeping those values and concerns at the forefront
of our decisions, we will remain a go-to Challenger Bank for all Canadians.
Housing
We remain constructive in our outlook of the Canadian housing market, and our ability to continue to grow within our
2022 core business guidance. Canada recorded 667,0002 home sales in 2021 and over 270,0003 housing starts – a key
economic development gauge and the highest on record. In 2022, home sales and housing starts are expected to be
580,0004 and 225,0005, respectively. Even with this level of growth, we continue to support the perspective that there is
a significant imbalance in supply and demand. Household formation continues to outstrip the completion of new
housing units, partially due to increased immigration rates pushing up demand.
Immigration growth will create additional demand for the construction of both single family residential and multi-family
residential properties. Our Bank lends on both forms of housing and is a top choice for new immigrants. Although the
federal government, through CMHC, has created new affordable housing construction incentives (its MLI Select program
launches in March 2022), many believe it will take years to correct this supply-demand imbalance.
As a provider of reverse mortgages, we also stand to benefit from Canada’s aging demographics. The desire to age at
home among Canadian seniors was already very high and has increased due to COVID-19 – likely with some impact on
home resale activity and therefore market supply – while rising home prices has created equity that Equitable Bank can
help customers unlock to finance their retirement lifestyles.
Business Outlook
The Canadian financial industry (which includes 33 domestic banks and more than 200 credit unions/caisses populaires)
remains much more consolidated than the United States or Europe. While competitive, Canada remains largely
dominated by the six Domestic Systemically Important Banks (D-SIBs), who collectively manage 90% of total assets
under management in Canada. This concentration presents significant continued long-term opportunity for banks like
Equitable Bank to create new and distinct offerings for Canadians, consistent with our value proposition of smarter
products with exceptional service.
(1) https://www.ey.com/en_us/nextwave-financial-services/how-financial-institutions-can-win-the-battle-for-trust
(2) https://creastats.crea.ca/en-CA/
(3) https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3410013501
(4) https://thoughtleadership.rbc.com/the-fever-breaks-canadas-housing-market-will-cool-but-stay-strong-in-2022/
(5) https://www.conferenceboard.ca/e-library/abstract.aspx?did=11243
Page. 13
With our focused strategy, increasingly diversified funding costs and technological capabilities, we are well positioned to
win with emerging trends. This includes how we focus on the mortgage broker channel. Our constructive view of this
channel is really driven by the value of the advice brokers provide to their customers, ultimately ensuring that they get
the best mortgage for their needs. This very much aligns with our focus of driving change in Canadian banking to enrich
people’s lives.
After record growth in 2021, we are providing the following results guidance for 2022:
Medium-term core guidance
2022 Adjusted1
2021 Results
3 Year Trailing Average
ROE
Pre-Provision Pre-Tax Income
Growth (PPPT) Growth
15% +
12% +
Diluted EPS Growth
8% - 10%
Dividend Growth
BVPS Growth
CET1 Ratio
51% increase
announced in Q1
2022 followed by
quarterly2 increases
12% +
13% +
16.7%
12%
29%
0%
18%
13.3%
15.7%
19%
20%
11%
15%
13.8%
(1) In Q1 2022 Equitable will introduce adjusted earnings to account for the costs associated with the announced agreement to acquire Concentra Bank.
(2) The dividend declared on February 7, 2022 represents a 51% increase over the dividend declared in February 2021. Dividends are expected to increase
between 20% - 25% from the levels that otherwise would have been paid out in 2021 had capital distributions not been restricted by OSFI at the onset of
the pandemic.
This guidance is founded in diversified conventional loan growth, our core earnings engine. Our EPS growth guidance
reflects the relative year-over-year impact of provision for credit losses (PCL) reversals in 2021, while our expectations of
strong PPPT growth excludes this impact.
In November 2021 we provided early guidance that we are now confirming for 2022. For greater detail on each asset
category please refer to the business line sections respectively for outlook. While we intend to introduce segmented
earnings for the Personal Banking and Commercial Banking in the first quarter of 2022, we have not separated out our
earnings guidance for 2022 at this level at this time.
2022 Guidance
2021 Results
3 Year Trailing Average
Page. 14
Y/Y Growth
Total Lending
Risk Weighted Assets
EQ Bank Deposits
Single Family Alternative
Reverse Mortgages
Cash Surrender Value Loans
12% – 15%
16% – 18%
20% – 30%
12% – 15%
150% +
100% +
Business Enterprise Solutions
10% – 15%
Commercial Finance Group
10% – 15%
Insured Multi-unit Residential
0% – 5%
Specialized Financing
Equipment Leasing
20% – 30%
10% – 15%
16%
28%
53%
30%
325%
84%
16%
22%
7%
122%
31%
12%
15%
49%
12%
334%
434%
10%
12%
6%
45%
19%
In addition to the medium-term objectives above, we rely on the following key metrics to assess the performance of the
business relative to our peers and the effectiveness of our strategy:
2022 Guidance
2021 Results
3 Year Trailing Average
Net Interest Margin
1.80% – 1.85%
1.81%
PCLs
Normalized Trend
(0.03%)
Operating Leverage
Flat
(6.0%)
1.75%
0.06%
(0.9%)
As we continue to execute on our strategic plan and live our vision as Canada’s Challenger BankTM, we remain focused
on capital and risk management. Our decisions are guided not just by short-term financial returns but by a longer-term
view that protects our depositors, builds value for our shareholders, leads to strong customer retention and affinity, and
considers our role in understanding and addressing climate change. We are determined to avoid the reputational and
regulatory issues that many banking industry participants have faced around the globe.
Impact of Concentra Bank Acquisition on Guidance
In general, we refer you to our news release here www.equitablebank.ca and the Announced agreement to acquire
Concentra Bank section below for accretion guidance outlined for ROE, earnings, and our balance sheet. All guidance is
subject to closing conditions and regulatory approvals, which may impact timelines or accuracy.
Page. 15
Expenses – Our Investments
To achieve our ROE and growth objectives, we plan to continue to
invest in people, processes, and technology. While non-interest
expenses increased by 22% in 2021, these expenses allowed us to
retain and acquire talent in a competitive hiring market, and to
invest in technological improvements. We expect expense growth to
be lower in 2022, but we view continued investment in people,
processes and technology as an enabler of business growth at our
historical levels of ROE achievement.
Our 2021 efficiency ratio of 40.5%, compared to guidance of 39-41%,
continues to illustrate the advantages of our branchless digital
business model over our industry peer group and demonstrates
Equitable’s ability to readily manage overhead expenses in an ever-
changing environment.
With a sizable portion of our costs being discretionary, we are able
to manage expenses to ensure we deliver our north star ROE
targets. Decisions on expense levels are made to balance the
benefit of strong short-term returns and investments required to
ensure future growth and long-term value. In 2022, we expect to
grow expenses in line with revenue resulting in flat operating
leverage. Our efficiency ratio should remain relatively consistent
with 2021 levels. Expense levels may fluctuate from period to period due to costs associated with the planned
acquisition of Concentra Bank, the launch of our EQ Bank payments solutions, and the timing of marketing campaigns.
As we continue to build more products, there may be a mismatch in benefit realization from these initiatives and their
associated costs. Generally, the costs are amortized on a straight-line basis, but it takes time to build portfolios or
acquire new customers. Although capitalization of internal development costs generally helps align the cost and
benefits, this alignment is never exact.
We will be introducing adjusted earnings in Q1 2022 to account for planned one-time and integration costs for the
acquisition of Concentra Bank, which also accounted for $0.7 million additional one-time spend in our Q4 2021 results.
Page. 16
Strategic priorities and partnerships
In 2021, our strategic priorities included:
• Grow market share in core assets through superior customer service
• Grow adjacent assets through expanded distribution
• Build stronger direct customer relationships via enhanced digitization
•
•
Issue covered bonds
Complete Advanced Internal Rating-Based (AIRB) model recalibration and validation
Please refer to our Financial and Strategic Initiatives Results section for progress against these priorities.
Growth and Innovation with Partnerships
Fintech partnerships enable exploration of opportunities aligned with both our asset and deposit strategies. We are
focused on:
•
•
•
Investments that enable participation in new businesses delivered through innovative platforms
Partnerships in distribution, marketing, and white label opportunities that serve our customers and generate
interest and non-interest revenue for our Bank
Engagements with external technology solutions, leveraging APIs to offer an innovative range of services
Page. 17
The graphic below highlights some key partnerships and clients by product group
Canada’s banking sector has embarked on a payments modernization journey with the two primary systems being
replaced with Lynx and Real-Time Rail. We are readying ourselves for this advancement in several ways. In the second
half of 2022, we intend to introduce an EQ Bank payment card. It will allow customers to use their funds to make
ecommerce and in-store purchases along with cash withdrawals, all with no fees, attractive rewards, and a seamless all-
digital experience.
The EQ Bank Payment card will add an important new level of convenience for customers and cement our status as an
attractive chequing account alternative. The card will also add an interchange-based revenue stream for the Bank. We
recently entered a multi-year strategic arrangement with Mastercard as a formative step in our payments plan. Our plan
includes offering credit card services to fintechs and others by positioning Equitable Bank for what’s known in the
industry as BIN sponsorship. A key pillar of our payments strategy includes connecting directly to the Real-Time Rail
(Real-Time Rail is a Payments Canada project – please refer to the Payments Modernization section of this MD&A for
further details). This will allow us to better enable real-time payments and associated innovation to our customers and
enable Equitable to play a crucial role in the ongoing modernization of the Canadian payments landscape.
Consumer-directed finance (also known as Open Banking) is on the federal government’s policy agenda. Our Bank’s
open APIs and openness to fintech collaborations position us well for what we expect to be a transformational industry
change.
Page. 18
Differentiated approach to capital allocation
For 51 years, Equitable Bank has been a proud Canadian Financial Institution. Since establishing our bank license in
2013 and launching our digitally native cloud-based EQ Bank platform in 2016, we have become one of the fastest
growing, consistent, and predictable performance leaders for investors.
The discipline we apply to adhering to our value creation formula and the distinct trade-offs we make in allocating our
shareholders’ capital are key drivers of our track record. In our 2015 annual report, we highlighted our approach to
value creation and are proud to still hold consistent to this Equitable value-creation equation today.
We distinguish ourselves from other Canadian banks by way of our consistent long-standing principle of creating value
through capital allocation. We operate within the same general regulatory framework as other Schedule I banks,
including D-SIBs. However, they apply an Advanced Internal Rating-Based (AIRB) approach to capital while we use a
Standardized Approach. Although the Standardized Approach under the capital adequacy guidelines offers the benefit
of simplicity, it is generally more punitive with respect to capital allocation relative to AIRB.
Page. 19
The rate at which a bank increases BVPS and EPS for any
period is described by the following two identities (ROE
being return on equity and Payout Ratio being the
percentage of dividend per share relative to diluted EPS):
Change in BVPS = Opening BVPS (ROE x (1- Payout Ratio))
Change in EPS = ROE x Change in BVPS from prior period
In recent years, Equitable has consistently generated ROE
of greater than 15%, while paying out approximately 10%
of earnings. If we assume that our Bank’s management
has the tools and discipline to maintain ROE and the
Payout Ratio at the same levels, the implication is that
BVPS and EPS grow at a compound rate of over 15%
annually. This basic value creation formula can be tested
against our Bank’s 10-year historical results:
• Our diluted EPS compound annual growth rate was
15.7% while BVPS grew 15.9%.
• Our TSR of 540%, relative to peers at 208%.
Our current Price/Earnings-to-Growth (PEG) ratio is 0.58,
indicating that the EQB stock remains undervalued based
on our future earnings expectations relative to our peers.
Over the past 10 years, we have generated an average ROE of 16.7% and paid out approximately 1.7% of capital,
equivalent to approximately 10% of earnings.
How We Create Value with Each Capital Allocation Decision
In evaluating capital allocation decisions, we apply a rigorous and methodical approach to evaluating opportunities,
including returns on loans on a risk adjusted basis and investing in products, services, and new capabilities. We have a
long history of using a proprietary ROE calculator to maintain a disciplined approach to loan pricing and provide the
right return for the capital deployed. We apply a similar discipline to innovation and the broader digitization of
Equitable Bank. To effectively evaluate these opportunities, we have developed thresholds for investing with high
minimum net present value expectations, shorter repayment periods, ROE hurdles of 15%+, cost of ownership
considerations, reduction of technical debt, and a consideration for API-first approaches. We prioritize spending on
products and services that would best support our growing customer base where we have a strategic advantage without
necessarily being everything to every customer.
When evaluating capital allocation to EQ Bank, our goal is to increase the value we deliver to our digital customers as a
means of building franchise value. We focus on driving customer lifetime value of 7-10x and balance that against the
cost of customer acquisition. In general, we direct a minimum of 30%-40% of our initiative spending on innovation as a
target vs sustaining and enhancing the current product suite.
Evaluating progress against our digital strategy is critical to our evolution. We gauge our success by measuring
customer engagement through customer satisfaction scores and feedback, the number of products held by a customer
and the frequency of use of EQ Bank’s various services. In Q3 2021, we began disclosing these metrics and over the past
Page. 20
three years, the average number of products held by a customer has increased by 32% while the use of EQ Bank
services grew by 13%.
Key examples of capital allocation effectiveness:
Select
Investments
Bennington
Financial
Acquisition
Reverse Mortgages
Results
• Acquired for $47MM at 1.3x P/BV in December 2018
• Since acquisition, Bennington’s portfolio has grown at 18.7% 3-Year CAGR
• Diversified into new asset class
• Bennington's ROE more than exceeds Equitable’s north star ROE target
• Commenced lending in 2019 for modest capital investment
• Portfolio increased 325% year-over-year in 2021 and exceed targets
• In September 2021, Ontario Teachers’ Pension Plan Board announced an agreement to
acquire HomeEquity Bank, estimated at a very significant multiple of book value
demonstrating the value of this business
Covered Bonds
• Issued €350 million of covered bonds in September 2021, 3x oversubscribed to 40 new
investors across 15 countries
• Lowest cost of wholesale funding at 55 basis points below GICs
• Capital cost of setting up program will be paid back in the first year following issuance
US Dollar Accounts
• US Dollar account launched on EQ Bank in June 2021 and has attracted $165 million
deposits
• Added a new foreign exchange revenue stream for EQ Bank
Overall, we have prioritized capital allocation in a manner that generates sustainable returns for investors, while
servicing the needs of our customer base and making progress on our long-term objectives. We are confident that our
allocation decisions today will translate into sustainable growth and attractive returns for the Bank in the years to come.
Our Capital Deployment Strategy Translates to the Lowest Credit Losses Among Peers
Our prudent capital strategy has a material impact on reducing the risk we assume, allowing us to make lending
decisions that minimize losses.
We have a mature risk management
framework that guides all our
activities. We operate within a strict
risk appetite and we will not stretch
that appetite to achieve our growth
objectives. While our risk weighted
assets (RWA) grew faster than our
long-term goals in 2021 following
lower levels in 2020 due to the
pandemic, our 3-year average RWA
growth is 15%, exactly within our
value creation formula. Our rigorous
framework has resulted in an
Page. 21
average provision for credit loss rate of just 0.04% over the past five years - the lowest among all Schedule I banks in the
S&P/TSX Bank Index.
2022+ Continued Improvement Anchored in Technology and Innovation
We think about technology as both a critical enabler for our employees and as a core capability to deliver innovative
experiences and offerings for our customers. Equitable Bank’s digital platform is Cloud-first, which provides us core
capabilities to scale our business in a secure and cost-effective way, while also granting access to advanced and modern
platform tools and security on Microsoft Azure.
Our growing team of technologists is leveraging these capabilities strategically to leap-frog towards modern ways of
working, such as our path to enable our employees to work securely over the internet. In true challenger fashion, this
innovative solution for the Bank will improve our cybersecurity posture, employee efficiency and engagement, while also
reducing the complexity and cost of our operating environment.
We continue to evolve the API centric architecture of our digital platform to offer services and products created by the
Equitable Bank as well as those from our fintech partners. Utilizing APIs allows us to efficiently build a true digital
offering: differentiating customer experiences that are scalable with real-time integrations end-to-end. The digital
platform is now being extended to drive efficiency in our lending businesses - from digitization of underwriting to credit
risk management. Our modern technology platform is well positioned to support Equitable Bank’s continued growth
and efficiently meet the needs of Open Banking and real-time payments.
Behind the digital platform, we are fueled by continued investment in technology talent and maturation of our
cybersecurity and the operations of technology. We maintain a key focus on building maturity with lean processes and
teams that allow for empowerment and agility of technologists with their daily work.
Page. 22
All of this guides and informs how we invest and allocate capital across the Equitable Bank. Going forward we will
continue to enact very intentionally against our technology strategy to deliver value.
Select Projects
Timing
Comments
EQ Bank Payments and BIN
sponsorship
Late 2022 EQ Bank Card will offer important
convenience to customers and a new
revenue stream for the Bank. BIN
sponsorship to allow Equitable Bank
to use the payments infrastructure
to earn additional fee income and
meet a clear market need
EQ Bank Quebec Launch
Late 2022 Undergoing assessments of the Quebec landscape for EQ
Bank launch, including impacts to customer facing digital
platforms
Open Banking (OB)
2023
With a cloud based digital core banking system and
microservices heavy stack, continue aligning to the
infrastructure OB demands
Azure Cloud Migration
2022-23
Levering Azure to run nearly 75% of the infrastructure, with a
plan to re-engineer and migrate the remainder in 2022
Lending Technology Stack
Modernization
2023
Enhancing customer and broker-facing capabilities across the
stack
Data Maturity
2022-23
Enhancing analytical environments with strategic Cloud data
platforms
Cybersecurity and Technology
Operations Maturity
2022
Continued enablement of best-in-class governance
frameworks to drive consistency and zero trust framework
Hybrid Work and new Office at 25
Ontario St, Toronto, Ontario
Q2 2023 Modernizing our infrastructure to eliminate our corporate
network and enabling all work to be done securely over the
internet when working remotely or in the office
AIRB
Late 2023
Improving the sophistication of our capital management
Continued Critical Themes of Innovation Focus for Capital Allocation and Change
Open Banking
Open Banking will change the way Canadians experience digital banking. The user experience will be much more
seamless, efficient, and secure. The streamlined data sharing in the financial ecosystem will bring more choices of
financial products for Canadians and spur new innovations.
Canada’s Open Banking journey has been slow so far, as compared to other jurisdictions around the world. With a
customer centric approach, the open data economy would ensure a fair market with user-permissioned data available
for newer and smaller players bringing innovation and cost reduction in the industry.
Page. 23
EQ Bank, Canada’s Challenger BankTM believes Open Banking will have a significant positive impact on the economy by
improving the product offerings tailored to customer needs and giving more control to consumers. EQ Bank is a strong
supporter of Open Banking in Canada and the benefits it will bring to Canadian society. Given our Challenger Bank
culture, our agile and scalable technology infrastructure, and our security posture, EQ Bank is in a unique position to
innovate and create a better banking experience for Canadians when Open Banking arrives in Canada.
EQ Bank’s value proposition in Open Banking ecosystem:
(i)
Partnership for products and services: Open Banking opens avenues for EQ Bank to partner with other entities
to provide new products and services to its customers via its platform. EQ Bank’s philosophy is anchored in
leveraging partnerships for innovative products and services.
(ii) EQ product and service availability: By exposing its own product and services at external engagement points
like product comparison websites, financial products recommendation services, EQ Bank will bring new
customers onboard via this channel.
(iii) Fintech driven user experience backed by EQ Bank products: Fintechs can drive innovation by building
customer centric front-end applications and fit for purpose niche products. EQ Bank, with its easy-to-integrate
open APIs, can position itself as a white-labeled banking product servicer for fintechs, bringing a new customer
base to Equitable Bank.
Payments Modernization
Payments modernization continues to be a top priority for Equitable Bank due to the growing need for real-time money
movement in Canada and to meet the needs of customers on our digital banking platform. We are working closely with
Payments Canada and the broader industry to support the successful launch of the Real-Time Rail (RTR). We are excited
by the potential of RTR to drive innovation in how Canadians make payments and to increase competition in the wider
payments eco-system.
We believe this will ultimately benefit Canadian consumers and businesses in moving money faster, cheaper and with
richer contextual data through the ISO 20022 data standard. Participating directly in RTR and the Payments
Modernization efforts will position Equitable Bank to play a meaningful role in driving this innovation and improving
access to the real-time payments platform for the broader payments eco-system.
Page. 24
Announced agreement to acquire Concentra Bank
On February 7, 2022, Equitable Bank announced its intent to acquire Concentra Bank, the 13th largest Schedule I bank in
Canada. To effect the acquisition, we entered into definitive agreements with the Credit Union Central of Saskatchewan
(SaskCentral) to acquire their 84% ownership interest and support agreements with additional Concentra shareholders
representing a majority of the remaining 16%. The acquisition is subject to customary closing conditions and regulatory
approvals and is expected to close in the second half of 2022.
Strategic Rationale
This is the largest ever acquisition for Equitable Bank, and directly aligns with the Bank’s strategic priorities, including:
1. Growth with complementary conventional assets
2. Diversifies and enhances revenue & funding sources
3. Expands the reach of Canada’s Challenger BankTM
4. Financially compelling and accretive to earnings within one year of closing, while maintaining strong capital.
Scale is important as it enables banks to grow efficiently and cost effectively in serving customers, improves
competitiveness, and enhances financial and organizational strength. The scale we achieve by adding Concentra will
address these fundamentals and accelerate Equitable Bank’s expansion plan by up to three years. Most importantly, our
more formidable scale will allow us to better serve our purpose of driving change in banking to enrich people’s lives.
Simply put, our scale will allow Equitable to be bigger and better for all stakeholders.
Why Concentra Bank
Culturally and operationally, Concentra and Equitable are well aligned. Concentra’s approach to customer service
excellence and innovation reflects a challenger mindset. Concentra employs a talented team that is committed to
growth and community building with high integrity. Like Equitable Bank, Concentra is active in residential mortgage and
commercial lending, asset classes we know well and find attractive from a risk return perspective. Also similar,
Concentra is a branchless financial institution devoted to providing Canadians with best-in-class financial services.
Concentra is forward-looking with digital capabilities and fintech partnerships, highly aligned with Equitable Bank’s
focus.
Concentra’s trust services to credit unions, including registered plan offerings to credit union members, are new areas
for Equitable to pursue that will add to our growth potential.
This broader scale creates capacity to expand our existing $2 billion covered bond program which will further enhance
funding diversification and contribute to our low cost-of-funds strategy.
Attractive Accretion and Synergies
This acquisition is consistent with Equitable Bank’s disciplined capital allocation and risk management approach. It is
expected to deliver mid-single digit accretion to adjusted EPS in the first full year following the closing of the acquisition.
We encourage all stakeholders to review the news release announcing this transaction. For further information, please
refer to our website at www.equitablebank.ca.
Page. 25
Capital, liquidity and funding
Capital
The Bank’s capital position is fundamental to our future
success. We evaluate our capital using Total Capital, Tier
1, and CET1 Ratios as defined by OSFI, which measure the
Bank’s loss-absorbing ability, relative to the size of our
risk-adjusted asset base. Even as a Standardized bank on
our journey to AIRB, our capital position remains one of
the highest amongst Canadian banks, well above regulatory minimums, and positions us for strong future growth. We
deployed $126 million of excess capital that accumulated during the first year of the pandemic and increased our Risk
Weighted Assets in 2021. We believe that the best returns for our shareholders arise from deploying capital in interest
income-generating, core lending products. We aim to be highly capitalized, particularly compared to other standardized
banks, as a matter of principle.
Our financial forecasts and stress testing indicate that our capital levels are very strong and would allow Equitable Bank to
withstand a wide range of severe stress events. The transition to AIRB is an important step in the Bank’s maturity and
sophistication. We continue to advance this initiative with the objective of refining our risk rating models and capital
allocation methodology, as well as filing our pre-application package with OSFI in 2022, subject to additional evaluation
underway as part of our agreement to acquire Concentra Bank. Subject to any shifts in timing, our objective is now to
transition to AIRB in late 2023. We note that setting objectives for obtaining regulatory approval to operate on an AIRB
basis may include assumptions outside of the Bank’s control, and that unforeseen delays may occur. The benefits of AIRB
include improving the sophistication of our risk management, allocating AIRB levels of capital to our risks, and introducing
capital methodologies that enable us to compete more effectively across a broader range of assets, and free up more
capital to further grow risk weighted assets in a prudent manner. Our ongoing analysis continues to confirm that AIRB has
the potential to have a meaningful impact on our total RWA and a related potential economic benefit to the Bank. This
analysis suggests that our CET1 Ratio could improve by as much as 200-400 bps under AIRB after full adoption.
Page. 26
On January 31, 2022, OSFI completed its Basel III reforms and released final capital and liquidity rules. We continue to
assess the impact of these rule changes but anticipate that they will not have a material impact to our capital and liquidity
management once they take effect in the second quarter of 2023. As a diversified challenger bank, these final guidelines
continue to substantiate our rationale for pursuing AIRB approval.
Capital Deployment
In 2019, the Board announced its intention to grow the Bank’s dividends by 20% to 25% per year over the ensuing five
years. These plans were placed on hold as a result of regulatory guidance from OSFI to the industry to restrict capital
distribution. In November 2021, these restrictions were lifted and the Bank’s Board is pleased to resume its planned
dividend increases beginning in March 2022 with a 51% increase over the dividend declared in November 2021.
We intend to achieve our growth organically over the medium-term but will continue to examine non-organic growth
opportunities that will enable us to achieve our strategic objectives and diversify our distribution capabilities and revenue
sources. We intend to maintain access to the capital markets, so that we have the capacity to finance acquisitions that
create value for our shareholders. This approach is demonstrated by our recently announced intention to acquire
Concentra Bank by raising equity through subscription receipts and a term facility offered by a syndicate of Canadian
banks.
Normal Course Issuer Bid
On December 21, 2021, Equitable announced that it received the approval of the TSX to renew its NCIB of up to 2,325,951
of its Common Shares and 289,340 of its Non-Cumulative 5-Year Rate Rest Preferred Shares Series 3, representing
approximately 10% of its public float of each class of shares as at December 10, 2021. Equitable intends to purchase a
maximum of 1,150,000 Common Shares under the terms of the NCIB which will expire on December 22, 2022. Purchases
under the renewed NCIB may occur until the NCIB maturity date or on such earlier date as the NCIB is complete. Between
December 23 and December 31, 2021, Equitable did not purchase and cancel any preferred or common shares.
Page. 27
Liquidity and Funding
Managing Equitable’s liquidity and funding risk is a central focus. Our objective is to hold sufficient liquidity so that we
remain well positioned to manage unexpected events that may reduce access to funding. Equitable monitors its level of
liquidity by measuring liquid assets relative to the minimum requirements under its liquidity policy. These minimum
requirements ensure adequate liquidity under both business-as-usual and contingent scenarios. At December 31, 2021,
the Bank held liquidity in excess of its policy threshold.
In addition, Equitable Bank measures liquidity as mandated by OSFI using the Liquidity Coverage Ratio (LCR) metric. At
December 31, 2021, our LCR was well in excess of the regulatory minimum of 100%. From an absolute dollar perspective,
Equitable increased its liquid assets held for regulatory purposes to $2.9 billion at December 31, 2021 from $2.8 billion at
December 31, 2020. The increase in liquid assets was a result of higher near-term funding requirements and a shift in
deposit mix.
Diversification of funding is a strategic
priority. Our most significant funding
development in 2021 was the receipt of
approval from CMHC on Equitable Bank’s
$2 billion legislative covered bond
program. On September 16, 2021, we
completed our first issuance of €350
million covered bonds in Europe, which
attracted interest from more than 40
investors across 15 countries. The issue
was close to three times oversubscribed,
and the bonds were priced at a spread of
15 bps over EUR mid swaps. Inclusive of all
costs, this transaction introduces a source
of wholesale funding that is the lowest available to the Bank by greater than 55 basis points.
We are committed to a long-term deposit note program. In 2021, we completed three issuances for a total of $800 million.
This included our largest-ever and best-priced institutional placement of a $400 million 2.5-year fixed rate deposit note in
November, which was priced at 93 bps over comparable term Government of Canada bonds. This offering was
approximately three times oversubscribed, reflecting investors’ recognition of Equitable Bank in the fixed income market
and the strength of our deposit note program. We intend to continue offering deposit notes regularly in Canada.
All of these funding sources lowered our risk profile and positioned us for continued balance sheet growth, all while still
allowing us to offer competitive rates to our customers.
Page. 28
COVID-19 impact
It has now been nearly two years since the World Health Organization declared the outbreak of COVID-19 a global
pandemic on March 11, 2020. The disruptive effects were felt immediately across Canada and around the world. Equitable
responded quickly and in a comprehensive, thoughtful manner. As our country continues to experience successive waves
of COVID-19 and temporary lockdowns, some economic uncertainty remains. Equitable Bank is committed to supporting
Canadians at all times, especially during this challenging era by offering better financial value and services, all while
continuing to apply our long-standing, rigorous approach to risk management.
As we launch into 2022, our hope is that our communities remain safe and healthy, that the economy continues its path to
growth and stability, and we can all return to a sense of normal, together again.
Ensuring Employee Safety and Business Continuity
While some in person office work began in the second half of 2021, as lockdown measures eased, the pandemic situation
reversed late in the year with the onset of the Omicron variant. At the time of writing, approximately 95% of employees
are working from home. We have made significant investments to further improve the ability of our staff to work securely
in a hybrid environment – whether in the office or at home. This innovative use of technology is foundational to our
Challenger mindset, with the Bank aspiring to be the first bank in Canada to have a simplified and modern solution that is
highly efficient as well as secure.
Page. 29
Productivity remains high even as we head into the third year of the pandemic with employees continuing to productively
work from home. To help employees cope with the stress that accompanies a health crisis of this nature, Equitable Bank
reinforced its health support system within its broader employee health and wellness programs. Additional offerings for
employees included compensation for commuting to work when necessary, voluntary Rapid Antigen Testing program at
all office locations, monetary benefits for home office purchases, expansion of our gym membership reimbursement to
include home workout equipment, and the creation of a fully virtual platform that includes physical workouts,
mindfulness, nutrition classes, yoga and more.
Serving Customers
Canada’s Challenger BankTM plays an important role for customers by providing a safe place to store value and by lending
capital to help people buy homes and build businesses through our Personal and Commercial banking operations.
Through the pandemic lockdowns, the Bank continued to support Canadians by maintaining lending activities, expanding
product and service offerings, and continuing to pay attractive rates of interest on our conveniently accessible savings
products.
Maintaining Lending Activities and Managing Credit Risk
The Bank continued to lend in all asset categories in 2021 on the belief that we could play a constructive role in providing
liquidity to the Canadian economy.
Our provision for credit losses was increased significantly in the first quarter of 2020, and through 2021 we released a
combined $16.3 million. Allowances for credit losses as a percentage of total loan assets is 0.15%, near pre-pandemic
levels but still elevated due to continued lockdowns and the emergence of new COVID-19 variants of concern. Our ACL
reflects management’s best estimate of expected credit losses based on loan specific characteristics and expected macro
economic forecasts as required by IFRS9 accounting standards for both performing and impaired loans. We have modeled
these expected losses based on our current book of business, macroeconomic forecasts provided by Moody’s Analytics,
and applying our experienced credit judgement. Although we monitor and evaluate our risk models for predictability,
there is no certainty that these expected losses will materialize in the amount or the timing projected by our models.
Page. 30
Financial and strategic initiatives results
Performance Against 2021 Strategic Priorities
In 2021, Equitable successfully delivered on its ambitious growth agenda and generated a new all-time annual earnings
record. Overall asset growth met and in some cases exceeded our high growth targets. Our focus on uninsured loans
resulted in a 31% increase in conventional loans year-over-year, positioning Equitable for continued success in 2022. To
help fund this growth, EQ Bank grew its deposits to $7.0 billion (+53% year-over-year) and its customer base to over
250,000 (+44% year-over-year). Our best-in-class efficiency ratio in 2021 was 40.5%, within our 2021 target of 39-41%.
Strategically, operationally, and financially, 2021 was considerably productive:
• Net income grew by $68.7 million or 31% in 2021 to $293 million
• Net interest income increased by $85.2 million or 17% to $583 million
• Diluted Earnings Per Share (EPS) grew from $6.47 to $8.36
• ROE was 16.7%, within our target range, and despite being suppressed by 1.1% due to additional capital held above our
CET1 ratio target of 13.0%, reflecting the Equitable value creation approach which has delivered consistently high ROE
for over a decade
• Book value per share grew 18% to $55.24
• Capital ratios were above our target and exceeded the regulatory minimum
• Realized losses remained low at 3bps of total assets or $9.6 million
The rise in net interest income was mainly driven by growth in Conventional loans, widened spreads arising from lower
funding costs, and higher net prepayment income. We recorded a PCL reversal during the year as previously expected
credit losses did not materialize and macro-economic forecasts continued to improve. Non-interest revenue was lower
year-over-year due to a return to normalized gains on securitization activity compared to 2020 when the volumes were
higher and margins wider due to the funding market disruption.
This strong performance was supported by our people and technology as we committed to invest in our employees,
digitalization, and IT infrastructure. Non-interest expenses were up $46.1 million or 22% from 2020 to $260 million.
Our accomplishments in 2021, coupled with our differentiated approach to capital allocation, lay the foundation for more
success in future years.
Dividends
Common share dividends
On February 7, 2022, Equitable’s Board declared a quarterly dividend of $0.28 per common share, payable on March 31,
2022, to common shareholders of record at the close of business on March 15, 2022. This dividend represents a 51%
increase over dividends declared in November 2021. As noted previously, the Board intended to grow the dividend 20-25%
annually for five years beginning in 2019, but this plan was deferred and the rate of this increase generally reflects that
deferral.
On February 7, 2022, Equitable’s Board of Directors reinstated Equitable’s common share Dividend Reinvestment Plan
(DRIP). Participation in the plan is optional under the terms of the plan. Shareholders may elect to reinvest their cash
dividends to purchase additional common shares at a 2% discount to the volume weighted average trading price of the
common shares on the TSX for the five trading days immediately preceding the dividend payment date. Common shares
issued through the DRIP are from treasury. Equitable maintains the right to suspend the DRIP in future periods.
Page. 31
Preferred share dividends
On February 7, 2022, the Board declared a quarterly dividend of $0.373063 per preferred share, payable on
March 31, 2022, to preferred shareholders of record at the close of business on March 15, 2022.
Strategic Objectives for 2021
Accomplishments
Grow market share in core
assets through superior
customer experience
Grow adjacent asset volumes
through expanded
distribution
Build stronger direct customer
relationships via enhanced
digitization to drive excellent
customer experience
Issue covered bonds
Complete AIRB model
recalibration and validation
• Increased our Personal loan business year-over-year by 16%, led by growth
in the Alternative single family portfolio of 30%
• Grew our Commercial loan business by 19% year-over-year, led by an
increase of 28% within conventional commercial including equipment leases
• Delivered record conventional loan growth in the year of $4.9 billion or 31%
• Increased our loan pipeline on higher market demand, service excellence,
and system enhancements to better serve our customers and partners
• Launched the Evolution Suite® prime mortgage solutions in Quebec, now
serving Canadians coast-to-coast
• Decumulation assets increased to 297 million, led by reverse mortgages +325%
as we built brand awareness and increased our market penetration
• Partnered with Coast Capital and Alterna to offer Equitable’s reverse mortgage
product to their eligible members
• Extended our CSV lines of credit offering to qualifying insurance policy holders
through our new partnership with Sun Life, Manulife, Desjardins, and Foresters
Financial
• Expanded our specialized financing business to a record level of $646 million
• Grew our equipment leasing portfolio by $174 million or 31% year-over-year,
led by $105 million or 83% growth in prime leases
• Grew our EQ Bank deposits to $7.0 billion, up 53% from last year
• Expanded our EQ Bank depositor base by 44% year-over-year to over
250,000 customers
• Launched EQ Bank Mortgage Marketplace, a new digital platform that allows
our customers to shop over 2,000 mortgage products offered by Canadian
lenders
• Named Canada’s #1 Bank on the Forbes World’s Best Banks 2021 list
• Introduced EQ Bank US Dollar Accounts
• Launched revamped EQ Bank digital experience for Interac® e-Transfers
• Increased the number of currencies offered through our innovative and cost-
effective international money transfer service to 49
• Continued to maintain high level of customer engagement measured by use
of services each month and the number of products held by each customer
• Issued 3-year covered bonds of €350 million with broad investor
participation
• Recalibration and back-testing of our suite of AIRB models reinforced the
strategic benefits of the AIRB program
Page. 32
Personal Banking
Personal Banking operates through three businesses lines – EQ Bank, Residential Lending, and Wealth Decumulation. Our
businesses serve customers with innovative products and services that disrupt the status quo of banking by giving
customers better financial value and an end-to-end customer experience. Our customer segments transverse all stages of
life including students, the self employed, entrepreneurs, high net worth individuals, Canadians seeking retirement and
retirees. We specifically look for opportunities to create better banking experiences and to address segments underserved
by other financial institutions. Our competition includes other Schedule 1 banks, trust companies, mortgage lenders, and
certain fintechs.
The table below summarizes key portfolio metrics as at year end December 31, 2021.
2021 Actual
Y/Y Growth
2022 Outlook(1)
EQ Bank
Deposits
$7.0 billion
Single Family Residential
Lending
Alternative Mortgages
$14.4 billion
Prime Mortgages
Wealth Decumulation
Reverse Mortgages
$7.6 billion
$0.25 billion
(1) Outlook represents expected growth rate from December 31, 2021 to December 31, 2022.
Cash Surrender Value Loans
$0.05 billion
Among our 2021 key milestones, we:
53%
30%
(7%)
325%
84%
20%-30%
12%- 15%
0%-5%
150% +
100% +
• Achieved record volume in our single-family Alternative mortgages business with originations up 119%
year-over-year
• Launched EQB Evolution Suite® prime mortgage solutions in Quebec in Q4 2021
• Introduced EQ Bank US Dollar Account and mortgage lending within the EQ Bank platform in Q2 2021
• Increased the total number of EQ Bank transactions by 95% and increased the number of EQ Bank
customers who have more than one product with us by 120%
• Expanded distribution for our decumulation business, including launching and generating significant
volume through a direct-to-consumer channel for reverse mortgages and doubling of the number of
insurance lending partner advisors
Page. 33
Strategic Objectives for 2022
Description
Grow core assets
• Increase our alternative mortgages commitment rate through solutions-
Grow adjacent assets
through expanded
distribution
based underwriting
• Launch new origination and servicing programs to increase fee
income
• Launch direct to consumer online application capabilities for
select products
• Continue to build the breadth and depth of broker and
partner relationships
Stronger direct customer relationships
• Launch new products and several product variations
• Improve customer experience and engagement
Outlook
EQ Bank
EQ Bank’s compelling value proposition and expansion into a broader ecosystem of banking products has been met with
increased consumer interest. COVID-19 also accelerated a push to digital offerings and forever changed our perception
around the digital world. As a result, EQ Bank experienced significant growth in 2021. In the fourth quarter, we opted not
to follow the one-time rate campaigns of competitors in favour of maintaining our brand promise of rate equality across
the customer base. As a result, we did not see deposit growth between Q3 and Q4 but we also avoided material cost of
funds increases for our shareholders. We expect moderate growth for our EQ Bank deposits in the first half of 2022 as this
trend continues but expect strong growth in Q3 and Q4 as these pressures subside and we launch EQ Bank payment
cards, expand to Quebec, and further enhance our onboarding experience.
The opportunity in digital banking is significant as Canadians continue to gain comfort with pure digital solutions, show
increased desire to save, and gain awareness of the superior value proposition our Challenger Bank solutions offer. Per
IMF estimates, Canadian households accumulated more excess savings during the pandemic than any other G7 country.
Along side increased consumer interest, EQ Bank continues our focus on efficient marketing campaigns to maintain our
low cost of customer acquisition as well as product development that drives up the lifetime value of our customers.
During 2021, EQ Bank was named on Forbes list of the World’s Best Banks 2021, including #1 Bank in Canada. EQ Bank
was also honoured by Ratehub.ca by winning its Personal Finance Award for having Canada’s top high-interest savings,
RRSP savings, TFSA Savings Accounts.
EQ Bank’s ongoing focus on creating a differentiated customer experience, including an end-to-end redesign of the
Interac® e-Transfer experience in Q3 2021, resulted in 89% of customers indicating they were satisfied or very satisfied
with their experience and a material increase in customer satisfaction over the last two quarters of 2021. Over the three
years ended 2021, the average number of products held by a customer increased by 32%, while engagement among our
customers, measured by transaction frequency increased by 13% amidst significant customer growth overall. Securing the
Page. 34
primary banking relationship, defined as multiple EQ Bank products inclusive of the account where recurring income or
payroll is deposited, is a key strategic priority for EQ Bank in 2022 and beyond.
Residential Lending
The Canadian housing market continued to demonstrate significant resilience in 2021 with elevated activity and strength
in mortgage rate spreads. Macroeconomic forecasts continue to demonstrate some uncertainty, but the general trend
has improved leading into 2022. The Bank of Canada is now expected to raise interest rates in the middle quarters of
2022 which may reduce affordability. However, strong employment signals and sustained immigration should result in
continued growth for both our Alternative and prime insured mortgage businesses, as we expand distribution channels
and increase conversion rates. The integration of and investment in new technologies will also enhance the customer
experience and efficiencies within our business.
Wealth Decumulation
Equitable Bank delivered on its ambitious plans for its Reverse Mortgage and Insurance Lending businesses in 2021. We
believe that Canadian demographics continue to point to a significant growth opportunity for these businesses and that
the momentum achieved in 2021 is sustainable. Equitable plans to capture a larger share of the market in 2022 by
increased consumer marketing investment for Reverse Mortgages and the launch of an Immediate Financing
Arrangement (IFA) product suite within Insurance Lending. This launch was announced at the end of January 2022.
Page. 35
Commercial Banking
Our Commercial Banking operates through five business
lines – Business Enterprise Solutions, Commercial
Finance Group, Multi-unit Insured, Specialized Finance,
and Equipment Leasing – serving over 18,000 business
customers. Our businesses compete in the market
based on service excellence, the breadth and strength of
our partnerships, and our in-depth market knowledge.
Our competition varies widely across each business line
and can include the large banks but more commonly the
smaller banks and other independent financial
institutions and lenders.
Commercial Banking experienced strong growth in 2021
despite business lockdowns and other COVID-19 related
challenges for our clients. The table below summarizes
key portfolio metrics at year end December 31, 2021 and
our outlook for 2022.
2021 Actual
Y/Y Growth
2022 Outlook(1)
Business Enterprise Solutions
Commercial Finance Group
Multi-Unit Insured
Loans to entrepreneurs and
SMEs(2)
Loans to institutional and
corporate investors
CMHC Insured Real Estate
Mortgages(3)
$1.1 billion
16%
10% - 15%
$3.9 billion
22%
10% - 15%
$4.1 billion
7%
0% - 5%
Specialized Finance
Total Loans
$0.6 billion
122%
20% - 30%
Equipment Lending
Total Loans
$0.7 billion
31%
10% - 15%
(1) Outlook represents expected growth rate from December 31, 2021 to December 31, 2022. (2) Small or medium-sized enterprises. (3) Insured
Multi-unit residential include only on-balance sheet loans.
Page. 36
Among our 2021 key milestones, we:
• Delivered record originations across the Commercial Banking business lines including total conventional
origination growth of 51%, leading to portfolio growth of 28%
• Completed the roll out of the RAISE underwriting platform, a multi-year project undertaken to digitize our
core Commercial underwriting processes
• Grew the lower risk “prime” equipment finance assets with these loans now comprising 32% of the
equipment leasing portfolio
• Completed the technology integration and onboarding of new partner relationships to grow CMHC insured
originations in future years
Strategic Objectives for 2022
Description
Grow core assets
• Enhance service levels by increased digitization of “front end” client
onboarding processes and “back end” underwriting and servicing
capabilities
• Build the breadth and depth of broker and partner relationships by
delivering exceptional service
• Increase capabilities and leverage market opportunities of CMHC
insured construction and term lending
Grow adjacent assets through
expanded distribution
• Leverage established specialized expertise to grow lending to other lenders
• Build internal capabilities and technology solutions to deliver outstanding
service
Stronger direct customer
• Increase direct client origination and deepen relationships through
relationships
expanded distribution and building internal capabilities
Outlook
Commercial Real Estate Lending (Commercial Finance Group, Business Enterprise Solutions, and Insured Multi-
unit Residential)
Equitable Bank’s Commercial real estate lending experienced strong growth in 2021 despite lingering pandemic related
challenges. Strong opportunities persist for further growth in 2022. We believe that population growth, demand for
housing units and densification of in Canada’s major urban centres provide attractive opportunities for growth in multi-
family lending. Other long-term shifts such as an ageing population, the growth of the self-employed sector, the
increasing need for self-storage units and the increasing demand for industrial space to support growing logistics and
distribution businesses provide other opportunities for Commercial real estate lending growth and align well to existing
products and our lending focus. Commercial real estate lending focuses on building the breadth and depth of partner and
broker relationships, which it expects to lead to continued success in 2022 and beyond. The strategic objective of building
more direct business through leveraging our deep real estate expertise and market knowledge is expected to continue to
pay dividends.
Page. 37
Specialized Finance
As planned, growth in commitments in 2020 led to strong loan growth in 2021 as utilization rates increased and additional
facilities were added. Providing outstanding lending solutions to other lenders remains a focus for Equitable. With the
continued expansion of our capabilities, strong market conditions and our unique and customized lending approach, high
loan growth is anticipated in 2022.
Equipment Lending (Bennington Financial Group)
Bennington Financial provides unique and innovative commercial vehicle and equipment leasing services to small
businesses across Canada. As the impact of COVID-19 subsided during 2021, Bennington Financial executed on its plan to
grow originations with a focus on quality. A key focus has been on the growth in the prime segment which also serves to
reduce the risk profile of the equipment leasing book. With the focus on building the depth of broker relationships and
the continued strength of the logistics, transportation and construction segments, Bennington is confident in its ability to
deliver its annual growth plans of 10% to 15%.
Page. 38
Financial review – earnings
Table 1: Income statement highlights
($000s, except per share amounts)
Net income
EPS – diluted
Revenue
Provision for credit losses
Non-interest expenses
Net interest income
2021
292,530
8.36
642,907
(7,674)
260,176
2020
223,804
6.47
556,833
42,280
214,060
Change
68,726
1.89
86,074
(49,954)
46,116
31%
29%
15%
(118%)
22%
Net interest income (NII) is the main driver of the Bank’s profitability. Table 2 details the Bank’s NII by product and portfolio.
Table 2: Net interest income
($000s, except percentages)
Revenues derived from:
Cash and equivalents
Equity securities
Alternative single family mortgages
Prime single family mortgages
Decumulation loans
Total Personal loans
Conventional commercial loans
Equipment leases
Insured multi-unit residential mortgages
Total Commercial loans
Average interest earning assets
Expenses related to:
Deposits
Secured backstop funding facility(2)
Securitization liabilities
Others
Average interest bearing liabilities
Average Revenue/ Average Average
Balance
Balance
Expense
rate(1)
2021
2020
Revenue/ Average
Expense
rate(1)
1,866,291
141,412
17,561
6,422
0.94%
4.54%
1,875,950
114,278
22,509
6,374
1.20%
5.58%
12,297,513
7,971,634
172,393
20,441,540
504,350
149,703
6,892
660,945
4.10% 11,313,808
1.88%
7,417,506
48,939
4.00%
3.23% 18,780,253
532,981
155,678
2,206
690,865
4.71%
2.10%
4.51%
3.68%
259,325
4,988,293
621,733
100,900
4,154,490
9,764,516
422,392
32,213,759 1,107,320
5.20%
62,167 10.00%
108,735
2.43%
4.33%
401,917
3.44% 29,325,070 1,121,665
4,185,720
502,608
3,866,261
8,554,589
5.68%
55,306 11.00%
2.81%
4.70%
3.82%
237,876
18,481,560
-
11,804,162
488,957
30,774,679
307,684
-
214,535
2,492
524,711
N/A
1.66% 15,739,574
-
1.82% 11,214,298
608,177
0.51%
1.71% 27,562,049
364,047
2,483
250,690
7,039
624,259
2.31%
N/A
2.24%
1.16%
2.26%
Net interest income and margin
582,609
1.81%
497,406
1.70%
(1) Average rates are calculated based on the daily average balances outstanding during the year. (2) Since its establishment in June 2017, there were no
draws on the secured backstop funding facility. The facility was effectively terminated on December 11, 2020.
Page. 39
NII was up $85.2 million or 17% year-over-year due to 10% growth in average assets and an 11 bps increase in NIM.
Table 3: Factors affecting 2021 v 2020 NIM
Business mix
8
• Growth in our higher spread Conventional commercial mortgages
• Decrease in relative size of our low yielding cash and
Impact (in bps) Drivers of change
Rates/spread(1)
Other
(6)
9
equivalents
offset in part by:
• Funding mix shift towards our relatively higher rate EQ Bank
deposits and deposit notes
• Lower yield earned on cash and equivalents, and equity securities
• Lower spreads on Commercial mortgages originated over the past
year
• Higher levels of early discharge within our Personal loan portfolio
driving prepayment income
• Net cost savings associated with $687 million of Alternative single
family mortgages insured in Q2 2020
• Cost savings from the termination of our secured backstop funding
facility in Q4 2020
• Fair value adjustments and other
Change in Total NIM
11
(1) The rate effect is calculated after adjusting for the impact of business mix changes.
Non-interest income
Table 4: Non-interest income
($000s)
Fees and other income
Net (loss) gain on loans and investments
Net gain on strategic investments
Securitization activities:
Gains on securitization and income from retained interests
Fair value gains (losses) on derivative financial instruments
Total
2021
22,157
(443)
16,801
20,292
1,491
60,298
2020
22,589
6,803
418
30,183
(566)
59,427
Change
(432)
(7,246)
16,383
(9,891)
2,057
871
(2%)
(107%)
3,919%
(33%)
363%
1%
Non-interest income increased compared with 2020, primarily as a result of:
• Higher net gains on our strategic investments driven by dividends received from an equity investment; and
• Net unrealized fair value gains on derivative positions associated with securitization activities compared to losses in the
prior year;
Offset by:
• A decrease in gains on securitization and income from retained interest, mainly due to lower gain on sale margin. The
abnormally high gain on sale margin in 2020 was driven by wider-spread multi-unit residential mortgages originated
during the pandemic related funding market disruption; and
• A net loss on certain loans and security investments versus a gain last year.
Page. 40
Non-interest expenses
Table 5: Non-interest expenses and efficiency ratio
($000s, except percentages and employees)
Compensation and benefits
Technology and system costs
Product costs
Marketing and corporate expenses
Regulatory, legal and professional fees
Premises
Total
Efficiency ratio
Full-time employee (FTE) − year average
2021
128,965
43,310
27,207
22,857
22,159
15,678
260,176
40.5%
1,036
2020
108,185
36,878
21,237
17,429
19,441
10,890
214,060
38.4%
890
Change
20,780
6,432
5,970
5,428
2,718
4,788
46,116
N/A
146
19%
17%
28%
31%
14%
44%
22%
2.1%
16%
We continue to operate efficiently on both an absolute basis and relative to other financial institutions, particularly after
taking into account the scale of our operations and branchless operating model. Our efficiency ratio for the year was 40.5%,
within our target range of 39-41%. This reflects higher investment in 2021 following some reduced investments
during the pandemic, with targeted higher investment in new products, people, process and te chnology.
Total operating expenses increased by $46.1 million or 22% compared to 2020 mainly due to:
• Higher compensation and benefits costs, resulting from a 16% increase in FTE, annual salary adjustments ensuring
we compensate our top talent in reflection of wage growth in the Canadian market, and a higher incentive payout;
• An increase in technology and system costs to support, maintain, and enhance our core banking systems, the EQ Bank
platform, and our IT infrastructure to facilitate an evolving work-from-home operating model;
• Higher product costs, mainly driven by amortization of capitalized costs for projects completed over the past 12
months;
• Growth of marketing costs as we launched an extensive campaign to promote our reverse mortgage business and EQ
Bank products compared to 2020 when our focus was more on lower cost and small-scale marketing activity;
• Growth in regulatory, legal and professional fees related to business consulting fees, higher CDIC premiums due to an
increase in insurable deposits, and costs related to the announced agreement to acquire Concentra Bank; and
• An increase in premises costs largely due to accelerated amortization of leasehold improvements associated with
certain office leases that were terminated early given the work-from-home environment and plan for the Toronto office
move in 2023.
Excluding amortization and depreciation costs for our premises, and product and technology initiatives, expenses would
have increased 16% year-over-year, down from 22% reported.
Page. 41
Provision for credit losses (PCL)
Table 6: Provision for credit losses
($000s, except percentages)
Stage 1 and 2 (recovery) provision
Stage 3 provision
Total
PCL – rate
2021
(16,272)
8,598
(7,674)
(0.03%)
2020
30,788
11,492
42,280
0.15%
Change
(47,060)
(2,894)
(49,954)
(153%)
(25%)
(118%)
N/A
(0.18%)
Provision for Credit Losses (PCL) represents the addition to our Allowance for Credit Losses (ACL), net of any recoveries,
during the year. The ACL is the reserve set aside on our balance sheet to absorb future expected losses and is discussed in
detail in the Credit Quality and Allowance for Credit Losses section of this MD&A.
During the year, we released $16.3 million of Stage 1 and 2 allowances through the income statement that had been built
up during the onset of the pandemic. The release of allowances was the function of Macroeconomic forecasts which
continued to improve throughout the year and the absence of realized losses that were expected to materialize during the
last 12 months. The level of Stage 1 and 2 allowances is deemed appropriate based on our expected loss modeling and
experienced credit judgement.
Stage 3 provisions – those related to impaired loans – decreased by $2.9 million as a result of a decline in impaired lease
formations. Management concluded that this level of provision and the resulting allowance for credit losses appropriately
reflects the estimates of the likely credit losses on our impaired loan balances.
Financial review – balance sheet
Table 7: Balance sheet highlights
($000,000s, except percentages)
Total assets
Loan principal – Personal
Loan principal – Commercial
Total deposits
Total EQ Bank deposits
Total liquid assets as a % of total assets(1)
(1) See Non-GAAP financial measures section of this MD&A.
31-Dec-21
36,159
22,303
10,500
20,695
6,968
8.5%
31-Dec-20
30,746
19,306
8,851
16,376
4,556
9.5%
Change
5,413
2,997
1,649
4,319
2,412
N/A
18%
16%
19%
26%
53%
(1.0%)
Total assets increased by $5.4 billion or 18% from last year mainly driven by growth of $4.9 billion or 31% in our wider
margin Conventional loans within our Personal and Commercial loan portfolios. To fund these assets, we grew our
deposits by $4.3 billion led by EQ Bank deposits which grew 53% year-over-year or $2.4 billion.
Total loan principal
Our strategy is to maintain a diverse portfolio of loan assets in order to optimize our ROE and maintain credit risk at an
acceptable level. Table 8 presents our loan principal by lending business and Table 9 provides continuity schedules for our
on-balance sheet loan assets.
Page. 42
Table 8: Loan principal by lending business
($000s)
Alternative single family mortgages
Prime single family mortgages
Decumulation loans
Total Personal Lending – on balance sheet
Conventional commercial loans
Equipment leases
Insured multi-unit residential mortgages
Total Commercial Lending – on balance sheet
Total Loans – on balance sheet
Insured multi-unit residential mortgages – derecognized
Total Loans – off balance sheet
Total Loans under management
Table 9: On-balance sheet loan principal continuity schedule
31-Dec-21 31-Dec-20
Change
14,392,904 11,050,456 3,342,448
7,613,131 8,170,752
(557,621)
296,505
84,978
211,527
22,302,540 19,306,186 2,996,354
5,675,250 4,466,513 1,208,737
732,682
558,987
173,695
4,091,768 3,825,667
266,101
10,499,700 8,851,167 1,648,533
32,802,240 28,157,353 4,644,887
5,860,830 5,189,264
671,566
5,860,830 5,189,264
671,566
38,663,070 33,346,617 5,316,453
30%
(7%)
249%
16%
27%
31%
7%
19%
16%
13%
13%
16%
($000s, except percentages)
2020 closing balance
Originations
Derecognition
Net repayments
2021 closing balance
% Change from 2020
Net repayments percentage(1)
($000s, except percentages)
2019 closing balance
Originations
Derecognition
Net repayments
2020 closing balance
% Change from 2019
Net repayments percentage(1)
As at or for the year ended December 31, 2021
Total
28,157,353
14,043,590
(1,292,643)
Personal Commercial
8,851,167
5,669,070
(1,292,643)
19,306,186
8,374,520
-
(5,378,166)
22,302,540
16%
27.9%
(2,727,894)
10,499,700
19%
30.8%
(8,106,060)
32,802,240
16%
28.8%
As at or for the year ended December 31, 2020
Total
Commercial
Personal
18,250,574
5,853,469
-
(4,797,857)
19,306,186
6%
26.3%
8,259,779
4,219,089
(1,251,960)
(2,375,741)
8,851,167
7%
28.8%
26,510,353
10,072,558
(1,251,960)
(7,173,598)
28,157,353
6%
27.1%
(1) Net repayments percentage is calculated by dividing net repayments by the previous year’s closing balance.
Within Personal Banking business line, single family was the primary driver of loan growth with an increase of $3.3 billion
or 30% year-over-year. This strong performance reflects a return to our pre-pandemic risk appetite and the resiliency of
the Canadian housing market throughout the pandemic. This success was propelled by record yearly origination volumes
which doubled from the prior year and was supported by our superior customer service and deep broker partnerships.
Commercial lending increased $1.6 billion or 19% in 2021, led by conventional commercial loans which grew by $1.2 billion
or 27%. Growth in conventional commercial loans was driven by record originations in our Commercial Finance Group,
Business Enterprise Solutions, and Specialized Finance. Also in conventional lending, Equipment Leasing increased $174
million or 31% year-over-year, with higher origination volumes in the logistics and transportation sector, traditionally the
lowest risk segment of the business.
Page. 43
Credit quality and allowance for credit losses
We regularly evaluate the profile and lending practices within our loan portfolio. This includes borrower behaviours
and external variables, including real estate values, equipment resale values, and economic conditions. When we
judge that the risk associated with a particular region or product is no longer acceptable, we adjust underwriting
criteria so that our policies continue to be prudent and reflective of current and expected economic conditions,
thereby safeguarding the future health of our portfolio.
There are several aspects of our risk management approach and existing loan portfolios that have and will continue to
help mitigate the effects of the pandemic on our credit losses. We remain well reserved for credit losses with
allowances as a percentage of total loan assets equaling 15 bps at the end of 2021, compared to 23 bps in 2020 and 14 bps at
the end of 2019.
Our general approach to lending is sound and we have modest exposure to higher risk lending markets:
• We focus our lending in urban and suburban markets that have diversified employment bases and more liquid real
estate markets. This approach results in lower risk as it reduces both the probability that our borrowers will default
and our loss in the event that they do.
• Our commercial lending businesses, including leasing, are diversified across industries and geographies. Our
commercial business has defined asset-class exposure limits and focuses on assets that we believe will be resilient
through an economic cycle such as multi-unit residential and mixed-use properties. These segments now make up
52% of our Commercial loan portfolio while categories such as shopping centres and hotels comprise 4.0% and
0.4% of our Commercial loans or 1.3% and 0.1% of our total loan portfolio, respectively.
• Alberta is expected to show strong economic growth in 2022. Despite this optimistic outlook, Equitable recognizes
that many of the markets it operates in are significantly influenced by commodity prices and we have chosen to
provide additional disclosure on our exposure in this province in an effort to assist investors measure risks. Our
uninsured Personal loans in Alberta total $944 million or 3% of our assets. Our uninsured commercial loans in
Alberta total $375 million or only 1% of our assets, primarily consisting of multi-unit residential construction and
mixed-use properties. Further, the vast majority of these loans are mortgage loans secured by real estate in
Edmonton and Calgary, cities with broader economic foundations than other parts of the province.
• We require a cash security deposit on most of our higher risk leases and in some cases require additional real assets
to be pledged. For example, we may place a lien on real estate owned by our lessees.
Page. 44
Our loan portfolios primarily have protection beyond a borrower’s ability to repay:
• Our underwriting focuses foremost on a borrower’s ability to repay a loan. The average Beacon score of our
Alternative single family residential borrowers was 707 at December 31, 2021, up from 702 a year ago. Similarly, the
average Beacon score of our small business mortgage borrowers was 735. These higher credit scores are indicative of
our borrowers’ positive repayment histories and lower propensity to default under normal economic conditions.
• 49% of our loans under management are insured against credit losses, ultimately with the backing of the
Government of Canada.
• Almost 100% of our loan portfolio is secured. Our uninsured mortgage loans are supported by first-position claims
on real estate and our leases by first-position claims on equipment, so we have a real asset with tangible value
behind almost every loan.
• If the prices of the assets securing our mortgage loans decline, we are further protected by the low LTVs at which
we lend. The average LTV on our uninsured residential mortgage portfolio was 60% at December 31, 2021.
• Further to this collateral, almost all of our uninsured commercial mortgages and the majority of our leases are
backed by personal and/or corporate covenants. In our mortgage business, our due diligence on borrowers and
guarantors involves assessing their financial capacity.
Allowance for Credit Losses
Our total allowance for credit losses decreased by $17.2 million or 26% year-over-year mainly due to a decline in Stage 1
and 2 allowances.
Stage 1 and 2 allowances decreased primarily because of sequential improvements in forward-looking macroeconomic
factors. In the first half of 2020, we had increased allowances to reflect the deterioration in our macroeconomic outlook
at the onset of COVID-19. IFRS 9 requires us to estimate future losses taking into account macroeconomic forecasts.
Table 10: Loan credit metrics
($000s, except percentages)
31-Dec-21
31-Dec-20
Change
Allowance for credit losses – Stage 1 and 2
Allowance for credit losses – total
Allowance for credit losses – total as a % of total loan assets
Allowance for credit losses – total as a % of uninsured loan assets
Allowances for credit losses – total as a % of gross impaired
46,361
48,949
0.15%
0.25%
54%
62,633
66,177
0.23%
0.45%
54%
(16,272)
(17,228)
N/A
N/A
N/A
(26%)
(26%)
(0.08%)
(0.20%)
-
The movement in Stage 1 and 2 allowances is a function of changes in both the probability that loans will default and
the expected loss rates on loans. During the year, improving macroeconomic variables allowed for a lower level of
reserves to be maintained on our loan portfolio, triggering a release of allowances previously provided for. The
allowance release was largely due to a decline in expected loss rates on both our Stage 1 and 2 loans and a shift
in loans from Stage 2 back to Stage 1.
The table below provides allowance metrics that illustrate stage migration and loss rate dynamics :
Table 11: Stage 1 and 2 loan credit metrics
(Percentages)
Stage 1 – proportion of loan assets(1)
Stage 1 – effective allowance rate(2)
Stage 2 – proportion of loan assets
Stage 2 – effective allowance rate
31-Dec-21
88.3%
0.10%
11.4%
0.49%
30-Sep-21
92.3%
0.11%
7.4%
0.78%
30-Jun-21
91.6%
0.13%
8.0%
0.81%
31-Mar-21
87.7%
0.14%
11.9%
0.67%
31-Dec-20
83.6%
0.15%
15.9%
0.59%
(1) Stage 1 and 2 percentages do not equal 100%: loans in stage 3 account for the difference and are not included in this table. (2) The effective
allowance rate equals the total allowance for loans in the stage divided by the period end loan balances in that stage.
Page. 45
On a year-over-year basis, Stage 1 and 2 allowances against our uninsured Personal loans, uninsured Commercial loans
and equipment leases declined by $6.7 million, $5.8 million, and $3.9 million, respectively.
Table 12: Stage 1 and 2 Allowance for credit losses by lending business
($000s, except percentages and bps)
Uninsured Personal loans – stage 1 and 2 allowances
as a % of uninsured personal loans (bps)
Uninsured Commercial loans – stage 1 and 2
as a % of uninsured commercial loans (bps)
allowances
Equipment leases – stage 1 and 2 allowances
as a % of equipment leases (bps)
Insured Personal and Commercial loans – stage 1 and
as a % of insured personal and commercial loans (bps)
2 allowances
Total loans – stage 1 and 2 allowances
as a % of total loans (bps)
31-Dec-21
11,446
8
19,487
37
15,361
216
67
0.05
46,361
14
30-Sep-21 Change
12,250
10
21,742
43
15,446
235
55
0.04
49,493
16
(7%)
(2)
(10%)
(6)
(1%)
(19)
22%
0.01
(6%)
(2)
31-Dec-20 Change
(37%)
(10)
(23%)
(21)
(20%)
(147)
253%
0.04
(26%)
(8)
18,121
18
25,253
58
19,240
363
19
0.01
62,633
22
We obtain macroeconomic forecasts from Moody’s Analytics and use them in our credit loss modelling. Generally,
macroeconomic forecasts have improved across all significant factors since Q2 2020 and have caused our Expected
Credit Losses (ECL) to decrease since then. We compared these forecasts to those of other Canadian economists, and
the estimates that we used appear to reasonably be in line with market consensus. For a summary of key forecast
assumptions for each scenario, please refer to Note 9(e) to the 2021 consolidated financial statements.
Table 13: Expected future credit losses by macroeconomic scenario
($000s, except percentages)
Weighting for financial statement ECL
calculation (%)
Expected credit losses if each scenario
weighted 100%
Difference vs. financial statement ECL
Base
Case
Upside
Scenario
Slower
Growth
Moderate
Recession
Protracted
Slump
50
15
20
10
5
42,614
(3,747)
36,303
(10,058)
47,962
1,601
56,740
10,379
86,842
40,481
Table 13 presents the expected credit losses by macroeconomic scenario. IFRS 9 requires Equitable to weight these
scenarios to determine its excepted loss. The scenario weightings remain unchanged from the prior quarter or
December 31, 2020.
Stage 3 allowances relate to impaired loans and were down by $1.0 million from a year ago. Stage 3 allowances are
determined loan-by-loan and we believe that they are adequate at each period end. Stage 3 allowances on our
mortgages are generally supported by up-to-date, independent property appraisals.
Taking into account all known information and acknowledging the high level of uncertainty inherent in current economic
forecasts and our experienced credit judgment, we believe that the total allowance for credit losses represents a
reasonable estimate of future losses. Our estimates are subject to uncertainty and actual losses may differ materially if
one or more of the underlying assumptions do not materialize as expected, including the expected impact of
Government support programs. Actual losses may also differ from our estimates due to the weightings we apply to the
underlying economic scenarios.
Impaired Loans
Impaired loans at the end of 2021 were $91.0 million, down $30.6 million from the prior year.
Page. 46
The improvement in impaired loan balances over the past 12 months was mainly attributable to a net reduction in single
family mortgages of $41.4 million, and impaired equipment leases of $7.9 million, offset in part by net additions of $18.6
million in conventional commercial loans with LTVs between 57% and 85%. As a result, Management does not expect to
incur material loss on these loans.
Table 14: Impaired loan metrics
($000, except percentages)
Gross impaired loan assets
Net impaired loan assets
Net impaired loan assets as a % of total loan assets
Liquidity investments and equity securities
31-Dec-21
31-Dec-20
Change
90,968
88,380
0.27%
121,548
118,004
0.42%
(30,580)
(29,624)
N/A
(25%)
(25%)
(0.15%)
Retail and securitization funding markets continue to be liquid and efficient and have been further supported by
significant programs announced by the Bank of Canada and CMHC.
We maintain liquid asset balances at a level that we believe is sufficient for the Bank to meet its upcoming obligations
even through periods of disruption in financial markets, including the COVID-19 pandemic. The size and composition of
our liquidity portfolio at any point in time is influenced by several factors such as our expected future cash needs and
the availability of our various funding sources. Further, we apply a strategic approach to liquidity management through
rigorous asset-liability matching analysis and stress testing. Even with this liquidity risk management framework, a
significant or protracted disruption to funding markets could require the Bank to take further liquidity protection measures.
Please refer to the Risk Management section of this document for more details on the Bank’s Liquidity and Funding Risk
policies and procedures.
In addition to assets that are held for the purpose of providing liquidity protection, we also maintain a portfolio of liquid
equity securities (82% of which are investment grade preferred shares) to yield tax-preferred dividend income. We have
the ability to liquidate this portfolio in the event of financial stress.
Table 15: Liquid assets
($000s, except percentages)
Eligible deposits with regulated financial institutions(1)
Debt securities
Debt instruments issued or guaranteed by Government of Canada
or provincial governments:
Investments purchased under reverse repurchase agreements
Loans and Investments held in the form of debt securities(2),
net of obligations under repurchase agreements
Liquid assets held for regulatory purposes
Other deposits with regulated financial institutions(3)
Equity securities(4)
Total
Liquid assets held for regulatory purposes as a % of total
Equitable Bank assets
Total liquid assets as a % of total assets
31-Dec-21
762,651
40,916
31-Dec-20
553,554
137,938
Change
209,097
(97,022)
38%
(70%)
550,030
450,203
99,827
22%
1,548,908
2,902,505
10,600
143,299
3,056,404
1,651,860
2,793,555
4,188
112,447
2,910,190
(102,952)
108,950
6,412
30,852
146,214
(6%)
4%
153%
27%
5%
8.0%
8.5%
9.1%
9.5%
N/A
N/A
(1.1%)
(1.0%)
(1) Eligible deposits with regulated financial institutions represents deposits of Bank which are held at major Canadian financial institutions and
excludes $62.7 million (December 31, 2020 – $28.7 million) of restricted cash held as collateral with third parties for the Bank’s interest rate swap
transactions, issuance of letters of credit, loan servicing activity and banking settlements in the normal course of business and $399.5 million
(December 31, 2020 – $475.4 million) of cash held in trust accounts and deposits held with banks as collateral for the Bank’s securitization
activities. (2) Loans held in the form of debt securities represent loans securitized and retained by the Bank and are reported in our Loans
receivable balances. Investments held in the form of debt securities include MBS securities purchased from third parties and provincial bonds.
The investments’ reported values represent the fair market values associated with these securities. (3) Other deposits with regulated financial
Page. 47
institutions are deposits held by Equitable Group Inc. (4) Equity securities are 82% investment grade publicly traded preferred shares and 18%
publicly traded common shares.
To ensure institutions have sufficient high-quality liquid assets to survive a significant stress scenario lasting 30 calendar
days, OSFI has mandated that Canadian deposit-taking institutions monitor and report their Liquidity Coverage Ratio
(LCR)(1). At December 31, 2021, our LCR was well in excess of the regulatory minimum of 100%.
Liquid assets were $3.1 billion at year end, up $146 million from last year, reflecting the level of liquidity required due to
growth in demand deposits and anticipated cash flow needs for the upcoming quarters.
Other assets
Please refer to Note 13 to our 2021 audited annual consolidated financial statements for details of our Other assets
balances at December 31, 2021 and 2020.
Other assets were $231.5 million at December 31, 2021, an increase of $43.5 million or 23% over last year. Overall, the
increase in Other assets was mainly due to:
• $42.5 million increase in the fair value of outstanding derivative financial instruments; and
• $21.4 million increase in intangible assets for system-related investments;
Offset by:
• $10.1 million decrease in income taxes recoverable; and
• $8.4 million decrease in receivables relating to securitization activities, largely due to the timing of cash settlements.
Deposits
Our deposits provide a reliable and diversified base of funding that can be effectively matched against loan maturities.
Table 16: Deposit principal
($000s)
Brokered deposits:
Term
Demand
EQ Bank deposits:
Term
Demand
Strategic partnerships
Deposit notes
Covered bonds
Total
31-Dec-21
31-Dec-20
Change
10,370,958
1,004,691
11,375,649
9,647,939
675,358
723,019
329,333
10,323,297 1,052,352
1,525,299
5,442,811
6,968,110
962,170
563,129
3,593,436 1,849,375
4,555,606 2,412,504
396,866
1,451,940
502,058
20,694,623
(295,919)
692,785
647,617
804,323
502,058
-
16,376,011 4,318,612
7%
49%
10%
59%
51%
53%
(43%)
81%
N/A
26%
(1) See Non-GAAP Financial Measures section of this MD&A.
Page. 48
Securitization liabilities
A large portion of the Bank’s securitization transactions do not qualify the loans for balance sheet derecognition and
therefore the associated obligations are recognized on the consolidated balance sheets and accounted for as
securitization liabilities. The Securitization liability was $11.4 billion at December 31, 2021, up $0.6 billion or 5% from last
year. Our securitization liability also included $1.5 billion (December 31, 2020 – $653.8 million) of securitizations through
a funding program which is sponsored by a Domestic Systemically Important Bank (D-SIB) and provides the Bank with a
source of matched funding for qualifying uninsured single family mortgages.
Funding facilities
The Bank has two revolving credit facilities each with a D-SIB to fund insured residential mortgages prior to
securitization, with an aggregate capacity of $700 million (December 31, 2020 – $600 million). At December 31, 2021, the
balance outstanding on the facilities was $200 million (December 31, 2020 – $nil). Our use of these facilities is a function
of our Prime Single Family and Insured multi-unit residential activity levels, the timing of mortgage securitizations and
sales, and the availability of other funding sources.
The Bank also has access to liquidity programs sponsored by the Government of Canada, namely the Bank of Canada’s
Standing Term Liquidity Facility and Emergency Lending Assistance program. The Bank had no outstanding balance on
these facilities as at December 31, 2021 (December 31, 2020 – $nil).
On March 31, 2021, the Bank terminated its $35 million credit facility with a D-SIB. The facility was secured by a portion
of the Bank’s investments in equity securities. There was no outstanding balance on this facility as at March 31, 2021
(December 31, 2020 – $nil).
Details related to these funding facilities can be found in Note 16 to our 2021 audited consolidated financial statements.
Other liabilities and deferred income taxes
Please refer to Notes 15(b) and 17 to our 2021 audited consolidated financial statements for a detailed breakdown of
Deferred income tax liabilities and Other liabilities as at December 31, 2021 and December 31, 2020.
Other liabilities and Net deferred income tax liabilities, on an aggregate basis, increased by $128 million to $398 million
mainly driven by:
• $75.3 million increase in accounts payable and accrued liabilities due to an increase in cash margin held associated
with our derivative transactions, cash held in escrow for mortgage funding, higher broker commissions payable due
to growth in volumes, and a rise in general accrued liabilities due to business growth;
• $43.4 million of income taxes payable compared to a receivable last year;
• $6.9 million increase in mortgage realty taxes due to timing of collections relative to remittances; and
• $3.4 million increase in mortgage servicing liabilities;
Offset by:
• $3.8 million reduction in right-of-use liabilities.
Contractual obligations by year of maturity are outlined in Table 32 – Contractual obligations. There were no material
changes to contractual obligations that are outside the ordinary course of the Bank’s operations during 2021.
Page. 49
Shareholders’ equity
Total shareholders’ equity increased $305 million or 19% to $1.95 billion at December 31, 2021, from $1.65 billion a year
ago. The increase reflects the earnings retained by the Bank, net of dividends paid, and net fair value gains recognized
through other comprehensive income on our preferred share investments and derivative cash flow hedges associated
with securitization activity.
On December 21, 2020, Equitable announced that it received the approval of the Toronto Stock Exchange (TSX) for an
NCIB of up to 2,288,490 of its Common Shares and 297,250 of its Series 3 preferred shares, until December 22, 2021.
On December 21, 2021, Equitable announced that it received the approval of the TSX to renew its NCIB of up to
2,325,951 of its Common Shares and 289,340 of its Series 3 preferred shares, which will expire on December 22, 2022.
As at December 31, 2021, Equitable had purchased and cancelled 80,600 Series 3 preferred shares at an average price of
$26.01. No common shares have been purchased and cancelled under the NCIB.
On October 25, 2021, Equitable completed a two-for-one stock split (Share Split) which was implemented by way of a
subdivision whereby common shareholders of record as of the close of business on October 15, 2021 received one
additional share for each share held on October 25, 2021. This Share Split will not impact a shareholder’s proportionate
interest in Equitable and all future dividends declared afterwards.
At December 31, 2021, the Bank had 34,070,810 common shares and 2,919,400 Series 3 preferred shares issued and
outstanding (December 31, 2020 – 33,748,148 common shares and 2,996,700 Series 3 preferred shares).
During 2021, 243,920 options were granted. In addition, 322,662 stock options were exercised that contributed $10.1
million to common share capital. At December 31, 2021, there were 1,123,002 unexercised stock options, which are, or
will be, exercisable to purchase common shares for maximum proceeds of $46.9 million. For additional information on
outstanding stock options and their associated exercise prices, please refer to Note 19(a) to the 2021 audited
consolidated financial statements.
Capital management – Equitable Bank
Equitable Bank manages its capital in accordance with guidelines established by OSFI, based on standards issued by the
Bank for International Settlements’ Basel Committee on Banking Supervision (BCBS). OSFI’s Capital Adequacy
Requirements (CAR) Guideline details how Basel III rules apply to Canadian banks. OSFI has mandated that all
Canadian-regulated financial institutions meet minimum target Capital Ratios: those being a CET1 Ratio of 7.0%, a Tier
1 Capital Ratio of 8.5%, and a Total Capital Ratio of 10.5%. In order to govern the quality and quantity of capital
necessary based on Equitable Bank’s inherent risks, it utilizes an Internal Capital Adequacy Assessment Process (ICAAP).
On March 27, 2020, OSFI announced several actions to address operational issues stemming from the economic impact
of COVID-19 including the introduction of a transitional arrangement for expected credit loss provisioning on capital.
This transitional arrangement results in a portion of allowances that would otherwise be included in Tier 2 capital of
Equitable Bank to be included in CET1 capital. The adjustment is equal to the increase in Stage 1 and Stage 2
allowances relative to December 31, 2019. This increase is tax-effected and subject to a scaling factor that will decrease
over time. The scaling factor has been set at 70% for 2020, 50% for 2021, and 25% for 2022.
We believe that Equitable Bank’s current level of capital and earnings in future periods will be sufficient to support our
strategic objectives and ongoing growth. Equitable Bank’s Capital ratios at December 31, 2021 exceeded the regulatory
minimums and our target levels. Our CET1 was down 130 bps from last year due to strategic deployment of capital
organically to grow our conventional assets, which had a corresponding increase in risk weighted assets .
Canadian banks are required to report on OSFI’s Leverage Ratio based on Basel III guidelines. OSFI has established
minimum Leverage Ratio targets on a confidential and institution-by-institution basis. Equitable Bank’s Leverage Ratio
Page. 50
was 4.9% at December 31, 2021 and the Bank remained fully compliant with its regulatory requirements. Our Leverage
ratio decreased relative to 2020 as a result of notable asset growth.
As part of our capital management process, we stress test the loan portfolio on a regular basis to understand the
potential impact of extreme but plausible adverse economic scenarios. We use these tests to analyze the impact that
an increase in unemployment, rising interest rates, a decline in real estate prices, and other factors could have on our
financial position. In light of COVID-19, we also run a variety of financial and capital stress tests to ensure we are
positioned to manage through any of the potential scenarios that may transpire.
Based on the results of the stress tests performed to date, we have determined that even in the most adverse scenario
analyzed, Equitable Bank has sufficient capital to absorb the potential losses modelled without impairing the viability
of the institution and that it would remain profitable in each year of the testing horizon.
Table 17: Capital measures of Equitable Bank
($000s, except percentages)
Total risk-weighted assets (RWA)
Common Equity Tier 1 Capital:
Common shares
Contributed surplus
Retained earnings
Accumulated other comprehensive loss (AOCI)(1)
Less: Regulatory adjustments to Common Equity Tier 1 Capital
Common Equity Tier 1 Capital
Additional Tier 1 capital:
Non-cumulative preferred shares
Tier 1 Capital
Tier 2 Capital:
Eligible Stage 1 and 2 allowance
Less: Transitional adjustment in response to COVID-19
Tier 2 Capital
Total Capital
Capital ratios and Leverage ratio:
CET1 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio
31-Dec-21
13,309,550
31-Dec-20
10,426,077
Change
2,883,473
28%
217,474
9,785
1,649,890
(8,263)
(94,082)
1,774,804
215,536
9,184
1,386,197
(19,009)
(66,448)
1,525,460
1,938
601
263,693
10,746
(27,634)
249,344
72,554
1,847,358
72,554
1,598,014
-
249,344
46,361
(5,442)
40,919
1,888,277
62,633
(15,873)
46,760
1,644,774
(16,272)
10,431
(5,841)
243,503
1%
7%
19%
(57%)
42%
16%
0%
16%
(26%)
(66%)
(12%)
15%
13.3%
13.9%
14.2%
4.9%
14.6%
15.3%
15.8%
5.1%
N/A
N/A
N/A
N/A
(1.3%)
(1.4%)
(1.6%)
(0.2%)
(1) As prescribed by OSFI (under Basel III rules), AOCI is part of the CET1 in its entirety, however, the amount of cash flow hedge reserves that relate to the
hedging of items that are not fair value is excluded.
Page. 51
Table 18: Risk-weighted assets of Equitable Bank
($000s, except percentages)
On balance sheet:
Cash and cash equivalents
Securities purchased under reverse repurchase agreements
Investments
Loans – Personal
Loans – Commercial
Securitization retained interests
Other assets
Total Equitable Bank assets subject to risk rating
Less: Eligible Stage 1 and 2 allowance
Total Equitable Bank assets
Off-balance sheet:
Loan commitments
Derivatives
Other
Total credit risk
Operational risk(1)
Total
($000s, except percentages)
On balance sheet:
Cash and cash equivalents
Securities purchased under reverse repurchase agreements
Investments
Loans – Personal
Loans – Commercial
Securitization retained interests
Other assets
Total Equitable Bank assets subject to risk rating
Less: Eligible Stage 1 and 2 allowance
Total Equitable Bank assets
Off-balance sheet:
Loan commitments
Derivatives
Other
Total credit risk
Operational risk(1)
Total
For the year ended December 31, 2021
Risk Risk-weighted
Amounts
Amounts Weighting
15%
0%
19%
22%
53%
100%
52%
1,224,815
550,030
1,033,438
22,433,047
10,514,076
207,889
231,526
36,194,821
(46,361)
36,148,460
182,061
1,924
199,552
5,028,592
5,624,190
207,889
119,405
11,363,613
-
11,363,613
827,033
49,988
9,591
12,250,225
1,059,325
13,309,550
For the year ended December 31, 2020
Amounts
Risk
Weighting
Risk-weighted
Amounts
16%
1%
27%
19%
52%
100%
43%
1,057,475
450,203
589,876
19,463,507
8,870,694
184,844
188,049
30,804,648
(62,633)
30,742,015
173,157
2,401
159,561
3,703,288
4,618,890
184,844
81,593
8,923,734
-
8,923,734
577,497
18,165
13,331
9,532,727
893,350
10,426,077
(1) For operational risk, Equitable Bank uses the Basic Indicator Approach − calculated as 15% of the previous three-year average of net interest income
and non-interest income, excluding gain or loss on investments. The risk-weighted equivalent is determined by multiplying the capital requirement for
operational risk by 12.5.
Page. 52
Fourth quarter overview
Equitable produced an all-time record Q4 EPS of $2.29, up $0.22 from a year ago.
Net interest income
The table below details the Bank’s NII and NIM for the three months ended December 31, 2021, with comparisons to the
prior quarter and the corresponding quarter of the prior year, by product and portfolio.
Table 19: Net interest income
($000s, except percentages)
Revenues derived from:
Cash and equivalents
Equity securities
Alternative single family mortgages
Prime single family mortgages
Decumulation loans
Total Personal loans
Conventional commercial loans
Equipment leases
Insured multi-unit residential mortgages
Total Commercial loans
31-Dec-21
30-Sep-21
31-Dec-20
For the three months ended
Revenue/ Average Revenue/ Average Revenue/ Average
rate
Expense
Expense
Expense
rate
rate
4,418
1,184
0.93%
3.76%
4,392
2,040
0.97%
4.90%
5,019
1,453
0.99%
4.85%
132,877
34,838
2,639
170,354
68,531
17,250
24,981
110,762
3.80%
1.77%
4.07%
3.08%
5.03%
9.86%
2.37%
4.28%
126,293
36,932
1,946
165,171
65,559
15,926
25,718
107,203
3.97%
1.85%
3.97%
3.16%
5.09%
9.80%
2.43%
4.27%
126,420
40,643
779
167,842
59,563
14,261
27,054
100,878
4.56%
2.00%
4.10%
3.48%
5.53%
10.76%
2.75%
4.60%
Average interest earning assets
286,718
3.33%
278,806
3.39%
275,192
3.65%
Expenses related to:
Deposits
Secured backstop funding facility
Securitization liabilities
Others
78,695
-
51,096
975
1.54%
N/A
1.68%
0.41%
74,787
-
52,269
898
1.56%
N/A
1.77%
0.50%
82,434
626
60,435
580
2.03%
N/A
2.05%
0.74%
Average interest bearing liabilities
130,766
1.55%
127,954
1.62%
144,075
2.03%
Net interest income and margin
155,952
1.81%
150,852
1.83%
131,117
1.74%
Page. 53
Q4 2021 v Q4 2020
NII was up 19% year-over-year mainly driven by 14% growth in our average asset balances and a 7 bps increase in our
NIM.
Table 20(a): Factors affecting Q4 2021 v Q4 2020 NIM
Impact (in bps) Drivers of change
Business mix
20
• Asset mix shift towards our higher yielding Conventional loans
• Decline in the relative size of our low yielding cash and equivalents
Offset in part by:
• Funding mix shift towards higher rate EQ Bank deposits and deposit
notes
Rates/spread(1)
(12)
• Lower spreads within Commercial business as higher yielding loans
rolled-off the portfolios
• Lower yield earned on equity securities compared to the prior year
Other
(1)
• FV adjustments and other
Offset in part by:
• Net cost savings associated with $687 million of Alternative single
family mortgages insured in Q2 2020
• Cost saving from termination of our secured backstop funding facility
in Q4 2020
Change in Total NIM
7
(1) The rate effect is calculated after adjusting for the impact of business mix changes.
Q4 2021 v Q3 2021
NII increased 3% from last quarter as a result of 5% growth in average asset balances and despite a 2 bps decrease in
NIM.
Table 20(b): Factors affecting Q4 2021 v Q3 2021 NIM
Impact (in bps) Drivers of change
Business mix
Rates/spread(1)
Other
Change in Total NIM
5
(8)
1
(2)
• Asset mix shift toward our higher yielding Conventional loans
• Lower spreads within Conventional lending
• FV adjustments and other
Offset in part by:
• Reduced levels of early discharge within our Personal loan portfolio
(1) The rate effect is calculated after adjusting for the impact of business mix changes.
Page. 54
Non-interest income
Table 21: Non-interest income
($000s, except percentages)
Fees and other income
Net (loss) gain on loans and investments
Net gain on strategic investments
Securitization activities:
Gains on securitization and income from retained
interests
Fair value (losses) gains on derivative financial
instruments
Total
Q4 2021 v Q4 2020
31-Dec-21 30-Sep-21
5,629
1,391
3,178
5,355
(647)
8,990
For the three months ended
Change
(6%)
(125%)
8,890%
Change 31-Dec-20
5,711
2,632
100
(5%)
(147%)
183%
3,851
3,282
17%
11,640
(67%)
(1,638)
15,911
(2,232)
11,248
27%
41%
750
20,833
(318%)
(24%)
Non-interest income decreased by $4.9 million, primarily due to:
• Net loss on certain loans and security investments versus a gain in the same quarter of last year;
• Lower securitization gains as a result of lower derecognition levels and gain on sale margin; and
• Unrealized fair value losses on derivatives associated with securitization activities;
Offset by:
• An increase in net gain on strategic investments driven by dividends received from an equity investment.
Q4 2021 v Q3 2021
Non-interest income increased sequentially by $4.7 million, largely due to:
• Higher net gain on strategic investments as described above;
Offset by:
• Net loss on certain loans and security investments.
Page. 55
Non-interest expenses
Table 22: Non-interest expenses and efficiency ratio
($000s, except percentages and employees)
Compensation and benefits
Technology and system costs
Product costs
Marketing and corporate expenses
Regulatory, legal and professional fees
Premises
Total
Efficiency ratio(1)
FTE − period average
Q4 2021 v Q4 2020
31-Dec-21 30-Sep-21
33,430
11,544
7,032
5,792
5,646
3,998
67,442
41.6%
1,068
34,166
11,557
7,212
7,178
6,383
3,931
70,427
41.0%
1,121
For the three months ended
Change
20%
24%
23%
75%
31%
44%
27%
4.6%
23%
Change 31-Dec-20
28,448
9,353
5,845
4,094
4,872
2,736
55,348
36.4%
912
2%
0%
3%
24%
13%
(2%)
4%
(0.6%)
5%
Our Q4 efficiency ratio was 41.0%, up from 36.4% a year ago when we deliberately reduced expense growth as a result
of the pandemic.
Total expenses were up by $15.1 million or 27%, largely as a result of:
• An increase in compensation and benefits costs due to growth in FTE of 23%;
• More marketing spending on promoting our reverse mortgage business and EQ Bank products;
• Higher technology and system costs related to IT support and maintenance;
• An increase in regulatory, legal and professional fees for business consulting;
• Higher product costs, as a result of increased amortization of project related costs; and
• Increased premises costs due to accelerated amortization of leasehold improvements.
Q4 2021 v Q3 2021
Quarter-over-quarter, expenses increased by $3.0 million, primarily because of:
• Increased corporate expenses as a result of a sales tax recovery recorded in the prior quarter;
• Higher legal and professional fees relating to business advisory and consultation services; and
• Growth in compensation and benefits due to the addition of FTEs in Q4 to support growth.
Sequentially this growth resulted in positive operating leverage of 1.6%, reflecting 6% quarter over quarter revenue
growth vs the sequential expense growth.
Page. 56
Table 23: Provision for credit losses
($000s, except percentages)
Stage 1 and 2 recovery
Stage 3 provision
Total
PCL – rate
Q4 2021 v Q4 2020
31-Dec-21 30-Sep-21
(4,752)
1,252
(3,500)
(0.05%)
(3,132)
1,712
(1,420)
(0.02%)
For the three months ended
Change
(12%)
(41%)
(1,479%)
(0.02%)
Change 31-Dec-20
(2,785)
2,888
103
0.001%
34%
37%
59%
0.03%
During the quarter, the Bank recovered $1.4 million in PCLs compared to a provision of $0.1 million a year ago. The
recovery was driven by a release of Stage 1 and 2 allowances of $3.1 million the quarter compared to $2.8 million in Q4
2020. The reduction in allowances reflected the continued improvements in macroeconomic forecast since mid-2020.
Stage 3 allowances also declined year-over-year by $1.2 million as a result of lower impaired lease formations and lower
allowances on impaired Personal loans.
Q4 2021 v Q3 2021
PCL recovery during Q4 2021 declined from the preceding quarter as a result of lower Stage 1 and 2 allowance releases
of $1.6 million. The Stage 3 provision increased slightly as reserves on impaired loans increased quarter-over-quarter.
Total loan principal
The following table provides quarterly on-balance sheet loan principal continuity schedules by lending business for Q4
2021 and Q4 2020:
Table 24: On-Balance Sheet loan principal continuity schedule
($000s, except percentages)
Q3 2021 closing balance
Originations
Derecognition
Net repayments
Q4 2021 closing balance
% Change from Q3 2021
Net repayments percentage(1)
($000s, except percentages)
Q3 2020 closing balance
Originations
Derecognition
Net repayments
Q4 2020 closing balance
% Change from Q3 2020
Net repayments percentage(1)
For the three months ended December 31, 2021
Total
31,373,746
3,768,766
(311,840)
(2,028,432)
32,802,240
5%
6.5%
Commercial
10,083,804
1,478,377
(311,840)
(750,641)
10,499,700
4%
7.4%
Personal
21,289,942
2,290,389
-
(1,277,791)
22,302,540
5%
6.0%
For the three months ended December 31, 2020
Commercial
Total
27,486,998
8,655,380
3,178,779
1,236,782
(418,692)
(418,692)
(2,089,732)
(622,303)
28,157,353
8,851,167
2%
2%
7.6%
7.2%
Personal
18,831,618
1,941,997
-
(1,467,429)
19,306,186
3%
7.8%
(1) Net repayments percentage is calculated by dividing net repayments by the previous period’s closing balance.
Page. 57
Q4 2021 v Q4 2020
Please refer to Total loan principal under the Financial review – balance sheet section of this MD&A for a discussion of
our year-over-year portfolio growth.
Q4 2021 v Q3 2021
During the quarter, total loan principal increased by $1.4 billion due to growth in both our Personal and Commercial
businesses.
Within Personal lending, Alternative single family mortgages sustained the momentum it built up in the prior quarter
and finished the year with a balance exceeding $14 billion. Originations volumes remained strong in the quarter while
attrition levels remained slightly elevated.
The growth in our Commercial portfolio benefited from record quarterly originations in our Commercial Finance Group
business, more favourable conditions in the small business sector, and significant growth in both specialized financing
and equipment leasing businesses.
Page. 58
Table 25: Unaudited interim consolidated statements of income
($000, except per share amounts)
31-Dec-21
For the three months ended
31-Dec-20
30-Sep-21
Interest income:
Loans – Retail
Loans – Commercial
Investments
Other
Interest expense:
Deposits
Securitization liabilities
Funding facilities
Other
Net interest income
Non-interest income:
Fees and other income
Net gain on loans and investments
Gains on securitization activities and income from securitization retained
interests
Revenue
Provision for credit losses
Revenue after provision for credit losses
Non-interest expenses:
Compensation and benefits
Other
Income before income taxes
Income taxes
Current
Deferred
Net income
Dividends on preferred shares
Net income available to common shareholders
Earnings per share
Basic
Diluted
170,354
110,762
3,491
2,111
286,718
78,695
51,096
231
744
165,171
107,203
4,223
2,209
278,806
74,787
52,269
327
571
167,842
100,878
3,016
3,456
275,192
82,434
60,435
926
280
130,766
127,954
144,075
155,952
150,852
131,117
5,355
8,343
2,213
15,911
171,863
(1,420)
173,283
34,166
36,261
70,427
102,856
29,720
(6,926)
22,794
80,062
1,089
78,973
2.32
2.29
5,629
4,569
1,050
11,248
162,100
(3,500)
165,600
33,430
34,012
67,442
98,158
23,102
2,583
25,685
72,473
1,099
71,374
2.10
2.07
5,711
2,732
12,390
20,833
151,950
103
151,847
28,448
26,900
55,348
96,499
19,885
5,190
25,075
71,424
1,120
70,304
2.09
2.07
Page. 59
Table 26: Unaudited interim consolidated statements of comprehensive income
($000s)
Net income
Other comprehensive income – items that will be reclassified
subsequently to income:
Debt instruments at Fair Value through Other Comprehensive Income:
Net unrealized (losses) gains from change in fair value
Reclassification of net losses (gains) to income
Other comprehensive income – items that will not be reclassified
subsequently to income:
Equity instruments designated at Fair Value through Other
Comprehensive Income:
Net unrealized gains from change in fair value
Reclassification of net gains to retained earnings
Income tax (expense) recovery
Cash flow hedges:
Net unrealized gains from change in fair value
Reclassification of net losses (gains) to income
Income tax expense
Total other comprehensive income
Total comprehensive income
31-Dec-21
80,062
For the three months ended
31-Dec-20
71,424
30-Sep-21
72,473
(2,855)
875
(502)
(1,264)
185
115
2,991
(13)
998
(263)
735
7,777
1,236
9,013
(2,369)
6,644
7,379
87,441
1,151
-
(615)
163
(452)
3,189
(61)
3,128
(822)
2,306
1,854
74,327
7,357
-
7,657
(2,024)
5,633
4,556
(3,406)
1,150
(322)
828
6,461
77,885
Page. 60
Table 27: Unaudited interim consolidated statements of cash flows
($000s)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income for the period
Adjustments for non-cash items in net income:
Financial instruments at fair value through profit or loss
Amortization of premiums/discounts on investments
Amortization of capital assets and intangible costs
Provision for credit losses
Securitization gains
Stock-based compensation
Income taxes
Securitization retained interests
Changes in operating assets and liabilities:
Restricted cash
Securities purchased under reverse repurchase agreements
Loans receivable, net of securitizations
Other assets
Deposits
Securitization liabilities
Obligations under repurchase agreements
Funding facilities
Other liabilities
Income taxes paid
Cash flows from (used in) operating activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common shares
Dividends paid on preferred shares
Dividends paid on common shares
Cash flows used in financing activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments
Proceeds on sale or redemption of investments
Net change in Canada Housing Trust re-investment accounts
Purchase of capital assets and system development costs
Cash flows (used in) from investing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Cash flows from operating activities include:
Interest received
Interest paid
Dividends received
31-Dec-21
For the three months ended
31-Dec-20
30-Sep-21
80,062
72,473
71,424
244
122
8,883
(1,420)
(2,753)
655
22,794
11,962
(5,240)
22
8,555
(3,500)
(3,084)
623
25,685
11,395
4,477
49,977
(1,452,085)
8,035
927,776
175,859
572,463
(130,351)
67,307
(10,485)
333,522
40,654
(499,992)
(1,588,722)
(8,276)
1,350,465
(284,294)
603,029
330,479
3,544
(10,485)
43,331
1,281
(1,089)
(6,303)
(6,111)
(268,038)
87,610
(10,148)
(10,085)
(200,661)
126,750
646,501
773,251
261,943
(131,516)
17,258
3,060
(1,099)
(6,293)
(4,332)
(189,056)
244,963
(29,530)
(10,627)
15,750
54,749
591,752
646,501
256,184
(112,378)
1,198
(11,222)
(196)
6,389
103
(11,125)
403
25,075
10,242
63,955
(250,195)
(693,777)
24,673
(15,601)
300,644
97,513
(150,261)
(4,383)
(17,571)
(553,910)
2,953
(1,120)
(6,238)
(4,405)
(35,662)
9,601
1,425
(7,310)
(31,946)
(590,261)
1,148,004
557,743
264,560
(160,417)
1,504
Page. 61
Accounting policy changes
The Bank’s significant accounting policies are essential to understanding its reported results of operations and financial
position. Accounting policies applied by the Bank in the 2021 annual consolidated financial statements are the same as
those applied by it as at and for the year ended December 31, 2020, with the exception of policies adopted as a result of
the covered bond issuance.
Please refer to Note 3 to the audited consolidated financial statements for a summary of the Bank’s other significant
accounting policies.
Critical accounting estimates
The preparation of the consolidated financial statements requires management to make judgments, estimates and
assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at
the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the
years. Estimates and underlying assumptions are reviewed by management on an ongoing basis.
The critical estimates and judgments utilized in preparing the consolidated financial statements affect the assessment of
the allowance for credit losses on loans, impairment of other financial instruments, fair values of financial assets and
liabilities, derecognition of financial assets transferred in securitization transactions, effectiveness of financial hedges for
accounting purposes, and income taxes.
In making estimates and judgments, management uses external information and observable market conditions where
possible, supplemented by internal analysis as required. These estimates and judgments have been made taking into
consideration the economic impact of the COVID-19 pandemic and the spread of variants of concern, and the significant
economic volatility and uncertainty it has created. Actual results could differ materially from these estimates, in which
case the impact would be recognized in the consolidated financial statements in future years.
Allowance for credit losses under IFRS 9 and the impact of COVID-19
The ECL model requires management to make judgments and estimates in a number of areas. Management must
exercise significant experienced credit judgement in determining whether there has been a significant change in credit
risk since initial recognition and in estimating the amount of ECL. The measurement of ECL considers the incorporation
of forward-looking macroeconomic variables and probability weightings of macroeconomic scenarios, which requires
significant judgment.
Management also exercises significant experienced credit judgment in determining the amount of ECLs at each
reporting date by considering reasonable and supportable information that is not already incorporated in the modelling
process. Changes in these inputs, assumptions, models, and judgments directly impact the measurement of ECL.
As a result of the COVID-19 pandemic, the macroeconomic environment has experienced significant volatility and
uncertainty. This has resulted in a direct impact on the forward-looking macroeconomic variables which management
uses as part of its underlying assumptions for calculating ECL. Management has used the latest forward-looking
macroeconomic variables provided by Moody’s Analytics economic forecasting services for calculating ECL.
Recognizing the continued economic uncertainty the Bank is operating in, management has applied the same
probability-weights to the macroeconomic scenarios as at December 31, 2020 and has also exercised its significant
experienced credit judgment in determining the amount of ECL by considering reasonable and supportable information
that was not already incorporated in the ECL modelling process.
Page. 62
For further information regarding critical accounting estimates, please refer to Notes 2(d) and 9(d) to (f) to the audited
consolidated financial statements.
Derivative financial instruments
The Bank hedges interest rate risks associated with insured residential mortgages and mortgage commitments intended
for securitization, certain mortgages, securitization, deposit liabilities, and bonds. The Bank hedges foreign exchange
risks associated with certain foreign currency liabilities. The Bank also hedges the risk of changes in future cash flows
related to our RSU and Deferred Share Unit (DSU) plans.
The Bank's securitization activities are subject to interest rate risk, which represents the potential for changes in interest
rates between the time the Bank commits to funding a mortgage it intends to securitize through the issuance of a
securitization liability, and the time the liability is actually issued. The Bank enters into bond forwards to hedge this
exposure, with the intent to manage the change in cash flows of the future interest payments on the highly probable
forecasted issuance of the securitization liability. The Bank applies hedge accounting to these derivative financial
instruments to minimize the volatility in income caused by changes in interest rates.
For non-prepayable insured residential mortgages, where the transferred assets qualify for derecognition, the Bank
uses bond forwards to protect itself from fluctuations in interest rates between the time the Bank commits to funding
these mortgages and the time they are securitized. The change in value of the commitments and the funded mortgages
before securitization are substantially offset by the change in value of the bond forwards. For this reason, the Bank
does not apply hedge accounting to these derivative instruments.
The Bank uses interest rate swaps to hedge its interest rate exposures on provincial bond investments, certain loan
assets, securitization liabilities and deposit liabilities. Beginning in Q3 of this year, the Bank entered into cross currency
interest rate swap agreements to manage interest rate and foreign exchange exposures on its fixed rate foreign
currency covered bond liabilities. The Bank applies hedge accounting to these relationships.
The Bank also enters into hedging transactions to manage foreign exchange exposures on certain foreign currency
liabilities. The Bank does not apply hedge accounting to these hedging relationships.
The Bank also hedges the risk of changes in future cash flows related to our RSU and DSU plans by entering into total
return equity swap contracts with third parties, the value of which is linked to the price of the Bank’s common shares.
Changes in the fair value of these derivative financial instruments offset the compensation expense related to the
change in share price, over the period in which the swap is in effect. The Bank applies hedge accounting to the RSU-
related derivative financial instruments but does not use hedge accounting for the DSU-related swaps.
As part of its Canada Mortgage Bond (CMB) activities, the Bank may assume reinvestment risk between the amortizing
mortgage backed-securities (MBS) and the bullet CMB for securitized mortgages which are derecognized. The Bank
assumes this risk by entering into total return swaps with highly rated counterparties and exchanging the cash flows of
the CMB for those of the MBS transferred to Canadian Housing Trust (CHT).
For more information on derivative financial instruments see Notes 3, 5, 10, 11, 12, 13 and 19 to the audited
consolidated financial statements.
Page. 63
Off-balance sheet activities
The Bank engages in certain financial transactions that, for accounting purposes, are not recorded on our audited
consolidated balance sheets. Off-Balance sheet transactions are generally undertaken for risk, capital and funding
management purposes. These include certain securitization transactions, the commitments the Bank makes to fund its
pipeline of mortgage originations, and letters of credit issued in the normal course of business (see Note 22 to the
audited consolidated financial statements).
Securitization of financial assets
Certain securitization transactions qualify for derecognition when the Bank has transferred substantially all of the risks
and rewards, or control associated with the securitized assets. The outstanding securitized loan principal that qualified
for derecognition totalled $5.9 billion at December 31, 2021 (December 31, 2020 – $5.2 billion). The securitization
liabilities associated with these transferred assets are approximately $5.9 billion (December 31, 2020 – $5.2 billion). The
securitization retained interest recorded with respect to certain securitization transactions was $207.9 million
(December 31, 2020 – $184.8 million) and the associated servicing liability was $38.5 million at December 31, 2021
(December 31, 2020 – $35.1 million).
Commitments and letters of credit
The Bank provides commitments to extend credit to our borrowers. The Bank had outstanding commitments to fund
$3.7 billion of loans and investments in the ordinary course of business at December 31, 2021 (December 31, 2020 –
$2.6 billion).
The Bank also issues letters of credit which represent assurances that it will make payments in the event that a
borrower cannot meet their obligations to a third party. Letters of credit in the amount of $46.8 million were
outstanding at December 31, 2021 (December 31, 2020 – $29.6 million), none of which were drawn upon.
Related party transactions
Certain of the Bank’s key management personnel have transacted with it and/or invested in its deposits, and/or the Series
3 preferred shares in the ordinary course of business, on market terms and conditions. See Note 23 to the audited
consolidated financial statements for further details.
Risk management
Through its wholly owned subsidiary, Equitable Bank, Equitable is exposed to risks that are similar to those of other
financial institutions, including the symptoms and effects of both domestic and global economic conditions and other
factors that could adversely affect our business, financial condition, and operating results. These factors may also
influence an investor’s decision to buy, sell or hold shares in Equitable. Many of these risk factors are beyond
Equitable’s direct control. The Board plays an active role in monitoring the Bank’s key risks and in determining the
policies, practices, controls, and other mechanisms that are best suited to manage these risks.
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The Bank’s business activities, including our use of financial instruments, exposes the Bank to various risks, the most
significant of which are credit risk, liquidity and funding risk, and market risk.
The Risk Management framework, Credit Risk, Liquidity and Funding Risk Management, and Market Risk
Management sections below form an integral part of the 2021 annual consolidated financial statements as
they present required IFRS disclosures as set out in IFRS 7 Financial Instruments: Disclosures, which permits
cross-referencing between the notes to the financial statements and the MD&A. See Note 4 of the annual
consolidated financial statements.
Risk management framework
The Board has overall responsibility for the establishment and oversight of the Bank’s Enterprise Risk Management
(ERM) framework. The Bank’s ERM framework is designed to ensure that all risks are managed within the Bank’s pre-
defined risk appetite thresholds outlined in the Bank’s Risk Appetite Framework (RAF). The Bank’s ERM and RAF are
designed to align our overall corporate strategy, financial and capital plans, business unit strategies and day-to-day
operations, as well as our risk management policies and practices (i.e., risk limits, risk selection/underwriting guidelines
and criteria, etc.) across the organization. The ERM and RAF are updated by senior management and approved by the
Board on an annual basis, or more frequently, if required.
The ERM framework covers the type and amount of risk that the Bank is capable and willing to take on in support of its
business operations and strategy. The ERM framework is designed to ensure active monitoring of all key current and
emerging risks on a continuous basis, and to provide the Board with timely periodic updates on our risk management
practices and related economic capital requirements. It also sets out our approach for identifying, assessing, managing
and reporting on our key risks, including the establishment of roles, responsibilities, processes, and tools to be used.
To ensure that all significant and emerging risks are considered, we review our risk profile with respect to each of our
core risks on a continuous basis, and report to the Board at least quarterly. The Bank’s ERM framework is also designed
to ensure that all key risks are managed within our pre-defined risk appetite thresholds as outlined in our RAF, and
that the potential for loss remains within acceptable Board-approved limits.
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The Bank’s ERM framework is illustrated below:
Enterprise Risk Management Framework
The Risk and Capital Committee (RCC): The RCC of the Board assists the Board in fulfilling its oversight and
governance responsibilities for the management of the Bank’s core and emerging risks and the adequacy of our
Internal Capital Adequacy Assessment Process (ICAAP), as well as our strategic and capital plans. The RCC specifically
assists the Board in fulfilling its oversight role for credit, liquidity and funding, and market risks and receives ongoing
periodic reports from the Bank’s ERM Committee and Asset and Liability Committee (ALCO) in this regard. The RCC also
has primary oversight responsibility for operational risk, business and strategic risk, and reputational risk. In addition,
the mandate of the RCC requires that the Committee review and approve the significant risk management policies and
frameworks developed and implemented to identify, measure, mitigate, monitor, and report on the Bank’s core risks,
along with its risk-based capital requirements and the results of its stress testing for all key risks. At present, the RCC is
comprised of five independent directors, including the Chairs of the Audit Committee and Human Resources and
Compensation Committee. It meets quarterly with the Chief Executive Officer (CEO), Chief Financial Officer (CFO), and
the Chief Risk Officer (CRO).
To ensure capital allocation and risk management are aligned, the Bank’s ICAAP, which is reviewed annually with the
RCC, determines the ongoing capital needs of the business and reviews those needs in the context of our operating
environment and strategic plans. Material risks are regularly stress tested to determine their impact on capital and to
establish our internal capital adequacy targets on a go-forward basis.
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The RCC is supported by the following board and management level committees:
Credit Risk Sub-Committee: The credit risk sub-committee of the RCC is responsible for approving lending
transactions which exceed the credit limits that have been delegated to management by the Board.
ERM Committee: The ERM Committee is chaired by the CRO and consists of members of senior management,
reports to the RCC, and assists the RCC in fulfilling its oversight and governance responsibilities vis-à-vis the Bank’s
risk management practices and ICAAP. To ensure that all significant risks that the Bank faces are actively managed
and monitored, the ERM Committee reviews and monitors the Bank’s key and emerging risks, risk trends, the
results of our enterprise-wide stress and scenario tests, relevant policies and related risk management
considerations/actions to be taken. It reports to the RCC at least quarterly.
Asset and Liability Committee: The RCC oversees the Bank’s ALCO, which identifies the liquidity as well as the market
risks faced by the Bank, sets appropriate risk limits and controls, and monitors those risks and adherence to Board
approved limits. The ALCO is chaired by the CEO and is comprised of members of senior management.
Other Board Committees that monitor the organizations activities and overall risk profile are as follows:
Audit Committee: The Audit Committee of the Board assists the Board in fulfilling its oversight responsibilities with
respect to the quality and integrity of the Bank’s financial reporting processes and the performance of the internal
audit function. The Audit Committee is assisted in fulfilling its mandate by the Bank’s Finance and Internal Audit
departments. Internal Audit undertakes regular and independent reviews of the Bank’s risk management controls and
procedures, the results of which are reported to the Audit and other applicable Board Committees.
Governance and Nominating Committee: The Governance and Nominating Committee of the Board maintains
primary oversight over the Bank’s Legal and Regulatory Risk; this includes oversight of the Bank’s Compliance function
and ensures the Bank’s compliance with all legal and regulatory requirements. The Committee also is responsible for
overall corporate governance which includes Board membership, Board effectiveness, development of corporate
governance guidelines including a code of conduct, and matters related to the Financial Consumer Agency of Canada.
Further, this committee is responsible for the oversight of the Bank’s environmental sustainability and corporate
social responsibility initiatives (ESG) in conjunction with the review of Bank’s Environmental, Social and Governance
Annual Report, and monitors trends and best practices in environmental, social and governance practices and
reporting.
Human Resources and Compensation Committee: The Human Resources and Compensation Committee of the
Board assists the Board in ensuring that the Bank’s compensation policies and practices are aligned with our risk
appetite and risk management frameworks. This ensures that the incentive for management to assume risks in the
pursuit of business objectives is aligned with our Board-approved risk appetite.
Under the Bank’s risk management framework, senior management reports on all key risk issues to at least one of the
aforementioned committees of the Board on a quarterly basis.
The Bank’s approach to enterprise-wide risk management aligns with the three lines of defense model:
i. Business Unit Leaders are the ‘first line’, and are primarily accountable for identifying, assessing, managing
and reporting risk within their functional areas of responsibility.
ii. The Risk Oversight functions, which include the Finance, Risk and Compliance departments, are accountable
for independent oversight of the Business Unit operations from a ‘second line’ perspective. Given the size and
relatively low complexity of the Bank’s operations and risk profile, business line management leverages the
skills of the ‘second line’ as subject matter experts to assist in the design of our risk monitoring practices. Due
to the inherent expertise embedded in our ‘second line’, the performance of some traditional ‘first line’
oversight functions may be undertaken by the ‘second line’.
iii. Internal Audit is accountable for independent assurance as the ‘third line of defense’.
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The following sections address the risks associated with COVID-19 and provide updates on our credit risk and liquidity
risk profiles.
COVID-19
This section should be read in conjunction with the other comments about COVID-19 and our actions in other parts of
this document, in particular but not limited to the sections titled Business Outlook, and Credit Quality and Allowances.
As a result of the global COVID-19 pandemic, the risks to our business have increased. The pandemic continues to have
an adverse impact on businesses in Canada and around the world and the economic environments in which they
operate. The spread of COVID-19 and resulting efforts to contain its spread has resulted in elevated unemployment in
certain segments in Canada and has been met by a response from Government in the form of income support for
people and businesses impacted by enforced shutdowns of businesses.
The Bank has established a pandemic response plan and procedures. The response plan outlines precautions to
protect the safety and well-being of its employees and customers, but no assurance can be given that these actions will
be adequate or appropriate. The unprecedented move across industries around the globe to conduct business from
home and away from primary office locations increases both the demand on our technology infrastructure but also the
risk of cyber-attacks which could lead to technology failures, security breaches, unauthorized access, loss or
destruction of data or unavailability of services. Any of these events could result in litigation or result in a financial loss,
disruption of our business activities, liability to our customers, government intervention or damage to our reputation.
The spread of COVID-19 could also negatively impact availability of key personnel and employee productivity, as well as
the business and operations of third-party service providers who perform critical services for the Bank, which could
adversely impact the ability to deliver products and services to customers. While being alert to this risk, the Bank’s
cloud-based infrastructure has allowed the Bank’s operations to be effectively conducted while most employees are
working from home.
The management committee of the Bank is actively monitoring its response to the financial and non- financial risk of
COVID-19. The CEO provides the Board with regular updates on the impact on the business, our workforce, and
customers.
CREDIT RISK
Credit risk is defined as the possibility that the Bank will not receive the full value of amounts and recovery costs owed
to it if counterparties fail to honour their obligations to the Bank. Credit risk arises principally from the Bank’s lending
activities, and our investment in debt and equity securities. The Bank’s exposure to credit risk is monitored by senior
management and the ERM Committee, as well as the Risk and Capital Committee of the Board, which also undertakes
the approval and monitoring of the Bank’s investment and lending policies.
The Bank’s primary lending business is providing first mortgages on real estate located across Canada. All mortgages
are individually evaluated by the Bank’s or its agents’ underwriters using internal and external credit risk assessment
tools, and are assigned risk ratings in accordance with the level of credit risk attributed to each loan.
Each transaction is approved independently in accordance with the authorization structure set out in the Bank’s
policies. Our underwriting approach, particularly in our core lending business, places a strong emphasis on
security evaluation and judgmental analysis of the risks in the transaction. As a result, for borrowers who have
good equity and debt service ratios, we can underwrite mortgages on terms favourable to the Bank in situations
where other lenders may not be able to reach a satisfactory business transaction. The Bank originates insured
Single Family prime mortgages through third party agents, in addition to originating them internally. As part of our
risk management practices, we ensure that these third party sourced prime mortgages are underwritten to the
high standards required of both Bank- originated mortgages, as well as those required by our mortgage insurers.
We also conduct periodic reviews of our mortgage underwriting and servicing policies, procedures, and practices
vis-à-vis the applicable requirements outlined by our mortgage insurers to ensure that we remain compliant with
Page. 68
their ongoing operational requirements.
We have implemented several Risk Appetite measures which allow the Bank to monitor and control inherent risks at
the enterprise and portfolio levels. These measures vary by business unit as may be appropriate and include a
combination of approaches such as geographic concentrations, loan classifications, asset concentration limits, and
industrial segmentation limits. These limits are monitored and reported to senior management and the Board on a
regular basis and are also used to inform our strategic planning process.
We have clearly defined underwriting policies and procedures that we adhere to in our mortgage underwriting
process. These include a maximum LTV ratio on all uninsured commercial and residential mortgage loans; certain
standards with regard to the asset quality and debt service coverage of commercial properties; standards for the
marketability of the properties taken as security, including geographic market restrictions; and requirements
surrounding the overall credit quality and integrity of all borrowers. We also actively analyze the profile of our lending
businesses and new mortgage originations in tandem with external market conditions, including market values and
employment conditions that prevail in those markets where we lend. When we judge that the risk associated with a
particular region or product is increasing, we adjust our underwriting criteria to ensure that our underwriting policies
continue to be prudent and reflective of current and expected economic conditions, and thereby safeguard the future
health of our portfolio. When appropriate, we also respond to the changing marketplace with initiatives designed to
increase or decrease our mortgage originations, as required, while continuing to ensure a prudent credit risk profile
across our entire portfolio.
Adding new products and diversifying is an important means to reduce risk if executed effectively. The bank follows
established change management policies and procedures to ensure the successful implementation of new offerings.
The Bank continues to diversify into adjacent personal businesses such as the offering of reverse mortgages to
qualifying homeowners. These reverse mortgages enable homeowners to convert a portion of their home equity into
cash on a tax-free basis while remaining in their principal residence. The Bank also offers lines of credit to individuals
aged over fifty, secured against the Cash Surrender Value (CSV) of the borrower’s participating whole life insurance
policy.
Through its Commercial Lending platform, the Bank continues diversifying into ‘Specialized Finance’ – with a focus on
‘Lend to Lender’ arrangements.
The Commercial Lending platform also includes Bennington Financial Corporations which serves the brokered
equipment leasing market in Canada with a focus on transportation, construction, and food service equipment. Since
acquiring Bennington over 3 years ago, the Bank continues to enhance its competitive position in the equipment
financing market using our challenger bank platform and access to cost- effective funding sources.
The Bank categorizes individual credit exposures in our lending portfolios using an internal risk rating system that
rates each exposure in the portfolio on the basis of perceived risk, or probability of, a potential financial loss. This
allows us to focus on monitoring and managing higher risk exposures. The risk rating of each exposure is initially
determined during the underwriting process and subsequently either confirmed or revised (as a result of certain
trigger events) using customized risk grids applicable to the property type of the underlying exposure. In case of
impairment, probable recovery is determined using a combination of updated property-specific information, historical
loss experience, and experienced credit judgment to determine the impairment provision that may be required.
The Bank invests in corporate bonds to diversify its liquidity holdings and to generate higher returns. However, such
investments expose the Bank to credit risk, should the issuer of these securities be unable to make timely interest
payments or, under a worst-case scenario, if the issuer becomes insolvent. To limit its exposure to credit risk, the
Bank establishes policies with exposure limits based on credit rating and investment type. Securities rated BBB- and
higher (“low risk”) comprised 100% of the Bank’s corporate bond portfolio at December 31, 2021 (December 31, 2020 –
100%).
Page. 69
The Bank also invests in preferred shares to generate returns that meet certain internally acceptable ROE thresholds.
These securities also represent a potential source of liquidity for the Bank. However, such investments expose the
Bank to credit risk – should the issuer of these securities be unable to make timely dividend payments or, under a
worst-case scenario, the issuer becomes insolvent. To limit its exposure to credit risk, the Bank establishes policies
with exposure limits based on credit rating and investment type. Securities rated P-2 or higher comprised 25% of the
Bank’s total equity securities portfolio at December 31, 2021, compared to 41.5% a year earlier. Securities rated P-3 or
higher comprised 63% of the total equity securities portfolio at the end of December 2021 (December 31, 2020 –
97.6%).
The Bank’s rating scale for the credit quality of our counterparties is based on both internal and external credit
grading systems. Table 28 below maps these grading systems against the categories on the Bank’s credit risk
exposure ratings scale. It presents the long-term Standard & Poor’s equivalent grades for the Bank’s cash and cash
equivalents, debt and equity securities, and derivative counterparties. Low risk denotes that there is a very low risk of
either default or loss, standard risk that there is a low risk of default or loss, and high risk that there is some concern
that default or loss could occur.
Cash and cash equivalents and derivatives ratings are based on the issuer grade of the respective financial institution,
their subsidiaries or other financial intermediaries. Debt securities, including corporate bonds, are categorized based
on short-term or long-term issue grades, depending on the maturity dates of the securities. Preferred share securities
are categorized based on the DBRS preferred share rating scale used in the Canadian securities market. Lending
exposures are categorized according to the Bank’s internal risk rating framework, which is based on the likelihood of
default.
The Bank assigns economic and regulatory capital for our counterparty credit exposures in accordance with OSFI’s
CAR Guideline, which is based on standards issued by the BCBS. All deemed credit exposures, such as counterparty
credit risk that may arise through deposits placed with banks, derivatives contracts and other activities, are regularly
assessed to ensure that such activities are consistent with the Bank’s Board-approved RAF and do not expose the
Bank to undue risk of loss. All related counterparty credit limits are approved by senior management and monitored
on an ongoing basis to ensure that all such exposures are maintained within approved limits.
Page. 70
Table 28: Credit risk exposure ratings scale
Cash and cash equivalents, investments, and derivatives:
S&P equivalent grade
Mortgages receivable:
Mortgage risk rating
Low risk Standard risk
High risk
AAA – BBB-
BB+ – B
B- – CC
0 – 3
4 – 5
6 – 8
We have assessed the credit quality of the Bank’s assets at December 31, 2021 and 2020, on the basis of the above
mapping of internal and external risk ratings to the credit risk exposure categories. The table below provides the
gross carrying amount of all financial assets classified as debt instruments in accordance with IFRS 9, for which a loss
allowance is calculated, including contractual amounts of undrawn loan commitments, based on the Bank’s credit risk
exposure rating scale.
Table 29: Credit quality analysis
($000s)
Loans receivable:
Low risk
Standard risk
High risk
Impaired
Total
Less allowance
($000s)
Loan commitments:
Low risk
Standard risk
High risk
Total
Less allowance
Stage1
14,039,396
14,793,929
260,113
-
29,093,438
(27,693)
29,065,745
Stage1
915,085
1,260,967
377
2,176,429
(220)
2,176,209
For the year ended December 31, 2021
Total
Stage3
Stage2
467,052
3,209,307
88,946
-
3,765,305
(18,412)
-
-
-
90,968
90,968
(2,588)
14,506,448
18,003,236
349,059
90,968
32,949,711
(48,693)
3,746,893
32,901,018
For the year ended December 31, 2021
Total
Stage3
Stage2
88,380
152
238,301
68
238,521
(36)
238,485
-
-
-
-
-
-
915,237
1,499,268
445
2,414,950
(256)
2,414.694
Page. 71
($000s)
Loans receivable:
Low risk
Standard risk
High risk
Impaired
Total
Less allowance
($000s)
Loan commitments:
Low risk
Standard risk
High risk
Total
Less allowance
Stage1
13,757,464
9,641,586
304,089
-
23,703,139
(35,731)
23,667,408
Stage1
672,180
963,356
32,630
1,668,166
(129)
1,668,037
For the year ended December 31, 2020
Total
Stage3
Stage2
952,212
3,309,828
251,018
-
4,513,058
(26,753)
- 14,709,676
- 12,951,414
555,107
-
121,548
121,548
121,548 28,337,745
(66,028)
(3,544)
4,486,305
118,004 28,271,717
For the year ended December 31, 2020
Total
Stage3
Stage2
742
141,127
572
142,441
(20)
142,421
-
-
-
-
-
-
672,922
1,104,483
33,202
1,810,607
(149)
1,810,458
The following table sets out the credit analysis for financial assets measured at FVTPL and for equity securities measured
at FVOCI.
Table 30: Credit analysis for financial assets
($000s)
Debt Instruments:
Loan receivables – FVTPL
Low risk
Standard risk
Carrying amount
Investments – FVTPL
Low risk
Standard risk
High risk
Carrying amount
Equity Instruments:
Equity Securities – FVTPL
High risk
Carrying amount
Equity Securities – FVOCI
Low risk
Standard risk
High risk
Carrying amount
Cash and cash equivalents
31-Dec-21
31-Dec-20
167,372
1,018
168,390
128,886
5,412
36,661
170,959
26,214
26,214
26,269
61,497
4,995
92,761
59,416
65,789
125,205
134,355
7,683
9,279
151,317
1,165
1,165
27,901
54,419
5,019
87,339
The Bank held cash and cash equivalents of $773.3 million as at December 31, 2021. The cash and cash equivalents are
held with financial institutions that are rated at least A to AA+, based on S&P ratings.
Collateral held as security
All mortgages are secured by real estate property located in Canada. Appraised values for collateral held against
mortgages are obtained at the time of origination and are generally not updated, except when a mortgage is
Page. 72
individually assessed as impaired. For impaired mortgages, the most recent appraised value of collateral at December
31, 2021 was $104 million (December 31, 2020 – $140 million). At December 31, 2021, the appraised values of collateral
held for mortgages considered past due but not impaired, as determined when the mortgages were originated, was
$48 million (December 31, 2020 – $182 million). It is the Bank’s policy to pursue the orderly and timely realization of
collateral.
Real estate from foreclosures that were owned and held for sale at December 31, 2021 amounted to $0.1million
(December 31, 2020 – $0.9 million) and are included in Other assets (Note 13) in the consolidated balance sheet. The
Bank does not use the real estate obtained through foreclosure for its own operations.
Leases are secured by first charges against the equipment leased and may include guarantees and other additional
charges against other assets such as real estate. Values for the equipment securing leases are typically determined
at the origination of the lease and generally not updated, except when a lease is individually assessed as impaired.
For impaired leases, the value of expected realizations from charges and against equipment and other security at
December 31, 2021 was $6 million (December 31, 2020 – $7.3 million).
The Bank does not hold collateral against investments in debt and equity securities, however, securities received
under reverse repurchase agreements are allowed to be sold or re-pledged in the absence of default by the owner.
The Bank has a commitment to return collateral to the counterparty in accordance with the terms and conditions
stipulated by the master repurchase agreement. The Bank has no contractual agreement with any counterparty that
required it to post increased collateral in the event of its credit rating being downgraded.
The contractual amount outstanding on financial assets that were written off during the year amounted to $3.5
million (December 31, 2020 – $3 million). These amounts are still subject to enforcement activity.
Credit concentration risk
A key component of credit risk that is closely monitored and measured within the exposures in our unsecuritized
portfolio, is credit concentration risk. By way of definition, credit concentration risk results if an unduly large proportion
of the Bank’s lending business involves a single person, organization or group of related persons or organizations, a
single geographic area, a single industry or a single category of investment. The ability of these counterparties to meet
contractual obligations may be similarly affected by changing economic or other conditions. On a regular basis, with
the approval of the Board, we establish credit limits for exposure to certain counterparties, industries or market
segments, monitor these credit exposures, and prepare detailed analyses and reports assessing overall credit risk
within the Bank’s lending exposures and investment portfolios.
Management believes that it is adequately diversified by borrower, property type and geography. At December 31,
2021, no individual borrower represented more than $145 million (December 31, 2020 – $94 million) or 0.76%
(December 31, 2020 – 0.70%) of uninsured loan principal outstanding. See Tables 7 and 13 of our Q4 2021 unaudited
Supplemental Information and Regulatory Disclosures Report for a breakdown of loan principal outstanding by loan
type and geography, respectively.
LIQUIDITY AND FUNDING RISK
We define Liquidity and Funding risk as the possibility that the Bank will be unable to generate sufficient funds in a
timely manner and at a reasonable price to meet our financial obligations as they come due. These financial
obligations mainly arise from the maturity of deposits, maturity of mortgage-backed securities, and commitments to
extend credit. Funding and Liquidity Risk may also be affected if an unduly large proportion of the Bank’s deposit-
taking business involves a single person, organization or group of related persons/organizations or a single
geographic area.
In accordance with our RAF, the Board defines the Bank’s liquidity and funding risk tolerance as ‘low’, and also reviews
Page. 73
and approves the limits to measure and control this risk. These limits are articulated via our Board-approved Liquidity
and Funding Risk Management Policy – which is updated annually, at a minimum. This Policy requires the Bank to
maintain a pool of high-quality liquid assets and stipulates various liquidity ratios and limits, concentration limits and,
among other considerations, ongoing periodic liquidity stress testing requirements.
We also adhere to OSFI’s Liquidity Adequacy Requirement (LAR) Guideline, which provides the framework within which
OSFI assesses whether a federally regulated financial institution maintains adequate liquidity. Our liquidity position and
adherence to the requirements are monitored on a daily basis by senior management. Key metrics are also reported
monthly to the ALCO and, quarterly, both to the ERM Committee and the RCC of the Board. Any exceptions to
established Policy or regulatory limits are reported immediately to the ALCO or to the Board, as applicable. As at
December 31, 2021, we were in compliance with all related regulatory requirements.
The Bank’s practice is to hold a sufficient amount of liquidity on our balance sheet to ensure that we remain well
positioned to manage unexpected events that may reduce/limit our access to funding. We closely monitor our
liquidity position on a daily basis and ensure that the level of liquid resources held, together with our ability to raise
new deposits, is sufficient to meet our funding commitments, deposit maturity obligations, and properly discharge
our other financial obligations. Actual liquidity may vary from period to period, mainly due to the timing of anticipated
cash flows and funding seasonality. In addition to our funding and liquidity management policies and procedures, we
have also developed a Liquidity and Funding Risk Contingency Plan, an OSFI-mandated Comprehensive Recovery Plan,
which outlines actions to be undertaken to address the outflow of funds in the event of a funding or liquidity crisis,
and a Resolution Plan.
Table 31: Assets held for liquidity protection
($000s, except percentages)
Liquidity assets held for regulatory purposes
Liquidity assets as a % of minimum required policy liquidity(1)
Policy minimum
100%
2021
2,902,505
124%
2020
2,793,555
128%
(1) For purposes of this calculation, the Bank’s Liquidity and Funding Risk Management Policy requires the value of assets held for liquidity protection
to be reduced to reflect their estimated liquidity value.
Stress and scenario testing is an integral part of the Bank’s Liquidity and Funding Risk Management framework and
supports the development of action plans to address funding needs in stressed environments. We manage our funding
needs to ensure that we can meet our financial commitments in a timely manner and at reasonable prices, even in
times of stress. The Bank’s stress-testing models consider scenarios that incorporate institution- specific, market-
specific and combination events. These scenarios model cash flows over a one-year period incorporating such factors
as a decline in capacity to raise new deposits, lower liquidity values for market investments and an accelerated
redemption of notice deposits. To establish these scenarios, we assess our fund-raising capacity and establish
assumptions related to the cash flow behavior of each type of asset and liability. In each scenario, the Bank targets to
hold sufficient liquid assets and have fundraising capacity sufficient to meet all obligations for at least a three-month
forecast period while maintaining normal business activities. As at December 31, 2021, the Bank held sufficient liquid
assets and maintained sufficient funding capacity to meet all funding obligations over the one-year forecasting period
under all considered scenarios.
We continue to actively diversify our funding sources to proactively manage our funding risk profile. This diversification
has been accomplished through the launch of our direct-to-consumer platform, EQ Bank, the addition of several large
bank sponsored funding facilities, a deposit note program, and new securitization vehicles. Also, in 2020, the Bank also
began to issue deposits from Equitable Trust, a wholly owned subsidiary that is an approved issuer of deposits eligible
for CDIC insurance coverage. More recently, the Bank became an issuer of Covered Bonds and accessed the market
with an inaugural issuance of a €350 million bond issued to 40 investors from 15 countries across Europe. While this
program expands the Bank’s suite of funding tools, it also significantly expands the underlying investor base and
broadens the geographic distribution of funding.
Page. 74
The following table summarizes contractual maturities of the Bank’s financial liabilities.
Table 32: Contractual obligations(1)
($000s)
Deposits principal and interest
Securitization liabilities principal and interest
Funding facilities principal and interest
Other liabilities
Total 2021 contractual obligations
Total 2020 contractual obligations
Total Less than 1 year
7,136,823
4,016,345
200,134
205,570
11,558,872
10,674,029
14,399,012
24,064,309
200,134
235,435
38,898,890
34,791,256
1 − 3 years
5,350,720
8,518,347
-
18,571
13,887,638
11,738,399
Payments due by period
4 − 5 years After 5 years
8,607
5,329,726
-
5,495
5,343,828
4,104,059
1,902,862
6,199,891
-
5,799
8,108,552
8,274,769
(1) The balances for financial liabilities will not agree with those in our consolidated balance sheet as this table incorporates all on and off balance sheet
obligations, on an undiscounted basis, including both principal and interest. Prior year amounts have been adjusted accordingly.
See Note 22 to the consolidated financial statements for credit commitments and contingencies as at December 31,
2021 and 2020.
MARKET RISK
Market Risk consists of interest rate risk and equity price risk and is broadly defined as the possibility that changes in
either market interest rates or equity prices may have an adverse effect on our profitability or financial condition.
Interest rate risk may be affected if an unduly large proportion of our assets or liabilities have unmatched terms,
interest rates or other attributes, such as optionality features embedded in our cashable deposits or mortgage
commitments. For the interest sensitivity position of the Bank at December 31, 2021, see Note 25 to the consolidated
financial statements. With respect to equity price risk, the value of our securities portfolio may be impacted by market
determined variables which are beyond our control, such as benchmark yields, credit and/or market spreads, implied
volatilities, the possibility of credit migration and default, among others. Overall, we have a ‘low’ appetite for market
risk.
With respect to structural interest rate risk, our objective is to manage and control the Bank’s interest rate risk
exposures within acceptable parameters and our primary method of mitigating this risk involves funding our assets
with liabilities of a similar duration. The Bank also maintains a hedging program to manage its economic value to its
target risk. The responsibility for managing the Bank’s interest rate risk resides with the ALCO, which meets monthly to
review and approve all Treasury- related policies, to review key interest rate risk metrics, and to provide direction on
our operating and funding strategy. Also, senior management continuously reviews our interest rate risk profile and
monitors the Bank’s ongoing funding strategy through the daily interest rate-setting process.
We monitor interest rate risk through simulated interest rate change sensitivity models to estimate the effects of
various interest rate change scenarios on net interest income and on the economic value of shareholders’ equity (EVE).
EVE is a calculation of the present value of the Bank’s asset cash flows, less the present value of liability cash flows on
an after-tax basis. Management considers this measure to be more comprehensive than measuring changes in net
interest income, as it captures all interest rate mismatches across all terms. Certain assumptions that are based on
actual experience are also built into the simulations, including assumptions related to the pre-maturity redemption of
deposits and early payouts of mortgages.
The table below illustrates the results of management’s sensitivity modeling to immediate and sustained interest rate
increase and decrease scenarios. The models measure the impact of interest-rate changes on EVE and NII during the
month period following December 31, 2021. The estimate of sensitivity to interest rate changes is dependent on several
assumptions that could result in a different outcome in the event of an actual interest rate change.
Page. 75
Table 33: Net interest income shock
($000s, except percentages)
100 basis point shift
Impact on net interest income
Impact on EVE
EVE impact as a % of common shareholders' equity
200 basis point shift
Impact on net interest income
Impact on EVE
EVE impact as a % of common shareholders' equity
Increase in
interest rates
Decrease in
interest rates(1)
24,524
(10,979)
(0.6%)
43,108
(35,830)
(1.9%)
1,626
(7,493)
(0.4%)
1,589
(11,086)
(0.6%)
(1) Interest rate is not allowed to decrease beyond a floor of 0% and is therefore not allowed to be negative.
The management of Equity Price risk is assigned to the ALCO by the RCC of the Board. The ALCO manages the
Company’s securities portfolio in accordance with its ‘Marketable Securities Policy’ and takes into consideration the
following factors:
• General economic conditions and the possible effect of inflation or deflation;
• The expected tax consequences of investment decisions or business strategies;
• The credit quality of each investment and its role within the overall portfolio;
• The expected total return from income and the appreciation of capital;
• The Bank’s need for liquidity, available capacity, and regularity/stability of earnings; and
• Each investment’s special relationship or special value, if any, to the overall objectives of the portfolio.
The ALCO reviews the investment performance, composition, quality, and other pertinent characteristics of the
securities portfolio at least ten times a year. This information is also presented to, and reviewed by, the RCC of the
Board at least quarterly, or more frequently, if required.
OPERATIONAL RISK
We define Operational risk as the possibility that a loss could result from people, inadequate or failed internal
processes or systems, or from external events. Our definition specifically excludes legal risk – which we include under
the Legal and Regulatory Risk category below.
Operational risk is present in virtually all business activities of the Bank and includes such considerations as fraud,
damage to equipment, system failures, data entry errors, model risk, cyber security and business continuity. We
also consider natural disasters in our assessment of operational risk, to the extent that they may impact collateral
values or other pertinent loan loss drivers. As outlined in the Bank’s RAF, the Bank has a ‘low’ appetite and a ‘low-
to-medium’ tolerance for Operational Risk. We recognize that while the nature of operational risk is such that there
is little or no expected reward in taking on this risk, the costs to attempt to eliminate operational risk may be
excessive.
Page. 76
The Bank’s Operational Risk Management program includes the following key components:
• Governance: While Operational risk may not be completely eliminated, proactive management of this risk is very
important to mitigate exposure to financial losses, reputational damage and/or regulatory fines. We have
implemented a Board-approved Operational Risk Management Policy and an Operational Risk Management
Framework, which are jointly designed to monitor, review and report on operational risk management across the
Bank. Both the Policy and the related Framework articulate our governance practices for the proper management of
Operational risk and include clear accountabilities for the three-lines-of-defense (i.e., Business Units, Risk
Management and related oversight functions such as Compliance and Finance, and Internal Audit) – in alignment
with both the BCBS’s ‘Principles for the Sound Management of Operational Risk’, and with OSFI’s related ‘Operational
Risk Management Guideline’. Given the size of the Bank, the relatively low complexity of our business operations and
our operational risk profile, business line management leverages the skills of the second line as subject matter
experts to assist in the development of our operational risk monitoring practices. Additionally, given the expertise
embedded in our second line of defense, the performance of some first line operational risk management activities
is undertaken by the second line.
• Training: All employees within our organization are required to play a role in managing Operational risk. In this
regard, we conduct operational risk management and cyber security awareness training and testing for all
employees across the Bank – to provide them with an overview of the various types of operational risks, and their
respective roles and responsibilities in helping to protect the interests and assets of the Bank.
• Risk and Control Self-Assessments (RCSA’s): We use these tools on an annual basis to help identify and evaluate
operational risk factors within our individual businesses and functional units, as well as on a Bank-wide basis. These
tools assist us to proactively identify and assess key operational risks inherent in our material activities and systems,
and to evaluating the effectiveness our controls to manage these risks.
• Key Risk Indicators (KRI’s): As part of our RCSA monitoring exercise, we utilize KRI’s to measure, monitor and report
on the level of operational risk on a business/functional unit basis, as well as across the organization. These KRI’s
also serve as early warning triggers to highlight potential issues before the Bank experiences an incident or loss
event.
• Other Operational Risk Management (ORM) Tools: In addition to the RCSA’s and KRI’s noted above, a number of
other operational risk management tools are in use as part of the Bank’s ORM program – these include an
operational risk taxonomy, operational risk event collection and analysis, and change management risk and control
assessment.
• Risk Measurement and Reporting: On a regular monthly basis, our centralized Operational Risk Management Team
consolidates key operational risk management trends, significant events, if any, and KRI’s across the Bank; these are
reported to the ERM committee and to the RCC of the Board on a quarterly basis, at a minimum.
• Business Continuity Management: The Bank maintains a robust Business Continuity Management program,
which includes a ‘Crisis Management Plan’ – to ensure that we have the capability to sustain, manage and recover
critical operations and processes in the event of a business disruption, thereby minimizing any adverse effects on
our customers, partners, and other stakeholders. Our Business Continuity Management Program is comprised of
various plans (i.e., Crisis Management Plan, Business Continuity Plans, Disaster Recovery Plan and our
Comprehensive Recovery Plan) to ensure the ability to operate as a going concern in the event of a severe
business disruption. All key business units within the organization are required to maintain, and regularly test
and review, their business continuity plans.
• Enterprise Change Management: Effective change management is key to successful implementation and execution
of our business strategies and objectives. The Bank is committed to effective management of changes through use
of established controls and processes that consider the materiality and risk of each change before it is undertaken.
Page. 77
Our change management practices involve assessment of change materiality, and appropriate engagement of key
stakeholders and support areas. All material changes are subject to a comprehensive assessment of impact to the
Bank’s core risks to ensure appropriate identification and mitigation of risks. In addition, all material changes are
subject to a more detailed assessment of operational risks to ensure appropriate identification and mitigation of
risks as part of the project management, implementation plans, post implementation activities, and operational
execution.
• Fraud: The Bank maintains a robust control framework designed to manage the risks related to misrepresentation
and fraudulent activities across the Bank.
Our approach to fraud risk management has been to:
• Utilize established Operational Risk Management tools as well as specific fraud related tools and processes to
support the identification, assessment, measurement and mitigation of fraud risk;
• Establish the reporting and monitoring processes to support the approach; and
• Establish a culture of risk awareness and understanding throughout all business units within the organization so
that fraud risk and its associated implications are considered in all significant decisions.
We have processes to keep our fraud controls relevant, agile, and current to accommodate new products, new
channels, and evolving fraud trends. The existing fraud risk management program utilizes proactive measures to
deter, prevent and detect fraud, rather than solely relying upon reactive measures. Our fraud risk management
framework is oriented around our three lines of defense model. Our first line business unit processes in mortgage
underwriting and deposit taking form the primary layer of defense against external fraudulent activities. Here our
businesses focus on early detection and rejection of potentially fraudulent transactions. Remaining vigilant,
particularly in the face of regulatory changes, tightening mortgage qualification criteria, and changing housing prices,
we have continually enhanced our capabilities through the adoption of new technologies, the maintenance and use of
data strategically, and the continual development of training and awareness programs for staff.
Centrally, and operating as a 2nd line centre of excellence in conjunction with our Compliance and AML teams, we
operate a Central Fraud team to provide independent oversight of 1st line activities, expert assistance in detection,
the development and delivery of training, as well as policy development and Quality Assurance. Our Internal Audit
team provides 3rd line oversight of fraud prevention activities. The 2nd and 3rd lines provide independent reporting to
committees of the Board on a regular basis.
• Model Risk: We define Model risk as the potential for adverse consequences arising from decisions based on
incorrect or misused models and their outputs. It can lead to financial loss, reputational risk, or incorrect business
and strategic decisions. Model Risk is viewed by the Bank as a key component of ‘Operational risk’.
We have a ‘low’ appetite and tolerance for Model risk and have implemented the principles set out OSFI Guideline E-
23: Enterprise-Wide Model Risk Model Risk Management. A Model Risk Policy, Model Validation Standard, and Model
Validation Procedures are in place to ensure the effective identification and mitigation of Model Risk, especially as it
relates to credit risk.
• Technology and Cyber Security: We remain focused on the confidentiality, integrity and availability of our
information and cyber security controls that protect our network, data and infrastructure. The cyber security risk
landscape includes numerous cyber threats such as hacking threats, identity theft, denial of service, and advanced
persistent threats. These and other cyber threats continue to become more sophisticated, complex, and potentially
damaging. Third party service providers that we use may also be subject to these risks which can increase our risk
of potential attack. We continually assess the performance of third-party suppliers against industry standards. In
addition, we have limited control over the safety of our clients’ personal devices that may be used to conduct
transactions. To manage these risks, our defense systems are designed as an integral part of both our existing Bank
infrastructure, and our architecture and development for our digital banking platform.
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We view cyber risk as a key component of Operational Risk and the Bank proactively maintains a “defense in depth”
strategy with developed standards and procedures to prevent, detect, respond, manage, and address cyber
security threats from all types of malicious attackers that attempt to steal sensitive information, cause a system
failure or denial of service on websites or other types of service disruption.
Our ‘Cyber Security Policy’ establishes the requirements and sets out the overall framework for managing cyber and
information security related risks across the Bank. These include developing and implementing the appropriate
activities to detect, respond to and contain the impact of cyber security threats, along with implementing the
appropriate safeguards to ensure the delivery of critical infrastructure services.
Also, KRI’s have been established to measure, monitor, and report this risk to the Board on a regular, periodic basis.
Furthermore, we also have an established IT Roadmap with the objective of continuously improving the strength of
our practices and capabilities.
We work closely with our critical cyber security and software suppliers to ensure that our technology capabilities
remain cyber resilient and effective in the event of any unforeseen cyber-attack. Our internal teams receive daily
cyber security updates, rehearse incident table-top exercises, and take specialized training to thwart current and
evolving cyber threats.
Risks are actively managed through information security management programs which include regular vulnerability
assessments conducted by qualified third parties on an annual basis, completion of the OSFI Cyber Security Self-
Assessment and continuous improvements to the Bank’s security and change management practices based on best
practices from recognized industry associations.
The Bank has not experienced any material cyber security breaches and has not incurred any material expenses
with respect to the remediation of such cyber events.
Security risks continue to be actively monitored and reviewed, leveraging the expertise of the Bank’s service
providers and vendors, reviewing industry best practices and regularly re-assessing controls in place to mitigate the
risks identified.
• Data Management and Privacy Risk: The use and management of data and its governance are becoming
increasingly important as we continue to invest in digital solutions and innovation, the move of our core banking
system to the cloud and the ongoing expansion of business activities. There are regulatory compliance risks
associated with data management and privacy as well, which form part of the Bank’s Regulatory Compliance
Management Program as discussed in the Legal and Regulatory Risk section below. We have established a dedicated
Enterprise Data Management team to ensure we effectively address current and future data needs (quality, security,
integrity), and that we are positioned to address emerging requirements from a data management planning and
governance perspective.
• Environmental and Climate Risk: Environmental risk is the possibility of loss of strategic, financial, operational, or
reputational value resulting from the impact of environmental issues or concerns, including climate change, and
related social risk. These risks are categorized by the industry as either: physical risks, including risks arising from a
changing climate leading to the potentially increased frequency of climate-related natural disasters; or transition risks,
those that result from the transition to a low-carbon economy. Transition risks are broader, and could surface for the
Bank in the form of emerging regulatory and legal requirements, disruptions to its operations and services, as well as
through its customers themselves. To manage this risk, we evaluate environmental factors as part of our underwriting
process. We consider the environmental risk associated with Single Family residential lending to be low so do not
conduct environmental assessments for each of those loans. For most of our commercial loan portfolio, we employ
third-party consultants to carry out detailed environmental assessments. We also maintain a diversified lending
portfolio, which improves our resilience to geographic or sectoral specific environmental developments or events. The
Bank is committed to measuring, managing, and reducing its environmental footprint. The Bank is a regular
Page. 79
participant in disclosing its climate change related information to CDP (formerly known as Carbon Disclosure Project),
and has done so in 2020 and 2021.
We consider this risk to be a component of Operational risk. Practically speaking, we evaluate future risks on a
quarterly basis through the Business and Strategic Risk evaluation as part of our Enterprise Risk Management
Committee meetings. We conduct analyses of environmental and climate risk at periodic intervals to determine its
potential impact on the Bank’s assets in certain geographical regions which are prone to such disasters, including an
extensive stress test on earthquake risk, and risk related analysis on geographies that are prone to flooding. Based on
the results of these stress tests and analysis, refinements are made to our RAF, where considered appropriate and
prudent.
Going forward, as we continue to elaborate on our definition and management of climate-related risk, we intend to
leverage the framework developed by the Task Force on Climate-Related Financial Disclosures (TCFD). We believe this
framework can be used to evaluate any risk, since it considers governance, strategy, risk management, and metrics
and targets. As the Bank progresses in this regard, future consideration may be given to the classification of
Environmental and Climate Risk as an additional core risk under the Bank’s Risk Management Framework, rather than
a sub-component of Operational Risk. The further development of industry views and agreement on standard
taxonomy in area such as Physical Risk, Transition Risk, and Liability Risk will inform the further development of the
Banks own risk classification.
• Third Party Risk: Third party suppliers are integral to the Bank’s business operations and the Bank has designed a
program to provide oversight for third party relationships. Our approach to third party risk mitigation is outlined in
policies and procedures that establish the minimum requirements for identifying and managing risks throughout the
engagement life cycle with a third party. Performance monitoring and due diligence reviews are conducted on a
regular basis. A higher level of due diligence is focused on our material arrangements to ensure that service levels
are met, and that their system of controls is adequate. Outsourcing arrangements are reviewed on a regular (annual)
basis to assess materiality, and to ensure regulatory requirements (i.e. OSFI B-10 Outsourcing Guideline) are met. We
continue to evolve and improve our capabilities in this area, and with ever increasing reliance on external technology
services, we expect that third party risk management will be subject to increased levels of regulation in the coming
years.
Operational risk loss events
The Bank has a process and procedures in place for monitoring and reporting operational losses as well as near miss
events. A near miss is an event that otherwise meets the definition of an operational loss event, but for which no
financial loss has been incurred, not because of effective control but because of fortuitous circumstances. Our
established processes include completing root cause analysis and action plans for loss and near miss events within
defined thresholds. This helps ensure that actions are taken to mitigate future recurrence and potential negative
impacts to financial, regulatory compliance, or to the image/ reputation of the bank. During 2021, we did not
experience any material operational risk loss events.
LEGAL AND REGULATORY RISK
Legal and Regulatory risk is defined as the possibility that a loss could result from exposure to fines, penalties, or
punitive damages from civil litigations, contractual obligations, criminal or supervisory actions, as well as private
settlements; and from not complying with regulatory requirements, regulatory changes or regulators’ expectations.
In accordance with our Board-approved RAF, we have a ‘low’ appetite and a ‘low’ tolerance for legal and regulatory
risk. We undertake reasonable and prudent measures designed to achieve compliance with governing laws and
regulations; this includes the Bank’s Regulatory Compliance Management (RCM) Program – which is designed to
identify and manage our continuously evolving legal and regulatory requirements. We also undertake reasonable and
prudent measures designed to achieve compliance with governing laws and regulations and promote a strong culture
Page. 80
of compliance management across the organization. The Bank’s business units are engaged in the identification and
proactive management of our legal and regulatory risks, while the Compliance, Legal, Anti-Money Laundering and Risk
Management teams assist them by providing ongoing guidance and oversight. Management of these risks also
includes the timely escalation of issues to senior management and to the Board.
The Bank’s RCM Program provides us with a control framework to manage and mitigate our exposure to regulatory
risk – consistent with all applicable Canadian regulatory expectations, such as those mandated by OSFI, the CDIC,
FINTRAC, and Financial Consumer Agency of Canada (FCAC).
BUSINESS AND STRATEGIC RISK
Business and Strategic risk is defined as the possibility that we could experience material losses or reputational
damage as a result of our business plans and/or strategies, the implementation of those strategies, or the failure to
properly respond to changes in the external business environment. Business and Strategic risk management includes
the following components:
• Competitive Risk: Competitive risk is the risk of an inability to build or maintain a sustainable competitive advantage
in a given market or markets and includes potential for the loss of market share due to competitors offering superior
products or services. Competitive risks can arise from within or outside the financial sector, from traditional or non-
traditional competitors. The banking business is highly competitive, and the Bank’s products compete with those
offered by other banks, trust companies, insurance companies, and other financial services companies in the
jurisdictions in which it operates. Many of these companies are strongly capitalized and hold a larger share of the
Canadian banking market. There is always a risk that there will be new entrants in the market with more efficient
systems and operations that could impact our lending or deposit-taking market share.
We do not use proprietary retail branches to originate deposits or loan exposures. Deposits are raised directly
through our online digital platform. Additionally, we rely primarily on business conducted on behalf of investing clients
by members of the Investment Industry Regulatory Organization of Canada (“IIROC”), the Registered Deposit Brokers
Association (RDBA) and the Mutual Fund Dealer Association (MFDA) to distribute our deposit products. Lending
exposure originations depend on a network of independent mortgage and lease brokers, brokerage firms and
mortgage banking organizations. Under adverse circumstances, it may be difficult to attract enough new deposits
from agents or lending business from brokers to meet our current operating requirements. The potential failure to
sustain or increase current levels of deposits or lending originations from these sources could negatively affect the
financial condition and operating results of the Bank.
• Systemic Risk: Systemic risk is a risk that the financial system as a whole, or major part of it, may collapse with the
likelihood of material damage to the economy, resulting in financial, legal, operational, and reputational risks for the
Bank. The Bank significantly operates in Canada and deposits its monies with Canadian federally regulated financial
institutions designated as Domestic Systemically Important Banks (DSIB). An event of systemic crisis may result in
higher unemployment and lower family income, corporate earnings, business investment and consumer spending
and could adversely affect the demand for our loan products resulting in higher provisions for credit losses.
The Bank’s Board has approved a ‘low-to-medium’ appetite and tolerance for Business and Strategic risk. We believe
that this risk is best managed via a robust and dynamic annual strategic planning process that includes establishing
Board-approved business growth strategies and quantifiable performance targets for each business line over the
forthcoming three-to-five-year period. Management of this risk also includes regular monitoring of actual versus
forecasted performance and an effective internal monitoring and reporting process – to the ERM Committee and the
Board.
Page. 81
REPUTATIONAL RISK
Reputational risk is the possibility that current and potential customers, counterparties, analysts, shareholders,
investors, regulators, or others will have an adverse opinion of the Bank – irrespective of whether these opinions are
based on facts or merely public perception. Such an event could result in potential losses to the Bank arising from a
decline in business volumes, challenges accessing funding markets, or increased funding costs.
In accordance with our Board-approved RAF, our appetite and tolerance for Reputational risk both remain ‘low’ and
the Bank believes that the pursuit of our long-term goals requires the proper conduct of our business activities in
accordance with our established Code of Conduct and business principles, as well as with all applicable laws and
regulations. The Bank also maintains a Board- approved Reputational Risk Management Policy which, along with
related compliance policies and procedures and our ERM practices, is sufficiently designed to identify, assess and
manage the reputational and other non-financial considerations present within the Bank’s business.
Share information
At February 7, 2022, the Bank had 34,070,810 common shares and 2,919,400 non-cumulative 5-year rate reset
preferred shares issued and outstanding. In addition, there were 1,098,296 unexercised stock options, which are, or will
be, exercisable to purchase common shares for maximum proceeds of $45.9 million.
Normal course issuer bid (NCIB)
During Q4 2021, Equitable purchased and cancelled 24,300 preferred shares at an average price of $26.40. As at
December 31, 2021, Equitable has purchased aggregate preferred shares of 80,600 at an average price of $26.01 under
the first NCIB term that expired on December 22, 2021 and between December 22 and 31, 2021, Equitable did not
purchase any preferred shares under the renewed NCIB term that will expire on December 22, 2022. No common
shares have been purchased and cancelled under either the NCIB term as at year end.
Disclosure controls and procedures
Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is
accumulated and communicated to senior management, including the President and Chief Executive Officer and the
Chief Financial Officer, on a timely basis to enable appropriate decisions to be made regarding public disclosure. We
have evaluated the effectiveness of the Bank’s disclosure controls and procedures (as defined in the rules of the
Canadian Securities Administrators) as of December 31, 2021. Based on that evaluation, we have concluded that these
disclosure controls and procedures were effective.
Internal control over financial reporting
Our Internal Control over Financial Reporting framework is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements in accordance with IFRS. We have evaluated
the design and operational effectiveness of the Bank’s Internal Controls over Financial Reporting as of December 31,
2021 to provide reasonable assurance regarding the reliability of financial reporting. This evaluation was conducted in
accordance with the Integrated (2013) Framework published by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”), a recognized control model, and the requirements of National Instrument 52-109 of
the Canadian Securities Administrators. Based on this evaluation, we have concluded that the Bank’s Internal Controls
over Financial Reporting were effective as of December 31, 2021.
Page. 82
Changes in internal control over financial reporting
There were no changes in the Bank’s internal control over financial reporting that occurred during 2021 that have
materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.
Non-Generally Accepted Accounting Principles (GAAP)
financial measures
We use a variety of financial measures to evaluate the Bank’s performance. In addition to GAAP prescribed measures,
we use certain non-GAAP measures that we believe provide useful information to investors regarding the Bank’s
financial condition and results of operations. Readers are cautioned that non-GAAP measures often do not have any
standardized meaning, and therefore, are unlikely to be comparable to similar measures presented by other companies.
The primary non-GAAP measures used in this MD&A are:
• Assets Under Management (AUM): is the sum of total assets reported on the consolidated balance sheet and loan
principal derecognized but still managed by the Bank.
($000s, except percentages)
Total assets on the consolidated balance sheet
Loan principal derecognized
Assets Under Management
31- Dec-21
36,159,070
5,860,830
42,019,900
31-Dec-20
30,746,318
5,189,264
35,935,582
Change
18%
13%
17%
31-Dec-19
28,392,452
Change
27%
4,612,901 27%
27%
33,005,353
• Book value per common share (BVPS): is calculated by dividing common shareholders’ equity by the number of
common shares outstanding.
($000s, except share and per share amounts)
Shareholders’ equity
Preferred shares
Common shareholders’ equity
Common shares outstanding
Book value per common share
• Capital ratios:
31- Dec-21
1,952,634
(70,607)
1,882,027
34,070,810
55.24
31-Dec-20
1,647,702
(72,477)
1,575,225
33,748,148
46.68
Change
19%
(3%)
19%
1%
18%
31-Dec-19
1,467,714
(72,557)
1,395,157
33,595,186
41.53
Change
33%
(3%)
35%
1%
33%
• CET1 ratio: this key measure of capital strength is defined as CET1 Capital as a percentage of total RWA. This ratio
is calculated by the Bank in accordance with the guidelines issued by OSFI. CET1 Capital is defined as shareholders’
equity plus any qualifying other non-controlling interest in subsidiaries less preferred shares issued and
outstanding, any goodwill, other intangible assets, and cash flow hedge reserve components of accumulated other
comprehensive income.
• Tier 1 and Total Capital ratios: these adequacy ratios are calculated by the Bank, in accordance with the guidelines
issued by OSFI by dividing Tier 1 or Total Capital by total RWA. Tier 1 Capital is calculated by adding non-cumulative
preferred shares to CET1 Capital. Tier 2 Capital is equal to the sum of the Bank’s eligible Stage 1 and 2 allowance.
Total Capital equals to Tier 1 plus Tier 2 Capital.
• Leverage ratio: this measure is calculated by dividing Tier 1 Capital by an exposure measure. The exposure
measure consists of total assets (excluding items deducted from Tier 1 Capital) and certain off-balance sheet items
converted into credit exposure equivalents. Adjustments are also made to derivatives and secured financing
transactions to reflect credit and other risks.
A detailed calculation of all Capital ratios can be found in Table 17 of this MD&A.
• Conventional loans: are the total on-balance sheet loan principal excluding Prime single family and Insured multi-
unit residential mortgages.
• Dividend Yield: is calculated on an annualized basis and is defined as dividend per common share divided by average
of daily closing price per common share for the period.
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• Economic value of shareholders’ equity (EVE): is a calculation of the present value of the Bank’s asset cash flows
less the present value of liability cash flows on an after-tax basis. EVE is a more comprehensive measure of our
exposure to interest rate changes than net interest income because it captures all interest rate mismatches across all
terms.
• Efficiency ratio: this measure is used to assess the efficiency of the Bank’s cost structure in terms of revenue
generation. This ratio is derived by dividing non-interest expenses by revenue. A lower efficiency ratio reflects a more
efficient cost structure.
($000s, except percentages)
Non-interest expenses
Revenue
Efficiency ratio
($000s, except percentages)
Non-interest expenses
Revenue
Efficiency ratio
31-Dec-21
260,176
642,907
40.5%
31-Dec-20
214,060
556,833
38.4%
Change
22%
15%
2.1%
For the years ended
Change
31-Dec-19
30%
199,573
29%
497,064
0.3%
40.2%
31-Dec-21
70,427
171,863
41.0%
30-Sep-21
67,442
162,100
41.6%
For the three months ended
Change
27%
13%
4.6%
31-Dec-20
55,348
151,950
36.4%
Change
4%
6%
(0.6%)
• Liquid assets: is a measure of the Bank’s cash or assets that can be readily converted into cash, which are held for the
purposes of funding loans, deposit maturities, and the ability to collect other receivables and settle other obligations.
A detailed calculation can be found in Table 15 of this MD&A.
• Liquidity coverage ratio (LCR): this ratio, calculated according to OSFI’s Liquidity Adequacy Requirements, measures
the Bank’s ability to meet its liquidity needs for a 30-calendar day liquidity stress scenario. It is equal to high-quality
liquid assets divided by total net cash outflows over the next 30-calendar days.
• Loans under management (LUM): is the sum of loan principal reported on the consolidated balance sheet and loan
principal derecognized but still managed by the Bank. A detailed calculation can be found in Table 8 of this MD&A.
• Net interest margin (NIM): this profitability measure is calculated on an annualized basis by dividing net interest
income by the average total interest earning assets for the period. A detailed calculation can be found in Tables 2 and
19 of this MD&A.
• Operating leverage: is the growth rate in revenue less the growth rate in non-interest expenses.
• Pre-provision pre-tax income: is the difference between revenue and non-interest expenses.
• Provision for credit losses (PCL) – rate: this credit quality metric is calculated on an annualized basis and is defined
as the provision for credit losses as a percentage of average loan portfolio outstanding during the period.
($000s, except percentages)
Provision for credit losses
Divided by: average loan principal
Provision for credit losses – rate
($000s, except percentages)
Provision for credit losses
Divided by: average loan principal
Provision for credit losses – rate
31-Dec-21
(7,674)
30,479,797
(0.03%)
31-Dec-20
42,280
27,333,853
0.15%
Change
(118%)
12%
(0.18%)
For the years ended
Change
(142%)
21%
(0.10%)
31-Dec-19
18,394
25,187,572
0.07%
31-Dec-21
(1,420)
32,087,993
(0.02%)
30-Sep-21
(3,500)
30,462,457
(0.05%)
For the three months ended
Change
(1,479%)
15%
(0.02%)
31-Dec-20
103
27,822,176
0.001%
Change
59%
5%
0.03%
Page. 84
• Return on equity (ROE): this profitability measure is calculated on an annualized basis and is defined as net income
available to common shareholders as a percentage of the weighted average common equity outstanding during the
period.
($000s, except percentages)
Net income available to common shareholders
Weighted average common equity outstanding
Return on equity
31-Dec-21
288,117
1,729,762
16.7%
31-Dec-20
219,327
1,483,772
14.8%
Change
31%
17%
1.9%
For the years ended
Change
31-Dec-19
43%
201,788
33%
1,300,468
1.2%
15.5%
($000s, except percentages)
Net income available to common shareholders
Weighted average common equity outstanding
Return on equity
31-Dec-21
78,973
1,841,008
17.0%
30-Sep-21
71,374
1,764,632
16.0%
For the three months ended
Change
12%
20%
(1.2%)
31-Dec-20
70,304
1,537,914
18.2%
Change
11%
4%
1.0%
• Risk-weighted assets (RWA): represents the Bank’s assets and off-balance sheet exposures, weighted according to
risk as prescribed by OSFI under the CAR Guideline. A detailed calculation can be found in Table 18 of this MD&A.
• Total shareholder return (TSR): is defined as total return of stock to an investor including stock appreciation and
dividends.
Page. 85
Reports and consolidated financial statements
Reports
86 Management’s Responsibility for Financial Reporting
87
Independent Auditors’ Report
Consolidated Financial Statements
92
93
94
95
97
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
98
98
99
Note 1 – Reporting Entity
Note 2 – Basis of Preparation
144 Note 13 – Other Assets
144 Note 14 – Deposits
Note 3 – Significant Accounting Policies
145 Note 15 – Income Taxes
117 Note 4 – Risk Management
117 Note 5 – Financial Instruments
146 Note 16 – Funding Facilities
147 Note 17 – Other Liabilities
124 Note 6 – Cash and Cash Equivalents and Restricted Cash
147 Note 18 – Shareholders’ Equity
124 Note 7 – Securities Purchased Under Reverse Repurchase
150 Note 19 – Stock-based Compensation
Agreements
124 Note 8 – Investments
125 Note 9 – Loans Receivable
153 Note 20 – Earnings Per Share
153 Note 21 – Capital Management
132 Note 10 – Derecognition of Financial Assets
154 Note 22 – Commitments and Contingencies
135 Note 11 – Derivative Financial Instruments
155 Note 23 – Related Party Transactions
141 Note 12 – Offsetting Financial Assets and Financial Liabilities
156 Note 24 – Subsequent Event
157 Note 25 – Interest Rate Sensitivity
Page. 86
Page. 79
Management’s responsibility
for financial reporting
The Consolidated Financial Statements of Equitable Group Inc., the (Bank), are prepared by
management, which is responsible for the integrity and fairness of the information
presented. The information provided herein, in the opinion of management, has been
prepared, within reasonable limits of materiality, using appropriate accounting policies that
are in accordance with International Financial Reporting Standard (IFRS) as well as the
accounting requirements of the Office of the Superintendent of Financial Institutions
Canada (OSFI) as these apply to its subsidiary, Equitable Bank. The Consolidated Financial
Statements reflect amounts which must, of necessity, be based on informed judgments and
estimates of the expected effects of current events and transactions.
Management maintains and monitors a system of internal controls to meet its responsibility
for the integrity of the Consolidated Financial Statements. These controls are designed to
provide reasonable assurance that the Bank’s consolidated assets are safeguarded, that
transactions are executed in accordance with management’s authorization and that the
financial records form a reliable base for the preparation of accurate and timely financial
information. Management also administers a program of ethical business conduct, which
includes quality standards in hiring and training employees, written policies, and a written
corporate code of conduct. Management’s responsibility also includes maintaining adequate
accounting records and an effective risk management system.
The Board of Directors of the Bank, the (Board), oversees management’s responsibility for the
Consolidated Financial Statements through the Audit Committee. The Audit Committee
conducts a detailed review of the Consolidated Financial Statements with management and
internal and external auditors before recommending their approval to the Board.
The Bank’s subsidiary, Equitable Bank, is a Schedule I Bank under the Bank Act (Canada) and
is regulated by OSFI. On a regular basis, OSFI conducts an examination to assess the
operations of Equitable Bank and its compliance with statutory requirements and sound
business practices.
KPMG LLP has been appointed as external auditors by the shareholders to examine the
Consolidated Financial Statements of the Bank in accordance with Canadian generally
accepted auditing standards. The external auditors are responsible for reporting on
whether the Consolidated Financial Statements are fairly presented in accordance with
IFRS. The auditors have unrestricted access to and periodically meet with the Audit
Committee, with and without management present, to discuss their audits and related
matters.
Andrew Moor
President and Chief Executive Officer
Chadwick Westlake
Chief Financial Officer
February 7, 2022
Page. 87
Independent auditors' report
To the Shareholders of Equitable Group Inc.
Opinion
We have audited the consolidated financial statements of Equitable Group Inc. (the Entity), which comprise:
• the consolidated balance sheets as at December 31, 2021 and December 31, 2020;
• the consolidated statements of income and comprehensive income for the years then ended;
• the consolidated statements of changes in shareholders' equity for the years then ended;
• the consolidated statements of cash flows for the years then ended;
• and notes to the consolidated financial statements, including a summary of significant accounting policies.
(Hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated
financial position of the Entity as at December 31, 2021 and December 31, 2020, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the "Auditors' Responsibilities for the Audit of the Financial
Statements" section of our auditors' report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of
the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance
in our audit of the financial statements for the year ended December 31, 2021. These matters
were addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
We have determined the matter described below to be the key audit matter to be communicated in
our auditors' report.
Assessment of the allowance for credit losses for loans
Page. 88
Description of the matter
We draw your attention to Notes 2(d), 3(II)(a)(ii) and 9(d) to the financial statements. The Entity's
allowance for credit losses ("ACL") for loans is $48,949 thousand. The Entity's ACL is estimated using
statistical models that involve a number of inputs and assumptions. ACL is calculated using an
expected credit loss ("ECL") model which measures the credit losses using a three-stage approach
based on the extent of credit deterioration of the financial assets since initial recognition. Probability
of default ("PD") and loss given default ("LGD") are inputs used to estimate ECL and are modelled
using forward-looking macroeconomic variables that are closely related with credit losses in the
relevant portfolios, and are probability weighted using five macroeconomic scenarios.
Management exercises significant judgment in determining:
• whether there has been a significant increase in credit risk since initial recognition
• the forward-looking macroeconomic variables that are relevant for each portfolio
• probability weights that are applied to the macroeconomic scenarios
• the amount of ECL by exercising experienced credit judgment in considering reasonable and
supportable information not already incorporated in models (hereafter, referred to as
'overlays')
In addition, as a result of the Covid-19 pandemic, the economic environment experienced significant volatility
and uncertainty. This had a direct impact on forward-looking macroeconomic variables, probability weights and
overlays.
Why the matter is a key audit matter
We identified the assessment of the ACL for loans as a key audit matter. Significant auditor judgment was
required because of the use of complex models and there is a higher degree of measurement uncertainty due to
the significant judgments described above, including the impact of the Covid-19 pandemic. Assessing the ACL for
loans required significant auditor effort and specialized skills and knowledge to apply audit procedures and
evaluate the results of those procedures.
How the matter was addressed in the audit
The following were the primary procedures we performed to address this key audit matter. We evaluated the
design and tested the operating effectiveness of certain controls over the Entity's ACL process with the
involvement of credit risk and economics professionals with specialized skills and knowledge. This included
controls related to:
• monitoring of the models used to derive the PD and LGD inputs
• monitoring of the methodology for identifying whether there has been a significant increase in credit risk
• the review of the forward-looking macroeconomic variables that were relevant for each portfolio and
probability weights that were applied to the macroeconomic scenarios
• the review of the methodologies and assumptions for determining overlays adjusting the modeled
results.
We involved credit risk and economics professionals with specialized skills and knowledge who assisted in
evaluating:
Page. 89
• The models for determining PD and LGD by assessing the model monitoring methodology and checking
the accuracy of quantitative measures, where applicable
• The methodology used to determine a significant increase in credit risk by assessing the methodology for
compliance with IFRS 9 and checking the accuracy of quantitative measures, where applicable
• The forward-looking macroeconomic variables that were relevant to each portfolio by comparing against
external macroeconomic data
• The probability weights that were applied to the macroeconomic scenarios through the application of our
knowledge of the economy
• The methodologies and assumptions for determining the overlays adjusting the modeled results through the
application of our industry knowledge and relevant experience.
Other Information
Management is responsible for the other information. Other information comprises:
• the information included in Management's Discussion and Analysis filed with the relevant
Canadian Securities Commissions; and
• the information, other than the financial statements and the auditors' report thereon,
included in a document likely to be entitled "Annual Report".
Our opinion on the financial statements does not cover the other information and we do not and will not
express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our
responsibility is to read the other information identified above and, in doing so, consider whether the other
information is materially inconsistent with the financial statements, or our knowledge obtained in the audit and
remain alert for indications that the other information appears to be materially misstated.
We obtained the information included in Management's Discussion and Analysis filed with the relevant Canadian
Securities Commissions as at the date of this auditors' report. If, based on the work we have performed on this
other information, we conclude that there is a material misstatement of this other information, we are required
to report that fact in the auditors' report. We have nothing to report in this regard.
The information, other than the financial statements and the auditors' report thereon and the Management's
Discussion and Analysis, included in a document likely to be entitled "Annual Report" is expected to be made
available to us after the date of this auditors' report. If, based on the work we will perform on this other
information, we conclude that there is a material misstatement of this other information, we are required to
report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board (IASB), and for such internal control as management determines is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic
alternative but to do so.
Those charged with governance are responsible for overseeing the Entity's financial reporting process.
Page. 90
Auditors' Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our
opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted
in accordance with Canadian generally accepted auditing standards will always detect a material misstatement
when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions of users taken on the basis of the financial
statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit.
We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Entity's internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based
on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions
may cause the Entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure, and content of the financial statements, including the disclosures,
and whether the financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.
• Provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence and communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Entity to express an opinion on the financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain solely responsible for our audit
opinion.
Page. 91
• Determine, from the matters communicated with those charged with governance, those matters that were of
most significance in the audit of the financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure
about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our auditors' report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors' report is Steven Watts
Toronto, Canada
February 7, 2022
Page. 92
Consolidated balance sheets
($000s) As at December 31
Assets
Cash and cash equivalents
Restricted cash
Securities purchased under reverse repurchase agreements
Investments
Loans – Personal
Loans – Commercial
Securitization retained interests
Other assets
Liabilities and Shareholders' Equity
Liabilities:
Deposits
Securitization liabilities
Obligations under repurchase agreements
Deferred tax liabilities
Funding facilities
Other liabilities
Shareholders' Equity:
Preferred shares
Common shares
Contributed surplus
Retained earnings
Accumulated other comprehensive loss
Note
2021
2020
6
6
7
8
9,10
9,10
10
13
14
10
10
15
16
17
18
18
19
773,251
462,164
550,030
1,033,438
22,421,603
10,479,159
207,889
231,536
557,743
504,039
450,203
589,876
19,445,386
8,826,182
184,844
188,045
36,159,070
30,746,318
20,856,383
11,375,020
1,376,763
63,141
200,128
335,001
16,585,043
11,991,964
251,877
60,880
-
208,852
34,206,436
29,098,616
70,607
230,160
8,693
1,650,757
(7,583)
1,952,634
72,477
218,166
8,092
1,387,919
(38,952)
1,647,702
36,159,070
30,746,318
David LeGresley
Chair of the Board
Andrew Moor
President and Chief Executive Officer
See accompanying notes to the Consolidated Financial Statements.
Page. 93
Consolidated statements of income
($000s, except per share amounts) Years ended December 31
Note
2021
2020
Interest income:
Loans – Personal
Loans – Commercial
Investments
Other
Interest expense:
Deposits
Securitization liabilities
Funding facilities
Other
Net interest income
Non-interest income:
Fees and other income
Net gain on loans and investments
Gains on securitization activities and income from
securitization retained interests
Revenue
Provision for credit losses
Revenue after provision for credit losses
Non-interest expenses:
Compensation and benefits
Other
Income before income taxes
Income taxes:
Current
Deferred
Net income
Dividends on preferred shares
Net income available to common shareholders
Earnings per share:
Basic
Diluted
See accompanying notes to the Consolidated Financial Statements.
660,945
422,392
14,437
9,546
690,865
401,917
12,388
16,495
1,107,320
1,121,665
307,684
214,535
901
1,591
524,711
582,609
22,157
16,358
21,783
60,298
642,907
(7,674)
650,581
364,047
250,690
5,355
4,167
624,259
497,406
22,589
7,221
29,617
59,427
556,833
42,280
514,553
128,965
108,185
131,211
105,875
260,176
390,405
95,562
2,313
97,875
292,530
4,413
288,117
8.49
8.36
214,060
300,493
70,498
6,191
76,689
223,804
4,477
219,327
6.52
6.47
10
10
9
15
20
Page. 94
Consolidated statements of comprehensive income
($000s) Years ended December 31
Note
Net income
Other comprehensive income – items that will be reclassified
subsequently to income
Debt instruments at Fair Value through Other
Comprehensive Income:
Net unrealized (losses) gains from change in fair value
Reclassification of net losses (gains) to income
Other comprehensive income – items that will not be
reclassified subsequently to income
Equity instruments designated at Fair Value through Other
Comprehensive Income:
Net unrealized gains (losses) from change in fair value
Reclassification of net gains to retained earnings
Income tax (expense) recovery
Cash flow hedges:
Net unrealized gains (losses) from change in fair value
Reclassification of net losses (gains) to income
11
Income tax (expense) recovery
Total other comprehensive income (loss)
Total comprehensive income
2021
292,530
2020
223,804
(6,585)
929
4,350
(1,185)
20,244
(13)
14,575
(3,829)
10,746
27,031
941
27,972
(7,349)
20,623
31,369
323,899
(3,411)
-
(246)
64
(182)
(27,028)
(378)
(27,406)
7,222
(20,184)
(20,366)
203,438
See accompanying notes to the Consolidated Financial Statements.
Page. 95
Consolidated statements of changes in shareholders’ equity
($000s)
Balance, beginning of
year
Net income
Transfer of gains from
sale of equity
instruments
Other comprehensive
income, net of tax
Exercise of stock
options
Purchase of treasury
preferred shares
Net loss on
cancellation of
treasury preferred
shares
Dividends:
Preferred shares
Common shares
Stock-based
compensation
Transfer relating to
the exercise of stock
options
Accumulated other
comprehensive income (loss)
2021
Preferred
shares
Common
shares
Contributed
surplus
Retained
earnings
Cash flow
hedges
Financial
instruments
at FVOCI
Total
Total
72,477
218,166
8,092
1,387,919
(19,943)
(19,009)
(38,952)
1,647,702
-
-
-
-
-
-
-
10,056
-
-
-
-
(1,870)
-
-
292,530
13
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(145)
(4,413)
(25,147)
2,539
-
-
1,938
(1,938)
-
-
-
-
-
-
292,530
13
20,623
10,746
31,369
31,369
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,056
-
(1,870)
-
-
-
-
-
(145)
(4,413)
(25,147)
2,539
-
Balance, end of year
70,607
230,160
8,693
1,650,757
680
(8,263)
(7,583)
1,952,634
Page. 96
($000s)
Balance, beginning of
year
Net income
Other comprehensive
loss, net of tax
Exercise of stock
options
Purchase of treasury
preferred shares
Net loss on
cancellation of
treasury preferred
shares
Dividends:
Preferred shares
Common shares
Stock-based
compensation
Transfer relating to
the exercise of stock
options
72,557
213,277
6,973
1,193,493
-
-
-
(80)
-
-
-
-
-
-
-
4,122
-
-
-
-
-
-
-
-
-
-
-
-
1,886
767
(767)
223,804
-
-
-
(2)
(4,477)
(24,899)
-
-
2020
241
-
(18,827)
(18,586)
1,467,714
-
-
223,804
(20,184)
(182)
(20,366)
(20,366)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,122
(80)
(2)
(4,477)
(24,899)
1,886
-
-
-
-
Balance, end of year
72,477
218,166
8,092
1,387,919
(19,943)
(19,009)
(38,952) 1,647,702
See accompanying notes to the Consolidated Financial Statements.
Page. 97
Consolidated statements of cash flows
($000s) Years ended December 31
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments for non-cash items in net income:
Financial instruments at fair value through profit or loss
Amortization of premiums/discount on investments
Amortization of capital assets and intangible costs
Provision for credit losses
Securitization gains
Stock-based compensation
Income taxes
Securitization retained interests
Changes in operating assets and liabilities:
Restricted cash
Securities purchased under reverse repurchase agreements
2021
2020
292,530
223,804
(10,608)
190
32,672
(7,674)
(18,192)
2,539
97,875
45,257
41,875
(99,827)
(3,069)
1,562
22,930
42,280
(28,101)
1,886
76,689
37,251
(41,047)
(300,134)
Loans receivable, net of securitizations
(4,712,973)
(1,751,647)
Other assets
Deposits
Securitization liabilities
Obligations under repurchase agreements
Funding facilities
Other liabilities
Income taxes paid
Cash flows from operating activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common shares
Dividends paid on preferred shares
Dividends paid on common shares
Cash flows used in financing activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments
Proceeds on sale or redemption of investments
Net change in Canada Housing Trust re-investment accounts
Purchase of capital assets and system development costs
Cash flows used in investing activities
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Cash flows from operating activities include:
Interest received
Interest paid
Dividends received
See accompanying notes to the Consolidated Financial Statements.
4,957
4,287,128
(616,502)
1,124,886
200,128
82,498
(53,501)
693,258
10,056
(4,413)
(25,147)
(19,504)
(2,227)
1,132,975
1,283,655
(255,167)
-
(21,980)
(94,481)
325,179
4,122
(4,477)
(24,899)
(25,254)
(941,944)
(333,002)
562,039
(39,767)
(38,574)
158,199
(48,446)
(27,786)
(458,246)
(251,035)
215,508
557,743
773,251
1,026,279
(518,080)
21,372
48,890
508,853
557,743
1,098,118
(579,580)
9,447
Page. 98
Notes to consolidated financial statements
($000s, except per share amounts)
Note 1 – Reporting Entity
Equitable Group Inc., the (Bank), was formed on January 1, 2004 as the parent company of its wholly owned
subsidiary, Equitable Bank. The Bank is listed on the Toronto Stock Exchange (TSX) and domiciled in Canada with
its registered office located at 30 St. Clair Avenue West, Suite 700, Toronto, Ontario. Equitable Bank is a Schedule I
Bank under the Bank Act (Canada) and is regulated by the Office of the Superintendent of Financial Institutions
Canada (OSFI). Equitable Bank and its subsidiaries offer savings and lending products to personal and commercial
customers across Canada.
Note 2 – Basis of Preparation
(a) Statement of compliance
The Consolidated Financial Statements of Equitable Group Inc. have been prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board
(IASB).
Equitable Group Inc. has 100% ownership interest in Equitable Bank, Equitable Trust Co., Bennington Financial
Services, EQB Covered Bond (Legislative) GP Inc., and EQB Covered Bond (Legislative) Guarantor Limited
Partnership. All these subsidiaries have been consolidated in these financial statements as at December 31, 2021.
The Consolidated Financial Statements were authorized for issue by the Bank’s Board of Directors on February 7,
2022.
(b) Basis of measurement
The Consolidated Financial Statements have been prepared on the historical cost basis except for the following
items which are stated at fair value: derivative financial instruments, financial assets and liabilities that are
classified or designated as at fair value through profit or loss and fair value through other comprehensive income.
(c) Functional currency
The functional currency of the Bank and its subsidiaries is Canadian dollars, which is also the presentation
currency of the Consolidated Financial Statements.
(d) Use of estimates and accounting judgements in applying accounting policies
The preparation of the Consolidated Financial Statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the Consolidated Financial Statements and the reported amounts of revenue and
expenses during the years. Estimates and underlying assumptions are reviewed by management on an ongoing
basis. The critical estimates and judgements utilized in preparing the Bank’s Consolidated Financial Statements
affect the assessment of the allowance for credit losses on loans, impairment of other financial instruments, fair
values of financial assets and liabilities, derecognition of financial assets transferred in securitization transactions,
effectiveness of financial hedges for accounting purposes, and income taxes.
Page. 99
In making estimates and judgements, management uses external information and observable market conditions
where possible, supplemented by internal analysis as required. These estimates and judgements have been made
taking into consideration the economic impact of the COVID-19 pandemic, the spread of variants, and the
significant economic volatility and uncertainty it has created. Actual results could differ materially from these
estimates, in which case the impact would be recognized in the Consolidated Financial Statements in future
periods.
Allowance for credit losses under IFRS 9
The expected credit loss (ECL) model requires management to make judgements and estimates
in a number of areas. Management must exercise significant experienced credit judgement in determining
whether there has been a significant increase in credit risk since initial recognition and in estimating the amount
of ECL. The measurement of ECL incorporates forward-looking macroeconomic variables and probability
weightings of macroeconomic scenarios, which requires significant judgement. Management also exercises
significant experienced credit judgement in determining the amount of ECL at each reporting date by considering
reasonable and supportable information that is not already incorporated in the modelling process. Changes in
these inputs, assumptions, models, and judgements directly impact the measurement of ECL.
As a result of the COVID-19 pandemic, the macroeconomic environment has experienced volatility and
uncertainty. This has resulted in a direct impact on the forward-looking macroeconomic variables which
management uses as part of its underlying assumptions for calculating ECL. Management has used the latest
forward-looking macroeconomic variables provided by Moody’s Analytics economic forecasting services for
calculating ECL. Please refer to note 9(d).
In considering the current economic environment, management has determined that a revision to the probability-
weights assigned to the macroeconomic scenarios was not appropriate.
(e) Consolidation
The Consolidated Financial Statements as at and for the twelve months ended December 31, 2021 and December
31, 2020 include the assets, liabilities and results of operations of the Bank and its subsidiaries, after the
elimination of intercompany transactions and balances. The Bank has control over its subsidiaries as it is exposed
to and has rights to variable returns from its involvement with the subsidiaries and it has the ability to affect those
returns through its power over their relevant activities.
Note 3 – Significant Accounting Policies
The following note describes the Bank’s significant accounting policies. These accounting policies have been
applied consistently to all periods presented in these Consolidated Financial Statements, except for the adoption
of new accounting policies as a result of the covered bond issuance during 2021.
(I) New accounting policies adopted
(a) Covered bond
In the normal course of business, the Bank sells uninsured residential loans to a separate guarantor entity, EQB
Covered Bond (Legislative) Guarantor Limited Partnership (Guarantor LP), established by the Bank exclusively for
the Covered Bond Program (the Program). The sale of uninsured residential loans under the Program do not
qualify for derecognition and are classified as Loans receivable on the Consolidated Balance Sheets and are
measured at amortized cost, plus accrued interest, and are reported net of unamortized origination fees,
commitment income, premiums or discounts.
Page. 100
These sale transactions are considered secured funding and are recognized under Deposits on the Consolidated
Balance Sheets. These deposits are measured at amortized cost, plus accrued interest, and are reported net of
any unamortized premiums or discounts and transaction costs incurred in obtaining the secured funding.
Interest expense is allocated over the expected term of borrowing by applying the effective interest rate to the
carrying amount of the liability and is recorded under Interest expense – Deposits in the Consolidated Statements
of Income. The Guarantor LP is consolidated with the Bank, as the Bank has the decision-making power and ability
to use the power to affect the Bank’s returns.
(b) Derivative financial instruments
Fair value hedges
During 2021, the Bank entered into cross currency interest rate swap agreements to manage interest rate and
foreign exchange exposures on fixed rate foreign currency covered bond liabilities. The fair value of these cross-
currency interest rate swap agreements is included in Other assets and/or Other liabilities with changes in fair
value recorded in Interest expense – Deposits. Changes in fair value of the foreign currency covered bond
liabilities attributable to the hedged risk, is also included in Interest expense – Deposits. The Bank applies hedge
accounting to these derivatives.
(II) Accounting policies consistently applied in prior and current periods
(a) Financial instruments
The Bank’s Consolidated Balance Sheet consists primarily of financial instruments. The majority of the Bank’s net
income is derived from interest income and expenses, as well as gains and losses related to the respective
financial instruments.
Financial assets include cash and cash equivalents, restricted cash, securities purchased under reverse
repurchase agreements, investments, loans receivable – personal, loans receivable – commercial, securitization
retained interests and derivative financial instruments. Financial liabilities include deposits, securitization
liabilities, obligations under repurchase agreements accounts payable, bank facilities and derivative financial
instruments.
(i) Classification and measurement of financial instruments
Financial assets are measured at initial recognition at fair value, and are classified and subsequently measured at
fair value through profit or loss (FVTPL), fair value through other comprehensive income (FVOCI) or amortized cost
(AMC), based on the business model for managing the financial instruments and the contractual cash flow
characteristics of the instrument.
i. Debt Instruments
On initial recognition, all debt instruments, including loans, are classified based on:
• The business model under which the asset is held; and
• The contractual cash flow characteristics of the financial instrument
Page. 101
Business model assessment
Business model assessment involves determining whether financial assets are held and managed by the Bank for
generating and collecting contractual cash flows, selling the financial assets or both. The Bank assesses the
business model at a portfolio level using judgement and is supported by relevant objective evidence including:
• how the performance of the asset is evaluated and reported to the Bank’s management;
• the frequency, volume, reason and timing of sales in prior periods and expectations about future sale activity;
• whether the assets are held for trading purposes i.e., assets that are acquired by the Bank principally for the
purpose of selling or repurchase in the near term, or held as part of a portfolio that is managed together for
short-term profits; and
• the risks that affect the performance of assets held within a business model and how those risks are managed.
Cash flow characteristics assessment
The contractual cash flow characteristics assessment involves assessing the contractual features of an instrument
to determine if they give rise to cash flows that are consistent with a basic lending arrangement i.e. if they
represent cash flows that are solely payments of principal and interest (SPPI).
Principal is defined as the fair value of the instrument at initial recognition. Principal may change over the life of
the instrument due to repayments. Interest is defined as consideration for the time value of money and the credit
risk associated with the principal amount outstanding and for other basic lending risks and costs (liquidity risk and
administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are SPPI, the Bank considers the contractual terms of the
instrument. This includes assessing whether the financial asset contains any contractual terms that could change
the timing or amount of contractual cash flows such that the financial asset would not meet the SPPI criteria. In
making the assessment the Bank considers:
• contingent events that would change the amount and/or timing of cash flows;
• leverage features;
• prepayment and extension terms;
• associated penalties relating to prepayments;
• terms that limit the Bank’s claim to cash flows from specified assets; and
• features that modify consideration of the time value of money.
Debt instruments measured at AMC
Debt instruments are measured at AMC using the effective interest rate method, if they are held within a business
model whose objective is to hold the financial asset for collecting contractual cash flows where those cash flows
represent SPPI. The effective interest rate is the rate that discounts estimated future cash payments or receipts
through the expected life of the financial asset to the gross carrying amount of the financial asset.
AMC is calculated taking into account any discount or premium on acquisition, transaction costs and fees that are
an integral part of the effective interest rate. Amortization of these deferred costs is included in Interest income in
the Consolidated Statements of Income.
Impairment on debt instruments measured at AMC is calculated using the ECL approach. Loans and debt
securities measured at amortized cost are presented net of the Allowance for Credit Losses (ACL) in the
Consolidated Balance Sheets.
Page. 102
Debt instruments measured at FVOCI
Debt instruments are measured at FVOCI if they are held within a business model whose objective is to hold the
financial asset for collection of contractual cash flows and for selling financial assets, where the cash flows
represent payments that are SPPI. Subsequent to initial recognition, the assets are fair valued and unrealized
gains and losses are recorded in other comprehensive Income (OCI). Upon derecognition, realized gains and
losses are reclassified from OCI and recorded in Non-interest income in the Consolidated Statements of Income.
Premiums, discounts and related transaction costs are amortized over the expected life of the instrument to
investments income in the Consolidated Statements of Income using the effective interest rate method.
Impairment on debt instruments measured at FVOCI is calculated using the ECL approach. The ACL on debt
instruments measured at FVOCI does not reduce the carrying amount of the asset in the Consolidated Balance
Sheets, which remains at its fair value. Instead, an amount equal to the impairment is recognized in accumulated
other comprehensive income (AOCI) with a corresponding charge to Provision for credit losses in the
Consolidated Statements of Income. The accumulated allowance recognized in AOCI is recycled to the
Consolidated Statements of Income upon derecognition of the debt instrument.
Debt instruments measured at FVTPL
Debt instruments measured at FVTPL include assets held as part of a portfolio managed on a fair value basis and
assets whose cash flows do not represent payments that are SPPI. These instruments are measured at fair value in
the Consolidated Balance Sheets, with transaction costs recognized immediately in the Consolidated Statements of
Income as part of Non-interest income. Realized and unrealized gains and losses are recognized as part of Non-
interest income in the Consolidated Statements of Income.
ii. Equity instruments
Equity instruments are measured at FVTPL, unless they are not held for trading purposes and an irrevocable
election is made to designate these instruments at FVOCI upon initial recognition. The measurement election is
made on an instrument- by-instrument basis. Changes in fair value and dividends received are recognized as part
of Non-interest income – Net gain on loans and investments in the Consolidated Statements of Income for equity
instruments measured as at FVTPL. The Bank has elected to measure certain equity investments at FVOCI that are
held for longer term investment purposes. These instruments are measured at fair value in the Consolidated
Balance Sheets, with transaction costs being added to the cost of the instrument. Dividends are recorded in
Interest income – Investments in the Consolidated Statements of Income. Unrealized fair value gains/losses are
recognized in OCI and are not subsequently reclassified to the Consolidated Statements of Income when the
instrument is derecognized or sold.
iii. Financial assets and liabilities designated at FVTPL
Financial assets and financial liabilities classified in this category are those that have been designated by the Bank
on initial recognition. Financial assets are designated at FVTPL if doing so eliminates or significantly reduces an
accounting mismatch which would otherwise arise.
Financial liabilities are designated at FVTPL when one of the following criteria is met:
• The designation eliminates or significantly reduces an accounting mismatch which would otherwise arise; or
• The financial liability contains one or more embedded derivatives which significantly modify the cash flows
otherwise required.
Financial assets and financial liabilities designated at FVTPL are recorded in the Consolidated Balance Sheets at
fair value. For assets designated at FVTPL, changes in fair values are recognized in Non-interest income in the
Consolidated Statements of Income. For liabilities designated at FVPTL, all changes in fair value are recognized in
Non-interest income in the Consolidated Statements of Income, except for changes in fair value arising from
changes in the Bank’s own credit risk are recognized in OCI and are not subsequently reclassified to the
Consolidated Statements of Income upon derecognition/extinguishment of the liabilities.
Page. 103
iv. Financial liabilities
Financial liabilities are initially recognized at fair value and are subsequently measured at amortized cost, except
for liabilities mandatorily measured/designated as at FVTPL.
(ii)
Impairment
Scope
The Bank applies the three-stage approach to measure ACL, using the ECL approach as required under IFRS 9, for
the following categories of financial instruments that are not measured at FVTPL:
• Financial assets at AMC
• Debt securities as at FVOCI; and
• Off-balance sheet loan commitments
ECL is calculated based on the stage in which the financial instrument falls at the reporting date. Financial
instruments migrate through the three stages based on the change in their risk of default since initial recognition.
ECL model
The Bank’s ACL calculation is an output of an ECL model with a number of underlying assumptions regarding the
choice of variable inputs and their interdependencies. The ECL model reflects the present value of all cash
shortfalls related to default events either (i) over the following twelve months or (ii) over the expected life of the
financial instrument, depending on credit deterioration of the instrument since its inception. The ACL calculated
using the ECL model reflects an unbiased, probability-weighted credit loss which considers five macroeconomic
scenarios based on reasonable and supportable information about past events, current conditions, and forecasts
of future economic conditions. Forward- looking macroeconomic variables are explicitly incorporated into the
estimation of ECL.
Measurement of ECL
The ECL model measures credit losses using the following three-stage approach based on the extent of credit
deterioration of the financial asset since initial recognition:
• Stage 1 – Where there has not been a significant increase in credit risk (SICR) since initial recognition of a
financial instrument, an amount equal to twelve months ECL is recorded. ECL is computed using a probability of
default (PD) occurring over the next twelve months. For those instruments with a remaining maturity of less
than twelve months, a PD corresponding to remaining term to maturity is used.
• Stage 2 – When a financial instrument experiences a SICR subsequent to initial recognition but is not considered
to be in default, it is included in Stage2. This requires the computation of ECL based on the PD over the
remaining estimated life of the financial instrument.
• Stage 3 – Financial instruments that are considered to be in default are included in this stage. Similar to Stage 2,
the ACL captures lifetime ECL.
The PD, exposure at default (EAD), and loss given default (LGD) are inputs used to estimate ECL. PD and LGD are
modelled using forward-looking macroeconomic variables that are closely related with credit losses in the
relevant portfolios, and are probability-weighted using five macroeconomic scenarios.
Page. 104
Details of these statistical parameters/inputs are as follows:
•
•
•
PD is an estimate of the likelihood of default over a given time horizon and is expressed as a percentage.
EAD is the expected exposure in the event of default at a future default date and is expressed as an amount.
LGD is an estimate of the loss arising in the event a default occurs at a given time and is based on the
difference between the contractual cash flows due and those that the Bank would expect to receive, including
from the realization of any collateral. It is expressed as a percentage of the EAD.
Forward-looking macroeconomic variables
The measurement of ACL for each stage and the assessment of SICR considers information about past events and
current conditions as well as reasonable and supportable forecasts of future events and economic conditions. The
estimation and application of forward-looking macroeconomic variables requires significant judgement.
The Bank relies on a broad range of forward- looking macroeconomic variables, such as expected GDP growth,
unemployment rates, house price indices, commercial property index and family income. The inputs used in the
model for calculating ECL may not always capture all characteristics of the market at the balance sheet date. To
capture portfolio characteristics and risks, qualitative adjustments or overlays are made using management
experienced credit judgement.
Multiple forward-looking macroeconomic scenarios
The Bank determines ECL using five probability- weighted forward-looking macroeconomic scenarios obtained on
a periodic basis from Moody’s Analytics economic forecasting services. These macroeconomic scenarios include a
‘base-case’ scenario which represents the most likely outcome and four additional macroeconomic scenarios
representing more optimistic and more pessimistic outcomes. These additional macroeconomic scenarios are
designed to capture material non- linearity of potential credit losses in the portfolios.
Assessment of significant increase in credit risk
The determination of whether ECL on a financial instrument is calculated on a 12 month period or lifetime basis is
dependent on the stage the financial asset falls into at the reporting date. A financial instrument moves across
stages based on an increase or decrease in its risk of default at the reporting date compared to its risk of default
at initial recognition, as measured by changes to borrower level information and macroeconomic outlook.
When determining whether the risk of default on a financial instrument has increased significantly since initial
recognition, the Bank considers reasonable and supportable information that is relevant and available without
undue cost or effort. This includes both quantitative analysis and qualitative information, based on the Bank’s
historical experience and experienced credit judgement, delinquency and monitoring, and forward-looking
macroeconomic variables. With regards to delinquency and monitoring, there is a rebuttable presumption that
the risk of default of the financial instrument has significantly increased since initial recognition when contractual
payments are more than 30 days overdue. The estimation and application of the assessment of quantitative and
qualitative information for the assessment of SICR requires significant judgement.
Page. 105
Modified financial assets
The original terms of a financial asset may be renegotiated or otherwise modified, resulting in changes to the
contractual terms of the financial asset that affect the contractual cash flows.
If the terms of a financial asset are modified or an existing financial asset is replaced with a new one, an
assessment is made to determine if the modification is substantial. If the modification is substantial, the original
asset is derecognized and a new asset is recognized at fair value. The new financial asset is generally recorded in
Stage 1, unless it is determined to be credit-impaired at the time of the renegotiation. Where the modification
does not result in derecognition, the date of the origination continues to be used to determine the significant
increase in credit risk.
Definition of default
The Bank considers a financial instrument to be in default when:
•
•
the borrower is unlikely to pay its credit obligations to the Bank in full, without recourse by the Bank to
actions such as realizing collateral (if any is held); or
the borrower is past due more than 90 days on any material credit obligation to the Bank.
The Bank classifies a loan receivable as impaired when, in the opinion of management, there is reasonable doubt
as to the timely collectability, either in whole or in part, of principal or interest, or the loan is past due 90 days.
(iii) Determination of fair value of financial instruments
When a financial instrument is initially recognized, its fair value is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date.
Subsequent to initial recognition, for financial instruments measured at fair value where active market prices are
available, bid prices are used for financial assets and ask prices for financial liabilities. For those financial
instruments measured at fair value where an active market is not available, fair value estimates are determined
using valuation methods which maximize use of observable market data and include discounted cash flow
analysis and other commonly used valuation techniques. See Note 5 for the valuation methods and assumptions
used to estimate fair values of financial instruments.
(iv) Derecognition of financial instruments Financial assets
The Bank derecognizes a financial asset when:
•
•
•
•
the contractual rights to receive the cash flows from the asset have expired; or
the Bank has transferred its rights to receive future cash flows from the financial asset, or it retains the
contractual rights to receive the cash flows from the financial asset but assumes a contractual obligation to
pay the cash flows to one or more recipients and either:
the Bank has transferred substantially all the risks and rewards of ownership of the financial asset; or
the Bank has neither retained nor transferred substantially all the risks and rewards of ownership in the
financial asset, but has transferred control of the asset.
Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Bank is
recognized as a separate asset or liability in the Consolidated Balance Sheets. On derecognition of a financial
asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of
the asset transferred), and the sum of (i) the consideration received (including any new asset obtained less any
new liability assumed) and (ii) any cumulative gain or loss that had been recognized in OCI is recognized in the
Consolidated Statements of Income.
Page. 106
If the transfer of assets does not meet the criteria for derecognition, the Bank continues to recognize the financial
asset and also recognizes a financial liability for the consideration received upon the transfer in the Consolidated
Balance Sheets.
The derecognition criteria is also applied to the transfer of part of an asset, rather than a whole, or to a group of
similar financial assets in their entirety, when applicable. When it is applied to part of an asset, the part comprises
of specifically identified cash flows, a fully proportionate share of the asset, or a fully proportionate share of a
specifically identified cash flow from the asset.
Financial liabilities
The Bank derecognizes a financial liability when the obligation under the liability is discharged, cancelled or
expires.
(v) Offsetting
Financial assets and liabilities are offset and the net amount presented in the Consolidated Balance
Sheets when the Bank has a legal right to set off the recognized amounts and it intends either to settle on a net
basis or to realize the asset and settle the liability simultaneously. Income and expenses are presented on a net
basis only when permitted under IFRS or for gains and losses arising from a group of similar transactions.
(b)
Investments
Investments are accounted for at settlement date and initially measured at fair value and subsequently
measured depending upon their classification as follows:
• Debt securities classified as AMC; these investments are subsequently measured at amortized cost using the
effective interest rate method;
• Debt securities classified as at FVOCI; these investments are subsequently measured at fair value, with the
fair value changes recorded in other comprehensive income and moved to the Consolidated Statements of
Income on derecognition;
• Debt and Equity securities classified as at FVTPL; these investments are subsequently measured at fair value,
•
with the fair value changes recorded in the Consolidated Statements of Income; and
Equity securities designated as at FVOCI; these investments are subsequently measured at fair value, with the
fair value changes recorded in other comprehensive income and moved to retained earnings on
derecognition.
For debt securities measured at FVOCI, gains and losses are recognized in OCI, except for the following, which are
recognized in Consolidated Statements of Income in the same manner as for financial assets measured at
amortized cost:
•
•
Interest revenue using the effective interest rate method; and
ACL and reversals.
When a debt security measured at FVOCI is derecognized, the cumulative gain or loss previously recognized in OCI
is classified from OCI to Consolidated Statements of Income.
The Bank elects to present changes in the fair value of certain investments in equity instruments that are not held
for trading, through OCI. The election is made on an instrument-by-instrument basis on initial recognition and is
irrevocable. Gains and losses on such equity instruments are never reclassified to Consolidated Statements of
Income and no impairment is recognized in Consolidated Statements of Income. Dividends are recognized in
Consolidated Statements of Income, unless they clearly represent a recovery of part of the cost of investment, in
which case they are recognized in OCI. Cumulative gains and losses recognized in OCI are transferred to retained
earnings on disposal of the investment.
Page. 107
(c) Loans receivable
Loans receivable measured at amortized cost
Loans are initially recognized at fair value and subsequently measured at amortized cost, plus accrued interest,
using the effective interest rate method, and are reported net of unamortized origination fees, commitment
income, premiums or discounts and an allowance for ECL. Net fees relating to loan origination are amortized to
income on an effective yield basis over the term of the loans to which they relate and are included in Interest
income – loans in the Consolidated Statements of Income.
Loans receivable measured as at FVTPL
Certain loans measured as at FVTPL are carried at fair value with changes in fair value included in Non-interest
income in the Consolidated Statements of Income. Net fees relating to loan origination are recognized in income
as incurred, and are included in Interest income – Loans in the Consolidated Statements of Income.
(d) Cash and cash equivalents
Cash and cash equivalents consist of deposits with regulated financial institutions and highly liquid short-term
investments, including government guaranteed investments and other money market instruments, whose term to
maturity at the date of purchase is less than three months and are readily convertible to known amounts of cash
which are subject to an insignificant risk of changes in value. Interest earned on cash and cash equivalents is
included in Interest income − other in the Consolidated Statements of Income.
(e) Securities purchased under reverse repurchase agreements
Securities purchased under reverse repurchase agreements represent purchases of Government of Canada
guaranteed debt securities and are treated as collateralized lending transactions as they represent the purchase
of securities with a simultaneous agreement to sell them back at a specified price on a specified future date,
which is generally short term. These receivables in respect of the amount advanced are classified and measured
at amortized cost plus accrued interest on the Consolidated Balance Sheets. The interest income earned from
these investments is recorded on an accrual basis using the effective interest rate method and is included in
Interest income – Investments in the Consolidated Statements of Income.
(f) Securitizations
In the normal course of business, the Bank securitizes insured residential loans through the Government of
Canada’s National Housing Act (NHA), Mortgage Backed Securities (MBS) and Canada Mortgage Bond (CMB)
programs, which are facilitated by Canada Mortgage and Housing Corporation (CMHC). The Bank securitizes the
loans through the creation of MBS and the ultimate sale of MBS to third party investors or through the CMB
program.
The Bank also securitizes uninsured residential loans by entering into an agreement to sell these loans into a
program sponsored by a major Schedule I Canadian bank.
Securitized loans and securitization liabilities
Insured loans in MBS that are sold to third parties and do not qualify for derecognition continue to be classified as
Loans receivable on the Consolidated Balance Sheets and they are measured at amortized cost, plus accrued
interest, and are reported net of unamortized origination fees, commitment income, premiums or discounts and
insurance costs. Net fees and any premium or discount relating to loan origination are amortized to income on an
effective yield basis over the term of the loans to which they relate, and are included in Interest income – Loans in
the Consolidated Statements of Income.
Page. 108
Sale of uninsured residential loans do not qualify for derecognition, are classified as Loans receivable on the
Consolidated Balance Sheets, and are measured at amortized cost, plus accrued interest, and are reported net of
unamortized origination fees, commitment income, premiums or discounts. Net fees and any premium or
discount relating to loan origination are amortized to income on an effective yield basis over the term of the loans
to which they relate, and are included in Interest income – Loans in the Consolidated Statements of Income.
In addition, these transactions are considered secured financing and result in the recognition of securitization
liabilities. Securitization liabilities are measured at amortized cost, plus accrued interest, and are reported net of
any unamortized premiums or discounts and transaction costs incurred in obtaining the secured financing.
Interest expense is allocated over the expected term of borrowing by applying the effective interest rate to the
carrying amount of the liability.
Securitization retained interest and servicing liability
In certain securitization transactions that qualify for derecognition, the Bank has a continuing involvement in the
securitized asset that is limited to retained rights in future excess interest and the liability associated with servicing
these assets. Under IFRS 9, the securitization retained interest is classified as AMC. The servicing liability is reported
as part of Other liabilities. During the life of the securitization, as cash is received, and servicing fees are paid, the
retained interests and the servicing liability are amortized and recognized in the Consolidated Statements of
Income under Gains on securitization activities and income from securitization retained interests.
Gains on securitization
When a loan is derecognized, the related loans are removed from the Consolidated Balance Sheets and a gain or
loss is recognized in the Consolidated Statements of Income under Non-interest income – Gains on securitization
activities and income from securitization retained interests.
(g) Purchased loans
All purchased financial assets are initially measured at fair value on the date of acquisition. The fair value of loans
purchased is determined by estimating the principal and interest cash flows expected to be collected and
discounting those cash flows at a market rate of interest. The fair value adjustment set up for these loans on the
date of acquisition is amortized over the life of these loans and included in Interest income – Loans – Commercial
in the Consolidated Statements of Income.
On the date of acquisition, purchased performing loans follow the same accounting treatment as originated
performing loans, and are included in Stage 1. As a result, immediately after the date of acquisition, a 12-month
allowance is recorded in provision for credit losses in the Consolidated Statements of Income. Subsequent to the
acquisition date, ECL allowances are estimated in a manner consistent with the Bank’s impairment policy that is
applied to loans that are originated.
Purchased credit impaired loans are reflected in Stage 3 and are subject to lifetime allowance for credit losses.
Any changes in expected cash flows since the date of acquisition are recorded as a charge/recovery in the
provision for credit losses in the Consolidated Statements of Income.
(h) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. Non-controlling interests, if any, are
recognized at their proportionate share of the fair value of identifiable assets and liabilities. Goodwill represents
the excess purchase price paid over the fair value of identifiable net assets and liabilities acquired in a business
combination on the date of acquisition.
Page. 109
Goodwill is allocated to cash-generating units for the purpose of impairment testing, which is the lowest level at
which goodwill is monitored for internal management purposes. Impairment testing is performed at least
annually and when an event or change in circumstances indicates that the carrying amount may be impaired.
Goodwill is carried at cost less accumulated impairment losses and is included in Other assets on the
Consolidated Balance Sheets.
(i) Foreign currency translation
On initial recognition, monetary assets and liabilities denominated in foreign currencies are translated into
Canadian Dollars at rates prevailing on the date of the transaction. At the balance sheet date, these foreign
currency monetary assets and liabilities are remeasured into Canadian Dollars at rates prevailing at the balance
sheet date. Foreign exchange gains and losses resulting from the translation on remeasurement or settlement of
these items are recognized in Fees and other income in the Consolidated Statements of Income.
(j) Derivative financial instruments
The Bank uses derivative financial instruments primarily to manage exposure to interest rate risk.
Derivative instruments that are typically used are interest rate swaps, and bond forwards, and total return swaps,
in addition to cross currency swaps discussed previously. Interest rate swaps are used to adjust exposure to
interest rate risk by modifying the maturity characteristics of existing assets and liabilities. Bond forwards are
used to hedge interest rate exposures resulting from changes in interest rates between the time the Bank
commits to funding a loan it intends to securitize through the MBS and CMB program, and the date of
securitization. Total return swaps are used to hedge the risk of changes in future cash flows related to the Bank’s
Restricted share unit (RSU) and Deferred share unit (DSU) plan. The Bank also uses total return swaps to hedge
the reinvestment risk between the amortizing MBS and the bullet CMB related to its CMB activities.
Derivatives embedded in other financial instruments or host contracts are treated as separate derivatives when
the following conditions are met:
•
•
•
their economic characteristics and risks are not closely related to those of the host contract;
a separate instrument with the same terms as the embedded derivative would meet the definition of a
derivative; and
the combined contract is not held for trading or designated at fair value through profit or loss.
Separated embedded derivatives are presented with other derivative assets and liabilities in the Consolidated
Balance Sheets.
Cash flow hedges
In order for a derivative to qualify as an accounting hedge, the hedging relationship must be designated and
formally documented at its inception, detailing the particular risk management objective and strategy for the
hedge and the specific asset, liability, or cash flow being hedged, the hedging instrument, as well as how its
effectiveness is being assessed. Changes in the fair value of the derivative must be highly effective in offsetting
changes in the amount of future cash flows being hedged.
The Bank’s cash flow hedges include hedges of anticipated highly probable cash flows on fixed rate liabilities
arising from accounting for securitization transactions as secured financing under IAS 39, Financial Instruments:
Recognition and Measurement. The Bank enters into bond forwards (including certain embedded derivatives) to
hedge this cash flow risk and applies hedge accounting to these derivative financial instruments. The Bank also
enters into interest rate swaps to hedge future cash flows related to its floating rate liabilities. To the extent that
changes in the fair value of the derivative do not exceed the changes in the fair value of the hedged item they are
recorded in OCI, net of tax. The cumulative amounts deferred in AOCI are reclassified to Interest expense –
Securitization liabilities in the Consolidated Statements of Income, over the term of the related hedged item.
Page. 110
The Bank’s cash flow hedges also include Total return equity swap contracts (TRS) used to hedge the risk of
changes in future cash flows related to its RSU plan. The value of RSUs or Performance Share Units (PSU) issued is
linked to the price of the Bank’s common shares over the period the TRS is in effect. The fair value of the TRS is
included in Other assets and/or Other liabilities in the Consolidated Balance Sheets and the effective portion of
the changes in fair values of these TRS is recorded in OCI, net of tax. The cumulative amounts deferred in AOCI
are reclassified to Non-interest expense – Compensation and benefits in the Consolidated Statements of Income,
over the vesting period of the RSUs or PSUs.
Hedge effectiveness is evaluated at the inception of the hedging relationship and on an ongoing basis,
retrospectively and prospectively, primarily using quantitative statistical measures of correlation. The change in
the fair value of the hedging instrument will be recorded on the Consolidated Balance Sheets under AOCI as
either deferred gains or losses during the hedge term only to the extent of the effective portion of the hedges.
Any ineffectiveness in the hedging relationship, occurring as a result of mismatch in critical terms such as tenor
and timing of cash flows between hedging instruments and hedged items, is included in Non-interest income –
Gains on securitization activities and income from securitization retained interests in the Consolidated Statements
of Income as it occurs.
The Bank also uses TRSs to hedge the risk of changes in future cash flows related to its DSU plan and the Bank has
not applied hedge accounting to these derivative instruments. The value of the DSU is linked to the price of the
Bank’s common shares over the period the TRS is in effect. The fair value of the TRS is included in Other assets
and/or Other liabilities in the Consolidated Balance Sheets and changes in fair value of these TRSs being recorded
in Non-interest expense – Compensation and benefits in the Consolidated Statements of Income for the period in
which the changes occur.
Fair value hedges
The Bank enters into interest rate swap agreements to manage interest rate exposures on fixed rate deposits used
to fund floating rate loans. The fair values of these interest rate swap agreements are included in Other assets
and/or Other liabilities with changes in fair value recorded in Interest expense – Deposits. Changes in the fair value
of deposits attributable to the hedged risks are also included in Interest expense – Deposits. For most hedging
relationships, the Bank has applied hedge accounting.
The Bank enters into interest rate swap agreements to manage interest rate exposures on fixed rate
securitization liabilities. The fair value of these interest rate swap agreements is included in Other assets and/or
Other liabilities with changes in fair value recorded in Non-interest income – Gains on securitization activities and
income from securitization retained interests. Changes in fair value of the securitization liability attributable to the
hedged risk, is also included in Non-interest income – Gains on securitization activities and income from
securitization retained interests. The Bank applies hedge accounting to these derivatives.
The Bank also enters into interest rate swap agreements to manage interest rate exposures on fixed rate loan
assets. The fair value of these interest rate swap agreements is included in Other assets and/or Other liabilities
with changes in fair value recorded in Interest income Loans – Personal and/or Loans – Commercial. Changes in
fair value of the loan assets attributable to the hedged risk, is also included in Interest income Loans – Personal
and/or Loans – Commercial. The Bank applies hedge accounting to these derivatives.
Beginning in 2020, the Bank entered into interest rate swap agreements to manage interest rate exposures on its
investment in fixed rate provincial bonds. The fair value of these interest rate swap agreements is included in
Other assets and/or Other liabilities with changes in fair value recorded in Non-interest income – Net gain (loss)
on investments. Changes in fair value of the provincial bonds is attributable to the hedged risk and is also
included in Non-interest income – Net gain (loss) on investments. The Bank applies hedge accounting to these
derivatives.
Page. 111
In order for a derivative to qualify as an accounting hedge, the hedging relationship must be designated and
formally documented at its inception, detailing the particular risk management objective and strategy for the
hedge and the specific asset, liability or cash flow being hedged, the hedging instrument, as well as how its
effectiveness is being assessed. Changes in the fair value of the derivative must be highly effective in offsetting
changes in the fair value of the hedged asset or liability. Hedge effectiveness is evaluated at the inception of the
hedging relationship and on an ongoing basis, retrospectively and prospectively, primarily using quantitative
statistical measures of correlation. Hedge ineffectiveness, if any, are a result of differences in maturities and
prepayment frequency between hedging instruments and hedged items.
The Bank enters into bond forwards to manage interest rate exposures for certain loan commitments and funded
loans until the date they are securitized. The fair values of these bond forwards are included in Other assets
and/or Other liabilities with changes in fair value recorded in Non-interest income – Gains on securitization
activities and income from securitization retained interests. Changes in fair value of loans and loan commitments
are also included in Non-interest income – Gains on securitization activities and income from securitization
retained interests. The Bank does not apply hedge accounting to these derivative instruments.
Beginning in 2020, the Bank entered into foreign exchange forwards to manage foreign exchange exposures on
certain foreign currency liabilities. The fair value of these foreign exchange forwards is included in Other assets
and/or Other liabilities with changes in fair value recorded in Non-interest income – Fees and other income.
Changes in foreign currency translation of foreign currency liabilities are also included in Non-interest income –
Fees and other income. The Bank does not apply hedge accounting to these derivative instruments.
The Bank’s hedging activities are transacted with approved counterparties, which are limited to Canadian
chartered banks, their subsidiaries and other financial intermediaries.
(k) Leases As a Lessor:
Identification of a lease
At the inception of each lease, the Bank assesses if it is a finance lease or an operating lease. The assessment is
based on substantially transferring all the risks and rewards to the lessee. If substantially all of the risks and
rewards incidental to ownership are transferred to the lessee, the lease is considered a finance lease, otherwise it
is considered an operating lease.
Recognition
At the lease commencement date, the Bank includes assets held under a finance lease in Loans – Commercial, on
its Consolidated Balance Sheets at an amount equal to the net investment in the finance lease. The investment in
finance lease is initially measured at the present value of the lease payments that are not received at the
commencement date, discounted using the interest rate implicit in the lease. The interest rate is adjusted for all
the initial direct costs associated with the origination of finance lease that are factored into the determination of
the interest rate implicit in the lease. Lease payments included in the measurement of investment in finance lease
include fixed and variable lease payments, less incentives payable.
Subsequent measurement
The net investment in finance leases includes gross minimum lease payments receivable, less the unamortized
portion of unearned finance income, security deposits held, and the allowance for credit losses. The finance
income earned is included in Interest income – Commercial Loans in the Consolidated Statements of Income on a
basis that reflects a constant periodic rate of return on the gross investment in finance lease receivables.
Page. 112
As a Lessee:
Identification of a lease
At the inception of a contract, the Bank assesses whether the contract is, or contains, a lease. A contract is, or
contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration. To assess if the contract conveys the right to control the use of an identified asset,
the Bank assesses whether:
•
•
•
the contract involves the use of an identified asset – this may be specified explicitly or implicitly in the
contract and is physically distinct or represents substantially all of the capacity of a physically distinct asset. If
the supplier has a substantive substitution right, then the asset is not considered as identified;
the Bank has the right to obtain substantially all of the economic benefits from the use of the asset
throughout the period of use; and
the Bank has the right to direct the use of the asset. The Bank has this right when it has the decision-making
rights that are most relevant to changing the purpose of the asset use throughout the period of use.
Recognition
The Bank recognizes a Right-of-Use (ROU) asset and a lease liability at the lease commencement date. The ROU
asset is initially measured at cost, which comprises the initial amount of lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct costs incurred, less any lease
incentives received.
The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted using the interest rate implicit in the lease or, if the rate cannot be readily
determined, the Bank’s incremental borrowing rate.
Subsequent measurement
The ROU asset is subsequently depreciated using the straight-line method from the commencement date to the
earlier of the end of the useful life of the ROU asset or the end on the lease term. In addition, the ROU asset is
periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is measured at amortized cost using the effective interest rate method. The liability is
remeasured if there are changes to the lease rates, or changes to the Bank’s assessment of whether it will
exercise the extension or termination options per the lease contracts.
After the commencement date, if a lease is remeasured, an adjustment is made to the ROU asset. In case the
carrying amount of the ROU asset is reduced to zero and there is a further reduction in the measurement of the
lease liability, the remaining amount is recognized in the Consolidated Statements of Income.
The ROU assets and corresponding lease liabilities are included in Other Assets and Other Liabilities, on the
Bank’s Consolidated Balance Sheets.
Short-term leases and leases of low-value assets
The Bank has elected not to recognize a ROU asset and lease liabilities for short-term leases that have a lease
term of 12 months or less and leases of low-value assets. The Bank recognizes the lease payments associated
with these leases as an expense on a straight-line basis over the lease term.
Page. 113
(l) Compensation plans
The Bank offers several benefit programs to eligible employees. These benefits include a deferred profit sharing
plan, employee stock purchase plan, annual bonuses, and compensation in the form of share-based payments.
(i) Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as
the related service is provided. A liability is recognized for the amount expected to be paid under short-
term bonus plans if the Bank has a present legal or constructive obligation to pay this amount as a result
of past service provided by the employee and the obligation can be estimated reliably.
(ii) Deferred profit sharing plan (DPSP)
The Bank has a DPSP under which the Bank pays fixed contributions into a separate entity and will have
no legal or constructive obligation to pay further amounts. Obligations for contributions are recognized
as an expense in income when they are due in respect of service rendered before the end of the
reporting period.
(iii) Stock-based compensation Stock option plan
The Bank has a stock option plan for eligible employees. Under this plan, options are periodically
awarded to participants to purchase common shares at prices equal to the closing market price of the
shares or the volume-weighted average closing price of the Bank’s common shares on the TSX for the five
consecutive trading days immediately prior to the date the options were granted. The Bank uses the fair
value-based method of accounting for stock options and recognizes compensation expense based on the
fair value of the options on the date of the grant, which is determined using the Black-Scholes option
pricing model. The fair value of the options is recognized on a straight-line basis over the vesting period
of the options granted as compensation expense with a corresponding increase in Contributed surplus.
The awards are delivered in tranches; each tranche is considered a separate award and is valued and
amortized separately. Expected forfeitures are factored into determining the stock option expense and
the estimates are periodically adjusted in the event of actual forfeitures or for changes in expectations.
The Contributed surplus balance is reduced as the options are exercised and the amount initially
recorded for the options in Contributed surplus is reclassified to capital stock. Compensation expense
related to the stock-based compensation plan is included in Non- interest expense – Compensation and
benefits in the Consolidated Statements of Income.
Restricted share unit (RSU) plan
The Bank has an RSU plan and may grant RSUs and/or Performance Share Units (PSUs) to eligible employees on
an annual basis. The expense related to the award of these units is included in Non-interest expense –
Compensation and benefits in the Consolidated Statements of Income over the vesting period and any
corresponding liability is included in Other liabilities in the Consolidated Balance Sheets. Since each RSU or PSU
represents a notional common share, any changes in unit value and re-invested notional dividend amounts are
recognized in the Consolidated Statement of Income. Each RSU or PSU held at the end of the vesting period
including those acquired as dividend equivalents will be paid to the eligible employee in cash, the value of which
will be based on the volume-weighted average closing price of the Bank’s common shares on the TSX for the five
consecutive trading days immediately prior to the vesting. The value of PSUs may be increased or decreased up to
25%, based on the Bank’s relative total shareholder return compared to a defined peer group of financial
institutions in Canada, and the incremental expense or recovery on those shares is recorded when the Bank can
reliably estimate the actual payout.
Page. 114
Deferred share unit (DSU) plan
The Bank has a DSU plan for Directors. The obligation that results from the award of a DSU is recognized in
income upon the grant of the unit and the corresponding amount is included in Other liabilities in the
Consolidated Balance Sheets. A Director will be credited with additional DSUs whenever a cash dividend is
declared by the Bank. The change in the obligation attributable to the change in stock price of Equitable Group
Inc. and dividends paid on common shares is recognized in Non-interest expense – Compensation and benefits in
the Consolidated Statements of Income for the period in which the changes occur. The redemption value of each
DSU is the volume-weighted average trading price of the common shares of Equitable Group Inc. on the TSX for
the five trading days immediately prior to the redemption date.
Employee stock purchase (ESP) plan
The Bank has an ESP plan for eligible employees. Under this plan, employees have the option of directing a
portion of their gross salary towards the purchase of the Bank’s common shares. The Bank matches a fixed
portion of employee share purchases up to a specified maximum. Employer contributions are recognized in Non-
interest expense – Compensation and benefits in the period incurred.
(m) Income taxes
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in income
except to the extent that it relates to items recognized directly in OCI or equity. Current tax is the expected tax
payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at
the reporting date, and any adjustment to tax payable in respect of previous years.
The Bank follows the asset and liability method of accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities represent the amount of tax applicable to temporary differences
between the carrying amounts of the assets and liabilities and their values for tax purposes. Deferred tax assets
and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the years that include the date of
enactment or substantive enactment.
Current tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets against
current tax liabilities, usually in respect of income taxes levied by the same tax authority on the same taxable
entity, and the Bank intends to settle current tax liabilities and assets on a net basis or settle the tax assets and
liabilities simultaneously.
Deferred tax assets and liabilities are offset if the Bank has a legally enforceable right to set off the deferred tax
assets and liabilities related to income taxes levied by the same tax authority on either the same taxable entity; or
different taxable entities, but the entities intend to settle current tax liabilities and assets on a net basis, or their
tax assets and liabilities will be realized simultaneously for each future period in which these differences reverse.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the
extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred
tax assets are reviewed at each reporting date and are reduced to the extent it is no longer probable that the
related tax benefit will be realized.
Page. 115
(n) Capital assets
Capital assets are carried at cost less accumulated depreciation. Depreciation is calculated using a declining
balance method over the estimated useful lives of the assets at the following annual rates as this most closely
reflects the pattern of consumption of the future economic benefits:
Capital asset categories
Rate of depreciation
Furniture, fixtures and
office equipment
Computer hardware and
software
10% to 20%
20% to 33%
Leasehold improvements are depreciated on a straight-line basis over the lesser of the lease term and the
estimated useful life of the asset.
Depreciation methods, useful lives and residual values are reassessed at each financial year end and adjusted
appropriately.
(o)
Intangible assets
Intangible assets are comprised of internally generated system and software development costs. An intangible
asset is recognized only when its cost can be reliably measured and includes all directly attributable costs
necessary to create the asset to be capable of operating in the manner intended by management. Research costs
are expensed and eligible development costs are capitalized. Intangible assets are carried at cost less any
accumulated amortization and accumulated impairment losses, if any, in the Consolidated Balance Sheets. The
Bank’s intangible assets are amortized on a straight-line basis over their useful lives, ranging from 3 to 10 years.
Amortization expenses are included in Non-interest expenses – Other in the Consolidated Statements of Income.
Intangible assets, including those under development are assessed for indicators of impairment at each reporting
period. If there’s an indication that impairment exists, the Bank performs an impairment test by comparing the
carrying amount of the intangible asset to its recoverable amount. If the recoverable amount is less than its
carrying amount, the carrying amount is written down to its recoverable amount and an impairment loss is
recognized in the Consolidated Statements of Income.
(p) Deposits
Deposits are comprised of Guaranteed Investment Certificates (GIC), High Interest Savings Accounts (HISA),
institutional deposit notes and covered bonds. Deposits, with the exception of those designated as at fair value
through profit or loss, are recorded on the Consolidated Balance Sheets at amortized cost plus accrued interest,
using the effective interest rate method.
Deferred deposit agent commissions are accounted for as a component of deposits with the amortization of
these commissions, with the exception of commissions relating to deposits designated as at fair value through
profit or loss, which are expensed as incurred, and are calculated on an effective yield basis as a component of
interest expense.
(q) Obligations under repurchase agreements
Investments sold under repurchase agreements represent sales of Government of Canada guaranteed debt
securities by the Bank effected with a simultaneous agreement to purchase the assets back at a specified price on
a specified future date, which is generally short term. Repurchase agreements are treated as borrowings and are
carried at amortized cost, plus accrued interest, using the effective interest rate method, recorded in the
Consolidated Balance Sheets at the respective prices at which the investments were originally sold plus accrued
interest. Interest expense relating to repurchase agreements is recorded in Interest expense – Other in the
Consolidated Statements of Income.
Page. 116
(r) Funding facilities
Funding facilities are recorded in the Consolidated Balance Sheets at amortized cost and interest expense is
recorded using the effective interest rate method.
(s) Securitized leases
The Bank securitizes pools of finance leases on a fully serviced basis to independent third parties. The Bank retains
the servicing responsibilities and participates in certain cash flows from the pools. The securitization transaction is
not considered to have transferred the risks and rewards of ownership and accordingly is not derecognized. The
securitized finance leases continue to be classified as finance leases on the Bank’s Consolidated Balance Sheets
with a corresponding lease financing liability.
(t) Share capital Issuance costs
Incremental costs directly attributable to the issuance of an equity instrument are deducted from the initial
measurement of the equity instruments and is presented net of tax.
Treasury preferred shares
Preferred shares are repurchased and cancelled by the Bank. These repurchased and cancelled treasury
preferred shares are deducted from the preferred shares in Shareholders’ Equity at cost. Any gain or loss arising
on the difference between the carrying value and the purchase consideration is recognized in Retained Earnings.
(u) Earnings per share
Earnings per share is computed by dividing net income available to common shareholders by the weighted
average number of common shares outstanding for the year. Net income available to common shareholders is
determined by deducting the dividend entitlements of preferred shareholders from net income. Diluted earnings
per share reflects the potential dilution that could occur if additional common shares are assumed to be issued
under securities or contracts that entitle their holders to obtain common shares in the future. The number of
additional shares for inclusion in diluted earnings per share calculations is determined using the treasury stock
method. Under this method, stock options whose exercise price is less than the average market price of the
Bank’s common shares are assumed to be exercised and the proceeds are used to repurchase common shares at
the average market price for the year. The incremental number of common shares issued under stock options
and repurchased from proceeds is included in the calculation of diluted earnings per share.
(v) Interest
Interest income and interest expense are recognized in the Consolidated Statements of Income using the effective
interest rate method and the rate is applied to the gross carrying amount of the asset (when the asset is not credit
impaired) or to the amortized cost of the liability. The effective interest rate is the rate that exactly discounts the
estimated future cash flow payments and receipts through the expected life of the financial asset or liability (or,
where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the
effective interest rate, management estimates future cash flows considering all contractual terms of the financial
instrument, but not ECL. Under IFRS 9, for financial assets that become credit-impaired subsequent to initial
recognition, interest income is calculated by applying the effective interest rate to the amortized cost of the
financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross
basis. The calculation of the effective interest rate includes all transaction costs and fees paid or received that are
an integral part of the effective interest rate. Transaction costs include incremental costs that are directly
attributable to the acquisition or issue of a financial asset or financial liability.
Page. 117
(w) Fees
Non-interest income includes some ancillary fees related to the administration of the loan portfolio. These fees
are measured based on the consideration specified in the agreements with customers and are accrued and
recognized as the related services are rendered.
(x) Provisions
A provision is recognized if, as a result of a past event, the Bank has a present legal or constructive obligation that
can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the
obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money.
(y) Write-off
The Bank writes off an impaired financial asset, either partially or in full, when there is no realistic prospect of
recovery. Where financial assets are secured, write-off is after the expected proceeds from the realization of
collateral. In subsequent periods, recoveries if any, against written off loans are credited to the provision for credit
losses in the Consolidated Statements of Income.
Note 4 – Risk Management
The Bank, like other financial institutions, is exposed to the symptoms and effects of global economic conditions
and other factors that could adversely affect its business, financial condition and operating results, which may
also influence an investor to buy, sell or hold shares in the Bank. Many of these risk factors are beyond the Bank’s
direct control. The use of financial instruments exposes the Bank to credit risk, liquidity risk, and market risk. A
discussion of these risks and how the Bank manages these risks can be found in the Risk Management section of
the Bank’s MD&A.
Note 5 – Financial Instruments
The Bank’s business activities result in Consolidated Balance Sheets that consist primarily of financial instruments.
The majority of the Bank’s net income is derived from gains, losses, income and expenses related to these
financial assets and liabilities.
(a) Valuation methods and assumptions
Valuation methods and assumptions used to estimate fair values of financial instruments are as follows:
(i) Financial instruments whose cost or amortized cost approximates fair value
The fair value of Cash and cash equivalents and Restricted cash approximate their cost due to their short term
nature.
Securities purchased under reverse repurchase agreements, obligations under repurchase agreements, bank
facilities and certain other financial assets and liabilities are carried at cost or amortized cost, which approximates
fair value.
(ii) Financial instruments classified as at FVOCI and FVTPL
These financial assets and financial liabilities are measured on the Consolidated Balance Sheets at fair value. For
financial instruments measured at fair value where active market prices are available, bid prices are used for
financial assets and ask prices for financial liabilities. For those financial instruments measured at fair value that
are not traded in an active market, fair value estimates are determined using valuation methods which maximize
the use of observable market data and include discounted cash flow analysis and other commonly used valuation
techniques.
Page. 118
(iii) Loans receivable
The estimated fair value of loans receivable is determined using a discounted cash flow calculation and the
market interest rates offered for loans with similar terms and credit risks.
(iv) Deposits
The estimated fair value of deposits is determined by discounting expected future contractual cash flows using
observed market interest rates offered for deposits with similar terms. Deposit liabilities include GICs that are
measured at fair value through profit or loss and are guaranteed by Canada Deposit Insurance Corporation
(CDIC). This guarantee from CDIC is reflected in the fair value measurement of the deposit liabilities.
(v) Securitization liabilities
The estimated fair value of securitization liabilities is determined by discounting expected future contractual cash
flows using market interest rates offered for similar terms.
(vi) Derivatives
Fair value estimates of derivative financial instruments are determined based on commonly used pricing
methodologies (primarily discounted cash flow models) that incorporate observable market data. Frequently
applied valuation techniques incorporate various inputs such as stock prices, bond prices, and interest rate curves
into present value calculations.
The following tables present the carrying values for each category of financial assets and liabilities and their
estimated fair values as at December 31, 2021 and December 31, 2020. The tables do not include assets and
liabilities that are not financial instruments.
Page. 119
($000s)
Financial assets:
Cash and cash equivalents
Restricted cash
Securities purchased
under reverse repurchase
agreements
Investments
Loans – Personal
FVTPL –
Mandatorily
FVOCI – Debt
instruments
FVOCI –
Equity
instruments
Amortized
cost
Total
carrying
value
Fair value
December 31, 2021
-
-
-
-
-
-
-
-
-
773,251
773,251
462,164
462,164
773,251
462,164
550,030
550,030
551,426
197,173
577,532
92,761
165,972
1,033,438
1,033,743
-
Loans – Commercial(1)
168,390
Securitization retained
interests
Other assets:
Derivative financial
instruments(2):
Interest rate swaps
Total return swaps
Bond forwards
Foreign exchange
forwards
Other
-
64,213
5,083
124
1,741
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22,421,603
22,421,603
22,283,623
9,594,118
9,762,508
9,788,189
207,889
207,889
207,901
-
-
-
-
7,133
64,213
5,083
124
1,741
7,133
64,213
5,083
124
1,741
7,133
Total financial assets
436,724
577,532
92,761
34,182,160
35,289,177
35,178,591
Financial liabilities:
Deposits
Securitization liabilities
Obligations under
repurchase agreements
Other liabilities:
Derivative financial
instruments(2):
-
-
-
Interest rate swaps
10,589
Cross-currency
swaps
Total return swaps
Bond forwards
Foreign exchange
forwards
Loan commitments
Funding facilities
Other
22,078
13,191
2,727
712
24
-
-
Total financial liabilities
49,321
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,856,383
20,856,383
20,816,341
11,375,020
11,375,020
11,412,638
1,376,763
1,376,763
1,376,763
10,589
10,589
-
-
-
-
-
-
22,078
13,191
2,727
712
24
22,078
13,191
2,727
712
24
200,128
244,381
200,128
244,381
200,128
244,381
34,052,675
34,101,996
34,099,572
(1) Loans – Commercial does not include $716,651 (December 31, 2020 - $538,156) of Finance leases, as these are specifically excluded for
classification and measurement under IFRS 9. (2) Derivative financial instruments are non-trading, and include derivatives held in hedge accounting
relationships.
Page. 120
($000s)
Financial assets:
Cash and cash equivalents
Restricted cash
Securities purchased
under reverse repurchase
agreements
Investments
Loans – Personal
Loans – Commercial(1)
Securitization retained
interests
Other assets:
Derivative financial
instruments(2):
Interest rate swaps
Total return swaps
Other
FVTPL –
Mandatorily
FVOCI – Debt
instruments
FVOCI – Equity
instruments
Amortized
cost
December 31, 2020
Total
carrying
value
Fair value
-
-
-
-
-
-
-
-
-
557,743
557,743
504,039
504,039
557,743
504,039
152,482
174,646
87,339
175,409
589,876
450,203
450,203
450,203
591,908
-
125,205
-
22,081
4,889
-
-
-
-
-
-
-
-
-
-
-
-
-
19,445,386
19,445,386
19,610,189
8,162,821
8,288,026
8,438,945
184,844
184,844
189,380
-
-
13,242
22,081
4,889
13,242
22,081
4,889
13,242
Total financial assets
304,657
174,646
87,339
29,493,687
30,060,329
30,382,619
Financial liabilities:
Deposits
Securitization liabilities
Obligations under
repurchase agreements
Other liabilities:
Derivative financial
instruments(2):
Interest rate swaps
Total return swaps
Bond forwards
Foreign exchange
forwards
Loan commitments
Other
-
-
-
30,098
17,192
1,253
709
25
-
Total financial liabilities
49,277
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
16,585,043
16,585,043
16,712,440
11,991,964
11,991,964
12,294,592
251,877
251,877
251,877
-
-
-
-
-
30,098
17,192
1,253
709
25
30,098
17,192
1,253
709
25
159,158
159,158
159,158
28,988,042
29,037,319
29,467,344
(1) Loans – Commercial does not include $716,651 (December 31, 2020 - $538,156) of Finance leases, as these are specifically excluded for
classification and measurement under IFRS 9. (2) Derivative financial instruments are non-trading, and include derivatives held in hedge
accounting relationships.
Page. 121
(b) Fair value hierarchy
Financial instruments recorded at fair value on the Consolidated Balance Sheets are classified using a fair value
hierarchy that reflects the significance of the inputs used in making the measurements.
The fair value hierarchy has the following levels:
Level 1: valuation based on quoted prices (unadjusted) observed in active markets for identical assets and
liabilities.
Level 2: valuation techniques based on inputs other than quoted prices included in Level 1 that are either
directly or indirectly observable for the asset or liability.
Level 3: valuation techniques with significant unobservable market inputs.
The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. The objective
of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument
at the reporting date that would have been determined by market participants acting at arm’s length. A financial
instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in
measuring fair value.
The following table presents the fair value hierarchy of all financial instruments, whether or not measured at
fair value in the Consolidated Balance Sheets, except for certain financial instruments whose carrying amount
approximates their fair values due to their short-term nature:
Page. 122
($000s)
December 31, 2021
Financial assets:
Investments
Loans – Personal
Loans – Commercial
Securitization retained interests
Other assets:
Derivative financial instruments(1):
Interest rate swaps
Total return swaps
Bond forwards
Foreign exchange forwards
Other
Total financial assets
Financial liabilities:
Deposits
Securitization liabilities
Other liabilities:
Derivative financial instruments(1):
Interest rate swaps
Cross-currency interest rate swaps
Total return swaps
Bond forwards
Foreign exchange forwards
Loan commitments
Funding facilities
Other
Total financial liabilities
Level 1
Level 2
Level 3
Total financial
assets/financial
liabilities at fair
value
992,086
-
-
-
-
-
-
-
-
-
-
41,657
1,033,743
22,283,623
22,283,623
168,390
9,619,799
207,901
64,213
-
-
1,819
3,264
124
1,741
7,133
-
-
-
9,788,189
207,901
64,213
5,083
124
1,741
7,133
992,086
451,321
31,948,343
33,391,750
-
-
-
-
-
-
-
-
-
-
-
20,816,341
-
20,816,341
9,908,510
1,504,128
11,412,638
10,589
22,078
634
2,727
712
-
200,128
244,381
-
-
12,557
-
-
24
-
-
10,589
22,078
13,191
2,727
712
24
200,128
244,381
31,206,100
1,516,709
32,722,809
(1) Derivative financial instruments are non-trading, and include derivatives held in hedge accounting relationships.
Page. 123
($000s)
December 31, 2020
Financial assets:
Investments
Loans – Personal
Loans – Commercial
Securitization retained interests
Other assets:
Derivative financial instruments(1):
Interest rate swaps
Total return swaps
Other
Total financial assets
Financial liabilities:
Deposits
Securitization liabilities
Other liabilities:
Derivative financial instruments(1):
Interest rate swaps
Total return swaps
Bond forwards
Foreign exchange forwards
Loan commitments
Other
Total financial liabilities
Level 1
Level 2
Level 3
Total financial
assets/financial
liabilities at fair
value
577,636
-
-
-
-
-
-
-
-
14,272
591,908
19,610,189
19,610,189
125,205
8,313,740
8,438,945
189,380
22,081
4,605
13,242
-
-
284
-
189,380
22,081
4,889
13,242
577,636
354,513
27,938,485
28,870,634
-
-
-
-
-
-
-
-
-
16,712,440
-
16,712,440
11,607,776
686,816
12,294,592
30,098
-
-
17,192
1,253
709
-
159,158
-
-
25
-
30,098
17,192
1,253
709
25
159,158
28,511,434
704,033
29,215,467
(1) Derivative financial instruments are non-trading, and include derivatives held in hedge accounting relationships.
Page. 124
Note 6 – Cash and Cash Equivalents and Restricted Cash
($000s)
December 31, 2021
December 31, 2020
Deposits with regulated financial institutions
Cash and cash equivalents
Restricted cash – securitization
Restricted cash – interest rate swaps
Restricted cash – other programs
Restricted cash
773,251
773,251
347,632
22,650
91,882
462,164
557,743
557,743
475,375
28,048
616
504,039
Restricted cash – securitization represents deposits held in trust in connection with the Bank’s
securitization activities. These deposits include cash accounts held at a major Schedule I Canadian Bank
that hold principal and interest payments collected from securitized loans awaiting payment to their
respective investors, deposits held as collateral by third parties for the Bank’s securitization hedging
activities and deposits held in interest reinvestment accounts in connection with the Bank’s participation
in the CMB program.
Restricted cash – interest rate swaps represent deposits held as collateral by third parties for the Bank’s
interest rate swap transactions. The terms and conditions of these arrangements with counterparties
are governed by the International Swaps and Derivatives Association, Inc. (ISDA) agreements.
Restricted cash – other programs represent deposits held as collateral in connection with the Bank’s
Home Equity line of credit, servicing business, deposit and covered bond programs. These balances may
be drawn upon only in the event of insufficient cash flows from the underlying programs.
Note 7 – Securities Purchased Under Reverse Repurchase Agreements
As at December 31, 2021, the fair value of financial assets accepted as collateral that the Bank is
permitted to sell or repledge in the absence of default is $551,426 (December 31, 2020 – $450,106). The
Bank is obliged to return equivalent securities at the repurchase date, and the Bank did not sell or
repledge any of the collateral as at the year ended December 31, 2021.
Note 8 – Investments
Carrying value of investments is as follows:
($000s)
Equity securities measured at FVOCI
Equity securities measured at FVTPL
Debt securities measured at FVOCI
Debt securities measured at FVTPL
Debt securities measured at AMC
December 31, 2021
December 31, 2020
92,761
26,214
577,532
170,959
165,972
1,033,438
87,339
1,165
174,646
151,317
175,409
589,876
The Bank has elected to designate certain Equity securities to be measured at FVOCI as these
investments are expected to be held for the long term. For the year ended December 31, 2021, the Bank
earned dividends of $4,293 (2020 − $4,635) on these Equity securities. During the year, the Bank
sold/redeemed Equity securities of $14,722 (2020 − $1,500) and recognized a gain on sale of $13 (2020 −
Nil) in Retained earnings.
Page. 125
Net unrealized gains (losses) on investments measured at FVOCI and FVTPL are as follows:
($000s)
Equity securities measured at FVOCI
Equity securities measured at FVTPL
Debt securities measured at FVOCI
Debt securities measured at FVTPL
Note 9 – Loans Receivable
(a) Loans receivable
($000s)
Loans – Personal
Loans – Commercial
($000s)
Loans – Personal
Loans – Commercial
Gross
amount
22,433,681
10,516,030
32,949,711
Gross
amount
19,465,192
8,872,553
28,337,745
2021
20,231
(5,647)
(5,656)
6,646
2020
(3,411)
(2,656)
3,165
7,731
December 31, 2021
Allowance for credit losses
Stage 1
6,502
21,411
27,913
Stage 2
Stage 3
Total
Net amount
4,944
13,504
18,448
632
1,956
2,588
12,078
36,871
48,949
22,421,603
10,479,159
32,900,762
Allowance for credit losses
December 31, 2020
Stage 1
Stage 2
Stage 3
13,228
22,632
35,860
4,893
21,880
26,773
1,685
1,859
3,544
Total
Net amount
19,806
19,445,386
46,371
8,826,182
66,177
28,271,568
Loans – Personal include certain uninsured residential loans with a carrying value of $723,500 (December
31, 2020 - $nil) that have been sold but are not derecognized. The Bank issues Euro denominated covered
bonds in Europe by securitizing uninsured residential loans on properties in Canada. These uninsured
residential loans are sold and held in a separate guarantor entity i.e. EQB Covered Bond (Legislative)
Guarantor Limited Partnership (Guarantor LP), established by the Bank exclusively for the Covered Bonds
Program (the Program). The legal title on the uninsured residential loans that are secured under the
Program are held by the Guarantor LP. The residential loans sold to the Guarantor LP under the Program
do not qualify for derecognition as the Bank continues to be exposed to substantially all of the risks and
rewards associated with the transferred assets and retains control of the assets. A key risk associated with
transferred loans to which the Bank remains exposed after the transfer in the Program is the risk of
prepayment. As a result, the loans continue to be recognized on the Bank’s Consolidated Balance Sheets at
amortized cost and are accounted for as collateral for the secured funding arrangement, with the
corresponding liability presented under Deposits.
Loans – Commercial include certain loans measured at FVTPL with changes in fair value included in gains
on securitization activities and income from securitization retained interests. As at December 31, 2021,
the carrying value of these loans was $167,372 (December 31, 2020 – $59,415) and included fair value
adjustment of $1,915 (December 31, 2020 – $43).
Loans – Commercial also include certain loans measured at FVTPL with changes in fair value included in
Non- interest income in the Consolidated Statements of Income. As at December 31, 2021, the carrying
amount of these loans was $1,018 (December 31, 2020 – $65,789) and included fair value adjustment of
($19) (December 31, 2020 – $21).
Page. 126
The impact of changes in fair value for loans measured at fair value through profit or loss is as follows:
($000s)
Net gains in fair values for loans measured at FVTPL included in gains on
securitization activities
Net (losses) in fair values for loans measured at FVTPL and recognized in net gain
(loss) on loans and investments
2021
2020
1,872
769
(43)
(473)
Loans – Commercial include loans of $568,137 (December 31, 2020 – $230,989) invested in certain asset-
backed structured entities. The Bank holds a senior position in these investments and the maximum
exposure to loss is limited to the carrying value of the investment. The Bank does not have the ability to
direct the relevant activities of these structured entities and has no exposure to their variable returns,
other than the right to receive interest income from these investments. Consequently, the Bank does not
control these structured entities and has not consolidated them.
Loans – Commercial also include the Bank’s net investment in finance leases of $716,651 (December 31,
2020 – $538,156). The following table shows the maturity analysis of undiscounted minimum lease
payments reconciled to the net investment in finance leases:
($000s)
Minimum lease payments:
Less than 1 year
1 year to less than 2 years
2 years to less than 3 years
3 years to less than 4 years
4 years to less than 5 years
More than 5 years
Non performing leases – net
Total undiscounted lease payments receivable
Less:
Security deposits held
Unearned finance income
Allowance for credit losses
Net investment in finance leases
December 31, 2021
December 31, 2020
311,734
242,668
159,941
79,335
25,256
2,627
18,148
839,709
(6,773)
(100,254)
(16,031)
716,651
251,229
188,040
115,507
50,848
13,486
1,028
22,685
642,823
(7,068)
(76,768)
(20,831)
538,156
For the year ended December 31, 2021, the Bank earned finance income of $62,167 (December 31, 2020 –
$55,307) from its investment in finance leases. As at December 31, 2021, all of the Bank’s leases are fixed
rate leases with terms ranging from one to seven years, and approximately 81.2% of the Bank’s finance
leases were concentrated in the following five industry segments:
Transportation – Long Haul
Transportation – Vocational
Construction
Food
Agriculture
December 31, 2021
December 31, 2020
43.0%
17.4%
8.9%
8.1%
3.8%
42.5%
16.4%
8.4%
11.1%
3.9%
Page. 127
(b)
Impaired and past due loans
Outstanding impaired loans, net of specific allowances are as follows:
($000s)
Loans – Personal
Loans – Commercial – Conventional and Insured
Loans – Commercial – Finance Leases
December 31,
2021
December 31,
2020
Allowance for
Gross(1)
credit losses
21,352
49,121
20,495
90,968
632
1,286
670
2,588
Net
20,720
47,835
19,825
88,380
Net
61,018
30,208
26,778
118,004
(1) Gross balances include loans amounting to $6,710 (December 31, 2020 - $8,873) that are insured.
Outstanding loans that are past due but not classified as impaired are as follows:
($000s)
December 31, 2021
30 − 59 days
60 − 89 days 90 days or more
Loans – Personal
26,388
10,465
Loans – Commercial – Conventional and
Insured
Loans – Commercial – Finance Leases
-
7,381
33,769
-
2,600
13,065
-
-
-
-
Total
36,853
-
9,981
46,834
($000s)
December 31, 2020
30 − 59 days
60 − 89 days 90 days or more
Loans – Personal
97,657
29,776
Loans – Commercial – Conventional and
Insured
Loans – Commercial – Finance Leases
11,014
9,142
117,813
1,764
4,505
36,045
-
-
-
-
Total
127,433
12,778
13,647
153,858
Page. 128
(c) Allowance for credit losses
($000s)
Loans – Personal
Balance, beginning of year
Provision for credit losses:
Transfers to (from) Stage 1
Transfers to (from) Stage 2
Transfers to (from) Stage 3
Re-measurement(1)
Originations
Discharges
Write-off
Realized losses
Recoveries
12 months ECL
credit impaired
impaired
Lifetime non-
Lifetime credit
December 31, 2021
Stage 1
13,228
2,232
(2,823)
(6)
(9,278)
3,581
(432)
-
-
-
Stage 2
4,893
(993)
3,030
(11)
(1,750)
-
(225)
-
-
-
Stage 3
1,685
Total
19,806
(1,239)
(207)
17
1,125
-
-
-
(805)
56
632
-
-
-
(9,903)
3,581
(657)
-
(805)
56
12,078
Balance, end of year(2)
6,502
4,944
($000s)
December 31, 2021
12 months ECL
credit impaired
impaired
Lifetime non-
Lifetime credit
Loans – Commercial
Balance, beginning of year
Provision for credit losses:
Transfers to (from) Stage 1
Transfers to (from) Stage 2
Transfers to (from) Stage 3
Re-measurement(1)
Originations
Discharges
Write-off
Realized losses
Recoveries
Stage 1
22,632
11,292
(993)
(53)
(14,882)
3,924
(509)
-
-
-
Stage 2
21,880
(10,441)
1,557
(914)
2,573
-
(1,151)
-
-
-
Stage 3
1,859
Total
46,371
(851)
(564)
967
9,350
-
-
(8,873)
(13)
81
-
-
-
(2,959)
3,924
(1,660)
(8,873)
(13)
81
Balance, end of year(2)
21,411
13,504
1,956
36,871
(1) Includes movement as a result of significant increase or decrease in credit risk and changes in credit risk due to model
inputs/assumptions that did not result in a transfer between stages (2) The allowance for credit losses includes allowance on loan
commitments amounting to $256 (December 31, 2020 - $149).
Page. 129
($000s)
12 months ECL
credit impaired
impaired
Lifetime non-
Lifetime credit
December 31, 2020
Loans – Personal
Balance, beginning of year
Provision for credit losses:
Transfers to (from) Stage 1
Transfers to (from) Stage 2
Transfers to (from) Stage 3
Re-measurement(1)
Originations
Discharges
Write-off
Realized losses
Recoveries
Stage 1
3,295
6,009
(6,688)
(27)
6,549
4,988
(898)
-
-
-
Stage 2
2,417
(4,993)
7,056
(118)
1,720
-
(1,189)
-
-
-
Balance, end of year(2)
13,228
4,893
Stage 3
2,198
(1,016)
(368)
145
2,526
-
-
-
Total
7,910
-
-
-
10,795
4,988
(2,087)
-
(1,843)
(1,843)
43
1,685
43
19,806
December 31, 2020
($000s)
Loans – Commercial
Balance, beginning of year
Provision for credit losses:
Transfers to (from) Stage 1
Transfers to (from) Stage 2
Transfers to (from) Stage 3
Re-measurement(1)
Originations
Discharges
Write-off
Realized losses
Recoveries
12 months ECL
credit impaired
impaired
Lifetime non-
Lifetime credit
Stage 1
16,758
8,697
(3,850)
(55)
(3,363)
5,059
(614)
-
-
-
Stage 2
9,375
(8,390)
4,080
(1,996)
19,998
-
(1,187)
-
-
-
Stage 3
2,864
Total
28,997
(307)
(230)
2,051
8,691
-
-
-
-
-
25,326
5,059
(1,801)
(11,196)
(11,196)
(36)
22
(36)
22
Balance, end of year(2)
22,632
21,880
1,859
46,371
(1) Includes movement as a result of significant increase or decrease in credit risk and changes in credit risk due to model
inputs/assumptions that did not result in a transfer between stages (2) The allowance for credit losses includes allowance on loan
commitments amounting to $256 (December 31, 2020 - $149).
Page. 130
(d) Key inputs, assumptions and model techniques
The Bank’s allowance for credit losses is estimated using statistical models that involve a number of
inputs and assumptions. The key drivers of changes in ECL include the following:
•
•
•
Transfers between stages, due to significant changes in credit risk;
Changes in forward-looking macroeconomic variables, specifically the macroeconomic variables
to which the ECL models are calibrated, which are closely correlated with the credit losses in the
relevant portfolios; and
Changes to the probability weights assigned to each scenario.
In addition, these elements are also subject to a high degree of judgement which could have a significant
impact on the level of ACL recognized. The inputs and models used for calculating ECL may not always
capture all characteristics of the market. Qualitative adjustments or overlays may be made by the
management for certain portfolios as temporary adjustments in circumstances where the assumptions
and/ or modelling techniques do not capture all relevant risk factors.
In considering the assumptions for calculating ECL, the Bank has also considered the uncertainty COVID-
19 has brought to current economic conditions and outlook. The Bank has applied experienced credit
judgement.
(e) Forward-looking macroeconomic scenarios
The Bank subscribes to Moody’s Analytics economic forecasting services and leverages its forward-
looking macroeconomic information to model ECL. The Bank considers five macroeconomic scenarios: a
base- case scenario, one upside and three downside scenarios. Each macroeconomic scenario is assigned a
probability weighting, with the base-case scenario receiving the highest weight. The probability-weighted
macroeconomic scenarios are incorporated into both measurement of ECL and assessment of whether
the credit risk of an instrument has increased significantly since its initial recognition.
The following table provides the primary macroeconomic variables used in models to estimate ECL on
performing loans:
December 31, 2021
Downside Scenarios
Base-Case
Scenario
Upside Scenario
Scenario 1
Scenario 2
Scenario 3
Next 12
months
2 to 5
years
Next 12
months
2 to 5
years
Next 12
months
2 to 5
years
Next 12
months
2 to 5
years
Next 12
months
2 to 5
years
Unemployment rate %
6.94
6.19
6.44
5.20
7.48
6.74
8.05
7.89
8.80
9.40
Real GDP growth rate
%
Home Price Index
growth rate %
Commercial Property
Index growth rate %
Household income
growth rate %
5.18
2.54
7.89
2.91
2.75
2.55
0.14
2.49
(5.86)
2.48
5.49
0.13
6.99
1.63
4.87
(0.48)
1.35
(1.51)
(1.95)
(4.02)
6.81
1.44
7.77
2.26
5.38
0.99
0.77
0.32
(3.67)
(1.49)
(0.62)
(0.07)
2.28
0.80
(3.00)
(0.45)
(4.30)
(0.95)
(6.90)
(2.38)
Page. 131
December 31, 2020
Downside Scenarios
Base-Case
Scenario
Upside Scenario
Scenario 1
Scenario 2
Scenario 3
Next 12
months
2 to 5
years
Next 12
months
2 to 5
years
Next 12
months
2 to 5
years
Next 12
months
2 to 5
years
Next 12
months
2 to 5
years
Unemployment rate %
8.91
7.22
8.40
6.68
9.21
7.90
10.49
9.16
11.25
10.92
Real GDP growth rate
%
Home Price Index
growth rate %
Commercial Property
Index growth rate %
Household income
growth rate %
4.10
3.29
6.93
3.51
2.63
2.85
(1.03)
3.32
(6.89)
3.66
2.54
2.84
3.48
3.96
1.96
2.52
(1.57)
1.37
(4.92)
(1.22)
7.59
4.10
10.09
4.81
5.95
3.90
(0.28)
3.91
(5.01)
1.67
(1.15)
0.52
0.40
1.40
(1.55)
(0.45)
(2.46)
(1.01)
(4.31)
(2.29)
(f) Sensitivity of allowance for credit losses
ECL is sensitive to the inputs used in internally developed models, macroeconomic variables in the
forward- looking forecasts, the probability weightings of the five macroeconomic scenarios, and other
factors considered when applying experienced credit judgement. Changes in these inputs, assumptions,
models, and judgements would have an impact on the assessment of credit risk and the measurement of
ECLs.
Impact of probability-weighting on ACL
The following table presents a comparison of the Bank’s ACL using only the base-case scenario and
downside scenario instead of the five probability-weighted macroeconomic scenarios for performing loans:
($000s)
December 31, 2021
December 31, 2020
ACL – Five probability-weighted macroeconomic scenarios
(actual)
ACL – Base-case scenario only
ACL – Downside scenario only
Difference – Actual versus base-case scenario only
Difference – Actual versus downside scenario only
Impact of staging on ACL
46,361
42,614
86,842
3,747
(40,481)
62,633
57,898
106,351
4,735
(43,718)
The following table illustrates the impact of staging on the Bank’s ACL by comparing the allowance if
all performing loans were in Stage 1, with other assumptions held constant, to the actual ACL
recorded:
($000s)
December 31, 2021
December 31, 2020
ACL – Loans in Stage 1 and Stage 2 (actual)
ACL – Assuming all loans in Stage 1
Lifetime ACL impact
46,361
43,569
2,792
62,633
59,395
3,238
Page. 132
Note 10 – Derecognition of Financial Assets
In the normal course of business, the Bank enters into transactions that result in the transfer of financial
assets. Transferred financial assets are recognized in their entirety or derecognized in their entirety, subject to
the extent of the Bank’s continuing involvement. The Bank transfers its financial assets through sale and
repurchase agreements and its securitization activities.
(a) Transferred financial assets that are not derecognized in their entirety
Obligations under repurchase agreements
Obligations under repurchase agreements are transactions in which the Bank sells a security and
simultaneously agrees to repurchase it at a fixed price on a future date. The Bank continues to recognize the
securities in their entirety on the Consolidated Balance Sheets because it retains substantially all the risks and
rewards of ownership. The cash consideration received is recognized as a financial asset and the obligation to
pay the repurchase price is recognized as a financial liability.
Securitizations
The Bank securitizes insured residential loans by selling its issued MBS to third party investors including to the
CMHC sponsored trust (Canada Housing Trust – CHT) under the CMB program. The Bank may also
retain certain issued MBS as part of its liquidity management strategy, as well as to manage interest rate risk
associated with the Bank’s participation in the CMB program. The CHT periodically issues CMB, which are
guaranteed by the government, and sells them to third party investors. Proceeds from the CMB issuances are
used by the CHT to purchase MBS from eligible MBS issuers who participate in the issuance of a particular
CMB series.
Most of these securitization transactions do not qualify for derecognition as the Bank continues to be
exposed to substantially all of the risks and rewards associated with the transferred assets or it neither
transfers nor retains substantially all the risks and rewards and retains control of the assets. A key risk
associated with transferred loans to which the Bank remains exposed after the transfer in such securitization
transactions is the risk of prepayment. As a result, the loans continue to be recognized on the Consolidated
Balance Sheets at amortized cost and are accounted for as secured financing transactions, with the loans
transferred pledged as collateral for these securitization liabilities.
The Bank’s securitization activities include selling uninsured loans by entering into an agreement with another
Schedule I bank and participating in a securitization program sponsored by that bank. Under this agreement,
the Bank sells the loans to the program and they remain in the program until maturity. The bank that
sponsors the securitization program retains all of the refinancing risks related to the program. The sale of
these loans does not qualify for derecognition as the Bank continues to be exposed to substantially all of the
risks and rewards associated with the transferred assets. As a result, the loans continue to be recognized on
the Consolidated Balance Sheets at amortized cost and the proceeds received are recognized under
securitization liabilities. The loans transferred are pledged as collateral for these securitization liabilities.
i) MBS securitizations
For MBS securitization liabilities, principal payments collected from the underlying loans are passed on to the
MBS investors, reducing the amount of the liability outstanding on a monthly basis. Interest on the MBS
securitization liability is calculated at the MBS coupon rate and is paid monthly to the MBS investors.
Page. 133
ii) CMB securitizations
As part of a CMB transaction, the Bank may enter into total return swaps with highly rated counterparties,
exchanging the cash flows of the CMB for those of the MBS transferred to CHT. Any excess or shortfall in these
cash flows is absorbed by the Bank. For transactions that fail derecognition, these swaps are not recognized
on the Bank’s Consolidated Balance Sheets as the underlying cash flows of these derivatives are captured
through the continued recognition of the loans and their associated CMB securitization liabilities. Accordingly,
these swaps are recognized on an accrual basis and are not fair valued through the Bank’s Consolidated
Statements of Income. As at December 31, 2021, the notional amount of these swaps was
$2,436,271 (December 31, 2020– $2,336,244).
CMB securitization liabilities are non-amortizing bond liabilities with fixed maturity dates. Principal payments
collected from the loans underlying the MBS sold to CHT are held in trust for the CHT and invested in eligible
investments until the maturity of the bond. To the extent that these eligible investments are not the Bank’s own
issued MBS, the investments are recorded on the Bank’s Consolidated Balance Sheets under Investments –
Canada Housing Trust re-investment accounts. Interest on the CMB securitization liabilities is calculated at the
CMB coupon rate and is paid to the CMB holders on a monthly, quarterly, or semi-annual basis.
iii) Finance lease securitizations
The Bank also securitizes pools of finance leased assets on a fully serviced basis to independent third party
investors. The Bank continues to be exposed to substantially all of the risks and rewards associated with the
transferred pools of leases and therefore does not derecognize the leased assets. The corresponding
securitization liabilities are repaid on a monthly basis with financing rates ranging from 3.46% to 5.33%.
The following table provides information on the carrying amount and the fair values related to transferred
financial assets that are not derecognized in their entirety and the associated liabilities:
($000s)
Carrying amount of assets
Carrying amount of associated
liability
Carrying value, net position
Fair value of assets
Fair value of associated liability
Fair value, net position
2021
Assets sold under
repurchase
agreements
1,376,763
Securitized
assets
11,991,675
1,376,763
11,991,964
-
(289)
1,376,763
1,376,763
12,222,074
12,294,592
-
(72,518)
2020
Assets sold under
repurchase
agreements
251,877
251,877
-
251,877
251,877
-
Securitized
assets
11,453,867
11,375,020
78,847
11,415,719
11,412,638
3,081
The carrying amount of assets include $3,872 (December 31, 2020 – $39,760) of the Bank’s net investment
in finance leases that were securitized and not derecognized. The carrying value of associated liability
includes $2,969 (December 31, 2020 – $32,634) of liabilities pertaining to finance leases securitized.
Page. 134
The Bank estimates that the principal amount of securitization liabilities will be paid as follows:
($000s)
2022
2023
2024
2025
2026
Thereafter
MBS Liabilities
CMB Liabilities
Liabilities
Liabilities
Total Liabilities
Lease Securitization
Other Securitization
1,057,574
1,892,803
1,609,597
1,758,165
350,713
375,282
511,573
371,886
480,978
351,416
563,535
575,368
2,492
477
-
-
-
-
666,745
581,455
212,472
26,709
11,744
872
2,238,384
2,846,621
2,303,047
2,136,290
925,992
951,522
7,044,134
2,854,756
2,969
1,499,997
11,401,856
(b) Transfers that are derecognized in their entirety
Certain securitization transactions undertaken by the Bank result in the Bank derecognizing the transferred
assets in their entirety. This is the case where the Bank has securitized and sold pools of residential loans
with no prepayment option to third parties. The Bank does not retain substantially all the risks and rewards
of ownership and transfers control over the assets. The Bank retains some continuing involvement in the
transaction which is represented by the retained interests and the associated servicing liabilities.
The Bank also achieves derecognition on the securitization and sale of certain pools of residential loans with
a prepayment option. In these transactions, the Bank securitizes and sells pools of residential loans and
then engages in a transaction to transfer its rights in the excess interest spread and/or any prepayment risk,
thereby transferring substantially all the risks and rewards of ownership in the asset and derecognizing the
asset in its entirety.
The following table provides quantitative information of the Bank’s securitization activities and transfers that
are derecognized in their entirety during the year:
($000s)
Loans securitized and sold
Carrying value of Securitization retained interests
Carrying value of Securitized loan servicing liability
Gains on loans securitized and sold
Income from securitization activities and retained interests
2021
1,292,643
68,303
12,801
18,192
3,591
2020
1,251,959
83,086
15,228
28,101
1,516
The expected undiscounted cash flows payable to the investors on the Bank’s securitization activities and
transfer that are derecognized in their entirety are as follows:
($000s)
2022
2023
2024
2025
2026
Thereafter
Securitization Liabilities
943,550
929,946
710,182
1,016,502
754,907
2,416,522
6,771,609
Page. 135
Note 11 – Derivative Financial Instruments
(a) Hedge instruments
Cash flow hedges
The Bank’s securitization activities are subject to interest rate risk, which represents the potential for changes
in interest rates between the time the Bank commits to funding a loan it intends to securitize through the
issuance of a securitization liability, and the time the liability is actually issued. The Bank utilizes derivative
financial instruments in the form of bond forwards and interest rate swaps to hedge this exposure, with the
intent to manage the change in cash flows of the future interest payments on the highly probable forecasted
issuance of the securitization liability. The Bank applies hedge accounting to these derivative financial
instruments to minimize the volatility in income caused by changes in interest rates.
The Bank also uses bond forwards to hedge changes in future cash flows from changes in interest rates
attributable to highly probable forecasted issuance of fixed rate liabilities. The Bank applies hedge
accounting to these derivative financial instruments to minimize the volatility in income caused by changes in
interest rates.
The Bank hedges the risk of changes in future cash flows related to its floating rate securitization liabilities by
entering into interest rate swaps. The Bank applies hedge accounting to these derivative financial
instruments to minimize the volatility in income caused by changes in interest rates.
The Bank also hedges the risk of changes in future cash flows related to its Restricted share unit plan by
entering into total return equity swap contracts with third parties, the value of which is linked to the price of
the Bank’s common shares. Changes in the fair value of these derivative financial instruments offset the
compensation expense related to the change in share price, over the period in which the swap is in effect.
The Bank applies hedge accounting to these derivative financial instruments to minimize the volatility in
income caused by changes in the Bank’s share price.
The Bank also hedges the risk of changes in future cash flows related to its Deferred share unit plan by
entering into a total return equity swap contract with a third party. The value of this derivative financial
instrument is linked to the price of the Bank’s common shares. Changes in fair value of the derivative offsets
the compensation expense related to the change in share price, over the period in which
the swap is in effect. The Bank does not apply hedge accounting to this derivative financial instrument.
Fair value hedges
The Bank enters into hedging transactions to manage interest rate exposures on loan commitments and
certain deposits used to fund floating rate loans. The hedging instruments used to manage these exposures
are interest rate swaps and bond forwards. The Bank does not apply hedge accounting to these hedging
relationships.
The Bank enters into hedging transactions to manage interest rate exposure on certain loan assets,
securitization liabilities, and deposit liabilities. The Bank also enters into interest rate swap agreements to
manage interest rate exposures on its investment in fixed rate provincial bonds. The Bank applies hedge
accounting to all these relationships.
Page. 136
Beginning in 2021, the Bank entered into cross currency interest rate swap agreements to manage interest
and foreign exchange exposures on fixed rate foreign currency covered bond liabilities. The Bank applies
hedge accounting to these relationships.
The Bank also enters into hedging transactions to manage foreign exchange exposure on certain foreign
currency liabilities. The Bank does not apply hedge accounting to these hedging relationships.
(b) Other derivatives
Total return swaps
As part of its CMB activities, the Bank may assume reinvestment risk between the amortizing MBS
and the bullet CMB for securitized loans which are derecognized. The Bank assumes this risk by entering into
total return swaps with highly rated counterparties and exchanging the cash flows of the CMB for those of the
MBS transferred to CHT. These swaps are recognized on the Bank’s consolidated balances sheets and fair valued
through the Bank’s Consolidated Statements
of Income.
Beginning in 2021, as part of the covered bond activities, the Bank entered into interest rate (total return)
swap agreements to swap interest cash flows from the collateral assets into cash flows based on Canadian
floating rate. The Bank also entered into another interest rate swap agreement to swap the cash flows based
on Canadian floating rate back to interest cash flows from the collateral.
These swaps are recognized on the Bank’s Consolidated Balance Sheets and fair valued through the Bank’s
Consolidated Statements of Income.
(c) Financial impact of derivatives
The fair values and notional amounts of derivatives outstanding is as follows:
Page. 137
($000’s, except percentages)
December 31, 2021
Derivative instrument
and term (years)
Notional
amount
Average
Rate/
Price(1)
Positive
current
replacement
cost(2)
Credit
equivalent
amount(3)
Risk-
weighted
balance(4)
Fair Value
Assets
Liabilities
Net(5)
Cash flow hedges:
Interest rate swaps –
hedge accounting
1 or less
1 to 5
5 and above
Total return swaps –
hedge accounting
1 or less
1 to 5
Total return swaps –
non-hedge accounting
425,123
681,000
62,000
1.07%
0.98%
1.63%
201
2,127
-
3,532
5,435
143
706
209
(1,404)
(1,195)
1,087
12,923
(225)
12,698
29
-
(55)
(55)
3,484
9,260
45.48
69.58
58
-
26
70
5
14
1,803
-
1,803
16
(91)
(75)
1 or less
10,024
N/A
-
75
15
-
(543)
(543)
Fair value hedges:
Interest rate swaps –
hedge accounting
Fair value hedges:
1 or less
1 to 5
5 and above
Cross-currency
Interest rate swaps –
hedge accounting
1,227,440
3,431,261
164,290
0.87%
0.94%
2.01%
217
9,909
331
4,916
30,083
1,240
983
1,240
6,017
39,219
248
1,503
(734)
(885)
(174)
506
38,334
1,329
1 to 5
524,300
0.01%
-
17,495
3,499
-
(22,078)
(22,078)
Interest rate swaps –
non-hedge accounting
1 or less
1 to 5
5 and above
Bond forwards – non-
hedge accounting
40,001
205,919
154,946
N/A
N/A
N/A
6
87
1,531
301
1,746
2,152
60
349
430
174
-
1,558
(1,553)
174
5
3,325
(971)
2,354
1 or less
201,200
N/A
34
924
185
124
(2,727)
(2,603)
Foreign exchange
forwards – non-hedge
accounting
1 or less
240,103
N/A
711
3,435
687
1,741
(712)
1,029
Other derivatives:
Total return swaps
1 or less
1 to 5
5 and above
670,154
2,542,793
2,162,541
Interest rate swaps 1 to 5 1,519,928
14,275,767
N/A
N/A
N/A
N/A
-
969
2,339
4,062
344
2,947
2,571
8,531
69
589
514
46
(30)
16
600
(2,044)
(1,444)
2,618
(10,483)
(7,865)
1,706
4,062
(4,588)
(526)
22,582
85,966
17,192
71,161
(49,297)
21,864
(1) Average rate or average price are on initiation of the derivatives, and refer to the average bond forward rate, the average rate on the fixed-leg of
an interest rate swap, and the average share price of the total return swap. These rates/prices are applicable to derivatives in hedge accounting
relationships only. (2) Positive current replacement cost represents the cost of replacing all contracts that have a positive fair value, using current
market rates. It reflects the unrealized gains on derivative instruments. (3) Credit risk equivalent represents the total replacement cost plus an
amount representing the potential future credit exposure, as outlined in OSFI’s Capital Adequacy Requirements Guideline. (4) Risk-weighted balance is
determined by applying the standardized approach for counterparty credit risk to the credit equivalent amount, as prescribed by OSFI. (5) Derivative
financial assets are included in Other assets (Note 13) and derivative financial liabilities are included in Other liabilities (Note 17).
Page. 138
($000’s, except percentages)
December 31, 2020
Average
Rate/
Price(1)
Positive
current
replacement
cost(2)
Credit
equivalent
amount(3)
Risk-
weighted
balance(4)
Fair Value
Assets
Liabilities
Net(5)
Derivative instrument
and term (years)
Notional
amount
Cash flow hedges:
Bond forwards –
hedge accounting
1 or less
300,700
1.44%
2
1,495
1,495
-
(1,160)
(1,160)
Interest rate swaps –
hedge accounting
1 or less
1 to 5
Total return swaps –
hedge accounting
1 or less
1 to 5
Total return swaps –
non-hedge accounting
308,373
0.67%
703,830
1.01%
3,006
7,269
70.53
93.64
-
18
22
10
684
3,466
137
693
-
13
(323)
(323)
(7,642)
(7,629)
16
40
3
8
1,247
484
-
-
-
1,247
484
2,874
1 or less
3,933
N/A
50
21
4
2,874
Fair value hedges:
Interest rate swaps –
hedge accounting
1 or less
1 to 5
5 and above
629,360
1,684,649
65,762
0.66%
0.79%
1.78%
Interest rate swaps –
non-hedge accounting
1 or less
1 to 5
5 and above
Bond forwards – non-
hedge accounting
525,348
610,000
100,984
N/A
N/A
N/A
-
318
-
-
599
730
2,805
8,600
328
1,257
2,659
737
561
1,720
66
-
944
538
(784)
(784)
(7,576)
(6,632)
(2,764)
(2,226)
251
-
(228)
532 13,286
(10,535)
147
7,300
(246)
(228)
2,751
7,054
1 or less
44,200
N/A
344
504
504
Foreign exchange
forwards – non-hedge
accounting
1 or less
Other deliverables:
Total return swaps
1 or less
1 to 5
5 and above
33,740
N/A
-
83
17
386,511
2,508,017
1,587,358
9,503,040
N/A
N/A
N/A
489
8
28
317
725
1,111
63
145
222
2,618
24,848
6,568
26,970
(49,252)
(22,282)
(1) Average rate or average price are on initiation of the derivatives, and refer to the average bond forward rate, the average rate on the
fixed-leg of an interest rate swap, and the average share price of the total return swap. These rates/prices are applicable to derivatives in
hedge accounting relationships only. (2) Positive current replacement cost represents the cost of replacing all contracts that have a
positive fair value, using current market rates. It reflects the unrealized gains on derivative instruments. (3) Credit risk equivalent
represents the total replacement cost plus an amount representing the potential future credit exposure, as outlined in OSFI’s Capital
Adequacy requirements Guideline. (4) Risk-weighted balance is determined by applying the standardized approach for counterparty credit
risk to the credit equivalent amount, as prescribed by OSFI. (5) Derivative financial assets are included in Other assets (Note 13) and
derivative financial liabilities are included in Other liabilities (Note 17).
-
-
-
-
(93)
(93)
(709)
(709)
(508)
(508)
(4,392)
(4,392)
284
(12,292)
(12,008)
Page. 139
Cash flow hedges:
The following table presents the effects of cash flow hedges on the Bank’s Consolidated Statements of Income:
($000s)
Cash flow hedges:
Interest rate risk:
Bond forwards
Interest rate swaps
Equity price risk:
Total return swaps
($000s)
Cash flow hedges:
Interest rate risk:
Bond forwards
Interest rate swaps
Equity price risk:
Total return swaps
Gains (losses) on
Gains (losses) on
Hedge ineffectiveness
Hedging gain or loss
hedging instrument
hedged Item
recognized in income
recognized in OCI
2021
4,000
19,400
3,371
26,771
(4,437)
(19,400)
(3,371)
(27,208)
(260)
-
-
(260)
4,260
19,400
3,371
27,031
2020
Gains (losses) on
Gains (losses) on
Hedge ineffectiveness
Hedging gain or loss
hedging instrument
hedged Item
recognized in income
recognized in OCI
(11,888)
(15,609)
(941)
(28,438)
10,440
15,609
941
26,990
(1,410)
-
-
(1,410)
(10,478)
(15,609)
(941)
(27,028)
The following table presents the effects of cash flow hedges on the Bank’s Consolidated Statements of
Comprehensive Income on a pre-tax basis:
($000s)
Cash flow hedges:
Interest rate risk:
Bond forwards
Interest rate swaps
Equity price risk:
Total return swaps
AOCI as at
January 1,
2021
Net gains
(losses)
recognized
in OCI
Amount
reclassified
to income as
the hedged
item affects
income
2021
Balance in cash flow
hedge AOCI
AOCI as at
December
31, 2021
Active
hedges
Discontinued
hedges
(17,384)
(10,688)
692
(27,380)
4,260
19,400
3,371
27,031
3,230
1,141
(3,430)
941
(9,894)
-
9,853
11,447
(9,894)
(1,594)
633
592
633
12,080
-
(11,488)
Page. 140
($000s)
Cash flow hedges:
Interest rate risk:
Bond forwards
Interest rate swaps
Equity price risk:
Total return swaps
Fair value hedges:
AOCI as at
January 1,
2020
Net gains
(losses)
recognized in
OCI
Amount
reclassified to
income as the
hedged item
affects income
AOCI as at
December 31,
2020
2020
Balance in cash flow
hedge AOCI
Active
hedges
Discontinued
hedges
(8,056)
(10,478)
5,959
(15,609)
1,150
(1,038)
(17,384)
(10,688)
(999)
(7,952)
(16,385)
(2,736)
2,123
(941)
26
(27,028)
(490)
(378)
692
692
-
(27,380)
(8,259)
(19,121)
The following table presents the effects of fair value hedges on the Bank’s Consolidated Balance Sheets and the
Consolidated Statements of Income:
($000s)
Fair value hedges:
Interest rate risk:
Loans
Deposits
Securitization
liabilities
Bonds
Interest rate and
foreign exchange
risk:
Covered bonds
Hedge ineffectiveness
Gains (losses)
on hedging
instrument
Gains (losses)
on hedged
item
Carrying amounts for
hedged items(1)
Accumulated amount of
fair value hedge gains
(losses) on the hedged item
2021
Total
Active
hedges
Discontinued
hedges
Active
hedges
Discontinued
hedges
48,007
(45,387) 2,620
4,090,807
97,710
(33,477)
34
943
977
(399,727)
(1,907,901)
273
619
2,032
(25,476)
25,216
(1,061)
(442)
(135,476)
(187,794)
(2,009)
23
58,827
26,137
661
(506,966)
-
-
(2,145)
(1,173)
26,137
(21,377) 3,839
3,107,465
(1,997,985)
(10,385)
(13,209)
(1,671)
(10,021)
(1,517)
-
-
Page. 141
($000s)
Fair value hedges:
Interest rate risk:
Loans
Deposits
Securitization
liabilities
Bonds
Hedge ineffectiveness
Gains (losses)
on hedging
instrument
Gains (losses)
on hedged
item
Carrying amounts for
hedged items(1)
Accumulated amount of fair
value hedge gains (losses) on
the hedged item
2020
Total
Active
hedges
Discontinued
hedges
Active
hedges
Discontinued
hedges
(12,634)
19,050
4,582
(863)
10,135
13,548
914
2,098,308
446,182
11,026
291
(19,990)
(940)
(200,234)
(2,052,379)
(234)
(20,424)
(4,248)
334
(12,775)
(213,995)
(1,084)
(2,137)
836
(27)
40,836
-
836
-
(9,854)
281
1,926,135
(1,820,192)
10,544
(22,270)
(1) Represents the carrying value of hedged items designated in qualifying hedging relationships.
Note 12 – Offsetting Financial Assets and Financial Liabilities
The disclosures in the table below include financial assets and financial liabilities that may or may not be offset
in the Consolidated Financial Statements but are subject to agreements with netting arrangements which
covers similar financial instruments irrespective of whether they are offset in the Consolidated Financial
Statements. Such agreements include derivative agreements, collateral support agreements and repurchase
agreements. Financial instruments include derivatives, securities purchased under reverse repurchase
agreements and obligations under repurchase agreements.
The Bank’s derivative transactions are entered into under ISDA master agreements. In general, amounts owed
by each counterparty under an agreement are aggregated into a single net amount being payable by one party
to the other. In certain cases all outstanding transactions under an agreement may be terminated and a single
net amount including pledges is due or payable in settlement of these transactions.
The Bank’s securities purchased under reverse repurchase agreements and obligations under repurchase
agreements are covered by industry standard master agreements, which include netting provisions.
The Bank pledges and in certain cases receives collateral in the form of cash or securities in respect of the
financial instruments. Such collateral is subject to the credit support agreement associated with ISDA
agreements, or subject to global master repurchase agreements. Under these agreements, cash or securities
pledged/received as collateral can be sold during the term of the transaction but must be returned when the
collateral is no longer required and/or on maturity. The terms also give each counterparty the right to terminate
the related transactions upon the counterparty’s failure to post collateral.
As of December 31, 2021, the approximate market value of cash and securities collateral pledged by the Bank
that are subject to credit support agreements was $1,399,413 (December 31, 2020 − $279,045).
As of December 31, 2021, the approximate market value of cash and securities collateral accepted that may be
sold or repledged by the Bank was $590,350 (December 31, 2020 − $451,703). There was no collateral sold or
repledged in 2021 and 2020.
Page. 142
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements:
($000s)
2021
Related amounts
not offset on the
consolidated balance
sheets
Gross
amounts of
recognized
financial
liabilities
offset on the
consolidated
balance
sheets
Net amounts
of financial
assets
presented
on the
consolidated
balance
sheets
Gross
amounts of
recognized
financial
assets
Financial
collateral
(including
cash
collateral
received)
Financial
instruments
Net amount
64,213
5,083
1,741
550,030
621,067
-
-
-
-
-
64,213
5,083
1,741
550,030
621,067
-
-
-
-
(39,879)
(4,989)
24,334
94
(1,090)
651
(550,030)
(595,988)
-
25,079
Types of financial
assets
Derivatives held for risk
management:
Interest rate swaps
Total return swaps
Foreign exchange
forwards
Securities purchased
under reverse
repurchase
agreements
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements:
($000s)
2021
Related amounts
not offset on the
consolidated balance
sheets
Gross
amounts of
recognized
financial
assets offset
on the
consolidated
balance
sheets
Net amounts
of financial
liabilities
presented
on the
consolidated
balance
sheets
Financial
collateral
(including
cash
collateral
received)
Financial
instruments
Net amount
-
-
-
-
-
-
10,589
13,191
22,078
712
-
-
-
-
(7,841)
(12,362)
2,748
829
-
22,078
(170)
542
1,376,763
(1,376,763)
-
-
1,423,333
(1,376,763)
(20,373)
26,197
Types of financial
liabilities
Derivatives held for risk
management:
Interest rate swaps
Total return swaps
Cross-currency
interest rate swaps
Foreign exchange
forwards
Obligations
under repurchase
agreements
Gross
amounts of
recognized
financial
liabilities
10,589
13,191
22,078
712
1,376,763
1,423,333
Page. 143
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements:
($000s)
2020
Related amounts not
offset on the consolidated
balance sheets
Gross
amounts of
recognized
financial
liabilities
offset on the
consolidated
balance
Net amounts
of financial
assets
presented
on the
consolidated
sheets balance sheets
Gross
amounts of
recognized
financial
assets
Financial
instruments
Types of financial
assets
Derivatives held for risk
management:
Interest rate swaps
Total return swaps
22,081
4,889
Securities purchased
under reverse
repurchase
agreements
450,203
477,173
-
-
-
-
22,081
4,889
450,203
477,173
-
-
-
-
Financial
collateral
(including
cash
collateral
received)
(21,144)
(3,801)
(450,203)
(475,148)
Net amount
937
1,088
-
2,025
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements:
($000s)
2020
Related amounts not
offset on the consolidated
balance sheets
Gross
amounts of
recognized
financial
assets offset
on the
consolidated
balance
Net amounts
of financial
liabilities
presented
on the
consolidated
sheets balance sheets
Financial
collateral
(including
cash
collateral
received)
Financial
instruments
Net amount
-
-
-
-
-
30,098
17,192
709
-
-
-
(26,103)
(17,192)
3,995
-
(548)
161
251,877
299,876
(251,877)
-
(251,877)
(43,843)
-
4,156
Types of financial
liabilities
Derivatives held for risk
management:
Interest rate swaps
Total return swaps
Foreign exchange
forwards
Obligations
under repurchase
agreements
Gross
amounts of
recognized
financial
liabilities
30,098
17,192
709
251,877
299,876
Page. 144
Note 13 – Other Assets
($000s)
Intangible assets
Goodwill
Prepaid expenses and other
Property and equipment
Receivable relating to securitization activities
Right-of-use assets
Accrued interest and dividends on non-loan assets
Real estate owned
Income taxes receivable
Derivative financial instruments:
Interest rate swaps
Total return swaps
Foreign exchange forwards
Bond forwards
December 31, 2021
December 31, 2020
92,571
16,944
16,761
14,100
9,678
7,466
2,802
53
-
64,213
5,083
1,741
124
231,536
71,198
16,944
14,162
15,324
18,108
10,708
3,709
863
10,059
22,081
4,889
-
-
188,045
Intangible assets include system, and software development costs relating to the Bank’s information systems.
The Bank has recognized right-of-use assets for its leased office premises located in Toronto, Oakville, Calgary,
Montreal and Vancouver, and for its leased data centres as follows:
($000s)
Carrying amount of right-of-use assets
Depreciation charge for right-of-use assets
Cash outflows for lease liabilities
Interest expense on lease liabilities
2021
7,466
3,353
2,997
502
2020
10,708
2,433
3,053
718
In 2021 and in 2020 the Bank entered into early termination agreements for some of its leased office premises
located in Toronto. These leases were scheduled to expire in December 2025, but will now be early terminated in
March 2023. As a result of the early termination, the Bank recognized $110 (2020 - derecognized $1,590) of right-
of-use assets, derecognized $148 (2020 - $1,949) of related right-of-use liabilities and recognized a gain of $258
(2020 - $359) in the Non-interest expenses in the Consolidated Statements of Income.
Note 14 – Deposits
($000s)
Term and other deposits
Accrued interest
Deferred deposit agent commissions
December 31, 2021
December 31, 2020
20,694,623
16,376,011
196,617
(34,857)
235,260
(26,228)
20,856,383
16,585,043
Deposits also include $498,907 (December 31, 2020 – $nil) of funding from the covered bond program. This
funding is secured against $732,967 (December 31, 2020 – $nil) of Loans – Personal.
Page. 145
Note 15 – Income Taxes
(a) Income tax provision:
($000s)
Current tax expense:
Current year
Adjustments for prior years
Deferred tax expense:
Reversal of temporary differences
Adjustments for prior years
Changes in tax rates
Total income tax expense
2021
96,039
(477)
95,562
1,889
446
(22)
2,313
97,875
2020
69,984
514
70,498
7,521
(1,235)
(95)
6,191
76,689
The provision for income taxes shown in the Consolidated Statements of Income differs from that obtained by
applying statutory income tax rates to income before provision for income taxes due to the following reasons:
($000s)
Canadian statutory income tax rate
Increase (decrease) resulting from:
Tax-exempt income
Future tax rate changes
Non-deductible expenses and other
Effective income tax rate
2021
26.2%
(1.4%)
-
0.3%
25.1%
2020
26.3%
(0.8%)
-
-
25.5%
Page. 146
(b) Deferred tax liabilities:
Net deferred income tax liabilities are comprised of:
($000s)
Deferred income tax assets:
Tax losses(1)
Allowance for credit losses
Share issue expenses
Net loan fees
Other
Deferred income tax liabilities:
Securitization activities
Leasing activities(2)
Deposit agent commissions
Net origination fees
Intangible costs
Other
Net deferred income tax liabilities
December 31, 2021
December 31, 2020
1,479
8,314
2
3,572
6,335
19,702
57,295
9,040
6,918
-
7,714
1,876
82,843
63,141
7,455
11,452
5
372
2,606
21,890
51,249
19,257
6,143
-
3,300
2,821
82,770
60,880
(1) Deferred tax asset pertains to income tax losses of approximately $4,763 (2020 - $29,220) from the finance lease business. (2) The
deferred tax liability relating to leasing activities pertains to the temporary difference resulting from difference in accounting treatment
versus tax treatment for finance lease receivable.
Note 16 – Funding Facilities
(a) Operating credit facility:
On March 31, 2021, the Bank terminated its $35,000 credit facility with a major Schedule I Canadian bank. The
facility was secured by a portion of the Bank’s investments in equity securities. There was no outstanding
balance on this facility as at December 31, 2020.
(b) Secured funding facilities:
The Bank has two credit facilities totaling $700,000 with major Schedule I Canadian banks to finance insured
residential loans prior to securitization. The Bank also has access to several contingent liquidity programs
sponsored by the Government of Canada, namely the Bank of Canada’s Standing Term Liquidity Facility and
Emergency Lending Assistance program. As at December 31, 2021, the Bank had an outstanding balance of
$200,128 (December 31, 2020 – $nil) on the facilities from the Schedule I Canadian banks.
Page. 147
Note 17 – Other Liabilities
($000s)
December 31, 2021
December 31, 2020
Accounts payable and accrued liabilities
Loan realty taxes
Income taxes payable
Securitized loan servicing liability
Right-of-use liabilities
Unearned revenue
Loan commitments
Derivative financial instruments:
Interest rate swaps
Total return swaps
Bond forwards
Foreign exchange forwards
Note 18 – Shareholders’ Equity
(a) Capital stock:
Authorized:
143,931
50,405
43,422
38,507
8,597
818
24
32,667
13,191
2,727
712
335,001
68,605
43,546
-
35,060
12,363
-
26
30,098
17,192
1,253
709
208,852
Unlimited number of non-cumulative 5-year rate reset preferred shares, Series 1, par value $25.00 per share
Unlimited number of non-cumulative floating rate preferred shares, Series 2, par value $25.00 per share
Unlimited number of non-cumulative 5-year rate reset preferred shares, Series 3, par value $25.00 per share
Unlimited number of non-cumulative floating rate preferred shares, Series 4, par value $25.00 per share
Unlimited number of common shares, no par value
Page. 148
Issued and outstanding shares:
($000’s, except shares and per share amounts)
Number of
shares
Amount
Dividends
per share(1)
Number of
shares
Amount
Dividends per
share(1)
2021
2020
2,996,700
72,477
3,000,000
72,557
Preferred Shares,
Series 3:
Balance, beginning
of year
Treasury Preferred
Shares, Series 3
cancelled
Balance, beginning
of year
Contributions from
exercise of stock
options
Issuance under
DRIP
Transferred from
contributed surplus
relating to the
exercise of stock
options
Balance, end of year
2,919,400
Common shares(2):
(77,300)
(1,870)
70,607
(3,300)
(80)
1.49
2,996,700
72,477
1.49
33,748,148
218,166
33,595,186
213,277
322,662
10,056
152,962
4,122
-
-
-
1,938
230,160
-
-
-
767
0.74
33,748,148
218,166
0.74
Balance, end of year(3)
34,070,810
(1) Dividends per share represent dividends declared by the Bank during the year. (2) On October 5, 2021 a resolution was passed by the Bank
to issue a two-for-one common share split. Effective October 25, 2021, one additional common share was issued for every one common share
held. As at the close of markets on October 5, 2021, the Bank had 17,014,633 common shares issued and outstanding. Adjusting for share split,
as of October 5, 2021, there would have been 34,029,266 common shares issued and outstanding. (3) Outstanding number of common shares
and dividend per share for the year ended December 31, 2020 have been adjusted for the share split.
(b) Preferred shares:
Series 3 – 5-year rate reset preferred shares
Holders of Series 3 preferred shares were entitled to receive a fixed quarterly non-cumulative preferential cash
dividends, as and when declared by the Board of Directors, at a per annum rate of 6.35% per share for an initial
5-year period ended September 30, 2019. Thereafter, the dividend rate was reset at a level of 4.78% per share
over the then five-year Government of Canada bond yield. The rate was reset to 5.969% per share per annum
on September 30, 2019. Series 3 preferred shares are redeemable in cash at the Bank’s option, subject to prior
regulatory approval, on September 30 every five years thereafter, in whole or in part, at a price of $25.00 per
share plus all declared and unpaid dividends at the date fixed for redemption. Series 3 preferred shares are
convertible at the holder’s option to non-cumulative floating rate preferred shares, Series 4 (Series 4 preferred
shares), subject to certain conditions, on September 30 every five years thereafter.
Page. 149
Series 4 – floating rate preferred shares
Holders of the Series 4 preferred shares will be entitled to receive a floating rate quarterly non-cumulative
preferential cash dividend equal to the 90-day Canadian Treasury Bill Rate plus 4.78%, as and when declared by
the Board of Directors. Series 4 preferred shares are redeemable in cash at the Bank’s option, subject to prior
regulatory approval, on (i) September 30, 2024 and on September 30 every five years thereafter, in whole or in
part, at a price of $25.00 per share plus all declared and unpaid dividends at the date fixed for redemption; or (ii)
$25.50 plus all declared and unpaid dividends to the date fixed for redemption in the case of redemptions on any
other date on or after September 30, 2019. Series 4 preferred shares are convertible at the holder’s option to
non-cumulative 5-year rate reset preferred shares, Series 3 (Series 3 preferred shares), subject to certain
conditions, on September 30, 2024 and on September 30 every five years thereafter.
(c) Dividend reinvestment plan:
The Bank had activated a dividend reinvestment plan in Q1 2019 and later suspended it in Q1 2020.
Participation in the plan was optional and under the terms of the plan, cash dividends on common shares were
used to purchase additional common shares at the volume weighted average trading price of the common
shares on the TSX for the five trading days immediately preceding the dividend payment date, adjusted with
discount. At the option of the Bank, the common shares may have been issued from the Bank’s treasury or
acquired from the open market at market prices.
(d) Dividend restrictions:
The Bank’s subsidiary, Equitable Bank, is subject to minimum capital requirements, as prescribed by OSFI under
the Bank Act (Canada). The Bank must notify OSFI prior to the declaration of any dividend and must ensure that
any such dividend declaration is done in accordance with the provisions of the Bank Act (Canada), and those
OSFI guidelines relating to capital adequacy and liquidity.
(e) Normal course issuer bid (NCIB):
On December 21, 2020, the had Bank announced that the Toronto Stock Exchange has approved a NCIB
pursuant to which the Bank may repurchase for cancellation up to 2,288,490 of its common shares and 297,250
of its Series 3 – 5-year rate reset preferred shares, representing 10% of its public float of each class of shares.
On December 21, 2021, the NCIB was renewed and approved by the Toronto Stock Exchange, pursuant to which the
Bank may repurchase for cancellation up to 2,325,951 of its common shares and 289,340 of its Series 3 – 5-year rate
reset preferred shares, representing 10% of its public float of each class of shares. The Bank only intends to
purchase a maximum of 1,150,000 common shares under the terms of the NCIB. The actual number of
preferred shares purchased under the NCIB and the timing of any such purchases will be at the Bank’s
discretion. As at December 31, 2021, the Bank had repurchased and cancelled 80,600 Series 3 – 5-year rate
reset preferred shares at a volume weighted average price of $26.01.
Page. 150
Note 19 – Stock-based Compensation
(a) Stock-based compensation plan:
Under the Bank’s stock option plan, options on common shares are periodically granted to eligible participants
for terms of seven years and vest over a four-year period. As at December 31, 2021, the maximum number
of common shares available for issuance under the plan was 4,000,000 (December 31, 2020 − 4,000,000). The
outstanding options expire on various dates to December 2028. A summary of the Bank’s stock option activity
and related information for the years ended December 31, 2021 and December 31, 2020 is as follows:
($000’s, except share, per share and stock option amounts)
2021
2020
Number of
stock options
Weighted average
exercise price
Number of stock
options
Weighted average
exercise price
Outstanding, beginning of year
Granted
Exercised
Forfeited/cancelled
Outstanding, end of year
Exercisable, end of year
1,232,648
243,920
(322,662)
(30,904)
1,123,002
564,866
33.66
69.81
31.17
51.11
41.75
31.87
1,154,024
238,804
(152,962)
(7,218)
1,232,648
673,576
30.38
45.42
26.95
39.87
33.66
30.25
The following table summarizes information relating to stock options outstanding and exercisable as at
December 31, 2021:
Exercise price ($)
Number outstanding
Options outstanding
Options exercisable
Weighted average remaining
contractual life (years)
Number exercisable
29.99
27.66
26.58
35.84
27.63
27.83
33.89
46.21
56.63
45.48
32.83
38.86
46.96
62.85
69.16
76.77
79.01
80.86
68.78
24,472
8,600
149,682
123,366
8,500
160,062
206,554
2,000
8,000
169,312
3,000
2,250
25,000
3,000
205,204
3,000
3,000
13,000
5,000
0.2
0.9
1.2
2.2
2.6
3.2
4.2
4.6
4.9
5.2
5.4
5.6
5.9
6.2
6.2
6.7
6.9
6.9
6.9
24,472
8,600
149,682
123,366
8,500
112,177
90,585
-
4,000
36,484
750
-
6,250
-
-
-
-
-
-
Page. 151
Under the fair value-based method of accounting for stock options, the Bank recorded compensation expense
in the amount of $2,539 (2020 − $1,886) related to grants of options under the stock option plan. This amount
was credited to Contributed surplus. The fair value of options granted during 2020 was estimated at the date of
grant using the Black-Scholes valuation model, with the following assumptions:
(Percentages, except per share amount and number of years)
Risk-free rate
Expected option life (years)
Expected volatility
Expected dividends
Weighted average fair value of each option granted
(b) Employee share purchase plan:
2021
0.5%
4.8
35.1%
2.0%
17.37
2020
1.4%
4.8
27.2%
1.8%
9.44
The Bank has an ESP plan for eligible employees. Under the plan, eligible employees can contribute between
1% and 10% of their annual base salary towards the purchase of common shares of the Bank. For each eligible
contribution, the Bank contributes 50% of the employee’s contribution to purchase common shares of the Bank
up to a certain maximum per employee. During the year, the Bank expensed $1,184 (2020 − $1,066) under this plan.
(c) Deferred share unit plan:
The Bank has a DSU plan for Directors. Under the plan, notional units are allocated to a Director from time to
time by the Board of Directors and the units vest at the time of the grant. Directors can elect, on a one- time
annual basis, to receive up to 100% of their annual compensation in the form of DSUs, allocated at each quarter
and on a pro-rata basis. A Director will be credited with additional DSUs whenever a cash dividend is declared by
the Bank. When an individual ceases to be a Director, the (Separation Date), the individual may elect up to two
separate redemption dates to be paid out the value of the DSUs. The redemption date elected by the participant
is a date after the Separation Date and no later than December 15 of the first calendar year commencing after
the Separation Date. The redemption value of each DSU redeemable by a Director is the volume-weighted
average trading price of the common shares of the Bank on the TSX for the five trading days immediately prior to
the redemption date.
In the event of any stock dividend, stock split, reverse stock split, consolidation, subdivision, reclassification, or
any other change in the capital of the Bank affecting its common shares, the Bank will make, with respect to the
number of DSUs outstanding under the DSU Plan, any proportionate adjustment as it considers appropriate to
reflect that change. The DSU plan is administered by the Board or a committee thereof.
The Bank hedges the risk of change in future cash flows related to the DSU plan. Please refer to Note 11 –
Derivative Financial Instruments for further details.
Page. 152
A summary of the Bank’s DSU activity for the years ended December 31, 2021 and December 31, 2020 is as follows:
Outstanding, beginning of year
Granted
Dividend Reinvested
Paid out
Outstanding, end of year
2021
2020
Number of DSUs
Number of DSUs
136,438
12,700
1,380
(12,139)
138,379
108,474
25,402
2,562
-
136,438
During the year 12,139 DSUs were paid out (2020 – nil). Compensation expense, including offsetting hedges,
relating to DSUs outstanding during the year ended December 31, 2021 amounted to $973 (2020 – $877). The
liability associated with DSUs outstanding as at December 31, 2021 was $9,550 (December 31, 2020 – $6,808)
and was included in other liabilities on the Consolidated Balance Sheets.
(d) Restricted share unit plan:
The Bank has a RSU plan for eligible employees. Under the plan, RSUs or PSUs are awarded by the Board to
eligible employees during the annual compensation process and vest at the end of three years (cliff vest). Under
the plan, each RSU or PSU represents one notional common share and earns notional dividends, which are re-
invested into additional RSUs or PSUs when cash dividends are paid on the Bank’s common shares. Each RSU or
PSU held at the end of the vesting period, including those acquired as dividend equivalents, will be paid to the
eligible employees in cash, the value of which will be based on the volume-weighted average trading price of
the Bank’s common shares on the TSX for the five consecutive trading days immediately prior to, and including
the vesting date. The value of PSUs may be increased or decreased up to 25%, based on the Bank’s relative total
shareholder return compared to a defined peer group of financial institutions in Canada.
The Bank hedges the risk of change in future cash flows related to the RSU and PSU plans. Please refer to Note
11 – Derivative Financial Instruments for further details.
A summary of the Bank’s RSU and PSU activity for the years ended December 31, 2021 and December 31, 2020
is as follows:
Outstanding, beginning of year
Granted
Dividend reinvested
Vested and paid out
Forfeited/cancelled
Outstanding, end of year
December 31, 2021
December 31, 2020
Number of RSUs and PSUs Number of RSUs and PSUs
168,556
59,178
2,154
(83,550)
(14,343)
131,995
172,669
88,306
4,698
(85,156)
(11,961)
168,556
During the year, 83,550 (2020 – 85,156) RSUs and PSUs were vested and paid out for a total value of $6,169 (2020
– $4,266). Compensation expense, including offsetting hedges, relating to RSUs and PSUs outstanding during
the year ended December 31, 2021 amounted to $2,084 (2020 – $3,701). The liability associated with RSUs and
PSUs outstanding as at December 31, 2021 was $4,646 (December 31, 2020 – $4,024) and was included in other
liabilities on the Consolidated Balance Sheets.
Page. 153
Note 20 – Earnings Per Share
Diluted earnings per share is calculated based on net income available to common shareholders divided by
the weighted average number of common shares outstanding during the year, taking into account the dilution
effect of stock options using the treasury stock method.
($000’s, except share, per share and stock option amounts)
2021
2020
Earnings per common share − basic:
Net income
Dividends on preferred shares
Net income available to common shareholders
Weighted average basic number of common shares
outstanding
Earnings per common share − basic
Earnings per common share − diluted:
292,530
4,413
288,117
33,946,749
8.49
223,804
4,477
219,327
33,631,432
6.52
Net income available to common shareholders
288,117
219,327
Weighted average basic number of common shares
outstanding
Adjustment to weighted average number of common
shares outstanding:
33,946,749
33,631,432
Stock options
498,694
253,822
Weighted average diluted number of common shares
outstanding
Earnings per common share − diluted
34,445,443
8.36
33,885,254
6.47
For the year ended December 31, 2021, the calculation of the diluted earnings per share excluded 179,916 (2020
– 290,770) average options outstanding with a weighted average exercise price of $69.11 (2020 − $41.79) as the
exercise price of these options was greater than the average price of the Bank’s common shares.
Note 21 – Capital Management
Equitable Bank manages its capital in accordance with guidelines established by OSFI, based on standards
issued by the Bank for International Settlements’ Basel Committee on Banking Supervision. OSFI’s Capital
Adequacy Requirements (CAR) Guideline details how Basel III rules apply to Canadian banks. OSFI has
mandated that all Canadian-regulated financial institutions meet target Capital Ratios: those being a CET1 Ratio
of 7.0%, a Tier 1 Capital Ratio of 8.5%, and a Total Capital Ratio of 10.5%. In order to govern the quality and
quantity of capital necessary based on the Bank’s inherent risks, Equitable Bank utilizes an Internal Capital
Adequacy Assessment Process (ICAAP).
The Bank’s CET1 Ratio was 13.3% as at December 31, 2021, while Tier 1 Capital and Total Capital Ratios were 13.9%
and 14.2% respectively. The Bank’s Capital Ratios at December 31, 2021 exceeded the regulatory minimums.
During the year, the Bank complied with all internal and external capital requirements.
Page. 154
Regulatory capital (relating solely to Equitable Bank) is as follows:
($000s)
Common Equity Tier 1 Capital:
Common shares
Contributed surplus
Retained earnings
Accumulated other comprehensive loss(1)
Less: Regulatory adjustments
Common Equity Tier 1 Capital
Additional Tier 1 Capital:
Non-cumulative preferred shares
Tier 1 Capital
Tier 2 Capital:
Eligible stage 1 and 2 allowance
Tier 2 Capital
Total Capital
December 31, 2021
December 31, 2020
217,474
9,785
1,649,890
(8,263)
(94,082)
1,774,804
72,554
1,847,358
40,919
40,919
1,888,277
215,536
9,184
1,386,197
(19,009)
(66,448)
1,525,460
72,554
1,598,014
46,760
46,760
1,644,774
(1) As prescribed by OSFI (under Basel III rules), AOCI is part of CET1 in its entirety, however, the amount of cash flow hedge reserves that
relates to the hedging of items that are not fair valued is excluded.
Note 22 – Commitments and Contingencies
(a) Lease commitments:
The Bank is committed to leases for its office premises located in Toronto, Calgary, Montreal and Vancouver,
and IT colocation. The future minimum lease payments under these leases are as follows:
($000s)
Less than 1 year
1-5 years
Greater than 5 years
December 31, 2021
December 31, 2020
7,327
39,212
90,004
136,543
8,169
40,121
97,592
145,882
The lease commitments for December 31, 2021 include the commitments relating to a new office premise lease,
signed in February 2020. The new office premise is located in Toronto, and the lease commences in September
2023 for a period of 15 years.
In addition to these minimum lease payments for premises rental, the Bank will pay its share of common area
maintenance and realty taxes over the terms of the leases. Lease expense recognized in the Consolidated
Statements of Income for 2021 amounted to $12,292 (2020 − $9,549).
Page. 155
(b) Credit commitments:
As at December 31, 2021, the Bank had outstanding commitments to fund $3,653,459 (December 31, 2020 −
$2,558,836) of loans and investments in the ordinary course of business. Of these commitments, $1,937,167
(December 31, 2020 − $1,220,893) are expected to be funded within 1 year and $1,716,292 (December 31, 2020
− $1,337,943) after 1 year.
The Bank has issued standby letters of credit which represent assurances that the Bank will make payments in
the event that a borrower cannot meet its obligations to a third party. Letter of credits in the amount of $46,784
were outstanding at December 31, 2021 (December 31, 2020 − $29,584 ).
(c) Contingencies:
The Bank is subject to various other claims and litigation arising from time to time in the ordinary course of
business. Management has determined that the aggregate liability, if any, which may result from other various
outstanding legal proceedings would not be material and no other provisions have been recorded in these
Consolidated Financial Statements.
Note 23 – Related Party Transactions
Parties are considered to be related if one party has the ability to directly or indirectly control the other party
or exercise significant influence over the other party in making financial or operational decisions. The Bank’s
related parties include key management personnel, close family members of key management personnel
and entities which are controlled, significantly influenced by, or for which significant voting power is held by
key management personnel or their close family members. Key management personnel are those persons
having authority and responsibility for planning, directing and controlling the activities of the Bank directly
and indirectly. The Bank considers the members of the Board of Directors as part of key management
personnel.
These financial statements present the consolidated results of the Bank and all its subsidiaries, therefore
transactions with the subsidiaries are not reported as related party transactions.
(a) Key management personnel compensation table
($000s)
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payments (net)
2021
4,181
47
-
2,590
6,818
2020
3,789
47
933
2,776
7,545
(b) Share transactions, shareholdings and options of key management personnel and related parties:
As at December 31, 2021, key management personnel held 541,150 (December 31, 2020 – 4,157,372) common
shares and 9,000 (December 31, 2020 – 9,000) preferred shares. These shareholdings include common shares
of 11,600 (December 31, 2020 – 3,654,600) that were beneficially owned by the non-management Directors or
held by related party entities whose controlling shareholders are Directors of the Bank. In addition, key
management held 499,312 (December 31, 2020 – 567,376) options to purchase common shares of the Bank at
prices ranging from $26.58 to $69.16.
Page. 156
(c) Other transactions:
As at December 31, 2021, deposits of $1,850 (December 31, 2020 – $1,315) were held by key management
personnel and related party entities whose controlling shareholders are directors of the Bank and trusts
beneficially owned by the Directors.
During the year, no loans (2020 – nil) were given to key management personnel for the purpose of purchasing
shares of the Bank. No interest was earned on these loans during the year (2020 – $nil), and the outstanding
balance as at December 31, 2021 was $nil (December 31, 2020 – $nil).
Note 24 – Subsequent Event
On February 7, 2022, Equitable Bank announced its intent to acquire Concentra Bank for approximately $470
million based on Concentra Bank’s book value at November 30, 2021. To effect the acquisition, Equitable Bank
entered into definitive agreements with the Credit Union Central of Saskatchewan (SaskCentral) to acquire their
84% equity interest and support agreements with additional Concentra shareholders representing a majority of
the remaining 16%. Equitable intends to finance the purchase through a combination of an offering of
subscription receipts and a term facility from a syndicate of banks. The acquisition is subject to customary
closing conditions and regulatory approvals and is expected to close in the second half of 2022.
Page. 157
Note 25 – Interest Rate Sensitivity
The following table shows the Bank’s position with regard to interest rate sensitivity of assets, liabilities and
equity on the date of the earlier of contractual maturity or re-pricing date, as at December 31, 2021.
($000’s, except percentages)
Floating
rate
0 to 3
months
4 months to
1 year
Total
within 1
year
1 year to 5
years
Greater
than 5
years
Non-
interest
sensitive(1)
Total
Assets:
Cash and cash equivalents
and restricted cash
1,132,082
103,333
Effective interest rate
0.43%
0.70%
Securities purchased
under reverse purchase
agreements
Effective interest rate
-
-
550,030
0.05%
-
-
-
-
1,235,415
0.46%
550,030
0.05%
-
-
-
-
-
-
-
-
-
-
-
-
1,235,415
0.46%
550,030
0.05%
Investments
14,065
77,862
78,198
170,125
682,154
127,322
53,837
1,033,438
Effective interest rate
3.31%
2.15%
2.21%
2.28%
1.81%
2.54%
0.00%
1.88%
Loan receivable – Personal
1,706,070
1,374,153
7,037,558
10,117,781
12,154,739
Effective interest rate
2.02%
3.66%
3.44%
3.23%
2.96%
2,282
3.19%
146,801
22,421,603
0.00%
3.07%
Loan receivable –
Commercial
4,457,915
261,396
1,029,146
5,748,457
3,799,648
939,456
(8,402) 10,479,159
Effective interest rate
4.54%
5.46%
4.11%
4.51%
3.54%
2.76%
0.00%
4.00%
Securitized Retained
Interest
Other assets
Total assets
Liabilities:
Deposits(2)
Effective interest rate
Securitization liabilities
Effective interest rate
Obligations Under REPO
Effective interest rate
Funding Facilities
Effective Interest rate
Other liabilities and
deferred taxes
Shareholders' equity
Total liabilities and
shareholders’ equity
Off-balance sheet items(3)
Excess (deficiency) of
assets over liabilities,
shareholders’ equity and
off-balance sheet items
-
-
-
-
-
-
-
-
-
-
-
-
207,889
207,889
231,536
231,536
7,310,132
2,366,774
8,144,902
17,821,808
16,636,541 1,069,060
631,661 36,159,070
- 10,037,586
4,182,875
14,220,461
6,485,999
7,784
142,139
20,856,383
-
-
-
-
-
-
-
-
-
-
-
1.18%
1.51%
1.28%
1.95%
1.10%
0.00%
1.85%
2,180,575
1,383,541
3,564,116
6,806,744
892,787
111,373
11,375,020
1.12%
2.01%
1.46%
2.30%
2.42%
0.00%
2.21%
1,376,541
0.31%
200,128
1.15%
-
-
-
-
-
-
-
-
1,376,541
0.31%
200,128
1.15%
-
-
-
-
-
-
-
75,000
-
-
-
-
-
-
222
1,376,763
0.00%
0.31%
-
-
200,128
1.15%
398,142
398,142
1,877,634
1,952,634
13,794,830
5,566,416
19,361,246
13,367,743
900,571
2,529,510
36,159,070
3,547,078
(1,780,866)
1,766,212
(1,910,151)
143,939
-
-
-
7,310,131
(7,880,978)
797,620
226,774
1,358,647
312,428
(1,897,849)
(1) Accrued interest is included in “Non-interest sensitive” assets and liabilities. (2) Cashable GIC deposits are included in the “0 to 3 months” as these are
cashable by the depositor upon demand after 30 days from the date of issuance. (3) Off-balance sheet items include the Bank’s interest rate swaps,
hedges on funded assets, as well as loan rate commitments that are not specifically hedged. Loan rate commitments that are specifically hedged, along
with their respective hedges, are assumed to substantially offset.
Page. 158
($000’s, except
percentages)
Floating
rate
0 to 3
months
4 months to
1 year
Total
within 1
year
1 year to 5
years
Greater
than 5
years
Non-
interest
sensitive(1)
Total
Total assets − 2020
6,350,016
2,468,829
6,579,778
15,398,623
13,740,218 1,016,518
590,959 30,746,318
Total liabilities and
shareholders’ equity
− 2020
Off-balance sheet items
− 2020(2)
Excess (deficiency) of
assets over liabilities,
shareholders’ equity
and off-balance sheet
items
– 2020
1,812
10,208,340
5,647,842
15,857,994
11,867,934
810,535
2,209,855
30,746,318
-
2,160,357
(1,158,924)
(1,167,971)
166,538
-
1,001,433
6,348,204
(5,579,154)
(226,988)
542,062
704,313
372,521
(1,618,896)
-
-
(1) Accrued interest is included in “Non-interest sensitive” assets and liabilities. (2) Off-balance sheet items include the Bank’s interest rate swaps, hedges
on funded assets, as well as loan rate commitments that are not specifically hedged. Loan rate commitments that are specifically hedged, along with their
respective hedges, are assumed to substantially offset.
Page. 159
Directors
Michael Emory
President and Chief Executive
Officer, Allied Properties REIT
Susan Ericksen
Corporate Director
Diane Giard
Corporate Director
Kishore Kapoor
President and Chief Executive
Officer, RF Capital Group Inc.
Executive Officers
Andrew Moor
President and Chief Executive
Officer
Chadwick Westlake
Senior Vice-President and Chief
Financial Officer
Dan Broten
Senior Vice-President and Chief
Technology Officer
Yongah Kim
Associate Professor of Strategic
Management, Rotman School of
Management
Rowan Saunders
President and Chief Executive
Officer, Definity Financial
Corporation
David LeGresley
Chair of the Board and a Corporate
Director
Lynn McDonald
Corporate Director
Andrew Moor
President and Chief Executive
Officer of Equitable Group Inc. and
Equitable Bank
Vincenza Sera
Corporate Director
Michael Stramaglia
Corporate Director and President
and Founder of Matrisc Advisory
Group Inc., a risk management
consulting firm
Darren Lorimer
Senior Vice-President and Group
Head, Commercial Banking
Mahima Poddar
Senior Vice-President and Group
Head, Personal Banking
Jody Sperling
Senior Vice-President and Chief
Human Resources Officer
Ron Tratch
Senior Vice-President and Chief
Risk Officer
Page. 160
Shareholder and Corporate Information
Corporate Head Office
Equitable Bank Tower
30 St. Clair Avenue West, Suite 700
Toronto, Ontario, Canada, M4V 3A1
Regional Offices:
Montreal
1411 Peel Street, Suite 501
Montreal, Quebec, Canada,
H3A 1S5
Calgary
th Street S.W, Suite 600
600 - 1333 8
Calgary, Alberta, Canada, T2R 1M6
Vancouver
777 Hornby Street, Suite 1240
Vancouver, British Columbia,
Canada, V6Z 1S4
Halifax
1959 Upper Water Street,
Suite 1300
Halifax, Nova Scotia, Canada,
B3J 3N2
Website
www.equitablebank.ca
Toronto Stock Exchange Listings
Common Shares: EQB
Preferred Shares: EQB.PR.C
Analyst Conference Call and
Webcast
Monday, February 7, 2022,
4:15 p.m. EST
Live: 416.764.8609
Replay: 416.764.8677
(code 938312)
Archive: www.equitablebank.ca
Investor Relations
Richard Gill
Senior Director
Corporate Development and
Investor Relations
416.513.3638
Email: investor_enquiry@eqbank.ca
More comprehensive investor
information including supplemental
financial reports, quarterly news
releases, and investor presentations
is available in the Investor Relations
section at www.equitablebank.ca
Transfer Agent and Registrar
Computershare Investor Services Inc.
100 University Avenue, 8th Floor
Toronto, Ontario, Canada, M5J 2Y1
1.800.564.6253
Email: service@computershare.com
Annual Meeting of Shareholders
Wednesday, May 18, 2022
10:00 a.m. ET
Dividend Reinvestment Plan
Equitable’s dividend reinvestment
plan allows common shareholders
to purchase additional common
shares by reinvesting their cash
dividend without incurring
brokerage and commission fees.
For information about participation
in the plan, please contact the
Transfer Agent and Registrar.
Equitable Bank’s ESG Report and
Public Accountability Statement
2021 will be available in May
2022 at www.equitablebank.ca
Eligible dividends
Equitable designates all common
and preferred share dividends
paid to Canadian residents as
“eligible dividends” as defined in
the Income Tax Act (Canada),
unless otherwise indicated.
Online
For product, corporate, financial
and shareholder information:
www.equitablebank.ca