.
T
S
X
E
Q
B
|
E
Q
B
P
R
C
.
.
E
Q
B
I
n
c
.
|
F
o
u
r
t
h
Q
u
a
r
t
e
r
R
e
p
o
r
t
2
0
2
2
For the three and twelve months ended
December 31, 2022
Note: all cover measures as at December 31, 2022
Canada’s Challenger Bank TM
Page. 2
Table of Contents
Our Strategy and Quick Facts
Selected financial results and highlights
Overall business performance and guidance
EQB Corporate Profile
Canada’s Challenger Bank and how we are different:
Our proven value creation model
Diversification and scale
Performance through cycles
i.
ii.
iii.
Management's Discussion and Analysis (MD&A)
Detailed financial summary for 2022
Adjustments to financial results
Fourth quarter 2022 results
Glossary
Non-generally accepted accounting principles (GAAP) financial measures and ratios
Financial Results
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Directors and executive officers
Shareholder and corporate information
3
4
8
13
14
16
19
21
22
43
46
73
74
76
84
90
150
151
Caution regarding forward-looking statements
Statements made in the sections of this report including those entitled “Overall business performance and guidance”, “EQB corporate
profile”, “Canada’s Challenger Bank and how we are different”, “Provision for credit losses”, “Credit portfolio quality”, “Liquidity
investments and equity securities”, “Capital position”, “Risk management”, and 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 EQB’s objectives, strategies and initiatives, financial performance
expectations and other statements made herein, whether with respect to EQB’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”, “guidance”, “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 the actual
results, level of activity, closing of transactions, performance or achievements of EQB 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, global geopolitical risk, business acquisition, 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 EQB’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 EQB and the Canadian economy. Although EQB believes the assumptions used to make such statements are
reasonable at this time and has attempted to 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 EQB 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. EQB does not
undertake to update any forward-looking statements that are contained herein, except in accordance with applicable securities laws.
“The image on the cover of this report is a powerful expression of our commitment to challenge the status quo in Canadian
banking. We believe the confidence depicted is synonymous with EQB’s bold ambition to drive change that enriches people’s lives.
Our approach is unique in the market and is clearly demonstrated with the strikingly beautiful image presented.”
Page. 3
Our strategy
Anchored in our proven business model, we use our strategy and approach to deliver on our mission to drive change in
Canadian banking to enrich people’s lives:
Customer and service mission
Being the best at service, from building great
digital experiences to our customer-facing
teams empowered to solve customer needs
Innovating and advocating
for Canadians
We innovate across product and technology as
Canada’s first native digital bank and advocate
for regulatory change to benefit Canadians
including Open Banking
Differentiated value
creation model
We deliver long-term shareholder value through
disciplined capital allocation and business
management that generates 15-17% ROE(1)
annually
Robust risk management
We are guided by our prudent risk appetite,
benefit from decades of underwriting expertise,
and consistently achieve the lowest credit losses of
all Canadian bank peers
In 2022, Equitable Group Inc. was renamed EQB Inc. and continues to operate through its wholly owned subsidiary,
Equitable Bank – Canada’s Challenger BankTM.
Quick facts(2)
> 488,000
Customers directly served by
Equitable Bank, growing by
hundreds every day
7th largest bank
in Canada by assets, and owner of
Concentra Trust - 7th largest trust
company in Canada
$103 billion
Assets under Management & Assets
under Administration(1), diversified
across Personal Banking,
Commercial Banking
and Trust company services
~5 million
Canadians indirectly served with
products and services as members
of Canadian Credit Unions
#1
Schedule I Bank in Canada by
Forbes in 2021 and 2022
Carbon neutral
Scope 1 and 2 carbon neutral and
first Canadian bank to disclose
Scope 3 carbon emissions
(1) See Glossary and Non-GAAP financial measures and rations section of this MD&A.
(2) Measures as at December 31, 2022.
Selected financial results and highlights
Select financial and other highlights
As at or for the years ended
31-Dec-22(7)
31-Dec-21
31-Dec-20
2022 vs. 2021
Page. 4
Adjusted results ($000s)(1)
Net interest income
Non-interest revenue
Revenue
Non-interest expenses
Pre-provision pre-tax income(2)
Provision for credit losses (recoveries)
Income before income taxes
Income tax expense
Net income
Earnings per share – diluted ($)(5)
Return on equity (%)(3)
Efficiency ratio (%)(3)(4)
Operating leverage (%)(3)
Net interest margin (%)(2)
Reported results ($000s)
Net interest income
Non-interest revenue
Revenue
Non-interest expenses
Pre-provision pre-tax income(2)
Provision for credit losses (recoveries)
Income before income taxes
Income tax expense
Net income
Earnings per share ($) – basic(5)
Earnings per share ($) – diluted5)
Return on equity (%)
Efficiency ratio (%)
Operating leverage (%)
Net interest margin (%)(2)
Revenue per full-time equivalent(3)
Balance sheet and other information ($ millions)
Total assets
Assets under management(2)
Loans receivable
Loans under management(2)
Assets under administration(2)
Total deposits principal
EQ Bank deposits principal
Total risk-weighted assets(3)
Credit quality (%)
Reported provision for credit losses – rate(3)
Net impaired loans as a % of total loan assets
Net allowance for credit losses as a % of total loan assets
736,729
48,716
785,445
326,529
458,916
18,238
440,678
113,942
326,736
9.17
15.7
41.6
(3.7)
1.87
733,405
48,781
782,186
376,471
405,715
37,258
368,457
98,276
270,181
7.63
7.55
12.9
48.1
(23.0)
1.86
464
51,145
61,569
46,510
57,008
41,234
30,831
7,923
18,926
0.33
0.28
0.18
582,609
60,298
642,907
259,451
383,456
(7,674)
391,130
98,065
293,065
8.38
16.7
40.4
(5.7)
1.81
582,609
60,298
642,907
260,176
382,731
(7,674)
390,405
97,875
292,530
8.49
8.36
16.7
40.5
(6.0)
1.81
554
36,159
42,020
32,901
38,663
-
20,695
6,968
13,310
(0.03)
0.27
0.15
497,406
59,427
556,833
214,060
342,773
42,280
300,493
76,689
223,804
6.47
14.8
38.4
4.7
1.70
497,406
59,427
556,833
214,060
342,773
42,280
300,493
76,689
223,804
6.52
6.47
14.8
38.4
4.7
1.70
602
30,746
35,936
28,272
33,347
-
16,376
4,556
10,426
0.15
0.42
0.23
154,120
(11,582)
142,538
67,078
75,460
25,912
49,548
15,877
33,671
0.79
150,796
(11,517)
139,279
116,295
22,984
44,932
(21,948)
401
(22,349)
(0.86)
(0.81)
(90)
14,986
19,549
13,609
18,345
41,234
10,136
955
5,616
26%
(19%)
22%
26%
20%
338%
13%
16%
11%
9%
(1.0%)
1.2%
2.0%
0.06%
26%
(19%)
22%
45%
6%
586%
(6%)
0%
(8%)
(10%)
(10%)
(3.8%)
7.6%
(17.0%)
0.05%
(16%)
41%
47%
41%
47%
N/A
49%
14%
42%
0.36%
0.01%
0.03%
Page. 5
Select financial and other highlights
As at or for the years ended
31-Dec-22(7)
31-Dec-21
31-Dec-20
2022 vs. 2021
Share information
Common share price – close ($)
Book value per common share ($)(3)
Common shares outstanding (thousand)
Common share market capitalization ($ millions)
Common shareholders' equity(3) ($ millions)
Dividends declared – common share ($)
Dividends declared – preferred share – Series 3 ($)
Dividend yield – common shares (%)(3)
Capital ratios and leverage ratio (%)(6)
Common equity tier 1 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio
Business information
Employees – full-time equivalent
EQ Bank customers
(12.18)
7.41
3,493
(217)
472
0.47
-
56.73
62.65
37,564
2,131
2,354
1.21
1.49
2.0
13.7
14.7
15.1
5.3
68.91
55.24
34,071
2,348
1,882
0.74
1.49
1.4
13.3
13.9
14.2
4.9
50.50
46.68
33,748
1,704
1,575
0.74
1.49
1.8
14.6
15.3
15.8
5.1
1,685
308,286
1,161
250,423
925
173,399
524
57,863
(18%)
13%
10%
(9%)
25%
64%
0%
0.6%
0.4%
0.8%
0.9%
0.4%
45%
23%
(1) Adjusted measures and ratios are Non-Generally Accepted Accounting Principles (GAAP) measures and ratios. Adjusted measures and ratios are
calculated in the same manner as reported measures and ratios, except that financial information included in the calculation of adjusted measures and ratios
is adjusted to exclude the impact of the Concentra Bank acquisition and integration related costs. For additional information and a reconciliation of reported
results to adjusted results, see Adjustments to financial results section, and Non-GAAP financial measures and ratios section of this MD&A.
(2) These are non-GAAP measures, see Non-GAAP financial measures and ratios section of this MD&A.
(3) See Glossary section of this MD&A.
(4) Increases in this ratio reflect reduced efficiencies, whereas decreases reflect improved efficiencies.
(5) The share count used in earnings per share calculation includes the 3,266,000 common shares that were converted on November 1, 2022 from the
subscription receipts issued for Concentra Bank acquisition. The sum of the adjusted four quarters does not equal the annual EPS due to share count
changes and an income tax adjustment recorded in Q4.
(6) Regulatory capital requirements for Equitable Bank are determined in accordance with OSFI’s Capital Adequacy Requirements (CAR) Guideline, which is
based on the capital standards developed by the Basel Committee on Banking Supervision. Leverage ratio is calculated using OSFI’s Leverage Requirements
(LR) Guideline. See Glossary section of this MD&A.
(7) The 2022 results include two months of Concentra Bank’s contribution to income statement measures and to denominators of several measures.
Page. 6
Select financial highlights
Adjusted results ($000s)(1)
Net interest income
Non-interest revenue
Revenue
Non-interest expenses
Pre-provision pre-tax income(2)
Provision for credit losses (recoveries)
Income before income taxes
Income tax expense
Net income
Earnings per share – diluted ($)
Return on equity (%)
Efficiency ratio (%)
YTD Operating leverage (%)
Net interest margin (%)(2)
Reported results ($000s)
Net interest income
Non-interest revenue
Revenue
Non-interest expenses
Pre-provision pre-tax income(2)
Provision for credit losses (recoveries)
Income before income taxes
Income tax expense
Net income
Earnings per share ($) - basic
Earnings per share ($) - diluted
Return on equity (%)
Efficiency ratio (%)
YTD Operating leverage (%)
Net interest margin (%)(2)
Revenue per full-time equivalent
Balance sheet and other
information ($ millions)
Total assets
Assets under management(2)
Loans receivable
Loans under management(2)
Assets under administration(2)
Total deposits principal
EQ Bank deposits principal
Total risk-weighted assets
Q4(3)
218,775
16,317
235,092
102,259
132,833
7,776
125,057
32,562
92,495
2.46
15.9
43.5
(3.7)
1.87
218,325
16,382
234,707
139,180
95,527
26,796
68,731
22,912
45,819
1.20
1.19
7.7
59.3
(23.0)
1.85
139
51,145
61,569
46,510
57,008
41,234
30,831
7,923
18,926
2022
Q3
Q2
Q1
Q4
2021
Q3
Q2
Q1
187,264
9,481
196,745
78,903
117,842
5,354
112,488
30,339
82,149
2.35
15.6
40.1
(1.4)
1.94
186,251
9,481
195,732
84,082
111,650
5,354
106,296
28,717
77,579
2.24
2.22
14.8
43.0
(8.9)
1.93
141
40,150
47,331
36,792
43,853
-
23,824
7,562
15,459
167,604
(2,528)
165,076
75,567
89,509
5,233
84,276
22,742
61,534
1.75
12.1
45.8
(4.4)
1.81
166,657
(2,528)
164,129
78,276
85,853
5,233
80,620
21,784
58,836
1.69
1.67
11.6
47.7
(11.4)
1.80
122
39,418
45,767
36,246
42,492
-
23,533
7,588
14,748
163,086
25,446
188,532
69,800
118,732
(125)
118,857
26,447
92,410
2.64
19.2
37.0
3.7
1.87
162,172
25,446
187,618
74,933
112,685
(125)
112,810
24,863
87,947
2.55
2.51
18.3
39.9
(5.8)
1.86
155
37,150
43,422
34,217
40,393
-
22,080
7,261
14,018
155,952
15,911
171,863
69,702
102,161
(1,420)
103,581
22,985
80,596
2.30
17.1
40.6
(5.7)
1.81
155,952
15,911
171,863
70,427
101,436
(1,420)
102,856
22,795
80,061
2.32
2.29
17.0
41.0
(6.0)
1.81
148
36,159
42,020
32,901
38,663
-
20,695
6,968
13,310
150,852
11,248
162,100
67,442
94,658
(3,500)
98,158
25,685
72,473
2.07
16.0
41.6
(3.3)
1.83
150,852
11,248
162,100
67,442
94,658
(3,500)
98,158
25,685
72,473
2.10
2.07
16.0
41.6
(3.3)
1.83
149
34,425
40,172
31,475
37,121
-
19,758
6,914
12,427
141,839
16,935
158,774
64,990
93,784
(1,982)
95,766
24,965
70,801
2.02
16.5
40.9
4.8
1.81
141,839
16,935
158,774
64,990
93,784
(1,982)
95,766
24,965
70,801
2.05
2.02
16.5
40.9
4.8
1.81
152
32,342
37,928
29,893
35,373
-
18,413
6,531
11,461
133,966
16,204
150,170
57,317
92,853
(772)
93,625
24,431
69,194
1.98
17.1
38.2
14.5
1.77
133,966
16,204
150,170
57,317
92,853
(772)
93,625
24,431
69,194
2.01
1.98
17.1
38.2
14.5
1.77
155
31,355
36,742
28,892
34,174
-
17,427
5,798
10,911
Page. 7
Select financial highlights (continued)
Credit quality (%)
Reported provision for credit losses - rate
Net impaired loans as a % of total loan assets
Net allowance for credit losses as a % of total loan assets
Share information
Common share price – close ($)
Book value per common share ($)
Common shares outstanding (thousands)
Common shareholders market capitalization ($ millions)
Common shareholders' equity ($ millions)
Dividends – common share ($)
Dividends – preferred share – Series 3 ($)
Dividend yield – common shares (%)
Capital ratios and leverage ratio (%)
Common equity tier 1 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio
Business information
Employees – full-time equivalent
EQ Bank customers
Q4(3)
0.35
0.28
0.18
2022
2021
Q3
Q2
Q1
Q4
Q3
Q2
Q1
0.06
0.23
0.15
0.06
0.18
0.14
(0.001)
0.22
0.14
(0.02)
0.27
0.15
(0.05)
0.23
0.17
(0.03)
0.41
0.19
(0.01)
0.36
0.22
71.45
52.90
53.15
59.25
71.74
57.64
68.91
55.24
46.44
61.14
56.73
62.65
63.10
48.93
37,564 34,205 34,161 34,130 34,071 34,029 33,933 33,917
2,140
1,660
0.19
0.37
1.2
2,131
2,354
0.33
0.37
2.5
2,257
1,730
0.19
0.37
1.1
2,449
1,967
0.28
0.37
1.5
1588
2,091
0.31
0.37
2.3
2,431
1,800
0.19
0.37
1.0
2,348
1,882
0.19
0.37
1.0
1,816
2,024
0.29
0.37
1.9
66.52
50.97
13.7
14.7
15.1
5.3
13.3
13.7
14.0
5.1
13.5
14.0
14.3
5.1
13.5
14.0
14.3
5.1
13.3
13.9
14.2
4.9
13.7
14.3
14.6
5.0
14.4
15.0
15.4
5.2
14.5
15.2
15.6
5.1
1,685
968
308,286 292,715 279,939 266,188 250,423 237,358 221,945 201,887
1,219
1,047
1,393
1,087
1,161
1,352
(1) Adjusted measures and ratios are Non-GAAP measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported
measures and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the
Concentra Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see
Adjustments to financial results section, and Non-GAAP financial measures and ratios section of this MD&A.
(2) These are non-GAAP measures and ratios, see Non-GAAP financial measures and ratios section of this MD&A.
(3) The Q4 2022 results include two months of Concentra Bank’s contribution to income statement measures and to denominators of several measures.
Page. 8
Overall business performance and guidance
In 2022, EQB generated adjusted diluted EPS(1) of $9.17 (reported $7.55) increasing 9% from 2021 (reported decreased by
10%). EPS growth was lower than net income growth due to higher share count following the conversion of the 3,266,000
subscription receipts to common shares in Q4 2022. Adjusted performance primarily reflected earnings driven by strategic
growth in our diverse Personal and Commercial conventional lending businesses, cost-of-funds improvement enabled by
continued funding diversification and strong core non-interest revenue growth driven by growing fee-income streams and
gains on securitization related to our growing insured multi-family lending business. Reported performance reflected
these same positive drivers offset by significant one-time charges related to the November 1, 2022 acquisition of
Concentra Bank (see “Concentra Bank acquisition impact” below.)
During 2022, both the Personal Banking and Commercial Banking conventional portfolios(2) increased approximately 43%
year over year. Within those portfolios, organic conventional loan growth exceeded annual guidance for nearly every
business segment. The single-family residential business generated robust growth in the first half of the year and
Equitable Bank’s decumulation businesses continued to excel growing 221% on organic expansion and the addition of
Concentra Bank assets. Commercial lending portfolios continued to experience robust growth throughout 2022 across
specialized finance, commercial residential, construction lending and equipment finance. Our total conventional lending
portfolio(2) reached $30.3 billion, +43% year over year, representing organic portfolio growth of 20% and growth related to
the November closing of the Concentra Bank acquisition contributing $4.9 billion by the end of Q4. Our insured multi-
family real estate lending business continued to deliver strong growth with loans under management(2) +58% year over
year with securitization gains contributing $23.1 million to non-interest revenue.
Consistent risk and margin management with strong capital and liquidity levels are critical performance priorities at all
times. EQB’s approach to credit is foundational to its success, including limiting exposure to higher risk lending markets
and mitigating the risk of loss through protection beyond the borrower’s ability to repay, most often through secured
lending (approximately 98% of our lending is secured). The adjusted(1) rate of provisions for credit losses was 7 bps for Q4
2022 (reported 35 bps due to the accounting treatment of day 2 expected credit loss and acquisition-related provisions
booked upon closing the Concentra Bank acquisition– see note on accounting standard in section titled “Provision for
credit losses”). Total allowance for credit losses (net of cash reserves) as of December 31, 2022 was $82.7 million or 0.18%
of total loan assets with the increase from Q3 driven primarily by the addition of the Concentra Bank portfolio and its mix
of lending assets. In contrast, our overall losses in 2022 were $7.4 million, down from $9.6 million in 2021 – primarily
associated with our equipment financing business, where losses are expected and priced for. Business performance
continues to be strong due to systems and tools Equitable Bank had in place to monitor and manage return on equity and
mitigate losses.
Non-interest revenue was $48.8 million vs. $60.3 million in 2021. While core non-interest revenue growth, including fee
income and gains on securitization increased 69% to $74.5 million, this growth was offset by the impact of mark-to-market
and fair value declines in Q2 through Q4. These declines, amounting to $25.7 million, were registered in EQB’s strategic
investment portfolio vs. a gain of $16.4 million in 2021. Portfolio investments were selected to advance our knowledge and
market insight, and provide unique access to innovative technologies, products, and business models. Management
believes these strategic investments will continue to yield positive returns and high ROE over the medium and long term.
(1) Adjusted measures and ratio are Non-GAAP measures and ratios. Adjusted measure and ratios are calculated in the same manner as reported measures
and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the Concentra
Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see Adjustments to
financial results, and Non-GAAP financial measures and ratios in this MD&A. (2) This is a non-GAAP measures, see Non-GAAP financial measures and ratios
section of this MD&A.
Page. 9
In 2022, EQ Bank’s customer base increased 23% to approximately 308,000, and as of February 1, 2023, EQ Bank now
serves more than 318,000 Canadians. EQ Bank deposits increased 13.7% year over year to nearly $8 billion at December
31, 2022 and now account for 26% of our total deposits. With the increase in prime rate, EQ Bank has also raised rates
paid to customers as one part of delivering compelling value, while balancing the costs with the benefits of expanding
margin and net interest income. Customer growth accelerated through Q4 with the launch of EQ Bank in Quebec, the
introduction of EQ Bank’s “Make Bank” marketing campaign designed to enhance consumer awareness and the January
2023 launch of the EQ Bank Card which is enabling customers to use the EQ Bank Savings Plus Account as their primary
bank account. The EQ Bank Card comes with compelling features like fee-free access to cash at any ATM in Canada, no
foreign exchange fees on international purchases, and 0.50% cashback on every EQ Bank Card purchase.
Concentra Bank acquisition impact
On November 1, 2022, Equitable Bank completed the acquisition of Concentra Bank, adding $10.2 billion in assets to the
balance sheet and $41.2 billion assets under administration(1) related to credit union and trust offerings. The full-year and
fourth quarter results are presented consolidated with Concentra Bank and therefore benefit from two-months of
contribution to earnings in Q4. Consolidated results include one-time impacts related to the transaction, as well as
incremental interest expense related to the term facility and incremental common shares added following the conversion
of subscription receipts, used to fund the transaction.
Concentra Bank was a highly strategic acquisition for Equitable Bank, and introduced complementary asset growth,
greater diversification of sources of revenue and funding, and enhanced distribution capabilities across Canada. The
overall impact of acquisition on Q4 adjusted diluted EPS was positive, excluding the accounting treatment of day 2
provision, and transaction and integration related charges noted in section “Adjustments to financial results”. Integration
activities are underway and on-track to deliver expected synergies, while the core business is performing well through
current macroeconomic conditions.
EQB’s capital and liquidity approach, 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.
EQB demonstrated its resilient business model in 2022, when the macroeconomic environment experienced significant
volatility and uncertainty.
The table below summarizes EQB’s key financial metrics at December 31, 2022.
Adjusted Return on equity (ROE)(1)
Adjusted Pre-Provision Pre-tax Income (PPPT) Growth(1)
Adjusted Diluted EPS Growth(1)
Dividend Growth
Book Value Per Share Growth (BVPS)(4)
CET1 Ratio
2022 Results
2022 Guidance(2)
15.7%
19.7%
9.4%
63.5%
13.4%
13.7%
15%+
12%+
8-10%
51% increase announced in Q1
2022 followed by quarterly(3)
increases
12%+
13%+
(1) Adjusted measures and ratio are Non-GAAP measures and ratios. Adjusted measure and ratios are calculated in the same manner as reported measures
and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the Concentra
Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see Adjustments to
financial results and Non-GAAP financial measures and ratios in this MD&A. (2) Guidance represents expected growth rates from December 31, 2021 to
December 31, 2022. (3) The dividend declared on February 7, 2022 represented a 51% increase over the dividend declared in February 2021. Dividend
guidance was to increase 20-25% from the levels that otherwise would have been paid out in 2021 had capital distributions by banks not been restricted by
OSFI at the onset of the pandemic. (4) Dividends are expected to increase between 20-25% from the levels that otherwise would have been paid in 2021 had
capital distributions by banks not been restricted by OSFI at the onset of the pandemic. (4) BVPS refers to book value per common share.
(1) This is an non-GAAP measures, see Non-GAAP financial measures and ratios section of this MD&A.
Page. 10
2023 Guidance
Actions taken by the Bank of Canada to reduce inflation, including higher policy interest rates have increased asset yields
and cost of funds. Given our practice to limit interest rate exposure through conservative duration matching, the net
impact in 2022 led to expanding net interest margin. This was driven by improvements to funding diversification and the
cost effectiveness of EQ Bank deposits relative to alternatives as rates rose. Given the sharp trajectory of interest rates in
the second half of 2022, the full impact of elevated rates on net interest margin (NIM) is expected to carry through the first
half of 2023, barring changes in monetary policy. Note that Q4 2022 includes a two-month contribution of Concentra Bank,
which as expected has a lower NIM on average than Equitable Bank’s portfolio. NIM in Q1 2023 will have a three-month
contribution of this acquired portfolio.
Rising rates have impacted Personal and Commercial customers. Rising mortgage rates reduced housing market activity in
the second half of 2022 and increased customers’ monthly payments for both new originations and renewed mortgages.
In the second half of 2022, more customers renewed and fewer prepaid, supporting portfolio growth alongside lower
prepayment income for EQB. We expect these trends to continue at least into the first half of 2023.
Commercial business continues to show strength and activity - this is driven by strong retention of loans as interest rates
have risen and strong performance of our insured multi-family residential business, which continues to deliver significant
volume in both affordable housing and traditional multi-family residential housing.
In addition to the impact of higher interest rates on the housing market, expected slowing in Equitable Bank’s originations
will be due to a combination of deliberate risk-managed actions taken by management in 2022, and a strategic goal to
normalize growth in Equitable Bank’s risk-weighted assets (RWA) to a long-term target of growing RWA ~15% annually.
Our strategy and credit risk monitoring are informed by leveraging Moody’s Analytics, as well as economic and social
indicators published by the Bank of Canada and Statistics Canada. For general business guidance and projections, we also
consider consensus estimates from Canadian bank economists. Please see Financial Statements Note 7(e), which contains
forward looking indicators.
Confirming Existing 2023 Guidance
Consistent with guidance on adjusted performance measures included with Q3, 2022 results in November 2022, the
following guidance is outlined below for 2023 inclusive of Concentra Bank.
2023 Guidance – Adjusted Measures(1):
ROE: 15%+
Pre-provision, pre-tax income: +25-35%
Diluted EPS: +10-15%
Dividend: +20-25%
Book Value Per Share (BVPS): +12-15%
CET1: 13%+
This guidance may be impacted by further material changes to current economic forecasts related to unemployment, GDP
growth, interest rates, the residential housing market and commercial real estate sector.
(1) Adjusted measures and ratio are Non-GAAP measures and ratios. Adjusted measure and ratios are calculated in the same manner as reported measures
and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the Concentra
Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see Adjustments to
financial results, and Non-GAAP financial measures and ratios in this MD&A.
Page. 11
In addition, we are providing directional 2023 guidance for key EQB loan portfolios and EQ Bank deposits:
EQ Bank
Deposits
Single Family Residential Lending
Alternative mortgages
Wealth Decumulation
Reverse mortgages
Insurance lending
Business Enterprise Solutions
Loans to small businesses and entrepreneurs
Commercial Finance Group
Loans to medium sized institutional & corporate investors
Specialized Finance
Specialized lending to medium sized and corporate
investors
Equipment Financing
Equipment leases to small businesses and entrepreneurs
2023 Growth
Guidance(1)
20-30%
3-5%
60-80%
100%+
10-15%
10-15%
15-25%
10-15%
(1) Guidance represents expected growth rates from December 31, 2022 to December 31, 2023. Guidance is forward-looking information, readers should refer to the Caution
regarding forward-looking statements section herein. The purpose of the guidance provided herein is to assist readers in understanding our expected and targeted financial results,
and this information may not be appropriate for other purposes.
Additional guidance measures
Perspectives on additional measures are included below. Note that with the addition of Concentra Bank, fourth quarter
results include two months of its contribution to income statement measures and to denominators of several measures.
For 2023 starting in Q1, Concentra Bank’s full contribution will impact all measures. Perspectives on the impact are
included below:
Net Interest Margin (NIM)(1): As noted, Q4 2022 included a two-month contribution of Concentra Bank assets to net
interest income. NIM was lower on these assets compared to NIM on EQB’s original portfolio. In Q1 2023, net interest
income and NIM will be further impacted on account of Concentra Bank’s contribution for the full three months. Q1
2023 will therefore represent a new consolidated baseline. Through 2023, we anticipate stable and rising NIM from
this new base.
Non-interest revenue: Please refer to Table 3: Non-interest revenue for detail on recent performance.
o Overall, EQB expects traditional fee and other income to increase in line with the lending portfolio with the
addition of full three-month contribution of Concentra Bank and Concentra Trust’s fee-based revenue in Q1 2023.
In addition, product launches such as fintech payments as a service (e.g., BIN sponsorship) contribute to expected
fee income growth in 2023.
o Gains on sale from securitization activities, driven by EQB’s multi-family portfolio, are expected to make a strong
contribution to EQB in 2023 continuing recent performance. Amounts fluctuate from period-to-period based on
margins and volumes derecognized, which are driven by size and timing of Canada Mortgage Bond (CMB)
issuances.
o
The strategic investment portfolio generated net mark-to-market reductions in 2022 driven by fluctuations in
equity market values in North America including private equities. While EQB does not forecast gains or losses on
investments or derivatives, we expect the value of investment portfolios to reflect market performance in 2023.
(1) These are non-GAAP measures, see Non-GAAP financial measures and ratios section of this MD&A.
Page. 12
Provision for credit losses (PCL): With the addition of Concentra Bank, overall Allowance for Credit Losses (net of
cash reserves) as a percentage of EQB’s portfolio increased to 0.18% at December 31, 2022 given the different mix of
Concentra assets. This was a result of the addition of Concentra Bank’s consumer lending portfolio (ACL of 0.70% as
of December 31, 2022 – net of cash reserves), offset in part by Concentra Bank’s prime equipment financing business,
which lowered the ACL percentage on a consolidated basis. Future provisions are expected to be driven primarily by
growth in the size of the portfolio, assuming current economic forecasts prove to be accurate, and borrower
behaviour is consistent with what EQB’s credit loss models anticipate.
Adjusted non-interest expenses(1): EQB typically targets flat operating leverage as it invests in growth and
innovation and maintains its best-in-class efficiency amongst peer banks. This is secondary to our focus on
generating greater than 15% ROE as the priority metric. Acquisition and integration-related spending is expected to
remain on target.
Income tax: On April 7, 2022, the federal government delivered its fiscal budget which proposed an increase in the
corporate tax rate of 1.5 percentage points for Canadian banks and life insurance companies on taxable income
above $100 million annually. On November 22, 2022, the legislation to implement the Canada Recover Dividend and
the additional permanent tax completed second reading in the House of Commons. The tax will apply prorated for
the first taxation year that ends after April 7, 2022. In Q4 2022, this resulted in a one-time true-up related to deferred
tax liabilities of $3.8 million.
(1) Adjusted measures and ratio are Non-GAAP measures and ratios. Adjusted measure and ratios are calculated in the same manner as reported measures
and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the Concentra
Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see Adjustments to
financial results, and Non-GAAP financial measures and ratios in this MD&A.
Page. 13
EQB corporate profile
EQB Inc. (TSX: EQB and EQB.PR.C, formerly Equitable
Group Inc.) operates through its wholly owned subsidiary,
Equitable Bank, Canada's Challenger BankTM. Equitable
Bank’s mission is to drive change in Canadian banking to
enrich people’s lives.
We directly serve 488,000 Canadians and 200 Canadian
credit unions that serve their nearly 5 million members.
We operate through two main divisions each with
multiple diverse business lines - Personal Banking and
Commercial Banking, with recognized brands including
Equitable Bank, EQ Bank, Bennington Financial and
Concentra Trust. As a leader in the industry, we were
chosen by Forbes as Canada’s Top Schedule I Bank in
both 2022 and 2021.
As of December 31, 2022, EQB’s total assets under
management and administration(1) were $103 billion with
total on-balance sheet assets of over $51 billion.
Equitable Bank and Concentra Bank are regulated by the
Office of the Superintendent of Financial Institutions
Canada (OSFI).
EQB 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. In
Q4 2022, Equitable Bank’s credit rating was upgraded by
DBRS to BBB (high), a signal of our strength and stability
on the back of consistent profitability, sound credit
fundamentals and diversified assets and funding.
Canadians choose Equitable Bank for smarter products,
unmatched value, and exceptional service. To deliver all
three, we specialize in market segments where we can
improve the banking experience and deliver unique
value. As a challenger bank, we rethink conventional
approaches and push for smarter ways to do business
that benefit both our customers and our bank. We
differentiate by providing a host of challenger bank retail
services, alternative single-family mortgage lending,
reverse mortgage lending, insurance lending, commercial
real estate, specialized commercial financing, equipment
financing and credit union services and trust.
Our challenger bank mindset has allowed us to become
the leading alternative single-family residential lender in
Canada and the country’s largest multi-residential insured
securitizer. Our innovations in the independent mortgage
broker channel reflect our long-term focus on providing
great service. As a branchless digital bank, we stay lean
and nimble, allowing us to act quickly and profitably on
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
platform. Our technology is proven, differentiated and
supports cost-effective product development and fintech
collaborations. Our scale enables us to move quickly and
build on our technology platform.
We have adopted a fintech mindset and collaborate with
partners to innovate with a view to providing best-in-class
digital services to Canadian consumers. Our relationships
with market leaders like Wise, Nesto, Ratehub, Flinks,
Borrowell, Neo Financial, FinanceIT, ClearEstate and other
fintechs continue to help us reach new customers and
deliver value to Canadians.
A differentiating factor in our business model is our ability
to consistently and profitably deploy deposits within our
diverse 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.
Our talented teams are the foundation of Equitable Bank’s
successes. With the addition of Concentra Bank, we now
employ nearly 1,700 Challengers who are aligned to drive
change in Canadian banking. Equitable Bank’s inclusive,
welcoming, and pride-inducing workplace earned it the
honour of being recognized as one of the top 50
organizations on the 2021 list of Canada’s Best
Workplaces™ in Financial Services and Insurance.
(1) This is a Non-GAAP measure, see Non-GAAP financial measures and ratios section of this MD&A.
Page. 14
Canada’s Challenger Bank - How we are different:
Our proven value creation model
For 52 years, Equitable Bank (and its subsidiaries)1 have proudly served Canadians and addressed their unique financial
services needs. With customer service at the heart of our approach, we seek to build and deliver a unique experience to
Canadians, one that creates differentiated value for them and value for our shareholders. We express our purpose clearly
and succinctly. It is to drive change in Canadian banking to enrich people’s lives. We call ourselves Canada’s Challenger
BankTM because it encapsulates our belief that the status quo in banking needs to be challenged for the betterment of
customers and we are best positioned to do so.
Since 1970, the organization, originally as Equitable Trust, operated primarily through broker partners as both secured
lender and a licensed deposit taker. We added to our deposit taking license in 2013, when we gained our license to
operate as a Schedule I Bank in Canada that enabled us to launch our all-digital cloud-based EQ Bank platform in 2016.
Since then, we have become one of the fastest growing and diverse banks in Canada and a consistent and predictable
performance leader for investors. This includes high capital and liquidity and the lowest realized credit loss ratio among
peers annually.
The discipline we apply to managing our business starts with adhering to our value creation formula and deploying our
shareholders’ capital to lending and innovation. This discipline has been an important driver of our track record of ROE
performance as we’ve grown at a consistent pace. As an organization and management team, we hold ROE as an
unmovable guidepost and north star. Delivering on this goal allows us to organically build capital and fuel our growth. We
distinguish ourselves from other Canadian banks by way of our consistent long-standing principle of creating value,
continuously building new Equitable Bank businesses, and finding opportunities to profitably deploy capital in ways that
exceed our ROE thresholds.
At the EQB Investor Day in 2022 (click here
to access content), we described our
longstanding value creation formula. By
focusing on growing and managing
businesses that can consistently deliver 15-
17% ROE, we enable EQB to build sufficient
capital to both distribute dividends to
shareholders (in the range of 10-12% of Net
Income available to common shareholders)
and grow book value by 14-16% annually.
This in turn allows EQB to build assets by
14-16% annually, while maintaining
stronger capital ratios than Canadian peer
organizations. Through our strategies and
with complete adherence to our value
creation method, we intend to expand our
customer services, launch differentiated
new businesses, grow market share, and
deliver on our purpose of enriching
people’s lives, including our shareholders
for whom high ROE is a top expectation.
(1) Inclusive of operating companies of Equitable Trust, Bennington Financial Services, Concentra Bank and Concentra Trust.
Page. 15
Our value creation model has led to standout performance vs. peers
The success of EQB’s value creation model has been demonstrated in performance and momentum. EQB has significantly
outperformed our peer group averages over the past ten years.
Note: Share count increased by the 3,266,000 subscription receipt conversion in Q4 2022 to common shares, which diluted the annual
EPS for 2022.
Diversification and scale
Page. 16
Consistent with EQB’s value creation model, we invest shareholder capital in growing and diversifying our business. We
have a proven track record of identifying new market opportunities, delivering unique customer value propositions, and
building scale. Our diversification strategy is focused on reducing risk, broadening our sources of earnings, and building
stability in shareholder returns. Staying true to our robust risk management approach, we have developed unique
capabilities in underwriting complex credit and real-estate backed secured assets.
Our path toward greater diversification
From our beginnings as a trust company in 1970, EQB has built unmatched capabilities in real-estate lending and has
evolved into one of the leading diversified participants in our core markets. We leverage our deep understanding of
residential lending markets to serve clients with unique credit needs that our bigger competitors have chosen not to serve.
We are passionate about serving Canadians with complex and personalized needs and continue to be excited about
growing our core markets.
EQB has built and scaled new businesses anchored in secured lending where we confidently and successfully operate with
low credit losses. Based on these results, we have expanded in several areas including Commercial lending across
specialized finance, construction finance and equipment finance.
Building on our in-depth knowledge of real-estate backed lending, understanding of more complex customer needs and
our deep broker relationships, we launched EQB’s wealth decumulation business in 2018. Since introduction, Reverse
Mortgages and Insurance Lending businesses have grown rapidly toward a $1 billion portfolio, with asset expansion of
221% in 2022, including the addition of Concentra Bank’s reverse mortgage portfolio of $320 million. This business line
delivers unique solutions to customers and has helped shape the market landscape for these specialized products in
Canada. These are the types of Challenger businesses we aspire to build and wealth decumulation is a business in which
we expect to drive significant future value. We are committed to understanding the unique needs of our wealth
decumulation customers, as well as market dynamics, and determined to maintain appropriate limits on loan-to-value
across our decumulation business lines.
Page. 17
Alongside expansion of our EQ Bank digital platform, including our recent launch in Quebec and the launch of our
EQ Bank Card, we have continued to innovate and pursue opportunities to improve return on capital by prioritizing and
building non-interest-based revenue. This includes recent investments in modernizing our payments infrastructure to
support the launch of the Payments-as-a-Service (PaaS) business (including BIN sponsorship), expanding our fintech
partnerships to offer international payments, and launching the EQ Bank Card. While EQ Bank deposits primarily provide
access to lower cost funding, these recent additions to the business will also diversify our revenue mix and support
growing fee-based income.
Growth in scale and diversification of the Commercial banking business
Commercial lending forms an integral part of EQB’s total lending portfolio, accounting for 24% of our total conventional
loans(1) under management and approximately 56% of margin. When we began operations in 1970, commercial lending
was our core business. We have since become a larger and more diversified player in the broader commercial lending
market. Through our portfolios of real-estate backed multi-family lending, construction lending, equipment finance, and
lend-to lender partnerships, we serve more than 23,000 business customers. EQB’s Commercial Banking business has
carved a unique market position built on trust, service quality, and ability to cater to complex customer needs.
There are synergistic advantages to operating in both personal and commercial banking. EQB is comfortable with complex
customer needs, and this has allowed us to scale rapidly in high-growth areas that are underrepresented by other lenders.
We consciously chose to focus on the depth and specialization of our services that rely on the foundations of extensive
experience and learning in our core markets. Built on strong relationships with and excellent service for our broker
partners, EQB’s conventional commercial lending portfolio(1) of over $9 billion is a foundational pillar of EQB.
Extending our understanding of asset backing lending to new asset classes, we completed the acquisition of Bennington
Financial in 2019 to diversify into equipment finance, a sizeable new market with strong profitable growth potential.
Bennington managed with tried-and-tested risk management and credit underwriting principles which have been
leveraged as we deployed additional capital to accelerate portfolio growth. With additional scale and prudent lending, the
equipment finance business grew organically from $487 million in 2019 to approximately $1 billion in total Loans under
Management(1) in 2022, not including the addition of Concentra Bank’s equipment finance portfolio.
In 2019, we launched our lend-to-lender specialized financing business to address a growing need in a niche market
segment. Since launch, Specialized Finance has built a portfolio of $0.9 billion (prior to Concentra Bank acquisition) and is
on track to becoming one of our fastest growing lines of business.
The acquisition of Concentra in 2022 added $1.1 billion in total assets to our Commercial portfolio. In addition to
significant scale, Concentra’s Trust business and credit union partnerships further diversified our portfolio while adding a
net new asset class of unsecured lending in the form of unsecured consumer loans. Concentra’s acquisition also
diversified our revenue mix, adding new fee-based income streams from the Trust business, credit union deposits and
services, and Concentra’s consulting services.
(1) These are non-GAAP measures, see Non-GAAP financial measures and ratios section of this MD&A.
Page. 18
Growing and diversifying our funding
Diversifying and continuing to optimize our funding are core elements of EQB’s overall strategy. Doing both means we can
deliver competitive solutions to more customers, consistently lower our average cost of funds, and drive earnings
performance for shareholders. Diversification has accelerated since 2017, prior to which brokered deposits accounted for
49% of our overall funding. Building additional sources of funding is also critical for managing risks while it allows EQB to
select the best marginal funding source to optimize the overall funding stack and better match assets and liabilities.
The evolution of our funding mix was also reflected in the recent upgrade of Equitable Bank’s credit rating from DBRS
Morningstar to BBB (high) from BBB with trends on all ratings marked as Stable. We continue to expand our funding
diversification and expect combined secured and unsecured wholesale funding to increase in line with our asset growth.
With the launch of EQ Bank, we built a new customer base that provides an important source of funding through retail
deposits. As a result of rapid growth, EQ Bank now has nearly $8 billion of retail deposits or 26% of total deposits and
accounts for 23% of our total non-securitization funding. In addition to providing a new funding source and diversifying
our funding mix, EQ Bank deposits have also started driving material funding benefits relative to other sources.
In 2021, Equitable Bank issued its first Covered Bond and since inception, the covered bond program has completed three
issuances for a total of €900 million. Inclusive of all costs, covered bonds remain the lowest cost of wholesale funding
available to Equitable Bank. Each issuance has attracted new investors as a result of Equitable Bank’s successful investor
marketing efforts in Europe.
Equitable Bank’s acquisition of Concentra Bank added further funding diversification by introducing new sources of
funding through credit union deposits and Commercial deposits, and also increasing covered bond issuance capacity.
EQB will continue to optimize its diverse funding stack and consistently balances the best opportunities across these
diverse sources depending on marketing conditions and funding attractiveness.
Page. 19
Performance through cycles
EQB’s business practices, operating model, credit risk approach and culture are engineered to deliver consistent ROE for
shareholders and performance through cycles. Credit risk management is deeply ingrained into our culture, and it is non-
negotiable. Our robust credit underwriting framework and lending processes are complemented by high capital levels to
protect us if tail risks were to materialize.
EQB’s lending strategy translates to the lowest credit losses among peers
Our prudent credit risk approach has a material impact on reducing the risk we assume, allowing us to make lending
decisions that minimize losses - an approach that has been proven through cycles. In our single-family residential lending
business, there are a set of credit risk decisions and policies that are part of our approach to manage complex credit
needs tightly and actively. These are some examples:
EQB mitigates potential for credit losses by maintaining conservative Loan to Value (LTVs) ratios for the portfolio. As
of December 2022, the average LTV of our overall uninsured lending portfolio is 65% and the average LTV of newly
originated loans in Q4 was 71%. Lower loan to value provides a cushion to the customer and Equitable Bank in the
event of asset price declines or in the event of a default when there is a need for a recovery.
EQB always maintains first lien positions on uninsured loans. This is a critical lever in managing downside risk,
limiting the exposure to losses as a share of the total mortgage.
We primarily lend to high credit score residential borrowers. A typical customer may be a sole proprietor that does
not have salaried income, where lenders with less robust underwriting practices have difficulty in understanding such
customers and their true credit risk profile.
In the best interests of our customers and that of Equitable Bank, we limit amortization periods to 30 years, an
example of our prudent lending approach that we maintain across cycles.
The result of this rigorous credit risk management is an average Stage 3 provision for credit losses of 0.02% of loan
assets over the past ten years - the lowest among all Schedule I banks in the S&P/TSX Bank Index.
Page. 20
Delivering consistent ROE for 20 years
The systems, practices, and policies that EQB uses to manage credit risk and margins have driven consistent performance
over the last 20 years, including through the global financial crisis of the mid-2000s. EQB’s consistency stems from our
focus and priority on achieving our north-star ROE measure rather than sacrificing ROE for growth or margin. We have
been selective in choosing markets in which to operate. We maintain strong internal controls that allow us to channel
investment into areas of growth with risk that aligns with our robust risk management framework and conservative
lending strategies.
Managing margins, being selective where we grow our business and portfolio, as well as mitigating losses through our risk
management, monitoring, and conservative lending strategies etc.
Page. 21
Management’s Discussion and Analysis
For the three months and year ended December 31, 2022
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 EQB Inc. (EQB) for the three months (quarter) and year ended December 31,
2022. This MD&A should be read in conjunction with EQB’s unaudited interim consolidated financial statements for the
fourth quarter (see Tables 23-25 in the Fourth quarter results section of this report) and the audited consolidated financial
statements and accompanying notes for the year ended December 31, 2022. All amounts are in Canadian dollars. This
report, and the information provided herein, is dated as at February 16, 2023. EQB’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 EQB’s website at eqbank.investorroom.com and on SEDAR at
www.sedar.com.
On October 25, 2021, EQB split its 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.
Acquisition of Concentra Bank
During Q4 2022 on November 1st, Equitable Bank completed its acquisition of Concentra Bank. Results for Q4 2022 include
consolidated balances as of December 31, 2022, contributions from Concentra Bank and Concentra Trust corresponding
to two months of the quarter (November and December) and incremental common shares of EQB following the
conversion of 3,266,000 subscription receipts at 1:1 ratio upon acquisition closing and funding. In addition, Q4 2022
results contain several items related to the closing and accounting for the transaction. Refer to “Adjustments to financial
results” for the income statement impact and Note 5 to audited financial statements for details of the purchase price
allocation.
The acquisition contributed $8.6 billion of loans, $1.2 billion of investments, $23 million intangible assets and $6.7 billion
of deposit liabilities. Goodwill of $40.7 million reflects the excess of the consideration paid over the fair value of assets
acquired and liabilities assumed.
Financial results and highlights
Detailed financial summary
Business line overview
Personal Banking
Commercial Banking
Balance sheet review
Loan principal
Credit portfolio quality
Deposits and funding
Liquidity investments and equity securities
Other assets and other liabilities
Off-balance sheet arrangements
Related party transactions
Capital position
22
27
28
29
31
35
36
37
38
38
39
Shareholders’ equity
Adjustments to financial results
Adjustments impacting current and prior periods
Commentary on one-time impacts for Q4 2022
Fourth quarter results
Interim financial statements
Accounting Standards and Policies
Accounting policy changes
Critical accounting estimates
Disclosure controls and procedures
Risk Management
Glossary
Non-GAAP financial measures and ratios
41
43
45
46
51
54
54
55
56
73
74
Page. 22
Detailed financial summary
Income statement and earnings summary
Table 1: Income statement highlights
($000s, except per share amounts)
2022
2021
Change
Adjusted results(1)
Revenue
Non-interest expenses
Provision for credit losses (recoveries)
Income tax expenses
Net income
Earnings per share - diluted ($)
Reported results
Revenue
Non-interest expenses
Provision for credit losses (recoveries)
Income tax expenses
Net income
Earnings per share - diluted ($)
785,445
326,529
18,238
113,942
326,736
9.17
782,186
376,471
37,258
98,276
270,181
7.55
642,907
259,451
(7,674)
98,066
293,065
8.38
642,907
260,176
(7,674)
97,875
292,530
8.36
142,538
67,078
25,912
15,877
33,671
0.79
139,279
116,295
44,932
401
(22,349)
(0.81)
22%
26%
338%
16%
11%
9%
22%
45%
586%
0%
(8%)
(10%)
(1) Adjusted measures and ratios are Non-GAAP measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported
measures and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the
Concentra Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see
Adjustments to financial results section, and Non-GAAP financial measures and ratios section of this MD&A.
Page. 23
Net interest income
Net interest income (NII) is the main driver of EQB’s profitability. Table 2 details EQB’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
Consumer lending
Total Personal loans
Conventional commercial loans
Equipment financing
Insured multi-unit residential mortgages
Total Commercial loans
Average interest earning assets
Expenses related to:
Deposits
Securitization liabilities
Others
Average
Balance
2022
Revenue/ Average
Expense
rate(1)
Average
Balance
2021
Revenue/ Average
Expense
rate(1)
2,000,381
83,389
52,255
3,772
2.61%
4.52%
1,866,291
141,412
17,561
6,422
0.94%
4.54%
16,295,227
8,011,435
541,751
142,734
687,909
167,762
28,434
13,225
4.22% 12,297,513
7,971,634
2.09%
5.25%
172,393
9.27%
504,350
149,703
6,892
4.10%
1.88%
4.00%
24,991,147
897,330
3.59% 20,441,540
660,945
3.23%
6,617,098
902,233
4,712,730
433,940
84,728
120,353
6.56%
9.39%
2.55%
4,988,293
621,733
4,154,490
259,325
5.20%
62,167 10.00%
2.43%
100,900
12,232,061
639,021
5.22%
9,764,516
422,392
4.33%
39,306,978 1,592,378
4.05% 32,213,759 1,107,320
3.44%
24,118,643
13,075,227
1,567,362
562,843
252,286
40,520
2.33% 18,481,560
1.93% 11,804,162
488,957
2.59%
307,684
214,535
2,492
1.66%
1.82%
0.51%
Average interest-bearing liabilities
38,761,232
855,649
2.21% 30,774,679
524,711
1.71%
Adjusted net interest income and margin(2)
39,306,978
736,729
1.87% 32,213,759
582,609
1.81%
Interest earned on the subscription receipt escrow account
Interest paid to subscription receipt holders
Net fair value amortization- assets
Net fair value amortization- liabilities
154,079
(69,215)
2,220
(2,220)
21,714
(25,038)
-
-
-
-
-
-
Reported net interest income and margin
39,391,842
733,405
1.86% 32,213,759
582,609
1.81%
(1) Average rates are calculated based on the daily average balances outstanding during the period.
(2) Adjusted measures and ratios are Non-GAAP measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported
measures and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the
Concentra Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see
Adjustments to financial results section, and Non-GAAP financial measures and ratios section of this MD&A.
Page. 24
2022 v 2021
Net interest income for 2022 was $737 million, representing an increase of 26% relative to 2021. Overall growth in net
interest income was primarily driven by EQB asset growth across its conventional loan portfolios, and also increased
due to contributions from Concentra Bank for two months following acquisition on November 1, 2022.
In addition, net interest margin for the year expanded 6 bps vs. 2021, driven by growing asset yield on the conventional
loan portfolio and cost of funds increasing more slowly – relating to continued optimization with new funding sources
such as covered bonds and cost of funds benefits delivered by EQ Bank’s deposit products.
Non-interest revenue
Table 3: Non-interest revenue
($000s)
Fees and other income
Net loss on loans and investments
Net (loss) gain on strategic investments
Securitization activities:
Gains on securitization and income from retained interests
Fair value gains on derivative financial instruments
Total
n.m. not meaningful
2022
31,055
(20,593)
(5,096)
26,790
16,625
48,781
2021
22,157
(443)
16,801
20,292
1,491
60,298
Change
8,898
(20,150)
(21,897)
6,498
15,134
(11,517)
40%
n.m.
(130%)
32%
n.m.
(19%)
Total non-interest revenue (NIR) decreased 19% year over year primarily due to net marked-to-market losses on our
strategic investments and security holdings throughout 2022, which in part offset higher fair value gains on derivatives
and increased gain on sale revenue.
Fee and other income grew 40% in 2022 driven primarily by higher mortgage administration and servicing fees, and the
additional fee income contributed by Concentra Bank and Concentra Trust in Q4.
Total contribution of gains on securitization activities to NIR was $26.8 million in 2022 vs. $20.3 million in 2021, an
increase of 32%, driven by increased activity in EQB’s insured residential business and continued growth in funding
available to support these markets.
Page. 25
Provision for credit losses
Table 4: Provision for credit losses
($000s, except percentages)
Stage 1 and 2 provision (recoveries)
Stage 3 provision
Total Provision for credit losses (recoveries) − reported
Less: Provision for credit losses – purchased loans
Total Provision for credit losses (recoveries) – adjusted(1)
n.m. not meaningful
2022
29,822
7,436
37,258
(19,020)
18,238
2021
(16,272)
8,598
(7,674)
-
(7,674)
Change
46,094
(1,162)
44,932
(19,020)
25,912
283%
(14%)
586%
n.m.
338%
(1) Adjusted measures and ratios are Non-GAAP measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported
measures and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the
Concentra Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see
Adjustments to financial results section, and Non-GAAP financial measures and ratios section of this MD&A.
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 portfolio quality” section of this MD&A.
Total adjusted(1) provision for credit losses in 2022 was $18.2 million, with the adjustment representing the provision for
credit losses of $19.0 million in Q4 2022 related to the newly acquired loan portfolio. This reduced fourth quarter Net
Income by the same amount on a pre-tax basis. Under IFRS 9, the accounting standard for provisions does not
differentiate between originated and purchased loans and requires the same accounting treatment for both. The
accounting standard requires Equitable Bank to measure the acquired loan portfolios at fair value (considering expected
future cashflows and including expected credit losses), and subsequently for performing loans set-up an allowance for
credit losses equal to 12 months of expected losses (Stage 1), through the income statement immediately after the loans
come onto Equitable Bank's balance sheet. This accounting impact does not change Equitable Bank's view of the quality
of the businesses acquired or underlying quality of the acquired loan portfolios.
In 2022, the adjusted(1) stage 1 and 2 provision was $10.8 million, reflecting significant growth in the lending portfolio
alongside changes in the macroeconomic forecasts used in EQB’s loss modeling and consideration of variables like
interest rate volatility and a housing market correction resulting from central bank monetary tightening actions. This is
compared to a recovery of $16.3 million in 2021, which was primarily driven by reversing provisions taken in the face of
COVID-19 that proved to be unnecessary.
Stage 3 provisions are related to impaired loans. Management carefully reviewed each impaired loan to assess the
adequacy of its allowances and concluded that this level of provision and the resulting allowance for credit losses
appropriately reflects the estimates of likely credit losses on EQB’s impaired loan balances.
(1) Adjusted measures and ratios are Non-GAAP measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported
measures and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the
Concentra Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see
Adjustments to financial results section, and Non-GAAP financial measures and ratios section of this MD&A.
Non-interest expenses
We introduced adjusted results in Q1 2022 to account for planned one-time integration costs for the acquisition of
Concentra Bank, which amounted to $0.7 million in our Q4 2021 results.
Table 5: Non-interest expenses and efficiency ratio
Page. 26
($000s, except percentages and employees)
Compensation and benefits
Technology and system costs
Regulatory, legal and professional fees
Product costs
Marketing and corporate expenses
Premises
Total − reported
Less: integration related costs
Total − adjusted(1)
Efficiency ratio − reported
Efficiency ratio − adjusted(1)
Full-time employee (FTE) − year average
n.m. not meaningful
2022
2021
Change
183,605
58,741
41,450
38,862
38,677
15,136
376,471
(49,942)
326,529
48.1%
41.6%
1,386
128,965
43,310
22,159
27,207
22,857
15,678
260,176
(725)
259,451
40.5%
40.4%
1,036
54,640
15,431
19,291
11,655
15,820
(542)
116,295
(49,217)
67,078
n.m.
n.m.
350
42%
36%
87%
43%
69%
(3%)
45%
n.m.
26%
7.6%
1.2%
34%
(1) Adjusted measures and ratios are Non-GAAP measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported
measures and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the
Concentra Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see
Adjustments to financial results section, and Non-GAAP financial measures and ratios section of this MD&A.
Adjusted non-interest expenses increased by 26% in 2022 (reported 45%):
• People – compensation and benefits +31% resulting from staffing growth, inclusion of new staff from Concentra
Bank acquisition, and inflationary adjustments.
• Activity and innovation– product costs +43% including innovation spend and growing transaction fees related to the
growth of the EQ Bank customer base; marketing +19% mainly related to our EQ Bank promotion and customer
acquisition.
• Technology – system costs +14% for maintenance and advancement of our digital capability and cloud-first
technology.
Page. 27
Business line overview
Personal banking
713
Personal Banking operates through five businesses lines – EQ Bank, Residential Lending, Wealth Decumulation, and now
consumer lending through partnerships, a segment added with the Concentra Bank acquisition, and payments as a
service supporting our fintech partners. Our businesses provide innovative products and services that disrupt the status
quo in banking by giving customers better financial value and a superior end-to-end experience. Our customer
segments are diverse: we serve students, the self-employed, entrepreneurs, high-net worth individuals, Canadians
planning retirement and retirees. We look for opportunities to create better banking experiences and to address
segments underserved by other financial institutions. Our competition includes other Schedule I banks, trust
companies, mortgage lenders, and certain fintechs.
The table below summarizes key portfolio metrics as at year end December 31, 2022, inclusive of Concentra Bank.
($ billions)
EQ Bank
Deposits
Single Family Residential Lending
Alternative mortgages
Wealth Decumulation
Consumer Lending
Total Conventional loans(2)
Reverse mortgages
Insurance lending
Single Family Residential Lending
Prime mortgages
Total Personal Banking loans
2022 Actual
Y/Y Growth
7.9
19.2
0.86
0.09
0.90
21.1
11.0
32.0
14%
34%
249%
80%
N/A
43%
44%
44%
(1) Outlook represents expected growth rates from December 31, 2021 to December 31, 2022. (2) This is a Non-GAAP measure, see Non-
GAAP financial measures and ratios section of this MD&A.
Among our 2022 key milestones, we:
• Launched EQ Bank in Quebec to serve digital banking customers across Canada
• Completed EQ Bank Card pre-launch testing and launched in beta with select pilot customers
• EQ Bank customer engagement reached an all-time high of 48% in Q4 (frequency of digital transactions
+43% y/y and accounts held per customer +28% y/y)
• Expanded distribution for our decumulation business, including generating significant volume through a
direct-to-consumer channel for reverse mortgages, launching new Immediate Financing Arrangement
(IFA) in insurance lending, and added two new insurance lending partners (10 in total). Insurance
originations continued strong growth; however, paybacks were higher than anticipated in 2022
• Built and launched our payments as a service offering supporting fintech partnership with a BIN
sponsorship solution that contributes new fee-based revenue with new partners being added in 2023.
Commercial Banking
Page. 28
Our Commercial Banking operates through seven business
lines – Business Enterprise Solutions, Commercial Finance
Group, Multi-unit Insured, Specialized Finance, and Equipment
Financing, Credit Union and Concentra Trust – serving over
23,000 business customers.
EQB businesses compete 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 Canadian banks, but
more commonly smaller banks and other independent
financial institutions and lenders.
Commercial Banking experienced strong growth in 2022,
benefitting from strong origination and lower attrition rate.
The table below summarizes key portfolio metrics at year end December 31, 2022:
($ billions)
Business Enterprise Solutions
Commercial Finance Group
Specialized Finance
Equipment Financing
Total Conventional loans(3)
Insured Multi-Unit Residential
Total Commercial Banking loans
Loans to entrepreneurs
and SMEs(2)
Loans to medium sized
institutional & corporate
investors
Specialized lending to
medium sized and
corporate investors
Equipment leases to
entrepreneurs and SMEs(2)
CMHC insured real estate
mortgages(4)
2022 Actual
Y/Y Growth
1.3
5.6
1.0
1.3
9.2
5.3
14.5
22%
43%
52%
72%
44%
30%
38%
(1) Outlook represents expected growth rates from December 31, 2021 to December 31, 2022. (2) Small or medium-sized enterprises. (3)
This is a Non-GAAP measure, see Non-GAAP financial measures and ratios section of this MD&A. (4) Insured multi-unit residential include
only on-balance sheet loans.
Page. 29
Among our 2022 key milestones, we:
Delivered record originations across all Commercial Banking business lines including total conventional origination
growth of 12.6%, leading to portfolio growth of 44%
Exceeded $3 billion in Commercial Finance Group annual originations for the first time
Grew our insured commercial construction lending portfolio 220% year over year and CMHC-insured term loans
30% reflecting our focus on risk management in a challenging economic climate
Grew our Bennington portfolio of prime leases 133% y/y
Introduced several new self-serve features on Bennington’s Broker Desk Portal, e.g., the ability to create real-time
buyout quotes
Closed the acquisition of Concentra, which for Commercial Banking added two new business lines (Concentra Trust
and Credit Unions Services) and saw us combine Concentra’s commercial lending, equipment financing and
commercial deposits businesses in our portfolios
Partnered with a leading fintech to launch a new digital estate solution for credit union partners.
Balance sheet review
Balance sheet summary
Table 6: Balance sheet highlights
($ millions, except percentages)
Total assets
Loan principal – Personal(1)
Loan principal – Commercial(1)
Total deposits principal(1)
EQ Bank deposits principal(1)
Total liquid assets(2) as a % of total assets
31-Dec-22
51,145
32,043
14,541
30,831
7,923
7.7%
31-Dec-21
36,159
22,303
10,500
20,695
6,968
8.5%
Change
14,986
9,740
4,041
10,136
955
-
41%
44%
38%
49%
14%
(0.8%)
(1) The principal numbers are reported on a consolidated basis, including Concentra, prior to any acquisition-related fair value adjustments that are
captured in balance sheet measures. (2) This is a Non-GAAP measure, refer to the Non-GAAP financial measures and ratios section of this MD&A.
Total assets increased by 41% from a year ago reflecting both organic growth of the EQB portfolio and the acquisition of
Concentra Bank. Overall growth of on-balance sheet loans(1) within the Personal Banking and Commercial Banking
portfolios was 44% and 38% respectively.
EQB grew its total deposits balances by 49%, inclusive of both the acquisition of Concentra Bank and growth in EQ Bank
deposits principal of 14%.
Total loan principal
EQB’s strategy is to maintain a diverse portfolio of loan assets to optimize ROE and maintain credit risk at an acceptable
level. Table 7 presents EQB’s loan principal by lending business and Table 8 provides continuity schedules for on-balance
sheet loan assets.
Table 7: Loan principal by lending business(1)
($000s)
31-Dec-22 31-Dec-21
Change
Page. 30
Alternative single-family mortgages
Prime single-family mortgages
Decumulation loans
Consumer lending
Total Personal Lending – on balance sheet
Conventional commercial loans
Equipment financing
Insured multi-unit residential mortgages
Total Commercial Lending – on balance sheet
Total Loans – on balance sheet
Total Loans – off balance sheet
Total Loans under management(2)
19,227,589 14,392,904
10,971,498 7,613,131
4,834,685
3,358,367
34%
44%
951,950
296,505
655,445
221%
891,656
-
32,042,693 22,302,540
891,656
9,740,153
7,939,766 5,675,250
1,262,584
732,682
5,339,046 4,091,768
14,541,396 10,499,700
2,264,516
529,902
1,247,278
4,041,696
46,584,089 32,802,240
13,781,849
10,424,114 5,860,830
57,008,203 38,663,070
18,345,133
4,563,284
4,563,284
N/A
44%
40%
72%
30%
38%
42%
78%
78%
47%
Insured multi-unit residential mortgages – derecognized
10,424,114 5,860,830
(1) The principal numbers are reported on a consolidated basis, including Concentra, prior to any acquisition-related fair value adjustments that are
captured in balance sheet measures. (2) This is a non-GAAP measure, see Non-GAAP financial measures and ratios section of this MD&A.
Total on-balance sheet loan principal increased by 42% year over year, driven by growth in conventional lending across
both Personal Banking and Commercial Banking and the acquisition of Concentra Bank.
Of total principal growth, $13.8 million in 2022, our alternative single-family mortgage portfolio contributed 35% or $4.8
billion. This was driven by both strong originations and low attrition rates over the year, and the remainder reflected the
Concentra Bank acquisition. Prime mortgages were the second primary driver of 2022 growth, mostly due to the
addition of Concentra Bank’s prime portfolio. Included in the Personal Banking is the Concentra Bank consumer lending
portfolio (consumer term loans and credit card receivables), which contributed 6% to the annual growth.
The increase in conventional commercial loans amounted to 16%, driven by record origination and lower attrition rates
over the year within its three business lines: Commercial Finance Group, Business Enterprise Solutions, and Specialized
Finance. Insured multi-unit mortgages exceeded our target range due to increased demand for affordability linked CMB
funding. The Equipment Financing portfolio grew $530 million, benefiting from the newly acquired equipment financing
business, organic growth, and the steady growth of the leasing market.
Page. 31
Table 8: On-Balance Sheet loan principal continuity schedule(1)
($000s, except percentages)
2021 closing balance
Loans purchased on November 1
Originations
Derecognition
Net repayments
2022 closing balance
% Change from 2021
Net repayments percentage(2)
($000s, except percentages)
2020 closing balance
Originations
Derecognition
Net repayments
2021 closing balance
2021 closing balance
% Change from 2020
Net repayments percentage(2)
As at or for the year ended December 31, 2022
Total
32,802,240
8,812,019
Personal Commercial
10,499,700
1,099,729
22,302,540
7,712,290
7,586,633
-
(5,558,770)
7,709,552
(2,474,380)
(2,293,205)
15,296,185
(2,474,380)
(7,851,975)
32,042,693
14,541,396
46,584,089
44%
24.9%
38%
21.8%
42%
23.9%
As at or for the year ended December 31, 2021
Total
Commercial
Personal
19,306,186
8,374,520
-
(5,378,166)
22,302,540
16%
27.9%
8,851,167
5,669,070
(1,292,643)
(2,727,894)
10,499,700
19%
30.8%
28,157,353
14,043,590
(1,292,643)
(8,106,060)
32,802,240
16%
28.8%
(1) The principal numbers are reported on a consolidated basis, including Concentra, prior to acquisition-related fair value adjustments that are captured
in balance sheet measures. (2) Net repayments percentage is calculated by dividing net repayments by the previous period’s closing balance.
Credit portfolio quality
EQB regularly evaluates 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
judging that the risk associated with a particular region or product is no longer acceptable, EQB adjusts underwriting
criteria so that the policies continue to be prudent and reflective of current and expected economic conditions,
thereby safeguarding the future health of the portfolio.
There are several aspects of EQB’s risk management approach and existing loan portfolios that have and will continue
to help mitigate the risk of credit losses. EQB remains appropriately reserved for credit losses given the composition of
its loan portfolios and expected current economic forecasts. Allowances for Credit Losses as a percentage of total loan
assets equaled 18 bps at year-end 2022 compared to 15 bps a year ago, of which most was driven by addition of the
Concentra Bank portfolio.
Page. 32
Our general approach to lending is sound and we have modest exposure to higher risk lending markets:
• EQB focuses on 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 borrowers will default
and the loss in the event they do.
• Commercial Banking lending, including equipment financing, is diversified across industries and geographies.
Commercial Banking has defined asset-class exposure limits and focuses on assets that EQB believes will be resilient
through an economic cycle, such as multi-unit residential and mixed-use properties. These segments make up 47%
of the Commercial loan portfolio, while categories such as shopping centres and hotels, which EQB believes are
more sensitive to economic conditions, comprise 3.5% and 0.2% of Commercial loans or 1.2% and 0.1% of the total
loan portfolio, respectively.
• In equipment financing, EQB requires a cash security deposit on most of the higher-risk leases and in some cases
requires additional real assets to be pledged.
Our loan portfolios primarily have protection beyond a borrower’s ability to repay:
• Underwriting focuses foremost on a borrower’s ability to repay a loan. The average Beacon score of EQB’s
alternative single family residential borrowers was 713 at December 31, 2022. Similarly, the average Beacon score of
small business mortgage borrowers was 733 in 2022 versus 735 in 2021. These credit scores are indicative of a
borrowers’ positive repayment history and lower propensity to default under normal economic conditions.
• 49% of loans under management are insured against credit losses, ultimately with the backing of the Government of
Canada.
• Almost 100% of EQB’s loan portfolio is secured. Uninsured mortgage loans are supported by first-position claims on
real estate and our leases by first position claims on equipment, so EQB has a real asset with tangible value behind
almost every loan.
• If the prices of the assets securing mortgage loans decline, EQB is further protected by a portfolio with a lower
overall loan to value (LTV) ratio. The average LTV on EQB’s uninsured residential mortgage portfolio was 65% at
December 31, 2022.
• Further to this collateral, almost all uninsured commercial mortgage borrowers and the majority of leases are
backed by personal and/or corporate covenants. In the mortgage business, due diligence on borrowers and
guarantors involves assessing their financial capacity.
Allowance for Credit Losses
Total allowance for credit losses, net of cash reserves(1), increased year over year mostly due to adding Concentra Bank’s
allowances on its loan assets. In addition, EQB increased reserves for Stage 1 and 2 loans and equipment leases based
on the expected loss rates in those businesses.
Stage 3 allowances are determined loan by loan, and management believes that they are adequate at the end of 2022.
Stage 3 allowances on EQB’s mortgages are generally supported by up-to-date, independent property appraisals.
Page. 33
Table 9: Loan credit metrics
($000, except percentages)
($000s, except percentages)
Allowance for credit losses – Stage 1 and 2
Allowance for credit losses – total
Allowance for credit losses – total net of cash reserves (net ACL)(1)
Allowance for credit losses – net ACL as a % of total loan assets
Allowance for credit losses – net ACL as a % of uninsured loan assets
Allowances for credit losses – net ACL as a % of gross impaired
31-Dec-22 31-Dec-21
46,361
48,949
48,949
0.15%
0.25%
54%
89,931
96,782
82,693
0.18%
0.29%
60%
Change
43,570
47,833
33,744
94%
98%
69%
0.03%
0.04%
6%
(1) The newly acquired consumer lending portfolio is backed by a cash reserve of $14.1 million held for a limited financial guarantee provided by a third
party (as at December 31, 2022).
The table below provides allowance metrics that illustrate stage migration and loss rate dynamics:
Table 10: 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(1)
Stage 2 – effective allowance rate(2)
31-Dec-22
78.5%
0.11%
21.2%
0.37%
30-Sep-22
82.1%
0.09%
17.7%
0.36%
30-Jun-22 31-Mar-22
88.2%
0.09%
11.6%
0.43%
87.6%
0.09%
12.2%
0.43%
31-Dec-21
88.3%
0.10%
11.4%
0.49%
(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, net of cash reserves, divided by the period end loan balances in that stage.
Table 11: 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)
Consumer lending – stage 1 and 2 allowances net of cash reserves(1)
as a % of consumer lending (bps)
Uninsured Commercial loans – stage 1 and 2 allowances
as a % of uninsured commercial loans (bps)
Equipment financing – stage 1 and 2 allowances
as a % of equipment financing (bps)
Insured Personal & Commercial loans – stage 1 and 2 allowances
as a % of insured personal and commercial loans (bps)
Total loans – stage 1 and 2 allowances net of cash reserves
as a % of total loans (bps)
31-Dec-22 30-Sep-22 Change 31-Dec-21 Change
9,607
3
5,723
65
6,536
1
6,388
(43)
1,568
0.88
46,361 29,822
2
21,053
11
5,723
65
26,023
38
21,749
173
1,635
0.93
76,183
16
7,814
3
5,723
65
6,611
8
2,870
(27)
1,507
0.83
24,525
2
13,239
8
-
-
19,412
30
18,879
200
128
0.10
51,658
14
11,446
8
-
-
19,487
37
15,361
216
67
0.05
14
(1) The newly acquired consumer lending portfolio is backed by a cash reserve of $14.1 million held for a limited financial guarantee provided by a third
party (as at December 31, 2022).
On a year-over-year basis, Stage 1 and 2 allowances against our uninsured Personal loans, uninsured Commercial loans
and equipment financing increased by $9.6 million, $6.5 million, and $6.4 million, respectively. EQB leverages
macroeconomic forecasts from Moody’s Analytics and uses them in credit loss modelling. For a summary of key forecast
assumptions for each scenario, please refer to Note 10 (d & e) to the 2022 consolidated financial statements.
Page. 34
The following table presents expected credit losses by macroeconomic scenario. IFRS 9 requires EQB to weight these
scenarios to determine its expected loss. The scenario weightings remain unchanged since December 31, 2021.
Table 12: 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
50
84,088
(5,843)
Upside
Scenario
15
71,352
(18,579)
Slower
Growth
20
92,390
2,459
Moderate
Recession
10
103,763
13,832
Protracted
Slump
5
156,576
66,645
Taking into account known information and acknowledging the high level of uncertainty inherent in current economic
forecasts and management’s experienced credit judgment, management believes that the total allowance for credit
losses represents a reasonable estimate of future losses. Estimates are subject to uncertainty and actual losses may
differ materially if one or more of the underlying assumptions do not materialize as expected. Actual losses may also
differ from estimates due to the weightings EQB applies to the underlying economic scenarios.
Impaired loans
Table 13: Impaired loan metrics
($000, except percentages)
Gross impaired loan assets
Net impaired loan assets
Net impaired loan assets as a % of total loan assets
31-Dec-22 31-Dec-21
Change
138,513
131,662
0.28%
90,968
88,380
0.27%
47,545
43,282
52%
49%
0.01%
Net impaired loans at the end of 2022 were $132 million, up $43 million from 2021, representing 0.28% of total loan
assets vs. 0.27% at the end of 2021. The change was mainly attributable to growth of the portfolio, including the
acquisition of Concentra Bank. Excluding the $16 million impaired loans from Concentra Bank, the remaining $27 million
increase occurred in the following business: residential mortgages (+$16 million), conventional commercial loans (+$12
million), and equipment leases (-$1.3 million).
Concentra Bank’s net impaired loans were comprised of residential mortgages ($11 million), conventional commercial
loans ($3 million) and equipment financing ($2 million), which represented 0.04% of the total loan assets.
Management has evaluated these impaired loans and does not expect to incur material losses on these loans.
Page. 35
Deposits and funding
Deposits
Our deposits provide a reliable and diversified base of funding that can be effectively matched against loan maturities.
Table 14: Deposit principal
($000s)
Brokered deposits:
Term
Demand
EQ Bank deposits:
Term
Demand
Credit union deposits
Term
Demand
Corporate and institution deposits
Strategic partnerships
Deposit notes
Covered bonds
Total deposit principal
Securitization liabilities
31-Dec-22
31-Dec-21
Change
15,653,371
707,327
16,360,698
10,370,958
1,004,691
11,375,649
5,282,413
(297,364)
4,985,049
3,729,785
4,193,476
7,923,261
1,525,299
5,442,811
6,968,110
2,204,486
(1,249,335)
955,151
2,016,627
369,851
2,386,478
-
-
-
2,016,627
369,851
2,386,478
450,907
505,836
1,961,029
1,242,608
30,830,817
-
396,866
1,451,940
502,058
20,694,623
450,907
108,970
509,089
740,550
10,136,194
51%
(30%)
44%
145%
(23%)
14%
N/A
N/A
N/A
N/A
27%
35%
148%
49%
A portion of EQB’s securitization transactions do not qualify the loans for balance sheet derecognition and therefore the
associated obligations are recognized on the consolidated balance sheet and accounted for as securitization liabilities.
The securitization liability was $15 billion at December 31, 2022, up $3.6 billion or 32% from last year. Our securitization
liability also included $2.2 billion (December 31, 2021 – $1.5 billion) of securitizations through a funding program which
is sponsored by a Domestic Systemically Important Bank (D-SIB) and provides EQB with a source of matched funding for
qualifying uninsured single-family mortgages.
Funding facilities
Equitable Bank has two credit facilities with major Schedule I Canadian banks to fund residential mortgages prior to
securitization with an aggregate capacity of $1.1 billion (December 31, 2021 – $700 million). As at December 31,
2022, the outstanding balance on these facilities was $737 million (December 31, 2021 – $200 million).
Page. 36
EQB also has a funding agreement with a consortium of Schedule I banks for senior unsecured funding facilities
comprising of a revolving facility (Revolving Facility) of up to $200 million and a term loan facility (Term Loan) of up
to $275 million. As at December 31, 2022, EQB had an outstanding balance of $468 million (December 31, 2021 –
$nil) on the above facilities including deferred cost of $0.6 million and prepaid interest of $6.7 million. EQB utilized
the Revolving Facility and part of the Term Loan to fund the Concentra Bank acquisition.
Equitable Bank also has access to liquidity facilities 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, 2022 and
2021, no drawdown was made on these facilities.
Concentra Bank maintains a $400 million secured credit facility with a major Schedule I Canadian bank to support
issued letters of credit and for general liquidity management. Concentra Bank also maintains a $100 million secured
line of credit with SaskCentral, which is used primarily for settlement and clearing purposes. As of December 31,
2022, there were no amounts outstanding under either of these facilities.
Concentra Bank has established Bearer Deposit Notes (“BDN”) program through which it issues short-term
unsecured notes. As at December 31, 2022, the outstanding balance of the notes issued under the BDN program
was $35.0 million.
Details related to these funding facilities can be found in Note 17 to our 2022 audited consolidated financial
statements.
Liquidity investments and equity securities
Retail and securitization funding markets continue to be liquid and efficient.
EQB maintains liquid asset balances at a level that EQB believes is sufficient to meet its upcoming obligations even
through periods of disruption in financial markets. The size and composition of the liquidity portfolio at any point in
time is influenced by several factors such as expected future cash needs and the availability of various funding sources.
Further, EQB applies 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 EQB to take further liquidity protection measures. Please refer to the Risk Management section of
this document for more details on EQB’s Liquidity and Funding Risk policies and procedures.
In addition to assets that are held for the purpose of providing liquidity protection, EQB maintains a portfolio of liquid
equity securities (85% of which are investment-grade preferred shares) to yield tax-preferred dividend income. EQB has
the ability to liquidate this portfolio in the event of financial stress.
Page. 37
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-22
493,682
60,301
31-Dec-21
762,651
40,916
Change
(268,969)
19,385
(35%)
47%
200,432
550,030
(349,598)
(64%)
3,110,029
3,864,444
1,424
72,369
3,938,237
1,548,908
2,902,505
10,600
143,299
3,056,404
1,561,121
961,939
(9,176)
(70,930)
881,833
7.6%
7.7%
8.0%
8.5%
101%
33%
(87%)
(49%)
29%
(0.4%)
(0.8%)
(1) Eligible deposits with regulated financial institutions represents deposits of Bank which are held at major Canadian financial institutions and
excludes $251.1 million (December 31, 2021 – $62.7 million) of restricted cash held as collateral with third parties for Equitable Bank’s interest
rate swap transactions, issuance of letters of credit, loan origination and servicing activities, BIN sponsorship and banking settlements in the
normal course of business and $486.5 million (December 31, 2021 – $399.5 million) of cash held in trust accounts and deposits held with banks
as collateral for Equitable Bank’s securitization activities. (2) Loans held in the form of debt securities represent loans securitized and retained by
Equitable 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 institutions are deposits held by EQB Inc. (4) Equity securities are 85% investment grade
publicly traded preferred shares and 15% 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, 2022, our LCR was well in excess of the regulatory minimum of 100%.
Liquid assets(2) were $3.9 billion at year end, up $882 million from last year, reflecting the level of liquidity required due
to growth in demand deposits and anticipated cash flow needs for upcoming quarters.
Other assets and other liabilities
Please refer to Notes 14 and 18 to our 2022 audited consolidated financial statements for a detailed breakdown of
Other assets and Other liabilities as at December 31, 2022 and 2021.
Other assets
Other assets were $538.5 million on December 31, 2022, up $307 million or 133% over last year. The growth includes
$41 million goodwill and $23 million intangible assets that were recognized in the purchase price allocation, see Note 5
to the 2022 audited consolidated financial statements. Other major increases were mainly driven by net fair value of
outstanding derivative instruments, technology-related investments and income taxes recovery.
Other liabilities
Other liabilities were $557 million on December 31, 2022, up $222 million or 66% million from a year ago, mainly driven
by net unrecognized fair value loss on our derivative positions and higher accounts payable and liabilities due to
business growth and timing, offset in part by a decrease in income tax payable.
(1) See Glossary section of this MD&A. (2) This is a non-GAAP measures, see Non-GAAP financial measures and ratios section of this MD&A.
Page. 38
Off-balance sheet arrangements
EQB engages in certain financial transactions that, for accounting purposes, are not recorded on its annual consolidated
balance sheet. Off-Balance sheet transactions are generally undertaken for risk, capital, and funding management
purposes. These include certain securitization transactions, the commitments EQB makes to fund its pipeline of loan
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 EQB 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 $10.4 billion at December 31, 2022 (December 31, 2021 – $5.9 billion). The securitization liabilities
associated with these transferred assets are approximately $10.6 billion (December 31, 2021 – $5.9 billion). The
consolidated securitization retained interest recorded with respect to certain securitization transactions was $373.4
million (December 31, 2021 – $207.9 million) and the consolidated associated servicing liability was $58.2 million at
December 31, 2022 (December 31, 2021 – $38.5 million).
Commitments and letters of credit
EQB provides commitments to extend credit to our borrowers. EQB had outstanding commitments to fund $4.3 billion
of loans and investments in the ordinary course of business at December 31, 2022 (December 31, 2021 – $3.7 billion).
EQB 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 $86.1 million were outstanding at December 31,
2022 (December 31, 2021 – $46.8 million), none of which were drawn upon.
Contractual obligations by year of maturity are outlined in Table 30 – Contractual obligations. There were no material
changes to contractual obligations that are outside the ordinary course of EQB’s operations during 2022.
Related-party transactions
Certain of EQB’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. See Note 23 to the annual audited consolidated financial statements
further details.
Page. 39
Capital position
Risk weighted assets of Equitable Bank
Table 16: 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 – Retail
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, 2022
Risk-weighted
assets
Risk
Weighting
Assets /
Amounts
18%
0%
7%
25%
51%
100%
54%
1,231,339
200,432
2,289,301
32,038,686
14,561,461
373,455
538,762
51,233,436
(89,931)
51,143,505
221,934
612
169,667
7,987,516
7,393,299
373,455
290,562
16,437,045
-
16,437,045
785,474
168,268
49,310
17,440,097
1,485,563
18,925,660
For the year ended December 31, 2021
Assets /
Amounts
Risk
Weighting
Risk-weighted
assets
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
(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. 40
Capital measures
Table 17: Capital measures of Equitable Bank
($000s, except percentages)
Common Equity Tier 1 Capital:
Common shares
Contributed surplus
Retained earnings
Accumulated other comprehensive loss (AOCI)(2)
Less: Regulatory adjustments to Common Equity Tier 1 Capital
Common Equity Tier 1 Capital(1)
Additional Tier 1 capital:
Non-cumulative preferred shares
Tier 1 Capital(1)
Tier 2 Capital:
Eligible Stage 1 and 2 allowance
Less: Transitional adjustment in response to COVID-19
Tier 2 Capital(1)
Total Capital(1)
31-Dec-22 31-Dec-21
Change
928,778
12,537
1,856,084
(33,759)
(170,504)
2,593,136
217,474
9,785
1,649,890
(8,263)
(94,082)
1,774,804
711,304
2,752
206,194
(25,496)
(76,422)
818,332
183,541
2,776,677
72,554
1,847,358
110,987
929,319
89,931
(10,647)
79,284
2,855,961
46,361
(5,442)
40,919
1,888,277
43,570
(5,205)
38,365
967,684
Total risk-weighted assets (RWA)(1)
18,925,660 13,309,550
5,616,110
Capital ratios and Leverage ratio(1):
CET1 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio
13.7%
14.7%
15.1%
5.3%
13.3%
13.9%
14.2%
4.9%
327%
28%
12%
309%
81%
46%
153%
50%
94%
96%
94%
51%
42%
0.4%
0.8%
0.9%
0.4%
(1) See Glossary section of this MD&A. (2) 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.
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.
Management believes that Equitable Bank’s current level of capital and earnings in future periods will be sufficient to
support strategic objectives and ongoing growth. Equitable Bank’s Capital ratios at December 31, 2022 exceeded the
regulatory minimums and target levels. Equitable Bank’s CET1 ratio was 13.7%, up 40 bps from last year due to capital
injection from EQB Inc. for the acquisition of Concentra Bank and the change in risk density (growth of lower risk
portfolios).
Page. 41
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 remained fully
compliant with its regulatory requirements and its Leverage Ratio was 5.3% at December 31, 2022, up 40 bps as a result
of capital growth.
As part of capital management process, Equitable Bank stress tests the loan portfolio on a regular basis to understand
the potential impact of extreme but plausible adverse economic scenarios. Equitable Bank uses 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 Equitable Bank’s financial position across a range of economic scenarios.
Based on the results of the stress tests performed to date, management has 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.
Shareholders’ equity
Total shareholders’ equity increased $582 million or 30% to $2.5 billion at December 31, 2022. The increase mainly
reflects the issuance of $230 million of subscription receipts (converted to common shares as noted below) net earnings
retained, and net fair value gains recognized through other comprehensive income on our preferred share investments
and derivative cash flow hedges associated with securitization activity.
Common and preferred shares
A portion of EQB’s payment for the acquisition of Concentra Bank was financed with the net proceeds from the issuance
in February 2022 of approximately $230 million of underwritten subscription receipts (the “Subscription Receipts”)
pursuant to a prospectus supplement dated February 9, 2022 to the EQB base shelf prospectus dated June 12, 2020.
Upon closing of the Concentra Bank acquisition on November 1, 2022, the common shares of EQB issuable pursuant to
the 3,266,000 Subscription Receipts were automatically issued through the facilities of CDS Clearing and Depository
Services Inc. in accordance with the terms of the Subscription Receipts, as applicable, on a one-for-one basis. This
issuance of common shares increased the number of EQB's outstanding common shares to approximately 37.5 million.
At December 31, 2022, EQB had 37,564,114 common shares and 2,911,800 Series 3 preferred shares issued and
outstanding (December 31, 2021 – 34,070,810 common shares and 2,919,400 Series 3 preferred shares).
During 2022, 253,816 options were granted, while 118,970 stock options were exercised that contributed $3.5 million to
common share capital.
At December 31, 2022, there were 1,229,851 unexercised stock options, which are, or will be, exercisable to purchase
common shares for maximum proceeds of $60.3 million. For additional information on outstanding stock options and
their associated exercise prices, please refer to Note 20(a) to the 2022 audited consolidated financial statements.
Page. 42
Normal course issuer bid (NCIB)
On December 21, 2022, EQB announced that it received the approval of the Toronto Stock Exchange (TSX) to renew its
NCIB of up to 1,150,000 of its common shares and 288,680 of its Series 3 preferred shares, which will expire on
December 22, 2023 or on such earlier date as the NCIB is complete.
During 2022, EQB repurchased and cancelled 7,600 preferred shares at an average price of $24.93 per share, and no
common shares were purchased or cancelled under the NCIB.
Common share dividends
On February 16, 2023, EQB’s Board declared a quarterly dividend of $0.35 per common share, payable on March 31,
2023, to common shareholders of record at the close of business on March 15, 2023. This dividend represents a 6%
increase over dividends declared in November 2022.
On February 7, 2022, EQB’s Board of Directors reinstated EQB’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. EQB maintains the right to suspend the DRIP in future periods.
Preferred share dividends
On February 16, 2023, the Board declared a quarterly dividend of $0.373063 per preferred share, payable on
March 31, 2023, to preferred shareholders of record at the close of business on March 15, 2023.
Preferred shares issued by Concentra Bank
As at December 31, 2022, Concentra Bank has $111 million in preferred shares issued and outstanding, which are
included in EQB’s consolidated financial statements. For more detail, please see Note 19 – Shareholders’ Equity in the
EQB’s consolidated financial statements.
Page. 43
Adjustments to financial results
Concentra acquisition
On February 7, 2022, Equitable Bank announced a definitive agreement to acquire a majority interest in Concentra Bank,
subject to customary closing conditions and regulatory approvals. On September 28, 2022, Equitable Bank received
approval from the Ministry of Finance to acquire Concentra Bank and subsequently closed the transaction on
November 1, 2022, acquiring 100% ownership of Concentra Bank.
At the close of the transaction, EQB.R subscription receipts were converted to common shares and proceeds were used
to fund the acquisition. To support the transaction and integration, Equitable Bank incurred certain acquisition costs
since Q4 2021. In addition, the assets acquired from Concentra Bank and the liabilities retained were fair valued in
accordance with the accounting standards. These acquisition-related fair value adjustments will be amortized over the
term of these loans or liabilities, impacting reported net interest income, which began in Q4 2022. In addition, a Stage 1
provision was also set up for the performing loans acquired, which also was recorded through the income statement in
the fourth quarter.
Income tax
The federal government has introduced an increase in the corporate tax rate of 1.5% for bank and life insurance groups
for taxation years that end after April 7, 2022. It was levied on the portion of taxable income that exceeds 100 million. As
a result, a one-time tax impact was recorded in the income statement related to deferred tax liabilities due to the
change in tax rate.
Adjustments impacting current and prior periods:
To enhance comparability between reporting periods, increase consistency with other financial institutions, and provide
the reader with a better understanding of EQB’s performance, adjusted results were introduced starting in Q1 2022.
Adjusted results are non-GAAP financial measures.
Adjustments listed below are presented on a pre-tax basis:
2022
$2.2 million interest earned on the escrow account where the proceeds of the subscription receipts are held(1),
$49.9 million acquisition and integration-related costs,
$19.0 million provision credit for credit losses recorded on purchased loan portfolios,
$3.3 million net fair value related amortization recorded for November and December 2022,
$2.2 million interest expenses paid to subscription receipt holders(2), and
$3.8 million future tax expenses true-up due to increase in tax rate.
2021
$0.7 million of acquisition and integration-related costs.
(1) The net proceeds from the issuance of subscription receipts were held in an escrow account and the interest income earned was recognized upon
closing of the Concentra acquisition. (2) The interest expense refers to the dividend equivalent amount paid to subscription receipt holders. The
subscription receipt holders are entitled to receive a payment equal to the common share dividend declared multiplied by the number of subscription
receipts held on the common share dividend payment date. These subscription receipts were converted into common shares at a 1:1 ratio upon the
closing of the Concentra acquisition.
Page. 44
The following table presents a reconciliation of GAAP reported financial results to non-GAAP adjusted financial results.
For additional adjusted measures and information regarding non-GAAP financial measures, please refer to the Non-
GAAP financial measures and ratios section of this MD&A.
($000, except share and per share amounts)
Reported results
Net interest income
Non-interest revenue
Revenue
Non-interest expense
Pre-provision pre-tax income(5)
Provision for credit loss (recoveries)
Income tax expense
Net income
Net income available to common shareholders
Adjustments
Net interest income – earned on the escrow account(1)
Net interest income – fair value amortization
Net interest income – paid to subscription receipt
holders(2)
Non-interest revenue – fair value amortization
Non-interest expenses – acquisition-related costs
Provision for credit loss – purchased loans
Pre-tax adjustments
Income tax expense – tax impact on above adjustments(3)
Income tax expense – tax true-up
Post-tax adjustments
Adjusted results
Net interest income
Non-interest revenue
Revenue
Non-interest expense
Pre-provision pre-tax income(5)
Provision for credit loss (recoveries)
Income tax expense
Net income
Net income available to common shareholders
Diluted earnings per share
Weighted average number of diluted common shares
outstanding
Diluted earnings per share – reported
Diluted earnings per share – adjusted(4)
Diluted earnings per share – adjustment impact
As at or for the three months ended
31-Dec-22
30-Sep-22
31-Dec-21
For the year ended
31-Dec-22 31-Dec-21
218,325
16,382
234,707
139,180
95,527
26,796
22,912
45,819
43,514
(2,220)
3,324
(654)
(65)
(36,921)
(19,020)
56,326
15,271
(5,621)
46,676
218,775
16,317
235,092
102,259
132,833
7,776
32,562
92,495
90,190
186,251
9,481
195,732
84,082
111,650
5,354
28,717
77,579
76,493
-
-
1,013
-
(5,179)
-
6,192
1,622
-
4,570
187,264
9,481
196,745
78,903
117,842
5,354
30,339
82,149
81,063
155,952
15,911
171,863
70,427
101,436
(1,420)
22,794
80,062
78,973
-
-
-
-
(725)
-
725
190
-
535
155,952
15,911
171,863
69,702
102,161
(1,420)
22,984
80,597
79,508
733,405
48,781
782,186
376,471
405,715
37,258
98,276
270,181
582,609
60,298
642,907
260,176
382,731
(7,674)
97,875
292,530
264,615
288,117
(2,220)
3,324
2,220
(65)
(49,942)
(19,020)
72,221
19,435
(3,769)
56,555
736,729
48,716
785,445
326,529
458,916
18,238
113,942
326,736
321,170
-
-
-
-
(725)
-
725
190
-
535
582,609
60,298
642,907
259,451
383,456
(7,674)
98,065
293,065
288,652
36,632,711
1.19
2.46
1.27
34,450,617
2.22
2.35
0.13
34,538,314
2.29
2.30
0.01
35,031,166 34,445,443
8.37
8.38
0.01
7.55
9.17
1.62
(1) The net proceeds from the issuance of subscription receipts were held in an escrow account and the interest income earned was recognized upon
closing of the Concentra acquisition. (2) The interest expense refers to the dividend equivalent amount paid to subscription receipt holders. The
subscription receipt holders are entitled to receive a payment equal to the common share dividend declared multiplied by the number of subscription
receipts held on the common share dividend payment date. These subscription receipts were converted into common shares at a 1:1 ratio upon the
closing of the Concentra acquisition. (3) Income tax expense associated with non-GAAP adjustment was calculated based on the statutory tax rate
applicable for that period, taking into account the federal tax rate increase. (4) The sum of the adjusted four quarters does not equal the annual EPS due to
share count changes and an income tax adjustment recorded in Q4. (5) This is a non-GAAP measures, see Non-GAAP financial measures and ratios section
of this MD&A.
Page. 45
Commentary on one-time impacts for Q4 2022
Measure
Net Interest Margin
Weighted average
shares outstanding
Revenue and
expenses
Income taxes
Return on Equity
This quarter
The net interest margin for Q4 represents the
weighted average NIM corresponding to the
average asset through the quarter. With the
addition of Concentra assets and funding, NIM
declined by 7 bps for Q4 2022.
With the conversion of subscription receipts on
November 1, 2022, the issued share count
increased by 3,266,000. The weighted average
share count for the period includes 31 days
prior to the conversion and 61 days after.
Concentra Bank’s contribution to Revenue and
Expenses representing two months.
Income taxes were impacted by a one-time true-
up to current income taxes and deferred tax
liabilities due to the enactment of an increase in
the corporate tax rate of 1.5 percentage points
for Canadian banks and life insurance
companies on taxable income above $100
million.
Q4 2022 represented total net income to
common shareholders (e.g., 2 months for
Concentra Bank), divided by the average equity
book value through the period.
Next quarter
It should be expected that with a full
three-month contribution of Concentra
Bank assets in Q1 2023 (all else equal)
NIM would average toward Concentra.
With the subscription receipts
converted, the total common shares
issued will follow a more regular
pattern.
With a complete period, full
contributions to Revenue and Expenses
should be expected.
The income tax expense will be
normalized to the new statutory rate.
With a complete period, full
contributions to Revenue and Expenses
should be expected.
Page. 46
Fourth quarter results
EQB delivered adjusted(1) quarterly earnings of $92.5 million, up 13% compared to last quarter and 15% higher than the
same quarter of 2021. Adjusted(1) EPS for the quarter was $2.46, versus $2.35 in Q3 and $2.30 in Q4 2021. Strong
performance primarily contributed to organic growth of our loan assets, 3% and 15% up from Q3 2022 and Q4 2021,
respectively.
Net interest income
The table below details EQB’s NII and NIM for the three months ended December 31, 2022, with comparisons to the prior
quarter and the corresponding quarter of the prior year, by product and portfolio.
Table 18: Net interest income
($000s, except percentages)
For the three months ended
31-Dec-22
30-Sep-22
31-Dec-21
Revenue/ Average
rate(1)
Expense
Revenue/
Expense
Average
rate(1)
Revenue/
Expense
Average
rate(1)
Revenues derived from:
Cash and equivalents
Equity securities
Alternative single-family mortgages
Prime single-family mortgages
Decumulation loans
Consumer lending
Total Personal loans
Conventional commercial loans
Equipment financing
Insured multi-unit residential mortgages
Total Commercial loans
Average interest earning assets
Expenses related to:
Deposits
Securitization liabilities
Others
Average interest-bearing liabilities
26,925
923
220,015
61,422
12,557
13,225
307,219
156,922
25,624
34,609
217,155
552,222
228,256
84,689
20,502
333,447
3.75%
5.29%
4.79%
2.49%
5.79%
9.19%
4.14%
8.04%
8.89%
2.71%
6.17%
4.73%
3.15%
2.19%
4.49%
2.89%
11,676
879
178,753
39,271
7,478
-
225,502
112,022
21,516
39,041
172,579
410,636
146,202
64,567
12,603
223,372
3.07%
4.66%
4.34%
2.15%
5.40%
-
3.71%
6.60%
9.27%
3.13%
5.43%
4.25%
2.44%
2.01%
3.21%
2.33%
4,418
1,184
132,877
34,838
2,639
-
170,354
68,531
17,250
24,981
110,762
286,718
78,695
51,096
975
130,766
Adjusted Net interest income and margin(2)
218,775
1.87%
187,264
1.94%
155,952
Interest earned on the subscription receipt escrow
account
Interest paid to subscription receipt-holders
Net fair value amortization- loans
Net fair value amortization- liabilities
2,220
654
21,714
(25,038)
-
(1,013)
-
-
-
-
-
-
0.93%
3.76%
3.80%
1.77%
4.07%
-
3.08%
5.03%
9.86%
2.37%
4.28%
3.33%
1.54%
1.68%
0.41%
1.55%
1.81%
Reported net interest income and margin
218,325
1.85%
186,251
1.93%
155,952
1.81%
(1) Average rates are calculated based on the daily average balances outstanding during the period. (2) Adjusted measures and ratios are Non-GAAP
measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported measures and ratios, except that financial information
included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the Concentra Bank acquisition and integration related
costs. For additional information and a reconciliation of reported results to adjusted results, see Adjustments to financial results section, and Non-GAAP
financial measures and ratios section of this MD&A.
Page. 47
Q4 2022 v Q4 2021
Adjusted(1) net interest income was up 40% year-over-year (reported + 40%), driven by conventional loan asset growth
and 6 bps increase in adjusted NIM (reported + 4bps).
Adjusted NIM(1) was 1.87% in the quarter (reported 1.85%), mainly due to asset mix shifting towards higher yield
conventional loans and decreased size of lower margin liquid assets. This increase was offset in part by lower levels of
prepayment income within our Personal loan portfolio.
Q4 2022 v Q3 2022
Adjusted(1) net interest income was up 17% (reported + 17%), mainly benefiting from asset growth and despite a lower
NIM. Adjusted NIM(1) dropped 7 bps, mainly because the asset growth offset by the implication of weighted average
measure with the two-months additions of Concentra Bank’s assets and fundings.
Non-interest revenue
Table 19: Non-interest revenue
($000s, except percentages)
Fees and other income
Net loss on loans and investments
Net (loss) gain on strategic investments
Securitization activities:
Gains on securitization and income from retained interests
Fair value gains (losses) on derivative financial instruments
Total
n.m. not meaningful
Q4 2022 v Q4 2021
31-Dec-22
10,477
(1,013)
(4,938)
30-Sep-22
6,679
(294)
(7,403)
For the three months ended
Change
31-Dec-21
Change
96%
5,355
57%
n.m.
(647)
n.m.
(155%)
8,990
33%
9,273
2,583
16,382
10,277
222
9,481
(10%)
n.m.
73%
3,851
(1,638)
15,911
141%
n.m.
3%
Non-interest revenue slightly increased by $0.5 million, primary due to growth in fees income, higher gain on
securitization and fair value on our derivative instruments, offset by net loss on our strategic investments.
Q4 2022 v Q3 2022
Non-interest revenue increased sequentially by $6.9 million, resulting from higher fees income, lower mark-to-market
loss on strategic investments and higher fair value gain on derivative instruments.
(1) Adjusted measures and ratios are Non-GAAP measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported
measures and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the
Concentra Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see
Adjustments to financial results section, and Non-GAAP financial measures and ratios section of this MD&A.
Page. 48
Non-interest expenses
Table 20: Non-interest expenses and efficiency ratio
($000s, except percentages and employees)
Compensation and benefits
Technology and system costs
Regulatory, legal and professional fees
Product costs
Marketing and corporate expenses
Premises
Total – reported
Less: acquisition-related costs
Total – adjusted (1)
Efficiency ratio – reported
Efficiency ratio – adjusted(1)
Full-time employee (FTE) − period average
n.m. not meaningful
31-Dec-22 30-Sep-22
41,767
11,572
11,570
8,618
6,902
3,653
84,082
(5,179)
78,903
43.0%
40.1%
1,373
64,999
23,969
11,303
14,943
20,146
3,820
139,180
(36,921)
102,259
59.3%
43.5%
1,635
For the three months ended
Change
90%
107%
77%
107%
181%
(3%)
98%
n.m.
47%
18.3%
2.9%
46%
Change 31-Dec-21
34,166
11,557
6,383
7,212
7,178
3,931
70,427
(725)
69,702
41.0%
40.6%
1,121
56%
107%
(2%)
73%
192%
5%
66%
n.m.
30%
16.3%
3.4%
19%
(1) Adjusted measures and ratios are Non-GAAP measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported measures
and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the Concentra
Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see Adjustments to
financial results section, and Non-GAAP financial measures and ratios section of this MD&A.
Q4 2022 v Q4 2021
Adjusted(1) non-interest expenses grew 47% (reported 98%), mainly as a result of increase in compensation and benefits
(headcount +46%), core banking system support and maintenance, higher product costs (project amortization and
transaction fees), professional services rendered, and capital tax.
Q4 2022 v Q3 2022
During the quarter, adjusted(1) non-interest expenses grew 30% (reported 66%), mainly because of higher employee
compensation costs, technology spending, transaction costs, professional service fees, and capital tax.
(1) Adjusted measures and ratios are Non-GAAP measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported
measures and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the
Concentra Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see
Adjustments to financial results section, and Non-GAAP financial measures and ratios section of this MD&A.
Page. 49
Provision for credit losses
Table 21: Provision for credit losses
($000s, except percentages)
Stage 1 and 2 provision (recoveries)
Stage 3 provision
31-Dec-22
24,525
2,271
30-Sep-22
2,973
2,381
For the three months ended
Change
(883%)
(33%)
31-Dec-21
(3,132)
1,712
Change
725%
(5%)
Total Provision for credit losses (recoveries) − reported
Less: Provision for credit losses – purchased loans
Total Provision for credit losses (recoveries) − adjusted(1)
26,796
(19,020)
7,776
5,354
-
5,354
400%
(1,420)
(1,987%)
(19,020)
45%
-
(1,420)
(19,020)
648%
(1) Adjusted measures and ratios are Non-GAAP measures and ratios. Adjusted measures and ratios are calculated in the same manner as reported measures
and ratios, except that financial information included in the calculation of adjusted measures and ratios is adjusted to exclude the impact of the Concentra
Bank acquisition and integration related costs. For additional information and a reconciliation of reported results to adjusted results, see Adjustments to
financial results section, and Non-GAAP financial measures and ratios section of this MD&A.
Q4 2022 v Q4 2021
Total adjusted provision increased by $9.2 million, mainly due to the movement in Stage 1 and 2 provision resulting
from growing portfolio and changes in the forecasts used in our credit loss modelling.
Q4 2022 v Q3 2022
Total adjusted provision increased by $2.4 million due to the same reason cited above when comparing to Q4 2021.
Total loan principal continuity
The following table provides quarterly on-balance sheet loan principal continuity schedules by lending business for Q4
2022 and Q4 2021:
Table 22: On-Balance Sheet loan principal continuity schedule(1)
Page. 50
($000s, except percentages)
Q3 2022 closing balance
Loans purchased on November 1
Originations
Derecognition
Net repayments
Q4 2022 closing balance
% Change from Q3 2022
Net repayments percentage(2)
($000s, except percentages)
Q3 2021 closing balance
Originations
Derecognition
Net repayments
Q4 2021 closing balance
% Change from Q3 2021
Net repayments percentage(2)
For the three months ended December 31,
2022
Personal
24,217,721
7,712,290
1,811,011
-
(1,698,329)
32,042,693
32%
7.0%
Commercial
12,454,029
1,099,729
2,083,559
(702,592)
(393,329)
14,541,396
17%
3.2%
Total
36,671,750
8,812,019
3,894,570
(702,592)
(2,091,658)
46,584,089
27%
5.7%
For the three months ended December 31, 2021
Commercial
Total
31,373,746
10,083,804
3,768,766
1,478,377
(311,840)
(311,840)
(2,028,432)
(750,641)
32,802,240
10,499,700
5%
4%
6.5%
7.4%
Personal
21,289,942
2,290,389
-
(1,277,791)
22,302,540
5%
6.0%
(1) The principal numbers are reported on a consolidated basis, including Concentra, prior to any acquisition-related fair value adjustments that are
captured in balance sheet measures. (2) Net repayments percentage is calculated by dividing net repayments by the previous period’s closing balance.
Q4 2022 v Q4 2021
Please refer to Total loan principal under the “Balance sheet review” section of this MD&A for a discussion of our year-
over-year portfolio growth.
Q4 2022 v Q3 2022
During the quarter, 16% growth in originations, plus lower attrition levels, lead to $1.1 billion portfolio growth (excluding
the purchased loans).
Page. 51
Interim financial statements
Table 23: Unaudited interim consolidated statement of income
($000, except per share amounts)
Interest income:
Loans – Retail
Loans – Commercial
Investments
Other
Interest expense:
Deposits
Securitization liabilities
Funding facilities
Other
Net interest income
Non-interest revenue:
Fees and other income
Net (loss) gain on loans and investments
Gains on securitization activities and income from securitization retained
interests
Revenue
Provision for credit losses (recoveries)
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
For the three months ended
31-Dec-22
30-Sep-22
31-Dec-21
327,596
218,428
10,754
19,298
576,076
244,413
93,163
11,008
9,167
357,751
225,502
172,579
3,377
9,178
410,636
146,202
64,567
6,180
7,436
224,385
170,354
110,762
3,491
2,111
286,718
78,695
51,096
231
744
130,766
218,325
186,251
155,952
10,477
(5,951)
11,856
16,382
234,707
26,796
207,911
64,999
74,181
139,180
68,731
22,154
758
22,912
45,819
2,305
43,514
1.20
1.19
6,679
(7,697)
10,499
9,481
195,732
5,354
190,378
41,767
42,315
84,082
106,296
17,142
11,575
28,717
77,579
1,086
76,493
2.24
2.22
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
Table 24: Unaudited interim consolidated statement of comprehensive income
Page. 52
($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 from change in fair value
Reclassification of net losses to income
Other comprehensive income – items that will not be reclassified
subsequently to income:
Equity instruments designated at Fair Value through Other
Comprehensive Income:
Reclassification of gains from AOCI on sale of investments
Net unrealized (losses) gains from change in fair value
Reclassification of net losses (gains) to retained earnings
Income tax (expense) recovery
Cash flow hedges:
Net unrealized gains from change in fair value
Reclassification of net (gains) losses to income
Income tax expense
Total other comprehensive income (loss)
Total comprehensive income
31-Dec-22
For the three months ended
31-Dec-21
30-Sep-22
45,819
77,579
80,062
(1,788)
3,985
(2,510)
1,240
(2,855)
875
604
(1,543)
798
2,056
(185)
1,871
5,050
(1,396)
3,654
(958)
2,696
4,567
50,386
-
(4,910)
-
(6,180)
1,625
(4,555)
-
2,991
(13)
998
(263)
735
2,967
1,126
4,093
(1,075)
3,018
(1,537)
76,042
7,777
1,236
9,013
(2,369)
6,644
7,379
87,441
Page. 53
Table 25: Unaudited interim consolidated statement 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
Subscription receipts
Other liabilities
Income taxes paid
Cash flows from (used in) operating activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common shares
Term loan facility
Dividends paid on preferred shares
Dividends paid on common shares
Cash flows from (used in) financing activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments
Proceeds from sale or redemption of investments
Net change in Canada Housing Trust re-investment accounts
Purchase of capital assets and system development costs
Investment in subsidiary
Cash flows used in 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-22
For the three months ended
31-Dec-21
30-Sep-22
45,819
77,579
80,062
(8,202)
274
19,130
26,796
(7,197)
840
22,912
15,197
(107,948)
549,640
(1,138,391)
176,042
417,239
680,398
(83,574)
85,314
(232,018)
(136,172)
(30,909)
295,190
225,890
275,000
(2,304)
(12,387)
486,199
(518,429)
281,762
177,457
(30,703)
(495,369)
(585,282)
196,107
298,999
495,106
514,579
(143,439)
1,045
(3,990)
311
9,696
5,354
(8,973)
824
28,717
13,477
9,447
(330,063)
(577,886)
(6,277)
382,733
245,281
(65,613)
88,903
1,197
(34,422)
(31,958)
(195,663)
1,974
-
(1,086)
(10,590)
(9,702)
(8,466)
44,150
(51,141)
(19,688)
-
(35,145)
(240,510)
539,509
298,999
362,766
(152,137)
859
244
122
8,883
(1,420)
(2,753)
655
22,794
11,962
4,477
49,977
(1,452,085)
8,035
927,776
175,859
572,463
(130,351)
-
67,307
(10,485)
333,522
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
Page. 54
Accounting standards and policies
Accounting policy changes
EQB’s significant accounting policies are essential to an understanding of its reported results of operations and financial
position. Accounting policies applied by EQB in the 2022 annual consolidated financial statements are the same as those
applied by EQB as at and for the year ended December 31, 2021.
Future Changes in Accounting Policies
On December 16, 2021, the Canadian Alternative Reference Rate working group (CARR) recommended the
administrator, Refinitiv Benchmark Services UK Limited (RBSL), cease publication of Canadian Dollar Offered Rate
(CDOR) settings immediately after June 30, 2024, using a two-stage transition approach. By the end of the first stage on
June 30, 2023, they expect all new derivative contracts and securities to have transitioned to the Canadian Overnight
Repo Rate Average (CORRA), with the exception of derivatives that hedge or reduce CDOR derivatives or securities
transacted before June 30, 2023, or for loans before June 30, 2024. All remaining CDOR exposures should be
transitioned to CORRA by June 30, 2024, marking the end of the second stage.
Following public consultation, on May 16, 2022, RBSL announced that all remaining CDOR settings will cease publication
immediately after June 30, 2024 according to the CARR recommendation. EQB continues to assess the impact of this
announcement.
Please refer to Note 3 to the audited consolidated financial statements for a summary of EQB’s other significant
accounting policies.
Critical accounting estimates
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 EQB’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, fair value measurement of net identifiable assets acquired, liabilities assumed and
intangibles recognized in a business combination, and income taxes.
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 current market volatility and uncertainty due to geo-political unrest the
current interest rate environment, and inflationary pressures. Actual results could differ materially from these
estimates, in which case the impact would be recognized in the Consolidated Financial Statements in future periods.
Page. 55
Allowance for credit losses under IFRS 9
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 geo-political unrest, the current interest rate environment, and inflationary pressures, 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.
Fair values of assets, liabilities and Intangible assets on Concentra Bank’s acquisition
On November 1, 2022, Equitable Bank acquired 100% ownership in Concentra Bank (“Concentra”) by paying $495,369 in
purchase consideration and recognized Concentra’s assets, liabilities, and intangible assets on its Balance Sheet along
with goodwill amounting to $40,651 (Refer note 5). For the loans and receivables acquired and deposit liabilities
assumed, management has carried out valuation adjustments to principal book values by applying an income approach
that requires the cash flows relating to the financial instruments to be discounted to present value at prevailing market
interest rates at the valuation date. In determining these cash flows, management has exercised significant judgement
in determining estimates relating to liquidation rates, prepayment rates, repricing adjustments, and credit quality of
assets.
Some of Concentra’s core deposits and Trust relationships have been recognized as intangible assets. Core deposits are
expected to provide a stable, low-cost source of funding, and existing Trust relationships with credit unions and
individual trust clients will provide a new source of revenue and generate new clients by generating trust income. The
valuation of core deposit intangible asset is carried out using the differential income approach, being the difference
between the cost of funds for the acquired deposits and the cost of funds from alternative sources. The valuation of
core deposit intangible asset requires management to make significant judgements and estimates relating to cash flow
discount rates, deposit growth rates, and retention rates.
For further information regarding critical accounting estimates, please refer to Notes 2(d) and 10(d) to (f) to the audited
consolidated financial statements.
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 EQB’s disclosure controls and procedures (as defined in the rules of the Canadian
Securities Administrators) as of December 31, 2022. Based on that evaluation, we have concluded that these disclosure
controls and procedures were effective.
Page. 56
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 EQB’s Internal Controls over Financial Reporting (ICOFR) as of December 31,
2022 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 EQB’s Internal Controls over
Financial Reporting were effective as of December 31, 2022.
Limitation on scope of design
EQB has limited the scope of its disclosure controls and procedures (DC&P) and ICOFR to exclude controls, policies and
procedures of a business acquired not more than 365 days before the last day of the period covered by its annual filing.
EQB elected to exclude the DC&P and ICOFR of Concentra Bank that it acquired on November 1, 2022 as allowed by
National Instrument 52-109. The results of Concentra Bank are included in the EQB’s 2022 consolidated financial
statements since the acquisition date.
For additional information on this acquisition refer to the “Acquisition of Concentra Bank” section of this MD&A.
Changes in internal control over financial reporting
There were no changes in EQB’s internal control over financial reporting that occurred during the 2022 that have
materially affected, or are reasonably likely to materially affect, EQB’s internal control over financial reporting.
Risk management
Through its wholly owned subsidiary, Equitable Bank (the Bank), EQB 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 EQB. Many of these risk factors are beyond EQB’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.
The yellow tinted sections in the “Credit Risk”, “Liquidity and Funding Risk”, and “Market Risk” below form an
integral part of the 2022 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.
Page. 57
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.
Risk management framework
The Board has overall responsibility for the establishment and oversight of the Equitable 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 the potential for loss remains within acceptable Board-approved limits.
Equitable Bank’s Enterprise Risk Management Framework:
Page. 58
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, and Governance and Nominating 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.
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.
Page. 59
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’.
The following sections address the risks associated with COVID-19 and provide updates on our credit risk and liquidity
risk profiles:
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 their ongoing operational
requirements.
Page. 60
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 financing 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.
Page. 61
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 94% of the Bank’s corporate bond portfolio at December 31, 2022 (December 31, 2021 – 100%).
The Bank also invests in preferred shares comprising 53% of the total securities portfolio, 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 17.1% of the Bank’s total equity securities portfolio at December 31, 2022, compared to
25% a year earlier. Securities rated P-3 or higher comprised 44% of the total equity securities portfolio at the end of
December 2022 (December 31, 2021 – 63%).
The Bank’s rating scale for the credit quality of our counterparties is based on both internal and external credit grading
systems. Table 26 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.
Table 26: 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, 2022 and 2021, 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 27: 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
($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
15,180,145
21,133,205
295,309
-
36,608,659
(50,691)
36,557,968
Stage1
1,327,738
1,344,033
1,089
2,672,860
(1,042)
2,671,818
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
Page. 62
For the year ended December 31, 2022
Total
Stage3
Stage2
1,495,428
8,049,427
314,970
-
9,859,825
(37,768)
-
-
-
138,513
138,513
(6,851)
16,675,573
29,182,632
610,279
138,513
46,606,997
(95,310)
9,822,057
46,511,686
131,662
For the year ended December 31, 2022
Total
Stage3
Stage2
27,041
725,438
15,593
768,072
(430)
767,642
-
-
-
-
-
-
1,354,779
2,069,471
16,682
3,440,932
(1,472)
3,439,460
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
88,380
32,901,018
For the year ended December 31, 2021
Total
Stage3
Stage2
152
238,301
68
238,521
(36)
238,485
-
-
-
-
-
-
915,237
1,499,268
445
2,414,950
(256)
2,414.694
Page. 63
The following table sets out the credit analysis for financial assets measured at FVTPL and for equity securities measured
at FVOCI.
Table 28: 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-22
31-Dec-21
430,253
854
431,107
136,921
679
50,612
188,212
21,274
21,274
14,400
34,885
10,883
60,168
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
The Bank held cash and cash equivalents of $495.1 million as at December 31, 2022. 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 individually
assessed as impaired. For impaired mortgages, the most recent appraised value of collateral at December 31, 2022 was
$224 million (December 31, 2021 – $104 million). At December 31, 2022, the appraised values of collateral held for
mortgages considered past due but not impaired, as determined when the mortgages were originated, was $261 million
(December 31, 2021 – $48 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, 2022 amounted to $0.4million
(December 31, 2021 – $0.1 million) and are included in Other assets (Note 14) 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, 2022 was $9 million (December 31, 2021 – $6 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 $3.3 million
(December 31, 2021 – $3.5 million). These amounts are still subject to enforcement activity.
Page. 64
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, 2022,
no individual borrower represented more than $158 million (December 31, 2021 – $145 million) or 0.70% (December 31,
2021 – 0.76%) of uninsured loan principal outstanding. See Tables 7 and 13 of our Q4 2022 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
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, 2022, 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 29: 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%
2022
3,864,444
315%
2021
2,902,505
124%
(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.
Page. 65
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, 2022, 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. Total issuance up
to December 31, 2022 is €900 million. 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.
The following table summarizes contractual maturities of the Bank’s financial liabilities.
Table 30: Contractual obligations(1)
($000s)
Deposits principal and interest
Securitization liabilities principal and interest
Funding facilities principal and interest
Other liabilities
Total 2022 contractual obligations
Total 2021 contractual obligations
Total Less than 1 year
14,926,224
4,994,866
774,356
632,130
21,327,576
10,674,027
26,839,168
24,035,323
774,356
902,864
52,551,711
34,791,256
1 − 3 years
9,744,995
8,949,944
-
243,173
18,938,112
11,738,399
Payments due by period
4 − 5 years After 5 years
30,845
2,137,104
4,417,568
5,672,945
-
-
7,429
20,132
4,455,842
7,830,181
4,104,059
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,
2022 and 2021.
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, 2022, 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.
Page. 66
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, 2022. 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.
Table 31: 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)
13,317
(42,677)
(1.5%)
26,738
(85,181)
(3.0%)
(14,294)
1,852
0.1%
(26,117)
(5,203)
(0.2%)
(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.
Page. 67
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.
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.
Page. 68
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.
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.
Page. 69
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.
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.
Page. 70
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 participant
in disclosing its climate change related information to CDP (formerly known as Carbon Disclosure Project) and has
done so in 2021 and 2022.
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.
Page. 71
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 2022, 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 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.
Page. 72
• 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.
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.
Page. 73
Glossary
• Book value per common share: is calculated by dividing common shareholders’ equity by the number of common
shares outstanding.
• Capital ratios:
• CET1 ratio: this key measure of capital strength is defined as CET1 Capital as a percentage of total RWA. This ratio
is calculated for Equitable 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 for Equitable 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 Equitable 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.
• 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.
• Economic value of shareholders’ equity (EVE): is a calculation of the present value of EQB’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 EQB’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.
• Liquidity coverage ratio (LCR): this ratio, calculated according to OSFI’s Liquidity Adequacy Requirements, measures
Equitable 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.
• Operating leverage: is the growth rate in revenue less the growth rate in 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 principal outstanding during the period.
• 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 weighted average common shareholders’ equity (reported
outstanding during the period.
• Revenue per full time equivalent (FTE): is calculated as revenue for the period divided by the number of full-time
equivalent employees as at the end of that period.
• Risk-weighted assets (RWA): represents Equitable Bank’s assets and off-balance sheet exposures, weighted
according to risk as prescribed by OSFI under the CAR Guideline.
• Total shareholder return (TSR): is defined as total return of stock to an investor including stock appreciation and
dividends.
Page. 74
Non-Generally Accepted Accounting Principles (GAAP)
financial measures and ratios
This section provides further discussion regarding the variety of financial measures and ratios to evaluate EQB’s
performance.
Non-GAAP measures
In addition to GAAP prescribed measures, we also use certain non-GAAP measures that we believe provide useful
information to investors regarding EQB’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:
Adjusted results
In addition to the adjusted results that are presented in the “Adjustments to financial result” section of this MD&A,
additional adjusted financial measures and ratios are described as follows:
• Adjusted efficiency ratio: it is derived by dividing adjusted non-interest expenses by adjusted revenue. A lower
adjusted efficiency ratio reflects a more efficient cost structure.
• Adjusted operating leverage: is the growth rate in adjusted revenue less the growth rate in adjusted non-interest
expenses.
• Adjusted return on equity (ROE): it is calculated on an annualized basis and is defined as adjusted net income
available to common shareholders as a percentage of weighted average common shareholders’ equity (reported)
outstanding during the period.
Other non-GAAP financial measures and ratios
• Assets under administration (AUA): is sum of (1) assets over which Concentra Bank has been named as trustee,
custodian, executor, administrator or other similar role; (2) loans held by credit unions for which Concentra Bank acts
as servicer.
• Assets under management (AUM): is the sum of total assets reported on the consolidated balance sheet and loan
principal derecognized but still managed by EQB.
($000s)
31-Dec-22
31-Dec-21
Change
31-Dec-20
Change
Total assets on the consolidated balance sheet
51,144,957
36,159,070
Loan principal derecognized
Assets under management
10,424,114
5,860,830
61,569,071
42,019,900
41%
78%
47%
30,746,318
5,189,264
35,935,582
66%
101%
71%
Page. 75
• Conventional loans: are the total on-balance sheet loan principal excluding prime single family and insured multi-unit
residential mortgages.
($000s)
31-Dec-22
31-Dec-21
Change
31-Dec-20
Change
Alternative single-family mortgages
19,227,589
14,392,904
34%
11,050,456
Reverse mortgages
Insurance lending
Consumer lending
863,708
247,363
88,242
49,142
891,656
-
Total Conventional loans – Personal
21,071,195
14,689,409
Business Enterprise Solutions
Commercial Finance Group
Specialized finance
Equipment financing
Total Conventional loans – Commercial
1,327,917
1,086,826
5,630,603
3,942,836
981,246
645,588
1,262,584
732,682
9,202,350
6,407,932
249%
80%
N/A
43%
22%
43%
52%
72%
44%
58,246
26,732
-
11,135,434
936,363
3,239,959
290,191
558,987
5,025,500
Total Conventional loans
30,273,545
21,097,341
43%
16,160,934
74%
1,383%
230%
N/A
89%
42%
74%
238%
126%
83%
87%
• Liquid assets: is a measure of EQB’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.
• Loans under management (LUM): is the sum of loan principal reported on the consolidated balance sheet and loan
principal derecognized but still managed by EQB. A detailed calculation can be found in Table 7 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 Table 2 and
18 of this MD&A.
• Pre-provision pre-tax income: this is the difference between revenue and non-interest expenses.
Page. 76
Reports and consolidated financial statements
Reports
77 Management’s Responsibility for Financial Reporting
78
Independent Auditors’ Report
Consolidated Financial Statements
84
85
86
87
89
Consolidated Balance sheet
Consolidated Statement of income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Shareholders’ Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
90
90
91
Note 1 – Reporting Entity
Note 2 – Basis of Preparation
136 Note 14 – Other Assets
137 Note 15 – Deposits
Note 3 – Significant Accounting Policies
137 Note 16 – Income Taxes
108 Note 4 – Risk Management
108 Note 5 – Business Combination
138 Note 17 – Funding Facilities
139 Note 18 – Other Liabilities
110 Note 6 – Financial Instruments
139 Note 19 – Shareholders’ Equity
115 Note 7 – Cash and Cash Equivalents and Restricted Cash
142 Note 20 – Stock-based Compensation
116 Note 8 – Securities Purchased Under Reverse Repurchase
145 Note 21 – Earnings Per Share
Agreements
116 Note 9 – Investments
117 Note 10 – Loans Receivable
145 Note 22 – Capital Management
146 Note 23 – Commitments and Contingencies
124 Note 11 – Derecognition of Financial Assets
147 Note 24 – Related Party Transactions
127 Note 12 – Derivative Financial Instruments
148 Note 25 – Interest Rate Sensitivity
133 Note 13 – Offsetting Financial Assets and Financial Liabilities
149 Note 26 – Non-interest Expense - Other
Page. 77
Page. 79
Management’s responsibility
for financial reporting
The Consolidated Financial Statements of EQB Inc., (EQB), 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 EQB’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 EQB, 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.
EQB’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 EQB 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 16, 2023
Page. 78
Independent auditors' report
To the Shareholders of EQB Inc.
Opinion
We have audited the consolidated financial statements of EQB Inc. (the Entity), which comprise:
•
•
•
•
the consolidated balance sheets as at December 31, 2022 and December 31, 2021
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, 2022 and December 31, 2021, 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 "Auditor’s Responsibilities for the Audit of
the Financial Statements" section of our auditor’s 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, 2022. 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 matters described below to be the key audit matters to be communicated in our
auditor’s report.
Page. 79
Assessment of the allowance for credit losses for loans
Description of the matter
We draw your attention to Notes 2(d), 3(a)(ii) and 10(d) to the financial statements. The Entity’s allowance for
credit losses (ACL) for loans is $96,782 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 geo-political unrest, the current interest rate environment, and inflationary
pressures, 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. 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 modelled
results.
Page. 80
We involved credit risk and economics professionals with specialized skills and knowledge who assisted in
evaluating:
• 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 modelled results through
the application of our industry knowledge and relevant experience
Evaluation of the acquisition date fair values of loans, deposits, and core deposit intangible assets
Description of the matter
We draw attention to Notes 2(d), 3(h) and 5 to the financial statements. On November 1, 2022, the Entity
completed the acquisition of Concentra Bank (the “Acquisition”) and recognized loans of $8,615 million,
deposits of $6,700 million, and core deposit intangible assets (“CDI”) as part of intangible assets of $23 million.
As indicated in Note 5, the estimated fair value of assets acquired and liabilities assumed may be refined as the
Entity completes its valuation.
The acquisition-date fair values of loans and deposits were determined based on a discounted cash flow
approach. The determination of the acquisition-date fair values of loans and deposits required the Entity to
make significant assumptions regarding liquidation rates, prepayment rates, and repricing adjustments,
including credit spreads for loans. The acquisition-date fair value of CDI was based on a differential income
approach. The determination of the acquisition-date fair value of CDI required the Entity to make significant
assumptions regarding cash flow discount rates and the deposit spread, being the difference between the cost
of funds for the acquired deposits and the cost of funds from alternative sources.
Why the matter is a key audit matter
We identified the evaluation of the acquisition-date fair values of loans, deposits, and CDI related to the
Acquisition as a key audit matter. This matter required significant auditor judgment due to the high degree of
subjectivity and estimation uncertainty in the assumptions used to determine the fair values of loans,
deposits, and CDI. In addition, significant auditor judgment and specialized skills and knowledge were required
in evaluating the results of our audit procedures.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating:
•
•
•
the liquidation rates and prepayment rates used to value loans.
the repricing adjustments used to discount cash flows and value loans and deposits.
the cash flow discount rates used to value CDI by comparing to rates that were independently developed
using publicly available data.
Page. 81
We evaluated the credit spreads of loans by assessing the Entity’s assigned credit risk ratings for a selection of
loans against the borrower risk rating scale.
We compared the deposit spread applied to historical and publicly available data.
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.
the information, other than the financial statements and the auditor’s 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 auditor’s 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 auditor’s report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditor’s 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 auditor’s 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. 82
Auditor’s 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 auditor’s 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 auditor’s 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 auditor’s 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.
Page. 83
• 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 group 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.
• 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 auditor’s 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 auditor’s 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 auditor’s report is Steven Watts.
Toronto, Canada
February 16, 2023
Page. 84
Consolidated balance sheet
($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
2022
2021
7
7
8
9
10,11
10,11
11
14
15
11
11
16
17
18
19
19
20
495,106
737,656
200,432
2,289,618
31,996,950
14,513,265
373,455
538,475
773,251
462,164
550,030
1,033,438
22,421,603
10,479,159
207,889
231,536
51,144,957
36,159,070
31,051,813
15,023,627
665,307
72,675
1,239,704
556,876
20,856,383
11,375,020
1,376,763
63,141
200,128
335,001
48,610,002
34,206,436
181,411
462,561
11,445
1,870,100
9,438
2,534,955
51,144,957
70,607
230,160
8,693
1,650,757
(7,583)
1,952,634
36,159,070
David LeGresley
Chair of the Board
Andrew Moor
President and Chief Executive Officer
See accompanying notes to the Consolidated Financial Statements.
Page. 85
Consolidated statement of income
($000s, except per share amounts) Years ended December 31
Note
2022
2021
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 (loss) gain on loans and investments
Gains on securitization activities and income from
securitization retained interests
Revenue
Provision for credit losses (recoveries)
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.
917,708
640,293
21,337
660,945
422,392
14,437
36,893
9,546
1,616,231
1,107,320
578,998
260,761
19,979
23,088
882,826
733,405
31,055
(25,689)
43,415
48,781
782,186
37,258
744,928
183,605
192,866
376,471
368,457
84,903
13,373
98,276
270,181
5,566
264,615
7.63
7.55
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
128,965
131,211
260,176
390,405
95,562
2,313
97,875
292,530
4,413
288,117
8.49
8.36
11
11
10
26
16
21
Page. 86
Consolidated Statement 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:
Reclassification of losses from AOCI on sale of investment
Net unrealized losses from change in fair value
Reclassification of net losses to income
Other comprehensive income – items that will not be
reclassified subsequently to income
Equity instruments designated at Fair Value through Other
Comprehensive Income:
Reclassification of gains from AOCI on sale of investment
Net unrealized (losses) gains from change in fair value
Reclassification of net losses (gains) to retained earnings
Income tax recovery (expense)
Cash flow hedges:
12
Net unrealized gains from change in fair value
Reclassification of net losses to income
Income tax expense
Total other comprehensive income
Total comprehensive income
2022
270,181
2021
292,530
(1,010)
(33,678)
10,315
-
(6,585)
929
604
(13,156)
3,843
(33,082)
9,033
(24,049)
53,926
2,103
56,029
(14,693)
41,336
17,287
287,468
-
20,244
(13)
14,575
(3,829)
10,746
27,031
941
27,972
(7,349)
20,623
31,369
323,899
See accompanying notes to the Consolidated Financial Statements.
Page. 87
Consolidated Statement of Changes in Shareholders’ Equity
($000s)
Balance, beginning of
year
Net income
Realized losses on sale
of shares
Transfer of AOCI losses
to retained earnings
Investment elimination
on acquisition
Other comprehensive
income, net of tax
Common shares
issued
Exercise of stock
options
Net loss on
cancellation of
treasury preferred
shares
Dividend payout
from principal
Dividends:
Preferred shares
Common shares
Stock-based
compensation
Transfer relating to
the exercise of stock
options
Shares on
acquisition
Accumulated other
comprehensive income (loss)
2022
Preferred
shares
Common
shares
Contributed
surplus
Retained
earnings
Cash flow
hedges
Financial
instruments
at FVOCI
Total
Total
70,607
230,160
8,693
1,650,757
680
(8,263)
(7,583)
1,952,634
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
270,181
(2,839)
-
-
-
-
-
-
-
-
-
-
270,181
(2,839)
(299)
(299)
(299)
33
33
33
-
41,336
(24,049)
17,287
17,287
223,112
-
9,274
-
-
(655)
-
-
-
-
-
-
-
-
-
3,422
670
(670)
-
-
-
(6)
-
(5,566)
(42,427)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
223,112
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,274
(183)
(6)
(655)
(5,566)
(42,427)
3,422
-
110,987
110,987
-
-
Purchase of treasury
preferred shares
(183)
Balance, end of year
181,411
462,561
11,445
1,870,100 42,016
(32,578)
9,438
2,534,955
Page. 88
($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
See accompanying notes to the Consolidated Financial Statements.
Page. 89
Consolidated Statement 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
2022
2021
270,181
292,530
(10,816)
1,215
46,870
37,258
(22,418)
3,422
98,276
53,834
(193,620)
349,598
(10,608)
190
32,672
(7,674)
(18,192)
2,539
97,875
45,257
41,875
(99,827)
Loans receivable, net of securitizations
(5,061,011)
(4,712,973)
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
Term loan facility
Dividends paid on preferred shares
Dividends paid on common shares
Cash flows from (used in) financing activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments
Investment in subsidiary
Proceeds from 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 (decrease) 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.
168,660
3,702,998
925,452
(711,456)
685,469
(157,502)
(156,525)
29,885
231,731
275,000
(5,566)
(42,427)
458,738
(585,721)
(495,369)
559,680
(168,787)
(76,571)
(766,768)
(278,145)
773,251
495,106
1,437,499
(560,656)
4,074
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)
(941,944)
-
562,039
(39,767)
(38,574)
(458,246)
215,508
557,743
773,251
1,026,279
(518,080)
21,372
Page. 90
Notes to consolidated financial statements
($000s, except per share amounts)
Note 1 – Reporting Entity
EQB Inc. (formerly Equitable Group Inc.) was formed on January 1, 2004 as the parent company of its wholly
owned subsidiary, Equitable Bank. EQB Inc. (EQB) 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 EQB have been prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
EQB has 100% ownership interest in Equitable Bank, Equitable Trust Co., Concentra Bank, Concentra Trust,
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, 2022.
The Consolidated Financial Statements were authorized for issue by EQB’s Board of Directors on February 16,
2023.
(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 EQB and its subsidiaries is Canadian dollars, which is also the presentation currency of
the Consolidated Financial Statements.
(d) Use of estimates and accounting judgments 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 judgments utilized in preparing EQB’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, fair values of net identifiable assets acquired, liabilities
assumed and intangible assets recognized in a business combination, and income taxes.
In making estimates and judgments, management uses external information and observable market inputs where
possible, supplemented by internal analysis as required. These estimates and judgments have been made taking
into consideration the economic impact of the current market volatility and uncertainty due to geopolitical unrest,
the current interest rate environment, and inflationary pressures. Actual results could differ materially from these
estimates, in which case the impact would be recognized in the Consolidated Financial Statements in future
Page. 91
periods.
Allowance for credit losses under IFRS 9
The expected credit loss (ECL) model requires management to make judgments and estimates
in a number of areas. Management must exercise significant experienced credit judgment 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 judgment. Management also exercises significant
experienced credit judgment 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 judgments directly impact the measurement of ECL.
As a result of the geo-political unrest, the current interest rate environment, and inflationary pressures, 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. Please refer to note 10(e).
Fair values of assets, liabilities and Intangible assets on Concentra Bank’s acquisition
On November 1, 2022, EQB acquired 100% ownership in Concentra Bank (“Concentra”) by paying $495,369 in
purchase consideration and recognized assets, liabilities, goodwill and intangible assets on its Balance Sheet
(Refer note 5). For the loans and receivables acquired and deposit liabilities assumed, management has carried
out valuation adjustments to principal book values by applying an income approach that requires the cash flows
relating to the financial instruments to be discounted to present value at prevailing market interest rates at the
valuation date. In determining these cash flows, management has exercised significant judgment in determining
estimates relating to liquidation rates, prepayment rates, and repricing adjustments, including credit spreads.
EQB has recognized some of Concentra’s core deposits and Trust relationships as intangible assets. Core deposits
are expected to provide a stable, low-cost source of funding to EQB, and existing Trust relationships with credit
unions and individual trust clients will provide a new source of revenue and generate new clients for EQB by
generating trust income. The valuation of core deposit intangible asset is carried out using the differential income
approach, being the difference between the cost of funds for the acquired deposits and the cost of funds from
alternative sources (“deposit spread”). The valuation of core deposit intangible asset requires management to
make significant judgments and estimates relating to cash flow discount rates and deposit spread.
(e) Consolidation
The Consolidated Financial Statements as at and for the twelve months ended December 31, 2022 and December
31, 2021 include the assets, liabilities and results of operations of EQB and its subsidiaries, after the elimination of
intercompany transactions and balances. EQB 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 EQB’s significant accounting policies. These accounting policies have been applied
consistently to all periods presented in these Consolidated Financial Statements.
(a) Financial instruments
EQB’s Consolidated Balance Sheet consists primarily of financial instruments. The majority of EQB’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
Page. 92
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 on 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
Business model assessment
Business model assessment involves determining whether financial assets are held and managed by EQB for
generating and collecting contractual cash flows, selling the financial assets or both. EQB assesses the business
model at a portfolio level using judgment and is supported by relevant objective evidence including:
• how the performance of the asset is evaluated and reported to EQB’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 EQB 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, EQB 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 EQB 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 EQB’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
Page. 93
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 Statement 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 sheet.
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 Statement of income.
Premiums, discounts and related transaction costs are amortized over the expected life of the instrument to
investments income in the Consolidated Statement 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
sheet, 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 Statement of income. The accumulated allowance recognized in AOCI is recycled to the
Consolidated Statement 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 sheet, with transaction costs recognized immediately in the Consolidated Statement 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 Statement 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 Statement of income for equity
instruments measured as at FVTPL. EQB 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
sheet, with transaction costs being added to the cost of the instrument. Dividends are recorded in Interest income
– Investments in the Consolidated Statement of income. Unrealized fair value gains/losses are recognized in OCI
and are not subsequently reclassified to the Consolidated Statement 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 EQB on
initial recognition. Financial assets are designated at FVTPL if doing so eliminates or significantly reduces an
accounting mismatch which would otherwise arise.
Page. 94
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 sheet at fair
value. For assets designated at FVTPL, changes in fair values are recognized in Non-interest income in the
Consolidated Statement of income. For liabilities designated at FVPTL, all changes in fair value are recognized in
Non-interest income in the Consolidated Statement of income, except for changes in fair value arising from
changes in EQB’s own credit risk are recognized in OCI and are not subsequently reclassified to the Consolidated
Statement of income upon derecognition/extinguishment of the liabilities.
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
EQB 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
EQB’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.
Page. 95
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.
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 EQB 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 judgment.
EQB relies on a broad range of forward- looking macroeconomic variables, such as expected GDP growth,
unemployment rates, house price indices, commercial property index, Canadian equity index, West Texas
intermediate oil price, and household 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 judgment.
Multiple forward-looking macroeconomic scenarios
EQB 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, EQB 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 EQB’s historical
experience and experienced credit judgment, 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 judgment.
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
Page. 96
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
EQB considers a financial instrument to be in default when:
•
•
the borrower is unlikely to pay its credit obligations to EQB in full, without recourse by EQB 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 EQB, except for certain credit
card balances for which the default occurs when the payments are 180 days past due.
EQB 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, or 180
days for credit cards.
(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 6 for the valuation methods and assumptions
used to estimate fair values of financial instruments.
(iv) Derecognition of financial instruments Financial assets
EQB derecognizes a financial asset when:
the contractual rights to receive the cash flows from the asset have expired; or
•
• EQB 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:
• EQB has transferred substantially all the risks and rewards of ownership of the financial asset; or
• EQB 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 EQB is
recognized as a separate asset or liability in the Consolidated Balance sheet. 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 Statement of income.
If the transfer of assets does not meet the criteria for derecognition, EQB continues to recognize the financial asset
and also recognizes a financial liability for the consideration received upon the transfer in the Consolidated Balance
sheet.
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
Page. 97
specifically identified cash flow from the asset.
Financial liabilities
EQB 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 EQB 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 Statement 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 Statement 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 Statement 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 Statement of income.
EQB 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 Statement of
income and no impairment is recognized in Consolidated Statement of income. Dividends are recognized in
Consolidated Statement 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.
(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 Statement of income.
Loans receivable measured as at FVTPL
Page. 98
Certain loans measured as at FVTPL are carried at fair value with changes in fair value included in Non-interest
income in the Consolidated Statement of income. Net fees relating to loan origination are recognized in income as
incurred, and are included in Interest income – Loans in the Consolidated Statement 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 Statement 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 sheet. 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 Statement of income.
(f) Securitizations
In the normal course of business, EQB 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). EQB securitizes the loans through the
creation of MBS and the ultimate sale of MBS to third party investors or through the CMB program.
EQB 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 sheet 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 Statement of income.
Sale of uninsured residential loans do not qualify for derecognition, are classified as Loans receivable on the
Consolidated Balance sheet, 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 Statement 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, EQB has a continuing involvement in the
Page. 99
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 Statement 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 sheet and a gain or
loss is recognized in the Consolidated Statement 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 Statement 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 Statement of income. Subsequent to the
acquisition date, ECL allowances are estimated in a manner consistent with EQB’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 Statement of income.
(h) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. Goodwill represents the excess purchase
price paid over the fair value of identifiable assets acquired and liabilities assumed in a business combination on
the date of acquisition.
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 sheet.
(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 Statement of income.
(j) Derivative financial instruments
EQB 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 EQB commits to
Page. 100
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 EQB’s Restricted share unit
(RSU) and Deferred share unit (DSU) plan. EQB 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 sheet.
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.
EQB’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. EQB enters into bond forwards (including certain embedded derivatives) to hedge
this cash flow risk and applies hedge accounting to these derivative financial instruments. EQB 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 Statement of income, over the term of the related hedged item.
EQB’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 EQB’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 sheet 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 Statement 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 sheet 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 Statement of
income as it occurs.
EQB also uses TRSs to hedge the risk of changes in future cash flows related to its DSU plan and EQB has not
applied hedge accounting to these derivative instruments. The value of the DSU is linked to the price of EQB’s
common shares over the period the TRS is in effect. The fair value of the TRS is included in Other assets and/or
Page. 101
Other liabilities in the Consolidated Balance sheet and changes in fair value of these TRSs being recorded in Non-
interest expense – Compensation and benefits in the Consolidated Statement of income for the period in which
the changes occur.
Fair value hedges
EQB 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, EQB has applied hedge accounting.
EQB 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. EQB applies hedge accounting to these derivatives.
EQB 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. EQB applies hedge accounting to these derivatives.
EQB enters 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. EQB applies hedge accounting to these derivatives.
EQB enters 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. EQB applies hedge accounting to these
derivatives.
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.
EQB 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. EQB does not apply hedge accounting to these derivative instruments.
Page. 102
EQB enters 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. EQB
does not apply hedge accounting to these derivative instruments.
EQB’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, EQB 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, EQB includes assets held under a finance lease in Loans – Commercial, on its
Consolidated Balance sheet at an amount equal to the net investment in equipment financing. 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 equipment
financing include fixed and variable lease payments, less incentives payable.
Subsequent measurement
The net investment in equipment financing 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 Statement of
income on a basis that reflects a constant periodic rate of return on the gross investment in equipment financing
receivables.
As a Lessee:
Identification of a lease
At the inception of a contract, EQB 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, EQB
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;
EQB has the right to obtain substantially all of the economic benefits from the use of the asset throughout
the period of use; and
EQB has the right to direct the use of the asset. EQB 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.
Page. 103
Recognition
EQB 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, EQB’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 EQB’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 Statement of income.
The ROU assets and corresponding lease liabilities are included in Other Assets and Other Liabilities, on EQB’s
Consolidated Balance sheet.
Short-term leases and leases of low-value assets
EQB 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. EQB recognizes the lease payments associated with these leases as
an expense on a straight-line basis over the lease term.
(l) Compensation plans
EQB 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 EQB 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)
EQB has a DPSP under which EQB 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
EQB has a stock option plan for eligible employees. Under this plan, options are periodically awarded to
Page. 104
participants to purchase common shares at prices equal to the closing market price of the shares or the
volume-weighted average closing price of EQB’s common shares on the TSX for the five consecutive
trading days immediately prior to the date the options were granted. EQB 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 Statement of income.
Restricted share unit (RSU) plan
EQB 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 Statement of income over the vesting period and any
corresponding liability is included in Other liabilities in the Consolidated Balance sheet. 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 EQB’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 EQB’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 EQB can reliably estimate the actual payout.
Deferred share unit (DSU) plan
EQB 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 sheet. A Director will be credited with additional DSUs whenever a cash dividend is
declared by EQB. The change in the obligation attributable to the change in stock price of EQB and
dividends paid on common shares is recognized in Non-interest expense – Compensation and benefits in
the Consolidated Statement 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 EQB on the TSX for
the five trading days immediately prior to the redemption date.
Employee stock purchase (ESP) plan
EQB 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 EQB’s common shares. EQB 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.
EQB follows the asset and liability method of accounting for income taxes. Under the asset and liability method,
Page. 105
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 EQB 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 EQB 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.
(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, software development costs and core deposits
and Trust business relationships recently acquired. 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 sheet. EQB’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 Statement 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, EQB 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 Statement of income.
Page. 106
(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 sheet 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) Covered bond
In the normal course of business, EQB sells uninsured residential loans to a separate guarantor entity, EQB
Covered Bond (Legislative) Guarantor Limited Partnership (Guarantor LP), established by EQB 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 sheet and are measured at
amortized cost, plus accrued interest, and are reported net of unamortized origination fees, commitment income,
premiums or discounts.
These sale transactions are considered secured funding and are recognized under Deposits on the Consolidated
Balance sheet. 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 Statement of
income. The Guarantor LP is consolidated with EQB, as EQB has the decision-making power and ability to use the
power to affect EQB’s returns.
(r) Obligations under repurchase agreements
Investments sold under repurchase agreements represent sales of Government of Canada guaranteed debt
securities by EQB 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 sheet 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 Statement of income.
(s) Funding facilities
Funding facilities are recorded in the Consolidated Balance sheet at amortized cost and interest expense is
recorded using the effective interest rate method.
(t) Securitized leases
EQB securitizes pools of equipment financing on a fully serviced basis to independent third parties. EQB 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 equipment financing continue to be classified as finance leases on EQB’s Consolidated Balance sheet
with a corresponding equipment financing liability.
(u) 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.
Page. 107
Treasury preferred shares
Preferred shares are repurchased and cancelled by EQB. 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.
(v) 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 EQB’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.
(w) Interest
Interest income and interest expense are recognized in the Consolidated Statement 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.
(x) Fees
Non-interest income includes some ancillary fees related to the administration and servicing of loan portfolios,
transaction fees, syndication and servicing fees, trustee administration fees, and advisory support, plan
administration and service fees to credit unions. 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.
(y) Provisions
A provision is recognized if, as a result of a past event, EQB 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.
(z) Write-off
EQB 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 Statement of income.
Page. 108
Future Changes in Accounting Policies
On December 16, 2021, the Canadian Alternative Reference Rate working group (CARR) recommended the
administrator, Refinitiv Benchmark Services UK Limited (RBSL), cease publication of Canadian Dollar Offered Rate
(CDOR) settings immediately after June 30, 2024, using a two-stage transition approach. By the end of the first
stage on June 30, 2023, they expect all new derivative contracts and securities to have transitioned to the
Canadian Overnight Repo Rate Average (CORRA), with the exception of derivatives that hedge or reduce CDOR
derivatives or securities transacted before June 30, 2023, or for loans before June 30, 2024. All remaining CDOR
exposures should be transitioned to CORRA by June 30, 2024, marking the end of the second stage.
Following public consultation, on May 16, 2022, RBSL announced that all remaining CDOR settings will cease
publication immediately after June 30, 2024 according to the CARR recommendation. EQB continues to assess the
impact of this announcement.
Note 4 – Risk Management
EQB, 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 EQB. Many of these risk factors are beyond EQB’s direct control.
The use of financial instruments exposes EQB to credit risk, liquidity risk, and market risk. Our risk management
practices and key measures for these risks have been included in the Risk Management section of EQB’s
Management’s Discussion and Analysis and where these risks are related to financial instruments, they have been
included in a yellow tint.
Note 5 – Business Combination
On November 1, 2022, EQB acquired 100% ownership in Concentra Bank (“Concentra”), Canada’s 13th largest
Schedule I bank. Concentra is domiciled in Canada and is regulated by OSFI. Concentra provides commercial and
retail banking and trust services to Canadian credit unions and retail and commercial clients. Concentra has also
been providing fiduciary and trustee services for over 65 years to registered plans, corporate trusts and personal
trusts and estates through its federally regulated subsidiary, Concentra Trust. EQB’s acquisition of Concentra
accelerates its growth, diversifies its funding and revenue sources, and provides a strong growth platform to serve
the Credit Unions.
EQB paid $495,369 in purchase consideration for the acquisition and recognized goodwill of $40,651. The
purchase price was financed through a combination of new equity issuance of $230,000 via the subscription
receipts and $275,000 draw down from an unsecured Term Loan facility from a consortium of Schedule I banks
(refer to note 17). The purchase price consideration is subject to final closing purchase price adjustments. The
purchase price allocation may be refined as EQB completes its valuation of the fair value of assets acquired and
liabilities assumed. The following table presents the estimated fair values of the assets and liabilities acquired as
of the date of acquisition:
Page. 109
($000s)
Assets:
Cash and cash equivalents
Restricted cash
Investments
Loans – Personal
Loans – Commercial
Securitization retained interests
Other assets
Liabilities:
Deposits
Securitization liabilities
Preferred shares
Deferred tax liabilities
Funding facilities
Other liabilities
Fair value of identifiable net assets acquired
Intangible assets recognized
Deferred tax on intangible assets
Goodwill
Total purchase consideration
November 1, 2022
56,280
81,872
1,238,591
7,534,498
1,080,093
74,526
167,585
10,233,445
6,699,826
2,733,001
110,988
97,073
79,107
75,345
9,795,340
438,105
23,000
(6,387)
40,651
495,369
Goodwill of $40,651 comprises the value of expected synergies arising from the acquisition, mainly pertaining to
accelerated growth in the asset base, diversified revenue through new services and distribution, and new sources
of funding that have not been separately recognized as an intangible asset. The core deposit base acquired as
part of the acquisition that provides long term, stable, low-cost source of funds to EQB has been separately
recognized as an intangible asset. Some other deposit sources with higher interest rates and potential lack of
stability as a long-term funding source have not been included as part of the core deposit base for being
separately recognized as an intangible asset. None of the goodwill recognized is expected to be deductible for
income tax purposes.
Loans – Personal and Commercial comprises gross amounts of $8,885,392, all of which are expected to be
collectible at the acquisition date.
Transaction costs of $20,662 and restructuring costs of $31,973 relating to the acquisition were expensed and are
included in non-interest expenses. The attributable share issuance costs of $9,716 have been charged directly to
equity.
From the date of acquisition on November 1, 2022 to December 31, 2022, Concentra Bank has contributed
$26,416 of revenues and $35,432 to loss before tax of the group. If the combination had taken place on January 1,
2022, management estimates that the revenue for the year for the group would have been $937,577 and profit
before tax would have been $424,267.
Page. 110
Note 6 – Financial Instruments
EQB’s business activities result in Consolidated Balance sheet that consist primarily of financial instruments. The
majority of EQB’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 sheet 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.
(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, 2022 and December 31, 2021. The tables do not include assets and
liabilities that are not financial instruments.
Page. 111
($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):
-
431,107
-
Interest rate swaps
166,601
Cross-currency interest
rate swaps
Total return swaps
Bond forwards
Foreign exchange
forwards
Other
38,982
14,513
9,579
5,744
-
FVTPL –
Mandatorily
FVOCI – Debt
instruments
FVOCI –
Equity
instruments
Amortized
cost
Total
carrying
value
Fair value
December 31, 2022
-
-
-
-
-
-
-
-
-
495,106
495,106
737,656
737,656
495,106
737,656
200,432
200,432
200,432
209,486
1,781,445
60,168
238,519
2,289,618
2,287,200
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31,996,950
31,996,950
31,386,026
12,886,125
13,317,232
13,116,633
373,455
373,455
364,806
-
-
-
-
-
166,601
166,601
38,982
38,982
14,513
14,513
9,579
5,744
9,579
5,744
27,542
27,542
27,542
Total financial assets
876,012
1,781,445
60,168
46,955,785
49,673,410
48,850,820
Financial liabilities:
Deposits
Securitization liabilities
Obligations under
repurchase agreements
Other liabilities:
Derivative financial
instruments(2):
-
-
-
Interest rate swaps
161,623
Cross-currency
interest rate swaps
Total return swaps
Bond forwards
Foreign exchange
forwards
Loan commitments
Funding facilities
Other
48,514
7,267
258
2,157
935
-
-
Total financial liabilities
220,754
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31,051,813
31,051,813
30,742,559
15,023,627
15,023,627
14,546,013
665,307
665,307
665,064
-
-
-
-
-
-
161,623
161,623
48,514
7,267
258
2,157
935
48,514
7,267
258
2,157
935
1,247,010
1,247,010
1,247,008
334,458
334,458
333,458
48,322,215
48,542,969
47,755,855
(1) Loans – Commercial does not include $1,196,033 (December 31, 2021 - $716,651) of equipment financing, 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. 112
($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
December 31, 2021
Total
carrying
value
Fair value
-
-
-
-
-
-
-
-
-
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 $1,196,033 (December 31, 2021 - $716,651) of equipment financing, 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. 113
(b) Fair value hierarchy
Financial instruments recorded at fair value on the Consolidated Balance sheet 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 sheet, except for certain financial instruments whose carrying amount
approximates their fair values due to their short-term nature:
Page. 114
($000s)
December 31, 2022
Financial assets:
Investments
Loans – Personal
Loans – Commercial
Securitization retained interests
Other assets:
Derivative financial instruments(1):
Interest rate swaps
Cross currency 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
1,200,491
1,025,210
61,499
2,287,200
-
-
-
-
-
-
-
-
-
-
31,386,026
31,386,026
431,107
12,685,526
13,116,633
364,806
166,601
38,982
-
-
-
-
14,513
9,579
5,744
27,542
-
-
-
364,806
166,601
38,982
14,513
9,579
5,744
27,542
1,200,491
2,069,571
44,147,564
47,417,626
-
-
-
-
-
-
-
-
-
-
-
30,742,559
-
30,742,559
12,375,544
2,170,469
14,546,013
161,623
48,514
2,670
258
2,157
-
1,247,008
334,458
-
-
4,597
-
-
935
-
-
161,623
48,514
7,267
258
2,157
935
1,247,008
334,458
44,914,791
2,176,001
47,090,792
(1) Derivative financial instruments are non-trading, and include derivatives held in hedge accounting relationships.
Page. 115
($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
9,788,189
207,901
64,213
1,819
124
1,741
7,133
-
-
3,264
-
-
-
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.
Note 7 – Cash and Cash Equivalents and Restricted Cash
($000s)
December 31, 2022
December 31, 2021
Deposits with regulated financial institutions
Cash and cash equivalents
Restricted cash – securitization
Restricted cash – interest rate swaps
Restricted cash – other programs
Restricted cash
495,106
495,106
488,165
132,926
116,565
737,656
773,251
773,251
347,632
22,650
91,882
462,164
Page. 116
Restricted cash – securitization represents deposits held in trust in connection with EQB’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 EQB’s securitization hedging activities and deposits held in
interest reinvestment accounts in connection with EQB’s participation in the CMB program.
Restricted cash – interest rate swaps represent deposits held as collateral by third parties for EQB’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 EQB’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. These balances also include deposits
held in trust by third party originators for the use in funding loans on EQB’s behalf, and may be drawn upon
only in the event that the related origination and servicing agreements are terminated.
Note 8 – Securities Purchased Under Reverse Repurchase Agreements
As at December 31, 2022, the fair value of financial assets accepted as collateral that EQB is permitted to sell
or repledge in the absence of default is $199,249 (December 31, 2021 – $551,426). EQB is obliged to return
equivalent securities at the repurchase date, and EQB did not sell or repledge any of the collateral as at the
year ended December 31, 2022.
Note 9 – 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, 2022
December 31, 2021
60,168
21,274
1,781,445
188,212
238,519
2,289,618
92,761
26,214
577,532
170,959
165,972
1,033,438
EQB 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, 2022, EQB earned dividends of $3,335
(2021 − $4,293) on these Equity securities. During the year, EQB sold/redeemed Equity securities of $28,437
(2021 − $14,722) and recognized a loss on sale of $3,843 (2021 – gain on sale of $13) in Retained earnings.
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
2022
(8,709)
(26,112)
28,364
(15,607)
2021
20,231
(5,647)
(5,656)
6,646
Page. 117
Note 10 – Loans Receivable
(a) Loans receivable
($000s)
Loans – Personal
Loans – Commercial
($000s)
Loans – Personal
Loans – Commercial
Gross
amount
32,041,682
14,565,315
46,606,997
Gross
amount
22,433,681
10,516,030
32,949,711
December 31, 2022
Allowance for credit losses
Stage 1
28,303
23,430
51,733
Stage 2
Stage 3
Total
Net amount
13,432
24,766
38,198
2,997
3,854
6,851
44,732
52,050
96,782
31,996,950
14,513,265
46,510,215
December 31, 2021
Allowance for credit losses
Stage 1
6,502
21,411
27,913
Stage 2
4,944
13,504
18,448
Stage 3
Total
Net amount
632
1,956
2,588
12,078
36,871
48,949
22,421,603
10,479,159
32,900,762
Loans – Personal include certain uninsured residential loans with a carrying value of $1,576,832 (December 31,
2021 - $723,500) that have been sold but are not derecognized. EQB 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 EQB 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 EQB
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 EQB remains exposed after
the transfer in the Program is the risk of prepayment. As a result, the loans continue to be recognized on EQB’s
Consolidated Balance sheet 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, 2022, the
carrying value of these loans was $430,253 (December 31, 2021 – $167,372) and included fair value adjustment
of ($2,555) (December 31, 2021 – $1,915).
Loans – Commercial also include certain loans measured at FVTPL with changes in fair value included in Non-
interest income in the Consolidated Statement of income. As at December 31, 2022, the carrying amount of
these loans was $854 (December 31, 2021 – $1,018) and included fair value adjustment of ($81) (December 31,
2021 – ($19)).
Page. 118
The impact of changes in fair value for loans measured at fair value through profit or loss is as follows:
($000s)
Net (losses) gains in fair values for loans measured at FVTPL included in gains on
securitization activities
Net gains (losses) in fair values for loans measured at FVTPL and recognized in net
gain (loss) on loans and investments
2022
2021
(4,469)
1,872
3
(43)
Loans – Commercial include loans of $774,377 (December 31, 2021 – $568,137) invested in certain asset-
backed structured entities. EQB holds a senior position in these investments and the maximum exposure
to loss is limited to the carrying value of the investment. EQB 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, EQB does not control these
structured entities and has not consolidated them.
Loans – Commercial also include EQB’s net investment in equipment financing of $1,196,033 (December
31, 2021 – $716,651). The following table shows the maturity analysis of undiscounted minimum financing
payments reconciled to the net investment in equipment financing:
($000s)
Minimum financing 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 financing payments receivable
Less:
Fair value on acquisition
Security deposits held
Unearned finance income
Allowance for credit losses
Net investment in equipment financing
December 31, 2022
December 31, 2021
498,476
402,513
282,251
145,359
45,451
7,329
19,704
1,401,083
(7,734)
(5,834)
(168,307)
(23,175)
1,196,033
311,734
242,668
159,941
79,335
25,256
2,627
18,148
839,709
-
(6,773)
(100,254)
(16,031)
716,651
For the year ended December 31, 2022, EQB earned finance income of $84,821 (December 31, 2021 –
$62,167) from its investment in equipment financing. As at December 31, 2022, all of EQB’s equipment
financing is fixed rate financing with terms ranging from one to seven years, and approximately 75% of EQB’s
equipment financing are concentrated in the following five industry segments:
Transportation – Long Haul
Transportation – Vocational
Construction
Food and Crop production
Agriculture, forestry, fishing and hunting
December 31, 2022
December 31, 2021
45.1%
12.8%
9.8%
5.0%
4.1%
43.0%
17.4%
8.9%
8.1%
3.8%
Page. 119
(b)
Impaired and past due loans
Outstanding impaired loans, net of specific allowances are as follows:
($000s)
Loans – Personal
December 31,
2022
December 31,
2021
Allowance for
Gross(1)
credit losses
Net
52,151
2,997
49,154
Net
20,720
47,835
19,825
88,380
Loans – Commercial – Conventional and Insured
64,472
2,302
62,170
Loans – Commercial – Equipment financing
21,890
1,552
20,338
138,513
6,851
131,662
(1) Gross balances include loans amounting to $11,332 (December 31, 2021 - $6,710) that are insured.
Outstanding loans that are past due but not classified as impaired are as follows:
($000s)
30 − 59 days
60 − 89 days 90 days or more(1)
Total
December 31, 2022
Loans – Personal
75,685
21,843
3,729
101,257
Loans – Commercial – Conventional and
Insured
Loans – Commercial – Equipment financing
1,820
13,186
90,691
4,096
3,508
29,447
-
-
5,916
16,694
3,729
123,867
(1) Includes balances of $3,729 (December 31, 2021 - $nil) relating to credit card customers that are past 89 days and less than 180 days.
($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 – Equipment financing
-
7,381
33,769
-
2,600
13,065
-
-
-
-
Total
36,853
-
9,981
46,834
Page. 120
(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
Loans acquired on business combination(3)
Write-off
Realized losses
Recoveries
Lifetime non-
Lifetime credit
12 months ECL
credit impaired
Stage 1
Stage 2
impaired
Stage 3
Total
December 31, 2022
6,502
4,944
632
12,078
3,435
(4,808)
(12)
(465)
4,398
(1,095)
20,348
-
-
-
(3,139)
4,895
(40)
2,061
-
(1,207)
5,918
-
-
-
(296)
(87)
52
782
-
-
1,937
-
(110)
87
2,997
-
-
-
2,378
4,398
(2,302)
28,203
-
(110)
87
44,732
Balance, end of year(2)
28,303
13,432
($000s)
December 31, 2022
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
Loans acquired on business combination(3)
Write-off
Realized losses
Recoveries
Stage 1
21,411
11,672
(6,345)
(115)
(11,514)
12,250
(4,653)
724
-
-
-
Stage 2
13,504
(10,960)
6,806
(891)
12,206
-
(1,451)
5,552
-
-
-
Balance, end of year(2)
23,430
24,766
Stage 3
1,956
Total
36,871
(712)
(461)
1,006
7,301
-
-
2,180
(6,861)
(571)
16
3,854
-
-
-
7,993
12,250
(6,104)
8,456
(6,861)
(571)
16
52,050
(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 $1,472 (December 31, 2021 - $256). (3) Cash reserves of $14,089 relating to the consumer credit portfolio has
not been netted-off.
Page. 121
($000s)
Lifetime non-
Lifetime credit
December 31, 2021
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
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)
-
-
-
Balance, end of year(2)
6,502
4,944
impaired
Stage 3
1,685
(1,239)
(207)
17
1,125
-
-
-
(805)
56
632
Total
19,806
-
-
-
(9,903)
3,581
(657)
-
(805)
56
12,078
($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
Lifetime non-
Lifetime credit
December 31, 2021
12 months ECL
credit impaired
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)
-
-
-
impaired
Stage 3
1,859
(851)
(564)
967
9,350
-
-
(8,873)
(13)
81
Total
46,371
-
-
-
(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 $1,472 (December 31, 2021 - $256.
Page. 122
Key inputs, assumptions and model techniques
EQB’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 judgment 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
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, EQB has also considered geo-political unrest, the
current interest rate environment, and inflationary pressures. EQB has applied experienced credit
judgment in the assessment of underlying credit deterioration and migration of balances to progressive
states.
(d) Forward-looking macroeconomic scenarios
EQB subscribes to Moody’s Analytics economic forecasting services and leverages its forward-looking
macroeconomic information to model ECL. EQB 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
various performing loan portfolios:
December 31, 2022
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 %
Real GDP growth rate %
5.88
0.47
5.69
8.51
4.94
2.29
5.10
10.04
6.95
(1.27)
6.03
8.65
8.01
(1.94)
6.55
7.03
9.35
(3.44)
7.57
5.74
Home Price Index growth
rate %(1)
Commercial Property
Index growth rate %
Household income
growth rate %
Canadian Equity index %
West Texas Intermediate
oil price %
(1.97)
(2.74)
(0.11)
0.49
(3.24)
(5.08)
(9.95)
(5.80)
(15.23)
(12.17)
(1.48)
1.30
1.57
3.21
(4.12)
0.67
(11.93)
1.60
(18.54)
(2.03)
(2.17)
(4.86)
(0.59)
4.11
(1.12)
1.80
1.46
4.13
(3.50)
(18.15)
(1.57)
3.47
(4.58)
(29.07)
(2.67)
5.67
(5.75)
(33.66)
(4.71)
4.27
(10.24)
(5.41)
(12.90)
(4.75)
(18.19)
(2.52)
(12.28)
(4.07)
(15.00)
(2.90)
(1) The Home Price Index growth rate % used by EQB is the Moody's Analytics Home and Land Price Index
Page. 123
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 %(1)
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)
(1) The Home Price Index growth rate % used by EQB is the Moody's Analytics Home and Land Price Index
(e) 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 judgment. Changes in these inputs, assumptions,
models, and judgments 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 EQB’s ACL using only the base-case scenario and protracted
slump scenario instead of the five probability-weighted macroeconomic scenarios for performing loans:
($000s)
December 31, 2022
December 31, 2021
ACL – Five probability-weighted macroeconomic scenarios
(actual)
ACL – Base-case scenario only
ACL – Protracted slump only
Difference – Actual versus base-case scenario only
Difference – Actual versus protracted slump only
Impact of staging on ACL
89,931
84,088
156,576
5,843
(66,645)
46,361
42,614
86,842
3,747
(40,481)
The following table illustrates the impact of staging on EQB’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, 2022
December 31, 2021
ACL – Loans in Stage 1 and Stage 2 (actual)
ACL – Assuming all loans in Stage 1
Lifetime ACL impact
89,931
79,221
10,710
46,361
43,569
2,792
Page. 124
Note 11 – Derecognition of Financial Assets
In the normal course of business, EQB 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 EQB’s continuing involvement. EQB 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 EQB sells a security and simultaneously
agrees to repurchase it at a fixed price on a future date. EQB continues to recognize the securities in their
entirety on the Consolidated Balance sheet 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
EQB 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. EQB may also
retain certain issued MBS as part of its liquidity management strategy, as well as to manage interest rate risk
associated with EQB’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 EQB 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 EQB 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 sheet at
amortized cost and are accounted for as secured financing transactions, with the loans transferred pledged as
collateral for these securitization liabilities.
EQB’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,
EQB 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 EQB 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 sheet 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. 125
ii) CMB securitizations
As part of a CMB transaction, EQB 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 EQB. For transactions that fail derecognition, these swaps are not recognized on
EQB’s Consolidated Balance sheet 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 EQB’s Consolidated Statement of income.
As at December 31, 2022, the notional amount of these swaps was $2,794,596 (December 31, 2021–
$2,436,271).
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 EQB’s own
issued MBS, the investments are recorded on EQB’s Consolidated Balance sheet 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.
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
Securitized
assets
15,540,197
15,023,627
516,570
15,068,979
14,546,013
522,966
2022
Assets sold under
repurchase
agreements
665,307
2021
Assets sold under
repurchase
agreements
1,376,763
Securitized
assets
11,453,867
665,307
11,375,020
1,376,763
-
665,064
665,064
-
78,847
11,415,719
11,412,638
3,081
-
1,376,763
1,376,763
-
The carrying amount of assets include $nil (December 31, 2021 – $3,872) of EQB’s net investment in
equipment financing that were securitized and not derecognized. The carrying value of associated liability
includes $nil (December 31, 2021 – $2,969) of liabilities pertaining to equipment financing securitized.
Page. 126
EQB estimates that the principal amount of securitization liabilities will be paid as follows:
($000s)
2023
2024
2025
2026
2027
Thereafter
MBS Liabilities
CMB Liabilities
Liabilities
Total Liabilities
Other Securitization
2,419,334
2,295,222
2,985,461
1,131,091
548,820
469,951
401,526
510,350
382,313
586,554
534,894
835,923
1,265,595
570,012
280,241
24,126
26,429
-
4,086,455
3,375,584
3,648,015
1,741,771
1,110,143
1,305,874
9,849,879
3,251,560
2,166,403
15,267,842
(b) Transfers that are derecognized in their entirety
Certain securitization transactions undertaken by EQB result in EQB derecognizing the transferred assets in
their entirety. This is the case where EQB has securitized and sold pools of residential loans with no
prepayment option to third parties. EQB does not retain substantially all the risks and rewards of ownership
and transfers control over the assets. EQB retains some continuing involvement in the transaction which is
represented by the retained interests and the associated servicing liabilities.
EQB also achieves derecognition on the securitization and sale of certain pools of residential loans with a
prepayment option. In these transactions, EQB 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. During the year and prior year, EQB did not derecognize any multi-residential loans with
prepayment option.
The following table provides quantitative information of EQB’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
2022
2,474,380
147,582
18,307
22,418
20,997
2021
1,292,643
68,303
12,801
18,192
3,591
The expected undiscounted cash flows payable to the investors on EQB’s securitization activities and transfer that
are derecognized in their entirety are as follows:
($000s)
2023
2024
2025
2026
2027
Thereafter
Securitization Liabilities
1,139,425
1,110,874
1,476,229
1,396,814
1,141,646
5,402,977
11,667,965
Page. 127
Note 12 – Derivative Financial Instruments
(a) Hedge instruments
Cash flow hedges
EQB’s securitization activities are subject to interest rate risk, which represents the potential for changes in
interest rates between the time EQB commits to funding a loan it intends to securitize through the issuance
of a securitization liability, and the time the liability is actually issued. EQB 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. EQB applies hedge accounting to these derivative financial instruments to
minimize the volatility in income caused by changes in interest rates.
EQB 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. EQB applies hedge accounting to
these derivative financial instruments to minimize the volatility in income caused by changes in interest rates.
EQB hedges the risk of changes in future cash flows related to its floating rate securitization liabilities by
entering into interest rate swaps. EQB applies hedge accounting to these derivative financial instruments to
minimize the volatility in income caused by changes in interest rates.
EQB 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 EQB’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. EQB applies
hedge accounting to these derivative financial instruments to minimize the volatility in income caused by
changes in EQB’s share price.
EQB 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 EQB’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. EQB does not
apply hedge accounting to this derivative financial instrument.
Fair value hedges
EQB 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. EQB does not apply hedge accounting to these hedging relationships.
EQB enters into hedging transactions to manage interest rate exposure on certain loan assets, securitization
liabilities, and deposit liabilities. EQB also enters into interest rate swap agreements to manage interest rate
exposures on its investment in fixed rate provincial bonds. EQB applies hedge accounting to all these
relationships.
Page. 128
EQB enters into cross currency interest rate swap agreements to manage interest and foreign exchange
exposures on fixed rate foreign currency covered bond liabilities. EQB applies hedge accounting to these
relationships.
EQB also enters into hedging transactions to manage foreign exchange exposure on certain foreign currency
liabilities. EQB does not apply hedge accounting to these hedging relationships.
(b) Other derivatives
Total return swaps
As part of its CMB activities, EQB may assume reinvestment risk between the amortizing MBS and the bullet CMB
for securitized loans which are derecognized. EQB 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 EQB’s consolidated balances sheets and fair valued through EQB’s Consolidated
Statement of income.
As part of covered bond activities to manage cash flows between Equitable Bank and its subsidiary Guarantor
LP, Equitable Bank and Guarantor LP each enters into an interest rate (total return) swap agreement with a
third party interest rate swap provider. These two swaps are offsetting, with the net effect that Equitable
Bank pays cash flows based on Canadian floating rate to Guarantor LP, and receives Guarantor LP’s cash
flows from the collateral assets. Interest rate swap provider earns an intermediation fee.
These swaps are recognized on EQB’s Consolidated Balance sheet and fair valued through EQB’s
Consolidated Statement of income.
(c) Financial impact of derivatives
The fair values and notional amounts of derivatives outstanding is as follows:
Page. 129
($000’s, except percentages)
Derivative instrument and term (years)
Cash flow hedges: Bond
forwards – hedge accounting
1 or less
Interest rate swaps – hedge accounting
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)
December 31, 2022
381,300
3.45%
6,425
7,992
6,921
6,212
1 to 5
547,000
1.19%
15,873
6,712
1,342
41,710
Total return swaps – hedge accounting
1 or less
1 to 5
Total return swaps –
non-hedge accounting
1 or less
3,557
10,611
68.75
68.94
8,413
N/A
-
-
-
20
58
46
4
12
9
-
-
-
Fair value hedges:
Interest rate swaps –hedge accounting
Fair value hedges:
-
-
6,212
41,710
(623)
(623)
(1,765)
(1,765)
(282)
(282)
1 or less
1 to 5
5 and above
3,335,054
3,093,618
4.06%
3.24%
457,620
3.45%
6,672
19,629
2,161
29,869
34,692
4,661
5,974
6,938
6,671
(29,577)
(22,906)
38,586
(45,505)
(6,919)
932
6,265
(5,454)
811
Cross-currency
Interest rate swaps – hedge accounting
1 to 5
1,259,130
1.30%
28,760
90,085
18,017
38,982
(48,514)
(9,532)
Interest rate swaps – non-hedge
accounting
1 or less
1 to 5
5 and above
Bond forwards – non-hedge
accounting
221,580
445,657
206,090
N/A
N/A
N/A
2,630
8,846
1,707
1,455
20,151
8,720
291
4,231
(3,516)
715
4,030
14,801
(10,862)
3,939
1,745
5,850
(17,277)
(11,427)
1 or less
373,750
N/A
2,649
6,992
4,600
3,367
(258)
3,109
Foreign exchange forwards -
non-hedge accounting
1 or less
Other derivatives:
Total return swaps
1 or less
1 to 5
5 and above
Interest rate swaps 1 to 5
346,042
N/A
2,202
4,015
803
5,744
(2,157)
3,587
652,958
2,536,016
2,335,621
3,198,206
19,412,223
N/A
N/A
N/A
N/A
127
2,959
7,508
491
1,541
2,336
98
308
467
-
(78)
3,779
(1,026)
10,734
(3,493)
48,487
73,321
14,664
48,487
(49,432)
(78)
2,753
7,241
(945)
156,635
293,157
67,155
235,419
(219,819)
15,600
(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 14) and derivative financial liabilities are included in Other liabilities (Note 18).
Page. 130
($000’s, except percentages)
December 31, 2021
Derivative instrument and term (years)
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
1 or less
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
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)
425,123
681,000
62,000
3,484
9,260
1.07%
0.98%
1.63%
45.48
69.58
201
2,127
-
58
-
3,532
5,435
143
26
70
706
209
(1,404)
(1,195)
1,087
12,923
(225)
12,698
29
5
14
-
(55)
(55)
1,803
-
1,803
16
(91)
(75)
10,024
N/A
-
75
15
-
(543)
(543)
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
1 or less
Foreign exchange
forwards – non-hedge
Accounting
1 or less
Other derivatives:
Total return swaps
1 or less
1 to 5
5 and above
Interest rate swaps 1 to 5
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
3,325
-
(1,553)
174
5
(971)
2,354
201,200
N/A
34
924
185
124
(2,727)
(2,603)
240,103
N/A
711
3,435
687
1,741
(712)
1,029
670,154
2,542,793
2,162,541
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
600
(30)
16
(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 14) and derivative financial liabilities are included in Other liabilities (Note 18).
Page. 131
Cash flow hedges:
The following table presents the effects of cash flow hedges on EQB’s Consolidated Statement 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
2022
18,619
39,170
(3,030)
54,759
(20,043)
(39,170)
3,030
(56,183)
830
-
-
830
17,789
39,170
(3,030)
53,929
2021
Gains (losses) on
Gains (losses) on
Hedge ineffectiveness
Hedging gain or loss
hedging instrument
hedged Item
recognized in income
recognized in OCI
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
The following table presents the effects of cash flow hedges on EQB’s Consolidated Statement 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,
2022
Net gains
(losses)
recognized
in OCI
Amount
reclassified
to income as
the hedged
item affects
income
2022
Balance in cash flow
hedge AOCI
AOCI as at
December
31, 2022
Active
hedges
Discontinued
hedges
(9,894)
9,853
633
592
17,789
39,170
(3,030)
53,929
2,006
(1,019)
9,901
48,004
6,070
39,148
1,124
2,111
(1,273)
56,632
(1,273)
43,945
3,831
8,856
-
12,687
Page. 132
($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,
2022
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, 2022
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
633
592
-
11,447
633
12,080
(9,894)
(1,594)
-
(11,488)
The following table presents the effects of fair value hedges on EQB’s Consolidated Balance sheet and the
Consolidated Statement 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
2022
Total
Active
hedges
Discontinued
hedges
Active
hedges
Discontinued
hedges
87,307
(55,980)
(9,869)
8,227
(90,302) (2,995)
1,086,801
2,877,486
(31,010)
(60,247)
55,516
(464) (2,994,253)
(1,371,554)
62,882
9,418
(7,380)
(451)
847
(293,144)
732,583
(244,145)
263,951
5,187
(16,895)
838
997
3,951
11,312
40,997
(8,768) 2,544 (1,288,125)
-
(41,516)
(519) (2,756,138)
1,525,738
17,370
37,534
-
(54,461)
Page. 133
($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
(1,061)
(2,009)
(442)
23
(135,476)
58,827
(187,794)
-
(2,145)
(1,173)
(1,671)
(10,021)
(1,517)
-
(25,476)
25,216
26,137
661
(506,966)
-
26,137
-
(21,377) 3,839
3,107,465
(1,997,985)
(10,385)
(13,209)
(1) Represents the carrying value of hedged items designated in qualifying hedging relationships.
Note 13 – 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.
EQB’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.
EQB’s securities purchased under reverse repurchase agreements and obligations under repurchase
agreements are covered by industry standard master agreements, which include netting provisions.
EQB 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, 2022, the approximate market value of cash and securities collateral pledged by EQB that are
subject to credit support agreements was $1,072,639 (December 31, 2021 − $1,399,413).
As of December 31, 2022, the approximate market value of cash and securities collateral accepted that may be
sold or repledged by EQB was $41,796 (December 31, 2021 − $590,350). There was no collateral sold or
repledged in 2022 and 2021.
Page. 134
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements:
($000s)
2022
Related amounts
not offset on the
consolidated balance
sheet
Gross
amounts of
recognized
financial
liabilities
offset on the
consolidated
balance
sheet
Net amounts
of financial
assets
presented
on the
consolidated
balance
sheet
Gross
amounts of
recognized
financial
assets
Financial
collateral
(including
cash
collateral
received)
Financial
instruments
Net amount
Types of financial
assets
Derivatives held for risk
management:
Interest rate swaps
Total return swaps
166,601
14,513
Cross-currency
interest rate
swaps
Foreign exchange
forwards
Securities purchased
under reverse
repurchase
agreements
38,982
5,744
1,156
226,996
-
-
-
-
-
-
166,601
14,513
38,982
5,744
1,156
226,996
-
-
-
-
-
-
(79,655)
(14,513)
86,946
-
-
38,982
(2,762)
2,982
(1,156)
(98,086)
-
128,910
Page. 135
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements:
($000s)
2022
Related amounts
not offset on the
consolidated balance
sheet
Gross
amounts of
recognized
financial
assets offset
on the
consolidated
balance
sheet
Net amounts
of financial
liabilities
presented
on the
consolidated
balance
sheet
Gross
amounts of
recognized
financial
liabilities
Financial
collateral
(including
cash
collateral
received)
Financial
instruments
Net amount
161,623
7,267
48,514
2,157
664,151
883,712
-
-
-
-
-
-
161,623
7,267
48,514
2,157
-
-
-
-
(124,699)
(7,052)
36,924
215
-
48,514
(497)
1,660
664,151
(555,444)
-
883,712
(555,444)
(132,248)
108,707
196,020
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
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements:
($000s)
2021
Related amounts
not offset on the
consolidated balance
sheet
Gross
amounts of
recognized
financial
liabilities
offset on the
consolidated
balance
sheet
Net amounts
of financial
assets
presented
on the
consolidated
balance
sheet
Financial
collateral
(including
cash
collateral
received)
Financial
instruments
Net amount
-
-
-
-
-
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
Gross
amounts of
recognized
financial
assets
64,213
5,083
1,741
550,030
621,067
Page. 136
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements:
($000s)
2021
Related amounts
not offset on the
consolidated balance
sheet
Gross
amounts of
recognized
financial
assets offset
on the
consolidated
balance
sheet
Net amounts
of financial
liabilities
presented
on the
consolidated
balance
sheet
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
December 31, 2022
December 31, 2021
145,495
57,595
42,733
27,646
12,004
8,529
7,559
1,120
375
205,583
14,513
9,579
5,744
538,475
92,571
16,944
16,761
14,100
-
7,466
2,802
9,678
53
64,213
5,083
124
1,741
231,536
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
Note 14 – Other Assets
($000s)
Intangible assets
Goodwill
Prepaid expenses and other
Property and equipment
Income taxes receivable
Right-of-use assets
Accrued interest and dividends on non-loan assets
Receivable relating to securitization activities
Real estate owned
Derivative financial instruments:
Interest rate swaps
Total return swaps
Bond forwards
Foreign exchange forwards
Page. 137
Intangible assets include system software development costs relating to EQB’s information systems, core
customer deposits and Trust business relationships.
EQB has recognized right-of-use assets for its leased office premises located in Toronto, Oakville, Calgary,
Montreal, Regina, Surrey 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
2022
8,529
3,468
3,153
376
2021
7,466
3,353
2,997
502
In 2022, due to an early termination, EQB derecognized $105 of right-of-use assets, derecognized $157 of
related right-of-use liabilities, and recognized a gain of $52 in the Non-interest expenses in the Consolidated
Statement of income.
Note 15 – Deposits
($000s)
Term and other deposits
Fair value on acquisition
Accrued interest
Deferred deposit agent commissions
December 31, 2022
December 31, 2021
30,830,817
(123,751)
380,628
(35,881)
31,051,813
20,694,623
-
196,617
(34,857)
20,856,383
Deposits also include $1,245,294 (December 31, 2021 – $498,907) of funding from the covered bond program.
This funding is secured against $1,577,979 (December 31, 2021 – $723,967) of residential loans reported on the
Consolidated Balance Sheet under Loans – Personal.
Note 16 – 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
2022
82,718
2,185
84,903
11,775
(2,160)
3,758
13,373
98,276
2021
96,039
(477)
95,562
1,889
446
(22)
2,313
97,875
Page. 138
The provision for income taxes shown in the Consolidated Statement 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(1)
2022
27.0%
(1.7%)
1.0%
0.4%
26.7%
2021
26.2%
(1.4%)
-
0.3%
25.1%
(1) The increase in statutory tax rate is due to the additional 1.5% (prorated for 2022) Federal tax imposed on Canadian financial institutions.
(a) Deferred tax liabilities:
Net deferred income tax liabilities are comprised of:
($000s)
Deferred income tax assets:
Tax losses(1)
Allowance for credit losses
Leasing activities
Share issue expenses
Net loan fees
Other
Deferred income tax liabilities:
Securitization activities
Equipment financing activities(2)
Deposit agent commissions
Net origination fees Intangible
costs
Other
Net deferred income tax liabilities(3)
December 31, 2022
December 31, 2021
8,734
15,930
9,817
2,324
3,296
6,684
46,785
92,749
113
7,234
19,364
-
119,460
72,675
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
(1) Deferred tax asset pertains to income tax losses of approximately $32,392 from Equitable Trust Company (2021 - $4,763 from the
equipment financing business). (2) The deferred tax liability relating to equipment financing activities pertains to the temporary difference
resulting from difference in accounting treatment versus tax treatment for equipment financing receivable. (3) The corresponding amounts to
the change in deferred tax balances is a tax charge to Statement of Income of $13,373, a tax charge of $1,288 for business combination, and a
tax recovery of $5,127 to Stockholders’ Equity.
Note 17 – Funding Facilities
(a) Secured funding facilities:
EQB has two credit facilities totaling $1,100,000 with major Schedule I Canadian banks to finance residential loans prior
to securitization. Equitable Bank also has access to liquidity facilities 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,
2022, EQB had an outstanding balance of $737,040 (December 31, 2021 – $200,128) on facilities from the Schedule I
Canadian banks. The facilities from Schedule I Canadian banks carry interest rates at 1-month CDOR plus 0.70% to
0.85%.
Page. 139
Concentra Bank maintains a $400,000 secured credit facility with a major Schedule I Canadian bank to backstop issued
letters of credit and for general liquidity management. The credit facility carries interest rates at Banker’s Acceptance
plus 0.50%. Concentra Bank also maintains $100,000 secured line of credit with SaskCentral which is used primarily for
settlement and clearing purposes. The line of credit carries interest rates at Prime less 0.50%. As at December 31, 2022,
there were no amounts outstanding under either of these facilities.
Concentra Bank has established Bearer Deposit Notes (“BDN”) program through which it issues short-term unsecured
notes. As at December 31, 2022 the outstanding balance of the notes issued under BDN program was $34,963. The
interest rates on BDN ranges from 1.16% to 1.40%.
(b) Unsecured funding facilities:
EQB has a funding agreement with a consortium of Schedule I banks for senior unsecured funding facilities comprising
of a revolving facility (Revolving Facility) of up to $200,000 and a term loan facility (Term Loan) of up to $275,000. As at
December 31, 2022, EQB had an outstanding balance of $467,701 (December 31, 2021 – $nil) on the above facilities
including deferred cost of $609, prepaid interest of $6,697. The Revolving and Term Loan facilities carry interest rates at
1-month CDOR plus applicable margins.
Note 18 – Other Liabilities
($000s)
December 31, 2022
December 31, 2021
Accounts payable and accrued liabilities
Securitized loan servicing liability
Loan realty taxes
Right-of-use liabilities
Unearned revenue
Loan commitments
Income taxes payable
Derivative financial instruments:
Interest rate swaps
Total return swaps
Foreign exchange forwards
Bond forwards
Note 19 – Shareholders’ Equity
(a) Capital stock:
Authorized:
207,651
58,180
57,541
10,333
2,417
935
-
210,137
7,267
2,157
258
556,876
143,931
38,507
50,405
8,597
818
24
43,422
32,667
13,191
712
2,727
335,001
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 non-voting Class A Series 1 and 2 preferred shares without par value
Unlimited number of common shares, no par value
Page. 140
Issued and outstanding shares:
($000’s, except shares and per share amounts)
Number of
shares
Amount
Dividends
per share
Number of
shares
Amount
2022
2021
Dividends
per share
Preferred Shares, Series 3:
Balance, beginning of year
2,919,400
70,607
2,996,700
72,477
Treasury Preferred Shares,
Series 3 cancelled
(7,600)
(183)
(77,300)
(1,870)
Balance, end of year
2,911,800
70,424
1.49
2,919,400
70,607
1.49
Class A Series 1:
Upon acquisition
Balance, end of year
Class A Series 2:
Upon acquisition
Balance, end of year
Common shares(2):
3,888,500
97,212
3,888,500
97,212
0.25
551,000
13,775
551,000
13,775
0.46
-
-
-
-
-
-
-
-
Balance, beginning of year
34,070,810
230,160
33,748,148
218,166
New shares issued
3,266,000
223,112
Contributions from exercise
of stock options
Issuance under DRIP
Dividend paid from principal
Transferred from contributed
surplus relating to the
exercise of stock options
118,970
108,334
3,528
5,746
(655)
-
670
322,662
10,056
-
-
-
1,938
Balance, end of year(3)
37,564,114
462,561
1.21
34,070,810
230,160
0.74
(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 EQB’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. 141
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 EQB’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.
Class A – Series 1 preferred shares
Holders of Class A – Series 1 preferred shares, issued by Concentra Bank, are entitled to an annual, non-
cumulative fixed dividend of $0.99 per share, with the dividend rate resetting every five years equal to the
Government of Canada five-year bond yield plus 3.59%. The Series 1 dividend rate was last reset on January 31,
2021.
Class A – Series 2 preferred shares
Holders of Class A – Series 2 preferred shares, issued by Concentra Bank, are entitled to a non-cumulative
floating quarterly dividend at a rate equal to the 90-day Canadian treasury bill rate plus 3.59%.
Subject to a minimum number of shares remaining outstanding in each of the Class A shares, holders of Class A
– Series 1 preferred shares have the right to exchange their shares for an equal amount of Class A – Series 2
preferred shares, or vice-versa, every 5 years following the expiration of the initial period ended January 31,
2021.
The Class A – Series 1 and Series 2 preferred shares are redeemable at the option of EQB for $25 per share
subject to the approval of OSFI and the requirement of the Bank Act (Canada).
Upon occurrence of a Non-Viability Contingent Capital (NVCC) trigger event, the Class A – Series 1 and Series 2
preferred shares will immediately be cancelled for no consideration and the stated capital in respect of these
classes of shares will immediately be reduced to $nil. From and after such date, the Class A – Series 1 and
Series 2 shareholders shall have no right to receive or assert a claim for any amount in respect of dividends or
any payment upon a distribution of assets in the event of the liquidation, dissolution or winding-up.
Class B preferred shares
Class B preferred shares, issued by Concentra Bank are entitled to preferential dividends as and when declared
by the Board. The Class B preferred shares may be issued at any time or from time to time in one or more
series provided each series of Class B preferred shares ranks in parity with every other series of Class B
preferred shares with respect to dividends and return of capital. Before issuance of a series, the Board shall fix
the number of shares that will form such series and determine the designation, rights, privileges, restrictions
and conditions specific to that series, subject to any limitations set out in the Bank Act (Canada) and the
approval of OSFI. There are currently no series of Class B preferred shares approved for issuance.
(c) Dividend reinvestment plan:
EQB had activated a dividend reinvestment plan in Q1 2019 and later suspended it in Q1 2021. In Q1 2022,
EQB reactivated the plan. 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 EQB, the common shares may have been
issued from EQB’s treasury or acquired from the open market at market prices.
Page. 142
(d) Dividend restrictions:
EQB’s subsidiary, Equitable Bank, is subject to minimum capital requirements, as prescribed by OSFI under EQB
Act (Canada). EQB 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 EQB 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 EQB 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, 2022, the NCIB was renewed and approved by the Toronto Stock Exchange, pursuant to which EQB
may repurchase for cancellation up to 3,025,798 of its common shares and 288,680 of its Series 3 – 5-year rate reset
preferred shares, representing 10% of its public float of each class of shares. EQB 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 EQB’s discretion. As at December
31, 2022, EQB had repurchased and cancelled 80,600 Series 3 – 5-year rate reset preferred shares at a volume
weighted average price of $26.01. No common shares have been purchased and cancelled under the NCIB.
Note 20 – Stock-based Compensation
(a) Stock-based compensation plan:
Under EQB’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, 2022, the maximum number
of common shares available for issuance under the plan was 4,000,000 (December 31, 2021 − 4,000,000). The
outstanding options expire on various dates to August 2029. A summary of EQB’s stock option activity and
related information for the years ended December 31, 2022 and December 31, 2021 is as follows:
($000’s, except share, per share and stock option amounts)
2022
2021
Number of
stock options
Weighted average
exercise price
Number of stock
options
Weighted average
exercise price
Outstanding, beginning of year
Granted
Exercised
Forfeited/cancelled
Outstanding, end of year
Exercisable, end of year
1,123,002
253,816
(118,970)
(27,997)
1,229,851
658,941
41.75
73.83
29.65
64.37
49.03
36.44
1,232,648
243,920
(322,662)
(30,904)
1,123,002
564,866
33.66
69.81
31.17
51.11
41.75
31.87
Page. 143
The following table summarizes information relating to stock options outstanding and exercisable as at
December 31, 2022:
Exercise price ($)
Number outstanding
Options outstanding
Options exercisable
Weighted average remaining
contractual life (years)
Number exercisable
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
75.72
72.21
54.09
55.30
58.88
57.32
89,924
122,446
5,250
154,028
198,528
2,000
4,000
158,290
2,250
2,250
25,000
3,000
194,634
3,000
3,000
13,000
5,000
214,965
5,500
4,000
6,000
1,786
12,000
0.2
1.2
1.6
2.2
3.2
3.6
3.9
4.2
4.4
4.6
4.9
5.2
5.2
5.7
5.9
5.9
5.9
6.1
6.3
6.4
6.4
6.4
6.6
89,924
122,446
5,250
154,028
141,146
1,000
3,000
73,756
750
750
12,500
750
47,641
750
750
3,250
1,250
-
-
-
-
-
-
Under the fair value-based method of accounting for stock options, EQB recorded compensation expense in the
amount of $3,422 (2021 − $2,539) related to grants of options under the stock option plan. This amount was
credited to Contributed surplus. The fair value of options granted during 2022 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:
2022
1.7%
4.8
30.4%
1.8%
17.46
2021
0.5%
4.8
35.1%
2.0%
17.37
EQB 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 EQB. For each eligible
contribution, EQB contributes 50% of the employee’s contribution to purchase common shares of EQB
up to a certain maximum per employee. During the year, EQB expensed $1,477 (2021 − $1,184) under this plan.
Page. 144
(c) Deferred share unit plan:
EQB 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 EQB.
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 EQB 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 EQB affecting its common shares, EQB 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.
EQB hedges the risk of change in future cash flows related to the DSU plan. Please refer to Note 12 – Derivative
Financial Instruments for further details.
A summary of EQB’s DSU activity for the years ended December 31, 2022 and December 31, 2021 is as follows:
Outstanding, beginning of year
Granted
Dividend Reinvested
Paid out
Outstanding, end of year
2022
2021
Number of DSUs
Number of DSUs
138,379
16,510
2,945
(12,139)
145,695
136,438
12,700
1,380
(12,139)
138,379
During the year 12,139 DSUs were paid out (2021 – 12,139). Compensation expense, including offsetting hedges,
relating to DSUs outstanding during the year ended December 31, 2022 amounted to $1,165 (2021 – $973). The
liability associated with DSUs outstanding as at December 31, 2022 was $8,261 (December 31, 2021 – $9,550)
and was included in other liabilities on the Consolidated Balance sheet.
(d) Restricted share unit plan:
EQB 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 EQB’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
EQB’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 EQB’s relative total
shareholder return compared to a defined peer group of financial institutions in Canada.
EQB hedges the risk of change in future cash flows related to the RSU and PSU plans. Please refer to Note 12 –
Derivative Financial Instruments for further details.
Page. 145
A summary of EQB’s RSU and PSU activity for the years ended December 31, 2022 and December 31, 2021 is as
follows:
Outstanding, beginning of year
Granted
Dividend reinvested
Vested and paid out
Forfeited/cancelled
Outstanding, end of year
December 31, 2022
December 31, 2021
Number of RSUs and PSUs Number of RSUs and PSUs
131,995
84,122
4,140
(75,258)
(12,820)
132,179
168,556
59,178
2,154
(83,550)
(14,343)
131,995
During the year, 72,258 (2021 – 83,550) RSUs and PSUs were vested and paid out for a total value of $4,529 (2021
– $6,169). Compensation expense, including offsetting hedges, relating to RSUs and PSUs outstanding during
the year ended December 31, 2022 amounted to $4,182 (2021 – $2,084). The liability associated with RSUs and
PSUs outstanding as at December 31, 2022 was $3,333 (December 31, 2021 – $4,646) and was included in other
liabilities on the Consolidated Balance sheet.
Note 21 – 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)
2022
2021
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:
270,181
5,566
264,615
34,688,502
7.63
292,530
4,413
288,117
33,946,749
8.49
Net income available to common shareholders
264,615
288,117
Weighted average basic number of common shares
outstanding
Adjustment to weighted average number of common
shares outstanding:
34,688,502
33,946,749
Stock options
342,664
498,694
Weighted average diluted number of common shares
outstanding
Earnings per common share − diluted
35,031,166
7.55
34,445,443
8.36
For the year ended December 31, 2022, the calculation of the diluted earnings per share excluded 438,196 (2021
– 179,916) average options outstanding with a weighted average exercise price of $72.05 (2021 − $69.11) as the
exercise price of these options was greater than the average price of EQB’s common shares.
Note 22 – Capital Management
Equitable Bank manages its capital in accordance with guidelines established by OSFI, based on standards
issued by EQB 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
Page. 146
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 EQB’s inherent risks, Equitable Bank utilizes an Internal Capital Adequacy Assessment
Process (ICAAP).
EQB’s CET1 Ratio was 13.7% as at December 31, 2022, while Tier 1 Capital and Total Capital Ratios were 14.7% and
15.1% respectively. EQB’s Capital Ratios at December 31, 2022 exceeded the regulatory minimums.
During the year, EQB complied with all internal and external capital requirements.
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, 2022
December 31, 2021
928,778
12,537
1,856,084
(33,759)
(170,504)
2,593,136
183,541
2,776,677
79,284
79,284
2,855,961
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
(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 23 – Commitments and Contingencies
(a) Lease commitments:
EQB is committed to leases for its office premises located in Toronto, Calgary, Montreal, Regina, Surrey 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, 2022
December 31, 2021
6,058
40,248
85,130
131,436
7,327
39,212
90,004
136,543
The lease commitments for December 31, 2022 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. The lease commitments for December 31, 2022 also includes commitments
relating to a new temporary office lease signed in December 2022. The new temporary office is located in
Toronto, and the lease commences in March 2023 for a period of 14 months.
In addition to these minimum lease payments for premises rental, EQB will pay its share of common area
maintenance and realty taxes over the terms of the leases. Lease expense recognized in the Consolidated
Statement of income for 2022 amounted to $11,562 (2021 − $12,292).
Page. 147
(b) Credit commitments:
As at December 31, 2022, EQB had outstanding commitments to fund $4,255,117 (December 31, 2021 −
$3,653,459) of loans and investments in the ordinary course of business. Of these commitments, $1,671,463
(December 31, 2021 − $1,937,167) are expected to be funded within 1 year and $2,583,654 (December 31, 2021
− $1,716,292) after 1 year.
EQB has issued standby letters of credit which represent assurances that EQB will make payments in the event
that a borrower cannot meet its obligations to a third party. Letter of credits in the amount of $86,104 were
outstanding at December 31, 2022 (December 31, 2021 − $46,784).
(c) Contingencies:
EQB 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 24 – 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. EQB’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 EQB directly and
indirectly. EQB considers the members of the Board of Directors, the CEO, CFO and the CRO as part of key
management personnel.
These financial statements present the consolidated results of EQB 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
Share-based payments (net)
2022
4,345
54
3,131
7,530
2021
4,181
47
2,590
6,818
(b) Share transactions, shareholdings and options of key management personnel and related parties:
As at December 31, 2022, key management personnel held 608,923 (December 31, 2021 – 541,150) common
shares and 22,000 (December 31, 2021 – 9,000) preferred shares. These shareholdings include common shares
of 25,260 (December 31, 2021 – 11,600) that were beneficially owned by the non-management Directors or
held by related party entities whose controlling shareholders are Directors of EQB. In addition, key
management personnel held 496,746 (December 31, 2021 – 499,312) options to purchase common shares of
EQB at prices ranging from $26.58 to $75.72.
(c) Other transactions:
As at December 31, 2022, deposits of $909 (December 31, 2021 – $1,850) were held by key management
personnel and related party entities whose controlling shareholders are directors of EQB and trusts beneficially
owned by the Directors.
Page. 148
Note 25 – Interest Rate Sensitivity
The following table shows EQB’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, 2022.
($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
1,071,796
20,000
Effective interest rate
4.34%
5.20%
Securities purchased
under reverse purchase
agreements
Effective interest rate
-
-
200,432
4.25%
-
-
-
-
1,091,796
4.35%
200,432
4.25%
-
-
-
-
-
-
-
-
140,966
1,232,762
-
-
-
3.86%
200,432
4.25%
Investments
14,065
671,691
235,185
920,941
1,012,384
410,022
(53,729)
2,289,618
Effective interest rate
8.67%
4.37%
1.48%
3.70%
1.86%
2.35%
0.00%
2.73%
Loan receivable – Personal
4,550,796
2,367,655
9,820,177
16,738,628
15,177,417
89,066
(8,161)
31,996,950
Effective interest rate
7.21%
3.78%
4.39%
5.07%
3.62%
9.20%
0.00%
4.39%
Loan receivable –
Commercial
6,956,625
410,890
1,208,281
8,575,796
4,206,036 1,798,649
(67,216) 14,513,265
Effective interest rate
8.27%
5.01%
4.89%
7.64%
4.23%
3.51%
0.00%
6.18%
Securitized Retained
Interest
Other assets
Total assets
Liabilities:
Deposits(2)
-
-
-
-
-
-
-
-
-
-
-
-
373,455
373,455
538,475
538,475
12,593,282
3,670,668
11,263,643
27,527,593
20,395,837 2,297,737
923,790 51,144,957
849,947
8,476,615
11,483,002
20,809,564
10,083,467
23,095
135,687
31,051,813
Effective interest rate
2.95%
2.93%
3.37%
3.17%
2.93%
3.98%
0.00%
3.08%
2,228,517
2,678,061
4,906,578
8,902,387 1,238,281
(23,619)
15,023,627
Securitization liabilities
Effective interest rate
Obligations Under REPO
Effective interest rate
-
-
-
-
3.81%
664,151
4.44%
Funding Facilities
145
1,246,590
Effective Interest rate
5.52%
5.55%
Other liabilities and
deferred taxes
Shareholders' equity
Total liabilities and
shareholders’ equity
-
-
-
-
2.65%
3.17%
2.07%
2.85%
0.00%
2.50%
-
-
-
-
-
-
664,151
4.44%
1,246,735
5.55%
-
-
-
-
-
-
-
75,000
-
-
-
-
-
-
1,156
665,307
0.00%
4.44%
(7,031)
1,239,704
-
5.58%
629,551
629,551
2,459,955
2,534,957
850,092 12,615,873
14,161,063
27,627,028
19,060,854 1,261,376
3,195,699 51,144,957
Off-balance sheet items(3)
-
(2,485,030)
2,542,654
57,624
90,306
(147,930)
-
Excess (deficiency) of
assets over liabilities,
shareholders’ equity and
off-balance sheet items
11,743,190 (11,430,235)
(354,766)
(41,811)
1,425,289
888,431
(2,271,909)
-
-
(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 EQB’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. 149
($000’s, except
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 − 2021
7,310,132
2,366,774
8,144,902
17,821,808
16,636,541 1,069,060
631,661 36,159,070
-
-
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
-
Total liabilities and
shareholders’ equity
− 2021
Off-balance sheet items
− 2021(2)
Excess (deficiency) of
assets over liabilities,
shareholders’ equity
and off-balance sheet
items
– 2021
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) Off-balance sheet items include EQB’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.
Note 26 – Non-interest Expenses - Other
($000s)
Technology and system costs
Regulatory, legal and professional fees
Product costs
Marketing and corporate expenses
Premises
2022
58,741
41,450
38,862
38,677
15,136
192,866
2021
43,310
22,159
27,207
22,857
15,678
131,211
-
-
Page. 150
Directors
Michael Emory
President and Chief Executive
Officer, Allied Properties REIT
Susan Ericksen
Corporate Director
Michael Hanley
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
Marcos Lopez
Corporate Director and Principal,
Alpenglow Capital Inc.
Lynn McDonald
Corporate Director
Andrew Moor
President and Chief Executive
Officer of EQB 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
Carolyn Schuetz
Corporate Director
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. 151
Shareholder and Corporate Information
Analyst Conference Call and
Webcast
Friday, February 17, 2023,
8:30 a.m. EST
Live: 416.764.8609
Replay: 416.764.8677
(code 570770)
Archive: www.equitablebank.ca
Investor Relations
Richard Gill
Vice President,
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 17, 2023
10:00 a.m. EST
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
Performance Report and Public
Accountability Statement 2022
will be available in May 2023 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
Corporate Head Office
Equitable Bank Tower
30 St. Clair Avenue West, Suite 700
Toronto, Ontario, Canada, M4V 3A1
Regional Offices:
Toronto
4200-181 Bay Street
Toronto, Ontario
Canada, M5J 2T3
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
Montreal
1411 Peel Street, Suite 501
Montreal, Quebec
Canada, H3A 1S5
Regina
300-4561 Parliament Ave,
Regina, Saskatchewan
Canada, S4W 0G3
Saskatoon
333 3rd Ave N
Saskatoon, Saskatchewan
Canada, S7K 2M2
Website
www.equitablebank.ca
Toronto Stock Exchange Listings
Common Shares: EQB
Preferred Shares: EQB.PR.C