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TSX:EQB | EQB.PR.C.
EQB Inc. | Fourth Quarter Report 2023
For the four and ten months ended October 31, 2023
It’s Time
Drive change in Canadian banking to enrich people’s lives.
230% 10-year
Total shareholder return
$111+ billion
Total assets under management & administration
578,000+
Customers served
Note: all cover measures as at October 31, 2023.
Canada’s Challenger Bank TM
90
Back cover
Page 3
EQB strategy
Supported by its proven business model, EQB Inc. and its subsidiaries use a time-tested strategy and approach 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 empowered customer-
facing teams solving customer needs
Differentiated value creation model
Deliver long-term shareholder value through
disciplined capital allocation and business
management that generates 15-17% ROE annually(1)
Innovating and advocating
for Canadians
Innovate across product and technology as
Canada’s leading digital bank and advocate
for regulatory change to benefit Canadians,
including Open Banking
Robust risk management
Consistently achieve the lowest credit losses of all
Canadian bank peers by leveraging a prudent risk
appetite and benefitting from decades of
underwriting expertise
Building long-term franchise value
Allocate capital and investment dollars
consistently to build lasting franchise value
that translates into superior performance
through cycles
Quick facts
> 578,000
Customers directly served by
Equitable Bank, growing by
hundreds every day
7th largest bank
Equitable Bank is 7th largest bank in
Canada by assets, and the owner of
Concentra Trust – the 7th largest
trust company in Canada
$111 billion
Assets under Management & Assets
under Administration(1), diversified
across Personal Banking,
Commercial Banking
and Trust company services
> 6 million
Canadians indirectly served with
products and services delivered by
Canadian Credit Unions to their
members
#1
#1
EQ Bank was once again ranked the
Number 1 bank in Canada for the
third consecutive year on Forbes
World’s Best Banks
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 ratios section of this MD&A.
Note: Quick facts as at October 31, 2023
Page 4
EQB corporate profile
EQB Inc. (TSX: EQB and EQB.PR.C, “EQB”) operates through
subsidiaries, including 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.
Equitable Bank (the “Bank”) serves 578,000 Canadians and
nearly 200 Canadian credit unions, with more than six
million members, through two main business lines:
Personal Banking - including EQ Bank, the leading digital
bank in Canada - and Commercial Banking. As a leader in
Canadian banking, EQ Bank was chosen by Forbes and
Canadian consumers as Canada’s Top Schedule I Bank in
2021, 2022 and 2023.
As October 31, 2023, EQB’s total assets under
management and administration(1) were $111 billion, with
total loans under management of $62 billion and on-
balance sheet assets of $53 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.
Equitable Bank’s credit rating by DBRS is investment grade
BBB (high) and in Q2 2023 Fitch affirmed its BBB- rating,
while raising its outlook to ‘stable’, a signal of the Bank’s
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, the Bank specializes in market segments where it
can improve the banking experience and deliver unique
value, by rethinking conventional approaches and pushing
for smarter ways to do business. The Bank differentiates
by providing a host of challenger bank retail services,
single-family mortgage lending, reverse mortgage lending,
insurance lending, commercial real estate mortgage
lending, specialized commercial financing, equipment
financing, credit union services and trust services.
The Bank’s challenger approach has allowed it to become
a leading single-family residential lender. With a
commercial lending focus on serving customers who build
and renovate much-needed rental apartment supply, the
Bank has become an active participant in the insured
multi-unit residential securitization market in Canada.
Innovations in the independent mortgage broker channel
reflect the Bank’s long-term focus on providing great
service to brokers and mortgage customers.
EQ Bank is the first-born all-digital bank in Canada,
providing great experience and value to Canadians, and
serving as a convenient and value-added alternative to
traditional banks. It was the first to move to a cloud-based
platform and its digital capabilities are proven and
differentiated to support cost-effective product
development and delivery and fintech collaborations.
The Bank operates with a fintech mindset and
collaborates with partners to innovate rapidly to deliver
best-in-class digital banking services to Canadian
consumers. The Bank’s relationships with market leaders
like Wise, Wealthsimple, nesto, Ratehub, Flinks, Borrowell,
Bloom, FinanceIT, ClearEstate and other fintechs continue
to help the Bank reach new customers and deliver value
to Canadians.
A strategic advantage of Equitable Bank’s business model
is the ability to deploy deposits consistently and profitably
across its diverse personal and commercial lending
operations. This approach to diversifying assets and
deposit-funding sources allows the Bank to achieve its
corporate growth objectives and reduces its risk profile.
Equitable Bank’s talented teams are the foundation of its
success. The Bank employs over 1,700 challengers who
are aligned to drive change in Canadian banking. The
Bank’s inclusive, welcoming, and pride-inducing workplace
earned it the honour of being recognized as one of the top
50 organizations on the 2023 list of Canada’s Best
Workplaces™.
(1) This is a Non-GAAP measure, see Non-GAAP financial measures and ratios section of this MD&A.
Page 5
Change of EQB’s fiscal year
EQB has changed its fiscal reporting period to end on October 31 rather than December 31. With this change, EQB’s
reporting cycle is now consistent with Canada’s publicly traded banks.
During the transition, comparative periods will differ. For this report:
• Q4 2023: as at or for the four months ended October 31, 2023, and is presented compared to Q4 2022 (three
months ended December 31, 2022) and Q2 2023 (three months ended June 30, 2023). Results for current and
future periods will not show a Q3 2023 period.
•
Fiscal year 2023: as at or for the ten months ended October 31, 2023, and is presented compared to the twelve
months ended December 31, 2022.
For the Q1 2024 report, the data will be presented as at or for the three months ended January 31, 2024 and compared
to Q4 2022 (three months ended December 31, 2022) and Q4 2023 (four months ended October 31, 2023).
The change to fiscal calendar will not result in changes to the dividend payment schedule. EQB will continue to pay
dividends on the last business day of March, June, September, and December.
Page 6
Selected Financial Highlights
Select financial and other highlights
As at or for years ended
Ten months
31-Oct-23
31-Dec-22
31-Dec-21
2023 (ten months) vs.
2022 (twelve months)
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 (%)(3)
Efficiency ratio (%)(3)(4)
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 ($) – diluted
Return on equity (%)
Efficiency ratio (%)
Net interest margin (%)(2)
Revenue per average full time equivalent ($)(3)
Balance sheet and other information ($ millions)
Total assets
Assets under management(2)
Loans – Personal & Commercial
Loans under management(2)
Assets under administration(2)
Total deposit principal
EQ Bank deposit 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
834,112
110,361
944,473
415,184
529,289
38,856
490,433
126,163
364,270
9.40
17.1
44.0
1.97
838,279
137,385
975,664
434,743
540,921
38,856
502,065
130,475
371,590
9.67
9.59
17.5
44.6
1.98
567
52,933
67,932
47,361
62,397
43,173
31,577
8,233
19,809
0.10
0.76
0.22
736,729
48,716
785,445
326,529
458,916
18,238
440,678
113,942
326,736
9.17
15.7
41.6
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
1.86
464
51,145
61,569
46,510
57,078
41,234
30,831
7,923
18,926
0.10
0.28
0.18
97,383
61,645
159,028
88,655
70,373
20,618
49,755
12,221
37,534
0.23
104,874
88,604
193,478
58,272
135,206
1,598
133,608
32,199
101,409
2.04
2.04
103
1,852
6,426
851
5,319
1,939
1,165
410
883
582,609
60,298
642,907
259,451
383,456
(7,674)
391,130
98,065
293,065
8.38
16.7
40.4
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
1.81
554
36,159
42,020
32,901
38,670
-
20,695
6,968
13,310
(0.03)
0.27
0.15
13%
127%
20%
27%
15%
113%
11%
11%
11%
3%
1.4%
2.4%
0.10%
14%
182%
25%
15%
33%
4%
36%
33%
38%
27%
27%
4.6%
(3.5%)
0.12%
22%
3%
10%
2%
9%
5%
4%
5%
5%
-
0.48%
0.04%
Page 7
Select financial and other highlights
As at or for years ended
Ten months
31-Oct-23
31-Dec-22
31-Dec-21
2023 (ten months) vs.
2022 (twelve months)
Share information
Common share price – close ($)
Book value per common share ($)(3)
Common shares outstanding (thousand)
Common share market capitalization ($ millions)
Common shareholders’ equity ($ millions)(3)
Dividends declared – common share ($)
Dividends declared – preferred share – Series 3 ($)
Dividend yield – common shares (%)(3)
Capital ratios and leverage ratio (%)(5)
Common equity tier 1 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio
Business information
Employees – average full time equivalent
EQ Bank customers (thousand)
68.82
70.33
37,879
2,607
2,664
1.10
1.11
2.2
14.0
14.6
15.2
5.3
1,721
401
56.73
62.65
37,564
2,131
2,354
1.21
1.49
2.0
13.7
14.7
15.1
5.3
1,386
308
68.91
55.24
34,071
2,348
1,882
0.74
1.49
1.4
13.3
13.9
14.2
4.9
1,036
250
12.09
7.68
315
476
310
(0.11)
(0.38)
335
93
21%
12%
1%
22%
13%
(10%)
(26%)
0.3%
0.3%
(0.1%)
0.1%
-
24%
30%
(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, and other non-recurring items which management
determines would have a significant impact on a reader’s assessment of business performance. 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) 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.
Page 8
Selected financial highlights – eight quarters
Select financial highlights
2023
2022
2021
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 (%)
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 ($) – diluted
Return on equity (%)
Efficiency ratio (%)
Net interest margin (%)(2)
Revenue per average full-time
equivalent ($)(3)
Balance sheet and other information
($ millions)
Total assets
Assets under management(2)
Loans – Personal & Commercial
Loans under management(2)
Assets under administration(2)
Total deposits principal
EQ Bank deposits principal
Total risk-weighted assets
Four
months
Q4
345,783
49,503
395,286
173,012
222,274
19,566
202,708
55,673
147,035
3.80
16.5
43.8
2.00
345,783
49,503
395,286
181,165
214,121
19,566
194,555
53,409
141,146
3.67
3.64
15.8
45.8
2.00
Q2
Q1
Q4(3)
Q3
Q2
Q1
Q4
251,699
32,883
284,582
121,910
162,672
13,042
149,630
34,124
115,506
2.98
18.3
42.8
1.99
251,699
60,848
312,547
127,030
185,517
13,042
172,475
41,550
130,925
3.41
3.39
20.8
40.6
1.99
236,630
27,975
264,605
120,262
144,343
6,248
138,095
36,366
101,729
2.62
16.9
45.4
1.92
240,797
27,034
267,831
126,548
141,283
6,248
135,035
35,516
99,519
2.58
2.56
16.5
47.2
1.95
218,775
16,317
235,092
102,259
132,833
7,776
125,057
32,562
92,495
2.46
15.9
43.5
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
1.85
187,264
9,481
196,745
78,903
117,842
5,354
112,488
30,339
82,149
2.35
15.6
40.1
1.94
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
1.93
167,604
(2,528)
165,076
75,567
89,509
5,233
84,276
22,742
61,534
1.75
12.1
45.8
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
1.80
163,086
25,446
188,532
69,800
118,732
(125)
118,857
26,447
92,410
2.64
19.2
37.0
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
1.86
155,952
15,911
171,863
69,702
102,161
(1,420)
103,581
22,985
80,596
2.30
17.1
40.6
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
1.81
227
180
159
139
141
122
155
148
52,933
67,932
47,361
62,397
43,173
31,577
8,233
19,809
53,319
65,910
47,437
60,112
42,037
31,783
8,204
19,427
51,793
63,336
46,580
58,238
41,469
31,278
8,097
18,981
51,145
61,569
46,510
57,078
41,234
30,831
7,923
18,926
40,150
47,331
36,792
43,872
-
23,824
7,562
15,459
39,418
45,767
36,246
42,505
-
23,533
7,588
14,748
37,150
43,422
34,217
40,403
-
22,080
7,261
14,018
36,159
42,020
32,901
38,670
-
20,695
6,968
13,310
Page 9
Select financial highlights
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 ($)
Book value per common share ($)
2023
2022
2021
Four
months
Q4
0.12
0.76
Q2
Q1
Q4(3)
Q3
Q2
Q1
Q4
0.11
0.05
0.25
0.06
0.06
(0.001)
(0.02)
0.47
0.32
0.28
0.23
0.18
0.22
0.27
0.22
0.20
0.19
0.18
0.15
0.14
0.14
0.15
68.82
70.33
70.00
67.33
58.30
64.47
56.73
62.65
46.44
61.14
53.15
59.25
71.74
57.64
68.91
55.24
Common shares outstanding (thousands)
37,879
37,730
37,680
37,564
34,205
34,161
34,130
34,071
Common shareholders market
capitalization ($ millions)
2,607
2,641
2,197
2,131
1,588
1,816
2,449
2,348
Common shareholders' equity ($ millions)
2,664
2,538
2,429
2,354
2,091
2,024
1,967
1,882
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
0.38
0.37
2.0
14.0
14.6
15.2
5.3
0.37
0.37
2.3
14.1
14.8
15.4
5.2
0.35
0.37
2.3
14.0
15.0
15.5
5.3
0.33
0.37
2.5
13.7
14.7
15.1
5.3
0.31
0.37
2.3
13.3
13.7
14.0
5.1
0.29
0.37
1.9
13.5
14.0
14.3
5.1
0.28
0.37
1.5
13.5
14.0
14.3
5.1
0.19
0.37
1.0
13.3
13.9
14.2
4.9
Employees – average full time equivalent
1,743
1,740
1,685
1,635
1,373
1,295
1,219
1,191
EQ Bank customers (thousand)
401
368
336
308
293
280
266
250
(1) Adjusted measures and ratios are Non-GAAP measures and ratios. For additional information, 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) Q4 2022 results included two months of Concentra Bank’s contribution to income statement measures and to denominators of several measures.
Page 10
Overall business performance and guidance
Annual performance overview
In 2023, EQB results reflected growth and stability delivered through effective management of risks across credit,
liquidity, and market / interest rate risk and prudent management of capital. Total lending portfolio growth was aligned
to expectations with moderating originations, driven primarily by rising interest rates and slowing of the Canadian
residential housing market, offset by higher loan retention. Non-interest revenue continued to increase with higher fee-
based revenue including from Concentra Trust services to credit unions and gains on sale from multi-unit residential
securitization. Earnings and efficiency reflected contributions from Concentra Bank and the achievement of full
annualized synergy targets ahead of schedule.
The outcome of this progress was adjusted Return on Equity (ROE) of 17.1%, which is above historical averages and 2023
annual guidance, a 12% increase in book value per share (BVPS) over the 10-month period to $70.33, and record
adjusted after-tax earnings of $364.3 million, +11% y/y. As a reminder, year-over-year income statement measures
compare a 12-month period of 2022 to a 10-month period for 2023. On a per-month basis, adjusted after-tax earnings
per month increased in 2023 to $36.4 million, up 34% y/y vs. $27.2 million (reported: $37.2 million, up 65% y/y vs. $22.5
million).
• Revenue(1): +20% y/y to $944.5 million adjusted (+25% y/y to $975.7 million reported). Net interest margin
expanded +10bps y/y to 1.97% due to the ongoing benefits of funding diversification realized through growth in
both EQ Bank deposits and covered bonds as well as the allocation of capital to higher margin lending activities.
Aligned to management’s strategy, non-interest revenue increased to 12% of total adjusted revenue (14% reported,
including the one-time strategic investment gain of $28 million) vs. 6% in 2022 - adjusted and reported.
•
•
Earnings(1): 10-month adjusted net income of $364.3 million ($371.6 million reported), +$38 million higher than 12-
month net income in 2022, mostly driven by NIM expansion (1.97% NIM in 2023 vs. 1.87% in 2022), portfolio growth
including the impact of the Concentra Bank acquisition, and significant growth of non-interest revenue. Non-interest
revenue growth was largely contributed by the increase in fee-based revenue (including from Concentra Trust),
higher gains on sale and retained interest related to multi-unit residential business, and net gains on derivatives.
Efficiency ratio was flat y/y at 44.0% adjusted (44.6% reported), as strong revenue growth offset the addition of
expenses associated with Concentra Bank, net of synergies captured through the year. Moderating expense growth
in recent quarters has resulted from the net effect of continuing to invest in EQ Bank products, services and
marketing to build long-term franchise value, offset by the benefits of synergy capture from integrating Concentra
Bank. While additional earnings synergies continue to be expected over time, the most significant drivers of
expense savings were substantially delivered in 2023.
Liquidity, interest rate risk and capital management: Equitable Bank’s risk position remained strong and
conservative through 2023 as a result of prudent management. Liquid assets represented 7.2% of total assets,
which covers 66% of all demand deposits. The Bank also maintains sufficient contingent funding to cover the
remainder, including access to committed ABCP funding programs, CMHC’s Mortgage-Backed Security (MBS)and
Canada Mortgage Bond (CMB) programs, and the Bank of Canada’s Standing Term Liquidity Facility. In its
management of interest rate risk, the Bank targets the duration of equity to approximately one year, which limits its
economic exposure to significant movements in interest rates. EQB’s interest rate sensitivity as a measure of
Economic Value of Shareholders’ Equity (EVE) is (1.2%) or ($32.2 million), which represents the potential impact
associated with an immediate and sustained 100 bps parallel increase in interest rates. Equitable Bank’s capital
position increased to 14.0% CET1 (from 13.7% in 2022) with strong organic capital generation supported by
consistent and strong ROE through each quarter of 2023. More detail on Equitable Bank’s practices and approach to
risk management can be reviewed in the Risk Management section of this MD&A.
1 Adjusted measures and ratio are Non-GAAP measures and ratios. For additional information, see Adjustments to financial results and Non-GAAP
financial measures and ratios in this MD&A. (2) This is a Non-GAAP measure, see Non-GAAP financial measures and ratios section of this MD&A.
Page 11
•
•
Portfolio growth: Total loans under management (both on and off-balance sheet) grew 9% y/y to $62 billion, driven
by strong retention and growth in high quality markets including multi-unit residential, and decumulation
mortgages. Uninsured single-family residential mortgages grew moderately y/y, due to higher renewal rates and
lower unscheduled repayments.
PCLs and Impaired loans: 2023 PCL $38.9 million or 10 bps compared to 2022 PCL $37.3 million (10 bps) – note
that in 2022, $19.0 million of the provision related to Day 1 provisions associated with the acquisition of loans with
Concentra Bank. Of the $38.9 million PCL in 2023, loans in stage 1 and 2 accounted for 28% of the total and stage 3
was 72%. Stage 1 and 2 provisions in 2023 are associated with organic portfolio growth, changes to macroeconomic
conditions and associated loss modelling. The stage 3 provisions of $27.9 million were primarily driven by the
equipment financing business, which contributed $20.9 million, while commercial lending contributed $5.0 million -
mainly related to a single commercial property with a provision of $4.4 million in Q4. Actual losses in 2023 were
$17.2 million and represent 4 bps of total loan assets, also driven primarily by the equipment finance business
where leases are priced to account for anticipated credit losses. Secured real estate lending had a net recovery of
$2.3 million in the year (realized losses net of recoveries) versus $0.6 million loss in 2022.
• Commercial real estate – consistent focus on affordable housing: The Bank prioritizes commercial lending on
multi-unit residential properties in major cities across the country. In parallel, the Bank focuses on the insured
multi-unit residential market, with more than 70% of its total Commercial loans under management insured
including construction loans under various CMHC programs. The Bank has historically limited its exposure to
commercial office. As a result, approximately 1% of the Bank’s loan assets are offices and the average LTV of these
loans is 60%. As the Bank intentionally focused more on multi-unit residential and insured lending, office lending
balances declined 10% through the year. Equitable Bank’s office lending is largely restricted to properties located in
major urban centres and smaller buildings that often have tenants like medical and professional practices.
On October 16, 2023, OSFI published a response to its consultation regarding debt serviceability measures and
proposed changes to address risks to banks related to mortgages in negative amortization. This challenge arises when
customers have fixed monthly payments which, as interest rates rise, no longer cover the interest required leading to an
increase in the outstanding principal. Equitable Bank and Concentra Bank do not offer products with this structure. In
the case of Equitable Bank’s Adjustable-Rate Mortgages (ARM), payments adjust as rates change in order to maintain the
amortization schedule. The Bank does not offer single-family mortgages with amortization periods more than 30 years.
During 2023, the Department of Finance Canada conducted a consultation to review the Canada Mortgage Bond
program and determine whether to consolidate the program with the regular Government of Canada borrowing
program. On November 20, 2023, the Department of Finance Canada affirmed that the federal government will support
the enhancement of the CMB program, increasing the annual issuance limit from $40 billion to up to $60 billion, which
ended speculation that the program would end. In its 2023 Fall Economic Statement, the government also indicated it
intended to begin purchasing up to $30 billion in CMBs annually beginning in February 2024. In addition, the federal
government has removed the Goods and Services Tax on new rental housing construction with the goal of incentivizing
further support for the supply of rental apartments for Canadians. Other provincial governments including Ontario have
announced the parallel removal of their provincial sales taxes in support of stimulating the construction of rental supply.
The Bank is supportive of the newly proposed Canadian Mortgage Charter, which is consistent with the Bank's beliefs
and practices of providing tailored relief to mortgage holders experiencing financial difficulty. In addition, the Fall
Economic Statement included a policy statement on Consumer-Driven Banking. Equitable Bank has been a vocal
proponent of Open Banking and is excited about the potential benefits to Canadians across products and value.
Acquisition of alternative asset manager ACM Advisors Ltd.
On October 3, 2023, EQB Inc. and leading Canadian alternative asset manager ACM Advisors Ltd. (ACM) announced that
they have entered into a definitive agreement for EQB Inc. to acquire a majority (75%) ownership interest in ACM.
With a 30-year track record of creating, structuring, and managing pooled Canadian commercial mortgage funds, ACM
has become one of the most well-respected alternative fund managers in Canada with assets under management of
approximately $5 billion. ACM focuses on commercial mortgage assets, an asset class that EQB understands well
through ownership of Equitable Bank.
Page 12
The addition of ACM marks EQB’s entry into wealth and asset management and provides EQB with specialized
capabilities to serve a new set of Canadian customers (e.g., pension plans, investment funds, charitable foundations,
corporations, and accredited retail investors).
This acquisition represents further diversification of EQB’s business and will add to EQB’s growing fee-based revenue.
Since ACM manages assets on behalf of others, there is no added credit or balance sheet exposure for EQB. Upon
acquisition, ACM’s proven management team will continue to serve its primarily institutional investors and borrowing
partners while pursuing ambitious growth plans and strategies. EQB Inc. will leverage cash to complete the acquisition,
supported by existing lending facilities at EQB Inc., and a de minimis number of EQB Inc. shares to be issued at closing,
at a price based on the volume weighted average trading price. The issuance of any EQB Inc. shares is subject to Toronto
Stock Exchange (TSX) acceptance or approval.
EQB Inc. expects the acquisition to close prior to the end of December 31, 2023, subject to the satisfaction of customary
closing conditions and receipt of required regulatory approvals. No assurances can be provided on the timing or success
of completion of the acquisition given factors outside EQB Inc.’s control.
2023 performance vs. guidance
The table below summarizes EQB’s key adjusted financial metrics(1) at October 31, 2023 relative to Q2 updated guidance:
10-month period to October 31, 2023
Actual results
Guidance from Q2
Return on equity (ROE)(1)
17.1%
16%+
Pre-Provision Pre-tax Income (PPPT)(1)
$529 million
$490-520 million
Diluted EPS(1)
Dividend Growth(2)
BVPS Growth(3)
CET1 Ratio
$9.40
24%
12.3%
14.0%
$9.00-9.20
20-25%
11-13%
13%+
(1) Adjusted measures and ratio are Non-GAAP measures and ratios. For additional information, see Adjustments to financial results and Non-GAAP
financial measures and ratios in this MD&A. (2) Dividend growth is calculated by comparing dividends paid and to be paid during the 12-month
period to December 31, 2023 vs. the 12-month period to December 31, 2022. (3) BVPS refers to book value per common share and the actual
reflects YTD growth from December 31, 2022.
The table below summarizes key portfolio metrics at October 31, 2023.
($ millions)
31-Oct-23
YTD
growth
2023 10-month
guidance to
October 31, 2023
Loans Under Management(1)
$62,397
Personal Lending(1)
Commercial Lending(1)
EQ Bank deposits(2)
21,868
9,978
8,233
9%
5%
8%
4%
n/a
5-8%
8-12%
5-10%
(1) This is a non-GAAP measure, see Non-GAAP financial measures and ratios section of this MD&A.
(2) Includes deposit principal, but not accrued interest
Page 13
2024 Guidance
EQB’s business model is proven to perform across economic and credit cycles, and recent diversification in sources of
funding, assets and revenue are intended to strengthen EQB’s positioning and risk management profile. Higher interest
rates have shifted economic conditions in Canada, with inflation and affordability remaining important macroeconomic
challenges that might impact growth across various business lines.
Equitable Bank has maintained a sharp focus on contributing to improving housing supply in Canada by providing
funding to finance, build and renovate multi-unit rental apartments. This is reflected in insured multi-unit residential
mortgages growing 27% y/y to $20 billion or 32% of total loans under management for the Bank in 2023, with higher
growth expectations continued for fiscal 2024 further enabled by the Federal Government’s focus on improving housing
supply and the CMB funding program increasing from $40 billion in 2023 to $60 billion in 2024.
In Personal Banking, strategic focus will remain on its rapidly growing reverse mortgage business, with guidance in 2024
of 40-60% for the overall decumulation business. Industry research, including recent reports from CMHC, indicate a
strong and rising preference among Canadians to age-in-place. This purpose-driven business has significant runway to
realize its long-term potential and is expected, over time, to become a more material contributor to earnings growth.
The Bank will continue to benefit from newer sources of non-interest revenue growth as it continues to expand service
and support to Canadian credit unions and their customers, including through Concentra Trust, plus other new fee-
based revenue growth opportunities associated with innovative payment solutions and services for EQ Bank customers.
New origination growth for traditional single family uninsured lending is expected to continue to be subdued in the first
half of 2024, with potential for increasing momentum in the second half of the year depending on market conditions,
including future Bank of Canada interest rate decisions.
Growth of the EQ Bank platform will remain a top strategic priority in 2024, with significant new plans to build
awareness among Canadians. A substantial focus on customer franchise growth, supported by the development of new
“more make, less take” digital features, with a mission to provide Canadians with industry leading experiences and bring
innovative services to the market.
Credit risk monitoring is 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, consensus estimates from
Canadian bank economists is also being considered. Please see Financial Statements Note 10(e), which contains forward
looking indicators.
EQB Inc., in addition to owning Equitable Bank, is expected to benefit from the acquisition of ACM Advisors in fiscal 2024
with anticipated fee-based revenue growth and earnings accretion.
2024 Guidance – Adjusted Measures(1):
The following guidance for 2024 is presented inclusive of expected contributions of ACM and on an adjusted basis(1):
•
•
ROE: 15%+
Pre-provision, pre-tax income: $660-700 million
• Diluted EPS: $11.75-12.25
• Dividend: +20-25%
• Book Value Per Share (BVPS): +13-15%
• CET1: 13%+
Actual performance 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.
Page 14
EQB provides the following directional 2024 guidance for loan portfolios and EQ Bank customers:
Area
Description
2024 Guidance(1)
Total loans under management
On and off-balance sheet loans
Single Family Residential Lending
Uninsured residential mortgages
Wealth Decumulation
Reverse mortgages and insurance lending
Commercial lending (excluding
multi-unit residential)
Loans to small businesses and entrepreneurs and
equipment financing
Multi-unit residential loans under
management
On and off-balance sheet multi-unit residential lending
EQ Bank
Customer growth
8-12%
5-10%
40-60%
5-10%
20-25%
30-40%
(1) Guidance represents expected growth rates from October 31, 2023 to October 31, 2024. 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 the expected and targeted financial results, and this
information may not be appropriate for other purposes.
Additional guidance measures
Net Interest Margin (NIM)(1): Equitable Bank’s matched funding approach and disciplined hedging strategy is intended
to stabilize lending portfolio margins over time. Bank of Canada interest rate increases in 2022 and 2023 supported an
expansion in NIM through the lower deposit beta of EQ Bank deposits, and as rates on certain funding sources moved
less significantly than Equitable Bank Prime Rate. Similarly, some margin variability may arise in 2024, the direction and
magnitude of which will depend on changes in rates earned on lending assets (e.g., movement in Equitable Prime Rate)
relative to changes in fundings costs, including deposit rates of EQ Bank.
Non-interest revenue: Please refer to Table 3: Non-interest revenue for detail on recent performance.
•
Fees: EQB expects traditional fee and other income to increase in line with the lending portfolio and the
contribution of Concentra Bank and Concentra Trust’s fee-based revenue. In addition, product launches such as
fintech payments as a service (e.g., Bank Identification Number (BIN) sponsorship) should contribute to expected
fee income growth in 2024. In addition to the Bank, EQB Inc.’s acquisition of ACM is expected to contribute to the
anticipated 15-20% fee-based revenue growth y/y for EQB.
• Multi-unit residential: In November, the federal government confirmed its proposed increase in the annual limit
for CMB from $40 billion to up to $60 billion with the stated goal to unlock low-cost financing for multi-unit
residential market. The Bank’s multi-unit residential business is expected to continue to make a strong contribution
to this market in 2024, which is anticipated to lead to gains on sale associated with securitization activities.
Amounts fluctuate from period-to-period based on margins and volumes derecognized, which are driven by size
and timing of CMB issuances.
•
Strategic investments and derivatives: EQB expects the value of its investment portfolios to reflect market
performance in 2024 and does not forecast gains or losses on investments or derivatives.
Provision for credit losses: As interest rates have increased, many single-family lending customers have experienced
an increase in monthly payments at the point of mortgage renewal. For the Bank, at the end of Q4 2023, nearly 80% of
its uninsured residential mortgage customers have had their mortgages originated or renewed in this higher rate
environment, and are not expected to have a material increase in payment upon renewal. In the Commercial portfolio,
the majority of the portfolio is comprised of floating rate loans, which are tied to Equitable Bank’s Prime Rate. Current
net allowance for credit losses is $104 million and represents 0.22% of total loan assets. This allowance rate is informed
both by modelling expected losses and by making forward-looking business judgements. Taking this into account,
management believes the Bank is appropriately provisioned for expected losses given current market conditions and
analysis of forward-looking economic scenarios.
1 This is a non-GAAP measure, see Non-GAAP financial measures and ratios section of this MD&A.
Page 15
Non-interest expenses: EQB targets achieving an ROE greater than 15% while continuing to invest in its businesses to
maximize its long-term franchise value. This high threshold for target ROE is a constant. EQB achieves this by managing
rigorously across pricing, resources and capital deployment, including investing in high return business growth through
both lending and innovation. EQB typically targets flat operating leverage as it invests in growth while maintaining its
best-in-class efficiency relative to other publicly traded Canadian banks. In 2024, the business expects to make
significant investments in long-term franchise value, including accelerating the growth of EQ Bank across brand,
marketing and product/experience development and the creation and launch of its business banking capability, and
investing in risk management and compliance capabilities to support the growing scale and complexity of the Bank.
EQB’s efficiency ratio deteriorated in 2023 over 2022 due to the addition of Concentra Bank but continued to improve
toward a more traditional trend line as the integration progressed through the year. Alongside fee-based revenue with
EQB Inc.’s acquisition of ACM, EQB’s non-interest expenses will include the contributions of ACM following the
anticipated closing of the acquisition.
EQB’s Challenger approach
Proven value creation model with ROE as the North Star
For more than 50 years, EQB’s wholly owned subsidiary Equitable Bank and its operating companies(1), have proudly
served and addressed the unique financial services needs of Canadians. The Bank’s purpose is clear and succinct: To
drive change in Canadian banking to enrich people’s lives. Canada’s Challenger BankTM encapsulates the belief that the
status quo in banking needs to be challenged for the betterment of customers and that Equitable Bank is the best
positioned to do this as the challenger in the market and advocates for innovation and change in the industry in areas
that include open banking and payments modernization. With customer service, experience, and value at the heart of its
approach, Equitable Bank seeks to build and deliver unique experiences that create differentiated value for Canadians
and for EQB shareholders.
In 2024, EQB will proudly celebrate the 20th
anniversary of becoming a public company and its
two-decade track record of delivering +16% ROE
on average annually through its consistent value
creation model. ROE serves as the guidepost and
north star and is relied upon to drive business
decisions, including pricing, prioritization, and
investments. Adhering to this guidepost enables
EQB to organically build capital, which in turn
fuels growth and creates significant flexibility to
manage through economic cycles. Focus on ROE
affords EQB great flexibility in managing its
businesses. In favourable economic conditions,
EQB is able to accelerate the growth of its asset
base and generate capital that helps fund growth;
while in periods of economic uncertainty or
challenge, as experienced during the mid-2000s
and again in 2023, EQB maintains profitability at
attractive levels.
This approach puts the diligent deployment of
shareholders’ capital towards delivering great
customer value and employee experience.
(1) Inclusive of operating companies of Equitable Trust, Bennington Financial Services, Concentra Bank and Concentra Trust.
Page 16
By consistently managing the business to deliver a target 15-17%, EQB builds sufficient capital to both distribute
dividends to shareholders (approximately 10-12% of net income available to common shareholders) and to grow book
value by 14-16% annually. This organic growth of regulatory capital allows the Bank to increase lending assets by 14-16%
annually, while maintaining stronger capital ratios than other publicly traded Canadian banks.
EQB’s value creation philosophy is deeply ingrained in its approach to building long-term franchise value. Equitable Bank
continues to expand services, launch new and differentiated businesses, and grow market share, all while delivering on
its purpose of enriching people’s lives. The Bank’s expertise in risk management and, capabilities built over the years in
underwriting more complex secured credit, help generate stable and consistent returns for its shareholders. This history
of purposeful investment and operations has led to strong results, including high capital and liquidity positions, and the
lowest realized credit loss performance among peers. Looking to 2024, EQB will continue to invest purposefully in
expanding its products and services, reaching even more Canadians, while delivering results to shareholders for whom
high ROE continues to be a top expectation.
Value creation model leads to standout performance vs. peers
The success of EQB’s value creation model has been demonstrated in performance and momentum. EQB has
significantly outperformed the Canadian banking peer group averages over the past ten years.
Page 17
Diversification, scale, and social purpose
In 2023, EQB added to its track record of scaling and diversifying its business lines and revenue. Based on scale, the
business looks different today than this time last year, and has more growth opportunities, but serves the same unifying
purpose and applies the same proven financial disciplines. Equitable Bank has now completed its first full year post the
Concentra acquisition and has been successful in supporting its newly acquired Trust business which serves personal,
corporate, and indigenous estates. It has strengthened its Credit Union partnerships by expanding its consulting,
securitization, foreign-exchange and digital banking services. The Bank also has steadily invested in its next horizon of
organic opportunities, including driving growth of EQ Bank and the Bank’s Payments-as-a-Service platform. In the last
12 months, EQ Bank has launched popular new personal banking products like the EQ Bank Card, mobile wallet enabled
payments, First Home Savings Account (FHSA), and has expanded its presence into Quebec. The Commercial Banking
business also continues to grow steadily in both insured and uninsured lending portfolios. EQB Inc., the parent holding
company of Equitable Bank and Concentra Bank and Trust, recently announced the agreement to acquire a majority
interest in ACM Advisors which will add a new business for EQB Inc. in the wealth and asset management industry.
Path toward greater diversification
Since its beginnings as a Trust company in 1970, Equitable Bank has evolved into one of the leading diversified financial
services participants in its core markets, with particular depth in real-estate lending that allows it to serve clients that
bigger competitors have chosen not to serve due to the clients’ unique needs. Equitable Bank continues to embody this
Challenger philosophy by bringing new products and services to market that address the needs of Canadians in
differentiated ways.
Equitable Bank takes pride in challenging the status quo in Canadian banking and financial services, as evidenced by the
launch of EQ Bank’s fully digital FHSA, the upcoming launch of EQ Bank’s Business Account, and the expansion into
alternative asset management through EQB Inc.’s announced acquisition of ACM. EQB remains passionate about serving
Canadians with complex and personalized needs, and is excited about growing in and shaping its core markets.
Page 18
Growth in EQ Bank
2023 was a year of tremendous growth for the EQ Bank digital bank on the back of strong momentum from its service
launch in Quebec, the introduction of the EQ Bank Card, and its “Make Bank” marketing campaign. In 2023, EQ Bank’s
reach grew by ~93,000 customers and today it serves more than 400,000 Canadians from coast to coast with $8.2 billion
in total deposits. This summer saw EQ Bank launch a fully digital, no-fee FHSA with attractive interest rates to support
Canadians with their home-ownership aspirations. EQ Bank‘s recently launched mobile wallet payment capabilities
further extended the convenience and choice of payments to EQ Bank Card customers.
Looking ahead to 2024, EQ Bank will stay true to its purpose of driving positive change in Canadian banking, as it
prepares to launch Business Banking across Canada. This new offering will make it easier for business customers to
move money, and introduce additional ways to make their money grow. These are the types of Challenger businesses
the Bank aspires to build for Canadians. The Bank also expects to drive significant long-term franchise value through
these businesses. The success of EQ Bank’s digital banking platform was again recognized internationally as it was
named among the World’s Best Banks and as Canada’s Best Bank, for the third consecutive year, in the Forbes 2023
World’s Best Banks survey.
Responsible lending to meet Canada’s growing housing demands
While scale and growth are important drivers for Equitable Bank’s diversification, social purpose is core to how the Bank
thinks of its businesses. Equitable Bank has demonstrated a strong track record of launching new businesses that
address the needs of under-served Canadians. Affordable housing is an area where the Bank has focused extensively
since its inception, and to which it will continue to deploy resources.
The central thrust of Equitable Bank’s Commercial Business is focused on providing solutions for the urban housing
market in Canada. The commercial lending business focuses on supporting the development and renovation of
apartments, construction of condominiums, and other types of multi-unit residential properties in major cities across
the country. Canada has been urbanizing since its founding which, combined with the diversity of employment and high
levels of immigration, creates robust and consistent demand for housing units in major urban centres.
Equitable Bank has supported housing development for Canadians through a variety of financing solutions such as:
•
•
•
•
Supporting CMHC programs for apartment construction, purchase, and refinancing
Lending to commercial asset owners to fund new construction across a range of apartment building sizes
Providing financing for construction of condominium buildings
Lending to specialized landlords that buy older rental stock with a view to renovating the property with more
efficient mechanical systems, upgrading the building envelope and improving appliances and interior finishes
Equitable Bank’s social purpose aligns well to its value creation model and helps to continuously invest shareholder
capital in growing and diversifying the business. As the Bank identifies and targets new market opportunities, it focuses
on building clear and distinctive value propositions for Canadians. The approach to managing risk is steadfast and
remains a critical part of building long-term franchise value and delivering attractive shareholder returns.
Continued evolution of EQB’s revenue mix
Growth in Payments-as-a-Service
EQB has continued to innovate and pursue opportunities to improve return on capital by prioritizing and building non-
interest-based revenue streams. Equitable Bank’s Payments-as-a-Service business serves as the card infrastructure
partner for Blackhawk Network’s Joker Prepaid Visa Card. The Joker Visa card was launched in February 2023 and
enables retailers across Canada to sell white-labelled open-loop cards to in-store shoppers and offers consumers
flexibility, ease, and choice in paying for purchases. This partnership with Blackhawk Network is one of three major BIN
sponsorship additions to Equitable Bank’s Payments business since 2022.
Page 19
Acquisition of ACM Advisors Ltd.
The expected completion of EQB Inc.’s acquisition of a majority stake in ACM will not only mark EQB Inc.’s entry into a
new market segment, but it will also further the diversification of revenue streams. ACM is a leading Canadian
alternative asset manager that offers institutional and accredited retail investors an opportunity to participate in pooled
commercial mortgage funds. The acquisition is expected to scale EQB’s total assets under management by an additional
~$5 billion, while boosting fee-based revenues, and building additional stability and diversification into the revenue mix.
ACM will operate as an independent majority owned subsidiary of EQB Inc., separate and distinct from EQB’s wholly
owned subsidiary, Equitable Bank.
Strength in Concentra Trust
When Equitable Bank completed the acquisition of Concentra in 2022, the Trust business was a completely new
platform for the Bank. It presented an opportunity to deepen relationships with Credit Unions and independent Wealth
advisory firms across Canada and generate significant fee-based revenues that allow the Bank to build more balance
into its revenue mix. The Concentra Trust business evolved this year by building foundational capabilities, refining the
product mix and pricing, and investing in digitization for future growth. Additionally, Equitable Bank and Concentra Bank
are focused on increasing capabilities in target areas such as trust opportunities with First Nations to enable the Credit
Union network to deepen engagement with these communities. In 2023, Concentra’s Trust business contributed over
20% of EQB‘s total non-interest revenues.
Year one support for Credit Unions across Canada
Equitable Bank’s relationships with and support for Credit Unions across Canada goes beyond Trust services. The Bank,
through Concentra Bank and Concentra Trust, provides consulting services to Credit Unions, manages surplus deposits,
and offers wholesale banking solutions for credit unions to participate in and refer syndicated lending opportunities.
Credit Union partners have allowed the Bank to get closer to their communities and drive impact beyond banking. This
year, the Bank awarded $200,000 to Credit Unions across Canada through Concentra’s long-standing “Empowering Your
Community” program where grants are awarded to Credit Unions to help them support local causes that generate
impact in their immediate communities.
Building Long-term Franchise Value
Investing to create long-term value for EQB and Canadians
EQB continues to successfully deliver profitable and consistent growth over the long term, while strategically choosing
the markets in which it wants to compete. Equitable Bank is passionate about market and customer segments that are
not being adequately served by other banks in Canada and invests deeply in places where it can grow franchise value.
Accordingly, the Bank continues to explore products and offerings that its banks and subsidiaries are best suited to
provide through their Challenger mindsets and unique capabilities.
The Bank’s track record of innovative offerings spans its history and has accelerated in the last ten years with notable
products like Reverse Mortgages (REM), launched in 2018. Recognizing a gap in the market and an opportunity to
provide Canadian seniors the chance to unlock equity in their properties, the Bank continues to expand distribution of
the REM business and generate significant volume through direct-to-consumer channels. The expansion of Equitable
Bank’s wealth decumulation business continued with the launch of Insurance Lending, also in 2018, allowing Canadians
to access funds secured by their life insurance policies. In the ten months of fiscal 2023, the Bank’s Insurance Lending
portfolio grew 50%, proving yet again that the Bank is creating differentiated offerings to meet the needs of Canadians
throughout important life stages and events.
EQ Bank’s upcoming Business Banking account was born from an understanding that many Canadian small- and micro-
business owners are unsatisfied with their existing business accounts that usually come with high fees, low interest
Page 20
rates, and lengthy, paper-based onboarding processes. EQ Bank has reimagined the business banking experience and
expects to launch Business Account featuring no monthly fees, free unlimited transactions, compelling interest rates
and a seamless digital-first customer experience. The Bank firmly believes that now is the time to extend its digital
banking platform from personal banking to business banking to become the first bank in Canada to offer a purpose-
built, end-to-end digital banking solution for this important constituency.
ROE continues to be paramount when it comes to strategic investments and business expansion into new areas. In the
future, inorganic growth opportunities will continue to play a role in the growth of EQB’s franchise when such
opportunities are well supported by EQB’s unwavering commitment to ROE, and when aligned to strategic priorities,
including expanding non-interest revenue.
EQB’s business practices have driven consistent performance over the last 20 years, including through the global
financial crisis of the mid-2000s, rapidly changing economic cycles of the pandemic, and the uncertainty and instability
in the global banking industry over the past year. EQB’s consistency stems from its unwavering focus on its north-star
ROE measure, alongside closely managing margins, being selective about where it grows the business and portfolio, and
the Bank mitigating losses through effective risk management, monitoring, and conservative lending strategies,
including requiring security with nearly all lending (e.g., real estate and equipment).
Capital allocation and risk management
Equitable Bank has a disciplined capital allocation and risk management approach. Prudent risk management practices
across credit, market, and liquidity risks are deeply ingrained in the Bank’s culture and are non-negotiable. Ultimately,
this discipline delivers consistent ROE for shareholders and performance through cycles. The Bank’s robust credit
underwriting framework and lending processes are complemented by high capital levels to protect against possible tail
risks. Through a year with significant turbulence in the U.S. banking industry combined with global geopolitical
uncertainty, Equitable Bank’s operating model remains clear and distinct versus peers in Canada and the United States.
By being prudent and proactive in managing risk, the Bank seeks to protect its customers, employees, and shareholders,
and to enhance its long-term franchise value.
Page 21
Credit Risk
Equitable Bank considers credit risk management a strategic advantage and employs a consistent approach to credit
through business and economic cycles. The Bank’s credit risk practices include limiting exposure to higher risk markets
and mitigating the risk of loss through protection beyond the borrower’s ability to repay, most often through secured
lending (over 97% of loans are secured by assets in a first lien position). These are some examples of the Bank’s best-in-
class credit risk practices:
•
•
•
•
•
The Bank mitigates potential for credit losses by maintaining conservative Loan to Value (LTV) ratios for the
portfolio. As at October 2023, the average LTV of the overall uninsured single family lending portfolio was 62% and
the average LTV of newly originated loans in Q4 2023 was 71%. Lower LTVs provide a cushion to both the customer
and Equitable Bank in the event of asset price declines or a default when there is a need for a recovery.
The Bank always maintains first lien positions on uninsured loans. This is a critical lever in managing downside risk
that helps in limiting the exposure to credit losses as a share of the total mortgage.
The Bank lends to credit worthy residential borrowers. The average credit score for uninsured residential
mortgages borrowers is greater than 700. The typical customer is often 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.
For commercial lending, a key focus of the Bank is to obtain high quality covenants, most commonly personal
guarantees to help mitigate risk of default and as secondary source of repayment.
In the best interests of Canadian consumers and of Equitable Bank, amortization periods for single family
residential mortgages are limited to 30 years, an example of the Bank’s prudent lending approach that remains
consistent across cycles.
By applying these credit risk management practices, Equitable Bank has achieved the lowest credit loss rate as a
percentage of loan assets among all Schedule I banks in the S&P/TSX Bank Index over the last fifteen plus years. The
result of this rigorous credit risk management is an average Stage 3 provision for credit losses of 0.03% of total loan
assets over the past ten years.
Page 22
Commercial banking contributes almost half of Equitable Bank’s earnings and demonstrates a proven business model
that deserves shareholder confidence. The Bank is cautious about capital allocation and as noted previously, focuses its
commercial lending on the multi-unit residential property market. Given recent weakness in the office property market
and ongoing scrutiny, Equitable Bank’s lending on office properties constitutes approximately 1% of the Bank’s total loan
assets. Within this small office loan portfolio, the average LTV is 60%, with further safeguards built-in through a focus on
vocational offices occupied by dentists, doctors and other service providers. Such offices are essential for providing
patient care and generate ongoing income for their tenants who rely on physical space to conduct their work. Similarly,
the Bank has negligible exposure to hotel, shopping malls and big box retail sectors, which are not lending priorities and
cumulatively, account for approximately 1% of EQB’s total assets.
Going forward, there will be continued focus on asset classes that are in great demand (e.g., multi-unit residential) and
in geographic areas with strong population growth forecasts. By following such practices, the Bank minimizes its
exposure to adverse market conditions and ensures the quality and stability of its commercial real estate portfolio.
Market risk
Equitable Bank has a low appetite for market risk, which includes interest rate risk and equity price risk. To mitigate
market risk driven by changes in interest rate, Equitable Bank aims to match assets and liabilities with similar duration.
The Bank maintains a hedging program to manage its economic value to its target risk. The Bank manages a simulated
interest rate change sensitivity models to estimate the efforts of various interest rate change scenarios on net interest
income and on the economic value of shareholders’ equity (EVE). Economic Value of Shareholders’ Equity (EVE) is (1.2%)
or $32.2 million loss if there is an immediate and sustained 100 bps parallel increase in interest rates. See the Risk
Management section of this MD&A for more detail.
Liquidity risk
Equitable Bank adheres to prudent standards to manage its liquidity, standards that well exceed regulatory guidelines
and surpass Canadian Bank peers. The Bank’s comprehensive liquidity management framework ensures that Equitable
Bank always has sufficient sources of funding to support its operations and growth and is built on the following key
principles:
1. Maintain a diversified funding profile that consists of retail deposits, brokered deposits, securitization
programs, institutional deposit notes, covered bonds, and wholesale funding facilities. This diversification
reduces reliance on any single source of funding and enhances access to cost-effective and stable funding.
2. Monitor and manage liquidity position and stress scenarios (on a daily basis). These metrics help assess the
Bank’s ability to withstand various liquidity shocks and comply with regulatory requirements and internal
targets. As at October 31, 2023, Equitable Bank’s Liquidity Coverage Ratio was well in excess of the regulatory
minimum of 100%.
3. Regularly review and update the contingency funding plan (CFP), which outlines the roles and responsibilities,
governance structure, escalation procedures, communication strategy and potential actions to be taken in the
event of a liquidity crisis. The Bank’s CFP is tested periodically through simulations and drills to ensure its
effectiveness and readiness.
Consistent with management’s conservative liquidity approach, only 4% of Equitable Bank’s total funding is contributed
by uninsured demand/redeemable deposits.
Page 23
Management’s Discussion and Analysis
For the four and ten months ended October 31, 2023
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 four and ten months ended October 31, 2023. This
MD&A should be read in conjunction with EQB’s unaudited interim consolidated financial statements for the four
months ended October 31, 2023 (see Tables 22-24 in the Fourth quarter results section of this report) and the audited
consolidated financial statements and accompanying notes for the ten months ended October 31, 2023. All amounts are
in Canadian dollars. This report, and the information provided herein, is dated as at December 7, 2023.
EQB’s continuous disclosure materials, including interim filings, annual MD&A and Consolidated Financial Statements,
Annual Information Form, Environmental, Social, and Governance (ESG) Performance Report, Management Information
Circular, 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.
Acquisition of Concentra Bank
On November 1, 2022, Equitable Bank completed its acquisition of Concentra Bank. Results for full-year 2022 and Q4
2022 include two-month contributions from Concentra Bank and Concentra Trust while 2023 results include
contribution throughout the period.
Both 2022 and 2023 results contain several items related to transaction and integration adjustments. Refer to
“Adjustments to financial results” for the income statement impact and Note 5 to the financial statements for details of
the purchase price allocation.
Page 24
Contents:
Income statement review:
Adjustments to financial results
Detailed financial summary
Balance sheet review:
Total 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
Shareholders’ equity
25
27
36
37
40
42
43
43
44
44
47
Fourth quarter review:
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
48
53
56
56
57
59
76
77
Page 25
Adjustments to financial results
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:
2023
•
•
•
•
•
$28.0 million related to a strategic investment,
$15.1 million acquisition and integration-related costs associated with Concentra and ACM,
$3.5 million intangible asset amortization,
$3.3 million net fair value amortization adjustments
$0.9 million other expenses.
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) in connection with the Concentra acquisition
$3.8 million increase in future tax expense associated with additional 1.5% tax rate introduced for banks in 2022.
(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 were 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 26
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.
Reconciliation of reported and adjusted financial results
($000, except share and per share amounts)
As at or for the quarter ended
For the year ended
31-Oct-23
30-Jun-23
31-Dec-22
31-Oct-23
31-Dec-22
Reported results
Net interest income
Non-interest revenue
Revenue
Non-interest expense
Pre-provision pre-tax income(3)
Provision for credit loss
Income tax expense
Net income
Net income available to common shareholders
Adjustments
Net interest income – earned on the escrow account
Net interest income – fair value amortization/adjustments
Net interest income – paid to subscription receipt holders
Non-interest revenue – strategic investment
Non-interest revenue – fair value amortization/adjustments
Non-interest expenses – acquisition-related costs(1)
Non-interest expenses – other expenses
Non-interest expenses – intangible asset amortization
Non-interest expenses – fair value amortization/adjustments
Provision for credit loss – purchased loans
Pre-tax adjustments
Income tax expense – tax impact on above adjustments(2)
Income tax expense – 2022 tax rate adjustment
Post-tax adjustments
Adjusted results
Net interest income
Non-interest revenue
Revenue
Non-interest expense
Pre-provision pre-tax income(3)
Provision for credit loss
Income tax expenses
Net income
Net income available to common shareholders
Diluted earnings per share
345,783
49,503
395,286
181,165
214,121
19,566
53,409
141,146
138,797
-
-
-
-
-
(6,972)
-
(1,181)
-
-
8,153
2,264
-
5,889
345,783
49,503
395,286
173,012
222,274
19,566
55,673
147,035
144,686
251,699
60,848
312,547
127,030
185,517
13,042
41,550
130,925
128,594
-
-
-
(27,965)
-
(3,377)
(858)
(885)
-
-
(22,844)
(7,425)
-
(15,419)
251,699
32,883
284,582
121,910
162,672
13,042
34,124
115,506
113,175
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
838,279
137,385
975,664
434,743
540,921
38,856
130,475
371,590
364,592
-
(4,167)
-
(27,965)
941
(15,093)
(858)
(3,542)
(66)
-
(11,631)
(4,311)
-
(7,320)
834,112
110,361
944,473
415,184
529,289
38,856
126,163
364,270
357,272
733,405
48,781
782,186
376,471
405,715
37,258
98,276
270,181
264,615
(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
Weighted average diluted common shares outstanding
Diluted earnings per share – reported
Diluted earnings per share – adjusted
Diluted earnings per share – adjustment impact
38,117,929
3.64
3.80
0.16
37,975,115
3.39
2.98
(0.41)
36,632,711
1.19
2.46
1.27
38,013,724
9.59
9.40
(0.19)
35,031,166
7.55
9.17
1.62
(1) Includes costs associated with ACM acquisition.
(2) 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.
(3) This is a non-GAAP measure, see Non-GAAP financial measures and ratios section of this MD&A.
Page 27
Detailed financial summary
Income statement and earnings summary
Table 1: Income Statement highlights
($000s, except per share amounts)
Adjusted results(1)
Revenue
Non-interest expenses
Provision for credit losses
Income tax expenses
Net income
Earnings per share – diluted ($)
Reported results
Revenue
Non-interest expenses
Provision for credit losses
Income tax expenses
Net income
Earnings per share – diluted ($)
2023
2022
Change
944,473
415,184
38,856
126,163
364,270
9.40
975,664
434,743
38,856
130,475
371,590
9.59
785,445
326,529
18,238
113,942
326,736
9.17
782,186
376,471
37,258
98,276
270,181
7.55
159,028
88,655
20,618
12,221
37,534
0.23
193,478
58,272
1,598
32,199
101,409
2.04
20%
27%
113%
11%
11%
3%
25%
15%
4%
33%
38%
27%
(1) Adjusted measures and ratios are Non-GAAP measures and ratios. For additional information, see Adjustments to financial results section, and Non-
GAAP financial measures and ratios section of this MD&A.
Page 28
Net interest income
Net interest income (NII) is the main driver of EQB’s revenue and profitability. Table 2 details EQB’s NII by product and
portfolio.
Table 2: Net interest income
($000s, except percentages)
Revenues derived from:
Cash and debt securities
Equity securities
Average
Balance
Revenue/
Expense
Average
rate(1)
Average
Balance
Revenue/
Expense
Average
rate(1)
2023
2022
3,428,695
130,792
4.58%
2,000,381
55,534
2,463
5.33%
83,389
52,255
3,772
2.61%
4.52%
Single family mortgages– insured(3)
10,921,546
305,702
3.36%
8,823,632
209,303
2.37%
Single family mortgages– uninsured(3)
19,175,503
957,418
5.99%
15,483,030
646,368
4.17%
Decumulation loans
Consumer lending
Total Personal loans
Commercial loans
Equipment financing
1,222,703
67,634
6.64%
840,845
79,103
11.30%
541,751
142,734
28,434
13,225
32,160,597
1,409,857
5.26%
24,991,147
897,330
8,205,992
623,274
9.12%
6,617,098
433,940
1,262,367
99,642
9.48%
902,233
84,728
Insured multi-unit residential mortgages
5,680,227
137,446
2.91%
4,712,730
120,353
5.25%
9.27%
3.59%
6.56%
9.39%
2.55%
Total Commercial loans
15,148,586
860,362
6.82%
12,232,061
639,021
5.22%
Average interest-earning assets
50,793,412
2,403,474
5.68%
39,306,978
1,592,378
4.05%
Expenses related to:
Deposits
Securitization liabilities
Others
31,408,726
1,078,755
4.12%
24,118,643
15,541,453
402,343
3.11%
13,075,227
1,962,818
88,264
5.40%
1,567,362
562,843
252,286
40,520
Average interest-bearing liabilities
48,912,997
1,569,362
3.85%
38,761,232
855,649
2.33%
1.93%
2.59%
2.21%
Adjusted net interest income and margin(2)
834,112
1.97%
39,306,978
736,729
1.87%
Interest earned on the subscription receipt
escrow account
Interest paid to subscription receipt holders
Net fair value amortization – assets
Net fair value amortization – liabilities
-
(107)
-
-
2,976
1,191
154,079
(69,215)
2,220
(2,220)
21,714
(25,038)
Reported net interest income and margin
50,793,305
838,279
1.98%
39,391,842
733,405
1.86%
(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. For additional information, see Adjustments to financial results section, and Non-
GAAP financial measures and ratios section of this MD&A.
(3) The presentation has changed for single family mortgages from previous periods from “alternative and prime” to “uninsured and insured” to better
align characteristics of mortgages within each lending portfolio, including both asset yield and capital required. Prior period comparatives have been
updated to conform to current period’s presentation.
Page 29
2023 v 2022
Adjusted net interest income for the ten-month period was $834.1 million (reported $838.3 million), +13% (reported
+14%) compared to 12 months in 2022. Average adjusted net interest income per month for 2023 was $83.4 million, up
36% from 2022 (reported $83.8 million, +37%). The increase was primarily driven by expanded net interest margin
through the year, continued growth in the on-balance sheet loan portfolio, and Concentra Bank’s full-period
contribution (ten months in 2023 vs two months in 2022).
Adjusted NIM +10bps (reported +12bps), largely fuelled by growing yield in those higher spread conventional loan
assets.
Non-interest revenue
Table 3: Non-interest revenue(1)
($000s)
Fees and other income
Gains (losses) on strategic investments
Net gains (losses) on other investments
Gain on sale and income from retained interests
Net losses on securitization activities and derivatives
Total non-interest revenue– reported
Gains on strategic investments
Fair value amortization/adjustment on other investments
Total non-interest revenue – adjusted(2)
n.m. - not meaningful
2023
46,895
28,975
5,467
56,384
(336)
137,385
(27,965)
941
110,361
2022
Change
31,081
(5,294)
(2,760)
26,765
(1,011)
48,781
15,814
34,269
8,227
29,619
675
88,604
-
(27,965)
(65)
1,006
48,716
61,645
51%
n.m.
n.m.
111%
n.m.
182%
n.m.
n.m.
127%
(1) Prior period comparatives have been reclassified to conform to current period presentation. (2) Adjusted measures and ratios are Non-GAAP
measures and ratios. For additional information, see Adjustments to financial results section, and Non-GAAP financial measures and ratios section of this
MD&A.
2023 v 2022
The growth in adjusted non-interest revenue (NIR) was largely driven by the increase in fee-based revenue, higher
gains on sale related to retained interests, and net gains on investments.
Fees and other income benefited from growing lending activities, EQ Bank card usage, and full-period contribution of
Concentra Bank and Concentra Trust.
Gain on sale revenue grew as transaction volumes doubled last year’s level, driven by increased activity in Equitable
Bank’s insured multi-unit residential lending business, and continued growth in funding available to support these
markets.
Page 30
Provision for credit losses
Table 4: Provision for credit losses
($000s, except percentages)
Stage 1 and 2 provision
Stage 3 provision
Total Provision for credit losses – reported
Less: Provision for credit losses – purchased loans
Total Provision for credit losses – adjusted(1)
n.m. not meaningful
2023
2022
Change
10,907
27,949
38,856
-
38,856
29,822
7,436
37,258
(19,020)
18,238
(18,915)
20,513
1,598
20,618
(63%)
276%
4%
n.m.
113%
The Provision for Credit Losses represents the net addition to EQB’s Allowance for Credit Losses (ACL), accounting for
any recoveries during the period. The ACL is the reserve set aside on the balance sheet to absorb future expected
credit losses and is discussed in detail in the “Credit portfolio quality” section of this MD&A.
In 2023, the stage 1 and 2 provision was $10.9 million (relatively steady vs. the adjusted(1) provision of $10.8 million in
2022) , and reflected macroeconomic forecasts used in EQB’s loss modeling and consideration of variables like interest
rate volatility and a housing market dynamics, impacted by factors that include monetary policy. Note, the stage 1 and
2 provisions of $29.8 million in 2022 include $19.0 million in Day 1 provisions on loans acquired as part of the
Concentra Bank acquisition (without this acquisition-related provision, stage 1 and 2 provision in 2022 would have
been $10.8 million).
Stage 3 provisions are related to impaired loans. The increase in stage 3 provision mainly resulted from the impact of
non-performing equipment leases. 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 reflect
the estimates of likely credit losses on EQB’s impaired loan balances.
1 Adjusted measures and ratios are Non-GAAP measures and ratios. For additional information, see Adjusted financial results section,
and Non-GAAP financial measures and other financial and banking measures and terms section of this MD&A.
Page 31
Non-interest expenses
Table 5: Non-interest expenses and efficiency ratio
($000s, except percentages and FTE)
Compensation and benefits
Technology and system costs
Regulatory, legal and professional fees
Product costs
Marketing and corporate expenses
Premises
Total non-interest expenses – reported
Less:
Integration related costs and other expenses
Total non-interest expenses – adjusted(1)
Efficiency ratio – reported
Efficiency ratio – adjusted(1)
Full-time employee equivalent (FTE) – period average
n.m. not meaningful
2023
2022
Change
199,752
61,662
43,159
66,542
52,674
10,954
434,743
183,605
58,741
41,450
38,862
38,677
15,136
376,471
(19,559)
415,184
(49,942)
326,529
44.6%
44.0%
1,721
48.1%
41.6%
1,386
16,147
2,921
1,709
27,680
13,997
(4,182)
58,272
88,655
335
9%
5%
4%
71%
36%
(28%)
15%
n.m.
27%
(3.5%)
2.4%
24%
(1) Adjusted measures and ratios are Non-GAAP measures and ratios. For additional information, see Adjusted financial results section, and Non-GAAP
financial measures and other financial and banking measures and terms section of this MD&A.
Measured by adjusted efficiency ratio(1), EQB delivered an efficient cost structure in the ten months of 2023, a result of
its proven branchless model and continued investment in building and innovation.
Total adjusted non-interest expenses(1) included the full contribution from Concentra Bank through the ten months
ended October 31, 2023 (vs. two months in fiscal 2022):
• Compensation & benefits increased as a result of growing the scale of personal and commercial lending
businesses, and enhancing capabilities across technology, digital banking and customer service required to
support the Bank’s rapidly growing customer base, expansion into the Quebec market, launch of the new EQ Bank
card, and modernization of internal platforms as Equitable Bank progresses toward the goal of becoming the first
cloud-only bank in Canada.
•
•
Technology and system increased due to from maintenance, support, and enhancements to digital capabilities,
cloud-first technology platforms, integration of Concentra’s technology operations, and strengthening cyber
security.
Product, marketing, and innovation increased due to growth in product costs on the new EQ Bank card,
introduction of the first fully digital FHSA, the mobile wallet, and the planned launch of EQ Bank Business Banking.
Marketing spend increases were primarily related to incremental spend on the successful “Make Bank” campaign
for EQ Bank, and media and promotional spending in support of reverse mortgage products.
• Regulatory and professional fees increased largely due to business advisory services rendered.
•
Premises declined due to a reduction in temporary office space prior to the anticipated move to EQB’s new
headquarters in Toronto in 2024.
Page 32
Business line overview
Personal Banking
Personal Banking operates through five businesses lines – EQ Bank, Residential Lending, Wealth Decumulation,
Consumer lending, and Payments-as-a-Service in support of fintech partners. These businesses provide innovative
products and services that disrupt the status quo in Canadian banking by giving customers better financial value and a
superior end-to-end experience. EQB’s personal banking customer segments are diverse: students, the self-employed,
entrepreneurs, newcomers to Canada, high-net worth individuals, Canadians planning retirement, and retirees. As
EQ Bank prepares for the launch of business banking in 2024, it will soon support small- and micro-business owners
who are underserved by big banks. The Bank continues to look for opportunities to create better banking experiences
and to address segments underserved by other financial institutions. The Bank’s competition includes other Schedule I
banks, trust companies, mortgage lenders, credit unions and certain fintechs.
The table below summarizes portfolio measures as at year ended October 31, 2023: .
($ billions)
2023 Actual
Y/Y Growth(2)
EQ Bank
Single Family Residential Lending
Wealth Decumulation
Consumer Lending
Total Conventional loans(1)
Deposits
Uninsured
Reverse mortgages
Insurance lending
Single Family Residential Lending
Insured
Total Personal Banking loans
8.2
19.5
1.3
0.13
0.94
21.9
10.5
32.4
4%
3%
42%
50%
6%
5%
(6%)
1%
(1) This is a Non-GAAP measure, see Non-GAAP financial measures and ratios section of this MD&A. (2) Y/Y growth is comparing October
31, 2023 to December 31, 2022.
Among key 2023 milestones, the Bank:
•
•
•
•
Launched the EQ Bank Card in January 2023, offering free ATM withdrawals in Canada, cash back on spending and
high interest paid on the card balance
Launched a highly awaited fully digital, no-fee First Home Savings Account (FHSA)
Launched Payments-as-a-Service business to support fintech partners in Canada, including the launch of various
prepaid cards in collaboration with Berkeley Payments and the Joker Prepaid Visa Card in collaboration with
Blackhawk Network
Expanded distribution for reverse mortgages through a new multimedia ad campaign
• Posted record levels of customer retention in the uninsured single-family residential lending business
• Achieved all-time high Net Promoter Score from brokers in uninsured single-family residential lending
•
Enhanced Technology across fulfillment, renewals, and mortgage servicing to enhance the user experience
Page 33
Commercial Banking
Equitable Bank’s Commercial Banking operates through
seven business lines – Business Enterprise Solutions,
Commercial Finance Group, Multi-unit Insured,
Specialized Finance, Equipment Financing, Credit Union
Services, and Concentra Trust.
The business is focused on providing banking solutions
for the urban housing market in Canada including the
development and renovation of apartments,
condominiums, and other types of multi-residential
properties in major cities across the country. Multi-unit
residential lending represents 65% of Commercial’s on-
balance sheet lending and nearly 80% of on-balance
sheet loans associated with real-estate secured lending. It is
geared to support growing and densifying urban centers
where mortgage loans are backed by in-demand real estate
assets that provide housing and services that support urban
living. Real estate assets that are most susceptible to
changing economic environment, notably hotels, are not
core to the business.
The Commercial Lending business has several competitive
advantages that propel its success. First, Equitable Bank has established strong relationships with its clients and
partners through whom it has built a deep understanding of the urban housing market and the trends and challenges
that affect it. Second, apartment buildings have retained their values as rents have increased, in the face of housing
shortages and despite the headwinds of higher interest rates. Third, the Bank has a strategic focus on financing the
construction of new apartment buildings and renovating existing housing stock, which are both areas of significant
demand and opportunity in the urban housing market. For many years, very few new apartment buildings were built in
Canada, creating a substantial gap between supply and demand that the Bank’s financing solutions work to narrow.
The charts below demonstrate 1) the average price for multi-unit residential buildings in the GTA(1), and 2) the average
rent for a 2-bedroom apartment and vacancy rate for multi-unit residential housing across Canada(2):
(1) Colliers GTA Multifamily Market Report. (2) CMHC Rental Market Survey Report.
Page 34
The table below summarizes portfolio measures at year end October 31, 2023:
($ billions)
2023 Actual
Business Enterprise Solutions
Loans to entrepreneurs and SMEs(2)
Commercial Finance Group
Specialized Finance
Equipment Financing
Total Conventional loans(3)
Loans to medium sized institutional & corporate
investors
Specialized lending to medium sized and
corporate investors
Equipment leases to entrepreneurs and SMEs(2)
Insured Multi-Unit Residential
CMHC insured real estate mortgages(4)
Total Commercial Banking loans on balance sheet
Total insured multi-unit residential mortgages under management(5)
1.4
6.1
1.1
1.4
10.0
5.0
15.0
20.0
Y/Y Growth(1)
8%
8%
10%
7%
8%
(6%)
3%
27%
(1) Y/Y growth is comparing October 31, 2023 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. (5) includes on and off-
balance sheet insured multi-unit residential loans
Among 2023 key milestones:
•
Equitable Bank’s commercial loan portfolio grew to $15.0 billion. Strong retention offset lower origination
compared to 2022
• Originations within Business Enterprise Solutions hit a record high in Q4 2023, at nearly $200 million
•
Equitable Bank’s insured commercial construction lending portfolio grew 75% and CMHC-insured term loans grew
27% year-over-year reflecting the focus on prudently managing risk in a challenging economic climate
Page 35
Balance sheet review
Balance sheet summary
Table 6: Balance sheet highlights
($ millions, except percentages)
Total assets
Loan principal – Personal(1)
Loan principal – Commercial(1)
Total deposits principal(1)
EQ Bank deposit principal(1)
Total liquid assets as a % of total assets(2)
31-Oct-23
31-Dec-22
Change
52,933
32,416
14,983
31,577
8,233
7.20%
51,145
32,112
14,541
30,831
7,923
7.70%
1,788
304
442
746
310
3%
1%
3%
2%
4%
(0.5%)
(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. The Personal loan principal balance includes interests capitalized for Reverse Mortgage. Prior period comparatives
have been updated to conform to current period presentation. (2) This is a Non-GAAP measure, refer to the Non-GAAP financial measures and ratios
section of this MD&A.
Total assets were up +3% from December 31, 2022, an outcome of organic growth in both the Personal and
Commercial portfolios. On-balance sheet loans within these two businesses grew +1% and +3%, respectively. EQ Bank
deposit principal exceeded $8.2 billion at October 31, 2023.
Page 36
Total loan principal
EQB’s strategy is to maintain a diverse portfolio of loans to optimize ROE while managing credit risk rigorously. Table 7
presents EQB’s loan principal by lending business and Table 8 provides continuity schedules for the on-balance sheet
loan portfolio.
Table 7: Loan principal by lending business(1)
($000s)
Single family mortgages – insured(2)
Single family mortgages – uninsured(2)
Decumulation loans(3)
Consumer lending
Total Personal Lending – on balance sheet
Commercial loans
Equipment financing
Insured multi-unit residential mortgages
Total Commercial Lending – on balance sheet
Total Loans – on balance sheet
Insured multi-unit residential mortgages – derecognized
Total Commercial Lending – loans under management(4)
Total Loans under management(4)
31-Oct-23
31-Dec-22
Change
10,547,686
19,467,440
1,460,098
940,847
11,249,787
18,949,300
1,021,667
891,656
(702,101)
518,140
438,431
49,191
32,416,071
32,112,410
303,661
8,623,561
1,354,906
5,004,523
7,939,766
1,262,584
5,339,046
14,982,990
14,541,396
47,399,061
46,653,806
14,998,436
10,424,114
29,981,426
24,965,510
62,397,497
57,077,920
683,795
92,322
(334,523)
441,594
745,255
4,574,322
5,015,916
5,319,577
(6%)
3%
43%
6%
1%
9%
7%
(6%)
3%
2%
44%
20%
9%
(1) The principal numbers are reported on a consolidated basis, including Concentra, excluding any acquisition-related fair value adjustments that are
captured in balance sheet measures. (2) The presentation of single-family mortgages changed in Q2 2023 from “alternative and prime” to “uninsured and
insured” to better align characteristics of mortgages within each portfolio, including both asset yield and capital required. Prior period comparatives have
been updated to conform to current period’s presentation. (3) Beginning this reporting period, the loan portfolio balance includes capitalized interest for
reverse mortgage since Q4 2023. Prior period comparatives have been updated to conform to current period presentation. (4) This is a non-GAAP
measure, see Non-GAAP financial measures and ratios section of this MD&A.
Growth was driven by the conventional loan portfolio within both Personal Banking and Commercial Banking
businesses.
Within Personal Banking, uninsured single family and decumulation lending contributed to portfolio growth through
the period. Single family residential business had lower originations through the year; however, benefitted from higher
renewal rate and lower unscheduled payments. Decumulation lending portfolio grew strongly through the period,
driven by origination and accrued interest through the period.
Commercial loans grew across Commercial Finance Group, Business Enterprise Solutions, and Specialized Finance grew
9% y/y with more moderate originations relative to 2022, but lower level of attrition seen in the portfolio. The
Equipment Financing portfolio surpassed $1.3 billion, supported by organic growth and a active leasing market.
Insured multi-unit mortgages under management increased by 27% y/y to $20.0 billion from $15.8 billion in 2022 due
to continued strong activity in the multi-unit affordable housing and rental sector. Of the overall on-balance sheet
portfolio, over 65% is associated with multi-unit residential properties, inclusive of both CMHC insured residential
apartments. “Commercial Loans” in the table includes both CMHC insured construction and other multi-unit residential
lending (e.g., retirement homes, student residences, loans being readied for CMHC funding).
Page 37
Table 8: On-Balance Sheet loan principal continuity schedule(1)
($000s, except percentages)
2022 closing balance
Originations
Derecognition
Net repayments
2023 closing balance
% Change from 2022
Net repayments percentage(2)
($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)
As at or for the ten months ended October 31, 2023
Personal
Commercial
Total
32,112,410
6,827,898
-
(6,524,237)
14,541,396
8,109,316
(5,244,786)
(2,422,936)
46,653,806
14,937,214
(5,244,786)
(8,947,173)
32,416,071
14,982,990
47,399,061
1%
20.3%
3%
16.7%
2%
19.2%
As at or for the twelve months ended December 31, 2022
Personal
Commercial
Total
22,309,375
10,499,700
7,712,290
7,586,633
-
(5,495,888)
32,112,410
44%
24.6%
1,099,729
7,709,552
(2,474,380)
(2,293,205)
14,541,396
38%
21.8%
32,809,075
8,812,019
15,296,185
(2,474,380)
(7,789,093)
46,653,806
42%
23.7%
(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
Equitable Bank regularly evaluates the profile of its loan portfolio and adjusts decisions and activities based on a range
of inputs. These include 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, the Bank 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 the Bank’s risk management approach and existing loan portfolios that have and will
continue to help mitigate the risk of credit losses. The Bank remains appropriately reserved for credit losses given the
composition of its loan portfolios and current economic forecasts. Allowances for Credit Losses, net of cash reserves,
as a percentage of total loan assets equaled 22bps at October 31, 2023 compared to 18bps at December 31, 2022.
Equitable Bank’s general approach to lending is sound and the Bank has modest exposure to higher risk lending markets:
•
The Bank 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.
Page 38
•
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 the Bank believes will be
resilient through an economic cycle, such as multi-unit residential and mixed-use properties. These segments
make up 42% of the Commercial loan portfolio, while categories such as shopping centres and hotels, which the
Bank believes are more sensitive to economic conditions, comprise 4.2% and 0.2% of Commercial loans or 1.3%
and 0.1% of the total loan portfolio, respectively. Similarly, less than 1.1% of the Bank’s loan assets are offices with
an average LTV of 60%, where lending is largely restricted to properties located in major urban centres and
smaller buildings.
•
In Equitable Bank’s Equipment Financing business, a cash security deposit is required on most, higher-risk leases
and in some cases additional real assets are pledged.
Equitable Bank’s loan portfolios have protection beyond a borrower’s ability to repay:
• Underwriting focuses foremost on a borrower’s ability to repay a loan. The average credit score of the Bank’s
uninsured single family residential borrowers, inclusive of Concentra Bank, was 713 at October 31, 2023,
consistent with June 30, 2023 and December 31, 2022. Similarly, the average credit score of small business
mortgage borrowers was 731. These credit scores are indicative of a borrower’s positive repayment histories and
lower propensity to default under normal economic conditions.
•
52% of loans under management are insured against credit losses, ultimately with the backing of the Government
of Canada.
• Over 97% of the Bank’s uninsured loan portfolio is secured by assets. Uninsured mortgage loans are supported by
first-position claims on real estate and leases by first position claims on equipment, so EQB has a real asset with
tangible value behind almost every loan. While the consumer portfolio is not secured, relationships with
origination partners include preferential return against lending receivables.
•
•
If the prices of the assets securing mortgage loans decline, the Bank is further protected by a portfolio with a low
overall LTV ratio. The average LTV on the Bank’s uninsured residential mortgage portfolio was 62% at October 31,
2023.
Further to this collateral, almost all uninsured commercial mortgage borrowers and the majority of leases are
backed by personal guarantees and/or corporate covenants. In the mortgage business, due diligence involves
assessing the financial capacity of borrowers and guarantors.
Allowance for Credit Losses
Stage 1 and 2 reserves increased year over year mostly due to growing loan assets, and higher expected loss rates.
Stage 3 allowances are associated with Equitable Bank’s impaired loans and determined on a loan-by-loan basis.
Management believes that these allowances are adequate as at October 31, 2023. Stage 3 allowances on the Bank’s
loan portfolio are generally supported by up-to-date, independent property appraisals.
Table 9: Loan credit metrics – Allowance for Credit Losses (ACL)
($000s, except percentages)
Stage 1 and 2 allowance for credit losses
Stage 3 allowance for credit losses
Total Allowance for Credit Losses
Net ACL – total net of cash reserves(1)
Net ACL as a % of total loan assets
Net ACL as a % of uninsured loan assets
Net ACL as a % of gross impaired
31-Oct-23
31-Dec-22
Change
101,161
17,994
119,155
104,338
0.22%
0.35%
27%
89,931
6,851
96,782
82,693
0.18%
0.29%
60%
11,230
11,143
22,373
21,645
12%
163%
23%
26%
0.04%
0.06%
(33%)
(1) The newly acquired consumer lending portfolio is backed by guarantees of $14.8 million (December 31, 2022 - $14.1 million) provided by a third party.
Page 39
The table below provides allowance metrics that illustrate stage migration and loss rate dynamics:
Table 10: Stage 1 and 2 loan credit metrics
Stage 1 – proportion of loan assets(1)
Stage 1 – effective allowance rate(2)
Stage 2 – proportion of loan assets
Stage 2 – effective allowance rate
31-Oct-23
72.1%
0.13%
27.1%
0.32%
30-Jun-23
31-Mar-23
31-Dec-22
30-Sep-22
78.3%
0.12%
21.2%
0.38%
77.5%
0.12%
22.3%
0.35%
78.5%
0.11%
21.2%
0.37%
82.1%
0.09%
17.7%
0.36%
(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 net allowance for loans in the stage 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)
31-Oct-23 30-Jun-23 Change 31-Dec-22 Change
Uninsured Personal loans – stage 1 & 2 allowances
as a % of uninsured personal loans (bps)
Consumer lending – stage 1 & 2 allowances net of cash reserves(1)
as a % of consumer lending (bps)
Uninsured Commercial loans – stage 1 & 2 allowances
as a % of uninsured commercial loans (bps)
Equipment financing – stage 1 & 2 allowances
as a % of equipment financing (bps)
Insured Personal and Commercial loans – stage 1 & 2 allowances
as a % of insured personal and commercial loans (bps)
Total loans – stage 1 & 2 allowances net of cash reserves
as a % of total loans (bps)
27,876
26,191
1,685
21,053
6,823
13
7,452
80
13
-
11
2
6,959
493
5,723
1,729
80
-
65
15
24,363
26,846
(2,483)
26,023
(1,660)
37
39
(2)
38
(1)
24,462
23,214
1,248
21,749
2,713
181
1,216
0.70
176
5
1,602
(386)
0.90
(0.20)
173
1,635
0.93
8
(419)
(0.23)
85,369
84,814
555
76,183
9,186
18
18
-
16
2
(1) The newly acquired consumer lending portfolio is backed by guarantees of $14.8 million (December 31, 2022 - $14.1 million) held for a limited
financial guarantee provided by a third party.
Compared to December 31, 2022, Stage 1 and 2 allowances against uninsured Personal loans and equipment financing
increased by 2 bps and 8 bps, respectively, while uninsured Commercial loans decreased by 1 bp. The Bank 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 2023 consolidated financial statements.
Impaired loans
Table 12: Impaired loan metrics
($000s, except percentages)
Gross impaired loan assets
Net impaired loan assets
Net impaired loan assets as a % of total loan assets
31-Oct-23
379,590
361,596
0.76%
31-Dec-22
Change
138,513
241,077
131,662
229,934
0.28%
174%
175%
0.48%
Net impaired loans as at October 31,2023 were $362 million, +$230 million (+0.48% relative to total loan assets) from
December 31, 2022. The majority of the increase in net impaired loan assets was attributable to higher delinquent
personal and commercial mortgages, which occurred in the following business: uninsured residential mortgages (+$69
million), conventional commercial loans (+$151 million) and equipment financing (+$10 million). The increase was
mainly because of portfolio growth and higher defaults.
Page 40
Despite the increase in impaired loans, the Bank has rigorously assessed each of these loans and takes appropriate
steps to ensure a successful resolution. In most cases, LTVs are within acceptable thresholds, providing a buffer for the
Bank and reducing the risk of potential credit losses. Additionally, the Bank has action plans in place to address the
impaired loans and is closely monitoring the situation. Management believes the Bank is well reserved to manage
credit losses that may arise from impaired loans.
Deposits and funding
Deposits
Equitable Bank’s deposits provide a reliable and diversified base of funding that can be effectively matched against
loan maturities. Term deposits consistently contributed approximately 80% of total funding with demand deposits
representing the remaining.
EQ Bank deposits grew 4% through the year to $8.2 billion. The mix of EQ Bank deposits shifted to term through the
year as customers locked in higher rates for longer durations. Equitable Bank benefits from EQ Bank’s term deposits,
as funding duration is closely aligned to loan durations which reduces demands on Equitable Bank’s liquidity portfolio.
Credit union deposits are primarily sourced through the excess liquidity of the Bank’s credit union customers and are
typically subject to seasonal fluctuations associated with their agricultural customer base. Overall credit union balances
are unchanged from December 2022; however, the portion that are demand deposits has increased.
Wholesale deposit funding: In May 2023, Equitable Bank issued its fourth covered bond, sourcing €300 million and
increasing its overall covered bond program balance from $1.2 billion to $1.7 billion as at October 31, 2023. Deposit
notes declined, driven by the repayment of $350 million note that matured in September 2023.
Table 13: Deposit principal
($000s)
Term deposits:
Brokered
EQ Bank
Credit unions
Deposit notes
Covered bonds
Corporate and institutional
Total
Share of term deposits of total (%)
Demand deposits:
Brokered
EQ Bank
Credit unions
Strategic partnerships
Corporate and institutional
Total
Share of demand deposits of total (%)
30-Oct-23
31-Dec-22
Change
15,877,380
4,644,623
1,908,415
1,592,417
1,701,796
111,644
25,836,275
82%
15,653,371
3,729,785
2,016,627
1,961,029
1,242,608
260,320
24,863,740
81%
542,836
3,588,092
479,451
996,627
133,869
5,740,875
18%
707,327
4,193,476
369,851
505,836
190,587
5,967,077
19%
224,009
914,838
(108,212)
(368,612)
459,188
(148,676)
972,535
(164,491)
(605,384)
109,600
490,791
(56,718)
(226,202)
Total deposit principal
31,577,150
30,830,817
746,333
EQ Bank deposit principal (excludes accrued interest)
8,232,715
7,923,261
309,454
1%
25%
(5%)
(19%)
37%
(57%)
4%
(23%)
(14%)
30%
97%
(30%)
(4%)
2%
4%
Page 41
Securitization liabilities
A portion of EQB’s securitization transactions do not qualify as 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 $14.5 billion at October 31, 2023 (December 31, 2022 – $15.0 billion). EQB’s securitization
liability also included $2.7 billion (December 31, 2022 – $2.2 billion) of securitizations through two funding programs
which are sponsored by Domestic Systemically Important Banks (D-SIBs) and provide EQB with a source of matched
funding for qualifying uninsured single-family mortgages.
Funding facilities
Secured 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 $1.6 billion (December 31, 2022 – $1.1 billion). As at October 31, 2023, the
outstanding balance on these facilities was $1.1 billion (December 31, 2022 – $737 million).
Concentra Bank maintains a $25 million (December 31, 2022 – $400 million) secured credit facility with a major
Schedule I Canadian bank to support issued letters of credit. In addition, Concentra Bank maintains a $100 million
(December 31, 2022 – $100 million) secured line of credit with SaskCentral, which is used primarily for settlement and
clearing purposes. As at October 31, 2023 and December 31, 2022, there were no amounts outstanding under either of
these facilities.
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 of up to $200 million and a term loan facility of up to $275 million. As at October 31, 2023, EQB
had an outstanding balance of $373 million (December 31, 2022 – $468 million) on the above facilities including
deferred cost of $0.5 million and prepaid interest of $1.9 million.
Equitable Bank launched a new Bearer Deposit Notes (“BDN”) program in September 2023. This program furthered the
Bank’s funding diversity in capital markets through issuance of short-term unsecured notes, expanding the investor
base and adding complementary funding sources to the Bank’s established funding channels.
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 October 31, 2023 and
December 31, 2022, no drawdown was made on these facilities.
Details related to these funding facilities can be found in Note 17 to the 2023 consolidated financial statements.
Page 42
Liquidity investments and equity securities
Retail and securitization funding markets continue to be liquid and efficient
Equitable Bank maintains liquid assets at a level that it believes are sufficient to meet its upcoming obligations even
through periods of disruption in financial markets or challenging economic conditions. 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, the Bank 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 the Bank to take further liquidity protection
measures.
In addition to assets that are held for the purpose of providing liquidity protection, the Bank maintains a portfolio of
liquid equity securities (54% of which are investment-grade preferred shares). The Bank is able to liquidate this
portfolio in the event of financial stress.
Please refer to the Risk Management section of this document for more details on the Bank’s Liquidity and Funding
Risk policies and procedures.
Table 14: 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:
31-Oct-23
31-Dec-22
Change
516,551
493,682
22,869
60,508
60,301
207
5%
0%
Investments purchased under reverse repurchase agreements
908,833
200,432
708,401
353%
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
Total assets held for regulatory purposes as a % of total Equitable
Bank assets
Total liquid assets as a % of total assets
n.m. not meaningful
2,235,278
3,110,029
(874,751)
(28%)
3,721,170
3,864,444
(143,274)
33,322
1,424
31,898
(4%)
n.m.
40,455
72,369
(31,914)
(44%)
3,794,947
3,938,237
(143,290)
(4%)
7.0%
7.2%
7.6%
7.7%
(0.6%)
(0.5%)
(1) Eligible deposits with regulated financial institutions represent deposits of Equitable Bank and its subsidiaries, which are held at major Canadian
financial institutions and excludes $171.8 million (December 31, 2022 – $251.1 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 $595.4 million (December 31, 2022 – $486.5 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 the Loans receivable
balances. Investments held in the form of debt securities include MBS and CMB 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 54% investment-grade publicly traded preferred shares and 46% publicly traded common shares.
Liquid assets(1) were $3.8 billion as at October 31, 2023, 4% lower than December 2022, reflecting the level of liquidity
required after taking into account declining demand deposits and the anticipated cash flow needs for upcoming
quarters.
(1) This is a non-GAAP measures, see Non-GAAP financial measures and ratios section of this MD&A.
Page 43
Other assets and other liabilities
Please refer to Notes 14 and 18 to EQB’s 2023 consolidated financial statements for a detailed breakdown of Other
assets and Other liabilities as at October 31, 2023 and December 31, 2022.
Other assets
Other assets were $653 million as at October 31, 2023, up $114 million or 21% relative to December 2022, mainly
driven by higher accounts receivables due to increasing lending activity and timing for settlement, increased BIN
sponsorship receivables, higher fair value gains on derivative instruments, and income taxes recovery.
Other liabilities
Other liabilities were $602 million as at October 31, 2023, $45 million or 8% above December 2022, largely a result of
higher loan serving fee payable and deferred revenue associated with growing securitization activity, and customer
overpayment, offset in part by decreased realty tax withheld, and lower fair value losses on EQB’s derivative positions.
Off-balance sheet arrangements
EQB engages in certain financial transactions that, for accounting purposes, are not recorded on its consolidated
balance sheets. 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 24 to the 2023 consolidated
financial statements in EQB’s report).
Securitization of financial assets
Certain securitization transactions qualify for derecognition when EQB has transferred substantially all of the risks,
rewards, and control associated with the securitized assets. The outstanding securitized loan principal that qualified for
derecognition totalled $15.0 billion at October 31, 2023 (December 31, 2022 – $10.4 billion).
The securitization liabilities associated with these transferred assets were approximately $15.2 billion at October 31,
2023 (December 31, 2022 – $10.6 billion). The securitization retained interests recorded with respect to certain
securitization transactions were $559.3 million at October 31, 2023 (December 31, 2022 – $373.4 million) and the
associated servicing liability was $81.2 million at October 31, 2023 (December 31, 2022 – $58.2 million).
Commitments and letters of credit
The Bank provides commitments to extend credit to borrowers and had outstanding commitments to fund $5.8 billion
of loans and investments in the ordinary course of business at October 31, 2023 (December 31, 2022 – $4.3 billion).
The Bank also issues letters of credit which represent assurances that it will make payments in the event that a
borrower cannot meet its obligations to a third party. Letters of credit in the amount of $68.5 million were outstanding
at October 31, 2023 (December 31, 2022 – $86.1 million), none of which were claimed.
Page 44
Related party transactions
Certain of EQB’s 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 25 to the 2023 consolidated financial statements for
further details.
Capital position
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%. 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).
Regulatory Capital Developments
Effective April 1, 2023, Equitable Bank adopted Basel III banking reforms in accordance with OSFI’s announced revised
capital, leverage, liquidity, and disclosure requirements to help Canadian deposit-taking institutions (DTIs) more
effectively manage risks and sustain resilience. The Basel III reforms implemented include:
• CAR with revised standard approach for credit risk and operational risk
•
•
•
•
Leverage Requirements (LR)
Liquidity Adequacy Requirements (LAR)
Small and Medium-Sized Deposit-Taking Institutions (SMSBs) Capital and Liquidity Requirements
Pillar 3 Disclosures
The Bank assessed the impact of these changes on its capital position, increased risk sensitivity, segmentation
requirements and targeted optionality. Although the results are very much contingent on the composition of the Bank’s
assets, the overall impact is not significant given the Bank’s long history of consistency with prudent lending practice,
moderate risk appetite and rigorous risk framework (see “Risk Management” section of this MD&A). On October 20,
2023, OSFI released an update of CAR (2024 Capital Adequacy Requirements) that take effect fiscal Q1 2024, which
include changes in capital requirements associated with negative amortization mortgages with growing balance, where
payments are insufficient to cover the interest components. Equitable Bank does not have residential mortgage
products with these features. Ongoing updates to CAR do have the potential to change the treatment of current
lending portfolio and impact future risk-weighted assets.
2023 results reflect the revised Basel III disclosures and prior periods have not been restated.
Risk weighted assets (RWA) of Equitable Bank
In 2023, Equitable Bank’s RWA increased $884 million (+5% y/y) mainly driven by organic growth of the conventional
Personal loan portfolios, as well as higher operational risk capital charges which is driven by increased revenue. From
June 30, 2023, RWA increased $382 million (+2% q/q) with similar drivers.
Page 45
Risk weighted assets of Equitable Bank
Table 15: 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 (under Basel III reform)
($000s, except percentages)
Assets /
Amounts
Risk
Weighting
As at October 31, 2023
Risk-weighted
assets
20%
0%
14%
26%
47%
100%
22%
1,283,346
908,833
2,120,645
32,442,232
15,020,060
559,271
663,024
52,997,411
(101,161)
52,896,250
251,685
354
299,880
8,595,551
7,114,549
559,271
146,880
16,968,170
-
16,968,170
847,367
115,441
4,537
17,935,514
1,873,725
19,809,239
As at December 31, 2022
Assets /
Amounts
Risk
Weighting
Risk-weighted
assets
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
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
Off-balance sheet:
Loan commitments
Derivatives
Other
Total credit risk
Operational risk(1)
Total (under Basel III)
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
(1) For operational risk, Equitable Bank previously used the Basic Indicator Approach and switched to Simplified Standardized Approach
effective April 1, 2023 in accordance with OSFI CAR Guideline requirements. The RWA for operational risk is determined by multiplying the
operational risk capital charge by 12.5.
Page 46
Capital measures
Table 16: Capital measures of Equitable Bank
($000s, except percentages)
Common Equity Tier 1 Capital (CET1):
Common shares
Contributed surplus
Retained earnings
Accumulated other comprehensive loss (AOCI)(2)
Less: Regulatory adjustments to CET1 Capital
Common Equity Tier 1 Capital(1)
Additional Tier 1 capital (AT1):
Non-cumulative preferred shares
Additional Tier 1 capital issued by a subsidiary to third parties
(amount allowed in AT1)
Tier 1 Capital(1)
Tier 2 Capital:
31-Oct-23
31-Dec-22
Change
930,178
13,886
928,778
12,537
2,057,262
1,856,084
(49,956)
(33,759)
(187,870)
(170,504)
2,763,500
2,593,136
1,400
1,349
201,178
(16,197)
(17,366)
170,364
0%
11%
11%
48%
10%
7%
72,554
183,541
(110,987)
(60%)
57,628
-
57,628
n.m.
2,893,682
2,776,677
117,005
4%
Eligible Stage 1 and 2 allowance
Additional Tier 1 capital issued by a subsidiary to third parties
(amount allowed in Tier 2)
Less: Transitional adjustment in response to COVID-19(3)
Tier 2 Capital(1)
Total Capital(1)
101,162
89,931
11,231
6,719
-
6,719
-
(10,647)
107,881
79,284
10,647
28,597
3,001,563
2,855,961
145,602
12%
n.m.
n.m.
36%
5%
Total risk-weighted assets (RWA)(1)
19,809,239
18,925,660
883,579
5%
Capital ratios and Leverage ratio(1):
CET1 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratio
n.m. not meaningful
14.0%
14.6%
15.2%
5.3%
13.7%
14.7%
15.1%
5.3%
0.3%
(0.1%)
0.1%
-%
(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. (3) This transitional adjustment was discontinued starting
Q1 2023. 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 resulted 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. This phase-out arrangement has ended at the end of 2022 and thus
there would be no impact on Equitable Bank’s CET1 and Tier 2 capital starting Q1 2023.
Capital ratios
Equitable Bank’s CET1 ratio was 14.0%, up 30 bps from December 31, 2022 mainly due to organic capital growth that
added to earnings retained within the Bank. Tier 1 capital ratio was 14.6%, 1 bp lower than December 2022, due
primarily to lower additional Tier 1 capital associated with the preferred shares issued by Concentra Bank to third
parties. Total capital ratio was 15.2%, an increase of 1 bp, resulting from the same impact as noted above for CET1
ratio.
Relative to Q2 2023, the Bank’s capital ratios decreased due to a $100 million dividend payment to its parent company,
EQB Inc., which was used to repay a portion of EQB’s outstanding credit facilities.
Page 47
Regulatory capital components
The CET1 capital grew $170 million compared to December 31, 2022, mainly contributed by strong net earning growth,
offset in part by the dividend distribution described above. Additional Tier 1 capital decreased $53 million as a portion
of the preferred shares issued by Concentra Bank to third parties is not recognized as Tier 1 capital for Equitable Bank.
The increase in Total Capital was mainly driven by organic CET1 capital growth.
Leverage ratio
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 October 31, 2023, consistent with both
December 31, 2022 and June 30, 2023 levels.
Stress test
As part of its capital management process, Equitable Bank performs stress tests 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
Common and preferred shares
At October 31, 2023, EQB had 37,879,352 common shares and 2,911,800 Series 3 preferred shares issued and
outstanding. In addition, there were 1,173,719 unexercised stock options, which are, or will be, exercisable to purchase
common shares for maximum proceeds of $64.3 million. For additional information on outstanding stock options and
their associated exercise prices, please refer to Note 20 (a) to the 2023 consolidated financial statements.
Normal course issuer bid (NCIB)
During the ten months ended October 31, 2023, no common or preferred shares were purchased or cancelled under
the NCIB.
Common share dividends
Despite changes to its fiscal reporting calendar, EQB will maintain the same dividend payment schedule for future
periods (the last business day of March, June, September, and December).
On December 7, 2023, EQB’s Board declared a quarterly dividend of $0.40 per common share, payable on
December 29, 2023, to common shareholders of record at the close of business on December 20, 2023. This dividend
represents a 5% and 21% increase over dividends declared in August 2023 and November 2022, respectively.
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 issued from treasury stock. EQB maintains the right to suspend the DRIP in future
periods.
Page 48
Preferred shares of EQB
On December 7, 2023, the Board declared a quarterly dividend of $0.373063 per preferred share, payable on
December 29, 2023, to preferred shareholders of record at the close of business on December 20, 2023.
Preferred shares of Concentra Bank
As at October 31, 2023, Concentra Bank has $111 million in preferred shares issued and outstanding.
Fourth quarter results
EQB delivered adjusted quarterly earnings(1) of $147 million during the four months ended October 31, 2023, up 27%
compared to Q2 2023 and 59% above Q4 2022. Adjusted EPS(1) for the quarter was $3.80, versus $2.98 in Q2 and $2.46
in Q4 2022.
Besides one extra month in this quarter, strong performance contributed to organic growth of the Bank’s loans under
management, up 4% and 9% from Q2 2023 and Q4 2022, respectively.
Net interest income
The table below details EQB’s NII and NIM for the four months ended October 31, 2023, with comparisons to Q2 2023
and Q4 2022, by product and portfolio.
(1) This is a non-GAAP measures, see Non-GAAP financial measures and ratios section of this MD&A.
Page 49
Table 17: Net interest income
($000s, except percentages)
Revenues derived from:
Cash and debt securities
Equity securities
Single family mortgages– insured(3)
Single family mortgages– uninsured(3)
Decumulation loans
Consumer lending
Total Personal loans
Commercial loans
Equipment financing
Insured multi-unit residential mortgages
Total Commercial loans
For the quarter ended
31-Oct-23
31-Jun-23
31-Dec-22
Revenue/
Expense
Average
rate(1)
Revenue/
Expense
Average
rate
Revenue/
Expense
Average
rate
55,656
4.61%
39,111
4.60%
26,925
645
5.80%
828
4.74%
923
122,090
412,205
3.39%
91,534
3.34%
71,975
6.33%
285,560
5.96%
209,462
30,899
6.73%
19,585
6.85%
12,557
32,983
11.14%
23,899
11.77%
13,225
598,177
5.50%
420,578
5.24%
307,219
263,160
9.26%
187,053
9.13%
156,922
42,034
56,670
9.60%
29,375
9.45%
25,624
2.95%
40,303
2.85%
34,609
361,864
6.96%
256,731
6.81%
217,155
3.75%
5.29%
2.78%
4.68%
5.79%
9.19%
4.14%
8.04%
8.89%
2.71%
6.17%
Average interest-earning assets
1,016,342
5.88%
717,248
5.66%
552,222
4.73%
Expenses related to:
Deposits
Securitization liabilities
Others
Average interest-bearing liabilities
461,849
165,770
4.33%
322,503
4.12%
228,256
3.29%
118,416
3.11%
84,689
42,940
5.70%
24,630
5.21%
20,502
670,559
4.08%
465,549
3.84%
333,447
3.15%
2.19%
4.49%
2.89%
Adjusted net interest income and margin(2)
345,783
2.00%
251,699
1.99%
218,775
1.87%
Interest earned on the subscription receipt escrow account
Interest paid to subscription receipt holders
Net fair value amortization – assets
Net fair value amortization – liabilities
-
-
-
-
-
-
-
-
2,220
654
21,714
(25,038)
Reported net interest income and margin
345,783
2.00%
251,699
1.99%
218,325
1.85%
(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. For additional information, see Adjustments to financial results section, and Non-
GAAP financial measures and ratios section of this MD&A.
(3) The presentation has changed for single family mortgages from previous quarters from “alternative and prime” to “uninsured and insured” to better
align characteristics of mortgages within each lending portfolio, including both asset yield and capital required. Prior period comparatives have been
updated to conform to current period’s presentation.
Q4 2023 v Q2 2023
Net interest income +37%, primarily driven by asset growth across its conventional loan portfolios, plus the
contribution of one additional month included in this four-month quarter.
NIM expanded mainly due to higher prepayment income, higher yields on the conventional loan business and cost of
funds increasing more slowly, reflecting continued optimization with new funding sources, such as new bearer deposit
notes.
Page 50
Q4 2023 v Q4 2022
Adjusted and reported net interest income(1) in Q4 2023 were $345.8 million (+58%), mainly benefiting from asset
growth, higher NIM and the inclusion of one extra month in Q4 2023.
Adjusted NIM(1) +13bps (reported +15bps) for the reasons noted above, plus growing asset yields on the conventional
loan portfolio, higher prepayment income, and the weighted average impact of including Concentra Bank’s assets and
funding for four months versus two months in Q4 2022.
Non-interest revenue
Table 18: Non-interest revenue(1)
($000s)
For the quarter ended
31-Oct-23
30-Jun-23
Change
31-Dec-22
Change
Fees and other income(3)
Gains (losses) on strategic investments
Net gains on other investments(3)
Gain on sale and income from retained interests
Net (losses) gains on securitization activities and derivatives
Total non-interest revenue– reported
Fair value amortization adjustment on other investments
Gains on strategic investments
Total non-interest revenue – adjusted(2)
n.m. - not meaningful
18,508
3,655
4,428
25,948
(3,036)
49,503
-
-
49,503
14,489
27,933
1,726
16,104
596
28%
(87%)
157%
61%
n.m.
10,503
(5,137)
(77)
9,247
1,846
60,848
(19%)
16,382
-
(27,965)
32,883
n.m.
n.m.
51%
(65)
-
16,317
203%
76%
n.m.
n.m.
181%
n.m.
202%
n.m.
n.m.
(1) Prior period comparatives have been reclassified to conform to current period presentation.
(2) Adjusted measures and ratios are Non-GAAP measures and ratios. For additional information, see Adjustments to financial results section, and Non-
GAAP financial measures and ratios section of this MD&A.
(3) The grouping for certain gains reported under Net gains (losses) on loans and investments in Q1 2023, was changed to Fees and other income starting
Q2 2023. Prior period grouping has not been changed.
Q4 2023 v Q2 2023
Total adjusted non-interest revenue (NIR)(1) $49.5 million (+51%), largely due to an increase in gains on sale revenue
(volume growth), higher net gains on strategic investments and debt securities, and one extra month of fee-based
revenue in this quarter, offset in part by the fair value losses associated with securitization activities.
Q4 2023 v Q4 2022
Total adjusted NIR(1) tripled the Q4 2022 level, primarily driven by increased gain on sale (volume +273%), higher net
gains on strategic and other investments, and additional two-months of fees income from Concentra Bank in this
quarter versus Q4 2022, partially offset by net losses on derivative instruments.
1 Adjusted measures and ratios are Non-GAAP measures and ratios. For additional information, see Adjustments to financial results section, and Non-
GAAP financial measures and ratios section of this MD&A.
Page 51
Provision for credit losses
Table 19: Provision for credit losses
($000s, except percentages)
Stage 1 and 2 provision
Stage 3 provision
Total Provision for credit losses (recoveries) − reported
Less: Provision for credit losses – purchased loans
For the quarter ended
31-Oct-23
2,279
17,287
19,566
-
30-Jun-23
5,883
7,159
13,042
-
Change
(61%)
141%
50%
n.m.
50%
31-Dec-22
24,525
Change
(91%)
2,271
26,796
(19,020)
7,776
661%
(27%)
n.m.
152%
Total Provision for credit losses (recoveries) − adjusted(1)
19,566
13,042
n.m. not meaningful. (1) Adjusted measures and ratios are Non-GAAP measures and ratios. For additional information, see Adjusted financial results
section, and Non-GAAP financial measures and other financial and banking measures and terms section of this MD&A.
Q4 2023 v Q2 2023
Provision for stage 1 and 2 dropped $3.6 million in this quarter, while stage 3 provision increased by $10.1 million due
to higher delinquent commercial loan balances outstanding at October 31, 2023.
Q4 2023 v Q4 2022
Total provision increased due to the same reason cited above when compared to Q2 2023. Stage 1 and 2 provision
declined relative to 2022, as Q4 2022 included Day 1 provision associated with acquired loans of $19.0 million.
Non-interest expenses
Table 20: Non-interest expenses and efficiency ratio
($000s, except percentages and FTE)
For the quarter ended
30-Oct-23
30-Jun-23
Change
31-Dec-22
Change
Compensation and benefits
Technology and system costs
Regulatory, legal and professional fees
Product costs
Marketing and corporate expenses
Premises
81,683
25,551
17,877
29,719
22,548
3,787
59,707
17,937
12,419
18,866
15,455
2,646
Total non-interest expenses – reported
181,165
127,030
Less:
Integration related costs and other expenses
Total non-interest expenses – adjusted(1)
Efficiency ratio – reported
Efficiency ratio – adjusted(1)
Full-time employee equivalent (FTE) – period average
(8,153)
173,012
(5,120)
121,910
45.8%
43.8%
1,743
40.6%
42.8%
1,740
37%
42%
44%
58%
46%
43%
43%
n.m.
42%
5.2%
1.0%
0%
64,999
23,969
11,303
14,943
20,146
3,820
139,180
(36,921)
102,259
26%
7%
58%
99%
12%
(1%)
30%
n.m.
69%
59.3%
43.5%
1,635
(13.5%)
0.3%
7%
n.m. not meaningful. (1) Adjusted measures and ratios are Non-GAAP measures and ratios. For additional information, see Adjusted financial results
section, and Non-GAAP financial measures and other financial and banking measures and terms section of this MD&A.
Q4 2023 v Q2 2023
Compared to Q2 2023, adjusted non-interest expenses +42% (reported +43%), mainly due to one extra month’s
expenses added in this quarter. Other contributors include higher employee compensation, banking system
maintenance costs, transaction service fees, and consulting fees associated with business growth, as well as increase in
capital tax.
Page 52
Q4 2023 v Q4 2022
Adjusted non-interest expenses +69% (reported +30%), mainly for the same reasons described above, plus the full
contribution from Concentra in this quarter.
Total loan principal continuity
The following table provides quarterly on-balance sheet loan principal continuity schedules by lending business for Q4
2023 and Q4 2022:
Table 21: On-Balance Sheet loan principal continuity schedule(1)
($000s, except percentages)
Q2 2023 closing balance
Originations(3)
Derecognition
Net repayments
Q4 2023 closing balance
% Change from Q2 2023
Net repayments percentage(2)
($000s, except percentages)
Q3 2022 closing balance
Loans purchased on November 1
Originations(3)
Derecognition
Net repayments
Q4 2022 closing balance
% Change from Q3 2022
Net repayments percentage(2)
As at or for the four months ended October 31, 2023
Personal
Commercial
Total
32,397,957
2,861,250
-
(2,843,136)
15,122,507
3,576,170
(2,618,633)
(1,097,054)
47,520,464
6,437,420
(2,618,633)
(3,940,190)
32,416,071
14,982,990
47,399,061
0%
8.8%
(1%)
7.3%
0%
8.3%
As at or for the three months ended December 31, 2022
Personal
Commercial
Total
24,237,002
12,454,029
36,691,031
7,712,290
1,811,011
-
(1,647,893)
32,112,410
32%
6.8%
1,099,729
2,083,559
(702,592)
(393,329)
14,541,396
17%
3.2%
8,812,019
3,894,570
(702,592)
(2,041,222)
46,653,806
27%
5.6%
(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.
(3) Originations includes the net movement on Reverse Mortgage capitalized interest that incurred in the period. Prior period comparatives have been
updated to conform to current period presentation.
Q4 2023 v Q2 2023
Personal Banking portfolio grew sequentially mainly driven by strong originations in the reverse mortgage business, a
result of successful consumer advertising that increased market awareness and new customer acquisition.
Commercial conventional loans also increased due to steady origination levels. The growth was offset by increased
securitization and derecognition activity in the multi-unit residential business.
Q4 2023 v Q4 2022
Please refer to Total loan principal under the “Balance sheet review” section of this MD&A for a discussion of the loan
portfolio growth over the past ten months.
Page 53
Interim financial statements
Table 22: Unaudited interim consolidated statement of income
($000, except per share amounts)
Interest income:
Loans – Personal
Loans – Commercial
Investments
Other
Interest expense:
Deposits
Securitization liabilities
Funding facilities
Other
Net interest income
Non-interest revenue:
Fees and other income
Net gain (loss) on loans and investments
Gains on sale and income from retained interests
Net (losses) gains on securitization activities and derivatives
Revenue
Provision for credit losses
Revenue after provision for credit losses
Non-interest expenses:
Compensation and benefits
Other
Income before income taxes
Income taxes
Current
Deferred
Net income
Dividends on preferred shares
Net income available to common shareholders
Earnings per share
Basic
Diluted
For the quarter ended
31-Oct-23
30-Jun-23
31-Dec-22
598,177
361,864
24,613
31,688
1,016,342
461,786
165,853
24,719
18,201
670,559
420,578
256,731
18,856
21,083
717,248
322,503
118,416
11,891
12,739
465,549
327,596
218,428
10,754
19,298
576,076
244,413
93,163
11,025
9,150
357,751
345,783
251,699
218,325
18,508
8,083
25,948
(3,036)
49,503
395,286
19,566
375,720
81,683
99,482
181,165
194,555
28,803
24,606
53,409
141,146
2,349
138,797
14,489
29,659
16,104
596
60,848
312,547
13,042
299,505
59,707
67,323
127,030
172,475
26,612
14,938
41,550
130,925
2,331
128,594
3.67
3.64
3.41
3.39
10,503
(5,214)
9,247
1,846
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
Page 54
Table 23: Unaudited interim consolidated statement of comprehensive income
($000s)
Net income
For the quarter ended
31-Oct-23
30-Jun-23
31-Dec-22
141,146
130,925
45,819
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
(18,624)
16,252
(31,474)
32,302
(1,788)
3,985
Other comprehensive income – items that will not be reclassified subsequently
to income:
Equity instruments designated at Fair Value through Other Comprehensive
Income:
Reclassification of (losses) gains from AOCI on sale of investments
Net unrealized losses from change in fair value
Reclassification of net losses to retained earnings
Income tax recovery (expense)
Cash flow hedges:
Net unrealized gains from change in fair value
Reclassification of net gains to income
Income tax expense
Total other comprehensive (loss) income
Total comprehensive income
(10,951)
(2,985)
6,128
(10,180)
2,746
(7,434)
27,911
(27,014)
897
(249)
648
(6,786)
-
(30,989)
4,936
(25,225)
7,005
(18,220)
28,856
(11,082)
17,774
(4,936)
12,838
(5,382)
134,360
125,543
604
(1,543)
798
2,056
(185)
1,871
5,050
(1,396)
3,654
(958)
2,696
4,567
50,386
Page 55
Table 24: 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
Dividend income earned, not received
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 (used in) from 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 from (used in) investing activities
Net increase 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
For the quarter ended
31-Oct-23
30-Jun-23
31-Dec-22
141,146
130,925
45,819
27,349
3,455
14,992
19,566
(20,513)
1,060
(416)
53,409
33,392
103,052
300,097
(128,862)
33,951
(188,034)
(892,589)
252,520
244,579
-
101,566
(8,459)
91,261
3,369
-
(2,349)
(14,367)
(13,347)
(279,527)
245,386
146,567
(14,358)
-
98,068
175,982
373,492
549,474
56,610
2,439
11,919
13,042
(13,690)
808
(27,964)
41,550
22,055
(203,717)
(476,322)
(943,719)
(65,068)
549,817
89,135
(28,940)
718,291
-
57,750
(34,342)
(99,421)
2,707
-
(2,331)
(13,945)
(13,569)
(162,220)
374,215
(58,762)
(12,372)
-
140,861
27,871
345,621
373,492
903,914
(554,032)
29,180
743,478
(432,654)
1,022
(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
Page 56
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 fiscal 2023 consolidated financial statements are the same
as those applied by EQB as at and for the year ended December 31, 2022.
Future Changes in Accounting Policies
Interest rate benchmark reform
In August 2020, the International Accounting Standards Board (IASB) issued the Interest Rate Benchmark Reform
Phase 2, which included amendments to IFRS 9, IAS 39, IFRS 7 Financial Instruments: Disclosures (IFRS 7), IFRS 4, and
IFRS 16 Leases (IFRS 16). These amendments addressed issues that arise from the implementation of the reforms,
including the replacement of a benchmark with an alternative one.
Various interest rates and other indices that are deemed to be “benchmarks” - including Interbank Offered Rate
(IBOR) benchmarks such as the Canadian Dollar Offered Rate (CDOR) - continue to be impacted by reforms resulting
from international regulatory guidance and proposals. As a result of the global benchmark reform initiative, efforts to
transition away from IBORs to alternative reference rates (ARR) have either concluded or have been continuing in
various countries.
In Canada, this process has been led by the Canadian Alternative Reference Rate working group (CARR). As a result of
this initiative, in December 2021, CARR recommended to Refinitiv Benchmark Services (UK) Limited (RBSL), the CDOR
administrator, to cease the calculation and publication of CDOR after June 30, 2024. Following a public consultation by
RBSL, it was announced on May 16, 2022, that it will stop publishing all three remaining CDOR tenors after June 28,
2024. Six-month and twelve-month CDOR tenors had previously ceased to be published effective May 17, 2021.
Immediately after the announcement by CARR, the OSFI published their supervisory expectations for federally
regulated financial institutions (FRFIs) to transition from CDOR. Included in this announcement was that OSFI expects
all new derivative contracts (bilateral, cleared, and exchange-traded) and securities (assets and debt liabilities) to
transition to ARR by June 30, 2023, with no new CDOR exposure being booked after that date, with limited exceptions
for risk mitigation requirements to reduce the overall sensitivity of the assets or liabilities to CDOR risk. After June 30,
2023, market participants are expected to only trade Canadian Overnight Repo Rate Average (CORRA) based swaps
and futures, except when reducing existing CDOR related exposure or if hedging CDOR loan related exposure. OSFI
also expects all agreements referencing CDOR to be transitioned by June 28, 2024.
EQB has incorporated these developments into its plan to transition away from CDOR and EQB continues to monitor
developments and best practice guidance with respect to transition activities.
Please refer to Note 3 to the audited consolidated financial statements for more details.
Critical accounting estimates
The preparation of the consolidated financial statements requires management to make estimates, judgements 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
reporting period. Estimates and underlying assumptions are reviewed by management on an ongoing basis. 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.
Page 57
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 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 geopolitical unrest, the current interest rate environment, and inflationary pressures, the
macroeconomic environment continues to experience 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 value of assets, liabilities and intangible assets on Concentra Bank’s acquisition
On November 1, 2022, Equitable Bank acquired 100% ownership in Concentra Bank by paying $495.4 million in
purchase consideration and recognized assets, liabilities, goodwill and intangible assets on its consolidated balance
sheet. For the loans and receivables acquired and deposit liabilities assumed, management 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 exercised significant judgment in determining estimates relating to
liquidation rates, prepayment rates, and repricing adjustments, including credit spreads.
Equitable Bank 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 Equitable Bank, and existing Trust
relationships with credit unions and individual trust clients will provide a new source of revenue and generate new
clients for Equitable Bank by generating trust income. The valuation of core deposit intangible asset was 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 required
management to make significant judgments and estimates relating to cash flow discount rates and deposit spreads.
For further information regarding critical accounting estimates, please refer to Notes 2(d) and 10(d) to (f) to the 2023
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.
Management has evaluated the effectiveness of EQB’s disclosure controls and procedures (as defined in the rules of
the Canadian Securities Administrators) as at October 31, 2023. Based on that evaluation, Management has concluded
that these disclosure controls and procedures were effective.
Page 58
Internal control over financial report
EQB Inc.’s 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. EQB has
evaluated the design and operational effectiveness of its Internal Controls over Financial Reporting (ICOFR) as at
October 31, 2023 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, a recognized control model, and the requirements of National Instrument
52-109 of the Canadian Securities Administrators. Based on this evaluation, management has concluded that EQB’s
Internal Controls over Financial Reporting were effective as at October 31, 2023.
Changes in Internal control over financial reporting
Equitable Bank’s Senior Vice-President and Chief Risk Officer left the Bank on August 31, 2023.
There were no changes to EQB’s internal control over financial reporting that occurred during the fourth quarter of
2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Page 59
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 its 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 2023 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 2023 consolidated financial statements.
The Bank’s business activities, including its use of financial instruments, expose 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 Bank’s Enterprise Risk Management
(ERM) framework. The ERM framework is designed to ensure that all risks are managed within the Bank’s pre-defined
risk appetite thresholds outlined in its Risk Appetite Framework (RAF). The ERM and RAF are designed to align the
Bank’s overall corporate strategy, financial and capital plans, business unit strategies and day-to-day operations, as well
as its 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 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 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 risk management practices and related
economic capital requirements. It also sets out the Bank’s approach for identifying, assessing, managing and reporting
on key risks, including the establishment of roles, responsibilities, processes, and tools to be used. To ensure that all
significant and emerging risks are considered, management reviews the risk profile with respect to each of the Bank’s
core risks on a continuous basis, and report to the Board at least quarterly. The ERM is also designed to ensure that the
potential for loss remains within acceptable Board-approved limits.
Page 60
Equitable Bank’s Enterprise Risk Management Framework:
The Risk and Capital Committee (RCC): The RCC of the Board assists the Board in fulfilling its oversight and
governance responsibilities for the management of the Bank’s core and emerging risks and the adequacy of its Internal
Capital Adequacy Assessment Process (ICAAP), as well as 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 ERM Committee and Asset and Liability Committee (ALCO) in this regard. The RCC also has primary
oversight responsibility for operational risk, business and strategic risk, and reputational risk. In addition, the mandate
of the RCC requires that the Committee review and approve the significant risk management policies and frameworks
developed and implemented to identify, measure, mitigate, monitor, and report on the Bank’s core risks, along with its
risk-based capital requirements and the results of its stress testing for all key risks. At present, the RCC is comprised of
five independent directors, including the Chairs of the Audit Committee and Human Resources and Compensation
Committee. It meets quarterly with the Chief Executive Officer (CEO), Chief Financial Officer (CFO), and the Chief Risk
Officer (CRO).
To ensure capital allocation and risk management are aligned, the Bank’s ICAAP, which is reviewed annually with the
RCC, determines the ongoing capital needs of the business and reviews those needs in the context of its operating
environment and strategic plans. Material risks are regularly stress tested to determine their impact on capital and to
establish 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, 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 its 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.
Page 61
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, including compliance with the consumer
protection provisions of the Financial Consumer Protection Framework. The Committee also is responsible for overall
corporate governance which includes Board membership (including recruitment), Board effectiveness, development of
corporate governance guidelines (including a code of conduct), transactions involving related parties, as well as
oversight of conflict of interest, whistleblower and privacy programs. 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 annual ESG report, as well as the Bank’s Public Accountability Statement, and monitors trends
and best practices in ESG.
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 its 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 the Bank’s 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
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 risk monitoring practices. Due to the inherent
expertise embedded in the ‘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 provide updates on Equitable Bank’s 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 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
Page 62
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. Its underwriting approach, particularly in 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, Equitable Bank 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 risk
management practices, the Bank ensures 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 its mortgage insurers. The
Bank also conducts periodic reviews of its mortgage underwriting and servicing policies, procedures, and practices vis-
à-vis the applicable requirements outlined by its mortgage insurers to ensure that the Bank remains compliant with
their ongoing operational requirements.
The Bank has 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 the strategic planning process.
The Bank has clearly defined underwriting policies and procedures that the Bank adheres to in its 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. The Bank also actively analyzes the
profile of its lending businesses and new mortgage originations in tandem with external market conditions, including
market values and employment conditions that prevail in those markets where the Bank lends. When the Bank judges
that the risk associated with a particular region or product is increasing, the Bank adjusts its underwriting criteria to
ensure that underwriting policies continue to be prudent and reflective of current and expected economic conditions,
and thereby safeguard the future health of the portfolio. When appropriate, the Bank also responds to the changing
marketplace with initiatives designed to increase or decrease its mortgage originations, as required, while continuing
to ensure a prudent credit risk profile across its 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 Corporation which serves the brokered
equipment financing market in Canada with a focus on transportation, construction, and food service equipment.
Since acquiring Bennington over 4 years ago, the Bank continues to enhance its competitive position in the equipment
financing market using its challenger bank platform and access to cost-effective funding sources.
Page 63
The Bank categorizes individual credit exposures in its lending portfolios using an internal risk rating system that rates
each exposure in the portfolio on the basis of perceived risk, or probability of, a potential financial loss. This allows us
to focus on monitoring and managing higher risk exposures. The risk rating of each exposure is initially determined
during the underwriting process and subsequently either confirmed or revised (as a result of certain trigger events)
using customized risk grids applicable to the property type of the underlying exposure. In case of impairment, probable
recovery is determined using a combination of updated property-specific information, historical loss experience, and
experienced credit judgment to determine the impairment provision that may be required.
The Bank invests in corporate bonds to diversify its liquidity holdings and to generate higher returns. However, such
investments expose the Bank to credit risk, should the issuer of these securities be unable to make timely interest
payments or, under a worst-case scenario, if the issuer becomes insolvent. To limit its exposure to credit risk, the
Bank establishes policies with exposure limits based on credit rating and investment type. Securities rated BBB- and
higher (“low risk”) comprised 97% of the Bank’s corporate bond portfolio at October 31, 2023 (December 31, 2022 –
94%).
The Bank also invests in preferred shares comprising 29% 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 4% of the Bank’s total equity securities portfolio at October 31, 2023, compared to 17%
a year earlier. Securities rated P-3 or higher comprised 20% of the total equity securities portfolio at the end of
October 2023 (December 31, 2022 – 44%).
The Bank’s rating scale for the credit quality of its 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 its 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 25: 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
The Bank has assessed the credit quality of the Bank’s assets at October 31, 2023 and December 31, 2022, on the
basis of the above mapping of internal and external risk ratings to the credit risk exposure categories.
Page 64
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 26: 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
Stage2
14,721,283
18,975,447
528,370
-
34,225,100
(55,962)
34,169,138
2,433,376
9,798,761
643,459
-
12,875,596
(43,477)
12,832,119
As at October 31, 2023
Total
Stage3
-
-
-
379,590
379,590
(17,994)
361,596
17,154,659
28,774,208
1,171,829
379,590
47,480,286
(117,433)
47,362,853
Stage1
Stage2
As at October 31, 2023
Total
Stage3
2,407,447
1,467,184
1,859
3,876,490
(1,488)
3,875,002
400,891
494,386
19,526
914,803
(234)
914,569
-
-
-
-
-
-
2,808,338
1,961,570
21,385
4,791,293
(1,722)
4,789,571
Stage1
Stage2
15,180,145
21,133,205
295,309
-
36,608,659
(50,691)
1,495,428
8,049,427
314,970
-
9,859,825
(37,768)
36,557,968
9,822,057
Stage1
Stage2
1,327,738
1,344,033
1,089
2,672,860
(1,042)
2,671,818
27,041
725,438
15,593
768,072
(430)
767,642
As at December 31, 2022
Total
Stage3
-
-
-
138,513
138,513
(6,851)
16,675,573
29,182,632
610,279
138,513
46,606,997
(95,310)
131,662
46,511,687
As at December 31, 2022
Total
Stage3
-
-
-
-
-
-
1,354,779
2,069,471
16,682
3,440,932
(1,472)
3,439,460
Page 65
The following table sets out the credit analysis for financial assets measured at FVTPL and for equity securities measured
at FVOCI.
Table 27: 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-Oct-23
31-Dec-22
471,853
756
472,609
125,654
-
51,903
177,557
17,629
17,629
4,988
18,947
28,751
52,686
430,253
854
431,107
136,921
679
50,612
188,212
21,274
21,274
14,400
34,885
10,883
60,168
The Bank held cash and cash equivalents of $549.5 million as at October 31, 2023. The cash and cash equivalents are
held with financial institutions that are rated at least BBB- 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 October 31,
2023 was $831 million (December 31, 2022 – $224 million). At October 31, 2023, the appraised values of collateral held
for mortgages considered past due but not impaired, as determined when the mortgages were originated, was $516
million (December 31, 2022 – $261 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 October 31, 2023 amounted to $0.2 million
(December 31, 2022 – $0.4 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 October
31, 2023 was $21 million (December 31, 2022 – $9 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 written off to date that are still subject to enforcement activity
amounted to $3.3 million (December 31, 2022 – $3.3 million).
Page 66
Credit concentration risk
A component of credit risk that is closely monitored and measured within the exposures in the Bank’s 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, the Bank establishes 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 October 31, 2023,
no individual borrower represented more than $216 million (December 31, 2022 – $158 million) or 0.78% (December
31, 2022 – 0.70%) of uninsured loan principal outstanding. See Table 13 of the Q4 2023 unaudited Supplemental
Financial Information Report for a breakdown of loan principal outstanding by geography.
The table below provides a breakdown of Equitable Bank’s loan principal by insured vs uninsured and by lending
business.
Table 28: Loan principal by lending business
($000s, except percentages)
Insured:
Personal
Commercial
Total loan principal outstanding
Total loan principal outstanding percentage
Uninsured:
Personal
Commercial
Total loan principal outstanding
Total loan principal outstanding percentage
31-Oct-23
30-Jun-23
Change
31-Dec-22
Change
10,547,687
6,809,589
17,357,276
37%
10,863,782
6,933,999
(316,095)
(124,410)
11,249,787
6,356,334
(702,100)
453,255
17,797,781
(440,505)
17,606,121
(248,845)
38%
(1%)
38%
(1%)
21,868,384
8,173,401
30,041,785
63%
21,534,175
8,188,509
29,722,684
62%
334,209
(15,108)
319,101
1%
20,862,623 1,005,761
(11,661)
8,185,062
29,047,685
62%
994,100
1%
As part of Equitable Bank’s risk management, it lends at lower LTV’s, adding further credit loss protection to its loan
portfolio. The average LTV on the Bank’s uninsured residential mortgage portfolio was 62% at October 31, 2023 (June
30, 2023 – 63%, December 31, 2022 – 65%). The table below presents the Bank’s average uninsured residential LTVs on
existing loans by province.
Page 67
Table 29: Average loan-to-value of existing uninsured residential mortgages(1)(2)(3)(4)
($000s, except percentages)
Albert, Manitoba & Saskatchewan
Atlantic provinces & Quebec
British Columbia and territories
Ontario
Total Canada
31-Oct-23
61%
62%
62%
62%
62%
30-Jun-23
Change
31-Dec-22
Change
63%
64%
65%
63%
63%
(2.%)
(2%)
(3%)
(1%)
(1%)
63%
66%
66%
66%
65%
(2%)
(4%)
(4%)
(4%)
(3%)
(1) Geographic location based on the address of the property mortgaged. (2) Based on property values estimated using the Teranet National Bank House
Price Indices, adjusting for the Bank’s unique portfolio by using sub-indices corresponding to the 11 cities in Teranet-National Bank National Composite
11 to estimate property values loan by loan. The index is based on actual transaction dates and prices, which EQB believes to be most accurate and
representative; however, may lag other indices leveraging data tied to date of sale. (3) The LTV of the Bank’s HELOC (HELOC, SHELOC and Reverse
Mortgage) products is not included in this table. (4) Equitable Bank has arrangements with other lenders to participate in its single-family residential
loans in certain circumstances, namely if Equitable Bank wants to cap the value of its own exposure to stay within the boundaries of its risk appetite while
still meeting a borrower’s needs. The arrangements, which have been entered into in the normal course of business at arm’s length and on market terms,
are structured such that the other lenders’ participation would always bear the first loss on the mortgage. The loan-to-value ratios above therefore do
not take into account the other lenders’ participation in order to reflect both the substance and legal form of Equitable Bank’s exposure. Equitable Bank
underwrites the loans based on the total value of its own advance and the other lender’s participation to ensure that the borrower is able to service the
aggregate amount of the loan. Other lenders’ participation in Equitable Bank’s (including Concentra) single family residential loans was $85.5 million at
October 31, 2023.
Within Commercial Banking, the Bank prioritizes lending against multi-unit residential rental properties, including
affordable housing. Due to the strong demand in Canada for housing and the Bank’s focus and capabilities in the
insured lending market, over two thirds of the Bank’s total Commercial loans are backed by credit insurance. By design,
less than 1.1% of total Bank assets are offices and this small portfolio has an average LTV of 60%. The Bank is selective
in lending to commercial offices, largely restricting loans to properties located in major urban centres and smaller
buildings. The Bank has limited exposure to hotels, shopping malls, big box retail and large commercial office. The
Bank restricts LTVs, today averaging 63%, for uninsured commercial loans.
Table 30: Commercial loans under management by business(1)
($000s, except percentages)
Mortgages – to Corporates
Mortgages – to Small Business
Specialized financing loans
Construction loans(3)
Equipment financing
Insured multi-unit residential mortgages(2)
Total
31-Oct-23
2,830,654
1,437,946
1,078,594
3,276,367
1,354,906
20,002,959
30-Jun-23
Change
31-Dec-22
2,895,401
1,351,892
1,026,748
3,047,115
1,320,927
18,071,995
(64,747)
86,054
51,846
229,252
33,979
1,930,964
2,971,525
1,327,917
1,069,963
2,570,361
1,262,584
15,763,160
Change
(140,871)
110,029
8,631
706,006
92,322
4,239,799
29,981,426
27,714,078
2,267,348
24,965,510
5,015,916
(1) The numbers in this table are reported on consolidated basis, including Concentra, prior to acquisition-related fair value adjustments that are
captured in balance sheet measures. (2) Insured against credit loss by the Canada Mortgage and Housing Corporation. (3) 54% of construction loans is
insured by CMHC.
Page 68
Liquidity and funding risk
The Bank defines Liquidity and Funding risk as the possibility that it will be unable to generate sufficient funds in a
timely manner and at a reasonable price to meet its 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 the 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 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.
The Bank also adheres 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. The Bank’s
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.
The Bank’s practice is to hold a sufficient amount of liquidity on its balance sheet to ensure that it remains well
positioned to manage unexpected events that may reduce/limit its access to funding. Senior management closely
monitors the Bank’s liquidity position on a daily basis and ensure that the level of liquid resources held, together with
its ability to raise new deposits, is sufficient to meet funding commitments, deposit maturity obligations, and properly
discharge 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 funding and liquidity management policies and
procedures, the Bank has also developed a Liquidity and Funding Risk Contingency Plan, an OSFI-mandated
Comprehensive Recovery Plan, which outlines actions to be undertaken to address the outflow of funds in the event of
a funding or liquidity crisis, and a Resolution Plan.
Table 31: Assets held for liquidity protection
($000s, except percentages)
Liquidity assets held for regulatory purposes
Liquidity assets as a % of minimum required policy liquidity(1)
Policy minimum
100%
2023
3,721,170
228%
2022
3,864,444
315%
(1) For purposes of this calculation, the Bank’s Liquidity and Funding Risk Management Policy requires the value of assets held for liquidity protection to
be reduced to reflect their estimated liquidity value.
Stress and scenario testing is an integral part of the Bank’s Liquidity and Funding Risk Management framework and
supports the development of action plans to address funding needs in stressed environments. The Bank manages its
funding needs to ensure the ability to meet its 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, the Bank assesses its fundraising capacity and establishes
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 October 31, 2023, 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.
Page 69
Equitable Bank continues to actively diversify funding sources to proactively manage its funding risk profile. This
diversification has been accomplished through the launch of the 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 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 October 31, 2023 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 32: Contractual obligations(1)
($000s)
Deposits principal and interest
Securitization liabilities principal and
interest
Funding facilities principal and
interest
Other liabilities
Total 2023 contractual obligations
Total 2022 contractual obligations
Total Less than 1 year
16,235,866
27,661,496
1 − 3 years
9,767,718
Payments due by period
4 − 5 years After 5 years
31,015
1,626,897
30,562,513
5,822,450
10,858,450
6,653,735
7,227,878
1,059,787
1,059,787
-
-
-
425,328
59,709,124
52,551,711
359,514
37,666
15,272
12,876
23,477,617
21,327,576
20,663,834
18,938,112
8,295,904
7,830,181
7,271,769
4,455,842
(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 24 to the 2023 consolidated financial statements for credit commitments and contingencies as at
October 31, 2023 and December 31, 2022.
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 Equitable Bank’s profitability or financial
condition. Interest rate risk may be affected if an unduly large proportion of the Bank’s assets or liabilities have
unmatched terms, interest rates or other attributes, such as optionality features embedded in its cashable deposits or
mortgage commitments. For the interest sensitivity position of the Bank at October 31, 2023, see Note 25 to the
consolidated financial statements. With respect to equity price risk, the value of the Bank’s securities portfolio may be
impacted by market determined variables which are beyond its control, such as benchmark yields, credit and/or
market spreads, implied volatilities, the possibility of credit migration and default, among others. Overall, Equitable
Bank has a ‘low’ appetite for market risk.
With respect to structural interest rate risk, Equitable Bank’s objective is to manage and control its interest rate risk
exposures within acceptable parameters and the primary method of mitigating this risk involves funding Bank 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 the
Bank’s operating and funding strategy. Also, senior management continuously reviews the Bank’s interest rate risk
profile and monitors its ongoing funding strategy through the daily interest rate-setting process.
Equitable Bank monitors 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
Page 70
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 October 31, 2023. 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 33: Net interest income shock
($000s, except percentages)
100 basis point shift
Impact on net interest income
Impact on EVE(1)
EVE impact as a % of common shareholders2 equity
0.2%
(1) EVE numbers are reported on a pre-tax basis. (2) Interest rate is not allowed to decrease beyond a floor of 0% and is therefore not allowed to be
negative.
(32,237)
(1.2%)
4,488
6,390
(782)
Increase in
interest rates
Decrease in
interest rates(1)
The management of Equity Price risk is assigned to the ALCO by the RCC of the Board. The ALCO manages the
Company’s securities portfolio in accordance with its ‘Marketable Securities Policy’ and takes into consideration the
following factors:
• General economic conditions and the possible effect of inflation or deflation;
• The expected tax consequences of investment decisions or business strategies;
• The credit quality of each investment and its role within the overall portfolio;
• The expected total return from income and the appreciation of capital;
• The Bank’s need for liquidity, available capacity, and regularity/stability of earnings; and
• Each investment’s special relationship or special value, if any, to the overall objectives of the portfolio.
The ALCO reviews the investment performance, composition, quality, and other pertinent characteristics of the
securities portfolio at least ten times a year. This information is also presented to, and reviewed by, the RCC of the
Board at least quarterly, or more frequently, if required.
Operational risk
Equitable Bank defines Operational risk as the possibility that a loss could result from various sources including, but
not limited to, people, inadequate or failed internal processes or systems, or from external events. This definition
specifically excludes legal risk – which is included 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. The
Bank also considers natural disasters in its 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. The Bank recognizes 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 primary financial measure of operational risk is actual losses incurred.
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. The Bank has
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 the Bank’s 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
Page 71
alignment with both the BCBS’s ‘Principles for the Sound Management of Operational Risk’, and with OSFI’s related
‘Operational Risk Management Guideline’.
• Training: All employees within the organization are required to play a role in managing Operational risk. In this
regard, the Bank conducts 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): These tools are used on an ongoing basis to help identify and
evaluate operational risk factors within the individual businesses and functional units, as well as on a Bank-wide
basis. These tools assist in proactively identifying and assessing key operational risks inherent in the Bank’s material
activities and systems, and to evaluating the effectiveness of controls to manage these risks.
• Key Risk Indicators (KRI’s): The Bank uses 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, several other
operational risk management tools are in use as part of the Bank’s ORM program. These include an operational risk
and control taxonomy, operational risk event collection and analysis, and change management risk and control
assessment.
• Risk Measurement and Reporting: On a regular monthly basis, the Bank’s centralized Operational Risk
Management Team consolidates key operational risk management trends, significant events, if any, and KRI’s across
the Bank; these are reported to the ERM committee and to the RCC of the Board on a quarterly basis, at a minimum.
• Business Continuity Management: The Bank maintains a robust Business Continuity Management program
to ensure that Equitable Bank has the capability to sustain, manage and recover critical operations and
processes in the event of a business disruption, thereby minimizing any adverse effects on its customers,
partners, and other stakeholders. Equitable Bank’s Business Continuity Management Program is comprised of
various plans (i.e., Crisis Management Plan, Business Continuity Plans, Disaster Recovery Plan and 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 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. The
Bank’s 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.
The Bank’s 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.
Equitable Bank has processes to keep its fraud controls relevant, agile, and current to accommodate new products,
Page 72
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. The Bank’s fraud risk
management framework is oriented around its three lines of defense model. The first line business unit processes in
mortgage underwriting and deposit taking form the primary layer of defense against external fraudulent activities.
Here the 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, the Bank has continually enhanced its 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.
Operating as a 2nd line centre of excellence in conjunction with Compliance and AML teams, the Bank operates 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. The Bank’s 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: Equitable Bank defines 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’.
The Bank has a ‘low’ appetite and tolerance for Model risk and have implemented the principles set out OSFI
Guideline E-23: Enterprise-Wide Model Risk Model Risk Management. A Model Risk Policy, Model Validation Standard,
and Model Validation Procedures are in place to ensure the effective identification and mitigation of Model Risk,
especially as it relates to credit risk.
• Technology and Cyber Security: Equitable Bank remains focused on the confidentiality, integrity and availability of
its information and cyber security controls that protect the Bank’s 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 the Bank uses may also be subject to these threats
which can increase the risk of negative impact from a cyber attack. The Bank continually assesses the performance
of third-party suppliers against industry standards. In addition, the Bank has limited control over the safety of its
clients’ personal devices that may be used to conduct transactions. To manage these risks, the Bank’s defense
systems are designed as an integral part of both existing Bank infrastructure, and architecture and development for
its digital banking platform.
The Bank views cyber risk as a key component of Operational Risk and 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.
The Bank’s ‘Cyber Security Policy’ establishes the requirements and sets out the overall framework for managing
cyber and information security related risks across the organization. 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, the Bank has an established Technology Roadmap with the objective of continuously improving the
strength of its practices and capabilities.
The Bank works closely with critical cyber security and software suppliers to ensure that its technology capabilities
remain cyber resilient and effective in the event of any unforeseen cyber-attack. Internal teams receive daily cyber
security updates, rehearse incident table-top exercises, and take specialized training to thwart current and evolving
cyber threats.
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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 the Bank continues to invest in digital solutions and innovation, moving its 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. The Bank has established a
dedicated Enterprise Data team that works closely with data owners and other stakeholders on technology managed
data assets to ensure the Bank effectively addresses current and future data needs (quality, security, integrity), and
that the Bank is positioned to address emerging requirements from a data management planning and governance
perspective.
• Third Party Risk: Third party suppliers are integral to the Equitable Bank’s business operations and the Bank has
designed a program to provide oversight for third party relationships. The Bank’s 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 material arrangements to
ensure that service levels are met, and that systems of controls are adequate. Outsourcing arrangements are
reviewed on a regular (annual) basis to assess materiality, and to ensure regulatory requirements are met. The Bank
continues to evolve and improve its capabilities in this area and are implementing enhancements in line with the
revised regulatory requirements (i.e., OSFI B-10 Third-Party Risk Management).
• 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. The Bank’s 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 2023, the Bank 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 litigation, 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 the Board-approved RAF, the Bank has a ‘low’ appetite and a ‘low’ tolerance for legal and
regulatory risk. The Bank undertakes 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 continuously evolving legal and regulatory requirements. The Bank also
undertakes reasonable and prudent measures designed to achieve compliance with governing laws and regulations
and promote a strong culture of compliance management across the organization. Business units are engaged in the
identification and proactive management of the Bank’s 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.
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The Bank’s RCM Program provides a control framework to manage and mitigate 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 the Bank could experience material losses or reputational
damage as a result of its 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 the Bank’s lending or deposit-taking market share.
The Bank does not use proprietary retail branches to originate deposits or loan exposures. Deposits are raised
directly through the Bank’s online digital platform. Additionally, the Bank relies primarily on business conducted on
behalf of investing clients by members of the Canadian Investment Regulatory Organization (CIRO) and the
Registered Deposit Brokers Association (RDBA) to distribute its 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 current operating requirements. The potential failure to sustain or increase current
levels of deposits or lending originations from these sources could negatively affect the financial condition and
operating results of the Bank.
• Systemic Risk: Systemic risk is a risk that the financial system as a whole, or major part of it, may collapse with the
likelihood of material damage to the economy, resulting in financial, legal, operational, and reputational risks for the
Bank. The Bank significantly operates in Canada and deposits its monies with Canadian federally regulated financial
institutions designated as Domestic Systemically Important Banks (DSIB). An event of systemic crisis may result in
higher unemployment and lower family income, corporate earnings, business investment and consumer spending
and could adversely affect the demand for the Bank’s loan products resulting in higher provisions for credit losses.
The Board has approved a ‘low-to-medium’ appetite and tolerance for Business and Strategic risk. The Bank believes
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.
• 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, the Bank evaluates environmental factors as part of
underwriting processes. The Bank considers the environmental risk associated with Single Family residential lending
to be low so does not conduct environmental assessments for each of those loans. For most of the Bank’s commercial
loan portfolio, it employs third-party consultants to carry out detailed environmental assessments. The Bank also
maintains a diversified lending portfolio, which improves its resilience to geographic or sectoral specific
environmental developments or events. The Bank is committed to measuring, managing, and reducing its
Page 75
environmental footprint. Starting in 2022, the Bank has regularly disclosed its climate change related information to
CDP (formerly known as Carbon Disclosure Project).
The Bank considers this risk to be a component of Business and Strategic risk and evaluates future risks on a
quarterly basis as part of its ERM Committee meetings. The Bank conducts 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 the Bank’s
RAF, where considered appropriate and prudent.
Going forward, as the Bank continue to elaborate on its definition and management of climate-related risk, it intends to
leverage the framework developed by the Task Force on Climate-Related Financial Disclosures (TCFD) or its successors.
The Bank believes this framework can be used to evaluate any risk, since it considers governance, strategy, risk
management, and metrics and targets. 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
Bank’s own risk classification.
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 the Board-approved RAF, the Bank’s appetite and tolerance for Reputational risk both remain ‘low’
and it believes that the pursuit of its long-term goals requires the proper conduct of business activities in accordance
with the Bank’s 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 ERM practices, is sufficiently designed to identify, assess and manage the
reputational and other non-financial considerations present within the business.
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Glossary
• Book value per common share: is calculated by dividing common shareholders’ equity by the number of
common shares outstanding.
• Capital ratios: A detailed calculation of all Capital ratios can be found in Table 16 of this MD&A.
• CET1 ratio: this measure of capital strength is defined as CET1 Capital as a percentage of total risk weighted
assets. 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, as well as additional Tier 1 capital issued by a subsidiary to third
parties that is allowed in Tier 1, to CET1 capital. Tier 2 Capital is equal to Equitable Bank’s eligible Stage 1 and 2
allowance plus additional Tier 1 capital issued by a subsidiary to third parties that is allowed in Tier 2 capital.
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.
• 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 a pre-tax basis. EVE is a comprehensive measure of 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 relative to 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 thirty-calendar day liquidity stress scenario. It is
equal to high-quality liquid assets divided by expected total net cash outflows over the next thirty calendar days.
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.
For Q4 2023, this is annualized from four months to twelve months, and for fiscal year 2023, it is annualized from
ten months to twelve months.
• 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
outstanding during the period.
• Revenue per full time equivalent (FTE): is calculated as revenue for the period divided by the average number of
full-time equivalent employees during 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.
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Non-Generally Accepted Accounting Principles (GAAP)
financial measures and ratios
This section provides further discussion regarding the variety of financial measures to evaluate EQB’s performance.
Non-GAAP measures
In addition to GAAP prescribed measures, EQB uses certain non-GAAP measures that management believes 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 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 EQB’s subsidiaries have been named as
trustee, custodian, executor, administrator or other similar role; (2) loans held by credit unions for which EQB’s
subsidiaries act 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-Oct-23
30-Jun-23
Change
31-Dec-22
Change
Total assets on the consolidated balance sheet
52,933,454
53,318,703
Loan principal derecognized
Assets under management
14,998,436
12,591,570
67,931,890
65,910,273
(1%)
19%
3%
51,144,957
10,424,114
61,569,071
3%
44%
10%
• Conventional lending: are the total on-balance sheet loan principal excluding insured single-family mortgages
and insured multi-unit residential mortgages.
•
•
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 14 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 Table 17 of this MD&A.
•
•
Pre-provision pre-tax income (PPPT): this is the difference between revenue and non-interest expenses.
Total loan assets: this is calculated on a gross basis (prior to allowance for credit losses) as the sum of both Loans
– Personal and Loans – Commercial on the balance sheet and adding their associated allowance for credit losses.
Page. 78
Reports and consolidated financial statements
Reports
79 Management’s responsibility for financial reporting
80
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
92
Note 1 – Reporting entity
Note 2 – Basis of preparation
139 Note 14 – Other assets
141 Note 15 – Deposits
Note 3 – Significant accounting policies
141 Note 16 – Income taxes
110 Note 4 – Risk management
110 Note 5 – Business combination
112 Note 6 – Financial instruments
142 Note 17 – Funding facilities
143 Note 18 – Other liabilities
143 Note 19 – Shareholders’ equity
117 Note 7 – Cash and cash equivalents and restricted cash
146 Note 20 – Stock-based compensation
118 Note 8 – Securities purchased under reverse repurchase
150 Note 21 – Non-interest expense – other
agreements
118 Note 9 – Investments
119 Note 10 – Loans receivable
150 Note 22 – Earnings per share
150 Note 23 – Capital management
126 Note 11 – Derecognition of financial assets
151 Note 24 – Commitments and contingencies
129 Note 12 – Derivative financial instruments
152 Note 25 – Related party transactions
135 Note 13 – Offsetting financial assets and financial liabilities
153 Note 26 – Interest rate sensitivity
Page
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 IFRS
Accounting Standards (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, out 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
December 7, 2023
Page. 80
Independent auditor’s 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 October 31, 2023 and December 31, 2022
the consolidated statements of income and comprehensive income for the periods then ended
the consolidated statements of changes in shareholders’ equity for the periods then ended
the consolidated statements of cash flows for the periods then ended
• and notes to the consolidated financial statements, including a summary of material accounting policy
information
(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 October 31, 2023 and December 31, 2022, and its
consolidated financial performance and its consolidated cash flows for the periods then ended in accordance with
IFRS Accounting 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 period ended October 31, 2023. 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.
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 $119,155 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.
Page. 81
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 geopolitical unrest, the current interest rate environment, and inflationary pressures, the
macroeconomic environment continues to experience 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 and validation 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.
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 new models for determining PD and LGD by assessing the model methodology, model validation testing
completed 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.
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.
Page. 82
•
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
IFRS Accounting 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.
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
Page. 83
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.
• 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
December 7, 2023
Page. 84
Consolidated Balance Sheet
($000s) As at
Assets:
Cash and cash equivalents
Restricted cash
Securities purchased under reverse repurchase agreements
Investments
Loans – Personal
Loans – Commercial
Securitization retained interests
Deferred tax assets(2)
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) income
Note October 31, 2023(1) December 31, 2022
7
7
8
9
10,11
10,11
11
16
14
15
11
11
16
17
18
19
19
20
549,474
767,195
908,833
2,120,645
32,390,527
14,970,604
559,271
14,230
652,675
495,106
737,656
200,432
2,289,618
31,996,950
14,513,265
373,455
-
538,475
52,933,454
51,144,957
31,996,450
14,501,161
1,128,238
128,436
1,731,587
602,039
31,051,813
15,023,627
665,307
72,675
1,239,704
556,876
50,087,911
48,610,002
181,411
471,014
12,795
2,185,480
(5,157)
2,845,543
52,933,454
181,411
462,561
11,445
1,870,100
9,438
2,534,955
51,144,957
Michael Hanley
Chair of the Board
Andrew Moor
President and Chief Executive Officer
See accompanying notes to the consolidated financial statements.
(1) Effective January 1, 2023, EQB changed its fiscal year-end reporting date from December 31st to October 31st. These consolidated
financial statements have been prepared for a 10-month period ended October 31, 2023. The comparative amounts presented in these
consolidated financial statements are for a 12-month period and therefore, are not entirely comparable. Refer to Note 2(f). (2) Effective
January 1, 2023, EQB changed the presentation of its deferred tax assets and liabilities on its consolidated balance sheet (refer to note
2(g). Prior year presentation has not been changed.
Page. 85
Consolidated Statement of Income
($000s, except per share amounts) Period/Year ended
Note
2023(1)
2022
Interest income:
Loans – Personal
Loans – Commercial
Investments
Other
Interest expense:
Deposits
Securitization liabilities
Funding facilities
Other
Net interest income
Non-interest revenue(2):
Fees and other income
Net gains (losses) on loans and investments
Gains on sale and income from retained interests
Net losses on securitization activities and derivatives
Revenue
Provision for credit losses
Revenue after provision for credit losses
Non-interest expenses:
Compensation and benefits
Other
Income before income taxes
Income taxes:
Current
Deferred
Net income
Dividends on preferred shares
Net income available to common shareholders
Earnings per share:
Basic
Diluted
1,410,571
860,363
65,362
70,123
917,708
640,293
21,337
36,893
2,406,419
1,616,231
11
11
10
21
16
22
1,077,520
402,443
44,527
43,650
1,568,140
838,279
46,895
34,442
56,384
(336)
137,385
975,664
38,856
936,808
199,752
234,991
434,743
502,065
84,066
46,409
130,475
371,590
6,998
364,592
9.67
9.59
578,998
260,761
19,979
23,088
882,826
733,405
31,081
(8,054)
26,765
(1,011)
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
See accompanying notes to the consolidated financial statements.
(1)Effective January 1, 2023, EQB changed its fiscal year-end reporting date from December 31st to October 31st. These consolidated
financial statements have been prepared for a 10-month period ended October 31, 2023. The comparative amounts presented in
these consolidated financial statements are for a 12-month period and therefore, are not entirely comparable. Refer to Note 2(f). (2)
Effective January 1, 2023, EQB changed the presentation of the line items under the Non-interest revenue (refer to Note 2(h)). Prior
year presentation has been updated accordingly.
Page. 86
Consolidated Statement of Comprehensive Income
($000s) Period/Year ended
Net income
Note
2023(1)
371,590
2022
270,181
Other comprehensive income – items that may 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 (losses) gains from AOCI on sale of investment
Net unrealized losses from change in fair value
Reclassification of net losses to retained earnings
Income tax 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 (loss) income
Total comprehensive income
12
-
(36,208)
37,432
(1,010)
(33,678)
10,315
(10,951)
(34,767)
11,042
(33,452)
9,210
(24,242)
40,951
(38,718)
2,233
(631)
1,602
(22,640)
348,950
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
See accompanying notes to the consolidated financial statements.
(1) Effective January 1, 2023, EQB Inc. changed its fiscal year-end reporting date from December 31st to October 31st. These consolidated
financial statements have been prepared for a 10-month period ended October 31, 2023. The comparative amounts presented in these
consolidated financial statements are for a 12-month period and therefore, are not entirely comparable. Refer to note 2(f).
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
Other comprehensive
income, net of tax
Exercise of stock
options
Share issuance costs,
net of tax
Dividends:
Preferred shares
Common shares
Stock-based
compensation
Transfer relating to
the exercise of stock
options
Accumulated other
comprehensive income (loss)
2023(1)
Preferred
shares
Common
shares
Contributed
surplus
Retained
earnings
Cash flow
hedges
Financial
instruments
at FVOCI
Total
Total
181,411
462,561
11,445
1,870,100
42,016
(32,578)
9,438
2,534,955
-
-
-
-
-
-
-
-
-
-
-
-
13,161
(6,230)
-
-
-
-
-
-
-
-
-
-
2,872
1,522
(1,522)
371,590
(7,722)
-
-
-
(6,998)
(41,490)
-
-
-
-
-
-
-
-
-
371,590
(7,722)
8,045
8,045
8,045
1,602
(24,242)
(22,640)
(22,640)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,161
(6,230)
(6,998)
(41,490)
2,872
-
Balance, end of year
181,411
471,014
12,795
2,185,480 43,618
(48,775)
(5,157)
2,845,543
(1) Effective January 1, 2023, EQB Inc. changed its fiscal year-end reporting date from December 31st to October 31st. These consolidated
financial statements have been prepared for a 10-month period ended October 31, 2023. The comparative amounts presented in these
consolidated financial statements are for a 12-month period and therefore, are not entirely comparable. Refer to Note 2(f).
Page. 88
($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
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
-
-
-
-
-
-
-
-
-
-
-
-
223,112
9,274
-
-
(655)
-
-
-
670
-
-
-
-
-
-
-
-
-
-
-
-
-
3,422
(670)
-
270,181
(2,839)
-
-
-
-
-
-
(6)
-
(5,566)
(42,427)
-
-
-
-
-
-
-
-
-
-
-
270,181
(2,839)
(299)
(299)
(299)
33
33
33
41,336
(24,049)
17,287
17,287
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
223,112
9,274
(183)
(6)
(655)
(5,566)
(42,427)
3,422
-
110,987
Purchase of treasury
preferred shares
(183)
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
110,987
Balance, end of year
181,411
462,561
11,445
1,870,100 42,016
(32,578)
9,438
2,534,955
(1) Effective January 1, 2023, EQB Inc. changed its fiscal year-end reporting date from December 31st to October 31st. These consolidated
financial statements have been prepared for a 10-month period ended October 31, 2023. The comparative amounts presented in these
consolidated financial statements are for a 12-month period and therefore, are not entirely comparable. Refer to Note 2(f).
Page. 89
Consolidated Statement of Cash flows
($000s) Period/Year ended
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
Dividend income earned, not received
Income taxes
Securitization retained interests
Changes in operating assets and liabilities:
Restricted cash
Securities purchased under reverse repurchase agreements
Loans receivable, net of securitizations
Other assets
Deposits
Securitization liabilities
Obligations under repurchase agreements
Funding facilities
Other liabilities
Income taxes paid
Cash flows from 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 (used in) from 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 from (used in) investing activities
Net increase (decrease) 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
2023(1)
2022
371,590
270,181
45,533
7,678
39,155
38,856
(46,948)
2,871
(28,380)
130,475
75,304
(29,539)
(708,401)
(1,126,698)
(57,566)
865,734
(519,066)
462,931
491,883
108,201
(90,318)
33,295
6,931
-
(6,998)
(41,490)
(41,557)
(989,055)
-
1,007,663
78,988
(34,966)
62,630
54,368
495,106
549,474
2,137,216
(1,221,598)
31,243
(10,816)
1,215
46,870
37,258
(22,418)
3,422
-
98,276
53,834
(193,620)
349,598
(5,061,011)
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
(1) Effective January 1, 2023, EQB Inc. changed its fiscal year-end reporting date from December 31st to October 31st. These consolidated
financial statements have been prepared for a 10-month period ended October 31, 2023. The comparative amounts presented in these
consolidated financial statements are for a 12-month period and therefore, are not entirely comparable. Refer to Note 2(f).
Page. 90
Notes to consolidated financial statements
($000s, except per share amounts)
Note 1 – Reporting Entity
EQB Inc. (EQB) was formed on January 1, 2004 as the parent company of its wholly owned subsidiary, Equitable
Bank. 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 IFRS Accounting Standards
(IFRS) as issued by the International Accounting Standards Board (IASB).
The consolidated financial statements have been approved by EQB’s Board of Directors for issue on December 7,
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 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, judgements
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 reporting period. Estimates and underlying assumptions are reviewed by management on an ongoing
basis. 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 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
Page. 91
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 geopolitical unrest, the current interest rate environment, and inflationary pressures, the
macroeconomic environment continues to experience 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, Equitable Bank acquired 100% ownership in Concentra Bank (Concentra) by paying
$495,369 in purchase consideration and recognized assets, liabilities, goodwill and intangible assets on its
consolidated balance sheet (Refer Note 5). For the loans and receivables acquired and deposit liabilities assumed,
management 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 exercised significant
judgment in determining estimates relating to liquidation rates, prepayment rates, and repricing adjustments,
including credit spreads.
Equitable Bank 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 Equitable Bank, and existing Trust
relationships with credit unions and individual trust clients will provide a new source of revenue and generate
new clients for Equitable Bank by generating trust income. The valuation of core deposit intangible asset was
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 required management to make significant judgments and estimates relating to cash flow discount
rates and deposit spreads.
(e) Consolidation
The consolidated financial statements as at and for the ten months fiscal period ended October 31, 2023 and
twelve months year ended December 31, 2022 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.
EQB has a 100% ownership interest in Equitable Bank. Equitable Bank is the parent company of its wholly owned
subsidiaries, Equitable Trust, 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 the consolidated financial statements of EQB as at October 31, 2023.
(f) Fiscal year-end reporting date change
Effective January 1, 2023, EQB changed its fiscal year-end reporting date from December 31st to October 31st.
These financial statements have been prepared for a 10-month period ended October 31, 2023. The comparative
amounts presented in these financial statements are for a 12-month period and therefore, are not entirely
comparable.
EQB changed its fiscal year-end reporting date to October 31st, to align with industry practice and investor
expectations.
Page. 92
(g) Change in presentation – Deferred taxes
Effective January 1, 2023, EQB has changed the presentation of its Deferred tax assets and liabilities. The net
deferred tax assets and liabilities at the consolidated level are now presented separately for each legal entity, and
are netted at the legal entity level. The change in presentation is prospective, as the comparative prior year
balances were immaterial.
(h) Change in presentation – Non-interest revenue
Effective January 1, 2023, EQB has changed the presentation of the line items under its Non-interest revenue in
the Consolidated Statement of Income. In prior years, EQB presented three line items under its Non-interest
revenue i.e. “Fees and other income”, “Net gains (losses) on loans and investments”, and “Gains on securitization
activities and income from securitization retained interests”. EQB now presents four line items under its Non-
interest revenue as presented in the Consolidated Statement of Income above. The comparative balances have
been updated accordingly. The change in presentation does not constitute a restatement.
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
retained interests and derivative financial instruments. Financial liabilities include deposits, securitization
liabilities, obligations under repurchase agreements, accounts payable, funding 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.
Page. 93
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
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 AMC 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 revenue in the Consolidated Statement of Income.
Premiums, discounts and related transaction costs are amortized over the expected life of the instrument to
Interest income – Investments 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.
Page. 94
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 revenue. Realized and unrealized gains and losses are recognized as part of Non-
interest revenue 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. For equity instruments measured at FVTPL, changes in fair value and
dividends received are recognized as part of Non-interest revenue – Net gains (losses) on loans and investments
in the Consolidated Statement of Income. 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.
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 revenue in the
Consolidated Statement of Income. For liabilities designated at FVTPL, all changes in fair value are recognized in
Non-interest revenue in the Consolidated Statement of Income, except for changes in fair value arising from
changes in EQB’s own credit risk which 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
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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 the 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 Stage 2. This requires the computation of ECL based on the PD
over the remaining estimated life of the financial instrument.
• Stage 3 – Financial instruments that are considered to be in default are included in this stage. Similar to Stage
2, the ACL captures lifetime ECL.
The PD, exposure at default (EAD), and loss given default (LGD) are inputs used to estimate ECL. PD and LGD are
modelled using forward-looking macroeconomic variables that are closely related with credit losses in the
relevant portfolios, and are probability-weighted using five macroeconomic scenarios.
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 are made using management’s experienced credit judgment.
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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.
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 the 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 past due. 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
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
realization of collateral (if any is held); or
the borrower is past due more than 90 days on any 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 collection, 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
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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 the 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:
o EQB has transferred substantially all the risks and rewards of ownership of the financial asset; or
o 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
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
Sheet 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 recognized on 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 fair
value changes recorded in other comprehensive income and moved to the Consolidated Statement of Income
on derecognition;
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• Debt and Equity securities classified as at FVTPL; these investments are subsequently measured at fair value,
with 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 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 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 reclassified from OCI to the Consolidated Statement of Income.
EQB elects to present changes in the fair value of certain investments in equity instruments through OCI when
they are not held for trading. 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 at FVTPL
Certain loans measured at FVTPL are carried at fair value with changes in fair value included in Non-interest
revenue – Net gains (losses) on securitization activities and derivatives 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 are three months or less 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 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.
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(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 the 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 the Canada Housing Trust (CHT).
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 and are classified as Loans receivable on the
Consolidated Balance Sheet. These loans 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 recognized 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
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 sale and income from retained interests.
Gains on securitization
When a sale results in derecognition, 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 revenue – Net losses on
securitization activities and derivatives.
(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 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
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acquisition date, ACLs 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, bond forwards, total return swaps, and cross currency
swaps. 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 funding a loan it intends to securitize through
the MBS and CMB programs, 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), Performance share unit (PSU), Treasury
share unit (TSU), and Deferred share unit (DSU) plans. 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.
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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 revenue – Gains
on securitization activities and income from securitization retained interests in the Consolidated Statement of
Income as it occurs.
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, PSU, and TSU plans. The value of RSUs, PSUs, and TSUs 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, PSUs or TSUs.
Fair value 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 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 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 revenue – Net gains on securitization activities and derivatives.
Changes in fair value of the securitization liability attributable to the hedged risk, is also included in Non-interest
revenue – 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
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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 revenue – 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 revenue –
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.
EQB’s hedging activities are transacted with approved counterparties, which are limited to Canadian chartered
banks, their subsidiaries and other financial intermediaries.
Non hedge accounting
EQB uses TRSs to hedge the risk of changes in future cash flows related to its DSU plan. 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 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. EQB does not apply hedge accounting to these derivative
instruments.
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 revenue – Gains on sale and income
from retained interests. Changes in fair value of loans and loan commitments are also included in Non-interest
revenue – Gains on sale and income from retained interests. EQB does not apply hedge accounting to these
derivative instruments.
EQB also 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 revenue – Fees and other income. Changes in foreign
currency translation of foreign currency liabilities are also included in Non-interest revenue – Fees and other
income. EQB does not apply hedge accounting to these derivative instruments.
(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
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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 a
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.
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 the event
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that 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 or lease liability 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 to 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
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 grant date, determined by 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
Page. 105
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 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 – Other 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.
Treasury share unit (TSU) plan
EQB has a TSU plan for its eligible employees and may grant Treasury Performance Share Units (TPSUs),
under the TSU plan adopted in 2022, for a term of ten years. Under the plan, 50% of the TPSUs cliff vest
after 3 years, and the remaining 50% cliff vest after 4 years, subject to performance conditions. Under the
plan, each TPSU represents one notional common share and earns notional dividends, which are
reinvested into additional TPSUs when cash dividends are paid on EQB’s common shares. When the TPSUs
vest, the eligible employee can elect to settle in shares issued from treasury, or in cash. 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.
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,
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
Page. 106
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 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 expected 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.
(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 and are amortized on an
effective yield basis through Interest expense – Deposits. Commissions relating to deposits designated at fair
value through profit or loss are expensed as incurred.
Page. 107
(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 its
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 recorded 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 that
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) 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 are presented net of tax.
(u) Treasury preferred shares
Under the Normal course issuer bid (NCIB) program, EQB repurchases and cancels its issued preferred shares.
These repurchased preferred shares are deducted from the outstanding preferred shares under the
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 period. The incremental number of common shares issued under stock options and
repurchased from proceeds is included in the calculation of diluted earnings per share.
Page. 108
(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, the calculation of interest income reverts back 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 issuance of a financial asset or financial liability.
(x) Fees
Non-interest revenue 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 from 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 determined after giving consideration to 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.
Future Changes in Accounting Policies
Interest rate benchmark reform
In August 2020, the IASB issued the Interest Rate Benchmark Reform Phase 2, which included amendments to IFRS
9, IAS 39, IFRS 7 Financial Instruments: Disclosures (IFRS 7), IFRS 4, and IFRS 16 Leases (IFRS 16). These
amendments addressed issues that arise from the implementation of the reforms, including the replacement of a
benchmark with an alternative one.
Various interest rates and other indices that are deemed to be “benchmarks” (including Interbank Offered Rate
(IBOR) benchmarks such as the Canadian Dollar Offered Rate (CDOR)) continue to be impacted by reforms
resulting from international regulatory guidance and proposals. As a result of the global benchmark reform
initiative, efforts to transition away from IBORs to alternative reference rates (ARR) have either concluded or have
been continuing in various countries.
In Canada, this process has been led by the Canadian Alternative Reference Rate working group (CARR). As a result
of this initiative, in December 2021, CARR recommended to Refinitiv Benchmark Services (UK) Limited (RBSL), the
CDOR administrator, to cease the calculation and publication of CDOR after June 30, 2024. Following a public
consultation by Refinitiv Benchmark Services (UK) Ltd (RBSL), it was announced on May 16, 2022, that it will stop
Page. 109
publishing all three remaining CDOR tenors after June 28, 2024. Six-month and twelve-month CDOR tenors had
previously ceased to be published effective May 17, 2021. Immediately after the announcement by CARR, the
Office of the Superintendent of Financial Institutions (OSFI) published their supervisory expectations for federally
regulated financial institutions (FRFIs) to transition from CDOR. Included in this announcement was that OSFI
expects all new derivative contracts (bilateral, cleared, and exchange-traded) and securities (assets and debt
liabilities) to transition to alternative reference rates by June 30, 2023, with no new CDOR exposure being booked
after that date, with limited exceptions for risk mitigation requirements to reduce the overall sensitivity of the
assets or liabilities to CDOR risk. After June 30, 2023, market participants are expected to only trade CORRA based
swaps and futures, except when reducing existing CDOR related exposure or if hedging CDOR loan related
exposure. OSFI also expects all agreements referencing CDOR to be transitioned by June 28, 2024.
EQB has incorporated these developments into its plan to transition away from CDOR and EQB continues to
monitor developments and best practice guidance with respect to transition activities. EQB’s IBOR transition is
being led by the Treasury department within EQB’s Finance division which also manages the technology impacted
by the change and is best equipped to make the required changes to ensure all impacted business lines in EQB
are provided with the required information needed to successfully navigate the transition and achieve their
business objectives.
EQB’s focus has been to assess the risk and uncertainty relating to the transition to alternate reference rates, the
use of fallback language where appropriate, and other factors relating to reform that could otherwise adversely
affect EQB’s operations and cash flows. For derivative financial instruments, EQB has executed the IBOR Fallbacks
Protocol which includes language specifying the actions to be taken in the event of a permanent cessation of the
original reference rate (i.e., CDOR). Under this protocol, benchmark rates will fall back to a new benchmark in
contracts that are governed by Master ISDA agreements and existed before the effective date. In situations where
both counterparties have not executed the protocol, bilateral agreements will be executed to reflect the changes.
For new ISDA trades, executed on or after the protocol supplement’s effective date, the new
definitions/benchmark will automatically apply and will reference new benchmark rates. Contracts that are
governed by the IBOR Fallbacks Protocol utilize the fixed Spread Adjustment as published and defined by
Bloomberg. This adjustment is applied to the new benchmark rate.
As of June 30, 2023, unless the derivatives hedge or reduce CDOR exposures transacted before June 30, 2023 (a
practice that is permitted by the CARR Working Group), the EQB has not entered into any new CDOR based
derivatives. EQB is also updating those lending facilities impacted by the benchmark change. Fallback language is
in place for these non-derivative contracts. For non-derivative contracts not governed by the IBOR Fallbacks
Protocol, a bilateral agreement will be negotiated and executed, specifying the new benchmark rate to be used
and any necessary spread adjustments.
For the CDOR transition to alternative benchmark rates, we continue to be exposed to and actively monitor risks
including:
• Market Risk – the differences in rates between CDOR with CORRA could result in financial and valuation
impacts if not hedged accordingly. To mitigate this risk, new derivatives contracts are being executed with
reference to the revised benchmark and legacy contracts are covered by the IBOR Fallbacks Protocol.
• Operational Risk – the changes in the benchmark rates will require coordination across various business
lines to ensure information is correctly input and changes are reflected in operational processes. A
summary of products impacted, and relevant areas is being led by the Finance division.
•
Funding Risk – if funding vehicles are not transitioned to the new benchmark, the ability to source
adequate funding would be impaired. Funding agreements include fallback language and negotiations
Page. 110
are under way to finalized required changes.
• Model Risk – the change in reference rate impacts several inputs/variables included in EQB’s models.
Treasury maintains these required models and hence is leading the transition to the new benchmark
rate.
The following table presents the approximate notional amounts of EQB’s derivatives and the gross outstanding
balances of our non-derivative financial assets and financial liabilities maturing after June 30, 2024 that are
indexed to CDOR as of October 31, 2023, and are expected to be affected by IBOR reform.
($000s)
Non-Derivative assets
Non-Derivative liabilities
Derivative notional amounts in a hedging relationship
Derivative notional amounts not in a hedging relationship
2023
Amounts exposed to
CDOR
45,969
1,566,817
4,183,772
5,705,427
11,501,985
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
Concentra Bank
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
following table presents the fair values of the assets and liabilities acquired as of the date of acquisition:
Page. 111
($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 $42,827 relating to the acquisition were expensed and are
included in non-interest expenses. The attributable share issuance costs of $18,192 have been charged directly to
equity.
From the date of acquisition on November 1, 2022 to December 31, 2022, Concentra Bank 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 for the year ended December 31, 2022.
ACM Advisors Ltd
On October 3, 2023, EQB announced that it had entered into a definitive agreement to acquire a 75% interest in
ACM Advisors Ltd (ACM) for cash and share consideration. The acquisition is subject to customary closing
conditions and regulatory approvals and is expected to close in Q1 2024.
Page. 112
Note 6 – Financial Instruments
EQB’s business activities result in a 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, funding
facilities and certain other financial assets and liabilities are carried at cost or amortized cost, which approximates
fair value.
(ii) Financial instruments classified 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 October 31, 2023 and December 31, 2022. The tables do not include assets and
liabilities that are not financial instruments.
Page. 113
($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):
-
481,793
-
Interest rate swaps
179,050
Cross-currency interest
rate swaps
Total return swaps
Bond forwards
Foreign exchange
forwards
Other
47,797
16,989
18,366
9,038
-
FVTPL –
Mandatorily
FVOCI – Debt
instruments
FVOCI –
Equity
instruments
Amortized
cost
Total
carrying
value
Fair value
October 31, 2023
-
-
-
-
-
-
-
-
549,474
549,474
549,474
767,195
767,195
767,195
-
908,833
908,833
908,833
195,186
1,742,510 52,686
130,263
2,120,645
2,097,149
-
-
-
-
-
-
-
-
-
-
-
32,390,527
32,390,527
31,954,331
13,168,127
13,649,920
13,439,734
-
559,271
559,271
542,900
-
-
-
-
-
-
-
-
-
-
-
179,050
179,050
47,797
47,797
16,989
16,989
18,366
9,038
18,366
9,038
58,298
58,298
58,298
Total financial assets
948,219
1,742,510
52,686
48,531,988
51,275,403
50,589,154
Financial liabilities:
Deposits
Securitization liabilities
Obligations under
repurchase agreements
Funding facilities
Other liabilities:
Derivative financial
instruments(2):
-
-
-
-
Interest rate swaps
113,010
Cross-currency
interest rate swaps
Total return swaps
Bond forwards
Foreign exchange
forwards
Loan commitments
Other
32,545
4,067
2,179
472
3,620
-
Total financial liabilities
155,893
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
31,996,450
31,996,450
31,737,600
14,501,161
14,501,161
13,977,423
1,128,238
1,128,238
1,128,238
1,736,636
1,736,636
1,736,595
-
-
-
-
-
-
113,010
113,010
32,545
32,545
4,067
2,179
472
3,620
4,067
2,179
472
3,620
425,555
425,555
425,899
49,788,040
49,943,933
49,161,648
(1) Loans – Commercial does not include $1,320,684 (December 31, 2022 - $1,196,033) 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. 114
($000s)
Financial assets:
Cash and cash equivalents
Restricted cash
Securities purchased
under reverse repurchase
agreements
Investments
Loans – Personal
-
Loans – Commercial(1)
431,107
Securitization retained
interests
Other assets:
Derivative financial
instruments(2):
-
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
December 31, 2022
Total
carrying
value
Fair value
-
-
-
-
-
-
-
-
-
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
Funding facilities
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
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
1,247,010
665,307
1,247,010
665,064
1,247,008
-
-
-
-
-
-
161,623
161,623
48,514
48,514
7,267
258
2,157
935
7,267
258
2,157
935
334,458
334,458
333,458
48,322,215
48,542,969
47,754,856
(1) Loans - Commercial does not include $1,320,684 (December 31, 2022 - $1,196,033) 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. 115
(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. 116
($000s)
October 31, 2023
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
74,365
2,097,149
-
-
31,954,331
2,022,784
-
-
-
-
-
-
-
-
-
481,793
12,957,941
542,900
179,050
47,797
-
-
-
632
16,357
18,366
9,038
58,298
-
-
-
31,954,331
13,439,734
542,900
179,050
47,797
16,989
18,366
9,038
58,298
2,022,784 1,337,874
45,002,994
48,363,652
-
-
-
-
-
-
-
-
-
-
-
31,737,600
-
31,737,600
11,275,334
2,702,089
13,977,423
113,010
32,545
662
2,179
472
-
1,736,595
425,899
-
-
3,405
-
-
3,620
-
-
113,010
32,545
4,067
2,179
472
3,620
1,736,595
425,899
45,324,296
2,709,114
48,033,410
(1) Derivative financial instruments are non-trading, and include derivatives held in hedge accounting relationships.
Page. 117
($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
1,200,491
1,025,210
61,499
-
-
-
-
-
-
-
-
-
-
31,386,026
431,107
12,685,526
364,806
166,601
38,982
-
-
-
-
14,513
9,579
5,744
27,542
-
-
-
Total financial
assets/financial
liabilities at fair
value
2,287,200
31,386,026
13,116,633
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.
Note 7 – Cash and Cash Equivalents and Restricted Cash
($000s)
October 31, 2023
December 31, 2022
Deposits with regulated financial institutions
Highly liquid short-term investments
Cash and cash equivalents
Restricted cash – securitization
Restricted cash – interest rate swaps
Restricted cash – other programs
Restricted cash
299,481
249,993
549,474
597,635
61,175
108,385
767,195
495,106
-
495,106
488,165
132,926
116,565
737,656
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
Page. 118
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 October 31, 2023, the fair value of financial assets accepted as collateral that EQB is permitted to sell or
repledge in the absence of default is $907,808 (December 31, 2022 – $199,249). 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
period ended October 31, 2023.
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
October 31, 2023
December 31, 2022
52,686
17,629
1,742,510
177,557
130,263
2,120,645
60,168
21,274
1,781,445
188,212
238,519
2,289,618
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 period ended October 31, 2023, EQB earned dividends of
$30,805 (2022 − $3,335) on these Equity securities. During the period, EQB sold/redeemed Equity securities of
$23,853 (2022 − $28,437) and recognized a loss on sale of $11,042 (2022 – loss on sale of $3,843) 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
2023
(23,723)
(202)
(455)
(6,657)
2022
(8,709)
(26,112)
28,364
(15,607)
Page. 119
Note 10 – Loans Receivable
(a) Loans receivable
($000s)
Loans – Personal
Loans – Commercial
Gross
amount
Allowance for credit losses
Stage 1
Stage 2
Stage 3
Total
Net amount
32,445,945
29,947
21,758
3,713 55,418
32,390,527
15,034,341
27,503
21,953
14,281 63,737
14,970,604
47,480,286
57,450
43,711
17,994
119,155
47,361,131
October 31, 2023
($000s)
December 31, 2022
Loans – Personal
Gross amount
32,041,682
Loans – Commercial
14,565,315
Stage 1
28,303
23,430
Stage 2
13,432
24,766
46,606,997
51,733
38,198
Stage 3
Total
Net amount
2,997
3,854
6,851
44,732
52,050
96,782
31,996,950
14,513,265
46,510,215
Allowance for credit losses
Loans – Personal include certain uninsured residential loans with a carrying value of $2,382,931 (December 31,
2022 – $1,576,832) 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 to 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 that are held for securitization activities. As at
October 31, 2023, the carrying value of these loans was $481,037 (December 31, 2022 – $430,253) and included
fair value adjustment of ($8,614) (December 31, 2022 – ($2,555)).
Loans – Commercial also include certain loans that are designated and measured at FVTPL. As at October 31,
2023, the carrying amount of these loans was $756 (December 31, 2022 – $854) and included fair value
adjustment of ($87) (December 31, 2022 – ($81)).
Page. 120
The impact of changes in fair value for loans measured at fair value through profit or loss is as follows:
($000s)
Net losses in fair values for loans measured at FVTPL included in gains on securitization
activities
Net (losses) gains in fair values for loans measured at FVTPL and recognized in net gain
(loss) on loans and investments
2023
2022
(6,059)
(4,469)
(6)
3
Loans – Commercial include loans of $852,440 (December 31, 2022 – $774,377) 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 $1,320,684 (December
31, 2022 – $1,196,033). 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
October 31, 2023
December 31, 2022
575,378
453,655
308,662
149,400
49,576
9,941
10,666
498,476
402,513
282,251
145,359
45,451
7,329
19,704
Total undiscounted financing payments receivable
1,557,278
1,401,083
Less:
Fair value on acquisition
Security deposits held
Unearned finance income
Allowance for credit losses
Net investment in equipment financing
(3,904)
(4,433)
(198,988)
(29,269)
1,320,684
(7,734)
(5,834)
(168,307)
(23,175)
1,196,033
For the period ended October 31, 2023, EQB earned finance income of $94,928 (December 31, 2022 –
$84,821) from its investment in equipment financing. As at October 31, 2023, all of EQB’s equipment financing
is fixed rate financing with terms ranging from one to seven years, and approximately 76% of EQB’s
equipment financing is concentrated in the following five industry segments:
Transportation – Long Haul
Transportation – Vocational
Construction
Agriculture, forestry, fishing and hunting
Food and Crop production
October 31, 2023
December 31, 2022
44.5%
14.5%
9.7%
4.2%
3.4%
45.1%
12.8%
9.8%
4.1%
5.1%
Page. 121
(b)
Impaired and past due loans
Outstanding impaired loans, net of specific allowances are as follows:
($000s)
Loans – Personal
Loans – Commercial – Conventional and Insured
Loans – Commercial – Equipment financing
(1)
Gross
121,790
222,303
35,497
379,590
Allowance for
credit losses
3,713
9,473
4,808
17,994
October 31, 2023
December 31,
2022
Net
Net
118,077
49,154
212,830
62,170
30,689
20,338
361,596
131,662
(1) Gross balances include loans amounting to $9,962 (December 31, 2022 - $11,332) that are insured.
Outstanding loans that are past due but not classified as impaired are as follows:
($000s)
Loans – Personal
Loans – Commercial – Conventional and
Insured
Loans – Commercial – Equipment financing
30 − 59 days
60 − 89 days 90 days or more(1)
Total
154,744
73,277
3,764
231,785
October 31, 2023
68,726
29,198
35,994
14,077
-
-
252,668
123,348
3,764
104,720
43,275
379,780
($000s)
December 31, 2022
30 − 59 days
60 − 89 days 90 days or more(1)
Total
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 $3,764 (December 31, 2022 - $3,729) relating to credit card customers that are past 89 days and less than 180 days.
Page. 122
(c) Allowance for credit losses
($000s)
Loans – Personal
Balance, beginning of year
Provision for credit losses:
Transfers to (from) Stage 1
Transfers to (from) Stage 2
Transfers to (from) Stage 3
Re-measurement
(1)
Originations
Discharges
Write-off
Realized losses
Recoveries
Balance, end of year
(2)(3)
($000s)
Loans – Commercial
Balance, beginning of year
Provision for credit losses:
Transfers to (from) Stage 1
Transfers to (from) Stage 2
Transfers to (from) Stage 3
Re-measurement
(1)
Originations
Discharges
Write-off
Realized losses
Recoveries
12 months ECL
Lifetime non-
Lifetime credit
credit impaired
impaired
Stage 1
Stage 2
Stage 3
Total
October 31, 2023
28,303
13,432
2,997
44,732
4,182
(3,914)
(268)
-
(9,325)
10,497
(1,172)
-
(2,166)
(10,752)
12,918
-
3,958
15,618
8,059
27,635
9,998
-
- 9,998
(5,003)
(3,123)
(17,072)
(25,198)
-
-
(1,691)
(1,691)
-
-
(968) (968)
-
-
910
910
29,947
21,758
3,713
55,418
12 months ECL
Lifetime non-
Lifetime credit
credit impaired
impaired
Stage 1
Stage 2
Stage 3
Total
23,430
24,766
3,854
52,050
October 31, 2023
19,114
(19,038)
(76)
-
(7,331)
7,417
(86)
-
(774)
(2,569)
3,343
-
(13,813)
15,535
23,128
24,850
10,623
-
- 10,623
(3,746)
(4,158)
(420)
(8,324)
-
-
(17,821)
(17,821)
-
-
- -
-
-
2,359
2,359
63,737
Balance, end of year
(2)(3)
27,503
21,953
14,281
(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 $1,722 (December 31, 2022 - $1,472). (3) Guarantees of $14,089 (December 31, 2022 - $14,817) relating to the
consumer credit portfolio has not been netted-off.
Page. 123
($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(2)
Write-off
Realized losses
Recoveries
Balance, end of year
(3)
($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
Loans acquired on business combination(2)
Write-off
Realized losses
Recoveries
Balance, end of year
(3)
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
-
-
-
28,303
13,432
(296)
(87)
52
782
-
-
1,937
-
(110)
87
2,997
-
-
-
2,378
4,398
(2,302)
28,203
-
(110)
87
44,732
Lifetime non-credit
Lifetime credit
December 31, 2022
12 months ECL
Stage 1
21,411
11,672
(6,345)
(115)
(11,514)
12,250
(4,653)
724
-
-
-
impaired
Stage 2
13,504
(10,960)
6,806
(891)
12,206
-
(1,451)
5,552
-
-
-
23,430
24,766
impaired
Stage 3
1,956
(712)
(461)
1,006
7,301
-
-
2,180
(6,861)
(571)
16
3,854
Total
36,871
-
-
-
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) Guarantees of $14,817 relating to the consumer credit portfolio
has not been netted-off. (3) The allowance for credit losses includes allowance on loan commitments amounting to $1,722 (December 31,
2022 – $1,472).
Page. 124
(d) 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 with 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 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 geopolitical tensions, 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
stages.
(e) 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:
October 31, 2023
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 %
5.72
5.62
4.59
5.10
6.92
5.91
8.22
6.34
9.73
7.21
Real GDP growth rate %(1)
Home Price Index growth
rate %(2)
Commercial Property Index
growth rate %
Household income growth
rate %
Canadian Equity index %
West Texas Intermediate
oil price %
0.65
1.96
1.48 2.49
(0.44)
1.88 (1.01)
1.63 (2.00) 1.33
(2.71)
(0.21)
(0.60)
3.74
(3.93)
(1.48)
(10.77)
(1.14)
(15.87)
(7.20)
(0.71)
2.79
2.04
4.30
(2.55)
2.20
(9.20)
3.89
(14.54)
1.07
(1.47)
(1.75)
0.81
2.41
(2.17)
1.28
(3.60)
0.42
(5.00)
(1.13)
1.47 14.54
8.75 (3.11) (9.20) 6.48 (22.88) 12.48 (39.74) 35.63
5.16
(2.93)
11.22
9.75
(18.94)
14.17
(33.84)
22.98
(40.52)
36.22
(1) Beginning October 31, 2023, the Real GDP is being presented as the average growth rate over the period. (2) The Home Price Index growth
rate % used by EQB is the Moody's Analytics Home and Land Price Index
Page. 125
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 %
5.88
5.69
4.94
5.10
6.95
Real GDP growth rate %
0.47
8.51
2.29
10.04
(1.27)
6.03
8.65
8.01
6.55
9.35
7.57
(1.94)
7.03
(3.44)
5.74
Home Price Index growth
rate %(1)
Commercial Property
Index growth rate %
Household income
growth rate %
(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)
Canadian Equity index %
(4.86)
4.11
1.80
(2.17)
(0.59)
(1.12)
1.46
4.13
(3.50)
(1.57)
(4.58)
(2.67)
(5.75)
(4.71)
(18.15)
3.47
(29.07)
5.67
(33.66)
4.27
West Texas Intermediate
oil price %
(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
(f) Sensitivity of allowance for credit losses
ECL is sensitive to the inputs used in internally developed models, macroeconomic variables in the
forward-looking forecasts, the probability weightings of the five macroeconomic scenarios, and other
factors considered when applying experienced credit 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)
October 31, 2023
December 31, 2022
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
101,161
85,231
221,284
15,930
(120,123)
89,931
84,088
156,576
5,843
(66,645)
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)
October 31, 2023
December 31, 2022
ACL – Loans in Stage 1 and Stage 2 (actual)
ACL – Assuming all loans in Stage 1
Lifetime ACL impact
101,161
85,302
15,859
89,931
79,221
10,710
Page. 126
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 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.
Not all securitization transactions qualify for derecognition as EQB may continue 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 other
Schedule I banks and participating in a securitization program sponsored by those banks. 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. 127
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 October 31, 2023, the notional amount of these swaps was $2,566,319 (December 31, 2022– $2,794,596).
CMB securitization liabilities are non-amortizing bond liabilities with fixed maturity dates. Principal payments
collected from the loans underlying the MBS sold to the 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)
October 31, 2023
Assets sold under
repurchase
agreements
Securitized assets
Carrying amount of assets
15,138,612
1,128,238
Carrying amount of associated
liability
Carrying value, net position
Fair value of assets
Fair value of associated liability
Fair value, net position
14,501,161
637,451
14,648,752
13,977,423
671,329
1,128,238
-
1,128,238
1,128,238
-
2022
Assets sold under
repurchase
agreements
665,307
665,307
-
665,064
665,064
-
Securitized
assets
15,540,197
15,023,627
516,570
15,068,979
14,546,013
522,966
Page. 128
EQB estimates that the principal amount of securitization liabilities will be paid as follows:
($000s)
2024
2025
2026
2027
2028
Thereafter
MBS Liabilities
CMB Liabilities
2,119,810
2,690,349
2,401,678
826,468
609,781
304,215
414,518
423,105
569,880
515,709
379,452
766,270
Other Securitization
Liabilities
1,446,271
796,831
410,023
30,663
9,699
-
Total Liabilities
3,980,599
3,910,285
3,381,581
1,372,840
998,932
1,070,485
8,952,301
3,068,934
2,693,487
14,714,722
(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. There is no credit risk associated
with the securitization retained interest as the derecognized loans are insured.
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 period EQB derecognized $4,668,215 (2022 – $nil) of multi-unit 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
2023
5,244,786
258,591
34,713
46,948
9,436
2022
2,474,380
147,582
18,307
22,418
4,347
The expected undiscounted cash flows payable to the investors on EQB’s securitization activities and transfers
that are derecognized in their entirety are as follows:
($000s)
2024
2025
2026
2027
2028
Thereafter
Securitization Liabilities
1,366,331
1,650,243
1,724,063
1,632,927
3,180,541
7,700,426
17,254,531
Page. 129
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 RSU 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 hedges the risk of changes in future cash flows related to its TSU plan by entering into a total return
equity swap with third parties with values 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 DSU 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 Non-interest expense – other 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.
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.
Page. 130
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 the
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 enter 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 are as follows:
Page. 131
($000’s, except percentages)
October 31, 2023
Notional
amount
Average
Rate/
(1)
Price
Positive
current
replacement
(2)
cost
Credit
equivalent
(3)
amount
Risk-
weighted
(4)
balance
Fair Value
Assets Liabilities
Net
(5)
252,600
4.09%
5,624
4,582
2,951
9,281
(160)
9,121
30,000
453,000
0.64%
2.94%
3,311
17,503
68.60
69.80
361
4,774
-
166
180
2,811
42
224
36
1,377
-
1,377
562
20,892
(158)
20,734
8
45
-
115
(49)
(613)
(49)
(498)
9,056
N/A
55
116
23
517
-
517
5,246,527
2,947,963
791,110
4.72%
3.76%
3.42%
1,075
14,529
31,070
24,895
6,214
7,337
(20,675)
(13,338)
4,978
64,705
(12,811)
51,894
4,487
5,304
1,061
33,678
(7,827)
25,851
524,300
1,171,450
0.01%
2.83%
-
25,527
5,105
-
(32,545)
(32,545)
28,647
99,554
30,122
47,797
-
47,797
2,770,000
733,094
334,048
0.30%
3.89%
1.19%
1,450
6,123
6,029
24,661
19,565
13,836
4,932
8,481
(14,572)
(6,091)
3,913
11,487
(10,341)
1,146
2,767
10,730
(24,800)
(14,070)
Derivative instrument and term (years)
Cash flow hedges: Bond
forwards – hedge accounting
1 or less
Interest rate swaps – hedge accounting
1 or less
1 to 5
Total return swaps – hedge accounting
1 or less
1 to 5
Total return swaps –
non-hedge accounting
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
1 or less
1 to 5
Interest rate swaps – non-hedge
accounting
1 or less
1 to 5
5 and above
Bond forwards – non-hedge
accounting
1 or less
628,810
N/A
1,803
8,593
4,018
9,085
(2,019)
7,066
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
330,435
N/A
1,025
3,307
662
9,038
(472)
8,566
551,049
2,491,947
2,138,793
4,811,627
26,236,623
N/A
N/A
N/A
N/A
74
2,012
4,946
247
1,247
1,158
32
172
(15)
157
249
3,330
(1,101)
2,229
232
12,855
(2,289)
10,566
20,363
33,042
6,608
20,363
(21,826)
(1,463)
103,543
299,961
74,518
271,240
(152,273)
118,967
(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. 132
($000’s, except percentages)
December 31, 2022
Notional
amount
Average
Rate/
(1)
Price
Positive
current
replacement
(2)
cost
Credit
equivalent
(3)
amount
Risk-
weighted
(4)
balance
Fair Value
Assets
Liabilities
(5)
Net
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
3,557
10,611
68.75
68.94
8,413
N/A
-
-
-
20
58
46
4
12
9
-
-
-
-
-
6,212
41,710
(623)
(623)
(1,765)
(1,765)
(282)
(282)
Derivative instrument and term (years)
Cash flow hedges: Bond
forwards – hedge accounting
1 or less
Interest rate 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
3,335,054
3,093,618
457,620
4.06%
3.24%
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
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)
4,030
14,801
(10,862)
715
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. 133
Cash flow hedges:
The following table presents the effects of cash flow hedges on EQB’s Consolidated Statement of Income:
($000s)
2023
Gains (losses) on
Gains (losses) on
Hedge ineffectiveness
Hedging gain or loss
hedging instrument
hedged Item
recognized in income
recognized in OCI
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
39,260
4,595
1,659
45,514
(36,006)
(4,595)
(1,659)
(42,260)
4,563
-
-
4,563
34,697
4,595
1,659
40,951
2022
Gains (losses) on
Gains (losses) on
Hedge ineffectiveness
Hedging gain or loss
hedging instrument
hedged Item
recognized in income
recognized in OCI
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
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,
2023
Net gains
(losses)
recognized
in OCI
Amount
reclassified
to income as
the hedged
item affects
income
2023
Balance in cash flow
hedge AOCI
AOCI as at
October
31, 2023
Active
hedges
Discontinued
hedges
9,901
48,004
(1,273)
56,632
34,697
4,595
1,659
40,951
(31,344)
(6,842)
13,254
45,757
8,829
22,110
4,425
23,647
(544)
(158)
(158)
-
(38,730)
58,853
30,781
28,072
Page. 134
($000s)
Cash flow hedges:
Interest rate risk:
Bond forwards
Interest rate swaps
Equity price risk:
Total return swaps
Fair value hedges:
($000s)
Fair value hedges:
Interest rate risk:
Loans
Deposits
Securitization
liabilities
Bonds
Interest rate and
foreign exchange
risk:
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)
1,124
2,111
9,901
48,004
(1,273)
56,632
6,070
39,148
(1,273)
43,945
3,831
8,856
-
12,687
2023
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
Total
Active
hedges
Discontinued
hedges
Active
hedges
Discontinued
hedges
50,290
21,662
(3,242)
32,518
(45,083) 5,207 2,026,974
2,401,343
(43,035)
(23,405) (1,743) (5,436,680)
(3,554,367)
16,103
3,558
316
(99,745)
(300,142)
8,194
(32,057)
461 1,225,872
256,642
(44,456)
(54,875)
13,318
1,390
(3,358)
The following table presents the effects of fair value hedges on EQB’s Consolidated Balance Sheet and the
Consolidated Statement of Income:
Covered bonds
24,210
(23,526)
684 (1,732,332)
-
(6,156)
-
125,438
(120,513) 4,925 (4,015,911)
(1,196,524)
(69,350)
(43,525)
Page. 135
($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)
55,516
(464)
(2,994,253)
(1,371,554)
62,882
9,418
(451)
(293,144)
(244,145)
5,187
(7,380)
847
732,583
263,951
(16,895)
(60,247)
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)
(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 October 31, 2023, the approximate market value of cash and securities collateral pledged by EQB that are
subject to credit support agreements was $1,333,652 (December 31, 2022 − $1,072,639).
As of October 31, 2023, the approximate market value of cash and securities collateral accepted that may be
sold or repledged by EQB was $1,019,444 (December 31, 2022 − $41,796). There was no collateral sold or
repledged in 2023 and 2022.
Page. 136
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements:
($000s)
October 31, 2023
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
179,050
-
179,050
- (126,972)
52,078
Total return swaps
16,989
-
16,989
-
(16,831)
158
Cross-currency
interest rate swaps
Foreign exchange
forwards
Securities purchased
under reverse
repurchase agreements
47,797
-
47,797
-
-
47,797
9,038
-
9,038
- (8,580)
458
908,833
-
908,833
- (908,833)
-
1,161,707
-
1,161,707
- (1,061,216)
100,491
Page. 137
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements:
($000s)
October 31, 2023
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
Types of financial
liabilities
Derivatives held for risk
management:
Interest rate swaps
113,010
-
113,010
- (87,584)
25,426
Total return swaps
4,067
-
4,067
-
(229)
3,838
Cross-currency
interest rate swaps
Foreign exchange
forwards
Obligations
under repurchase
agreements
32,545
-
32,545
-
-
32,545
472
-
472
- -
472
1,128,238
-
1,128,238 (1,128,159)
-
79
1,278,332
-
1,278,332 (1,128,159) (87,813)
62,360
Page. 138
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements:
($000s)
December 31, 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
166,601
14,513
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
Types of financial
assets
Derivatives held for risk
management:
Interest rate swaps
Total return swaps
Cross-currency
interest rate swaps
Foreign exchange
forwards
Securities purchased
under reverse
repurchase
agreements
Page. 139
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements:
($000s)
December 31, 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
Financial
collateral
(including
cash
collateral
received)
Financial
instruments
Net amount
-
-
-
-
-
-
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
October 31, 2023
December 31, 2022
154,250
145,495
93,562
57,595
31,521
27,124
12,407
3,688
893
395
226,847
18,366
16,989
9,038
652,675
42,733
57,595
27,646
12,004
7,559
8,529
1,120
375
205,583
9,579
14,513
5,744
538,475
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
161,623
7,267
48,514
2,157
664,151
883,712
Note 14 – Other Assets
($000s)
Intangible assets
Prepaid expenses and other
Goodwill
Property and equipment
Income taxes receivable
Accrued interest and dividends on non-loan assets
Right-of-use assets
Receivable relating to securitization activities
Real estate owned
Derivative financial instruments:
Interest rate swaps
Bond forwards
Total return swaps
Foreign exchange forwards
Page. 140
(a) Intangible assets
Intangible assets include system software development costs relating to EQB’s information systems, core
customer deposits and Trust business relationships.
(b) Goodwill
For the purpose of impairment testing, goodwill is allocated to the Cash Generating Units (CGU) as follows:
($000s)
Equitable Bank
Bennington Financial Services
Concentra Bank
October 31, 2023
December 31, 2022
39,560
18,035
-
57,595
-
16,944
40,651
57,595
During the period, EQB allocated the goodwill arising on Concentra’s acquisition between the CGUs that would
ultimately benefit from the synergies arising on the acquisition. No impairment losses on goodwill were
recognized during the period ended October 31, 2023 and December 31, 2022.
The recoverable amounts for the above CGUs are calculated based on the value in use, determined by
discounting three to ten-years future cash flows expected to be generated from the continuing use of the CGUs’
assets and their perpetual terminal cash flows. No impairment losses were recognized during the period ended
October 31, 2023 and December 31, 2022 because the recoverable amounts of these CGUs were determined to
be higher than their carrying amounts.
The key assumptions used in the calculation of value in use are for the CGUs are listed in the table below. The
values assigned to the key assumptions represent management’s assessment of future trends and is based on
historical data from both external and internal sources, and best estimates.
(%)
Discount rate
Terminal value growth rate
(c) Right-of-use assets
October 31, 2023
December 31, 2022
13.2% to 18%
0% to 3%
18%
0%
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
October 31, 2023
December 31, 2022
3,688
3,285
4,192
257
8,529
3,468
3,153
376
During the period, EQB derecognized $2,817 (2022 – $105) of right-of-use assets, and $2,778 (2022 – $157) of
related right-of-use liabilities as a result of exiting certain leases. This transaction resulted in a loss of $907
(2022 – gain of $52) inclusive of exit costs being recognized within Non-interest expenses in the Consolidated
Statement of Income.
Page. 141
Note 15 – Deposits
($000s)
Term and other deposits
Fair value on acquisition
Accrued interest
Deferred deposit agent commissions
October 31, 2023
December 31, 2022
31,577,150
(67,110)
524,703
(38,293)
31,996,450
30,830,817
(123,751)
380,628
(35,881)
31,051,813
Deposits also include $1,709,181 (December 31, 2022 – $1,245,294) of funding from the covered bond program.
This funding is secured against $2,385,035 (December 31, 2022 – $1,577,979) of residential loans reported on
the Consolidated Balance Sheet under Loans – Personal.
Fair value on acquisition includes the unamortized fair value adjustments on acquisition of Concentra on
November 1, 2022. These fair value balances are amortized over the life of the acquired deposits under Interest
expense – Deposits in the Consolidated Statement of Income.
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
2023
83,559
507
84,066
48,744
(2,517)
182
46,409
130,475
2022
82,718
2,185
84,903
11,775
(2,160)
3,758
13,373
98,276
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(1)
Increase (decrease) resulting from:
Tax-exempt income
Future tax rate changes
Non-deductible expenses and other
Effective income tax rate
2023
27.2%
(1.0%)
2022
27.0%
(1.7%)
0.1%
1.0%
(0.3%)
26.0%
0.4%
26.7%
(1) The increase in statutory tax rate is due to the additional 1.5% (prorated for 2022) Federal tax imposed on Canadian financial institutions.
Page. 142
(b) Deferred tax:
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
Intangible costs
Net deferred income tax liabilities(3)
October 31, 2023
December 31, 2022
11,148
18,072
7,535
3,768
317
13,315
54,155
132,186
7,821
7,005
21,349
168,361
114,206
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) Deferred tax asset pertains to income tax losses of approximately $43,259 from Equitable Trust (2022 – $32,392). (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 $46,409 (2022 – $13,373, and a tax charge of $1,288 for business combination), and a tax recovery of $4,879 (2022 –
$5,127) to Stockholders’ Equity. Certain taxable temporary differences associated with investments in subsidiaries did not result in the
recognition of deferred tax liabilities as at October 31, 2023. The total amount of these temporary differences was $1.793 billion as at October
31, 2023 (December 31, 2022 – $1.740 billion).
Deferred income tax assets and liabilities are reflected on the Consolidated Balance Sheet as follows:
($000s)
Deferred tax assets
Deferred tax liabilities
Net deferred tax liabilities
Note 17 – Funding Facilities
(a) Secured funding facilities:
October 31, 2023
December 31, 2022
14,230
128,436
114,206
-
72,675
72,675
EQB has two credit facilities totaling $1,600,000 (December 31, 2022 – $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 October 31, 2023, EQB had an outstanding balance of
$1,058,619 (December 31, 2022 – $737,040) 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%.
Concentra Bank maintains a $25,000 (December 31, 2022 – $400,000) secured credit facility with a major
Schedule I Canadian bank to backstop issued letters of credit. The credit facility carries interest rates at Banker’s
Acceptance plus 0.50%. Concentra Bank also maintains $100,000 (December 31, 2022 – $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 October 31, 2023, there were no amounts outstanding under
either of these facilities.
Page. 143
(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 October 31, 2023, EQB had an outstanding balance of $372,619 (December 31, 2022 –
$467,701) on the above facilities including deferred cost of $486 (December 31, 2022 – $609), prepaid interest
of $1,912 (December 31, 2022 – $6,697). The Revolving and Term Loan facilities carry interest rates at 1-month
CDOR plus applicable margins.
In 2023, EQB established a Bearer Deposit Notes (BDN) program through which it issues short-term unsecured
notes. As at October 31, 2023 the outstanding balance of the notes issued under the program was $300,349
including deferred costs of $25 and discounts of $2,626. The interest rates on the outstanding BDN ranges from
5.15% to 5.85%.
Concentra Bank also maintains a BDN program. As at October 31, 2023 there were no notes outstanding under
Concentra’s program (December 31, 2022 – $34,963).
Note 18 – Other Liabilities
($000s)
Accounts payable and accrued liabilities
Securitized loan servicing liability
Loan realty taxes
Unearned revenue
Right-of-use liabilities
Loan commitments
Income taxes payable
Derivative financial instruments:
Interest rate swaps
Total return swaps
Bond forwards
Foreign exchange forwards
Note 19 – Shareholders’ Equity
(a) Capital stock:
Authorized:
October 31, 2023
December 31, 2022
317,997
81,150
21,292
18,299
4,561
3,620
2,847
145,555
4,067
2,179
472
602,039
207,651
58,180
57,541
2,417
10,333
935
-
210,137
7,267
258
2,157
556,876
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. 144
Issued and outstanding shares:
($000’s, except shares and per share amounts)
October 31, 2023
December 31, 2022
Number of
shares
Amount
Dividends
paid per
share
Number of
shares
Dividends
paid per
share
Amount
Preferred Shares, Series 3:
Balance, beginning of year
2,911,800
70,424
2,919,400
70,607
Treasury Preferred Shares,
Series 3 cancelled
Balance, end of year
Class A Series 1:
Upon acquisition
Balance, end of year
Class A Series 2:
Upon acquisition
Balance, end of year
Common shares:
-
2,911,800
3,888,500
-
3,888,500
551,000
-
551,000
-
70,424
97,212
-
97,212
13,775
-
13,775
(7,600)
1.12
2,911,800
-
3,888,500
0.75
3,888,500
-
551,000
1.52
551,000
(183)
70,424
-
97,212
97,212
-
13,775
13,775
1.49
0.25
0.46
Balance, beginning of year
37,564,114
462,561
34,070,810
230,160
New shares issued
-
-
3,266,000
223,112
Issuance on exercise of stock
options
Issuance under DRIP
Issuance costs – net of tax
Dividend paid from principal
Transferred from contributed
surplus relating to the exercise
of stock options
227,896
87,342
-
-
-
7,362
5,799
(6,230)
-
1,522
118,970
108,334
3,528
5,746
(655)
-
670
Balance, end of year
37,879,352
471,014
1.10
37,564,114
462,561
1.21
(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
dividend, 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.
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
Page. 145
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. 146
(d) Dividend restrictions:
EQB’s subsidiary, Equitable Bank, is subject to minimum capital requirements, as prescribed by OSFI under the
Bank 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 the Bank Act (Canada), and those OSFI
guidelines relating to capital adequacy and liquidity.
(e) Normal course issuer bid (NCIB):
On December 21, 2020, the EQB 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 October 31, 2023, EQB
had repurchased and cancelled 88,200 Series 3 – 5-year rate reset preferred shares at a volume weighted
average price of $25.91. 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 or ten years and vest over a four-year period. At October 31, 2023, the maximum number
of common shares available for issuance under the plan was 4,000,000 (December 31, 2022 − 4,000,000). The
outstanding options expire on various dates to October 2033. A summary of EQB’s stock option activity and
related information for the period ended October 31, 2023 and December 31, 2022 is as follows:
($000’s, except share, per share and stock option amounts)
October 31, 2023
December 31, 2022
Number of
stock options
Weighted average
exercise price
Number of stock
options
Weighted average
exercise price
Outstanding, beginning of year
Granted
Exercised
Forfeited/cancelled
Outstanding, end of year
Exercisable, end of year
1,229,851
209,037
(227,896)
(37,273)
1,173,719
641,645
49.03
67.33
32.30
71.64
54.82
44.19
1,123,002
253,816
(118,970)
(27,997)
1,229,851
658,941
41.75
73.83
29.65
64.37
49.03
36.44
Page. 147
The following table summarizes information relating to stock options outstanding and exercisable as at October
31, 2023:
Exercise price ($)
Number outstanding
Options outstanding
Options exercisable
Weighted average remaining
contractual life (years)
Number exercisable
35.84
27.63
27.83
33.89
46.21
56.63
45.48
32.83
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
67.12
62.88
73.50
67.60
56,832
3,500
132,032
167,296
2,000
4,000
146,450
1,250
25,000
3,000
184,162
3,000
3,000
3,000
5,000
203,441
5,500
4,000
6,000
1,786
12,000
185,870
2,500
8,100
5,000
0.3
0.8
1.4
2.4
2.8
3.0
3.3
3.6
4.0
4.3
4.3
4.8
5.0
5.1
5.1
5.3
5.4
5.5
5.5
5.6
5.8
9.3
9.5
10.0
10.0
56,832
3,500
132,032
167,296
2,000
3,000
106,855
500
12,500
1,500
92,061
1,500
750
750
1,250
51,998
1,375
1,000
1,500
447
3,000
-
-
-
-
Under the fair value-based method of accounting for stock options, EQB recorded compensation expense in the
amount of $2,872 (2022 − $3,422) related to grants of options under the stock option plan. This amount was
credited to Contributed surplus. The fair value of options granted during 2023 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:
2023
3.1%
5.5
31.1%
2.2%
18.24
2022
1.7%
4.8
30.4%
1.8%
17.46
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
Page. 148
up to a certain maximum per employee. During the period, EQB expensed $1,737 (2022 − $1,477) under this plan.
(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 period ended October 31, 2023 and year ended December 31, 2022 is as
follows:
Outstanding, beginning of year
Granted
Dividend Reinvested
Paid out
Outstanding, end of year
October 31, 2023
December 31, 2022
Number of DSUs
Number of DSUs
145,695
16,502
1,920
(20,328)
143,789
138,379
16,510
2,945
(12,139)
145,695
During the period 20,328 DSUs were paid out (2022 – 12,139). Compensation expense, including offsetting
hedges, relating to DSUs outstanding during the period ended October 31, 2023 amounted to $1,400 (2022 –
$1,165). The liability associated with DSUs outstanding as at October 31, 2023 was $9,718 (December 31, 2022 –
$8,261) 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. 149
A summary of EQB’s RSU and PSU activity for the period ended October 31, 2023 and December 31, 2022 is as
follows:
Outstanding, beginning of year
Granted
Dividend reinvested
Vested and paid out
Forfeited/cancelled
Outstanding, end of year
October 31, 2023
December 31, 2022
Number of RSUs and PSUs
Number of RSUs and PSUs
132,179
138,542
4,375
(5,446)
(17,763)
251,887
131,995
84,122
4,140
(75,258)
(12,820)
132,179
During the period, 5,446 (2022 – 72,258) RSUs and PSUs were vested and paid out for a total value of $355 (2022
– $4,529). Compensation expense, including offsetting hedges, relating to RSUs and PSUs outstanding during
the period amounted to $4,487 (2022 – $4,182). The liability associated with RSUs and PSUs outstanding as at
October 31, 2023 was $8,271 (December 31, 2022 – $3,333) and was included in other liabilities on the
Consolidated Balance Sheet.
(e) Treasury share unit plan:
Effective January 1, 2023, EQB granted Treasury Share Units (TSUs) to eligible employees in the form of
Treasury Performance Share Units (TPSUs), under the TSU plan adopted in 2022, for a term of ten years.
Under the plan, 50% of the TPSUs cliff vest after 3 years, and the remaining 50% cliff vest after 4 years, subject
to performance conditions. Under the plan, each TPSU represents one notional common share and earns
notional dividends, which are reinvested into additional TPSUs when cash dividends are paid on EQB’s
common shares. When the TPSUs vest, the eligible employee can elect to settle in shares issued from
treasury, or in cash.
As at October 31, 2023, the maximum number of common shares available for issuance under the TSU plan
was 300,000. The outstanding TPSUs expire in February 2033.
Under EQB's TSU plan, the activity for the period ended October 31, 2023 and December 31, 2022 is as follows:
Outstanding, beginning of year
Granted
Dividend reinvested
Forfeited/cancelled
Outstanding, end of year
October 31, 2023
December 31, 2022
Number of
TPSUs
Number of
TPSUs
-
47,936
783
(3,676)
45,043
-
-
-
-
-
Compensation expense, including offsetting hedges, relating to TPSUs outstanding for the year amounted to
$639 (2022 – $nil). The liability associated with TPSUs outstanding as at October 31, 2023 was $626 (December
31, 2022 – $nil) and is included in other liabilities on the Consolidated Balance Sheet. No TPSUs were vested and
paid out during the period (2022 – $nil).
Page. 150
Note 21 – Non-interest Expenses - Other
($000s)
Technology and system costs
Product costs
Regulatory, legal and professional fees
Marketing and corporate expenses
Premises
2023
61,662
66,542
43,159
49,133
14,495
234,991
2022
58,741
38,862
41,450
38,677
15,136
192,866
Note 22 – 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 period, taking into account the
dilution effect of stock options using the treasury stock method.
($000’s, except share, per share and stock option amounts)
2023
2022
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:
Net income available to common shareholders
Weighted average basic number of common shares outstanding
Adjustment to weighted average number of common shares
outstanding:
371,590
6,998
364,592
37,708,123
9.67
364,592
37,708,123
270,181
5,566
264,615
34,688,502
7.63
264,615
34,688,502
Stock options
305,600
342,664
Weighted average diluted number of common shares
outstanding
Earnings per common share − diluted
38,013,723
9.59
35,031,166
7.55
For the period ended October 31, 2023, the calculation of the diluted earnings per share excluded 543,754 (2022
– 438,196) average options outstanding with a weighted average exercise price of $71.08 (2022 − $72.05) as the
exercise price of these options was greater than the average price of EQB’s common shares.
Note 23 – Capital Management
Equitable Bank manages its capital in accordance with guidelines established by OSFI, based on standards
issued by the Bank for International Settlements’ Basel Committee on Banking Supervision. OSFI’s Capital
Adequacy Requirements (CAR) Guideline details how Basel III rules apply to Canadian banks. OSFI has
mandated that all Canadian-regulated financial institutions meet target Capital Ratios: those being a CET1 Ratio
of 7.0%, a Tier 1 Capital Ratio of 8.5%, and a Total Capital Ratio of 10.5%. In order to govern the quality and
quantity of capital necessary based on EQB’s inherent risks, Equitable Bank utilizes an Internal Capital Adequacy
Assessment Process (ICAAP).
Equitable Bank’s CET1 Ratio was 14.0% as at October 31, 2023, while Tier 1 Capital and Total Capital Ratios were
14.6% and 15.2%, respectively. EQB’s Capital Ratios as at October 31, 2023 exceeded the regulatory minimums.
During the period, EQB complied with all external capital requirements.
Page. 151
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
Additional Tier 1 capital issued by a subsidiary to third parties
Tier 1 Capital
Tier 2 Capital:
October 31, 2023
December 31, 2022
Revised Base III(1)
Base III
930,178
13,886
2,057,262
(49,956)
(187,870)
2,763,500
72,554
57,628
2,893,682
928,778
12,537
1,856,084
(33,759)
(170,504)
2,593,136
183,541
-
2,776,677
Eligible stage 1 and 2 allowance
101,162
79,284
Additional Tier 1 capital issued by a subsidiary to third parties
(amount allowed in Tier 2)
6,719
-
Tier 2 Capital
Total Capital
107,881
3,001,563
79,284
2,855,961
(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 24 – Commitments and Contingencies
(a) Lease commitments:
($000s)
Less than 1 year
1-5 years
Greater than 5 years
October 31, 2023
December 31, 2022
938
37,360
84,820
123,118
6,058
40,248
85,130
131,436
The lease commitments for October 31, 2023 include the commitments relating to a new Toronto office premise
lease, signed in February 2020. The lease commitments for October 31, 2023 also includes commitments
relating to a new temporary office lease signed in December 2022.
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 2023 amounted to $8,571 (2022 − $11,562).
(b) Credit commitments:
As at October 31, 2023, EQB had outstanding commitments to fund $5,780,730 (December 31, 2022 −
$4,255,117) of loans and investments in the ordinary course of business. Of these commitments, $2,437,509
(December 31, 2022 − $1,671,463) are expected to be funded within 1 year and $3,343,221 (December 31, 2022
− $2,583,654) 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 $65,538 were
Page. 152
outstanding as at October 31, 2023 (December 31, 2022 − $86,104).
(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 25 – 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
Termination benefits
Share-based payments (net)
2023
3,802
53
1,043
3,095
7,993
2022
4,345
54
-
3,131
7,530
(b) Share transactions, shareholdings and options of key management personnel and related parties:
As at October 31, 2023, key management personnel held 587,980 (December 31, 2022 – 608,923) common
shares and 6,000 (December 31, 2022 – 22,000) preferred shares. These shareholdings include common shares
of 9,291 (December 31, 2022 – 25,260) 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 378,910 (December 31, 2022 – 496,746) options to purchase common shares of EQB at prices
ranging from $27.83 to $75.72.
(c) Other transactions:
As at October 31, 2023, deposits of $835 (December 31, 2022 – $909) 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. 153
Note 26 – 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 October 31, 2023.
($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
1,247,915
-
Effective interest rate
4.98%
-
Securities purchased
under reverse purchase
agreements
Effective interest rate
-
-
908,833
4.99%
-
-
-
-
1,247,915
4.98%
908,833
4.99%
-
-
-
-
-
-
-
-
68,754
1,316,669
0.00%
4.72%
-
-
908,833
4.99%
Investments
14,768
222,242
189,154
426,164
1,041,628
745,814
(92,961)
2,120,645
Effective interest rate
9.71%
5.25%
1.20%
3.61%
2.21%
2.27%
0.00%
2.61%
Loan receivable – Personal
3,756,925
2,569,708
9,718,643
16,045,276
16,046,516
46,995
251,740
32,390,527
Effective interest rate
9.60%
5.46%
5.44%
6.42%
4.73%
9.55%
0.00%
5.54%
Loan receivable –
Commercial
7,342,545
519,913
1,151,483
9,013,941
4,155,834 1,656,620
144,209
14,970,604
Effective interest rate
8.82%
5.96%
5.68%
8.26%
4.73%
3.71%
0.00%
6.69%
Securitized Retained
Interest
Other assets
Total assets
Liabilities:
Deposits(2)
-
-
-
-
-
-
-
-
-
-
-
-
559,271
559,271
666,905
666,904
12,362,153
4,220,696
11,059,280
27,642,129
21,243,978 2,449,429
1,597,918
52,933,454
1,081,440 10,444,766
11,024,767
22,550,973
9,325,906
23,464
96,107
31,996,450
Effective interest rate
3.38%
4.01%
4.36%
4.15%
3.87%
3.97%
0.00%
4.06%
Securitization liabilities
Effective interest rate
Obligations Under REPO
Effective interest rate
Funding Facilities
Effective Interest rate
Other liabilities and
deferred taxes
Shareholders' equity
Total liabilities and
shareholders’ equity
-
-
-
-
-
-
-
-
2,185,076
2,849,518
5,034,594
8,311,212 1,079,246
76,109
14,501,161
4.65%
3.08%
3.76%
2.28%
2.80%
0.00%
2.82%
1,127,791
5.30%
-
-
1,127,791
5.30%
1,694,238
40,000
1,734,238
5.95%
5.58%
5.95%
-
-
-
-
75,000
75,000
-
-
-
-
-
-
-
-
-
-
-
-
447
1,128,238
0.00%
5.30%
(2,651)
1,731,587
-
5.95%
730,475
730,475
2,770,543
2,845,543
1,081,440
15,451,871
13,989,285
30,522,596
17,637,118
1,102,710
3,671,030
52,933,454
Off-balance sheet items(3)
-
(2,104,332)
4,535,023
2,430,691
(1,683,417)
(747,274)
-
Excess (deficiency) of
assets over liabilities,
shareholders’ equity and
off-balance sheet items
11,280,713
(13,335,507)
1,605,018
(449,776)
1,932,443
599,445
(2,073,112)
-
-
(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. 154
($000’s, except percentages)
Floating rate
0 to 3
months
4 months to
1 year
Total
within 1
year
1 year to 5
years
Greater
than 5
years
Non-
interest
sensitive(1)
Total
Total assets − 2022
12,593,282
3,670,668
11,263,643
27,527,593
20,395,837 2,297,737
923,790 51,144,957
Total liabilities and
shareholders’ equity
− 2022
Off-balance sheet items
− 2022(2)
Excess (deficiency) of
assets over liabilities,
shareholders’ equity
and off-balance sheet
items
– 2022
850,092
12,615,873
14,161,063
27,627,028
19,060,854
1,261,376
3,195,699
51,144,957
-
(2,485,030)
2,542,654
57,624
90,306
(147,930)
-
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) 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.
90
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TSX:EQB | EQB.PR.C.
EQB Inc. | Fourth Quarter Report 2023
It’s Time
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