EQ Bank's parent company, Equitable Group, reports very strong results in Q2 2019 | EQ Bank | Discussion forum

I don't normally make a habit of reporting the quarterly financial results of Canada's publicly-traded financial institutions, but decided to make an exception given the very strong results in both net income (reported and adjusted) and balance sheet growth (loans and deposits) of Equitable Group, Inc., the publicly-traded parent company of Equitable Bank which operates in the direct-to-consumer space as EQ Bank, for its fiscal second quarter and first half of 2019 ended June 30, 2019.

Among the balance sheet highlights from the PowerPoint slides of their supplementary financial information in PDF format:

* Quarter-over-Quarter (that is to say, June 30, 2019, and March 31, 2019), from Table 8 on page 14, deposits actually dipped slightly by roughly $105 million to $14.5 billion mainly owing to declines in the brokered demand (approx. $40 million) and term deposits ($300 million). In the EQ Bank channel, demand deposits grew by approx. $12 million while term deposits grew by approx. $20 million. Non-CDIC insured institutional deposit notes held firm at $150 million while their "strategic partnerships" channel (principally, Wealthsimple Save, which provides CDIC deposit protection to $1 million per depositor across several Canadian financial institutions, for which EQ Bank is the bulk of the deposits, that pays an effective average annual rate of 2.00%) easily outpaced all the channels, growing deposits an impressive $120 million to $435 million.

* Year-over-year (that is to say, June 30, 2019, and June 30, 2019), Equitable Bank grew its deposits across all channels, with their balance sheet as follows:
- Brokered term deposits: approx. $11 billion (2019) versus approx $9.4 billion (2018), an increase of approx. $1.6 billion;
- Brokered demand deposits: approx. $597 million (2019) versus approx $773 million (2018), a decrease of approx. $176 million;
- EQ Bank direct-to-consumer term deposits: approx. $549 million (2019) versus approx. $157 million (2018), an increase of approx. $392 million (they only launched term deposits in Q1 2018, for which they raised approx. $36 million in that first quarter 2018);
- EQ Bank direct-to-consumer demand deposits: approx. $1.7 billion (2019) versus approx $1.8 billion, a decrease of approx. $115 million; and,
- Strategic partnership deposits (EQ Bank deposits principally held through Wealthsimple Save's pooled high interest savings account): approx. $435 million (2019) versus approx. $67 million (2018), an increase of approx. $368 million (they only launched in Q1 2018, for which they held $51 thousand in that first quarter 2018).

Turning to their loan book and profitability, for the same periods as above, Equitable Bank held the following in loans in Q2 2019:
- Retail loans: approx. $16.7 billion with a daily average interest rate earned of 4.02% (4.85% on alt single family mortgages versus 2.42% for prime single family mortgages and 5.99% for other retail loans);
- Commercial loans: approx. $7.7 billion with a daily average interest earned of 5.08% (6.05% on traditional commercial loans, 12% on equipment leasing, and 3.13% on CMHC, Genworth, or Canada Guaranty insured multi-unit condo and purpose-built rental apartment development mortgages)
- Effective daily average interest rate earned for Equitable Bank on its loan book was 4.23%, which earned them approximately $275 million in gross interest income

Of the $14.6 billion in deposits Equitable Bank held through its various channels as at Q2 2019, they paid an average daily interest rate of 2.64%, costing them approx. $96.2 million in interest expense.

Subtracting the interest expense from the interest income, they earned a Net Interest Margin rate of 1.76% (about 0.50-0.55% less than the average of the Big 5 banks, which makes sense, given their premium rates), which translated into Net Interest Income before allowances for impaired loans, of $160 million.

Their Big 5 bank secured backstop emergency liquidity facility has been undrawn since its inception in June 2017, though they paid approx. $1.4 million to the lending syndicate in Q2 2019 in commitment fees for the privilege of having that standby credit facility, which is down from the nearly $11 million they paid in Q2 2018 as they'd recently renegotiated the agreement under terms more favourable to Equitable Bank.

Hopefully, the above provides some insight into the various channels by which Equitable Bank raises deposits, so we can see how EQ Bank is very much an important channel but, since it isn't the only one, that helps to explain why their implementation of new product features may seem comparatively slow since it's just one growing deposit gathering channel.

Cheers,
Doug