Equitable Bank grows deposit base, leaves credit line untapped

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Alternative mortgage lender Equitable Group Inc. grew its deposit base during the second quarter, even as its larger rival Home Capital Group Inc. suffered a crisis of confidence following an investigation by Ontario's securities regulator.

Equitable secured a $2-billion line of credit from a syndicate of the country's six biggest banks after its deposit base started to dwindle this spring. The Toronto-based lender was concerned about possible contagion from the troubles brewing at Home Capital, which suffered a more severe run on its deposits amid a regulatory probe that was settled earlier this week.

But Equitable's CEO Andrew Moor said Thursday the lender has not had to draw on the line of credit and it's "extremely unlikely" that it will.

"Markets would have to turn really ugly in some way that I absolutely don't anticipate, for us to tap it," Moor said in an interview after the bank reported its second-quarter results. "We've got huge liquidity on hand right now."

The lender has been making strides to improve its liquidity position, including advertising its digital banking platform, EQ Bank, as well as insuring and securitizing close to $900-million of single-family mortgages, he added.

As of June 30, Equitable had just over $10-billion in deposits, up from $9.95-billion at the end of March. And its deposits have grown by another $130-million since the end of the second quarter, the company said.

The company said it's planning to maintain a higher than usual level of liquidity until market conditions have remained stable for a longer period of time.

"We've had several months now of stability," said Moor. "So it's feeling very stable. But one can never tell, and we certainly want to be acting cautiously and prudently just in case things change again."

Equitable reported $38.9-million of net income during the second quarter, up 16 per cent from a year ago when its net income was $33.4-million.

The earnings amounted to $2.28 per diluted share, up 11 per cent compared to $2.05 per diluted share during the same quarter last year.

Equitable also boosted its dividend to 24 cents per share, payable on Oct. 5. That's an increase of one cent, or 4.3 per cent, from May 2017.

The lender says it saw a spike in demand during the quarter as its rival struggled, but it tightened its lending criteria to ensure that it didn't take on excessive risk.

Meanwhile, the company is in talks with regulators over proposed rules that would require stress tests for all uninsured mortgages. The potential policy change from the Office of the Superintendent of Financial Institutions would also increase the qualifying rate for uninsured mortgages to the contract rate plus two per cent.

Moor says such a policy change could negatively impact certain borrowers and Equitable's business.

"We think this will make it harder for people who are self employed or relatively newer to Canada to borrow money to buy a home – the market that we particularly target," said Moor. "So we're concerned that this is disadvantaging certain key constituents in Canadian society."

But, he added, he's optimistic that the regulator will carefully consider the possible impact of such a change before it acts.