EQB's mortgage portfolio shrinks despite growth in unsecured loans

Toronto —
EQB Bank recorded a decline in the total single-family mortgage portfolio during the second quarter, despite continued growth in unsecured loans, which represent a more profitable segment of its real estate business.

Unsecured single-family mortgage balances rose by 3% year-over-year to $21.1 billion, while secured mortgages declined by 26% to $6.2 billion.

This reflects a shift in the portfolio mix towards traditional unsecured lending, which typically achieves higher margins, even as the housing market remains slower and more competitive.

The bank said that the weakness in the single-family housing market increased competition, but it managed to maintain its market share and portfolio margins, benefiting from strong renewal rates that reached record levels in the high seventies range.

Reverse mortgages also continued to grow, with this portfolio increasing by 26% to $3.2 billion, and management described this sector as one of the bank’s main growth priorities.

However, this growth came alongside ongoing credit pressures in parts of the mortgage portfolio, with credit loss provisions rising to $45.4 million, up 50% from last year and 16% from the previous quarter.

The bank said the pressures are particularly concentrated in some single-family housing loans related to 2022 issuances and specific areas around Greater Toronto, due to declining property valuations, rising delinquencies, and prolonged processing times for troubled files.

Total impaired loans rose to $1.03 billion, compared to $956 million in the previous quarter, but management pointed to some early signs of stabilization, including a decline in early-stage delinquencies within the 30 to 89 days category.

Nevertheless, management warned that the bank needs several positive quarters before confirming a clear turnaround in the credit cycle.

CEO Chadwick Westlake said that recovery in mortgage portfolios is likely by late 2026 and extends into 2027, due to geopolitical tensions, trade uncertainty, rising energy prices, unemployment, and a weak housing market.

On the overall results level, adjusted net income fell to $78.3 million, down 17% year-over-year, while adjusted earnings per share dropped to $2.03.

Revenues reached $302.4 million, down 4% from last year, while the net interest margin improved on a quarterly basis to 2.08%.

The bank maintained a strong core capital ratio at 13.6%, repurchased 1.2 million shares, and raised dividends by 3% to 61 cents per share.

This quarter comes ahead of the closing of the acquisition deal for PC Financial, expected on July 1, a deal that EQB management says will be a major turning point by expanding the customer base, diversifying revenues, and enhancing distribution channels.