The Covid-19 pandemic declared on March 12, 2020 has altered Canadian society and the banking industry in many ways and understandably overshadowed the accomplishments made by your Bank last year. Even so, we feel it is our duty to shareholders to account for Equitable’s progress in 2019. This letter is dedicated to that purpose.
2019 marked another year of significant progress and record results for Equitable Bank, Canada’s Challenger Bank™. Adjusted net income increased 22% over 2018, while adjusted ROE was a healthy 15.9%.
While it has become a tradition to report ever-higher earnings over the past decade, along with consistently strong ROE, it is not one we take for granted – nor could we given the dynamic nature of our markets and the fresh thinking necessary to profitably challenge conventional banking practices in a way that improves the value we provide and the way we serve customers every year.
Diversifying our customer services
From a service perspective, 2019 was an active year as we continued to expand the digital features and applications available for EQ Bank clients and were rewarded with solid growth in the account base. Over 100,000 Canadians now rely on EQ Bank, which is a notable accomplishment for a platform launched just four years ago.
Our traditional retail and commercial lending businesses delivered attentive customer service during the year such that assets under management grew 12% to an all-time record high of $33 billion.
We also gained experience and distribution partners for new services within what we call our decumulation business – these being loans against the cash surrender value of insurance and reverse mortgages. These products are well designed for Canadians at or nearing retirement.
Although its asset base is still modest compared to the rest of the Bank, the Board is pleased with early results from Bennington Financial. While Equitable has purchased individual assets and mortgage pools before, Bennington represents our first true corporate acquisition. Management has done a good job of achieving alignment between Bennington and Equitable while keeping the focus on service for its Bennington customers and leasing brokers. This acquisition is part of a broader strategy to broaden services to Canada’s small business community.
Responding to Covid-19
In light of the current global turmoil resulting from Covid-19 it has become even more difficult than normal to forecast the economic environment in which the Bank will compete during 2020 and 2021. Nonetheless, we remain focused on providing safe working conditions for our employees; secure digital banking for our depositors and highly responsive service for our borrowers and business partners. Also noteworthy is that the Bank entered the year with strong liquidity and capital positions. This gives Equitable the ability to deal with these significant societal and economic challenges. The Government of Canada and the Bank of Canada are also taking positive actions to support the stability of the financial system. During this unprecedented period, we appreciate your ongoing support and confidence in our institution.
Managing our risks
As we grow and diversify our asset base, maintaining robust credit decision-making processes is especially critical. Over the past 10 years, Equitable’s average loss rates have been far lower than all other banks on the TSX Composite Index but again, we cannot rest on our laurels. In particular, as the economic impact of Covid-19 is presently unknown, we must remain vigilant and sensitive to changing economic and employment conditions across the country as we commit to extending credit to our clients.
Growing our dividend
During 2019, the Board increased the common share dividend by 19% and announced a plan to grow the dividend on average by 20% to 25% per annum through 2024. Due to OSFI’s request to banks to halt dividend increases in light of Covid-19, our immediate plans to grow dividends will be delayed. Rest assured, we understand the importance of rewarding our investors with stable and growing dividends. Over the past decade we have increased the dividend 21 times.
Equitable’s profile in the capital markets improved in 2019 as the Company’s shares were added to the benchmark TSX Composite Index in September. The Composite is reserved for Canada’s largest companies by market capitalization and its constituents include eight other publicly listed Schedule I banks. This is a major milestone and a signal to the market that Equitable continues to mature. We were also grateful to the TSX for recognizing the 15th anniversary of our exchange listing.
Providing good governance
Your Board is comprised of individuals with diverse expertise in areas that are relevant to the Bank including risk management, financial services, real estate, finance and accounting, human resources, compensation and technology. As a group and as individuals, the Directors are deeply engaged in providing strategic oversight and contributing advice to management as we execute on our business plans. With many years of senior management experience, your Board is also able to provide guidance to the management team during times of economic turmoil; times that Canada clearly faces today.
As Directors, we seek to live by Equitable’s values of service, respect, integrity, empowerment and agility while we carry out our responsibilities to all stakeholders. To ensure the service we provide is relevant, we maintain an active Director education program and continue to adhere to the latest best practices in governance.
I am proud to say that each member of your Board is standing for re-election this year and that all Directors have either met – or in the case of our newest Directors, are well on their way to meeting – our requirements for share ownership.
Engaging with shareholders
Shareholder engagement is a good governance principle that we take seriously. Our annual meeting provides an opportunity for all shareholders to meet with your Board and management. This year, the meeting is set for Friday May 15, 2020 at 10 am Eastern. We will host the meeting virtually to enable shareholders to participate fully while maintaining physical distancing protocols required during the Covid-19 pandemic. Please see the 2020 Management Information Circular for details on how to login. Beyond this annual opportunity, we are also open to other forms of shareholder communication and engagement upon request.
Caring for our communities
Our Bank strives to have a positive impact on all the communities connected to our business. In 2019, the people of Equitable were active community participants, giving time and financial support. Over the years, the team has focused on issues at the intersection of mental health and homelessness while also providing longstanding support for the Heart and Stroke Foundation of Canada, ALS Canada, Juvenile Diabetes Research and Mount Sinai Foundation. Through volunteerism, the team has developed important bonds with each other and our neighbours.
Investing for the future
2020 promises to be another productive year for Equitable as we invest more than ever to deliver better long-term shareholder value.
The successful shift of our core banking system to the cloud in late 2019 prepares us for an exciting and prolific future of technology-based product launches through EQ Bank. We are also pursuing an advanced internal rating-based (AIRB) approach to credit risk measurement. Migration to AIRB, if and when approved by the regulators, would provide a range of benefits including the ability to attribute capital in a way that allows us to compete more effectively across a broader range of assets and with a stronger quantitative link between capital allocation and risk.
Achieving good things through teamwork
Equitable is not just Canada’s Challenger Bank™, it is Canada’s most efficient publicly-traded bank not just because of our branchless business model, technology capabilities or well-managed spending, but because the people of Equitable are motivated and dedicated. I thank all employees for delivering great results and industry-leading productivity. In early 2020, the outstanding commitment of our employees was again highlighted as we moved operations to remote locations to address the implications of Covid-19. The health and safety of our employees remains a top priority for the Bank this year, and at all times. Our employees deserve our heartfelt thanks for their incredible efforts in 2019 and in adapting to the challenges thrown at us in early 2020. We also extend our deepest appreciation to customers, business partners and shareholders.
While the current challenging environment will, no doubt, slow our progress, we expect to be resilient and continue to advance our distinctive position as Canada’s Challenger Bank in the years ahead.