Alternative lender Equitable Bank revealed today that a majority of its residential mortgage clients have already renewed at higher interest rates and have largely absorbed the increases.
In the bank’s fourth-quarter earnings call, President and CEO Andrew Moor said over 80% of its uninsured single-family mortgage customers have either originated or renewed their loans at today’s higher interest rates. As of year-end, its alternative mortgage clients had an average rate of 5.99%.
Moore said he is encouraged that the “vast majority of our customers are able to absorb this increase.”
“I have a lot of empathy for our customers here. I think lots of people wouldn’t have expected interest rates to rise as fast as they have,” he said during the bank’s earnings call.
“Most people, because the employment situation is still fairly good, are able to accommodate this shock to the mortgage payment,” he continued.
However, like other banks and mortgage lenders that have reported fourth-quarter earnings, Equitable has also seen delinquencies start to rise. Net impaired loans among its residential mortgage lending rose to 0.37% of the portfolio, up from 0.25% in the previous quarter.
“We are seeing some people at the margin…having a little bit of challenge to make those payments, but it’s not really translating into anything in the way of losses,” Moor noted.
The bank also reported that it continued to see strong growth among its client base, which surpassed 400,000 people in Q4, up 30% from last year.
Net income (adjusted): $147 million (+59% YoY)
Earnings per share (adjusted): $3.80
Assets under management and administration: $111 billion (+8%)
Single-family alternative portfolio: $30 billion (+%)
Insured multi-unit portfolio: $20 billion (+27%)
Net interest margin: 2% (+13 bps)
Net impaired loans (residential loans): 0.37% (+12 bps QoQ)
Reverse mortgage loans: $1.5 billion (+43%)
Avg. LTV of Equitable’s uninsured single-family residential portfolio: 62%
Provisions for credit losses (PCLs): $19.6M (+50% QoQ)
CET1 ratio: 14% (+30bps)
Notables from its call
Equitable noted that it does not offer single-family variable-rate mortgages that could trigger negative amortization.
Nearly 100% of EQB’s lending portfolio is secured and approximately 52% is insured.
CEO Andrew Moor commented on the following topics during the company’s earnings call:
On retention rates: “…loan retention is much higher, and this is a tailwind we expect to continue into 2024…We’re sort of 10% ahead of where we would normally be…it’s been the case throughout the last year or so. It’s fairly consistent.”
On Bank of Canada interest rate moves: “I have a strong view that it looks like the Bank of Canada is going to be into easing sooner rather than later.”
On the impact of mortgage rate spreads in a falling-rate environment: “What I’ve observed over the years in a dropping interest rate environment, mortgage spreads and just general lending spreads expand…Somebody is going to make a decision to drop mortgage rates in a competitive market that tends to lag a little bit…If you look at prime mortgage spreads in the market today, they’re actually quite wide based on the fact that the bonds rallied 90 basis points over the last 30, 45 days over the five year, and yet we haven’t really seen much in the way of dropping 5-year rates.”
On mortgage volume growth in 2024: “I think we’ll see low single-digit…annualized rates through the middle of next year. As the market starts to anticipate rate cuts, you will see a bit more activity in the housing market. There’s clearly pent-up [demand], potential buyers sitting on the sidelines, a bit of a stand-off between sellers and buyers. So, I’m rather optimistic, frankly, that as we get through the first third of the year or so, we’ll see some more activity.”
On the federal government’s recently announced Mortgage Charter: “What’s being asked for is entirely reasonable. So, it seems sensible. We’re always working with our customers if they’re looking for things to help them get through the period. But, generally, we’re very disciplined on giving relief because our experience has been that people getting too far behind on their mortgages, they can never catch up.”
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