Equitable Bank’s $350M Deposit Note Issuance: A Strategic Move to Fuel Growth Amid Strong Financials

Equitable Bank, Canada’s leading Challenger Bank™, has secured a $350 million fixed-rate deposit note issuance—their second-largest on record and the largest in over three years—marking a significant milestone in their funding strategy. The transaction underscores the bank’s robust financial health and investor confidence, as it positions itself to capitalize on growth opportunities in Canada’s evolving financial landscape.

The Issuance: Terms and Market Reception

The three-year deposit notes, priced at 3.738%, carry a maturity date of May 5, 2028. Priced at the tight end of its target spread guidance (118 basis points above the Government of Canada bond yield), the issuance reflects strong demand from investors. With an order book oversubscribed 2.5x, equitable Bank was able to raise the upper limit of its announced range, demonstrating compelling market appetite. The notes rank equally with all unsecured liabilities but lack CDIC insurance, a trade-off for the competitive yield.

This move aligns with Equitable Bank’s strategy to diversify funding sources while supporting disciplined growth. CEO Andrew Moor emphasized the issuance as a “validation of investor confidence in our performance and vision for the future of Canadian banking.”

Financial Fortitude: Q1 2025 Results

Equitable Bank’s first-quarter results provide a strong backdrop for this issuance:
- Adjusted ROE rose to 15.2%, exceeding the prior quarter’s 14.1% and the bank’s long-term target of 15%+.
- Adjusted EPS surged 8% year-over-year (YoY) to $2.98, while book value per share climbed to $79.71 (+12% YoY).
- Total assets under management/administration (AUM + AUA) hit $132 billion, a 11% YoY increase, fueled by EQ Bank’s rapid expansion.

The EQ Bank subsidiary, Canada’s top-rated digital bank since 2021, now serves 536,000 customers (+26% YoY), driven by innovations like the US Dollar Account (fee-free, high-yield foreign currency options) and the recently launched Notice Savings Account in Québec. Payroll customer growth signals EQ Bank’s emergence as a primary banking choice for households.

Loan Growth and Strategic Focus

Equitable Bank’s lending segments highlight a balanced growth strategy:
- Commercial Banking: Loans under management (LUM) reached $37.0 billion (+18% YoY), driven by multi-unit residential mortgages (+30% YoY) and construction lending (+48% YoY). These segments benefit from urban market demand and CMHC-insured programs, minimizing risk while boosting returns.
- Personal Banking: Despite exiting single-family insured lending (-15% YoY), decumulation lending (reverse mortgages, insurance loans) soared 47% YoY, reflecting strategic focus on niche markets.

Credit Metrics and Capital Discipline

While net impaired loans rose to $683 million (147 bps of total loans), provisions for credit losses (PCL) fell 12% YoY to $13.7 million, aided by improved credit modeling. Capital ratios remain robust:
- Total Capital Ratio: 15.5%, with CET1 at 14.1% and a liquidity coverage ratio exceeding 100%.
- Dividend Growth: The common share dividend rose to $0.51 per share (+21% YoY), underscoring capital strength and shareholder returns.

Credit Ratings: Validation of Financial Strength

Equitable Bank’s deposit notes benefit from solid credit ratings:
- Moody’s: Baa1 for long-term deposits (stable outlook), reflecting strong capacity to meet obligations.
- DBRS: BBB (high), aligning with the issuer rating.
- Fitch: BBB- with a positive outlook, signaling potential upgrades.

These ratings, combined with the issuance’s tight pricing, highlight investor trust in the bank’s risk management and growth trajectory.

Risks and Considerations

While Equitable Bank’s momentum is evident, risks remain:
- Economic Uncertainty: A prolonged downturn could pressure loan portfolios, though the bank’s focus on insured lending mitigates some risks.
- Regulatory Shifts: Changes in housing policies or capital requirements could impact growth.
- Interest Rate Environment: While falling rates may boost loan demand, they could compress net interest margins.

Conclusion: A Compelling Investment Case

Equitable Bank’s $350 million deposit note issuance is a strategic triumph, leveraging investor confidence to fuel growth in high-margin segments like digital banking and urban real estate lending. Backed by strong financial metrics (15.2% ROE, 12% YoY book value growth), robust capital ratios, and top-tier credit ratings, the bank is well-positioned to capitalize on Canada’s financial opportunities.

The oversubscribed issuance and 2.5x order book emphasize the market’s trust in EQB’s execution. With $132 billion in AUM/AUA, a 536,000-customer EQ Bank base, and plans to expand capital sources (targeting up to 300 bps from hybrid capital by 2027), the bank is primed for sustained outperformance.

For investors seeking exposure to a tech-driven, high-growth Canadian financial institution with disciplined risk management, Equitable Bank presents an attractive opportunity to participate in the evolution of banking in the digital age.