EQB Inc Q1 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Geoffrey Kwan - RBC Capital Markets - Analyst : Hi, good morning. Just on the impaired increase that we saw, particularly on the residential side. Was there any trend or what was kind of driving it? Was it incremental job loss? Was it ability to cope with higher payments geography? And then on the commercial side, the imperative that you had, that were driving the increase over the past few quarters. Do you have any update in terms of when you expect those to be resolved?

Question: Geoffrey Kwan - RBC Capital Markets - Analyst : Okay. And then just my other question was on the residential mortgage side. Thoughts on how the spring housing season is shaping up. But also two is on the Alt-A side of the market, are you seeing any divergence in terms of level of activity or other trends relative to what's happening in the prime part of the market?

Question: Geoffrey Kwan - RBC Capital Markets - Analyst : Great. Thanks for the team effort on the responses.

Question: Meny Grauman - Scotiabank GBM - Analyst : Hi, good morning. I just wanted to follow up specifically on the subject of credit and specifically the equipment finance business. Andrew, I think you talked about expecting minimal losses and just hoping you could provide a little bit more perspective on what's giving you that confidence. Is it just the market for equipment and you can realize good values or is there something else that you're seeing going on there? So that's the first question.

Question: Meny Grauman - Scotiabank GBM - Analyst : And can you give us a perspective just in terms of average ticket sizes in that portfolio? And, when you talk about--

Question: Meny Grauman - Scotiabank GBM - Analyst : And then just in terms of the outlook. So I just want to make sure that I have this correct. I thought you were saying that you would expect performance in the Equipment Finance business to normalize in the second half of the year? Is that what you were referring to? Or (multiple speakers)

Question: Meny Grauman - Scotiabank GBM - Analyst : And the rationale for that is just that you see a specific cohort you're going to resolve it and then you don't expect issues beyond this cohort? Or is there something else that you see in the second half of the year that's going to help improve the performance here?

Question: Meny Grauman - Scotiabank GBM - Analyst : So you've made changes their time writing. Okay. That's great.

Question: Meny Grauman - Scotiabank GBM - Analyst : Got it. Thank you.

Question: Mike Rizvanovic - KBW Research - Analyst : Hey, good morning. I wanted to go back to the impairments on resi mortgages. So the 54 basis points, it's obviously moved up quite a bit here, more than fourfold year-over-year. And, it's more than doubled in two quarters. And so in the context of the big six banks, I'd like to compare you guys to, it's not substantially higher than most of your big six peers. And my premise has always been that it's probably because you fully repriced your loan book for higher rates where the banks are certainly not there yet. Is that something you'd agree with?

Question: Mike Rizvanovic - KBW Research - Analyst : That's super helpful. And then just in terms of the LTV, I think Chadwick mentioned 68% and I know it's a weighted average. I usually don't take much with that number because we just don't know the distribution, but what can you offer on your LTVs in terms of distribution, just based on HPI levels, I can't, for the life of me, imagine that you have anything that's anywhere near 100%, but what would be north of 80%. Is that something you could ballpark for us?

Question: Mike Rizvanovic - KBW Research - Analyst : Okay. That's super helpful. And then just to sneak one more quick one in. Just in terms of the, and for your case, like have you guys actively providing forbearance? I know the big banks don't like to talk about this. They do it in the background. How active are you on helping people manage that refi or renewal process when they're paying over on the mortgage. I'm just wondering the level of activity, the level of forbearance you've had to sort of help your clients with through the last few quarters?

Question: Mike Rizvanovic - KBW Research - Analyst : Thanks for the color.

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : Yes, thanks. I want to come back to this discussion on the equipment finance portfolio. Maybe I'm reading too much into your comments, but it sounds like there's an up-tiering of that portfolio. Is that a fair comment?

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : I guess, yes, that's very helpful. But I guess where I'm going at is, you've now seen rising impaired losses for the last couple of quarters throughout 2023 and into 2024. Is that, like looking forward, should I expect the yield on that portfolio to move materially lower? Like I know it's not a massive portfolio in terms of size for you guys, but it is very accretive to your margins because the yield is so high. So I do care about it. And ultimately, I care about the impacts on all bank NIM. So that's kind of the approach I'm thinking, like is there going to be a very sharp shift in the mix of that portfolio over the next couple of years that would cause the yield on it to move materially lower?

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : Okay. Yes. That's kind of where I was going at more so for number to put into my model. And then Chadwick, sticking with you, I'm going to go to a big picture question here. Do you think it's still plausible to come within your EPS guidance range? Can you go through why that's still a reasonable expectation given the softer Q1 results. I think it really does hinge on the back of a better credit outlook for the back end of the year, but I'm assuming there's probably a little more to that. So talk to me about whether that's still in play and your confidence level there? And what if loan growth doesn't come back as expected? Can we still get there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 29, 2024 / 3:00PM, EQB.TO - Q1 2024 EQB Inc Earnings Call

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : Thanks for your time.

Question: +tienne Ricard - BMO Capital Markets - Analyst : Thank you and good morning. On EQ Bank as you get ready to launch the platform for small business owners, how meaningful do you believe commercial deposits could become over time? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 29, 2024 / 3:00PM, EQB.TO - Q1 2024 EQB Inc Earnings Call

Question: +tienne Ricard - BMO Capital Markets - Analyst : All right. And as a follow-up, how do you think about the relative stability of small business deposits relative to personal deposits?

Question: +tienne Ricard - BMO Capital Markets - Analyst : Thank you very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 29, 2024 / 3:00PM, EQB.TO - Q1 2024 EQB Inc Earnings Call

Question: Nigel D'Souza - Veritas Investment Research - Analyst : Thank you. Good morning. I wanted to follow up on equipment financing. And I'm trying to get a handle on the potential tail risk for losses in that segment in a more stressed environment. So we're already close to 4% loss rate. But if we were in, let's say, a recessionary environment or something where the macroeconomic conditions deteriorate. Do you have a sense of what the range of potential losses could be for that portfolio?

Question: Nigel D'Souza - Veritas Investment Research - Analyst : (inaudible) Yes. So if I could maybe talk about this more strategically. When I think about your business segments or your categories in terms of the risk-adjusted margin and the risk-adjusted margin for equipment financing, if you take the 10% yield to track, 4% cost of funding and the close to 4% loss rate. You get a risk-adjusted margin a bit below 2% and your uninsured single-family book would be generating currently a risk-adjusted margin above 2%. So that signals to me. I mean I would interpret as the pricing of that existing book isn't sufficient for the risk profile you're currently experiencing? And maybe you could expand on what do you think is a minimum acceptable risk-adjusted margin for that business? And how does it tie into, how you're going to drive new business going forward?

Question: Nigel D'Souza - Veritas Investment Research - Analyst : I wonder if you could just expand on, sorry to harp on this, but the pricing of that existing business, why shouldn't it maybe just we set high for the entire industry? Was it just mispriced risk where competitive market where the yields were about 10% and maybe they should have been closer REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 29, 2024 / 3:00PM, EQB.TO - Q1 2024 EQB Inc Earnings Call to the mid-teens? Or is it just an outlier on credit risk, unique environment specific to that segment in the transport sector and the pricing was appropriate. Just trying to understand how you think about this business.

Question: Nigel D'Souza - Veritas Investment Research - Analyst : Okay. Thanks for the insights. Appreciate it. That's it from me.

Question: Graham Ryding - TD Securities - Analyst : Hi. I just wanted to drill down on the commercial areas a little bit more, just to make sure I'm getting your message correct. So it does look like those arrears are about 3 times your recent average, but your allowance for credit losses are sort of in line with that historical range. So does it really come down to, are there some large sort of specific mortgages here that you've dug into and you don't see much credit risk? Is there sort of, are there some outsized origins in there the sort of large in size, but you view as maybe low in potential loss, potential?

Question: Graham Ryding - TD Securities - Analyst : Okay. Great. And just for sort of context, is it like half a dozen type margins that you're digging through or 20% to 30%? Like what sort of size of margins here are you digging into?

Question: Graham Ryding - TD Securities - Analyst : Okay. That's helpful color. Thank you.

Question: Graham Ryding - TD Securities - Analyst : Right. Okay. So you do have some specific (inaudible) here. Did you say that this portfolio had an average loan-to-value of 47%. Did I hear that correctly?

Question: Graham Ryding - TD Securities - Analyst : Okay. And my last question, if I could, just noninterest expense. How should we think about how that's going to progress? I know there's some further ACM to flow in. This is a partial quarter. But beyond that, throughout the rest of the year, how should we expect that to progress? Because I think you made a comment about maybe the second half expenses either being lower or the growth rate being lower than you could clear that up for me.

Question: Graham Ryding - TD Securities - Analyst : Okay. Understood. That's great. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 29, 2024 / 3:00PM, EQB.TO - Q1 2024 EQB Inc Earnings Call

Question: Stephen Boland - Raymond James Ltd. - Analyst : Just one question, obviously, on impairments. You mentioned the second half of the year on PCLs and impairments should kind of start to normalize? What about the shorter term. Can we assume that the impairment levels on an absolute basis have peaked or is it going to be similar in Q2?

Question: Stephen Boland - Raymond James Ltd. - Analyst : And then when basically, just a follow-up then on the residential. Like have you seen the bulk of you think impairments, even in your past due or like past due but not impaired. Are you seeing not kind of moderating heading into Q2 results as well?

Question: Stephen Boland - Raymond James Ltd. - Analyst : Okay, thanks very much, guys.

Question: Gabriel Dechaine - National Bank - Analyst : Hey, good morning. I just want to clarify some of the comments you were making earlier, just to make sure I understand them. It sounds like the pace of formations in the commercial portfolio will moderate in the second half. So we could see another uptick in Q2 or maybe not. I'm not quite sure I understand.

Question: Gabriel Dechaine - National Bank - Analyst : Okay. So you do expect a decline in Q2. And just related to the prior question there from Steve. The delinquencies in the mortgage portfolio, we saw an uptick quarter-over-quarter mostly in the early stage. Is that, would you expect that increase to moderate or actually decline in Q2?

Question: Gabriel Dechaine - National Bank - Analyst : Okay. Perfect. That's it. Thanks.