EQB Inc Q1 2025 Earnings Call Transcript

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

Question: Meny Grauman - Scotiabank - Analyst : Hi. Goor morning. First off, best of Block Chadwick in terms of my questions, I wanted to start off maybe with you, Andrew, it definitely sounds like you have a more optimistic outlook than a lot of what we're hearing. And so that caused my attention. And specifically, just wanted to understand the guidance that you're providing or the outlook that you're providing in terms of housing activity and how that will translate into loan growth going forward. We saw some encouraging trends in Q1. And it sounds like you expect that to continue despite all the tariff uncertainty and all that -- all those question marks. So I just wanted to understand whether I'm reading that correctly and whether there's more of a nuance there? Or are you really that optimistic despite all those big question marks for the economy.

Question: Meny Grauman - Scotiabank - Analyst : Got it. In terms of a follow-up, just two questions that are PCL related. One is just that $5 million overadjustment to the PCL line? Just wanted to get a better understanding of what's going on there. And can we see more of that over the next few quarters? Or is this basically it for this kind of adjustment?

Question: Meny Grauman - Scotiabank - Analyst : I guess I'm trying to understand like how much more potential is there for more of this kind of adjustment to flow through? Like can you kind of scale it for us in terms of how to think about it, the potential there?

Question: Meny Grauman - Scotiabank - Analyst : Okay. And then just a final question. Just on the PCL guidance. You provided that guidance last quarter and obviously, well, what I'm looking for is, what would that guidance be in a tariff scenario? And can you provide some sort of color in terms of how you're thinking about it relative to what you talked about last quarter?

Question: Meny Grauman - Scotiabank - Analyst : Thank you.

Question: Gabriel Dechaine - National Bank Financial - Analyst : Good morning. Can you just I guess, summarize what -- you sound more optimistic on the mortgage growth outlook. And from your commentary, it sounds like as you funded some CMHC insured resi construction projects, those get completed? And then people move in, take mortgages and your -- get some natural market share on that? Is that how I should view that? 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 26, 2025 / 1:00PM, EQB.TO - Q1 2025 EQB Inc Earnings Call

Question: Gabriel Dechaine - National Bank Financial - Analyst : Okay. Great. That makes sense. Now as far as the uninsured mortgage portfolio, what -- I guess I didn't understand your outlook, are you more optimistic now? Because I'm just thinking out loud here, but a lot of your -- the customers, I think, of our small business owners, self-employed and they might be more vulnerable to tariff or stuff than somebody working for the government or whatever. And that seems to me like a demand suppressant. Is that not a bit in your outlook? And then maybe if we talk about the other side of the coin on credit, those same types of borrowers might be also vulnerable to defaulting if the trade were to expand or as it ticks off, that might be maybe more of a 2026 thing. So just how can we be optimistic, I guess?

Question: Gabriel Dechaine - National Bank Financial - Analyst : Okay. Well, I appreciate that. Then what is your base case mortgage growth outlook, more in the second half? Like is there a number you can put on that? And I appreciate it. Look, your guess is good as mine on how the situation develops because it's changing every day. But just for having something in mind, I guess, is where that's important to me.

Question: Gabriel Dechaine - National Bank Financial - Analyst : Yeah. What do you expect your insured mortgage growth to look like this year?

Question: Gabriel Dechaine - National Bank Financial - Analyst : The snow is melting. So that's good.

Question: Gabriel Dechaine - National Bank Financial - Analyst : We go to equitable markets now. The line item, the -- sorry, in the past two quarters, you've had $9 million or so of this derivative income in each quarter. The way I've understood it in the past is that trends to zero over time. It's a hedge position, so not supposed to be a profit center. How should I model that? And should I kind of disregard this revenue item? Because if it is going to zero, then it's been over-earning in the last couple of quarters.

Question: Gabriel Dechaine - National Bank Financial - Analyst : So what is a sustainable figure then. That's my last question. 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 26, 2025 / 1:00PM, EQB.TO - Q1 2025 EQB Inc Earnings Call

Question: Gabriel Dechaine - National Bank Financial - Analyst : Okay. Great. Well, good luck in the next job and congrats. Yes, that's it. Thanks.

Question: John Aiken - Jefferies Group LLC - Analyst : Good morning. Chadwick, wanted to take a look at the noninterest revenues for a moment, and I apologize since I'm reasonably new to the game. The fees and other income, can you -- I'm assuming that the bulk of that actually comes from the association of the credit unions and ACM advisers is a bit smaller proportion. Can you quantify the growth that we saw I guess, sequentially between the two, what was driving higher growth in the -- at least on a relative basis?

Question: John Aiken - Jefferies Group LLC - Analyst : And then, Chad, when I look at the various other lines in the (inaudible) revenue miscellaneous gains left, right and center, we're seeing a bit of a shifting mix in terms of contribution. When I look at this, should I look at this in totality or should I actually be trying to figure out what each of these individual lines are doing?

Question: John Aiken - Jefferies Group LLC - Analyst : Great. Thanks, Chadwick and best of luck.

Question: Darko Mihelic - RBC Capital Markets - Analyst : Hi, thank you. I just had two quick questions. First 1 for Marlene. The portfolio, the purchase facility that is $70.6 million in size, how much of that is performing versus nonperforming?

Question: Darko Mihelic - RBC Capital Markets - Analyst : How much of it is classified as performing and how much of it is nonperforming?

Question: Darko Mihelic - RBC Capital Markets - Analyst : So just to be clear, this entire facility is in bankruptcy court, but most of it is performing?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay. Second question is on capital. I'm noticing -- I just want to make sure I understand your capital, your new capital sort of target. So it seemingly suggests to me that, I mean, although this year, it looks like your CET1 will be 13. It just looks like it will grade down because you want to issue more Tier 1 and Tier 2, such that by 2027, we are thinking about something in the range of 12% for common equity Tier 1. Is that how I should read that?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay. So I think that -- okay, that's helpful. And I guess, we'll worry about ROE guidance for next year or any time thereafter, Andrew? Is that the way to think of it?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Great. Thank you very much.

Question: Doug Young - Desjardins Securities Inc - Analyst : Hi. Good morning. Just maybe the first question on credit (inaudible) or maybe we can split them up. But the TPine and the Pride Group, like when would this -- when do you think that's going to be completely behind you?

Question: Doug Young - Desjardins Securities Inc - Analyst : So I mean we could have things like that $5 million PCL rate or PCL continue as these things develop. Is that like what we -- not going to model it necessarily. But -- so there could be another few years of just noise around the PCL related to these items.

Question: Doug Young - Desjardins Securities Inc - Analyst : Yeah. Okay. And then it sounds like you've built in some of the tariff risk in your performing loan allowance. You use Moody's. Moody's had reflected that already when your quarter end happens. So it's a bit different than what we're seeing at the big banks. But I know this is maybe a tough question, but is there any way to quantify like what you did or how much the tariffs had an impact on PCLs or allowances? Or any kind of context you can kind of give us?

Question: Doug Young - Desjardins Securities Inc - Analyst : Okay. And then Chadwick, you both talked about payroll deposits increasing. And I kind of get the understand the value of that. Is there -- can you quantify like how much of your deposit base -- or sorry, your EQ Bank deposit base is now payrolls? I assume that's where it kind of goes through, like any targets and any thoughts around the benefits you get from that, obviously, from a funding perspective? Is it really going to be that material over the near term?

Question: Doug Young - Desjardins Securities Inc - Analyst : Yeah. No, I think you're absolutely right. I'll continue to ask you. But yeah, no, I just think if this is -- it's kind of an interesting development, it would be interesting to see the metrics. And then just lastly on expenses. You talked about flat operating leverage in the second half. Like I assume -- like I know the answer, but like what drives this? Is it -- I assume it's going to be more revenue growth than expense kind of curtailment. And what gives you the confidence you can kind of get that given all the uncertainty?

Question: Doug Young - Desjardins Securities Inc - Analyst : Great. I appreciate the time. Thank you.

Question: Graham Ryding - TD Securities Inc - Analyst : Hi. Good morning. If I could just ask a question on your on-balance sheet mortgage growth. You're seeing decent growth from loans under management perspective, which includes your off-balance sheet. But what's your outlook for on-balance sheet loan growth, which ultimately drives your NII because we've seen that decline for two quarters in a row now. 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 26, 2025 / 1:00PM, EQB.TO - Q1 2025 EQB Inc Earnings Call

Question: Graham Ryding - TD Securities Inc - Analyst : And then your -- maybe I could just jump to the GTA condo market. It's showing some softness and weakness. Can you give us some context? Do you have any exposure either on the sort of condo construction side of things? Or what's your exposure on sort of single-family mortgages behind either condo owners or condo investors?

Question: Graham Ryding - TD Securities Inc - Analyst : Okay. Great. And just one last one, if I could. Noninterest expenses, there were some adjustments this quarter and there's been sort of some recurring adjustments. What's the outlook there? Should we expect real estate and operational initiatives to be an adjustment going forward? Or when does that sort of dissipate and play itself out?

Question: Graham Ryding - TD Securities Inc - Analyst : That's it for me. Thank you.

Question: Stephen Boland - Raymond James Ltd - Analyst : Thank. Morning. First question, a couple of banks talked about lower immigration levels impacting their single-family business, but it doesn't seem to have impacted yours, and that tends to be one of your key markets. I'm just wondering if has there been any impact? Or do you expect any impact with lower targets from the federal government?

Question: Stephen Boland - Raymond James Ltd - Analyst : Okay. And then last quarter ended, we talked about the removal of the stress test and packed on renewals. You were pretty confident it shouldn't really be an impact, and you've got tools to deal with that. The growth maybe is -- this quarter has shown that perhaps. I'm just wondering about, with the growth, like how much is new customers versus matching rate if somebody is graduating in terms of the growth. I'm wondering if it's possible to break down returning customers or new customers.

Question: Stephen Boland - Raymond James Ltd - Analyst : That's all I had. I just want to say thanks, Chad, for the last five years. Done some great work there at EQB. Has always been accessible. So good luck in your new role.

Question: Lemar Persaud - Cormark Securities Inc - Analyst : Yeah, thanks. Maybe for Marlene and just picking up this discussion on this Pride Group exposure. Can you just help me understand why it's just like kind of slow grind in terms of positioning? I know it's going through the court system, but specifically, what information are you using to look at when you're gradually bumping up the allowances against this exposure here? Like why not take a more meaningful provision to put this to bed versus the kind of slow bleed over the next two years. And just building on the answer to Darko's question, like how do you justify having 93% performing when this is going through a CCAA process. Like just help me understand this a bit more. Thank you.

Question: Lemar Persaud - Cormark Securities Inc - Analyst : I guess that's what it kind of comes down to for me, like the competing claims. Like it just seems odd that you be able to justify keeping 93% and performing when there's competing claims against those -- the underlying asset. Am I understanding this correctly? Like are you just -- it's just that you guys are just senior? Like how do you -- like just help me understand that piece maybe.

Question: Lemar Persaud - Cormark Securities Inc - Analyst : Okay. I appreciate that. And then just moving on to a different type of question for Chadwick here. Again, I appreciate that these targets are medium term, but operating leverage negative in the first half and then, I guess, neutral to slightly positive in the second half. So does that feel like operating leverage for full year 2025 will be negative. Am I reading that correctly?

Question: Lemar Persaud - Cormark Securities Inc - Analyst : Okay, thanks. And thanks for all the help over the years, Chadwick. Best of luck.