Equitable Group Inc Q2 2020 Earnings Call Transcript

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

Question: Cihan Tuncay - Stifel Nicolaus Canada Inc., Research Division - Analyst : Just wondering on the CMHC insurance that you purchased. Was that the maximum amount of mortgages that qualified under their revised turns? Or could there potentially be any more approved mortgages going into that kind of product in future quarters?

Question: Cihan Tuncay - Stifel Nicolaus Canada Inc., Research Division - Analyst : Okay. And just on the reduction in noninterest expenses. Trying to get a sense of whether or not -- how much of that was really just pushed out to next year or are these kind of lasting cost cuts that you've taken? And with that, I know a lot of the investment was in the digital infrastructure, will some of those cost reductions that you're taking in IT, have any impact on your own internally generated origination volume in the future just from an IT infrastructure perspective?

Question: Cihan Tuncay - Stifel Nicolaus Canada Inc., Research Division - Analyst : Okay. And just one more quick question. Tim, in your comments, you alluded to the fact that with the growth you're seeing in EQ Bank deposits, you're still maintaining some kind of interest rate. At what point do you think that you will get enough momentum behind deposit growth in that product to start seeing declines in deposit costs? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 29, 2020 / 12:30PM, EQB.TO - Q2 2020 Equitable Group Inc Earnings Call Tim Wilson;Chief Financial Officer I think we're getting sort of close to that point, frankly, certainly something that will be an active conversation with quarter end behind us. The way we think about this, roughly speaking, and it's -- there's a bit of art or science, but roughly speaking, we think there's about $1,000 NPV value in a new customer. So you can see just holding that break for a little period, doesn't -- is a good acquisition kind of cost. We would have perhaps spent $300,000 to $400,000 more on interest in, say, June than we would have expected that we could have done if we dropped rates to more market competitive rates. But then in contrast, we added an extra $9 million of NPV from having that broader customer base. So that appeared to be a pretty good investment in that period. We think as the summer is here now, probably people are less focused on banking more and focused on being outside. The value of those incremental accounts that you pick up is starting to reduce and as we're increasing our product set as well, that's also leading to kind of good inflow of customers. So those are some of the things we're considering is how -- if we reduce rates, how much does that slow down customer acquisition? What does that mean on a kind of NPV view of the world franchise value of the world. Clearly, one of the nice things about the EQ Bank franchises we've now built it. As we get into certain scales, as we add new innovations, that thing spread across a wider customer base, which is just making us more and more productive. So that gives us an exciting opportunity every time we think about new initiatives, you divide those by a larger customer base and they certainly start to make sense. So I think you'll see some really interesting things coming on the product side over the next year or so.

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Yes. I just want to spend some time digging into the payment deferrals. So first off, the significant decline that you've reported here since the peak levels to where we are today. Can you just describe what's driving that decline? Is it just a roll-off and these borrowers are continuing -- are now paying their mortgages? Is there any was there any other reasons why it would decline so fast?

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Okay. Great. And so it sounds like the expired deferrals are now current and not on some other form of forbearance measure. In terms of the -- those that are active, have you dug into the characteristics of those borrowers? Are they still active because of -- are they passing a certain criteria that you're looking at in terms of income impairment or job loss? Or is the threshold to qualify for a deferral still fairly loose?

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Yes. So you actually raised another point that I wanted to just clarify. In terms of the serve, it's obviously been very beneficial to borrowers, do you have any sense as to the uptake in the serve from your underlying borrowers and how that is impacting the payment deferral numbers?

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Okay. And just lastly on this topic. The -- you mentioned that there was a good chunk that were extended, I guess, their payment deferral time was extended. Can you share the percentage of the portfolio that would have received an extension? And how do you think about extensions generally? Is this something where you can roll a 2-month deferral 3 times and stay onside here or is it sort of one deferral and that's it?

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Okay. Great. That's really great color on that topic. Shifting to the outlook somewhat. I think, Andrew, you've sort of mentioned that just recently, you've seen some good application volumes and the quality of those applications. Can you just talk about the environment today? Obviously, the housing market looks pretty strong like we're having a delayed spring market here. Is that something you're also seeing in terms of the application volumes? And that if you can just focus those comments more on the alternative book as opposed to the prime book?

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Okay. And can you refresh for me the new Canadian segment of the portfolio? I just want to get a sense as to if immigration and the closing of borders, what kind of an impact that could have on acquiring new customers as they enter Canada.

Question: Jaeme Gloyn - National Bank Financial, Inc., Research Division - Analyst : Okay. Great. And last one, and maybe this is more for Tim. Just want to get a sense as to how the net interest margin in the alternative single-family space is looking here in recent months as we're seeing lower GIC rates, likely you'll lower the EQ bank rates eventually. How is the asset side of the equation performing recently given let's say, less volumes on the alternative single-family side that you've just described. Are you seeing increased competition driving those asset yields significantly lower that could impair margins? Or does it look like it's going to hold fairly steady?

Question: Geoffrey Kwan - RBC Capital Markets, Research Division - Analyst : Just had one question. Just going back on the deferral side. When you're getting the requests for extensions, I think you kind of mentioned you're getting a little bit more information on the income side. Are you actually getting kind of more formalized income verification of some sort of impairment or are you doing just some sort of declaration? And then the other part of my question on that is, are you doing these assessments differently for your prime customers relative to your Alt-A customers?

Question: Cihan Tuncay - Stifel Nicolaus Canada Inc., Research Division - Analyst : I just had a follow-up question on the NIM, but it looks like that's been answered already. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 29, 2020 / 12:30PM, EQB.TO - Q2 2020 Equitable Group Inc Earnings Call