EQB Inc Q3 2024 Earnings Call Transcript

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

Question: Meny Grauman - Scotiabank GBM - Analyst : Chadwick, wanted just clarify your comments on fee income, the guidance that you could maintain this $56 million that you delivered in Q3. Is that the new run rate? And if so, just trying to understand what changed this quarter. We see obviously a big sequential step-up. So what does that inflection point represent?

Question: Meny Grauman - Scotiabank GBM - Analyst : Got it. And then just turning to credit, just wanted to get a little bit of a better understanding of the dynamics in the equipment finance business, in particular, impaired provisions continue to climb higher. And so just wanted to understand when you see that coming down and how you're managing that book of business? Just an update on that, please.

Question: Meny Grauman - Scotiabank GBM - Analyst : So could the impaired provisions for this portfolio specifically keep going up for a few quarters? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 29, 2024 / 11:00AM, EQB.TO - Q3 2024 EQB Inc Earnings Call

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : I want to just kind of dig in a little bit on this prior exposure here. First, when you guys are saying that the impact, if any, is not expected to be material to EQB, what do you mean by that? Is that PCL's earnings impact, capital impact, long-term business approach? Like any thoughts on that specific commentary there?

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : So there is -- you guys have provisions something -- what are you find the solution (multiple speakers) okay. And then outside of like just parking lots because I know you guys can't probably deep dive into that one. Are there any other income statement impact, say, higher legal costs that we could expect or is that already kind of in your noninterest expenses?

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : Okay. That's fair. And then just on this Laneway House initiative, obviously, it's new to us. So I feel like I should ask, does it feel like this offering could offer kind of the same growth trajectory as the wealth accumulation product? I'm just trying to like think through this. Are there any other competitors out there? Anything you could offer would be helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 29, 2024 / 11:00AM, EQB.TO - Q3 2024 EQB Inc Earnings Call

Question: Gabriel Dechaine - National Bank Financial Markets - Analyst : A couple of questions. One more on the growth side and one on the trucking stuff. I'll start with the trucking stop. Just I want to get a bit more specificity on the exposure, so I can kind of get a better sense of how this could evolve going forward. Is the portfolio within equipment finance is around $500 million, unless I'm mistaken? Over the past 12 months, let's see here, it's been about 50 -- we've seen about $50 million of stage 3 provisions against the equipment finance portfolio. Would that be entirely the trucking industry or 90% of it? What do you say?

Question: Gabriel Dechaine - National Bank Financial Markets - Analyst : Lucky guess, by me. So would you say this quarter were probably around the peak because the loss rate has been trending higher, and I kind of want to get a glide path sort of perspective. Because you mentioned that we could still have some of these losses, but -- in this portfolio, but moderating into 2025.

Question: Gabriel Dechaine - National Bank Financial Markets - Analyst : Okay. So another quarter like this one or on par with this year's performance in Q4? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 29, 2024 / 11:00AM, EQB.TO - Q3 2024 EQB Inc Earnings Call

Question: Gabriel Dechaine - National Bank Financial Markets - Analyst : Okay. And the guidance that was given at the start of the year for elevated losses in the first half, fading in the second half, what's changed over time? Is it just the economy is sluggish and that's persisted longer than you anticipated?

Question: Gabriel Dechaine - National Bank Financial Markets - Analyst : Okay. And then on the growth side, I guess my comment is really on the mortgage book. Another, I guess, deviation from expectations have been pretty flat. We all know why that is. The rate environment has been helpful. We've had a couple of rate cuts probably more coming. How much -- how many more cuts do you think we need before the transmission effect takes place? And I know you're not giving 2025 guidance or anything like that. But it would seem to me like the setup is stronger for next year and get the NII moving in the right direction on the back of better mortgage volumes?

Question: Gabriel Dechaine - National Bank Financial Markets - Analyst : Got it. And then actually, I lied. I'll ask another on deposits this time. Like what's your -- in a rate-cutting cycle what's your pricing strategy going to look like or what should we anticipate? I expect the big six banks will cut their deposit rates and by the full amount, would you be holding back just to build the deposit market share and achieve that progress towards your two-thirds EQ Bank deposit kind of objective?

Question: Paul Holden - CIBC Capital Markets - Analyst : I guess first question is, I can't remember the last quarter or the quarter before you talked sort of about that cohort of trucking loans that was problematic that $200 million. Is that -- like are the impaired issues still specific to that cohort? Or has it growing beyond that?

Question: Paul Holden - CIBC Capital Markets - Analyst : And how about the remaining trucking loans? Is the -- are they also performing as expected? Or have you seen some deterioration there?

Question: Paul Holden - CIBC Capital Markets - Analyst : Okay. Understood. And then maybe to continue a little bit with the discussion on net interest margins based on Gabe's question. Like how should we be thinking about this longer term, like maybe you give up a little bit of NIM in the short term to gain those banking deposits. But to the extent you gain banking deposits and need a little less broker deposits, shouldn't that actually be beneficial to NIM over time? And am I thinking about this the right way?

Question: Paul Holden - CIBC Capital Markets - Analyst : Okay. Thanks for that. And then next question, maybe you can talk a little bit more about the outlook for multifamily. Obviously, the last 12 months have been fantastic in terms of the growth if I look at sort of secular trends and need for more multifamily. I think this is probably a decade-long story. But any nuances we should be thinking about in terms of the upcoming year and why growth may be similar or different, whether that's higher or lower?

Question: Paul Holden - CIBC Capital Markets - Analyst : Okay. Final question for me, since you brought up the condo market, and we've seen a lot of supply over the last 10 years there. Dynamics -- demand dynamics specifically have changed a lot in the condo market, at least in the GTA market. So maybe talk a little bit about your exposure there and any kind of risk you're seeing over the next 12, 24 months in terms of your exposure to GTA condos? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 29, 2024 / 11:00AM, EQB.TO - Q3 2024 EQB Inc Earnings Call

Question: Graham Ryding - TD Cowen - Analyst : My first question, just on the PCL side. They were down quarter over quarter. I think primarily just due to lower provisioning on the commercial side. Yet your impairments in that area, they were up 25% quarter over quarter. So maybe just some color on why PCLs this quarter were not moving directionally in line with the impairments?

Question: Graham Ryding - TD Cowen - Analyst : Okay. Understood. And then this next question would be for either Marlene or Andrew, I guess, bigger picture, but just equipment finance, like what have you learned through this cycle here since you're around the trucking area in terms of you've seen elevated losses going forward? Do you make any changes to how you sort of underwrite this area or any changes to growth in this space going forward? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 29, 2024 / 11:00AM, EQB.TO - Q3 2024 EQB Inc Earnings Call

Question: Graham Ryding - TD Cowen - Analyst : Okay. Understood. And one more, if I could, just Chadwick on expenses (technical difficulty) slightly lower marketing spends, I think, was a factor this quarter. Is it reasonable to think, just given the, I guess, the lower portfolio growth that you might take a similar approach through the rest of this year and then look to maybe increase marketing spend next year if we're in a more -- sort of a higher loan growth environment?

Question: Etienne Ricard - BMO Capital Markets - Analyst : To circle back on equipment financing what is your expectation for through-the-cycle credit losses given the allowance for this portfolio now exceeds 300 basis points. And just more broadly, given the shift towards the prime segment, how can Bennington compete more effectively in the prime relative to non-prime markets? Thank you.

Question: Etienne Ricard - BMO Capital Markets - Analyst : Okay. And staying in commercial growth in construction bones remains high. Given the labor and the material cost increases that we've seen across the industry, what's giving you confidence to continue growing this segment of the portfolio?

Question: Nigel D'Souza - Veritas Investment Research - Analyst : I had a minor question for just for clarification. The nonrecurring operational effectiveness expenses, could you tell me a bit more what specifically that refers to. I think it's been mentioned in the last two quarters, how material contributed that was? And how do you expect that to trend going forward?

Question: Nigel D'Souza - Veritas Investment Research - Analyst : And in terms of the magnitude of the $2.7 million, is that mostly acquisition integration? Or is that where you classify as the nonrecurring operational effectiveness expenses?

Question: Nigel D'Souza - Veritas Investment Research - Analyst : Okay. That's helpful. And then when I look at your rate sensitivity disclosure, to 100 basis point parallel shift. They're not particularly rate sensitive. But I do notice that there is a slightly greater benefit expected to net interest income from a decline in rates versus an increase. I'm wondering if you could elaborate on what's driving that dynamic where there's a bit more benefit when rates move lower?

Question: Nigel D'Souza - Veritas Investment Research - Analyst : 100 basis points parallel shift disclosure the net interest income sensitivity disclosure, I believe your net interest income is expected to move up by $3.7 million, if there's a 100 basis points parallel down (multiple speakers)--

Question: Nigel D'Souza - Veritas Investment Research - Analyst : Yeah, that makes sense (multiple speakers)--

Question: Nigel D'Souza - Veritas Investment Research - Analyst : Okay. That makes sense. And then just a minor last question for me. Some pockets of weakness that we're seeing in real estate in Canada are the smaller, the investment funds that focus on real estate. Any exposure to the mortgage investment in corps or smaller I guess more bondable balance sheets in the real estate sector? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 29, 2024 / 11:00AM, EQB.TO - Q3 2024 EQB Inc Earnings Call

Question: Stephen Boland - Raymond James Ltd. (Canada) - Analyst : Just question on ACM Advisors. Chad, you mentioned that the business is growing, you're starting to see more deals. Can you just elaborate like has this entity still -- is it still very independent? Like are you showing them deals? Are there any cross-selling opportunities there? Just wondering, when you mentioned deals, that mean within the funds or creating more products? You did mention that the new climate fund that they're going to be launching. But can you talk about the interaction between the bank and the asset manager?

Question: Stephen Boland - Raymond James Ltd. (Canada) - Analyst : But longer term, Andrew, is it medium term? Like is this kind of like you mentioned, obviously, the controls, you're being careful about the funds and you're setting up a new fund. But is it -- is it the medium to long term that this business is really going to stay somewhat independent of the bank. Do you know what I mean? Like it's really like -- are you in a position to refer some of your clients to their funds? Like is that a plan at all? (technical difficulty) mean, I'm just trying to -- how separate this business is going to remain. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 29, 2024 / 11:00AM, EQB.TO - Q3 2024 EQB Inc Earnings Call