EQB Inc Q3 2025 Earnings Call Transcript

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

Question: Doug Young - Desjardins Securities Inc - Analyst : Yeah, sorry. Good morning. I'm just trying to kind of get a sense of -- there seems to be a discrepancy in the impaired PCL trends for your single-family residential than what we're seeing with the big banks. There's few things I want to get into. But I get where you operate is different in the big city centers, maybe it's more Ontario exposure exposed to more people that potentially could be impacted from an appointment in tariffs. Is there anything else that kind of really differentiates the book? And I'll tell you where I'm going with this because when I look at your single-family residential, your Stage 3 loans, the coverage ratio was 4%. And so you impaired -- your holding allowances of 4% of the impairment. And it seems like you're having challenges with recoverables on the mortgages. But when I look at one of the big six -- I'll pick CIBC, like the coverage ratio on RESL for Stage 3 RESL is 22%. I'm trying to get a sense of why there would be such a big difference. I'm hoping you can help me a little bit of thinking through that.

Question: Doug Young - Desjardins Securities Inc - Analyst : Okay. It just seems like it's a big discrepancy, but maybe I can follow up and talk a little bit more through that. And I guess maybe towards what John has kind of indicated -- like I guess the sense and the question I'm getting, are we done with this erosion in single-family residential? And I think it's obviously, no one's got a crystal ball as where we sit today. It feels like early stage delinquencies is kind of settling back a little bit. Are you feeling more comfortable that you're kind of closer to the peak of this kind of erosion? Obviously, depending upon many things, but it feels like you are, but I don't want to put words in your mouth. I was just hoping to get a little bit of color on that.

Question: Paul Holden - CIBC World Markets Corp - Analyst : Thank you good morning, thanks for giving the ROE expectation for the full year around some quick math on that. And it implies that Q4 earnings will be roughly similar to Q3. Is that math in the right ballpark?

Question: Paul Holden - CIBC World Markets Corp - Analyst : Got it. Okay. And then second question, obviously, it was 11.5% ROE expectation for this year, well below prior objectives. So I guess, really two questions, but getting at the same point. Should we expect any change in the ROE objective of 15% to 17% for EQB. It's been long standing. And I would assume it probably shouldn't need to change? And more importantly, kind of maybe quickly, and I think it's a question for Chadwick is like what's the path to getting back there, again, without taking too much away from the Investor Day, but just high level, like what do you think are the key ingredients and getting back to the old ROE objective? 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 28, 2025 / 2:30PM, EQB.TO - Q3 2025 EQB Inc Earnings Call

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Good morning. First question, I'm going to go back to this [uninsured] mortgage, where we're seeing the residential mortgage that is, the increase in provisions for a couple of quarters now. From the sounds of it, we could be -- there could be more quarters like this ahead but hopefully getting better as the early-stage delinquencies improve, as rate cut, but, nonetheless, we could see a bit more. I was just wondering about if you can identify a certain geographic exposures and certain loan vintages or something like that? Why -- could you justify booking perhaps a large performing provision because the maybe, I don't know if it's solely contingent on borrower risk, but asset risk is also different.

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Okay, so no then, like an outsized heavier weighting to really downside scenario that's not in the cards?

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Okay. And then on the -- moving on the revenue side, I guess the -- some of the deposit cost trends we're working against you, but you have adjusted your pricing, I believe, on the high interest savings account -- that should help. Looking forward though, if we get some rate cuts whenever that happens later this year, would you be thinking about moving more in lockstep with whatever the Bank of Canada does as opposed to lagging it for competitive reasons?

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Okay. Great. And then I'll just throw another one. You've changed your full year guidance, I get that. and we can work out the math of what that means for Q4 earnings per share. Is the range is the toggle or the swing factor really the provision number because the revenues may be modestly better if the margin picks up and then expenses to do what they do, but really the maintenance swing factor is going to be PCL?

Question: Gabriel Dechaine - National Bank Financial Research - Analyst : Got it. I was probably typing at the time. Alright, enjoy the rest of your summer and welcome back Chadwick.

Question: Etienne Ricard - BMO - Analyst : Thank you and good morning. I want to follow up on one of the earlier questions on credit quality, and the divergence we're seeing for the impaired loans relative to some of the other banks, especially for single-family mortgages. So I understand your target markets tend to be a bit different with exposure to the self-employed as well as the new Canadians. Do you think these graphics experiencing a tougher macro backdrop? And if so, why is that the case?

Question: Etienne Ricard - BMO - Analyst : So I guess what you're seeing is the relative divergence in the impaired loans, it's more of a geographic allocation?

Question: Etienne Ricard - BMO - Analyst : Yeah. And the Chadwick, I've heard the word efficiency multiple times in your comments. What is the path looking like get back closer to the historical levels? Is a potential efficiency improvement going to be driven by growing revenues or maybe also relooking at the expense base?

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : Good morning. A couple of questions, hopefully quick ones. But I wanted to start with the gain on sale and income from retained interest line. Obviously, this has been a very, very important driver of your revenue diversification. It's been growing very, very strongly. Can you talk a little bit about the components here. So there's the volume side where I do believe that you would look to use your full allocation with this (technical difficulty) program. And in fact, like when you book gains, I'm guessing the duration matters too. And with a flat yield curve, I would imagine your borrowers would prefer the 10-year over the five year. Now you've got some steepness in the yield curve. Is there a dynamic where this line has downside risk? And I'm not trying to pin you on any sort of guidance, but $26.5 million is a record number. I'm just trying to better understand if this is a line that could legitimately go beyond $26.5 million as a run rate? Or is it something that could actually gravitate down to the $20 million range. So if you had to sort of look at a high level, where do you see this trending over the course of the say, six to eight quarters?

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : So do you think this is sustainable? And in terms of the upside, is there upside or notwithstanding a change in the CMB support level, the $60 billion that the government currently allocates, would that have to move for this line item to have upside beyond this type of really strong level that you're reporting currently?

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : Okay. Got it. And then I also wanted to follow up on the expense side. Obviously, the revenue environment seems to be a bit challenged right now, not just for EQB, but for a lot of lenders, in particular, the residential mortgage side really hasn't come back. We really haven't had much of a rebound in the spring lending market. If you look at dollar volume on the origination side. So what I'm wondering is -- and maybe this is for Chadwick, as you think about getting back to a growth profile, and getting your efficiency ratio back to something that looks better versus the [53%] you reported this quarter. How do you sort of think about an environment where maybe the revenue is just not as robust as what might have been expected a few quarters ago. Is that a hindrance to getting the efficiency ratio down to where you ideally want it to be? And then I guess as a follow-up, would EQB ever consider somewhat of a bigger sort of sizable restructuring charge?

Question: Mike Rizvanovic - Scotiabank GBM - Analyst : Okay. So this is more of a longer-term view, but you're not contemplating anything in terms of a more sizable restructuring type scenario? Like we do see that with some of the larger banks. I'm guessing that's probably not in your DNA. Is that fair?

Question: Stephen Boland - Raymond James Holdings (Canada) Inc - Analyst : Thanks a lot, has been covered, but I want to go to that slide on your NIM. You've kind of said Q4 would probably be in terms of profit similar to Q3. So you only need like a 1.95% NIM in Q4 to get to that 2% average -- kind of base that. But I'm curious about the reasons for the NIM decline. I mean I understand the increase in the liquidity portfolio. But when you mentioned that the attrition of higher-margin loans where you had the floors have rolled off and deposits, certain deposits that are coming in are obviously more expensive. But it's one quarter. So I'm really struggling why even if Q2 was kind of a onetime -- there were some onetime items in there that you're not above 2% in the quarter. How does it like one quarter of movement in the portfolio and maturities and repricing of loans impact you that much, I guess, is the question.

Question: Stephen Boland - Raymond James Holdings (Canada) Inc - Analyst : Okay. And Marlene, I don't want to hammer this to debt, but we've seen some stabilization in single-family and granted, I understand you're talking about vintages that were three-year mortgages or five-year mortgages, like underwritten in 2020 or 2022. But like you traditionally always -- your LTVs have always been around the 70% mark. So I don't think I've seen anything that shows a 30% decline in housing. So even in Toronto. So I'm just curious, like, I mean, are these houses really beat up like that -- like that you've gone -- you've eaten into that LTV. I don't think I've ever seen that without [going forth] that was a concern.

Question: Stephen Boland - Raymond James Holdings (Canada) Inc - Analyst : Okay. So these mortgages have already been renewed. I thought it was a three year or a five year duration, but you --

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : Hi, thank you. Covered a lot of ground. I'll be very quick. I also wanted to ask about the margin. I get the Q4 view. So I'm happy with that. I guess where I'm going -- what I'm thinking about is longer term into '26. And one of the things that I'm seeing with the larger banks, is a bit of a shift, right, in the deposit mix. We're getting actually getting term declining, demand savings balances rising and that's been very beneficial for larger banks. I don't get the sense that can happen here. I see actually that your term deposits, which are brokered are growing and probably necessary given the growth rate that you have with loans. So I wonder if you could provide some insight into how that term book on the deposit side is maturing and rolling off and on. And is there any possible tailwind coming from that or not? That would be helpful just so I can frame and think about some of the drivers for your NIM into '26 and '27.

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : And so would I be correct in presuming that as we roll forward unless we get rate cuts that you would still get some improvement in margin taken all in on your term book or am I wrong in 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. AUGUST 28, 2025 / 2:30PM, EQB.TO - Q3 2025 EQB Inc Earnings Call

Question: Darko Mihelic - RBC Capital Markets Inc - Analyst : Okay. And so the cut in rates at EQ Bank is not expected to have an impact on your growth rate of those deposits?