Earnings call transcript: EQB Inc Q3 2025 misses forecasts, stock drops

EQB Inc reported its Q3 2025 earnings, revealing a notable miss on both earnings per share (EPS) and revenue forecasts. The company’s EPS came in at $2.07, falling short of the $2.63 forecast, while revenue was $310.16 million, below the expected $322.14 million. Following these results, the company’s stock price fell by 9.83%, closing at $91.66, a significant drop from its previous close of $101.65. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculation, despite six analysts recently revising their earnings expectations downward for the upcoming period.

Key Takeaways

• EQB’s Q3 EPS of $2.07 missed the forecast by 21.29%.
• Revenue for the quarter was $310.16 million, 3.72% below expectations.
• The stock price declined by nearly 10% in after-hours trading.
• Net income decreased by 15% quarter-over-quarter and 32% year-over-year.
• EQ Bank saw a 21% year-over-year growth in new customers.

Company Performance

EQB Inc faced a challenging third quarter, with significant declines in net income and revenue compared to both the previous quarter and the same period last year. The company reported a net income of $80.3 million, down 15% from the previous quarter and 32% from Q3 2024. Trading at a P/E ratio of 9.37 and maintaining a 22-year streak of consistent dividend payments, EQB has shown long-term resilience despite current challenges. The company managed to grow its customer base significantly, adding 26,000 new customers to EQ Bank, marking a 21% year-over-year increase. InvestingPro subscribers can access 8 additional key insights about EQB’s financial health and growth prospects.

Financial Highlights

• Revenue: $310 million, down 2% quarter-over-quarter and 5% year-over-year.
• EPS: $2.07, reflecting a significant miss against projections.
• Net Interest Income: $254 million, down 6% both quarter-over-quarter and year-over-year.
• Net Interest Margin: 1.95%, a decrease of 25 basis points from Q2 2025.

Earnings vs. Forecast

EQB’s actual EPS of $2.07 fell short of the forecasted $2.63, a difference of 21.29%. Similarly, revenue was $310.16 million, underperforming the forecast by 3.72%. This marks a significant deviation from expectations, contributing to the negative market reaction.

Market Reaction

The market responded sharply to EQB’s earnings miss, with the stock price dropping by 9.83% in after-hours trading. This decline positions the stock closer to its 52-week low of $85.14, contrasting with the broader market’s relatively stable performance.

Outlook & Guidance

Looking forward, EQB has adjusted its full-year return on equity (ROE) guidance to 11.5%. The company expects Q4 performance to mirror Q3, indicating continued challenges. With an overall Financial Health Score of 2.22 (rated as "FAIR" by InvestingPro), and a notable 26.19% dividend growth in the last twelve months, EQB continues to maintain strong shareholder returns despite operational headwinds. The company is focusing on expanding its digital platform and payment services, with strategic initiatives planned for investor engagement in 2026. Discover comprehensive analysis and detailed metrics in the Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

CEO Chadwick Westlake emphasized the company’s commitment to innovation and digital banking, stating, "We are dedicated to helping build a better country, bringing real change to banking." He also reiterated EQB’s focus on the Canadian market, saying, "Our focus is and will remain here in Canada, where there is still so much to do."

Risks and Challenges

• Macroeconomic uncertainty and potential interest rate changes could impact future performance.
• The housing market’s weakness and elevated unemployment pose risks to lending operations.
• The decline in net interest margin highlights challenges in managing loan and deposit dynamics.

Q&A

During the earnings call, analysts raised concerns about credit quality in the single-family residential portfolio and the decline in net interest margin. EQB addressed these issues, highlighting resilience in its self-employed and new Canadian customer segments and potential efficiency improvements.

This comprehensive overview of EQB Inc’s Q3 2025 earnings call highlights the company’s financial challenges and strategic focus areas moving forward.

Full transcript - EQB Inc (EQB) Q3 2025:

Joanna, Conference Call Moderator: Welcome to EQB’s Earnings Call for the 2025. This call is being recorded on Thursday, 08/28/2025. At this time, you are in a listen only mode. Later, we will conduct a question and answer session for analysts. Instructions will be provided at that time.

It is now my pleasure to turn the call over to Lamar Prasad, Vice President and Head of Investor Relations. Please go ahead.

Lamar Prasad, Head of Investor Relations, EQB: Thank you, Joanna, and good morning, everyone. I’m excited to be sitting on this side of the call after following Canada’s Challenger Bank and the financial services sector for several years. Your host for today’s Q3 results call are Vincenzo Serra, Chair of the Board of EQB the newly appointed President and CEO, Chadwick Westlake Marlene Leonarduzzi, Chief Risk Officer, who served as Interim President and CEO during the quarter and David Wilkes, SVP, Chief Strategy and Growth Officer. As announced yesterday, our new CFO, who joined us as of today, Annalisa Sainani, is also here with us in the room. For those on the phone lines only, we encourage you to also log in to our webcast and view our quarterly presentation, which will be referenced during the prepared remarks.

On Slide two of our presentation, you will find EQB’s caution regarding forward looking statements as well as the use of non IFRS measures. All figures referenced today are on an adjusted basis where applicable unless otherwise noted. With that, I will turn it over to Vin.

Vincenzo Serra, Chair of the Board, EQB: Thank you, Lamar, and good morning, everyone. This is the beginning of a new era for EQB, and it’s my pleasure to take this opportunity to join the leaders of the team entrusted to create next generation value for their first earnings call. In so, I want to again express our sadness as we all mourn the loss of our friend, colleague and fierce champion for all Canadians, Andrew Moore. What drove Andrew to be such an inspiring leader for all of us was his steadfast belief that Canadians deserve so much better from their banks. Andrew’s meaningful impact on all who knew him and on the Canadian banking industry is permanent.

I also want to thank Marlene for her exceptional service as Interim President and CEO. This week, she returns to her previous role as Chief Risk Officer. The last few months have demonstrated clearly that we have a deep bench with leaders at all levels willing and able to step up. After completing our thorough and years long succession planning process, we celebrate Chadwick’s return to EQB at the beginning of this week. Speaking on behalf of the Board, I am here to express our full support for Chadwick.

He is the capable, energetic and experienced leader we need to take EQB to the next level of growth and performance. We look forward to collaborating with Chadwick as he develops the strategic plan to move our company forward in the months and years to come. Chadwick will offer his initial thoughts on the way forward to wrap up the call. Now I’ll turn it over to Marlene to start with some comments on results for Q3.

Marlene Leonarduzzi, Chief Risk Officer, Former Interim President and CEO, EQB: Thank you, Vin, and good morning. For today’s call, I’m going to speak to the overall results of the quarter before addressing credit. At a high level, we faced challenges this quarter and there are positives to share as well. Despite headwinds, our capital levels remain strong and much higher than regulatory minimums, which importantly underscores our resilience. Looking at our lending portfolios, loans under management increased 3% sequentially and 10% year over year to approximately $74,000,000,000 And combined with our administrative assets stood at new record of $137,000,000,000 at quarter end, up 9% year over year.

Of note, conventional lending, which is the most significant contributor to net interest income, increased 2% quarter over quarter to $34,600,000,000 and is up 6% year to date. By business, the personal lending portfolio benefited from single family origination growth, driving uninsured loans under management to $24,400,000,000 up 2% quarter over quarter and 8% year over year. Single family uninsured originations in the quarter increased 30% year over year. Our decumulation lending portfolio reached a record of $2,700,000,000 up 8% sequentially and 41% year over year. In Commercial Banking, we capitalize on our leadership in lending to the insured multiunit residential market.

CMHC insured multiunit residential loans under management grew 8% sequentially and 30% year over year to $31,400,000,000 Commercial lending, excluding insured multis, grew to 10,200,000,000 or 3% quarter over quarter, driven by growth in insured construction lending. For EQ Bank, we added 26,000 new customers, a gain of 21% year over year, while deposits increased at their fastest sequential rate in almost three years to 9,700,000,000 Despite this progress, revenue and earnings performance for the quarter was below expectations, resulting in ROE of 12.4% year to date. Headwinds in credits have persisted, cost of funds have increased and expense growth outpaced revenue growth. As a result of this lower performance year to date, we anticipate ROE for fiscal twenty twenty five will be around 11.5%. Now turning to credit.

Credit was more challenging again in Q3 in the context of the macroeconomic environment. We leveraged forecasted macroeconomic scenarios developed by Moody’s Analytics, which evolved more negatively this quarter, resulting in $10,000,000 of additional provisions on performing loans, bringing our total Stage one and two allowances for credit losses to 27 basis points, up from 25 basis points in Q2 twenty twenty five and up from 20 basis points in Q3 twenty twenty four. Performing provisions were driven by $4,400,000 in commercial, 3,200,000.0 in personal lending and $2,300,000 in equipment financing. This brings our overall allowance to $174,400,000 in the quarter or 33 basis points, up four points sequentially and seven points year over year. Stage three provisions were relatively flat quarter over quarter at $22,900,000 with increased provisions in single family residential mortgages offset by a reduction in provisions in our equipment financing portfolio.

Impaired provisions on personal loans were $9,600,000 mainly driven by larger loans and a small pocket of loans in Toronto suburbs, where we have observed steeper price declines from their peak. Stage three provisions in commercial were 6,400,000.0 down $400,000 quarter over quarter. Like personal lending, most of these provisions are related to a small set of existing impaired loans. Equipment financing Stage three provisions were down to $6,900,000 $3,700,000 lower than in Q2. Now turning to gross impaired loans.

The impacts of the macroeconomic conditions have contributed to an increase in gross impaired loans of 5% quarter over quarter to $815,000,000 driven largely by personal lending. Gross impaired loans and personal lending increased to $352,000,000 this quarter, a 9.5% increase from Q2. This was largely driven by credit migration and a softening in the housing market. However, we have seen a decrease in formations in early stage delinquencies. Gross impaired loans in commercial lending and equipment financing were relatively flat over the quarter.

We remain confident in the quality of our lending portfolios and our prudent approach to managing the lending portfolios through the credit cycle. In early twenty twenty four, we enhanced our underwriting criteria in vulnerable segments, which manifested in a decrease in personal lending early stage delinquencies that I talked to earlier. In our uninsured SFR portfolio, our average credit score is 711. Our overall LTV is 64%, and our average origination LTV is 71%, reflecting our disciplined approach to underwriting. All these factors lead to a portfolio that is much more resilient to potential stress.

Interest rates have come down since their peak in 2022, and a further rate cut may occur in the fall. This should provide support for medium and long term growth. In the near term, economic headwinds may continue to delay resolutions beyond Q4 and into 2026. In conclusion, the adjustments made across our businesses over the last eighteen months is building resiliency into all our lending portfolios. Now over to David.

David Wilkes, SVP, Chief Strategy and Growth Officer, EQB: Thank you, Marlene. I’ll walk through the financials. Overall, EQB’s net income for the quarter was $80,300,000 down 15% from Q2 and 32% year over year. Diluted EPS was $2.07 and ROE was 10.1%. Despite headwinds, these reflects these results also reflect our disciplined approach to growth in a complex environment, including a focus on credit quality and diversified funding, which strengthens our platform and positions us well for the future.

Let me unpack the drivers of our earnings this quarter. Our revenue in Q3 was $310,000,000 down 2% quarter over quarter and 5% from last year, driven primarily by net interest income and the influence of year over year declines in policy rates. Net interest income was $254,000,000 down 6% quarter over quarter and the same year over year. And on the $17,000,000 decline quarter over quarter, over half can be attributed to the onetime benefit mentioned last quarter on the call, nearly $8,500,000 or seven points of NIM. As you will hear consistently from us, we manage EQB to a target one year duration of equity, which limits exposure of our economic value of equity to interest rate movements.

However, there are areas of NII that can be affected as the lending book and interest rates change. And in the quarter, there were three main drivers. First, mix shifts in the lending portfolio as some higher margin lending matured and repriced, including some commercial loans with floor rates that had been contributing to NII second, a decline in contribution from UT Bank as we purposely maintained some product rates as Prime declined and as customers increasingly choose deposit products such as our notice savings account and payroll for every day. These products provide clients with higher rates and while deliver great value for EQ Bank through stronger engagement and more stable lasting deposits. And the third factor, NII was also impacted in the quarter due to a higher liquidity portfolio associated with higher securitization activity as well as more activity in our wholesale funding program.

Our net interest margin was 195%, declining at 25 basis points from elevated levels in Q2. And year to date, NIM was 2.7%, and we continue to expect to meet our fiscal twenty twenty five NIM target of above 2% for the year. On non interest revenue, as expected, we had a stronger quarter delivering $56,000,000 and an increase of 25% from Q2 and in line with last year. This is primarily attributable to higher fee based income, including contributions from ACM and Concentra Trust, higher revenue from our insured multiunit securitization business with increased activity this spring, as well as some gains on strategic investments. Provisions as noted by Marlene remained elevated in the quarter at $34,000,000 representing 28 basis points of loan assets.

Moving to expenses. Non interest expenses grew to $166,000,000 in the quarter, up 6% from Q2. And this was largely driven by investments in our Challenger team, technology spend and an increase in Premises expenses as we moved our new headquarters our new headquarters in the EQ Bank Tower in late April. Efficiency ratio increased to 53% in the quarter and above our historical operating range. On funding, as Marlene said, more customers are depositing more money with EQ Bank as total deposits reached a record $9,700,000,000 and we also saw a notable rise in demand deposits reaching $5,900,000,000 up 9% quarter over quarter and forty seven percent from last year.

EQ Bank’s demand deposit growth has been driven by customers choosing EQ’s notice savings account and new and current customers bringing their direct deposits to EQ Bank. These demand deposits are more flexible for EQB and are more cost effective relative to other deposits, with the pricing being continuously optimized to balance long term customer and deposit growth and near term margin contribution. In the quarter, we were also very active in wholesale funding channels, an important part of our funding diversification strategy. And in Q3, we completed our latest benchmark covered bond issuance, raising 500,000,000 In May, we completed a three year $350,000,000 deposit note issuance. And subsequent to quarter end, we also issued a $300,000,000 floating rate deposit note that closed on the August.

Our activity in this market has continued to lead to tighter pricing helping make this funding even more attractive to EQB. I’ll finish on capital. The bank is supported by a strong capital position with total capital of 15.7% and CET1 of 13.3%, exceeding the bank’s targets and well exceeding regulatory minimums. EQB’s capital allocation approach continues to prioritize reinvestment in organic growth, maintaining capital flexibility in order to pursue potential strategic inorganic growth opportunities and steadily increasing dividends. EQB’s Board of Directors declared a dividend of $0.55 per common share payable on September 30, representing a 17% increase year over year.

Finally, I’ll remind you that as part of our capital allocation framework, we will opportunistically use normal course issuer bid, which was renewed in and expanded in January. Share buybacks, while subject to market conditions, are another lever we can pull to maximize long term value for shareholders. In summary, we move forward with strong capital levels that support our customers, our challengers and the next phase of our growth agenda. And I’ll now pass to Chadwick to offer his closing comments.

Chadwick Westlake, President and CEO, EQB: Good morning, everyone. Thanks, David. Thank you, Ben, for the warm welcome. And special thanks to my colleague, Marlene. I’m greatly looking forward to partnering with her as our Chief Risk Officer.

It’s such a privilege to start this week as the CEO of EQB. This is Canada’s Challenger Bank, and we are dedicated to helping build a better country, bringing real change to banking and giving Canadians the tools to maximize their financial potential. This has been true throughout our more than fifty year history and is crystallized over the past two decades under the leadership of Andrew Moore. I am both honored and energized to lead this incredible company now for our significant growth ahead. I’ve been on the job for just a couple of days, but I do want to share a few comments.

First, on people. As announced yesterday, I’m very excited to welcome our new CFO who is here with us. Annalisa is a remarkable talent in finance. Moving into this vital role, she brings her impressive experience, including her time at RBC as chief operating officer for the CFO group and VP finance and chief accountant. Annalisa is a true challenger and was also recognized in 2020 as one of Canada’s top 40 under 40 for her innovation, leadership, and community service.

We look forward to how she will shape the evolution of our finance capabilities. David Wilkes has been appointed chief strategy and growth officer as part of my executive leadership team. This is a critical new role that will enable David to devote his considerable talents and experience to drive our substantial growth agenda. Thank you, David, for managing EQB’s finance function for the past six months. Also, a warm welcome to our new Head of Investor Relations, Lemar Prasad.

Lemar joins us from Core Mark Securities, where he served as an Institutional Equity Analyst, covering EQB among many other leading financial services companies. With his deep knowledge of our business and industry, he will be instrumental in building closer relationships with the investment community and our shareholders. With our deeply experienced team, I am confident in the resilience of Canada’s Challenger Bank and how we will ignite and deliver the positive long term change that hardworking Canadians deserve. I’ll also offer a few brief comments on our strategic direction. I am completely focused on returning to growth.

With our entrepreneurial nature and capability as a top Schedule one bank in Canada, the outcome of our capital allocation is expected and must be consistent profitable growth, with ROE remaining a foundational North Star. I’ll share more precision on our updated strategic objectives and growth outlook for fiscal twenty twenty six as part of our Q4 call in December. I am also pleased to share that we will be announcing an Investor Day for fiscal twenty twenty six. We intend to host this at the top of our new EQ Tower downtown Toronto and hope to be hosting this by late spring or early summer. In the meantime, let me be clear about a few key priorities.

At EQB, our focus is and will remain here in Canada, where there is still so much to do and so many opportunities to grow. We will not become distracted by other markets. I am deeply proud of our Canadian identity, and we will invest all our time and energy into this extraordinary country. What you can expect is more of what has consistently propelled EQB to material growth and leading long term total shareholder returns, but a refined focus including three key areas. One, our challenger at scale.

We will continue to do what we do best. This includes being exceptional lenders to Canadian families and businesses, owned by our deeply valued brokers and partners and our top position in the segments where we lend. We intend to pull further ahead in our winning position by investing to strengthen our competitive advantages. Two, Challenger to its full growth potential. This will include executing on our diversification and expansion strategies and payments wealth in our digital platform, EQ Bank.

And three, Challenger to its greatest capabilities and purpose. We will invest in AI enablement to build with scale. We will continue to champion with our technology and fintech partners and our government and regulators on the importance of greater competition, open banking, and innovation. And importantly, I own this now, And I believe a best in class efficiency ratio has been a competitive advantage, and I intend to be deliberate in our capital allocation with a sharp focus on returning efficiency towards our traditional distinct high performance levels. We will not fall into the trap of trying to be all things to all people, but we will focus on segments where we can win.

I look forward to sharing more with our customers, partners and shareholders soon. I’m intently focused on staying true to what makes EQB a force in Canadian Banking, while unlocking new levels of growth, relevance and impact for all of its stakeholders. With that, Joanna, can you please begin the Q and A portion of the call?

Joanna, Conference Call Moderator: Thank you. Ladies and gentlemen, we will now begin the question and answer

: session.

Joanna, Conference Call Moderator: First question comes from John Aiken at Jefferies. Please go ahead.

John Aiken, Analyst, Jefferies: Good morning. Marlene, in terms of the deterioration we saw on the personal lending portfolio, was hoping we might dive into a little bit more in terms of you mentioned that it was concentrated in Toronto suburbs, high value mortgages. What is the outlook in terms of the evolution of this portfolio moving forward? Is this like a one quarter incidence? Or is this something we might actually see lingering on for a couple more quarters?

Marlene Leonarduzzi, Chief Risk Officer, Former Interim President and CEO, EQB: I think there’s a few things we have to think about in the mortgage portfolio. So first off, when we look at our portfolio, it’s we have a couple of things to think about. One is we look at the outlook for our housing prices. We look at the outlook for the macroeconomic environment. But what we can tell you is that if I look at the increase in PCL for the for that residential portfolio, there’s a a really small number of mortgages are driving 80% of that PCL.

And and now it is sort of very specific pockets and geographies where we saw price declines from their peak of about 30 to 25 to 30%. As well as there are some idiosyncratic issues where you may find when you repossess a house, you may find it needs a lot of work. But I would say that when we look at the outlook, it really depends on a lot of different factors. But what I can tell you is we do see some improvement in early stage delinquencies, and that gives us some optimism that, that should result in lower PCLs down the road.

John Aiken, Analyst, Jefferies: And Marlene, just as I’m looking at the gross impaired loans waterfall that you have on Slide nine, Correct me if I’m wrong. My understanding is that this was loans that were already impaired. Is that correct? And then if that is, is that the part of the $43,000,000 delta and others?

Marlene Leonarduzzi, Chief Risk Officer, Former Interim President and CEO, EQB: For the commercial portfolio, the increasing impaired loans is related to loans that had already been impaired that we’ve been managing.

Stephen Boland, Analyst, Raymond James: Thank you. I’ll re queue.

Joanna, Conference Call Moderator: Thank you. Your next question comes from Doug Young at Desjardins Capital Markets. Please go ahead.

: Yes. Sorry. Just 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 and RESL than what we’re seeing with the big banks. And there’s a few things I want to get into.

But and I get where you operate as different, the big city centers, maybe it’s more Ontario exposure, exposed to more people that potentially could be impacted from unemployment and tariffs. But 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 three loans, the coverage ratio is 4%. And so when you impair it, you put a fee 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 coverage ratio on RESL for Stage three RESL is 22% coverage. Like I’m trying to get a sense of why there would be such a big difference. And hoping you can help me a little bit of thinking through that.

Marlene Leonarduzzi, Chief Risk Officer, Former Interim President and CEO, EQB: I can’t obviously speak to CIBC’s coverage approach, but I would say for us, when we look at our portfolio, we have a great deal of conviction in our process to approach each loan individually and assess them on an individual basis. And the provisions are set by our workout teams based on the characteristics of each individual wellness impaired.

: 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 is kind of indicating, like I guess the sense and 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 is 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’m just hoping to get a little bit of color on that.

Marlene Leonarduzzi, Chief Risk Officer, Former Interim President and CEO, EQB: Well, as you know, we’re in a period of unprecedented uncertainty, makes forecasting and timing of recovery difficult. We have increased our stage one and two provisions by $10,000,000 and this is really to account for further duration that may come in the macroeconomic outlook. And it’s also observed by Moody’s in their forecast as well. On the cautiously optimistic side, as I point to those early stage delinquencies coming down is a bright a bit of a bright light. However, we really wanna see more stable macroeconomic conditions before we can really get confident that we will see around the timing of when recovery will happen.

: I’ll leave it there. Thanks.

Joanna, Conference Call Moderator: Thank you. The next question comes from Paul Holden at CIBC. Please go ahead.

Paul Holden, Analyst, CIBC: Thank you. Good morning. For giving the ROE expectation for the full year. I ran some quick math on that. And it implies that Q4 earnings will be roughly similar to Q3.

Is that math in the right ballpark?

Chadwick Westlake, President and CEO, EQB: Thanks, Paul. Yes, think David, do you want

David Wilkes, SVP, Chief Strategy and Growth Officer, EQB: to take that? Yes. Thanks, Paul. Yes, When you think about the major drivers across revenue and expenses, we expect similar performance in Q3 and Q4. Where there can be some uncertainty, obviously, is the last conversation we’re having with Marlene is just on the provision expectations.

So that will be the driver of any of the range and outcomes really in the next quarter.

: Got it.

Paul Holden, Analyst, CIBC: Okay. And then second question, obviously, was 11.5% ROE expectation for this year, well below prior objective. So I guess really two questions, 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 in getting back to the old ROE objective?

Chadwick Westlake, President and CEO, EQB: Yes. Thanks, Bob. I’ll share more on 2026, specifically in December. And you’re right, in Investor Day, we’ll share more about our three to five year vision. Early days in strategic focus.

But I would say the ROE that has traditionally been an advantage in North Star will continue to be an advantage in North Star for us in how we’re allocating our capital. And we’re first going to continue to allocate our capital importantly into our growth businesses. We’re going to focus on returning our efficiency to our traditional best in class levels or a couple of the big components. But I do think we have at this moment as we shared conviction in the medium term targets that we had, but we will come back to that more in December. But it is like to my point to be clear, traditional efficiency levels need to be delivered and reigniting the growth in our core businesses where we’ll win.

: Okay, got it. Thank you.

Joanna, Conference Call Moderator: Thank you. The next question comes from Gabriel Dechaine at National Bank. Please go ahead.

Lamar Prasad, Head of Investor Relations, EQB0: 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, you know, there could be more quarters, like this ahead, but, hopefully, getting better as the delinquency, early stage delinquencies improve as rates are cut. But, you know, nonetheless, we could see a bit more. I was just wondering about, if you can identify certain geographic exposures and certain loan vintages or something like that, why could you not 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?

Marlene Leonarduzzi, Chief Risk Officer, Former Interim President and CEO, EQB: Yes. Thanks for your question. I would say a few things there. One is we do have there is a great deal of uncertainty as I’ve said, right? Unemployment rate and interest rates are elevated on a relative basis.

Housing sales are starting to show signs of weaknesses, which has contributed in the past through increased mortgage delinquency rate, particularly in the GTA region and we may see that continue. I would say that from a geography perspective, were pockets of geography and I’d say Toronto suburbs, for example, there were some pockets where we did see prices drop that 25% to 30%. We are well aware of those pockets and are monitoring them, and we do have appropriate levels of provisions to account for that.

Lamar Prasad, Head of Investor Relations, EQB0: Okay. So no then, like, an outsized heavier weighting to really downside scenario that’s not in the cards?

Marlene Leonarduzzi, Chief Risk Officer, Former Interim President and CEO, EQB: The the downside scenarios are built into what we get from Moody’s Analytics. You can see that their scenario outlook versus last quarter is much more severe. Plus, we do have specific overlays within our provision process on performing loans for those higher risk segments.

Lamar Prasad, Head of Investor Relations, EQB0: Okay. And then moving on the revenue side, I guess, some of the deposit cost trends were working against you, but you have adjusted your pricing, I believe, 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, you know, lagging it for competitive reasons?

David Wilkes, SVP, Chief Strategy and Growth Officer, EQB: Thanks, Gabe. I think it’s more likely we would do that. We will we actively manage this on an ongoing basis. Like, as you’ll you’ll have seen yesterday, I think we we lowered rates on some of our products by 20 basis points. I think when you think about rates declining, the other factor that you wanna consider is the benefit we’re gonna receive from the commercial floors that are already in the money.

So those are sort of tagged effects. We have $3,000,000,000 in commercial loans that’ll contribute more to NII if Bank of Canada moves.

Lamar Prasad, Head of Investor Relations, EQB1: So I

David Wilkes, SVP, Chief Strategy and Growth Officer, EQB: think of that as the bigger move. But on the deposit side, yes, there’s a there’s a good chance we’d move more in lockstep.

Lamar Prasad, Head of Investor Relations, EQB0: Okay. Great. And then I’ll I’ll just throw another one. And you did you’ve changed your your full year guidance. I get that.

And we can work out the math of what that means for Q4 earnings per share. Does the range, is the toggle or the swing factor really the provision number? Because the revenue is maybe modestly better if the margin picks up and then expenses do what they do. But really, the the main swing factor is gonna be PCL.

David Wilkes, SVP, Chief Strategy and Growth Officer, EQB: Yeah. Yeah. That’s what I, yeah, mentioned earlier. I think PCL would be the the the bigger uncertainty tied to Q4.

Lamar Prasad, Head of Investor Relations, EQB0: Got it. I was probably typing at the time. All right. Enjoy the rest of your summer and welcome back Chadwick.

Chadwick Westlake, President and CEO, EQB: Thank you, Gabe. Really appreciate it.

Joanna, Conference Call Moderator: Thank you. The next question comes from Etienne Ricard at BMO Capital Markets. Please go ahead.

Lamar Prasad, Head of Investor Relations, EQB2: 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, 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 demographics are experiencing a tougher macro backdrop? And if so, why is that the case?

Marlene Leonarduzzi, Chief Risk Officer, Former Interim President and CEO, EQB: Thanks for your question. When I think about this segment of our population, so it’s true, 70% of our customers are self employed and new Canadians are an important part of our customer base. That segment seems to be when we look at how these segments perform historically, these are very resilient. This is a very resilient segment. These are people who are resourceful and particularly small business owners are able to really hustle to find ways to keep up with their payments.

We have a well diversified portfolio when we think about the range of products that we offer. And as well, when I think about this portfolio and the strength of our loan to values, that gives us comfort as we move forward. We’ve also stress tested our portfolio. And I would suggest that we are through that stress testing, it gives us confidence in our ability to manage this through cycle.

Lamar Prasad, Head of Investor Relations, EQB2: So I guess what you’re saying is the relative divergence in the impaired loans. It’s more of a geographic allocation.

Marlene Leonarduzzi, Chief Risk Officer, Former Interim President and CEO, EQB: Yes. It could be it could be we have a probably a higher concentration Ontario than some of the peers. Yeah.

Lamar Prasad, Head of Investor Relations, EQB2: And Chadwick, I’ve heard the word efficiency multiple times in your comments. What is the path looking like to 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?

Chadwick Westlake, President and CEO, EQB: Thanks, Aja. Well, yes, I believe the competitive advantage always has been and will be best in class efficiency ratio for Canada’s Challenger Bank and our digital platform and the markets where we win. So as I said, I’ll own this now And we intend to return to that level of performance through both, as you indicated, revenue work and reigniting that revenue work through the three strategic categories that I called out in terms of Challenger at scale, Challenger to its full growth potential. And then there’s several options on the table, think, for revenue and the cost side. So there will be a combination, I think, as we get there over coming quarters.

And I’ll share more about that in December and at the Investor Day. But that is an important North Star under and really secondary and foundational to ROE.

Lamar Prasad, Head of Investor Relations, EQB2: Thank you very much.

Joanna, Conference Call Moderator: Thank you. The next question comes from Graham Ryding at TD Securities. Please go ahead.

Lamar Prasad, Head of Investor Relations, EQB3: Maybe I could just jump into that sort of 2022 cohort where on the single family residential side where it seems like prices are elevated and it’s driving some losses. Can you quantify what the particular size of the book either in around the GTA or that 2022 cohort, what that represents as a percentage of your single family residential book? That would be my first question. And the follow on would just be, is it fair to say that the price declines that we’ve seen from the 2023 and 2024 cohorts, less pronounced and you feel less exposed from a potential credit loss perspective from those vintages?

Marlene Leonarduzzi, Chief Risk Officer, Former Interim President and CEO, EQB: Yes, thanks. We don’t disclose specifically the size of that 2020 of any kind of sub segment or vintage in our portfolio. But what I can tell you is that when we look at our approach to lending, I do feel more that the that there’s less movement in those more recent vintages. As well, when I look at the 2022 vintage on average, it’s still supported by relatively strong loan to values on an HPI adjusted loan to value basis. So that gives us confidence in what could come out of that moving forward.

Lamar Prasad, Head of Investor Relations, EQB3: Okay. And then just on the capital and the buyback side, just given the macro backdrop and the lower loan growth that you’re seeing currently and then your consideration to share price, is it fair to say that your appetite for buybacks is reasonable currently?

Chadwick Westlake, President and CEO, EQB: Thanks, Graham. Reinforce our capital allocation strategy. So first, we’re we obviously have a great capital position, intended to maintain one. We’ll continue to invest first in the business. We have a consistent dividend strategy.

We’ll always be looking at inorganic opportunities. But in general, our belief is we trade well below our intrinsic value and we’ll continue to allocate capital according to that filter. So there is an NCIB for a reason, but the capital allocation filter really goes in that sequence.

Lamar Prasad, Head of Investor Relations, EQB3: Understood. Thank you.

Joanna, Conference Call Moderator: Thank you. The next question comes from Mike Rizvanovic at Scotiabank. Please go ahead.

Lamar Prasad, Head of Investor Relations, EQB1: Hey, 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 the TV program. And in fact, 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 ten year over the five year. Now you’ve got some steepness in the yield curve. Is there a dynamic where this line had downside risk?

And and I’m not trying to pin you on any sort of guidance, but 26 and a half million is a record number. I’m just trying to better understand if this is a line that could legitimately go beyond 26 and a half million as a run rate, Or is this something that could actually gravitate down to the $20,000,000 range? So if you had to sort of look at high level, where do you see this trending over the course of the, say, six to eight quarters?

Chadwick Westlake, President and CEO, EQB: Thanks, Mike. Good to hear from me. David, do you want

David Wilkes, SVP, Chief Strategy and Growth Officer, EQB: to take that Yes. Thanks, Mike. Yes, you pointed out there are two drivers in the gain on sale and retained interest line. The retained interest portion is tied to the portfolio that’s already here. And so that will continue.

It accounts for probably more than half of that line. And then as you said, the gains on the actual securitization activity depend on the origination volume and our ability to find funding for both directly, as you said, into the CMB programs or other alternatives. So we see this quarter similar to this quarter last year as a strong performance in that line. We’d see the retained interest continue to grow as the loan under management grow in that piece. And then as you said, the gains on securitization a little bit depends on customer appetite across the five year and ten year, but continued activity in that market last quarter, and we’re seeing that trend continue in the next quarter.

Lamar Prasad, Head of Investor Relations, EQB1: 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 $60,000,000,000 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?

David Wilkes, SVP, Chief Strategy and Growth Officer, EQB: Yes. The $60,000,000,000 program is definitely a major contributor. It’s not our only source of funding for these types of assets. But just I expect we expect continued strong performance likely at this level with small growth.

Lamar Prasad, Head of Investor Relations, EQB1: Okay. Got And then 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 this spring lending market, 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?

Chadwick Westlake, President and CEO, EQB: Thanks, Mike. Two things. I’ll share more about our outlook for next year in December and this will become part of our Investor Day in terms of how we intend to operate our traditional best in class levels for efficiency. I agree, the revenue headwinds play into the mix, but I will have a heightened focus as well on how we allocate every dollar, all of our capital to ensure we’re allocating it into our highest sources of growth as I’ve outlined. So that will include for sure a review of how we spend and spend wisely.

I’ve just been back for a couple days. I need to take some time to go through that with the team, but there will be a heightened focus on that, always knowing first priority is revenue growth. But either way, we’re gonna land back at that efficiency range.

Lamar Prasad, Head of Investor Relations, EQB1: Okay. So so this is more of a longer term view, but you’re not contemplating anything in terms of more sizable restructuring type scenario. Like like, we do see that with some of the larger banks. I’m guessing that’s probably not in your DNA. Is that fair?

Chadwick Westlake, President and CEO, EQB: I’d say I just started as the CEO. It is a new era. We will we have our traditional strengths that I expect to continue, but all options are on the table as we look to deliver our strategic agenda, Mike. So we’ll be looking at how do we accelerate revenue and how do we ensure we have economies of scale and are spending wisely that might include reallocation of resources and dollars and that might include also slowing that level of expense increase. I do think there’s work to do on both sides and I’m very focused on that together with the leadership team.

Lamar Prasad, Head of Investor Relations, EQB1: Got it. Okay. Thank you. Thanks for the insights.

Chadwick Westlake, President and CEO, EQB: Thank you, Mike.

Joanna, Conference Call Moderator: Thank you. The next question comes from Stephen Boland at Raymond James. Please go ahead.

Stephen Boland, Analyst, Raymond James: Thanks. A lot has been covered, but I want to go to that slide on your NIM. You’ve kinda said q four would probably be in in terms of profit similar to, you know, q three. So, you know, you only need, an a a one ninety five NIM in q four to get to that 2% average. So, yeah, I I kind of kind of base that.

But I’m I’m curious about the the the reasons for the NIM decline. I mean, I understand increase in liquidity portfolio. But when you 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 are obviously more expensive. But it’s it’s one quarter. So I I’m I’m really struggling why, you know, even if q two was, you know, kind of a one time, there were some one time items in there that you’re not above two in in the quarter.

How does it, like, one quarter of movement in the portfolio and and maturities and repricing of loans, you know, you that much, I guess, is the question.

Chadwick Westlake, President and CEO, EQB: Right. Thanks, Steven. David, do you wanna resume the some of them?

David Wilkes, SVP, Chief Strategy and Growth Officer, EQB: Yeah. So thanks for the question. Like as we think of Q4 and the underlying trends that I mentioned both on the commercial mortgages and on EQ Bank deposits, Like we do have the lever on the EQ Bank deposit side. You mentioned more expensive deposits, but these deposits are a better cost of funds. So we do have that lever there.

We wouldn’t expect the liquidity portfolio to be higher quarter over quarter as our funding programs will show slightly less activity potentially between the two quarters. And then the one place that you mentioned is the commercial loan maturities. And and we will have some more maturities on the uninsured portfolio. Some of them will have floors. And one of the countervailing effects there will be the the benefit of the the floor potentially expanding with Bank of Canada moves.

Stephen Boland, Analyst, Raymond James: Okay. And and Marlene, I don’t wanna hammer this to death, but, you know, we’ve seen some stabilization in single family. And and and granted, I understand you’re talking about vintages that were 20 you know, three year mortgages or five year mortgages, like underwritten, you know, in 2020 or 2022. But, like, you traditionally always your LTVs have always been around the 70% mark. So, you know, I don’t think I I’ve seen anything that that shows 30% decline in in housings.

So, you know, even in Toronto. So I’m I’m I’m just curious, like, I mean, are these houses really beat up? Like, that like, that that you’ve gone you’ve eaten into that LTV. I don’t think I’ve ever seen that with that quote before that that was a concern.

Marlene Leonarduzzi, Chief Risk Officer, Former Interim President and CEO, EQB: Yeah. There have been pockets, very specific pockets. As I said, it’s about 50 loans. It’s it’s a small portion of loans, about 50 loans that are generating 80% of the decline. So it’s very targeted pockets where these are larger loans, and there are larger loans that did see price declines in some areas of of 25% to 30% since their peak in 2022.

And, you know, for that 2022 vintage, just as a reminder, our mortgage terms tend to be very short. So that vintage would have renewed, most of it’s renewed two times already. So the first time they would have renewed would have been at the higher interest rate, and then they’ve since re renewed at lower interest rates. So again, that’s also helping to provide some relief in terms of their carrying costs and gives us more confidence moving forward as a part of that green shoot. But however, we are still seeing some uncertainty in the market.

Stephen Boland, Analyst, Raymond James: Okay. So these mortgages have already been renewed. I thought it was a three year or five year duration. But do you

Marlene Leonarduzzi, Chief Risk Officer, Former Interim President and CEO, EQB: No. Ours are largely like two years, one to two years typically.

Stephen Boland, Analyst, Raymond James: Okay. Thanks very much.

Chadwick Westlake, President and CEO, EQB: You’re welcome. Thanks, Stephen.

Joanna, Conference Call Moderator: Thank you. The next question comes from Darko Mihelic at RBC Capital Markets. Please go ahead.

Lamar Prasad, Head of Investor Relations, EQB4: 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 or 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 in the deposit mix. We’re getting we’re actually getting term declining demand, savings, balances rising, and and that’s been very beneficial for larger banks. I don’t get the sense that that can happen here. I 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 2026 and 2027.

David Wilkes, SVP, Chief Strategy and Growth Officer, EQB: Sure. Thanks, Darko. I’d split that into two pieces. You mentioned the broker term deposits. We see that as our marginal cost of funds.

So you’ll see growth there, our marginal funding source. So you’ll see growth there as the portfolio grows. Where you’ll really see that more that behavior more apparent is in EQ Bank. And so you can see it in the growth in the demand deposits on EQ Bank and the term in EQ Bank coming down. So we’re seeing that behavior too where customers that had purchased the GIC with us last year at this time at five percent are now rolling into our notice savings account product or HESAs.

And both of those, we managed to while still giving great value to customers at broader margin. And so I think you’ll see that and that’s where we can actively manage go forward in the EQ Bank side.

Lamar Prasad, Head of Investor Relations, EQB4: 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?

David Wilkes, SVP, Chief Strategy and Growth Officer, EQB: Yes. The way I think about it is this is split between EQ Bank and again, the rest of the brokered markets. EQ Bank as it shifts a little bit more to demand each quarter, and so it’s more our demand deposits are up 47% year over year. That’s where we get more margin in the in the deposit book. The rest of the lending portfolio is priced relative to that brokered that brokered deposit.

So we don’t see, like, expansion there. That’s really just almost our FTP type number.

Lamar Prasad, Head of Investor Relations, EQB4: Okay. And so the cut in rates at EQ Bank is not expected to have an impact on your growth rate of those deposits?

David Wilkes, SVP, Chief Strategy and Growth Officer, EQB: No. We think the value prop right now on those is very compelling in the market.

Lamar Prasad, Head of Investor Relations, EQB4: It still is. Okay. Thank you very much. It’s helpful.

David Wilkes, SVP, Chief Strategy and Growth Officer, EQB: Thanks, Darko. Thanks, Darko.

Joanna, Conference Call Moderator: Thank you. Mr. Westlake, there are no further questions. Back to you for closing comments.

Chadwick Westlake, President and CEO, EQB: All right. Thank you. Thanks again for joining us everyone today. And for some of our listeners, Annalisa, Lamar, David and I will be at the Scotia Financials Conference on September 3 and the CIBC Financials Conference in Montreal on September 25. To everyone, I look forward to sharing more in December.

Have a great day.

Joanna, Conference Call Moderator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating.

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