Earnings call transcript: EQB Inc reports Q2 2025 earnings miss, stock drops

EQB Inc reported its second-quarter earnings for 2025, revealing an earnings per share (EPS) of $2.31, which fell short of analysts’ expectations of $2.68. Revenue for the quarter was $315.95 million, slightly surpassing the forecast of $312.92 million. Following the earnings release, EQB Inc’s stock dropped by 7.12% in after-hours trading, reflecting investor disappointment with the earnings miss. According to InvestingPro data, 4 analysts have recently revised their earnings expectations downward for the upcoming period, while the stock currently trades at a P/E ratio of 8.97x.

Key Takeaways

• EQB Inc’s EPS of $2.31 missed the forecast of $2.68.
• Revenue slightly exceeded expectations at $315.95 million.
• Stock declined by 7.12% in after-hours trading.
• Net Interest Income grew 3% sequentially.
• EQ Bank customer growth was strong at 23% year-over-year.

Company Performance

EQB Inc’s overall performance in the second quarter of 2025 was mixed. While the company experienced growth in several areas, including a 3% sequential increase in net interest income and a 23% year-over-year increase in EQ Bank customers, it struggled to meet EPS expectations. The company’s return on equity (ROE) was 11.9%, below its target of 15%, indicating room for improvement.

Financial Highlights

• Revenue: $315.95 million, slightly above the forecast of $312.92 million.
• Earnings per share: $2.31, below the forecast of $2.68.
• Net Interest Income: 3% sequential growth.
• Total loans under management: $71.5 billion, a 3% quarterly and 9% yearly increase.
• Provisions for Credit Losses: $29 million, up from $13.7 million in Q1.

Earnings vs. Forecast

EQB Inc’s EPS of $2.31 missed the forecasted $2.68 by approximately 13.81%, marking a significant deviation from expectations. While revenue slightly exceeded predictions, the EPS miss overshadowed this positive aspect, contributing to the negative market reaction.

Market Reaction

Following the earnings report, EQB Inc’s stock price fell by 7.12%, dropping from a previous close of $99.18. This decline reflects investor concerns over the earnings miss and the company’s ability to achieve future growth targets. The stock is now trading closer to its 52-week low of $78.24, signaling a cautious investor sentiment. InvestingPro’s analysis indicates an overall Financial Health score of FAIR, while analyst consensus suggests an 18% upside potential from current levels. The company’s comprehensive Pro Research Report, available with an InvestingPro subscription, provides detailed insights into its valuation and growth prospects.

Outlook & Guidance

Looking ahead, EQB Inc expects improved earnings in the third and fourth quarters of 2025. The company aims to achieve a medium-term ROE of 15-17% and anticipates lower provisions for credit losses. Additionally, EQB Inc is preparing for potential open banking implementation, which could drive future growth.

Executive Commentary

CEO Andrew Moore expressed confidence in the company’s future, stating, "We are well positioned for the future and expect over the medium term, we will generate over 15% ROEs consistent with our historical record." He also emphasized the company’s proactive measures, saying, "We responded by tightening credit in certain geographies and taking appropriate provisions."

Risks and Challenges

• Economic volatility due to tariff uncertainties could impact growth.
• The housing market is showing signs of softening, which may affect lending.
• Increasing unemployment rates could lead to higher credit losses.
• Conservative GDP growth forecasts may limit economic expansion.
• Maintaining competitive advantage in the alternative lending market is crucial.

Q&A

During the earnings call, analysts focused on EQB Inc’s credit provisions and impaired loans, seeking clarity on the company’s strategy to manage these challenges. Leadership changes and their impact on digital banking and lending were also discussed, with executives highlighting a focus on innovation and customer service improvements.

Full transcript - EQB Inc (EQB) Q2 2025:

Jenny, Conference Operator: Welcome to E2B’s Earnings Call for the Second Quarter of twenty twenty five. This call is being recorded on Thursday, 05/29/2025. 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 Maggie Hall, Director of Public Relations and Communications. Please go ahead.

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: Thank you, Jenny, and good morning, everyone. Your hosts today are Andrew Moore, President and Chief Executive Officer Marlene Leonarduzzi, Chief Risk Officer and David Wilkes, Vice President and Head of Finance. For those on the phone lines only, we encourage you to also log on to our webcast and view our presentation, which may be referenced during the prepared remarks. On slide two of our presentation, you’ll 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 Andrew.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Good morning, everyone, and thank you, Maggie. Before diving into quarterly numbers, some initial observations. While the fundamental capacity of our business to grow profitably is unchanged, I would be remiss not to acknowledge that this was a period of unusual volatility. The confidence altering threat of cross border tariffs dominated the narrative and dictated many customer decisions in q two. The situation will be remedied, but it may take time.

We trust that the resolution brings with it some benefits accruing to Canada from more diversified trade and the creation of a very necessary pro growth economic agenda in Ottawa. In the meantime, while being ever mindful of near term risks, we remain confident in EQB’s prospects and for good reason. We have market leading franchises in digital banking, single family residential, and CMHC insured multi unit lending, with great businesses in decumulation lending and across our portfolio of commercial businesses, supported by a really strong capital position with excellent liquidity. In a more muted market, these positions will serve us well, and in Q2, helped us deliver one of the stronger periods for loan originations with market share gains. At a high level, our approach and record renewal rates helped our single family uninsured portfolio grow at 2% quarter over quarter or March Our longtime leadership in serving Canada’s apartment sector was again demonstrated in q two with the insured construction portfolio increasing 10% quarter over quarter and term loans under management increasing 6% over the same time period and nearly 29% year over year.

We did see a decline in gains on securitization from CMHC insured multifamily, but we expect higher earnings in Q3 and Q4 from this business. More detail on EQ Bank later, but it continued to grow meaningfully such that over 560,000 customers now enjoy our differentiated challenger bank offerings and deposits grew to $9,400,000,000 Objectively, there is much to celebrate. In a business like ours, we do not expect too much quarter to quarter volatility in earnings, given predictability in most elements of net interest income and noninterest revenue, which tend to grow at a stable pace. Variances earnings when they occur tend not to be terribly material or considered individually, but they can add up when they coalesce and point in the same direction in a single quarter. That’s what occurred in Q2 as our securitization business produced lower earnings than in Q1.

Our common equity was above target, weighing down ROE, and we incurred higher levels of other variable spending such as marketing and other expenditures to drive EQ Bank account acquisition. When combined with elevated credit losses, we are the first to acknowledge our financial results were out of character. We certainly expect Q3 and beyond to show better performance even as economic uncertainty may continue to drive credit provisions. The bottom line is that we are well positioned for the future and expect over the medium term, we will generate over 15% ROEs consistent with our historical record. Now to the numbers.

Against our financial priority of generating over 15% ROE, we fell short at 11.9% for the quarter and 13.6% for the first half of the fiscal year, with EPS of $2.31 and $5.29 respectively, due in the latter part to anomalous demand our sector and the broader economy face and the naturally variable factors I mentioned. No conversation about the banking sector through this demanding period of uncertainty can be made without acknowledging the credit environment, which Marlene will walk us through in a moment. PCLs for our lending businesses in the quarter were up at $29,000,000 This figure is split nearly evenly across each of our business lines and broadly reflect the demands of q two’s unique macroeconomic landscape, stress on a vintage of SFR borrowers, and pressure on the commercial portfolio, all collectively shadowing otherwise strong core performance. Consistent with our expectations, our single family residential originations increased 28% compared to last year. We won market share and picked up business in line with our risk appetite.

This was achieved even as we dialed in our credit policies to manage risk in a less certain economic environment. We do not stretch our standards to achieve growth because we never do. By maintaining a broad presence across Canada, while prudently managing risk associated with house prices, we continue to build a strong portfolio with good risk managed earnings potential. SFR portfolio growth was also supported by one of the stronger periods for loan retention for the bank, a function of good customer service as well as economic factors. We naturally observe the housing market very closely.

In line with market forecasts many of you will be familiar with, our outlook now reflects lower housing sales than when we last reported. While the stock future still holds some degree of uncertainty and we have adjusted our tone to be slightly more cautious as a result, let me be clear that we remain confident that the demand for housing is there and that we will continue to gain share in the markets that are important to us. As an encouraging point of example, uninsured single family loan application volumes in the first few weeks of May were up 17% from last year at the same time. Decumulation lending continue to enjoy strength in demand as we advance our presence in a market that’s serving the growing population of Canada’s Retirees. Growth in CMHC insured multi unit residential was a highlight for our commercial banking business.

Cash flow in multi unit apartments are attractive to own, and we’re pleased to support this asset class that has yield strong returns through many economic cycles. I’ll have more to say about our outlook and innovation agenda, including for EQCAP Bank. But first, I’d like Marlene to review credit performance and David to provide a quarterly summary.

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: Thank you, Andrew, and good morning, everyone. I’ll start with an overview of the current macroeconomic environment as it pertains to EQB’s portfolios before moving on to the credit performance in the quarter, and then I’ll provide a few words on the path ahead as we navigate this uncertain environment. Since our last call, tariff uncertainties contribute to significant financial market volatility and have dampened activity in the economy, specifically in the real estate market. Shown here on slide eight is the range of scenarios we used to model the impact of sustained increases in tariffs on our portfolios. This exercise, coupled with recent investments we’ve made in risk management disciplines, give us the confidence that we are appropriately reserved and are prepared for different outcomes.

Thus, we’re able to reiterate the conviction we have in our growth ambitions. The work we’ve done over the past year to enhance our risk infrastructure gives us a very granular view of our businesses and ensures we’re able to adapt quickly as required. Now turning to credit performance in the quarter. Briefly on the subject of gross impaired loans, the rate of new formations of gross impaired loans, or GILs, slowed in Q2. But economic headwinds means resolution activities are taking longer, resulting in the GIL increase we saw this quarter, up 8% from January to $775,000,000 Within our personal lending portfolios, GILs increased 1.4%, with 91,600,000 impaired residential mortgages discharged or resolved in the quarter.

Looking at commercial, impaired loans increased 12% in q two, driven by two new loans with no individual provisions as well as a slower pace of resolutions. Equipment financing impaireds increased 23% to $10,300,000 as a result of deteriorating macroeconomic conditions stemming from tariffs further impacting the transportation sector. Now on to PCLs. PCLs for our lending businesses totaled $29,000,000 compared to $13,700,000 in Q1. Of the total, 5,800,000.0 was related to stage one and stage two performing loans, reflecting growth in the uninsured lending portfolio and a more negative macroeconomic outlook impacting the forward looking indicators that are used to model expected credit losses.

Stage three PCLs associated with impaired loans were 23,200,000.0 and forty five % of which was associated with equipment financing. On the personal lending side, PCLs were 9,100,000.0, up from 6,300,000.0 last quarter, primarily driven by the 2022 origination vintage Andrew mentioned. These loans continue to drive both GILs and PCL due to pressures from the previously rapid increases in interest rates and declines in real estate values from their peak in 2022. Commercial PCLs were $9,400,000 with $2,600,000 related to provisions on performing loans. Provisions on nonperforming loans or impaired loans are mostly related to noncore assets.

Reported PCLs and equipment financing were 10,100,000 down from $13,000,000 over last quarter and $14,000,000 last year. As we’ve expressed on prior calls, we have improved the credit quality of this portfolio over the past year, reducing exposure to long haul transportation and shifting originations towards prime. Now over 50% of the originations are in prime segments, up from 31% at the end of twenty twenty three. Onto the outlook. Given the degree of economic uncertainty facing the global economy and here in Canada, accurately forecasting the timing of resolutions or a decline in new impaired formations is difficult.

With this weaker economic outlook, we have increased our provisions this quarter. If market uncertainty were to subside, we may see improvement in the second half of the fiscal aided by today’s lower interest rate environment and the investments we’ve made in risk management disciplines. In response, we continue to deliver high credit quality originations using our disciplined and dynamic risk management approach, underpinned by prudent underwriting practices, such as conservative average loan to values and strong borrower creditworthiness tightening of our underwriting criteria in certain geographies and asset classes across all of our businesses and active and ongoing management of the problem and impaired loans within our portfolios, and finally, continued strengthening of the Bennington leasing business. We are confident in the overall quality of our lending portfolios, in the level of reserves we’ve taken, and expect our loan loss experience will return to more normal levels over time, in keeping with our long standing position as a credit performance leader among all Canadian banks. Now over to David.

David Wilkes, Vice President and Head of Finance, Equitable Bank: Thanks, Marlene, and good morning, everyone. I’ll start with return on equity and capital. As we share consistently, our priority performance measure is generating ROE above 15. As Andrew noted, ROE for the quarter was 11.9% and impacted by several factors, including uncertainty in the macroeconomic environment and Stage three allowances primarily associated with loans that were already impaired. The elevated provision for credit losses led to over two fifty basis points of the gap to our target ROE this quarter.

In addition, consistently strong organic capital generation each year has allowed the Bank to grow capital faster than risk weighted assets, resulting in the Bank’s increasing capital ratios as well as EQV’s common shareholders’ equity. As a rule of thumb, dollars 200,000,000 in additional shareholders’ equity has a 100 basis point impact on our ROE. Given these two factors, we are confident in the fundamentals of our business and its ability to deliver target performance of 15% to 17% ROE over the medium term. On capital, total capital increased 10 basis points to 15.6%, reflecting organic capital generation, net of dividends, and our semiannual $4,400,000 LRCN payment. In the quarter, Equitable Bank completed a $200,000,000 dividend to its parent EQB, Inc, leading to a decline in its CET1 ratio to 13.2%.

As part of optimizing its ongoing capital structure, the Bank completed a $200,000,000 subordinated debenture issuance to EQB, allowing it to maintain strong overall capital levels above 15%. In terms of shareholder capital, last year EQB successfully executed on our guidance to grow the common share dividend 20% to 25% annually over five years. Since then, we are on track with our plan to grow dividends 15% annually and continued this with our latest dividend increase. This quarter, EQB also repurchased and canceled 271,000 shares for a total of $26,000,000 through its NCIB. We will continue to use the NCIB as part of our overall framework that ensures capital is first allocated to shareholder value, enhancing organic and strategic inorganic growth while returning excess capital to shareholders.

Net interest income grew 3% sequentially and was 1% above last year. There were a number of factors here, namely the growth of our uninsured lending portfolios across single family, decumulation, and commercial, and an increase in prepayment income quarter over quarter. Expansion of margin over the last year has been supported by our commercial lending portfolio and floor rates built into these agreements. Today, the Bank holds several billion dollars of adjustable rate mortgages with contracted floors that protect from downward movements in rates. The majority of these loans are already at the floor rate, which means a further reduction in policy rates directly benefits NII.

The margin in the remaining lending portfolio is expected to be relatively consistent as rates fall given the matched funding approach and the book’s one year duration of equity. For EQ Bank, deposits grew well, reaching a new record of 9,400,000,000 and up 4% quarter over quarter. Notably, demand deposits, including our innovative notice savings account, grew 10% quarter over quarter and 32% year over year. These demand deposits contribute more to the bank’s NII than its term deposits. EQ Bank deposit pricing is continually optimized to grow the long term franchise while contributing to earnings today.

Overall, NIM was 2.2%, driven in the quarter by factors I’ve mentioned previously, as well as derivative gains. Normalizing for these gains, NIM would have been $2.13 compared to $2.07 in Q1 and $2.11 last year. This is consistent with our guidance for NIM above 2% through the year. Noninterest revenue contributed 14% of revenue in the quarter. Once again, we experienced consistencies from EQB’s fee based businesses with $23,000,000 in revenue, including ACM Advisors and Concentra Trust.

ACM continues to perform well with new institutional subscriptions as it prepares to launch its new Social and Climate Fund. Gains on securitization and income from retained interest decreased from a record Q1 as overall volume in the CMHC insured market declined, particularly customers looking for ten year mortgages. Our outlook for NIR is constructive for the second half of the year with securitization income expected to increase in Q3 and Q4, and we anticipate NAR will contribute over 15% of revenue this year. Moving to expenses. We continue to take a through cycle approach to building capabilities, investing in innovation, and growing the bank, and have levers to pace our expense growth.

With strong lending performance driving revenue for the future, we have the means to continue investing to deliver our trademark customer service, enhance our digital capabilities, while delivering our target ROE over the medium term. In May, Equitable Bank’s Challengers moved into our new Toronto headquarters, which is a purpose built facility equipped for our team. Following completion of the lease at our temporary facilities, this will reduce the adjustment to expenses in future periods. Again, our focus is investing through the cycle to generate 15% plus ROE while building long term franchise value. We will remain firm in our commitment to cost effectiveness and expect operating leverage to improve as faster asset growth translates to higher revenue.

On asset growth, total loans under management reached $71,500,000,000 up 3% in the quarter and 9% year over year. The drivers were growth in uninsured single family, decumulation lending, which is up 45% year over year, insured commercial construction up 31%, and insured multiunit residential up 29%. On funding, EQ Bank deposits grew at their quickest pace since 2022, and we are particularly enthusiastic about the growth and activity here as more customers are choosing the platform for everyday banking, including payroll. And as I mentioned, this is leading to faster growth of lower cost demand deposits. Overall, we remain confident in the fundamental and structure ability to generate consistent 15% to 17% ROE over the medium term as we invest in new capabilities and our core lending businesses continue to grow.

Back to Andrew.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Thank you, Marlene, and thank you, David. Before final comments on our outlook, I want to express my thanks to our finance team, and David in particular, for their hard work this quarter. We also made two important changes to senior roles and responsibilities to align with our strategic priorities and sharpen our focus. Specifically, Dan Brotman was named to the newly created position of senior vice president and head of EQ Bank, and Janet Lynn to the position of chief information officer of the of Equitable Bank. Dan is a founding member of the EQ Bank team, and Janet joined us in 02/2021 as VP lending and payment technology, where she used her expertise to help build scalable technology solutions benefiting our Challenger Bank.

In his new role, Dan takes responsibility for EQ Bank marketing, product development, customer care, and digital delivery, while Janet will ensure we remain at the forefront of innovation in all areas of Equitable alongside Dan at EQ Bank. Now now some time for EQ Bank. We are focused on adding more challenger bank service over time and building our recent momentum in customer growth and engagement. As I mentioned off the hop, EQ Bank customers grew 23% year over year, such that over 560,000 customers have chosen our bank to suit their everyday banking needs and now benefit from the competitive attention we provide to our sector in Canada. Deposits grew at a rapid clip to 9,400,000,000, driven notably by demand deposits, as David mentioned, which were up 10% quarter over quarter and 32% year over year, with our fastest expansions since 2022.

We enjoyed deeper engagement with our payroll customers, who by the nature of this activity choose us as a destination bank and represent a growing ratio of our total customers and deposit book. Q2 also saw our business owner customers provide meaningful feedback for our business accounts during its beta phase, which we look forward to rolling out fully this year. In short, we are deepening customer relationships in line with our strategy. As we build scale, we also see opportunity to drive down costs and improve efficiency. Turning back to our lending businesses, uninsured single family loan application volumes in the first few weeks of May are encouraging, up 17% from this time last year, giving us a constructive outlook for q three coupled with a good picture for CMHC construction and term loans in our commercial business.

In closing, this was a demanding quarter that saw an array of variable factors converge with the impact of tariffs on the global economy. We responded by tightening credit in certain geographies and taking appropriate provisions. The rate of new formations has slowed, and while in some cases delayed, we’re working hard to resolve problem loans where we can affect change using our proven approach. The quarter also had strong fundamental performance that supports my confidence in the future. All things considered, it is evident that disciplined execution of our strategy through this period of economic uncertainty will allow us to support our customers and translate recent asset growth into positive earnings and generate medium term ROE above 15%.

Now I’ll turn it back to Jenny to begin the Q and A portion of the call. Thank you.

Jenny, Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your line is now open.

Gabe, Analyst: Hey, good morning. Can you refresh my memory? What’s your you know, typical loan to value at origination for a single family residential mortgage and, you know, commercial mortgage if if, you know, such a thing as typical exists?

Andrew Moore, President and Chief Executive Officer, Equitable Bank: It does. I’ll give Marlene kind of deal with the quantitative there. But in general, as a sort of theme, if people with lower credit scores and therefore a higher propensity to default, we have a lower loan to value than those of higher credit quality. But, Marlene, wonder if you can deal with

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: Sure. At origination, on average, our loan to value on the single family book, uninsured book, is 70%. And on commercial, yeah, around that. Commercial, it’s a bit lower than that.

Gabe, Analyst: Okay. So so I I point of my question is what what and correct me if I’m wrong here. The provisions the impaired provisions on mortgages and on commercial mortgages, see, they’re they’re they’re related to previously impaired loans. So That’s correct. And then I guess if I just wanna illustrate it a little bit, if your your standards have been consistent over the years, you’re originating uninsured mortgages in 2022 at 70% and then whatever the commercial mortgage was, I don’t know when that was.

But today, you’re realizing the recovery rate’s not as high as you anticipated, or and there’s extra cost because it’s you’re you’re holding onto the property longer. That part I’m less concerned about. But, like, would that imply that your recovery is are these some of these assets have gone down more than 30% in value?

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: In pockets. And so there these are, you know, isolated. Some of these are isolated loans. You look at them and say that the first off, it’s the drop the softening in the the prices. So a 10% drop that you might have seen through HPIs.

That’s kind of a

Gabe, Analyst: Yep.

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: That’s an average. Right? So you’ve gotta look at in pockets. It’s much higher than that. And, and you’re right.

It’s the incurred fees and accrued interest and, and other, you know, costs that may be required to make sure the property when you recover a property, you may have to put some work into it to clean it up for sale.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: What what’s the So just gave just more color there. Mean, the courts the courts got so the courts got a bit backed up coming out of COVID and and with kind of this high stress in the system. So that meant we were unable to get on hold of property. Think we’ve about that internally before, but that that doesn’t help. And, you know, generally speaking, one of the one of the challenges when you do actually go parasail on property, you know, that it hasn’t been as well maintained as the broader portfolio.

So you do see some decay beyond the kind of the values that you might have expected if it otherwise had sort of proud home ownership through that period.

Gabe, Analyst: Yeah. You gotta pay somebody to mow mow the lawn and paint the fence, all that stuff. But I I I what’s the bigger driver of this? Is it the value, or is it the duration of the duration one?

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: It’s really both, Gabe. It’s it’s both the values. You know, in 70% origination, obviously, that’s an average. Are we we would lend up to 80%, depending on, you know, the characteristics of the property and the borrower. Yeah.

But it really is both. It’s the time as well as the softness in valuations.

Gabe, Analyst: Is this maybe another way of looking at it is, are we talking about a handful of properties or in 2022, the vintage, we saw massive growth. And then I see impairments from, let’s say, year end 2023, mortgage loans was about $120,000,000 and now it’s 320. So somewhere within that delta, there would have been a handful of loans that that you had these big drops in valuation?

Andrew Moore, President and Chief Executive Officer, Equitable Bank: I I would say that it’s, you know, it’s definitely sort of more focused than we would have expected around a relatively few larger loans with the drops in value. Okay.

Gabe, Analyst: And then then the same idea with the the commercial markets. How many how many many loans we’re talking about there?

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: Well, the commercial market, the gross impaired loan increase we saw was really related to two new loans that came into impaired this As I said, we don’t have provisions against those ones because they seem to be adequately covered. The other reason for the increase in gross impaired loans is related to the fact that some of the resolutions are taking longer than deferred. So that’s really what’s driving what you see there. And as I mentioned, there are a few there that we are very mindful for and we’re managing very actively.

Gabe, Analyst: Yeah, I guess we’ve heard that we didn’t take a provision, we don’t expect a large loss, if any, and that we’re certain things that are not big numbers. I’m not trying to blow it out of proportion, but it’s it’s an anomaly from from the way I I from my perspective anyway. So how how do we know or how do we gain comfort that these sort of retroactive adjustments to, you know, previous provisions are one and done.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Yeah. I I think certainly the commercial side is easiest easy for us to get comfort. I mean, because we can look at it loan by loan basis and, you know, while there’s a couple we’re keeping an eye on for this quarter, we we think, you know, we’re feeling very confident about that book. You know, on on the single family side, we agree with you. We, you know, we think probably at a high watermark overall on provisions, and and that’s clearly coming into this call in quarter end.

We sort of did a lot of diligence to kinda get comfortable making that statement. But what, you know, one could see elevated BCLs in in q three and ’4, but not not at these levels.

Gabe, Analyst: K. Well, I guess, I mean, newer originations in today’s market, I can probably get a lot more comfortable with those LTVs because we know what the prices are like these days. So they’re not

Andrew Moore, President and Chief Executive Officer, Equitable Bank: I think it’s always the same. It’s changing and it’s changing markets to be super clear. I mean, to be super clear that we’re actually, you know, dealing with where the market’s clearing. Right? So when you change your market, we do things like shorten shorten the time that appraisals have to be valid for and that kind of thing to make sure that we’re we really are lending against current values.

Gabe, Analyst: Alright. Well, thank you.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Thank you.

Jenny, Conference Operator: Thank you. Your next question is from Paul Holden from CIBC. Your line is now open.

Paul Holden, Analyst, CIBC: Thanks. Sorry, I guess we’re gonna have to continue on the same line of questioning. Just wondering, you you say it’s related to certain pockets, but maybe larger value homes that would tell me it’s probably not condo market. I guess that’s really my my question is how much of this is related to, say, GTA condos, if any.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Almost nothing is related to GTA condos. Okay. That’s great. So, yes, I think that’s that’s that’s interesting.

Paul Holden, Analyst, CIBC: Okay.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Then we look to that book because there has been a bit just on that, Paul, I mean, there’s been a bit more narrative around that, so we’ve done a bit of a deeper dive there and, you know, it’s a modest sized portfolio. We feel pretty comfortable there’s not nothing to emerge from that.

Paul Holden, Analyst, CIBC: Okay. So you’re not worried? Because I mean that is one pocket where you’ve seen greater price weakness in the overall market. I didn’t think you had a ton of exposure there, and it seems like that’s the case.

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: Yeah. Yeah. We’ve been attentive to the risk in the condo portfolio in the condo market for some time and limit our exposure that way.

Paul Holden, Analyst, CIBC: Okay. That’s good. And then second question, and again, it goes back to this, number of impairments are sort of caught up in the court system. I I would assume you have a pretty good visibility then on sort of that vintage year that has been impacted and what is still working its way through the court system. So two questions on that, guess, is there any way you can quantify what’s yet to be resolved through courts versus what’s already been resolved through courts sort of for that same sort of at risk vintage year?

And then two, is your messaging that you believe you’ve now adequately provisioned for those impairments that have yet to be resolved through court?

Andrew Moore, President and Chief Executive Officer, Equitable Bank: I’ll leave Marlene on the sort of first part of that question. I think on the second part, I think, as I sort

Darko Miolik, Analyst, RBC Capital Markets: of

Andrew Moore, President and Chief Executive Officer, Equitable Bank: said earlier to Gabe, just the you know, I do think that we’ll still have a little bit of elevation in q three, you know, hopefully decaying in in q four. But I do think this is the high watermark overall for losses for PCLs in the quarter, but they’re still expecting some more to come through there.

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: As I look at that vintage, I see that a lot of it is is coming up before renewal now into lower interest rates. Right? So that was the the dynamic. They originate in 2022 where when asset values were high and interest rates were low, renewed. Our our duration tends to be one to two years, so they renewed at a higher rate and then started to get into a bit of trouble.

Those there’s a large part of that vintage, which is now ready to renew at a at a lower rate. That gives us some optimism going forward. However, there’s still you know, that that was still a peak year from from a valuations perspective, and we’ve gone through those in a fair bit of detail to make sure that we have the the granularity that’s needed to understand those valuations. So we may see that, you know, another quarter around the levels that we saw this year, this quarter rather. But looking forward and projecting outwards, you can see improvements down the road.

Paul Holden, Analyst, CIBC: Okay. One more question for me on a different topic. Andrew, you did refer to strong application volumes in May, ’17 percent up year over year, obviously a positive as you indicated. I’m going to like I have to ask on that, I’m curious because that’s not the general indicators we’re seeing in the housing market, right? We’re hearing a lot about sort of soft volumes and consumers pausing because of tariff uncertainty.

So kinda curious if you if you can drill down on that and where you’re seeing the the strength come from. Thank you.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Yeah. Maybe the data isn’t isn’t great, but, I mean, our our we do get some proprietary data that seems to suggest we’re winning share in in our part of the space and, you know, particularly against one of our more significant participant one of the more significant participants in the market. So I think it’s mostly about something sort of idiosyncratic with one of our competitors while our team is doing a great job in being in front of being in front of our mortgage broker customers and, you know, helping them build their business in what’s, you know, otherwise tougher environment for them.

Paul Holden, Analyst, CIBC: Alright. I will leave it there. Thanks very much.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Thank you.

Jenny, Conference Operator: Thank you. Your next question is from Lamar Persaud from Cormark Securities. Your line is now open.

Lamar Persaud, Analyst, Cormark Securities: Yeah. Thanks. I’m gonna go back to to credit. I apologize. But, you know, just trying to tie together a lot of the commentary, you know, about credit losses remaining elevated in Q3, Q4.

In the past, the bank has mentioned, you know, PCLs are twenty twenty five at 12 basis points. This was well before any of this trade uncertainty. So obviously I’m not holding you guys to that. But if you could tie it together between, you know, the elevated credit losses we saw this quarter and your expectations for q three, four, how do you think PCLs are gonna end up in 2025?

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: I’ll give it a go. As I mentioned in my remarks, it’s really difficult to predict in this market. But I would suggest that we have a few places where we see pockets of green shoots. So we do see lower formations and problem loans in our commercial book. We see improvements even in our leasing book.

And as far, we’re working through. We have real clarity on where we have, areas that were that need more attention, and we’ve worked through that. So that gives me some confidence along with the fact that I think the uncertainty that we experienced in this quarter with announcements seemingly to come out every day related to the tariff strife. It feels like that’s calming down. And so that gives us the outlook for the rest of the year reasonably more positive.

I’m using a lot of couched words because there is so much uncertainty here. I’m not about to give you a number. But I think that we have reason to believe that the second half, like really strong evidence to support that the second half should show that slowing down in those increased losses and PCLs.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: I think that’s a great sort of response. And Marlene and her team, if we’ve really upped the analytics since Marlene has arrived in terms of looking at this, I can put it in a more sort of anecdotal way, more than $5,000,000 of the losses in that we’re putting through PCLs this quarter were result of the deterioration in our expectations about the macroeconomic environment, so the forward looking indicators. So assuming that our outlook three months from now is the same as it is today, that that five million shouldn’t repeat. And then I think, again, we sort of feel comfortable that both our leasing book and our commercial book in particular, you know, that we’re we’re gonna start to see some downward trends that are that are positive. So, you know, certainly expect both q three to, you know, q three to be lower than q two, and then, hopefully, q four becomes lower than q three.

Lamar Persaud, Analyst, Cormark Securities: Thanks. And then maybe, Marlene, just sticking with you on on the credit here. Can you help me understand how much of this performing build was driven by model related changes? So forward looking indicators, how much scenario weighting, and then how much you you topped up, if any, by your expert credit judgment?

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: Yeah. That’s a good question. I think when we look at the so first off, we use Moody’s to support our macroeconomic outlook and to provide us with those varying scenarios that I talked about. Scenario Moody’s uses a scenario weighted like, a probability weighted approach to their scenarios. And each month when they issue new scenarios, they’re adjusted to to current, state.

And so our last ones were based on March month end as at, if you will, or macroeconomic conditions, which already included the current state of of the tariff situation. So I would so compared to q one, most of that build that you saw in the in the performing PCL was related to the deterioration in the outlook, both in the base case and in the more severe cases.

Lamar Persaud, Analyst, Cormark Securities: Thanks. And then maybe for Andrew, just a different type of question here. I think you mentioned these securitization gains picking up in the back half of the year, I know you have pretty good visibility into the pipeline. Like how should we be modeling that for q three, q ’4? Should we look at, you know, q three, q ’4 last year as a good starting point?

Any thoughts on

Gabe, Analyst: that would be helpful.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Yeah. We we do have pretty good visibility. I mean, those those mortgages are now sitting on book basically and being being securitized as we speak. So, you know, had a few million for sure in terms of gains. I mean, David, do you wanna give some more context on that?

David Wilkes, Vice President and Head of Finance, Equitable Bank: Yeah. Lamar, q one was a was a record, and there’s some seasonality to q two, but I I would put the number between the two with improvements going forward.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Close closer to q one than q two, really. And so, yeah, yeah, closer to q closer to q one in that that line item than q two. But yeah. Q q ’2 was unfortunately, you know, we have to hit some very tight windows in terms of closing some loans, you know, before month before a month end so that we can then secure as the following month. And and we just end up with a slightly idiosyncratic problem where some larger loans got pushed and that that changed our securitization volumes.

We’re seeing the opposite impacting q three where some of those large loans that get pulled pushed in in q two are now gonna be secured as q three. So we’ll have a little bit of a bit of an improvement. I would say that as the yield curve steepened, then we’ve seen a preference amongst our customers from going ten year to five year loans and that’s slightly less profitable from a securitization perspective. So that’s a little bit of a headwind despite these very strong volumes. I think it’s likely that q q three will have our highest volumes ever in terms of securitization or close to it.

Gabe, Analyst: Thanks. That’s helpful.

Jenny, Conference Operator: Thank you. Your next question is from Darko Miolik from RBC Capital Markets. Your line is now open.

David Wilkes, Vice President and Head of Finance, Equitable Bank: Great. Thank you. A couple of questions for Marley and then one for Andrew. My first question is that the what is the conditions in the marketplace don’t seem like they’ve changed with respect to speeding up the process. I think values are likely still going down.

So the question again goes back to the one and done thing, but maybe even a little bit beyond that. What is it that’s giving you comfort for example to have a couple of loans default this quarter and not take any provision. Given knowing that we just had interruption and it could be six, twelve months from now, they don’t get resolved at all. I mean, what is it what is it that’s that’s giving you that comfort, Marlene?

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: Yeah. We we look at our problem as we’ve been monitoring these two loans for a while now. We, we actually meet every two weeks with our our credit teams and the commercial teams. And through that process, we assess values and get refreshed values, and that’s what’s driving the provision that we put on or lock of provision that we put on those two.

David Wilkes, Vice President and Head of Finance, Equitable Bank: Okay. And then with respect to the performing bill, when I look at the Moody’s information, again, it’s difficult to understand how much overlay in your previous answer, expert credit judgment kind of because even if you waited the scenarios, I mean, one of the things that I look at is the home price index. And it’s actually expecting it to be up in the next twelve months. The downside areas just don’t look that. But we just went through a period where in your answer to Gabe’s question, yeah, we’ve seen deterioration in some house prices or asset values let’s say of 30%.

And here we are looking at downside scenarios where the downside scenario, the worst one is only 3.8%. So could you maybe help us a little bit stronger answer on how much overlay you’ve built into these reserves?

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: Sure. Well, first, let me just, talk about how I how the, macro forward looking indicators have changed from the Moody’s perspective looking at this. So first off, unemployment rate is increased higher in the newer forecast than in the the previous one. And, it’s peaking sooner, and it’s peaking a little bit higher than last time. The other one is the change in GDP is much more stark this quarter versus, what we showed last quarter.

So that’s a big driver as well. And then, yeah, you’re right. HPI does, drop out a little bit deeper in the lot, I would say, than, than what the the previous forecast had. In terms of expert credit judgment on that front, we look at the the segments we’ve always looked at. Right?

So, we have overlays related to, areas that have, I would say, a bit higher vulnerability, and we’ve had those types of overlays for the last few quarters. Things like long haul transportation, certain segments within our commercial pocket, like land and office as well.

David Wilkes, Vice President and Head of Finance, Equitable Bank: Okay. It’s just that one

Lamar Persaud, Analyst, Cormark Securities: of

David Wilkes, Vice President and Head of Finance, Equitable Bank: the primary things that always made us feel better about your credit quality was the loan to value and the collateral behind the loans in many cases. And that seems to have shifted this quarter, and that’s why I’m still struggling to understand if that’s been accounted for in your performing reserves.

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: Yeah, I would say it has. I think the softness we saw this quarter was a little softer than perhaps we thought it would be previously.

David Wilkes, Vice President and Head of Finance, Equitable Bank: Okay. And then last question for Andrew. As I go to the back of the deck and I see the slide, let me just get back to it because I apologize for what’s going on. So slide 20. There’s some good data on here.

There’s 23% year over year growth in customer. You talked about the steady growth that you’re seeing in payroll. You talked about the small business engagement and great feedback and have something roll out. Why did you need to make a leadership change? And is it aimed at?

Like what is it that you didn’t like and and you decided that you needed a leadership change here?

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Yeah. So what what I you know, we used to have a single leader, single executive overseeing both the we had personal banking as a division. So we had both lending and both sort of single family lending, some of the things we’re just talking about, reverse mortgages and so on, as well as EQ Bank. And, really, what I’m trying to do here is divide the business into two. So one being the digital delivery EQ Bank, somebody that comes in every day, not confused about building a fantastic franchise in that area, driving change in Canadian banking, bringing bringing innovation, somebody that’s monitoring what Monzo and Starling and Chase are up to in The UK every day and trying to bring those innovations, some of the good ideas from those banks to this market, and that sort of requires complete focus working with our with our pods.

And then and then similarly on the lending side, somebody completely focused on serving the brokers, managing the risk in a in what’s really a b two b environment. I mean, the brokers are our primary customers for driving the channel, and we’ve been very successful over the years in gaining market share. We were an insignificant player back in 02/2010 in this business, and now we are absolutely the premier franchise in alt lending in Canada. But I do think we need to bring some more sophistication to some of the kind of ways we’re thinking about some of the even the risks we were talking about through this call. So I’m very comfortable that kind of having that focus and having executives that are completely focused on those two sides of the business is better than thinking about just because we’re dealing with individuals, they shouldn’t necessarily be bundled together in our personal bank.

David Wilkes, Vice President and Head of Finance, Equitable Bank: Okay. So it was a division. It was sort of like breaking it up into pieces to get more focus, I suppose. But it still required a management change.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: That’s right. Yeah. So, you know, so some some of the conversations around making that split that didn’t didn’t sit particularly well with prior executives who have both responsibilities. And so that’s why we’ve kind of made made this change.

David Wilkes, Vice President and Head of Finance, Equitable Bank: Understood. Understood. Okay. Great. Thank you very much.

I appreciate that.

Jenny, Conference Operator: Thank you. Your next question is from Graham Ryding from TD. Your line is now open.

Darko Miolik, Analyst, RBC Capital Markets: Good morning. Can you just maybe simplify what you’re actually trying to achieve on the capital front? You’ve got a lower CET1 ratio now going forward, a bit more capital on the tier two side. Are you are you ultimately just trying to optimize ROE here, or how should we interpret, you know, the puts and takes?

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Yeah. I mean, I think we’re just gonna try we’re gonna make sure we’ve got an efficient capital model. So, I think as we indicated in our previous call, we’re maintain a strong total capital ratio sort of above 15%, you know, above 15 and a half as we speak right now, and then, keeping CET1 above 13 for the rest of this year. And we do believe our ICAP, which is is how we think about assessing capital, would continue to keep that high strong level of total capital. We’re having a more sophisticated kind of mixture of the capital stacks beneath that.

So you might as well see more tier two AT one and and as part of that mix to get to the total total capital position. So just to be clear, what would happen here is we dividend up 200,000,000. We we invested 200,000,000 from EQB, the holdco, into sub debt of tier two tier two instruments in, in the bank, and then we dividend up 200,000,000, back up to the bank. So the bank holds the the tier two capital. And of course, there, you know, there could be the potential at some point to finance that in an external market, and that would mean we’ve got a couple hundred million dollars of excess equity sitting at the Holco.

Darko Miolik, Analyst, RBC Capital Markets: Okay. Understood. And then your uptake for buybacks, like, sort of maintain at the current level, is that a reasonable assumption? Or how should we how should we think about your appetite on that front?

Andrew Moore, President and Chief Executive Officer, Equitable Bank: I think so we we think about very much the sort of at least I I think it’s the interpretation of how Warren Buffett thinks about buybacks. We we buy back when it’s a good way for our shareholders capital to be applied. So that depends on kind of stock price or expected expectations about the future performance of the bank, which I think is different than some sort of think about it. I would say in the in the quarter, we started we did did execute a modest buyback. We paused that a little bit in sort of maximum VIX and tariff concerns just in a bit of a flight to safety approach was just back out of the the buybacks.

And I think, you know, as we see the economic environment that looks a little bit more stable now and the uncertainty doesn’t seem quite so wild as it seemed a couple of months ago, we might well engage, you know, constructively in that process.

Darko Miolik, Analyst, RBC Capital Markets: Okay. That’s it for me. Thank you.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Thank you.

Jenny, Conference Operator: Thank you. Ladies and gentlemen, we ask you to kindly limit yourself to two questions only. Your next question is from Stephen Willant from Raymond James. Your line is now open.

Stephen Willant, Analyst, Raymond James: Thanks very much. I just want to talk about the Pride exposure. In Q1, the facility was $70,000,000 you had already taken a $5,000,000 provision there. The facility now is down at 63,000,000 I’m not sure if that transportation PCL was related to the Pride. If it isn’t, why would that facility change?

Just trying to get a bit of a timeline on that.

Maggie Hall, Director of Public Relations and Communications, Equitable Bank: Sure, I can take that. So on the Tepeine, the provision for Tepeine, the flat quarter over quarter. I would say that, first off, that is a runoff portfolio. Right? So it’s shrinking.

And that reduction in in the exposure you saw in the MD and A reflects the the runoff and the resolution of that outstanding balance. Okay. As well as asset sales, yes.

Stephen Willant, Analyst, Raymond James: Okay, maybe I’ll follow-up with that. Second, Andrew, this is probably more for you and answering a lot of questions about credit and things like that, but maybe a bit more on the guidance. You know, know it’s medium term guidance, but we’re halfway through the year. It could be a struggle to hit some of your EPS guidance, ROE guidance. I’m just wondering, you know, how should we think about the the guidance being applied to 2025?

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Yeah. I think it’s certainly, you know, when when I talk a 15% plus ROEs, that’s sort of medium term guidance, and it’s gonna be certainly tougher to hit those kinds of numbers this year, you know, given what we’ve given where we are already. But we do do expect earnings, EPS at least to be stronger the next couple of quarters than it was in the last reported quarter.

Stephen Willant, Analyst, Raymond James: Okay. I’ll leave it there. Thanks very much.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Thank you.

Jenny, Conference Operator: Thank you. Once again, please And your next question is from Etienne Ricard from BMO Capital Markets. Your line is now open.

Etienne Ricard, Analyst, BMO Capital Markets: Thank you and good morning. My question is a longer term one on capital allocation. EQB has built a track record over time for retaining a significant percentage of its earnings for reinvestment in growing the loan portfolio. Now in recent years, payout ratio has increased from low levels and you’ve started also repurchasing shares. So does this indicate the opportunity set to grow the mortgage book today is maybe not as strong as what it used to be?

In other words, how do you plan you know, to balance organic growth and capital returns going forward?

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Certainly. I mean, we we continue to focus first on finding organic growth within our risk appetite, and and we do believe we’ve got some very strong franchises in that area, single family mortgages, reverse mortgages, the places we play in commercial lending, including our specialized finance group. So we we do think that in a more normal macroeconomic environment, we can grow our assets relatively fast. Having said that, you know, clearly we’re in a more subdued macroeconomic environment. So this year I wouldn’t expect to hit our sort of basically, when you think about it, if we’re paying out only 10% of our earnings as dividends, then we and we’re generating a 15 to 17% aspiration.

We need to be growing assets of 13 to 15% a year to fully utilize our retained capital. It’s going be a little bit tougher in this kind of economic environment, the uncertainty and even our risk appetite in this kind of environment to grow at those levels. So we will see a fairly rapid growth in REG capital, CET1 or total capital ratios, and we will think about how to return some of those to shareholders because it doesn’t feel like we’ll be able to deploy them sufficiently over the next year or so with, you know, in growth. But over the longer term, I I don’t know that to be true. You know, clearly this is a pretty unusual period.

We’re now entering a period where the government is focused on building more houses, which generally turns out to be a good housing activity for us. So I think, you know, the world may look quite different this time next year or even before then, you know, in the way that we can deploy capital into the market. So I kind of like the position we’re in. We pay a relatively modest dividend that allow. It gives us the opportunity to grow organically at a good clip within our kind of risk parameters if the market’s there for us.

And if not, we build capital and we need to kind of think be more thoughtful about how we return that capital to shareholders, whether it’s special dividends, increasing dividends, indeed buying back stock. Of course, you know, one of the other things that we do see over the horizon is moving to AIRB, so that becomes even a bigger capital efficiency issue when we get there. But just as a reminder, you know, we think that if we were an AIRB bank, you know, we’re releasing a lot of capital.

Etienne Ricard, Analyst, BMO Capital Markets: So so Andrew, if we if we look longer term to your point, maybe over a five to ten year period given housing affordability challenges and maybe slowing population growth, I mean, certainly over the next couple of years, are these significant headwinds in order to return to double digit loan growth over time?

Andrew Moore, President and Chief Executive Officer, Equitable Bank: It certainly is helpful when those things have got good growth to them, but, know, the reality is that we’ve got 1% of the Canadian banking market or some very small number. So it’s really about us being thoughtful enough to find areas to lend into the market where, you know, risk is appropriate and we can win share. So, you know, I think some of those some of those if you look at our track record over ten years and, you know, we’ve clearly managed to grow at those kinds of paces. So I don’t think anything structurally has changed in the market that would stop us from doing that. You know, one of the things that’s really important to us is we’re super aligned with the mortgage broker channel, which is can remind everybody, is good growing from just over 10% market share back in February to over 50% we believe today.

So being aligned with that innovative channel is really helpful to us. So so I think I’m optimistic about being able to grow, you know, at a good sort of double digit basis, but I do think that’s going be a challenge over the next six to twelve months.

Etienne Ricard, Analyst, BMO Capital Markets: Thank you very much.

Jenny, Conference Operator: Thank you. There are no further questions at this time. I will now turn the call back over to Mr. Andrew Moore for the closing remarks.

Andrew Moore, President and Chief Executive Officer, Equitable Bank: Thanks, Jenny. We look forward to reporting our third quarter results in late August. And if you get the chance, please consider attending Canada’s Open Banking Expo in Toronto on June 17. I will join a roster of 80 speakers who will draw attention to the urgent need for Canada to adopt open banking as a means of improving competitive intensity, fostering fintech innovation, and realizing the benefits that millions of people worldwide already enjoy from consumer directed finance. And, obviously, it’d be great to engage with many of you one on one.

Thanks for listening, goodbye for now.

Jenny, Conference Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.

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