Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record quarterly revenue of $327 million, up 3% sequentially and 15% year over year.
- EPS growth of 5% sequentially, with ROE well above 15%.
- 24% year-over-year increase in dividends declared.
- Strong customer growth in EQ Bank, with a 32% year-over-year increase in the customer base.
- Successful launch of new products like EQ Bank's notice savings account and the Equitable Bank Laneway house mortgage.
Negative Points
- Impaired loans increased by 20% from last quarter to $567 million.
- Equipment financing impairments rose by 45% quarter over quarter, primarily in the long-haul transportation sector.
- Commercial impaired loans increased by 25% quarter over quarter.
- Stage 3 provisions were $20.5 million, down 15% from Q2 but still significant.
- Challenges in the equipment finance business, particularly in the trucking sector, with expectations of continued elevated losses into 2025.
Q & A Highlights
Q: Chadwick, wanted just clarify your comments on fee income, the guidance that you could maintain this $56 million that you delivered in Q3. Is that the new run rate? And if so, just trying to understand what changed this quarter. We see obviously a big sequential step-up. So what does that inflection point represent?
A: Thanks, Meny, for the question. The general trendline, yes, should be consistent well you will find sometimes in fee income as some inconsistency across quarters and when we book certain fees in Concentra Trust, that's just the nature of the business. But otherwise, our run rate for gains on sale and other fee-based income, particularly with ACM, should be consistent from here. Otherwise, it just reflects the strategic growth and volume business.
Q: And then just turning to credit, just wanted to get a little bit of a better understanding of the dynamics in the equipment finance business, in particular, impaired provisions continue to climb higher. And so just wanted to understand when you see that coming down and how you're managing that book of business? Just an update on that, please.
A: Thanks, Meny. I'll pass it over to Marlene. I think this has obviously been getting a fair bit of senior executive attention that I think feeling somewhat encouraged, but maybe Marlene can give us some color on that.
A: Sure. Thanks. When we look at our leasing portfolio, we think about our portfolio in terms of the portion that's related to the trucking, long-haul trucking, you know that there have been issues there. We've talked about that in the past. We see that (technical difficulty) it's coming -- so I expect that to turn a corner into 2025. If you look at the rest of the leasing portfolio, which is not related to transportation, it's been doing -- it's been stabilized for quite a while now, and so it's doing quite well. So we expect throughout the next couple of quarters, we'll see those numbers start to improve outside of any idiosyncratic issues.
Q: I want to just kind of dig in a little bit on this prior exposure here. First, when you guys are saying that the impact, if any, is not expected to be material to EQB, what do you mean by that? Is that PCL's earnings impact, capital impact, long-term business approach? Like any thoughts on that specific commentary there?
A: I'll hand to Chadwick to sort of fill in some of the kind of more technical details there. But certainly, we just want to make sure that investors were aware that there is this issue out there and I think the disclosure is just there to -- there's a type of uncertainty, frankly, about how this is going to unfold and how long that will take. So maybe Chad can give us some more color on that.
A: Sure. And I'll just repeat that, Lamar. So like we believe, to be clear, we are appropriately provisioned for credit losses in that portfolio to be very specific. This disclosure we chose to add proactively. This is a CCAA process for that company. So we thought the comment would just be helpful for investors. It's an operational and litigation-related comment. But to be clear, at this time, we don't expect any losses outside of our credit provisioning, but adding this comment as the process with the monitor continues, nothing more than that.
Q: So could the impaired provisions for this portfolio specifically keep going up for a few quarters?
A: I think we're well provisioned at this point in time. And so, I think we're appropriately provisioned as we are right now. I don't anticipate material changes.
Q: And then just on this Laneway House initiative, obviously, it's new to us. So I feel like I should ask, does it feel like this offering could offer kind of the same growth trajectory as the wealth accumulation product? I'm just trying to like think through this. Are there any other competitors out there? Anything you could offer would be helpful.
A: No, I mean nothing like that in terms of scale of the actual assets, particularly related to laneway housing. But as you can imagine, we're super focused on making sure that we service the mortgage brokers and their needs. So if we for example help them with the laneway house. It might be that another mortgage, we're likely to get more of their share flow of business that people are used to dealing with us. So it's really about building up. On the business side, it's really about building our brand with the brokers to capture more market share. And then I think it also aligns very deeply with our social purpose of helping improve the communities in which we operate. So it's really got a bit of a ESG, corporate social responsibility layer to it along with just enhancing the range of products with which it gives us good reasons to talk to brokers. Every time we talk to our brokers on one opportunity, it opens up other opportunities that's very much how we think about approaching that channel.
Q: Just I want to get a bit more specificity on the exposure, so I can kind of get a better sense of how this could evolve going forward. Is the portfolio within equipment finance is around $500 million, unless I'm mistaken? Over the past 12 months, let's see here, it's been about $50 million of stage 3 provisions against the equipment finance portfolio. Would that be entirely the trucking industry or 90% of it? What do you say?
A: That would be mostly trucking, not 100% for sure because the portfolio contains both trucking and non-trucking leases. Trucking is about 60% in terms of transportation and other kind of trucking-related leases. So I would say roughly probably close to about 90% is related to trucking to long haul.
Q: So would you say this quarter were probably around the peak because the loss rate has been trending higher, and I kind of want to get a glide path sort of perspective. Because you mentioned that we could still have some of these losses, but -- in this portfolio, but moderating into 2025.
A: That's right. So we're expecting -- as we look at the formations and how the earlier delinquencies are showing up in the portfolio, we see that slowing down and stabilizing, as I said. So I expect that into 2025, that will start to come down.
Q: And the guidance that was given at the start of the year for elevated losses in the first half, fading in the second half, what's changed over time? Is it just the economy is sluggish and that's persisted longer than you anticipated?
A: Yeah, I think it's very similar to the conversation we had last quarter, Gabe. The certainly feeling of that is
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
