EQB Inc.

Good morning and welcome to Equitable Group's first quarter analyst call and webcast on May 11th, 2022. It's now my pleasure to turn the call over to Richard Gill, Vice President, Corporate Development and Investor Relations at Equitable. Please go ahead, Mr. Gill.

Thanks, Chris. Your hosts for the call this morning are Andrew Moore, President and Chief Executive Officer, Chadwick Westlake, Chief Financial Officer, and Ron Trach, Chief Risk Officer. For those on the phone lines only, we encourage you to log on to our webcast as well to see our accompanying slide deck, including slide two, containing Equitable's caution regarding forward-looking statements. It's now my pleasure to turn the call over to Andrew.

Good morning, everyone, and thank you for joining us. Equitable got out of the starting gate quickly this year as our strategy to grow higher margin conventional assets and further diversify our balance sheet, translating to the best quarterly earnings performance in our history. This was accompanied by return on equity, our true north, well above our high performance bar at 19.2% adjusted. Chadwick will zero in on financial accomplishments during his remarks that have supported our second dividend increase of the year. And Ron is here to answer questions on risk management and the great condition of our credit book. It's evident to all of us on this call that the economic and geopolitical environment has shifted dramatically in the past few weeks to introduce new uncertainties. Without downplaying these risks, which, as you know, I would never do, there are important fundamentals still firmly in place to support progress for Canada generally and housing demand specifically, including high employment and immigration. Weighing all of these factors and knowing that we have purposely built the bank and our model to prepare for periods like this, I feel that our prospects for growth and performance remain very positive. In fact, I would say that with an incredible first quarter putting us ahead of target to start 2022 in conventional lending, combined with a strong pipeline of applications and funding commitments in the personal and commercial bank in eastern and western Canada, we have good confidence in our existing loan growth guidance and our ability to deliver greater than 15% ROE for 2022. In all market conditions, including in today's rising interest rate environment, our team is always focused on ROE, which is why we call it our North Star. To deliver industry best returns for shareholders, as we've done for well over a decade, we've long had great systems, including our proprietary ROE calculator on the laptops of every equitable underwriter, as well as disciplined treasury processes in place to protect margins in our loan commitment pipelines. The value of these systems and processes and the experienced people behind them was on display again in Q1, as the bank's NIM surpassed guidance. We believe that our pricing disciplines, healthy conventional lending outlook, as well as steps taken to lower the bank's cost of funds, will work in concert this year to support margin performance. But it's not just this year that we care about. My preoccupation is how we're setting the bank up for the longer-term value creation for customers, a rich and respectful work environment for our people, and great shareholder returns for our owners. This is where I will start today, because leaning into our challenge of purpose to change banking to enrich people's lives is how we will drive even greater value creation in the years ahead. In this regard, we are delivering breakthroughs in purposeful technology innovation and scaling up our newest business platforms that will become meaning contributors to the bank's long-term performance. I'll start with technology developments. As you know, one of our distinct strengths lies in our digital cloud-based capabilities. These have manifested themselves again in our EQ Bank platform, voted Canada's top Schedule 1 bank by Forbes last month for the second year running. Our opportunity is to combine our capability as both bankers and technologists to drive positive change, not just in EQ Bank, but in all other parts of our business. Our team has risen to the challenge. This month, we began rolling out a new EQBank account opening process using informed artificial intelligence to enable customers to verify their own government-issued ID. We've long sought to reduce friction in digital account openings for our customers, and informed AI takes convenience to a whole new level. As you know, FinTrack requires us to confirm that a customer is who they say they are as a starting point for every relationship. Our solution enables an account applicant to take a photo of their physical ID and a live photo of themselves, a selfie, and our AI technology virtually and instantly matches the two to confirm authenticity. We'll need to get a bit more experience under our belt to tell you how it's benefiting customer onboarding, but for sure the process is fast, secure, accurate, FinTrack compliant, and eliminates a cumbersome and inconvenient authentication process. In the recent past, providing physical IDs required our customers to line up at Canada Post, a huge inconvenience. One part of this innovation I'm really proud of is that we've done the engineering to accept the photo recognition of status cards for people from our First Nations. This is a Canadian first. It is emblematic of our determination to do what we can to eliminate systemic discrimination. Although Q1 predated this wonderful innovation, we added 15,000 customers to EQ. Of vital importance, we achieved record customer engagement measured by monthly use of services and number of products held. In fact, transaction activity in Q1 increased 91% from a year ago, while the number of products per customer was up 15%. This proves that once a customer joins EQ, there are many reasons to stay. From great rates on US dollars and fantastic international money transfers to the easiest experience of buying great rate GICs, there is a lot to like. Of importance to all shareholders, our digital platform is driving franchise value through the diversification of the bank's deposits and a reduction in our marginal cost of funds. Digitization and the use of technology is delivering improvements across the bank. We saw evidence this past quarter with the launch of Equitable Connect. It's a cloud-based fulfillment portal that streamlines mortgage document management to brokers, improves their visibility, and accelerates mortgage approvals. The idea for Equitable Connect came from listening to our mortgage broker partners and finding ways to support their efficiency and effectiveness in the market. Using our challenger bank philosophy, we also sought to understand how we could give our fulfillment officers the tools they need to make quick and informed decisions to improve the broker experience. I'm pleased to say we got both sides of the equation right. The portal enhances transparency by making documentation conditions crystal clear to our brokers. provides them with real-time status updates, and aligns our internal document storage capabilities with streamlining experience for our staff. Because Equitable Connect is cloud-based, it's accessible anywhere, anytime, on any device. That's important to brokers and our team. This innovation supports the growth of our alternative mortgage portfolio, and grow it did, at a year-over-year rate of 37%, with a 7% assist over the last quarter alone. Our 2022 guidance is for our alternative mortgage portfolio to grow by 12% to 15%. Our current internal forecasts show that we should be able to achieve this comfortably. Equitable Connect is part of a digitization effort within our lending operations. And of note, the portal is open not only for our alt-single-family business, but also brokers who submit prime and reverse mortgage business to us. All brokers get the same great experience. This brings me to the fantastic progress made in our wealth accumulation business, our newest growth platform. There are two separate pillars, CSV insurance policy lending and reverse mortgages. Both are building the profile and market share to be significant value creators for Canadians and our bank in the years ahead. In Q1, we brought forward our latest challenger offering within our insurance lending product line. the Equitable Bank immediate financing arrangement. IFA rounds out our product set for life insurance policy lending for now and positions the bank well for significant growth in this area. It also allows us to develop deeper relationships with insurance advisors and their customers that can lead to further opportunity in other areas. At nearly $60 million, our insurance lending portfolio is small in comparison to other parts of the bank, but growing quickly at 91% year over year in Q1 with strong growth prospects for the future. Our insurance company partnerships also increased to nine with the addition of Equitable Life of Canada joining us in late March. Our reverse mortgage business is a bigger part of the decumulation growth platform and it too is moving ahead rapidly in market share profiled assets with growth of 262% year over year as the portfolio surpassed $300 million. The distinctive features of our reverse mortgage products are attracting customers and leading to consistent market share gains. In decumulation, we've been learning at a very efficient and effective pace within markets featuring substantial long-term upside. Recent census data indicate that one in five Canadians of working age are closing in on retirement. These are the people who will be served by our decumulation services, where we believe Equinor is developing a distinctive and valuable franchise. A breakthrough that lies ahead is our acquisition of Concentra Bank. As you know, funding for the purchase is in place. We've made requisite submissions for regulatory approval and continue to expect closing in the second half of the year. As noted in our MD&A, we recently received approval from the Competition Bureau of Canada, which is an important first step. I won't repeat all of the many reasons why the secretive acquisition is beneficial, but I will reinforce the point that it adds important scale in complementary conventional lending business lines. It adds more diversification in our sources of funding and revenue, and it introduces equity with the credit union system as we assume Concentra's market leading place in that vibrant ecosystem. Since February, we've put as many fine details in place for the integration to come. as we can, noting of course that Consentra continues to operate successfully and separately from Equitable. We do have a mandate to achieve full integration quickly, and we are ready. Another uniquely positive feature of the acquisition is that we will gain access to Consentra's proven and talented workforce that will further deepen our incredible and growing team of challengers. Among the things I assess about for our future is talent acquisition and development and the perpetuation of our empowered culture of ownership. It's no secret that banks are having a hard time finding people, and unfilled job openings can lead to customer service declines and eat into growth potential. Ecuador is ever vigilant over here. Over the past two years, we've added some wonderful new and diverse talent to drive our challenge of purpose, people who like the idea of having a personal impact within an organization and that shares their values. We have an effective culture that recognizes at its bedrock that our frontline teams are the bank's heroes in delivering the customer experience we aspire to create. Banking is not easy, and our teams bring passion and energy to their roles every day. We place huge emphasis on employee engagement by creating rewarding working experiences that aren't often available in some other organizations. We'll talk about workforce planning and the development of our challenge culture at our upcoming Investor Day, because to my mind, people power is critical for the success of Canada's leading digital bank. I also think we've become a better executive team as we've added outside talent and gained insight, experience, and confidence through the personal and commercial banking management structure adopted in late 2020. This has sharpened our focus and improved the quality and speed of decision-making. There is always room for improvement and a desire to get an equitable get-it To that end, we're constantly refining the structure of the organization and allocating decision rates consistent with the bank's risk tolerances to drive effective business outcomes. Having now highlighted some of the things that will drive long-term sustainable value for shareholders, I think it's time to talk about the quarter, which serves as the latest proof point that the bank's strategies are working.