EQB Inc.

Welcome to EQB's earnings call for the second quarter of 2024 on Thursday, May 30th, 2024. 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 David Lee, Associate Director of Investor Relations for EQB.

Thank you, Sylvie, and good morning, everyone. Your hosts today are Andrew Moore, President and Chief Executive Officer, Chadwick Westlake, Chief Financial Officer, and Marlene Lenarduzzi, Chief Risk Officer. For those on the phone lines only, we encourage you to also log on to our webcast to view our accompanying presentation. There on slide two, you'll find EQB's caution regarding forward-looking statements, as well as the use of non-IFRS measures on this call. All figures referenced today are adjusted where applicable or otherwise noted. Duty EQBs change in fiscal year to end on October 31st for 2023 onward. Quarterly comparison periods throughout fiscal 2024 will compare to the closest historical period. The second quarter ending April 30th will be compared to the prior quarter Q1 2024 ending January 31st and prior year Q1 2023 ending March 31st. The year-to-date figures are presented as at or for the six-month ended April 30, 2024, compared to March 31, 2023. It is now my pleasure to turn the call over to Andrew.

Thank you, David, and good morning, everyone. Since the beginning of our new fiscal year, our team has done some really good work in serving our purpose of driving change in Canadian banking to enrich people's lives. The reward for that work has been strong customer account growth, active customer engagement, market share gains, and results for shareholders that compare favorably with EQB's high performance standards set over the past 20 years. When I think about our purpose of enriching people's lives, we do that by deliberately choosing to only operate and allocate capital within Canada, rather than expanding out to new geographies. We believe there is much to do for people living in this country, and we can deliver the best returns for shareholders with this strategy. We're taking our stride here, and I'm particularly excited about our two latest innovations in Canadian banking that will expand our ability to deliver on this purpose. I'll speak to those advancements on today's call, but first, my thoughts on quarterly financials and our outlook for the second half of 2024. With record revenue, record pre-provision, pre-tax earnings, 7% year-over-year EPS growth, ROE once again well above 15%, and a 22% year-over-year increase in dividends, there is a lot to like about our results in this most recent quarter, including the fact that performance was achieved in a higher-for-longer interest rate environment. If we annualize our results since November, we'd report over $1 billion in revenue and $433 million in earnings, both new records, all while achieving return on equity of 15%. However, our outlook for the second half is supportive of something better. As we continue to realize on the growing value of our franchise, see increasing earnings from our multi-unit insured lending business through associated securitization activity, and benefit from what we believe will be lower provisions for credit losses. Credit risk is understandably getting more airtime as Canadians cope with higher borrowing costs brought on by current monetary policy. After cresting in Q1, gross impaired loans in our commercial loan book reduced by $58 million in Q2, reflecting positive resolution on a number of loans. We've made further progress since quarter end. Directionally, this is what we had anticipated and communicated in our call with you last quarter. We continue to see positive trends in our commercial book. Based on our assessments, we are confident in our ability to resolve the majority of the remaining commercial real estate loans. within the reserves already taken. These loans are secured, and the weighted average LTV on newly formed commercial impairs was 51% in Q2. As a reminder, 77% of our total commercial loans under management are insured through various CMHC programs, and we have long prioritized loans secured by buildings where people live. They're proven to be an attractive asset type. In the personal loan book, the rate at which we added in pairs declined quarter over quarter. So far in May, we have seen good resolution activity amongst those loans that were impaired in quarter end. We have a high degree of confidence that losses will be minimal in the single family book and that we're well reserved. Our real stats in the personal book have also declined in the 30 and 60 plus day periods. I think it's important to recognize that nearly 90% of our customers have already renewed into today's higher interest rate environments. as the average term of an equitable mortgage is about two years. While other banks may face a so-called mortgage renewal cliff, as reportedly about half of their outstanding mortgages are held by borrowers who have yet to face higher rates, our borrowers have already adjusted. Chadwick will speak to PCLs in more detail. On PCL, 75% or about 18 million related to runoff portfolios inherited from the purchase of Concentra and our equipment leasing business. As I discussed last quarter, leasing has experienced the aftermath of a cyclical downturn in the long-haul transportation market. Long-haul transportation accounts for less than 1% of the bank's total assets. We're seeing encouraging signs of improvements in this industry. It certainly feels like we reached the trough of the credit cycle this quarter with what could be viewed as peak PCLs. Our expectation is that we will see lower provisions going forward. While this has been a challenging period, we largely anticipate areas of pressure. We're making good headway in resolving problem loans using our well-developed collection capabilities. We have clearly demonstrated the importance of our prudent lending approach combined with the resilience of the equitable borrower. A move by the Bank of Canada next month or in July to reduce interest rates would be helpful to Canadian users of credit and for lenders would re-energize mortgage demand in the back half of 2024. and beyond. We're certainly of the view that a stronger market for new originations in our mortgage businesses is around the corner, given pent-up demand in the housing market. In the meantime, higher renewal rates, lower unscheduled payments, and growth in high-quality portfolios led to a 13% or 7.3 billion increase in loans under management over the past year, keeping us on pace with growth guidance. To single out a couple of related developments, we are gaining substantial momentum in our wealth decumulation business. Accommodation, insurance lending, and reverse mortgage loans are up 57% year-over-year and 20% since November to over $1.7 billion. Eccle was one of two banks in the reverse mortgage business. With a compelling offering and effective marketing, we believe we've substantially increased our share of both the broker channel and the consumer direct market. The graying of Canadian society and the need to access equity to fund retirement provides a solid backdrop for this business. The same optimistic outlook is true of the bank's multi-unit business. Substantial demand for new rental housing to meet the needs of Canada's growing population, combined with the bank's longstanding market leadership position, supported 35% year-over-year growth in our insured multi-unit portfolio. Here we are seeing demand for both CMHC-insured construction loans that offer developers a variety of incentives to build, and insured long-term loans that often flow from this initial mortgage. With this demand, we expect to realize higher earnings from associated securitization activities. That expectation is embedded in our outlook for the second half of the fiscal year. Foundational to the long-term franchise value of EQB, EQBank experienced a 36% year-over-year increase in number of customers with the support of our highly successful Second Chance, Deuxième Chance campaign, featuring respectively Dan and Eugene Levy and Diane Lavallee and Laurence Leboeuf, and growing use of payroll deposits, a sign that customers increasingly rely on us as their primary bank. Our next frontier is the introduction of EQBank's innovative Noted Savings Account, and EQ Bank's services for small businesses. To take each in turn, EQ Bank's new notice savings account, which just launched yesterday, provides customers with a flexible new way to earn more money on funds they are keeping aside for short-term purposes. Based on our own research showing that 55% of Canadians contribute to their own rainy day fund, we think there is a huge need for this kind of product. Our customers can choose between 10 and 30-day notice periods. In return, we offer more interest than what's available from traditional demand savings products. For EQ Bank, this new product provides an extra level of deposit stability in a faster payments world. We're very excited to be out of the gates with EQ Bank for small business, which represents a target market of millions of underserved Canadians with hundreds of billions of deposits. Last month, we introduced the product to a subset of business customers to test our capabilities and learn from their experiences. and we'll be expanding this to a full launch later this summer. This all-digital, no-fee solution provides entrepreneurs with high daily interest and great access to innovative payment solutions. To conclude my comments, you should expect us to continue investing in building franchise value and realizing in the months ahead using our proven, disciplined method of capital allocation to consistently earn 15% plus ROE while steadily increasing our dividend for investors. As we enter this next phase of the economic cycle, it gives me great comfort to know that we have a proven and committed team of business leaders in place at all levels to execute our strategies. We've worked hard to build our workforce and talent development programs over many years. In that vein, I'd like to give a shout out to our talented capital markets and treasury teams for their success in raising funding in the deposit note and covered bond market in Europe. which Chadwick will talk about in his comments. We're proud that LinkedIn recognized our efforts by choosing Equinor Bank as one of Canada's top four employers for workplace growth and progression. We're always happy to accept bragging rights for awards like this, but what's most important is that our team is delivering for our customers and shareholders year in, year out, in keeping with our corporate purpose. I'm proud of my colleagues, and I thank them for their incredible efforts. Now over to Chadwick.