EQB Inc.

Good morning. Welcome to EQB's earnings call for the third quarter of 2024 on Thursday, August 29, 2024. At this time, you are in a listen-only mode. Later, we will conduct a Q&A session for analysts. Instructions will be provided at that time. It is now my pleasure to turn the call over to Mike Rizvanovic, Managing Director of Investor Relations for EQB. Please go ahead.

Thank you, Ludi, and good morning, everyone, and welcome to EQB's Q3 Fiscal 2024 Earnings Call. Your hosts today will be Andrew Moore, President and Chief Executive Officer, and Chadwick Westlake, Chief Financial Officer. In addition, Marlene Lenarduzzi, EQB's Chief Risk Officer, will be available for the Q&A portion of this call. For those on the phone lines only, we encourage you to also log into our webcast to 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. As a reminder, due to EQB's change in fiscal year end to October 31st, prior period comparisons for the remainder of this year will be relative to the closest historical period. As such, for a year-over-year comparison, Our Q3 and year-to-date results will be compared with the three-month and nine-month periods ending June 30, 2023, respectively. And with that, I will now turn it over to Andrew. Good morning, everyone, and thank you, Mike.

This is Mike's first call as part of our team, and we're looking forward to leveraging his deep expertise as an equity research analyst covering the Canadian banks as we continue working hard to achieve the full value of our Challenger franchise. We appreciate everyone's early morning participation. on this busy day of bank reporting. We promise to get to your questions quickly after brief opening remarks. I'm very pleased with the way our team is executing as we navigate the credit cycle. Despite the challenge of restrictive monetary policy, our results demonstrate resiliency and consistency. The hallmarks have carried us Challenger Bank for over 20 years. Once again, we paired strong financial performance with the continued development of product innovations that are driving change Canadian banking, and enriching people's lives. In short, a productive summer. As evidence, I said last quarter that our outlook for the back half of the year would reflect the growing value of our franchise and improve credit loss trending. Performance in Q3 reflected that expectation, with record quarterly revenue, a 5% sequential increase in pre-provision, pre-tax earnings, EPS growth on the same basis of 5%, ROE well above 15% and in line with a long-term average, and a 24% year-over-year increase in dividends declared. We had expected applying to PCLs in Q3 from Q2 levels, and that occurred. We also expected impaired loans might remain elevated, and they were, increasing by 20% from last quarter to $567 million, representing 109 basis points of total loans net of allowances. compared to 92 basis points at Q2. While this increase follows a moderate decline from Q2, it was not a surprise. Looking closer at the underlying reasons, first, commercial was 53 million or 25% up quarter over quarter, with two loans accounting for nearly 90% of that total. Commercial is and remain lumpy as we move through this cycle. we remain confident in our ability to resolve the majority of the remaining commercial real estate loans within the reserves already set aside, with the bulk of those resolutions likely to occur in the first half of fiscal 2025. Second, within the past all loan book, impairs go at a much slower pace, 21 million or 10% quarter over quarter. This continues to be attributed to timing in the cycle, but with interest rates starting to ease, we expect improvement here over time. Even so, we maintain a very high coverage ratio and expect losses, if any, to be minimal on these impaired. I said last quarter that it certainly felt like we'd reached the trough of the real estate cycle. The evidence from Q3 will continue to support that view. Third, equipment financing impaired represented the rest of the increase at 20.6 million, or 45% quarter over quarter, and was primarily focused on the long-haul transportation sector. These are satisfying our Challenger Bank ambition is the ongoing development of products and services that deliver better value for customers. The latest success story is EQ Bank's Notice Savings Account, a first of its kind in Canada with no fees or minimum balance requirements introduced in June. We were inspired by similar account styles popular in more innovative banking markets, such as the UK and Australia, and are proud to bring innovation to the Canadian personal banking market. During its initial nine-week launch, one in five all-new EQ Bank customers opened a notice savings account. On the very same day, they began banking with us, suggesting the product was appealing and customers appreciated the ability to earn more interest than a traditional savings account in exchange for 10- and 30-day notice periods. I would also give credit more broadly to our comparative everyday deposit rate strategies, as well as the success of our recent second-charge campaigns, featuring the upcoming Emmy Awards hosts, Eugene and Dan Levy, and Quebecois household names, Diane Lavallee and Laurence Leboeuf. In June, as part of follow-up on research, we surveyed 2,000 Canadians to measure EQ Bank brand awareness on a national scale and noted a significant increase since February with EQ Bank's highest results ever. We believe higher recognition of this sort primes Canadians to accept the innovations we're bringing to the banking marketplace. We continue to be very pleased with customer growth in Quebec and uptake in payroll deposits across the country, which indicate more Canadians are seeing EQ Bank as their preferred everyday choice. Next up is cascading our EQ Bank for small business service to a broader audience. When we last spoke, we had just soft-launched the service to test and perfect our onboarding with 100 business customers. With this behind us, we're rolling out the mobile app to our existing waitlist of EQ customers, many of whom are business owners. before broadening their offering to Canadians later in the year. Further good news, our market share in single-family remains strong, and that puts the bank in a great position to serve the housing needs of Canadians going forward in an environment where there remains a fundamental mismatch between supply and demand. One of the ways Canadian cities are looking to address acute housing shortages is urban desertification. Most recently, this includes approving the addition of laneway homes on land that already has a primary unit. In support of homeowners who wish to take advantage of the opportunity to build laneway homes or garden suites that can be used to generate rental income, house relatives, or downsize without leaving their property, we now offer the Equitable Bank laneway house mortgage. To start, we are marketing this innovation in the GTA, Calgary, and Vancouver through the Mortgage Broker Channel. Over time, we believe this innovation will make a positive contribution to the growth of our single-family portfolio and the vibrancy of Canada's major cities. This quarter represents an important milestone, the successful completion of our five-year plan to increase the common share dividend at a compound rate of 20% to 25% per annum. As noted, our latest increase of 24% year-over-year brings a payout in fiscal 2024 to $1.74 and fulfills the commitment we made to shareholders five years ago. Together with other key medium-term performance measures, we will introduce new guidance with our Q4 results, including for dividends. Our board certainly believes in rewarding shareholders with a growing dividend while still reinvesting the majority of earnings to deliver high ROEs through our proven capital allocation process. And in that context, it would be reasonable to expect us to continue growth at a favorable pace compared to our peers. Should you wish to offer your thoughts on our dividend plans, please reach out to us in the coming weeks. It's a bit early to make a call on the broader single-family market, although over the past couple of weeks, we have started to see some encouraging signs of improving activity levels. This bodes well for renewed loan growth momentum into fiscal 2025, especially if we see additional Bank of Canada rate cuts as early as next week. It's certainly our intention and expectation to grow earnings and deliver ROE at more than 15%. Now over to Chadwick.