Equitable Group’s Earnings Call: Mixed Sentiments and Future Outlook

Equitable Group ((TSE:EQB)) has held its Q2 earnings call. Read on for the main highlights of the call.

The recent earnings call for Equitable Group (EQB) painted a picture of mixed sentiment, reflecting both strengths and challenges faced by the company. While EQB celebrated robust loan origination and a growing customer base for EQ Bank, it also grappled with significant issues such as elevated provisions for credit losses, lower earnings from securitization, and a reduced return on equity (ROE). This mixed performance across critical areas suggests a cautious outlook for the near term.

Strong Loan Origination and Market Share Gains

EQB reported a strong period for loan originations, achieving notable market share gains. The single-family uninsured portfolio saw a 2% growth quarter-over-quarter, translating to an increase of $379 million. Additionally, the insured construction portfolio experienced a 10% growth quarter-over-quarter and a 29% increase year-over-year, underscoring the company’s robust performance in these sectors.

Growth in EQ Bank Customers and Deposits

EQ Bank continued its upward trajectory with a 23% year-over-year increase in its customer base, now exceeding 560,000 customers. Deposits also saw significant growth, reaching $9.4 billion, with demand deposits up 10% quarter-over-quarter and 32% year-over-year, reflecting strong customer confidence and engagement.

Strong Performance in CMHC Insured Multi-Unit Residential

The growth in CMHC insured multi-unit residential was a standout highlight, with term loans under management increasing by 6% quarter-over-quarter and 29% year-over-year. This performance indicates a solid demand in the multi-unit residential sector, contributing positively to EQB’s portfolio.

Lower ROE and EPS

Despite the positive growth in certain areas, EQB’s ROE for the quarter was 11.9%, falling short of its 15% target. The earnings per share (EPS) stood at $2.31 for the quarter and $5.29 for the first half of the fiscal year, impacted by macroeconomic volatility and lower earnings from the securitization business.

Elevated Provision for Credit Losses (PCLs)

The provision for credit losses (PCLs) increased significantly to $29 million, up from $13.7 million in the previous quarter. This rise was attributed to a negative macroeconomic outlook and elevated credit losses, particularly in equipment financing and personal lending, posing challenges for EQB.

Increased Gross Impaired Loans (GILs)

Gross impaired loans rose by 8% from January, reaching $775 million. Personal lending GILs increased by 1.4%, while commercial impaired loans saw a 12% rise in the second quarter, highlighting areas of concern in EQB’s credit quality.

Challenges in Securitization Gains

EQB faced challenges with gains on securitization and income from retained interest, which decreased compared to a record first quarter. This contributed to lower non-interest revenue in the quarter, affecting the overall financial performance.

Forward-Looking Guidance

During the earnings call, EQB provided detailed guidance for the future. The company expects higher earnings in the third and fourth quarters despite a decline in gains on securitization from CMHC insured multifamily. EQB remains optimistic about the medium-term, anticipating ROEs to exceed 15%, supported by strong asset growth and strategic investments. The company also highlighted continued growth in EQ Bank, with deposits reaching $9.4 billion and customer numbers surpassing 560,000.

In conclusion, the earnings call for Equitable Group highlighted a mixed bag of results, with strong growth in loan origination and EQ Bank’s customer base contrasted by challenges in credit quality and securitization gains. While the company remains optimistic about future growth and improved ROE, the near-term outlook remains cautious due to macroeconomic uncertainties.