EQB Q2 Earnings Call Highlights

EQB (TSE:EQB) executives said the bank is approaching a major strategic turning point as it prepares to close its acquisition of PC Financial on July 1, while second-quarter earnings reflected higher credit provisions and a softer macroeconomic backdrop.

On the company’s fiscal second-quarter earnings call, President and CEO Chadwick Westlake said the quarter marked “the final quarter of our standalone earnings model,” with PC Financial expected to close on Canada Day. He said the deal will significantly expand EQB’s scale, customer reach and revenue mix.

“We will move from a niche player serving hundreds of thousands to millions of Canadians with our transformed business model and capabilities,” Westlake said. He added that EQB’s integration plans are “well advanced” and that the company is focused on “flawless day one execution.”

Second-quarter results pressured by higher provisions

CFO Anilisa Sainani said EQB operated with “focus and discipline” in the quarter, maintaining expense control and executing on capital deployment, including share repurchases. However, earnings per share and return on equity declined from the prior year, when credit conditions were stronger.

Sequentially, adjusted diluted earnings per share fell 10% to CAD 2.03, while adjusted return on equity declined 90 basis points to 10.2%. Sainani said the decrease was largely due to higher provisions for credit losses and the semi-annual LRCN distribution, partly offset by share repurchases.

Net interest income was CAD 261 million, down 6% year over year and in line with the previous quarter. Net interest margin rose sequentially by six basis points to 2.08%, which Sainani said was consistent with EQB’s 2%-plus target. Non-interest revenue increased 10% year over year to CAD 41.6 million, driven by fee-based income growth and higher securitization gains in insured multi-unit residential lending, though it declined 4% from the prior quarter.

Loans under management increased 8% year over year and 2% sequentially to CAD 77.1 billion, led by continued strength in the bank’s multi-unit residential portfolio. EQB said it remains on track for its 2026 loans-under-management growth outlook of high single-digit to low double-digit growth, though Sainani said results are expected to land toward the lower end of that range.

PC Financial integration expected to reshape growth profile

Westlake said the PC Financial acquisition will nearly double EQB’s revenue, quadruple its customer base and diversify the bank’s business and earnings mix. The transaction will also make EQB the exclusive financial partner for PC Optimum, which Westlake said has 18 million members.

During the question-and-answer portion of the call, Westlake told Jefferies analyst John Aiken that EQB and PC Financial teams have been working on integration planning since “day minus one.” He said the companies have strong cultural alignment and described the deal as a long-term partnership with Loblaw.

Westlake said EQB expects to initially focus on ensuring PC Financial customers experience no significant change on day one, before gradually bringing products and brands together over the coming months and quarters. Responding to BMO Capital Markets analyst Étienne Ricard, Westlake said EQB’s brand will gain visibility across Loblaw’s national footprint, including stores and associated banners, but said the company will provide more specific sequencing later.

On the acquired credit card portfolio, Westlake told TD Securities analyst Mario Mendonca that EQB is limited in what it can say before the deal closes. However, he reiterated that about 90% of the customers are prime and super-prime, and said the portfolio includes roughly 2.5 million customers and receivables in the CAD 4.4 billion to CAD 4.5 billion range. He also said the cards generate more than CAD 33 billion in annual payments, with more than 80% outside stores.

Credit outlook pushed later into 2026 and 2027

Chief Risk Officer Marlene Lenarduzzi said EQB’s lending portfolios remained resilient in a quarter marked by elevated macroeconomic uncertainty, but the bank increased allowances in response to softer forward-looking indicators, particularly housing prices.

Performing provisions for credit losses were CAD 6.7 million. EQB’s allowance for credit losses coverage ratio increased to 46 basis points, compared with 29 basis points a year earlier.

Lenarduzzi said impaired provisions rose three basis points sequentially to 35 basis points, reflecting higher provisions in personal and commercial portfolios, partly offset by improvements in equipment financing. In single-family residential mortgages, impaired provisions totaled CAD 13.3 million, with pressure concentrated in 2022 and nearby vintages in select suburbs surrounding the Greater Toronto Area.

“We have not observed this pressure spreading to other regions or other vintages,” Lenarduzzi said.

Gross impaired loans in commercial increased to CAD 524 million, up 9% from the prior quarter, largely due to a single insured exposure. Excluding that item, Lenarduzzi said gross impaired loans declined 8%, reflecting improvement in the underlying uninsured portfolio. She also noted that roughly 85% of EQB’s commercial loans under management are insured by CMHC.

Both Westlake and Lenarduzzi said normalization in credit is now expected to be weighted toward late 2026 and into 2027, citing geopolitical tensions, trade uncertainty, higher energy prices, elevated unemployment and a softer housing market.

Expense control, deposits and capital returns in focus

EQB reported what Westlake described as its first quarter of neutral operating leverage in two years. Sainani said non-interest expenses declined 4% year over year and 1% sequentially, helped by the restructuring program completed last October, lower corporate expenses and other items, including a capital tax benefit.

Sainani said the bank is tracking ahead of the CAD 45 million pre-tax expense savings target outlined at the start of fiscal 2026. The efficiency ratio was 49.4%, up 30 basis points sequentially.

Deposit balances increased 5% year over year but declined 2% sequentially to CAD 36 billion. EQ Bank deposits rose 7% year over year and 1% sequentially, supported by customer growth. Westlake said EQ Bank deposit balances surpassed CAD 10 billion, with about 30,000 new digital customers joining during the quarter.

EQB’s CET1 ratio was unchanged from the prior quarter at 13.6%. The bank raised its dividend 3% to CAD 0.61 per share from CAD 0.59 in the previous quarter and CAD 0.53 a year earlier. Sainani said EQB repurchased a record 1.2 million shares during the quarter.

Executives said buybacks remain part of the bank’s capital allocation framework. Westlake said EQB still has room under its normal course issuer bid and may continue to use it. Sainani said EQB believes its stock remains undervalued and that the bank retains “a lot of flexibility and strategic optionality.”

Management emphasizes focus and portfolio discipline

Westlake said EQB continued to sharpen its business focus during the quarter, including exiting the merchant payments business after previously exiting insurance lending. He said the merchant payments business was “not core” to the bank’s direction.

Darren Lorimer, executive vice president of commercial banking, said the merchant payments business was not generating the risk-adjusted returns EQB wanted, and the charge associated with the exit reflected the costs needed to fully leave the business.

Westlake said investors should not expect a broad series of similar exits, adding that EQB is “quite comfortable” with its portfolio. He said the PC Financial acquisition is “about growth” rather than cutting, and called it an “elegant complement” to EQB’s existing businesses.

EQB plans to report initial results including PC Financial on its third-quarter earnings call in August. Westlake also announced that the bank will host an investor day on Dec. 7 in Toronto.

About EQB (TSE:EQB)

EQB Inc formerly Equitable Group Inc trades on the Toronto Stock Exchange TSX: EQB and EQB.PR.C and serves over 360000 Canadians through its wholly owned subsidiary Equitable Bank Canadas Challenger Bank. Equitable Bank has grown to become the countrys eighth largest independent Schedule I bank with a clear mandate to drive real change in Canadian banking to enrich peoples lives. At Equitable Bank we are as invested in our employees as we are in our business. Thats why we are consistently recognized as one of Canadas Top Employers a rating that comes from our 1300+ employees.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected].

Where Should You Invest $1,000 Right Now?

Before you make your next trade, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.

Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.

They believe these five stocks are the five best companies for investors to buy now...

See The Five Stocks Here

Source MarketBeat