EQB 2025年第二季度收益回顾：收益复苏取决于信贷演变

EQB 2Q25 Earnings Review: Earnings RecoveryContingent on Credit Evolution Credit was once again the focal point of EQB's quarter, as higher-than-anticipated provisions on both performing and impaired loans weighed onresults, causing the bank to come in well below expectations. While the fixis unlikely to be immediate, we do believe that incremental relief will beevident next quarter, and investors willing to look towards a more normalizedenvironment in 2026 could be well rewarded. Credit rears its ugly head, again: EQB's second-quarter earnings could not surmount the dualchallenges of significant provisions and a drop in non-interest revenues. Despite solid net interestmargin expansion (assisted by some likely nonrecurring derivative gains), EQB's earnings came inwell below expectations. Underlying lending volumes remain solid but have eased from the bank'shistorical levels, and as spending on initiatives continues, its efficiency ratio eroded further in thequarter. That said, EQB's capital remains strong, allowing for a 3.9% lift in its dividend. How does this change our thesis?With EQB now likely to miss its medium-term guidance in 2025,the focus shifts to whether and how quickly it can right the ship in its credit portfolio. Impairmentshave now materially disrupted profitability in two of the past three quarters. Although we believemanagement has a solid grasp of the issues, it is far from certain that the macro backdrop willbecome materially more supportive in the immediate term. Where do we go from here?Not surprisingly, the disappointing results put pressure on EQB'svaluation in trading today. Unless there is an immediate reversal on the outlook for tariff threats, wesuspect that EQB will need to demonstrate improved credit quality, potentially over several quarters,before it regains some of its lost valuation. That said, we do not believe that its business model isbroken, and we expect management to continue to work on the issues and reduce pressure fromprovisions in the second half of the year. This, along with continued growth in the loan portfolio,should provide a meaningful lift in EQB's shares, potentially starting as soon as the 3Q earningsrelease. The Long View: Equitable Bank Investment Thesis / Where We Differ EQB is a standout in terms of growth, and it has better profitability than itsvaluation implies. Compared to its peers, this track record has not been fullyrecognized by the market, as it trades at the lowest P/E multiple of the group,providing significant upside for investors willing to look past the immediatecredit concerns in its commercial lending portfolio. Downside Scenario,C$84, -8% Upside Scenario,C$117, +28% Base Case,C$107, +17% Our base-case price target of C$107 for EQB isbased on a 8.0x forward P/E against FY26E EPS of$13.32. An improving Canadian economy generates betterthan expected growth and performance by thebank's residential lending portfolio, as our upsidescenario of C$117 for EQB is based on a 10%increase in FY26E EPS vs a forward P/E of 8.0x. Weighedby weaker than expected economicgrowth, our downside scenario of C$84 for EQB, isbased on a 10% decline to its FY26E EPS, againsta forward P/E of 7.0x. Sustainability Matters Catalysts Againstthe backdrop of a soft landing andlower interest rates, fueling improved consumersentiment and stronger housing market, couldtranslate into better than expected performancefor EQB's residential related lending portfolios. Top Material Issues: 1)Climate:Within its climate strategy, the bank considers emissions, risks, governance, and productsand services. 2)Customers:Provide a best-in-class customer experience and products that serve this purpose. 3)Community: EQB believes it owes a duty of care to the communities that house its employees,customers, business partners, and shareholders and seeks to support these communities with positiveactions. 4)Controls: The bank runs its business with a prudent risk appetite and never wavers from ethicalbehavior. Company Targets: 1) Integrate climate-related metrics and targets into executive compensation. 2) Target helping underserved populations who would benefit from having access to greater bankingservices at low or no fees. 3) Women to represent at least 30% of its independent directors. Questions to Management: 1) How does ESG align and support EQB's medium-term objectives? 2) Does EQB envision a time when the pursuit of ESG initiatives is incongruent with creating shareholdervalue? Credit Weighs on Q2 Results Second Quarter Results: Negative Outlook: Neutral Earnings quality: Overall, earnings quality was a bit mixed. While EQB earned through higherprovisions and faced a significant drop in securitization fees, it also saw some one-time derivativesgains increase net interest income. Operatingleverage/performance:Despite a sequential decline in core revenues,expensesincreased, generating negative operating leverage and exacerbating the impact on the bottom