EQB Inc. (EQB) Earnings Call Transcript & Summary

Welcome to EQB's earnings call for the third quarter of 2026. Note that this call is being recorded on Thursday, August 27th, 2026. It is now my pleasure to turn the call over to [ Lamar Passant ], Senior Vice President, Investor Relations.

Please go ahead. Thank you, Sylvie, and good morning, everyone. Your hosts for today's Q3 results call are Chadwick Westlake, President and CEO, [ Annalisa Sunani ], CFO, and [ Punish Arora ], CRO. Also present for the Q&A session is Darren Lorimer, EVP Commercial Banking, and [ Daniel Rattazzi ], Personal Banking. After prepared remarks, we will open the lines for questions from our pre-qualified analysts. We encourage you to also log into our webcast and view our quarterly presentation, which will be referenced during the prepared remarks. On slide 2 of our presentation, you will find EQB's caution regarding forward-looking statements which involve assumptions that have inherent risks and uncertainties. Actual results may differ materially. I would remind listeners that all figures referenced today are on an adjusted basis where applicable, unless otherwise noted. With that, I will now turn the call over to Chadwick.

Thanks, [ Lamar ], and good morning. The third quarter marked a historic inflection point for EQB. It is worth taking a moment to acknowledge what it took to get here, the complexity, the pace of change, and the sheer amount of effort to decisively close our PC Financial transaction. Hundreds of people across EQB and PC Financial spent months planning, testing, and preparing to make a very complex integration feel seamless from day 1. Through it all, we remained focused on our customers, supported 1 another, and delivered an extraordinary outcome. We're a very different challenger now, with a new level of relevance, reach, and choice for millions of everyday Canadians. What excites me most is that we're only beginning to unlock the opportunity ahead. At the same time, the quarter behind us is not a clean reflection of the earnings power of the combined franchise. We reported only 1 month of PC Financial results in a seasonally dynamic cards business, alongside the accounting and capital impacts associated with the transaction. Even in that context, PC Financial contributed approximately $10 million of earnings, excluding the favorable impacts of purchase price accounting, reinforcing our confidence in the long-term value. Early days, the integration is at, and in some cases, ahead of expectations against our $30 million cost synergy target. We achieved 50% on an annualized basis in the first month, organic growth month-over-month across our new product shelf. The composition of our earnings is very different now. On a pro forma basis, PC Financial would have approximately doubled revenue excluding loyalty point costs and nearly tripled non-interest revenue, significantly increasing the proportion of recurring fee-based earnings within the franchise. We've also started to go to market with real ambition for our EQ Bank brand as part of the early integration and with our game-changing PC Optimum and Loblaws partnership. For example, a few weeks ago we announced the [ Grand Scan Contest ], the largest PC Optimum points giveaway in history, with 25 million points for a single winner. As part of this, we introduced multiple EQ Bank pop-up stores inside Loblaws and 3 major cities across Canada. Most banks compete for a customer with a one-time offer and an appointment. We're now meeting 14 to 15 million Canadians where they are every week. In the grocery aisle, we're running errands and filling up their cars with brands they trust. This gives us a unique opportunity to build tremendous awareness, engagement, and ultimately customer relationships at a scale very few banks can match. Our purpose is to help Canadians get ahead every day. Today, we have the reach, capabilities, and scale to do that in entirely new ways. Now, before moving to some points on the quarter, a few comments on talent. We welcomed over 300 new PC Financial colleagues, and the transition was seamless from day 1. These new colleagues include our Chief Risk Officer, [ Punish ], who you'll hear from shortly. Since joining as part of the PC Financial, he has spent considerable time evaluating our risk capabilities and making enhancements. He is part of a broader strengthening of our team, as we also welcome [ Michaela Garfield ], as Senior Vice President, Customer Growth, Experience and Strategy, and Ian Hanning, as Senior Vice President, Credit Cards, Insurance and Operations. On the technology side, we also welcome [ Basil Eltham ], Chief Technology Officer for Digital Business. I want to again thank Marlene Lenarduzzi for her years of service as CRO. We are pleased to continue benefiting from her experience in Council and her role as Special Advisor. Shifting to 3 areas I'll speak to before [ Annalisa ] shares more on results. 1, context for the quarter. 2, our core businesses. And 3, Outlook. Despite being a complex and noisy quarter as anticipated, there were several clear encouraging outcomes. ROE and return on tangible common equity, or ROTCE, both improved sequentially and year-over-year. Upon closing of PC Financial, we recognized significant goodwill and intangibles, reflecting the value of the acquired franchise, and an increase in EQB share price at closing. ROE will continue to show you the full capital we deployed, while ROTCE excludes goodwill and other intangible assets. We believe it offers a cleaner view of operating performance with the deal closed. For the first time, we generated over $1 billion of revenue through the first 9 months into a fiscal year. With just 1 month of PC results, net interest margin rose to 2.41%, reflecting the evolution of our business mix and earnings profile. We exited the quarter with a much more diversified balance sheet and revenue mix, plus our highest ever level of direct retail deposits. We have an efficient operating model with opportunities for continued improvement in our cost base. Taken together, these results point to a stronger, more resilient franchise with growing earnings power. The primary headwind in the third quarter was a higher level of performing and impaired credit provisions. We proactively updated our provisions following a comprehensive review of our portfolio and the evolution of economic indicators, alongside our assessment of the operating environment and ongoing uncertainty, which [ Punish ] will discuss. Early stage delinquency trends across the portfolio are stable to improving, and we believe we are positioned to perform well across a range of economic outcomes. Turning to the core business, this is a very different company than it was a year ago. We said we would restore efficiency as a competitive advantage, and that work is showing up in our results. We are making clear choices about where to invest capital, focusing on businesses where we see sustainable and attractive returns, and just as importantly, stepping back where we do not. With new energy and focus in personal banking under [ Daniel's ] leadership, we gained meaningful market share in single-family uninsured originations and continue to drive strong growth in reverse mortgages. We are leaning into our competitive advantages, sharpening our execution, and winning in areas we choose to compete. We expect that momentum will increasingly translate into stronger net asset growth in the quarters ahead. While market share gains are encouraging, the housing market in general remains subdued with limited industry-wide growth. That said, taking share matters. We are seeing stronger application volumes, deepening broker relationships, and improving underwriting efficiency. As market activity returns, we will be well positioned to convert that momentum into earnings growth. Our largest revenue-generating business is now credit card interest and fee income from the tens of billions in annual spend across our suite of PC Mastercards. In the first month following close, credit card applications increased 3% month-over-month, with initial cross-selling to existing EQ Bank customers. It was also a record month for new PC insurance policies reaching 93,000 in force. These indicators point to strong customer engagement and an encouraging start. Commercial banking continues to perform well under Darren's leadership. Importantly, our insured multi-unit residential business, which finances exactly what Canada needs more of, purpose-built rental housing supply. Uninsured commercial real estate remains the more challenging part of the market, and our approach has been consistent. Fewer, better opportunities with strong risk-adjusted yields and close attention to credit quality. Being cloud native and API first was a deliberate choice years ago, and it's paying off now. It's why we can integrate a business like PC Financial at this pace, why we can scale without adding costs at the same rate, and why our investments in technology and AI translate into efficiency rather than added overhead. It is a structural advantage over institutions many times our size and we intend to keep pressing it. That brings me to outlook. We have 1 quarter left in fiscal 2026, and we look forward to sharing our fiscal 2027 and refreshed medium-term outlook at our Investor Day on December 7th, which is set to be an immersive and highly engaging morning for attendees here in the EQ Bank Tower. In Q4, investors will see their first full quarter contribution of PC Financial, a further increase in weighted average shares outstanding, and still only a portion of the synergies we expect to realize. We have all experienced sentiment in past days, weeks, and months about the magnitude of geopolitical and macro uncertainty and the potential impact to Canadian employment and the economy broadly. We do believe Canadian households are proving resilient, and our balance sheet shows that. We do focus on everyday Canadians and small business owners that are impacted. Our purpose is to be there to help them get ahead every day. And this volatility and uncertainty could continue for an extended period of time. Taking those factors into account, we expect fiscal 2026 ROE will improve further from our Q3 level, including ROTCE in the 12% range as we make strides toward our medium-term ranges. We built proactive provisioning in Q3 in readiness for this type of environment, and the ongoing trade uncertainty could still add more sensitivity to these ranges. On capital allocation, our focus is reinvestment in the business, while maintaining the flexibility that has long been 1 of EQB's strategic advantages. Our top priority is the successful integration and progress to our ROE objectives. We will remain opportunistic across share repurchases with capacity under our existing NCIB, dividend growth, and selective inorganic opportunities. There is significant but exciting integration work ahead of us, and we are only at the beginning of what is possible. We have a clear strategy, strong momentum, and a unique opportunity to help millions more Canadians get ahead. This week marks my first year as CEO, and I've never been more optimistic about the future of EQB. Now over to [ Annalisa ].

Thanks, Chadwick, and good morning, everyone. As a reminder, my comments will be on an adjusted basis, and you can find a summary of these adjustments on slide 25 of today's presentation. Adjusted results exclude the $219 million day 1 provision on performing acquired credit card receivables and other acquisition-related items. Starting on slide 7. As Chadwick mentioned, Q3 marks the beginning of a significant shift in EQB's earning profile and the immediate shift in our revenue mix and balance sheet. Since this is our first quarter reporting as a combined business, we have provided additional detail on the acquisition and related accounting impacts on slide 23 of today's earnings presentation. Slide 24 also highlights key accounting considerations related to the acquisition and how the impacts are expected to flow through reported and adjusted earnings going forward. With that context, I'll turn to this quarter's financial performance. Sequentially, diluted EPS was up 4% to $2.12 and ROE increased to 10.3%. The positive impacts of the acquisition and continued expense discipline more than offset a continued tough operating environment that resulted in higher PCLs and slower revenue growth, overall delivering returns on a significantly larger equity base following the acquisition. ROTCE, which excludes the approximately $580 million of goodwill and intangibles recognized on July 1st, increased 40 basis points to 11.1%. Turning to the balance sheet on slide 8. Loans under management, or LUM, are a key performance metric, as they include our market-leading position in insured multi-unit residential mortgages. LUM increased 12% year-over-year and 7% sequentially to $82.5 billion. Sequential growth was primarily driven by the acquisition of the acquired PC Financial cards. Excluding the acquired cards, LUM increased 1% sequentially, driven by continued strength in our insured multi-unit residential, decumulation, and uninsured single-family residential portfolios. We achieved this growth despite softer market conditions, reflecting the benefits of our ongoing strategy to optimize our portfolio mix and redeploy capital away from lower-return businesses, including certain pockets of insured single-family residential and long-haul and subprime leases in our equipment financing portfolios. Conventional loans, which exclude the insured single-family and multi-unit residential portfolios, are the primary contributor of net interest income. Conventional loans increased 16% year-over-year and 14% sequentially, reflecting the addition of the cards to the EQB product shelf and continued growth across most remaining portfolios. Looking ahead, the addition of PC Financial broadens the drivers of growth across the franchise. While lending remains an important growth engine, we now benefit from the addition of a scaled, loyalty-linked cards business and a significantly larger customer base, reducing our dependence on housing-related activity. We are on track to achieve our 2026 loan growth outlook of high single-digit to low double-digit growth and now expect to land in the upper end of the range as a combined franchise. Now, turning to deposits. Total deposits were up 3% year-over-year and 2% sequentially, driven by growth in retail banking deposits following the closing of PC Financial, partly offset by the impacts of uncovered bond maturity and seasonality in credit union balances. We continue to access a diversified mix of funding sources. This provides important flexibility and enables us to actively manage and optimize our cost of funding while maintaining pricing discipline in a competitive environment. We also continue to improve the proportion of lower-cost funding, supporting margin resilience in a difficult and highly competitive environment. Retail deposits now represent 29% of total funding, up more than 2 percentage points from a year ago. As we deepen customer relationships across our larger franchise, we expect further growth in lower cost deposits and a continued strengthening of our funding profile. Turning to NII on slide 9. Net interest income was $319 million, up 22% both year-over-year and quarter-over-quarter. NIM increased 33 basis points, reflecting a structural shift in our product mix and margin profile following the addition of the acquired credit card portfolio. Margins and other personal and commercial portfolios were stable on a normalized basis as compared to last quarter, reflecting disciplined pricing and proactive margin management. Looking ahead, we expect margin performance to improve next quarter, reflecting a full quarter's contribution from PC Financial. Turning to slide 10, non-interest revenue of $73.9 million increased 55% year-over-year and 77% sequentially. The addition of PC Financial represents a significant diversification of our revenue streams and introduces a larger source of recurring fee-based income through interchange, card fees, and insurance-related revenue. These benefits were partially offset by lower securitization income, where we saw activity moderating and tighter spreads, driven by sluggish economic and interest rate environments. Turning to NIEs on slide 11. Adjusted non-interest expenses increased 19% year-over-year and 32% sequentially. Year-over-year results reflected the addition of PC Financial, partially offset by the benefits of the Strategic Restructuring Program completed last October, where we are tracking to exceed our pre-tax expense savings target of $45 million while continuing to invest thoughtfully in growth and strategic priorities. Sequentially, results reflected the addition of PC Financial and higher initiative spending, while expense discipline remained strong. Recall that Q2 also benefited from a few favorable items, including a capital tax benefit. Efficiency remains strong at 50.1%, and we are on track to achieve our low 50s target for fiscal 2026, despite loyalty-linked cards portfolios carrying a higher relative expense profile. Our focus remains on managing the combined organization thoughtfully while continuing to invest in customer growth and the capabilities required to support a business of greater scale. As Chadwick mentioned, we have strong initial momentum capturing integration cost synergies already. And finally, turning to capital on slide 12. The bank CET1 ratio remains strong at 13.4% as compared to 13.6% last quarter, reflecting the impact of RWA growth, primarily driven by the acquisition, and mostly offset by the issuance of common shares and modest capital consumption associated with the quarter's reported results. Our total capital ratio is strong and remains well above our target and regulatory minimums. We also increased the dividend to $0.63 per share this morning, up 3% quarter-over-quarter and 15% year-over-year, continuing our track record of returning capital to shareholders. I'll now turn the call over to [ Punish ] to take us through risk.

Welcome, [ Punish ]. Thank you, [ Annalisa ] and Chadwick, for the kind introduction. It is a privilege to serve as the CRO of EQB Inc. I'll start with slide 14. The closing of PC Financial acquisition meaningfully changes the composition of our lending portfolio. It also resulted in several acquisition-related credit impacts that are important to distinguish from the credit underlying performance. As [ Annalisa ] mentioned, we recorded day 1 performing provisions of $219 million against the card portfolio. It is a one-time acquisition-related provision and does not reflect credit duration since closing. Drawing on my experience managing PC Financial's risk group, I would highlight our key following points about the portfolio. PC Financial's credit card portfolio is seventh largest by purchase volume, which drives fee-based interchange revenue, and eighth largest by outstanding balances. It is top-in-wallet card for 42% of our customers, driving strong engagement and loyalty. Approximately 72% of the customers have been with PC Financial for more than 5 years, underscoring the loyalty and tenure of the customer base. Finally, a significant portion of our purchase volume comes outside Loblaws banners, underscoring the broad utility of the card. Speaking about the credit quality of the portfolio, approximately 70% of the customers are super prime, with an average FICO score of 768. The portfolio is well diversified across Canada. Taken together, these metrics reinforce our view that this is a resilient, high-quality portfolio with strong through-the-cycle performance characteristics. We believe the portfolio scale, seasoning, and broad national customer base provides a strong foundation as we integrate cards into our risk management framework. Performing provisions were $35.2 million, largely driven by acquired credit card portfolio, which contributed $21 million during July, as well as a material build with the personal residential portfolio in response to the current macroeconomic environment. In an environment characterized by persistent uncertainty, our priorities are unchanged. Disciplined lending and rigorous credit oversight. Our asset-backed lending portfolios continue to be focused in urban areas with economic diversity. Our ACL coverage ratio increased to 95 basis points or 50 basis points, excluding the impact of the credit card portfolio, compared to 46 basis points in Q2 and 33 basis points a year ago. Turning to slide 15, impaired PCLs increased 7 basis points sequentially to 42 basis points reflecting higher provisions across the personal and commercial business, excluding the cards. In personal lending, impaired provisions increased to $17 million reflecting continued market softness fueled by uncertainty and extended resolution times. The pressures remain concentrated in select GTAs surrounding suburbs and continue to primarily associated with vintages associated with peak market values. Importantly, as noted in prior quarters, we have not observed these pressures spreading to the other regions or vintages. In commercial, impaired provisions increased to $24.9 million. These provisions remain concentrated in a small number of previously impaired loans that continue to experience extended resolution times. Within the increase to $8.4 million, reflecting higher formations during the quarter. While performance in the portfolio was elevated in Q3, we continue to see the benefits of repositioning actions undertaken over the last 2 years, including reducing our exposure to long-haul trucking and shift to higher-quality assets. Turning to slide 16. Gross impaired loans increased a modest $38 million, the lowest rate of sequential since Q1 '25. The gross impaired loan ratio declined due to growth in overall loan portfolio, including the addition of the acquired credit card receivables and slowdown in pace of new formations. Formations were down 16% sequentially, primarily reflecting lower commercial formations, partly offset by a modest increase in residential. Residential GILs increased 5% quarter-over-quarter, driven by continued pressure in softer housing market and longer work-out times. GILs in commercial lending increased a modest 1% quarter-over-quarter, driven by new formations partly offset by resolution and write-off amid a subdued real estate market. As a reminder, we are encouraged by this quarter's modest increase and the last quarter's decline, excluding the large single insured exposure. Overall, while credit quality remains uneven, particularly within the portions of residential and commercial real estate markets, we remain in the low to mid-to-low range of the current market. We remain comfortable with the quality of our portfolios, the level of reserves we carry, and actions we have taken to proactively position the balance sheet through the cycle. The addition of PC Financial credit card portfolio further diversifies our credit exposures and earnings profile away from Canadian real estate while continuing to offer attractive risk-adjusted returns. Against a backdrop of elevated macro and geopolitical risk, we continue to expect normalization to be skewed towards 2027 into material shift in the outlook. With that, I will turn the call back to [ Lamar ] for Q&A portion of the call.

Thanks, [ Punish ]. I would ask that you limit yourself to 1 or 2 questions and then please re-queue so that we can get to everyone. With that, operator, can we have the first question from the lines?

Thank you, sir. [Operator Instructions] Your first question will be from John Aiken at Jefferies.

Good morning, [ Punish ]. Just wanted to clarify your statements on the commercial portfolio. First commercial X, the equipment financing, you said the increase in the impaired provisions were basically because of the extended resolution portion. Was any of the increase actually related to new formations within the commercial portfolio?

The next equipment financing portfolio? I would say it was no major formations came from the portfolio.

Okay, so then when I take a look at the fact that the impaired provisions are actually increasing given the extended resolution period, what can we expect moving forward in terms of is this going to continue to tick up until these things are resolved or was there something unusual in the core that caused the $2 million increase?

Yes, Darren did want to...

Yes, so I was going to add to that. So I think you were talking commercial to real estate impairments. Just wanted to be clear. Correct, yes. The majority of the increase in provisions we took were on a handful of larger commercial loans where those have been with us for a while, not new formations. We have seen some softening in distressed asset values in certain locations and certain property types. So, that really reflects the increased provisioning. We feel very strongly that they're well provisioned at this point and don't expect material new provisions next quarter all else equal.

Okay, thank you. I'll re-queue.

Next question will be from Gabriel Dechaine at National Bank. Please go ahead.

Okay, thank you and good morning. My first question is on the expenses. It's been a good story for the past few quarters, coming in lower than I expected anyways. I get you're managing the costs against the revenue growth you're seeing, which is reasonable, advisable, all that stuff. Just wondering how that evolves in the coming quarters as the PC Financial integration advances. Any promos, rebranding, things that cost money that might create some noise in the coming quarters, or is that just going to be offset through the synergies?

Thanks, good morning. So a couple of different dimensions there. 1, I'll reiterate what I said that efficiency will be and needs to be a competitive advantage of EQB. And so we'll always continue to evaluate this on a continuous improvement process. And there's a few dimensions to that, that [ Annalisa ] will speak to in a minute. But I would say that, are there costs associated with integration? Yes, we'll certainly have an integration budget and we'll disclose as we spend that. But there is investment we'll make to converge our brands, to converge the digital platforms, and to ensure we're actually building fulsome customer relationships. So that's all part of our business case. And when we really express the accretion that we think we'll still generate from this deal. But [ Annalisa ], you want to talk about a couple of the cost components to consider and how we're actually going to improve?

Yes, absolutely. Thanks, Gabe, for the question. I mean, our philosophy is that expenses need to move in line with revenues, and so we're targeting an overall efficiency ratio, maintaining in that low 50s range. Of course, boiled down, credit cards have a higher overall expense base as we do that but we will be really intentional around where we invest. We see the integration and the acquisition of PC Financial provides significant cross-selling opportunities and that will take investment together with other areas of growth across the banking, continued innovation and building out capabilities. So overall expenses has been a very positive storyline. We have consistently delivered thoughtful expense management throughout the quarter, and we'll continue to do that.

All right, and then as far as the credit performance goes, in the mortgage book, maybe let's dissect the impaired PCL. Is that on newly impaired loans, or are we seeing any, I don't know, catch-up provisions on previously impaired ones because they're spending more time on the market, more maintenance costs and all that. And then, you know, more broadly, is there a, are we still seeing the issues in the same regions or cities, whatever, or is it broadening at all?

Yes, I'm going to turn to [ Punish ] again. He shared some of that in his remarks, but I'd say, Gabriel, as well, we've been preparing for these types of scenarios in our modeling. There's always judgment. There's models. We've been thinking through these types of scenarios, and that's why we mentioned there was more proactive build that we did. That's why you saw the performing build component. Do you want to talk a little bit about the single-family from [ uninsured space again? ]

Thanks, Chadwick. Our provisions are remaining concentrated in the shoulder vintages that we've spoken in past. These are particularly in GTA where property values have fallen and resolution times are taking more. So by and large, it is in the same regions, and we have not seen the movement to any of the regions.

Right, and then the nature of the impaired, are the impaired we saw this quarter on formations in the quarter, or are they, any increases to previously impaired mortgages?

It was with both.

Both? Okay.

Yes, it says with both.

Next question will be from [ Fernando Tarelba ] at TD Securities. Please go ahead.

Thank you. I just wanted to start off with PC Financial. And apologies if I missed this earlier, but anything you can give us on timing or magnitude of what you expect there to ramp up in terms of growing the retail deposits with the acquired business?

Sure, Fernando, good morning. It's a great question. We're excited about quite a lot of growth from this business. And we saw some of that even in the first month where I mentioned we saw growth in applications, growth right across the product shelf. We have a really concise strategy here. And I think [ Daniel ] runs this business. I think, [ Daniel ], do you want to share some comments on how we're going to grow deposits and the overall business as well.

Yes, thanks for the question, Fernando. I mean, the way we think about growth now as an integrated bank is we think about growth from a customer perspective, and that'll span across all the different product areas that we now support. So our strategy will be to look within the customer base that we have, look within the PC Optimum customer base and think about how we can attract multi-product customers new to the bank and also how we can take our existing customers and move them across card products into deposits and into GICs and if it's core EQ Bank deposit customers, moving them into the card products.

Got it. Thank you. That makes sense. And then just to shift over a little bit into residential mortgage credit. 1 thing that stood out to me is delinquencies have been on a downtrend for the past couple of quarters, so that certainly is a positive. But new formations, they are either stable or up for the residential book. Just wondering why that's the case.

Yes. Go ahead, [ Punish ].

We have looked at the models we have and decided to basically take a holistic approach on these ones. Models are showing both judgment and model-driven numbers and we have incorporated this in the final provision that we've taken. We are very comfortable with that number.

Sure, so you're saying that the new formations, I'm not sure that I understood that. You're saying that the new formations reflect greater conservatism on existing loans, or is it that there's new loans that are becoming impaired as time goes by, even though the delinquencies are down?

Yes, it's on both.