EQB Inc. ($EQB)

Welcome to EQB's earnings call for the second quarter of 2026. This call is being recorded on Thursday, May 28, 2026. It is now my pleasure to turn the call over to Lemar Persaud, Vice President and Head of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Your host for today's Q2 results call are Chadwick Westlake President and CEO; Anilisa Sainani, CFO; and Marlene Lenarduzzi, CRO. Also present for the Q&A session is Darren Lorimer, EVP, Commercial Banking; and Daniel Rethazy, EVP, Personal Banking. After prepared remarks, we will open the lines for questions from our prequalified 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, Lemar, and good morning. Before getting into my formal remarks, I want to start with spotlighting talent. I'm excited to welcome Daniel Rethazy to his first call with us as our Head of Personal Banking. He joined in April from CIBC to drive our integrated personal business, including PC Financial. It's early days, but he is already making his mark, a generational talent in banking for the generational change EQB is embarking on for our industry. In a matter of weeks, when we close on PC Financial, we're very excited to welcome many new world-class leaders. We'll speak more about some of them later in Q3. Our team will be stronger than ever. Now 3 topics I'll cover before Anilisa shares more on results. First, we're entering an inflection point. This marks the final quarter of our stand-alone earnings model, with PC Financial set to close on Canada Day, July 1, an important and symbolic day for our country and for the start of our company's new differentiated growth curve. As I shared in my remarks at the Canadian Club earlier this month, Canada needs stronger competition to perform on a global stage and better serve everyday Canadians, especially in an uncertain macroeconomic environment. I'll say again that I applaud our federal government and regulator for their quick action to ensure change is delivered with urgency. Being a Schedule 1 bank matters, and the regulations that guide responsible structure, capital and the privilege to be a deposit-taking institution directly matters. But this needs to be matched to the requisite speed, innovation and flexibility to compete, to ensure all Canadians have a fair chance to own a home and that small businesses are supported as the key growth engine for the Canadian economy that they are. This applies to EQB where we have particular strength, helping self-employed borrowers remain underserved in Canada. The small business banking platform we launched last fall is also resonating with new customer growth of 53% quarter-over-quarter. We're going to add the scale and relevance to champion more of this by combining banking, payments, a leading credit card offering, insurance and the most relevant rewards. With PC Optimum's reach of 18 million members, we have a unique opportunity to deliver differentiated value propositions plus expanded distribution channels. We will move from a niche player serving hundreds of thousands, to millions of Canadians, with our transformed business model and capabilities. Our integration plans are well advanced, and we're focused on flawless day 1 execution. At the same time, we remain anchored in the fundamentals of our bank: sustainable profitability, prudent risk management and strong capital discipline. Those areas of focus don't change on July 1 when we quadruple our customers nearly, double our revenue and diversify our entire business and earnings mix as EQ evolves to an omnipresent brand from coast to coast. My second point this morning is that we continue to strengthen our core businesses that underpin everything we're building. This was our first quarter of neutral operating leverage in 2 years, maintaining our significant progress from Q1. This reflects deliberate actions to restore efficiency as a competitive advantage. We did this while expanding our balance sheet thoughtfully and not chasing growth. For example, in Commercial Banking, we increased loans under management by 17% year-over-year and 4% quarter-over-quarter, reflecting continued strength in our insured multi-unit residential lending program and supporting the need for more affordable housing. The market remains difficult in uninsured commercial real estate lending, and we continue to focus on quality opportunities at strong yields. Importantly, we saw improvement in uninsured commercial impaired loans, with a decline of 8% from Q1. A key focus of Commercial Banking also continues to be supporting our credit union partners, including through our treasury and securitization consulting services and our registered product programs. In Q2, our securitization team reached a new milestone with nearly $9 billion of loans under administration. Our team was honored to receive 2 Canadian Public Relations Society ACE Awards for our outstanding work and raising awareness across Canada for registered disability savings plans. In single family, a slower-than-expected housing market has intensified competition. Within that backdrop, we've been able to preserve market share and portfolio margins. Renewal rates reached record highs in Q2, in the high 70s, enabling us to keep loans on the book at lower cost than new originations. Our strategic approach to insured originations delivered a strong pipeline of applications in Q2 and sets the foundation for the return to profitable growth within that portfolio over the long term, after deemphasizing growth for several quarters. Our decumulation business continues to show strong margin performance, combined with assets that accretes 26% year-over-year and 5% quarter-over-quarter, driven by continued reverse mortgage market share gains in the provinces where we compete. Reverse mortgages are a top priority growth business for us. EQ Bank deposit balances surpassed $10 billion. New digital customer acquisition continues to be strong with about 30,000 new customers joining us in the quarter, in part due to our focus on improving the application and onboarding process. This has been a deliberate effort ahead of our integration with PC Financial. We will continue to invest significantly in digital capabilities that will present cross-sell opportunities between EQ and PC customers as we integrate the platforms. We're accomplishing all of this while investing in the innovation of our capabilities. We've often talked about the advantage of EQ Bank being cloud-based, with an open API stack and a partnership approach with fintechs. We have always been digital-first and cloud-native. AI is increasingly enabling our strategic agenda, including through the tools and agents we've developed to amplify employee capabilities and enhance customer experiences, ultimately flowing through to improved bottom line earnings. At the same time, we're embedding strong governance and security practices to ensure our teams can adopt and use AI with confidence and responsibility. Employee adoption of AI assisted tools has increased fivefold this year, with over 80% now actively using AI systems daily. Our teams have sell built nearly 200 productivity agents, demonstrating strong grassroots adoption. 100% of our engineers have adopted AI-enabled coding tools, including a strong acceptance rate for agentic coating suggestions. All of these tools are designed to help empower our teams with AI, helping them work smarter, faster and unlock their full potential. Some of this is already reflected in our efficiency ratio improvements. We're moving faster and able to scale without friction, and those benefits will only strengthen as we integrate with PC Financial. We'll share more detail on this and other capability investments when we host our Investor Day, which we are pleased to announce this morning will be on December 7 this year. And on credit for the quarter behind us, Marlene will provide an update shortly. We now expect recovery to be weighted toward late 2026 and into 2027 for our mortgage portfolios, reflecting geopolitical tensions, trade uncertainty, higher energy prices, elevated unemployment and a softer housing market. And my final point, shareholder value. During the second quarter, we continued to sharpen our focus, slowing or stopping in areas where we're not winning. This is a priority I outlined when I became CEO about 9 months ago. Following our exit of insurance lending, we also exited the merchant payment business. It was not core to where we're going. This is consistent with our approach that began last fall: focus, simplify and allocate capital where it drives the highest long-term value. Our objective remains that we're intent on doing a few big things well as we evolve to a household name and a competitor at a new scale. We will continue to make portfolio decisions consistent with that discipline. We remain committed to returning to our 15% to 17% medium-term North Star ROE target. In support of that goal, we're taking a prioritized approach to capital allocation with flexibility as a strategic advantage. While our bias is toward internal reinvestment, we will remain opportunistic, including for share buybacks, dividend growth and selective inorganic opportunities. Stepping back, all these actions I've discussed ladder to one outcome: stronger, more sustainable returns for our shareholders. Now over to Anilisa.

Thank you, 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 22 of today's presentation. Starting on Slide 6. During Q2, we operated with focus and discipline, maintained strong expense control and executed on strategic capital deployment, including share buybacks. However, EPS and ROE were down from last year, reflecting a stronger growth in credit environment at that time. Sequentially, diluted EPS for the second quarter was down 10% to $2.03 and ROE was down 90 basis points to 10.2%, largely reflecting higher provisions for credit losses and the semiannual LRCN distribution, partly offset by the impact of share repurchases. A modest decline in revenues was partially offset by lower expenses, with the efficiency ratio increasing 30 basis points and remaining strong at 49.4%. Turning to the balance sheet on Slide 7. 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 8% year-over-year and 2% sequentially to $77.1 billion, driven by continued strength in our multi-unit residential portfolio. We delivered this growth while continuing to optimize our portfolio mix and redeploy capital away from lower-return businesses. This included targeted actions in the insured single-family residential portfolio, repositioning our equipment financing portfolio to move away from long-haul trucking and subprime lending, and discontinuing originations in insurance lending. Conventional loans, which exclude the insured single-family residential and insured multi-unit residential portfolios, are the primary contributor of net interest income. Conventional loans increased 4% year-over-year and 1% sequentially, reflecting continued growth across most portfolios. We continue to track towards our 2026 LUM growth outlook, which we had talked about as a high single-digit to low double-digit growth target. We continue to expect to land in that range, albeit towards the lower end. Following the closing of PC Financial, we expect our lending mix and growth outlook to evolve, with the addition of a scaled credit card portfolio. Turning to deposits. Balances increased 5% year-over-year and dropped 2% sequentially to $36 billion. EQ Bank deposits were up 7% year-over-year and 1% sequentially, driven by growth in customers. Across broker deposits, wholesale funding and other channels, 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 across the stack while maintaining pricing discipline in a competitive environment. Overall we remain focused on increasing the proportion of lower-cost funding, particularly deposits, which we expect to accelerate post the closing of PC Financial. Turning to NII on Slide 8. Net interest income was $261 million, down 6% year-over-year and consistent with last quarter. Net interest margins increased sequentially to 2.08%, in line with our 2% plus target. The sequential expansion of 6 basis points was partly driven by the impact of fewer days in the quarter, which show higher asset yields, as well as favorable mix shifts. Looking forward into 2026, our expectation is for margins to remain in the 2% plus range prior to the benefits of the PC Financial acquisition. Slide 9, noninterest revenue of $41.6 million increased 10% year-over-year and declined 4% sequentially. The year-over-year increase was driven by growth in fee-based income and higher securitization gains in insured multi-unit residential lending where we continue to hold our market-leading position. These increases were partially offset by unfavorable fair value market-related adjustments. While securitization activity remained strong versus last year, we saw some moderation sequentially, reflecting market conditions. Following the close of PC Financial, we expect to expand our base of recurring fee-based income as we further diversified our revenue streams. Turning to next on Slide 10. The strategic restructuring program completed last October reset our expense base and how we manage cost. We are tracking ahead of the $45 million pretax savings expense target outlined when we entered fiscal 2026 as we continue to operate with discipline and tightly control discretionary spending. As a result, noninterest expenses declined 4% year-over-year and 1% sequentially. Year-over-year results benefited from our restructuring program, lower corporate expenses and the positive impact of other items, including a capital tax benefit, partially offset by higher premises costs. Sequentially, pacing our expense spending in line with revenue growth and the positive impact of the other items mentioned more than offset higher staff costs and our continued investments. Expenses remain a controllable lever that we are managing thoughtfully. On Slide 11, our capital allocation strategy continues to prioritize reinvestment in organic growth, disciplined return of capital to shareholders through dividends and share repurchases, and maintaining flexibility to pursue strategic inorganic growth. The bank's CET1 ratio was consistent with last quarter at 13.6%, reflecting the benefits of internal capital generation, offset by RWA growth. Our CET1 ratio is strong and remains well above our target and regulatory minimums. We expect to maintain a strong CET1 ratio post close of PC Financial. And yesterday, we announced a 3% dividend increase to $0.61, up from $0.59 last quarter and $0.53 last year, as we continue our strong track record of dividend increases. We repurchased a record 1.2 million shares this quarter, supporting attractive return of capital for our shareholders. I will now turn the call over to Marlene to take us through risk.

Thank you, Anilisa, and good morning, everyone. I'll start on Slide 13. Against a quarter characterized by elevated macroeconomic uncertainty, our lending portfolios have demonstrated resilience. As noted earlier by Chadwick, the macroeconomic headwinds in Canada have intensified. Performing PCLs were $6.7 million as we proactively built allowances across both the Personal and Commercial portfolios in response to softer forward-looking macroeconomic indicators, reinforcing our disciplined and prudent approach to credit provisioning. The most notable changes were in the outlook for housing prices. This was reflected in our ACL coverage ratio, which increased -- was increasing to 46 basis points compared to 29 basis points a year ago. As we navigate a prolonged and evolving macroeconomic backdrop, our focus remains clear: disciplined credit management, prudent lending and appropriate provisioning. We see improved credit trends in our leasing portfolio stemming from our deliberate actions to reduce exposure to higher credit risk segments such as long-haul transportation, and in addition to shifting the portfolio towards prime customers. We signaled our repositioning of this lending portfolio in 2024, and we're now seeing the positive impacts of those changes. Turning to Slide 14. Impaired PCLs increased 3 basis points sequentially to 35 basis points, reflecting higher provisions in the Personal and Commercial portfolios, partially offset by improvements in equipment financing. In single-family residential, impaired PCLs totaled $13.3 million, reflecting continued pressure on property valuations, rising defaults and longer workout time lines. These pressures continue to predominantly affect the 2022 and shoulder vintages in select GTA surrounding suburbs. We have not observed this pressure spreading to other regions or other vintages, and this is further supported through scenario analysis. In Commercial, impaired PCLs were driven by previously impaired loans that have had prolonged resolution time lines in the soft commercial real estate market. Turning to Slide 15. While gross impaired loans increased in both our Personal and Commercial lending portfolio quarter-over-quarter, formations in all our portfolios, Personal, uninsured commercial and leasing were down sequentially. Gross impaired loans in Commercial increased to $524 million, up 9% quarter-over-quarter, largely driven by a single insured exposure. Encouragingly, excluding this item, GILs declined 8%, reflecting continued improvement in the underlying uninsured portfolio. As a reminder, approximately 85% of our commercial loans under management is insured by CMHC. The bank lends through cycles and continuously refines its underwriting practices to maintain a resilient portfolio through various economic conditions. As a reminder, we remain focused on first-lien lending in urban markets where more diversified economic drivers support greater credit resilience. In this environment, we remain focused on what we can control, maintaining disciplined underwriting, actively managing our portfolios and prudent reserving to ensure resilience through the cycle. Against the backdrop of elevated macro and geopolitical risks, we expect a normalization in credit to be skewed towards late 2026 and into 2027, absent a material shift in the outlook. We remain confident in the credit quality of our portfolios and our disciplined approach towards managing risk. And with that, I will turn the call back to Lemar for the Q&A portion of the call.

Thanks, Marlene. I will ask that you limit yourself to 1 or 2 questions and then please requeue so that we can get to everyone. With that, operator, can we have the first question from the lines?

The first question is from John Aiken from Jefferies.

Chadwick, the July 1 date for the PC Financial acquisition is a little sooner than we expected, but I'm assuming that that's not a terrible surprise on your end. Something of this scale has obviously never been done at EQB. Can you give us some sense in terms of how you're preparing for the integration and talk to us about what those of us on the outside can expect to see in the early days?

Yes, sure, John. We're really pleased and excited about this. This is so significant for our industry. And we've been building towards this. This is why we've added talent like Daniel, who is here in the room with us, and the team coming with PC Financial is exceptionally talented too, which is we can't want to bring it all together. From an integration perspective, we've been working on this since day minus 1, call it. We've been -- we have a team very well organized. The integration is proceeding really well. Probably one of the most positive aspects is actually just how the PC Financial and EQ teams are working together. We do have high conviction in the cultural alignment and how the product shelves are going to come together. Everyone is extremely collaborative. And what's so different on this, I think, too, John, from an integration success perspective is this truly is about partnership. It's a very long partnership with Loblaw's. This makes us that exclusive financial partner for PC Optimum. We have a very shared vested interest and success for everyday Canadians here. So we have invested in the people, the process and the technology and the resources, and why I use the term deliberately for flawless day 1 execution. I use that very intently. So I think if anything, it's going -- it's matching our ambition level, and we're very excited for day 1 closing. So yes, not a surprise, but certainly, that was our ambition. And I'm glad we could provide some upside positive surprise for you.

Well, I'll admit that flawless does raise my expectations.

Your next question is from Gabriel Dechaine from National Bank.

Just to start off, the buyback activity, which was notable this quarter. I'm just wondering what the outlook for more of that is. Let's start there.

Yes. Sure, Gabe. I mentioned it's going to continue to be in our capital allocation framework. But Anilisa, do you want to provide a little more context?

Yes, absolutely, Gabe. Like we dynamically manage our capital. As we've talked about, share buybacks are an important part of our overall shareholder value equation. And we think about investment in organic growth, returning capital through the buybacks, strategic inorganic growth. As you know, we started to buy back shares in late 2025, well before the PC Financial acquisition. We believed that that was one of the best uses of capital at that time. And we've continued to buy back a double benefit, both from the PC Financial acquisition mechanics as well as our capital deployment strategy. Looking ahead, I think about 2 things. First, interpreting our recent buybacks in any way to signal that we don't have alternative investment opportunities. There is a lot of strategic organic growth especially post close. And second, I would also caution, just because we've completed the buyback, to avoid any additional issuance to meet Loblaw requirement, that we're done with buybacks. We will continue to be active where the opportunities exist. So we have a lot of strategic optionality. Note also that Loblaw will also be buying post July 1 up to their 25%. So we still believe our stock is undervalued by the market, and we have a lot of flexibility and strategic optionality.

Okay. Now on the credit side of things, the -- specifically the resi mortgage portfolio. I noticed the LTV -- the average LTV of the portfolio is at 69%. It's still a very low number, provides a lot of protection. But it's been creeping higher. I'm just wondering, is there -- what percentage of the portfolio, I don't know if you could have that number handy, is -- has [ reached ] above the 80% mark? And what percentage of the portfolio, because you said that the, my words, your problematic regions are the same ones as no -- not expanding, I guess. What percentage of the portfolio is in those particular areas?

Yes. And that's the kind of level of detail that we generally don't disclose publicly. But what I can tell you is that we have been monitoring those particular segments, including as we refresh HPIs and get a sense of where the current LTVs land. And we ensure that we're appropriately provisioned for any of the potential risk that that might provide.

Your next question is from Etienne Ricard from BMO Capital Markets.

So efficiency is a significant focus, getting more brand recognition is also another one. So as you get closer to the PC Financial deal, how do you think about better promoting the EQ Bank brand, given Loblaw has many different channels? And just a reminder on how this responsibility will be shared would be appreciated.

Yes, sure, Etienne. There's lots we can share, I get pretty excited on this topic where again you go from a brand that is not well enough known to Canadians as a brand that's so important to Canadians, and it will -- why I use the term household name, you're going to see 5 million, 6 million, 7 million, 8 million Canadians a week that will see our brand by default at, call it, 5,000, 6,000 points across Canada, be that in the Loblaw store. The Loblaw banners have over a dozen brands. You can imagine from a Loblaw to [ Canadian Real ], [ Lennox Supercenters ] to Shoppers and SO. We're going to be -- our brand is going to integrate in. Where we'll come back with precise clarity is when will it show up where and what sequence. Because our first priority is a seamless customer experience here. And we're going to focus first on ensuring customers continue to experience PC Financial as they do today, so there's no confusion. And then we're to bring the products and the brands together really delicately, elegantly over the coming months and few quarters. And that PC Optimum will start to be a benefit right away and we're going to work that into many products. So there is going to be a pretty big exciting conversion that's going to happen here. And we won't -- I think it's going to be both next quarter, I think we'll feel more comfortable sharing even more precision on that. And then as we get through to the Investor Day ahead. But a lot, a lot, a lot to come. But I just want to really want to reinforce this should feel like no significant change for those existing customers day 1. And we're going to focus on that seamlessness and then it's -- we're going to have a lot of pleasant surprise for customers on both sides from there.

Okay. Looking forward to it. A few of your peers have talked about the potential for improved efficiency in mortgage underwriting on the back of new technologies and AI. This could potentially free up resources and help banks look at more complex applications. So Chadwick, do you see a risk that we could see increased competition in the alternative market.

Yes. It's going to -- I think what -- the first thing, can we -- is there opportunity to improve the customer experience? Is there opportunity to improve underwriting through agents and AI? Yes. Do we maintain a competitive advantage to win in that market and segments where we compete today? Yes. A lot of that comes down to the lending experience either way, regardless of if you have an agent, and how you structure your residential mortgage underwriting policies and the experience in folks of your team. And I think for that, we will continue to have a competitive advantage. It will make us more efficient. Can we improve the efficiency? Can improve the response times? Yes, with it. But I don't know if it's necessarily going to reshape the competitive landscape, but it's going to reshape our ability to do more faster, I think, and extend our filter. So this is a top line and bottom line win. But our focus is how do you get a response to Canadians faster and how do you manage that risk even more effectively.

Your next question is from Darko Mihelic from RBC Capital Markets.

And thank you, by the way, you get my vote for Best IR to have your results reported the night before on a very busy day. So thank you very much for that, appreciate it. My question is for Marlene. Marlene, it's difficult from the outside looking in to understand how the process is going with respect to working out loans. For example, what I'm referring to is the concept that loans are taking longer to work out, and therefore, your loss given default is rising. So my question is, first, with respect to the mortgages, and even Commercial for that matter. Are there any green shoots? Is there anything to suggest that the situation is getting better? Or is the situation actually getting potentially worse, because we just see no movement in housing sales or very limited movement in housing sales and we see delinquencies rising for everybody's mortgages? So is it, in fact, potential -- there's a good potential that the courts will have more workflow and even longer delays for a workout?

So thanks for the question, Darko. There's a lot to unpack in that question. I'll start with just talking about the Commercial portfolio and then we'll move to the retail portfolio or the Personal portfolio. On Commercial, when you talk about green shoots, so we do have a green shoot this quarter. We certainly saw Commercial formations lower than they were last quarter and on par and, actually, it's lower than where they were last year at the same quarter. In addition, we see gross impaired loans on the uninsured portfolio declining sequentially. And so those are all positive signs. We did have a number -- some resolutions this quarter that are very encouraging as well. And we have a clear line of sight into our plans for the impaired book. We're going to continue to work through the portfolio. And you're right, there have been some elongated time lines, but we're actively working that portfolio. On the residential side, as you saw in Slide 20 in the appendix, you saw that the early-stage delinquencies, the 30 to 89 bucket, did come down sequentially, and it's been kind of down to where it was about a year ago. So there's a positive sign there. And our formations on the Personal side has also declined quarter-over-quarter. Now I want to see a few more positive quarters like that to have the type of confidence that we're now -- the worst is behind us. But we're certainly looking at those segments and we're seeing the improvements that gives us some hope. But it does depend on external factors such as housing prices and sales. But that's where I would say we're looking at, Darko.

Just to -- correct me if I'm wrong. I believe many of your impaired losses this quarter were on files that were previously impaired and you had to take a higher loss. And is it your expectation that the existing book won't we -- I guess the concern is -- maybe I should rephrase that question. I understand what your expectation would be. But the concern is that the courts aren't getting any cleaner. And that your existing files will be right back at the same sort of situation next quarter and quarter after that simply because the system is overwhelmed.

Well, we do refresh our provisions every quarter. And so we've looked at our valuations and we've taken the appropriate provisions both on the performing and the nonperforming side. And so if I look at our overall allowance this quarter, it was 46 basis points. A year ago, it was 29. So we have built the appropriate reserves as we've been going through our portfolio and taking into account the elongated resolution times and the carrying costs that are associated with that, have already been baked into those provisions that you see there in Q3 -- in Q2, rather.

Okay. No, I understand that. I was just curious if there's any insight on the court process, if there's any anything that you could offer on that. But I can...

It hasn't -- it did get worse. It was typically a court process would be, say, a 6-month process, and it got -- it is now about 12 months, 18 months depending on the region. But it hasn't shifted materially over the last couple of quarters.

Yes, maybe I'll give a Daniel chance. So Daniel is running the business now as well, he's come with deep experience. Maybe, Daniel, is there a couple of comments you could share with Darko on this or anything?

Sure. Thanks, Chadwick, Yes, we spent a lot of time also, I think just given to Marlene's point, we are seeing the court processes, call it, 12 to 18 months longer, but sort of stable at that new normal. So what we've done is pivoted more towards our collections processes and made some changes to how we can drive greater actions, starting from files that we're concerned about that haven't even gone delinquent, right through to the demand in the enforcement stage. So I think that's really where more of the battleground is for us now, how do we get ahead, how do we drive more frequent, more regular and earlier action with our clients. And we're seeing some good traction there.

Your next question is from Mario Mendonca from TD Securities.

One of the bigger changes that happens as a result of the PC deal is you're picking up $4 billion plus in credit cards. And I would imagine that in your look through the business prior to this deal, you would have learned a lot about those customers. Some of the larger banks that have reported in the last few days were clearly seeing deterioration in their credit card books. And the level of that deterioration is highly dependent on the quality of the borrower, whether we're talking mass market or mass affluent. As you looked at this book, what did you learn? What is the nature of this client base, like FICO scores? Would you characterize it as mass market, mass affluent? What have you learned about that book so far?

Yes. The first thing I'd say, Mario, we're limited what we can say still. Obviously, PC Financial is still part of another public company, so we can only speak so much. But what we have shared before is about 90% are prime and super prime customers. We understand the FICO scores, yes. We do understand the geographic distribution. We can't come on the performance yet. We certainly can in, call it 4 or 5 weeks, when we close. But this comes back to this being a high-quality portfolio with, call it, 2.5 million customers and pretty consistent in that $4.4 billion, $4.5 billion receivables range because these are also customers that are -- they're transacting, right? They're not necessarily revolving as much. They're using this for high payment volumes. And we have $3 billion plus in annual payments just on these cards with over 80% outside of stores. So these are high use, this can easily be a top wallet card as well. And then as that expands to our existing customer base and we really bring this together with our other products, and Daniel's going to be driving a lot of really integrated thinking underpinned in loyalty and rewards when you're buying up [indiscernible] cards, the day-to-day, mortgages and insurance. But I'm not sure if any other remarks you wanted to offer, Daniel, this morning on the plan.

No, I think that's right. Just to say, reinforce something Chadwick said earlier, which is we're really encouraged by the strength of what we see in the PC Financial team that's coming over and very much looking forward to working with that group.

Sounds pretty good. The charge this quarter, the $17.5 million for exiting merchant payments, listening to you talk about it, my impression is that there's -- this is the beginning of a few more of these sorts of exits. Like for example, equipment finance, that doesn't seem like it's long for your business. To exit that business, would that be another material charge? What can you tell us about charges of this nature going forward?

Yes. No, I see where you're going. So look, where I started, and I mentioned in my remarks, we're going to focus, we're going to simplify. Is there more to come? I wouldn't say there's not, but we're pretty comfortable with our portfolio. We're always going to look at what's hurdling in that 15% range. Where can we win and compete, period, ongoing? It's all about regular capital allocation. This is not -- like we're not that complicated of a bank at the end of the day. We have a focused Personal bank. We have a focused Commercial bank. We only have so many key products. But we're comfortable with the decisions we made on that. And Darren, on the business-to-business side, I'm not sure if there's anything else you want to say in the example of merchant acquiring.

Yes. No, I think we made the decision to exit merchant. It wasn't generating the level of risk-adjusted returns we would have liked to see. You've heard Chadwick talk even in his opening remarks about to bring more focus to the bank, particularly with the exciting opportunities that lie ahead with PC Financial. We've talked about focusing on the big things that we can really scale and bring value to Canadians. This just wasn't part of that. So we made a difficult decision to exit and the cost that you saw really were the costs needed to fully get out of that business.

And again, equipment financing, I know you're pretty deliberate in asking about that. But [indiscernible] runs that business, it's performing well. Is it a strategic challenge of a business? I'm not sure. But it's performing well right now. And there's -- I'll be very direct too, is there like a bunch of these products and businesses around that people should be worried about? No. No, there's not, we're quite comfortable with our portfolio now it just becomes even more focused. And that's the part of the elegance of PC Financial. Not only is it the best deal that could happen in Canadian banking, but this is a very elegant complement to our existing portfolio. This is about growth. This isn't about cutting. This is natural growth synergies. So that's where you should be very encouraged about the book value per share growth we're going to add with this.

And specifically on the equipment business, I mean, you've seen the improvements that we've made over there in the last couple of years. It's performing well. It's generating positive contribution margin, positive earnings for the bank. We've done a lot to derisk that business. So there's definitely nothing that needs to be done imminently there. We're quite happy with how it's performing.

Your next question is from Stephen Boland from Raymond James.

I hope this is not an obvious question. But I'm just going back to the NCIB, which I believe was put in January. The maximum was 2.2 million, 2.3 million shares. And I think you've hit that number. So you've talked about how important share buybacks are. But are you maxed out at this point? And like is it possible that you renew it early and expand it again? Is that a possibility?

Well, we -- so there's 2 different NCIBs though, right? So we -- some of the buyback activity, the prior NCIB expired at the end of December. So we were buying under that as well. And then we initiated the new NCIB as well in January. So the math doesn't quite reconcile there. Do we still have room under NCIB? Yes. Might we use that? Yes.

Okay. And the second question, you mentioned that Loblaw's July 1 would probably be coming in to buy back shares as well or buy more shares. Can you remind us, is there a restriction on them buying shares in the market right now ahead of the deal close?

There's a public announcement that they made a little while ago of an ASPP up to a certain cap. So yes, they can buy. And then there's -- as soon as the deal closes July 1, they'll be in a position to buy up to the standstill, which is at 25%, I believe, over to 4 years, but they will continue with that.

Okay. Second question is on deposits. So when I look at the movement in term deposits, demand deposits, like term, there's certainly a little bit of EQ Bank has come down, credit unions has come down on the term side. And we're still -- we're seeing some movement. Even on the demand side, credit unions coming down. Maybe you could just talk about what you're seeing on the deposit side, what is -- what are people awaiting? And obviously, the credit union, I think both buckets are down. So what's happening there?

It's Daniel. Maybe I'll just start on the retail deposit side. We are very pleased with the growth that we're seeing in customers, both on the Personal side and the small business side. And we have confidence that over time, that will lead to more deposit growth. We also see high conversion of new customers into immediate deposit of funds. The softness, I would say, on deposit is largely linked to the macroeconomic factors. We are seeing more strain on the Canadian consumer. We also know across all the banks that deposit growth has been challenged. So we're going to continue to focus on growing the high-quality customer base that over time we think will continue to strengthen that deposit growth as well.

You also mentioned the credit union deposits. That is an area that we've seen some drop in deposit side, reflects a little bit the nature of the consolidating industry, the credit -- the large amount of consolidation that's happening, but really more just less liquidity in the market. But during that time, we've actually increased the number of credit union clients. And so liquidity tends to ebb and flow, and we do see that increasing again over time as liquidity comes back to that market. Our credit union relationships remain stronger than ever in that space.

Your next question is from Mike Rizvanovic from Scotiabank.

A question for Marlene. Just wanted to touch on the mortgage book. Your losses came down last quarter sequentially and then came back up a little bit this quarter. And I would have thought that with the recovery in the GTA home prices, that maybe your recovery rates are getting a bit better. I'm just wondering what the moving parts are there. I guess I was a bit surprised that we didn't maybe see another sequential decline just given the market does seem to be stabilizing, at least from the pricing side in the GTA.

Yes, Mike. I think it really depends on the neighborhood. It's been very specific. When I look at where or Stage 3 provisions are coming from, we talk about very specific segments. And it's still the situation where fewer than say 20% of the loans that are impaired are driving 80% or more of those provisions. So it's quite specific to certain neighborhoods. And so you have to be careful when you look at those averages because you've got -- there's a lot underneath that. So this is not broad-based. That's why I said it's very specific to those higher risk areas that we've been talking about for several quarters. I don't get into very specific neighborhoods, but it's really specific to the neighborhood.

Okay. And then just a quick one on the gross yields in the lending portfolio. I think, Chadwick, in your prepared remarks, you mentioned some heightened competition in uninsured. So maybe a question for you or for Anilisa, but I actually -- so I see that in the yields in that part of your book. And it looks like the rest of the portfolio actually got better, which I think is what drove the NIM expansion over the last quarter. So in the uninsured book, which I know is a very profitable one for EQB, what's your outlook on how that competition being enhanced might impact the yield going forward? I'm wondering if it's a short-term thing in nature or maybe you get a recovery in the near term. Any thoughts on that?

Sure, Mike. Again, I'll turn it over to Daniel, who's head of the business, who's put a lot of thought into this and [ is out ] there on the pricing side, if you want to dig in?

Yes, I mean, as Chadwick mentioned in his opening remarks, whenever there is more competition and less demand, you are going to see some pressure on pricing and pressure on competition. We are very ROE-focused as an organization. And so we try to strike a balance very carefully between our market share and our balanced growth and our NIMs. And I think we executed on that really well in Q2, and we're going to continue to have that posture as we go forward in Q3. We have thresholds that we manage to when it comes to profitability and margin in the business, and that's going to continue to be a driver. But we are going to continue to grow our share. There's lots of ways we can drive improvements in our efficiencies and our sales practices and our operations, et cetera. And so we think that -- and again, through the new customer base that we're going to have access to and the partnership with PC, there's going to be lots of opportunity for growth. while still maintaining strong margin performance. And we expect that to continue for the rest of the year.

Yes. And then I'll just come and build on the deposit side. We have been acting with significant more discipline, very similar. We're not trading off growth for profitability and managing our overall stock. And so we continue to make sure that we are pricing the deposit side to match -- run a match book against the asset side. So overall, we continue to target that 2% plus NIM guidance.

Thank you. There are no further questions at this time. I will now hand the call back over to Chadwick Westlake, President and CEO, for the closing remarks.

Sure. Thank you, everyone, for your continued support and investment in Canada's Challenger Bank. We look forward to speaking with you again at our Q3 earnings call in August, which will include initial reporting of results with PC Financial. And we will publish more of the details of our Investor Day on our website shortly. It's going to be an immersive experience for attendees. It's one you don't want to miss, here downtown Toronto. Have a great day.

Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for joining. You may now disconnect your lines.