EQB Q2 2026 Earnings Report

EQB EPS Results

• Actual EPS: C$2.03
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

EQB Revenue Results

• Actual Revenue: $302.36 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

EQB Announcement Details

• Quarter: Q2 2026
• Date: 5/27/2026
• Time: After Market Closes
• Conference Call Date: Thursday, May 28, 2026
• Conference Call Time: 10:30AM ET

EQB (TSE:EQB) 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. What makes Equitable Bank such a great place to work is our banks commitment to providing the best service possible to our customers. Founded over 50 years ago Equitable Bank provides diversified personal and commercial banking and through its EQ Bank platform eqbank.ca which has been named #1 Bank in Canada on the 2022 Forbes Worlds Best Banks list for the second year in a row.

EQB Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: EQB is on the cusp of a major step-change with the PC Financial deal set to close on July 1, which management says will nearly double revenue, quadruple customers, and broaden the bank’s product and distribution reach.
• Positive Sentiment: The bank posted its first quarter of neutral operating leverage in two years, helped by tight expense control and a restructuring program that is tracking ahead of its CAD 45 million pre-tax savings target.
• Neutral Sentiment: Credit performance remains mixed under a tougher macro backdrop: allowances were increased, impaired PCLs rose, and management now expects mortgage credit normalization to skew toward late 2026 into 2027. However, they also pointed to improving commercial formations and lower uninsured commercial impaired loans.
• Positive Sentiment: Core growth remains solid, with loans under management up 8% year over year, EQ Bank deposits surpassing CAD 10 billion, and new digital customer acquisition continuing at roughly 30,000 additions in the quarter.
• Neutral Sentiment: Management continued to simplify the business and redeploy capital, exiting merchant payments after previously leaving insurance lending, while still backing share buybacks, a 3% dividend increase, and a strong CET1 ratio of 13.6%.

Presentation

[Operator]

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.

[Lemar Persaud, VP and Head of Investor Relations at EQB]

Thank you, operator, and good morning, everyone. Your hosts 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 pre-qualified analysts. We encourage you to also log in to our webcast and view our quarterly presentation, which will be referenced during the prepared remarks. On slide two of our presentation, you will find EQB's caution regarding forward-looking statements, which involves 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.

[Chadwick Westlake, President and CEO at EQB]

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's 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, three topics I'll cover before Anilisa shares more on results. First, we're entering an inflection point.

[Chadwick Westlake, President and CEO at EQB]

This marks the final quarter of our standalone earnings model with PC Financial set to close on Canada Day, July 1st, 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 I bank matters. The regulations that guide responsible structure, capital, and the privilege to be a deposit-taking institution directly matters.

[Chadwick Westlake, President and CEO at EQB]

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 EQ, where we have particular strength helping self-employed borrowers who 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.

[Chadwick Westlake, President and CEO at EQB]

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 one 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 1st 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 two years, maintaining our significant progress from Q1. This reflects deliberate actions to restore efficiency as a competitive advantage.

[Chadwick Westlake, President and CEO at EQB]

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 CAD 9 billion of loans under administration.

[Chadwick Westlake, President and CEO at EQB]

Our team was honored to receive two Canadian Public Relations Society ACE Awards for our outstanding work in 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 de-emphasizing growth for several quarters. Our decumulation business continues to show strong margin performance combined with assets that increased 26% year-over-year and 5% quarter-over-quarter, driven by continued reverse mortgage market share gains in the provinces where we compete.

[Chadwick Westlake, President and CEO at EQB]

Reverse mortgages are a top priority growth business for us. EQ Bank deposit balances surpassed CAD 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.

[Chadwick Westlake, President and CEO at EQB]

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 assistance daily. Our teams have self-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 coding 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.

[Chadwick Westlake, President and CEO at EQB]

We're moving faster and able to scale without friction. 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 7th this year. 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. 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 nine months ago. Following our exit of insurance lending, we also exited the merchant payment business.

[Chadwick Westlake, President and CEO at EQB]

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%-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.

[Anilisa Sainani, CFO at EQB]

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 six. 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 CAD 2.03, and ROE was down 90 basis points to 10.2, largely reflecting higher provisions for credit losses and the semi-annual LRCN distribution, partly offset by the impacts 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 seven.

[Anilisa Sainani, CFO at EQB]

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 CAD 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 portfolios 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.

[Anilisa Sainani, CFO at EQB]

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 CAD 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.

[Anilisa Sainani, CFO at EQB]

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 eight. Net interest income was CAD 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% + target. The sequential expansion of six 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%+ range prior to the benefits of the PC Financial acquisition. Slide nine, non-interest revenue of CAD 41.6 million increased 10% year-over-year and declined 4% sequentially.

[Anilisa Sainani, CFO at EQB]

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 remains 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 diversify our revenue streams. Turning to next on Slide 10. The strategic restructuring program completed last October reset our expense base and how we manage costs. We are tracking ahead of the CAD 45 million pre-tax savings expense target outlined when we entered fiscal 2026, as we continue to operate with discipline and tightly control discretionary spending. As a result, non-interest expenses declined 4% year-over-year and 1% sequentially.

[Anilisa Sainani, CFO at EQB]

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 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.

[Anilisa Sainani, CFO at EQB]

Yesterday, we announced a 3% dividend increase to CAD 0.61, up from CAD 0.59 last quarter and CAD 0.53 last year as we continue our strong track record of dividend increases. We repurchased its 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.

[Marlene Lenarduzzi, CRO at EQB]

Thank you, Anilisa. 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 CAD 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 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.

[Marlene Lenarduzzi, CRO at EQB]

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 impact of those changes. Turning to slide 14, impaired PCLs increased three 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 CAD 13.3 million, reflecting continued pressure on property valuations, rising defaults, and longer workout timelines. These pressures continued 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 analyses.

[Marlene Lenarduzzi, CRO at EQB]

In commercial, impaired PCLs were driven by previously impaired loans that have had prolonged resolution timelines in the soft commercial real estate market. Turning to slide 15, while gross impaired loans increased in both our personal and commercial lending portfolios quarter-over-quarter, formations in all our portfolios, personal, uninsured commercial, and leasing, were down sequentially. Gross impaired loans in commercial increased to CAD 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.

[Marlene Lenarduzzi, CRO at EQB]

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 a 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. With that, I will turn the call back to Lemar for the Q&A portion of the call.

[Lemar Persaud, VP and Head of Investor Relations at EQB]

Thanks, Marlene. I will ask that you limit yourself to one or two 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?

[Operator]

Yes, the first question is from John Aiken from Jefferies. Your line is now open.

[John Aiken, Analyst at Jefferies]

Good morning. Chadwick, the July 1st date for the PC Financial acquisition is a little sooner than we expected. 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?

[Chadwick Westlake, President and CEO at EQB]

Yeah, sure. Thanks, 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's here in the room with us, and the team coming with PC Financial is exceptionally talented, too. We just can't wait to bring it all together. From an integration perspective, we've been working on this since day minus one, call it. We have teams very well organized. The integration's 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 shelf's going to come together. Everyone is extremely collaborative.

[Chadwick Westlake, President and CEO at EQB]

What's so different on this, I think too, John, from an integration success perspective is this truly is about partnership. It is a very long partnership with Loblaw. This makes us that exclusive financial partner for PC Optimum. We have a very shared vested interest in success for everyday Canadians here. We have invested in the people, the process, and the technology, and the resources. Why I use the term deliberately for flawless day one execution, I use that very intently. I think if anything, it's matching our ambition level, and we're very excited for day one closing. Yeah, not a surprise, but certainly that was our ambition, and I'm glad we could provide some upside, positive surprise for you.

[John Aiken, Analyst at Jefferies]

Well, I'll admit that flawless does raise my expectations, but thanks, Chadwick. I appreciate it. I'll re-queue.

[Chadwick Westlake, President and CEO at EQB]

You got it.

[Operator]

Thank you. Your next question is from Gabriel Dechaine from National Bank. Your line is now open.

[Gabriel Dechaine, Analyst at National Bank]

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

[Chadwick Westlake, President and CEO at EQB]

Yeah, sure, Gabe. As mentioned, it's going to continue to be in our capital allocation framework. Anilisa, did you want to provide a little more context?

[Anilisa Sainani, CFO at EQB]

Yeah, absolutely, Gabe. We dynamically manage our capital. As we've talked about, share buybacks are an important part of our overall shareholder value equation. We think about investment in organic growth, returning capital through the buybacks, strategic and organic growth. As you know, we started to buy back shares in late 2025, well before the PC Financial acquisition. We believe 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 two things. First, interpreting our recent buybacks in any way to signal that we don't have alternate investment opportunities. There is a lot of strategic organic growth, especially post-close.

[Anilisa Sainani, CFO at EQB]

Second, I would also caution, just because we've completed the buyback to avoid any additional issuance to meet a Loblaw requirement, that we're done with buybacks. We will continue to be active, where the opportunities exist. We have a lot of strategic optionality. Note also that Loblaw will also be buying post July 1 up to their 25%. We still believe our stock is undervalued by the market, and we have a lot of flexibility and strategic optionality.

[Gabriel Dechaine, Analyst at National Bank]

Okay. Thanks for all that. On the credit side of things, specifically the resi mortgage portfolio, I noticed 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, what percentage of the portfolio, I don't know if you could have that number handy, has LTVs above the 80% mark? What percentage of the portfolio, because you said that the, my words here, problematic regions are the same ones. There's no expanding, I guess. What percentage of the portfolio is in those particular areas?

[Marlene Lenarduzzi, CRO at EQB]

Yeah. That's the kind of level of detail that we generally don't disclose publicly. 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 risks that that might provide.

[Gabriel Dechaine, Analyst at National Bank]

All right. Okay, I'll re-queue.

[Operator]

Thank you. Your next question is from Étienne Ricard from BMO Capital Markets. Your line is now open.

[Étienne Ricard, Analyst at BMO Capital Markets]

Thank you, and good morning. Efficiency is a significant focus. Getting more brand recognition is also another one. 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? Just a reminder on how this responsibility will be shared would be appreciated.

[Chadwick Westlake, President and CEO at EQB]

Yeah, sure, Étienne. Good morning. 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. Why I use the term household name is you're going to see 5, 6, 7, 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 a Loblaw store. The Loblaw's banners have over a dozen brands. You can imagine from a Loblaw to Fortinos to Real Canadian, Real Atlantic Superstore to Shoppers and Esso. Our brand is going to integrate in. Where we'll come back with precise clarity, Étienne, is when will it show up where and what sequence?

[Chadwick Westlake, President and CEO at EQB]

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. There's no confusion. Then we're going to bring the products and the brands together really delicately, elegantly, over the coming months and few quarters. That PC Optimum will start to be a benefit right away, and we're going to work that into many products. There is going to be a pretty big, exciting conversion that's going to happen here. 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. A lot to come. I just really want to reinforce this should feel like no significant change for those existing customers day one.

[Chadwick Westlake, President and CEO at EQB]

We're going to focus on that seamlessness, and then we're going to have a lot of pleasant surprises for customers on both sides from there.

[Étienne Ricard, Analyst at BMO Capital Markets]

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. Chadwick, do you see a risk that we could see increased competition in the alternative market?

[Chadwick Westlake, President and CEO at EQB]

Yeah. I think what the first thing, 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 in the 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 and focus of your team. I think for that, we will continue to have a competitive advantage. It will make us more efficient. Can we improve the efficiency? Can we improve the response times? Yes with it. 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 expand our filter.

[Chadwick Westlake, President and CEO at EQB]

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.

[Étienne Ricard, Analyst at BMO Capital Markets]

Thank you very much.

[Operator]

Your next question is from Darko Mihelic from RBC Capital Markets. Your line is now open.

[Darko Mihelic, Analyst at RBC Capital Markets]

Hi. Thank you. Good morning. 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. Thank you very much for that. I 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. 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?

[Darko Mihelic, Analyst at RBC Capital Markets]

We just see no movement in housing sales or very limited movement in housing sales, and we see delinquencies rising for everybody's mortgages. Is it in fact potential, there's a good potential that the courts will have more workflow and even longer delays for a workout?

[Marlene Lenarduzzi, CRO at EQB]

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 talked 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 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.

[Marlene Lenarduzzi, CRO at EQB]

We're going to continue to work through the portfolio and, you're right, there have been some elongated timelines, 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 of the 30-89 bucket did come down sequentially, and it's been kind of down to where it was about a year ago. 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. 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. That's where I would say we're looking at, Darko.

[Darko Mihelic, Analyst at RBC Capital Markets]

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. Is it your expectation that the existing book won't? 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.

[Marlene Lenarduzzi, CRO at EQB]

Well, we do refresh our provisions every quarter. We've looked at our valuations, and we've taken the appropriate provisions both on the performing and the non-performing side. If I look at our overall allowance this quarter, it was 46 basis points. A year ago, it was 29 basis points. 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 Q2 rather.

[Darko Mihelic, Analyst at RBC Capital Markets]

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

[Marlene Lenarduzzi, CRO at EQB]

I'm not seeing it change. It did get worse. It was typically a court process would be, say, a six-month process, and it's now about 12 months, 18 months, depending on the region. It hasn't shifted materially over the last couple of quarters.

[Chadwick Westlake, President and CEO at EQB]

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

[Daniel Rethazy, EVP of Personal Banking at EQB]

Yeah, sure. Thanks, Chadwick, hi, Darko. We've spent a lot of time also, I think, just given to Marlene's point, we are seeing the court processes, call it 12-18 months longer, but sort of stable at that new normal. What we've done is pivoted more towards our collections processes and made some changes to how we can drive greater action, starting from files that we're concerned about that haven't even gone delinquent, right through to the demand and the enforcement stage. 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? We're seeing some good traction there.

[Darko Mihelic, Analyst at RBC Capital Markets]

Okay, great. Thank you. That's helpful.

[Operator]

Thank you. Your next question is from Mario Mendonca from TD Securities. Your line is now open.

[Mario Mendonca, Analyst at TD Securities]

Good morning. One of the bigger changes that happens as a result of the PC deal is you're picking up CAD 4 billion+ in credit cards. 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. 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?

[Chadwick Westlake, President and CEO at EQB]

Yeah. First thing I'd say, Mario, good morning. 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. What we have shared before is that it's about 90% are prime and super prime customers. We understand the FICO scores, yes. We do understand the geographic distribution. We can't comment on the performance yet. We certainly can in call it four or five weeks when we close. This comes back to this being a high-quality portfolio with call it 2.5 million customers and pretty consistent in that CAD 4.4 billion or CAD 4.5 billion receivables range because these are also customers that are transacting, right? They're not necessarily revolving as much. They're using this for high payment volumes.

[Chadwick Westlake, President and CEO at EQB]

We have CAD 33 billion plus in annual payments just on these cards with over 80% outside of stores. These are high use. This can easily be a top-of-wallet card as well. Then as that expands to our existing EQ customer base, and we really bring this together with our other products. Daniel's going to be driving a lot of really integrated thinking underpinned in loyalty and rewards when you combine up now the cards, the day-to-day mortgages and insurance. I'm not sure if any other remarks you wanted to offer, Daniel, this morning on the plan?

[Daniel Rethazy, EVP of Personal Banking at EQB]

No, I think that's right. Just to reinforce something Chadwick said earlier, which is we're really encouraged by the strength of what we see.

[Chadwick Westlake, President and CEO at EQB]

Yeah

[Daniel Rethazy, EVP of Personal Banking at EQB]

in the PC Financial team that's coming over, and very much looking forward to working with that group.

[Mario Mendonca, Analyst at TD Securities]

Sounds pretty good. The charge this quarter, the CAD 17.5 for exiting merchant payments. Listening to you talk about it, my impression is that 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?

[Chadwick Westlake, President and CEO at EQB]

Yeah, no, I see where you're going. 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, we're pretty comfortable with our portfolio. We're always going to look at what's hurtling in that 15% range. Where can we win and compete, period ongoing. It's all about regular capital allocation. We're not that complicated of a bank, Mario, 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. We're comfortable with the decisions we've made on that. 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.

[Darren Lorimer, EVP of Commercial Banking at EQB]

Yeah, 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 bringing 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. Made a difficult decision to exit, and the costs that you saw really were the costs needed to fully get out of that business.

[Chadwick Westlake, President and CEO at EQB]

Again, equipment financing, I know you're pretty deliberate in asking about that. Darren runs that business. It's performing well. Is it a strategic challenge or business? I'm not sure. It's performing well right now. I'll be very direct, too. Is there 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. That's the part of the elegance of PC Financial. Not only is it the best deal that could happen in Canadian banking, but it's a very elegant complement to our existing portfolio. This is about growth. This isn't about cutting. This is natural growth synergy. That's where you should be very encouraged about the book value per share growth we're going to add with this.

[Darren Lorimer, EVP of Commercial Banking at EQB]

Specifically on the equipment business, 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. There's definitely nothing that needs to be done imminently there. We're quite happy with how it's performing.

[Chadwick Westlake, President and CEO at EQB]

Thanks, Mario.

[Mario Mendonca, Analyst at TD Securities]

All right. Thank you.

[Operator]

Thank you. Your next question is from Stephen Boland from Raymond James. Your line is now open.

[Stephen Boland, Analyst at Raymond James]

Morning, everyone. I hope this is not an obvious question. 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. You've talked about how important share buybacks are, but are you maxed out at this point? Is it possible that you renew it early and expand it again? Is that a possibility?

[Chadwick Westlake, President and CEO at EQB]

There's two different NCIBs, though, right? Some of the buyback activity, the prior NCIB expired at the end of December, so we were buying under that as well. We initiated the new NCIB as well in January. The math doesn't quite reconcile there. Do we still have room under NCIB? Yes. Might we use that? Yes.

[Stephen Boland, Analyst at Raymond James]

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

[Chadwick Westlake, President and CEO at EQB]

There is a public announcement they made a little while ago of an ASPP up to a certain cap. Yes, they can buy. As soon as the deal closes July 1st, they'll be in a position to buy up to the standstill, which is at 25%, I believe, up to four years.

[Stephen Boland, Analyst at Raymond James]

Okay

[Chadwick Westlake, President and CEO at EQB]

continue with that.

[Stephen Boland, Analyst at Raymond James]

Okay, thanks. Second question is on deposits. 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. 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 are people avoiding? Obviously, the credit union, I think both buckets are down. What's happening there?

[Daniel Rethazy, EVP of Personal Banking at EQB]

Hi, 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. 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. 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.

[Darren Lorimer, EVP of Commercial Banking at EQB]

You also mentioned the credit union deposits. That is an area that we've seen some drop in deposits. It reflects a little bit the nature of the consolidating industry, the large amount of consolidation that's happening, but really more just less liquidity in the market. During that time, we've actually increased the number of credit union clients. 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.

[Stephen Boland, Analyst at Raymond James]

Okay. I'll requeue. Thanks.

[Operator]

Thank you. Your next question is from Mike Rizvanovic from Scotiabank. Your line is now open.

[Mike Rizvanovic, Analyst at Scotiabank]

Hey, good morning. 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. 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.

[Marlene Lenarduzzi, CRO at EQB]

Yeah, thanks for the question, Mike. I think it really depends on the neighborhood. It's been very specific. When I look at where our 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. It's quite specific to certain neighborhoods. You have to be careful when you look at those averages because there's a lot underneath that. 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.

[Mike Rizvanovic, Analyst at Scotiabank]

Okay. Thanks for that. 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. Maybe a question for you or for Anilisa. 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 last quarter. 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?

[Chadwick Westlake, President and CEO at EQB]

Yeah. For sure. Yeah. No, thanks, Mike. Again, I'll turn it over to our new head of the business, who's put a lot of thought into this and has been out there on the pricing side, if you want to dig in.

[Daniel Rethazy, EVP of Personal Banking at EQB]

Yeah, thanks. As Chadwick mentioned in his opening remarks, whenever there's 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. We try to strike a balance very carefully between our market share and our balance growth and our NIMs. I think we executed on that really well in Q2. 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. That's going to continue to be a driver. 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.

[Daniel Rethazy, EVP of Personal Banking at EQB]

Again, through the new customer base that we're going to have access to in the partnership with PC, there's going to be lots of opportunity for growth while still maintaining strong margin performance. We expect that continue for the rest of the year.

[Anilisa Sainani, CFO at EQB]

Yeah. I'll just chime in 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 stack. We continue to make sure that we are pricing the deposit side to run a matched book against the asset side. Overall, we continue to target that 2%+ NIM guidance.

[Mike Rizvanovic, Analyst at Scotiabank]

Okay. Thank you for the color.

[Chadwick Westlake, President and CEO at EQB]

Thanks, Mike.

[Operator]

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.

[Chadwick Westlake, President and CEO at EQB]

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. 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.

[Operator]

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

Participants

Executives

• Anilisa Sainani, CFO
• Chadwick Westlake, President and CEO
• Daniel Rethazy, EVP of Personal Banking
• Darren Lorimer, EVP of Commercial Banking
• Lemar Persaud, VP and Head of Investor Relations
• Marlene Lenarduzzi, CRO

Analysts

• Darko Mihelic, Analyst at RBC Capital Markets
• Gabriel Dechaine, Analyst at National Bank
• John Aiken, Analyst at Jefferies
• Mario Mendonca, Analyst at TD Securities
• Mike Rizvanovic, Analyst at Scotiabank
• Stephen Boland, Analyst at Raymond James
• Étienne Ricard, Analyst at BMO Capital Markets