EQB Inc.

Welcome to EQB's earnings call for the third quarter of 2025. This call is being recorded on Thursday, August 28th, 2025. At this time, you are in a listen-only mode. Later, we will conduct a question and answer session for analysts. Instructions will be provided at that time. It is now my pleasure to turn the call over to Lamar Prasad, Vice President and Head of Investor Relations. Please go ahead.

Thank you, Joanna, and good morning, everyone. I'm excited to be sitting on this side of the call after following Canada's Challenger Bank and the financial services sector for several years. Your hosts for today's Q3 results call are Vincenza Serra, Chair of the Board of EQB, the newly appointed President and CEO, Chadwick Westlake, Marlene Lenarduzzi, Chief Risk Officer, who served as Interim President and CEO during the quarter, and David Wilkes, SVP, Chief Strategy and Growth Officer. As announced yesterday, our new CFO who joined us as of today, Annalisa Senani, is also here with us in the room. For those on the phone lines only, we encourage you to also log into 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 as well as the use of non-IFRS measures. All figures referenced today are on an adjusted basis, where applicable, unless otherwise noted. With that, I will turn it over to Vin.

Thank you, Lamar, and good morning, everyone. This is the beginning of a new era for EQB, and it's my pleasure to take this opportunity to join the leaders of the team entrusted to create next-generation value for their first earnings call. In doing so, I want to again express our sadness as we all mourn the loss of our friend, colleague, and fierce champion for all Canadians, Andrew Moore. What drove Andrew to be such an inspiring leader for all of us was his steadfast belief that Canadians deserve so much better from their banks. Andrew's meaningful impact on all who knew him and on the Canadian banking industry is permanent. I also want to thank Marlene for her exceptional service as interim president and CEO. This week, she returns to her previous role as Chief Risk Officer. The last few months have demonstrated clearly that we have a deep bench with leaders at all levels willing and able to step up. After completing our thorough and years-long succession planning process, we celebrate Chadwick's return to EQB at the beginning of this week. Speaking on behalf of the board, I am here to express our full support for Chadwick. He is the capable, energetic, and experienced leader we need to take EQB to the next level of growth and performance. We look forward to collaborating with Chadwick as he develops the strategic plan to move our company forward in the months and years to come. Chadwick will offer his initial thoughts on the way forward to wrap up the call. Now, I'll turn it over to Marlene to start with some comments on results for Q3.

Thank you, Vin, and good morning. For today's call, I'm going to speak to the overall results of the quarter before addressing credit. At a high level, we face challenges this quarter, and there are positives to share as well. Despite headwinds, our capital levels remain strong and much higher than regulatory minimums, which importantly underscores our resilience. Looking at our lending portfolios, loans under management increased 3% sequentially and 10% year-over-year to approximately $74 billion. And combined with our administrative assets stood at new record of $137 billion at quarter end, up 9% year-over-year. Of note, conventional lending, which is the most significant contributor to net interest income, increased 2% quarter-over-quarter to $34.6 billion and is up 6% year-to-date. By business, the personal lending portfolio benefited from single family origination growth, driving uninsured loans under management to $24.4 billion, up 2% quarter-over-quarter and 8% year-over-year. Single family uninsured originations in the quarter increased 30% year-over-year. Our decumulation lending portfolio reached a record of $2.7 billion, up 8% sequentially and 41% year-over-year. In commercial banking, we capitalize on our leadership in lending to the insured multi-unit residential market. CMHC insured multi-unit residential loans under management grew 8% sequentially and 30% year-over-year to $31.4 billion. Commercial lending, excluding insured multis, grew to $10.2 billion, or 3% quarter-by-quarter, driven by growth in insured construction lending. For EQ Bank, we added 26,000 new customers, a gain of 21% year-over-year, while deposits increased at their fastest sequential rate in almost three years to $9.7 billion. Despite this progress, revenue and earnings performance for the quarter was below expectations, resulting in ROE of 12.4% year-to-date. Headwinds in credit have persisted, Costs of funds have increased and expense growth outpaced revenue growth. As a result of this lower performance year to date, we anticipate ROE for fiscal 2025 will be around 11.5%.

Now turning to credit.

Credit was more challenging again in Q3 in the context of the macroeconomic environment. We leverage forecasted macroeconomic scenarios developed by Moody's Analytics, which evolved more negatively this quarter, resulting in $10 million of additional provisions on performing loans, bringing our total stage one and two allowances for credit losses to 27 basis points, up from 25 basis points in Q2 2025, and up from 20 basis points in Q3 2024. Performing provisions were driven by $4.4 million in commercial, $3.2 million in personal lending, and $2.3 million in equipment financing. This brings our overall allowance to $174.4 million in the quarter, or 33 basis points, up four points sequentially and seven points year over year. Stage three provisions were relatively flat quarter over quarter at $22.9 million, with increased provisions in single family residential mortgages offset by a reduction in provisions in our equipment financing portfolio. Impaired provisions on personal loans were 9.6 million, mainly driven by larger loans and a small pocket of loans in Toronto suburbs where we have observed steeper price declines from their peak. Day three provisions in commercial were 6.4 million down $0.4 million quarter over quarter. Like personal lending, most of these provisions are related to a small set of existing impaired loans. Equipment financing Stage 3 provisions were down to $6.9 million, $3.7 million lower than in Q2. Now turning to gross impaired loans. The impacts of the macroeconomic conditions have contributed to an increase in gross impaired loans of 5% quarter-over-quarter to $815 million, driven largely by personal lending. Gross impaired loans and personal lending increased to $352 million this quarter, a 9.5% increase from Q2. This was largely driven by credit migration and a softening in the housing market. However, we have seen a decrease in formations in early stage delinquencies. Gross impaired loans in commercial lending and equipment financing were relatively flat over the quarter. We remain confident in the quality of our lending portfolios and our prudent approach to managing the lending portfolios through the credit cycle. In early 2024, we enhanced our underwriting criteria in vulnerable segments which manifested in a decrease in personal lending early stage delinquencies that I talked to earlier. In our uninsured SFR portfolio, our average credit score is 711, our overall LTV is 64%, and our average origination LTV is 71%, reflecting our disciplined approach to underwriting. All these factors lead to a portfolio that is much more resilient to potential stress. Interest rates have come down since their peak in 2022, and a further rate cut may occur in the fall. This should provide support for medium and long-term growth. In the near term, economic headwinds may continue to delay resolutions beyond Q4 and into 2026. In conclusion, the adjustments made across our businesses over the last 18 months is building resiliency into all our lending portfolios. Now over to David.

Thank you, Marlene. I'll walk through the financials. Overall, EQB's net income for the quarter was 80.3 million, down 15% from Q2 and 32% year over year. Diluted EPS was 207 and ROE was 10.1%. Despite headwinds, these results also reflect our disciplined approach to growth in a complex environment, including a focus on credit quality, and diversified funding, which strengthens our platform and positions us well for the future. Let me unpack the drivers of our earnings this quarter. Our revenue in Q3 was $310 million, down 2% quarter over quarter and 5% from last year, driven primarily by net interest income and the influence of year over year declines in policy rates. Net interest income was $254 million, down 6% quarter over quarter and the same year over year. And on the 17 million decline quarter over quarter, over half can be attributed to the one-time benefit mentioned last quarter on the call, nearly 8.5 million or seven points of NIM. As you will have heard consistently from us, we manage EQB to a target one-year duration of equity, which limits exposure of our economic value of equity to interest rate movements. However, there are areas of NII that can be affected as the lending book and interest rates change. And then in the quarter, there were three main drivers. First, mixed shifts in the lending portfolio as some higher margin lending matured and repriced, including some commercial loans with floor rates that had been contributing to NII. Second, a decline in contribution from UT Bank as we purposely maintained some product rates as prime declined. And as customers increasingly choose deposit products, such as their notice savings account and payroll for every day. These products provide clients with higher rates while deliver great value for EQBank through stronger engagement and more stable lasting deposits. And the third factor, NAI was also impacted in the quarter due to a higher liquidity portfolio associated with higher securitization activity, as well as more activity in our wholesale funding program. Our net interest margin was 195, declining at 25 basis points from elevated levels in Q2, and year-to-date NIM was 207, and we continue to expect to meet our fiscal 25 NIM target of above 2% for the year. On non-interest revenue, as expected, we had a stronger quarter delivering $56 million and an increase of 25% from Q2 in line with last year. This is primarily attributable to higher fee-based income, including contributions from ACM and Consentor Trust, higher revenue from our insured multi-unit securitization business with increased activity this spring, as well as some gains on strategic investments. Provisions, as noted by Marlene, remained elevated in the quarter at $34 million, representing 28 basis points of loan assets. Moving to expenses, non-interest expenses grew to $166 million in the quarter, up 6% from Q2. And this was largely driven by investments in our challenger team, technology spend, and an increase in premises expenses as we moved our new headquarters to our new headquarters in the eq bank tower in late april efficiency ratio increased to 53 percent in the quarter and above our historical operating range on funding as marlene said more customers are depositing more money with eq bank as total deposits reached a record 9.7 billion and we also saw a notable rise in demand deposits reaching 5.9 billion up nine percent quarter over quarter and 47 percent from last year EQBank's demand deposit growth has been driven by customers choosing EQ's notice savings account and new and current customers bringing their direct deposits to EQBank. These demand deposits are more flexible for EQB and are more cost effective relative to other deposits, with the pricing being continuously optimized to balance long-term customer and deposit growth and near-term margin contribution. In the quarter, we were also very active in wholesale funding channels, an important part of our funding diversification strategy. And in Q3, we completed our latest benchmark covered bond issuance, raising 500 million euro. In May, we completed a three-year, $350 million deposit note issuance. And subsequent to quarter end, we also issued a $300 million floating rate deposit note that closed on the first day of August. Our activity in this market has continued to lead to tighter pricing, helping make this funding even more attractive to EQB. I'll finish on capital. The bank is supported by a strong capital position with total capital of 15.7% and CT1 of 13.3%, exceeding the bank's targets and well exceeding regulatory minimums. EQB's capital allocation approach continues to prioritize reinvestment in organic growth, maintaining capital flexibility in order to pursue potential strategic inorganic growth opportunities, and steadily increasing dividends. EQB's Board of Directors declared a dividend of $0.55 per common share payable on September 30th, representing a 17% increase year over year. Finally, I'll remind you that as part of our capital allocation framework, we will opportunistically use normal course issuer bid, which was renewed and expanded in January. Share buybacks, while subject to market conditions, are another lever we can pull to maximize long-term value for shareholders. In summary, we move forward with strong capital levels that support our customers, our challengers, and the next phase of our growth agenda. And I'll now pass to Chadwick to offer his closing comments.

Good morning, everyone. Thanks, David. Thank you, Vin, for the warm welcome. And special thanks to my colleague, Marlene. I'm greatly looking forward to partnering with her as our Chief Risk Officer. It's such a privilege to start this week as the CEO of EQB. This is Canada's challenger bank. And we are dedicated to helping build a better country, bringing real change to banking and giving Canadians the tools to maximize their financial potential. This has been true throughout our more than 50 year history and it's crystallized over the past two decades under the leadership of Andrew Moore. I am both honored and energized to leave this incredible company now for our significant growth ahead. I've been on the job for just a couple of days, but I do want to share a few comments. First on people. As announced yesterday, I'm very excited to welcome our new CFO, who is here with us. Annalisa is a remarkable talent in finance. Moving into this vital role, she brings her impressive experience, including her time at RBC as Chief Operating Officer for the CFO Group and VP Finance and Chief Accountant. Annalisa is a true challenger and was also recognized in 2020 as one of Canada's top 40 under 40 for her innovation, leadership, and community service. We look forward to how she will shape the evolution of our finance capabilities. David Wilkes has been appointed chief strategy and growth officer as part of my executive leadership team. This is a critical new role that will enable David to devote his considerable talents and experience to drive our substantial growth agenda. Thank you, David, for managing EQB's finance function for the past six months. Also, a warm welcome to our new head of investor relations, Lamar Prasad. Lamar joins us from Cormark Securities, where he served as an institutional equity analyst covering EQB, among many other leading financial services companies. With his deep knowledge of our business and industry, he will be instrumental in building closer relationships with the investment community and our shareholders. With our deeply experienced team, I am confident in the resilience of Canada's challenger bank and how we will ignite and deliver the positive long-term change that hardworking Canadians deserve. I'll also offer a few brief comments on our strategic direction. I am completely focused on returning to growth. With our entrepreneurial nature and capability as a top Schedule I bank in Canada, the outcome of our capital allocation is expected and must be consistent profitable growth, with ROE remaining a foundational north star. I'll share more precision on our updated strategic objectives and growth outlook for fiscal 2026 as part of our Q4 call in December. I am also pleased to share that we will be announcing an Investor Day for fiscal 2026. We intend to host this at the top of our new EQ Tower downtown Toronto and hope to be hosting this by late spring or early summer. In the meantime, let me be clear about a few key priorities. At EQB, our focus is and will remain here in Canada, where there is still so much to do and so many opportunities to grow. We will not become distracted by other markets. I am deeply proud of our Canadian identity, and we will invest all our time and energy into this extraordinary country. What you can expect is more of what has consistently propelled EQB to material growth and leading long-term total shareholder returns, but a refined focus, including three key areas. One, our challenge are at scale. We will continue to do what we do best. This includes being exceptional lenders to Canadian families and businesses, owned by our deeply valued brokers and partners and our top position in the segments where we lend. We intend to pull further ahead in our winning position by investing to strengthen our competitive advantages. Two, challenger to its full growth potential. This will include executing under diversification and expansion strategies and payments wealth in our digital platform, EQ Bank. And three, challenger to its greatest capabilities and purpose. We will invest in AI enablement to build with scale. We will continue to champion with our technology and FinTech partners and our government and regulators on the importance of greater competition, open banking, and innovation. And importantly, I own this now, and I believe a best-in-class efficiency ratio has been a competitive advantage, and I intend to be deliberate in our capital allocation with a sharp focus on returning efficiency towards our traditional, distinct, high-performance levels. We will not fall into the trap of trying to be all things to all people, but we will focus on segments where we can win. I look forward to sharing more with our customers, partners, and shareholders soon. I'm intently focused on staying true to what makes EQB a force in Canadian banking, while unlocking new levels of growth, relevance, and impact for all of its stakeholders. With that, Joanna, can you please begin the Q&A portion of the call?

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press the star followed by the two. And if you are using a speakerphone, please lift the handset before pressing any keys. We ask that you please limit yourself to two questions to allow as many voices to be heard as possible. First question comes from John Aiken at Jefferies. Please go ahead.

Marlene, in terms of the deterioration we saw in the personal lending portfolio, I was hoping we might dive into a little bit more in terms of, you know, you mentioned that it was concentrated in Toronto suburbs, high-value mortgages. What is the outlook in terms of the evolution of this portfolio moving forward? Is this like a one-quarter incidence, or is this something we might actually see lingering on for a couple more quarters?

I think there's a few things we have to think about in the mortgage portfolio. So first off, when we look at our portfolio, we have a couple things to think about. One is we look at the outlook for our housing prices. We look at the outlook for the macroeconomic environment. But what we can tell you is that if I look at the increase in PCL for that residential portfolio, there's a really small number of mortgages are driving 80% of that PCO. And it is sort of very specific pockets and geographies where we saw price declines from their peak of about 30 to 25 to 30%. As well as there are some idiosyncratic issues where you may find when you repossess a house, you may find it needs a lot of work. But I would say that when we look at the outlook, really depends on a lot of different factors. But what I can tell you is we do see some improvement in early stage delinquencies. And, you know, that gives us some optimism that that should result in lower PCLs down the road.

And Marlene, just as I'm looking at the gross impaired loans waterfall that you have on slide nine, Correct me if I'm wrong. My understanding is this was loans that were already impaired. Is that correct? And then if that is, is that the part of the $43 million dealt in others?

For the commercial portfolio, the increasing in impaired loans is related to loans that had already been impaired that we've been managing.

Thank you. I'll read you.

Thank you.

Our next question comes from Doug Young at Desjardins Capital Markets. Please go ahead.

Yeah, sorry. Just good morning. I'm just trying to kind of get a sense of, there seems to be a discrepancy in the impaired PCL trends for your single-family residential and what we're seeing with the big banks. And There's a few things I want to get into. And I get where you operate is different, you know, in the big city centers. Maybe it's more Ontario exposure, exposed to more people that, you know, potentially could be impacted from unemployment and tariffs. But is there anything else that kind of really differentiates the book? And I'll tell you where I'm going with this, because when I look at your single family residential, your stage three loans, The coverage ratio is 4%, and so when you impair it, you're holding allowances of 4% of the impairment. And it seems like you're having challenges with recoverables on the mortgages. But when I look at one of the big six things, I'll pick CIBC. The coverage ratio on Resol for Stage 3 Resol is 22% coverage. I'm trying to get a sense of why there would be such a big difference, and I'm hoping you can help me a little bit.

of thinking through that.

I can't obviously speak to CIBC's coverage approach, but I would say for us, when we look at our portfolio, we have a great deal of conviction in our process to approach each loan individually and assess them on an individual basis. And the provisions are set by our workout teams based on the characteristics of each individual loan that's impaired.

Okay.

It just seems like it's a big discrepancy, but maybe I can follow up and talk a little bit more through that. And I guess maybe towards what John is kind of indicating, like I guess the sense and question I'm getting, are we done with this erosion in single-family residential? And I think it's obviously no one's got a crystal ball is where we sit today. It feels like, you know, early stage delinquencies is kind of settling back a little bit. Are you feeling more comfortable that you're kind of closer to the peak of this kind of erosion? Obviously, depending upon many things, but it feels like you are, but I don't want to put words in your mouth. I'm just hoping to get a little bit of color on that.

Well, you know, as you know, we're in a period of unprecedented uncertainty, which makes forecasting and timing of recovery difficult. We have increased our stage one and two provisions by 10 million. And this is really to account for further duration that may come in the macroeconomic outlook. And it's also observed by Moody's in their forecast as well. On the cautiously optimistic side, as I point to those early stage delinquencies coming down is a bit of a bright light. However, we really want to see more stable macroeconomic conditions before we can really get confident that we will see around the timing of when recovery will happen.

I'll leave it there. Thanks.

Thank you.

The next question comes from Paul Holden at CIBC. Go ahead.

Thank you. Good morning. Thanks for giving the ROE expectation for the full year. I ran some quick math on that. And it implies that Q4 earnings will be roughly similar to Q3. Is that math in the right ballpark?

Thanks, Paul.

Yeah, I think, David, you want to take that?

Yeah, thanks, Paul. When you think about the major drivers across revenue and expenses, we expect similar performance in Q4, where there can be some uncertainty. Obviously, as the last conversation we're having with Marlene, it's just on the provision expectations. So that'll be the driver of any of the range and outcomes really in the next quarter.

Got it. Okay, and then second question, obviously, was 11.5 ROE expectation for this year, well below prior objective. So I guess really two questions, but getting on the same point. Should we expect any change in the ROE objective of 15% to 17% for EQB? It's been longstanding, and I would assume it probably shouldn't need to change. And more importantly, kind of maybe quickly, and I think it's a question for Chadwick, is Like what's the path to getting back there again, without taking too much away from the investor day, but just, you know, high level, like, what, what do you think of the key, the key ingredients, um, and getting back to the, uh, the old ROE objective?

Yeah. Thanks. Well, uh, I'll share more on 2026 specifically in December and you're right in an investor day. We'll share more about our, our three to five year vision. early days in strategic focus. But I would say the ROE that has traditionally been an advantage of North Star will continue to be an advantage of North Star for us in how we're allocating our capital. And we're first going to continue to allocate our capital importantly into our growth businesses. We're going to focus on returning our efficiency to our traditional best in class levels or a couple of the big components. But I do think we have at this moment, as we shared, conviction in the medium-term targets that we had, but we will come back to that more in December. But it is, to my point, to be clear, traditional efficiency levels need to be delivered and reigniting the growth in our core businesses where we'll win.

Got it. Thank you.

Thank you. The next question comes from Gabriel Deschain at National Bank. Please go ahead.

Good morning. First question, I'm going to go back to this uninsured mortgage where we're seeing the residential mortgage, that is, the increase in provisions for, you know, a couple quarters now. From the sounds of it, we could be, you know, there could be more quarters like this ahead, but hopefully getting better as the delinquency, early stage delinquency is improved, as rates are cut. But, you know, nonetheless, we could see a bit more. I was just wondering about if you can identify certain geographic exposures and certain vintages or something like that, could you not justify booking perhaps a large performing provision? I don't know if it's solely contingent on borrower risk, but asset risk is also different.

Yeah, thanks for your question. I would say a few things there. One is, you know, we do have, there is a great deal of uncertainty, as I've said, right? Unemployment rate and interest rates are elevated on a relative basis. Housing sales are starting to show signs of weaknesses, which, you know, has contributed in the past to increased mortgage delinquency rate, particularly in the GTA region. And we may see that continue. I would say that from a geography perspective, there were pockets of geography in Toronto suburbs, for example, there were some pockets where we did see prices drop, you know, that 25 to 30%. We are well aware of those pockets and are monitoring them and we do have appropriate levels of provisions to account for that.

Okay. No, then, like an outsized, heavier weighting to a really downside scenario that's not in the cards?

The downside scenarios are built into what we get from Moody's Analytics. You can see that their scenario outlook versus last quarter is much more severe. Plus, we do have specific overlays within our provisioning process on performing loans for those higher risk segments.

Okay. Then moving on the revenue side, I guess some of the deposit cost trends were working against you, but you have adjusted your pricing, I believe, on the high interest savings account. That should help. Looking forward, though, if we get some rate cuts, whenever that happens later this year, would you be thinking about moving more in lockstep? with whatever the Bank of Canada does as opposed to lagging it for competitive reasons?

Thanks, Gabe. I think it's more likely we would do that.

We actively manage this on an ongoing basis. As you'll have seen yesterday, I think we lower rates on some of our products by 20 basis points. I think when you think about rates declining, the other factor you want to consider is the benefit we're going to receive from the commercial floors that are already in the money. So those are sort of tagged effects. We have $3 billion in commercial loans that will contribute more to NII if Bank of Canada moves. I think of that as the bigger move. But on the deposit side, yes, there's a good chance we'd move more in lockstep.

Okay, great. And then I'll just throw another one. You've changed your full year guidance. I get that. And we can work out the math of what that means for Q4 earnings per share. The range is the toggle or the swing factor. Really the provision number because the revenues may be modestly better if the margin picks up and then expenses do what they do. But really the main swing factor is going to be PCL.

Yeah, yeah.

That's what I mentioned earlier. I think PCL would be the bigger uncertainty tied to Q4. Got it. I was probably typing at the time.

All right. Enjoy the rest of your summer and welcome back, Chadwick.

Thank you, Gabe. Really appreciate it.

Thank you. The next question comes from Etienne Ricard at BMO Capital Markets. Please go ahead.

Thank you and good morning. I want to follow up on one of the earlier questions on credit quality issues. and the divergence we're seeing for the impaired loans relative to some of the other banks, especially for single family mortgages. So I understand your target markets tend to be a bit different with exposure to the self-employed as well as the new Canadians. Do you think these demographics are experiencing a tougher macro backdrop and if so, why is that the case?

Thanks for your question. When I think about this segment of our population, so it's true, 70% of our customers are self-employed and new Canadians are an important part of our customer base. That segment seems to be, when we look at how these segments perform historically, These are very resilient. This is a very resilient segment. These are people who are resourceful and particularly small business owners are able to really hustle to find ways to keep up with their payments. We have a well-diversified portfolio when we think about the range of products that we offer. And as well, when I think about this portfolio and the strength of our loan-to-values portfolio, That gives us comfort as we move forward. We've also stress tested our portfolio, and I would suggest that through that stress testing, it gives us confidence in our ability to manage this through a cycle.

So I guess what you're saying is the relative divergence in the impaired loans is more of a geographic allocation.

Yeah, it could be.

We have probably a higher concentration in Ontario than some of the peers.

Yeah. And Chadwick, I've heard the word efficiency multiple times in your comments. What is the path looking like to get back closer to the historical levels? Is a potential efficiency improvement going to be driven by growing revenues or maybe also re-looking at the expense base.

Thanks. Thanks, Ajay. Well, yeah, I believe a competitive advantage always has been and will be best-in-class efficiency ratio for Canada's challenger bank and our digital platform and the markets where we win. So, as I said, I'll own this now. And we intend to return to that level of performance through both, as you indicated, revenue work and reigniting that revenue work through the three strategic categories that I called out in terms of challenger at scale, challenger to its full growth potential. And then there's several options on the table, I think, for revenue and the cost side. So there will be a combination, I think, as we get there over coming quarters. And I'll share more about that in December and at the investor day. But that is an important north star. and really secondary and foundational to ROE.

Thank you very much.

Thank you. The next question comes from Graham Writing at TD Securities.

Please go ahead.

Maybe I could just jump into that sort of 2022 cohort where on the single-family residential side where it seems like prices are elevating, it's driving some some losses. Can you quantify what the, you know, the particular size of the book either in around the GTA or that 2022 cohort, what that represents as a percentage of your single family residential book? That would be my first question. And the follow-on would just be, is it fair to say that, you know, the price declines that we've seen from the 2023 and 2024 cohorts less pronounced and you feel less exposed from a potential credit loss perspective from those vintages.

Yeah, thanks. We don't disclose specifically the size of any kind of subsegment or vintage in our portfolio, but what I can tell you is that when we look at our approach to lending, I do feel that there's less movement in those more recent vintages. As well, when I look at the 2022 vintage, on average, it's still supported by relatively strong loan-to-values on an HPI adjusted loan-to-value basis. So that gives us confidence in, you know, what could come out of that moving forward.

Okay.

And then just on the capital and the buyback side, just given the macro backdrop and the lower loan growth that you're seeing currently, and then your consideration of share price, is it fair to say that your appetite for buybacks is reasonable currently?

Thanks, Graham. I'll reinforce our capital allocation strategy. So first, we obviously have a great capital position, intended to maintain one. We'll continue to invest first in the business. We have a consistent dividend strategy. We'll always be looking at inorganic opportunities. But in general belief is we trade well below our intrinsic value and we'll continue to allocate capital according to that filter. So there is an NCIB for a reason, but the capital allocation filter really goes in that sequence.

Understood. Thank you.

Thank you.

The next question comes from Mike Rizvanovic at Scotiabank. Please go ahead.

Hey, good morning. A couple questions, hopefully quick ones, but I wanted to start with the gain on sale and income from retained interest line. Obviously, this has been a very, very important driver of your revenue diversification. It's been growing very, very strongly. Can you talk a little bit about the components here? So there's the volume side where I do believe that you would look to use your full allocation. with this TV program. And like when you book games, I'm guessing the duration matters too. And with a flat yield curve, I would imagine your borrowers would prefer the 10 year over the five year. Now you've got some steepness in the yield curve. Is there a dynamic where this line has downside risk? And I'm not trying to pin you on any sort of guidance, but 26 and a half million is a record number. I'm just trying to better understand if this is a line that could legitimately go beyond 26 and a half million as a run rate. or is it something that could actually gravitate down to the 20 million range? So if you had to sort of look at high level, where do you see this trending over the course of the six to eight quarters?

Thanks, Mike. Good to hear from you. David, do you want to take that?

Yeah, thanks, Mike. Yeah, you pointed out there are two drivers in the gain on sale and retained interest line. The retained interest portion is tied to the portfolio that's already here. And so that'll continue. It accounts for probably more than half of that line. And then, as you said, the gains on the actual securitization activity depend on the origination volume and our ability to find funding for both directly, as you said, into the CMB programs or other alternatives. So we see this quarter similar to this quarter last year as a strong performance in that line. We see the retained interest continue to grow as the loan under management grow in that piece. And then, as you said, the gains on securitization a little bit depends on customer appetite across the five-year and 10-year, but continued activity in that market last quarter, and we're seeing that trend continue in the next quarter.

So do you think this is sustainable? And in terms of the upside, is there upside or notwithstanding a change in the CMB support level, the $60 billion the government currently allocates, would that have to move for this line item to have upside beyond this type of really strong level that you're reporting currently?

Yeah, the $60 billion program is definitely a major contributor. It's not our only source of funding for these types of assets, but we expect continued strong performance likely at this levels with small growth.

Okay. Got it. And then also wanted to follow up on the expense side. Obviously the revenue environment seems to be a bit challenged right now, not just for EQB, but for a lot of lenders in particular, the residential mortgage side really hasn't come back. We really haven't had much of a rebound, you know, this spring lending market, if you look at dollar volume on the origination side. So what I'm wondering is, and maybe this is for Chadwick, as you think about, you know, getting back to a growth profile, and getting your efficiency ratio back to something that looks better versus the 53 you reported this quarter, how do you sort of think about an environment where maybe the revenue is just not as robust as what might have been expected a few quarters ago? Is that a hindrance to getting the efficiency ratio down to where you ideally want it to be? And then I guess as a follow-up, would Would EQB ever consider somewhat of a bigger sort of sizable restructuring charge?

Thanks, Mike. Two things. I'll share more about our outlook for next year in December, and this will become part of our investor day in terms of how we intend to operate our traditional best-in-class levels for efficiency. I agree. The revenue headwinds play into the mix. But I will have a heightened focus as well on how we allocate every dollar, all of our capital, to ensure we're allocating it into our highest sources of growth, as I've outlined. So that will include, for sure, a review of how we spend and spend wisely. I've just been back for a couple days. I need to take some time to go through that with the team. But there will be a heightened focus on that, always knowing first priority is revenue growth. But either way, we're going to land back at that efficiency range.

Okay, so this is more of a longer-term view, but you're not contemplating anything in terms of a more sizable restructuring-type scenario? We do see that with some of the larger banks. I'm guessing that's probably not in your DNA. Is that fair?

I'd say I just started as the CEO. It is a new era. We have our traditional strengths that I expect to continue, but all options are on the table as we look to deliver our strategic agenda. So we'll be looking at how do we accelerate revenue, And how do we ensure we have economies of scale in our spending wisely? That might include reallocation of resources and dollars, and that might include also slowing that level of expense increase. I do think there's work to do on both sides, and I'm very focused on that together with the leadership team.

Okay. Thanks for the insights. Thank you, Mike.

Thank you. The next question comes from Stephen Boland at Raymond James. Please go ahead.

Thanks. A lot has been covered, but I want to go to that slide on your NIM. You've kind of said Q4 would probably be in terms of profits similar to Q3. So you only need like a 195 NIM in Q4 to get to that 2% average. I'm going to kind of base that. But I'm curious about the reasons for the NIM decline. I mean, I understand increase in liquidity portfolio, but when you mentioned that the attrition of higher margin loans where you had the floors have rolled off and the deposits, certain deposits that are coming in are obviously more expensive, but it's one quarter. So I'm really struggling why... you know, even if Q2 was, you know, kind of a one-time, there were some one-time items in there that you're not above two in the quarter. How does it, like, one quarter of movement in the portfolio and maturities and repricing of loans, you know, impact you that much, I guess, is the question.

Thanks, Stephen. David, do you want to present the name? Yeah, thanks for the question.

Like, as we think of Q4 and the underlying trends that I mentioned, both on the commercial mortgages and on EQ bank deposits, like we do have the lever on the EQ bank deposit side. You mentioned more expensive deposits, but these deposits are a better cost of funds. So we do have that lever there. We wouldn't expect the liquidity portfolio to be higher quarter over quarter as our funding programs will show slightly less activity potentially between the two quarters. And then the one place that you mentioned is the commercial loan maturities. And we will have some more maturities on the uninsured portfolio. Some of them will have floors. And one of the countervailing effects there will be the benefit of the floor potentially expanding with Bank of Canada moves.

Okay. And Marlene, I don't want to hammer this to death, but we've seen some stabilization in single family. And granted, I understand you're talking about vintages that were you know, three-year mortgages or five-year mortgages, like underwritten, you know, in 2020 or 2022. But, like, you traditionally always, your LTBs have always been around the 70% mark. So, you know, I don't think I've seen anything that shows 30% decline in housing. So, you know, even in Toronto. So I'm just curious, like, I mean, are these houses really beat up? Like, that... like that you've gone, you've eaten into that LTV. I don't think I've ever seen that without quote before that that was a concern.

Yeah, there have been pockets, very specific pockets. As I said, it's about 50 loans. It's a small portion of loans, about 50 loans that are generating 80% of the decline. So it's very targeted pockets where these are larger loans and they're larger loans that did see price declines in some areas of, of 25% to 30% since their peak in 2022. And for that 2022 vintage, just as a reminder, our mortgage terms tend to be very short. So that vintage would have renewed, most of it's renewed two times already. So the first time they would have renewed would have been at the higher interest rate, and then they've since re-renewed at lower interest rates. So again, that's also helping to provide some relief in terms of their carrying costs and gives us more more confidence moving forward as a, you know, part of that green shoe. But however, you know, we are still seeing some uncertainty in the market.

Okay. So these mortgages have already been renewed. I thought it was a three-year or five-year duration.

No, ours are largely like two years, one to two years typically.

Okay. Thanks very much. You're welcome. Thanks, Stephen.

Thank you. The next question comes from Darko Mihalic at RBC Capital Markets. Please go ahead.

Hi, thank you. Covered a lot of ground. I'll be very quick. I also wanted to ask about the margin. I get the Q4 view, so I'm happy with that. I guess where I'm going or what I'm thinking about is longer term into 26. And one of the things that I'm seeing with the larger banks is a bit of a shift in the deposit mix. We're actually getting term declining, demand savings balances rising, and that's been very beneficial for larger banks. I don't get the sense that that can happen here. I see actually that your term deposits, which are brokered, are growing and probably necessary given the growth rate that you have with loans. So I wonder if you could provide some insight into how that term book on the deposit side is maturing and rolling off and on. And is there any possible tailwind coming from that or not? That would be helpful just so I can frame and think about some of the drivers for your NIM into 26 and 27. Sure.

Thanks, Darko. I'd split that into two pieces. You mentioned the brokered the broker term deposits, we see that as our marginal cost of funds. So you'll see growth there or marginal funding source. So you'll see growth there as the portfolio grows, where you'll really see that behavior more apparent as in EQ Bank. And so you can see it in the growth in the demand deposits on EQ Bank and the term in EQ Bank coming down. So we're seeing that behavior too, where customers that had that had purchased a GIC with us last year at this time at 5% are now rolling into our notice savings account product or our HESAs. And both of those, we managed to, while still giving great value to customers, a broader margin. And so I think you'll see that, and that's where we can actively manage to go forward in the EQ Bank side.

And so would I be correct in presuming that as we roll forward, unless we get rate cuts, that you would still get some improvement in margin taken all in on your term book, or am I wrong in that?

Yeah, the way I think about it is the split between EQ Bank and, again, the rest of the brokered markets. EQ Bank, as it it shifts a little bit more to demand each quarter. And so our demand deposits are up 47% year over year. That's where we get more margin in the deposit book. The rest of the lending portfolio is priced relative to that brokered deposit. So we don't see expansion there. That's really just almost our FTP type number.

Okay. And so the cut in rates at EQBank, is not expected to have an impact on your growth rate of those deposits.

No, we think the value prop right now on those is very compelling in the market. It still is.

Okay.

Thank you very much.

It's helpful. Thanks, Darko.

Thank you, Mr. Westlake. There are no further questions. Back to you for closing comments.

All right. Thank you. Thanks again for joining us, everyone, today. And for some of our listeners, Annalisa, Lamar, David, and I will be at the Scotia Financials Conference on September 3rd and the CIBC Financials Conference in Montreal on September 25th. To everyone, I look forward to sharing more in December. Have a great day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating.