Good to see you.
Good to see you.
Great to see you. Thanks for joining us today. I guess I have to ask you as the first question, because last year, I think literally two weeks into the role and it has been, I can imagine, nothing but a whirlwind of new things happening.
Yeah
... Obviously the PC Financial deal closing, and it has probably been a very busy year for you, to put it mildly. I would love to hear about your, any reflections on that sort of year one.
Sure. Yeah, it is nostalgic being back here, actually. This was the first conference, the first chance I had to get out in front of our investors after starting the job. So, I appreciated being here last year, and thank you to you and Scotiabank for having us. This is an excellent conference every year with a great turnout. It is just, really excited to be here. So, it is extraordinary what can happen in a year. I think it says a lot about what is possible for a challenger institution of this country and what is possible in a year, when you think of what is possible. In the year, put in an extraordinary team around me at EQB. You can go a long way when you have the best team, and our CFO, Anilisa, is here. She was just named one of WXN's most powerful women in Canada.
So, congratulations to Anilisa, and Janet Lin, our CIO, was also just named a WXN winner. Puneesh, new CRO. The whole leadership team has been updated. Our board is 50% new. We have new products, millions of new customers. Things have changed dramatically, Mike, and we are in a much different place than we were in a year ago. I think when I was here last year, I just started the job, and I said, "Look, we are going to do a few things with urgency. We are going to reignite the core, we are going to aim to complete our product shelf, and we are going to return to efficiency as a competitive advantage." Think of some of the progress markers in that time, Mike, on the core. So, we have gained more market share than we have ever had in single-family alternative. We have expanded our market share in reverse mortgages.
We've continued to command the space in the CMHC term business. Margin each quarter has expanded, and it had been deteriorating before that. We have revenue per FTEs increased 30%. So, right across the board, the core business has really returned to some great position. Then you think of completing the product shelf. We've obviously heard from us on our intent there, and that's what we just completed on July 1st on Canada Day with PC Financial. We went then in last year when I was here, we had about 750,000 customers. Now completing that, we have 4.3 million customers. We have a card book, and we didn't have one at all before, and we have one of the best in the country now. We have a home and auto brokerage business. We've dramatically expanded it in a really important way.
There's more to go, but we did what we said we're going to do in getting that product shelf expanded. The returning to efficiency is a competitive advantage. When we were here last year, we were about 54%-55% efficiency. The first half of the year, we were in the 49 range. We just closed at 50.1%, including PCF, which is traditionally a higher efficiency business. We did those things that we said we were going to do, Mike. I really want to reinforce that even though it was only a couple of weeks in, we set an ambition, and we executed on it.
I'm curious on just the transition, obviously bringing a whole bunch of new EQBers onto the platform.
Yeah
With the PC Financial deal, new building. How was that integration? How did that go?
Well, it is going. Yeah. So, it has been-
It is going.
Yeah.
Still in the works.
Yeah. No, it is great. We have had about eight weeks or so. Part of the big principle on day one was do no harm. As I have said all along, this is a one plus one equals three acquisition about growth. This was not a broken business we acquired to scale it in. This is a growth platform. On day one, we wanted to do no harm with customers. This is very different when you take a platform like EQ Bank that is less known to Canadians. Probably 80%-90% of Canadians did not know who we were. Then you add millions of them with a mainstream name like PC and bring in PC Optimum with 18 million members, you have to make sure it is a consistent, solid experience day one, and you do not mess it up.
We're very proud of the do no harm and great consistency for customers day 1, where we brought in millions. Employees, day 1, even though my team was very upset with me for closing on Canada Day and making people work, it was the right decision. Day 1, all those PC Financial employees had desks in our new tower that you mentioned, the new headquarters. Their laptops, their emails, everybody moved into our building day 1. It was immediate. Engagement for PC employees, higher in the four weeks after closing than before closing. We really rallied around the growth and the jobs for everybody. This was also about preserving jobs and efficiency because it was about growth. That's also very rare in acquisitions. That's gone very well. The partnership with Loblaw out of the gates is going really, really well.
We've had Galen Weston and Richard Dufresne join our board. They're now our largest shareholder. We've just done some testing on the brand because the brand convergence is a huge opportunity here. We just had some EQ Bank pop-ups in the Loblaw locations, a big grand scan contest where we gave away 25 million PC Optimum points. We're sampling with the brand convergence as it goes from PC Financial to EQ Bank, going really, really well out of the gates. As you might have seen as well, in terms of some efficiency, we had set a bar of a CAD 30 million cost synergy saving. In the first month, we achieved 50% of that. That's going well. I can go on. The metrics and the growth metrics are also progressing really well. We had our highest month ever for insurance sales.
Credit card activation and new leads were up month-over-month. It's positive indicators out of the gates, but we have a great amount of work ahead of us in the next 12 - 18 months as we focus heavily on the integration.
Okay. Thanks for that thoughtful answer. Wanted to touch on credit. Obviously, it's an area that hasn't been too strong for EQB lately. It's a question that I get from investors all the time. But just in terms of how do you see credit right now? Obviously, as much as it's been a headwind, it could become a pretty powerful catalyst for your earnings power coming back and getting to a much better place. When you think about the credit dynamics and obviously, you see the internal numbers. I'm just an outsider looking in, but anything that you could point to in terms of positive that could suggest maybe we're close to peak here?
Yeah.
I know it's a tough question because-
No.
There's a lot of uncertainty on the economy.
No, it's great. I've-
But just the extent of what you've seen on the numbers. Anything that suggests that you could be closer to that?
No, I give you credit. I think we've met with 12 investors today, and I've heard the word, "Is it peak?" 12 to 15 x. So, it's fair, right? Everybody wants to know is it peak, but I don't think anyone sensible would say anything is peaked, right? Everyone should be naturally cautious, and we're being very proactive and thoughtful about the reality in the housing market. But what I would say is, yes, there is encouraging signs, absolutely. We're just being practical and thoughtful about the environment around us. We're seeing improvement in formations, improvement in early delinquencies. We're seeing green shoots and stability. The actual data, the patterns are showing improvement and positive trends. We proactively built more performing provisioning, just in reflection of the market, right? You look at what does the model say, what does an overlay say, and you make your positioning.
We were trying to be thoughtful as well, still about really 2022 and shoulder vintages and thinking through just the future of what could happen where you're right, that could be a tailwind if things keep improving. Otherwise, we're well-positioned for any of the uncertainty. There is optimism and encouraging signs in PCL. A couple things to think about now, of course, our largest source of revenue is credit card interest and fee revenue, so that's the biggest part of our book. The typical loss rate for that portfolio would be around 4.5%-5%, and that's lower than a couple D-SIBs, higher than a couple D-SIBs, much lower than some other current portfolios. It's about a 70% super prime portfolio. Last quarter was a touch above that, which you've seen if you look back 10, 15 years, when might you see it?
That kind of rate above 5% is pretty rare, but it's been once or twice, as Puneesh has talked about. What we feel good about that portfolio as well, Mike, and that further normalizing, then you have kind of the further legacy EQB book, where if you go back a little while ago, a few years ago, you'd see low single-digit basis point for kind of that legacy single-family book. Bennington had been a higher part of our loss story. Even the PCL ratio in 2025 was probably about 29 basis points, and if you take out Bennington, it would've been around 20. I see things normalizing for sure below current levels. Bennington is not a strategic priority, and we've converted that more to a prime portfolio, so that should come down.
Then again, as we see that stability and then further improvement in the housing market, I do think that turns more to tailwind space, right? So you're not going to have the PCL on that side. There's encouraging trends, but also, I think more tailwind. We're just being very thoughtful and practical about the current environment. Well-positioned for it.
Thanks. I think you answered the next two questions that I had.
Okay.
But irrespective. Just on that PCL loss ratio, so-
Yeah
thanks for the color, 4.5-5. That's helpful just in the context of how to think about it on a go-forward basis. The 70% being super prime, is that a number that you ideally want to change? Do you want that to go to 80% +, or are you comfortable at this level?
No. Well, I'm comfortable on the level. The average Beacon score, I think for one of our PC customers, would be about 760. The existing EQ Beacon score is around 710, 711. They're both good quality books. I think you can grow in all cases. The bigger growth priority for us is not necessarily changing the credit target, but we have 4.3 million customers, and we have the ability to generate leads to 18 million Canadians in PC Optimum, which is the largest program. So how do we get those cards into our existing EQ Bank customer hands, and how do we get existing EQ Bank product into those PC Financial customer hands, like GICs, everyday account? There's so much potential, and we saw really promising signs in the first month. Mike, so you don't have to go lower credit quality to grow.
I think it's actually we can grow well within the existing portfolio, but there are new products we could offer in unsecured lending and cards to grow that base. I think, historically, probably, I'd say [audio distortion] would say it's been a very conservatively positioned book.
Okay. Thanks for that.
Does that answer the-
Yeah. No, that's great color. Wanted to ask about margins. I think the comment that was made on the Q3 call or within your MD&A was that margins were basically flat. If you exclude the- Obviously, you got a natural bump up from the card-
Yep
portfolio put into the numbers, but stability is certainly not a bad thing, and I'm wondering, you've done a lot on the funding side. I am wondering, as you sort of think about the deposit growth opportunity with PC Financial customers and, what is the sort of opportunity there? Is it going to provide you with a bit of a tailwind potentially
Yeah
on the NIMs as well?
The answer would be yes. We were, last Q3, we were about 1.97 in NIM, then we were at 2.41 in the quarter. We have expanded every single quarter. Then we had consistency. A little bit of that consistency is just the way our accounting works. You have days and quarter nuances and things like that can have a basis point or 2 here and there. We did have another great quarter for NIM, and you are right, stability and consistency is great and continued expansion. I see NIM expansion opportunity, which will drive revenue growth. I think funding costs can be a part of that. Think of even the potential of these millions of customers that we just brought in that have a propensity to want an everyday account because they can also earn PC Optimum points and get a great everyday rate and not have any fees.
We are bringing best of breed together in the PC Money Account and the EQ Bank account as we converge the platforms. If we even have a 5% success rate of the millions of customers we brought in, that we believe is certainly very possible, that is billions in lower cost funding, right? That is lower than our wholesale funding costs. Those might be payroll customers as well with great economics. That will present tailwind.
Yep
For example, as well, right? You have the offset. We do have tailwind potential in funding costs. That is a huge opportunity in this deal, and that is all upside. We did not build that into the economics to assume how can we hurdle. That is all upside potential for us, and we believe that is very possible. Let alone getting more cards in, which are also obviously our highest yielding product, with great growth.
Okay. Just in terms of the funding on the wholesale or the broker channel, what are you seeing now in the market?
Yeah.
Some of your competitors, the larger banks, have suggested in recent months that it had become a bit more intense, the competition. Do you see the same thing given that you're smaller size, or?
In the broker side?
Yeah.
It was competitive for a while. We saw some of the bigger banks lean in more for a while into the space. It's always competitive. It's always going to be a few basis points here or there. I'm not sure it's more competitive than it was a year ago. I think there's always going to be competition in the everyday rate space. What do we offer in the EQ Bank everyday rate to gain more deposits or not? A year or two ago, we had an even higher rate to attract deposits. We've been able to reduce that while maintaining still a leading everyday rate and not cause a loss of deposits, right? That's being important testing.
The hypothesis has to be true that over time you can have a lower rate, but more products that people still want to have that account with you because there's no fees, great features, unique offerings. I don't want it to be just a rate play. There will always be sensitivity in rates, but it's got to be a different economic picture now. The broker side, we're holding as much share as we want. Absolutely.
Okay. I noticed you had a bit of a pickup on the EQ Bank, the sort of core accounts. It was a pretty decent growth rate for a quarter. Anything in particular driving that?
Any sort of one-time issue in there, or is it just-
Well, for the overall deposits, we had that PC Money Account coming in, so we maintained all those deposits and we had some growth. We haven't really ramped up our efforts to grow those core deposits. That's why there's that tailwind and opportunity.
Yeah.
As we build in PC Optimum as a new superpower into the lineup, that will incent even more people to have those deposits with us. We did a really good job maintaining the deposits, and we were focusing more on readiness for the integration and stability of the platform. There are some investments to get ready to scale and grow the deposits and now of funding as those core deposits, and that's the highest level it's ever been at. That you can see then play out in terms of the improving NIM as well. There's good improvement opportunity.
Okay. I am curious, you mentioned the investments that you will be making to grow that deposit franchise.
Yeah.
I know you care about the efficiency ratio, and you want to get that to a lower number over time.
Yeah.
Obviously, the revenue side matters as well, and that could be a different environment, positive or negative in the quarters ahead. How do you sort of balance that? Obviously, you want to invest to grow, but at the same time, you want to be mindful of the cost base not inflating too much, and then getting that efficiency to keep improving and getting to the point where you're maybe consistently putting up year-over-year positive operating leverage in the coming quarters. It seems like a delicate counterbalance.
Yeah. Well, your answer is always ROE, right? So efficiency is a means to an end. I'd prefer to be more ruthless about positive operating leverage, and we have shown those patterns, the plus/minus in the past four quarters in the role. So positive operating leverage is a big priority, but it all comes back to getting back to that 15%-17% ROE, and you'll see it both through ROE and ROTCE. That's really the answer, Mike, and prioritizing work so we get there. Could we go even faster on efficiency? Sure. But then to your point, you cut off some of your growth investments, right? We're trying to find that right balance, and I do believe efficiency is a competitive advantage, and it can be for our platforms. We're 99% plus cloud-based, right? We have our core banking platform in the cloud.
We have an ability to scale, and we have a lot happening on the AI side as well. We have an ability to scale and maintain that cost base. It is like we have good unit economics in the growth. Even think of the marketing delta. That is not even built into the case. There are a lot of people out there that spend 10 times what we do on marketing, right? That is one of the problems we are trying to solve for is how do people know, again, EQ Bank is there. We do not have to spend anymore in marketing, and by default, 14 million - 17 million Canadians per week will start to see our brand in a meaningful way. If we tried to just buy that through ads and campaigns and analytics, that would be crushing to ROE, right? All those come into the efficiency trade as well.
There is room. There is continuous improvement opportunity and efficiency.
Okay. I guess I am a bit disappointed that there is no more Dan and Eugene Levy commercials.
I did not say there is not more to come on the celebrity side. We have lots to come, but the key is you need to be there consistently as well. Right? That was a great teaser we had, but now we have the products. I think we are one of the only omni-channel challenger banks in the world now. Right? Digital, I think has a bit of a plateau. Branches are not the solution for us, but we have a hybrid way of mattering and showing up for people. I think it is fantastic. I am excited about these EQ stores. We have 180 of them, right, that will convert from PC Financial.
Imagine the world now where you can be at a grocery store because it might be convenient, and you might be able to stop in and see your planner or see your broker, pick up a draft, or close your mortgage stop. We even have an ATM network now. Chat with somebody quick. Having a tangible presence matters a lot to Canadians.
Okay.
We have pivoted. We are not a niche challenger. We are here to smash the mainstream and bring real utility value to everyday Canadians. That matters, right? These points that we bring that help people with gas and groceries, clothing, healthcare, that matters. We all have to think about the people on the street every day, the millions of them, that this stuff matters and people are struggling. To have rewards that matter, to show up where they need us matters. Those capabilities are completely different. Plus the no-fee, low-fee, great products, high rates, and rewards, it is literally unmatched in Canada. We care a lot, and I get worked up about helping people. That is our purpose. That is why we rebranded our purpose to helping Canadians get ahead every day, right?
That has really subtle meaning, and that is why our addressable market is kind of like 10 - 12 million Canadians within that 18 million PC Optimum base. We have now a new launch pad of 4.3 million of them, right? There is more to come to build the excitement and the awareness behind the brand. We are far from done now.
Chadwick, I am just curious. The timing of that transition, those 180 locations, is that something that is just still being in the process?
Yeah.
Is there a timeline on that?
Yeah. Some people might have seen the EQ Bank pop-ups that we did. That was great, where we had a couple in-
I actually-
You did, yeah.
saw the EQ one.
It was fantastic, Mike. We had a couple in Toronto, one in Calgary, one in Vancouver, because we're testing a little bit. We're testing and learning since it's not a fire drill to change. That's the beauty of this partnership, right? Having your partner as your largest investor and part of the company and in partnership with them. We can do this thoughtfully, and we've tranched out kind of the activity at these 180 stores, and we're going to update them in different ways. Our most active locations in Canada, and there's actually a lot in Western Canada that's within Real Canadian Superstore, No Frills, Loblaw, Fortinos. There's a few. There's going to be some more full-scale reimagining of those big locations where it's very busy. Those will start to happen over the next few months.
There's a bunch of locations where you'll see a massive kind of sign like this, where it's the future home of EQ Bank with PC Financial and the ATM and everything brought out because it's just even the brand presence for a period of time as we rewire those. We have some other locations that we'll do in the third tranche. I would expect a lot of it to be done in the next year for sure, but starting literally within weeks. That's a good one because, again, this is the whole art of this, right? Get people comfortable with what's suddenly showing up with EQ Bank. There's millions of people that are customers or PC Optimum members that don't even know this deal happened, right? There's a lot of people that don't read the headlines like that.
We need to show up in a really thoughtful way because think, we have 4,600 different touchpoints in Canada that will be updated to say from PC Financial to EQ Bank. The top of an Esso gas station to at the checkout counter to at the Shoppers Drug Mart, we are going to literally be prolific. You got to do that in a way and show up in a way that people understand and that you don't just kind of dismiss it, right, or you do it too fast. There's an art to how we're going to do that. Then you have the digital conversion side, right? When it becomes one app as well, and PC Optimum integrates in because it will all be EQ Bank, right? Hopefully, everyone's getting their cards.
If anyone wants to stop in, I can send you your pre-approved offers, but everyone will get this. This card will say EQ Bank and PC Optimum. We have four different ones. We have three that are no fee, and this will be the best points generation you can get in this country with the largest loyalty program in this country. That includes 18 million Canadians. Everyone's welcome to a card. I will stop by your table. But this stuff matters, right? And the growth potential is tremendous for us.
I am just curious, Chadwick, so when you mentioned the 180, is that like the existing infrastructure?
Yes
Of what is there?
It is there.
Then you could possibly, if you wanted to, maybe expand on that. It sounds like-
Absolutely, we can.
you are being mindful of format-wise. You are still exploring what might work, what might-
Absolutely, we can. It is our space. It is negotiated. There are tons of commercial agreements we have. That is our space. The cost for us to operate 180 locations will probably be less than two branches. Like, that is the equivalent. It is the art of partnership. We have the space. We started a 12-year partnership, and these are locations that matter to people. T hose can expand. Yes, absolutely.
Okay. That's helpful. I'd love to just talk about mortgages because it is an important part of your revenue generation.
Yep.
It's a very good spread business the uninsured part of the book as well.
Yeah.
Just curious, you did mention, I think, market share gains in-
Yep. In Canada
your target market-
Yep
where you are focused on. Just more broadly, do you see a light at the end of the tunnel? I think we are all waiting for the mortgage market to finally show some signs of recovery on the volume side, and it has just been, what, almost four years of somewhat anemic growth in the GTA market. Do you see any likelihood that that could get to a better place in the next, call it, 18-24 months?
You are asking the opposite of peak in a different way. I got you. Yes, I do. I do see improvement potential. We are already seeing that. You can take share or you can have the organic just growth share, right? In the market. I do see both. Under the leadership of Daniel Rethazy, we have really re-energized our entire sales culture and our partnerships with brokers. There is one way to think through brokers, how do we grow? Is the market growing or are we taking share? The market is growing very little, obviously, we are seeing, but we are taking more share, and we will continue to take more share. In certain markets in Canada, am I seeing some growth? Yes. A lot of us see it. It is what are we talking about? Condo, micro units, stuff like that, no, there is not a lot of growth.
But the semi-detached, detached, in certain markets, absolutely, there is growth potential. I am more optimistic, going into the next year of some growth, but I am particularly optimistic about our ability to take more share. But an important nuance with us is we just brought in millions of new customers. Many of those customers need or have a mortgage. What if we could actually consider offering PC Optimum points, having some more economics in the relationship, and offer them a renewal with us instead, or directly support those customers? In the past also, Mike, if we had lost a mortgage customer, it might have been to a D-SIB, to say, like a prime uninsured. What if you see some tweaks in capital that enable us to actually have more similar capital treatment and renew that prime uninsured without the broker fee and on our own book and control more of the economics?
There are multiple areas where we could grow that mortgage book. That is why I am excited and encouraged, and that matters then to revenue growth, franchise growth, and deeper primary relationships as we become more primary. So that is upside potential. You will hear more about that at December 7th at the Investor Day. Hopefully many of you can come and join in person at the new EQ Tower upstairs. We will have some AI demos. We will talk about all this. But I do want to get into it more because there are very important, unique to us, growth prospects in the mortgage space, plus the reverse mortgage space, right? We are going to shift the branding of that because I do not know if anyone really wants to reverse a mortgage they paid off, but there is a wealth solution component to this, and I am very pro on this market.
This is one of our highest growth asset classes. We just grew another 22% year-over-year. It matters in wealth planning and inheritance planning. So there is more to grow, and that is part of that housing market growth as well.
I would love to pivot to capital. I know that since you became CEO, you've been a lot more willing to buy back shares. It's been something that wasn't really done in the past and that's always supportive of your share price or for any bank that's buying back shares. They all seem to be buying back shares these days, but just how do you see capital? Because you still have an abundant amount of capital. You're still in a standardized basis.
That's right.
I'm not going to get into the whole conversation about converge. I'm sure you'll give us an update on that in December on AIRB potential.
Sure.
But just in terms of capital, where it sits right now healthy level, buybacks are still a part of your strategy on capital deployment?
Short answer, yes. We are buying back now at these prices, absolutely. It is how you think of capital overall. We have access. If you think about it, your standardized AIRB comment, we would hold on a standardized equivalent basis, 400 basis points more capital than any of the D-SIBs. So there is a path. There are different ways to get to that capital relief and capital release. But you are right, we have a lot of capital. Ideally, we put that into lending in the existing business, right into the innovation, into the products. That is always going to be the top priority. The dividend growth, maybe some tuck-in M&A, and then we will use our NCIB accordingly. So yes. You are right. Before me, there were no buybacks at all, pretty much ever. We have had a pretty healthy schedule of that this year.
We, of course, have our new largest shareholder that has an ASPP out to buy another 5% of the company in the open market as well.
Yep. Awesome. Maybe I will turn it over to you in the interest of time, Chadwick. Any key messages you want to leave for investors?
Well, I am looking forward to coming back next year. That was a great first year. I shared the things that we said we would do in terms of reigniting the core, completing the product shelf, and returning to efficiency as a competitive advantage. Shared the examples of how we did all those things. Now to think about the transformation, right? The transformation, the opportunity, and the discipline. The transformation is there and underway, really the reinvention of the company. We are a very different challenger than we ever were, and that stage is set. We now have 4.3 million customers, a diversified revenue mix, diversified balance sheet, an unmatched loyalty program, new products. We are so excited about the transformation that has been complete. We have the team to do it, the board to do it, the customers to do it, and the partnership to do it.
That is really, really exciting. Think about that reinvention of Canada's challenger. The opportunity is massive. Again, 18 million PC Optimum members, the exclusive financial partner. We have the ability to provide leads and education to those 18 million Canadians. I am sure a lot of people here are PC Optimum members. So you are going to see and hear from us. That is a massive growth opportunity, plus in the existing book. The discipline, we are focused on ROE, okay? Q4 last year, we were 7.5%. It was very low. Traditionally, we are a 15%+ ROE business. We are showing ROE and ROTCE because we did take on some goodwill with the acquisition. So you will see both. We will take ROE back to 15%-17%, and that is going to be through revenue, expense, and PCL normalization.
We are very focused and disciplined on that, and we will continue to drive efficiency as a competitive advantage, and we will get that outperformance in ROE. We couldn't be more excited about what's ahead for the challenger bank. We've come a long way in the last year. We're going to come another long way in the year ahead. We're very focused on the integration. We're very focused on everyday Canadians. We're very appreciative of our shareholders, and your support. Have a great conference. Thank you for having me and-
Yeah. Thank you.
offers to come.
We'll look forward to learning more on Investor Day, which is-
Looking forward to it.
a couple short months away.
Thanks, everyone.
Thank you very much, Chadwick, for joining us. Thanks for the insights.
Thank you.
Super awesome. Thanks very much.