Good morning, ladies and gentlemen, and welcome to the Goeasy Limited Q3 2025 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we'll conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, November 6th, 2025. I would now like to turn the conference over to James O'bright. Please go ahead.
Thank you, Operator, and good morning, everyone. I'm James O'bright, Senior Vice President of Investor Relations and Capital Markets. Thank you for joining us to discuss Goeasy Limited's results for the third quarter ended September 30th, 2025. The news release, which was released yesterday after market close, is available on Cision and on the Goeasy website. On today's call, Dan Rees, Goeasy's Chief Executive Officer, will review key highlights for the third quarter and provide an outlook for the business. Hal Khouri, Chief Financial Officer, will provide an overview of her financial results as well as her capital and liquidity position. Jason Appel, the company's Chief Risk Officer, will then provide an update on her credit and underwriting. Also joining us on the call today is Felix Wu, Interim Chief Financial Officer, and Patrick Ens, President of Easy Financial and Easy Home.
After the prepared remarks, we will open the lines for questions from analysts. The Operator will poll for questions and will provide instructions at the appropriate time. Before we begin, I remind you that this conference call is open to all investors and is being webcast through the company's investor website and supplemented by a quarterly earnings presentation, which will be referred to by our speakers today. For those dialing in by phone, the presentation can be found on the investor website. As a reminder, the slide presentation and our MD&A contain a disclaimer on forward-looking statements, which also applies to our discussion on this conference call. Business media are welcome to listen to this call and to use management's comments and responses to questions in any quarter-related coverage. However, we would ask that they do not quote callers unless that individual has granted their consent. I'll now turn the call over to Dan Rees.
Morning. Thank you, James. I'd like to begin by extending a personal welcome to all of those listening, including our employees, investors, and the research analysts that follow our company. I would like to begin by first reflecting on how we began Q3. One week after we reported Q2, we launched a highly successful senior unsecured notes offering, which was upsized and which netted us CAD 796 million in gross proceeds with a 6.1% low coupon. By late August, early September, our shares were close to all-time highs. Less than a week later, our share price came under pressure following the publication of a misleading short seller report. We continue to be pleased with the confidence that so many have expressed in Goeasy, our management team, our business model, and our track record.
We did hear from some stakeholders that they would benefit from a review of a few areas of our business and some of our financial reporting. Today, we will be providing you with an analysis of our performance for the third quarter and our outlook, but we will also spend some time highlighting these topics, notably interest receivable and borrower assistance programs. As I've said on many occasions, I continue to be impressed by the long-standing track record of growth and profitability of Goeasy, as well as its commitment to invest and its ability to adjust. While the business is clearly performing well in many respects, we also recognize that being long-term minded is key to capturing our future potential. Given the persistently challenging macroeconomic backdrop and areas of uncertainty, it is especially important now to take a prudent approach.
As stated previously, with increasing size comes both opportunity and responsibility. We will continue to bolster our operations to reflect the size and scale of our business and continue to look for better and more efficient ways to deliver products, service customers, and manage the loan portfolio end-to-end. As you've seen this quarter, we will continue to be growth-minded and will do so in a deliberate and thoughtful way that both honors our mission and reflects the challenges of today's operating environment. With that, let's now get into the quarter. I'll ask you first to turn to slide four of the Q3 2025 earnings presentation available, as James mentioned, on our website. I am pleased to report organic loan book growth of CAD 336 million in the quarter, driven by originations of CAD 946 million. This strong performance lifted our receivables to CAD 5.44 billion at quarter end.
Our growth helped to generate record quarterly revenue of CAD 440 million, up an impressive 15% from Q3 of last year. Our portfolio yield of 31.4% reflects the expected ongoing transition from the rate cap as well as the impact from a higher composition of secured loans. In Q3, we reported a 30 basis point year-over-year decline in our net charge-off rate to 8.9%. Our allowance for credit losses increased from 7.9%- 8.1%. This is in response to higher early-stage delinquencies attributable to persistent weak macroeconomic conditions. Our efficiency ratio at 23.4% was 30 basis points higher than last year and remains an area of continued focus for management. Our EPS at CAD 4.12 was down 4.6% from the same period in 2024.
This is due to the impact of lower yields, an increase in allowance for credit losses, and incremental financing costs associated with our successful high-yield notes offering in August, which provided important liquidity to fund our growth ambition. The 21 basis point increase in provisions equaled approximately a $0.50 impact to our adjusted EPS for the quarter. Turning to slide five, I would highlight the continuation in Q3 of many of the trends that have made Goeasy such a successful company for so long. Applications continued to be high and are up 22%, and loan originations up 13%. We delivered balanced growth in both secured and unsecured loans and delivered another milestone financing in the high-yield markets. Our continued strong performance in Q3 was made possible by the focus and dedication of our 2,600 employees.
In recent months, my Goeasy colleagues and I were proud to be recognized again as one of the best places to work in Ontario, as well as one of Canada's top-growing companies by the Globe and Mail's Report on Business. Q3 was another quarter of giving back to our communities. We hosted our 17th annual golf tournament this September and raised well in excess of CAD 400,000. In support of our Feed the Future campaign at BGC Canada, which is Canada's largest and dedicated child and youth-serving organization. I remain deeply impressed by how consistent and powerful our passion is for our customers and our culture, and also our communities. Rounding out my opening comments, I'm pleased to highlight how the Goeasy team delivered against our objectives this quarter.
We were fully on track, and as you can see on slide six, our performance in Q3 was in line with the outlook we shared with you in August, despite the ongoing challenges posed by the weaker macro backdrop. Our continued loan book growth, resilient yield, and stable net charge-offs underscore the resilience, strength, and adaptability of our business model. With that, I will pass the call to our CFO, Hal Khouri, to provide an update on our financial performance and balance sheet.
Thanks, Dan, and good morning, everyone. I'm picking up on slide eight. We experienced strong organic loan originations in Q3 at over CAD 940 million, up 13% year-over-year. Growth was driven by record applications for credit across all product and acquisition channels, including unsecured lending, home equity loans, automotive, and point-of-sale lending. We've been driving consistent growth in our gross consumer loans receivable for much of the year now, and there has been a focus on the increasing percentage of our portfolio, which is secured. This quarter, while we continued to see strong originations in auto and home equity lending, we also delivered strong growth from the unsecured part of our business.
As such, we grew our ending loan receivables by 24% year-over-year to CAD 5.4 billion, and the percentage of our portfolio represented by secured loans remained at 48% over Q2, though it was up nearly 3 percentage points year-over-year. Turning to slide nine, total revenue in the quarter was a record CAD 440 million, up 15% over the CAD 383 million in the same period in 2024. At 31.4% for Q3, total yield on consumer loans declined year-over-year due to growth of our secured loan products, which carry lower rates of interest, and implementation of the federal maximum allowable rate of interest at 35% at the beginning of this year. On slide ten, our strong organic loan growth drove increased revenue generation and led to record-reported adjusted operating income of CAD 170 million, an increase of 4% compared to CAD 163 million in the third quarter of 2024.
That operating income translated into adjusted diluted earnings per share of CAD 4.12, which was essentially flat quarter-over-quarter, but down 5% from the third quarter of 2024. As Dan noted in his opening remarks, the 21 basis points quarter-over-quarter increase in provisions had a negative CAD 11 million impact on operating income and a negative CAD 0.50 impact on adjusted EPS. Turning to slide 11, we continued to experience the benefits of scale, including through greater operating efficiency and productivity improvement. During the third quarter, our efficiency ratio, specifically operating expenses as a percentage of revenue, improved over Q2 and remained relatively stable to the third quarter of 2024.
In Q3, we reported an adjusted operating margin of 38.6%, down from 42.6% in the same period of 2024, primarily driven by the decline in total yield due to the new interest rate cap and the increase in allowance for credit losses. Provision impact had a 2.5% impact on our adjusted operating margin. Other operating expenses were up CAD 15.1 million or 18.6% year-over-year. As we mentioned on our Q3 2024 call, this quarter last year benefited from below-trend salaries and benefits, as well as the accounting policy change to capitalize employee commissions and bonuses that are directly attributable to loan originations, making Q3 2025 a tougher year-over-year comparison. Before I get into the balance sheet, I wanted to spend a little bit of time addressing a topic a number of our investors have asked about recently. Slide 12 provides some information on our interest receivable line item.
The interest receivable we carry on our balance sheet reflects interest accrued on all loans through the charge-off, including current and delinquent. In accordance with IFRS, it is stated net of allowance for losses. The net interest receivable balance was CAD 142 million in Q3, up CAD 11 million over Q2. The rise in the interest receivable balance can be attributed to a few key factors. The main driver is the record growth of loan portfolio requiring incremental accrued interest loans. Second is the mix shift to more secured loans, which can remain on books for longer and continue to accrue interest. The third factor is utilization of focused collections efforts and certain borrower assistance tools to support loan repayments. Lastly, optimization of certain collection efforts, including focusing on cash receipts, contributes to changes. We continue to monitor interest receivable as a percentage of our overall loan book.
It was 2.6% in Q3 and flat relative to the prior quarter. As late-stage delinquent balances decline and we continue to optimize borrower assistance tool design and usage, interest receivable will gradually decline relative to our overall gross loan receivable. Turning to our funding position, as outlined on slide 13, we finished the quarter with a strong and fortified balance sheet with over CAD 400 million in unrestricted cash. In the quarter, we added to our long track record of obtaining capital on attractive terms to support our growth plans. In August, we capitalized on favorable market conditions and issued $450 million in senior unsecured notes due in 2031, as well as reopened our existing Canadian senior unsecured notes due 2030 for CAD 175 million. These offerings, which raised approximately CAD 796 million in gross proceeds for Goeasy, were upsized from the initial amounts targeted, reflecting a strong investor response.
We also concurrently entered into a cross-currency swap agreement, which served to reduce the Canadian dollar equivalent cost of borrowing on the new U.S. dollar notes to 6.11% per annum. Last week, we also announced the one-year renewal of our CAD 1.4 billion securitization warehouse facility on substantially similar commercial terms. Based on existing facilities, we have approximately CAD 2.3 billion in total funding capacity. At quarter end, our weighted average cost of borrowing was 6.6%, and the fully drawn weighted average cost of borrowing was 6.1%, largely consistent quarter-over-quarter. Our debt-to-tangible equity ratio for the quarter was 3.96%, at the high end of our targeted range, primarily due to higher cash and liquidity on the balance sheet following our recent unsecured notes offering. We remain confident that the capacity available under our existing funding facilities will be sufficient to fund our organic growth ambitions.
That being said, the recent negative events that have been observed in the broader consumer finance credit markets are a reminder that we benefit from remaining highly proactive in pursuing opportunities to raise additional debt on attractive terms. Bolstering our strong funding position, and as described in the bottom left of slide 14, the business continues to produce impressive levels of free cash flow. Free cash flow from operations for the trailing 12 months before the net growth in consumer loan portfolio was CAD 393 million. As a result, we estimate we can currently grow the consumer loan book by approximately CAD 350 million per year solely from internal cash flows without utilizing external debt, while also maintaining a healthy level of annual investment in the business and maintaining the dividend.
Reflecting confidence in our continued growth and access to capital going forward, the Board of Directors approved a quarterly dividend of CAD 1.46 per share payable on January 9th, 2026, to the holders of common shares of record as of the close of business on December 26th, 2025. On slides 15 and 16, adjusted return on equity landed at 22.6% for Q3, down 310 basis points year-over-year. The main driver was lower adjusted net earnings, as covered previously, as well as a higher level of shareholders' equity. That covers our financial performance. I'll now turn it over to Jason for further details on credit and underwriting in Q3.
Thanks very much, Hal. Good morning, everyone. I'm pleased to be able to provide some additional comments on our approach to managing credit and underwriting for the non-prime consumer and how it impacted our business in the third quarter. Key takeaways, which I will leave for your reference, can be found on slide 18. I'll cover much of this in more detail on the subsequent pages, but before I move off the slide, I did want to call out that while the demand for credit has remained strong, we continue to maintain a conservative posture in our underwriting of new loans. In Q3, we funded 11% of the credit applications we've received at a dollar-weighted average credit score of 624 in the quarter. Q3 marks our 15th consecutive quarter with average scores above 600.
Turning to slide 19, our net charge-off rate, as previously described at 8.9%, came in at the lower end of our guided outlook for the quarter. It represented a 3 basis point improvement over the prior year and a 10 basis point increase over the prior quarter. We continue to benefit from a shift towards secure lending, now at just under 48% of the total portfolio, and ongoing optimization of credit, underwriting, and our collections practices. Total delinquent balances at 7.3% of the portfolio declined 10 basis points from the prior year, but increased 60 basis points from the prior quarter. Late-stage delinquencies, defined as loans more than 90 days past due, at 2.8%, were in line with the prior quarter, reflecting our ongoing focus on collection and recovery efforts from these accounts.
Early-stage delinquencies, defined as those that are 1 to 90 days past due, at 4.5%, were lower by 80 basis points from the prior year and were up 60 basis points from the prior quarter. As we've mentioned previously, the Canadian economy continues to operate under a degree of economic pressure not seen since the COVID pandemic. Unemployment at 7.1% is at its highest level since May 2016, excluding the volatile years of 2020 and 2021. GDP growth is absent with Q2's number coming in at negative 1.6% annualized. With over 70% of small and medium businesses impacted by tariffs and 18% of Canada's gross domestic product coming from exports to the United States, there remains a high degree of uncertainty about the future.
While the Bank of Canada has continued to inject stimulus into the economy with its second consecutive 25 basis point reduction in its overnight lending rate, these actions will take some time to work their way through the economy. As such, we can continue to expect to see elevated delinquency levels while we work to assist our customers during these periods of uncertainty, more about which I will speak in a moment. Turning to slide 20, our allowance for credit losses has increased by 21 basis points from 7.92%- 8.13% in the quarter in response to higher early-stage delinquencies attributable to persistent macroeconomic conditions. Reflecting the environment and our prudent approach to provisioning for credit risk, in 2025 year to date, CAD 92 million was added to our allowance for credit losses, of which CAD 61.5 million was due to our loan book growth.
Our total allowance stood at CAD 442 million as of the end of Q3. With our focus on the non-prime credit segment, we are often asked about our day-to-day approach to managing our customers when they encounter periods of economic stress brought on by adverse economic conditions or an unexpected life event that puts the repayment of our debt at risk. One of the ways we address these concerns is through the use of our borrower assistance tools. Slide 21 provides an overview of these tools and the circumstances under which they may be utilized by our customers. In a given month, approximately one in 10 of our borrowers will make use of one of these tools. These are designed to prioritize repayment of our loan while offering the customer the opportunity to maintain their credit profile.
These tools are commonly used across the industry, both prime and non-prime, and our borrower assistance tools help customers stay on track with their payment obligations, reducing the need for immediate and often costly legal action or asset repossession, and are governed by a range of policies, operational, and system controls. We regularly analyze the payment performance of these tools, which has allowed us to further refine our targeting and optimizing of their use. They represent a key ingredient in how we are able to assist over one-third of our borrowers to successfully graduate back to prime within a year of starting a lending relationship with us. While the use of these tools can be an effective strategy in helping our customers overcome financial adversity while maintaining our focus on cash collections, by their very nature, they are intended for a riskier customer population.
As such, the use of these tools can impact a customer's risk classification and often results in our having to increase the amount of provision for future credit loss. It is for these reasons that we continue to place a heavy emphasis on refining and optimizing these tools in response to changes in the macroeconomic environment and our evolving risk appetite. Our success in the coming quarters will continue to be dependent on striking the appropriate balance between growth and risk in a way that fully accounts for the best interests of both our customers and Goeasy. You can expect us to remain disciplined underwriters of non-prime credit as we continue to navigate against the backdrop of a protracted period of macroeconomic weakness and its corresponding impact on the non-prime consumer. With those remarks complete, I'll turn the call back to Dan for our outlook.
Great. Thank you, Jason. On slide 23, we introduce our Q4 outlook. As you can see, we are signaling a continuation of the solid growth we have been delivering in our consumer loan portfolio while consistently remaining focused on high-quality, prudent underwriting. For Q4, we are targeting growth in our loan book of between CAD 250 million and CAD 275 million. You will note some seasonality in our business whereby gross loan ads in Q4 are often lower than Q3. This outlook reflects our current credit posture given the economic environment. Looking at yield and in keeping with our conservative approach, we are fine-tuning our outlook for Q4 to be in between 30.5% and 31.5%. This adjustment largely reflects the rate cap changes moving through the portfolio. Our outlook range for net charge-offs remains the same as in Q3.
Turning to slide 24, in keeping with past practice, we will update our three-year forecasts in February in connection with the release of our full-year results. In terms of 2025, the ongoing strong customer demand provides confidence in our growth and revenue outlook, and both yield and charge-offs continue to perform as expected throughout the first nine months of the year. These slightly elevated provisions in Q3 did put some downward pressure on operating margin and ROE, so those two metrics remain in focus as we move through Q4. I want to thank the entire team for their unwavering commitment. We have terrific players across all levels of our organization. We are saying goodbye to one of those terrific players today. This is the last Goeasy earnings call for Hal, who will be wrapping up his tenure with Goeasy this week.
On behalf of our entire organization and the board, Hal, I'd like to thank you for your many contributions to the growth and success of the company. Shortly after Hal joined Goeasy as CFO in July of 2019, we had announced at that time proudly that our loan portfolio topped CAD 1 billion. Today, it is more than five times that size. Hal played a big part in our acquisition of LendCare in 2021 and in multiple unsecured notes offerings, raising billions of dollars in proceeds and the creation and growth of our two revolving securitization facilities. We wish you all the best, Hal, as you pursue your new role down south in the U.S. I would like to more formally welcome now Felix Wu as our interim CFO.
With CFO experience at Koho, PC Financial, and Capital One Canada, Felix brings a deep understanding of our industry, a depth of technical and operational knowledge, and familiarity with our funding model. In the time since Felix joined our team, his impact has already been felt. He and Hal have had a full and complete transition. We are really pleased with Felix's arrival and Felix already and your substantial contributions. Thank you. We are very successful in attracting Felix, which I think provides us with a lot of confidence that the caliber of his profile is a positive reflection of the organization that we have built here at Goeasy. Thank you, Felix, for joining. Throughout this period of change, I would also like to thank our board for their ongoing support and commitment.
Our governance model is strong, and the entire management team has benefited from the guidance and direction of David Ingram and all of our directors during the quarter. Looking ahead, my colleagues and I will continue to build on our market leadership and capitalize on the many levers at our disposal to do so. As we manage through the economic conditions here in Canada, we do so with a proven suite of products, services, and a multi-channel delivery model to serve the significant customer demand and opportunity in front of us. Through past business cycles, we have delivered profitable growth alongside prudent risk management, and we at Goeasy will continue to do so. In closing, Goeasy plays an essential role in the broader financial system and the overall Canadian economy by actively serving the millions of hardworking Canadians that rely on us to pursue their goals and live full lives. I'm very proud of the Goeasy team. Now, James, with our formal comments complete, we'll turn it over to the analysts for their questions.
Thank you, Dan. With that, operator, we're ready for questions from the analysts.
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 number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the following process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from John Aiken from Jefferies. Please go ahead.
Good morning. In the prepared commentary, you talked about the impact that the rate cap is flowing through in terms of the portfolio. Are you able to provide us with a little bit of metrics in terms of what the size of the portfolio are that are currently generating above the rate cap and what the average duration is remaining on those loans?
Hey, John. It's Hal here. Yeah. So the current portfolio in terms of loans receivable that's above the federal rate cap would be approximately 18%. Where we started off the year, when the regs came into effect, we were approximately a third of our portfolio at that time was above the overall federal rate cap. Naturally, you're going to see that flowing through into our, and as expected, as part of our guidance, into our overall interest and revenue yield contribution.
Thanks, Hal. One other one for you. The buybacks that occurred in the quarter are obviously opportunistic. I'm assuming that you believe the share price is below what you feel intrinsic value is. Going forward, how should we be looking at the willingness to continue to do buybacks? Should we be looking at loan growth and what type of guardrails do we have in place in terms of the leverage ratio that is currently, as you've mentioned, near the top end of your accepted range?
Yeah. Thanks for that, John. We are fairly consistent in terms of our approach around looking at share repurchase activity. We have an overall capital allocation strategy that, as you have referenced, would be first and foremost targeted towards maintaining liquidity and cash needs to fuel the organic growth of the portfolio and required expenditures and capital expenditures as well. That would be first and foremost. We have been fairly active year- to- date in terms of overall share repurchases, approximately CAD 100 million year- to- date in terms of share repurchase activity. We will continue to monitor the market conditions prospectively, managing that in conjunction with managing our overall covenants and overall leverage position and ensuring we have enough forward-looking liquidity to maintain and manage the overall business requirements. Steady state and will continue to be opportunistic, as you have referenced, but want to ensure that from a capital standpoint w e have enough to continue to fuel the business.
Thanks, Hal. All the best when you move forward. I'll reach you.
Thanks, John.
Thank you. Your next question comes from Stephen Boland from Raymond James. Please go ahead.
Thanks. First question. Dan, when you came in, you really talked about building up the collections group. I'm just wondering what actions have been taken since then in terms of processes, new employees, things of that sort.
Yeah. Thanks, Stephen. Yeah. I think, as I mentioned on prior calls, that's a big area of focus, obviously, when you're granting credit, the money is made when there are repayments happening on schedule and also actively managing early-stage delinquencies, as we're seeing here, with a priority balance between cash collection and curing so that those consumers don't roll through the late stage. We are pleased to see the late-stage kind of ratio stabilizing. As an example of some of the investments in our LendCare business, we have a new leader in place. In the last little while, we've added additional collectors there. We've made adjustments to employee incentives to prioritize those two dimensions I mentioned, as well as, frankly, just more active involvement from those of us here in the head office. We have been pleased with the progress we've seen over the last number of months. Obviously, we're working through the later-stage delinquencies as a matter of priority. Collections is a complicated part of any business, and I'm pleased that we've set it as a priority here and with the progress we've made in the last number of months.
Okay. Then second question, maybe a little bit general, but during COVID, when there was economic volatility, the company slowed originations to kind of protect the balance sheet and prevent delinquencies. That does not seem to be happening this time. Your guidance has not changed, and even Q4 looks to be very solid year-over-year growth. I am just wondering if there is a thought of shifting that strategy to slow growth a little bit here while this volatility gets sorted out.
Sure, Stephen. I'll start and then pass it to Jason, if you don't mind. I think you are seeing slower growth in Q4 than Q3. That's both, as I mentioned in my prepared remarks, a function of the seasonality as well as our credit posture, which I think I also referenced. We've obviously seen a lot of growth in our auto portfolio, which we've been fine-tuning some of the originations appetite over the last number of months. On a relative basis, that has slowed somewhat. At the other end of the spectrum, we're actively growing our home equity loan portfolio. Between the products, we're constantly making adjustments. I know Jason wants to make some comments here as well.
Yeah. I think it's a good question to ask, Stephen. The only comment I would add is, obviously, during COVID, we did some fairly noticeable tightening, mostly in the underwriting side of our business, given that for a very short period of time, about one in every three Canadians have been furloughed from their job. The overall slowing of demand was also precipitated by pretty weak economic conditions in addition to our tightening. In this particular instance, obviously, you still have weak economic conditions, but we are still being quite prudent. As I think I mentioned on the call, we're only funding about 11% of the applications that are coming through the door, and that continues to move down. That is deliberate as we tighten around the edges, which we continue to do in Q3, and we would expect to do going forward as economic conditions persist.
Okay. Thanks very much.
Thank you. Your next question comes from Gary Ho from Desjardins Capital Markets. Please go ahead.
Thanks. Good morning. First question for Jason. Just on the ACL build this quarter, that's primarily driven by the higher early-stage delinquencies. I'm wondering if you can share what are you seeing in October or post-quarter so far, h as that 1 to 30 bucket delinquencies stabilized or moderated? Any quantitative or qualitative comments you can provide?
Yeah. The only way I would take your question is just to think about how the ACL, the Allowance for Credit Losses, generally works. As you would know, Gary, it's a reflection of the overall health of the portfolio at a given point in time, and it moves in response to changes in customers' risk profile. That's basically how they borrow and how they repay their debt over time. The allowance incorporates those changes in those movements and then forecasts the level of expected loss. That also includes the impact of the forward-looking indicators or FLIs into the future. As our customers' profiles change, so too does the level of allowance that we provide against their loans. At the moment, at CAD 442 million, we think the level of allowance is appropriate, as that's what's indicated by the model. As we think about what's occurred in the last 30 days, I would say, as I mentioned in the remarks, our delinquency levels remain elevated, but we haven't seen any significant shifts since the quarter end.
Okay. That's great. Maybe just staying with the early delinquency bucket, are you seeing any concentration in terms of affected customer employment sectors, whether that's kind of tilted towards the trade and tariffs-affected industries, or is it fairly broad-based?
I would say it is fairly broad-based. As we've commented in past conference calls, no one industry sector represents over 10% of the concentration of the loan book. As I mentioned on the call remarks, a majority of Canadian businesses are feeling the impacts of tariffs. When we look at where we're seeing delinquency increases, it is pretty much spread across the board because, again, we do not have an over-concentration in any one given area. Broadly speaking, it is not concentrated in any one specific industry in our book, and that is because we have that diversification that is built in.
Okay. Maybe I can sneak one more in for Hal. The debt-to-tangible equity, fairly high this quarter, 3.97x . I know that includes an upsized cash balance, but if I assume that even normalizes, your debt-to-tangible equity probably still up sequentially, correct me if I'm wrong. Just wondering if you can just remind me of the upper end of your comfort level and if you've kind of stress-tested how much higher the ACL build can be while staying kind of on side of your comfort level.
Yeah. Thanks for the question, Gary. Yeah. As you've referenced, our overall leverage position is higher than what we would typically have it, in large part due to the incremental proceeds that we took in as part of our successful high-yield offering that was well oversubscribed. Today, we're maintaining approximately CAD 400 million on a balance sheet of unrestricted cash. We will use that cash and have been using that cash to actually pay down our securitization facilities as we were able to. I would expect that, and our forecast is to have that leverage ratio come down significantly over the next quarter or two. We do maintain a threshold of a 4x ratio. As you've noted, we are getting close to that, but our expectation and outlook for the fourth quarter would certainly be to be comfortably well within that targeted range and continue to improve. As quarters unfold.
Okay. Got it. Okay. Those are my questions. Thank you.
Thank you. Your next question comes from Graham Ryding from TD Securities. Please go ahead.
Hi. Good morning. You mentioned that you would expect that interest receivable piece to trend lower as late-stage arrears start to move lower. I presume if those late-stage arrears cure or there's a successful collection, and that's a best-case scenario, if those late-stage arrears are fully written off or partially written off, does that translate into writing off some of that interest receivable in future periods? If so, is that baked in at all into your consumer yield outlook for 2026?
Yeah. Thanks, Graham. Yeah. It is contemplated as part of our yield outlook, certainly. As you have noted, interest does continue to accrue on accounts right up until overall charge-off. We do maintain a robust allowance against expected credit losses for the interest receivables as required under IFRS 9. We would expect to continue to work those receivables, and certainly, as they are cured, that would look to take in payments against the interest receivable. We have contemplated a percentage of those accounts charging off, and as you have noted, in the event that there is a charge-off, net of provision, that would go against the overall interest income and revenue, but that is contemplated as part of our outlook and guidance that we provided.
Okay. Understood. And then just Jason, on the ACL. Your arrears have ticked up somewhat. Your ACL, currently 8.1%. That's been ticking higher since about mid-2024. Can you just talk about your outlook for the ACL ratio? Is it reasonable to expect that this continues to grind higher, or a re you feeling like it should stabilize around this level given your outlook for macro conditions?
I mean, as I said before, not to dodge the question, the allowance is the allowance, and it will respond in how customers ultimately deal with the situation they are in in terms of the backdrop of the macroeconomy. I would say, as of right now, we feel that allowance is appropriately balanced and set forward. Depending on where those major indicators, unemployment, inflation, and GDP move, whether they are positive or negative, the provision will take those factors into consideration, and so will our borrowers insofar as prioritizing our loans for repayment. As much as I would love to be able to provide you a crystal ball on what the future would look like, I cannot do that. What I can tell you is that we feel confident that the methodology that underpins the allowance will pick it up and be at an appropriate level of reserving that we think is prudent given the level of risk that may be in the portfolio in the future.
Okay. Understood. My last one, just the early stage arrears, would that be a combination of secured and unsecured, or is it more biased in one of those areas?
It would be in both portfolios, but as you can appreciate, it would be more felt on the unsecured side of our business where we do not have the benefit of collateral.
That's it for me. Thank you.
Thank you. Your next question comes from James Yang from National Bank Capital Markets. Please go ahead.
Yeah. Thank you. Good morning. First question, just on the borrower assistance programs and commentary that it is elevated today. Can you give us a sense of how elevated borrower assistance programs or utilization of borrower assistance programs are today compared to perhaps last quarter, last year, other stress periods?
Yeah. Hey, Jamie. It's Jason here. I think we've commented on this prior, and I mentioned on the call. Our customer utilization rate, if I can use that term, today is about 1 in 10. We've seen that trend at that level now for the last number of quarters. That obviously is below the peak that we experienced during the COVID period where economic uncertainty was at an all-time high. That would have seen that percentage about 12% or roughly 13%. What I would say is, in more benign economic times where there is less uncertainty, we would expect to see that assistance level travel in and around the 7%-8% range. Think of those as being the goal posts that we would have experienced over the last, let's say, half-decade that we think are still applicable depending on what the circumstances are in the macro sense.
Okay. Great. Would you be able to share how much the interest receivable balance today is attributable to loans that are on a borrower assistance program? I understand growth in volume and just regular payments that are on accrual. I understand delinquent accounts that are accruing. Yeah, just the piece that is tied to borrower assistance tools would be interesting to hear and how that has moved over the last several quarters.
Yeah. James, it's Hal here. Just in terms of the overall interest receivable, while we don't necessarily have specifics on that particular number. What I'd say is that the majority, I mean, we're kind of looking at about 2/3 of that overall interest receivable is just natural interest receivable on where customers and loans are and aging within their respective buckets. Whether they're a monthly or biweekly payer, et cetera. The balance is really attributed to a couple of key factors there. One, where they're sitting in the delinquency cycle. We did make that change, the accounting policy change in Q4 of last year that allowed accounts to continue to accrue interest beyond 180 days where we still expected to have cash flows and realize value from those assets. That's definitely a piece of that. I'd say the other component, if you look at two-thirds of the balance being just the natural accrual, and then if you were to bifurcate between the delinquency and the borrower assistance tools, I mean, generally speaking, it's about a 50/50 split on balance there. That's how I'd have you think about it.
Okay. How would that have trended maybe, let's say, versus a year ago or a couple of years ago?
Yeah. So James, I mean.
Would it have been like a yeah? Sorry. Go ahead.
Yeah. No, no. It's a great question. I mean, certainly, it would have trended upwards, and the overall interest receivable has been trending upwards year- over- year, as we've noted. I don't have a specific number for you. I think what Jason referenced in terms of utilization and those percentages that he's quoted, where we would have normally been somewhere in the 7% or 8% range, I think, in terms of borrower assistance tools, that's gone up by about 20%-25%. If you extrapolate that, I mean, generally speaking, that's how I would kind of look at it in terms of the numbers there. Good news is the overall interest receivable number has plateaued. As we continue to collect cash and work through and tighten up our borrower assistance programs and collections tools, we expect that number to gradually decline over time.
I appreciate that. I suppose just based on the commentary around, I think it was Gary's question, the first month here of Q4 looks fairly similar to what we saw at the end of Q3. We shouldn't see much deviation here from one quarter to the quarter, assuming that the rest of the year goes the same. Is that fair? Do I understand that correctly?
I mean, I don't think it's necessarily fair to say it's going to stay or is the same. I mean, as I said before, as we update the allowance quarterly, I would pay more attention to how things move through the quarter rather than just rely on any one given month. I would caution you to assume that just because we're seeing things maybe be stable, that necessarily means they're going to be stable going forward. That isn't necessarily to say that they couldn't improve or couldn't worsen. It's just we look at the allowance and true up the allowance at quarter end, and that's where we have a more informed picture of any changes in the customer's borrowing patterns because you can get volatility in any one given month.
I think, it's Dan here, I would just turn you to slide 23, which is we stand by the outlook that's in there, including the net charge-off range, which is clearly going to have an impact as we move through the next two months and the full quarter with regards to how we build ACL and how the models flow.
Yeah. Yeah. Of course. If I could just sneak one last one in around the commentary on the slide around the additional underwriting requirements for auto and power sport verticals for new merchants. Can you describe what you were seeing there? What drove those changes? What are the changes? Is it a reflection of those portfolios, perhaps underperforming the rest of the portfolio?
Yeah. I would describe these as changes we would do on a periodic basis. We just haven't made mention of them in the past, only because we've become a little bit more comprehensive in the way we think about the way in which we would tighten our approach to underwriting, specifically as we onboard new merchants and expand into other categories. It is in the earnings presentation as part of our overall comprehensive approach to risk management and governance. In laying it out, it certainly was not indicated that this was the only time we have done it. It is a regular part of our underlying process. We just happen to have set a new bar, if you will, in how we think about it and the data that we use to inform those levels of changes that we introduced in the quarter.
Thank you very much, guys.
Thank you. A s a reminder, if you wish to ask a question, simply press star one. Your next question comes from Bart Dziarski from RBC Capital Markets. Please go ahead.
Great. Thanks so much. I wanted to ask around the late-stage delinquency. I think you characterized the 3.3% in Q1 2025 as a peak. I'm just wondering what's giving you the confidence to label that a peak. I know we're at 2.8% now, but wanted to see what's driving that.
I can start. Dan, if you want to add any additional comments. I think picking up on Dan's comments, that confidence level in the percentage is really a function of the ongoing investments we have made in collections and our ability to just notch up the operations and be more effective in how we approach and work through those assets, particularly those assets where we have collateral. I think, as we have mentioned in the past, we do that through two primary means. We do it through a vast network of individuals within the company that are responsible for things like asset remarketing and recovery. We also do it through outsourcing work that we do with national providers who supplement that work. As we continue to strengthen our relationships with those providers, we have just been able to benefit from process improvements, not only within the internal set of our business, but also with our partners as well. Dan, I do not know if you want to add.
Yeah. I think Jason covered that well. Yeah. Thank you, Bart.
Okay. Great. Thanks. Just to follow up on the commentary around, so you're taking a more conservative posture. That's great. How does that impact, if at all? There's management overlays within reserves and when setting sort of the base downside-upside case probabilities. I think you guys generally are more conservative towards the base and downside case. Given the more conservative posture now, are those probabilities, have they changed to become even more conservative, or are you keeping them kind of stable?
That's a good question. We've left those overlays stable now. I think this is either the second or the third quarter. Don't quote me, but it's at least one, if not two quarters that we haven't changed them. They are significantly weighted toward neutral and pessimistic scenarios. The vast majority of that weighting sits in those categories. I would point out that, and you can certainly see this in the financial statements in the quarter, if you compare where those FLIs were sitting in December of last year to where they're now sitting as of September. Most of them in all three of those types of scenarios: neutral, pessimistic, that is moderate pessimistic, that is quite pessimistic, most of those metrics have become worse. While our weightings have remained stable, the implications of those FLIs have actually increased if you reference back to Q4 of last year. The management obviously believes that we continue to maintain that conservative posture. As a result, we're picking up the impact of those FLIs moving slightly worse into the future, into the provision model itself.
Great. That's helpful. Thanks.
Thank you. Your next question comes from James Yang from National Bank Capital Markets. Please go ahead.
Yeah. Thanks. I just wanted to just follow up on the ACL and the trajectory for ACL and just thinking about where borrower assistance programs are today at 10%. It's been 10% for a few quarters, based on your commentary. That, in theory, should continue to flow through to, I guess, early-stage delinquencies. An increase in provisions given that those borrowers remain higher risk and the growth of the portfolio, right? We should continue to see that ACL rate rise in future quarters unless we see utilization of borrower assistance programs begin to decline. I guess, am I characterizing this fairly? What gives you some confidence that borrower assistance utilization will decline in upcoming quarters?
I make two comments. One is, the confidence in that use declining would be obviously in relation to whether or not macroeconomic changes improve. That would be the first comment. The second comment I would say is I wouldn't necessarily assume that all of the movement in the provision is being driven by borrower assistance tools. Certainly, that is a tool that we use to assist a select group of borrowers who encounter financial distress. There are other borrowers who encounter other types of financial distress that we have no direct control over. The way in which the provision model works is it takes into consideration the overall customer profile. If you take the most basic example of a customer who's paying us on time, but who may not be paying their other creditors, we'll still pick that up in their overall score because we score those customers monthly based on their bureau activity.
That's an example of where we could have a very good customer on our books but still have a higher level of risk, knowing that we're being paid, but they may not necessarily be paying other borrowers. We have to take the total picture of the customer into consideration because that's how you have to think about it under a provisioning model. It's not just simply a movement of whether the provisioning or the, sorry, the use of the tools are moving up and down. It's also the underlying state of the borrower themselves and what else they're going through with their other borrowings in addition to what they have with Goeasy.
Yeah. Okay. Thank you.
Thank you. There are no further questions at this time. You may proceed.
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