EQB (TSX:EQB) released third-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
This content is powered by Benzinga APIs. For comprehensive financial data and transcripts, visit https://www.benzinga.com/apis/.
Access the full call at https://app.webinar.net/n4gd9YRW0z6
Summary
EQB Inc reported a 4% increase in diluted EPS to $2.12 and a rise in ROE to 10.3% for Q3, driven by acquisition impacts and expense discipline.
The acquisition of PC Financial marks a significant diversification of EQB's revenue streams, contributing to a 55% year-over-year increase in non-interest revenue.
Loans under management rose 12% year-over-year to $82.5 billion, with notable growth in the insured multi-unit residential portfolio.
The company anticipates fiscal 2026 ROE to improve from Q3 levels, with ROTCE expected in the 12% range, despite macroeconomic uncertainties.
EQB's CET1 ratio remains strong at 13.4%, and the dividend was increased by 3% quarter-over-quarter.
The integration of PC Financial is expected to broaden growth drivers, with a focus on expanding customer relationships and deposit growth.
Management expressed confidence in the credit quality of the portfolio, highlighting the resilience of PC Financial's credit card portfolio.
Operational efficiencies are emphasized, with a focus on maintaining competitive advantage through disciplined expense management and strategic technology investments.
Full Transcript
Chadwick Westlake, CEO
Under Darren's leadership. Importantly, our insured multi-unit residential business, which finances exactly what Canada needs more of, purpose-built rental housing supply. Uninsured commercial real estate remains the more challenging part of the market and our approach has been consistent: fewer, better opportunities with strong risk-adjusted yields and close attention to credit quality. Being cloud-native and API-first was a deliberate choice years ago and it's paying off now.
It's why we can integrate a business like PC Financial at this pace, why we can scale without adding costs at the same rate, and why our investments in technology and AI translate into efficiency rather than added overhead. This creates a structural advantage over institutions many times our size and we intend to keep pressing it. That brings me to outlook. We have one quarter left in fiscal 2026 and we look forward to sharing our fiscal 2027 and refreshed medium-term outlook at our Investor Day on December 7, which is set to be an immersive and highly engaging morning for attendees here in the EQ Bank Tower.
In Q4, investors will see the first full-quarter contribution of PC Financial, a further increase in weighted average shares outstanding, and still only a portion of the synergies we expect to realize. We have all experienced sentiment in past days, weeks, and months about the magnitude of geopolitical and macro uncertainty and the potential impact to Canadian employment and the economy. Broadly, we do believe Canadian households are proving resilient and our balance sheet shows that, but we do focus on everyday Canadians and small business owners that are impacted.
Our purpose is to be there to help them get ahead every day, and this volatility and uncertainty could continue for an extended period of time. But taking those factors into account, we expect fiscal 2026 ROE will improve further from our Q3 level, including ROTCE in the 12% range as we make strides toward our medium-term ranges. We built proactive provisioning in Q3 in readiness for this type of environment, and the ongoing trade uncertainty could still add more sensitivity to these ranges.
On capital allocation, our focus is reinvestment in the business while maintaining the flexibility that has long been one of EQB's strategic advantages. Our top priority is a successful integration and progress to our ROE objectives. We will remain opportunistic across share repurchases with capacity under our existing NCIB, dividend growth, and selective inorganic opportunities. There is significant but exciting integration work ahead of us and we are only at the beginning of what is possible.
We have a clear strategy, strong momentum, and a unique opportunity to help millions more Canadians get ahead. This week marks my first year as CEO and I've never been more optimistic about the future of EQB. Now, over to Annalisa.
Annalisa, CFO
Thanks, Chadwick, and good morning, everyone. As a reminder, my comments will be on an adjusted basis and you can find a summary of these adjustments on Slide 25 of today's presentation. Adjusted results exclude the $219 million day one provision on performing acquired credit card receivables and other acquisition-related items. Starting on Slide 7, as Chadwick mentioned, Q3 marks the beginning of a significant shift in EQB's earning profile and the immediate shift in our revenue mix and balance sheet.
As this is our first quarter reporting as a combined business, we have provided additional detail on the acquisition and related accounting impacts on Slide 23 of today's earnings presentation. Slide 24 also highlights key accounting considerations related to the acquisition and how the impacts are expected to flow through reported and adjusted earnings going forward. With that context, I'll turn to this quarter's financial performance. Sequentially, diluted EPS was up 4% to $2.12 and ROE increased to 10.3%.
The positive impacts of the acquisition and continued expense discipline more than offset a continued tough operating environment that resulted in higher PCLs and slower revenue growth overall, delivering returns on a significantly larger equity base following the acquisition. ROTCE, which excludes the approximately $580 million of goodwill and intangibles recognized on July 1, increased 40 basis points to 11.1%. Turning to the balance sheet on Slide 8, loans under management, or LUM, are a key performance metric as they include our market-leading position in insured multi-unit residential mortgages.
LUM increased 12% year over year and 7% sequentially to $82.5 billion. Sequential growth was primarily driven by the acquisition of the acquired PC Financial cards. Excluding the acquired cards, LUM increased 1% sequentially, driven by continued strength in our insured multi-unit residential, decumulation, and uninsured single-family residential portfolios. We achieved this growth despite softer market conditions, reflecting the benefits of our ongoing strategy to optimize our portfolio mix and redeploy capital away from lower-return businesses, including certain pockets of insured single-family residential and long-haul and subprime leases in our equipment financing portfolios. Conventional loans, which exclude the insured single-family and multi-unit residential portfolios, are the primary contributor of net interest income. Conventional loans increased 16% year over year and 14% sequentially, reflecting the addition of the cards to the EQB product shelf and continued growth across most remaining portfolios. Looking ahead, the addition of PC Financial broadens the drivers of growth across the franchise.
While lending remains an important growth engine, we now benefit from the addition of a scaled, loyalty-linked cards business and a significantly larger customer base, reducing our dependence on housing-related activity. We are on track to achieve our 2026 LUM growth outlook of high single-digit to low double-digit growth and now expect to land in the upper end of the range as a combined franchise. Now turning to deposits, total deposits were up 3% year over year and 2% sequentially, driven by growth in retail banking deposits following the closing of PC Financial, partly offset by the impacts of a covered bond maturity and seasonality in credit union balances. We continue to access a diversified mix of funding sources. This provides important flexibility and enables us to actively manage and optimize our cost of funding while maintaining pricing discipline in a competitive environment. We also continue to improve the proportion of lower-cost funding, supporting margin resilience in a difficult and highly competitive environment. Retail deposits now represent 29% of total funding, up more than 2 percentage points from a year ago.
As we deepen customer relationships across our larger franchise, we expect further growth in lower-cost deposits and a continued strengthening of our funding profile. Turning to NII on Slide 9, net interest income was $319 million, up 22% both year over year and quarter over quarter. NIM increased 33 basis points, reflecting a structural shift in our product mix and margin profile following the addition of the acquired credit card portfolio. Margins in other personal and commercial portfolios were stable on a normalized-days basis as compared to last quarter, reflecting disciplined pricing and proactive margin management.
Looking ahead, we expect margin performance to improve next quarter, reflecting a full quarter's contribution from PC Financial. Turning to Slide 10, non-interest revenue of $73.9 million increased 55% year over year and 77% sequentially. The addition of PC Financial represents a significant diversification of our revenue streams and introduces a larger source of recurring fee-based income through interchange card fees and insurance-related revenue.
These benefits were partially offset by lower securitization income, where we saw activity moderating and tighter spreads driven by sluggish economic and interest rate environments. Turning to non-interest expenses on Slide 11, adjusted non-interest expenses increased 19% year over year and 32% sequentially. Year over year, results reflected the addition of PC Financial, partially offset by the benefits of the strategic restructuring program completed last October, where we are tracking to exceed our pre-tax expense savings target of $45 million, while continuing to invest thoughtfully in growth and strategic priorities.
Sequentially, results reflected the addition of PC Financial and higher initiative spending, while expense discipline remains strong. Recall that Q2 also benefited from a few favorable items, including a capital tax benefit. Efficiency remains strong at 50.1% and we are on track to achieve our low-50s target for fiscal 2026. Despite loyalty-linked cards portfolios carrying a higher relative expense profile, our focus remains on managing the combined organization thoughtfully while continuing to invest in customer growth and the capabilities required to support a business of greater scale.
As Chadwick mentioned, we have strong initial momentum capturing integration cost synergies already. And finally, turning to capital on Slide 12, the bank's CET1 ratio remains strong at 13.4%, as compared to 13.6% last quarter, reflecting the impact of RWA growth primarily driven by the acquisition and mostly offset by the issuance of common shares and modest capital consumption associated with the quarter's reported results. Our total capital ratio is strong and remains well above our target and regulatory minimums.
We also increased the dividend to $0.63 per share this morning, up 3% quarter over quarter and 15% year over year, continuing our track record of returning capital to shareholders. I'll now turn the call over to Punish to take us through risk. Welcome, Punish.
Paneesh, CRO
Thank you, Annalisa and Chadwick, for the kind introduction. It is a privilege to serve as the CRO of EQB Inc. I'll start with slide 14. The closing of the PC Financial acquisition meaningfully changes the composition of our lending portfolio. It also resulted in several acquisition-related credit impacts that are important to distinguish from the underlying credit performance. As Annalisa mentioned, we recorded day-one performing provisions of $219 million against the card portfolio.
It is a one-time, acquisition-related provision and does not reflect credit deterioration since closing. Drawing on my experience managing PC Financial's risk group, I would highlight the following key points about the portfolio. PC Financial's credit card portfolio is seventh largest by purchase volume, which drives fee-based interchange revenue, and eighth largest by outstanding balances. It is the top-in-wallet card for 42% of our customers, driving strong engagement and loyalty.
Approximately 72% of the customers have been with PC Financial for more than five years, underscoring the loyalty and tenure of the customer base. Finally, a significant portion of purchase volume comes outside Loblaw banners, underscoring the broad utility of the card. Speaking about the credit quality of the portfolio, approximately 70% of the customers are super-prime, with an average FICO score of 768. The portfolio is well diversified across Canada.
Taken together, these metrics reinforce our view that this is a resilient, high-quality portfolio with strong through-the-cycle performance characteristics. We believe the portfolio's scale, seasoning, and broad national customer base provide a strong foundation as we integrate cards into our risk management framework. Performing provisions were $35.2 million, largely driven by the acquired credit card portfolio, which contributed $21 million during July, as well as a material build within the personal residential portfolio in response to the current macroeconomic environment.
In an environment characterized by persistent uncertainty, our priorities are unchanged: disciplined lending and rigorous credit oversight. Our asset-backed lending portfolios continue to be focused in urban areas with economic diversity. Our ACL coverage ratio increased to 95 basis points, or 50 basis points excluding the impact of the credit card portfolio, compared to 46 basis points in Q2 and 33 basis points a year ago. Turning to slide 15, impaired PCLs increased 7 basis points sequentially to 42 basis points, reflecting higher provisions across the personal and commercial business.
Excluding the cards in personal lending, impaired provisions increased to $17 million, reflecting continued market softness fueled by uncertainty and extended resolution times. The pressures remain concentrated in select GTA surrounding suburbs and continue to be primarily associated with vintages tied to peak market values. Importantly, as noted in prior quarters, we have not observed these pressures spreading to other regions or vintages. In commercial, impaired provisions increased to $24.9 million.
These provisions remain concentrated in a small number of previously impaired loans that continue to experience extended resolution times within the subdued commercial real estate market. In equipment financing, provisions increased to $8.4 million, reflecting higher formations during the quarter. While performance in the portfolio was elevated in Q3, we continue to see the benefits of repositioning actions undertaken over the last two years, including reducing our exposure to long-haul trucking and a shift to higher-quality assets.
Turning to slide 16, gross impaired loans increased a modest $38 million, the lowest rate of sequential increase since Q1.25. The gross impaired loan ratio declined due to growth in the overall loan portfolio, including the addition of the acquired credit card receivables, and a slowdown in the pace of new formations. Formations were down 16% sequentially, primarily reflecting lower commercial formations, partly offset by a modest increase in residential.
GILs in residential increased 5% quarter over quarter, driven by continued pressure in a softer housing market and longer workout times. GILs in commercial lending increased a modest 1% quarter over quarter, driven by new formations partly offset by resolutions and write-offs amid a subdued real estate market. As a reminder, approximately 85% of our commercial loans are CMHC-insured. We are encouraged by this quarter's modest increase and last quarter's decline, excluding the large single insured exposure.
Overall, while credit quality remains uneven—particularly within portions of the residential and commercial real estate markets—we remain comfortable with the quality of our portfolios, the level of reserves we carry, and actions we have taken to proactively position the balance sheet through the cycle. The addition of the PC Financial credit card portfolio further diversifies our credit exposures and earnings profile away from Canadian real estate while continuing to offer attractive risk-adjusted returns against a backdrop of elevated macro and geopolitical risk.
We continue to expect normalization to be skewed towards 2027, absent a material shift in the outlook. With that, I will turn the call back to Lamar for the Q&A portion of the call.
Lamar, Investor Relations
Thanks, Paneesh. I would ask that you limit yourself to one or two questions and then please re-queue so that we can get to everyone. With that, operator, can we have the first question from the line?
OPERATOR
Thank you, sir. Just a reminder, ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone phone. And if you wish to withdraw from the process, please press star followed by two. Thank you. And your first question will be from John Akin at Jefferies.
John Akin, Analyst at Jefferies
Good morning, Paneesh. Just wanted to clarify your statements on the commercial portfolio. First, commercial ex the equipment financing. You said the increase in the impaired provisions were basically because of the extended resolution portion. Was any of the increase actually related to new formations within the commercial equipment financing portfolio?
Paneesh, CRO
I would say it was not. No major formations came from the portfolio.
John Akin, Analyst at Jefferies
Okay, so then when I take a look at the fact that the impaired provisions are actually increasing given the extended resolution period, what can we expect moving forward in terms of is this going to continue to tick up until these things are resolved, or was there something unusual in the quarter that caused the $2 million increase? Yeah, Darren, did you want to—
Darren
Yeah, so I was going to add to that. So I think you were talking commercial real estate impairments—just wanted to be clear. The majority of the increase in provisions we took were on a handful of larger commercial loans where those have been with us for a while, not new formations. And we have seen some softening in distressed asset values in certain locations and certain property types, so that really reflects the increased provisioning. We feel very strongly that they're well provisioned at this point and don't expect, you know, material new provisions next quarter.
John Akin, Analyst at Jefferies
All else equal. Okay, thank you, Henrique.
OPERATOR
Next question will be from Gabrielle Deschein at National Bank. Please go ahead.
Gabrielle Deschein, Analyst at National Bank
Hey, thank you, and good morning. My first question is on the expenses, and it's been a good story for the past few quarters—coming in lower than I expected anyways. I get you're managing the costs against the revenue growth you're seeing, which is reasonable, advisable, all that stuff. Just wondering how that evolves in the coming quarters as the PC Financial integration advances. Any promos, rebranding, things that cost money that might create some noise in the coming quarters, or is that just going to be offset through the synergies?
Chadwick Westlake, CEO
Thanks, Gabe. Good morning. So a couple different dimensions there. I'll reiterate what I said—that efficiency will be, it needs to be, a competitive advantage of EQB, and so we'll always continue to evaluate this on a continuous improvement process, and there's a few dimensions to that that Annalisa will speak to in a minute. But I would say, are there costs associated with the integration? Yes, we'll certainly have an integration budget and we'll disclose as we spend that.
But there is investment we'll make to converge our brands, to converge the digital platforms, and to ensure we're building fulsome customer relationships. So that's all part of our business case and when we really express the accretion that we think we'll still generate from this deal. But you want to talk about a couple of the cost components, too, considering how we're actually going to improve?
Annalisa, CFO
Yeah, absolutely. Thanks, Gabe, for the question. I mean, our philosophy is that expenses need to move in line with revenues, and so we're targeting overall efficiency ratios maintaining in that low-50s range. Of course, loyalty-linked credit cards have a higher overall expense base as we do that, but we will be really intentional around where we invest. We see the integration and the acquisition of PC Financial provide significant cross-selling opportunities, and that will take investment together with other areas of growth across the banking, continued innovation, and building out capabilities.
So overall, expenses have been a very positive storyline. We have consistently delivered thoughtful expense management throughout the quarter, and we'll continue to do that.
Gabrielle Deschein, Analyst at National Bank
All right. And then as far as the credit performance goes in the mortgage book, maybe let's dissect the impaired PCL. Is that on newly impaired loans, or are we still seeing any—I'll call them catch-up provisions on previously impaired ones because they're spending more time on the market, more maintenance costs and all that? And then, you know, more broadly, are we still seeing the issues in the same, you know, regions or, you know, cities, whatever, or is it broadening at all?
Chadwick Westlake, CEO
Yeah, I'm going to turn to Paneesh again. He shared some of that in his remarks, but I'd say, Gabriel, as well, we've been preparing for these types of scenarios. In our modeling, there's always judgment, there's models. We've been thinking through these types of scenarios, and that's why we mentioned there was more proactive build that we did. That's why you saw the performing build component. But do you want to talk a little bit about the single-family—firm up some points for Gabe?
Paneesh, CRO
Thanks, Chadwick. You know, our provisions are remaining concentrated in the shoulder vintages that we've spoken about in the past. These are particularly in the GTA, where property values have fallen and resolution times are taking more. So by and large it is in the same regions, and we have not seen the movement of these to any other regions.
Gabrielle Deschein, Analyst at National Bank
Right. And then the nature of the impaired—are the impaireds we saw this quarter on formations in the quarter, or are they any increases to previously impaired mortgages?
Paneesh, CRO
It was with both.
Gabrielle Deschein, Analyst at National Bank
Both. Okay.
Paneesh, CRO
Yeah, it's just with both.
Gabrielle Deschein, Analyst at National Bank
All right, thank you.
OPERATOR
Question will be from Fernando Torrelba at TD Securities. Please go ahead.
Fernando Torrelba, Analyst at TD Securities
Thank you. I just wanted to start off with PC Financial, and apologies if I missed this earlier, but anything you can give us—timing or magnitude of what you expect there—to ramp up in terms of growing the retail deposits with the acquired business?
Chadwick Westlake, CEO
Sure. Fernando, good morning. It's a great question. We're excited about quite a lot of growth from this business, and we saw some of that even in the first month, where I mentioned we saw growth in applications—growth right across the product shelf. We have a really concise strategy here, and I think Daniel runs this business. Daniel, do you want to share some comments on how we're going to grow deposits but the overall business as well? Yeah, thanks for the question, Fernando. I mean the way we think about growth now as an integrated bank is we think about growth from a customer perspective and that'll span across all the different product areas that we now support. So our strategy will be to look within the customer base that we have, look within the PC Optimum customer base and think about how we can attract multi‑product customers new to the bank and also how we can take our existing customers and move them across products, card products, into deposits and into GICs and if it's core EQB deposit customers, moving them into the card products.
Fernando Torrelba, Analyst at TD Securities
Got it. Thank you. That makes sense. And then just to shift over a little bit into residential mortgage credit. One thing that stood out to me is, you know, delinquencies have been on a downtrend for the past couple of quarters. So that certainly is a positive. But new formations, they are either stable or up for the residential. Just wondering why that's the case.
Paneesh, CRO
Yeah, we have looked at the models we have and decided to basically take a holistic approach on these one. Models are showing both judgment and model‑driven numbers. And we have incorporated this in the final provision that we've taken and we are very comfortable with that number.
Fernando Torrelba, Analyst at TD Securities
So you're saying that the new formations. I'm not sure that I understood that. You're saying that the new formations reflect greater conservatism on existing loans or is it that there's new loans that are becoming impaired as time goes by even though the delinquencies are down?
Paneesh, CRO
Yes, it's on both.
Fernando Torrelba, Analyst at TD Securities
Okay, thank you. And then just maybe one last one. I also noticed that LTVs on originations, not the entire loan book just on originations, they continue to climb. They're now 71%. Just wondering how that affects your outlook for credit. Because I would imagine with if you want to be more conservative, you know, wouldn't that mean that LTVs on newly originated mortgages should be down rather, rather than up any color you can offer then? That would be helpful.
And that's only insured mortgages I'm referring to.
Daniel
Yeah, it's Daniel here. I guess a couple of things I would say is nothing's changed in terms of our adjudication criteria for new mortgages. I mean, obviously on the insured side, you do see higher LTV. That's the nature of the product. So we have re‑entered into the prime insured space. And so you will see higher LTV in those, but obviously offset by the fact that the clients have default insurance against it. But nothing on the uninsured side that would be outside of our historical approval criteria for new originations.
Fernando Torrelba, Analyst at TD Securities
Okay, that's fair. Thank you very much.
OPERATOR
Next question is from Paul Holden at CIBC. Please go ahead.
Paul Holden, Analyst at CIBC
Thank you. The first question is going back to the single‑family residential mortgages. You know, a number of questions on credit trends. I think the real question people are trying to get to is, have impaired PCLs peaked here or is there more to go? And if the answer is they've peaked or reached a plateau, like what, what, what metrics would you point us to to support that argument?
Paneesh, CRO
Yeah, you know, you know, I think it's a great question. You know, from my perspective, you know, what we've done is, you know, you know, we've looked at the comprehensive, you know, nature of our models and you know, at the quarter and, you know, we've included, you know, all the judgment and, you know, model outputs and, you know, our view is that, you know, we are appropriately provided at the end and we've taken several quarters of lower delinquencies in the equation as well.
Paul Holden, Analyst at CIBC
Okay, so that answer is you believe they've peaked and you're now adequately provisioned.
Annalisa, CFO
We're proactively provisioned for the current environment. I think what we're saying is there's still going to be uncertainty out there, but we proactively also apply judgment to build performing provisions given the current environment. So I, we are comfortable with our provisioning, but that's an important part of the build that we made. And it's that, you know, you look at that 50 versus 30 basis points, right. That's a reflection of the proactive build.
Understand?
Paul Holden, Analyst at CIBC
Okay, any, anything then. So following up on that, like anything you can point to just in terms of like from a rate of change argument. Right. Like there's some. The reason I'm going to drill down on this is there's some conflicting type information I see, right, where you look at the delinquent but not yet impaired rates, and those are improving and I think improved two quarters in a row. Again, sticking with single‑family residential. Yet formations are up.
And that's why I just want to drill down onto this. Like what should we be looking to to get confidence again, if we should get confidence that the situation has stabilized or maybe we should take a view that, well, maybe it hasn't stabilized, maybe there is potential for impaired to continue to go up in the near term.
Chadwick Westlake, CEO
Yeah, well, again, that's why we. What I'd say again, Paul, is we proactively built for a higher level of uncertainty. This has not spread past what we talked about. You know, we talked about these particular vintages for a period of time. We've seen some great improving, stable to improving trends. Formations are slowing. So that's always going to be one of your key indicators, right? The delinquencies and formations, whether they're slowing down. So the days past due is down. That's another metric that we look at regularly and that's improving as well. So I'll keep reiterating. We've been proactive given the economic environment to do a further build. But the key indicators around formations, delinquency, days past due, those are all stable to improving.
So that should be seen as an encouraging trend.
Paul Holden, Analyst at CIBC
Okay, all right, I'll leave that one alone. I want to go back to another question that was asked earlier in the call because I do also think it's a really important question which is kind of on the timing at which you can actually start to pursue this growth strategy. Right. So you kind of provide an overview of what the growth strategy is. But like, you know, when should we expect this growth strategy to really kind of manifest? Does it take a year of integration before you can really start pushing growth through PC customers and PC cards or cards into existing EQB clients?
Or maybe it goes faster than that. I guess that's what we're trying to, trying to suss out here. Like how long does it take before we can start seeing some of those results of the growth strategy?
Chadwick Westlake, CEO
Yeah, for sure, Paul. It's an excellent question that we're happy to provide more context on with Daniel, because my short answer is they started day one. Day one, we're seeing that and I really want to reinforce the excitement in the momentum that we have. Day one and it's going to look a lot different day 100, day 365. There's a lot of excitement to share. But Daniel, do you want to give a few components to that?
Daniel
Yeah, thanks, Chadwick. You took my answer. It started, it started day one in July. So we, we went out very quickly after legal day one already to our EQB customers with really attractive offers for the PC MasterCard. And we saw great results. And we're going to continue to do this, obviously through integration. We're going to start bringing the plat, the technology together, the digital experiences together. We have a lot of work to do, of course, on physical branding and how we show up in our 6,000 locations across the country.
But that doesn't stop us from bringing value to the customers, our combined 4 million customers that we have today and helping them both understand and be aware of our brands and our products, but also start to take advantage of the great opportunities to do more business with us. We have pop‑up locations going up across the country. It's generating a ton of excitement right now. So there is a lot going on. What I would look for from us is the continued momentum both on how we're deepening relationships with our customers and also how we're bringing in new active customers into our bank.
That'll be a key thing that we're focused on over the coming months.
Chadwick Westlake, CEO
Yeah, the only part I'd re‑underline, Paul, is that you don't have to wait for everything to converge to see that growth. That's what I don't want people to believe. We have a wonderful platform with PC MasterCard, PC Money Accounts, PC Insurance, the list goes on. And PC Optimum, 18 million members. All of this comes together into our new ecosystem. The growth will simply expand further past as we converge the platforms. But all the ingredients are there and the accelerator is already moving.
Paul Holden, Analyst at CIBC
Okay, the answer is clear now and helpful. Thank you.
OPERATOR
Next question will be from Darko Mihalik at RBC Capital Markets. Please go ahead.
Darko Mihalik, Analyst at RBC Capital Markets
Hi. Thank you. Good morning. My question is for Paneesh and nice to meet you over conference call. Look forward to meeting you in person. But typically it's been my experience that when we do get a new Chief Risk Officer, they typically do a deep dive and a review of the portfolio. So I haven't heard you explicitly say you're doing it, but. But my question is sort of twofold along those lines. First is, are you indeed doing a deep dive on the portfolio?
And then secondly, would it be reasonable to conclude that you might be able to finish this deep dive by year‑end?
Paneesh, CRO
I would say I've already done deep diving. I've spent first 45 days on the portfolio. We've looked at portfolios from various angles. Where are the vulnerabilities, what are the models reflecting, you know, what's happening on, you know, resolution times for us, you know, what's happening in the LGD. So, you know, during this period, you know, I would say, you know, I've taken all these factors into the equation. You know, we have, you know, used both, reflected them in the models.
And I would say we've also applied judgment and that's the reason, you know, I'm fairly comfortable to, you know, highlight that the provisions that we have taken are appropriate, you know, you know, having said this, and I know there are a couple of other areas that, you know, I would spend time in Q4 and, you know, reflect. But overall, you know, you know, very comfortable, you know, with the number we have booked based on all the enhancements that I've done in my first 45 days.
Darko Mihalik, Analyst at RBC Capital Markets
Okay, and so it's reasonable. I mean, what portfolios might still be up for a deeper dive, a little bit more of a review. Would I be correct in thinking it might be commercial equipment finance and that may be. Maybe given the action you took today or this quarter with respect to mortgage performing reserves, that that mortgage reserve is sort of a function of the deep dive there and maybe commercial and equipment comes by year‑end. Is that a reasonable thought process for me to go through?
Paneesh, CRO
No, I would say we've looked at, I would say I've looked at commercial, we've looked at equipment finance and we have looked at SFR. Where I mentioned that things that we will look in Q4 is in‑house scope and evolving nature of the macro environment and how do we reflect that in the equation. So, you know, from a deep dive perspective, we've looked at SFR, we've looked at commercial, we've looked at IT financing business, and all aspects have been covered in the appropriate provisions that we've taken in the quarter.
Darko Mihalik, Analyst at RBC Capital Markets
Okay, thank you very much. Appreciate that.
OPERATOR
Next question will be from Mike Rizvanovich at Scotiabank. Please go ahead.
Mike Rizvanovich, Analyst
Good morning, Chadwick. I just wanted to go back to your comment on—I think what you mentioned was the ROTCE potentially moving from 10 to 11. And then, just by the differential, it sounds like ROE would move from 11 to—sorry, ROTCE moving towards 11, which means the ROE would probably move towards something north of 11. But just in the context of that guidance—I know it's just a loose sort of guidance—but are you just building in conservatism there?
Because when I think about PCLs potentially normalizing, and maybe we finally get some increased activity in the housing market—it's been anemic for so long—it seems like you could just potentially, if those things do happen, just blow right past that number. So I'm just wondering if that's a conservative bent on what you said earlier.
Chadwick Westlake, CEO
Yeah, so I said in my remarks: expansion from Q3 and ROTCE in the 12% range. Right. So that's a range. There's always going to be seasonality with cards. There are going to be various factors. I wouldn't say conservatism is an accounting term, but we're being practical and thoughtful, applying our judgment in the current operating environment. It's enough said about what's happening today, right, in past days. That's why we were very proactive about that.
But that is growth. We think we will—we could pick up the pace more. If geopolitical conditions—and it can go the other way too. But we're very comfortable with the provisioning and our momentum, that progress towards ROTCE. And we'll share more at Q4 with the investor day in terms of what that looks like for next year. But we're comfortable that it's going to continue to improve and go higher from here in ROE and ROTCE.
Mike Rizvanovich, Analyst
Okay, I get it. Sorry, I misquoted the ROTCE 12, which means ROE would be somewhere in that 11 range. And then just on the credit and interest rate mark—just want to get your color on this. I know it's common practice that banks do leave this in adjusted numbers or core numbers, but in the case of EQB with this deal, because it is such a sizable transaction, it does seem to set up a dynamic where as that mark comes off into 2028, it just seems to set up a pretty tough comp year for 2028 versus 2027 in terms of the growth. Do you have any concerns on that?
I'm just wondering the rationale of leaving such a sizable amount in your core numbers, which looks like it'll disappear in about seven or eight quarters.
Annalisa, CFO
Yeah, thanks, Mike, for the question. We've included on slide 24 of the earnings presentation kind of a roadmap, if you will, to make sure that it's really clear and transparent—the impact of those marks in-quarter and also the impact of those marks in future quarters. You know, the reality is those marks, the fair value marks, they are a true reflection of the economics of the portfolio that we bought. It's no different than buying another bond at a premium or a discount, and we treat this exactly the same way.
And so there's real economic value in those, which is why they continue to impact the results. You're absolutely right that they don't last forever. But what happens effectively is that as the marks come down, we get really good momentum on our synergy targets. For example, our cost synergies—we've already achieved 50% of the $30 million two-year target that we set, and that continues to come in. We think about the cross-selling and the integration work that both Chadwick and Daniel have talked about this morning.
And so yes, it is quite a bit to earn through. But we have a lot of confidence and conviction in the deal thesis.
Mike Rizvanovich, Analyst
Okay, appreciate the color. And then, if I can sneak a quick one in for Paneesh: just in terms of the court backlog—that's been a bit of an issue for EQB in getting resolutions—has that started to improve at all?
Daniel
I can actually take that. It's Daniel. We look at this very closely on the collections side. I think I shared last quarter we were seeing collections timelines starting to push into the 12 to 18 months for enforcement. It's actually getting longer. We're now seeing some in the 18 to 24 months. It's national; it's across the country. I would highlight Quebec has been the most challenging. But what I would have said last quarter—12 to 18—is now starting to push 18 to 24.
So it continues to be a challenge from an enforcement standpoint.
Mike Rizvanovich, Analyst
Okay, it's helpful. Thanks for the color.
Daniel
Thanks, Mike.
OPERATOR
At this time, Mr. Westlake, we have no other questions registered. Please proceed.
Chadwick Westlake, CEO
Thank you. The best way to understand a business is to try the products and services. If you haven't yet, please consider applying for one of our new, leading suite of Mastercards so we can help you generate more PC Optimum points. Try an EQ Bank account or PC Money Account—it's free, simple, and rewarding. Once you try, you'll see why hundreds of people are opening accounts by the day. There are so many great ways we can help you get ahead every day.
We look forward to speaking with you again at our Q4 earnings call on December 3rd. Have a great day.
OPERATOR
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your line.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
Login to comment