goeasy (TSX:GSY) held its second-quarter earnings conference call on Friday. Below is the complete transcript from the call.
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Summary
goeasy Ltd. reported adjusted diluted earnings per share of $1.02 for Q2 2026, showing improvement from a loss per share of $1.90 in Q1 2026.
The company reduced loan originations by 70% year-over-year to strengthen its balance sheet, resulting in a contraction of gross consumer loans receivable by $363 million.
Net charge-offs improved to 16.7%, with delinquency rates also showing positive trends.
Strategic focus remains on direct-to-consumer lending, reducing exposure to underperforming merchant-originated loans, and improving liquidity.
The company successfully repaid its revolving credit facility and regained the ability to make incremental draws.
Management highlighted the progress on a six-point plan aimed at stabilizing the business and strengthening the foundation for long-term growth.
Future guidance includes expectations of ending loans receivable between $4.8 and $5 billion for Q3 2026, with net charge-offs projected between 14.5% and 16%.
Full Transcript
OPERATOR
Good morning, ladies and gentlemen, and welcome to the goeasy Ltd. Q2 2026 earnings call. At this time, all lines are in listen-only mode. Following the presentation, we will 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 Friday, August 7, 2026. I would now like to turn the conference over to James O’Bright. Please go ahead.
James O’Bright, Senior Vice President, Investor Relations and Capital Markets
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 Ltd.’s results for the second quarter ended June 30, 2026. Our Q2 news release, which was issued yesterday, is available on SEDAR+ and on the goeasy website. On today’s call, Patrick Ens, goeasy’s Chief Executive Officer, will provide an update on our second quarter performance and recent developments and an outlook for the business.
Felix Wu, our Chief Financial Officer, will provide an overview of our Q2 2026 financial results as well as our liquidity position. Also joining us on the call today is Jason Appel, goeasy’s Chief Risk Officer. After the prepared remarks, we will open the lines for questions from our research 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 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 in the Investor Relations section of the company website. As noted on slides two and three, forward-looking statements will be made on this call which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially. I would also remind listeners that goeasy uses non-IFRS financial measures and metrics to arrive at adjusted results. Please refer to our Q2 MD&A for further details on the risks, assumptions and non-IFRS measures.
Management evaluates performance on both a reported and an adjusted basis and considers both useful for assessing underlying business performance. These are more fully described in the appendix. With that, I will now turn the call over to Patrick Ens.
Patrick Ens, Chief Executive Officer
Thank you, James, and welcome to everyone listening today. goeasy exists to create financial opportunity for Canadians who are underserved by traditional financial institutions. Serving those customers well with discipline, care and innovation is how we create lasting value for our shareholders, employees and the communities in which we operate. That purpose is at the center of everything we do. I saw it reflected firsthand in the considerable time I spent with frontline leaders and employees across the country during the past several weeks.
These conversations provided valuable insight into the evolving needs of our customers and the opportunities we have to continue improving execution. What stood out most was the strength of our people, their commitment to serving our customers and supporting each other, and coming to work with enthusiasm and resilience every day. We have long believed that culture is a competitive advantage and what I saw confirmed that belief. Our strategic priorities for the near term are clear and consistent with those I outlined in Q1.
We are reducing our exposure to underperforming merchant-originated loans, concentrating new originations in our direct-to-consumer easyfinancial brand and managing our liquidity and balance sheet carefully. We are doing this with a close eye on the macroeconomic backdrop where the Canadian non-prime consumer continues to feel pressure from a prolonged period of economic uncertainty. Our objective remains to reduce credit losses, strengthen our balance sheet and return to generating healthy returns for shareholders.
We have continued to execute against our six-point plan and I look forward to discussing that in more detail shortly. Let’s turn to an update on the business, starting with the key financial developments of the quarter. We delivered adjusted diluted earnings per share of $1.02. This is down compared to the second quarter of 2025, but up sequentially from an adjusted diluted loss per share of $1.90 in Q1 2026. Consistent with our plans, we pulled back significantly on originations in Q2.
Originations are the largest use of cash in our business. Reducing them, combined with continued strength in cash provided by operations before net principal written, meaningfully strengthened our balance sheet this quarter, together with elevated but improving levels of net charge-offs. Lower Q2 originations resulted in a contraction in our gross consumer loans receivable by $363 million or 6.8% on a quarter-over-quarter basis to a quarter-end balance of $5 billion.
Elevated charge-offs in our merchant-originated Lendcare business continue to weigh on profitability. The overall net charge-off rate came in as anticipated at 16.7%, higher year over year but improving by 110 basis points relative to the first quarter. Delinquencies trended better, down 100 basis points year over year to 11.9%. An improvement in 30-days-plus past due loan balances was partially offset by an increase in the 1- to 30-day category relative to Q1.
Loan balances greater than 30 days past due declined from 5.9% to 5.8%. Total allowance for credit losses on gross consumer loans increased to $499.5 million from $406.7 million at this time last year. The net change in ACL was negative $41.6 million compared to positive $21 million in the second quarter of 2025. This provision release contributed to improved earnings relative to the prior quarter. As a core focus of our six-point plan, we continue to prudently manage our liquidity.
We tightened credit, particularly in the merchant-originated loan portfolio, while also pulling back originations in our direct-to-consumer segment. We built up our cash position and repaid the full balance on our revolving credit facility by quarter end, meaningfully improving our debt to adjusted tangible equity ratio to 4.95 times, down from 5.3 times in Q1. As of July 1st, we regained the ability to make incremental draws on our revolving credit facility.
We also received confirmation from the lenders under a revolving securitization facility that the audit report requirement had been satisfied. As a reminder, this audit report was one of two conditions required to restore access to incremental draws on that facility. We have meaningfully advanced steps to replace the backup servicer which will satisfy the second condition. Turning to our financial performance compared to the first quarter of 2026, we improved our total yields, reduced our net charge-off rate, managed our costs and delivered positive earnings.
We also strengthened our leverage position. As expected, our results were impacted by our decision to reduce originations alongside elevated net charge-offs, though the charge-off rate itself continued to improve relative to Q1. Turning to slide 8, I want to highlight our progress on the six-point plan we introduced on March 10th. First, despite pulling back significantly on originations in the second quarter to prioritize liquidity, we have increased the direct-to-consumer share of our total gross loans receivable by 300 basis points since Q4.
We will continue to focus second-half originations on easyfinancial direct-to-consumer lending. Second, we made a very significant reduction to second quarter Lendcare originations year over year. We are maintaining a selective presence in segments and merchants where performance meets our standards and we see opportunities for future optimization. Third, we strengthened our leadership team with key appointments that bring additional outside expertise.
In mid-June, we welcomed Lynn Ottie to goeasy’s executive team as SVP and Chief Operations Officer. Lynn brings deep consumer lending expertise across operations, risk, collections, customer experience and transformation built through 15-plus years in non-prime consumer lending. At goeasy, Lynn will consolidate and oversee loan processing, customer service, collections and administration. Fourth, we continued our focus on operational and cost efficiencies.
In the quarter, we closed one of our four main office locations, generating greater operating leverage on our real estate spend. Fifth, our efforts to strengthen Lendcare progressed as expected, including improvements to net charge-off rates. We continue to evaluate our long-term strategy for the merchant-originated business and, sixth, we delivered on our aim to strengthen our balance sheet and liquidity position with the retained cash flow from reduced originations.
We repaid our revolving credit facility in full effective July 1st. We restored access to incremental draws on that facility. The progress made on our balance sheet gives us a stronger starting point for origination activity going forward. Our six-point action plan has two objectives: to stabilize the business in the near term and to strengthen the foundation for sustainable, profitable growth over the long term. We have made meaningful progress on both and are well advanced in building a stronger, more resilient company.
Slide 9 revisits the Q2 2026 outlook that we shared with our Q1 financial results. Actual Q2 performance was consistent with our outlook across all three measures. Ending gross consumer loans receivable of $5 billion came in at the midpoint of our $4.9 to $5.1 billion outlook range. Total yield on consumer loans came in at 28.3%, near the top end of our 27% to 28.5% range, and net charge-offs at 16.7% came in at the midpoint of our 16% to 17.5% outlook.
Slide 10 presents an update on the composition of our gross loans receivable, focusing on the direct-to-consumer and merchant-originated split. As noted in the six-point plan update, Lendcare merchant-originated loans represented 39.7% of our portfolio at the end of Q2, down from 41.3% in Q1 and from 46.2% in Q2 last year. The core of direct-to-consumer unsecured personal loans, secured home equity loans and easyhome lending now make up 60.3% of our total portfolio from 53.8% in Q2 2025.
That 650 basis point shift in one year reflects the deliberate repositioning of the portfolio toward our core franchise. We expect this shift to continue. Direct-to-consumer unsecured and secured originations will be our primary focus in the second half of 2026. Slide 11 provides an update on the performance of the components of our easyfinancial reporting segment. Quarter-over-quarter, weighted average interest rates of originations remained largely stable across our easyfinancial unsecured, easyfinancial secured and Lendcare merchant-originated secured loans.
At quarter end, 87.9% of total gross consumer loans receivable carried an interest rate at or below the 35% APR maximum allowable interest rate for loans written after January 1, 2025. This was up 130 basis points from 86.6% as of March 31. In Q2, credit performance in our direct-to-consumer secured product continued in line with expectations. Annualized net charge-offs for direct-to-consumer unsecured loans were 17%, up from 13% in Q2 2025. This increase was driven by three: a declining loan book, or the denominator effect, a significant increase in non-prime consumer insolvency rates, and an increase in aged losses in our merchant-originated loan portfolios. Net charge-offs fell 580 basis points to 20.6% in the quarter from 26.4% in Q1, in line with our expectations. I will now turn the call over to our CFO, Felix Wu, for a discussion of our second quarter financial performance.
Felix Wu, Chief Financial Officer
Thank you, Patrick, and good morning, everyone. Before recapping our second-quarter financial performance, I want to provide an update on the LendCare-specific material weakness related to IFRS 9 that we identified at year-end. Since our first-quarter update, we have continued to make meaningful progress in our remediation plan. We are strengthening governance and operational controls as well as enhancing our policies, documentation, and training.
During the quarter, we engaged a Big Four consulting firm to conduct an independent advisory assessment of our broader internal controls over financial reporting, or ICFR, program. Most importantly, the targeted assessment did not identify additional critical gaps in our program. It highlighted the strong commitment to ICFR by our internal audit team as well as additional opportunities for improvement. Our focus remains on implementing, monitoring, and testing these enhanced controls.
Our internal audit function is now actively performing control testing. As we have previously stated, a material weakness is not remediated until the controls have operated for a sufficient period and have been validated through testing. We remain committed to maintaining a strong control environment and high standards of financial reporting discipline. Turning to our year-to-date results, the 2% year-over-year decline in our consumer loan portfolio led to a modest decrease in revenue.
Our net income and return on equity were negatively impacted by elevated net charge-offs in our merchant-originated auto and powersports portfolios. On an adjusted basis, we reported a net loss of 14.5 million and adjusted diluted loss per share of $0.88, both of which were down year over year. On Slide 14, we tightened credit measures in the merchant-originated loan portfolio and curtailed loan originations. In Q2, we managed originations down 70% year over year to 272 million from 904 million in the second quarter of 2025.
This helped to bolster our liquidity position. The reduced loan originations directly impacted gross consumer loans receivable, which ended the quarter at 5 billion, a decrease of 107 million, or approximately 2%, from 5.11 billion at Q2 2025 quarter-end. At quarter-end, 55.4% of the total loan portfolio was unsecured, up from 52.4% in Q2 2025 and essentially flat to Q1 this year. The planned reduction in gross loans receivable, coupled with a lower total yield compared to the prior year, led to a 9.6% year-over-year decline in quarterly revenue to $390 million.
The total yield on our consumer loan portfolio was down 340 basis points relative to Q2 2025 but up 40 basis points relative to Q1. Year over year, yields faced downward pressure on four fronts: the impact of the higher allowance for credit losses on interest receivable; credit tightening in merchant-originated loan originations and a moderate reduction in direct-to-consumer originations; the continued impact of the lowered maximum allowable rate of interest on unsecured lending products; and a higher proportion of larger dollar-value loans, which carry lower yields on certain ancillary products. Turning to costs in Slide 16, other operating expenses in Q2 were 91 million, down 9.3% compared to last year. The decrease is mainly driven by lower marketing expense in line with lower origination activity and the decline in total compensation expense. The efficiency ratio for Q2 was 25.5%, relatively flat from 25.6% in the same period of 2025.
Despite the decline in revenue, the efficiency ratio for the quarter benefited from reduced marketing costs due to the 70% reduction in year-over-year originations. We continue to evaluate and identify opportunities to improve effectiveness and operational efficiency across all areas, with a particular focus on credit underwriting and collection practices. On both a reported and an adjusted basis, Q2 operating income was down year over year. The decrease in adjusted operating income was primarily driven by elevated credit losses and lower total yield on consumer loans, including ancillary products, and higher cost of borrowing.
Operating income improved quarter over quarter as credit losses continued to decline. Earnings benefited from the release of provision for credit losses resulting from the decline in gross consumer loans receivable. We generated adjusted diluted earnings per share of $1.02 in the quarter. That figure backs out the impact of the amortization of intangibles and fair value changes on prepayment options related to our notes payable. Starting on the next slide, we move into a discussion of our credit and underwriting performance in the quarter.
The year-over-year increase in net charge-offs was primarily driven by higher charge-offs in our merchant-originated auto and powersports loan portfolio. Patrick covered net charge-offs for easyfinancial, secured, unsecured, and LendCare. On Slide 11, for the whole business, we delivered a 110 basis point quarter-over-quarter improvement to 16.7% despite the denominator effect resulting from a decrease in average gross loans receivable. The chart on Slide 19 illustrates a meaningful shift in the composition of our gross consumer loans receivable past due, or delinquencies.
Total delinquent loans at the end of the second quarter represented 11.9% of the total, a decrease of 100 basis points compared to Q2 2025. Gross consumer loans receivable that were 1 to 30 days past due as at the end of the second quarter increased by 130 basis points compared to Q2 last year. This was driven by elevated credit risk performance in merchant-originated auto and powersports loans, an increased focus on cash collections in the unsecured loan portfolio, and persistent weak macroeconomic conditions.
Gross consumer loans receivable that were over 30 days past due as at the end of Q2 decreased by 230 basis points compared to Q2 last year, primarily driven by charge-offs recognized in the fourth quarter of 2025 to the second quarter of 2026 related to certain delinquent merchant-originated auto and powersports loans. We place the most focus internally on loans 30 days past due or more and are pleased with the continued improvement, both year over year and quarter over quarter, that we are seeing in that category.
Looking at our allowance for credit losses in Slide 20, we ended the quarter with total ACL at 499.5 million, up from 406.7 million in Q2 2025. Net change in allowance for credit losses on gross consumer loans was negative 41.6 million compared to 21 million in Q2 2025, primarily due to the release of provision for credit losses resulting from the decline in gross consumer loans receivable during Q2. The rate of allowance for expected credit losses decreased from 10.09% as at Q1 2026 to 9.99% for Q2 2026, driven primarily by changes in the macroeconomic outlook data used in our IFRS 9 allowance model, coupled with improved product mix, specifically a higher proportion of easyfinancial secured in the portfolio. On Slide 21, cash provided by operating activities before net principal written in Q2 2026 was 585 million, up from 489 million in Q2 2025. As our Q2 results demonstrate, we have significant control over the pace and volume of originations, the biggest use of cash in our business. This control proves a valuable lever in liquidity management as we deliberately moderated originations to bolster our liquidity.
The continued strong cash generation from the business drove positive momentum toward restoring our balance sheet health. As we previously disclosed, we used existing cash resources to repay the 64.6 million US dollar unsecured note that matured in May. On June 30, 2026, we repaid the full outstanding balance of 314 million under our revolving credit facility. As of June 30, liquidity represented by unrestricted cash on hand plus unused contractual borrowing capacity was 1.37 billion, of which 1.06 billion was not available.
On July 1, we regained the ability to make incremental draws on a revolving credit facility. As expected, with the amendments to our securitization warehouse facility secured earlier this year, we had to satisfy two conditions to regain the ability to make incremental draws. First, we had to complete a facility-level audit to the satisfaction of our lenders. We received confirmation from the applicable lenders that the audit report requirement had been accepted and that condition had been fulfilled.
Second, we needed to replace our backup servicer. We are well advanced in meeting the second condition and are working with a new provider on implementation plans. Our securitization lenders have also initiated preliminary discussions with us to extend the facility. We continue to appreciate the constructive approach and look forward to finalizing an extension. With the May maturity repaid, we have no other near-term unsecured note maturities. We continue to benefit from low and mostly fixed or hedged interest costs in the near term.
The average blended coupon interest rate on our debt was 6.8% at the end of Q2. Our capital allocation priorities remain consistent with the prior two quarters. Dividends and share repurchases are suspended indefinitely as we continue to prudently manage our liquidity. With that, I will turn the call back to Patrick for our outlook and concluding comments.
Patrick Ens, Chief Executive Officer
Thank you, Felix. With our Q2 results, we are introducing a Q3 2026 outlook for the quarter. We expect ending loans receivable of between 4.8 and 5 billion. Yield on consumer loans is expected to land between 26.5% and 28%, and net charge-offs are expected to be between 14.5% and 16%. We are also refreshing two components of our full-year 2026 commentary. On gross consumer loans receivable, we have updated our full-year outlook to reflect current and expected near-term macroeconomic conditions and continued moderation of direct-to-consumer loan originations.
Accordingly, we expect gross consumer loans receivable at year-end to be broadly consistent with Q2 ending levels. For total yield on consumer loans, including ancillary products, we expect to see continued benefit from lower charge-offs over the course of 2026. However, continued moderation of direct-to-consumer origination and portfolio mix changes are now expected to offset much of this benefit. Accordingly, we expect full-year total yields on consumer loans to be broadly consistent with first-half results.
We continue to expect net charge-offs to average in the mid-teens for the year, with improvements continuing as the year progresses. Before we conclude our prepared remarks, I want to recognize Jason Appel, our Chief Risk Officer. We announced yesterday he will be leaving goeasy at the end of August to pursue an external opportunity. Over the past 13 years, Jason has made significant contributions to goeasy and played an important role in helping to build and strengthen our risk and analytics capabilities through a period of substantial growth.
On behalf of the entire team, I would like to thank him for his leadership and wish him every success in the future. We have identified a successor to Jason and expect to announce that appointment separately before Jason wraps up his time with us. In closing, our focus for the second half is clear: grow originations responsibly in our direct-to-consumer easyfinancial business, continue to improve credit performance, and build on the progress we have made on our balance sheet.
With that, I would like to turn the call back to the operator and open the lines to questions from our analysts.
OPERATOR
Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from John McJeffrey.
Please go ahead.
John McJeffrey, Analyst
Good morning, Felix. Thanks for the update. In terms of the warehouse facility, do you have any sense in terms of when the second requirement will be completed?
Felix Wu, Chief Financial Officer
Yeah. In terms of the backup service provider, the requirement is for them to be live or able to step in whenever needed. When we signed the contract with the replacement, they outlined a 60 to 90 day implementation plan. We’re well on our way from that. The 60 to 90 days would probably lead us into around the early to mid-September timeframe.
John McJeffrey, Analyst
That’s great. And then with presumably access to this facilities as well as, sorry, the standby that you refreshed, given the fact that you got a little bit more access to liquidity, can we make the assumption that originations may accelerate from where they were in the second quarter? I understand the guidance for year-end gross loans, but is that something that might be a reasonable expectation in terms of—
Patrick Ens, Chief Executive Officer
Yeah, so we provided. Hey John, this is Patrick. Let me jump in on that one if I could. So two things, maybe two things to think about there. One, our forecasted originations for Q3 over Q2, they will increase and that’s embedded in our guidance on where we expect the loan book to end. Q3, really the binding constraint for us at this point is more about where we see profitable returns. So we’ve moderated our expectations in Q3 relative to where we would have been when we met in May based on some of the increases observed in our easyfinancial unsecured loss rates.
So we’re really focused on managing credit well to ensure that all the originations we put on our books will generate the proper risk-adjusted returns. And at this juncture we’re not constrained from a capital or funding perspective in achieving our target origination levels.
John McJeffrey, Analyst
Understood. Thanks, Patrick. I’ll requeue.
OPERATOR
Your next question comes from Gary with—Jordan, please go ahead.
Gary, Analyst
Hi, good morning. I want to start off the question with the easyfinancial unsecured net charge-offs, so 17% last quarter. Patrick, I think you flagged the denominator effect that could be larger in the quarter. So just wondering if you can quantify the shrinking book, so the denominator, and then the portion that’s related to perhaps underlying deterioration and any collections strategy shift. And where do you see the easyfinancial net charge-off in Q3 and also exiting this year?
Patrick Ens, Chief Executive Officer
Thank you, Gary, and good morning. So, you know, overall portfolio loss rates for goeasy stepping down from 17.8 to 16.7, you know, directly hit the midpoint of the guidance, and so we’re very pleased with the trajectory that we see there. We’ve obviously made tremendous progress on the LendCare portfolio, as you can see those rates stepping down quite substantially. And the investments that we’ve made on the leadership front and the collections front are starting to pay dividends, and we see momentum building.
We did expect coming into the quarter that our easyfinancial unsecured rates would present as higher and that this would be at least partially driven by the denominator effect. In typical quarters, we’ve been growing the loan book between, call it, 4 and 5% recently, and in this quarter easyfinancial shrunk by a little bit more than 4%. So it’s a pretty significant swing. It is challenging to get precise in exactly how big the denominator effect is because to some degree you need to estimate what the losses would have been on the loans you did not book, and we did not book them.
So, you know, assuming there’s a significant contribution from the denominator effect, but also knowing that there is a significant contribution from the increase in our insolvency losses in particular on that portfolio is notable. One thing that we did validate through external data sources is that the rise in consumer insolvencies we’ve observed here is a significant step up from the prior quarter and year, but also in line with industry trends.
And that’s what’s really leading to us taking a more cautious outlook on growth in Q3 and into the end of the year given that trend.
Gary, Analyst
Okay, great. And then maybe just more broadly on your net charge-off outlook for the full year. So first half I think you did 17.3%, and then I take your midpoint guidance for Q3, 15.3, and I reverse engineer that versus your mid-teens. So the math implies Q4 to be in the low double-digits range. So is that the right way to think about it exiting this year, and is that number a reasonable starting point for ’27? Just any help in the trajectory would be helpful.
Patrick Ens, Chief Executive Officer
Certainly appreciate the desire to kind of map out the longer-term credit trends. You know, our focus, Gary, for sure is bringing down credit losses quite substantially over the back half of the year and into future years as well. The trend that we’ve observed in particular on our LendCare portfolio, in combination with the success we’re having in really shifting the composition of the portfolio towards our easyfinancial business, is really driving down the significant step down in losses into Q3 and what’s implied into Q4 as we confirm our guidance of mid-teens loss rates.
So we’re very much focused on completing the year with a strong end on credit losses and riding that momentum into 2027. You know, too early at this point for us to comment and provide guidance on where we expect ’27 to land, but our focus is clear, which is to continue to bring down credit losses over time.
Gary, Analyst
Okay, great. That’s it for me. And lastly, Jason, appreciate all your help over the years, and congrats on your next chapter.
Jason Appel (Chief Risk Officer)
Thank you, Gary. Much appreciated.
OPERATOR
Your next question comes from Stephen with Raymond James. Please go ahead.
Stephen, Analyst at Raymond James
Good morning. I want to revisit the provision release if we could, because obviously that’s the main driver of the headline profit. So I guess at this point it was driven because of a lower loan book, but there was nothing forcing you to do that release. You could have kept the allowance elevated. So I’m trying to understand the rationale to do that, because at some point you’re going to be regrowing this company and that’s going to require an allowance increase, which means you’re dampening earnings on the other side.
So can you explain the rationale of why you would want to release at this point where, you know, credit is still elevated in both your books?
Patrick Ens, Chief Executive Officer
Good morning, Stephen. Yeah, I’ll pass it over to Felix.
Felix Wu, Chief Financial Officer
Yeah, thanks, Stephen, for the question. And so in terms of the provision, it is fairly prescriptive and we are following IFRS 9 accounting standards on that, Stephen. There are very formulaic assumptions driven based on the performance of our portfolio—probability of default, exposure at default, loss given default—as well as macroeconomic indicators that we use from Moody’s, from external benchmarks. And so when you think about the calculation of the allowance for credit losses, that’s going to be based on the size of our book as well as the rate.
The rate is driven by the overall credit outlook and credit performance that I was mentioning in terms of those factors, but then you do have the volume impact, which is ending receivables. And so following IFRS 9 accounting standards, as we shrink the book, all else being equal, if the rate is the same, it will result in a release. There are sometimes adjustments that can be done from a management perspective related to the macroeconomic outlook, but it is very prescriptive.
And I would say that the loan loss allowance is also based on the existing book. It’s based on the balance sheet ending loan receivables and does not include any future losses from that perspective too.
Stephen, Analyst at Raymond James
Okay, maybe I’ll follow up. I don’t want to spend 10 minutes on this. But the second question is, when I look at the 90 to 180 bucket, that fell 25 million quarter over quarter, which was positive. I’m just wondering how much of that decline, or that 25 million, is contributing to the charge-off rate. Like what’s the success rate of that decline and what ended up being in charge-off? I know you probably don’t want to give specifics, but is it like did that 25 all become charge-offs, because you have 90 million left?
So I’m trying to figure out, you know, the success rate of that, you know, 90 to 180 bucket.
Patrick Ens, Chief Executive Officer
I’ll take that one, Steve. So it’s a good observation. We’ve seen a significant step down in our 90–180 past-due receivables. As a reminder, the vast majority of that is going to come from our merchant-originated loans through LendCare, and a good chunk of the loans in that space will be secured against collateral as well, where we’ll attempt to recover on the balances for those that ultimately aren’t able to get back to current status. But certainly a meaningful proportion of what ends up in 90-plus is going to flow through to charge-off.
As we continue to shrink the LendCare portfolio, we will also just naturally see that volume continue to decline. And as the risk profile of what’s remaining improves, the rate may end up declining as well.
Stephen, Analyst at Raymond James
Okay, and I’ll sneak one more in here, and maybe for you, Patrick. You know, when I look at the elevated charge-offs for the remainder of the year—and obviously that’s going to change into 2027—the yield, you know, is well under the rate cap now, and your unsecured book, which tends to be the highest yielding product, you know, and will dominate. But I don’t know if it’s ever going to get back into the 30s. Like what are you looking at in terms of longer-term ROE potential for this business?
I think next quarter, if you’re not, you know, if the book is stable, you won’t get that provision release. So, you know, I’m trying to understand what is the year goal or what is the long-term ROE potential in your mind?
Patrick Ens, Chief Executive Officer
Yes, great question, Stephen, and spot on as well. I mean we’re very excited about the long-term potential of our business and we continue to be focused on becoming Canada’s leading non-prime lender. You know, the strength that we have in our easyfinancial and easyhome lending business enables us to generate very strong risk-adjusted returns. Those are of course dampened at the moment because of the performance of our merchant-originated business and some of the elevation we’re seeing in loss rates there.
But over the long term, that’s a business that has generated very strong returns and will continue to be able to serve that customer base very well. Because what we see in the market is continued strong demand and relatively limited options for these consumers from competitors. And you’re right to point out that we’re, you know, a year and a half past the rate cap implementation now. You can see that the quarter-on-quarter effect of running off the previous above-35% book is going to continue to shrink.
Our unsecured business and our secured business combined generates closer to the 30-ish percent yields with, you know, in the 12–13%-ish loss rates, and with the right operating leverage and scale that’s going to produce very attractive returns for our shareholders. To get there, we really need to continue executing on our plan, which is why we’re so focused in the here and now on improving credit performance, particularly in LendCare, but across the portfolio, and shifting our mix quite strongly towards our easyfinancial direct-to-consumer base.
Stephen, Analyst at Raymond James
Okay, thank you.
OPERATOR
Your next question comes from Bart with RBC Capital Markets. Please go ahead.
Bart, Analyst
Great, thanks and good morning everyone. Felix, appreciate the update on the internal control remediation. Can you just maybe give us a bit more detail around the path and next steps that you guys are looking forward to. Get that remediation done by the end of this year, which I think is your expected timeframe. Thanks.
Patrick Ens, Chief Executive Officer
Good morning, Bart. I think you’re looking for Felix there. Go ahead, Felix.
Felix Wu, Chief Financial Officer
Yeah, thank you. Yeah, I would say to approach the remediation of the material weaknesses, sort of three steps or three parties involved here. We have, in the first phase, we have finance and credit risk team working actively as well as operations to improve our controls documentation on policies and the training from that side. That would be the first phase. The second group that then comes in is internal audit to do substantive testing and verify the actual success of the controls.
And then the third phase would be active collaboration with our financial auditors in terms of satisfaction as well. From that side we’re near the end of the first phase and starting the second phase, with internal audit having started doing active control testing on that side. And so once we complete that group we’re going to be actively working, and we’ll be working going forward with our auditors to close that. And so that’s where we stand in terms of the overall process.
There is time that is required in terms of the number of results of satisfactory control testing that we need to see.
Bart, Analyst
Thanks, that’s helpful, Felix. And then maybe Patrick, just on the guidance, I mean we did see a guide down this quarter on the top line and that’s on the back of guidance that was just released last quarter. So maybe can you help us understand when you provide guidance to us, what the kind of bottoms-up process is and what’s giving you the comfort that the current guidance out there is, let’s call it, stable from here. Thanks.
Patrick Ens, Chief Executive Officer
Yeah, thank you, Bart. Maybe just from a philosophical perspective here, you know, the business drives the guidance and the guidance doesn’t drive the business. So as we had communicated last quarter, we will provide an outlook to the best of our ability on how we’re seeing the year unfold. But in the day to day, as things evolve, we have a very dynamic business. So managing our easy financial business as an example, we’ve invested quite a bit in the credit infrastructure that supports that business, which means we’re right on top of credit trends and we have technology and processes in place that allow us to be very nimble with making updates from a credit perspective. And the same is true of how we deploy our marketing spend. So really this is a sign of strength that as we saw some loss rates that were elevated compared to what we might have originally expected, we’re fine-tuning our approach heading into Q3 and Q4 based on that. And then of course that had a natural implication for where we land at the end of the year and we wanted to provide that update and give clarity. But it’s a very dynamic market that we live in.
So as we work through Q3 there will of course be the new things that come up and we’re going to respond accordingly in optimizing our business and then providing transparency on the implications of that with each of our calls. So that’s just kind of how we look at it internally. We don’t ever want to let the guidance drive the business decisions as the data changes. And so we wake up and, you know, answer the case every day.
Bart, Analyst
That’s helpful. Thanks, Patrick. Appreciate the candid response.
OPERATOR
Your next question comes from Jeff with ATB Capital Markets. Jeff, please go ahead.
Jeff, Analyst at ATB Capital Markets
Hi, good morning everybody. One high-level question I wanted to ask is could you give us some color on the LendCare portfolio, what the expected runoff rate would be on the loans in that bucket? I know you speak generally to 30 to 40% of the overall book would run off in a typical year, but I’m assuming it’s a bit longer than that in the LendCare book and just trying to use that to help me think about the amount of originations you’ll have to pick up within easy financial.
Patrick Ens, Chief Executive Officer
Thank you, Jeff. Yes, the LendCare book, you’ll be able to see that quarter over quarter we had a 10% decline in the loan book and I think about a 15% decline year on year. So it’s quite a substantial kind of tick down just in the last 90 days. That overall kind of paydown rate is elevated as charge-offs are part of that decline and we see charge-offs continuing to abate as we move into the second half of the year. So 10% is probably on the higher end and you’ll see some decline in that over time.
You know that. That said, we haven’t planned for any material increase in our LendCare origination through the back half of the year. So when we provide our guidance on where we expect the loan book to end, that is entirely on the strength of growing the easy financial direct-to-consumer business and the originations that would correspond with that.
Jeff, Analyst at ATB Capital Markets
That’s helpful, thank you. And then just on the liquidity front, appreciate the color that you offered us. And then just looking at the amount of cash that comes into the business as the existing portfolio pays down, I’m just wondering when you would even expect to utilize either the RCF or the securitization facility. Sort of based on the guidance you’re giving us, it seems like you could just live within your existing liquidity. But would there be a reason that you would need to tap one or the other of those facilities within the next six months based on the guidance you’re giving us?
Patrick Ens, Chief Executive Officer
Jeff, why don’t I let Felix weigh in on that one?
Felix Wu, Chief Financial Officer
Yeah, thanks. And I think, you know, in terms of your observation, you’re absolutely right. In terms of our guidance on the ending loan book for the remainder of the year, it is to be roughly consistent with Q2. And so the loan book is the reason for that, the funding requirement. And so if it is going to be relatively consistent, given our funding capacities, you wouldn’t expect any material changes in terms of draws from that perspective, all else being equal.
Jeff, Analyst at ATB Capital Markets
Okay, that’s what I just wanted to be clear on that. I know people are sort of focused on this, but it doesn’t seem like you’re going to need it for at least six months. And then just one other one here on the financial, you mentioned the heightened charge-off activity. It gave us some of those dynamics there. In the past you’ve spoken to the level of borrower assistance that’s part of just the typical operations in the business. Where does that sit now versus what you had disclosed in the past?
Have you really, I assume, curtailed the level of borrower assistance pretty significant at this point?
Patrick Ens, Chief Executive Officer
Yeah. Thank you, Jeff. Why don’t Jason and Paul discuss that.
Jason Appel (Chief Risk Officer)
Hey Jeff. Good morning. I think the last disclosure we had given around the borrower assistance tool usage hovered around 10%. As we’ve continued to optimize collections and focus on the opportunity to collect where we can, that ratio has declined. We’d be hovering more in the 8 to 9% range, which would be closer to the historical norms but still sitting above sort of the low point we would have hit in a benign economic environment. So it would be down. And that’s because we’re being a little bit more mindful as we optimize the portfolio.
Jeff, Analyst at ATB Capital Markets
That’s helpful. Thanks for that. Over to you.
OPERATOR
Your next question comes from Jamie with National Bank Capital Markets. Please go ahead.
Jamie, Analyst at National Bank Capital Markets
Yeah, thanks. I wanted to dig in a little bit on the easy financial net charge-offs and just get a little bit more granular perhaps from your perspective. If you can share some commentary on vintage performance that is driving the higher charge-off ratio in this quarter. Is it related to new loans? What can you tell us on that basis for vintage? And then if you could, could you offer some color on the delinquency performance and collections activity within that easy financial unsecured loan portfolio as well please.
Patrick Ens, Chief Executive Officer
Good morning, James, good to hear from you again. Thank you for the question. In terms of your ask on the easy financial unsecured vintage-level performance, we haven’t seen any deterioration actually in vintage-level performance. So as we’re observing our newer originations from, say, 25 come in, everything thus far is in line with our expectations. Given that the rise in losses has come largely through increased insolvencies or consumer proposals, those tend to impact some of our longer-standing vintages.
And so that’s where we’ve seen more of the increase there, to be frank. So less pressure coming from new vintages, although we ingested the information and re-optimized our credit box accordingly. Overall delinquency rates within the easy financial portfolio are relatively stable. You know, the overall delinquency rates at the company level are relatively stable, modestly better. And specifically within easy financial they’re very stable.
Jamie, Analyst at National Bank Capital Markets
Okay. And just in terms of your commentary on the rise in insolvencies, just kind of looking at some of the broader data for Canada seems to have plateaued recently in terms of the number of insolvencies. Is that a trend that you’re seeing as well in your portfolio or has that rising trend lagged a little bit what we’re seeing in the broader data? So what I mean is, are you seeing continued rise in that insolvency for your clients and that’s why you’re sort of pulling back on growth a little bit?
Patrick Ens, Chief Executive Officer
We, so two things. Just overall, insolvencies within Canada have been rising. However, they’ve been rising more within the non-prime population. We secure that data through commercial agreements with various providers and we’ve seen our rise to be in line with what the broader non-prime market is facing. So our view on that is that this is a natural consequence of the prolonged period of rising unemployment and CPI or inflation pressure that’s concentrated in really day-to-day goods.
Certainly pleased to see the step down in unemployment in June. We haven’t necessarily baked into any of our forecasts sort of macroeconomic tailwinds at this point, but do see some green shoots appearing on that front.
Jamie, Analyst at National Bank Capital Markets
Okay, appreciate that extra little bit of color on non-prime. Similar question then on the LendCare portfolio if I could, just on the vintage. Obviously some originations were coming through up until sort of mid Q1 of this year. Can you talk about the performance of the vintages? Has anything shifted in the LendCare portfolio as you’re continuing to wind it down?
Patrick Ens, Chief Executive Officer
By and large we’re seeing vintage-level performance in line with the expectations that we leveraged to come up with our full-year guide on performance in the mid-teens. What we are now seeing is some of the momentum building internally around our efforts on the collections front. We have invested quite a bit in the leadership in that space, in the oversight of that space. Just really, really happy with the work of the team on that front. And so, you know, we’ve baked in the performance benefits and we’ve assumed that we will continue to achieve performance benefits.
But we’re really pleased to see the trajectory that the LendCare losses are on.
Jamie, Analyst at National Bank Capital Markets
Great, thank you very much.
OPERATOR
Your next question comes from Graham with TD Securities. Please go ahead.
Graham, Analyst at TD Securities
Hi, good morning. Could you just give us some color on what’s baked in or behind the guide for a lower consumer loan yield in Q3 versus where you’ve been in the first half of the year? What’s driving that?
Felix Wu, Chief Financial Officer
Good morning, Graham. Thank you for the question. So we’re projecting our full-year yield results to be broadly in line with what we saw in the first quarter—admittedly we had, or in the first half, sorry. Admittedly we had previously communicated a gradual improvement over time that would be driven by the mix shift towards our direct-to-consumer business and the charge-offs reducing, primarily on the LendCare portfolio. A couple of factors at play here. One is that we are growing our easyfinancial business less than originally anticipated, so the mix shift impact is slightly smaller.
And although we expect to continue to have some benefits from reduced charge-offs, the actual mix of what’s remaining in the LendCare portfolio over time is going to put some pressure on LendCare’s yield. Specifically, said differently, we’ve obviously stratified the pricing within that portfolio by risk, and as we’re experiencing charge-offs, those disproportionately are coming from the higher-risk, therefore higher-priced, loans on the book.
Graham, Analyst at TD Securities
Okay, that makes a lot of sense. On the expense front, I thought you did a good job this quarter on managing those down. I presume there’s sort of less marketing spend going on—that’s one of the drivers. Is this a reasonable level for your business through, I guess, the second half of the year?
Patrick Ens, Chief Executive Officer
Graham? Yes, I think you’ve called out an important facet there. So we had reduced advertising spend in Q2, and we will be increasing that advertising spend in Q3 as we ramp back up on our easyfinancial direct-to-consumer business. So I think Felix touched on this a bit with his comments around some of the upward pressure on operating efficiency into the second half of the year. And it’s really about, you know, those levels of advertising are not representative of the run-rate levels we’ll experience.
Graham, Analyst at TD Securities
Understood.
Okay, that’s it for me. Thank you.
OPERATOR
Your next question comes from Ryan with Bank of America. Please go ahead.
Ryan, Analyst at Bank of America
Hey guys, thanks for the time. Most of mine answered—one quick one here. So congrats on getting access to the revolver. It sounds like securitization facility conversations are going well. My question centers around the potential for repurchasing bonds in the open market. Some of the long-end bonds in your cap stack are still at a relatively sizable discount. So my question is that now that liquidity is more solidified here, is that an option you’d consider, especially as, at least in your revolver, you start to see some of those leverage covenants step down in coming quarters?
So just any thoughts there? And again, congrats on the quarter.
Patrick Ens, Chief Executive Officer
Thank you, Ryan, and thank you for your patience.
Felix, why don’t you jump in on this one?
Felix Wu, Chief Financial Officer
Yep, thanks, Ryan, for the question, and you’re right. Given the discounts in the later maturities of our high-yield bonds, it is something—when we do look at investments of our cash, we will be evaluating the impact on all of our balance sheet key metrics for originations versus debt repurchases. There are also covenants that we have to consider and restrictions in terms of our indentures or amendments from that side. Those latter ones are probably more restrictive right now given the most recent amendments in terms of some of the buybacks in terms of the IO bonds.
Ryan, Analyst at Bank of America
Got it.
Thank you.
OPERATOR
All right, ladies and gentlemen, there’s no further questions at this time. I’ll turn the call back over to Patrick Ens.
Patrick Ens, Chief Executive Officer
Thank you, operator. To summarize, execution against our plan is on track. Our balance sheet is stronger, credit performance is improving, and our direct-to-consumer franchise is growing as a proportion to total portfolio. We have more work to do, and I am confident that we have the team to do it. Thank you for joining us today.
OPERATOR
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.
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