Operator: Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to goeasy Ltd. Fourth Quarter 2024 Earnings Call. [Operator Instructions] I will now turn the call over to Mr.

Farhan Ali Khan. Please go ahead.

Farhan Khan: Thank you, operator. Good morning, everyone. My name is Farhan Ali Khan, the company's Chief Strategy and Corporate Development Officer, and thank you for joining us to discuss goeasy Ltd.'s results for the fourth quarter ended December 31, 2024.

The news release, which was issued yesterday after the close of market, is available on Cision and on the goeasy website. Today, David Ingram, goeasy's Executive Chairman and Interim Chief Executive Officer, will review the results for the fourth quarter and provide an outlook for the business. Hal Khouri, the company's Chief Financial Officer, will provide an overview of our capital and liquidity position. Jason Appel, the company's Chief Risk Officer; and Patrick Ens, our President of easyfinancial and easyhome are also on the call. After our prepared remarks, we will then open the lines for questions.

Before we begin, I'll remind you that this conference call is open to all investors and is being webcast through the company's investor website and supplemented by a quarterly earnings presentation. For those dialing in directly by phone, the presentation can also be found directly on our investor site. Analysts are welcome to ask questions over the phone after management has finished their prepared remarks. The operator will poll for questions and provide instructions at the appropriate time. Business media are welcome to listen to this call and to use management's comments and responses to questions and any coverage.

However, we ask that they do not quote callers unless that individual has granted their consent. Today's discussion contains forward-looking statements. I'm not going to read the full statement, but we will direct you to the caution regarding forward-looking statements, including the MD&A. I will now turn the call over to David Ingram.

David Ingram: Thanks, Farhan.

Good morning, everyone, and thank you for joining the call today. The fourth quarter wraps up another milestone year for the company. We were proud to have met or exceeded all of the metrics provided in our commercial forecast while producing record growth, consistently stable credit performance and improved operating leverage further solidifying our position as a leader in the Canadian nonprime consumer credit market. With over 9.6 million non-prime Canadians, we play an extremely important role in the financial system. In 2024 alone, we issued over 315,000 loans to help everyday Canadians tackle their household financial needs.

With originations exceeding $3.2 billion in the year, we have now proudly served approximately 1.5 million. Furthermore, we remained focused on providing our customers with a path to reduce their cost of borrowing when they have demonstrated consistent payment behavior by offering access to products with progressively lower rates of interest. Over time, we are proud to have reduced the weighted average interest rate we charge our borrowers to approximately 29%, passing on the benefits of our scale directly to the customer. And lastly, we have now helped over 380,000 customers graduate to prime credit so far with many of our active customers acquired in the last few years, the number of borrowers that we plan to help improve their finances is only to grow. 2024 was also another milestone year in building our high-performance culture, fueled by dedicated and ambitious people that care deeply about the financial well-being of our customers.

During the year, we were recognized as one of Canada's most admired corporate cultures ranked 38 on the 2024 Best Workplaces in Canada list, named on the 2024 Best Workplaces in Ontario list and named on the 2024 Best Workplaces in Financial and Insurance Services list, a true testament to our team and their inspiring passion and leadership. Turning to the results for the fourth quarter, which was the strongest in our history, characterized by strong origination volume and loan book growth, stable credit and record earnings and a very healthy return on equity. The continued increase in market share and favorable competitive dynamics led to record volume of applications for credit at 677,000, up 28% from quarter 4 last year generating 46,800 new customers, an increase of 16%. Loan originations during the quarter were $814 million, up 15% compared to $705 million produced in the fourth quarter of 2023. Organic loan growth for the fourth quarter was a healthy $203 million, while our loan portfolio finished the year at $4.6 billion, up 26%.

Unsecured lending continues to be the largest product category at 63% of loan originations. And within our direct-to-consumer channel, the average loan portfolio across our branch network rose to a new high $7 million, up 22%. We continue to make progress in scaling our automotive financing product with record fourth quarter originations of $139 million, up 31% year-over-year. This quarter, we grew our dealer network to over 3,900 dealers and continue to experience an increase in fine funding volume for multi-loan location dealer groups. During the quarter, home equity lending volumes were also up 31% year-over-year, with consistent and conservative LTV ratios at approximately 64% inclusive of our loan.

The second mortgage product secured by residential real estate is primarily used for debt consolidation and major home repairs and is one of our best-performing products with the lowest credit risk. The overall weighted average interest rate charged to our customers during the quarter was 29%, down from 30.3% at the end of the fourth quarter last year. Combined with ancillary revenue sources, the total portfolio yield finished within our forecasted range at 33.6%. Total revenue in the quarter was a record $405 million, up 20% over the same period in 2023. We continue to be pleased with the quality of our loan originations and credit performance of the overall portfolio.

The dollar-weighted average credit score of our fourth quarter loan originations was 624, the highest in company history for the third consecutive quarter, highlighting the benefits of our credit adjustments and improving product mix. The fourth quarter was also the 12th consecutive quarter where the dollar-weighted average credit score of our originations was greater than 600. Secured loans now also represent a record 45.3% of the total portfolio. Despite the weakening economic environment and a modest elevation in delinquency relative to last year, our credit losses have remained stable as a result of proactive credit tightening and the higher proportion of our portfolio secured by hard collateral. We have long maintained that managing the credit performance of the business is our highest priority.

The decision to tighten credit criteria and focus on growing higher credit quality loan products have served us all well during periods of economic stress. The annualized net charge-off rate during the fourth quarter was 9.1%, in line with our forecasted range of between 8.75% and 9.75% for the quarter and a slight quarter-over-quarter improvement from 9.2%. Our loan loss provision rate rose to 7.61% from 7.38% in the prior quarter due to unfavorable changes in forward-looking macroeconomic indicators obtained from Moody's Analytics, which the company incorporates into its loan loss provision forecast model. We are continuing to experience the benefits of scale through operational leverage and productivity improvements. During the fourth quarter, our efficiency ratio, specifically operating expenses as a percentage of revenue, improved to 24.2%, a reduction of 410 basis points from 28.3% in the fourth quarter of the prior year.

After adjusting for unusual items and nonrecurring expenses, we reported record adjusted operating income of $168 million, an increase of 20% compared to $141 million in the fourth quarter of 2023. Adjusted operating margin for the fourth quarter was 41.6% consistent with the same period in 2023. Adjusted net income was a record $77.4 million, up 12% from $69 million in the fourth quarter of 2023, while adjusted diluted earnings per share was a record $4.25, up 11% from $4.01 in the fourth quarter of 2023. And adjusted return on equity was above our target level of return at 25.9% in the quarter. With that, I'll now pass it over to Hal to discuss our balance sheet and capital position before providing some comments on our outlook.

Hal Khouri: Thanks, David. The fourth quarter highlighted the health of our balance sheet, the confidence of our bank partnerships and the cash-generating capability of our business. During the quarter, we increased our automotive securitization facility by $200 million to support growth of our automotive financing product. The maturity of the facility was also extended by a year to December 15, 2026. Lending syndicate for the facility continues to consist of Bank of Montreal and Wells Fargo Bank that continues to bear interest on advances table at the rate of adjusted quarter plus 185 basis points.

Based on the current adjusted quarter rate, the interest rate on the facility would be 5.43%. We also continue to utilize an interest rate swap agreement to generate fixed rate payments on amounts drawn. Based on the cash on hand at the end of the quarter and the borrowing capacity under our existing revolving credit facilities, we have approximately $1.9 billion in total funding capacity. At quarter end, our weighted average cost of borrowing was 6.8%, and the fully drawn weighted average cost of borrowing was 6.5%. We also continue to remain confident that the capacity available under our existing funding facilities and our ability to raise additional debt financing is sufficient to fund our organic growth forecast.

The business also continues to produce a growing level of free cash flow. Free cash flow from operations before the net growth in the consumer loan portfolio was $185 million in the quarter, while the trailing 12 months of free cash flow exceeded $412 million. As a result, we estimate we could currently grow the consumer loan book by approximately $300 million per year solely from internal cash flows without utilizing external debt while also maintaining a healthy level of annual investment in the business and maintaining the dividend. Once our existing and available sources of debt are fully utilized, we could also continue to grow the loan portfolio by approximately $500 million per year solely from internal cash flows. During the quarter, we also leveraged our current liquidity position to take advantage of opportunistic share repurchases and purchased for cancellation approximately $27 million worth of shares.

Subsequent to the quarter, we also continued to be opportunistic and repurchased an additional $42 million worth of shares. Based on the 2024 adjusted earnings, the increased level of cash produced by the business and the confidence in our continued growth and access to capital going forward, the Board of Directors has approved an increase to the annual dividend from $4.68 per share to $5.84 per share, an increase of 25% or a payout ratio of approximately 35% of the prior year's adjusted earnings. Furthermore, this marks the 11th consecutive year of an increase in the dividend to shareholders. I'll now pass it back over to David to talk about our outlook and new forecast.

David Ingram: Thanks, Hal.

In our release yesterday evening, we published a new 3-year commercial forecast as we have done annually for more than 10 years. These commercial forecasts are built bottom up using a detailed set of scenario-based assumptions about product mix, pricing, economic conditions, funding sources, credit risk and expense requirements. We then stress test those assumptions to understand what a downside and upside case may look like before we ultimately decide on a range that we think captures the most probable set of outcomes. It is this process that has served us well as we have either met or exceeded nearly every metric with consistency for over a decade. We expect to organically grow the loan portfolio to between $7.35 billion and $7.75 billion in 2027, driven by the growth and execution of our current suite of products and channels.

Our outlook provides a range of guidance to account for our unanticipated headwinds at one end and the benefit of our initiatives performing better than planned at the other. We have also embedded the implementation of the 35% maximum allowable rates of interest alongside our own strategy to reduce the cost of borrowing for our customers by passing along rate reductions as we continue to scale. As such, our total yield inclusive of ancillary revenues will gradually decline to approximately 30% over the next 3 years. Our disciplined approach to managing and prioritizing credit risk combined with ongoing product mix and operational execution provide us confidence that the credit performance of our portfolio will remain stable. We expect that the annualized net charge-off rate of our portfolio to gradually step down from 8% to 10% last year to 7.5% and 9.5% in 2027.

We also believe that there are further benefits from scale and additional operating leverage in the business, inclusive of the decline in risk-adjusted yield we still anticipate the operating margin to gradually expand by approximately 100 basis points each year. Underpinning this outlook is the same gopillar strategy that has driven our business priority since 2017. First pillar of our strategy is to continue building and promoting a wide range of lending products that position goeasy to become the one-stop solution for all the borrowing needs of a nonprime Canadian. The second pillar of our strategy is to expand our channels of distribution, making our products and services available, easily accessible in a convenient manner when and where consumers need credit. The third pillar of our strategy is to expand geographically, optimize our retail and merchant network across Canada than considering other markets where our business model can be successful.

And the fourth pillar of our strategy is to help our customers improve their financial well-being through credit education, products and services, improving that credit; gradually offering them a lower rate of interest and serving as a bridge back to prime credit. 2025 will execute against these 3 key strategic initiatives that align to our strategy. First, we are continuing to build a new revolving credit card product that we intend to pilot later in the year. There remains a material void in the marketplace for general purpose nonprime credit cards for the customer segment we serve. Occupied by only a couple of major market participants, non-prime borrowers that are unable to get a card product from traditional banks are often left with few options.

We believe we can build a superior solution, one that would eventually have loyalty and rewards components. The card product integrates well in our existing strategy of supporting Canadians on their credit building journey. Secondly, we're investing in introducing both auto title and auto refinance products. Auto finance continues to represent the largest segment of the Canadian nonprime credit market. Majority of Canadians own a vehicle with equity interest, which is secured as collateral would provide access to credit at favorable borrowing terms.

We will look to offer financing alternatives to consumers who either own the vehicle outright or have an existing auto loan. And lastly, we are continuing to prioritize investments in technology to enable greater efficiency. Through automating and streamlining business processes as well as leveraging advancements in AI and technology to enhance existing workforce capabilities, we can continue to scale the business and drive cost savings. Turning briefly to the upcoming quarter. We expect the loan portfolio to grow between $160 million and $185 million.

While the total yield generated on the consumer loan portfolio to be between 31.25% and 32.25% in the quarter, reflecting the typical seasonal decline we experienced in each first quarter period. We also continue to expect stable credit performance with the annualized net charge-off rate to remain within the same range as previously guided at 8.75% and 9.75% in the quarter. And lastly, with respect to an update on the I and leadership transition, we continue to make progress with our search for a seasoned and experienced executive. We currently are in the advanced stages with the preferred candidate and we'll provide further updates as they become available. In closing, I want to thank the entire goeasy team for their drive and passion that helped produce another record year for our company.

Our team truly cares deeply about delivering high-quality financial products to our customers and merchant partners in a transparent and frictionless manner. Together, we're on a mission to put everyday Canadians on the path to a better tomorrow. So with those comments complete, we will now open the call for questions.

Operator: [Operator Instructions] The first question comes from John Aiken at Jefferies.

John Aiken: I wanted to take a look at the past due disclosures, the 151 day plus in the quarter moved dramatically up, and I was hoping to get a little bit of color because it looks like basically from last quarter, almost all of the loans that were past due 60 days plus almost moved into this category.

Can you talk about what's been going on in terms of collections and why this actually does not negatively impact your outlook for losses on impaired loans within this market?

Jason Appel: Sure, John. It's Jason Appel, I'll take that one. As you noticed in our disclosures, our late-stage delinquencies, which we define as being over 90 days past due, obviously, increased year-over-year. That increase was primarily driven by a delay in repossession turnaround times for some of our secured assets, stemming from third parties where we're reliant upon our repossession and collection efforts, the likes of bailiffs, towing companies, auction houses and the like. They have been struggling to accommodate a much larger volume of units out for repossession not because of higher necessarily higher performance that we're seeing in our portfolio.

But because the overall auto segment itself has experienced an upward taking late-stage delinquency across the country. Now the good news is that to date, the lengthening of these repossession timeframes has not had any material impact on our collection results nor our ability to realize value from certain assets. They are simply taking longer to realize. And as a result, that's impacting the volume of the assets or loans that are sitting in the longer-term delinquency buckets. It's as a result of the fact that we expect to realize value on these assets in keeping with historical performance, that is the principal reason why we believe and are confident that the net charge-off rate moving forward will travel within the same range it has for the last several quarters.

John Aiken: Okay. Understood. And can you talk to the performance that you're seeing in the auto book as you're growing it? I mean, obviously, you're very excited about the prospects of the book. But is there -- what have the trends been like? And what are expectations if we actually do start to face some headwinds in the community economy?

Jason Appel:
A -

Mark Desrochers: And it's also a function of the credit tightening that we did midway through the third quarter of last year, which we previously disclosed. So we feel pretty good about how the auto portfolio is trending.

Obviously, we've got a bit of a delay on the back end due to some operational bottlenecks that we're working through along with the rest of the industry. But we're pretty pleased about how the front end piece -- or the front end part of the business is performing as we're seeing overall lower delinquency rates as a result of the tighter underwriting that we're doing. So taken together, we've got some pretty good trends working in our direction, feel pretty good about them.

Operator: The next question comes from Nik Priebe at CIBC Capital Markets.

Nik Priebe: Okay.

So the new rate cap came into effect January 1. I believe the plan was to implement some pricing changes on loans that were priced below the new cap as a deliberate action to mitigate the earnings impact. Were those changes also implemented on January 1? I suspect it's factored into your short and long-term guidance, but I'm just wondering how quickly those changes will be sort of mitigating the impact on portfolio yield.

Jason Appel: Yes, I'll answer that, Nik. We've obviously done both sets of changes.

We've obviously reduced the interest rate on the loans in order to comply with the maximum allowable rate of 35%. And then where we think it makes sense, have made some pricing adjustments on loans that we currently write less than 35%. But as David mentioned, overall, our overall objective is still to bring down the average credit -- or the average pricing for the average credit consumer principally through moving them through better credit quality products on and others, which typically clearly lower rates of interest. So you would see in our yields, albeit it's early days because we're only literally in the first quarter, the reflection in our performance. But again, in Q4, the yields that you see recorded there wouldn't reflect the changes in the maximum reliable rate because that rate only came into effect on Jan 1.

Nik Priebe: Great. That makes sense. Okay. And then when it comes to goeasy share price, I think the severity of the market reaction that we saw to the tariff threat materializing made it pretty clear there's a perception that credit performance is acutely sensitive to employment conditions. But you charge off 9% of the book annually, it's clearly not because 90% of your borrowers are experiencing job loss every year.

I'm just wondering, can you roughly quantify what proportion of impaired loan formation would be explained by a job loss event specifically as opposed to other sources of financial stream?

Jason Appel: It's a good question. What I can tell you is that if you think about the role of how various macroeconomic variables play on the portfolio, unemployment, by far and away, is the most sensitive metric. There are others, inflation, GDP, price of oil, which impact how we think about the loan loss provision, but movements in unemployment are particularly sensitive. If you think about where we've traveled in the last 4 quarters, unemployment currently at the end of December, I believe, sat at about 6.6%. But a year ago, it was traveling in the low 5s.

And over that same timeframe, as you noted, our credit loss rate has generally traveled between 9.1% to 9.3% range. And the way in which we're able to manage that is really through a couple of key capabilities, 3 of which we've talked about before. The first is obviously continuing to move the shift of our product mix into secured loans backed by hard assets. Despite having a longer charge-off window at 180 days, those loans obviously experienced a much lower charge-off rate in totality even under adverse economic conditions, where unemployment tends not to have the same degree of impact. The second change that we've also talked about throughout the year is the proactive credit tightening we've taken throughout 2024.

In each of the last 4 quarters, we've made adjustments to various product verticals, be they auto, unsecured or home equity lending in advance of some of these rises in unemployment taking place, which obviously can impact a portion of our book. And then the third solution we talked about, we really haven't talked about this very much since COVID, is the suite of borrower assistance tools that we offer to deal with customers when they run into problems of repayment, whether it's through modifying their interest rate, lengthening their term or figuring out ways in which we can help them continue to make payments and thereby report positive payment experience on the credit bureau, we typically get that population proactively through some of the more recent credit and collection models that we've built. So as a result, even though you might experience a significant uptick in the unemployment rate, it's among other things, those 3 principal strategies that allow us to be quite proactive in influencing how that materializes into the charge-off rate and effectively serves to keep it relatively stable over time.

Hal Khouri: And maybe just to bolt-on, it's Hal here. As you might recall, there is a significant portion of our overall customer base that actually has credit insurance taken out on their loans.

It's approximately half of the overall total portfolio composition has credit insurance, which would cover them off in the event of job loss or other life events, and that would skew higher on unsecured products as well. So in addition to the items from a credit collections and working with the customer, that's another loss mitigation item that would allow us to mitigate some of that exposure to the unemployment rate.

David Ingram: Nik, sorry, just one last piece because I can give you the -- a bit of a longer lens in terms of perspective over the last 20 years. So if we look back, and I think we see this in many of our shareholder meetings just to try to help people understand what does this business do through a financial crisis or change in the employment status. If you go back to the dotcom bubble of 2001, the financial crisis 2008, the car crisis of Detroit in 2009 or even the Alberta oil crash of 2015, we've stressed test and look back at all of those periods.

And you can see in each of those cases where unemployment almost doubled in those environments. The nonprime basis of this consumer the change in their delinquency rates was fractional. So it had very small movements, whereas you tend to see at the super-prime level, you get the biggest exaggeration of change because of the debt burden on those consumers. So just as a reminder, the debt burden in the nonprime consumer is around $68,000 and the debt burden on a prime consumer is around $145,000. So we are less sensitive than most people would think, and we have been at a back test over the last 20 years, what happens when employment goes up.

Operator: Our next question comes from Etienne Ricard at BMO Capital Markets.

Etienne Ricard: Loan growth for Q1 implies some deceleration relative to recent quarters, yet 2025 loan growth forecasts were increased modestly. So given the macro uncertainty that we've seen in recent months, what's giving you the confidence that loan growth should accelerate in the second half?

David Ingram: So it's a fair question, particularly on our guided comments on the range for Q1. So we do have some seasonality at play there. We are confident in the demand side of the ledger.

The demand from Q4 continued into Q1. So we still see application volume at 30% plus in coming forward for our products. Some of the challenge for us is as we work through into a 35% rate cap and the timing of the credit controls that Jason spoke to that we had put in place earlier in the year, we're still trying to optimize the balance between how much that we put through versus how much we continue to be prudent on, particularly with the outlook for unemployment and other changes. So I think what you're seeing is a conservative approach in Q1. And as we get more data and more information, the credit team will have more confidence in seeing where there could be some loosening in Q2 onwards.

But as we look forward for the rest of the year and the product generation that we have, and the demand that we see from the Q1 demand. We're confident that by the full year, we'll be in the place that we've guided to.

Etienne Ricard: Okay. I appreciate the details. And with tariffs being topical, have you started incorporating tighter underwriting policies for economic sectors that may be more materially affected.

David Ingram: So I'll speak to first from a kind of holistic view, and I'll hand over to Jason to talk to what they may look like on the credit side. So just from a holistic position, the business that has direct impact as a result of tariffs and where they may go. And of course, that's highly speculative at this point in terms of what will be given tariffs for imports and exports. What we can see in our business is very small effect on EFS and very small effect on easyhome that does buy directly through furniture purchases. But that sum is less than $5 billion.

So there's no direct rule impact there. LendCare is a little bit more affected because we bring a lot of the power sports directly into the country. And again, we don't know at this stage whether that will be impacted for tariffs coming in. But at the max, less than 10% of the whole portfolio will be impacted by direct cost should there be tariffs on the products that we directly lend to. On the other side, which is how do we stress test and think about what it means in a rising unemployment as a result of tariffs, I'm going to let Jason speak to that in more detail.

Jason Appel: Yes. I mean one comment just to bolt-on to David. First would be, obviously, we talked about this also, a run up during the COVID period, when we were asked to some question about exposure. The overall goeasy customer loan portfolio inclusive of both the easyfinancial and LendCare business segments is quite diversified across industry sectors. There is no one industry sector that accounts for anything more than 8% of the total volume of customers on the portfolio.

And by industry sectors, we mean quite a variety of them from goods producing sectors, which are in the minority of the exposures that you would have in our business. Most of our consumers actually work in service centers, retail government and other public related sectors such that we're not at the point now where we're doing any significant tightening that's industry-specific. That said, Part of the reason why that's not required is because we've done quite a bit of tightening leading into the incoming Trump administration joining the fray in November. Most of those significant adjustments were made not only in response to the rate cap, which David spoke about earlier, and as I said before, as unemployment has been rising over 100 basis points since the start of the year. We've not been waiting for a potential tariff forward to make surgical adjustments to the overall credit quality of the loan portfolio.

As far as the impact of tariffs, though, just because you've asked, you've obviously seen that reflected in the higher allowance. The allowance is obviously now reflecting an adjustment for the potential onset of tariffs knowing that we don't know exactly how that's going to land. But as we commented in our disclosures this quarter, we've obviously seen an uptick in the allowance in part because there is a view that things could worsen and worsen materially for a potential population of customers that would be adversely affected. That is the primary reason why our loan loss provision rate went up in the quarter. And if we hadn't seen or experienced that worsening effect on the actual loan loss provision rate would have declined.

So as far as the expectation for future performance, we think it's adequately reflected in the allowance. But as I said earlier, we're not waiting the allowance to dictate how we manage the charge-off experience in the loan book. That's predominantly handled through a number of proactive measures that we've been running quarter-to-quarter over the last several years.

Operator: The next question comes from Gary Ho at Desjardins Capital Markets.

Gary Ho: Maybe Jason, just a follow- on that last comment on the ACL bump.

So I'm looking at the FLI chart that you have in your MD&A, can you remind me what are the weightings on each of those scenarios to get you to that 7.61% ACL this quarter? And then second, have you done a sensitivity analysis if it's more in the bucket of moderately pessimistic? Where could the ACL go? Just wanted to kind of pick your brain on that.

Jason Appel: Yes. No problem, Gary. Maybe just to answer your question initially, I don't believe we published the weightings across the various scenarios. But to help clarify, what I can tell you is that over the past year, management has placed a majority of its weightings in the neutral and pessimistic scenarios to reflect the direction in which the macroeconomic indicators have been changing.

What we saw moving from Q3 to Q4 and what accounted for the uptick in the ACL was the contemplated changes in the forward-looking indicators being unemployment, GDP, inflation and the price of oil, but most notably unemployment and GDP significantly worsened under both the neutral and pessimistic scenarios that are incorporated in our forecast. So that was primarily the reason behind why we saw the lift in performance. But our weightings have actually not materially changed over the course of the year. We are still quite conservatively postured and have been since the latter part of 2023, coming out of the COVID period where we began to first see economic weakness. So we anticipate keeping that posturing moving forward and would only likely move it should we happen to see a material reversal of where we think these worst-case scenarios net out.

And probably more importantly, depending on how things with things like tariffs ultimately land because we're simply at too early stage at this point to know exactly what the future will look like. So expect our weightings to remain conservatively postured going over the course of the next couple of quarters, at least until such time as we understand how things with the tariffs will work its way through.

Hal Khouri: Maybe just to bolt-on there, Gary, it's Hal here. So we did, as you may have noted, increased the overall ACL dollar amount by approximately $25 million in the quarter. Bumping that up to $350 million, just shy of 8% lift quarter-over-quarter.

And then even in the most pessimistic scenario, as you may have noted in the MD&A, under the worst conditions, we would be looking at a 14% increase in the overall ACL. So I just wanted to give you that additional color and context there.

Gary Ho: So sorry, Hal, just I want to clarify that last point. So if you move the total weighting to the extremely pessimistic, it would increase your allowance by 14%?

Hal Khouri: Correct. And that's in the MD&A disclosure as well, just for your reference under the [indiscernible].

Yes.

Gary Ho: Okay. That's helpful. And then my second question, just going back to your 2025 strategic initiatives, especially around the new product launches. Can you share the economics on these maybe just go-to-market strategy and expected credit profile net charge-off, et cetera?

David Ingram: So Gary, I think I'll introduce you to Patrick.

As you know, Patrick joined us from Capital One and will be leading the project for credit cards and has the expertise in that area. So I think he might be able to give you a generic response, more than a detailed response. But I'm going to introduce him to that conversation.

Patrick Ens: Thank you, David. Gary, this is Patrick speaking.

Maybe just at a high level to start with why we're so excited about it, right? It's a very large market with relatively limited competition, and it should broaden our access to the number of Canadians we serve quite dramatically so that we can provide them a whole host of potential products our suites. So really, the strategic rationale is top of mind there. From a product economics perspective, certainly one of the reasons why we're starting with a pilot to that kind of test and grow is really just understand those components. I'd say from my experience, similar revenue yields and loss rates to what we see at the overall portfolio level, are reasonable guideposts for this product. And then in managing ROAs, a lot of the success comes from doing so efficiently and being able to market efficiently to these customers as they tend to be a little bit higher operating expenses than some other products.

Hal Khouri: And just to tie in there, Gary, as per previous discussion, we will be piloting both credit card and looking at auto title refi towards the latter part of this year, garnering learnings and with a moderate uptick in 2026 and more so the increased volume that we are looking to generate, which is incorporated into our guidance and targets would likely come at the tail end of '26 and into 27.

Operator: The next question comes from Jeff Fenwick at Cormark Securities.

Jeff Fenwick: I wanted to circle back to the auto product. We talked a bit about that earlier. Obviously, it's been a big contributor to growth there.

The trajectory on that product has been very strong. Just trying to get a sense of how sustainable that sort of growth is? What the sort of opportunity is looking like now in that space? And maybe you can all sort it in the context, I guess, with some of the competitive dynamics that you're seeing in the market today.

Hal Khouri: Jeff, great question. We've noted some significant growth overall in our auto vertical. Frankly, we feel like we're just kind of hitting the tip of the iceberg there.

We continue to expand relationships with our dealer partners across Canada. We continue to invest in business development representatives to increase the volume and the growth there. So it's certainly a substantial growth pillar for us and it's backed by a hard asset, secured asset overall. And given the size and the scale of the market, being one of the largest markets available to us at $65 billion, albeit the likes of Scotiabank and TD capturing a decent market share of that, we are still just a very small percentage of the overall penetration in that market and expect that to continue to grow over the next couple of years.

Jeff Fenwick: And then maybe we could just talk more broadly about what you're seeing in the competitive environment.

And you touched on it in the past, with some of the players perhaps being disrupted by the rate cap and the higher cost of funding they've had to experience. But what are your thoughts as we head through this change in the rate cap into this year, it does seem like you're seeing a lot of demand come your way. And maybe at the other end of the market as well, we saw Fairstone do its merger with Home Capital. Just wondering if that maybe changes some of their focus that might open up more opportunity for goeasy.

Hal Khouri: Yes.

Look, I think that might be the case in terms of the Fairstone deal. But I think it's still early days currently in terms of the rate cap environment. Certainly, we feel that there will be dislocation primarily in some model lines that are primarily high interest rates that would be above the rate cap primarily in terms of their loan offering. And so with the compression and yield, the lack of capital to actually back those particular competitors that are in the space. We do think that over the course of time that we will see a number of those players, particularly smaller ones become dislocated.

And that we're currently seeing in terms of the demand at record levels in terms of application volume, that will only add fuel to the fire in terms of the throughput coming through within the goeasy umbrella.

Jeff Fenwick: And then maybe one last one here. I mean one thing that continues to stand out is just the same-store loan book growth of 22%, $7 million a store. That's a really impressive metric and continues to seem to grow ever higher. What's the ultimate target here? I mean the store footprint hasn't changed all that much.

I used to think a mature store in an urban location, I guess, to sort of $10 million or so but is the opportunity on a per store basis continuing to grow here. And obviously, it's very important in terms of things like operating leverage for the business.

David Ingram: Yes. So Jeff, it's a good question. And if you think about it in terms of we probably are at a mature state in terms of store count distribution.

We are within a good easy driving distance from most of our credit consumers coast to coast. So the opportunity is obviously to get more same-store sales growth, which we've historically done, and I think we're into about our 15th year of giving consistent same-store revenue growth. With the product suite widening, the access to more products being provided to the stores with the ability to use technology to make it easier for the store staff to be able to sell into other categories, which at this point, they can't take the whole suite into the store as all of those pieces get added to the store. And then we reflect back on the time in 2008 when we had the incumbent of Wells Fargo and HSBC and Citi Financial. I think when we go back to those numbers of those days before the financial crisis, the concentration of loan book in each of those locations was around the $10 million mark that you just mentioned.

So there's clear visibility for us over the next few years to take that same-store average book per location when aggregated to the new products that will be added and be made available in those locations, combined with the attrition of existing competitors in the space, I think there is a good line of sight to $10 million-plus rather.

Operator: [Operator Instructions] The next question comes from Jaeme Gloyn at National Bank Financial.

Jaeme Gloyn: Yes. First question, I just want to understand a little bit better the credit tightening that took place in Q4, what does it exactly seem to optimize the mix of model strategies. That would be first part.

And then the second part around tightening the collection practices. I would think that tightening those collection practices might lead to an increase in delinquencies in that 1- to 90-day bucket, but it seems to be the opposite. So maybe just sort of talk through that as well.

Jason Appel: Jaeme, it's Jason. I'll take that.

the sort of simple definition of the optimization of credit strategies is really risk speak for how we go to market on many of our products where we will employ different credit adjudication models to determine the eligibility for customers to borrow. As you know, and we've mentioned this through the years, we've employed a champion-challenger approach where often we will have a customer be scored by as many as 4 or 5 credit models at the same time, but be passed through one of them in terms of outcome. We are constantly doing that across a number of our product offerings, in part to fine-tune the predictive power that these models can have to identify default risk. And as we, quite frankly, build better credit models or build better mousetraps, as I'd like to say, we can open up the ability to let increasing amounts of customers in the door without necessarily taking on incremental credit risk. So sometimes one of the strategies that we'll do just to ward off risk in the portfolio is to switch the proportion of customers moving through, let's say, model A versus model B where we have increasing evidence that model B, which would, let's say, be our challenger is outperforming model A in delivering either a lower loss rate for the same number of customers or a comparable loss rate for a larger number of customers led into the door.

So that is a practice that we, quite frankly, have employed throughout the years and continue to do so. And as we have scaled and as the portfolio has gotten larger, we have the benefit of having more models in play. So it's quite often any given quarter-over-quarters where we'll do some of that tinkering from time to time, simply because the opportunity presents itself. Your comment around the tightening of collection is actually, is correct, is that tightening collection practices in theory should result in a higher uptick in your delinquencies. But if you do that in such a way where you're seeing an overall improvement in the underwriting quality of your portfolio, you have the benefit of having a nice balance whereby you can still be more considerate of how you want to go to market in dealing with delinquent customers and offset that impact, which sometimes can be negative, especially if you are not giving those customers the same types of opportunities to remediate their loans by making sure that other customers that you are letting in are of a higher credit quality.

So over the course of the last couple of quarters where we've made this disclosure, we have continued to be more particular on how we go to market with our collections activities. And balance some of the impacts of that activity with better quality customers that we're writing on new loans, the net effect of which is that we're able to keep the overall credit performance stable. It can, and in some cases, may lead to oscillations in the delinquency and the total levels but in early-stage delinquency based on the way we've gone to market with that -- we've actually in a net improvement.

Jaeme Gloyn: Okay. That's a great answer.

Second question, maybe more for Hal on this one. repurchased shares in the fourth quarter, something we haven't seen too often throughout the history, how are we thinking about the buyback? And is it still active in Q1? And how are we thinking about that in terms of balancing capital allocation versus your capacity and leverage constraints?

Hal Khouri: Yes, Jaeme. So first and foremost, as always, where we believe there to be value. We continue to feel that there is a strong value in our company. And where we feel the stock may be trading below our view of market pricing.

We will certainly take advantage of those situations. As we look at the outlook here, we are in a pretty strong position as it relates to liquidity overall. We talked about almost $2 billion of funding capacity within the overall business, we feel that we're very well positioned to fuel and fund the organic growth of the book first and foremost, so that would be our primary. But we also feel that given our overall leverage position at this point, continue to improve with strong cash flows and earnings our debt to adjusted tangible net worth coming in the quarter at just north of 3.2x below an overall threshold of 4x as outlined by our rating agencies on our banks. And that number, in our view, continues to improve for the balance of this year and certainly in the coming years, allows us some additional space where we're still fueling record levels of growth, but also having capacity to take advantage of share repurchases.

So we've been active in Q4 and, say, over the last 1.5 months, and we'll continue to monitor the market and where appropriate, we will take action.

Operator: Thank you. There are no further questions. I will turn the call back over to management for closing comments.

David Ingram: Thank you, operator.

Since there are no more questions, we'd like to thank everyone for your continued support and participation in this call, and we look forward to updating you at the next quarterly call in May. Have a great rest of your day and family weekend. Thank you.

Operator: Ladies and gentlemen, this concludes your conference for today. We thank you for participating, and we ask that you please disconnect your lines.