EQB Inc.

Andrew Moor - CEO Tim Wilson - CFO

Jamie Goyne - National Bank Geoff Kwan - RBC Capital Markets Graham Ryding - TD Securities

Thank you, Ashley and good morning everyone and welcome to our call. I'm joined by Tim Wilson, Chief Financial Officer of the bank.

During today's call, we'll provide our thoughts on 2017 and the way forward. So I will begin with our recap of Equitable's record annual result of strong fourth quarter financing to the year.

As a reminder our slide deck at eqbank.ca, the Company's remarks is a valuable reference tool that I encourage you to review as part of your analysis, the MD&A a definitive source of information. 2016 was a transformative year for Equitable, four highlights stand out.

First, we continue to differentiate the bank on superior service delivery on our lending businesses, while maintaining our vigorous underwriting and risk management standards, we built our reputation with mortgage brokerage across the country and gained market share. Mortgages under management were up 26% to 21 billion on record single family originations and the best showing in our commercial business in five years.

Second, we introduced our EQ Bank digital platform, positioning Equitable to innovatively answer the needs of the cashless society. Some of our customers tells us that they already considered EQ Canada's leading digital bank based on value, features and functionality that means a lot to us.

As also the fact that just over 11 months EQ has become an important funding channel. The EQ Bank savings plus account attracted 1.1 billion of deposits, adding 27,000 new customers to Equitable.

Having just launched new digital bank features, we look to build on our initial success as we'll discuss later in the call. Third, we retained our entrepreneurial culture, even as we became a bigger organization with more expertise.

This is illustrated in a number of ways, but perhaps the best is our October deals to secure an interest of CAD3 billion of outstanding MBS, NHA-MBS pools originated by Maple Bank. This transaction demonstrates the bank’s ability to quickly grow on our finance, capital markets, legal, compliance, mortgage underwriting and risk assessment facilities to thoroughly evaluate bid, execute and close the complicated transactions.

That added CAD0.07 to EPS in 2016 and we’ll continue to be accretive through 2020. [Indiscernible] remained a performance leader among Canada’s banks on all key value creation metrics.

Even though we invested significantly to develop our digital platform and our prime business at the cost of CAD0.82 per share. They grew net income 10% to a record CAD138 million delivered ROE of 16.9% and funded two more common share dividend increases.

These results test the competitiveness of Equitable's business model, attention to every detail that makes for a successful customer experience and the consistency of our value creation process. By consistent we are proud to note that Equitable’s average ROE at 17.8% over the past five years has far outpaced the average of Canada's big banks of 15.6% over the same period.

The bank’s ROE has been between 16.5% and 18.7% over the last 10 years. Equitable EPS has grown ever year for the past decade and by 17% compounded annually over the past five years.

Equitable’s book value has grown every year from the past decade and by 17% compounded annually over the past five years. Equitable’s common share dividend has risen 11 times in seven years including twice in 2016, and once already in 2017 as you will note from last night’s press release.

While delivering these financial results, we've been bearing the heavy expense of new initiatives and brand building activities that surely build the value of the bank’s franchise for the longer term. Inclusive of common share dividend payments for our five-year total shareholder return was 160% compared to the TSX Capped Financial Index return of 101%.

We hear a lot about change coming in the banking industry, and I think these very positive outcomes demonstrate that Equitable as a peer of Branchless, an increasingly digital bank is pretty well positioned to grow as change comes to the industry and Equitable’s focus on service delivery without bricks and mortar branches becomes to our advantage. We are using technology to rethink how Canadians walk to bank, with our savings plus account redefining the role of the everyday bank account and eliminating the artificial extension between checking and saving accounts to give Canadians the single all digital solution to pay bills transfer money and grow their savings faster.

As those of you who attended our recent Investor Day know, our digital vision is just starting to unfold and over the next few years by building on our competence on digital banking, continue to broaden our services in the mortgage brokerage community and investing with the FinTech community we intent on cementing our leadership position as Canada’s challenger bank. Equitable’s team has done a remarkable job this past year in bringing the bank another step closer to realizing our vision of leadership, while generating consistently great results for shareholders, savers, borrowers and our partners.

My sincere thanks to all Equitable’s employees for their dedication to outstanding productivity and enthusiasm in embracing change and doing the hard work required to execute on an ambitious plan and excellent in day-to-day service. Now let’s look at financial performance.

In the fourth quarter, Equitable finished strongly with net income of CAD41.7 million up 33% from the fourth quarter of 2015 and diluted EPS of CAD2.56. Both earnings metrics were quarterly records and led to ROE of 19.3%, well above our bank's typical expectation.

The bank's core performance was driven by growth in our mortgage book. Record mortgage originations of CAD2.2 billion in the fourth quarter seem to have to be a sure sign that our strategies and plans are working as intended.

This is the third consecutive quarter that originations has surpassed CAD2 billion. Origination growth of 25% year-over-year reflected positive results in every one of our lending businesses.

The most important contributor to our earnings was single family alternative lending. Fourth quarter originations were CAD930 million also 29% above last year.

It's reflective market share gains in the broker channel that we earned over the past 12 months, the results were outstanding service quality. Share gains were supplemented by growth in the overall alternative market.

Single-family alternative mortgage principal ended the quarter at CAD7.9 billion, up 22% from a year ago, with positive implications for earnings in 2017. Let's take a moment to stress that we achieved this growth without sacrificing quality.

We have maintained our rigor approach to underwriting, we will not overreach for growth, credit management is paramount to the bank, and is critical to the achievements of our longer-term goals. For the third consecutive quarter since we're finding it's approach to the market, commercial lending operations posted strong performance.

Commercial fourth quarter originations grew by 46% to CAD378 million, it's most productive period in five years. We have a very experienced team in commercial driving these results and through our focus on service they continue to increase the size and quality of their deal through the pipeline.

As a result of recent growth commercial lending mortgage principles stood at CAD2.8 billion, 27% ahead of last year and up about 170 million from Q3. Commercial balance growth has been helped by retention which has been high in recent quarters and has surprised us on the upside, we did expect attrition to climb a bit as we progressed through 2017.

Leading on to prime single family, fourth quarter originations were CAD652 million, up 33% from a year ago. Bringing total prime originations for the year to CAD2.1 billion and prime mortgages under management to 3.9 billion.

Internally generated prime originations were 125 million in the fourth quarter or 16% above last year. So, we've made good progress.

Keeping with our goal of developing a track record as a consistent dividend grower our board increased our common share dividend again yesterday, this time by 4.5%, meaning the dividend to be paid on April 6th will be 15% ahead of the dividend declared by our board in February last year. While paying an increased dividend of 14%, we believe that we have a strong CET1 ratio that provides a solid foundation for the bank's future growth.

Our capital position was assisted by CAD50 million equity investment made in December by OMERS. It was the first call we had since completing the equity raise and we thought a bit of color on our thinking might be helpful.

Towards the end of last year as part of our annual strategic planning process we assessed the richness for opportunities and we concluded there was a compelling business case we made for additional equity. Following its assessment we took a decision to complete a private placement with highly regarded pension manager.

The move that allows us to pursue more growth and value creation without sacrificing our always strong capital ratio. We're always keenly aware that the new equity is diluted to existing shareholders, so would not have completed this offering without being confident in the banks potential for ongoing growth.

Maintaining a perfect capital level for banks is always a judgment and might change at time. But our own view is that running with CET1 ratio of about 13.5% plus or minus CAD1 or so, is the right place for Equitable to be.

Moving on to credit risk, you will note the net impact mortgage assets at 36.8% rough by almost CAD5 million from last quarter. This increase was in part the result of impaired formations in Alberta and Saskatchewan.

At those levels, they are still only at 0.21% to our total mortgage book, down a basis point from a year ago. Our allowance for credit losses, which is the amount reserved on our balance sheet total credit losses, represents 19 basis points on our total loan assets.

This is much higher than the bank's average loss rate experience of 4 basis points over the past 10 years. All things considered will remain well reserved.

Provisions for credit losses that you see it on our income statement, which represents the net additions to that allowance in the current period was CAD900,000 in the fourth quarter or 2 basis points of average mortgage principal. This was down from a year ago and from Q3 and in line with the banks long term bonds and well below the industry average.

Looking at the West for a moment our Alberta and Saskatchewan portfolios have performed better than we had expected to date in the face of energy price declines, that said impaired loans did trend higher in the fourth quarter in these markets to CAD14.6 million from CAD11.6 in the September quarter, have total delinquencies in the fourth quarter, which includes the earlier raise remains small in the context of our overall business and are down from Q1. Although for oil prices economic conditions appear to be stabilizing, we expect the arrears rate in paid loans in these provinces to rise in 2017, but continue expect that losses, if any, would be manageable and certainly less than we might have expected two years ago as energy prices drop dramatically.

Overall for the bank as a whole, we expect our arrears rate and credit losses provision to be low in 2017, assuming the Canadian economic conditions stay within the broad range of market expectations. I'll return with thoughts on 2017 in the few minutes, but first Tim will provide his report.

Thanks, Andrew and good morning everyone. As you have now received an update on the banks annual results and long term track record, I'll focus on a few specific aspects of our Q4 financials.

As Andrew said the fundamentals of our business continued to be strong. Our performance was really a story about the sustained growth of our mortgage assets.

That growth exceeded expectations, the markets and our own by several hundred million dollars. Also contributing the Q4 performance with the Maple deal that we closed in the quarter, it had CAD0.07 per share positive impact on earnings.

We had expected accretion of between CAD0.06 and CAD0.08 per share, so it came in at the midpoint of that range. We also recorded CAD1.3 million of gains related to some defaults insured mortgages that we acquired from the liquidators after the Maple deal closed and referenced this as an item of note in the MD&A.

Continuing on Maple, now that we have better data about how these mortgage accruals actually performed, we believe that income for 2017 will be closer to the top end of our original range which was CAD0.25 to CAD0.30. We also expect a few hundred thousand dollars of gains on some more defaulted mortgages that we have acquired and which are ensured by CMHC.

The fourth quarter had got an assist from two other factors, unusually strong prepayment income and derivative gains, which together contributed CAD0.10 to our EPS. This item doesn’t necessarily repeat each quarter and are therefore not once we count on to driver results, but we’ll take them nonetheless.

Even after removing these items, fourth quarter performance was strong and net interest income, it was an all-time quarterly record of CAD78 million, up 23% from a year ago and growth in average assets balances and stable margins. We had indicated the margins would be around 1.64% in the quarter, consistent with Q3 and the came in 6 basis points higher, a real positive for earnings.

This increase was a function of few different factors including prepayment income in our securitization financing business, growth with the high margin commercial portfolio, favorable pricing in the GIC market and the benefits of interest rate reductions and our EQ Bank and brokered high interest savings accounts. Looking to 2017, our outlook for net interest income is for more growth, at year-over-year rates in the mid to high teens and continued similar growth rates in our assets.

I'd now like to move to our margin outlook and we use Q4, our most recent performance, as my reference point. The various drivers of that market outlook are itemized in our MD&A along with our key assumptions, but I will touch in a few of them now.

Looking at our expectations for the various portfolios, we anticipate that 2017 core lending margins to be up to 5 basis points lower than in Q4 2016, even though margins within in single-family and commercial should be relatively consistent with Q4. This decrease is the effect of the portfolio mix shift toward lower spread but higher ROE single-family assets.

On securitization financing NIM, we anticipate that it will also decrease slightly, mainly due to unusually high level of prepayment income that we recorded in Q4. Prepayment income aside margin should be relatively stable.

Margins in prime will be highly dependent and the market’s reaction to regulatory changes however. So we may need to revise our thinking there as we gain perspective in the coming months.

Moving on, current growth in the business as well as investments in support of our key business strategies led to an increase in Q4 non-interest expenses compared with last year. This increase was planned and it was designed to create long-term value for our shareholders.

Fourth quarter non-interest expenses excluding the impact of strategic investments increased by 17% or CAD3.7 million year-over-year. FTE was again the primary driver and as our headcount increased by 15% in order to support high levels of service and risk management.

Similarly FTE and cost grew in line with one another quarter-over-quarter with both up 3%. Non-interest expenses to support strategic initiatives amounted to CAD4 million, 69% above last year’s level.

These are important investments that will help to drive future shareholder value and drive total investments in our future to CAD17 million for 2016 as a whole. Due to these investments, our efficiency ratio was higher in 2016 than in past years, 37.8%, although as expected it did decline throughout the year.

It drops to 33.9% in the fourth quarter but that was a function of the denominator as much as it was good cost management. As noted earlier we had some revenue tailwinds in Q4 that served to reduce our efficiency ratio below expected levels.

Looking forward we expect total non-interest expenses to continue increasing at year-over-year rates consistent with the growth rate of the bank's assets. We expect our efficiency ratio will remain just above the mid-30% level in 2017, a rate that would once again qualify Equitable as Canada's most efficient Schedule-1 bank, a title we have held for many years without interruption.

Finally and as Andrew said, the recent equity investment by OMERS increased our capital base and will allow us to pursue the best opportunities available in our lending business. On a related note and you'll likely already have this baked into your forecast, please remember that the equity issue 809,000 shares and CAD50 million in dollar terms will really only begin to affect our EPS and our ROE starting in Q1.

The weighted average impact of the issuance on Q4 was negligible given that the transaction closed on December 23rd. With that now back to Andrew.

Thanks Tim. We look to make 2017 another year of great performance for our shareholders to the execution of our strategy and value creation model.

There's no question that recent regulatory move which we discussed in previous forum, in detail, including our third quarter call will have an impact from the single-family mortgage market. The degree of that impact is still an open question, while there are early signs of softening anything levels I think we need to wait for the spring market to unfold before we have a really good sense of that effect.

At this point we aren't in the position to confidently say how much change will happen with consumer and competitive behaviors. What we do know is the prime insured single-family represents less than 2% of our overall earnings.

So, any decline in this market will not have a notable impact on our 2017 earnings. Also on the regulatory front you're likely aware that the government has circulated proposal for lender risk sharing on any short mortgages.

While those details are still being worked out, we do not believe that any [indiscernible] proposals need in the Canadian market and could have significant unintended consequences on competition and access to housing. We're actively engaged with industry groups and regulators to get across this perspective and noted and shared by many.

We'll have more to share on this development as we move through the year. In this environment consistently driving shareholder value means realizing our vision of being Canada's leading Branchless bank, that involves additional investments and further development to our potential capabilities and solutions.

And that I'm glad I'm pleased to report that we have just launched some new EQ Bank features at more value and convenience for our customers and in so doing attract more deposits. EQ-to-EQ transfer is new functionality that allows money to be moved instantly between EQ Bank savings plus accounts.

So, if you and your daughter both have accounts with us and you want her to have funds to buy some textbook say, you simply log on and do any EQ-to-EQ transfer. Unlike other forms of money transfer, ours is almost instant, free, does not use emails, so it's more secure, without burdening the receiver with password resonance each time it's used and there's no hold on the deposit, it's straight forward and almost frictionless.

We believe this functionality will encourage more Canadians to open EQ Bank savings plus accounts, because let's face it, for most of us the transfer of funds between friends and family is almost weekly occurrence and why should Canadians pay extra for that convenience. In addition, because we respect the fact that many Canadians work with more than one bank and hold several different accounts.

We make it possible for customers to easily link their EQ Bank to up to 10 different accounts, this is just few to the other well know digital bank in Canada. We've also enabled electronic pre-authorized deposits and payments reasoning that for most of us there is no better way to save than to have your pay check deposit directly to your EQ Bank account, start collecting interest and then move your money from there.

Being able to setup automatic bill payments to add to the bill payment function as it already existed, adds additional convenience to our customers and value. But other banks this capability is typically only offered for a non-interest bearing checking account, while with EQ Bank our customer earn interest every moment until the money is withdrawn.

Because our core banking platform was purposely build for digital world, these new features are relatively easy to add from a technology prospective, so our team invested time and effort to ensure that we had the best customer experience and the most elegance use of flow possible. These additions are part of our strategy on diversifying our sources of deposits, while offering different choices for the large and growing segment of the Canadians who know and choose to believe there are better ways to bank and the trusting equitable to deliver that to them.

Over time and in fact again later this year, we expect to add more convenient and additional value to our EQ Bank offerings and in the process continue to further outstanding as Canada's challenger bank. This year our goals more qualitative than quantitative, we want to create the surfaces that allow EQ Bank customers to choose Equitable for the vast majority of their day-to-day transactions.

Engaged customers who think of EQ as a key provider of financial services will of course help build the banks franchise value. We also determined to grow our lending businesses by using service to create stronger and deeper relationships with both our distribution partner and borrowers.

At times like these when regulations are changing, the home buying calculus for many Canadians to support and advice that Equitable provides is more important than ever. We always expect competition in our business and I'm sure 2017 will be no different.

So maintaining our customer service edge and making sure our products are competitive and properly priced will be important again this year. To summarize this was a transformative year in our quest to cement our position as Canada's challenger bank.

The successful launch of our digital platform positions Equitable well for the evolution of banking and a cashless society and creating an important new funding channel for the bank, that we continue to develop. Our lending businesses performed at record levels and we believe there are plenty of potential to grow assets at higher rates through to the end of 2017 and beyond.

And we sustained our multi year track record as one of Canadian's bank industries best creators of shareholder value, even while reinvesting heavily in our business. That said our job is not to celebrate past records, it's to create long term value, in that regards we look forward to channeling our advantages, including our efficient business model, the ability to innovate and change, proven capital allocation process and the enthusiasm of our team and to more performance to our shareholders in 2017 and the years beyond.

That concludes our prepared remarks and I would like to invite your questions. Ashley, can you please open the lines to our analysts?

First question is related to deposit funding just looking at the strong performance obviously from EQ Bank and good year-over-year growth from brokered HISAs. But just looking at brokered HISAs on a quarter-by-quarter basis, there is some fluctuations there.

I was just wondering, if you could speak to the -- how you manage the brokered HISA accounts and building those relationships with investment advisors and wealth managers?

Well, we have a broad network of wealth advisors across the country. Interesting thing about that the brokered HISA, that typically is not something that's listed by the higher up affiliates of the big six dfibs [ph].

So this is typically coming from independent investment dealers. We have seen some changes on one or two boards were one of our competitors is paying a higher commission and as a result they were discouraging that advisor from using us.

But other than that is a fairly stable environment and we continue to remain in good dialog with all of them, the significant distributors in that product.

Okay. So it’s primarily coming from wealth managers, the big six, don’t participate in the brokered HISA arena?

That’s right. The big six, see, that is competitive to their sort of core business of providing clients with savings account.

Right, okay. And in terms of the breakdown of deposits.

How do you see that progressing over the course of 2017 to fund uninsured mortgage origination growth?

I think this is not going to change dramatically over the upcoming year. We’re not -- as we related to you, we're focused on additional bankers to continue to build capabilities and provide more services to the same customers.

We do, we actually are seeing good deposit growth in that channel right now. But that’s not really the goal for the year, the goal is really to get people in a more engaged relationship with us, so that we can be more confident of those relationships to withstand the ups and downs of the market.

And frankly, we're seeing plenty of opportunity in the brokerage GIC market to fund all of our needs. In fact, I would say that if you look at the pricing of GICs, that if the GICs were able to raise vis-à-vis say government rates, which is the way we think about that as a benchmark, those spreads are actually being tighter in the last sort of allowance.

We’ve been able to get plenty of liquidity at attractive funding sources, and in order to give you a good look at the liquidity position we ended here, that was partly reflective of that. We saw a good opportunity to raise money relatively cheap to benchmarks by the yearend.

Okay. And how do you look at the risk in the deposit funding channel?

Do you see any areas where you may be concerned, and you elaborate on that?

I think one's always concerned about control. We live in a banking industry that’s fairly concentrated sort of to the extent that, some of the large distributor decided for whatever reason not to deal with us, that's a risk.

And that’s obviously is the -- maybe they’re doing that to keep the funding for their own book, for example could be one of the motivations. So certainly, the EQ Bank play is very much about being able to go directed to the consumer and control our own distribution channel.

And I think what we showed in the first few months of the year in particular, when we were aggressively, fully aggressive kind of buildup of our ability to go direct to Canadian's and raise funding is much stronger. I sleep much better at night now knowing that we always can turn that tap on more aggressively if we needed to fund the bank.

And I think that really positions us well, it's a really strong solid funding source, don't forget these are CDIC ensured deposits, so what we saw in 2017, 2018 when I was running the bank then, was that, people liked the deal with smaller institutions and have the comfort of the CDIC limit and even though there are bigger institutions with higher credit ratings but they -- of course not all the deposits sits within that CDIC limit, so we'd like to spread it amongst the smaller banks.

And just one last question drilling into the broker HISA, what is the concentration I guess within the wealth management community? Is it well diversified, are you exposed to a handful of advisors or shops, how does that breakdown outlook?

It's very well diversified. There was one broker that had about 30 million of saved deposits with us, but there has been some charter on the board about if it did reduce the position we had with them.

We're in very active dialogue with the senior executive team there and I'm pretty comfortable to be back on that board before the end of the year. And again, a lot of that goes to I think the underlying decision that are really more related to compensation issues then they are particularly to some other sort of view.

But it is fairly well diversified for you to call on a lot of small independent Op managers and distributors and that book is pretty well diversified. I think there is one or two that might be close to 100 million turnarounds.

Yes, a little in excess of that, that's right. But I think it is a very well diversified book and on top of that the brokers HISA period adds to our overall funding diversification.

As you know we've moved from about two funding sources to seven over the course of the past couple of years, so, we're actually feeling very good about our ability to manage those related risks.

I mean today we're paying 0.9% on that HISA and the book is growing I think slightly and we're not looking actively for money on the HISA with more tenure to focus on the -- not on the broker HISA, we're looking more to the branded EQ Bank and for savings account or savings plus account in preference.

Greta that's excellent color, I appreciate that. Just shifting gears quickly to the core lending and your guidance of single family originations of 18% to 20% asset growth through 2017.

Part of driving -- some of what's driving that is the improved renewal rates, is a bullet in the rationale and assumptions, I was wondering if you could just elaborate on what you're seeing there and how you're driving improved renewal rates and how does that compare to industry standards?

Actually I'm not entirely sure, but we are expecting good retention this year. Renewal rates have been roughly stable over the last couple of years and we think we've done a good job, maybe there's not an opportunity to sneak it up and one of the things that is interesting this year there was a significantly lower portion of our book is actually up for renewal this year, so lower percentage of the overall book actually needs to be renewed this year, so clearly that is encouraging for retention, I think that delta alone, I was just doing some math on the back of an envelope, but I think that delta alone was what actually helps potentially the portfolio growth by about 3%.

So, it's not really anything that you're doing with fee changes or actively pursuing mortgages that are up for renewal for some point. There is no real change in the strategy, it's just the mix of mortgages renewing is different this year?

I would say we've stepped up our game with our people, I mean people are always being fantastic, just current -- and our team is some of those dedicated employees we have. And they have simplified some of the documentation, I read that and they really do try to spend a lot of time on the phone with our customers making sure that customers understand what their options are and where they can go and we find that that’s the biggest determinant of renewal performances is that engagement with our customers.

Helping people make their decisions, these are obviously important decisions and taking a pull [ph] from that so, I think there is always -- I think even -- though I think the team is doing a fantastic job, I think they would be the first to acknowledge there is always room for improvement.

And I think Jamie, just a bit of addition color on that, I think part of our expectation and again we may not be right on the Mark with that given the uncertainty, is that the regulatory changes that were introduced last fall could cause us to increase of our renewal rates. So these changes might make it a little bit more difficult for borrowers to move from one lender to another, and make it probably slightly easier for us to retain the customers they have maturing mortgages.

I just had one question and just I guess may be getting a little bit of an update on the move to AIRB just in terms of the timings that's still in line with, what you guys were originally expecting and then, two if you are just able to talk even if a little bit of a higher level is, with the benefits you get on the capital prospective. How you think about how that plays out in terms of you're getting your business in your various mortgage segments where they're out on the residential side or on the commercial?

Thanks Geoff, the AIRB actually sort of to do move hand with IRFS 9 change and then there is, we have to stay with IFRS 9. But IFRS 9 is a huge project for the banks, it moves to an expected credit loss model that involves many of the same aspects that are involved in AIRB.

So our team is, the AIRB team has been pretty focused on the transition to IFRS 9 in recent months. But we've put it on a software made by a company called Walter's [indiscernible] to model all this and we're progressing along well, so the big picture is we’re still on track for AIRB overall timing although the focus has been slightly less AIRB and its been more for IFRS 9 related, but those two things are quite closely linked.

We don’t -- I know there is other banks outlets suggesting there is lot of capital early from AIRB, that's not really what we're after with respect to AIRB, it's more about being able to be more precisely defined about how we're allocating and making sure that our capital aligns with our risks in the business and being more quantities about that as our business grows. So for example today, under the standardized approach a construction loan is 100% risk weighted, a fully cash flowing apartment building at 30% loan to value is also 100% risk weighting.

It's very clear that the risk inherent in those two buildings, two properties are different. And as a result, you find it very difficult to complete on that lower risk project.

So we would hope at our commercial business in particular would benefit from being able to price certain loans that reflect a lower risk rates and thereby be able to continue to grow faster because of the chasing of broader spectrum of opportunity. That can be [Multiple Speakers] on the risk.

So are you able to get any sort of benefits on the residential side of your business? Because certain not outsiders [ph] that are on the regulated side would be on the AIRB to be on the standard approach?

Well, I think the big issue for us and I was sort of getting into that a little bit on the risk sharing arrangement is that the big banks put very little capital up against the residential mortgage books. Even though for example on a -- look, generally speaking the mortgage is not that different than ours frankly, so we're putting up 35% risk weight.

I think many of the big banks are operating in an 8% to 15% risk weights. So it would make it very difficult on the insured mortgage book, if we end up having risk sharing because we would be putting up 35% risk weights or something on the inherent risks left where they would be putting up say a third of the amount or less.

So again being on a level playing field when we got assets of similar quality, it will be helpful to us. So it’s always tough to compete with people that might be working under a different regulatory regime and I think that’s really where AIRB leads you.

Other institutions have been using the standardized approach in the Canadian Western Bank, [indiscernible] in this world that are also ampliative, of course they use standardizes like us today. So that’s a much fairer level playing field.

Yes. Now [indiscernible] is getting its own -- if you are under the AIRB on the prime retention that are competing with a lot of the other big players out there, but on the non-prime side.

I would have thought, you might get some sort of bit of a benefit rather than having to put a 35% risk weight, is that a fair assessment?

I think that's a fair assessment and of course how the regulator allows you to actually use that is a tricky thing to figure out, but certainly our view would be that under AIRB we -- our risk weights would be more appropriately in 20% to 25% level on the single-family book.

Okay, great. Thank you.

I think you showed in your supplemental you mentioned in the call, your employment count is up 15% year-over-year, which is in line with the growth of the book. But I’m just wondering how you actually manage that, when you’re looking at your underwriting teams and trying to manage their risks properly around a business that’s growing at such a high rate.

What’s your approach to making sure that you don’t compromise or sacrifice at all on the underwriting side?

Well, I think that's actually what's constraints our growth to some extent we feel comfortable at the levels, we’re at, I think we would be less comfortable growing faster frankly so, and it’s more scientific now, but adding 15% is not such a hard number to on-board, to train, to have people with some experience in the industry. But we do have to have a dedicated training team within the single-family business that can teach new underwriters and particularly mortgage offices the equitable way and often we find the people migrate through the organization, so they might start in certain areas in the company, administration or fulfillment and then move into underwriting overtime.

It's relatively easier to onboard people into some of those jobs and then as they gain experience move them up the ladder, it’s certainly a bit focus that we have is identifying talent in certain areas, the company then deploying them in those areas whether they can be really useful to us making those critical risk judgments and so on. And then, probably it’s worth saying that we are an A1 Platinum [ph] employer in terms of employee engagement.

So we actually have a really engaged work force that are really committed to helping us grow and we're very picky about who we bring on. In fact every single person that comes into this organization is by intelligence test to and other kind of test around character to make sure that we've got the right people joining our team and that's really important to our culture and having the people with the skills to actually be able to execute in what's a pretty challenging business.

The Toronto housing market is a getting a lot of attention from media, but also some economists, how are you feeling about I guess underwriting mortgages into the market right now with the price growth at about 20%?

Certainly, it's something to keep looking at, studying. I think it is something that we need to be -- we're constantly monitoring it and certainly looking for product pockets that might be particularly overheated and we take a very granular approach to that.

So there are certain condo buildings for example, we won't lend on and we just view them as inherently over valued and liked to cause difficulties. So, I know it's certainly a time to be more cautious throughout, and more aggressive in the Toronto market.

And how do you deploy that, a more cautious approach?

Well a lot of that comes through in debt service ratios, don’t forget. So the people that we're leading to have to have the employment income to support the debt service on higher loan amounts which are a function of higher property prices.

So a lot of people that do get, end up mopping up, they borrow at full amounts, so they would like to borrow because each of them have got the debt service ratios to do that. So that's kind of an automatic feature of the pending criteria with put forward.

So, that in particular now really has a lot of focus. Just the income there, [indiscernible].

And then what would you have to see in this market for you to decide that you want to slow down the growth of your portfolio?

I think it could be a number of things, in particular the concern is always something that would change the immigration path into the city. So one of the things that is causing the increase in housing prices is clearly strong immigration into the city based on the strong economy, and rather lack of supply of housing.

So if for example, we certainly decided we're going to build houses over the Green Belt, that obviously could dramatically increase supply. So if you look at the supply side of that, and also if there is anything that actually sort of limits immigration into the city, or made it less attractive, that would also be something that we'd be looking for.

So, it’s those fundamentals, in fact when we think about it in the Canadian context, obviously, Toronto is getting a lot of attention right now, and others might get attention different times, if oil prices spike again you could see the same thing happen in Alberta. And we look to lend in those cities where you're seeing growing population.

So we look at actually center state over the last five years, like to lend into those communities that have got growth. And frankly while there maybe risk in Toronto today, the highest risk historical in Canada would be lending in small towns where actually the populations are dropping and that is just a natural function that real estate prices tend to be declining, I know [indiscernible] was less demand.

And maybe I could sneak one more and just within the brokerage channel, with respect to mortgage rates and also brokerage emissions are you seeing any pressure, any change with those factors?

Definitely on the prime side mortgage rates are very tight, as we sort of mentioned in the scripts. And certainly as one of our competitors come up with what they view as a sort of middle range product between prime and alt, so we don't really understand why it's priced the way it is, that's a little bit of pressure for us, not something we can respond to at least within the short term.

And the commissions is always as a bit of concentration on the broker side, we need to support those large brokerage houses and have a little bit more leverage with this frankly, but we work with breakage right across the country and there is always a satisfactory arrangement between them.

I just wanted to follow up on the conversation of single-family -- core single-family lending growth by geographical areas. Looking at British Colombia, quarter-over-quarter growth is above 12%, it led the pace of quarter-over-quarter as well as on an annual basis of almost nearly double from Q4 2015.

I just want to get your comments on what you've seen in the BC market and the rapid pace there, grated that it is only small piece of the overall pie, but some commentary will be great?

It’s a smaller piece of the overall pie and actually it goes back to, it almost raises some of the questions around, kind of how do we think about that. So in 2011 we were very considered about overheated price in Vancouver and choose to back away from the market there, that’s just why we have a historically smaller book.

And just to give you some sense of that we are not really a lender in down town Vancouver, I mean we will lend there occasionally, but more generally if you think about this book, its lending on house that are worth 700,000 to million dollars in the Langley's and the White Rocks and that kind of areas in the low mainland, close to Vancouver but not actually in Vancouver itself. And to kind of middle class households and we have really cranked up our sales after that, we've really excellent sales team in Vancouver supporting our growth, which was a case couple of years ago.

And that’s seeing us with higher penetration and probably now we put an office there only just two years ago. So we have been making further in roads into that market and we continue to be relatively optimistic about that market.

Although there is obviously a lot of noise around Vancouver itself in the high-end homes and the question for that's foreign capital flows and capital taxes, really that’s not in the market we're participating.

And does the -- I mean the condo market has all that pretty well in Vancouver and those homes that are priced in the range that you're lended into, but does that not concern you that single detached homes are down 20% and that’s sort of flowing, trickling down to the market you're landed into at a more aggressive pace right now?

I think it's again, not an area we've actually got our eyes on closely and the market is doing what real estate markets tend to do, when they go through an adjustment which is slow down dramatically first before you have really good price discovery. So it's definitely an area for concerned that we need to be looking at closely.

Thanks, Ashley and thanks everybody for your patience. We look forward to delivering our next quarterly report in May and to seeing you at our annual shareholders meeting here at office on May 17th at the Equitable banks at Toronto.

Thank you everybody for listening and we look forward to talk you next quarter.