EQB Inc.

Andrew R. G.

Moor - President & CEO Tim Wilson - VP & CFO

Nikolaus Priebe - BMO Capital Markets Marco Giurleo - CIBC Capital Markets Geoffrey Kwan - RBC Capital Markets Jaeme Gloyn - National Bank Financial Graham Ryding - TD Securities Stephen Boland - GMP Securities Phil Hardie - Scotiabank

Thank you Dan. Good morning everyone and welcome.

I am joined by Tim Wilson, Senior Vice President and Chief Financial Officer of the bank. Equitable produced solid first quarter performance, increased the dividend for the second time this year and continued to expand its role as Canada's Challenger Bank with introduction of new deposit and lending services.

In our single family business we did experience some headwinds in the market of consumers and lenders, began to adjust to new B-20 guideline. During today's call we will update you on our strategic progress and our outlook.

We will start with a recap of the quarter's results beginning with asset growth. At quarter-end mortgages under management stood at an old time record of $23.8 billion up 9% year-over-year and 2% for December 31, 2017 on growth in our single family, commercial lending, and securitization financing portfolios.

As mortgage assets are source of most of the bank's earnings this is a positive performance and reflective of Equitable's diversified lending platform, provides us with the opportunity to allocate capital to different business lines so that we can achieve the best returns for our shareholders. And we did exactly that in Q1, we began to deploy more capital to our commercial lending businesses and life of slowing conditions in single family.

And looking at components of portfolio growth single family mortgage principle was up 16% from a year ago and 2% from Q4. While our single family book continued to grow in the quarter, younger [ph] generation slowed on a year-over-year basis.

We had expected slowing as a result of changes to obviously B-20 guidelines. I think it is probably fair to say that we did not adapt to these changes as well as we might have done but have made the appropriate adjustments and expect originations to climb by around 40% to 45% in Q2 from these lower levels in Q1.

Having said that the period of market adjustments to B-20 is still playing out. With the visibility that we do have, we continue to believe that our single family portfolio will grow 4% to 6% this year in line with prior guidance.

Helping single family portfolio growth was higher mortgage retention. As you may recall our hypothesis going into the new B-20 era was that mortgage retention would be higher than in the past and our teams are working hard to serve our customers to ensure this continues to be the case.

This is certainly true in the first quarter as we see -- sort our retention rates increase. During the quarter we also introduced new digital technology that allows single family borrowers to view their account status in are in real time.

This should add another reason for customers to stay with our bank. Given opportunity levels in single family we chose to begin allocating more capital to commercial lending business and with good results.

Origination volumes were a quarterly record of the bank funded high quality opportunities generated from a large and expanding network of customers and business partners. Compared to the first quarter last year when we funded one particularly large commercial loan, this year's originations were broad based by asset type, loan size, and partner.

As a result commercial mortgage principle was up 4% or $122 million year-over-year and up 6% or $180 million in the quarter alone. As you know Equitable has been a commercial lender for its entire existence and so this growth seems very natural to us, we certainly like our prospects in this market.

Commercial lending has a different risk return profile than single family but one with which we are very comfortable as we continue to grow this part of the bank. Securitization financing mortgages under management increased by about $640 million or 6% year-over-year and this performance reflected higher multifamily volumes.

Multi-unit residential originations grew and continued to take good advantage of an increase in the bank's Canada mortgage bond capacity. This portfolio provides a solid and reliable stream of activity and earnings.

While growing assets the bank had another consecutive quarter of great credit performance reflecting the high quality of the mortgage portfolio and our success with workout activities. Once again Equitable's provision for credit losses as a percentage of total loans was in the low single-digit basis points just as has been for more than five years now.

In the first quarter our PCL was two basis points, unchanged from a year ago and up one basis point from Q4 2017. Looking at credit metrics there's no noise this quarter because of the bank's adoption of IFRS 9 on January 1, 2018.

That noise reflects our historically conservative allowance calculation methodology and reinforces the fact that the book is solid and the bank is well reserved. You will note that PCL's under IFRS 9 were $8.5 million less than general provisions that we reserved under IAS 39.

Given this change our allowance still sits at 13 basis points of mortgage principal and covers 92% of our impaired loans. That compares well to our 10 year average loss rate of four basis points.

The impact of the IFRS 9 implementation is to increase book value per share by $0.42. Compared to Q1 last year impaired loans decreased in both dollar terms and a percentage of total portfolio.

The majority of the decrease was in alternative single family and almost two thirds of it was right through [indiscernible] for the remainder due to the discharge of two large commercial loans that were impaired at the end of Q1 2017. These taxes were partly offset by the addition of $4.6 million of insured mortgages that were between 90 and 365 days past year.

This amount moved to the impaired loan category in Q1 as a result of the adoption of IFRS 9 and the prior accounting treatment to not recognize them as impaired. We do not anticipate any losses on this group of loans.

Looking forward Equitable continues to benefit from rigorous and effective risk management practices. As a result we expect our resident rates and credit loss provisions to be low for the remainder of 2018 assuming the Canadian economic conditions stay within the range of broad market expectations.

We take comfort from the fact that we lend in a very prudent risk aware manner and this should allow us to effectively manage through any downturn in market conditions. In particular Equitable's loyalty fees on uninsured mortgages are designed to protect the bank in the event of a softening in the economic environment.

Our savings businesses also performed well in the quarter. Total deposits increased 19% year-over-year to $11.9 billion just above the core rate of our core lending -- just above the growth rate of our core lending portfolio.

Deposits also grew by $856 million or just over 8% since December 31st. Equitable continues to attract diverse premium deposits both through EQ Bank and from our broker partners.

EQ Bank deposits grew 42% or $515 million year-over-year to $1.7 billion and its customer base surpassed 50,000 people. A thought about deposit growth came from the launch of EQ Bank GIC's.

As you may recall we read at the platform late last year to offer GICs as complement to these EQ savings plus demand account and after introducing the product in March with very little marketing EQ attracted GIC volumes that were above our own expectations. EQ Bank GIC is readily purchased through our digital banking app, convenience advantage over traditional bank offerings and with attractive interest rates of varying terms.

This offering is the latest manifestation of Equitable's Challenger Bank status and that leverages opposition as a regulator institution and trusted store of value as well as our technology infrastructure that was built to expand and accommodate new and better ways of serving customers. We certainly believe the EQ Bank platform combined with our low cost business model gives us competitive edge in responding to the needs of Canadian savers -- recently to see investment journalist promote the merit of GICs more frequently.

For individual investors the yield pick up on a GIC compared to the equivalent risk of a mutual fund or government kind of bonds is material. As interest rates generally pick up we are seeing stronger fund flows through the GIC boards.

Just last weekend we added to the functionality within the EQ Bank platform for GIC and you should expect to see us broadcasting that message in print, advertising, digital media, and on television. Overall we have created stronger digital platform and we plan to continue adding innovative features and functionality this year to expand EQ position as a leading provider of banking services in Canada.

Offering GIC also improves our liquidity risk profile by extending the average term of our deposits. Growth in EQ deposits were complemented in the quarter by a 23% or $1.7 billion year-over-year increase in brokerage GIC's placed by deposit agents, investment dealers, and financial plan on behalf of Canadian savers.

Based on these numbers the evidence suggests that funding market is normalized after last spring's disruptions. Look at the bottom line diluted EPS $2.34 down 8% from the first quarter of 2017 as a result of cost related to secured funding backed up facility that we added in Q2 of last year.

Without those costs the banks first quarter earnings would have been at record levels. Despite the compression caused by the presence of backstop ROE for the quarter was 14.5% which is in line with the broader Canadian banking industry and a good performance when compared to both small and large banks around the world.

And reflective of Equitable's ability to allocate capital effectively. On the strong earnings performance book value per common share was up 16% year-over-year and 4% during the quarter itself.

as you saw from last evening's earnings release, the Board opted to increase the common share dividend to 27% per quarter, a 17% increase in dividends declared in December -- in May of 2017 and 4% of dividends declared in February which was the last time we raised the rates. This latest increase reflects and supports the belief that the bank's capital position is more than sufficient to support future asset growth and to reward shareholders for their confidence in Equitable with the continuing patterns of a steady increase in dividends and our goal of increasing them by more than 10% a year over the longer-term.

Meanwhile increasing our dividend we finished the first quarter with CET 1 ratio of 14.7% far above the minimum regulatory requirement while more to say about our capital position in my closing comments. Now I will turn the call over to Tim for his report.

Thanks Andrew and good morning everyone. As you heard first quarter earnings and ROE were solid but below last year even though we achieved strong growth in mortgage assets and continued to benefit from a very efficient, non-branch business model.

The reason results were held back is as Andrew had mentioned, the cost associated with the liquidity measures taken in Q2 of last year. In the first quarter those actions net of associated funding cost benefit reduced EPS by $0.27 per share and compressed ROE by 1.6 percentage points.

There were no such costs incurred in Q1 of last year. Compared to the fourth quarter the cost of the funding backed up dissipated by $0.05 per share even so earnings were lower on a sequential basis by $0.02 due to a variety of factors including lower prepayment income, declining maple revenue, increase compensation costs, and a slightly higher PCL.

Looking forward the liquidity actions mainly the secured backed up facility will cost us a little more than $5 million per quarter for the remainder of 2018. Over the course of the next year and prior to the terminations of the current backed up in June 2019 we will review the bank's need for any future backed up facility.

The goal will be to maintain a high level of prudence in our liquidity model but hopefully at a reduced cost. Which is the highlight in our financial result is that even with these liquidity event costs our Q1 net interest income was an all time quarterly record of $81.3 million up 4% from a year ago.

Solid 9% growth in average asset balances was offset by an eight basis points year-over-year decline in NIM. That decrease in total NIM was driven by core lending.

Securitization financing NIM was flat. NIM in core lending was 24 basis points lower than a year ago for a few reasons all of which are detailed in our MD&A.

The most significant factor again was the cost of our liquidity action which accounted for 24 basis points of the year-over-year decline. Lower prepayment income also had a four basis point unfavorable impact.

These factors were partially offset by seven basis point increase from higher spreads within both our single family and our commercial lending portfolios. Those spreads widened mainly due to the pricing changes introduced in May of last year.

We do not expect that same trend to continue as spreads on new business have moderated in single family. For 2018 our outlook for net interest income is for more growth.

At year-over-year rates in 8% to 10% range as assets grow at approximately that same rate. Our current thinking on NIM is that total NIM will be in the range of 1.55% to 1.6% in each of the remaining quarters of the year.

Although we may see some quarterly fluctuations due to mortgage prepayment income and other factors such as seasonal variations in our liquidity holdings. You can review the assumptions made in arriving at this outlook in our MD&A.

Growth in our existing businesses as well as investments in our Challenger Bank strategy led to a year-over-year increase in non-interest expenses of 13% in Q1. 7% growth in FTE and other factors that caused compensation and benefit cost to increase were the major drivers this quarter.

As well we spent more on the EQ Bank platform. Regulatory, legal, and professional fees also increased mainly because of an increase in CDIC's standard premium rate as well as higher deposit balances and overall business growth.

Despite cost growth Equitable's productive workforce and our branchless business model produced an efficiency ratio of 37.7%. This performance is consistent with the expectations that we set for 2018.

For the remainder of the year we plan to continue investing in the banks franchise adding more features and functionality to the EQ Bank platform and reinforcing our high level of customer service. With that non-interest expenses should increase at year-over-year rate slightly higher than the growth rate of our overall business.

Of course as actual growth in our lending markets is different than anticipated we will manage our expense levels accordingly so that Equitable remains one of Canada's most efficient banks. Now back to Andrew.

Thanks Tim. Our key financial operating metrics point to the strength of our diversified business and the credit quality of our assets.

We believe that our strategy of serving Canadians as the country's Challenger Bank is proving itself out. I am hoping you will have a chance to attend our Annual Meeting of Shareholders next Tuesday as I plan to use that opportunity to talk more about our take on the future evolution of the banking industry and where our positioning may take Equitable in the future.

In terms of growth initiatives I talked about PATH Home Plan on our last call and since then we've had a positive reception to this reverse mortgage product as we embarked on the time consuming but vitally important process of building the awareness and describe the merits of our approach that will ultimately fuel growth in assets. Now that we have actually launched the product we are climbing a steep learning curve as the reality of the market test the assumptions that we made in putting together our business plan.

I certainly have more confidence in the future of this business than I did at the time of the launch in January. We are pursuing exciting new Challenger Bank opportunities to deploy capital at higher ROEs like this and we do expect mortgages on the management to grow 6% to 8% in 2018.

The prospects for slower single family asset growth may continue to leave the bank with excess capital. If this happens we will evaluate the options for adjusting our equity base in response.

For the term and the best course of action once the longer term impact once changes in our market becomes clearer. And the prospects for our growth initiatives and the impact on capital becomes better understood.

Whatever we choose to do that choice will be informed by thorough evaluation of all organic and inorganic growth avenues open to us. So giving you confident that it will be in the best interest of all shareholders because our Board and Management Team measured ourselves on being good custodians of our owner's capital.

Also on the agenda this year as Tim said is reviewing the future place of a backstop facility if any. In the meantime as Canada's Challenger Bank we remain squarely focused on making banking better for Canadians across all of our business lines.

On the funding front I'm pleased to note we launched deposit accounts in partnership with Wealth Simple in the first quarter. Wealth Simple is a Canadian Fintech and Canada's leading rebel advisor that selects appropriate portfolios for its clients based on their objective risk tolerance.

Wealth Simple selected Equitable because of our like minded approach and strong technology foundation. I do believe that Wealth Simple is a great example of how elegant Fintech Solutions can bring value to people's lives and our team admires the execution that they have brought to the table and how this translates into customer experience beyond the core idea.

This collaboration is consistent with our strategy to partner with Fintech leaders to provide value to Canadian savers, further diversify the funding sources, and underscores our ability to embrace the changes likely coming to the Canadian banking industry with the advent of open banking that was announced in the budget presented by the Ministry of Finance earlier this year. To summarize, first quarter asset growth and profitability was solid.

Our Board increased the common share dividend for the second time this year. We continue to solidify our position of Canada's Challenger Bank in the marketplace with the launch of EQ Bank GICs and the PATH Home Plan.

And while significant uncertainty remains we believe that mortgage under management and balance sheet assets will continue to grow in 2018 providing the fuel for good earnings performance. That concludes our prepared remarks and I would like to invite your questions.

Dan can you please open the lines to our analysts that have questions.

Oh hi, good morning everyone. Recognize it is still very early days on this front but I was wondering if you could give us just a little color on the early rollout of the PATH Home product.

Andrew I know you kind of alluded to in your comment but just whether you are seeing decent uptake on that product or what feedback you're hearing, anything on that front would be helpful?

Yeah we've closed let's say a handful of loans. We've had a quite a large number of applications.

And I think we have realized we missed on a couple of elements of the product that we're currently making some adjustments to make it -- get the market a little better. So, feeling really good about it and our team's done a bang up job in getting across the country.

Just a reminder we're only in British Columbia, Alberta, and Ontario as we speak so we are certainly gearing up to go into other provinces. Once we have -- since we launched we had a chance to talk to best mortgage companies around the world and it's a really interesting product to be looking sort of more flavor on how these markets are evolving in other parts and I recommend you look at Heartland Bank in Australia and New Zealand and who has the best legal and general and they have been doing in the UK market where they've been growing this asset class quite fast.

Okay, yeah that's helpful color, thanks. So would we see any volumes from that lending activity reflected in the total for the core single family origination going forward?

Going forward we will likely put those volumes in with the core single family business, that's right Nik.

Okay, and then just one last one for me. You even mentioned in your commentary that you made a few adjustments to pricing structure in the core single family segment, that should help capture some incremental market share there in the second quarter.

Have you done work to look at what the NIM impact of that might be in the broader portfolio, just based on guidance it looks like there isn't really a material change expected relative to the first quarter?

I think that's a fair conclusion to make.

Yeah, I think that's right Nik. We have modeled that at the current pricing environment just over the course of the past few weeks and we're maintaining our NIM guidance.

While we do see a little bit of competitive pressure in the alternative single family origination, we are getting some offsets in other places. So for example we are able to -- I think we're sharpening our pricing on renewals of single family mortgages given that environment which is providing a bit of an offset.

Going forward we probably expect our liquidity portfolio to be slightly below its seasonal high at the end of March and then we're seeing we're going to see more of an asset mix shift towards commercial which as you're aware is a higher spread business. When you flush all those through our models we were maintaining the guidance that's in the MD&A.

Okay, that's really helpful. Thanks guys.

Good morning guys. My first question is for Andrew.

Just on your opening remarks when you mentioned that you did not adapt to B-20 changes of FAS as well as you would have liked to, what did you mean by that, could you elaborate?

It's a little hard for me to describe it but I think -- so I'll try and give you some sort of color of them be quantitative about it. But as you know we are a bank that is very concerned about being on the right side of regulatory risk and so we manage regulatory risk like credit risk very tightly.

But I think towards the back-end of last year the changes coming out of B-20 or B-20 modifications were quite significant and we were very serious about approaching those and putting it through our teams and may control the overall procedures and so on adapt it so that we could be squeaky clean when the regulators come in January. I'd say -- but our business is one of hustle and one where you've got to be on the phone lighting up to the brokers and I think we probably took our eye a little bit off the ball on that side of our business.

It's hard to have priorities on two or three things at the same time and I think to be fair to our teams they did a great job in adapting to a fair bit of regulatory change. But I think we did just lose a bit of edge in the marketplace and we're less focused on that for a period of time probably in the November-December period.

Combine that with perhaps being a little off the market on price and seeing one of our major competitors wanting to build market share at the expense of margin, I think just left us a little blunter in the marketplace and kind of send us through to sort of mid February. Our teams are the best in the industry frankly in terms of kind of hustling and figuring out how to turn that situation around.

And everybody is right on their game now so not only we are able to comply with B-20 we've got a team that's engaged in the market talking to our customers, understanding it. So, I am pretty comfortable, it is a temporary thing but it was something that we experienced and went through.

Alright, that's a good segue into my next question just you mentioned pricing and competition, can you talk a bit about the level of competition you're seeing in the market both on the residential and commercial side and can you tie that into the firm's discipline on pricing loans and ROE?

Yeah, I will start with commercial because I don't think it's -- partly because there is less happening there in terms of any sort of change in competition. As you probably are aware all of our originators have on the desktop an ROE calculator that attributes capital to the loans they are making and allows us to sort of drive across the bottom line.

We have hurdles that they try to meet. Sometimes it is a bit more of an art than science but there is a lot of quantitative analysis around that.

And I would say that Darren and his team in commercial have done a great job in actually improving the ROE's on that metric over the last 6, 9, 12 months. So the spreads look very good.

And in that business one the challenges is loans. Some loans are a little riskier than others and they demand a higher price and pricing for risk is really critical and our team is very experienced in that.

In the single family space it's been a bit more of a concern that we've got perhaps one of the larger players in the market wanting to build market share at the expense of margin. We are not obviously about going to give away our franchise just because somebody wants to build a bit of market share for a period of time.

So we've chosen to be fairly strategic in a few spots in the market where we want to give competitive offerings and we don't think it's going to have a longer term impact on margins but the next few quarters might be not what we would really -- we may not be pricing what we really desire or believe logically the market should be priced. But I think we're not seeing quite the same discipline out of one of the major players that we have typically seen over the years.

Alright, great and if I could just sneak one last one in on capital, capital position was strong this quarter and your book value grew 4% sequentially, given where the stock is trading are you -- how do you -- how are you thinking about a NCIB right now?

Well, certainly I think we talked on the last call about thinking about it. We've advanced our thinking of what it would take to do it.

We're also updating our capital asset projections to make sure that whatever we do we continue to be able to face the opportunity in the market. And I think probably by the time we get to the August call we'll have more meaningful to say about that.

I don't know that we particularly at well stock prices changing -- is trading at any point in time. It's more so much about making sure that we're funded efficiently so that the -- our shareholders are getting appropriate returns in the capital they entrust to us.

So, certainly thinking through that.

Alright, thanks guys.

Hi and good morning. Just following up the questions on the competition in the non-prime space.

Is it just really home that's been the competitive friction or has it been other players like Optimum, some of the other smaller players are -- is it maybe the banks that have been coming down are willing to do more in that space than they have before?

I think such is to the last point, if anything I would say the banks in general the big banks are upgrading the credit criteria. I'd say that the views of some of the banks as their stock has not been doing well because seem to be exposed to Canadian mortgages.

It's not always true but I think that has a broad picture that's probably the case. I would say that at the end of the day the pricing [indiscernible] set by us, we are the two players in the market.

Frankly there are other players who are significant but my sense is that Optimum is running a nice, good business and would take the price that the market would offer. So, I think there is a couple of smaller guys around but I don’t think they really drive the prices at all.

Okay, and then just so within that context though, I mean historically in the industry Home would have been bigger than Equitable and arguably they were the ones that kind of set the pricing and you guys would try to maybe compete more on service to get that business. But given what happened last year you guys are much closer in size and if your growth rate is kind of let's say you move reasonably in tandem do you think about like what that means from a pricing dynamic that you don't have a clear leader that may be the one that arguably kind of sets the price and does that create a little bit more volatility around where the originations go as well as the NIM yields?

I think that's to be determined. Certainly we're trying to share more responsibility in the industry around price and I think as I mentioned we had to -- we thought we had to adjust to that -- adjust I think a little better than that.

I mean it says more fine tuning on thinking but clearly we believe that to run sustainable, well capitalized banks, produce the right returns for shareholders and property price risk is extremely important to price the discipline that we will continue to and that's the D&A that we work with and will continue to sort of work with that D&A. And I can't believe anybody that doesn't take that and take that sort of view thrive long-term.

So, we just need to be careful about that.

Okay, and just one last question and I will hand it back, on the reverse mortgage product, the other competitor in the market has been doing this for decades and arguably has a big kind of database or experience on the consumer behavior patterns. How should we think about how you guys are kind of rolling out the strategy, obviously you are just starting here but would it be fair to maybe describe it as being maybe erring on the side of conservatism on the underwriting side until you get a little bit more of the experience in terms of how these borrowers are?

Or if there is something that you did before the launch that you're able to get more comfort, more information around how potential borrowers in Canada behave with respect to this type of product?

I think if you look and if you look at the line up of underwriting grids with the other competitor in the marketplace you'll see that we're actually operating in a more conservative manner than them so working within the umbrella. So I'm pretty comfortable that we're not taking risks that we shouldn’t be.

And we spend a lot of time working on that and we think about the dynamics in other markets, you can look at sort of LTVs, the way this product is underwritten is primarily around the age of the borrowers, quality of the real estate, and the loan to value assessment against that. So the metric that apply in other markets probably should be similar to what apply in Canada and the math is relatively complicated but the underlying dynamics are pretty similar.

So we are actually lending at rather low lender values and we feel pretty comfortable we have got the risk pretty well patted down.

Okay, thank you.

Yeah, thank you and good morning. First question is just going back to the I guess the Q1 experience and the conversation around implementing B-20 versus price competitiveness, can you allocate a way to both of those, is it 50:50 or would you say price was the biggest driver of market share being seated?

It's really hard for me, you know that Jaeme and that's why I tried to give you color rather than trying to quantitative frankly. I think even with Equitable we might have a different views on that.

It's really hard to be quantitative on it but certainly I do feel that we were pretty, pretty focused on what it took to adapt to B-20 and that was whether it was 50:50 or 40:60 or whatever I know that that was a considerable distraction. The need to actually upgrade our systems to calculate the new stress test TDS.

TDS is the need to make sure in a second what we are putting in place behind, those are couple of the highlight ones but there are number of other pieces in that document. They were quite [indiscernible] thinking through so our leadership team of single family was definitely fully engaged in it.

And on a fairly short timeline frankly from the time it was said these are the final rules that we got to have these things in place by December 31st, it was a heavy lift for the team to make it happen. And as I said I think it's very hard for us to kind of really quantify it but I think they did a great job in keeping on the right side of the rules which is job one in a bank.

And so I'm not providing any criticism to our team. I think our team did the right thing but that's probably others maybe done a better job of keeping fully engaged in the market while going through that journey.

Okay and you made a comment also just in terms of the relative competitiveness about the underwriting criteria and perhaps that maybe competitors are underwriting a perhaps a lower quality book. Can you describe maybe some specifics of what you're seeing in terms of that credit score card where Equitable is relative to competitors and how much of a driver is that to the mortgage growth in recent periods?

It's not clear that I made any relative -- sorry, I can't recall making any relative credit statements. I am not aware that I am making any relative issues there.

Okay, maybe I'll follow up on that after, just getting still on pricing, I asked this to a competitor as well, I am curious to know what is the net interest spread of new mortgages being underwritten today versus mortgages that would be rolling off of the portfolio, is that something that you have at hand and you'd be able to disclose?

Yes, we do have it in hand Jaeme but it's not something we disclose publicly. I think we just point you to the movements in the aggregate NIM in our portfolio.

What I would say is broadly speaking within the commercial and single family portfolios, the NIM on what we're adding today is roughly equivalent to the NIM of the mortgages that rolling off the book.

Okay, so what are and I am sorry if I missed this, if this was already discussed in the commentary but what are the offsets if we're looking at net interest spreads today versus net interest spreads a year ago, it's significantly lower just looking at this on the surface, so what are some of the offsets that would support a stable NIM in that environment on specifically just the mortgage itself?

The huge -- NIM is just the cost of the backstop facility that gets amortized through that line.

If you're looking at -- I mean if you're looking at market available pricing data for single family and market available GIC data, that is probably what you're seeing agreed in more recent months. But again what I'd say is that the market data you have isn’t necessarily reflective of what's happening in the inside, point one.

Point two, what you're not seeing is retention. So as we mentioned B-20 makes our book generally a little bit stickier and offers the opportunity for us to price more selectively so we can make up some of the margin that we are losing in originations in the retention.

And then broadly speaking with our commercial -- sorry, with our core lending book we also get the benefit this year of a mix shift towards a higher spread commercial business.

Okay, fair enough. So shifting gears then just in terms of the capital deployment through the remainder of the year.

We've had dividend hikes here in the last -- each of the last three quarters, how do you -- how are you I guess measuring dividend hikes versus MCIB or SIB, is it something that you would consider perhaps normalizing that payout ratio with other Canadian financial institutions or you will provide any initial insights based on some your conversations?

I think what you're asking is highly relevant to our thinking and generally as Canada's Challenger Bank and thinking about new opportunities are going to open up, while we may over the next few months have a lower growth profile than we've had over the last decade which has been I think very consistently kind of taggers in the high teens, that may well resume as we find other opportunities but we don't want to lock ourselves into a position where we're in a very high payout ratio business where we are unable to take advantage of our organic opportunities. So I think that leads us to the logic that at least over the next two to three years to the extent that we're returning additional amounts of capital probably be through a MCIB or some other mechanism that allows us just to do -- to make deliberate decisions to move capital ratios if they're overly high down to levels that are more appropriate.

In terms of the regular dividend I think we've been quite consistent over the last few years saying we want to grow it by double-digit -- by the double digit rate year-over-year. The decisions to or the plan to raise the dividend by a penny in this quarter was probably something I could have told you two years ago.

So this is not something we're going to change any dramatic view or really reflects underlying operating performance. It's more around our commitment to make sure that investors stay with us to see the benefit of the dividend growth.

And as you mentioned we're probably one of the lowest payout ratio banks in Canada and we have lots of opportunity to continue to grow the dividend.

Okay, fair enough and last one for me just around the reverse mortgage business, there was some favorable comments let's say from the CEO of CMHC, do you have any sense or feeling or indication that that might allow you to pursue more aggressive growth in that channel given a favorable regulatory position?

I think it is encouraging to see that public policy makers of the highest levels thinking about reverse mortgages and putting them in a favorable context. I don't know that we would then certainly translate that into faster growth.

As we mentioned if we launch the first thing is to make sure that we don't put the number of issues around this product one of which there is a risk that it could be sold in a way that we wouldn't feel comfortable with. And I think we've done -- that's one of the things I am encouraged by over the first few months frankly as we have seen that the process we put in place to make sure that these are being used in the right use cases is actually panning out as far as I'm concerned.

So, we'll wait and see on that but it is encouraging. I think there is a really strong public purpose behind these types of mortgages with an aging population who have got lots of equity locked in their homes maybe not the same cash flow from pensions that they might have expected.

They wanted to continue to live in their homes and their communities as they age but this product makes a lot of sense so, I am encouraged by that. I think it probably has got tailwinds behind it for a number of reasons but I don't think we're about to change our guidance on how fast it might grow.

Okay, thank you.

Good morning. Just to follow up on that, have you provided any guidance as to what you think your reasonable target is for growing your reverse mortgage book this year and next year?

No, we haven't yet. I think once we get a sort of better beat couple of quarters in we will start to do that.

I think -- I will promote this as kind like this is the year of wait and see and I wouldn't expect to be -- wouldn’t expect to get 50 million this year in assets but beyond that it'll start --

Okay, fair enough. You are talking about market conditions, competition, B-20 are slowing the growth of your single family business.

And then looking to sort of adjust your use of capital if that's the case, is there any appetite on your part just given the market that we are in, very highly in Canadians rising rate environment there seems to be some volatility in the GTA market, that's a key market for you, of just deliberately reigning in growth and being a little bit more stingy with how you're underwriting or the credit that you're willing to lend, is there any update to offer like that going forward?

I think we're pretty comfortable with what the credit mix season. As you know we always over the years we adjust plus the value is different, different things to reflect where we see the risk.

I think we've always been prudent, we've never been that expensive either and I don't know that we are expensive or stingy, we just think that we're prudent. We face the market consistently and I expect that they will continue to do that.

Okay, the allowance for credit loss, the reduction under IFRS 9, can you just walk us through that, is that a basically a reflection that you were fairly conservative under your previous provision in your pre-IFRS 9 and that's what caused the allowance to be released?

I think that that's absolutely right Graham. I think as we develop more sophisticated risk models, as on our forward journey towards AIRB and for the implementation of IFRS 9.

We always believe our models were conservative but the extensive and more sophisticated modeling we've done for those programs confirmed that. If you looked at our allowances relative our uninsured book prior to the implementation they were running north of 30 basis points compared to our average 10 year loss rate of four basis point which again reinforces the notion that we have been very conservative and hence the reduction in our allowances on Jan 1.

By the way this has been a major effort, a major lift from our teams to do these models for many thousands of hours analysis. We are pretty comfortable we got it right.

Got it. Shifting to your -- the GTA market has seen some price decline sort of over the last year.

It's not factored in when you sort of -- when we look at your overall loan to value on your portfolio, not in your originations but in your overall portfolio, is that price decline been factored in there, does that get captured by HBI or what not?

Yes, it has. The LTVs that we disclose reflect the most recent HPI numbers.

Got it and then my last question, the Wealth Simple partnership, is this a savings account on the Wealth Simple platform or is this GIC as well and what sort of funding costs -- how does that look relative to your other existing channels?

It's the savings account that is controlled by the underlying investment. So, its proper relationship but it is the underlying investors that make the decision.

The underlying individual user and the funding costs are higher than broker GICs but lower than our EQ Bank platform so somewhat sort of halfway between those two. So we see these kind of relationship accounts.

These are relationship accounts.

Okay, got it but this will be an on demand savings account?

It is on demand at this point.

Got it, that's it for me, thank you.

Thanks, I just want to make sure I understand that the guidance for Q2 and maybe you have answered this indirectly but on the single family you've guided to 40% increase quarter-over-quarter roughly I think that's the number, is that -- again is that due to a higher retention from your existing book or is that factoring in a big watch of new business that's coming in?

That's all in the originations. We don't include -- that stack doesn't relate to retentions or renewals, it is simply new customers coming through the front door.

And again then from what you said that's just due -- winning that business back is just from pricing or is it just from service or combination?

It's from a more proactive stance to the market I would say as I tried to describe earlier on. We are very focused on making the changes, to accommodate B-20 and now our teams are much more active in places of the market.

And then that origination performance is combined with the improvements we've seen in our customer retention have led us to increase our view of portfolio growth for single family to the 4% to 6% range which is up a couple of percentage points from last quarter.

Okay, and second question just on the credit facility, I know it's a year away, I mean do you envision being able to get rid of that facility in total or do you believe that you're always going to have to have maybe not 2 billion but 1 billion or 0.5 billion standby facility with just what the change of the landscape but the view on demand deposits?

Well, I have a view. My view is that we would stand alone without a standby line but this is very much something I want to take a feedback from the Board, other people, market participants view and the views of frankly the people who provide the standby facility.

I think in general we should take the view that banks stand alone through their funding mechanisms and shouldn't be sitting there. I take the view that banks should be standalone there without the funding mechanisms, wouldn't have standby for all the credit facilities.

But the experience of last year has certainly we need to consider but that's before we make a decision and that's going to be the decision we make over the next 12 months.

Okay, and Andrew when you say that how do you balance having -- it seems to me that you're in here, the words and also in MD&A that you believe that there is some excess capital, how do you talk about getting rid of a facility and balancing that with carrying excess capital, are those two separate or do you look at them together?

I really think of them separate. Capital [indiscernible] to define you credit losses and other things.

It's the capital you are holding reserve, we hope you never need it but its sitting too to provide that life boat in the event of a severe economic downturn. Funding is supported by the backstop facility with the ability to access deposits essentially being funded by this is what we supports the backstop.

So, I think as we advance to gather deposits then the need for the backstop becomes less evident.

Okay, thanks very much guys.

Thanks Steve.

Hey, good morning. Just one quick question, most of my questions have been answered but just looking at the shifting landscape with say impacting volumes and retention rates.

Can you just talk about maybe what the implications are on the broker side of the business and whether that's changing concentration of that broker business or impact the volume incentives and commission structures?

We haven't seen much in the way of change there frankly. It is pretty much -- we've come up with, we have the same programs that we had last year and I think that broadly speaking they pay the same.

So our programs are to provide more compensation for those brokers that are more loyal to us and provides with volumes called the crystalline programs has been in place for a number of years and it works well with tinkering a little bit. But it's not -- but essentially it the same programs they always had.

Okay, so similar concentrations with the similar players and same volume incentive on loyalties.

That's right.

Okay, great, that's it. Thank you.

Asked and answered, thank you.

Thanks Jaeme.

We look forward to delivering our next quarterly report in August. And hopeful to see at the Annual General Shareholders Meeting next Tuesday, May 15th at Equitable Bank Tower, in midtown Toronto starting at 10 AM Eastern.

And thank you for listening.