EQB Inc.

Andrew Moor - President and CEO Tim Wilson - Vice President and CFO

Marco Giurleo - CIBC Geoff Kwan - RBC Capital Markets Graham Ryding - TD Securities Nik Priebe - BMO Jaeme Gloyn - National Bank

Thank you, Leonie. Good morning, everyone, and welcome.

I am joined by Tim Wilson, Senior Vice President and Chief Financial Officer of the Bank. Equitable produced strong second quarter growth in our lending and savings business, which continuing to expand its role as Canada's Challenger Bank.

In lending, our single family book grew faster than we anticipated. And the outlook for this business, for the remainder of the year is now much improved.

Meanwhile, deposit growth of 24% year-over-year, contributed to our decision taken during the quarter, to reduce the size of our secured backstop funding facility, a decision that reflects our confidence in the Bank's diversified funding sources albeit the funding markets have stabilized and the past liquidity measures have done their job. Looking briefly at the quarter's key financial metrics, each of our businesses performed strongly.

Year-over-year EPS growth would've been $0.17 or 8% without the impact of writing down the upfront costs associated with the cancelled portion of the backstop facility. Excluding the write-down, ROE would have been 14.5% compared to the reported number of 13%.

In addition to the write-down, we absorbed $0.25 of other liquidity event related costs in Q2. Absent these costs, our EPS would have been $2.70, an all-time record, and ROE would have been 15.9%.

These adjusted results are evidence of our success and profitably growing each our underlying businesses. Book value increased 15% to $69.03 per share.

To bring greater attention to our key objectives and to streamline our prepared remarks, I'm now going to walk through our progress report on our key strategic priorities, which we have five for 2018, as they've detailed in our lost annual MD&A. Each are designed to increase shareholder and customer value creation, and Equitable's standing as Canada's Challenger Bank.

The first is to grow our existing businesses through superior service. In the second quarter, mortgages under Management increased by 12% year-over-year or $2.6 billion.

In alternative single-family, our book was up by 15% from last year, as we sharpened our competitive edge that was dulled a bit, immediately following the implementation of B-20. With that, the traditional seasonality providing an uplift we grew originations by 51% over Q1.

This growth rate is higher than we anticipated. We are pleased with the success and the recent momentum in the single-family business.

Renewals also trended higher to group credit wise due we think B-20 has improved renewal prospects. But our single-family team has been very attentive to each of our customers with retention rates growing as a consequence.

We're also pleased that this growth has been achieved without sacrificing credit quality. Average beacon scores of our single family lending portfolio was 688, up from 684 last year, and appear to be trending upward.

Notably, during the second quarter, the average beacon scores of our newly originated old single-family mortgages reached a record high of 708. A year ago the average was 697.

This uptake is a function of benign credit conditions in the economy overall, including strength in employment levels, and possibly a byproduct to the B-20 changes introduced in January. Our outlook for growth in alternative single-family has improved.

Last November when we first - were first building our forecasts, we had expected the portfolio to grow by 2% to 4% over the course of 2018. But it moved that expectation up, and it now sits closer to 10%, a marked improvement representing $500 million, $600 million of incremental assets that will fuel future earnings and growth potential.

In commercial, the Bank had an outstanding quarter of growth and customer service. Consistent with our plans to allocate more capital for this business, commercial principal also increased 15% year-over-year, with originations that were 134% higher.

Commercial originations represented an all-time record for this business. The commercial team has found success by growing the breadth and depth of our partner relationships through high-quality service.

Simply stated, Equitable is a higher priority lender for our partners, and we also have more partners than we did a few years ago. These relationships have never been stronger.

We're broadening our range of commercial activities, for example, we've begun to lend to specialty commercial finance companies, operating other spaces such as equipment leasing. These new lending products provide us with an immediate asset diversification benefits, and also insights into performance of these other lending businesses.

Consistent with our low risk appetite, we are growing these new lending lines carefully and slowly with appropriate degrees capital in a subordinated position, to the Banks first lien position. Looking at the commercial market overall, activity levels are high across Canada and our broad national presence is leading to encouraging origination flow.

In terms of asset classes, multifamily continues to be our largest growth area, due to [indiscernible] new construction financing, as well as funding for the repositioning of existing properties. Driven by our strategies, relationships, and a positive market outlook, we continue to expect commercial assets to grow at rates between 18% and 20% in 2018, with commercial originations more than 20% higher than last year in Q3 and Q4.

Securitization financing mortgages under Management grew 8% versus last year, reflecting originations renewals of multi-unit residential mortgages and stability in our prime single-family book. Elevated multi-originations were mostly due to an increase in our CMB capacity.

Growing our service on business is a priority, and our deposit taking operations as well. Here we increased our broker GIC principal 22% from a year ago, an excellent outcome that demonstrates our commitment to the broker channel, and growth of the channel itself.

We also remain focused on increasing the structural stability of our liquidity profile, and in that vein continue to gradually extend the duration of our GIC book. This brings me to our second priority, which is to cement EQ Bank position of Canada's leading digital banking platform.

Also we made tremendous progress in this regard as our digital bank platform has now reached 60,000 customers and the $2 billion mark in deposits just 30 months after launch. In less than three years Canada's first digital born bank has reached $2 billion in deposits.

Faster than previous branch for the banking options in Canada, such as telephone banking, go through kiosks, and internet banks that came before us. Year-over-year EQ Bank deposit growth of 51%, reflected our highly effective marketing presence across both traditional and digital media, and solid demand from new EQ Bank GICs.

I'm very pleased with the innovation we brought for GIC product, with consumers being able to make purchases straight from the smartphone in a few easy clicks. The convenience factor is a major selling point.

We expect the launch of GICs with a several benefits to Equitable, including, increasing the Bank's share of the direct-to-consumer market, further diversify our funding sources and extending the duration of our deposits. In addition to the launch of GICs on our digital platform in March, the other EQ Bank features we've introduced over the past year are contributing nicely to our hub bank positioning that you may have heard mentioned about in our Annual Meeting.

Our go forward development strategies is EQ and tend to build additional franchise value as it recognize and appreciated by the growing wave of Canadians who are embracing all that pure digital banking has to offer and to really demonstrate the value of what we have built to a broader group of people. Priority three is to leverage our capabilities and balance sheet to diversify into adjacent markets.

This year we’re active investing in initiatives that support our Challenger Bank approach and we’ll contribute through asset growth over the long-term. You already know about our Path Home Plan reverse mortgages in the second quarter we continue to build mortgage broker awareness of our reverse mortgage product and refined our offering and response to market feedback.

We are in the early stages of building awareness and are excited about the long-term prospects for this business. This fall we plan to introduce additional secured lending products I won’t preempt these introductions, but I will say that we are determined to build the right foundations for adjacent market Challenger Bank offerings through extensive analysis and testing.

This will be another classic case of our invest now and reap what we sow in later approach which we think is highly appropriate for shareholder minded bank. Priority four, is to maintain a disciplined approach to capital management and a low risk profile.

Discipline capital management can be seen in several outcomes including growth in our common share dividend which is 13% higher than a year ago and a very strong capital ratios. Higher asset growth means that our CET1 ratio edged a bit lower in Q2 although we're still carrying excess common equity at the moment it’s not as much as last quarter and our asset growth expectations through the balance of the year have now improved.

As discussed on prior calls the possibility of putting a normal course issuer bid in place to manage capital levels to our targets. While this remains an active conversation on our board we’re not moving forward on that plan this quarter given our current views on growth and how shareholders will be served by deploying capital in the business.

And so maintaining a low risk profile the evidence can be found in our credit metrics that impact mortgage assets which has 13 basis points of total mortgage assets down three basis points from a year ago. Impaired loans also decreased in dollar terms compared to last year due to the discharge of two commercial loans that were impacted by the end of Q2 2017.

And improvements in alternative single family portfolio primarily in Alberta and Saskatchewan. We will meet our goal of maintaining a low risk profile as a result to our culture our internal control framework, our prudent underwriting approach and our three lines of defense operating model.

For the remainder 2018, we expect to raise rates and credit loss provisions to be low assuming the Canadian economic conditions stay within the range of expectations. Like you we are closely following house prices and sales activity levels and believe that the market has recently returned to more balance territory.

Rest assured we are always prepared to act quickly to address any areas of elevated risk as we’ve done in the past. I keep cautioning that interest rate to be unusually low in recent quarters and they are likely to increase from those levels and I have that same observation today.

I also add a very important point so the bank remains well reserved with allowances to credit losses equal to 22 basis points are assets. Well above our long-term loss rates.

Our fifth and final priority is to strengthen our key capabilities. In this regard we also make good progress in Prime we launched the Equitable Bank Evolution Suite Switch program.

It enables mortgage brokers and borrowers to easily move Prime to us from other lenders. This require an update to our back-office technology and our processes.

Just after its launch in late June we have seen a positive uplift in Prime originations from this program. We also introduced creditor life insurance in partnership with a major life insurance company.

This product has more value to our customers be the alternative or Prime borrowers. Now I’ll turn the call over to Tim for his report.

Good morning, everyone. And keeping with our goal of streamlining our quarterly remarks I’m going to focus on just a few financial highlights beginning with profitability.

Several of our key profitability measure net interest income NIM an EPS were reduced by the write-down of unamortized upfront costs associated with our backstop facility. As Andrew mentioned excluding this write-down core earnings performance in the quarter was strong and above last year even as we continue to invest in our businesses in some cases ahead of the benefits realized.

The upside of reducing the size of the backstop from $2 billion to $850 million is that quarterly interest expenses were declined by $2.8 million relative to the recent run-rate beginning in Q3 and continuing through Q2, 2019 when the current facility matures. In effect the bottom line impact of the write-down will be neutral by year end.

As we still need to determine the ongoing need for our backstop I can't comment on the cost beyond next June at the moment. Even with the write-off Q2 net interest income was 1% higher than Q2 2017 and it would have been 9% higher without the write-down which is the midpoint of the guidance that we provided last quarter.

As a reminder the write-down as well as other liquidity event costs that we have been incurring are booked as interest expenses and weigh on both our net, NOI and our NIMs. Total NIM in Q2 was 1.51% 12 basis points lower than last year due principally to the 11 basis point impact of the write-down.

Beyond the write-down the major influences on Q2 NIM were lower prepayment income was offset by higher spreads that we earned in our single family and commercial portfolios. You will likely recall that single-family margin benefited from pricing increases that we implemented in May 2017.

Lower prepayment income is a good news, bad news story while a lower level of early discharges hurts this revenue stream and current period income. It also means that mortgages are staying on our books longer and that we will continue to earn NII over time.

In our view this trend is a net positive for the franchise even if the weighs in current period performance. Looking forward, our outlook for net interest income for 2018 is similar to last quarter.

That to say we expect it to increase that year-over-year rates in the 8% to 10% range along with average asset balances. I will note that this is an average range for the whole of 2018 and since our growth was only 3% in the first half this rate should be higher in the back half of the year.

Further you should expect to see some volatility in the growth rate quarter to quarter. Q3 of 2017 with a low point for NII as it represented a high point for liquidity costs through the year-over-year growth rate in Q3 of this year may increase to the high teens.

The growth rate in Q4 will then return to a level that is closer to our full year guidance. We projected NIM in the 1.55% to 1.6% range in Q3 and Q4.

This range incorporates the now lower cost for the backstop as well as reduced expectations for prepayment income and the current pricing dynamics in the single-family market. Costs associated with the backstop related write-down were also one of the drivers of the increase in our Q2 efficiency ratio which stood at 42.9%.

Excluding this item our efficiency ratio would have been 40.3% just marginally higher than Q2 of last year even though we grew period average FTE by 8% or 44 position partly to support the investments that we've been making in the technology and the product advancements that Andrew mentioned in his remarks. We spent to promote our EQ Bank brand and our new EQ Bank GIC product and we wrote-off $600,000 of development costs associated with the new underwriting platform for our commercial business.

And we’ve begun to invest in one solution with a technology provider and that solution proved to be suboptimal. We rightly decided to pursue another option that better met our needs.

For the remainder of 2018, we will continue investing in our five strategic priorities. As a consequence, we anticipate that noninterest expenses will increase at year-over-year rate slightly higher than the growth rate of the bank's assets.

In dollar terms expenses should be down from Q2 in the range of $1 million mainly because we don't expect to incur the same level of marketing costs. As a result we expect our efficiency ratio in Q3 and Q4 will be in the high 30% range to lowers than the levels that we recorded in Q2.

Now, back to Andrew.

We believe our Canada's Challenger Bank positioning is working as intended to differentiate Equitable. That will meet the needs of selecting the best groups of customers to create brand and shareholder value.

Our products and technology roadmaps will remain the year around ambitious and we will execute discipline yet creative manner. Our outlook for alternative single family growth has improved and we demonstrated the strengths of our diversified lending model by growing in commercial and launching new products.

We are pleased that mortgage is under management and balance sheet assets will continue to grow in 2018 providing the field for good earnings performance that is supported by then now reduced backstop costs. That concludes our prepared remarks, and I'd like to invite your questions.

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

My first question is just on the strong uptake in mortgage originations this quarter. Could you give us a sense of how much of that was you guys taking share versus just strength in the market overall?

It's really hard for us to do that at this point. We just turned half the data, as you know, one of the large player in space had yet to report.

We do have some insight. We do think we gained share in the quarter based on some other data that we look at that we already got - already previewed too.

It’s a bit of complicated story. I do have the sense of the old market might be growing as essentially the overall market, but again, it's a bit early to have the solid data, but I think we are fairly confident that as our teams kind of work through the issues of B-20 and started to have a much better customer service focus.

And also they were customer service focus, but started to be more balanced around the concerns of meeting B-20 and delivering the traditionally great customer service Equitable does that we once share back and frankly we have got some - little bit of challenge now with the volumes coming in that much faster ahead of our expectations where we have lent too hard on some members of our team to really pick up that level of pace without us hiring ahead of it and we are looking hard to address that to make sure that we have got people having the appropriate level of work allocation that is so fair to everybody and maintain great service.

And maybe you could tie that to the pricing dynamics in the quarter, what you saw in terms of competition and what you're seeing post quarter as well. I know, there was the announcement of major new entrance this quarter so maybe your thoughts on that as well?

Not seeing much pressure for any new entrance at this point. I think I'm slightly more optimistic about the pricing in the market then I would have been on the last conference call, but still concern that we have got competitors that maybe able to overcapitalize in the rational enough for about pricing.

We are certainly feeling good about our pricing, it seems to be working in the marketplace and is also providing us with decent returns. So we are feeling pretty good about it there's going to be something to keeping a close eye on over the next cycle.

And just lastly on the EQ Bank platform we have seen the successful launch of GICs on the platform maybe you could tell us what the next major innovation for the platform is going to be?

So from a number of answers to that question, as I mentioned you will see us making much more noise about the functionality we already have in the platform. I think it's clear that we haven't yet communicating to our existing customers how fantastic the product is.

So this is a unique product in the Canadian marketplace and it's an account that you can install money in, you can your payroll coming to, you can pay your credit card bill out of it, you can pay your utilities that also pays a great rate of interest. And this is enormous innovation at Canadian marketplace.

We have been successful in attracting customers for the rate, and really what we're trying to do is, is provide more value to them in their lives by showing how they can use more functionality in the system. So, that's where you'll see our PR going over the next few months.

In terms of actual innovation, we are now chipped in the process of starting to upgrade the entire platform into a cloud environment, which will give us much more flexibility going forward. That's going to be a great evolution, but there will be a period where new product initiatives are somewhat constrained as we're making the transition of the core technology.

You will see a fantastic new customer facing app being launched in October. So, it's the first time we have issued a native app on the cell phone, and it's - I'm just so pleased with what the team have done, we're testing it now, I've seen it and it's a beautiful execution of a digital banking app.

So, that will be coming in October. And when we release the new - when we are successful in the cloud migration at some point next year, you'll see joint accounts and then followed by some registered accounts as well.

So, there's lot going on in the EQ Bank that - we've already had fantastic success I think with what we've done and delighted with where the team has taken thing to it. You can see there's a roadmap that we really want foothold and a lot of excitement amongst the Group.

My first question was - talking about your capital levels, like, how do you think about what that optimal capital level is. Is it - thinking about it from a CET 1 ratio perspective, and then also - however you think about that, do you think that for your business that you would probably need to have higher levels of capital [indiscernible] call it the big six Canadian Banks?

Yes, I think - I mean the big six - whole different structures Geoff with the advanced approaches to capital management the AIRB approach which is where we're revolving to. So I would argue that we're holding even more capital when it looks - when you make that direct comparison to CET 1.

We do - we run our ICCAT that assesses all of our risks and appropriate capital levels, and we try to pretty run it pretty conservative balance sheet for standardized bank. I think if you sort of look across other standardized banks in our space, you'll see that our capital level is very high.

We like that, and we think that to build a bank that's trying to grow on a really solid foundation of capital is really good, good basis. The banks are built on confidence and having a solid capital base is one of the things that can add to confidence.

I think of our sweet spot on CET 1 as being 13.5%. That's good kind of the number that I already keep in my mind, and there is a lot of science behind that with an art overlay, and so you can see - based on that thinking, we probably think we've got $75 million of surplus common equity on the balance sheet at the end of the quarter.

But as I mentioned, you need to have - surplus capital get absorbed if assets grow very fast. That fuels earnings growth but it does draw down your capital levels.

But I think, since you see us - and below 13.5%, you should generally be thinking that we'd looking to rebuild capital and I hope we can, significantly above 13.5% and that would be possibly ways of thinking about either deploying capital faster or distributing it to shareholders in one form or the other, whether dividends or buybacks.

My next question was on the prime insured single-family residential site. How do you think about what the origination outlook looks like for you for the next year in terms of what you'll be able to acquire?

And if that is a matter of funding that through the CMB, or is there another way that we should think about how you want to fund that business?

In the prime single-family space, we typically would not fund through CMB's. So, we're funding through MBS.

So, we're not funding through MBS, so we’re all funding through CMBs programs, but not actually selling that into CMB. So CMB is generally allocated from multifamily programs, and we sell the prime product into the MBS markets.

Yeah you should expect to see faster growth in that area, and I think what's particularly compelling is that we're also seeing good growth in our Equitable Bank branded products, which have a much stronger franchise value, particularly when they come up for renewal at least five years typically from the date of origination. But our team is really doing well and building faster than we expected there.

In fact when you look at the overall prime book, you'll see that a lot of the attrition - to the extent we had attrition was in the non-branded Equitable product while our portfolio of Equitable branded mortgage is actually been growing. We have just recently entered into an arrangement with another originator, where we're going to originate a few $100 million mortgages this year and you'll start to see that coming through in Q3 and Q4.

And was it the $300 million - I think it was $300 million to $350 million, was that for the second half of the year or was it a quarterly number?

Second half of the year, but it's mostly going to be closed in Q3.

Last question I had was, just your backup credit facility. In the bigger picture, do you think about this as really more of a temporary funding facility in the context of what happened within the industry last year or do you think about it as it's a long-term part of our capital structure and the contingency in the event that we need to tap in?

I think we haven't landed on either of those two positions, part of the reason why we reduced the facility this year was to be able to enter a dialogue with market participants to see how they view this - and we don't claim to have any unique insight into how a bank of our size should be run to be prudent. I think there's certainly a view out there amongst people, I respect, who say banks shouldn't be supported by standby lines from other banks.

You create capital structures that don't rely on that. Others say, smaller banks should always be - have something to support within an extremist.

What I would say, that's sort of interesting - the way I think about it is, if we didn't have any backup lines in place at all and we were running at a capital of a 13.5%, if you run the pro forma through for the most recent quarter, you get to a 17% return on equity, which is bang on line with our historical. And I find that kind of compelling, but the math tells you the underlying structure of the organization continues to perform very well.

Maybe I could start just on the credit side, PCLs are very low again this quarter. I think there was a reserve release, just any color there please?

I think the reason that the overall PCLs are so low in the quarter, Graham, related mainly to the Stage 1 and 2 provisions that we take under the new IFRS 9 methodology. The major reason that those provisions were so low in the quarter is that the macroeconomic view changed in a positive direction.

So, we use a third-party economic forecaster to provide us with the assumptions we use in our modeling and their view on some of the fundamental economic conditions in Canada as they look out over the next of couple years improved quarter-over-quarter, and those PCLs came way down. And I think that's exactly the effect that people are expecting with IFRS 9, the quarter-over-quarter volatility in the numbers add some of these assumption change, so not a surprise that we see that level of volatility.

And just bigger picture, when I look at the level of your impairments, sort of with the percentage of your mortgage book, three, four years ago versus where you are today, what you'd attribute the much lower level of areas today versus a few years?

I think it's a combination of many things to talk about. Our own individual risk management practices - and I think we set the right tone from the top, we have three layers of defense, and we think about credit - where we want to lend.

And I think we have to acknowledge that we can help to how good economy with employment, it's been very good in the areas that we lend, and house prices sort of continue to generally trend upwards. What I would say is that, the one thing that I do take a lot comfort on this, we had a little bit of a test over the last three years in Alberta, where but unemployment spiked and prices dropped and really we saw stresses and we saw some appraise having to sort of reform and think about how they deal with home ownership.

But really we've seen almost nothing in the way of actual credit losses through the entire period. And we seem to have sort of have that behind us now.

So, I think we do lend in a way that can take stress, we lend as a reminder in major urban centers primarily where there is reverse slight employment base. We are looking for people that can demonstrate they can pay their mortgages we lend a loan to values that provides protection in a extremist scenario.

And the last one would just be you were commenting earlier just on adjusting your pricing on mortgage in Q2 and that had some impact. Is there anything you can quantify as to what the differential was in pricing Q1 versus Q2 on average?

Yes, I don’t have that data right with me - actually there is complexity there as well because GIC rates were increasing through the quarter so I think that’s not a number we would. And so rates are moving a little bit but too many movements going on that will be a quite number on that.

You can say broadly speaking Graham the spreads that which we are originating mortgages were a little bit tighter in Q2 than they were in Q1. But even as I look – at the most recent monthly numbers for June the spreads on those newly originated single-family mortgages are roughly in line with the spreads of the overall single family portfolio and seem to be moving in the right direction.

So I think we're feeling pretty comfortable with the pricing dynamics right now as Andrew mentioned earlier.

And so with June have been different than April, May is June a reflection of Q2?

It’s I think a rough reflection of Q2.

Just want to start with the question on the funding diversification just wondering if you could give us an update on some of the uptick you've seen for the GIC distribute through the digital banking platform as well as the partnership you have with Wealth Simple. Have you started to see some inflows from those initiatives and over time how meaningful do you envision those new channels getting in terms of the broader funding mix?

Yes in both cases we’ve seen good inflows of funds certainly on the GIC side we’re over a couple hundred million in balances on direct originated GICs. We’re seeing good flows from – good consistent daily flows from the Wealth Simple relationship.

And so yes, we’re pretty pleased where we are so far I think one of the learnings from the GIC product launches. Our customers would have savings account with us in our ability to cross-sell a GIC is actually a good value proposition for lots of our customers.

Question those yield curves can be about up a little bit there is a premium pick up to move into a term product of GIC. So we are seeing some good conversion from savings accounts to GICs and we’re also seeing new customers being attract in the platform simply based on the offer at the GIC.

I think we talked about this on the last call as well, but give a little bit color on what sort of incremental feedback you're receiving from the broker community on the reverse mortgage product. And are there any sort of refinements or adjustments that you think might be necessary to start kind of generating a bit traction there, is it just a function of broker awareness or any color on that would be appreciated?

I think there were some things we’ve been learning about for example how certain property tax program work in British Columbia with something we’re not familiar with and we had to adjust the product slightly to deal with. We've also dealt with I think our prepayment penalties were – people were reluctant to sign on because – if they paid off in the early years what I would have regarded as non-fair prepayment penalty.

So we actually reduced that to make it fairer product for the consumer but only one came June until the time to reprogram the system So there have been some product tinkering issues, but I would say that our team has just done a fantastic job in getting in front of a bunch of decision-makers. We’ve got exclusive arrangement with a real estate broker for example to promote reverse mortgage - through their channel.

And we’re making great progress. I would say it's a slower decision product to get to closure so - the early inquiries we have in terms of turning into closing there is definitely a longer period of time.

And I thing that that’s quit appropriately clearly you got an outlay individual may be want to consult with children, consult with legal advisors and not the same driver to close the transaction you have when somebody is moving house in a regular mortgage. So, it will take a bit of time to build this book but we’ve got great committed small team on this and I’m confident that we’ll build a great business going forward.

The more we build into it I think the more we think this is a product makes a lot of sense for us and for our Equitable Bank and for our customers.

First question is related to the RWA growth and the impact on capital you sort of talked about the 13.5% CET1 ratio is where you look to peel back growth. At the pace that we’re going right now it's eating away at about 20 to 30 basis points of CET1 ratio at a pace of growth today.

Do you need to breach this the 13.5 or is it kind of as you approach it you will start to slowdown growth in commercial loans for example or elsewhere. How do you think about that 13.5 level?

Well Tim definitely done a deeper into that, but we don’t see that one being a constraint at this point.

I think Jaeme, I mean working with the numbers that we provided in our outlook as we look at through the balance of 2018 and 2019 we actually think we’re going to start to rebuild capital again. It’s not going to continue heading downwards.

There's a strange but very normal seasonality that happens with their capital ratios. As we start to originate more volumes in the midpoint of the year put those on our books, but at that point they still haven’t started to organically generate capital for us.

We typically see the ratios drop and then pop up in the back half of the year. And again that's fully what we expect to happen in 2018.

In terms of the net spread commentary that you said it was in line with the broader market or sorry the broader mortgage portfolio in June versus recent periods. Can you just comment or may be give us a sense as to how much of the growth in the EQ Bank deposit platform is playing into that.

Obviously it's been a very successful program and currently funds at cheaper rates than your typical GIC product especially given the deposit broker commissions that you would layer into that as well. So maybe some color around how that's helping on the margin front?

There was a period for few days last week where we were under price - under in the deposit in the GIC through EQ Bank. Then we actually moved the rates relative recently.

Jaeme as we’re trying to build our book - most of the commission that we are saving through the digital banking platform is being - becoming an advantage for the customers in terms of better rates. So that's not really a feature of the spread in a meaningful way.

And I’d Jim I mean yes the EQ Bank product right now has lower interest rate then you’d across most of the GIC term. But the growth in that product we’re thrilled with the growth rate of EQ Bank.

But the dollars just aren't significant enough to meaningfully shift our NIM at the moment.

Yeah I guess I wasn’t referring to the EQ Bank GIC offering?

Sorry, I meant to say high interest savings account.

Right.

So that savings account compared with our regular brokered or the EQ Bank GICs is it definitely a rated spread advantage to funding with EQ Bank thesis, but again the growth in pure dollar terms isn’t significant enough to have a material impact on our NIM, so it’s a up with the margin.

Yes, I guess if I’m looking at Q2 versus Q1, 300 million expansion in brokered deposits and about 240 million or so expansion in EQ Bank in the EQ Bank channel. So, it seems like its roughly similar growth and similar contribution to your sources of funding.

Is there something I'm missing there in terms of like I guess underlying mix?

The one piece that’s not transparent to you is some of the EQ Bank growth was because of the EQ Bank GICs, which are comparable in rate to what - to the GICs sold to the broker channel. There is no real relative NIM advantage to that growth.

Maybe softer topics then, in terms of the single family uninsured origination growth and asset growth there, are you able to maybe quantify or qualify based on your conversations with your PDMs or underwriters, how much it would impact the disruption that one of your competitors has played in your growth and in your success during Q2. Have they offered any opinion or views as to how much of that has helped, I guess, in the quarter?

I'm certainly not able to specifically put our fingers on any changes any particular competitor. As I mentioned earlier when we took that market share, I think we will have a better feel for that one once we’ve seen all the press reporting coming through and our sense is we gained market share overall, but certainly [indiscernible] that would go to where that might have come from.

Last one from me, just more of a forward looking question around funding sources and the potential for an RMBS markets, would you be able to offer any opinions or your views of should the covered bond limit be increased, is that something that in your conversations with potential investors and internally is that something that you think would be a something that the Equitable Bank, or I guess, the alternative mortgage market sector can access?

We certainly believe that Equitable Bank can and should be able to access through the number of things that make it less attractive than might otherwise been that we think policymakers made some constructive suggestions to policymakers in terms of things like the percentage of the assets that can be pledged under covered bond program and we think there are lots of reasons why smaller banks like Equitable should be able to pledge a higher percentage of their assets and there is a good public policy trade of there around helping with the stability of the financial system and being precompetitive to help the Canadian economy as a whole. So we are certainly making some of those arguments around covered bonds whether this would really apply to anything other than two or three larger mid-sized banks and in fact ourselves, I think is somewhat doubtful.

So covered bonds certainly seem to be something that we’re looking at reasonable seriously and believe that there might well be a route to look forward but not talking over the next six months, but over longer period than that to be clear. RMBS we still have - we've never been great believers at RMBS market will come to life and thrive with the current pricing arrangements and the current institutional arrangements where mortgage is best blended within the system.

So we continue to look at it with a lot of interest, but we think we understand it in great detail, but we're certainly not prepared to take losses or lose money to try and see that market and get it going and it doesn't feel that's very high probability and not something structural changes in the space.

I know I said those were my last one, but I want to see one more and actually - and I apologize if you addressed this at the opening remarks or maybe the fact that you can't address it. Just I'm curious to know of the mortgages that were renewed in the quarter or let say in the first half of 2018, obviously we had a good retention rates there.

Are you able to give us any color or sense as to the proportion of those mortgages that would not have qualified under the previous stress test and the fact that they are renewing, they actually don't have to go through the new stress test. Are you able to give us sense as to how much of that has played in higher retention rates and strong renewals?

As I mentioned in the remarks, we think that may have contributed to it, our team is also super organized around providing great customer service. The reality is we that don't go and get new income documentations on renewals.

So we look at payment experience, we look at beacons and that sort of things that we can pull, but we don't go into a new calculation of stress test and don't pull new income to support that. So we can have sense of generally that's helpful for us, but we don't - we can’t put a precise quantitative number.

Thank you, Leonie. To conclude we look forward to delivering our next quarterly report in November.

Thank you very much for attending on this warmest day.