EQB Inc.

Thank you, Christa, and good morning, everyone. I'm joined by Tim Wilson, Senior Vice President and Chief Financial Officer of the Bank.

During the first Equitable provided another demonstration of extending progress we are making as Canada's Challenger Bank. Our award-winning EQ Bank digital platform added 5,000 customers' accounts.

Our broker deposit business grew to record pace. And our retail and commercial assets expanded by 25% and 24% respectively over last year such that our assets broke through the $30 billion level, reaching approximately $31billion.

The majority of this growth was organic but we also had a positive contribution from Bennington's equipment leasing portfolio, which we acquired on January 1st. Coming out of the definitive position of the bank for reimaging everyday financial services to help Canadians achieve that goals in an easy and straightforward manner is clearly giving a goodwill and distinct edge in the competitive marketplace.

And sets us up well for the coming quarters. During our call today, we'll talk about our outlook and account for recent performance against our 2019 priorities.

To begin, a few thoughts on our financial results. This was a record setting quarter.

The Bank's EPS grew 16% over last year on adjusted basis and adjusted ROE was a healthy 15%, as a result of our value creation formula, customer service focus and the contribution of Bennington. Strong earnings of growth supported another good dividend increase the 14th to just over five years.

The latest took a dividend up 15% over last year to $0.31 per share. Based on our current assessments, our 2019 outlook is for assets to grow 10% to 12%, which should support adjusted earnings growth for the year of 15% to 17% and deliver an ROE of approximately 15%.

These expectations and our thinking behind them included in our MD&A, which notably also provides results for our retail and commercial asset classes. We changed our segment reporting this year to align it with how we manage the bank's broader and more diversified businesses.

I would encourage you to review the supplementary package we posted our website in April for an eighth quarter review of our result as reported on this new basis. I'll now turn to the five key strategic priorities we set for 2019.

The first is to grow our existing businesses with better service and innovation. With total loans on a management up by $5billion or 21% year-over-year and 4% during the quarter itself, I would say we're delivering well on this priority.

The registered growth across all business lines. In our retail segment, alternative and prime single-family mortgages grew 15% and 48% respectively over the last year.

This growth reflected higher origination over the past four quarters and lower levels of unscheduled payments. Alternative mortgage originations were ahead of plan and well ahead of last year, even though March application flow did not pick up as expected relatively to past seasonal patterns.

It's difficult to offer precise reasons for this. We will continue to focus on service innovations and differentiators while remaining disciplined on pricing.

And with that believe our portfolio will grow by more than 10% this year. Continued growth in prime mortgage market was reflective of our strategy of further penetration of our offering within the broker community.

As we said on previous calls lately, prime has not been overly profitable in the first term but the economic tend to improve in subsequent terms. We also saw much improved margins in the prime market in Q1, the highest levels we've seen actually since early 2016.

The prime expect growth of 30% to 40% to next two quarters slowing to around 10% in Q1. The reason that growth rate slows is a large volume originated in the second half of last year.

On the innovation file, we recently introduced a single family share tool. It improves the customer experience by making it easy to send statements from other financial institutions directly to Equitable.

In the second quarter, we plan to roll out a tool that will enable up our borrowers to execute their mortgage commitments digitally. An example of our continuing commitment to ensure that Equitable is digital to the core.

In commercials, our portfolio grew 24% year-over-year. This reflect a 20% growth in conventional and commercial loans and 9% growth in insured multi, all of it organic, and the acquisition of Bennington's Equipment leasing portfolio.

The addition of the $449 million leasing portfolio accounted for the majority of the 5% growth realized over the quarter. Origination, our conventional and commercial business were high approximately $328 million but below the record levels we achieved in Q3 and Q4 of last year.

We deliberately slowed commercial growth so it's not to put more, any more pressure on our capital originator ratios. Origination should pick up again later in the year once CT1 ratios climbed back closer to our target of 13.5%.

For our commercial mortgage businesses, market demands remain strong, particularly in the apartment sector, but also in office and industrial. This provides a good backdrop for continued asset growth this year, which we expect to be in the range of 8% to 10% for our conventional and commercial businesses.

This range is more modest than in 2018 reflecting our desire to still grow, but at the same time move our capital ratios back to target. Our second priority is to further diversify through our leasing, reverse mortgages CSD loan businesses.

This is a long-term objective that really speaks to a broader challenge of Bank ambitions and a desire to be of service to more Canadians. For example, Bennington allows us to present dynamic solutions to small and mid-sized enterprises.

A customer group that we believe is underserved by banks of all sizes. Although, we are already just getting our feet wet in this area, we expect our equipment leasing portfolio to grow to the year-over-year rates of between 9% and 11% in 2019, which is faster than the market itself.

We think this is a realistic expectation based on Bennington's high quality service, delivery to leasing brokers. The fact that we are now leveraging the bank's more flexible lower-cost funding base increased Bennington's competitiveness.

In the CSV and reverse mortgage markets, we are squarely positioned to help another underserved demographic. Canadians are in the asset de-accumulation stage of life who ready access to funds to support their retirement lifestyles.

For our CSV loan product, we've done extensive work with some of Canada's major life insurance companies to develop our offering, and we're now in the market originating loans and gathering further insight into customer needs that will help us refine, enhance our solution. A complex product like this takes time to build a following in the marketplace, but we've got a stake in the ground.

I'm optimistic about the products potential and our team's ability to deliver. The same applies to our reverse mortgage product; I'm really comfortable with the pace of progress we've made since we launched the solution a year ago.

And I'm growing more optimistic about its potential as time passes. You will find our CSV and reverse mortgage assets reported together as other retail loans in the MD&A.

Priority three is to expand and enhance EQ Bank. Over the past year, EQ has grown its custom base by 22,000 including 5,000 in the quarter alone, and increased EQ Bank deposits by 28%.

Moreover savings durations expanded with growth in EQ Bank GICs which at quarter end accounted for over $529 million of EQ's now $2.2 billion customer base. I offer these figures to illustrate EQ Bank is making strong progress, but also to point -- to make the point that EQ is a platform and as such provides us with the option of going well beyond where we are today in terms of digital products and services offered to the 76,000 first mover Canadians who count on us right now.

Accordingly, we will continue to expand, enhance EQ Bank with a new upgrade to our desktop web app channel app which was released earlier this week, and a refreshed approach to marketing to really try to connect the dots on the unique innovation that EQ Bank is bringing to the Canadian banking marketplace with the savings plus account. Over the next year, we intend to bring new functionality with joint accounts RFPs and TFSAs.

Overall, our intention is to keep EQ Bank to the leading-edge to our Challenger Bank thinking and use it to fashion our place in the future open banking ecosystem as a financial hub for customers, one that delivers best-in-class offerings from Equitable and [OpenTech] another partners. Speaking of that you'll be interested know that our strategic partners have helped us to grow a deposit base by over $315 million in the past year.

These are stable deposits because the nature of the relationships that we have with our partners, and by extension their customers. That growth has also helped us to grow overall deposits by 23% or almost $2.8 billion year-over-year.

Of note this development has given us a confidence to further reduce our secured funding backstop. Tim will discuss the implications of that reduction in his remarks.

Priority four is to pursue AIRB and improve justification of our capital management. We have almost completed our AIRB implementation plan and accordingly remain on track to operationalize the program by the end of 2020.

AIRB will offer several benefits; most notably it will allow us to allocate appropriate levels of capital to our risks and introduced a methodology that enables us to compete more effectively across a broader range of assets. In terms of capital and capital management this quarter, as expected organic asset growth and the Bennington acquisition temporarily reduced our CT1 ratio.

Even so is 12.9% CT1 is still well ahead of regulatory minimums. Our intention is to replenish this ratio organically over the course of 2019, and expected to be around our target level of 13.5% by yearend.

Priority five is to enhance our capabilities through technology and people. One of the big initiatives here is the work we're doing to become the first bank in Canada to host our core banking system in the cloud.

This migration is on track for completion in the summer, and will be a game-changer for Equitable. It will enhance our ability to design and move new digital products to market faster and a lower cost.

It would also enhance the security of our environments. On the people front, we've added talents in areas such as technology delivery, alternative single-family credit and digital banking that we need to move Equitable forward in a changing banking industry.

Before I turn the call over to Tim, I'd like to spend a moment to talk about credit quality and performance. In general, this was a noisy quarter because the acquisition and one-time IRFS 9 charge on Bennington's lease portfolio.

And we described previously, equipment lease is also a higher risk profile than the mortgage business, but also higher margins and returns. Notwithstanding an increase in our impaired loan balances, the quality of our loan portfolio remains high in the opinion management.

Let me explain why. In the first quarter we had $28 million of impaired equipment leases that we acquired through Bennington or added to our books in the quarter.

Impaired asset growing, balances grew to 49 basis points. This was expected indicative of the risk profile of that business.

Of course, leasing is also a much higher margin business in part to compensate for this business, for this increased risk. Secondly, impaired loan balances were reflects by the addition of a $39 million commercial loan on a mixed used property in Central Vancouver.

Our LTV on this loan is less than 40% and the apartment building portion is 90% leased. So the property is generating good cash flow.

We don't expect to register a loss on this loan. In fact, we expect to refinance later this year which point we would be paid out.

We also had some additions in our alternative single family business. The majority of which were in the province of Ontario.

Even with that increase, the impairment rate on a mortgage portfolio is only 22 basis points. And as shown in our MD&A is in line with the level of the -- of 2017 period.

In our view, it causes no cause -- there is no cause for alarm. Remember, a raise rates drop to exceptionally on sustainably low rates in 2017 and 2018.

Based on our ongoing and extensive review of loan assets and credit allowances, we concluded that allowance was an appropriate level at quarter end. They increased $7 million from the previous quarter mainly as a result of Bennington.

The allowance was $32.3 million or 13 basis point to total assets at March 31st. This result is far and excess of our 10 -year average annual loss rate of 5 basis points.

Looking ahead at recent economic data supports our view that risk in the residential real estate market is moderated in recent quarters in most markets. A view shared by CMHC.

It's also accompany to know that Equitable's weighted average LTV ratio of 66% on our uninsured residential mortgage portfolio, which offers protection against significant decreases in house prices. Nevertheless, we expect PCLs in 2019 to increase from historical levels, partly due to the addition of Bennington.

Bennington related provisions were likely average between 1.5% and 2% of leased assets over the long term with some variability period to period. This level of loss is within our risk appetite and they are [Indiscernible] on these assets exceeds our thresholds, a good trade-off in our view.

Now I'll turn the call to Tim for his remarks.

Thanks Andrew. Good morning, everyone.

Equitable started 2019 the way it ended 2018 with strong earnings growth. As you saw though the IFRS9 provision on performing Bennington loans reduced earnings on an after-tax basis by $4.2 million or $0.26 per share, but this was a one-time allowance.

As a reminder, IFRS9 required us to take this provision which is equal to 12-months of expected losses on Bennington's performing leases immediately after they came under the Bank's balance sheet at January 1s. Moving on to core earnings, the change analysis slide in our deck illustrates the impact of the various drivers of profitability.

And you will notice that asset growth was again the most significant factor. Year-over-year, asset growth was 22% which reflects the success of our Challenger Bank business line and in particular high growth in all of our retail and commercial businesses.

Growth in average asset balances of 24% and an increase in overall NIM led to 30% year-over-year growth in net interest income. A rate of growth that is close to the high end of our expectations for the year as a whole.

These expectations are based on continued asset growth, as well as Bennington's contribution and lower backstop funding costs. Before moving to a review of margin, I would highlight a change that we made in a calculation of NIM, as well as our efficiency ratio.

That is we no longer include taxable equivalent basis or TEB adjustments. We did this because TEB adjustments were decreasing in significance as their preferred share portfolio remains consistent, while the rest of our balance sheet grew.

And the adjustment to be honest was pretty consistent quarter-to-quarter. Turning to margin trends.

Total NIM expanded by 7 basis points year-over-year to stand at 1.67%. On the positive side, Bennington added 9 basis points to total NIM, which is reflective of the higher margins present in equipment leasing.

Similarly, lower liquidity event costs were responsible for a 9 basis point year-over-year NIM change. Those results partly from the reduction in the size of our backstop facility last June.

The overall increase was achieved despite growth in our lower spread prime securitization assets, as well as reduced levels of prepayment income and the effects of elevated price competition in the single-family market. As Andrew mentioned, we have taken the decision to further reduce the size of our backstop facility to $400 million from the $850 million that we had in place for the past few quarters, and our intention is to renew the facility at this lower level for a two year period starting in June.

This is a measure that reflects the stability in the funding markets and our stronger liquidity profile and will be a benefit to our earnings. As a result of this decision, we expect quarterly interest expenses related to the backstop to decline relative to Q1 by approximately $1.6 million per quarter starting in Q3 which equates to a $0.07 positive impact on EPS.

Q2 will also benefit by about $200,000 pre-tax due to the downsizing to $400 million next week. Although, it's technically a Q2 development, on the funding side I'll also note that we successfully closed another $150 million two year fixed rate deposit note in April.

This note was priced at 160 basis points over government which was tighter than the levels achieved on Equitable's last deposit note issuance. As an indication of strong investment community support for the Bank, 25 institutional investors participated in the deal which was almost twice as many is in our last offering.

Looking ahead, we believe that net interest income will increase in year-over-year rates between 25% and 30% due to both asset and NIM growth. This expectation is built on the assumption the Bennington lie between $7 million and $8 million to NII per quarter.

Due to lower backstop funding costs, the expansion of retail and commercial margins and higher prepayment income, NIM should gradually increase over the course of the year to reach a range of 1.75 to 1.80 by Q4. Moving to non-interest expenses.

You'll recall that the expectation we set for all of 2019 was that these costs would increase at year-over-year rates of between 30% and 35% and their efficiency ratio would land between 40% and 42%. This expectation was based on the impact of assuming Bennington's cost base and its higher efficiency ratio, as well as ongoing investment to support our Challenger Bank expansion.

In the first quarter, non-interest expense growth tracked a bit higher than our expectation at 36%, but our efficiency ratio of 41.1% was still at the midpoint of our expected range for the year. About $5.4 million of the $12.3 million year-over-year increase in expenses was due to picking up Bennington's cost base.

The remaining increase primarily reflected 11% growth in the Bank's FTE, 36% growth in technology and systems expenses to support our IT capabilities, and higher regulatory legal and professional fees reflecting an increase in CDIC's standard premium rates, higher deposit balances and overall business growth. I will note that CDIC has been enacting annual increases each year since 2014 market wide, but those ended in 2018.

So we expect the rate of this expense growth to slow next year. On technology cost, you will recall that our decision to move our core banking system to the cloud will add incremental non-recurring expenses of about $6 million in 2019.

Although work on this initiative began in Q1 related expenses were nominal in that period. We expect the majority of the $6 million to be spread equally over the second and third quarters.

The remainder of our expense base will increase at a rate in line with the growth rate of our assets, so may show some variability quarter-to-quarter depending on the timing of any advertising expenditures. All told, we continue to anticipate the 2019 non-interest expenses will increase at year-over-year rates of between 30% and 35% with an efficiency ratio of between 40% and 42%.

One final item, effective January 1st, we adopted IFRS16. For Equitable, the impact of this adoption represented just a $0.05 decrease in our book value for common share as of January 1st, and about a 2 basis point decline in CET1 due to the addition of $15.3 million of right to use assets.

It had no noticeable impact on our earnings. So all-in-all was immaterial.

Now back to Andrew.

Thanks Tim. As you may have seen in the press, Equitable has taken a positive stance on the possibilities that would emerge for people across the country of Canada, joined most other vast economies have moved to do banking ecosystem that involves a form of open banking.

We see such an evolution is almost inevitable, driven by consumer needs and a strong public policy rationale. And we are closely following the developments in Ottawa on this file.

Overall, we have substantial opportunity to create shareholder value in many areas as a result of the steps we've taken over the past few years to establish Equitable's place as Canada's Challenger Bank. Our task now is to execute by bringing service and innovation together to achieve the ambition we set for ourselves to build a better bank for Canadians.

I think Equitable clearly demonstrated a successful execution in Q1 and I'm confident that we will see the continuation of strong performance for the balance of 2019. This concludes our prepared remarks.

And I would like to invite your questions. Christa, can you please open the lines to analysts for the questions.

Hey, thanks. Good morning.

I just want to start with a question on the one larger commercial mortgage that you called out the defaulted in the quarter. Andrew, it sounds like from your comments it was a mixed use property.

I think you mentioned it was 90% leased. So I was just wondering if you could kind of give us some insight, what factors contributed to the default there.

Yes. So it's large mix property mostly apartment units which 90% or so was leased.

There is a second mortgage mezzanine piece behind us. So that wasn't enough cash flow for the building to support both of those.

There are some challenges amongst the ownership group. So that's what's led to the default as we said in the call, we should not expect no losses in here but it may take a quarter or two to resolve.

Whether some vacancy is on the ground-floor retail and a couple of floors office building. But there is enough cash flow coming out of the building to service our portion of the debt.

The challenge right now is we could have atoned the rent so I should get that cash flow directed to us. We're feeling very good about it but still see a bit of wart on the financial statements.

Okay. That's good color.

And then just on the impaired ratio, if we exclude the impact of Bennington as well as that one commercial mortgage it looks like the ratio picked up slightly which sounds like it was attributable to some retail and smaller commercial loans. And I realized that ratio remains low by historical standards and it's coming off a very low base, but just wondering if you could give us some color on the reasons for the uptick there excluding Bennington and the commercial mortgage piece.

Yes. And I think that's exactly the right way to be thinking about it, Nik.

So we've done a bit of a deeper dive inside. It's mostly single-family loans in Ontario.

There was a slight bit of noise around the RPS business, it was so small commercial business but nothing that we expected, can only lead to losses. I think in fact the biggest one of those already resolved.

So that we basically come from zero to something. So you see a move there in terms of risk.

And but we've done deep dive into our Ontario portfolio and don't think there's going to be anything sort of coming up. We don't think this is the beginning of a trend, it's all blip in the quarter but we expect it to sort of --we're back to more historical levels and expect these to be the levels that we will maintain for extra long.

Okay. And then just shifting gears I just had one final question on guidance as well.

It looks to me like [Altay] growth expectations were edged up by about 2% relative to the guidance that was established last quarter. And then the NIM outlook has also improved somewhat it looks largely related to declining funding cost.

But the net interest income is still expected to increase by 25% to 30% for the balance of the year. So are there any factors that might offset net interest income growth that I've overlooked there?

I'll leave Tim with the last two parts the question. In terms of the volumes, I think --don't think we've really changed our outlooks.

We're expecting a 10% growth in the single family portfolio by yearend. We slightly had a pace on that at this point.

As I mentioned the spring hasn't come quite as with, quite a lot of enthusiasm that we would expect. So still on target to hit our original goals start a little quicker maybe not be growing quite as quickly right now.

But still we have to play out but we sort of still stick by original guidance around about 10% or so growth in the portfolio. Tim, maybe you can handle those last two elements.

Yes. Happy to that.

Nik and I absolutely understand your question and the confusion. I think it really results to us keeping our overall outlook on net interest income and net income or EPS growth is a function of two things.

It's a function of the seasonality or the pattern through the year in the growth expectations. So generally we've given you guidance on full year numbers or end of your position as it relates to asset.

But there's some variability in those growth rates as we move through the quarter, which can affect overall earnings growth. And the second is that we've given you guidance in terms of ranges and it may be that last quarter in some cases, we were towards the lower end of the range.

We're now we're towards the upper end of the range, but the range itself hasn't changed.

Hi. Good morning.

My first question is for Tim just on the NIM expansion. So guys printed a NIM this quarter of 1.67% and you have it I guess targeted exiting the year at 1.75% to 1.8%.

I was hoping you guys could discuss what the factors -- what the key factors are driving that increase?

Yes. Happy to do that.

So there're - I mean there're really I guess three main factors that contribute to the increase. With the backstop to its facility being the most significant.

So we've quantified that reduction in the MD&A so you should have those numbers to work with. The second is prepayment income.

So we saw unusually low levels of prepayment income in the first quarter of the year. And we do expect that to move up over the course of 2019 in subsequent quarters.

And then finally, as you would know watching the GIC rates, GIC market closely, rates in that market to the cost of our funds effectively did come down substantially towards the end of February and through March. And we expect that again to contribute to margin improvement over the year.

So is that last factor a large contributor to the expansion or --

It's definitely there. I think the largest factor for us is actually the backstop facility and the decrease in liquidity cost generally.

Okay and would you be able to comment on competitive dynamics around pricing in the [Altay] market right now?

Marco, it's probably my topic. We've seen a little less pressure and more rational to the behavior amongst competitor set in old market.

This year compared to last year frankly, don't know whether that will be maintained but it seems to be more focused amongst our competitors on making sure that loans are priced properly. So long way to continue I think is that's the tone.

I don't know quite what's led to that but that definitely seems to be a consideration amongst others. I think we've always taken a view that it's really important to price capital properly.

And I've looked to do that for a period of last year and it appeared that others were more interested in building market. So I think hopefully we are taking a similar attitude to us where you've got a balanced market share concerns with getting appropriate award for deploying your capital in the marketplace.

And it sounds as though spreads of sort of wide end as GIC rates have come off. And I guess you as well as peers so sort of maintained mortgage rates consistent.

Is that correct read?

I think that's the -- it is often the case but it's easier for spreads to increase when the funding costs are dropping and nobody really wants to be the first to move to increase mortgage prices intentionally, do share in a rising rate environment. So it's a more constructive type of environment for people to --for the market to adjust if things have been under pressure.

Yes. My question would be first just not spread, Tim, but shifting to the commercial side of your business, have you -- what sort of that dynamic are you seeing in terms of pricing and competition on the commercial side?

Is that an also a factor in sort of expanding spreads on outside of your business?

I think it's fair to say ROE on a commercial business in this most recent quarter were as far as we've seen them a number of quarters or a number of year's maybe. So our team's done a really good job in pricing things appropriately.

We're seeing good demand there and I think as we've always talked about a commercial business, it's -- we could have a wide set of competitors on any particular loan. So it's not quite as clear as even examining how competitors are behaving as it might be within a single family space.

But certainly we're saying good opportunity and pricing looks entirely sensible to us. And our team is --our team is top-notch right.

And that's one of the things that people forget a little bit about Equitable, there so much chat about them. The single family business but this is really our core business.

And if you go back 20 years ago, we were a commercial lending shop. This is where our genetics from deep and on our team is, we've got depth on the bench in that area.

And so we've got plenty of good opportunity to lend well and get the appropriate return for our shareholders.

Got it. We saw pickup in the Ontario GTA market in April and housing sales.

Is that something that you experienced in your own business?

We have seen applications increasing. I would say though that and as I mentioned in remarks, not as much as we would have expected.

So we definitely are getting more applications than we were a month ago. But we were-- it's a seasonal business encounter, we would expect to see it a bit more, little bit more a better turn to it right now.

Business is good but it's-- it could be better I suppose is we're thinking about it.

Okay, helpful. And then just lastly on your common equity tier-1 ratio.

Can you give us an idea of what would be a reasonable expectation for the organic build in that ratio throughout the year? Maybe on a quarterly basis.

Tim, I think you looked at that most closely. I wondered if you could --

Rough rule of thumb, Graham, would be about 0.2 % increase per quarter in percentage.

Hi. Good morning.

Just wanted to go back to that commercial loan impairment. So you mentioned it's kind of 90% lease.

Did I hear right I guess on the mixed-use part on the commercial side there might have been some vacancy issues? And then are you able to say like were this right in the core of Vancouver or were it in maybe one of the sub groups?

Yes. It's 90% leased in the apartment component of it which is by far the majority, it's mostly an apartment building with some commercial and office on the top, the bottom two or three floors.

So there are some vacancy issues there. Yes, and it it's right in core Vancouver, major cross street from the hospital and extremely desirable location.

So this is very liquid piece of real estate for sure.

Got it, okay, thanks. And then just you've talked about some of the market commentary and what you're seeing on this residential side.

And you talked a little bit on the commercial but anything to add on the multi right side of your business?

Just not really. I mean we continue to effectively be filling up most of our allocations.

So as you recall and but the really capacity there is determined by day, not available do we have to sell them to kind of mortgage bond offerings. We are seeing a strong demand on the part of borrowers to go into extended terms.

I borrow 10 years rather 5 years so we are sure to get the two principal terms that we offer. So we are finding a little bit of problem sometimes filling the five year pool because of these dramatic preference amongst borrower to go ten.

But it's all good. There's lots of volume there and it continues to be a business.

As you know, it has been happens from 20 years and we have lots of renewals and lots of relationships there that we would continue to fill up those pools. End of Q&A

Thanks Christa. To conclude, we look forward to hosting our Annual General Meeting next Wednesday at the Bank's head office in Toronto.

I hope you would join us as we present our views on the future of banking and Equitable's place in it. Thank you for listening.