EQB Inc.

Thank you, Megan. Good morning everyone and welcome.

I'm joined by Tim Wilson, Chief Financial Officer of the Bank. We have a lot to disgust today including record earnings, a planned step up in investment spending to strengthen our ability to grow and provide exceptional service and our expectations for earnings and asset expansion in 2020.

The fourth quarter introduction of our EQ Bank international money transfer service also deserves headline coverage. This is a groundbreaking innovation that enables our customers to instantly transfer funds and over 32 currencies through the EQ Savings Plus Account at a fraction of the cost charged by Canada’s other banks.

By a fraction, I mean, our service is up to eight times less expensive than what other banks charge. All it takes us 30 seconds and a few clicks, whether it's India or England, money is transferred to the destination of choice instantly.

While the payment mechanisms in some of the other 70 countries we cover are not quite this fast. The convenience factor of our new service is superior.

It's built purposely for an interconnected world and perfect for those that children studying abroad and Canadians with loved ones in other countries. I'm really proud to put the EQ name on a service that exemplifies all the best qualities of entrepreneurialism, creativity and partnership to make Equitable Canada's Challenger Bank and a forcible contributor to better banking for all.

While, the express purpose of this call is to talk about Equitable the company, we go so far as to say it's impossible to really appreciate Canada's Challenger Bank without trying our international money transfer service. It's guaranteed to save your money.

And a bit like a TV pitchman are prepared to stand behind the claim that you're going to be delighted with our approach and I'd be happy to take your calls or if you ask anything less than, totally happy, please give it a try. Before discussing about recent developments and I propel of our Challenger Bank mindset, I'd like to disrupt the standard operating practice to talk about something more revealing than a single quarter performance, the Bank's progress over the past decade.

As business leaders we often pledge to manage for the long-term, but really talk about long-term results. With the 2010 in our rear view mirror, I think it's the ideal time for such a reckoning to reflect back to the path for lessons insights that we can use to our advantage of future years.

I opened my comments today and the spirit of accountability and that's my personal commitment to making the next 10 years as rewarding for our shareholders, customers and partners as the past ten. When I tell you rewarding, it may surprise some of you to hear that Equitable is the best performing bank on the TSX over the last decade with a total return of 500% from January 1, 2010 to January 1, 2020 compared to the average of the other eight banks on the TSX composite index Equitable's return was more than 300 percentage points higher and almost double that of the next closest bank.

We know there were a lot of drivers of total return, while managing with a long-term operational view we made strategic decisions that had a very positive impact on these drivers. Specifically, over the decade, we paid 120 million of dividends and increased the dividend rate 21 times with average annual growth of 12% and are now committed to increasing dividends 20% to 25% per year through 2024.

We retained 89% of our earnings and invested to deliver an adjusted ROE of 16.9%, 1.1 percentage points higher than the average of the other eight banks. As a result, we grew book value 14% annually.

We grew our EPS by an average of 14% annually compared to 9% earnings growth for the other banks and did this while maintaining a conservative risk appetite. We maintained our status as the most efficient of all publicly traded banks in Canada through the structural advantage of our branches operating model by working intelligently to reduce costs and increase productivity and delivered an efficiency ratio of more than 27 percentage points better than the average of the other banks.

We nurtured our unique culture and advanced an agile technology platform to provide our customers with more convenient and of innovative services. And we positioned ourselves in diverse profitable segments of the market as Canada’s Challenger Bank.

I recognized this as a clinical analysis, devoid of a description of the mostly significant developments that actually made this performance possible. And it doesn't tell you what we learned in the process of delivering the banking industry's best total shareholder return.

So on a full personal note, here's what the past decade tells me. First, the competitive strength in banking comes from customer service, not just size.

Well, we've grown from 183 employees to almost 900, I call this by far the smallest headcount of any bank in the TSX composite, but we punched way above our weight when it comes to quality service and passion for delivering value to our customers and employee productivity. We started the last decade with a view that service would be our passion, a message headlined our 2010 Annual Report.

We said at that time that no matter how quickly we grow, service will always remain our strength and the cornerstone of our business. I'm really proud to say this remains true today and will be the case 10 years hence.

Over the next decade, the Equitable will continue to lead the way in developing innovative digital banking capabilities that will continue to transform the meaning of service for the better. We don't take our service embedded culture for granted, which is why we worked really hard to recruit people with the right skills and attitudes and reinforce our culture at every time.

Some of the biggest strives we've made have come in the areas of people development and retention. What we've learned will help us to sustain our culture and avoid the complacency that can easily set in when things are going on well.

The past decade is also proven at delivering service and gaining market share without branches as possible in Canada provided that we make banking better through innovation. Today, Equitable wins customers by re-imagining banking concepts and services so they are more appealing to Canadians.

We then use our brunches cost structure advantage and increasingly our technology to create a differentiated value proposition. EQ Bank is a great example.

In just four years, our award winning digital platform has become the home of over a hundred thousand customers on the strength of the value it provides to customers and continuing innovation. We started with EQ Savings Plus Accounts, which fundamentally altered the way Canadians bank by combining the best features of checking and savings account, including the ability to pay bills and the ability to earn high daily rates of interest.

With this platform well established, we are on aggressive product development path with plans to add many more digital banking services. Becoming the first in Canada, our core banking system in the cloud allows us to increase the pace of new product launches at a low cost.

It keeps us at the forefront of where banking is going in Canada as we move to an open banking environment. With our technological skills, the migration of our core banking system to cloud, our fintech partnerships and the capacity to make meaningful investments in innovation like international money transfer service.

It seems to me that we occupy a pretty unique spot in the banking ecosystem. Over the next 10 years, the onus is on us to pick spots like this that challenge outdated expensive and optimal peak banking practices.

It won't be easy, but entrepreneurialism is one of the traits we have nurtured over the years within our workforce and a characteristic we must continue to advance. The past decade has also illustrated the importance of applying discipline everything we do, especially risk management.

While the 2010 is a free of recession, there were certainly risks that play in the housing market and a short-lived, but very real disruption in the funding markets. Equitable’s ability to successfully manage through these events and maintain industry low loss rates.

It's a testament to an effective risk management framework. We've continued to refine over the decade with guidance provided by our experienced board of directors.

It's also a reflection of our uncompromising belief and making decisions that are in the best long-term interest of the bank, our shareholders and depositors. 10 years ago, as today, we operate within a strict risk appetite and never stretched in order to achieve our growth objectives.

Our framework along with a broadly positive Canadian economic conditions resulted in average provision of credit loss of just 5 basis points over the decade. In contrast, the average net realized loss rate for the other eight banks was 28 basis points.

That said Equitable has changed and improved as a result of risk management discipline, but why don't we have greatly diversified our deposit channels. Our direct-to-consumer offerings through EQ Bank, the growth of our strategic fintech partnership, the advancement of our deposit notes program, and later this year the planned reduction of a covered bond program make us stronger by complementing our traditional and still important brokered deposit journals.

We also diversified our asset gathering operations in part by developing a set of banking solutions to serve Canadians in retirement, what we think of as our decumulation business. As the population ages, the demand for our decumulation services, including reverse mortgages, and insurance back lines of credit will only grow.

Equitable’s traditional financial group also stands to benefit from many industry trends, including funding the construction retirement residence. We expect to be more than $140 billion of capital over the next 10 years in which we have a longstanding expertise as a funder of choice.

Geographically, we expanded our presence to every major city in Canada, this past year enter the leasing market through Bennington. Bennington is not standalone in our thinking.

It's an indication of where we're headed with a broader strategy of serving small business community. Despite its critical role in driving economic growth, this community is not well served by traditional financial institutions, but is served not only by Bennington, but by Equitable’s business enterprise solutions team.

We also see opportunity to add services, a small business through our digital bank. Overall, we have more runways for asset expansion and more ways to create value in a risk managed way.

In context, we grew more in the past decade than in the previous four decades combined. I expect the 2020s will hold more of the same.

I firmly believe that we have a relatively rare skill for a bank and identify market opportunities and then launching, nurturing and growing new businesses. When you look at our track record over the decade of building our alternative mortgage business from being a relatively small player to the largest in the industry measured by assets, all the launch and growth of our digital bank over the past four years, you can see the evidence underpins this belief.

I feel similar levels of excitement about our reverse mortgage business, where we are learning by doing. Recent changes to product design and pricing are giving us traction in the market.

Similarly the team running our CSV product line is fired up and it's a joy to see the enthusiasm with which they are tackling the challenge of building a new business for the bank. Commercial lending is also gaining traction another new growth area through our specialized financing business.

It serves the need of specialty lenders and already has over $239 million of loans outstanding. We're already encouraged by this business and it's potential.

The final takeaway from the past decade is that Equitable value creation system has stood the test of time. There's still some discipline in the form of prudent capital allocation deployment.

From our pricing discipline with our ROE calculation tools in the frontline to our senior management and the board we are fully aligned around the goal of allocating capital to optimize long-term returns to our fellow shareholders while delivering value to our customers. I described the Equitable value creation equation in detail in our 2015 annual report and the results over the years bear witness to its effectiveness.

It is remarkable how closely this value creation approach has played out since it was published. And I would suggest you look at my CEO letter from that report as proof that our value creation story was no accident but rather good execution of our plan.

As a reminder, we look to pay out a growing dividend while retaining the bulk of our earnings. We are then disciplined in deploying the retained capital to opportunities only if they exceed our return thresholds.

A high and consistent ROE is evidence of the success of this approach. To conclude this retrospective, I would say that we've come a long way in firmly establishing Equitable as Canada's Challenger Bank.

In particular, we validate our core principles, one of which is to invest and spend with a long term view. Despite growing earnings every year to the point that we earn more in Q4 than we did in all of 2010, we're not driven by short term-ism, and with this leadership team we never will be.

This is a natural segue to 2020 on our outlook. We anticipate Equitable’s earnings growth will again outpace that of the broader Canadian banking industry this year.

More specifically, we expect earnings to increase in the range of 4% to 8% as a result of loan growth of between 8% and 12%. Stable margins, low provisions to credit losses, and in spite of a significant increase in planned spending, the benefit of which will not be fully realized until later years.

Our net interest income should increase in the range of 7% to 11% in 2020, expenses will be up between 15% and 18%. So bottom line growth will be below our 10-year average of 15% as we absorb the short term cost of investing in additional $30 million to $35 million in important strategic initiatives.

Many of these investments are outlined in our MD&A, most notably we intend to increase our marketing spend for EQ Bank, launch covered bonds and make investments in our retail lending servicing. These investments will keep Equitable a leading edge of our chosen markets and drive even higher long term shareholder value.

We apply rigor to calculate the NPV of any project and believe our shareholders are best served in this view plus it's the timing of flows through the statements. Even with this spending adjusted ROE in 2020 should be between 14% and 16%.

Equitable will be the performance leader among Canadian banks in the 2020s. You can be certain that our team will show up to work every day over the decade ahead, ready to deliver value to our customers in a manner that will replicate this industry leading performance.

Based on the fundamentals, everything we've learned are plan for growth and investment and the changing in banking environment that plays to our strengths, I know we can lead the industry again. Now I will ask Tim to provide his report.

Thanks Andrew and good morning everyone. To underscore the message that we managed the long-term, we introduced a new table in our MD&A that contains medium term targets for adjusted ROE, adjusted earnings per share, dividend growth and our CET1 Ratio.

I think the numbers in this table illustrate that we intend to hold ourselves to a high level of performance going forward as we have in the past. Turning briefly to Q4, Equitable delivered year-over-year earnings growth of 23% and an ROE of 15.9% both on an adjusted basis.

This was another record quarter and certainly a great way to cap another record year. Turning to Q4, asset growth.

All categories were up with growth more heavily weighted towards the prime portfolio. Alternative single family grew in the quarter but at a slower place than is typical for that portfolio.

As increased attrition offset a healthy level of originations, attrition has increased since the middle of 2019 as other banks have adjusted to revise B-20 regulations and appear to be offering more competitive prime rates to our alternative borrowers at loan maturity. Early indications in 2020 are that growth in this portfolio is picking up momentum and we are confident as we can be at this point in the year with a 5% to 9% growth outlook provided in our MD&A.

The increase in our commercial portfolio was the result of growth in our conventional commercial and insured multiunit residential mortgage portfolios with a good assist from Bennington. The increase occurred due to higher originations and despite an increase in attrition levels in Conventional Commercial.

The change analysis slide in our deck quantifies the year-over-year impact of the various drivers of our profitability and once again, asset growth was the most significant factor. From this same slide, you will note that change in operating costs of $0.67 per share since Q4 of last year.

As a reminder, the addition of Bennington represented $0.27 or 40% of that increase. We also spent more on operations in support of our growth strategy, including higher marketing expenses for EQ Bank, part of which supported our international money transfer launch.

The way we think about this as a management team is that the NPV of a new EQ bank customer over the account's life is likely to be more than five times the marginal cost of acquisition. The accounting result does not follow this economic logic with the cost of acquisition being expensed up front, while the benefits accrue in later periods.

On our last call, I mentioned that costs related to cloud migration would be around $1.5 million in Q4, actual costs in Q4, were $1.3 million. Migration costs are now behind us and will drop to zero in Q1 of 2020.

That said, we will spend more in 2020 on IT generally to advance our innovation agenda and more on our digital platform to prepare us for the next 10 years of growth and advancement. As you may recall, we thought our Q4 efficiency ratio would be towards the top end of our full year range of 40% to 42%.

It came in at 40.6% for the quarter in the middle of that range and 40.2% for the year. Factoring in the expected growth of assets and the increase in spending that Andrew mentioned, our efficiency ratio likely will be at the high-end of the 40% to 42% range in 2020, even so we expect to remain Canada's most efficient bank and by a margin.

Moving on, Q4 NII was up 32% year-over-year, mainly driven by a 17% growth in our average asset balances and a 20 basis point increase in our NIM. In general, NIM has improved since Q4 of last year as a result of adding higher spread equipment leases through Bennington, earning higher spreads in our retail and commercial lending portfolios, paying lower fees on a recently downsized and lower costs secured backstop funding facility and prepayment income.

Looking at more recent margin trends, total NIM expanded by three basis points from Q3 to Q4 to stand at 1.78%. Q4 NIM, was slightly higher than our expectations due to higher prepayment income.

For 2020, our outlook suggests that NII will increase at year-over-year rate between 7% and 11%. Once again, a high level of loan growth will be the primary contributor.

In the meantime, NIM should be in the range of 1.65% to 1.75% for the full year 2020 just below the final two quarters of 2019. A large reason for this decline will be the mix.

We expect low margin prime business to grow the fastest. Margins in each of our major businesses should be roughly stable.

In the first two quarters of, 2020 NIM will benefit from the reduced costs of our secured backstop funding facility. On credit performance the Q4 PCL in our mortgage book was low and in-line with our historical rate.

Bennington's PCL was slightly higher than our anticipated long-term annualized loss rate of 1.5% to 2% but as a reminder, we are in higher yields to compensate for this costs. Impaired loans at the end of 2019 were a $122 million stable with Q3 but up $84 million from 2018.

This balance included $26 million of impaired equipment leases, the majority of which were added at the time of our Bennington acquisition and a $39 million commercial mortgage that defaulted in Q1 of 2019. We are still of the view that we will not realize any loss in this mortgage given it's 39% LTV and the fact that the property is well situated in Vancouver.

One final item of note, we pushed our CET1 Ratio up again during the quarter. That's that it returned to the middle of our target range of 13% to 14%.

As a result of the Equitable value creation strategy that Andrew mentioned our earnings typically add about 50 basis points to our CET1 ratio each quarter. After hitting a low of 12.9% at March 31, over the ensuing three quarters, we added a net of 70 basis points to it after asset growth and innovation investments partly by deliberately restraining commercial growth through to the middle part of the year.

On the strength of this ratio we've taken to suspend the DRIP program effective yesterday. This concludes our prepared remarks and now we'd like to invite your questions.

Megan, can you please open the line to analysts who have questions.

Okay, thanks. Just want to start with the pair of questions on some of the guidance that you've established for the year ahead.

It sounds like some of the investments that you have planned will cause non-interest expense growth to run ahead of revenue growth at least in the short term. I'm just wondering if you could provide a little context around, whether you consider 2020 to be a bit of a peak spending year in that regard.

And maybe just what you would consider to be a good – I suppose long term goal in terms of efficiency ratio for the bank.

Yes, I'll let Tim handle more the numbers sort of side of that. We are, we have some strange projects here, for example, covered bonds, costs money to set up the program, you actually expenses to develop the program.

We expect that savings on – we expect the cost of covered bond issuance to be through GICs and actually through GICs by quite a meaningful amount. So, obviously we’re not picking up the benefit of that until we really have the assets deployed against those bonds.

Similarly, and I think we've referred to it in the call marketing and advertising EQ Bank is an expense in the period and then you get the benefit of our money in a multi-year period. And I would emphasize we are pretty disciplined about laying out the NPVs and the cash flows from these kinds of experiences to make sure that it's actually going to deliver value for the shareholders.

So, I think it's likely that those kinds of I would guide us –they're not accounting operations. I wouldn't claim to try and settle the accounts or anything, but it's more around when you actually think about the economics for taking things that run through the P&L upfront and deliver benefits later, and Tim if you can provide some more color on how you think about it too.

Yes. Nik, I would say in my view, it is a peak year, not necessarily from a dollar expense point of view, but from an efficiency ratio point of view.

So, I think it's, our efficiency ratio will come down from the level that we realized in 2020, hopefully over the long-term to a range of about 37% to 39%. I think that's a reasonable goal for the company.

It may take a few years to get there, but the absolute dollars of expenses will likely keep growing as we grow the overall franchise and invest to support it and hire underwriters as an example to support the single family portfolio.

Got it. Okay.

Now that's very helpful. And then just one other for me, there was a comment I think Tim in your prepared remarks just about how some of the larger banks have been renewing alternative boards and prime products and I guess that's caused a bit of an up-tick in the attrition rate for the alternative single family portfolio, I've always thought with kept larger banks away from the old space was, I guess, in part, challenges with the income verification for self-employed as well as some other factors.

So do you get the sense that the larger banks are maybe willing to accept lower beacon business or I guess I'm just looking for your read there, a little more insight on some of the competitive dynamics in that space.

Yes, it's certainly, our sense that the competitiveness, the demand for assets is causing them to take a different view than they have historically. Although it's interesting, we actually seen this sort of fairly good flood of business in the last week or so, suggests that, perhaps somebody from executive team walked down to the mortgage floor to figure out what's going on.

But this certainly – there is I think as you've heard from other bank CEOs, there's a demand to get – try and get more mortgages on the books. But certainly some mortgages that we are losing to prime Sched 1 banks, when we look back at the file then obviously we have the record of who that borrower is.

It surprises us that they are being taken into the prime world. We have a prime business ourselves, but we can't make those loans fit the prime GDS, TDS kind of qualification levels.

They fit well within book but they don't meet that sort of standard, or demand that kind of pricing. But I would say these things do tend to kind of ebb and flow.

And so that may be the kind of, I would say that we have more of a view about this, about a month ago than we do today, frankly. Today, I would say we've got a really strong positive tone to the business of course can change again, but right now we feel I can put up an upswing.

Okay.

Yes. Okay.

Thanks very much.

Hi, good morning everyone. Just a, I guess a follow-up on that competitive dynamic.

As you mentioned, the banks are being aggressive there and sort of hurting you I guess on the attrition front, but you do have some pretty aggressive prime single family growth targets for this year. So, what makes you feel confident you're going to be able to grow at that rate if the banks are getting more aggressive?

I think our prime business is driven by entirely different dynamics, we’re linked with some great brokers, a lot of whom are using technology to originate loans and like us as the first choice. And I would remind you that our prime products are better than the big six products, in the sense they have lower break fees and people really understand the value should be coming to us rather than going to the more conventional lenders.

So, we're certainly making traction on that. It's still a small business for us.

The prime business, frankly, I mean it's a great business, a great team. It's not, it's until we get to the renewal cycle five years down the road, it's not particularly important from the overall profitability driven by the company.

And over a five or 10 year view, it's going to be much more positive. And it's, it is a strongly important, it's an important business from us in building a franchise with the brokers and our brand and our reputation for service.

And so that's really the focus on that side of the business. As a reminder in the prime business, we are a price taker, whereas in the old business we kind of set some of the pace there.

Okay. And then with respect to the uninsured business that you're doing any thoughts here on if [indiscernible] goes down the path of easing the stress tests regs that we’re doing on the insured product, do you think that could help stoke the demand for your Alt-A business?

Let me our assessment is that it's not particularly meaningful to us. No, and I think frankly, the press has overblown the change here.

I think really all of that these are doing is making the adjustment to what they originally intended, which is roughly speaking 200 basis points over contract rate, where historically postage has always been about 200 basis points over posted and for whatever reason that gap expanded. So I think, there seems to be some notion that making the right wrong move at the wrong time, but I think actually what they're trying to do is just get back to what they originally thought they were doing.

It's a course correction and probably and appropriate one in the context.

And then wanted to just dig into your medium term EPS growth guidance that you've given us, so you've set the bar for this year and I'm trying to square where that reacceleration in EPS is going to come from when you are – right now it looks like you're going to run 7% to 11% increase in NII. So as we get into 2021, like where is that incremental step-up and earnings is going to come from.

I mean, there's obviously some fall away on maybe the expense ratio dips. But it seems like new products are going to be important here in terms of bringing incremental asset growth and presumably with better margins as well.

So how do you, how do you kind of dis-aggregate where you get the incremental growth in EPS to get it up to that level?

Yes, I think we are, as I pointed out, seeing some good businesses as were growing into the specialized finance group, reverse mortgages, CSV, all of them have decent margins on them. I think the other question we have to ask is, longer term is what is our capital position of these trends, levels of growth.

So we're also seeing capital grow here and we need to think about how do we redeploy that capital in order to keep the ROEs and the EPS growth up at a high level. Tim you want to add more?

And Jeff, I think the other lever we have is cost to funds. So that's a significant contributor to those higher growth rates.

On top of the new businesses that Andrew mentioned, all of which are higher margin than our traditional mortgage business. So on cost of funds, we really have two developments.

One is the launch of the covered bond program later this year as we've talked about costs – covered bonds are – we believe will be at a lower cost of funds than deposits. And then the second lever is cost of funds is EQ Bank.

So we believe that over the longer term as we introduce new products, services, functionality, features to that platform, there's an opportunity to compete a little bit less on rate. And sort of to bring the cost of those deposits down too.

And of course looking further ahead, AIRB is very much on our plans as well and that's going to have a significant impact on our capital efficiency and allow us to compete in some markets that we today cannot compete in. So that'll also be a driver of growth for something that we're thinking about trying to have – this year will be a year sort of actually figuring out.

I think we've got our models well established in AIRB. We understand the risk weights associated with the AIRB models and now we’re looking for opportunities to expand us beyond the current envelope.

Okay. That's all I had.

Thank you.

Just to follow-up on your last comment there, Andrew, when you talk about the capital efficiency from an AIRB perspective, does that imply it frees up capital to be redeployed to shareholders or frees up capital to increase growth on more the commercial side of your business or equipment finance?

I think it'll certainly do the second piece. It'll improve the asset growth and I think – we'll give you more color on that Graham through the year as we start to really understand what that means in real numbers.

It's possible that you could well be right, that we may end up with surplus capital as well, but it will certainly, they'll certainly open up other market opportunities, we have identified some of those already, how big those markets are and how long it will take to build a franchise in those markets is something we're still sort of working through. I wouldn't want to get too far over my skis on that.

But if we certainly have some more conversations to have with you about capital over the next three to five years for sure as we make that transition.

Okay, got it. And that sort of medium-term EPS growth target deal, is there something implied behind that in terms of your asset growth like this year I think you’re 8% to 12%, is that sort of a sustainable level over the medium term, but it sounds like perhaps less on the mortgage side and more on the new areas that you're pushing into.

Is that a fair assessment?

Yes, I think we're really optimistic about the growth potential of those new areas, everything from leasing through to CSV loans with reverse mortgages in the middle. And we think those are going to be big contributors to our asset growth.

So, yes, that as we mentioned, asset growth, the primary – a significant contributor to the EPS targets that we have for the medium-term.

Okay, great. And then looking at next year if my number is correct, it looks like your conventional commercial growth this year was 4%, but your guidance next year for your conventional commercial is 8% to 12%.

So what are you seeing where you anticipate growth to pick up there?

I think that's good. Sorry, Graham, I think that's more of a case of how we constrained the business last year a bit.

And so in the first half of the year, we were trying to actually rebuild our CET1 post the acquisition of Bennington, which as you see, we are successfully now over the middle of our target CET1 range and then became more proactive towards the commercial business through the back half of the year. And I think you see that – we see that momentum now.

We feel that momentum even as we entered – even at the year end, we had a lot of activity in the pipeline and that continues as we speak. So it's not so much that we're seeing more opportunity now.

It's more a matter of that last year we constrained that business to help our capital position.

Okay. Understood.

And if I could sneak one more in. Just your Alt-A day business, your outlook for 2020, 5% to 9%, slightly below your sort of expectation coming into this year, which was 9% to 11%.

Is that a reflection of the competition, the higher levels of competition and attrition you're seeing in the Alt-A business? Or is it also a reflection of just this is a business that's getting larger and maturing and growth has to slow down eventually?

I mean, certainly, underlying that number is seeing a decent growth, good robust growth in the originations and faster expected attrition as well. So that's what’s leads you to that net number.

And clearly, when you started to run $11 billion book, it's harder to grow at the same kinds of rates as we might have done when we will have that size a few years ago.

Fair enough. That's it for me.

Thank you.

Thanks, Graham.

Yes. Thanks.

Good morning.

Good morning.

My first question is on the specialized financing. It looks like $240 million now at the end of 2019.

I think that's almost double that I could be wrong, but maybe correct me on that. How much growth there has been a specialized financing?

And then if you could detail some of the underlying assets, I believe this is a strategy that is lent to lenders. So maybe you could talk a little bit about what's going on in specialized financing.

Yes. So do you have the number of that?

Over the last couple of years, Jaeme, that portfolio has been pretty consistent in and around that 2.25 range. Maybe you and I can talk about that offline.

We started with a one large loan to a – I guess the mortgage book that was really what got us into this business. And that's been amortizing down, but we've actually found how the types of specialized vendors to lend to.

I'd say the bulk of these the underlying receivables are actually mortgages. So we're basically lending to mix to provide them some level of leverage with whether it's commercial mix or a residential mix.

But we are open to other kinds of assets. It's a small part of the business right now, but you can imagine things like a CSV loans would be something that we feel comfortable with an asset class, for example, that we're actually prepared to margin on that basis.

So that's what we're thinking about. And generally, when you think about these things, there are loans, these are small lenders.

They might have $60 million, $70 million, $100 million of loans. We might be prepared to lend $0.75 on a dollar, let's say, against that loan book with a waterfall type approach to collecting on the assets.

So it feels like a pretty secure form of lending in terms of kind of overcapitalization on the underlying assets. And it's actually leading us into other areas – other interesting areas where we might become a direct lender ourselves to some degree.

Okay. Thanks.

Next question is just around the Bennington PCL ratio this quarter above the 1.5% to 2% guidance. I mean, there could be some fluctuations there, but maybe you can provide more color as to what drove that higher rate of provisioning this quarter?

And why we should expect to see it come back down?

Yes, so we still believe that 1.5% to 2% is the right long-term rate. That said, with the way IFRS 9 works, as you're aware there's going to be more volatility in our P&L, so that was part of it, just the changing assumptions behind that modeling.

We did see a slight uptick in impaired loans in the fourth quarter of the year in that leasing book, but there doesn't seem to be anything systemic underlying that. It looks like there was just a temporary blip.

And like we said, we still believe the long-term rate is going to be 1.5% to 2%.

Great. Was that increase in impaired loans specific to anyone industry?

No. No, it isn't.

Okay, thank you. Next question around the – there was a comment in the MD&A that strategic deposits are a lot more stable than your other sources of deposits.

Can you just refresh me on the rationale behind that or the explanation?

Yes, so typically these – so, in general, if you approach a deposit board with a deposit product of some kind, these are open to everyone. We might be competing with other suppliers in the market for deposits and people don't feel particularly special relationship with us.

These strategic relationships that are more around when people are looking to have white labeled products, so it's us holding the deposit underneath it. But we have a much more detailed contract with the distributor that does things like control their ability to move deposits fast from us, controls the way that people behave around this and aligns us much more closely.

And so, we see evidence of those a much more stable types of deposits than the more general market – brokerage markets we go into.

Okay. And can you remind me, is this – is there a handful of strategic deposit or relationships or partnerships or are we talking like several dozen?

No, it's a very small number.

Very small number. Okay.

And last one for me and this just kind of goes to the medium-term objectives. And I think you started to allude to it a little bit.

But if I look out three, four years from now, and trying to achieve the CET1 ratio target of 13% to 14%. Given the amount of internal capital generation that's coming off these businesses based on the guidance.

I mean, there has to be some form of share buyback built into those forecasts. So is that a key component of driving EPS growth in the, let's say, three, four, five years as we get out that far?

Or is share buyback, something that could be coming as early as 2020 to help drive that EPS growth?

Tim, to get your [indiscernible]

I mean, I think, Jaeme, the primary contributor to the EPS growth over the medium-term is going to be the factors we outlined earlier, mainly continued growth in our assets, stable margins, low losses and improving cost of funds.

But I do think that we will be having conversations with you about share buybacks over the next few years. I think, you'll – you probably were right on point, Jaeme, around how we need to be thinking about this because what we're trying to do is focus – is find opportunities in the market that we’ll see growth from assets.

But clearly our view is not to hold on to capital – shareholders capital that they can deploy elsewhere more attractively. So if we see ourselves as a building excess capital, then that will certainly be part of the dialogue that we have.

It's a conversation that we haven't yet out of the board and you'll see that the general move around sort of capital is – we’re starting to head in that direction just by suspending the DRIP. This quarter is an indication of where we feel about where we are with – about with capital as we said.

Okay. So I guess the takeaway here would be that 2020 is probably a little bit early to be have in these conversations?

Yes, I think so. I mean it's probably a good time to be having these conversations about what the future might look like, but it's probably not a year that you should expect us to be making – to be having the conversations with you, trying to understand market’s perspective of our choices.

As we did last year with a dividend increase and I thought was very good feedback we got from our shareholders in order to allow us to make appropriate decisions. And I wouldn't be surprised to see us having some of those conversations this year.

Great. Thank you very much.

Well, thanks, Megan. I am signing off also my thanks to every member of the Equitable family, business partners included, especially our employees for making 2019 a milestone year for growth, expansion of our business, profitability and service.

Also thank our customers and shareholders for your continued confidence and trust. 2020 will mark Equitable’s 50th anniversary and we determine to make it one for the record books.

For those on the line and webcast, including our analysts, we very much appreciate your time today. I look forward to reporting our first results of the new decade on April 28th.

Goodbye for now.