EQB Inc.

Thank you, Amy. Good morning everyone and welcome.

Tim Wilson, Chief Financial Officer of the Bank and Ron Tratch, Chief Risk Officer also participating today. While I will deliver our prepared remarks, Tim and Ron are available for Q&A.

This is an extremely challenging time for Canada and frankly the world. Our bank, like others exists to serve Canadians, and the critical role we play in the economy includes supporting them through this pandemic.

We're committed to providing that support by living our values as Canada's Challenger Bank. We also found that commitment with protecting and where possible, strengthening the rock solid institutional foundation we built for customers and shareholders over the decades.

Our presentation this quarter will focus on the bank's response to the pandemic including the steps we've taken to strengthen our liquidity position. I would say our response has been well executed in a very short time and has prepared us for new realities.

We'll also touch on Q1, which was shaping up to be a good quarter for the bank based on solid growth through January and February, on plan margins and the expansion of some important Challenger Bank services. To start, I will acknowledge this is a very fluid situation.

As this is a health driven event, we simply don't know how the pandemic and the lockdown will play out. The duration of COVID-19 will have a significant bearing on the ultimate severity of the economic, financial and social impacts.

I can assure you, we've not downplayed risk, nor will we. In that regard, we have been transparent about the economic assumptions used to estimate our future expected losses and the broad range of stress tests, we run to be comfortable with our capital levels.

But we don't know what the future will look like with reasonable certainty. Understanding the various scenarios that could unfold allows us to position ourselves to manage through all of them.

I will say with confidence that our bank is well positioned because of our branches business model and purpose built digital banking capabilities. Some put Canada's Challenger Bank is a great place to be in this environment whether you're a customer, shareholder, or employee.

From the outset of the pandemic, the bank has focused its actions across three areas, protecting our employees, serving our customers, and safeguarding our business for the future. I'll address our employee base first.

Not to downplay the fabulous work of our IT team, but as a digital bank with a cloud based digital platform is relatively easy to move almost all members of our team to work from home model. Our employees accomplished this abrupt transition over just a few days in March, with very little disruption to the bank's operations.

I'm extremely proud of our teams' adaptability and resilience under extraordinary circumstances. Circumstances made more challenging by the simultaneous increase in customer requests for systems.

Having remote access to all the bank tools means the people of Equitable remain highly productive for our customers and partners to this day and this will be the case going forward. We've also reinforced the support system for employees, for example by introducing new mental health or entitled tools to help them cope with the stress of the company as a health and economic crisis of this nature.

For our customers, Canada's Challenger Bank plays an important role providing a safe place to store value, and like other banks, providing capital in the economy that leads to prosperity for all. Currently, unprecedented increase in unemployment is putting financial stress on many of our customers.

Government programs stepping in to provide some assistance, but there is no doubt that many Canadians are going to have to draw down of their savings, and we'll need the support of banks to see them through this difficult time. Like many of our banking peers, we're responding by offering some of our customers the opportunity to further loan payments if the pandemic has interrupted their employment or source of income.

Through the end of April, we deferred mortgage payments for just over 40,500 customers. Clearly, this is a new approach for us, but it's the times why I think about this, this is the deferral itself represents a relatively modest increase in risk.

An average LTV of 64%, an interest rate of 4.9%, the LTV on uninsured mortgage would only increase by 0.8% over three months, 1.6% over six months of deferrals assuming house prices don't change. We can expect the economy will kick back to life and employment will improve over these timeframes.

But nonetheless, we expect higher levels of defaults in the loan book in 2020 than we have historically experienced. Our bank provides assistance to customers in other ways to, EQ Bank our digital platform is open 24/7 as a safe and convenient way to bank.

The superior interest paid on deposits, free and direct transfers and bill payments and our new international money transfer service. In Q1, we expanded the service by adding 50 new currencies.

I truly believe this is the best service for sending money overseas provided by any Canadian bank. More than 110,000 Canadians now rely on EQ Bank for their banking needs.

That's 34,000 more than a year ago. The rate of customer acquisitions increased markedly recently, possibly as people recognized the appeal of our old digital platform as they bank from home and also due to the great work of our marketing team.

At quarter end, EQ Bank deposits exceeded $2.7 billion, 22% above last year, and now exceed $2.9 billion. Please note, the Celent, the international research firm selected EQ Bank as of 2020 winner of its Model Bank Award for banking in the cloud early in Q2.

This shows we are the top echelon of banks around the world that are demonstrating clear technology innovation and cloud implementation excellence. We also broadened our other key deposit services with the launch of the Equitable U.S.

high interest savings account. This account provides competitive U.S.

dollar cash turn down to customers and is available through our extensive network of independent investment advisors and financial planners. As of April 30, eligible deposits held by in foreign currencies of CDC member institutions such as Equitable Bank are covered for insurance.

Our funding markets have been delivering all the volumes we need to maintain and grow our business. So these introductions really serve a broader purpose to diversifying our funding sources and improving the risk profile of the bank.

They will also support the bank's long-term growth potential, which we believe is considerable. From the perspective of protecting our institution, we made several moves including increasing the size of the bank's liquid asset portfolio.

Although liquid assets carry have a negative carry, we thought this move was prudent in light of broad economic uncertainty. To be clear, we have not experienced any institution specific liquidity stress and of holding up liquid assets to protect the bank if stress does materialize.

We have approximately 600 million more of liquid assets at the end of Q1 than we did at the end of Q4. That represents 7.5% of our total assets up from 5.5% last quarter and 7.3% last year.

In the face of the risk posed by COVID-19, we took the additional step of ensuring $622 million mortgages as soon as CMHC expands its insurance eligibility criteria on March 20 to further bolster our liquidity position. The insurance came into force in the first week of April and create an equivalent amount of additional liquidity.

The Canada's move to inject liquidity into the banking system certainly gave us added comfort with our liquidity position. We're making use of these government programs.

In March, 8 to 9 bank members of the TSX Composite Index, including Equitable made a draw against the Bank of Canada's new standing term liquidity facility. We also plan to increase our use of the expanded Canada Mortgage bond program.

These actions will first and foremost strengthen our liquidity profile, but they also provide us with funding cost benefits. Overall, we believe we have liquidity on hand and the tools necessary to manage liquidity successfully through this pandemic.

Another critical aspect of protecting the bank and mitigating risks is maintaining a strong capital position. With set one and total capital ratios at the high-end of the Canadian industry, we have a good starting point.

You will note that the bank set one ratio of 13.5% was almost flat or 13.6% reported at December 31. We expect the bank set one ratio to increase from here as positive earnings led to our capital based -- risk weighted asset growth slows and we ensure a single family mortgages under available CMHC programs.

For reference, the mortgage insurance we arranged on $622 million of single family mortgages in the first week of April, called to our set one ratio to immediately improve by 30 basis points to a pro forma 13.8% as we started the second quarter. You will see the benefits of this action flow through in Q2.

Without a battery of stress test and financial forecasts suggest our capital ratios will remain within or above our target range throughout the year even with our most severe economic assumptions that are set out in the MD&A. Equitable announced its intention to grow its common share dividend rate of between 20% and 25% reach the next five years.

The board has now put these planned increases on hold because the regulatory guidance from mostly to the banking industry as a whole. This guidance indicated that dividend increases in share buybacks with federal regulated financial institutions should be halted for the time being.

While I can't tell you when this guidance will change, I will say two things. First, we do not plan on crease decreasing our dividend.

Our low payout ratio, which was 11% last year means we have room to maintain our dividend and still build capital organically. Second, we continue to believe the growing dividends is an important element of shareholder value creation.

And we will retain the management discipline that will make this possible once the pandemic is behind us. The bottom line is equitable, soundly capitalized coming into this pandemic.

We have taken actions to bolster our position. And we have confidence that our capitals sufficient to get us through the economic challenges ahead.

Now turning to Q1 results, the key portfolio growth in both our retail and commercial businesses with loans under management ahead 9% over the past year to 31.5 billion. As I said at the outset, Q1 was shaping up to be a good one for the bank with strong productivity and successful service launches.

However, estimates of future loan losses related to the economic consequences of COVID-19 had a significant negative impact on earnings. For the quarter, the bank reported net income of $29.9 million or $1.70 of EPS and a return on equity of 8.4% all on an adjusted basis.

For great clarity, adjusted results still include the full impact of the higher credit loss provisions in the quarter. Looking at PCL that increased to $35.7 million as we built our credit loss reserves.

These balance sheet reserves which we refer to as our allowances increased materially in the quarter, reflecting deterioration in state of the economy. The increase on our allowance which drove our higher PCL related to performing loans, what we call a stage one and stage two allowances.

They represent expected future losses on a performing loan portfolio. We modeled these expected losses based on our current book of business and macro economic forecasts.

To ensure that our allowance reflect a range of potential outcomes as required by IFRS 9, we modeled five different economic scenarios and used a weighted average of those scenarios to determine the allowance. All of these forecasts are sourced from a recognized third-party in all scenarios macro forecasts deteriorated significantly, indicating a weakening in the Canadian economy and real estate markets.

We are being transparent with our assumptions and their impact on allowances, we have provided the forecast for the key variables in our MD&A as well as our slide deck and I'm happy to take any questions you have at the end of our prepared remarks today. There's of course a high degree of uncertainty in forecasting the best of times, this is not the best of times.

What we can say is that by taking into account the range of information we have today, we believe the Q1 allowance we established represents a reasonable estimate for future losses. We have some for our analysts are expressing surprised level of provisioning.

I think that Table 14 of the MD&A is worthy of close scrutiny. What shown is, if the economic trajectory follows our based case, we are over reserved to the extent of $9.7 million.

On Slide 11 of our deck, you'll see allowances to credit losses in each of the past three quarters segmented by retail, commercial and leasing. While all allowances increased, our leasing business accounted for a disproportionate share of change.

Given the risk return profile of leasing, we do expect losses in that business to be higher than our mortgage businesses. This reflects the standard leasing industry practice of lending as the full acquisition cost of depreciable assets.

From years of superior credit performance, we have proven bankers we have always applied a rigorous approach to risk management. We lend at major urban centers where employment is diversified and where real estate markets are more liquid.

Further, our mortgages is supported by first claim positions on real estate and 100% of our leases by first position claims on equipment means we have hard assets behind virtually every one of our loans and leases. Weighted average LTV on our insured -- uninsured residential mortgage portfolio was 64% in the Q1, giving us some protection against the combination of high defaults and decrease in house prices.

As further support of our credit profile 43% of our loan portfolio is insured. We have lifted many other aspects of our approach to risk management or MD&A and I encourage you to take the time to read it thoroughly.

Couple of highlights, the average beacon score for our residential borrowers is 695 up from 686 two years ago, small business beacon schools averaged 740. While most all of our uninsured commercial borrowers a large portion of [indiscernible] provide us with personal or corporate covenants against their borrowing.

All of that said as always, we adjust our underwriting criteria to manage emerging risk in the market. One tool we have used is to reduce loan to values on new loans across many of our asset types.

This may reduce future loan growth and revenue growth, but will unfold the quality of the bank's asset base? As a percentage of total loan assets net unpaid loan balances at March 31, improved to 47 basis points from 49 basis points a year ago.

This was indicative of the bank entering the pandemic with a sound loan book. It's also an increase in impaired loans for Q4 reflected an $8.9 million commercial loan in Manitoba, with an LTV of 64% and a $6.6 million increase in impaired equipment leases.

We do not expect to realize a loss on the Manitoba loan. We are also pleased with the $39 million impaired loan that we have on multifamily property in Central Vancouver appears to be headed towards a successful resolution in Q2.

We are confident that will come out of hole. In the future, there is much uncertainty and as noted in our MD&A, we have withdrawn our full year 2020 outlook provided back in February.

It's not possible to replace that outlook with a reliable range of asset growth and any high expectations at the moment. Noting that we believe our medium term financial objectives within reach in the years after we emerged from COVID-19 as we realize our vision of Canada's Challenger Bank.

I know there's a lot of speculation about how our world may change as Canadians pick up new house habits during the lockdown. I for one, I'm convinced that one byproduct will be accelerated consumer adoption, digital banking and further digitization of financial services.

Our award winning digital capabilities, cloud infrastructure, and ever broadening assortment of savings vehicles provide us with a great strategic position in that environment. Over the last few weeks, we have seen a fairly dramatic increase in new customers signing up to EQ Bank.

I believe the acceleration to digitization of financial services is going to be a positive for us against an otherwise top backdrop. And this year we will continue to add digital capabilities to target meaningful investments and innovation from product development.

To tap to wrap up, the challenges we're all facing is real COVID-19 are unprecedented. Here at Equitable we [indiscernible] protect our people, our customers and our institution.

We are well prepared for a range of possible and extreme downside scenarios and expect to remain profitable this year. We are a strong bank with a resilient can do a culture.

And we will continue to be here for our customers and shareholders with an unshakeable commitment to bringing better banking to Canadians. I'm grateful to our employees and our board for their incredible efforts today.

I simply can't thank them enough. On their behalf, I sincerely thank our customers, partners and shareholders for your ongoing confidence.

I'd like to remind you that Ron Tratch, our Chief Risk Officer and Tim Wilson, our Chief Financial Officer will join us in the Q&A. With that Amy, please open the line for questions.

I would like you to expand and provide a bit of color on the circumstances surrounding borrowers that have been granted payment deferrals. Presumably there's an element that have experienced job loss or some form of reduced income.

And then there might be another element that's simply being proactive and cautious because it was well publicized that no Canadian banks become more flexible on mortgage payment terms. So can you try to help us understand what proportion of borrowers would have been simply seeking some form of short-term relief and should be back on stable footing shortly versus those who have experienced job loss?

Yes, Nik. So we've taken a view.

But I think it's probably experience I was talking to one of the CEOs with one of the big six yesterday and I think our feeling is that customers are calling looking for relief, just really, for insurance and some of them are looking for insurance. And clearly a lot of people are quite stressed by job loss.

But there is a feeling that it's been widely publicized that this relief is available and people are kind of hunkering down and trying to keep capital and reserve. About half of the deferrals we've given or just over half, we've given a three month deferral on the rest a shorter term from that.

So what we've taken is not looking for much evidence of job loss or if it makes sense that they will work in a restaurant now on then we'll kind of answer usually move to a deferral. I think that was a starting position that somebody took around looking for evidence of actual job loss.

But that became a bit of an overwhelming problem. So the approach we've taken from a customer service experiences, if in doubt, give the deferral.

And with very hard hearing anecdotal evidence, now some people coming back and saying they'd like to kind of reverse the deferral and start making payments, so it's very small in the overall scheme of things. But as people are getting used to the new environment, you are seeing a bit of that.

I think that the deferral requests are not really indicative of very much. The other thing that Ron's team, Ron you might want to -- we've done a deep dive into where the deferral requests are coming from, you might want to talk to them a little bit.

Sure. So we did do a very deep dive when we looked into the deferrals from a variety of different angles from geography, credit quality, business versus salary, et cetera, all the ways that you would normally look at our book and Andrew comment that it's difficult to draw conclusions from it at this time, no matter how we look at it, the cross section of the deferrals is largely and materially aligned with the general proportions in our portfolio.

So we have the capability to look at it in a very granular level we have, you can't really draw conclusions from it. And it's something that we'll watch very, very closely to see if variances do develop.

But at this point in time, it's aligned with what Andrew suggested that a lot of people we think were calling in because it was there, whether they really felt they needed it or not. And I think that's borne out as evidence in the large matching of proportionality with our book overall.

And then switching gears, can I ask you to elaborate on what you're seeing in the construction portfolio at the moment, and perhaps how the LTV ratios in that segment would look?

Yes. So, ratios on the completed projects would be in around the 70% to 75%, often with a lot of pre sales and things many times we're building condos with pre sales, for example supporting that business.

We looked at construction and it's almost been two waves. Because we've looked at it from the risk of projects get delayed, and therefore their cost overruns and breakdowns in the supply chain.

Our general conclusion on that at this point is there's very little risk in the portfolio associated with that. Team did a really nice job actually of segmenting that and looking through that.

I think our concern today would be takeout some of these construction loans may or may not get impaired but generally have a feeling so far and is the way our construction books in pretty good shape. Ron, again, your team has done a great job looking at it.

Yes. So the only color I can really ever, I should add to what Andrew has put out is that our construction portfolio is very heavily weighted towards multifamily and tunnel construction.

With respect to the condos, significant pre sales, so we take very little residual exposure there. Those areas have by large not been impacted by work stoppages, there may be some slowdowns but like Andrew said, the takeout may be delayed a little bit, but by large, we feel that we've structured this portfolio in good times.

And it should withstand this quite well. In terms of construction projects that have experienced any type of stoppage, whether it was in Quebec or Ontario.

It's a very small percentage of the book less than 10%. And in a lot of those cases, we've gone at a very granular level and have very strong sponsors behind those projects.

So we feel very confident that any work stoppages will not have a material impact on the performance of that book.

And those projects [indiscernible] things like self storage and industrial construction, those kinds of things, which we feel actual standard.

And then maybe one for Tim, for every Q, just with respect to the reserve build in the quarter. I think you pointed out that about half of it was related to stage migration.

I was wondering if you could just help clarify what triggered that migration and maybe what conditions would be necessary to see a reversal there?

Yes. So that's the right observation Nik, I would say at that stage migration was triggered mainly by the drop in the macroeconomic environment and forecasts.

So two things contributed stage migration, one is loan alone specific factor, so a deterioration in a beacon score, so forth. And then the other is the macro picture.

It was definitely the macro picture that caused the migration this quarter. We haven't seen material changes at the portfolio level yet.

I just wanted to get some, I guess color, even at a high level on the expense growth you talked about, ratcheting that that back a little bit and just trying to understand how to think about the parts of your expense base that are being ratcheted back. So for example, how much or how you thinking about your marketing advertising expense separately, the strategic investments that you're making to support growth?

Are you kind of still going full bore on that or are there certain parts that you might defer? And then lastly, what I'll call your other base expenses.

Don't include those strategic expenses [Technical Difficulty]?

We will answer this in two parts. I'll tackle the broad piece about expenses and expense growth and I'll pass it over to Andrew to comment on strategic initiatives.

So I think generally on expense growth, what we said is expect expenses to stay in the zone of Q1 levels for the rest of the year. The reason is that we've pulled back on all our discretionary spending, our use of consultants, our spending on travel and entertainment and so forth.

We've also committed to maintaining the employee base we have so not engaging in layoffs. But at the same time, we have put a halt to all our hiring programs for the year.

So, with that, again, expenses are should be relatively flat through the course of the year. We did have a lot of discussions internally about strategic initiatives, what to prioritize or where and how to prioritize our spending, given the fact that we are putting a halt to the hiring program that we had for the year.

And the fact that we'll have limited resources, the fact that we've more challenged working from home and we did decide to cut back on a number of projects, but maintain the focus on the most significant strategic ones, and particularly those that are digitally oriented and customer facing. And with that, I'm going to hand it over to Andrew to talk a little bit more on that in detail.

So we are spending a lot. We are excited about Equitable Bank can go as probably I view gathered from my opening comments.

I think just to be in this, just to reinforce, we are the only bank in Canada operating as core processing on the cloud. And it's tremendous customer SAT scores are fantastic in that business.

We are seeing, the highest levels of new signups through key bank that we've seen in a number of years as we speak. Now, Challenge is spending money on marketing right now is we can't even run with the stages are run close, so we can't run -- develop new advertising.

You'll see some new digital content in market in the next couple of weeks to try and even drive customer acquisition in Ohio. We think our lifetime value of a customer in any key banks is over $1,000 per customer.

So, to the extent that we're gaining, I think yesterday, we had to add in more than 250 new customers -- to the extent we can keep up that strong cadence that we think is going to be a real positive for the institution coming out of that. And just generally, we trying to digitize more of the banks.

So I think things like even these deferrals that Nik raised a question on earlier and we're trying to make that a digital experience where customers can come in and see whether the deferral sits and that kind of thing, more self serve. Having said that, other things will slide so we were expecting to be in the market with covered bonds in the European issuance in the summer.

Since it's impossible to even go to Europe right now, it's very difficult. That project will get pushed probably into next year.

Some of the A-IRB while we're convinced today, A-IRB is the right route forward for this bank, we have slowed our pace of investment in that project. We still expect to be making really good progress through the end of next year.

Our capital ratios would look a lot higher under A-IRB than they do under current standardized measures. So we want to be measured the same as every other big bank in the country.

So we committed to the A-IRB, but that that project, we're investing less this year. So the kind of the big picture takeaway is the customer facing digitization stuff, we continue to invest in them.

So doubling down on unnecessary spending more because almost impossible to spend more and then deemphasizing some of those longer term strategic projects that are very difficult to execute in this environment.

Maybe just you could add on to your comment there around the A-IRB, and I guess halting it or kind of slowing that there -- is that driven, perhaps a little bit more of just as we focusing on other stuff because I was just thinking it's what that risk reward would be to continue going down that route? If it does improve your capital ratios, especially if we're in an environment of where there may be at least perceived concerns around your capital levels, and perceived -- that's right perceived levels of whether or not there might need to be a capital raise.

We still need to be clear, we're pretty confident we don't need to have a capital raise. And that's one of the key takeaways you should take from this presentation that we will not be forced to raise capital at the depressed stock price.

And I think that I'm incredibly comfortable saying that given even in that worst testable economic scenario. I do think, in our view, wouldn't tell you this, but I mean, I think it's entirely reasonable to think that [indiscernible] team will not be ready at the end of this year to really think about migrating a bank to new A-IRB standards.

Every crisis brings kind of regulatory response and I think [indiscernible] done a commendable job in responding appropriately helped guide the Canadian economy through this crisis. I think it's unlikely that they will have a lot of people on standby to help deal with A-IRB transition at the end of this year, so that's certainly part of my thinking to align with our regulators.

That is to say, it's not a criticism at all. It's recognizing the reality of the situation we're in for sure.

And I think frankly, we're going to do even the kind of the -- when we step back from this pandemic, I will go to the A-IRB models measuring risk, I think they'll be certainly one of the questions we're asking on global basis.

On the payment deferrals just expanding on that, kind of mentioned it aligns with the overall book, can you provide a little bit more specificity around like, is that, based on the geographic breakdown, where, for example, Ontario, Alberta, obviously you've got some exposures elsewhere. But it would mimic your geographic exposure, but also to is there any color you can find on, any of the sectors of unemployment, where you are seeing the deferrals and also may be kind of like technical employment, in other words, self employed.

The reality is none of those things strangely.

So the statement I made earlier would stand there. Part of the process was that we did look at work, not only business results versus salary, but then going deeper into the industries in which those people were employed and even going down to that very low level of granularity.

The same held true at this point that the proportions largely matched the overall composition of those respective subcategories in the portfolio.

Talking about this subject, it's a very interesting environment we're in right and we tend to think of people like airline pilots and dentists as being golden from a credit perspective, and very unusual you this environment, where there is large scale layoffs in these kinds of industries, whereas other people like landscapers that you wouldn't generally review, little bit, relying on individual contracts, that kind of thing, they're able to be back to work and perhaps will stand up better than some others. So it's a really interesting scenario that we're in.

So if I understand the response, right, I'm just passing [indiscernible]. But let's say you had restaurant workers that are 5% of the portfolio.

Are you saying that 5% of the deferrals, or thereabouts would be coming, the deferrals would be coming from that sector?

Exactly. That restaurant worker would fall into a class of employment called services.

And that would be the lowest subcategory can go to where that would capture that. And yes, that the composition of the percentage of that service was grouped in the deferrals matches the percentage of the services group in the overall portfolio.

Okay. And if I can just ask one last question.

Just, if you can talk about the visibility you would have on your residential mortgage book from borrowers that may have taken out additional debt whether or not it's a second or even a third mortgage or HELOC, that would be included kind of in their overall household debts, kind of secured to the property.

We certainly haven't done that analysis recently. I think the last time I recall doing it, probably it's a good reminder, we should probably got to do it again.

But I think less than say less than 10% I believe less than 5% of second liens behind a single family book.

On the deferral side, so appreciate the number that you gave 17.9% of your long-term deferral. Can you give us an idea of what percentage of your residential mortgage portfolio is deferred?

Yes. So maybe we could break that down and issue between all 10 prime.

So 24% of our single family book is deferred. It's roughly 13% in prime and about 30% in the old book is all the numbers.

And how about…

What is important is to understand is, it's not moving very fast right now like that we sort of got to those numbers a few weeks ago, and it's not changing very much at this point.

Yes. And that is important.

Okay. Appreciate that.

And the commercial and the equipment leases, are there any notable deferrals on that side?

Yes. They're running at about the same as the old books are running about 30% on the equipment side.

And the slight difference on the equipment, there are some payments being made on equipments, so less than the full amount, but almost all of those leasees -- almost all those leasees are making some kind of payment by getting payment right.

Enterprise, we can note that the large ticket commercial book does not fall on those percentages, our large commercial business has been, it's been very slow to developing and very few deferral requests in our large ticket business. And it could just be a factor that those take longer to develop as this thing goes on.

But it's very low. So those -- the percentages at 30% are not true for commercial business.

Commercial by the way, if somebody's got a larger loan, say $5 million to $10 million loan, you don't just call it against the federal. That would be very much a kind of case by case is the deferral going to get us to the right answer.

That's not too much different, much more analytical approach up front. But frankly, we haven't had that many deferral question in the larger book,

Understood. Your guidance on the provisioning for credit losses for the remainder of the year.

I just want to make sure I'm understanding the message correctly, but if the base case forecasts remain close to where they are today, then PCLs for the remainder of the year will be up on a year-over-year basis. But below the large provisions that you took this quarter, is that right?

Way below, I mean much more aligned with what you've seen from us historically. So you think -- what should happen if we follow, what's going to happen is presumably some of these stage two level loans now move into stage three, we actually take the provision but then the stage two version and comes down as those turn into real losses.

And the forecast that the worst quarter is the forecast then start to roll-off. That's the way the logic should prevail.

So, I think JPMorgan's is actually a pretty good analogy for the state. They when they reported a certain set of losses and said the next quarter was going to be worse because the economic forecast actually deteriorated between the time that they reported in the time -- so the time they ran the numbers and the time they reported.

And so really what you could look at and say those scenarios that were laid out in the MD&A, those scenarios getting worse and if they get worse. And we'll be taking more provisions as they get better, then we'll be -- actually be able to be reversing provisions of the way the math works.

And is the employment rate really the most important metric to be tracking -- the unemployment rate?

Well, HPI is very important too, for us, and I think it's interesting. We don't have our own economists on stuff.

So we rely on this reputable third-party. And I think I got your own TDs HPI forecast.

And I think Geoff Kwan's team at [indiscernible]. You'll see the HPI forecast that we're using in our projections are quite a bit more negative than the larger institutions projecting.

And I think, frankly, worse, and I would believe a lot the likely outcome. Now we don't fiddle with those numbers.

We're not -- we think a fair bit about how the economists book, but we tend to rely on this third-party provider. So I'd be actually a little more optimistic around HPI than then currently is in those in those forecasts.

But we respect the economic outlook of a third-party data provider and we'll live with those -- things he laid out the -- your own internal economists view of HPI. I think you'll see that we have quite a bit more conservative in that projection to interpret to arrive to generate these loan losses.

And then my last question, just on the liquidity front, why are you increasing liquidity through this period? We're presumably going to move into lower mortgage activity, is it related to the deferrals or desire to build capital?

Or is it just risk management to book higher liquidity during that uncertain time?

It's just the last thing. I think bankers are always concerned about liquidity like it's -- you worry about the three things I tried to lay out, you're worried about the quality of your assets and your loan book.

You will be worried about your capital base, you're standing on really strong foundations and then you worry about liquidity to make sure that the bank is able to settle all of its obligations. I would say that we're bulletproof on liquidity and capital at this point, at least as far as I believe in having looked at it all very carefully.

And clearly the current credit quality of the loan book is going to be -- you set out stalled really well, but you make economics, caching is going to hurt large parts of the economy. And with that, that will hurt some of our borrowers for sure.

First question is on the Bennington portfolio. From the disclosures of the losses that were taking in this quarter primarily related to pre-COVID impacts.

Can you give us a bit more color as to what was what was occurring? Maybe which industries those provisions apply to pre COVID?

Jaeme, it's Tim. We did see those the impairment rates in that portfolio move up slightly in the first quarter from Q4, part of an ongoing trend where it was just you said -- if you look at our supplementary pack is slow migration.

We're not uncomfortable with that. As we mentioned before we price for that type of risk.

Where those impairments were actually happening was across the country across a range of industries. There wasn't one particular or even a few areas of concern that we had.

It was just more of a general increase.

Okay. And so in terms of the post-COVID, then I think I heard that you that there's 30% of that portfolio is on a reduced payment, I guess not necessarily deferred, but reduced payment platform.

And just to confirm, like where there is, that's not the industry breakdown within the Bennington portfolio, you would have similar commentaries around the broader portfolio that for example, retail restaurants hospitality isn't contributing an exceedingly high amount to that number or is it different in this portfolio?

So what we chose today, it is largely representative of a cross section of the portfolio. We do fully expect in that business -- in the leasing business, as the effects of COVID run well with respect to restrictions that we would see a disproportionate share in the food services, portion of that portfolio and less so with respect to transportation when things get up and running.

But given this stage of the pandemic, those variances of proportion haven't been observed.

Portfolio by the way is in transportation equipment. So it's dump trucks, local transportation, so dump trucks and that kind of thing.

One of the things that's impacting long haul, transportation is just kind of slow down and supply chains difficulty of getting trucks back and forth across the border are causing some trucks to be sitting apart.

And Tim, just going back to your calling about pricing for this risk. I think the original guidance on the acquisition was loss rates in the 1.5% to 2% range.

Now with allowances approaching 5% on the overall portfolio, I'm just wondering how that type of variance plays into how you're pricing the portfolio previously and today and what kind of returns you would be generating, given this level of allowances.

So you're right, Jaeme is the guidance we did provide was 1.5% to 2% through the cycle. And so, we're still -- in an event like COVID, which we didn't expect at the time that the acquisition was announced, might take that up to the top end of the range, maybe even a little bit into the low 2% over a longer term period.

But even at those higher rates of loss, when you look at the margins we generate on the business, it is still profitable, with the exception of obviously the current period.

But that's because Jaeme, we used on stage two, we're using lifetime losses right so which extend beyond the 12 months, so you may not sound logical that 5% might translate into a loss in the low twos on an annualized basis, but that's kind of the math on winding -- no longer term loss at all in the first year.

And last one on Bennington, I given that a lot of this was related to pre-COVID. Should we expect maybe not 15% provision rates, but something significantly above what we're used to seeing, as COVID impacts flow through in the next quarter?

Or do you feel like you've taken an off of provision as you have in the rest of the Equitable portfolio that we shouldn't see that?

I think Jaeme should expect the same philosophy, whether it's spending, whether it's leasing asset or real estate. So just in terms of kind of our modeling capability and Bennington as well.

It's a little more challenging than a real estate. So I think we've probably been towards my own feelings, you put these numbers together with a degree of caution and trying to do your best estimates as we've probably been airing towards the more conservative side on the leasing portfolio given that uncertainty.

Shifting to the net interest margin, can you give us a little bit of color around how lower GIC rates this year are feeding into deposit costs, maybe that's all being offset by the EQ Bank deposit rates, but maybe just discussed a little bit of the push and pull on what you're seeing from deposit funding. And also where you're seeing the securitization funding costs trend given some of the dislocations there?

So I think Jaeme we're happy with where we see margins at the moment. GIC costs did come off.

After escalating a bit in Q1, they did come off towards the end of the quarter And they are working in our favor at the moment. Mortgage rates have not moved from an overall mortgage, top-line yield perspective haven't changed much.

So we're benefiting from the downdraft in funding costs and margins have been moving up in recent weeks. And that applies to both that securitized portfolio and the unsecuritized portfolio.

So how long that will last? We don't know.

But we're definitely enjoying slightly elevated margins at the moment.

In terms of -- and I apologize if this was covered in the initial remarks but some commentary around how application volumes are trending in the six weeks here April and May post Q1.

In terms of mortgage applications, I see we're talking about because EQ Bank is hitting record volumes. So on the mortgage application, I think it's a bit of a story of two worlds, we're seeing really strong volumes in our prime business and good margins.

And in our old business, we certainly seen, lower flows in recent weeks. Clearly, we need to get some more activity in the real estate markets, with open houses closed and a number of things make it quite difficult to buy a house, as well as economic uncertainty.

So I think, the fact that that the reality of the health crisis where you can actually go and walk into a house to see whether you want to buy it, and that's the house has already beacon clearly limits activity pretty significantly. And that's what we're monitoring very closely.

When do we see the housing market start to move in greater volumes, where we've got true price discovery on house prices as well as more activity, so we're definitely seeing in a slower volumes today, in the old business.

Are you able to put a percentage on that slowdown? Would it be something in line with what we're seeing from a housing resale activity standpoint across Canada?

I think it's less than that. But it's meaningful.

Okay. And last one for me just on the portfolio insurance transaction.

Is that primarily or is it entirely prime mortgages? Or are you including some of the all day book in that portfolio insurance transaction and looking forward do you anticipate executing more of these types of transactions or is this a one time thing to capital?

It's primarily about making sure we have liquidity reserves not so much capital. Capital is kind of a byproduct of that frankly, though, this all came out of the book, all these are old mortgages.

It may be used as a tool again, I would expect modest transactions, but this is probably the bigger one that we put through there just to make sure we are standing on really strong ground at the end of the quarter.

Just on the underwriting side, have you tightened up on your loan to value appetite in recent weeks or months just given the uncertainty around the direction of house prices right now?

That was fairly quick reaction when we understood the economic consequences of what's happening in a general sense. We are about 5% less on LTV right across the board.

And again, that really goes to price discovery in the housing markets. Clearly, if we're happy learning of certain LTV, a certain point in time, when all the indicators move to that softness in that future outlook for house prices, and a prudent thing to do is to dial back LTVs probably around the same risk if you work for you.

Just wanted to follow up on your response around, activity Q2 to-date. So were you saying that on the prime side, Prime Minister, sure side of the business, that's going well and you're seeing transactions there but on the alt a side of the business, you're not seeing as much.

I'm just trying to triangulate around just any sort of broader comments that you have around just housing and mortgage activity? Or are you talking more about specific parts of your book?

Our prime business is -- a lot of it is relating to loans are already seasoned, where we're providing competitive prices on renewal and bringing new loans in. So there's probably not an associated purchase transaction in those cases.

And then don't forget, we were very small player in prime in the overall scheme of a very large market, but we have a tremendous offering for the brokers in that part of the space. So we're seeing very large volumes there.

But as I say, I don't think it's associated with purchase activity in the old side of the business, and typically, more than half of that is related to purchase -- online purchase transaction. So you can see that that would slide down with the reduction in purchase activity.

And I think it's fair to say that compared to some of our competitors, we're probably a little more cautious on credit any event, I mean, most of the time and particularly in this kind of environment with this some lack of clarity around where asset values really are, we're probably giving up a better share to some more aggressive players in the market.

In light of COVID-19, we will be hosting our annual meeting of shareholders in a virtual format tomorrow at 10 AM, Toronto time. The press release we issued on April 8 and our management information circular, all the details you'll need to know to participate.

We hope you will be able to join us and goodbye for now.