EQB Inc.

Thank you, Marcella, and good morning everyone. I’d like to begin by welcoming Chadwick Westlake to our quarterly analyst call.

Chadwick is an experienced banking executive who joined our management committee as Senior Vice President and Chief Financial Officer on Monday. Chad will introduce himself on today’s call.

As a reminder, Chadwick’s appointment was one piece of a broader plan to establish a streamlined management committee structure that is better organized around the way we think and act with the Challenger Bank conserving our customers and addressing the market. And with Chadwick’s appointment, we created two new operating groups, personal banking led by Mahima Poddar as SVP and Group Head incorporates EQ Bank, our single-family mortgage businesses the cumulative lines of business and the distribution of deposit products through the financial planning channel.

Mahima is with Equitable since 2016 and has distinguished herself in running EQ Bank, corporate development and marketing before this appointment. Commercial banking, led by Darren Lorimer as SVP and Group Head, includes business enterprise solutions, our Specialized Finance Group, Multi-Family and Short Mortgage Lending, the Commercial Banking and Bennington.

Many of you know Darren from our Investor Day a couple of years ago and he has done a fantastic job running our commercial mortgage businesses since arriving from TD in 2015. The persons of the leadership committee are Ron Tratch, our Chief Risk Officer, Dan Dickinson, Chief Information Officer, and Jody Sperling, Chief Human Resources Officer, who is also this year’s Report on Business Best Executive winner in the HR category.

One of only 12 Canadians received this honor, a recognition of our outstanding contributions, to people, leadership and talent development. Ron joins us on the call today as does John Simoes, who is Vice President of Finance.

John will deliver our report to you this morning while Ron will be available for Q&A. Since the beginning of the pandemic, our team has done some really good work to serve our customers and positioned Equiatable to contribute to the economic recovery and the broader societal goals of supporting home ownership and encouraging Canadians to save more during these difficult times.

By staying true to our purpose of driving change in Canadian banking to enrich people’s lives as Canada’s Challenger Bank, we pivoted more sources to provide liquidity to customers to meet short mortgage lending markets both multi-unit residential and single-family and achieved high quality asset growth in Q3, which we expect will continue in Q4. Structured posture to underwriting in our Alternative single-family business on an improved market conditions towards the end of the quarter that began in Q4 with an increase in that mortgage pipeline.

Assisted home loans and loan payment deferrals and – that this supported our borrowers to resume regular payment schedules such as just 30 basis points of our loans are still on deferral. Introduced new EQ Bank joint account services with more services on the way in Q4 and registered dramatic growth in both EQ Bank deposits and new account openings as Canadians unmistakably take that preference for all digital banking.

We are in constant improvement in business conditions since Q1 and the resilience in the housing market taking those business and other - and having reported best ever quarterly performance yesterday we think we got off for a good finish to the year. We share our view of the future as much as we can today, while acknowledging that the pandemic has created more uncertainty than it’s typical in the future path of the economy.

What we can say with certainty, as we advance – our workforce, flexible cloud-enabled technology stack, and the broad capabilities we enjoy across personal and commercial services will serve us well as we continue our Challenger quest to build a better bank for all. I am very pleased with Equitable’s position within the industry where change is accelerating because of the pandemic.

Now let’s start up with the Q3 performance. Diluted EPS was 35% ahead of previous Q3 last year on a reported basis, and 41% above the level we reported in Q2.

On the strength of record earnings, return on shareholders’ equity was 19.8% on a reported basis, well ahead of our ten average of 16.8%. Mean time, book value per common share accrued 12% or $9.28 from a year ago and 5% since June 30, 2020.

Based on consensus estimates I know the strength of this performance was not quite surprise but the reasons for it are not. Results reflected good fundamentals in the business and in the market.

Once again, employee productivity and efficiency were industry-leading, even though a vast majority of our workforce remains in work from home mode. Asset growth was high quality.

The pivoted emphasis to ensure mortgages produced strong securitization gains and we benefited from reduced funding costs which makes many of the factors prevail in Q4, additionally Q4 will see less investments cost, better funding cost savings to ensure $687 million in single-family assets earlier this year has reduced by about $2 million and then reduce entirely in Q1 2021 with benefits accrue in each quarter thereafter. The premiums paid on that insurance net of funding cost savings reduced EPS by $0.09 in Q3 that gave us good funding cost and capital benefits to look forward to over a period of years.

Q4 financial performance both the benefit us as a result of our decision to drop rates on EQ Bank by 20 basis points in the beginning of the quarter by strong earnings by historical alternatives from securitization activities. By quarter end, positive earnings coupled with slower risk-weighted asset growth pushed the Bank’s CEP1 ratio above the top end of our target range of 14%, up a four percentage point year-over-year and 30 basis points from June.

Both our CEP1 and total capital ratios are at the high end of the Canadian Banking industry, through the end of 2020, we expect those ratios to remain relatively stable as a benefit of additional retained earnings got into our capital base will be used to support increases in our risk-weighted assets. As you know, planned dividend increases are on hold, because of the regulatory guidance from OSFI to the banking industry.

Even so, our recent dividend declaration was 6% above last year. Although payout ratio which was 9% in Q3 shows we have room maintain our dividend.

One of the ways the banking industry has helped Canadians through the pandemic is through payment deferrals. Equitable is being proactive and working with customers in need so that they can get back to a normal payment cadence.

This approach has paid dividends to both customers and our bank. At the end of October, we had just 280 accounts on active deferrals representing 0.3% of total balances.

Independent economic forecast we use to establish draw down under IFRS have improved since June 30. On Slide 8, we included the base case of Moody’s forecasts at September 30, compared to June 30 and March 31.

Of the key variable track all showed improvement over the next twelve months. Recall that we use a risk-weighted average in these scenarios to determine our allowances.

As a result of this positive change, we reduced our allowances to performing loans categorized as Stage 1 and Stage 2 in Q3. We set to a modest reversal with Stage 1 and Stage 2 provisions in our income statement.

This is accounted within our provision for credit losses as a net benefit of $2.9 million. Stage 3 provisions which of those rates of impaired loans was down by $2.9 million from the preceding quarter, primarily due to a lower level provisions required in our mortgage portfolio and a reduced level of net impaired lease formations.

With the economic forecast produced by Moody’s improve, and borrowers behave as expected, PCLs are reduced again in future quarters with a benefit to earnings. If the economic picture unfolds in line with our base case, we will lower reserve by $6.5 million.

As you know, the housing market has been resilient in the phase of a broader – on the broader economic backdrop, which will certainly have a positive impact on realized losses going forward compared to the concerns we had when the pandemic was unfolding back in March even if delinquencies move up as we expect. So that certainly offsets from the perspective of loan growth like – keep the economy moving as all of the bank’s retail and commercial businesses continue to provide capital for automation and business purposes.

Total loan principal increased by $1.6 billion year-over-year. The key for this growth shows that we did make a pivot in favorable short mortgages both our retail and commercial businesses.

We chose to provide liquidity to these segments to address the needs of Canadians for single-family home ownership and for more multi-housing stock which is in short supply. For the Bank, the benefit of this deployment is at all of its prime purpose to fully ensure against credit losses and spreads have been wider than typically – over the last few years.

Within retail, our prime single-family loans grew $1.1 billion or 17% since Q3 2019 and 2% in the quarter itself. We combined internally generated prime originations with both acquired and third-parties.

I am very pleased to note that our internal business has generated record monthly levels of prime single-family originations since May as we continue to expand our market presence with mortgage broker partners. We expect growth to continue in Q4 using this blended approach to origination.

As expected, given tighter risk tolerances, balances within our Alternative single-family mortgage portfolio was down 3% year-over-year. We partly really moved our Alternative single-family underwriting criteria closer to pre-COVID-19 parameters as our assessment of risk in the market has changed for the better.

This transition occurred late in the quarter we’ve seen a positive response from brokers and the corresponding improvement in our mortgage pipeline and originations since then. In our commercial business, loan balance improved 9% year-over-year.

There were two drivers, insured multi-units were up by $355 million or 10% over last year and conventional commercial grew by $342 million or 9%, again due to strong originations in the multi-unit residential construction sector are more favorable competitive positions. In response to some of the conversations I had with investors and analysts, we’ve included more disclosure about our commercial book in the MD&A.

I think you find this useful. It’s harder to describe this portfolio with aggregate metrics than the single-family book.

That said, having taken a deep dive into the book the bottom-line is we are feeling good about the overall credit quality, I am not seeing any notable uptick in problem accounts or identifying individual loans where we expect losses to arise. Within the dynamics in the multi space are very positive, that continues to be a significant gap between tenants amount and rental apartment housing stock in many Canadian cities and in past discussions and to-date this year, landlords have had great success in collecting rents.

Accruals being in the multi space as most as 50 year existence and that experience is serving us well. Looking ahead, we believe loan balances in the Bank’s established businesses will grow in the fourth quarter as will balances within our accumulation businesses which we are confident we are really getting that stride in 2021.

What we missed in this quarter record performance is outstanding growth registered by EQ Bank. EQ deposits are at $4.3 billion at quarter end, which reflects growth of $1 billion in Q3 itself.

In context, it took us four quarters to attract our first billion at EQ deposits. So this is tangible momentum.

Meanwhile accounts openings have increased 68% year-over-year meaning 149,000 Canadians now relying EQ for great essential banking services. Per month, Q3 account openings were over three times higher than the monthly average prior to COVID-19.

These steps down the story of a banking platform that caters perfectly to Canadians’ increasing preference for all digital banking. EQ has made to the most to this environment by creating some really elegant and valuable offerings that encouraged Canadians to fully embrace technology-enabled banking, Challenger Bank style.

In Q3, we saw joint savings plus accounts and customers already taken advantage of this service, which is reflected in the figures I just quoted. Setting up a joint savings plus account is entirely virtual and painless and I really encourage all of our shareholders to give it a try if you haven’t already.

The EQ team has done an outstanding job of creating our simple intuitive and opening process. Or international money transfer services also gained a lot of fans since its February launch.

Again, if you haven’t already, I would encourage you to try. Once you do, I suspect you will never return to the old fashioned approach offered by traditional institutions.

We’ve been successful in reducing our cost per customer acquisition to attract new accounts through programs such as refer a friend and the more effective deployment of digital marketing resources in the smart money campaign we were running during the quarter. While the advantages our bank enjoys is our cloud-enabled technology stack which makes this easier and faster for us to introduce products and services relations.

We haven’t stepped up the pace of launch this year after moving to the cloud last year and we are attacking our technology roadmap much more aggressively. In Q4, we are introducing RFP and CFSA capabilities and another big launch is on track for Q1 of 2021.

I am convinced which is difficult to any investor to understand the merits of Equitable’s investment, but are setting up an account and trying some of the functionality. With the international money transfer capability, being a shining example of the great service with a wonderful customer experience.

EQ Bank is a strategic asset for us that provides both an additional channel market for our bank and a platform for providing important new services. Overall, compared to what we expected earlier in the crisis, retail securitization funding markets have proven to be much more liquid and efficient and GIC rates have decreased from mid March onward at above the pace than the interest rate benchmarks.

This makes funding very tough comparative. As previously emphasized, I’d now like to – like Chadwick to introduce himself to you before John provides his reports.

We are really excited to welcome Chadwick, who is extremely well qualified to oversee all core finance functions, as well as the Bank’s treasury and securitization activities, corporate development and legal. Chadwick?

Great. Thanks very much, Andrew, and good morning, everyone.

Equitable has an excellent reputation within Canadian banking. I am excited to be here, serving together with this talented team that is so focused on customers, our shareholders, and the communities in which we operate.

Throughout my career, I closely watched Equitable. It’s raised from a small trust company into one of nine publicly trade banks that are a member of the S&P TSX Composite Index is impressive.

I personally don’t believe Equitable gets enough credit in the capital markets for its value creation capabilities and its overall franchise value. This is a focused, innovative and surely differentiated bank that should be trading at a much higher multiple.

Coupled with the continued growth mandate and increasing solutions for Canadians, we’ll be working harder to earn a better valuation in the months ahead. As I just officially joined as CFO on Monday this week, I won’t be making substantive comments about performance this quarter.

But I want to share my confidence and excitement about the path ahead for this institution. As of my own background, I spent nearly two decades with Scotia Bank, lastly serving as Executive Vice President for Enterprise Productivity and Canadian Banking Finance.

I gained deep experience in setting a strategy and implementing the bank-wide productivity improvement efforts including growing revenue, reducing cost and driving sustainable efficiencies. To be honest, given my previous role, I looked on with an MD as Equitable regularly reported and efficiency ratio that was much better than the big banks.

This is a key advantage of branchless digital bank structure. I also served as the Chief Financial Officer for Scotia’s Canadian Banking division and many other roles across the bank including credit risk, customer experience, operations directly within business lines, corporate development and finance among others.

I think all of this has prepared me well to take on a new challenge at a bank that truly thinks and acts differently in pursuing value creation for all stakeholders but still well branded in all the appropriate and risk management disciplines. With that, for this quarter, I’ll turn things over to our Vice President of Finance, John Simoes.

Thanks, Chadwick, and good morning, everyone. As Andrew mentioned in his opening comments, Equitable’s Q3 was its best ever, whether the comparison is made on an adjusted basis or a reported, reported figures included $4.1 million of net mark-to-market gains, on an adjusted basis, net income grew 30% over last year and 44% compared to Q2.

The change analysis slide in our deck quantifies the quarter-over-quarter impact of various drivers of our profitability. The largest contributors were net interest income growth and gains on securitization.

From this slide, you will note that change in operating cost is $0.11 per share. Although total operating cost increased sequentially by 3%, our efficiency ratio for the quarter was only 35.7% compared to 39.2% in the preceding quarter.

This is because the increase in net interest income and gains on securitization outpaced the growth of our expenses which is a numerator in the calculation. Expenses in Q4 should be consistent with Q3 as we continue to push forward the digitization of our bank and service offerings but in a very efficient manner.

Moving on, NII was up 8% year-over-year due to growth in our average asset balances of 12% and despite a six basis point decrease in NIM. As Andrew mentioned, the decrease in NIM was primarily driven by amortization of premiums paid to insure $687 million of Alternative single-family mortgages in Q2 net of associated funding cost advantages and a mix shift towards prime mortgages and lower yielding liquid assets.

NII was also affected as we kept deposit rates slightly above benchmarks in Q3. In early Q4, we moved rates down in response to the market and this should help our earnings by $0.11 in Q4.

On a final note, the Bank completed a $200 million, three year fixed rate deposit note issuance late in the quarter and on attractive terms. It was priced at a 150 basis points over Government of Canada bonds and carries a coupon of 1.774%.

Support for the offering came from 37 investor participants. We look forward to rewarding investor confidence with a sustained deposit note issuance program, which is in front of our broader strategy of continuing to diversify our funding sources by creating products that are attractive to customers, investors and our Bank.

Now back to Andrew for final comments.

Thanks, John. As we all do it a time of the year we are developing our budgets for next year.

This is not an easy task given the lack of visibility afforded by the pandemic. But I can assure you our objectives that we are both thoughtful and ambitious.

This morning our Board approved, we obviously won’t be commenting on any new goals. Speaking of tangible banking, one of the things I really like to see in the next year is kind of finally adopting an open banking system.

Policy makers have been studying how do this for a number of years. It is now time for them to act.

But our cloud-enabled technology stack and our ability to leverage our effective middle tier to provide and consume application programming interfaces, ours and third-parties Equitable is ready today to bring the benefits of open banking to our customers. Tomorrow afternoon, I will deliver the keynote address at the Canada’s Open Banking Forum and I will be adding Equitable’s voice to this call to action.

In summary, I think we’ve shown pretty pleasure this year with the good accomplishment in a very short time by the Equitable team. We’ve contributed in small and meaningful ways to the kind of economic recovery and the recovery of customers who faced financial stress earlier in the year.

Our capital and liquidity positions are strong. The improvement of business conditions is encouraging, changes in consumer behavior in response to the pandemic favor our business model in digital foundation.

And after recording all-time quarterly – record quarterly earnings, we are ready to work hard to create even more value going forward as Canada’s Challenger Bank. This concludes our prepared remarks.

Operator, can you please open the line for Q&A?

Hi. Good morning.

I had a question with the – I guess, it seems like, a bit of being more disciplined or the pull back within the non-prime residential segment on originations, are you seeing your competitors, especially your biggest competitor doing the same or are kind of, let’s call willingly ceding market share?

Yes, I think, Jeff, as we spoke about, probably the last quarter and then maybe the one before I think, we acknowledge we were losing market share although we were deliberately ceding market share. Essentially what we did was cut back our loan to values at the end of March, beginning of April in the phase of the pandemic to trying to protect the balance with a view that home prices could be dropping.

I think with the benefit of hindsight, we were probably overly cautious frankly. But we are prudent bankers as you know.

So, but obviously now with the impact of much lower interest rates the economy getting adjusted to this normal, we are feeling a bit more confident about the credit metrics, I think it’s slightly more expensive.

Okay. And then, I mean, if you were to update your credit loss model to only adjust for Moody’s forecast as of October, I am not sure if it’s out now.

Just wondering, like how would that impact your Q4 loss provision essentially? I am just trying to understand the comment in the MD&A around the timing of potential realization of recoveries of losses that gets the macro environment matches your assumptions?

I’ll let Ron deal with some of the detail there. What would I kind of tell you is that the overlays that we are applying in the IFRS 9 model effectively slow down the release of reserves.

So, even if we run the models with the same economic criteria, we can be slowly releasing reserves because of this overlay dynamic. Ron has much more detail on the numbers on the models going forward.

Yes. Thanks for the questions.

Just, with respect to the October forecast, it would be premature for me to comment on that. But our expectation is that, they would be largely stable with the forecast that we saw in August and September as the Q3 came to a close.

So we are not expecting a lot of volatility in the quarter at this point. Now that obviously with the ways the earnings pan out, because with November and December forecast, but at this point, I think the comment I’d leave you with is, relative stability at this stage.

Okay. And then just my last question is, maybe whether or not from Equitable specifically, but just maybe broader activity in the markets you are seeing so far in Q4, are you seeing the momentum that we saw in the summer carry through into Q4?

Are we starting to seeing cooling weather now it is just some of the pent-up demand is dissipating or just the regular seasonality of being in Q4?

I think, there is some sort of pent-up demand where it gets way through the market. It’s something we would anticipate that you generally sort of see housing markets moving to sort of a bit more of a seasonal low as you approach holidays, but of course this year, there might be differences in so much of demand on the market and the March, April, May period.

So far, I think demand is strong in the markets.

Okay. Great.

Thank you.

Hey. Good morning, team.

Just a couple of quick questions from me. So, with respect to the commentary of returning underwriting standards on the after pre-pandemic levels, what do you expect or what do you think the potential impact on asset yields from the assets that you are going to build for that line of business?

Sorry. I didn’t quite catch that last will be to …

With change in underwriting with pre-pandemic levels the change in the LTV of assets.

Positive with volume.

Yes.

Yes. I mean, we are sort to starting to hit good volumes, kind of consistent volumes a year-over-year type originations right now sort of $300 million a month type – to this time in the year which is pretty strong.

And just – by the way, we sort of said, we are returning to pre-pandemic kind of underwriting is a bit of a short hand. We certainly look at the market segment-by-segment.

So we are still concerned about things like, commodity prices and energy producing provinces for example. So, some of those.

So we are still in a more conservative framework than we were in February.

And what’s the percentage of pick up in asset yields are not changing underwriting standards?

Well, it doesn’t really change the yields and new originations of yields – I think we’ve already moved up or down but spreads are good I think you saw in the quarter we’ve got spreads continue to be pretty strong.

Okay. And with that respect, as you alluded to in your comments, Andrew, funding in deposit markets looking really good right now.

You saw a sizable drop in deposit rates in the quarter. Any upcoming puts or takes to what could have a larger impact on deposit yields that you are seeing in the market right now, be it in the GIC market or as you expand your EQ Bank offering, any commentary on those?

It’s certainly, I think there might be room to slightly over the – rights in EQ Bank, but we are not planning that right now. We like to have a very good every day offer for all consumers and so we are 1.5% today in EQ Bank which I think you haven’t done an account yet.

Take advantage of that, but I think I’ll be around for a while. It should – probably we’ll see it come out with a very attractive TFSA in RSP rates to try and get some traction in that production offering when we launch – of course we have balances that sort of not entirely material in terms of the earnings, but seeing good tight spreads on the GIC - in the GIC market which is attractive.

And of course, the longer term picture really on funding and the big events to look forward to next year is, going into the covered bond market where we expect to have funding cost of about 30 basis points through GICs and as we build that program out over a period as part of the most material that we can do with the spreads.

Okay. I appreciate that.

And then, just one last question from me, with respect to the comments around work out arrangements with your borrowers that came off of deferrals, can you talk to at all we are seeing that or like how many of those people that are still that would have gone to work out arrangements? Can you –are you having conversations with them about, do you advise them to sell – you sell their home into a strong housing market.

I mean, what kind of conversations are you having with that and when you say there has been few work outs, is that because some people that were going to have trouble making their payments, you told them, to just sell their home and they did and did that how does that go into the commentary on work outs?

As we mentioned in the MD&A, we are going to be basically following the same procedures recommended by CMHC in the mortgage assurance. So in principle, if somebody’s income is being disrupted but it’s about get back into good shape and we have to work with them to obviously seeing through that next gap.

If as you mentioned, no prospects of income but will be returning at least in the medium and short-term – medium term, then, it is of clearly preserving equity in the home maybe the best answer especially with a relatively strong housing market. So we are certainly seeing some of our customers choosing to go down that route.

We have a very few customers the last time I checked about ten different loans and moved on to interest-only. So, the customers we ask them just to pay the interest on the mortgage from homeowners.

So you can see very small and those schemes of books and we are trying to work with the customers obviously who – as we all know, certain elements of the economy have hard hit by this pandemic. So we certainly want to support them through that.

But so far, consumers seems to be in remarkably good shape.

That’s it for me. Thanks very much.

Thanks so much.

Good morning, everybody.

Good morning, Jeff.

Andrew, I wanted to start off with EQ Bank today and the growth of the deposits that you’ve seen there has been very strong. I am just wondering if you could offer some commentary on your perspectives around deposit stability, meaning this is relatively new source of growth for you.

It’s a online platform that you’ve made very easy to bring in your deposits and maybe there is a bit of a risk that they could take them out quickly if rates change. So, any commentary you could offer around, how that’s performed?

What customers have been doing as rates have changed that you are offering in the marketplace? And how we should think about that, as well in terms of maybe carrying excess liquidity on your balance sheet just to manage that exposure?

There is a lot to unpack to, Jeff. But, it’s great.

As soon as I expect. So, clearly, when deposits are growing fast, we tend to view a new deposit is being somewhat light even the established deposits or the deposit matters to us.

So, just stand back even further. I try to think about this issue a lot and they have a lot of liquidity so one of the reasons why we are holding liquidity on the balance sheet today is because of the assessments our treasury team is making in exactly the area that you are talking about.

As deposits age though, we do observe more stability in those deposits. And when we introduce other services, so some of the things I’ve been talking about like joint accounts we expect to be more sticky.

People will be using our international money transfer service. People that are paying bills or having their payroll come into the accounts clearly is becoming a more stable part of that financial lives.

So, we track deposits to be regard as being more stable versus less. We do see a feature in the market which is, I think quite an undesirable feature.

Couple of our competitors come out with these short term promotions and you see some of our customers switching money back and forth between our accounts and other customers. But that’s becoming an increasingly smaller amount of the – smaller part of our customer base and we continue to see people become - start to use our broader range of services and just becoming more of a franchise for them where they can have their core banking services.

We got our eye very close to be holding plenty of liquidity against it. The other things it’s important to remember is that we have a $200,000 limit on each of the accounts.

The vast majority of these accounts operate under CDIC limits $100,000 CDIC limit. So, we think we are very stable from that perspective.

We would of course be able to use the trust company to extend more deposit insurance if we thought that – those questions.

And this is becoming obviously a very strategic asset for the businesses you’ve mentioned. I mean, when do you begin to push harder on selling loan products through to that consumer base?

I mean, you’ve already got the customer under your root there. How do you think about beginning to ramp that the offering to that customer base?

Yes. I think, over the next year, you’ll start to see us offering products on both sides of those consumers’ balance sheet.

Clearly, that’s where we want to go. The chance we have today is that the - our approach with EQ Bank is to be fantastic digital, all digital experience.

Mortgage, this is still somewhat clunky in terms of – all industry acts on in terms of getting appraisals, the people look at the floor around something of a different experience. So we’ve been reluctant to brand those things – two things together.

But as we now got so many more customers now in EQ Bank, we can be fighting that bulletin moving to having a sort of broader relationship but asides the balance sheet.

Okay. And maybe just one more question here on expenses, and you have done a good job of holding the land this year and then deferring a lot of those and just as we go through this pandemic, how long can you defer some of those products and people?

Are we at some point going to have to just see that that runrate step up fairly meaningfully do you want to continue with all these growth initiatives?

I mean, certainly, I think you see sort of ECAP assure it. We’ve – I think we’ve talked about efficiency ratios in the 40% to 42% range over the longer term which is still best-in-class in Canadian banking.

But on those kinds of expense ratios we expect to be able to continue to grow the franchise quite fast if we were to – matches and not choosing to grow, I mean, clearly, you could run at low levels. But that’s not how we think about it.

Okay. That’s helpful.

That’s all I had. Thank you.

Good morning, everyone. Just a couple quick questions, Andrew, you seem a lot more optimistic in terms of just the outlook for housing, but I think in the MD&A and I apologize if this is wrong, but you talk about modest growth for Q4.

I am not sure if that’s tied to the Alternatives segment or overall. So, is really the growth – or are you really looking at 2021 as really the acceleration of getting that growth back on board?

Yes. I mean, we will see growth in Q4 in the old business.

It’s tough to really grow. As you’ve observed in the past years where we really see the growth is in Q2s and Q3s for every year that’s when you get the seasonality flowing through in the mortgage business.

Canadians quite – people like to move in February when the snow is deep on the ground. So that’s the seasonality that we typically observe.

Again, it might be slightly different this year just because of some of the pent-up demand that we are not trying to build that in. But I am feeling pretty good about the market right now.

It seems to be reasonably strong without being opening after lessons in my view.

Okay. That’s good.

And just the second, I just want to go through the provision for credit losses and the recovery that you reported. I mean, you set up a large provision early in the year based on economic modeling.

So, is that now in a position where you can – and maybe this quarter, just talk about the release this quarter that can maybe remind me if this tied to specific homes? Or a specific modeling on the economic front?

So, if your view on the economic modeling or the modeling is getting better, should we continue to see a portion of that large PCO kind of recover in future quarters?

I’ll let Ron deal the details. But I think, clearly, as we indicated in the script, we do believe that the guarantee fee, like a scenario unfolds along with the lines of our base case then we do have reserves to release and that will probably come in staged I remember for a period of time.

I mean, as we look into that, Andrew is right, the only comment I would add is that, those numbers are modeled. And they are driven largely by economic forecasts.

And so, we respect the forecasts and the outputs that come out of those models. And we do take a hard look at them to see if they believe they match up with how things are going to unfold.

But we do respect that IFRS 9 expected credit loss process and as we indicated, we gave some little bit of a break down in terms of the base case scenario and things were to unfold under a base case, the level that would be – we would be effectively over reserved. And then, similarly, if things took a turn for the worse.

But it is a modeled number and as forecasts moderates or become more pessimistic, you could expect to see some potential changes there. It’s a volatility factor that the entire industry is grappling with.

But we continue to respect that process as part of the comping framework and we do stand behind our models and that they are – I think largely aligned with what could transpire, but we are very comfortable with the way the book is performing practically speaking today.

It’s really interesting, Steve, when you look at the single-family models in particular, so, use unemployment as one of the proxies, as one of the variables and try to model. And then if you look at the Bank Canada Monetary Policy Report, you’ll see how the unemployment is bifurcated in this particular recession where those as lower income who were not homeowners, but those are particularly bearing the brunt of unemployment and this is really sad for that group.

Our customer are homeowners are self-employed folks are actually standing up pretty well in this – and capturing some of these nuances on models is every recession, every event is always slightly different. So, the model is going to naturally – our team is really topnotch modeling team.

But capturing all these nuances is going to be tricky for us.

Okay. That’s great color.

Thank you.

Yes. Thanks and good morning.

Good morning, Jaeme.

Yes. First off, really appreciate the extra disclosure on the commercial book.

Just one follow-up on that. Mixed use properties, can you give us a little bit of description as to what’s involved in the mixed use properties and why those are viewed as lower risk, let’s say?

Well, typically, they might be – I mean, it could be a small part of building with retail in the ground floor that – and it seems you got any kind of business within the building when we would typically going to classify as mixed use. If you think about, particularly, frontier real estate say, all on the ground floor, where you’ve got four or five apartments above a store front.

That’s mixed use in our view. Well, that’s what we would call mixed use.

These are being very desirable assets actually as we’ve seen increased urbanization, we see more foot traffic in those areas. Some of them are getting redeveloped to become new buildings as well.

And typically these are very attractive to investors themselves value well healed. So even through these – even these small businesses are getting affected in the basement, we find we got owners that have got the wherewithal to stand up.

And then, you got the rental part of the apartment buildings. Some of the – some of our borrowers are people that operate the businesses in the ground floor or whatever and they tend to have very high income scores.

We tend to find them though that will have a 700.

Okay. Great.

Thanks. Just shifting to the securitization, gains on the sale of securitized loans volumes obviously really high, but it looks like the gain on sale margin is pretty elevated as well, like two to three times higher than what would be a normal runrate.

Obviously, spreads have widened here a little bit. But maybe you can talk about that margin and the sustainability of that margins as well as volumes going forward, like should we be thinking about gain on sale as still elevated in future quarters?

So, as we indicated in Q4 we expect it to be continue to be strong in Q4. And the starts – it will depend on some dynamics around allocation of the kind of mortgage bond, spreads on new loans.

So, we are seeing also opportunities generally in the CMHC securitization area generally. I would expect that this will prevail through next year.

But, see even next year. I think we might see guidance as you would historically model for Equitable.

Okay. That’s helpful.

The – just a couple of clarification questions to wrap up then around the TFSA and RRSP, is that will be released in 2021 and will it just be a savings product to start? Or when can we expect to see some more “ sophisticated products” in those accounts?

So, that’s actually a 2020 release. So, we’ve got the curve running now.

It’s a matter of putting it into production and promoting this to our customer base. To start with it will be a simple GIC saving and the savings plus demand deposit product.

Clearly, as we start to build deposits with that kind of longer term and that’s the beauty of the sales and RRSPs. And I think, that’s the opportunity potentially to start to evolve people in terms of starting all sophisticated forms of wealth management going forward.

And I think you should think about that is being our entry into that market that was starting with a fairly simple payment on the product.

Okay. And last one is, with respect to the covered bonds market.

Does the access to that market rely on either OSFI or other regulatory approval before launching? And, are you having discussions with those bodies today that gives you confidence you’ll be able to tap covered bonds in 2021?

I don’t – it doesn’t rely on any regulatory approvals. There are already provisions, so, obviously provisions that set up the capacity for covered bonds.

We do believe that that the public policy argument that should be higher covered bond capacity for smaller institutions, but we made these arguments to regulators and we are hopeful that they are landing in sort of fertile ground. But our program doesn’t rely – the program doesn’t rely on that being achieved.

I think there are lots of good reasons as to why from a public policy benefits from executing a banking system or compared to smaller institutions – and smaller institutions should have higher capacity within this framework. And I do think that’s especially what we are very hopeful that will be – that the landing there – the price at what the regulators land to.

So, is that the constraint factor that and is that the – I believe that’s a 5.5% cap rate now. But it’s been expanded for – through COVID up to I think, 10%.

Is that’s what’s constraining your ability to tap into covered bonds? Or is there investor demand or maybe explain why we shouldn’t see covered bonds in there?

I think, we would – if COVID haven’t hit then you would have seen covered bonds this year. So, we deliberately – first of all our teams were dealing with a lot of other issues when COVID hit and we were turning to work from home.

I was also somewhat skeptical to get to a new issue in the European buyer markets as a new entrant to the market in the middle of a pandemic. So, we dialed back on the investment.

I think our judgment again with hindsight probably we could be accessing the market around now, if we had done some of the other structural things we need to do get the program up and running. So, we are basically down for about three to four months in terms of actually getting the program going.

Our teams are now working their way on that. And then we got PDA ahead of us and so on.

And so, that would constrain us to now to being able to get an offering away until next year.

I see. Thanks very much.

Thank you.

Hi, good morning.

Good morning, Graham.

So, maybe I’ll just start with the reserves that you released and sort of where you are sitting today. So, you allowances for credit losses versus your base case assumptions I think it’s $6.5 million that you are over reserved right now.

But there is sort of some assumptions there over the next 12 months and also over the next two to five years. So, how should we think about the cadence, if the world plays out according to that base case assumption?

Is that $6.5 million potential release more weighted towards how things play out over the next 12 months as opposed to longer than that?

Yes, we haven’t spent a lot of time talking about that. But what I would say, that base case is the most likely case.

And so, that’s the way that we most – that’s the case we most heavily weight and that the forecasting service suggest is the most likely outcome. Now recognize that the expected credit loss that we take is over – well, on a stage one, it is over the next 12 months and then, stage two is lifetime on the loans.

And now we have a relatively short book. So, if we stayed with the base case, we would expect to see about $6.5 million less actual loss formation over about the next 18 months.

But where that would be reflected is if the base case continued, I would expect that forecasts become slightly more positive to reflect that. And then, our actual expected credit loss for embedded loss, not recognized loss would start to be recognized in subsequent the quarters.

And if that helps or confuses that, it is a little tricky.

That helps. But I guess, that the potential timing of this – what you’ve over reserved, since that base case is – are we looking at the next twelve months period?

Or are we looking at sort of the next couple of quarters like, that sort of timing is what I was getting at?

Yes. I think it’s probably more likely at 12 months kind of cycle to release, because as I mentioned earlier, the model book plus is an overlay that in effect slows the release of the effect of it is to slow the release of earnings to try not to make these things too high frequency.

And if you tend to – if you certainly have a step function downwards move any kind of outcomes, we make sure we book it. So that’s the sort of the high frequency down would take the reserves view, because we don’t want to be under reserved.

But then there is a – there is effectively a slowing of the release that’s not quite the same. So, it will probably bleed back quarter-by-quarter, something seeing as released it’s not been in the one quarter for example.

And I think that’s right.

Perfect. Understood.

One thing that’s an area that’s getting a bit of attention right now is the condo markets, which go into GTA, but obviously, you are lending both on the retail side I assume, but also on the commercial condo development side. Can you just talk to your risk appetite there?

And how you are feeling generally about that space right now?

We don’t have a lot of loans on condo construction in Toronto and it turns to be – of the bigger banks, frankly. But we still feel fairly good.

If you got the right kinds of pre-sales which is still fairly – feel fairly optimistic about that, and of course, we got to have the pre-sales in place, which themselves reflects this change in the market. The – regarding the condo market, more generally, I think we’ve always chose that the negatives around for about couple of decades longer than we should have been.

I think we still remember the early 90s strangely around Equitable on this issue. Having said that, we become a little more constructive around over the last two to three years, I would say.

But we are still being super concerned about things that might look like an AIRB rentals and we tend to avoid that sector. And frankly, we’ve got very low – we are seeing very low applications on the condo sector right now and it’s appraisable more part of the book.

So, I don’t think we are particularly concerned about how it might impact us I mean not seeing any delinquencies over and above what we see more generally in the book within our condo sector. So it feels pretty good right now.

Okay. Got it.

And my last question just be, your deposits from EQ Bank, they grew very strongly and your liquidity was elevated at the end of the quarter. Is that more of a timing issue?

Or are you deliberately holding higher levels of liquidity right now and should we expect that going forward if EQ Bank is to grow like it is?

Yes. I think as we mentioned on one of the previous questions, we are holding a little more liquidity around the fairly recent growth in the EQ Bank deposits, just kind of a prudent measure.

But I think we are also holding more liquidity just could more generally the uncertainty of the economic conditions again it’s prudence – it’s costing us money, but I just want to make sure that we don’t have an issue with liquidity. And then, this is a timing issue, as well as end of the quarter.

We just recently done a deposit note. I think which was just into the numbers.

And so, a combination of things. But I think we should expect us to continue to be holding relatively elevated levels of liquidity for the next little while.

There may be some opportunities to get more and more comfortable in the future. Our economy and so we can bleed those down a bit, because there is a negative spread on those on that liquidity.

Okay. That’s it for me.

Thank you.

Hey. Just a quick follow-up question from me.

Andrew, could you talk to an update on the transition to AIRB. How that’s proceeding?

What’s the potential capital release could be? And what kinds of new business that’s you are going to win going forward?

So, Ron is our – is executive in charge of the AIRB program. He tend to be pushing hard on it.

Ron, do you want to try and address those questions?

So, the resources that we pulled from the program during the pandemic to ensure that we had the business lines proper resource to do things are now back on the job. And we are fully reengaged to go full steam ahead in 2021.

I do think it would be premature to comment on levels of capital release and the timing of that. I mean, a lot of that rests in the hands of the regulator and the amount of time they take to review and when they approve.

In terms of new business lines, we would have to have a lot of data around those new business lines to be able to model them and achieve early benefits. But – but I am very comfortable saying that the program, for the same reasons we launched it before the pandemic, and before the recent discussions around current guideline changes, it continues to make a lot of sense for us.

We’ve spent the last couple of months mobilizing the resources to pick up the program where we slow down and go ahead in full steam throughout 2021 looking to advance it very, very materially over the course of calendar 2021 and being near to a position where we should be able to fully engage with the regulator and engage in that process.

And just – I mean, just a reminder, it is something we have to set before that this will make us more competitive and lower risk asset classes. So, for example, cash flowing stabilized multi-family buildings which are part of offering by that we will be more competitive in those areas.

And I think we said in previous calls that, if we would be risk rate on the same basis, it descents into the AIRB basis. So I would say along with you something like 19% compared to the 13% to 14%.

So, I mean, none of those metrics have really changed in terms of sort of longer term view and now that we updating them particularly for this quarter.

Great. That’s it for me.

Thanks.

Well, thank you so much. We look forward to reporting Q4 in sometime around late February.

In the mean time, we are always here to engage and answer your questions, And so, I know you Chadwick will want to get to know many of you. But good bye for now.