EQB Inc.

Thanks Julianne, and good morning. Your main hosts today are Andrew Moor, President and Chief Executive Officer; Chadwick Westlake, Chief Financial Officer; and Ron Tratch, Chief Risk Officer.

Before we begin, I'll refer you to slide two of the presentation which contains Equitable's caution regarding forward-looking statements. It's now pleasure to turn the call over to Andrew.

Thanks Richard and good morning everyone. Richard joined the bank recently to lead both our Corporate Development and Investor Relations efforts.

In Corporate Development, Richard and his team are charged with exploring new avenues to advance Canada's Challenger Bank mission. While in Investor Relations, we are really putting a more concerted effort in place to close what management perceives to be the gap between the current market price of our shares and what we believe to the intrinsic value of our stock.

Welcome, Richard. We have a lot to talk about, including Q4 and 2020's all-time records of customer earnings growth from what I see as the next chapter for Equitable Bank.

To my mind, the accomplishments of the past year and the past decade's track record of consistent industry leading ROE are a prologue as momentum terms to speed for Canada's Challenger Bank, a bank now serving over a quarter of million Canadians. On today's call, I will look to the future more than the past by commenting on our outlook, discussing our quickly expanding consumer-driven product offerings and plans for EQ Bank, our digital platform now with more than 5 billion in deposits, and providing color on our capital deployment plans in 2021.

Chadwick will add details on our record setting 2020 performance, our 2021 outlook, and medium term objectives. And Ron is here to address any questions you have about credit risk management when we move to our Q&A.

Of course, one of the rewarding outcomes for 2020 is that by being here for Canadians, who had pandemic-related loss of income, nearly 100% of our customers were able to return to their regular payment schedules after taking deferrals. By this, I mean only 44 customers representing just three basis points of our loan book were on deferral at year end.

This is a very positive outcome for our customers and the bank. Starting with our outlook, you read the same forecast as I do and the consensus suggests the economy will get up a slow start this year, with improvements in Q3 and Q4, bringing annual GDP growth up to 3% to 5%.

HPI is expected to remain relatively stable in the mid-single-digits, while unemployment should decline slightly from current levels. That said, we're not a bank that grows with the economy, yet we have demonstrated last year.

We aim to grow much faster as we take advantage of both fundamental and digital trends within our chosen markets. From a trend analysis perspective, we are bullish on the long-term prospects for different forms of housing, including multi-residential, that is a key focus for our commercial business.

We think demographic trends favor our decumulation businesses and the opportunity this brings to us as we expand our reverse mortgage and CSV business lines. And we believe our concentration on lending in urban and suburban areas continues to make sense.

For over 100 years, urbanization has been a relentless trend in Canada. This has not been the case over the past few months as some Canadians take advantage of remote work opportunities.

Nevertheless, we are comfortable that urbanization will continue long after the pandemic is over because most jobs will continue to be created in cities, most jobs will require at least some office space time, and commuting in this country is problematic. Call it a revolution or an evolution, the pandemic also accelerate the adoption of life and value enhancing technology, whether it's attending a fitness class at home, having a virtual doctor's appointment, or banking from home rather than a branch, the consumer is demanding what was once inconvenient, now become convenient for them.

EQ Bank has been the beneficiary of this shift, where innovation driven by consumer behavior and consumer needs, creates financial accretion with lifestyle advantages and an easier and more transparent banking experience. EQ Bank is exceptionally well-positioned to address the needs of mobile first feature.

We are set up for attractive levels of growth in deposits and lending for the long run. How about the near-term?

I would answer by saying that we set healthy loan growth objectives for 2021 and personal banking are critical, both businesses having a really encouraging start to the year, while the strength of our prime mortgage franchise was clearly demonstrated last year, as we grew the business in a time of attractive economics. Decumulation is destined to be our lending growth leader.

Suffice to say that growth in origination to book value of our assets exceed our 2020 internal objectives as our decumulation businesses gain share. New products, new partnerships will add momentum in 2021.

The CFC line of business is growing with plans for new products and expanded roster of life insurance company partners and more distribution allies. The outlook for now $14 billion Commercial Banking portfolio is very positive.

Here we have five business loans; we expect four to grow in 2021 with multi remaining flat as results in the CMCB [ph] capacity levels of de-recognition. I would encourage you to get to know our Commercial Bank.

It has been an area of interest during some of my more recent meetings with investors and we have set out our philosophy and approach to Commercial Banking on page 27 of the MD&A. There was a lot of opportunity here and having spent last Sunday afternoon happily reading credits to remind myself of the underlying loans in the portfolio, I'm more convinced than ever about its resilience due to credit loss.

One of the many great things about our bank is that we have a broad selection of growth opportunities to pursue and they're nimble enough to shift and shape our book as market conditions change. You can see this in 2020 as we chose to tight load the value requirements in all, and put more focus on sustainability income in the face of pandemic uncertainties and still grew loans under management 7%.

This brings me to the expansion of our digital platform. EQ Bank serves the leading edge of our ambition to drive change in banking to enrich people's lives.

The change we're driving starts with thinking differently about everyday banking services, how they are structured and delivered. Doing so enables us to innovate with purpose, to create solutions that are immediately recognized as more convenient, more responsive, and more valuable than what's available elsewhere.

This way of thinking is working; more customers than ever are joining EQ Bank. The 2020 new digital account openings increased 82% to over 173,000 with daily average number of new customers doubling over 2019 and deposits soaring 71% to $4.6 billion.

In Q4, daily account openings were almost 190% over the prior year. We expect this momentum to continue in 2021 and we're already seeing it.

This month we surpassed the $5 billion miles in deposits and customers have further scaled to over 185,000 customers. It's quite remarkable to think that just a year ago EQ Bank's deposits were $2.7 billion.

The pace of deposit and customer growth has been outstanding, a testament to our offering and the efforts of our team. Value for customer comes from great services, great convenience, and great rates.

We have all three. With the launch of the EQ Bank Tax Free Savings Account, EQ Bank RSP Savings Account, and EQ Bank Joint Savings Plus Account, 2020 was a watershed year for new products, reflecting our ability to use our cloud capabilities to launch innovations quickly.

All captured significant attention because they offer barrier interest, no fees, and the no-hassle convenience of online account openings. They are worthy of our Challenger Bank credo.

You don't have to take my word, money-wise just now at EQ Banks TFSA tops in Canada based on its competitive interest rates and user interface. We also added 20 new currencies to our international money transfer service in collaboration with TransferWise.

Sure you can transfer money elsewhere, but you can't do it as quickly, conveniently, and cost effectively as you can here. There's a side economic benefit to growing EQ Bank as measured in the lifetime value of a customer relationship.

Our projected value has increased steadily while the cost of acquisition has declined year-over-year. Now, the next chapter is here and that means EQ Bank service profile is about to expand to flow -- and look to more wealth solutions and access card and a digital loan solution.

These are innovations are on their way in 2021 along with the launch a redesigned site this spring. Looking at big picture including EQ Bank 34% of equitable $16.4 billion in deposits were raised through channels we did not have five years ago.

This substantial ongoing growth and diversification is critically important to our bank and will continue. Chadwick is going to describe the financial highlights and I certainly didn't want to steal his thunder.

But I'm certainly delighted with how we did in achieving record earnings and success against our financial goals, even with the extraordinary circumstances of the pandemic. Equitable has many advantages use including structure, temperament, and technology, but I'm most important is our people.

Even with greater than 95% of our team working from home, Equitable is challenging and succeeding. My sincere thanks to every member of the Equitable team for job well done under stressful circumstances.

Nurturing a best place to work culture was which is reflected in our selection as one of Canada's Best Workplaces in financial services and insurance in Q4 2020 has paid off in the form of best-in-class employees. I know it's really hard for an outside investor to observe this, but our people are absolutely top notch and I feel so privileged to work with them every day.

Speaking of people, I'm delighted that Diane Giard and Yongah Kim joined our Board in December. Diane has an incredible record -- the background in retail and digital banking, as well as risk management having served two [Indiscernible] over her career.

Diane is a real commercial and retail banker and I say that with deep respect. Yongah has an equally impressive career and role as a senior partner at McKinsey advising leading financial institutions on a global basis.

And now as a Professor of Strategy at the Rotman School of Management, University of Toronto. The bank's governance is in very good hands, with the right mix and relevant talent, experience, and perspective, I'm proud of our sustainability efforts and will share details in coming quarters, including in our virtual AGM.

Before moving into our 2021 priorities, I want to assure you that we will follow our client through value creation methodology going forward, which involves carefully allocating capital retained from earnings. I set up my thinking in this area in our 2015 annual board a few years ago, and attribute the approach described there to making Equitable the best performing bank on the TSX over the both the past five and 10-year periods.

We have ambition and agenda for 2021 with five top priorities; one, keep enriching people's lives. This is where innovation, a passion to deliver the best service, and a commitment to create an empowered engaged workforce coalesce with Equitable's traditional financial discipline.

Two, efficiently deploy capital. This is a particular challenge now we are 110 basis points above our midpoint target range for CET1 at 13.5%.

We do not know when OSFI will allow banks to receive dividend increases in buybacks, but we're already contemplating many options to deploy capital, including resuming the dividend growth we had committed to our investors before OSFI imposed its prohibition. Three, continue to diversify and expand the bank's funding sources.

So, existing products by driving forward with new product innovations EQ Bank and product expansions at Equitable Bank where we recently introduced U.S. currency GIC's and USD high interest savings accounts.

Four, contribute energetically in key areas of innovation in Canadian financial services. This includes investing in our infrastructure to participate in real-time rails to improve how Canadians move money.

This is well overdue and really critical to Canada building a productive economy as we build back from the pandemic. As well, we will continue to drive to open -- bring open banking to Canada and digital ID to Canadians.

We're active on both fronts, most recently by participating in multi-stakeholder roundtable and working on some use cases. Five, challenge market perceptions of Canada's Challenger Bank.

We will be working to ensure that investors understand the capabilities of the bank we are growing and building so that we can close the gap between what management believes is fair value for the bank and the current trading price. As I mentioned at the outset, we will improve our Investor Relations efforts and increase our activity levels as part of this program.

Closing the value gap will reduce our cost of capital and deliver additional opportunities to create value to our stakeholders. I think our MD&A does a great job of conveying our position, how we have evolved into Canada's Challenger Bank, and the growth diversification and stability it delivers.

It's a fairly substantive overhaul and I encourage you all to review it in some detail. And now over to Chadwick.

Thank you, Andrew. We're proud of how we ended 2020 with our best Q4 ever and importantly, the momentum we have entering 2021.

Our differentiated approach to creating value for Canadians translated into consistent growth for shareholders with revenue up 13% year-over-year in Q4. At just under $152 million, this is our strongest revenue performance in any quarter ever.

Growth was not isolated to Q4. Full year 2020 revenue was 12% higher at $557 million, even with our deliberate pullback in originations early in the pandemic, Growth translated into diluted EPS at $4.13 in Q4 and $12.95 annually.

ROE was 18.2% in Q4, reflecting our increasing earnings, a strong performance, and particularly so given that our excess capital continues to build. If CET1 was back at a midpoint range of 13.5%, quarterly ROE would have been 19.5%.

Higher earnings in ROE primarily reflect higher net interest income from growth in core assets, complemented by gains on sale of insured multi-unit residential mortgages, and a modest release of allowances for credit losses. Reported with our non-interest income, we view gain on sale as high quality income stream as it represents profitable and repeatable revenue in times of economic volatility.

And it adds to our capital base, which will bolster further lending power and distributions to shareholders. While revenue continued growing at a double-digit pace, our culture of disciplined expense management and focus on delivering the best efficiency of any bank in Canada continued with non-interest expenses of $55 million in Q4, up only 2% year-over-year.

This expense growth was mainly attributed to an increase in compensation and benefits as we expanded our FTE to 925 by year end to match and enable our continued growth momentum. This trend and efficiency translated to 4.7% positive operating leverage for the year, with a Q4 efficiency ratio of 36.4% that beat our target.

Loans under management increased to more than $33 billion, plus 7% year-over-year. This sets us up nicely to start 2021.

Moving the business line comments, we successfully deployed capital in personal banking, generating asset growth of $1.1 billion or 6%. Our single family alt portfolio contracted in 2020 as a result of our deliberate origination pullback from March to August.

But we've had a significant rebound in the last quarter with originations of over a $1 billion, which was also higher than Q4 in 2019. In December, we took back our market share leadership position.

This is a testament to our very strong relationships with mortgage brokers across the country, an unrelenting commitment to customer service. Our decumulation business was also a bright spot with balances that nearly tripled year-over-year.

This is an important emerging business for Canadians and we're very pleased with traction recent quarters, both in reverse mortgages and CSV lending. Our Commercial Bank also had an outstanding year with asset growth of $1.2 billion or 9%.

Nearly 60% of this growth was in in the insured multi-unit residential space, which we like because of its risk return characteristics. Conventional commercial loans contributed significantly to growth as well as its portfolio balance increased $427 million or 11% year-over-year and $208 million or 5% sequentially.

As a matter of strategy, we have shifted our sources of funding with 41% now coming from securitization, 34% from broker deposits, and 16% from EQ Bank. Or for example, five years ago, 49% would have been from broker deposit loan.

We expect to continue to reduce our cost of funds, including with the launch of covered bonds in Europe late in Q2 this year and more deposit note issuances. Both can be raised at very attractive spreads and lower than some of our existing deposit sources.

NIM was resilient at 1.74% for Q4, up five basis points sequentially and otherwise stable, excluding the impact of increased prepayment income. The backdrop here is that average asset yield and personal banking declined eight basis points quarter-over-quarter, but as a result of lower rates being offered in the market, consistent with Bank of Canada rate drops, and more of a shift in the prime lending with lower rates.

And our Commercial Banking yield was two basis points lower. However, we are comfortable with these levels versus our cost of funds, which decreased at a higher rate of 11 basis points in the quarter.

As I indicated, with our cost of funds strategy, we have a continued tailwind here, which also offers other strategic benefits. Earnings growth in our balance sheet translated into a CET1 ratio of 14.6%.

The 30 basis point increase in Q4 was driven by growth in our common shareholders' equity of 5% as a result of earnings in the quarter outpacing the increase in risk weighted assets which grew by 2% quarter-over-quarter, Year-over-year, the rise in our CET1 ratio was the result of our decision to constrain loan origination growth and OSFI's regulatory limits on capital distribution was put on hold with plans to increase our dividend between 20% to 25% annually, With capital above the midpoint of our target operating range of 13% to 14%, we currently have $118 million of excess capital to deploy were approximately $7 a share. As a reminder, this is still using standardized risk weights.

Once we successfully complete the migration and receive approval from OSFI over the next few years to move to AIRB for risk weights. We could see this capital further boost by as much as 400 basis points after full adoption.

Moving to credit reserves, our PCL for Q4 was $100,000, reflecting the release of $2.8 million under Stages 1 and 2, which is about the same as our release in Q3. $1.7 billion of loans migrated to Stage 1 from Stage 2.

Stage 3 provisions increased quarter-over-quarter as a result of a return to more normal levels of non-performing lease formations in the quarter from a low in Q3. These changes are guided by the latest economic views from Moody's Analytics and their expert credit judgment, which reflects current realities and uncertainties due to the current state of COVID-19.

Given the level of uncertainty, we have made no changes to our five scenario waves, which reflects a more balanced view of the various scenarios. Our ACL at December 31st, reflects a prudent build, given the impact of the pandemic on the economy since March, and remains 79% higher than a year ago.

If the economy unfolds, consistent with our base case forecast, we would see an additional release of $4.7 million of reserves in 2021. Throughout 2020 and continuing in Q4, our ACLs had been dynamic and appropriate as we take into account and adjust using updated economic forecasts.

As such in Q4 and align with modest improvement in some key forward-looking economic indicators, our reserve released was very modest. We are maintaining overall levels significantly higher than pre-COVID and in our judgment had very rigorous and supportable levels.

I know a question on your mind maybe what is the path to a normalized allowance for credit losses look like? Many factors come into play here.

But if our ACL provisioning levels move back to pre-pandemic levels, we would see our ACL drop by about $25 million. It's too early to put a pin in that.

And again, we are reserved precisely how we believe it should be today for our business mix. Our impaired loans ended the year at $120 million, down $900,000 a year-over-year, but up $27 million or 28% sequentially.

The increase was largely due to an increase in single family and an $11 million commercial loan in Alberta. That loan is secured by a high quality commercial property with a current LTV of 39%.

Accordingly, we do not expect to realize a loss. Our realized losses remain low in Q4 at $3.3 million, or four basis points relative to our total assets compared to $2 million in Q3 and $1.5 million in the same period of last year.

2020 losses were $13 million or four basis points of our loan assets. And as a reminder, most of these are from our leasing book, with leases priced to reflect higher expected losses in this book.

The realized loss rate is the result of the secured nature of our loan book and the rigor we have always applied to our Board's ability to pay. A few other points to know when evaluating the credit risk of our loan portfolio.

100% of our loans are secured and 56% are insured. Our uninsured residential mortgage portfolio has an LTV of 61% and an average beacon score of 702.

Commercial real estate loans, which are concentrated in multifamily residential property, make up 72% of our commercial loans, of which 60% are insured against credit loss by CMHC. At year end, our portfolio largely followed Canada's population and economic distribution patterns.

We focus on urban markets and have managed our exposure to region's most affected by oil and gas. Uninsured personal and commercial loans in Alberta are just 3% and 2% of total assets, respectively.

Moving to our 2021 outlook, we expect to generate earnings growth in the range of 12% to 15%, driven by stable to increasing NIMs; loan growth of between 6% to 10% overall, but with some businesses significantly exceeding that; lower provisions for credit losses; and an efficiency ratio target of 39% to 41%. For personal banking, we expect EQ Bank deposits to grow by another 20% to 30%, our decumulation business to lead all others in percentage growth by more than doubling its balances from 2020, prime to grow 12% to 15%, and alternative mortgages to increase between 5% and 8%.

We expect our commercial bank to grow in the mid-single-digits with specialized financing leading with 20% to 25% growth. The Commercial Finance Group and Business Enterprise Solutions will contribute 12% to 15% and 5% to 8% growth, respectively.

This level of growth combined with prudent cost management and further diversification in our cost of funds will roll up to produce the results we're looking for at the bottom-line. Today, we are reaffirming our medium term objectives of 15% to 17% ROE, 12% to 15% EPS growth, dividend growth between 20% to 25%, and 13% to 14% CET1.

We believe these objectives remain industry leading compared to our peer banks. These objectives assume that OSFI will permit us to resume dividend increases and allow us to consider potential common or and/or preferred share buybacks during the term covered by our objectives.

As you will know, at the group level, we did launch an NCIB in December, for up to 10% of the public float for both classes of shares. We acquired 3,300 preferred shares before year end and that's a good use of capital.

As Andrew indicated, I would encourage you to review our updated MD&A and our overall outlook. With that, I will now turn it over to Andrew for closing remarks.

Thank you, Chadwick. To summarize, in a challenging year, Canada's Challenger Bank outperformed.

We added new customers at a record pace, more new products in at any time in our 50 year history, delivered more earnings than ever, and did an outstanding job of managing risk and protecting institutional strengths. As I've mentioned before to many of you, and those who wonder [ph] Equitable, you really need to experience EQ Bank.

The quickest way to do so is to open an account and you should have ample time to do this even before the Q&A session is over. And if you really want to be wild, send a few dollars to a friend of yours overseas and see how easy it is.

The last October's organizational realignment into personal and commercial banking lines and tons of additions or promotions, we enter 2021 with the means to fulfill our purpose, drive change in Canadian banking to rich people's lives. Thanks for listening.

And Julian, I wonder if you could please open the line to questions.

Hi, good morning.

Good morning, Geoff.

I know you provided -- good morning. I know you provided loan growth guidance for 2021.

But just wondering from an origination perspective, like how would you describe your deal pipeline and the level of housing activity relative to pre-pandemic? And then also, are you seeing the trajectory slow from the high levels of activity that we were seeing in Q3 and Q4 of last year?

No, certainly for us, we're operating at higher levels in Q3, Q4, as I had mentioned Geoff. We had to dial back our credit appetite, I think, if we -- if there's one thing I would be self-critical of last year, we weren't quick enough to really understand how the housing market would behave in response to interest rates and so on.

But I think in the last few days, for example, the application inflow is higher than the same time last year. And this time last year was sort of pre-pandemic, so we will really revolving maybe what really strongly investment rocking this time last year.

So it feels like we've got a good dynamic there. I think our people are, I think, generally the market would be concerned about tightness of supply, and how that might constrain the spring market all, but generally, I'm feeling pretty optimistic about where we're headed.

Okay. And if we go under this assumption that the economic and employment recovery continues to improve, but we continue to see -- what we’ve seen in the housing market in terms of strong activity in quite strong home price appreciation.

What would need to happen for you to feel like you need to maybe tighten some underwriting standards?

And I think we're always looking at all the variables, as you know, certainly unemployment is always a big driver that concerns about future direction on employment and things that we look at first. Those are what the models always tell us, this is going to lead to potential challenges that we look at we read the RBC, just to give you a plug here, in the housing affordability is a concern.

But I think what we're seeing there is that this drop in interest rates is being so significant, and affordability is actually leaner more relaxed than it was a year ago. So I think that was the picture of the big drivers.

If I saw the Canadian government having a different tone around immigration, that would be a concern. But I think what we're seeing is a political consensus or levels of government that immigration is important to the vibrancy of Canada's future.

And clearly, the pandemic in the short-term is reducing immigration. But I look forward to a more diverse, inclusive society that includes more people coming to Canada, bringing their spirit to the place, and particularly big cities.

And that's really a huge part of the theme for equitable, they could even see a more recent policy direction by the government that they're very in favor of that immigration story. And that's certainly an area that we play to.

Okay. And just my last question would be, you've talked about resuming your dividend growth strategy that went on seamless the ban on banks and insurance around that.

But I think even with the growth rate in the dividend that you've articulated, it's likely that you'll still grow your CET1 above your 13% to 14% target. And then you'll get arguably a big or significant boost from AIRB.

But I know it's a little bit too early to say, but can you talk about how you think about that excess capital build up and how to deploy it to kind of keep you within that 13% to 14% CET1 range?

Yes, I think you're exactly on track. So I think, call messages, the original 20% to 25% that we projected, when we get an opportunity to increase dividends or sort of jump back to the profile that you would have expected.

So hopefully, it will be a fairly significant kind of step jump when we are allowed to increase dividends. Clearly, we think we've got lots of opportunities to deploy capital into our businesses into attractive assets.

So certainly, as you could gather, I think optimistic about that and focused on using capital in that way to generate additional returns for shareholders. And then I think the challenge is to think about how else we would deploy capital.

As you see, we put an NCIB in place. But we're certainly sort of value driven about how we have to deploy an NCIB.

And this is the base of our Board. So I maybe speaking ahead of the kind of formal banks position, but I think we would only enter -- and we use the NCIB any size.

If we really thought there was a different deal to the stock was trading significantly below the kind of right value where it took to make sure that the value accretive to our shareholders. So that's a decision for later time, certainly one of the tools that we think we might use, but I do think it's really important for a bank to we don't -- we're not looking to hold on to our shareholders money 13.5% CET1 extremely well capitalized.

So at some point, we want to return to that to shareholders, through other means with special dividends or something else that could consider.

Okay, great. Thank you.

Hi, everyone. Good morning.

Andrew, maybe just to start off with the commentary in your opening remarks and then in the MD&A last night, with potential rollout of additional products on the digital products side. So what's the potential for a digital loan originations going forward?

I mean, is this some kind of I'm assuming it's some kind of consumer unsecured product? What's the potential?

Or if you can talk about it what's the potential credit box you're looking at potential maximum loan per account? Can you give us any window into what you were thinking with launching that kind of product?

I think it's really where will we be going first of all is looking at mortgages being originated online. Frankly, that's our core expertise, unsecured would be further down the pipe.

So I don't say that. I suspect we'll get better over the next few years.

But it's not the first product up from a lending perspective. I think the kind of the big picture here is as we're adding customers in the EQ Bank platform, now we have 185,000 customers and growing fast as we mentioned, the opportunity to offer them other things that can enrich their lives and make better solutions is that when you have a smaller customer base, even if it's valuable to a few customers, it's just not enough to get you over the hurdles you need to invest to get going.

So we do have a project on deck to help those customers return a mortgage to us and we expect to sort of be in market with at some point this year. I think as we've observed that market for many years, and it's challenging to reiterate mortgages online, technology and the consumer attitude and maybe getting there.

So we certainly want to be a relatively early mover. But I spent a lot of time looking around the world of digital online mortgage origination, it's certainly challenging.

But we've got some really good point solutions in place now in our broker-driven business, if you start to link those together into a digital solution, there is certainly an opportunity for innovation over the next few years.

Very interesting. And what about on the wealth management side?

There was some commentary about that. Are you looking to perhaps partner with someone -- with somebody or Fintech partnerships that you already have now?

Or what's the outlook for wealth management digital products?

So in the short-term in the wealth side, or as referring to is more deposit products, so particularly foreign currency deposits, or US dollar deposits in the EQ Bank platform. I certainly -- we certainly continue to think about wealth in slightly more sophisticated forms, and I think that would likely be in conjunction with some of our friends in the Fintech world.

But certainly, again, as you know, FICA loan deposit sitting in the EQ Bank, so up compared to year-over-year. One can imagine that with our kind of brand position in the marketplace, we can migrate some of those customers into slightly more complex equity style products, whether it's through robo or simple ETF type products that seems to stick with our brand ethos, our Challenger Bank attitude.

And we're certainly not somebody that would think that selling high in our mutual funds is an appropriate place to be in the marketplace. I don't think that that really enriches people's lives.

But we would be looking for those similar kinds of products

That's really interesting. I appreciate that.

Chadwick maybe a question for you from a modeling perspective. As you talk about having increased the mix to the A lending business on the mortgage side, and in the context of your insured multifamily business as well.

How should we think about securitization income going forward? I know you mentioned it's up significantly where it's been historically, it's moved around quite a bit on a quarterly basis.

So we expect to see that contribution to non-interest income, fairly stable with Q4 levels going forward for this year, or how should we think about that?

Absolutely. Start making comments around that and hand it over to Chadwick.

But the margin stuff encouragingly and multis, but I would say the last couple of quarters have been particularly wide. So we wouldn't expect that, we would expect those spreads to come down this year.

That's certainly what we're building into our projections. Thinking in a bigger picture about fee based income, we do have a couple of things we're working on outside of securitization that should see an increase in fee based income over the next year or two.

So that's certainly a strategic priority for us to add to that fee based income, which the biggest one we really see right now in the [Indiscernible] P&L is multi securitization. And then Chadwick if you give any more color to add to that?

No, I think you covered well, with securitization spreads in -- while they may type more Q3 and Q4 higher we will see still add a non-interest income. And I think it's the general overall fee, right?

I think from a securitization income, we're expecting yields and spreads to remain pretty consistent with Q4 levels with cost of funds coming down, including from flexibility to reduce our EQ Bank rate, more wholesale diversification, including a corporate bonds launch as more often across the board with yields and our support a stable man, but not interest income Andrews on point and that’s one area we're very focused on because it is -- there's a lot in there that's repeatable and consistent and high quality.

Thanks very much. I'll jump back in the queue.

Thank you. Good morning.

Good morning.

So in terms of the 2021 outlook, it's good to see growth in your alternative mortgage book expected to resume. I'm curious to hear, how has the competitive landscape with larger lenders evolved over the past couple of quarters and notably in terms of renewals?

So, yes, Hamid, it's a good question. I think we did see in the last couple of quarters of last year, the renewal percentage dropping, and I think that's -- my observation of many years being in spaces, is that that tends to happen when interest rates are dropping.

So again it's a little bit hard to renew, you can imagine even under a B20 scenario, as interest rates drop, all of a sudden people that didn't need GDS, TDS standards of [Indiscernible] do even if their income hasn't changed, so that by its very nature makes that renewal more challenging. That's very encouraging others in the last few weeks, we've actually seen our renewal rates increase.

So I'm not quite sure what's behind that dynamic. I think partly it's the quality of our team servicing our customers and so hats off to them.

But it's been an interesting thing to observe. So -- and -- if that sneaks up a little bit, it makes it makes quite a difference on what deliver quite some stuff.

All right. Okay.

Perfect. Good to hear.

Switching towards EQ Bank. This now accounts for I believe 28% of your deposits, that is trending favorably towards your objective to I believe has about one-third of the total deposits from EQ Bank, given momentum you've had so far, do you see this potential to go higher?

And what would you expect the impact under cost of funding to be over the upcoming two years?

Yes, we do expect it to go higher at this point. I think I'd be concerned to go above 70% of our deposits coming from that 70% of consumer deposits.

So I still would like to have a piece of brokerage in there, because the nice thing about brokerage is it's a flow you could turn on and off. But certainly comfortable up to 70% of our consumer deposits coming through EQ Bank.

And our view over time is that we think we should be able to save about 27 basis points unique in deposits for EQ Bank compared to work. That's a kind of longer term game plan when we when we build it in the lifetime value of a relationship in that market.

That's sort of the numbers that we're working on. And I think that's such a critical dimension of thinking about this about EQ Bank, the way I think about EQ Bank is at roughly speaking, we believe that the lifetime value of each relationship is about $1,000.

So -- and today, we're acquiring customers for a very small amount of that number. So I see my team here laughing at me, as I say that, but that is how I view it.

So -- but thinking about the lifetime value of the franchises is really a critical dimension of this.

Okay. Perfect.

And last one for me on uncovered bonds. Could you provide an update on market appetite?

And how – I know mentioned, Q2 for the first issue, and how sizable could that be? And longer term, how sizable could cover bonds becomes part of your funding mix?

Yeah. So Chadwick’s been drilling into this area very actively since he's been here, since he's arrived so get Chadwick checks and he relatively recent track of the bank, this is his first full quarter.

So Chadwick maybe you can make some comments on how you're seeing the cover bond thing like that?

Yeah, sure. It's going to become an incrementally more important source of our cost of funding, I believe.

I think your first question was, what's the anticipation like, or what's the early reception like? And I'd say it's been very positive so far.

We're exactly on track where we need to be with our project plan. We've had some good actual some media coverage in Europe over the last week, and quitting several outlets as we're getting ready to issue.

So, I do expect with how established the covered bond markets in Europe that it's going to be a pretty quick uptake. And this first issuance size we would target would be about probably translated by CAD 400 million.

And we'll keep growing this in multiple issuances at first, at least, until that that 5.5% cap on our total assets. So you call that kind of $1.5 billion, $1.6 billion, $1.7 billion and growing.

And then as that ceiling lifts, we'll continue to expand that. So it'll become an incrementally bigger source.

And we would view that you'd call it 15 to 25 basis points plus cheaper than GIC as well. So this would become a lowest cost to fund option and growing and expanding.

So we're well positioned on track for an issuance. And as we say, at the end of Q2, we are talking more literally about the May time frame, but sometime in May is our target.

Chadwick mentioned something that is impossible and so much in passing, but that 5.5% limit on covered bonds. So 5.5% of total assets is the current regulatory limit.

We think they're a really good public policy reasons why medium sized banks should be able to go levels above that. I think we have a lot of buy in from the past across the banking community, if that's the case.

And so we would hope and expect that we'll get some relief on that at this time.

That makes sense. Thank you for calling.

Hi, good morning. I think a lot of my questions have been answered.

But the one I was wondering about your guiding towards essentially high single-digit loan growth overall in 2021. And then when you look out over the medium term, you've got on a 12% to 15% EPS target.

Is that level of loan growth sufficient to get you to 12% to 15% earnings growth? And if so, like, what are some of the key inputs that are implied behind that either with NIMs or expense growth or credit?

I think that question is definitely right in Chadwick wheelhouse. So, I wonder if Chadwick, you can handle that.

Yes, sure. So thanks and good morning.

We are confident we can maintain the asset growth in 2020 as well as 2021. So when you run through this sheet really on the NIM front, once you have that asset growth consistency on the NIM front, as the accumulation and other high growth businesses increase, we'll see some small expansion as well, especially with higher EQ Bank deposits, and that maturity of our covered bonds and positive program plus more normalized PCLs.

And our goal would be to stay within our expenses, discipline. And I expect we'd also continue to maintain that in the 395 to 41%, range in 2022.

So you could see some good consistency, and then the changes growing as higher growth businesses continue.

Perfect.

This is a question we actually examine internally quite a bit, Graham, because it's sort of on its face that something I wanted to test the team. There's been a fair bit of scrubbing, but we're pretty confident that this whole – this whole flips to the right approach.

Yes. But you have your – all your economic scenarios, right.

But are we do expect those volumes to maintain somewhere for the 2021 flowing right through in interest volume.

Okay. That's good for me.

Thank you.

Yes. Thanks.

Good morning.

Good morning, Jaeme.

Excellent growth in the EQ bank deposit channel, and obviously very rapid over the last couple of quarters, obviously picked up too. So I'm just curious, are there any metrics or customer characteristics that you're looking at that would give you confidence in the stickiness of these deposits relative to let's say, like, 2019 acquired deposits?

Yes. We look at something we call relationship accounts, which we measure by whether for example, people are putting payroll in or using the transfer service and also the – the age of the accounts.

So we kind of assume that somebody who has these accounts yesterday is – we don't know yet whether we have a relationship with that person, as you build any relationship in society. That's the case.

So as thing, as accounts get older, and we see those transactions, we measure something internally, which we call be defined as being a relationship account. We are seeing that slowly increase month over month as a percentage, which is pretty encouraging, because we're actually adding a bunch of new accounts, which by definition of audit increase not being -- the criteria.

So yes, so we seem to be moving in the right direction in that area. And I would say the growth has been a little bit of stress on more than a little bit of stress in our team.

And we've had to, we're stepping up our service levels to really try and resolve some of the issues instead of complexity with these registered accounts, because we're doing this for the first time. Certainly, we are -- we have pretty ambitious targets around Net Promoter Score, NPS, which is widely used by banks to assess themselves.

And generally, what you find is that customers are -- certainly the EQ Bank customers would have much higher NPS ratings of us than they would the traditional D-SIBs. So, it's -- and that's especially a feature you see in many parts of the world, but digital banks tend to have a higher acceptance in traditional banks, but is all very encouraging.

We are focused on that NPS measure as a driver to as a measure of satisfaction, and thereby kind of presented as a relationship between the stability of the account, if you've got very high customer engagement and satisfaction scores.

Okay. Great.

That sounds good. As we think about the evolution of EQ Bank, you mentioned payments as being one of the areas of growth potential.

Can you give us a little bit more color as to how you're thinking about payments and entering that space? And I specifically look at a recent transaction with like Neo Financial and HBC.

Is that – is that a decent example to look at in terms of where you might take it? Or are there other avenues or strategies that you might put in place on the payment side?

I don't think, teaming up with a returning would be in direction that we're going in. But, you know, first of all, one of the objections to EQ Bank is you can't make a payment in the merchant because the money transfer right there.

And then if you're part of that type of motion was accepted, but by and large, that payment mechanism isn't - isn't there. So you want to do that, and hopefully, we can do it in a relatively digital fashion to get payment off the phone.

But it probably will be a piece of plastic involved in plastic rails, like that. But at that point, you really can cut away and have no need for a traditional bank relationship.

And our belief is that, if we can offer that capability and go stand that up for ourselves. There are a bunch of other companies can tack on some hotels in that side of the industry that we'd like to ride on our rails and see where we can get fee based revenue for providing that payment service.

And the other thing that really fascinates us is the evolution of the real time rail that payments can be working on for a number of years. But it's really coming to – looks like it would be coming to fruition in the next 18 months or so.

And so we believe as well, there may be a business to be built around providing an on ramp to the to the real time rail for non-traditional financial players. So, that's how we're thinking about payments, we do have some people internally focused on payments.

Now as a line of business, you've been the first, the first piece of that is really standing up payments for our EQ Bank core customers.

Okay. That's good.

Thanks very much.

Thank you.

Good morning, guys. First question is just want to confirm maybe you've said this is, about the earnings growth objective the 12% to 15% that's assuming provisions is that assuming a release of some provision or normal amount of provision?

I just want to clarify.

I would point out, Stephen, that we've done this, I think ever since I've known you we've been doing this -- we've grown into this rate. So, I don't see why you should be surprised that lack projection, but I'll let Chadwick answer the kind of question that very specific question about the recession.

Yes. The earnings growth as we provided, doesn't change our scenario.

So while we said that that 4.7 million base case plays out, that that would be incremental right now, or a model or forecast doesn't assume that additional release? And then when you break it down, right, it's -- that would be one of the key points for this year is Q4 as you get anchored to build off, so even if we look at expenses, we probably grow expenses and more similar to how we grew in Q4 over Q3.

And we're going to continue to target revenue growth accordingly. Well, we moved towards that that's 39% to 41% efficiency ratio.

But there's still – there's still too many uncertainties, right to assume we're going to have this big release and kind of moves against the models. But right now, we don't need that release date or targets.

Okay, that's great. And then just a second, I'm not sure, if I'm reading into this too much in the MD&A.

It says something about the alternative Single Family Channel, that resumption of pre-COVID-19 underwriting requirements, beginning in August, I'm not sure, if I'm reading into the word requirements, I wasn't sure what that meant.

Yes, I think requirements is probably – probably picking up a little bit we could have could have a better expression in the MD&A -- we – thank you for that. Especially, what we have -- what happened in March and April is we – we've cut back the loan to values almost across the board by about 5% in the anticipation of the housing market would take a bit of a dip with hot rising unemployment and the effect of the pandemic.

So, I think that that's really what we're trying to refer to there. So we withdrew our lending envelope within something.

We had a tighter lending envelope – most of our competitors have this risk mitigation approach. And what that did was temper the originations through much of the summer and into and very practically into the beginning parts of Q4.

It was only as we started to adjust and have more confidence in where the housing market was going and kind of sharpened our competitive edge in the marketplace. So, we started to get back on our feet -- from a volume of new origination perspective and as Chadwick mentioned, in our belief, based on the kind of inside baseball data from the industry is that in Q4 that we will – we will once again the leader – both mortgage originations as we would expect.

Okay, that's great. Great quarter guys.

Thanks.

Hi, folks. Maybe just to quickly squeeze in something on AIRB transition, you talk about 2023 potential target.

Are you in a phase of like, how is that progressing like I know some of the other industry participants are running a parallel model period, or even that position now? And the follow-up to that would be as you look at AIRB and the impact on your competitiveness and cost of funds.

Do you see over the long term, say three, five years of commercial banking to become a higher rating in earnings profile? Thanks.

Yes. The first part of that question I'll hand over to Ron.

The second part is really drives back to our fundamental thinking about AIRB. Today, we risk weight all of our commercial assets 100%.

And that's overly punitive for some really good assets. So, if you've got a fully leased apartment building, it really shouldn't be 100% risk weighted.

So we often find we have customers where we help them buy an apartment building, they might refurbish it, the cash flow goes up, and then we're uncompetitive in the renewal of that loan. So that's -- in that case, we would be, given where giving up high quality low risk loans, because we because of his grades.

And what I would say is, Ron and his team are doing a great job and along AIRB curve. It's a complicated project.

And Ron, I wanted to get some kind of color on, where your team is had on that.

Absolutely. Thank you, Andrew.

Yes. So we're actually in a great spot right now.

We don't have our entire portfolio running in parallel. But major – major portions of it, our major business lines are.

So throughout 2021, we'll be refining that approach to running in parallel, in preparation for making an application or furthering the application OSFI in about a year. So, we've made terrific progress with building the models operationalizing the models, and now working on the reporting.

So that you could run and compare the standardized to AIRB approach and that's where a lot of the guidance that we're giving you in terms of capital differences under an AIRB regime would come into play. So beyond that point, then we'll be working with OSFI to refine and then make sure that that meets their needs for approval.

But we're in a really advanced significantly in the last 12 months to 18 months.

Just as a reminder, when the pandemic hit, we sort of dialed back investment in AIRB, and slow things down was in the belief that the regulator would have other issues to deal with. And of course the senior executive change, the regulator as well.

So, I think -- but we did exactly the right thing. And I think that's what you're seeing what other in a similar spot to us.

Now, fortunately, pandemics do slow down this kind of developments to be well understood.

Thank you very much.

Well, thank you so much, Julian. And as there are no further questions, you may wish to know that Equitable will holds its Virtual Annual Meeting of Shareholders on May 12, with our Q1 call one week earlier.

In the meantime, you're always ready and willing to engage. Thank you and have a great day.