EQB Inc.

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

For those on the phone lines only, we encourage you to log on to our webcast as well as it includes a quarterly slide deck, including slide two containing Equitable’s caution regarding forward-looking statements. It’s now my pleasure to turn the call over to Andrew.

Thank you, Richard, and good morning, everyone. I am really pleased at the bank’s progress this year.

Equitable is now larger, more diversified and more capable than ever. In every area across our single-family alternative, Wealth Decumulation, Commercial and Leasing businesses and EQ Bank, our teams are challenging the status quo, working really hard to fulfill our purpose every day and generating great success.

Today with three quarters complete towards a high growth ambition for 2021, I will offer more context of what our record commercial loan growth and outstanding performance at EQ Bank mean for the fourth quarter and offer an early look at 2022. Guidance we normally reserve for February.

Chadwick will then provide more details and Ron is here to address questions on our credit outlook, which is continued to improve. To start, I remind you that we raise our 2021 growth target in May based on our read of demand signals and clear signs that Canadians in increasing numbers are ready to embrace fintech driven Challenger Bank services.

This was the right call. Today, we are within striking distance of achieving our 2021 growth objectives.

We have conviction that at the end of Q4, we will meet or exceed all of our stated targets on a full year basis. Pursuing these objectives, we have gained the trust of a significant number of new customers and through engagement metrics, we know Canadians are relying on us more than ever to give them the enriching experience that we promised.

Looking at the trend beyond Q4, we foresee another great year ahead for Canada’s Challenger Bank, reflecting the expected impact of continued strong growth in higher margin conventional loans, plus an additional cost of funds tailwind with the benefit of our new covered bond program. Following our Q4 results in February, we will provide more detailed guidance.

What we want to notably offer today includes perspectives on ROE, on North Star, capital and key balance sheet categories that drive earnings. One of the most important categories of alternative single family loan portfolio which we expect to grow 12% to 15% next year, this guidance partly rests on the assumption that housing activity will return to a more normal cadence post-pandemic.

We like the prospect of greater stability that allows us to focus on the fundamentals of service excellence, rather making disruptive adjustments to our risk appetite. Return to the office of many workers and Canada’s plan to welcome up to 420,000 permanent residents next year will help big city real estate, where the bank has a very strong franchise and constructive view of risk.

Once again, we forecast a significant expansion of Wealth Decumulation business. In 2022, we are targeting reverse mortgage asset growth of more than 150% and CFD asset growth are more than 100% our market share gains and mutual success with our business partners.

Our ambitions are also high for commercial bank lines. We have published 2022 targets reached through your conventional and commercial loan categories.

For EQ Bank will take 20% to 30% deposit growth, target that does not take into account the expected uplift from planned innovations and payments to arrive in 2022. To achieve our goal, we intend to give customers more products to use and more reasons to use them, which is good for them and good for the bank, as it means keeping customer lifetime value well ahead of acquisition costs.

Of note, as interest rates rise, they expect the EQB -- EQ to be an even more competitive source of funds for the bank. As you know from past calls, our EQ Bank is a huge part of our plan, but it is only one element of growing and diversifying our deposit book.

Directionally, 2022 outlook supports ROE of 15% or greater consistent with our historical best-in-class returns. Now, the third quarter results and further context on milestone achievement.

Assets under management surpassed $40 billion as of September 30th, 13% or $4.7 billion higher than a year -- last year. As managers we do think long term and it pleases me to note that the bank AUM is more than twice as large as it was at the end of 2015.

As you saw in that earlier slide, our full year 2021 target for total loan growth is 8% to 12%. After nine months, we are now at 14% with good contributions from both sides of the bank.

What’s important is that year-over-year loan growth of 17% in the commercial bank and 13% of the personal bank, very much favored widespread conventional loans. Conventional loans are the earnings engines of this bank.

So it’s good to know that Q3 was our most productive quarter ever for conventional loan accumulation. For institutional, it’s incredibly disciplined and risk management, you can draw an important conclusion.

We believe it is now entirely prudent to put more risk weighted capital to work than a year ago, because the economic recovery, including a recovery of all the jobs lost during the pandemic. I am particularly pleased with the performance of our single-family alternative business, our largest generator of conventional loans.

We achieved record originations of $2 billion in Q3 more than 3 times higher than last year when we constrained asset growth to control risk exposure and $251 million higher than the previous quarterly record set in Q2 2021. Retention rates also improved towards pre-pandemic levels.

By working hard to reinforce our standing with mortgage broker partners and support their businesses. These results prove that we have regain momentum as the market leader, all while maintaining our traditional underwriting disciplines.

For our personal bank, the other big news was a sharp increase in our wealth accumulation book. We are also at shot past the $200 million mark, led by a 229% year-over-year growth in reverse mortgage balances.

The reverse mortgage market is a sleeping giant, before entering it in 2018. We spent considerable time studying the high growth equity release markets in the U.K.

and Australasia and reasoned that Equitable had the opportunity to build a position -- a better position for growth propelled by underlying demographic forces of an ageing population. We also believed and continue to believe that innovation can benefit this market.

Competitively, the presence of just one more online lender in the entire Canadian market was also appealing. That lender was recently acquired by the Ontario Teacher’s Pension Plan.

What we understand was it an attractive price to book value multiple for the sellers. Meanwhile, CSB raised 127% growth year-over-year, with the third quarter addition of Foresters Financial, we now have arrangements with eight leading partners to bring cash to around about two lines of credit to their policyholders.

We are working to expand the breadth and depth of our relationships. On the commercial side, loan assets increased 17% to a record $10.1 billion, with record quarterly commercial loan originations of $1.3 billion, 14% ahead of last year.

The strongest contributor with conventional commercial, where production was up 53% year-over-year to $786 million. In comparison to 2021 targets, this commercial line was on or ahead of plan.

In interest of time, I will single out two. After experiencing elevated scheduled maturities in Q2, our Commercial Finance Group came back strong in Q3, with year-over-year loan growth to 21%, right in line with our annual objective.

With an equipment leasing, portfolio growth of 25% year-over-year was well ahead of our target range for the year, the drive in the transportation logistics sector of the economy. The credit metrics in this business is performing very well and I am delighted with the performance of this business since reported just over two and a half years ago.

We also set out to build stronger channels to market for both our multiunit and prime single-family assured mortgage businesses, as a means of improving franchise value and we are doing that, too. Our growth ambitions and our broader purpose of enriching people’s lives are very much supported by the fantastic success of our digital platform and fintech-related operations.

This year, we have added real substance to our claim we are making EQ Bank the hub Canadians rely on for the most important financial transactions and we are seeing the benefits. EQ Bank deposits grew 60% of 2020 to a record $6.9 billion at September 30th, against our full year 30% to 50% target.

Growth continued through October as EQ book deposits surpassed $7 billion and the number of customers increased to 240,000. I am proud of the fact that we reward all customers with good everyday rates and an even better experience.

While this means that we don’t chase hot money, it does say something really positive about our customer philosophy and the confidence we now have in the services we offer. In Q3, those services were well used.

Digital transactions increased 99% on a year-to-date basis. Engagement like this means EQ Bank is becoming more important in the lives of our customers.

One of those new services is the EQ Bank U.S. dollar account, launched in June to address the needs of financially savvy customers who want real-time exchange rates with full fee transparency and easier, cheaper, and faster money transfers and U.S.

dollars worldwide. It reached our annual deposit growth goal in the first quarter.

With ongoing account growth and now have nearly $150 million of deposits, it was formed a source of growing noninterest FX revenue for the bank. I know I am repeating myself by saying how proud I am of the U.S.

dollar capability we have built. But I do urge you to use this solution to really experience what a state-of-the-art digital bank is capable of delivering.

Our journey to enrich people’s lives continues. In late September, we launched a new e-transfer service.

Our regional capability was built using our minimum viable product philosophy. We replace this basic service with an innovative capability using the insights we gain by talking to customers.

There’s never been a better time to have a modern, flexible, cloud-based infrastructure. I’d say so not only because it enables us to serve Canadians the way they wish to be served, but because the future will see the modernization of Canada’s payments infrastructure and IA enabled [ph] banking.

The real time rail, a major part of the modernization effort, will arrive in the next couple of years, and the former national payment system that will enable fast data rich payments, giving Canadians the ability to move meaningful sums of money instantly and with certainty. We are readying ourselves in this path in several ways.

In the second half of 2022, we will introduce an EQ Bank payment card. True to our brand philosophy we will allow customers to use their funds to make e-commerce and in-store purchases along with cash withdrawals, all with no fees, attractive rewards and a seamless all-digital experience.

The EQ card will add an important new level of convenience for customers and cement our status as a fully capable hub bank. The card will also add an interchange based revenue stream for the bank.

We recently entered a six-year strategic arrangement with MasterCard as a formative step in all payments plan. That plan also envisages -- envisions offering credit card services to fintechs and others by positioning Equitable for what’s known the industry as a pin sponsorship.

Thinking more broadly, as part of our payment strategy, we are committed to connecting directly to the real-time rail. This would allow us to enable real-time payments and become a service provider for fintechs to connect into the RTR.

Another important milestone achieved in Q3 is that the bank became carbon neutral in our Scope 1 and Scope 2 greenhouse gas emissions. The details contained in a press release issued last night.

Our emissions per dollar of revenue are far low at branch-based banks. We will share more details of our ESG strategy in a new report next year and plans to set meaningful reduction targets that align with the bank’s purpose.

We think publicly expressing targets, whether for GHG or asset deposit growth gives all stakeholders a means to assess progress and hold us to account. Stepping back, it’s been just over a year since Chadwick joined as part of a broad organizational redesign and the realignment of the personal and commercial banking divisions led by Mahima Poddar and Darren Lorimer, respectively.

We made those changes to ensure that our structure and leadership is suitable for an institution that is far bigger and more capable than the Equitable of old. We also added more strength and depth in our management team with key hires and promotions in many areas of the bank.

I am glad we have the executive talent around decision making in Australian development that is increasingly aligned, well-aligned with our long-term ambitions. We absolutely have the proven management talent to take Canada’s Challenger Bank to the next level and detailed plans in place behind all of our 2022 targets.

Most important, our team numbering over 1,000 Challengers is aligned and ready to take on new possibilities with the creativity and discipline that has been so critical to record breaking performance this year. My thanks to all team members.

Chadwick, over to you.

Thanks, Andrew, and good morning, everyone. As a footnote to Andrew’s comments about leadership, we will also be sending out save the dates in coming weeks for an Investor Day that will land at the end of February or early March 2022.

At which time, you will see our broader team in action and in person. Results through the third quarter and first nine months are right on point.

As we close in on meeting our high growth targets for 2021. As expected, we made significant investments in order to create future shareholder value, while delivering the ROE, CET1, book value and EPS growth that rewards our owners today.

I am pleased to say that among Canadian banks, Equitable’s 2021 performance to-date continues to stand out. Through Q3, risk managed deployment of capital resulted in growth of 13% year-over-year and 6% quarter-over-quarter in AUM.

This reflected $3.8 billion of originations, up $1.5 billion from suppressed levels in Q3 last year. As Andrew said, we purposely skew growth in favor of wider margin conventional loans, all while remaining within our prudent risk appetite framework.

Growth in those assets, combined with wider spreads arising from lower funding costs, provided NII and NIM expansion in Q3 and a favorable tailwind for earnings in the coming quarters. The work we have done to broaden and improve funding sources is paying off.

Total deposits of $19.8 billion were up 21% year-over-year, including digital bank deposit growth of 60%. Quarterly revenue increased to an all-time high of $162.1 million, plus 9% year-over-year and plus 2% sequentially.

The outcome was our best quarterly earnings performance of 2021 so far, with Q3 diluted EPS of $4.14 a share. Just as a reminder, the numbers we present today are in a pre-split basis as a 2 for 1 common shares split occurred in the Q4 as of trading on October 26th.

Reporting on a new share count basis will be at the Q4 results. Compared to last year, Q3 EPS was lower by $0.16, half due to an increase in diluted shares outstanding, a third resulting from planned investments and a new capacity, digitization and process improvements.

And the remainder, the result of temporarily elevated gains in securitization last year due to COVID-related funding market disruptions. EPS, through the first nine months of 2021, was the best ever and up 38% from 2020.

On ROE, our bank delivered again at 16% in Q3 and 16.6% year-to-date, compared to our target of 15% to 17%. We chose to deploy more of our excess capital in Q3 to generate higher future earnings.

Notwithstanding, CET1 remained well in our target range of 13% to 14%. If CET1 was at our target floor of 13%, ROE would have actually been about 17.2% in Q3.

We think expressing excess capital versus the target floor rather than the mid-range of CET1, as we have done in the past, provides a more meaningful reflection of our excess capital. As in Q2, we did have a PCL reversal in Q3, reflecting improving economic variables.

Aside from the impact of PCLs, pre-provision pre-tax income was higher than in Q2 and in Q1, and book value per share shot ahead $105.80 a share after breaking the $100 barrier for the first time last quarter. Moving to funding, our markets continue to provide everything we need to grow.

With our recent success in adding more digital deposits, expanding our institutional deposit note program with a highly successful first issuance in -- of our European covered bond program, we have improved our cost of funds sequentially. We issued $350 million of covered bonds in September or more than $0.5 billion.

This was at a spread of just 15 basis points over euro mid swaps, which translates to this becoming the lowest cost of wholesale funding in our stack, more than 55 basis points cheaper than GICs. We were very pleased to earn participation by more than 40 net new international institutional investors across 15 countries, resulting in a 3 times oversubscribed first issuance.

These bonds are trading well since issuance and are now marked at a spread of 11 basis points over euro mid-swaps, about 4 basis points higher than issue, making it a successful transaction from both the issuer and investor perspective. We have seen this year’s approval to make this a $2 billion program and you can rest assured we will take full advantage.

We expect to be back in the market later in Q2 or into Q3 next year. I have mentioned this in past calls but I will reiterate that our program maturity with this early success, we can expect to see annual cost of funds savings of more than $11 million, higher than previous guidance.

We are well-positioned with liquidity of $3.2 billion at the end of Q3 and a liquidity ratio of 9.3% versus 9.1% a year ago. The combination of higher asset growth and lower cost of funds translated into Q3 NII growth at 18% year-over-year to $150.9 million and NIM of 1.83%.

NIM expanded both sequentially and year-over-year. In both cases, this is the result of the shift to conventional loans, particularly alternative single family.

Compared to 2020, NIM growth in Q3 was also due to higher levels of prepayment income within the personal bank loan portfolio. Sequentially, this was a headwind.

The highest yielding business line contribute -- continue to be leasing at 9.8% in Q3, which is a little lower than a year ago, reflecting banking success in growing its prime business, which has increased approximately 73% year-over-year. NIM for the remainder of 2021 is expected to be relatively consistent with Q3, as we continue to shift our mix of business to uninsured assets, while prepayment income declines from the seasonally high summer months.

Prepayment income is variable as are other factors such as seasonal variations in our liquidity holdings that may shift NIM in a given quarter. Currently, the bank’s non-interest income growth is heavily influenced by the recognition volumes and gains on sale, both of which were abnormally high last year due to funding market disruption caused by the pandemic and lower in Q3 this year as market stabilized.

This revenue from gains on sale is returned to normalized pre-COVID levels. In Q3, fees and other income grew 12% year-over-year.

This is an early reflection of our plan to increase the flow of non-interest income from new products like the EQ Bank U.S. dollar account.

It will take time to make this flow more meaningful, but we are challenging ourselves to work towards double-digit growth in non-interest income annually, outside of gains on sale, which are driven by other market factors. This will include flow from some of the payment innovations that Andrew mentioned.

Our new aggregator business, FX, continue gains from strategic investments in fintechs, wealth solutions and much more to come. On our last call, I said to expect expense growth to return to low single-digit quarter-over-quarter levels in both Q3 and Q4 after a big uptick in the first half of 2021 and that’s exactly what transpired.

Total non-interest expenses were up 3.8% sequentially. This means we continue to operate within our 2021 full year efficiency target of 39% to 41%.

After three quarters, we are at 40.3%. We expect to end 2021 within our target range.

We have been making incrementally smart -- more smart investments for the future, while generating our North Star ROE and keeping a lens to our best-in-class efficiency. We look at cost in three buckets of people, process and platform.

For people, we increased compensation costs 19% year-to-date and 3% quarter-over-quarter. The sequential increase reflected growth in FTE.

The year-to-date increase reflected talent additions, but also, more competitive compensation. We have world-class talent and need to compensate accordingly.

For processes, including corporate and marketing categories, expenses were down slightly quarter-over-quarter, even as we launched a campaign in June to support our reverse mortgage business, which contributed to sizable market share gain. Growth and process improvements over the first nine months reflect a marketing support for reverse mortgages in EQ Bank with good results.

In platform, Q3 product costs were up 4% quarter-over-quarter and 27% year-over-year. These are good costs.

We refer to them as investments as they will pay off next year and beyond. I think it’s worth noting that amortization and increasing technological programs can have an impact in this category.

5 percentage points of the 20% increase in non-interest expenses over the first nine months, was due to an overall higher depreciation and amortization. Within our 2021 guidance, we said to expect a continued positive trend in credit metrics and the reopening of the economy.

In Q3, we had a $3.5 million reversal of Stage 1 and Stage 2 as previously expected, credit losses did not materialize and I am pleased to say macroeconomic forecast improved across two key variables since Q2, unemployment and HPI. These positive macro variable changes resulted in a decline in expected loss rates on both Stage 1 and Stage 2 loans.

While the reversals occurred across all portfolios, our single-family and leasing portfolios benefited to a greater extent from this positive trending in our commercial real estate book. Of note, we do not make any changes to our five scenario rates and if our base case translates, we would be in a position to release potentially $4.2 million.

Our overall ACL now sits at $52.1 million, 80% lower compared to Q2 and 25% lower year-over-year, but still up from what we would view as a potentially normalized level of approximately $40 million. To put this into context, we currently hold 17 basis points in ACL, appropriately elevated from 14 basis points prior to the emergence of COVID, but gradually reducing to near normal levels as the economy continues to improve.

As a forward looking comment, we expect credit loss provisions on our loan book to remain low or reverse for the next quarter and into 2022, assuming the path to Canada’s economic recovery reflects our base case and losses remain low. Arrears in our personal bank and commercial bank are also expected to remain low with mid-term annualized loss rates of 1 basis point to 2 basis points for mortgage portfolio and 150 basis points to 200 basis points for equipment lease.

Gross impaired loans were down 40% sequentially and down 21% year-over-year. The improvement since Q2 was due to the resolution of two commercial loans amounting to $40.1 million, plus a $9.4 million net reduction in single family mortgages and equipment leases.

While we have a great track record of managing risk, we also know how to resolve problems when they occur. Moving to capital, the story of the quarter is about increased deployment to build an even stronger earnings platform for 2022.

RWA increased 8% sequentially to $12.4 billion in Q3. As a result, the CET1 ratio of 13.7% was down 7 basis points from Q2.

But as I mentioned earlier, this remains within a range of 13% to 14%. Compared to a 13% target floor, we now have access capital of about $88 million or $5.17 a share.

From our perspective, this is the best way we can deploy excess capital toward organic growth that will provide consistent and predictable NII growth in coming quarters. We are also pleased to gain strong shareholder support for a first ever stock split on a 2 for 1 basis with 82% of eligible votes cast and 99.9% support.

As I noted, shares began trading on a split basis on October 26th. This is part of our broader program towards closing what we firmly believe remains a material discount in our share price to fair valuation.

In closing, we are moving from strength to strength. Q3 has set us up perfectly to deliver on our annual growth targets and we expect to start 2022 in great shape, ready to take on the challenge associated with our new next level ambitions, as Andrew headlined this morning.

With that, I will ask the Operator to open the line up to your questions.

Hi. Good morning.

Chadwick, you highlighted the risk weighted asset growth, 8% sequentially. Clearly, strong loan growth is a big part of that story, but it doesn’t seem to be explaining everything.

So I am just wondering if there’s anything else driving that. I don’t know if it’s simply as business mix, anything you can add to kind of highlighting what’s driving that RWA growth that’s so strong on a sequential basis?

Do you want to go first?

Yeah, Chadwick.

Yeah. It’s -- what -- it is the conventional loan portfolio domain.

So as you have seen, a lot of our growth -- the focus of our growth has been the alternative portfolio in key commercial categories, including the great growth, say, for example, in specialized leasing right across the commercial book. So those have higher risk weights, of course, which are driving up the RWA in a faster pace.

But they are going to translate with better margins and that’s part of why we had that conviction in improving NII growth from here. That’s really the heart of it, because of course, again, when you look at the pipeline on when the loans were booked, it was sometimes that can land a little bit later in the quarter, right?

So you see the RWA go up, but the earnings are not yet reflected as the CET1 dropped a little bit.

That’s -- I’d say many of them just to reiterate what Chadwick said. To finish that, I think it’s important to reinforce that you are not really seeing the earnings growth from that risk weighted asset growth flow-through into in its entirety this quarter.

But obviously, we start at the beginning of October in great shape, because we have got those assets on our books. But I would say that September was where we started to see a lot of the asset growth.

The other thing is just similarly on the covered bond side. The covered bond was issued quite a bit towards the end of the quarter, so we didn’t really see much benefit from that in the current quarter.

But in the quarter we are just reporting, but in this current quarter, we should start to see that flow through.

And then, just in terms of the outlook for RWA growth, based on your guidance for 2022, it seem like you are expecting RWA growth to moderate in 2022. Just wanted to check your thoughts on that?

Yeah. I think a little bit.

I mean, clearly, we have seen some dramatic growth in the alternative single-family business. We continue to believe that the market’s in great shape and we are really well-positioned to continue to gain market share within it.

But, nonetheless, I think, our guidance as we have commented in the script is based on a slightly more normal cadence for the sales in the housing market.

And then in terms of the outlook for 2022, I am not sure if you mentioned it, but what’s baked in, in terms of your rate expectations for 2022 underpinning some of the guidance that you provided us?

Yeah. We don’t really build in any rate expectations.

So we don’t see that as -- we haven’t certainly built any kind of increase in NIM based on rates going up. I did kind of allude that to that in my comments around a belief that as prime rates increase, for example, that we wouldn’t follow lock step in the EQ Bank side of things.

So there may be some reasonable NIM to be captured if you do see prime go up that hasn’t been factored into any of our projections at this point.

And then just one more for me on that front, you highlight portfolio growth expectations for 2022 over a number of categories. But I am wondering if you kind of sum it all up, how does loan growth look relative to the 8% to 12% range that you gave for 2021.

What would you expect for 2022?

Yeah. It would be more -- so the average for this year was more in the -- that 8% to 12% range.

The next year it will look more in the 12% to 15% range.

That’s it for me. Thank you very much.

Thanks, Meny.

Yeah. Thanks.

Good morning.

Good morning, Jaeme.

First question is on the payments card launch, if you could maybe just give us a little bit more color as to what you are expecting from customer acquisition, client retention and potential revenue coming off of that interchange fees or is there anything else that we should be thinking about on that on the payments card launch?

Yeah. So -- thanks for that question.

So the -- we know from a customer research, we do have some really interesting conversations with our customers and that really drives our thinking about where to go next with the product. There are a significant number of our current customers and particularly some customers who choose not to sign up with us, because they believe they can’t make payments or direct cash.

So, the principal part of the play, at least for this at this point for us is to eliminate that objection and allow them -- allow people to use the EQ Bank product as a much more fundamental source of -- much more fundamental -- more fundamental relationship. It will be -- we almost have to get there and deliver the card to see how that will play out.

Now in order to -- there is obviously a cost around building a card solution and so in order to both defray our costs because we can spread them across a broader range of services, but also provide useful services to our -- many of our partners already in the fintech community, we will be launching that BIN sponsorship approach, so that for a non-regulated FII that want fintechs that want to offer a prepaid card solution, we would be the card -- we would be the bank underlying those solutions. So, those two elements -- two sides to the story.

The interchange revenue, I think, will give you sort of better guidance when we get to, say, the Investor Day in the early part of next year. We are not building a lot of interchange revenue associated with this from our own operations.

But we do already see significant revenues coming from third-party services. We currently have one third-party fintech under contract with us to deliver the service.

We have got three inactive state negotiations. We are seeing some pretty good interest in the solution.

Okay. So both interchange and third-party fee is going to be the revenue component from a payment card.

Is -- this is -- I would assume this is like step one. You have also step two, three, four to add other new payment options like credit or with the e-commerce platform, anything with respect to the buy now, pay later where you have made some investments in the past?

I mean, certainly, we have been looking and poking around buy now, pay later, though, haven’t really pushed hard there. Clearly, as we start to get into payment cards, there may be a the need for, some of our customers may see some benefit in providing lines of credit that support, temporary cash demands.

So, certainly, that’s where it leads you next. To-date, we see that payment card is functioning more like a debit card, a way to make a payment from money that’s already in the account.

Okay.

The key feature is great, key chain [ph] as well, of course, with the payment solutions, so that’s the direct questions you asked. But as you can appreciate, this is part of rounding out the entire digital bank, right?

This is one of the top requested solutions by our customers today and we believe this will help further increase customer acquisition, improve that ratio of customer lifetime value that the customer, customer acquisition and further engagement, which we published more products to bring them in. So we are looking at the whole economics as it starts to come into play.

I am really excited about that. That momentum we are going to establish.

Excellent. Second thing was just on the all pay single-family book, obviously, really, really strong growth in originations.

I think it was it all pay originations were $2 billion in the quarter, which is obviously really strong result. Can you talk about what you are hearing from the boots on the ground in terms of market share competitive dynamics?

How is that market -- how did that market play out in Q3? And then, what are some of the adjustments you are looking at today in the all pay space as we are seeing five or six interest rates back up a little bit?

Yeah. So the adjustments you make are effectively as we change pricing, things like GDS, TDS, automatically, people like to have more income, so that that’s an automatic kind of credit adjustment, if you like.

Certainly, we are hearing that our team are doing a great job on customer service. We are engaged with the brokers.

We have delivered some pretty good technological solutions in the first half of the year or the first three quarters of the year that are making easier to deal with. And we expect to have some more advancements, a pretty significant advancement launched before the end of that end of this year to continue that journey to really excel on customer service, which has really always been our calling card.

So I am pretty excited about how this business will be positioned coming into next year and that’s in contrast with how we started last year. And as I have mentioned on this call in the past, it’s on me, but we were overly cautious last year, in the middle of the year and the cost of fraying of the broker relationships with a -- it turns around in retrospect overly sensitive view of how the credit might play out in the face of the pandemic and so it’s -- team has done a great job frankly rebuilding those relationships and with it delivering digitally enabled the innovation that I think it’s going to take us up to the next level there.

Okay. And do you feel from your conversations that you would grab some market share here or is this more a case of the industry doing really, really well as a whole?

We certainly are standing from kind of boots on the ground, feedback from our sales team, business development managers and from the data that we get. We do have some proprietary data around market share.

It’s not entirely clear, it’s not entirely crisp and it is a bit more focused in Ontario rather than more easily available in Ontario than other provinces. Certainly, our understanding, we obviously see as the other people participate in the space report, but certainly, our belief is that we have gained share.

Great. Thanks very much.

Oh! Hi.

Good morning. Just on the interest rate/mortgage rate side, as we started to see interest rates rise here, what are you seeing in terms of mortgage spreads both on your alte and your commercial book?

Essentially, they -- those spreads remain the same as we have mentioned many times. We use our ROE calculator to calculate the spreads and returns we are driving.

When rates move very fast, things can get a little bit out of whack for a short period of time. But we are pretty quick to adjust, so suddenly seeing spreads being well-maintained.

We are probably in this period of what looks like some pretty significant volatility coming in interest rates will need to be on our toes to keep adjusting rates. But basically we compete in the old space, with other people that fund through similar mechanics than us most of the funding coming out of the broker GIC market.

We also have some really good funding sources and covered bonds now, which are cheaper than GICs. And our proprietary channels for EQ Bank, which may give us a slight funding advantage views of the major competitors.

But broadly speaking, we didn’t have the same kind of cost structure there, similarly on commercial. So commercial is much easier because it’s priced on a loan-by-loan basis and people understand that we are always thinking about that.

We do have to be a bit more rapid to change in the single-family business, which is more of a rate cut type of business. But those rate cuts do change fairly frequently as we see underlying rates change in the market.

So I do think compared to many other types of financial services, we have a pretty good position to push rates through, as well as our ongoing funding cost arise

Okay. Appreciate that.

On the funding side, so my math tells me the deposit notes and your covered bonds represent about 8% of your deposit mix today, where would you sort of be targeting to see that by the end of 2022 perhaps?

Yeah. Higher, for sure, Graham.

So we -- you are right, the deposit note program where Andrew was mentioning our competitive position with funding the markets were -- as our program has matured, in some cases, we are seeing spreads even tighter than GICs as well and in deposit notes and then covered bonds we see higher. So to answer your question, we would see covered bonds being at least double from where it is now.

So it kind of, you call it, 2% go to 4% kind of thing. In deposit notes, it’s probably it’s a $1 billion program right now, you may see that another 50% increase by next year.

So if you do the math on that and assume this level of growth rates too that we have projected for EQ Bank, you can kind of build that funding stack up also and we are seeing another 20% to 30% growth in EQ Bank deposits. So that get updated perspective and then broker GICs would come down a little bit more on funding stack, so net-net some tailwind.

Just to follow up on that, the one number that’s important in terms of dropping in the bottomline is how much we do in deposit notes in covered bonds and when we do those, broadly speaking, the deposit note cost is roughly speaking the same cost as any day any market -- day in the market, but roughly speaking, the same prices or same cost to us net-net as broker deposit. So in terms of your models, I don’t think we are particularly sensitive to the growth of deposit program, although it’s great from a safety and diversification of funding basis.

But clearly, saving that 50 basis points or so on covered bonds becomes really important.

Okay. Understood.

I thought deposit notes were a cheaper funding versus as well just covered bonds that’s where you are going to get the funding cost benefit?

Yeah. I mean, deposit notes sometimes they could be 10 times cheaper for that sort of thing.

It’s not as though they are not, not those completely inconsequential. But I think when you are building out an aggregate model of the bank it’s probably not going to be a big driver.

But the covered bonds, certainly just because the delta is that much bigger with more sensitivity to the

Okay. And my last one, if I could, just with the rollout of payments and I think you said the second half of 2022.

Any material expense associated with just the infrastructure or the marketing behind that or should we expect that to just be embedded within a reasonable expense growth rate that we are sort of seeing this year?

Yeah. I mean, of course, as you are building these new programs generally are capitalizing all of that cost so that that can start to kick in the second half next year.

But none of that, obviously even Chadwick’s projecting our kind of efficiency ratio, the ROEs he’s projecting, that is how the team is doing that build up, so nothing that you should be overly concerned about.

Understood. Okay.

That’s it for me. Thank you.

Thanks, Graham.

Hi. Good morning.

I just had one question is, as you look to get your transition to AIRB at the start, I think, it’s 2023. Are you able to talk about in terms of where the areas of your loan book that you would get the most risk-weighted asset relief, in particular just curious if that changes your appetite on where you want to grow the business versus what you are doing right now?

I think Ron’s can maybe add some more color in what I am saying. Certainly, we expect in our current business we would expect pretty significant capital relief, single-family mortgage business and in much of our commercial business.

It does become a bit more nuanced in our commercial business to some parts of our business where capital relief would be more significant and I do think it will allow us to compete in better quality commercial assets by the risk weights, we reflect the fact that we are lending on lower risk assets or things like cash flow, apartment buildings will become an area where we can become more competitive the post-ARB than we are today. So it will change the mix of our business and I think generally, move it to a less risky asset business.

Ron, you are deep in the weeds on AIRBs, does that kind of align with your thinking?

It absolutely aligns. Geoff, the only comment that I would make in addition to what Andrew said is, recognize that typically, when a bank is blessed with the AIRB approval from the regulator, the capital savings are typically staged in over a period of time.

It could be three years, four years, five years and so it gives management a lot of time. It’s not a cliff like effect where we would immediately change the composition of the book.

It would be a very gradual change. Your question was directed at specific business lines, but we are -- when you become AIRB, you do have to hold a certain percentage of capital at the top of the house.

So management will have some, some very interesting decisions to make in terms of how we deploy capital to the various businesses. But if you think of it being staged over time, limited at the top of the house, you could, I think, it helps you understand it would be a gradual shift into some of these areas that Andrew has referenced.

And, Geoff, just to kind of reinforce, I mean, which is the way we think about this is, there’s two things that really excite me about AIRB. One is to be able to support our clients over a longer lifespan.

So today I find it really frustrating that we help a customer build an apartment building, for example, fill it with tenants, get to a lower risk type of asset and then we can’t compete with AIRB banks because that asset is now safer, and therefore, they are able to use lower risk weights. So in a new world, we would envisage holding, high risk weights on that asset.

We first put on the books, lower the risk weight, as the risk weight drops and be able to support our customer over a longer period of time and it should be relatively cheap for us to service our customer because we will obviously have the history of that client relationship. The other thing is that the bank is becoming more sophisticated and we will show this to you in spades and in our Investor meeting in the spring.

But as we become more sophisticated, we need to have better ways to measure our credit risk across the various books and be entirely objective about how we are allocating capital. So ARB allows us to do that and we are well aware that on a standardized approach to this, some sort of approximations to risk being used and when we think about that a lot.

But ARB allows us to align our capital allocation with the true underlying risks.

And maybe, if I could just a quick follow up on that is to your comments around the single-family residential book and your alte book. Do you foresee, I mean, does that allow you or do you plan to be kind of use that to your advantage in terms of improving further your competitive position in that space?

Certainly, I think, I believe it opens up that opportunity. And today, as you know, we have -- you have prime mortgages and you have alt mortgages and we -- all of those mortgage are risk weighted 35% under the standardized approach.

Big banks are risk-weighting their mortgage books in somewhere in the 10% to 20% range, so much, much lower. And clearly, there are buckets of risk within the mortgage business, but within the all-time prime mortgage businesses that should quite correctly demand different risk weights and so we will be able to be more finely tuned as a bank in terms of which parts of the space we choose to compete in based on the pricing that we can demand in the marketplace for that component and the risk weights that should be applied.

Okay. Thank you.

Well, thanks, Pam. If you would like to engage on any of the topics we discussed today, our door is always open.

Thank you for your time and attention and have a great day.