Earnings Call: Q4 2019

Feb 25, 2020

Good morning, ladies and gentlemen. I'd like to welcome shareholders and analysts to Equitable's fourth quarter 2019 conference call and webcast. Later, we will conduct a Q&A with participating analysts on the call. Before we begin, I'd like to refer you to slide 2 of the presentation regarding the company's caution regarding forward-looking statements. This presentation and comments may contain forward-looking information, including statements regarding possible future business and growth prospects of the company. You are cautioned that forward-looking statements involve risks and uncertainties. Certain material factors or assumptions were applied in making these statements and could cause results or performance to differ from forecasts or projections expressed by these statements. Equitable does not undertake to update any forward-looking statements, except in accordance with applicable securities laws. This call is being recorded for replay purposes on February 25, 2020. It's now my pleasure to turn the call over to Andrew Moor, President and CEO of Equitable Bank. Please proceed, Mr. Moor. Thank you, Megan, and good morning, everyone, and welcome. I'm joined by Tim Wilson, Chief Financial Officer of the bank. We have lots to discuss today, including record earnings, a planned step up in investment spending to strengthen our ability to grow and provide exceptional service, and our expectations for earnings and asset expansion in 2020. The fourth quarter introduction of our EQ Bank international money transfer service also deserves headline coverage. This is a groundbreaking innovation that enables our customers to instantly transfer funds in over 32 currencies through the EQ Savings Plus account at a fraction of the cost charged by Canada's other banks. By a fraction, I mean our service is up to eight times less expensive than what other banks charge. All it takes is 30 seconds and a few clicks. Whether it's India or England, money is transferred to the destination of choice instantly. While the payment mechanisms in some of the other 70 countries we cover are not quite this fast, the convenience factor of our new service is superior. It's built purposely for an interconnected world and perfect for those with children studying abroad and Canadians with loved ones in other countries. I'm really proud to put the EQ name on a service that exemplifies all the best qualities of entrepreneurialism, creativity, and partnership that make Equitable Canada's challenger bank and a forceful contributor to better banking for all. While the express purpose of this call is to talk about Equitable the company, I would go so far as to say it's impossible to really appreciate Canada's challenger bank without trying our international money transfer service. It's guaranteed to save you money. And a bit like a TV pitchman, I'm prepared to stand behind the claim that you're going to be delighted with our approach. I'd be happy to take your calls if you're anything less than totally happy. Please give it a try. Before discussing our most recent developments and apropos of our challenger bank mindset, I'd like to disrupt the standard operating practice to talk about something more revealing than a single quarter of performance, the bank's progress over the past decade. As business leaders, we often pledge to manage for the long term, but rarely talk about long-term results. With the 2010s in our rearview mirror, I think it's the ideal time for such a reckoning to reflect back to the past for lessons and insights that we can use to our advantage in future years. I offer my comments today in the spirit of accountability, and as my personal commitment to making the next 10 years as rewarding for our shareholders, customers, and partners as the past 10. When I say rewarding, it may surprise some of you to hear that Equitable is the best performing bank on the TSX over the last decade, with a total return of 500% from January 1, 2010 to January 1, 2020. Compared to the average of the other eight banks on the TSX Composite Index, Equitable's return was more than 300 percentage points higher and almost double that of the next closest bank. We know there are a lot of drivers of total return. While managing with a long-term operational view, we made strategic decisions that had a very positive impact on these drivers. Specifically, over the decade, we paid CAD 120 million of dividends and increased the dividend rate 21 times with average annual growth of 12%, and have now committed to increasing dividends 20%-25% per year through 2024. We retained 89% of our earnings and invested to deliver an adjusted ROE of 16.9%, 1.1 percentage points higher than the average of the other eight banks. As a result, we grew book value 14% annually. We grew EPS by an average of 14% annually, compared to 9% earnings growth for the other banks, and did this while maintaining a conservative risk appetite. We maintained our status as the most efficient of all publicly traded banks in Canada due to the structural advantage of our branchless operating model by working intelligently to reduce costs and increase productivity, and delivered an efficiency ratio more than 27 percentage points better than the average of the other banks. We nurtured our unique culture and advanced an agile technology platform to provide our customers with more convenient and innovative services. We positioned ourselves in diverse, profitable segments of the market as Canada's challenger bank. I recognize this is a clinical analysis, devoid of a description of the many significant developments that actually made this performance possible. It doesn't tell you what we learned in the process of delivering the banking industry's best total shareholder return. So on a more personal note, here's what the past decade tells me. First, a competitive strength in banking comes from customer service, not just size. While we have grown from 183 employees to almost 900, Equitable is by far the smallest headcount of any bank in the TSX Composite. But we punch way above our weight when it comes to quality service, a passion for delivering value to our customers, and employee productivity. We started the last decade with a view that service would be our passion, a message that headlined our 2010 annual report. We said at that time that no matter how quickly we grow, service will always remain our strength and the cornerstone of our business. I am really proud to say that this remains true today and will be the case 10 years hence. Over the next decade, Equitable will continue to lead the way in developing innovative digital banking capabilities that will continue to transform the meaning of service for the better. We don't take our service-embedded culture for granted, which is why we work really hard to recruit people with the right skills and attitudes and reinforce our culture at every turn. Some of the biggest strides we've made have come in the areas of people development and retention. What we've learned will help us to sustain our culture and avoid the complacency that can easily set in when things are going well. The past decade has also proven that delivering service and gaining market share without branches is possible in Canada, provided that we make banking better through innovation. Today, Equitable wins customers by reimagining banking concepts and services so they are more appealing to Canadians. We then use our branchless cost structure advantage and increasingly our technology to create a differentiated value proposition. EQ Bank is a great example. In just four years, our award-winning digital platform has become the home of over 100,000 customers on the strength of the value it provides to customers and continuing innovation. We started with the EQ Savings Plus account, which fundamentally altered the way Canadians bank by combining the best features of a checking and savings account, including the ability to pay bills and the ability to earn high daily rates of interest. With this platform well established, we are on an aggressive product development path with plans to add many more digital banking services. Becoming the first in Canada to have our core banking system in the cloud allows us to increase the pace of new product launches at a low cost and keeps us at the forefront of where banking is going in Canada as we move to an open banking environment. With our technological skills, the migration of our core banking system to cloud, our fintech partnerships, and the capacity to make meaningful investments in innovation like international money transfer service, it seems to me that we occupy a pretty unique spot in the banking ecosystem. Over the next 10 years, the onus is on us to pick spots like this that challenge outdated, expensive, and often opaque banking practices. It won't be easy, but entrepreneurialism is one of the traits we have nurtured over the years within our workforce and a characteristic we must continue to advance. The past decade has also illustrated the importance of applying discipline in everything we do, especially risk management. While the 2010s were free of recession, there were certainly risks at play in the housing market and a short-lived but very real disruption in the funding markets. Equitable's ability to successfully manage through these events and maintain industry-low loss rates is a testament to an effective risk management framework we've continued to refine over the decade with guidance provided by our experienced board of directors. It's also a reflection of our uncompromising belief in making decisions that are in the best long-term interests of the bank, our shareholders, and depositors. 10 years ago, as today, we operated within a strict risk appetite and never stretched in order to achieve our growth objectives. Our framework, along with the broadly positive Canadian economic conditions, resulted in an average provision of a credit loss of just 5 basis points over the decade. In contrast, the average net realized loss rate for the other 8 banks was 28 basis points. That said, Equitable has changed and improved as a result of risk management discipline. For one, we have greatly diversified our deposit channels. Our direct consumer offerings through EQ Bank, the growth of our strategic fintech partnerships, the advancement of our deposit notes program, and later this year, the planned introduction of a covered bond program, make us stronger by complementing our traditional and still important brokered deposit channels. We also diversified our asset gathering operations in part by developing a set of banking solutions to serve Canadians in retirement, what we think of as our decumulation business. As the population ages, the demand for our decumulation services, including reverse mortgages and insurance-backed lines of credit, will only grow. Equitable's traditional commercial group also stands to benefit from many industry trends, including funding the construction retirement residence, expected to need more than CAD 140 billion of capital over the next 10 years, in which we have a longstanding expertise as a funder of choice. Geographically, we've expanded our presence to every major city in Canada, and this past year entered the leasing market through Bennington. Bennington does not stand alone in our thinking. It's an indication of where we're headed with the broader strategy of serving the small business community. Despite its critical role in driving economic growth, this community is not well served by traditional financial institutions, but is served not only by Bennington, but by Equitable's Business Enterprise Solutions team. We also see opportunity to add services for small business through our digital bank. Overall, we have more runways for asset expansion and more ways to create value in a risk managed way. In context, we grew more in the past decade than in the previous 4 decades combined. I expect the 2020s will hold more of the same. I firmly believe that we have a relatively rare skill for a bank in identifying market opportunities and in launching, nurturing, and growing new businesses. When you look at our track record over the decade of building our alternative mortgage business from being a relatively small player to the largest in the industry measured by assets, or the launch and growth of our digital bank over the past 4 years, you can see the evidence that underpins this belief. I feel similar levels of excitement about our reverse mortgage business where we are learning by doing. Recent changes to product design and pricing are giving us traction in the market. Similarly, the team running our CSV product line is fired up, and it's a joy to see the enthusiasm with which they are tackling the challenge of building a new business for the bank. Commercial lending is also gaining traction in other new growth areas through our Specialized Finance business. It serves the need of specialty lenders and already has over CAD 239 million of loans outstanding. We're very encouraged by this business and its potential. The final takeaway from the past decade is that Equitable's value creation system has stood the test of time. It is built on discipline in the form of prudent capital allocation and deployment. From our pricing discipline with our ROE calculation tools at the front line to our senior management and the board, we are fully aligned around the goal of allocating capital to optimize long-term returns to our fellow shareholders while delivering value to our customers. I describe the Equitable value creation equation in detail in our 2015 annual report, and the results over the years bear witness to its effectiveness. It is remarkable how closely this value creation approach has played out since it was published, and I would suggest you look at my CEO letter from that report as proof that our value creation story was no accident, but rather good execution of our plan. As a reminder, we look to pay out a growing dividend while retaining the bulk of our earnings. We are then disciplined in deploying the retained capital to opportunities only if they exceed our return thresholds. Our high and consistent ROE is evidence of the success of this approach. To conclude this retrospective, I would say that we've come a long way in firmly establishing Equitable as Canada's challenger bank. In particular, we validate our core principles, one of which is to invest and spend with a long-term view. Despite growing earnings every year to the point that we earn more in Q4 than we did in all of 2010, we are not driven by short-termism. With this leadership team, we never will be. This is a natural segue to 2020 and our outlook. We anticipate Equitable's earnings growth will again outpace that of the broader Canadian banking industry this year. More specifically, we expect earnings to increase in the range of 4%-8% as a result of loan growth of between 8% and 12%, stable margins and low provisions for credit losses. In spite of a significant increase in planned spending, the benefit of which will not be fully realized until later years. While net interest income should increase in the range of 7%-11% in 2020, expenses will be up between 15% and 18%, so bottom-line growth will be below our 10-year average of 15% as we absorb the short-term cost of investing an additional CAD 30 million to CAD 35 million in important strategic initiatives. Many of these investments are outlined in our MD&A. Most notably, we intend to increase our marketing spend for EQ Bank, launch covered bonds, and make investments in our retail lending servicing. These investments will keep Equitable at the leading edge of our chosen markets and drive even higher long-term shareholder value. We apply rigor to calculating the NPV of any project and believe our shareholders are best served by this view versus the timing of flows through the statements. Even with this spending, adjusted ROE in 2020 should be between 14% and 16%. Can Equitable be the performance leader among Canadian banks in the 2020s? You can be certain that our team will show up to work every day over the decade ahead, ready to deliver value to our customers in a manner that will replicate this industry-leading performance. Based on our fundamentals, everything we've learned, our plan for growth and investment, and the changing banking environment that plays to our strengths, I know we can lead the industry again. Now I'll ask Tim to provide his report. Tim? Thanks, Andrew, and good morning, everyone. To underscore the message that we manage to the long term, we introduced a new table in our MD&A that contains medium-term targets for adjusted ROE, adjusted EPS, dividend growth, and our CET1 ratio. I think the numbers in this table illustrate that we intend to hold ourselves to a high level of performance going forward, as we have in the past. Turning briefly to Q4, Equitable delivered year-over-year earnings growth of 23% and an ROE of 15.9%, both on an adjusted basis. This was another record quarter and certainly a great way to cap another record year. Turning to Q4 asset growth, all categories were up, with growth more heavily weighted towards our prime portfolio. Alternative single-family grew in the quarter, but at a slower pace than is typical for that portfolio, as increased attrition offset a healthy level of originations. Attrition has increased since the middle of 2019 as other banks have adjusted to revised B20 regulations and appear to be offering more competitive prime rates to our alternative borrowers at loan maturity. Early indications in 2020 are that growth in this portfolio is picking up momentum, and we are confident as we can be at this point in the year with the 5%-9% growth outlook provided in our MD&A. The increase in our commercial portfolio was the result of growth in our conventional commercial and insured multi-unit residential mortgage portfolios with a good assist from Bennington. The increase occurred due to higher originations and despite an increase in attrition levels in conventional commercial. The change analysis slide in our deck quantifies the year-over-year impact of the various drivers of our profitability, and once again, asset growth was the most significant factor. From this same slide, you will note the change in operating costs of $0.67 per share since Q4 of last year. As a reminder, the addition of Bennington represented $0.27 or 40% of that increase. We also spent more on operations in support of our growth strategy, including higher marketing expenses for EQ Bank, part of which supported our international money transfer launch. The way we think about this as a management team is that the NPV of a new EQ Bank customer over the account's life is likely to be more than five times the marginal cost of acquisition. The accounting result does not follow this economic logic, with the cost of acquisition being expensed up front, while the benefits accrue in later periods. On our last call, I mentioned that costs related to cloud migration would be around $1.5 million in Q4. Actual costs in Q4 were CAD 1.3 million. Migration costs are now behind us and will drop to zero in Q1 of 2020. That said, we will spend more in 2020 on IT generally to advance our innovation agenda and more on our digital platform to prepare us for the next 10 years of growth and advancement. As you may recall, we thought our Q4 efficiency ratio would be towards the top end of our full-year range of 40%-42%. It came in at 40.6% for the quarter, in the middle of that range, and 40.2% for the year. Factoring in the expected growth of assets and the increase in spending that Andrew mentioned, our efficiency ratio likely will be at the high end of the 40%-42% range in 2020. Even so, we expect to remain Canada's most efficient bank, and by a margin. Moving on. Q4 NII was up 32% year-over-year, mainly driven by a 17% growth in our average asset balances and a 20-basis point increase in our NIM. In general, NIM has improved since Q4 of last year as a result of adding higher spread equipment leases through Bennington, earning higher spreads in our retail and commercial lending portfolios, paying lower fees on our recently downsized and lower cost secured backstop funding facility, and prepayment income. Looking at more recent margin trends, total NIM expanded by three basis points from Q3 to Q4 to stand at 1.78%. Q4 NIM was slightly higher than our expectations due to higher prepayment income. For 2020, our outlook suggests that NII will increase at year-over-year rate between 7% and 11%. Once again, a high level of loan growth will be the primary contributor. In the meantime, NIM should be in the range of 1.65%-1.75% for the full year 2020, just below the final two quarters of 2019. A large reason for this decline will be the MICs. We expect low margin prime business to grow the fastest. Margins in each of our major businesses should be roughly stable. In the first two quarters of 2020, NIM will benefit from the reduced cost of our secured backstop funding facility. On credit performance, the Q4 PCL on our mortgage book was low and in line with our historical rates. Bennington's PCL was slightly higher than our anticipated long-term annualized loss rate of 1.5%-2%, but as a reminder, we earn higher yields to compensate for this cost. Impaired loans at the end of 2019 were CAD 122 million, stable with Q3, but up CAD 84 million from 2018. This balance included CAD 26 million of impaired equipment leases, the majority of which were added at the time of our Bennington acquisition and a CAD 39 million commercial mortgage that defaulted in Q1 of 2019. We are still of the view that we will not realize a loss on this mortgage, given its 39% LTV and the fact that the property is well-situated in Vancouver. One final item of note, we pushed our CET1 ratio up again during the quarter such that it returned to the middle of our target range of 13%-14%. As a result of the Equitable value creation strategy that Andrew mentioned, our earnings typically add about 50 basis points to our CET1 ratio each quarter. After hitting a low of 12.9% at March 31st, over the ensuing three quarters, we added a net of 70 basis points to it after asset growth and innovation investments, partly by deliberately restraining commercial growth through to the middle part of the year. On the strength of this ratio, we've taken to suspend the DRIP program effective yesterday. This concludes our prepared remarks, and now we'd like to invite your questions. Megan, can you please open the line to analysts who have questions? Certainly. At this time, we'd like to take any questions you may have for us. To ask a question, please press *1 on your telephone keypad. Our first question is from Nik Priebe with BMO Capital Markets. Your line is open. Okay. Thanks. Just want to start with a pair of questions on just some of the guidance that you've established for the year ahead. It sounds like some of the investments that you have planned will cause non-interest expense growth to run ahead of revenue growth, at least in the short term. I'm just wondering if you could provide a little context around whether you consider 2020 to be a bit of a peak spending year in that regard, and maybe just what you would consider to be a good, I suppose, long-term goal in terms of efficiency ratio for the bank. Yeah. I'll let Tim sort of handle more the numbers sort of side of that. We have some strategic projects this year. For example, covered bonds cost money to set up the program. You actually expense as you develop the program. We expect there to be savings on. We expect the cost of covered bond issuance to be through GICs, and actually through GICs by a kind of meaningful amount. So obviously we're not picking up the benefit of that until we really have the assets deployed against those bonds. Similarly, and I think we referred to it in the call, marketing and advertising EQ Bank is an expense in the period, and then you get the benefit over a multi-year period. I would emphasize, we are pretty disciplined about laying out the NPVs for the cash flows from these kinds of experiences to make sure that it's actually going to deliver value for the shareholders. I think it's likely that those kinds of, what I would regard as they're not accounting aberrations. I wouldn't claim to try and settle the accounts or anything, but it's more around when you actually think about the economics, we're taking things that run through the P&L upfront and deliver benefits later. Tim, I don't know if you can provide some more color on how you think about it too. Yeah. Nik, I would say in my view, it is a peak year, not necessarily from a dollar expense point of view, but from an efficiency ratio point of view. I think our efficiency ratio will come down from the level that we realize in 2020, hopefully over the long term to a range of about 37%-39%. I think that's the reasonable goal for the company. It may take a few years to get there. But the absolute dollars of expenses will likely keep growing as we grow the overall franchise and invest to support it and hire underwriters, as an example, to support the single-family portfolio. Got it. Okay. No, that's very helpful. Just one other for me. There was a comment, I think Tim, in your prepared remarks, just about how some of the larger banks have been renewing alternative borrowers and prime products, and I guess that's caused a bit of an uptick in the attrition rate for the alternative single-family portfolio. I've always thought what kept the larger banks away from the Alt A space was, I guess, in part, challenges with income verification for self-employed, as well as some other factors. Do you get the sense that the larger banks are maybe willing to accept lower Beacon business? Or I guess I'm just looking for your read there, or a little more insight on some of the competitive dynamics in that space. Yeah. It's certainly our sense that the competitiveness, the demand for assets is causing them to take a different view than they have historically. Although it's interesting, we actually seen a sort of fairly good flood of business for the last week or so to suggest that perhaps somebody from the executive team walked down to the mortgage floor to figure out what's going on. There's certainly, I think as you've heard from other bank CEOs, there's a demand to try and get more mortgages on the books. There's certainly some mortgages that we're losing to prime A Schedule I banks. When we look back at the file, then obviously we have the record of who that borrower is. It surprises us that they're being taken into the prime world. We have a prime business ourselves, but we cannot make those loans fit the prime GDS, TDS kind of qualification levels. They fit well within our book, but they do not meet that sort of standard or demand that kind of pricing. I would say these things do tend to kind of ebb and flow, and so that may be the kind of I would say that we had more of a view about this about a month ago than we do today, frankly. Today, I would say we have got a really strong positive tone to the business. Of course, it can change again. But right now we feel like in a bit of an upswing. Yeah. Okay. Thanks very much. Our next question is from Jeff Fenwick with Cormark Securities. Your line is open. Hi. Good morning, everyone. Just, I guess, a follow-up on that competitive dynamic. As you mentioned, the banks are being aggressive there, and sort of hurting you, I guess, on the attrition front. But you do have some pretty aggressive prime single-family growth targets for this year. So what makes you feel confident you are going to be able to grow at that rate if the banks are getting more aggressive? I think our prime business is driven by entirely different dynamics. We are linked with some great brokers, a lot of whom are using technology to originate loans and like us as a first choice. I would remind you that our prime products are better than the big six products in the sense they have lower break fees, and people really understand the value should be coming to us rather than going to the more conventional lenders. We are slowly making traction on that. It is still a small business for us, the prime business, frankly. I mean, it is a great business. We have a great team there. Until we get to the renewal cycle five years down the road, it is not particularly important from the overall profitability driven by the company. Over a five or 10-year view, it is going to be much more positive. It is a strongly important business from us in building a franchise with the brokers and our brand and our reputation for service. That is really the focus on that side of the business. As a reminder, in the prime business, we are a price taker, whereas in the Alt A business, we kind of set some of the pace there. Okay. Then with respect to the uninsured business that you are doing, any thoughts here on if OSFI goes down the path of easing the stress test regs the way they are doing on the insured product? Do you think that could help stoke the demand for your Alt A business? Certainly our assessment is that it is not particularly meaningful to us. I think frankly the press is overblowing the change here. I think really all that OSFI is doing is making the adjustment to what they originally intended, which was roughly speaking 200 basis points over contract rate where historically posted has always been about 200 basis points over posted, and for whatever reason, that gap expanded. I think there seems to be some notion they are making the right wrong move at the wrong time. But I think actually what they are trying to do is just get back to what they originally thought they were doing. It is a course correction and probably an appropriate one in the context. Okay. I wanted to just dig into your medium-term EPS growth guidance that you've given us. You've set the bar for this year, and I'm trying to square where that re-acceleration in EPS is going to come from when you are. Right now, it looks like you're going to run 7%-11% increase in NII. As we get into 2021, where is that incremental step-up in earnings going to come from? There's obviously some fall away on maybe the expense ratio dips, but it seems like new products are going to be important here in terms of bringing incremental asset growth and presumably with better margins as well. How do you kind of disaggregate where you get the incremental growth in EPS to get it up to that level? I think we are, as I pointed out, seeing some good businesses that we're growing into, Specialized Finance group, reverse mortgages, CSV, all of them have decent margins on them. I think the other question we have to ask longer term is, what is our capital position at these kinds of levels of growth? We're also seeing capital grow here, and we need to think about how do we redeploy that capital in order to keep the ROEs and the EPS growth up at a high level. Do you want to add any more? Yeah. Jeff, I think the other lever we have is cost of funds. That's a significant contributor to those higher growth rates. On top of the new businesses that Andrew mentioned, all of which are higher margin than our traditional mortgage business. On cost of funds, we really have two developments. One is the launch of the covered bond program later this year. As we've talked about, covered bonds are, we believe, will be at a lower cost of funds than deposits. Then the second lever on cost of funds is EQ Bank. We believe that over the longer term, as we introduce new products, services, functionality features to that platform, there's an opportunity to compete a little bit less on rate, and so to bring the cost of those deposits down, too. Of course, looking further ahead, AIRB is very much on our plans as well, and that's going to have a significant impact on capital efficiency and allow us to compete in some markets that we today cannot compete in. So that'll also be a driver of growth for something that we're thinking about trying to have. This year will be a year of actually figuring out. I think we've got our models well established now for AIRB. We understand the risk weights associated with the AIRB models and are now looking for opportunities that expand us beyond our current envelope. Okay. That is all I had. Thank you. Our next question is from Graham Ryding with TD Securities. Your line is open. Hi. Just to follow up on your last comment there, Andrew. When you talk about the capital efficiency from an AIRB perspective, does that imply it frees up capital to be redeployed to shareholders or frees up capital to increase growth on more the commercial side of your business or equipment finance? I think it will certainly do the second piece. It will improve the asset growth. And I think we will give you more color on that, James, through the year as we start to really understand what that means in real numbers. It is possible that you could well be right that we might end up with surplus capital as well, but it will certainly open up other market opportunities. We have identified some of those already. How big those markets are and how long it will take to build a franchise in those markets is something we are still sort of working through. I wouldn't want to get too far over my skis on that. But we certainly have some more conversations to have with you about capital over the next three to five years, for sure, as we make that transition. Okay. Got it. That sort of medium-term EPS growth target, is there something implied behind that in terms of your asset growth? This year, I think you are 8%-12%. Is that a sort of a sustainable level over the medium term, but it sounds like perhaps less on the mortgage side and more on the new areas that you are pushing into. Is that a fair assessment? Yeah. I think we are really optimistic about the growth potential of those new areas. Everything from leasing through to CSV loans with reverse mortgages in the middle. We think those are going to be big contributors to our asset growth. Yeah. As we mentioned, asset growth is a significant contributor to the EPS targets that we have for the medium term. Okay, great. Looking at next year, if my numbers are correct, it looks like your conventional commercial growth this year was 4%, but your guidance next year for your conventional commercial is 8%-12%. What are you seeing where you anticipate growth to pick up there? Sorry, Graham. I think that is more of a case of how we constrained the business last year a bit. In the first half of the year, we were trying to actually rebuild our CET1 post the acquisition of Bennington, which as you see, we are successfully now over the middle of our target CET1 range. Then became more proactive towards the commercial business through the back half of the year. I think we see that momentum now. We feel that momentum. Even at the year-end, we had a lot of activity in the pipeline, and that continues as we speak. It is not so much that we are seeing more opportunity now. It is more a matter of last year, we constrained that business to help our capital position. Okay. Understood. If I could sneak one more in, just your Alt A business, your outlook for 2020, 5%-9%, slightly below your sort of expectation coming into this year, which was 9%-11%. Is that a reflection of the competition, the higher levels of competition and attrition you're seeing in the Alt A business? Or is it also a reflection of just this is a business that's getting larger and maturing and growth has to slow down eventually? I mean, certainly underlying that number is seeing decent growth, good robust growth in the originations and faster expected attrition as well. So that's what leads you to that net number. But clearly when you're starting to run an CAD 11 billion book, it's harder to grow at the same kinds of rates as we might have done when we were half that size a few years ago. Fair enough. That's it for me. Thank you. Thanks, Jim. As a reminder, if you'd like to ask a question, please press star, followed by the number one on your telephone keypad. Our next question is from Jaeme Gloyn with National Bank Financial. Your line is open. Yeah, thanks. Good morning. Good morning. First question is on the Specialized Finance. Looks like CAD 240 million now at the end of 2019. I think that's almost double. I could be wrong, but correct me on that, how much growth there's been in Specialized Finance, and then if you could detail some of the underlying assets. I believe this is a strategy that is lend to lenders. So maybe you could talk a little bit about what's going on in Specialized Finance. Yeah. Do you have the number? Yeah. Over the last couple of years, Jaeme, that portfolio's been pretty consistent. In around the 2.25 range. So maybe you and I could talk about that offline. We started with one large loan against a mortgage book. That was really what got us into this business. That's been amortizing down, but we've actually found other types of Specialized Finance lenders to lend to. I'd say the bulk of these, of the underlying receivables are actually mortgages, so we're basically lending to MICs to provide them some level of leverage, whether it's commercial MICs or residential MICs. But we are open to other kinds of assets. It's a small part of the business right now, but you can imagine things like CSV loans would be something that we feel comfortable with an asset class, for example, that we're actually prepared to margin on that basis. So that's what we're thinking about. Generally, when you think about these things or loans, these are small lenders. They might have 60, 70, 100 million of loans. We might be prepared to lend 75 cents on the dollar, let's say, against that loan book with a waterfall type approach to collecting on the assets. It feels like a pretty secure form of lending in terms of over-collateralization on the underlying assets. It's actually leading us into other interesting areas where we might become a direct lender ourselves to some degree. Okay, thanks. Next question is just around the Bennington PCL ratio this quarter above the 1.5%-2% guidance. I mean, there could be some fluctuations there, but maybe you can provide more color as to what drove that higher rate of provision in this quarter and why we should expect to see it come back down. Yeah. We still believe that 1.5%-2% is the right long-term rate. That said, with the way IFRS 9 works, as you're aware, there's going to be more volatility in our P&L. That was part of it, just the changing assumptions behind that modeling. We did see a slight uptick in impaired loans in the fourth quarter of the year in that leasing book, but there doesn't seem to be anything systemic underlying that. It looks like there was just a temporary blip. Like we said, we still believe the long-term rate's going to be 1.5%-2%. Was that increase in impaired loans specific to any one industry? No. No, it wasn't. Okay. Thank you. Next question around the. There was a comment in the MD&A that strategic deposits are a lot more stable than your other sources of deposits. Can you just refresh me on the rationale behind that or the explanation? Yeah. So typically these, so in general, if you approach a deposit broker with a deposit product of some kind, these are open to everyone. We might be competing with other suppliers in the market for deposits. And people don't feel a particularly special relationship with us. These strategic relationships, though, are more around when people are looking to have white label products. So it's us holding the deposit underneath it. We have a much more detailed contract with the distributor that does things like control their ability to move deposits fast from us, controls the way that their people behave around this, and aligns us much more closely. And so we see evidence that those are much more stable types of deposits than the more general brokered markets we go into. Okay. Can you remind me, is there a handful of strategic deposit relationships or partnerships, or are we talking several dozen? No, it's a very small number. Very small number. Okay. Last one for me, this kind of goes to the medium-term objectives, and I think you started to allude to it a little bit. But if I look out three, four years from now and trying to achieve the CET1 ratio target of 13%-14%, given the amount of internal capital generation that's coming off these businesses based on the guidance. I mean, there has to be some form of share buyback built into those forecasts. Is that a key component of driving EPS growth in the, let's say, three, four, five years as we get out that far? Or is share buyback something that could be coming as early as 2020 to help drive that EPS growth? Please, Tim, to get your medium term forecast, how did you derive that? I think, Jaeme, the primary contributor to the EPS growth over the medium term is going to be the factors we outlined earlier. Mainly continued growth in our assets, stable margins, low losses, and improving cost of funds. I do think that we will be having conversations with you about share buybacks over the next few years. I think you probably were right on point, Jaeme, around how we need to be thinking about this. Because what we are trying to do is find opportunities in the market that will see growth from assets. But clearly our view is not to hold onto shareholders' capital. They can deploy elsewhere more attractively. So if we see ourselves as building excess capital, then that will certainly be part of the dialogue that we have. It is a conversation that we have not yet had at the board, and you will see that the general move around capital is we are starting to head in that direction just by suspending the DRIP. This quarter is an indication of where we feel about where we are with capital, obviously. Okay. So I guess the takeaway here would be that 2020 is probably a little bit early to be having these conversations. Yeah, I think so. It is probably a good time to be having these conversations about what the future might look like, but it is probably not a year that you should expect us to be having the conversations with you, trying to understand the market's perspective on our choices. As we did last year with the dividend increase, and I thought it was very good feedback we got from our shareholders in order to allow us to make appropriate decisions. And I would not be surprised to see us having some of those conversations this year. Great. Thank you very much. There are no further questions at this time. I turn the call back to Megan for closing remarks. Well, thanks, Megan. In signing off, I offer my thanks to every member of the Equitable family, business partners included, especially our employees, for making 2019 a milestone year for growth, expansion of our business, profitability, and service. I also thank our customers and shareholders for your continued confidence and trust. 2020 will mark Equitable's 50th anniversary, and we're determined to make it one for the record books. For those on the line and webcast, including our analysts, we very much appreciate your time today and look forward to reporting our first results of the new decade on April 28th. Goodbye for now. This concludes today's conference call. You may now disconnect.