Earnings Call: Q3 2016

Nov 11, 2016

Good morning, ladies and gentlemen. I'd like to welcome shareholders and analysts to Equitable Group's third quarter 2016 conference call. We would like to remind you that certain forward-looking statements may be made on this call, including statements regarding possible future business and growth prospects. You are cautioned that such forward-looking statements involve risks and uncertainties detailed in the company's periodic filings with Canadian regulatory authorities. Many factors could cause actual results or performance to be different from those expressed by such forward-looking statements. Equitable does not undertake to update any forward-looking statements made by itself or on its behalf, except in accordance with applicable securities laws. This call is being recorded for replay purposes. It's now my pleasure to turn the call over to Andrew Moor, President and CEO of Equitable Bank. Please go ahead, Mr. Moor. Thank you, Hannah, and good morning, everyone. I'm joined today by Tim Wilson, Chief Financial Officer of the bank. During today's call, we'll touch on the main drivers of our record quarterly earnings performance, which provided support for our second dividend increase of the year. Our slide deck at eqbank.ca that accompanies our remarks is a valuable reference tool that I encourage you to review as part of your analysis, with the MD&A being the definitive source of information. From an origination perspective, the quarter was Equitable's best ever, better than Q2 of this year, which was our first CAD 2 billion period, and better than Q3 of last year by over CAD 386 million or 22%. Total originations are CAD 2.2 billion, reflecting strong progress in all of our key business lines. The most important contributor to our earnings is single-family alternative lending. It achieved its first-ever billion-dollar quarter of originations, up 41% year-over-year. This primarily affected ongoing market share gains in the broker channel, which is the result of our outstanding service quality. Based on publicly available data, we believe we've added meaningfully to our market share since last year. Of note, we do not materially change our pricing or risk parameters to get it. Origination increases were also supported by modest growth in the alternative market overall. Single-family alternative mortgage principal ended the quarter at CAD 7.5 billion, up 21% from a year ago, with positive implications for earnings in the current quarter and into next year. For the second consecutive quarter since refining its approach to the market, commercial lending operations posted strong performance. Commercial originations grew by 56% to CAD 367 million, its most productive period in almost five years. There are a number of reasons for this resurgence. Most important among them is an intense focus on customer broker service, which has caused an increase in commercial deal flow. That's good for shareholders, but so is the fact that in funding these new commercial loans, we have not altered our hurdle rates, emphasis on asset quality, or in any way deviated from our policy of lending on first-position mortgages only, and only to a maximum 75% LTV. The returns from this recent growth should therefore be attractive as always. Commercial is a large market with many competitors, so it's always a bit harder to assess competitive intensity than our other segments. But it does feel as though there's been a more favorable competitive landscape in recent months. Commercial lending mortgage principal now stands at CAD 2.7 billion, 19% ahead of last year and up 9% from the June 2016 quarter. In the prime mortgage market, internally generated mortgage originations amounted to CAD 228 million, more than twice the volume we attracted a year ago. As this growth shows, we are gaining traction with our prime strategy, which is built on leveraging existing mortgage broker relationships we formed over many years from our old business, leveraging our existing processes and technology to deliver great service, and leveraging our access to cost-competitive funds provided by Equitable's MBS securitization allocation. Securitization financing mortgage under management were a record CAD 9.7 billion at quarter end, up 31% from a year ago. This rapid rate of growth was assisted by the fact that our prime business is relatively new, so there are limited maturities and runoff. I've said it before and I'll say it again, that Equitable's success is due to the great people working incredibly hard to deliver exceptional customer service while always employing high standards for underwriting and risk management. Recently, Equitable has been recognized for having a highly engaged workforce, which is an essential ingredient for creating shareholder value and delivering all of our strategies. I'm referring to the fact that for a second year in a row, Equitable was chosen as one of Canada's top employers, and this year we graduated from the gold to the platinum category in Aon Hewitt's prestigious Best Employer Survey. Yesterday's Canadian Business magazine contained full details, and as you will see, Equitable ranked ahead of some very well-known companies and banks. Of course, all of this adds up to performance for shareholders. Equitable did that once again with a blended EPS of CAD 2.16. That's a new quarterly record, 12% above last year, and 5% above Q2 of this year. While delivering these results, we have continued to invest in our strategic initiatives at a cost to EPS of CAD 0.19 per share. We're making these investments because they greatly enhance our brand and market position as a branchless and now digital bank and will allow us to deliver increasing value over the long term. On record quarterly earnings, the bank produced an ROE of 17.2%. This is largely in line with Equitable's long-term track record and is ahead of the average performance of Canada's Big Six banks and our other two regional Schedule I banks. This return is very consistent with our shareholder value creation approach, which is set out in more detail in my letter to shareholders in this year's annual report. Keeping with our goal of developing a track record as a business giving steady dividend increases, our board increased our common dividend for the second time this year, this time by 5%, meaning the dividend to be paid on the 5th of January 2017 will be 10% ahead of the dividend paid in the same period last year. While paying an increased dividend, we have kept our CET1 ratio high in order to provide a strong foundation for the bank's future growth. Moving on to credit risk, you will note that net impaired mortgage assets are CAD 32.6 million were 0.19% of the total mortgage book, down two basis points from a year ago. Our allowance for credit losses represented 0.2% of our total loan assets at quarter end. This is much higher than the bank's average loss rate of 4 bps over the past 10 years, and means in simple terms that we are well protected. This allowance represents the amount that the bank has reserved on its balance sheet to absorb potential future losses, and shouldn't be confused with provision for credit losses. The provision for credit losses, which represents the net additions to that allowance in the current quarter that you will see on our income statement, was CAD 1.2 million in the third quarter. This is up from a year ago and from Q2, but in line with the bank's long-term norms. Just as a reminder, this is provision against specific loans that we take following a deep loan-by-loan analysis of our portfolio and reflects our best estimate of losses that we expect to take on impaired loans. Given current economic forecasts, we expect arrears rates and credit loss provisions to remain low for the remainder of 2016. I would invite you to review our credit metrics for Alberta and Saskatchewan, which can be found in our MD&A. There you will find that our early-stage delinquencies were down in the third quarter from the second quarter, an encouraging sign. You also see that the impaired loans in Alberta and Saskatchewan did increase by CAD 2.6 million from Q2. Over the first three quarters of 2016, we have taken a total of CAD 600,000 of provisions against this group of loans. I would not expect to see a material decrease in this level of impaired loans for the next few quarters. We understand the risk in these markets, so I have no desire to underplay it. We do take some encouragement from forecasts showing positive GDP growth in Alberta in the next two years. However, we still remain cautious about lending in these markets in both our single-family and commercial businesses. Now to turn to another topic, the new Department of Finance mortgage rules and the implications for our business. These changes have a lower impact on Equitable than other lenders since they relate to insured single-family residential mortgages, which until now have been a break-even business for Equitable. These changes may have a second-order impact on our alternative business, which might even be positive. Our commercial businesses are not affected. Since the changes have been widely reported, I won't repeat them, but rather I would start by saying that it'll take some time before their full effect is felt, and some time before we can be definitive about what they mean to the bank. However, we state in our preliminary view of their impact on the overall market in the MD&A, and I would summarize it this way. These changes reduce the size of the insured mortgage marketplace, as well some buyers will simply take themselves out of the purchase market and rent or delay the process of household formation instead. This is a view shared by most lenders. As a result, most economists are forecasting that activity and housing prices will be flat to slightly down next year. Although the outcome is uncertain, we agree with that view directionally. For Equitable, the likely impact is hard to judge definitively at this point, and it varies across our different business lines. Prime originations could fall, but we think the market declines will be mitigated by our concerted efforts to increase our nascent market share, which is less than 1% today. While success in this endeavor would be nice, it's not important in achieving our shareholder value creation objectives. For our alternative business, we believe the total portfolio will continue to grow at high rates, even if origination growth softens due to market factors. I'm hopeful the renewal rates may be modestly higher as a result of the great job our team is doing in servicing our customers and looking after them through the renewal process in an environment where there are fewer options for mortgage insurance. Commercial will be unaffected by these changes, as I mentioned. The end of all this are two key messages. One, these interventions do not call for a change in our core strategy for building shareholder value or our use of service as a competitive differentiator. Service is, in fact, even more important in times like this, with so much uncertainty for brokers and borrowers alike. Two, and most important, these changes will likely be neutral to Equitable's earnings prospects. I'll return with closing comments in a few minutes, but first Tim Wilson will provide his report. Thanks, Andrew, and good morning. We experienced strong growth in assets and net interest income in the third quarter. Net interest income was an all-time quarterly record of CAD 71 million, up 15% from a year ago, on an increase in our average asset balances in both core lending and securitization financing. Before I jump into the details of our performance, I wanted to highlight a point related to any outlook comments I provide, and that is we are actively monitoring market developments and have taken the uncertainties created by recent regulatory changes into account on a best efforts basis in formulating our outlook for 2017. Competitive and consumer reactions to the changes could, of course, cause our actual results to vary from these expectations. You may also recall that last quarter I mentioned we would refine our NIM methodology to more clearly present the economics of the underlying portfolios, in particular, securitization financings. We made several changes. Most notably, we shifted from calculating average assets and liabilities using simple period-end amounts to using daily balances. A seemingly small change, but one that moved NIM in our securitization financing business up by several basis points. Some of the other changes resulted in expense reallocation from securitization financing to core lending. Importantly, though, our total net interest income was unchanged. Net interest income grew at a double-digit rate because we grew average assets by 21% year over year, and despite our net interest margin declining by nine basis points over that period. The decline in NIM was as expected and occurred even though margins within our alternative single-family business have been relatively stable over the course of the whole past year. Single family generates the majority of the bank's earnings, so the fact that its performance has been relatively stable is important. The reason for the overall NIM decline is the continued shift in asset mix towards our lower margin securitization financing business. NIM was impacted to a lesser degree by other factors detailed in our MD&A, including the growth in high rate EQ Bank deposits and low margins on prime single-family assets originated at points during the year. Sequentially, net interest income was up by 6% on 5% growth in our assets. NIM was unexpectedly up by 3 basis points relative to Q2 due to changes in our asset mix. Core lending actually grew more quickly than securitization last quarter. Within core lending, we had a surge in our higher margin commercial assets. That team has been doing a great job of finding new business and retaining existing customers this year. Looking to the remainder of 2016, our outlook for net interest income is for more growth, now at year-over-year rates in the mid to high teens. Asset growth continues to outpace the expectations we had earlier in the year, mainly due to our continued market share gains. Core lending and securitization financing NIMs should remain around Q3 levels. Moving on to non-interest expenses. We recategorized these in our MD&A in the third quarter to reflect some changes we've made internally in our GL. The changes will give management better visibility into our expense base as we grow and hopefully will give investors a better look at how we spend our money. For ease of review, we've updated our results for all comparative quarters in 2016 and 2015. To highlight for you, one of the key differences is that we've aggregated all technology-like expenses into one category, which provides increased transparency for you as we spend more in this area. Current growth in the business, as well as investments in support of our key business strategies, led to an increase in non-interest expenses compared with last year. This increase was planned and designed to create long-term value for our shareholders. Non-interest expenses, excluding the impact of strategic investments, increased by 21% or CAD 4.3 million year over year. FTE was the primary driver of this increase as our employment base increased by 20% or 90 people. These workforce additions enabled us to sustain high levels of service and risk management. Of note, non-interest expenses before investments were flat compared to the second quarter of this year, even though we continued to add people. Higher compensation costs were offset by a reduction in consulting spend, DSU grants, and some other less material factors. Non-interest expenses to support strategic initiatives amounted to CAD 4.1 million, 180% above last year's level and 20% higher than in the second quarter of this year. The sequential increase reflected advertising and promotion programs for EQ Bank, while the year-over-year increase reflected, among other items, the effect of expensing rather than capitalizing digital banking related costs and higher investments for digital banking system support. Looking forward, we expect non-interest expenses to continue increasing at year-over-year rates just below the growth rate of the bank's assets, a lower rate than we have experienced in recent quarters, and the reason for that is twofold. First, a material amount of recent expense growth has related to our digital banking platform. While we continue to invest heavily in EQ Bank, the rate of growth will moderate quite substantially next year. In Q1, we actually expect to see negative growth in our digital banking expenses because of the CAD 2.6 million we spent on advertising to support the launch of EQ Bank in Q1 of last year. Secondly, we are seeing some benefits of scale economies. I want to note, however, that well over half of our costs are influenced by business volumes. For example, the cost for our underwriting teams and our CDIC premiums. While we expect to continue seeing some benefits from our growing scale, I encourage you not to bake too much opportunity into your forecasts. As a result of our investments, we expect our efficiency ratio will remain in the mid-30s for the balance of 2016 and throughout 2017. In other words, at levels that are superior to Canada's other Schedule I banks. Our capital ratios at quarter end all continue to surpass minimum regulatory standards and most industry comparables, and we expect to continue operating above these benchmarks as we grow. Related to capital, looking ahead, we plan to regularly execute transactions to derecognize mortgages to the extent warranted by asset growth and our leverage ratio position. Our current view is that those volumes and the associated gains on sale will move up slightly from Q3. We will likely derecognize between CAD 300 million and CAD 500 million of mortgages each quarter in order to manage our leverage ratio in the face of continued high growth in our assets. Finally, although as a subsequent event it has no impact on our Q3 results, we did become the successor issuer on CAD 3.1 billion of NHA MBS pools in a transaction that closed on October 18th. We press released this development, but as a reminder, we expect it to be accretive to EPS in the range of 6-8 cents per share in Q4 and 25-30 cents per share in 2017, diminishing by approximately 10 cents each year through to the end of 2020. The excess spread income, net of related costs, will be reported as other income on our statement of operations beginning in Q4. Now back to Andrew. Thanks, Tim. I'll finish up today with a brief update on EQ Bank, our digital bank platform launched in January. In the third quarter, deposit balances reached CAD 1 billion. That's more than five times higher than our original full-year target. While I can't say this definitively, I suspect it's one of the best starts for an all-digital bank on record. We now have some 26,000 EQ Bank customers. While we deliberately slowed the pace a bit by adjusting the deposit rate in late August downwards by 25 basis points, and with that lowered our interest expense run rate, our customer base and balances continue to grow steadily. It's evident from these numbers that our platform is resonating with Canadians. The digital platform is setting the stage to position Equitable in a really exciting place as Canadians increasingly look for the same convenience and ease of use from their bank that they expect in so many other areas of their lives, from ordering a cab to buying a book. We have an EQ Bank plan in place for 2017 that will see us adding new features and functionality, which I will talk to in future quarters. We look forward to offering additional deposit products that will help us become an even more indispensable mobile bank for Canadians. Growth of this platform will help to support our conventional single-family and commercial business growth. I am excited by our current pipeline in both of these businesses, which together drive the vast majority of Equitable's profitability. I believe there is lots of potential to grow at high rates through to the end of 2017 and beyond. To summarize, this was a great quarter and another year of outstanding performance for Equitable. It was a period that once again demonstrated the value of our franchise and capital allocation strategies and validated our uncompromising approach to things that matter: customer service, strong risk management, and highly effective teamwork. I am confident that Equitable will continue to thrive and that there is a significant growth and value creation potential in all of our businesses. That concludes our prepared remarks, and now we would like to invite your questions. Hannah, can you please open the lines to our callers? Thank you. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, it is *1 at this time. We will go first to Jeff Quan with RBC Capital Markets. Hi, good morning. The first question I had was just you made the reference on the impact on your residential insured mortgage business about, I think, roughly over half of it may not be insurable under the new rules. There is just a two-part question within that is, as part of an offset, would you look to maybe look to purchase additional insured mortgages from third parties to make up part of that? Also too is within those mortgages that are no longer insurable, can you talk about, I guess, maybe what were the key categories that would no longer have fit into? In other words, was it more the refis or was it another aspect that the government had changed? Thanks, Jeff. Certainly we do buy, as you know, mortgages from third parties. We will continue to do that, and that may be something of an offset. We did a bit of a waterfall to try and break down how we get to that change. The biggest component of that was as probably as you called out right there was refinances, so a significant portion of the overall market that no longer will qualify for insurance. I think the other elements which were smaller but also contributed to that was the GDS TDS ratios at the higher qualifying rate, the Bank of Canada qualifying rate, as well as certain properties now worth over CAD 1 million that are no longer insurable, I think were the other two sort of major components of that. Now, it's not entirely clear to me whether that's meaningful data, by the way, in terms of how much we can no longer do, because there certainly is the opportunity for certain borrowers to restructure the arrangement, maybe borrow more of a down payment from mom and dad or things of that nature to make behavioral changes that might actually sort of offset some of that decline. But if you just sort of took the portfolio as originated, that would be the impact. Okay, thanks. Just the other question I had was, I know it's still very early in the days, but just wondering if you had any early observations on the impact from the government announcements, whether or not it's from the kind of the home buyer level or what you may be seeing from other competitor lenders out there. Yeah, I think it's just too early for us to say, Jeff. That's why we've been not saying particularly much, really waiting to see how it evolves. Definitely seeing slightly lower volumes in the insured space already. But not clear how it's going to evolve. Okay, great. Thank you. Your next question comes from Jaeme Gloyn with National Bank Financial. Yeah, good morning. First question is related to the specific provision taken in the quarter. Obviously, a very small number. I was just curious, though, if you could give us a little bit of color on whether that was Alberta or some other geography and maybe some details around that. Sorry, I just didn't pick up the front part of that question. Could you remind me? Oh, sorry. Yes, just to repeat, the specific provision that was taken in the quarter, the CAD 1.2 million. Yep. Just a little bit of color where geography or what was that related to? Yes, there were two, what I would call idiosyncratic loans in that. So there was a commercial loan in Eastern Canada, and then there was a larger single-family loan that had some issues with valuation in the Western provinces. So that made up half of it in those two provisions, and the rest was sort of more broadly scattered across the portfolio. Okay, great. Just in terms of the growth in the quarter or I guess over the past year, British Columbia, it is a small piece of the portfolio. We have seen 60% plus year-over-year growth in that province. I am just wondering how you are thinking about the underlying risk there today and I guess the growth going forward in BC. Yeah, certainly, I think that growth this year can be somewhat misinterpreted. We were extremely cautious in B.C. about three years ago and only sort of slowly came back into the market. So it is coming off a very slow base, a very low base. We have actually tightened some of our lending criteria in British Columbia through the summer here. So some of the loan-to-values are scaling back to reflect elevated risk. Still reasonably positive in the lending areas we are in. Just to be clear, we are not typically in the downtown Vancouver. We are lending more in the Surreys, Richmonds, in that sort of middle market, more affordable housing. But no doubt prices are elevated, and I would not expect that we would see significant growth in that province year-over-year next year in terms of origination. Okay, great. Just lastly, before I turn it to someone else, the progress on AIRB. Are you able to provide us an update on where you are there? It looks like there was a brief update in the MD&A. Yeah. So we have been doing so data discovery work. So we are working with the providers of our capital engine to try and determine the gaps between the data that we have in-house and what is required to drive that capital engine. I think we made some great progress there. It seems like the preliminary view I get is that those gaps are very closable. So we are working on it and making progress. Okay, and the timing is still sort of two to four years out, I suppose. I think that is right. Some of that is within our control, the work we do, some of it is related to complexity around Basel even changing the rules as we go. Of course, we have to work with the regulator and respect their timeline too. We still think it is the right way to go. Our basic underlying thesis here is that we can be more quantitative around risk measures and be clever about risk if we move to this kind of advanced approach. That is what we want to do as the institution matures and gets larger. We think there is a very good risk management reason for doing this. Great. Thank you. Once again, if you would like to ask a question, it is star one. Next we will go to Graham Ryding with TD Securities. Hi, good morning. Good morning, Graham. Good morning. Hi, Graham. Okay, great. Maybe I just touch on the Alberta, Saskatchewan portfolio. Big picture, where do you think we are sort of in this cycle here in terms of your expectations for delinquencies and arrears in that portfolio going forward? As I mentioned in our prepared remarks, our early-stage delinquencies have dropped quite meaningfully quarter-over-quarter. That's very encouraging in terms of new impaired formations. I was in the market a couple of weeks ago and actually spent an hour working with our head of collections there and working through particularly that impaired group that we show in the MD&A loan by loan. I'd say it looks like there's plenty of equity in most of those homes. They're mostly in the major urban centers, Calgary and Edmonton, modest-sized homes. It was quite interesting to me, actually thinking about it. I had the same conversation about a year ago. A year ago, it seemed that those delinquent loans were primarily coming from what you expect, hourly people in the oil patch have been laid off and no longer able to make their mortgage payments. Today, it seems more we've got self-employed individuals that are just generally suffering in an economy going through restructuring. The typical thing you see when you get impaired is related to family breakups, and may indeed be exacerbated by a tough economic situation. I do think most of them will clean up. I don't think we're going to see much in the way of losses out of that CAD 12 million. There'll be some. We already referred to CAD 600,000 we've taken against it in charges. My sense is that most of them will work out. Given the longer process to resolve loans in Alberta, as indicated in my remarks, I'd expect that amount to sit around for a longer period. I wouldn't be expecting that number to drop much between now and June of next year. A lot of these properties are being sold by their owners to preserve the equity, and so it may work out better than that, but that's my sense of it. It sounds like you don't feel like the impaired bucket is necessarily going to increase going forward. Yeah, I think that is right. It does seem that if we are not at the end of the cycle, we may be sort of getting towards the beginning of the end, and we are not likely to see, I do not feel that we are likely to see a lot of new impaired formation in that bucket. Do not forget, we did change our lending criteria as far back as the back end of 2014 to lower LTVs as well. So we feel we are pretty well protected in that marketplace. And there is a, I would not say Calgary is an optimistic place these days, but there is a fairly diversified economy that provides pretty good employment, and of course, that is the driver. Employment is obviously gone up significantly since the energy prices corrected, but the more recent data that I have seen sort of seems to show a flattening off in that unemployment trend. Okay. That is helpful color. On your, I guess this may be more for Tim Wilson, but Andrew Moor, feel free to. Just your guidance around, or your outlook for core NIM. I think it could drop by 10 basis points next year. What are sort of the factors there that are in your assumptions given that your core NIM has actually been relatively stable over the past one to two years? Yeah. I think we disclose our assumptions pretty extensively in the MD&A so I will start by pointing you back to that. I think from a macro point of view, we view the interest rate environment as being relatively unchanged over the course of the next five quarters. And within each of our core lending businesses, single family, and commercial, we think we are going to have pretty stable NIMs there as well. I think the decrease really has to do with the continued shift towards single family. As we look out next year, and as discussed in the outlook, we see single family growing more quickly than commercial again, and that simple mix change causing the decrease. Has that mix change not been happening over the last year, yet core NIM has been relatively stable? It has. You are absolutely right. But there has been a bunch of offsetting effects to that as well. So, over a couple year period, we were improving the pricing on the mortgages that we were renewing. So we did a lot of analytics around it, and we think improved our margins and renewals. We also had a number of really low-cost funding sources that we brought online. So some of the bank funding facilities, our broker HISA account, all contributed to better NIMs, which offset the mix that I spoke about. Of course, EQ Bank moved in the opposite direction. But on a net basis, all those factors just caused NIM to stay stable. The one thing that is encouraging is, to Tim Wilson's point there about the HISA, we dropped the rate on the EQ Bank deposits in August, so you have not seen a full impact on that billion-dollar deposit. And actually, we also dropped the rates on our brokered HISA by 15 basis points at the beginning of October. So none of that is being seen in these current quarterly results. So some interesting things on the cost side of the funding. Okay. That is helpful. And then just my last question would just be on the prime single-family side. You are still talking about decent growth on that portfolio if you sort of figure on-balance sheet and off-balance sheet, yet you talk about 50% of your prime single-family side being affected by these mortgage regulation changes. Is the assumption there that just your momentum and the market share gains that you are getting in that business are more than offsetting the pressure from mortgage regulation changes on that business? Yeah, I think that is our view. I would say of all the things in our outlook, this is the one that is probably got the most uncertainty around it because of the changes that have come through. So, that is the one that we worry about. I think, the good news is it does not really affect earnings outlook, whether we are good, whether we are successful or not in that assumption. I do think that some of the monolines, the unregulated lenders that are, well, they are regulated provincially with thin balance sheets, will struggle here a little bit in this environment. So maybe there is natural market share to be picked up from that group. So there are some other things that can help us here, even if the sort of the macro volumes or the volumes in insured mortgages do drop as a result of these changes. Okay. That's helpful. Thank you. Once again, if you'd like to ask a question, it is star one, and we'll take our next question from Chris Berkrum with Owlstone Capital. Yes, hi. Just a question on your hiring. It seems like FTEs have gone up significantly, and I know that when you grow so quickly, it's hard to attract the best people. We've seen a lot of people come over to Equitable from Home Capital, and it seems like you guys have obviously been taking a lot of share from them. It seems like those people have also had dealings with Interfinance. I just wanted to get your reassurance that everything is acceptable in the underwriting with these employees that came over from Home Capital and your relationship with Interfinance? Well, we do not deal with Interfinance, just to be clear. Yeah, I think that is fairly straightforward. Our hiring practices are frankly the best in the industry. We do deep dives on everybody that we hire, and a lot of them are coming from other Schedule I banks, and with this, we are extremely comfortable about our hiring practices. Great. If I could follow up on the securitization growth and the impact that you think the new regulations will have going forward in 2017 and 2018 on how much securitizations and derecognition that you will be able to get. Yeah. As we mentioned with the previous call, that is the one area that has got the most uncertainty around it. Just stepping back, particularly for a U.S. audience in terms of what Finance is really trying to do here. They are trying to balance three policy objectives. One, to add stability to the housing market while balancing that with access issues so that homeowners and young people looking in the household formation stage can still get access to a mortgage, and the competitive element. I think what we are seeing here is a broader concern about trying to add stability to the housing market through these sort of tightening of controls and the use of CMHC capital in that area. That to some extent they understand will impact competition, which I previously mentioned. I think for certain types of originators that have been focused entirely on insured mortgages, this will be challenging. For us as a bank, we sit in the middle of that a little bit. We are somewhat neutral to that because we do have balance sheets to fund these loans and do not rely just on insured mortgage books. I think that is what gives us an opportunity to continue to grow in this kind of current environment. But I think it is something that I think next quarter we will be talking about more once we have seen the impacts roll through the market and we have seen how various other competitors respond to us. As you probably realized from the statements, the earnings from derecognition are actually quite modest. Tim, I do not know if you can share that number. Yeah. The earnings we generated in the quarter from derecognition, where we actually executed transactions deliberately to cause derecognition, were under CAD 1 million. They were CAD 799,000 in the quarter. So tax affected, call it CAD 600,000. So very immaterial in the overall picture. Just to be clear about that, what we think about is shareholder value in the long term. If you actually think about the PV of selling a strip to create a derecognition transaction, you are actually leaving value with the buyer of that strip. To some extent, there is lots of interest in keeping these assets on book. I think if you compare us to some of the other people that people might compare us with, you will see that we have actually been growing the value of our unsold strip inventory over the last few years. Now, we do want to execute them and do execute them in modest sizes just to maintain our leverage ratio at the right level. So it is a regulatory capital management process that we are going through. That is why it makes sense from a business perspective. Thank you. We will take our next question from Jaeme Gloyn with National Bank Financial. Yeah, guys, just a couple more questions. Just want to follow up on that. Andrew, in your prepared remarks, you talked about some of the items that were driving the strong growth in uninsured. So service levels, market share gains. You also mentioned that the market size has also increased. I was just wondering if you could maybe just give us a little bit of color around your thoughts on the market size today and going forward. And whether EQB might look to take on some of these previously insurable mortgages at lower rates. Yeah. Well, I think our math says that we do it by looking at what other companies are reporting publicly. We also have some information from some of the land registries that probably isn't available to you. We think the alternative market grew about 11% year over year in terms of originations in Q3. So when we're seeing 40% growth, clearly we're gaining share in that world. With respect to the second question, we don't see an opportunity, frankly, to price mortgages lower in order to capture mortgages that were previously insured. It's not so much a matter of the risk around that. It's really a matter of how do you fund that and put capital up. As soon as they're an uninsured mortgage, we're putting up 35% risk weights, and we either have to fund them with deposits or with ABCP, which is a scarce resource for us. Our view is that maintaining a discipline around return on capital and pricing on those loans is the best for our shareholders. We're a bit surprised by some moves we've seen in the market where people, in our view, are giving away funding and then flowing that through to the market in a way that isn't really necessary and thereby damaging their own shareholders. So, there may be things that open up, and we're obviously always looking at the market, but I think that where we are in our product set and pricing makes sense to us still. Okay, great. Then just the second question, it's probably more for Tim, and I'm not sure how well you can answer this, but you're kind of restricted right now based on IFRS rules to take larger provisions given that there's no real deterioration in the, or evidence of deterioration in the portfolio. Just wondering if you have any views right now on the impact of IFRS 9, where you're able to take a little bit more of a perspective look on reserving. Is there anything in the portfolio now that maybe you would look to increase reserves? Or how do you see performance, and maybe just some high level thoughts on where you would look to establish reserves under IFRS 9? Yeah, it's still really early days on that, James. We're not really in a position to talk about the future impact. What I will say is a couple things. First is we feel very well reserved under the current regime. We don't actually anticipate IFRS to have a substantial impact on our overall financials, based on our early analysis. That's what I'll say. The second I'll say is if you benchmark us against the marketplace over the course of the past 5 to 10 years, we've been on the very conservative end of provisioning that whole way through. So in periods where no other financial institution was adding meaningfully to their collective allowance, our provision that ran through our income statement was about 75%-80% additions to the collective. So we were conservative in adding to it when nobody else was. We changed that practice a little bit this year, partly because our analytics are getting better as we head towards IFRS 9 and AIRB, and we've realized that the allowance that we had on balance sheet was more than substantial. And partly just because we realized we were a little bit out of step with overall market, which made benchmarking for investors more challenging. But quick answer is we feel like we're in a pretty good spot, but too early to say for sure or to quantify the impact. Right. Okay. Thank you. That concludes today's question and answer session. Mr. Moore, at this time, I will turn the conference back to you for closing comments. Thank you, Hannah, and thank everybody for listening and participating. We look forward to delivering our next quarterly report in late February and to seeing our institutional investors and analysts at our first ever Equitable Bank Investor Day next week on November 16th. Thank you for listening. This concludes today's conference. Thank you for your participation. You may now disconnect.