Q1 2020 Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the whole capital Group first quarter financial results Conference call. At this time all participants are in a listen only mode. Please be advised that today's conference is being recorded after the speakers presentation. There will be a brief question answer session to ask a question during the session.

The press Star one on your telephone if you require any further assistance. Please press star Yeah, I would now like to turn the call Overachieve Speaker today, Jim Cramer head of Investor Relations. Please go ahead.

Thank you Amy good morning, everybody and thank you for joining us today.

We'll begin the call with remarks from usually beside a president and Chief Executive Officer, followed by a review of our financials by Brad Kodish Chief Financial Officer.

With us on the coal to answer your questions are Ed card House SVP of sales and marketing like for she he VP of underwriting and funding then she catching cheap digital and strategy officer, David Cleft, Chief risk officer and victory to refuel Chief Information Officer.

Oh speakers or a different physical locations for this call. So please understand it for sound quality in response time are not at their usual level.

Before we begin I'd like to caution listeners that this conference may provide benefit with the opportunity to discuss financial performance and conditions of home capital as such these comments may contain forward looking statements about strategies and expected financial results.

Various factors could cause actual results to differ materially for results projected in forward looking statements. Accordingly, the audience is cautioned against undue reliance on these remarks.

Finally, a link to the slides accompanying this live webcast is available on our web site at home capital Dot Com now I'd like to welcome use we decided.

Good morning, Thank you for joining us for Q1 2020 results conference call.

Specialty appreciate your participation today, because we know everyone has a lot of important issues concerning memory now.

Markets the economy their job the health of their families friends and themselves.

We share your concerns.

Everyone listening today, you send their best wishes for your collective health and safety.

I'll touch on the value of our purpose at home capital. Our response to Cobot 19, we use some of the accomplishments during the first quarter and finish with some thoughts on homes positioning as we emerge from lockdown conditions.

There's nothing more important at this time than someone's home.

Our homes that are keeping a sea freight now.

Oh is where we can be safe and look after our families.

Home has become our workplace or classroom or Jim and so much more.

More than ever I'm, probably the work, we do here to help people own homes.

I'm also proud to work, we did to respond to the public health issues confronting us all.

Our business continuity plan was up to date and regularly tested so that when we needed it people hit the ground running.

To put into action.

We gave our people the tools and resources they needed to keep doing the important work of serving our customers from their homes.

And that included setting up our virtual private network. So everyone had access to the data they needed incorporating industry best practices around privacy and data security.

For our employees our leaders from I T.

Human resources compliance and risk management <unk> measures in place to communicate with our people and ensure safety and wellbeing.

Sales underwriting deposits and operations quickly put in place processes allow us to communicate with our customers and partners and completed transactions on their behalf.

We put in place a crisis management team that Mitch daily to monitor and resolve issues arising in our business.

Be held regular webinars to both reach out to and support our mortgage brokers.

We also had regular outreaches two employees through virtual town halls to address their questions and concerns.

Our mortgage customers.

We set up relief options to help those experiencing temporary financial stress.

Increased hours of operations and our contact center and edit information I'm deferral solutions and government programs to our website.

This assisted us in providing answers to the thousands of questions and inquiries received from people who want to know if we could help them get through this stressful period.

We want our stakeholders to know that we mean it when we say we're here to help.

We entered this pandemic environment with a strong capital position.

We were also well positioned from a liquidity perspective, the high volume of liquid assets and relatively low balances of near term liabilities.

Our sustainable risk culture has set us up for a framework that would enable us to manage conditions of economic stress.

Providing high levels of service to our customers, while continuing to work on our strategic initiatives, ensuring that people can continue to count on us.

Able to help them with homeownership and building their financial future.

Moving to Q1.

Reported results show a quarter that started off strong with good progress on a number of key strategic elements.

We started the year with an active housing market with regular strength in our major business area, where we saw meaningful growth in sales transactions.

It was also a lot of opportunity to continue growing our commercial segment.

As a result, we increased our originations in both residential and commercial loans during the quarter compared to Q1 last year.

On the deposit side woken continues to grow both in terms of dollars and percentage of our overall deposit funding.

Open stores are currently closed existing and new customers are still able to transact online or over the phone.

As we set up in our strategy. This demonstrates that we're now able to serve our customers using their own choice on how to interact with us.

We made good progress on home Trust Ignite program.

During this quarter, we launched our new dash system.

The stands for deposit automation system for home, which is a straight through processing system for deposit originations.

You said a best in class reporting to mortgage broker houses on business transacted with home to our advanced CRM system.

We have had excellent feedback from our mortgage partners on this new reporting.

In adapting took hold at 19, we set up dart or default administration robotic technology.

Art is a robotic process automation to assist in efficient processing of large volume of deferral requests that we received.

Yes, so despite the demands on our people related to the change to a work from home model. We made sure that ignite is a priority and the people working on it had the technology and resources needed to continue with our efforts.

Our technology upgrades from 2019 have given us flexibility to address the operational challenge of dealing with cobot 19.

We were able to move our people off premise efficiently and without business disruption because we had migrated a substantial percentage of our banking system and data to the cloud throughout 2019.

Similarly, going paper list in our underwriting and funding groups last year and they will enable dillard rapid transition to working remotely.

We cannot know how long this period of site self isolation will last or forecast with certainty what the ultimate economic effects will be.

What we do know that we're here to help and that we are very well positioned.

To offer that help.

As we emerged from the locked down conditions whenever that happens there will be a lot of new borrowers that have experienced a change in employment or income.

Or is with varied and complex individual circumstances that require more personalized approach to underwriting.

Is exactly what we do.

Not only do we have the expertise that comes from 30 plus years of experience in precisely this type of borrower, we have availability liquidity capital and the strongest balance sheet in our industry.

We're not just waiting for it to conditions to return to normal we're engaging with our customers and our partners employees and stakeholders.

We are learning building and growing.

We will continue to find better and more effective ways of meeting the needs of our customers, while maintaining our sustainable wish culture.

I will now turn the call over to Brad to discuss the quarter in more detail.

Thank you sorry, and good morning, everyone.

We appreciate you taking the time to join us.

As you see mentioned, we've all been working hard on the conditions without precedent in our time's related to the Cobot 19 Global health crisis.

The results from Q1 reflect the business conditions that prevailed during most of the quarter.

However changes to our forward looking economic assumptions as at March 30, Onest largely as a result of cobot 19 impacted our expected credit losses.

Any changes in forward looking information subsequent to March 31, 2024 will be reflected in the measurement of VCSEL in future quarters as appropriate.

This may add significant volatility tcl.

What is important to understand it's at home capital is very well positioned with respect to liquidity capital and risk management.

We are confident around or capacity to navigate the current core classes environment.

Let me begin on slide seven.

Overall, our increased revenue was offset by increased expected credit losses from cobot 19.

Net income was 27.7 million worth 52 cents for sure in Q1 2020.

Compared with 27.8 million for 45 cents per share in Q1, 2019, and 37.2 million or 65 cents per share in Q4 2019.

Adjusted net income of 29.9 million was 56 cents per share in Q1 2020.

14.3% from 49 cents for sure in Q1, 29 team and down 22.2%. Some 72 cents per share in Q4 team in Q4 2019.

Book value per share increased by 9% to $29.44 as we reduce their shares outstanding by 15.1%.

The first quarter 2019.

You are 150 million substantial issuer bid completed in January this year and the normal course issuer bids that were in effect throughout 2019, and the first quarter 2020.

There's a breakdown on slide eight of the factors that contributed to the change in earnings per share compared with Q1 2019.

Growth in net interest income contributed 31 cents to the improvement.

A reduction in shares outstanding adding another six cents.

Increased revenue was almost entirely offset by higher provisions for credit losses, this quarter, compared with 2019, which reduced earnings by 33 cents per share.

Slide nine chose the adjustments to reported net income for the quarter.

2.2 million relate to the ignite program, including 1.7 million due to a change in the estimated like some of our legacy assets.

Are they program remains on track for its targeted completion date.

Our originations for the quarter are shown on slide 10.

Originations increased by 33% over Q1, I'm 29 team.

And the residential housing market the lumps in January and February were normal with higher volumes expected in March with the out into the strongest spring selling season, and it and expected change in the benchmark rate used in the mortgage stress test.

Towards the ended the quarter sales activity in our major markets began to slow.

Typically changes and transaction volume will take some time to flow through to changes in funding volumes. So it is logical to expect originations in the second quarter to decline from past levels.

Commercial originations grew by over 100% from 29 team with a lot of that growth coming from and we insured multi residential market.

Total loan portfolio as shown on slide 11 grew by 3.8% year over year.

Our net interest margin as shown on slide 12 was 2.38% for the quarter compared to 2.31% last quarter and 2.01 person to the first quarter 29 team.

The increase in margin is largely attributable to lower costs on or funding liabilities, while the yield on our asset portfolio was slightly higher.

With respect to our deposit funding deposits from our open channel as shown on slide 13 grew by 14% year over year to reach nearly 3.5 billion in the quarter or 25% of our total deposits.

Once again it is an important feature of our liquidity risk management that 85% of our open deposits and 95% of all our deposits are in the form of term funding rather than demand deposits.

We saw a slight net migration of demand deposits to turn deposit during the quarter and that trend has continued into the second quarter.

Slide 14 discusses our other funding strategies. Our initial RMBS has performed well in the marketplace and the credit maturity and prepayment maturity profile has performed inline with expectations.

While market conditions have forced us to delay a second offering this quarter, we still plan to be a serial issue of R&D S and will return to this market when conditions are favorable.

Subsequent to quarter end home took a 30 day draw of 100 million from the bank of Canada's standing term liquidity facility in order to test or ability to utilize this facility.

Slide 15 highlights the characteristics of our loan book.

Uninsured single family mortgages originated in Q1 had a weighted average loan to value of 70.3%.

The average loan to value across the portfolio of uninsured single family mortgages with 61.3%.

Both in line with levels reported at the end of 29 team.

The FICO score, formerly Beacon of our classic single family residential mortgage portfolio was 682 on originations during the quarter and 705 across the portfolio.

Turning to a discussion of credit provisions beginning on slide 16.

Provisions increased to an annualized rate of 0.7% this quarter from an average of 0.12% for the last four quarters, we consider that necessary to take a substantial increase in provisions to reflect the change in macroeconomic assumptions. There is open resulting from cobot 19.

The lower line on the graph shows net write offs, which remain in line with recent experience at three basis points of gross loans.

As a result of the higher credit provisions. This quarter, we ended with a 91.3 million allowance for credit losses, compared with $62.4 million at the end of 2019.

Slide 17 shows the allocation of the allowance among portfolio segments.

The largest increases in allowance really to the commercial mortgage and other consumer retail portfolios.

As we turn to slide 18.

We'll see that almost 80% of the increase in allowances allocated to loans in stage, one or for stage two.

Loans and these stages are not currently and people.

Slide 19 shows our stage three loans that nonperforming loans are down from year end levels to 36 basis points of total loans.

Looking at the single family residential portfolio net nonperforming loans or 31 basis points in gross loans also below the year end 2019 level.

Coverage of gross nonperforming loans has grown to 34.3% from 25.2% at the end of 29 team.

Slide 20 shows that we are managing liquidity by holding a sizable portfolio of liquid assets on our balance sheet. Further we continue to manage our liquidity portfolio such that near term loan maturities are in excess of maturing deposit liabilities.

Our capital and leverage metrics are depicted on slide 21.

Our leverage ratio is 7.03% compared to the regulatory minimum level of 3% <unk>.

Our common equity tier one capital stands at 17.73% at the ended the quarter.

During Q1, we completed our substantial issuer bid repurchasing 4.4 million shares we began a program of common share buybacks under a normal course issuer bid and bought back 655000 shares.

We also purchased 518000 shares as treasury shares for future share based compensation awards.

In mid March we suspended purchases under the NC I'd.

The board and management regularly review all options for productive use of our capital.

At this point, we consider prudent to preserve our capital position until we have greater clarity on the economic conditions ahead.

In order to support our mortgage customers in dealing with the challenges of close by Cobot 19 at the end of March we began a process of allowing deferrals of principal and interest payments where criteria were that.

As at April 30, 2020, we provided deferrals of 28.4 million of principal and interest payments, representing approximately 3.9 million outstanding mortgage balances.

By providing these deferrals, where assisting our customers through these difficult times until improvements in the economy allow them to resume payments.

You do not expect these deferrals have a significant impact on our liquidity, we're treating these loans in accordance with regulatory guidance.

I will now turning the call back to you Street for concluding remarks.

Thank you Brad.

Next week on May 13th we will be hosting our annual general meeting for the first time the meeting will be virtual.

You made this decision to comply with public health directives and to protect the health of our employees shareholders and the community at large.

Only shareholders, we'd be allowed to vote at the meeting we will take we will be taking questions from investors and analysts and other interested parties. Following the formal business of the meeting.

I hope you log into view the virtual ATM.

Ill now ask the operator to pull for questions.

Thank you at this time, if he would like to ask a question. We ask that you. Please press star one on your telephone keypad well pause for a brief moment took a pile it came in a roster.

Your first question comes from the line of Jeff Kwan with RBC capital check your line is open.

Hi, Good morning. My first question was on the PCL provision. So it's based on economic assumptions as of March 31st as you mentioned and I know you use a third party provider determined those economic scenarios and your probability weight those but in your opinion would those scenario assumptions b.

Presumably I guess unchanged or worse, if they were to be updated today.

Oh, yes, it's it's Brad we did just to see some updated assumptions score April.

There are.

Largely unchanged.

And so we there were some changes in the overall assumptions and related to a unemployment levels and and so housing prices.

By the applied to our largest portfolio and we did lose a severe recession scenario.

There aren't a substantial changes there.

In terms of.

The forward looking information, we we do see where it's less models were applying do.

I guess anecdotally, we expect some.

Slightly worse conditions it loads more focus on.

Consumer retail portfolio as opposed to our or larger portfolios and you would assign it sooner than the last quarter that we did.

Substantial provisions on that consumer retail portfolio.

Okay, and and maybe just on that was you know the most of the PCL was coming out of that they call. It the consumer loan book, which is pretty small for you guys on a relative basis, and then to a lesser extent coming from the commercial book.

Can you describe like like what were the key drivers in the attributes that we are driving the pcls in each of those lines of businesses.

Similar to some other provisions we took in prior periods. So we're looking at the B overall financial strength of some of our Counterparties, who in turn how all of their own loan books. So it's really a reflection of what's happening in those markets in there.

Expectation of a severe recession.

Okay, so tickets a counterparty risk assessments.

As opposed to another yet and we also sort of Jeff. We also do look at that the performance of the underlying portfolio.

Okay and just my last question was on the mortgages that were deferred or would it be accurate that.

That all are almost all of those would have not had.

Some sort of major provision for credit loss attached to them and so to the extent wendy's deferral periods and and that the credit risk.

It is higher.

The provision would be reported at that time, and therefore not in the Q1.

Detailed the short answer is no Jeff B the regulatory guidance. It was provided is that a request for a deferral is not indicative of.

Delinquency or credit issues. We're currently conducting stress tests on the portfolio, but the average LTV geographic distribution.

And FICO scores are all.

There.

Close to the attributes of the overall.

Portfolio, a the the splits between.

And roughly.

80, 80% of the number of residential loans.

Deferred where we're classic and in terms of versus our insured portfolio and in terms of value roughly 86% or we're we're classic versus 14%.

Accelerator of those total deferrals so.

We don't so we do review that portfolio in to the extent that the we thought there was credit deterioration they wouldn't be part of our overall provisioning, but the the fact that theres a deferral is not indicative.

It doesn't automatically make them delinquent or change their stage assessment.

Sorry, Okay. So that's what it would be if I were a borrower that requested the deferral I would not have been included in the Q1 20, a provision for credit loss, but in six months if my.

My credit risk is higher that it is at that 0.76 months that you'll book that provision.

There is potential for that yes, Joe.

Okay perfect. Thank you.

Your next question comes from the line ethnic pre with BMO capital markets. Nick Your line is open.

Okay. Thanks, good morning.

Incremental disclosure around the deferred loan balances.

If you could give us a sense of what the approximate split.

I would be in the mortgages that have been granted payment deferrals between insured and uninsured loan balances like would that roughly the same proportion as the mix of the broader portfolio.

Oh.

Well that's a out.

They'll tell you now it it's in terms of value, it's 86% to uninsured.

In terms of value and in terms of the number of loans at some 78% uninsured sets us in reference to the residential.

Okay. Okay. That's helpful and then.

But what have you can give us some color on what criteria would have qualified words for loan deferrals in the quarter like you know, presumably temporary job losses. The direct consequence of coking 19, but you know I imagine for the self employed there is more discretion in Baltimore I'm, sorry, if you could just kind of shed some light on that.

Well I think we we initially we had done and I think you surreal well I know you Sri alluded to it is for here, we had a large influx of requests.

And the.

Our bias was to grant the deferrals now and we granted them for a two month period, we're now approaching around of.

Where where people who granted their natural deferrals or maybe asking for further deferrals and we're taking up the could criteria I'm looking for more enhance.

Rationale for why they haven't been able to late payments as as well, where there's any number of of government programs that have been initiated two.

I'll try and assist people to this oh.

Very difficult time economically.

Our overall forecasts assume that the though they'll be helpful, but oh.

<unk>.

There will still be issues. So are we have our or what we've done as we're moving underwriting staff to assist our collections group and assessing news on an individual basis and.

We.

I think it's it's a matter of judgment poor experience or collection and underwriters us too.

Why we would be granting further deferrals after initially having oh.

Oh.

More I think from this oh.

Requirements and the initial phase of the Cobot 19.

The quest for deferrals.

Okay. That's all I had for now I'll re queue. Thanks.

Your next question comes from the line of James going with National Bank financial.

And I know nothing.

Ah yes. Thank you good morning.

Yeah first the first question still on the App payment deferral, a break down and just getting a little bit more color. There can you give us a breakdown of or the.

The maturity timeline of the mortgages that have been approved for payment deferral, what percentage of those or maybe a dollar amount that.

I would have matured in the next three months for example.

Oh, I don't have that right now, but so we can provide it.

Okay great.

And that if I understand the or the commentary correctly I just want to clarify this point a in the classic.

ER uninsured mortgage portfolio as of April the add to the 3.1 billion. That's been a 43.6 billion that's been deferred 86% of that.

Single family mortgage is classic and so that would translate to about 28% of classic mortgages are under some form of payment deferral. In this program is that does that sound about right to you.

I haven't particularly done I'm, not saying, but I'm I'm pretty sure you've done it correctly here and that that's Ah yes.

Okay. Okay. We can Jamie it's usually we can confirm that I intuitively I think 28% is.

Too high, but we we can confirm my math.

Okay. Thank you I'd appreciate that.

Next the next lot of question just getting away from the parent to falls into commercial mortgages I noticed a pretty significant uptick in ER in stage two commercial mortgages can you just talk about what you're seeing.

In in a in those long, specifically and I and what drove the movement from stage one of the stage two.

[noise], it's related to our problem facility of default modeling James.

It's all model driven.

Okay, and what what factors in that model would have driven a significant increase quarter over quarter specific.

Moody's assumptions worsened.

Okay, so lots of macroeconomic driven than I ER I take it.

Yes.

And.

I guess, what the follow on to that then is what are what gives you enough comfort that the that the provision are related to those loans moving from stage one to stage. Two also didnt Oh, you know didn't increase by let's say as a.

Similar amount or do you or what is the increase or.

Provisions related to those mortgages like how did you arrive at that number that was provided for in the Q1.

We we do runner models.

In terms of taking into account the economic Oh.

Forecasts are probability of of default the loss given default would extend generates your expected credit loss. The Oh, we also take a look in and where appropriate. So we would use and management judgment in an overlay and particularly when we look at.

So some of the walls.

Portfolios, where we think.

There may be additional risk. So we can use some management judgment, but it's primarily model driven.

Okay, and as you're right you know as we see this increase in or let's say risks in commercial mortgages.

And some news or articles that are suggesting that the larger lenders are are stepping back from the commercial landscape. How are you thinking about commercial mortgage growth over the next a couple of quarters I given that framework.

It's okay to industry I am sorry, Brian go ahead.

Go ahead, you see.

Usually hear game so.

Yeah, not just the large lenders others have backed off as ever as liquidity became more scarce, which provided an opportunity for us some some quality commercial.

Business, but we would look at a commercial loan taking into account the latest economic data. So the underwriting would incorporate what is what is.

There can be split into two parts and first quarter to was everything was normal and then you know the world went to call. The 19, but normally in the normal part of our world most of the quarter, we very much like lower Ficalora become score, we think we understand that market very well.

Quite often boost credit there's a reason for it and we look at that and it's a it's a part of if one of the pillars of our our mortgages. We we know how to price. It right. We know how to borrow right and we take ultimate protection.

L.T.V. and of course, we have to satisfy ourselves that they can pay that mortgage or so we do like lower score because of better margin and <unk>, we're targeting that but again in the Doc half, we underwrote with more conservatism, we lowered L.T.V.'s and major sherbet urban centres you look.

That income a little closer if if somebody was laid off and getting government supplement we took that into account or we have to be satisfied.

They were laid off the probability of a job is going to be high or low or medium and we would know only that by having discussions with our mortgage broker as well with the consumer so it it just made us more more prudent on <unk> seeing that the income will continue not just what they earned and stuff.

[noise] [noise] fair enough.

One last question, if I could just for Brad.

The.

On the net interest Marge it looks like.

You know Ah, it's coming from both lower funding costs and higher mortgage rates, but the heavy lifting them expansion is coming from and expanding a classic mortgage rate is that is that a fair assessment and then just maybe.

Could you provide us with an outlet should we continue to expect them to expand or one of your thoughts.

It it it's difficult to provide any kind of forecasting and then the current environment, but.

Well.

I can't tell you right now is that we have.

Maintained are slightly increase or levels of liquidity.

Our ability with the decline and then sort straits too or we seem to decline in the average rate the wording on our target were portfolio.

<unk> everything else is really just our ability to to maintain spreads. So you saw a peak in.

Some of the.

Market G.I.C. rates are at the end of March.

That started to decline through.

April on continues to be a relatively lower levels till the end of March so we don't know yet whether well offsets.

The decline on the Treasury portfolio, a with our ability to me to spread I think it's safe to say that we don't think but no moral increase above.

The T. 30 acre, we achieved and Q1 more likely.

Going to to point.

Mm that's helpful like it it's good for the.

Oh.

Yeah next question comes from like I've checked Kwon Lynn RPC capital check Caroline is open.

[noise] Hi, I just wanted to look at the operating expenses. So if we exclude ignite related expenses, what what you had in Q1 20 look reasonable as the run rate and and how does the.

Deteriorating I guess economic environment impact how are you thinking about off x. relative to how you would have thought about it when you report a cue for results. So for example, like if you think originations in loan grants are are going to be slower than what you saw it a few months ago or a couple of months ago <unk> expense growth also be lower.

Yeah, I think if you look at her and non interesting sensors that they're down we have.

Most of our expenses have.

Not increased with the exception I rebuilt who did their budget to some additional advertising <unk> okay.

We had been planning with with larger grow to add to our head count.

We may add some critical hires but so we're not going to I think significantly increase or headcount, we're far more likely to be as I spoke earlier to redeploy some of our our trained individuals to work in other areas of the company, where we expect to have.

More activity and we've seen declines and some of the activity based expenses in relation to our credit card portfolio as well as you know for for obvious reasons, there's a less business travel another expenses than the current environment. So.

Are there.

Call it the 60 million or round rate.

March.

May increase slightly but it it won't be at the level safety, sorry, and two four.

Based on or <unk>.

Okay, and you mentioned earlier the classic mortgages are getting a too much deferral is it the scene is it two months for accelerator or are they getting kind of six months, which is kinda with other lenders seem to be doing for for prey mortgages.

We we base it on now to my.

Period.

Okay for all of for for all the residential Coppola.

Got it Okay and just my last question was just at will enlighten hope it 19.

When you.

What do you stand to reason that the pie of the of the Nonprime mortgage universe in in Canada is getting bigger whether or not from for his credit or whatnot.

Is that a part of the market that you have some degree of appetite to be going after in the current economic environment or is that just something where it's not necessarily yes as attractive to you right now.

Jeff.

Assuming employment is healthy.

It's a very attractive market for us boost credit with employment, we understand very well and we know how to look at a deal and save the probability is very high the full payment. If we lose credit is attached with high unemployment. That's a different story that doesn't appeal to us, but you know as the.

As people get through this in in mortgage <unk> I'm sure you know, it's not affecting People's credit. It is specifically not affecting but there may be other payments that people aren't making that may affect or credit and you know and m. If they do and if they are employed after that then.

That that that is where home is an expert in that field.

Okay, great. Thank you.

There next question comes online <unk>.

Yeah like open.

Uh-huh, Yeah line or something.

Okay.

Oh, Hi, sorry, my questions I've been answered already thank you.

Actually on.

And again, if you would like to ask the question <unk> start then the number one on your telephone keypad. Your next question comes from like James Wine with National Bank financial standing in line is open.

Yeah. Thank you I, just want to dig and dig into some underwriting changes that may have you may have taken recently as a result of the current environment or can we talk to specifically about some of the items that you have tightened around L.T.V. cycle as far as.

<unk>.

And have you applied, let's say a higher risk rating.

Or or taking a more conservative approach to specific industries that may be more impacted in the current environment.

So.

A number of things in in in underwriting as I mentioned on another part of an answer we look typically you look at what people made in the past and the probability of them continuing to make that in the future. Obviously in this environment, we'd be more work on that.

We will take into account the government subsidies.

We have also a restricted some of the L.T.V.'s even within the within certain segments you won't <unk>, we've lowered how much L.T.V., we will in in in terms of.

In terms of.

Types of jobs and so on clearly the ones that are dependent on high people gathering we're looking at closer.

Restaurants, or or or or a business, where you know concerts, what whatever it may be that has hi people collection were in this new normal.

Skirts coming back we still believed are gonna be restrictions on social distancing, but we will look at that a little differently, whether it's in the commercial side or you.

Oh, you're single family residential sign so we also or restricting L.T.V.'s on.

Rentals.

We are also in noncore restricting L.T.V.'s, even further as well as looking at a beacon square. So we've tightening to to ensure a the higher quality of business, but the framework of where we will then too gloomy will end is the same it is the diligence behind.

All of these and restrictions on T.V. does that help yeah.

Yes, thank you for for that extra color.

As as I think about the the.

Macro economic forecast that are a better implied in the 12 month outlook I guess, what would be the the waiting you have towards the the base case and upside case.

I was disclosed in a note five relatives downside and.

If you could give us a a little bit of that sort of like a range or a high water mark as to where unemployment rates are projected to go and those forecasts over the next 12 months at a at a peak level.

Yeah. So it's broad the the weightings send the models are are are a matter of judgment day. So.

We're we're not so disclosing.

It it we don't I know you're asking the question, but the way or models are are driven <unk>.

You don't think about winning that's going to provide so.

Hold up much useful information, so we're not to disclosing it.

And the and during the last can you just remind me of the last part of your question.

Yeah. It was just about I know that want to break or casts within those projections, where it is at peak out and and how long is I persist.

Oh, well I can.

Tell you the unemployment rates are seem to peek in in the second quarter and we don't reach people on gang like levels until 2020.

The models expect the rising unemployment outweigh a stimulus so provided.

And the model results in a decline and housing prices over the next 12 months.

This is also not a third party and so each of the scenario show significant spike in unemployment G.D.P. declines with varying degrees of recovery and that the pre covert 19 recovery doesn't occur until 2022.

And.

Yeah.

Sure where sorry go ahead.

And so just in.

We've got.

An average unemployment rate of 11.6, when they only downside to and a.

Oh is that price index annual decline of 15.6% in that scenario. So in between there peaks and but I don't have that right now and and will probably just be sticking with these annual average is in terms of or the score.

Okay. Thank you.

You're welcome.

And that's the question comes from line of Graham riding a P.D. Securities fan your lines open.

[noise] hi to follow since like if I could just given the whole doctor <unk> backdrop as so fluid did you hear it willing to provide an update on what you've seen in terms of a rigorous.

Oh I'm origins are performing and Q2 today ever seen any noticeable deterioration either and residential or commercial book in a few to today.

[noise] <unk>, we did just.

Finish the month of of April we have not.

Seeing a significant increase and request for new to pearls.

And I.

Suggesting to us that there hasn't been a significant increase and delinquencies.

So far.

Okay.

Helpful. And then just just to be clear like the provision anything that you did do and Q1 that did not reflect any of the the deferral.

Volumes request that you've seen in a three or post p. 120.

The is that correct. The forward looking information was all eyes at March 30% and the balances at March 31st I think we do assess the credit so.

Quality of the entire portfolio at that time, and they said earlier the the fact that anyone who's ask for it to curl on these circumstances is not an automatic indicator of credit deterioration or or to be treated as a delinquency.

That's fair but.

Is is it also fair to say that there's some potential that goes to for adults will migrate into.

<unk>.

Yes, as a there is a possibility.

Okay, I, just wanted it and and similar to or or other portfolio. It's all mitigated by the underwriting.

L.T.V. and yeah, yeah credit of the underlying individual.

Yep, Okay. That's that's fair.

That's kind of course that question to answer session I would not tend to call back over to see if it's not it.

Oh.

Well. Thank you for all your questions and for your interest in home capital Group, We look forward to speaking with you again should.

[noise] [noise], maybe in San Franciscan close to get complex huh. Thank you for petty you may not disconnect.

[noise] [noise].

[music].

[laughter].

[laughter].