Q4 2020 Laurentian Bank of Canada Earnings Call
Good day.
And welcome to the fourth quarter results Twentytwenty Laurentian Bank financial growth Conference call today's call of French <unk>.
At this time I would like to turn the call price diminish Susan.
Director of Investor Relations. Please go ahead of them.
Good morning, and thank you for joining us today, its opening remarks will be delivered by one year of the Whelan President and CEO on the review of our fourth quarter and 2020 financial results will be presented by itself one of her executive Vice President and Chief Financial Officer, After which we will one day questions from the phone.
Also joining us for the question period, or Lee of Mason Executive Vice President and Chief Risk Officer on Kelcy, Gunderson Executive Vice President of capital markets.
All documents pertaining to the quarter can be found on our website in the Investor Center.
Before we begin.
Let me remind you that during this conference call forward looking statements may be made kind of.
It is possible that actual results may differ materially from those projected in such statements, but the complete cautionary note regarding forward looking statements. Please refer to our press release or to slide two of the presentation.
It is now my pleasure to turn the call over to non younger Whelan.
Thank you Suzanne and good morning.
Good day, Laurentian Bank reported its fourth quarter and Giftable Twentytwenty financial result.
The force lost walks of life is with an overview of markets born of I would like to share some of the fresh in my first few in each of the bank and shall I plan to approach. The next few months.
In October 30 of my first official day in the channel one of my priorities has been to meet with analysts since you as many employees. It's possible. It's one of the Clos the bank.
I want to take a moment to convey my first of all day.
In many of the appreciation to everyone for sharing your time in ideas from me and especially to our efforts in serving our customers and this organization during what has been on.
Precedented year of change.
In my conversations with them. It has become clear to me that they share of the commitment to reshaping the wrenching to become more relevant to our customers.
I also hurt the day are crazy and your strategy and clarity around the cash this organizational chart to achieve greater success in the future.
To that end, we launched here even initiatives in three key areas.
First work is underway strength in our organization beginning with a reassessment of our current sorry.
We are in the process of conducting a thorough review of the bank's operations and its definitely a key projects, including all the previously announced transformation related activity.
This focused effort will continue over the next few months it.
It is an important job that will help validate the foundation, we are building upon its strong and not be on picking the right option to position ourselves well for future growth.
I'll provide a detailed overview of our strategic plan, it's moving as our work is completed.
Second.
We really are.
Our long term strategy, we are examining ways to enhance our cost discipline across the organization led you to improving our overall efficiency.
Third.
Making several important changes to our executive team and organization, including implementing a reorganization of commercial commercial and personal banking interest two operating units.
I'm pleased to announce debt total senior Vice President commercial banking and president of L.D. capital from been appointed as executive Vice President of commercial banking effective January 1st 2021.
This promotion is a testament to Eric's many successes during his eight plus years Oh lunch.
During which time he played a pivotal role in capital recent acquisitions, including the Canadian operations of see IP and North point of commercial finance.
Personal banking likelihood of kit that French network digital banking and eat of eating under our one of <unk> retail operating unit.
We will be formally launching its search for a new head of personal banking Lucky day into that.
I would also like coming out of Santana decision to retire from the bank at the end of December.
Japan has been a value meter on Laurentian bank, so more than nine years.
I want to thank him from significant contributions to the bank and also to wish him well sort of future.
Looking forward I expect 2021 could be a year of challenges and opportunities both on a macro level with the current pandemic and within our bank.
It was a year of English and he will be resetting our carney refocusing our efforts and renewing the passion and pride of on 42, believing and dessert has one bank to provide long term sustainable value to our customers our community and our shareholders.
The new operating units commercial and personal banking will join our capital markets unit as well as our corporate functions as we embark on a new strategic direction centered around three pillars.
First and foremost smoky of customer first culture. So.
Focused on how we can simplify our operating processes and improve our overall customer experience across all of our business line.
Second we will create a more on job organization with an innovative mindset I.
I believe one of our competitive advantages as an organization is our size relative to the big day.
As of mid sized financial institutions, we have a unique opportunity to create an environment share.
Average rise by faster decision, making and more nimble implementation of changes to the benefit of our customers.
And third we will engage and of tower or quality work cooperatively. It's one of team centered around customer first mindset.
In closing.
I want to make a commitment to our shareholders into the investment community to work with you to ensure you are part of this journey to reach that Laurentian bank for renewal and growth.
I am committed to providing all of you with operational transparency and opening of regarding our internal assessment and our future strategic priorities.
In the spirit of that transparency I hope you will share with me any concerns for thought you make how capital helped drive Laurentian bank to the next level.
I'll now turn the call over to our CFO from Florida to provide an overview of our Q4 and full year earnings.
Thank you were on Yahoo, and good morning, you're going from about Josh.
I would like to begin by turning to slide five which highlights the bank from bank financial performance for 2020.
Adjusted Yeltsin are we sort of a year of work $2.93 and 5.5 per cent.
Decrease of 31% of into 200 to 240 basis points, respectively compared to two touches on G.
The variation in profitability was mainly due to the higher provision for credit losses, primarily driven by the should there be timing of commissions, resulting from that little bolt on good.
Financial highlights for the fourth quarter of 2020 of presented on slide six.
Adjusted the P.S. are not only for the quarter were 91 cents to 6.8% a decrease of 13% on.
Good day basis points, respectively, compared with the fourth quarter of 2009 feet.
The higher provision for credit losses was also of the most significant factor accounting for the variation of Brosky book.
As well as a reduction of the higher margin of dental refinancing volumes impacted net interest income.
This was mostly the result of Golden Monkey, which caused an increase in demand sort of boats or another recreational vehicles and disrupted the supply chain. In addition, other income was stronger mostly as a result of the contribution from capital market activities.
Compared to the third quarter of 2020, adjusted EPS and are are we decreased 11% and 90 basis points respectively.
As outlined on slide seven reported earnings for the fourth quarter included adjusting items totaling $5.5 million after tax or sort of thing. So that's for sure.
What's your thoughts on 20 adjusted.
I'm still just $24.1 million after tax on.
56 cents for sure.
Restructuring charges.
Most of the rate of seven starts on lease terminations.
The rest of my remarks will focus on sequential variations that sort of in four quarters of 2020 were both impacted by cool good Mike.
Turning to slide eight total.
Total revenue for the fourth quarter was $243.5 million was 2% of lower price.
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Net interest income declined by 2% largely due to the impact of the decrease on all of your yield being launched of business customers.
As Justin mentioned depends on mix negatively impacted inventor of replenishing volume yeah.
Average utilization rate of the D. Non fiction universe facilities during the fourth quarter was about 30% compared to that prefunding rate a year ago of over 50 price per se.
The lower level of our margin loans to business customer also impacted net interest margin of shown on slide nine.
Which stood at 1.2% growth.
On to 1.8 years, or so and you sort of.
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The diversified revenue streams included in other income.
On the spreads on student starts and totaled $74.2 million slightly little worse sequentially, mainly as a result of direct per country vision of capital markets in the third quarter.
Hi, or commercial lending fees and there was a gain of 1.1 of young on this.
She also contributed positively to fourth quarter results.
Slide 11 presents adjusted non interest expenses, that's working on $170.3 million on the fourth quarter, one person on higher than the price 30, and mainly resulted from increased activities. That's the of kind of maybe John real debt.
These increases were partially offset by a decrease from salaries and employee benefits, resulting from lower capital markets.
Sorry, no work aftermarkets performance based compensation and eight from perhaps incentive compensation charge of $2.7 million village of their bank former President I'm sure you'll lose on on the third quarter.
The adjusted efficiency ratio stood at 69.9 per cent into fourth quarter of 2012 compared to 68%.
The price.
Our cost something like vision initiative as well as a review of our strategic direction of our aim of improving this key matrix.
Slide 12 presents on loved diversified sources of funding.
Person on deposits accounted for 79% of total deposits and contributes on healthy liquidity position.
We continue to talk to my sort of social sort of something in the line deposits what loans.
Slide 13 highlights our strong capital ratio of position.
Let's see tier one capital ratio, which is presented on sort of standardized approach sort of 9.6 per se, but you're right.
No one of your risk weighted assets in higher retained earnings were the main drivers of the 20 basis point sequential increase share.
Q1 also includes of about 10 basis points, resulting from on.
Most of these transitional arrangements for the provisioning of expected credit losses in line with the third quarter.
Our diversified loan portfolio is shown on slide 15.
On mix was relatively similar quarter over quarter.
Slide 16 highlights on that high quality of residential mortgage portfolio.
At year end of 57 per cent of the portfolio wasn't sure compared to 55% of in the price.
Booked over 31st 2020, the all portfolio total $1.2 billion and workers on just 8% of the total mortgage book.
Residential mortgage portfolio remains well diversified geographically.
The loss ratio from this works on your increased eight basis points from 2020 and May never she actually expected migration of some clients who have benefited from b for of programs as well as the forward looking potentially on the back of the second line focused on being made on the housing markets.
The level of insured mortgages is among the highest from the banking industry, which contributes to reducing the overall risk from this portfolio.
Slide 17 highlights our commercial loan portfolio, which is French Canadian where the U.S. president.
Wow Kogan line team has been adopted our inventory financing activities you have each line in assets sold during the fourth quarter and we now expect growth of resuming a first quarter of 2021 based on based on recent trends.
The commercial real estate book for you will continue to grow during the fourth quarter, we have minimal exposure to industries, most impacted by Golden Monkey.
As shown on slide nine to one day, so as shown on slide 18.
Hey Man deferrals in response to your response you pulled in line to decrease significantly during the quarter.
For all periods are coming from.
And I counted 4.7 per cent of the loan portfolio at the end of of dollar.
Turkey, 13.3% of at the end of April and 5.5 per cent of the end of July.
We're closely monitoring these accounts, we also continue to work with our customers of needs flexibility in managing their loans.
You considered we involve them in and part of the family of mix as well as other changes to the things from him well.
Good day to our economic scenario. So that's that's collective provision.
Over 20 of the knocked.
October 31st when it's one day.
On that counts of their recent second wave of.
Three scenarios, they downside and upside we're probability weighted that's one of our approach to determining the expected pretty flawlessly as as October 31st when its way.
They're probably they're waiting of our three it's on on that scenarios, where they send a very similar to the third quarter, which with higher weights of to reach of that days of downside scenarios in a lower weighted to the on site.
Sure.
Turning to slide 19 in the fourth quarter of 2020 of the provision for credit losses was $24.2 million from third to $22.3 million in that sort of work.
An increase from the provisions for stage, one and two residential mortgage loans, considering the entire expected migration of some customers at the end of the deferral of Korea was partially offset by a decrease in provisions for stage three commercial loans due to a lower level of impaired loans.
If you see on ratio was 29 basis points from time to use of compare favorably with the banking industry.
Slide 20 highlights of small sequential improvement of net and gross in terms of impaired loans ratios.
Based on our current assessment of the type of getting it the underlying credit quality of the portfolios remains good.
Uncertainty remains regarding the future of course of dependent on the performance of the economy.
Which makes revising guidance for all of those 2021 challenging.
However, all things equal got from for the first quarter of 2020, we expect net interest margins to be relatively stable compared to the fourth quarter.
While we expect fixed income activities to remain strong in 2021 revenues from capital markets are volatile on investing difficult to predict.
Non interest expenses should be slightly higher income.
Then in the fourth quarter due to the seasonal factors, including young on increase in salaries dusting of share units and the risk of employer tax there of taxes. So I think the efficiency ratio to be slightly higher than the fourth quarter.
Overall, we expect free for those on pre tax earnings for the first quarter of 2021 to be slightly lower than in the final quarter of 2020.
As we establish a renewed strategic direction for 2021 of them to be on our strong capital and liquidity position of we're providing a solid foundation to build on to build on to improve our efficiency across dozens of people moving forward.
Thanks, you for your attention and I will now turn the call back to season.
Thanks on spot at this point I'd like to turn the call all part of the conference call operator for the question and answer session Manish.
Thank you, ladies and gentlemen, if you would like to ask a question on todays call. Please do so by pressing star one on your telephone keypad. Please make sure your mute function of these two adults to allow your signal to reach our equipment. Once again it is star one to ask a question.
Well now take on the first question from many Roman of Scotia Bank. Please go ahead.
Hi, Good morning, just wondering if you could give votes.
From direction in terms of what to expect for the PCL ratio put this will 21 and specifically how you see the interplay between impaired and performing playing out.
Thank you.
Good morning, Mary and in terms of of our expectations of.
For piece you know on the we'd expect an impaired loans on write offs will increase and peak in mid 2021.
Most of cold.
Returning to our traditional run rate of Pcls adjusted for the business mix of based on our strong credit discipline underwriting.
This is based.
Based on one of the growth gross impaired loans that were seeing out very stable of pattern versus last quarter, and we're not sitting on new adverse credit formation of this time.
And in terms of the 29 basis points. So you put up this quarter of do book to 21 is it likely to be.
Higher than that.
Over the over the next two quarters.
It depends very how it plays out.
I live in place I wouldn't of actually Laura I, certainly expect I'll check tier and gross impaired loans, but we're very comfortable with our reserves right now wouldn't take care of it appropriately prudent provisioning approach there may be some timing differences in terms of realization of versus release of H.C. else, but we feel very comfortable with.
Where we are today.
Okay, and just a quick price do you foresee a reserve releases on me and their per coordinating girl bucket.
Well I interest if you're if you're working on.
The a breakdown of our 80 all of this quarter in terms of the increase of the a if you will increase of 60 million.
In many of their due to stage one of the stage two of the 5 million of turn of State Street.
I mean on out of the stage to credit at all from if we could see really expense.
This is our best estimate given the economic scenarios, we have today.
Okay. That's one of them if I could just.
More of a strategic direction I was looking through some of the material I saw there was a reference to the net studies of the core banking system being evaluated given management change and I was just wondering if this is one area where I would have thought it would just be something bad debt would go through just curious what the consider.
Regimes are.
To pause on something like that that seems to be sort of an important so that's systems upgrade.
And probably on it's important for for future ever be a transition.
[noise] alcohol I'll take that question when I say that is part of our third view of all the key projects. We are lucky we're getting a conducting a review of all of the previously announced transformation related activity, we really need to help validate that the foundation. We're building upon its strong and you know phase one was completed.
So we need to ensure that we have the right foundation and its going to support the right strategy going forward and so we'll be providing more details of the overview as a as soon as that work is completed.
Sounds good and then just the last one on the on the same day. So I know the strategic sort of devaluation is on going but are there any sort of a sacred cows are there any parts of of the previous strategy that youre clearly not a up for discussion I mean, one area of specifically that I'm thinking about it.
The branch strategy, how much of the sort of be advice on the model is.
You bet is that up for debate I guess is the question of could there be any change there in terms of the strategy on the branches.
So what I would say everything is currently on her it you still there are no sacred cows on when it comes to the retail network no feed mice model is really where most financial institutions are moving towards so that's part of the strategic review and by hiring of new leader to come in and out of that then eastern.
On the interaction for the retail bank its looking at how well our digital strategy and some of the other support functions support our advice model.
Okay. Thank you.
Thank you, ladies and gentlemen, if you find that your questions have been answered you may remove yourself from the queue by pressing star too and as always it is still one of to get in the queue well now take on the next question from Gabriel Dechaine of National Bank. Please go ahead.
Hi, Good morning. My first question is for a move dwell on new C O a sort of the.
Josh I guess couple of lots of <unk>.
What are your first impressions of the organization, you're moving from a big breakthrough of smaller bank or you know what do you like what are you what are your what are you.
Yeah, what do you like about sort of what the nucleus of what do you think needs work.
No. It's it's actually six weeks, especially today that I've I've joined the institution. So some of my early impressions and I'd had Jack Henry on cable matched with hundreds of employees and I would say that the employees of talent from the organization. They are extremely committed extremely passionate and.
Our are excited that of the new strategic vision and direction on are craving not rallying cry kind of thing.
Many of the site is definitely an advantage I I've had the pleasure of running out of mid sized of operations within the large institution that I came from and I would say that size is an advantage, where we can be kind of a lot more agile and nimble. So I do definitely see opportunity for us to be able to pay that foster execute more efficiently on the commercial growth.
In the commercial business is definitely a growth engine and out and deep relationships with our customers as well as our expertise in that business of both from a talent perspective, as well as our relationships with our clients from their highly value our capital markets business is on a really good run this year on under Calkins leadership.
And so on I'm not optimistic in terms of that managing that business and on the personal side of the personal banking side. It's nice that many of these situations and Nike in general given given whats happened of Cowen has really been a catalyst to driving digital adoption and so the advice model is definitely the right models on.
Looking forward to working with the leadership team on setting.
Sure enough that strategy supports NAV its nice model. So those are kind of some of my early impressions at this point.
That's very very thorough overview I appreciate the Uh huh.
Ill.
Maybe.
I don't know I ask because of what were the right word, but the Lin some challenges.
Challenge of life for the of the organization.
Relative to the market.
Like Bill rate.
On where to go to book.
Along those line I'm looking at the bar deposit line.
ER brand through the book, coupled with a combined them and treat those of core deposits. If you will or kind of flat growth year over year, there were hard both of them.
According to exactly over the past few years over the coming of a time when we're seeing massive increases of default.
Thanks, a lot of told me that your customers are are not coming because you could cause of their body of then down the road when things get better took the deposit from you know.
Non-GAAP and boral wouldn't <unk> things like that.
How are you.
All of your body.
Model of the credit.
Trains on I guess, how are you planning on approaches on that's the total Gerald.
So so again, it's early days, but deposits are on absolutely course of any financial institution and so we're going to be on looking at ways to optimize it. We definitely currently have a diversified pool of default deposits and we're constantly looking to line deposits and loans to ensure that they're kind of matched up and so.
Well be looking at other opportunities whether it be to rid of digital or our commercial book of business as well as our retail network to continue to drive deposits into the institution.
Okay.
No Im sorry, if I may add Francois meunier.
I would like to point out of that in the past year. Despite the merger of the.
Some of branches, we increased the demand deposits by over 13.5% year over year end of term deposits, obviously, we always seek to optimize our funding.
And then just last quarter you said there was a decrease in terms of causes what weve increased securitization funding.
So we're always in on the lookout and match the assets and liabilities of.
On your mention but.
Seeking the best source of funding. So those are all going on and then just from non niche and the term deposits is basically.
The delayed we.
Turning deposit yeah, weve not capable of.
Last month last resort resort, we use of whenever we need it.
Right right.
Looking at all of the positive.
Thank you.
Alright. Thanks.
Thank you we'll now take on the next question from Darko Mihelic of RBC capital markets. Please go ahead.
Hi, good morning.
My first question for her Ranya as is.
I totally understand the need to take time to reassess absolutely makes sense it you've already announced a reorganization.
And that struck me as a bit on.
So I wonder if you can speak to.
The reorganization and it'll simplistically.
What I think will eventually bank I think of.
For business is way to think of commercial banking.
Maybe a couple of finance and stuff like that and then I think of the retail bank I think of beat to be bank I think of capital markets not just me Simplistically thinking I'm trying to understand the rationale for the new organization and why.
You sort of decided to habit weird I, so quickly and cash and why its organizers of internet of is.
So maybe I can just kind of clarify in terms of kind of what the organization. So that's exactly what we're doing but rather than just have you noticed of fans retirement. It was that it was just really an opportunity to kind of create more focus on those two units. So we used to have to flow.
And I used to be prior to being interest feel lot had both the PNC together before moving into the CEO, but to make sure that we have to focus on commercial independent of retail.
Why we decided to create two independent operating units and so it's not a net new strategy. It's just grading cheating on two positions of leadership there to ensure that we I can set it up for success and focus on growing it going forward. So the business units will continue to be commercial which included.
Our equipment financing or commercial real estate are nor capital as well as that person on about half a day to day.
And on digital and retail distribution and then you've got capital markets. So.
Those are the three distinct business units.
Okay fair enough and.
On my second question is one of the things that you of inherited of that this bank is it.
Relatively high payout ratio, but when I look at the dividend payout ratio is lumpy on measured against reported out really nicely against adjusted.
Is that also up for discussion with the board over the next three loans.
Yeah.
Yeah, Frank Socofar elsewhere.
Yeah, I'll take that one circle on the reported bases are part of this is 40 to 50 per cent. This quarter on a reported basis. He worked for the 61 person. So we're basically in line with on policy and this is discuss on a quarterly basis with the board not just because of the.
Yeah, and even if you were doing in the strategic.
The strategic review book every quarter this is being discussed.
Okay, I mean I kind of.
We feel comfortable of debt level, we feel comfortable of with the level of good day circle.
Okay, all right fair enough.
And then.
I think I'll say more of my strategic questions for [laughter].
[music].
Well Apocalypse on it so I'll stop there I'm just a quick question a numbers question.
With respect to the the net interest margin on.
Yeah, My sense is that now.
Many banks talk about.
Excess liquidity.
As something that debt.
Help.
Margin going forward, that's what can you speak to that will there be any help and can you quantify force.
What we see going forward the dark always debt for the moment to be relatively stable, but as our mix continue cheated continues to change and the return of growth in the business services.
Other real estate or inventory of financings, we see the improvement in and then I.
As the mix changes over the next few quarters.
In terms of liquidity you have strong liquidity June.
Julie we've always maintain strong liquidity, but we manage day very well our cost of funding with different initiatives and will continue to do this on a go forward basis. So we're always seeking opportunities, but the main driver of mixture to improve day. The NIM would be good growth in net in that business services in the United States.
This mix change.
Okay. Thank you very much.
You're welcome.
Thank you we'll now take on the next question from Doug Jones of additional debt capital market. Please go ahead.
Hi, good morning price slot.
Well, we've got a lot of problems.
I guess modeling of non adjusted non interest expenses net of bounced around quite a bit over the years.
I'm, just trying to get a sense and what you think is the simple over the next few years and I know, there's a lot of variables that go on and I know, there's a lot of reviews that are being done rate, but one stop Andy.
That's something that we've been on what is that something we should be thinking of that growth rate off of and.
And then severance and restructuring charges of on he's got a big part here as I look historically when one of always stop C line.
Okay first.
First part of the question on your your reference of non interest expenses.
We feel that the non interest expenses level that we have at the long end would be relatively stable in the next quarter or so.
And as we mentioned earlier, we're undertaking an exercise of root of reviewing our cost structure and optimizing our efficiencies. So you should see improvement going forward as we evolve from data analysis.
Moving forward.
Over a quarter over the next quarters, not just one goals of mix waters.
Yeah, that's the of the first of bits of your and.
Question on the second part of the question on restructuring charges. If you take this quarter of for example, you have $5.5 million over restructuring three of them 3.1 million of them related to restructuring and most of it and basically did half of it is severance related debt reduction of work force.
We have already announced earlier in Q2.
Good day were affected in Q4.
And 1.4 million weighted it's really if it could carry of termination of these contracts as we merge if you wrenches and just water.
And you have 2.4 million, which is weighted to business combinations. So if I take that first portion of 3.1 million as we move forward.
In Vietnam, and indeed strategic review, obviously, we'll always look at what's our best foot bring forward, but most likely going forward. It will be as leases expire. So you will see less you should that we should see into last restructuring charges.
To the other tier.
In terms of the second part two.
$2.4 million I would have is adjusting items they relate to business combinations. So they're amortizations of they'll be there for years to come on.
Yeah because of their static from previous acquisitions.
Does that answer your question Doug Yeah.
Yeah, I said, it's more it's more of a 3.1.
And I believe that in the past and it feels like you know that there could be more maybe as part of the strategic review on but that's the number that you would hope eventually I guess kind of on.
But the idea is that she should be live.
It should be lower going forward. So good merger of the merger.
Of branches going into the future.
That's the only thing is on me.
[noise], sorry, I was saying.
Got it.
Yeah. So when I went out of his again on what francoise with saying based on our current operations yeah. It will will likely not knocking increasing but as that as we had mentioned we are doing a thorough review and so.
You know well be back of the market with on what that strategic road map means and what impact it has.
No I think Fred slots as well I think you said 250 million <unk> million net thing in terms of the core banking system correct me if I got the number of wrong, you're live viewing I guess, the new system as part of of the review process is there any risk of any of that be written down over the near term.
Yeah on lunch, where are the areas first where ideally said nobody's talking about writing down or stopping or not doing any core banking what's been done what's been driving is being used so when we're looking on going forward is that thing.
For what's not being done for what for product and I'm not being a little just yet on core banking, that's what's left to be analyzed the best way to do go forward to do it.
This is Andy to read you revisit what has been done in the balance for the products and you have 24.
Okay, Yeah, you did like finance [laughter].
Holidays at the foundation, we're building upon of strong and so we just want to take the rate actions to really position ourselves for future growth and so that's part of the detailed review.
Okay, Perfect and then just on the stage.
Stage, one stage two stage three loans and as I look at the percentage is across the different buckets. It does not.
See all of them look like there's been a huge amount of migration of from stage one of the stage two and you can correct me if I'm wrong on that I'm, just trying to get a sense of how we should be thinking about that migration over the next year or so and why do you anticipate of migration in performing loans H.C.L. King.
And Ah and how that would flow through both of performing on these deals, but even if you can touch on what the implications of migration could be well north of welfare.
So I think some things of the question I I think a couple of.
Notes on on this I wouldn't know that a year on year.
Loans Clos are stage two of actually gone down by about 21% and that's largely.
Largely driven by better levels in the mortgage and personal sectors. If you recall last quarter I didn't talk about starting up or anything else on poor migration based on the deferrals. We have taken some increased trade sales at that time.
What I would say overall on our our ratio of levels and set the stage ratings is that RBC on models are very sensitive to the expected increase in risk due to the economic outcomes.
Whereas our models used to transfer loans in a amounts to the stages are more reflective of the current risk rating a rather than expected increase of risk from the economic scenario. So that's right.
I see all that you'll see is is it's very sensitive, but our shifts between stages on less sensitive it's something that's driven by our bottling approach.
I would I I feel very comfortable with where we are on our reserving.
We feel our of stages reflect where we are right now.
And we we're looking forward to out of here.
[music].
As we all are thank you very much for the on site.
You're welcome.
Thank you, ladies and gentlemen, once again, if you would like to ask a question. It is star from one.
On your telephone keypad, we'll now take on the next question from Silverado ruled on Haiti. Please go ahead.
That's my alter ego.
Or on your congratulations on your appointment and Wayne I appreciate it's only be NAV six weeks.
But when you think about shareholder value creation outdoor engine bank.
It's the opportunity more on the revenue side or on the expense line.
Based on price and a force it meeting you in person and you're out of Europe did you say your alter ego in terms of I would say and as we all know there really to lever up from there is net revenue and expenses and so here are going to be examining ways to enhance our cost discipline so share.
Sure and now has to be part of our longer term strategy for improving our efficiency efficiency of the key ratio and it's something that New York in S. type of heightened focus on particularly during the pandemic because of pandemic is not over yet so it's still a still on a long road ahead, and there's a lot of uncertainty there. So heightened cost discipline is definitely.
One of them, but our focus is also on our on organic growth and so we need to focus on the businesses that we can grow on being cautiously optimistic depending on the outlook that we may well be looking at growth.
In all of our various businesses as well.
It's a growth.
On the top line as you think about your various businesses is that essentially just going to be a.
And adjustment on the risk appetite are you looking to add.
New revenue line items.
Finally for fiscal 21, it's really hard to forecast because as I said, the pandemic of not over yet so where he can and at least on had mentioned in terms of where our pcls Levine of l. kind of level off in the first half of the year and again all of depending on how this pandemic and the second wave.
Ah Ah knocked out of an impasse on all of our customers sort of the key thing that we can focus on in the meantime, it's a heightened cost discipline now we do know that for example on some of our businesses were beginning to see an uptick for example in or NTM business and so from an inventory financing perspective, there has been a rate.
Moving to uptick and we do expect growth, but again its all dependent on how things Pan out over the next few months of it depends on.
Okay. Thank you.
Thank you at this time there on no further questions I would like to turn the call back over to Mrs. Ranya Llewellyn for any additional or closing remarks. Thank you.
Oh. Thank you wanted to think she thinks box, while even counting on on today's call participants I want to re emphasize a few key points before we close the call number.
Number one we are actively engaged in an effort to strengthen our organization, including a review of current priorities and longer term strategic objectives I look forward to share in the details of our strategic plan with you when our work is completed.
Number two our cost optimization initiative will result in near term actions on cost discipline and ongoing expense management with a view to improving our overall efficiency.
Number three we're refocusing our efforts on meeting the needs of our customers and our just turn into to become much more customer centric in everything we do.
The creation of two operating units for commercial and personal banking will help us prioritize these businesses and position them for future growth.
Thank you again and I look forward to meeting as many of you as possible over the next year as well as many of our share holders in our efforts to enhance our reach to the investment community.
Thank you for joining us today should you have any further questions. Our contact information is included at the end of the Investor presentation. Our first quarter Twentytwenty. One earnings call will be held on March of <unk> and their look forward to speaking with you then wishing you a safe and happy holiday season.
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