Q1 2021 Laurentian Bank of Canada Earnings Call
[music].
Good day Boswell and welcome to the first quarter results 2021, Laurentian Bank Financial Group Conference call. Today's conference is being recorded at this time I would like to turn the conference over to MS. Susan Cohen director of Investor.
Relations. Please go ahead ma'am.
Thank you good morning, and thank you for joining us today's opening remarks, we'll be deliberate bahrainian dwell and president and CEO and the review of our first quarter of 2021 financial results will be presented by phone for one of our executive Vice President and Chief Financial Officer, after which we will invite.
Questions from the phone.
Also joining us for the question period.
And Mason Executive Vice President and Chief Risk Officer, Kelsey Gunderson Executive Vice President of capital markets and for the first time, I think puzzle executive Vice President of commercial banking and.
All documents pertaining to the quarter can be found on our website and the Investor Center.
Before we begin let me remind you that during this conference call forward looking statements may be made and it is possible that actual results may differ materially from those projected in such statements for the complete cautionary note regarding forward looking statements. Please refer to our press release or to slide two of the presentation.
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It is now my pleasure to turn the call over to Ranya Llewellyn.
Thank you Susan and good morning, everyone. Thank you for joining us today we.
And we hope you and your loved ones are keeping safe and well.
Our main focus continues to be ensuring the health and safety of our employees, while supporting our customers and communities. During these challenging times.
First quarter of 2021 marked my first full quarter of CEO of Laurentian Bank.
And I am pleased to report that we kind of good starts for the year.
Delivering adjusted net income of $47 6 million.
Which represents an increase of 12% quarter over quarter, and 29% year over year with adjusted earnings per share of $1.03.
Our results were driven by a strong performance and capital markets and <unk>.
Resumption of growth and commercial banking.
Lower provision for credit losses, and strong cost discipline.
We continue to take a cautious approach towards P. C L King.
Considering the high level of uncertainty and the economy.
While there is optimism related to vaccines. There was also concern surrounding new variants.
And mitigate this uncertainty the bank continues to maintain healthy and liquidity levels and strong capital position with of CET, one ratio of nine 8%.
While I am pleased with our overall performance for the quarter, we do not expect this year of transition and strategic refocus to be of straight line for success.
And there is much work to be done to position Laurentian bank for sustained growth and profitability.
You will recall last quarter, we established three strategic pillars that are guiding our efforts and actions. They are number one and cultivating a customer first culture.
Number two and creating a more agile organization with an innovative mindset and number three engaging and empowering our employees to work collaboratively as one team.
As we work towards establishing a renewed strategic direction, we set out a number of goals last quarter that I want to update you on.
The first of all was the renewal of our senior leadership team.
And our FERC for the customer at the center of everything we do.
And I'm pleased with our progress on this front as we have recently added three new external hires and and internal promotion.
And that's the and that is chief Human Resources Officer will drive the bank strategy of engaging and empowering employees to work collaboratively as one team.
His focus will be on building high performing teams and a diversified and inclusive workplace.
And the best year joined the bank on February 2nd.
Then on a head of operations sales and new rule that was established following the retirement of the Chief operating officer.
And if separated the bank's operations and technology units would eat overseeing the operations teams.
His mandate is to reduce complexity and fruit and streamlined end to end customer processes and drive cost optimization across the bank.
He joined US on February 2002nd.
All of them sweat of our head of digital is leading the digital strategy across from both personal and commercial banking.
He will develop and oversee the strategic digital initiatives to simplify and improve the customer experience.
And I'm joined the bank on February 2nd.
Lastly, evolve Vishal currently our SVP finance and accounting and corporate development.
We'll succeed Francois Laurin as CFO when Francois retired on April six.
And then we'll use his financial expertise and deep knowledge of the bank's operations to guide the growth and profitability of the bank.
Each of these new leaders will play a critical role and helping to achieve our strategic priorities.
They will contribute to the thorough review of all of the ranch and banks operations to ensure the organization has the right priorities resources and personnel to position the bank for future growth.
The second of all was focused on our efforts regarding cost discipline.
We have made good progress this quarter on controlling expenses as reflected in our adjusted efficiency ratio of 68, 9%.
This represents an improvement of 100 basis points over the past quarter, and 770 basis points compared to last year.
For the remainder of the year, we will continue to focus on expense management, while working on identifying structural cost optimization opportunities that align with the future strategic direction of the bank.
These efforts will create the type of sustained operational efficiency that ultimately drive long term shareholder value.
The third goal that we discussed last quarter was to advance our efforts towards a comprehensive strategic review of all of the bank's operations and current priority.
This work spearheaded by our renewed leadership team is underway and we are on track to deliver our new strategic plan, including Laurentian bank and value proposition and vision for the future by the end of the year.
And the near term one opportunity that have surfaced as a high priority for the organization is our residential mortgage business.
While the industry has been experiencing growth over the past 12 months, we have not benefited from it.
To reverse this trend we are embarking on an end to end review of our mortgage processes with a focus on reducing the number of touch points to improve the customer and broker experience.
We will share of our assessments and progress over the next few quarters.
What is increasingly clear is that the long term impact of the pandemic will have far reaching and sacks.
Does change the way, we work and live and the expectations of customers and financial service providers.
One area of change and increased Investor focus is and the area of ESG.
This is an area I am personally committed to because building of legacy for our future customers shareholders and employees is vitally important to me.
And Laurentian and we are raising the bar and what and how we champion important events.
And we recognize the annual Bell, let's talk day by challenging every employee to of 30 minutes mental health activity call find time for me.
For Black history month, we introduced our courageous conversations theories and.
And with just a few days until international Women's day, the heightened need for greater attention to equity diversity and inclusion has never been more paramount.
And I'm proud of that women at Laurentian Bank represents more than 55 percentage of our workforce, 46% of our management positions and we have kind of equal representation on our board for the past three years.
The theme for International Women's day. This year is huge to challenge.
At Laurentian Bank, we choose to challenge by leading.
We're the first bank and Canada to a point of women as chair of the board.
Jeanine Wai day, what and 1997.
And so by Isabelle Courville in 2013.
And in 2020, we were the first major bank in Canada to a point of woman CEO.
Laurentian Bank has begun its multiyear ESG journey, and I believe will increase our accountability and transparency as we evolve our organization on important issues like equity diversity and inclusion sustainability and enhanced corporate governance.
We will continue to provide updates as we progress through that journey and leverage the experiences of the past year to propel us forward as we create an organization that is more agile efficient and above all customer center.
Before I turn the floor to force wall for what will be his last earnings call I would like to sincerely. Thank him for his outstanding contribution.
He has played a vital role and the evolution of the bank over the past five years.
Mentorship is enabling a smooth internal succession plan.
I want to extend my personal appreciation for your support and guidance during my transition to CEO.
And we wish you continued health and happiness in the next chapter of your life.
Francois.
Thank you Ron and John for your kind words, and good morning, everyone and they've gone through all of those.
I would like to begin by turning to slide seven which highlights the bank split and financial performance.
Total revenue increased by 4% and and then.
Non interest expenses declined by 7% driving positive operating leverage from last year.
Adjusted net income was $47 6 million dollar and the first quarter of 2021, 29% higher than a year ago, and 12% higher than last quarter.
Adjusted pretax pre provision net income was 38% higher than a year ago, and 5% higher than last quarter.
Excuse me the more granular review of the drivers of our performance began with begins on slide eight.
Year over year, and net interest income increased by 3% and net interest margin increased by three basis points.
Proven and wants you to optimize funding as we increase the utilization of secured funding and that's one of those higher prepayment penalties on residential mortgages.
While contributing to net interest income and the short term prepayment penalties reflect the reduction and the underlying portfolio.
This is why reviewing the end to end mortgage process as Roger had mentioned is a priority, which you are correctly addressing.
Turning to slide nine are.
Other income was up 6% from a year ago.
And increase in capital markets revenues of $7 $8 million was partly offset by lower service charges and credit card revenues.
The pandemic has led to a buildup of liquidity, resulting from government programs and that.
And as consumer spending and.
And this is reflected and reduce credit card usage and faster payments of balances.
Right and it highlights our disciplined focus on cost.
Another reason and benefits were relatively unchanged from a year ago as higher performance based compensation related to strong capital markets revenues was offset by a decrease in salaries for on a reduction in headcount.
And as soon as and technology costs were 3% lower year over year, and we continue to streamline costs and decelerated the pace of projects given our ongoing strategic review.
Are there and noninterest expenses declined by 30%.
That means on lower regulatory costs, and other costs and showing from efficiency measures.
Some of which were implemented last year as.
As well and the current environment costs are generally lower including goes relative to business development and travel.
Adjusted efficiency ratio improved to 68, 9%.
Slide 11 presents our well diversified sources of funding.
Person on deposits accounted for 77% of our total deposits and country boots are healthy and liquidity position.
And we continue to optimize our funding sources and manage third party of deposits to align with loans.
Slide 12 highlights our strong capital position.
CET, one capital ratio of presented on theirs and standardized approach stood at eight sorry, nine 8% quarter and and.
Nine 7%, excluding all of these transitional arrangements for the provision of expected credit losses.
And internally generated capital was the main driver of about 20 basis points sequential increase.
And the current and see if you want level. The bank has about $300 million of excess capital based on the mid term.
Net points of our risk appetite range of $8 one to eight 5%.
Slide 13 highlights the commercial loan portfolio, which grew by 3% sequentially.
Growth and inventory financing volumes of original reflecting seasonality as well as dealers partially of restocking their inventories.
Consumer demand for recreational boats and details of remains high and the current environment.
Supply chain challenges are expected to delay of full recovery and inventory finance and volumes.
Real estate lending also contributed to growth largely through insured and multi residential mortgages.
The strength of our underwriting good diversification and strong collateral contribute to the high quality of this portfolio.
Slide 14 presents the Pan Canadian residential and mortgage loan portfolio.
The loss ratio increased 10 basis points and mainly reflects the end of the deferral of program and then the upward revision of the unemployment on the right.
The level of insured mortgage is at 57% is among the highest in the banking industry and when combined with a low LTV on beyond that on.
The uninsured portfolio contributes to reducing the overall of the risk of this portfolio.
Turning to slide 15.
Allowances for credit losses totaled of $193 $6 million.
The sequential increase of $8 $6 million is due to an increase and allowances for impaired commercial loans.
It takes into consideration our cautious approach and answering the uncertainty related to new variants of debit and COVID-19 virus and a slower and vaccine rollout and previously announced.
Scenario weights were unchanged from the prior quarter with higher weighted attributed to their base and downside scenarios and of lower weight to the upside.
As shown on slide 16, the provision for credit losses was $16 $8 million and the first quarter of 2020 per watt.
Compared to last quarter.
<unk> decreased by $7 4 million, reflecting lower provisions on performing loans offset by higher of the allowances on impaired commercial loans.
The PCL of loan ratio stood at 20 basis points and the quarter compared to 29 basis points last quarter, and 18 basis points last year.
Gross impaired loans on slide 17 were relatively unchanged from the prior year quarter and stood at 82 basis points.
I would like to offer some thoughts on how we see the second quarter of developing.
Net interest income will be impacted by the slides and shorter quarter.
Net interest margin should be similar to the Q1 level.
Capital markets has begun and the second quarter with positive momentum for.
And the commercial banking pipeline is strong and we're cautiously optimistic about our growth prospects.
Although we do not expect noninterest expenses to decline and the straight line, we will continue to heighten our alright and focus.
Focus on cost of the system.
Gross impaired loans are expected to peak around midyear and all things being equal and we believe that we remain adequate to provision and are cautiously optimistic that provision for credit losses could improve over the remainder of 2021.
Considering these factors and there are fewer in number of days and the second quarter. We expect Q2 pre tax pre provision income to be lower than Q1.
And you've heard the question and answer session begins I would like to make take a moment to say how per vintage and congrats.
And the opportunity to work with an exception of Laurentian Bank.
And also fortunate to have been able to build strong relationships over the past five years.
Investors and analysts. Thank you for your adjusted and support and I'll turn the call back to Susan.
Matthew plus law at this point I would like to turn the call over to the conference call operator for the question and answer session goodness.
Thank you, ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your total.
We are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.
We will now take our first question from Manny Gram of Scotia Bank. Please go ahead.
Hi, good morning.
And part of the commentary on the mortgage business.
And I understand the fix will take a while but I'm just trying to understand better.
And of your assessment of the reasons for the large scale.
And volumes you talked about with you and Jen protesting and also connecting to prepayments.
Just curious if you could go into the.
Mortgage loan.
Thanks, Manny what I would what I would say is as you've seen you know many of the other expectations have really benefited from a robust mortgage asset growth and and we haven't benefited from that so.
And we're undergoing a detailed review of our operations. This was one opportunity that I came to light very quickly and so.
We are currently mapping out the entire end to end process on it.
Just to see reduced the number of touch points to understand what those touch points or identify opportunities, where we can introduce automation across the process and and really ultimately get a faster time to yes, as well and so that should drive top of growth as well as improve the customer experiences and customer experience.
<unk> and reduce cost efficiencies as well so that work is currently under review and as I said in my remarks, we're hoping to report back on our progress on the next couple of quarters.
Okay, and just to dig into that and when you talk about India and closer to the thinking that it just takes too long to get to yes and that is impacting.
Some of the performance of <unk>.
And that correctly and the connection to I think from Scott talked about.
Elevated prepayments and so I'm, just trying to understand how about India and process is impacting the prepayments.
Yes, so what I would say, many and I and and Francois and welcome to hop in and is ultimately yes consumer demand has changed everything is and moved to faster time to yes, and so there is definitely an opportunity where we are lagging behind which is why we're doing and deep dive on mortgages.
And as you know, there's there's a couple of components, but that that's definitely what we're aiming to do is to elevate our end to end processes and improve our customer experience and get a faster trying to yes.
Francois did you have anything else out.
And I think as to add on that point of revenue.
Okay, and then if I could just ask another question just in terms of.
Cost optimization.
Some of and definitely a priority and I'm wondering as you look across the organization.
The key area of where you think there is opportunity here to optimize.
Yeah. So so it's part of the comprehensive strategic review that we're currently undergoing and cost optimization and then he as we mentioned is definitely one that's important to US I would say in terms of early observations on procurement and vendor management is definitely an area of opportunity that we're going to do a deeper dive on.
The other one I would say is you know.
The work from home environment, and the pandemic has really proven that there is an opportunity for us to build hybrid and working arrangements, which will also create a cost.
Cost of optimization opportunities in terms of looking at our real estate footprint. So I'd say those are kind of of two early observations that we will be reporting back once the comprehensive review is completed.
And so on.
Thank you, ladies and gentlemen, if you find that your questions have been answered you may remove yourself from the queue by pressing star two and as a reminder, it is star one to ask a question. We will now take on next question from <unk> edition of National Bank. Please go ahead.
Good morning.
The question is because we got a couple of teleconference of day, another month, so and <unk>.
I'll stick with the mortgage topic here.
And good day here, you're highlighting some of the changes that youre putting into place.
And just on a quarter of what we saw quanta part of the prepayment penalty.
And can I connect the dots and flip to worry about.
Palin, but your mortgage balance went down so well.
People that are leaving the bank for book.
There's a lot of somewhere else to get the loan.
So that's kind of a cash.
So yes, so Gabriel thank you for the question and I'm really looking forward for the conference at the end of the month and hopefully we will be working and meeting soon and I'll pass it onto Francois and then I'll add a little bit more color as to what we're doing moving forward.
Thank you Ron and Europe.
The year over year of debt prepayment and then there is basically half of the difference of and so we went from 80 181 last year of the 184, so based on say half of it and seated in prepaid.
Okay.
And then Mike.
And so the trend.
Good.
The ratio to complete the answer on your yes.
And what I would say Gabriel and Theres a reason why we're doing a thorough review. So obviously, it's a trend and we're trying to revert out we're doing a thorough analysis to understand retention versus.
Pilot of cash where people are paying off their mortgages, what their reasons or for what we do know is that this is an area of focus and it's an area of priority and opportunity for us.
And multiple channels by which we deliver of mortgage services to our day to be bank as well as through our retail network and so it's a it's a high priority for me and for any institution and that's why we are embarking on this end to end process, because we know we're lagging and we know we need to reverse the trend.
Okay, Great and just.
Switching over to the commercial side of the business saw some growth there.
And the floor plan and acquire I guess equipment finance for.
It is important on that sorry.
Is that of indication of some of the supply constraints.
Finishing and your dealers or.
Closer to normal.
And what the outlook would be for for the rest of the year and that business and then the CRE and particular multifamily project lending.
And it's been growing for the last few quarters could you tell me what kind of is that condo development or what.
So I'll start off Gabriel and then I'll hand, it off to.
<unk>, who is our new EVP of commercial banking. So what I would say is as you know our consumers have been building up quite a bit of liquidity and what we're seeing is that consumer demand for recreational boats and vehicles remains high and the current environment.
Which is resulting in knee and the nice a resumption of growth and our inventory for.
Financing that you see on on slide.
On slide 13.
And the supply chain challenges, though our sales here and so there is an expected delay in terms of and a full recovery and inventory financing.
And and so I would say that the seasonality will start kicking in in Q3 Q4, but in terms of their forecast.
Well the pipelines are quite strong and so we're feeling relatively comfortable with the next quarter, but the supply chain challenges continue but I'll hand, it over to Eric to provide a little bit more color on both on the inventory financing as well of the multi multi rents portfolio.
Thank you Ryan.
Yeah.
On the inventory finance side for sure. We are we do expect a lower credit line utilization throughout the spring and summer season.
And you mentioned that there's a very high demand on the on those products and.
The Oems are are still catching up with.
<unk> got situations, so expect to expect lower usage for a for a Q3 and Q4.
In terms of the question on regarding multi res like it has been.
Our strong Q1 in terms of growing that portfolio on the insurance side.
Pipeline is still strong.
But this is really a multi family type units.
And from that condo related.
Great.
Worldwide or units or five units of it Michael.
And just trying to.
Okay Alright.
Alright. Thanks.
Good luck.
Thank you. Thank you we will now take our next question from Doug Young of dish out debt capital markets. Please go ahead.
Hi, Good morning, just wanted to go back to the expenses and just so I understand how to think about this over the next year because I think it would be opening comments. It was mentioned, it's not going to be of straight line.
This quarter was obviously much better than what we saw from a trend perspective last year, but there's a lot of projects still it feels like ongoing and the review of so ongoing so how do we think of Bo because of the expense line of bounced around quite a bit and and.
And there was a material decline on the unusual items this quarter, which is great to see you just trying to get a sense is that indicative of what to expect and and if you can provide any thoughts in terms of mix ratio or direction on adjusted mix that would be much helpful.
Yeah. So on so what I would say John Thanks for the for the question and as I mentioned in my opening remarks.
Given like you said, we're undergoing a strategic review and the organization and so it's hard to predict at this point in terms of what it's going to look like and do you know, it's likely not going to be and straight line, but I think the key thing is the cost discipline and adhere to stay so the heightened focus around discretionary spend is definitely here to stay.
But in order to ensure sustainable growth and profitability will be pivoting very quickly to activating some of the cost optimization opportunities that we'll be identifying and so that's that would be what I would I would say in terms of of forecasting perspective, and we'll continue to report back on what these cost.
And opportunities are.
And it's already done and what was the second part of the question I apologize.
No sorry, I kind of drilling down and it's my follow up and I was just around the expense side and so there was a.
<unk> decline and the material unusual items this quarter and so is there anything that you foresee over the next few quarters in terms of charges from decommissioning and systems or Youre looking at the mortgage and the and process is there going to be any any large chunky items that you would consider unusual that you foresee over the next few of organs.
Yeah, So again, Doug and it's really hard to forecast at this point, we're still undergoing Doctor review and will report back on when that when things get clearer for sure.
Okay, and then just on the PCL side of allowance side, there was a small release and in the performing acos and it looks like it was more personal and commercial.
Your remark suggests that there's obviously an improvement and the economic outlook.
And also you probably rained and the level of release that otherwise would've occurred and first of all I apologize I think you mentioned.
Maybe there was an increase and the weightings of the downside scenario and I'm just trying to understand what the offsets where.
That would of rain and the balance and then if you can just talk a bit about what youre seeing on the personal and commercial from the sales side on the per.
Of Formula one side.
Yeah.
Sure. So I'll start off and that has happened and on over to Liam I think just a couple of key messages of <unk>.
Number one more article reserved we've always taken a consistent and conservative approach and very disciplined in terms of our under underwriting as well as we are of very diversified portfolio of its highly collateralized I think what's really important to know is that.
We were very gradual and a ramp up in 2020, which is consistent with our conservative approach and in terms of of forecast will be doing of gradual ramp down in 2021 as things unfold from an economic outlook perspective.
So I'll pass it over to Lee into kind of out of a little bit more color, particularly around the ACO and thank.
Thank you and your gross impaired loans were very stable versus last quarter and stable watch list and we're not seeing a lot of new formations.
Doug you will see in terms of the stages the.
And the drop in and.
And I think first of all I highlighted this in his comments the drop in stage two mortgages thats due to a decrease and clients with active payment deferral. That's somewhat suppressed by is first of all of our articulated by a higher unemployment situation and then on the personal loan side, we're seeing a decrease and sort of.
Stage, two as we see the equity markets and.
Some of our industrial loan product improve.
We are over all very appropriately reserve consistent with the current economic scenario expectations and we're taking a prudent measured approach to how we.
Many of the reserves and we will continue to do so.
And maybe if I can for you.
And sorry go ahead of us.
Jesse.
To clarify you alluded to the weightings, we kept the same weightings as from the previous quarter for the kind of make scenarios, which are high.
The skew towards base case and downside risk.
Cases scenarios.
Okay.
Okay, and then if I can just sneak another one and the <unk> conversion process and you just update us where you stand with that.
Yeah, So again as part of the team for a comprehensive strategic review underway. We're looking at all of our key projects and so <unk> is definitely one of them and so once we complete that their review we will be coming back.
With with some comments on that.
And then sort of as there's no update on timing related to that project at this point.
Yeah, so as I as I kind of stated publicly is that our comprehensive strategic review, we will be coming back at the end of the year. However, if there are decisions that are made between now and then are any priorities debt surface. We will be updating you in due course.
Okay, great. Thank you.
Thank you.
Thank you we'll now take our next question from Paul Holden of CIBC. Please go ahead.
Thank you and good morning.
First question I wanted to ask is there a lot of rigs.
And how you're broadly thinking about.
And sure uses of that of excess capital you highlighted in your prepared remarks of 300 million and.
Appreciate that some of it is going to be on and based on the completion of your strategic.
Strategic review for <unk>.
Fees likely at least from my opinion also is likely to.
And move those couple of handcuffs for that.
And still trading at a significant discount to book value. So how do you think about that sort of.
Turn to.
Potential return accomplish shareholders versus holding on for that capital.
For Q on your on your strategic priorities.
Yeah. So.
I'll kick it off Paul what I would say is there is.
Our number one priority will be organic growth opportunities that we will identify as part of that comprehensive strategic review and so.
And that'll that'll be our number one priority that we're gonna be focused on going forward.
Theres any tuck in opportunities for acquisition opportunities that are in line with our strategic direction of the organization will have to be opportunistic, but it really gives us the flexibility to make the right decisions, but it has to be fully aligned to our strategic review and the strategic direction that we're going to be taking laurentian bank towards.
Okay. That's helpful. Thank you.
And then just for congrats on the details behind the.
Fee income and surprise of the result on.
He's on investment accounts.
And number but given.
And kind of revising of UA levels across the industry I would have expected that could be a positive number and all that.
The sequential decline so maybe just some comments on what's happening there.
So on swap.
Well I don't have the details of this if I may take it offline and outdoor learning to cheat on mine.
Sure.
And no and then sort of a.
A follow up question and then.
And so they think about laurentian.
Strategic shift to more advice based branches or at least for the rest of the shift today.
Where does that like where would that show up on the fee income line because that's one of the lines of what is expected to show up on mutual fund commissions, obviously would be the other and that has trended positively but.
What are the key sort of income statement item for should be working on.
To identify a success and that part of the strategy.
Yeah. So I can talk generically about the strategy and where we're at I and I strongly believe that the advice model is the right strategy, but there's still a lot of work that needs to be done on the personal side. We are it needs to be repositioned, we need to really be clear on what our value proposition.
We have too many brands that are based on market on the personal sides and we need to simplify that theres an opportunity for us to rationalize our products and then ultimately similar to the mortgage book is really to simplify and streamline our end to end processes and one key element as well and doubling down on our digital solutions.
Which will then further cement and support our advice model strategy.
First of all I don't know if you have anything else to add on that front.
No at this point, though.
Okay and.
And last question for me is just regarding the.
Change and funding mix you benefited from higher securitization.
On this.
Quarter.
Just wondering.
Would that be and increasingly greater proportion of the funding mix.
Or are these sort of good for getting the strategy right.
And those branch based deposits are.
And our growing faster again and that will become an increasingly higher proportion of of funding mix.
And commercial more clear how are you bound and balancing the priority between branch based versus securitization.
Yeah, So I'll start off and and franchise something and he can jump in and what I would say is if you were to actually look at our personal debt and demand deposits those increased 19% year over year and 5% quarter over quarter.
And we made a conscious decision of reducing our third party deposits, which are lower margin and replaced it with securitization and we're constantly proactively managing our.
And our deposits to really optimize margin and sources and make sure. It's also matched up with our asset growth <unk>.
Commercial deposits also increased with the asset growth of that will continue to be of focus and then last but not least the digital strategy to drive deposits and can actually be core to our success going forward. So.
Those those would be my comments in terms of where we're going on the deposits side deposits will continue to be of core and we will continue to proactively manage it to optimize our margins as well and sources.
Great call and I'll leave it there and thanks for your answers.
Thank you.
Thank you, we'll now take our next question from the mall facade of coal market Securities. Please go ahead.
Thank you Roger I understand it's very early days of their mortgage review, but just wondering it broad strokes and you get that.
Help us understand.
When we could see that narrowing of the performance GAAP and residential mortgages versus peers.
And I need very very broadly as I said 2022 thing or beyond.
Yeah, So Omar Lamar and it is early days and so what I would say is as we're mapping out the process will be highlighting some quick wins that will probably you know <unk>.
Taxes, and a positive way, but it really depends on what the what the AR and the review on covers in terms of how much investment and the timeline and order for us to actually set it up for success going for it but if theres any quick wins that will be identified will be moving quickly and in executing and so really hot.
To give you a timeline at this point, but stay tuned.
Alright, and then first of all I think you mentioned the PCL ratio could improve for the balance of the year just wanted to be clear here and you're talking about improvement from Q1 'twenty. One levels are you talking about year over year relative to the elevated ratio of any size volume.
And on growing from.
From where we are we foresee debt gross impaired loans, peaking at the end of Q2 and the end of Q2 mid year.
And then throughout the year with samples of who we are cautiously optimistic about seeing improvement and the PC on a quarter or two.
Nearly over last year, because 'twenty 'twenty was higher.
But.
Sequentially of cautiously optimistic.
Okay. Okay, and then you go up on David flip over to the sub pack here and your non interest expenses and that I'm looking at other other.
On the footnote here suggests that includes amortization of acquisition related intangibles. So when I think about that and think more of stability, but clearly of that number has bounced around from quarter to quarter and this quarter. It looks quite low is there anything maybe you could could you talk about what goes into the other other and.
And what could be driving some of that volatility.
Okay. Thank you.
Year over year, there's been a reduction, but it's across all sector across many many many activities across all departments of the bank.
And tomorrow. So there is no one specific in terms of reduction and are there other versus last year.
It's because of the Zip and and measures that we've started to implement last year because.
Obviously, the decreases and other is great compared to last quarter, but is much higher compared to last year. So you see of progression and our cost discipline and at the end of last year and.
Continued issue.
And what type of expenses during the day.
Yeah.
So all of it and is that right.
Well.
And expenses.
Yeah, what type of expenses on the other of others.
Oh boy, you've got the travel and corporate if not and then professional services advisories and.
Shrinks cross and.
And I'll call of other administrative expenses.
Thank you.
Youre welcome.
Thank you, we'll now take our next question from Doug Cool Mihelich of RBC capitals.
Alright, Thank you and good morning, I wanted to I wanted to revisit Ron on your answer on the deposit side, because I see it a little bit differently.
And I look at the deposits and.
And then you mentioned strong growth of the personal side.
And then there's runoff and fixed term, which we've seen we've actually been seeing that and other banks and so when I combine all of our personal deposits together.
I get your personal deposit growth to be rather weak relative to peers.
And commercial even worse, so when I look of commercial deposits.
The peers are up 15% year over year, you're down 13.
So I'm surprised that I mean, we're highlighting mortgages as being an area.
You know of of strategic importance and I'm surprised of deposits Havent made that list as well. So can you talk a little bit more of the deposit for the lack of deposit book of operation.
Yeah, So what I would say, thanks, Darko I would say on the commercial deposits and.
That's we currently for example, and don't have cash management solutions, and so that's where the digital strategy becomes scheme, which is why Adam is not only looking at personal but he is also looking at personal and commercial and so on order for us to dry and more significant deposits and the commercial bank, we need to have and cash management.
<unk> for our clients.
And so you're absolutely right in terms of our performance on that front in terms of of personal demand deposits again, as we said we need to reposition our personal and personal banking division and and and in its entirety in terms of looking at rationalizing our product and making sure on digital solutions are there we have seen the growth though.
In terms of quarter over quarter and year over year, but it's an area that we are we are focused on leading with digital strategy.
Does that answer your question Darko.
Yeah, I guess it doesn't mean, we can conduct and I wouldn't be a little more deep deep dive analysis on to deposits as well.
It's just that's my first rush to look at it it just looks like on deposit growth, even though were seeing the same trends.
With respect of the fixed charge is still doesn't seem as though your personal growing fastest peers.
And I'm wondering if that leads back to the same conclusion that maybe losing customers.
Yes.
I'd say all of it.
Oh, sorry go ahead of Darko.
No. No go ahead. Please I was going to move on for another question, but if you have more to say on deposits of love to hear.
No no we're good darko.
Okay and then.
With respect of expenses.
And looking at your slide 10.
And I missed this of technology and other.
Significant area of improvement, we're seeing that trend everywhere else of at the other banks as well.
But I'm starting to get a different story.
And from some banks with respect to expenses going forward and this is where I wanted to ask for a little bit more of a strategic spend so in other words.
Most banks and on myself included are expecting a much stronger robust economy, when we open up and the back half of the year.
And some things of saying look we need to spend and that kind of environment right, we need to come out with new products, we need to.
Some banks are going to give you an iPad brokering and account.
We need to hire staff, we need to train staff will need to be back and the offices and so many of them are pointing to higher expenses and the back half of the year to really capture.
The resurgence of of spending and and to really go out and try and get customers back.
So.
Understand where youre coming from was of high efficiency ratio relative to peers.
And I just wanted to understand if tactically you're also thinking about potentially defending and.
And growing your customer base, when we get a very strong economic recovery and the back half of the year. So can you provide any thoughts on whether or not theres a potential for.
For a significant ramp up and costs and.
On the back half of the year rather than.
Continued focus on sort of being stingy on costs. So.
There are a lot of in there so I'll leave it for you to answer as you wish.
Yeah, I think those of our care com and startup of what I would say is.
Strong focus on cost discipline, but we did say its not going to be of straight line I think what we needed to happen here, which is what we're doing is to very quickly move from cost discipline to pivoting to cost optimization, which will require structural changes and that'll give us the room to then reinvest in our strategic areas that we.
Need to grow right. So so those are these are all of the things that we'll be reviewing as part of our comprehensive strategic review, but we need to move quickly to pivoting of cost optimization. So we can take these costs structurally out of the bank.
But growth is definitely our and game, that's what wait while we need to do but we need to make sure were repositioned and refocus on the right priorities to set us up for growth.
And so do you think that you need to maybe hires from frontline staff or.
As you said I think you have to rationalize your product lineup, but I'm wondering about.
Isn't that rationalization you also have to come up with some pretty juicy offers.
And so is there a possibility here that we see salary and employee benefits actually rise.
As you add frontline and there's variable costs go up.
Yeah, what I, what I would say is we actually need to make sure of our end to end processes or central fine and that we're actually actioning and what we already have on the pipeline faster and so similar to what I said on the mortgage side and that will generate growth. So in the near term I would say you will be very.
Just in terms of where we on frontline staff. So in the commercial bank, where we see opportunities or and certain growth areas, where they're well oiled machine.
And we will definitely be very strategic in terms of where we add additional stuff.
Okay, great. Thank you.
Thank you, ladies and gentlemen, once again, if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
We'll just take a brief moment to allow everyone an opportunity to signal for questions. Thank you.
Once again, ladies and gentlemen star one to ask a question.
Alright.
And we don't seem to have any further questions. At this time I would like to turn the call back over to Mr. Llewellyn for any additional or closing remarks. Thank you.
Thank you.
In closing I would like to leave you with a few key takeaways the bank capital and liquidity positions are strong and its credit quality is sound.
We're hard at work with a renewed leadership team to identify areas of focus and priorities.
For the next few quarters I plan on updating you on our review of our end to end mortgage process as well as some of the initial learnings that arise from our efforts on the strategic review.
We will maintain our cost discipline, while identifying more structural cost optimization opportunities and we will advance our comprehensive strategic review to chart a new path forward. Thank.
Thank you everybody.
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 second quarter of 2021 earnings call will be held on June the second and we look forward to speaking with you then have a pleasant day.
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