Q1 2021 Canadian Western Bank Earnings Call
[music].
Good morning, My name is Jason and I will be your conference operator today at this time I would like to welcome everyone to CW abuse first quarter financial results conference call and webcast all lines have been placed on mute to prevent any background noise.
The speaker's remarks, there will be a question and answer session.
I would like to ask you a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key. Thank you Mr. Patrick Gallagher you may begin your conference.
Good morning, and welcome to our first quarter 2021 financial results Conference call. My name is Patrick Gallagher and I'm, The Vice President leading our strategy on Investor Relations team I would like to remind listeners and webcast participants that statements about future events made on this call are forward looking in nature and based on certain assumptions.
Analysis made by management and.
Actual results could differ materially from expectations due to various risks and uncertainties associated with <unk> business. Please refer to our forward looking statement advisory on slide number 14.
The agenda for today's call is on the second slide presenting to you today are Chris Fowler, our President and Chief Executive Officer, and Matt Route our executive Vice President and Chief Financial Officer.
Following their presentations, we'll open the lines for questions question and answer session on.
And now I'll turn the call over to Chris who will begin this discussion on slide three.
And Patrick and good morning.
We had a very strong starts of the year.
Our teams delivered first quarter financial performance and surpassed our expectations as we execute on our strategic objectives.
While we benefited from a lower provision for credit losses. This quarter. The primary driver of our strong financial performance was growth and our net interest income pretax pre provision income increased 12% compared to last quarter and improved our base case EPS expectations for the year as we and.
<unk> from the pandemic, we may see of further upside if vaccine rollout occurs faster and opportunities to prudently grow loans accelerate earlier than currently anticipated.
A key strategic objective has been to grow and diversify our funding sources and we delivered a strong first quarter result.
<unk> deposit growth was 6% sequentially, Mark and the eighth consecutive quarter with the very strong increase.
Improved diversification of our funding base with strong growth and lower cost branch raised deposits supports net interest margin resilience and revenue growth in the slow interest rate environment.
Another key strategic objective is to diversify our geographic footprint through accelerated growth in Ontario, and we also delivered a strong first quarter result.
Ontario loan growth accounted for over 40% of total loan growth this quarter.
While it is early days for a new banking center and Mississauga. Its current business pipeline is one of the strongest in the country.
Our approach to managing credit risk is proven to be very effective and we continue to experience low write offs as a percentage of total loans.
While the impaired loans increased in the quarter the increases consistent with our expectations and the increase included two specific connections and we remain confident and the strength diversity and underwriting structure of the overall loan portfolio.
Our strategic objective to transform capital management from the standardized approach to the advanced internal ratings based approach is and the parallel run process.
Transition to the IRB approach for regulatory capital includes tools and processes for day to day risk management, the better equip us to allocate resources to target business segments. The generate the most attractive risk adjusted returns and conduct stress testing at a very granular level.
Carolyn Graham, our new Chief risk officer expects to use the full year to validate our AARP tools and processes, while we operate under the parallel run.
Once complete we will resubmit the application to us for a review and the first half of 2022.
Our strong performance reflects our relentless focus on creating unrivaled experiences for our clients.
In today's environment, where combining our responsive personal service with innovative digital solutions, we launched end to end digital on boarding for all personal clients and 2020 to allow accounts to be opened online in the immediate with the immediate ability to transact.
In 2021, we will deliver the same end to end digital on boarding for all small and medium sized business owners.
In addition through our partnership and collaboration with terminus and we are creating an innovative solution using their infinity digital banking product with explainable AI to support small and medium sized business owners.
Our new digital program will provide a seamless end to end digital banking experience to complement our high touch and personalized service.
Our enhanced and targeted digital capabilities enables us to continue to grow and diversify our business across Canada by winning new clients, both within and outside of our branch footprint, while further broadening our access to lower cost funding.
We also completed organizational design initiative, the redesign initiatives that enhance our full service client experience and our target markets by repositioning and consolidating branches and Alberta and British Columbia.
<unk>, our bench and Mississauga that opened in August we opened new branches and both BC and Alberta that feature our refreshed client inspired design.
The initial feedback we've received from both our clients and teams is our new spaces are opened and collaborative.
We are focused to drive a positive and inclusive culture and employee experience that creates value for people and of career destination for top talent.
Operating as an essential service during the pandemic has provided unique challenges for our client facing team members and our banking centers.
To thank them for their efforts and actions we've provided each of them of onetime bonus and December.
We also broadened the resources available to all of our teams to build awareness and provide additional support around mental health and wellness.
I'm impressed with our team's efforts as we continue to deliver our strategic objectives trends from our capabilities and deliver strong financial results.
Our team's performance and their dedication to our strategy and clients made me proud to lead the GWB I will now turn the call over to Matt who will provide greater detail on our first quarter performance and improved outlook for 2021.
Thanks, Chris and good morning, everyone.
Turning to slide four on a full year basis branch raised deposit growth of 20% reflects our continued focused of our full service relationships with existing and new clients demand and notice deposits our lowest cost source of funding increased 36% and now accounts for 41% of total funding and compares to 34% last year.
And the quarter, we also issued of $500 million senior deposit note on our longest average term length of seven years and at attractive interest rate.
We continue to drive a reduction and the outstanding balance of broker deposits, which now represent 22% of our total funding down from 27% last year.
Looking at slide five our total loans increased 6% and the past year now with supported by 15% growth from our strategically targeted general commercial portfolio and 14% growth and Ontario are very strong general commercial growth reflects ongoing efforts to increase full service relationships across our national footprint, Ontario.
<unk> to represent a significant proportion of our overall loan growth and Ontario based loans now represent 24% of our total loans.
Reflecting our current base case expectations for a gradual recovery of the Canadian economy, we continue to expect to deliver mid single digit percentage annual loan growth similar to last year.
And this includes the continued focus on growing and Ontario, and full service general commercial clients and.
And with secured loans that offer both and appropriate return and acceptable risk profile.
As slide six shows we had a very strong start to the year with our teams delivering first quarter financial performance that surpassed our expectations. Our common shareholders' net income increased 10% and pre tax pre provision income increased 9% compared to last year. Despite the very low interest rate environment.
Adjusted EPS increased by 10 cents from the same quarter last year and that was what the growth of net income, adding about <unk> 12 to EPS at the 7% increase of net interest income compared to last year reflects the benefit of 6% loan growth, partially offset by a seven basis point decline and net interest margin, which has been fairly stable.
Considering the 150 basis point drop and the bank of Canada policy rate over that same period the.
The <unk> acquisition added of sent to EPS and that's consistent with our expectations of modest initial contributions to earnings per share at first with further accretion expected starting next year excluding the.
The impact of the wealth acquisition noninterest income growth provided another cent of EPS largely from gains on securities.
And also excluding the wealth acquisition, our noninterest expenses were up 6% year over year.
And that included the incremental costs associated with operating our AARP tools and processes and the continued investment and our teams and technology to support strategic execution. Our total provision for credit losses of 18 basis points of this quarter was flat to last year and did not contribute to growth and EPS compared to the prior year.
And our very strong sequential performance as shown on slide seven and our common shareholders' net income increased 25% and pretax pre provision income increased 12% compared to last quarter.
Adjusted EPS increased 18 from last quarter, and net recovery of $4 million and our estimated provision for credit losses on performing loans compared to a charge of 12 million last quarter did provide five but that was less and a third of the sequential EPS increase.
The remaining 13 cent increase and EPS was driven by strong core operating performance with seven and from higher net interest income not reflected loan growth and of two basis point improvement and net interest margin and five of the EPS improvement reflected the expected seasonal decline and certain expenses and was partially offset by.
Higher costs associated with operating our AARP tools and processes for the parallel run which did commenced this quarter.
Our delivery of strong revenue growth again, this quarter and a very challenging environment as shown on slide eight our net interest margin stabilized and the third quarter last year and has continued to build since then during this quarter. Our net interest margin increased by two basis points as we were able to both drive very strong branch raised deposit growth.
And demand and notice primarily while also reducing the interest rates of certain deposit products to capture NIM.
This benefit was partially offset by the impact of higher cash and securities balances. The continued NIM expansion this quarter combined with 1% loan growth generated a 4% sequential growth and net interest income.
Turning to slide nine the credit quality of our portfolio and provision for credit losses continues to reflect the secured nature of our lending portfolio disciplined underwriting practices and proactive loan management.
The first quarter provision for credit losses on total loans as a percentage of average loans was 18 basis points.
Lots of pre pandemic period of Q1 last year and down from 26 basis points last quarter.
The estimated provision for credit losses on performing loans was the net recovery of six basis points compared to a charge of three basis points last year, and a charge of 16 basis points last quarter.
Last quarter, the performing loan provision charge reflected of further significant deterioration in macroeconomic assumptions related to the estimated economic impact of the COVID-19 pandemic and that resulted in a larger proportion of loans classified and stage two last quarter. The recovery this quarter reflected an improvement and near term.
Economic forecast and resulted in a migration of loans back to stage, one with the percentage of loans and stage II dropping from 34% to 13% this quarter.
At January 30, <unk> of our allowance for credit losses on performing loans totaled 126 million the decrease of $4 million I previously referenced.
Ongoing shifts and macroeconomic factors portfolio defaults or increases and the risk weighting of our loans will continue to impact the performing loan allowance and future quarters, but we are currently very comfortable with the adequacy of our performing loan allowance at this level.
And at 24 basis points, our provisions on impaired loans was just slightly above our five year trailing average well last year and last quarter, both significantly lower than our historical experience and gross impaired loans at January 31 totaled $284 million that was about 93 basis points of total loans up from 250 <unk>.
$7 million or <unk> 85 basis points last quarter.
Our realized write offs remained low this quarter, which has been consistent with our historical experience even through periods of elevated levels of gross impaired loan formations are solid credit performance reflects our prudent underwriting the secured nature of our lending portfolio and our disciplined management of impaired loans through the resolution, while limiting realized loan losses.
Yes.
Based on our current outlook for the Canadian economy, as we do describe the further in our MD&A. We continue to expect that of total provision for credit losses for fiscal 2021 will remain at elevated levels compared to 2019 of pre pandemic period.
But lower than the provision for credit losses, we recognized for the full year of fiscal 2020, we believe we could be on the high end of that range based on the expectation of an increase in gross impaired loan formations through this year that is consistent with what we've experienced in past recessions.
That said, we acknowledge that the current recession is unique as is the level of government support and stimulus currently being provided which makes the expected level of impaired loans and provisions required against those loans and difficult to predict.
As we note on slide 10, our capital ratios remained strong and stable through the volatile economic conditions over the last year calculated using the standardized approach at January 31, our common equity tier one ratio was eight 8% that's consistent with last quarter and 30 basis points lower than last year, but that's.
The entirely as a result of our wealth management acquisition.
Both of our tier one and total capital ratios are above prior year that reflects the benefit of $175 million of tier one limited recourse capital notes, we issued last quarter at eight 4% our leverage ratio of remains very strong.
As Chris noted earlier, our progression towards the IRB approval continues with the parallel run of our tools and processes. Currently underway. We expect that approval will provide a boost to our regulatory capital ratios compared to the standardized approach and thats due to the more risk sensitive measurement of risk weighted assets under a araby, which will reflect our history of strong credit.
Performance and low loan losses, yes.
Yesterday, our board declared a common share dividend of <unk> 29 per share consistent with the dividend declared last year and last quarter.
Looking forward on slide 11, and despite the provision for near term volatility. We continue to expect the gradual recovery of the Canadian economy through 2021.
Under this assumption and building off our strong first quarter results. We now expect to deliver mid single digit percentage growth of adjusted earnings per common share for fiscal 2021.
Higher net interest income is expected to be driven by loan growth and a modest increase and net interest margin compared to last year and that will reflect lower funding cost and strong branch raised deposit growth.
We also continue to expect noninterest income growth across all categories and fiscal 2021 with the exception of net gains on securities, where we benefited from some onetime gains last year and do not expect to realize significant gains and the current year.
Noninterest income is expected to continue to represent approximately 12% of our total revenue on a full year basis.
We will continue to make the planned investments and our strategic priorities to deliver on unrivaled experience for our clients. This is expected to drive a higher level of non interest expenses through the remainder of the year compared to the first quarter as based on the timing of these planned expenditures as the year progresses, we'll ramp up our activity on a project to deliver and enhanced digital.
Banking offering for business clients and that will position us for accelerated and scalable growth as the economy recovers.
We do expect to hold our efficiency ratio below 50% on a full year basis, and that's driven by stronger net interest income growth and previously expected.
If we excluded the impact of the wealth acquisition, we made last year, we expect that our efficiency ratio would be just outside the upper end of our previous target range of between 45% to 47%.
But we look at that as reasonable as we'll continue to make the investments now to position us to capitalize on the growth opportunities that will emerge as the economy recovers.
With that let's go ahead and open the lines for Q&A.
At this time, if you would like to ask a question as a reminder, please press star then the number one on your telephone keypad.
Pause for just a moment of chicken part of the Q&A roster.
Your first question comes from the line of Paul Holden from the CIBC. Your line is open.
Good morning.
The guidance you just provided there is very helpful and poly answers some of the questions I had but where I want to start I guess is on the branch based deposit growth I mean.
Being a strategic priority for a while now and you have seen good growth from prior quarters, but seemed to really accelerate in Q1 is there are you gaining increasing traction with the strategy or is there of some kind of market related tailwind that helped this quarter specifically.
And I and get a better sense of sustainability around this type of growth rate versus what we've seen previously.
Yes, I'll start and Chris can pipe and if I Miss anything.
I mean really what we've seen this quarter is not much different from what we've seen in previous and that and new client acquisition has been fueling that growth. We did convert a lot of clients from lending only to full service. This quarter on the trust services side of things, we want some new mandates and new clients. So it's really new client acquisition that continues to.
And to fuel that growth.
We did see a continued increase and our existing levels of cash balances held by our existing clients, but new client growth was continued to be the primary driver of that increase and we continue to expect that to be the case as of the year progresses of course some of the cash we do have parked and these accounts will unwind, but we believe we can offset that and.
<unk> with strong growth as of the year progresses.
Okay great.
And then just in terms of the release of performing allowances and I get the mechanics behind it and the economic model assumption updates, but when you look at actual credit performance and what are your what you're hearing from your customers.
Was there any thing and there that give you additional confidence to release reserves today.
Yes, so the.
The macroeconomic factors you've highlighted I mean that was especially helpful to our personal retail lending portfolio and improvement in unemployment and house price outlook that was a bit more bullish than what you'd see we would've used last quarters as assumptions into the models on the commercial lending side, we've seen something.
And.
And that's different from what we had expected last quarter, we had presumed that.
Default and delinquency rates would really start ramping up here on delinquency, especially we've actually seen the exact opposite happened through the last quarter. We saw the overall level of delinquency and our commercial lending book decrease and actually decreased to a level even below pre pandemic levels. So.
And that's different than what we would've expected last quarter and did fuel.
A bit of our recovery.
And our performing loan allowance rate now, but we like where we are in terms of and overall performing loan allowances of base and working from here as the year progresses we.
And we feel like it's adequate and able to absorb some of the volatility uncertainty, we'll see here and be able to.
Pretty comfortable right now Paul.
Just a follow up on your comment regarding delinquency is coming and lower than expected do you feel this is simply a delay and maybe it comes in future quarters or do you feel the.
The economic improvement and government stimulus and.
The borrowing costs et cetera have really permanently impacted where delinquencies will go the <unk>.
Michael.
Well I think flooring costs definitely help.
We do anticipate and have experienced in past.
Economic downturns.
A bit of a delay rate, where you do have companies of hang on hang on hang on and then things turn and they don't have the working capital to go forward. So I mean, we are going to monitor it very closely but we anticipate debt.
Our guidance would be that we expect to see on the on the impaired side more on the impaired side of the of.
The PCL than on the on the performing side of the PCL.
Got it and I'll wrap it up there. Thank you.
Thank you.
Your next question comes from the line of many Grumman from Scotiabank. Your line is open.
Hi, good morning.
Question on the guidance it seems.
Even the.
The results you put up this quarter.
That is very conservative and you can say very very conservative and it seemed like you could do much better.
And I look at.
EPS in 2020 of 293, and then factoring and the 93 that you did this quarter and mid single digits would imply an average of 72 cents per quarter for the.
Rest of the year that really seen flow. So I'm trying to understand kind of what I'm missing here and how youre thinking about.
And how you get to that mid single digits.
Salt.
Again, given what you put up and then also it sounds like you are more positive about the outlook and you were even in Q4.
Yes ill help you unpack that many so.
The performing loan provision for credit losses, we expect to remain stable what we do see as we think about total PCL looking forward.
It would be an increase from current levels I mean, if we're thinking about.
The earlier.
And so I provided in the prepared remarks of sort of being on the higher end of our range of PCL and 2019 to 2020 of call. It 21% to 32 basis points we are.
Our current base expectation is till the end up at the high end of that range, So 30 basis points or so somewhere and that magnitude. So if you just take the 18 basis points. We were this quarter and think about in the <unk> for the remainder of the year.
That would drive about and 11 centers, so decline and earnings per share from the Q1 level the.
The other thing I referenced wise, the fact that last year, we did have some gains we recognized and rebalancing our liquidity portfolio at the onset of Covid overall for the year and we had about $9 $5 million of those gains and those really started in Q2, and then did decline as the year progressed, but.
On an average basis that gives us about of <unk> headwind to earnings per share and then the other big factor here that I think might be getting missed and we issued <unk> in October of last year those of our semi annual coupon payments and we make our first semiannual coupon.
Coming up in Q2 and April.
The coupon on those.
About <unk>.
<unk> or so of and earnings per share drag that will hit us in Q2 and Q4.
So I suspect that sales and most of your Delta many.
And then that helps and I understand all of those points I guess.
And just to sum it up on.
On the credit side going back to your answer the to Paul's question. It does sound like I mean, you're being prudent and your outlook for credit but.
It sounds like it could surprise and.
And then come and better than expected given the recent trends.
And I want to put words in your mouth, but I just wanted to see if you would agree with that.
Assessments that you're just not sure.
We're basing your outlook more on typical kind of <unk>.
It cycles, but but the.
But there is a chance here that the credits could actually.
Perform what's your.
And once you are guiding us to and is that correct.
Yes, we are maintaining a conservative outlook on credit.
And we believe we've got a very strong well underwritten and highly secured portfolio of that.
We monitor closely but.
And we're just making sure that we are.
And be very proactive as we think of our guidance on credit as we come out of the pandemic.
Thanks.
Thanks Penni.
Your next question comes from the line of Doug Young from the dessert and capital Your line is open.
Yeah.
Good morning, I, just wanted to stick, maybe with the guidance Matt.
What level of runoff and deposits are you factoring into your guidance around NIM are you assuming that it's going to stay at the same the branch raised deposits will stay at the same percentage of your total funding do you expect it to go up or down are you factoring and a bit of runoff is as the economy gets going and people start to spend just tried to get the sense of that.
Yes good.
Good question, Yes, we are we do not look at the the 6% sequential growth we put up this quarter as our sort of ongoing sequential growth run rate and those deposits I mean, we really had zero run off and in the first quarter here. So we would expect that sequential growth to taper down that sort of.
Base case assumption.
Of course, if we don't see that happen or we continue to grow new clients such that it completely offsets and then some of the runoff I mean, not as something that could provide some upside to our expectations on NIM and therefore earnings.
Okay and then the second just on on.
On your noninterest expense ratio, you talked a bit about seasonality.
The quarter is that just the fact that this quarter was a little bit light because of the timing perspective or is there just naturally from quarter to quarter going to be more seasonality.
As we move through the year and if so can you just maybe flush that out.
Yes, Q4 is always a bit higher we have typically some year and training activities a bit of of marketing push that happens and that fourth quarter and in Q1. Those activities are typically much wider and the continued to be the case this year and the other.
The thing that maybe is a bit outside of seasonal factors, but really of just the timing of when the project scope is rolling out as our digital project.
Been focused on the personal retail side of things and on boarding for personal clients.
The wider left that wrapped up through the first quarter and it's really second quarter onwards, where we ramp up the the big digital build which is on our digital offering for small business and medium sized enterprises.
The heavier lift but also one that's more impactful to our growth rate looking forward once we get that over the finish line. So it is the case of buckling down and getting that project on which we'll incur some upfront expense, but positions us for really good growth trajectory coming out of it.
Okay, and then just lastly on the performing loan release I'm, just trying to get a sense it.
I get the fact that the migration and the economic environment.
And <unk> improved.
Did you did you make any changes in your model such that the temporary the day.
The amount of the release like did you change your weightings to the pessimistic there to be more towards the pessimistic scenario did you.
I'm just trying to get a sense of if this release could've been a lot larger, but you tried to bring that back a little bit through other means.
Yes, when we look at our at our provision for performing loan losses. I mean, it's one element is what what our models tell us the other element of expert credit judgment and not the consideration of when you look at our base case do we see more upside potential of downside risk.
I'd say looking forward, it's a bit murky in terms of how how the vaccine rollout occurs.
How the economy responds to that so I would say our performing loan provision for credit losses appropriately reflects the uncertainty and forward looking outlook for the economy and does give us the ability to absorb some volatility as we work forward.
And so you did essentially you use your expert credit judgment and kind of rain and the amount that would have otherwise been does that.
We left ourselves feeling very comfortable with our performing loan allowance.
Perfect. Okay, great. Thank you very much.
And.
Your next question comes from the line of Nigel D'souza from previous.
Previous of investment research your line is open.
Thank you good morning, I wanted to touch on deposits and apologies if you are the.
And over this but I was wondering if you could expand on.
Your expectations for how your funding mix will shift through 2021, and if you see deposits training at a higher rate as the economy reopens of what your expectations of our deposits as we as we move throughout the year and what's the what do you expect that the translate to in terms of the margin pick up.
Yes, we do expect even though yes, we do expect some runoff and deposits on balance for the year. We do expect our branch raised deposits to continue to be the the strongest growth, we see and our deposit mix.
And they'll continue to grow from here, albeit not at the same level, we put up in Q1 and that will help our net interest margin. If you look at just this quarter.
We got a lift of a couple of basis points or so just from our shift and mix and and the growth and branch raised deposits and we continue to expect that even through the and economic recovery to support stability and our NIM and upside potential.
Working through the recovery here, so the mix of deposits in terms of how it looks right now.
Likely won't be materially different when you look at how we exit the year and that will be.
But a little bit more weight to the branch raised deposit component, reflecting the continued growth we still expect to deliver.
Okay. That's all of this.
Helpful color. Thank you.
Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Sarah <unk> from BMO capital markets.
I just wanted to ask a clarifying question.
Just for Crystal clarity is the and.
The color you provided around.
The conversion.
Suggesting that its probably be at the benefits to shareholders.
Probably unlikely to be fully realize the until.
Fiscal 'twenty.
2000 and suite.
I'll start and Chris can add.
Our goal would be to submit our air the application as soon as we're ready and also.
The timing when we believe we will have the highest likelihood for both and approval. Obviously is our primary objective, but secondary objective is to negotiate.
And negotiate the most favorable capital floor that we can.
Coming with our approval.
And so that's our goal and that's what we're trying to time I'd say if you look at the range, we provided of within the Resubmission to Osophy within the first half of 2022.
The front end of that range is remains credible and the back end of that range would be us optimizing timing and looking towards the outcome. We're trying to achieve if we hit the back end of that range.
And then yes, I would say depending on how long it would take off speed of work through our application, which is out of our control.
We could be looking at a later in the year 2022, maybe pushing into 2023.
That would be the outside and of our expectations on timing.
And Matt just from Crystal or maybe just what additional color.
This go around.
And how long did it take on SKU to suggest that you run in parallel.
And from the time you submitted the application to the time, they said, let's take another year of parallel ones, how long did debt persistent yes.
Yes, it was in there around the six month range.
So the mid and late March and III, probably the.
If we resubmit to them at the back end of the range, we provided yes.
But as I said, the front end and anywhere within that range remains of credible outcome.
Thank you.
Your next question comes from the line of Lamar and showed from core Mark Your line is open.
Okay.
And along that debt.
And that thought process on the IRB updated there.
And.
And as soon as being identified which could suggest that it would be pushed out a little bit further.
The gold line I would say.
So some of them are.
The process, we're running is where of course, we are in a very significant economic situation compared to.
The more of a benign times prior to.
March of last year, and the pandemic was declared so that's kind of as we think about managing the portfolio and ensuring the parallel run.
And have put in place all of the processes for us to implement.
Manage and report.
<unk>, which has been a significant investment and our branch.
Origination and underwriting reporting structure, we've supported at all with the.
Significant investment in our computer infrastructure.
And we see ourselves in and.
And.
And pretty good shape, so we're working hard towards that.
And so Carolyn has stepped into the role of the CRO.
And wants to just make sure that everything that we're doing is 100%.
Validated so running it for four quarters is really is the plan and so that's where we were.
We changed our messaging to say that we'd be running parallel for for fiscal 2021 and with the view that we would be.
Putting forward to the results and that Resubmission and.
<unk> 2022, so the point at which we as Matt just explained it depends on the front and are backend that would be where we're comfortable and it will be comfortable that as we work through this process, we're happy with at all and.
And I would say we've built all of the plumbing, we're happy with the structures.
The teams are working well, it's giving us great feedback its helping us on stress testing. So the benefits that we're seeing from it are already tangible and.
And again, we just wanted to make sure as we go forward, we just put.
Put or the absolute correct foot forward and Thats, what we will do.
Okay. Thanks, and then just moving onto the loan growth outlook I think I heard you.
Suggested it we're sticking with the mid single digit growth outlook for 2021.
I think about what's changed between last quarter and <unk>.
And theres been the significant momentum and energy. So why why are you guys sticking with the <unk>.
The mid single digit.
Loan growth target why not move up to say high single digit other low double digits.
And just your thoughts around that.
I think what we will be prudent as we think about loan growth opportunities we are.
And definitely the improvements and and the price of oil is as a positive and certainly that's helpful for our bird of which is still 31% of our total loans.
We are we are focused to grow our bank and <unk>.
Prudent disciplined manner.
Clearly.
That puts some tail winds into Alberta that would be fantastic, but we will be stepping.
Forward and our normal fashion and.
Making sure that we're building the book that we want to build we've got the rate funding structures, we are allocating capital appropriately and.
Taking on the risks the admits of meets our risk appetite and yes, I'd say tad and our and our guidance I mean, we're presuming a lot of our growth comes from market share wins and not necessarily from the economy, providing a lot of tailwind and our sales. If the economy did then that could suggest there is further upside yes.
Okay. Thanks.
Your next question comes from the line of Gabriel Duchesne from National Bank. Your line is open.
Good morning.
Sorry, if I missed this but the.
And we saw the gross impaired loans move higher and the commercial mortgages and the oil and gas loans.
Did you take a provision against those and sometimes we talk about the other.
And your fully secured or whatever.
Yes, so as we look at our gross impaired.
We called out two connections that.
The increased in particular for the formations and one and the commercial mortgage side and one in the oil and gas side and the answer is yes, we have a provision on both of those.
And then and I'm not trying to go negative on credit here actually the opposite.
And the path.
And you have these.
The impaired loan numbers the bank of B and all of the members can stay elevated for quite some time, because it was difficult and lengthy resolution process.
Could we see it.
The drop.
Faster than it would have historically because of so much liquidity out there of the secondary market looking for the investment opportunity.
Active and desperate I guess, maybe the right choice of the word but could we see easier and easier certainly, but also faster resolution of some of the the impairment.
We've been parallel.
Well I would say that we do our best to resolve the as quickly as possible. We've got a really strong team that manages our our high risk loans and.
As we've explained on prior quarters, we've bolstered that and.
We've got a strong leader and.
And a really good working team to manage our processes and if we of early exits we would be keen for those of course, because then you just on frees up capacity to work on other things, but yes, we will be.
The proactive as possible in resolution for sure.
With the.
The clear goal that we look we don't look to exit to exit we wanted to.
Maximize our returns.
Well I'm not so GAAP.
Fair enough of capacity I'm wondering if market dynamics are such that it could be easier and then you talked about the maximizing returns like the likelihood of recoveries could even be greater.
Because of the liquidity out there is just so so elevated.
Seeing that or do you anticipate the being something that could actually be and underappreciated the.
The boost to you from a.
Sure.
Yes to be Frank I mean, we've seen some great resolutions of coming up to this quarter and we will continue working for it but I couldnt actually put my finger on that right now to say that yes, there is and you've absolutely.
Absolutely see net but.
Every situations often quite different and we just manage the facts as the present themselves.
Fair enough and then just the.
The critical of the commercial mortgage going from here, but what kind of property.
What's and industrial property book.
Yeah.
Alright, well have a good weekend. Thank you great. Thanks Gabe.
Once again and if you would like to ask a question. Please press Star then the number one on your telephone keypad. Your next question comes from the line of Marcel Mcclain from TD Securities. Your line is open.
Okay. Thank you.
Just wanted to go back to expenses for a minute.
And there's been a number of sort of moving pieces and that line item and I understand the seasonality within it to but I was wondering if you could provide some guidance sort of what youre looking for on a full year basis.
Net of growth versus 2020, or even compare 2019.
Yes, it's not looking really much different than we thought last quarter I mean, we're still planning on making the investments we plan to make that Hasnt changed so I mean, thats driving NII growth on a gross basis kind of in that mid teens as a percentage year over year.
A big chunk of that is the wealth management acquisition you back that out.
Now down kind of and that high single digit percentage growth year over year.
A chunk of that is <unk> and going live and starting to operate those models.
You start backing that out and you're now down to a level of NII growth that likely doesn't look much different than the revenue growth, we're expecting for the year and kind of similar and what youre seeing shakeout on the efficiency ratio and.
Excluding the wealth acquisition being sort of and that 48% range.
And free on a full year basis that that's what we're seeing I mean embedded within that outlook, we have presumed that.
Things like travel and business development.
Employee training cost sales all start ticking back to normal at some point this year and I mean that remains to be seen we'll see what happens with with vaccine rollout and maybe there is the opportunity to to avoid some of those expenses, but that's not included in our outlook right now pretty consistent with last quarters, what we're seeing.
Okay. Thank you.
Your next question comes from the line of so Rob <unk> from BMO capital markets. Your line is open.
And you've done a really good job, giving.
And that's pretty good transparency and to expectations. One last one what do you think of your effective tax rate is kind of cool is it going to trend higher or do you think it's kind of stay where it's at.
It's going to trend down we had some deferred tax noise this quarter the bit of Remeasurement on on some of our deferred tax assets and liabilities that did drive up the effective rate a bit beyond where we might have expected in Q1 on a full year basis at.
At yearend, we guided towards 110 basis point decline year over year and effective tax rate and that's probably pretty consistent with Q1 being a bit higher were probably more like 90 to 100 basis points of year over year decline so and.
The annual effective tax rate and kind of that $25 three ish range is what we'd expect.
Perfect. Thank you very much.
That concludes Q&A. This morning, I'll now turn the call back over to Christopher <unk> for closing remarks.
Thanks, a lot operator.
We're very happy with the strong start to the year.
Our performance benefits from the strategic investments we deployed.
And our more diversified funding supports our net interest margin and our expanded footprint and Ontario supports diversification and growth.
The integration and growth of our wealth management business is meeting our expectations.
We recognize and are working to manage the near term COVID-19 volatility and are ready to prudently support the trajectory of the expected economic recovery.
We remain confident and the solid foundation of our secured high quality credit portfolio and know how to capitalize on opportunities that emerge as the economy rebounds.
Our on.
Our coming digital platform will further optimize our business to deliver future opportunities through unrivaled experiences for our clients and closing we appreciate your continued support as we build momentum and unlock opportunities to accelerate our growth. Thank you for your confidence and CW B, we look forward to reporting second quarter financial.
<unk> on May 28, with that we wish you all a good day. Thank you.
Yes.
That concludes today's conference call you may now disconnect.
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