Q1 2022 Canadian Western Bank Earnings Call
Good morning, and afternoon, ladies and gentlemen, my name is Sylvia and I will be conference operator today at this time I would like to welcome everyone to see WP <unk> first quarter 2022 financial results conference call and webcast note that all lines have been placed on mute to prevent any background noise. After the speakers' remarks.
There will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad and if she would like to withdraw your question. Please press Star then number two thank you.
Mr. Patrick Gallagher you May begin your conference.
Thank you Sylvia and welcome to our first quarter 2022 financial results Conference call. My name is Patrick color and I'm, the Vice President, leading our strategy and Investor Relations team.
I'd 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 and analysis made by management actual results could differ materially from expectations due to various risks and uncertainties associated with CW business. Please.
Please refer to our forward looking statement advisory on slide number two.
The agenda for today's call is on the term slosh presenting cheap cheap to you today are Chris Fowler, our President and Chief Executive Officer, and Matt wrote our executive Vice President and Chief Financial Officer. Following their presentations, we'll open the lines for a question and answer session I'll now turn the call over to Chris who will begin his discussion on slide four.
Thank you Patrick and good afternoon.
Execution of our winning strategy focused on business owners continues to accelerate our growth of full service clients. We're pleased to deliver another quarter of strong new lending and robust growth in deposits from our banking centers the.
The majority of this growth is from full service client relationships and reflects the significant improvements we've made to our products and capabilities. The differentiated level of service. We provide is your clients through a period of continued operating and economic volatility and the increased momentum we're seeing in leveraging our expanded wealth management offering.
To drive CW be referral based client acquisition.
We've continued to diversify our funding sources achieved strong growth in Ontario, and delivered 12% sequential growth in pretax pre provision income this quarter.
Our team's focus on leveraging our expanded product offering and digital capabilities to grow full service client relationships yielded strong results again this quarter with 2% growth in branch raised deposits.
New lending volumes remained strong this quarter with the offset the net offset by elevated payoffs and paydowns, resulting in 1% net loan growth in the quarter.
Ontario accounted for approximately 36% of the growth are.
Our Mississauga banking center continues to significantly exceed expectations with our new clients, saying it feels very different dealing with CW b, noting our specialized proactive and personal touch our performance in the GTA provides clear evidence that our Ontario business owners are ready for a clear alternative to the big banks.
And we're ready to be that choice.
Our teams are core to our strategy of delivering a differentiate differentiated level of service to our clients. We've been agile to adapt and remain a destination for top talent and an evolving and competitive environment.
We're pleased to be recognized for these efforts by great place to work, Canada, who named CW B as of 2022 best workplace for hybrid work this quarter.
We also recently announced our new locations to physicians CW B as a growing force in our core markets with basis designated to support a differentiated experience for our clients and our teams bill.
Building on our strong growth in Ontario, and in addition to our previously announced market location opening in 2022. We also plan to open a new banking center in Toronto as financial District in 2023 to consolidate our Toronto wealth management and downtown banking teams in one location.
Also finance plans.
Finalized plans to transition to a new corporate head office location in downtown urban tunes Ice district in 2026. These moderate an exciting slate spaces will meet the evolving expectations of our high performing teams for more collaborative and flexible workplaces.
As prominent signage and desirable locations to continue expanding our brand awareness and support the continued growth of our market share.
These announced investments combined with our continued progress towards the launch of our digital banking platform. Later this year for personal and small business and commercial clients, including integration with the virtual <unk> solution will enable strong growth a full service client relationships and capitalize on the opportunities available to us in combination.
With our strategically targeted expansion of our physical presence in the Ontario market.
We're seeing continued benefits of our strategic investment in our wealth management capabilities to positive feedback from our clients on our enhanced offering.
Further we continue to execute on our IRB transition program that we believe upon approval will make us more competitive support higher growth and achieve further diversification with an enhanced view of risk I'm also happy to announce that we will publish our annual sustainability report in mid March which will provide more details on our focus.
And progress relating to important ESG activities.
I'll now turn the call over to Matt, who will provide greater detail on our first quarter performance and outlook.
Thanks, Chris I'll start on slide five we continue to deliver on our funding diversification strategy evidenced by our multi year trend of strong branch raised deposit growth our focus on expanding full service client relationships supported very strong branch raised deposit growth up 12% compared to prior year. The strong deposit growth from our banking centers was offset.
By a reduction in more expensive motive financial deposits and the net drove 2% sequential growth in our branch raised deposits.
Raise deposits now represent 59% of our total funding that's up from 57% last year and we currently have one of the strongest liability structures in our history.
Looking at slide six our total loans were up 9% in the past year with positive growth in all of our core markets and loan categories.
Real estate project loans, which declined 5% driven by successful project completions, the 21% growth in commercial mortgages reflects strong new lending volumes in BC, Alberta, and Ontario, with high quality borrowers and underlying assets that remain within our risk appetite.
Also delivered 10% growth in our strategically targeted general commercial portfolio and that reflects our focus to increase full service client relationships across our national footprint.
Oil and gas production loans increased primarily due to participation in syndicated facilities that remain within our risk appetite.
Our exposure to oil and gas service and production businesses represent approximately 2% and 1% of our total loans respectively.
Total loans at Ontario grew 10% over the last year supported by our increased presence with the Mississauga banking Center, and Ontario loans now represent 24% of our total loans.
Our sequential loan growth reflects strong new origination volumes in the quarter, partially offset by elevated payouts and Paydowns, we delivered 3% sequential growth in personal loans and mortgages with strong contributions from both insured and uninsured mortgages are.
General commercial loans grew 1% driven by growth in BC, and Alberta with a gradual improvement in economic conditions. New project starts have increased over the last few quarters, primarily in Ontario, and BC and Thats, driven 4% sequential growth in our real estate project loans.
Commercial mortgages increased 1%, primarily due to strong new lending volumes in Ontario.
As slide seven shows we delivered another solid quarter of profitability common shareholders' net income increased 11% and pre tax pre provision income increased 5% compared to the same quarter last year.
Adjusted and diluted EPS, each increased six cents from the same quarter last year.
Our total provision for credit losses contributed <unk> <unk> and was primarily driven by a reduction in impaired loan provisions for credit losses increase.
Increased net interest income reflected strong loan growth and contributed 15.
And higher noninterest income contributed <unk> <unk>.
Higher noninterest income higher noninterest expenses reduced EPS by <unk> 12, which reflects our continued investment in our people technology infrastructure and our brand to support strategic execution and growth across our geographic footprint, our ATM program, which we established in May of last year also reduced EPS by <unk> <unk>.
But has helped to bolster our set one ratio since its inception.
Our sequential performance as shown on slide eight common shareholders' net income decreased 3% sequentially as revenue growth and lower noninterest expenses were more than offset by an increase in the provision for credit losses.
Pretax pre provision income increased 12%.
Adjusted and diluted EPS, each decreased <unk> <unk> compared to the prior quarter.
Lower non interest expenses increased EPS by <unk>.
Primarily due to the expected seasonal decline in certain expenses and the timing of strategic project spend which we do expect to ramp up as we move through the remainder of the year.
Higher net interest income contributed <unk> <unk> and improve noninterest income increased EPS by <unk> <unk>.
The increase in the provision for credit losses, compared to the abnormally low levels last quarter reduced EPS by <unk> 16.
As shown on slide nine on a sequential basis, a 2% increase in total revenue reflected a 1% increase in net interest income and a 7% increase in noninterest income and that was primarily due to foreign exchange revenue related to the strengthening of the U S dollar through the quarter.
The net interest income increased from last quarter, driven by 1% loan growth and a consistent net interest margin.
Net interest income was 8% higher than last year, primarily reflecting the benefit of 9% loan growth noninterest income was up 11%, primarily due to higher wealth management fees foreign exchange revenue and credit related fees, partially offset by lower gains on securities.
Highlighted on slide 10, our first quarter provision for credit losses on total loans was 11 basis points and remains well below our five year historical average of 19 basis points.
Our performing loan provision for credit losses was a recovery of one basis point compared to an eight basis point recovery last quarter. Now reflects the continued stabilization in macroeconomic forecast and a 1% decrease in stage two loans over the previous quarter. This quarter, we recognized an impaired loan provision of 12 basis points compared to a recovery.
Four basis points in the prior quarter.
<unk> loans $212 million or up 5% from last quarter and represents 63 basis points of gross loans, that's still well below pre pandemic levels. We continue to generate strong resolutions in our quarterly write offs of nine basis points remained consistent with the prior year, we remain in a very strong credit quality position.
Our capital ratios are shown on slide 11 calculated using the standardized approach our <unk> ratio at 9% increased 20 basis points from last quarter, primarily due to retained earnings growth and incremental common shares issued under our ATM program that was partially offset by the impact of risk weighted asset growth.
Here, one capital and total capital ratios, both increased 10 basis points from the prior quarter due to the same <unk> same factors that impacted set one ratio.
Our ATM program has been an effective tool to dynamically manage our capital ratios. We expect to continue to use it to issue common shares to support strong loan growth and to ensure our capital levels appropriately reflect the potential for near term volatility.
In January Osophy released final revised capital adequacy requirements, which includes adjustments to the calculation of risk weighted assets under both the standardized <unk> capital frameworks from a preliminary assessment, we expect the overall impact of the revised standardized capital requirements will be moderately positive to our set one ratio.
They become effective in Q2 of next year.
As Chris noted, we are making good progress to advance our ERP transition program, including incorporating changes to adopt the capital guideline revisions just released and the continued implementation of identified enhancements to our <unk>. We continue to believe that approval will make us more competitive support higher growth achieve further.
Diversification with an enhanced view of risk and provide a boost to our regulatory capital ratios due to the more risk sensitive measurement of risk weighted assets compared to the standardized approach.
Yesterday, our board declared a common share dividend of <unk> 30 per share, which is up one cent or 3% from the dividend declared one year ago and consistent with the dividend declared last quarter.
Looking forward on slide 12, our expectation for the continued gradual recovery of the Canadian economy over the current year remains relatively consistent with the outlook provided in our 2021 annual report. Despite some initial economic setbacks and volatility we've seen so far at the start of this year.
Against these economic assumptions, we continue to expect double digit annual percentage loan growth, where prudent as well as double digit branch raised deposit growth <unk>.
The bank of Canada is expected to commence raising policy interest rates in the near term with the potential for multiple increases in the current year.
Our revised expectation is for policy interest rates to increase beginning starting in the second quarter with a total increase of 75 basis points during the current fiscal year.
Based on this assumption, we now expect that our annual net interest margin may exceed last year by three to five basis points. We continue.
To expect to deliver annual pre tax pre provision income growth within a range of mid to high single digits, but with the revised outlook for net interest margin, we expect to finish in the higher end of that range.
With that Sylvie I'll just go ahead and open the lines for Q&A.
Thank you, Sir ladies and gentlemen, if you would like to ask a question at this time. Please press star followed by one on your Touchtone phone you will then hear eight suite.
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And your first question will be from many Goldman at Scotia Bank. Please go ahead.
Hi, good afternoon.
You mentioned <unk>.
Transition a few times.
Wondering if there's any new you can tell us in terms of expected timing on that front.
Nothing new mini we're just we're continuing to work our way through the process and run the models in parallel.
We remain positive on the outcome of that process.
Okay.
And then if I could just ask about loan growth.
Year number looks good but when I look on a sequential basis definitely it looks like it's slowed down and when I was looking at the oxy data.
Heading into recording definitely look slower so I'm wondering.
I think you touched on a little bit but.
What's driving that it seemed like it came more or.
Early in the quarter, but if you could talk about timing and what youre seeing.
Now in.
This new quarter and how that compares.
Sure, Yes, so on the loan growth side, we actually had very good lending volume in Q1, what we had with some payoffs and what occurs there is that.
We financed the apartment project and it's been in a project loans and then it's gone to series C. Financing for example that type of outcome.
What we do see in the portfolio. So they can be kind of some chunky changes there and the.
So the volume and the momentum of the teams is still good and so as we look at the balance of the year.
Our teams are comfortable with the pipeline as we look at still looking at delivering double digit growth for the year.
And then in terms of what Youre seeing.
So far in Q2.
What does that picture look like especially from a pay down point of view could you see that would be an issue again Hal.
How long.
Is that pay down issue or do you think is behind you.
Well pay downs come they really come mostly through the project lending portfolio and sometimes in the commercial mortgage book because of the kind of the chunkier ones where projects get to a position and then they go out to different type of financing and then we provide.
What we did see this last quarter of course was growth in that project lending portfolio, which is excellent. We've got a very strong group of tier one developers that.
We participate either as the primary banker we lead.
Indicated facilities are we participate so we're very positive in what we see as prospects in that part of the market because we.
We do see from a real estate perspective, Vancouver, and Toronto being very challenged with the supply and so we've got projects that will be coming online. So we're positive there.
So as we look at the kind of the prospects we are positive on where we see loan growth going.
Okay. That's very helpful. And then just maybe a more detailed question.
Thank you clarified it but I just want to make sure in terms of noninterest income increase that we saw on the other category.
Is that FX is that.
What the explanation was and I just wanted to make sure I understood that.
Yes Manny.
About $1 million just over of that increase related to FX.
About half of that I'd say is just structural U S dollar denominated assets.
Slightly above U S dollar denominated liabilities.
So a bit of a structural increase there and then about half of it.
Massify as one time bitter.
Or a hedge we had against U S dollar deposit note maturity.
And recognized a gain on that in the quarter.
Thats It for me.
Thank you.
Next question will be from Paul Holden CIBC. Please go ahead.
Thank you.
Alright, guys still good morning for you.
So I want to go back to sort of some of the.
The headwinds in the quarter or maybe if you could talk about the equipment financing and leasing segment specifically.
Source of weaker growth and maybe thats, just simply due to supply chain constraints that maybe you can talk about there.
Look there and if growth is anticipated to pick up at all this year.
That absolutely is supply chain, it's a big driver.
The teams on.
We have three.
Case in which we participate in equipment finance, we have national leasing we have our branch based group and we have a broker.
Our broker buying center in.
In Calgary and that really is the challenge has been just the inability to source equipment. So.
We are seeing.
Good conversations on demand the general perspective on on growth is positive, but there is just that lingering challenge with.
They're being equipments actually get enhances the client so it's.
The teams are focused in.
Our goal is to.
<unk> two.
Be very active in the market.
Okay.
And then another question I want to ask you in terms of the growth.
Really in the last couple of quarters.
What I've observed is Canadian western bank's commercial loan growth overall is kind of.
Slowed in the last couple of quarters versus the pace.
Earlier quarters and at the same time.
I'd say commercial loan growth.
For your.
Competitors has actually accelerated.
Are there any kind of competitive dynamics or intensity that's maybe.
Harder to grow and Youre in your markets.
Well I would say it is our key focus of course commercial lending is 80% of our of our book. So it is the area that we are.
Absolutely targeted and our focus is that general commercial growth to find that full service client that we can really leverage the different capabilities that we built.
Outcome of Colgate has been the challenge of just marketing to clients.
We continue to be focused on that in the appropriate with all COVID-19 restrictions, but that would be some of the challenge would be just that getting in front and for our full service client to move over to obviously there is there is a bit of a.
Time required invested.
To generate that return.
Turn that contact into an actual prospect and then into a live clients. So we are focused on that.
The other challenge that that debt.
We offered fine as we focus on our risk appetite and our thresholds on pricing. So we want to make sure that we're taking on the clients that meet our credit standards, but also meet our return standards too and we have found that at times that the.
Both of those can be challenged by credit terms by the other banks that are are not quite the structure that we would provide or pricing that is not at a level that we would also be looking to provide and our focus is to.
Improve our capabilities improve the way that we can manage capital with the AARP improve our cost of funds with the real growth of our branch raised deposits all of which are coming together very well.
We anticipate that as we continue to invest and grow that.
We can expand that as we look at our at our ideal client that we're looking to park.
Okay. Okay.
Okay.
The next question was going to ask I think you Macquarie partly addressed it but I just wanted to go back because I think it's.
Important for US all of us in terms of setting the expectations for the rest of the year like.
What specific points gives you the confidence.
Reiterate your double digit loan growth expectation.
For the year.
As we look at we obviously run lots of internal.
Ms based on.
Are the context, we have with <unk>.
Building, our pipeline and determining.
The ability to turn that pipeline to actually book business. So.
It's really that.
Constant feedback loop that we have with our teams in all of the different business lines that we focus on that.
Is there as we look at the market we see growth.
Available to us and the teams are focused to win it and our.
Within our risk appetite, both on credit and on pricing and that is the that's the feedback loop, we do have active process under which we manage our pipeline.
Okay, great Great I'm, just going to ask one more question, if you don't mind and Thats.
Just with respect to the.
ATM during the quarter I thought this was more of a program that was kind of to be used on an as needed basis. So as the loan growth will come as the loans were coming in you would issue equity and sort of keep your sat one level, but this quarter. It looks like you use it to increase does that one.
A little bit can you walk us through the logic on why it happened the way it did.
This last quarter.
Yes, the ATM it was a tool to put in place to dynamically manage our stateline. So in an environment, where if youre looking outwards for potential sources of volatility in economic or operating conditions, and saying it's pretty benign.
And then the ATM would be a tool to do just as you described.
Hold your set one ratio constant and absorb stronger loan growth in doing so what we've seen in the last couple of quarters are things looking outwards, where it's.
Caused us to look at our set one ratio and decided to be prudent to put a little bit extra in our back pocket.
Our 9% Stateline is in an unusual number for us if you look backwards.
Historically been comfortable operating in the high eights to low nine somewhere in that range. So we're not necessarily out of line.
But just looking at what we see swirling around we saw omicron creep up and just.
And decided it would be prudent to hold it in around this 9% level that doesn't mean, we're going to leave it here on a continued basis. It's an evaluation we can do each quarter, where we look at what's in front of us what sort of loan growth or re predicting what are we seeing in the external environment.
There could be factors, we look at with maybe a bit more economic stability, where we say we're comfortable working it back into the high eights it'd be relatively easy for us to do that just turn off the ATM issuances in strong loan growth would soak it up pretty quickly.
So it allows us to make the call quarter to quarter dynamically manage our capital.
Really the only tool to do that as a standardized bank.
If you are looking to build that one other than turn off the loan growth, which we're not interested in doing and haven't done for opportunities that are in our strike zone and our risk appetite.
So this is the tool that is how we're using it and.
Managing things very dynamic basis in a very flexible way, so hopefully that helps Doug.
Thanks, and thanks for the answers.
Okay.
Thanks, Paul.
And your next question will be from Lamar Prasad at core Mark Securities. Please go ahead.
Yes. Thanks, I just wanted to start off with the guidance here. It looks like you didn't change the EPS.
Growth target is still in the low to mid single digit range, but.
You moved up the expectations for <unk> growth to the high end of your target range. So does that.
Am I reading too much into it and suggesting that there is a deterioration in that credit environment that youre expecting or why.
I now move up the EPS growth target as well.
Yes, nothing nothing specific that we're seeing I think when we look at our forecast for the remainder of the year on formation of gross impaired loans as well as impaired loan losses, we do see it.
Increasing from where we're starting.
In Q1.
Our actual results were a little bit higher than what we would've expected, we add no trends no concerning trends emerging but really something idiosyncratic that.
<unk> accounted for the majority of our PCL in the quarter.
So thats something that we look at the forecast for the rest of the year, it's unchanged compared to how we would have seen the year playing out, but starting Q1, a little bit higher than usual so it's those.
Two factors working together.
That has our PTP feeling a little more robust with the NIM expansion, but.
Holding our earnings guidance, because we think PCL might be a little bit higher than what we might have predicted at the start of the year, but not not significantly.
Okay. That's helpful. Thank you and then just wondering what are you guys used when you set your interest rate hike expectation, both I guess in terms of timing and magnitude of the hike expectations I think I think in the past you guys had mentioned you'd look at the big banks forecast for <unk>.
In terms of their macroeconomic variables. So what are you using your rate hike expectations.
Yes, we're using that as a starting point.
Consensus macroeconomic estimate from the large banks.
And then from there.
A bit of an average.
So where it's playing out for us this year as we see.
Two hikes in Q2, and then a third hike coming in the middle of third quarter. It's.
Pretty consistent with consensus.
Consensus expectations at this point.
Okay. Thanks, and then just the final one for me I just wanted to come back to the the equipment finance business and I. Appreciate this might be a tough one to answer but I'm going to ask it anyway. So would it be fair to suggest there's a lot of pent up demand there so when the supply chain issue.
Resolve itself, we could see a period of very very strong loan growth.
In that business, specifically and what could that look like it.
Could we be talking about growth in the 20% range year over year, even higher than that just wondering if there's anything you can offer there.
Well I think that's that's good observation because typically following.
Some sort of dislocation of downturn that is when the equipment finance demand does it go up it's usually the portfolio.
<unk>.
Sure.
It drops first when there is whatever type of disruption in the economy as people scale back their fleets and cut their costs and then when they start to ramp up.
Obviously looking to find to find opportunities to increase their fleets.
And I would say anecdotally I've talked to a few different clients and the challenge today is that not only is it difficult to get equipment is to forget staff too. So there is a few pressures depending on the industry that.
That are factoring in here and to your point I think that when we do see some alleviation of supply chain.
I think we will see some growth in that book for sure.
It's a good and it's been a very strong book for US for 30 years. So we will continue to be very focused on it.
Okay. Thank you.
Thanks Omar.
Next question will be from Doug Young at <unk> Bank capital markets. Please go ahead.
Hi, good.
Good afternoon, just matter when you go back to the ATM and I think in your prepared remarks, you talked about it being 3% dilutive if I got that number right is that sequentially.
And can you just remind us how much you issued this quarter and how much of that <unk> used up.
Yes, so the three of dilution and Thats the dilution isolated to the impact of the incremental shares it obviously doesn't count.
Any incremental loan growth generated with that capital.
And Thats based on the usage, we've had to date on it just under $100 million of usage that leaves about $50 million or so left on the ATM that could be used.
So that doesn't that doesn't factor in the Logan and the earnings that come from the loan that's essentially the added shares because I thought the ATM would be accretive as I guess, where I'm going with this and Youre, telling me its still being at that so I'm just trying to triangulate, yes that is the isolated impact of the incremental shares and.
Doesn't count what we've used that capital for.
So part of the usage of the ATM it would probably be.
I just just under half of it you could point to and say that that's supported incremental loan growth beyond what we could have absorbed through organic capital generation and then offsetting.
Some of the unrealized losses, we've had in our liquidity portfolio that are hitting a OCI.
And then the other portion of that being used to reset our level of sat one just as I described in an earlier question nudging up just considering some volatility in the external environment.
So the usage of an ATM to fund stronger loan growth.
Continues to be accretive that on its own.
We'd be driving accretion.
And kind of washing if you if you thought net net of the two factors.
Roughly less than half of its supporting strong loan growth and even using the ATM to work up our set one ratio on a net net basis, it's still not dilutive.
Modestly accretive which is.
Good thing to do if you are also re leveling youre set one ratio and increasing it if you can do that.
And accommodate loan growth and come out as accretive at the end of the day, we're pretty happy with that as an outcome scale.
So I'm just going to simplify this so it's not dilutive in the context of how you use that it's dilutive if you just look at it <unk>.
Sharon's you've issued but the way that you put it to work net net it has been accretive.
Since you.
Issued shares.
Absolutely correct okay.
Okay.
Second is just on the new banking centers in Mark and then Toronto can you give a little bit of context on what you expect from these new branches given the market intelligence and the work that you've done in I don't know if you can quantify that or perhaps you can give some quantification based upon your experience with the Mississauga branch.
And if you can also we then a little bit about what the product focus is going to be for these new branches.
Sure Yeah. So we've been very happy with the impact of the Mississauga and they've actually got the second highest pie.
Pipeline in our system.
And really the product focus is that business owner full service banking that I mean, thats really the target.
Target client that we're focused on so.
So that will continue to be the.
Goal of these banking centers, it's not that much different than we've done in western Canada historically has.
Come into a market understand the areas that we know that we can be successful with and really pursue those clients.
August on that we anticipate Mark come has done is they are both very well located.
Geographically within the business centers of the two.
Two communities and then downtown I think it will just be leveraging our opportunity in Ontario, because we've got as you know.
<unk> business as if we run there.
We see lots of opportunity we think the the GTA is a tremendous amount of market share for us to gain.
We want to be very strategic in where we place the kind of the physical presence and we are.
Obviously very happy with the areas that we've chosen so far.
Is there any way to quantify or kind of give some guidepost as to what you expect from names.
Or is it just too early.
I would say, it's probably too early I mean, I think we've got.
Impact from.
If we look at that 10% growth that we've been able to generate in Ontario over the last 12 months.
I don't have the breakdown of what Mississauga is of that growth, but there is certainly <unk>.
Meaningful part of that.
Do you have that.
Yes.
Contribution from Mississauga, If you just look backwards what did it contribute last year to net loan growth overall.
By itself.
And the growth they've put up it contributed more than 1%.
Of our kind of if you think about total loan growth we delivered.
And continuing to build and continuing to ramp from there. So this one is.
Outperformed our modeling on it we didn't expect that sort of a contribution that quick and so as we think about the other two branches.
Is it a case, where they'll also over deliver our model we hope so and Mississauga has told us that that's that's.
Possible and probable.
But it's one that we need to see a bit more momentum as we opened the branch get the team in place start thinking about it initial pipeline and from their recalibrate, what sort of growth trajectory you might see but we're pretty bullish.
Okay, just to Mark on the Nix ratio 90, 898, sorry about that 48, 5%.
Thank the guidance if I recall, Matt I thought you were talking more about the low 50% range for fiscal 2002, and you can correct me if I'm wrong and so what I am going with this is is this just a timing issue that expenses were a little bit less in terms of some of the development stuff. This quarter and then it's going to get pushed into future quarters.
Was there any unusual items or did I just read it wrong that fiscal 'twenty, two is really being guided to the low 50% range no you.
You had it exactly right that is still what we would expect on a full year basis, what we saw in first quarter nothing unusual, but really just the timing of project spend and really a shift between work effort that's going into some of these large projects and this includes IRB and the enhancements we're putting in there it's sort of a mix between.
<unk>.
Internal labor, we're putting towards those projects and then pulling in third party consultants, which is more where the incremental <unk> coming from.
So the weighting in Q1 was weighted a little more heavily than we would've expected to internal work effort and the third party work that's being done its still coming but it's just going to hit us a bit harder in Q2 and Q3.
As expected some of that to come into Q1, but I didn't just due to timing.
Okay.
And then lastly on the Nims.
You said, you're guiding to for fiscal 'twenty, two to be higher than fiscal 'twenty, one by three to five basis points.
Can you talk a bit about what youre, assuming in terms of mix and change in liquidity could you talk about the rates side of it but you didn't mention on the mix are you assuming the balance sheet and our loan mix doesn't change or are you building in that expectation of continued momentum in some of your higher end products like real estate project lending.
Yes.
Worth thinking about and mixed benefits from two sides and those are a factor as we're thinking about that three to five basis points of expansion.
On the asset side of things Youre exactly right Wade.
Waiting too.
Two portfolios like real estate project lending equipment finance, if we start seeing stronger momentum on that through the second half of the year. Those are helpful to NIM from an asset mix perspective.
From the funding mix side of things, we're continuing to expect very strong growth in our branch raised deposits and in our lowest cost branch raised deposits the cash management side of things So <unk>.
Between those two factors, it's not the majority of our NIM impact both our are likely contributing about a basis point each of the expansion and then the other three basis points, if youre thinking about the upper end of three to five basis points of expansion.
Three basis points or so it would be coming from the rate hikes.
Okay. So you are factoring in some mix shift in your favor within the NIM guidance essentially.
Correct.
Okay perfect I appreciate the color. Thanks.
Thanks, Doug next question will be from muscle Mcclain at TD Securities. Please go ahead.
Hey, Thanks, good afternoon.
A couple of quick ones for me first of all on the ATM.
There seems to be a tool that you guys like using.
It's sort of worked as intended so far.
This pace it looks like it will be used up in the next sort of one to two quarters.
With that $50 million remaining is this something we should expect that you will be looking to renew at that point.
And secondly.
From your perspective is the thought of.
Just sort of a bridge to will tell you guys get to ERP or is this something the bank might use in perpetuity, how do we think of the ATM or maybe sort of medium longer term.
Yeah, I mean, you are right.
With the strong loan growth, we see in front of us.
Looking at what we have left on the ATM.
We wanted to hold our <unk> ratio, if we thought it was prudent to hold it at the 9%. It currently is.
We fully utilize our current ATM over Q2 and Q3.
This decision to put in a new ATM, we will make that call a bit later through the year by factors, we'd consider it would be looking at our growth pipeline.
The other the other factor we'd have to think about is finalizing a quantification of the revised capital adequacy guidelines.
And specifically under that revised framework, which we believe will be a net positive for us.
How much incremental loan growth can we accommodate under the new capital rules as a standardized bank before we consume capital.
It'll be a higher level than what we're at under current standardized. So we just need you to quantify precisely how much.
<unk> and whether that factors in.
You've heard us on these calls before say that.
We will continue managing our capital prudently as a standardized bank until we're no longer a standardized banks. So we definitely won't be looking to front run.
<unk> approval or any potential capital benefits will continue to manage our capital prudently understand or dies.
In an <unk> world, though.
In the use of an ATM to fund strong loan growth.
Looking at our sort of modeling we're doing under our current era the models.
There would be no need for a tool like an ATM to accommodate long growth even at a stronger level than what we're currently projecting.
Our organic capital generation, just gives us a much higher run rate of organic loan growth we can.
Accommodate before we consume set one capital so.
Not likely we'd need one in an <unk> world.
Okay. Thanks, that's helpful.
And then secondly on the branch raised deposit growth I'm, sorry, if I might've missed this earlier, but.
That has slowed down and I think that was expected.
But.
In prior quarters, you had said that there was virtually no run off in the.
Deposits.
That started to shift now.
And that lower growth number that we saw or are you still seeing very little in terms of any sort of run off.
Yes within our core cash management products.
Even in even in some of our more like if we're thinking about.
Part of the full suite of deposit products.
Full service customer would have we have not really seen much runoff to this point in those core deposits.
We did see some runoff this quarter, but that was frankly a bit intentional we have one product, it's an online deposit gathering product.
One that's predominantly a single product type customer.
And frankly, the deposits looked a bit expensive compared to other sources of funding so and.
In late October we did proactively take a pricing cut in that product.
New it would trigger some run off in.
And that we'd be able to replace that run off with less expensive sources of funding.
That's exactly what happened in exactly what we did.
But it was a factor in the quarter that did dampen our total branch raised deposit growth.
From our banking centers directly we would have had a level of sequential growth in branch raised deposits close to double what you saw on a net basis net of the runoff we triggered an online deposit product.
Okay.
Alright, Thanks, that's it for me.
Thanks Michelle.
Next question will be from Gabrielle Deshaun at National Bank. Please go ahead.
Matthew Mcgrew.
Yes, so on the.
The NIM guidance hike there.
I want to approach this from the deposit.
Business first.
75 basis point rate hike expectation.
Much of it.
What's the percentage of.
The loading rate deposit in the book and how much of that 75% are you assuming you're passing through good depositary.
Yeah.
Yes, so just breaking down our deposit book.
Just under half of it is at floating rates.
About 20% of our deposits are directly linked to prime.
And then Jim just under 20% or sell our what we'd call administered rate deposits, where we do have the pricing discretion.
And that's where we've made the big assumption on how much of the rate hikes, we are intending to pass through.
The short answer is it's about half of the hike.
Predicted and phased in over time, so not all at once immediately when the heightened happens there is a bit of a lagging impact.
Under the covers of that estimate though is we've taken that administered rate deposit book and split it into the sorts of deposits that we believe are most interest sensitive most competition sensitive alright.
All right all the way down to deposits that we arent seeing much sensitivity historically and our current view matches that kind.
It kind of breaks down about a third a third a third in terms of.
Pieces of that deposit book that look to be very sensitive to rate hikes and you'd have to pass through the majority of <unk>.
Third that you could probably pass through about half on a lagging basis and be just fine be able to hold and continue to build deposits and then about a third where you probably wouldn't have to touch rates at all because they're either at.
No we're very low rates of interest in through past cycles, we haven't seen the need to make any adjustments.
Im definitely going to have to read the transcript, but just maybe I'll take a crack at it.
Half of your deposit base is floating rate.
Of that amount, 20%, an administered rate and thats, where youre, assuming the pass through of about half of those others.
The whole.
No sorry administered rate deposits, they would be about 20% just under 20% of our debt.
Total deposits, Okay got it okay perfect.
And my other question I'll just ask the next one on the deposit.
Side of things.
You commented last year that the bank is now more spread than it is rate sensitive.
So it speaks to a competitive dynamic.
How you are able to.
Pass through to your depositors, which we just talked about.
And your.
Your borrowers.
Just seeing double digit growth in commercial lending across the big six banks, that's what they're generating when youre seeing growth like that should I also infer that maybe competition.
So maybe you can actually pass through pricing a bit more readily than if growth was zero.
Yes, so far what we've seen in this I suppose is more so on the fixed rate pieces of the portfolio and.
<unk> seen an increase in and GIC rates.
We've seen an increase in certain portfolios as well, where you have been able to.
Start seeing a bit of steepness in pricing, especially as the term lengths extend so general commercial has won many pockets there where we've been able to pass along some increased pricing and still win the deals other portfolios are incredibly competitive and incredibly price sensitive and we haven't seen that same.
Factor <unk>, so commercial mortgages would be one where.
We haven't seen much of an increase at all in pricing there. It remains very competitive and a bunch of deals. We look at that financially don't make sense don't meet our return hurdles and Havent really moved with.
Underlying movements in the market curve.
Depends and it's specific on a portfolio basis.
It's one that as we start to see the actual policy rate move it'll be interesting to see if at some point in the back brakes.
On holding the pen on passing through some of these rate hikes through to fixed term pricing.
And whether that starts happening as the year progresses.
Our assumptions underpinning our forecast we've assumed that competition on certain of those portfolios keeps lease yields relatively low and we don't see much expansion. So if you see competitive pressures abate a bit and pricing start to escalate on some of those portfolios could be a bit of NIM upside probably not material but.
Maybe youll five basis point there.
Okay.
And then.
And the answer in response to an earlier question on the ATM in.
Potentially renewing at or not you did mentioned I think.
Something about the small and medium sized deposit taking institution capital and liquidity requirements.
Awesome.
<unk> taken about a few weeks ago I took a crack at it I'm getting to maybe a 10 basis point benefit to you, but maybe that's shortchanging.
Edaphon me a little bit.
Yeah, we're not we're not ready to quantify it specifically because we still have a bit of homework to do as you've probably seen and taken a crack at it.
It's causing us to put our risk weighted assets in different buckets and using much different criteria much more risk sensitive than current standardized.
So we just need to work through the data exercise validate to make sure. We are pocketing everything appropriately and then some elements of this are data we're capturing in our underwriting decisions. When we look at these deals.
But in terms of a minable sort of ball dataset, that's where we need to do a bit more work.
But yes, it's one we don't see as a material expansion of our set one we use the words moderately positive.
Okay. So much.
But it's something we'll be more specific on once we've done the homework and certainly with enough time to think about how it impacts 2023 will be a bit more specific.
I'm sure it's taken them.
Anyway, thanks for answering all the questions.
Thanks, Ken.
Once again as a reminder, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone.
And your next question will be from Nigel D'souza at Veritas. Please go ahead.
Thank you good afternoon I have a few questions. If you could bear with me. The first was in your net interest margin and I appreciate the guidance there.
When I model out your nims.
Get a substantial expansion in much of the benefit from expansion high rates in 2023. So first is it fair to say that yes.
Acceleration of expansion is more likely to happen next year and second some of your peers provide disclosure on the impact to net interest income from a 100 basis points parallel shifts is that.
The disclosure that you may consider providing in the future given that we're entering a very high cycle.
Yes, so I guess starting with your your second question.
I mean, we'll be explicit in our outlook in terms of impact on NIM.
You'll have your own assumptions on on loan growth, but were fairly explicit about those as well. So can you can back into.
Dollar amount of NII impact.
So I'm.
Im not sure Youll see us be much more specific but we'll be very specific in terms of NIM impact we see as a result of the rate hikes.
You're absolutely correct, though.
Thinking about the timing of when the rate hikes get enacted knowing that there is an immediate impact.
The rate hikes in terms of.
Upward momentum on our NIM and really that's the spread between our loans linked to prime and deposits linked to prime we have about double the amount of loans.
Prime then deposits so its not immediate reset that immediately starts contributing to NIM, but it's just a case of not having enough time in the year to have the full annual benefit to your NIM. If those rate hikes. So if we're saying three basis points or so of expansion in 2022 from the rate.
<unk> you get about double that in 2023, just from the impact of having a full year of the benefit versus the blended average about half a year's worth of benefit. This year, just the way that the calendar with staggered in men.
Okay. That's helpful and then if I could pivot to your guidance.
Double digit loan growth guidance I assume that.
At the bank level and I'm trying to square that with your guidance for mid to high single digits.
Pre tax pre provision income gap there.
On higher expenses do you expect a high single digit expense growth for 2022.
No we were expecting expense growth in the low teens.
That was our initial guidance and despite.
A later start to the year on NIH, that's primarily timing and we still expect that our annual NII growth will remain in the low teens consistent with our previous outlook.
Okay. That's really helpful. And then if I could ask a strategic question on your branches.
And the ones you've opened in Ontario could you provide us some color on how that fits strategically with digital banking and <unk> highlighted.
Again emphasize digital banking and that shift to it has accelerated during the pandemic. So do you look at your branch physical branch network differently, Ontario, and Western Canada, and how does it fit with the big picture.
Yes so.
We look at it the same.
Ontario versus Western Canada, and we think digital banking is just going to be a tremendous opportunity for us.
We have 42 branches today and.
Many of our clients in historically have done.
<unk> done their banking at the large banks that were more convenient for them to do daily deposits in digital will absolutely change that equation and we expect it to it already has when we use remote deposit capture the.
The growth we're seeing in our in our full service clientele has really come from just the improvement we've already made in our cash management delivery and that will be further enhanced with the digital delivery. So.
Same same sort of focus in Ontario as in Western Canada same client that we're zeroing in on same risk appetite, we just in the addressable market and <unk> is very large so we see a great growth opportunity.
Great and just last question from me on the macro point.
Go back to.
Environment 10 to 12 years ago, where.
Energy prices are about $100 a barrel on a sustained basis, what does that mean for CDW does that improve your credit outlook does it improve your loan growth outlook.
For.
Western Canada, maybe just some color there if we're in high inflation high energy price environment.
Yes, historically high energy prices has created.
Our supply response, essentially where theres been a bigger investment so that if you look through sort of.
<unk> two <unk> and that was the oilsands tremendous expansion there tremendous amount of capital expenditures that went into play.
And that certainly that was a very strong driver for Alberta, and the growth and and so where we sit today is we've got that growth that is actually very large daily production that is benefiting and absolutely in terms of revenue into the province, but the constraint of course is the.
Is the pipeline limitation of how much you can ship, so where we sit today I think there would need to be a response it would come from how does one actually ship more oil so.
I think what we're not seeing at this point is a capex response, and we will follow for that.
I think the energy companies.
The opportunity is there and I think we're all focused on what that might be it can be natural gas can be oil.
We've got ESG concerns as we look at how that gets factored into the equation for.
For energy transition.
I believe everybody is very focused on how this can can move forward is very positive for the country very positives for four for the province, and clearly the business is in Alberta are beneficiaries of higher oil prices too.
Okay. That's that's helpful. That's it for me thanks.
Okay.
At this time, we have no further questions. Please proceed.
Thank you.
This quarter.
Our solid results once again demonstrate that our specialized proactive and personal service resonates with our business owner clients across Canada.
The performance of our Mississauga banking center continues to significantly exceed expectations and shows that Ontario business owners are ready for an alternative to the big banks. The progress we're making on our strategic priorities will drive accelerated growth of full service clients will increase value for all our stakeholders. Thank you all very much.
For your continued interest in CWC financial group and we look forward to reporting second quarter financial results on May the 27th.
With that we wish you all a great day. Thank you.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again. Thank you for attending at this time, we ask that you. Please disconnect your lines have a good weekend.
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Okay.
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