Q4 2022 National Bank of Canada Earnings Call
Hum.
[music]. This conference is being recorded so it's close to home that don't go as you see.
All participants thank you for standing by the conference is ready to begin.
Good afternoon, ladies and gentlemen, and welcome to National Bank of Canada.
Fourth quarter results conference call.
I would now like to turn the meeting over to Mrs named double raunchy.
Senior Vice President of Investor Relations. Please go ahead Mrs pathology.
Thank you operator, and good afternoon, everyone and welcome to our fourth quarter presentation.
Presenting this afternoon are president and CEO of the bank, maybe Shanghai, Shanghai, Chief Financial Officer, and Bill Bonello, Chief Risk Officer also joining us for the Q&A session are Stefan I shall hand, as she blotchy co heads of P&C banking Mustang, Daniel head of wealth management.
Then you just well co head of financial markets, along with a change of <expletive> co head of financial markets. Since November 1st just meant Baja head of international and Sean Dagenais Senior VP finance.
Before we begin I refer you to slide two of our presentation, providing national bank's caution regarding forward looking statements with that let me now turn the call over to Laura.
Merci, Linda and thank you everyone for joining us.
Earlier today, we released strong financial results.
Pre tax pre provision earnings were up 9% for the quarter capping off another year of solid performance for the bank.
For 2022 we generated double digit growth across all business segments and positive operating leverage.
Highlighting the resiliency of our business model.
Again this year, we delivered an industry, leading return on equity by striking the right balance between growth.
Capital deployment discipline and credit quality.
Our superior Roe.
Also underscores the strategic diversification of our earnings stream.
Our highly accretive business model.
In the context of macroeconomic uncertainty.
We are maintaining a defensive positioning with a prudent approach to capital risk and cost management.
Our capital position is strong with a C. G. One ratio of 12, 7%.
Our credit portfolios continue to perform well and.
And we have a prudent level of reserves.
Turning to capital deployment.
Our strategy has always been driven by disciplined and that remains unchanged.
First.
We maintained strong capital ratios.
Invest in business growth and our core markets and third return capital to shareholders through sustainable dividend increases and share buybacks.
This morning, we announced a dividend increase of five cents up 5% from the previous quarter.
Our objective is to gradually bring back our dividend level within our midterm payout range of 40% to 50%.
Yeah.
During the year, we returned $245 million of capital to shareholders through share repurchases.
Today, we announced the renewal of our N CIB program.
Providing us with the flexibility to buy back common shares as appropriate.
Our intention is to resume share buybacks in the near term.
National Bank has a proven track record of delivering superior value to its shareholders over time.
And that will remain a key focus going forward.
Yeah.
Turning now to the performance of our segments.
Our personal and commercial banking segment delivered a strong performance with pretax pre provision earnings up 24% in the quarter and 17% for the year.
This was supported by growth on both sides of the balance sheet as well as higher revenues and margins, resulting from rising interest rates.
2022 was a record year for net client acquisition and improvement in customer satisfaction. Two achievements, we are very proud of.
This was driven by our focus on advice.
Sustained investments in the client experience and the close collaboration between our business lines.
Looking ahead, we expect.
Higher interest rates to result in some margin expansion over the next couple of quarters.
Demand for residential mortgage to continue to slow and gradually normalize back near pre COVID-19 levels.
And commercial loans growth too.
To remain robust, but below the exceptional growth rates observed in the last two years.
Yeah.
Our wealth management segment delivered a strong performance in 2022.
Despite challenging market conditions.
Pretax pre provision earnings increased by 23% in the quarter and 13% over the full year, reflecting our well diversified revenue mix.
Our successful client acquisition strategies have delivered a robust deposit base that benefits from rising interest rates.
And contributed to a significant increase in net interest income.
We are pleased with the positioning of our wealth franchise, a key growth lever for the bank.
As we look to 2023, we are maintaining our objective to achieve double digit earnings growth.
Through the cycle.
Okay.
Financial markets delivered strong results again in 2022.
Propelled by a defensive positioning and prudent risk management.
Revenues grew 11% over and above last year's record results.
The performance track record of our financial markets franchise demonstrates its resiliency.
The diversification of its earnings and its ability to quickly adapt to market conditions through cycles.
While the environment continues to be uncertain as we begin a new year, our financial market segment is well positioned.
For 'twenty to 'twenty, three we aim to deliver year over year revenue growth.
Yeah.
Turning to our international segment.
A b a bank's 2022 performance was strong with net income up 19% for the quarter and 35% for the year.
This was driven by solid growth on both sides of the balance sheet.
A b a bank continues to expand its client base benefiting from a competitive digital offering.
Favorable positioning and strong brand recognition.
In 2022 a be a was again recognized as the best bank in Cambodia by Euromoney and global Finance.
Similar to what we are seeing globally.
Economic growth is slowing in Cambodia.
Given that context, we expect double digit growth for a b in 'twenty twenty-three, however, at a slower pace than last year.
Longer term the outlook continues to be very attractive.
Cambodia is a high growth economy with favorable demographics and it remains an under bank market with strong growth potential.
<unk> performed well in 2022.
Assets were up 6% sequentially on a constant currency basis, driven by a combination of new deals and extensions.
Revenues were pressured by unfavorable mark to market adjustments assets at fair value.
This reflects the increase in discount rates due to rapidly rising interest rates.
We expect these accounting impacts to reverse over the life of the Austin powers.
The underlying performance of the portfolio remains strong.
Looking ahead, the environment is increasingly favorable for credits.
The deal flow is accelerating and we foresee double digit asset growth for 'twenty to 'twenty three.
Now, let me say a few words on the economic outlook.
In Canada.
Efforts to achieve a soft landing continue.
Economic indicators are moving in the right direction, which could allow the bank of Canada to slow the pace of interest rate hikes and reach a peak in the policy rate over the next few quarters.
The labor market is showing signs of moderation and inflationary pressures are less acute than earlier in 'twenty to 'twenty two.
At this time the growth of the Canadian economy is expected to continue to moderate in 2023.
Having said that we are confident that national bank solid foundations.
Will enable us to support our clients and help them navigate through an evolving macroeconomic environment.
We are on solid footings, and we as we enter 2023.
With a diversified business mix robust capital position.
And a disciplined risk and cost management.
To support our long term growth.
We will continue to invest in our people.
Focus on deepening our client relationships.
Capitalize on our momentum in digital innovation and leverage our collaborative models to drive growth across the country in the years to come.
With a strong balance sheet strong credit quality and a diversified earnings stream, we have the strength and resiliency to face uncertainty and generate continued profitable growth.
Our commitment to creating long term value.
For our employees our.
Our clients our shareholders and our communities is unwavering.
On that note about who shut down or do you.
Thank you Don and good afternoon, everyone.
Turning to slide nine.
For the full year 2022.
<unk> generated excellent revenue and P. T P P earnings growth of 9% and 11% respectively.
This was driven by strong organic growth across our business segments.
Underpinning the strength of our diversified business mix.
Regarding caught.
We maintained our discipline in an inflationary context and expenses were in sync with our growth throughout the year.
This resulted in operating leverage of 2%.
While our objective was to achieve positive leverage for the full year. We were also pleased to deliver the same for each and every quarter.
Turning to our quarterly results on slide 10.
We capped off 2022 with a solid fourth quarter performance from all business segments.
Revenues were up 8% year over year.
Driven by continued balance sheet growth resilient client activity and a favorable interest rate environment.
P T P P earnings were up 9%.
Looking at expense growth.
Areas of investments in Q4 across the bank are consistent with what we've been doing throughout the year.
This includes investments in talent in line with strong business growth.
Based on amortization expense consistent with technology investment and.
And higher travel and business development costs.
It also reflects steady investments in systems and processes to support business and client acquisition growth.
And to protect the bank and its clients.
Looking ahead, we will maintain our usual balanced approach to business growth and investment in the context of continued uncertainty and challenging market.
Turning now to the performance of our segments on slide 11.
All our business lines generated strong organic growth and we were disciplined in managing costs.
On a total bank basis. This resulted in a 52.6 efficiency ratio for the full year, an improvement from the 53.7 level of 2021.
We are proud of the consistent execution by our team.
Decided once again translated into best in class efficiency ratios of course, some of our segments.
Looking at the other segment it remains under pressure in the fourth quarter as anticipated and discussed on our last earning calls.
Revenues for the segment were negative $85 million in Q4.
Which we expect to be the low point.
We expect revenues for this segment to remain challenged in 2023.
Similar to levels observed in the second half of 'twenty, 'twenty, two where revenues average negative $60 million per quarter.
Entering into fiscal 'twenty to 'twenty three.
The bank as a whole remains well positioned given our diversified business mix and prudent approach to cost and risk management.
We are once again targeting positive operating leverage for you.
Although we expect operating leverage in T. T. P. P grown to be pressured in the first quarter of 'twenty to 'twenty three.
In addition, our goal is to achieve mid to high single digit P to P. P growth for fiscal 'twenty to 'twenty three.
Assume that the Canadian economy remains resilient and that the favorable momentum in our business activities remain.
Turning to slide 12.
Total net interest income excluding trading was a strong one 3 billion this quarter.
24% from last year.
Year over year benefit from client driven volume growth and higher interest rates was broad based across our core businesses.
Total bank NIM, excluding trading was up 19 basis points from last year and up five basis points on a sequential basis, primarily reflecting higher deposit margins in the context of higher interest rate.
We continue to be pleased with the strength of our margin profile.
Underpinned by first our long standing balanced approach in managing volume growth profitability and credit quality.
Second our strong deposit franchise within P&C banking and wealth management.
And lastly.
Cricket margins in our international <unk> International business.
Now turning to slide 13 for our capital.
The bank ended the year with a robust cc one ratio of 12, 7%.
In the fourth quarter earnings net of dividend added 34 basis points to our CET, one ratio, reflecting the strong performance of our business segments.
Smoothing the impact of foreign exchange.
W. A growth, we presented 41 basis points of capital.
In a context of continued macro uncertainty we are pleased to maintain a strong capital position.
It allows us to support organic growth with all segments expected to contribute to our <unk> growth next year.
While also returning capital to our shareholders through sustainable dividend increase and share buybacks.
In conclusion, the bank's diversified business business mix and continued cost discipline and robust capital levels.
They shouldn't that favorably as we enter fiscal 'twenty to 'twenty three.
No.
Before I turn it over to Bill.
I would like to take this opportunity to recognize our colleague John Destiny, who will be retiring in a few weeks. After 32 years of service at the bank and after supported the finance team true no less than 129 reporting quarters.
As our senior Vice President of Finance has all has been instrumental in these exercises and an invaluable member of the team.
I want to thank him on behalf of everyone at the bank for its contributions through the years and to wish him. The very best in his well deserved retirement bill over to you.
Yes, Sean to Alan I'll, just Echo your comment John it's been a real pleasure to work with us. So closely all these years and wish you all the best in your New Adventures.
Now I'll start on slide 14, looking back at credit performance in 2022.
Our loan portfolio has benefited from very strong employment conditions and high level of savings coming out of the pandemic retail portfolio has performed exceptionally well with impaired provisions remaining about half of pre pandemic levels.
Non retail tail portfolios also performed very well throughout the year with some normal lumpiness from quarter to quarter.
Our international portfolios performed as we expected with higher provisions driven by the expiry of the moratoriums DBA.
Overall, we finished 2022 with total provisions of only $145 million.
With impaired PCL of just seven basis points.
Turning to the results in the fourth quarter impaired provisions rose to $87 million or 17 basis points largely due to two factors.
First a be a saw higher provisions is expected as the remaining deferrals expired.
Second the corporate banking portfolio had new provisions on two files compared to a net recovery last quarter.
Retail provisions rose modestly and remained well below pre pandemic levels.
We took a $29 million for six basis points of performing provisions in the fourth quarter, driven primarily by a deterioration in our macroeconomic scenarios portfolio growth and migration.
Looking forward uncertainty remains high as the economy continues to face compound risks, including the impact of inflation and rising interest rates geopolitical tensions and ongoing supply chain disruptions.
Considering these factors, we expect the delinquencies and provisions to continue rising throughout the next year from the cyclical trough levels of 2022 to.
The speed of this increase will largely be influenced by the path of inflation and interest rates.
We should also expect more dispersion in credit performance across portfolios driven by differences in product type geographic mix and vintage.
Given current uncertainties, we're very pleased with our defensive position.
We believe our risk profile with an underweight and unchecked Creek unsecured consumer a Canadian focus and an overweight in the Quebec region. In addition to our prudent level of credit allowances positions us well in this current environment is.
As a reminder, Quebec benefits from a highly diversified economy more affordable housing lower consumer leverage a high proportion of dual income households, more stable energy prices and a relatively strong fiscal position.
Considering this defensive positioning in their macro context in our outlook for credit performance from 'twenty to 'twenty three we expect that impaired provisions should return to our pre pandemic range of 15 to 25 basis points and with the current trends. We're seeing we would expect to be in the bottom half of that range.
Performing provisions will be driven by changes to the macroeconomic outlook portfolio growth and credit migration.
Turning to slide 15.
Total allowances for credit losses increased to over $1 $1 billion, which is almost 50% above the pre pandemic level.
Performing allowances increased by 4% to $890 million in the fourth quarter, taking our coverage of last 12 months' impaired PCL to 6.4 times and coverage of our pre pandemic run rates of impaired PCL to two eight times.
Our impaired allowance increased slightly in the quarter and provides a strong 41% coverage of gross impaired loans.
We continue to believe it prudent to hold the significant level of credit allowances.
Now on slide 16.
Gross impaired loans increased quarter over quarter to $812 million or 39 basis points, driven primarily by two new formations in financial markets versus a net repayment last quarter and higher Canadian dollar formations.
In constant currency terms, a bas formations were stable quarter to quarter.
As I mentioned in previous quarters, we expect at the expiry of moratoriums that EPA to generate an increase in impaired formations.
And that he should peak by the end of 2020 to be actual performance. So far has match these expectations.
And we remain very comfortable with the level of provisions and the collateral backing these loans, we expect to be a formations to decline in the year ahead.
Slide 17 provides details on our rental portfolio did geographic and product mix has remained stable with Quebec accounting for 54% and insured mortgages accounting for 29% of the total rental portfolio.
Average ltvs increased slightly in the quarter, reflecting a decline in house prices and stood at 53% for uninsured mortgages and up 48% for our HELOC portfolio.
Metrics for the portfolio demonstrate continued strong performance with a 90 day plus delinquencies of the uninsured mortgages only one basis point higher than the cyclical low reached last quarter.
On slide 18, we provide some additional details on our mortgages I'd like to remind you that our variable rate mortgages, which account for 33% of the portfolio have payments at adjust up or down with variations of interest rates.
We believe this provides our borrowers with an opportunity to adjust their budgets accordingly, while maintaining a reasonable loan amortization.
Details on our fixed rate mortgages maturing in the next 12 months show that the average LTV for the uninsured portion is just 40% and about three quarters have remaining amortization of less than 25 years.
These metrics demonstrate the capacity and flexibility these borrowers have to deal with higher interest rates that maturity.
In the appendices, you'll find further information on our loan portfolio and market risks.
Conclusion, we are pleased with the credit performance again, this quarter and remain very comfortable with our defensive positioning our resilient mix and our prudent level of allowances with that I'll turn it back to the operator for the Q&A.
Thank you, we'll now take questions from the telephone lines E Mail question and yours and your speaker phone conceptual handset before making your selection. If you have a question. Please press star one on your devices to keep that.
You May cast your question at any time by pressing star two.
Yeah.
Yeah.
The first question is from.
Many Robyn from Scotiabank. Please go ahead.
Hi, Good afternoon March until you are referenced are some pressure in Q1, 'twenty three or four a pretax pre provision growth in I think operating leverage and I'm just wondering.
If you're signaling something in particular or is it just math from as we compare our Q1 'twenty three to two <unk> to Q1 'twenty two so I just wanted to check on that first yeah.
Yeah.
Hi, Thank you for the question that's exactly it.
If we compare Q1 I'm twenty-three Q1 'twenty two we did have some an adjustment that we had actually disclose a in terms of.
The tax adjustments for.
For $20 million, if I recall correctly in Q1, so that will definitely be an item that will create some pressure.
Okay, and then I wanted to ask about the margin in the P&C business up eight basis points sequentially.
In the context of the broader group it definitely seems high it's a nice problem to have but given national banks, our loan to deposit ratio I would've thought that you would be seeing.
More pressure on your margin and your P&C business I'm just wondering.
No.
How do we understand this margin expansion.
Which seems like it's at the higher end of of the group I guess, we'll see us as a more results come in but it seems to be at the higher end of the group.
So I'm just wondering about that and then I have a few follow ups on margin, but it's just generally a start there.
Yes. Thank you.
It's Lucie so and so I can't I can't speak for them, but so the what we see happening is that the increased definitely stay in deposit trends were a nice tailwind for us and it was partly offset by as a friend.
The tailwind in deposit spreads a big proportion of that came from noninterest sensitive deposits with 20 represents the lion's share of the deposit spread increase.
And this quarter. We've also added projects is a business that makes them back with the deposit growth outpacing loan growth.
And when you also add the fixed term deposit benefiting from higher margin as the portfolio of new.
And the demand deposit bearing interest benefited also from deposit beta so basically he does this story before it is sequentially improving.
Can you talk about what Youre seeing in terms of mortgage spreads are a peer. This morning talked about you know pressure there and so I'm wondering what you're seeing.
And the mortgage product specifically.
Right.
So I definitely see the market continue to be extremely competitive in the context of rising rates and the important increase in the cost of funding that we had in Q4 was only partially reflected in the customer pricing and what I can add also to and maybe just to give you some colors and custom.
<unk> aren't kind of anticipating also that rates may decrease somewhere in 'twenty three are in 'twenty four.
We've seen a we've seen more interest for shorter term this quarter.
So and then the new business is definitely a tighter and we expect to continue to navigate in this environment until the first half of 'twenty.
And then just.
Go ahead finish.
It is on that is that.
Even more important.
For us to stay disciplined with balancing volume growth and pricing discipline.
Yeah.
Understood and then just a final one for me just if you could comment on you know we've heard that.
You know other banks talk about the prime be a spread compression and the impact that that's having on their margin. This quarter. If you could comment on that specifically for National Bank.
This is John just to say that we are a fund transfer pricing is not base under prime be eight.
The primacy door is based on D. O S curve. So it doesn't have the same time on the deck because the rate of our customer moves at the same time as our funding cost.
Okay. Thank you.
Yeah.
Thank you.
The next question is from Doug Young from Desjardins Capital markets. Please go ahead.
Hi, Good afternoon, just to continue on with the NIM discussion and P&C banking.
Yes, I guess shy as is with the fund transfer pricing and the actions in Treasury are you capturing some of the NIM expansion.
The division, but some of that is offset from hedging or fund transfer pricing activity at the at the corporate level either level or is that indicative.
Is that a is that a fair way to think of it.
But business line are matched to maturity according to determine if the deposit so the fund transfer pricing. He is like constant for the business lines and its treasury manages interest rate risk or liquidity risk. So the movement in treasury will depend all I'll do you do manage those risks.
Is it at full pass through of the cost versus the asset yield from that the treasury rate through to the division.
If all pass through according to that methodology and the appropriate rate. According to the terms of the loan and deposit of the business.
Okay.
And just going on to credit she pre.
Pre tax pre provision earnings I think it was down about 20% there is.
And we can see it in the result, there was a mark on the assets NII can you kind of break out what that mark related to can you give a little bit more specific.
And I think it was mentioned that you're expecting double digit asset growth.
<unk> through fiscal 'twenty three I mean is it should we be assuming something similar for pre tax pre provision or is there. Some additional expenses that would slow down the pretax pre provision growth versus the assay growth.
Dog decision planes. So to answer your second question I think that you should anticipate the same trend at four P. T. P. P as for revenues in 2023.
And regarding your first question for most of our business, we old investments to maturity, but in some cases.
As far as accounting rules required that we carry a hold to maturity portfolio was at fair value due to the nature of the underlying assets and are the most common example is dead.
The book of the reverse mortgages.
We're a payments are not required until there is a maturity event such as the sale of the house.
So so two to access those portfolios, we use a discount rate the base model.
And essentially are you probably saw what happened to this country and the fiscal 2022.
No. It it went up by more than 5%. So it's comprised of two items you know what the risk free rates, but also the liquidity premium.
And essentially you know this is this is a huge huge.
Increases are on the discount rate in 2022 and that explains the minus 28 million and in Q4, and a minus 50 million for the fiscal year.
So looking forward, we might experience some further pressure in fiscal 'twenty to 'twenty three are depending on the path of interest rates, but we expect those impacts to be more modest compared to fiscal 'twenty to 'twenty two.
So I hope it helps us to understand.
Yeah. That's helpful. And then just lastly, I was hoping to get a little bit more detail on the RW week growth and that are that 41 basis point hit the set one ratio our WAM gross like can you can you break that down in terms of I assume it's all credit risk weighted assets or was there any movements in operation rescue rescue.
Can you give a little more detail.
Hi, Doug its a nice shot down so in terms of the mix. It was mostly related to credit risk. This quarter as you can see on the slide 3.1 billion.
Very minimal for operational risk and market risk.
So it was just simply all volume growth.
Mostly yes.
Okay, great. Thank you.
Thank you the.
The next question is from Paul Holden from CIBC. Please go ahead.
Thank you and good afternoon first question is related to the share buyback. So I appreciate that it's generally a good use of capital, but I'm just.
You know you suggested that share buybacks would resume soon just wondering like why now like as your stock has held up relatively well versus peers.
Trading of that big a valuation discount like why why start buying back stock more aggressively now.
Paul This is the whole I don't think I used the word aggressively.
But I mean, we we renew our R. N CIB every year and it's part of our capital management.
Buybacks look that the strategy Hasnt changed they are a complement.
They are not part of our growth plan to buyback our shares so our focus remains on organic growth a business growth and Hum. There. There is uncertainty are still in the market. So we're still in that mindset that we have to be prudent.
Given the macroeconomic environment seem with our provisions so.
Oh, you know our goal is to make sure that we have flexibility in our capital management.
But and no way that we are our intention is to aggressively buyback our shares at this point in time.
Got it thanks that's helpful.
It does it does thank you.
Second question is with respect to commercial loan growth. So good this quarter the two peers that have reported.
To date, I've put up exceptional commercial loan growth in soybeans slowing it looks like you're growing a little bit less in the market. Just wondering if that's intentional and if it is if there's any particular color you can provide there.
No I think thank you for the question I think I'm, we're very proud of the growth we've had and you've got to look at it more than on a on a quarterly basis. Our volume growth has been strong over consistently over the last two years and obviously, we remain prudent in light of the uncertain environment as well. So we're very pleased.
Where we're positioned in terms of growth okay.
Okay.
And then one final one from me. So it was pointed out earlier in the call that deposit growth.
<unk> loan growth or at least this quarter I think that's another divergence versus what we're gonna fee and.
In the industry. So just wondering.
What it is you're doing that's driving that excess deposit growth.
Well I can start maybe Stefan can complements.
Actually we've been working for many years on our customer acquisition strategy and I think so like no understanding your script, we I didn't break are geared in 'twenty to 'twenty two.
We see that the you know the science strategy, it's nice being a medium long term impact, but we are starting to see really are the benefits of that kicking in and we saw it in 'twenty to 'twenty two.
The other side there is definitely more attractiveness for fixed fixed term deposits in the current rate environment and our customers have been responsive to through the P. P. M. This how can they stay at a fixed term deposit.
Excellent and I, just say the first for one liquidity has been stronger than what we would have.
Anticipated at the beginning of the year and remains very strong amongst Canadian businesses, and also I won't detail or specific strategies, but obviously in light of the good asset growth. We had the last two years, we have been working hard on on narrowing new clients on the bar on the deposit side.
Got it that's helpful. Thank you very much.
Yeah.
Thank you. The next question is from Gabriel to Shane from National Bank. Please go ahead.
Hi, Good afternoon, a question for Saar Swansong question for me.
The hedging losses in the other segments.
If I look at the run rate of NII prior to the last couple of quarters and we're looking maybe at a delta of pointing to a 30 million is that a part of that.
Ballpark figure and in one of these roll I guess.
That's applicable.
Yeah like I.
I mentioned it to you to go.
So run rate for the other revenue even when you get to revenue would be about the average of Q3 and Q4, which includes the impact of that edging do hedging was done several quarters ago with Sony to continuation of that and it will taper down over the next 2023 and it will be less of a factor on a comparative basis.
After the second half and the second half of 2023.
Okay.
And then on credit G. You mentioned.
But the you know if you hold on the maturity of the loans that paid off you recoup those losses.
Is it correct to assume that the duration portfolio profile of this loan book.
What are you short or reverse mortgages, maybe not I'm just wondering when we could expect to see those reversals.
Yes. Thank you. We'll go ahead decision sleigh Oh, so so you're right. This is.
The negative impact that we saw in 2022 into portfolio was temporary.
And as far as our intention is to is to hold these portfolios until maturity.
And also because.
The portfolio was still a very good credit quality.
So was so so to answer I'm, sorry, I think that's I forgot your question on the duration the duration yeah no. It's okay. It's okay. It's okay I'm sorry.
So I just.
I wanted to give you to two indicators for this portfolio of first of all this book you know of.
At fair value it represents around 8% of the total assets of creative G. So 8%.
And the duration is approximately five years on those portfolios.
Okay, perfect and then as far as the outlook at the moment.
With looking to be in the double digits next year.
Where are you.
Our credit do you have a pretty nimble it goes from performing to that.
For me, but the secured to unsecured.
Where are you seeing the opportunities arise.
Oh bladder.
The former I would say so it's more of a secured business. So we have increased our cigarette secured business activities Oh, what did the years and this will continue into 2020 three.
Okay and last question, sorry for hogging ballpark here, but for Mustang and the wealth is there we can spend a lot of time talking about the NIM in the banking segment, obviously, but it's a big driver.
I'm just wondering if there's any.
Dynamics like.
Customary substitution or like Weatherford.
Noninterest bearing a fixed term or he does that we should be aware of.
Helpful Tailwind for your business.
Thank you, yes. So first of all are we we don't manage nims are nims are are a bit irrelevant for wealth management, we try to optimize net interest income.
And there theres been no very little actually switches to answer one of your sub question very little we we estimate that less than 10% of our GIC sales come at the expense of our mutual fund sales. So when you look at our numbers for example, where.
There are number one for you over a year, a AUM growth rate and throughout 2022, we've been number one. So no. This is the explanation is something that we've talked in the past, yeah, and I I optimization strategy has been put in place before the pandemic.
With a dedicated team. So it's a couple of years into work and it's a we're seeing no. The results of everything we've put in place over the years and mainly driven by client acquisition.
Great. Thanks.
Thank you.
Yeah.
Thank you. The next question is from Mario Mendonca from TD Securities. Please go ahead.
Good afternoon Bill.
How about for a few questions.
Natural market sector, you referred to two files were.
Gross impaired loan formations were elevated could you talk about what segments. Those were in the best I could gather it looked like.
What what you were fortunate as your education segment could you speak to that.
Hi, Mario I'd be happy to talk about that I think we called them out in the slide it's a health care and mining sector two underneath all at.
Oh, I'm, sorry, I missed that sorry.
So I'd call them Maryanne, and that's why I called those two idiosyncratic provisions.
Nothing that's reflecting a trend in any one sector.
And as you said they are unrelated I guess, that's what I was born in park.
Alright.
By sector.
Can we keep the mortgages now normally I don't worry too much about mortgage losses, but there was seven basis points of mortgage losses. This quarter. It's a high number it's not something I'm really use the thing was there some kind of adjustment in the quarter that would have taken at the seven basis points might.
Maybe you can speak to that.
Yeah, I think you're talking about a seven basis points of of late stage.
Delinquencies I don't think so.
Oh, sorry, two impaired piece impaired PCL than mortgages.
Okay. So yeah. So if you if you look at the I can't remember what table. It is in the M DNA, but and in the slides and some sections, you'll see mortgages five business units, so Canadian P&C, but in many of the sectors.
Descriptions in the SFA, it's more of a regulatory.
Treatment of products. So the link that you're seeing is with a D. A.
The increased formations. So that's a that's something to call out depending on what what what section of the SFA as you're looking at it's either it includes a be a or when we're talking about P&C youre looking at the Canadian domestic L. D D.
Farmers in Canadian domestic mortgages has been exceptional yeah. So we're not looking at actually seven basis points of losses in domestic mortgages that no no.
You would put that at what like two or three or something that most a zero.
Zero one.
Okay. Okay. So then I am co mingling, something and getting there so let's let's go straight bonds, new a b E.
You talked about how gross impaired loan formation.
B trending down from here.
You didn't really speak to the PCL, though would you also expect PCL to start trending back to where they work.
I wouldn't expect PCL to follow the formations and trend down next year, yes, okay.
Okay, and then because those are relatively straightforward if I could just go to the.
That entire segment the U S. The.
The one with NBA and quite a G I.
It's difficult to understand why that margin moves why it does it it's a little more volatile than I'm used to seeing it. This is an interest margin what are we seeing over the last couple of quarters. It trended down I think last quarter, you talked about mix is it mark to market adjustments that go through that NII well, what do I think there why is that trending down over the last couple of quarters.
Maybe I'll, maybe I'll start off and then pass the tissue is fine, but I think when you're when you're thinking about margins. If you remember earlier in 2022, Mario we talked about about holding the reins and credit G. Because we saw that one be forecast that there'll be better opportunities are coming.
In the future and we're wanting to make sure that we have dry powder. So that's directly with half a business mix impact on the margins that you would've seen in credit G and in terms of the other aspect of margins I think he's just not talked about the.
The team is seeing very good risk adjusted.
Rewards and secured high very high quality assets, so while Walmart.
While margins are opportunities spreads have increased in the in the unsecured and other higher risk assets.
Assets.
Credit team is still being very disciplined as as you can expect from our team and really focusing our near term I'll be very very good risk adjusted.
Assets in the secured space so the managing of the crunchy and doesn't manage gross margins, it's very much risk adjusted returns.
And very disciplined through all cycles in that aspect and maybe I'll pass it over to just wanted to see if you have anything to add.
Well, Matthew a decision, saying so I'm. So I think that bill and serves a also take your questions on crazy and for a b well just want to point out that for accretive Geez you know.
The margin has been accretive to the bank consistently above 5% and we expect margin to stay above 5% in 2020 three for Crazy.
And and for a B a high margins that's been consistently above 6% and our and this is what we see also for 2020 three so competition on deposits, which is expected to be the main NIM driver for a b and in the coming quarters.
So it has trended down a little bit, but it doesn't sound like it's something near that concerned about it sounds like it's more conscious decisions around mix.
Okay, Yeah, if our critic Gee, it's a it's mix and also a cost of fund.
And for a b essentially it's the more competition and the country more competition for deposits.
Thank you for your help I appreciate it.
Thank you. The next question is from Nomura Prasad from <unk> Securities. Please go ahead.
Yeah. Thanks, I first wanted to start off and circle back around on Cryo G E R.
That is question.
Furthermore.
You could see a situation in 2023, where we see good volume growth, but then mark to market losses to continue however, because of private charity that's why Ken.
Ken.
No that isn't notwithstanding some of the reported earnings pressure off until maturity is that that kind of the right way to think about it at a at the top of the house.
Yes, yes, as I mentioned I mean, we are we could see some some other a negative mark to market in 'twenty, two 'twenty, three but not not to the extent that's what we saw in 2022 I would be very very surprised.
And afford to arrest you know look at the asset growth, we have been very satisfied with the asset growth in U S dollar at 6% quarter over quarter, 9% year over year and as I mentioned, we see a double digit growth in 2023, and so you know everything.
Well you know the current environment. The current economic environment is very good for Crazy and we will benefit from it in 2023.
Okay, Great. That's helpful. And then if I want I want to go over to back to the NIM discussion, but I wanted to take a look at the all bank level. So it seems like liquidity roles that are bad this quarter.
Our repo balances and that certainly put some pressure on the all bank margin can you talk to us about what coal higher repos this quarter and what I'm, referring to specifically is about 26 5 billion on your balance sheet relative to call. It the mid teens average over 2022 anything unusual in that.
Can you repeat because I wasn't following sorry.
Thank you just before.
Did he answers. It tells you know that the all bank NIM, we're showing is the non trading all bank NIM and all of those assets are part of the trading activity with customers and they were not included in the all bank NIM.
Okay, maybe I'll call up offline on that.
But thanks for the time.
Okay.
Thank you. The next question is from Matt Jewell came from credit Suisse. Please go ahead.
Hi.
Hi.
Hi.
This was already discussed but.
Just on the other segment I think you had mentioned the <unk>.
Topline pressure could remain into 2023 can you can you guide us to how we should think about P. T. P. P earnings how they should shape out as we move through the quarter. So that next year.
Yeah. So as I mentioned, thank you for the question.
Mentioned in terms of then guidance for 'twenty to 'twenty three.
First of all Q4 as I said is is our low point and what you could expect is similar levels to what we observed in the second half of 2022 in terms of revenues in terms of expenses.
It's it it it could be it's gonna defend so there's a couple of multiple factors.
But mostly the variation will come from the revenues.
Got it. Thank you and just one last one for me I wanted to go back to the earlier discussion on deposit growth strategy.
Over the last several years and I do see a strong deposit growth, especially on the demand in the Ot side for you guys relative to peers.
And just wondering how you view sort of further customer acquisition strategy in that specific deposit bucket I'm, just given the rising rates and the impact that's having on customers preference.
Moving to the fixed term deposits here.
And yes, it's you'll see I'll start so and definitely we see attractiveness and growing the 675% 20 phase III.
We see it.
Above mid single digits. So it will remain an attractive product from a customer perspective.
In terms of I think you asked something about migration coming from the current account. So we've seen a little bit of that starting in Q4, we've seen some migration from current account for a fixed term deposits which is.
Basically somehow expected in the context, it's difficult to say if that migration will continue.
In the coming months and also with the same to the same extent.
But on a sequential basis, that's migration did that did not have a material impact on our NIM expansion.
Does that answer it.
Listen.
Alright, Thank you very much that's it for me.
Yeah.
Thank you. The next question is from Sohrab <unk> from BMO. Please go ahead.
Thank you.
Can I, just pick up where we'd actually out there I mean, you've talked about the revenue impact in the corporate segment, but if you just cut to the chase and think about the earnings drag.
You think about the second half of 2022 do you think it's going to be at similar types of Corporately.
Drag in 2023.
Yes.
Okay well.
That's very helpful.
Just to make it crystal clear I suppose.
I wanted to ask.
Two follow ups I think.
One for Maarten.
I think they've got a target on your back to grow earnings double digits. Do you think that's going to be top line driven or is it going to be.
Expense driven.
Well first of all I liked the target on the back end.
We keep it we cherish at and definitely revenue Sohrab.
We we focus on revenue and second is positive operating leverage.
And when you look at 2023.
If you just annualized at 350 basis point interest rate increase that we've had in the sensitivity.
We're pretty confident in achieving double digit earnings growth next year.
Perfect and then.
And maybe one for.
For Bill on.
Right.
I appreciate the color you provided and we know it is a bit more of a secured book, but I think you've also indicated or I think at this moron conversations with me that a be a is also trying to go a little bit larger ticket sizes as far as maybe doing more commercial lending.
And the like and I'm just I'm, just curious just to get a sense of that.
What is the average kind of like the loan growth is there I'm just trying to understand is it still kind of.
Is it becoming a little bit more concentrated that loan growth or is it still pretty dispersed.
No.
I can take that one.
So rob it's less than 5% of the portfolio afford a moment in the you know we are over time, maybe it would increase its around 10% of the portfolio, but we're not there yet and we will not be there at the end of 'twenty to 'twenty three considering the economic.
He couldn't make environment, we want to stay prudent with the same.
I would say business strategy.
In previous years.
Maybe I'll I'll try my question, a little bit differently than you know you mentioned bill there were two files idiosyncratic events in financial markets.
Okay.
Yeah.
What would you handicap, the likelihood of having to headline like that in the coming.
Coming quarter at Nash.
National Bank as far as a country.
We had two surprises.
[laughter].
Is worth calling out there.
As you just said that the focus of the business focus has remained the same as as the as the economy has grown and our customers have grown and some of those are growing into a little larger scale customers, but as just mentioned.
The growth in those in those larger scale ones.
Be prudent and when we're talking larger scale in this context for EBITDA. The average ticket size is not the maximum.
Ticket is $10 million.
So it's a it's a it's not something where we would expect to files to be to hit your radar screen or opt it's still very very small yeah. So rob keep in mind that you know 95% of the portfolio is small loans 80 average is around 60000 U S. Dollar so so the 5%.
Of course, they will be higher.
Larger loans, but.
Nothing over $10 million.
I appreciate it and then just one clarification question on credit achieved a double digit.
Asset growth.
I assume that's on constant currency.
And Canadian it's in Canadian double digit so you're talking about double digit asset growth in Canadian dollars.
Does that include an FX tailwind or does it.
Or not.
I don't think that the effects.
Yes, actually as expected the the rate Canadian dollar to weakened and strengthened by the end of 'twenty two 'twenty three so overall if you look at the two N period, it's neutral.
Thank you very much okay.
Thank you. The last question will be from Darko <unk> from RBC capital markets. Please go ahead.
Great. Thank you before I ask shocked for John Congratulations on your retirement, you helped me immensely over my career with a number of numbers question. So Oh, Miss you, but best of luck.
My question is my my questions very straightforward I, just want to know a little bit about the trading that occurred in the quarter.
I noticed in the deck there was a fairly large loss in one day, which is a bit peculiar for your bank just want to understand kind of what.
What caused the loss was it proprietary.
Help me just conceptually think about that and how we should think about trading going forward. Thank you.
Yes. Thank you Doug for the question, it's the knee if you'll remind a and if you look at that specific date is September 26, or just after the release of the you can get rid of them into about the fiscal package it was not.
You know it wasn't unexpected by the <unk> community and suddenly you had a lot of movement on on the Monday, which was the 26 and we are carrying some residuals position that we have from the client activities and it affected our our mark to markets that they are but are we crystallized.
Some of those losses that they've bought in the coming days as you can see there was some money coming back then overall it was not that bad, but the dislocation of the market that they affect us.
Specifically for that but you know, it's very unusual for us to see that type of a transaction and then before you know you have positioned in North America position and you're off and sometimes you have dislocation between the two and this is what happened basically.
So just to be clear are you I mean is it.
Is it normal for you to be trading significant amounts of guilds or other European.
No that was not all related to that some of it was but there was also in the other currency and the other the products that was also a north American because there was quite a lot of actions that day.
Okay.
Dislocated and for us as I picked us.
Okay understood thanks very much.
Pleasure.
Yeah.
Thank you. This concludes today's question and answer session and the conference call I would like to turn the meeting back over to Mr. Ferreira.
Thank you all our I'd like to say again, thank you to start that now he's been with US for 32 years and has provided provided us with a fantastic services over the years and thank you happy retirement. Thank you all on the call and we'll see you a Q1 next year. Thank you.
Thank you. The conference has now ended please disconnect your lines at this time and thank you for your participation.