Q1 2023 Canadian Western Bank Earnings Call

Speaker 1: The.

Speaker 2: Good morning. My name is Lara and I will be your conference operator today. At this time I would like to welcome everyone to see WB's first quarter 2023 financial results conference call and webcast.

Speaker 2: All lines have been placed in me to prevent any background noise.

Speaker 2: After the speakers are marked, there will be a question and answer session.

Speaker 2: If you would like to ask a question during this time, simply pass star then the number one on your telephone keypad. If you would like to withdraw your request, please press star followed by the number two. Thank you. I will now turn the call over to Chris Williams, Assistant Vice-Preston Investor Relations. Please go ahead, Chris.

Speaker 3: Good morning and welcome to our first quarter financial results conference call. We'll begin this morning's presentation with opening remarks from Chris Fowler, our President and Chief Executive Officer.

Speaker 3: followed by Matt Rod, our Chief Financial Officer, and Carolina Parra, our Chief Risk Officer. Also present today, our Stephen Murphy, our Group Head, Commercial, Personal, and Wealth, and Jeff Wright, our Group Head, Client Services, and Specialty Businesses.

Speaker 3: After prepared remarks, they will all be available to take questions.

Speaker 3: As noted on slide two, statements made on this call are forward looking, maybe forward looking in nature, which involve assumptions that have inherent risks and uncertainties. Actual results could differ materially from these statements. I will also remind listeners that the bank use is non-GAAP financial measures to arrive at adjusted results.

Speaker 3: Management measures performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. I will now turn the call over to Chris Fowler, who will begin his discussion on slide 4. Thank you Chris and good morning everyone.

Speaker 4: This quarter, we continue to demonstrate a consistent client growth through economic cycles. Our teams deliver strategically targeted sequential loan growth of 4% in Ontario and a 2% increase in general commercial loans, which represents our largest opportunity for full service clients. Growth of the Canadian economy has experienced challenges.

Speaker 4: with the persistently high levels of inflation that have resulted in the implementation of restrictive monetary policies by the Bank of Canada. Similar to previous economic cycles, we remained committed to helping business owners across Canada, which we expect will provide continued growth opportunities within our risk appetite.

Speaker 4: Today, we reported ETS of a dollar two per share that was up 60% from last quarter and includes the reversal of a previously recognized impaired loan write-off that offset the impact of lower foreign exchange revenue compared to last to elevate the levels last quarter. Our performance also reflects pressure on our net interest margin from the

Speaker 4: Our teams are focused to serve the unique needs of business owners and their families across Canada. We're investing to close competitive gaps in our client offering and court capabilities coupled with a future transition to AIRB and a target presence in key markets that provides full service banking opportunities for more Canadian business owners today.

Speaker 4: and it aligns with the broad section of the Canadian economy that we believe is underserved by the other banks.

Speaker 4: Full Service General Commercial clients support our growth in lower cost relationship-based deposits and supports our funding profile to strengthen our earnings power.

Speaker 4: The recent rebrand of our CWB wealth offers a key component to meet the needs of business owners where we provide comprehensive high-test offerings for management of our clients current and future wealth needs, including a full range of financial planning activities. Our stubble's credit-respension framework

Speaker 4: including the secured nature of our lending portfolio with conservative loan evaluations is a platform to select the right growth opportunities in an uncertain economic environment. As Carolina will discuss in a moment our gross impaired loans returning to more normal levels from the very badine conditions last year.

Speaker 4: Our secured lending model and discipline underwriting processes support our expectation that our provision for credit losses will remain within our historical range. We expect ongoing delivery of our strategy, focus some business owners to support a positive revenue trajectory in the second half of fiscal 2023 and we will proactively manage our expenses to drive profitability in line.

Speaker 4: with the full year targets we provided in our financial scorecard. I'll now turn the call over to Matt, go provide greater detail on our first quarter financial performance. Thanks, Chris. Morning, everyone.

Speaker 3: If we start on slide 6, our branch raise deposits are up 5% from last year, reflecting 29% growth in our fixed term deposits, partially offset by 3% decline in demand and noticed deposits.

Speaker 3: Despite growth from net new full service client additions, the reduction in grandtrade demand and notice deposits primarily reflected a reduction in average client balances and the shift to term deposits, which continues.

Speaker 3: Overall, Brandtrae's deposits represent 56% for total funding. On a sequential basis, the change in Brandtrae's deposits primarily reflects a 2% decrease in demand and notice deposits. While we generate a growth in notice and demand deposits from your clients in the quarter, the deposit balances of existing clients continue to decline and shift in the term deposits.

Speaker 3: 1% increase in branch raised fixed-term deposits reflects the continued shift in client preference in the rising rate environment. While we were disciplined on branch raised fixed-term deposit pricing to maintain it below the cost of fixed-term broker deposits.

Speaker 3: We believe that this dampened branch raise deposit growth overall for this quarter, where we experience unusually aggressive competitive pricing for certain fixed term deposits. Capital market deposits decreased by 8% from last quarter due to a senior deposit note maturity. Broker source deposits increased 8% from last quarter. While preference is to raise relationship-based branch raise deposits, the broker deposit market continues to be a deep inefficient source to raise interest rates.

Speaker 3: very strong 15% growth in a strategically targeted general commercial portfolio. On a sequential basis, total loans were up 1%.

Speaker 3: Very strong 4% loan growth in the Ontario market accounted for approximately 71% of net loan growth in the quarter, supported by our Mississauga and Mark and banking centers.

Speaker 3: Solid sequential growth of 2% in the general commercial portfolio also reflected very strong growth in the Ontario market. Personal loans and mortgages increased 4% sequentially driven by growth in both insured mortgages and uninsured mortgages, which benefited from new origination volumes with prudent loaned evaluation and strong average beacon scores. St??????????????????????????????????????????????????????????????????????????????????????????????????????????????????

Speaker 3: and with lower payouts compared to the prior quarter. Our sequential performance is shown on slide 8. Common shareholders net income increased 39% sequentially as the beneficial impact of a 23 basis point decrease and the total provision for credit losses and lower non-interest expenses more than offset a 2% decline revenue.

Speaker 3: Pretax pre-provision income decreased 3%. Diluted EPS increased 27 cents compared to Q4. In the prior quarter, we recognized accelerated amortization of previously capitalized air via assets that drove a 13% EPS impact.

Speaker 3: And that was reflected as an adjusting item in the prior quarter and had no impact on adjusted EPS. Adjusted EPS increased by 14 cents compared to last quarter. In the first quarter, we benefited 13 cents from the reversal of a previously recognized imperidone write-off, which reflected the combined impacts of a reduction in the imperidone probation for credit losses, which is about 10 cents, and increased net interest income, which is about 3 cents.

Speaker 3: Exploding the impact of reversing the previously recognized write-off, our provision for credit losses increased DPS of further six ends, and primarily reflected an 11 basis point decrease in the performing moment provision.

Speaker 3: While we're not interested in reduced DPS by 7 cents, as we recognize elevated foreign exchange gains in the prior quarter, excluding the benefit from the reversal of the previously recognized write-off, net interest income reduced DPS by 1 cent.

Speaker 3: Lower non-interest expenses increase DPS by 3 cents during the expected seasonal decline in certain expenses partially offset by higher people cost. A Shormon Slide 9 total revenue decrease 2% on a sequential basis.

Speaker 3: The 23% decline in non-interest incomes primarily due to the elevated foreign exchange gains recognized in the prior quarter.

Speaker 3: The 1% increase in net interest income was driven by 1% sequential long growth, partially offset by one basis point decline in net interest margins. The drivers of our one basis point decline in net interest margin are shown on slide 10. They continue to reflect that the growth in asset yields has not yet caught up to the growth in asset yield. The 3% increase in net interest margin are shown on slide 10.

Speaker 3: All C-rate increases totaling 75 basis points occurred during the quarter. That contributed five basis points to our NIM from increased floating rate loan yields that of the increased cost on floating rate deposits.

Speaker 3: As the yields continued to increase, they were partially offset by lower loan fees in the quarter and pay-alp penalties, but had a net contribution of 17 basis points.

Speaker 3: Higher deposit costs had a negative 29 basis point impact, primarily from higher fixed term deposit cost and higher demand and notice costs reflective of the rising interest rate environment. Improvement in our asset mix contributed four basis points and reflected a larger proportion of higher yielding general commercial lending and slightly lower liquidity.

Speaker 3: will changes to our funding mix to reduce them by one basis point. Our capital ratios are calculated using the standardized approach and are shown on slide 11. Our set one ratio of 9.1% increased 30 basis points from last quarter, primarily due to the beneficial impact of retained earnings growth, Common Share is issued under our HEM program and a decrease in the accumulated other comprehensive loss.

Speaker 3: related to increased flow value of our liquidity management portfolio. These impacts are partially offset by risk-weighted aSECRO. The Tier 1 capital ratio also increased 30 basis points due to the same factors. The total capital ratio increased 70 basis points, as it also reflected the impact of a 50 basis points associated with the issuance of $150 million of NBCC sub-DET in the quarter. We should comment share this for net proceeds of $44 million under our ATM program this quarter. For the set one ratio of 9%, we're comfortable with our current level of capital in light of the potentially volatile economic...

Speaker 3: 32 cents per share, consistent with last quarter, and up 2 cents or 7% from last year. I'll now turn the call over to Carolina. We'll speak further to our credit performance.

Speaker 5: Thank you, Matt, and good morning, everyone. Beginning on slide 13, our overall credit performance remains strong despite pressures from higher interest rate and inflationary environments.

Speaker 5: As Chris noted, growth in pared loans have begun to return to more normal levels from a very benign conditions last year, while riders remain low. Total growth in pared loans represented 75 basis points of total loans. The level of growth in pared loans fluctuates as loans become impaired and are subsequently resolved and does not directly affect the dollar value of expected riders given the tangible security held in support of our lending structures. Our strong prior risk management framework

Speaker 5: including well-established underwriting standards, the secure nature of our lending portfolio with concertoval loan evaluations and proactive approach to working with our client through difficult periods continues to be effective to minimize realized losses on resolution of impaired loans.

Speaker 5: This is demonstrated by our history of low-riders as a percentage of total loans, including surpass periods of economic volatility. Widers remain low this quarter at 0.03% of average loans compared to 0.12% last quarter. I would also note that we do not have any material exposure to unsecure personal lending, including no exposure to personal credit cards. As part of our Food and Risk Management framework, the overall portfolio is reviewed regularly.

Speaker 5: to provide early identification of possible adverse trends. Turning to slide 14, in the first quarter, a provision for credit losses amounted to negative nine basis points. This reform results reflect at 12 basis points in peer loan recovery, primarily due to the reversal of a previously recognized 13 million general commercial loan with enough that Matt noted just earlier. Excluded the reversal, PCL for this quarter is still low at $1 million.

We continue to build our provisions on performing loans, considering the consensus of forward-looking macroeconomic outlooks with something specifically related to declining housing prices, slowdown in GDP growth, and lower forecasted old prices. The provision on performing loans of three basis points was 11 basis points lower than last quarter. As we look forward in 2023, we expect the provision for credit losses to increase gradually over the near term.

to finish within our historical range of 18 to 23 basis points on an annual basis. As slide 15 shows, the CAR 2020 Three guidelines and associated disclosure requirements became effective in February 2023. The change results in slightly more risk sensitivity to the capital required for lending exposures as a standardized bank.

Our landing approach places greater focus on portfolios that attract lower risk-weight density under CAR 2023, and we expect the adoption will increase our set-1 ratio by approximately 10 basis points. As I discussed at our investor day, our approach to long growth will leverage the risk sensitivity within CAR 2023 to lower our risk-weighted-ass density. The portfolio location opportunities under CAR 2023 will help us accommodate higher level of long growth supported by organic capital generation over time. Before we begin the question and answer section.

I will turn the call back to Chris for his closing remarks and outlook. Thank you, Carolina. Looking forward on slide 16, our prudent approach to risk management underpinned by our secured lending model and enhanced client offering positioned us to deliver both full service client growth and enhanced profitability in 2023. Our strategically targeted General Commercial Lumpur Folio will also support the acquisition of lower cost branch raise deposits. We expect a more stable industry environment through the back half of the current fiscal year to support expansion of our net interest margin as lending spreads normalize and our fixed term loan products which have a longer average duration than our fixed term deposit products continue to reprise at current market interest rates.

We will proactively manage our expenditures to deliver an efficiency ratio and full-year financial results in line with our financial scorecard as we execute on our strategic priorities and drive more revenue growth through the year. As Matt noted, we're comfortable with our capital position based on current economic conditions. I'm also happy to announce we'll publish our annual sustainability report in mid-March to provide more details on our progress towards important ESG initiatives. In closing, I'd like to thank you for your continued interest in the Eastern Bank.

And we look forward to speaking with you at the next quarterly call on May 5, May 26. I will now turn the call back to the operator for the Q&A portion of this call. Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star, followed by the number one on your test tone phone. If you would like to withdraw your request, please press star followed by the number two. If you are using a speaker phone, please list the answer before pressing any keys. One moment please for your first question. Your first question comes from the line of dog, young from danger dean. Please go ahead. Hi, good morning. Just a few questions here. First, I think Matt last quarter you talked about.

maybe stop being able to stop using the ATM once the new car guidelines come in. Any change to that perspective or that view? No doubt. I mean, at the investor day, we outlined the path of how we would reduce our reliance and what the goal of effectively turning it off. There were two ingredients to that. One was adopting car 23 and getting a list from that. On adoption, we're seeing the list we expected. We get more.

pretty good this quarter actually with the curve normalizing. That's a trend we will continue to see through the course of this year. So, I'd say we're on track and that remains our target. Okay. And should we start to see that tail off in Q2? Or is this more Q3, Q4 or the AD kind of start to move away? Yeah, it's something that we could start to see right away here. That would be sort of our base case estimate. Now of course we'll always be prudent in managing our capital and we'll have the right level of capital for the environment. But put it this way. I mean there's a lot of catalyst for us, Doug, that would have us.

significantly reduce the usage and ideally turn this off as early as next quarter. But we'll be mindful and just make sure we're managing things very prudently. If we do see other things that draw on our capital demand. Okay. And then second, just going to slide 10, an interesting slide nonetheless. I guess the question, are you starting to see upward momentum and asset yield increasing? Outpacing deposit, repricing this quarter. So far, is that something that you're starting to see? Or are we still a few quarters away from that really starting to unfold? And I guess the second part of the question is, I mean, I'm the left hand side that gap between the average prime rate and enders.

interest margin is really, really gaped out. Has it ever been that wide in the past to just maybe provide a little historical context if you can't? Yeah, for sure Doug. The gap, I mean, still pretty wide this quarter. If you look at the difference between fixed term asset yields and fixed term deposit costs, I'd say that's a relatively unflattering look this quarter and I highlighted it a bit in the opening remarks. There was the impact of lower fees that was compressing our asset yields. That was actually a decent impact, both five basis points or so of impact on the NIM. A big chunk of that was pale penalties. So that's sort of a good news bad news story. It's bad news on the NIM. Usually we get two or three million a quarter of pale penalties. In the normal course, this quarter was effectively zero. But the positive side to that is it really boosted our growth in our residential mortgage portfolio because we saw very, very limited pale volume there. So sort of good news bad news on that piece.

The other, I suppose, is good news then if you think about asset yields against deposit costs. Last quarter that differential was about 17 basis points. This quarter it shrunk to 12. If you normalize for fees it'd be more like six or seven. So it's moving in the right direction relative to the movement in prime. Next quarter is one where as long as nothing crazy happens with interest rates. This is where we see this gap continue to close and I'd likely highlight the third quarter is when we look and see this gap actually move the other way.

I just, on that note, I think last quarter, correct me if I'm wrong because I've probably on, but yet you talked about NIMS and Fiscal 23 being around Fiscal 24 levels or a little bit above. What if you can correct me and then is the view still the same? Sorry, Doug, were you saying Fiscal 23 versus 22? I think you said 24. Sorry, I mean versus Fiscal, that add or better versus Fiscal 22. Okay.

Yeah, if we look at how we started the year, I mean, we're in, call it the low 230s. I'd say our trajectory is to be exiting this year in the 240s. What that means in terms of year over year and NIM, I think we're in the ballpark to be flatish, but I think with just where we've started, it's probably a case where we're maybe back a little bit, maybe a basis point here or there. But it's a pretty volatile environment and there's lots of things that could drive that to the upside relative to how I'm looking at it here today. But I think we're in the ballpark, Doug. Okay. Sorry, just one last quick one on the NIX ratio guidance. You save below 50%.

in fiscal 23. I mean, you put up 52.7% to one. So I mean, the rest of the year has to be well below 50%. Am I reading that right? And how do you get there for the rest of the year? Yeah. So if I think about the rest of the year in the next, I think Q2 actually is likely fairly flat to Q1. It's one where, if we're thinking margin is pretty flat. I think that's a reasonable expectation. Then you're looking at pretty similar mix ratio. Where we see the catalyst and where we were driving the year below 50% was really in third and fourth quarter where we get the benefit from kind of two factors. Net interest margin expansion, just structurally and how we're seeing the book churn through.

And then the second piece of it would be looking at our expenses. Q1 is usually a low watermark for expenses from the year. Usually Q1 is light and then you build from there. I look at Q1 and you know it might take up a little bit in NIE using Q2 just as we ramp up a couple of projects but nothing too significant. But then that likely becomes a pretty good run rate for the rest of the year. I think one just to make sure we dial in our NIX to where we committed to on a full year basis. We're usually in the fourth quarter see a pretty good step up in things like marketing, training, travel, etc. That's one where we'll likely hold the line on those expenses unless we see a revenue trajectory that exceeds our expectations. Thank you.

Thank you. Your next question comes from the line of Gabriel DeShane from National Bank Financial. Good morning. Yeah, we're still morning. I just want to ask about your dim outlook. I know we talk about it at the end of the day and talk about the matter, the factored the pace of loan repricing and how that's going to catch up the deposit pricing. And in your MDNA, you talked about the intensity of competition on new commercial growth. And I'm wondering if, I don't know, that's always the factor, but I'm wondering if competitive factors have intensified to the point that you feel maybe a little less confident in that outlook for the second half of them rebound? So I'd say Dave, thinking competition on both sides of the balance sheet, so loans and deposits. I'd say through last summer and through the fall, that was probably as intense.

but you don't expect to lose any money on them. Is that a accurate of a description and B, can you give a bit more of the salient characteristics behind these loans that can give us confidence that you won't lose money on them? If that's the case.

But, Carolyn, the parable, is not that answer. Sure. Hi, guys. So, you're right. We had an increase in the paralones due to the current macroeconomic environment, where we see interest rate and inflation are putting pressure in the board. We were expecting coming from a very low level of imperalones. And, however, as you know, given the diversification of our portfolios across sectors and geographies, we don't see any systemic issues. And, as you point out as well, the secure nature just did not translate into any provisions. And, we do not expect, of course, to translate into a same level of write-ups. So, we're starting from a very strong position in our portfolio to face this impact. And, when we look at the diversification, as I said, there's no systemic risk that causes any concerns from that perspective.

Right, I just hope that if you could tell me, usually you use a couple of numbers to throw at like it's three or four bones and, you know, if there's any, you know, the LTV, you can attach to that, that'd be helpful. Sure, so when we look at the portfolio, as I said, there's a couple of loans in different in various sectors, but nothing that causes concern, as I said, from a specific sector itself, no concentration. And when we look at our LTVs, we're at a very good coverage from an LTV perspective, and when we look at, you mentioned our commercial real-serve portfolio, we have no concerns on that aspect from an LTV.

The only thing I'd add is I think you've seen from us. When loans go impaired, we're very prudent when we put provisions against them. It's not one where it comes impaired and then we later on put provisions. We're pretty conservative when these things go impaired. So, you know, us putting nothing against it, I think, is something that reflects our confidence in the underlying structures and security. I understand, and you've got a track record where we see these things happen and the loans, you know, are perfectly secured. No loss. It's just sometimes helpful to have a bit more granularity to remind people of the level of security you've got. But anyway, I'll move on and enjoy the rest of your day. Thank you. Thank you.

Your next question comes from the line of many girl men from Scotiabank. Please go ahead. Hi, good morning. Just wanted to talk about loan growth. You're continuing to guide to high civil-digit growth. What we've heard from peers is definitely that they expect to see a slowdown in commercial We're seeing that in the data to some extent. So I'm just wondering, what gives you confidence in your projection for 2023? I know historically you've definitely been able to keep that loan growth more stable. Just trying to understand how you're able to do that and what you see in terms of an outlook for an environment that does appear to be slowing in terms of loan demands. Steve and Murphy will provide a response there. Sure. So as you mentioned, we've been

fairly consistent in our growth. And as we look at to Matt's earlier point about what we would see is a bit of a normalization of the competitive environment and the spreads to risks that we see. You know, as you can see, and we've talked about before, we've been selective in the growth that we've taken on to make sure that we are getting the risk returns that we want. And if you look at a portfolio like commercial mortgages in the quarter on a year-over-year basis, you know, we're making sure that we're doing the deals that make sense.

from a risk structure and pricing perspective. As we look now in our pipeline and for the rest of the years, as a start to the year, we still feel like we're in reach for the guidance that we've put out for growth for the year, and we're feeling good about it. Thanks for that. The other question I had was just on the non-interesting side, the other line, flat for the quarter, that from the looking unusually low, just wondering what's driving anything unusual there.

So just leave it there for that. Yeah, what you usually see in that line if you don't see significant volatility in the CAD in US dollar is a million-ish of call it transactional fee revenue from currency trades where we're executing on behalf of clients. We're taking a bit of a transaction fee off that. Where you see volatility and you certainly saw this last quarter is we do have a small net US dollar asset on our balance sheet. Last quarter you saw the big gain from the remesionment there with a pretty significant strengthening in the US dollar. This quarter you saw pretty rapid...

decline in the strength of US dollars sort of back to par, $75.00 or so. And so offsetting what you would have normally see in terms of fees in that bucket, you saw an FX loss on the remeasurement of our US dollar balance sheet just with the decline in the US dollar. So if we look ahead should we expect just more of a normalization there, is that reasonable or is there something? Yeah, if you stay at, call it a $75.00, you'd see a million-ish or so of fees coming in there with some volatility around that number. And then if you see US dollar strengthening you might get more revenue into that line or if you see US dollar weekend, you'll obviously see less.

Thanks, Amanda. Thank you. Your next question comes from the line of Surab Mova Hedi from BMO Capital Market. Please go ahead. Hey, Matt, thanks for the color and the commentary around how the name you expected to progress through the violence video. You know, do you have any thoughts currently as to what following here would look like? You expect that momentum that you...

Thanks for that. Thank you. Your next question comes from the line of Surab Movahedi from BMO Capital Market. Please go ahead. Hey, Matt, thanks for the color and commentary around how the name you expected to progress through the violence video. You know, do you have any thoughts currently as to what following year would look like? Do you expect that momentum that you are talking about?

the dynamic between asset yields and deposit costs, kind of almost giving you that lift in the second half. Is it a one end or can there be some sustained benefits continuing into 2024? Followed. Yeah. So Q2, Q3 is where we start turning the corner, and then you start to see asset yields outpacing deposit costs. That's a trend that I would say continues beyond, say, two quarters this year. You'll see that play into fiscal 2024 as well. That will have some lags. So, I suggest that our net interest margin continues on a bit of an upward trajectory, starting, saying, Q3, and that persists through a good chunk of fiscal 2024 as well. But obviously, you'll see us put out a little more detailed guidance as we get further into this year, kind of closer to the end. But I think that's a reasonable assumption, just looking at the inherent characteristic of our portfolio. Right. And I guess, and I suppose you would say that. And as we get further into the credit cycle, you would expect long losses to kind of continue to also normalize towards that. Your historical range so that, you know, some of that benefit, I suppose, would get kind of spent if you were on PCLs, but that it's still a net pickup.

Another reasonable assumption, I'd agree with that. Honestly, we had expected to see a bit of a normalization already in terms of in Paradlon PCL, but just the performance of our book and how our securities held up has just been exemplary and been above our expectation. But we're mindful that at some point this will normalize and our teams are watching it very closely. Okay, and just kind of sticking with that beyond the next couple of quarters type perspective, obviously a growing bank you have to make investments. When you think about the expense growth and we don't know where you're going to end this year, obviously, but is the pattern has been to obviously continue to make investments and it's not unheard of for you to have double digit expense growth? Is there a risk we'll have? Or is there a chance? Maybe it's not a risk, I don't know. Is there a chance we'll be back to double digit?

And it wouldn't necessarily be spending the NIEs because we had the money to spend and the revenue trajectory obviously have to be based on strategic projects that make sense to us in terms of the reward relative to the spend. Okay, and just one last housekeeping kind of question. If I think about this quarter.

receiving seven quarters. Your overall effective tax rate has been around 25%. Do you think that's a reasonable number as you look over the next four to six quarters? No. So we adopted the one and a half percent banks or tax this quarter. I'd say the impact this quarter was a bit muted because on the one hand, you had our current income attract the higher tax rate. But we also re-measured. We have a net deferred tax asset that gets re-measured at the higher rates. And so we actually had a bit of an offsetting pickup this quarter that muted some of that noise.

You know, I was thinking go forward tax rate. Historically, you can see that our effective rate of tax is pretty consistent with our statutory rate of tax. We don't really have any structuring or other unusual things that causes a dislocation there. So if we then think through the impact of adopting this 1.5% bank surtax, you know, $100 million of our taxable income would be exempt from it. And we have certain subsidiaries that actually aren't in scope of the tax because they don't meet the definition of a bank or an insurance company. So all in all, if that allocation of income state about the same as usual.

150 basis points of bank surtax translates into about 80 basis points of impact to our statutory rate. So you'd be thinking something around 25.7, 25.8-ish, you know, if everything else kind of remained equal.

That is incredibly helpful. Thank you very much. Thank you. Thank you. Your next question comes from the line of Paul Holden from CIBC. Please go ahead. Thank you. Good morning. So first question is just going back to the NIM discussion. I'm wondering how much benefit you're incorporating from your branch raised to positive growth into that NIM expectation. Thank you. Thank you. Thank you. Thank you.

So you can look at this a couple of ways. I mean, if we look backwards through first quarter, I mean our branch raised deposit growth was negative. The growth we had was weighted more in terms of fixed term rather than notice and demand. It caused about a one basis point to quiet on net interest margin from the unfavorable mix on the liability side. So it's something that can move the NIM maybe a basis point or two, but not something I'd look at and say, you know, there's five basis points at risk or anything like that. It's more a bit of around the edges to drive NIM. That's helpful. And then I guess the second question is sticking with the theme of the print raise.

deposits and a hear a comment on the competitive dynamics becoming more favorable. I'm a little bit surprised by that because it seems like we're still in an environment where everyone wants to gather deposits, the beaten, you know, we've seen a bit of a deposit, right off in some cases, certainly seeing the change in mixed, the higher cost deposits. So I thought I would have thought the competitive intensity to gather deposits would still be high, but you're saying it's different. Why do you think that is? Well, and it's a relative statement and one relative to things being just unusually high, like beyond, if there was a level beyond high and you may be called that extreme, that's above what we were seeing in fourth quarter and into a big chunk of first quarter. I mean, to give you some context, we were seeing some fixed term deposit opportunities where clients were being quoted a rate that was well in excess of the GIC rate we'd get from the broker market, even accounting for the commission you'd pay on it, which...

We looked at and didn't make economic sense to us, but perhaps it did others. And so we saw a good volume of that in first quarter, and it likely constrained our net deposit growth because we passed on it. We're interested in building our NIM and doing profitable growth. And that's something we've seen taper off. So I wouldn't characterize deposit pricing today as uncompetitive, but just less unusually aggressive and competitive than it was, say the past couple of quarters is sort of how the second quarter is started. But I'll throw it to Jeff right and see if he has anything to add on top of what I've already said. Yeah, thanks, Matt. I sorry to agree with that. The core of our deposit growth strategies around building our full service client base and the deposits that come with that. The nature of those relationships is because we work so closely with the clients that deposit pricing tends to be a less competitive environment. And so our focus continues to be on that being the bulk of our deposit growth around the edges. We are opportunistic around other things to fund our growth. And as Matt said, in certain cases, those have gotten expensive. And we've looked at other sources like the broker market instead because they've been cheaper in the past few quarters.

Okay, and then final question on this topic, I think it's important. One, in the past you've talked about your pipeline of opportunity, giving you a pretty good window into expected long growth and deposit growth in your term. So maybe you can talk a little bit about where your pipeline stands today and why that might give you confidence in being able to achieve your deposit growth expectations. Deposit growth, deposit growth, deposit growth, you're asking deposit growth? Yes. I'm more focused on deposit growth, but assuming the deposits come with the loans, right? With new cost. Yeah, I can't buy that. Yeah. So deposit pipeline is a little less clear sometimes than loan pipeline, because they tend to be a shorter cycle on the discussions with our

how should we view the risk that maybe that line item continues to be more of a pressure on expense growth than it has been in the past? Yeah, I mean, we've seen some wage pressure through the last year and we had made some what I'd call modest and prudent adjustments and we believe we're through that and now getting into something that feels a bit more normal. We're thinking about just...

and the normal salary increments and compensation. You know, the one thing we did have this quarter and another one of these good news, bad news, situations depending on how you look at it, we had a pretty significant increase in the share price quarter over quarter. That's very good news. The downside to that on NIM is our variable compensation linked to the share price. We remeasured at the higher share price in the quarter. So that did drive a bit of NIE. I mean, you might see that continue and that would be great news if we continued to increase the share price, but that would cause our NIEs to take off a bit. Otherwise, nothing in there that I'd say from a call it wage inflation perspective that I'd circle as a key risk. I think we've managed that quite well actually.

All right, that's great. I'll leave it there. Thank you for your time. Thank you. Your next question comes from the line of Limor Prasad from Corn Mord. Please go ahead. I want to just give you a quick way of the line of functioning on expenses here. And I want to come back to you, Nancy. I think you provided to Doug in suggestion that you want to typically the low water mud for expenses. And we've seen that in past years just looking back at 2021 and 2022. There's a big step up after Q1. So.

I'm wondering if it's still fair to suggest an expense growth and I'm talking about a year over year basis starting next quarter should slow or could it actually remain elevated on a year over year basis and then also can you talk about any areas where you could pull back and grow to say long growth slows more than expected or the margin expansion of the plan. Yeah so a couple ways I'd unpack this if you look back to last year as an example like the Q1 to Q2 ramp up.

A big theme there, well they're kind of a couple. One would be a ramp up in the digital program and that's kind of stay pretty consistent and steady and really remained consistent through Q4 and Q1 this year and I'd expect that to be relatively consistent in the Q2. So last year you saw a big step up Q1 to Q2 from that project. So if we're thinking year over year growth and NNI's Q1 of last year was also a very tough comp in that. We weren't really fully back to normal in terms of things like in-person training and in-person events.

travel, business development, things like that. So it's a bit of a top year on year comparable. Thinking through to Q2, I mean that's the quarter where we started using our way back to a working environment that we're closely resembled something, you know, if there is such a thing as normal anymore, but we were bringing people back more fully. So quarter one, we were, call it 12% year on year growth of NIEs. In Q2, I'd expect that rate of growth to moderate significantly. So instead of being double digits, you know, I would be thinking about something sort of in the mid to maybe just eating into the high single digits, but probably closer to mid, I think would be an OK expectation. OK, let's help on that.

area that you could pull back and expense growth, maybe in the second half of the year, revenues as employee owners expected? Yeah, yeah, and I hit on this a bit earlier. You know, there's certain expenses that ramp up in fourth quarter, are discretionary expenses, so think marketing, training, travel, employee relations, things like that. I mean, those are levers we can pull if the revenue is not there to support it. The other thing we can look at doing is we have certain projects that the timing is a bit more variable, a bit more discretionary, you know, good strategic projects that have good merits. But again, you know, in meeting our commitment on the year and delivering the earnings, it might be one where we look at the timing of those projects and push them out a quarter or two if needed. That would be kind of the other lever to pull. But, you know, there's optionality. Recognize

buyers or borrowers rather. Is there any hesitation that's a little bit more elevated than the impact of rising rates and perhaps a more dimmer outlook for the Canadian economy generally? And also, is there any differences geographically speaking? You're hearing different messages from your borrowers and BC and Alberta versus Ontario? That'd be helpful. Thank you. Thank you.

I would say obviously the economic outlook and the interest rate environment are significant factors that impact borrowers in terms of their planning, their forecasting, and even in their sensitivity analysis of their outlook. But we still see post-pandemic a lot of economic activity and catch up and pence up demand and so we still see healthy activity out there. And so from that perspective, you know, there certainly are strong clouds and I think

But I would point to any particular geography other than, you know, I would say Alberta is pretty healthy right now. It's pretty liquid. As you saw recently in the budget for Alberta, it's a relative basis. Let me back pretty strong. Everywhere else, I wouldn't highlight any particular market or geography as standing out in one way or another.

other than, you know, I would say Alberta is pretty healthy right now. It's pretty liquid. As you saw recently in the budget for Alberta, it's a relative basis. It's looking back pretty strong. Everywhere else, I wouldn't highlight any particular market or geography as standing out in one way or another. Okay, appreciate the fact. Thanks.

Thank you. Your next question comes from the line of Mike Rizwanovik from KBW Research. Please go ahead. Good morning. So what's the ask a bit more often? The V-Base revenue. Maybe starting with wealth management. Your AUM's grow, you haven't really seen the same commensurate increase in your revenue line. Are you at a point where you're considering maybe additional, whether it's acquisitions or are you going to get to the point where maybe you get some more torque because you're more efficient, given the AUM size, getting to a certain level. What's your sort of outlook for that business in terms of the revenue line? Maybe I'll start just mechanically talking about the fee trend and then throw it to Steven to talk a bit more about the outlook. So our AUM, it was called a 6% or so. So sequentially our fees up 3%. There's a bit of a lag factor there. Some of our fees are kind of on a trailing basis. So you'd see actually see some of this benefit from the higher assets. Land in second quarter instead of first. So that puts a bit of wind in our sales going into second quarter.

But yes, even if you want to touch on kind of the look forward. Yeah, so I think when we look at the wealth business, I make two points. One is you can imagine that through the pandemic and since we made our acquisition, we've been doing a lot of foundational transformation elements. And so we've now done a rebranding through our wealth business. We've done a lot of other integration work around the platform. So this has been a transformation kind of integration phase. And so from here, we look at that we're actually leaning into connecting the banking and wealth teams more. And so we've been kind of setting the foundation and now we're switching over to really leaning into our embedded opportunity with our client base. And so I think you could see that, you know, that's not an overnight thing, but you would see in a look that we are making that move. And then, you know, I think we would look to, if there's opportunities for us to feel in or add to our distribution capabilities within our footprint, where it helps us accelerate our growth and taking advantage of that opportunity, we would...

We would look to those opportunities and see if anything helps us on that front. Okay, that's helpful, Colors. It's not going to be like a lot of that transitional stuff that is basically done and you do have some torque there. It's going to take some time, when guessing. Yeah, because I would say, you know, we're now, this is the year that we've now kind of put the shoulder against getting that referral activity between the businesses. And so, and as you know, like those conversations and the moment and takes a bit of time for that to come to fruition and show up in the numbers. Okay, thanks for that. And then maybe Matt just on a couple of the other lines, those trust services, that's been growing. Kind of fits and starts, but it is growing the retail services line hasn't really been growing. It's actually a bit lower than it was even three years ago. As you know, I'm going to say, do you look to these more full-some relationships with clients? Are these the two lines that are going to be impacted? Like, where would we see that incremental benefit on the top line? Yeah, the one I circle.

related to growing full service relationships. I mean, that'd be the retail services. That's where you're taking your transactional day-to-day processing fees are all hitting that line. So that's the one I'd circle and say as really good growth potential as we flesh out the full service client offering and the number of full service clients. Trust services would be sort of a different line of business altogether, different type of customer. Good growth, I'll look for that. But not one that we'd look at and say as part of that kind of core mid-market commercial client, I don't know that we'd see a lot of overlap into that pocket. Okay, and then just the retail services, that's helpful color. So the two and a half, two point six million this quarter, if you could just think ahead a couple years, like you have a target in mind, like could this revenue lie be somewhere in the five to six million range on a quarter-by-run rate basis? If in fact you're able to develop these relationships and do a lot more for your existing client base. But I'm just trying to scale the opportunity here in terms of the special upside. Yeah, I mean, it's definitely not one where you look at and say it's going from two and a half to 20 as an example. It's one where you could have significant growth and we like the opportunity to expand it. Yeah, I mean, just to size it. Even doubling it would be a

we could even end up below the low end of that range. But we're just being very prudent here about just the volatility potentially in front of us.

Okay, so law into the range to be 18 basis points. And I mean, the reason I brought that out is, like you mentioned, you have a good start of the year, even to get to the law into the range. How to apply both to the 30 basis points of PCL to the remaining quarters, which, no, historically that's quite elevated. You only get 32 and during the pandemic. So.

What if you're fair to say you're more likely to be in the mid-teens because you're pointed to you don't get any systemic risk or any if you're a surprising risk in your long portfolio, just trying to get a sense of what that could run at. And also it would be helpful if you had maybe any comments on what the potential ceiling is for PCL ratios in a, let's say, harder landing scenario. Yeah, we're more thought about PCL in a range of outcomes and just the strength of the book, even with the volatility. You know, we felt really good about the top end of our normal range. Just the books held up very well and really taken a lot of steps to improve the quality of the book. Even further, kind of over the last couple of years, just being very prudent and focused about where we land and who we lend to. And, you know, it's resulted in a moderate rate of growth relative to what we've seen others put up over the last year, but we're feeling very comfortable about.

rest of the year and even ending up at low end of that range, you're right, it would require us to be outside of that range for a couple of quarters to mathematically get there. I think that's quite right, conservative view. And there's obviously opportunities where we could outperform that if things stay fairly well behaved. And just a point on that kind of liquidity.

of the financial, economic, and the household's potential access to liquidity on the household balance. Any comments on what's then the utilization of stimulus liquidity and how much is remaining on the commercial side and where you're sitting?

Seeing it come down a pretty significant amount, I mean, you've seen it kind of affecting our notice and demand deposit so far. There's really been two factors. It's been a shift in the term has been a factor. The other compounding factor has just been, I'd say, run down of existing deposit balances. So not using the client just seeing these deposit balances come down and be put to work in client businesses. So we've seen that trend really past several quarters. Expect to continue to see it. There's maybe a bit more room to come, but, you know, feels like we're starting to turn the corner on that and seeing it come down a bit.

And we went through this at the investor day and talked about that and the dynamics on MIM and why we were confident that that ultimately led to NIM expansion just delayed, albeit with just how aggressively rates moved up, just the loan book didn't have an opportunity to quickly turn through and reprise that. I guess the direct answer to your question in terms of average duration, call it, of loans compared to deposits. It's loan portfolio, it kind of hovers in the kind of two and a bit years.

please disconnect your lines. Have a low-beat day.