Q1 2024 National Bank of Canada Earnings Call

Operator: This is a production of the U.S. Department of State. This conference is being recorded. All participants, please stand by.

Hum.

[music].

This conference is being recorded.

Closer to home they don't have as you see.

All participants please standby your conference is ready to begin good afternoon, and welcome to National Bank of Canada's first quarter results Conference call I would now like to turn the meeting over to Maria and novelty Vice President and head of Investor Relations. Please go ahead Maria.

Marianne Ratt: Your conference is ready to begin. Good afternoon, and welcome to the National Bank of Canada's first quarter results conference call. I would now like to turn the meeting over to Marianne Ratté, Vice President and Head of Investor Relations. Please go ahead, Marianne, and Good Afternoon, everyone.

Maria: And good afternoon, everyone. We will begin the call with remarks from President and CEO, Matt He's talked out of Shanghai. She has four and then by now Chief risk Officer.

Marianne Ratt: We will begin the call with remarks from Laurent Ferreira, President and CEO, Marie-Chantale Gingras, CFO, and Bill Bonnell, Chief Risk Officer. Also present for the Q&A session are Lucie Blanchet, Head of Personal Banking and Client Experience, Michael Denham, Head of Commercial and Private Banking, Nancy Packett, Head of Wealth Management, Etienne Dubuc, Head of Financial Markets, also responsible for Credigy, Before we begin, I would like to refer you to Slide 2 of our presentation for information on forward-looking statements and non-GAAP financial measures. The Bank uses non-GAAP measures, such as adjusted results, to assess its performance. Management will be referring to adjusted results unless otherwise noted. Also, in light of the proposed legislation with respect to Canadian dividends, the bank did not either recognize an income tax reduction or use a taxable equivalent basis method to adjust revenues related to affected dividends received after January 1, 2024. I will now turn the call over to Laurent. Merci, Marianne, and thank you, everyone, for joining us.

Maria: Oh, so precedents predict Q&A session are just she'd lost <expletive> handoffs personal banking and can't experience.

Maria: Michael then head of commercial and private banking.

Maria: And she packet head of wealth management it tends to <expletive> had a financial my cats also responsible for strategy and they found that Shah head of international responsible for a bank.

Maria: Before we begin I would like to refer you to slide two of our Presentation's for information on forward looking statements and non-GAAP financial measures. The bank uses non-GAAP measures such as adjusted results to assess its performance management will be referring to adjusted results unless otherwise noted.

Maria: Also in light up their proposed legislation with respect to can you Didnt have it then the bank did not either recognized an income tax deduction or use a taxable equivalent basis method to adjust revenues related to affected dividends received after January 1st 'twenty 'twenty four I will.

Maria: Now I'll turn the call over to long.

Maria: Mr. Jan and thank you everyone for joining us.

Laurent Ferreira: The bank delivered a strong performance for the first quarter, reporting EPS of $2.59 with strong momentum and execution across business segments. The bank generated ROE in excess of 17% and maintained a CET1 ratio of 13.1%. Our results reflect effective capital deployment to generate profitable long-term growth, active cost management and simplification efforts to generate efficiencies, as well as our commitment to maintain a prudent credit profile both in terms of mix and reserve. Our discipline across these fronts is serving us well in an uncertain macro landscape and normalizing credit environments. As anticipated, 2024 is shaping up to be a challenging year for consumers and businesses. Interest rates remain high, and inflationary pressures are still in place. The housing supply imbalance is further pressuring Canadians, while we continue to see signs of softening labour markets.

Jan: The bank delivered a strong performance for the first quarter reported EPS of $2.69 with strong momentum and execution across business segments. The.

Jan: The bank generated ROE in excess of 17% and maintain as C. G. One ratio of 13, 1%.

Jan: Our results reflect effective capital deployment to generate profitable long term growth.

Jan: Active cost management and simplification efforts to generate efficiencies.

Jan: As well as our commitment to maintaining prudent credit profile, both in terms of mix and reserves.

Jan: Our disciplined across these fronts is serving us well in an uncertain macro landscape and normalizing credit environment.

Jan: As anticipated 'twenty 'twenty four is shaping up to be a challenging year for consumers and businesses.

Jan: Interest rates remain high and inflationary pressures are still at play.

Jan: The housing supply imbalances further pressuring Canadians well, we continue to see signs of softening labor market.

Laurent Ferreira: As we look ahead, economic growth could prove challenging, which could translate into lower inflation and interest rates. In this context, we enter the second quarter on solid footing with prudent reserves and a strong capital ratio. This enables us to support business growth and return capital to shareholders through sustainable dividend increases. Our dividend payout ratio stands at 42.4% following the dividend increase announced last quarter. We will review our dividend in Q2 consistent with usual practice.

Jan: As we look ahead economic growth.

Cook challenging which could translate into lower inflation and.

Jan: And interest rate relief.

Jan: In this context, we entered the second quarter on solid footing with prudent reserves and strong capital ratios.

Jan: This enables us to support business growth and return capital to shareholders through sustainable dividend increases.

Jan: Our dividend payout ratio stands at 42, 4% following the dividend increase announced last quarter.

Jan: We will review our dividend in Q2, consistent with usual practice.

Laurent Ferreira: The earnings power of our diversified business mix and our defensive posture provide us with resiliency and flexibility, as demonstrated by the performance of our business segment. Personal and commercial banking continued to perform well in the first quarter, generating 5% year-over-year growth in pre-tax, pre-provision earnings. This was supported by concurrent growth in average loans and deposits while maintaining resilient margins. Our commercial book grew 4% sequentially. Growth in personal loans has been slower, reflecting a lower level of mortgage origination.

Jan: The earnings power of our diversified business mix and defensive posture provide us with resiliency and flexibility as demonstrated by the performance of our business segments.

Jan: Personal and commercial banking continued to perform well in the first quarter generating 5% year over year growth in pretax pre provision earnings. This was supported by concurrent growth in average loans and deposits, while maintaining resilient margins.

Jan: Our commercial book grew 4% sequentially.

Jan: Growth in personal loans remains slower, reflecting a lower level of mortgage originations.

Laurent Ferreira: We will continue to be disciplined across our portfolio, balancing volume growth with margin and credit quality. Wealth Management delivered a strong first quarter, with record revenues of $660 million and net income of $196 million. Momentum in Fee-Based Revenue, HELP, with assets up 10% sequentially, in part driven by market appreciation. Net Interest Income grew 5% over the same period, benefiting from a strong deposit base. Financial markets continues to grow and diversify its activities, delivering record net income of $308 million for the quarter, up 3% year over year. Revenues were up 14% from last year for global markets, with a solid performance across the franchise. This includes Robust Activity and Securities Finance and a strong performance from our Rates and Commodities business. Corporate and investment banking maintained a strong top line in the quarter.

Jan: We will continue to be disciplined across our portfolio balancing volume growth with margin and credit quality.

Jan: Wealth management delivered a strong first quarter.

Jan: With record revenues of $660 million.

Jan: Net income of $196 million.

Jan: Momentum in fee based revenue help.

Jan: With assets up 10% sequentially in part driven by market appreciation.

Jan: Net interest income grew 5% over the same period benefiting from a strong deposit base.

Jan: Financial markets continues to grow and diversify its activities delivering record net income of $308 million for the quarter up 3% year over year.

Revenues were up 14% from last year for global markets with a solid performance across the franchise. This includes robust activity in securities Finance and.

Jan: Strong performance from our rates and commodities business.

Jan: Corporate and investment banking maintained a strong top line in the quarter revenues of $304 million were up 4% year over year drew.

Laurent Ferreira: Revenues of $304 million were up 4% year-over-year, driven by net interest income growth, partly offset by lower M&A activity. Our financial markets business remains focused on delivering net income growth for 2024. Credigy delivered a solid performance in Q1, generating 6% asset growth sequentially. With strong momentum in investment volumes, the business deployed US$1.3 billion in the quarter. Revenues were down year over year and sequentially, as comparative periods benefited from favorable items, including significant prepayment revenue. However, excluding these items, net interest income was up 6% sequentially.

Jan: Driven by net interest income growth, partly offset by lower M&A activity.

Jan: Our financial markets business remains focused on delivering net income growth for 'twenty 'twenty four.

Jan: <unk> delivered a solid performance in Q1 generating 6% asset growth sequentially.

Jan: With strong momentum in investment volumes, the business deployed $1 3 billion U S dollars in the quarter.

Jan: Revenues were down year over year and sequentially as comparative periods benefited from favorable items, including significant prepayment revenues.

Jan: Excluding these items net interest income was up 6% sequentially.

Laurent Ferreira: Greta G's underlying performance remains strong, and our portfolios are diversified and primarily secure. With sustained momentum in deal flow and a disciplined investment approach, Credigy is well-placed to continue delivering high-quality, risk-adjusted returns. Finally, ABA Bank delivered a solid overall performance in Q1.

Jan: <unk> underlying performance remains strong and our portfolios are there are diversified and primarily secured.

Jan: With sustained momentum in deal flow in a disciplined investment approach credit G is well placed to continue delivering high quality risk adjusted returns.

Jan: Finally, a be a bank delivered a solid overall performance in Q1 <unk>.

Laurent Ferreira: Momentum in client acquisition persists, with client count up 28% year over year, translating into double-digit growth on both sides of the balance. Revenues were up 8% year over year and 4% sequentially. Deposit margins have been improving lately with a more favorable mix in deposits. The business is focused on balanced growth in the near term while continuing to benefit from a very attractive long-term outlook. In conclusion, and mindful of the uncertain environment, we remain committed to our prudent and disciplined approach to capital, credit, and cost management. Marie Chantaz, over to you.

Jan: Momentum in client acquisition persists with client count up 28% year over year translating into double digit growth on both sides of the balance sheet.

Jan: Revenues were up 8% year over year and 4% sequentially.

Jan: Deposit margins have been improving lately with a more favorable mix in deposit growth.

Jan: The business is focused on balanced growth in the near term, while continuing to benefit from a very attractive long term outlook.

Jan: In conclusion, and mindful of the uncertain environment, we continue to which we remain committed to our prudent and disciplined approach to capital credit.

Jan: Cost management.

Jan: Emotional Doug over to you.

Marie Chantal Gingras: Thank you Laurent and good afternoon everyone. My comments will begin on slide 7. The bank delivered strong results in the first quarter with PTPP growth of 5% year-over-year and an efficiency ratio of 51.4%; revenues increased 5% compared to last year. In particular, the top line grew 10% in financial markets, 5% in PNC banking, and fee-based revenues within wealth management rose 8%. Our cost discipline is yielding results with total expense growth of 4% year over year. Our actions toward simplifying our products, processes, and services are paying off. Growth in salaries and benefits moderated to 3% year over year, but variable compensation rose 6% in line with both strong P-based performance in wealth management and revenues in financial markets. On the technology front, costs increased 4% as we continue to invest in accelerating automation and simplification.

Doug: Thank you Tom and good afternoon, everyone.

Doug: My comments will begin on slide seven.

Doug: <unk> delivered strong results in the first quarter with P. T. P. P growth of 5% year over year, and an efficiency ratio of 51, 4%.

Doug: Revenues increased 5% compared to last year.

Doug: In particular, the topline grew 10% in financial markets five per cent and P&C banking and fee based revenues within wealth management rose 8%.

Doug: Our cost discipline is yielding results with total expense growth of 4% year over year.

Doug: Our action towards simplifying our products processes and services are paying off.

Doug: Growth in salaries and benefits moderated to 3% year over year.

Doug: Variable compensation rose, 6% in line with both strong P based performance in wealth management and revenues in financial markets.

Doug: On the technology front cost increased 4% as we continue to invest by accelerating automation and simplification.

Marie Chantal Gingras: This is partly offset by a lower amortization expense. In Q1, strong revenue growth and continuous expense management resulted in positive operating leverage of 0.6%. Lingering economic uncertainty continues to make revenue growth difficult to predict. In this context, we remain prudent and focus on managing expense growth. Now turning to slide 8.

Doug: This is partly offset by a lower amortization expense.

Doug: In Q1 strong revenue growth and continued expense management resulted in positive operating leverage for a 0.6%.

Doug: Linda rainy economy.

Doug: Certainty continues to make revenue growth are difficult to predict and.

Doug: In this context, we remain prudent and focused on managing expense growth.

Doug: Now turning to slide eight.

Marie Chantal Gingras: Non-trading net interest income in Q1 grew 5% quarter over quarter and was broad-based. Most business segments benefited from strong balance sheet growth and higher margins. The all-bank non-trading NIM increased 7 basis points sequentially to reach 2.21%.

Doug: Non trading net interest income in Q1 grew 5% quarter over quarter and it was broad based.

Doug: Most business segments benefited from strong balance sheet growth and higher margin.

Doug: The all bank non trading NIM increased seven basis points sequentially to reach to 21%.

Marie Chantal Gingras: PNC NIM was stable from its last strong level as wider asset and deposit spreads were mainly offset by balance sheet mix. We are pleased with our queue on them, but predicting them in the current environment also remains challenging.

Doug: P&C NIM was stable from last strong level as wider I sat in deposit spreads were mainly offset by balance sheet mix.

Speaker Change: We are pleased with our Q1 them.

Speaker Change: Predicting NIM in the current environment also remains challenging based.

Marie Chantal Gingras: Based on what we're seeing today, we expect all banks' non-trading NIM to remain relatively stable from Q1 but may fluctuate up or down by a few basis points from quarter to quarter. As always, we maintain our balanced approach in managing NII with respect to volume growth, margins, and credit quality. Moving to our balance sheet on slide nine, loans were up 9% year-over-year and 2% quarter-over-quarter. All business segments contributed to this growth. Deposits excluding wholesale funding grew 4% year-over-year and 1% sequentially. Personal deposits rose 4% quarter over quarter, with continued growth in term deposits and a billion dollar increase in demand deposits.

Speaker Change: Based on what we're seeing today, we expect all banks non trading NIM to remain relatively stable from Q1, but may fluctuate up or down by a few basis points from quarter to quarter.

Speaker Change: As always we maintained our balanced approach in managing NII with respect to volume growth margins and credit quality.

Speaker Change: Yeah.

Speaker Change: Moving to our balance sheet on slide nine.

Speaker Change: Loans were up 90% year over year, and 2% quarter over quarter, all business segments contributed to this growth.

Speaker Change: Deposits, excluding wholesale funding grew 4% year over year and 1% sequentially.

Speaker Change: First of all deposits rose, 4% quarter over quarter with continued growth in term deposit and a billion dollar increase in the mountain deposit.

Marie Chantal Gingras: Non-retail deposits were relatively stable over the same period. We maintained a strong loan to deposit ratio of 98% as a Q1. Our ratio is aligned with our diversified business model and supports continued growth across all operating segments. Slide 10 highlights our sound liquidity position and diversified funding profile. Our core banking activities continue to be well funded through diversified and resilient sources. The bank has a holistic view of deposits, and we remain disciplined around funding cuts.

Speaker Change: Non retail deposits were relatively stable over the same period.

We maintained a strong loan to deposit ratio of 98% as at Q1.

Speaker Change: Our ratio is aligned with our diversified business model and supports continued growth across all operating segments.

Speaker Change: Slide 10 highlights our sound liquidity position and diversified funding profile.

Speaker Change: Our core banking activities continue to be well funded through diversified and resilient sources.

Speaker Change: The bank has a holistic view on deposits and we remain disciplined around funding costs.

Speaker Change: This strategy contributes to a well diversified deposit base.

Marie Chantal Gingras: This strategy contributes to a well-diversified deposit base and to the bank's strong overall performance. [inaudible] cash ETF balances were up 1.5% over the quarter. We prudently and consistently operate at liquidity levels that are well above regulatory minimum requirements. And now, turning to slide 11.

Speaker Change: And to the bank's strong overall performance.

Speaker Change: LCR remains strong at 145%.

Speaker Change: It now reflects the implementation of us being new regulatory liquidity liquidity treatment of Kashi T S.

Speaker Change: Kashi T S balances were up one 5% over the cortex.

Speaker Change: We prudently and consistently operate at liquidity levels that are well above regulatory minimum requirements.

Speaker Change: Okay.

Speaker Change: And now turning to capital on Slide 11.

Marie Chantal Gingras: We ended Q1 with a strong CT-RAN ratio of 13.1% while generating robust asset growth. The adoption of FRTB and a revised Credit Valuation Adjustment Framework on November 1 reduced the CT-1 ratio by 38 basis points, in line with our guidance. This amount was partly offset by methodology refinements representing 15 basis points.

Speaker Change: We ended Q1 with a strong city runway ratio at 13, 1%, while generating robust I said growth.

Speaker Change: The adoption of F. R T B and a revised credit valuation adjustment framework on November 1st.

Speaker Change: Reduce the CET one ratio by 38 basis points in line with our guidance.

Speaker Change: This amount was partly offset by methodology refinements, we are presenting 15 basis points.

Marie Chantal Gingras: This quarter's earnings net of dividends contributed 41 basis points to our ratio, underscoring our strong internal capital generation capacity. Organic RWA growth, mainly driven by strong momentum in Credit Jeeves investment volumes and solid growth in our commercial and corporate banking books, represented 58 basis points of capital. With lingering macro uncertainty, our prudent approach across the bank remains a focus. The bank's performance in Q1 was strong, and 2024 is off to a good start. Our revenue diversification, our expense discipline, and our strong capital continue to position us well to deliver profitable long-term growth. I will now turn the call over to Bill. Merci, Mary Chantal, and good afternoon, everyone.

Speaker Change: First quarter earnings net of dividends contributed 41 basis points to a ratio underscoring our strong internal capital generation capacity.

Speaker Change: Organic arguably your weight growth, mainly driven by strong momentum in crazy cheap investment volumes.

Speaker Change: And solid growth in our commercial and corporate banking books represented 58 basis points of capital.

Speaker Change: With lingering macro uncertainty our prudent approach across the bank remains a focus.

Speaker Change: The bank's performance in Q1 was strong and 'twenty 'twenty four is off to a good start.

Speaker Change: Our revenue diversification, our expense discipline, and our strong capital continue to position us well to deliver profitable long term growth.

Speaker Change: I will now turn the call over to Bill.

Bill: Yes, he married Chantel and good afternoon, everyone I'll begin on slide 13.

William Bonnell: I'll begin on slide 13. Since the end of last fiscal year, there has been some improvement in the macro context, with stronger equity markets and lower bond yields reflecting increased optimism about inflation and growth. However, significant uncertainties still remain in the forward path of economic growth and interest rates. Certain components of inflation may remain sticky, which could complicate the job of central banks, and unemployment rates are likely to rise.

Bill: Since the end of last fiscal year, there has been some improvement in the macro context with stronger equity markets and lower bond yields reflecting increased optimism about inflation and growth.

Bill: However, significant uncertainties still remain in the fourth house of economic growth and interest rates certain components of inflation may remain sticky, which could complicate the job with central banks and unemployment rates are likely to rise.

William Bonnell: Our base case economic forecast has the unemployment rate in Canada increasing to about 7% by early 2025. Against this macro backdrop, our credit portfolios continued to perform very well in the first quarter, with total provisions for credit losses of $120 million, or 21 basis points, relatively stable quarter over quarter. Impaired provisions increased one basis point sequentially to 17 basis points or $99 million. Retail impaired provisions will increase as normalization trends continue. Non-Retail Impaired Provisions were stable quarter over quarter and due primarily to a few files in commercial banking and the healthcare and agricultural sectors.

Bill: Our base case economic forecast has the unemployment rate in Canada, increasing to about 7% by early 2025.

Bill: Against this macro backdrop, our credit portfolios have continued to perform very well in the first quarter with total provisions for credit losses of $120 million or 21 basis points relatively stable quarter over quarter.

Bill: Impaired provisions increased one basis point sequentially to 17 basis points or $99 million retail impaired provisions increased as normalization trends continued.

Bill: Non real non retail impaired provisions were stable quarter over quarter and due primarily to a few files in commercial banking in the health care and agricultural sectors.

William Bonnell: Continued Seasoning of Acquired Portfolios Generated Stable, Impaired Provisions at Credigy. ABA's impaired provisions remained elevated, as we expected and discussed on last quarter's call. Provisions on Performing Loans declined to $30 million or five basis points.

Bill: Continuing seasoning of acquired portfolios generated stable impaired provisions that credit Chi.

Bill: A b as impaired provisions remained elevated as we expected and discussed on last quarter's call.

Bill: Provisions on performing loans declined to $30 million or five basis points. The primary drivers this quarter, where portfolio growth and an increase in overlays, partially offset by more favorable macro indicators and model calibrations.

William Bonnell: The primary drivers this quarter were portfolio growth and an increase in overlays, partially offset by more favorable macro indicators and model calibration. Looking ahead, we expect delinquencies and impaired provisions to continue their upward path. We maintain our target range for full-year impaired PCLs at 15 to 25 basis points and still expect to end up around the middle of that range. Turning to slide 14.

Bill: Looking ahead, we expect delinquencies in impaired provisions to continue their upward path.

Bill: We maintain our targeted range for full year impaired PCL. It's at 15 to 25 basis points and still expect to end up around the middle of that range.

Bill: Turning to slide 14.

William Bonnell: We continue to prudently build our allowances for credit losses, which reached more than $1.4 billion, and it represents a strong coverage of 6.6 times our last 12-month net charge-off. Performing ACLs increased for the seventh consecutive quarter and now represent 3.4 times the last 12 months' impaired PCL. In Appendix 10, additional metrics on our allowances are provided, which demonstrate our prudent coverage level. Turning to slide 15.

Bill: We continue to prudently build our allowances for credit losses, which reached more than $1.4 billion and it represents a strong coverage of six six times, our last 12 month net charge offs.

Bill: Performing acos increased for the seventh consecutive quarter and now represent 3.4 times the last 12 months impaired PCL.

Bill: Independent 10 additional metrics on our allowances are provided which demonstrate our prudent coverage levels.

Bill: Turning to slide 15.

William Bonnell: Our Gross Impaired Loan Ratio increased 3 basis points sequentially to 48 basis points. As we call out on the slide, the gil ratio in our domestic loan portfolios was stable quarter over quarter at 31 basis points and has risen just two basis points from the same period last year, a good demonstration of our defensive positioning. The main driver of the increase in gills was ABA, and we expected this.

Bill: Our gross impaired loan ratio increased three bps three basis points sequentially to 48 basis points.

Bill: As we called out on this slide the Gil ratio in our domestic loan portfolios was stable quarter over quarter at 31 basis points and has risen just two basis points from the same period last year, a good demonstration of our defensive positioning.

Bill: The main driver of the increase in gills was EMEA and we expected this.

William Bonnell: We began speaking about our expectations for higher impaired loans back in Q3 last year based on trends we saw in softer trade and tourism. As we expect the same trend to continue for another few quarters, I want to take a minute to share a few insights on APA's impaired loans that we believe are important to remember. Similar to the performing portfolio, the average impaired loan size is about $65,000 and is well secured with average LTVs in the mid 40s. Second, retail trade and other services are the two sectors with the largest gills, as these sectors have been most impacted by lower discretionary spending and slower tourism recovery. Third, ABA's collections staff work closely with borrowers, many of whom continue to make periodic interest and partial capital repayments.

Bill: We began speaking about our expectations for higher higher imperative back in Q3 last year based on trends, we saw in softer trade and tourism.

Bill: As we expect the same trend to continue for another few quarters I wanted to take a minute to share a few insights on a P. A P. P. As impaired loans that we believe are important to remember first similar to the performing portfolio. The average impaired loan size is about $65000 and is well secured with average L. T.

Bill: Vs in the mid Forty's.

Bill: Second retail trade and other services are the two sectors with largest skills as these sectors have been most impacted by lower discretionary spending and slower tourism recovery.

Bill: Third a b as collections staff worked closely with borrowers many of whom continue to make periodic interest in personal capital repayments. For example in the past quarter about 36% of outstanding impaired loans received interest payments and more than a quarter received partial capital payments.

William Bonnell: For example, in the past quarter, about 36% of outstanding impaired loans received interest payments, and more than a quarter received partial capital payments. And finally, when a loan becomes impaired, ABA prudently takes Stage 3 provisions which are significantly greater than the actual charge-off rates it has historically experienced. So although the economic context and the much longer collection cycle in Cambodia mean that we expect the growth in EBA skills to continue and formations to remain elevated for a few more quarters, we remain very comfortable with the prudent level of provisioning and expect net charge-off rates to remain low. Now looking at net formations, at $173 million, formations were flat quarter over quarter and reflect the ongoing normalization trends we discussed last year.

Bill: And finally, when a loan becomes impaired a be a prudently take stage three provisions, which are significantly greater than the actual charge off rates. It has historically.

Bill: Brickley experienced.

Bill: So, although the economic context, and a much longer collection cycle in Cambodia mean that we expect the growth in EMEA skills to continue and formations to remain elevated for a few more quarters, we remain very comfortable with the prudent level of provisioning and expect net charge off rates to remain low.

Bill: Now looking at net formations.

Bill: At $173 million formations were flat quarter over quarter and reflect the ongoing normalization trends, we discussed last year.

William Bonnell: ABA's formations reported in Canadian dollars declined in the quarter, but they remained elevated on a constant currency basis, as expected. On slide 16, we present highlights from our Canadian RESL portfolio. The geographic and product mix remains stable, with Quebec accounting for 54% and insured mortgages accounting for 29% of total RESL. Higher-risk uninsured borrowers represent less than 50 basis points of the Tolareso portfolio. And 90-day delinquencies on uninsured mortgages and HELOCs remain very low, at 9 basis points and 8 basis points, respectively.

Bill: E. P. S formations reported in Canadian dollars declined in the quarter. However remained elevated on a constant currency basis as expected.

Bill: On slide 16, we present highlights from our Canadian reservoir portfolio.

Bill: The geographic and product mix remained stable with Quebec, accounting for 54% and insured mortgages accounting for 29% of total wrestle.

Bill: Higher risk uninsured bars represent less than 50 basis points of the total rental portfolio.

Bill: 90 day delinquencies in uninsured mortgages, and Helocs remained very low at nine basis points and eight basis points respectively.

Bill: You can find additional details on our Canadian mortgage portfolio on slide 17.

Bill: I'll note that more than half of the portfolio has now been repriced at higher interest rates and clients continue to demonstrate their resilience.

William Bonnell: You can find additional details on our Canadian Mortgage Portfolio on slide 17. I'll note that more than half of the portfolio has now been repriced at higher interest rates, and clients continue to demonstrate their resilience. We have provided more insights on trends in 90-day delinquencies for the Canadian retail portfolio in Appendix 9. As discussed on previous calls, we've observed differences in the pace of normalization across products and geographies. And there are two trends that I'll call out from that delinquencies table. First, credit card delinquencies now exceed their pre-pandemic level. Within this population, we find the client segment most impacted has been non-homeowners, a segment that has been absorbing significant increases in rental costs.

Bill: We have provided more insights on trends in 90 day delinquencies for the Canadian retail portfolio in the appendix nine.

Bill: As discussed on previous calls we have observed differences in the pace of normalization across products and geographies.

Bill: There are two trends that I'll call out from that delinquencies table.

Bill: First credit card delinquencies now exceed their pre pandemic level.

Bill: Within this population we find that the client segment. Most impacted has been non homeowners a segment that has been absorbing significant increases in rental costs.

Bill: I should also remind you that we have a relatively small card portfolio represents less than 1% of total loans.

Bill: The second variable rate mortgage delinquencies have continued to normalize as borrowers have absorbed a significant increase in interest rates.

Bill: Within this population it is only the segment of insured variable rate mortgages that has delinquencies above their pre pandemic level.

William Bonnell: I should also remind you that we have a relatively small card portfolio that represents less than 1% of total loans. Second, variable rate mortgage delinquencies have continued to normalize as borrowers have absorbed a significant increase in interest rates. Within this population, it is only the segment of insured variable rate mortgages that has delinquencies above their pre-pandemic level. Uninsured variable rate mortgage delinquencies remain relatively low at 17 basis points.

Bill: Uninsured variable rate mortgages delinquencies remained relatively low at 17 basis points.

Bill: In conclusion, we are pleased with the strong credit performance again, this quarter, which reflects our defensive positioning resilient mix and prudent provisioning.

Speaker Change: And with that I'll turn the call back to the operator for the Q&A.

Speaker Change: Thank you.

Speaker Change: We will now take questions from the telephone lines. If you have a question and you are using a speaker phone.

Speaker Change: Please lift your handset before making your selection. If you have a question. Please press star one on your devices keep that you make and sell your question at any time by pressing star two.

Operator: In conclusion, we are pleased with the strong credit performance again this quarter, which reflects our defensive positioning, resilient MECs, and prudent provisioning. And with that, I'll turn the call back to the operator for the Q&A. Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift the handset before making your selection. Otherwise, if you have a question, please press star 1 on your device's keypad. You may cancel your question at any time by pressing star 2.

Speaker Change: Please press star one at this time, if you have a question that will be a brief balsbaugh participants, but just a question. We thank you for your patience.

Manny Goldman: Our first question is from many Goldman from Scotiabank. Please go ahead.

Manny Goldman: Hi, Good afternoon first question Bill you provided some color on credit trends Youre seeing I'm curious if there's anything any insights from a geographic point of view, Quebec versus the rest of the country anything interesting there.

Meny Grauman: Please press star 1 at this time if you have a question. There will be a brief pause while participants register their questions. Thank you for your... Our first question is from Meny Grauman from Scotiabank. Please go ahead. Hi, good afternoon. First question, Bill. You provided some color on the credit trends you're seeing. I'm curious if there's anything, any insights from a geographic point of view, Quebec versus the rest of the country, anything interesting there.

Bill: Yeah, Hi, many thanks for the question I think we did mentioned in previous calls that we were seeing a geographical differences where side too and our our weight and I'm, particularly in unsecured.

Bill: <unk> is heavier in Quebec, So you don't want to draw too many conclusions from them, but in our portfolio, we do see Quebec.

Bill: Consumers are appearing to have more resilience and performing better on the delinquency basis.

Speaker Change: Thanks for that and then I wanted to ask about the dividend received deduction, specifically the impact there and net of offsets.

Meny Grauman: Yeah, hi Meny, thanks for the question. I think we did mention in previous calls that we were seeing geographical differences. We're shy to, you know, our weight in particular on unsecured exposure is heavier in Quebec, so we don't want to draw too many conclusions from them, but in our portfolio, we do see Quebec consumers appearing to have more resilience and performing better on a delinquency basis. Thanks for that. And then I wanted to ask about the dividend received deduction, specifically the impact there and net of offsets. So, what was it in Q1? And what does that look like for the rest of the year? Yeah, Manny. It's Etienne.

Speaker Change: What was it in Q1 and what does that look like for the rest of the year.

Speaker Change: Yeah, Hi, Manny its sits in so it is in line with what we said last quarter.

The impact of the legislation reduced revenues in Q1 by 45 million compared to the previous year, and we expect an impact of around 60 million per quarter for the rest of the year.

Speaker Change: And agenda, that's including the offsets that.

Speaker Change: Do you have.

Speaker Change: No that that is really the foregone the.

Speaker Change: Gross up.

Speaker Change: And then can you talk about the offsets and the last time, you mentioned it but you didn't.

Speaker Change: You weren't able to quantify and I'm wondering if you could talk more about what kind of offsets you have and how big they are.

Etienne Dubuc: So this is in line with what we said last quarter. The impact of the legislation reduced revenues in Q1 by $45 million compared to the previous year. And we expect an impact of around $60 million per quarter for the rest of the year, and at the end of the year, that's including the offsets. No, that is really the foregone conclusion. Grosso. And then can you talk about the offsets, and the last time you mentioned them, but you didn't, You weren't able to quantify, and I'm wondering if you could talk more about what kind of offsets you have and how big they are.

Speaker Change: So I think we are we.

Speaker Change: We don't want to narrow it down per offset I think what we wanted to do is.

We're going to rely on the broad strength of our global markets franchise here and and on our strong client coverage. So what we're seeing.

Speaker Change: And and maybe not directly related to those changes, but we're seeing strong client flow in structured funding trades strong secured funding demand.

Speaker Change: And and we are very very active with our clients.

Speaker Change: So one thing I'm really proud if I wanted to talk about like the overall.

Etienne Dubuc: So I think we, uh, we. We don't want to narrow it down per se. I think what we want to do is, We're going to rely on the broad strength of our global markets franchise here and on our strong client coverage. So what we're seeing, And maybe not directly related to those changes, but we're seeing strong client flow in structured funding trades. So, strong secured funding demand, and we are very, very active with our clients. So one thing I'm really proud of, if I want to talk about the overall business and how we are managing to deliver performance, is, for example, for calendar 2023, National Bank ranked first in total domestic bond trading in Canada. So that's our strategy.

Speaker Change: Business and how we are managing to deliver performances.

Speaker Change: For example for calendar 2023 National Bank ranked first in total domestic bond trading in Canada. So that's our strategy that's our commitment to be the best liquidity provider in Canada, and we continue to cement our presence in every listed contract and security futures options Etf's equities.

Speaker Change: Where the goal is many it through our leading take trading technology to be the top market maker. That's how we will continue to grow the franchise.

Speaker Change: Got it thanks a lot.

Speaker Change: Thank you.

Speaker Change: Following question is from Doug Young from Desjardins Capital markets. Please go ahead.

Doug Young: Hi, good afternoon, just on the dividend tax deduction removal I just wanted to make sure I fully understand this and I get.

Etienne Dubuc: That's our commitment to be the best liquidity provider in Canada, and we continue to cement our presence in every listed contract and security, futures, options, ETFs, equities, where the goal is many through our leading tech trading technology to be the top market maker. That's how we will continue to grow the franchise.

Doug Young: I've been at the mechanics here, but we should see that more in the tax line and I guess it was only in for one month.

Doug Young: This quarter. If you can correct me, if I'm wrong, and it's going to be in for the full quarter.

Doug Young: For Q2, Q3, Q4, but and thanks for the dollar figure, but this is something that we should be thinking from a tax perspective is that correct.

Doug Young: Thanks. Thank you. The following question is from Doug Young from Desjardins Capital Markets. Please go ahead.

Speaker Change: Hi, Doug nothing jumped out here, so yes, and there is also an impact on the on the effective tax rate. So if you look at the effective tax rate for Q1, 'twenty 'twenty four it will.

Marie Chantal Gingras: Good afternoon, just on the dividend tax deduction removal, I just want to make sure I fully understand this and I get, [inaudible] Hi Doug, Marie Gentile here. So yes, there is also an impact on the effective tax rate. So if you look at the effective tax rate for Q1 2024, it was unchanged versus year over year at 19%. So two components there.

Doug Young: Was unchanged versus year over year at 19% and so two components in there. So first of course since the bank did not either recognize income tax deduction R&D tax equivalent basis method to adjust revenues related to the dividends.

Doug Young: It increased the effective tax rate, but remember that last year, we read that we recorded the Canada recovery dividend and the additional 1.5% tax therefore, making the effective tax rate.

Marie Chantal Gingras: But remember that last year we recorded the Canada recovery dividend and the additional 1.5% tax, therefore making the effective tax rate stable year over year. Looking forward, you would expect a slight increase in the effective tax rate. Bearing in mind, though, that that effective tax rate is also dependent upon other factors. But then again, as Etienne mentioned, going forward, for the financial market business, we still do expect a net income increase in 2024. Okay, that helped.

Doug Young: And stable you are you.

Doug Young: Looking forward. So you would expect and slight increase on the effective tax rate bearing in mind, though that that effective tax rate is also dependent upon other factor, but then again, that's like it doesn't mention going forward for the financial markets business with.

Doug Young: Still do and expect net income increased in 2024.

Doug Young: Okay.

Marie Chantal Gingras: And then just on the set one ratio, there was a fairly sizable increase in our WA related to book size this quarter. And I know. I can have a look at your loan growth. But yeah, were there other items like I guess I'm going to assume this is related to mix. But if you can flesh that out, and then the set one ratio, I think it was mentioned in the prepared remarks have benefited from the 15 basis points from continuous refinements, just hoping you get a little more detail on that. Yes, Doug, Marie Chantal again.

Doug Young: And then just on the set one ratio.

Doug Young: It was a fairly sizable increase in our WMA relating to book size this quarter and I know I can kind of look at your loan growth, but yeah was there other items like I guess I'm going to assume this is related to mix.

Doug Young: But if you can flush that out and then the set one ratio I think it was mentioned in the prepared remarks and benefited from a 15 basis points from continuous refinement, just hoping that you get a little more detail on that.

Speaker Change: Yes, Doug, but I felt that again so on the last part of your question. We did have some refinements that a total of 15 basis points this quarter.

Marie Chantal Gingras: So on the last part of your question, we did have some refinements that total 15 basis points this quarter. They follow the implementation of the Basel III reform. So they're related to some credit risk, RWA, related to derivatives, and certain non-retail exposures. So, going forward, there are possible further refinements and improvements to come, but we don't expect anything of the same magnitude as that 15 basis points.

Speaker Change: Following the implementation of the basal three reforms so there related to some credit risk IWA related to derivatives and certain non retail exposures.

Speaker Change: And so going forward there are possible further refinements and improvements to come but we don't expect nothing of the same magnitude that 15 basis points.

Marie Chantal Gingras: And on the first part of your question in terms of RWA growth, so yeah, robust RWA growth of 58 basis points, coming mainly from credit risk. And as I said in my remarks, we have very strong asset growth in credit G commercial and corporate banking and a lower credit migration in our retail and non-retail books for about half and half. So 90% of the increase in RWA growth comes from asset growth. And then maybe I can throw in an additional one in here, just on the LCR 145, and you've reflected the cash ETF adjustment. It just feels high, and I do get that you want to remain conservative, but it is much higher relative to where you need to be in order to be peers.

Speaker Change: And on the first part of your question in terms of arguably your weight growth. So yeah robust R. R. W. Wafer out of 15 basis points coming mainly from credit risk and as I said in my remarks, we had very strong asset growth and credit chief commercial and corporate banking.

Speaker Change: <unk>.

Speaker Change: And that's lower credit migration in our retail and non retail books.

Speaker Change: For about half and half so 90% of the increase in arguably weighted growth comes from from asset growth.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: And then maybe if I can throw additional one in here just on the LCR 145, and you've reflected the cash ETF adjustment.

Speaker Change: It just feels high and I do get that you want to remain conservative.

Speaker Change: Yeah, but it is much higher relative to where you need to be in order to keep tiers and so I'm just curious your thoughts on that and what is the cost if any is holding a higher LCR or is there a cost on nims that if he brought that down there would be an improvement just trying to understand that thank you.

Marie Chantal Gingras: And so I'm just curious about your thoughts on that, and what is the cost, if any, of holding a higher LCR? Is there a cost to NIMS that if you brought that down, there would be an improvement? Just trying to understand that.

Marie Chantal Gingras: Thank you. Yeah, so I think we've shared that before on the call. In terms of LCR, we do prefer to operate at levels that are a little higher than needed. We've been running with strong LCR and SFR for a while. It's part of our philosophy in terms of liquidity. Now, in terms of the level, you're right.

Speaker Change: Yeah. So I think we've shared that before with you on the call are in terms of LCR, we do prefer to operate them a little at levels that are a little higher than needed and we've been running with strong LCR and so far they have for a while.

Speaker Change: That's part of our our philosophy in terms of of liquidity now in terms of the level, you're right, it's a bit higher than what we had expected that the last call. I had mentioned 140 and we are we are now at 145 and so of course.

Marie Chantal Gingras: It's a little bit higher than what we had expected. On the last call, I had mentioned $140,000, and we are now at $145,000. So, of course, the big impact comes from the treatment of cash ETFs, but it was partly offset with some funding that we did to see some market opportunities in Q1, which brought us back to 145%. Now, in terms of the cost, really, the high LCR doesn't have a high cost for us on the All Bank NIM, so it's not material. Thank you. You're welcome.

Speaker Change: Then the big impact comes from.

Speaker Change: The treatment of Kashi T S. But it was partly offset with some funding that we did Ah to see some market opportunities are in Q1, which brought us back to 145% now in terms of the cost.

Speaker Change: Really the high LCR it doesn't have a high cost for us on the AR on the all bank NIM.

Speaker Change: So not material.

Speaker Change: Thank you.

Speaker Change:

Mario Mendonca: Thank you. Our next question is from Mario Mendonca from TD Securities. Please go ahead. Good afternoon.

Speaker Change: Thank you.

Speaker Change: Our next question is from Mario Mendonca from TD Securities. Please go ahead.

Mario Mendonca: Good afternoon.

Michael Denham: If we could have a look at slides nine and 10, I found that that approach to describing your funding helpful. But there is one big component there that I could use a little more clarity on. The business and government deposits are such a big part of the overall pie, and they're so much greater than the business and government loans. Is there any way you could provide a greater understanding or clarity around what's in the business and government deposits? Like, are these just operating deposits? Or do they have characteristics that might be a little more like wholesale funding? I think, hopefully, you understand where I'm going with this. I want to understand the sort of stickiness of those deposits relative to, say, personal deposits. That's what I'm working towards. Yeah, Mayor, it's Michael Denham here.

Mario Mendonca: We could have a look at your slide nine and 10 I found that that approach to describing your funding helpful. But there is one big component there that I could use a little more clarity on the business and government deposits, that's such a big part of the overall piece and there is so much greater than the business and government loans is there any way you could provide.

Mario Mendonca: Greater a greater understanding of clarity around what's in the business and government deposits like are these just operating deposits or do they have characteristics that might be a little more like a wholesale funding I think I hopefully I appreciate where I'm going with this I want to understand the sort of the stickiness of those deposits relative to say personal deposits, that's what I'm working.

Mario Mendonca: Sure.

Mario Mendonca: Got married its Michael let them hear Ah yeah. They are operating deposits, it's a mix of.

Michael: Kind of sticky deposits with a lot of our commercial corporate banking clients, we do cash management et cetera.

Michael Denham: Yeah, they are operating deposits. It's a mix of kind of sticky deposits with a lot of our commercial and corporate banking accounts, cash management, etc. There are some deposits that are government that are less sticky, more renewable, but these are operating deposits are quite different to wholesale funding. And your experience over time, presumably these have been a big part of national funding for a very long time. What's your experience been like?

Michael: There are some deposits that are government that are less.

Michael: Less sticky more renewable but these are operating deposits are quite different to wholesale funding.

Michael: And your experience over time, presumably these have been a big part of our Nash.

Michael: National funding for a very long time.

Speaker Change: What's your experience been like.

Speaker Change: And I'm, specifically, referring to the deposits that are.

Speaker Change: Sort of somewhat less in terms of operating deposits less less operating deposits are more prone to leaving the bank in a period of declining interest rates, because that's the sort of risk I'm thinking about right now rates come down.

Michael Denham: And I'm specifically referring to the deposits that are sort of somewhat less in terms of operating deposits, less less operating deposits, and more prone to leaving the bank in a period of declining interest rates, because that's the sort of risk I'm thinking about right now when rates come down. Would there be any meaningful risk here that those deposits leave the bank or just go into another type of instrument within the bank?

Speaker Change: <unk> B is there any meaningful risk here that those deposits leave the bank or just go into another type of instrument within the bank.

Speaker Change: I don't think that there's a competitive environment. So obviously, we need to we need to be successful we need to be in touch with their clients with a bid properly, but theres no concern that I have Mary around an outflow of these in the event of a declining rate environment with the proviso that remain competitive in our approach.

Michael Denham: I think there's a competitive environment, so obviously we need to be successful, we need to be in touch with our clients, we need to bid properly, but there's no concern that I have, Mario, around an outflow of these in the event of a declining right environment with the provisor that would make us less competitive in our approach. That's helpful, thank you. Thank you. Our next question is from Paul Holden from CIBC. Please go ahead. Hi, thank you. Good morning or good afternoon.

Speaker Change: That's helpful. Thank you.

Speaker Change: Thank you.

Speaker Change: Our following question is from Paul Oldham from CIBC. Please go ahead.

Paul Oldham: Thank you and good morning, or good afternoon.

Paul Oldham: Our first question is with respect to our funding costs and your NIM I mean, you printed a pretty good quarter in terms of net interest margins and not hearing the same reference says or at least not to the same degree of preferences to funding cost price pressures as we've heard from some of your competitors. So.

Paul Oldham: Part of my question or my question I'm trying to get to is like why is that you do you believe you're experiencing less funding cost pressures is it possible the dynamics within the Quebec market are somewhat different than the U S and the rest of Canada.

Paul David Holden: My first question is with respect to funding costs and your NIM. I mean, you have a pretty good quarter in terms of net interest margins. But I'm not hearing the same references, or at least not the same degree of references, to funding cost pressures as we've heard from some of your competitors. So I guess part of my question, or the question I'm trying to get to is, why is that?

Paul Oldham: Hi, Paul Oh, and then maybe what I can do is start by just giving an overview of the drivers of the Mems and the of the NIM. This quarter. It was we're quite pleased with that level and it was a 7% increase sequentially and then I'll pass it over and maybe due to Lucy.

Paul David Holden: Do you believe you're experiencing less funding cost pressures? Is it possible that the dynamics within the Quebec market are somewhat different from the US and the rest of Canada? Hi Paul.

Lucy: To complete.

Lucy: So.

Lucy: Generally in terms of the NIM, we benefited from better deposit spread across our domestic sites segments and P&C also benefited from better loan spreads.

Lucie Blanchet: Maybe what I can do is start by just giving an overview of the drivers of NIMH this quarter. We're quite pleased with the level, and it was a 7% increase sequentially, and then I'll pass it over, maybe to Lucie, to complete. So, generally, in terms of the NIM, we benefited from better deposit spread across our domestic segments, and PNC also benefited from better loan spread. So those are the two first impacts.

Lucy: So those are two of them. The two first time box then when you look at our at our slide on the NIM. We did have a in our international segment annual dividends from our unconsolidated subsidiaries that also contributed to them.

The increase sequentially.

Looking ahead, we do expect NIM to stay generally stable.

Lucy: Deposits and loans loan spreads seems a resilient thus far into Q2.

Lucie Blanchet: Then, when you look at our slide on NIM, we did have in our international segment annual dividends from our unconsolidated subsidiaries that also contributed to the increase sequentially. Looking ahead, we do expect NIM to stay generally stable. Deposits and loan spread seems resilient thus far into Q2. However, we may experience some lumpiness from items such as the annual dividend or the ALM activities where the current environment, characterized by high interest rate volatility, can impact quarter of a quarter results. So I think those are the main drivers that explain why our NIM is so resilient this quarter. Does that help a little bit, Paul?

Lucy: However, we may experience some lumpiness from items, such as the annual dividend or D. A L M activities, where the current environment.

Lucy: Correct or is my high interest rate volatility can impact a quarter over quarter results.

Lucy: So I think those are the the main drivers that explains why our NIM is.

Lucy: Is so whereas that Liam just Florida does that help at all that stuff.

Lucy: Maybe I can give some color on the deposit spread mhm.

And so when we look at the deposits, but there are several components.

Lucy: Coming into this so we still benefited from the non interest sensitive deposits that still continue to benefit from the leases the impact of the rate increases and on their fixed term deposit, yes, we've seen a more competitiveness there.

Lucy: The best spreads we've had there were at their peak in Q4, 'twenty to 'twenty, two and it's been coming down slowly and gradually since then.

Lucie Blanchet: And maybe I can give some color on the deposit spread. So when we look at the deposits, there are several components coming into this. So we still benefited from the non-interest sensitive deposit that still continues to benefit from the latent impact of the rate increases. And on the fixed term deposit, yes, we've seen more competitiveness there. The best spreads we've had there were at their peak in Q4 2022, and they've been coming down slowly and gradually since then. But overall, it all blends in with the portfolio, definitely. But again, we still benefited from the non-interest-sensitive deposit. And also, in terms of the deposit mix, it was neutral on that. Okay, so what I'm hearing is deposit spreads continue to benefit from asset repricing at a greater rate than than deposit repricing. Okay.

Lucy: But overall it all blends in with the portfolio, but definitely we see that but again, we still benefited from the non interest sensitive deposits and also in terms of deposit mix.

Lucy: It wasn't meaningful also on that front.

Speaker Change: Okay. So what I'm hearing is.

Speaker Change: Deposit spreads continue to benefit from asset repricing at a greater rate than in our deposit repricing. Okay. Okay. Yeah.

Speaker Change: So I appreciate the cautious tone, you've taken with the macro outlook throughout the prepared remarks and maybe this is a question for bill or whoever else wants to weigh in but just wondering as you look at sort of cash flows within your customer deposit fits what are you seeing that.

Bill: It's worrying if at all any signs of pressure on discretionary spending more going towards saving more going down towards paying down loans. Some context, there would be helpful. Thank you.

Paul David Holden: Yeah. So I appreciate the cautious tone you've taken with the macro outlook throughout your prepared remarks. And maybe this is a question for Bill or whoever else wants to weigh in. But just wondering, as you look at sort of cash flows within your customer deposits, what are you seeing that's worrying, if at all, any signs of pressure on discretionary spending, more going towards saving, more going towards paying down loans? Some context there would be helpful. Thank you. I'll start, or not?

Speaker Change: I'll start on Yeah, why don't you start.

Bill: We'll do a tag team again, thank you for the question so.

Speaker Change: And in terms of let's say liquidity usage, we see the decrease in the India demand deposit there for sure and so our customers are using their own liquidity.

Speaker Change: Definitely there and what we see is a consumer that is.

Speaker Change: And I wouldn't say prudently using their liquidity.

And we continue to see decreases in the U S. H oven, let's say you know what I'm only talking to me about which is basically a variable rate mortgages. So the balances are down 6%.

Speaker Change: Lines of trade it.

Lucie Blanchet: Yeah, why don't you start, Lucie? We'll do a tag team again. Yes, thank you for the question. So, in terms of, let's say, liquidity usage, we see a decrease in the demand deposit, for sure. So our customers are definitely using their liquidity, and what we see is a consumer that is, I would say, prudent, using their liquidity. We continue to see decreases in usage of, let's say, non-amortizing e-loc, which is basically a variable rate mortgage. So the balances are down 6%. Lines of credit have been going down since the past year.

And I have been going down since the past year, they've stabilized now in Q1 and in terms of credit cards. We also see very disciplined.

Speaker Change: Sooner or at least in our portfolio.

Speaker Change: Did that are reducing their spend so the purchase volume, we see and it started last quarter is and is reducing so this is what we the trends we see right now and we see them people who use their liquidity on that front, so really facing an interesting to the I D.

Speaker Change: Increase in borrowing costs.

Speaker Change: And then maybe I can add on Pauls.

Speaker Change: From a part of what you see in a in the delinquencies in the table that we've added.

Speaker Change: In appendix nine you can see that where the delinquencies of normalized the fastest or increase the fastest is where there's been more more leverage in the consumers. So typically the insured.

Lucie Blanchet: They've stabilized now in Q1. And in terms of credit cards, we also see a very disciplined consumer, at least in our portfolio, who is reducing their spend. So the purchase volume we see, and it started last quarter, is reducing. So this is what we, the trend we see right now, and we see people using their liquidity on that one. So really facing and adjusting to the increase in borrowing costs. And then maybe I can add, Paul, from what you see in the delinquencies in the table that we've added in Appendix 9, you can see that where the delinquencies have normalized the fastest or increased the fastest is where, you know, there's been more leverage in the consumers. So typically, the insured mortgage holder is a first time buyer who doesn't have the 20% down payment.

Speaker Change: Mortgage holder as first time buyer doesn't have the 20% down payment and so it's not a surprise that we see a differentiation between the delinquency trends for insured variable rate and uninsured variable rate.

Speaker Change: And the the credit cards as I think I called out in my prepared remarks and on homeowners that are faced with.

Speaker Change: With increase living costs rent, particularly but also inflation in food and others.

Speaker Change: It's more stretch so at a macro level.

Speaker Change: Okay.

Speaker Change: Economic level, we should expect consumer spending to be to be muted or impacted negatively by by that fact, and we will see when the central banks.

Speaker Change: Lower interest rates are and the delayed impact that will have we expect on the delinquencies.

Lucie Blanchet: And so it's not a surprise that we see a differentiation between the delinquency trends for insured variable rate and uninsured variable rate. And on the credit cards, as I think I called out in my prepared remarks, the non-owners that are faced with increased living costs, rent, particularly, but also inflation and food and others, they're more stretched. So at a macro level, you know, at an economic level, we should expect consumer spending to be muted or impacted negatively by that fact. And we'll see when the central bank's lower interest rates and the delayed impact that will have on delinquency. Great, one last one I'm going to sneak in related to ABA, Bill. You referenced low LTVs but prudent allowance, Bill. I'm wondering if you can speak to the actual recoveries you've gotten on delinquencies that have transpired over the last year, just to give some sort of tangible evidence of what you've actually been doing. Sure, and I'll start off, and I'll hand it to Stphane afterwards.

Speaker Change: Great one last one I'm going to sneak in a related to a be a bill you referenced low ltvs.

Speaker Change: But prudent allowance build so wondering if you can speak to the actual recoveries you've gotten on the Lincoln delinquencies that have transpired over the last year just to give some sort of tangible evidence of what you're watching here.

Speaker Change: Sure and I'll start off and I'll go to Stephane afterwards, but just a reminder.

Speaker Change: We wanted to we wanted to.

Speaker Change: Continue to want to remain prudent because we haven't been through an economic cycle with EMEA. So from the beginning we were pretty proactive at building performing allowances.

Speaker Change: And win.

Stephane: The loans, becoming paradox, having prudent level of our stage three allowances to and as she called out the.

Stephane: The delinquency cycle or the recovery cycle is much longer in Cambodia than it is in Canada, but the experience that we've had this year stuff and you want to sure Yeah, Yeah, Paul I think one element of which bill is referring is.

Stephane: We've been hammering the fact that the Ltvs are really good.

Speaker Change: A 75% of the loans that we that were if you know in state Street on which we have to realize assets in Q1, 75% of those resulted in low loss at all.

William Bonnell: But just a reminder, we wanted to and continue to want to remain prudent because we haven't been through an economic cycle with ABA. So from the beginning, we were pretty proactive at building performing allowances of Stage 3 that don't even result in a loss. That's great. That's it for me. Thank you. Operator. It's I'm so sorry.

Speaker Change: And that's just to give you an idea we're talking small loans with good collateral. So it's I don't I don't think you'd see that in many environments such a high percentage of our.

Speaker Change: Of State Street that don't even resulted to a loss.

Speaker Change: Of any kind.

Speaker Change: That's great that's it for me thank you.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Operator.

Speaker Change: It's I'm so sorry, so Rob move ahead day from BMO capital markets. Please go ahead.

Sohrab Movahedi: Sohrab Movahedi from BMO Capital Markets. Please go ahead. Thank you, Bill. If I could just pick up where we are now for a second.

Speaker Change: Okay.

Rob: Thank you Bill if I could just pick up there for a second.

William Bonnell: I mean, you've given us expectations for your stage three, and provisions as you look to 2024, and I think, If I was going to ask you, if you were going to be surprised, which business do you think would be the source of that surprise relative to the range that you've given? That's a great question, Sohrab. It sounds like a good discussion over a beer. But I don't know whether I could give you fantastic insights into what we don't expect. I would say there is a lot of – stepping back – there's a lot of uncertainty in the North American and the global economic path forward. There's a lot of optimism that rates will come down, inflation will be beat, and that that will help support growth. But it's certainly not a certainty.

Rob: You've given us.

Rob: Range.

Rob: Expectations for your stage three.

Rob: Provisions as you look to.

Rob: You know 2024 and I think.

If I was going to ask you if you weren't going to get surprised.

Rob: Which business do you think which would be the source of that surprise relative to that range that you've given us.

Rob: That's a great a great question Sohrab it sounds like a good discussion over a beer.

Rob: But the I don't know whether I.

Sohrab: I could give you a fantastic insights of what we don't expect them.

Sohrab: I would say there is a lot of stuff.

Sohrab: Stepping back there's a lot of uncertainty in the North American and the global economic path forward. That's there's a big there's a lot of optimism that rates will come down inflation has beaten and that that will help support our growth, but its certainly not a certainty.

William Bonnell: And trying to figure out – trying to assess the plausible paths ahead, there are many plausible paths ahead that would have 5-year, 10-year yields much higher than they are now. There are other plausible paths that would have 5-year, 10-year yields much lower than they are now. And it's not certain which one would be worse or better because it depends on why they arrive at those levels.

Sohrab: Trying to figure trying to assess the plausible paths I had you know there are many plausible pass I had talked with have five year 10 year yields much higher than they are now cause other plausible path that would have five year 10 year yields much lower than they are now.

Sohrab: And and it's not certain which one would be worse or better because it depends on why they arrive at those are those levels. So.

Sohrab: I think oh the uncertainty.

William Bonnell: So I think the uncertainty could lead to, and depending on what the paths would be, to performance that is general in the economy that is less favorable than currently thought for wholesale, and others that are less positive than currently perceived in the market for retail. The reason we are confident in giving our expectation for impaired provisions for the full fiscal year is based on, you know, among all those uncertainties, we do know our mix. We know our geographic mix, our product mix, defensiveness, and where we have our exposures to those sectors that are maybe more, you know, discretionary, consumer discretionary on consumer leverage or different parts of the economy. And so we believe that the expectations that we've given for impaired provisions fit within the range of plausible outcomes in the time period that we gave. But I don't know whether that helps Sohrab. It's very helpful. I will definitely buy you a beer.

Sohrab: It could lead to them, depending on what the paths or perhaps would be too.

Sohrab: To your performance.

Sohrab: Is generally in the economy that is less favorable than currently thought for wholesale others that are less.

Sohrab: Less positive than currently.

Sohrab: <unk> in the market for retail.

Sohrab: <unk>.

Sohrab: But the.

Sohrab: B why we are confident in giving our our expectation for impaired provisions for the full fiscal year is based on with you know among all those uncertainties. We do know our mix, we know our geographic mix or product mix, defensiveness, and where we have our exposures to those <unk>.

Sohrab: Sectors that are may be more discretionary consumer discretionary.

Sohrab: Linked or or on consumer leverage or different parts of the economy and so we believe that our expectations that we've given for impaired provisions.

Sohrab: Fit within the range of plausible outcomes in the time period that we gave but.

Speaker Change: I don't know whether that helps.

Speaker Change: Sohrab.

Sohrab: It's very helpful. I will definitely buy you a beer, but I didn't hear you talk about a P. A as a source of surprise there so I guess that.

Sohrab Movahedi: But I didn't hear you talk about APA as a source of surprise there. So I guess that, maybe from the size of this thing, it gives us an indication as to whether there are similarities in what's happening in ABA's customer base. Small businesses, same as in Canada, are facing that uncertainty. So, drivers of consumer discretionary spending in Cambodia, whether that moves up or down, that has a direct impact on the path for ABA's Stage 3 performance. So, it is, it's, you know, although it's a different environment with many differences, it is subject to many of the similar geopolitical, monetary policy, and inflation impacts that impact the rest of the world. Okay, and if I can just ask a question of Etienne.

Speaker Change: Maybe from.

From the size of this thing it gives you an indication that's too.

Sohrab: Okay. That's helpful around right. So so there are similarities in what's happening in Apa's customer base small businesses famous in Canada facing that uncertainty so drivers of consumer discretionary spending and Cambodia, whether that's moves up or down that has a <unk>.

Sohrab: The impact on the path for a B E.

Sohrab: He's a stage three performance so it is it's.

Sohrab: Although it's a different environment with many different says it is subject to many of the similar geopolitical monetary policy infill.

Sohrab: Inflation impacts that impact the rest of the world.

Speaker Change: Okay, and if I can just ask a question I'll say it again.

Sohrab Movahedi: I think you've reiterated the broad message that Capital Financial Markets 2020 earnings, hopefully, will be higher than the segment earnings in 2023. When you think about bits and pieces of that, Etienne, do you expect... to get the earnings done through the top line? Or do you think it's you expect it to be more an expense management exercise to deliver? hired.

Speaker Change: I I think you've reiterated it.

Speaker Change: What message that cap.

Speaker Change: Our financial market said 'twenty 'twenty four earnings hopefully it will be higher than segment earnings in 2020 suite.

Speaker Change: When you think about the bits and pieces of that do you expect.

Speaker Change: Two to get the earnings done through the top line or do you think it's you expect it to be more in expense management exercise to deliver.

Etienne Dubuc: Definitely the top line, Sohrab, and yes, we do reiterate our target of delivering net income growth for 2024. We feel really good about the start of the year, how balanced the performance has been so far, and we think the businesses are really well positioned to deliver net income growth. On the interest rate side, we continue to see, and we will continue to see volatility as central banks determine when easing starts.

Speaker Change: Higher earnings.

Definitely the topline Sarah and yes, we do reiterate our.

Speaker Change: Our target of delivering net income growth for 2024.

Speaker Change: We feel really good about the start of the year our balanced the performance has been so far and are we think the businesses are really well positioned to deliver net income growth.

Speaker Change: On the interest rate side, we continue to see we will continue to see volatility as central banks determined when easing starts.

Etienne Dubuc: That really bodes well for activity on the trading floor, but also on the debt capital market side as government and corporate issuers will look to take advantage of improved conditions to accelerate their borrowing programs. And then you have the strength of the equity markets, which also bodes really well for a structured products franchise where investors are back after a couple of quiet years. So sales are strong right now, which compensates for lower implied volatility. And on the securities finance side, as Laurent said in his script, it's been really busy, especially on the equity side, and we see it continuing for the next quarters. We see good client flows and really strong demand for structured funding trades. And then on the investment banking side, as I touched on DCM already, equity new issues could also get really busy really fast. There's a lot of cash on the sidelines, and a lot of pent-up demand.

Speaker Change: That really bodes well for activity on trading, but also on the debt capital market side, that's government and corporate issuers will look to take advantage of improved conditions to accelerate their their borrowing programs.

Speaker Change: And then you have the strength of the equity markets that also bodes really well for our structured products franchise, where our investors are back after a couple of quite yours. So sales are strong right now, which compensates for lower implied volatilities and on the Securities Finance side as I said in his script, it's been really.

Speaker Change: Busy, especially on the equity side and we see it continuing for the next quarters, we see good client flows and a really strong demand for structured funding traits.

Speaker Change: And then on the investment banking side I touched on D. C. I'm already equity new issues could also get really busy really fast there's a lot of cash on the sidelines a lot of pent up demand and that should help compensate for for M&A. That's been had been slower as we said in.

Etienne Dubuc: And that should help compensate for M&A that's been a bit slower, as we said, and we feel M&A will pick up more in the second half of the year. So overall, we feel good about delivering top line growth. And Etienne, do you think you need materially more RWA to deliver on that? Nope.

Speaker Change: And we feel I mean, they will pick up more in the second half of the year. So overall, we feel good about delivering top line growth.

Speaker Change: And you don't think you need a materially more R. W aiming to deliver on that.

Speaker Change: Nope.

Etienne Dubuc: The following question is from Nigel D'Souza from Veritas Investment Research. Please go ahead. Thank you. Good afternoon.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: The following question is from Nigel D'souza from Veritas investment Research. Please go ahead.

Nigel D'Souza: Thank you good afternoon, I had a follow up question for you on.

Nigel D'Souza: I had a follow-up question for you on the delinquency data that you provided for Canadian banks. I noticed that the delinquency rate for the fixed-rate mortgage book is running not only below pre-pandemic levels but also below 2021 and 2022 levels. And I'm wondering if that's just entirely a function of those payments not going through a renewal cycle yet, or if there's anything else at play that's keeping those delinquency rates lower. Hi Nigel, it's Bill. I'll take that one.

Nigel D'Souza: Delinquency.

Nigel D'Souza: Provider for Canadian banking, and I noticed that the vacancy rate for the fixed rate mortgage book is running.

Oh, it's all pre pandemic levels, but also below 2021, and 2022 levels and I'm wondering if that's just entirely.

Nigel D'Souza: A function of those payments now is going through a renewal cycle, yet or if there's anything else at play.

Nigel D'Souza: Keeping those delinquency rates are lower.

Bill: Nigel It's bill I'll I'll take that one just to remind you that that's a that table is a snapshot of Q1, our numbers in 2022 2023 I don't have in front of me how that went for the Q2 Q3 are where the the peaks are but there is of course variability quarter to quarter.

William Bonnell: Just to remind you that that table is a snapshot of Q1 numbers in 2022-2023. I don't have in front of me how that went for Q2-Q3, where the peaks are, but there is, of course, variability quarter to quarter. The general takeaway from that is that delinquencies and fixed-rate mortgages overall remain low. And I think in our book, we are seeing that in Quebec, in particular, where, as we've talked about many times, house prices mean a lower mortgage ticket, so less consumer leverage, more dual family incomes, and a diversified economy generate factors that support resiliency in our mortgage borrowers, and that's coming through in the numbers For the fixed-rate mortgages, we do have on the slides; we show you the maturity profile as they are renewing, remembering that some have already renewed, and overall, for the whole Resol book, more than half have already faced higher interest rates with renewals and with the variable rates having moved up. And just as we look ahead at what will happen upon renewal for the fixed-rate mortgages, there are a lot of metrics on that table and the slide which We look at it and slice and dice it very, very frequently internally.

Bill: The general takeaway from that is that.

Bill: The delinquencies in the fixed rate mortgages overall remain low.

Speaker Change: And I think in our book, we are seeing that in Quebec in particular, where as we've talked about many times.

Speaker Change: The house.

Speaker Change: <unk> prices mean lower mortgage.

Speaker Change: Ticket, so less consumer leverage more dual family incomes diversified economy.

Speaker Change: It generates factors that.

Speaker Change: But support resiliency in the in our.

Speaker Change: Mortgage borrowers and that's coming through in the numbers. So that's not a surprise to us for the fixed rate mortgages. We do have the slides we show you the maturity profile.

Speaker Change: Hum as they were renewing.

Speaker Change: Remembering that some have already renewed and overall for a whole peso book more than half have already faced the higher interest rates are.

Speaker Change: With renewals and with the variable rates, having moved up.

Speaker Change: And we just as we look ahead at what will happen upon renewal for the fixed rate mortgages. There are a lot of metrics on that table on the slide which give comfort we look at it and slice and dice. It very very frequently internally. However, when you look at the nature of those fixed rate mortgages.

William Bonnell: However, when you look at the nature of those fixed rate mortgages for 25 and 26 renewal, there's a high percentage which is insured, there is relatively low LTV, which provides flexibility for the borrower, depending on where rates are at the time, and the credit bureau scores are high, so we're quite confident in the resiliency of those borrowers. Does that help, Nigel? Oh, yeah, that's helpful. Could you add any color on the credit trends you're seeing for the fixed book that's already renewed, anything there that you could point out, or nothing noteworthy at the moment? Nothing in particular at the moment, I would say, because we've been very proactive since the beginning of the rate increase with our customers, reaching out proactively sometimes up to 24 months before the renewal date, you know, to do simulations with our customers of what that would mean for them at the current rate.

Speaker Change: 25, and 26 renewal, there's a high percentage, which is insured there is.

Speaker Change: Relatively low LTV, which provides a flexibility for the borrower.

Speaker Change: Depending on where rates are at the time.

Speaker Change: Deep a few a credit.

Speaker Change: Credit Bureau scores are high so.

Speaker Change: Where are where we're quite a.

Speaker Change: Confident in the resiliency of those borrowers because that helps Nigel.

Nigel: Yeah. That's helpful. Just if you could add any color on.

Nigel: The trends Youre seeing for the fixed book, that's already been doing anything.

Speaker Change: You could point out or nothing more for it.

Yes.

Speaker Change: And nothing in particular at the moment I would say because we've been we've been very proactive since the beginning of the rent increased with our customer reaching out proactively sometimes up to 24 months before the renewal date, you know what to do with simulation as a customer.

That means for them at the current rate and we've had very good reception.

William Bonnell: And we've had very good reception from our customers about that, and the message we hear is that we're okay, we have adjusted, or we get into this dialogue where we implement systematic savings for them, you know, preventing what's going to happen maybe in a year. So, nothing in particular. I think we feel very confident with the fundamentals of our book.

Speaker Change: From our customers about that and.

Speaker Change: And what message we hear is that we okay. We have adjusted our or we get into this dialogue when we implement systematic savings for them.

Speaker Change: And you know preventing what's gonna happen maybe in a year. So nothing in particular I think we feel very confident with the fundamentals of our book.

Etienne Dubuc: Okay, great. And then, if I could just finish on credit G. You know, there are more pressures in the US banking space for asset sales, either for liquidity or capital. Are you seeing that kind of built into Credigy?

Speaker Change: Okay, Great and then if I could just finish on the question on credit G.

Speaker Change: Yeah, you have more pressures in the U S banking space.

Speaker Change: Sales either for liquidity or capital.

Speaker Change: Are you seeing that kind of filter into credit G and just a reminder, on the asset classes like how did she is interested in is that exclusively residential mortgages or is it also.

Nigel D'Souza: And just a reminder about the asset classes that Credigy is interested in; is that exclusive to residential mortgages? Or is it also open to commercial mortgage assets now? So it's really residential mortgages. What Credigee does is consumer finance, and, As you can see, Nigel, we had a great quarter of deployment, very balanced between portfolio purchases and structured lending transactions. So the teams made important acquisitions in the mortgage space, second lien and first lien, and also deployed business credit facilities in the mortgage space and the life settlement space, so all in all, a very balanced deployment. And so we are seeing that even though the economy is doing well, and you still see lingering government support, Credit G is able to execute, is able to find opportunities, and I think this quarter showed how well. Great, that's it for me. Thank you, Thank you. The following question is from Lemar Persaud from ComRack Securities. Please go ahead.

Speaker Change: Open to commercial mortgage assets.

Speaker Change: So it's a it's really residential mortgages.

Speaker Change: What <unk> does is consumer finance and.

Speaker Change: As you can see Nigel we had a great quarter of deployment, a very balanced between portfolio purchases and structured lending transactions.

Speaker Change: So the teams made the important acquisitions in the mortgage space second lien and first lien.

Speaker Change: And also deployed business credit facilities in the mortgage space and the life settlement space. So all in all a very balanced deployment and so we are seeing that even though the economy is doing well and you still see lingering government support.

Speaker Change: <unk> G is able to execute is able to find the opportunities and I think this quarter showed a well Andrew.

Speaker Change: And reliably theyre able to execute quickly and winning business by being fast reliable and adaptable instead of having to lead with price. So I think that's what that's how our credit he will continue to maintain and even improve its margins.

Lemar Persaud: Yeah, thanks for taking my questions. Maybe for Bill, I want to come back to the comment on the recovery cycle in Cambodia being longer versus Canada. Can you put some numbers around that? Like how much longer are we talking about?

Speaker Change: Okay, great. That's it for me thanks.

Speaker Change: Thank you.

Speaker Change: The following question is from Lamar Purcell for Sard <unk> from <unk> Securities. Please go ahead.

Lamar Purcell: Yes, thanks for taking my questions, maybe for Bill I wanted to come back to the comment on.

Lamar Purcell: On the a recovery cycle in Cambodia being longer versus Canada can you put some numbers around that like how much longer are we.

William Bonnell: What I'm trying to get at is, Would it be fair to suggest that we could see the allowances attached to Cambodia sticking around a lot longer than we might expect coming through the other end of this challenging period for Cambodia? So Lamar, Stphane, there's quite a bit of uncertainty, and it's difficult to assess how that recovery is going to turn around. And the first element of that is the reliance on tourism, which is probably, you know, from an internal economy perspective, the main driver. It's been a few quarters. We've been trying to say, you know, that the Chinese, Thailandese, and Vietnamese tourists should be back. In the case of the second two countries, but in the case of China, it hasn't resumed. And until that really happens, it's going to be a bit tougher on the economy. I do want to point out, however, that if you look at the whole Southeast Asian zone, Cambodia is one of the countries doing best.

Lamar Purcell: Talking about like what I'm trying to get at yes.

Lamar Purcell: Would it be fair to suggest that we could see the allowances attached to Cambodia sticking around a lot longer than we might expect coming through the other end of this this challenging period offer in Cambodia.

Lamar Purcell: So lamar its defined.

Lamar Purcell: There is quite a bit of uncertainty and it's difficult to to assess how that recovery is going to turn around than in the first element of that is is the reliance of tourism, which is probably you know from.

Lamar Purcell: From an internal economy perspective, the main driver it's been already a few quarters and I'm trying to say you know that the Chinese are Thailand and Vietnamese.

Lamar Purcell: Tourists should be back its the case of the second two countries, but in case of China, It hasn't resumed and until that really happens.

Lamar Purcell: It's going to be a bit tougher on the economy I do want to point out. However that if you look at the whole Southeast Asian Zone. Cambodia is one of the country is doing the best and we were forecasting this year between 60 basis points at 100 basis points increase in the GDP.

Stephane Achard: And we're forecasting this year between 60 basis points and 100 basis points of increase in GDP. We're not back at the 7% or 8% growth that we've seen in the last 10 years, but, you know, 6% to 6.5% growth in GDP is fairly good. And the fact that these allowances could linger on for a while has to do with what Bill addressed about our collection process and the fact that the system over there is made in such a way where people work on loans for a very, very long time and keep on making payments on delinquent loans for a long time.

Lamar Purcell: We're not back at the seven or 8% growth that we've seen in the last 10 years, but you know six to six 5% growth in GDP is fairly good so and the fact that these these allowances could linger on for a while it has to do with what bill addressed about that our collection process and the fact that that the system.

Lamar Purcell: I'm over there has made in such a way where people work at the loans for a very very long time and keep on making on the payments on delinquent loans.

Lamar Purcell: For a long time and so it's a long process, but we so we should expect those to stick around for the next two or three quarters. We're confident that tourism is going to come back probably towards the last latter part of this year.

Stephane Achard: So it's a long process, but we should expect it to stick around for the next two or three quarters. We're confident that tourism is going to come back probably toward the last part of this year.

William Bonnell: And I'll just add, Lemar, that we think, as Stephane mentioned, that the formations will remain elevated for the next two or three quarters, and then we expect that there could be some improvement in formations. The actual gross impaired loan balance, we expect to continue to grow longer than that, given the cycle time. Okay, thanks. Thanks for that. And then maybe I'll flip over to Mary Chantal.

Speaker Change: And I'll just add on Lamar.

Lamar Purcell: <unk> got the we think is stuff that I mentioned that the.

Lamar Purcell: Formations will remain elevated for the next two or three quarters and then we expect that there could be some improvement informations.

Lamar Purcell: The actual gross impaired loan balance, we expect to continue to grow longer than that given the cycle time.

Lamar Purcell: Yes.

Speaker Change: Okay. Thanks, Thanks for that and then.

Speaker Change: Flipping over to Mary Santalla can.

Lemar Persaud: Can you talk about what really drove the surprise on Pre-Tax Pre-Version Profits & Operating Leverage vs. the Guidance Offered Last Quarter, 2024? But clearly, you guys put up a good quarter here. So just wondering any comments on that. And then I'm wondering if you think I'm jumping the gun here, but is there upside to that mid single-digit PPPV growth? Yeah, any comments or suggestions would be helpful.

Mary Santalla: Can you talk to them, what really drove the surprise on.

Mary Santalla: Pretax pre provision profits.

Mary Santalla: And the operating leverage versus the guidance offered last quarter I think I think the comment was positive operating leverage more weighted to the second half of the year and mid single digit T. T. P. T V Crawford.

Mary Santalla: Second half of 'twenty 'twenty, four but clearly you guys put up a good corner here. So just wondering any comments on that and then I'm wondering if you if I'm jumping the gun here, but is there upside to that mid single digit P. T. P. D. Rob Yeah any commentary there would be helpful. Thank you.

Marie Chantal Gingras: Thank you. Thanks, Lemar. So, so obvious.

Speaker Change: Thanks Omar.

Speaker Change: So so obvious.

Marie Chantal Gingras: Sorry. Okay, so we're very happy to obviously deliver positive operating leverage this quarter. As our efforts of the past many quarters are yielding results, and bearing in mind that our top line also proved strong this quarter, so that explains what you call a bit of a surprise in terms of operating leverage.

Speaker Change: I'm sorry.

Rob: Okay, and so we're very happy to obviously deliver positive operating leverage.

This quarter.

Rob: As our efforts of the past many quarters are yielding results and bearing in mind that our top line also proved strong this.

Rob: This quarter, so that explain what you call a little bit of a surprise in terms of op leverage just maybe want to go.

Marie Chantal Gingras: I just maybe want to go back to some of the comments that we made in the past couple of quarters about being very proactive in terms of expense management and being strategic in prioritizing and managing expenses while balancing business growth and investment. We also mentioned that we were focused on protecting our current talent base. So, those efforts are really yielding results, and this is why we mentioned last quarter that we expect the trend in expense growth to continue to slow down. So, that's what you're seeing. Looking forward, we've talked about it a couple of times today, revenue growth will be dependent on the economic trajectory. Therefore, we remain focused and disciplined around controlling costs.

Rob: Go back to some of the comments that we made in the past couple of quarters and the fact that we were being very proactive in terms of expense management and being strategic and prioritizing and managing expenses, while balancing business growth and our investment. We also mentioned that we were being.

Rob: Focused on protecting our current talent base.

Rob: So those efforts are really yielding results and this is why we had mentioned last quarter that we expend expect the trend in expense growth to continue to slow down. So that's what your you're seeing them looking forward.

Rob: We've talked about it in a couple of times today revenue growth will be dependent upon the economy trajectory.

Rob: And therefore, we remain focused and disciplined around controlling cost and so I think if you go back to your question about P. T P P and with the uncertainty and the work that we're doing at the moment, we're still comfortable with the.

Marie Chantal Gingras: So, I think if you go back to your question about PTPP, with the uncertainty and the work that we're doing at the moment, we're still comfortable with the mid-single-digit range that we shared with you guys last quarter. Okay, thanks. That's it for me.

Rob: Mid single digit range that we've.

Shared with you guys that last quarter.

Speaker Change: Okay. Thanks, that's it for me.

Mehmed Rizvanovic: Thank you. Our next question is from Mike Rizvanovic from KBW Research. Please go ahead. Good afternoon. Probably one for Marie Chantal, just a quick numbers question.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Our following question is from Mike who is monovisc.

Mike: K B W. Research. Please go ahead.

Mike: Good afternoon, probably one for Mary shot Tal just a quick numbers question, but is there any way you could give us a ballpark on noninterest bearing deposits as a percentage of your total deposits you're the only bank that does not disclose this and so I just wanted to get a sense of the magnitude currently and maybe where it was before.

Marie Chantal Gingras: But is there any way you could give us a ballpark on non-interest-bearing deposits as a percentage of your total deposits? You're the only bank that does not disclose this. And so I just wanted to get a sense of the magnitude currently and maybe where it was before rates started rising. I'm just trying to get a sense of how much that might have played a factor in terms of your better margin performance for the last little bit. So Mike, you're just to make sure I just want to make sure I understand your question. So you're, you're trying to figure out the proportion of our demand deposits. Overall, yeah, just your total deposits; what portion would you put into the bucket of non-interest bearing? It's disclosure that all your peers have been putting out for a long time. And I've never seen it with National.

Mike: <unk> started rising I'm, just trying to get a sense of how much that might have played a factor in terms of your better margin performance the last little bit.

Mary Santalla: So Mike just to make sure I just want to make sure I understand your question. So you're you're you're trying to figure out the proportion of our.

Mike: Not all of our demand deposit.

Mike: Overall, yeah, just just your total deposits what portion would you put into the bucket of non interest bearing it at its disclosure that all your peers, putting out for align and I've I've never seen it with National I'm. Just wondering if it's maybe or maybe you've had a different experience in terms of non interest bearing deposits.

Marie Chantal Gingras: I'm just wondering if maybe, you know, maybe you've had a different experience in terms of the non-interest bearing deposit runoff that we've seen the last couple of years, almost two years now. So I think, as per our other banks, and Lucie shared it before, we saw demand deposits go down since the beginning of the interest rate hike. We're seeing it slowing down in the past couple of quarters, and in my remarks, I also mentioned that non-demand deposits were up a billion. So I think we're seeing some shifts there, even though it's slowing down on the retail side, as Lucie was saying. Before the pre-pandemic, demand deposits were $31 billion, and we are at $41 billion now.

Mike: Run off that we've seen in the last couple of years almost two years now.

Mike: So I think our our us.

Mike: As for our other banks, where we do see share did before we saw demand deposits go down since the beginning of the interest are the interest rate hike.

Mike: And we're seeing it slowing down in the past couple of quarters.

Mike: And and I and my remarks, I've also mentioned that.

Mike: Non demand deposits were up to 1 billion. So I think we're seeing some shifts in there even though it is slowing down and in the retail side as Lucy was saying, but just to give you something here or maybe just on the resi side before pre pandemic demand deposit were traded 31 billion and we are at 41 billion now so like I.

Marie Chantal Gingras: So, like I was saying, there is still lots of liquidity in the system, so that's why we still continue to benefit from the latent lag in the rate increases. It's still a big and important part of the deposit balance. Does that answer your question? It just doesn't answer it all.

Mike: He was saying that theres still lots of liquidity that's in the system. So that's why we're still continuing to benefit from the Navy.

Mike: You know what they need and lagging the rate increases, it's still a big and important part of the deposit base.

Does that answer your question I know what it's like.

Marie Chantal Gingras: So did you say it was $31 billion, and it moved to what level? $41 billion, almost $42 billion. So is that demand and notice, like the OSFI category, which would include savings accounts, or just pure non-interest bearing? Non-interest bearing.

So did you say it was 31 billion and it moved to what level 41 billion 22 billion almost.

Mike: Is that demand and notice like the Aussie category, which would include savings accounts or just pure noninterest bearing.

Marie Chantal Gingras: But if you want to go into the details, we can probably take that offline. Okay, okay. We'll do that. Thanks very much for the call.

Speaker Change: Noninterest bearing but if you wanted to go into the details we can probably take that offline. Okay. Okay, well, thanks very much for the color.

Speaker Change: Thank you.

Darko Mihelic: Thank you. Once again, please press star 1 at this time for any questions or comments. The following question is from Darko Mihelic from RBC Capital Markets. Please go ahead. Hi, thank you for squeezing me in. And I apologize in advance, I'm going to get super technical. Because I just want to understand better.

Speaker Change: Once again, please press star one at this time for any questions or comments.

Speaker Change: Our following question is from Darko <unk> from RBC capital markets. Please go ahead.

Darko: Alright. Thank you for squeezing me in and I apologize in advance I'm going to get Super technical.

Darko: Because I just wanted to I just want to better understand.

Darko Mihelic: So Etienne, in your answer, with respect to The Dividend Impact, I was hoping maybe we could think about it or just if you could humor me a little bit and if you were to look at the supplementary, on page 17. This is sort of where you show trading revenues and the taxable equivalent, Adjustment.

Darko: So it's you and in your answer with respect to the.

The dividend impact.

Darko: I was hoping maybe we can think about it or just if you can humor me a little bit and if you. If you were to look at the supplemental.

On page 17.

Darko: This is sort of where you show the trading revenues in the taxable equivalent.

Darko: Adjustment.

Etienne Dubuc: And so I wanted to just maybe understand this the best way that I can, which is to say that in this recently reported quarter, it was 108 million. And your answer was what was a $45 million impact. And so would it be so simplest for me to just say the 108, [inaudible] were it not for that January, and maybe a portion of December, where you did not claim the dividend tax increase.

Darko: And so I wanted to just maybe absolutely.

Darko: Understand this is the best way that I can which is to say that recently.

Darko: The recently reported quarter it was $108 million.

Darko: And your answer was what was it $45 million impact and so would it be so simple for me to just say the 108.

Darko: Would've been 108 plus 45.

Darko: Were it not for that.

Darko: Sage, one where maybe port portion of December where you did not claim that the dividend tax.

Darko: Credit is that is that the simple simple way, it's not a perfect way to look at it Darko because physicians move a lot I mean these are not static set in time position, so the $45 million as compared to what was taken last year.

Etienne Dubuc: So it's really difficult to compare apples and apples here, so I think the $45 million is really more representative of what the impact was. Okay, and I guess that's where I'm looking for maybe a little more insight from Etienne because if I look at this taxable equivalent adjustment, now it was $50 million in Q2 2022, and it shot all the way up to $161.

Darko: So it's really difficult to compare apples and apples here. So I think the $45 million is really more representative of what.

Darko: What the impact was.

Speaker Change: Okay, and I guess, that's where.

Speaker Change: That's what I'm looking for is maybe a little more insight at the end because if I look at this taxable equivalent adjustment.

Speaker Change: And that was it was 50 million in Q2 2022.

Speaker Change: Shot all the way up to $1 61.

Etienne Dubuc: It's unclear to me. You know how big of a business this was, and we've only really got about a month's impact here.

Speaker Change: It's unclear to me.

Speaker Change: You know how big of a business. This was and we've only really got about a month impact here and I guess the question another way to phrase this adjourn and forgive me for phrasing. It this way, but what did you try and squeeze a bunch of it in Japan.

Etienne Dubuc: And I guess the question, another way to phrase this, Etienne, and, you know, forgive me for phrasing it this way, but, did you try and squeeze a bunch of it in just before, you know, a couple of things there, Darko. First of all, it's more of a two month impact because, um. Right. Remember, these are mostly positions that are in marked markets. So when shares go ex-dividend, they tend to do so in December, and then the dividends are payable in January.

Speaker Change: Yeah.

Speaker Change: A couple of things there Darko first of all it's more of a two month impact because.

Darko: Remember these most of your positions that are mark to market. So when shares go ex dividend and they tend to do so in in December and then the dividends payable in January. So the impact is really covers also most of December right. The other thing is that our tax equivalent number also incur.

Etienne Dubuc: So the impact really covers also most of December. Right. The other thing is that our tax equivalent number also includes other things, which is really what comes from our European operations. So really, the difference in taxation where we do business in different jurisdictions, namely in Europe, so the revenues would be grossed up by the difference in taxation levels.

Darko: Fluids and other things, which is really what comes from our European operations are so so really the difference with taxation, where we do business in different jurisdictions, namely in Europe. So there is a debate that.

Darko: The revenues would be grossed up by the difference in taxation level and so that represents the other part the main part of our tax equivalent benefit number.

Etienne Dubuc: And so that represents the other part, the main part of our tax equivalent benefit number. Okay, thank you for that. That's very helpful.

Speaker Change: Okay. Thank you for that that's very helpful. But and then just turning to the $60 million sort of impact that you're sort of suggesting is that did you base that off of last year sort of average run rate is that the way I should interpret that that's oh.

Etienne Dubuc: But and then turning to the 60 million sort of impact that you're sort of suggesting, is that did you base that off of last year's sort of average run rate? Is that the way I should interpret that? That's like year over year, each quarter, the year over year impact. Okay. Okay, so let's run at 240 million, and that's just the dividend component of that. If I wasn't sure, or was that the entire business, or when I looked at equities trading, for example, you could say, well, last year, you know, 240 of it would have been this 10. Is that to say that 240 of the 904 or is there more?

Like year over year, each quarter the year over year impact.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: What's the run rate $240 million and that's just the dividend component of that if I'm not if or is that the entire business. So when I look at equities trading for example.

Speaker Change: And you'd say well last year, you know 240 of it would've been this tab.

Speaker Change: Is that to say that that's.

240 of the 904 or is there more.

Etienne Dubuc: And what I'm getting at is if you're trying to reprice this business, could that shrink it further? I guess that's where I'm ultimately going with this. No, it's really just the impact.

Speaker Change: And what I'm getting at if Youre trying to reprice this business could that shrink. It further I guess, that's where I'm ultimately going with us again.

Speaker Change: No, it's it's really that impact.

Etienne Dubuc: So solely, I don't think that there's, I'm not sure I follow you. But really, it is really just a simple impact on the business. Yeah, I mean, let me ask you another way. You're still earning money on that business. It's just, it's just 240 less than before, correct?

Speaker Change: So so we I don't think that there's I'm not sure I follow you, but really it is really a simple impact on the business.

Speaker Change: Yeah, I mean like what do you mean.

Speaker Change: Asking another another way you're still earning money on that business. It's just not it's just 240 lesson before correct.

Etienne Dubuc: That's correct, and that business has not changed. That business is a client-focused business, where we tend to be long Canadian shares as a hedge against products, ETFs, and other types of hedging. And the dividend benefit was incidental to those businesses.

That's correct and that business has not changed that business as a client focused business, where we tend to be long Canadian shares as a hedge to products to Etfs too.

Speaker Change: Other types of hedging and the dividend.

Speaker Change: The dividend benefit was incidental to.

Speaker Change: To those businesses. It is not the reason why we do those businesses, but it was a nice added feature of these businesses.

Etienne Dubuc: It is not the reason why we do those businesses, but it was a nice added feature of these businesses. Okay, fair enough. Thank you for that.

Speaker Change: Okay Fair enough. Thank you for that and I just have a different question completely different area that I wanted to talk to us.

Darko Mihelic: And I just have a different question, a completely different area that I wanted to talk about is Marie Chantal. In your prepared remarks, you referenced slide 9. [inaudible] loan to deposit ratio, and you referenced that as being strong, and that's up from 92. Can you maybe provide a little bit of color and why you view that as strong? Where do you ultimately want to take that? And just why is 98% better than 92 better than 80?

Speaker Change: Mercantile win in your prepared remarks, you referenced.

Speaker Change: Slide nine.

Speaker Change: And on this slide.

Speaker Change: The title of this line says it all I mean, 98%.

Speaker Change: Loan to deposit ratio and you referenced that as being strong and that's up from 92.

Speaker Change: You may be provide a.

Speaker Change: A little bit of color on why you view that as strong where do you ultimately want to take that.

Speaker Change: And just why is 98% better than 92, better than 80 or am I thinking about this entire I just wanted to make sure I understand when you use the word strong four and 98% loan to deposit ratio I wanted to know exactly how you view that ratio why you view it to be strong.

Marie Chantal Gingras: Or am I thinking about this whole thing? I just want to make sure I understand when you use the word strong for a 98% loan to deposit rate; I want to know exactly how you view that ratio and why you view it that way. Thanks, Darko. So, maybe on our loan to deposit ratio, as I mentioned in my remarks, we really look at it from a total bank perspective, and it really results from our diversified business model. And we've increased that ratio, and it has been improving for a couple of years now. And when we compare it as well as to the industry, it's, it's, it's very well positioned. So that's why we're saying that it's strong. Maybe I'll ask it a different way. Would you prefer that ratio to be higher or lower? See you next time. Do you want me to answer that question, Darko? Yes, please, by all means. You know, we don't look at it in terms of, you know, we don't have a target for the ratio.

Speaker Change: Thanks Darko.

Darko: So maybe on the on our loan to deposit as I mentioned in my remarks, we really look at look at it from total bank perspective, and it really results from our diversified business model.

Darko: We've inc. That ratio has been improving them for a couple of years now and when we compare it as well into in the industry. It's it's it's very well positioned so that's why we're saying that is strong.

Maybe I'll ask it a different way would you prefer that ratio to be higher or lower.

Darko: Yeah.

Darko: Yeah.

Speaker Change: You want me to answer that question Darko.

Darko: Yes, please by all means.

Darko: We don't look at it in terms of.

We don't have a target for the ratio.

Marie Chantal Gingras: And I think you asked me the question when I came to see you at your conference. The goal is really a diversified business mix, across. All segments, both sides of the balance sheet. And, you know, as we continue to grow, obviously, we want the right balance. And so it's about, you know, overall liquidity metrics, resilient, you know, term. Different clients, different segments, so it's not about a ratio per se, and focusing on one race; it's really about the business mix and the resiliency of the business mix through all cycles.

And I think you you asked me the question a.

Darko: When I came to see you at your conference.

Darko: The goal is really diversified business mix.

Darko: Across.

Darko: All segments.

Darko: Both sides of the balance sheet.

Darko: And you know as we continue to grow.

Darko: Obviously, we want the right balance and so it's about overall liquidity metrics are resilient term.

Darko: Different clients different segments. So it's not about a ratio per se.

Darko: And focusing on one ratio, it's really about the business mix and the resiliency of the business mix through all cycles.

Okay does that help you with that answer the question Yeah, Yeah. It does I mean, they've got I guess.

Marie Chantal Gingras: Okay, does that answer the question? Yeah, yeah, it does. I mean, I guess we're in a world that we're in, there just seems to be a real press for deposits, right? And specifically, non-wholesale deposits. So, you know, there are many other banks that are suggesting they'd like to work that ratio down; yours has gone up over time. And that's why I was curious as to where you ultimately wanted to see it.

Darko: In a world that we're in.

Darko: Is there just seems to be a real pressed for deposits right.

Darko: And specifically non wholesale deposit. So you know there are many other banks and I'm, suggesting they'd like to work that ratio down doors, that's gone up over time and that's why I was curious as to where you ultimately wanted to see that but I suppose if you're just looking at it from a point of view of diversification I understand where you're coming from.

Darko Mihelic: But I suppose if you're just looking at it from the point of view of diversification, I understand where you're coming from. Great. Thank you. We have no further questions registered at this time. I would now like to turn the meeting back over to Mr. Ferreira. Thank you, operator. As discussed today on our call, the bank enters the second quarter on solid footing in what remains an uncertain macro environment. The National Bank team is focused on execution and delivering business growth while maintaining our usual prudent and disciplined approach.

Darko: Yeah.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: We have no further questions registered at this time I would now like to turn the meeting back over to Mr. Fay.

Thank you operator, so I'll discuss today on our call. The bank enters the second quarter on solid footing in what remains an uncertain macro environment. The national Bank team is focused on execution and delivering business growth, while maintaining our usual prudent and disciplined approach. So on that note I'd like to thank you all for joining us today.

Laurent Ferreira: So on that note, I'd like to thank you all for joining us. Thanks. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation.

Speaker Change: Thank you the.

Speaker Change: The conference has now ended please disconnect your lines at this time.

Speaker Change: And we thank you for your participation.

Speaker Change: Yeah.