Q1 2024 The Bank of Nova Scotia Earnings Call

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John Taylor: Good morning, and welcome to Scotiabank's 2024 First Quarter Results presentation. My name is John McCartney, and I'm Head of Investor Relations here at Scotiabank. Presenting to you this morning are Scott Thompson, Scotiabank's President and Chief Executive Officer, Raj Viswanathan, our Chief Financial Officer, and Phil Thomas, our Chief Risk Officer. After our comments, we will be glad to take your questions.

Speaker Change: Good morning, and welcome to Scotia, Bank's 2024, our first quarter results presentation.

My name is John Mccartney and I'm head of Investor Relations here at Scotiabank presenting to you. This morning are Scott Thompson Scotia banks, President and Chief Executive Officer, Raj Viswanathan, Our Chief Financial Officer, and Phil Thomas Our Chief Risk Officer.

Speaker Change: Following their comments, we will be glad to take your questions.

John Taylor: Also present to take questions are the following Scotiabank executives: Eris Bogdanaris from Canadian Banking, Jackie Allard from Global Wealth Management, and Francisco Aristegueta from International Banking. Before we start, and on behalf of those speaking today, I will refer you to slide 2 of our presentation, which contains Scotiabank's caution regarding forward-looking statements. With that, I will now turn the call over to... Thank you, John, and good morning, everyone.

Speaker Change: Also present to take questions are the following Scotiabank executives aerospace Daenerys from Canadian banking, Jackie alerts from global wealth management, and Francisco Arista gauge us from international banking.

Speaker Change: Before we start and on behalf of those speaking today I will refer you to slide two.

Speaker Change: <unk>, which contains scotiabank caution regarding forward looking statements with that I will now turn the call.

Daenerys: Thank you John and good morning, everyone.

Scott Thompson: Welcome to our first call of 2024, and importantly, our first set of results since we shared our refresh strategy at our investor day in December. We are off to an encouraging start to the year, and our results are consistent with our expectations. It is still early in the execution of our strategy, but we are realizing benefits of our enterprise-wide efforts by way of disciplined capital allocation, focusing on investments that deliver returns, maintaining a strong balance sheet, focusing on deposit growth, and building primary client relationships that enhance profitability and cost efficiency. The bank reported adjusted earnings of $2.2 billion, or $1.69 per share, in the quarter.

Speaker Change: Welcome to our first call of 2024 and importantly, our first set of results since we shared our refreshed strategy at our Investor Day in December.

Speaker Change: We're off to an encouraging start to the year and our results are consistent with our expectations.

Speaker Change: It is still early in the execution of our strategy, but we are realizing the benefits of our enterprise wide efforts by way of disciplined capital allocation focusing on investments that deliver returns.

Speaker Change: Maintaining a strong balance sheet, a focus on deposit growth and building primary client relationships that enhanced profitability and cost efficiency.

Speaker Change: The bank reported adjusted earnings of $2 2 billion or $1 69 per share in the quarter.

Scott Thompson: Strong revenue growth coupled with disciplined cost performance across our businesses allowed us to improve profitability quarter over quarter despite higher credit provision. We further strengthened our balance sheet and liquidity profile in keeping with our commitment to build capital over time. Our 71 ratio, at 12.9%, reflects our efforts to extend our balance sheet thoughtfully to business segments and clients where we see the opportunity to build holistic and profitable long-term relationships. Our liquidity coverage ratio strengthened to 132% year over year, lessening our reliance on market source funding, with a reduction in our wholesale funding ratio to 20.3%.

Speaker Change: Strong revenue growth, coupled with disciplined cost performance across our businesses allowed us to improve profitability quarter over quarter, Despite higher credit provisions.

Speaker Change: We further strengthened our balance sheet and liquidity profile in keeping with our commitment to build capital over time.

Speaker Change: Our steady one ratio of 12, 9% reflects our efforts to extend our balance sheet thoughtfully the business segments and clients, where we see the opportunity to build a holistic and profitable long term relationships.

Speaker Change: Our liquidity coverage ratio strengthened to 132% year over year lessening, our reliance on market source funding with a reduction in our wholesale funding ratio to 23%.

Scott Thompson: Assets across the bank were up marginally year over year, reflecting our disciplined approach to growth in a more muted Canadian residential mortgage market environment. The impact of our ongoing portfolio repositioning in the global banking and markets business was offset by growth in other personal and commercial lines of business. We continue to execute on risk-weighted asset optimization opportunities by reducing our exposure to less profitable relationships where we don't see the opportunity for acceptable risk-adjusted returns on our shareholders' capital. Our risk-weighted assets have been managed down by 4% year-over-year as a result of portfolio repositioning and optimization efforts.

Speaker Change: Assets across the bank were up marginally year over year, reflecting our disciplined approach to growth and a more muted Canadian residential mortgage market environment.

Speaker Change: The impact of our ongoing portfolio repositioning in the global banking and markets business was offset by growth in other personal and commercial lines of business.

Speaker Change: We continue to execute on risk weighted asset optimization opportunities by reducing our exposure to less profitable relationships, where we don't see the opportunity for acceptable risk adjusted returns on our shareholders' capital.

Speaker Change: Our risk weighted assets have been managed lower by 4% year over year as a result of portfolio repositioning and optimization efforts.

Scott Thompson: However, we did see growth sequentially in conjunction with a significant improvement in our return on risk-weighted assets, which we believe is an important metric in driving shareholder value. Our organizational focus on core deposits continues to show progress, with deposits up on an all-bank basis and strong growth in the P&C businesses, with 9% deposit growth in Canadian banking and 5% deposit growth in international banking. The result of our efforts to thoughtfully manage growth on both sides of the balance sheet has resulted in a loan-to-deposit ratio that is down over 600 basis points to 110% on a year-over-year basis, turning into the Economic Outlook. Although the Canadian economy has shown more resilience in response to the significant monetary policy tightening over the past two years, interest rates are having the desired impact on consumer sentiment and spending, which should allow for rate cuts later this year.

Speaker Change: However, we did see growth sequentially in conjunction with a significant improvement in our return on risk weighted assets, which we believe to be an important metric and driving shareholder value.

Speaker Change: Yeah.

Speaker Change: Our organizational focus on core deposits continues to show progress with deposits up on an all bank basis and strong growth in the P&C businesses with 9% deposit growth in Canadian banking and 5% deposit growth in international banking.

Speaker Change: The result of our efforts to thoughtfully manage growth on both sides of the balance sheet has resulted in a loan to deposit ratio that is down over 600 basis points to 110% on a year over year basis.

Speaker Change: Turning to the economic outlook.

Speaker Change: Although the Canadian economy has shown more resilience in response to the significant monetary policy tightening over the past two years interest rates are having the desired impact on consumer sentiment and spending which should allow for rate cuts later this year.

Scott Thompson: This quarter's results reflect an increase in credit provisioning given the incremental financial strain that sustained higher interest rates are having on our clients. We expect the Canadian economy to underperform both the U.S. and our key Latin American countries early this year but show some growth reacceleration in response to policy easing and more active residential real estate markets in the back half of the year. We are expecting Mexico to show the strongest growth among the larger economies in the Americas in 2024, with some volatility expected leading into this summer's presidential election.

Speaker Change: This quarter's results reflect an increase in credit provisioning given the incremental financial strain that sustained higher interest rates are having on our clients.

Speaker Change: We expect the Canadian economy to underperform, both the U S and our key Latin American countries. Early this year, but showed some growth re acceleration in response to policy easing and more active residential real estate markets in the back half of the year.

Speaker Change: We are expecting Mexico to show the strongest growth among the larger economies in the Americas in 2024, with some volatility expected leading into the summer as presidential election.

Scott Thompson: Our official forecasts are no longer calling for recessionary conditions in any of our operating geographies over the next few years. However, we remain well positioned to manage through more difficult economic scenarios, should they unfold. A few highlights in terms of performance and strategic progress within each of our business lines. Our Canadian banking business had a strong start to the year, delivering 7% revenue growth and 3% expense growth, resulting in positive operating leverage. Loan growth in our domestic business reflects a less active residential mortgage market, as well as our own deliberate actions to focus on primary clients.

Speaker Change: Our official forecast are no longer calling for recessionary conditions in any of our operating geographies over the next few years. However, we remain well positioned to manage through more difficult economic scenarios should they unfold.

Speaker Change: A few highlights in terms of performance and strategic progress within each of our business lines.

Speaker Change: Our Canadian banking business had a strong start to the year, delivering 7% revenue growth and 3% expense growth, resulting in positive operating leverage.

Speaker Change: Loan growth in our domestic business reflects a less active residential mortgage market as well as our own deliberate actions to focus on primary clients.

Scott Thompson: Lower growth in mortgages has been offset by continued growth in business banking and strong credit card momentum, which allows us to continue to diversify our business network. Deposit growth continues to track well at 9% in the period, contributing to margin expansion and favorable trends in terms of our loan-to-deposit ratios. In our retail business, Eris and his team are focused on client primacy, deposit growth, client acquisition, and relationship deepening across the portfolio. The continued strength of the Seen Plus Loyalty Program, now 15 million members strong, provides a significant opportunity to acquire new payment clients, an important step to a longer-term primary relationship with the bank. Over 40% of new-to-bank clients through the ScenePlus partnership already have a multi-product relationship with the bank. As mentioned, our approach to the mortgage business has evolved. We are having good success with our bundled offer.

Speaker Change: Lower growth in mortgages has been offset by continued growth in business banking and strong credit card momentum, which allows us to continue to diversify our business mix.

Speaker Change: Deposit growth continues to track while at 9% in the period contributing to margin expansion and favorable trends in terms of our loan to deposit ratios.

Speaker Change: In our retail business, Eric and his team are focused on client privacy deposit growth client acquisition and relationship deepening across the portfolio.

Speaker Change: The continued strength of the <unk> plus loyalty program now 15 million members strong provides a significant opportunity to acquire new payment clients and important step to a longer term primary relationship with the bank.

Speaker Change: Over 40% of new to bank clients through the <unk> plus partnership already have a multi product relationship with the banks.

Speaker Change: As mentioned our approach to the mortgage business has evolved we are having good success with our bundled offerings, our mortgage plus product represented 70% of deals done in the quarter, resulting in an average of 3.2 additional products for new to bank clients.

Scott Thompson: Our MortgagePlus product represented 70% of deals done in the quarter, resulting in an average of 3.2 additional products per new-to-bank client. Primary client count was up by 42,000 in the quarter on the back of better cross-sell and proactive engagement. We are closely tracking client relationship depth and see progress as the number of clients with 3-plus banking products has seen a 50 basis point increase since the start of the fiscal year. Loan growth in our commercial and small business lines continues in the mid to high single-digit range, with our teams focused on balancing loans and deposits, targeting growth and lead bank relationships, and expanding returns on risk-weighted assets. Tangerine delivered its highest quarterly earnings ever of $107 million, up 9% year-over-year.

Speaker Change: Primary client count was up by 42000 in the quarter on the back of better cross sell and proactive engagement.

Speaker Change: We are closely tracking client relationship depth and saw progress as the number of clients with three plus banking products has seen a 50 basis point increase since the start of the fiscal year.

Speaker Change: Loan growth in our commercial and small business lines continues in the mid to high single digit range with our teams focused on balancing in loans and deposits targeting growth in lead bank relationships and expanding returns on risk weighted assets.

Speaker Change: Tangerine delivered its highest quarterly earnings ever of $107 million up 9% year over year.

Scott Thompson: Tangerine's differentiated digital offering and expanded product capability continues to be a unique driver of additional primary clients. Tangerine continues to lead the market in mobile adoption, with mobile onboarding up 12 points to 62% of all sign-ups and overall mobile adoption up 4 points to 73% in the quarter. Global wealth earnings of $374 million reflect the strength of our asset management franchise, the power of our diversified domestic client advisory channels, rebounding market performance in recent months, and strong momentum in our international wealth business. In domestic wealth, our well-established advice channels are integrated with our industry-leading private banking business and are designed to deliver the type of complete solutions that define primary client relationships. In our asset management business, I will reiterate our opportunity to penetrate our own branch network as well as Tangerine more effectively. Only 10% of our Scotiabank retail banking clients have purchased our mutual fund products.

Speaker Change: Tangerine differentiated digital offering an expanded product capability continues to be a unique driver of additional primary clients.

Speaker Change: Tangerine continues to lead the market in mobile adoption with mobile Onboarding up 12 points to 62% of all sign ups and with overall mobile adoption up four points to 73% in the quarter.

Speaker Change: Global wealth earnings of 374 million reflect the strength of our asset management franchise. The power of our diversified domestic client advisory channels rebounding market performance in recent months and strong momentum in our international wealth business.

Speaker Change: In domestic wealth are well established advice channels are integrated with our industry, leading private banking business and are designed to deliver the type of complete solutions the defined primary client relationships.

Speaker Change: And our asset management business I will reiterate our opportunity to penetrate our own branch network as well as Tangerine more effectively.

Speaker Change: Only 10% of our Scotiabank retail banking clients have purchased our mutual fund products. This penetration lags peers a.

Scott Thompson: This penetration lags peers. A stronger partnership between our award-winning fund business and our retail networks will deliver meaningful upside to our current results. Jackie and Eris are partnering to actively implement action plans to address this sizable upside opportunity. Our international wealth business contributed $65 million in the quarter, up 18% year over year, an increasingly meaningful contributor to our wealth results. Mexico specifically represents the largest opportunity as positive mutual fund inflows and strong fund performance are driving highly accretive growth in this business. Our global banking and markets business reported a solid quarter with earnings of $439 million. The business remains focused on maintaining top-tier status in key Canadian wholesale products and continues to organically build U.S. capabilities.

Speaker Change: A stronger partnership between our award winning fund business and our retail networks will deliver meaningful upside to our current results.

Speaker Change: Jackie and Arris are partnering to actively implement action plans to address the sizable upside opportunity.

Speaker Change: Our international wealth business contributed $65 million in the quarter up 18% year over year, an increasingly meaningful contributor to our wealth results.

Speaker Change: Mexico, specifically reserve represents the largest opportunity is positive mutual fund inflows and strong fund performance are driving highly accretive growth in this business.

Speaker Change: Our global banking and markets business reported a solid quarter with earnings of $439 million.

Speaker Change: The business remains focused on maintaining top tier status and key Canadian wholesale products and continues to organically build U S capabilities.

Scott Thompson: Our U.S. GBM business delivered 13% earnings growth on 3% revenue growth year-over-year, reflecting our focus on return discipline and fee income through a rigorous client selection and profitability evaluation process. In GBM, our upside opportunity is based on return optimization by driving more ancillary fee revenue as a percentage of loan exposure through deliberate client selection and relationship deepening, aligning our capabilities with client needs. It is important to note that our wholesale business in Canada will face a profitability headwind going forward because of a pending change in Canadian tax legislation related to the elimination of the corporate dividend deduction. Our international banking business delivered exceptionally strong results this quarter, with earnings contributions of $752 million.

Speaker Change: Our U S. GBM business delivered 13% earnings growth on 3% revenue growth year over year, reflecting our focus on return discipline in fee income through a rigorous client selection and profitability evaluation process.

Speaker Change: And GBM are upside opportunities based on return optimization by driving more ancillary fee revenue as a percentage of loan exposure through deliberate client selection and relationship deepening aligning our capabilities with client needs.

It is important to note that our wholesale business in Canada will face a profitability headwind going forward because of the pending change in Canadian tax legislation related to the elimination of the corporate dividend deduction.

Speaker Change: Our international banking business delivered exceptionally strong results this quarter with earnings contribution of $752 million.

Scott Thompson: Solid revenue growth across segments, good expense discipline, and a particularly strong performance by our GBM LATAM business drove the results. The business delivered a substantial overall improvement in profitability, up 35% from the prior quarter, supported by almost 400 basis points of improvement in the productivity ratio, with no increase in capital deployed. We believe we have more than sufficient capital and product capabilities in place to capitalize on the opportunities in these markets when favorable market conditions and client activity allow, as evidenced by our results in this past quarter. However, on the retail side of the business, we remain overly reliant on the secured residential mortgage business, and we are too often a single product provider to the client, which is the opportunity ahead. We are closely monitoring primacy as a percentage of overall relationships in each of international banking retail, commercial, and wholesale, with a focus on product penetration and deposit growth. We have already seen a modest uptick from early actions taken. Retail repositioning will require a sustained effort over the next few years to show meaningful results.

Speaker Change: Solid revenue growth across segments, good expense discipline, and a particularly strong performance by our GBM Latam business drove the result.

Speaker Change: The business delivered a substantial overall improvement in profitability up 35% from the prior quarter supported by almost 400 basis points of improvement in the productivity ratio with no increase in capital deployed.

Speaker Change: We believe we have more than sufficient capital and product capabilities in place to capitalize on the opportunities in these markets when favorable market conditions and client activity allow as evidenced by our results in this past quarter.

Speaker Change: On the retail side of the business, we remain overly reliant on the secured residential mortgage business and we are too often a single product providers the client which is the opportunity ahead.

Speaker Change: We are closely monitoring primacy as a percentage of our overall relationships in each of international banking retail commercial and wholesale with a focus on product penetration and deposit growth. We have already seen a modest uptick from early actions taken.

Speaker Change: The retail repositioning will require a sustained effort over the next few years to show meaningful results.

Scott Thompson: The growth agenda in commercial banking and our plan to deliver stronger cross-border coverage to multinational clients operating throughout the region will require further investment in support infrastructure and enhanced cash management capability. I look forward to the evolution of this business under Francisco's leadership as we build a more coordinated regional operating model and orient the business toward the sizable North American corridor opportunity we believe we are so well positioned to capitalize on. In summary, the first quarter was an encouraging start to the year. We are now in the early stages of execution against plans to deliver on our key strategic objectives, earning client primacy, growing and scaling identified priority markets, making it easier to do business with us, and winning as one team. We have gone through an exhaustive and collaborative exercise to establish the key performance indicators for each business, many of which were shared at our Investor Day.

Speaker Change: The growth agenda in commercial banking and our plan to deliver stronger cross border coverage to multinational clients operating throughout the region will require further investment and support infrastructure and enhanced cash management capability.

Speaker Change: I look forward to the evolution of this business under Francisco's leadership as we build a more coordinated regional operating model and Orient the business towards a sizable north American quarter opportunity. We believe we are so well positioned to capitalize on it.

Speaker Change: In summary, the first quarter was an encouraging start to the year. We are now in the early stages of execution against plans to deliver on our key strategic objectives, earning client privacy growing and scaling and identified priority markets, making it easier to do business with us and winning as one team.

Speaker Change: We've been through an exhaustive and collaborative exercise to establish the key performance indicators for each business many of which were shared at our Investor day, and we will provide progress updates to you on the most impactful kpis in future financial reporting periods.

Raj Viswanathan: And we will provide progress updates to you on the most impactful KPIs in future financial reporting periods. With that, I will turn it over to Raj for a more detailed financial review of the quarter. Thank you, Scott, and good morning, everyone.

Speaker Change: With that I will turn it over to Raj for a more detailed financial review of the quarter.

Thank you Scott and good morning, everyone.

Raj: All of my comments that follow will be on an adjusted basis for the usual acquisition related costs.

Raj Viswanathan: All my comments that follow will be on an adjusted basis for the usual acquisition-related costs. The 2023 competitive figures have been restated to reflect the adoption of IFRS 17. Moving to slide six for a review of the first quarter results, the bank reported quarterly adjusted earnings of $2.2 billion and diluted earnings per share of $1.69.

Raj: The 2023 competitive figures have been restated to reflect the adoption of <unk> 17.

Raj: Moving to slide six for a review of our first quarter results.

Raj: The Bank reported quarterly adjusted earnings of $2 2 billion and diluted earnings per share of $1 69.

Raj: Return on equity was 11, 9% and return on tangible common equity was 14, 6%.

Raj: Our revenues were up 6% year over year driven by increases in both net interest income that was up 5% and noninterest income that was up 8%.

Raj Viswanathan: Return on Equity was 11.9%, and Return on Tangible Common Equity was 14.6%. Revenues were up 6% here over a year driven by increases in both net interest income, which was up 5%, and non-interest income, which was up 8%. All bank net interest margin expanded 8 basis points year-over-year and 4 basis points quarter-over-quarter from higher margins in international and Canadian banking, partly offset by lower contribution from asset liability management activities and increased levels of lower-margin, high-quality liquid assets. Non-interest income was $3.7 billion, up 13% quarter over quarter, mainly due to higher trading revenues, banking fees, and wealth management revenues. Provision for credit losses was $962 million, and the BCL ratio was 50 basis points, up 17 basis points year-over-year, quarter to a quarter. Expenses were flat as seasonally higher share-based compensation and increased employee benefit costs were offset by lower professional fees and other staffing-related costs. Expenses grew 6% year-over-year, or 4% excluding the unfavorable impact of foreign currency translation, reflecting The productivity ratio was 56% this quarter, a decrease of 370 basis points quarter over quarter, while operating leverage was flat.

Raj: All bank net interest margin expanded eight basis points year over year, and four basis points quarter over quarter from higher margins in international and Canadian banking, partly offset by lower contribution from asset liability management activities and increased levels of lower margin high quality liquid assets.

Raj: Noninterest income was $3 7 billion up 13% quarter over quarter, mainly due to higher trading revenues banking fees and wealth management revenues.

Raj: Provision for credit losses was $962 million and the PCL ratio was 50 basis points up 17 basis points year over year.

Raj: Quarter over quarter expenses were flat as seasonally higher share based compensation and increased employee benefit costs, but offset by lower professional fees and other staffing related costs.

Raj: Expenses grew 6% year over year or 4%, excluding the unfavorable impact of foreign currency translation.

Raj: Reflecting higher share based compensation and technology costs.

Raj: And business axis.

Raj: The productivity ratio was 56% this quarter, a decrease of 370 basis points quarter over quarter, but operating leverage was flat.

Raj: Moving to slide seven that shows the evolution of the common equity tier one ratio and risk weighted assets during the quarter.

Raj: The bank's CET one capital ratio was 12, 9% as of January 31, 2024, a decrease of approximately 10 basis points from the prior quarter.

Raj Viswanathan: Moving to slide 7, which shows the evolution of the common equity tier 1 ratio and risk-weighted assets during the quarter. The Bank's 81% capital ratio was 12.9% as of January 31, 2024, a decrease of approximately 10 basis points from the prior quarter. The CE2-1 ratio benefited 45 basis points from earnings, share issuances from the bank's shareholder dividend and share purchase plan, and Fair Value through OCI gains driven by stronger debt and equity markets during the quarter, offset by higher risk-weighted assets of 48 basis points. The RWA increase was primarily driven by the adoption impacts of the revised Basel III FRTB market and CVA capital requirements, and the 2.5% increase in the capital floor, adding to The RWA optimization initiatives taken during the quarter, including client deselection, reduced the impact to 48 basis points.

Raj: The CET one ratio benefited 45 basis points from earnings.

Raj: Share issuances from the bank's shareholder dividend and shape of Chase plans and.

Raj: And fair value through OCI gains driven by stronger debt and equity markets during the quarter.

Raj: Offset by higher risk weighted assets of 48 basis points.

Raj: The other part of the increase was primarily driven by the adoption impacts after otherwise Basel III, <unk> TV market and CVA capital deployment.

Raj: And the two 5% increase in the capital floor, adding to approximately 70 basis points.

Raj: The audibly optimization initiatives taken during the quarter, including client deselection reduce the impact of 48 basis points.

Raj: We expect the arguably optimization efforts to continue during the year in line with our capital allocation strategy to reduce the impact of the floor.

Raj: Turning now to the Q1 business line results beginning on slide eight.

Raj Viswanathan: We expect the RWA optimization efforts to continue during the year in line with our capital allocation strategy to reduce the impact of the floor. Turning now to the Q1 business line results, beginning on slide 8. Canadian banking reported earnings of $1,096 million, an increase of 1% year-over-year as a result of higher revenue, partly offset by higher provision for credit losses and expenses.

Raj: Canadian banking reported earnings of 1090 $6 million, an increase of 1% year over year as a result of higher revenue, partly offset by higher provision for credit losses and expenses.

Raj: Year over year revenues grew a strong 7% while expense growth was a modest 3%, resulting in positive operating leverage of approximately 4%.

Raj Viswanathan: Year-over-year revenues grew a strong 7% while expense growth was a modest 3%, resulting in positive operating leverage of approximately 4%. While average loans and acceptances were down about 1% from the prior year, the portfolio mix has changed. We saw continued growth in our high-yielding portfolios as business loans grew 9%, credit cards increased 18%, and personal loans grew 2%. This was offset by a decline of 5% in the residential mortgage balance. We continue to see deposit growth primarily in term products, with average deposits up 2% quarter over quarter. Year-over-year deposits grew 9%, and the loan-to-deposit ratio improved to 123% from 136% last year. Non-interest income was down 5% year-over-year due to elevated private equity gains in the prior year and a loss of income from the sale of our equity interest in Canadian Tire Financial Services.

Raj: While average loans and acceptances were down about 1% from the prior year the portfolio mix has changed.

Raj: We saw continued growth in a highly linked portfolios as business loans grew 9% credit cards increased 18% and personal loans grew 2%.

Raj: This was offset by a decline of 5% and residential mortgage balances.

Raj: We continued to see deposit growth primarily in term products with average deposits up 2% quarter over quarter.

Raj: Year over year deposits grew 9% and the loan to deposit ratio improved to 123% from 136% last year.

Raj: Noninterest income was down 5% year over year due to elevated private equity gains in the prior year and loss of income from the sale of our equity interest in Canadian tire financial services.

Raj Viswanathan: Net interest income increased 11% year-over-year, primarily from solid deposit growth and margin expansion. The net interest margin expanded 30 basis points year-over-year and 9 basis points quarter-over-quarter, benefiting from high loan and deposit margins and changes in business mix. The PCL ratio was 34 basis points, primarily from unpaid loan provisions, and risk-adjusted margin was 2.2%, up 15 basis points year-over-year. Expenses increased 3% year-over-year primarily due to higher technology, personal costs, and costs to support business. Quarter over quarter expenses declined 1%.

Raj: Net interest income increased 11% year over year, primarily from solid deposit growth and margin expansion.

Raj: The net interest margin expanded 30 basis points year over year, and nine basis points quarter over quarter benefiting from higher loan and deposit margins and changes in business mix.

Raj: The PCL ratio was 34 basis points, primarily from impaired loan provisions and risk adjusted margin was two 2% up 15 basis points year over year.

Raj: Expenses increased 3% year over year, primarily due to higher technology personnel costs and cost to support business growth.

Raj: Quarter over quarter expenses declined 1%.

Raj: Yeah.

Raj Viswanathan: Turning now to Global Wealth Management on slide 9, earnings of $374 million declined 4% year-over-year, as strong 18% growth within international wealth was offset by Canadian results declining 8%, largely due to higher expenses and lower trading volume. However, although offset by growth and asset management, net income grew a strong 12% quarter-over-quarter, reflecting improving market conditions. Revenue grew 3% year over year due primarily to higher mutual fund fees across the international businesses and higher brokerage revenues in Canada. Expenses were up 8% year-over-year due primarily to the expansion of the sales force, volume-related expenses, and costs to support business growth.

Raj: Turning now to global wealth management on slide nine.

Raj: Earnings of $374 million declined 4% year over year, a strong 18% growth with an international wealth was offset by Canadian results declining 8%.

Raj: Largely due to higher expenses lower trading volumes.

Raj: Offset by growth in asset management.

Raj: However, net income grew a strong 12% quarter over quarter, reflecting improving market conditions.

Raj: Revenue grew 3% year over year, due primarily to higher mutual fund fees across the international businesses and higher brokerage revenues in Canada.

Raj: Expenses were up 8% year over year due primarily to the expansion of the sales force.

Raj: Volume related expenses and costs to support business growth.

Raj Viswanathan: Spot AUM increased 5% year-over-year to $340 billion as market appreciation was partly offset by net redemption. AUA increased 8% over the same period to $655 billion from higher net sales and market appreciation. Investment fund sales in Canada continue to be under pressure with approximately 13 billion dollars in net redemptions this quarter. However, the majority of Scotia Global Asset Management funds remain in the top two quartiles over a five-year period. International wealth management generated earnings of 65 million dollars, up 18 percent, driven by higher mutual fund revenues in Mexico and strong loan and deposit growth across our footprint. AUA and AUM grew by 15% and 18%, respectively, year over year. Turning to slide 10, Global Banking and Markets. Global market markets generated earnings of $439 million, down 15% year-over-year but up 6% quarter-over-quarter.

Raj: Spock.

Raj: <unk> increased 5% year over year to $340 billion as market appreciation was partially offset by net redemptions.

Raj: <unk> increased 8% over the same period to 655 billion.

Raj: From higher net sales and market appreciation.

Raj: Investment fund sales in Canada continued to be under pressure, but approximately $13 billion in net redemptions this quarter.

Raj: However, the majority of Scotia global asset management funds.

Raj: And in the top quartile over a five year period.

Raj: International wealth management generated earnings of $65 million up 18% driven by higher mutual fund revenues in Mexico, and strong loan and deposit growth across our footprint.

Raj: And <unk> grew 15% and 18% respectively.

Raj: Over here.

Raj: Turning to slide 10, global banking and markets.

Raj: Global banking markets generated earnings of $439 million down, 15% year over year, but improved 6% quarter over quarter.

Raj Viswanathan: The US business generated strong earnings of $237 million, up 13% year over year. However, capital markets revenue was down 12% year over year as fixed income revenues were down 22%. However, quarter-over-quarter capital markets revenue grew 12% while earning through the one-month impact of the proposed Canadian tax rules change to deny the dividend received deduction of approximately $40 million, which is also expected to impact future quarters. Business banking revenues declined 5% both quarter over quarter and year over year as loans were down 7% year over year. Non-interest income decreased 2% year over year primarily due to lower fixed income trading related revenue, partly offset by higher underwriting and advisory.

Raj: The U S business generated strong earnings of $237 million.

Raj: 13% year over year.

Raj: Capital markets revenue was down 12% year over year as fixed income revenues were down 22%.

Raj: However quarter over quarter capital markets revenue grew 12%, we're learning through the one month impact of the proposed Canadian tax law change to deny the dividend received deduction of approximately $40 million, which is also expected to impact future quarters.

Raj: Business banking revenues declined 5% both quarter over quarter and year over year as loans were down 7% year over year.

Raj: Noninterest income decreased 2% year, it'll be up primarily due to lower fixed income trading related revenue, partially offset by higher underwriting and advisory fees, however quarter over quarter noninterest income grew 7%.

Raj Viswanathan: However, quarter over quarter, non-interest rate income grew 7%. However, net interest income was down 22% year-over-year and 11% quarter-over-quarter as a result of lower loan and deposit volumes, lower lending margins, and higher trading-related funding costs. Expenses were up a modest 3% quarter-over-quarter, mainly due to seasonally higher share-based compensation. However, on a year-over-year basis, expenses were only up 4%, due mainly to higher personal costs and technology investments to support business growth.

Raj: Net interest income was down 22% year over year, and 11% quarter over quarter as a result of lower loan and deposit volumes lower lending margins and higher trading related funding costs.

Raj: Expenses were up a modest 3% quarter over quarter, mainly due to seasonally higher share based compensation.

Raj: On a year over year basis expenses were only up 4% due mainly to higher personal cost and technology investments to support business growth.

Raj Viswanathan: The provision for credit losses decreased $34 million quarter over quarter to $5 million. GBM Latin America, which is reported as part of international banking, reported earnings of $372 million, up 24% compared to the prior year, as a result of strong revenue growth in capital markets and fee income from business banking across all, Moving to slide 11 for a review of International Bank. My comments that follow are on an adjusted and constant dollar basis. The segment delivered earnings of $752 million, up 35%, and $196 million quarter over quarter. Revenue was up 9% year-over-year, driven primarily by higher revenues from capital markets. Strong retail revenue growth benefited from margin expansion and 8% higher fees and commissions. Year-over-year loans were down 2%, primarily in Peru, Chile, and Colombia.

Raj: The provision for credit losses decreased $34 million quarter over quarter to $5 million.

Raj: GBM Latin America, which is reported as part of international banking reported earnings of $372 million.

Raj: Up 24% compared to the prior year as a result of strong revenue growth in capital markets and fee income from business banking across all countries.

Raj: Moving to slide 11 for a review of International Banking's My comments that follow are on an adjusted and constant dollar basis.

Raj: The segment delivered earnings of $752 million up, 35% and $196 million quarter over quarter.

Raj: Revenue was up 9% year over year, driven primarily by higher revenues from capital markets.

Raj: Strong retail revenue growth benefited from margin expansion and 8% higher fees and commissions.

Raj: Year over year loans were down, 2%, primarily in Peru, Chile and Colombia.

Raj Viswanathan: Retail loans grew 4%, with mortgages up 6%, while business banking loans decreased 6%. Deposits grew a strong 5% year over year, with personal deposits growing 2% and non-personal deposits growing 7%. The loan-to-deposit ratio improved to 129% from 140% in the prior year. The net interest margin expanded 19 basis points quarter over quarter driven by higher asset yields and higher deposits. The provision for credit losses was 135 basis points, or $574 million, up 16 basis points quarter over quarter. This translated to a risk-adjusted margin of 3.23%, an improvement of 7 basis points year over year and quarter over quarter. Expenses were up a modest 4% year-over-year driven by business and capital taxes, technology expenses, and salaries and benefits. Expenses were up 3% quarter-over-quarter driven by seasonally higher business taxes in the Caribbean and Communication Expansion.

Raj: Retail loans grew 4% with mortgages up 6%, while the business banking loans decreased 6%.

Raj: Deposits grew a strong 5% year over year with personal deposits growing 2% and non personal deposits growing 7%.

Raj: The loan to deposit ratio input to 129% from 140% in the prior year.

Raj: Net interest margin expanded 19 basis points quarter over quarter, driven by higher asset yields and higher deposit margins.

Raj: The provision for credit losses was 135 basis points or $574 million up 16 basis points quarter over quarter.

Raj: This translated to a risk adjusted margin of three 3%.

Raj: An improvement of seven basis points year over year and quarter over quarter.

Raj: Expenses were up a modest 4% year over year, driven by business and capital taxes technology expenses and salaries and benefits.

Raj: Expenses were up 3% quarter over quarter, driven by seasonally higher business taxes in the Caribbean.

Raj: And communication expenses operating leverage was a positive 6%.

Phil Thomas: Operating leverage was a positive 6%. Turning to slide 12, the other segment. The other segment reported an adjusted net loss attributable to equity holders of $474 million, a slight improvement of $13 million compared to the prior quarter, mainly due to lower expenses. With that, I'll now turn the call over to Phil to discuss. Thank you, Raj. Good morning, everyone.

Raj: Turning to slide 12, the other segment.

Raj: The other segment reported an adjusted net loss attributable to equity holders of $474 million.

Raj: A slight improvement of $13 million compared to the prior quarter, mainly due to lower expenses with that I'll now turn the call over to Phil to discuss with us.

Phil: Thank you Raj and good morning, everyone.

Phil Thomas: Limited economic growth and higher household expenses persisted through Q1 as a result of sticky inflation. This quarter, all bank PCLs were 50 basis points higher, driven by the following. One Canadian Commercial Exposure in the Transportation Industry, Stage 3 Migration in our Canadian Retail Portfolio, and Persistent Challenging Market Conditions in Peru and Colombia. Higher delinquencies across most of our retail portfolios this quarter reflect a challenging macroeconomic environment. Total PCLs of 50 basis points, or 962 million, are down 294 million quarter over quarter. The performing PCL was $20 million, or one basis point, reflecting both lower loans quarter over quarter and no material change in macroeconomic outlook. Impaired PCLs were 942 million or 49 basis points, up 140 million quarter over quarter, largely driven by deterioration in Canadian automotive finance, Colombia, and Peru.

Phil: Limited economic growth and higher household expenses persisted through Q1, as a result of sticky inflation.

Phil: This quarter all bank Pcl's were 50 basis points driven by the following one.

Phil: Canadian commercial exposure in the transportation industry stage III migration in our Canadian retail portfolio and persistent challenging market conditions in Peru and Colombia.

Phil: Higher delinquencies across most of our retail portfolios this quarter reflect the challenging macroeconomic environment.

Phil: Total PCL, as a 50 basis points points or $962 million or down $294 million quarter over quarter.

Phil: Performing PCL was $20 million or one basis point, reflecting both lower loans quarter over quarter and no material change in macroeconomic outlook.

Phil: Impaired PCL were $942 million or 49 basis points up $140 million quarter over quarter, largely driven by deterioration in Canadian automotive finance, Colombia and Peru.

Phil Thomas: Additionally, Chile has returned to run rate PCL levels, now in line with historic norms. We continue to maintain strong allowances on loans, and the ACL coverage ratio increased by one basis point to 86 basis points for the quarter. In Canadian banking retail, 90 plus day delinquency levels are up one basis point quarter over quarter and eight basis points year over year to 26 basis points. This is due to increased household expense pressures and borrowing. Delinquency is up across all retail products year-over-year.

Phil: Additionally, Chile has returned to run rate PCL levels now in line with historic norms.

Phil: We continue to maintain strong allowances on loans and the ACL coverage ratio increased one basis point to 86 basis points for the quarter.

Phil: In Canadian banking retail 90, plus day delinquency levels are up one basis point quarter over quarter, and eight basis points year over year to 26 basis points.

Phil: This is due to increased household expense pressures in borrowing costs delinquency is up across all retail products year over year.

Phil Thomas: Despite this, credit quality continues to remain strong, and average FICO scores remain relatively flat year-over-year at 790. With the cumulative inflation and interest rate pressures on households, Canadian consumers continue to ease discretionary spending, reversing an uptick seen during the holidays. We continue to monitor the number of vulnerable customers in our retail portfolios, which have remained relatively flat quarter over quarter. Turning to our mortgage portfolio, we remain confident in the performance of our variable rate mortgage product, which has maintained strong credit performance despite unprecedented increases in borrowing costs. Our variable rate mortgage clients have experienced an average increase in mortgage payments of over 50% since rate increases began. Notably, VRM multiproduct clients have lower delinquency across their household balance sheets versus single service and fixed rate mortgage clients. Fixed rate mortgage clients have been relatively unimpacted as the majority of renewals occurred in 2025 and 2026.

Phil: Despite this credit quality continues to remain strong and average FICO scores remained relatively flat year over year at 790.

Phil: With the cumulative inflation and interest rate pressures on households, Canadian consumers continued to ease discretionary spending reversing an uptick seen during the holidays.

Phil: We continue to monitor the number of vulnerable customers and our retail portfolios, which have remained relatively flat quarter over quarter.

Phil: Turning to our mortgage portfolio, we remain confident in the performance of our variable rate mortgage product, which has maintained strong credit performance despite unprecedented increases in borrowing costs.

Phil: Our variable rate mortgage clients have experienced an average increase in mortgage payments of over 50% since rate increases began notably VRM multi product clients have lower delinquency across their household balance sheets versus single service and fixed rate mortgage clients.

Phil: Fixed rate mortgage clients have been relatively uninfected as the majority of renewals occur in 2025 and 2026.

Phil Thomas: Pandemic-driven excess deposits for variable rate mortgage clients have returned to run rate levels with an average of two times deposit cushion. We are confident in our credit practices, and our variable rate mortgage portfolio serves as a strong indicator of credit quality across our fixed rate portfolio as the renewal cycle plays out over the next two to three years. Turning to international banking, macroeconomic and geopolitical pressures continue to weigh on our international banking footprint. However, having said that, central banks across the region have started to reduce policy rates, and expected growth in Mexico remains strong. International Banking's PCLs were $574 million, or a PCL ratio of 135 basis points. The increase in PCLs was primarily attributed to retail portfolios across most markets and, in particular, Peru and Colombia.

Phil: Pandemic, driven excess deposits for variable rate mortgage clients have returned to run rate levels with an average of two times deposit cushion.

Phil: Yeah.

Phil: We are confident in our credit practices and our variable rate mortgage portfolio serves as a strong indicator of credit quality across our fixed rate portfolio as the renewals cycle plays out over the next two to three years.

Phil: Turning to international banking macroeconomic and geopolitical pressures continue to weigh on our international banking footprint.

Phil: Having said that central banks across the region and started to reduce policy rates and expected growth in Mexico remains strong.

Phil: International Banking's, PCL were $574 million or our PCL ratio of 135 basis points.

Phil: The increase in PCL loss was primarily attributed to retail portfolios across most markets and in particular, Peru and Colombia.

Phil Thomas: As mentioned earlier, Chile saw an expected increase coming off lower provisions in Q4 2023 as the portfolio normalized this quarter. Mexico, as a highly secured retail portfolio, remains resilient with PCL down quarter over quarter and expected strong persistent growth through 2024. As I mentioned earlier, in business banking, the increase in impaired PCLs and GILs this quarter was primarily driven by a single exposure in Canadian commercial, while GBM experienced a net recovery. Our commercial real estate portfolios continue to perform well, and we continue to monitor the market closely. Heading into 2024, there was optimism that rate cuts in Canada may materialize earlier in the year. However, it appears that forecasted rate cuts may come later and potentially at a slower pace.

Phil: As mentioned earlier, Chile saw unexpected increase coming off lower provisions in Q4 of 2023 as the portfolio normalized this quarter.

Phil: Mexico as a highly secured retail portfolio remains resilient with PCL is down quarter over quarter and expected strong persistent growth through 2024.

Phil: As I mentioned earlier in business banking the increase in impaired PCL and Gil this quarter was primarily driven by a single exposure in Canadian commercial while GBM experienced a net recovery.

Phil: Our commercial real estate portfolio continues to perform well and we continue to monitor the market closely.

Phil: Heading into 2024, there was optimism that rate cuts in Canada may materialize earlier in the year. However, it appears that forecasted rate cuts may come later and potentially at a slower pace.

Phil Thomas: In our key international markets, we have seen the central banks take action with rate cuts in Peru, Chile, and Colombia. This is starting to provide rate relief to clients. In the near term, specifically in Peru and Colombia, delinquencies are expected to increase, with economic recovery expected to be more challenging.

Phil: In our key international markets, we have seen the central bank to take action with rate cuts in Peru, Chile and Colombia.

Phil: This is starting to provide rate relief to clients.

Phil: In the near term specifically improved Columbia delinquencies are expected to increase its economic recovery expected to be more challenged.

Phil Thomas: We are actively monitoring the portfolio and proactively managing our exposure. We expect provisions for credit losses to remain within our full year guidance of 45 to 55 basis points on a full year basis. With a cumulative build of $1.1 billion in total allowances for credit losses over the last six quarters, we remain comfortable with our coverage levels given the secured focus of our retail book and the investment-grade quality of our corporate and commercial. With that, I will pass the call back to John for Q&A. Great. Thank you, Phil.

Phil: We are actively monitoring the portfolio and proactively managing our exposures.

Phil: We expect provisions for credit losses to remain with our within our full year guidance of 45 to 55 basis points on a full year basis.

Phil: But the cumulative build of $1 1 billion in total allowances for credit losses over the last six quarters, we remain comfortable with our coverage levels given the secured focus of our retail book and the investment grade quality of our corporate and commercial books.

Phil: With that I will pass the call back to John for Q&A.

John: Great. Thank you Phil.

John Taylor: Operator, please queue up the questions on the line. Thank you. The first question is from Paul Holden from CIBC. I'm going to ask one quick one to start. Given the strong result on Set 1 for the quarter and ongoing capital optimization, any kind of updated thoughts on when you may turn off that deadline? Hey, Paul, it's Raj.

Operator: Operator, please queue up front to frontline.

Operator: Thank you. Your first question is from Paul Holden from CIBC. Please go ahead. Your line is now open.

Paul Steep: Yeah. Thank you good morning, I'm going to ask one quick one to start given the strong result on Sept, one for the quarter and ongoing capital optimization any kind of updated thoughts on when you may turn off that drip discount.

Raj Viswanathan: Good morning. Thanks for your question. Yes, our capital ratio is very strong at 12.9%. But as we indicated prior both in our Q4 call as well as in, you know, other other statements we've made in conferences, we'd like to see what OSPI does in June as it relates to the domestic stability buffer, and you know we'll be guided by that to turn off the drip discount that we have in place but our optimism has definitely increased as we have seen our capital actions you know feed into the common equity tier one ratio being strong and we think that once we hear from the super mint in June we'll be in a much more confident position to turn the drip off which we expect to be quicker than what we thought prior. Great, okay.

Paul Steep: Hey, Paul it's Rod good morning. Thanks for your question, Yes, our capital ratio is very strong at 12, 9%, but as we indicated prior mode in our Q4 call as well as in other other statements. We've made in conferences, we'd like to see what <unk> does in June as it.

Paul Steep: It relates to the domestic stability buffer.

Paul Steep: And we will be guided by Dr to turn off the drip discount that we have in place, but our optimism is definitely increased as we have seen not capital actions feed into the common equity tier one ratio being strong and we think that once we hear from the Super node in June will be in a much more confident position to turn the drip.

Paul Steep: <unk>, which we expect to be quicker than what we thought.

Paul Steep: Okay.

Raj Viswanathan: And then the second one for me is with respect to the NIM expansion, obviously a good result this quarter. Just thinking about as you're seeing sort of that funding mix change and then, you know, modest loan growth and the way you've continued to position your treasury book to benefit from lower rates. Is there any reason to think that similar NIM expansion will not continue for the remaining quarters of 2024? Yeah, once again, Paul, it's Raj.

Paul Steep: And then second one for me is with respect to.

The NIM expansion, obviously, a good result this quarter.

Paul Steep: Just thinking about as you're seeing sort of funding mix change and then you know modest loan growth in the way you've continued to position your treasury books to benefit from lower rates like is there any reason to think that similar NIM expansion will not continue for the remaining quarters of.

Paul Steep: That was 2024.

Paul Steep: Yeah. Once again, Paul it's Raj I'll try to see if I can help you with it.

Raj Viswanathan: A little bit of color on how we saw the NIM expand during the quarter. You know, Canadian Bank's NIM went up nine basis points, almost equally between asset margin expansion and some deposit margin expansion, which we think will be muted going forward. You know, as you know, that is dependent on administrative rate changes, which we don't expect to, you know, start happening till Q4, so that should remain flat, maybe a little bit negative compared to what we saw this quarter, as it's deposit pricing and terms and all that keeps evolving. I think the margin that the Canadian bank reported, 256 basis points, will be at or about that range. I don't think it's going to expand too much in the short term.

Raj: A little bit of color on how we saw the NIM expand during the quarter Canadian banks NIM went up nine basis points almost equally between asset margin expansion and some deposit margin expansion, which we think will be muted going forward.

Speaker Change: As you know that is dependent on administrative rate changes, which we don't expect to see.

Speaker Change: Start happening until Q4, so that should remain flat, maybe a little bit negative to what we saw this quarter as deposit pricing and term and all that keeps evolving.

Speaker Change: I think.

Speaker Change: So the the margin that the Canadian Bank reported 256 basis points will be at or above that range. I don't think it's going to expand too much in the short term Paul.

Raj Viswanathan: The other component is international banking. International banking, significant growth in NIM, as you saw, 19 basis points quarter over quarter, a lot of it coming because the cost of funds has come down quite rapidly across all those countries. You know, big rate cuts in Chile, as you saw, rate cuts also happened in Peru, and definitely Colombia as well.

Speaker Change: The other component is the international banking International banking significant growth in NIM as you saw 19 basis points quarter over quarter, a lot of it coming because cost of funds have come down quite rapidly across all of those countries.

Speaker Change: Cuts in Chile, as you saw great cuts also happened in Peru, and definitely Colombia as well so cost of funds is a big factor, we'll see how the rate cuts happened in Doc might help with international banking NIM, but as far as we think.

Raj Viswanathan: So cost of funds is a big factor. We'll see how the rate cuts happen, and that might help with the international banking NIM. But as far as we think, you know, next quarter and beyond, we think it'll be around the, you know, numbers that you saw now, which is about 436 basis points. Asset repricing is definitely helping the international banks as their assets continue to reprice at higher rates.

Speaker Change: Quarter and beyond we think it'll be at all the numbers that you saw in now which is about 436 basis points asset repricing is definitely helping the international bank as the assets continue to reprice at higher rates. So that's a good progress we have seen this quarter.

Raj Viswanathan: So that's good progress we've seen this quarter. All the bank NIM you see is four basis points, quarter over quarter. We think there might be some marginal improvement, but the biggest improvements will start coming when we see actual rate cuts happen, which we think is likely going to be in Q4. So until then, I think NIM will slowly expand in the bank, maybe a basis point or two quarter after quarter, but not as significantly as it will happen when the rate cuts actually happen. I got it.

Speaker Change: All bank NIM, you saw up four basis points quarter over quarter waiting there might be some marginal improvement, but the biggest improvements will start coming Paul when we see actual rate cuts happen, which we think is likely going to be Q4. So until then I think NIM will slowly expanding the bank, maybe a basis point or two a quarter after quarter.

Speaker Change: But not as significantly as it will happen when the rate cuts actually.

Speaker Change: Got it that's very helpful. I'll leave it there. Thank you.

Raj Viswanathan: That's very helpful. I'll leave it there. Thank you. Thank you, Paul. Hi, good morning.

Speaker Change: Thanks, Paul.

Speaker Change: Thank you. The next question is from Doug Young from <unk> Capital markets. Please go ahead. Your line is now open.

Doug Young: Hi, Good morning, Raj, maybe just sticking with you on the all bank NIM and where I am trying to go with this is you know I think you've been repositioning treasury to get away from Directionally, taking a view on rates.

Raj Viswanathan: Raj, maybe I'm going to stick with you on the AllBank NIM, and where I'm trying to go with this is, you know, I think you've been repositioning Treasury to get away from directionally taking a view on rates, but your sensitivities show that you're going to benefit from lower rates. And so I'm trying to get a sense of, how long does that adjustment take?

Doug Young: Your sensitivity showed that youre going to benefit from lower rates and so I'm trying to get a sense of like how long does that adjustment takes so clearly if rates come down. This year, you are going to benefit like when does that repositioning and like how long are these hedges in place for just trying to get a sense of when that pivot is going to eventually car or is this just going to not change.

Raj Viswanathan: So clearly, if rates come down this year, you're going to benefit. But when does that repositioning occur, and like, how long are these hedges in place for just trying to get a sense of when that pivot is going to eventually occur? Or is this just going to not change?

Raj Viswanathan: Yeah, thanks, Doug. I think I'll try to help you with that. I think as far as the positioning that we had before, where we had positioned it, you know, through our treasury actions to benefit more when rates come down, as you know, two quarters back or last year in Q2, we reset it back to being neutral to rate cuts across the curve. Obviously, that's a hundred basis point shift that we talk about, and we disclose externally. So we're kind of neutral on that.

Speaker Change: Yes, Thanks, I think I'll try to help you with that.

Speaker Change: As far as the positioning that we had before where we had positioned it throw out treasury actions to benefit mode when rates come down.

Speaker Change: As you know two quarters back or lost last year in Q2, we reset it back to being neutral to rate cuts across the club.

Speaker Change: Obviously, thats, a 100 basis points shifts that we talk and we disclosed externally. So we're kind of neutral to that.

Raj Viswanathan: Where I think the benefits will start coming is when rate cuts actually happen, like I mentioned. But as far as the hedge benefits go, you know, we had a lot of benefits that we monetized in 2020, and that their life is ending sometime in 2024.

Speaker Change: Well I think the benefits will start coming is when rates cuts actually happened like I mentioned, but as far as our hedge benefits go we had a lot of benefits that'd be monetized in 2020 and Dr. Life is ending sometime in 'twenty four or so year over year. When you look at it that tends to be a headwind because we had bigger benefits us as swaps expired sake.

Raj Viswanathan: So year over year, when you look at it, that tends to be a headwind because we had bigger benefits as the swaps expired, say 12 months ago, some of them, and some of them will kind of finish towards the end of this year. I don't think it's going to be a big headwind going forward. But when you look at it from this quarter to, say, the same quarter last year, that's definitely a headwind, which shows up in the other segments. The other segment, you know, the $474 million loss will benefit when our wholesale funding cost comes down, which will track the administrative rate declines. The hedging program, like you mentioned, is going to be more about how we protect margin going forward and not be as opportunistic as we've been in the past. So we'll position the bank as close to neutral as possible.

Speaker Change: Months back some of them and some of them will kind of finished towards the end of this year. So I don't think it's going to be a big headwind going forward, but when you look at it from this quarter to same quarter last year, that's definitely headwind, which shows up in the other segment yes.

Speaker Change: The other segment, you know $474 million loss will benefit when our wholesale funding cost comes down, which which will attract administered rate declines. The hedging program. Like you mentioned is going to be more about how do we protect margin going forward and not be as opportunistic as we've been in the past so well positioned the bank as close to neutral as <unk>.

Speaker Change: <unk> and then as our balance sheet evolves, we expect to be positioned much better than what had been in the past.

Speaker Change: Okay. So theres still some benefit from lower rates could be as much as it was before and really the focus is to kind of protect margin directionally ticket position.

Speaker Change: Correct, but I think the benefit when the short end of that eight co calms down. So we're not talking about parallel shift which is what should happen because it covers inverted.

Raj Viswanathan: And then as the balance sheet evolves, we expect to be positioned much better than we were in the past. Okay, so there's still some benefit from lower rates, but it's not going to be as much as it was before. And really, the focus is to kind of protect margins and directionally take it as a That's correct.

Speaker Change: <unk> will continue to benefit meaningfully, which will show up to the other segment of an actual rate cuts happen.

Speaker Change: Okay, and then Scott you mentioned in your prepared remarks and need to invest in international banking support structure and I think there was some other items in there.

Scott Thompson: But I think the benefit will come when the short end of the rate curve comes down, so we're not talking about parallel shift now, which is what should happen because the curve is inverted, but banks will continue to benefit meaningfully, which will show up through the other segment when the actual rate. Okay, and then Scott, you mentioned in your prepared remarks the need to invest in an international banking support structure, and I think there are some other items in there. I guess you know. My question is, should we be expecting more expenses to be flowing through international banking over the coming year or two years as you reposition that portfolio? Sure, let me start, and then Francisco can add on.

Speaker Change: Yes.

Scott: I guess my question is should we be expecting more expenses to be flowing through.

Scott: International banking over the coming year or two years as you reposition that portfolio.

Scott: Sure I mean, let me start and then Francisco can add on to that.

One of the things that I was most pleased about this quarter was the international performance and if you think about the productivity initiatives that we're on and the ability to increase operating leverage to the extent that we did on the back of not deploying more capital I mean, it was just a fantastic result in the quarter.

Scott: What we talked about a lot was growing our commercial business, which we hadn't been focused on before and also growing our multinational business and taken the international business and taking looking at throw a regional lens and so I think there's a lot of cost opportunity, but there'll also be incremental investments that will have to do particularly around cash management as an example, but <unk>.

Scott Thompson: I mean, one of the things that I was most pleased about this quarter was the international performance. And if you think about the productivity initiatives that we're on and the ability to increase operating leverage to the extent we did on the back of not deploying more capital, I mean, it was just a fantastic result in the quarter. What we talked about a lot was growing our commercial IB business, which we hadn't been focused on before, and also growing a multinational business and taking the international business and looking at it through a regional lens. And so I think there's a lot of cost opportunity, but there will also be incremental investments that we'll have to make, particularly around cash management, as an example. But Francisco, maybe you want to add more on that?

Scott: Cisco, maybe you want to add more I'm sure Scott and thank you for the question Doug a couple of thoughts just reiterating what we explained at Investor Day, and the International Bank, we have the capital and the resources, we need to execute our five year plan. So you should not expect.

Scott: Any increases in expenses were a redirection and optimization of both capital allocation for higher returns and certainly expenses for the right client segmentation.

Scott: Where you will see investments are for global initiatives that we will have a corresponding benefit in the international bank and in that regard, we highlighted particularly two of interest a great benefit to international banking, one is multinational banking as a corporate organization, providing a differentiated service.

Francisco Aristegueta: Sure, Scott. And thank you for the question, Doug. A couple of thoughts, just reiterating what we explained at InVEST today. In the international bank, we have the capital and the resources we need to execute our five-year plan. So you should not expect any increases in expenses but a redirection and optimization of both. Capital allocation for higher returns and certainly expenses for the right client segmentation, where you will see investments are for global initiatives that will have a corresponding benefit for the international bank. And in that regard, we highlighted two of interest and great benefit to international banking. One is multinational banking as a corporate organization providing a differentiated service to a particular set of clients that operate with us in multiple countries.

Scott: A particular set of clients that operate with us in multiple countries and we expect to increase our share of wallet with our clients segment sustainably over the five year program.

Scott: And that again will benefit not only internationally, but certainly Canadian clients as well as we focus on the North America corridor.

Scott: Other one is international cash management, but what we have defined internally as transaction banking and there we intend to build capabilities that allow us to serve these multinational clients with extinction as.

Scott: As we connect the onshore capabilities, we already have in most of the markets. We operate in we had international capabilities around cash management. So those would be two areas of investment for the group globally that will have a corresponding benefit in international banking.

Speaker Change: Now finally, what I would say.

Speaker Change: If you look at the five year plan, we committed to a roll rate reduction of our expenses in international banking of $800 million Q1 was a very good example of execution around that expense discipline as we transition into our regional operating model.

Francisco Aristegueta: And we expect to increase our share of wallet with that client segment sustainably over the five-year program. And that, again, will benefit not only international but certainly Canadian clients as well, as we focus on the North America corridor. The other one is international cash management, or what we've defined internally as transaction banking.

Speaker Change: I appreciate the color. Thank you.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: The next question.

Speaker Change: Mario Mendonca from TD Securities. Please go ahead. Your line is now open.

Mario Mendonca: Mr. Mendonca. Your line is now open you May proceed.

Mario Mendonca: Hi, there sorry about that can you hear me now yes, we can.

Mario Mendonca: So for all those questions for you I. Appreciate you are reiterating the guidance on <unk> sales of 45 to 55 basis points for the full year. It did however.

Speaker Change: Listening to your comments that we could see some near term deterioration is that.

Francisco Aristegueta: And there, we intend to build capabilities that allow us to serve these multinational clients with distinction as we connect the onshore capabilities we already have in most of the markets we operate in with international capabilities around cash management. So those will be two areas of investment for the group globally that will have a corresponding benefit in international banking. Now, finally, what I would say. If you look at the five-year plan, we committed to a rolling rate reduction of our expenses in international banking of $800 million. Q1 was a very good example of execution around that expense discipline as we transition into a regional operating model. I appreciate the color, thank you.

Speaker Change: Would that be an appropriate way to characterize what you're what you're expecting in the near term some weakness and maybe an improvement in the second half of the Arizona plausible.

Speaker Change: That's probably the way to think about it Mario is if you look at international we saw rate cuts happened a few quarters ago. So we'll probably see.

Speaker Change: PCL start to peak in Q2, and a little bit into Q3, but then if you look at Canada.

Speaker Change: Obviously, we're going to be reliant upon rate cuts here. So I think it's a tale of two quarters two halves of the year, we'll probably see things starting to improve towards the latter half of the year into Q3 Q4, and then into the early part of 2025.

Phil Thomas: Mr. Mendoca, your line is now open; you may proceed. Hi there. Sorry about that. Can you hear me now?

Speaker Change: And then in capital markets, just two quick ones there.

Phil Thomas: Yes, we can. So, Phil, this question is for you. I appreciate you reiterating the guidance on PCLs of 45 to 55 basis points for the full year. I did, however, feel, listening to your comments, that we could see some near-term deterioration. Is that correct? Would that be an appropriate way to characterize what you're expecting in the near term, some weakness and maybe an improvement in the second half of the year? Is that plausible?

Speaker Change: Talk about what the dividend the change in dividend.

Speaker Change: Hi, Mario.

Speaker Change: Yeah.

Speaker Change: Maria you got cut off a little bit. It's Raj can you repeat the question on capital market scenario. Please sure I'm I'm interested in how the activity in in.

Raj: In that business the business that's impacted by the changes in taxation of Canadian dividends. What activity has been like has it has the activity really dried up or are there other products or as the activity continues.

Phil Thomas: Yeah, that's probably the way to think about it, Mario, if you look at international rates, we saw rate cuts happen a few quarters ago. So we'll probably see PCL start to peak in Q2 and a little bit into Q3. Then if you look at Canada, obviously, we're going to be reliant upon rate cuts here.

Raj: No. Thank you Mario I think it impacts the equity equities business as you would imagine because it's the equity dividend that has been eliminated for financial services or do we expect it to be eliminated effective January 1st the bill is not yet fully passed so this quarter had a one month impact it's about $40 million to GBS revenue, primarily the equities business.

Phil Thomas: So I think it's a tale of two halves this year; we'll probably see things starting to improve towards the latter half of the year, into Q3, Q4, and then into the early part of 2025. And then, in capital markets, just two quick ones there. Could you talk about what the dividend, the change in dividend can do... Very good. Mario, you got cut off a little bit. It's Raj.

Raj: In Canada, which they burn through in the business and obviously its benefit at the bank and for the rest of the year. We think this will be roughly about $180 million to $200 million of <unk> that we have to learn through we're optimistic that with the good start we have had in the first quarter that helps.

Raj: In supporting the marginal EPS growth, which we still expect for the whole year and on the outlook that we talked about.

Raj: But definitely you know more work to be done to ensure they are being able to find the offsets for the you know like I said $180 million to $200 million.

Raj Viswanathan: Can you repeat the question on capital markets, Mario? Sure. I'm interested in how the activity in that business, the business that's impacted by the change in the taxation of Canadian dividends, has been like? Has the activity really dried up, or are there other products, or is the activity continuing? No, thank you, Mario.

Raj: Often I add that we need to find for the next three quarters.

I appreciate that Raj I think you were talking there about the tax implications, what I'm thinking more about as client activity our clients still active in that equity structured products business that benefited from the from the tax structure.

Raj: Yeah, I think it's a bit of both Mario I think some are waiting for the actual dividend.

Raj Viswanathan: I think it impacts the equities business, as you would imagine, because it's the equity dividend that has been eliminated for financial services, or we expect it to be eliminated effective January 1st. The bill is not yet fully passed. So this quarter had a one-month impact. It's about $40 million to GBM's revenue, primarily the equities business in Canada, which they've earned through in the business, and obviously, it's benefited the bank. And for the rest of the year, we think this will be roughly about $180 million to $200 million of NIAID that we have to earn through. We're optimistic that with the good start we've had in the first quarter, that helps in supporting the marginal EPS growth, which we still expect for the whole year. You know, the outlook that we talked about. But definitely, you know, more work to be done to ensure that we're able to find the offsets for the, you know, like I said, 180 to $200 million of NIAID that we need to find for the next three quarters. I appreciate that, Raj.

Raj: To be past the activity will definitely come down and that's why we think that there might be some impact to the revenue, but the biggest impact is to the tax line because most of his clients do it because they need the hedging program right. As you can think about and so the costs attached to it and not go up substantially for the benefit that'd be a pattern, we expect that to impact us in the tax line.

Raj: Mostly.

Speaker Change: Interesting. Thank you.

Speaker Change: [laughter].

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: The next question is from Nigel D'souza for them a very jealous investments. Please go ahead. Your line is now open.

Thank you I had a minor follow up on.

Nigel D'Souza: NII sensitivity I noticed that the <unk>.

Nigel D'Souza: <unk> you expect to NII.

Nigel D'Souza: 100 basis points decline that benefit is a bit lower this quarter versus your estimates for prior quarters, just trying to understand why that items seem to be moving around when the declines NII when rates go up that's a relatively stable just.

Nigel D'Souza: I don't understand both sides of the interest rate sensitivity here.

Sure Nigel it's Rob let me see if I can help you with that as you can imagine the balance sheet evolves every day right as we borrow money and we lend money out and it depends on the tone, we do and that you know.

Raj Viswanathan: I think you were talking there about the tax implications. What I'm thinking more about is client activity. Are clients still active in that equity-structured products business that benefits from the tax structure?

Rob: Whether it's very different rate fixed rate, so that will have a natural change to the structure of the interest rate positioning of the bank forget about hedging and how we manage it at the at the Treasury level, where we talked about how we wanted to protect the margin and we wanted to keep the bank neutral to the 100 basis points.

Raj Viswanathan: Yeah, I think it's a bit of both Mary. I think some are waiting for the actual dividend laws to be passed, and the activity will definitely come down. And that's why we think that, you know, there might be some impact on revenue, but the biggest impact is on the tax line. Because most of these clients do it because they need the hedging program, right, as you can think about, and so the cost attached to it will not go up substantially for the benefit that we have had. And we expect that to impact us in the tax line. Very interesting, thank you. The next question is from Nigel D'Souza from Everitas Investments. Please go ahead.

Rob: Parallel shift over there. So you will see from time to time some of them and Thats obvious seeing this time. It is simply about you know more term deposits for example in Canada less mortgages business mix shifts happened not just here, but also a knock off of our commercial book as well as all of these only moved around there is nothing else looked at Nigel.

Speaker Change: And then just a question on deposit trends Youre seeing.

Speaker Change: The increase in deposit balances in Canadian banking.

Speaker Change: Another lower discretionary spending.

Speaker Change: Any comments on what Youre seeing in terms of the savings rate or households in Canada.

Speaker Change: Do you expect that to continue to build or is there a point where that flips in and we start seeing a more meaningful drop.

Raj Viswanathan: The line is now. Thank you. I had a minor follow-up on NII sensitivity.

Speaker Change: Draw down a run off of deposits says as rates remain elevated.

Speaker Change: Okay.

Speaker Change: Arris here, a nice nice to talk to you so on deposits what we're seeing.

Raj Viswanathan: I noticed that the benefit you expect to NI from a 100 basis point decline, that benefit is a bit lower this quarter versus your estimates the prior quarter. Just try to understand why that item seems to be moving around when the declined NI, when rates go up, that's relatively stable. Just try to understand both sides of the interest rate sensitivity. Sure, Nigel, it's Raj.

Arris: Last year, we saw the growth and you heard it from Raj I think $30 billion in Canada year on year, and 6 billion quarter on quarter, but what we're seeing is on the day to day banking balances and on the savings balances, we're seeing the rotation into term and thats that that accelerated last quarter, but it's starting to.

Arris: The slowdown.

Raj Viswanathan: Let me see if I can help you with that. As you can imagine, the balance sheet changes every day, right, as we borrow money and we lend money out, and it depends on the term we do and the, you know, whether it's a variable rate or a fixed rate. So that will have a natural change on the structure, the interest rate positioning of the bank. Forget about hedging and how we manage it at the Treasury level, where we talked about how we want to protect the margin and we want to keep the bank neutral to 100 basis points, a parallel shift over there. So you'll see from time to time some, and that's all we're seeing this time. It is simply about, you know, more term deposits, for example, in Canada, fewer mortgages, business makes shifts happen, not just here but also in our corporate commercial book as well. So all these only move it around. There's nothing else to look at.

Arris: And we expect to see that continue over the coming quarters.

Arris: As we see consumers increasingly dipping into their day to day balances. So on a per customer basis, those balances are shrinking but.

Arris: Overall, the pie is growing as you see and the rotation into term as people lock in with the anticipation of rates coming down in the latter part of the year, they're trying to lock into term.

Speaker Change: Okay. That's helpful. That's it for me thank you.

Speaker Change: Thank you.

Speaker Change: Our next question is from Gabriel <unk> from National Bank Financial. Please go ahead. Your line is now open.

Gabriel: Good morning, just wanted to ask about the GBM Latam.

Gabriel: Performance, you called out $372 million.

Gabriel: Maybe a record quarter.

Gabriel: I just wanted to.

Gabriel: Dresses obvious sustainability questions about the performance what was going on.

Aris Bogdanaris: And it's a question on deposit trends. You're seeing an increase in deposit balances in Canadian banks, with noted lower discretionary spending. Any comments on what you're seeing in terms of the savings rate for households in Canada? Do you expect that to continue to build, or is there a point where that flips and you start seeing a more meaningful drawdown or runoff like deposits as rates remain elevated? Hi Aris here. It's nice to talk to you.

Gabriel: In the market.

Gabriel: When I juxtapose that performance against your stated objective of reducing capital to that.

Gabriel: I'm just wondering how repeatable is performance.

Gabriel: If at all.

Gabriel: Yeah. Thanks, Gabe, it's Raj I'll start on this absolutely you're right. It is a record quarter of 372 million fantastic performance across all the countries mess.

Aris Bogdanaris: So on deposits, what we're seeing, last year we saw growth, and you heard it from Raj, I think $30 billion in Canada year-on-year and $6 billion quarter-on-quarter. But what we're seeing is on the day-to-day banking balances, and on the savings balances, we're seeing the rotation into term. And that accelerated last quarter, but it's starting to slow down, and we expect to see that continue over the coming quarters as we see consumers increasingly dipping into their day-to-day balances.

Raj: Mexico, Peru, Chile, Colombia, Brozo everywhere and what that reflects Gabe is not capital increase it actually has remained flat to lower you can see it in our disclosures that our loans are actually down $2 billion in GBM Latam and that's part of our capital allocation strategy as we've talked about so we're not deviating from that.

This is about having capabilities on the ground, which we have invested over many years and harvesting the opportunities when they come by it there's been a lot of interest rate changes in those markets. As you know there's a lot of FX movements that have happened, which gives us the opportunity to both grow our capital markets revenue in derivatives as well as in FX trading operations over there.

Aris Bogdanaris: So on a per-customer basis, those balances are shrinking. But overall, the pie is growing, as you see, and the rotation into term as people lock in with the anticipation of rates coming down in the latter part of the year. Okay, that's helpful. That's it for me.

Raj: And obviously the <unk>.

Raj: Im confident is that is also you know.

Raj Viswanathan: The next question is from Gabrielle Duchesne from National Bank Financial. Please go ahead; your line is now open. Good morning.

Raj: Significant fee based income that we have had to you know we had the ability to harvest over there. So it's showing up both in business banking revenues as fee income and capital markets revenues for the activities that I described it is expected to come back I think our normal run rate expectation for this business is somewhere between $275 million, maybe as high as $300 million in a normal quarter.

Raj Viswanathan: Just want to ask about that GBM LATAM performance. You called it out, $372 million, maybe a record quarter. I just want to, you know, address this obvious sustainability question about that performance, what was going on in the market. And then when I juxtapose that performance against your stated objective of reducing capital to those activities, I'm just wondering how repeatable that performance is, if at all. Yeah, thanks, Gabe. It's

Raj: We'd love to repeat this quarter every quarter as possible mhm must be noted that you know it depends on market opportunities, but it's not about deploying more capital in that region.

Speaker Change: Okay, what I would add is a couple of Fox Francisco here real quick one.

Speaker Change: This is not a deviation from our strategy. So during the quarter, we have fantastic execution of a very strong pipeline on the fee side, but we also had good trading volatility, allowing us to capture P&L, particularly around FX and rates and that shows the readiness of the team.

Raj Viswanathan: I'll start on this. Absolutely, you're right. It is a record quarter of $372 million. Fantastic performance across all the countries, you know, Mexico, Peru, Chile, Colombia, Brazil, everywhere.

Raj Viswanathan: And what that reflects, Gabe, is not capital increases. It actually has remained flat to lower. You can see it in our disclosures that our loans are actually down $2 billion in GBM's lifetime. And that's part of our capital allocation strategies that we talked about. So we're not deviating from that.

Ross mentioned many years of investment in building these capabilities that we intend to continue to develop on the ground and differentiate ourselves. The important element also here to highlight is the decline in activity in the quarter were very strong if that were to repeat again, we will be ready again to capture that opportunity with a focus on continued optimization.

Raj Viswanathan: This is about having capabilities on the ground, which we have invested in over many years, and harvesting opportunities when they come by. There have been a lot of interest rate changes in those markets, as you know. There's been a lot of FX moments that have happened, which gives us the opportunity to both grow capital markets, revenue, and derivatives, as well as an FX trading operation over there, client-driven, obviously. The third component is that there is also significant fee-based income that we have had to, and we have had the ability to harvest over there, so it's showing up both in business banking revenues as fee income and capital markets revenues for the activities It's expected to come back.

Speaker Change: Of our capital return. So that's why you don't see an increase in capital allocation to Latin America this quarter.

Speaker Change: Okay great.

Speaker Change: My next question.

Speaker Change: For Phil on the on the credit you know when you called out the.

Speaker Change: Colombia, and Peru, and in your commentary I'm wondering about Canada actually because that's where we saw the biggest.

Speaker Change: Kris and impaired.

Speaker Change: Loan loss provisions.

Speaker Change: The delinquency rates are moving higher or 20 basis points on mortgage in August.

Speaker Change: I don't think they're related necessarily but the variable rate mortgage book is there any connection at all between.

Raj Viswanathan: I think our normal run rate expectation for this business is somewhere between $275 million and maybe as high as $300 million in a normal quarter. We'd love to repeat this quarter; every quarter is possible, but we know that it depends on market opportunities, but it's not about deploying more capital in that region. Okay.

Speaker Change: The higher delinquency rates and maybe the affordability of the other credit products that they have.

Speaker Change: And if not can you maybe provide some broader commentary on why the auto loan delinquency rates are picking up and I mean I know.

Phil Thomas: There are a couple of thoughts, Francisco here real quick. One, this is not a deviation from our strategy. So during the quarter, we had fantastic execution of a very strong pipeline on the fee side, but we also had good trading volatility, allowing us to capture P&L, particularly around effects and rates. And that shows the readiness of the team, as Raz mentioned, many years of investment in building these capabilities that we intend to continue to develop on the ground and differentiate ourselves. The important element also here to highlight is that client activity in the quarter was very strong. If that were to repeat again, we would be ready again to capture that opportunity with a focus on continued optimization of our capital returns, and that's why you don't see an increase in capital allocation to Latin America this quarter. Okay, great. My next question is for Phil on the credit. You know, you called out the, you know, Columbia and Peru in your commentary.

Speaker Change: Higher rates and all that but.

Speaker Change: If there's any nuance that you can provide.

Speaker Change: Provide.

Speaker Change: To explain that trend and why it might not get worse because it seems like obviously you don't know why won't repeat next quarter and then went after them.

Speaker Change: Sure Gabe, but happy to happy to take that Theres a lot there.

Speaker Change: Great.

Gabe: So it's OK I'll try to remember the different components, maybe just to go to VRM first because it is it is a good bellwether for what's going on from that.

Gabe: Average perspective, and for Canada for the Canadian banks.

Gabe: Delinquency is up you are seeing 90 day delinquency up in our mortgage portfolio. It's still below if you go back to 2000 22019, it's still below that period, but starting to creep up as you as you mentioned.

Gabe: One of the things we were doing.

Phil Thomas: I'm wondering about Canada actually because that's where we saw the biggest, you know, increase in impaired loan loss provisions and, you know, the delinquency rates are moving higher, 20 basis points on mortgages. And I don't think they're necessarily related, but the variable rate mortgage book, is there any connection at all between, you know, the higher delinquency rates and maybe the affordability of the other credit products that they have? And if not, can you maybe provide some broader commentary on, you know, why the auto loan delinquency rates are picking up? And I mean, I know higher rates and all that, but, you know, if there's any nuance that you can provide to explain that trend and why it might not get worse, because it seems like I see that now, why won't it repeat next quarter and the one after that? Sure, Gabe.

Gabe: As the results came in it was really double clicking on where the stress is coming from and it is interesting to note that the VRM customers with other products at the bank have actually have lower delinquency than the portfolio averages. So.

Gabe: What we're finding is the VRM customers still holding onto a deposit cushions, but two as I mentioned in my in my prepared remarks, two times the deposit cushion now.

Gabe: But they seem to be managing the balances between their payments quite well and so delinquency as lower them on VRM customers with multi product than it is than it is across the across the portfolio.

It sort of maybe just a pivot there the second part of the question you asked which is really around auto and then.

Phil Thomas: Happy to take that. There's a lot there to unpack. Yeah, sorry. It's okay.

Gabe: The interesting.

Gabe: The interesting thing in that portfolio for you would be.

Phil Thomas: I'll try to remember the different components, but maybe just go to VRM first because it is a good bellwether for what's going on from a mortgage perspective for Canada and for Canadian banks. So delinquency is up. You are seeing 90-day delinquency rates up in our mortgage portfolio. It's still below, if you go back to sort of 2020, 2019, it's still below that period, but starting to creep up, as you mentioned. One of the things we were doing as the results came in was really double-clicking on where the stress is coming from.

Gabe: As you recall during the pandemic, we had lower supply of new auto and so as a result, there was a pivot to do more used what were seeing now is higher.

Higher delinquency rates coming off.

Gabe: The used portfolio rather than do portfolio now that paradigm has shifted his supply chain have come back and so the.

Gabe: Palio at origination has shifted back more towards new origination, but we're still working through the cohort that was acquired during the pandemic for use customers.

Phil Thomas: And it is interesting to note that the VRM customers with other products at the bank actually have lower delinquency rates than the portfolio averages. So what we're finding is that the VRM customers are still holding on to a deposit cushion. It's about two, as I mentioned in my prepared remarks, two times the deposit cushion now, but they seem to be managing the balances between their payments quite well. And so delinquency is lower on VRM customers with multi-product than it is across the portfolio. It's sort of maybe just a pivot there to the second part of the question you asked, which is really around auto and that, you know, that the interesting thing in that portfolio for As you recall, during the pandemic, we had a lower supply of new cars, and so as a result, there was a pivot to do more use.

And what are the things I think we have a benefit of us really learning and developing some of our tools, particularly around the collections.

The activities from our SDA book, which has a obviously a large use component to that portfolio and so we've been really digging in leveraging collections best practices from SDA. We've deployed a number of digital tools that are really really helping customers and we've seen a four times improvement in some of our repayment.

Gabe: Rates since we've been deploying these tools.

Gabe: So there's a lot of activities going on.

Gabe: You can imagine, but I think the sentiment of your question is is the right one.

Gabe: If I could sneak another one auto related.

Phil Thomas: What we're seeing now is higher delinquency rates coming from the used portfolio rather than the new portfolio. Now, that paradigm has shifted as supply chains have come back. And so the portfolio at origination has shifted back more towards new origination, but we're still working through the cohort that was acquired during the pandemic for used customers. And, you know, one of the things I think we have a benefit of is really learning and developing some of our tools, particularly around the collections activities from our SDA book, which has obviously a large used component to that portfolio. And so we've been really digging in, leveraging collections and best practices from SDA. We've deployed a number of digital tools that are really, really helping customers.

Gabe: Signs of stress in your dealer customers on the commercial side I mean, I'm seeing a lot of F 150, like things are more once we move.

Gabe: Hum.

Gabe: The other thing going forward.

Gabe: Yeah.

Speaker Change: Not a problem no problems there theres nothing of any significance on my desk on the commercial portfolio alright. Thanks.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Question is from Darko <unk> from RBC capital markets. Please go ahead. Your line is now open.

Darko: Alright. Thank you just a couple of quick follow ups on that sale. So sticking with you with respect to the.

Darko: When you when you mentioned that the variable rate mortgage has two times deposit cushion what exactly does that mean does that mean that their deposits are still two times, what they were pre pandemic or do you mean something else.

Phil Thomas: And we've seen a four times improvement in some of our repayment rates since we've been deploying these tools. So there's a lot of activities going on, as you can imagine, but I think the sentiment of your question is the right one. If I sneak another one auto-related, any signs of stress in your dealer customers on the commercial side? I mean, I'm seeing a lot of F-150 Lightnings on the lots these days.

No. It means that they have two payments in their deposit accounts.

Darko: Okay.

Darko: And then sorry go ahead.

Darko: Just going to say and maybe as a as another sort of indicator in on the fixed side its about three and a half.

Darko: Okay.

Darko: You mentioned that the delinquency statistics are such that there's very few of the variable rate mortgage.

Phil Thomas: Not the single O for it, but you know. Not a problem. No problems there. There's nothing of any significance on my desk in the commercial portfolio.

Darko: Customers in the delinquency pool, so theyre really coming from the fixed rate debt.

Phil Thomas: All right, thanks. Thank you. The next question is from Darko Mihelic from RBC Capital Markets. Please go ahead; your line is now open. Hi, thank you.

Darko: Actually we're seeing.

Darko: No actually where we're seeing it is on single service customers. So those customers with one product with the bank tend to head, that's where we're seeing the highest level of stress and actually as a as I was thinking through this it's actually it's a testament to the strategy that we put forward last quarter really focusing on prime.

Phil Thomas: Just a couple of quick follow-ups on that, Phil. So sticking with you, with respect to when you mentioned that the variable rate mortgage has a two times deposit cushion, what exactly does that mean? Does that mean that their deposits are still two times what they were pre-pandemic? Or do you mean something else?

Darko: Missy because actually what we're seeing is primary customers are running even through this stress period, which with much less delinquency than single service customers.

Phil Thomas: Now this means that they have two payments in their deposit account. Okay, okay, that's it. And, sorry, go ahead.

Darko: So single service customers and broadly speaking those are fixed rate.

Phil Thomas: And maybe, no, no, I was just going to say, and maybe, as another sort of indicator, on the fixed side, it's about three and a half. OK. But you mentioned that the delinquency statistics are such that there are very few of the variable rate mortgage customers in the delinquency pool, so they're really coming from the fixed rate. No, actually, where we're seeing it is on single service customers. So those customers with one product with the bank, that's where we're seeing the highest level of stress. And actually, as I was thinking through this, it's actually testament to the strategy that we put forward last quarter, really focusing on primacy, because actually, what we're seeing is primary customers are running even through this stress period with much less delinquency than single service customers.

Darko: No I would say customers with one product with the bank outside of the outside of the mortgage portfolio.

Speaker Change: Okay, but the delinquency numbers are then a mix of there I'm just trying to understand if we're saying, it's 20 basis points of delinquency.

Speaker Change: What you're suggesting is it's single service customers, but.

Speaker Change: But I don't I still don't understand what the breakdown is variable rate or fixed now sorry, Darko I think there's two there's two components here one.

Darko: As I explained it what we're seeing is so there is the entire portfolio and then there's the mortgage portfolio if I could focus on the mortgage portfolio for a second.

Darko: We're seeing VRM it at 90, plus six at 26 basis points.

Phil Thomas: So single service customers, and broadly speaking, those are fixed rates. No, I would say customers with one product with the bank outside of the outside of the mortgage portfolio. Okay, but the delinquency numbers are then a mix of variables. I'm just trying to understand if we're saying it's 20 basis points of delinquency, what you're suggesting is it's single-service customers, but I still don't understand if the breakdown is a variable rate or fixed. Sorry, Darko.

Darko: Fixed up 17, so just to give you a sense of where the delinquencies coming from but my point on multi product is more at the portfolio level. If I, if I step back away from customers without mortgages. It's a single service customers, where we're seeing stress in the portfolio.

Speaker Change: Okay. Okay. That's helpful. Thank you and really quickly then just going back to what you had mentioned about Colombia.

Phil Thomas: I think there are two components here. One, as I explained, what we're seeing is, so there's the entire portfolio, and then there's the mortgage portfolio. If I could focus on the mortgage portfolio for a second, we're seeing VRM at 90 plus, at 26 basis points, fixed at 17. So just to give you a sense of where the delinquency is coming from. But my point on multi-product is more at the

Speaker Change: In Peru, potentially having some issues you said you were proactively managing exposures can you just put a little color on that and what should we expect should we expect lower balancing some NII impact. We're really this is just about.

Speaker Change: Some sort of.

Speaker Change: Portfolio trimming and really just working towards a lower PCL, but no revenue impact.

Phil Thomas: If I step back away from customers without mortgages, it's the single service customers where we're seeing stress in the portfolio. Okay, okay. That's helpful. Thank you. And really quickly, then just going back to what you mentioned about Colombia and Peru potentially having some issues. You said you were proactively managing exposures. Can you just give a little color on that? And what should we expect?

Speaker Change: That's it that's exactly right and I think what.

Speaker Change: Francisco myself working with the team has been very focused on collections activities account management activities. So there has been some tightening at the point of originations we've been focused on certain tactics as it relates to account management and there's a heightened focus on specialized collections teams did.

Phil Thomas: Should we expect lower balances, some NII impact, or really, this is just about some sort of portfolio trimming and really just working towards a lower PCL, but no revenue impact? That's exactly right.

<unk> offers loss mitigation tools enhanced analytics around segmentation in these markets.

Speaker Change: And.

Phil Thomas: And I think what you know, Francisco, and myself, working with the team, have been very focused on collections activities, account management activities. So there has been some tightening at the point of origination. We've been focused on certain tactics as it relates to account management.

Speaker Change: But I would say when we look at the numbers, we have seen improvements in the risk adjusted returns and risk adjusted margins in these portfolios quarter over quarter. So it does it does seem like we're getting paid for the risk.

Okay, great. Thanks very much.

Phil Thomas: And there's a heightened focus on specialized collections teams, digital offers, loss mitigation tools, and enhanced analytics around segmentation in these markets. But I would say, when we look at the numbers, we have seen improvements in risk-adjusted returns and risk-adjusted margins in these portfolios quarter over quarter. So it does seem like we're getting paid for the risk. Okay, great.

Speaker Change: Okay.

Speaker Change: Thank you. The next question is from Ebrahim <unk> from Bank of America. Please go ahead. Your line is now open.

Ebrahim: Hey, good morning.

Ebrahim: Just one I guess sticking with you on committed.

Ebrahim: I think you mentioned that you expect PCL to peak in the first half driven by international.

Phil Thomas: Thanks very much. Thank you. Good morning.

Ebrahim: Just talk to us in terms of ex international in Canada, How do you expect PCL spending and what are you assuming in terms of the unemployment rate.

Phil Thomas: Just one, I guess, Phil, sticking with you on credit. I think you mentioned that you expect PCLs to peak in the first half, driven by international – just talk to us in terms of ex-international in Canada, how you expect PCLs to trend, and what you are assuming in terms of the unemployment rate at the end of the year. And shouldn't PCLs, impaired PCLs in Canada, continue to worsen through the rest of the year and into 2025? Yeah, I'll just reiterate that we expect to be within the full year guidance of 45 to 55 basis points for the year. I think impaired loans will definitely be impacted by interest rates.

Ebrahim: At the end of the year and shouldn't Bcl's embed pieces in Canada continue to worsen.

Ebrahim: The rest of the year into 2005.

Speaker Change: Yeah, I'll, just reiterate that we expect to be within the full year guidance of 45 to 55 basis points for the year.

Speaker Change: I think the impaired loans will just it will definitely be impacted by by rates and as.

Speaker Change: I think as we start to see rate decreases that will be there'll be a bit of a lag and then we'll start to see that.

Phil Thomas: And I think as we start to see rate decreases, there'll be a bit of a lag, and then we'll start to see that benefit clients, the same way we're seeing it in Latin America. In terms of unemployment, in the sub-pack here, it's at 6.4, but we did have a revision down to 6.1. And I think the full-year forecast we have, which we're using in our models right now for the base case is around this sort of 6.4, 6.5 range. As I look at it, I'm not sure unemployment is going to be the major driver here because there's a lot of moving parts with immigration. And so we're trying to look beyond the unemployment number and just trying to look at how customers are behaving. We've been using a lot of our behavioral analytics models to model out consumer behaviors and consumer patterns.

Speaker Change: Benefit clients the same way, we're seeing it in Latin America.

Speaker Change: In terms of unemployment.

Speaker Change: In the sub pack here it's.

Speaker Change: At $6 four but we did have a revision down to $6, one and I think the full year forecast. We have we're using in our models right now for the base case is around the sort of 6.465 range.

Speaker Change: As I look at I'm not sure unemployment is going to be the major driver here is because you know.

Speaker Change: There's a lot of moving parts.

Speaker Change: Immigration and so we're trying to look beyond the unemployment number I'm just trying to look at how customers are behaving we've been using a lot of our behavioral analytics models to model out the consumer behaviors in consumer patterns and we've also been looking at.

Phil Thomas: We've also been looking at just sort of spend patterns, what people are spending on, and how they're transitioning their spending. So there are a lot of variables we're looking at beyond just the unemployment rate right here, just given some of the idiosyncratic events happening in the Canadian macroeconomic landscape. As I said earlier, to answer one of the other questions, I suspect we'll start to see relief in Canada, probably Q3 into Q4 with a more normalized run rate into the latter half of the year and into the beginning of 2025. And one quick follow-up, Phil, in terms of the variables. How much do you look at the five-year part of the curve versus the overnight rate? Like, what we've been having conversations about is if the five-year stays where it is today despite BOC rate cuts, does that keep the pressure on consumer spending, etc., through next year? Just, if you can talk about the sensitivity between those two rates. Thank you. It's a good question.

Just sort of spend patterns, what people are spending on and how they're transitioning their spend so there's a lot of variables. We're looking at beyond just the unemployment rate here.

Speaker Change: Given some of the idiosyncratic.

Speaker Change: That's happening in the Canadian macroeconomic landscape.

Speaker Change: As I said earlier to one of the other answer to one of the other questions I suspect, we'll start to see relief in Canada, probably.

Speaker Change: Q3 into Q4 with a more normalized run rate into the latter half of the year and into the beginning of 2025.

Speaker Change: And one quick follow up in terms of the variables.

Speaker Change: How much is how much do you look at the five year part of the globe.

Speaker Change: Over nicely.

Speaker Change: We've been having conversations as if the five year stays where it is today. Despite POC data cuts does that keep the pressure on the consumer spending et cetera up to next year. Just if you can talk to the sensitivity between those two rates. Thank you.

Speaker Change: Good question.

Phil Thomas: You know, I think what we'll see is, you know, I suspect, maybe step back and look at it from a credit perspective, I suspect with the VRM book, you'll start to see some further stress in that portfolio into Q2 and Q3. And it'll be really the Bank of Canada rate decreases that will start to pull in and have the biggest impact on the clients. Good. Thank you. Thank you! The next question is from Saurabh Mohaidi from BMO Capital Markets. Please go ahead; your line is now open.

Speaker Change: I think what we'll see is.

Speaker Change:

Speaker Change: I suspect maybe step back and look at it from a credit perspective, I suspect with the VRM book Youll start to see some further stress in that portfolio into Q2 into Q3 and it will be really the the bank of Canada rate decreases that will start to pull in and have the biggest impact to the clients.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: The next question is from Sohrab <unk> from BMO capital markets. Please go ahead. Your line is now open.

Phil Thomas: Okay, thank you for squeezing in two quickies. Roger, the overall tax rate has been under 22% for a couple of quarters. What is the right number, do you think, looking ahead? I think, you know. We should get around 21%, I think, in the next couple of quarters to wrap, so for the whole year, it will still be probably between 20 and 21%, lots of moving parts right across. Yeah.

Sohrab: Okay. Thank you for squeezing me in two cookies, Roger overall tax rate has been under 22% for a couple of quarters. What is the right number do you think looking ahead.

Speaker Change: I think.

Sohrab: We should get to around 21% I think in the next couple of quarters are up so for the whole year, so it'll be probably between 20 and 21%.

Sohrab: Lots of moving parts right across all categories.

Speaker Change: And then Ned.

Phil Thomas: And then you call that revenue growth year over year 5%. What do you think that revenue growth is going to look like for the balance of the year? And what would be the contributors?

Ned: You called out revenue growth year over year, 5%. What do you think that revenue growth is going to look like balance of year and what would be the contributors you know, there's obviously puts and takes you've got balance sheet kind of maybe ought to be a optimization, what's happening with fees NIM just get a sense of what that revenue growth ought to look like balance sheet.

Raj Viswanathan: You know, there's obviously puts and takes, you've got balance sheet kind of maybe RWA optimization, you know, what's happening with fees, and then just get a sense of what that revenue growth ought to look like. In balance, I think revenue growth should continue to be positive, and I think about it sequentially, obviously, you know, shorter quarter, next quarter and all, ignoring that bit. Because we talked about net interest margin continuing to improve, and the bank, a basis point on, you know, $800 billion of earnings is simple math over there. We don't expect too much loan growth, you know, in Q2, but we expect the second half to be, you know, stronger than the first half, sequential growth both in Canada as well as in international banking. So that should help with NII.

Ned: I think revenue growth should continue to be positive and I think about it sequentially. Obviously, you know charter, Florida next quarter on all ignoring that bad because we talk about net interest margin continuing to improve the bank a basis point on you know $800 billion of earnings is a simple math over there we don't expect too much loan growth you know in Q2, but we expect the <unk>.

Ned: Have to be.

Ned: Stronger than the first half sequential growth both in Canada as well as in international banking, So that should help with NII NII like you mentioned fee income and trading operations completely depend upon market opportunities. We've had a great start to the year, which should help Florida you know as we think about the whole year, but sequentially, that's a little hard to predict as you can.

Raj Viswanathan: NIR, like you mentioned, fee income and trading operations completely depend upon market opportunities. We've had a great start to the year, which would help for, you know, as we think about the whole year, but sequentially, that's a little hard to predict, as you can imagine. But revenue growth is something that we expect to see for the remaining three quarters across the business lines and therefore benefit the bank as a whole. GBM is the only one I would be a little cautious about because it depends on market activity, but the one I would call out is really wealth management.

Ned: But revenue growth is something that we expect to see for the remaining three quarters across our business lines and therefore benefit the bank as a whole.

Ned: <unk> is the only one I would I would be a little cautious because it depends on market activity, but the one I'd call out really as wealth management.

As the markets have improved we have seen quarter over quarter improvement in vault as it had been in Q1.

Ned: I think that will continue as the market for me and hopefully get better, particularly with the rate situation, helping our debt portfolio and the assets under management and the equity market is that it may sound doctrine.

Raj Viswanathan: You know, as the markets have improved, we have seen quarter-over-quarter improvement in wealth, particularly in imminent Q1. I think that will continue as the markets remain, and hopefully get better, particularly with the rate situation helping our debt portfolio and the assets under management. And the equity market is very mainstream; that will help with wealth revenues.

Ned: Five years, so it should be a good news.

Speaker Change: Thank you very much.

Speaker Change: Thank you there are no further question on the line.

Mr. Raj: I'd like to turn back the meeting over to Mr. Raj This what Nathan.

Raj Viswanathan: So it should be good news. Thank you very much. Thank you. There are no further questions on the line. I would like to turn the meeting over to Mr. Raj Viswanathan. Well, thank you very much.

Raj: Well. Thank you very much on behalf of the entire management team I want to thank everyone for participating in our call today.

Raj: We look forward to speaking to you again at our Q2 call in May. This concludes our first quarter results call and fabrics right Dave.

Raj Viswanathan: On behalf of the entire management team, I want to thank everyone for participating in our call today. We look forward to speaking to you again at our Q2 call in May. This concludes our first quarter results call, and have a great day. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation. This conference is no longer being recorded. Cette conférence n'est plus enregistrée.

Dave: Thank you. The conference has now ended please disconnect your lines at this time and we thank you for your participation.

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

Speaker Change: We thank you for your participation.

Speaker Change: This conference is no longer being recorded.

Speaker Change: <unk> III.