Q2 2024 National Bank of Canada Earnings Call
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This conference is being recorded so it's closer to home. So it's always you see.
All participants please standby your conference is ready to.
<unk>.
Good afternoon, and welcome to National Bank of Canada second quarter results Conference call.
Speaker Change: I'd now like to turn the meeting over to Matthew.
Vice President and head of Investor Relations. Please go ahead ma'am.
Speaker Change: Yes.
Afternoon, everyone. We will begin the call with remarks from Knowhow.
Mr Denton CEO.
Speaker Change: And I just thought that was really in car T is cool and then by Nancy you first got there Sir.
Also present for the Q&A session argued to be I'll say that those personal banking and client experience.
Speaker Change: Michael then handoffs commercial and private banking Nims.
She thought kipp <unk> head of wealth management.
It tends to <expletive> head of financial markets also responsible for credit G and sits on that shot head of international responsible for ebay.
Speaker Change: Before we begin I would like to refer you to slide two of our presentation for information.
Forward looking statements and non-GAAP financial measures.
Speaker Change: The bank uses non-GAAP measures such as adjusted results to especially its performance management will be referring to adjusted results unless otherwise noted.
I'll now turn the call over to Don.
And thank you everyone for joining us this morning National Bank reported strong financial results for the second quarter of 2024 with earnings per share of $2 54 up 9% year over year and our return on equity of 17%.
Don: This performance reflects the disciplined execution of our strategy across business segments, and the diversified earnings power of the bank.
Our capital level is strong with a CET one ratio of 13, 2%.
Don: This allows us to invest in business growth and to return capital to shareholders through sustainable dividend increases.
We've announced a four cent dividend increase this morning, bringing our quarterly dividend to $1.10 effective Q3 2024.
Looking at the Canadian economy continues to show signs of deceleration.
We are seeing further normalization in the credit environment and the unemployment rate has been on the rise since monetary tightening again and now stands above 6%.
Interest rates have been holding year to date.
Don: The housing and rental costs remain high.
Our core inflation has eased in recent months.
We believe the bank of Canada may now be in a position to offer some interest rate relief in the second half of the year.
With continued uncertainty as to the path of the economy, our disciplined diversified business mix and defensive posture provide us with resiliency.
Flexibility.
As illustrated by our strong results across our business segments in Q2.
Personal and commercial banking delivered solid revenue growth of 6% year over year supported by a concurrent growth in average loans and deposits.
Our personal banking loan book grew 3% over last year.
We're seeing better volumes within our internal mortgage origination channels.
Our commercial banking loans provide.
Commercial banking loan portfolio grew 12% year over year, reflecting broad based growth.
Our wealth segment generated net income of $205 million, the second quarter up 15% over last year on the back of double digit revenue growth and positive operating leverage.
Net income grew 7% over the year.
Over the same period, and 3% sequentially, reflecting a strong deposit base.
Compared to last year fee based revenues were up 13% and transaction revenues were up 12% benefiting from strong markets and a growing franchise.
Our financial markets business delivered net income of $322 million for the quarter up 20% year over year.
Global markets revenues were up 18% from last year led by continued momentum in Securities Finance and a strong performance in our rates business.
Corporate and investment banking revenues were up 9% year over year with a solid performance across the franchise and strong debt underwriting.
Our financial markets business continues to benefit from a well diversified business mix and disciplined risk management.
Credits you generated solid returns in Q2, with 5% average asset growth sequentially driving higher revenues and strong returns.
Net interest income was up 6% quarter over quarter.
Underlying performance portfolio performance is in line with expectations and the team continues to focus on opportunities with attractive risk reward profiles, primarily in the secured.
Space.
Finally, a be a bank generated net income growth of 16% year over year.
Margins improved sequentially as a result of strong growth in demand deposits.
Our customer base expansion translated into year over year growth in loans and deposits up 18% and 20% respectively.
These results reinforce the strength of Apa's financial ecosystem underpinned by its leading position in digital transactions.
The gathering payments and cash management.
Looking ahead, we remain committed to our disciplined approach to capital credit and cost to generating long term value to our shareholders.
Before I turn it over to Mike Michelle Dog, a few weeks ago, we announced that building out will be retiring from the CRO role at the end of the fiscal year and that's also the best take it easy.
We will be appointed his successor effective November one.
Jazz has been a key member of the risk management and compliance team since he joined the bank in 2015.
Don: He quickly rose through the ranks since that time, thanks to both the technical expertise, but also his vision and leadership qualities.
Having worked closely with him.
Don: Bill through those years, he brings deep experience and understanding of.
Our risk landscape to the role.
Look forward to welcoming him to the senior leadership team this fall.
And for Bill.
It goes without saying that he has made an indelible mark on the bank as a steward of our risk culture over the last 12 years.
Don: I'm very happy and fortunate to count on them for a little while longer.
Zero.
Then as a strategic advisor before a well deserved retirement.
You saw that over to you. Thank.
Thank you Donna and good afternoon, everyone.
My comments will begin on slide seven.
The bank delivered strong results in the second quarter.
T. P. T grew 12% year over year, driven by solid organic growth across all business segments and underpinned by diversified revenue stream.
Our balanced approach to growth and cost management across the bank contributes to our performance.
Operating leverage was positive at 2%.
Our highly efficient businesses generated an all bank efficiency ratio below 52%.
Don: We remain disciplined around expense management.
Revenue growth of 10% year over year generated higher variable compensation, particularly in financial markets and wealth management.
Excluding variable compensation.
Expenses rose, 5% year over year, as we dynamically balance business growth and investments to gain efficiency and improve the client experience.
Salaries and benefits increased 5% year over year, mainly due to the annual salary increase.
We continue to prudently manage the FTE count in Canada, which remained relatively stable compared to last quarter.
Don: Our action towards simplifying and optimizing our products processes and channel continue to pay off.
Now in the other segment total revenue from Treasury activities was lower in the second quarter.
This was primarily driven by the impact of interest rate volatility on asset and liability management.
And to a lesser extent from some pre funding opportunities in the first part of the year aligned with our prudent approach to liquidity and funding management.
Higher expenses from variable compensation and a temporarily overlap in occupancy costs as we transition to our new head office.
Also lowered earnings for this segment in the second quarter.
For the remainder of the year, we do not expect P. T. P. P. In the other segment to improve from Q2 level.
Looking at the results of the business segments and the bank as a whole we are pleased with the performance in the first half of the year.
Our balanced approach to growth and investments continues to serve us well, particularly in an economy environment that remains uncertain.
Now turning to slide eight.
Sequentially non trading NII it was down approximately 1% and was up in wealth management supported by its diversified deposit base are crazy G driven by robust I've said growth year to date.
Don: And that there'd be a benefiting from balance sheet growth and a favorable deposit mix.
The all bank non trading NIM fell four basis points sequentially to 217% largely reflecting lower NII from treasury.
Our margin in P&C banking remains stable again this quarter at $2 36 per cent.
As a management team our primary focus is to grow the franchise with the right balance between volume growth margins and credit quality.
We are pleased with our margin performance and expansion since the beginning of this rate cycle.
Moving to slide nine.
Loans were up 9% year over year, and 2% quarter over quarter.
In commercial banking loans increased 3% sequentially.
In part driven by continued opportunities in the region to actual insurance segment.
Don: In personal banking loans increased 1%, while corporate banking volumes were up 1% quarter over quarter.
Following several quarters of strong drying.
Don: I printed sheet.
The sale of the loan portfolio offset organic growth this quarter, but bear in mind that the overall asset growth has been strong year to date.
At a P loans grew 3% sequentially, mainly driven by net client acquisition.
Deposits, excluding wholesale funding route for first time year over year, and 2% quarter over quarter.
Personal deposits rose, 2% sequentially with growth in term deposits across retail businesses and in demand deposits at a b E.
Don: In personal banking demand deposits increased modestly over the quarter.
Non retail deposits were up $2 billion sequentially, primarily driven by commercial banking.
We maintained a strong loan to deposit ratio of 98% as at Q2.
Our ratio is aligned with our diversified business model.
And now turning to capital on Slide 10.
Don: We ended Q2 with a CET one ratio of 13, 2%.
Second quarter earnings net of dividends contributed 38 basis points to a ratio.
Don: Underscoring our internal capital generation capacity.
Robust organic business growth contributed to an increase of 29 basis points up aren't gonna be away excluding FX.
Credit risk our W. Weight was up representing 30 basis points of C. P. One.
Mainly from strong balance sheet growth and to a lesser extent from credit migration and non retail portfolio.
To conclude I am pleased that for the past few quarters, we have successfully been able to navigate a challenging backdrop and report solid financial performance our.
Our diversified business model strong balance sheet and disciplined execution provide a firm foundation for the bank to generate profitable growth.
Speaker Change: I will now turn the call over to them.
Messi, Mary Sunbelt and good afternoon, everyone.
I'll begin on slide 12 with comments on the macro environment and our credit performance in the second quarter.
While core inflation has eased in recent recent months significant uncertainties remain in the fourth out of interest rates economic growth and unemployment.
To Echo <unk> comments, the Canadian economy continues to show signs of deceleration.
Against this macro backdrop, our credit portfolios have continued to demonstrate resilience in the second quarter with total provisions for credit losses of $138 million or 24 basis points versus 21 basis points in Q1.
Impaired provisions increased three basis points sequentially to 20 basis points or $114 million.
Speaker Change: Retail impaired provisions increased test normalization trends continued.
Speaker Change: Non retail impaired provisions increased quarter over quarter due primarily to a couple of files in the wholesale trade sector.
I've credit G continued seasoning of acquired portfolios generated stable impaired provisions.
At a b a impaired provisions declined quarter over quarter. However, as we discussed on prior calls we think they could remain elevated for a few more quarters.
Provisions on performing loans declined to $22 million or four basis points.
Primary drivers this quarter, where portfolio growth and migration.
Looking ahead, we expect delinquencies and impaired provisions to continue their upward path.
The retail portfolio should continue its normalization in the non retail book is subject to periodic lumpiness as we saw this quarter.
With these factors in mind, we maintain our 15 to 25 basis points guidance for full year and parents revisions and still expect to end up around the middle of that range.
Turning to slide 13.
We continue to prudently build our total allowances for credit losses, which reached more than $1 $4 billion represents a strong coverage of four five times, our last 12 months net charge offs.
Performing acl's increased for the eighth consecutive quarter and now represents two nine times. The last 12 months and third P. C S.
In the appendix 10 additional metrics on their allowances are provided which demonstrate our prudent coverage levels.
Turning to slide 14.
Our gross impaired loan ratio increased six basis points to 54 basis points.
As we called out on the slides the Gil ratio in our domestic loan portfolios was 36 basis points still below pre pandemic levels.
Formations were higher quarter over quarter with the main drivers being the commercial and corporate portfolios.
As I've mentioned on prior calls formations and recoveries in wholesale portfolios can be electric lumpy from quarter to quarter and Q2 was unusually lumpy.
The new formations were spread across a handful of regions and sectors, including wholesale trade transportation real estate and I'll point out here that for a couple of those files, we took only a small or no specific provision, reflecting the quality of the collateral and loan structure.
At a b a formations were stable quarter over quarter in Canadian dollar terms due to currency impact, but in U S. Dollar terms declined to $28 million from $44 million last quarter.
On slide 15, we present highlights from our Canadian Russell portfolio.
So your geographic and product mix remained stable with Quebec, accounting for 54% and insured mortgages accounting for 29% of total Russell.
Speaker Change: Higher risk uninsured bars represent around 50 basis points of the total rental portfolio.
90 day delinquencies in uninsured mortgages, and Helocs remained low at 13 basis points and 10 basis points respectively.
Speaker Change: You can find additional details on our Canadian mortgages on slide 16.
I'll note that for more I'll note that more than half of our mortgage portfolio has now been repriced at higher interest rates and 90 day delinquencies remain well below the pre pandemic level.
You've included additional insights on trends in 90 day delinquencies for the entire Canadian retail portfolio in appendix 26, and I'll take a moment to share a few comments on the trends across different products and segments or regions.
First delinquencies and credit cards, which is a relatively small portfolio for us.
Have increased the most since the 2022 lowe's, having exceeded pre pandemic levels early this year.
And diving deeper into that portfolio, we find that the segments. Most impacted are non homeowners and clients outside Quebec.
Second variable rate mortgage delinquencies have also seen a significant increase over this period with the insured segment and the outside Quebec regions, showing the largest relative increase.
And finally diving deeper into the uninsured variable rate mortgage portfolio, we see that delinquencies in the Quebec region still remain below their pre pandemic levels.
Speaker Change: In conclusion, we are pleased with the strong credit performance again, this quarter, which reflects our defensive positioning resilient MX and prudent provisioning.
With that I'll turn the call back to the operator for the Q&A.
Thank you Mr Barnhill.
Speaker Change: Well now take questions from the telephone lines.
If you have a question. Please press star one on your devices keypad.
So your question at any time by pressing star two.
Please press star one at this time, if you have a question.
No it won't be a brief pause all participants register for questions.
We thank you for your patience.
Yeah.
Our first question is from Matthew <unk> from Canaccord. Please go ahead.
Good afternoon, and thanks for taking my question.
Maybe starting with <unk> T cells in that business continue to be very low and I think they actually saw.
<unk> declined quarter over quarter can you, maybe just talk us through what gives you confidence in that current level of build for that business and maybe what youre seeing in terms of economic indicators in that market.
Bill: Yes, sure Matthew It's bill are happy to answer that so.
In Cambodia, we have seen some recent strength so far in the beginning of the year exports have really picked up we've seen.
Foreign direct investment pick up with the U S being the third largest foreign direct investor after Singapore.
And just recently Moody's upgraded their outlook for the country from negative to stable. So.
It reflects kind of some some good things are happening. However, we feel that the it'll take some time for the benefits of those activities to really be felt through the economy, which is why we were calling out.
The fact that we expect elevated formations for the next two or three quarters.
Does that answer your question or do you have another question.
No that answers that question and then maybe on the financial market side, another good quarter, and specifically called out DCM, but can you maybe just talk about the visibility you have into C&I pipeline not go into the back half of the year.
Sure. Thanks, Matthew for the question.
And then and then it's been a.
A great quarter for us on the advisory side.
And.
We are.
So maybe if I comment on what the quarter was like the serve the Shaw was really D. C M, where it was a great environment with two Canadian borrowers being active on both sides of the border and Canadian investors actively deploying and that provided a broad support for new issues and in their rallying Canadian trade at par.
Right.
And then you have the government side.
The increasing borrowing requirements the pace of new issue has been robust as issuers took advantage of strong demand in the fixed income markets and we could we see that trend continuing in the next quarter.
It was also busy or on the equity new issue markets with significant activity, notably in the mining sector saw an encouraging trend there.
And and then he was also a bit easier in Q2, and although a bit slower than last year and we're looking for an acceleration during the second half of the year.
So so that's really what we see I mean I touched on the DCM.
And we see it getting quite busy on the equity side, especially in the last two weeks and there was a lot of cash on the sidelines and a lot of pent up demand.
Bill: And I think that's well.
That provides a pretty strong picture for the second half of the year on the advisory side.
Alright, Thanks for taking my question.
Yeah.
Thank you I'm. Following question is from many Romans from Scotiabank. Please go ahead.
Hi, Good afternoon, just following up on that discussion of financial markets. If we can take it to the outlook for our net income for the year I think year to date up 11%.
So you know I think in the past you talked about guidance being quite a bit lower but obviously, you're highlighting some positives here, especially on the DCM side. Just wondering if you could update that guidance in terms of what to expect for the year as a whole in terms of earnings growths for financial market segment.
Yeah. Thanks.
For the question.
Bill: Yeah.
You were really happy with the results so far.
Partially on the trading side I think it's a combination of things.
A good environment strong client activity and really solid execution from the teams.
So on the fixed side Youre seeing volatility remaining high in all segments being really dizzy.
So we're seeing a nice revenue progression in our liquidity, providing activity and we continue to rank number one in total domestic bond trading for each month of the quarter and so really happy to see that and rates structured products were also a nice tailwind this quarter with record issuance in revenues.
<unk>.
And on the equity side, we continue to benefit from strong market conditions, whether it is structured products financing trades and market making.
The strong equity markets have resulted in increased product sales.
<unk> client flow and structured funding trades in the pick up also in the securities lending side.
Bill: If we look at what we see.
So we feel real good about the first half of the year in our balance the performance has been and we feel increasingly confident that the business. The businesses are well positioned to deliver net income growth for fiscal 'twenty 'twenty four.
Uh huh.
I think on the interest rate side, we will continue to see volatility as central banks will take diverging paths under a wait to easing and that bodes well for activity on trading should have a lot of cross border activity, but also on the debt capital markets as I mentioned.
Governments and corporate issuers will continue to take advantage of some improving borrowing conditions.
And the persistent strength of the equity markets I feel will continue to be a tailwind for our structured products franchise.
Sales are strong and that will compensate we feel for low equity trading volumes and low implied volatilities and on the securities Finance side, It's really a good environment clients are deploying aggressively at good spreads and we all see we also see strong demand.
Structurally funding traits.
Bill: And.
And that I think that that's cool upset for corporate lending, which where we see a possible slight slowdown in the pace to really to the opening of <unk> capital markets.
And but we're like I said, we're looking for M&A to accelerate in the second half. So we have a really interesting pipeline. There. So I think we will be busy the next few months.
Does that answer your question.
Yeah.
Well does that mean that the guidance that you provided before is there's probably no longer valid that youre, probably looking at quite a bit more earnings growth than what you had suggested earlier in the year.
Well like I said, we feel increasingly confident that we will achieve that guidance, but I don't think we want to update that guidance.
Okay and then just.
A follow up in terms of you know if I look at the T. E D line across peers on a year over year basis down call. It on average 90% year over year in it.
I think that is the dividend received deduction coming through as expected if I look at your T. B line down 34% year over year, So a significant outlier there and I'm just trying to understand.
Bill: Is there still more downside here related to the D. R D.
And then if not then what is going on here or is it you said there is other things offsetting and impact of the D. R. D or are you able to somehow offset the D. R. D itself I'm trying to understand.
Your performance here it really stands out relative to peers, yeah. So I think what you're referring to many is that it's the P. B adjustment in noninterest income and that's one that's not related to dividends.
It's related to income from our foreign trading operations, notably in Europe.
And so Ah that P b and relationships noninterest income that reflects the difference in tax rates in various jurisdictions, where are we we carry on business. So that that TB will fluctuate with changes in.
The balance sheet with deployed there and changes in interest rates.
And.
It will also fluctuate as our trading revenues in those markets go up and down.
Bill: So I mean, just to be clear in terms of the you know.
The line that I'm looking at here in terms of.
Bill: The T V.
Like if I look at trading activity revenue and at the GP line of $84 million in Q2, there's the D. R. D impact is not going through that specific line is that was your.
So sorry.
So you've seen the drops from from previous TB numbers, and so really the drop in the dividend.
The impact was in the interest income parts of the TB, where we went from something like 75 to 14.
Okay, if I remember correctly.
Bill: And that in itself.
That's aligned with the guidance of about $60 million per quarter that we gave in Q1.
Okay. Thank you.
Thank you.
Following question is from Nomura per song from <unk> Securities. Please go ahead.
Yeah.
You mentioned, taking small to no provision hands on some of these non retail formations.
Can you expand on what gives me the confidence here I'm assuming that these are clients who've done specific work on each of these files and that's what gives you the confidence in these sectors you called out so I think it was transportation.
Wholesale trade in real estate just provide some some some thoughts there and what gives you the confidence to not to provide.
Yes, sure Limor I'm happy to it's certainly it's not all of the formations that had low a low provision some of them certainly didn't as I said it was a it was a lumpy quarter, specifically I was referring to in the real estate.
Bill: Sector.
The the new formation of the gross impaired loan increase was driven primarily by one file and we always look very specifically at the file when it becomes impaired then we make our best judgment of what we think the a b and a realized loss would be and in this case, it's one very well located.
Retail property that's in the in the process of Redeveloped into multi residential and retail mix.
It had cash flow problems because of low occupancy and the retail portion and higher interest rates of course, hitting the cash flow. So we'd let that led to the impairment, but even at the refreshed our valuation at the time of impairment current LTV is still in the sixties and.
Bill: It provides ample coverage for alone. So we don't expect to end up realizing a loss on that one and then the transportation sector. Although it's in the transportation sector is actually a few a few specific loans secured by buy properties that are multi year.
Use or industrial and.
They are.
Used by D. The owner, who guarantees the the loans that is in the transportation sector, but our exposure is directly secured by these properties and again well located the restructured as a real estate loans Canadian style.
Bill: Well, it's going through a process and if necessary have through the process there needs to be an adjustment in valuations will make it but currently we don't expect to take any material loss. There. So that's how we go about analyzing the specific provisions and it really is a case by case with all of the factors considered.
So that helped answer your question yes.
Yes, that's perfect. Thank you and then just kind of moving on to my next question here.
Speaker Change: I just wanted to touch on the strength in commercial lending center, 3% sequential increase is this oh, Quebec specific strain specific sector and are what are you kind of expect moving forward because that number stood out to me on the on the positive side.
Yeah.
It's Michael.
Denim here so the growth has been across the country.
Speaker Change: Rebecca.
Speaker Change: Ontario, Western Canada.
Gross coming from real estate multi unit residential real estate, but it's also broad board product across the board National accounts teams out west are calling for a lot of the growth as well, so it's well diversified across geographies and across sectors.
Speaker Change: And.
Again, it is lumpy we've been in that kind of high single digit low double digit range for the past few quarters and I'm just based on the kind of pipeline level of activity. We're seeing right that we expect to become more or less in that range going forward.
Great. Thank you.
Speaker Change: Thank you. Our following question is from Nigel D'souza from Veritas investment Research. Please go ahead.
Thanks, Dave Good afternoon, I wanted to follow up on the dividend.
Delinquency rate data you had on slide one day and thoughts on the divergence, we're seeing between the uninsured and insured variable rate mortgages.
What I'm trying to understand here is that both the uninsured and insured portfolios would be.
They both are similar a cluster with a doctor both payments.
I'll just add a lower equity in the insured portfolio, what's driving that divergence.
Delinquency rates in those categories.
Hi, Nigel it's bill.
I think you've you pay out there did the less equity in the loan typically means more leverage for the household. So when you think of insured mortgages often its.
First time homebuyers.
Uh huh, perhaps less ability to withstand sudden changes in the rates and.
And and market values or changes in circumstances, and that's that's really the driver. We also see aligned with that you see but pretty pretty correlated.
Speaker Change: It's pretty correlate between the the size of the mortgage.
And performance too because the dollar impact of the.
400 basis point increase on a 300000 dollar mortgage in Quebec is different and on the $800000 mortgage in a more expensive city. So same interest rate change just doesn't hit the household budget as much and is more easily offset by wage growth and another other aspects.
Does that help answer your question.
So just to clarify it a little bit finer on that so is the geographic mix and sports tilted more outside of Quebec and.
And also are you are you seeing.
Any other factors like vintages are they more recent vintages and you took the photos.
Okay.
Differences there.
And.
Yeah, I'd say, let's say Nigel that the the biggest correlation that's less vintages, maybe we can come back to you on that but it really is the geography for those factors that I described and I think in my prepared.
Speaker Change: My prepared text I called out got even after 400 plus basis points of increase in the variable rate mortgages and the uninsured variable rate mortgages.
The Quebec borrower.
The delinquency rate is still below the pre pandemic level.
And that's a factor of what we've talked about about the Quebec households, being more resilient with more dual family.
Speaker Change: Dual income families and with a more.
Did you could be economy more more diversified, but primarily it's the lower house price has a real impact on the size of the payment shock when when interest rates go up.
So does that.
Help answer your question.
That's really helpful. And then I think the switch to a be a bang I'm I'm I think there was an increase in the Memphis margin were 88. This quarter I just wanted to confirm that's right and if so what drove that increase.
And also could you up.
<unk> was part of our OE has that business been waiting.
Yes.
So with regards to the margin just that tells you. The margin is indeed improve then it's likely and it's a factor of two elements. If you want the first one is our pricing strategy and we've seen rate decreases on the on the term deposits. That's the first element.
But the first and foremost element has been the deposit mix to this change amongst the clientele that he'd be yes. So last year, we saw more deposits going into church and this year. It's the second quarter to roll, we're seeing as the economy is a bit sort of taking a longer time to recover to its high levels of pre pandemic.
We've got a few a lesser degree of investments in term deposits were actually up 71% of our deposits are enter into current account and savings accounts. So that's the first element as to the R O that.
That subsidiary, we don't divulge our OE volume specific leap here.
Per our per subsidiary, but I'm sure you can make a guess that its been a worthwhile investment for us.
And the reason why I asked that is strategic question here.
I'm sure that's a very healthy our oasis is there any consideration that perhaps is the ROE is near the high end of its potential range too.
Divest and reallocate back households, domestically or people financial markets evolve.
How do you think about that business or is it something.
April.
I'll answer no it's not on the table and I'll answer with one element, it's still a extremely young of markets population is very young.
Second element is only 10%.
<unk> of Cambodians have loans right now so we've got the opportunity of driving this balance sheet for many years to come.
Demographics are are excellent and the returns on the on the margins are exceeding you know undoubtedly what we where we can see domestically so I'll leave it to that.
Okay. That's all for me thank you.
Thank you.
Following question is from Mike Macdonald from K B W. Research go ahead.
Good afternoon, I want to go back to bill on the impaired loan formations on commercial and what I'm a little bit confused about is why such a substantial move during during the quarter I I I don't see anything on the macro side in terms of data would have suggested anything like this move sequentially.
Based on what we have for said March and April so in your view what was the key driver of that really drove this big jumped sequentially.
Hey, Mike It really goes to what I said.
You can call. It Lumpiness you can call. It a multiple idiosyncratic events that just happened at the same time with a with a retail portfolio.
You can it's it's definitely board trends and even from quarter to quarter, you can be pretty confident on the direction and the size of the trend change.
Because there's multiple multiple small individual accounts.
Accounts.
With wholesale with corporate and commercial.
It's just that files happen when they happen for multiple reasons and as we pointed out is there a different geographies with different sectors and from time to time, they happen within a three week or six week period and other times. They are they they are more evenly spread out so.
Really just because they have to lumpiness, there's nothing else I'd call out here.
Okay. So something confident this is not something to be alarmed about in terms of the direct correlation to your PCL, but what would you say to the premise that some investors may have when they when they sort of look at these impairments rise so quickly in.
Some may believe that.
The PCL was just a matter of time, but on the accounting side is there is there much wiggle room like is it is it factual that some banks may just be willing to put that PCL number up.
Earlier than others like like I'm not sure. If you have a view on that but I'd love to hear your opinion on that.
Sure.
I would start off with saying that the nature of the portfolio doesn't need to be considered when you're looking at gross impaired loan levels.
We talked a bit about retail and retail typically you know trying to equate impaired loans and a stage three provisions.
It really depends on how much credit cards, you out because there aren't any impaired loans and credit cards that goes through right off and so you can have higher.
Stage, three provisions, but a lower gross impaired loans. So the nature of the portfolio and business mix is one thing.
<unk> been looking at the at the the nature of the loan portfolio.
The percentage of insured.
Speaker Change:
Loans does matter as we pointed out the delinquencies and an insured variable rates have been going up so over time, we'd expect to see more impaired loans that are insured star.
Started isn't sure at variable rates.
Speaker Change: It doesn't mean that the risk content leading into stage three provisions is there.
But it does impact of an increase in our gross impaired loans and you'll note that we in our mortgage portfolio. We've got the highest percentage of insured mortgages.
Second thing the commercial we have a similar situation, where a significant part of our growth coming out of 'twenty. One was in the insured multi residential.
Portfolio.
If there is some curation that becomes impaired again, it will impact the gross impaired loans, but it doesn't lead to risk content and finally for US specifically as we talked on I think the last two or three calls.
Speaker Change: It may be a with the the secured nature the low L. T V.
Nature of it and there has been a significant increase in gross impaired loans, but we do continue to expect net charge offs of the realized loss at the end of the process to remain.
Right to remainder of all the stuff they love.
It's not a it's not a one for one our gross impaired loans versus what.
What will be the stage three provisions or the write offs, even if you get to the very very young it said he used to be a little more nuanced based on the portfolio does that help you with.
That's super helpful. Just in case I missed earlier I believe you did reiterate the 20.
Roughly 20 basis points loss ratio for the correct was that for the current year.
Yeah, so to be specific.
Specific language same as last the last quarter and last couple of quarters was for the fiscal year impaired PCL between 15, and 25, and we still expect to end up around the middle of that range and.
And just.
On that I don't want to give you the impression that.
Even after 12 years in the seat I tend to forecast precisely within the second decimal point.
The provisions will be if that's not the case. However, we do look so far this year, we were below 20.
This quarter it was a lumpy quarter, which I don't expect to happen every quarter of consecutive quarters. It can but I don't expect it and the trends that we've talked about driving some of the Canadian.
The Canadian provisions are coming from those normalization trends and where those normalization trends are their fastest or in areas that we we are underweight and where there's the most resilience. It's areas that were overweight. So I also need to balance and credit G and H, which aren't perfectly correlated but you know as as as we.
Sit here today.
The Oh my expectations for the full year as it should be pretty close to the middle of the range.
We'll talk again in August and I'll update it but that's our that's what I reaffirmed.
Got it thank you very very insightful batesville.
Thank you.
Following question is from Sohrab <unk> from BMO capital markets. Please go ahead.
Okay. Thank you I just wanted to maybe just change channels here, a little bit it looks the wealth.
Im not mistaken a record earnings quarter.
You've been around this $200 million a quarter.
For the first half of this year every cautious just can I get a sense of how you see this business playing out.
And over the next time.
A few quarters and what you think will help us sustain this sort of sad performance.
Yes. Thank you. So hi, so this is Nancy Youre right. This is our highest quarter in terms of revenue are they said this quarter and it's less it's led mostly by fee based on transactional revenues as you've seen.
We also have a growth momentum in terms of the clients and assets under management.
So our unique positioning with our open architecture, there's still tens are essential for us in there and we like our diversified business mix, we like CAD or client acquisition. So I think those are the trends that we're going to continue to to build on to grow for the next quarters.
So it doesn't so just to be clear Nancy does it sounded like you were saying I need equity markets to be cooperating with me.
Necessarily well as you know.
Our business is influenced by fed by our the markets as well so definitely I guess.
<unk> are a growth contributor.
But that's the fundamentals are good and that the diversified nature of our business will bring us a good results no matter, where mark is goes in the lungs and go in the long term.
Okay, and if I can just ask do you see to maybe talk a little bit about how she sees the second half of the year playing out both in terms of fat.
Lending volumes and net interest margin.
What was that for the P&C segment. Okay. Appreciate that thank you.
Thank you sell them and when I look at the second half I think we will have some some more pick up in the mortgage business.
And I believe we will end the year in the mid single digits on the mortgage growth.
I think our credit card throughout 12 continues to be low double digits.
I would say, it's a reflection also of the quality of our portfolio and their food understand that's what we see from consumers and it's also helpful on the credit side.
And then we will continue to have some good momentum in our in person on them.
And do you expect do you expect margins to be trending higher nor stable. How do you see that playing out yep. Thank you so Ah the mountain.
We look at it from the P&C overall business.
And then this quarter, we've seen more resiliency that deposit spreads have continued to sign she'd been as Sip and also the loan spreads have improved so the demand environment on the long side is positive.
For the next quarter, we may see some pressure on the deposit side as the portfolio renew.
And it seemed most kids do two year duration in the term.
Deposit portfolio and the.
Two years ago was probably the largest.
Kevin deposit spreads lead time, so it really impacts that you will happen and in fact with some pressure on the deposit and also the business mix can play in also with a little more loan growth than deposit growth.
Okay. Thank you very much.
Thank you. Our following question is from Doug Young from dish are doing capital markets. Please go ahead.
Yes.
I just have a few hopefully quick ones Dell to you on the on the guidance of mid part of that range. So implies.
D C L. A in the low 20 basis point range and again I think some of the comments you've made in the past discussion.
Sessions here is there a line of sight and I know commercial can be Lumpier is is it more line of sight on some commercial stuff you see coming down the pipe is it more just a trend out of like machine on the retail side that pushes you to expect you know the low 20 basis points in Q3 Q4 as this is concerned.
Because I'm just trying to kind of get a sense.
Yeah, I think it's the thanks for the question I have I think it's the trend really that we've been talking about for I think at least three or four quarters.
Normalization trends as you know the impact of monetary policy is delayed.
So it should be no surprise of when the impact started being seen we've talked I think true last year. The second half of last year about what we were seeing in early delinquencies and now we're seeing those play out in the in the late stage delinquencies and the trends are moving them pretty close to what we expected.
Speaker Change: As as I said, our commercial and corporate.
Corporate can be lumpy.
Not wanting to call out any visibility.
Specific sectors or anything because generally our watch list has been relatively stable in the last the last quarter or two so there's nothing really calling out.
I would just say a trend.
Trends have continued as we expected, albeit a lumpy quarter in Q2 and for those reasons just confirming the same guidance I gave last quarter.
Okay, and then can you update us with E. L T D.
On the portfolio and when the collateral secured.
Last updated I assume that's updated every quarter, but.
It is.
Hardly has changed we're still in the forties.
And it's actually.
You know very stable because the underwriting practices have not changed and when we assess even the the gills L. T V. It's actually lower than the average portfolio. So we're very pleased with that.
Okay, and then lastly.
You talked a bit about the T V and some stuff in Europe.
Speaker Change:
Speaker Change: Just curious the impact or if you can provide what you think the impact would be on G. M T or if there's any impact from the G. M T. As we look forward.
Hi, it's Matt just talked about here happy to take that question.
Speaker Change: So and in terms of the.
Speaker Change: Global minimal minimal attacks.
No.
These wells were included in the Bill C. 69 that was done just announced early may.
And we are currently assessing our income tax exposure arising from these rules will be.
Being better positioned to comment later in the year.
And what are you expecting some impact, but I was always our intention is to provide more clarity as soon as we have finalized our integration of these of these rules.
Speaker Change: I appreciate it.
Thank you once again, please press star one at this time, if you have any questions.
Speaker Change: Our following question is from Paul Holden from CIBC. Please go ahead. Thanks good afternoon.
Bill maybe a quick question for you because I've heard a number of others ask on a b, a and sort of the delinquency trends versus provisions maybe you can give us an update on collections today, given those low ltvs that have been highlighted on the portfolio yeah.
Hi, Paul.
Thanks Al.
So I think the first half I looked at I think it's the same trends as we've talked about I think in the last call or the last couple of calls.
So year to date for those files that have gone through and closed the through the the.
The workout process, it's around 75% of them have had zero loss.
Speaker Change: And as I'll call out as well you can see in our sat Fi.
Speaker Change: I think it's on page.
Page 28 in the U S. If I were you see write offs by business segment and its still under $500000.
Order a standard $250000 for the last few quarters. So the write offs dollar amount are still pretty small so.
Seeing that those facts continue as we expected is what gives us the confidence to say, yes, we think that the net charge off rate will remain relatively low.
Does that help that helps very much. Thank you.
Next question is with respect to financial markets see that the average loan balances are up 11% year over year, that's some pretty good growth.
Heard from others that use of existing lines are relatively low or trending lower but I'm just wondering how you're generating a 11% growth is that coming from existing clients or are you actually gaining new customers and if you are gaining.
New corporate lending relationships kind of give us a sense, maybe where those are coming from geographically or by sector.
Yeah. Thanks for the question it's.
It is 11% year over year, although it has trended lower sequentially.
It is it is so it is a very well diversified book.
Speaker Change: And then so so very well the purpose of funding across sectors.
It is.
And youre right that to be in.
D. The utilization rate has been trending a bit lower our LOE is still elevated historically, but because of the opening of capital markets. We're seeing that pick the legislation right now trending a bit lower because of the low forties and historically its in the high thirties and.
Speaker Change: We have been.
Social a lot of new clients on the project finance side definitely spent a lot of new clients in the New York renewable sectors, but that's really the one the one major trends I would point out so it really puts that book otherwise it is pretty stable across sectors and across the geographies.
Okay. Thanks.
And last one somewhat question I guess around credit and you're also seeing quite good growth year over year and sequentially are there any kind of common themes. There in terms of the types of portfolios.
She is acquiring.
Who the sellers of those portfolios are and then maybe if I could give us some clues in terms of what kind of that strong growth can continue our credit G. Thank you yeah.
Thanks, Paul So you're.
Speaker Change: You're right that it's crazy has delivered strong growth.
Notably in the first quarter, it's been a more normal pace in the second quarter.
Speaker Change: But for the first half of the year, we've deployed deployed about $1 8 billion.
And that's really in high quality long term secured assets and that's mostly mortgage solar loans and some lifestyle minutes also.
When we continued see looking forward opportunities.
Primarily in secured consumer assets so so.
We mentioned mortgage there's also home improvement loans and I mentioned solar.
And we like the insurance space also because it is very uncorrelated with the overall economy and so we see continued growth there across a balance of both an indirect lending and direct portfolio acquisition.
When you look at Crazy, it's it's really a set of really solid client relationship and that creates I think a solid foundation for growth.
And.
This allows strategy to really build a repeat customer business and that means that we can remain competitive without being always our highest selling price.
So.
Does that answer your question.
Yeah, that's great. That's all the questions for me so thanks for the time.
Thank you.
We have no further questions. So I just thought at this time I would now like to turn to beating Banco virtually all healthy.
Well. Thank you operator, and thank you to all employees and shareholders on the call today for your support have a great summer.
Thank you.
The conference has now ended please disconnect your lines at this time and we thank you for your participation.
Okay.
Speaker Change: Okay.
Okay.