Q3 2024 Canadian Western Bank Earnings Call

August 30, 2024

Good morning, My name is Joanna and I will be your conference operator today at.

Joanna: Good morning, my name is Joanna, and I will be your conference operator today.

Chris Williams: At this time, I would like to welcome everyone to Seedbley Bees, third quarter 2024 financial results conference call and webcast. All lines have been placed on mute to prevent any background noise.

Speaker Change: At this time I would like to welcome everyone to Cbb's third quarter 2024 financial results conference call and webcast all lines have been placed on mute to prevent any background noise.

Chris Williams: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two.

Speaker Change: After the Speakers' remarks, there will be a question and answer session.

Speaker Change: If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

Speaker Change: If you would like to withdraw your question. Please press star followed by Q.

Chris Williams: Thank you. I will turn the call over to Chris Williams, Assistant Vice President and Vester Relations. Please go ahead, Chris.

Speaker Change: Thank you I will turn the call over to Chris Williams Assistant Vice President Investor Relations. Please go ahead Chris.

Christopher Fowler: Good morning and welcome to our third quarter 2024 financial results conference call.

Chris Williams: Good morning, and welcome to our third quarter.

Speaker Change: 24 financial results conference call will begin this morning's presentation with opening remarks from Chris Fowler, President and Chief Executive Officer, followed by Matt Ryan Chief Financial Officer, and currently Anoplura Chief Risk Officer.

Christopher Fowler: We'll begin this morning's presentation with opening remarks from Chris Fowler, President and Chief Executive Officer, followed by Matt Rudd, Chief Financial Officer, and Carolina Parra, Chief Risk Officer. Also present today are Stephen Murphy, Blue Pegg, Commercial, Personal, and Wealth, and Jeff Wright, Group Head, Fine Solutions, and Specialty Businesses. After prepared remarks, they will be available to take your questions.

Speaker Change: Also present today are Stephen Murphy.

Speaker Change: Commercial personal and wealth and Jeff right Pat.

Speaker Change: <unk> solutions and specialty businesses.

Speaker Change: After prepared remarks, they will be available to take your questions.

Unknown Executive: As noted on slide two, statements may be made on this call that are for looking in nature, which involve assumptions that have an air at risk and uncertainties.

Speaker Change: As noted on slide two statements may be made on this call that are forward looking in nature, which involve assumptions that have inherent risks and uncertainties actual results could differ materially from these statements I would also remind listeners that bank. The bank uses non-GAAP financial measures.

Unknown Executive: After results could differ materially from these statements, I would also remind listeners that bank, the bank uses non-GAAP financial measures to arrive at adjusted results. Management measures performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance.

Arrive at adjusted results management measures performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance I will now turn the call to Chris Fowler, who will begin his discussion on slide four.

Christopher Fowler: I will now turn the call to Chris Fowler, who will begin his discussion on slide four.

Christopher Fowler: Thank you, Chris, and good morning, everyone. Our teams delivered 4% growth of pre-tax pre-provision income in the third quarter due to targeted loan growth and optimized funding that drove significant improvement in that interest margin. Our strong operating performance was more than offset by a significant increase in the provisioned for credit losses on paired loans. The increase primarily related to two loans were borrower specific circumstances resulted in unusually large provisions for these specific exposures. Outside of these two exposures, the credit quality of report folios has evolved largely as anticipated. Coming into the quarter, we expected that the sustained impact of higher interest rates, coupled with the current economic environment, would result in elevated borrower default rates and impaired loan formations over the remainder of the year, and that remains consistent with our view looking forward into the fourth quarter.

Chris Fowler: Thank you, Chris and good morning, everyone.

Chris Fowler: Our teams delivered 4% growth our pretax pre provision income in the third quarter targeted loan growth and optimize funding and drove a significant improvement in net interest margin.

Speaker Change: Our strong operating performance was more than offset by a significant increase in the provision for credit losses on impaired loans.

Speaker Change: The increase primarily related to two loans for borrowers specific circumstances resulted in unusually large provisions for these specific exposures.

Speaker Change: Outside of these two exposures the credit quality of our portfolio has evolved largely as anticipated.

Speaker Change: Coming into the quarter, we expected the sustained impact of higher interest rates, coupled with the current economic environment yourselves and elevated borrower default rates and impaired loan formations over the remainder of the year and that remains consistent with our view looking forward into the fourth quarter.

Christopher Fowler: We were being confident in a secured lending model. Our historic approach has been to manage our portfolio with secured loans that allow us to proactively work with clients through difficult periods, and this has been an effective approach to minimize realized losses on the resolution of impaired loans. Subsequent to the quarter end, we encountered unusual circumstances as we worked to resolve two impaired loans that resulted in a significant reduction in the expected value of our security. We appropriately adjusted our provisions for credit losses to reflect this new information in our Q3 financial results, which was primarily the cause of the increase in the provision for credit losses from the prior quarter.

Speaker Change: We remain confident in our secured lending models, our historic approach has been.

Speaker Change: To manage our portfolio secured loans allows us to proactively work with clients through difficult periods and this has been an effective approach to minimize realized losses on the resolution of impaired loans sub.

Speaker Change: Subsequent to the quarter end, we encountered unusual circumstances.

Speaker Change: Worked to resolve two impaired loans that resulted in a significant reduction in the expected value of our securities.

Speaker Change: We have appropriately adjusted our provisions for credit losses to reflect this new information in our Q3 financial results, which was primarily the cause of the increase in the provision for credit losses.

Speaker Change: The prior quarter.

Christopher Fowler: Care, Carolinas team, that's completed a deep dive of our unsatisfactory portfolio and I'd personally review their assessment. Outside of the two loans noted, we continue to see structures that are consistent where there's strong historical practices and provide good optionality to resolve the unsatisfactory loans. This gives me confidence that our credit losses will return towards our normal historic range and Q4. We maintain our very disciplined approach to loan growth to optimize our risk and adjusted returns. As shown on slide five, we delivered 5% general commercial loan growth on an annual basis, protecting solid nationwide growth. Disperforming supports 11% average annual loan growth in the strategically targeted category over the last five years.

Speaker Change: Jeremy and his team has completed a deep dive of our unsatisfactory portfolio.

Personal view their assessment here outside of the two loans as noted we continue to see structures that are consistent with a strong historical practices and provide good optionality to resolve the unsatisfactory loans. This gives me confidence that our credit losses will return towards our normal historical range in Q4.

Speaker Change: We maintain our very disciplined approach to loan growth to optimize our risk adjusted returns as shown on slide five we delivered 5% general commercial loan growth on an annual basis, reflecting solid nationwide growth.

Speaker Change: This performance supports 11% average annual loan growth in the strategically targeted category.

The last five years.

Speaker Change: General commercial clients continues to represent a significant opportunity for CDW to provide our full suite of lending and business banking services and increase our revenues through lower cost deposits transactional services wealth management opportunities.

Christopher Fowler: General significant opportunity for CWB to provide our full swing of lending and business banking services and increase our revenues through lower cost deposits, transactional service fees, and wealth management opportunities. Our highly disciplined lending approach has also resulted in selective originations in our combined commercial real estate portfolio. So again, this question: commercial mortgage is declined 8% from last year, with new origination volume more than offset by scheduled three payments and loan payouts, as fewer re-lending opportunities met or risk-adjusted return expectations. Real estate project loans also decreased 4% from last year, as a lower than user volume that new project starts from our top tier borrowers with more offset by payouts associated with project publications.

Speaker Change: Our highly disciplined lending approach has also resulted in selective originations in our combined commercial real estate.

Speaker Change: Portfolios again this question commercial mortgages declined 8% from last year with new origination volume more than offset by scheduled repayments and loan payouts as fewer lending opportunities met our risk adjusted return expectations.

Speaker Change: Estate project loans also decreased 4% from last year as our Lord and diesel volume New project starts from our top tier borrowers this more than offset by payoffs associated with project completions subsea.

Christopher Fowler: Subsequently, we're seeing growing momentum in real estate project lending activity, and we delivered 3% growth over Q2. The credit performance in both portfolios remains strong and reflects our proven risk appetite and underwriting standards that have supported our long history of strong credit performance. As we look forward, our teams remain focused on delivering differentiated client service and profitable growth. We expect continued sequential loan growth in the final quarter of the year with interdisciplinary risk appetite and risk-adjusted pricing framework.

Speaker Change: Subsequently, we're seeing growing momentum in real estate budget planning activity and we delivered 3% growth over Q2.

Speaker Change: The credit performance in both portfolios remains strong and reflects our prudent risk appetite and underwriting standards that has supported our long history of strong credit performance.

Speaker Change: As we look forward our teams remain focused on delivering differentiated client service and possible growth.

Speaker Change: We expect continued sequential loan growth in the final quarter of the year within our disciplined risk appetite and risk adjusted pricing framework.

Matt Rudd: I'll now turn the call over to Matt, who will discuss our funding and provide greater detail on our third quarter financial performance. Thanks, Chris. Morning, everyone.

Speaker Change: I'll now turn the call over to Matt, who will discuss our funding and provide greater detail on our third quarter financial performance. Thanks, Chris Good morning, everyone I'm starting on slide seven.

Matt Rudd: I'm starting on slide 7. On an annual basis, franchise deposits remain relatively consistent. Sixteen percent increase in term deposits was offset by 7% decline in demand and notice deposits. Lower demand and notice deposits primarily reflected a reduction in existing customer account balances as clients have deployed excess savings over the past year. Requires that have retained excess savings. We noted a continued preference for term deposits in the current rate environment. How will market deposits decrease 9%? Several senior deposit note maturities were replaced with broker source term deposits. That was due to the lower relative costs of those deposits at that time.

Matt: Annual basis franchise deposits remained relatively consistent 16% increase in term deposits was offset by a 7% decline in demand and notice deposits.

Speaker Change: Lower demand and notice deposits, primarily reflected a reduction in existing customer account balances clients deployed excess savings over the past year.

Speaker Change: For clients that have retained excess savings. We noted a continued preference for term deposits in the current rate environment.

Speaker Change: Little market deposits decreased 9% several senior deposit note maturities will replace with broker source term deposits.

Speaker Change: Due to the lower relative cost of those deposits at that time.

Matt Rudd: Broker term deposits remain relatively consistent with the prior year. On a sequential basis, franchise deposits increased 1%; that was primarily driven by a 3% increase in term deposits. Demand and notice deposits remain relatively consistent with the prior quarter. Capital Market Deposits increased 13% while broker deposits remained relatively flat, as we optimized our use of funding channels to reduce our overall funding costs this quarter. We've spent franchise deposit growth to remain approximately flat for the fourth quarter. We'll continue to optimize our funding costs using our broad range of channels to support further expansion of our net interest margin.

Speaker Change: Broker term deposits remained relatively consistent with the prior year.

Speaker Change: On a sequential basis franchise deposits increased 1%, primarily driven by a 3% increase in term deposits.

Speaker Change: And notice deposits remained relatively consistent with the prior quarter.

Speaker Change: Capital market deposits increased 13%, while broker deposits remained relatively flat as we optimized our use of funding channels to reduce our overall funding cost this quarter.

Speaker Change: We expect franchise deposit growth to remain approximately flat for the fourth quarter, we will continue to optimize our funding costs using our broad range of channels to support further expansion of our net interest margin.

Matt Rudd: Our performance compared to the same quarter last year is shown on slide 8. We incurred additional costs this quarter that are directly associated with the potential national bank transaction. These costs had a 15-cent negative impact on diluted earnings per share, but have been removed from our adjusted performance metrics. Adjusted earnings per share decreased 28 cents from the prior year; now is driven entirely by a higher provision for credit losses. In the prior year, our provision for credit losses of 16 basis points was below our historic range of 18-23 basis points, and in the current quarter, as Chris discussed, our provision for credit losses was significantly on the side of our normal historic range, driven primarily by the two credit losses.

Speaker Change: Our performance compared to the same quarter last year as shown on slide eight.

Speaker Change: We incurred additional costs this quarter that are directly associated with potential National Bank transaction. These.

Speaker Change: These costs had a <unk> <unk> negative impact on diluted earnings per share, but have been removed from our adjusted performance metrics.

Speaker Change: Adjusted earnings per share decreased 28 from the prior year that was driven entirely by a higher provision for credit losses.

Chris: In the prior year, our provision for credit losses of 16 basis points was below our historic range of 18 to 23 basis points and in the current quarter as Chris discussed our provision for credit losses was significantly outside of our normal historic range, driven primarily by two credit losses.

Matt Rudd: Outside of the increase in credit losses this quarter, our operating performance was solid. Road to revenue contributed 11 cents and will pace the 7 cents. Earnings per share declined from the growth and adjusted non-interest expenses. Within our revenue, higher net interest income increased earnings per share by nine cents, and that was primarily due to a 12 basis point increase in net interest margin. Higher non-interest income contributed two cents. Our higher non-interest expenses were primarily associated with the opening of our new Toronto financial district and kitchen or banking centers, and increase in deposit insurance costs and the investment in our digital capabilities.

Chris: Outside of the increase in credit losses this quarter, our operating performance was solid.

Chris: Growth in revenue contributed 11 cents and outpaced the seven <unk> earnings per share declined from the growth in adjusted noninterest expenses.

Chris: Within our revenue higher net interest income increased earnings per share by <unk> <unk>.

Chris: And that was primarily due to a 12 basis point increase in net interest margin.

Chris: Our noninterest income contributed <unk> <unk>.

Chris: Our higher noninterest expenses were primarily associated with the opening of our new Toronto Financial District, and kitchen, our banking centers and increase in deposit insurance costs and the investment in our digital capabilities.

Matt Rudd: Higher preferred share dividend distributions reduced earnings per share by one cent.

Higher preferred share dividend distributions reduced earnings per share by <unk>.

Matt Rudd: The prior quarter EPS comparison is shown on slide time. The decline in diluted EPS again included a 15 cent impact from cost directly associated with potential national bank transaction. Adjusted earnings per share decreased 21 cents from the prior quarter, driven by the increased credit losses recognized this quarter that we've already discussed. Strong sequential growth and net interest income increased earnings per share by 11 cents, while lower non-interest income reduced EPS by one cent. EPS contribution from higher total revenue of 10 cents will pace the impact of higher adjusted non-interest expenses, which reduced EPS by five cents.

Chris: The prior quarter EPS comparison as shown on slide nine.

Climate diluted EPS again included a <unk> <unk> impact from cost directly associated with potential National Bank transaction adjusted.

Chris: Adjusted earnings per share decreased 21, SaaS from the prior quarter driven by the increased credit losses recognized this quarter that we've already discussed.

Chris: Strong sequential growth in net interest income increased earnings per share by <unk> 11.

Chris: Although our noninterest income reduced EPS by <unk> <unk>.

Chris: <unk> contribution from higher total revenue of 10 cents outpaced the impact of higher adjusted noninterest expenses, which reduced EPS by <unk> <unk>.

Matt Rudd: Other items reduced EPS by two cents and primarily reflected the usual increase in LRCN distributions between second and third quarter and an increase in the effective tax rate, but that was primarily due to the impact of one-time adjustments that reduced our effective tax rate last quarter.

Chris: Other items reduced EPS by <unk> <unk>, primarily reflected the usual increase in LR CN distributions between second and third quarter and an increase in the effective tax rate, but that was primarily due to the impact of one time adjustments that reduced our effective tax rate last quarter.

Matt Rudd: The shown on slide time revenue was higher on a sequential basis. Higher revenue reflected a 6 percent increase in net interest income, partially offset by a 4 percent increase in non-interest income. Lower non-interest income was driven by reductions in the fair value of select debt securities and lower foreign exchange income. That was partially offset by higher credit-related and wealth management fees. An interest margin increased 9 basis points from the prior quarter. NIN benefited from the 6 basis point impact of higher fixed term asset yields, which continued to outpace the growth and fixed term funding costs.

As shown on slide 10 revenue was higher on a sequential basis.

Chris: Higher revenue reflected a 6% increase in net interest income, partially offset by a 4% decrease in noninterest income.

Speaker Change: Core non interest income was driven by reductions in the fair value of select debt securities and lower foreign exchange income.

Speaker Change: Partially offset by higher credit related and wealth management fees.

Speaker Change: Net interest margin increased nine basis points from the prior quarter.

Speaker Change: <unk> benefited from a six basis point impact of higher fixed term asset yields which continued to outpace the growth in fixed term funding costs.

Matt Rudd: and improved asset mix provided a five basis point benefit to them. That was reflective of loan growth that was targeted to optimize our risk adjusted returns, and we had lower averaged liquidity this quarter. These benefits were partially offset by lower loan-related fees, which reduced interest margin by two basis points. We did optimize risk-adjusted returns while we maintain our focus on funding optimization.

Speaker Change: An improved asset mix provided a five basis point benefit to NIM as reflective of loan growth that was targeted to optimize our risk adjusted returns and we had lower average liquidity this quarter.

Speaker Change: These benefits were partially offset by lower loan related fees, which reduced net interest margin by two basis points.

Speaker Change: The 50 basis points of bank of Canada policy rate decreases this quarter had a negligible impact to our hand.

Speaker Change: We expect continued growth in net interest margin in the fourth quarter driven by loan growth targeted to optimize risk adjusted returns, while we maintain our focus on funding optimization.

Matt Rudd: The drivers of our sequential C-T-1 improvement are shown on slide 11. Our C-T-1 ratio increased 12 basis points to approximately 10.2% this quarter. The resiliency of our regulatory capital was demonstrated this quarter. Our pre-provision earnings absorb credit losses that were significantly outside of our historic range and generated sufficient capital to support the targeted growth of our economy. The main driver of the increase in our capital ratios this quarter was the increase in fair value debt securities and our liquidity portfolio, which are recognized in other comprehensive income.

Speaker Change: The drivers of our sequential CET one improvement are shown on slide 11, our CET one ratio increased 12 basis points to approximately 10, 2% this quarter.

<unk>, our regulatory capital was demonstrated this quarter, our pre provision earnings absorb credit losses that were significantly outside of our historic range and generated sufficient capital to support the targeted growth of our assets. The main driver of the increase in our capital ratios. This quarter was the increase in fair value debt securities and our liquidity.

Speaker Change: Which are recognized in other comprehensive income.

Matt Rudd: Our board declared a common share dividend yesterday of 35 cents per share, which is consistent with the dividend declared last quarter and up to two cents from the dividend declared last year.

Carolina: Our board declared a common share dividend yesterday of <unk> 35 per share consistent with the dividend declared last quarter and up <unk> <unk> from the dividend declared last year I'll now turn the call over to Carolina, who will speak to our credit performance.

Carolina Parra: I'll now turn the call over to Carolina. We'll speak to our credit performance. Thank you, Matt, and good morning, everyone.

Carolina: Thank you, Matt and good morning, everyone.

Carolina Parra: I will begin my remarks on Slide 13. Total growth in per loans represented 124 basis points of gross loans, which is 24 basis points higher than last quarter. The increase in growth in per loans was driven by new formations of in per loans of 170 million dollars this quarter, reflecting the impact of sustained higher interest rates overall economic conditions. And for two individual exposures for a specific circumstances that were related to economic conditions unrelated to economic conditions. Excluding these two files, our portfolios continued to perform as expected in the current economic environment as outlined last quarter.

Speaker Change: In my remarks on slide 13.

Carolina: Total gross impaired loans represented 124 basis points of cross slopes, which is 24 basis points higher than last quarter.

Carolina: The increase in gross impaired loans was driven by new formations of impaired loans of $170 million this quarter, reflecting the impact of sustained higher interest rates overall economic conditions on slide two individual exposures borrowers specific circumstances.

Carolina: And then to economic conditions unrelated.

Carolina: Unrelated to economic conditions.

Speaker Change: These two files.

Speaker Change: He has continued to perform as expected.

Speaker Change: Current economic environment as outlined last quarter.

Carolina Parra: As Chris discussed, we have completed a deep dive of our unsatisfactory portfolio, and we continue to see prudent loans and values, and good optionality to resolve these exposures. These supports and confidence that our strong credit risk management framework will continue to be effective in minimizing realized losses on the resolutions of impaired loans. As shown on slide 14, the performing loan allowance increased 2% sequentially, primarily reflecting the larger loan balances and higher default rates, and partially upset by improvements in the forecasted micro economic conditions. The total provision for credit losses was 59 basis points. The current quarter impaired loan provision for credit losses represented 57 basis points, reflecting 33 basis points increased from the prior quarter, which primarily reflected two specific exposures that we have previously discussed.

Speaker Change: As Chris discussed we have completed deep dive of our onsite factoring portfolio and we continue to see prudent loan to values and good optionality to resolve this exposures.

Chris: This supports our confidence that our strong credit risk management framework will continue to be effective in minimizing realized losses on the resolutions of impaired loans.

Speaker Change: As shown on slide 14.

Speaker Change: Forming loan allowance increased 2% sequentially, primarily reflecting the larger loan balances and the higher default rates, partially offset by improvements in the forecasted macroeconomic conditions.

Speaker Change: The total provision for credit losses was 59 basis points.

Speaker Change: Current quarter impaired loan provision for credit losses.

Speaker Change: 57 basis points, reflecting at 33 basis points increase from the prior quarter, which primarily reflecting two specific exposures that we have previously discussed.

Carolina Parra: Outside of these exposures, our credit performance this quarter was relatively consistent with the prior quarter and reflected increased order of default rates and the emergence of lower than expected realization values, which increase the impaired loan provision for credit loss.

Speaker Change: Outside of these exposures and credit performance this quarter was relatively consistent with the prior quarter and reflected increased borrower default rates.

Speaker Change: Margins are lower than expected realization bodies, which increased the provision for credit losses.

Carolina Parra: Census. Looking forward, the sustained impact of higher interest rates in the current economic environment is expected to continue to result in elevated border default rates and impaired law formations over the remainder of the year. Despite the unusually large provisions for credit losses in the third quarter, our Putin landing approach supports our expectations that our provisions for credit losses will trend towards our normal historical range in the fourth quarter.

Speaker Change: Looking forward the sustained impact of higher interest rates and the current economic environment is expected to continue to result in elevated borrower default rates.

Speaker Change: Formations over the remainder of the year.

Despite the unusually large provisions for credit losses in the third quarter, our prudent lending approach supports our expectations our provisions for credit losses will trend towards our normal historical range in the fourth quarter.

Christopher Fowler: I will now turn the call back to Chris Fowler or use close to remarks and outlook. Thank you, Carolina. Turning to slide 16. As we move into the bottom quarter of the year, our teams remain focused on delivering differentiated client service and profitable growth. Through their efforts, we anticipate continued targeted sequential loan growth, a few four that optimizes risk-adjusted returns. Combined continued funding optimization using our broad version of channels, we expect continued expansion of our net interest margin in the fourth quarter of the year. Provening no significant adverse shift in the macroeconomic environment, we expect adjusted earnings per comment share in the range of 86 cents to 91 cents in the fourth quarter and for our operating level distributed approximately neutral on a quarterly basis.

Speaker Change: I will now turn the call back to Chris.

Chris: His closing remarks and outlook.

Chris: Thank you Carolina, turning to slide 16, as you move into the final quarter of the year. Our teams remain focused on delivering differentiated client service and profitable growth.

Chris: Their efforts, we anticipate continued targeted sequential loan growth Q4 that optimizes risk adjusted returns.

Chris: Combined with continued funding optimization using our progress with channels we expense.

Chris: <unk> continued expansion of our net interest margin in the fourth quarter of the year.

Chris: Presuming no significant adverse shift in the macroeconomic environment, we expect adjusted earnings per common share in the range of 86 to 91 SaaS in the fourth quarter and for our operating leverage to be approximately neutral on a quarterly basis.

Christopher Fowler: Turning to slide 16. During the quarter, we announced that CWB has entered into a definitive agreement to be acquired by National Bank. Over the last four decades, we've developed an attractive banking franchise with a reputation for exceptional service, with deep customer relationships across a number of priority industries and service lines. We're confident that the transaction with National Bank of Canada will create incredible value for our clients, teams, communities, and our shareholders. Together, we can offer Canadians more choice by combining CWB's legacy of servicing business owners and their families with National Bank's scale, complementary market expertise, and technological capabilities necessary to accelerate our growth.

Chris: Turning to slide 16 during the quarter, we announced the CWT has entered into definitive agreement to be acquired by National Bank.

Speaker Change: Over the last four decades, we've developed an attractive banking franchise with a reputation for exceptional service with deep customer relationships across a number of priority industries and service lines.

Speaker Change: We're confident that the transaction with National Bank of Canada will create incredible value for our clients teams communities and our shareholders together, we can offer Canadians more choice by combining cwt's legacy servicing business owners and their families with national banks scale complementary market expertise.

Speaker Change: Technological capabilities necessary to accelerate our growth.

Christopher Fowler: I look forward to our special medium comment shareholders that will take place next week on September 3rd, where shareholders will finalize the vote on resolution related to this exciting transaction.

Speaker Change: I look forward to our special meeting of common shareholders that will take place next week on September 3rd our shareholders, we'll finalize the vote on resolution related to this exciting transaction.

Chris Williams: With that operator, let's open the lines for Q&A. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touchstone phone. You will hear a three-tone prompt acknowledging your request. If you would like to withdraw your question, please press star followed by two.

With that operator, let's open the lines for Q&A.

Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone.

Speaker Change: Actually Tom from technology and your request.

I would like to withdraw your question. Please press star followed by chip.

Chris Williams: And if you are using a speaker phone, please flip the hands up before pressing any keys.

Speaker Change: And if you are using a speaker phone please buybacks before pressing any case.

Paul Holden: Your first question comes from Paul Holden at CIBC. Please go ahead. Hi, can you hear me okay?

Speaker Change: Your first question comes from Paul Holden CIBC. Please go ahead.

Paul Holden: Hi can you can you hear me okay.

Matt Rudd: Yes, it's great, Paul. Okay, sorry about that. So obviously, got a lot we're going to ask on the entire PCL's. Can you give me an idea of the proportion of impaired that were specifically related to those two loans you referred to?

Speaker Change: Yes, that's great Paul Okay, sorry about that.

Speaker Change: It's obviously got a lot to ask on the impaired piece.

Speaker Change: <unk> can you give me an idea of the proportion of pared that were specifically related to those two loans you referred to.

Matt Rudd: Hi, Paul. I'm sure. So, on the entire perspective, a limited portion of the impaired were specific to these loans. On the about. Out, about 20% of that was specific to these two loans that we're seeing here. The other size of the impact, Paul, it wasn't necessarily the size of the exposures. It was the size of the provision for losses. It was about 30 basis points or so of our total impaired PCL related to these two exposures.

Speaker Change: Sure.

Speaker Change: I think our perspective.

Speaker Change: And limited question of being Tamara specific to these problems.

Speaker Change: Only about.

Speaker Change: Okay.

Speaker Change: About 20% plus.

Speaker Change: Specific to these two loans that we are still here.

Speaker Change: The outsized impact Paul it wasn't necessarily the size of the exposures. There was the size of the provision for losses. It was about 30 basis points or so of our total.

Speaker Change: Third PCL related to these two exposures.

Matt Rudd: Okay, that's the total. Thanks, Matt.

Speaker Change: Got it okay.

Matt: Helpful. Thanks, Matt.

Matt Rudd: And then can give some better understanding sort of the nature of the collateral behind those two loans or maybe what industry sectors those were related to just to get a better sense of why the asset values may be lower than you originally expecting. So really, the change in the values and what occurred was really, really specific to the two borrowers. It was not related to the actual value, like the actual specific asset or the collateral.

Speaker Change: And then can you give us a better understanding sort of the nature of the <unk>.

Speaker Change: Collateral behind those two loans or maybe what.

Speaker Change: Industry sectors, those were related to just to get a better sense.

Speaker Change: Why the asset values neighbor were lower than you originally expected.

Speaker Change: So.

Speaker Change: Clearly they've changed the values and watercraft, which.

Really really specific to the two borrowers.

Speaker Change: It was not related to the actual value like the actual specific asset the collateral.

Matt Rudd: There were unusual operational matters that combined with a recovery process that took a turn that we were not expected, impacted the final recovery. So it was very specific circumstances to the borrowers. And there's no really underlying trend or industry or geography specific in these two cases. It was really just in credit to the two borrowers. Okay, understood.

Speaker Change: There were unusual operational matters.

Speaker Change: Combined with that recovery process that took a turn that we were not expected in <unk>.

Speaker Change: And the final recovery so.

Speaker Change: Very specific circumstances.

Speaker Change: To the borrower.

Speaker Change: And.

Speaker Change: There is no really underline trend or industry or geography specific in these two cases it was.

Speaker Change: India Synchronic two two the two borrowers.

Speaker Change: Okay understood.

Matt Rudd: But then can you give us the two sectors that related to those two loans though? And then these loans were in our general commercial law. And sort of, you know, these are loans we secure with general security agreements, mortgages, personal guarantees. So it's a normal security package from Take.

Speaker Change: You gave us the two the two sectors relate.

Speaker Change: Related to those two loans.

Speaker Change: And the results were in our general commercial book and sort of.

Speaker Change: These are loans, we secure with German security agreements.

Speaker Change: Mortgages.

Speaker Change: Guaranteed.

Normal security products can take.

Matt Rudd: And as Carolina said, these were kind of ideas of kind of outcomes from the resolution of these loans that we haven't encountered before. There was their very unusual circumstances, and they don't reflect how we anticipate the balance of the loan portfolio to manage. Understood.

Speaker Change: Yes. Currently have said these were kind of idiosyncratic outcomes from the resolution of these loans that we have.

Speaker Change: Encountered before that which they're very unusual circumstances and they don't reflect how we anticipate the balance of the loan portfolio to advantage.

Speaker Change: Okay understood.

Matt Rudd: I'll ask two more questions unrelated. First, in terms of slowing loan growth, just want to clarify that that's due to a slower pace of originations and unrelated to sort of any kind of customer attrition. Okay. I say that's a fair assessment. You can see that within the commercial mortgage portfolio, we're still being highly selective, and that portfolio is reducing. But overall, I'd say again, kind of across business lines, across geographies. There was, you know, probably a little bit slower place of origination than we might have anticipated previously, but it's been pretty steady and also increasing a bit, and we see that kind of carrying through into Q4.

Speaker Change: Ross.

Speaker Change: Two more questions unrelated first in terms of slowing loan growth just wanted to clarify that thats due to a slower pace of originations.

Speaker Change: And unrelated to sort of any kind of customer attrition.

Ross: I'd say, that's a fair.

Speaker Change: We estimate.

Speaker Change: Thank you can see that within the commercial mortgage portfolio were still being highly selective in Florida portfolio.

Speaker Change: Is reducing but overall I'd say again kind of across business lines across geographies there was no.

Speaker Change: Probably.

Speaker Change: A little bit slower place of origination.

Speaker Change: Anticipated previously, but it's been pretty steady and also increasing a bit and we see that kind of carrying through into Q4. So we do see kind of steady.

Matt Rudd: So, you know, we do see kind of steady momentum there.

Speaker Change: Sure.

Speaker Change: Momentum there.

Matt Rudd: Yeah, but hopefully those be highlighted for growth last quarter, Paul, like we would have signal general commercial. I mean, that was up to percent sequentially equipment. We liked and we're targeting that was up to percent. And we had signal the project lending increase and the opportunities there for those projects. It's finally getting started in our borrower scene conditions. They liked that was up 3% where we saw contraction. It's even mentioned it was commercial mortgages. We had hoped that would be more flatter. And we were down 2% personal mortgages. I think a consistent theme, but we were down 1%.

Paul Holden: As we highlighted for growth last quarter, Paul like we would've signal general commercial was up 2% sequentially equipment, we liked and were targeting that was up 2%.

Paul Holden: And we had signaled the the project lending.

Paul Holden: Increase of your opportunities there for those projects. It's finally getting started in all of our borrowers seeing conditions. They like that was up 3%.

Paul Holden: Where we saw contraction as Stephen mentioned it was commercial mortgages, we had hoped that would be more flatter.

Speaker Change: We were down 2%.

Speaker Change: Personal mortgages I think a consistent theme, but we were down 1%.

Matt Rudd: And then we saw some payouts in our oil and gas portfolio. And those are just very healthy borrowers due leveraging. So we were down in those. So the portfolios we wanted to grow.

Speaker Change: And then we saw some payouts in our oil and gas portfolio.

Speaker Change: These are just very healthy borrowers daily deleveraging. So we were down in those so the portfolio is we wanted to grow and I think we're pretty close to where we want it to be just.

Matt Rudd: And I think we were pretty close to where we wanted to be; just those other portfolios, to Steven's point, highly selective and saving our bullets for the right risk of yesterday. Returns. Okay, okay, that's helpful.

Steve: Those other portfolios to Steve is quite highly selective and <unk>.

Steve: Saving our bullets for the right risk adjusted returns.

Okay. Okay, that's helpful and I'll sneak one more in there.

Matt Rudd: I want to sneak one more in there.

Matt Rudd: Just in terms of expense grows, how should we think about the way you might be managing expenses or the requirement in ongoing investments over the next 12 months? Not asking for specific guidance, but just sort of I would assume the pace of investments slows given everything you've done in the last several years and the depending transaction, but maybe just clarify, that's the right assumption: pace of expense growth slows in the next 12 months, or if you have something else in mind. Yeah, the structurally what we had set up, following the reorganization we did at the end of last year, was doing a broad shuffle in our investment profile and redirecting expenses from that kind of backend and that investment trajectory into supporting growth and service with our clients.

Speaker Change: Just in terms of expense growth, how should we think about the way you might be managing expenses or the requirement.

Speaker Change: Ongoing investments over the next 12 months not asking for specific guidance, but.

Speaker Change: Just sort of I would assume the pace of investments slows given everything you've done in the last several years and the pending transaction, but.

Speaker Change: Maybe just clarify if that's the right assumption pace of expense growth slows over the next 12 months or if you have something else in mind.

Speaker Change: Yes, the structurally what we had set up following the reorganization we did at the end of last year.

Speaker Change: Do we need a broad shuffle in our investment profile and redirecting.

Speaker Change: Expenses from that kind of back end and not investment trajectory into supporting growth in service with our clients.

Matt Rudd: And the intent there was to set up for structural ongoing positive operating leverage, and this year, and we're obviously in good shape to do that. Expense growth, sort of in that mid single digit range as we had expected, with more revenue growth, and that's a theme we had structurally set up to continue, just really picking our spots on the investment, but a lot of those heavy lifts being done. And the investments being made to support the ongoing growth of the business was our priority, and that's how we had structured and targeted, and our view on that hasn't changed.

Speaker Change: And the intent there was to set up for structural ongoing positive operating leverage and this year. We're obviously in good shape to do that expense growth sort of in that mid single digit range as we had expected with more revenue growth.

Speaker Change: And that's a theme we had structurally set up to continue just really picking our spots on on the investment, but a lot of those heavy lifting being done and the investments being made to support the ongoing growth of the business was our priority and thats.

Speaker Change: We had structured and targeted in our view on that hasn't changed.

Matt Rudd: Okay, thanks for your time.

Speaker Change: Got it got it okay. Thanks for your time.

Speaker Change: Yeah.

Matt Rudd: Thank you.

Speaker Change: Thank you next question comes from many Goldman at Scotia Bank. Please go ahead.

Manny Grohmann: Next question comes from Manny Grohmann at Skillshare Bank. Please go ahead. Hi, good morning. Just to follow up on the topic of the expected the lower expected realization values. Is this fraud related?

Meny Goldman: Hi, good morning, just to follow up on the.

Meny Goldman: Topic of the expected lower expected realization values.

Mandy Goldman: Is this fraud related.

Matt Rudd: No, it has nothing to do with fraud enough.

Speaker Change: No it has nothing to do with fraud.

Matt Rudd: Okay, because I'm just, you know, your answer to Paul, I'm just trying to figure out how to make sense of sort of the description that you're saying. I appreciate you don't know what you don't know, but I guess what we're trying to get at is just what gives you the confidence that this surprised you. So what gives you the confidence that you can't be surprised again, that somehow the collateral values that you are counting on will be there going forward for other loans.

Speaker Change: Okay, because im just on your answer to Paul I'm, just trying to figure out how.

Speaker Change: How do we make sense of sort of the description that you are seeing I. Appreciate you don't know what you don't know but.

Speaker Change: I guess, what we're trying to get at is just.

Speaker Change: What gives you the confidence that.

Speaker Change: This surprise you so what gives you the confidence.

Speaker Change: You can't be surprised again that somehow the collateral values that you are counting on will be there going forward for other loans.

Matt Rudd: Yeah, I know it's a very question; many are underwriting and resolution processes. You know, I have been historically very strong and really limited losses in sort of history of our operations. And the resolutions on these two credits just don't look like the rest of the book. And we don't see any evidence in that, you know, this would be the result of the other impairments in watchless loans we have in our book, and our lending model has not changed. So, as we think about Q4 and forward, we do expect our losses to reduce and move towards our historic range.

Speaker Change: Yes.

Manny: Fair question Manny.

Manny: They're writing and resolution processes.

Manny: Have been historically very strong and risks limited losses.

Speaker Change: So the history of our operations and the resolutions on these two credits just don't look like the rest of the book and we don't see any evidence in that.

Speaker Change: This would be the result of the other airlines in Washington as long as we have in our book and our lending model has not changed so as we think about Q4 and forward, we do expect our losses to produce and move towards our historic range and we just think these are.

Matt Rudd: And we just think these are, as we've aroused a reason, I should say, they're extraordinary for what our experiences and they don't reflect the rest of our book.

Steve Ross: Steve Ross.

Steve Ross: I should say they are extraordinary for what our experience is they don't reflect the rest of our book.

Manny Grohmann: That's clear. Thanks so much.

Speaker Change: That's clear thanks, so much.

Manny Grohmann: Thank you.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Thank you. The next question comes from Stephen Boland at Raymond James. Please go ahead.

Stephen Boland: The next question comes from Stephen Boland at Raymond James. Please go ahead. Hi, first question. Just a slight change in the language about the timing of the closing of the acquisition. When it was announced, it was going to be at the end of 2025. Now the language has changed just sometime in 2025. I'm just wondering what was the cause of that change? Was there any discussions with the regulators that prompted that language change? Pretty subtle tweak. I'm not sure it means anything too substantially different. It's still pretty early days on all these processes. And we continue to work through them and support them.

Stephen Boland: Hi, first question just there is a slight change in the language about the timing of the closing of the acquisition.

When it was announced it is going to be at the end of 2025 notes. The language has changed just sometime in 2025 I'm. Just wondering what was the cause of that change was there any discussions with the regulators.

Stephen Boland: That prompted that language change.

Yes pretty subtle tweak.

Speaker Change: I'm not sure it means anything to substantially different it's still pretty early days on all of these processes and we continue to work through them and support them. So I think.

Christopher Fowler: So I think it's still a pretty broad range. In 2025, and the broadness of that range, I think reflects the variability as you're working through some of these regulatory outcomes that, of course, we can't predict and are still pretty early days to offer really any additional insight. So I think that'll be to come as we work through the process. Okay.

Speaker Change: It's still a pretty broad range of Youre thinking 2025, and the broadness of that range I think reflects.

Speaker Change: The variability as Youre working through some of these regulatory outcome to Scott of course, we can't predict and are still pretty early days to offer really any additional insight. So.

Speaker Change: That'll be to come as we work through the process.

Okay.

Christopher Fowler: I'm just curious now how much interaction there is between the two banks in terms of the transition. Are you meeting regularly, or are there transition teams in place? Are they meeting regularly at this point, or is there a plan for that? That's where we're at. We're creating a plan for what comes next. We've obviously got some steps to occur. We've got, as I mentioned, on the opening remarks, we've got the special meeting this coming up on Tuesday here in Evanston for shareholders. Then we have the regulatory reviews around our way, with the competition bureau. Austin need to work in the finance, and I'll ultimately up to the minister of finance.

Speaker Change: I'm just curious to know how much interaction there is between the two banks in terms of the transition.

Speaker Change: Are you meeting regularly yours or transition teams in place are they meeting regularly.

Joanna: Good morning, my name is Joanna, and I will be your conference operator today.

Chris Williams: At this time, I would like to welcome everyone to Seedbley Bees, Third Quarter 2024 Financial Results Conference Call and Webcast. All lines have been placed on mute to prevent any background noise.

Speaker Change: At this point or is there a plan for that.

Speaker Change: That's where we're at we're creating the plan for what comes next.

Speaker Change: We've obviously got some steps to to occur we've got.

Chris Williams: After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two.

Speaker Change: As I mentioned on the opening remarks, we've got the special meeting that's coming up on Tuesday here for shareholders. Then we got the regulatory reviews are underway with the competition Bureau, Osophy Department signed apps and ultimately up to the minister of finance. So there's lots of work for that to occur and then as we move along well.

Chris Williams: Thank you, I will turn the call over to Chris Williams, Assistant Vice President and Vester Relations. Please go ahead, Chris.

Christopher Fowler: So there's lots of work for that to occur. And then, as we move along, we'll continue to drive how that integration strategy would work, and we'll look forward to providing an update when we're able to. Okay.

Chris Fowler: Good morning and welcome to our Third Quarter 2024 Financial Results Conference Call. We'll begin this morning's presentation with opening remarks from Chris Fowler, President and Chief Executive Officer, followed by Matt Rudd, Chief Financial Officer, and Carolina Parra Chief Risk Officer. Also present today are Stephen Murphy, Blue Pegg, Commercial, Personal, and Wealth, and Jeff Wright, Group Head, Fine Solutions, and Specialty Businesses. After prepared remarks, they will be available to take your questions. As noted on slide two, statements may be made on this call that are for looking in nature, which involve assumptions that have an air at risk and uncertainties.

Speaker Change: <unk>.

Speaker Change: Drive Hal data integration strategy would work and we will look forward to providing you an update when we're able to.

Speaker Change: Okay, and maybe just a part b on that.

Christopher Fowler: And maybe just a part B on that. I just want to be clear that as of right now, like has National Bank. I know you have a duty to your customers and obviously the shareholders, but does National Bank have any influence on your decision making at this point in terms of new product launches, spending, anything to that. Just in terms of looking at how much influence there is right now, if any. Well, today we're two separate banks, and we certainly anticipate offering lots of value on closing, and we've got the transaction agreement we're following, but we are operating as two separate banks.

Speaker Change: Just wanted to be clear that as of right now has national bank.

Speaker Change: I know you have a duty to your customers and obviously the shareholders, but does national bank have any influence on your decision, making at this point in terms of new product launches spending.

Speaker Change: Anything to that.

Speaker Change: Just in terms of looking at how much influence there is right now if any.

Speaker Change: Well today, we are two separate banks and we certainly anticipate offering lots of value on closing and we've got the transaction agreement. We're following but we are operating as two separate banks.

Chris Fowler: After results could differ materially from these statements, I would also remind listeners that bank, the bank uses non-gaft financial measures to arrive at adjusted results, management measures performance on a reported and adjusted basis, and considers both to be useful in assessing underlying business performance.

Christopher Fowler: Okay. Let's seems pretty clear. Thanks.

Speaker Change: Okay, well it seems pretty clear.

Chris Williams: Thank you, ladies and gentlemen. As a reminder, should you have any questions? Please press star one.

Speaker Change: Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.

Nigel D'Souza: Next question comes from Nigel D'Souza, a British investment research. Please go ahead. Thank you. Good morning.

Speaker Change: Next question comes from Nigel D'souza at Fairless investment Research. Please go ahead.

Speaker Change: Thank you good morning, I wanted to circle back on your provisions this quarter and I think it's important given that loss rate. This quarter is I believe higher than last year, you had any quarter during the financial crisis.

Matt Rudd: I wanted to circle back on your provisions this quarter, and I think it's important given that the loss rate this quarter is, I believe, higher than loss or you have any quarter during the financial crisis. I'm trying to just understand the recovery rates that impacted those provisions. It tells what your initial recovery rate assumption was and what it ended up being. And then this was a GSA. What was the.

Chris Fowler: I will now turn the call to Chris Fowler, who will begin his discussion on slide four.

Chris Fowler: Thank you, Chris, and good morning, everyone. Our teams delivered 4% growth of pre-tax pre-provision income in the third quarter due targeted loan growth and optimized funding that drove significant improvement in that interest margin. Our strong operating performance was more than offset by a significant increase in the provisioned for credit losses on a paired loans. The increase primarily related to two loans were borrower specific circumstances resulted in unusually large provisions for these specific exposures.

Speaker Change: I'm trying to just understand.

The recovery rates that impacted those provisions could you tell us what your initial recovery rate assumption was and then what it ended up being and then since this was a GSA what.

Speaker Change: It was the.

Matt Rudd: I guess, an effective underlying collateral, because I think you mentioned that it wasn't really the collateral value decline within operation, which is just declared that there would be helpful. So, on this specific, as we mentioned, the big impact in the look at the basis points of the 57 of losses, 30 were reflective of these loans. And the biggest big change when we look at what happened throughout the recovered process and everything, it just was a really decrease in the overall not specific as the value, but just like the recovery from the company perspective. And so we are still; this is a live process. We're still working on that.

Speaker Change: I guess effective underlying collateral because I think you mentioned that it wasn't really the collateral value decline was an operational issue. It's just some clarity there would be helpful.

Speaker Change: Okay.

Chris Fowler: Outside of these two exposures, the credit quality of report folios has evolved largely as anticipated. Coming into the quarter, we expected that the sustained impact of higher interest rates coupled with the current economic environment would result in elevated borrower default rates and impaired loan formations over the remainder of the year, and that remains consistent with our view looking forward into the fourth quarter. We were being confident in a secured lending model.

Speaker Change: So.

On the specifics.

Speaker Change: The big impact.

Speaker Change: Basis points from the 67.

Speaker Change: <unk> sorry.

Speaker Change: Reflecting these slots.

Speaker Change: And the big change.

Speaker Change: We look at.

Speaker Change: Happened throughout the day.

Speaker Change: The recovery process everything is.

Speaker Change: And we need decrease.

Speaker Change: Overall, not specific asset volume, but just like the recovery from the company perspective and so.

Chris Fowler: Our historic approach has been to manage our portfolio with secured loans that allow us to proactively work with clients through difficult periods, and this has been an effective approach to minimize realized losses on the resolution of impaired loans. Subsequent to the quarter end, we encountered unusual circumstances as we worked to resolve two impaired loans that resulted in a significant reduction in the expected value of our security. We appropriately adjusted our provisions for credit losses to reflect this new information in our Q3 financial results, which was primarily the cause of the increase in the provision for credit losses from the prior quarter.

We are still this is alive process, we're still working on that and what we are now reflecting.

Matt Rudd: And what we are now reflecting is our latest assessment with our most recent information of what that recovery will be, with a very prudent approach, a very conservative approach to what we have right now as collateral.

Speaker Change: Our latest with Stefan with our most recent information of what that recovery will be with a very prudent approach a very conservative approach to what we have right now as collateral.

Matt Rudd: And to clarify, the two files here, they're not to the same board; where these are two distinct separate borrowers that weren't affected. Yeah, two separate borrowers, no relation at all. And no relation for the underlying operation this year; they're just trying to understand that there's anything at all that's in common between these two files. No relation, no industry, no relation between the borrowers. They're very unique and specific, and there is no trend underlying any of them.

Speaker Change: And to clarify the two files here.

Speaker Change: Not to the same point, where these are two distinct separate borrowers that were impacted.

Yes, two separate borrowers no relation at all.

Chris Fowler: Care, Carolinas Team, that's completed a deep dive of our unsatisfactory portfolio and I'd personally review their assessment. Outside of the two loans noted, we continue to see structures that are consistent where there's strong historical practices and provide good optionality to resolve the unsatisfactory loans. This gives me confidence that our credit losses will return towards our normal historic range and Q4. We maintain our very disciplined approach to loan growth to optimize our risk and adjusted returns.

Speaker Change: No relation for the underlying operation of this either just trying to understand if there's anything at all that's in common between these two files.

Speaker Change: No relation knowing this not same industry no relation between the borrowers they are very unique and specific and there is no trends.

Speaker Change: Hello.

Nigel D'Souza: OK, so I'll just leave it out. You know, it would be helpful if you could understand if this is a cash flow based financing deal or I guess we'll all try and understand why the recovery is lower without assets' collateral value decline, but I'll leave it there and that's just for me. Thank you.

Speaker Change: Okay. So I'll just leave it that.

Speaker Change: Got it.

Speaker Change: It would be helpful. If you could.

Speaker Change: And extend if this is a cash flow based financing deal or.

Speaker Change: I guess, we're all trying to understand why the recovery rate is lower without assets collateral value declines, but I'll leave it there and that's it for me.

Chris Fowler: As shown on slide five, we delivered 5% general commercial loan growth on an annual basis, protecting solid nationwide growth. Disperforming supports 11% average annual loan growth in the strategically targeted category over the last five years. General significant opportunity for CWB to provide our full swing of lending and business banking services and increase our revenues through lower cost deposits, transactional service fees and wealth management opportunities. Our highly disciplined lending approach has also resulted in selective originations in our combined commercial real estate portfolio.

Speaker Change: Okay.

Speaker Change: Thank you. It appears there are no further questions I will turn the call back over to Chris Fowler for closing remarks.

Chris Williams: It appears there are no further questions.

Christopher Fowler: I'll turn the call back over to Chris Fowler for closing remarks. Thank you, Jordan. Thank you for joining us today.

Chris Fowler: Thank you Savannah.

Chris Fowler: For joining us today and look forward to talking to all again on December six when we report our fourth quarter financial results.

Christopher Fowler: I look forward to talking to all again on December 6th when we pour our fourth quarter finance for those.

Chris Williams: Have a great day.

Speaker Change: Good day.

Chris Williams: Ladies and gentlemen, this concludes your conference for today.

Speaker Change: Ladies and gentlemen. This concludes your conference for today, we thank you for participating and we ask that you. Please disconnect your lines.

Chris Fowler: So again, this question, commercial mortgage is declined 8% from last year with new origination volume more than offset by scheduled three payments and loan payouts as fewer re-lending opportunities met or risk adjusted return expectations. Real estate project loans also decreased 4% from last year as a lower than user volume that new project starts from our top tier borrowers with more than offset by payouts associated with project publications. Subsequently, we're seeing growing momentum in real estate project lending activity and we delivered 3% growth over Q2. The credit performance in both portfolios remains strong and reflects our proven risk appetite and underwriting standards that have supported our long history of strong credit performance.

Chris Fowler: As we look forward, our teams remain focused on delivering differentiated client service and profitable growth. We expect continued sequential loan growth in the final quarter of the year with interdisciplinary risk appetite and risk-adjusted pricing framework.

Matt Rudd: I'll now turn the call over to Matt, who will discuss our funding and provide greater detail on our third quarter financial performance. Thanks, Chris. Morning, everyone.

Matt Rudd: I'm starting on slide 7. On an annual basis, franchise deposits remain relatively consistent. Sixteen percent increase in term deposits was offset by 7% decline in demand and notice deposits. Lower demand and notice deposits primarily reflected a reduction in existing customer account balances as clients have deployed excess savings over the past year. Requires that have retained excess savings. We noted a continued preference for term deposits in the current rate environment. How will market deposits decrease 9%, several senior deposit note maturities were replaced with broker source term deposits.

Matt Rudd: That was due to the lower relative costs of those deposits at that time. Broker term deposits remain relatively consistent with the prior year. On a sequential basis, franchise deposits increased 1%, that was primarily driven by a 3% increase in term deposits. Demand and notice deposits remain relatively consistent with the prior quarter. Capital Market Deposits increased 13% while broker deposits remained relatively flat, as we optimized our use of funding channels to reduce our overall funding costs this quarter. We've spent franchise deposit growth to remain approximately flat for the fourth quarter, we'll continue to optimize our funding costs using our broad range of channels to support further expansion of our net interest margin.

Matt Rudd: Adjusted earnings per share decreased 28 cents from the prior year, now is driven entirely by a higher provision for credit losses. In the prior year, our provision for credit losses of 16 basis points was below our historic range of 18-23 basis points and in the current quarter as Chris discussed, our provision for credit losses was significantly on the side of our normal historic range driven primarily by the two credit losses. Outside of the increase in credit losses this quarter, our operating performance was solid.

Matt Rudd: Road to revenue contributed 11 cents and will pace the 7 cents earnings per share declined from the growth and adjusted non-interest expenses. Within our revenue, higher net interest income increased earnings per share by nine cents and that was primarily due to a 12 basis point increase in net interest margin. Higher non-interest income contributed two cents. Our higher non-interest expenses were primarily associated with the opening of our new Toronto financial district and kitchen or banking centers and increase in deposit insurance costs and the investment in our digital capabilities.

Matt Rudd: Higher preferred share dividend distributions reduced earnings per share by one cent. The prior quarter EPS comparison is shown on slide time. The decline in diluted EPS again included a 15 cent impact from cost directly associated with potential national bank transaction. Adjusted earnings per share decreased 21 cents from the prior quarter driven by the increased credit losses recognize this quarter that we've already discussed. Strong sequential growth and net interest income increased earnings per share by 11 cents while lower non-interest income reduced EPS by one cent.

Matt Rudd: EPS contribution from higher total revenue of 10 cents will pace the impact of higher adjusted non-interest expenses which reduced EPS by five cents. Other items reduced EPS by two cents and primarily reflected the usual increase in LRCN distributions between second and third quarter and an increase in the effective tax rate but that was primarily due to the impact of one-time adjustments that reduced our effective tax rate last quarter.

Matt Rudd: The shown on slide time revenue was higher on a sequential basis. Higher revenue reflected a 6 percent increase in net interest income partially offset by a 4 percent increase in non-interest income. Lower non-interest income was driven by reductions in the fair value of select debt securities and lower foreign exchange income. That was partially offset by higher credit related and wealth management fees. An interest margin increased 9 basis points from the prior quarter.

Matt Rudd: NIN benefited from the 6 basis point impact of higher fixed term asset yields which continued to outpace the growth and fixed term funding costs, and improved asset mix provided a five basis point benefit to them. That was reflective of loan growth that was targeted to optimize our risk adjusted returns and we had lower averaged liquidity this quarter. These benefits were partially offset by lower loan related fees which reduced interest margin by two basis points. We did optimize risk adjusted returns while we maintain our focus on funding optimization.

Matt Rudd: Our pre-provision earnings absorb credit losses that were significantly outside of our historic range and generated sufficient capital to support the targeted growth of our economy. The main driver of the increase in our capital ratios this quarter was the increase in fair value debt securities and our liquidity portfolio which are recognized in other comprehensive income.

Carolina Parra: Our board declared a common share dividend yesterday of 35 cents per share which is consistent with the dividend declared last quarter and up to two cents from the dividend declared last year. I'll now turn the call over to Carolina. We'll speak to our credit performance. Thank you, Matt and good morning everyone. I will begin my remarks on slide 13. Total growth in per loans represented 124 basis points of gross loans which is 24 basis points higher than last quarter.

Carolina Parra: The increase in growth in per loans was driven by new formations of in per loans of 170 million dollars this quarter reflecting the impact of sustained higher interest rates overall economic conditions. And for two individual exposures for a specific circumstances that were related to economic conditions unrelated to economic conditions. Excluding these two files are portfolios continued to perform as expected in the current economic environment as outlined last quarter. As Chris discussed, we have completed deep dive of our unsatisfactory portfolio and we continue to see prudent loans and values and good optionality to resolve these exposures.

Carolina Parra: These supports and confidence that our strong credit risk management framework will continue to be effective in minimizing realized losses on the resolutions of impaired loans. As shown on slide 14, the performing loan allowance increased 2% sequentially, primarily reflecting the larger loan balances and higher default rates and partially upset by improvements in the forecasted micro economic conditions. The total provision for credit losses was 59 basis points. The current quarter impaired loan provision for credit losses represented 57 basis points reflecting 33 basis points increased from the prior quarter which primarily reflected two specific exposures that we have previously discussed.

Carolina Parra: Outside of these exposures, our credit performance this quarter was relatively consistent with the prior quarter and reflected increased order of default rates and the emergence of lower than expected realization values which increase the impaired loan provision for credit loss.

Chris Fowler: I will now turn the call back to Chris Fowler or use close to remarks and outlook. Thank you, Carolina. Turning to slide 16.

Chris Fowler: As we move into the bottom quarter of the year, our teams remain focused on delivering differentiated client service and profitable growth. Through their efforts, we anticipate continued targeted sequential loan growth, a few four that optimizes risk-adjustive returns. Combined continued funding optimization using our broad version of channels, we expect continued expansion of our net interest margin in the fourth quarter of the year. Provening no significant adverse shift in the macroeconomic environment, we expect adjusted earnings per comment share in the range of 86 cents to 91 cents in the fourth quarter and for our operating level distributed approximately neutral on a quarterly basis. Turning to slide 16.

Chris Fowler: During the quarter, we announced that CWB has entered to definitive agreement to be acquired by National Bank. Over the last four decades, we've developed an attractive banking franchise with a reputation for exceptional service with deep customer relationships across a number of priority industries and service lines. We're confident that the transaction with National Bank Canada will create incredible value for our clients, teams, communities and our shareholders. Together, we can offer Canadians more choice by combining CWB's legacy of servicing business owners and their families with National Bank scale, complementary market expertise and technological capabilities necessary to accelerate our growth.

Chris Fowler: I look forward to our special medium comment shareholders that will take place next week on September 3rd, where shareholders will finalize the vote on resolution related to this exciting transaction.

Joanna: With that operator, let's open the lines for Q&A. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchstone phone. You will hear a three-tone prompt acknowledging your request. If you would like to withdraw your question, please press star followed by two. And if you are using a speaker phone, please flip the hands up before pressing any keys.

Matt Rudd: Your first question comes from Paul Holden at CIBC. Please go ahead. Hi, can you hear me okay? Yes, it's great, Paul. Okay, sorry about that. So obviously got a lot we're going to ask on the the entire PCL's. Can you give me an idea of the proportion of impaired that were specifically related to those two loans you referred to? Hi, Paul, I'm sure. So on the entire perspective, a limited portion of the impaired were specific to these loans.

Matt Rudd: On the about. Out about 20% of that was specific to these two loans that we're seeing here. The other size of the impact, Paul, it wasn't necessarily the size of the exposures. It was the size of the provision for losses. It was about 30 basis points or so of our total impaired PCL related to these two exposures.

Matt Rudd: Okay, that's the total thanks, Matt. And then can give some better understanding sort of the nature of the collateral behind those two loans or maybe what industry sectors, those were related to just to get a better sense of why the asset values may be lower than you originally expecting. So really the change in the values and what occurred was really, really specific to the two borrowers. It was not related to the actual value, like the actual specific asset or the collateral.

Matt Rudd: Okay, understood. But then can you give us the two sectors that related to those two loans though? And then these loans were in our general commercial law. And sort of you know, these are loans we secure with general security agreements, mortgages, personal guarantees. So it's a normal security package from take. And as Carolina said, these were kind of ideas of kind of outcomes from the resolution of these loans that we haven't encountered before. There was their very unusual circumstances, and they don't reflect how we anticipate the balance of the loan portfolio to manage.

Matt Rudd: Understood. I'll ask two more questions unrelated. First, in terms of slowing loan growth, just want to clarify that that's due to slower pace of originations and unrelated to sort of any kind of customer attrition. Okay. I say that's a fair assessment. You can see that within the commercial mortgage portfolio, we're still being highly selective and that portfolio is reducing. But overall, I'd say again, kind of across business lines across geographies. There was, you know, probably a little bit slower place of origination than we might have anticipated previously, but it's been pretty steady and also increasing a bit and we see that kind of carrying through into Q4.

Matt Rudd: So, you know, we do see kind of steady momentum there. Yeah, but hopefully those be highlighted for growth last quarter, Paul, like we would have signal general commercial. I mean, that was up to percent sequentially equipment. We liked and we're targeting that was up to percent. And we had signal the project lending increase and the opportunities there for those projects. It's finally getting started in our borrower scene conditions. They liked that was up 3% where we saw contraction.

Matt Rudd: It's even mentioned it was commercial mortgages. We had hoped that would be more flatter. And we were down 2% personal mortgages. I think a consistent theme, but we were down 1%. And then we saw some payouts in our oil and gas portfolio. And those are just very healthy borrower is due leveraging. So we were down in those. So the portfolios we wanted to grow. And I think we were pretty close to where we wanted to be just those other portfolios to Steven's point highly selective and saving our bullets for the right risk of yesterday. Returns.

Matt Rudd: Okay, okay, that's helpful. I want to sneak one more in there. Just in terms of expense grows, how should we think about the way you might be managing expenses or the requirement in ongoing investments over the next 12 months, not asking for specific guidance, but just sort of I would assume the pace of investments slows given everything you've done in the last several years and the depending transaction, but maybe just clarify, that's the right assumption pace of expense growth slows in the next 12 months, or if you have something else in mind.

Matt Rudd: Yeah, the structurally what we had set up, following the reorganization we did at the end of last year, was doing a broad shuffle in our investment profile and redirecting expenses from that kind of backend and that investment trajectory into supporting growth and service with our clients. And the intent there was to set up for structural ongoing positive operating leverage and this year, and we're obviously in good shape to do that, expense growth, sort of in that mid single digit range as we had expected with more revenue growth, and that's a theme we had structurally set up to continue just really picking our spots on the investment, but a lot of those heavy lifts being done. And the investments being made to support the ongoing growth of the business was our priority, and that's how we had structured and targeted and our view on that hasn't changed.

Matt Rudd: Okay, thanks for your time.

Matt Rudd: Thank you.

Manny Grohmann: Next question comes from Manny Grohmann at Skillshare Bank. Please go ahead.

Matt Rudd: Hi, good morning. Just to follow up on the topic of the expected the lower expected realization values. Is this fraud related? No, it has nothing to do with fraud enough. Okay, because I'm just, you know, your answer to Paul, I'm just trying to figure out how to make sense of sort of the description that you're saying. I appreciate you don't know what you don't know, but I guess what we're trying to get at is just what gives you the confidence that this surprised you.

Matt Rudd: So what gives you the confidence that you can't be surprised again that somehow the collateral values that you are counting on will be there going forward for other loans. Yeah, I know it's a very question, many are underwriting and resolution processes. You know, I have been historically very strong and really limited losses in sort of history of our operations. And the resolutions on these two credits just don't look like the rest of the book.

Matt Rudd: And we don't see any evidence in that, you know, this would be the result of the other impairments in watchless loans we have in our book and our lending model has not changed. So as we think about Q4 and forward, we do expect our losses to reduce and move towards our historic range. And we just think these are, as we've aroused a reason, I should say, they're extraordinary for what our experiences and they don't reflect the rest of our book.

Manny Grohmann: That's clear. Thanks so much.

Manny Grohmann: Thank you.

Stephen Boland: The next question comes from Stephen Boland at Raymond James. Please go ahead.

Matt Rudd: Hi, first question. Just a slight change in the language about the timing of the closing of the acquisition. When it was announced, it was going to be at the end of 2025. Now the language has changed just sometime in 2025. I'm just wondering what was the cause of that change? Was there any discussions with the regulators that prompted that language change? Pretty subtle tweak. I'm not sure it means anything too substantially different.

Matt Rudd: It's still pretty early days on all these processes. And we continue to work through them and support them. So I think it's still a pretty broad range. In 2025 and the broadness of that range, I think reflects the variability as you're working through some of these regulatory outcomes that of course we can't predict and are still pretty early days to offer really any additional insight. So I think that'll be to come as we work through the process. Okay.

Matt Rudd: I'm just curious now how much interaction there is between the two banks in terms of the transition. Are you meeting regularly or is there transition teams in place? Are they meeting regularly at this point or is there a plan for that? That's where we're at. We're creating a plan for what comes next. We've obviously got some steps to occur. We've got, as I mentioned, on the opening remarks, we've got the special meeting this coming up on Tuesday here in Evanson for shareholders.

Matt Rudd: Then we have the regulatory reviews around our way with the competition bureau, Austin need to work in the finance, and I'll ultimately up to the minister of finance. So there's lots of work for that to occur. And then as we move along, we'll continue to drive how that integration strategy would work and we'll look forward to providing an update when we're able to. Okay.

Matt Rudd: And maybe just a part B on that. I just want to be clear that as of right now, like has national bank. I know you have a duty to your customers and obviously the shareholders, but does national bank have any influence on your decision making at this point in terms of new product launches, spending, anything to that. Just in terms of looking at how much influence there is right now, if any.

Matt Rudd: Well, today we're two separate banks, and we certainly anticipate offering lots of value on closing, and we've got the transaction agreement we're following, but we are operating as two separate banks. Okay. Let's seems pretty clear. Thanks.

Joanna: Thank you, ladies and gentlemen. As a reminder, should you have any questions? Please press star one.

Nigel D'Souza: Next question comes from Nigel D'Souza, a British investment research. Please go ahead. Thank you. Good morning. I wanted to circle back on your provisions this quarter and I think it's important given that the loss rate this quarter is, I believe, higher than loss or you have any quarter during the financial crisis. I'm trying to just understand the recovery rates that impacted those provisions. It tells what your initial recovery rate assumption was and what it ended up being.

Nigel D'Souza: And then this was a GSA. What was the. I guess, an effective underlying collateral, because I think you mentioned that it wasn't really the collateral value decline within operation, which is just declared that there would be helpful. So, on this specific, as we mentioned, the big impact in the look at the basis points of the 57 of losses, 30 were reflective of these loans. And the biggest big change when we look at what happened throughout the recovered process and everything, it just was a really decrease in the overall not specific as the value, but just like the recovery from the company perspective.

Nigel D'Souza: And so we are still, this is a live process, we're still working on that. And what we are now reflecting is our latest assessment with our most recent information of what that recovery will be with a very prudent approach, a very conservative approach to what we have right now is collateral. And to clarify, the two files here, they're not to the same board, where these are two distinct separate borrowers that weren't affected.

Nigel D'Souza: Yeah, two separate borrowers, no relation at all. And no relation for the underlying operation this year, they're just trying to understand that there's anything at all that's in common between these two files. No relation, no industry, no relation between the borrowers, they're very unique and specific and there is no trend underlying any of them. OK, so I'll just leave it out, you know, it would be helpful if you could understand if this is a cash flow based financing deal or I guess we'll all try and understand why the recovery is lower without assets collateral value decline, but I'll leave it there and that's just for me. Thank you.

Unknown Executive: It appears there are no further questions.

Chris Fowler: I'll turn the call back over to Chris Fowler for closing remarks.

Chris Fowler: Thank you, Jordan. Thank you for joining us today.

Chris Fowler: I look forward to talking to all again on December 6th when we pour our fourth quarter finance for those. Have a great day.

Unknown Executive: Ladies and gentlemen, this concludes your conference for today.

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