Q1 2025 National Bank of Canada Earnings Call
This conference is being recorded.
Speaker Change: All participants, please stand by. Your conference is ready to begin. Good morning and welcome to National Bank of Canada's first quarter results conference call. I would now like to turn the meeting over to Marianne Ratte, Vice President and Head of Investor Relations. Please go ahead, Marianne.
Merci and welcome everyone.
Speaker Change: We will begin the call with remarks from Laurent Ferreira, President and CEO, Marie-Chantale Gingras, CFO, and Jean-Sébastien Griset, Chief Risk Officer.
Speaker Change: Also present for the Q&A session are Lucie Blanchet, Head of Personal Banking and Client Experience, Michael Denham, Head of Commercial and Private Banking.
Speaker Change: Nancy Paquet, Head of Wealth Management, Etienne Dubuc, Head of Financial Markets, and Stéphane Achard, Head of International.
Speaker Change: Before we begin, I would like to refer you to slide 2 of our presentation for information on forward-looking statements and non-GAAP financial measures.
Speaker Change: The bank uses non-GAAP measures, such as adjusted results, to assess its performance.
Management will be referring to adjusted results unless otherwise noted.
Merci Marianne and thank you everyone for joining us.
Speaker Change: Let me begin the call by addressing the macroeconomic and geopolitical context before turning to our results.
Speaker Change: Canada's economic performance has fallen behind the U.S. and other G7 nations.
Speaker Change: There has been a considerable decline in our productivity and GDP per capita, coupled with insufficient investments in manufacturing and R&D.
Canadian companies are facing excessive regulation and oversight.
Speaker Change: Added to the mix, we face a U.S. administration with a pro-business and protectionist agenda.
Speaker Change: Now, we must not only rebuild our relationship and negotiate economic and trade terms with our largest partner.
Speaker Change: We must also get investments off the ground in our country.
Concretely, Canada must consider.
Speaker Change: appointing a non-partisan head of deregulation to identify and recommend removal of unproductive red tape.
Accelerating Depreciation on Capital Investments for Businesses
Reducing taxes on capital gains for business owners.
Speaker Change: allowing the deferral of tax payable on a transfer to future generations or on a sale to employees to preserve Canadian ownership of businesses.
Focusing on permits, not subsidies.
Speaker Change: Adopting a Buy Canada Act to promote and give priority to local businesses, notably to increase defence spending with Canadian procurement in the aerospace industry, manufacturing sector and critical infrastructure.
Speaker Change: Finally, R&D or AI should focus on growing our industries and our economy.
Speaker Change: I also urge decision makers to remove all inter-provincial trade regulation hindering Canadian productivity.
Canada is a resource-rich country.
Speaker Change: It is our responsibility to ensure that our people benefit from the full economic potential of our energy, natural resources, agriculture, and manufacturing sectors today and in the future.
Speaker Change: Now, the heightened uncertainty brought by potential terrorists may pressure our economic growth and could prolong the credit cycle.
Speaker Change: As a Canadian-centric bank with strong capital levels and an expanded national footprint, we have a pivotal role to play in shaping our economy.
Speaker Change: Turning now to our financial results. This morning the bank reported earnings per share of $2.93 for the first quarter of 2025, up 13% year-over-year and a return on equity of 17.6%.
Speaker Change: This performance reflects strong execution across business segments and our diversified earnings power.
We ended the quarter with a CET1 ratio of 13.6%.
Speaker Change: Our acquisition of Canadian Western Bank, which closed subsequent to quarter end on February 3rd, will have a minimal impact.
This leaves ample room for business growth.
Speaker Change: Our dividend payout of 40.6% in Q1 reflects last quarter's dividend increase and a robust earnings growth.
Speaker Change: We will review our dividend next quarter consistent with usual practice.
Speaker Change: Our acquisition of CWB marks a pivotal moment for National Bank.
Speaker Change: Our combined organizations will allow us to deliver more banking products and services for all Canadians and Canadian businesses.
Speaker Change: Over the last few weeks, our teams have been working hard on the integration.
Speaker Change: Together, with our new colleagues, I look forward to leveraging our cultures and values.
Speaker Change: will not only accelerate National Bank's domestic growth but extend our banking capabilities to the benefit of all our clients.
Turning now to the performance of our segments.
Speaker Change: TNC Banking generated net income of $290 million in Q1 with underlying growth more than offset by the credit cycle impact.
Speaker Change: The momentum in our loan portfolio was in line with expectation.
Speaker Change: Personal mortgages grew 3% year over year supported by a solid pace in our client channels.
Speaker Change: Commercial loans were up 13% over the same period with strength in insured residential real estate and broad-based growth across industries and geographies.
Wealth Management had a strong start to the year.
with Q1 net earnings up 23% year-over-year.
Speaker Change: Revenues were up in all categories, with strong growth in assets and demand deposits.
Speaker Change: This was driven by market appreciation, strong net entries in all distribution channels and high activity level.
The franchise also generated positive operating leverage.
Speaker Change: Global markets generated a record top line with elevated activity across most businesses.
Speaker Change: We benefited from particularly strong issuance volumes in structured products and significant opportunities in securities finance.
Speaker Change: On the corporate and investment banking side, revenues were up 3%.
Speaker Change: Credigee's net income was up 8% year over year. Average assets grew 7% over the same period and were relatively stable sequentially.
Speaker Change: The U.S. market remains competitive and we are maintaining our usual discipline, only pursuing opportunities with risk-reward profiles that meet our criteria.
Speaker Change: We continue to be successful in financing and acquiring mortgage portfolios, while risk-adjusted returns on unsecured assets are generally less compelling right now.
Finally, ABA Bank.
Speaker Change: Consistent with past borders, the local economy continues to operate below potential, with lower tourism spend directly impacting our customers.
Speaker Change: As a result, ABA grew its loan book by 9% year-over-year in the first quarter.
Speaker Change: Against this backdrop, ABA is leveraging its strength, including its digital payment and cash management capabilities. It also continues to increase its client base, which was up 31% year-over-year in Q1, translating into deposit growth of 19%.
Speaker Change: Before turning it over to Marie Chantal, I would like to say a few words on the executive appointments announced last December and effective March 1st.
Speaker Change: Michael Denham, who successfully led the integration of our private and commercial banking activities, will lead CWB's integration as EVP and Vice-Chair, a role he is exceptionally qualified for.
Marie Chantal: With this transition, Gisette Menard is being promoted to Executive Vice President and Head of Commercial and Private Banking. This is a natural next step given her trajectory with the bank since 1998 and her previous success expanding our commercial and private banking model beyond Quebec.
Marie Chantal: In addition, Dominique Paradis, who has played a pivotal role in overseeing the bank's legal team and corporate governance, was promoted to Executive Vice President and General Counsel.
with their appointments.
Judith and Dominique will also join the senior leadership team.
Speaker Change: This being Stefan Acharov's last call prior to his retirement at the end of April, I'd like to take a moment to recognize him.
Speaker Change: Stéphane has made a lasting impact at the bank and the business community with his leadership and dedication to clients.
Speaker Change: I extend my gratitude for his many contributions, and on behalf of all of us, I wish him the very best in his well-deserved retirement.
Speaker Change: Finally, I would also like to thank Bill Bonnell for stepping in to oversee our international investments.
Speaker Change: delaying his own retirement plans and once again demonstrating his dedication to the bank.
Speaker Change: Marie Chantal, over to you. Thank you, Laurent, and good morning, everyone. My comments will begin on slide 7.
Speaker Change: First quarter results were strong as revenues and PPPP delivered double-digit growth year-over-year.
Speaker Change: revenues increased by 19% with particular strength in financial markets and wealth management supported by favorable market conditions.
Speaker Change: PTPP grew by 28% with positive operating leverage of 7% as we continue to prioritize disciplined cost management.
Our efficiency ratio stood at 50%.
Our business segments generated solid organic business growth.
Speaker Change: Expenses were up 12% year-over-year. This was primarily driven by variable compensation in line with the strong performance in financial markets and wealth management.
Speaker Change: Excluding variable compensation, expenses rose by 8%, in part driven by higher salaries, benefits, and pension plan expense.
Speaker Change: We continue to invest for growth while staying disciplined across the bank.
Speaker Change: For the quarter ended January 31st, 2025, the application of the Pillar 2 rules increased the bank's effective tax rate by less than 2%.
Speaker Change: In Q1, the effective tax rate was 22.6%. This rate for any particular period may be impacted by other factors, including changes in our business mix.
Speaker Change: Now turning to slide 8. Non-trading NII in Q1 was up 3% sequentially. This increase was mainly driven by balance sheet growth as well as annual dividends received from an unconsolidated international investment.
Speaker Change: The All Bank name, excluding trading, was stable quarter over quarter at 2.26%.
Speaker Change: The PNC-NIM was down 2 basis points over the same period at 2.28%.
Speaker Change: This primarily reflected the balance sheet mix as loan growth exceeded deposit growth.
Speaker Change: Turning to slide 9, which highlights the continued broad-based growth on both sides of our balance sheet.
Loans were up 7% year-over-year and 1% quarter-over-quarter.
Deposits, excluding wholesale funding, grew 12% year-over-year and 4% quarter-over-quarter.
Speaker Change: Personal demand deposits across our retail businesses increased by almost four billion dollars or eight percent sequentially.
Speaker Change: Furthermore, our customers' appetite for investment solutions has been strong given the favorable market performance that continued in Q1 and resulted in solid growth.
Non-retail deposits grew 3% quarter over quarter.
Now turning to Capital on slide 10.
Speaker Change: We ended the quarter with a robust CT1 ratio at 13.6%. First quarter earnings, net of dividends, contributed 43 basis points to our ratio, again underscoring our internal capital generation capacity.
Speaker Change: Excluding effects, growth in risk-weighted assets accounted for 53 basis points of CT1 driven by credit risk and, to a lesser extent, market risk.
Speaker Change: Furthermore, our capital position remains very strong after closing the CWB acquisition.
Speaker Change: We estimate the transaction reduce our CT1 ratio by approximately 15 basis points at close.
Speaker Change: This takes into consideration the fair value of acquired assets, which includes an estimated credit mark on impaired loans of $378 million, as well as an initial provision on performing loans of $230 million before tax.
Speaker Change: Of note, this is before factoring in any benefit from utilizing the AIRB methodology.
Recall that CWB currently uses a standardized approach.
Speaker Change: As we onboard CWB's clients, we will keep working with our regulator to migrate most of their portfolios to AIRB in 2026.
Speaker Change: At year-end, we will share an updated capital plan presenting our priorities for capital deployment.
Speaker Change: In the meantime, we are very pleased with our strong CT-1 ratio.
Speaker Change: I will now provide additional commentary on the acquisition of CWB and what we are expecting in Q2 and going forward.
Speaker Change: Slide 11 highlights the various purchased accounting and IFRS items that will impact our results in the upcoming quarters.
Speaker Change: Of note, the amortization of the net fair value mark will impact adjusted results, while the amortization of newly recognized intangibles and the initial provision on performing loans will be excluded.
Speaker Change: For additional information, Appendix 16 presents our preliminary estimate for CWB's Opening Balance Sheet.
Speaker Change: Moving to slide 12 to review the Synergy Potential and Timeline.
The execution of our integration plan is well underway.
CWB employees are being on-boarded.
Speaker Change: Client migration from CWB's platform to Nationals will be done in waves, starting in the summer of 2025 and continuing through the beginning of calendar 2026.
Speaker Change: This sequence approach will provide the focus needed to ensure a smooth and seamless experience for clients and employees.
when we announce the CWB Acquisition.
We identified meaningful synergies of $270 million pre-tax.
Speaker Change: We expect to realize approximately $175 million from cost savings and approximately $95 million from funding.
Speaker Change: We also expect to achieve over $135 million of these synergies in the first year post-closing or by the end of Q1 2026, with around two-thirds generated from funding synergies.
Speaker Change: The funding synergies will be realized through this period and the cost synergies towards the latter part of year one as clients are onboarded.
Speaker Change: By the end of fiscal 2027, we are confident that we will achieve the $270 million of synergies previously announced.
Speaker Change: We will continue to provide quarterly updates as our integration progresses.
Speaker Change: We also anticipate revenue upside in both NII and fee income.
Speaker Change: At this point in time, it is too early for us to quantify the upside from these incremental revenue opportunities, but they will be significant.
Speaker Change: Our strategy is well defined and our plan is laid out already.
in particular.
Speaker Change: Higher NII will be generated by expanding our balance sheet through existing and new relationships as well as by rolling out our cash management solutions and our retail and wealth capabilities to CWB clients.
Speaker Change: We will also be providing National Bank's clients with opportunities in equipment financing, an area where CWB has expertise.
Speaker Change: Higher fee income will be mostly generated by providing CWB clients with risk management solutions and also capital markets capabilities where National Bank excels.
Speaker Change: We already have a single management structure in place and are working as one team to combine servicing and in-market activities.
Speaker Change: Ultimately, we will deliver a full suite of commercial, retail, wealth, and capital markets offering to CWB clients.
Speaker Change: We expect revenue opportunities to accelerate in 2026 once client migration is complete, with full benefits to be realized in 2027 and beyond.
Moving to slide 13.
Speaker Change: On our last quarterly call, we had provided a financial outlook for National Bank on a stand-alone basis.
Speaker Change: We expected mid-single-digit EPS growth in 2025 and positive operating leverage.
Speaker Change: Since then, we closed the CWB acquisition and are now providing our preliminary outlook inclusive of CWB.
Speaker Change: Bear in mind that the amortization of the net fair value mark will impact adjusted results starting in Q2.
Regarding EPS on an adjusted basis.
Speaker Change: Growth will be impacted by the amortization of the mark and the issuance of common shares in the context of the acquisition.
Speaker Change: However, excluding the impact of the March and giving a strong start to the year, we are confident in delivering our prior expectations of mid-single-digit EPS growth.
Speaker Change: This should translate into adjusted ROE of approximately 15% for the year, also excluding the amortization of the mark.
Speaker Change: Regarding operating leverage, we maintain our target of positive operating leverage for 2025.
Speaker Change: We expect the contribution from CWB and the realization of cost and funding synergies will offset the impact from the amortization of the mark.
Speaker Change: As usual, there could be some variability from quarter to quarter.
Speaker Change: To conclude, we remain excited about the opportunities that lie ahead as we expand our Canadian presence.
Speaker Change: Our financial outlook is strong following the transaction and we look forward to providing our progress on cost, funding and revenue synergies as well as our capital plan as the year unfolds.
I will now turn the call over to Jean-Sébastien.
Merci Marie-Chantal and good morning everyone.
I'll start on slide 15.
Speaker Change: Since our last call, the Canadian economy has continued to show signs of weakness.
including slow economic growth and a soft labor market.
Speaker Change: Inflation has remained largely under control allowing the Bank of Canada to continue to ease borrowing costs.
However, the threat of U.S. tariffs creates increased uncertainty.
Against this backdrop, our credit portfolios remain resilient.
benefiting from our defensive positioning and disciplined risk management.
We also remain prudently provisioned.
Total PCLs were 254 million, or 41 basis points.
An increase of 14 basis points compared to last quarter.
Speaker Change: We continue to prudently build allowances, as we have done for the past 11 quarters.
We added nine basis points of performing
Portfolio Growth
and Migration.
Speaker Change: Furthermore, in assessing our provisions this quarter, we considered the uncertainties
around U.S. tariffs.
Engel or Trager
Speaker Change: PCLs on impaired loans were $196 million or 32 basis points.
which was eight basis points higher, quarter over quarter.
Personal banking-impaired PCLs increased sequentially and stood at 63 million.
Recall that last quarter.
Speaker Change: We mentioned that non-retail impaired PCLs were expected to be lumpy in 2025, and this is what we saw in Q1.
Speaker Change: Specifically, impaired PCLs in commercial banking reach 73 million dollars, mainly reflecting a few files, including one in the technology sector.
Speaker Change: In financial markets, an $18 million provision was taken for an impaired account in the manufacturing sector.
Speaker Change: At Credigy, we continue to see a normal seasoning of portfolio, and at ABA, impaired provisions remained elevated, as we've seen now for several quarters.
Turning to slide 16.
Our total allowances for credit losses reach $1.7 billion.
representing 4.3 times coverage of our last 12-month net start-off.
are performing allowances.
Speaker Change: grew 6% quarter-over-quarter to reach over $1.2 billion, representing 2.1 times our last 12 months' impaired PCLs.
Additional metrics on their allowances are provided in Appendix 10.
Speaker Change: We continue to be comfortable with our prudent level of allowances.
Turning to slide 17.
Our Gross Impaired Loan Ratio increased to 79 basis points.
up 11 basis points sequentially.
of note
Speaker Change: Gross Impaired Loans excluding U.S.S.F. and I were 49 basis points.
Speaker Change: The main driver of higher gills over the past quarter and year has been ABA.
reflecting elevated formations and the longer resolution process.
However, this quarter,
formations were down to 79 million dollars US
Speaker Change: The underlying credit fundamentals of the portfolio have remained stable over the past several quarters.
with low average LTVs, loan size, and prudent impaired allowances.
Speaker Change: On slide 18, we present highlights from our Canadian RESL portfolio.
The geographic and product mix remains stable.
with Quebec accounting for 54%.
and insured mortgages, accounting for 29% of total residue.
Speaker Change: Average LTVs for HELOCs and uninsured mortgages remain in the 50s.
Speaker Change: and high-risk uninsured borrowers still represent around 50 basis points of the total RESL portfolio.
Speaker Change: On slide 19, we provide additional details on our Canadian mortgage portfolio.
Speaker Change: Of note, around 70% of our mortgage portfolio has now been repriced at higher interest rates.
Speaker Change: As shown in Appendix 9, 90-day delinquencies for mortgages have remained stable.
and remain below the pre-pandemic levels.
Turning to the acquisition of CWB.
Speaker Change: I would like to discuss our expectations for Q2 on the initial provision on performing loans and on the credit mark on the impaired loans.
First, as mentioned on slide 10 and 11,
Speaker Change: We expect to take an initial provision of $230 million on the performing loan portfolio.
second
As shown on Flight 10.
Speaker Change: we expect to take a credit mark of $378 million on the impaired portfolio.
Speaker Change: Our approach regarding the APARC portfolio ensures that credit provisioning for both performing and impaired loans is aligned with our prudent internal methodologies.
and reflective of an evolving credit environment.
Speaker Change: Looking forward, uncertainties remain in the forward path of economic growth.
Interest rates.
and Unemployment.
We continue to anticipate further increases in delinquencies.
and Lumpiness in our Wholesale Portfolio.
at Crenegie.
Speaker Change: We expect provisions to be primarily driven by portfolio growth and mix.
and that ABA.
We expect impaired PCLs to remain elevated.
Speaker Change: While it is too early to determine the impacts of potential tariffs,
These evolving events add another layer of uncertainty.
The range of potential outcome has widened.
As such, we now expect impaired PCLs, including CWB.
Speaker Change: to be in the range of 25 to 35 basis points.
for the full year.
In conclusion, while volatility and uncertainty persist,
We remain well-positioned given our defensive attributes.
Resilient Mix
and Prudent level of allowances.
Speaker Change: And with that, I will turn the call back to the operator for the Q&A.
Speaker Change: Thank you. We will now take questions from the telephone lines. If you have a question, please press star 1.
Speaker Change: You may cancel your question at any time by pressing star 2.
Speaker Change: Please press star 1 at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience.
Speaker Change: Our first question is from Manny Grauman from Scotiabank. Please go ahead.
Manny Grauman: Hi, thanks for taking the question. The first question is just on the updated guidance for 2025. Just wanted to understand what you're baking in, in terms of assumptions related to tariff, tariff risks.
Thanks.
Manny Grauman: So Benny, just to clarify, you're just talking about the impaired PCL guidance, right? Not performing.
Manny Grauman: The impaired PCL guidance and then also just the overall adjusted EPS guidance as well. I'm trying to understand what's baked in there. Perfect. So, I'll start with that. So, in our PCL guidance, and I think I mentioned that in my prepared remarks, first it is inclusive of CWB.
Manny Grauman: And the increase is really driven by the uncertainty we're observing. We really don't know what the tariffs will look like, but it creates uncertainty, and uncertainty is not good for PCLs in general.
What I will mention, though, is...
Manny Grauman: Coming back to Q1, what we observed is that our results were really impacted by very few files.
Manny Grauman: So our top two files represented around 10 basis points of our impaired loan losses.
Manny Grauman: which was very lumpy like we guided the quarter previously. And based on where we are in the cycle and what we're seeing right now in Q2, we're confident in a range of 25 to 35 basis points.
Manny Grauman: Understood. And then in terms of just the overall EPS outlook for the year? Yeah. Yeah. Thank you, Manny. So in terms of the overall EPS outlook, as I mentioned in my remarks, excluding the amortization of the fair value mark, we still expect
So
We continue to be prudent, but we have not yet
incorporated any material impact for the tariffs.
Manny Grauman: We're still comfortable with guidance that we've shared earlier on the previous calls, for example, in terms of commercial loans being in the low teens in terms of growth. So no material impact other than what Jean-Sébastien has shared with you.
Speaker Change: And then just a second question, I appreciate you're not providing specific guidance on the revenue synergies related to CWB.
Yeah, and you think you'll be in that position
Manny Grauman: Yeah, absolutely Manny, and we really look forward to providing you some
some color on those revenue synergies.
Manny Grauman: As I said, our integration fund is well underway. Employees are being onboarded as we're speaking.
Manny Grauman: Clients will be on-boarded this summer, so this puts us in a position where we'll be able to share some of the quantified revenue synergies.
later on in the year.
Manny Grauman: However, we did provide additional information in terms of revenue synergies, whether they're coming from both NII and fee income, coming from expanding our balance sheet.
Manny Grauman: through existing and new relationships from retail, banking, wealth management, and also from capital markets and risk management solutions impacting fee income.
Manny Grauman: As we will be onboarding our clients during the summer up until the beginning of fiscal 2026.
Manny Grauman: We're going to be in a position to see those revenue synergies kicking in during 2026 and being fully realized by the end of 2027.
So, Michael, maybe you want to give some...
Michael Denham: Maybe color on what we're seeing already in terms of a client perspective. Sure, Manny, just two points. As Marie Chantelle took you through just now before, there are a series of real revenue synergy opportunities we're targeting. Some need to wait, like cash management needs to wait until the client's migrated on our systems, but there are a number of things we're able to go get right now.
Michael Denham: So, one, for example, is just using a balance sheet so that we can provide more.
Michael Denham: exposure and support to CWB clients. So those discussions are underway and those don't need to wait for any sort of client migration or transition. And again, there's lots of very strong relations in place between CWB and their clients and clients looking for more capacity and we can provide that in the near term. So that's one area we're going to be out of the gate relatively quickly.
Michael Denham: And as Marie Chantelle said, we'll provide updates as we progress.
Speaker Change: Appreciate the detail. Thank you. Thank you. Our following question is from Ibrahim Poonawalla from Bank of America. Please go ahead.
Good morning.
Good morning. Good morning. Good morning. Following up on credit.
Speaker Change: So I guess I heard a few times lumpiness on commercial credit which makes sense
Speaker Change: But at the same time, I think from the outside, looking in, it increases concerns whether there are still blind spots on commercial credit, which could push PCLs higher. So maybe just talk to me, tariffs aside, I understand the risk from tariffs, but ex-tariffs, given the rate cut relief that's flowing through the economy.
Speaker Change: your visibility into the commercial book and the problem areas that you've already identified. Would love some color around that. And also if you can speak to the resolutions you've seen at ABA and what the lost content has been as you've gone through the process there. Thanks.
Speaker Change: I'll start with your first question regarding commercial losses. I think there are a couple of ways here. First, I look at...
Speaker Change: What does lumpiness look like? And in Q1, there was really two files. So one file in the tech sector, which we called out, and the second one in the manufacturing sector.
Speaker Change: So, very difficult to look ahead what the lumpiness would look like, but one thing I look for is the level of our watchlist account, and we actually disclose our watchlist.
levels and our watches have been stable.
Speaker Change: quarter over quarter, which is an encouraging sign for this. And when you look at our underlying portfolio, both in commercial, in retail, wealth management and FM, it's really been trending pretty positively. It's really been lumpiness of a few files.
Speaker Change: In terms of ABA, I think the trends we mentioned last quarter remained.
Speaker Change: So in terms of the resolution, around two-thirds of our files had no losses and we continue to build prudent provisions given where we are in terms of the cycle in Cambodia. So nothing really different.
Speaker Change: The formations were a little bit lower this quarter, like you saw, and that's really driven by, I think, flat resolutions, but a reduction in files that were transferred from Stage 2 to Stage 3. So we're encouraged by that trend.
Speaker Change: Are there any plans to initiate buybacks between now and year-end? Just talk to us around capital management and how should we think about the ROE going from here from 15% to the, I think, the high teens, 17% to 18% that you expected to get to.
Speaker Change: So, obviously, first, we're very pleased with our capital levels as we are closing the CWB transaction. As I mentioned, we're very pleased with our capital levels as we are closing the CWB transaction.
The impact of the transaction was only 15 basis points.
Speaker Change: Obviously, migration to the ARB methodology is a key component of our capital plan deployment strategy, which we are quite confident will include share buyback in 2026.
Speaker Change: Our intention is to share with you the strategy as the year unfolds. So around Q4 we'll be presenting a full capital deployment plan.
Speaker Change: And for the time being, in 2025, we're very comfortable with our capital levels as it sits.
Maybe I could jump in, Ibram. It's Laurent.
Ibram: so that you get a sense of how we're thinking about it strategically.
Ibram: There are a few things. The first thing is we have a bank to integrate and we are one month into it. So far, everything is on target and we are quite optimistic about it. We want to be further along, so that is the first thing.
Ibram: The current environment, you know, economic, trade concerns, clients are nervous right now and there's, you know, an evolving credit cycle and, again, uncertainty around monetary policy with the Fed and also with the Bank of Canada. So that's another thing to keep in mind.
Ibram: Having said that, I think, you know, you're pointing it out.
Really strong capital position.
Ibram: AIRB upside. So this is all optionality for us. And I like to have that optionality right now throughout the year, given, you know, the integration, support our clients and take advantage of opportunities, because we might see, you know, more opportunities in the coming months.
Ibram: So, share buyback is definitely going to be part of the plan, but Q3-Q4 is when we're going to be able to provide you with a more detailed plan on how we're going to move forward on capital.
Speaker Change: Thank you. The following question is from Doug Young from Desjardins Capital Markets. Please go ahead.
Doug Young: Hi, good morning. Just wanted to go back to the CACHE EPS guidance, just make sure that I'm
Speaker Change: Crystal clear that I understand this. So fiscal 25, the outlook is for mid-single digit growth excluding the amortization of the net fair value mark. And so if I include the net fair value mark, which is the way that you're going to disclose it,
Speaker Change: which given the 293 you put up this quarter, you know, kind of leads to a substantial decline sequentially in the last three quarters of the year.
Speaker Change: So I just I just want to make sure that does that land like does that do I have that right or I'm missing something and if I'm right just want to understand maybe I know PCLs would be part of that. Is there anything else that's kind of that in there that we should be thinking about?
Speaker Change: I know, it's Marie Chantal, and you've got this absolutely right.
Speaker Change: If we do not exclude the amortization of the fair value mark, EPS would be closer to low single digits.
Speaker Change: So you're absolutely right and we've included as well guidance as Jean-Sébastien has shared. So therefore there could be a quarter where we see EPS declining.
before he ran.
You're absolutely right. Your months are good.
Speaker Change: which isn't usually the case. Is this more like just normalization of capital markets? Or is this like broad based across all of the divisions?
Speaker Change: Just trying to understand if there's more that I should be thinking about.
Speaker Change: a substantial quarter, so we definitely did not replicate that for the rest of the year. Maybe Sandhya would want to give some color on what you're seeing in terms of business. Yeah, thanks. Hi Doug, it's Etienne.
Speaker Change: For the outlook for the financial market, it's true that Q1 was certainly a very good trading environment.
Sandhya: We had several of our largest businesses that operated significantly above trend. So for the rest of the year we anticipate a trading performance that is solid but more aligned to long-term trend.
So...
That said, we have given guidance.
Sandhya: You're over here in net income growth for the remainder of the year, so it feels like we're going to get the
Sandhya: some good markets with some steady volatility and we continue to see markets that are unbalanced, pretty resilient and good risk appetite from market participants. So pockets of volatility and active clients, those are market conditions where we do well.
Is that helpful?
Yeah, I know that it is.
Sandhya: And then just going to the PCL guidance, you know, maybe this is tough to say, but like how much of the increase relates to CWB and maybe some of the volatility that comes from that loan book. And then there was also mentioned, Jean-Sebastien, I think you mentioned that on ABA on the resolutions.
Sandhya: things that have gone bad. Two-thirds of the files closed with no losses, which was the number, if I have that right.
Speaker Change: It just surprised me because of your loan to value. So I would suggest one-third actually you took losses on and giving your loan to value. I'm just trying to kind of understand for the EBA side, you know, what would have driven those losses?
Sure, so two questions there, I'll take the first one.
Speaker Change: So, we include CWB in the guidance, but I wouldn't say that CWB drives the change of the guidance at all.
Speaker Change: It's really the uncertainty that we're looking in the market. When you look at the CWB portfolio, it's weighted towards wholesale assets, which typically gives more volatility, but there's also no consumer unsecured, which is really good because the risk content is much lower.
So, or reduce consumer insecurity.
Speaker Change: Now, looking at the ABA, it's a really good question. So the loan-to-value we've given on our gross impaired loans in the past were in the 50s, and that is an average.
Speaker Change: So in this average, there includes lower LTVs and higher LTVs.
Speaker Change: And in the third, where we do take LTVs, what we observe is that their losses are really in the cohorts that are LTVs over 80%, which is not surprising.
Okay, I'll leave it at that. Thank you.
Thank you.
Speaker Change: As I play with the numbers, I'm coming up with my own understanding of what I think the margin could be, but could you speak to what the PNC margin looks like next quarter, or just maybe going forward, relative to what you reported this quarter?
Speaker Change: A little higher, a little lower, is there something you can offer?
Are you looking at the PNC view? Yes.
Speaker Change: Okay, so let me maybe unpack the elements of this quarter.
Speaker Change: So this quarter we had asset spreads that were healthy and trended slightly up with better repricing conditions on the mortgage and auto loan book and we expect that that should remain also as a trend for Q2.
Speaker Change: However, this doesn't take into effect the potential increased competitiveness that we may face as we get into the mortgage season.
Speaker Change: So, an unknown there. On the deposit spread, not surprisingly, the deposit spread has been under pressure since the beginning of the rate decreases.
Speaker Change: and it's mainly driven by the repricing of the term deposits.
Speaker Change: and keep in mind also that in the context where we are right now the volume of maturities is at an historical high and it's combined with a decreasing rate environment so all that to say that the market is very competitive on deposits right now and we expect that trend to continue also in Q2.
Speaker Change: However, we have very good momentum in demand-deposit growth, which is a positive on the deposit mix, but this quarter it was offset by the lower deposit betas on demand deposits that were bearing interest.
So that's depending on the direction of race.
Speaker Change: it could have an effect looking at the Q2. So the unknown there is the direction of the rates and also the market competitiveness. So with all these plus and minus.
Speaker Change: It's still difficult to predict in the current environment, but it could be a couple of weeks up or down, and it would not be surprising.
Speaker Change: That's helpful to understand the dynamics, but there's two other very important things that are happening next quarter. You're adding in CWV, and then there's these marks.
Speaker Change: Are you suggesting that those two, adding in CWB and the negative markers, are offsetting so we can just focus on the ongoing dynamics? Because those two are huge, and you need to address those.
Speaker Change: Yeah, of course, my comment was on NDC stand-alone, but I'll revert to Marie Chantand for the non-bank. Yeah, so you're absolutely right, those are two important elements.
Speaker Change: So, as we just closed CWB, it's just a little bit too early for us to give some guidance on the pro-forma combined, all-bank trading NIM.
Speaker Change: So we ask for a bit of patience as we go along.
Speaker Change: We'll be closing our first quarter in Q2, and this is where we'll be able to give more color on the net fair value mark amortization.
It will.
Speaker Change: through the NII. So yes, it will be impacting the NIM. But we'll be able to give more color and explanation on that and lots of other things in the next quarter. I can do my own math on the negative effect on NII from the disclosure you've give us that Nisen Impact. I can do that.
Speaker Change: But maybe let me ask this all else equal with the addition of CWB caused that domestic retail the PNC margin to go up
Thank you for watching!
Speaker Change: All that being equal. Let's put it this way, if you ignore the marks, and all we think about is adding in CWB, because I certainly understand CWB's margin prior to being acquired by National Bank, it was higher.
Speaker Change: I'm assuming that X the mark, your PNC margin would have gone up.
Speaker Change: To start with, I think it's a fair assumption. Alright, that's fine. The other question relates to this benefit of the ARIB at a very simple level.
Speaker Change: CWEB's risk density was 20 points, almost 30 points higher than the risk density we see for National Bank. Now I'm not asking for precision here because I know this is complicated, but just directionally.
Would you endorse?
Speaker Change: an analysis that would have CWB's risk density, or those loans approximate National Bank's risk density over the long term, or is there something unique to CWB that would prevent that from happening?
No, no, I think that's absolutely a fair assumption.
Speaker Change: I get it, there's no precision here, this is just playing with numbers for now, but I appreciate your help, thank you.
Thank you. You're welcome.
Speaker Change: Thank you. Our following question is from Paul Holden from CIBC. Please go ahead.
Yeah, thank you. Good morning.
Paul Holden: First question I want to ask is on the outlook for the commercial loan growth. You reiterated your expectation for low teens. We have heard some of your competitors talk about seeing a slowdown in commercial already.
Paul Holden: just because of the tariff uncertainty. So maybe you can address why you're still confident in that growth outlook or if you are seeing any slowdown at all sort of in the interim.
Paul Holden: Yeah, Paul, it's Michael. Let me, um, I'll give you a...
Paul Holden: two comments as preface that answer your question. The first thing is that, like with the other banks, in moments like this which are challenging, kind of going back to COVID, going back to previous tariffs, we're in a very, very close touch with our clients, so we're going to be able to respond when our clients need us to respond.
Speaker Change: And then secondly, as J.S. said, there's a whole lot of uncertainty. Uncertainty with respect to policy, but also a variety of outcomes for Canadian companies as it relates to tariffs.
looking to price elasticity demand by supply markets, etc.
Speaker Change: But for now, again, the guidance for the year was low double-digit growth. Based on what we're seeing right now in our pipelines and client discussions, we stand by that.
Speaker Change: And one of the main reasons is a lot of our growth does boil back to insured commercial real estate.
Speaker Change: And there, notwithstanding the second and third-order effects of tariffs, there, the underlying intrinsics remain positive in terms of the desire for, the need for more accommodation, the need for more development.
Speaker Change: So that's what we're seeing, Paul, with respect to the particularities of our portfolio and client base.
Paul Holden: Okay, that's helpful. Second question, also tariff related. As you look at the composition or mix within the commercial loan book, specifically in Canada, is there anything in there that worries you in terms of...
Speaker Change: How tariff, if implemented, might impact credit losses? Is there any particular exposure that you're more worried about than the overall book?
J.F.: Thanks, Paul, for your question. It's J.F., I'll take this one. So, clearly, a lot of uncertainties.
J.F.: We can expect some first, second, and third order impacts. And what we found in talking to our clients is that the structure of each client or contract of each client as they are exporting is very important.
J.F.: in terms of passing the tariff impacts to OEMs or other companies. So there's a lot of details to look into this.
J.F.: But, I think the takeaway for me is when I combine what I call higher risk industries, auto, aluminum, steel, and I combine those, they're a fraction of a percent of my wholesale book.
J.F.: And the second thing that I look for is, how are my level of provisioning? And my level of performing provisioning are at 2.1 times my last 12 months' impaired losses, which I feel is very comfortable where we are in the cycle right now.
Speaker Change: Okay, that detail on the auto-aluminum steel is useful. And then last question for me.
J.F.: Can you remind us on the CWB what you're assuming for customer retention and what that looks like so far one month into the integration? Thank you.
J.F.: Paul, it's Michael. So far, one month into the integration, customer retention remains very high.
J.F.: So, we're pleased with the stickiness of the relationship the facility has with its clients.
J.F.: So we're pleased with our progress and we anticipate our ability to retain, to perform at very high levels of customer retention combined with CWB.
All right, that's it for me. Thank you.
Speaker Change: Thank you. Our following question is from Jill Shea from UBS. Please go ahead.
Jill Shea: Good morning. Thanks so much for taking the question. On ROE, you mentioned the ROE target of the 15% extra fair value marks for 2025, and realizing there's a lot of macro uncertainty. But I was just wondering if you could touch on some of the items that you have within your control that's supportive of ROE. So maybe you could highlight some deal-related dynamics, the revenue or cost synergies, or capital optimization and rationalization over time. Like, how should we think about the pace potential? Are we
Jill Shea: improvement from sort of the bottom end of the range to like closer to the 15 to 20 percent type of range that you're targeting medium term.
Laurent Ferreira: Maybe I'll jump in. It's Laurent, and thanks for your question, Jill.
Laurent Ferreira: So, our range hasn't changed and our mid-term range is 15 to 20 with the acquisition.
We're guiding for 2025 at 15.
Speaker Change: excluding the mark that Marie Chantal talked about. And the way we're thinking about it, take CWB, roughly 10% ROE, and you bring it into the national bank mix.
Speaker Change: You tack on all the cost synergies that we've talked about over the next two to three years, the revenue synergies that Michael has talked about. We expect that in a range of two to four years,
Speaker Change: But given the integration this year, for this year, we're going to be at roughly around 15%.
Okay, thanks for that, appreciate it.
Speaker Change: Thank you. Our following question is from Shalab Garg from Veritas Investments. Please go ahead.
Thank you and good morning. My question was on...
Speaker Change: deposits. So deposit growth has lagged loan growth in the PNC and wealth business. So I was just wondering if you're starting to see more competition for deposits from peers or is it purely more so from rate declines or are there any other factors involved?
Well, I can start. It's Lucy.
Speaker Change: Definitely, the rate decreases and the market performance are favoring right now, you know, mutual funds over term deposits. So we've seen that trend started specifically Q3 last year. And that's the main, you know, factor right now that's happening on deposits because we do have very good momentum on the demand deposit side.
Speaker Change: Okay and so do you expect some material impact on margins if there are further rate declines? Let's say we have an impact from tariffs and so on.
Speaker Change: Well, if there is further rate declines there, that could bring definitely pressure on the deposit side, that's for sure.
Okay. Thank you. That's helpful. I'll turn it back on.
Thank you.
Speaker Change: Once again, please press star 1 at this time if you have a question.
Speaker Change: The following question is from Sorab Movahedi from BMO Capital Markets. Please go ahead.
Sorab Movahedi: Okay, thank you. I just wanted to clarify a couple of things. The 15% or so...
Sorab Movahedi: ROE for 2025. That's, you know, can you give us a sense of what sort of a capital ratio you expect to be operating at? Is that a 13.6? Is that a 14?
Sorab Movahedi: Is that a 12? What sort of a CET1 ratio is that 15% based on?
Sorab Movahedi: Hi, so Rob, it's Marie-Chantal. So again, the 15% target, just to make sure we're clear, excludes the amortization of the fair value mark. Otherwise, it would be slightly lower as we...
Sorab Movahedi: shared with one of your colleagues a little bit earlier. And then in terms of CT1, we expect that it be relatively stable through the year.
as stable with the level that we have in Q1.
Laurent Ferreira: Okay, so you expect to be operating around these levels and so the question, Laurent, is then that is the...
Laurent Ferreira: The trajectory back to national bank-type stand-alone levels for the combined entity, how much of that is driven by...
Speaker Change: Capital Optimization as opposed to the numerator. In other words, are you suggesting to us that you're going to be operating north of 13% CT1 or do you expect you'll be operating, I don't know, beyond 12 months in the 12 range?
Speaker Change: So, going back to the National Bank ROE level, it's a mix of everything, including capital optimization.
Thank you. Bye. Bye.
Speaker Change: We're comfortable above 13 and that's what we've guided. The level that we have right now is 13.6, a really good position given everything that's going on in the economy, given that we have to work on our integration.
Speaker Change: But, you know, hopefully by the end of the year we've cleared out most of the concerns around macro and tariffs and everything that's going around and we have a clear path towards growth in the economy.
Speaker Change: and we'll be able to provide you with a better, more clarity on how we're going to deploy capital and what's our strategy going to be exactly in terms of, you know, growth and as well as capital optimization. But it's going to be a mix of both, Saurabh.
Speaker Change: Okay, and just for Jean-Sébastien to clarify, the two files you called out, creating some lumpiness, were these already on the watch list? Yes.
Speaker Change: So, you've taken two off the watch list, but the watch list is still stable. So, does that mean two more came in? Actually, I was a little bit prudent. The watch list went down a little bit, but as a typical credit person or risk person, I'm prudent.
Okay, I just wanted to clarify that. Thank you.
Speaker Change: Thank you. We have no further questions but just at this time I would now like to turn the meeting back over to Mr. Ferreira.
Laurent Ferreira: Thank you, Operator. 2025 is an important year for us. CWB and National Bank will generate significant opportunities for our employees, our clients, and continued value creation for our shareholders. Thank you again for joining us today.
Thank you.
Laurent Ferreira: The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.
Laurent Ferreira: This conference is no longer being recorded. Cette conférence n'est plus enregistrée.