Q2 2026 National Bank of Canada Earnings Call

May 27, 2026

Speaker #1: Bank of Canada's second-quarter results conference call. I would now like to turn the meeting over to Marianne Roti. Please go ahead, Marianne.

Speaker #1: Market risk mainly driven by business growth

Speaker #3: Good morning and welcome to NATIONAL BANK OF CANADA's second quarter results conference call. I would now like to turn the meeting over to Marianne Ratte.

Speaker #1: capital.

Speaker #2: Merci and welcome everyone. 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 #1: by 32 basis points. Since the launch of our current NCIB, we

Speaker #3: Please go ahead, Marianne.

Speaker #4: Merci, and welcome everyone. We will begin the call with remarks from Laurent Ferreira, President and CEO; Marie-Chantal Gingras, CFO; and Jean-Sebastien Grise, Chief Risk Officer.

Speaker #2: Our business heads are also present for the Q&A session, including Julie Lévesque, Personal Banking; Judith Mina, Commercial and Private Banking; Nancy Paquette, Wealth Management; Étienne Dubuc, Capital Markets; and Bill Bonnell, International.

Speaker #1: Now turning the slide 11. We

Speaker #4: Our business heads are also present for the Q&A session including Julie Lévesque, Personal Banking; Judith Ménard, Commercial and Private Banking; Nancy Paquette, Wealth Management; Étienne Dubuc, Capital Markets; and Bill Bonnell, International.

Speaker #1: the acquisition of

Speaker #1: CWB. So far, we

Speaker #2: Before we begin, please refer to Slide 2 of our presentation for forward-looking statements and non-gap measures. Management will refer to adjusted results on less-otherwise noted.

Speaker #1: have realized 215 million dollars of cost and

Speaker #1: funding synergies and we are on

Speaker #1: track to reach

Speaker #2: I will now pass the call to Laurent.

Speaker #4: Before we begin, please refer to Slide 2 of our presentation for forward-looking statements and non-gap measures. Management will refer to adjusted results on less otherwise noted.

Speaker #3: Merci, Marianne, and thank you everyone for joining us. In the second quarter, we delivered EPS of $3.23, up 13% year over year. We generated a return on equity of 16.8%, while we remained while maintaining a strong CET1 ratio of 13.54%.

Speaker #1: our cost and funding synergies

Speaker #1: target to 300 2028. million dollars on an annualized

Speaker #4: I will now pass the call to Laurent.

Speaker #5: Merci, Marianne, and thank you everyone for joining us. In the second quarter, we delivered EPS of $3.23, up 13% year over year. We generated a return on equity of 16.8% while maintaining a strong CET1 ratio of 13.54%.

Speaker #1: basis. We have also realized 32 million dollars of revenue synergies since the beginning of fiscal We delivered strong 2026, mainly driven by fee income.

Speaker #3: Despite macroeconomic uncertainty, clients remain active throughout the quarter, and market conditions were favorable. This was reflected in strong growth in both our balance sheet and our fee-based businesses.

Speaker #1: As previously mentioned, revenue synergies should reach approximately 50 million dollars by the end

Speaker #3: We also benefited from credit performance, the realization of costs and funding synergies, and momentum in revenue synergies from CWB, as well as share buybacks.

Speaker #5: Despite macroeconomic uncertainty, clients remain active throughout the quarter and market conditions were favorable. This was reflected in strong growth in both our balance sheet and our fee-based businesses.

Speaker #1: We continue to target

Speaker #3: On the capital deployment front, we remain active on our NCIP. To date, we have repurchased $8.8 million shares under our program, which was upsized during Q2 to enable the purchase of up to $14.5 million shares.

Speaker #5: We also benefited from credit performance, the realization of costs and funding synergies, and momentum in revenue synergies from CWB, as well as share buybacks.

Speaker #3: Our strong earnings power and capital position also support an increase in our dividend, with today's announcement of an 8 cent or 6% increase. This brings the quarterly dividend to $1.32 per share.

Speaker #5: On the capital deployment front, we remain active on our NCIB. To date, we have repurchased $8.8 million shares under our program, which was upsized during Q2 to enable the purchase of up to $14.5 million shares.

Speaker #3: During the quarter, we completed the syndicated loan transaction with Laurentian Bank, and earlier this month, we received clearance from the Competition Bureau for the retail and SME portfolio transaction which remains on track to close by year-end, subject to remaining regulatory approvals.

Speaker #5: Our strong earnings power and capital position also support an increase in our dividend, with today's announcement of an 8 cent or 6% increase. This brings the quarterly dividend to $1.32 per share.

Speaker #3: We are committed to operating with strong capital levels and continue to target a CET1 ratio converging towards 13% by year-end of 2027. Turning now to our economic outlook.

Speaker #5: During the quarter, we completed the syndicated loan transaction with Laurentian Bank, and earlier this month, we received clearance from the Competition Bureau for the retail and SME portfolio transaction, which remains on track to close by year-end, subject to remaining regulatory approvals.

Speaker #3: Uncertainty has increased significantly with the war in Iran, which has impacted the global and Canadian economies. We expect the conflict to drive inflation and higher rates as supply chains for critical goods are disrupted and reconfigured.

Speaker #5: We are committed to operating with strong capital levels and continue to target a CET1 ratio converging towards 13% by year-end of 2027. Turning now to our economic outlook.

Speaker #3: This uncertainty could further impact business investments, which have slowed down over the past couple of years due to tariff-related uncertainty and excessive regulation. But if we look beyond the near-term Canada's wealth position to benefit from ongoing efforts to re-industrialize our economy, undertake major projects, make Canada an energy superpower, modernize our defense sector, and create champions, and invest in Arctic infrastructure to support defense, energy, and critical mineral development.

Speaker #5: Uncertainty has increased significantly with the war in Iran, which has impacted the global and Canadian economies. We expect the conflict to drive inflation and higher rates, as supply chains for critical goods are disrupted and reconfigured.

Speaker #5: This uncertainty could further impact business investments, which have slowed down over the past couple of years due to tariff-related uncertainty and excessive regulation. But if we look beyond the near-term Canada's well-positioned to benefit from ongoing efforts to reindustrialize our economy, undertake major projects, make Canada an energy superpower, modernize our defense sector, and create champions and invest in Arctic infrastructure to support defense, energy, and critical mineral development.

Speaker #3: On this, I want to acknowledge the leadership shown by the federal and provincial governments to rebuild Canada's economic sovereignty. Structural changes are required to adjust to the evolving economic and geopolitical landscape and National Bank will be there to support clients and our country's economic priority.

Speaker #3: Turning now to our business segments. PNC Banking generated net income growth of 18% year over year driven by strong growth in lending activity and mutual funds as well as credit performance.

Speaker #5: On this, I want to acknowledge the leadership shown by the federal and provincial governments to rebuild Canada's economic sovereignty. Structural changes are required to adjust to the evolving economic and geopolitical landscape, and National Bank will be there to support clients and our country's economic priority.

Speaker #3: Operating leverage was positive in the quarter. Personal Banking mortgage volumes was up 12% year over year supported by resilient housing market and share gains in Quebec.

Speaker #3: Personal deposits were slightly down sequentially as strong equity markets drove increased client flows into investment solutions and generally higher portfolio levels, contributing to an 8% increase in total personal savings year over year.

Speaker #5: Turning now to our business segments. PNC Banking generated net income growth of 18% year over year driven by strong growth in lending activity and mutual funds as well as credit performance.

Speaker #3: Commercial Banking deposits were up 7% and commercial loans were up 5% year over year. Despite macro uncertainty, clients were active within the National Bank originated loan portfolio growing by 11% year over year.

Speaker #5: Operating leverage was positive in the quarter. Personal Banking mortgage volumes was up 12% year over year supported by resilient housing market and share gains in Quebec.

Speaker #3: The CWB legacy book declined by $400 million sequentially primarily driven by commercial real estate. Our outlook for the year on commercial lending remains positive, while acknowledging that the macro context has shifted, with the conflict in the Middle East and with heightened uncertainty around the path of inflation and interest rates.

Speaker #5: Personal deposits were slightly down sequentially as strong equity markets drove increased client flows into investment solutions and generally higher portfolio levels, contributing to an 8% increase in total personal savings year over year.

Speaker #5: Commercial Banking deposits were up 7% and commercial loans were up 5% year over year. Despite macro uncertainty, clients were active within the NATIONAL Bank originated loan portfolio growing by 11% year over year.

Speaker #3: Net income in our wealth management segment increased 18% year over year, to $277 million, supported by growth across the franchise, including strong fee-based and transaction revenues.

Speaker #3: Asset under administration grew 14% over the same period to reach nearly $940 billion, benefiting from resilient equity markets and strong net sales. Capital markets generated net income of $490 million.

Speaker #5: The CWB legacy book declined by $400 million sequentially primarily driven by commercial real estate. Our outlook for the year on commercial lending remains positive.

Speaker #3: This notable performance reflects the strength of our business mix and strong execution. Trading conditions were favorable in the quarter. Our performance in global markets was primarily driven by strong client activity, including in equity structured products originations, commodities, and rates, as well as higher market-making volumes more broadly.

Speaker #5: While acknowledging that the macro context has shifted, with the conflict in the Middle East and with heightened uncertainty around the path of inflation and interest rates.

Speaker #5: Net income in our wealth management segment increased 18% year over year, to $277 million supported by growth across the franchise, including strong fee-based and transaction revenues.

Speaker #3: Record results in corporate and investment banking reflected sustained client activity across M&A corporate banking and ECM, as well as continued investments in our franchise.

Speaker #5: Asset under administration grew 14% over the same period to reach nearly $940 billion, benefiting from resilient equity markets and strong net sales. Capital markets generated net income of $490 million.

Speaker #3: Credit union generated net income of $46 million, up 15% year over year. Average assets were up 10% over the same period and 1% sequentially, as we continue to benefit from recurring flows from established partnerships.

Speaker #5: This notable performance reflects the strength of our business mix and strong execution. Trading conditions were favorable in the quarter. Our performance in global markets was primarily driven by strong client activity, including in equity structured products originations, commodities, and rates, as well as higher market-making volumes, more broadly.

Speaker #3: We remain highly disciplined in pursuing new deals given the prevailing competitive market dynamics and pricing conditions. At ABA Bank, net income increased 10% year over year, reflecting balance sheet growth and lower PCLs, partly offset by a higher efficiency ratio.

Speaker #5: Record results in corporate and investment banking reflected sustained client activity across M&A corporate banking and ECM, as well as continued investments in our franchise.

Speaker #3: Loans were up 12% year over year, while deposits grew 15% over the same period. I will now pass the call to Marie-Chantal.

Speaker #1: Thank you, Laurent, and good morning, everyone. We delivered strong results in the second quarter. Revenues increased 7% year over year, driven by solid performance across our segments, and strong balance sheet growth.

Speaker #5: Credit yield generated net income of $46 million up 15% year over year, average assets were up 10% over the same period and 1% sequentially, as we continue to benefit from recurring flows from established partnerships.

Speaker #1: PTPP grew 5%, and our businesses generated an all-bank efficiency ratio of 50.4%. Expenses increased 9.5% year over year. Of note, Q2 2026 included $15 million of litigation expenses, and Q2 2025 reflected a $22 million reversal of a property tax provision.

Speaker #5: We remain highly disciplined in pursuing new deals given the prevailing competitive market dynamics and pricing conditions. At ABA Bank, net income increased 10% year over year, reflecting balance sheet growth and lower PCLs, partly offset by a higher efficiency ratio.

Speaker #5: Loans were up 12% year over year, while deposits grew 15% over the same period. I will now pass the call to Marie-Chantal.

Speaker #1: Excluding these two items, expense growth was 7.4% in line with revenue growth. For the second half of the year, we anticipate expense growth to moderate towards the low single-digit range positioning us to deliver positive operating leverage.

Speaker #6: Thank you, Laurent, and good morning, everyone. We delivered strong results in the second quarter. Revenues increased 7% year over year, driven by solid performance across our segments, and strong balance sheet growth.

Speaker #6: PTPP grew 5%, and our businesses generated an all-bank efficiency ratio of 50.4%. Expenses increased 9.5% year over year. Of note, Q2 2026 included $15 million of litigation expenses, and Q2 2025 reflected a $22 million reversal of a property tax provision.

Speaker #1: Moving to slide 8, net interest income excluding trading grew 7% year over year. Sequentially, it was down about 5%, with fewer days in the quarter accounting for over two-thirds of the decline.

Speaker #1: Additionally, balance sheet growth was offset by credit union's prepayment revenue of approximately $12 million recorded in Q1 and a higher treasury NII in the prior quarter.

Speaker #6: Excluding these two items, expense growth was 7.4% in line with revenue growth. For the second half of the year, we anticipate expense growth to moderate towards the low single-digit range positioning us to deliver positive operating leverage.

Speaker #1: NIM in Q2 was 2.16%, down 8 basis points quarter over quarter. As expected, NII from treasury was lower sequentially, representing 4 basis points, largely offset by non-interest income.

Speaker #1: It also reflected higher prepayment activity last quarter, as well as 1 basis point decline in PNC NIM as loan growth outpaced deposit growth. Looking at next quarter, we expect the PNC NIM to be slightly down from Q2 levels.

Speaker #6: Moving to slide 8, net interest income excluding trading grew 7% year over year. Sequentially, it was down about 5%, with fewer days in the quarter accounting for over two-thirds of the decline.

Speaker #6: Additionally, balance sheet growth was offset by creditors' prepayment revenue of approximately $12 million recorded in Q1 and higher Treasury NII in the prior quarter.

Speaker #1: Deposit margin expansion is expected to be offset by commercial deposit mix. As for the all-bank NIM, we expect it should remain relatively stable next quarter.

Speaker #6: NIM in Q2 was 2.16%, down 8 basis points quarter over quarter. As expected, NII from Treasury was lower sequentially, representing 4 basis points, largely offset by non-interest income.

Speaker #1: Turning to slide 9, we continue to grow both sides of the balance sheet. Loans increased 9% year over year, and 3% quarter over quarter including the addition of the Laurentian Bank syndicated loans of $657 million.

Speaker #6: It also reflected higher prepayment activity last quarter, as well as 1 basis point decline in PNC NIM as loan growth outpaced deposit growth. Looking at next quarter, we expect the PNC NIM to be slightly down from Q2 levels.

Speaker #1: Deposits increased by $9 million or 3% sequentially. Personal demand deposits grew 1.6 billion or 2%, mainly driven by wealth management. Furthermore, our customers' appetite for investment solutions has been strong given the favorable market performance that continued in Q2 and resulted in solid growth.

Speaker #6: Deposit margin expansion is expected to be offset by commercial deposit mix. As for the all-bank NIM, we expect it should remain relatively stable next quarter.

Speaker #1: Non-retail deposits grew 7.5 billion or 4% quarter over quarter, mainly driven by commercial banking and corporate and investment banking. Now moving to capital on slide 10.

Speaker #6: Turning to slide 9, we continue to grow both sides of the balance sheet. Loans increased 9% year over year, and 3% quarter over quarter including the addition of the Laurentian Bank syndicated loans of $657

Speaker #1: We ended the quarter with a strong CT1 ratio of 13.54%, supported by capital generation of 41 basis points. Our WA growth consumed 38 basis points of capital.

Speaker #6: million. Deposits Turning the increased by $9 million or 3%

Speaker #1: Netformations were 13 basis points this quarter. Excluding the Laurentian Bank portfolio, Netformations were 12 basis points, up 5 basis points compared to last quarter.

Speaker #1: Credit risk of 25 basis points primarily reflected balance sheet growth, with 5 basis points from the acquisition of the Laurentian Bank syndicated loan portfolio.

Speaker #6: sequentially. Personal demand slide.

Speaker #6: deposits grew

Speaker #6: 1.6 billion dollars or year, and 3% quarter over

Speaker #1: And Commercial Banking’s net formations were 28 basis points, and included one file in CRE Residential Insured. On slide 26, we provide additional information on a few sectors of focus.

Speaker #6: 2%, mainly driven by quarter including the addition

Speaker #6: wealth management. of the Laurentian Bank syndicated

Speaker #6: Furthermore, our customers' appetite for loans of

Speaker #1: Market risk mainly driven by business growth consumed 9 basis points of capital. Share buybacks during the quarter reduced the CT1 ratio by 32 basis points.

Speaker #6: investment solution has

Speaker #6: been strong given the favorable

Speaker #6: market performance that continued in increased by 9 million

Speaker #6: Q2 and resulted in solid dollars or 3%

Speaker #6: growth. sequentially.

Speaker #6: Non-retail deposits

Speaker #6: grew 7.5 billion 1.6 billion dollars or

Speaker #1: Since the launch of our current NCIB, we have repurchased 8.8 million shares representing approximately 60% of the program. Now turning to slide 11. We are making solid progress on realizing synergies from the acquisition of CWB.

Speaker #6: dollars or 4% quarter over 2%, mainly driven

Speaker #6: quarter, mainly driven by

Speaker #6: commercial banking and Furthermore, our customers'

Speaker #6: corporate and investment appetite for investment solutions

Speaker #6: banking. Now moving has been strong given the favorable

Speaker #6: to capital on slide

Speaker #6: 10. Q2 and resulted in

Speaker #6: We ended the quarter with a solid

Speaker #6: strong CT1 ratio of growth.

Speaker #6: 13.54%, supported by capital generation

Speaker #1: So far, we have realized 215 million of cost and funding synergies and we are on track to reach 270 million by the end of fiscal 2026.

Speaker #6: of $41 basis quarter over quarter, mainly driven

Speaker #6: points. Our WA growth by commercial banking

Speaker #6: consumed $38 basis

Speaker #6: points of capital.

Speaker #6: Credit risk of 25 basis

Speaker #6: points primarily reflected

Speaker #1: Moreover, we are increasing our cost and funding synergies target to 300 million on an annualized basis. We have also realized 33 million of revenue synergies since the beginning of fiscal 2026, mainly driven by fee income.

Speaker #6: balance sheet growth, with 10.

Speaker #6: 5 basis points from the acquisition of the Laurentian

Speaker #6: Bank syndicated loan 13.54%, supported by capital

Speaker #6: portfolio. Market risk mainly driven generation of 41 basis

Speaker #6: by business growth points.

Speaker #6: consumed 9 basis points of

Speaker #6: capital. Share basis points of capital.

Speaker #6: buybacks during the quarter

Speaker #6: reduced the CT1 ratio by points primarily

Speaker #6: 32 basis reflected balance sheet growth

Speaker #1: As previously mentioned, revenue synergies should reach approximately 50 million by the end of this fiscal year. We continue to target 200 to 250 million in revenue synergies by the end of fiscal 2028.

Speaker #6: points. Since the launch of our with 5 basis points

Speaker #6: current NCIB, we

Speaker #6: have repurchased 8.8

Speaker #6: million shares representing portfolio.

Speaker #6: approximately 60%

Speaker #6: of the consumed 9 basis points of

Speaker #6: program. Now turning to

Speaker #6: slide 11. We are making solid progress on Share buybacks during the

Speaker #6: realizing synergies from the acquisition of quarter reduced the CT1 ratio

Speaker #1: We delivered strong results across both quarters of the first half, supported by solid underlying performance across our businesses, ongoing cost discipline and realization of CWB synergies, with credit remaining within expectations.

Speaker #6: CWB. So far, we have

Speaker #6: realized $215 have repurchased

Speaker #6: million of cost and funding 8.8 million shares

Speaker #6: synergies and we are on track representing approximately

Speaker #6: to reach $270 60% of the

Speaker #6: million by the end program.

Speaker #6: of fiscal

Speaker #6: 2026. are making solid progress Moreover, we

Speaker #1: In addition, we continue to return capital to shareholders through dividend increases and ongoing share repurchase activity. We grew our EPS by 12% year to date.

Speaker #6: are increasing our on realizing synergies from

Speaker #6: cost and funding synergies

Speaker #6: target to $300 million on an annualized

Speaker #6: basis. We have

Speaker #6: also realized $33

Speaker #1: While the macroeconomic landscape continues to be uncertain, our outlook for the remainder of the year remains positive. For the second half of 2026, we expect EPS growth to be in line with our performance year to date.

Speaker #6: million of revenue

Speaker #6: synergies since the beginning of 270 million dollars by the end

Speaker #6: fiscal of fiscal

Speaker #6: 2026, mainly driven by fee 2026. income. As previously mentioned, revenue synergies should reach approximately $50 million by the end of this fiscal year. We continue to target $200 to $250 million in revenue synergies by the end of fiscal

Speaker #1: We also anticipate expense growth trending towards the low single-digit range contributing to a positive operating leverage for the remainder of the year. Having generated an ROE of 16.7% year to date, alongside strong capital markets performance, we remain on track to achieve our ROE target of approximately 16% in fiscal 2026.

Speaker #6: results across both quarters of the first half, supported by solid underlying

Speaker #6: performance across our

Speaker #6: businesses, ongoing cost discipline and year.

Speaker #6: realization of CWB synergies, with credit remaining within expectations. In addition, we continue to return capital to shareholders through dividend increases and ongoing share repurchase activity.

Speaker #1: synergies by the end of fiscal 2028. We delivered strong results across both quarters of the first half, supported by solid underlying performance across our businesses, ongoing cost discipline and realization of CWB

Speaker #1: With that, I will turn the call over to Jean-Sébastien.

Speaker #2: Merci, Marie-Chantal, and good morning, everyone. Since our last call, the Canadian economy has grown modestly, while the labour market continued to weaken. The conflict in the Middle East is adding another layer of uncertainty, by putting pressure on energy prices, inflation, and interest rates.

Speaker #2: 14, our total allowances for graded losses were 2.6 billion.

Speaker #1: synergies, with credit remaining within expectations. In addition, we continue. 12% year-to-date. While the macroeconomic landscape continues to be uncertain, our outlook for the remainder of the year

Speaker #2: That said, strategic trade diversification and accelerated nation-building projects in energy natural resources and infrastructure should help to support future economic activity. In this complex environment, our resilient portfolio mix disciplined risk management, and prudent provisioning underpinned our strong credit performance.

Speaker #2: Now turning to the second quarter results on slide 13. Total PCL were 233 million including the initial provision on performing loans of 6 million or 1 basis points, related to the Laurentian Bank syndicated loan portfolio.

Speaker #2: Adjusted total PCL were 227 million or 30 basis points, down 2 basis points quarter over quarter. We added 4 basis points of adjusted performing provisions in Q2, mainly reflecting portfolio growth, and unfavorable macroeconomic scenarios.

Speaker #2: Which included a higher unemployment rate and more pessimistic outlooks for both equity markets and housing prices. PCL on impaired loans were 192 million or 26 basis points, down 2 basis points quarter over quarter, and within our guidance of 25 to 35 basis points for the full year.

With that, I will turn the call over to Jeanne sebaste.

Speaker #2: Personal banking provisions were $2 million higher sequentially, mainly driven by consumer credit. Commercial banking provisions rose 12 million quarter over quarter, mainly driven by the real estate and construction sectors.

The conflict in the Middle East is adding another layer of uncertainty by putting pressure on Energy prices, inflation and interest rates.

Speaker #2: Capital markets reported a 1 million recovery, related to one file. At Credigy, provisions decreased by $3 million US, resulting from the normal seasoning of residential mortgages and consumer loans.

Speaker #2: At ABA, impaired provisions were down by $4 million US sequentially to $13 million US, reflecting lower formations. Turning to slide 14. Our total allowances for credit losses were 2.6 billion, representing 5.1 times coverage of our net charge-offs.

Now, turning to the second quarter results on slide 13.

total PCL were 233 million including the initial provision on performing loans of 6 million or 1 basis points related to the Laurentian Bank syndicated loan portfolio,

Speaker #2: Our performing allowances were 1.7 billion, demonstrating a strong performing ACL coverage ratio of 2.2 times, we have been building allowances for the past 16 quarters and continue to be comfortable with our prudent and defensive provisioning levels.

adjusted total PCL were 227 million or 30 basis points.

Down 2 basis points, quarter over quarter.

Speaker #2: Turning to slide 15. Our gross impaired loan ratio was 114 basis points, up 3 basis points quarter over quarter. Laurentian Bank syndicated loans accounted for 40 million or 1 basis point.

We added 4 basis points of adjusted performing Provisions in Q2, mainly reflecting, portfolio growth and unfavorable macroeconomic scenarios.

Which included a higher unemployment rate?

And more pessimistic outlooks for both equity markets and housing prices.

Speaker #2: Gills excluding USSFNI were 84 basis points, up 3 basis points sequentially. Net formations were 13 basis points this quarter, excluding the Laurentian Bank portfolio, net formations were 12 basis points, up 5 basis points compared to last quarter.

PCL and impaired, loans were 192 million or 26, basis points down, 2 basis points quarter of a quarter. And within our guidance of 25 to 35 basis points for the full year,

Speaker #2: In commercial bankings, net formations were 28 basis points, and included one file in CRE residential insured. On slide 26, we provide additional information on a few sectors of focus.

Personal banking Provisions were 2 million dollar, higher sequentially, mainly driven by Consumer Credit.

Commercial Banking, Provisions, Rose 12 million quarter of a quarter.

Mainly driven by the real estate and construction sectors.

Speaker #2: Of note, we have limited exposures to US non-bank financial, NAV lending, and software. In conclusion, we are pleased with the credit performance in the second quarter and first half of the year, and continue to expect impaired provisions to be within the 25 to 35 basis point range for the four fiscal 2026.

Capital markets reported a 1 million recovery.

Related to 1 file.

At Credigy, provisions decreased by $3 million US.

Speaker #2: In the current context of heightened uncertainty, and softer labour market conditions, we expect further gradual increases in PCL, while our wholesale book remains subject to periodic lumpiness.

At ABA impaired, Provisions were down by 4 million us. Sequentially to 13 million us reflecting lower formations,

Turning to slide 14.

Speaker #2: However, our defensive qualities resilient business mix and prudent allowances position us well for the remainder of the year. And with that, I will now turn the call back to the operator for the Q&A.

Speaker #1: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again.

Speaker #1: Thank you. Your first question comes from John Aiken with Jefferies. Your line is open.

Speaker #3: Good morning. Now, as we look towards you achieving the target of 30% CPT1 ratio, can we assume that what we saw in the second quarter is going to be pretty much the blueprint moving forward, where the internal generated capital remains very strong, and but it's being fought off by the share repurchase, but also risk-related asset growth?

Speaker #3: I mean, is this something that, I mean, not definitively, but is this something that we should be expecting moving forward in future quarters?

Speaker #2: Thank you for your question. At a high level, yes. You have sometimes a period of volatility, which could impact market risk RWA, so that is a factor that we have to take into consideration.

Speaker #2: But I guess at a very high level, yes, you should expect us to continue executing at these levels.

Speaker #3: Great. Thank you. And then in terms of the risk-related asset growth, I don't know if this is for Mary Shantel or not, but in terms of the expected growth, assuming that Canadian consumer remains a little bit in trouble, I guess the density on the commercial side is going to cause growth on that side.

Speaker #3: Is that a reasonable outlook?

Speaker #1: John, can you please repeat the question?

Speaker #3: Sorry. Yes. In terms of risk-related asset growth, presumably the outlook is on the stronger on commercial and higher density is going to lead to the potentially a risk-related asset acceleration.

In the current context of heightened uncertainty and software labor market conditions,

We expect further, gradual increases in PCL.

While our wholesale book remains subject to periodic lumpiness.

Speaker #1: Yeah. In that context, that could be a good assumption.

However, our defensive qualities.

Speaker #3: Fantastic. Thank you. I'll read to you.

Speaker #1: Yeah. Your next question comes from Matthew Lee with Canaccord Genuity. Your line is open.

Resilient business, this mix and prudent allowances position us well for the remainder of the year.

And with that, I will now turn the call back to the operator for the Q&A.

Speaker #4: Hi, good morning. Thanks for taking my question. Maybe just one on PNC loan growth continues to be pretty strong. Deposit trend a little bit more mixed this quarter.

Speaker #4: Anything with the franchise today, is the pace and mix of core deposit growth influencing economics of new lending or the path of PNC margins?

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad, if you would like to withdraw your question, simply press star 1 again, thank you.

Speaker #4: And is that going to be the main source of new pressure as you look into Q3 and maybe Q4?

Your first question comes from John Aiken, with Jeffrey's your line is open.

Speaker #1: Matthew? It's Matthew Shantel, so maybe I can start with a few points on the NIM going forward and what we are seeing this quarter, and then Judy can take a moment to speak about more of the outlook in terms of loans and deposit growth for the PNC.

Good morning. Laura as we as we look towards you achieving the target of 13% ct1 ratio. Can we assume that what we saw in the second quarter is going to be pretty much the the blueprint moving forward where you know the internally generated Capital remains very strong and you know but it's being fought off by the uh the share share of purchases but also riskier asset growth. I mean, is this something that I mean, not, not definitively but is this something that we should be expecting? Moving forward in future quarters,

Speaker #1: So for the NIM, let's take a moment just to look at the All Bank NIM, and then I'll go a little bit deeper in the PNC NIM.

Speaker #1: So the Q2 decline of the All Bank NIM, as I explained in my remarks, is something that we had anticipated for this quarter. So recall that in Q1, we benefited from a particularly strong NII driven by ALM activities.

Uh, thank you for your question. Um, at a high level. Yes. Um, you know, you you have, um, you know, sometimes period of of volatility which could impact uh, Market risk arwa so that you know, as a factor that we have to take into consideration.

Speaker #1: And in Q2, the Treasury performance remained solid, although reported NII was lower sequentially, largely offset in non-interest income due to the accounting of some hedges, which happens from time to time.

Uh, but I guess, you know, at a very high level. Yes, you should expect us to continue executing, uh, at these levels.

Speaker #1: So on the total revenue basis, that said, Treasury, as I said, had a very strong second quarter, and the overall impact from Treasury on the All Bank NIM represents approximately 4 basis points sequentially to the All Bank NIM.

Great, thank you. And then, you know, in terms of the the risk weighted asset growth, uh, don't know if this is for mayor Chantal or not, but uh, um, in terms of the expected growth assuming that uh, the Canadian consumer remains a little bit in trouble. I guess, the the density on the commercial side is going to cause uh, cause growth in that site. Is that is that a reasonable look?

Speaker #1: Additionally, we had some prepayment activity last quarter from CreditG, also impacted the NIM by 1 basis points Q over Q, which is something that we had also mentioned.

Speaker #1: Now, when you look at the PNC NIM decline this quarter, improved deposit margins was offset by volume mix as loan growth outpaced deposit growth.

Oh, John, can you please repeat the question? Sorry. Yes, in terms of risk related asset growth. It presumably, the Outlook is on a bit stronger on Commercial and higher density is going to lead to the uh, potentially a risk weighted asset acceleration.

Yeah, in that context, that could be uh, a good assumption.

Fantastic. Thank you. I'll reach you.

Yeah.

Speaker #1: So that's something that we've also shared in the past, and that's something that you're seeing when you look at our loan growth volumes as well as deposit volumes.

your next question comes from Matthew Lee with canaccord genuity, your line is open

Speaker #1: Looking ahead, we expect the All Bank NIM to remain relatively stable in Q3. From Q2 levels, and we do expect a slight decline on the PNC NIM in Q3 driven by mixed dynamics in commercial deposits, partly offset by continued repricing benefits on our core deposits.

Hi, good morning, thanks for taking my question. Maybe just one on PNC—loan growth continues to be pretty strong, but deposit trends were a little bit more mixed this quarter.

Anything with a franchise today is a pace and mix of core deposit growth, influencing economics of new Lending.

Speaker #1: Also, we expect the Treasury NII to revert toward a midpoint between Q1 and Q2 levels. That's a bit of what happened in terms of the NIMs and on the PNC NIM.

or the path of PNC margins and is that going to be the main source of nim pressure as you look into Q3 and Q4,

Matthew.

Speaker #5: So if I look into this is Julie. So if we talk about deposits specifically for retail, deposit outlook remains consistent with the current market trends.

Speaker #5: The continuation of low interest rates through the end of 2026 limits the relative attractiveness of deposits and continues to drive outflows from GICs. While the market returns are expected to normalize, potentially slowing the pace of migration towards funds, the underlying dynamic is not expected to reverse.

Speaker #5: As a result, deposit growth is expected to remain flat. Should this on the commercial side, I don't know if you want to jump in.

Speaker #1: Yeah.

Speaker #5: So thanks for your question. So deposit growth on the commercial banking side remains the strategic focus, and we're really well positioned to capitalize on a significant opportunity to grow our penetration in cash management product.

Speaker #5: And just to give you an idea on our cash management and deposit strategy, we have three pillars. The first one, we've been operating our online banking platform.

Speaker #5: It's almost done. Second, we're expanding our Treasury management team to deepen client engagement to support deposit growth. This is in process. And third, we're enhancing our deposit solutions through more targeted offerings by client segments and industry.

Speaker #5: So we're very positive on the outlook on the deposits on the commercial banking side.

Speaker #2: Okay. So if I'm taking that together, for the next couple of quarters, we should continue to see loan growth outpacing deposits. And if so, we should still continue to see PNC banking NIM face some pressure.

Speaker #1: That's correct, Matthew.

Activities. And in Q2, the treasury, performance remains solid, although reported an II was lower sequentially, largely offset in non-interest, um, income. Due to the accounting of some Hedges, which happened from time to time. So, on a total revenue basis, Etc, treasury. As I said at a very strong, uh, second quarter and the overall impact from treasury on the our bank name represents approximately 4 basis, point sequentially to the, to the all Nightmare. Um, additionally we had some prepayment activity last quarter from credit G. Also impacted the name by 1 basis points Q over Q which is something that we had also mentioned.

Speaker #2: Okay. That's helpful. Thanks.

Speaker #1: The next question comes from Ibrahim Punawala with Bank of America. Your line is open.

now, when you look at the PNC Nim, um, decline this quarter

Speaker #3: Hey, good morning. I guess maybe first question, Nurul, for you around I think you said that the uncertainty on the macro side has led to a slowdown in investment spend.

Speaker #3: And then you went on to outline a lot of good things that could happen in the future. Just give us a sense of it feels like the Quebec economy has had a delayed impact in terms of the slowdown.

Speaker #3: So when you look at this job picture locally, what's happening just from a credit standpoint, do you think that lagged effect that Quebec may be feeling will show up with somewhat higher PCLs over the coming quarters?

Improved deposit. Margins was offset by volume mix. As long growth, outpace, deposit growth. So that's something that we've we've also shared in the past and it's something that you you're seeing. When you look at our loan growth, volume as well as deposit volumes looking ahead, we expect the all back name to remain relatively stable in Q3 from Q2 levels, and we do expect a slight decline on the PNC name in Q3 driven by mix, Dynamics and Commercial deposits.

Speaker #3: How would you frame the year-end now in terms of, let's say, economic activity and how that could translate into credit trends?

Speaker #2: Ibrahim, thank you for your question. So maybe so let's start with Canada in general. General delayed reaction, labor markets suffering a little bit more now across the country.

Speaker #2: Quebec as well. And the uncertainty also around Kuzma and commercial tensions for our country. Those are all factors I think that are impacting growth and investment in businesses.

Speaker #2: And so we feel it feels like we are a bit in a lull in our country in terms of in business investment. And in my prepared remarks, I've said this publicly, we are definitely encouraged by the shift in our government towards a focus on the economy.

Speaker #6: We grew our EPS by 12% year to

Speaker #6: date. While the macroeconomic 260 million dollars in revenue

Speaker #6: landscape continues to be uncertain, our outlook for the remainder of the year remains positive.

Speaker #2: So to us, that loads really well going forward. Now, in terms of changing ask the question about outlook on PCL. It doesn't change our outlook, but maybe I'll ask John Sebastian to comment on our outlook regarding PCLs for.

Speaker #3: Yeah. So we just reaffirmed our guidance for total bank. If you look at the retail book in Quebec versus rest of Canada, so the retail book in Quebec has outperformed for the past several years.

Speaker #3: So it would be normal to see a little deterioration. I agree with you. You pointed out the higher unemployment. However, I would be cautious in not pointing it as a trend as we've seen a large shift this quarter, but I would wait for a couple of quarters before we see longer-lasting trends before having a conclusion.

Speaker #3: But the fundamentals of the Quebec markets remain. Which is a strong saving rate, more double income, families, and low housing prices. And to add on top of that, I'd remind you that we have a low unsecured proportion in our total portfolio, which is where typically it would shift the first.

Speaker #3: And the performing of unsecured portfolio in Quebec is particularly good given the fact that we're overpenetrated in homeowners, which is the place where typically delinquencies and losses are lower.

Speaker #5: Got it. Thank you. And as a follow-up on the capital and the buyback, discussion earlier, as you think about just I mean, obviously, you have a lot of excess capital, high ROEs, so you're generating a lot.

Speaker #5: When we think about just is there any level of sensitivity when you look at the stock from price to earnings, price to book, or your internal return on those?

Speaker #5: Just I'm wondering or is it more about you want to do X amount of buybacks and keep capital levels at a steady state? And your as a result, not particularly sensitive to where the stock's sitting at any given point in time.

Speaker #5: Just would love to hear how you think about it.

Speaker #2: That's a great question, Ibrahim. We'll adjust from time to time. So if we do see opportunities to increase the pace of our buyback because we think our stock is not performing at the same level as others, for instance, like we saw.

Speaker #2: A period of time in January, where our stock was not performing at the same level as others, and we did take advantage of that.

Speaker #2: So we are a little bit dynamic in the way we manage the buyback. But in terms of change in our strategy, because of our stock price, there's no change in strategy.

Speaker #2: The only thing that would change our strategy is a big shift in macro. If there's a big shift in macro, where inflation is picking up and interest rates are picking up and we think that the macro environment will deteriorate, we'll revisit.

Speaker #2: So that's kind of the philosophy. But we'll take advantage of price swings if we can. But our strategy is pretty steady.

Speaker #5: Excellent. Thank you.

Speaker #1: Your next question comes from Mike Lisbanovic with Scotiabank. Your line is open.

Speaker #4: Hey, good morning. I had a question for Judith. I guess a two-part question. So one, just on the CWB loans coming off. I think $400 million is what you flagged.

Speaker #4: So it does move the needle on your year-over-year performance. So 11% gets down to 5. I guess I'm wondering, how much of that is more recent?

Speaker #4: Is this just a normal part of the process of getting out of areas where you maybe are not comfortable on the risk side or for whatever other reason?

Speaker #4: Are you to the point where it's almost done at this point, or is there more potentially to go there?

Speaker #6: Okay. Thanks for your question. So I'll start by saying that as expected, our sequential commercial loan growth was consistent with the previous several quarters.

Speaker #6: So there's no surprise on that. So and on the just I will comment on the legacy national bank portfolio. So despite macroeconomic uncertainty, clients remain very active throughout the quarter.

Speaker #6: And we're very happy we've delivered another quarter of double-digit year-over-year growth. So our core it is really as per our strategy, and this I want to point out, our core commercial banking grew more than real estate.

Speaker #6: And that's really focused on both mid-market and large client segments across all geographical footprint. So that's the first part. So if we go on the CWB side, so I want to offer three things.

Speaker #6: First, the performance of the CWB portfolio has been as expected. As mentioned in the last few calls, our teams have been focused on supporting the client experience throughout the conversion.

Speaker #6: No surprise around that. This focus has supported strong level of client retention. We pay out volumes remaining below pre-acquisition average. So that would be the first point.

Speaker #6: The second point is integration activities that created short-term headwinds and capacity for new volume, which has not been sufficient to offset regular payment and payout.

Speaker #6: This has been particularly pronounced in the commercial real estate portfolio as Laurent said in his remark. And which contain amortizing commercial mortgages, interim construction financing that pays out a successful project completion.

Speaker #6: And the third point I want to offer is now the integration impact has clearly moderated and our teams are well positioned to return to generating new volume.

Speaker #6: With early signs of recovery with a visible improving pipeline. While we maintain pricing discipline, obviously. So we're positive on the opportunities in front of us to drive growth on the CWB portfolio.

Speaker #6: And what I would like to say also on the is it finished, the integration? I would say that where we are right now, conversion and integration is finished.

Speaker #6: And we're going back to normal state in the next few quarters. That's what I want to offer to you.

Speaker #4: Okay. So really nothing on the credit side that surprised you more recently. There's nothing related to credit?

Speaker #6: No. Nothing on the credit side. I'm comfortable with what I see in front of me.

Speaker #4: Okay. Perfect. And then just quickly on the 11% growth ex-CWB, that's a really robust number. And I'm wondering if you could just sort of delineate between growth in Quebec, your core market, and some of the maybe the low-hanging fruit that you're getting outside of the Quebec market as you expand.

Speaker #4: Yeah. I guess in Western Canada in particular. Any color on that?

Speaker #6: Yes. Yes. So on our kind of legacy NBC portfolio, our growth in Western Canada has been really high. And Ontario as well. I want to point out Ontario.

Speaker #6: But Quebec is also growing at a faster pace. So I would say that just to map it out, Western Canada faster; Ontario and Quebec.

Speaker #6: That's how I would share that.

Speaker #4: Okay. Thank you for the color.

Speaker #1: Your next question comes from Sohrab Mulvahedi with BMO Capital Markets. Your line is open.

Speaker #4: Okay. Thank you. I just maybe, Judith, can I just pick up there for a second? This growth, is it net new clients, or are you increasing lending with existing clients?

Speaker #6: So it's mostly net new clients. We've also increasing, but we're seeing some momentum with net new clients. And that's been our focus.

Speaker #4: Okay. Thanks. Etienne, you had talked to us about pre-tax reprovision. Maybe I can just get a reminder. What do you think your segment pre-tax reprovision is likely to do this year now that you've got two quarters under your belt?

Speaker #1: Judith, I guess the two-part question. So one, just on the CWB loans coming off, I think $400 million is what you flagged. So it does move the needle on your year-over-year performance.

Speaker #1: For 2027. So does that answer your question, Sohrab?

Speaker #2: Yeah, that's perfect. Thank you very much, thanks for taking my question.

Speaker #1: Perfect. Thank you.

Speaker #1: So 11% gets down to 5. I guess I'm wondering, how much of that is more recent? Is this just a normal part of the process of getting out of areas where you maybe are not comfortable on the risk side or for whatever other reason?

Speaker #3: Your next question comes from Doug Young with Desjardins. Your line is open.

Speaker #2: Yeah. Hi, Sohrab. So yeah, thanks for the question. So I'd say overall, we continue to feel good about the outlook. And I feel confident now about our ability to hit the top of the PTPP guidance that we had given for fiscal 26.

Speaker #4: Hi, good morning. Just maybe starting on the credit side, two things. New gross impaired loan formations and I look at it on a gross, not net, but gross loan formations did jump sequentially in, I think, even year over year.

Speaker #1: Are you to the point where it's almost done at this point, or is there more potentially to go there?

Speaker #2: Okay. Thanks, Mike, for your question. So I'll start by saying that as expected, or sequential commercial loan growth was consistent with the previous several quarters.

Speaker #2: So we've had obviously a really strong performance in both Q1 and Q2 with a lot of great deal activity. And very supportive market conditions across several businesses.

Speaker #4: And it looked like write-offs were a little bit elevated. So I'm just maybe you can talk a little bit about where you're seeing the pressure from a product or from a geography perspective on, again, new gross impaired loan formations and write-offs.

Speaker #2: But also, I'd say the franchise is operating from a structurally stronger position today. And you see it in our ability to execute for clients across market cycles with the ability to support increasingly complex financing and capital raising needs.

Speaker #2: So there's no surprise on that. So and on the just I will comment on the legacy national bank portfolio. So despite macroeconomic uncertainty, clients remain very active throughout the quarter.

Speaker #2: And we're very happy we've delivered another quarter of double-digit year-over-year growth. So our core it is really as per our strategy and this, I want to point out, our core commercial banking grew more than real estate.

Speaker #2: And the increasing number of leads and the improving diversification of the revenue mix so for the balance of the year, our base case is we'll see some more typical seasonal dynamics through the summer months.

Speaker #2: And the market backdrop that may be a bit less active than what we experienced in the first half while we still think it will be positive overall.

Speaker #2: And that's really focused on both mid-market and large client segments across all geographical footprint. So that's the first part. So if we go on the CWB side, so I want to offer three things.

Speaker #2: So maybe a bit of more precise color so we're seeing a structured product you're going to see less volatility we feel. But overall, investors are surprisingly resilient.

Speaker #2: First, the performance of the CWB portfolio has been as expected as mentioned in the last few calls or teams. I've been focused on supporting the client experience throughout the conversion.

Speaker #2: And they continue calling products and that should mean good issuance volumes. And the intermediation businesses, it's really our scale and execution capabilities that continue to position us as well support client flow across different market regimes.

Speaker #2: No surprise around that. This focus has supported strong level of client retention with payout volumes remaining below pre-acquisition average. So that would be the first point.

Speaker #2: The second point is integration activities have created short-term headwinds and capacity for new volume, which has not been sufficient to offset regular payment and payout.

Speaker #2: And that's reinforced by our leadership in ETFs and options and domestic bond trading. And across our hedging solution businesses, we think we'll see continued activity tied to financing and infrastructure across rates effects, commodities.

Speaker #2: This has been particularly pronounced in the commercial real estate portfolio as Laurent said in his remark. And which contain amortizing commercial mortgages, interim construction financing that pays out as successful project completion.

Speaker #2: And the third point I want to offer is now the integration impact has clearly moderated in our teams are well positioned to return to generating new volume.

Speaker #2: Although part of the elevated results in Q2 may have been pulled a bit forward from later periods. And at DCM, I think there could be an interesting I mean, borrowing on both the corporate and the government side, there's good financing conditions.

Speaker #2: With early signs of recovery with visible improving pipeline. While we maintain pricing discipline, obviously. So we're positive on the opportunities in front of us to drive growth on the CWB portfolio.

Speaker #2: There's resilient investor demand. And that, I think, will translate into robust issuance activity. And we continue to see good pipeline in the corporate banking and the investment banking.

Speaker #2: And what I would like to say also on the is it finished, the integration? I would say that where we are right now, conversion and integration is finished.

Speaker #2: It's well diversified across sectors. So we think M&A remains strong. And strong markets and strong investor risk appetite I think will continue to be a good backdrop for equity and new issues.

Speaker #2: And we're going back to normal state in the next few quarters. That's what I would offer to you.

Speaker #1: Okay. So really nothing on the credit side that's surprised you more recently. There's nothing related to credit?

Speaker #4: Okay. That's very comprehensive. Maybe even it's incredibly helpful, comprehensive. Maybe you're going to even surprise yourself. And exceed the upper end. Laurent, one last one last question, maybe just for you.

Speaker #2: No. Nothing on the credit side. I'm comfortable with what I see in front of me.

Speaker #1: Okay, perfect. And then just quickly on the 11% growth ex-CWB, that's a really robust number. I'm wondering if you could just sort of delineate between growth in Quebec, your core market, and some of the, maybe, the low-hanging fruit that you're getting outside of the Quebec market as you expand, I guess, in Western Canada in particular.

Speaker #4: Last, I think last quarter, when we talked when you talked about ROE outlook, you talked about either side of 16% for 2026. And you mentioned 17% or thereabouts in 2027.

Speaker #1: Any color on that?

Speaker #2: Yes, yes. So on our kind of legacy NBC portfolio, our growth in Western Canada has been really high—and Ontario as well. I want to point out Ontario.

Speaker #4: So I guess I wanted to confirm that that 17% still remains the 2027 kind of yardstick. And does it can it benefit further based on the work you're doing in the ROE optimization in your P&C bank?

Speaker #2: But Quebec is also growing at a faster pace. So I would say that just to map it out, Western Canada faster Ontario and Quebec.

Speaker #4: Or did you have some of that benefit incorporated into the 17% type of number you were talking to us about for 2027?

Speaker #2: That's how I would share that.

Speaker #1: Okay. Thank you for the color.

Speaker #3: Your next question comes from Sohrab Movahedi with BMO Capital Markets. Your line is open.

Speaker #2: So thank you for your question. So you're correct. Last quarter, we did provide guidance for the year. We upgraded our guidance for the year from 15% to 16% for 2026.

Speaker #1: Okay. Thank you. I just maybe can I just pick up there for a second? This growth, is it net new clients, or are you increasing lending with existing clients?

Speaker #2: And maybe I should correct you, but 2027, we provided a waterfall. And it was 17 plus. That we guided for 2027. And I think Marie-Chantal, a really good explanation last quarter on the 17 plus, and also said that all the work that we're doing right now in terms of the next strategic plan are not included in our guidance for our ROE for 2027.

Speaker #2: So it's mostly net new client. We've also increasing, but we're seeing some momentum with net new client. And that's been our focus.

Speaker #1: Okay. Thanks. Again, you had talked to us about pre-tax reprovision, maybe affecting just get a reminder. What do you think your segment pre-tax reprovision is likely to do this year now that you've got two quarters under your belt?

Speaker #2: So does that answer your question, Sohrab?

Speaker #4: Yeah. That's perfect. Thank you very much. Thanks for taking my question.

Speaker #2: Perfect. Thank you.

Speaker #1: Your next question comes from Doug Young with Digital Day. Your line is open.

Speaker #4: Yeah. Hi, Sohrab. So yeah, thanks for the question. So I'd say overall, we continue to feel good about the outlook. And I feel confident now about our ability to hit the top of the PTPP guidance that we had given for fiscal 26.

Speaker #5: Hi. Good morning. Just maybe starting on the credit side, two things. New gross impaired loan formations and I look at it on a gross not net, but gross loan formations did jump sequentially in I think even year over year.

Speaker #5: And it looked like write-offs were a little bit elevated. So I'm just maybe you can talk a little bit about where you're seeing the pressure from a product or from a geography perspective on, again, new gross impaired loan formations and write-offs.

Speaker #4: So we've had obviously a really strong performance in both Q1 and Q2 with a lot of great deal activity. And very supportive market conditions across several businesses.

Speaker #6: Thanks for the question, Doug. It says JS. So pretty simple explanation to that. And we called it on the slide. So I'd say the majority of our formations in commercial were actually driven by one file in commercial real estate in western Canada.

Speaker #4: But also I think the franchise is operating from a structurally stronger position today. And you see it in our ability to execute for clients across market cycles with the ability to support increasingly complex financing and capital raising needs.

Speaker #6: And that file is insured. So you've seen us grow in residential insured in the past years. And I think this is one good feature of this growth is when the go wrong, you have some PCL protection on it.

Speaker #6: So although there is a large deal associated to it, there's no PCL associated to it.

Speaker #4: And the increasing number of leads and the improving diversification of the revenue mix so for the balance of the year, our base case is we'll see some more typical seasonal dynamics through the summer months.

Speaker #5: And have you sized at what that was in terms of loan or in terms of formation?

Speaker #6: So I can give you a little bit more detail on this. So it's a little bit more than half of the commercial formations were driven by that file.

Speaker #4: And the market backdrop that may be a bit less active than what we experienced in the first half while we still think it will be positive overall.

Speaker #5: Okay. And how about the write-offs?

Speaker #6: So the write-offs are can be lumpy. So there's always two sides to write-offs. The retail write-offs are more normal driven by credit cards and by end-of-cycles for the other portfolios.

Speaker #4: So maybe a bit of more precise color so we're seeing a structured product, you're going to see less volatility we feel. But overall, investors are surprisingly resilient and they continue calling products and that should mean good issuance volumes.

Speaker #6: And then we did arrive to the end of workouts for a couple of larger files in commercial. So when you arrive there, what you do is you de-recognize the loan and you have the correspondent write-offs.

Speaker #6: So obviously, you're seeing a little bit more lumpiness on this, this quarter.

Speaker #4: And the intermediation businesses, it's really our scale and execution capabilities that continue to position us as well support client flow across different market regimes.

Speaker #5: Okay. So it doesn't sound like in either of these two that there's anything overly concerning. Is that from your perspective?

Speaker #4: And that's reinforced by our leadership in ETFs and options and domestic bond trading. And across our hedging solution businesses, we think we'll see continued activity tied to financing and infrastructure across rates, FX, commodities.

Speaker #6: Well, I'm happy that the gross impaired loan was related to an insured file, that's for sure. But no, nothing overly concerning. If we had removed this file or deals would actually have been down a quarter over quarter.

Speaker #6: But as I mentioned in my prepared remarks, I don't think we're in an environment where the level of uncertainty has reduced. So we could expect still ebbs and flows for the deal ratios going forward.

Speaker #4: Although part of.

Speaker #5: Okay. That's clear. And then second, just on credit GE, and we do our own math and we look at the NIM or margin. And I look at the margin this quarter and I look at it relative to what an average would have been.

Speaker #5: Over the last three years, and it looks like it's down by a decent amount. And I know that you can say from last quarter, there was some prepayment that went through.

Speaker #5: But even if I look longer term, it looks like it's lower. Is there anything that's changed in the portfolio or that went through this quarter that where there would have been a material kind of impact on NII or NIM for margin for credit GE?

Speaker #6: Hi, Doug. It's Etienne. So you're right to point out a long-term slight decrease in margin. I think it's a function of we continue to prioritize secured assets.

Speaker #6: And in Q2, I think two-thirds of our investment volumes were in mortgage portfolios firstly and secondly. But a lot of firstly. And so that on a risk-reward basis, we really like it.

Speaker #6: But that's really that's where we see value right now. And if you look at other asset classes like in the unsecured space, we continue to see portfolios trading at prices that don't really reflect our view of the potential risks and performance.

Speaker #6: So conditions are a bit challenging there. So we'd rather stick to the mortgage space for now and we'll adapt and as the macro changes or as the situation evolves, we'll pivot as credit GE as many times over its history, been able to do.

Speaker #6: But you're right that margins have been going down a bit, although the risk-reward were probably in a great position. And the goal is still to deliver strong asset growth, but never jeopardize the long-term to meet short-term guidance in terms of margin or asset growth.

Speaker #5: I guess to what I've reading in this and I guess I should look at this, but if I looked at a risk-adjusted margin, it actually probably wouldn't be that different because your PCLs would be coming down as this mix shifts.

Speaker #5: And that speaks to the risk-reward. Is that a fair comment?

Speaker #6: Yeah. I think that's how I would look at it also, Doug.

Speaker #5: Yeah. Okay. I appreciate the color. Thank you.

Speaker #1: Once again, if you have a question, it is star one on your telephone keypad. Your next question comes from Darko Mihalic with RBC Capital Markets.

Speaker #1: Your line is open.

Speaker #7: Hi. Thank you. I wanted to revisit the net interest margin discussion. And your outlook is very helpful for the next quarter or so. My question is a little bit more longer term, I suppose, in nature.

Speaker #7: And it really revolves around the high level of liquidity currently covering your currently carrying. So I understand you have a 13% income and equity to fund ratio sort of target at the end of '27.

Speaker #7: What would be a more normal LCR level? And is there any kind of a drag here on your margin? And how fast would you sort of target to get to more normal liquidity levels?

Speaker #1: File is, insured. So you've seen us, grow in, in residential, insured in the past years, and I think this is one good feature of this growth is when the, the go wrong, you have some PCL protection on it.

Speaker #8: Hi, Darko. Maybe I can start and I'll let Etienne give a bit more insights from a capital markets perspective. So when looking at the LCR before going to the long-term, just I think it's worthwhile just giving a few insights on the evolution of the ratio over the past couple of quarters.

Speaker #1: So although there is a large deal associated to it, there's no PCL associated to it.

Speaker #2: And have you sized out what that was? In terms of loan or in terms of formation?

Speaker #1: So, I, I can give you a little bit more detail on this. So it's, it's a little bit more than half of the commercial formations were driven by that file.

Speaker #8: So the decrease in LCR that you saw this quarter, which is effectively a decrease from the previous quarter, but it really came back to the usual level that we're used to seeing.

Speaker #2: Okay. And how about the write-offs?

Speaker #1: So the, the write-offs are, you know, can be lumpy. So there's always two sides, the write-offs, the retail write-offs are more, you know, normal driven by credit cards and by end-of-cycles.

Speaker #8: And that's where we like to operate at National Bank. But nevertheless, the decrease came mainly driven by secured funding and collateral management activities. So it really reflects the transaction mix and timing rather than a change in our strategy as I mentioned and how we manage the bank's core liquidity positioning.

Speaker #2: Thanks for the question, Doug. It's JS, so pretty simple explanation.

Speaker #1: for, for the other portfolios. And then we did, arrive to the end of workouts for a couple of larger files in commercial. So when you arrive there, what you do is you de-recognize the loan and you have the correspondent write-offs.

Operator: Bank of Canada's Q2 results conference call. I would now like to turn the meeting over to Marianne Ratté. Please go ahead, Marianne.

Speaker #8: So the level that you're seeing right now is probably where we are we'd like to operate and we'd like to be in a good position and seize market opportunities when we see good funding opportunities.

Speaker #1: So obviously you're seeing a little bit more lumpiness on this, this quarter.

Marianne Ratté: Merci. Welcome everyone. We will begin the call with remarks from Laurent Ferreira, President and CEO, Marie-Chantal Gingras, CFO, and Jean-Sébastien Grisé, Chief Risk Officer. Our business heads are also present for the Q&A session, including Julien Lescaze, Personal Banking, Judith Ménard, Commercial and Private Banking, Nancy Paquet, Wealth Management, Étienne Dubuc, Capital Markets, and William Bonnell, International. Before we begin, please refer to slide two of our presentation for forward-looking statements and non-GAAP measures. Management will refer to adjusted results unless otherwise noted. I will now pass the call to Laurent.

Marianne Ratté: Merci. Welcome everyone. We will begin the call with remarks from Laurent Ferreira, President and CEO, Marie-Chantal Gingras, CFO, and Jean-Sébastien Grisé, Chief Risk Officer. Our business heads are also present for the Q&A session, including Julie Lévesque, Personal Banking, Judith Ménard, Commercial and Private Banking, Nancy Paquet, Wealth Management, Étienne Dubuc, Capital Markets, and Bill Bonnell, International. Before we begin, please refer to slide two of our presentation for forward-looking statements and non-GAAP measures. Management will refer to adjusted results unless otherwise noted. I will now pass the call to Laurent.

Speaker #2: Okay. So it doesn't sound like in either of these two that there's anything overly concerning. Is that from your perspective?

Speaker #8: And that's what we saw earlier in the year. So maybe Etienne, would you like to add any?

Speaker #1: Well, I-I'm happy that the gross impaired loan was related to an insured file, that's for sure. but, but no, n-nothing, n-nothing overly concerning. Like if we had removed this file our deals would actually have been down, quarter over quarter.

Speaker #6: Thanks very much, Chantal. So you said it very well. So we pre-funded a lot over the last couple of quarters. The previous couple of quarters, there were some market opportunities that were interesting.

Speaker #1: But a-as I mentioned in my prepared remarks, I, I, I don't think we're in a, in an environment where the level of uncertainty has reduced.

Speaker #6: And we and it made sense to fund and to deploy this funding in highly liquid securities within capital markets and treasury portfolios. Now that the conditions are normalizing, you're seeing our LCR drift back towards more of its long-term average.

Speaker #1: So we could expect still ebbs and flows for the Gill ratios going forward.

Speaker #2: Okay. That's, that's clear. And then second, just on credit G, you know, we do our own math and we look at the NIM or margin.

Laurent Ferreira: Merci, Marianne, and thank you everyone for joining us. In Q2, we delivered EPS of CAD 3.23, up 13% year over year. We generated a return on equity of 16.8%, while maintaining a strong CET1 ratio of 13.54%. Despite macroeconomic uncertainty, clients remained active throughout the quarter, and market conditions were favorable. This was reflected in strong growth in both our balance sheet and our fee-based businesses. We also benefited from credit performance, the realization of cost and funding synergies, and momentum in revenue synergies from CWB, as well as share buybacks. On the capital deployment front, we remain active on our NCIB. To date, we have repurchased 8.8 million shares under our program, which was upsized during Q2 to enable the purchase of up to 14.5 million shares.

Speaker #2: And I look at the margin this quarter and I look at it relative to what an average would have been, you know, over the last three years.

Speaker #6: I think over the long-term, expect us to be in the 140, 150 range but we really like having it among the highest of the big banks.

Speaker #2: and it looks like it's down, down by a decent amount. And I know that, you know, you can say from last quarter there was some prepayment that went through.

Speaker #2: But even if I look longer term, it looks like it's lower. Is there anything that's changed in the portfolio or that went through this quarter that where there would have been a, a material kind of impact on NII or, or NIM or margin for credit G?

Speaker #6: That will remain part of the strategy.

Speaker #5: And so as I think about that then, it's clear that this is really a cap market. And there's none of this that's actually sort of being pushed out through FTP into P&C Canada.

Speaker #5: Would that be a correct assumption?

Speaker #1: hi, Doug. It's Etienne. So, y-you're right to point out, a, a long-term slight decrease in margin. I think it's a function of, we, we continue to prioritize, secured assets.

Speaker #6: It is mostly in capital markets and treasury portfolios. But you're right, it's really opportunistic positioning in capital markets that are the bulk of this ratio.

Speaker #5: Okay. Thank you very much for that. That's very helpful. Another question on ABA. Just wanted to sort of revisit your outlook for ABA. It looks like there's a economy the country itself is sort of lowered its economic outlook.

Speaker #1: And in Q2, I think two-thirds of our investment volumes were in mortgage portfolios. firstly in and, and secondly, but a lot of firstly. and so that, on a risk-reward basis, we, we really like it.

Laurent Ferreira: Our strong earnings power and capital position also support an increase in our dividend with today's announcement of a CAD 0.08 or 6% increase. This brings the quarterly dividend to CAD 1.32 per share. During the quarter, we completed the syndicated loan transaction with Laurentian Bank, and earlier this month, we received clearance from the Competition Bureau for the retail and SME portfolio transaction, which remains on track to close by year-end, subject to remaining regulatory approvals. We are committed to operating with strong capital levels and continue to target a CET1 ratio converging towards 13% by year-end of 2027. Turning now to our economic outlook. Uncertainty has increased significantly with the war in Ukraine, which has impacted the global and Canadian economies. We expect the conflict to drive inflation and higher rates as supply chains for critical goods are disrupted and reconfigured.

Speaker #5: It doesn't seem like you did anything on a performing side. From PCLs. So what is your outlook for ABA and should we just simply consider that the high level of growth, double-digit loans, and so on should continue and really shouldn't expect any difference in PCL levels either?

Speaker #1: but that's really, that's where we, we, we see value right now. we, in, in if you look at other asset classes like in the unsecured space, we, we continue to see portfolios trading at prices that don't really reflect our view of the potential risks and performance.

Speaker #6: Hey, Darko. It's Bill. I'll take that and maybe JS can comment a little later on the PCLs. But yeah, for the economic outlook, I described Cambodia as faced a series of challenges.

Speaker #1: So, so conditions are a bit challenging there. So we, we, w-we'd rather stick to, the mortgage space, for now and, and we'll, we'll adapt and, as the macro changes or as, situation evolves, we'll, we'll, we'll, we'll pivot as credit G has many times over its history been able to do.

Speaker #6: Over the past years, from the pandemic to the US tariffs, the conflict with Thailand, and now the conflict in Iran, whether those headwinds are relatively well.

Speaker #6: But expected GDP growth has certainly declined. I think 6% in 2024, 5% in 2025, and expected to be around 4% next year. Which is remains significantly below its potential growth.

Speaker #1: but, but, but you're, you're, you're right that, that margins have been going down a bit, although the, the risk-reward, we're probably in a great position.

Speaker #6: And we've talked previously about recovery and tourism being slow. That's certainly the case now. However, the growth in exports is higher than we had expected, particularly to the US year-to-date.

Speaker #1: And the goal is still to deliver strong asset growth, but never jeopardize the long-term to meet short-term, guidance in terms of, of, of margin or, or, or asset growth.

Speaker #6: It's up about 39% from last year. And FDI remains strong. So in the challenging context of headwinds in the economy, we're very happy with ABA's performance.

Laurent Ferreira: This uncertainty could further impact business investments, which have slowed down over the past couple of years due to tariff-related uncertainty and excessive regulation. If we look beyond the near term, Canada is well-positioned to benefit from ongoing efforts to reindustrialize our economy, undertake major projects, make Canada an energy superpower, modernize our defense sector and create champions, and invest in Arctic infrastructure to support defense, energy, and critical mineral development. On this, I want to acknowledge the leadership shown by the federal and provincial governments to rebuild Canada's economic sovereignty. Structural changes are required to adjust to the evolving economic and geopolitical landscape. The National Bank will be there to support clients and our country's economic priority. Turning now to our business segments.

Speaker #2: I guess the, the what I'm reading in this, and I guess I, I should have looked at this, but it, you know, if I looked at a risk-adjusted margin, it actually probably wouldn't be that different because your PCLs would be coming down as this mix shifts.

Speaker #6: It's continued to evolve its market-leading digital banking services, which has led to great growth in the number of clients and in low-cost deposits, which is helpful.

Speaker #6: And I'd point out Darko that the long-term structural tailwinds in Cambodia remain in place. It's still underbanked, young population, FDI remains strong. It's competitive labor cost supports manufacturing sector and exports.

Speaker #2: And that speaks to the risk-reward. Is that, is that a fair comment?

Speaker #1: Yeah. I think that's how I would look at it also, Doug.

Speaker #2: Yeah. Okay. I appreciate the color. Thank you.

Speaker #6: And so we remain pretty positive about the long-term growth potential. Does that answer your question? Maybe I'll pass it to JS for.

Speaker #3: Once again, if you have a question, it is star one on your telephone keypad. Your next question comes from Darko Mihalic with RBC Capital Markets.

Speaker #9: Yeah. So on a credit perspective, recall we had two data points on ABA first is we had guided a while back, and that still holds true, that Q4 2024 would be the higher end of what we expected for going forward in terms of formations.

Speaker #9: And we still think this is true. And we also repeated that we expected the impaired PCL to remain elevated for this year, which is still what we expect.

Laurent Ferreira: P&C Banking generated net income growth of 18% year over year, driven by strong growth in lending activity and mutual funds, as well as credit performance. Operating leverage was positive in the quarter. Personal banking mortgage volumes was up 12% year over year, supported by a resilient housing market and share gains in Quebec. Personal deposits were slightly down sequentially as strong equity markets drove increased client flows into investment solutions and generally higher portfolio levels, contributing to an 8% increase in total personal savings year over year. In commercial banking, deposits were up 7%, and commercial loans were up 5% year over year. Despite macro uncertainty, clients were active within the National Bank-originated loan portfolio, growing by 11% year over year. The CWB legacy book declined by CAD 400 million sequentially, primarily driven by commercial real estate.

Speaker #9: And finally, to your last comment on the build, I think it's important to remember that the starting point is important. And although we built three BIPs this quarter, we built 47 BIPs last quarter, 42 the BIPs the quarter prior.

Speaker #9: So we have been building performing provisions at ABA to make sure we have good downside protection.

Speaker #5: Okay. Thank you for that. Maybe just one last question to wrap up on ABA. If this current pace of growth continues, it is completely self-funding.

Speaker #5: Is that correct?

Speaker #6: Yeah. As you've seen, deposit growth has been much higher than loan growth. I will caution when I think about what the impacts will be from the Iran crisis, the Iran conflict, it's mainly impacted the price, not the availability of fuel.

Speaker #3: Your line is open.

Speaker #6: And it is consuming a greater portion of household budgets. And then in the past. So we would expect deposits saving rates and deposit growth to be lower than in the past.

Speaker #1: Hi. Thank you. I wanted to revisit the net interest margin, discussion. And your outlook is very helpful, for the next quarter or so. my question is, m-m a little bit more longer term, I suppose, in nature.

Laurent Ferreira: Our outlook for the year on commercial lending remains positive, while acknowledging that the macro context has shifted with the conflict in the Middle East and with heightened uncertainty around the path of inflation and interest rates. Net income in our Wealth Management segment increased 18% year over year to CAD 277 million, supported by growth across the franchise, including strong fee-based and transaction revenues. Asset under administration grew 14% over the same period to reach nearly CAD 940 billion, benefiting from resilient equity markets and strong net sales. Capital Markets generated net income of CAD 490 million. This notable performance reflects the strength of our business mix and strong execution. Trading conditions were favorable in the quarter.

Speaker #6: And that will impact it. But in terms of self-funding, yes, it's definitely remains to be to have a strong excess liquidity on the balance sheet and continues to grow deposits very, very strongly.

Speaker #1: and it really revolves around the high level of liquidity currently covering. You're currently carrying. So I understand you have a 13% common equity to fund ratio sort of target at the end of '27.

Speaker #5: Great. Thank you very much.

Speaker #1: Your next question comes from Paul Holden with CIBC. Your line is open.

Speaker #8: Okay. Thanks. Good morning. I want to go back to Etienne. You've given some helpful commentary on the outlook for the business for the second half of the year.

Speaker #1: What, what would be a more normal LCR level? And is there any kind of a drag here on your margin? And how fast would you sort of target to get to more normal liquidity levels?

Speaker #8: I guess I want to ask you sort of longer term, because this business has become harder to, I think, harder to forecast, never easy, but harder to forecast.

Speaker #8: Just because you have this underlying growth from your client initiatives and growing product offerings, etc. And then also a very favorable market conditions, right, which have obviously benefited all banks.

Speaker #4: Hi, Darko. Maybe I can start and, I'll let Etienne give some a bit more insights on from a mar capital markets perspective. So when looking at the LCR before going to the long-term, just, I think it's worthwhile just giving a few insights on, on the, evolution of the ratio over the past couple of quarters.

Laurent Ferreira: Our performance in global markets was primarily driven by strong client activity, including in equity structured products origination, commodities, and rates, as well as higher market-making volumes more broadly. Record results in corporate and investment banking reflected sustained client activity across M&A, corporate banking, and ECM, as well as continued investments in our franchise. Credit Suisse generated net income of CAD 46 million, up 15% year over year. Average assets were up 10% over the same period and 1% sequentially, as we continue to benefit from recurring flows from established partnerships. We remain highly disciplined in pursuing new deals given the prevailing competitive market dynamics and pricing conditions. At ABA Bank, net income increased 10% year over year, reflecting balance sheet growth and lower PCLs, partly offset by a higher efficiency ratio. Loans were up 12% year over year, while deposits grew 15% over the same period.

Speaker #8: So trying to figure out a couple of things. One is should we actually be assuming continued growth into next year for this business, or is that just asking too much at this point?

Speaker #4: So the decrease in the in LCR that you saw this quarter, which is, effectively a decrease from, from the previous quarter, but it's, it's re it really came back to the usual, level that we are used to seeing.

Speaker #8: And two, if we think this business at some point has to normalize, which it probably does, what specific market conditions do you think we should be tracking to sort of get a sense of what could result in more normal run rate earnings?

Speaker #4: And, and that's what where we like to operate at National Bank. But nevertheless, the decrease came mainly, driven by secured funding and collateral management activities.

Speaker #8: Thank you.

Speaker #4: So it really reflects the transaction mix and timing rather than a change in our strategy, as I mentioned, and how we manage the bank's core liquidity, positioning.

Speaker #6: Thanks, Paul. It's Etienne. Definitely, we want to keep growing the business. And we want to keep it growing at the same pace as the rest of the bank.

Speaker #6: That's definitely part of the strategy. And we're putting in place a lot of initiatives, both on the global markets and the corporate and IB divisions to continue our growth and really to, as we've scaled domestic champions in Canada, to slowly port those capabilities and new markets.

Speaker #4: So the level that you're seeing right now is, is probably where we are, we like to operate, we like to be in a good position.

Speaker #4: And these market opportunities, when we, we see good funding opportunities, and that's what we saw, earlier, in the year. So maybe Etienne would you like to add any,

Speaker #1: thanks, Mari Chantal. So you, you, you, you said you said it very well. so we, we pre-funded a lot, over, the, the last couple of quarters.

Speaker #6: We've done it successfully both on the CNIB and the global market side I'm thinking of how we operate in the Delta One space and the structured product space.

Laurent Ferreira: I will now pass the call to Marie-Chantal.

Marie-Chantal Gingras: Thank you, Rohan. Good morning, everyone. We delivered strong results in Q2. Revenues increased 7% year over year, driven by solid performance across our segments and strong balance sheet growth. PTPP grew 5%. Our businesses generated an all-bank efficiency ratio of 50.4%. Expenses increased 9.5% year over year. Of note, Q2 2026 included CAD 15 million of litigation expenses. Q2 2025 reflected a CAD 22 million reversal of a property tax provision. Excluding these two items, expense growth was 7.4%, in line with revenue growth. For H2 of the year, we anticipate expense growth to moderate towards the low single-digit range, positioning us to deliver positive operating leverage. Moving to slide eight. Net interest income, excluding trading, grew 7% year over year. Sequentially, it was down about 5%, with fewer days in the quarter accounting for over two-third of the decline.

Speaker #1: The, the previous couple of quarters, there were some market opportunities that, that were interesting. And we, a-and, and it made sense to fund and to deploy this funding in highly liquid securities within capital markets and treasury portfolios.

Speaker #6: And now in the project finance and renewable energy space. We'll definitely continue to do that. As to what to track to expect slowdowns, and we've seen that, right?

Speaker #1: now that the conditions are normalizing, you're, you're seeing, our LCR drift back towards more of its long-term average. I think over the long-term, expect us to be in the 140, 150 range, but we really like having it among the highest o-o-of the big banks.

Speaker #6: It's when clients get a lot more quiet. I mean, we still are a franchise that depends on client flow, client deals, client giving clients advice.

Speaker #6: And so when the economic cycle reaches a point where there's a lot less activity, look for us to slow down. I mean, some of it maybe when there are impacts on the markets that are negative, it creates volatility.

Speaker #1: That, that will remain part of the strategy.

Speaker #2: And, and so as I think about that then, it, it's, it's clear that this is really a cap markets. And there's none of this that's actually sort of being pushed out through FTP into P&C Canada.

Speaker #6: Sometimes because we have a lot of countercyclical businesses, on the trading side, that can be cushioned, but over the long term, we need clients to make money.

Speaker #6: We need clients to succeed. And so this is a franchise that will always track client activity and client success.

Speaker #2: Would that be a correct assumption?

Speaker #1: it is mostly, in capital markets and, and, and treasury portfolios. But, but you're right. It's, it's really opportunistic, positioning in capital markets that are the, the, the bulk o-of this ratio.

Speaker #8: Okay. So to be clear on that, even though your business is outgrowing the rest of the outgrowing the rest of the bank in the last couple of years, you still think going forward, even at the current levels, you can grow in line with the rest of the bank.

Speaker #2: Okay. Thank you very much for that. That's very helpful. A qu another question on ABA. just wanted to sort of revisit your outlook for ABA.

Speaker #8: That's the messaging here.

Speaker #6: That's certainly the goal. Yes.

Marie-Chantal Gingras: Additionally, balance sheet growth was offset by Credigy's prepayment revenue of approximately $12 million recorded in Q1, and higher treasury NII in the prior quarter. NIM in Q2 was 2.16%, down 8 basis points quarter over quarter. As expected, NII from Treasury was lower sequentially, representing 4 basis points, largely offset by non-interest income. It also reflected higher prepayment activity last quarter, as well as 1 basis point decline in P&C NIM as loan growth outpaced deposit growth. Looking at next quarter, we expect the P&C NIM to be slightly down from Q2 levels. Deposit margin expansion is expected to be offset by commercial deposit mix. As for the all-bank NIM, we expect it should remain relatively stable next quarter. Turning to slide nine. We continued to grow both sides of the balance sheet.

Speaker #2: it looks like there's a weaker economy. you know, the country itself is sort of lowered its, its economic, outlook. Doesn't seem like you did anything on the performing side.

Speaker #8: Okay. Okay. Thank you for that. That's it for me.

Speaker #1: This concludes the question and answer session. I'll turn the call to Laurent Ferreira for closing remarks.

Speaker #6: Thank you, operator. A second quarter was strong and on that, I'd like to thank our teams across the country for all their efforts and excellent execution.

Speaker #2: from PCLs. So what is your outlook for ABA and, and, you know, should we just simply consider that, that the high level of growth, double-digit loans, and so on should continue and really shouldn't expect any difference in, in PCL levels either?

Speaker #6: And while the macroeconomic context remains uncertain, we are really well positioned to support our clients and continue delivering strong earnings growth and ROE on that.

Speaker #1: Hey, Darko. It's Bill. I'll take that and maybe JS can comment a little later on the PCLs. But yeah, for the economic outlook, I described, you know, Cambodia as faced a series of, of challenges.

Speaker #6: Thank you. And I wish everyone a great summer.

Speaker #1: over the past years, from the pandemic to the US tariffs, the conflict with Thailand. And now the, conflict in Iran. it's weathered those, those headwinds relatively well.

Speaker #1: but f expected GDP growth has certainly declined. I think 6% in 2024, 5% in 2025, and expected to be around 4%. next year. which is remains significantly below its potential growth.

Speaker #1: And you know, we've talked previously about recovery and tourism being slow. That's certainly the case now. How w however, the, growth in exports, is higher than we had expected, particularly to the US.

Marie-Chantal Gingras: Loans increased 9% year-over-year and 3% quarter-over-quarter, including the addition of the Laurentian Bank syndicated loans of CAD 657 million. Deposits increased by CAD 9 million, or 3% sequentially. Personal demand deposits grew CAD 1.6 billion or 2%, mainly driven by Wealth Management. Furthermore, our customers' appetite for investment solution has been strong given the favorable market performance that continued in Q2 and resulted in solid growth. Non-retail deposits grew CAD 7.5 billion or 4% quarter-over-quarter, mainly driven by commercial banking and corporate and investment banking. Now moving to capital on slide 10. We ended the quarter with a strong CET1 ratio of 13.54%, supported by capital generation of 41 basis points. RWA growth consumed 38 basis points of capital. Credit risk of 25 basis points primarily reflected balance sheet growth with 5 basis points from the acquisition of the Laurentian Bank syndicated loan portfolio.

Speaker #1: year to date, it's up about 39% from last year. And FDI remains strong. So in the, the challenging, context of headwinds in the economy, we're very happy with ABA's performance.

Speaker #1: It's continued to, to evolve its, market-leading digital banking services, which has led to great growth in, the number of clients and in low-cost deposits, which is helpful.

Speaker #1: and I'd point out, Darko, that the long-term structural tailwinds in Cambodia remain in place. You know, it's still underbanked, young population, FDI remains strong.

Speaker #1: It's competitive labor cost supports, manufacturing sector and exports. And so we remain pretty positive about the long-term growth potential. Does that answer your question?

Speaker #1: maybe I'll pass it to JS for, PCL.

Speaker #3: Yeah. So on, on a credit perspective, recall we had two data points, on, on ABA first is we had guided, a while back, and that still holds true that Q4 2024 would be at the higher end of what we expected for g-going forward in terms of formations.

Speaker #3: And we still think this is true. And we also, repeated that we expected the impaired PCL to remain elevated for this year, which is still what we expect.

Speaker #3: And finally, to your to your last comment on the build, I think it's important to remember that the starting point is, is important. And although we built three BIPs this quarter, we built 47 BIPs last quarter, 42 the BIPs pro the, the quarter prior.

Marie-Chantal Gingras: Market risk, mainly driven by business growth, consumed 9 basis points of capital. Share buybacks during the quarter reduced the CET1 ratio by 32 basis points. Since the launch of our current NCIB, we have repurchased 8.8 million shares, representing approximately 60% of the program. Turning to slide 11. We are making solid progress on realizing synergies from the acquisition of CWB. We have realized CAD 215 million of cost and funding synergies, and we are on track to reach CAD 270 million by the end of fiscal 2026. Moreover, we are increasing our cost and funding synergies target to CAD 300 million on an annualized basis. We have also realized CAD 33 million of revenue synergies since the beginning of fiscal 2026, mainly driven by fee income. As previously mentioned, revenue synergies should reach approximately CAD 50 million by the end of this fiscal year.

Speaker #3: So we have been building, performing, provisions at ABA, to make sure we have good downside protection.

Speaker #2: Okay. Thank you for that. Maybe just one last question to wrap up on ABA. If this current pace of growth continues, it is completely self-funding.

Speaker #2: Is that correct?

Speaker #1: Yeah. It, the as you've seen, deposit growth has been much higher than loan growth. I will caution when I think about what the impacts will be from the Iran crisis, or the Iran conflict, you know, it-it's mainly impacted, the price, not the availability of fuel.

Speaker #1: And it is consuming a greater portion of household, budgets. Then, then in the past. So we would expect deposits, saving rates, and deposit growth to be lower than in the past.

Speaker #1: And that will, will impact it. But as in terms of self-funding, yes, it's definitely remains to be a to have a strong excess liquidity, on the balance sheet and continues to grow, deposits, very, very strongly.

Speaker #2: Great. Thank you very much.

Speaker #4: Your next question comes from Paul Holden with CIBC. Your line is open.

Marie-Chantal Gingras: We continue to target CAD 200 to 250 million in revenue synergies by the end of fiscal 2028. We delivered strong results across both quarters of H1, supported by solid underlying performance across our businesses, ongoing cost discipline, and realization of CWB synergies, with credit remaining within expectations. In addition, we continue to return capital to shareholders through dividend increases and ongoing share repurchase activity. We grew our EPS by 12% year to date. While the macroeconomic landscape continues to be uncertain, our outlook for the remainder of the year remains positive. For H2 of 2026, we expect EPS growth to be in line with our performance year to date. We also anticipate expense growth trending towards the low single-digit range, contributing to a positive operating leverage for the remainder of the year.

Speaker #5: Okay. Thanks, good morning. I wanna go back to, Chan, and you've given some helpful commentary on the outlook for the business for second half of the year.

Speaker #5: I guess I wanna ask you sort of longer term, 'cause this business has become harder to, I think harder to forecast, never easy, but, but harder to forecast.

Speaker #5: Just 'cause you, you know, you have this underlying, growth from your, from, from client initiatives and growing product offerings, etc. And then also a very favorable market conditions, right, which have obviously benefited, benefited all banks.

Speaker #5: So trying to figure out a couple of things. One is, like, you know, should we actually be assuming, continued growth into next year for this business, or is that just asking too much at this point?

Speaker #5: And two, you know, if we think this business at some point has to normalize, which it probably does, what specific market conditions do you think we should be tracking to co sort of get a sense of, of what could result in more, more normal run rate, earnings?

Speaker #5: Thank you.

Marie-Chantal Gingras: Having generated an ROE of 16.7% year to date, alongside strong capital markets performance, we remain on track to achieve our ROE target of approximately 16% in fiscal 2026. With that, I will turn the call over to Jean-Sébastien.

Speaker #1: that's thanks, Paul. It's, it's again, definitely we wanna keep growing the business, and we wanna keep it growing at the same pace as, as the rest of the bank.

Speaker #1: That, that's definitely part of the, the strategy. and we're putting in place, a lot of initiatives both on the global markets and, the, the gl corporate and, and, and IB, divisions to, to, to continue our growth and really to, as we've scaled domestic champions in Canada, to slowly port those capabilities in new markets.

Jean-Sébastien Grisé: Merci, Marie-Chantal. Good morning, everyone. Since our last call, the Canadian economy has grown modestly while the labor market continued to weaken. The conflict in the Middle East is adding another layer of uncertainty by putting pressure on energy prices, inflation, and interest rates. That said, strategic trade diversification and accelerated nation-building projects in energy, natural resources, and infrastructure should help to support future economic activity. In this complex environment, our resilient portfolio mix, disciplined risk management, and prudent provisioning underpin our strong credit performance. Now turning to the Q2 results on slide 13. Total PCL were CAD 233 million, including the initial provision on performing loans of CAD 6 million or one basis point related to the Laurentian Bank syndicated loan portfolio. Adjusted total PCL were CAD 227 million or 30 basis points, down two basis points quarter-over-quarter.

Speaker #1: We've done it successfully, both on the CNIB and the global market side. I'm thinking of how we operate, in the Delta One space and the structured product space.

Speaker #1: And now in the project finance and, and re-renewable energy space. we'll definitely continue to do that. As to what to track to, expect slowdowns, and we, we've seen that, right?

Speaker #1: It's when, when clients get a lot more quiet. I mean, we still are a franchise that depends on client flow, client deals, client giving clients advice.

Speaker #1: And so, when the, the economic cycle reaches a point where, there's a lot less activity, look for us to slow down. I mean, some of it maybe when there are impacts on the markets that, that, that are negative, it creates volatility sometimes.

Jean-Sébastien Grisé: We added 4 basis points of adjusted performing provisions in Q2, mainly reflecting portfolio growth and unfavorable macroeconomic scenarios, which included a higher unemployment rate and more pessimistic outlooks for both equity markets and housing prices. PCL on impaired loans were CAD 192 million, or 26 basis points, down 2 basis points quarter over quarter, and within our guidance of 25 to 35 basis points for the full year. Personal Banking provisions were CAD 2 million higher sequentially, mainly driven by consumer credit. Commercial Banking provisions rose CAD 12 million quarter over quarter, mainly driven by the real estate and construction sectors. Capital Markets reported a CAD 1 million recovery related to one file. At Credigy, provisions decreased by $3 million, resulting from the normal seasoning of residential mortgages and consumer loans. At ABA, impaired provisions were down by $4 million sequentially to $13 million, reflecting lower formations.

Speaker #1: So because we have a lot of countercyclical businesses, on the trading side, that can be cushioned, but over the long term, we need clients to make money.

Speaker #1: we need clients to succeed. And, and so, it, it this is a franchise that will always track client activity and, and client success.

Speaker #5: Okay. So to be clear on that, even y-y-y even though your business is outgrowing the rest of the outgrowing the rest of the bank in the last couple of years, you still think going forward, even at the current levels, you can grow in line with the with the with the rest of the bank.

Speaker #5: That's, that's, that's the messaging here.

Speaker #1: That, that's certainly the goal. Yes.

Speaker #5: Okay. Okay. Thank you for that. That's it for me.

Speaker #4: This concludes the question and answer session. I'll turn the call to Laurent Ferreira for closing remarks.

Speaker #1: Thank you, operator. A second quarter was strong and on that, I'd like to thank, our teams across the country for all their efforts and, excellent execution.

Speaker #1: And while the, macroeconomic context remains uncertain, we are really well positioned to support our clients and continue delivering strong earnings growth and ROE on that.

Jean-Sébastien Grisé: Turning to slide 14. Our total allowances for granted losses were CAD 2.6 billion, representing 5.1 times coverage of our net charge-offs. Our performing allowances were CAD 1.7 billion, demonstrating a strong performing ACL coverage ratio of 2.2 times. We have been building allowances for the past 16 quarters and continue to be comfortable with our prudent and defensive provisioning levels. Turning to slide 15. Our gross impaired loan ratio was 114 basis points, up three basis points quarter over quarter. Laurentian Bank syndicated loans accounted for CAD 40 million or one basis point. GILs, excluding U.S. SF&I, were 84 basis points, up three basis points sequentially. Net formations were 13 basis points this quarter. Excluding the Laurentian Bank portfolio, net formations were 12 basis points, up five basis points compared to last quarter. In commercial bankings, net formations were 28 basis points and included one file in CRE residential insured.

Speaker #1: Thank you. And I wish everyone a great summer.

Speaker #4: disconnect. Good morning and welcome to NATIONAL BANK OF CANADA'S SECOND QUARTER RESULTS CONFERENCE CALL. I would now like to turn the meeting over to Marianne Ratte.

Jean-Sébastien Grisé: On slide 26, we provide additional information on a few sectors of focus. Of note, we have limited exposures to US non-bank financial, ABL lending, and software. In conclusion, we are pleased with the credit performance in Q2 and H1 of the year, continue to expect impaired provisions to be within the 25 to 35 basis point range for the full fiscal 2026. In the current context of heightened uncertainty and softer labor market conditions, we expect further gradual increases in PCL, while our wholesale book remains subject to periodic lumpiness. However, our defensive qualities, resilient business mix, and prudent allowances position us well for the remainder of the year. With that, I will now turn the call back to the operator for the Q&A.

Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Thank you. Your first question comes from John Aiken with Jefferies. Your line is open.

John Aiken: Good morning. Laurent, as we look towards you achieving the target 13% CET1 ratio, can we assume that what we saw in the Q2 is going to be pretty much the blueprint moving forward, where the internally generated capital remains very strong but it's being fought off by the share repurchase, but also risk-weighted asset growth? I mean, is this something that, maybe not definitively, but is this something that we should expect moving forward in future quarters?

Laurent Ferreira: Thank you for your question. At a high level, yes. You have sometimes periods of volatility, which could impact market risk RWAs. That is a factor that we have to take into consideration. I guess, at a very high level, yes, you should expect us to continue executing at these levels.

John Aiken: Great. Thank you. In terms of the risk-weighted asset growth, I don't know if this is for Marie-Chantal or not, but in terms of the expected growth, assuming that the Canadian consumer remains a little bit in trouble, I guess the density on the commercial side is going to cause growth on that side. Is that a reasonable outlook?

Marie-Chantal Gingras: John, can you please repeat that question?

John Aiken: Sorry. Yes. In terms of risk-weighted asset growth-

Marie-Chantal Gingras: Yes

John Aiken: presumably the outlook is on the stronger on commercial and higher density is going to lead to the potentially risk-weighted asset acceleration.

Marie-Chantal Gingras: Yeah. In that context, that could be a good assumption.

John Aiken: Fantastic. Thank you. I'll yield to you.

Marie-Chantal Gingras: Yeah.

Operator: Your next question comes from Matthew Lee with Canaccord Genuity. Your line is open.

Matthew Lee: Hi, good morning. Thanks for taking my question. Maybe just one on P&C. Loan growth continues to be pretty strong. Deposit trend a little bit more mixed this quarter. Anything with the franchise today, is the pace and mix of core deposit growth influenced in economics and new lending or the path of P&C margins? Is that going to be the main source of NIM pressure as you look into Q3 and into Q4?

Marie-Chantal Gingras: Matthew, it's Marie-Chantal. Maybe I can start with a few points on the NIM going forward and what we're seeing this quarter, then Judy can take a moment to speak about more of the outlook in terms of loans and deposit growth for the P&C. For the NIM, let's take a moment just to look at the all-bank NIM, then I'll go a little bit deeper in the P&C NIM. The Q2 decline of the all-bank NIM, as I explained in my remarks, is something that we had anticipated for this quarter. Recall that in Q1, we benefited from a particularly strong NII driven by ALM activities. In Q2, the treasury performance remained solid, although reported NII was lower sequentially, largely offset in non-interest income due to the accounting of some hedges, which happen from time to time.

Marie-Chantal Gingras: On a total revenue basis, that treasury, as I said, had a very strong Q2, and the overall impact from treasury on the all-bank NIM represents approximately four basis points sequentially to the all-bank NIM. Additionally, we had some prepayment activity Q1 from Credigy also impacted the NIM by one basis point Q/Q, which is something that we had also mentioned. Now, when you look at the P&C NIM decline Q2, improved deposit margins was offset by volume mix as loan growth outpaced deposit growth. That's something that we've also shared in the past, and it's something that you're seeing when you look at our loan growth volumes as well as deposit volumes.

Marie-Chantal Gingras: Looking ahead, we expect the all-bank NIM to remain relatively stable in Q3 from Q2 levels. We do expect a slight decline on the P&C NIM in Q3, driven by mix dynamics in commercial deposits, partly offset by continued repricing benefits on our core deposits. We expect the treasury NII to revert towards a midpoint between Q1 and Q2 levels. That's a bit of what's happened in terms of the NIMs and on the P&C NIM.

Julie Lévesque: This is Julie. If we talk about deposits specifically for retail, our deposit outlook remains consistent with the current market trends. The continuation of low interest rates through the end of 2026 limits the relative attractiveness of deposits and continues to drive outflows from GICs. While the market returns are expected to normalize, potentially slowing the pace of migration towards funds, the underlying dynamic is not expected to reverse. As a result, deposit growth is expected to remain flat. Judith, on the commercial side, I don't know if you want to dip in.

Judith Ménard: Yeah.

Judith Ménard: Yeah. Thanks for your question. Deposit growth on the commercial banking side remains a strategic focus, and we're really well positioned to capitalize on a significant opportunity to grow our penetration in cash management product. Just to give you an idea on our cash management and deposit strategy, we have three pillars. The first one, we've been upgrading our online banking platform. It's almost done. Second, we're expanding our treasury management team to deepen client engagement and support deposit growth. This is in process. Third, we're enhancing our deposit solutions through more targeted offerings by client segments and industry. We're very positive on the outlook on the deposits on the commercial banking side.

Judith Ménard: Thanks for your question. Deposit growth on the commercial banking side remains a strategic focus, and we're really well positioned to capitalize on a significant opportunity to grow our penetration in cash management product. Just to give you an idea on our cash management and deposit strategy, we have three pillars. The first one, we've been upgrading our online banking platform. It's almost done. Second, we're expanding our treasury management team to deepen client engagement and support deposit growth. This is in process. Third, we're enhancing our deposit solutions through more targeted offerings by client segments and industry. We're very positive on the outlook on the deposits on the commercial banking side.

Matthew Lee: If I'm taking that together, the next couple of quarters, we should continue to see loan growth outpacing deposits. If so, we should still continue to see P&C Banking NIM face some pressure.

Judith Ménard: That's correct, Matthew.

Matthew Lee: Okay. That's all. Thanks.

Operator: The next question comes from Ebrahim Poonawala with Bank of America. Your line is open.

Ebrahim Poonawala: Good morning. I guess maybe first question, Laurent, for you around, I think you said that the uncertainty on the macro side has led to a slowdown in investment spend. Then you went on to outline a lot of good things that could happen in the future. Just give us a sense of, it feels like the Quebec economy has had a delayed impact in terms of the slowdown. When you look at the job picture locally, what's happening just from a credit standpoint, do you think the lagged effect that Quebec may be feeling will show up with somewhat higher PCLs over the coming quarters? How would you frame the year right now in terms of the economic activity and how that could translate into credit trends?

Laurent Ferreira: Ebrahim, thank you for your question. Let's start with Canada in general. A general delayed reaction. Labor markets suffering a little bit more now across the country, Quebec as well. The uncertainty also around CUSMA and commercial tensions for our country. Those are all factors, I think, that are impacting growth in investments in businesses. It feels like we are a bit in a lull in our country in terms of business investment. In my prepared remarks, and I've said this publicly, we are definitely encouraged by the shift in our government towards a focus on the economy. To us, that bodes really well going forward. Now, in terms of change, you asked a question about outlook on PCL. It doesn't change our outlook, but maybe I'll ask Jean-Sébastien to comment on our outlook regarding PCL for-

Jean-Sébastien Grisé: We recently confirmed our guidance for total bank. If you look at the retail book in Quebec versus rest of Canada, the retail book in Quebec has outperformed for the past several years. It would be normal to see a little deterioration. I agree with you pointed out the higher end employment. However, I would be cautious in not pointing it as a trend, as we've seen a large shift this quarter, but I would wait for a couple quarter before we see longer lasting trends before having a conclusion. The fundamentals of the Quebec markets remain, which is a strong saving rate, more double income families, and low housing prices. To add on top of that, I'd remind you that we have a low unsecured proportion in our total portfolio, which is where typically it would shift the first.

Jean-Sébastien Grisé: The performing of unsecured portfolio in Quebec is particularly good given the fact that we're over-penetrated in homeowners, which is a place where typically delinquencies and losses are lower.

Ebrahim Poonawala: Got it. Thank you. As a follow-up on the capital and the buyback discussion earlier, as you think about just, I mean, obviously you have a lot of excess capital, high ROE. You're generating a lot. When you think about this, is there any level of sensitivity when you look at the stock from price to earnings, price to book or your internal return on those? I'm wondering, is it more about you want to do X amount of buybacks and keep capital levels at a steady state. You're, as a result, not particularly sensitive to where the stock's sitting at any given point in time? Just would love to hear how you think about it.

Laurent Ferreira: That's a great question, Ebrahim. We'll adjust from time to time. If we do see opportunities to increase the pace of our buyback because we think.

Laurent Ferreira: That's a great question, Ebrahim. We'll adjust from time to time. If we do see opportunities to increase the pace of our buyback because we think stock was not performing at the same level as others. For instance, we saw there's a period of time in January where our stock was not performing at the same level as others, and we did take advantage of that. We are a little bit dynamic in the way we manage the buyback.

Laurent Ferreira: stock was not performing at the same level as others. For instance, we saw there's a period of time in January where our stock was not performing at the same level as others, and we did take advantage of that. We are a little bit dynamic in the way we manage the buyback. In terms of change in our strategy because of our stock price, there's no change in strategy. The only thing that would change our strategy is a big shift in macro. If there's a big shift in macro where inflation is picking up and interest rates are picking up, and we think that the macro environment will deteriorate, we'll revisit. That's kind of the philosophy. We'll take advantage of price swings if we can, but our strategy is pretty steady.

Laurent Ferreira: In terms of change in our strategy because of our stock price, there's no change in strategy. The only thing that would change our strategy is a big shift in macro. If there's a big shift in macro where inflation is picking up and interest rates are picking up, and we think that the macro environment will deteriorate, we'll revisit. That's kind of the philosophy. We'll take advantage of price swings if we can, but our strategy is pretty steady.

Ebrahim Poonawala: Excellent. Thank you.

Operator: Your next question comes from Mike Rizvanovic with Scotiabank. Your line is open.

Mike Rizvanovic: Hey, good morning. I had a question for Judith. I guess a two-part question. One, just on the CWB loans coming off, I think CAD 400 million is what you flagged. It does move the needle on your year-over-year performance, 11% gets down to five. I guess I'm wondering how much of that is more recent? Is this just a normal part of the process of getting out of areas where you maybe are not comfortable on the risk side or for whatever other reason? Are you to the point where it's almost done at this point, or is there more potentially to go there?

Judith Ménard: Okay. Thanks, Mike, for your question. I'll start by saying that as expected, our sequential commercial loan growth was consistent with the previous several quarters. There's no surprise on that. I will comment on the legacy National Bank portfolio. Despite macro economy uncertainty, clients remained very active throughout the quarter, and we're very happy we've delivered another quarter of double-digit year-over-year growth. Our core is really as per our strategy, and this I want to point out, our commercial banking grew more than real estate, and that's really focused on both mid-market and large client segments across all geographical footprint. That's the first part. If we go on the CWB side, so I want to offer three things. First, the performance of the CWB portfolio has been as expected as mentioned in the last few calls.

Judith Ménard: Our teams have been focused on supporting the client experience throughout the conversion. No surprise around that. This focus has supported strong level of client retention with payout volumes remaining below pre-acquisition average. That would be the first point. The second point is integration activities have created short-term headwinds on capacity for new volume, which has not been sufficient to offset regular payment and payout. This has been particularly pronounced in the commercial real estate portfolio, as Laurent said in his remarks, and which contains amortizing commercial mortgages, interim construction financing that pays out at successful project completion. The third point I would offer is now the integration impact has clearly moderated, and our teams are well positioned to return to generating new volume with early signs of recovery with visible improving pipelines while we maintain pricing discipline, obviously.

Speaker #4: Please go ahead, Marianne.

Speaker #2: Merci and welcome everyone. We will begin the call with remarks from Laurent Ferreira, President and CEO; Marie-Chantal Gingras, CFO; and Jean-Sebastien Grise, Chief Risk Officer.

Speaker #2: Our business heads are also present for the Q&A session including Julie Lévesque, Personal Banking; Judith Ménard, Commercial and Private Banking; Nancy Paquette, Wealth Management; Étienne Dubuc, Capital Markets; and Bill Bonnell, International.

Judith Ménard: We're positive on the opportunities in front of us to drive growth on the CWB portfolio. What I would like to say also on the, is this finished, the integration? I would say that where we are right now, conversion and integration is finished, and we're going back to normal state in the next few quarters. That's what I would offer to you.

Speaker #2: Before we begin, please refer to Slide 2 of our presentation for forward-looking statements and non-gap measures. Management will refer to adjusted results on less otherwise noted.

Speaker #2: I will now pass the call to Laurent.

Speaker #3: Merci Marianne and thank you everyone for joining us. In the second quarter, we delivered EPS of $3.23, up 13% year over year. We generated a return on equity of 16.8% while remaining while maintaining a strong CET1 ratio of 13.54%.

Mike Rizvanovic: Okay. really nothing on the credit side that surprised you more recently? There's nothing related to credits?

Judith Ménard: No, nothing on the credit side. I'm comfortable with what I see in front of me.

Mike Rizvanovic: Okay, great. Just quickly on the 11% growth ex CWB. That's a really robust number, and I'm wondering if you could just sort of delineate between growth in Quebec, your core market, and some of the maybe the low-hanging fruit that you're getting outside of the Quebec market as you expand, I guess in Western Canada in particular. Any color on that?

Speaker #3: Despite macroeconomic uncertainty, clients remain active throughout the quarter and market conditions were favorable. This was reflected in strong growth in both our balance sheet and our fee-based businesses.

Speaker #3: We also benefited from credit performance, the realization of costs and funding synergies, and momentum in revenue synergies from CWB, as well as share buybacks.

Judith Ménard: Yes. On our legacy NBC portfolio, our growth in Western Canada has been really high, and Ontario as well. I want to point out Ontario. Quebec is also growing at a faster pace. I would say that just to map it out, Western Canada faster, Ontario, and Quebec. That's how I would share that.

Speaker #3: On the capital deployment front, we remain active on our NCIB. To date, we have repurchased $8.8 million shares under our program, which was upsized during Q2 to enable the purchase of up to $14.5 million shares.

Mike Rizvanovic: Okay. Thank you for the color.

Operator: Your next question comes from Sohrab Movahedi with BMO Capital Markets. Your line is open.

Sohrab Movahedi: Okay, thank you. Maybe, Judith, can I just pick up there for a second? This growth, is it net new clients or are you increasing lending with existing clients?

Judith Ménard: It's mostly net new clients. We're also increasing, but we're seeing some momentum with net new clients, and that's been our focus.

Sohrab Movahedi: Okay, thanks. Again, you had talked to us about pre-tax pre-provision. If I can just get a reminder, what do you think your segment pre-tax pre-provision is likely to do this year now that you've got two quarters under your belt?

Speaker #3: We are committed to operating with strong capital levels and continue to target a CET1 ratio converging towards 13% by year-end of 2027. Turning now to our economic outlook.

Étienne Dubuc: Yeah. Hi, Sohrab. Yeah, thanks for the question. I'd say overall, we continue to feel good about the outlook, and I feel confident now about our ability to hit the top of the PTPP guidance that we had given for fiscal 2026. We've had obviously a really strong performance in both Q1 and Q2 with a lot of great deal activity and very supportive market conditions across several businesses. Also, I think the franchise is operating from a structurally stronger position today. You see it in our ability to execute for clients across market cycles with the ability to support increasingly complex financing and capital raising needs, and the increasing number of leads and the improving diversification of the revenue mix.

Speaker #3: This uncertainty could further impact business investment, which have slowed down over the past couple of years due to tariff-related uncertainty and excessive regulation. But if we look beyond the near-term, Canada's well-positioned to benefit from ongoing efforts to reindustrialize our economy, undertake major projects, make Canada an energy superpower, modernize our defense sector, and create champions and invest in Arctic infrastructure to support defense, energy, and critical mineral development.

Speaker #3: On this, I want to acknowledge the leadership shown by the Federal and Provincial Governments to rebuild Canada's economic sovereignty. Structural changes are required to adjust to the evolving economic and geopolitical landscape and National Bank will be there to support clients and our country's economic priority.

Étienne Dubuc: For the balance of the year, our base case is we'll see some more typical seasonal dynamics through the summer months, and a market backdrop that may be a bit less active than what we experienced in the H1, while we still think it will be positive overall. Maybe a bit of more precise color, where we're seeing in structured products, you're going to see less volatility, we feel. Overall, investors are surprisingly resilient, and they continue calling products, and that should mean good issuance volumes. The intermediation businesses, it's really our scale and execution capabilities that continue to position us well, support client flow across different market regimes, and that's reinforced by our leadership in ETFs and options and domestic bond trading. Across our hedging solution businesses, we think we'll see continued activity tied to financing and infrastructure across rates, FX, commodities.

Speaker #3: Operating leverage was positive in the quarter. Personal Banking mortgage volumes was up 12% year over year supported by a resilient housing market and share gains in Quebec.

Speaker #3: Personal Deposits were slightly down sequentially as strong equity markets drove increased client flows into investment solutions and generally higher portfolio levels, contributing to an 8% increase in total personal savings year over year.

Speaker #3: The CWB legacy book declined by $400 million sequentially primarily driven by commercial real estate. Our outlook for the year on commercial lending remains positive.

Étienne Dubuc: Although part of the elevated results in Q2 may have been pulled a bit forward from later periods. At DCM, I think there could get interesting. Borrowing on both the corporate and the government side there is good financing conditions, there is resilient investor demand, and that, I think, will translate into robust issuance activity. We continue to see good pipeline in the corporate banking and the investment banking. It is well-diversified across sectors, so we think M&A remains strong. Strong markets and strong investor risk appetite, I think will continue to be a good backdrop for equity in new issues.

Speaker #3: While acknowledging that the macro context has shifted, with the conflict in the Middle East and with heightened uncertainty around the path of inflation and interest rates.

Speaker #3: Net income in our wealth management segment increased 18% year over year to $277 million supported by growth across the franchise, including strong fee-based and transaction revenues.

Speaker #3: Asset under administration grew 14% over the same period to reach nearly $940 billion benefiting from resilient equity markets and strong net sales. Capital markets generated net income of $490 million.

Sohrab Movahedi: Okay. That's very comprehensive. It's incredibly helpful, comprehensive. Maybe you're going to even surprise yourself and exceed the upper end. Laurent, one last question maybe just for you. I think last quarter when you talked about ROE outlook, you talked about either side of 16% for 2026, and you mentioned 17% or thereabouts in 2027. I guess wanted to confirm that 17% still remains the 2027 kind of yardstick. Can it benefit further based on the work you're doing in the ROE optimization in your P&C bank, or did you have some of that benefit incorporated into the 17% type of number you were talking to us about for 2027?

Speaker #3: Record results in corporate and investment banking reflected sustained client activity across M&A corporate banking and ECM, as well as continued investments in our franchise.

Speaker #3: Credit generated net income of $46 million up 15% year over year, average assets were up 10% over the same period and 1% sequentially, as we continue to benefit from recurring flows from established partnerships.

Speaker #3: We remain highly disciplined in pursuing new deals given the prevailing competitive market dynamics and pricing conditions. At ABA Bank, net income increased 10% year over year reflecting balance sheet growth and lower PCLs, partly offset by a higher efficiency ratio.

Laurent Ferreira: Thank you for your question. You're correct. Last quarter, we did provide guidance for the year. We upgraded our guidance for the year from 15% to 16% for 2026. Maybe I should correct you about 2027, we provided a waterfall, and it was 17 plus that we guided for 2027. I think Marie-Chantal provided a really good explanation last quarter on the 17 plus, and also said that all the work that we're doing right now in terms of the next strategic plan are not included in our guidance for our ROE for 2027. Does that answer your question, Sohrab?

Speaker #3: Loans were up 12% year over year while deposits grew 15% over the same period. I will now pass the call to Marie-Chantal.

Speaker #4: Thank you, Laurent, and good morning, everyone. We delivered strong results in the second quarter. Revenues increased 7% year over year, driven by solid performance across our segments and strong balance sheet growth.

Speaker #4: PTPP grew 5% and our businesses generated an all-bank efficiency ratio of 50.4%. Expenses increased 9.5% year over year. Of note, Q2 2026 included $15 million of litigation expenses, and Q2 2025 reflected a $22 million reversal of a property tax provision.

Sohrab Movahedi: Yeah. That's perfect. Thank you very much. Thanks for taking my question.

Laurent Ferreira: Perfect. Thank you.

Speaker #4: Excluding these two items, expense growth was 7.4% in line with revenue growth. For the second half of the year, we anticipate expense growth to moderate towards the low single-digit range positioning us to deliver positive operating leverage.

Operator: Your next question comes from Doug Young with Desjardins. Your line is open.

Doug Young: Hi, good morning. Just maybe starting on the credit side, two things. New gross impaired loan formations. I look at that on a gross, not net. The gross loan formation did jump sequentially and I think even year over year. It looked like write-offs were a little bit elevated. Just maybe you can talk a little bit about where you're seeing the pressure, like from a product or from a geography perspective on, again, new gross impaired loan formations and write-offs.

Speaker #4: Moving to slide 8, net interest income excluding trading grew 7% year over year. Sequentially, it was down about 5% with fewer days in the quarter accounting for over two-thirds of the decline.

Jean-Sébastien Grisé: Thanks for the question, Doug. It's JS. Pretty simple explanation to that, and we called it on the slide. The majority of our formations in commercial were actually driven by one file in commercial real estate in Western Canada, and that file is insured. You've seen us grow in residential insured in the past years, and I think this is one good feature of this growth, is when they go wrong, you have some PCL protection on it. Although there is a large scale associated to it, there is no PCL associated to it.

Speaker #4: Additionally, balance sheet growth was offset by creditors' prepayment revenue of approximately $12 million recorded in Q1 and higher Treasury NII in the prior quarter.

Speaker #4: NIM in Q2 was 2.16%, down 8 basis points quarter over quarter. As expected, NII from Treasury was lower sequentially representing 4 basis points largely offset by non-interest income.

Speaker #4: It also reflected higher prepayment activity last quarter as well as 1 basis point decline in PNC NIM as loan growth outpaced deposit growth. Looking at next quarter, we expect the PNC NIM to be slightly down from Q2 levels.

Doug Young: Have you sized what that was in terms of loan or in terms of formation?

Jean-Sébastien Grisé: I can give you a little bit more detail on this. It's a little bit more than half of the commercial formations were driven by that file.

Doug Young: Okay. How about the write-offs?

Speaker #4: Deposit margin expansion is expected to be offset by commercial deposit mix. As for the all-bank NIM, we expect it should remain relatively stable next quarter.

Jean-Sébastien Grisé: The write-offs can be lumpy. There's always two sides to write-offs. The retail write-offs are more normal, driven by credit cards than by end of cycles for the other portfolios. Then we did arrive to the end of workout for a couple of larger files in commercial. When you arrive there, what you do is you de-recognize the loan, and you have the correspondent write-offs. Obviously, you're seeing a little bit more lumpiness on this quarter.

Speaker #4: Turning to slide 9, we continue to grow both sides of the balance sheet. Loans increased 9% year over year, and 3% quarter over quarter including the addition of the Laurentian Bank syndicated loans of $657 million.

Doug Young: Okay. It doesn't sound like in either of these two that there's anything overly concerning. Is that from your perspective?

Speaker #4: Deposits increased by $9 million or 3% sequentially. Personal demand deposits grew 1.6 billion or 2% mainly driven by wealth management. Furthermore, our customers' appetite for investment solution has been strong given the favorable market performance that continued in Q2 and resulted in solid growth.

Jean-Sébastien Grisé: Well, I'm happy that the gross impaired loan was related to an insured file, that's for sure. No, nothing overly concerning. If we had removed this file, our yields would actually have been down quarter over quarter. As I mentioned in my prepared remarks, I don't think we're in an environment where the level of uncertainty has reduced. We could expect still ebbs and flows for the yield ratios going forward.

Speaker #4: Non-retail deposits grew 7.5 billion or 4% quarter over quarter mainly driven by commercial banking and corporate and investment banking. Now moving to capital on slide 10.

Doug Young: Okay. That's clear. Then second, just on Credigy. We do our own math, we look at the NIM or margin. I look at the margin this quarter, and I look at it relative to what an average would've been over the last three years. It looks like it's down by a decent amount. I know that you can say, look, from last quarter, there was some prepayment that went through. Even if I look longer term, it looks like it's lower. Is there anything that's changed in the portfolio or that went through this quarter that where there would've been a material kind of impact on NII or NIM or margin for Credigy?

Speaker #4: We ended the quarter with a strong CT1 ratio of 13.54% supported by capital generation of $41 basis points. Our WA growth consumed $38 basis points of capital.

Speaker #4: Credit risk of 25 basis points primarily reflected balance sheet growth with 5 basis points from the acquisition of the Laurentian Bank syndicated loan portfolio.

Speaker #4: Market risk mainly driven by business growth consumed 9 basis points of capital. Share buybacks during the quarter reduced the CT1 ratio by 32 basis points.

Étienne Dubuc: Hi, Doug. It's Étienne. You're right to point out a long-term slight decrease in margin. I think it's a function of we continue to prioritize secured assets. In Q2, I think two-thirds of our investment volumes were in mortgage portfolios, first lien and second lien, but a lot of first lien. That on a risk-reward basis, we really like it. That's where we see value right now. If you look at other asset classes, like in the unsecured space, we continue to see portfolios trading at prices that don't really reflect our view of the potential risks and performance. Conditions are a bit challenging there. We'd rather stick to the mortgage space for now, and we'll adapt. As the macro changes or as the situation evolves, we'll pivot as Credigy has many times over its history been able to do.

Speaker #4: Since the launch of our current NCIB, we have repurchased 8.8 million shares representing approximately 60% of the program. Now turning to slide 11. We are making solid progress on realizing synergies from the acquisition of CWB.

Speaker #4: So far, we have realized $215 million of cost and funding synergies and we are on track to reach $270 million by the end of fiscal 2026.

Speaker #4: Moreover, we are increasing our cost and funding synergies target to $300 million on an annualized basis. We have also realized $33 million of revenue synergies since the beginning of fiscal 2026 mainly driven by fee income.

Speaker #4: As previously mentioned, revenue synergies should reach approximately $50 million by the end of this fiscal year. We continue to target $200 to $250 million in revenue synergies by the end of fiscal 2028.

Étienne Dubuc: You're right that margins have been going down a bit, although the risk-reward, we're probably in a great position. The goal is still to deliver strong asset growth but never jeopardize the long term to meet short-term guidance in terms of margin or asset growth.

Speaker #4: We delivered strong results across both quarters of the first half supported by solid underlying performance across our businesses ongoing cost discipline and realization of CWB synergies with credit remaining within expectations.

Doug Young: I guess what I'm reading in this, and I guess I should've looked at this, but if I looked at a risk-adjusted margin, it actually probably wouldn't be that different because your PCLs would be coming down as this mix shifts, and that speaks to the risk-reward. Is that a fair comment?

Speaker #4: In addition, we continue to return capital to shareholders through dividend increases and ongoing share repurchase activity. We grew our EPS by 12% year to date.

Étienne Dubuc: Yeah, I think that's how I would look at it also, Doug.

Doug Young: Yeah. Okay. I appreciate the color. Thank you.

Operator: Once again, if you have a question, it is star one on your telephone keypad. Your next question comes from Darko Mihelic with RBC Capital Markets. Your line is open.

Speaker #4: While the macroeconomic landscape continues to be uncertain, our outlook for the remainder of the year remains positive. For the second half of 2026, we expect EPS growth to be in line with our performance year to date.

Darko Mihelic: Hi. Thank you. I wanted to revisit the net interest margin discussion, and your outlook is very helpful for the next quarter or so. My question is a little bit more longer term, I suppose, in nature. It really revolves around the high level of liquidity you're currently carrying. I understand you have a 13% common equity fund ratio sort of target end of 2027. What would be a more normal LCR level, and is there any kind of a drag here on your margin? How fast would you sort of target to get to more normal liquidity levels?

Speaker #4: We also anticipate expense growth trending towards the low single-digit range contributing to a positive operating leverage for the remainder of the year. Having generated an ROE of $16.7% year to date, alongside strong capital markets performance, we remain on track to achieve our ROE target of approximately $16% in fiscal 2026.

Speaker #4: With that, I will turn the call over to Jean-Sebastien.

Speaker #1: Merci, Marie-Chantal, and good morning, everyone. Since our last call, the Canadian economy has grown modestly while the labour market continued to weaken. The conflict in the Middle East is adding another layer of uncertainty.

Marie-Chantal Gingras: Hi, Darko. Maybe I can start, and I'll let Étienne give a bit more insights from a Capital Markets perspective. When looking at the LCR before going to the long term, just I think it's worthwhile just giving a few insights on the evolution of the ratio over the past couple of quarters. The decrease in LCR that you saw this quarter, which is effectively a decrease from the previous quarter, but it really came back to the usual level that we're used to seeing, and that's where we like to operate at National Bank. Nevertheless, the decrease came mainly driven by secured funding and collateral management activity.

Speaker #1: By putting pressure on energy prices, inflation, and interest rates. That said, strategic trade diversification and accelerated nation-building projects in energy natural resources and infrastructure should help to support future economic activity.

Speaker #1: In this complex environment, our resilient portfolio mix disciplined risk management and prudent provisioning underpinned our strong credit performance. Now turning to the second quarter results on slide 13.

Speaker #1: Total PCL were $233 million including the initial provision on performing loans of $6 million or 1 basis points related to the Laurentian Bank syndicated loan portfolio.

Marie-Chantal Gingras: It really reflects the transaction mix and timing rather than a change in our strategy, as I mentioned, and how we manage the bank's core liquidity positioning. The level that you're seeing right now is probably where we like to operate. We like to be in a good position and seize market opportunities when we see good funding opportunities, and that's what we saw earlier in the year. Maybe, Étienne, would you like to add any?

Speaker #1: Adjusted total PCL were $227 million or 30 basis points down 2 basis points quarter over quarter. We added 4 basis points of adjusted performing provisions in Q2 mainly reflecting portfolio growth and unfavorable macroeconomic scenarios.

Speaker #1: Which included a higher unemployment rate and more pessimistic outlooks for both equity markets and housing prices. PCL on impaired loans were $192 million or 26 basis points down 2 basis points quarter over quarter.

Étienne Dubuc: Thanks, Marie-Chantal. You said it very well. We pre-funded a lot over the last couple of quarters. The previous couple of quarters, there were some market opportunities that were interesting, and it made sense to fund and to deploy this funding in highly liquid securities within capital markets and treasury portfolios. Now that the conditions are normalizing, you're seeing our LCR drift back towards more of its long-term average. I think over the long term, expect us to be in the 140, 150 range, but we really like having it among the highest of the big banks. That will remain part of the strategy.

Speaker #1: And within our guidance of 25 to 35 basis points for the full year. Personal banking provisions were $2 million higher sequentially mainly driven by consumer credit.

Speaker #1: Commercial banking provisions rose $12 million quarter over quarter mainly driven by the real estate and construction sectors. Capital markets reported a $1 million recovery related to one file.

Speaker #1: At Credigy, provisions decreased by $3 million US resulting from the normal seasoning of residential mortgages and consumer loans. At ABA, impaired provisions were down by $4 million US sequentially to $13 million US reflecting lower formations.

Darko Mihelic: As I think about that, it's clear that this is really a cap market, and there's none of this that's actually sort of being pushed out through FTP into P&C Canada. Would that be a correct assumption?

Speaker #1: Turning to slide 14. Our total allowances for credit losses were $2.6 billion representing 5.1 times coverage of our net charge-offs. Our performing allowances were $1.7 billion demonstrating a strong performing ACL coverage ratio of 2.2 times we have been building allowances for the past 16 quarters and continue to be comfortable with our prudent and defensive provisioning levels.

Étienne Dubuc: It is mostly in capital markets and treasury portfolios, but you are right. It is really opportunistic positioning in capital markets that are the bulk of this ratio.

Darko Mihelic: Okay. Thank you very much for that. That's very helpful. Another question on ABA. Just wanted to sort of revisit your outlook for ABA. It looks like there's a weaker economy. The country itself has sort of lowered its economic outlook. Doesn't seem like you did anything on the performing side from PCLs. What is your outlook for ABA and should we just simply consider that the high level of growth, double-digit loans and so on should continue and really shouldn't expect any difference in PCL levels either?

Speaker #1: Turning to slide 15. Our gross impaired loan ratio was 114 basis points up 3 basis points quarter over quarter. Laurentian Bank syndicated loans accounted for $40 million or 1 basis point.

Speaker #1: Gills excluding USSFNI were 84 basis points up 3 basis points sequentially. Net formations were $13 basis points this quarter excluding the Laurentian Bank portfolio net formations were $12 basis points up 5 basis points compared to last quarter.

Speaker #1: And commercial bankings net formations were $28 basis points and included one file in CRE residential insured. On slide 26, we provide additional information on a few sectors of focus.

William Bonnell: Hey, Darko Mihelic, it's Bill. I'll take that and maybe JS can comment a little later on the PCLs. Yeah, for the economic outlook I've described, Cambodia has faced a series of challenges over the past years, from the pandemic to the US tariffs, the conflict with Thailand, and now the conflict in Iran. It's weathered those headwinds relatively well, but expected GDP growth has certainly declined. I think 6% in 2024, 5% in 2025, and expected to be around 4% next year, which remains significantly below its potential growth. We've talked previously about recovery and tourism being slow. That's certainly the case now. However, the growth in exports is higher than we had expected, particularly to the US. Year to date, it's up about 39% from last year, and FDI remains strong. In the challenging context of headwinds in the economy, we're very happy with ABA's performance.

Bill Bonnell: Hey, Darko Mihelic, it's Bill. I'll take that and maybe JS can comment a little later on the PCLs. Yeah, for the economic outlook I've described, Cambodia has faced a series of challenges over the past years, from the pandemic to the US tariffs, the conflict with Thailand, and now the conflict in Iran. It's weathered those headwinds relatively well, but expected GDP growth has certainly declined. I think 6% in 2024, 5% in 2025, and expected to be around 4% next year, which remains significantly below its potential growth. We've talked previously about recovery and tourism being slow. That's certainly the case now. However, the growth in exports is higher than we had expected, particularly to the US. Year to date, it's up about 39% from last year, and FDI remains strong. In the challenging context of headwinds in the economy, we're very happy with ABA's performance.

Speaker #1: Of note, we have limited exposures to US non-bank financial, NAV lending, and software. In conclusion, we are pleased with the credit performance in the second quarter and first half of the year and continue to expect impaired provisions to be within the 25 to 35 basis point range for the four fiscal 2026.

Speaker #1: In the current context of heightened uncertainty and softer labour market conditions, we expect further gradual increases in PCL while our wholesale book remains subject to periodic lumpiness.

Speaker #1: However, our defensive qualities resilient business mix and prudent allowances position us well for the remainder of the year. And with that, I will now turn the call back to the operator for the Q&A.

Speaker #2: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again.

William Bonnell: It's continued to evolve its market-leading digital banking services, which has led to great growth in the number of clients and in low-cost deposits, which is helpful. I'd point out, Darko, that the long-term structural tailwinds in Cambodia remain in place. It's still under-banked, young population, FDI remains strong, its competitive labor cost supports the manufacturing sector and exports. We remain pretty positive about the long-term growth potential. Does that answer your question? Maybe I'll pass it to JS for

Bill Bonnell: It's continued to evolve its market-leading digital banking services, which has led to great growth in the number of clients and in low-cost deposits, which is helpful. I'd point out, Darko, that the long-term structural tailwinds in Cambodia remain in place. It's still under-banked, young population, FDI remains strong, its competitive labor cost supports the manufacturing sector and exports. We remain pretty positive about the long-term growth potential. Does that answer your question? Maybe I'll pass it to JS for

Speaker #2: Thank you. Your first question comes from John Aiken with Jefferies. Your line is open.

Speaker #3: Good morning. Laura, as we look towards you achieving the target of 30% CPT1 ratio, can we assume that what we saw in the second quarter is going to be pretty much the blueprint moving forward where the internally generated capital remains very strong and but it's being fought off by the share repurchases, but also risk-weighted asset growth?

Jean-Sébastien Grisé: On a credit perspective, recall we had two data points on ABA. First is we had guided a while back, that still holds true that Q4 2024 would be at the higher end of what we expected going forward in terms of formations, we still think this is true. We also repeated that we expected the impaired PCLs to remain elevated for this year, which is still what we expect. Finally, to your last comment on the build, I think it's important to remember that the starting point is important, although we built 3 bps this quarter, we built 47 bps last quarter, 42 of the bps the quarter prior. We have been building performing provisions at ABA to make sure we have good downside protection.

Speaker #3: I mean, is this something that I mean, not definitively, but is this something that we should be expecting moving forward in future quarters?

Speaker #1: Thank you for your question. At a high level, yes. You have sometimes period of volatility, which could impact market risk RWA. So that is a factor that we have to take into consideration.

Speaker #1: But I guess at a very high level, yes, you should expect us to continue executing at these levels.

Speaker #3: Great. Thank you. And then in terms of the risk-weighted asset growth, I don't know if this is for Mayor Chantel or not, but in terms of the expected growth, assuming that the Canadian consumer remains a little bit in trouble, I guess the density on the commercial side is going to cause growth on that side.

Darko Mihelic: Okay. Thank you for that. Maybe just one last question to wrap up on ABA. If this current pace of growth continues, it is completely self-funding, is that correct?

Speaker #3: Is that a reasonable outlook?

Speaker #4: John, can you please repeat the question?

Speaker #3: Sorry. Yes. In terms of risk-weighted asset growth, presumably the outlook the potentially a risk-weighted asset acceleration.

William Bonnell: Yeah. As you've seen, deposit growth has been much higher than loan growth. I will caution when I think about what the impacts will be from the Iran crisis or the Iran conflict, it's mainly impacted the price, not the availability of fuel, and it is consuming a greater portion of household budgets than in the past. We would expect deposit stating rates and deposit growth to be lower than in the past, and that will impact it. In terms of self-funding, yes, it definitely remains to have a strong excess liquidity on the balance sheet and continues to grow deposits very strongly.

Bill Bonnell: Yeah. As you've seen, deposit growth has been much higher than loan growth. I will caution when I think about what the impacts will be from the Iran crisis or the Iran conflict, it's mainly impacted the price, not the availability of fuel, and it is consuming a greater portion of household budgets than in the past. We would expect deposit stating rates and deposit growth to be lower than in the past, and that will impact it. In terms of self-funding, yes, it definitely remains to have a strong excess liquidity on the balance sheet and continues to grow deposits very strongly.

Speaker #4: Yeah. In that context, that could be a good assumption.

Speaker #3: Fantastic. Thank you. I'll read to you.

Speaker #4: Yeah.

Speaker #2: Your next question comes from Matthew Lee with Canaccord Genuity. Your line is open.

Speaker #5: Hi. Good morning. Nice taking my question. Maybe just one on PNC loan growth continues to be pretty strong. Deposit trend a little bit more mixed this quarter.

Speaker #5: Anything about the franchise today, is the pace and mix of core deposit growth influencing economics of new lending or the path of PNC margins?

Darko Mihelic: Great. Thank you very much.

Speaker #5: And is that going to be the main source of NIM pressure as you look into Q3 and maybe Q4?

Operator: Your next question comes from Paul Holden with CIBC. Your line is open.

Paul Holden: Okay, thanks. Good morning. I want to go back to Jean. You've given some helpful commentary on the outlook for the business for H2 of the year. I guess I want to ask you longer term, because this business has become, I think, harder to forecast. Never easy, but harder to forecast just because you have this underlying growth from client initiatives and growing product offerings, et cetera. Also very favorable market conditions, right? Which have obviously benefited all banks. Trying to figure out a couple of things. One is, should we actually be assuming continued growth into next year for this business, or is that just asking too much at this point?

Speaker #4: Matthew? It's Matthew Chantel. So maybe I can start with a few points on the NIM going forward and what we are seeing this quarter and then Julie can take a moment to speak about more of the outlook in terms of loans and deposit growth for the PNC.

Speaker #4: So for the NIM, let's take a moment just to look at the all-bank NIM and then I'll go a little bit deeper in the PNC NIM.

Speaker #4: So the Q2 decline of the all-bank NIM, as I explained in my remarks, is something that we had anticipated for this quarter. So we call that in Q1, we benefited from a particularly strong NII driven by ALM activities.

Paul Holden: Two, if we think this business at some point has to normalize, which it probably does, what specific market conditions do you think we should be tracking to get a sense of what could result in more normal run rate earnings? Thank you.

Speaker #4: And in Q2, the Treasury performance remained solid, although reported NII was lower, sequentially largely offset in non-interest income due to the accounting of some hedges, which happens from time to time.

Étienne Dubuc: Thanks, Paul. It's Jean. Definitely, we want to keep growing the business, and we want to keep it growing at the same pace as the rest of the bank. That's definitely part of the strategy. We're putting in place a lot of initiatives both on the Global Markets and the corporate and IB divisions to continue our growth and really to, as we've scaled domestic champions in Canada, to slowly port those capabilities in new markets. We've done it successfully both on the CIB and the Global Markets side. I'm thinking of how we operate in the Delta One space, in the structured product space, and now in the project finance and renewable energy space. We'll definitely continue to do that. As to what to track to expect slowdowns, and we've seen that, right? It's when clients get a lot more quiet.

Speaker #4: So on a total revenue basis, that said, Treasury, as I said, had a very strong second quarter. And the overall impact from Treasury on the all-bank NIM represents approximately 4 basis points sequentially to the all-bank NIM.

Speaker #4: Additionally, we had some prepayment activity last quarter from Credigy, also impacted the NIM by 1 basis points Q over Q, which is something that we had also mentioned.

Speaker #4: Now, when you look at the PNC NIM decline this quarter, improved deposit margins was offset by volume mix as loan growth outpaced deposit growth.

Speaker #4: So that's something that we've also shared in the past. And that's something that you're seeing when you look at our loan growth volumes as well as deposit volumes.

Speaker #4: Looking ahead, we expect the all-bank NIM to remain relatively stable in Q3. From Q2 levels, and we do expect a slight decline on the PNC NIM in Q3 driven by mixed dynamics in commercial deposits, partly offset by continued repricing benefits on our core deposits.

Étienne Dubuc: We still are a franchise that depends on client flow, client deals, giving clients advice. When the economic cycle reaches a point where there's a lot less activity, look for us to slow down. Some of it may be when there are impacts on the markets that are negative, that creates volatility sometimes. Because we have a lot of countercyclical businesses on the trading side, that can be cushioned. Over the long term, we need clients to make money. We need clients to succeed. This is a franchise that will always track client activity and client success.

Speaker #4: Also, we expect the Treasury NII to revert toward a midpoint between Q1 and Q2 levels. That's a bit of what happened in terms of the NIMs and on the PNC NIM.

Speaker #6: So if I look into this is Julie. So if we talk about deposits specifically for retail, deposit outlook remains consistent with the current market trends.

Speaker #6: The continuation of low interest rates through the end of 2026 limits the relative attractiveness of deposits and continues to drive outflows from GICs. While the market returns are expected to normalize, potentially slowing the pace of migration towards funds, the underlying dynamic is not expected to reverse.

Paul Holden: Okay. To be clear on that, even though your business has outgrown the rest of the bank in the last couple of years, you still think going forward, even at the current levels, you can grow in line with the rest of the bank. That's the messaging here?

Speaker #6: As a result, deposit growth is expected to remain flat. Judith, on the commercial side, I don't know if you want to jump in. So thanks for your question.

Speaker #6: So deposit growth on the commercial banking side remains the strategic focus. And we're really well positioned to capitalize on a significant opportunity to grow our penetration in cash management product.

Étienne Dubuc: That's certainly the goal, yes.

Paul Holden: Okay. Thank you for that. That's it for me.

Speaker #6: And just to give you an idea, and our cash management and deposit strategy we have three pillars. The first one, we've been operating our online banking platform.

Operator: This concludes the question and answer session. I'll turn the call to Laurent Ferreira for closing remarks.

Speaker #6: It's almost done. Second, we're expanding our Treasury management team to deepen client engagement and support deposit growth. This is in process. And third, we're enhancing our deposit solutions through more targeted offerings by client segments and industry.

Laurent Ferreira: Thank you, operator. Q2 was strong. On that, I'd like to thank our teams across the country for all their efforts and excellent execution. While the macroeconomic context remains uncertain, we are really well positioned to support our clients and continue delivering strong earnings growth and ROE. On that, thank you, and I wish everyone a great summer.

Speaker #6: So we're very positive on the outlook on the deposit on the commercial banking side.

Speaker #5: Okay. So if I'm taking that together, for the next couple of quarters, we should continue to see loan growth outpacing deposits. And if so, we should still continue to see PNC banking NIM face some pressure.

Operator: This concludes today's conference call. Thank Pre-Tax for joining. You may now disconnect.

Speaker #4: That's correct, Matthew.

Speaker #5: Okay. That's helpful. Thanks.

Speaker #2: The next question comes from Ibrahim Punawalla with Bank of America. Your line is open.

Speaker #7: Hey, good morning. I guess maybe first question, Nurul, for you around I think you said that the uncertainty on the macro side has led to a slowdown in investment spend.

Speaker #7: And then you went on to outline a lot of good things that could happen in the future. Just give us a sense of it feels like the Quebec economy has had a delayed impact in terms of the slowdown.

Speaker #7: So when you look at just the job picture locally, what's happening just from a credit standpoint, do you think that lagged effect that Quebec may be feeling will show up with somewhat higher PCLs over the coming quarters?

Speaker #7: How would you frame the year-end now in terms of just the economic activity and how that could translate into credit trends?

Speaker #5: Ibrahim, thank you for your question. So maybe so let's start with Canada in general. General delayed reaction, labor market suffering a little bit more now across the country.

Speaker #5: Quebec as well. And the uncertainty also around Kuzma and commercial tensions for our country. Those are all factors I think that are impacting growth and investment in businesses.

Speaker #5: And so we feel it feels like we are a bit in a lull in our country in terms of in business investment. And in my prepared remarks, and I've said this publicly, we are definitely encouraged by the shift in our government towards a focus on the economy.

Speaker #5: So to us, that bodes really well going forward. Now, in terms of change, you asked a question about outlook on PCL. It doesn't change our outlook, but maybe I'll ask Jean-Sebastien to comment on our outlook regarding PCLs for.

Speaker #1: Yeah. So we just reaffirmed our guidance for total bank. If you look at the retail book in Quebec versus rest of Canada, so the retail book in Quebec has outperformed for the past several years.

Speaker #1: So it would be normal to see a little deterioration. I agree with you. You pointed out the higher unemployment. However, I would be cautious in not pointing it as a trend as we've seen a large shift this quarter, but I would wait for a couple of quarters before we see longer-lasting trends before having a conclusion.

Speaker #1: But the fundamentals of the Quebec markets remain. Which is a strong saving rate, more double income families, and low housing prices. And to add on top of that, I'd remind you that we have a low unsecured proportion in our total portfolio, which is where typically it would shift the first.

Speaker #1: And the performing of unsecured portfolio in Quebec is particularly good given the fact that we're overpenetrated in homeowners, which is the place where typically delinquencies and losses are lower.

Speaker #7: Got it. Thank you. And as a follow-up on the capital and the buyback, discussion earlier, as you think about just I mean, obviously, you have a lot of excess capital, high ROE, so you're generating a lot.

Speaker #7: When we think about just is there any level of sensitivity when you look at the stock from price to earnings, price to book, or your internal return on those?

Speaker #7: Just I'm wondering or is it more about you want to do X amount of buybacks and keep capital levels at a steady state? And your as a result, not particularly sensitive to where the stock's fading at any given point in time.

Speaker #7: Just would love to hear how you think about it.

Speaker #5: That's a great question, Ibrahim. We'll adjust from time to time. So if we do see opportunities to increase the pace of our buyback because we think our stock is not performing at the same level as others, for instance, like we saw there's a period of time in January where our stock was not performing at the same level as others, and we did take advantage of that.

Speaker #5: So we are a little bit dynamic in the way we manage the buyback. But in terms of change in our strategy, because of our stock price, there's no change in strategy.

Speaker #5: The only thing that would change our strategy is a big shift in macro. If there's a big shift in macro, where inflation is picking up and interest rates are picking up and we think that the macro environment will deteriorate, we'll revisit.

Speaker #5: So that's kind of the philosophy. But we'll take advantage of price swings if we can. But our strategy is pretty steady.

Speaker #7: Excellent. Thank ank you.

Speaker #2: Your next question comes from Mike Rizvanovic with Scotiabank. Your line is open.

Speaker #8: Hey, good morning. I had a question for Judith. I guess a two-part question. So one, just on the CWB loans coming off, I think $400 million is what you flagged.

Speaker #8: So it does move the needle on your year-over-year performance. So 11% gets down to 5. I guess I'm wondering how much of that is more recent?

Speaker #8: Is this just a normal part of the process of getting out of areas where you maybe are not comfortable on the risk side or for whatever other reason?

Speaker #8: Are you to the point where it's almost done at this point, or is there more potentially to go there?

Speaker #9: Okay. Thanks, Mike, for your question. So I'll start by saying that as expected, our sequential commercial loan growth was consistent with the previous several quarters.

Speaker #9: So there's no surprise on that. So and on the just I will comment on the legacy national bank portfolio. So despite macroeconomic uncertainty, clients remain very active throughout the quarter.

Speaker #9: And we're very happy we've delivered another quarter of double-digit year-over-year growth. So our core it is really as per our strategy and this, I want to point out, our core commercial banking grew more than real estate.

Speaker #9: And that's really focused on both mid-market and large client segments across all geographical footprint. So that's the first part. So if we go on the CWB side, so I want to offer three things.

Speaker #9: First, the performance of the CWB portfolio has been as expected. As mentioned in the last few calls, our teams have been focused on supporting the client experience throughout the conversion.

Speaker #9: No surprise around that. This focus has supported strong level of client retention, with payout volumes remaining below pre-acquisition average. So that would be the first point.

Speaker #9: The second point is integration activities have created short-term headwinds and capacity for new volume, which has not been sufficient to offset regular payment and payout.

Speaker #9: This has been particularly pronounced in the commercial real estate portfolio as Laurent said in his remark. And which contain amortizing commercial mortgages, interim construction financing that pays out as successful project completion.

Speaker #9: And the third point I want to offer is now the integration impact has clearly moderated in our teams are well positioned to return to generating new volume.

Speaker #9: With early signs of recovery with visible improving pipeline. While we maintain pricing discipline, obviously. So we're positive on the opportunities in front of us to drive growth on the CWB.

Speaker #9: Portfolio and what I would like to say also on the is it finished, the integration? I would say that where we are right now, conversion and integration is finished.

Speaker #9: And we're going back to normal state in the next few quarters. That's what I would offer to you.

Speaker #8: Okay. So really nothing on the credit side that surprised you more recently. There's nothing related to credit?

Speaker #9: No. Nothing on the credit side. I'm comfortable with what I see in front of me.

Speaker #8: Okay. Perfect. And then just quickly on the 11% growth ex-CWB, that's a really robust number. And I'm wondering if you could just sort of delineate between growth in Quebec, your core market, and some of the maybe the low-hanging fruit that you're getting outside of the Quebec market as you expand.

Speaker #8: I guess in Western Canada in particular. Any color on that?

Speaker #9: Yes. Yes. So on our kind of legacy NBC portfolio, our growth in Western Canada has been really high. And Ontario as well. I want to point out Ontario.

Speaker #9: But Quebec is also growing at a faster pace. So I would say that just to map it out, Western Canada faster Ontario and Quebec.

Speaker #9: That's how I would share that.

Speaker #8: Okay. Thank you for the color.

Speaker #2: Your next question comes from Sohrab Movahedi with BMO Capital Markets. Your line is open.

Speaker #10: Okay. Thank you. I just maybe Judith, can I just pick up there for a second? This growth, is it net new clients or are you increasing lending with existing clients?

Speaker #9: So it's mostly net new client. We've also increasing, but we're seeing some momentum with net new client. And that's been our focus.

Speaker #10: Okay. Thanks. Again, you had talked to us about pre-tax reprovision, maybe affecting just get a reminder. What do you think your segment pre-tax reprovision is likely to do this year now that you've got two quarters under your belt?

Speaker #5: Yeah. Hi, Sohrab. So yeah, thanks for the question. So I'd say overall, we continue to feel good about the outlook. And I feel confident now about our ability to hit the top of the PTPP guidance that we had given for fiscal 26.

Speaker #5: So we've had obviously a really strong performance in both Q1 and Q2 with a lot of great deal activity. And very supportive market conditions across several businesses.

Speaker #5: But also, I think the franchise is operating from a structurally stronger position today. And you see it in our ability to execute for clients across market cycles with the ability to support increasingly complex financing and capital raising needs.

Speaker #5: And the increasing number of leads and the improving diversification of the revenue mix so for the balance of the year, our base case is we'll see some more typical seasonal dynamics through the summer months.

Speaker #5: And the market backdrop that may be a bit less active than what we experienced in the first half while we still think it will be positive overall.

Speaker #5: So maybe a bit of more precise color so we're seeing a structured product you're going to see less volatility we feel. But overall, investors are surprisingly resilient and they continue calling products and that should mean good issuance volumes.

Speaker #5: And the intermediation businesses, it's really our scale and execution capabilities that continue to position us well support client flow across different market regimes. And that's reinforced by our leadership in ETFs and options and domestic bond trading.

Speaker #5: And across our hedging solution businesses, we think we'll see continued activity tied to financing and infrastructure across rates, FX, commodities. Although part of the elevated results in Q2 may have been pulled a bit forward from later periods.

Speaker #5: And DCM, I think their could get interesting. I mean, borrowing on both the corporate and the government side, there's good financing conditions. There's resilient investor demand.

Speaker #5: And that, I think, will translate into robust issuance activity. And we continue to see good pipeline in the corporate banking and the investment banking.

Speaker #5: It's well diversified across sectors. So we think M&A remains strong. And strong markets and strong investor risk appetite I think will continue to be a good backdrop for equity new issues.

Speaker #10: Okay. That's very helpful. Maybe even it's incredibly helpful, comprehensive. Maybe you're going to even surprise yourself and exceed the upper end. Laurent, one last question maybe just for you.

Speaker #10: Last, I think last quarter, when we talked when you talked about ROE outlook, you talked about either side of 16% for 2026 and you mentioned 17% or thereabouts in 2027.

Speaker #10: So I guess wanted to confirm that that 17% still remains the 2027 kind of yardstick. And does it can it benefit further based on the work you're doing in the ROE optimization in your P&C bank?

Speaker #10: Or did you have some of that benefit incorporated into the 17% type of number you were talking to us about for 2027?

Speaker #5: So thank you for your question. So you're correct. Last quarter, we did provide guidance for the year. We upgraded our guidance for the year from 15 to 16 percent for 2026.

Speaker #5: And maybe I should correct you, but 2027, we provided a waterfall and it was 17 plus. That we guided for 2027. And I think Marie-Chantal, a really good explanation last quarter on the 17 plus, and also said that all the work that we're doing right now in terms of the next strategic plan are not included in our guidance for our ROE for 2027.

Speaker #5: So does that answer your question, Sohrab?

Speaker #10: Yeah, that's perfect. Thank you very much, thanks for taking my question.

Speaker #5: Perfect. Thank you.

Speaker #1: Your next question comes from Doug Young with Dejave. Your line is open.

Speaker #8: Hi, good morning. Just maybe starting on the credit side, two things. New gross impaired loan formations and I look at it on a gross, not net, but gross loan formations did jump sequentially and I think even year over year.

Speaker #8: And it looked like write-offs were a little bit elevated. So I'm just maybe you can talk a little bit about where you're seeing the pressure from a product or from a geography perspective on, again, new gross impaired loan formations and write-offs.

Speaker #5: Thanks for the question, Doug. It's JS. So pretty simple explanation to that. And we called it on the slide. So I'd say the majority of our formations in commercial actually driven by one file in commercial real estate in Western Canada.

Speaker #5: And that file is insured. So you've seen us grow in residential insured in the past years. And I think this is one good feature of this growth is when the go wrong, you have some PCL protection on it.

Speaker #5: So although there is a large gill associated to it, there's no PCL associated to it.

Speaker #8: And have you sized out what that was in terms of loan or in terms of formation?

Speaker #5: So I can give you a little bit more detail on this. So it's a little bit more than half of the commercial formations were driven by that file.

Speaker #8: Okay. And how about the write-offs?

Speaker #5: So the write-offs are can be lumpy. So there's always two sides, the write-offs, the retail write-offs are more normal driven by credit cards and by end-of-cycles.

Speaker #5: For the other portfolios, and then we did arrive to the end of workouts for a couple of larger files in commercial. So when you arrive there, what you do is you de-recognize the loan and you have the correspondent write-offs.

Speaker #5: So obviously, you're seeing a little bit more lumpiness on this, this quarter.

Speaker #8: Okay. So it doesn't sound like in either of these two that there's anything overly concerning. Is that from your perspective?

Speaker #5: Well, I'm happy that the gross impaired loan was related to an insured file, that's for sure. But no, nothing overly concerning. If we had removed this file, our gills would actually have been down quarter over quarter.

Speaker #5: But as I mentioned in my prepared remarks, I don't think we're in an environment where the level of uncertainty has reduced. So we could expect still ebbs and flows for the gill ratios going forward.

Speaker #8: Okay. That's clear. And then second, just on credit G, we do our own math and we look at the NIM or margin. And I look at the margin this quarter and I look at it relative to what an average would have been over the last three years.

Speaker #8: And it looks like it's down by a decent amount. And I know that you can say from last quarter, there was some prepayment that went through.

Speaker #8: But even if I look longer term, it looks like it's lower. Is there anything that's changed in the portfolio or that went through this quarter that where there would have been a material kind of impact on NII or NIM or margin for credit G?

Speaker #5: Hi, Doug. It's Etienne. So you're right to point out a long-term slight decrease in margin. I think it's a function of we continue to prioritize secured assets.

Speaker #5: And in Q2, I think two-thirds of our investment volumes were in mortgage portfolios firstly and secondly. But a lot of firstly. And so that on a risk-reward basis, we really like it.

Speaker #5: But that's really that's where we see value right now. And if you look at other asset classes like NDN secured space, we continue to see portfolios trading at prices that don't really reflect our view of the potential risks and performance.

Speaker #5: So conditions are a bit challenging there. So we'd rather stick to the mortgage space for now and we'll adapt and as the macro changes or as the situation evolves, we'll pivot as credit G has many times over its history been able to do.

Speaker #5: But you're right that margins have been going down a bit, although the risk-reward were probably in a great position. And the goal is still to deliver strong asset growth, but never jeopardize the long-term to meet short-term guidance in terms of margin or asset growth.

Speaker #8: I guess what I'm reading in this and I guess I should have looked at this, but if I looked at a risk-adjusted margin, it actually probably wouldn't be that different because your PCLs would be coming down as this mix shifts.

Speaker #8: And that speaks to the risk-reward. Is that a fair comment?

Speaker #5: Yeah, I think that's how I would look at it also, Doug.

Speaker #8: Yeah. Okay. I appreciate the color. Thank you.

Speaker #9: Once again, if you have a question, it is star one on your telephone keypad. Your next question comes from Darko Mihalic with RBC Capital Markets.

Speaker #9: Your line is open.

Speaker #10: Hi. Thank you. I wanted to revisit the net interest margin discussion and your outlook is very helpful for the next quarter or so. My question is a little bit more longer term, I suppose, in nature.

Speaker #10: And it really revolves around the high level of liquidity currently covering. You're currently carrying. So I understand you have a 13% common equity fund ratio sort of target at the end of '27.

Speaker #10: What would be a more normal LCR level? And is there any kind of a drag here on your margin? And how fast would you sort of target to get to more normal liquidity levels?

Speaker #11: Hi, Darko. Maybe I can start and I'll let Etienne give a bit more insights from a capital markets perspective. So when looking at the LCR before going to the long-term, just I think it's worthwhile just giving a few insights on the evolution of the ratio over the past couple of quarters.

Speaker #11: So the decrease in LCR that you saw this quarter which is effectively a decrease from the previous quarter, but it really came back to the usual level that we're used to seeing.

Speaker #11: And that's what where we like to operate at National Bank. But nevertheless, the decrease came mainly driven by secured funding and collateral management activities.

Speaker #11: So it really reflects the transaction mix and timing rather than a change in our strategy as I mentioned and how we manage the bank's core liquidity positioning.

Speaker #11: So the level that you're seeing right now is probably where we are we like to operate. We like to be in a good position and seize market opportunities when we see good funding opportunities.

Speaker #11: And that's what we saw earlier in the year. So maybe Etienne, would you like to add any?

Speaker #5: Thanks, Marie-Chantal. So you said it very well. So we pre-funded a lot over the last couple of quarters. The previous couple of quarters, there were some market opportunities that were interesting and we and it made sense to fund and to deploy this funding in highly liquid securities within capital markets and treasury portfolios.

Speaker #5: Now that the conditions are normalizing, you're seeing our LCR drift back towards more of its long-term average. I think over the long-term, expect us to be in the 140, 150 range but we really like having it among the highest of the big banks.

Speaker #5: That will remain part of the strategy.

Speaker #10: And so as I think about that then, it's clear that this is really a cap market. And there's none of this that's actually sort of being pushed out through FTP into P&C Canada.

Speaker #10: Would that be a correct assumption?

Speaker #5: It is mostly in capital markets and treasury portfolios, but you're right. It's really opportunistic positioning in capital markets that are the bulk of this ratio.

Speaker #10: Okay. Thank you very much for that. That's very helpful. Another question on ABA. Just wanted to sort of revisit your ABA. It looks like there's a weaker economy the country itself is sort of lowered its economic outlook.

Speaker #10: Doesn't seem like you did anything on the performing side. From PCLs. So what is your outlook for ABA and should we just simply consider that the high level of growth, double-digit loans, and so on should continue and really shouldn't expect any difference in PCL levels either?

Speaker #5: Hey, Darko. It's Bill. I'll take that and maybe JS can comment a little later on the PCLs. But yeah, for the economic outlook, I described Cambodia as faced a series of challenges.

Speaker #5: Over the past years, from the pandemic to the US tariffs, the conflict with Thailand, and now the conflict in Iran. It's weathered those headwinds relatively well.

Speaker #5: But expected GDP growth has certainly declined. I think 6% in 2024, 5% in 2025, and expected to be around 4% next year. Which is remains significantly below its potential growth.

Speaker #5: And we've talked previously about recovery and tourism being slow. That's certainly the case now. However, the growth in exports is higher than we had expected, particularly to the US.

Speaker #5: Year-to-date, it's up about 39% from last year. And FDI remains strong. So in the challenging context of headwinds in the economy, we're very happy with ABA's performance.

Speaker #5: It's continued to evolve its market-leading digital banking services, which has led to great growth in the number of clients and in low-cost deposits, which is helpful.

Speaker #5: And I'd point out, Darko, that the long-term structural tailwinds in Cambodia remain in place. It's still underbanked. Young population FDI remains strong. It's competitive labor cost supports manufacturing sector and exports.

Speaker #5: And so we remain pretty positive about the long-term growth potential. Does that answer your question? Maybe I'll pass it to JS for PCL.

Speaker #10: Yeah. So on a credit perspective, recall we had two data points on ABA first is we had guided a while back and that still holds true that Q4 2024 would be the higher end of what we expected for going forward in terms of formations.

Speaker #10: And we still think this is true. And we also repeated that we expected the impaired PCL to remain elevated for this year, which is still what we expect.

Speaker #10: And finally, to your last comment on the build, I think it's important to remember that the starting point is important. And although we built three BIPs this quarter, we built 47 BIPs last quarter, 42 the BIPs the quarter prior.

Speaker #10: So we have been building performing provisions at ABA. To make sure we have good downside protection. Okay. Thank you for that. Maybe just one last question to wrap up on ABA.

Speaker #10: If this current pace of growth continues, it is completely self-funding. Is that correct?

Speaker #5: Yeah. As you've seen, deposit growth has been much higher than loan growth. I will caution when I think about what the impacts will be from the Iran crisis, the Iran conflict, it's mainly impacted the price, not the availability of fuel.

Speaker #5: And it is consuming a greater portion of household budgets. Then in the past. So we would expect deposits saving rates and deposit growth to be lower than in the past.

Speaker #5: And that will impact it. But in terms of self-funding, yes, it's definitely remains to be to have a strong excess liquidity on the balance sheet and continues to grow deposits very, very strongly.

Speaker #10: Great. Thank you very much.

Speaker #11: Your next question comes from Paul Holden with CIBC. Your line is open.

Speaker #12: Okay. Thanks, good morning. I want to go back to Etienne. You've given some helpful commentary on the outlook for the business for second half of the year.

Speaker #12: I guess I want to ask you sort of longer term, because this business has become harder to, I think, harder to forecast, never easy, but harder to forecast.

Speaker #12: Just because you have this underlying growth from your client initiatives and growing product offerings, etc. And then also a very favorable market conditions, right, which have obviously benefited all banks.

Speaker #12: So trying to figure out a couple of things. One is should we actually be assuming continued growth into next year for this business, or is that just asking too much at this point?

Speaker #12: And two, if we think this business at some point has to normalize, which it probably does, what specific market conditions do you think we should be tracking to sort of get a sense of what could result in more normal run rate earnings?

Speaker #12: Thank you.

Speaker #5: Thanks, Paul. It's Etienne. Definitely, we want to keep growing the business. And we want to keep it growing at the same pace as the rest of the bank.

Speaker #5: That's definitely part of the strategy. And we're putting in place a lot of initiatives, both on the global markets and the corporate and IB divisions to continue our growth and really to, as we've scaled domestic champions in Canada, to slowly port those capabilities and new markets.

Speaker #5: We've done it successfully both on the CNIB and the global market side I'm thinking of how we operate in the Delta One space and the structured product space.

Speaker #5: And now in the project finance and renewable energy space. We'll definitely continue to do that. As to what to track to expect slowdowns, and we've seen that, right?

Speaker #5: It's when clients get a lot more quiet. I mean, we still are a franchise that depends on client flow, client deals, client giving clients advice.

Speaker #5: And so when the economic cycle reaches a point where there's a lot less activity, look for us to slow down. I mean, some of it maybe when there are impacts on the markets negative, it creates volatility sometimes.

Speaker #5: So because we have a lot of countercyclical businesses, on the trading side, that can be cushioned but over the long term, we need clients to make money.

Speaker #5: We need clients to succeed. And so this is a franchise that will always track client activity and client success.

Speaker #12: Okay. So to be clear on that, even though your business is outgrowing the rest of the outgrowing the rest of the bank in the last couple of years, you still think going forward, even at the current levels, you can grow in line with the rest of the bank.

Speaker #12: That's the messaging here.

Speaker #5: That's certainly the goal, yes.

Speaker #12: Okay. Okay. Thank you for that. That's it for me.

Speaker #11: This concludes the question and answer session. I'll turn the call to Laurent Ferreira for closing remarks.

Speaker #5: Thank you, operator. Second quarter was strong and on that, I'd like to thank our teams across the country for all their efforts and excellent execution.

Speaker #5: And while the macroeconomic context remains uncertain, we are really well positioned to support our clients and continue delivering strong earnings growth and ROE on that.

Speaker #5: Thank you. And I wish everyone a great summer.