National Bank of Canada

Hélène Baril - Senior Director of IR Louis Vachon - President and CEO Ghislain Parent - CFO and EVP, Finance and Treasury Bill Bonnell - EVP, Risk Management Jean Dagenais - SVP, Finance Diane Giard - EVP, P&C Banking

Gabriel Dechaine - Canaccord Genuity Meny Grauman - Cormark Securities Robert Sedran - CIBC Sohrab Movahedi - BMO Capital Markets Sumit Malhotra - Scotia Capital Steve Theriault - Bank of America Merrill Lynch Mario Mendonca - TD Securities Peter Routledge - National Bank Financial Doug Young - Desjardins Capital Markets

Thank you. Good afternoon and thank you for joining National Bank’s first quarter 2015 results conference call.

In a few moments, Louis Vachon, President and CEO will start the call with his opening remarks; then Ghislain Parent, CFO and Executive Vice President, Finance and Treasury will present the overall Bank performance, as well as the capital management review; his comments will be followed by the presentation of Bill Bonnell, Executive Vice President, Risk Management who will cover the Bank’s risk management section. Following his comments Jean Dagenais, Senior Vice President, Finance, will cover the business unit results.

Then we will take your questions. Please note that Diane Giard, Executive Vice President, P&C Banking; Ricardo Pascoe, Executive Vice President, Financial Markets; and Luc Paiement, Executive Vice President, Wealth Management will also be on hand to answer your questions.

Please also note that all documents referred to in today’s conference call can be found on our website at nbc.ca in the Investor Relations section. I would also like to remind you that a caution regarding forward-looking statements applies to our presentation and comments.

Over to you, Mr. Vachon.

Good afternoon and thank you for joining us today. We are very pleased with our 2015 first quarter results.

Adjusted net income increased by 7% compared to the same period last year reaching $410 million or a $1.14 per share. The quality of our credit portfolio remains excellent with provisions for credit losses of $54 million or 20 basis points.

Return on equity was 17.5% and a common equity Tier 1 ratio under Basel III stood at 9.3%. Before commenting further on the first quarter results I would like to share our views on the current economic environment as well as risk and opportunity created by lower oil prices and lower interest rates.

Economic conditions in Central Canada are expected to improve from last year due to a number of positive developments. First, consumer net disposable income should increase materially due to lower oil prices and lower interest rates.

We estimate that reduced gasoline prices in 2015 at today’s current level will be equivalent to $5 billion tax cut for Quebec and Ontario consumers. After a difficult 2014 the labor market is improving.

Quebec has created 23,600 jobs over the past three months, the best performance of any Canadian product. Thirdly a more favorable exchange rate and the U.S.

economic expansion our boosting Central Canadian exports. In 2014 Quebec volumes in international exports showed a high single-digit growth over 2013 average level well above the growth rate seen in the rest of Canada.

Overall we believe that consumer spending; business investments, exports and a still elevated level of public infrastructure investments should positively impact Quebec and anterior economies. In Quebec we expect real GDP growth to each 2% in 2015 the best we have seen in the past four years.

Looking more closely at our first quarter results, we can see that National Bank benefited from the current economic environment and we may able to see market opportunities. All three business lines generated solid earnings growth compared to last year.

Financial markets did particularly well with earnings increasing by more than 20% thanks to strong trading and corporate banking revenues. As already mentioned in previous call we still see many short-term and long-term trends which remained very favorable to our wholesale banking segment as evidenced again in Q1.

As for P&C Banking, the sector delivered high single-digit loan growth on a year-over-year basis while margins declined by only one basis points from Q4 2014 as expected. I would like to underline that the recent Bank of Canada interest rate cut should be neutral to our NIMs in 2015.

In addition I would like to remind everyone that our P&C presence in the oil and gas rich Canadian provinces is smaller than our Canadian peers and represent less than 9% of our total Canadian loan outstanding. Therefore the lower prices should have a manageable impact on our P&C credit portfolio.

More information on our P&C banking positioning and key growth initiatives will be provided on May 1 and our net investor day. The event will be held in Toronto and will be broadcasted on our website.

With respect to wealth management activities the business lines performed with solid fee based revenues and assets under administration increasing by close to 25% on a year over year basis. This morning we announced a secondary offering of Fiera Capital Class A shares.

This transaction is being undertaken for the sole objective of optimizing our capital position. The pre-tax chain is estimated $28 million and should add 15 basis points towards CET1 ratio.

We expect our EPS 2015 to be reduced by less than $0.01 per share and our 2016 EPS to be reduced by $0.017 per share a closing is expected in Q2 2015 and our ownership position in Fiera will then be at 22% from 35%. It is important to note that we are committed to maintain our ownership position and remain very supportive of Fiera and its management team.

We will continue to invest in the development of the commercial relationship between the two organization. In short things are going very well between National Bank and Fiera.

So why the reduction in ownership? Last year's change in regulatory capital calculation for embedded goodwill and minority interest is the answer.

As of January 31, 2015 common equity tier 1 ratio under the Basel III stood at 9.3% as mentioned in the previous conference call we are targeting a ratio at or above 9.5% before reactivating the common share buyback program. We are in a process of requesting regulatory approval to renew our buyback program.

The bank intends to maintain its prudent capital management approach by keeping a sound balance between investments in organic growth acquisitions and returning capital to shareholders. We will continue to review our dividend policy every other quarter.

Our mid-term objective for EPS remains between 5% to 10% ROE set between 10% and 15% common tier 1 capital ratio on the Basel III above 9.5 and leverage about 3.5% and on dividend payout between 40 and 50. Finally we expect to achieve a positive operating leverage for fiscal 2015.

On that I'll turn things over to Ghislain for the financial and capital review. Ghislain?

Thank you Louie and good afternoon everyone. I invite you to turn to slide 6 to review the first quarter 2015 results.

First on an adjusted basis National Bank posted total of news of $1.5 billion up 7% from last year due to ardent contribution from all business segments. Net income amounted to $410 million or $1.14 per share representing a 5% increase from the same period last year.

Return on equity was solid at 17.5%. Now on the reported basis net income totaled $415 million in Q1 2015 compared to 405 million in Q1 of last, an increase of 2%.

EPS reached $1.16 in Q1 2015 up $0.01 compared to the same period last year. Specific items included pre-tax gain of 18 million on that note partly offset by past acquisition charges resulting in a net $0.02 positive impact on the EPS Q1 2015.

Turning to slide 7 on a year over year basis all business segment posted solid reviews and net income growth. P&C revenues and earnings were up 5% were loan volume growth continues to be strong at 7%.

Wealth management net income is up 9% due to good momentum in fee based revenue and improved efficiency. Revenues and net income of financial markets were up 15% and 23% respectively thanks to good growth and trading revenues and banking services.

On the other segment now the loss increase is related to many factors including IR employee related cost, a prudential compensatory tax on salary and technology and regulatory expenses. Also a onetime loss amounting to $6 million after tax is included in the result of this segment for the first quarter.

This loss resulted from an edging gap of stock based compensation due to high stock volatility in early December 2014. Measures have been undertaken to improve our hedging strategy for the future.

Overall, considering the non-recurring items, the Q1 net loss in other segments does not reflect our anticipation for the rest of the year. Let's now take a look at non-interest expense on slide 8, operating expenses amounted to 857 million up 6% from Q1 2014 mainly because of salaries and staff benefits due to our goal compensation technology and professional fee and IT initiatives.

National bank posted a positive operating leverage in Q1 2015. The efficiency ratio was also improved year-over-year by 20 basis points.

We continue to be strongly committed to maintain a tight control over expenses in 2015. Now on Slide 9, for the capital management, in Q1 2015 risk weighted assets under Basel III increased by 1.4 billion on a sequential basis to reach $66.3 billion.

This increase is mainly due to our higher book size, foreign exchange impact and the review of internal risk weighting. Core Equity Tier 1 ratio on the Basel III reached 9.3% up 7 basis points in year-end 2014 due to strong net income contribution partly offset by the increase in risk-weighted assets.

We expect the CET1 ratio to move to 9.5% by the end of 2015 as quarter-end the new Basel III leverage ratio was at 3.63%. As mentioned earlier by Louis the reduction of our ownership in Fiera Capital to 22% will have a positive impact of 15 basis points on the CET1.

This impact will be reflected during the second quarter of 2015. On this note I will turn the call over to Bill for the risk review.

Good afternoon everyone. I invite you to turn to Slide 11 to review our loan portfolio.

In the first quarter of 2015 the loan book reached almost $108 billion an increase of 8% from last year. The retail book amounted to 63.7 billion including 50.7 billion in mortgages and HELOCs which represents the largest asset in the portfolio and the wholesale book reached 44.2 million or 41% of the loan growth.

The portfolio is well diversified across industrial sectors with no one sector accounting for more than 7%. Details of the mining and oil and gas sector provided.

Outstanding loans to oil and gas producers increased by 270 million in the quarter and accounted for approximately 3% of our total loan book with majority of these to commercial borrowing based customers. The increase was a mix of new facilities and increased utilization.

Loans to the oil services sector accounted for less than $200 million or 0.2% of the portfolio. We continue to proactively manage this portfolio and are working closely with our clients as they revise their CapEx budgets and forecast during the current borrowing base review.

Clients have demonstrated their ability to manage through this downturn by reducing expenses and CapEx guarding liquidity and raising capital. And the market has shown that there is a significant amount of capital available to the sector.

We run a series of stress tests on our overall loan portfolio in addition to shocks to oil prices, these scenario shocked unemployment rates by up to 2% or 3% and house prices down by 15% or 25%. We also have been running stress test on the oil and gas portfolio itself to identify which borrowers may become stressed if prices stay low throughout 2015 and 2016.

We are closely monitoring these files and have been conservatively adjusting our internal risk ratings which had a 3 basis points impact on our capital ratio in Q1. In summary while we are prudently monitoring the portfolio we see the potential credit impacts for the oil price decline as manageable and remaining well within our overall risk appetite.

I invite you to turn the Slide 12 for the regional distribution of Canadian loan. I would like to point out that the oil region accounts for less than 9% of the total and of this only a small proportion relates to unsecured retail or commercial exposures.

Also our solid footprint in Central Canada evidence as you can see that more than 83% of our book is located in Quebec and Ontario, provinces whose economies should benefit from the current environment of low fuel prices and a weaker Canadian dollar. Turning to slide 13, our geographical breakdown of the residential mortgage in HELOCs portfolio is provided.

At quarter end Quebec and Ontario represented 65% and 22% of the mortgage book respectively; insured mortgages are still the largest asset in the book accounting for 43% of the portfolio. HELOCs and uninsured mortgages represent 34% and 23% respectively.

The average loan to value on the HELOC and uninsured mortgage portfolio was about 59%. I invite you to turn to Slide 14, in Q1 2015 provisions for credit losses were 54 million or 20 basis points which remains at the lower end of our range.

Retail banking PCLs amounted to 39 million or 27 basis points in line with previous quarters. PCLs in the commercial portfolio were at 15 million or 21 basis points down 5 million from Q4 2014.

Recoveries of 5 million helped to offset additional provisions taken on an old oil and gas file that I referred to you last quarter. There were no provisions taken in the corporate portfolio.

Current financial conditions of low interest rates, low fuel prices and weaker Canadian dollar remains supportive of the stable credit environment and we maintain our 20 basis points to 30 basis points estimates for PCLs in the next two quarters. On Slide 15, we see that gross impairments decreased to 389 million or 36 basis points of total loans.

In the retail book impaired loan formations decreased by 7 million to 22 million. In the commercial book there was a 37 million reversal formations due to lower than average volume of new formations coupled with a higher volume of repayment, a reversal of what we saw in Q4.

I should note here that they were no new impaired formations in the oil and gas sector during the quarter. We also had no formations in the corporate book and $2 million formations in wealth management.

On slide 16, you will find highlights of our market risk exposure, our global trading VAR average 5.8 million in the first quarter and we registered only two days with net trading losses with no global trading VAR breach. On that, I'll turn the things over to Jean Dagenais for the business review.

Thank you, Bill, and good afternoon. I invite you to turn to slide 19 for the review of the personal and commercial banking segment.

Q1 2015 revenues amounted to 691 million up 5% compared to the first quarter of 2014. Personal banking revenues reached 323 million up 6% year-over-year mainly due to volume growth from loans, deposits and mutual funds.

Commercial banking revenues were up 5% due to volume growth while credit card revenues and insurance increased by 5% and 4% respectively. Other investment in people and technology explains the 4% increase in operating expenses compared to the same period last year.

Provision for credit losses amounted to 54 million down 2 million from the previous quarter and up 4 million from Q1 2014 due to the file referred to previously. P&C's net income reached 175 million up 5% from Q1 2014 as a result of the combination of higher revenues and good expense control.

Looking at the P&C key metrics in Q1 2015 loans and BAs rose by 7% year-over-year while deposit increased by 3% mainly from business deposits. Net interest margin stood at 2.20% a decrease of one basis point on a sequential basis due to a lower deposit margin.

Loan margin remain flat quarter-over-quarter, finally the efficiency ratio was up 57.5%, an increment of 40 basis points from Q1 2014. Overall, the P&C segment experienced good volume growth and control efficiently its expense.

Please turn now to slide 20 for the wealth management review. Q1 2015 revenues totaled 345 million up 21 million or 6% compared to the first quarter of 2014.

Fee based revenues amounted to 179 million up 15% year-over-year, transaction in others were down 9 million due to reduction in new issues. Net interest income at 82 million increased by 8% from Q1 2014.

On a year-over-year basis, operating expense were up 5% due to new hiring and higher variable compensation. The sector Q1 2015 net income was up 7 million or 9% from the corresponding quarter in 2014.

Looking at the wealth management key metrics loans and BAs from independent networks rose by 5% year-over-year to 8.6 billion while deposits remained flat at 24.5 billion. Assets under administration stood at 313 billion up 12% from last year, assets under management stood at 47 billion up 24% on a year-over-year basis mainly due to the success of the myWEALTH platform.

Finally the efficiency ratio improved by 70 basis points thanks to tight control over expenses. I now invite you to turn to slide 21 for the financial markets review.

In Q1 2015 financial market posted revenues of 418 million up 53 million or 15% from the corresponding period in 2014 due mainly to record revenues of 232 million driven by increased clients activity with higher market volatility. Banking services delivered a strong performance of 19% from the same period of last year due to increase in loan volume.

Financial market's fees were down 3 million mostly independent sectors. Strategies revenues were down 7 million due to the sale of portfolios in the corresponding quarter of last year.

In Q1 2015 CVA/DVA was 11 million while prop trading amounted to 20 million. The efficiency ratio was at 41.9% compared to 45.8% on a year-over-year basis.

Overall, a strong performance in core plan businesses particularly derivative activities and corporate banking. That concludes my remarks; I will turn the call over to the operator.

Hey, good afternoon just a question on the margins in Canada you've mentioned that bank accounts and rig count would be neutral to margins in 2015 just wondering about other factors and how those should affect your outlook now the lower rates overall, that will shape the yield curve, are you seeing that we expect NIM to stay flat overall or other factors that need to be considered?

Yes, we're expecting NIMs to go down about 1bp per quarter and basically is yield curve. Number two is the business mix if we actually expect to grow more on the lending side and on the deposit side which is happen actually on the first quarter and some of that is also due to competitive pressure but to a lesser degree.

On the trading, couple of questions here, just the 20 million prop trading is that tied to some gains from exiting positions like you're downsizing that business last time we talked about it? And then I have a follow-up on more on the regulatory side?

The prop trading it actually reflects our new strategy in prop trading which is the capital is now managed internally and we only tale action when we have very high conviction views on both the markets or when we want to diversify risk accumulated in our client going so -- in fact it was all driven by internal decision and not and we’re pretty much have all of the hedge fund allocations now we have some very small residual decisions in that.

And I guess on the regulatory side because we have the review of the trading work, I am just trying to think about the potential impact of the trading both CAR, RWA inflation that we could expect possibly over the next year or two. Does that anyway effect the growth of your trading business overtime, what kind of inflation should we expect and I believe that the 3.7 billion RWA number we should be focusing on, correct me if I am wrong there and what kind of timeline that going to materialize in?

Sure, I think there was the timing on the potential revisions to the trading [capital] it's not set in terms of what it will be within the next two years I think there is still a lot of discussion amongst the international regulators of what and when. In terms of impacts in the trading but there is a many that have already come through with PDA and others.

But I that don’t think I've got any comments on whether it has impacted the strategies on the business line.

So far this is already from what we can see it's not effecting our projections on the growth of our client business, we can -- it's really not increasing our risk limit, we don’t expect any more risk limits or higher of our usage or during higher risk weighted assets that we could support our existing capitals.

Is there like -- can you update us on a trading revenue range that we can kind of model?

Don’t want to really make predictions, I mean obviously this is a quarter that’s above trend from a trading revenues point of view but we -- our focus is growing revenues from client activities and most of those come to our trading revenue side and that’s what we think we’ll continue to see growth, but clearly this quarter was everything worked and I’ll say its above trend.

But remember Gabriel that what we’ve been working off for 20 years and wholesale is building a business that’s well diversified from an income and revenue standpoint. So one quarter's trading, other quarters will be Credigy, the other quarters will be capital markets and corporate banking.

So, I think you have to -- when you look at the overall stability of wholesale earnings it's been actually quite -- compared to our peers it's quite stable because that diversification effect of this different performance. So that’s why you need to focus on.

Question is about Quebec real estate, there's been some talk about maybe a more difficult situation in the province, I am wondering what’s your read overall in terms of the outlook for real estate in Quebec and are there any particular areas that are sort of highlighting for you in terms of a little bit more risk or present a little bit more problems in the future?

Frankly, we read the same articles as you do, but we scratch our heads a little bit because when we look -- we have a completely different interpretation of the numbers and frankly what we see here on a day-to-day basis in our business, what we see is actually the soft landing that lot of people have predicted for Canada is actually happening in Quebec real estate market, Montreal and Quebec City have been flattish in terms of price for the last three years and we see supplying and demand balances coming back slowly with supply being a little bit more control in terms of condo market. Frankly in terms of single family homes there is nothing that's flashing red in any markets that we see, we see that markets to be relatively stable even more now with Quebec disposable income going up with lower gasoline prices and some tax release from the federal, the next federal budget would be the first time in four years where Quebec tax and consumers will have a little bit of breathing room in terms of disposable income.

So more reason not to be particularly concerned. Bill, anything to add on the condo market I mean we’ve read the articles, but what we see in RO numbers and looking forward there is nothing to be worried about.

I would agree, the impact of the supply has been the flat prices for three years which is very supportive of the soft landing, if there was supply that was coming from job losses in secondary supply rather than construction will be more of the concern. Another comment I’d make that certainly we’ve seen some projects in the city that have been delayed and more that will be delayed but landing conditions for the construction projects in provinces have been tight and tightening over the last few years and we still see some excellent projects coming online with strong sponsors and very good conditions, good levels of equity high pre-sale and there is some projects that we will continue to participate in.

We’re on the subject overall our construction book for condo there is 170 million drawn, and more than half of that’s in Ontario but there is some go back in that of course.

Thanks for that and just as a follow up maybe go in the other direction, it seems like definitely from the Bank of Canada the emphasizing to some extent the risks from real estate I’m wondering if you read the situation whether you think that your risk appetite for real estate is actually going off just specifically for financing condo projects.

Well, I think as I mentioned we’re quite comfortable with the level of exposure we have now. We’ll be selective in projects that make sense in areas that we’re comfortable in.

So we’ll continue to run that business as we’ve been for the last years.

Hello, good afternoon. I just wanted to follow up first off with Ricardo on the prop trading and I guess I’m curious to know how you think about it when you see it coming in at a level like 20 million in a quarter.

You treat that as a windfall gain or is there a level of gain or performance that you plan for internally and expect something to happen even if you don’t know exactly where it will happen?

Part of the new focus is really the fact that we don’t have to be in the markets and therefore we don’t need to put all capital when there isn’t some real reason for it. So we have some expectations and we do plan for it but I would also say it wouldn’t be unusual to see very little activity for a quarter or two when nothing is really happening in the market.

Rob, just to ad on this, I think we discussed that before when, maybe years ago, but the point of our trading activity is the core as you know has been more and more is now essentially almost with the exception prop is almost exclusively time related. What we’re trying to do with prop is always to had some growth in the upside but ideally which we achieve this quarter which we did not achieve the previous quarter was to have it a symmetric growth mainly symmetric to the upside.

So when you have in that quarter in prop you flat to down 5 million and when you’re up you’re up 20 million. So that’s where we’re trying to achieve and we could not get that a symmetrical pay-off with the external trader portfolio that we had that was quite evident with the volatility we had the social results in our prop trading numbers in the last two or three quarters of last year.

That’s why we got rid of that portfolio. And now we’re focusing strictly on positions being taken internally.

So therefore is why we generate it on quarter-to-quarter basis with the client franchise. When we see opportunities and as you know Q1 was not a bad quarter, you had a surprise cut by the Bank of Canada, you had oil prices, you had volatility in the equity side.

This is a type of quarter where you should be making some money prop trading, if you have prop trading activity and that’s basically what happened.

Thank you, Louis for the color. I understand the strategy.

I guess I was just trying to understand if this is the kind of line that could go to zero for two or three quarters and then pop back up to 20 million because the opportunities there again, like you don’t feel the need to be in the market and that's why we see the opportunity.

That is correct. So I think your assumption is correct; it could be a quarter or two that were zero which are slightly positive and then what we’re trying to capture is asymmetrical pay-off to the upside that’s what we’re trying to capture.

And I expect to be able to deliver that asymmetrical payout better because instead of managing risk by the risk by diversifying and giving capital through a large number of traders we are now managing internally and we can apply a very strict risk control and particularly very tight stock losses so that we can really create that asymmetrical balance.

Okay. Got it.

I just want to ask about Fiera as well I guess Louis previously you had said you were quite comfortable on the capital side and I’m wondering what if anything has changed, is this just unsettled environment and Fiera capital is always nice to have, is this -- you think your shares are undervalued and are anxious to restart the buyback or is it something else?

You got it, number two. So as I mentioned in my call, what has changed since we’ve done the deal with Fiera.

The only thing that has changed which was a surprise, a negative surprise last year was the change in regulatory capital calculation whereby we were starting last year we were forced to start deducting from our capital, the goodwill. The proportional goodwill sitting on the balance sheet of Fiera and as you know Fiera has had a successful acquisition strategy of consolidating the industry.

But as you know the consequence of that is they do generate a lot of god will on their balance sheet because you're buying at the money manager. So that’s been ever since we've done the deal with Fiera we're very comfortable and this is the truth this is not party line this the truth we very comfortable with the quality of the results we're profitable with the investment it's been a good investment and it's a good functional relationship.

The thing has change is that a regulatory capital cost of investment went up last year with a change in regulatory that’s one. Two when my stocks are trading below 10 times expected earnings I get a lot more entity about doing something win that capital and as you know we cannot realistically incredibly started doing a buyback below something about 9.5%.

So that’s why a little bit more in a hurry to get to 9.5 and that maybe was in previous quarter.

And if Fiera continues to grow is there anything magical about your 22%. Would you allow that to continue to drift lower do you feel like you need to participate to keep you're holding at that level or is this will you still take more off as you wanted a little bit more capital on your balance sheet.

I think we do want say above 20%. The reason is you mentioned in your question from a government standpoint we have a lot of rights that are maintain if you say about 20%.

So you should reasonably expect that we will say above 20% as long as we have the ongoing relationship with Fiera. And you know it’s a long term relationship over many, many years secondly we do have $25 billion of assets under management with Fiera.

We also have some form of judiciary responsibility to follow closely what's going on and for that we do need board representation which is guaranteed by being above 20% and lastly we like the company we like the story. So now withstanding the fact that we wanted to reduce a little bit our position we do want to keep the maximum we can which is 20%, 22% and to get equity accounting and also for participate in what we believe will be significant value creation by that company over the next five to 10 years.

I just wanted to clarify something on the RWA accretion. Did I hear you say that prior the reason why RWA increased was due to negative migration?

That’s correct.

So can you elaborate on that? Was that’s in the cooperate lending book, if you could may be talk a little bit about what sort of negative migration in what sectors and the light whatever color you can provide.

What I referred to in my comments we've been doing individual name by name stresses in the oil and gas portfolio to identify those board that might became stressed if low prices stay for a couple of years. And we've been pretty conservative and very proactive in adjusting our risk ratings around that.

So that was the positive impact.

And so does that mean that like is this an ongoing program? Could there be further prudence exercise in the coming quarters.

Certainly I can tell you that we started from the risk years and moving up so I think that the 3 bps is what we thought was proven estimate for the reason that we've done so far.

I think it what have to be -- it probably have to be significant deterioration in the current price of oil and the forward curve of oil from what we see today for that to occur. So if prices stay stable or go up I mean that’s unlikely, if price drop significantly then you could see more I guess.

Okay and then just to clarify, I mean Louis you basically I just want to make sure I heard you correctly. You are selling Fiera to buy back stock is that more or less what you're saying?

In an ideal world I think what we're saying we want to get to above 9.5 to give ourselves the option to buy back stock. And I think we have the chance and again if we -- there are and we've been very specific on that from many, many years the number one usage of capitals defined an organic growth and acquisition.

So if we capable of generating sufficient capitalize would expect to finance there to pay for organic growth then hopefully at some point in the next quarter or two should be hopefully be in a position to buy back stock. So yes it is to give ourselves the option to buy back stock everything else we in equal clearly including what could happen to the macro-economic environment.

So oil goes down to 20 bucks don’t expect us to be buying back stock but if we -- if the macro-economic environment is stable and we keep generating the excess capital that we are and we're above 9.5%. You should know why we are asking to be reactive into the buy back and if our stock is trading again at what we consider it is you know accretive levels for us to buy it back then I think we'd like to be in the position to do that sooner as opposed to later.

And presumably the timing of this is because you currently feel like your stock is undervalued.

Yes. Certainly below -- you know what the expectation is for earnings this year.

So below 10 times earnings we feel that is significantly accretive for us to buyback our shares.

That’s crystal clear. And just one other question, just wanted to get a feel for the sustainability as you see it in the volume growth that was delivered in personal and commercial banking.

I know you gave us some color around about Quebec and so on and so forth but I just want to know is that 5% what you think is doable in the -- or 7% I guess is doable throughout the year?

It would be, I think what we are seeing is the right trend, and that right trend has to continue which is where we feel is a more sustainable trend, which is retail going down to slightly below 5% probably mid-single-digits I think that is sustainable in economy that’s growing 3% to 4% nominal and we need to continue to see and what we are seeing so far from Jan in our group 7% to 8% on a commercial side. And that ideally with the weaker Canadian dollar is something that would hopefully we will continue to see.

John anything to add on that?

And we are actually seeing growth outside of Quebec as well as in Quebec but the growth has actually been stronger outside of Quebec than in Quebec for the last several quarters.

And you expect that to continue be the case.

Yes. Especially now with the current economic backdrop of lower rates and especially for commercial banking the weaker Canadian dollar.

It’s not going to right away this quarter but I think we are starting to see slowly. If the Canadian dollar stays weaker for the longer it stays weaker the more positive it is for exports and the more positive it will be over the medium-term for business investments.

And I think we're starting to see something on that front.

First just to comeback on the capital targets. So I believe in these last prepared remarks you said that bank is targeting the 9.5 level by the end of this year.

Now based on where you are now and with 15 basis points coming in on the on the Fiera sale, it sounds like you should be there as soon as next quarter. So in making that statement is it just conservatism or should I read something into the fact that the capital generation of the bank for the last two quarters has been much lighter than the levels we've usually talked about which have been the range of 20 basis points a quarter?

I think your first statement is the correct one. I think you should probably assume that we will be above 9.5 next quarter.

I think the probabilities are pretty high, that we will be above 9.5. Again assuming that we don’t do acquisition or something like that but everything else when equal I think we should be above 9.5 for Q3.

And just part B on that, is there -- you have been should we say opportunistic on acquisitions on the wells side mostly distribution based over the last few years. Is there anything on the horizon in that regard that the UC as something cooking if you will.

And secondly some of these methodology changes model refinement they have obviously had an impact on the organic capital generation, maybe for Bill I know these things are hard to predict but are you expecting that 20 basis points or organic capital generation to be optimistic given some of the things that you may see on the pipeline in the RWA front?

I will let, about the 20 basis points I can say on the model front. We review the model, some models we view every quarter, some of them generate increases and some of them generate decreases.

So it’s hard to predict over quarter-by-quarter what the impact will be.

Well I have nothing to add on this, I think it’s very difficult to predict. And also when we review the models sometimes it’s negative on the CET1, sometimes its positive [inaudible] on what size it's going to be.

And to go back to your first question, as you know we are looking there and the team has successfully completed the integration of our CET1 institutional services. So are we willing and able to do another acquisition in the field of wealth management particularly the areas that we'd like the answer is yes, but at the same time I don’t believe that there is anything on that front.

Okay, and last questions -- thank you for that, and last questions are on credit, probably goes back to Bill. You talked about some of the repayments that you had in the quarter that helped the gross impaired loan balance.

It also looked like there was a larger than normal charge off in the commercial book. Is there any information you can give us there on what specifically was involved in that write-off.

And then I'll take my shot to wrap it up here, there's been press reports involving the bank about one small oil and gas producer that the bank has been linked to or has been a lender to, I know your -- well let me just say, is there any information you can give us on how well protected you are in that regard and I'll leave it there.

Sure, I'll take the last one first. So we don't typically name or divulge name of board, but I can say that it was a public company who moved into receivership and did not go unnoticed by your peers and to say that by a little receiver shift we've taken provisions that reflect our current market recovery values and also taken into account termination of hedges at the time of the closure to file so we were quite comfortable with the level of provisions.

On the first question on the level of repayments and write-offs it was really just the reverse of Q4, remember in Q4 we had three different sectors that generated some impaired --the workers group was busy with new sectors there were fewer repayments and charge offs during last quarter, this quarter as a reverse they are much smaller amount of new impaireds and there was more closing of files that leads to both repayments and charge-offs.

Thanks very much, good afternoon everyone. So as mentioned earlier on a relative basis that volume growth has been weaker inside of Quebec that's not first time I think we've heard that but I want to ask Diane, I've been hearing that – has been more competitive – can you give us a bit of an update there with respect to the competitive backdrop?

Within Quebec specifically is there any downside risk to loan growth as a result of maybe having to take your foot off the gas or anything going on locally?

Thanks Steve, first of all we're certainly not putting our feet off the gas in fact it's a set off to the medal but what we don't want to do is to be competitive with – pricing. I think if you look at our in Quebec specifically, if you look at our loan growth for commercial we're pretty head-to-head with – bank and still very diligent about our pricing and maintaining NIM where we want them to be.

We're really the main pricing pressure is coming from is on the mortgage side we did on it, and this is where you would see in fact their growth being somewhat more significant than ours but this is something that we've been faced with for a number of years and that's something that we're not used to and so I really want to make sure that my troops are well disciplined in maintaining the proper balance between growth and NIM. And so I think we're just also continuing with our strategy with our three main channels for mortgage origination and that works well for us as well.

When you mentioned the head-to-head in Quebec, would that be materially lower or higher than 7% to 8% you mentioned earlier for the total portfolio?

Just about in that range we're slightly over and outside of Quebec but we're about 7% in Quebec and so is Desjardins. They just released their numbers today so we're actually going through this as we're speaking now.

Okay, that's helpful and sorry just to finish maybe a silly question for Bill, following up on Sohrab's question, the three basis point impact from the migration. So just to be clear, we're talking about 0.03 on the CT1 not 0.3 of that is that right?

It's a very, very nominal.

Yes, 3 basis points, 0.03.

Good afternoon, just a follow up question to make sure you answered one of Sumit's questions, on page 23 of the supplement, there is a reference to $62 million write-off of an impaired loan and I think that's what he was referring to, maybe you could just address that change?

Sorry, which page is it?

About 23 of the supplement.

Yes, that's not one loan that's actually a handful, it's not one specific file, there are a number of files as you know the files progress through the process of closure in the quarter before there was a lower number and this quarter they're just more files that came to termination.

Was this a write-off of that impairment that we saw last quarter? The oil and gas impairment or at least a portion of that 62?

No, it was not.

And then finally on that one specific loan again that Sumit was referring to and it will be helpful to understand as whether that's been entirely provided for or whether we could see further credit losses going forward?

As I said the moved into receivership we've done an assessment of where we think that could be liquidated in current market position it's impossible to say between now and when the file is closed could it be recovery or additional provisions but we think that is very adequately provisioned at this level.

So where could things go wrong just if your assessment is somehow optimistic on oil prices, lower prices were to decline from here.

Sure that would have an impact.

And I guess what I am trying to figure out here, I think what we’re all trying to sort of figure out is what’s the amount at risk, what is left over on this?

I think if you go to you’ll see what the coverage is for the whole portfolio…

Yes, about 50%?

No it's -- not I think is 50, like 60%.

So you look for and distribute oil and gas then?

I think 18 I guess is [indiscernible].

So the changes we have not expected in material.

To make long story short, I don’t think it's going to be that material for us going forward if anything up we have to deteriorate significantly from here for the slide have there more impact.

Question on leverage your 3.6% was way higher than I was expecting, so just give and what if you give us a color is to what you may have done in the last year to get that in and would have to me to be a pretty good range? The second question would be is this a constraint for your capital markets business into 2016 this ratio?

I think we discuss that in the past Peter, we don’t feel that the leverage ratio is a constraint for us. For the rest, I mean we’ve been pretty much at that level for a little while, so it's not that we’ve constrained -- we always managed the discipline, in a discipline fashion our balance sheet, but it's not like we've been starving anyone from doing using the balance sheet.

We just want to make sure that every time we use capital and balance sheet that we're adequately under shoulders adequately rewarded but there's been no major action taking over last few quarters to get to that number.

It's mostly internally generated capital.

And well it was part of the Basel III, so we knew about it for the last three years. So, we have the time to prepare ourselves so I think that what you see is what we are able to maintain and we didn’t increase it very much over the last couple of quarters and it's been very stable over the last quarters.

Just first question and I guess the question is with your capital ratio likelihood going to 9.5% or above at Q2, you still have a fairly low payout ratio on the dividend side relative to your target. Any thoughts, I know you talked about buybacks what is dividend increases fit in and moving that payout ratio maybe at the midpoint where does that fit into your thought process?

Very good questions, which we’ll be happy to answer next quarter. As you know Doug, we view dividend on every other quarter.

What you should not expect is a big change or any change in the payout ratio. We feel that dividends long-term should increase in line with the earnings growth and so we’ll discuss further what dividend will be going forward next quarter.

But at this stage I will not expect a change in the payout ratio.

Is there any reason I guess why you wouldn’t push it to midpoint just curious?

We like the concept and frankly there we’ve been getting some feedback from some of our larger shoulders that they kind of like us to be and we actually agree with them on this one that they like us to be at the lower range of the payout ratio. So that given any economic environment that we don’t find ourselves with an actual payout which is significantly above 50%.

In other words by keeping our payout in the low 40s, they get the sense that whenever we increase dividend that dividend increase is truly sustainable even in economic downturn and we will not be in a position to be eventually to lower that dividend. So, I think it's -- we call it slowly but steady and I think it served us well and that’s why I think we want to stay on that basis.

And that’s why also when we see our stock sometimes trading below what we feel is long-term intrinsic value we get little bit more and see about pursuing buybacks as opposed to increasing the dividend. Does that make any sense?

Yes, it does. And then just a second on the wealth management side and maybe I am missing something but just when I look at your asset under -- and then growth on your asset under management growth and others kind of little bit noise in there but it looks, it's been fairly decent over the last year and we haven’t seen the same commensurate increase on in net income, is there any reason why there isn’t leverage in there is that just as a result of the acquisition and noise related to the acquisition or should we not be expecting growth in the bottom-line to exceed growth in the asset base and it's now line?

You have to be careful on one thing like the TD Waterhouse acquisition we brought assets under administration back then, that’s okay, since then they’ve done very, very well. But we’re not paid on the basis of asset under management.

We’re paid on sleeper trade. So we always use that as a proxy, but that’s not, there is no direct link in there.

So we need to be careful on that front. Besides that it should be maybe closer than it shows right now.

There is no pressure on margins, not necessarily pressure on margins so that’s not the answer here. By the same time there is no increase in margins either.

There is no product that will bring to market like myWEALTH overtime will bring better pricing for us short time it’s not. On that specific platform myWEALTH we thought that year one we would bring about $1 billion on the platform, after six months we have $4 billion in the platform and we thought it would be 65%, 70% money moving from one platform to another and in fact it’s less than 35%.

So it’s really new money. So it’s going to take time but just be careful under the -- with asset under administration because we’re not necessarily paid on that basis.

It sounds like that’s what I’m kind of missing, is that this is more of a transactional versus a fee-based. Yes, that's fine.

Okay, thank you very much.

Thank you everyone and we’ll talk to you for the second quarter results. Thank you very much.

Have a good day.