National Bank of Canada

Linda Boulanger - Vice President, Investor Relations Louis Vachon - President and Chief Executive Officer Ghislain Parent - Chief Financial Officer and Executive Vice President, Finance Bill Bonnell - Executive Vice President, Risk Management Diane Giard - Executive Vice President, P&C Banking Martin Gagnon - Executive Vice President, Wealth Management Denis Girouard - Executive Vice President, Financial Markets Jean Dagenais - Senior Vice President, Finance

John Aiken - Barclays Steve Theriault - Eight Capital Nick Stogdill - Credit Suisse Meny Grauman - Cormark Securities Robert Sedran - CIBC Sumit Malhotra - Scotia Capital Scott Chan - Canaccord Genuity Gabriel Dechaine - National Bank Financial Darko Mihelic - RBC Capital Markets

Good afternoon and welcome to National Bank’s third quarter results presentation. Before we begin, I wish to remind you that similar to what we did last quarter our formal presentation will be shorter with the focus on key messages.

Presenting to you this afternoon are Louis Vachon, President and CEO; Ghislain Parent, CFO and Executive Vice President, Finance and Treasury; and Bill Bonnell, Executive Vice President, Risk Management. Following their presentation, we will open the call for questions.

Joining us for your questions are Diane Giard, Executive Vice President, P&C Banking; Martin Gagnon, Executive Vice President, Wealth Management; Denis Girouard, Executive Vice President, Financial Markets; and Jean Dagenais, Senior Vice President, Finance. As noted on Slide 2, I would like to remind you that a caution applies to our presentation and comments regarding forward-looking statements.

With that, let me now turn the call over to Louis Vachon.

Thanks, Linda and welcome to everyone joining us for this call. Today, we reported another excellent quarter – excellent results with adjusted net income of $524 million and diluted EPS to $1.39.

Our strong performance was driven by growth across all our businesses and strong execution in cost management. This translated into operating leverage of 4.7% and a 250 basis points improvement in our efficiency ratio.

The bank delivers superior return on equity of 80.4%. We ended the quarter with a strong capital position.

Our CET1 ratio increased to 11.2% providing us flexibility to invest in our business and to return capital to shareholders. During Q3, the bank repurchased 500,000 common shares and we are well-positioned to actively pursue our current and CIB program.

Before discussing the Q3 results, I would like to comment briefly on the macroeconomic backdrop. The resurgent Canadian economy is providing a more favorable environment for all our businesses across the country.

As a super-regional bank, we are getting the additional benefit of a strong tailwind in Quebec, our core market where we have leading market shares. Quebec has accounted for about a third of all jobs created in Canada in the past year and the unemployment rate in the province has dipped below 6%, the lowest level in more than 40 years.

Meanwhile, the employment level – the unemployment rate for the working age population has increased to historical high of 75%. Small business and consumer confidence is currently among the highest in Canada.

All of this is positive for our bank. On housing, the Quebec real estate market remained strong, but has not experienced the run-up in prices seen in some major urban markets in Ontario and BC.

Housing affordability in the Greater Montreal area and the greater Quebec City area is still very reasonable. Mortgages continued to drive our revenue growth.

In this regard, we are well-positioned being overweight in Quebec. Now, let me comment on our results.

Again, we are benefiting from the diversification of our business model, which each of our segment performing very well in Q3. Our P&C segment delivered a record quarter with adjusted net income of $240 million, up 21%.

Our strong performance was driven by solid volume growth in loans and deposits in both retail and commercial as well as goods growth in the other revenue segment. This was accompanied by a very disciplined cost management, with a decrease in expenses year-over-year.

Our transformation is progressing really is progressing well and our actions are generating tangible results with operating leverage for the P&C segment above 8% for the quarter. With a focus on driving business growth, increasing efficiency, enhancing client experience, we continue to pursue targeted investments in our digital strategy.

Among the initiatives deployed to-date, we have rolled out 50% of our new ATM fleet, more than 20 mobile capabilities for retail clients and a new mobile application for commercial clients. These developments are driving strong momentum in our client digital engagement with 20% growth in retail mobile users, active users compared to Q1.

We are continuing our efforts with a focus on digital origination, say through [ph] processing for some key products and a new online portal. Turning to wealth management, Q3 results were very strong with a 29% increase in net income.

This segment entered the year with strong momentum and has been picking up the pace driven by organic growth, cost discipline and favorable market conditions. Year-over-year results are up across the board with double digit increases in net income for all business lines, full service brokerage, private wealth 1859, direct brokerage, National Bank investments, trust services, partnership banking and National Bank correspondent network.

NBCN just recently completed the successful on-boarding of one of its largest clients to-date adding some $23 billion in assets under administration and now providing state-of-the-art trade execution and custody services for this third-party. The wealth management segment is benefiting from strong activity in both the Quebec market and its growing footprint in the rest of Canada where it derives almost half of its revenues.

Moving to the financial segment – financial market segment, net income was up 8%. Revenue growth was mainly driven by an increase in our securities lending, equity and interest rate derivatives activities as well as higher revenues from fixed income.

The Q3 performance demonstrates once again diversification across products and market drives consistent performance over time in our financial market segment. Finally our U.S.

specialty finance and international segment recorded strong growth in Q3. Credigy continues to exceed expectations with net income before tax of $120 million year-to-date.

ABA Bank is also performing ahead of plan with net income trending above the fiscal 2017 guidance of $32 million, which we provided during our last Investor Day, last fall. We see this segment contributing up to 10% of consolidated results.

I would also like to reiterate our moratorium on significant investments in emerging markets announced during the Q2 conference call. From a broader perspective, our performance in Q3 and so far this year demonstrate our ability to respond effectively to the rapidly changing landscape in financial services and in the global economy.

As part of our transformation, we are investing in technology, people and brand. We are investing to drive business growth and reduce structural costs while enhancing client experience.

In the execution of our transformation, we are capitalizing on the bank’s entrepreneurial culture, characterized by our agility and a strong capacity to adapt. Now let me confirm again the key four points of our capital deployment strategy; number one, maintain our CET1 ratio above 10.75, number two, invest to stimulate business growth in our core markets, number three, invest to capture significant efficiency gains and generating operating leverage above 1% and number four, return capital to our shareholders through predictable dividend growth and share buybacks.

As in the past we will provide an update on our dividend policy next quarter. In the foreseeable future our intend is to continue with disciplined share buybacks, while maintaining our CET1 ratio above 10.50 and we are now have greater flexibility to follow this course.

To wrap up, I am very satisfied with our performance. We end up the quarter with a strong capital ratio above 11%.

All our businesses are expanding. We are investing to grow our businesses and our transformation is generating tangible results.

Looking forward, we are well positioned to continue to deliver long-term value to our shareholders based on our leadership in our core markets, disciplined capital deployment and strong execution capabilities. On that, I will turn things over to Ghislain for the efficiency and capital review.

Ghislain?

Thank you Louis and good afternoon everyone. As we did last quarter, my comments today will be focusing on two areas efficiency and capital beginning with Page 7 on our slide deck.

As we mentioned we reported excellent Q3 results driven by strong performance across all of our segments. During the third quarter we generated strong growth while continuing to maintain discipline on cost management.

This resulted in total operating leverage of 4.7% with positive leverage across all segments. P&C and wealth management led the way with operating leverage, up 8.4% and 7.7% respectively.

Our cost savings for fiscal 2017 are ahead of plan. First, we are on track to deliver the cost savings related to the restructuring charges recorded in 2015 and 2016.

Second, we are getting savings from our investments in cost information. As a result, we have improved our efficiency ratio by 190 basis points during the first 9 months of fiscal 2017.

This is being achieved through automation, simplifications of products, services and processes and streamlining of workflows. We continue to invest in the sales force, digital capabilities and frontline systems and tools and at the same time execute our plan to become more efficient in every sector of the bank.

To be clear, the efficiency gains are not achieved at the expense of the future. Year-to-date, operating expenses of our P&C segment were essentially flat and the efficiency ratio improved by 300 basis points.

At 54.3%, we are on track to reach an efficiency ratio of approximately 54% for this year and 52% for fiscal 2015, one year ahead of targets presented at a P&C Investor Day in 2015. Year-to-date, our wealth management segment has improved its efficiency ratio by over 400 basis points, while financial market also improved its ratio by 140 basis points.

Looking ahead, we expect additional savings in fiscal 2018 coming from various cost transformation and cost reduction initiatives and to a lesser extent from the remaining savings of the restructuring charge booked in 2016. These savings will help to contain expense growth and to improve our efficiency ratio in fiscal 2018.

With the execution of our transformation, we continue to invest for the future and at the same time we maintain our objective to generate operating leverage above 1% for the bank. The bank’s management team is fully committed to achieve both objectives to better serve our clients and continue to create value for our shareholders.

Now, turning to Slide 8 for a capital review. We are pleased with the improvement to our capital position in recent quarters.

We ended Q3 with a CET1 ratio of 11.2%, an increase of 41 basis points from last quarter. The improvements resulted primarily from strong internal capital generation, which added 40 basis points and a positive impact related to pension plan.

These increases were partly offset by the impact of slightly higher risk-weighted assets mainly as a result of loan growth and the share buyback during Q3. At the end of Q3, our leverage ratio was at 4% and our LCR stood at 134%.

Our current capital position will provide us additional flexibility to invest in our business and returning capital to our shoulders. On that, I will turn the call over to Bill for comments on risk.

Merci, Ghislain and good afternoon. Turning to Slide 10, I will begin with a review of our residential mortgage and HELOC portfolio focusing on three key highlights.

First, we remain overweight Quebec with loans in the province representing 55% of this portfolio. As Louis mentioned, the Quebec housing market is benefiting from very strong employment trends and from home prices that are well below the national average and experiencing only moderate growth.

You have included in Slide 1 some highlights of these positive trends in the Quebec economy, which are having a positive impact across our retail and commercial portfolios. Second, the credit quality of this portfolio remains solid.

Insured mortgages represent 46% of the portfolio. The average LTV of uninsured mortgages in HELOCs was 58%.

And both delinquencies and credit losses remained low and stable. And finally, our exposure to the GTA and GBA markets remains modest.

Uninsured mortgages and HELOCs in these two markets represent only 8% and 2% respectively of the portfolio and to have average LTVs in the low 40s. Turning to Slide 11, our gross impaired loan ratio remained low at 34 basis points, down 2 basis points from last year and up 2 basis points sequentially.

In the quarter, formations totaled $60 million, primarily due to two accounts in the oil and gas sector which remains well provisioned by the sectoral allowance and one loan in ABA Bank. We have been monitoring this legacy loan since our initial due diligence on the ABA portfolio.

We are very comfortable with the level of over collateralization and do not expect to experience a loan loss. Formations in the rest of our loan book were low, reflecting the positive economic conditions in our Canadian banking market.

Now on Slide 12, specific provisions for credit losses were stable at 18 basis points or $58 million. Both personal and commercial portfolios performed well registering 24 basis points and 8 basis points of PCLs during the quarter.

Wealth management PCLs were stable at 3 basis points and the financial market sector again registered no credit provisions. $6 million was transferred from the oil and gas sectoral allowance during the quarter relating to the two accounts I mentioned previously.

Credit performance of both ABA and Credigy continues to be strong and to meet our expectations. While credit provisions have grown to $12 million in the quarter, this relates to solid portfolio growth and had already been included in our PCL target.

Looking forward, we expect economic conditions to continue to support a benign credit environment, ignoring any impacts from IFRS 9, which will be implemented at the beginning of next year. We maintain our PCL target at 15 basis points to 25 basis points for the next two quarters.

In conclusion, we were pleased with the strong performance of our credit portfolios in the quarter. We believe that our overweight in Quebec and our underweight in credit cards and other Canadian unsecured retail lending positioned us well to maintain solid performance.

With that I will turn the call over to the operator for the Q&A.

Good afternoon. I was hoping that you might give us a little bit more color on the growth that was experienced in Credigy this quarter, we saw some exceptionally strong sequential growth in the average loans, but also saw doubling in the net interest income and I was hoping that you will let us know what was actually driving that and how sustainable we think either these balances or this trajectory are on a go forward basis?

Jean will start and I will see whether I add anything to that.

Okay. Thank you very much.

In fact we had a lot of acquisitions and new portfolio during the quarter and new retail and consumer loans were added to the book. And most of these are creating net interest income that’s why you see the increase in the net interest income line.

So some of that was Credigy, but maybe half of that and sorry it was the Lending Club deal and the other half were two – at least two large transactions that were done on the secured financing basis. So in terms of sustainability, I think both the Lending Club assets and the secured financings probably average terms of 3 years or so.

So clearly for the next 2 years or 3 years, we expect that that number to be sustainable and we still see some room for growth for clearly not at the same pace of growth that we – Credigy experienced in ‘17, but we still expect to – for the net earnings that business to grow in 2018 compared to 2017.

And does this coincide with the growth that we saw in the commercial loans to the front end of the finance and insurance line that also had some very strong growth on a sequential basis?

I am looking to Jean…

It’s another business line, so the other is the loan of the regular business in Canada.

Okay. And then I mean the sustainability of that, do we expect those balances to run off in the near-term or is that something that you expect to be able to maintain?

I think we – as I have said the – first of all these assets has 2-year, 3-year terms, so there is certainly we don’t expect to run down, drive down in the next few quarters. So I think it is sustainable for the next 2 years.

And as you know that the business model, one of the many things we like about Credigy is the diversification of the business model and how flexible it is. So they can purchase portfolios of non-performing assets, some performing assets, they go from car loans to mortgages to unsecured, they go from different geographies and one-time, they were very active in Brazil, now they are back in U.S.

market and that flexibility of that model is what we like. And we think all in all that what we see is going to be a sustainable growth, not at the same pace and the same growth rate that we saw in ‘17, but we do expect to continue to grow that business in ‘18 and ‘19 certainly.

Great. Thanks.

I will reach you.

Thank you, John.

Good afternoon, everyone. Just a couple of follow-ups maybe to start on Credigy.

Louis, can you talk to or Jean, can you talk to the Lending Club, are you now at capacity, I think that was a $1 billion or a $1.5 billion, is there still room to do more with them. Anything you could tell us with respect to the nature of the two large transactions would be helpful though I am not sure how much you can add on that?

And then the credit losses, right, so as you move these portfolios on the credit losses at Credigy, you have been building somewhat, but anything you can tell us to help us think about where that kind of seasons to would be really useful as well?

I will start and I will see whether Jean or Bill have anything to add. So, I think we are at the $1.1 billion on the close to $1.1 billion on Lending Club and the target is $1.3 billion.

So, I think we should get to – everything being equal, we should get to maximum capacity of that deal during Q4 I believe. The other deals were secured financings, one related to mortgages and the other one related to car loans, but those were very secured and even in stressful economic conditions we are very, very comfortable with the downside of these loans.

Their Lending Club transaction as you know are on secured liabilities, so we do look at them very carefully. Bill, anything to add in terms of performance and so forth?

Yes. I just say the portfolio has been performing as we expected very, very well.

It’s difficult to give kind of the segment estimate for PCLs for that business, because as Louis mentioned, there are opportunities in different geographies, different asset classes. But it’s important to note that we do include our estimates and our PCL targets.

And in terms of as the level of losses are more closely tied with the percentage of unsecureds coming from Lending Club primarily, so it’s currently at around 20% of their portfolio and probably going forward, you wouldn’t expect it to grow a whole lot more than that.

So, I think we are very happy with the Lending Club transaction. I think from the team at Credigy, I think it was a very good transaction from a risk-adjusted basis from what we have seen so far.

And your perspective when you get, it sounds like you are going to get to that $1.3 billion in Q4, that’s the plan, is that subject to renegotiating more or you think that it doesn’t go higher than that?

I think it may go a bit higher, but then it will depend on the terms and conditions and market conditions going forward. And as Bill mentioned, we do want to most of the asset right now of Credigy are more of the securitized type as opposed to unsecured.

And I think for the performing portion of the portfolio, we do want to stay overweight secured versus unsecured. So, there is both on a relative and in absolute basis, there is a cap somewhere around how much unsecured we want to do.

We are in the process of figuring that out right now.

Maybe one more comment, Steve, just as you know we have been underweight unsecured consumer loans in Canada. When we look at growth in that area, we really do see that the rewards versus the risk in the U.S.

through Credigy’s Lending Club transactions have better than what we have seen in Canada, but we still remain even with the Credigy growth, we still remain underweight unsecured retail.

Okay, thanks for all that. And if I could appreciate that color for Diane, a couple of quicker items, can you just walk us through the components of the margin expansion that we saw this quarter was it mix, was it pricing and your credit card revenue growth looks quite a bit better sort of lost in the shuffle with a good expense performance, maybe a bit of an update as to what’s driving that?

Okay. Thanks, Steve.

So, on NIM, for Q3, it was exactly what you said. So, it was due to business mix as we actually had a significant growth in deposits higher than our growth in loan.

And we also showed some very good pricing discipline, so that what is explaining the NIM for Q3. And the second part of your question for cards, what we have seen is the higher purchase volume, higher interchange volume, higher NIM was – not NIM but interest revenues as well people carrying balances and more foreign exchange revenues as well that people travel during the third quarter of the year.

I think the trend will pick up going into the next year because as you know we have signed a partnership with CAA. And when we made that purchase of portfolio, we purchased 44,000 cards and then we signed the partnership for referral of cards and within two months we had 33,000 cards signed on.

And as you know CAA has a good profile, a good risk profile. And also there are 6 million members across Canada, so certainly good opportunity for us in the card business for the next year.

And then just to round it on the margin side, do you expect that change in mix to continue to help the margin and with the higher short rates will we see the margin hit higher in the next two or three quarters?

Okay. Well, for Q4 we expect the NIM to be slightly down sequentially, mainly due to the reduction in prime BA spread.

But that that will be partly offset by our strategy, our continued strategy to focus on commercial and focus on deposits which as you know has an impact on business mix and also on NIM. So maybe flat at, but we are trying to be conservative.

Okay. Thanks for all the color.

Thanks for the time.

Hi, good afternoon. Sticking with Diane, the residential mortgage growth in P&C this quarter was just under 5%, it’s been slowing for a few quarters, I know you are repositioning your strategy here with the Paradigm Quest partnership, but I just want to get you updated thoughts on the mortgage growth outlook and specifically should we expect National’s growth to pick up and close the gap versus peers which are showing a bit of a pickup?

Well, thanks for the question. First I will say that I am very satisfied with the numbers we are delivering in retail lending.

We continued to favor a very disciplined approach to our growth by balancing market share gains, margins improvement and also risk management. We also continued to place greater focus on our business development through our own sales force as you know and also in our primary markets.

Last quarter as an example, we had 68% of our mortgages that were originated in Quebec compared to 57% in the previous year and also had 78% of our loans originated by our own sales force as opposed to 68% in the previous year. So that’s really what the strategy is going forward.

And we expect no major change to our strategy and expect growth to show a slight decrease in momentum to reach nominal GDP in the next year, so it’s somewhat in the area of 4% to 5%. And this will have a non-material impact on volume or revenue going forward into the next year.

Okay, great. So roughly stable at 4% to 5% versus what you did this quarter, okay.

My second question just on the corporate segment, the loss this year has picked up a bit, I was just hoping to get some color on whether you think we can kind of remain stable from here, I noted non-interest income was down a bit this quarter, is there anything to call out there and same with the expenses that are up a fair bit, so maybe just your outlook on how we should model the corporate segment going forward?

Yes. This is Jean, the amount is slightly better in fact than Q2.

So it is comparable, obviously in Q2 we had the provision for credit losses. But expense is mainly related to variable compensation project and the cost of pension plan.

As far as the net interest – net revenue, it’s pretty stable around 52 to 56 in the last three quarters negative.

If we just look at the year-to-date, the loss 188 versus 92 last year, is that how we should be looking at it?

In that you have the $40 million of general allowance that was booked in the last quarter, so that you have to take that apart. Other than that it’s expenses that have been increasing mostly.

And it is related as I said pension fund cost that will do better on the interest rate or it will stand at the end of October 21 and then the rest is a variable compensation and strategic initiatives.

Okay. So, it could maybe stable – relatively stable you are looking at sequentially going forward.

Yes.

Thank you.

Hi, good afternoon. I want to ask a question about the operating leverage specifically in the P&C unit, 8% very strong and presumably not likely to continue at those levels.

So, I am just wondering about what are the factors that took t so high especially in the expense line in particular beyond strong revenue growth? And as you look forward, trying to get a sense of sort of the lumpiness that we can expect in expenses and understanding what that’s likely to come from and how much visibility you have over the next few quarters in terms of big spending initiatives that should hit over the next little while?

So, I will explain for 2017 and then move forward to ‘18. As I know we are delivering as expected as we saw that our Investor Day in ‘15 and also through the communication regarding the charge in October of ‘16.

And our efficiency program is comprised of both cost reduction and cost transformation initiatives. In 2017, the largest incremental gain in savings came from cost reduction initiatives.

But as we move forward towards 2018, our focus will be more around cost transformation initiatives that will also drive revenue. So, let me give you a few examples of what our cost reduction initiatives were for this year, customer migration to digital channels for basic transaction banking, also some print and mail initiatives, e-statement, elimination of reports, digitalization of forms, automation of servicing activities for loans and deposits, ABN replacements and also reorganization and streamlining of corporate functions within the P&C and marketing group.

Going forward, as we move towards more cost transformation, what we will do is we will be freeing up time for advisors as we eliminate centralized and digitalize our forms, reports and processes and replace this time with quality time leveraging our much improved data analytics capabilities and also CRM. So looking into 2018, we are definitely working towards a positive operating leverage albeit at a smaller level than what you have seen in 2017 and mainly oriented towards in P&C with – or generated through a cost transformation initiative as we really continue to invest in both our people and digital capabilities.

And on the lumpiness, Meny, I am looking at Ghislain, I don’t think we expect any lumpy increases in expenses in P&C over the next, I don’t think – I think we have a lot of projects on the go as Denis mentioned and they are being delivered progressively over the next few quarters. And so I don’t – we don’t expect any increased lumpiness in expenses anywhere.

Just to add, this is Ghislain, Meny, so in 2017 as I mentioned in my introduction comments, we benefited from the restructuring charges and of course P&C really benefited from it. But you know apart from the savings coming from the restructuring charge, we don’t expect the cost to increase that much in P&C.

So, of course it will be difficult to repeat the same performance in terms of operating leverage because of the restructuring charge, but for the rest, we should be okay.

Thanks for that. And then Louis, if I can just ask on your comments, you reiterated the moratorium on emerging markets investments and I am just wondering the context of the strong capital ratio, which is more broadly what you have to see, what are you looking for before you are comfortable lifting that moratorium.

Is it just a function of time or what do you need to see?

Good question. I think as you know we did make the decision to go ahead and acquire a majority position in ABA Bank in Cambodia based on what we have seen in terms of the business model, the sustainability of the business model, the quality of the management, the quality of the franchise and the fact that we had the opportunity to acquire majority control at a reasonable costs.

So, we are looking for the other investments, is to see whether the same conditions are present or not. And I think it will take certainly a few more years to determine whether these conditions for us to go ahead.

And as I said we don’t want to be financial tourists in the emerging market, either we have strong negative control or ideally majority control or we will get out. And so we give ourselves a few more years on our African investments to determine which we way we are going to go.

And that’s why we are quite comfortable putting a hold on our current emerging market portfolio.

Thank you.

Thanks and good afternoon. Just actually a couple of follow-up questions on the Credigy, Jean when the volume of deals like this comes through, are there any related fees or any unusual or one-time ish kind of fees that come through the revenue or is this just accrual revenue based on the assets that were booked?

Only accrual revenue based on the asset, depending on the type it will be net interest income when it is a regular loan or it would be other income when its portfolio that we buy to collect when it’s like depressed portfolio that we collect.

Okay. Thank you.

And Louis you mentioned that the duration of some of these deals in the 2-year to 3-year range, is that for the specialty finance stuff that Credigy did proper or is that included the Lending Club business as well?

That includes the Lending Club. And the new I would say the – as you know what initially Credigy was doing was purchasing non-performing retail assets and those had a no longer life collection.

But the – ever since the strategic focus on performing assets, most of the deals they do tend to have 2 years, 3 years, 4 years maximum average life and that includes the two deals that were done this quarter with also would increase in the portfolio Lending Club.

Okay. And Louis you mentioned that you wouldn’t expect to see this kind of growth going forward, I mean $1 billion, it sounds like a lot of money, but not in the context of the U.S.

market, so is the limit on growth your appetite or the supply?

It’s a little bit of both. As you know one of the things we like about our partners at Credigy is how disciplined they have been in the past, in the last 11 years that we have been partners with them.

They have acquired 48 portfolios. One had a zero IRR, all the others, all 47 others had positive IRR.

So they tend to be very selective in their transaction they make. And the last thing we want to do is put undue pressure on them to deploy capital.

We are I think as an organization right now across all business lines, it would be Canada, capital markets, wealth or the international business we are very disciplined on how we deploy capital. We don’t want to deploy capital at the expense of good risk management and we don’t want to deploy it at the expense of decent margins.

So that certainly is valuable also for Credigy. And secondly in terms of the – in terms of the secured, unsecured portion that we discussed, clearly I think there is a cap somewhere that Bill and I and Ghislain are discussing for the Lending Club deal.

And we don’t want the majority sale of [ph] the assets in Credigy to be unsecured of one type of the other. So I would say there is certainly a limit in terms of how much business we can and want to do with Lending Club.

I think there is still more room to grow, but I think within limits. In terms of the secured part of the portfolio, it really depends on opportunities.

And realistically these deals, we have good margins but some of that is because of the complexity of these deals. So you cannot close that many deals and win in a particular quarter.

So that’s why we are comfortable to say we can continue to grow that business. I think A, the income that’s been generated and no one-time special event and we have had in the past, Rob it is a very good question you asked us.

Twice in the past we have had revalue the portfolios in Credigy that did bump up some quarterly earnings in the past. That was not the case in this – particularly in Q3.

And secondly we do see potential to maintain and increase the earnings, but at a lower pace than what we are seeing so far because we had a one-time bump up that’s going to be continued over a number of years on the Lending Club deal. But as I have said there is a limit on much of that business we want to do.

So the only abnormal thing that happened this quarter is the number of deals that happened to close in the quarter?

Right, I mean what happened was that we were in the middle of the ramp up of the Lending Club and that was frankly planned. And then – and that was no surprise for us.

And then Credigy actually closed one deal in the second quarter than two other deals in Q3 and that was – those were very good transactions. So, it’s all – it all occurred at the same time.

So, don’t expect $1 billion in net increase in net investments every quarter, that’s to make a long story short.

Fair enough. Thank you.

Thanks very much. First question is for Bill, let me just get to the right page of your presentation, I think its Page 12 on the provision for credit losses.

So, first off, just hoping you can clarify for me. On the sectoral allowance, so this quarter you have a $6 million transfer you highlighted for us.

Last quarter, I believe there was a $40 million reversal and a $17 million transfer. So, this transfer is just moving it from the sectoral to the collective, is that right?

Sectoral to specific.

Sectoral to specific, but there is no P&L impact.

That’s correct.

Okay. So, the 40 last quarter, which there was the reversal which had the impact, so this is just one of the other.

And then maybe more importantly, a reminder on this, so your sectoral now sits at $141 million, Louis, I think it was you or somebody in their opening remarks talked about the shift to IFRS 9 in 2018. So, is it your expectation that the sectoral of that time will fully transfer over?

Is that the thought process you have here?

All the provision will be replaced by the new ECL, the expected credit loss from IFRS 9. So there is sufficient provision at the balance sheet date.

There will be no change if there is not enough, there will be an opening balance sheet adjustment on November 1. And if there is too much, there will be a credit in the opening balance sheet on November 1.

So, that’s the way it will be transferred.

But one way or another, this is going to make its way to your aggregate allowance I guess maybe the right term going forward, but it is going to have some benefit for the bank going forward?

That will be a happy coincidence, yes.

Sorry.

That will be a happy coincidence.

Okay. Let’s move back to the actual business in P&C and for Diane, there is not a lot to complain about here.

So, I am going to try to find something, going to do our job. And I want to look at the commercial loan growth.

I will leave the oil and gas side for a second, because I think you have talked to us a lot about what’s been happening there. When I look at overall commercial loan growth, the industry has had very strong growth for a number of quarters.

Sequentially, your commercial portfolio is pretty flat year-over-year, it’s not bad, I think it’s around 6%, but still seems to be lower than the industry. Is there anything specific in commercial that’s caused you to slow growth compared to what we have seen from the rest of the industry?

And just kind of wondering on what your outlook for that business, as I know it’s been a source of strength for the bank in the past?

Perfect. Well, first of all, thank you very much for saying we have great results, so I appreciate that.

Thanks for the questions. On commercial lending, for this quarter, there were some specifics that did happen.

So, you look at our core commercial business or core, which is commercial business where the operating business in the core market in Ontario and Quebec, that business was actually up 2% quarter-over-quarter and almost 7% year-over-year. In fact, we had a hit from the oil and gas and also from the public and corporate affairs sectors, which I have said in the past we are trying to actually sell deposits to and not really lend to and much prefer to have that strategy going forward.

So, that’s really a runoff of that portfolio and we also had a big payback from one of our major client, but I am really honestly positive about the future and because of the macroeconomic factors for both Quebec and Canada, but also our pipeline continues to grow. And I strongly believe that within the next quarter and moving into the next year, we will be accelerating this growth.

It will continue to be a focus for us. And we have added capacity as well as add new capabilities in that sector.

So, it’s really looking good, I do expect for the next year to grow in the higher range of this single digit and hopefully being close to the double digit range. But we also, the one thing that you need to remember is that we – our strategy implies a very disciplined and balanced approach.

Again we want to manage risk, pricing, but we do want to grow market share and we want to grow it from both sides of the balance sheet as well as having incremental non-interest revenues coming from foreign exchange, cash management and derivatives. So it’s an all-inclusive business and much more of a balanced approach between assets and liabilities and non-interest revenues, but really confident about the future.

The other thing Sumit is that the way, because our – and I think I have mentioned that in the past the way we divide, the dividing line between commercial and corporate and National Bank is maybe a bit different than some of our peers. I think we put some of our corporate growth is probably would get qualified as commercial banking and some of our competitors in Toronto.

So what I will look at it when I do the comparison because of this I usually tend to look at both commercial and corporate together. And I guess me and again I don’t look too much, so on that basis we had almost $1 billion increase quarter-over-quarter in corporate banking.

And I look at their 1 year line of those two segments over a period of time and that has to give me a better idea of how we do versus our peers just looking at the commercial segment.

Yes. I see your financial markets loans are up 5% to 6% in the quarter, so that’s certainly if I put the two together would make the sequential number look a lot better.

So thank you guys for that color. And last question for me is going to be on trading revenue, so I guess its for Denis, two part are some of your peers this quarter seem to have more of an impact from the total return swap rule changes – synthetic TRS rule changes, I think you had talked about that you didn’t expect this to be too much of an issue for National, it didn’t look like we saw much of it in the numbers just wanted to confirm with you that what we see is we get here, you are not expecting a major drop off as a result of that business diminishing going forward.

And part two and I will leave it at this fixed income, a lot of talk from your U.S. counterparts in particular about whether it’s lack of volatility, lack of activity, you have been very consistent in this business, is this is as simple as your Canadian market share and presence is sufficient enough that there is enough activity for revenue trends to be relatively stable or is it more specific to management actions on the part of the bank?

Okay. For the first part, yes you are right, I guess we will have no impact at all on our results, very, very minor and if there is anything in our numbers this quarter are not affected at all with that, it’s all sound business driven and there is nothing in particular on that front.

On the fixed income side, yes we have core business in Canada, that’s we are sure. We are leading a lot of new issue in our league table, but also our participation on trading side is quite good.

But we have to mention also that we have good niche in London, Asia and also in New York that are doing fairly well also. And all those centers are contributing for the overall success on the fixed income.

But fixed income is not only trading, it’s also underwriting and on both fronts, I think we are doing very well. And this year we have a well balanced business but also very careful on the way we are using our balance sheet.

And that’s really core to the success of that team. And so – another conservative, very aggressive group, but also conservative the way they manage our balance sheet and I am very, very pleased by the result this year, because yes they are quite good compared to peers.

But also we are also to some extent less affected by what we are seeing in the U.S.

I mean I look at the fixed income line in the last the last five quarters, it’s another stuff that’s going on in the world good or bad, I think you have got $11 million swing in aggregate over that time, so you have certainly kept it in a tight range. Thank you for your time guys.

Thank you.

Good afternoon. Maybe this is for Louis, just on the – if I kind of take into context this quarter’s earnings [indiscernible] and yourself did pretty well, you are talking about Quebec earlier, but is Quebec operating just like in the rest of Canada in your view?

Sorry, I missed the last part, Scott last part of your question.

Is Quebec just operating better than the rest of the provinces in Canada?

Well, I think what we see is the growth is slightly higher than national average, which is not – I think I have used that expression many times in the past, but Quebec is a no boom, no bust economic jurisdiction. So, we don’t have explosive growth of 4%, 5%, but at the same time, when things get rough, we don’t – we have less volatility to the downside.

So, a) that’s been a pretty much in my 10 years or now 11 years as CEO, it’s been pretty much a consistent theme, so which makes it not – you don’t generate necessarily higher growth than the other parts of the country, but it tends to be very good risk adjusted growth, because the downside is more limited. Right now, I think what’s helping is yes, there is a bit more, the economic activity is picking up, but wanted the direct correlation of this is because the unemployment rate is so low and also that’s why I mentioned the unemployment rate.

So, the employment rate of 75 means that of the population between the age of 14 to 65 in Quebec, 75% of them are working. So on an average family, you know the mother, father and the two kids well, it means that the mother and the father are both working and one of the kids are working.

So, you have gone from one income family to three income family. And in terms of credit risk, it does not eliminate credit risk, it does not eliminate the concept of a economic cycle, it does not eliminate the risk of lending to retail, but I think generally a three income family or a two income family is more resilient than a single income family.

And yes, it will be tested in the next recession, but I think we saw a little bit of that in 2009 in Quebec, where loan losses did not go up as much as they did on other parts of the country. So, the consequence of that is that we are still at 18 basis points in terms of PCL.

If you exclude Credigy, we would have been at 14 basis points. So, loan losses as long as that that type of employment numbers continue, loan losses are going to stay very much under control.

And secondly, housing affordability is still very good. So that means that you can land on real estate with a little bit more certainty than other markets.

Lastly, I think you saw the article in The Globe and Mail over the weekend. There is an entrepreneurial resurgence.

That’s why – when you look at that, that’s why you have to look at our combined commercial and corporate, because some of the transactions are actually done in our corporate segment, not just in commercial segment in terms of loans for acquisitions or for corporate expansion. So, that’s why you have to look at both.

So, generally I think it’s a good position. I think some of that the growth rate may fluctuate over time, but the fact that Quebec is now from a physical standpoint, as a balanced budget even a surplus and that Quebec consumers are less indebted because of low – of easier housing affordability.

I think that story has some legs. I think that story is not a one quarter story, I think it’s a story that we should be able to benefit from for a number of years to come certainly.

Great. And just lastly, just on your capital position, you have a still lot stronger more flexibility, you just renewed your buyback for 6 million shares, did 500,000 this quarter.

How do we think about – how did the buyback program this year – do we kind of use this quarter as a stepping point or do you think it could accelerate just based on the higher sequential capital generated this quarter?

I think some form of acceleration is the more probable scenario. Just a reminder, we got the deal okay, just start to buyback a bit late in the last quarter.

So, there was a timing issue, but I think you should expect the higher pace of buybacks than what we saw last quarter.

Okay, thank you very much.

Good afternoon. I have a question relation to a comment that Ghislain made in his opening remarks that these efficiency gains are not coming up the expense of under investment in the bank.

I would like to highlight a couple of the data points here that are interesting, 450 basis points of mixed ratio improvement in Canadian P&C, similar number in wealth, branch count down, FTEs down from almost 1,000 from 2015 levels, so I see there costs coming down, can you maybe talk a bit more about what you are taking out what you are replacing it with so that we can add more I guess tangibility to that, you are still making investment statement, tangibility is the word, but…?

Yes. Thanks for that.

The first if you look at different segments, first of all on wealth as you know have double digit growth revenues in every single business line. So to say that we don’t have good momentum in that business I think would be that’s a tough case to make.

I think we continued to invest and I think that business has very strong momentum. The point that Ghislain and I and Jean are making is that, yes we did cut down on headcounts not just in retail, by the way we did in all and many other functions.

The – what we have not done though is we have not reduced services in our branches significantly. We have not stopped offerings, first of all a number of branches has fluctuated very by small amounts.

And we do not expect a significant reduction in number of branches, that’s number one. Number two, we are aiming more at having roughly the same number of branches but with a smaller footprint, a smaller square footage of the branch and that’s already being executed.

And number three, we have not stopped offering banking or transaction services in our branches unlike some of our competitors. So we continued, so we have not – our customer base has not seen a reduction in actual service and the type or the level of services we have seen in branches.

A lot of that has come from automation. There is more stuff to be done to automation and optimization of processes we will continue we have I think a number of years yet to achieve more productivity gain on that front.

And lastly as I have said and as we have all mentioned if you look at our revenue growth it does not suggest anything – anywhere in our business lines that we have a shrinking franchise. So we will be monitoring that very carefully going forward.

We are very sensitive that we are in middle of a massive transformation. And we don’t want to do the transformation without taking into strong account the interest of our clients and we are monitoring that very carefully.

So far I think we are very – all indicators are flashing green. I think we are getting it – we are cutting our costs and one part of organization to invest a lot more on the digital front and in technology capability.

I think that’s what needs to be done. If you are not doing that you will lose control of your cost base.

You cannot both increase your cost on the physical network and increase your cost on the digital side. The math does not work.

We do have to reduce the cost on the physical network so that you can reinvest on the digital side to move where the clients want to go to. So far as I have said, we are quite comfortable that everything we are doing we have maintained the same level in fact probably even increased a little bit the level of investments we made in technology, so that’s why we are very comfortable the team to say that we are not doing this at the expense of the future.

I guess you kind of addressed another question I had it was on the branch network it is if not being reduced dramatically here a couple of percentage points and you are maintaining services, so I shouldn’t be too worried about the deposit growth and the branch network slowing down or turning negative even, this is actually that deposits the first time I see the commercial deposits in the P&C absolute amount surpassing the personal deposits, is that also branch phenomenon or is it a symbol of the what’s going on in Quebec, businesses are more flushed with cash perhaps…?

I am looking at Diane here?

Yes. Gabriel, we have been talking about this for some time now, it’s been a trend for the last few quarters, because rather deposit strategy that really was targeted towards the commercial client as well as the public affairs and a major client and we were able to gain significant business from large players, municipalities and also large customers in the commercial field.

So this is a result of the targeted strategy and from the commercial point of view. And from a retail point of view, the market has actually been good for investors and customer preferences have been towards a much more mutual fund than they have been for GICs or the high interest savings accounts.

So, it’s just a question of customer preference on the retail side. So, if you look at our book of – our growth in mutual funds, I think you have seen that this has actually gone up significantly I believe it’s 7% or 8%, Jean, right?

Yes. And I guess wealth as well is seeing good deposit growth there.

Is that related at all to some of the disruption we saw in the broker channel earlier this year?

Well, there is – thank you, Gabriel, it’s Martin. There is two main sources for the 8% and it’s mainly the cash performer followed closely by just money in the brokerage accounts.

Last quick one here and this is something I observed from a couple of the other banks as well. One of your charts there that shows the drawn and undrawn oil and gas, well the drawn portion, anyway had its first uptick since it started declining a couple of years ago.

What’s – are we starting to see increased CapEx activity driving credit demand in the oil patch or the financial stress that’s causing them to borrow more. Just wondering what’s behind that?

Hey, Gabriel, it’s Bill calling. It’s certainly financial stress causing to borrow more.

I think as we talked about for a few quarters, we had practically managed the portfolio down, but I think we have signaled that we didn’t expect it to continue to go down. So, we are seeing some signs of growth, some CapEx primarily in the larger investment grade.

I think if you look at that chart too, you will see the weight of investment grade continues to rise and that’s pretty correlated with the exposure at default in the drawn.

Some of that is M&A related I would say more than investments.

Also, yes, we are lending more money to large capitalization, that’s why.

Alright. Thank you.

Hi, thank you. Could you provide just a little more color on risk-weighted assets and perhaps the best way to sort of get at what I am looking for is what do you think is a reasonable growth rate for your risk-weighted assets given your plans and the growth rate of your balance sheet?

Thank you.

It always depend on what type of balance sheet assets, some of them attracts more risk-weight, but usually between 5% and 7% growth in risk-weighted asset is a reasonable amount.

And the RWA growth in this quarter, could you help me understand the lack of it?

Most of the asset that we did acquire, were in mortgages which attract less risk-weighted assets. So, it’s probably the reason why.

Okay. So, it’s nothing like a model, okay.

Thanks very much.

And also I think we mentioned I think on the capital market side, Darko, I think we have been very disciplined on the balance sheet usage. So, there has been probably net-net or probably a small decrease in risk-weighted assets and capital markets this quarter.

Okay, thank you Louis. And maybe just one last one-off I will throw in here, the way I sort of understand your capital deployment strategy, I think you have got a good grass of it.

I guess where I always stumble is once you have completed this existing normal course issuer bid, what I would like to know Louis is how do you look upon asking for the next one? I mean, it seems to me that ever since the financial crisis we have seen nothing, but really small, I hate to use the word, but I will wimpy sort of buybacks and not singling out National, I am saying for the entire industry.

And I would be curious to know how do you view your position, let’s say, a year from now there is nothing crazy that happens in the markets. Everything goes as planned.

Would you think about approaching OSFI and the TSX for a slightly larger normal course issuer bid all else equal?

It’s a very good question. I think the key element of it and of course we take for granted that the economic cycle remains good in all this and all that.

I think the reason between behind the smaller level of buybacks has been frankly the increases on regulatory capital and both on an actual basis and then what was expected, we had a fair amount of uncertainty around how much would be it and frankly some of the volatility around some of the new rules. And as you know, we got caught a little bit offside in late ‘14 early ‘15 with some of that volatility.

So, I think we are – to the extent that we feel more comfortable that Basel 3 is not going to lead to Basel 4, 5, 6, 7 and 8 and that we have a control on regulatory demand on our capital and secondly that we feel more comfortable modeling and predicting some of the possible volatility on our regulatory capital. Certainly, we get to a level where you could potentially have increased the level of buybacks.

And for us as long as we trade at what we feel is pretty low multiple in an absolute and relative basis it remains an attractive option. And but as I said in the past, buybacks are a complement to a growth strategy.

They are not a substitute to a growth strategy. So, our core focus does remain to grow organically and to some extent through tuck-in acquisitions and then to give a little additional boost with the buybacks.

So, you are not – I don’t think you will go back to a regime, where over half of the EPS growth comes from buybacks. That’s not where we are looking to achieve.

But that we could do a little bit more buybacks more than 1% or 2% a year, it is – it could happen. If we – as I said, if the economic condition remains stable and we have – we will continue to see good visibility on potential regular changes to the capital.

I appreciate the answer. And maybe just to press you on it, where do you think we are and what inning do you think we are in with respect to clarity on capital rules?

It seems to me that we have got the bail-in regime is now solidified. OSFI stood up and said hey, even if Basel 4 doesn’t go ahead, OSFI will go ahead with some – possibly with some reforms.

So, in your view, where do you think we stand and how clear is the capital regime for you?

Well, I would say probably eighth inning, but mind you, I have been saying that since 2012, so put whatever credibility you want in that, Darko.

Fair enough. Thanks for your time.

Thank you, all and we will talk to you for the Q4 conference call. Thank you very much.