National Bank of Canada

Thank you, operator. Good afternoon everyone and welcome to National Bank's First Quarter Presentation.

Presenting this afternoon are Louis Vachon, President and CEO; Bill Bonnell, Chief Risk Officer and Ghislain Parent, Chief Financial Officer. Following our presentation, we will open the call for questions.

Also, joining us for the Q&A session are Laurent Ferreira, Chief Operating Officer of the Bank since February 1, Stephane Achard and Lucie Blanchet, Co-Heads of P&C Banking; Martin Gagnon, Head of Wealth Management; Denis Girouard, Head of Financial Markets and Jean Dagenais, Senior VP, Finance. Before we begin, I refer you to slide 2 of our presentation providing National Bank's caution regarding forward-looking statements.

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

Thank you, Linda and thank you everyone for joining us. Today, the bank reported strong first quarter results with pre-tax pre-provision earnings up 18% from last year.

I am very satisfied with our performance, which was driven by excellent momentum in all our business lines. We generated strong organic growth and an industry-leading ROE, while maintaining high capital levels and prudent reserves.

This speaks to our franchise ability to adapt, and a sound diversification of our earnings. While uncertainty remains on the exact path and timing of a full recovery, the economy is adapting to a new reality and creating an environment conducive to revenue growth.

With more people working from home, coupled with historically low interest rates, we continue to see significant pent-up demand in the housing market. Furthermore, consumers are spending less, saving more and investing more.

Finally, markets are very strong stimulated by monetary policies and new technological and financial innovations. Looking at our own province, we remain optimistic about the economic recovery.

The provincial government is in a solid fiscal position. Quebec went into the lockdown with the lowest unemployment rates in Canada and Quebec consumer has lower indebtedness and higher savings than the Canadian average.

Many sectors of the economy have adopted, so we expect the negative impacts of the current lockdown to be significantly more contained than last spring. Following a contraction of 5.2% in 2020, we expect the Quebec economy to rebound by close to 4% in 2021.

On credit, we are confident in the quality of our well diversified loan book and our strong risk management framework. While risks -- some risks remain in the short term, we are prudently provisioned with significant reserves of $1.4 billion, almost double what we had a year ago.

Bill will provide further details. In terms of capital deployment, our strategy remains unchanged.

Our number one priority is to maintain strong capital ratios, allowing us to support our clients and generate strong asset growth. We will also look at increasing dividends and share buybacks once the restrictions are lifted.

Turning now to the performance of our segments for the first quarter; P&C delivered a solid performance with pre-tax pre-provision earnings of 3% on a year-over-year basis. Our franchise experienced strong growth on both sides of the balance sheet in both retail and commercial.

The strategic choices and the investments we have made over time in P&C and our focus on good execution are producing tangible results. Residential mortgages continue to display particularly strong momentum with volumes up 8% year-over-year and 3% quarter-over-quarter.

This is more than offsetting muted client activity in the context of government support and economic restrictions. In Commercial Banking, we are experiencing good momentum in both loan and ancillary revenues.

As we look ahead, we expect the underlying trends to persist for both businesses. More than ever, we are committed to our advice first strategy.

The current context remains conducive to further our relationships with personalization, digitization and the collaboration between our distribution networks. Wealth management pre-tax pre-provision earnings are up 19% on a year-over-year basis, fueled by strong inflows, favorable markets and elevated transaction levels.

Furthermore, recent investments in our direct brokerage business are paying off as we are experiencing top tier growth on several fronts, including in the number of trades, new accounts and revenues. We are very pleased with the strategic positioning of our wealth business.

Financial markets continue to perform very well in Q1 with pre-tax pre-provision earnings of 35% on a year-over-year basis. Sustained investments in talent, technology and products over the years are bearing fruit.

All our businesses were well positioned to take advantage of favorable market conditions and delivered strong revenue growth. The consistency of our performance demonstrate the agility and the resiliency of our franchise.

For the time being, we continue to see solid momentum for the business as a whole. Our international segment also delivered a very solid quarter.

Credigy's revenues were up 58% from last year, driven by solid portfolio performance and a $26 million gain on an opportunistic sale of one portfolio. For 2021, Credigy has a solid pipeline and the outlook is very positive.

ABA Bank's net income was up 39% year-over-year, driven by strong growth in loans and deposits. We are pleased to announce that ABA was named Best Digital Bank in Cambodia of 2020 by Euromoney recognizing the excellence of ABA's digital platform for the second year in a row.

Our international segment is well positioned to deliver double-digit earnings growth again this year. To wrap up, we had a very strong start to the year and our momentum from Q1 is carrying over into Q2.

Activity in financial markets and wealth management continued to benefit from supportive market conditions. We are seeing very good momentum in real estate and merger and acquisition and our international businesses are positioned to continue to deliver strong growth and returns.

Fiscal and monetary policies remains very favorable for financial activity and should ensure a pickup in economic activity later in 2021 and 2022. Based on what we are seeing today, and should those trends continue, revenue growth should remain quite positive in the foreseeable future.

Given our performance in Q1 and their current outlook, we are well positioned to achieve mid to high single-digit pre-tax pre-provision earnings growth for fiscal 2021 and we continue to work towards achieving positive operating leverage over the same period. As the economy adopts and recovers, I am confident that we have the right team, culture and strategies in place to generate revenue growth and deliver strong returns for our shareholders.

Before I turn over the call over to Bill, I would like to say a few words on Laurent Ferreira's recent appointment as COO of the Bank. Laurent is an outstanding leader with a strong track record of driving performance, a 23-year bank veteran; Laurent has been at the heart of building our differentiated financial markets franchise and instrumental in the successful execution of the bank's transformation over the past few years.

It his new role, he will be providing fresh perspective and strategic leadership to our business segments and operations. So, from the whole team, I would like to congratulate Laurent, once again on this well-deserved appointment.

With that, I will now turn the call over to Bill.

Mercy, Louis, and good afternoon everyone. I'll begin my remarks on Slide 7.

Total provision for credit losses were $81 million or 19 basis points in the first quarter reflecting ongoing strong performance across our loan portfolios and our resilient business mix. Provisions on impaired loans declined to $75 million or 17 basis points, 5 basis points lower than last quarter.

The primary driver of the decline was a cyclical low level of provisions in retail portfolios. Within the retail portfolios, RESL benefited from a strong housing market and saw further improvements in delinquencies.

In credit cards, early stage delinquencies saw a moderate increase from last quarter but remained well below pre-pandemic levels. Commercial and corporate provisions were stable quarter over quarter and performance remained very strong in our international segment.

Provisions on performing loans also declined in the quarter to $6 million or 2 basis points. There was a small reversal in retail provisions reflecting the ongoing strong performance in RESL and the update to our macroeconomic scenarios, strong loan growth in the IFRS 9 updates drove the performing provisions in our non-retail and international portfolios.

Looking ahead, we maintain our total PCL target range of 25 to 35 basis points for the full fiscal year of 2021.Given the good performance, we're seeing in the portfolios, we expect to end up closer to the bottom end of that range. As we mentioned last quarter, this target range did not assume material reversal from performing allowances due to significant improvements in macro scenarios.

Since I expect that you may have questions about the potential timing of reversals, I'll share with you our current thinking on both performing allowances and on what may be ahead for impaired provisions. First, performing allowances should be expected to decline over time due to both migration and when there are improvements in our forward-looking macro scenarios.

We recognize that in recent months, there has been encouraging progress regarding vaccines and success in measures to combat the spread of the virus. In addition, borrowers have excess capital from receptive Capital Markets and from ongoing support programs.

However, we also recognize that large parts of the country are still subject to stringent COVID restrictions and significant uncertainty remains in the path of the recovery. We felt it was appropriate to maintain our prudent level of performing allowances, given these uncertainties and we will continue to reassess the situation each quarter.

Regarding impaired provisions, we continue to believe that they will increase over time. Retail impaired provisions should rise from these very low levels, particularly in credit cards when utilization rates increase and fiscal support has reduced, non-retail impaired will likely be concentrated in the COVID-impacted sectors and could be lumpy from quarter to quarter.

However, the timeline for increases in impaired may stretch out longer than we initially thought and could extend past the second half of this year. Also, we think that the size of cumulative losses over this period may be lower than what we initially thought, particularly given our underweight exposure in cards and our limited exposure in COVID-impacted sectors.

On slide 8, we provide details of our allowances for credit losses. In the first quarter, total ACLs increased slightly to almost $1.4 billion, up 76% from last year.

Non-performing allowances increased to $357 million and now represents 47% of gross impaired loans. Performing allowances were stable at just over $1 billion.

As you can see on slide 9, performing allowances comfortably cover three times our last 12 months impaired PCLs and total allowances cover 5.9 times the last 12 months net charge-offs. We remain very comfortable with the prudent level of our allowances that we built up over the past year.

Turning to Slide 10, gross impaired loans decreased across all segments to $757 million or 45 basis points. New formations were concentrated in commercial due primarily to two accounts in the oil and gas production sector.

This sector was hard hit during 2020, but has seen significant improvements in energy prices and capital markets activities this year. Retail formations declined meaningfully, primarily due to strong performance in the RESL portfolio and most other sectors had negative formations in the quarter.

Turning to Slide 11, the distribution of our RESL portfolio remained stable with 54% of the portfolio located in Quebec and 37% of the portfolio being insured. Uninsured mortgages in HELOC for condos represent 7.6% of the total portfolio and have an average LTV of 59%.

In the appendices you'll find additional information on the loan portfolios and market risks. On that I will turn it over to Ghislain.

Thank you, Bill and good afternoon everyone. Turning to page 13, the bank delivered a strong performance in the first quarter further highlighting the sound diversification of our business mix.

With revenues up 13% year-over-year and a solid operating leverage of 4%, the bank delivered strong pre-tax pre-provision growth of 18%. As always, we maintain our disciplined approach to cost management.

We attained an efficiency ratio of 51.7% in the first quarter, our best showing on record, higher expenses compared to last year reflect higher variable compensation giving strong revenue growth, larger business volumes and higher investments in brand and technology. While uncertainty remains, we are seeing positive momentum continuing into Q2 in all of our businesses.

We are committed to achieving good revenue growth and are implementing initiatives to support this objective. Our investments are primarily focused on providing our clients with the best experience, supporting new business initiatives and simplifying our systems and processes.

As we mentioned earlier, given our performance in the first quarter and the momentum we are seeing, we believe we can deliver mid-to-high single-digit pre=tax pre-provision growth for fiscal 2021 and potentially achieve positive operating leverage over the same period. Now turning to page 14 on Capital.

We ended the first quarter with a strong CET1 ratio of 11.9%, up 12 basis points from last quarter. During the quarter, we delivered an excellent net income generation of 51 basis points resulting from strong performance in all business segments.

We reinvested our excellent net income generation into organic client driven growth, risk weighted asset expansion of 41 basis point essentially came from strong organic growth in our businesses. The main drivers included higher volumes and commercial franchise continued growth in financial markets including increased authorization in Corporate Banking and client activity in Global Markets, as well as loan growth at ABA Bank.

The impact from credit migration was limited this quarter, continuous improvement from retail credit scores were offset by re-rating of wholesale borrowers in COVID-impacted industries including oil and gas. For fiscal 2021, the regulatory scaler for ECL relief decreased from 70% to 50%.

The change subtracted 7 basis points from our CET1 ratio in the first quarter. Looking forward, we expect our CET1 ratio to continue to creep higher as our strong internal capital generation supports both good organic business growth and the ability to return capital to shareholders, when restrictions are eventually lifted.

In addition, we are very confident that our strong capital levels, combined with our prudent level of credit reserves provide good resiliency in these uncertain times. Now turning to Page 15.

Our liquidity, our LCR continues to be strong at 154% and we are introducing our net stable funding ratio at 124%. In addition, our total capital ratio remained stable at 16% at the end of the first quarter.

In conclusion, the bank had a strong start to the year, with solid organic growth, high capital levels and industry leading ROE. With a strong balance sheet, significant reserves, and diversified revenue growth levers, our franchise is well positioned to continue generating attractive growth through fiscal 2021.

With that, I'll turn the call back to the operator for the Q&A.

Thank you. Laurent, Congratulations on your appointment.

Louis, question for you. Over the recent quarters, exactly pre-pandemic and then throughout the pandemic, I think, you have told us that you have been incredibly selective in growth pre-pandemic and I think, as recently as the last couple of quarters, you had indicated that you are aggressively in pursuit of topline growth and I guess, what I'm trying to get a feel for is if you had to, on a scale of 1 to 10, give us a feel for how much of your aspired growth is actually being realized right now as far as still on to come, that would be helpful.

Let me know if that actually makes sense, the question. I'm just trying to get a sense for whether or not what we are seeing here this quarter is as good as it gets or do you expect this is just the beginning?

Thanks for the questions, Sohrab and the question did make sense. Couple of things; one, you and I have discussed on in the past.

So, I think we've been selective in the areas where we want to grow. This is not 2009; this is not 2010, when we had a risk on strategy in almost every single business line and then every single asset classes.

You need in 2021 and 22, I think, you will need to be much more selective in terms of risk allocation than we were in 2009 - 2010, because the financial crisis of '08 had created a lot of forced liquidations and that resulted in very attractive risk returns opportunities right across the different business lines. The massive amount of quantitative easing and government support have shouldered I think the markets from -- from the same level of forced liquidation that we saw in '08 - '09 and it's not just in Capital Markets, it's the same thing also on the lending market.

So, we are seeing opportunities and we are taking advantage of those opportunities, but we remain still pretty -- we do need to remain selective in this market. So, when we say we can we see growth for opportunity -- for opportunities for growth, we do see that, and I think it's -- I don't think it's the end of the cycle.

I think a good scenario, which is I think right now a probable scenario, Sohrab, is that, as I mentioned in my opening remarks, we could see a period of time where because a very active and very expansionary monetary and fiscal policy, we could see financial activity, namely the activity related to financial markets wealth management and real estate remain quite active for a period of time and at the same time, eventually, the economy will make the GDP level would have completely recovered from the COVID crisis and then we will see a real pickup in economic activity, which should benefit credit cards, small business loans and other type of activity. And if we have that sweet spot of high level of financial activity combined with it the economic recovery, I think it should be a very good environment to generate revenue growth.

That being said as I said there's some distortions right now in the market caused by quantitative easing and there's also some pockets of irrational exuberance and so you do need to navigate from a risk management perspective, I think Bill and his team and the business lines we remain are very, very busy. So, yes, in short I think this is not -- I don't think that Q1 was a fluke, I certainly hope not.

I don't think so, I think we are quite clear in our opening remarks that all the favorable trends that we observed in Q1 are still present with us at Q2 and so for us going forward, I think we'll -- there'll be -- we'll continue to grow the business, but we'll keep an eye open on risk management that's for sure. Did I answer your questions, Sohrab?

I think you did. And just for crystal clarity what you did in this quarter when you're talking about for example for the balance of year when Ghislain is talking about mid-single digit pre-tax pre-provision growth and the like.

This is all still within the context of being prudent on the businesses that you're pursuing or basically as you put it, not being in a risk on environment, like I -- in other words once we get into a bit of a risk on environment that would be I guess additional fuel, is that the right way to think about it.

Yes, I think it's prudent as you know when we give guidance, we'd like to be prudent and I think the way we manage risk also historically has been prudent. So I think your assessment is a correct one.

I just have one of these days, Louis, when you have results like this you don't say you're satisfied, you say you're ecstatic.

Yes, we're bankers, Sohrab, we -- ecstasy not a -- we need to be careful about that.

Thank you.

Hi, good afternoon. And I'll start off also by congratulating Laurent.

The question is, I think for Bill, you talked about the timeline on the evolution of impairments being delayed and just wondering if you could go into more detail what's driving that delay in your mind?

Thanks for the question, Meny. Yes, I think the comments I made were just giving indication that what's changed from last quarter to this quarter and I think last quarter we spoke about expectations for impaired to gradually grow through the year and probably Q3, Q4 would see a peak.

Certainly, the performance this quarter is in many of the portfolios were better than last quarter, you saw impairments down, you saw in the. We weren't surprised by the performing allowances being down, but just given the slower start to the increase, it's natural thinking that it could be delayed.

We also made the comment that is less certain about the size. So, the hand off, as Louis mentioned from financial activity to economic activity that nothing is certain in this world and during the pandemic uncertainties are higher, but it looks like the there's a chance that the overall cumulative losses may end up being lower in this cycle than we would have thought 3 or 6 months ago.

Does that answer your question Meny?

Yes, I mean, I think that's what I was getting at, in terms of when we see the delay that we're seeing now. I guess a prudent way to look at it is to say, okay, let's be careful and think it's still coming.

But the question is really could we just have been totally wrong in this front and given all the government support and all the -- all the things that we're seeing on the ground, could it just be that the kind of impairments that basically, we will not see the kind of impairments that we thought we would see. So, I'm just curious on that idea that this could just be -- the kind of allowances that you have just could be significantly over and above what will actually be needed when all is said and done.

Well, the. I think on your last point to say that we're very, very comfortable with our performing allowances.

On the first point, I think that's what we mean when we say there are uncertainties, it's hard, we haven't been through this -- certainly, I haven't been through a global pandemic before and to see what the other side of it looks like. So, we call it uncertainty and I would agree it's -- what it will end up at is likely to be different than what we would have thought 3 to 6 months ago.

Just on that point, in terms of, everyone is focused on the vaccination rates, how big a risk factor is that in your mind. The fact that Canada seems to be behind the curve relative to the US, especially, is this just a matter of timing or could it be a more significant risk as we move through the year?

I think that the -- if we put ourselves back a couple of quarters, we didn't know if the vaccine would come, we didn't know whether it would be effective. Certainly, there's been lots of good news on that and what we know now; it was obvious from the beginning that it's a pretty massive exercise to source and to distribute the vaccine.

So there are always going to be a range of uncertainty around that. I think that what we've seen so far has been positive in terms of the ability to combat this part of the virus and the optimism that there is an end to the tunnel -- light at the end of the tunnel.

Louis, do you have any other comments?

No.

Thanks.

Thanks, Meny.

Thank you. Good afternoon.

So Louis the last conference call, you highlighted a number of reasons why we should be positive on commercial loan growth and it looks like sure enough you delivered some pretty good commercial loan growth this quarter. So one can you comment on some of the drivers behind the loan growth within the quarter and then maybe an updated view for fiscal 2021 as well.

Paul, I'll let my colleague, Stephane Achard answer and also we had a little bit of difficulty hearing you Paul, so just -- we heard your question but the volume was a little low. Stephane.

So, Paul, the growth was quite diversified over the last quarter and if you look at the sub back you'll see that there has been growth in utilities, obviously, real estate, we took opportunities; and Bill and Louis have mentioned it in their speeches. We took opportunity of the residential market and the insured portion of our book has grown substantially but also on the education and healthcare, our specialties are doing well.

So, if we look at what we call national accounts, family on large businesses quite a bit of activity there, good growth and we launched a new initiative last year in Toronto, which is doing really well as well. Specialties outside of Quebec, an important part of the growth was actually outside of the province.

So, that's looking good and if we project ourselves in the future, we expect growth in volumes to continue rising up and by the end of the year probably revert back to more historical levels, but we still have plenty of opportunities by way of working capital utilization which is minimal right now and corporates around the country and businesses. So lines of credits will be fully used or return back to historical levels, which is more around 36% - 37% of utilization on lines of credit, right now we spend between 29% and 30%, so plenty of growth coming from there we expect, but obviously that will depend on the progression of the year with redemptions of the business cycles.

That's helpful. Thanks for that.

Thank you. Good afternoon.

I wanted to touch on trading net interest income and I noticed that still running at a fairly healthy level for you and I was wondering if you could touch on, how the recent volatility we're seeing yields, might impact trading NII going forward and where you see that moving in the short term.

It's Laurent. Thank you for your question.

Obviously, we've seen elevated volumes transactions over the quarter, and you're right volatility was, I would say, at a healthy level but obviously nothing like Q2 of last year and we expect actually for this year volatility to remain at a healthy level. So overall, of course, we benefited from higher volumes in Q1, a trend that we saw in Q4 of 2020 and it continued throughout Q1.

So, we don't control volumes and volatility, but I feel very confident in our ability to adjust quickly to shifting market conditions. I think we've proven in the past that the franchise is very agile, so yes, you could see revenue -- trading revenues go down, but it's not a concern.

That's really helpful and I have another quick question on employees in Canadian Banking. I noticed in this quarter, there was a marginal decline there quarter over quarter.

Wondering, if you could speak to what drove that decline in full-time employees and if you think that's going to stabilize or do you -- do you see yourself hiring more people as the economy reopens?

We are, Nigel. So, we remain -- as I said, we remain very disciplined in terms of cost management and head count management, especially we were certainly very prudent in Q1, because we -- there were more uncertainty in terms of vaccination and the path of the recovery and dull sanitary situation.

So, over time, I think we'll remain disciplined, but, I think you should expect that number to grow back up slowly, as we move back into economic activity, we should expect that we'll need to hire a bit more people.

That's really helpful. Thanks for the color.

Good afternoon. Starting just with all bank NIMs and if I exclude trading for National, it was up about 2 basis points year-over-year based on my numbers, that's I mean -- it's the only bank this quarter that we've seen so far where there has been an increase.

And so just curious if you could talk a bit about what might have driven that, I would assume it's the expansion in the growth in Credigy and ABA. And then if you can talk a bit maybe if you can provide any color in terms of an outlook for that, that would be helpful.

Jean. You want to give it a try.

Jean is shuffling through his papers right now.

Okay. Well, yes, you had slight decline sequentially for P&C, it's only 1 basis point.

But you had also improvement due to volume into Wealth Management and a lot more also in Financial markets and the margin is better in Financial markets than it was in Q4, which we see also in ABA. Improved margin in ABA Financial market and more revenue net interest income in Wealth Management.

Any outlook or maybe you can talk about outlooks for NIMs within Canada; it looked like it's been stable sequentially. Now, if there is an outlook for NIMs within USSF&I any color within Wealth Management that would be helpful.

It's more difficult to see in those kind of business. We do expect what 1 to 2 basis points lower NIM in P&C Banking, but for the rest, it is more volatile.

That's why we follow mainly P&C banking NIMs.

Okay.

Doug, it's Louis. Credigy is a bit volatile because of the structured portfolios.

I think [indiscernible] for ABA remains very positive at all levels, NIMs and volume.

Okay and then just a clarification like the $26 million gain that came through non-interest income I assume, and that's an after-tax -- $26 million is an after-tax number.

$26 million is pre-tax; it is in the other income of Credigy to which you have some variable compensation of about $4 million. So for a net of 22 and net of tax it's $18 million or $0.05 per share.

Okay and then just last, Bill, performing loan PCL was $6 million. I assume the SLI improved, I had a chance to go through it all but the SLI would have improved, the outlook seems to have improved.

Can you talk about what the offsets were and was this more of a waiting towards your pessimistic scenario like what offset amount that would have otherwise been released and Louis, is the goal -- I think last quarter you said the goal was not to necessarily release them you'd want to grow into them. Is that still the kind of viewpoint?

Thanks Doug, I'll start off. So, in terms of offsets certainly loan growth is one that generates the performing PCLs.

You'll notice that in the in the appendix, in the disclosures on our macro scenarios, the baseline did improve somewhat in a few of the factors but the pessimistic -- the shape of the pessimistic was a little different, you'll see that on the slide, the back of the deck and that had -- that had an impact as well on the performing PCLs. Yes, I mean -- we are -- I think you saw we had a nice increase in risk-weighted assets.

I think that's where we are were hoping for and that's somewhat I think indicating for but as Bill indicated, the situation -- the economic situation if it continues to improve and vaccination accelerates, I think, we'll be facing the possibility of releases faster than we thought and we will review it each quarter.

Okay. Great.

Thank you very much.

Hi, good afternoon. If I go to Slide 19 on wealth management, the thing that jumped out to me was transactions and others on the revenue line up 35% quarter-for-quarter.

Maybe just, if you could help me or maybe if you can just elaborate on the sequential increase and if there is anything in that other than that -- that kind of drove it.

Mr. Gagnon will answer that question.

Thank you to ask a question about wealth management. The transaction increase comes 50-50 from Direct Brokerage as well as in NBIM.

So, there is an element to it that is related to the frenzy that everybody saw, but there is also an element coming from portfolio managers at NBIM. So, that's why we like the profile -- we like the profile that we have and especially then BBB Direct Brokerage.

It's not only coming from gain stop trading, it's we've gained the number of accounts, we're a number 2, according to Investor economics for a number of transaction, revenue growth, as well as new accounts, so, it's pretty solid. Now, in terms of other revenues, a lot of it is FX revenues and I would say that the only change in investor behavior that we've seen is a big increase in the number of US shares that are transacted versus Canadian shares and that brings FX revenue.

Got it. And then, maybe just lastly on international with ABA, in terms of loan book, up 7% quarter-over-quarter, 36% year-over-year during the pandemic, at what point do we see this loan book kind of mature or is there runway for several years where you can kind of post these exceptional kind of growth rates on this book.

Scott, it's Louis. I think we've posted such numbers now for five years at least.

I think there's still some runway. I think our market share is obviously growing, but it's still I think we see room for growth there.

We continue to gain market share in both deposits and loans and what's encouraging is that there has been no lockdown in Cambodia. So it's difficult to get in, you have to be -- the Australian rules, so you have to be to weeks in an hotel if you're coming outside.

So the tourist industry is extremely slow, but the other parts of the economy, manufacturing, construction and agriculture are doing extremely well. So, what's encouraging is that 3 of the 4 engines are running and then at some point tourism will come back.

So from a strict macroeconomic standpoint, these -- you know that performance was not done with the Cambodian economy at peak performance. It's really done at three-fourths performance.

So that's why I think there is still some runway here for at least a couple of years.

Understood. Thank you very much.

Good afternoon. This question might be appropriate for Jean Dagenais.

Jean you referred to the shift into Wealth and Financial Markets as an explanation for why the margin would have been strong and I too observed that the all bank margin was very strong sequentially, was there any change in the balance sheet -- the structure of the balance sheet either duration or risk that might account for the abrupt improvement in the all bank margin.

The only big change in the balance sheet is the increase in liquidity at central banks. This affects Treasury doesn't affect the business line.

Other than that there was no other shift for the business lines.

But that wouldn't have contributed to an higher margin lift.

No, the increase in liquidity is almost neutral.

Okay.

Mario, it's Louis. I don't -- we are looking around the table here.

No I don't think there was anything special on balance sheet or anything else that occurred, it was just as you saw I think good volume growth in all business lines and on both sides of the balance sheet. I think that's just if there was nothing unusual and more anything else like that.

Yes. That's helpful.

When I disaggregate the margin for National and I see how well it performed relative to your peers, it sounds -- it look it does look to me like the business in Cambodia and Credigy and I guess wealth as well, those are making a meaningful contribution to National's better margin performance. So, I wanted to just sort of square the circle and make sure I wasn't missing something on the balance sheet.

If I could just go Louis, more of a philosophical question, you've been around awhile, you've seen a lot of cycles and I think you'd agree that no one would have predicted that National Bank would put up over $2 a share, a record quarter 13 months into the pandemic or 12 months into a pandemic. So, it's clear that, at least in my perspective, that central banks and governments around the world have, maybe not intentionally, but they've created a very, very good environment for banks with extremely low credit losses and a great opportunity to make money in financial markets.

So, at some point, central banks aren't going to be there and central governments are going to be there to create this perfect environment for banks and the punch bowl gets taken away. In your many years running financial markets and running this bank, what happens in that environment and how is national, are you -- are you preparing for the day that the punch bowl gets taken away because it seems, at least from what I see, but that's what we've seen -- we've seen provincial government and central banks create a perfect environment for banks to make money.

They certainly been very and you were around in '07 - '08. So, on a comparative basis, Mario, this was even larger in terms of intervention by governments, both in the fiscal and monetary side.

So, yes, so there was massive intervention. Now, I think it's a good question on the punch bowl, but the fact is, I think before we get there, I think, we need to get back to full employment and I think it's not just GDP recovery that the G7 countries are looking, you're looking at full recovery in terms of the job market.

So, I think before we get to removing the punch bowl in terms of the fiscal stimulus -- monetary and fiscal stimulus, I think we will -- we will have a nice period of economic rebound, which I think we will benefit from. And as I said earlier, I was mentioning a scenario, maybe it's more wishful thinking, but we have both positive financial activity and economic activity could take it on the same place.

Now, removal of -- having sustained enough scars on my body, on my face, to have gone through periods where central banks have removed liquidity, '94 was one, 2000 was another one, and a little bit in '15 or '16. I think what happens in that particular positioning is you need to be very good at managing volatility in financial markets and especially now if there is any kind of vent of inflation, which again I think it's -- it's probably a couple of years down the road at the earliest, I would think, but once that occurs, I think volatility is going to be -- could be quite high and I think so far, and I'm knocking on wood, and we are all looking on wood, as a team, I think we showed that we pretty darn good at managing volatility in financial markets.

So, that's why I capital markets remains I think and actually you know within a universal banking business model, a very attractive -- I don't know, because of the correlation versus the other business lines. Am I making sense here, Mario?

Yes. If I could just one final thing.

When the music stopped in 2008 - 2009, several banks, mostly in the US were exposed pretty, pretty and start terms, we saw the banks that made a lot of mistakes. Are there any excesses that you can see being built up in the system today that will be exposed down the road?

Not now. And I think the financial system as you know, Mario, is quite different, particularly the regulated part of the financial system, namely the banks are quite different beast than they were in 2006.

So, I think there are a lot of new players, a lot of new structures in the markets and I don't see right now major weaknesses within the regulatory -- the regulatory part of the system. For the rest I did allude in my opening remarks that we are seeing pockets of irrational exuberance in the markets, you can figure out which one of those and I think given the level of stimulus they are likely to be more.

And that's why I think risk management remains a strong risk management culture is not a nice to have even in a period of strong economic recovery. It is especially important in the period of strong economic recovery, because that's usually, as you know, that's where the big mistakes are being made.

So, that's why you know, we're trying to be balanced between our, what we're generating in terms of revenues by being fully cognizant that we have to be very, very prudent in terms of risk management.

Helpful. Thank you.

Thanks. I just want to circle back on earnings in Wealth Management.

It sounds like there are some transaction volume that may not repeat and well, so earnings power of that segment on a run rate business and closer to the let's say $130 million a quarter range, because when I look back at your sub-pack, it looks like there was quite stable growth of that level of earnings or should we be thinking about it as more of the $160 million as being representative run rate for wealth.

Well, thank you. Look it's a tough question.

In our revenue mix, this is the portion that is the most volatile but recently we are experiencing really, really strong numbers, even in February. March, last year was a record and we're trending right above those level if not higher these days and it's coming from direct brokerage as I said, but not only that, recently it was between NBIN and direct brokerage and now we're seeing new issues coming to full service brokerage which is something we have not seen in a long time.

So, all of this to say that so far for the coming months what you've seen in Q1 is what we're seeing and what the trend continues.

Okay. So it's not like one times like maybe large performance fee or anything in there that's like one-time in nature.

Absolutely not. We have no performance fees at all in of our revenues.

So that's not a question. As I said the only thing that is a little bit different is the behavior of the investors as they trade more US stocks than before.

So more FX revenue could disappear but it doesn't explain the bulk of our results for sure.

All right thank you.

Good afternoon. Question for Louis to start, you had mentioned in your opening remarks about once the restrictions are lifted you wanted to get back to raising dividends and buying back stock, I assume you mean you intend to do both and if that's the case that we are looking at 11% still as minimum target level for Core Tier 1.

Yes, I think we would look to -- it was a confusion. I think we should be in a position to hopefully to do both, priority on increasing dividend I would say because if you do quick math I think you will see at a risk of being below our 40% payout -- minimum payout ratio in terms of dividends for 2021.

If there is no adjustments on the -- or if you don't adjust dividend upwards, we'll wait for the regulators to give the signal, but I think that would be one thing. And then, yes I think 11 to 11.5 I think is a comfortable level post pandemic, we will see how that goes, but we'll see how things evolve.

Okay and then my other question is to as for, Laurent, also congrats on the new job. Great quarter in financial market but we're staring down a barrel of some really tough comps over the next three quarters.

How does that impact I guess your outlook for pre-tax pre-provision profit growth like where do you expect Financial Markets end up vis-a-vis the mid to high single-digit all bank target and then in terms of, I think you alluded that trading maybe slowing down that offset going to be that solid pipeline of investment banking fees coming?

Thank you. Gabriel.

So, in the first quarter what we've seen lots of capital raised from our corporate clients. I mentioned before elevated volumes have evolved and all asset classes.

The other trend that we've seen is a significant rise in investor appetite for products. So, that trend in retail and institutional, so I think it's fair to say the conditions right now for capital markets activities are very very good.

Now looking forward, Louis mentioned it earlier, we've made investments in our franchise and they are bearing fruits. The -- we're well positioned, okay.

So we're very comfortable there. At this point in time we remain positive on our trading businesses and we're seeing very strong pipeline on M&A, financing activities from our clients.

So, I think market conditions persist, they remain favorable, look we're in a really good position to generate positive revenue growth versus 2020 which was a record year.

Maybe not a big drop-off is I think anyway.

Yes.

Okay, thank you. Have a good rest of the week.

Thank you.

Hi there, thank you. I just have two questions, the first one is really simple, forgetting credit card balances for a moment, I'm just curious if you can tell me do you have more credit cards in circulation today than you did a year ago?

I missed part of the question. [Indiscernible] Yes, the number of active accounts is, I would say, stable compared to a year ago.

I don't think the conditions have been favorable at this point to increase the number of active accounts. What we've done is work with our customer to stimulate spend where we could in some of the of the spending categories but this is what we see right now.

Okay. That's helpful thank you.

My second question is similar to Mario's question, I'm going to try it from a different angle though, Louis. And I'll direct you to Slide 29 in your -- in your presentation deck.

So, my question revolves around the deposit growth and it -- I've been watching banks for a long time is very rare in one year it could have the deposit book that was slightly below your loan book to go suddenly significantly higher than your loan book and when I look at this chart it's basically $32 billion of deposits more year-over-year. And when I look at the shareholders report $27 billion of that $32 billion is no fixed maturity.

So, I guess the question is if we hit a real strong stride here in the economic recovery, it's totally possible in my mind that we can have deposits run off pretty quickly like as just to start to run up, they could run back down and don't misconstrue my question is one about interest rate risk or -- and your liquidity coverage ratio is fine and stable. But what I'm really thinking about is the impact on your business in terms of the margin in a situation we have asset growth with deposits running off and then the other sort of difficulties that might arise from that.

So can you give you an idea of how you're preparing for a potential significant run down of deposits and what might be the impact if it might sort of vision comes true.

Thanks, Darko. Frankly, right now, I think we're more I think our biggest challenge is deploying the excess deposits that we have without doing anything stupid on the balance sheet frankly.

We're not making states, we're not concerned with a run-off even if at some point the deposits base should come down and we certainly hope so, Darko, because I think that would be a signal that the economy is finally picking up and people are starting to travel and spend and invest again and I think we have enough given our universal banking model, I think we have enough other businesses that we would pick up the revenue from that investments either in Wealth Management or in capital markets or and commercial banking or in something else. So, I think, A - I think on in terms of funding and balance sheet I don't expect it to be so abrupt that it's going to cause a problem, in terms of funding or liquidity.

And secondly, as I said once that money, we can only hope that money gets deployed one day. Because, I mean we're out of this weird situation we found ourselves from the last 12 months.

And I think it's going to be done progressively and again, I think it will generate revenue opportunities for us, right across -- right across the franchise. So, that's where we're at.

For the rest, keep in mind that structurally it's been a policy and a strategy of ours and in fact, in big priority to the decrease our funding coming from wholesale funding and increase the funding from core funding sources, core P&C clients. And so, when you look at that trend over five years and it certainly accelerate last year because of all the unusual circumstances, but also I think it have also reflects a multi-year strategy to reduce our dependency on wholesale funding and I would certainly hope that it would not be reversed in a post-pandemic world.

Does that answer your question, Darko?

Yes, I mean it helps. And I wasn't worried about the risk side of it.

I'm just wondering about the obviously you would have excess liquidity come down and you would be deploying some of that, but I just can't -- I can't picture an environment where your asset growth would accelerate as fast as your deposit growth would come off. So, I'm just struggling with it a little bit -- every time, we look at the balance sheets these days, it just -- it boggles my mind so much especially the business and government deposits.

I mean, those should be very fluid and liquid in a recovery and I got to think you're paying next nothing to these deposits. I mean, I'll think through it more, Louis, your answer is exactly as I thought it would be, I guess it's just...

Darko...

Yes, Stephane. I just wanted to mention, actually on the government side, we've actually let go of governmental deposits that were going up for bids and auctions that were at low margins because of these excess liquidity.

So, that's always one tapped area we could tap back in if need be.

Okay. Yes, that makes sense.

Okay. I'll struggle with it a little more, and thank you very much for the insights.

I appreciate it.

So, thank you everyone and we'll talk to you for the year Q2 results in three months. Thank you again.

Have a good day.