Nano Labs Ltd Price & Performance (NA)

Merci, Marianne, and thank you everyone for joining us. Let me begin the call by addressing the macroeconomic and geopolitical content before turning to our results. Canada's economic performance has fallen behind The U. S. And other G7 There has been a considerable decline in our productivity and GDP per capita coupled with insufficient investments in manufacturing Canadian companies are facing excessive regulation and oversight. Added to the mix, we face the U. S. Administration with a pro business and protectionist agenda. Now we must not only rebuild our relationship and negotiate economic and trade terms with our largest partner, We must also get investments off the ground in our country. Concretely, Canada must consider appointing a nonpartisan head of deregulation to identify and recommend removal of unproductive red tick. Accelerating depreciation on capital investments for businesses, reducing taxes on capital gains for business owners, allowing the deferral of tax payable on the transfer to future generations or on a sale to employees.

To preserve Canadian ownership of businesses. Focusing on permits, not subsidies. Adopting a Buy Canada Act to promote and give priority to local businesses notably to increase defense spending in the aerospace industry manufacturing sector and critical infrastructure. Finally, R and D or AI should focus on growing our industries and our economy. I also urge decision makers to remove all inter provincial trade regulation hindering Canadian productivity. Canada is a resource rich country. It is our responsibility to ensure that our people benefit from the full economic potential of our energy, natural resources, agriculture, and manufacturing sectors today and in the future. Now the heightened uncertainty brought by potential tariffs may pressure our economic growth and could prolong the credit cycle. As a Canadian centric bank with strong capital levels and an National national footprint, we have a pivotal role to play in shaping our economy. National Bank, we are determined to support our clients through this turbulent time to help finance much needed investments our productivity, and economic growth. Turning now to our financial results. This morning, the bank reported earnings per share of $2.93 for the first quarter of twenty twenty five up 13% year over year and a return on equity of 17.6%.

This performance reflects strong execution across business segments and our diversified earnings power. We ended the quarter with a CET1 ratio of 13.6%. Our acquisition of Canadian Western Bank which closed subsequent to quarter end on February 3, will have a minimal impact. This leaves ample room for business growth. [indiscernible] Our dividend payout of 40.6% in Q1 reflects last quarter's dividend increase and a robust earnings growth. We will review our dividend next quarter consistent with usual practice. Our acquisition of CWV marks a pivotal moment for National Bank. Our combined organizations will allow us to deliver more banking products and services for all Canadians and Canadian businesses. Over the last few weeks, our teams have been working hard on the integration. Together with our new colleagues, I look forward to leveraging our cultures and values. We'll not only accelerate National Bank's domestic growth, but extend our banking capabilities to the benefit of all our clients. Turning now to the performance of our segments. P and C Banking generated net income of $290,000,000 in Q1 with underlying growth more than offset by the credit cycle impact. Momentum in our loan portfolio was in line with expectation. Personal mortgages grew 3% year over year supported by a solid pace our client channels.

Commercial loans were up 13% over the same period with strength in insured residential real estate and broad based growth across industries and geographies. [indiscernible] had a strong start to the year. With Q1 earnings net earnings up 23% year over year. Revenues were up in all categories with strong growth in assets and demand deposits. [indiscernible] This was driven by market appreciation, strong net entries in all distribution channels The franchise also generated positive operating leverage. Financial markets exceeded the expectations in our expectations in Q1 with year over year net income growth of 35%. [indiscernible] Global Markets generated a record top line with elevated activity across most businesses. We benefited from particularly strong issuance volumes in structured products and significant opportunities in securities finance. On the corporate and investment banking side, revenues were up 3%. Credigy's net income was up 8% year over year Average assets grew 7% over the same period and were relatively stable sequentially. The U. S. Markets remains competitive and we remain with risk reward profiles that meet our criteria. We continue to be successful in financing and acquiring mortgage portfolios, while risk adjusted returns on unsecured assets are generally less compelling right now.

Finally, ABA Bank. Consistent with past quarters, the local economy continues to operate below potential. With lower tourism spend directly impacting our customers. As a result, ABA grew its loan book by 9% year over year in the first quarter.

Against this backdrop, ABA is leveraging its strength, including its digital payment and cash management capabilities also continues to increase its client base which was up 31% year over year in Q1, translating into deposit growth of 19%. Before turning it over to Marie Chantal, I would like to say a few words on the executive appointments announced last December, and effective March 1. Michael Denham, who successfully led the integration of our private and commercial banking activities will lead CWB's integration as EVP and Vice Chair, a role he is exceptionally qualified for. With this transition, Judith Menard is being promoted to Executive Vice President and Head of Commercial and Private Banking. This is a natural next step given her trajectory with the bank since 1998 and her previous success expanding our commercial and private banking model beyond Quebec. In addition, Dominique Paradis, has played a pivotal role in overseeing the bank's legal team and corporate governance was promoted to Executive Vice President and General Counsel. With their appointments, Judith and Dominique will also join the senior leadership team. This being Stephane Ashar's last call prior I'd like to take a moment to recognize him. Stefan has made a lasting impact the bank and the business community with his leadership and dedication to clients.

I extend my gratitude for his many contributions and on behalf of all of us I wish him the very best. In his well deserved retirement. Finally, I would also like to thank Bill Bunnell, for stepping in to oversee our international investments. Delaying his own retirement plans and once again demonstrating his dedication to the bank. Over to you.

Thank you, Laurent, and good morning, everyone. My comments will begin on Slide seven.

First quarter results were strong as revenues and PTP delivered double digit growth year over year. Revenues increased by 19% and wealth management, supported by favorable market conditions.

CPP grew by 28% with positive operating leverage of 7% as we continue to prioritize disciplined cost management.

Our efficiency ratio stood at 50%. Our business segments generated solid organic business growth.

Expenses were up 12% year over year This was primarily driven by variable compensation in line with the strong performance [indiscernible] and Wealth Management.

Excluding variable compensation, expenses rose by 8% in part driven by higher salaries, benefits and pension plan expense.

In addition, technology costs increased 8% year over year reflecting ongoing strategic investments mainly related to our digital transformation and the evolution of our technological environment. We continue to invest for growth while staying disciplined across the bank. For the quarter ended 01/31/2025, the application of the Pillar two rules increased the bank's effective tax rate by less than 2%. In Q1, the effective tax rate was 22.6%. This rate for any particular period may be impacted by other factors including changes in our business mix. Now turning to Slide eight.

Non trading NII in Q1 was up 3% sequentially. This increase was mainly driven by balance sheet growth as well as annual dividends received from an unconsolidated international investment.

The 2.26%. The PNC NIM was down two basis points over the same period at 2.28%. This primarily reflected the balance sheet mix as loan growth exceeded deposit growth. Turning to Slide nine, which highlights the continued broad based growth on both sides of our balance sheet. Loans were up 7% year over year and 1% quarter over quarter. Deposits, excluding wholesale funding, grew 12% year over year and 4% quarter over quarter.

Personal demand deposits across our retail businesses increased by almost $4,000,000,000 or 8% sequentially. [indiscernible] Furthermore, our customers' appetite for investment solution has been strong given the favorable market performance that continued in Q1 and resulted in solid growth. Non retail deposits grew 3% quarter over quarter.

Now turning to capital on Slide 10. We ended the quarter with a robust CET1 ratio at 13.6%. First quarter earnings net of dividends contributed 43 basis points to our ratio again underscoring our internal capital generation capacity. Excluding FX, growth in risk weighted assets accounted for 53 basis points of CP1 driven by credit risk and to a lesser extent market risk. Furthermore, our capital position remains very strong after We estimate the transaction reduced our CET1 ratio by approximately 15 basis points at close. This takes into consideration the fair value of acquired assets, which includes an estimated credit mark on impaired loans of $378,000,000 as well as an initial provision on performing loans of $230,000,000 before tax.

Of note, this is before factoring in any benefit from utilizing the AIRB methodology.

Recall that CWB currently uses a standardized approach. As we onboard CWB's clients, we will keep working with our regulator to migrate most of their portfolios to AIRB in 2026. At year end, we will share an updated capital plan presenting our priorities for capital deployment. In the meantime, we are very pleased with our strong CET1 ratio. I will now provide additional commentary on the acquisition of CWB and what we're expecting in Q2 and going forward. Slide 11 highlights the various purchased accounting and IFRS items that will impact our results in the upcoming quarters. Of note, the amortization of the net fair value mark will impact adjusted results while the amortization of newly recognized intangibles and the initial provision on performing loans will be excluded. For additional information, Appendix 16 presents our preliminary estimate for CWB's opening balance sheet. Moving to Slide 12, to review the synergy potential and timeline. [indiscernible] The execution of our integration plan is well underway. CWB employees are being onboarded. Client migration from CWB's platform to National will be done in waves starting in the summer of twenty twenty five and continuing through the beginning of calendar twenty twenty six. This sequential approach will provide the focus needed to ensure a smooth and seamless experience for clients and employees.

When we announced the CWB acquisition, we identified meaningful synergies of $270,000,000 pre tax. We expect to realize approximately 175,000,000 from cost savings and approximately 95,000,000 from funding. [indiscernible] We also expect to achieve over $135,000,000 of these synergies in the first year post closing or by the end of Q1 twenty twenty six with around two thirds generated from funding synergies. The funding synergies will be realized through this period and the cost synergies towards the latter part of year one as clients are onboarded.

By the end of fiscal twenty twenty seven, we are confident that we will achieve the $270,000,000 of synergies previously announced. We will continue to provide quarterly updates as our integration progresses. We also anticipate revenue up side in both NII and fee income. At this point in time, it is too early for us to quantify the upside from these incremental revenue opportunities.

But they will be significant. Our strategy is well defined and our plan is laid out already. In particular, higher NII will be generated by expanding our balance sheet through existing and new relationships as well as by rolling out our cash management solutions and our retail and wealth capabilities to CWB clients. We will also be providing National Bank's clients with opportunities equipment financing an area where CWB has expertise. Higher fee income will be mostly generated by providing CWB clients and also capital markets capabilities where National Bank excels. [indiscernible] We already have a single management structure in place and are working as one team to combine servicing, Ultimately, we will deliver a full suite of commercial retail, wealth and capital markets offering to CWB clients. We expect revenue opportunities to accelerate in 2026 once client migration is complete with full benefits to be realized in 2027 and beyond.

Moving to Slide 13. On our last quarterly call, we had provided a financial outlook for National Bank on a standalone basis. We expected mid single digit EPS growth in 2025 and positive operating leverage. Since then, we closed the CWB acquisition and are now providing our preliminary outlook inclusive of CWB. [indiscernible] Bear in mind that the amortization of the net fair value mark will impact adjusted results starting in Q2. Regarding EPS on an adjusted basis, growth will be impacted by the amortization of the mark and the assurance of common shares in the context of the acquisition. However, excluding the impact of the March, and given the strong start to the year, we are confident delivering our prior expectations of mid single digit EPS growth. This should translate into adjusted ROE of approximately 15% for the year also excluding the amortization of the mark. [indiscernible] Regarding operating leverage, we maintain our target of positive operating leverage for 2025. We expect the contribution from CWB and the realization of cost and funding synergies will offset the impact As usual, there could be some variability from quarter to quarter.

Quarter.

To conclude, we remain excited about the opportunity that lie ahead as we expand our Canadian presence. Our financial outlook is strong following the transaction, and we look forward to providing our progress on cost funding and revenue synergies as well as our capital plan as the year unfolds. I will now turn the call over to Jean Sebastien.

I'll start on Slide 15. [indiscernible] Since our last call, Canadian economy has continued to show signs of weakness.

Including slow economic growth and a soft labor market. Inflation has remained largely under control allowing the Bank of Canada to continue to ease borrowing costs.

However, the threat of U. S. Tariffs creates increased uncertainty. Against this backdrop, our credit portfolios remain resilient benefiting from our defensive positioning and disciplined risk management. We also remain prudently provisioned Now turning to the first quarter results. Total PCLs were $254,000,000 or 41 basis points. [indiscernible] increase of 14 basis points compared to last quarter.

We continue to prudently build allowances as we have done We added nine basis points of performing provisions driven by model calibration, portfolio growth and migration. Furthermore, in assessing our provisions this quarter, we we considered the uncertainties around U. S. Tariffs and global trade. PCRs on impaired loans were $196,000,000 or 32 basis points. [indiscernible] was eight basis points higher quarter over quarter. [indiscernible] Personal banking impaired PCLs increased sequentially and stood at $63,000,000 Recall that last quarter, we mentioned that non retail impaired PCLs were expected to be lumpy in 2025 and this is what we saw in Q1.

Specifically, impaired PCLs and commercial banking reached $73,000,000 mainly reflecting a few files including one in the technology sector. In financial markets, an $18,000,000 provision [indiscernible] was taken an impaired account in the manufacturing sector. [indiscernible] At Credigy, we continue to see a normal season in the portfolio, And at AVA, impaired provisions remained elevated As we've seen now, for several quarters. Turning to Slide 16, Our total allowances for credit losses reached $1,700,000,000 dollars representing 4.3 times coverage of our last twelve month net charge off.

Our performing allowances grew 6% quarter over quarter to reach over $1,200,000,000 representing 2.1 times our last twelve months impaired PCLs. Additional metrics under allowances are provided in appendix 10 We continue to be comfortable with our prudent level of allowances.

Turning to Slide 17, our gross impaired loan ratio increased to 79 basis points. Up 11 basis points sequentially. Of note, gross impaired loans excluding USS F and I were 49 basis points, The main driver of higher yields over the past quarter and year has been EBA. Reflecting elevated formations and the longer resolution process. However, this quarter, formations were down to US79 million dollars from US89 million dollars last quarter. The underlying credit fundamentals of the portfolio have remained stable over the past several quarters with low average LTVs loan size and prudent impaired allowances. On Slide 18, we present highlights from our Canadian RESOL portfolio. The geographic and product mix remained stable. With Quebec accounting for 54% and insured mortgages accounting for 29%. Of total resale. [indiscernible] Average LTVs for Helox and uninsured mortgages remain in the 50s. [indiscernible] and higher risk uninsured borrowers still represent around 50 basis points of the total RESOL portfolio. On Slide 19, we provide additional details on our Canadian mortgage portfolio. Of note, around 70% of our mortgage portfolio has now been repriced at higher interest rates.

As shown in Appendix nine, ninety day delinquencies for mortgages have remained stable. And remained below the pre pandemic levels. Turning to the acquisition of CWB, I would like to discuss our expectations for Q2 on the initial provision on performing loans and on the credit mark on the impaired loans.

First, as mentioned on Slide 10, and 11, we expect to take an initial provision of $230,000,000 on the performing loan portfolio. Second, as shown on Slide 10, we expect to take a credit mark of $378,000,000 on the impaired portfolio.

Our approach regarding the acquired portfolio ensures that credit provisioning for both performing and impaired loans is aligned with our prudent internal methodologies and reflective of an evolving credit environment.

Looking forward, uncertainties remain in the forward path of economic growth interest rates and unemployment. We continue to anticipate further increases in delinquencies and impaired PCLs in our retail portfolios. And lumpiness in our wholesale portfolio. At Credigy, we we expect provisions to be primarily driven by portfolio growth and mix and an ABA we expect impaired PCLs to remain elevated. While it is too early to determine the impact of potential tariffs, these evolving events add another layer of uncertainty. The range of potential outcome has widened As such, we now expect impaired PCLs including CWB, to be in the range of 25 to 35 basis points for the full year. In conclusion, while volatility and uncertainty persist, we remain well positioned given our defensive attributes resilient mix, And with that, will turn the call back to the operator the Q and A. Thank you. We will now take questions from the telephone lines.

Our first question is from Meny Grauman from Scotiabank. Please go ahead.

Hi. Thanks for taking the question.

The first question is just on the updated guidance for 2025. Just wanted to understand what you're baking in terms of assumptions related to tariff, tariff risks So, Benny, just to clarify, you're just talking about the impaired PCL guidance, right, not not performing?

The impaired PCL guidance and then also just the overall adjusted EPS guidance as well? I'm trying to understand what's baked in Perfect. So I'll start with that. So in our PCL guidance, and I think I mentioned that in my prepared remarks, First, it is inclusive of CWB. And the increase is really driven by the uncertainty we're observing. We really don't know what the tariffs will look like.

But it creates uncertainty and uncertainty is not good for PCLs in general. What I will mention though is coming back to Q1, what we observed is that our results were really impacted by very few files. So our top two files represented around ten percent ten basis points, sorry, of our impaired loan losses. Which was very lumpy like we guided the quarter previously. And based on where we are in the cycle, what we're seeing right now in Q2, we're confident in the range of 25 to 35 basis points.

Understood. And then in terms of just the overall EPS, outlook? For the year? Yes. Thank you, Manny. So in terms of the overall EPS outlook, as I mentioned in my remarks, excluding the amortization of the fair value mark, we still expect mid single digit EPS growth. In terms of the tariffs, as you know, lots of uncertainty still in the market. [indiscernible] [indiscernible] So we continue to be prudent but we have not yet incorporated any material impact for the tariffs. Are still comfortable with guidance that we've shared earlier on the previous calls, for example, in terms of commercial loan being in the low teens in terms of growth. So no material impact other than what Jean Sebastien has shared with you. Got it. And then just a second question. I appreciate you're not providing specific guidance on the revenue synergies really into CWB, but can you help us understand when you will be in a position to provide that guidance? Like is this the end of the year or is it sooner Yes.

And do you think you'll be in that position? Yes. Absolutely, Manny. And we really look forward to providing you some color on those revenue synergies. As I said, our integration plan is well underway. Employees are being onboarded as we're speaking. Clients will be onboarded this summer. So this puts us in a position where we'll be able to share some of the revenue quantified revenue synergies later on in the year.

However, we did provide additional information in terms of revenue synergies, whether they're coming from both NII and fee income coming from expanding our balance sheet through existing and new relationships from retail banking, wealth management, and also from capital markets and risk management solutions. Impacting fee income. As we will be onboarding our clients during the summer, up until the beginning of fiscal twenty twenty six. We're going to be in a position to see those revenue synergies kicking in during 2026. And being fully realized by the end of twenty twenty seven. Michael, maybe you want to give some maybe color on what we're seeing already in terms of client perspective.

Sure. Manny, just two points. As Mauricio took you through just down before, there were a series of real revenue synergy opportunities we're targeting. Some need to wait like cash management needs to wait till the clients migrate on our systems, but there are a number of things we're able to go get right now. So one for example is just kind of using our balance sheet so that we can provide more exposure and support to CLB clients. So those discussions are underway. And those don't need to wait for any sort of client migration or transition. And again, there's lots of very strong relation in place between CWB and their clients and clients looking for more and we can provide that in the near term. So that's one area we're going to be out of the gate relatively quickly.

And as Marie Chantal said, we'll provide updates as we progress.

Appreciate the detail. Thank you.

Thank you. Our following question is from Hebrahim Poonawala from Bank of America. Please go ahead. Good morning.

So I guess I heard a few times lumpiness on commercial credit, which makes sense. But at the same time, I think from the outside looking in, it increases concerns whether there are still blind spots on commercial credit, which could push PCLs higher. So maybe just talk to I mean, tariffs aside, I understand the risk from tariffs. But ex tariffs given the rate cut relief that flowing through the economy, your visibility into the commercial book and the problem areas that you've already identified, Would love some color around that? And also if you can speak to the resolutions you've seen at ABA and what the loss content has been as you've gone through the process there?

Thanks. Okay. So I'll start with your first question regarding regarding the commercial losses. So I think there's a couple couple of ways here. So first is I look at what does the lumpiness look like. And in Q1, it was really two files. So one file in the tech sector, which we called out and the second one in the manufacturing sector. So very difficult to look ahead what the lumpiness would look like. But one thing I look for is the level of our watch list account. And we actually disclose our watch list levels. And our watch list have been stable. Quarter over quarter, which is an encouraging an encouraging sign for this. And when you look at our underlying portfolio, both in commercial in retail, wealth management and FM, it's really been trending pretty positively. It's really been lumpiness of a few file. In terms of ABA, I think the trends we mentioned last quarter remained. So in terms of the resolution around two thirds of our files had no losses and we continue to build prudent provisions given where we are in terms of the cycle in Cambodia. So nothing really different. The formations were a little bit lower this quarter like you saw.

And that's really driven by, I think, flat resolutions, but a reduction in the files that were transferred from Stage two to Stage three. So we're encouraged by that trend.

Understood.

And then just separately, Marishantel, I think I heard you talk about we'll get an update on capital, but given where the CET1 sits today post CWB, But are there any plans to initiate buybacks between now and year end? Just talk to us around capital management and how should we think about the ROE going from 15% to the I think the high teens 17% to 18% that you expected to get to? [indiscernible] Thanks, Ebrahim. So obviously, first, we're very pleased with our capital levels as we are closing the CWB transaction. As I mentioned, the impact of the the transaction was only 15 basis points. Obviously, migration to the IRB methodology is a key component of our capital plan deployment strategy which we are quite confident will include share buyback 2026. Our intention is to share with you the strategy as the year unfolds. So around Q4, we'll be presenting a full capital deployment plan. And for the time being, in 2025, we're very comfortable with our our capital levels as it sits.

Maybe I could jump in, Ibrahim. It's Laurent. Just so that you get a sense of how we're thinking about it strategically. And there are a few things. So the first thing is we have a bank to integrate. And we're one month into it. And so far everything is on target. And we're quite optimistic about it. But we want to be further along So that's the first thing. The current environment economic trade concerns, clients are nervous right now and they're an evolving credit cycle. And again, uncertain monetary policy with the Fed and also with the Bank of Canada. So that's another thing to keep in mind. Having said that, I think you're pointing it out really strong capital position, AIRV upside So this is all optionality for us. And I like to keep to have that optionality right now throughout the year. Given the integration, support our clients, and take advantage of opportunities that because we might see more opportunities in the coming months. So I just share buyback is definitely going to be part of the plan but Q3, Q4 is when we're going to be able to provide you with a more detailed plan on how we're going to to move forward on capital.

Yes, that's helpful.

Yes.

Following question is from Doug Young from Desjardins Capital Markets. Please go ahead.

Hi, good morning. Just wanted to go back to the cash EPS guidance, just make sure that I'm crystal clear that I understand this. So fiscal twenty twenty five the outlook is for mid single digit growth excluding the amortization of the net fair value mark. And so if I include the net fair value which is the way that you're going to disclose it, that cash EPS growth or adjusted EPS growth goes down to maybe 2% to 3% which given the 2.93% you put up this quarter, kind of leads to a substantial decline sequentially. So I just want to make sure that does that land like does that do I have that right or I am missing something and if I'm right just want to understand maybe I know PCLs would be part of that. Is there anything else that's kind of that in there that we should be thinking about [indiscernible] And you've got this absolutely right.

If we do not exclude the amortization of the fair mark the fair value mark EPS would be closer to low single digits. So you're absolutely right.

And we've included as well guidance as Jean Sebastien has shared. So therefore, there could be a quarter where we see EPS declining. Before year end.

You're absolutely right. Your math are good.

Which is usually the case. Is there and I can't I get the is this more like just normalization of capital markets Is this just or is this like broad based across all of the divisions? And just trying to understand if there's more that I should be thinking about It's really well, as you saw first and Yiten will be able to talk about it, National markets had a substantial quarter So we definitely did not replicate that for the rest of the year. Maybe, Zeno would want to give some color on your what you're seeing in terms of business Yes. Thanks. Hi, Doug. It's Ian. So for the I guess the outlook for financial market is true that Q1 was certainly a very good trading environment We had several of our largest businesses that operated significantly above trend So for the rest of the year, we anticipate a trading performance that is selling solid, but more aligned to to long term trend. [indiscernible] that said, we had given guidance last year that we were going to deliver net income growth for financial markets in 2025. And I feel more optimistic to date in the last quarter that we'll be in a good position to deliver year over year net income growth for the remainder of the year.

So it feels like we're going to get the some good markets with some steady volatility And we continue to see markets that are unbalanced, pretty resilient, and good risk appetite from market participants. So So pockets of volatility and active clients, those are Is that helpful? [indiscernible] And then just going to the PCL guidance, maybe this is tough to say, but like how much of the increase relates to CWB and maybe some of the volatility that comes from that loan book? And then there was also mentioned Jean Sebastien, I think you mentioned that on ABA on the resolutions, of things that have gone bad, Two thirds of the files closed with no losses, which was the numbers if I had that right, which just surprised me because of your loan to value. So I would suggest one third actually you took losses on And given your loan to value, I'm just trying to kind of understand for the EBA side, what would have driven those losses?

Sure. So two questions there. I'll take the first one. So include CWB in the guidance, but I wouldn't say that CWB drives the change of the guidance. At all. Right? It's really the uncertainty that we're looking in the market. When you look at the CWB portfolio, it's weighted towards wholesale assets, which typically gives more volatility. There's also no consumer unsecured. Which is really good because the risk content is much lower. So or reduced consumer unsecured. Now looking at the ABA, it's a really good question. So loan to value we've given on our gross impaired loans in the past were in the 50s. And that is an average right? So in this average, there includes lower LTVs and higher LTVs. And in the third where we do take LTVs, what we observed is that there are losses are really in the cohorts that are LTVs over 80%. Which is not surprising.

Okay. I'll leave it at that. Thank you.

Thank you. Following question is from Mario Mendonca from TD. Please go ahead.

Good morning. There are a lot of moving parts as it relates to the margin domestic P and C. Like I could if you just mathematically bring in CTV, there's some benefits to the margin, but of course, this adjustment you're referring to, the amortization of the net fair value mark is negative.

As I play with the numbers, I'm coming up with my own understanding of what I think the margin could be. But could you speak to what P and C margin looks like next quarter? Maybe going forward relative to what you reported this quarter?

A little higher, a little lower, is there something you can offer?

Are you looking at the P and C view?

Yes.

Okay. So let me maybe unpack the the elements of this quarter.

So this quarter, we had asset spreads that were healthy and trended slightly up with better repricing condition on the mortgage and auto loan book And we expect that, that should remain also at the trend for Q2. However, this doesn't take into effect the potential increased competitiveness that we may face as we get into the mortgage season. So an unknown there. On the deposit spread, not surprisingly, the deposit spreads have been under pressure since the beginning of the rate decreases. And it's mainly driven by the repricing of the term deposits. And keep in mind also that in the context where we are right now, there's volume of [indiscernible] is at an historical high.

And it's combined with a decrease in rate environment. So I'll let to say that the market is very competitive on deposits right now and we expect that trend to continue as in Q2.

However, we have very good momentum in demand deposit growth which is a positive on the deposit mix But this quarter, it was offset by the lower deposit betas on demand deposits that were bearing interest. So that depending on direction of rates it could have an effect looking at to Q2. So the unknown there is the direction of the rates and also the market competitiveness. So with all these plus and minus, still difficult to predict in the current environment, but it could be a couple of weeks up or down then it will not be surprising.

That's helpful. Understand the dynamics, but there's two other very important things that are happening next quarter. You're adding in CWV and then there's these marks. You suggesting that those two adding in CWB and the negative marks are offsetting so we can just focus on the ongoing dynamics? Because those two are huge. You didn't address those.

Yes, of course. So my comment was the NDC standalone, but I'll revert to Marie Chantal for the loan bank. Yes. So you're absolutely right. Those are two important elements. And so as we just closed CWB, it's just a little bit too early for us to give some guidance on the pro form a combined All Bank trading NIM So we asked for a bit of patience as we will be closing our first quarter in Q2 and this is where we'll be able to give you more color. On the net fair value mark, amortization, it will flow through the NII. Yes, it will be impacting the NIM. We'll be able to give more color and explanation on that and lots of other things in the next quarter.

Okay.

So I can do my own math on the negative effect on NII from the disclosure you've given us that NICE and impact, I can do that. [indiscernible] All else equal with the addition of CWB caused that domestic retail, the P and C margin to go up.

All that being equal, mean, if you let's say put it this way, if you ignore the marks, and all we think about is adding in CWB because I certainly understand CIBC's margin prior to being acquired by National Bank. It was higher. So I'm assuming that ex the mark, [indiscernible] P and C margin would have gone up Yes. Well, to start with, I think it's a fair assumption. Yes.

All right. That's fine.

The other question relates to this benefit of the ARRV At a very simple level, CWB's risk density was 20 points, almost 30 points higher than the risk density we see for National Bank. Now I'm not asking for precision here because I know this is complicated. But just directionally, would you endorse an analysis that would have CWB's risk density or those loans approximate National Bank's risk density over the long term, Or is there something unique to CWB that would prevent that from happening?

No, no, I think that's absolutely a fair assumption. That you can yes, you can assume Yes. I get it. There's no precision here. This is just playing with numbers for now. But I appreciate your help.

Thank you.

You're welcome.

Thank you. Following question is from Paul Holden from CIBC. Please go ahead.

Yes. Thank you. Good morning. First question I want to ask is on the outlook for the commercial loan growth. You reiterated your expectation for low teens. We have heard some of your competitors talk about seeing a slowdown in commercial already.

Just because of the tariff uncertainty. So maybe you can address why you're still confident in that growth outlook or if you are seeing any slowdown at all sort of in the interim? Yes, Paul, it's Michael. Let me give you two comments as preface and then answer your question. The first thing is that like with the other banks in moments like this, which are challenging kind of going back to previous tariffs, we're in very, very close touch with their clients. So we're going to be able to respond when our clients need us to respond. And then secondly, as Jay has said, there's a whole lot of uncertainty. Uncertainties about the policy but also a variety of outcomes for Canadian companies as it relates to tariffs. Looking at pricing less to see demand by supply markets, etcetera.

But for now, again, we're we the guidance for the year was low double digit growth. Based on what we're seeing right now in our pipeline, client discussions, we stand by that. And one of the main reasons is a lot of our growth does boil back to insured commercial real estate. And there notwithstanding the second and third order effects of tariffs there the underlying intrinsics remain positive. In terms of the desire for the need for more accommodation, the need for more development. So that's what we're seeing, Paul, with respect to the the particularities of our portfolio.

And client base.

Understood. Okay. That's helpful. Second question also tariff related.

As you look at the composition or mix within the commercial loan book specifically in Canada. Is there anything in there that worries you in terms of how tariffs, if implemented, might impact credit losses? Like is there any particular exposure that you're more worried about than the overall book?

Yes. Thanks, Paul, for your question. It's JF. I'll take this one. So clearly a lot of uncertainties We can expect them first second and third order impacts. And what we found in talking to our clients is that the structure of each client or contract of each client as they are exporting is very important. In terms of passing the tariff impacts to OEMs or other companies. So there's a lot of details to look into this. But I think the takeaway for me is when I combine what I call higher risk industries, auto, aluminum, steel. And I combine those they're a fraction of a percent of my wholesale book. And the second thing that I look for is how are my level of provisioning? And my level of performing provisionings are at 2.1 times my last twelve months impaired losses, I feel is very comfortable where we are in the cycle right now.

Okay.

Okay. That detail on the auto loan steel is useful. And then last question for me, Can you remind us on the CWB what you're assuming for customer retention and what that looks like so far one month into the integration? Thank you.

Paul, it's Michael. So So far, one month into the integration, customer retention remains very high. So we're pleased with the stickiness of the relationship this really has with these clients.

And so we're pleased so far with progress and we anticipate our ability to retain to perform at very high levels of customer retention combined with CWB.

Thank you. Following question is from Jill Shey from UBS.

Good morning. Thanks so much for taking the question.

On ROE, you mentioned the ROE target of the 15% ex the fair value mark for 2025. And realizing there's a lot of macro uncertainty. But I was just wondering if you could touch on some of the items that you have within your control that's supportive of ROE So maybe you could highlight some deal related dynamics, the revenue or cost synergies or capital optimization and rationalization over time. Like how should we think about the pace of potential ROE improvement from sort of the bottom end of the range to like closer to the 15% to 28% type of range that you're targeting medium term?

Maybe I'll jump in. It's Laurent. Thanks for your question, Joe. So our range hasn't changed.

And our range our mid term range 15 to 20 with the acquisition. We're guiding for 2025 at 15 excluding the mark that Marie Chantal has talked about. And the way we're thinking about it take CWB roughly 10% ROE and you bring it into the National bank mix you tack on all the cost synergies that we've talked about over the next two to three years. The revenue synergies that Michael is talked about, we expect that in a range of two to four years, we're getting back to the National Bank overall ROE level. So our range is 15% to 20 always try to do to be at a much better level than the lower part of that range.

But given the integration this year, for this year, we're going to be roughly around 15%.

Okay. Thanks for that. Appreciate it. Thank you.

Our following question is from Shalab Garg from Veritas Investments.

Please go ahead.

Thank you and good morning. My question was on deposits. Deposit growth has lagged loan growth in the P and C and Wealth business. I was just wondering if you're starting to see more competition for deposits from peers Or is it purely mostly from rate declines? Or are there other factors involved?

Well, I can start. It's Lucy. Definitely, the rate decreases and the market performance favoring right now. Mutual funds over term deposits. So So we've seen that trend started specifically Q3 last year. And that's the main factor right now. That happening on deposit because we do have very good momentum on the demand deposit side.

Okay. And so do you expect some material impact on margins if there are further rate declines? Let's say we have an impact from tariffs and so on.

Well, if there is further rate declines there that could bring definitely Okay.

I'll turn it back in.

Thank you.

Okay.

Thank you. I just wanted to clarify a couple of things.

The 15% or so ROE for 2025. That's can you give us a sense of what sort of capital ratio you expect to be operating at? Is that a 13.6 Is that a 14? Is that a 12%? What sort of CET1 ratio is that 15% based on?

Hi, Sarah. It's Marc Chantal. So again, the 15% target just to make sure we're clear, excludes the amortization of the fair value mark. Otherwise, it would be slightly lower as we shared with one of your colleagues a little bit earlier. And then in terms of CT1, we expect that it'd be relatively stable through the year.

As stable with the level that we have in Q1.

Okay. So you expect to be operating around these levels And so the question, Laurent, is is then is the the trajectory back to NASH National Bank type stand alone levels for the combined entity much of that is driven by capital optimization as opposed to the numerator? In other words, are you suggesting to us that you're going to be operating north of 13% CET1 or do you expect you'll be operating I don't know, beyond twelve months in the 12 range? So going back to National National Bank ROE level is a mix of everything. And including capital optimization. We're comfortable about 13% and that's what we've guided. The level that we have right now is 13.6 a really good position given what everything that's going on in the economy. Given that we have to work on our integration. But hopefully by the end of the year, we've cleared out most of the concerns around macro and tariffs and everything that's going around and we have a clear path towards growth in the economy. And we'll be able to provide you with a better more clarity on how we're going to deploy capital and what's our strategy going to be exactly in terms of growth and as well as capital optimization.

It's going to be a mix of both, Sorab.

Okay. And just for Jon's best to clarify, the two files you called out, creating some lumpiness, were these already on the watch list?

Yes.

So you've taken two off the watch list but the watch list is still stable. So does that mean two more came in?

Actually, I was a little bit prudent. The watch list went down as little bit. But as a typical credit person or risk person, I'm prudent Okay. I just wanted to clarify that. Thank you.

Thank you. We have no further questions questions registered at this time. I would now like to turn the meeting back over to Mr. Ferreira.

Well, thank you, operator. And 2025 is an important year for us CWB and National Bank will generate significant opportunities for our employees our clients and continued value creation for our shareholders. So thank you again for joining us today.

Thank you. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation. This conference is no longer being recorded.