National Bank of Canada

All participants, please stand by. Your conference is ready to begin. Good afternoon, ladies and gentlemen, and welcome to the National Bank of Canada's second quarter results conference call. I would now like to turn the meeting over to Ms. Linda Boulanger, Senior Vice President of Investor Relations. Please go ahead, Ms. Boulanger.

Thank you, Operator. Good afternoon, everyone, and welcome to our second quarter presentation. Presenting this afternoon are Laurent Ferreira, President and CEO of the bank, Marie-Chantal Gingras, Chief Financial Officer, and Bill Bonnell, Chief Risk Officer. Also joining us for the Q&A session are Lucie Blanchet and Stéphane Achard for Personal and Commercial Banking. Stéphane is also now responsible for our international activities, namely ABBA Bank. Denis Giroir, Head of Wealth Management, and Etienne Dubuc, Head of Financial Markets, and now responsible for Credit G. Before we begin, I refer you to slide two of our presentation, providing National Bank's caution regarding forward-looking statements. With that, let me now turn the call over to Laurent.

Merci Linda, and thank you everyone for joining us. This morning, National Bank reported solid results for the second quarter, with earnings per share of $2.38. We generated a return on equity of 17.5%, reflecting our highly accretive business model. This performance underscores the strength of our franchise and diversity of our earnings streams. In the face of macroeconomic uncertainty and the U.S. banking turmoil, we remain very comfortable with our strategic positioning and defensive posture. First, our capital position is strong. With a CET1 ratio of 13.3%, we have flexibility to invest in organic growth across our businesses and a buffer against potential headwinds. Second, our liquidity position is robust and the bank benefits from a diversified funding profile. And third, our credit portfolios remain, continue to perform well, although our impaired PCLs are low, given the uncertainty macroeconomic outlook we continue to build reserves consistent with our conservative approach. On capital deployment, our strategy has always been guided by prudence and discipline, and that remains unchanged. We are focused on maintaining strong capital ratios, providing us with the flexibility to invest in business growth and to return capital to shareholder when appropriate. To that end, we announced a 5% dividend increase, raising the quarterly dividend to $1.02 per share. The payout ratio is now at the low end of our target range of 40% to 50%, which is where we want it to be. I will now review our business segments. Personal and commercial banking delivered strong performance in the second quarter. PTPP earnings increased by 22% from last year, mainly reflecting margin expansion and balance sheet growth. As anticipated, we continue to see a slowdown in mortgage growth. As such, in the context of higher rates, we remain very disciplined in managing net interest income. In commercial banking, we continue to see strong momentum with loan growth of 3% sequentially. For the second half of the year, we expect commercial loan growth to remain healthy but to decelerate as businesses continue to adjust to higher borrowing costs. Wealth management also performed well. Again this quarter, we generated strong year-over-year earnings growth, supported by our diversified business mix, our large deposit base and higher interest rates. We also delivered strong asset growth, up 7% from last year, demonstrating the breadth of our franchise. Financial markets delivered strong second quarter results in what has been a challenging environment. Corporate and investment banking showed strength driven by M&A and strong lending activity. Global markets also delivered strong performance. Results in equities were robust, albeit lower than last year's record level. We were also pleased with the continued momentum in FIC and securities finance. The performance of our financial markets franchise demonstrates its resiliency, earnings diversification, and ability to quickly adapt to market conditions. Turning to our international segments. ABA Bank's results reflect continued momentum in balance sheet growth with loans and deposits up more than 25%. Over time, we have been strategically investing to support strong business growth and network expansion. Our investments are paying off as our client base has grown by 40% over the past year. ABA's revenue growth in the second quarter decelerated, primarily reflecting current pressure on the deposit margin resulting from higher rates, migration to term, and a more competitive market for deposits. Looking forward, we continue to expect double-digit balance sheet growth for fiscal 2023. Based on what we are seeing today, margin pressure should ease over the next few quarters. Longer term, the outlook for ABA Bank remains very attractive, based on Cambodia's strong fundamentals and the reopening for tourism. I would now like to step back and provide a broader perspective on CreditG's business model. Our franchise has demonstrated a proven ability to execute in any macro environment and a shown consistent risk-reward discipline. Our portfolio is high quality, well diversified, and accretive to the bank's NIM and ROE. CreditG's opportunity set is driven by liquidity disruptions as much as by credit cycles. During the second quarter, the Fed intervened to address concerns about systemic risks in the U.S. banking system by injecting liquidity, thereby greatly reducing the liquidity disruption. As a result, Credit G's second quarter asset growth was modest. On the revenue side, the year-over-year decline reflects the asset mix evolution, which is now more secured, longer duration, and has lower LTVs. This is in line with our defensive positioning given the current landscape. Regarding the outlook for CreditG, we are pleased with the asset growth delivered in the first half of the year, which supports our double-digit growth target for fiscal 2023. CreditG has a long track record of success, and we remain confident in our ability to continue to generate high-quality earnings in the years to come. Moving to the macroeconomic environment, the economy is adjusting to a higher rate environment and much uncertainty remains around the path of interest rates and inflation. Nonetheless, Canada, where the vast majority of our activities are focused, is structurally strong and well positioned to weather an economic slowdown. Notably, the recent turmoil in the global banking industry underscores the strength and resiliency of the Canadian banking system. Our labour market remains robust and Canada's population growth fueled by immigration is the highest among the G7 countries and can contribute to sustainable growth. To wrap up, the Bank delivered a solid performance and superior ROE in the second quarter amidst a challenging environment. Our strategic choices and our defensive posture with a strong balance sheet and prudent reserves will continue to support profitable growth and help us navigate the uncertainty. With that, I will pass it over to Marie-Chantal.