National Bank of Canada

ladies and gentlemen thank you for standing by my name is krista and i will be your conference operator today at this time i would like to welcome you to the national bank of canada first quarter 2026 results conference call all lines have been placed on mute to prevent any background noise after the speaker's remarks there will be a question and answer session if you would like to ask a question at that time Simply press star, then the number 1 on your telephone keypad. And if you'd like to withdraw your question, again, press star 1. Thank you. I would now like to turn the conference over to Marianne Roddy. Please go ahead.

Merci and welcome, everyone. We will begin the call with remarks from Laurence Ferreira, President and CEO, Marie-Chantal Gingras, CFO, and Jean-Sebastien Grisey, Chief Risk Officer. Our business heads are also present for the Q&A session, including Julie Lévesque, personal banking, Judith Menard, commercial and private banking, Nancy Paquette, wealth management, Etienne Dubuc, capital markets, and Bill Bonnell, international. Before we begin, please refer to slide two of our presentation for forward-looking statements and non-GAAP measures. Management will refer to adjusted results unless otherwise noted. I will now pass the call to Laurent.

Merci, Marianne, and thank you everyone for joining us. For the first quarter of 2026, we generated EPS of $3.25, representing an 11% year-over-year increase. Our results were driven by strong performance across our retail and business segments, as well as cost and funding synergies related to the CWB transaction and share buybacks. We generated a return on equity of 16.6%, And our CET1 ratio is solid at 13.7%. This morning, we announced that we are upsizing our NCIB to repurchase up to 14.5 million shares from 8 million currently pending regulatory approval. To date, we have repurchased 6.4 million shares under our program. Earlier this month, we closed the syndicated loan transaction with Laurentian Bank. The retail SME portfolios are on track to close by late 2026, subject to regulatory approvals. Our capital deployment priorities are to drive organic business growth and operational efficiency, and to grow dividends at sustainable levels. This will be complemented by share buybacks and, depending on opportunities, selective tuck-in acquisitions in P&C and wealth. We want to operate with strong capital levels and continue to target a CET1 ratio converging towards 13% by the end of 2027. Turning to our economic outlook, the geopolitical and economic backdrop continues to weigh on the economy. We are far from our GDP potential. Trade tensions and uncertainty around Kuzma are affecting our country and business investment has slowed down. Our economy must take a different strategic direction and go through structural changes. We are encouraged by our government's actions and by momentum across the country to re-establish our economic sovereignty. We are particularly pleased to see concrete actions towards our re-industrialization, including Canada's initiative to welcome the Defence Security and Resilience Bank, as well as the announcement of Canada's Defence Industrial Strategy. Turning now to our business segments. With revenues of more than $1.5 billion and net income of $442 million, PNC Banking delivered strong performance in Q1. We executed on CWB's integration with a focus on client transition and are realizing on cost and funding synergies. And we have also made early gains on revenue synergies from capital market solutions. Our balance sheet is growing. Personal mortgages grew 3% sequentially, a strong start against a mid-single-digit growth target for 2026. Commercial loans grew 1% sequentially, and we still expect to start growing the CWB portfolio in the second half of the year. Net income in our wealth management segment increased 13% year-over-year to $274 million, supported by strong growth in fee-based and transaction revenues. Asset under administration grew 3% sequentially to reach close to $900 billion with resilient equity markets and strong net sales. Capital markets generated net income of $443 million, up 6% year-over-year, driven by strong contributions from both our trading and non-trading businesses. In global markets, our strong performance in equities was supported by opportunities in securities finance and elevated issuances in structured products. We continue to see steady opportunities in our rates and credit business as expected. Meanwhile, corporate activity supported by strong equity and debt issuances and banking revenues in our CIB franchise. CreditG delivered net income of $47 million with average assets up 9% year-over-year and 1% sequentially, as we continue to benefit from recurring flows from established partnerships. We remain highly disciplined in pursuing new deals given the prevailing competitive market dynamics and pricing conditions. At ABA Bank, net income increased 9% year-over-year, reflecting balance sheet growth and a build in performing PCLs. Revenues were up 13% over the same period, with deposits and loans up 18% and 11%, respectively. I will now pass the call to Marie-Chantal.

Thank you, Laurent, and good morning, everyone. We delivered strong results in the first quarter. Revenues rose 21% year-over-year, and PTPP grew 23%, driven by solid organic performance across all segments and by the CWB transactions. Operating leverage was positive at 2%, supporting through focused execution and synergy realization. Excluding CWB, revenues increased 11% year-over-year, and PTPP rose 12%. Expenses were up 10.2%, driven mainly by higher variable compensation. Excluding variable compensation, expenses rose 8.6%, in part driven by salaries and benefits. Moving to slide 9, net interest income, excluding trading, grew 5% sequentially. Payment revenues of $12 million were generated in credit G, contributing one basis point to the all-bank margin. The P&C segment benefited from strong balance sheet growth and margin expansion of two basis points sequentially, driven by higher margins on both loans and deposits. In Q1, we reclassified $30 million NII from trading to non-trading, which had no impact on the bank's total revenues. Excluding this, non-trading NII grew 4% sequentially while the margin was up two basis points. Looking at next quarter, we expect the PNC NIM to remain relatively stable from Q1 level. A better deposit margin is expected to be largely offset by balance sheet mix as loan growth continues to outpace deposit growth. Turning to slide 10, we continue to grow both sides of the balance sheet. Loans rose 23% year-over-year, or 9%, excluding CWB, reflecting contributions from all segments. Deposits increased $5 billion, or 2% sequentially. Personal deposits grew $1.5 billion, mostly driven by wealth management and ABA. Now moving to capital on slide 11. We ended the quarter with a CT1 ratio of 13.74%, supported by capital generation of 41 basis points. RWA growth consumed 14 basis points of capital. Business growth of approximately 26 basis points, partly offset by a reduction in credit risk RWA from refinements. as well as a change in the CAR 2026 methodology for market risk. Share buybacks during the quarter reduced the CT1 ratio by 33 basis points. Since the launch of our current NCIB, we have repurchased 6.4 million shares, representing 80% of the current program. Now turning to slide 12. We have realized $176 million of cost and funding synergies to date, exceeding our year one target of $135 million. We continue to build strong momentum on synergy realization and remain on track to deliver $270 million by the end of fiscal 2026. On revenue synergies, we are progressing as planned towards our 50 million target by year-end. We delivered a strong start to the year, supported by solid underlying performance across all business, ongoing cost execution and realization of CWB synergies, all while credit remained aligned with expectations. In addition, we accelerated share buybacks under our existing share repurchase program. Accordingly, EPS growth in 2026 is now expected to be at the top end of our 5-10% outlook. Reflecting these factors, we are raising our 2026 ROE target to around 16% from around 15% previously. We outline a path to our ROE objective of 17% plus in fiscal 2027. We forecast that organic earnings growth over 2026 will add approximately 110 basis points to ROE. We also assume incremental CWB revenue synergies will contribute 20 basis points in 2027. the previously announced EPS accretion of 1.5 to 2% from the Laurentian transaction will add approximately 30 basis points to ROE. Reaching a CT1 ratio of 13% by the end of fiscal 2027, helped by share buybacks, accounts for approximately 40 basis points of the increase. Finally, ROE will be reduced by approximately 100 basis points, reflecting the capital required to support RWA growth. So together, these drivers are expected to deliver a ROE of 17% plus. With that, I will now turn the call over to Jean-Sebastien.

Merci, Marie-Chantal, and good morning, everyone. Since our last call, Canadian economic growth has remained modest, and the labour market continues to be soft. Headwinds persist, including trade tensions and uncertainty around KUSMA. However, a lower interest rate environment, diversification of trading partners, and plans to fast-track nation-building projects should help support economic activity. In this complex environment, our resilient portfolio mix, disciplined risk management, and prudent provisioning underpinned our strong credit performance. Now turning to the first quarter results on slide 15. Total PCLs were $244 million, or 32 basis points, down one basis point quarter per quarter. We added three basis points on performing provisions in Q1, primarily driven by portfolio growth, partially offset by more favorable macroeconomic scenarios. PCL on impaired loans were $215 million, or 28 basis points, stable quarter over quarter, and within our guidance of 25 to 35 basis points for the full year. At CWB, impaired PCLs were 33 basis points, down 36 basis points quarter over quarter. Personal banking provisions were $3 million higher sequentially, mainly driven by consumer credit. Commercial banking provisions were primarily driven by three files and were down $9 million quarter over quarter. Capital markets provision rose by $15 million, largely reflecting one previously impaired file in the mining sector. At Credigy, provisions increased by $6 million US in line with expectations resulting from the normal seasoning of residential mortgages and consumer loans. At ABA, impaired provisions were down by $8 million US sequentially to $17 million US in line with lower formations. Turning to slide 16, our total allowances for credit losses were $2.5 billion, representing 5.9 times coverage of our net charge-off. Our performing allowances were $1.6 billion, demonstrating a strong performing ACL coverage ratio of 2.1 times. We have been building allowances for the past 15 quarters and continue to be comfortable with our prudent and defensive provisioning levels. Turning to slide 17, our gross impaired loan ratio was 111 basis points, excluding USSFNI. Gills were 81 basis points and remained flat quarter over quarter. Net formations were down eight basis points compared to last quarter, primarily driven by commercial and capital markets. In conclusion, we are pleased with the credit performance in the first quarter. and continue to expect that impaired provisions will be within the 25 to 35 basis points range for the full year. While we remain cautious as we navigate ongoing uncertainty, our defensive qualities, resilient business mix, and prudent allowances position us well for the rest of the year. And with that, I will now turn the call back to the operator for the Q&A.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again, press star 1. Your first question comes from Matthew Lee with Canaccord Genuity. Please go ahead.

Hi. Morning, guys. Thanks for taking my question. Maybe I want to start on the new segmented ROE breakdown you've provided. Canadian PNC looks a little bit lower than some of the peers at 13%. Can you just talk about why that might be and what opportunities you have to get closer to industry levels?

Matt, thank you very much for your question. This is Laurent. We'll get it subpar versus our peers, and we're aware of that, not surprised. But what I think we want to highlight here is there's going to be an upside for us. We have started a strategic review of the sector. We plan to do this throughout the year and we'll be able to provide you updates maybe towards the end of the year. But at this point in time, I guess the message is there's upside in terms of our performance in P&C, ROE, but it is too early to provide you with the outcomes and the magnitude that we think we're going to be able to deliver.

Okay, got it.

Yeah, then maybe on the new ROE guidance for 2026, I think the delta is probably about half of it to the buyback, but Can you maybe talk about what's changing the operations from the last 80 days or so that make you comfortable to change 26 and then keep 27?

Hi, Matthew. It's Marie-Chantal. I can follow up with your question. So thanks for that. There's a significant amount of information on that slide, so maybe let me break down the key components underlying our path to 17% plus ROE by 2027. And I'll start with So as you heard us say, we're increasing our target for 2026 from 15 previously to 16, approximately 16%. So we did have a very strong start to the year, and we are very pleased with the performance of the first quarter and encouraged also by the trajectory that we're seeing for the rest of the year. We've had solid underlying performance across our businesses. We continue to execute with discipline the CWB synergies. Credit remains within our guidance. And we, as you saw, continue to be very active on the NCIB program that we just increased. So those are the different drivers that brings us to the 16 for the end of fiscal 2026. When we move on to 2027, we do plan for organic earnings growth at the midpoint of our 5% to 10% growth in net income to common shareholders. This represents 110 basis points on the increase, and it factors in efficiency improvement at historical level. So anything above that would be upside. When we look at revenue synergies, we reflected in 2027 90 million incremental revenues, which is in line with the midpoint of our target. So again, anything above that would also be upside. Those revenue synergies, when net of applicable expenses, PCL and taxes, they contribute for 20 basis points to our increase in 2027. Moving on with the Laurentian bank transactions, so as this closed last quarter, it's generating EPS accretion of about 1.5 to 2% in the first year, and that's equivalent to 30 basis points of ROE, and that's assuming that we close by the end of 2026, which is still our target. And then lastly on capital, we continue to converge to a CT1 ratio of 13% by the end of 2027. And that would generate 40 basis points of ROE. And then the CT1 required to support our RWA growth net of benefit from the AIRP conversion is 100 in basis points. So that brings us to our 17 plus ROE objective for 2027. So let me tell you now what it does not include. does not include any credit improvement. And as Laurent said earlier, it does not include any potential upside in the P&C segment coming from our strategic plan. So those are the main drivers contributing to our 17% plus ROE for 2027.

Sounds like a lot of upside. I'll pass the line. Thanks.

Your next question. Your next question comes from the line of John Aiken with Jefferies. Please go ahead. John, your line is open.

Apologies about that. Hopefully a couple of quick questions on Credigee. One of the prepared comments talked about the market and the pricing conditions. Can we expect then to see possibly lower volume growth because of that similar to what we saw at Q4 over Q3? And then secondarily, it looks like there was wider net margins for Credigy in the quarter. Was there anything unusual that was driving that?

Hi, John. Thanks. It's Etienne.

So to maybe describe the quarter for Credigy and what the outlook looks like, so we had strong deal flow. in Q1 with more than $700 billion deployed, and that led to a solid quarter-over-quarter growth in average assets, including the prepayment that we alluded to in the script. So, specifically, we had a loan prepayment of close to $300 million, and that impacted sequential growth and that impacted margins. So if we look at the outlook, because you're right, so there's strong DEEN flow, there was good momentum, but the current deal pipeline suggests deal activity could be a bit slower in Q2 2026. And that's really a function of the markets still being very competitive and not meeting really our pricing thresholds right now in most cases. But for the full year, we expect growth to remain on our long-term target range of 5% to 10%, with margins expected to be fairly stable and to continue to be really attractive and accretive for the bank.

I understand. Thanks for the help, Etienne.

Your next question comes from the line of Sorab Movahedi with BMO Capital Markets. Please go ahead.

Thank you, Mary Chantal. Thank you very much for the ROE waterfall. Etienne, the pre-tax, pre-provision in capital markets in 25 was very strong, I think 2.2 billion or thereabouts. Coming into this year, I think you were trying to guide us to 1.8 to 2 billion. Having the first quarter under your belt, Is there any revisions or updates to the pre-tax, pre-provision for capital markets for the full year?

Hi, Sarad, it's Etienne. Thanks for the question. So maybe I'll walk you through our thinking in terms of the outlook because, yeah, quick answer is that we feel increasingly good about our general outlook that was calling for, like you said, a PTPP number in the 1.8 to 2 billion range. You still have macro uncertainty, you still have geopolitical uncertainty, but we see client dialogue remaining active and a really good deal pipeline. There is pent-up demand, there's corporate balance sheets that are strong, and you have attractive funding conditions. Also, we feel the November 2025 federal budget priorities will catalyze M&A as companies reposition around these strategic areas. And on the market side, the investor interest remains high. Market-making activity in equities and rates continues to be robust. So this bodes well for the next few months in trading. So considering all that, with this healthy momentum we see across the businesses, we feel good about our ability to hit the upper part of this range of 1.8 to 2 billion. Does that help?

Thank you very much. Yeah, it's very helpful and comprehensive. And then just one quick one for Jean-Spatien. I mean, Jean-Spatien, you know, you've talked about the economic outlook and the sluggish kind of backdrop. Does the... Two questions. Do you still feel as skewed, I'll call it, when it comes to credit risk to Quebec post-CWB acquisition? And do you still feel that that Quebec skew is a relative positive for you as you look through the next 12, 18, 24 months?

Thank you for your question, Saurabh. So obviously very pleased with the results that we've had today. we've had in our first quarter, so lower part of our guidance. And when you look at our different types of portfolio, I think my answer would be a little bit different for all the different portfolios. Obviously, our retail portfolio, and when you look specifically at our residential portfolio, we do see a difference in performance in terms of delinquency between Quebec and between the rest of Canada. So obviously, when you look at our book there, we're 52%, 53% Quebec, 27% insured. I think we're exactly where we're supposed to be. Then when you look at commercial, obviously, we bought a bank that has a commercial footprint and we're comfortable with the performance. You saw this quarter also a vast improvement in terms of the PCL performance of CWB and It's a more lumpy portfolio because it's a portfolio that has more commercial side to it. But I would say there we will follow the strategy we've been talking about before, which was we will grow in general commercial more than in real estate. And we're pleased with where we're going right now.

Well, thank you very much.

Your next question comes from the line of Doug Young with Desjardins Capital Markets. Please go ahead.

Hi, good morning. Laurent, your prepared remarks, you talked about CWV revenue synergies, and I think you talked about early gains in capital markets and solutions, and then starting to grow the CWV, I think, loan book and maybe the back half of this year.

Just hoping you can flesh this out a little bit more. Judith, do you want to take that one?

Yeah, I can take that one.

Judith is going to take the question, Doug.

Thanks, Doug, for your question. As expected, as Laurent said in his script, we're seeing revenue synergy, mostly non-interest income coming from capital markets, so mostly RMS, M&A, which is a group we formed two years ago, but they are active in the market right now. So we expect NII Synergy to start materializing in the second half of 2026, and we're still on track to reach the target of $50 million for 2026. So our key levers include enhanced risk management solution, as I said, balance sheet expansion within existing and new client relationship, which we're seeing right now. We see some good wins around that. Deployment of our cash management capabilities and leveraging CWB's equipment financing expertise. for National Bank Alliance. So we just formed a group in Quebec to leverage CWB Equipment Finance, which is also a positive in our integration.

Just a follow-up. I mean, relative to the targets that you set when you did the deal, we saw the expense side. But on the revenue side in particular, how are you feeling about your ability to kind of get this? You were ahead of plan on the cost side. Are you ahead of plan in terms of where you thought you'd be on the revenue synergy side?

Yeah, we're slightly ahead of plan for Q1, and I'm feeling very positive for our target, which is, you know, like the pipeline is good with CWB. We're still in the integration phase, and that's why we said that we're going to grow on the last two quarters. So conversion is finished. So this is a big milestone that we just achieved last weekend. So conversion is finished. We're still training people. There's a lot of things that we need to train people on, processes, platforms, client value proposition as well. You pitch National Bank when you're in CWB, so all of that is happening. So for me, I'm very positive, and there's very good momentum in the field right now.

Okay, and then just second question, and I think I've got this right, but you can correct me if I've got it wrong, but it looked like there was a 10% quarter-over-quarter sequential increase in market risk RWA.

What would have driven that?

Hi, Doug. It's Etienne.

So that market risk increase, I don't I cannot point you to a specific factor. What else is that FRTB, because it does not take into account the different correlations and optionalities we have in terms of protection, especially on the downside, FRTB tends to move in ways that are less intuitive. We don't get the benefit of our diversification. For example, we could have more downside protection but run a slightly longer delta exposure and that would show up as higher rwa so and and it's also very point in time so it tends to move so that's really what i see in terms of um explanation for that rwa that i don't think i would um i would make i would conclude uh from from that movement

So this is an unusual quarter.

You wouldn't expect this level of expansion, I would assume, quarter in, quarter out.

I'm sorry, I did not get your question.

No, just like it sounds like this is an abnormal increase in market RWA. Is that what you're trying to say? Like there's

No, I don't think so. I think the market already moves up and down in that kind of amplitude a lot. It's just that it's very difficult for me to point you to, oh, it's because of volatilities or because of our different positioning, which is why it's very tough to conclude something really specifically.

Okay, I just want, maybe last quick one. In your ROE waterfall, I mean, you talked about your buybacks. Do you quantify, like, what, like, I see the impact of buybacks, but, like, what level of buybacks are you assuming? I don't think you quantify it. Yeah.

Hi, Doug. It's Matt Chantal. So, what we've included in our buyback is For 2026, we're planning to execute on our NCIB program that we've just increased this morning, and that's up to September 2026. And then when you look at 2027, what we're expecting to do is really, as I explained earlier, is continue buybacks to converge towards a CT1 ratio of 13%. by the end of 2027. So in line with what we had also shared last quarter.

Okay, that makes sense. Okay, thank you.

You're welcome. Your next question comes from the line of Paul Holden with CIBC. Please go ahead.

Thank you. Good morning. First question is with respect to that ROE Waterfall Guide for 2027. Just want to understand the assumption behind no improvement in PCL. Is that just because you're baking in conservatism or are you suggesting that sort of the 25 to 35 basis points should be sort of the good run rate for national long term?

Hey, Paul. It's JS. I'll take this one. Obviously, we don't give guidance to 2027. We're keeping our guidance for 2026. We're very comfortable with 25 to 35. So, you know, I think your assumptions are correct. It's somewhere within the guidance that we have this year that we're applying for next year.

Okay. Okay. Because I thought I heard an earlier comment that there is no benefit in the ROE waterfall for 2027 from PCLs. So again, just trying to understand why that assumption would be made, if it's conservatism or if you're suggesting something else.

Hi, Paul. It's Marie-Chantal. So just to make sure that I was clear earlier, there are no upside in 2027 included in our waterfall coming from credit improvement. So I guess that's what Jean-Sebastien was explaining, that we're keeping our 25 to 35 basis point target similar for next year.

Okay.

So you could say it's prudent.

Okay. Another question for you, and maybe going back to one of the original questions on the ROE for Canadian PNC banking. When I think about the different levers, one of them clearly is net interest margins, and particularly as it relates to low-cost funding. So on that point, when I look at the average deposit balances for personal, see it's declined the last couple quarters, not by a large magnitude, but still sort of two quarters in a row. And that's typically where I tend to look for low cost deposits. So one, can you kind of address what's driving that decline? It might just be term rolling off. And two, is it right to assume you'd obviously want that to go in the other direction? And if you can give any kind of and so on plans around that. I know Laurent said it's early, but I'd love to hear any thoughts on planned deposit growth.

Hi, this is Julie. I will start by giving you the personal deposit view, and then I'll pass it along to Judith and Nancy to provide a holistic view. So on the personal deposit side, we're down about 1% Q over Q. and that movement is largely explained by the CWB portfolio. As expected, we saw higher attrition in the CWB deposit books, which was built really around higher rate offerings, and therefore attracts a more non-core, monoproduct customer segment. Some runoff is natural, and it's fully consistent with our expectations at the time of the acquisition. From an NBC point of view, when you look at deposit and mutual funds together, total clients' assets continue to grow, which is also a good measure of franchise momentum. With rates expected to remain low, deposit growth will stay neutral. Judith?

On the commercial banking side, deposit growth was strong in Q1, and it made a clear acceleration versus 2025, so I'm very pleased about that. Growth was broad-based across all segments, supported not only by the government and public sector, but also by a stronger contribution from general commercial, confirming solid and sustainable funding momentum. This is something that we wanted to see and we're starting seeing. So again, I'm really pleased about that. So Nancy, you want to compliment on the wealth?

Yes. So for wealth management, demand deposit growth is consistent with what we see when client base and advisor base expand. More client relationship typically means more operating investment cash balances, obviously. So the relation of demand deposit to AUA in each business is more stable. So as our AUA grows, our demand deposit grows as well. So we're very happy with the trend that we see and positive.

Okay. Just one follow-up on that. I don't think you break down deposit margins versus loan margins, or if you do, correct me. But just on the deposit margin, should we view, even though the personal deposits declined, it sounds like it's high cost, was that positive for deposit margins? Is that how we should read that?

So, Paul, it's Marie-Chantal here. So, when you look at the P&C NIM for the quarter, We saw a strong balance sheet growth with higher margin on both loans and deposits. So yes, in the quarter, it's something that we've seen.

Okay, perfect. That's all the questions for me. Thank you.

Your next question comes from the line of Mike Rizvinovic with Scotiabank. Please go ahead.

Hi, good afternoon. First one for Marie Chantal. Just wanted to go back to the $270 million. Given that that guidance was provided a while ago, obviously you're more in the thick of things in terms of getting to where you want to be. And you're obviously ahead of schedule on that. So I'm wondering, is this a function of, you know, maybe that $270 was potentially a bit conservative or you've just gotten there quicker? You've been able to execute quicker on getting those cost and funding synergies. I think a lot of investors have the same question that I have. Just in terms of, I'm not trying to pin you on new guidance, but how should we look at the 270? Is there a possibility that it could be beyond that, beyond 2026?

So thanks, Mike, for the question. So you're right. We are executing more rapidly than what we had expected. And we continue to track ahead of time in terms of executions. supports our confidence that the full target will be achieved as expected before the end of fiscal 2026. As Judith was saying, we just finalized our fourth and final migration last weekend. So we are now very confident in achieving that target in 2026.

So no color on potentially going beyond that at this point? Too early maybe?

No, I understand. No, not at this point. As I said, we just finalized the last conversion, and then we'll see what this brings next.

Okay, fair enough. And then maybe just one for Julie. Just on the mortgage growth in the quarter, I think 3% sequentially, that's actually a very impressive number just in the context of what's happening in the housing market. And I'm just wondering, is this largely the Quebec-focused dynamic situation Quebec just happens to be a much better market for growth these days, or is it more so that you're doing something to win market share and just doing something better than your competitors currently?

Thank you for the question. Obviously, we're doing something better. We delivered 11% year-over-year portfolio growth, which is impressive, driven by market conditions being more favorable. We deliver growth while improving our margins. Thus, the business generates strong NII. As always, we maintain a disciplined and stable pricing strategy that supports sustainable penetration. And specifically in Quebec, our market share continues to expand, supported by strong brand positioning and deep, long-standing real estate relationships.

Okay. And just one really quick follow-up on that. So what about the Optimum portfolio that was acquired? I'm wondering if that book is growing as well. I'm guessing that's embedded in the overall resi mortgage balance. I don't recall the size of Optimum. I think $3 billion at purchase. But is that being expanded as well?

So currently, thank you for the question, currently the optimum has around 4% part of the real estate book on the personal side. We demonstrate through optimum strong performance and it's at the core of our diversified strategy. Short to mid-term, it's discipline growth. So our main objective remains quality over volume.

Okay, so part of that growth is inclusive of optimum balances as well, correct?

Yes.

Okay, perfect. Thank you for the call. I appreciate it. Thanks for your time.

Your next question comes from the line of Ibrahim Poonawalla with Bank of America. Please go ahead.

Good morning. I guess just a follow-up question, one on the ROEs. I guess one more question on the ROEs. But when we think about the capital markets, this slide 23, one, do you see the mid-20s ROE as a sustainable ROE, actually? This is the other side of the PNC business where you see upside. When we think about the capital markets business and the mid-20s ROE, is that sustainable? Could that get better, worse? Like, how should we think about it? And second, I think, Etienne, you talked about FRTB impact on RWA. as we think about the Fed maybe putting out new Basel endgame proposals in the U.S., is there any discussion with the OSFI around FRTB rules or any discussion around whether that could get revisited in Canada? Thank you.

Yeah, thanks for the question, Ibrahim. So I'll start with the ROE and give you some color because, yeah, mid-20s is obviously a very good number. We want keep it in the 20s and the way that we think about it i think the the biggest driver is is our business mix we we want to continue to focus on scale businesses in global markets when we where we generate strong records strong returns through the cycle including in more volatile period and when you get volatile markets activity usually increases spread widens dislocations, create opportunities and those are environments where these franchises can be very resilient. And also part of how we think about it is how we've been disciplined about where we deploy capital. We stay nimble and allocate capital dynamically based on client demand and based on risk adjusted returns rather than trying to do everything. And I think that discipline matters a lot, and we'll continue to do that. There's also an efficiency part. We've maintained a strong focus on cost discipline as we've scaled the franchise, and we've continued to invest in technology, particularly in our trading and issuance businesses. And on the corporate and investment banking side, there is upside there because we've made focused investments over several years that are paying off. We strengthen connectivity with the market's teams. We've increased our share of wallets, share of leads, and we've been very intentional about prioritizing sectors where we see long-term strategic importance and where we can build real franchise strength. So it's a consistent strategy. Ideally, we want to maintain it where it is now. I think that Trading will not always be that good, but there's upside on the corporate and investment banking side. So we'll continue to stay focused on scaled high return activities and maintain cost control and invest in the right client franchises. I think for your second question, Laurent has more discussions with us than I have. So I think he could give you color on the FRTB. So Abraham, thank you for your question.

And you're right on point, I think. Etienne talked a bit about FRTD before and that it has certain volatility and it doesn't capture all the risk the way I think it should capture the risk. With our peers, we have brought it up to OSFI as something that, one, we think does not capture the risk. So that's one.

With U.S.

banks or European banks, which are not subject to FRTB at this point in time. So we have a healthy discussion with our regulators about FRTB.

Got it. Well, that sounds healthy. And I guess maybe following up on the question I think Paul Holden was trying to ask was, as we think about, I get that you don't expect PCLs to decline next year versus this year, but maybe there's a mark to market as you think about the Canadian economy and your loan book. Do you expect... or impaired PCLs to improve as the year moves and as we think about just fundamental credit quality? Or is it still too uncertain, too soon to tell?

I think it's the latter. But when you look, we're starting at a very strong position, right? So we're starting at 28 basis points, so strong credit quarter. We're also very pleased with the lower level of formations. But it's an environment to stay humble. We're still in a credit cycle. We're still seeing recuperation rates in non-retail. And the big one is KUSMA. So as long as KUSMA is still in flux, there's still some risks. And it's very aligned to what I said about our 2025, where we could see swings between quarters and basis points, between the ups and downs. But we are maintaining our 25 to 35 basis points guidance for the year.

Got it. Thank you.

Your next question comes from the line of Mario Mendonca with TD Securities. Please go ahead.

Good morning. First, a question on the advisory business, the underwriting advisory. It would appear that you've reached an entirely new level. The last three quarters, the underwriting advisory revenue is up something like, what is it, 50% to 90% relative to comparable quarters. I figured to some extent this is what the market's given you, but it seems like there's more going on here. Can you talk about what National's done specifically, either it's bankers, geographies, products, something new you've done over the last three quarters that's driving this?

Thanks for the question, Mario. It's true that in CNID, you saw broad-based strength across the franchise, and that led to... Well, more than 30% increase of revenues from last year. I think where we saw much higher activity year over year is in deal flow and advisory mandates across equity capital markets and M&A. These were really slow last year, if you remember, at this time of year, and it's gotten really active this year. And that's across multiple sectors. It's not just metals and mining, as some people think. It's been very diversified. And we think, really, that M&A backdrop remains constructive. We've had our best M&A year ever last year, and that fueled activity across the broader franchise. And that's also including ancillary activity like risk management solutions. So that's also very encouraging. We've advised on several mandates, including both public and private companies across infrastructure, power, energy, mining, industrials. We also continue to see activity building with private companies. That's something we're working on. And with the ongoing integration of CWB, I think that positions us to further deepen our penetration in Western Canada. And in that capital market, it's been really consistent. The growth has continued as clients took advantage throughout the quarter of very open and attractive funding markets. So, yeah, the franchise has evolved. As I was saying in my answer to Ibrahim, we've really increased the number of leads, the number of share wallets. We've continued to make some investments on that side. And I think this partly explains why we've had a bit of a higher taking the expenses this quarter. I think we continue to build to accompany the growth, especially in Canada.

So it sounds like your answer is both. Like the market's been super helpful, but you've made a bunch of investments in this business as well.

Yeah, I think that's accurate, Mario.

All right. Now, going to this ROE disclosure, it raises more questions, frankly, than it answers because the segment ROE domestic is relatively what, six, seven, 800 basis points lower than most of the other banks and your capital markets ROE is probably six or 700 basis points higher than the other banks. When you present disclosure like this, do you put any effort or thought into whether your capital allocation is different or the same as your peers? How can we be comfortable or maybe the answer is we shouldn't be? How can we be comfortable that these ROE calculations are even comparable to the other? Because they're so wildly different.

So maybe I'll take this one, Mario. I think the scale has something to do with it in terms of our performance at PNC. We knew that for a long time. But we approached this as an opportunity. Part of the reason why we disclosed ROE per segment is because we believe that we could improve it significantly over time. And that's something that we started working on. Julie has been with the bank for a very long time and has started in her role and is looking at that specifically right now. So they are comparable. I mean, all banks are different. And I think it is something that we are going to focus on over the next several years. And we do believe that we are going to be able to deliver more. Again, early days, we're starting a strategic review of our segment. And as always, we're going to provide updates on potential outcomes and upside.

So just to be clear, you're suggesting that the 12.7% ROE in P&T banking at National is comparable to the 20% plus from some of the larger banks and that scale accounts for that difference? Because you don't really see it in the, well, no, that's not fair. You do see it in the efficiency ratio. So perhaps that's the answer. It's the efficiency ratio of 51 versus some of these larger ones around 44. You got it. That's the point. Okay. I think I get it.

Thank you.

Your next question comes from the line of Darko Mihelic with RBC Capital Markets. Please go ahead.

Hi, thank you. Good morning. Maybe before I hit my question, just on that point, I mean, it looks like you're using an 11.5% ratio to allocate capital. So presumably as you get benefits from CWB on AIRB, that would flow through as well. Would that be fair?

Yeah, that's correct, Darko. We are using 11.5 for the capital allocation on the ROE segment that we've started to disclose this quarter.

Okay, thank you. And then just maybe just my question really is just for modeling purposes. I just want to sort of visit the other segment. I mean, there was help from Treasury, some gains in there. How should I think about that help in the quarter? and, you know, a modest loss, and what should I think about it going forward?

So thanks, Darko, for the question. So I'll answer the best I can do for your modeling. So on the revenue side, we've experienced two things this quarter for the other segment. So larger investment gains that we realized compared to prior periods, and we've seen the overall level of performance from Treasury also improving. On the expense side, we expect lower levels in 2026, mainly from variable compensation, which was elevated in 2025. And remember last quarter, we've given a guidance of the PTPP loss for the other segments, ranging between $225 to $275 million. We're pointing now more towards $225.

Okay. Okay.

That's helpful. And just with the Treasury activities, what is it that's helping you there, and how should we think about that for the rest of the year?

Well, as you know, in your other segment, our banking book interest rate risk is centralized into our treasury group. So you can see some variation from quarter to quarter in the performance. So volatility is expected, and we're comfortable with what we're seeing so far.

Okay, great.

Thank you. Those are my questions.

Thank you, Dr. See you next week.

Your next question comes from the line of Jill Shea with UBS. Please go ahead.

Thanks for taking the question. I just wanted to follow up once more on the ROE waterfall. Thank you so much for the detail there. Just in terms of the RWA growth piece that's impacting the ROE by 100 basis points, can you just talk about the piece of organic growth embedded in there? Does that embed an acceleration in loan growth relative to what you're pacing currently, just realizing that that number is actually net of the AIRB conversion benefit. So just trying to think through the balance sheet growth component versus the benefit from AIRB that's embedded in that number. That would be helpful. Thank you.

Thanks, Jill. It's Marie-Chantal. So yes, on the RWA growth, we're expecting 100 basis points there. When you look at our RWA consumption, historically, we've been disclosing approximately 30 basis points on average every quarter. So I guess that assumption would be the right one to think. As we're moving with the revenue synergy on the conversion of CWB, Judith was sharing that we're expecting high single digits in terms of loan growth. Etienne was talking about a good pipeline as well on the corporate side. On the mortgage side, we expect the portfolio to grow in the mid-single digit range. So those are some of the assumptions that you can continue to use for understanding our ROE target for 2027.

Okay, thank you very much.

You're welcome.

We have no further questions at this time. I will now turn the conference back over to Laurent Ferrier for closing comments.

Thank you, operator, and everyone in the call. Our Q1 performance was strong, and I'm very happy with our execution, and you should expect us to continue to focus on delivering sustainable earnings growth and a premium ROE. On that, thank you.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.