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Operator: 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. [Operator Instructions] I would now like to turn the conference over to Marianne Ratte. Please go ahead.
Marianne Ratte: Welcome, everyone. We will begin the call with remarks from Laurent Ferreira, President and CEO; Marie Chantal Gingras, CFO; and Jean-Sebastien Grise, Chief Risk Officer. Our business heads are also present for the Q&A session, including Julie Levac, Personal Banking; Judith Menard, Commercial and Private Banking; Nancy Paquet, Wealth Management; Etienne Dubuc, Capital Markets and [indiscernible] International. Before we begin, please refer to Slide 2 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.
Laurent Ferreira: 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 CUSMA 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 reestablish our economic sovereignty. We are particularly pleased to see concrete actions towards our reindustrialization, including Canada's initiative to welcome the Defense Security and Resilience Bank as well as the announcement of Canada's defense industrial strategy. Turning now to our business segments. With revenues of more than $1.5 billion and net income of $442 million, P&C 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. Assets 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 nontrading 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. Credigy 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 loan up 18% and 11%, respectively. I will now pass the call to Marie Chantal.
Marie Gingras: 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 transaction. 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. Prepayment revenues of $12 million were generated in Credigy, contributing 1 basis point to the all-bank margin. The P&C segment benefited from strong balance sheet growth and margin expansion of 2 basis points sequentially, driven by higher margins on both loans and deposits. In Q1, we reclassified $30 million NII from trading to nontrading, which had no impact on the bank's total revenues. Excluding this, nontrading NII grew 4% sequentially, while the margin was up 2 basis points. Looking at next quarter, we expect the P&C NIM to remain relatively stable from Q1 levels. 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 CET1 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 CET1 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 1 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% to 10% outlook. Reflecting these factors, we are raising our 2026 ROE target to around 16% from around 15% previously. On Slide 13, we outlined 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 CET1 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 an ROE of 17% plus. With that, I will now turn the call over to Jean-Sebastien.
Jean-Sebastien Grise: Good morning, everyone. Since our last call, Canadian economic growth has remained modest and the labor market continues to be soft. Headwinds persist, including trade tensions and uncertainty around CUSMA. 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 1 basis point quarter-over-quarter. We added 3 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 3 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 USD 6 million, in line with expectations, resulting from the normal seasoning of residential mortgages and consumer loans. At ABA, impaired provisions were down by USD 8 million sequentially to USD 17 million, in line with lower formations. Turning to Slide 16. Our total allowances for credit losses were $2.5 billion, representing 5.9x coverage of our net charge-off. Our performing allowances were $1.6 billion, demonstrating a strong performing ACL coverage ratio of 2.1x. 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 USSF&I, GILs were 81 basis points and remained flat quarter-over-quarter. Net formations were down 8 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.
Operator: [Operator Instructions] Your first question comes from Matthew Lee with Canaccord Genuity.
Matthew Lee: Maybe I want to start on the new segmented ROE breakdown you've provided. Canadian P&C looks a little bit lower than some of the peers at 13%. Can you maybe just talk about why that might be and what opportunities you have to get closer to industry levels?
Laurent Ferreira: Matt, thank you very much for your question. This is Laurent. Look, it is 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 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 update 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.
Matthew Lee: Okay. Got it. Yes. And 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 changed in the operations from the last 80 days or so that make you comfortable to change '26 and then '27?
Marie Gingras: 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 2026. 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 all 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 transaction. So as disclosed 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 CET1 ratio of 13% by the end of 2027, and that would generate 40 basis points of ROE. And then the CET1 required to support our RWA growth net of benefit from the AIRB conversion is [ 100 ] 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. It 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.
Operator: Your next question comes from the line of John Aiken with Jefferies.
John Aiken: Apologies about that. Hopefully, a couple of quick questions on Credigy. In 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 Q4 over Q3? And then secondarily, it looks like there was wider net interest margins for Credigy in the quarter. Was there anything unusual that was driving that?
Etienne Dubuc: 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 (sic) [ $700 million ] 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 we -- there's strong deal flow. There was a 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 market 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 be -- and to continue to be really attractive and accretive for the bank.
Operator: Your next question comes from the line of Sohrab Movahedi with BMO Capital Markets.
Sohrab Movahedi: Thank you very much for the ROE waterfall. Etienne, pretax pre-provision in capital markets in '25 was a very strong, I think, $2.2 billion or thereabouts. Coming into this year, I think you were trying to guide us to $1.8 billion to $2 billion. Having the first quarter under your belt, is there any revisions or updates to the pretax pre-provision for capital markets for the full year?
Etienne Dubuc: Sohrab, it's Etienne. Thanks for the question. So maybe I'll walk you through our thinking in terms of the outlook because, yes, quick answer is that we feel increasingly good about our Jan outlook that was calling for, like you said, a PTPP number in the $1.8 billion 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 billion to $2 billion. Does that help?
Sohrab Movahedi: Yes, it's very helpful and comprehensive. And then just one quick one for Jean-Sebastien. I mean, Jean-Sebastien, you've talked about the economic outlook and the sluggish kind of backdrop. Does the -- 2 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?
Jean-Sebastien Grise: Thank you for your question, Sohrab. So obviously, very pleased with the results that 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 will 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. 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.
Operator: Your next question comes from the line of Doug Young with Desjardins Capital Markets.
Doug Young: Laurent, your prepared remarks, you talked about CWB revenue synergies, and I think you talked about early gains in capital markets and solutions and then starting to grow the CWB, I think, loan book in maybe the back half of this year. Just hoping you can flesh this out a little bit more?
Laurent Ferreira: Judith, do you want to take that one?
Judith Menard: Yes, I can take that one.
Laurent Ferreira: Judith is going to take the question, Doug.
Judith Menard: Thanks, Doug, for your question. So as expected, as Laurent said in his script, we're seeing revenue synergy mostly in noninterest income coming from capital markets. So mostly RMS M&A company, which is a group we formed 2 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.
Doug Young: 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?
Judith Menard: Yes, we're slightly ahead of plan for Q1, and I'm feeling very positive for our target, which is like the pipeline is good with CWB. This is -- we're still in the integration phase. And that's why we said that we're going to grow on the last 2 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. How do we -- 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.
Doug Young: 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?
Etienne Dubuc: Doug, it's Etienne. So that market risk increase, I don't -- I cannot point you to a specific factor. What I'll say 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. So for example, we could have more downside protection, but run a slightly longer delta exposure, and that would show up as higher RWAs. So -- and it's also very point in time. So it tends to move. So that's really what I see in terms of explanation for that RWA. I don't think I would make -- I would conclude from that movement.
Doug Young: Okay. So this is an unusual quarter. You wouldn't expect this level of expansion, I would assume, quarter in, quarter out.
Etienne Dubuc: I'm sorry, I did not get your question.
Doug Young: 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...
Etienne Dubuc: No, I don't think so. I think market RWA 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 there was a -- it's because of volatilities or because of our different positioning, which is why it's very tough to conclude something really specific.
Doug Young: Okay. Just one maybe last quick one. In your ROE waterfall, you talked about share buybacks. Can you quantify like what -- like I see the impact of buybacks, but like what level of buybacks are you assuming? I don't know if you can quantify it kind of...
Marie Gingras: Yes. Doug, it's Marie 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 CET1 ratio of 13% by the end of 2027. So in line with what we had also shared last quarter.
Operator: Your next question comes from the line of Paul Holden with CIBC.
Paul Holden: 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?
Jean-Sebastien Grise: 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 basis points. So I think your assumptions are correct. It's somewhere within the guidance that we have this year that we're applying for next year.
Paul Holden: 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.
Marie Gingras: 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.
Jean-Sebastien Grise: So you could see it's prudent.
Paul Holden: Got it. Okay. Okay. Another question for you and maybe going back to one of the original questions on the ROE for Canadian P&C 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 of quarters, not by a large magnitude, but still sort of 2 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 sense on plans around that. I know Laurent said it's early, but love to hear any thoughts on planned deposit growth.
Unknown Executive: 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 book, which was built really around higher rate offerings and therefore, attracts a more noncore monoproduct customer segment. Some runoff is natural, and we -- 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 client 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?
Judith Menard: Yes. So on the commercial banking side, so 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 complement on the Wealth?
Nancy Paquet: Yes. So for Wealth Management, demand deposit growth is consistent with what we see when client base and adviser base expand. More client relationship typically means more operating and 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.
Paul Holden: 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 how -- just on the deposit margin, like should we view even though the personal deposits declined, it sounds like it's high cost. Like was that positive for deposit margins? Is that how we should read that?
Marie Gingras: So Paul, it's Marie Chantal here. So on -- 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.
Operator: Your next question comes from the line of Mike Rizvanovic with Scotiabank.
Mehmed Rizvanovic: First one for Marie Chantal. I just want 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 maybe that $270 million 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. And just in terms of -- I'm not trying to pin you on new guidance, but how should we look at the $270 million? Is there a possibility that it could be beyond that beyond 2026?
Marie Gingras: 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 plan in terms of execution that 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 client migration last weekend. So we are now very confident in achieving that target in 2026.
Mehmed Rizvanovic: So no color on potentially going beyond that at this point. Too early maybe?
Marie Gingras: No, no, not at this point. We're -- as I said, we just finalized the last conversion, and then we'll see what this brings next.
Mehmed Rizvanovic: 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? Just Quebec is -- it 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?
Unknown Executive: So 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 delivered 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 relationship.
Mehmed Rizvanovic: 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 purchase, but is that being expanded as well?
Marie Gingras: So currently -- thank you for the question. Currently, the Optimum has around 4% part of our -- the real estate book for -- on the personal side. We demonstrate through Optimum strong performance, and it's at the core of our diversified strategy. Short to midterm, it's disciplined growth. So our main objective remains quality over volume.
Mehmed Rizvanovic: Okay. So part of that growth is inclusive of Optimum balances as well, correct?
Marie Gingras: Yes.
Operator: Your next question comes from the line of Ebrahim Poonawala with Bank of America.
Ebrahim Poonawala: 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, the Slide 23, one, do you see the mid-20% ROE as a sustainable ROE actually? This is the other side of the P&C business where you see upside. When we think about the capital markets business and the mid-20% 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 a new Basel end game proposals in the U.S., is there any discussion with the OSFI around FRTB rules or any discussions around whether that could get revisited in Canada?
Unknown Executive: Yes. Thanks for the question, Ebrahim. So I'll start with the ROE and give you some color because, yes, mid-20% is obviously a very good number. We want to keep it in the 20%. And the way that we think about it, I think the biggest driver is our business mix. We want to continue to focus on scaled businesses in global markets where we generate strong returns through the cycle, including in a 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's upside there because we've made focused investments over several years that are paying off. We strengthened connectivity with the markets teams. We've increased our share of wallet, 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.
Laurent Ferreira: So Ebrahim, thank you for your question. And you're right on point. I think I talked a bit about FRTB before and that it has certain volatility and it doesn't capture all the risk the way I think we should capture it. 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.
Ebrahim Poonawala: Got it. That sounds healthy. And I guess maybe following up on a 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 is a mark-to-market as you think about the Canadian economy and your loan book, do you expect PCLs 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?
Unknown Executive: 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 the credit cycle. We're still seeing recuperation rates in non-retail and the big one is CUSMA. So as long as CUSMA 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, 10 basis points between ups and downs, but we are maintaining our 25 to 35 basis points guidance for the year.
Operator: Your next question comes from the line of Mario Mendonca with TD Securities.
Mario Mendonca: First a question on the advisory business, the underwriting advisory. It would appear that you've reached an entirely new level. The last 3 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 has given you, but it seems like there's more going on here. Can you talk about what National has done specifically, either it's bankers, geographies, products, something new you've done over the last 3 quarters that's driving this?
Etienne Dubuc: Thanks for the question, Mario. It's Etienne. It's true that in C&IB, 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 I think -- 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 debt 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 yes, the franchise has evolved. As I was saying in my answer to Ebrahim, we've really increased the number of leads, the number of share of wallets. We've made -- continue to make some investments on that side. And I think this partly explains why we've had a bit of a higher tick in the expenses this quarter. I think we continue to build to accompany the growth, especially in Canada.
Mario Mendonca: So it sounds like your answer is both. Like the market has been super helpful, but you've made a bunch of investments in this business as well. Those are both.
Etienne Dubuc: Yes, I think that's accurate, Mario. Yes.
Mario Mendonca: All right. Now going to this ROE disclosure, it raises more questions, frankly, than it answers because the segment ROE domestic is, what, 600, 700, 800 basis points lower than most of the other banks and your capital markets ROE is probably 600 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? Like 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?
Laurent Ferreira: So maybe I'll take this one, Mario. I think the scale has something to do with it in terms of our performance in P&C. We knew that for a long time. But we approach 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 we'll -- as always, we're going to provide updates on potential outcomes and upside.
Mario Mendonca: So just to be clear, you're suggesting that the 12.7% ROE in P&C 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, 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 40% to 45% -- that's the point.
Jean-Sebastien Grise: You got it.
Operator: Your next question comes from the line of Darko Mihelic with RBC Capital Markets.
Darko Mihelic: 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?
Marie Gingras: Yes. 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.
Darko Mihelic: Okay. 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 a modest loss? And what should I think about it going forward?
Marie Gingras: 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 2 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 a PTPP loss for the other segments ranging between $225 million to $275 million. We're pointing now more towards $225 million.
Darko Mihelic: Okay. Okay. That's helpful. And just with regard to treasury activities, what is it that's helping you there? And how should we think about that for the rest of the year?
Marie Gingras: 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.
Operator: Your next question comes from the line of Jill Shea with UBS.
Jill Glaser Shea: I just wanted to follow up once more on the ROE waterfall. Just in terms of the RWA growth piece that's impacting the ROE by 100 basis points. Can you just talk about the pace of organic growth embedded in there? Does that embed an acceleration in loan growth relative to what you're pacing currently? 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.
Marie Gingras: Thanks, Jill. It's Matt 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 synergy revenue on the conversion of CWB, Judith was sharing that we're expecting high single digit 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.
Operator: We have no further questions at this time. I will now turn the conference back over to Laurent Ferreira for closing comments.
Laurent Ferreira: Thank you, operator, and everyone on 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.
Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.