National Bank of Canada at National Bank Financial Quebec Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Good morning. So let's just kick off the Q&A here with a pretty big picture one, I guess. The Wealth business has had a really good year or half year, I guess. And we've seen some industry-leading AUM growth, AUA growth and earnings growth as well in the most recently reported quarter. Maybe you can give us some of the highlights and maybe the nitty-gritty stuff on what's been driving some outperformance. Martin Gagnon - National Bank of Canada - Executive VP of Wealth Management, Co-President & Co-CEO of National Bank Financial So first of all, thanks for having us and having me to kick off the day, Gabriel. It's an honor. And I'm especially happy to talk about the Wealth Management business. It's been a great business. It is a great business. So we'll shed some light on this today. As you said, it's been a great year so far. We've grown net income for the first 6 months of the year, up 19%. And what I would say is, first of all, look at it over 2 years is really important. Last year, there was some pretty negative performance, a dismal performance in the industry in general. And we did well last year as well, 9% growth for all of 2020. So it is a good, steady business, providing some pretty nice growth. As you said, what was really interesting and what I'm really proud of for the last couple of quarters is the growth in our AUA and AUM. We posted 28% for both AUA and AUM growth for Q2 of last year. And that is, in itself, a pretty impressive number. The balance portfolio grew by about 18%, Gabriel, over the same period. So the tide is rising for all boats, let's be clear. But everybody is above budget. But what you really need to look at is how we are doing compared to the growth of the traditional balanced portfolio. So this 10% outperformance over the market growth was really strong and came from all of our channels. This is what's amazing. We're seeing record inflows at our private bank. The AUA growth at NBF is very, very strong, both from our existing IAs as well as billions coming in from new IAs joining NBF. So it is very strong. What is particularly strong is our National Bank Investment business. They're the one overseeing all of our -- most of our AUM. It is the backbone of our platform, and we've done exceptionally well. We've grown our AUA at NBI by 30% year-over-year. Specifically in the mutual fund complex, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 16, 2021 / NTS, NA.TO - National Bank of Canada at National Bank Financial Quebec Conference (Virtual) that puts us #1 of all the banks. We're in -- if you look at the IFIC numbers, we're really punching above our weight in terms of net new assets also in nominal terms. Our ETF complex is top quartile, even though it was launched only 24 months ago. So that's what I have to say about this. It's the key driver of our business. It's the AUA and AUM growth, which really shows how solid the platform is.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Got it. Now you talked about rising tide, lifting all boats. And there have been some very, very favorable markets, of course. What would be an area of the business where you think, okay, that's really been firing on all cylinders, poised for a slowdown here. If I think about the capital markets business, I think of FICC trading across the industry, anything in the Wealth business you can highlight as being maybe doing great, but just give a heads up, it might slow down? Martin Gagnon - National Bank of Canada - Executive VP of Wealth Management, Co-President & Co-CEO of National Bank Financial Sure. So if you look, we have 3 sources of revenues. It's fee-based, represents about 60% of our revenues. And then it's pretty much evenly split between net interest income at 20% and transaction revenues at 20%. If you look at it over the long term, our transactional revenues have been steadily going down. And we've -- fee-based has naturally been going up. Transactional revenues, of course, were really strong in Q1 of this year. We are all aware of what happens with the meme stocks and so on. So we did see a bit of a reduction in our trading revenues in the second quarter of the year. But as I said earlier, what's much more important is the fact that we have $600 billion of AUA, which really is the backbone. It provides a very solid stability to our revenues. And at the margin, we're seeing those transactional revenues impacting a little bit at the margin the performance of each quarter, but it's not as important as what happens with $600 billion of AUA. So there was a bit of a slowdown in Q2. Now we're seeing a pickup. We're seeing a pickup. And it's not that simple when you analyze trading revenues. FX is part of this. So there's many components to this segment, Gabriel. And at the end of the day, it's not purely related to transactional fees at the direct brokerage platform or at NBF, for example.

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : That was a very thorough overview. I appreciate that. And then just to clarify, you did throw a couple of numbers out there on the upside and downside to rate hikes. That was NII you were talking about on earnings? Or... Martin Gagnon - National Bank of Canada - Executive VP of Wealth Management, Co-President & Co-CEO of National Bank Financial Yes. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 16, 2021 / NTS, NA.TO - National Bank of Canada at National Bank Financial Quebec Conference (Virtual)

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : In your previous answer to the rates sensitivity, you did touch upon the cross-selling of excess deposits into wealth products, maybe from the Canadian banking segment into or your own -- within your own segment. I don't know if there's any highlights there you'd like to share as far as working with your partners within the bank to get some of this low-margin deposit money into something a bit more higher-yielding in the Wealth business? Martin Gagnon - National Bank of Canada - Executive VP of Wealth Management, Co-President & Co-CEO of National Bank Financial Yes. It's a great question because being National Bank and being the smallest of the 6 banks, we need to be different. We need to work very closely with all of our colleagues. So we're closer than where we've ever been to our colleagues in the P&C and in financial markets. And especially in P&C, we've launched what we call a synergy program, where there are regional heads in each of the 26 regions that we cover. And they work together. We give them objectives regardless of the business line so Commercial, Wealth and Personal Banking is working together. We now launched even a new way of compensating them with pools of bonuses that are going to be distributed regionally and not by silo. So we're the first bank to launch a hybrid model, where we cover the smaller investors regardless of the jurisdiction, working together Wealth and Personal Banking. We launched our new platform in -- for investments in bank branches and together Wealth and Personal Banking. So -- and that's what we're doing, but it shows in the numbers as we have never had such a good performance again from all of our business lines. But particularly, the savings in bank branches, it's really been amazing, specifically -- not as much for deposit, but specifically for our mutual fund sales and bank branches. And you see that in the numbers. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 16, 2021 / NTS, NA.TO - National Bank of Canada at National Bank Financial Quebec Conference (Virtual)

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : When I think about wealth and retail orientation primarily, I think of trends that are out there that consumers are trying to tap into. How do you manage the demand for stuff like -- or how do you approach it rather, the demand for things like cryptocurrencies and other maybe inflation thematic asset classes, while balancing that against -- you don't want to be just tapping into the latest trend and there's risks associated with that. What kind of products have you -- or services have you offered to your customer base to let them go after things like that, but they might be interested in? Martin Gagnon - National Bank of Canada - Executive VP of Wealth Management, Co-President & Co-CEO of National Bank Financial Yes. It's a good question, Gabriel. And I would say, let's start with some fundamentals. If you're worried about our Central Bank printing money, I think it's a legitimate concern. And traditionally, someone would want to buy gold if you're worried about that. And maybe crypto is just virtual gold, the virtual gold of the future. Now Louis has been very, very vocal about this. We are saying to our investors, be really, really careful. There's all kinds of scams and frauds, and stay away of everything that is nonfungible tokens and all of this stuff. But Bitcoin has held its own and has done fairly well if we can take care of the environmental issue. At the end of the day, there are now ETFs on this where everything is really checked, and there's a good due diligence that is being done, and you don't have to worry about your digital wallet. So we've opened up the door a little bit for our full-service brokerage business if someone wants to have a little bit of exposure to crypto. And -- but it needs to be done very carefully and not with any kind of proof-of-stake crypto out there. Be really, really careful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 16, 2021 / NTS, NA.TO - National Bank of Canada at National Bank Financial Quebec Conference (Virtual)

Question: Gabriel Dechaine - National Bank Financial, Inc., Research Division - Analyst : Martin, we could go on. There's a lot more to talk about, but we've run out of time. Appreciate you presenting today, learned a lot, and I know it's a big week for Montreal hockey. So if you have any final rah-rah messages you want to send, go ahead. But otherwise, I'm wishing you a good remainder of the week. Martin Gagnon - National Bank of Canada - Executive VP of Wealth Management, Co-President & Co-CEO of National Bank Financial Well, thank you for having this great start to the conference. It's been a pleasure, and I will end like Louis ended our call for Q2, Go Habs Go. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 16, 2021 / NTS, NA.TO - National Bank of Canada at National Bank Financial Quebec Conference (Virtual)