National Bank of Canada Q1 2025 Earnings Call Transcript

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

Question: Meny Grauman - Scotiabank - Analyst : The first question is just on the updated guidance for 2025. Just wanted to understand what you're baking in in terms of assumptions related to tariffs, tariff risks?

Question: Meny Grauman - Scotiabank - Analyst : The imperative sales guidance and then also just the overall adjusted EPS guidance as well, trying to understand what's baked in there.

Question: Meny Grauman - Scotiabank - Analyst : Understood. And then in terms of just the overall EPS outlook for the year.

Question: Meny Grauman - Scotiabank - Analyst : Got it. And then just a second question. I appreciate you're not providing specific guidance on the revenue synergies related to CWB, but can you help us understand when you will be in a position to provide that guidance? Like is this the end of the year? Or is it sooner -- and do you think you'll be in that position?

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

Question: Ebrahim Poonawala - Bank of America - Analyst : Understood. And then just separately, Marie Chantal, I think I heard you talk about -- we'll get an update on capital -- but given where the CET1 sits today post CWB, are there any plans to initiate buybacks between now and year-end? Just talk to us around capital management. And how should we think about the ROE going from here from 15% to the, I think, the high teens, 17% to 18% that you expected to get to?

Question: Doug Young - Desjardins Capital Markets - Analyst : Just wanted to go back to the cash EPS guidance, just make sure that I'm crystal clear that I understand this. So fiscal '25, the outlook is for mid-single-digit growth, excluding the amortization of the net fair value mark. And so if I include the net fair value mark, which is the way that you're going to disclose it, that cash EPS growth or adjusted EPS growth goes down to maybe 2% to 3%, which given the $293 million you put up this quarter kind of leads to a substantial decline sequentially in the last three quarters of the year. So just -- I just want to make sure that is that land, like does that -- do I have that right? Or am I missing something? And if I'm right, I just want to understand maybe, I know PCLs would be part of that. Is there anything else that's kind of in there that we should be thinking about? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 26, 2025 / 4:00PM, NA.TO - Q1 2025 National Bank of Canada Earnings Call

Question: Doug Young - Desjardins Capital Markets - Analyst : Which isn't usually the case. Is there -- and I guess the -- is this more like just normalization of capital markets? Is this just -- or is this like broad-based across all of the divisions and -- just trying to understand if there's more that I should be thinking about?

Question: Doug Young - Desjardins Capital Markets - Analyst : Yes. No, it is. And then just going to the PCL guidance, maybe this is tough to say, but like how much of the increase relates to CWB and maybe some of the volatility that comes from that loan book? And then -- there was also mentioned, Jean STbastien, I think you mentioned that on EBA on the resolutions, of things that have gone bad, two-thirds of the files closed with no losses, which was the number -- if I have that right, just surprised me because of your loan to value. So it would suggest a third actually, you took losses on -- and given your loan to value, I'm just trying to kind of understand from the AVA side, what would have driven those losses?

Question: Mario Mendonca - TD Cowen - Analyst : There are a lot of moving parts as it relates to the margin in domestic P&C. -- if you just mathematically bring in SBB, there's some benefits to the margin. But of course, this adjustment you're referring to, the amortization of the net fair value mark is negative. As I play with the numbers, I'm coming up with my own understanding of what I think the margin could be, but could you speak to what the P&C margin looks like next quarter? Or just maybe going forward relative to what you reported this quarter? A little higher, a little lower stereo something you can offer?

Question: Mario Mendonca - TD Cowen - Analyst : Yes.

Question: Mario Mendonca - TD Cowen - Analyst : That's helpful to understand the dynamics, but there's two other very important things that are happening next quarter. You're adding in CWB, and then there's these marks. Are you suggesting that those two, adding in CWB and the negative effect of the markets are offsetting so we can just focus on the ongoing dynamics because those two are huge. I need to address those. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 26, 2025 / 4:00PM, NA.TO - Q1 2025 National Bank of Canada Earnings Call

Question: Mario Mendonca - TD Cowen - Analyst : Okay. So I can do my own math on the negative effect on NII from the disclosure you've given us that $0.09 impact. I can do that. But maybe let me ask this all else (inaudible) with the addition of CWB caused that domestic retail, the P&C margin to go up?

Question: Mario Mendonca - TD Cowen - Analyst : I mean if you -- let's just put it this way. If you ignore the marks and all we think about is adding in CBB because I certainly understand CEC's margin prior to being acquired by National Bank, it was higher. So I'm assuming that ex the mark, your P&C margin would have gone up.

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

Question: Mario Mendonca - TD Cowen - Analyst : Yes, I get it. There's no precision here. This is just climate numbers for now, but I appreciate. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 26, 2025 / 4:00PM, NA.TO - Q1 2025 National Bank of Canada Earnings Call

Question: Paul Holden - CIBC - Analyst : Yes. First question I want to ask is on the outlook for the commercial loan growth. You reiterated your expectation for low teens. We have heard some of your competitors talk about seeing a slowdown in commercial already just because of the tariff uncertainty. So maybe you can address why you're still confident in that growth outlook? Or if you are seeing any slowdown at all sort of in the interim?

Question: Paul Holden - CIBC - Analyst : Understood. Okay. That's helpful. Second question, also tariff related. As you look at the composition or mix within the commercial loan book, specifically in Canada. Is there anything in there that will raise you in terms of how tariffs if implemented might impact credit losses? Like is there any particular exposure that you're more worried about than the overall book?

Question: Paul Holden - CIBC - Analyst : Yes. Okay. That detail on the auto aluminum deal is useful. And then last question for me. Can you remind us on the CWB, what you're assuming for customer retention and what that looks like so far 1 month into the integration? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 26, 2025 / 4:00PM, NA.TO - Q1 2025 National Bank of Canada Earnings Call

Question: Jill Shea - UBS - Analyst : On ROE, you mentioned the ROE target of the ex the fair value marks for 2025 and realizing there's a lot of macro uncertainty, but I was just wondering if you could touch on some of the items that you have within your control that port of ROE. So maybe you could highlight some deal-related dynamics, the revenue or cost synergies or capital optimization and rationalization over time? Like how should we think about the pace of potential ROE improvement from sort of the bottom end of the range to like closer to the 15% to 20% type of range that you're targeting medium term?

Question: Shalabh Garg - Veritas Investment Research - Analyst : My question was on deposits. So deposit growth has lagged loan growth in the P&C and wealth business. I was just wondering if you're starting to see more competition for deposits from peers? Or is it purely more so from rate declines? Or are there any other factors involved?

Question: Shalabh Garg - Veritas Investment Research - Analyst : Okay. And so do you expect some material impact on margins if there are further rate declines. Let's say, we have an impact from tariffs and so on?

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Okay. I just wanted to clarify a couple of things. The 15% or so ROE for 2025, that's -- can you give us a sense of what sort of a capital ratio you expect to be operating at? Is that a 13.6%? Is that 14%? Is that a 12%? What sort of the CET1 ratio, is that 15% based on.

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Okay. So you expect to be operating around these levels. And so the question, Laurent, is then -- is the trajectory back to national bank type stand-alone levels for the combined entity, how much of that is driven by capital optimization as opposed to the numerator. In other words, are you suggesting to us that you're going to be operating north of 13% CET1? Or do you expect you'll be operating, I don't know, beyond 12 months in the 12% range?

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Okay. And just push on specialty. And to clarify, the 2 files you called out creating some lumpiness Were these already on the watch list? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 26, 2025 / 4:00PM, NA.TO - Q1 2025 National Bank of Canada Earnings Call

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : So you've taken two of the watch list, but the watch list is still stable. So does that mean two more came in.

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Okay. I just wanted to clarify that.