Earnings Call: Q1 2021

Mar 3, 2021

Good day, bonjour, and welcome to the First Quarter Results twenty twenty one Laurentian Bank Financial Group Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Susan Cohen, Director, Investor Relations. Please go ahead, ma'am. Thank you. Good morning and thank you for joining us. Today's opening remarks will be delivered by Rania Llewelyn, President and CEO, and the review of our 2021 financial results will be presented by Francois Laurin, Executive Vice President and Chief Financial Officer, after which we will invite questions from the phone. Also joining us for the question period are Liam Mason, Executive Vice President and Chief Risk Officer Kelsey Gunderson, Executive Vice President, Capital Markets and for the first time, Eric Provo, Executive Vice President, Commercial Banking. All documents pertaining to the quarter can be found on our website in the Investor Center. Before we begin, let me remind you that during this conference call, forward looking statements may be made, and it is possible that actual results may differ materially from those projected in such statements. For the complete cautionary note regarding forward looking statements, please refer to our press release or to Slide two of the presentation. It is now my pleasure to turn the call over to Rania Llewellyn. Thank you, Susan, and good morning, everyone. Thank you for joining us today. We hope you and your loved ones are keeping safe and well. Our main focus continues to be ensuring the health and safety of our employees while supporting our customers and communities during these challenging times. The 2021 marked my first full quarter as CEO of Laurentian Bank, and I am pleased to report that we had a good start to the year, delivering adjusted net income of $47,600,000 which represents an increase of 12% quarter over quarter and 29% year over year with adjusted earnings per share of $1.03 Our results were driven by a strong performance in Capital Markets, the resumption of growth in Commercial Banking, lower provision for credit losses and strong cost discipline. We continue to take a cautious approach towards PCL, considering the high level of uncertainty in the economy. While there is optimism related to vaccines, there is also concerns surrounding new variants. To mitigate this uncertainty, the bank continues to maintain healthy liquidity levels and strong capital position with a CET1 ratio of 9.8%. While I am pleased with our overall performance for the quarter, we do not expect this year transition and strategic refocus to be a straight line to success. There is much work to be done to position Laurentian Bank for sustained growth and profitability. You will recall last quarter, we established three strategic pillars that are guiding our efforts and actions. They are, number one, cultivating a customer first culture. Number two, creating a more agile organization with an innovative mindset. And number three, engaging and empowering our employees to work collaboratively as one team. As we work towards establishing a renewed strategic direction, we set out a number of goals last quarter that I want to update you on. The first goal was the renewal of our senior leadership team in our effort to put the customer at the center of everything we do. I am pleased with our progress on this front as we have recently added three new external hires and an internal promotion. Sebastien Beneuil, chief human resources officer, will drive the bank strategy of engaging and empowering employees to work collaboratively as one team. His focus will be on building high performing teams in a diversified and inclusive workplace. Sebastien joined the bank on February 2. Yves Denonet, head of operations, filled a new role that was established following the retirement of the chief operating officer. We have separated the bank's operations and technology units with Yves overseeing the operations teams. His mandate is to reduce complexity, improve and streamline end to end customer processes, and drive cost optimization across the bank. Yves joined us on February 22. Adam Swinomar, head of digital, is leading the digital strategy across both personal and commercial banking. He will develop and oversee the strategic digital initiatives to simplify and improve the customer experience. Adam joined the bank on February 2. Lastly, Yvon Deschamps, currently our SVP, finance, accounting, and corporate development, will succeed Francois Laurin as CFO when Francois retires on April 6. Yvan will use his financial expertise and deep knowledge of the bank's operations to guide the growth and profitability of the bank. Each of these new leaders will play a critical role in helping to achieve our strategic priorities. They will contribute to the thorough review of all Laurentian Bank's operations to ensure the organization has the right priorities, resources, and personnel to position the bank for future growth. The second goal was focused on our efforts regarding cost discipline. We have made good progress this quarter on controlling expenses as reflected in our adjusted efficiency ratio of 68.9%, which represents an improvement of 100 basis points over the past quarter and seven seventy basis points compared to last year. For the remainder of the year, we will continue to focus on expense management while working on identifying structural cost optimization opportunities that align with the future strategic direction of the bank. These efforts will create the type of sustained operational efficiencies that ultimately drive long term shareholder value. The third goal that we discussed last quarter was to advance our efforts towards a comprehensive strategic review of all the bank's operations and current priorities. This work, spearheaded by our renewed leadership team, is underway, and we are on track to deliver our new strategic plan, including and vision for the future by the end of the year. In the near term, one opportunity that has surfaced as a high priority for the organization is our residential mortgage business. While the industry has been experiencing growth over the past twelve months, we have not benefited from it. To reverse this trend, we are embarking on an end to end review of our mortgage processes with a focus on reducing the number of touch points to improve the customer and broker experience. We will share our assessments and progress over the next few quarters. What is increasingly clear is that the long term impact of the pandemic will have far reaching effects. It has changed the way we work and live and the expectations of customers and financial service providers. One area of change and increased investor focus is in the area of ESG. This is an area I am personally committed to because building a legacy for our future customers, shareholders, and employees is vitally important to me. At Laurentian, we are raising the bar at what and how we champion important events. We recognize the annual Bell Let's Talk Day by challenging every employee to a thirty minute mental health activity call, find time for me. For Black History Month, we introduced our courageous conversation series. And with just a few days until International Women's Day, the heightened need for greater attention to equity, diversity, and inclusion has never been more paramount. I'm proud that women at Laurentian Bank represent more than 55% of our workforce, 46 of our management positions, and we have had equal representation on our board for the past three years. The theme for International Women's Day this year is choose to challenge. At Laurentian Bank, we choose to challenge by leading. We're the first bank in Canada to appoint a woman as chair of the board. Janine Wiebe would in 1997, followed by Isabelle Corvill in 2013. And in 2020, we were the first major bank in Canada to appoint a woman as CEO. Laurentian Bank has begun its multiyear ESG journey that I believe will increase our accountability and transparency as we evolve our organization on important issues like equity, diversity and inclusion, sustainability and enhanced corporate governance. We will continue to provide updates as we progress through that journey and leverage the experiences of the past year to propel us forward as we create an organization that is more agile, efficient, and above all, customer centric. Before I turn the floor to Francois for what will be his last earnings call, I would like to sincerely thank him for his outstanding contribution. He has played a vital role in the evolution of the bank over the past five years. His mentorship is enabling a smooth internal succession plan. I want to extend my personal appreciation for your support and guidance during my transition to CEO. We wish you continued health and happiness in the next chapter of your life. Francois? Thank you, Rania, for your kind words. Good morning, everyone. I would like to begin by turning to Slide seven, which highlights the bank's financial performance. Total revenue increased by 4% and then adjusted non interest expenses declined by 7%, positive operating leverage from last year. Adjusted net income was 47,600,000 in the 2021, 29% higher than a year ago and 12% higher than last quarter. Adjusted pretax pre provision income was 38% higher than a year ago and 5% higher than last quarter. A more granular review of the drivers of our performance begins on Slide eight. Year over year net interest income increased by 3% and net interest margin increased by three basis points. The improvement was due to optimize funding as we increased the utilization of secured funding as well as higher prepayment penalties on residential mortgages. While contributing to net interest income in the short term, prepayment penalties reflect the reduction in the underlying portfolio. This is why reviewing the end to end mortgage process, as Rania had mentioned, is a priority which we are proactively addressing. Turning to Slide nine. Other income was up 6% from a year ago. An increase in capital markets revenues of $7,800,000 was partly offset by lower service charges and credit card revenues. The pandemic has led to a buildup of liquidity resulting from government programs and less consumer spending, and it is reflected in reduced credit card usage and faster payment of balances. Slide 10 highlights our disciplined focus on costs. Salaries and benefits were relatively unchanged from a year ago as higher performance based compensation related to strong capital markets revenues was offset by a decrease in salaries from a reduction in headcount. Premises and technology costs were 3% lower year over year as we continue to streamline costs and decelerated the pace of IT projects given our ongoing strategic review. Other non interest expenses declined by 30%. Stemming from lower regulatory costs and other costs ensuing from efficiency measures, some of which were implemented last year. As well, in the current environment, costs are generally lower, including those related to business development and travel. The adjusted efficiency ratio improved to 68.9%. Slide 11 presents our well diversified sources of funding. Personal deposits account for 77% of our total deposits and contribute to our healthy liquidity position. We continue to optimize our funding sources and manage third party deposits to align with loans. Slide 12 highlights our strong capital position. The CET1 capital ratio presented under the standardized approach stood at eight sorry, 9.8% at quarter end and 9.7% excluding Ausfi's transitional arrangements for the provisioning of expected credit losses. Internally generated capital was the main driver of a 20 basis point sequential increase. At the current CET1 level, the bank has about 300,000,000 of excess capital based on the midpoint of our risk appetite range of 8.1% to 8.5%. Slide 13 highlights the commercial loan portfolio, which grew by 3% sequentially. Growth in inventory financing volumes resumed, reflecting seasonality as well as dealers partially restocking their inventories. While consumer demand for recreational boats and vehicles remains high in the current environment, supply chain challenges are expected to delay a full recovery in inventory financing volumes. Real estate lending also contributed to growth largely through insured multi residential mortgages. The strength of our underwriting, good diversification, and strong collateral contribute to the high quality of this portfolio. Slide 14 presents the Pan Canadian residential mortgage loan portfolio. The loss ratio increased to 10 basis points and mainly reflects the end of the deferral program and an upward revision of the unemployment rate. The level of insured mortgages at 57% is among the highest in the banking industry and when combined with a low LTV on the on the uninsured portfolio, contributes to reducing the overall risk of this portfolio. Turning turning to slide 15. Allowances for credit losses totaled $193,600,000. The sequential increase of $8,600,000 is due to an increase in allowances for impaired commercial loans. It takes into consideration our cautious approach considering the uncertainty related to new variants of the COVID nineteen virus and a slower vaccine rollout than previously announced. Scenario weights were unchanged from the prior quarter with higher weights attributed to the base and downside scenarios and a lower weight to the upside. As shown on slide 16, the provision for credit losses was $16,800,000 in the 2021. Compared to last quarter, PCL decreased by $7,400,000 reflecting lower provisions on performing loans offset by higher allowances on impaired commercial loans. The PCL loan ratio stood at 20 basis points in the quarter compared to 29 basis points last quarter and 18 basis points last year. Gross impaired loans on Slide 17 were relatively unchanged from the prior quarter and stood at 82 basis points. I would like to offer some thoughts on how we see the second quarter developing. Net interest income will be impacted by the slightly shorter quarter. Net interest margin should be similar to the Q1 level. Capital markets has begun the second quarter with positive momentum. The commercial banking pipeline is strong and we're cautiously optimistic about our growth prospects. Although we do not expect non interest expenses to decline in a straight line, we will continue to heighten our our heightened focus on cost discipline. Growth impaired loans are expected to peak around midyear. All things being equal, we believe that we remain adequately provisioned and are cautiously optimistic that provision for credit losses could improve over the remainder of 2021. Considering these factors and the fewer number of days in the second quarter, we expect Q2 pretax pre provision income to be lower than in Q1. Before the question and answer session begins, I would like to make take a moment to say how privileged I am to have had the opportunity to work with an exceptional team at Laurentian Bank. I'm also fortunate to have been able to build strong relationships over the past five years with investors and analysts. I thank you for your trust and support, and I'll turn the call back to Susan. At this point, I would like to turn the call over to the conference call operator for the question and answer session. You. We'll now take our first question from Manny Gram of Scotiabank. Please go ahead. Hi, good morning. I was intrigued by the commentary on the mortgage business. Ronnie, I understand the fix will take a while, I'm just trying to understand better sort of your assessment of of the reasons for the lag, in volumes. You talked about reviewing end to end processing and also connecting it to prepayments. I'm just curious if you could go into that in a little more detail. Thanks, Manny. What I would what I would say is as you've seen, you know, many of the other institutions have really benefited from a robust mortgage asset growth, and and we haven't benefited from that. So as we're undergoing the detailed review of our operations, this was one opportunity that that came to light very quickly. And so we are currently mapping out the entire end to end process just to see reduce the number of touch points and understand what those touch points are, identify opportunities where we can introduce automation across the process, and and really ultimately get a faster time to yes as well. And so that should drive both growth as well as improve the customer experiences customer experience and reduce cost efficiencies as well. So that work is currently under review. And as I said in my remarks, we're hoping to report back our progress in the next couple of quarters. Okay. And just to dig into that, I mean, when you talk about end to end process, is the thinking that it just it takes too long to get to yes, and that is impacting some of the the performance that we're seeing? Am I getting that correctly? And the connection to I think Francois talked about elevated prepayments, and and so just trying to understand how that end to end process is impacting the prepayments specifically. Yes. So what I would say, Minnie and Francoise, welcome to hop in, ultimately, consumer demands Everything is, moved to faster time to yes. And so there's definitely an opportunity where we're lagging behind, which is why we're doing a deep dive on mortgages. And as you know, there's there's a couple of components, but that's that's definitely what we're aiming to do is to elevate our end to end processes, improve our customer experience, and get a faster time PS. Francois, did you have anything else to add? No. I have nothing else to add on that point right now. Okay. And and then if I could just ask another question just in terms of cost optimization. Sounds like definitely a priority. And I'm wondering, again, as as you look across your organization, what are the key areas where where you think there is opportunity here to optimize? Yes. So it's part of the comprehensive strategic review that we're currently undergoing and cost optimization, many as we mentioned, is definitely one that's important to us. Would say in terms of early observations, procurement and vendor management is definitely an area of opportunity that we're gonna do a deeper dive on. The other one I would say is, you know, the work from home environment and the pandemic has really proven that there's an opportunity for us to build hybrid working arrangements, which will also create, you know, cost optimization opportunities in terms of looking at our real estate footprint. So I'd say those are kind of the two early observations, but we'll be reporting back once the comprehensive review is completed. Thank you. We'll now take our next question from Gabriel Dechaine of National Bank. I won't ask that many questions because we got you coming to our conference at the end of the month. So but I'll stick with the mortgage topic here. And and good to hear you're, you know, highlighting some of the changes that you're you're putting into place. And but what just on the quarter, what we saw, can you quantify the prepayment penalty benefit? And can I connect the dots in such a way that you have prepayments, but your mortgage balances went down so that's, you know, people that are leaving the bank? Is that something that they go to somewhere else to get the loan? That's kind of the formal Yes. Gabriel, thank you for the question, and I'm really looking forward to the conference at the end of the month. And hopefully, we'll be virtually moving soon. I'll pass it on to Francois, and then I'll add a little bit more color as to what we're doing moving forward. Thank you, Rainer. As well, we have the impact year over year of the prepayment, and the NIM is basically half of the difference in NIM. So we went from 80 one eighty one last year to one eighty four, so basically half of it is due to the prepayment. Okay. And then, like, how are are the the trend connected? I'm ready complete the answer in your your Yeah. So what I would say, Gabriel, there's a reason why we're doing a thorough review. So, obviously, it's a trend we're trying to reverse. We're doing a thorough analysis to understand, retention versus, you know, you know, pile up of cash where people are paying off their mortgages, what the reasons are. But what we do know is that this is an area of focus, and it's an area of priority and opportunity for us. We've got multiple channels by which we deliver mortgage services through our b two b bank as well as through our retail network. And so it's, it's a high priority for me and for the institution, and that's why we're embarking on this end to end process because we know we're lagging, and we know we need to reverse the trend. Okay. Great. And just the switching over to the commercial side of the business, saw some growth there. In floor plan or I guess equipment finance or inventory finance, sorry, is that an indication of, you know, some of those supply constraints diminishing and your your dealers are, you know, closer to normal and what the outlook would be for for the rest of the year in that business. And then the CRE, in particular, multifamily project lending has has been growing for the last few quarters. Can you tell me what kind is that condo development or what? Thanks. So I'll start off, Gabriel, and then I'll hand it off to Edoug Plaveau, who's our new EVP of Commercial Commercial Banking. So what I would say is, as you know, our consumers have been building up quite a bit of liquidity. And what we're seeing is that consumer demand for recreational boats and vehicles remain high in the current environment, which is resulting in the nice resumption of growth in our inventory financing that you see on Slide I believe it was Slide 13. The supply chain challenges, though, are still here, and so there's an expected delay in terms of the full recovery in inventory financing. And and so I would say that, you know, the seasonality will start kicking in in q three, q four. But in terms of a forecast, we you know, the pipelines are quite strong, and so we're feeling relatively comfortable with the next quarter, but the supply chain challenges continue. But I'll hand it over to Eric to provide a little bit more color both on the inventory financing as well as the multi res portfolio. Thank you, Rainer. Gabrielle, on the inventory finance side, for sure, we do expect lower credit line utilization throughout the spring and summer season. As Rania mentioned, there's very high demand on those products and the OEMs are still catching up with that situation. So expect lower usage for Q3 and Q4. In terms of the question regarding multi res, like it's been a strong Q1 in terms of growing that portfolio on the insured side. Pipeline is still strong, but this is really a multifamily type units and not condo related. Okay. And low rise of four units or five units, is that right? I'm just trying to figure out. I'm just trying to figure out. All right. Thanks. Have a good one. Thank you. Thank you. We'll now take our next question from Doug Young of Desjardins Capital Markets. Please go ahead. Hi, good morning. Just wanted to go back to the expenses and just so I understand how to think about this over the next year because I think in the opening comments, was mentioned it's not going to be a straight line. This quarter was obviously much better than what we saw from a trend perspective last year. But there's a lot of projects still. It feels like ongoing, and the review is still ongoing. So how do we think about because because the expense line has bounced around quite a bit, and it and there was a material decline in the unusual items this quarter, which is great to see. Just trying to get a sense. Is that indicative of what to expect? And if you can provide any thoughts in terms of mix ratio or direction on adjusted mix, that would be much helpful. So what I would say, Doug, thanks for the question. And as I mentioned in my opening remarks, given, like you said, we're undergoing the strategic review in the organization, and so it's hard to predict at this point in terms of what it's going to look like. We do know it's likely not going to be a straight line. But I think the key thing is the cost discipline is here to stay. So the heightened focus around discretionary spend is definitely here to stay. But in order to ensure sustainable growth and profitability, we'll be pivoting very quickly to activating some of the cost optimization opportunities that we'll be identifying. And so that would be what I would say in terms of a forecasting perspective, and we'll continue to report back on what these cost optimization opportunities are. And and sorry, Doug. What was the second part of the question? I apologize. Yeah. No. Sorry. I I kinda droned on. It's my fault. No. It's just around the expense side. And so the so there was, you know, a big decline in the material unusual items this quarter. And so is there anything that you foresee over the next few quarters in terms of charges from decommissioning systems? Or, you know, you're looking at the mortgage end to end process, is there going to be any large chunky items that you would consider unusual that you foresee over the next few quarters? Yes. So again, Doug, it's really hard to forecast at this point. We're still undergoing that thorough review, and we'll report back when things get clearer for sure. Okay. And then just on the PCL side or allowance side, there was a small release in the performing ACLs. Looks like it was more personal than commercial. You know, your remarks suggest that, you know, there's obviously an improvement in the economic outlook, but, also, you've probably reined in the level of release that otherwise would have occurred. And, Francois, I apologize. Yeah. I think you mentioned maybe there was an increase in the weighting to the downside scenario. I'm just trying to understand what the offsets were that would have reined in the amounts. And then if you can just talk a bit about what you're seeing in the Personal and Commercial from the ECL side on the performing loans side. Sure. So I'll start off and then pass it over to Liam. I think just a couple of key messages is, number one, we're adequately reserved. We've always taken a consistent and conservative approach and very disciplined in terms of our underwriting as well as we have a very diversified portfolio that's highly collateralized. I think what's really important to note is that we were very gradual in our ramp up in 2020, which is consistent with our conservative approach. And in terms of a forecast, we'll be doing a gradual ramp down in 2021 as things unfold from an economic outlook perspective. So I'll pass it over to Liam to kinda add a little bit more color, particularly around the ACL. Thank you, Rania. Gross impaired loans were very stable versus last quarter, stable watch list, and we're not seeing a lot of new formations. Doug, you will see, in terms of the stages, the drop in in, and and I think Francois highlighted this in his in his comments, the drop in stage two mortgages. That's due to a decrease in clients with active payment deferral. That's somewhat set by, as Francois articulated, by a higher unemployment situation. And then on the personal loan side, we're seeing a decrease in sort of stage two, as, we see the equity markets and and, you know, some of our investment loan products improve. We are overall, very appropriately reserved, consistent with, the current economic scenario expectations, and we're taking a prudent measured approach to how we, you know, manage reserves, and we'll continue to do so. And maybe if I can speak to Sorry. Go ahead. Just to clarify just to clarify, you alluded to the weightings. We kept the same weightings as in the previous quarter for the economic scenarios, which are high skewed towards base case and downside risk cases scenarios. So we have some issues. Okay. And then if I can just sneak another one in. The AIRB conversion process, can you just update us where you stand with that? Yes. So again, as part of the comprehensive strategic review underway, we're looking at all of our key projects. And so ARV is definitely one of them. And so once we complete that thorough review, we will be coming back with some comments on that. And so there's no update on timing related to that project at this point? Yes. So as I've kind of stated publicly is that our comprehensive strategic review, we will be coming back at the end of the year. However, if there are decisions that are made between now and then or any priorities that surface, we will be updating you in due course. Okay, great. Thank you. Thank you. You. We'll now take our next question from Paul Holden of CIBC. Please go ahead. Thank you. Good morning. First question I want to ask is regarding how you're broadly thinking about potential uses of that excess capital you highlighted in your prepared remarks at $300,000,000 And I appreciate that some of it's going to be on based on the completion of your strategic review. But Aussie is likely, at least in my opinion, is likely to remove those capital handcuffs before that. Your stock's still trading at a significant discount to book value. So how do you think about that sort of return to potential return of capital to shareholders versus holding on to that capital to execute on your strategic priorities? Yeah. So so I'll I'll kick it off, Paul. What I would say is there's, our number one priority will be organic, growth opportunities that we will unidentify as part of that comprehensive strategic review. And so that'll that'll be our number one priority, that we're gonna be focused on going forward. If there's any tuck in opportunities for acquisition opportunities that are in line with our strategic direction of the organization, we'll have to be opportunistic. But it really gives us flexibility to make the right decisions, but it has to be fully aligned to our the strategic review and strategic direction that we're gonna be taking Laurentian Bank towards. K. That's helpful. Thank you. And then just looking at some of the details behind the fee income, I was surprised the result on fees on investment accounts. It's a small number, but given generally rising AUA levels across industry, I would have expected that to be a positive number, not a sequential decline. So maybe just some comments on what's happening there. Francois? Paul, I don't have the details of this. If I may take it offline after, if you if you don't mind. Sure. I'd be interested to know. And then sort of a follow-up question then is that I think about Laurentian's strategic shift to more advice based branches, or at least best of shifts today, where does that like, where would that show up in the fee income line? So that's one of the lines I would have expected to show up on. Mutual fund commissions, obviously, would be the other, and that has trended positively. But, you know, what are the key sort of income statement items I should be looking at to, identify success in that part of the strategy? Yeah. So I I can talk generically about the strategy and where we're at. I I, I strongly believe that the advice model is the right strategy, but there's still a lot of work that needs to be done on the personal side. We, it needs to be repositioned. We need to really be, clear on what our value proposition we have too many brands that, face the market on the personal side, so we need to simplify that. There's an opportunity for us to rationalize our products. And then ultimately, similar to the mortgage book, is really to simplify and streamline our end to end processes. And one key element as well is doubling down on our digital solutions, which will then further cement and support our advice model strategy. Francois, I don't know if you have anything else to add on that front. No. At this point, no. K. And last question for me is just regarding the changing funding mix. You benefited from higher securitizations this quarter. Just wondering, You will that be an increasingly greater proportion of the funding mix? Or as you sort of get start getting the strategy right, those branch based deposits might start growing faster again, and that will become an increasingly higher proportion of the funding mix? Just make my question more clear, how are you balancing the priority between branch based versus securitization? Yes. So I'll I'll start off, and if Francois has something, yeah, he can jump in. What I would say is if you were to actually look at our personal demand deposits, those increased 19% year over year and 5% quarter over quarter. We made a conscious decision of reducing our third party deposits, which are lower margin and replaced it with securitization. And we're constantly proactively managing our deposits to really optimize margin and sources and make sure it's also matched up with our asset growth. Commercial deposits has also increased with the asset growth, so that will continue to be a focus. And then last but not least, the digital strategy to drive deposits is gonna actually be core to our success going forward. So those those would be my comments in terms of where we're going on the deposit side. Deposits will continue to be a core, and we'll continue to proactively manage it to optimize our margins as well as sources. Great. I'll leave it there. Thanks for your answers. Thank you. Thank you. We'll now take our next question from Lamar Pesad of Cormark Securities. Please go ahead. Thank you. Wendy, I understand it's very early days in your mortgage review, but just wondering if broad strokes you can help us understand when we could see the narrowing of the performance gap in residential mortgages versus peers. Like, what I mean very very broadly, is this a 2022 thing or beyond? Yeah. So so, Lamar Lamar, it it is early days. And so what I would say is as we're mapping out the process, we'll be highlighting some quick wins that will probably, you know, impact it in a positive way. But it really depends on what the review uncovers in terms of, you know, how much investment and the time line in order for us to actually set it up for success going forward. But if there's any quick wins that will be identified, we'll be moving quickly in in executing them. So really hard to to give you a time line at this point, but stay tuned. And then, Francois, I think you mentioned the PCL ratio could improve for the balance of the year. Just wanna be clear here. Are you talking about improvements from q one twenty one levels? Or are you talking about year over year relative to the, elevated ratio ratio refi in 2020? No. I'm going from where we are. We we foresee the gross impaired loans peaking at the end of q at the end of q two midyear. And then throughout the year, we see improved we cautiously optimistic about seeing improvement in the PCR quarter over clearly over last year because 2020 was higher, but sequentially, cautiously optimistic. Okay. Okay. And then, you know, if I may just flip over to the sub pack here and your noninterest expenses, and I'm I'm looking at other other. So the footnote here suggests that it includes amortization of acquisition related intangibles. So when I think about that, I think more of of stability, but, clearly, that number has bounced around from quarter to quarter. And, you know, this quarter looks quite low. Is there anything could maybe could could you talk about what goes into the other other and, you know, what could be driving some of that volatility? Well, typically, year over year, there's been a reduction, but it's across all sector, across many many many activities, across all departments of the bank, Lamar. So there's no one specific in terms of reduction in other other versus last year. It's the cost discipline and measures that we started to implement last year because the obviously, the the decrease is not a is great compared to last quarter, but it's much higher compared to last year. So you see a progression in our cost discipline at the end of last year, and it it it continues this year. What type of expenses go in there, if I just may? Sorry. And and is that type expense? Expenses. Yeah. What type of expenses go into other others? Oh, boy. You've got travel, corporate development, professional services, advisories, insurance costs, and all all other administrative expenses. K. Thank you. You're welcome. Thank you. We'll now take our next question from Darko Mihelic of RBC Capitals. Hi. Thank you. Good morning. I wanted to revisit, Ron, your answer on the deposit side because I see it a little bit differently. When I look at the deposits, I mean, you mentioned strong growth in the personal side, and then there's runoff in fixed term, which we've we've actually been seeing that in other banks. And so when I combine all personal deposits together, I get your personal deposit growth to be rather weak relative to peers and commercially worse. So when I look at commercial deposits, the peers are up 15% year over year, down 13. So I'm surprised that I mean, we're highlighting mortgages as being an area, you know, of strategic importance. And I'm surprised that deposits haven't made that list, as well. So can you talk a little bit more about the deposit or the lack of deposit growth at the branch? Yeah. So what I would say thanks, Darko. I would say on the commercial deposits and that we currently, for example, don't have cash management solutions. And so that's where the digital strategy becomes key, which is why Adam is not only looking at personal, but he's also looking at personal and commercial. And so in order for us to drive more significant deposits in the commercial bank, we need to have a cash management solution for our clients. So you're absolutely right in terms of our performance on that front. In terms of the personal demand deposits, again, as we said, we need to reposition our personal personal banking division in in in its entirety in terms of looking at rationalizing our products and making sure our digital solutions are there. We have seen the growth, though, in terms of quarter over quarter and year over year, but it's an area that we are we are focused on leading with a digital strategy. Does that answer your question, Darko? Yeah. I guess it does. I mean, we can I I can dive deep in? I'm gonna do a little more deep deep dive analysis into deposits as well. It's just that's my first brush look at it. It just looks like, deposit growth. Even though we're seeing the same trends with respect to the fixed term, it still doesn't seem as though your personal is growing as fast as peers. And I'm wondering if it leads back to the same conclusion that you may be losing customers. Yeah. So so what I would say, you know, we have oh, sorry. Go ahead, Darko. No. No. Go ahead, please. I was gonna move on to another question. But if you have more to say on deposits, I'm I'm up here. No. No. We're we're good, Darko. Okay. And then with respect to the expenses, I mean, the I'm looking at your slide 10. Premises of technology and other, significant area of improvement. We're seeing that trend everywhere else at the other banks as well. But I'm starting to get a different story, from some banks with respect to expenses going forward, and this is where I wanted to ask a little bit more about strategic spend. So in other words, most banks, and I myself included, are expecting a much stronger, robust economy when we open up in the back half of the year. And some banks are saying, look. We need to spend in that kind of an environment. Right? We need to come out with new products. We need to you know, some banks are gonna give you an iPad for opening an account. We need to hire staff. We need to train staff. We need to be back in the offices. And so many of them are pointing to higher expenses in the back half of the year to really capture resurgence of spending and to really go out and try and get customers back. So I understand where you're coming from with a high efficiency ratio relative to peers, But I just want to understand if tactically, you're also thinking about potentially defending and growing your customer base when we get a very strong economic recovery in the back half of the year. So can you provide any thoughts on whether or not, there's a potential for a significant ramp up in costs, in the back half of the year rather than, a continued focus on sort of being stingy on costs. So, there's a lot in there, so I'll I'll leave it to you to to answer as as you wish. Yeah. I I think those are fair comments, Darko. What I would say is, you know, strong focus on cost discipline, but we did say it's not going to be a straight line. I think what needs to happen here, which is what we're doing, is to very quickly move from cost discipline to pivoting to cost optimization, which will require structural changes. And that'll give us the room to then reinvest in our strategic areas that we need to grow. Right? So so those are these are all of the things that we'll be reviewing as part of our comprehensive strategic review, but we need to move quickly to pivoting the cost optimization so we can take these costs structurally out of the bank. But growth is definitely our end game. That's what we what we need to do, but we need to make sure we're repositioned and refocused on the right priorities to set us up for growth. And so do you think that you'd need to maybe hire some frontline staff? Or, as you said, I think you have to rationalize your product lineup. But I'm wondering about, if if in that rationalization, you also have to come up with some pretty juicy offers. So is there any possibility here that we see salary and employee benefits actually rise as you add frontline and as variable costs go up? Yeah. What I what I would say is we actually need to make sure our end to end processes are simplified and that we're actually actioning what we already have in the pipeline faster. So similar to what I said on the mortgage side, and that will generate growth. So in the near term, I would say you will be very strategic in terms of where we add frontline staff. So in the commercial bank, where we see opportunities or in certain growth areas where they're well oiled machines, we will definitely be very strategic in terms of where we add additional staff. Okay. Great. Thank you. Thank And we don't seem to have any further questions at this time. I would like to turn the call back over to Ms. Llewellyn for any additional or closing remarks. Thank you. Thank you. In closing, I would like to leave you with a few key takeaways. The bank's capital and liquidity positions are strong and its credit quality is sound. We are hard at work with a renewed leadership team to identify areas of focus and priorities. Over the next few quarters, I plan on updating you on our review of our end to end mortgage process as well as some of the initial learnings that arise from our efforts on the strategic review. We will maintain our cost discipline while identifying more structural cost optimization opportunities, and we will advance our comprehensive strategic review to chart a new path forward. Thank you, everybody. Thank you for joining us today. Should you have any further questions, our contact information is included at the end of the investor presentation. Our second quarter of twenty twenty one earnings call will be held on June 2, and we look forward to speaking with you then. Have a pleasant day.