Earnings Call: Q1 2020

Feb 28, 2020

Good day, bonjour, and welcome to the Laurentian Bank Financial Group First Quarter Results twenty twenty 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. Good morning, and thank you for joining us. Today's review of the 2020 results will be presented by Francois Desjardins, President and CEO and Francois Laurin, Executive Vice President and CFO. All documents pertaining to the quarter, including Laurentian Bank Financial Group's news release, investor presentation and financial supplement can be found on our website in the Investor Center. Following our formal comments, the senior management team will be available to answer questions, and then Francois Desjardins will offer some closing remarks. Before we begin, let me remind you that during this conference call, forward looking statements may be made, and it's 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 Francois Desjardins. Thank you, Susan, and good morning, everyone. This quarter, we continued executing strategies across all businesses with the ultimate goal of building a better and different banking experience for our customers. With a lot of work already behind us and a renewed energy across the organization, we are beginning to see real progress in our foundational work, growth in our customer base, and concrete advancement towards improving customer experience. In terms of our financial performance, Laurentian Bank Financial Group reported adjusted earnings of 36.9, diluted earnings per share of 79¢, and a return on equity of 5.8. Several elements impacted our performance this quarter, including lower net interest income in part due to the low interest rate environment, competitive pricing, and customer growth initiatives, higher expenses in part due to the investment in our digital platform, and higher salaries and benefits to recruit and retain talents, and higher provisions for credit losses mainly due to commercial loans. We're disappointed with this quarter's financial results and are addressing both the revenue and expense side of the equation. After a period of asset attrition, where we are building growth engines and making good progress towards stabilizing our loan portfolio. We expect to return to net positive personal loan growth by the end of the year. Loan and deposit growth combined with efforts to improve efficiency and implement new technologies is the path we are on, and we are confident that this would lead to better performance. Consequently, we remain committed to meeting our midterm targets. More details on our financial performance will be presented by Francois Laurin. But first, I will report on key areas of the business. For personal customers, we launched LBC Digital, our newest direct to customer channel, expanding our personal customer reach from coast to coast. We welcomed thousands of new customers and accumulated over a billion dollars in deposits. Digital deposit is not our end goal, but rather a first step in acquiring new customers. For the moment, the offering is limited to checking, high interest savings accounts as well as GICs. But our goal is to broaden and deepen the relationship with customers and use this platform to build out a more complete suite of higher value convenience driven products over time with the next product being a credit card. In the adviser and broker channel, renewed business development efforts combined with expanded Alt A mortgage programs are gaining traction with brokers. We expect to see positive trends throughout the spring and summer home buying season. In financial clinics, the momentum is changing. We are originating new business with growth in gross sales of mutual funds and mortgages, demonstrating that customers do appreciate the value of the 100% advice model. Every day, our professionals are having productive conversations with customers, accompanying them through their life cycle as they buy a home, safe for for personal goals, and plan for their retirement. For business customers, the portfolio of loans to business customers grew by 7% year over year and by 2% sequentially. We continue to see profitable growth, and we are on track to deliver low double digit growth again in 2020. In real estate financing, we are continuing to build opportunities and drive growth. The pipeline is strong, although we experienced a high level of loan repayments in the first quarter. Commercial will also see benefits this year from the core banking initiative. We are developing a new online banking platform, which will provide better self-service and cash management solutions for small business customers. In equipment finance and inventory finance, the growth that we are are achieving on both sides of the border has been exceeding our expectations. The two acquisitions that we made helped us become better leaders in this niche market where we can truly meet the unique and diverse needs of customers. For institutional customers, capital markets had a good quarter with stronger results compared to both last quarter and last year. Strength in fixed income as well as improved activity in equities were key contributors. With a fresh perspective, we expect new growth opportunities. With respect to transformation overall, I began my remarks by mentioning that a lot of work was already behind us. This is true. We have been making strategic investments in the business to meet the demands of customers for digital solutions and in technology to continuously improve governance, risk and security, and in our people so that they embrace a culture of performance. The bulk of the investment related to this transformation is behind What we have put in place are the technology, people, and processes necessary to manage growth in this ever evolving environment. And what we have built is a stronger financial institution than ever before, Stronger capital, a healthy level of liquidity, and an industry low loan loss ratio positions us well for the future. But we are not done just yet. Our teams are working on finishing the core banking replacement for financial clinics. And once complete, this will not only allow the organization to decommission legacy IT systems and improve efficiency, but offer a greatly improved customer experience. At the 2020, we expect that all new customers will be onboarded digitally, and we will have started migrating existing customers' accounts to the new platform so that by mid twenty one, all our personal banking customers will enjoy the same experience in managing their accounts and day to day transactions. As we had previously stated, we fully expect to deliver improved financial performance in the second half of this year and to resume growth in our loan portfolio. Growth and efficiency, this is the focus of our teams. This was a challenging quarter in terms of financial results, but we must remember that one quarter doesn't make a year. Growth is returning and performance will follow. And now I will turn the call over to Francois Larennes to provide a more detailed review of our first quarter results. Francois? Thank you, Francois. Good morning, everyone. I would like to begin by turning to Slide 10, which highlights the bank's financial performance. As Francois just mentioned, our results in the 2020 were lower year over year and sequentially. Reported earnings for the first quarter were affected by adjusting items as outlined on Slide 11, totaling $4,700,000 after tax or $0.11 per share and are largely related to severance charges and amortization of acquisition related intangible assets. The drivers of our performance begin on Slide 12. Total revenue in the 2020 amounted to $238,700,000 a decrease of 1% compared to last quarter and last year. Net interest income fell by 2% compared to a year ago and three percent sequentially, while other income was unchanged and increased by 2% over the same periods. The year over year decrease in net interest income was mainly due to lower loan and deposit volumes, partly offset by an improved business mix as well as a wider Prime B spread and a normalized level of liquidity. The sequential decrease in net interest income was mainly due to the impact of the adoption of IFRS 16 on 11/01/2019, the launch of digital high interest saving accounts and the lower prime BA spread. As shown on Slide 13, NIM in the 2020 was 1.81%, up one basis point compared to a year earlier, mainly due to the change in the loan portfolio mix. The proportion of commercial loans in the portfolio stood at 39% versus 36% a year ago as we are successfully executing our strategic plan to evolve the bank mix towards higher margin commercial loans. Compared to the 2019, NIM decreased by three basis points. The impact of IFRS 16, the launch of the digital high interest saving accounts and the lower Prime B spreads, each accounted for a decline of about one basis point. Other income as presented on Slide 14 totaled $69,900,000 relatively unchanged from a year ago. The largest year over year variances included market related revenues that increased by 1,500,000.0 and were mostly driven by strong results in fixed income activities and the recovery in revenues from advisory and equity operations and service charges that decreased by CAD1.2 million, mainly a result of the ongoing changes to the retail banking environment and consumer banking behavior. Sequentially, the largest variance was market related revenues that increased by $5,400,000 for the same reasons I just stated. As mentioned last quarter, the 2019 included a $3,800,000 loss related to the revaluation of trading securities. Slide 15 highlights adjusted non interest expenses of $182,800,000 which rose $3,500,000 or by 2% year over year. Salaries and employee benefits increased by $3,200,000 partly as a result of share based and performance based compensation, including a portion related to brokerage operations as well as other sales driven compensation. Taking into account IFRS 16, rental costs improved slightly. Sequentially, adjusted non interest expenses increased by $10,800,000 The increase is explained by share based grants, higher performance based compensation related to improve results in capital markets, higher employee benefits, including payroll taxes and regular salary increases. Adjusted other non interest expense decreased by close to $05,000,000 year over year and sequentially largely due to lower advertising costs and lower professional fees. The $15,000,000 of cost savings initiatives were substantially completed over the last twelve months. However, despite the implementation of these measures, the adjusted efficiency ratio of 76.6% in the 2020 remains high as we pursue investments in our foundation, processes and technology. Nonetheless, we're striving to improve both revenues and expenses and continue to grow loans to business customers and resume growth in the mortgage portfolio in order to achieve tangible efficiency gains throughout the remainder of 2020. Slide 16 highlights our well diversified sources of funds. In the 2020, deposits stood at 25,200,000,000 personal deposits totaled $20,100,000,000 including CAD 1,000,000,000 of digital deposits and a stable level of deposits at our financial clinics. Given the successful launch of our newest digital direct to customer channel, we reduced GICs from third parties and wholesale funding. Furthermore, our liquidity position continues to be strong and above regulatory requirements and our liquidity portfolio is largely highly rated government securities. Slide 17 presents the CET1 ratio under the standardized approach of 9% at 01/31/2020 and highlights our strong capital position. Our diversified loan portfolio is shown on Slide 19 and stands at $33,500,000,000 close to the year end level. The residential mortgage loan portfolio is also close to the year end level and loans to business customers increased by 2%. Personal loans declined 5% from year end reflecting the reduction in the investment loan portfolio. Slide 20 highlights our residential mortgage portfolio. We're maintaining our strategy to seek profitable niches and to that end recently enhance the breadth of our Alt A offering. At 01/31/2020, our Alt A portfolio totaled $1,000,000,000 and represented 6% of the total mortgage book and 3% of the total loan portfolio. Overall, this portfolio is high quality as evidenced by very low loss ratios and low LTVs as well as high credit scores. Slide 21 highlights our commercial loan portfolio, which is pan Canadian with a U. S. Presence. At $13,200,000,000 as of 01/31/2020, this portfolio grew 2% sequentially. Strong growth in inventory financing and equipment financing was partly offset by repayments of commercial real estate loans. The portfolio is well diversified and is positioned for sustainable profitable growth. Turning to Slide '22. In the 2020, the provision for credit losses was $14,900,000 compared to $10,500,000 a year ago and $12,600,000 in the prior period. The year over year increase was mainly due to a few loans in the commercial loan portfolio. However, economic conditions as well as the good overall underlying credit quality of our loan portfolios continue to result in an industry low loss ratio of 18 basis points. Impaired loans are shown on Slide 23. Gross impaired loans totaled $186,700,000 up $11,600,000 sequentially, mainly due to an increase in the commercial loan portfolio. The allowances for loan losses against impaired loans increased by $5,000,000 from year end, mainly from commercial loans. Allowances for loan losses against other loans amounted to $57,900,000 down $1,600,000 as a result of improvement in risk ratings of personal loans and the decrease in loan volumes. The net impaired loan ratio stood at 42 basis points, up two basis points from year end. The bank remains comfortably provisioned and the loan portfolio remains well collateralized. I would now like to provide an update on how we expect the remainder of 2020 to unfold. NIM should improve slightly from the level in the 2020 as our loan portfolio continues to evolve towards higher margin loans to business customers. The efficiency ratio is expected to gradually improve throughout the year. The loan loss ratio is expected to be in the mid teens and the tax rate should be moved towards the mid to high teens. In light of the weak first quarter results, adjusted EPS for 2020 is now expected to range from 5% below to being in line with the 2019 adjusted EPS. As we speak, there is growing uncertainty in the macroeconomic environment as well as increasing volatility in capital markets globally. This evolving situation has the potential to impact our outlook and performance. To conclude, despite the challenging quarter, we remain committed to execute our strategic plan and work towards the medium term objectives that we have set. Thank you for your attention and I will now 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. Anja? Thank you. One moment, please. Your first question comes from the line of Meny Grauman of Cormark Securities. First question, just wanted to follow-up on the guidance in terms of the net interest margin. You're talking about an improvement. I'm just wondering what you're assuming right now in terms of Bank of Canada rate moves. Francois? We're assuming we're at the moment, we're taking the view of the forward rate that exists at the moment. So that's two cuts is baked into No. We're we're doing sensitivity analysis and and stress testing regularly. But at this point, we don't we we're waiting to see. We we haven't dealt in a a reduction at this point. Okay. And then if I could just ask in terms of the the credit, Just wondering about the increase in commercial provisions on the impaired side. And if you could give a little more detail in terms of what drove that increase? Is it is there any pattern there? Is it a few specific accounts? Liam? Thank you, and good morning, Matti. Thank you for your question. There were a few loans in the commercial loan portfolio that did become impaired. It amounts to about $5,000,000 of provisions. Beyond the macroeconomic environment pressures, we don't see anything systemic in our portfolios. At this point, we believe that these loans are adequately provisioned, and they are not tied back to any previous loans. And then in terms of the recovery in Stage one and two in the personal loans, just wanted to get more insight into what was moving that. Is that just migration or a change in economic assumptions? So in terms of the personal loans, we did see favorable migration overall in that portfolio. And in my view, this is just normal variation, ebbs and flows. We've talked about that in past quarters. Okay. And then just a final question for me is just in terms of the the high interest savings accounts and sort of the the promotional rates there, do you expect that promotion to continue to weigh on the margin in q two and beyond? And how confident are you that the clients that are taking those promotions aren't just rate shopping? Like, how how sticky do you believe those clients are? Well, first of all, having diversified sources of funds is a real strength for the bank, and that includes deposits, obviously. With respect to personal customer deposits, we're pleased that now we have three channels instead of two. Financial clinics, where we had a few quarters of stable deposits now, advisers and brokers, and now we have LDC Digital, our digital direct to customer channel. We're really pleased that we have gathered a billion dollars of deposits through this channel, which gives us access to many new customers all across Canada, and this will provide cross sell opportunities. I'll ask Craig Bachman to give some more color on that. Sure. We've just announced to customers that there will be a reduction in rates 2.8% from 3.3% effective March 1. We believe this remains a competitive offer. Over the next quarter, considering the reduction in the interest rate, we would not expect material variations in the volume. We will continue to dynamically monitor rates and volumes according to the needs of the bank and market conditions. If I may add, Mani Francois here. The impact on profitability is not expected to be material in 2020 and long term longer term to be profitable. Understood. Thank you. Thank you. And now take our next question from Sumit Malacha with Scotiabank. Please go ahead. Thanks. Maybe start with a qualitative one first on your shift to the advice based model. I know that it's obviously still early days since you you've migrated to this new structure. Just wanted to ask you, and and some of this might be conceptual, maybe there's some numbers around product offerings you can share with us. Obviously, you've talked about some of the revenue challenges that are still visible. But as far as the interaction with customers and what you're seeing in terms of product sales, cross sell, those type of measures, Is there any tangible wins you can talk to us about as to how that is being received in your marketplace? Thanks for the question. Yes. Well, as I said in my remarks, we're seeing gross sales in both mutual funds and mortgages, which is very encouraging, and also a stable in deposits. I'll ask Stephane Thijn to give more colors on the interactions that we're having with customers. Thanks for the question. We're really happy about the reaction from our customers. Just a reminder that all these changes were aligned with the evolving customer needs of our customer. So having more time dedicated to have a longer discussion with our customer, advising them on their future is all positive for the customer, and their reaction so far is really positive. Good thing as well is during the first half of our transformation plan, as you mentioned, a lot of our time was dedicated to simplifying our offering, preparing a customer for the new model and also preparing for potential work conflict. All of this is now behind us. We are now in a growth mode, as Francois just mentioned. We're getting back to basics. Our financial clinics are now full of customer meetings. They're a dedicated adviser to improve their financial health. And getting a little bit more specific into the quarter here. If you go back to your commentary for Francois Desjardins after the new contract with your workforce was resolved, it certainly seemed to open the door to the efficiency improvement and expense outlook getting better for the bank. To be fair, expenses are only up 2% year over year on an adjusted basis, and clearly, the revenue piece plays into efficiency. But I get the feeling from some of your commentary that the aggregate level of expenses this quarter, I mean, you used the term disappointing for how you viewed Q1. Is expenses a part of that? And more specifically, what are some of the areas that might aid this line going forward in 2020? I'll ask Francois to give some specifics on those numbers, and then I'll double back on the end, all right? Okay. On the expenses side, most of the increase in sequentially, most of it comes from salary and benefits. By the tune of $10,000,000 or so. And basically $6,000,000 or 60% of this submit is related to seasonally higher elements including higher vesting of share based compensation and other seasonally higher employee benefits like higher payroll taxes. So half of those we don't feel that they will recur. We clearly don't expect to recur in following quarters. And the other part of the increase is $2,000,000 of it is related to higher compensation reflecting improved better performance in the Capital Markets business compared to previous quarter and Business Services growth. So assuming those elements stay, so those expenses will come with the success of the units themselves. And the remaining $2,000,000 is related to favorable adjustment to pension costs in the previous quarter, so that we don't expect going forward. So when we take all these expenses from the salaries and other expenses, we expect to gradually improve our efficiency ratio in the year by three to four basis points, three hundred and four hundred basis points coming from the salary benefit I just mentioned and other expenses that we see coming down like professional fees for the rest of the year. So that's the expenses point, expense portion, Sumit. I'm sorry, first of Yes. If you wanted to circle back, So obviously, we're not happy with the quarter for for obvious reasons. But, you know, putting this into context, we are recovering, right, from a period of of decreasing assets due to labor relations environment. I'm encouraged by what I see on the momentum on the growth side. Business services has never stopped, and we see good growth there. From a mortgage perspective, I'm really encouraged by what I see. We're increasing momentum there. Business is coming in more than it was last year for sure. We're putting in place new programs with major brokers across Canada. We're increasing our business development activities, and and, basically, we're originating more mortgages. There's still work to be done there. I'm expecting more from this. And we also have to address the personal loans and credit card businesses. But all in all, we need to be in growth mode. From an expense perspective, we had a quarter with where we had some nonrecurring expenses. So obviously, it doesn't help. But as Francois explained, we need to work on the efficiency ratio, and we expect the efficiency ratio to go down to more to to decrease from now to the end of the year. A combination of both, the revenue and expense side of the equation. Last question for me is on the commercial loan portfolio. You made it very clear since since you took the role, Francois, that that that's really where the focus of the bank is going to go. And and the numbers we see this quarter in terms of balances of 2% sequentially, 7% year over year, certainly solid. There has been a as we've gone through this this earnings season, there has been some differentiation in the commentary from the various banks on on how they're approaching the commercial market in in Canada. And, you know, some seem to be taking their foot off the gas, whereas others continue to go. If I look at your numbers this quarter, and I'll say it again, two on the quarter, seven on the year, is that a reasonable expectation for what you think the bank can can deliver when it comes to commercial? And are there any situations from a credit quality perspective, maybe a pricing perspective, that give you any pause in pursuing growth at this level? I'll ask Stephane to give some commentary on growth in the sector. Thanks for the question. We still feel very good about our specialization strategy. So I think that if 100% of your sales force is specialized by industry, they're really close to the highs and lows of the industry. They're aligned with our credit team as well. So we feel good about the current structure that we have in place, and we feel good to continue to grow by double digits in the current year. Thanks for your time. You're welcome. Thank you. And we will now take our next question from Mario Mendonca of TD. Please go ahead. Good morning, everyone. And forgive me if some of these questions have been addressed in other calls. I'm still familiarizing myself with some of the nuances of your bank. But can we talk first about the sensitivity the bank has the sensitivity to the 25 basis point rate cut in Canada, what that might mean to your NIM over, say, a twelve month period? Francois? Sure. All things being equal, Mario, a 25 bps decrease in interest rate would result in approximately $4,600,000 reduction in net interest income annually, all things being equal with no change in any of the other variable. But And then sorry. Please go ahead. To to now to that, I would say, we still expect even if that would occur and when it does occur, we still believe that our NIM is expected to be positively impacted by the volume growth and the explanation that Stephane just gave as we deploy our capital and involve the mix of our portfolio to higher yielding commercial loans that would be partly offset by any decrease in interest rate that could occur. But we still see this are evolving mix to be a positive thing on revenues and NIM going forward. I see. You also referred to lowering the rate paid on certain deposits from, say, point three to 2.8. I think you made the point that you don't expect this to have any effect on profitability in 2020. With the lot because there's eight months left in the year if you do this on March 1. Is the logic here that the rate that this is essentially just offsetting the decline in your realized yields on other securities and other assets? Is that the logic behind suggesting that it won't have an effect on profitability? It's more from a funding perspective that we the overall funding perspective as we lowered this rate, when you look at our the various options that we have to fund our business and our plan, lowering the rate by 50 basis points. At this point. We see this as not materially impacting our profitability going forward, more from that perspective. Okay. And then finally, I think on Page 14 of your presentation, you were when referring to the decline in service charges, you said that it was a change in retail banking behavior. The 12 decline seems like an awfully large amount reflecting customer behavior because I never think of customer behavior changing in such in such a big way. Could you talk about what you're actually what you're really seeing there? Well, Francois here. Clearly, as we moved our the Financial Clinics to fewer transactions, obviously many services you had that counter before are just totally disappeared. So now it's financial advice to the customers and new products and Francois explained that sales and mutual funds and other products are getting some growth since we moved to the new model. And that's what we mean by the behavior. We have before we made the switch basically less than 4% of our transaction were done at the counter by clients. So already that was started not to come and have services being taken at the counter, but we had the cost before. So now we move the financial clinics to service and advice. So we eliminate many of the costs to provide services that were not sought after by customers. And so that's why we see on the revenue line, clearly on the revenue line, you see a decrease. But the decrease in expenses is part of our total expenses, other expenses, salaries and everything that you don't identify to the clinic, financial clinics per se, but the revenues are. That's helpful. Thank you very much for your help. You're welcome. And if you find that your question has been answered, you may remove yourself from the queue by pressing star two. And we will now take our next question from mister Scott Chan of Canaccord. Please go ahead. Good morning. Just on the in the SIP with other expenses, I I just kinda see some variability in some of the line items that, hopefully, you can help me out with. If I look at rental property taxes, this quarter was $6,000,000 and it's been tracking at 11,000,000 for a while. Could you explain why it kind of dropped so much? And is the previous run rate still a good guide to you? Sorry, Scott. Are you talking about the rent? Yeah. The rent and property taxes line and other expenses. The rent with the advent of the IFRS 16 started that started November 1. The rent expenses basically there's no more rent, we need to capitalize most of the rent. So you have a major decrease of rent by I think it's $5,800,000 or $4,000,000 5,800,000.0 but you have an increase in amortization of $4,000,000 So you have a change in between in the lines. So you have a decrease of rent expenses by 5,800,000.0 You have an increase of amortization because now you have to capitalize the leases. And then you have the interest portion, the interest cost portion of $1,200,000 that's part of the NIM. So when you take those three elements compared to the previous, the rent expenses were basically a bit less expensive. We have some savings compared to previous periods. So that explains that the rent, operating rent expense. That's that's helpful. And and, Francois, you talked about in your opening remarks about personal getting back to positive territory by year end. Did you did you refer to just personal in isolation that was down 15%, or does that include credit cards and mortgages as well? You know, the the goal of getting to positive loan growth by the end of the year is an overall comment. I'm I'm really encouraged by what I see on the mortgage side. I'm I'm seeing new loans coming in at a much higher pace than what I've been seeing. So that is very encouraging. We still have work to do to do the same on the personal lending side. And Visa credit card portfolio is rather stable, and we need to put more efforts in terms of growth and cross selling to our existing customers. So that would be the the task that's before us, but I'm encouraged by what I see so far. So it's a combination of those those three? Correct. Okay. Thank you very much. You're welcome. We'll now take our next question from Will Flanagan of National Bank Financial. Please go ahead. Hey. Good morning, guys. I just have a couple of quick questions here. So just going back to the LBC digital product offering. I'm just wondering if you guys are seeing existing clients transferring balances from your other deposit products to to the LBC digital, or is this entirely new new clients that you're getting? Obviously, the the LBC digital offering was launched only outside of Quebec. So given that our financial clinics are in Quebec, we saw a very, very little crossover from one clientele to the next. Okay. Great. And then sorting about your early thoughts on possibly the new proposal for capital regulations for the small and medium sized banks. Is there anything you're seeing there or anything you think might impact the business from from that? I'll ask Kelly Mason to comment on that. Thank you for your question, Will. In terms of Oxy's white paper on the proportionality, we do believe that Oxy is taking a step in the right direction by addressing the proportionality for small and medium sized banks and attempt to reduce complexity in the capital space while allowing institutions to compete effectively and taking reasonable risks. It is a bit early to assess the impact as the consultation with our Austrian colleagues is evolving. But we view Austrian's moves in this direction as positive. Okay, great. And then my last question is just touching back on the commercial loan book and the provisions there this quarter. Would you be able to provide any detail on the regions or specific sectors that saw sort of some of the trouble there this quarter? Liam? In terms of the specific areas, don't really want to get into the specifics, but they were within our syndicated loan portfolio. They were in the energy and telecom sectors. Okay. We'll go ahead with our next question from Robert Sujan of CIBC Capital. Francois, you talked I just want to come back to the performance based compensation for a moment. You addressed it in your prepared remarks and I think in Sumit's question as well, but I'm I'm still a bit confused when when I see that large of a jump both quarter over quarter and year over year. Like, fees and securities brokerage commissions looks flat and, in fact, down sequentially. Fee income is down sequentially. You're now guiding for the full year EPS to be flat to down. And so I'm not sure from where this magnitude of an increase. And when I have seasonality, it's up even more year on year than it is sequentially. So can you maybe just try one more time to help me get to where what's driving this number up so much this quarter? Sure. When we you take the basically, it's mostly in the performance based compensation. About 60 percent of the performance based compensation, if you look at this, it's in full supplementary information we have, it's about $4.5000000 dollars About 60% of it relates to share based compensation that will not recur in the rest of the year. Basically, this is when the time of the year when units and options are granted and sometimes people achieve the vesting period and we need to put this to expenses on the P and L. So that's always basically from Q1 to Q1, you have this, obviously, we may we have a bit more this year than we had previously. So that's one. Then the second one is 40% of it is related to the higher compensation because capital markets, if you recall last quarter, we had a $3,800,000 loss on some financial instrument that hit clearly the performance based compensation of those people that you and this year you have in this quarter compared to the other one, you have an increase of basically 5,000,000 in the results. So that and basically those people are anywhere between 30% to 40% compensated on those revenues. So why I say this one is based on the results going forward. And then you have the growth in business and people in that sector based on their profitability and their volume have access to compensation and that obviously they're doing well as we saw from the increase in loans in that sector. So that's why despite the lower revenues overall in the portfolio that these two sectors have done better than they did previous quarter. That help? Does. Just clarify, that first component, is it about it's not about great bigger grants, it's more just about more vesting and, again, equivalent, I guess, in employees that are eligible to retire, and so you have to take that charge into Q1. Is that more what it is rather than people getting paid more? Okay. Thank you. You're welcome. And we will now take our next question from Mr. Rob Movaredi of BMO. Please go ahead. Thank you. Just wanted to get a couple of clarifications here. On the service fee charge with the customer behaviors, is that line going to go close to zero over the coming, call it, call it, or eight quarters? Stephane, you want to comment? Yeah. Obviously, moving to 100% advice and having a lot less transaction gradually, if you add that as well into the fact that we're going digital, this line will continue to go down for sure. But is it going be going to zero like as quicker than let's say million or so a quarter? Or do you think that's about the right kind of rate for it to be going down? If I might add here, only the transactions that are in the financial clinics done by human beings where are the the the charges where where this reduction has occurred. Other fees that are related to things that are done online or things that are, you know, on other products or transaction fees don't disappear. So the move to to a 100% advice meant that we're not doing these these transactions by human beings anymore. We don't have the revenue. We don't have the cost. Yeah. I was just I was speaking specific just to the service charge line, which I think was discussed earlier. Yes. Yes. I know. It should not go down as quickly as because what is left is is transactions that are not done by human beings. But it will, as Stephane said, continue continue to decrease slightly. Thank you. And and you've talked about the commercial loan growth and the pipeline and the like. Are syndicated credits? As any other banks, obviously, we're using a syndication desk, both in commercial and in real estate. Our overall syndicated desk for business services only accounts for 10% of our loans. But but it accounted for but it accounted for I think it accounted for all of the impairment, right, this quarter? Is that what Liam said that these were syndicated loans in energy and telecom that went back? The increase, sir, the increase was driven by two syndicated loans. Right. So are the syndicated loans good quality, I guess, is what I'm trying to figure out here? From an overall quality perspective, we're happy with the quality of our syndicated loan portfolio. You do have ebbs and flows, as you know, in this space, Saurabh, on specific situations, but we're very comfortable given our underwriting standards with the overall syndicated loan portfolio. Okay. And Francois, maybe I'll just finish off with you. I mean, I think on a number of occasions on this call, you said you weren't happy about the quarter. Can you be a little bit more specific about which aspect of the quarter you were unhappy about? Was it the expenses? Was it the revenue? Was it what was it that you were unhappy about? All of it. A little bit of everything. Right? We're recovering from from an asset reduction. So a decrease in in the top line. I'd like to see a a flattened out loan portfolio. We're working on that. Obviously, having a few, having to take a few provisions, on specific loans in this quarter did not help. And and having some expenses related to, you know, growth in in our digital and others, this combination gave us, you know, the results that we have. Obviously, not happy with any of it. Happy with the strategic advancement that we're making. Happy with the fact that we're going and getting customers across Canada now. Happy with the fact that we welcome thousands of customers in. Just not happy with the end result this quarter. What I am looking forward to, right, is the by the efforts that we're making, going and getting that growth, like I said, last year was difficult to do. This year, it's all boots on the ground. I'm seeing results in in in that. And as soon as we see growth, we will see performance. Like Francois said, from a a loan loss perspective, we had a couple of pickups this quarter, but that doesn't mean that we're expecting that to go forward every quarter. And from an expense perspective, we are working on getting our efficiency ratio down, like Francois mentioned earlier. Three to 400 basis points is what we're looking for from that till the end of the year. I'll be a lot happier when that occurs. Thank you very much. Thank you. And once again, ladies and gentlemen, if you have any additional questions at this time, please press 1 now. Again, it's 1 for additional questions. We'll hold on just one moment for additional questions. And we have no further questions at this time. I'd like to hand it back over to Francois Desjardins for any closing remarks. Actually, we do oh, no. Please go ahead, mister Desjardins, for your closing. It is when we have a challenging quarter like this one that it is most important to remind ourselves why we undertook this transformation, why we are working on, or working through such an ambitious undertaking. Transformation can be bumpy, but it is worthwhile. Overall costs are under pressure through transformation, but this is not a permanent run rate. And when we get a quarter like this, it looks even worse. But the heavy lifting is coming to an end. We also need to remind ourselves that a substantial portion of the transformation is already behind us. And even if it's not yet tangible, we are making progress towards growth, efficiency, and future performance. We're on a plan. We're on a mission. We're gonna get it done. We're working on growth and efficiency. The year is not over. We're building something great. I will now turn the call back to Susan. 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 twenty twenty conference call will be held on May 29, and we look forward to speaking to you then. Have a good day. And this concludes today's call. We thank you for your participation. You may now disconnect your lines, and have a wonderful day, everyone.