Good afternoon, ladies and gentlemen, and welcome to The National Bank of Canada's First Quarter Results Conference Call. I would now like to turn the meeting over to Ms. Linda Boulanger, Senior Vice President of Investor Relations. Please go ahead, Ms. Boulanger.
Thank you, Operator. Good afternoon, everyone, and welcome to National Bank's first quarter presentation. Presenting this afternoon are Louis Vachon, President and CEO; Bill Bonnell, Chief Risk Officer; and Ghislaine Parent, Chief Financial Officer. Following our presentation, we will open the call for questions. Also joining us for the Q&A session are Laurent Ferreira, Chief Operating Officer of the Bank since February 1st; Stéphane Achard and Lucie Blanchet, Co-Heads of P&C Banking; Martin Gagnon, Head of Wealth Management; Denis Girouard, Head of Financial Markets; and Jean Dagenais, SVP, Finance. Before we begin, I refer you to slide two of our presentation providing National Bank's caution regarding forward-looking statements. With that, let me now turn the call over to Louis Vachon.
Merci, Linda, and thank you, everyone, for joining us. Today, the Bank reported strong first quarter results with the pre-tax pre-provision earnings up 18% from last year. I am very satisfied with our performance, which was driven by excellent momentum in all our business lines. We generated strong organic growth and an industry-leading ROE while maintaining high capital levels and prudent reserves. This speaks to our franchise's ability to adapt and the sound diversification of our earnings. While uncertainty remains on the exact path and timing of a full recovery, the economy is adapting to a new reality and creating an environment conducive to revenue growth. With more people working from home, coupled with historically low interest rates, we continue to see significant pent-up demand in the housing market. Furthermore, consumers are spending less, saving more, and investing more.
Finally, markets are very strong, stimulated by monetary policies and new technological and financial innovations. Looking at our home province, we remain optimistic about the economic recovery. The provincial government is in a solid fiscal position. Quebec went into the lockdown with the lowest unemployment rate in Canada, and the Quebec consumer has lower indebtedness and higher savings than the Canadian average. Many sectors of the economy have adapted, so we expect the negative impacts of the current lockdown to be significantly more contained than last spring. Following a contraction of 5.2% in 2020, we expect the Quebec economy to rebound by close to 4% in 2021. On credit, we are confident in the quality of our well-diversified loan book and our strong risk management framework.
While some risks remain in the short term, we are prudently provisioned with significant reserves of CAD 1.4 billion, almost double what we had a year ago. Bill will provide further details. In terms of capital deployment, our strategy remains unchanged. Our number one priority is to maintain strong capital ratios, allowing us to support our clients and generate strong asset growth. We will also look at increasing dividends and share buybacks once restrictions are lifted. Turning now to the performance of our segments for the first quarter. P&C delivered a solid performance with pre-tax pre-provision earnings up 3% on a year-over-year basis. Our franchise experienced strong growth on both sides of the balance sheet in both retail and commercial. The strategic choices and the investments we have made over time in P&C and our focus on good execution are producing tangible results.
Residential mortgages continue to display particularly strong momentum, with volumes up 8% year-over-year and 3% quarter-over-quarter. This is more than offsetting due to client activity in the context of government support and economic restrictions. In commercial banking, we are experiencing good momentum in both loan and ancillary revenues. As we look ahead, we expect the underlying trends to persist for both businesses. More than ever, we are committed to our advice-first strategy. The current context remains conducive to further our relationships with personalization, digitization, and the collaboration between our distribution networks. Wealth Management pre-tax pre-provision earnings are up 19% on a year-over-year basis, fueled by strong inflows, favorable markets, and elevated transaction levels. Furthermore, recent investments in our Direct Brokerage business are paying off as we are experiencing top-tier growth on several fronts, including in the number of trades, new accounts, and revenues.
We are very pleased with the strategic positioning of our wealth business. Financial Markets continue to perform very well in Q1 with pre-tax pre-provision earnings up 35% on a year-over-year basis. Sustained investments in talent, technology, and products over the years are bearing fruit. All our businesses were well-positioned to take advantage of favorable market conditions and delivered strong revenue growth. The consistency of our performance demonstrates the agility and the resiliency of our franchise. For the time being, we continue to see solid momentum for the business as a whole. Our international segment also delivered a very solid quarter. Credigy's revenues were up 58% from last year, driven by solid portfolio performance and a CAD 26 million gain on an opportunistic sale of one portfolio. For 2021, Credigy has a solid pipeline, and the outlook is very positive.
ABA Bank's net income was up 39% year-over-year, driven by strong growth in loans and deposits. We are pleased to announce that ABA was named Best Digital Bank in Cambodia of 2020 by Euromoney, recognizing the excellence of ABA's digital platform for the second year in a row. Our international segment is well-positioned to deliver double-digit earnings growth again this year. To wrap up, we had a very strong start to the year, and our momentum from Q1 is carrying over into Q2. Activity in Financial Markets and Wealth Management continue to benefit from supportive market conditions. We are seeing very good momentum in real estate and merger and acquisition, and our international businesses are positioned to continue to deliver strong growth and returns. Fiscal and monetary policies remain very favorable for financial activity and should ensure a pickup in economic activity later in 2021 and 2022.
Based on what we are seeing today, and should those trends continue, revenue growth should remain quite positive in the foreseeable future. Given our performance in Q1 and the current outlook, we are well-positioned to achieve mid to high single-digit pre-tax pre-provision earnings growth for fiscal 2021, and we continue to work towards achieving positive operating leverage over the same period. As the economy adapts and recovers, I am confident that we have the right team, culture, and strategies in place to generate revenue growth and deliver strong returns for our shareholders. Before I turn the call over to Bill, I would like to say a few words on Laurent Ferreira's recent appointment as COO of the Bank. Laurent is an outstanding leader with a strong track record of driving performance.
A 23-year bank veteran, Laurent has been at the heart of building our differentiated Financial Markets franchise and instrumental in the successful executions of the bank transformation over the past few years. In his new role, he will be providing fresh perspective and strategic leadership to our business segments and operations. So, from the whole team, I would like to congratulate Laurent once again on this well-deserved appointment. With that, I will now turn the call over to Bill.
Merci, Louis, and good afternoon, everyone. I'll begin my remarks on slide seven. Total provision for credit losses were CAD 81 million, or 19 basis points, in the first quarter, reflecting ongoing strong performance across our loan portfolios and our resilient business mix. Provisions on impaired loans declined to CAD 75 million, or 17 basis points, five basis points lower than last quarter. The primary driver of the decline was a cyclical low level of provisions in retail portfolios. Within the retail portfolios, RESL benefited from a strong housing market and saw further improvements in delinquencies. In credit cards, early-stage delinquencies saw a moderate increase from last quarter but remained well below pre-pandemic levels. Commercial and corporate provisions were stable quarter- over- quarter, and performance remained very strong in our international segment. Provisions on performing loans also declined in the quarter to CAD 6 million, or two basis points.
There was a small reversal in retail provisions, reflecting the ongoing strong performance in RESL and the update to our macroeconomic scenarios. Strong loan growth in the IFRS 9 update drove the performing provisions in our non-retail and international portfolios. Looking ahead, we maintain our total PCL target range of 25 basis points- 35 basis points for the full fiscal year of 2021. Given the good performance we're seeing in the portfolios, we expect to end up closer to the bottom end of that range. As we mentioned last quarter, this target range did not assume a material reversal from performing allowances due to significant improvements in macro scenarios. Since I expect that you may have questions about the potential timing of reversals, I'll share with you our current thinking on both performing allowances and on what may be ahead for impaired provisions.
First, performing allowances should be expected to decline over time due to both migration and when there are improvements in our forward-looking macro scenarios. We recognize that in recent months, there has been encouraging progress regarding vaccines and success in measures to combat the spread of the virus. In addition, borrowers have accessed capital from receptive capital markets and from ongoing support programs. However, we also recognize that large parts of the country are still subject to stringent COVID restrictions, and significant uncertainty remains in the path of the recovery. We felt it was appropriate to maintain our prudent level of performing allowances given these uncertainties, and we will continue to reassess the situation each quarter. Regarding impaired provisions, we continue to believe that they will increase over time.
Retail impaired provisions should rise from these very low levels, particularly in credit cards when utilization rates increase and fiscal support is reduced. Non-retail impaireds will likely be concentrated in the COVID-impacted sectors and could be lumpy from quarter to quarter. However, the timeline for increases in impaireds may stretch out longer than we initially thought and could extend past the second half of this year. Also, we think that the size of cumulative losses over this period may be lower than what we initially thought, particularly given our underweight exposure in cards and our limited exposure in COVID-impacted sectors. On slide eight, we provide details of our allowances for credit losses. In the first quarter, total ACLs increased slightly to almost CAD 1.4 billion, up 76% from last year. Non-performing allowances increased to CAD 357 million and now represent 47% of gross impaired loans.
Performing allowances were stable at just over CAD 1 billion. As you can see on slide nine, performing allowances comfortably cover three times our last 12 months' impaired PCLs, and total allowances cover 5.9 times the last 12 months' net charge-offs. We remain very comfortable with the prudent level of our allowances that we built up over the past year. Turning to slide 10, gross impaired loans decreased across all segments to CAD 757 million, or 45 basis points. New formations were concentrated in commercial due primarily to two accounts in the oil and gas production sector. This sector was hard hit during 2020 but has seen significant improvements in energy prices and capital markets activities this year. Retail formations declined meaningfully, primarily due to strong performance in the RESL portfolio, and most other sectors had net negative formations in the quarter.
Turning to slide 11, the distribution of our RESL portfolio remains stable, with 54% of the portfolio located in Quebec and 37% of the portfolio being insured. Uninsured mortgages in HELOC for condos represent 7.6% of the total portfolio and have an average LTV of 59%. In the appendices, you'll find additional information on the loan portfolios and market risks. On that, I'll turn it over to Ghislaine.
Thank you, Bill, and good afternoon, everyone. Turning to page 13, the Bank delivered a strong performance in the first quarter, further highlighting the sound diversification of our business mix. With revenues up 13% year-over-year and a solid operating leverage of 4%, the Bank delivered strong pre-tax pre-provision growth of 18%. As always, we maintain our disciplined approach to cost management. We attained an efficiency ratio of 51.7% in the first quarter, our best showing on record.
Higher expenses compared to last year reflect higher variable compensation, giving strong revenue growth, larger business volumes, and higher investments in brand and technology. While uncertainty remains, we are seeing positive momentum continuing into Q2 in all of our businesses. We are committed to achieving good revenue growth and are implementing initiatives to support this objective. Our investments are primarily focused on providing our clients with the best experience, supporting new business initiatives, and simplifying our systems and processes. As Louis mentioned earlier, given our performance in the first quarter and the momentum we are seeing, we believe we can deliver mid to high single-digit pre-tax pre-provision growth for fiscal 2021 and potentially achieve positive operating leverage over the same period. Now turning to page 14 on capital. We ended the first quarter with a strong CET1 ratio of 11.9%, up 12 basis points from last quarter.
During the quarter, we delivered an excellent net income generation of 51 basis points, resulting from strong performance in all business segments. We reinvested our excellent net income generation into organic client-driven growth. Risk-weighted asset expansion of 41 basis points essentially came from strong organic growth in our businesses. The main drivers included higher volumes in commercial franchise, continued growth in Financial Markets, including increased authorization in corporate banking and client activity in global markets, as well as loan growth at ABA Bank. The impact from credit migration was limited this quarter. Continued improvement from retail credit scores were offset by re-rating of wholesale borrowers in COVID-impacted industries, including oil and gas. For fiscal 2021, the regulatory scalar for ACL relief decreased from 70% to 50%. The change subtracted seven basis points from our CET1 ratio in the first quarter.
Looking forward, we expect our CET1 ratio to continue to creep higher as our strong internal capital generation supports both good organic business growth and the ability to return capital to shareholders when restrictions are eventually lifted. In addition, we are very confident that our strong capital levels, combined with our prudent level of credit reserves, provide good resiliency in these uncertain times. Now turning to page 15. On liquidity, our LCR continues to be strong at 154%, and we are introducing our net stable funding ratio at 124%. In addition, our total capital ratio remains stable at 16% at the end of the first quarter. In conclusion, the Bank had a strong start to the year with solid organic growth, high capital levels, and industry-leading ROE.
With a strong balance sheet, significant reserves, and diversified revenue growth levers, our franchise is well-positioned to continue generating attractive growth through fiscal 2021. With that, I'll turn the call back to the operator for the Q&A.
Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before making your selection. If you have a question, please press star one on your device's keypad. You may cancel your question at any time by pressing star two. Please press star one at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Sohrab Movahedi from BMO Capital Markets. Please go ahead.
Thank you. Laurent, congratulations on your appointment. Louis, question for you. Over the recent quarters, certainly pre-pandemic and then throughout the pandemic, I think you have told us that you have been incredibly selective in growth pre-pandemic. And I think as recently as the last couple of quarters, you'd indicated that you are aggressively in pursuit of top-line growth. And I guess what I'm trying to get a feel for is, if you had to, on a scale of one to 10, give us a feel for how much of your aspired growth is actually being realized right now as far as still on the come, that would be helpful. Let me know if that actually makes sense, the question.
I'm just trying to get a sense for whether or not what we're seeing here this quarter is as good as it gets, or do you expect this is just the beginning?
Thanks for the question, Sohrab, and the question did make sense. A couple of things. One, you and I have discussed that in the past. So I think we've been selective in the areas where we want to grow. This is not 2009. This is not 2010 when we had a risk-on strategy in almost every single business line and in every single asset class. In 2021 and 2022, I think you'll need to be much more selective in terms of risk allocation than we were in 2009, 2010, because the financial crisis of 2008 had created a lot of forced liquidations, and that resulted in very attractive risk returns opportunities right across the different business lines. The massive amount of quantitative easing and government supports have shielded, I think, the markets from the same level of forced liquidation that we saw in 2008, 2009.
It's not just in Capital Markets. It's the same thing also in the lending market. So we are seeing opportunities, and we're taking advantage of those opportunities, but we remain still pretty restrained to remain selective in this market. So when we say we can, you know, we see growth for opportunities for growth, we do see them. And I think it's. I don't think it's the end of the cycle. I think a good scenario, which is, I think, right now a probable scenario, Sohrab, is that, as I mentioned in my opening remarks, we could see a period of time where, because of very active and very expansionary monetary and fiscal policy, we could see financial activity, namely the activity related to Financial Markets, Wealth Management, and real estate remain quite active for a period of time.
At the same time, eventually, the economy will make—you know, the GDP level will have completely recovered from the COVID crisis, and then we'll see a real pickup in economic activity, which should benefit credit cards, small business loans, and other types of activity. If we have that sweet spot of high level of financial activity combined with an economic recovery, I think it should be a very good environment to generate revenue growth. That being said, as I said, there's some distortions right now in the market caused by quantitative easing, and there's also some pockets of irrational exuberance. You do need to navigate from a risk management perspective. I think Bill and his team and the business lines will remain very, very busy. You know, in short, I think this is not—I don't think that Q1 was a fluke. I certainly hope not.
I don't think so. I think we are quite clear in our opening remarks that all the favorable trends that we observed in Q1 are still present with us at Q2, and so for us, going forward, I think we'll, you know, there'll be, you know, we'll continue to grow, to grow the business, but we'll keep an eye open on risk management, that's for sure. Did I answer your question, Sohrab?
I think you did. And just for crystal clarity, what you did in this quarter when you're talking about, for example, for the balance of year when Ghislaine is talking about mid-single-digit pre-tax pre-provision growth and the like, this is all still within the context of being prudent on the businesses that you're pursuing or basically, as you put it, not being in a risk-on environment. Like, in other words, once we get into a bit of a risk-on environment, that would be, I guess, additional fuel. Is that the right way to think about it?
Yeah, I think it's prudent. As you know, when we give guidance, we like to be prudent, and I think the way we manage risk also historically has been prudent, so I think your assessment is a clear one.
I just hope one of these days, Louis, when you have results like this, you don't say you're satisfied. You say you're ecstatic.
Yeah, we're bankers, Sohrab. You know, ecstasy is not a, we need to be careful about that.
Very, thank you.
Thank you. The following question is from Meny Grauman from Scotiabank. Please go ahead.
Hi, good afternoon, and I'll start off also by congratulating Laurent. The question is, I think for Bill, you talked about the timeline on the evolution of impairments being delayed, and I'm just wondering if you could go into more detail what's driving that delay in your mind.
Thanks for the question, Meny. Yeah, I think the comments I made were just giving you an indication that what's changed from last quarter to this quarter. And I think last quarter, we spoke about expectations for impaireds to gradually grow through the year, and probably Q3, Q4, we'd see a peak. Certainly, the performance this quarter is, and many of the portfolios were better than last quarter. You saw impairments down. You saw, you know, we weren't surprised by the performing allowances being down. But just given the slower start to the increase, it's natural thinking that it could be delayed. We also made a comment that it's less certain about the size. So the handoff, as Louis mentioned, from financial activity to economic activity, you know, nothing is certain in this world.
During a pandemic, uncertainties are higher, but it looks like there's a chance that the overall cumulative losses may end up being lower in this cycle than we would have thought three or six months ago. Does that answer your question, Meny?
Yeah, I mean, I think that's what I was getting at in terms of, you know, when we see the delay that we're seeing now, I guess a prudent way to look at it is to say, okay, let's be careful and think it's still coming. But the question is really, could we just have been totally wrong on this front? And given all the government support and all the things that we're seeing on the ground, could it just be that the kind of impairments that basically we will not see, the kind of impairments that we thought we would see? So just curious on that idea that this could just be the kind of allowances that you have just could be significantly over and above what will actually be needed when all is said and done.
Well, I think on your last point, say that we're very, very comfortable with our performing allowances. On the first point, I think that's what we mean when we say there are uncertainties. It's hard. We haven't been through this, certainly, I haven't been through a global pandemic before and to see what the other side of it looks like. So we call it uncertainty, and I would agree it's, you know, what it'll end up at is likely to be different than what we would have thought three, six months ago.
Just on that point, in terms of, you know, everyone's focused on the vaccination rates, how big a risk factor is that in your mind? The fact that Canada seems to be behind the curve relative to the U.S., especially. Is this just a matter of timing, or could it be a more significant risk as we move through the year?
Listen, I think that if we put ourselves back a couple of quarters, we didn't know if a vaccine would come. We didn't know whether it would be effective. Certainly, there's been lots of good news on that and what we know now. It was obvious from the beginning that it's a pretty massive exercise to source and to distribute the vaccine. So there are always going to be, you know, a range of uncertainty around that. I think that what we've seen so far has been positive in terms of the ability to combat this part of the virus and the optimism that there is an end to the tunnel, light at the end of the tunnel. And Louis, you have any other comments?
No.
Thanks, Meny.
Thank you. A following question is from Paul Holden from CIBC. Please go ahead.
Thank you. Good afternoon. So Louis, on the last conference call, you highlighted a number of reasons why we should be positive on commercial loan growth. And it looks like sure enough, you delivered some pretty good commercial loan growth this quarter. So one, can you comment on some of the drivers behind the loan growth within the quarter? And then maybe an updated view for fiscal 2021 as well.
Paul, I'll let my colleague Stéphane Achard answer, and also, we had a little bit of difficulty hearing you, Paul, so we heard your question, but the volume was a little low. Stéphane?
Paul, I'll go. The growth was quite diversified over the last quarter. If you look at the Supp Pack, you'll see that, you know, there's been growth in utilities. Obviously, real estate, we took opportunities. Bill and Louis have mentioned it in their speeches. We took opportunity of the residential market and the insured portion of our book has grown substantially. Also on the education and healthcare, our specialties are doing well. If we look at what we call national accounts, family-owned large businesses, quite a bit of activity there, good growth. We launched a new initiative last year in Toronto, which is doing really well as well. Specialties outside of Quebec. An important part of the growth was actually outside of the province. That's looking good.
If we project ourselves in the future, you know, we expect growth in volumes to continue rising up. By the end of the year, we probably will revert back to more historical levels. We still have plenty of opportunities by way of working capital utilization, which is minimal right now in corporates around the country and businesses. Lines of credit will be fully used or returned back to the historical levels, which is more around 36%-37% of utilization on lines of credit. Right now, we stand between 29% and 30%. Plenty of growth is coming from there, we expect. That obviously will depend on the progression of the, you know, resumptions of the business cycles.
That's helpful. Thanks for that.
Thank you. A following question is from Nigel D'Souza from Veritas Investment Research. Please go ahead.
Thank you. Good afternoon. I wanted to touch on trading net interest income. And I noticed that's still running at a fairly healthy level for you. And I was wondering if you could touch on how the recent volatility we're seeing in yields might impact trading NII going forward and where you see that moving in the short term?
It's Laurent. Thank you for your question. Obviously, we've seen elevated volumes, transactions over the quarter, and you're right. Volatility was, I would say, at a healthy level, but obviously nothing like last Q2 of last year, and we expect, actually, for this year, volatility to remain at a healthy level. So overall, of course, we benefited from higher volumes in Q1, a trend that we saw in Q4 of 2020, and it continued throughout Q1, so you know, we don't control volumes and volatility, but you know, I feel very confident in our ability to adjust quickly to shifting market conditions. You know, I think we've proven in the past that the franchise is very agile, so yeah, you could see trading revenues go down, but it's not a concern.
That's really helpful, and I had another quick question on employees in Canadian banking. I noticed in this quarter, there was a marginal decline there quarter- over- quarter. I was wondering if you could speak to what drove that decline in full-time employees and if you think that's going to stabilize here. Do you see yourself hiring more people as the economy reopens?
We're, Nigel and Louis, we remain, as I said, we remain very disciplined in terms of cost management and headcount management. Especially, you know, we were certainly very prudent in Q1 because there was more uncertainty in terms of vaccination and the path of the recovery and the whole sanitary situation. So, you know, over time, I think we'll remain disciplined, but I think you should expect that number to go back up slowly as we move, you know, back into economic activity. You know, we should expect that we'll need a bit more people.
And that's really helpful. Thanks for the call.
Thank you. A following question is from Doug Young from Desjardins Capital Markets. Please go ahead.
Good afternoon. Starting just with all bank NIMs, and if I exclude trading for National, it was up about two basis points year- over- year based on my numbers. That's, I mean, it's the only bank this quarter that we've seen so far where there's been an increase. And so just curious if you could talk a bit about what might have driven that. I would assume it's the expansion, you know, in the growth in Credigy and ABA. And then if you can talk a bit, maybe if you can provide any color in terms of an outlook for that, that would be helpful.
Jean, you want to give it a try? Jean is shuffling through his papers right now.
Okay. Well, yes, you had the slight decline sequentially for P&C, which is only one basis point. But you had also improvement due to volume into Wealth Management and a lot more also in Financial Markets. So the margin is better in Financial Markets than it was in Q4, which we see also in ABA. So improved margin in ABA Financial Markets and more revenue, net interest income in Wealth Management.
Any outlook, or maybe you can talk about outlooks for NIMs within, like in Canada, you know, it looked like it's been stable sequentially. You know, if there's an outlook for NIMs within, you know, USSF& I, any color within Wealth Management, if that would be helpful.
It's more difficult to see in those kinds of businesses. We do expect one to two basis points lower NIM in P&C banking. But for the rest, it is more volatile. That's why we follow mainly P&C banking NIMs.
Doug, it's Louis. Credigy is a bit volatile because of the structured portfolios. I think the trends, though, for ABA remain very positive at all levels, NIMs and volume.
Okay. Then just a clarification, like the CAD 26 million gain, that came through non-interest income, I assume, and that's an after-tax? CAD 26 million is an after-tax number?
CAD 26 million is pre-tax. It is in the other income of Credigy, to which you have some variable compensation of about CAD 4 million, so for a net of CAD 22 million, and net of tax, it's CAD18 million or CAD 0.05 a share.
Okay. I mentioned last, Bill, you know, performing loan PCL was CAD 6 million. I assume the FLI improved. I didn't have a chance to go through it all, but the FLI would have improved. The outlook seems to have improved. Can you talk about what the offsets were? And was this more of a weighting towards your pessimistic scenario? Like what offset the amount that would have otherwise been released? And Louis, the goal, I think last quarter, you said that the goal was not to necessarily release them. You'd want to grow into them. Is that still the kind of viewpoint?
Thanks, Doug. I'll start off. So in terms of offsets, certainly loan growth is one that generates the performing PCLs. You'll notice that in the appendix and the disclosures on our macro scenarios, the baseline did improve somewhat in a few of the factors.
But the shape of the pessimistic was a little different. You'll see that on the slide at the back of the deck. And that had an impact as well on the performing PCLs.
Yeah, I mean, we're, I think you saw we had a nice increase in risk-weighted assets. I think that's what we were hoping for, and that's somewhat, I think, indicated for, but it still indicated the situation, the economic situation, if it continues to improve and vaccination accelerates. I think, you know, we'll be facing the possibility of releases faster than we thought.
We'll review it each quarter.
Yeah.
Okay. Great. Thank you very much.
Thank you. A following question is from Scott Chan from Canaccord Genuity. Please go ahead.
Good afternoon. If I go to slide 19 on Wealth Management, the thing that jumped out to me was transactions and others on the revenue line up 35% quarter- for- quarter. Maybe just if you could help me, or maybe if you can just elaborate on the sequential increase and if there's anything in that other that kind of drove it?
Mr. Gagnon, you'll answer that question.
Thank you to ask a question about Wealth Management. The transaction increase comes 50/50 from Direct Brokerage as well as NBIN. So there is an element to it that is related to the frenzy that everybody saw. But there's also an element coming from portfolio managers at NBIN. So that's why we like the profile. We like the profile that we have. And especially at NBDB, Direct Brokerage, it's not only coming from GameStop trading. It's, you know, we've gained a number of accounts. We're number two according to Investor Economics for number of transactions, revenue growth, as well as new accounts. So it's pretty solid. Now, in terms of other revenues, a lot of it is FX revenues. And I would say that the only change in investor behavior that we've seen is a big increase in the number of U.S. shares that are transacted versus Canadian shares.
And that brings FX revenue.
Got it. And maybe just lastly on international with ABA, you know, in terms of loan book up 7% quarter- for- quarter, 36% year- over- year during the pandemic. You know, at what point do we see this loan book kind of mature? Or is there a runway for several years where you can kind of post these exceptional kind of growth rates on this book?
Scott, it's Louis. I think we've posted these types of numbers now for five years at least. I think there's still some runway. I think our market share is obviously growing, but it's still, I think we see room for growth there. We continue to gain market share in both deposits and loans, and what's encouraging is that there's been no lockdown in Cambodia, so it's difficult to get in. You have to abide by the Australian rules, so you have to do two weeks in a hotel if you're coming from outside. So the tourist industry is extremely slow, but the other parts of the economy, manufacturing, construction, and agriculture are doing extremely well. So what's encouraging is that three of the four engines are running, and then at some point, tourism will come back.
So from a strict macroeconomic standpoint, these, you know, that performance was not done with the Cambodian economy at peak performance. It's really done at, you know, at 3/4 performance. So that's why I think there's still some runway here for at least, you know, a couple of years.
Understood. Thank you very much.
Thank you. A following question is from Mario Mendonca from TD Securities. Please go ahead.
Good afternoon. This question might be appropriate for Jean Dagenais. Jean, you referred to the shift into Wealth and Financial Markets as an explanation for why the margin would have been strong, and I, too, observed that the all bank margin was very strong sequentially. Was there any change in the balance sheet, the structure of the balance sheet, either duration or risk, that might account for the abrupt improvement in the all bank margin?
The only big change in the balance sheet is the increase in liquidity at central banks. So this affects treasury. It doesn't affect the business line. Other than that, there was no other shift for the business lines.
But that wouldn't have contributed to a higher margin, would it?
No, no. The increase in liquidity is almost neutral.
Okay.
Louis, I don't, you know, we're looking around the table here. No, I don't think there was anything special on balance sheet or anything else that occurred. It was just, as you saw, I think good volume growth in all business lines and on both sides of the balance sheet. I think that's just it. There was nothing unusual in ALM or anything else like that.
Yeah, that's helpful. When I disaggregate the margin for National and I see how well it performed relative to your peers, it does look to me like the business in Cambodia and Credigy and I guess Wealth as well. Those are making a meaningful contribution to National's better margin performance. So I wanted to just sort of square the circle and make sure I wasn't missing something on the balance sheet.
If I could just go, Louis, more of a philosophical question. You've been around a while. You've seen a lot of cycles. And I think you'd agree that no one would have predicted that National Bank would put up over CAD 2 a share a record quarter, 13 months into a pandemic or 12 months into a pandemic. So it's clear that, at least in my perspective, that central banks and governments around the world have maybe not intentionally, but they've created a very, very good environment for banks with extremely low credit losses and a great opportunity to make money in Financial Markets. So at some point, central banks aren't going to be there and central governments aren't going to be there to create this perfect environment for banks and the punch bowl gets taken away.
In your many years running Financial Markets and running this bank, what happens in that environment? And how is National, are you preparing for the day that the punch bowl gets taken away? Because it seems, at least from my seat, that that's what we've seen. We've seen central government and central banks create a perfect environment for banks to make money.
It's certainly been very, and you were around in 2007, 2008. So I, you know, on a comparative basis, Mario, this was even larger in terms of intervention by government's fault on the fiscal and monetary side. So yeah, so there was massive intervention. Now, I think, you know, it's a good question on the punch bowl, but the fact is, I think before we get there, I think we need to get back to full employment. And I think it's not just GDP recovery that the G7 countries are looking at. You're looking at full recovery in terms of the job market. So I think before we get to removing the punch bowl in terms of the fiscal stimulus, monetary and fiscal stimulus, I think we will have a nice period of economic rebound, which I think we will benefit from.
As I said earlier, I was mentioning a scenario, you know, maybe it's more wishful thinking, but we have both positive financial activity and economic activity taking place at the same pace. Now, having enough scars on my body, on my face, to have gone through periods where central banks have removed liquidity. 1994 was one, 2000 was another one, and, you know, a little bit in 2015 or 2016. I think what happens in that particular positioning is you need to be very good at managing volatility in Financial Markets. And especially now, if there's any kind of wave of inflation, which again, I think it's, you know, it's probably a couple of years down the road at the earliest, I would think. But once that occurs, I think volatility is going to be, you know, could be quite high.
And I think so far, and I'm knocking on wood, and we're all knocking on wood, as a team, I think we've shown that we're pretty damn good at managing volatility in Financial Markets. So that's why Capital Markets remains, I think, and, you know, within a universal banking business model, a very attractive add-on because of the correlation versus the other business lines. Am I making sense here, Mario?
Yeah, and if I could, just one final thing. When the music stopped in 2008, 2009, several banks, mostly in the U.S., were exposed. Pretty in stark terms, we saw the banks that made a lot of mistakes. Are there any excesses that you can see being built up in the system today that will be exposed down the road?
Not now. And I think the financial system, as you know, Mario, is quite different. Particularly the regulated part of the financial system, namely the banks, are, you know, quite different beasts than they were in 2006. So I think there are a lot of new players, a lot of new structures in the markets. And I don't see right now major weaknesses within the regulatory, you know, the regulatory part of the system. For the rest, I did allude in my opening remarks that we are seeing pockets of irrational exuberance in the markets. You know, you can figure out which one of those. And I think given the level of stimulus, they're likely to be more. And that's why I think risk management remains a strong risk management culture. It is not a nice to have even in a period of strong economic recovery.
It is especially important in a period of strong economic recovery because that's usually, as you know, that's where the big mistakes are being made. So that's why, you know, we're trying to be balanced between what we're generating in terms of revenues, but being fully cognizant that we have to be very, very prudent in terms of risk management.
Helpful. Thank you.
Thank you. The following question is from Lemar Persaud from Cormark Securities. Please go ahead.
Thanks. I just want to circle back on earnings in Wealth Management. It sounds like there's some transaction volume that may not repeat in Wealth. So the earnings power of that segment on a run-rate basis and closer to the, let's say, CAD 130 million a quarter range? Because when I look back at your Supp Pack, it looks like there was quite stable growth to that level of earnings. Or should we be thinking about it as more of the CAD 160 million as being a representative run rate for Wealth?
Well, thank you. Look, it's a tough question. In our revenue mix, this is the portion that is the most volatile. But recently, we're experiencing really, really strong numbers even in February. March last year was a record, and we're trending right about those levels, if not higher these days. And it's coming from Direct Brokerage, as I said, but not only that. Recently, it was between NBIN and Direct Brokerage. And now we're seeing new issues coming to Full Service Brokerage, which is something we have not seen in a long time. So all of this to say that so far for the coming months, you know, what you've seen in Q1 is what we're seeing and what the trend continues.
Okay. So there's no like one times, like maybe a large performance fee or anything in there that's like one time in nature?
Absolutely not. We have no performance fees at all in all of our revenues. So that's not a question. As I said, the only thing that is a little bit different is the behavior of the investors as they trade more U.S. stocks than before. So more FX revenue could disappear, but it doesn't explain the bulk of our results for sure.
Great. Thank you.
Thank you. The following question is from Gabriel Dechaine from the National Bank Financial. Please go ahead.
Good afternoon. Question for Louis to start. You'd mentioned in your opening remarks about what the restrictions are left that he wanted to get back to raising dividends and buying back stock. I assume you mean your intent to do both, and if that's the case, are we looking at 11% still as a minimum target level for quarter one?
Yeah, I think we would look to, you know, if it was confusion, I think we should be in a position to hopefully do both. Priority on increasing dividend, I would say, because if you do a quick math, I think you'll see that we're at the risk of being below our 40% payout minimum payout ratio in terms of dividends for 2021 if there's no adjustments on, or, you know, if we don't adjust dividend upwards, we'll wait for, you know, the regulators to give the signal. But I think that would be one thing. And then, yeah, I think 11, 11 and a half, I think is a comfortable level post-pandemic. You know, we'll see how that goes, but we'll see how things evolve.
Okay. And then my other question is to, as for Laurent, also congrats on the new job. Great quarter in Financial Markets, but, you know, we're staring down a barrel of, you know, some really tough comps over the next three quarters. How does that, you know, impact, I guess, your outlook for, you know, pre-tax, pre-provision profit growth? Like, where do you expect Financial Markets to end up vis-à-vis the, you know, mid to high single-digit all bank target? And then in terms of, I think you alluded to trading maybe slowing down. Is that, you know, the offset going to be, you know, that solid pipeline of investment banking fees coming?
Thank you, Gabriel. So in the first quarter, what we've seen, lots of capital raised from our corporate clients. I mentioned before elevated volumes, healthy vol in all asset classes. The other trend that we've seen is a significant rise in investor appetite for products. So that trend in retail and institutional. So I think, you know, it's fair to say the conditions right now for Capital Markets activities are very, very good. Now looking forward, you know, Louis mentioned it earlier, we've made investments in our franchise and they are bearing fruit. We're well positioned, okay? So we're very comfortable there. At this point in time, we remain positive on our trading businesses. And we're seeing a very strong pipeline on M&A financing activities, you know, from our clients.
So I think, you know, if market conditions persist, you know, and they remain favorable, look, we're in a really good position to generate positive revenue growth versus 2020, which was a record year.
But maybe not a big drop-off, is what I might think anyway. Okay. Thank you. Have a good rest of the week.
Thank you.
Thanks. Thank you. Once again, please press star one at this time for any questions or comments. Our next question is from Darko Mihelic from RBC Capital Markets. Please go ahead.
Hi there. Thank you. I just have two questions. The first one's really simple. Forgetting credit card balances for a moment. I'm just curious if you can tell me, do you have more credit cards in circulation today than you did a year ago?
I missed part of the question.
[crosstalk]
Oh, the number of active accounts. Yeah, the number of active accounts is, I would say, stable compared to a year ago. I don't think the conditions have been, you know, favorable at this point to increase the number of active accounts. What we've done is work with our customer to stimulate spend where we could in some of the, you know, spending categories, but this is what we see right now.
Okay. That's helpful. Thank you. My second question is similar to Mario's question. I'm going to try it from a different angle, though, Louis, and I'll direct you to slide 29 in your presentation deck. Okay. So my question revolves around the deposit growth, and I've been watching banks for a long time. It's very rare in one year to have a deposit book that was slightly below your loan book to go suddenly significantly higher than your loan book, and when I look at the chart, it's basically CAD 32 billion of deposits more year- over- year. And when I look at the shareholders' report, CAD 27 billion of that CAD 32 billion is no fixed maturity. So I guess the question is, if we hit a real strong stride here in the economic recovery, it's totally possible in my mind that we could have deposits run off pretty quickly.
Like, just the fact that they run up, they could run back down, and don't misconstrue my question as one about interest rate risk or, you know, your liquidity coverage rate is fine. That's stable, but what I'm really thinking about is the impact on your business in terms of, you know, the margin in a situation where you have asset growth with deposits running off, and then the other sort of difficulties that might arise from that, so can you give me an idea of, you know, how you're preparing for a potential significant rundown of deposits, and what might be the impact if my sort of vision comes true?
Thanks, Darko. Frankly, right now, I think we're more, you know, I think our biggest challenge is deploying the excess deposits that we have without doing anything stupid on the balance sheet, frankly. We're not making mistakes. We're not concerned with a runoff, even if at some point the deposit base should come down, and we certainly hope so, Darko, because I think that would be a signal that the economy is finally picking up and people are starting to travel and spend and invest again, and I think we have enough, given our universal banking model, I think we have enough, you know, other businesses that we would pick up the revenue from that investment, either in Wealth Management or in Capital Markets or in Commercial Banking or in something else.
So I think, A, I think in terms of funding and balance sheet, I don't expect it to be so abrupt that it's going to cause, you know, a problem in terms of funding or liquidity. And secondly, as I said, once that money, we can only hope that money gets deployed one day because that means that we're out of this, you know, weird situation we found ourselves in the last 12 months. And I think it's going to be done progressively. And again, I think it will generate, you know, revenue opportunities for us right across the franchise. So that's where we're at. For the rest, keep in mind that structurally, it's been a policy and a strategy of ours, and in fact, a big priority to decrease our funding coming from wholesale funding and increase the funding from core funding sources, core P&C clients.
And so when you look at that, you know, that trend over five years, it did certainly accelerate last year because of all the, you know, the unusual circumstances. But also, I think it also reflects, you know, a multi-year strategy to reduce our dependency on wholesale funding. And I would certainly hope that it would not be reversed, you know, in a post-pandemic world. Does that answer your question, Darko?
Yeah, I mean, it helps, and as I say, I wasn't worried about the risk side of it. I'm just wondering about the, you know, obviously you would have excess liquidity come down and you would be deploying some of that, but I just can't picture an environment where your asset growth would accelerate as fast as your deposit growth would come off, so I'm just struggling with it a little bit. Every time I look at the balance sheets these days, it just, it boggles my mind how much, especially the business and government deposits. I mean, those should be very fluid and liquid in a recovery, and I got to think you're paying next to nothing for these deposits, so I mean, I'll think through it more. Louis, your answer is exactly as I thought it would be. I guess it's just, you know.
Darko.
Yep.
Stéphane, I just wanted to mention, actually, you know, on the government side, we've actually let go of governmental deposits that were going up for bids and auctions that were at, you know, at low margins because of these excess liquidities. So that's always one, you know, one tap area we could tap back in if need be.
Okay. Yeah, that makes sense. Okay. And I'll struggle with it a little more. And thank you very much for the insight. I appreciate it.
Thank you. So we have no further questions, but just around this time, I would not like to turn the meeting back over to Mr. Vachon.
So thank you, everyone. And we'll talk to you for the Q2 results in three months. Thank you again. Have a good day.
Thank you. The conference has now ended. Please disconnect your lines at this time. And we thank you for your participation.