Good morning, and welcome to National Bank of Canada's third quarter 2026 earnings call. I would now like to turn the meeting over to Marianne Ratté, Senior Vice President and Head of Investor Relations. Please go ahead.
[Non-English content], and welcome everyone. We will begin the call with remarks from Laurent Ferreira, President and CEO, Marie Chantal Gingras, CFO, and Jean-Sébastien Grisé, Chief Risk Officer. Our business heads are also present for the Q&A session, including Julie Lévesque, Personal Banking, Judith Ménard, Commercial and Private Banking, Nancy Paquet, Wealth Management, Étienne Dubuc, Capital Markets, and William Bonnell, International. Before we begin, please refer to slide two of our presentation for forward-looking statements and non-GAAP measures. Management will refer to adjusted results unless otherwise noted. I will now pass the call to Laurent.
[Non-English content], Marianne, and thank you everyone for joining us. Before turning to our results, let me say a few words about the latest developments affecting Canada. The Canadian economy has demonstrated resilience over the past 18 months, but the unresolved and escalating trade conflict with the U.S. continues to create economic uncertainty and challenges for businesses across the country. At this point, it is difficult to forecast outcome, but new tariffs on both sides of the border will impact additional industries, business investments, and affordability for consumers. Yesterday's announcement on business and worker support is welcome and should provide relief for those impacted. Alongside government support, National Bank will be there for affected clients. Ongoing discussions with clients and partners point to one conclusion: Canada is taking the right steps to strengthen the foundations of its economy, and it has fiscal room to continue doing so.
While business confidence and investment are difficult in the current context, I am encouraged by the way governments and business leaders are mobilizing around Canada's economic priorities. Significant investments are being made in strategic infrastructure across the country. At National Bank, we are committed to supporting our clients and working with governments and businesses to deploy capital towards reindustrialization, infrastructure, defense, and energy. Investments in these sectors are critical to strengthening Canada's productive capacity and supporting durable economic growth across the country. The retooling of the Canadian economy is creating attractive opportunities to deploy our balance sheet. Energy, power infrastructure, and the recent icebreaker contract announcement are great examples of our country moving in the right direction. OSFI's decision to lower the range for the domestic stability buffer provides additional flexibility to support Canadian businesses as they are dealing with a challenging environment.
Turning now to our financial results. EPS for the third quarter of 2026 was CAD 3.39, up 26% year-over-year. Revenues increased 18%, supported by favorable market conditions across our fee-based businesses and strong balance sheet growth. We generated positive operating leverage of nearly 6%, and our credit performance remained resilient. Return on equity was 16.8%, continuing on the solid performance we have delivered since the beginning of the year. Our CET1 ratio stood at 13.51%. We maintained a strong capital position while generating strong organic growth and buying back shares. We intend to complete our current NCIB in September and launch a new one at that time, subject to regulatory approvals. Our dividend payout currently stands at 38.8%. As per usual practice, we will review the dividend next quarter.
Finally, on the Laurentian Bank transaction, last quarter, we completed the acquisition of the syndicated loan portfolio, and the Minister of Finance has since approved the acquisition of Laurentian Bank by Fairstone Bank of Canada. We expect our acquisition of the retail and SME banking portfolios to be completed by late 2026, as previously announced. Turning now to our business segments. P&C Banking generated net income growth of 13% year-over-year. Results reflect strong growth in personal mortgages and fee-based income, as well as solid balance sheet growth in commercial banking. This was further supported by positive operating leverage of 1% and strong credit performance. In personal banking, mortgages grew 14% year-over-year, continuing the momentum of recent quarters. This was driven by renewal activity, a resilient housing market in Quebec, and market share gains. Deposits were stable sequentially while rising equity markets continued to drive client demand for investment solutions.
This contributed to a 7% increase in total personal savings year-over-year. In commercial banking, deposits were up 12% year-over-year. This reflects the usual seasonal inflows from government clients as well as higher balances in our commercial business. Commercial loans were up 4% year-over-year. Activity remained solid within the National Bank of Canada originated loan portfolio, which grew 10% year-over-year. The CWB legacy book was relatively stable sequentially. Our integration is going well, and our pipeline is strengthening. In wealth management, net income was CAD 299 million, up 22% year-over-year. Results reflect strength across the franchise, including higher fee-based income and transaction volumes. Segment performance was further supported by positive operating leverage above 2%. Capital Markets generated net income of CAD 442 million, up 32% year-over-year. Global Markets revenue were CAD 578 million, consistent with the strong performance of recent quarter and supported by healthy client activity.
Rising equity markets continued to support structured products origination, while attractive funding opportunities benefited our securities finance business. Corporate and Investment Banking revenues increased 13% year-over-year. Corporate banking loans grew 13% over the same period, reflecting continued opportunities across sectors. Investment banking maintained its strong performance, supported by M&A activity and continuous investment in our franchise. Favorable market conditions drove solid debt capital market activity across both corporate and government issuers. Credigy generated net income of CAD 39 million.
Revenue growth of 13% year-over-year was primarily driven by a gain on the sale of a portfolio. While credit performance reflected a built-in performing loan provisions and average assets grew 8% year-over-year. Against a competitive market and pricing backdrop, we remain selective in pursuing deals as we continue to benefit from recurring flows from established partnerships. At ABA Bank, net income was up 1% year-over-year, reflecting slower economic growth in the country. Revenue growth of 6% was partly offset by higher efficiency ratio and PCLs. Loans were up 11% year-over-year, and deposits grew 7% over the same period. I will now pass the call to Marie Chantal.
Thank you, Laurent. Good morning, everyone. We delivered strong results in the third quarter. PTPP increased 24% year-over-year with positive operating leverage of 5.8%. Revenues grew 18% over the same period, with strong performance in Capital Markets, Wealth Management, and Personal Banking, along with solid balance sheet growth and higher treasury revenue. Operating leverage was positive across all businesses, supported by solid execution and realized synergies. Expenses increased 11.7% year-over-year. This was mainly driven by higher variable compensation, consistent with our strong performance. We also continued to invest in talent and technology with IT investments focused on supporting business growth and on strengthening our operational resilience. Q3 also included litigation expenses of CAD 11 million. Excluding variable compensation and litigation costs, expenses rose 7.7%. Moving to slide eight. Net interest income, excluding trading, increased 7% sequentially, benefiting from strong volume growth across P&C Banking, Wealth Management, and Corporate Banking.
While the higher number of days in Q3 accounted for approximately half of the increase. All bank NIM increased 2 basis points quarter-over-quarter to 2.18%. This reflected a strong contribution from Treasury, which added 3 basis points, as well as the realignment of non-interest income to net interest income between Q2 and Q3, which contributed an additional 4 basis points. These benefits were partly offset by a decline in the P&C Banking margin, down 7 basis points sequentially, largely driven by strong growth in personal mortgages and the commercial deposit mix impact reflecting seasonal inflows from government deposits. As we look forward to Q4 and recognizing an evolving interest rate environment, we expect the P&C margin to remain relatively stable at Q3 levels. Although deposit margins have generally been improving, the benefit is expected to continue to be offset by deposit mix dynamics within Commercial Banking.
As always, balance sheet mix remains an important factor to consider. Our focus remains on growing the franchise with the right balance between volume growth, margins, and credit quality. The all bank NIM is also expected to remain relatively stable in Q4. Turning to slide nine. We continue to grow both sides of the balance sheet. Loans increased 11% year-over-year and 4% quarter-over-quarter amid record mortgage originations. Deposits increased 11% year-over-year or 1% sequentially. Personal demand deposits were slightly lower quarter-over-quarter as customer appetite for investment solutions remained strong, supported by favorable market performance that continued through Q3. Personal term deposits increased by CAD 1.3 billion, primarily driven by structured note issuances. Non-retail deposits increased by CAD 2.9 billion, or 1% quarter-over-quarter, mainly within Commercial Banking. Now moving to capital on slide 10.
We ended the quarter with a strong CET1 ratio of 13.51%, supported by capital generation of 41 basis points. RWA expansion resulted in a 19 basis point impact on our CET1 ratio this quarter. Strong organic growth in credit risk RWA consumed 35 basis points of capital, led by corporate banking. This was partly offset by 15 basis points of benefits from continuous refinements. We repurchased 2.3 million shares in Q3, reducing CET1 by 26 basis points. We remain on track to complete our current NCIB by its September 2026 expiry. Now, let me turn to the capital optimization initiative currently underway, beginning with AIRB. We continue to make good progress on the transition of the acquired CWB portfolios to the AIRB framework. We have now completed the required two-quarter regulatory parallel run, which has provided valuable insights into the performance of these portfolios.
More importantly, we have demonstrated regulatory readiness across three of the four pillars of the CMAP framework, namely integration, operations, and controls. The work completed to date has also validated our ability to effectively integrate and leverage CWB data within our AIRB framework, strengthening risk insights and supporting the successful integration of the acquired portfolio. The remaining work is primarily concentrated on the methodology pillar, where we concluded that additional model refinements are needed before seeking regulatory approval given the current stage of the credit cycle, including higher observed default rates. Accordingly, we have decided to defer this submission into fiscal 2027, reflecting our disciplined model optimization approach. Based on our updated assessment, we continue to expect a CET1 benefit from the AIRB transition, although the benefit is likely to be more moderate than our previous estimate.
Benefits are expected to begin materializing in late 2027 and are now expected to track toward the lower end of our previously communicated range of 35-55 basis points. Looking ahead, additional ongoing refinements are expected to generate approximately 20 basis points of additional CET1 capital in Q4 2026. Additionally, we intend to launch a new NCIB upon the current program expiry in September 2026, subject to regulatory approval. Overall, our capital position remains strong, supported by a robust CET1 ratio. It continues to provide ample flexibility to advance our strategic priorities with disciplined RWA management, ongoing optimization initiatives, and sustainable dividend growth. Importantly, it reflects our ongoing focus on disciplined capital deployment as we remain on track to achieve a 17%+ ROE by 2027, and assuming a CET1 ratio converging towards 13% by the end of next year. Now turning to slide 11.
We are making solid progress on realizing synergies from the acquisition of CWB, having captured CAD 238 million of cost and funding synergies to date. We remain on track to realize CAD 270 million by the end of fiscal 2026, representing about CAD 300 million on an annualized basis. We have also achieved our fiscal 2026 revenue synergy target of CAD 50 million ahead of schedule. Specifically, CAD 52 million, mostly from fee income, has been realized to date. Further progress on the integration will support incremental synergy capture over time as we continue to target CAD 200 million-CAD 250 million in revenue synergies by the end of fiscal 2028.
Following another strong quarter, our year-to-date EPS grew by 16.8%. This was supported by broad-based revenue growth, strong capital markets and wealth management performance, positive operating leverage, and ongoing cost discipline. As well, CWB synergies are being realized, and credits remained within expectation.
Accordingly, with our year-to-date ROE of 16.7%, we are well on our way to exceed our 16% ROE target for fiscal 2026. We also continue to expect positive operating leverage for the full year with expense growth moderating in Q4. Before I turn it over to Jean-Sébastien, I would like to provide an update on how we plan to enhance our segment disclosure as we continue to execute on our strategy. As we have previously discussed, we are advancing a multi-year plan to strengthen our retail franchise.
We intend to provide greater visibility into the strategic plan by year-end 2026. In that context, and to better reflect the CWB revenue synergies, we are introducing select enhancements to our segment reporting beginning in the fourth quarter of 2026, including separate disclosure for personal banking and commercial banking. We believe this enhanced segmentation will provide investors and analysts with a clearer view of the performance drivers and strategic progress within each business. We look forward to providing an update by year-end. With that, I will now turn the call over to Jean-Sébastien.
[Non-English content], Marie Chantal, and good morning, everyone. Since our last call, the Canadian economy has demonstrated resilience, with GDP growth and signs of improvement in the labor market. However, the current trade conflict negatively impacts business sentiment and investment outlook. Meanwhile, government measures should provide support on impacted sectors and their employees. More broadly, geopolitical risks remain elevated and have impacts on energy prices, inflation, and interest rates. At the same time, trade diversification, growth in key resource sectors, and strategic investments in technology and infrastructure should support long-term economic growth. In this complex environment, our resilient portfolio mix, disciplined risk management, and prudent provisioning underpinned our strong credit performance. Now turning to the third quarter results on slide 13. Total PCL were CAD 246 million, or 31 basis points, stable quarter-over-quarter.
We added three basis points of performing provision in Q3, mainly reflecting portfolio growth and a macroeconomic scenario update at Credigy, including higher long-term interest rates that impacted our longer duration portfolios. These factors were partially offset by model calibration. PCL on impaired loans were CAD 224 million, or 28 basis points, up two basis points quarter-over-quarter, and within our guidance of 25- 35 basis points for the full year. Personal banking provisions were stable sequentially as higher retail losses were offset by lower credit card losses. Commercial banking provisions were CAD 25 million lower quarter-over-quarter, with Q3 provisions mainly reflecting two files. Capital market provisions were CAD 49 million higher than Q2 and related to one file in the oil and gas sector. At Credigy, provisions increased by $2 million , resulting from the normal seasoning of residential mortgages and consumer loans.
At ABA, impaired provisions were up by $4 million sequentially to $17 million , reflecting new formations. Turning to slide 14. Our total allowances for credit losses were CAD 2.7 billion, representing 5.3x coverage of our net charge-offs. Our performing allowances were CAD 1.7 billion, demonstrating a strong performing ACL coverage ratio of two times. We have been building allowances for the past 17 quarters and continue to be comfortable with our prudent and defensive provisioning levels. Turning to slide 15. Our gross impaired loan ratio was 114 basis points, stable quarter-over-quarter. GILs, excluding USSF&I, were 82 basis points, down two basis points sequentially. Net formations were 10 basis points, down three basis points from Q2. In commercial banking, net formations were down 24 basis points to four basis points, mainly reflecting two files, partially offset by repayments.
In capital markets, net formations were driven by one file in the oil and gas sector. In conclusion, we remain pleased with the credit performance in the third quarter and year to date. We continue to expect impaired provisions for fiscal 2026 to be within the 25- 35 basis points range. In the current context of ongoing uncertainty, we expect unemployment levels to continue to drive retail provisions while wholesale books remain subject to periodic lumpiness. Overall, our defensive qualities, diversified business mix, and prudent allowances position us well as we look ahead. With that, I will now turn the call back to the operator with the Q&A.
Thank you. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, again, press star one. Your first question comes from Matthew Lee with Canaccord Genuity. Please go ahead.
Hi. Good morning. Thanks for taking my question. Mortgage growth was strong this quarter, and it looks like that contributed to some of the pressure on personal banking NIM. Can you just help us understand how much of that compression reflected competition for loan growth versus maybe some of the deposit dynamics we've seen over the past couple quarters? Then bigger picture, how willing are you to continue trading margin for growth if the competitive environment stays elevated?
Hi, Matthew. Thank you for the question. You're right, the P&C NIM declined 7 basis points, and it's driven by our continuing mortgage growth and our business mix. It's supporting our revenue growth as well, that is 10% year-over-year. Mortgages are really one of our most effective client acquisition vehicles. Our strategy has always been to view the mortgage as an entry point to a broader banking relationship. This opportunity is to deepen those relationship over time, through deposit, as you mentioned, investment, credit cards, and advisory services. As we see the large cohort of newly acquired mortgage clients mature, we expect stronger primary banking relationship. This is really a key component of our long-term growth strategy and an important driver of future deposit growth.
Okay. That's helpful. Do you think the outperformance in mortgages is primarily just driven by execution and channel strength, or is there a pricing aspect there as well?
Thank you again for the question. Our mortgage growth continued to be driven primarily by market share gains rather than aggressive pricing. We've maintained a consistent pricing strategy across all of our channels, and we remain focused on profitable, sustainable growth. Our growth is being supported really by a strong execution across both of our channels, so distribution network and the broker channels, which really a strong momentum in Quebec, where the market has been really resilient. We're also encouraging growth in Ontario and other markets outside of Quebec. Our recent CWB acquisition provides us a good window and a good opportunity to grow that business out west as well.
All right. That's great color. I'll pass along. Thanks.
Your next question comes from the line of John Aiken with Jefferies. Please go ahead.
Marie Chantal, I want to talk about the AIRB conversion of the CWB portfolio a little bit further. Now we're expecting, I think you said the benefit's going to materialize late in 2027. Does this mean that we expect the conversion to happen in late 2027, or is the conversion going to happen early in 2027, and it's going to take some time for the benefits to flow through? I'm a little confused because I thought previously it was going to be in the fourth quarter, the conversion, and the benefits were going to impact Q4.
Thanks, John, for the question. Yeah, I think it requires a little bit of more details in order to clarify what we've shared earlier in our remarks. As you heard, we have completed our two-quarter regulatory parallel run, and we're happy with the demonstration of the regulatory readiness that we've demonstrated across three of our four pillars. The next pillar that we'll be focusing again on is the methodology one. Really what we are trying to achieve there is we want to recalibrate the models to improve their predictive accuracy.
Once that work is done, we will proceed with the required two-quarter regulatory parallel run. To answer your question specifically, the conversion will happen late in 2027 once that work is done. For us, the strategic rationale for transitioning to the acquired CWB portfolio to the AIRB, it remains fully intact. We're very confident that the initiative will support long-term capital efficiency and shareholder returns.
Thank you very much. Even I understand that now. Appreciate it.
Thanks, John.
Your next question comes from the line of Stephen Boland with Raymond James. Please go ahead.
Yeah. Sorry, I am going to follow up with John. Again, maybe this change, maybe I missed this or just because of my tenure doing this with the banks, but I thought the AIRB benefits were in the 50-75 basis points. Are you just talking about that 35-55 just for this one portfolio, or that is the total benefit that we should expect now?
It's just for the one portfolio.
Okay.
Because you're right. The overall target was larger, but our first conversion was 35- 55.
Okay. I appreciate that. You kept your guidance or your goal for 17% ROE by the end of fiscal 2027. When I look at your CET1 waterfall, how are you going to drive a higher ROE, unless you just continue to buy back more stock? Because you're obviously very profitable. Is it a combination of higher profit and an accelerated NCIB that's going to drive that 50 basis points lower over the next year?
To your question on the main drivers on our ROE target of 17%+ for 2027. It's a combination of many factors as we've disclosed earlier this year. Yes, continued broad base growth across all of our segments. Revenue synergies, as I've disclosed earlier in my remarks, are also expected to contribute to that upside into the ROE. There is obviously some buybacks that we had referred to and is something that we continue to converge to with a new NCIB program that we'll be announcing upon expiry of the current one.
We continue to be very confident in achieving that 17%+ ROE, and we are also maintaining that target while trending the CET1 ratio towards approximately 13% for year-end of 2027. Those are the main drivers behind our target. As per our usual practice, we will be revising the guidance in Q4 for the following year. Stay tuned for that.
Okay. Thanks very much.
You are welcome.
Your next question comes from the line of Doug Young with Desjardins Capital Markets. Please go ahead.
Hi, good morning, and I apologize. I am going to follow up on the AIRB. I get the whole process and how you described it all makes a ton of sense. What I am wondering is why the lower end of the target now? What changed versus your initial view that is driving that to the lower end of your initial target range? I know this is for the first conversion, but for the second conversion or for the remainder, should we be thinking of something similar?
Thanks, Doug. It is Marie Chantal, and I will answer the first portion of your question, and maybe I will pass it over to Jean-Sébastien for the follow-up. We concluded that additional model requirements were needed given the current stage of the credit cycle, including higher observed default rates. This is an important portion of our update today. Jean-Sébastien, do you want to give a little bit more of insights?
Sure, Doug. Yeah. Great question. When you look at our CWB performance last year and this year, you would have seen that the CWB impaired loan ratio was higher than what we had in our National Bank of Canada ratios. Higher observed defaults. What that will mean is when we will redevelop that part of the model, there will be more conservatism. Given the more conservatism, you should expect then a little bit more capital consumption than what we had originally expected, which explains why the benefit would be lower.
Okay. I kind of get it. Let me stick with yourself as well. Just thinking on credit, and I get the interplay of NIMs and Canadian banking being down, but your impaired PCL is down, and I think thinking about NIMs and credit go hand in hand. You did release some performing loan allowances in Canada as well. I am just trying to understand the credit in Canadian P&C Banking was better than expected. Is this also a function of the mix shift, that top theme, or can you provide a little bit more detail on what drove that?
Yes. A couple of questions in there. I will answer your direct one on the risk leases of provisions in Canadian banking. First, as a bank, we had 17 consecutive quarters of build. I think you can see our coverage ratio, 5.3x of net charge off, over 2x last 12-month impaired PCL. Very strong coverage ratios. What happened is for the Canadian banking, specifically for the commercial banking, we saw two positive outcomes. First, we saw very positive credit migration. Second, some of the macroeconomic scenarios or specific variables had a positive impact. That created a release. The growth we saw in this portfolio was counterbalanced by good credit migration and favorable macroeconomic scenarios. On a general more perspective, maybe on credit outlook, we still see the same two stories continuing.
The same stories we have been talking about over the past year. In terms of wholesale performance, we still expect them to be lumpy. Not necessarily an increase in rise of defaults, but what we are still observing is lower recuperation rates, and that is being driven by the tariff environment, the geopolitical environment, inflation environment, and supply chain disruptions. In terms of retail, you would have seen the unemployment improve significantly this quarter. I have been calling a specific cohort, which is the 24 to 55 age cohort, and we have seen some strong improvement in unemployment and a reduction in layoff rates. But we are still expecting this to take a little bit of time before it bakes into the PCL results. We have also observed that early-stage delinquencies were improving in most categories in retail except insured mortgages, but I would not call it a trend yet.
We are still seeing geographical differences. Quebec outperforming Ontario, and we are still seeing that homeowners that have unsecured credits are performing better than non-homeowners. You know our portfolio. We are continuingly underweight consumer unsecured, overweight insured mortgages. When you see our provisioning also on the consumer unsecured, which is always the part that I am looking, we keep around 8% provisioning levels on our credit card, which is, I think, prudent.
Very [inaudible]. I appreciate the color. Thank you.
Your next question comes from the line of Paul Holden with CIBC. Please go ahead.
Thank you. Good morning. I want to drill down a little bit more on the Canadian P&C NIMs. So a couple questions on that. First off, you mentioned consistent pricing strategy. Can you give us a sense of then the direction of mortgage spreads? How are those trending in Q3 versus the last couple quarters? Two, talk to us a little bit more about the treasury benefit of 3 basis points and if there's some kind of interplay there with the transfer pricing mechanics that might have impacted P&C NIM as well.
Thank you, Paul. This is Julie. Our mortgage margins, we continue to see really a competitive environment, particularly around new originations and renewals, which resulted in pressure on our mortgage spreads during this quarter. From a retail perspective, our mortgage portfolio economics remain supportive of earnings. We believe that our current pricing and renewal dynamics continues to provide a solid foundation for profitability going forward.
Okay. Then just the second part of the question with respect to the-
Yeah.
Treasury benefit.
Hi, Paul. It's Marie Chantal here. First of all, treasury revenues came in a little bit stronger than what we had expected earlier this year. Those 3 basis points, I'll summarize it in a couple of elements. First, Treasury as I said, delivered strong results supported by prudent balance sheet management and robust funding and liquidity activities, discipline and efficient growth in the high-quality liquid asset portfolio. So that's one thing. The results were also enhanced by contributions from investment gains, public and private market investments.
As we look forward, while certain components remain subject to market-driven volatility, the results highlights the Treasury's contribution to the overall bank financial strength through disciplined management of funding liquidity and interest rate risk, as I mentioned. So to your question, if there's any link between the P&C NIM and the Treasury, it's really our methodology has been stable through time, and we're making sure that it's a full pass-through according to our methodology. So it's basically been a strong performance from the Treasury group.
Okay. So it's not because of the loan growth versus deposit growth in Canadian P&C and some transfer pricing into Treasury that's really-
No
putting pressure on Canada and benefit to Treasury. That's good. I guess the final question I want to ask, and I think what really people are trying to drive to here is, as you're growing mortgages more quickly and as you highlighted with lower spreads, to what extent does this weigh on the ROE? Is this capital deployment that is something that's going to be dilutive to ROE, I think is the question people are really trying to solve for.
I think, Paul, there's a couple of things here that we can also highlight on top of the margin that you've been asking on. First of all, NII growth has been really interesting when you look at year over year, 10%, and last quarter, I believe it was around 7%. So it is contributing to the overall profitability of the P&C Banking. So we are not seeing that being a drag on the ROE. If you look one level up, at the retail banking revenue growth, as I mentioned in my remarks, it was 10% this quarter year- over- year. So that's also certainly an interesting contributor to the ROE.
I'll leave it there. Thank you.
Thank you.
Your next question comes from the line of Ebrahim Poonawala with Bank of America. Please go ahead.
Hey, good morning. I am going to ask the 15th question on the P&C NIM. Here is what I am trying to understand. I think what you are telling us is growing mortgages more over time, you cross-sell into those customers, it is very profitable. Just big picture, does that mean that the margin, some stability in the fourth quarter, I think it is the lowest P&C NIM in the industry. Does the 219 continue to go lower as you pursue the strategy? I get that it may not impact ROE because maybe you are getting more fee growth over time, et cetera. I am just thinking, as we think about the next year or the next couple of years, is it reasonable for us to assume that the 219 NIM is headed towards 2%? Or maybe it stabilizes much before that? Or just is that line of thinking incorrect?
Thank you, Ebrahim, for your question. This is Julie again. I think that perhaps we need to step back and look into our current position. Our business mix is quite different than our peers. I think the unsecured aspect of it is underweight, and this is something that is part of our strategy that we will be discussing in the upcoming months in the retail transformation. Deposit is always part of what we are achieving to do, deposit growth, cost efficiency as well, and product diversifications. Stay tuned for what we will be announcing and sharing with you on the retail transformation.
Got it. So I guess some version of a shift in business mix or strategy going forward may have an impact there, I guess. But we'll wait for the next quarter. Thank you.
You got it right.
And then just maybe, Laurent, for you, just in terms of capital allocation or Marie Chantal, just talk to us as we think about the journey from the 13.5% to 13%, and I think you, Laurent, mentioned OSFI's change should provide even more flexibility to the industry to capital deployment. I think in that world, how do you see that 13% eventually going, I would imagine something closer to 12. Is it buybacks? Do you see a scenario where organic growth would ramp up so much that it would consume that capital? Just give us a sense of how you're thinking about it.
Ebrahim, it's Laurent. Thank you very much for your question. So, in terms of capital priorities, nothing has changed. It's organic growth, supporting Canadians, Canadian businesses, major projects. So my comment on this provides more room. It's our focus. Our focus is to grow the balance sheet. It's potentially strategic tuck-ins as well in P&C and Wealth. They fit the strategy. Dividend growth and then buyback. So the focus is not on buybacks, but obviously they're an add-on to returning capital to our shareholders. So I think Marie Chantal mentioned it in her script and some of the questions. So right now, end of 2027, we have not changed our target for CET1, roughly around 13%. We believe we're going to be able to deliver a 17+ ROE next year.
The change that we announced today is this is going to be achieved without AIRB coming into effect this quarter. You could say that there is even more upside coming because AIRB is down the road, and we believe that we have capital optimization coming up. In our plan, there is no acceleration of buybacks also over the next year to achieve these targets. Our focus is really organic growth, as you can see the growth in our balance sheet. As we are encouraged also, as I mentioned, by our government's focus on the economy and major project, we are going to be there to support that, and we are hopeful, and we see a lot of potential, obviously, in the economy to deploy more capital for major projects and for businesses. Does that answer your question?
Very clear. Thank you.
Thank you.
Your next question comes from the line of Mike Rizvanovic with Scotiabank. Please go ahead.
Hey, good morning. I had a follow-up for Julie on the mortgage growth, and I wanted to look at the insured balances specifically. When I look at the banks that have reported this quarter, I see one of your peers is -1% sequentially on balances and insured. I see your other peer is flat, and then I look at National and you're +8%, which to me looks like is much more than just your natural sort of market share gains, normal course market share gains. I'm wondering, are you purchasing portfolios? Are you funding mortgage investment corps? Or does this maybe include part of the CMHC insured multi-res that you fund with the CMB program. There's got to be something more in there than just natural market share gains. I've never seen this level of divergence in any lending category among banks.
Thank you for the question. It's really the strategy of both of our distribution network and the broker channel, and it's really those two that are driving that growth. There's nothing specific, so I'm sorry to say that there's nothing mysterious about how we delivered those results, but it's really banking on into our developing client engagement, strengthening the relationship with our customers. We have and maintain a strong relationship with our broker. And those two are paying off perhaps a little bit of color. Q3 is historically a quarter that is stronger. Being heavy in Quebec. In Quebec, there's a situation where there's a lot of movement on July 1st and moving. So there's a lot of volume coming out of that. So Q3 has been a great and continuum on that front.
Okay. No, that's helpful. Then I look at just the Ontario insured balance is up more than 9% in a single quarter. Just really confuses me as to how you could roll that quickly. I guess the other thing is, are you changing anything in that distribution? You mentioned the broker channel. Are you adding maybe more brokers or changing anything on your risk parameters here to fund this growth?
The broker channel, we have not yet deployed additional broker outside of Quebec. You probably saw the announcement, First National, that was done in Q2, where it's a new partnership that we have, and we deploy new brokers across Canada. That being said, we're growing the business outside of Quebec, and as I mentioned earlier, with the acquisition of CWB, it allows us to have more visibility. It allows us to have a sales force that is more present, MDMs and potentially brokers. So that's where the growth is coming from.
And maybe I'd add-
Okay.
Maybe it's JS. So definitely no change in risk parameters. When you look at our new cohorts that we've originated in terms of TDS, in terms of LTI, in terms of credit scores, it's very, very flat. Also just maybe to help, typically, one of the barriers for insured mortgages was the size of mortgages. As we have seen the Ontario market correct a little bit, there is going to be a natural, more higher number of clients that could qualify for insured mortgages. So it brings it down a little bit like the Quebec market, where you have lower individual mortgages, so higher percentage of insured typically. So I think that's another force at play.
Great. Thank you for the insight. Very helpful.
And that concludes our question and answer session. I would now like to turn the conference back over to Laurent Ferreira for closing comments.
Thank you. To all our clients affected by the current conflict, just want to mention that we are there to help you, and we will keep supporting the Canadian economy. Thank you again for joining us today.
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.