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Okay, great. Thanks. Welcome back, everyone. This is our last presentation for today. Joining us is National Bank of Canada. From National Bank of Canada, we have Judith Ménard, Head of Commercial and Private Banking. Judith, welcome, and thank you for joining us.
Thank you for inviting me. Very excited to be here.
Great. It's been almost two years since you took on responsibility for commercial banking and Private Banking 1859, following the announced acquisition of Canadian Western Bank. Can you give us an overview of these businesses, explain how they fit into National Bank's broader strategy, and discuss how your experience prepared you for this role?
Good. Actually it is a year and a half now that I am in the new role. Just to give you a little bit of my background, 20 years at the bank. Actually 28 years, but 20 years in the risk function. I used to be head of compliance for wealth management, capital market, and retail and commercial banking, which I know the bank really well. I think this is the part that really, really helped. Just before having that position, I was leading private banking and commercial banking outside of Quebec. Basically the mandate was like, how do we grow our bank outside of Quebec? That really drove it through commercial and private banking with wealth management and capital market. That really prepared me just before the acquisition. Had a pretty good sense of what was working, what was not working.
How do we adjust our strategy when you actually are not the main player, which we are, as you know, in Quebec. That experience, I think, really led us to understand more and to really think about it, even in the light of the integration. When I started a year and a half ago with the integration of CWB, I think all these experience, understanding really deeply the bank, but also understanding the reality of Western Canada and Ontario and how we grow in these markets were, I think, really priceless.
Excellent. The integration of Canadian Western Bank appears to be on track with both revenue expense synergies running at or above target. Could you provide more detail on the integration process and discuss potential opportunities beyond the current targets of approximately CAD 300 million expense synergies and CAD 200 million-CAD 250 million in revenue synergies?
Yeah. If I just take a step back on the integration.
like how it's been. We took a very bold decision at the beginning to really use our processes, our platform, and change the branding. Right away, that decision was made. It actually allowed us to convert client faster in the timeline. So by the end of 2025, a lot of things really were rolling. In the last six months, I would say the integration really started. So conversion of data was one big piece, and the integration started. We've been really, really working hard of onboarding employees, onboarding clients in our cash management platform, and that was the grind. The grind of starting the integration and making it happen with people, for people. I insist on that because employees were a big, big part of it. The connectivity with client, of course, was the employee, so we really wanted to get it right.
Where we are now, if I look at what we said to the market, that it will come from the fee income or the synergy revenue, that's exactly what's happening right now. That's what we've seen. We kind of added a toolbox to the Canadian Western Bank employees for them to go to market and bring more to the client. Is it extending our balance sheet? Is it bringing some more products to the client? That's what we've been really seeing in the last few months. So where we are right now in September, the pipeline is really robust. We're at a very different place we were six months ago. When I look forward and I look at what's in front of us, there's two things happening. Again, on the lending side, you've seen it was flattish last quarter.
We're already seeing early signs of growing the book, which is very encouraging. But also all the deposit and the cash management, there's also some space where we can continue growing on that space. So it's on both sides. The revenues are going to come both on the lending and on the cash management side, and the deposit side.
Excellent. Then maybe kind of excluding the impact of CWB, we've seen commercial loan growth was very strong in the third quarter. Can you talk about what's driving that growth and how sustainable do you believe that trend is?
If you look at our track record in terms of loan growth, we have always been number one, number two. Our franchise in Quebec again is very, very strong. From that, the muscle of lending is very good inside the bank, and also our credit risk as well. I would say that even in terms of PCL, we have a very disciplined approach in terms of risk, and it materialized when you look at the numbers. It really comes from everywhere. It comes from our specialty business, it comes from mid-market, from National Bank of Canada, like larger corporation. It is all the businesses that are performing on the Heritage NBC book. Yes, I can see that it is continuing growing. That is really the part that we have, I think, the right expertise, but we also have the right deal team around.
That means that we are kind of bringing the full bank in front of client, and they actually really like that.
Maybe think about the other side of the balance sheet. Deposit growth in the commercial segment has been very strong. Can you also talk about the trends that are driving that growth and how sustainable they are as well?
On the deposit growth, I would say that there is kind of two things. In the last quarter, it was really driven by a governmental deposit. The taxes are being paid, and it was especially higher kind of growth on that segment. We are still growing on the commercial kind of diversified business, which we want. We want these cash management account being open, but also the deposit that comes with the operational deposit with the business.
We are seeing that. But we are still growing faster on the ABGSP government deposit than on the commercial deposit side. Where we are with that, we have been investing in the last few years in our cash management platform. We have actually transferred or onboarded 99% of our client in our new platform. This is an ongoing process. This is something that we will continue investing. It is a tech business, the cash management business.
And we will continue investing in that we see it very clearly. On the CWB side, we really, really did a lot of new onboarding. We have some specialty business that the clients were waiting for cash management, and we are executing on that as we speak.
Okay, great. Let us just talk about how does the ROE profile and efficiency of commercial banking compare with the rest of National Bank of Canada? As these businesses continue to scale, where do you see opportunities for further gains?
Good. Next quarter, as you know, we are going to split retail and commercial banking.
Okay.
On the ROE side, we are going to show numbers in the next quarter. On the efficiency ratio, this is a business that was actually well managed in terms of efficiency ratio. We are really in a good spot, I would say, where we are with the efficiency ratio. We see a lot of growth in commercial banking. For us, this acquisition is really central of it is the biggest acquisition of National Bank of Canada. So we know now we have the platform across Canada. The growth trajectory in terms of grabbing market share, organic growth in every market in Canada, it is a very big accelerator for us, and that is really how we are positioning commercial banking inside the bank. I would say that commercial banking and the proximity with capital market is also very tight. So we are doing a lot of things together.
We are using all the risk management solution capabilities to accelerate. We have an M&A private company team that is helping us with the business transfer. We know there is a big opportunity in terms of business transfer. All this is also an accelerator in our trajectory. The fact that we are working really well as a team, no silo. Clients see the deal team in front of them. In the bigger picture, to answer your question, we think commercial banking is a big lever of growth in the next few years.
Let me ask on the private banking side. What sets Private Banking 1859 apart from other wealth management competitors?
Private banking is a gem inside the bank, I find. In terms of NPS, very, very high NPS, 78. This is a business that is really kind of a bank inside the bank. When we made the decision to merge private banking and commercial banking, that is a different strategy than any other Canadian bank. We really truly integrated all the employees inside the bank. The reason for it was we knew that we did not want to bring the complexity of our bank in front of client. We knew that most of the entrepreneur clients had a private banker. We knew that.
Once we go out as a deal team in front of client, the private banker is there, the commercial banker is there. It actually takes out a lot of complexity for client. The play, and we know that there is going to be tons of wealth transfer in the next few years. We say CAD 1.3 trillion, 60% of the entrepreneurs are going to want to sell or buy a new company, but mostly sell their company. If you think about the opportunity in terms of being there at the table way in advance of the transaction, way in advance of the liquidity event, I think it is actually a very big accelerator on both sides. When I look at these two businesses over the last few years, 2,500 more common client.
We are really kind of bringing both sides from commercial banking client that were not Private Banking 1859 client, but also on the other side. This is a focus. This is part of a pillar that we look at how we kind of cross-sell the bank on both sides, and it is the same team. It is a lot easier to kind of make people work together, having the same objective, the same goal. I am very pleased with this strategy. It took us couple of years to get there because these are two different culture, Private Banking 1859 and commercial banking. We had to work at it. But where we are it is a very big play. For CWB, they did not have a private bank. When we talk about the toolbox, this was in addition to the toolbox.
They were very, very excited to get to see the products, the card, the whole kind of wide broad experience.
Okay, excellent. The other thing that has been in the news recently is the OSFI recently lowered the domestic stability buffer by 50 basis points. Given the resulting reduction in capital requirements, do you see this as an opportunity to deploy incremental capital in the commercial segment?
Yeah. The way we manage capital as a bank, we are very conservative in deploying capital. We have a real openness with the Rebuild Canada to use our balance sheet for commercial banking, and actually the strategy is the same. The rules have changed, but we are following the same strategy. We like organic growth. We want to push for more organic growth across all segments, but more particularly commercial banking.
Okay, great. Also in the news, there was a sense of optimism following the resolution of the United States-Mexico-Canada Agreement in July. But trade policy concerns have resurfaced in recent weeks. How is that uncertainty affecting your commercial and Private Banking clients, and how are they preparing for the potential impact?
Yeah. So I would say that there's two things. There's other issues that are affecting entrepreneurs in Canada, not just the tariff. Immigration is one of them. So if we take a step back, and I've been meeting clients in the recent weeks, there's a sense of tiredness, I would say, of, again, we have to readjust. So for some entrepreneurs that were maybe not ready to sell their business, it's kind of pushing that discussion forward and saying, "Am I ready again to reinvent myself?" and all of that. We know entrepreneurs are very resilient. A lot of them had a plan A, B, and C, have already started kind of diversifying their clients, their supply chain. So this kind of discussion has happened, I would say, a year ago. It was a surprise, to be very clear.
So people were, "Wow, we thought that it was done." That little bit of uncertainty, tiredness, it is a real thing. People are talking about it. When I look at it from a bank perspective, it's less than 1% of our portfolio, very affected by this last round of tariffs. So it's small, I would say. The insecurity around how we have to adjust is real. But on the other side, there's also a lot of positivity around Canada in the Rebuild Canada this week in Toronto. There's a whole week. Everybody's there to how do we grab the opportunity also to get some external investors to Reinvest Canada. So the Reinvest Canada is also bringing some good vibes in Canada, I would say.
Excellent. Beyond the impact of higher tariffs, are you seeing stress anywhere else in the portfolio or any areas of concern from a credit quality perspective?
We've said it on the calls repeatedly. We're, I think, on a very conservative way how we are provisioned for recession, 17 quarters of performing provision that we've been building. This is something that is really part of our DNA. When I look at the portfolio, there's been lumpiness. The reality, there's been lumpiness on the NBC side, on the CWB side, not more one or the others. At the beginning, we took a big provision with the CWB portfolio, so I think that was the right thing to do. Where I see right now, it's not a specific industry. Of course, manufacturing in Quebec will be a little bit more impacted. We're very heavy in Quebec, as you know. These are pockets where we look at it more closely. On the other side, this is the moment to support clients also.
This is the moment where there's a bit of fragility into the system, and this is where banks have to really be creative and to be there close to client, and we really intend to do so.
All right. Artificial intelligence is top of mind for many investors. How are you using AI today, and how do you expect it to affect the business over the longer term?
Yeah. AI at the bank is not a strategy. It's actually part of what people do right now. We really have decided to put AI in every business, like the way we structure technology is really closer to the business, the way our structure is organized. AI is on our day-to-day. I use AI every day. I think all of our employees are pretty starting to use AI every day. If I look at it, there's two buckets. There's the bucket of front employees and the bucket of back office or in the middle. Front office people. I think about the relationship manager and the credit underwriter. Their life is changing rapidly right now.
The way you prepare for a meeting, the way you go to market, the way you actually decide which industry, and that has on the productivity side, has been expanding at a really faster pace. Every week I am seeing that. Their job is changing. The credit underwriter, right now to write a board sheet, what it took them one week to do is not taking one week to be done now. How do we integrate the financial statements into the board sheet, and how we are doing the ratio, all of that, all the banks are working on that. We are working on that to make sure that we become more efficient in the way we are doing it. The play is really to accelerate our road through AI with more productivity and actually coming from the employees.
A lot of employees actually have better ideas than someone-
Yeah.
-from the top who say, "You should do this." We really have that bottom-up approach through AI, and we are seeing it. Have we quantified it? No. But in every business, I think there is empowerment of using AI to be more productive. That is more the front office side. If I think about the back office side, all the KYC, all the AML, all the call center. Now we have an agent that is answering questions from the employees, from the clients. This is just an acceleration of having less people in the call center, less people in the internal call center that supports our employees. All of that is being actually launched as we speak. The productivity and the way we serve client also in the back end has also a lot of impact, like AI is really helping us.
I would say that on both sides, I see productivity going really up, and I see a lot of enthusiasm also and people trying things and sharing. We have built a community also inside of the commercial bank of how do you share ideas and it is much more powerful when it comes from employees, I find.
Oh, definitely, yeah. One thing I saw, there's a recent National Bank survey found that nearly half of Western Canadian mid-market business owners plan to retire within the next decade. Maybe could you provide more detail on the size and characteristics of this market and explain how National Bank is positioned to help facilitate this transition?
Yeah. On the, I spoke a little bit about it on the toolbox. There's a team and we have a strategy about business transfer. Private Banking 1859 is really key around that, having the private banker at the beginning of the Because the entrepreneur doesn't split their life between their business-
Yeah.
-and their personal life. It's the same. Usually they're cash poor for many, many years, and one day they're going to sell their business. I think the integration between the commercial and the private bank is one of the big bucket of our strategy where I think we can differentiate ourselves. That's the first part. The second part is we've built, five years ago when I was in my former role, an M&A private company. We know the investment bankers are going to be focused on the bigger transaction. We actually decided to build a team inside the Capital Markets team, just focused on helping the entrepreneur on the private company side buy or sell their company. This team is completely integrated with the commercial bank.
We also have a business transfer team for the smaller ticket that is also across Canada that is helping for the lending side, for the advisory side. These three teams are working really closely together to capture all the opportunities. It is really kind of an advisory play, I would say, with the entrepreneur. There's a lot of emotion in that moment, and there's moment of, I don't want to talk about it because I'm not going to get the amount I want at the end. We really have to be close to the entrepreneur and follow the story. I think half of it as this is psychology in that process, and all the many bankers are saying that also. There's a big part of the proximity we have with our client to be there when the moment of truth is happening.
It's not a product play. It is an expertise play.
It's also a psychology play that I find we're playing pretty well. We're doing that a lot again in Quebec, and we're actually doubling down on that expertise. We just hired a new team in Western Canada with M&A experts, so for the bigger transaction. The proximity of our investment bankers in this moment of truth where they have the expertise is very important. You're, I don't know, a specialized team, a specialized business in transportation but we bring our investment bankers that have that expertise. That really helps them think about it, and that's part of the service we're offering. It is bringing, for me, again, it's bringing the full bank in front of client. It's powerful.
Great. Judith, we've covered a lot of ground. I'm just asking, is there any kind of areas of messages that you want us to take away with today or things that we haven't covered?
I like that question. I think I want to just finish with the ambition, because I think ambition is really important. We have a very big ambition on the commercial banking side inside the bank. We want to be the destination of choice for entrepreneurs in Canada, and we want to be seen as the place to be because of our proximity, because of our speed, and because we're bringing the full bank in front of client. These are three things that if we do really, really well, I think we can really continue growing. It's not because we're the smallest bank that it actually matters. In that, we are actually very meaningful.
When you look at PNC and all the space commercial banking is taking inside the bank, it is a very meaningful business, but it is also a business that we have a lot of opportunities to grow. Our DNA is a DNA of entrepreneur.
That is how we were built. CWB was also built with an entrepreneurial DNA. So the mix of that and bringing kind of that whole bank together, keeping the regional mindset, is really a lot of opportunities in front of us. So I am very positive.
Excellent. Well, great. Thank you very much, Judith Ménard.
Thank you.
With that, please join me in thanking Judith Ménard for her presentation today.