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Edited Transcript of LB.TO earnings conference call or presentation 28-Feb-17 8:30pm GMT

Thomson Reuters StreetEvents

Q1 2017 Laurentian Bank of Canada Earnings Call

Montreal Feb 28, 2017 (Thomson StreetEvents) -- Edited Transcript of Laurentian Bank of Canada earnings conference call or presentation Tuesday, February 28, 2017 at 8:30:00pm GMT

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Transcript

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Editor: [1]

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Unknown Speaker* [2]

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Good day.

Welcome to the Laurentian Bank first quarter results conference call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Susan Cohen, director Investor Relations.

Please go ahead, Ms. Cohen..

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Unknown Speaker* [3]

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Good afternoon and thank you for joining us. Today's review of the first quarter 2017 p results will be presented by Francois Desjardins, President and CEO and Francois Laurin, CFO.

All documents pertaining to the quarter including.

Investor presentation and financial supplement can be found on our website in the investor section.

Following our formal comments, the senior management team will be available to answer questions.

Before we begin, let me remind you that during this conference call forward-looking statements may be made.

Actual results may differ materially from those projected in such statements.

For the complete cautionary note regarding forward-looking statements, please refer to our press release or to slide 2 of the presentation.

I am now pleased to turn the call over to Francois Desjardins.

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Unknown Speaker* [4]

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Thank you Susan and good afternoon everyone.

We're off to a good start in 2017. Adjusted net income increased by 21% compared to a year ago.

Disciplined expense control contributed to improvement in adjusted efficiency ratio and positive operating leverage.

Also, strong credit quality resulted in a continuation of relatively low credit losses.

During the quarter, capital ratios strengthened significantly as we maintained a solid ROE.

These good financial results is our relentless focus.

We are executing the trans foration plan in order to achieve strategic objectives by 2022 or earlier if possible.

The Bank's goals are clear, to deliver aned adjusted ROE that is comparable to the Canadian banking average, double the size of the organization, and to build a solid strategic foundation.

Last December we presented our priorities for 2017 and with this first quarter already behind us, we are pleased with the progress that is being made.

Having completed the acquisition of CIT's Canadian operations in the fourth quarter, integration became the priority.

We merged equipment financing activities with our own and this has resulted in the he creation of LBC capital.

Profits have been seamless so far.

Our clients' responses have been very positive and employees are highly engaged.

As well, we are have secured a provider for a new technology platform that will improve efficiency and client experience.

The pipeline is strong.

The credit quality of the portfolio is performing according to expectations and we're beginning work towards delivering synergies.

RBC Capital is well positioned to contribute to growth objectives.

Retail activities is another important priority.

Last September we announced we would accelerate the plan to merge 50 branches going from 150 to 100 locations over the next 18 months.

During the quarter we communicated with customers and employees who are impacted by this change, hosted open houses and developed retention strategies to minimize attrition.

The reaction from clients is positive.

Given the progress we are moving forward swiftly.

In December we merged one branch and plan to merge 33 more at the end of April followed by another seven at the end of June.

Also at the end of April, 23 locations will become advice only branches.

These actions are aligned with customer's preference toward online banking over branch visits.

Our physical branch network is evolving.

Customers seeking to improve their overall financial health.

As such, we have intensified efforts to add financial advice res either by retraining existing personnel or by recruiting externally, notably via social media.

The network will become more efficient and cost savings will be realized in the second half of the year.

Simplifying and standardizing the retail.

We have been eliminating products that are no longer desired by customers or that are inefficient.

For company, we are no longer offering travelers checks, foreign currency other than US dollars or safety deposit boxes.

We are also discontinuing partnerships with third parties where the volume of business and level of revenue simply does not justify the effort.

The actions that we are taking have a very limited customer impact but contribute to improved efficiency.

Growth remains a priority and our strong momentum continued in the first quarter.

Residential mortgage loans for independent brokers and advisors and loans to business customers increased by 16% and 23% year-over-year respectively.

We are well positioned in the market to sustain double-digit growth rates.

While speaking of growth, Laurentian Bank securities had their best ever year in 2016 and followed through with strong results in the first quarter of 2017 as we continue to focus on profitable niche markets.

Building a strong foundation remains essential to sustained growth and to this end we are progressing well on the new core banking platform.

The critical backbone to becoming a digital bank.

We are on track to migrate activitieses of B2B bank and a large portion of business services onto this new platform at the end of 2017. The remainder of the migration, namely retail services, will happen mid-2019. In parallel, the teams are working diligently to ensure an on budget and on time delivery of the AIRB approach initiative at the end of 2019, which benefits will be felt in fiscal 2020. This methodology is key to strengthening credit risk management, optimizing regulatory capital and providing a level playing field for commercial opportunities.

Our Board of Directors, management and team members are confident that as we implement initiatives and execute the transformation plan, we will move towards becoming a simpler, more profitable and more relevant financial institution.

The market seems to support the plan.

In the first quarter of 2017 and for the first time in the Bank's history, our market cap reached $2 billion.

As well, Laurentian Bank's.

Compares favorably to that of the major banks.

I will now call upon b Francois Laurin to provide a more in depth review of first quarter 2017 financial results.

Francois.

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Unknown Speaker* [5]

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Thank you, Francois.

Good afternoon everyone.

I would like to begin by turning to slide 12 which highlights the Bank's good core financial performance.

Adjusted net income in the first quarter of 2017 grew 21%.

Adjusted EPS was $1.43, up 3% compared with a year earlier.

First quarter EPS was impacted by the common share issuances in 2016 which increased outstanding shares by 14% as well as $1.9 million higher preferred share dividends compared to a year ago.

Even as our capital position significantly strengthened, we still reported a solid ROE of 11.8%.

As outlined on slide 13, reported earnings for the first quarter were affected by adjusted items totaling $4.3 million aftertax or $0.13 per share.

This inclueded.

As well as $700,000 related to the optimization of retail activities and planned branch mergers.

The drivers of our performance are presented on slide 14. Total revenue in the first quarter of 2017 totaled $241.6 million, an increase of 8% compared to a year earlier.

Net interest income increased by 3%, mainly due to strong volume growth in the loan portfolios, both organic and from acquisitions, but was partly offset by a different mix and by tighter margins, stemming from the continued low interest rate environment.

Other income increased by 19%, supported by a better capital market environment.

Net interest margin shown on slide 15 was 1.66%.

The main factors contributing to the 12 basis point year-over-year decline was the persistent pressure on lending rates and the higher proportion of lower yielding residential mortgage loans, partly offset by strong organic growth in loans to business customers as well as by the newly acquired equipment financing business.

Sequentially, NIM was relatively stable as an increase in lower yielding residential mortgage loans was largely offset by volume growth from the newly acquired commercial loan and equipment financing portfolios.

Strong organic growth and loans in business customers of 13% combined with the acquired equipment financing portfolio contributed to increasing the proportion of wider margin loans to business customers from 27% of the Bank's total loans at the end of the first quarter of 2016 to 30% at the end of the first quarter of 2017. As well, growth in loans and mortgages generated through independent brokers and advisors contributed to the strong growth in average earning assets of 10% year-over-year.

For the next few quarters, margins are expected to be relatively stable compared with the first quarter level.

Other income as presented on slide 16 totaled $87.9 million, and increased by $14.2 million or 19% year-over-year.

Improvements were broad based and demonstrate the good diversification of activity.

A strong increase in income from brokerage operations reflected growth across all business segments, including underwriting, as well as improved market conditions compared with a year ago, while income from Treasury and financial market operations benefited in higher net securities gains.

Fees and commissions on loans and deposits rose due to higher lending fees from increased activity in commercial portfolios, while the other category of other income included revenue from the acquired equipment financing portfolio.

Partly offsetting these higher revenues were lower income from investment accounts.

As reported in the fourth quarter, an agreement to administer investment accounts was terminated and one time net revenue of $3.1 million was record it at the time.

Slide 17 highlights that adjusted non-interest expenses rose by 4% year-over-year.

This increase was mainly the result of higher performance based and pension costs as well as higher salary costs and rental expenses associated with the acquisition of CIT Canada.

Overall, non-interest expenses continued to be very well controlled.

The adjusted efficiency ratio in the first quarter was 67.4%, an improvement of 290 basis points compared to a year ago.

As well, adjusted operating leverage was positive year-over-year.

While the efficiency ratio has been ahead of our 2019 target tore the past two quarters, inment is required as the.

Some periods where expenses are higher and efficiency ratio of below 68% on a sustainable basis by 2019 remains our objective.

Slide 18 presents the CET1 ratio under the standardized approach of 8.2% at January 31st, 2017. Compared to year-end 2016, this 20 basis point improvement was driven by internal capital generation, a steady level of risk weighted assets as well as by actuarial gains on pension plans.

Our capital.

Support the Bank's growth objectives and our transformation plan.

Slide 19 highlights our well diversified sources of funds.

In the first quarter of 2017, the Bank continued to optimize its funding mix.

Personal term deposits sourced through independent brokers and advisors as well as business and other deposits declined slightly as the Bank actively worked to reduce excess liquidity.

Debt from securitizations totaled $7.3 billion, essentially unchanged from the prior period, as it remains a preferred term funding source for residential mortgages.

The Bank continues to have a strong liquidity position.

Turning to slide 21. Credit quality remained solid.

The provision for credit losses at $9 million was $100,000 lower than a year earlier and $1.3 million lower than the prior period.

The loss ratio remained at the very low level of 11 basis points in the first quarter of 2017. The underearning credit quality of the portfolios remains good.

Furthermore, Laurentian Bank remains conservatively provisioned, as shown on slide 22. The allowance -- the total allowance covers the Bank's annual provision for loan losses by a multiple of 3.2 times at the end of the first quarter of 2017. Over the medium term, we expect the loss ratio to gradually move higher as our business mix changes but it should be more than offset by higher net interest income.

Nonetheless, with our current portfolio mix, conservative provisioning and disciplined education process, we expect that the loss ratio will remain well below other Canadian banks.

Turning to slide 24. We continue to make steady progress towards meeting several of our midterm financial objectives.

We are particularly pleased with our efficiency ratio and positive operating leverage in the first quarter of 2017. Even with a much stronger capital position, we continue to work towards narrowing the ROE gap between Laurentian Bank and the major Canadian banks to 300 basis points in 2019. As well, despite the EPS impact of a larger number of shares outstanding, the medium term objective for EPS growth remains 5% to 10% annually.

With respect to the Bank's key growth drivers as presented on slide 25, we are advancing towards our 2019 targets.

To conclude, we're pleased with the core earnings performance in the first quarter of 2017 and the progress that we're making as our strategic plan continues to unfold.

Thank you for your attention.

I will now turn the call back to Susan.

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Unknown Speaker* [6]

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At this point I'd like to turn the call over to the conference call operator for the question-and-answer session.

Valerie?

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[7]

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++++q-and-a.

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Unknown Speaker* [8]

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Thank you.

(Operator Instructions).

We'll take our first question from the line of Robert Sedran of CIBC.

Please go ahead.

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Unknown Speaker* [9]

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Hi. Good afternoon.

Just first a numbers question.

Just the moving parts on the margin quarter on quarter, I know that the legacy book I guess of the residential book would push the margin a bit lower.

The new business pushed it higher.

Can you quantify the impact of those two things and should we assume that they're relatively in balance going forward in terms of the margin outlook?

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Unknown Speaker* [10]

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Thank you, Robert.

Basically it's a point or two on one side versus a or two on the other side.

Basically equilibrium and we expect that for the he remaining of the year as well.

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Unknown Speaker* [11]

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Thank you.

I just wanted to ask on the closure, the upcoming closure of the branches.

I understand the long-term benefits you're looking to accrue.

I'm wondering if you're expecting or planning for any short-term dislocations to the financial statement whether it's in terms of revenue or just in terms of expenses to support some of the activity that -- you mentioned some of the heightened activity around managing the customer base, whether we should expect that to continue and maybe there's a bit of an element within the adjusted earnings affecting the outlook.. Near term.

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Unknown Speaker* [12]

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you need to give some color on that and maybe Francois if he has something to add.

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Unknown Speaker* [13]

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Thanks for the question.

We expect minimal revenue lost but we definitely expect less expenses going forward.

So all in all it's a positive action that we're taking right now.

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Unknown Speaker* [14]

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The expenses that -- I guess the activities that have been talked about, I guess those expenses are just in the run rate expenses and it's not really a meaningful increase one way or the other?

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Unknown Speaker* [15]

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Robert, Francois here.

We expect to realize some cost savings in the second half of the year once these branch mergers occur.

But we also at the same time know that our transformation plan calls for investment in several strategic initiatives and will be deployed to ensure sustainable growth and improved profitability.

So all in all, the best guidance that we have related to the expenses and -- is that when we do the optimization of retail activity, will contribute to achieving our various financial activities, objectives, i.e.

, ROE, EPS growth and efficiency ratio.

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Unknown Speaker* [16]

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Okay.

Thank you.

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Unknown Speaker* [17]

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You're welcome.

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Unknown Speaker* [18]

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Thank you.

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Unknown Speaker* [19]

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Thank you.

And we will move to our next question from the line of Meny Grauman of Cormark Securities.

Please go ahead.

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Unknown Speaker* [20]

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Just a question on capital risk weighted assets, growth pretty flat quarter-over-quarter.

I'm wondering what you're doing to actively manage risk weighted assets and what we can expect going forward.

Do you expect to continue to be aggressive in terms of how you're managing risk weighted assets and do you have any levers in order to keep the growth there flat or slower than what we've seen in the past?

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Unknown Speaker* [21]

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I'll ask Stephane Therrien to talk about growth in the commercial sector in retail.

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Unknown Speaker* [22]

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In terms of growth, been a slower growth quarter in business services.

Keep be in mind we're busy integrating the new portfolio for CIT.

That being said the pipeline in business services right now is very strong and we still expect to grow by double-digit per year and our guidance is still $13 billion by the end of 2019.

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Unknown Speaker* [23]

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In terms of risk weighted assets se specifically and how you're managing that, is there anything unusual that you did this quarter to help manage that -- ?

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Unknown Speaker* [24]

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Francois here, Meny.

Nothing unusual.

I think it's not unusual.

What we've seen when we look at the numbers from reports in the first two months that were available, we didn't feel that we were out of whack with the market in terms of growth in various loan portfolios.

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Unknown Speaker* [25]

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And then --

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Unknown Speaker* [26]

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Meny, if I may add, this is Francois.

In both.

Ours pipelines are quite strong and we expect those to continue double-digit growth targets throughout the year.

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Unknown Speaker* [27]

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If you could just comment on the funding side in terms of personal term deposits, sequential decline and what you're seeing in terms of the competitive environment for deposits specifically on the personal side.

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Unknown Speaker* [28]

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I'll answer that.

As you know, funding is something that we have as a common goal within the Bank.

So personal or deposits versus other forms of funding are managed as a whole in Treasury.

So depending on what is available and the cost of different funding sources, we make some choices given to have the best possible funding costs.

So we were -- had some higher liquidity in the last quarter, which came down during the quarter, and that's where we netted out.

But from a competitive perspective, there's nothing to read into it.

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Unknown Speaker* [29]

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Thank you.

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Unknown Speaker* [30]

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Thank you.

We'll move to our next question from Sohrab Movahedi of BMO Capital Markets.

Please go ahead.

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Unknown Speaker* [31]

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Thank you.

As you accelerate the branch closure or as you work through the.

More restructuring charges that you're going to call out as adjusting items?

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Unknown Speaker* [32]

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Francois here.

Francois Laurin.

As mentioned in the last quarter, we took -- in Q4 we took a charge and we expect, we publish that we would have basically around $6 million of additional charges that we would take going through this initiative and we basically recorded less than $1 million in this quarter.

So we should expect more and $6 million is still our best estimate at this time.

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Unknown Speaker* [33]

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Another 5.

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Unknown Speaker* [34]

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Yeah.

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Unknown Speaker* [35]

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Okay.

And then Francois, you talked about impact of the business acquired on the NIM.

Can you also talk about the impact of the business acquired on the PCL ratio?

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Unknown Speaker* [36]

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Negligible.

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Unknown Speaker* [37]

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No impact?

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Unknown Speaker* [38]

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No impact.

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Unknown Speaker* [39]

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And you've taken the performance of that into consideration when you've given us your outlook that you think you're going to continue to be relatively low I guess.

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Unknown Speaker* [40]

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Yes.

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Unknown Speaker* [41]

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Okay.

And that business, is that -- is it that business that has caused the geographic kind of remix if you will away from Quebec, into Ontario, as far as the loan portfolio is concerned.

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Unknown Speaker* [42]

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Clearly it does have an impact on that.

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Unknown Speaker* [43]

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But is that the primary impact?

What would that mix have looked like without the acquisition?

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Unknown Speaker* [44]

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I would have to go back to you but my first intuition would be that it would be similar to what we were before.

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Unknown Speaker* [45]

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Okay.

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Unknown Speaker* [46]

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Francois D here.

One of our -- two of our goals that we've mentioned in our Analyst Day a year and-a-half ago as you remember wases to change the mix -- increase the mix of business services within the Bank.

Certainly the acquisition is doing that.

But also change the geography a little bit of the mix as well.

And that has come over the years through development of business through B2B Bank and business services organically and of course is helped by the CIT to LB capital acquisition.

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Unknown Speaker* [47]

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Understood.

And then just on the other income, I think you noted the stronger contribution from I think it was brokerage operations and in particular and in Treasury and financial markets.

Maybe some color as to how the second quarter has started and do you expect that strength to continue?

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Unknown Speaker* [48]

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I'll ask to answer that.

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Unknown Speaker* [49]

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Hi. Good afternoon.

I'm not going to comment on the second quarter.

I will say that in the first quarter we had good start to the year.

There is good growth and diversification across all business segments and of course we're stronger, significantly ahead of last year.

Thats was impacted by a severe credit crisis.

We see opportunities by favorable capital market conditions that translated into good underwriting activity and during the first quarter was actually we underwrote our second NBS security, expanding our program.

So we like to believe.

Invest conservatively nature.

In order to deliver growth over actual.

The second quarter is too early to tell.

But markets are still stable.

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Unknown Speaker* [50]

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Thank you very much.

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Unknown Speaker* [51]

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Thank you.

We'll move to our next question from the line of Lemar Persaud of TD Securities.

Please go ahead.

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Unknown Speaker* [52]

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Thanks.

If I look at the income from Treasury and financial market operations, excluding the $4.3 million of securities gain, number looks weaker than I would have expected.

Wonder if you could provide additional chore on what drove weak trading result and if you could comment on what you're seeing so far a at the start of Q2.

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Unknown Speaker* [53]

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I'll ask Francois to answer that.

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Unknown Speaker* [54]

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Basically from the -- other than the security gains, there's volatility in different markets and we had some positioning in those different markets with different outcomes obviously and we're not positioned the same way.

So we had some pluses on some markets and negative results on the other -- in other markets, hence the results that you see positive and some lower on the other revenues from Treasury.

Overall globally our results are stronger with.

Markets being higher year-over-year, quarter-over-quarter and we expect as the market, depending on the market, but we're well positioned since then to have positive impact at the moment on our portfolio.

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Unknown Speaker* [55]

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So you're saying just to clarify, then, the outlook for Q2 is -- we should expect this number to go up a little bit?

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Unknown Speaker* [56]

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If the market stays the way it is.

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Unknown Speaker* [57]

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Okay.

That's fair.

Thank you.

My next question is on credit losses.

Again, very low this quarter largely in part to a sizable recovery relating to commercial mortgages.

Obviously at some point recoveries have to taper off and given the experience call it from mid-2016 I would have thought we would be nearing thend of material recoveries.

Do you think there's still more to come or are we nearing the end?

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Unknown Speaker* [58]

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I'll ask to give some color on the portfolio.

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Unknown Speaker* [59]

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It's hard to forecast exactly when this is going to happen.

We are conservative when our accounts are sliding down the scale.

We tend to take collective provisions in there.

So when we get favorable outcomes you get some relief and that's what we're living right now.

We're very pleased with the result up to now but over time, yes, they're going to trend up. But I can't say exactly when.

But it will increase and like we said before, somewhere in the higher teens over the coming period.

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Unknown Speaker* [60]

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Okay.

Thanks.

That's it from me.

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Unknown Speaker* [61]

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Thank you for your questions.

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Unknown Speaker* [62]

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Thank you.

We'll move to our next he question from the line of Sumit Malhotra of Scotiabank.

Please go ahead.

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Unknown Speaker* [63]

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Good afternoon.

Couple of number questions to get started, please.

Just first off on the capital ratio.

You mentioned on the slide that part of the uptick in the quarter was due to a favorable movement in the actuarial gains on pension plans.

Could you clarify you how much of the 20 basis points quarter-over-quarter came via the pension gains?

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Unknown Speaker* [64]

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Yes.

Basically everything at raised at the pension Lance about 5 bps in the quarter.

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Unknown Speaker* [65]

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When I look at your fee income, you have a category that all banks have, the mysterious Other category which was -- I'm sorry, it's really in numbers here.

It was much stronger this quarter.

I thought I read that that related to the CIT acquisition.

Is that correct?

And if so, what exactly is this?

Because I thought this was basically a net interest income based business.. At $4.6 million in the quarter contribution from Other which is higher than we usually see.

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Unknown Speaker* [66]

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Basically, most of it is the acquisition of CIT.

You have on loans NIM, NII coming but when it's a pure lease it's other income.

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Unknown Speaker* [67]

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Okay.

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Unknown Speaker* [68]

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Part of the business that's pure lease where we still own the assets, the income is not a net interest income, it's other -- it's classified as other revenues.

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Unknown Speaker* [69]

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All right.

This business is going to be or this line will likely have a higher contribution going forward as a result of that addition of CIT?

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Unknown Speaker* [70]

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Exactly.

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Unknown Speaker* [71]

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Okay.

Now, let me get to the actual questions.

If I look at your loan growth, although you've certainly been making progress in growing out your commercial portfolios and you've communicated to us that that's an important goal.

Mortgages are still by far the largest component.

We've talked a lot about the housing market in Canada.

When I look at your numbers in terms of mortgage growth, you continue to show very strong numbers and quite consistently 2% to 3% a quarter, if not more.

Why has Laurentian not demonstrated some of the same decelerating trends in mortgage balances that we've seen from your peers?

And do you feel that's something from a risk perspective that we're likely to see given the trends in the housing market?

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Unknown Speaker* [72]

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I'll ask Deborah Rose to come on that.

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Unknown Speaker* [73]

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Sure.

Thank you.

As far as why you're seeing the growth, the continued growth particularly in B2B with residential mortgages is I believe as you know we have a very broad product shelf including alternative mortgages.

So for us, what we're doing is we're continuing to bring in the insured and the uninsured prime deals but we're also focusing on growing that alternative line.

And that's where we continue to he see success there and we'll continue on our strategy towards that.

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Unknown Speaker* [74]

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Is your growth in that channel at all being positively impacted by perhaps some of the smaller players stepping back?

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Unknown Speaker* [75]

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You know, I think we're still looking to see what the impact of all these changes are.

What I can say is we pretty much had no impact.

The growth rate has continued on as it has all year long and we're still watching to see the market and see what the outcome will be. For now, we're just continuing to see that steady growth.

We're sticking to our plan and we're being successful there.

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Unknown Speaker* [76]

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Okay.

Double-digit growth in mortgages is certainly standing out in the sector right now.

So just wanted to get your thoughts on that.

Last one is for Francois.

Maybe bigger picture, looking at your medium term objectives.

Your slide 24 gives us an update on your medium term objectives and your performance.

The efficiency target of 68% or below by 2019 you're obviously there this quarter.

Hearing you talk about NIM stabilizing, positive trends in the loan book, the tailwind you're going to get from maybe the branch closing to expenses, are we in a situation where this 68% number needs to be updated because frankly sounds like a lot would have to go wrong for it not to happen at this point, right?

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Unknown Speaker* [77]

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The eternal optimist, Sumit.

You're right.

When we talked about the objectives at the end of last year, we said that we wanted to be prudent and conservative, first year of a four year plan and that we wanted to make sure that we knew what was coming in 2017 before changing either of the four objectives that we set for ourselves in terms of ROE, efficiency ratio, EPS, but also the growth targets as well.

And we knew that there was going to be some lumpiness.

Hence, one of the reasons why we chose to start disclosing ROE target in GAAP versus fixed.

Not all the banks are out this quarter but quite certainly there's just the ones out today we see some good variability there.

So it's just in excess of prudence and knowing there might be investments that we have to make, we're just keeping that guidance.

I would say at this point he everybody feels this is obviously conservative but quite certainly when we feel the need, we will review those targets to give you better guidance.

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Unknown Speaker* [78]

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All right.

Thank you for that and for your time.

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Unknown Speaker* [79]

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Thank you.

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Unknown Speaker* [80]

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You're welcome.

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Unknown Speaker* [81]

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Thank you.

We'll of move to our next question from Darko Mihelic of RBC Capital Markets.

Please go ahead.

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Unknown Speaker* [82]

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Thank you.

I wanted to follow up on the mortgages and I apologize if I'm going to get a little too detailed here.

But I'm going to give it a try.

The reason why I'm going to ask this is I actually do he see deceleration in your growth rate for mortgages.

Last year at this time your mortgage growth in the independent channel was 45% and this year it's 16%.

So Deborah, maybe you can comment a little about your originations.

That's the other part I don't see.

Don't see what's not being refinanced or not being paid down.

L can you give us an idea of the originations.

Also as well, I was wondering if you could give us an idea of where the mortgage growth is coming from.

When we look at this one slide where you show a very large proportion of it in Quebec, I'm just curious if you're getting a lot of growth in other provinces, namely in Ontario and British Columbia.

Maybe perhaps you could talk to originations whether those are making all-time highs and maybe the nature of those origination as well in terms of geography.

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Unknown Speaker* [83]

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Okay.

I think I probably shared this question with Christian as well.

To start with, around originations, I guess going to one of your first points around compared to last year, it is definitely lower than last year and we knew that.

We said that all last year is that we wouldn't -- we would continue on with double-digit but not in the range that we had.

And that was because last year was really our full year of relaunching our mortgage program at B2B.

So we're totally in line with what we expected and we're very comfortable with our targets and our sales strategy.

As far as originations, I'm not 100% sure what you're looking for in your question.

Our broker -- our mortgage broker customers have not significantly changed.

So can you elaborate a little bit on what you're looking for?

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Unknown Speaker* [84]

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In terms of new mortgages coming in the door, that dollar figure, how would that compare to last year's dollar figure?

And also as well, when you look at the new mortgages coming in through the door, new customers that is, predominantly what geographic location are they coming from?

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Unknown Speaker* [85]

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Darko, it's Francois D here.

Just to refer you to slide 25, on the residential mortgage loans through independent brokers and advisors, you actually see the dollar number there from where we stood 2015, where we ended up 2016 and what the first quarter looks like.. The portfolio is growing.

Of course, part of the deceleration in percentage is just math.

The he denominator is getting bigger so the percentage is getting smaller.

Don't expect 45% anymore because that's going to go down.

But still this quarter as you can see we went from $7 billion to $7.3 billion and last year we went from 5.7 to 7.0.

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Unknown Speaker* [86]

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Right.

I understand that.

In any event, can you maybe speak to the geographic breakdown and maybe perhaps as well -- I realize you're doing a lot more of the Alt-A, but maybe you can speak to the level of first time home buyer versus conventional mortgages.

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Unknown Speaker* [87]

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Okay.

When you're asking for the he geographical breakdown can I just ask one he question.

Are you referring to B2B or LBC as a whole.

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Unknown Speaker* [88]

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I'm more interested in B2B.

These are coming into the independent brokers.

Presumably they could be anywhere in Canada, correct .

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Unknown Speaker* [89]

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Absolutely.

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Unknown Speaker* [90]

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In terms of geography, the bulk of the portfolio is in Ontario.

And the bulk of the Ontario portfolio is in Toronto.

In terms of growth, what we're seeing is a lot of growth on the insured business, double-digit growth there.

The uninsured as well is growing very well and that's a factor of a lot of our Alt-A business, where the growth rate is higher than the rest of the portfolios.

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Unknown Speaker* [91]

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Okay.

Thank you for that.

And I guess my ultimately what I'm driving at is this is excellent growth in mortgages.

There's no question.

L I'm just curious about the behavior of these customers that come in from B2B Trust in the sense that I really don't know what their renewal rates would look like but timing it out to 2019 which is an important target, $9 billion.

The growth rate that you're on you would have generated a lot of you new business.

I'm curious if you have any early read on the level of renewals that come or is this business that is very cut throat and very price driven and that could basically float anywhere for the right price.

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Unknown Speaker* [92]

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It's a great question.

As far as the renewal rate, one of the things that B2B has been he focusing on the last year is an initiative to increase our renewal rates and we've seen tremendous success.

I think our renewals we've increased year-over-year by more than 20%.

So we are seeing that if we have a disciplined approach to it and we go out there in sufficient time with the right proposal that we are able to renew those mortgages and they're not going back out to the mortgage brokers to get funded somewhere else.

So we are seeing good success from that perspective.

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Unknown Speaker* [93]

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Okay.

Great.

Thanks very much for taking my questions.

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Unknown Speaker* [94]

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You're very welcome.

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Unknown Speaker* [95]

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Thank you.

(Operator Instructions).

We'll move to our next question from the line of Gabriel Dechaine of National Bank Financial.

Please go ahead.

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Unknown Speaker* [96]

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Good afternoon.

Another quick one on the originations there, just to follow up on Darko's line of questions.

A margin-ish question.

Your B2B growth, you said that traditional mortgages but also alternative mortgages were driving the growth.

Could you give me a sense of the proportion of originations are coming from alternative mortgages and what kind of risk profile those things have and spreads, I would assume that the spreads on those mortgages are relatively attractive or relative to the traditional prime mortgages and, therefore, the pressure on your margin wouldn't be as severe.

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Unknown Speaker* [97]

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Correct.

Right.

Overall from a percentage of the new loans we're originating, we're targeting and we've been able to maintain about a 35% mix rate.

So 35% being alternative.

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Unknown Speaker* [98]

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Okay.

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Unknown Speaker* [99]

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As far as a risk perspective, I think the biggest thing is to remind everyone that these are not subprime mortgages.

That's not what our alternative book is. What we're doing here is really offering nontraditional mortgage solutions to help clients that are in a different situation like business for self, new professionals, that type of thing.

So they're a different risk profile than a normal prime loan but they wouldn't be what I think the average person would consider high, high risk.

That being said, your point about the higher margins is a absolutely correct.

We're able to risk base price all of these mortgages and they are coming in at a higher margin which is enabling us to continue to grow at this rate and grow profitably.

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Unknown Speaker* [100]

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What would the margin on one of these be compared to a traditional or prime or regular mortgage, whatever you want to call it, at B2B.

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Unknown Speaker* [101]

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That's something that we don't really disclose.

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Unknown Speaker* [102]

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Like ballpark though.

Maybe not the basis points but is it twice as much?

Is it one and-a-half times?

Is it big?

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Unknown Speaker* [103]

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This is Francois here.

I think everybody has a good idea of what margins look like on a prime mortgage looks like, but from an alternative or near prime mortgage it's more of a sliding scale, where very near prime has a small

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Unknown Speaker* [104]

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increase.

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Unknown Speaker* [105]

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And it goes the higher the risk, the higher the rate.

But we've never disclosed those for competitive reasons.

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Unknown Speaker* [106]

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Okay.

Well, moving on to the other margin question.

I guess I want to get a sense of where you see net interest income evolving over the next year, let's call it, including there's some moving pieces in there.

Your change in mix, the CIT acquisition.

On a year-over-year basis I see a 12 basis point decline and adjusting for CIT, which I get to about flat to slightly negative net interest income growth.

So where do you see that evolving over the next year?

Are you still on track for the 2 to 3 basis points or so of margin accretion from CIT?

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Unknown Speaker* [107]

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Gabriel, Francois Laurin here.

Over the next couple of quarters, in the next year we expect that margin should be relatively stable from what we saw in Q1. As the outlook seems to be with lower rates to linger, we continue -- we'll definitely continue to diversify our funding to improve margins first.

The impact of the low interest rates and the higher NHA securitization that we undertook last quarter, which has a lower NEM, but a higher ROE, could be partially offset by several other factors.

For example, clearly the impact of a full year of higher yielding assets like CIT Canada inclusion, the business loan growth, as well as the lower level of liquidity that we had last year that we reduced going forward . So compared to last year when we had more liquidity.

So overall, NIM is one element.

Growth in NII is improvement in ROE are the other elements we're aiming at, even to grow even in this low interest rate environment with a stable NIM going forward for the year.

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Unknown Speaker* [108]

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Okay.

Appreciate that and I'll leave it there.

Thanks.

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Unknown Speaker* [109]

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Thanks.

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Unknown Speaker* [110]

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Thank you.

It appears that there are no further questions at this time.

Ms. Cohen, I'd like to turn the conference back to you for any additional or closing remarks.

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Unknown Speaker* [111]

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Thank you for joining us today.

Should you have any further questions, our contact information is included at the end of the presentation.

Second quarter of 2017 conference call will be held on May 30th.

We look forward to speaking with you then.

Have a good evening.

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Unknown Speaker* [112]

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Thank you.

This concludes today's call.

Thank you for your participation.

You may now disconnect.