Bank of Nova Scotia (BNS) 2014 Q2 法說會逐字稿

Good morning and welcome to Scotiabank's 2014 Second-Quarter Results presentation.

My name is Peter Slan, Senior Vice President of Investor Relations for the Bank. Presenting to you this morning are Brian Porter, President and Chief Executive Officer; Sean McGuckin, Chief Financial Officer; and Stephen Hart, Chief Risk Officer. Following their comments, we will then be glad to take your questions.

Also in the room with us to take your questions are Scotiabank's business line group heads: Anatol von Hahn from Canadian Banking, Dieter Jentsch from International Banking, Chris Hodgson from Global Wealth & Insurance, and Mike Durland from Global Banking and Markets. As with prior calls, we also have joining us Sabi Marwah, Vice Chairman and Chief Operating Officer; and Jeff Heath, our Group Treasurer.

Before we start. I would like to refer you to slide number 2 of our presentation, which contains Scotiabank's caution regarding forward-looking statements.

I'll now turn the call over to Brian Porter.

Thank you, Peter.

Good morning everyone.

Before I get started, I would like to say a few words about our Vice Chairman and Chief Operating Officer, Sabi Marwah, who will be retiring at the end of May. Sabi has had an extraordinary 35-year career at Scotiabank, where he has helped shape both the success and character of the Bank. He has been a trusted colleague and friend to many Scotiabankers, and he is a role model in the community, giving generously of his time.

Sabi, on behalf of all of us at Scotiabank, thank you. And we wish you all the best for a long, healthy, and happy retirement.

Turning now to slide 4, we had strong results across our businesses this quarter. Scotiabank earned net income of CAD1.8 billion, or CAD1.39 per share, representing growth of 14% from last year. Our second-quarter performance reflects particularly strong results in Canadian Banking and Global Wealth & Insurance, along with solid performances in International Banking, and Global Banking and Markets. Our top line revenue growth of 10% reflects good asset growth and improved net interest margins. Return on equity was 16.3%.

Our capital position continues to be strong, with a common equity Tier 1 ratio of 9.8%. Our ability to generate high levels of capital has allowed us to announce a share buyback program today, for up to 1% of our outstanding common shares. We have also declared a quarterly dividend of CAD0.64 per common share. We are very pleased with our results and are focused on continuing to invest in our businesses, managing expense growth, and delivering consistent and predictable earnings.

Now let me touch briefly on the priorities for each of the business lines. Firstly, Canadian Banking. As many of you heard at our Investor Day last month, Canadian Banking has a positive outlook in the medium term. Even without the Tangerine acquisition, the division has been growing at an impressive rate of 9% annually since 2010. This is strong momentum, and we plan to continue to build upon it.

We are focusing on building our differentiated position in Canada by transforming retail banking, driving growth in commercial banking, accelerating credit card growth, expanding Tangerine, and improving operational excellence. Within credit cards, we recently announced a far-reaching strategic partnership with Canadian Tire Financial Services. This is a great example of our ability to partner with an iconic company to help grow our customer base, provide differentiated services for our customers, and grow in a product area where we have historically been under-represented.

Turning to International Banking, we continue to focus on streamlining our operating model and maximizing the efficiency of our operations across our footprint to reduce structural costs. In the short term, for example, this includes leveraging strategic sourcing and process reengineering to provide meaningful cost savings. It also includes investing in longer-term solutions, such as platform consolidations. Expenses continue to be well-managed and are flat relative to the same quarter last year. In terms of International Banking growth, we are focused on building scale in our highest priority markets of Mexico, Peru, Colombia and Chile, where we have seen meaningful volume growth across both our retail and commercial portfolios.

In Global Wealth & Insurance, we experienced another strong quarter, driven largely by our asset management business. We achieved solid growth in assets under administration and assets under management through strong sales of ScotiaFunds by our Canadian Bank branch network and improved dynamic sales performance. We now have meaningful scale and market share in Canadian mutual funds, and we are pleased with our market position.

In international wealth, we successfully launched our second fund in China, through our joint venture with the Bank of Beijing. In our wealth distribution businesses, we continue to strengthen our advisor offering and expand our high net worth capabilities here in Canada. We have also grown our fee-based business due to favorable market conditions and new client acquisition.

Turning to insurance. In Canada, our creditor insurance penetration maintained upward momentum, despite an industry-wide slowdown in mortgage unit growth. Internationally, our key markets in Latin America are performing very well. A priority is continuing to build scale in global asset management. This includes expanding our international capabilities and growing our institutional businesses.

Our strength in mutual funds is a principal reason for our recent announcement of our intention to monetize our investment in CI Financial. With respect to CI, it is a well-managed business; and our investment has been profitable. We have decided that the capital currently invested in CI can be redeployed into other strategic priorities of Scotiabank. While we have not yet made any decisions on the timing or the method of effecting this disposition, our intention is for an orderly transaction or series of transactions.

And finally, for Global Banking and Markets, earnings were up this quarter, due to stronger fixed income and investment banking results. We continue to focus on growing our wholesale business internationally within the Bank's existing footprint, and we are seeing good growth in this business. Overall, I'm pleased with the first half of the year, and I expect our growth to continue to accelerate throughout 2014.

And with that, I'll pass it over to Sean.

Thanks, Brian.

Slide 7 shows our key financial performance metrics for the quarter. Earnings per share were CAD1.39, up 14% year over year, on strong results across our businesses.

Revenue growth continues to be strong, at 10% year over year, with higher net interest income from both asset growth and improved net interest margins. Stronger non-interest revenue, including gains on investment securities and the positive impact of foreign exchange, also contributed to the increase. Expense growth was well-contained at 5% year over year.

The increase was across most operating expense categories and supported planned growth initiatives, including the Tangerine brand transition. The remainder of the increase was primarily in compensation-related expenses, which rose primarily due to annual merit increases, as well as increased technology costs. Our productivity ratio in Q2 improved by 230 basis points from last year, to 51.6%, and improved by 260 basis points from last quarter even with the increased Tangerine rebranding costs.

Moving to capital on slide 8. The Bank continued to improve its strong, high-quality capital position this quarter. Our capital position puts us well above regulatory minimums and positions us well for continued business expansion.

Our common equity Tier 1 capital ratio was 9.8%, an increase of 34 basis points from the prior quarter. Risk weighted assets were down CAD2 billion, or 1%, from last quarter to CAD300 billion due mostly to foreign currency translation. The growth in personal and business lending was offset by reduced exposure to securitizations and investment securities, and lower levels of undrawn balance sheet commitments.

As Brian mentioned earlier, our strong capital position and the confidence in our ability to continue to generate solid, sustainable earnings growth has allowed us to announce a share buyback for up to 12 million shares. This represents approximately 1% of the common shares outstanding. We also plan to continue to deploy capital into our four business lines. The recently-announced partnership with Canadian Tire Financial Services will reduce our common equity Tier 1 ratio by approximately 20 basis points.

Turning now to the business line results, beginning on slide 9. Canadian Banking had a strong quarter with net income of CAD565 million, an increase of 12% year over year. Revenues were up 7%. We continue to see good loan growth of 3%, despite the headwind of the Tangerine mortgage runoff, with double-digit loan growth in credit cards and consumer auto loan volumes.

Deposits were up 1% year over year, with good growth in savings deposits, checking accounts, and small business and commercial banking business operating accounts. This was partially offset by lower GICs. Overall, personal deposit growth was impacted by higher equity markets, as reflected by the 17% growth in ScotiaFunds in our Global Wealth & Insurance division. The net interest margin was up 8 basis points year over year, driven primarily by higher mortgage spreads and increasing volumes in high-spread credit cards.

Provisions were up CAD4 million, or 3%, year over year, to CAD140 million. Higher provisions in retail portfolios were mostly offset by lower provisions in commercial portfolios. Expenses increased 4% year over year, primarily from the Tangerine brand transition cost of CAD16 million and increased investment in growth initiatives. Excluding the brand transition cost, expenses were up only 2.7%. We expect full-year brand transition costs to be approximately CAD30 million, of which about two-thirds has now been incurred. The productivity ratio improved to 50.4%, benefiting from positive operating leverage of 1.9% year-to-date.

Turning to the next slide on International Banking. International Banking had a solid quarter, with stable net income year over year. Revenues were up 2% as strong loan growth of 14%, particularly in Latin America and Asia, helped mitigate the year-over-year decline in the net interest margin. Also reducing the impact of the strong loan growth were lower contributions from associated corporations and lower net securities gains, as last year benefited from a large securities gain.

On a sequential basis, the net interest margin improved by 7 basis points and remains within our expected range. The provision for credit losses was CAD230 million this quarter, compared to CAD193 million for the same period last year. The increase was driven by higher retail provisions, most notably in Mexico, and moderately higher commercial provisions in the Caribbean and Latin America.

As well, the credit mark related to our Colpatria acquisition continues to run off, resulting in higher provisions. Expenses were down 1% year over year, due to good expense management across all regions, notwithstanding the negative impact of foreign currency translation. Expense management remains an ongoing priority.

Turning to slide 11. Global Wealth & Insurance had a strong quarter, with net income of CAD345 million, up 11% from last year, due to higher net sales in asset management and improved financial market conditions. Revenues were also up 12%. In wealth, assets under management and assets under administration grew 18% and 16% respectively, driven by solid net sales, favorable market conditions, and the acquisition of AFP Horizonte in Peru last year.

In insurance, net income was stable year over year, while revenues were up 4%. Expenses were up 11% from the same quarter last year, due mainly to higher volume-related expenses, driven by business growth and acquisitions. Operating leverage was a positive 0.8% year-to-date.

Looking at slide 12, Global Banking and Markets net income was up 9% from last year, to CAD385 million this quarter, due to stronger investment banking and fixed income results, as well as a securities gain in our US lending business. Provisions for credit losses continued to be low at CAD5 million this quarter as credit quality remains strong. Expenses were up 3% over last year, due mainly to higher salaries and benefits, and technology and support costs. The effective tax rate was unusually high this quarter at 32.5%, versus 26.7% a year ago, due to higher taxes in certain foreign jurisdictions.

I'll now turn to the Other Segment on slide 13, which incorporates the results of Group Treasury, smaller operating units, and certain corporate adjustments. The results include the net impact of asset liability management activities. The Other Segment reported net income of CAD32 million this quarter, compared to a net loss of CAD62 million last year and net income of CAD13 million in the prior quarter. The year-over-year change was due mainly to higher revenues from asset liability management activities, and higher securities gains.

This concludes my review of our financial results. I'll now turn it over to Stephen, who will discuss risk.

Thanks, Sean.

The credit quality portfolio continues to be very strong. The overall loan loss ratio was up 2 basis points sequentially, to 36 basis points, and is in line with our plan. Canadian Banking loss rates were up due to higher provisions in their retail portfolios, reflecting our continued growth initiatives in credit cards and retail auto loans. International Banking's loss rates were up due to modest increases in the Caribbean, mainly in Puerto Rico, partially offset by lower commercial provisions in Latin America. Global Banking and Markets' credit performance continued to be very strong.

Net formations of impaired loans in Q2 increased to CAD598 million, driven by higher formations in international retail and commercial, which reflected the higher asset growth and some seasonal timing in our Chilean retail market. On a balance sheet basis, our net impaired loans as a percentage of total outstandings were 45 basis points, which is unchanged from a year ago, showing the portfolio's continued strength. From a market risk basis, it continues to be very well-controlled. Our average one day all bank VaR was CAD18.1 million, down from the CAD19.8 million in the prior quarter, with only two trading loss days shown.

Slide 16 shows the trend in provisions over the past five quarters for each of our business lines. As indicated before, Canadian Banking provisions were up both quarter over quarter and year over year, as higher provisions in retail were partially offset by lower provisions in the commercial portfolio. The Canadian Banking portfolio quality still remains high; and expressed in basis points, the loan losses are unchanged from last year at 21 basis points. Quarter over quarter, international retail provisions increased, as higher provisions in the Caribbean and Central American region, once again Puerto Rico, were partially offset by slightly lower provisions in Latin America. As noted, Global Banking and Markets' credit quality remained strong, with low provisions of CAD5 million this quarter, compared to CAD3 million in the prior quarter.

Slide 17 shows our Canadian Banking residential mortgage portfolio. Our total portfolio of residential retail mortgages is CAD188 billion. Our portfolio continues to be approximately 90% freehold and 10% condo, with approximately 54% of the portfolio insured. The uninsured portfolio has an average loan to value ratio of approximately 55%, a modest improvement from the 57% of previous quarters. The loan to value and credit score mix of our condo portfolio continues to be in line with that of the portfolio at large.

The credit quality and performance of the residential portfolio remains strong and has been stressed under many severe assumptions, confirming it is well within our risk tolerance. Our disciplined and consistent underwriting standards through all of our origination channels resulted in particularly low loan losses.

And with that, I'll now turn it back over to Sean.

Thanks, Stephen.

That concludes our prepared remarks. We will now be pleased to take your questions. Please limit yourself to one question; then rejoin the queue to allow everyone the opportunity to participate.

Operator, can we have the first question on the phone, please?

Your first question comes from Steve Theriault from Bank of America-Merrill Lynch. Please go ahead.

For Brian, please. So Brian, I'm wondering if you expect to be active with the 1% buyback right out of the gates. Also if you were to divest of the CI stake near term, is there a chance you might envision a larger buyback to offset any EPS dilution, especially in light of higher capital ratios?

Well, in terms of the buyback, traditionally we've used the buyback to offset option exercise, and as you know, historically, we've been acquisitive as a Bank. We do have a pipeline of acquisitions that we're looking at periodically that are on strategy and if they fit our criteria, we want to have the ability to capitalize on those. So in terms of a larger buyback, I can't envision one right now. We'll just see how things play out.

It is more like an option exercise offset like it's been traditionally for --?

Exactly, yes.

I'll set a good example and just ask one.

Thank you, Steve. Hope others will follow. Next question, please.

Your next question comes from John Aiken with Barclays. Please go ahead.

Brian, I guess a follow-on to Steve's question, maybe his second question. In terms of the capital levels that you're running at right now, 9.8%, the Canadian Tire is going to have a 20 basis point impact, but we've still got another quarter before that rolls on.

What is Scotia looking at for a longer term run rate that you'd be comfortable with? Because when we look at what's going on is that you have one of the highest ratios out of your peer group. The potential sale of CI is going to release significant amounts of capital, and the share buyback is only going to offset option dilution. So what are you comfortable with and what are your expectations for deployment over the next three to five years?

Okay, John. We're comfortable in this range of 9.5, to 9.75, in that range. And as I said to Steve's question, we have a pipeline of acquisition alternatives that we continue to look at. I've, in public forums, stated that we want to continue to grow our credit card business, both in Canada and internationally.

We see that the international wealth business and the P&C business in the four countries I mentioned in my verbal comments of Mexico, Peru, Chile and Colombia, we want to continue to build our presence in those markets. So we see -- that's how we see things unfolding.

Great. Thanks, Brian. Sean, I will requeue. Thank you.

Thank you. Next question, please.

Your next question comes from Gabriel Dechaine with Canaccord Genuity. Please go ahead.

Just on the international business, it looked very impressive from a cost management standpoint, and in Canadian dollars looks slightly down. I'm wondering if, A, you can give me what the change in expenses year-over-year was on a constant currency basis, and B, are we starting to see the benefits of the structural cost reductions that Brian and Dieter have been talking about for a while now? Or was there anything unusual that translated into this result? If you could shed some light on that I'd appreciate it.

On a constant FX basis, expenses rose 2% which is still half of the average inflation rate that we see in our operating environments. So we are seeing the impact of our longer-term structural costs as well as some of our shorter term initiatives.

We had no one-time, what I'd say significant expense savings, so as part of our ongoing management of our expenses. We continue to target positive operating leverage for the full year. So it is an outcome of an ongoing program, that's been in place for the last 18 months.

So there are structural cost reductions that are starting to come through and is there additional upside from there?

We will see the latter half -- first of all, the question is to structural costs. Yes, we are seeing some impact. I would say it's marginal to date. We see some more coming through going forward.

The latter half of the year is traditionally where we see some expense pickup as we gear up for the Christmas and fall campaigns in Latin America. It'd be fair to say you're going to see some uptick in our expenses in Q3 and Q4, but again, targeting positive operating leverage for the year ended.

And just a quick one for Brian on the capital deployment, assuming the CI transaction gets consummated. What I'm hearing from you is that investors shouldn't be too concerned about dilution from selling that CI stake, might be temporary, because you have a pretty active M&A pipeline, so capital deployment subsequent to any transaction would be fairly quick, I guess?

Look, just if you -- some comments about CI generally is, once we made the decision to monetize our stake, we certainly advised CI management of that, and we felt it was appropriate to issue a press release to the broader market, to notify them of our intentions. And we don't know how this is going to unfold, whether it's done in one transaction, or a series of transactions, and the timing of the disposition is uncertain to date.

We've hired Scotia Capital and Goldman Sachs to advise us. Our primary objective here is to monetize our stake in an orderly fashion, at a reasonable valuation, so we'll see how that unfolds.

Thank you.

Next question, please.

Your next question comes from Jason Bilodeau with Macquarie Capital Markets.

Just for following up with Dieter on the credit performance in international. A little bit of color around what's going on in some of the retail portfolios in Mexico, and some of your other regions in particular, but also what's the trend at Colpatria? My sense is that's starting to peak and should start to become less of an issue in the coming quarters. Could you update us on that.

I'll talk about the overall business lines, and the trends and Steve may comment on some of the retail credit risk. Overall, we continue to see strong volumes in all our LatAm sites, Chile, Peru and Mexico, with meaningful market share gains. We have continued pressures on our credit card portfolio in Peru, but we have offset that with growth in some of the other asset classes. In Colpatria, our retail platform is performing well, and we're seeing our restructured corporate platform starting to make some decent headwinds or gains, pardon me, in the market.

And in Mexico, as I mentioned, the overall market, our commercial and our retail platforms are performing well, and our retail formations are in line with our retail growth. We've seen significant market share gains, both on the commercial year-over-year as well as retail. And we continue to see some good growth prospects in the LatAm segment. Steve, do you want to talk to if you see anything in terms of --?

The uptick has really only been fairly muted, quite frankly. Colombia, the retail portfolio, as Dieter says, has actually started to improve. Mexico, we had some issues with term loans. We're working our way through those right now.

And the rest of the portfolio, as shown by slide 30, is fairly consistent quarter-over-quarter. Slight uptick in the Caribbean and Central America, as we said, mainly due to some issues with our acquisition of RG a few years ago --.

And then sorry, just remind me, maybe I should know this, when the Colpatria credit mark runoff, how does that look in the numbers? Do we flat line or is there actually something to come out of the PCL line for that?

What you'll see is the PCL ratio being higher into next year. Next year, we'll have exhausted all of the benefit of the credit mark running off the last couple years. Then into 2016, you'll then start getting the run rate more in line with the actual loan loss rate in Colpatria.

Makes sense. Thanks.

Next question, please?

Your next question comes from Robert Sedran with CIBC. Please go ahead.

Sean, just on the topic of taxes, I know the rate was a bit elevated this quarter, and I saw in one of the slides you had linked it to the securities gains, at least in the capital markets business. Is that the right way to look at the taxes this quarter? As the securities gains settle back down, so will the taxes? Or is there something else going on in that line?

As we said, the tax rate this quarter was unusually high. A lot of that was in our Global Banking and Markets division, as you saw their tax rates. If you look at the net security gain in Global Banking and Markets, and when you offset the higher tax rate, there's still a small net marginal benefit from the two of those, but we would expect the tax rate to come down to what we've seen the last couple quarters.

And is the same true of the securities gains line?

Yes, security gains this quarter will likely not be the rate you see next quarter.

Thank you.

Yes. Next question, please.

Your next question comes from Doug Young with Desjardins capital markets. Please go ahead.

On the Colpatria mark, based on the release, I haven't seen it, but have you quantified what that impact was?

Yes, we go into great detail on that in our MD&A. The benefit of the mark this quarter was about CAD4 million. Q2 last year was about CAD18 million, so we had less of a benefit of that credit mark running off.

Great. Thanks. And then just, sorry, on the corporate side, it seems to be bouncing around quite a bit, and I'm just trying to get a sense of, was there anything unusual going through this quarter and what -- how should we think about a normalized run rate for earnings out of corporate, if you can help me out with that, please.

It's always a difficult question to answer, I'll be honest. But the run rate, closer to slightly positive to slightly negative. What's benefiting this quarter, as we talked about a bit before, is as we have some higher cost wholesale funding that's written off, that was put on four or five years ago, we're getting the benefit of that.

That peaked this quarter, so the year-over-year change in the following couple of quarters won't be as high as it was this quarter. That's partly driving it. And we've had higher security gains this year versus last year, which is also driving a more positive number than the run rate of plus or minus around zero.

And have you quantified the security gain?

In that division?

Yes.

No, we haven't, no.

Thank you.

Next question, please.

Your next question comes from Sohrab Movahedi with BMO Capital Markets. Please go ahead.

Couple of more detailed ones. One, you said that the RWAs were down primarily, or in part, due to lower loan commitments. Is that something that -- is that a new theme that we should be worried about, or was there something unique this quarter?

It was kind of broad based. There were a few large ones that matured or rolled off. Some of that was funded onto the balance sheet. So nothing too unusual.

Okay. And then I think you noted in the margins the benefits from the cards businesses. But presumably there will be the lag effect, if you will, of the higher loan losses associated with that in the periods to come?

Some lag. We're starting to see some of that. We're starting to build that. As you know, with the roll rate models you start building some of that in today, as the portfolio grows. Stephen, did you want to add anything else?

That really is what we're doing right now, and why you're seeing the provisions going up, is we're setting up the reserves under the role rate model in anticipation what the higher levels will be.

We don't usually think about is this way, but if you were going to try and think about your gross margins adjusted for PCLs a year out, would it be more or less in line with this year, or would it be lower or higher?

I think on the Canadian Banking side you'll see a slight improvement, as the higher yield in credit cards margin exceeds the growth in the PCL. But again, credit cards is a small component of our Canadian Banking's loan portfolio, as you know. We're talking a basis points, a few basis points, not going to be in the tens of basis points.

Thank you very much.

Next question, please.

Your next question comes from Meny Grauman with Cormark Securities. Please go ahead.

Just looking for a little bit more color on developments in Thailand, and your interest in TBank, considering the social unrest and the coup, and how your business is being impacted there, and if you have any visibility for the future, I think settling down there? Thank you.

There's an article in today's Financial Times that most of you have read, and came over the weekend, where the king has endorsed the general, who's the head of the council of the peace and order. So everything is quiet in Thailand. There is a curfew.

But the general has committed to do a couple things. The first thing is to maintain peace and order. And he's been very open about that, and quite frankly, the underlying sentiment of the people is very positive, over three-quarters endorse what's going on.

But he also is being very clear up front that he wants to bring the economy back, after it's taken a bit of a setback given some of the turmoil. He's committed to have the CAD3 billion of rice payments that are overdue be paid out by the end of this month.

More importantly, he's also promised to bring the budget process fast forward, to make sure the time lines are met by October, and so that's been received very positively. As a matter of fact, the market was up today.

The currency has been relatively stable. So at this point, we're cautiously optimistic. It is fair to say that our originations and underlying business has been set back a little bit, and you've seen it in this quarter's earnings.

Our loan losses so far have been relatively in line with expectations and we've maintained our margins with expense control and our assets and liabilities. Our bank there is highly liquid. It's well-managed, has a very high liquid position. And we're in good shape to weather out what's going forward.

Thank you.

Next question, please.

Your next question comes from Darko Mihelic with RBC Capital Markets. Please go ahead.

A question with respect to the net interest margin in the international division. I wonder, one of the things -- one of the remarks in your report to shareholders is that it's settled into a range that's more or less expected. Can you speak to why that -- we should view the margin as stable?

Is there less competitive pressures? Is it loan mix? Is it yield curves? Perhaps you can provide some color on that.

And real quickly, for Brian as well, if you do sell CI position and make some acquisitions internationally, how do you feel about the earnings mix of international versus Canadian and balance sheet usage? Does any of that actually come into your thinking, or at this point are you going to be the CEO that takes us into the direction of making the international division eventually larger than the Canadian division?

I'll answer that question first and then Dieter can take the first part of your question. But in terms of -- we spend a lot of time as a management team and a Board going through strategically what the Bank should look like in three to five years, what's the appropriate balance between international and Canadian, in terms of earnings and asset mix. And that's obviously a key concern to rating agencies and shareholders and other stakeholders.

This quarter, our mix is 57/43. I think that we could grow the international piece to something over time in a thoughtful, deliberate way of 50/50. Beyond that, I think we've got to think about what the appropriate balance is.

With regard to the margin question, just to pull back a little bit, we signaled that we would see a stable to a biased upward increase in our margin, but within the range of 3.90 to 4. This quarter, we're at the higher end. We're bound to see some variability from quarter to quarter. This quarter, we had some asset liability gains in Chile and Colombia, which brought us to the higher end of the range.

Our core margin, to your point, has stabilized because some of the impact of central bank rate cuts, some of the asset mix changes that we saw in our Asia business and our LatAm business are working itself through. So at this point we're comfortable on a go-forward basis to be in the range that we indicated in previous quarters.

Thank you.

Next question, please.

Your next question comes from Sumit Malhotra with Scotiabank GBM.

First question is for Stephen Hart. You talked a little about the trends on the provision side, but if we go one step back into the gross impaired loans and more specifically the formations, it was a larger number than we've seen in a few years for the Bank, and at least half of it was coming from the international segment. You've talked a lot about the Colpatria mark, but just wanted to maybe take a step back and get a little bit of flavor on what exactly is happening on that level of formations, whether that's Colpatria, or whether it's other areas of the portfolio that are showing some signs of weakening?

Thanks. The delta quarter-over-quarter, about half of it was sitting in the retail side, and as I indicated, that was due to some student loans in Chile, a large batch that we buy on an annual basis, usually they come up -- they finish their grace interest period and pop up as non-accruals today. These are ones that are about 90% guaranteed, and therefore, will have in a couple of quarters, as we realize that from the government, the payables will come down. That's a seasonal aspect that's happened.

On the commercial side, we had three loans, commercially, that went non-accrual on us. One in Brazil, and two in Colpatria, all connected to the agricultural sector but we think we got them properly provisioned and working their way through. They were a couple of ones that popped up, that we had been looking at, but we don't view it as anything that's going to be systemic going forward.

So I think that explains your confidence in the provision line, 90% guarantee on the retail formations that came through? And then I think you said you're properly provisioned for the commercial ones?

We feel so right now.

And then lastly for Anatol, the advertising expenses for Tangerine didn't seem to have too much of an impact on operating leverage. A couple of points of interest, just looking into the second half of the year. Some of your counterparts last week seemed to be a bit cautious, at least in my view, on the prospect of a seasonal bounce-back in consumer loan growth.

I think we usually see things start to look better as we get into the spring and summer months. Wanted to maybe get an update from you on what you're seeing, as far as the consumer loan growth outlook is concerned, looking into the second half of the year?

If you look at it firstly on the mortgage side, which is the largest single item on all our balance sheets, I think we're right in the midst of what would be the spring sale period. I think it's fair to say that we are seeing it bounce back, but we won't see the mortgage market have the growth in the spring and forward, as we've had in previous years. It will be a lot better than what we've seen in the first six months of the year.

If we look at other segments, the auto industry being one, credit cards another, which we've talked about earlier in some of the comments, both of those are going very well. So part of the lack of growth we're going to see in the mortgage side, we're making up with growth in other consumer areas.

Is your NIM improvement sequentially all due to the ING runoff, or is there other components that are --?

It's both the credit card business, as we've talked about, which is coming on, the growth in the auto industry, the mortgage renewals that are taking place. We've got still some of the lower margin mortgage business that is running off and coming back on, and the renewal process at a higher margin. So it's a combination. It's not just the Tangerine portfolio runoff.

Thanks for your time.

Okay. Thank you.

Ladies and gentlemen, as there are no further questions, this will conclude the conference call for today. Thank you for participating, and you may now disconnect your lines.