Laurentian Bank’s Strategic Progress in Q3 2024

Laurentian Bank (LB.TO) has made significant strides in its strategic plan, as discussed by CEO Eric Provost during its quarterly financial results call. The bank has divested its full-service brokerage to iA Private Wealth and announced the sale of its discount brokerage to CI Investment Services.

Despite a decrease in loan volumes and the anticipation of a slight decrease in the loan book for the next quarter, the bank expects loan growth to resume in 2025. Adjusted earnings remained consistent with the previous quarter, and the bank has maintained a strong capital position with a common equity Tier 1 ratio of 10.9%.

Key Takeaways

• Laurentian Bank has divested its full-service brokerage and discount brokerage, impacting future brokerage fee revenues.
• A new Head of Customer Experience has been appointed to enhance customer service and decision-making.
• The bank’s commercial real estate pipeline remains healthy despite low levels of new project launches.
• Loan volumes decreased by $1.2 billion, but the bank managed deposits effectively.
• The bank expects a stable net interest margin (NIM) and a slight increase in the efficiency ratio for the next quarter.
• Provisions for credit losses are anticipated to stay in the high teens to low 20s basis points.

Company Outlook

• Loan growth is projected to pick up again in 2025, influenced by potential rate reductions.
• Other income will decrease due to the sale of brokerage activities, with a short-term impact of $0.01 on the next quarter’s earnings.
• The bank is focusing on collateralized loans to mitigate potential recovery rate surprises.

Bearish Highlights

• The divestiture of brokerage services will negatively affect brokerage fee revenues by approximately $4-5 million.
• The bank is not considering a share buyback, opting instead to support organic growth in commercial loans.

Bullish Highlights

• The bank’s capital deployment strategy focuses on specialty businesses with healthy margins and returns.
• Income from financial instruments reached a record high in Q3, driven by strong trading activities.

Misses

• Loan volumes have decreased, and the bank anticipates further pressure on net interest income (NII) in the next quarter.
• Increased impairments in the loan portfolio have raised concerns, although the company maintains confidence in the portfolio’s quality.

Q&A Highlights

• The bank expects retail deposits to inflect and customer focus to increase, with impacts likely visible in 2026.
• Elevated impairments are attributed to broader headwinds in the commercial sector rather than weaknesses in collateral or borrower ability to pay.

Laurentian Bank continues to execute its strategic plan, focusing on building a more digital and efficient organization. The bank’s leadership is confident in its credit book and remains committed to providing value to its shareholders through specialized niche businesses and prudent capital management.