Laurentian Bank of Canada

Bonjour and welcome to the Third Quarter Results 2021 Laurentian Bank Financial Group Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Susan Cohen, Director, Investor Relations. Please go ahead, ma'am.

Bonjour à tous. Good morning and thank you for joining us. Today's opening remarks will be delivered by Rania Llewellyn, President and CEO, and the review of our third quarter of 2021 financial results will be presented by Yvon Deschamps, Executive Vice President and Chief Financial Officer, after which we will invite questions from the phone. Also joining us for the question period are several members of the bank's executive leadership team, Liam Mason, Chief Risk Officer, Kelsey Gunderson, Head of Capital Markets, Eric Prevost, Head of Commercial Banking, and Karine Abgraal-Teslik, Head of Personal Banking. All documents pertaining to the quarter can be found on our website in the Investor Center. I would like to remind you that during this conference call, forward-looking statements may be made, and it is possible that 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 two of the presentation. It is now my pleasure to turn the call over to Rania Llewellyn.

Thanks, Susan. Bonjour à tous. Good morning from sunny Montreal, and thank you for joining us today. As summer comes to a close, I hope that everyone had an opportunity to disconnect and recharge. particularly this year, as the impact of COVID continues to take its toll on everyone's physical and mental health. To support our employees, I encouraged everyone to take their vacation days, and as a bank, we provided an additional four paid Friday afternoons off this summer. Over the past few months, we have been working to refine our future of work plans. We conducted a company-wide survey to hear directly from our employees on their work habits, expectations and preferences. One thing we've learned is that a one-size-fits-all strategy is not realistic and that we must adapt to new ways of working. That's why we will be pursuing an employee-centric strategy and adopting a hybrid model where working from home is our first approach for all tasks that can be performed remotely. We will also not begin any mass return to head office and corporate office premises until at least January 2022. We are closely monitoring the impact of the Delta variant on the economy, particularly labour market conditions, as Canada plans to phase out government income support programs this fall. We expect that interest rates will remain low and spending intentions of both consumers and businesses should create a favorable backdrop for loan growth. Turning now to our results. The momentum that we have been building over the first half of the year continued into the third quarter, delivering adjusted net income of $59 million. This represents an increase of 4% quarter over quarter and 25% year over year with adjusted earnings per share of $1.25 million. Our results were driven primarily by strong performance in real estate financing, lower provision for credit losses, and our continued focus on cost discipline. The PCL includes releases of allowances on performing loans of $3.6 million, reflecting improvements in economic conditions. I'm also pleased with another solid quarter from capital markets. Growing fee-based revenues from the equity and advisory group helped produce our second highest quarter on record for this business. The bank also continues to maintain healthy liquidity levels and a strong capital position with a CET1 ratio of 10.3%, up 20 basis points quarter over quarter and 90 basis points year over year. In the third quarter, inventory financing was impacted by continuing supply chain disruptions and high consumer demand for recreational vehicles, which resulted in the lowest dealer credit utilization rate on record of 28%. We expect that supply chain disruptions and high consumer demand will continue to remain a challenge for most of 2022. To counter these impacts and to position us well for the post-pandemic recovery, our business development team has expanded the dealer network by more than 20%. When credit utilization rates rebound, every incremental one percentage point of utilization results in $50 million of assets and a return to pre-pandemic utilization levels in the mid-50s would generate over $1 billion in additional assets. This quarter also saw some key developments that I would like to highlight. The bank purchased group annuity contracts to de-risk our pension plans, which reduces our non-operating financial risk and administrative costs. The transaction resulted in a net after-tax settlement gain of $5.2 million, which is excluded from adjusted earnings. The real estate finance group had very strong performance with growth of 6% quarter over quarter and 18% year over year. The pipeline is at an all-time high level of $4 billion, which is expected to fuel future growth and profitability. While I am pleased with our overall performance for the first three quarters of the year, we do not expect it to be a straight line to success. You will recall from previous quarters that we've established three strategic pillars that are guiding all our efforts and actions. They are cultivating a customer-first culture, driving an agile and innovative mindset, and engaging and empowering our employees to work as one team. From those pillars, we identified three key priorities for 2021. renew the senior leadership team and organizational structure, increase our efforts on cost discipline while pivoting to structural cost opportunities, and conduct a thorough review of the bank's operations and develop a new strategic plan. We have made significant progress on all three of these priorities and I would like to provide a brief update on each one. Following up from last quarter where we announced a search for a Chief Technology Officer, I am pleased to announce that Bel Yacoub joined Laurentian Bank as the new Executive Vice President and Chief Information Technology Officer in July. He brings over 20 years of experience in digital technology, business transformation and data insights to the bank and we are extremely pleased to have him on the team. As I have said before, a key focus area for the bank this year is in managing our costs. While we continue to pivot towards identifying large cost optimization opportunities, we are finding low-hanging fruit in executing against those initiatives. A few examples include consolidating vendor agreements to bring more value for the bank, including an instance where the bank entered into seven agreements with the same partner. simplifying our visa product offering from 8 to 4 to enhance the customer experience while reducing costs, and conducting a strategic sourcing exercise to consolidate our printing service contracts resulting in cost savings for the bank. I am a big believer in every penny counts. We are looking at all opportunities that contribute to our cost savings, and this work is starting to be reflected in our results, with our adjusted efficiency ratio improving by 150 basis points quarter over quarter to 68.4%. Third, as you know, we are continuing to conduct a thorough review of the bank's operations. Over the past two quarters, we identified shortfalls in our mortgage business, including a complex customer experience, lengthy processes and inconsistent service levels. To improve the customer experience, we are ensuring we have the right people, processes, and technology in place. Initiatives this quarter include, first, the creation of a new residential real estate secured lending business unit within personal banking. This new unit will allow for greater accountability and cross-functional collaboration in delivering a seamless experience for our customers and renewing growth. Second, the implementation of DocuSign, a digital tool for ease, convenience, and collection of customer signatures. And third, the integration of technology like an automated valuation management system, which enables the bank to save processing time in valuing properties from days to seconds and saves customers hundreds of dollars per transaction. While we know that this is a multi-year journey to improve the customer experience and to renew growth, we do expect to reap benefits along the way. Last quarter we committed to completing a strategic review of our digital roadmap and to sharing our progress. As a result of our review, we have identified three key focus areas. First, we will work to close foundational gaps in our offering. For instance, we currently have two different experiences for our retail customers depending on which platforms their accounts reside on. We will streamline this process and provide new digital offerings such as a mobile app and tap-enabled debit cards for all our customers. Second, we will enhance our digital onboarding, sales, and servicing capabilities to allow us to expand our reach to new customers and deepen relationships with existing customers. And third, we will simplify our offering and improve the end-to-end digital customer experience. Similar to our mortgage review, we are ensuring that we have the right people, processes, and technology in place. We will come back in future quarters with further updates. As you know, the bank's ESG journey remains a key priority. To further support our efforts of making Laurentian Bank a place where people, businesses, and communities thrive, I'm pleased to share some key developments over this past quarter. We launched our Pride Employee Resource Group and Courageous Conversations series for LGBTQ2S+, community and allies. We rolled out a mandatory unconscious bias training program for all employees. We initiated an RFP to conduct a climate risk assessment for the whole bank to better understand our impact on the environment and areas of opportunities. And we continue to be an active participant in green bond issuances. As we head into the fall, we will continue to work with our employees to ensure their safety and that of our customers remains our top priority. We will also look for opportunities to generate new business and grow revenues as the economy reopens, while maintaining our disciplined management of expenses. I am now pleased to turn the call over to Yvon.