Laurentian Bank of Canada

You're online for this Laurentian Bank of Canada conference call. At this time, we are still gathering additional participants. We will get started momentarily. We thank you for your patience and ask that you please continue to hold. Please stand by. We're about to begin. Good day and welcome to the Laurentian Bank of Canada First Quarter Results 2022 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Susan Cohen, Head of Investor Relations for Laurentian Bank. Please go ahead, ma'am.

Thank you. Bonjour à tous. Good morning, and thank you for joining us. Today's opening remarks will be delivered by Rania Lourelin, President and CEO And the review of the first quarter financial results will be presented by Yvonne 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. Leah Mason, Chief Risk Officer. Eric Prevost, Head of Commercial Banking. Karin Abgraal-Teslet, Head of Personal Banking. And Kelsey Gunderson, Head of Capital Markets. 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's 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. I would also remind listeners that the bank assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Rania and Yvonne will be referring to adjusted results in their remarks unless otherwise noted as reported. It is now my pleasure to turn the call over to Rania Llewellyn.

Bonjour à tous. Good morning and thank you for joining us today. Before I begin, I want to acknowledge the significant human toll of the current conflict in Ukraine. To help support and respond to the humanitarian needs in Ukraine and surrounding countries, we have made a donation to the Red Cross Ukraine Humanitarian Crisis Appeal. Now, turning to my prepared remarks. At the end of last year, we unveiled a new three-year strategic plan for the bank to drive long-term sustainable and profitable growth. While it has only been a few short months, we have already taken action on a number of fronts, and I want to sincerely thank all of the Laurentian Bank employees who have worked together as one team to deliver on our new strategy. The COVID-19 vaccination rollout in developed countries continues to contribute to a robust economic recovery. In Canada, solid GDP growth was driven by robust spending intentions, the reopening of the economy, and the continuation of targeted federal government support despite high CPI inflation. However, the onset of the Omicron variant led to brief shutdowns disrupting the initial positive momentum in the quarter. Notwithstanding uncertainties related to labor shortages, global supply chain bottlenecks, and the more recent geopolitical risks, we continue to see positive momentum heading into Q2. I would now like to review our Q1 2022 results. The bank delivered a strong start to the year. Fueled by top-line revenue growth of 4%, net income for the first quarter was $59.5 million, or 25% higher than a year earlier, with earnings per share of $1.26 up 22% year over year. ROE reached 9.2%, up 170 basis points from a year ago. Results were primarily driven by strong performance in commercial banking, our continued focus on cost management, and sound credit quality. Commercial banking grew its loan portfolio by $2.2 billion or 17% year over year and was up $1.3 billion or 9% quarter over quarter. Inventory financing exceeded our expectations with loan growth of 39% quarter over quarter as manufacturers delivered more equipment to our dealerships. This quarter, the dealer credit utilization rate increased to 43%, which is up from 35% last quarter, but still below the historical level in the mid-50s. Given our success in increasing our dealer network over the past year, a 1% increase in utilization rate is currently equivalent to $60 million in assets to our balance sheet. We were encouraged by better than expected Q1 results, which will continue to have a positive impact on Q2 before projected seasonal reductions occur in the latter half of the year. With our continued focus on cost management, the efficiency ratio improved by 190 basis points year over year. As the economy reopens, inflation and normalization of business activities may put some pressure on costs and cause some variability in our efficiency ratio. However, our focus on disciplined expense management and structural cost optimization should set the stage for continued improvement over the medium term. Our sound credit quality was evidenced by the declining trend in impaired loans and low provision for credit losses. While the PCL ratio came in at 11 basis points this quarter, we continue to expect that the evolving business mix will lead to a PCL ratio in the mid-teens this year. The bank continues to maintain healthy liquidity levels and a strong capital position to support our strategic plan with a CET1 ratio of 9.8%. As outlined at our investor day, our business lines play a key role in the success of our strategy. To recap, commercial banking remains our growth engine. Capital markets provides a focused and aligned offering. And personal banking is repositioning for growth. This is all underpinned by a strong culture and focus on making the better choice by living our values and integrating ESG best practices. 2022 is the year of execution, and we have already made good progress. As I outlined in our financial results, our commercial bank continues to execute on a proven business model with robust loan growth. This quarter, our focus on our specializations and additional relationship managers led to strong origination capacities. allowing us to grow our inventory financing credit line authorizations by 13% quarter over quarter, reaching $6 billion. Expand our real estate pipeline to $4.3 billion, up 9% versus last quarter, as we were able to benefit from the high volume of new construction projects in the Canadian real estate market. and generate close to $200 million of new business volume in equipment financing, bringing us back to pre-pandemic origination levels. With significant growth in inventory and equipment financing, the percent of commercial loans in the U.S. reached 17%, in line with our commitment to continue to diversify our portfolio by geography. We also continue to maintain a net promoter score of over 50, or excellence, based on our latest customer survey conducted in November with both our equipment and inventory financing customers. These scores reflect the deep relationships we continue to have with our commercial customers. In capital markets, we continue to offer a focused and aligned approach to differentiate ourselves from the competition. Q1 results remain solid, particularly in fixed income, although overall have moderated somewhat from last year's strong case. In line with our strategy, we are further aligning our capabilities with the broader bank and have hired new talent in our diversified group to augment our offering and provide strategic advice to commercial clients. Hired a new real estate research team, which is a key focus area, and a specialized sector for the commercial bank, allowing us to triple issuer NAIDs under coverage, and participated in multiple government green bond issuances in Canada in the first quarter, including those issued by the City of Ottawa and Province of Ontario, in line with our strategy to offer value-added ESG capabilities. In personal banking, we are focused on closing key foundational gaps to drive customer retention and acquisition while deepening existing relationships. I would like to provide three updates related to our strategy. First, efforts related to customer retention continued, including the use of predictive analytics and the launch of a new customer loyalty team. The virtual team was launched onboarded and trained throughout November and started making proactive calls to our customers in December. This team is initially focusing on customers with mortgages coming to maturity and locking them into new terms. Initial results are encouraging and the team is gaining momentum. While improving the performance of the mortgage business is expected to be a multi-year journey, we are confident that it should gradually yield benefits along the way. Second, following our commitment to transform our Visa product suite, we announced a new strategic partnership with Brink Financial. This partnership will fuel our digital transformation and enhance the end-to-end customer journey for our suite of Visa products. By the end of this year, we will have reduced the credit card adjudication time from 25 days to instantaneous, while also delivering a robust rewards platform aligned to our new brand purpose. In keeping with our focus on simplification, the partnership also reduces the number of vendors we use to issue a card from five to one, and reduces manual processes by 90%. This will close a key foundational gap for the bank and will allow us to continue to grow our national presence. Third, I am pleased to report strong customer demand for our recently launched mobile app. The app allows customers to do their most common banking transactions on the go. Using an agile approach, the bank will continue to update and enhance its app, and customers will see improvements through ongoing releases. In just three months, over 25% of our active online banking customers have now downloaded the app, doubling our Q1 target. Finally, our strategic plan is underpinned by a strong culture and an unwavering commitment to ESG. I will now outline key developments related to these priorities. As part of our focus on cost optimization and our future of work strategy, I am pleased to report that we have made significant progress on reducing our least corporate office space and have signed an agreement for our 199 Bay Street location in Toronto. This is in line with our objective to move to a hybrid work from home first model for all tasks that can be performed remotely. Second, As part of our commitment to building one winning team, I am pleased to announce that Bindu Kudjo has joined Laurentian Bank as the new Chief Legal Officer and Corporate Secretary. Bindu brings over 20 years of experience in legal and regulatory affairs, corporate and board governance, strategic partnerships, and compliance. In line with our strategic pillar to make the better choice, I am very proud that today we published Laurentian Bank's first ever ESG report, which highlights a number of key initiatives, including a materiality assessment to identify key ESG priorities for the bank, disclosures aligned to the TCFD recommendations, including a climate risk assessment and heat map, and new equity, diversity, and inclusion policies. Additionally, the bank has also joined the Partnership for Carbon Accounting Financials. The PCAF initiative enables collaboration among the world's financial institutions to develop standardized methods for measuring and disclosing carbon emissions from their financing and investment activities. We are in the early stages of our ESG journey, and this report represents another key step towards delivering a comprehensive sustainability program across the organization. To conclude my opening remarks, I am pleased with the progress we have made this quarter, and I will now turn the call over to Yvonne.