Laurentian Bank of Canada

Ladies and gentlemen, you're currently on hold for today's conference call. At this time, we're assembling today's audience and plan to be underway shortly. Thank you for your patience and please remain on the line. Good day and welcome to the second quarter results 2022 Laurentian Bank 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, 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 Llewellyn, President and CEO of And the review of the second 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. Liam Mason, Chief Risk Officer. Eric Prevost, Head of Commercial Banking. Karine Abgral-Teslik, 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 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. I would also like to 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. As many of you know, several months ago, I made the decision to retire from Laurentian Bank after more than 10 fulfilling years as Head of Investor Relations. During that time, I have had the pleasure of working closely with the investor and analyst community in communicating the Laurentian Bank story. The bank is entering a new chapter, and I look forward to the progress it will continue to make. I would also like to formally introduce Andrew Chernenky, who joined the bank in May as Vice President and Head of Investor Relations. Andrew has extensive experience in banking and investor relations, and has worked closely with the bank over the last 18 months. I know that he will be a great and collaborative partner with all of you. It is now my pleasure to turn the call over to Rania Llewellyn.

RANIA LLEWELLYN Hello everyone. Thank you for joining us today. We continue to make good progress against our strategy this quarter. We are confident that our strong prudent risk culture and disciplined focus on cost management will allow us to manage through the evolving macroeconomic environment, and we expect to exceed our 2022 financial targets. On behalf of the entire leadership team, I would like to thank everyone at Laurentian Bank. The results this quarter demonstrate their commitment to working as one winning team and putting the customer first. I will now review our Q2 2022 results. Driven by top line revenue growth of 4% year over year, net income for the second quarter was $61.6 million, or 9% higher than a year earlier, with earnings per share of $1.39 up 13% year over year, leading to our most profitable quarter since Q2 2018. ROE reached 10.3%, up 110 basis points from a year ago, and pre-tax, pre-provision income improved by 20% year over year. Results were primarily driven by strong performances in commercial banking and capital markets and our continued focus on cost management. Quarter over quarter, net income was up 4%, and earnings per share increased 10%. ROE was up 110 basis points sequentially, and pre-tax, pre-provision income improved by 6%. With strong revenue growth and our focus on cost management, our efficiency ratio improved to 65.2%, a 470 basis point decrease year over year, and 180 basis point decrease quarter over quarter. Operating leverage was positive at 2.7%. The bank's CET1 capital ratio, which is presented under the standardized approach, was 9.3% compared to 9.8% last quarter. This variance was a result of redeploying capital accumulated during the pandemic and is in line with our strategic plan to invest in profitable, sustainable, organic growth. Given the current macroeconomic conditions and ongoing market volatility, A few additional highlights from this quarter showcase the continued confidence in our strategy, including the successful issuance of $300 million of covered bonds and $350 million of subordinated debt, leveraging our diversified sources of funding, and the confirmation of our long and short-term credit ratings from S&P with a stable outlook. We are also pleased to announce a $0.01 increase to the bank's dividend to $0.45 per common share. This is a 13% increase compared to the dividend declared the previous year. As I outlined at our investor day, our business lines play a key role in the success of our strategy. Commercial banking continues to be our growth engine and is executing on a proven business model highlighted by a record quarter for organic loan generation led by inventory and real estate financing. Inventory financing was up by over $800 million, or 32%, quarter over quarter to $3.4 billion. Real estate financing grew by over $300 million, or 4%, to $9.4 billion over the same period. And equipment financing is tracking to plan, driven by strong originations and asset price increases. In capital markets, we saw a strong rebound in revenues compared to last quarter, reflective of active debt markets and continued progress on our strategy to provide a more focused and aligned offering. First, we improved our syndicate position with several provincial borrowers in line with our objective to grow with core issuers while also participating in the Government of Canada's inaugural green bond issuance, as well as a sustainable bond issuance from the First Nations Financing Authority. Second, we achieved our fiscal year 2022 goal to provide coverage to at least 75% of our top-tier commercial clients, up from 50% last year. And third, we integrated our new real estate research capabilities in our offering, which has led to improved deal pipeline conversions. In line with our strategy to reposition for growth with a digital-first approach, personal banking continued to make progress in closing key foundational gaps to drive customer retention and acquisition while deepening existing relationships. First, the bank launched a new contactless tap debit card with interact flash functionality. The launch of the new card closes a key foundational gap and supports the bank's strategy to drive customer acquisition and enhance the customer experience. The new card continues to give customers access to more than 1 million ATMs across Canada and around the world. Second, following our commitment to improve the onboarding experience, we have announced a strategic partnership with ThirdStream to enable digital account openings. Rolling out later this year, existing and new customers will have access to a simplified, fully digital application process to open an account in minutes. Third, we have reduced redundant systems and processes by more than 60% for mortgage originations so far this year, and we remain on track to meet our Time to Yes target of three days by year-end. As we said at our Investor Day, our strategic plan is underpinned by a strong culture and commitment to ESG, Recently, as part of making the better choice, we added four new ESG-themed funds and launched Green Teams at the bank, an employee-led initiative to identify low-cost and innovative ideas to make our bank more environmentally friendly. We have also been taking action to support our employees, including a work-from-home first approach, reducing commuting time and expenses for employees, allowing them to spend more time with their families. providing four summer afternoons off as well as a day off on their birthday for a total of three additional days off per year. And the launch of LifeSpeak, a new mental health resource and wellness platform that provides education and advice on mental health issues. The physical and emotional strength of our one winning team is a priority, and we believe that maintaining good mental health contributes to personal and professional development. Our culture is our driving force, and our employees are the biggest stakeholders in our success. Over the past few weeks, we have held a series of employee appreciation events to thank them for their contribution to the bank. Their energy and ongoing commitment will help fuel our path forward. I would now like to offer some thoughts on the evolving macroeconomic environment and potential impacts on the bank. Regarding our loan portfolio, we are pleased with our recent results. Inventory financing is significantly ahead of expectations as a result of three factors. First, OEMs are recovering faster than anticipated from the pandemic and are able to ship more product than expected. Second, the successful growth of our dealer network, which is 20% larger today than it was last year. Third, an increase in the cost of goods driven by supply chain issues and inflation impacting the cost of materials. Looking forward, we expect a tempering of consumer demand as a result of the current macroeconomic environment and a seasonal volume reduction in Q3, followed by a gradual recovery in Q4. Turning now to our real estate portfolio, we have a healthy pipeline of $4.4 billion up from $4.3 billion last quarter. While growth is expected to moderate, the country is still experiencing a structural housing supply shortage, especially in certain regional markets. Given our specialization in this sector, we continue to support our long-term top-tier clients as they work to meet demand. In speaking with them, they see further opportunities as a result of future immigration waves, which will lead to sustainable population growth in Canada and the continued need for more housing. As we look to the residential mortgage sector, we expect loan growth to moderate in this rising rate environment. With a potential cooling period, it enables us to continue to make the strategic improvements we laid out at our investor day to enhance the customer experience and better positions us to capitalize on future growth. Across our loan book, our underwriting practices are strong and our portfolio is highly collateralized. We take an extremely disciplined approach in dealing with uncertainty and remain adequately provisioned to weather the rapidly changing environment. Before I conclude my opening remarks, I would like to personally thank Susan Cohen for her dedication to the bank, leading investor relations for the last 11 years. She has played an important role over that time in establishing strong relationships with our analyst and investor community and we would like to take this time to wish her all the best in her retirement. I'm also pleased to welcome Andrew Czerniecki to the bank. His background and extensive experience in banking and financial communications will be an asset as we continue to execute on our strategy. He knows the bank very well, and I know he is looking forward to meeting and working with all of you. I would now like to turn the call over to Yvonne.