Laurentian Bank of Canada

Please stand by, we're about to begin. Good day and welcome to the third quarter results 2022 Laurentian Bank Financial Group conference call. Today's conference is being recorded. At this time, I'd like to hand the conference over to Andrew Trenenke, Vice President and Head of Investor Relations. Please go ahead.

Bonjour à tous. Good morning and thank you for joining us. My name is Andrew Trenincky and I am the Head of Investor Relations at Laurentian Bank. Today's opening remarks will be delivered by Ronnie Llewellyn, President and CEO, and the review of the third quarter 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, Eric Provol, Head of Commercial Banking, Karin Abdel-Teslic, 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 and that's otherwise noted as reported. I'll now turn the call over to Rania.

Bonjour à tous. Good morning and thank you for joining us. I hope everyone had a nice summer and a chance to recharge. We are pleased with our performance this quarter and remain confident that we will exceed our financial targets for the year. On behalf of the entire management team, we would like to thank our one winning team for their efforts over the last quarter. They have continuously shown their resilience, and commitment to putting our customers first. The macroeconomic environment continues to be uncertain and volatile and is being weighed down by high inflation, very rapid interest rate increases, and geopolitical tensions. Notwithstanding, our results speak to the strength of our underlying businesses, our prudent approach to credit, disciplined cost management, and the progress we are making on executing against our plan. This quarter, total revenue grew by 2% and pre-tax, pre-provision income was up 6% year over year. Net income for the third quarter was $58.2 million, or 2% lower than a year earlier. As a result of higher provisions on performing loans, PCLs increased by $11.2 million or 11 basis points year over year to 16.6 million or 18 basis points. Earnings per share were $1.24 compared to $1.25 last year and ROE was 8.7%, down 20 basis points from a year ago. Following our record strong second quarter since 2018, revenue was relatively flat quarter over quarter. impacted by lower financial market-related non-interest revenues. PCLs increased by $3.6 million, or three basis points quarter over quarter. Pre-tax, pre-provision income, and net income were both down by 5% and 6%, respectively, while ROE was down 160 basis points, including the impact of the $3.3 million interest payment on limited recourse capital notes. Commercial banking had another strong quarter. Our commercial loan portfolio grew by $3.9 billion, or 29% year-over-year, and over $600 million, or 4% quarter-over-quarter. Personal deposits saw significant growth, up 17% year-over-year and 8% quarter-over-quarter, supporting our solid loan growth. Last quarter, we said that expenses would be higher in the second half of the year as we continue to deliver on key strategic initiatives, including digital onboarding and our reimagined visa experience. At 67.1%, our efficiency ratio improved by 130 basis points year over year, and at 66.4% year to date, we will exceed our fiscal 2022 target of less than 68%. The bank's CET capital ratio of 9.1% is down from 9.3% last quarter as we continue to redeploy capital in line with our strategic plan to support profitable, sustainable, organic growth. Our CET1 ratio remains above our pre-COVID level of 9%, and higher than our operating target of 8.5%. As outlined at our December 2021 Investor Day, our business lines play a key role in the success of our strategy. Commercial banking, our growth engine, continued to execute on its proven business model with a focus on its key specializations. Real estate financing was up by more than $300 million, or 3% from last quarter, to $9.7 billion. Results were mostly driven by the conversion of our strong unfunded pipeline in the construction portfolio to support the multi-residential segment as developers continue to catch up to the structural supply shortage in certain markets. Inventory financing was up $225 million, or 7% from last quarter, to $3.6 billion. driven by a more normalized pre-pandemic credit utilization rate of 51%. Equipment financing was up $50 million, or 3% from last quarter to $1.5 billion, driven mainly by the transportation and construction segments. As part of our strategy and commitment to diversify our geographic footprint, we now have 21% of our commercial loan portfolio in the U.S. exceeding our medium-term target of 18%. In capital markets, we saw significant volatility this quarter as markets digested various geopolitical risks and aggressive monetary tightening by central banks. In response, we continued to deliver on our focused and aligned strategy. First, in line with our objectives to expand coverage to our top-tier commercial clients, we offered a full suite of advice to our core clients as they navigated current macroeconomic conditions. This led to a strong quarter in SX. Second, we participated in six bank-issued preferred or limited recourse capital notes issuances as part of our priority to grow our syndicate positions with core corporate issuers. And third, we participated in four ESG-themed bonds including two new-to-market issuances by OPG and the Municipal Financing Authority of BC as part of our objective to participate in sustainable bond issuances. In personal banking, we are leading with a digital first approach to reposition the business for growth. To that end, we are pleased to announce the launch of our digital account opening solution. In partnership with ThirdStream, we were able to deploy digital account opening in just six months, which aligns with our strategy to partner versus build to get to market faster. Our digital onboarding rollout will focus first on our employees to ensure a seamless customer experience. As the solution is rolled out more broadly, it will allow us to continue acquiring new customers within Quebec, beyond our physical footprint, and as our launching pad to expanding our retail presence across the rest of Canada. Our initial focus will be on checking and deposit products. To enable the launch of digital account opening, we were able to utilize our recently announced cloud-based API solution in partnership with Kindrel. With this milestone, we now have a strong and proven foundation to deliver faster, more seamless, and innovative digital capabilities for our customers. Along with this key milestone, other digital achievements this quarter include the introduction of self-service password reset, which will help divert more than 5,000 calls per month from our contact center, and the launch of our refreshed public website, as well as our newly modernized online customer platform, LBC Direct. The new modernized LBC Direct ensures that our digital banking experience is consistent across all devices and improves the overall banking experience for our customers. We said that retention was also a key priority this year, and our recently launched loyalty team continues to make progress. For instance, our loyalty team's proactive outreach to GIC customers led to a 12% year-over-year increase in retention. In our year of execution, we have now successfully closed the top five digital pain points identified by our customers through the launch of contactless tap debit cards, mobile app, self-service password reset, refreshed web, and digital onboarding. Our strategy is also underpinned by a strong culture and a commitment to ESG. With culture as our driving force, we launched a new career path program for our personal bank advisors, participated in Pride events across the country, and partnered with Pride at Work Canada to build up and foster a culture where everyone belongs. In making a better choice, I am proud to announce that Laurentian Bank had the best year-over-year improvement among the big Canadian banks in the Sustainalytics ESG Risk Rating Survey, and we moved into the low-risk category. This reflects the collective enterprise-wide effort to incorporate ESG best practices across all the bank's activities, including implementing a new ED&I policy for the board and employees. In wrapping up my remarks, I want to share a progress update with you. On a year-to-date basis, we are exceeding each of our 2022 financial targets. Our EPS growth is up 11%, exceeding our target of greater than 5%. ROE is 9.4%, exceeding our target of greater than 8.5%. Our efficiency ratio is 66.4%, or 160 basis points better than our target of less than 68%. And our operating leverage is positive at 3.9%. Our team continues to demonstrate their resilience through this volatile economic environment. We are confident and committed to executing on our strategy to deliver long-term, sustainable, and profitable growth, as well as exceeding our financial targets this year. I would now like to turn the call over to Yvan.