Laurentian Bank of Canada

Welcome to Laurentian Bank Financial Results Call. Please note that this call is being recorded. I would now like to turn the meeting over to Raphael Ambo, Vice President, Finance and Investor Relations. Please go ahead, Raphael.

Bonjour à tous. Good morning and thank you for joining us. Today's opening remarks will be delivered by Eric Prevost, President and CEO, and the review of the first quarter financial results will be presented by Yvan Deschamps, Executive Vice President and CFO. after which we'll invite questions from the phone. Also joining us for the question period is Christian Debroux, Executive Vice President and CRO. All documents pertaining to the quarter can be found on our website in the Investor Relations section. I'd 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 2 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. Eric and Yvan will be referring to adjusted results in their remarks unless otherwise noted as reported. I will now turn the call over to Eric.

Merci Raphael. Bonjour à tous et bienvenue à notre conférence téléphonique pour le premier trimestre de 2026. Good morning and thank you for being with us today. For the first quarter of 2026, we're pleased with the progress we've made on our key priorities. Our core commercial businesses showed solid underlying momentum with a total long growth of 4% in the first quarter, which is right in line with our transformation plan. I want to take a moment to recognize our employees, their commitment and professionalism stand out. They continue to navigate this period of change with resilience, integrity and a strong focus on serving our customers. This quarter, we recorded after tax adjusting items of 54.7 million, reflecting charges related to the transactions announced in December. At the same time, the team has also established high momentum as it relates to the transaction. On that front, we reached an important milestone. As announced on February 5th, our shareholders voted 98.8% in favor of the resolution approving the acquisition transaction. This vote confirms strong support for a future in which the bank can accelerate its strategic growth plan. Another milestone came on February 17th when we completed the sale of our syndication portfolio to National Bank. The process went smoothly, and we will continue to monitor the transition to ensure everything remains seamless for the clients. While several steps remain to complete the transaction, including obtaining regulatory approvals, we are progressing steadily. We remained confident that we had the right team in place to successfully execute. Our mix of commercial loans continued to move in the right direction, increasing by 1% to reach 51% of total loan portfolio. As mentioned earlier, our commercial teams delivered a strong first quarter with notable momentum in key areas. Inventory financing grew 7% quarter over quarter, and utilization improved by five percentage points sequentially, reaching 45%. In commercial real estate, both the portfolio and the pipeline continued to show steady progress, each increasing by 5%. In essence, our commercial specialization demonstrated solid underlying growth consistent with our transformation plan. In terms of provision for credit losses, The ratio decreased to 18 BIPs, reflecting the strength of our specialized underwriting, consistent education practices, and disciplined portfolio management. We also saw an improvement in asset quality with growth-impaired loans decreasing by 19% to 96 BIPs. We remain confident that our current level of provisions is prudent and appropriate given the overall quality and performance of our portfolio. Finally, our solid capital and liquidity positions allows us to move forward with confidence. I would now like to turn the call over to Yvan to review our financial performance.

Merci, Eric, et bonjour à tous. I would like to begin by turning to slide six, which has been added to provide details on the adjusting items for the first quarter of 2026. which totaled $54.7 million after tax or $1.23 per share. We recorded the following charges stemming from the transactions announced in December, totaling $53.1 million after tax, including impairment of premises and equipment for $15.8 million, charges related to onerous contracts, leases, and other for $10.8 million, severance and employee benefits for $8.4 million, accelerated amortization of software and other intangible assets for $5.2 million, impairment of software and other intangible assets for $4.8 million, transaction and conversion costs for $8.1 million. During the quarter, we also announced the purchase of group annuity contracts from a Canadian insurer that transfers approximately $60 million in obligations of our two registered defined benefit pension plans, which resulted in a net settlement loss of $1.6 million after tax. Quarterly comparison is available on slide 21 and in the first quarter report to shareholders. Turning to slide seven, it highlights the bank's financial performance for the first quarter of 2026. Total revenue for the quarter was $251.6 million, up 1% compared to last year, and up 3% quarter over quarter. On a reported basis, net loss and diluted loss per share were $20.5 million and 58 cents respectively. The remainder of my comments will be on an adjusted basis and also be on a total loans and total deposits basis as the balance sheet outlines separately for Q1, the assets held for sale and the liabilities directly associated with them. The diluted EPS of 65 cents decreased by 17% year over year and 11% quarter over quarter. Net income of 34.2%, $24.2 million, was down by 13% compared to last year and stable sequentially. The bank's efficiency ratio increased by 240 basis points compared to last year due to our strategic investments, and by 110 basis points sequentially, mainly from the regular annual salary increases and seasonally higher employee benefits. Our ROE for the quarters stood at 4.5%, down 80 basis points year-over-year and 50 basis points quarter-over-quarter. Slide 8 shows net interest income up by $8.7 million, or 5% year-over-year, from the growth of average earning assets and higher commercial loan concentration, as well as favorable loan repayments. On sequential basis, net interest income was up by $12.2 million, or 7% for the same reasons, in addition to the impact from favorable loan repricing lags due to the reduction of the U.S. Federal Reserve rate last December. Our net interest margin at 1.89% was up 4 basis points year-over-year and up 10 basis points sequentially. including about half from non-recurring elements. Slide nine highlights the bank's funding position. On a sequential basis, total funding was stable. The bank maintained a healthy liquidity coverage ratio through the quarter, which remained at the high end of the industry. For the remainder of the year, the level of liquidity will remain very high considering the proceeds of the sale of the syndicated loan portfolio, closed on February 17. Slide 10 presents other income of $56.7 million, which was lowered by 9% compared to last year and compared to last quarter. The decrease mostly came from income from financial instruments. Slide 11 shows non-interest expenses of $192.9 million, up 4% year-over-year and sequentially, mainly from the seasonal higher employee benefits and vacation accruals. On slide 12, you'll see that our CET1 ratio decreased by 40 basis points to 10.9% due to the charges stemming from the transactions announced in December and commercial loan portfolio growth. Slide 13 highlights our total commercial loan portfolio which grew by about $1.4 billion year-over-year and by about $700 million sequentially. This quarter, the seasonal dealers' inventory restocking was positive and fueled the loan growth to 7% quarter-over-quarter. Also, commercial real estate delivered 5% loan and pipeline growth. Slide 14 provides details of our inventory financing portfolio. This quarter, utilization rates was 45% and increase of 5% quarter over quarter. Slide 15 illustrates that two-thirds of our commercial real estate portfolio is residential, with most of it in multi-residential housing. The LTV on the uninsured multi-residential portfolio stood prudently at 61%. Slide 16 presents the bank's total residential mortgage portfolio. Total residential mortgage loans were down 3% year-over-year and down 2% on a sequential basis. We adhere to cautious underwriting standards and are confident in the quality of our portfolio. This is reflected in our 65 proportion of insured mortgages and a low loan-to-value ratio of 51% on the uninsured portion. Total allowances for credit losses on slide 17 totaled $192.6 million, up $3.8 million compared to last quarter, mostly from higher allowances on commercial loans. Turning to slide 18, the provision for credit losses was $16.5 million, an increase of $1.3 million from a year ago. higher provisions on performing loans, partly offset by lower provisions on impaired loans. Sequentially, PCLs were down $1.5 million from lower provisions on impaired commercial loans, partly offset by lower releases of provisions on performing loans. As a percentage of average loans, PCL increased by one basis point year-over-year, and decreased by two basis points quarter to quarter to 18 bps. Slide 19 provides an overview of impaired loans. Gross impaired loans decreased by $49 million year-over-year and $75.1 million sequentially, driven by changes in commercial loans. Thanks to our prudent underwriting standards and the strong credit quality of our loan portfolio, about 95% of which is collateralized, we're able to manage credit migration effectively with minimal impact on our ACL and PCL outcomes. As we look ahead to the second quarter of 2026, I would like to provide some remarks. We will incur additional transaction-related charges in Q2 in the $40 million range post-tax. including from the loss due to the discount on the sale of the syndicated loan portfolio to National Bank concluded on February 17. The expected Q2 impact from the sale of the syndicated loan portfolio is a loss of about $0.04 on adjusted EPS. We expect loans to decline by roughly 2% to 3%, mainly due to the syndicated loan portfolio sale. Excluding this transaction, the loans should remain relatively stable. The NIM is expected to be slightly lower due to some non-recurring items in Q1. Regarding the adjusted efficiency ratio, Q2 should be relatively in line with Q1. We expect PCLs to remain in the high teens. Our tax rate is also expected to be in the high teens. Capital and liquidity levels are solid and expected to remain strong for Q2. I will now turn the call back to the operator.

Thank you. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by two. And if you're using a speakerphone, please lift the handset first before pressing any keys. Please go ahead and press star 1 now if you have any questions. Thank you. And your first question will be from Steven Boland at Raymond James.

Good morning, everyone. I know you said you still need regulatory approval. Is that just OSFI and minister approval? Is that the only two that are left at this point?

Yeah. Hi, Steven and Tarek. Actually, the main ones we're waiting for is OSFI as well as the Competition Bureau. and after that would follow the minister approval.

Okay. And the timing is, I think in the disclosures, is late 2026. Is there any more specific timing? I know dealing with OSCE and the minister is always a bit of a crapshoot, so late 2026 is still the guidance?

Yeah, yeah, we're still aiming for that.

Okay. Second question is, You know, continued good growth in inventory finance. You know, you talked a little bit about utilization. But, you know, what's driving that growth? Is it more dealers, utilization? Is it Canada, U.S.? Maybe you could just splash that out a bit, please.

Yeah, Stephen, it's really a mix. Like, we definitely continue our success track record in terms of onboarding. The newest program we actually won is Arctic Cat, which is an exclusivity, generating good traction again and will fuel future growth and continue on that side. But also, the dealers have been restocking prudently, but still a good momentum there. So, I think they anticipate, again, an okay season for 2026, and we're benefiting from that sentiment.

Okay. And obviously, I presume the people in the field are letting... The clients know that, you know, there's a change in ownership with you potentially. You know, what's the feedback? Is there, you know, is it positive? Do they care? I'm just curious what the, you know, what the message was to your salespeople to tell clients.

Well, actually, I had a great opportunity to be out there in the field with our people. Meeting customers and direction is quite good. They understand the rationale of the transaction, and they're quite supportive. So far, we've seen that in additional volume and good pipeline for future growth. So we're in good shape there.

Okay. Thanks very much.

Thank you.

As a reminder, ladies and gentlemen, it is Star 1 if you have a question. And a final reminder, ladies and gentlemen, if you have a question or comment, it is star 1 on your telephone keypad. There's no further questions registered. This concludes the Q&A session. I will now hand the meeting over to Eric Prevost for closing remarks.

Thank you. We're making steady progress towards closing the agreements with Fairstone and National Bank. all while keeping our customers' and employees' best interests at the forefront. This is still work ahead of us, but I am confident that we will achieve our objectives. Thank you, and have a great rest of the day.

Thank you. Ladies and gentlemen, this concludes the conference call for today. We thank you for joining and ask that you please disconnect your lines. Thank you.