Q3 2023 Laurentian Bank of Canada Earnings Call

August 31, 2023

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[music].

Good morning. My name is Joel. I'll be the operator today. The conference will begin in one or two minutes. Thank you.

Good morning, My name is Joe I'll be the operator today, the conference will begin and one or two minutes.

Good morning. My name is Joelle. I'll be the operator today. The conference will begin in one or two minutes.

Thank you.

The the pro TR ST neof.

[music].

Welcome to the Laurentian Bank quarterly financial results call.

Please note that this call is being recorded. I would now like to turn the meeting over to Andrew Trnienki, Vice President, Investor Relations. Please go ahead, Andrew. Bonjour à tous!

Please note that this call is being recorded I would now like to turn the meeting over to Andrew Nowinski.

Key Vice President Investor Relations. Please go ahead Andrew.

<unk> good morning, and thank you for joining us.

Today's opening remarks will be delivered by Ronny Llewellyn, President and CEO , and the review of the third quarter financial results will be presented by Yvonne Deschamps, Executive Vice President and Chief Financial Officer, after which we will...

Today's opening remarks will be delivered by Ronnie Labella, President and CEO and the review of the third quarter financial results will be presented by about <unk> <unk>.

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...

Also joining us for the question period are several members of the bank's executive team.

Liam Mason, Chief Risk Officer, and a provol head of commercial banks.

Liam Mason, Chief Risk Officer, Ed Provost head of commercial banking.

cut in after all Tesla had a personal banking and Kelsey Gunderson head of capital

In outgrow Teslik head of personal banking and Kelsey Gunderson head of capital markets.

All documents pertaining to the quarter can be found on our website under the investigation.

All documents pertaining to the quarter can be found on our website under 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.

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.

For the complete cautionary note regarding forward-looking statements, please refer to our press release or to slide 2 of the presentation.

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. It considers both to be useful and...

I would also like to remind listeners that the bank assesses its performance on a reported and adjusted basis.

So there is both to be useful in assessing underlying business performance.

Ryan Yannivallan will be referring to a justice result in their remarks unless otherwise noted has reported. I will now turn the call.

Ronny on Nevada will be referring to adjusted results in their remarks, unless otherwise noted as reported.

Now I'll turn the call over to Roger.

When do you have that you think.

Bonjour, Gatouc. Thank you, Andrew, and thank you all for joining us today.

Thank you Andrew and thank you all for joining us today.

This morning we announced solid Q3 results and I'm extremely pleased with the progress we continue to make on our fiscal year 2023 priorities.

This morning, we announced solid Q3 results and I'm extremely pleased with the progress we continue to make on our fiscal year 2023 priorities.

On behalf of the entire management team, I would like to thank everyone at Laurentian Bank for their resilience and focus on executing against our plan.

On behalf of the entire management team I would like to thank everyone at Laurentian bank for their resilience and focus on executing against our plan.

Before providing an overview of our third quarter I would like to address our recently announced business update.

Before providing an overview of our third quarter, I would like to address our recently announced business update.

On July 11th, the bank announced that our Board of Directors and Management team are conducting a review of strategic options to maximize shareholder and stakeholder values.

On July 11, the bank announced that our board of directors and management team are conducting a review of strategic options to maximize shareholder and stakeholder value.

The review is still underway and we do not intend on disclosing further developments until it concludes.

During this time, we remain committed to executing on the bank strategy and our fiscal 2023 priorities with the full support and confidence of the board.

During this time, we remain committed to executing on our bank strategy and our fiscal 2023 priorities with the full support and confidence at the board.

Over the past two and a half years, the banks renewed senior leadership team and board have been focused on building up the bank for sustained growth and profitability.

Over the past two and a half years, the Banks renewed senior leadership team and board have been focused on building up the bank for sustained growth and profitability.

Since the launch of our plan in December 2021, we exceeded all our financial targets against the backdrop of an increasingly challenging macroeconomic environment and market volatility.

Quarter after quarter, we have been delivering on key milestones as set out in our plan and exceeded market expectations in 11 of the past 12 quarters, including today.

We have closed our customers top five digital pain points, including the launches of our mobile app, digital account opening solution, and reimagined visa experience. And we grew our key specializations within commercial bank.

We have closed our customers top five digital pinpoints, including the launches of our mobile App digital account opening solution and re imagined visa experience and we grew our key specializations within commercial banking.

We continue to maintain a strong capital and liquidity position and our funding and deposit base remains strong stable and diversified.

We continue to maintain a strong capital and liquidity position and our funding and deposit base remain strong, stable, and diversified.

The rest of this call will focus on Q3 progress and results.

To reiterate, we will not be providing any further details about the strategic review during the Q&A portion.

To reiterate we will not be providing any further details about the strategic review during the Q&A portion.

Turning now to our financial results.

Top line revenues for the quarter was $261 million up 1% compared to last quarter and relatively in line with last year.

Top line revenue for the quarter was $261 million up 1% compared to last quarter and relatively in line with last year.

EPS was $1.22 or up 5% quarter over quarter and relatively in line compared to last year.

P. S was $1 22, or up 5% quarter over quarter and relatively in line compared to last year.

A few additional highlights include a sequential improvement of 120 basis points in our efficiency ratio to 68.5%.

A few additional highlights include.

A sequential improvement of 120 basis points and our efficiency ratio to 68, 5%.

an increase of 10 basis points in our ROE to 8.2%.

An increase of 10 basis points in our Aro too.

To eight 2%.

NIM was out four basis points in line with our previous guidance.

NIM was up four basis points in line with our previous guidance.

PCL this quarter were 14 basis points down four basis points year over year and sequentially due to the seasonal reduction in utilization rates and inventory financing.

PCIals this quarter were 14 basis points down four basis points year over year and sequentially due to the seasonal reduction in utilization rates in inventory finance.

We continue to be prudent with our reserves and remain adequately provisioned.

We continue to be prudent with our reserves and remain adequately positioned.

Commercial loan growth was up on a year over year basis, but down sequentially.

As our inventory financing portfolio continues to normalize in line with pre pandemic behavior.

Utilization rates this quarter were 49% down from 58% in Q2.

The third quarter is typically a period of seasonal volume reduction. Caused by dealers experiencing strong sales due to good consumer demands.

The third quarter is typically a period of seasonal volume reduction caused by dealers experiencing strong sales due to put good consumer demand.

We expect utilization to increase in Q4 as dealers begin restocking their inventors.

We expect utilization to increase in Q4 as dealers begin restocking their inventory.

We are closely monitoring turnover of the product, which remains healthy and is a key performance indicator.

In commercial real estate, while the man for a new housing remains high, there has been a general slowdown in activity across the sector.

In commercial real estate, while demand for new housing remains high there has been a general slowdown in activity across the sector.

Projects and progress continue to be developed. However, we are hearing from some of our customers that they are waiting for inflationary and interest rate pressures to cool before launching new projects.

<unk> and progress continue to be developed however, we are hearing from some of our customers that they are waiting for inflationary and interest rate pressures to cool before launching new projects.

Our unfunded pipeline continues to be strong and we remain comfortable with our portfolio, given our focus in the multi-residential sector and the continued demand for housing in Canada.

Our unfunded pipeline continues to be strong and we remain comfortable with our portfolio given our focus and the multi residential sector and the continued demand for housing in Canada.

I am pleased to share that our capital position was further strengthened as a result of internal capital generation and the seasonal volume reduction in inventory financing. We ended the quarter at 9.8% up 50 basis points on a sequential basis.

I am pleased to share that our capital position was further strengthened as a result of internal capital generation and the seasonal volume reduction and inventory financing we.

We ended the quarter at nine 8% up 50 basis points on a sequential basis.

Looking forward, we will continue to drive results in line with our strategic plan.

For fiscal 2023, we identified three priority areas to stimulate growth. First, deliver X-

For fiscal 2023, we identified three priority areas to stimulate growth.

First deliver excellent customer service.

Second, deposits in optimizing our funding structure, and third, drive efficiencies through simplification.

Second deposits and optimizing our funding structure and third drive efficiencies through simplification.

I will now cover key achievements under each priority, beginning with customer experience.

I will now cover key achievements under each priority beginning with customer experience.

We said at the beginning of the year that we will continue our focus on delivering excellent customer service and removing pain points by leveraging data from our Net Promoter Score or NPS program.

We said at the beginning of the year that we will continue our focus on delivering excellent customer service and removing pain points by leveraging data from our net promoter score or NPS program.

This concentrated effort is helping us gain a deeper understanding of what drives customer satisfaction and dissatisfaction, allowing us to implement targeted solutions.

Last quarter, we announced that personal banking saw a significant improvement in their NPS scores.

Last quarter we announced that personal banking saw significant improvement in their NPS score.

This quarter, we launched a new customer experience council, which brings together cross-functional groups to align on enhancements to the customer experience.

This quarter, we launched a new customer experience counsel, which brings together cross functional groups to align on enhancements to the customer experience.

I am pleased to announce the following improvements in our NPS scores.

I'm pleased to announce the following improvements in our NPS score.

Private banking has achieved an excellent NPS rating, which is a score above 50%.

Private banking has achieved an excellent NPS rating, which is a score above 50 points.

Branch NPS increased by 3 points sequentially and 19 points since the beginning of the year.

Branch NPS increased by three points sequentially and 19 points since the beginning of the year.

And our loyalty team NPS was up 4 points sequentially or 16 points since the beginning of the year.

And our loyalty team NPS was up four points sequentially or 16 points since the beginning of the year.

This is a testament to our continued focus on the customer and putting them at the center of all our actions.

In Q1 2023, we announced the launch of a mortgage financing center to improve the customer experience by handling all mortgage acquisition and refinancing solutions for our retail branch.

In Q1, 2023, we announced the launch of our mortgage financing center to improve the customer experience by handling all mortgage acquisition and refinancing solutions for our retail branches.

As a result of this group's high degree of specialization, we have achieved a first time right score of 96% for mortgages up from 90% last year and have successfully reduced the time to yes to less than two days in line with industry standards and exceeding our three-year target of less than three days.

As a result of this group's high degree of specialization. We have achieved a first time right score of 96% for mortgages up from 90% last year and have successfully reduced the time to yes to less than two days in line with industry standards and exceeding our three year target.

<unk> of less than three days.

One final point on customer experience is that now we have migrated more than 70% of our public website to the new modernized look and feel.

One final point on customer experience is that now we have migrated more than 70% of our public web site to the new modernized look and feel.

This is providing a consistent brand experience for our customers and improves navigation on our web.

This is providing a consistent brand experience for our customers and improves navigation on our website.

The second priority we identified this year was a focus on deposits and optimizing our funding structure.

We are committed to maintaining a diverse, stable, and strong balance sheet that supports long growth.

We are committed to maintaining a diverse stable and strong balance sheet that supports loan growth.

Yes.

Following the launch last quarter of our digital account opening solution to the public, I am pleased to announce that 66% of customers being onboarded through this channel are new to the bank, and more than 40% are from outside of Quebec.

Following the launch last quarter of our digital account opening solution to the public I am pleased to announce that 66% of customers being on boarded through this channel are new to the bank and more than 40% are from outside of Quebec.

This is in line with our strategy to acquire additional net new customers, as well as grow our customer base outside of our traditional branch footprints.

This is in line with our strategy to acquire additional net new customers as well as grow our customer base outside of our traditional branch footprint.

Following a recent marketing effort on deposit campaigns with a particular focus on our high interest savings account, we have seen a 50% increase in checking account openings and a 125 times increase in high interest savings accounts opened on a year-to-date pace.

Following our recent marketing effort on deposit campaigns with a particular focus on our high interest savings account, we have seen a 50% increase in checking account openings and 125 times increase in high interest savings accounts opened on a year to date basis.

Finally, we have launched a new virtual first pilot to enhance the customer experience by serving customers where and how they want while still maintaining a presence in our community.

Finally, we have launched a new virtual first pilot to enhance the customer experience by serving customers, where and how they want while still maintaining a presence in our communities.

This pilot will also enable us to offer additional products and services to our recently acquired customers from across Canada through an advice space.

This pilot will also enable us to offer additional products and services to our recently acquired customers from across Canada through an advice based model.

Our third priority is to drive efficiencies through simplification.

We remain committed to reducing our efficiency ratio over the medium term by further streamlining our internal processes and operations.

As part of our drive to enhance efficiencies, we launched our business efficiency program within personal banking at the beginning of this year.

As part of our drive to enhance efficiencies, we launched a business efficiency program within personal banking at the beginning of this year.

This program was established to identify key initiatives that will support the bank and meeting its medium term efficiency target.

This program was established to identify key initiatives that will support the bank in meeting its medium term efficiency target.

So far this year, we have identified and achieved 93% of our 2023 target in annual recurring savings. Three.

So far this year, we have identified and achieved 93% of our 2023 target in annual recurring savings.

Three key initiatives include <unk>.

First, we are relocating branches with expiring leases to smaller, modernized, and more convenient locations for our customers, improving the customer experience, and reducing...

First we are relocating branches with expiring leases to smaller modernized and more convenient locations for our customers improving the customer experience and reducing costs.

Second we are harmonizing contracts for physical paper storage and reducing unnecessary licenses.

Second, we are harmonizing contracts for physical paper storage and reducing unnecessary S.

And third, we are digitizing documents and checks across nine remote branches, which will reduce expenses by replacing internal mail with a digital document exchange.

And third we are digitizing documents and checks across nine remote branches, which will reduce expenses by replacing internal mail with a digital document exchange.

Culture and ESG also remain a significant priority with culture is the driving force of our strategic plan, which is underpinned by our commitment to ESG.

Culture and ESG also remain a significant priority. With culture as the driving force of our strategic plan, which is underpinned by our commitment to ESG.

This year marked our third annual employee survey over.

This year, Marker's third annual employee survey.

Over the last three years, we have put a heavy emphasis on everyone's work life experience. As a result, since the first survey in 2021, our overall response rate has gone up from 66% to 85%.

Over the last three years, we have put a heavy emphasis on everyone's work life experience as a result since the first survey in 2021 are overall response rate has gone up from 66% to 85%.

I am particularly pleased that our overall engagement has gone up from 74% to 80%, which is higher than the industry benchmark of 78%, and the cheese are fiscal year 2024 target one year early.

I am, particularly pleased that our overall engagement has gone up from 74% to 80%, which is higher than the industry benchmark is 78% and achieved our fiscal year 2024 target one year early.

I would like to thank everyone at Laurentian Bank for their focus on creating a better employee experience.

I would like to thank everyone at Laurentian bank for their focus on creating a better employee experience.

Two other highlights under culture and ESG that I would like to mention include, an improvement to our Sustainalytics ESG score, which maintained our low ESG risk rating. And, launched our third annual Laurentian Bank in the Community Giving Campaign, allocating more than $150,000 to community-based charities and not-for-profits chosen by our front-line team members. I will now turn the call over to Yvonne.

Two other highlights under culture, and ESG that I would like to mention include in.

An improvement to our sustainability ESG score, which maintained our low ESG risk rating and launched our third annual Laurentian Bank and the community, giving campaign allocating more than $150000 to community based chat charities and not for profit chosen by our frontline team members.

I will now turn the call over to evil.

Mitsui Ron Yes.

I would like to begin by turning to slide 13, which highlights the bank's financial performance for the third quarter.

Total revenue in the third quarter was $260.8 million, relatively in line with last year, and up 1% on a sequential base.

Total revenue in the third quarter was $268 million relatively in line with last year and up 1% on a sequential basis.

Higher net interest income year over year from commercial loans was offset by higher funding costs and a lower contribution from financial markets related revenue which continues to be impacted by sustained unfavorable financial market conditions.

Higher net interest income year over year from commercial loans was offset by higher funding costs and the lower contribution from financial markets related revenue.

Which continues to be impacted by sustained on favorable financial market conditions.

On a reported basis, net income in the total quarter was $49.3 million. An EPS was $1.3.

On a reported basis net income in the third quarter was $49 $3 million and EPS was $1 <unk>.

adjusting items for the quarter amounted to $8.4 million after tax or 19 cents per share and are related to restorting charges from the right sizing of the bank's capital markets franchise announced last quarter. Strategic review related charges and the amortization of acquisition related intangible assets.

Adjusting items for the quarter amounted to $8 $4 million after tax or <unk> 19 per share and are related to restructuring charges from the right sizing of the banks capital markets franchise announced last quarter strategic review related charges and the amortized.

<unk> of acquisition related intangible assets details of these items are shown on slide 29.

Details of these items are shown on slide 29.

The remainder of my comments will be on an adjusted base.

The remainder of my comments will be on an adjusted basis.

Growth in that interest income, cost discipline and lower loan losses Drove discordors, sorted results.

Growth in net interest income cost discipline and lower loan losses drove this quarter's solid results.

EPS of $1.22 was up 5% quarter-requarter and down 2% year-over-year.

Yes, a $1.22 was up 5% quarter over quarter and down 2% year over year.

Net income of $57.6 million was up 12% compared to last year, and down 1% compared to... That's a lot more.

Net income of $57.6 million was up 12% compared to last year.

And down 1% compared to.

Alright.

Last quarter.

The efficiency ratio improved by 120 basis points quarter to 68.5%, despite continued investments in key strategic priorities.

The efficiency ratio improved by 120 basis points quarter over quarter to 68, 5%. Despite continued investments in key strategic priorities.

R.E. was up 10 basis points sequentially to 8.2%.

Are we was up 10 basis points sequentially to eight 2%.

This quarter also included an LRCN inter-respainment which negatively impacted the EPS by 6N.

This quarter also included the MLR, Seattle interest payments, which negatively impacted EPS by <unk> <unk>.

Slide 14 shows net interest income up by $3.6 million or 2% over year. Mainly due to higher net interest income from commercial loans. Partly offset by higher funding costs and lower mortgage prepayment than all.

Slide 14 shows net interest income.

By $3 $6 million or 2% year over year, mainly due to higher net interest income from commercial loans.

Partly offset by higher funding costs and lower mortgage prepayment analyses on.

On a sequential basis, the increase of $7.9 million or 4%, mainly reflects the positive impact of three additional days in the quarter and sequentially higher mortgage repayment in all.

On a sequential basis, the increase of $7 $9 million or 4% mainly reflects the positive impact of three additional days in the quarter and sequentially higher mortgage prepayments in altice.

Net Interest margin was up 4 basis points sequentially to 1.84%.

<unk> margin was up 40 basis points sequentially to 184%.

This is mostly due to improve funding costs and higher mortgage prepayment in all.

This is mostly due to improved funding costs and higher mortgage prepayments in altice.

Slide 15. Highlights are diversified sources of funding and the bank's liquidity position.

Slide 15 highlights our diversified sources of funding and the bank's liquidity position.

Year-over-year, total funding increased by $800 million through cost-effective partnership deposits of $1 billion and retail deposits of $300 million, which were offset by a planned decrease in wholesale deposits.

Year over year total funding increased by $800 million through cost effective partnership deposits of $1 billion in retail deposits of $300 million, which were offset by a planned decrease in wholesale deposits.

On a sequential basis, total funding was relatively flat. We saw a continued transition of deposits to turn from demand account.

On a sequential basis total funding was relatively flat we saw a continued transition of deposits too darn from demand accounts.

The bank maintained a lot of strong liquidity coverage ratio through the quarter.

The bank maintained a lot a strong liquidity coverage ratio for the quarter.

Slide 16 presents other income, which decreased by 4% compared to last year because of unfavorable market conditions impacting financial markets related revenue.

slide 16 presents other income, which decreased by 4% compared to last year. Because of unfavorable market conditions impacting financial markets related revenue, including fees and securities brokerage commissions, income from mutual funds, and income from financial instruments.

<unk> fees and securities brokerage commissions income from mutual funds and income from financial instruments.

on a sequential basis, other income was down 6% or 4.3 million dollars mainly for the same reason.

On a sequential basis other income was down 6% or $4 $3 million, mainly for the same reasons.

Slide 17 shows non-interest expenses up by 2% compared to last year. Mainly due to higher technology, depreciation and amortization costs, as the bank continues to invest in its strategic priorities to improve the customer experience and support growth.

Slide 17 shows non interest expenses up by 2% compared to last year, mainly due to higher technology depreciation and amortization costs as the bank continues to invest in its strategic priorities to improve the customer experience and support growth.

On a sequential basis non interest expenses were slightly lower due to performance based compensation.

On a sequential basis, non-interest expenses were slightly lower due to performance-based compensation.

Turning to slide 18, our CET-1 ratio was up 50 basis points to 9.8%, mostly due to internal capital generation, and the seasonal inventory financing alone reduction.

Turning to slide 18, our CET one ratio was up 50 basis points to nine 8%, mostly due to internal capital generation and the seasonal inventory financing alone reduction.

Slide 19 highlights our commercial loan portfolio, which was up by $400 million or 3% year over year.

slide 19 I like our commercial loan portfolio which was up by $400 million or 3% you over year

As guided in Q2, on a quarter-over-quarter basis, the portfolio was down $800 million or 4%. Due to a reduction in inventory financing, which saw a normal seasonal portfolio reduction with utilization rates and behavior, more in line with pre-pandemic patents.

As guided in Q2 on a quarter over quarter basis, the portfolio was down $800 million or 4% due to a reduction in inventory financing, which saw a normal seasonal portfolio reduction with utilization of the race and behavior more in line with pre pandemic.

Patterns.

Consumer goods acquisitions from dealers last quarter showed strong resilience despite the uncertain economic environment.

Consumer goods acquisitions from dealers last quarter showed strong resilience, despite the uncertain economy environment.

Dealer's begin restocking in 24 and therefore utilization rates are expected to increase next quarter.

Dealers begin to restocking in Q4, and therefore utilization rates are expected to increase next quarter.

Slide 20 provides details of our inventory financing portfolio, where our key performance indicators such as the age of inventory and turnover rates are monitored closely.

Flight 20. Provides details of our inventory financing portfolio, where key performance indicators such as the age of inventories and turnover rates are monitored close.

Crit line utilization rates are back to pre-COVID levels for this quarter, currently standing at 49%.

Credit line utilization rates are back to pre COVID-19 levels for this quarter currently standing at 49%.

Given the current economic environment, we are monitoring the portfolio closely and continues to perform well with a high level of dealer sales, as previously mentioned.

Given the current economy environment, we are monitoring the portfolio closely and continues to perform well with a high level of dealer sales as previously mentioned.

In commercial real estate, home building continues to meet the demand of rising immigration levels in Canada. However, some developers are being prudent in delaying the start of some projects until inflationary pressures and interest rates.

Operator: Good morning, my name is Joel Al, I'll be the operator today. The conference will begin in one or two minutes. Thank you You You You You Welcome to the Laurentian Bank Quarterly Financial Results Call. Please note that this call is being recorded.

And commercial real estate homebuilding continues to meet the demand of rising immigration levels in Canada.

However, some developers are being prudent and delaying the start of some projects until inflationary pressures and interest rates fees.

As seen on slide 21, the majority of our portfolio is in multi-residential housing and only around 3% of our commercial loan portfolio is enough.

As seen on slide 21, the majority of our portfolio is in multi residential housing and only around 3% of our commercial loan portfolio is in office.

Our office portfolio consist of class, a or b assets and find sole recourse to a strong and experienced sponsors.

Our office portfolio consists of classly or BSATs and financial records to strong and experienced sponsors.

As we said last quarter, the majority of the portfolio is in multi-tenanted properties with limited exposure to single-tenanted builds.

As we said last quarter. The majority of the portfolio is in multi tenanted properties with limited exposure to single tenanted buildings.

Slide 22 presents the bank's residential mortgage portfolio.

Residential mortgage loans were up 4% over year and flat on the sequential base.

Residential mortgage loans were up 4% year over year and flat on a sequential basis.

We maintain prudent on the writing standards and are confident in the quality of our portfolio.

We maintain prudent underwriting standards and are confident in the quality of our portfolio.

As evidenced by the eye portion proportion of insured mortgages at 58% and low LTV of 48% on the uninsured portion.

as evidenced by the eye proportion of insert mortgages at 58% and low LTV of 48% on the uninsured portion.

It is also worth noting that more than 80% of our residential mortgage portfolio is in 6 rates, of which almost 80% will mature in 2025 or late.

It is also worth noting that more than 80% of our residential mortgage portfolio is in fixed rate of which almost 80% will mature in 2025 or later.

Allowances for credit classes on slide 23 total 217.1 million dollars up 23.9 million dollars compared to last year Mostly as a result of higher provisions on commercial loans related to volume growth and microeconomic uncertainty

Allowances for credit losses on slide 23 totaled $217 1 million up $23 $9 million compared to last year, mostly as a result of higher provisions on commercial loans related to volume growth and macroeconomic uncertainty.

allowances for credit losses were up $5.5 million sequentially, mostly as a result of higher provisions on commercial loans.

Allowances for credit losses were up $5 $5 million sequentially, mostly as a result of higher provisions on commercial loans.

Turning to slide 24, the provision for credit losses was $13 $3 million, an improvement of $3 $3 million from a year ago, reflecting lower provisions on performing loans, partly offset by higher provisions on impaired loans.

Turning to slide 24, the provisions for credit losses was 13.3 million dollars, an improvement of 3.3 million dollars from a year ago, reflecting lower provisions on performing loans, partly upset by higher provisions on impaired.

ECLs were down 2.5 million dollars compared to last year mostly for the same reason.

<unk> sales were down $2.8 million compared to last year, mostly for the same reasons.

Slide 25 provides an overview of impaired loans.

Slide 25, provide an overview of impaired length.

On a year over year basis, gross impaired loans increased by $43 $1 million and were up $18 million sequentially.

On a year over year, bases, growth in pared loans increased by $43.1 million and were up $18 million sequential.

continue to manage our risk with the prudent and disciplined approach and remain adequately

We continue to manage our risk with a prudent and disciplined approach and remain adequately provisioned.

Last quarter, we provide detailed guidance for the remainder of 2023, and I would like to note a few key points.

Last quarter, we provide detailed guidance for the remainder of 2023 and I would like to note a few key points.

We expect a slightly higher efficiency ratio in Q4, with lower NII due to the recent seasonal inventory financing loan reduction.

We expect a slightly higher efficiency ratio in Q4 with lower NII due to the recent seasonal inventory financing loan reduction.

Unfavorable financial market conditions and higher expenses mostly related to cost associated with transitioning our current visa customers to the new Brem platform.

Unfavorable financial market conditions, and higher expenses, mostly related to costs associated with transitioning our current visa customers to the new brand platform.

We expect relatively muted loan growth in Q4 as my macroeconomic conditions impact business and consumer spending, despite an increase in inventory financing, as dealers start restocking inventory and utilization rate.

We expect relatively muted loan growth in Q4, as Mike macro economy conditions impact business in consumer spending despite an increase in inventory financing as dealers start restocking inventory and utilization rates increase.

NIM is expected to remain relatively stable, but may be impacted by central bank rate decision.

NIM is expected to remain relatively stable, but may be impacted by central bank rate decisions.

<unk> remains difficult to predict given the uncertain macroeconomic environment, but are expected to be in mid to high teens cap.

PCLs remain difficult to predict given the answer in microeconomic environment, but are expected to be in mid to IT. Capital is expected to remain strong. I will now...

Capital is expected to remain strong.

I will now turn the call back to the operator.

Thank you ladies and gentlemen, we will now begin the question and answer session. To do you have a question, please press star followed by the one on your touch tone.

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.

You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order there.

Here are three Tom prop acknowledging your request and your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press star followed by the Q. If you are using a speaker phone. Please lift the handset before pressing any keys one moment. Please for your first question.

to decline from the polling process. Please press star followed by the

Andrew Chornenky: I would now like to turn the meeting over to Andrew Chornenky, Vice President, Investor Relations. Please go ahead, Andrew. Bojo Atus, good morning and thank you for joining us.

If you are using a speaker phone, please let the hands up before pressing any keys. One moment, please for your first question. Your first question comes from many...

Your first question comes from many.

Rania Llewellyn: Today's opening remarks will be delivered by Rania Llewellyn, President and CEO, and the review of the third quarter financial results will be presented by Abha 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 team. Liam Mason, Chief Risk Officer, Eric Provost, Director of Gold, Head of Commercial Banking, Head in, Abgrall Testwick, Head of Personal Banking, and Kelsey Gunderson, Head of Capital Market. All documents pertaining to the quarter can be found on our website under the Investor Center.

Grumman with Scotiabank. Please go ahead.

Hi, good morning. I appreciate you can comment on this strategic review. You were clear, but I'm just curious if investors should be prepared for some.

Hi, Good morning, Roger I appreciate you can't comment on the strategic review you were clear, but I'm just curious.

<unk> should be prepared for some.

Financial impact from the strategic reviews it goes on. I guess anything that we should be prepared to see in terms of a slowdown on the revenue side, maybe elevated expenses as maybe decision-making get slowed down or maybe some type of client attrition in this period of uncertainty. So anything there that you can offer a perspective on?

Financial impact from the strategic reviews. It goes on like is there anything that we should be prepared to see in terms of.

Slowed down on the revenue side.

Maybe elevated expenses maybe.

Maybe decision making.

Get slowed down or maybe some type of client attrition in this period of uncertainty. So anything there that you can offer perspective.

Unknown Executive: 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 Navon will be referring to adjusted results in their remarks unless otherwise noted as reported.

Yeah. So thanks, Manny as I said in my remarks, and I will just kind of reiterate it you know.

Yeah, so thanks many, as I said in my remarks, and I'll just kind of reiterate it, you know.

I won't be providing any comments until the review is...

We won't be providing any comments until the review is completed entirely and so it's currently ongoing but what I can say is that our Q4 guidance, which are in both my comments as well as the Vaughn is is really what you should be guided wind and so.

completed entirely and so it's currently ongoing.

But what I can say is that our Q4 guidance, which are in both my comments as well as Yvonne, is really what you should be guided with. And so we're focused on our fiscal 2023 priorities. We're delivering against them, and we're committed to our three-year strategic plan. So it's business as usual, and once the review is completed, that's when we'll be providing additional.

We're focused on our fiscal 2023 priorities, we're delivering against them and we're committed to our three year strategic plan. So it's business as usual and once the review is completed that's when we'll be providing additional comments.

Rania Llewellyn: I will now turn the call over to Rania. Bonjour, Ratus. Thank you, Andrew, and thank you all for joining us today. This morning, we announced solid Q3 results, and I'm extremely pleased with the progress we continue to make on our fiscal year 2023 priorities. On behalf of the entire management team, I would like to thank everyone at Laurentian Bank for their resilience and focus on executing against our plan.

Turn up and then just a question on credit better than expected. There's interesting chart on flag 24 in terms of the PCL ratio comparing the Laurentian to peers and it looks like that gap is definitely widening and I'm wondering how investors should interpret that like is this a function of business mix here. How do we understand?

Fair enough and then just a question on credit better than expected.

Interesting chart on slide 24 in terms of.

PCL ratio, comparing laurentian to peers and it looks like that gap.

It's definitely widening and I'm wondering how investors should interpret that.

A function of business mix here, how do we understand them.

Rania Llewellyn: Before providing an overview of our third quarter, I would like to address our recently announced business update. On July 11, the bank announced that our Board of Directors and management team are conducting a review of strategic options to maximize shareholder and stakeholder value. The review is still underway, and we do not intend on disclosing further developments until it concludes. During this time, we remain committed to executing on the bank strategy and our fiscal 2023 priorities with the full support and confidence of the Board.

such a better PCL ratio relative to the peer group and it appears to be widening as well. So just curious about that.

Such a better PCL ratio relative to the peer group.

And it appears to be widening as well so just curious about that.

Many good morning and thank you for the question. Liam Mason, Chief Risk Officer. We've been very disciplined in setting our reserves. You may recall some time ago after the pandemic, others were releasing, we were proven and measured and maintained our ACLs through that period. This quarter, it's really driven by a couple of factors.

Good morning, and thank you for the question as Liam Mason Chief Risk Officer.

Been very disciplined in setting our reserves you may recall, some time ago.

After the pandemic others, we're releasing we were prudent and measured and maintained our acl's through that period.

This quarter, it's really driven by a couple of factors first off as both Ranya and Yvonne noted our acl's are coming down due to a drop in volumes in inventory finance and Thats one of the major factors. The other is that we are seeing lower write off levels.

First off, as both Rania and Ivan noted, our ACLs are coming down due to a drop in volumes in inventory finance, and that's one of the major factors. The other is that we're seeing lower right off of this.

Rania Llewellyn: Over the past two and a half years, the banks renewed senior leadership team and Board have been focused on building up the bank for sustained growth and profitability. Since the launch of our plan in December 2021, we exceeded all our financial targets against the backdrop of an increasingly challenging macroeconomic environment and market volatility. Quarter after quarter, we have been delivering on key milestones as set out in our plan and exceeded market expectations in 11 of the past 12 quarters, including today. We have closed our customers top five digital pain points, including the launches of our mobile app, digital account opening solution, and reimagined visa experience. And we grew our key specializations within commercial banking.

So overall, given the strength of our underwriting standards and prudent approach, we're very comfortable with our PCLs and our ACLs, and we expect going forward to get to be around the mid to high teens as RAN indicated.

So overall, given the strength of our underwriting standards and prudent approach.

We're very comfortable with our PCL Center, Acl's, and we expect going forward to get to.

It would be around the mid to high teens as Randy indicated.

Thanks for that.

Your next question comes from Paul Holden with CIBC. Please go ahead.

Thank you, good morning. A couple questions on capital to start. So looking at sort of the waterfall leading us to the QRQ increase in Q3. I would assume some reversal of that RWA benefit next quarter, but it sounds now like despite inventory of finance going back up overall long growth is expected to be muted. So just trying to figure out.

Thank you good morning, a couple questions on capital to start.

<unk>.

So looking at sort of the waterfall, leading us to the <unk> Q over Q increase in Q3.

I would assume some reversal of that <unk>.

Benefit next quarter, but it sounds now like despite inventory finance going backup overall loan growth is expected to be muted. So I'm just trying to figure out.

what the implication is for CQI and given typical seasonality, but slowing demand in low.

Rania Llewellyn: We are now in Q3 progress and results. To reiterate, we will not be providing any further details about the strategic review during the Q&A portion. Turning now to our financial results. Top line revenue for the quarter was $261 million, up 1% compared to last quarter, and relatively in line with last year. EPS was $1.22, or up 5% quarter over quarter, and relatively in line compared to last year.

What the implication is for CET, one given typical seasonality, but slowing demand in loans.

Thank you Paul for your question. This is Ivan so this quarter. The 50 bps. In fact 10 of that came from internal capital generation. Most of it as you mentioned came from R. W. A variation mostly related to the inventory financing.

Thank you Paul for your question. This is Ivano, so this quarter, the 50 beeps. In fact, 10 of that came from internal capital generation. Most of it, as you mentioned, came from RWA variations, mostly related to the inventory financing. Reduction seasonal impact.

<unk> seasonal impact that we've seen so going forward.

So going forward, we expect the inventory fine thing to go back to normal, be it that we had pre-COVID environment. So Q4 should see a start of an increase with Q1 being usually where they restock most of their equipment.

We expect the inventory financing to go back to normal behavior that we had pre COVID-19 environment. So Q4 should see.

Rania Llewellyn: A few additional highlights include. A sequential improvement of 120 basis points in our efficiency ratio to 68.5%. An increase of 10 basis points in our ROE to 8.2%. NIM was up 4 basis points in line with our previous guidance. PCL's was quarter where 14 basis points down 4 basis points year over year and sequentially due to the seasonal reduction in utilization rates in inventory financing. We continue to be prudent with our reserves and remain adequately provisioned.

Alright.

Alright, and increase with Q1 being usually where the recyclables.

Our equipment, so we will differentially probably use that.

So we will definitely probably use a path for those two quarters, but we also have internal capital generation that will absorb the portion of that. So overall, from next quarter.

For those two quarters, but we also have internal capital generation that will absorb a portion of that so overall from next quarter, we expect the capital to remain pretty strong.

My follow-up question, then, you expect the capillary remains strong. Maybe just a reminder on what your target CET1 is. But then, let's say, long growth is kind of slow or than normal because of the cycle. Are there other alternative uses of capital that you would think about executing on near term? Or would you more likely?

Okay.

And I guess my my my follow up question, then do you expect capital to remain strong maybe just.

Under on what your target CET, one is but let's.

Rania Llewellyn: Commercial loan growth was up on a year over year basis, but down sequentially. As our inventory financing portfolio continues to normalize in line with pre-pandemic behavior. Utilization rates this quarter were 49% down from 58% in Q2. The third quarter is typically a period of seasonal volume reduction. Caused by dealers experiencing strong sales due to good consumer demand. We expect utilization to increase in Q4 as dealers begin restocking their inventory. We are closely monitoring turnover of the product, which remains healthy, and is a key performance indicator.

Let's say you know loan growth is kind of slow or than normal because of the cycle.

Are there other alternative uses of capital that you would think about executing on near term or would you more likely.

keep that cop cap on your back pocket for when economic conditions improve.

Keep that capital in your back pocket for Wan.

Economic conditions improve.

Yeah, thank you. So I would say at this point we're happy and comfortable with the level of capital that we have in the current economic environment.

Yes. Thank you.

So I would say at this point, we're happy and comfortable with the level of capital that we have in the current economy environment. That's a good position to be.

We always said that the internal growth is our key focus in terms of capital deployment. We had mentioned that we wanted to be about 9% this year, so we're healthy right now in terms of capital-based and really prudent in the environment. But that remains really our key strategic priorities.

We always said that internal growth is our key focus in terms of capital deployment. We had mentioned that we wanted to be above 9%. This year. So were healthy right now in terms of capital base and really prudent in the environment, but thats remains really our key strategic priorities to deploying that internally with.

Rania Llewellyn: In commercial real estate, while demand for new housing remains high, there has been a general slowdown in activity across the sector. Projects and progress continue to be developed. However, we are hearing from some of our customers that they are waiting for inflationary and interest rate pressures to cool before launching new projects. Our unfunded pipeline continues to be strong, and we remain comfortable with our portfolio, given our focus in the multi-residential sector and the continued demand for housing in Canada.

But as mentioned many times in my comments, very happy with the lesson.

Growth.

But I've mentioned many times in my comments very happy with the level, we have right now.

And then this will be my last question. So given that...

Got it.

Then this will be my last question, so given given that.

Does that suggest then there might be opportunities to grow market share with respect to loan growth? And if yes, where would you say are your best opportunities today to grow share?

Does that suggest then there might be opportunities to grow market share.

With respect to loan growth and if yes, where would you say are your best opportunities today to grow share.

Rania Llewellyn: I am pleased to share that our capital position was further strengthened as a result of internal capital generation and the seasonal volume reduction in inventory financing. We ended the quarter at 9.8% up 50 basis points on a sequential basis.

Yeah, so maybe I'll take this one, Paul, just in terms of, again, you know, we would be assessing things against, you know, the current market conditions, our risk appetite in areas where we can win. Ultimately, our goal is to deploy capital where we can maximize shareholder return and earn the largest, you know, risk adjusted.

Yes, so maybe I'll take this one Paul just in terms of again.

We would be assessing things against the current market conditions, our risk appetite and areas, where we can win ultimately our goal is to deploy capital where we can maximize shareholder return and earned the largest risk adjusted risk weighted adjusted return rates. So wherever we can deploy it most efficiently and get the bigger.

Rania Llewellyn: Looking forward, we will continue to drive results in line with our strategic plans. For fiscal 2023, we identified three priority areas to stimulate growth. First, deliver excellent customer service. Second, deposits in optimizing our funding structure, and third, drive efficiencies through simplification.

risk-weighted adjusted return, right? So wherever we can deploy it most efficiently and get the biggest return. So that's part of our ongoing day-to-day operations is to maximize the return in terms of how we deploy our capital. But as Yvonne said, you know...

Returns. So that's part of our ongoing day to day operations is to maximize the return in terms of how we deploy our capital, but as Ivan said.

I think everyone on the street, everyone is trying to be prudent because markets are quite uncertain right now. And so we're comfortable with that from a capital position and we'll continue to review it on a regular basis. OK.

I think everyone on the street, everyone is trying to be prudent because markets are quite uncertain right now and so where we're comfortable where with that from a capital position and we will continue to review it on a regular basis.

Rania Llewellyn: I will now cover key achievements under each priority beginning with customer experience. We said at the beginning of the year that we will continue our focus on delivering excellent customer service and removing pain points by leveraging data from our net promoter score or NPS program. This concentrated effort is helping us gain a deeper understanding of what drives customer satisfaction and dissatisfaction, allowing us to implement targeted solutions. Last quarter, we announced that personal banking saw significant improvement in their NPS scores.

Okay.

Thanks for that.

Thanks, Paul.

Your next question comes from Darko <unk> with RBC capital markets. Please go ahead.

Your next question comes from Darko Mialik with our BC Capital Markets. Please go ahead.

Okay.

Hi, thank you. Good morning. I just wanted to go back to the discussion on the restocking inventory and your expectations.

Hi, Thank you good morning, I just wanted to go back to the discussion on the restocking of inventory.

And your expectations.

And we've received on the last couple of days very, very, very,

We've received over the last couple of days very.

Rania Llewellyn: This quarter, we launched a new customer experience council, which brings together cross functional groups to align on enhancements to the customer experience. I am pleased to announce the following improvements in our NPS scores. Private banking has achieved an excellent NPS rating, which is a score above 50 points. Branch NPS increased by 3 points sequentially and 19 points since the beginning of the year. And our loyalty team NPS was up 4 points sequentially or 16 points since the beginning of the year.

Very reduced expectations next year.

In particular for marine, I mean mastercraft is really lower to its expectations, Polaris, Malibu boats. All of them suggesting that there's boats sitting on dealer lots, prices are declining, the interest rate environments affecting demand. And this is all about recreational, very discretionary type of spend really coming down next year in the US. So I would assume ATVs and things like that would also be off quite a bit. And when I look at your slide.

And in particular for Marine I mean, master craft is really lowered its expectations Polaris Malibu boats all of them, suggesting that this boats sitting.

On dealer lots prices are declining the interest rate environment affecting demand and this is all about recreational very discretionary type of spend really coming down next year in the U S. So I would assume atvs and things like that would also be.

<unk> quite a bit and when I look at your slide.

Rania Llewellyn: This is a testament to our continued focus on the customer and putting them at the center of all our actions. In Q1 2023, we announced the launch of a mortgage financing center to improve the customer experience by handling all mortgage acquisition and refinancing solutions for our retail branches. As a result of this group's high degree of specialization, we have achieved a first time right score of 96% for mortgages up from 90% last year.

I look at marine and recreational vehicles being a very big component.

<unk> 'twenty I look at marine and recreational vehicle as being a very big component.

And so I'm really surprised. So, Ivan, is there something that I'm missing or is there, is there, is there, you're expecting very big demand and manufacturing housing or other or is it clearly that maybe your customers or the borrowers that you're servicing there?

And so I'm really surprised.

So Ivan is there something that I'm missing or is there is there is there youre expecting very big demand in manufactured housing or other or or is it too clearly that maybe you or your customers.

The borrowers that you're servicing there are very different from the broader market and any help on that would be because my expectation would have been.

are very different from the broader market. Any help on that would be, because my expectation would have been,

Rania Llewellyn: And have successfully reduced the time to yes to less than two days in line with industry standards and exceeding our three year target of less than three days. One final point on customer experience is that now we have migrated more than 70% of our public website to the new modernized look and feel. This is providing a consistent brand experience for our customers and improves navigation on our website.

that you would not see significant restocking. And in fact, you probably significantly weaker lending volumes into net.

That you would not see significant restocking and in fact, you'd probably see significantly weaker.

Lending volumes into next year.

Hey, Darko, it's Eric Corvoet of Commercial here. I'm going to take this one if you don't mind. Actually, right now, for sure, it's more difficult to predict the level of restocking we're going to see. So I don't think Eva mentioned significant restocking. I think that we will see throughout the Q4 and Q1 out dealers approach next season. And for sure, with the interest rates.

Hey, Darko its global head of commercial here I'm going to take this one if you don't mind.

Actually right now for sure it's more difficult to predict the level of restocking, we're going to see so I don't I don't think even mentioned significant.

Restocking I think that we will see throughout the Q4 and Q1, our dealers approach next season and for sure with the interest rate they will be prudent, but let's not forget like in times like these.

Rania Llewellyn: The second priority we identified this year was a focus on deposits and optimizing our funding structure. We are committed to maintaining a diverse stable and strong balance sheet that supports long growth. Following the launch last quarter of our digital account opening solution to the public, I am pleased to announce that 66% of customers being onboarded through this channel are new to the bank and more than 40% are from outside of Quebec.

they will be prudent, but let's not forget, like in times like these.

Sometimes OEM will put out special programs. They will try to structure to facilitate the dealers to actually unbord the new year product. So it is expected that our dealer base will rest up.

OEM will put out special programs, they will try to structure to facilitate the dealers.

Two actually onboard the new.

Year.

Product so.

So it is expected that our dealer base will restock.

for sure in marine and RV for the next season, but also need to be noted and we've highlighted that in the previous calls. We're also aiming our inventory financing towards a diversified approach. So we are growing ag, we're growing construction, we're growing our IT dealer base as well. And from there we do expect...

For sure in Marine and RV for the next season, but also need to be noted and we've highlighted that in the previous calls.

Rania Llewellyn: This is in line with our strategy to acquire additional net new customers as well as grow our customer base outside of our traditional branch footprint. Following a recent marketing effort on deposit campaigns with a particular focus on our high interest savings account, we have seen a 50% increase in checking account openings and the 125 times increase in high interest savings accounts opened on a year-to-date pace. Finally, we have launched a new virtual first pilot to enhance the customer experience by serving customers where and how they want while still maintaining a presence in our communities. This pilot will also enable us to offer additional products and services to our recently acquired customers from across Canada through an advice based model.

Were also aiming our inventory financing to awards.

<unk> diversified approach. So we are growing we're growing construction were growing.

Dealer base as well.

And from there we do expect some.

some good momentum as well going towards 2024.

Some good momentum as well going towards 2024.

Okay, Great. That's helpful. Thank you very much.

Thank you.

Your next question comes from Sohrab <unk> with BMO capital markets. Please go ahead.

Your next question comes from Soarad Mavahi with the Amal Kapooral Mark. Please go ahead.

Okay, thank you. I appreciate the strategic reviews on going and you don't wanna talk about the outcome of it, but can I just ask you to maybe validate some of the timelines that were mentioned in some of the press articles and specifically.

Okay. Thank you.

Appreciate that.

The strategic reviews on an ongoing and you don't want to talk about the outcome of it but can I just.

Ask you to.

Rania Llewellyn: Our third priority is to drive efficiencies through simplification. We remain committed to reducing our efficiency ratio over the medium term by further streamlining our internal processes and operations. As part of our drive to enhance efficiencies, we launched a business efficiency program within personal banking at the beginning of this year. This program was established to identify key initiatives that will support the bank in meeting its medium term efficiency target. So far this year we have identified and achieved 93 percent of our 2023 target in annual recurring savings.

Maybe validate some of the timelines that were mentioned in the press article within specifically.

whether or not the board engaged in a strategic review.

Whether or not the board engaged in a strategic review.

I'm almost immediately according to dental with when you had your investor day. Am I understanding that timeline, correct?

Almost immediately according to dental with when you had your Investor day am I understanding that timeline correctly.

Yeah, so so sorry, but I can't really comment on on what's in the in the press all I can kind of comment on is what we released in our press release and the comments that ive been disclosing on this call.

Yeah, so so her by can't really comment on on what's in the in the press all I can kind of comment on is what we released in our press release and the comments that I've been disclosing on this call.

which is, listen, where two years into a three-year strategic plan and the obligations of management and the board is to continuously be looking at various strategic alternatives and options and to ensure that we're constantly maximizing the shareholder values. So it's the optimal time to take a longer-term view and so again the review is currently ongoing and we'll comment in terms of what are the next steps once it's completed.

Which is listen we're two years into three into a three year strategic plan and and the obligations of management and the board is to continuously be looking at various strategic alternatives and options and to ensure that we're constantly maximizing shareholder value. So so what's the optimal time to take a longer term view and.

Rania Llewellyn: Three key initiatives include first we are relocating branches with expiring leases to smaller modernized and more convenient locations for our customers improving the customer experience and reducing costs. Second we are harmonizing contracts for physical paper storage and reducing unnecessary licenses. And third we are digitizing documents and checks across nine remote branches which will reduce expenses by replacing internal mail with a digital document exchange.

So again the review is currently ongoing and and we'll comment in terms of what are the next steps once it's completed.

And, and I appreciate some of the outdoor commentary you offered.

Okay and in demand.

I appreciate.

Some of the outlook commentary you offered.

And looking ahead into the fourth quarter.

looking ahead into the fourth quarter. One of them was where you expect the expense to revenue ratio to probably set the name.

Rania Llewellyn: Culture and ESG also remain a significant priority with culture as the driving force of our strategic plan which is underpinned by our commitment to ESG. This year marked our third annual employee survey. Over the last three years we have put a heavy emphasis on everyone's work life experience. As a result since the first survey in 2021 our overall response rate has gone up from 66 percent to 85 percent. I am particularly pleased that our overall engagement has gone up from 74 percent to 80 percent which is higher than the industry benchmark of 78 percent and the cheese are fiscal year 2024 target one year early. I would like to thank everyone at Laurentian Bank for their focus on creating a better employee experience.

One one of them was where you expect the expense to revenue ratio to probably be set for men.

you know, unpaperable, I guess, revenue environment and some, it sounds like some at the SOTIC.

Unfavorable I guess revenue environment than.

Some.

It sounds like some episodic costs holding things back.

back a little bit relative to expectations. But what should we be thinking about next year, as far as this expense to revenue type target?

Back a little bit relative to expectations, but what.

What should be what should we be thinking about next year as far as this expense to revenue type.

Target ratio.

Thank you so much. So maybe I can explain a little bit more on Q4 to start with. So we mentioned I mentioned in my comments that due to the loan reduction, there's going to be a slide reduction in an IIs. So that does put pressure on the efficiency ratio. The other key element is we meant that we mentioned is the visa migration of our existing customers, which is currently ongoing.

Yes. Thank you sohrab, so maybe I can expand a little bit more on Q4 to start with so we mentioned I mentioned in my comments that due to the loan reductions there's going to be.

A slight reduction in NII, so that does put pressure on the efficiency ratio. The other key element as we meant that we mentioned is the visa migration of our existing customers, which is currently ongoing.

So most of that, in fact, all of that is expected to be done by the end of the calendar day. So there's definitely a pressure on the expenses coming from that tell us.

So most of that in fact, all of that is expected to be done by the end of the calendar day. So there is definitely a pressure on the expenses coming from that element in terms of 24. We are currently working in budgets and reviewing our plans as you know so I would keep and get back to you in Q4 with more detail.

Rania Llewellyn: Two other highlights under culture and ESG that I would like to mention include an improvement to our sustainability ESG score which maintained our low ESG risk rating and launched our third annual Laurentian Bank in the community giving campaign allocating more than $150,000 to community-based charities and not-for-profits chosen by our frontline team members.

In terms of 24, we are currently working in budgets and reviewing our plans as you know. So I would keep and get back to you in 24.

Just to add to that so Rob I think the only thing that we are we can continue to say is that we are committed to reducing our efficiency ratio. We're highly focused on expenses, but stay tuned for Q4 as we work through our budget in terms of further guidance.

Just to add to that, so, Rob, I think the only thing that we are, we can continue to say is that we are committed to reducing our efficiency ratio. We're highly focused on expenses, but yes, they tuned for Q4 as we work through our budget in terms of further guidance.

Yvan Deschamps: I will now turn the call over to Yvonne. Merci Rania Ygonzuretus.

Yvan Deschamps: I would like to begin by turning to slide 13 which highlights the bank's financial performance for the third quarter. Total revenue in the third quarter was $260.8 million, relatively in line with last year and up 1 percent on a sequential basis. Hire Net Interest Income Year Over Year From Commercial Loans Was Offset By Hire Funding Cost And A Lower Combusion From Financial Markets Related Revenue, Which Continues To Be Impacted By Sustained Unfavorable Financial Market Conditions On A Reported Basis Net Income In The Third Quarter Was $49.3M, An EPS Was $1.3M, Adjusting Items For The Quarter Amounted To 8.8M $0.4M after tax, or 19 cents per share, and are Related To Restorting Charges From The Right Sizing Of The Bank's Capital Markets Franchise, Announce Last Quarter, Strategic Review Related Charges, And The Emeritization Of Acquisition Related Intangible Assets. Details Of These Items Are Shown On Slide 29.

Thanks for taking my question.

Your next question comes from Gabriel Duchaine with National Bank Financial. Please go ahead.

Your next question comes from Gabriel Deschein with National Bank Financial.

Good morning. First question about the the NIM and I heard you say and it's in the slides about the talk about the

Hi, Good morning, first question about the the NIM and I heard you say and that's in the slides about the talk about them.

Mortgage prepayment penalties. I'm just a bit surprised to see that being an influencing factor this quarter. I don't think people are paying down their mortgages and refinancing because of higher rates. Maybe I'm thinking about it the wrong way and you can clarify.

Mortgage prepayment penalties I'm, just a bit surprised to see that being a kind of.

And then influencing factor this quarter I don't think people are paying their mortgages and refinancing because of higher rates.

Rates maybe.

Thinking about the wrong way.

You can clarify.

Yes. Thank you again for any of this is <unk>.

Thank you for your attention. The more entertainment and penalties, it's also something that...

Mortgage prepayments fees is also something that the seasonal you would see more houses being sold dealing with spring beginning of the summer and things like that so there is some influence giving there definitively there is less prepayment penalties than what we had a few years ago, while the rates were lower so your assumption is good but if we can.

You know in the spring, beginning of the summer and things like that. There is some influence getting there. Differently there is less pre-payment penalty than what we had a few years ago while the rates were lower. So your assumption is good. But if we compare with last quarter, the rates were less. Last quarter and this quarter, it's mostly easily related to X.

Bear with that.

With last quarter the rates work.

Last quarter and this quarter, it's mostly seasonally related to activities.

Yvan Deschamps: The Reminder Of My Comments Will Be On An Adjusted Basis. Growth In Net Interest Income Cost Discipline And Lower Loan Losses Drove Disquarters Solid Results. EPS Of $1.22 Was Up 5% Quarter Recorder, And Down 2% Year Over Year. Net Income Of $57.6M Was Up 12% Compared To Last Year, And Down 1% Compared To 1 Last Quarter. The Efficiency Ratio Improved By 120 Basis Points Quarter Recorder To 68.5% Despite Continued Investments In Key Strategic Priorities.

Okay, just like I got it. It's not a it's probably down from last year I would imagine as well

Okay, just like Oh got it that's not a probably down from last year I would imagine as well.

It's down from last year, it's up from last quarter.

Cool. And now at North Point, I know the revenue contribution. I know the loan percentage of loans it represents unless I'm missing it, which is possible, but I don't know the profit contribution. Could you clarify how much North Point contributes to your profit?

Okay cool.

North point I know the revenue contribution I know the low.

Percentage of loans represents unless I'm missing, which is possible, but I don't know the profit contribution could you clarify how much north point contributes to your profit.

Yes. Thank you for your question Gabriel, but unfortunately, we don't disclose product level.

Yeah, thank you for your question, Gabriel. But unfortunately, we don't disclose product level profits and contributions. So that's not something.

Profit contribution so that's not something that we disclose.

What could you tell me that my assumption that it's a disproportionate contributor to profits, so it may be whatever 15, 20% of revenue in terms of earnings, it could be more than that, because if I just look at the loan-makes, mortgages, they're a big chunk, but they're not that profitable.

What could you tell me about my assumption.

Yvan Deschamps: Our We Was Up 10 Basis Points Sequentially To 8.2%. This Quarter Also Included In All RCN Interest Payment, Which Negatively Impacted EPS By 6 cents. Slide 14 Shows Net Interest Income Up By $3.6M Or 2% Year Over Year, Mainly Due To Hard Net Interest Income From Commercial Lones. Partly Offset By Higher Funding Costs And Lower Mortgage Prepayment Penalties. On A Sequential Basis The Increase Of $7.9M Or 4% Mainly Reflect The Positive Impact Of 3 Additional Days. In The Quarter And Sequentially Higher Mortgage Prepayment Penalties. Net Interest Margin Was Up 4 Basis Points Sequentially To 1.84%. This Is Mostly Due To Improved Funding Costs And Higher Mortgage Prepayment Penalties.

Disproportionate contributor to the profit so it may be whatever 15% 20% of revenue.

In terms of earnings that could be more than that because if I just look at the loan mix mortgages or a big chunk, but they're not.

Not that profitable.

Unfortunately, we don't disclose product level contribution. So I cannot confirm or inform what you're saying. We just don't disclose the product profitable. All right, thanks.

Unfortunately, we don't disclose product level contribution so I cannot confirm or in firm your what youre, saying, we just don't disclose the product profitability.

Alright, thanks, and enjoy the long weekend.

Thank you.

Your next question comes from Doug Young with Desjardins. Please go ahead.

Your next question comes from Doug Young with the Jean thing.

Hi, good morning, maybe sticking with the NIM was there anything else unusual in.

Hi, good morning. Maybe sticking with the nims. Yeah, was there anything else unusual in the quarter? And when you're talking about for Q4 stable nims, I assume that's relative to the 1E4 and Q3. Just wanted to confirm that.

In the quarter and when Youre talking about for Q4 stable Nims I assume that's relative to the 184 in Q3, just wanted to confirm that.

Yvan Deschamps: Slide 15 Highlights Are Diversified Sources Of Funding And The Banks Equity Position. Year Over Year, Total Funding Increased By 800 Million Dollars Through Cost Effective Partnership Deposit Of 1 billion Dollars And Retail Deposit Of 300 Million Dollars Which Were Offset By A Plan Decrease And Whole Sell Deposit. On A Sequential Basis, Total Funding Was Relatively Flat. We Saw Continued Transition Of Deposit To Turn From Demand Accounts. The Bank Maintained A Lot A Strong Liquidity Coverage Ratio Through The Quarter.

Yeah. Thanks for your question, Doug I'll take that one so for the NIM. The FERC settlement. This quarter, which is interesting is that we have improved funding costs and the way. It works is that the five potentially higher by example, GIC rates versus what you would have last year the spreads versus the swap.

Yeah, thanks for your question, Doug. I'll take that one. So for the name, the first element of this quarter, which isn't the rest thing is that we have improved funding costs.

And the way it works is that despite potentially higher, by example, GIC rates versus what you would have last year, the spread versus the swap rates are lower than they were. So what we do is that when we get, by example, fixed term GICs for our funding, we would translate that or sorry, hedge that and convert that to variable rates.

Rates are lower than they were so what we do is that when we get by example, fixed burn GIC for our funding, we would translate that or sorry hedge that and convert that to variable rates.

So the spread versus the swap rate is a key component that impacts the profitability and those spreads reduced versus last quarter and it did turn...

The spreads versus the swap rates of the key components that impact the profitability and those spreads reduced versus last quarter and it did contribute to the profitability.

Yvan Deschamps: Slide 16 Presents Other Income Which Decrease By 4% Compared To Last Year. Because Of Unfavorable Market Conditions Impacting Final Markets Related Revenue, Including fees and securities brokerage commissions, income from mutual funds, and income from financial instruments. On a sequential basis, other income was down 6% or $4.3 million, mainly for the same reasons. Slide 17 shows non-interest expenses up by 2% compared to last year, mainly due to higher technology, depreciation and amortization costs, as the bank continues to invest in its strategic priorities to improve the customer experience and support growth.

of the bank and definitely as I mentioned with Gabriel few months ago the fact we're higher in terms of prepayment penalties That goes in the margin as well. So maybe a bit one up to one beef a bit less than one beef came from prepayment penalty And most of it came from a lower

The bank and definitely as I mentioned that would give any other humans go. The fact, we're higher in terms of prepayment and I'll tell you that goes in the margin as well, so maybe a bit one up to when beef a bit lower than when <unk> came from prepaid prepayment penalty and most of it came from lower funding costs.

So your assumption is the funding cost is essentially the same, but if there's a movement that positive or negative, that could swing at a few basis points in Q4.

So your assumption is those funding cost stays essentially the same but if there is a movement that positive or negative that could swing a few basis points in Q4.

Yeah, it's a good assumption. Yeah, it's a good assumption. Dog at this point, when we say relatively stable, it all depends of spread, depends of where the central banks will be going. There's a lot of factors impacting the bank margin. But at this point, if I assume most of the conditions remaining about the same...

Yes.

Yeah.

It's a good assumption Doug at this point, when we say relatively stable. It all it all depends of spreads it depends of where that central banks will be going there is a lots of factors.

<unk> the bank margin, but at this point you know if I assume most of the conditions remaining about the same the margins should be relatively close.

Yvan Deschamps: On a sequential basis, non-interest expenses were slightly lower due to performance-based compensation. Turning to slide 18, RCT1 ratio was up 50 basis points to 9.8%, mostly due to internal capital generation and the seasonal inventory financing loan reduction. Slide 19 highlights our commercial loan portfolio, which was up by $400 million or 3% year over year. As guided in Q2, on a quarter-over-quarter basis, the portfolio was down $800 million or 4% due to a reduction in inventory financing, which saw a normal seasonal portfolio reduction with utilization rates and behavior more in line with pre-pandemic patterns. Consumer goods acquisitions from dealers last quarter showed strong resilience despite the uncertain economic environment. Dealers begin restocking in Q4, and therefore utilization rates are expected to increase next quarter.

And then second, you know, just on the PCL discussion, you know, the release of performing loan PCLs is very different than what we've seen from others. And I get that the inventory financing, you know, was a contributor to that. Was there any other changes in your forward looking indicators or your weightings between the different scenarios that resulted in in the release of performing loan allowances or resist all attributed to the inventory finishes until some of the ads continue to value the inventory.

Okay.

And then second just on the PCL discussion the release of performing loan PCL. This is very different than what we've seen from others and I get that the inventory financing.

Contributor to that was there any other changes in your forward looking indicators or your weightings between the different scenarios.

That resulted in in the release, a performing loan allowances or was this all attributed to the inventory financing.

Yeah, I'm, uh, CRO, it was all related to inventory financing variation. Indeed, we've maintained our strong reserves against other parts of the portfolio, and, uh, and, and very happy with where we're at all inventory.

Yes, Doug it's Liam.

Crow It was all related to inventory financing variation indeed, we've maintained our strong reserves against other parts of the portfolio.

And and very happy with where we're at all inventory financing.

Okay, and then just lastly on expenses.

And then just lastly, in expenses, you know, the strategic review is costing you money, is this a level that we're seeing, or can you give us a sense of how much this is gonna cost when we build it into our models? And I get it that it's a fact that it cash, but it does impact reported.

The strategic review is costing you money.

Is this a level that we're seeing or can you give us a sense of how much. This is going to cost while we build into our models that I get it that it's backed out of cash, but it does impact reported.

Yvan Deschamps: Slide 20 provides details of our inventory financing portfolio, where key performance indicators such as the age of inventories and turnover rates are monitored closely. Crit line utilization rates are back to pre-COVID levels for this quarter, currently standing at 49%. Given the current economic environment, we are monitoring the portfolio closely and continues to perform well with a high level of dealer sales as previously mentioned. In commercial real estate, home building continues to meet the demand of rising immigration levels in Canada.

And capital and whatnot, just trying to get a sense of the ongoing costs related to this.

capital and whatnot, just trying to get a sense of ongoing cost related to this.

Yeah.

Yeah, and thank you for your question, Doug. But the level that we have in Q3, you should expect we're getting worse still in...

Thank you for your question, Doug, but the the level that we have in Q3, you should expect we're getting worse feeling and the strategic review. So definitely there is going to be costs, but we'll get back to you. If there is a big movements there, but at this point you should expect something relatively around the same number something like that so it's relatively small amount.

There's going to be costs, but we'll get back to you if there's big movements there But at this point you should expect something relatively around the same number something like that. So it's red

At this point.

Okay, great. Thank you.

Next question comes from Lamar Persoul with Cormac. Please go ahead. Yes, thanks for your following.

Your next question comes from Lamar peso with Carmax. Please go ahead.

Yes, thanks for Ivan.

Yvan Deschamps: However, some developers are being prudent in delaying the start of some projects until inflationary pressures and interest rates ease. As seen on slide 21, the majority of our portfolio is in multi-residential housing, and only around 3% of our commercial loan portfolio is in office. Our office portfolio consists of class A or B assets and financial recourse to strong and experienced sponsors. As we said last quarter, the majority of the portfolio is in multi-tenanted properties with limited exposure to single-tenanted buildings.

What are your expectation for stable NIM next quarter, if we're going to see inventory.

Why do expectations for stable names next quarter if we're gonna see inventory?

Finance values come back on and this quarter you saw some improved funding costs. Like what am I missing here? Are you just being conservative? Because I would think that you know with inventory financing coming back on, that would be a creative to them. So maybe the answer is that you're going to offer more promotions on the inventory finance business if it's okay, because I was in response to an earlier question. Like help me score that one up.

As volumes come back on and.

This quarter you saw some improved funding costs like what am I missing here, you just mean Vince.

<unk>, because I would think that with inventory financing coming back on that would be.

Accretive to nims or maybe the answer is that youre going to offer more promotions on the inventory finance business to facilitate growth in response to an earlier question.

Help me help me square that one up.

Yeah, No problem Lamar and one thing that is important as the NIM is impacted by the average volume of a quarter right. So there has been a big decrease or $700 million related to inventory refinancing in Q3. So technically despite the fact that it can go up in Q4 is really the averages of the quarter the floating factory.

Yeah, no problem Lamar. One thing that's important is the name is impacted by the average volume.

Right, so there's been a big decrease or $700 million related to inventory fine things.

Yvan Deschamps: Slide 22 presents the bank's residential mortgage portfolio. Residential mortgage loans were up 4% year over year and flat on a sequential basis. We maintain prudent on the writing standards and are confident in the quality of our portfolio.

So technically, despite the fact that it can go up into four, it's really the average of the quarter that will impact it. So at this point, there's no benefit that we expect from inventory financing. In fact, there's potentially a small negative impact on the margin because of the volume reduction and the level of the margin of inventory.

So at this point, there's no benefit that we expect from inbound to refine thing in fact, there is potentially a small negative impact on the margin because of the volume reduction and the and the level of the margin of inventory financing. So think add its really from an average quarter asset base.

Yvan Deschamps: [inaudible] On slide 17.1 million dollars, up 23.9 million dollars compared to last year, mostly as a result of higher provisions on commercial loans related to volume growth and microeconomic uncertainty Allowances for credit classes were up 5.5 million dollars sequentially, mostly as a result of higher provisions on commercial loans Turning to slide 24, the provisions for credit classes was 13.3 million dollars and improvement of 3.3 million dollars from a year ago, reflecting lower provisions on performing loans, partly upset by higher provisions on impaired loans DCLs were down 2.8 million dollars compared to last year, mostly for the same reasons Slide 25 provides an overview of impaired loans On a year-over-year basis, growth in impaired loans increased by 43.1 million dollars and were up 18 million dollars sequentially We continue to manage our risk with the prudent and disciplined approach and remain adequately provisioned Last quarter, we provide detailed guidance for the remainder of 2023 and I would like to note a few key points We expect a slightly higher efficiency ratio in Q4 with lower NII due to the recent seasonal inventory financing loan reduction Unfavorable financial market conditions and higher expenses mostly related to cost associated with transitioning our current visa customers to the new Brem platform We expect relatively muted loan growth in Q4 as microeconomic conditions impact business and consumer spending despite an increase in inventory financing as dealers start restocking inventory and utilization rates increase NIM is expected to remain relatively stable but may be impacted by central bank rate decisions DCLs remain difficult to predict given the answer in microeconomic environment but are expected to be in mid to IT's Capital is expected to remain strong.

So think add it really from an average quarter asset base.

Okay. Okay. So if I understand it correctly that the.

Okay, okay. So if I understand it correctly then, the return of those volumes will be more of a two one margin story. Is that fair to say?

The return of those volumes will be more of a Q1 margin story that is that fair to say.

So what you're going to see in Q4 will impact Q1, as you mentioned, and the increase you're going to see in Q1 will gradually impact you.

Zack so whether youre going to see in Q4 will impact Q1, as you mentioned and the increase are going to see in Q1 that will gradually impact Q1 and Q2. So there is always.

There's always a small lag related to the average battery.

A small lag related to the average balances of those quarters.

That's very helpful. My next question for Ron Here I know you can't talk about the strategic review process.

very helpful. My next question for Rania, I know you can't talk about the strategic review process, but I just want to be clear because you you throw it out there is are the investor-day targets still valid despite the strategic review process is that the way to think about it?

I just wanted to be clear because.

You did throw it out there or the Investor day targets still valid. Despite this strategic review process is that the way to think about it.

Yeah, so as I said in my comments and yeah, I'll reiterate it, we're focused on our three years strategic plan. We've been delivering against it. We're finalizing the second year of the third year. So the targets at this point continue to be the targets that we're all collectively as a management team and as a bank working towards.

Yeah. So so as I said in my comments and I'll reiterate it we're focused on our three year strategic plan, we've been delivering against that we're finalizing the second year of the third year. So the targets at this point continue to be the targets that we're all collectively as a management team and as a bank working towards.

Okay I appreciate that and then my final question just a modeling related question would it be fair to suggest that there is some improvement in capital markets related revenues.

Okay, I appreciate that. And then my final question is the modeling related question. Would it be fair to suggest that there is some improvement in capital markets related revenue?

into Q4. Just in comment, that would be helpful.

Into Q4.

Send comment that that would be helpful.

I guess the markets are really uncertain at this point, so it's really difficult to expect, but seasonally as well

Got it.

The markets are really uncertain at this point, so it's really difficult to expect but seasonally as well. This summer is currently has been the impact in Q3 as it does every year. So we would expect a slight improvement, but I think this is all depending on the financial market conditions.

I've been impacting Q3 as it does every year, so we would expect a slight improvement, but it is...

Yeah, I'll jump in. It's Kelsey Gunderson here. You know, like we're expecting to see a resumption of sort of, you know, the activity that would we characterize as more normal run rate for capital markets, you know, keep in mind our business is heavily focused on six-dencom. Already in the first quarter, we've seen a, you know, some decent activity on the DCM side and we've been participating in that. So, you know, we're cautiously optimistic that, that we'll see a resumption to more normal run rate market, capital market run rate revenue numbers. Thanks. Appreciate the time, guys.

Yes ill jump in it's Kelsey Gunderson here.

We're expecting to see a resumption of sort of the activity that we would characterize as more normal run rate for capital markets. You know keep in mind. Our business is heavily focused on fixed income already in the first quarter. We've seen some decent activity on the DCM side and we've been participating in that so we're cautiously optimistic that.

That we'll see a resumption to more normal run rate market capital market run rate revenue numbers.

Yes.

Thanks, I appreciate the time guys.

Alright.

Your next question comes from Nigel D'souza with data to investment. Please go ahead.

Thank you. Good morning. I wanted to follow up on catalogs that when I look at the growth of cards alone, there's up to quarter quarter particularly in commercial, but you're not seeing that necessarily show up in catalogs proportionally. So wondering if you could elaborate on the expected loss rate in commercial and what were the specific exposures in commercial that we can share this order.

Thank you good morning, I wanted to follow up on.

Credit losses that when I look at the gross impaired loans.

Quarter over quarter, particularly in commercial but.

And not seeing that necessarily show up in.

Credit losses proportionately. So I'm wondering if you could elaborate on the expected loss rates in commercial and what were the I.

Operator: I will now turn the call back to the operator Thank you ladies and gentlemen we will now begin the question and answer session Should you have a question please press star followed by the one on your touchtone phone You will hear a three-tone prompt acknowledging your request and your questions will be pulled in the order they are received Should you wish to decline from the polling process please press star followed by the two If you are using a speaker phone please let the hands have before pressing and many keys. One moment please for your first question.

With specific exposures in commercial that became apparent this quarter.

Yeah, hi Nigel, it's Liam Mason. We're very, very disciplined in terms of our approach to impair...

Yeah, Hi, Nigel it's it's Liam Mason.

Where we're very very disciplined in terms of our approach to.

Impaired loans.

You'll see that by the time they get to fully impaired, generally we have...

You'll see that by the time, they get to fully impaired generally we have been.

very very, or appropriately prudent, reserves again.

Very very appropriately prudent reserves against them.

Meny Grauman: Your first question comes from Meny Grauman with Scotiabank. Please go ahead. Hi, good morning. Rania, I appreciate you came to comment on this strategic review. You were clear, but I'm just curious if investors should be prepared for some financial impact from the strategic review as it goes on. I guess anything that we should be prepared to see in terms of a slowdown on the revenue side, maybe elevated expenses as maybe decision making gets slowed down or maybe some type of client attrition in this period of uncertainty. So anything there that you can offer a perspective on. Yeah, so thanks, many.

we have a discipline workout process. It does take some time.

A disciplined workout process.

Does take some time.

But overall.

But overall, there's nothing new here other than variations commensurate with the macroeconomic environment. So I will just reiterate the expectations that Ryan and VanLadeau that we expect mid to high teen.

There's nothing new here other than variations commensurate with the macroeconomic environment. So.

I will just reiterate the expectations that ran advent laid out that we expect mid to high teens.

in terms of the aggregate portfolio and comfortable with our processes and the reserves.

In terms of the aggregate portfolio.

And comfortable with our processes and the reserves at this time.

just to be very mathematical, Nigel, or give a simple example. If you move it 10 million dollars.

Just to be very mathematical Nigel I'll give a simple example, if you move it $10 million loan to impaired it's very highly Colorado realizes what we have so it means that the tcf potential impact could be very minimal.

very highly collateralized what we have, so it means that the PCR potential in the back could be very...

that that long is moved to impaired long but may trigger very minimal loss.

That that loan is moved to impaired loans, but may trigger very minimal losses at the end of the day.

Rania Llewellyn: As I said in my remarks, and I'll just kind of reiterate it, you know, I won't be providing any comments until the review is completed entirely. And so it's currently ongoing. But what I can say is that our Q4 guidance, which are in both my comments as well as Yvonne is is really what you should be guided with. And so we're focused on our fiscal 2023 priorities. We're delivering against them and we're committed to our three years strategic plan. So its business is usual.

to just to color on that more than 94% of our lending portfolio has a degree of collateral.

Just to give us color on that more than 94% of our lending portfolio has a degree of collateral against it.

Yeah, I appreciate it. I guess that's what I was getting to in terms of the collateral values of what's becoming impaired, but you'll elaborate on what that collateral Is and what your elbow gets for collateral values as we go through the cycle because that's what's going to mitigate your long loss

Yeah I appreciate I guess, that's what I was getting to in terms of the collateral values of whats, becoming in Paris could you elaborate on what that collateral.

It is and what your outlook is for collateral values as we go through the cycle because that is what is going to mitigate losses.

Rania Llewellyn: And once the review is completed, that's when we'll be providing additional comments.

Well, you know, there are challenges within the real estate market and impact on valuations from the higher rates. But we have, are generally first lean. We have strong underwriting standards and we're taking low to value attachment points that are very, very conservative. So even if there is an impact on valuation on some of those commercial real estate properties, generally given our...

There are challenges.

Challenges within the real estate market and impact on valuations from the higher rates.

William Mason: Turn off and then just a question on credit better than expected. There's interesting chart on slide 24 in terms of the PCL ratio comparing the Laurentian to peers, and it looks like that gap is definitely widening. And I'm wondering how investors should interpret that. Is this a function of business makes here. How do we understand such a better PCL ratio relative to the peer group. And it appears to be widening as well.

But we are generally first lien.

Have strong underwriting standards and we're taking loan to value attachment points that are are very very.

Very conservative so even if there is an impact on valuation on some of those commercial real estate properties generally given our attachment points where.

We're well protected.

Well protected.

And we have less than, you know, the big pressures right now, as we're outweighed by a number of competitors are in the office space, we're less than 4% of that. It's really our emphasis on...

And we have less than the big pressures right now as were outweighed by a number of competitors are in the office space.

William Mason: So just curious about that. And we've maintained our ACLs through that period. This quarter, it's really driven by a couple of factors. First off, as both Rania and Yvonne noted, our ACLs are coming down due to a drop in volumes in inventory finance. And that's one of the major factors. The other is that we're seeing lower right off levels. So overall, given the strength of our under running standards and proven approach, we're very comfortable with our PCLs and our ACLs. And we expect going forward to get to be around the mid to high teens as Rania indicated.

Less than 4% of that it's really our emphasis on.

On.

purpose-built multi-family construction. And we're also within this environment, very conscious of contingencies, appropriate debt service reserves to ensure that the properties remain stable.

Purpose built multifamily construction.

And we're also within those this environment very conscious of contingencies appropriate debt service reserves to.

William Mason: Thanks for that.

Paul Holden: Your next question comes from Paul Holden with CIBC. Please go ahead. Thank you.

To ensure that the properties remain remained stable and.

Current.

Okay, that's awful. And I know you can't comment on this to your review, but it's one of two comment, none of the specifics of the review, but...

Okay. That's helpful and I know you can't comment on specific review, but just.

Wonder if you can comment on the specifics of the review, but just the <unk>.

the timeline of the book or when you expect to next update on it or anything in terms of time.

<unk> lineup or when you expect the next update on it or anything in terms of just timing.

Yeah, So Nigel and that's from a timing perspective, it's the update will be provided once the review is finalized. So that's all I can comment on at this point in time.

Yes, and I, from a timing perspective, it'll be updated will be provided once the review is finalized. So that's all I can comment on at this point in time. Okay, that's it for me. Thank you.

Okay. That's it for me thank you.

Yeah.

Your next question comes from <unk>, Kim with Credit Suisse. Please go ahead.

Hi, good morning, and thanks for taking my questions.

Hi, good morning, and thanks for taking my questions. I wanted to ask on residential mortgages, and if you can talk about whether you see any difference in client behavior, whether that's on the payment side or renewals between your ALTA book and the prime book, I'm just trying to get a sense of whether there are different levels of stress on the different types of borrowers giving the higher rate environment.

Paul Holden: Good morning. A couple of questions on capital to start. And so looking at sort of the waterfall leading us to the QRQ increase in Q3. I would assume some reversal of that RWA benefit next quarter. But it sounds now like despite inventory finance going back up overall long growth is expected to be muted. So just trying to figure out what the implication is for CQ1 given typical seasonality but slowing demand in low.

Wanted to ask on residential mortgages.

If you can talk about.

Whether you see any difference in client behavior, whether thats on the payment side, our renewals between your <unk> book.

Book, and the and the Prime Big Prime book I'm, just trying to get a sense of whether there are different levels of stress.

On the different sort of types of borrowers given the higher rate environment.

Hi, Jihou. Thank you for your question. It's Karin here. So, as you know, like we are seeing some direct or some customers and working with them on a divisible basis. But when we look at our all-day mortgage, it is really a strong portfolio and government.

Hi, Hello. Thank you for your question is correct here. So as you know like we are seeing some directly some customers and working with them on an individual basis, but when we look at our Alt a mortgage <unk>.

Paul Holden: Thank you, Paul for your question. This is Yvonne. So, this quarter, the 50 beeps. In fact, 10 of that came from internal capital generation. Most of it, as you mentioned, came from RWA variations, mostly related to the inventory-finding reduction seasonal impact that we've seen. So, going forward, we expect the inventory-finding to go back to normal behavior that we had pre-COVID environments. So, Q4 should see a start of an increase with Q1 being usually where they restock most of their equipment.

Really strong portfolio and governance in terms of our risk assessment, we approve and using the same stress time methodology and our other mortgages. So there is no other key differences and so really when you look at our all in its a small percentage of our overall portfolio is only 12% of our mortgages in less than 5% of our total loan mortgage.

of our risk assessment, we approve it using the same stress test methodology as our other mortgages. So there's no other key differences. And so really when we look at our alt, it's a small percentage of our overall portfolio. It's only 12% of our mortgages and less than 5% of our...

And our all-A portfolio also has very low LTVs, a less than 65%, and 55% are even less than 65%.

Ed.

And our Alt a portfolio also has very low ltvs of less than 65% and 55% or even less than 50% just just to add to that the average LTV on our.

Yeah, just to add to that, the average LTV on our AultA book is 49.

Paul Holden: So, we will definitely probably use of that for those two quarters, but we also have internal capital generation that will absorb the portion of that. So, overall, from the next quarter, we expect the capital to remain pretty strong. Okay. And I guess my follow-up question, then, you expect the capital remains strong, maybe just a reminder on what your target CET1 is. But then, let's say, long growth is kind of slow or the normal because of the cycle.

<unk> book is 49%, so very very strong from a collateral coverage standpoint.

So very very strong from a collateral coverage stance.

And we're not seeing any variation relative to the convention.

And we're not seeing any.

Variation relative to the conventional book.

God, that's thanks for that. And I guess when the renewals are expected to happen, 2025 and beyond, how do you think about your blower over capacity to handle the higher rates? I guess especially given that your book seems to be a bit more geared towards the fix rate mortgages.

Got it thanks for that.

I guess when the renewals are expected to happen.

2025 and beyond.

How do you think about your borrowers capacity.

To handle the higher rates.

Especially given that Youre book seems to be a bit more geared towards the.

Paul Holden: Are there other alternative uses of capital that you would think about executing on near-term? Or would you more likely keep that capital in your back pocket for when economic conditions improve? Yeah. Thank you. So, I would say at this point, we're happy and comfortable with the level of capital that we have. In the current economic environment, it's a good position to be. We always said that the internal growth is our key focus in terms of capital deployments.

Fixed rate mortgages.

We were very disciplined in terms of our underwriting standards with our mortgage customers.

We're very disciplined in terms of our under running standards with our mortgage costs.

We do recognize that they will see an impact to the debt service.

Do recognize that they will see an impact to the debt service in post 2025 to 2026, but as a Korean outlined we stress.

post 2025 to 2026, but as a current outlined, we stress the customer capacity to absorb rate increases at the outset, and at this time we're very comfortable with reserves against those.

The customer capacity to absorb rate increases at the outset and at this time, we're very comfortable with the reserves against the against those exposures.

Paul Holden: We had mentioned that we wanted to be about 9% this year. So, we're healthy right now in terms of capital based and really prudent in the environment. But that remains really our key strategic priorities to deploy that internally with growth. But as mentioned many times in my comments, very happy with the level we have right now. Okay, I've got it.

There will be an impact for those customers in terms of debt service with the higher rates, but we're comfortable from a credit standpoint, given the valuation, given the reserves, and given our forward expectations. Got it, thank you.

There will be an impact for those customers in terms of the debt servers with the higher rates, but we're comfortable from a credit standpoint, given the valuation given the reserves given our forward expectations.

Yeah.

Got it thank you.

Your last question comes from Stephen Boland with Raymond James. Please go ahead.

Paul Holden: And then this will be my last question. So, given that, does that suggest that there might be opportunities to grow market share with respect to long growth? And if yes, where would you say are your best opportunities today to grow share? Yeah, so maybe I'll take this one, Paul, just in terms of again, we would be assessing things against the current market conditions, our risk appetite in areas where we can win.

Appreciate you fit me in. Just to follow up on a dark most question on the inventory finance. You know what we're hearing from some of your peers that do the higher interest cost. A lot of dealers are are pairing down you know their demand for for endocorrion their loss and things like that. Are you seeing any similar discussions with your dealer groups like is that a possibility in your segments.

I appreciate you fitting me in.

Just a follow up on dark <unk> question on the inventory.

Finance, we're hearing from some of your peers that due to higher interest costs a lot of dealers are paring down.

Their demand for inventory on their lots and things like that are you seeing any.

It was similar discussions with the with your dealer groups like us that are possibilities in your segments.

Hi, Stefan it's Eric.

Just again, right now, summer is not even...

Just just again like right now summer is not even over so so we are still seeing at the dealer level. Some some good foot traffic, we're seeing some some some demand for the products. So I think that will will will no more walking into Q4.

Paul Holden: Ultimately, our goal is to deploy capital where we can maximize shareholder return and earn the largest risk-weighted adjusted return. So, wherever we can deploy it most efficiently and get the biggest return. So, that's part of our ongoing day-to-day operations is to maximize the return in terms of how we deploy our capital. But as Yvonne said, I think everyone on the street, everyone is trying to be prudent because markets are quite uncertain right now. And so, we're comfortable with that from a capital position and we'll continue to review it on a regular basis. Okay, thanks for that.

over so so we are still seeing at the dealer levels some some good foot traffic we're seeing some some some demand

Paul Holden: Thanks, Paul.

So I think that will no more walking into two, four, once the restocking season begins, and when the shows actually from the OEM are kicked off in all the various industries we cover. So it's still early, still difficult to presume for next season. And of course, dealers will be prudent.

Once the restocking season begun begins and when the shows actually from the OEM kicked.

<unk> Tau in all of the various industries, we cover so so it's still early still difficult.

Presumed for next season and of course dealers will be prudent and it's something we want to see actually because.

And it's something we want to see actually because it's the right approach for them. So we expect restarting, but again to what level it is to be seen in the coming quarter.

Darko Mihelic: Your next question comes from Darko Mihelic with our BC Capital Markets. Please go ahead. Hi, thank you. Good morning. I just wanted to go back to the discussion on the restocking inventory and your expectations. And we've received on the last couple of days very, very reduced expectations next year. In particular for Marine, I mean master craft is really lower to expectations, Polaris, Malibu Boats, all of them suggesting that there's both sitting on dealer lots, prices are declining, the interest rate environments affecting demand.

It's the right approach for them. So we expect restocking, but again to what level it has to be seen in the coming quarters.

And just on the dealer level, are you still seeing, are you still in a dealer ad mode? Are you still there recruiting to get more dealers on your books? Yeah, and actually, as I mentioned with Darko's question, we are still acquiring, we've acquired about, we increased our dealer base about 10% over year. And we're diversifying our books to try to reduce that seasonality in the past. We started originating and...

And just on the dealer level are you still seeing or are you still.

Dealer AD mode like are you still out there recruiting to get more dealers on your books.

And actually as I mentioned.

Marcos question.

We are still acquiring we've acquired about we increased our dealer base about 10% year over year and and we're diversifying our books.

To try to reduce that seasonality impact we started originating into the.

Disruptions to the it sector, which will provide diversified.

Darko Mihelic: And this is all about recreational, very discretionary type of spend really coming down next year in the US. So I would assume ATVs and things like that would also be off quite a bit. And when I look at your slide 20, I look at Marine and recreational vehicle as being a very big component. And so I'm really surprised.

Sources of assets as well as diversify the seasonality of the book.

of assets as well as diversified the seasonality of the book.

Alright, Thanks for taking my question.

Just one last comment, Stephen. Thank you for taking coverage on the bank and welcome to the quarterly calls. Thank you. Thank you very much.

And just one last comment Stephen Thank you.

We're taking coverage on the bank and welcome to the quarterly calls.

Thank you very much and timing has been interesting for sure.

Eric Provost: So Ivan, is there something that I'm missing, or is there, is there, is there, you're expecting very big demand and manufacturing housing or other, or, or is it clearly that maybe your, your customers or, you know, the borrowers that you're servicing there are very different from the broader market any help on that would be. Because my expectation would have been that that you would not see significant restocking. And in fact, you probably significantly weaker lending volumes into next year.

Thank you that's all the time, we have for questions I would now like to turn the meeting over to Ron yet.

Thank you for your questions today, we remain focused on our strategic plan and delivering against our three core priorities for this year.

Thank you for your questions today. We remain focused on our strategic plan and delivering against our three core priorities for this year. Customer experience is top of mind, and I'm pleased with the improvements we have made in personal banking.

<unk> experience is top of mind and I am pleased with the improvements we have made in personal banking.

And then optimize funding structure remain a priority our digital account opening solution is supporting this objective by gathering cost efficient deposits from retail customers across the country.

Eric Provost: Hey, Darko, it's Eric Corvo, head of commercial here. I'm going to take this one if you don't mind. Actually right now, for sure, it's more difficult to predict the level of restocking we're going to see. So I don't, I don't think Ivan mentioned significant restocking. I think that we will see throughout the Q4 and Q1 out dealers approach next season. And for sure, with the interest rate, they will be prudent. But let's not forget, like in times like these, sometimes OEM will put out special programs, they will try to structure to facilitate the dealers to actually unbord the new year product.

We will continue to take the necessary actions to simplify and automate processes to reduce our efficiency ratio, which will further improve once we complete the conversion of all current visa customers onto the new card platform.

We take it fruit and approach the credit and we'll manage capital to support growth. Thank you again.

We take a prudent approach to credit and we will manage capital to support growth. Thank.

Thank you again for joining the call.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

and gentlemen, this concludes your conference call for today. We thank you for participating in us.

Okay.

My procedure cool now so good you

Yes.

Eric Provost: So it is expected that our dealer base will rest up for sure in marine and RV for the next season, but also need to be noted. And we've highlighted that in the previous calls. We're also aiming our inventory financing towards a diversified approach. So we are growing ag, we're growing construction, we're growing our IT dealer base as well. And from there, we do expect some some good momentum as well, going towards 2024. Okay, great. That's helpful. Thank you very much. Thank you.

Okay.

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Sohrab Movahedi: Your next question comes from Soarad Mavahi with BMO Capital Mark. Please go ahead. Okay. Thank you. I appreciate the specific reviews on ongoing and you don't want to talk about the outcome of it. But can I just ask you to maybe validate some of the timelines that were in the past? Another mention in some of the press articles and specifically, whether or not the board engaged in a strategic review, almost immediately or coincidental with when you had your investor date. Am I understanding that timeline correctly?

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Sohrab Movahedi: Yeah, so Sohrab I can't really comment on on what's in the in the press all I can kind of comment on is what we released in our press release and the comments that I've been disclosing on this call, which is listen, where two years into a three into a three year strategic plan and and the obligations of management and the board is to continuously be looking at various strategic alternatives and options and to ensure that we're constantly maximizing the shareholder value. So so it's the optimal time to take a longer term view.

Sohrab Movahedi: And so again, the review is currently ongoing and and we'll comment in terms of what are the next steps once is completed. Okay, and and I appreciate some of the outlook commentary offered looking ahead into the fourth quarter. One of one of them was where you expect the expense to revenue ratio to probably settle in. You know, untapeable, I guess, revenue environment and some sounds like some at the started cost, holding things back a little bit relative to expectations, but what should what should we be thinking about next year, as far as this expense to revenue type target and ratio.

Sohrab Movahedi: Yeah, thank you so Rob. So maybe I can explain a little bit more on Q4 to start with. So we mentioned I mentioned in my comments that due to the long reduction. There's only a slight reduction in an eye so that does put pressure on the efficiency ratio. The other key element is we meant that we mentioned is the visa migration of our existing customers, which is currently ongoing. So most of that, in fact, all of that is expected to be done by the end of the calendar day.

Sohrab Movahedi: So there's there's clear pressure on the expenses coming from that element. In terms of 24, we are currently working in budgets and reviewing our plans as you know. So I would keep and get back to you in Q4 with more details on that. Just to add to that, so Rob, I think the only thing that we are, we can continue to say is that we are committed to reducing our efficiency ratio. We're highly focused on expenses, but yes, they tune for Q4 as we work through our budget in terms of further guidance.

Sohrab Movahedi: Thanks for taking my course.

Gabriel Dechaine: Your next question comes from Gabriel Deschein with National Bank Financial. Please go ahead. Good morning. First question about the the NIM and I heard you say and it's in the slides about the talk about the mortgage prepayment penalties. I'm just a bit surprised to see that being an influencing factor this quarter. I don't think people are paying down their mortgages and refinancing because of higher rates. Maybe, you know, I'm thinking about it the wrong way and you can clarify.

Gabriel Dechaine: Yeah, thank you, Gabriel. This is advanced. So the mortgage prepayment penalties is also something that... He's seasonal, you would see more houses being sold in the spring, beginning of the summer and things like that. So there are some influence getting there. Differently, there is less pre-payment penalty than what we had a few years ago while the rates were lower. So your assumption is good, but if we compare with last quarter, the rates were lower.

Gabriel Dechaine: Last quarter and this quarter, it's mostly seasonally related to activities. Okay, just like I got it, that's not a, it's probably down from last year, I would imagine as well. It's down from last year, it's up from last quarter. Okay, cool.

Gabriel Dechaine: And now, North Point, I know the revenue contribution, I know the loan, percentage of loans it represents, unless I'm missing it, which is possible, but I don't know the profit contribution. Could you clarify how much North Point contributes to your profits? Yeah, thank you for your question, Gabriel, but unfortunately we don't disclose product level profits and contributions, so that's not something that we disclose. What could you tell me that my assumption that it's a disproportionate contributor to profits, so it may be whatever 15, 20% of revenue in terms of the earnings, it could be more than that because if I just look at the loan mix, mortgages are a big chunk, but they're not that profitable. Unfortunately, we don't disclose product level contributions, so I cannot confirm or confirm what you're saying, we just don't disclose the product profitable.

Gabriel Dechaine: Okay, thanks, enjoy the long weekend. Thank you.

Doug Young: Your next question comes from Doug Young with the junk thing, please go ahead. Hi, good morning. Maybe sticking with the nims, yeah, was there anything else unusual in the quarter? And when you're talking about for Q4 stable nims, I assume that's relative to the one E4 and Q3 just wanted to confirm that. Yeah, thanks for your question, Doug, I'll take that one. And so for the name, the first element in this quarter, which is interesting, is that we have improved funding costs.

Doug Young: And the way it works is that despite potentially higher, by example, GIC rates versus what you would have last year, the spread versus the swap rates are lower than they were. So what we do is that when we get, by example, fixed current GICs for our funding, we would translate that or sorry, hedge that and convert that to variable rates. So the spread versus the swap rates is a key component that impacts the profitability.

Doug Young: And those spreads reduced versus last quarter, and it did contribute to the profitability of the bank. And definitely, as I mentioned, we gave a real few minutes ago. The fact we're higher in terms of prepayment penalties, that goes in the margin as well. So maybe a bit, up to 1B, a bit less than 1B came from prepayment penalty. And most of it came from lower funding costs. So your assumption is the funding cost is essentially the same, but if there's a movement that positive or negative, that could swing at a few basis points in Q4.

Doug Young: So if there's a movement that positive or negative, that could swing at a few basis points in Q4, that could swing at a few basis points in Q4. Yeah, it's a good assumption, Doug at this point, when we say relatively stable, it all depends of spread, depends of where the central banks will be going, there's a lot of factors in impacting the bank margin, but at this point, if I assume most of the conditions remaining about the same, the margin should be relatively close.

Doug Young: Okay, and then second, you know, just on the PCL discussion, you know, the release of performing loan PCLs is very different than what we've seen from others, and I get that the inventory financing, you know, was a contributor to that, was there any other changes in your forward looking indicators or your weightings between the different scenarios that resulted in in the release of performing loan launches, or was this all attributed to the inventory financing? Yeah, Doug, William, CRO, it was all related to inventory financing variation, indeed, we've maintained our strong reserves against other parts of the portfolio, and very happy with where we're at all inventory financing.

Doug Young: Okay, and then just lastly, in expenses, you know, the strategic review is costing you a money. Is this a level that we're seeing, or can you give us a sense of how much this is going to cost when we build it into our models, and I get it that it's back, that it's cash, but it does impact reported in capital and whatnot, just trying to get a sense of the ongoing cost related to this.

Doug Young: Yeah, and thank you for your question, Doug, but the level that we have in Q3, you should expect where we're still in the strategic review, so definitely there's going to be costs, but we'll get back to you if there's big movements there, but at this point, you should expect something relatively around the same number, something like that, so it's relatively small amount at this point. Okay. Good. Thank you.

Lemar Persaud: Your next question comes from Lamar Persaud with Cormac, please go ahead. Yes, thanks very much, Vaughn. Why do expectations for stable NIMs next quarter, if we're going to see inventory finance volume come back on, and this quarter you saw some improved funding costs, like what am I missing here? Are you just being conservative because I would think that with inventory financing coming back on, that would be a creative to NIMs, or maybe the answer is that you're going to offer more promotions on the inventory finance business, if it's okay, growth in response to an earlier question.

Lemar Persaud: Help me score that one up. No problem, Lamar. One thing that is important is the NIM is impacted by the average volume of a quarter, right? So there's been a big decrease, or $700 million related to inventory financing in Q3. So technically, despite the fact that it can go up in Q4, it's really the average of the quarter that will impact it. So at this point, there's no benefit that we expect from inventory financing.

Lemar Persaud: In fact, there's potentially a small negative impact on the margin because of the volume reduction and the level of the margin of inventory financing. So think, add it 3D from an average for asset base. Okay, okay. So if I understand it correctly then, the return of those volumes will be more of a Q1 margin story. Is that fair to say? Exactly. So what you're going to see in Q4 will impact Q1 as you mentioned and the increase you're going to see in Q1 will gradually impact Q1 and Q2. So there is always a small lag related to the average balances of those quarters. That's very helpful.

Rania Llewellyn: My next question for Rania, I know you can't talk about the strategic review process, but I just want to be clear because you just throw it out there is are the investor day targets. Still valid. Despite the strategic review process is that the way to think about it? Yeah, so so as I said in my comments and yeah I'll reiterate it. We're focused on our three years strategic plan. We've been delivering against that we're finalizing, you know, the second year of the third year. So the target. At this point, continue to be the targets that we're all collectively as a management team and as a bank working towards. Okay, I appreciate that.

Unknown Executive: And then my final question. The modeling related question would it be fair to suggest that there is some improvement in capital markets related revenues into Q4? Just in comments and that would be helpful. I guess the markets are really uncertain at this point. So it's really difficult to expect, but seasonally as well this summer is currently has been impacting Q3 as it does every year. So we would expect a slight improvement, but this is all depending on the final market condition overall.

Kelsey Gunderson: Yeah, I'll jump in. It's Kelsey Gunners in here. You know, like we're we're expecting to see a resumption of sort of, you know, the activity that would we characterize as more normal run rate for capital markets. You know, keep in mind our businesses heavily focused on six income. Already in the first quarter, we've seen a, you know, some decent activity on the DCM side and we've been participating in that. So you know, we're cautiously optimistic that that we'll see a resumption to more normal run rate market capital market run rate revenue numbers. Thanks. Appreciate the time, guys.

Nigel D'Souza: Your next question comes from Nigel D'Souza with beta investment. Please go ahead. Thank you.

Liam Mason: Good morning. I wanted to follow up on kind of losses. And when I look at the gross amount of loans, it's up to quarter quarter, particularly commercial, but you're not seeing that necessarily show up in kind of losses. Additionally, so wondering if you could elaborate on the expected loss rates and commercial on what were the specific exposures and commercials that they can pair this order. Yeah, hi Nigel. It's Liam Mason. We're very, very disciplined in terms of our approach to impaired loans.

Liam Mason: You'll see that by the time they get to fully impaired, generally, we have very, very, or appropriately prudent reserves against them. We have a disciplined workout process. It does take some time. But overall, there's nothing new here other than variations commensurate with the macro economic environment. So I will just reiterate the expectations that Ryan have handled out that we expect mid to high teen, in terms of the aggregate portfolio and comfortable with our processes and the reserves at this time.

Liam Mason: And just to be very mathematical, Nigel, I'll give a simple example. If you move a $10 million long to impair, it's very highly collateralized what we have. So it means that the PCR potential impact could be very minimal. It's just that that long is moved to impaired loans but may trigger very minimal losses. I just have to figure out color on that more than 94% of our lending portfolio has a degree of collateral against it.

Liam Mason: Yeah, I appreciate. I guess that's what I was getting to in terms of the collateral values of what's becoming impaired because you'll elaborate on what that collateral is and what your elbow gets for collateral values as we go to the cycle because that's what's going to mitigate your losses. Well, you know, there are challenges within the real estate market and impact on valuations from the higher rates and but we have are generally first lean.

Liam Mason: We have strong underwriting standards and we're taking loan to value attachment points that are very, very conservative. So even if there is an impact on valuation on some of those commercial real estate properties, generally given our attachment points, we're well protected. And we have less than the big pressures right now as we're outlawed by the number of competitors are in the office space, we're less than 4% of that. It's really our emphasis on on purpose built multi-family construction and we're also within those this environment, very conscious of contingencies appropriate debt service reserves to ensure that the properties remain remain stable and current.

Liam Mason: Okay, that's helpful and I know you can't comment on this review, but I wanted to comment on the specifics of the review but just the timeline of or when you expect to next update on it or anything in terms of just timing. Yeah, so Nigel from a timing perspective, it'll be updated will be provided once the review is finalized. So that's all I can comment on at this point in time.

Nigel D'Souza: Okay, that's it for me. Thank you.

Joo Kim: Your next question comes from you hold Kim with credits. Please go ahead. Hi, good morning and thanks for taking my questions. I wanted to ask on residential mortgages and if you can talk about whether you see any difference in client behavior, whether that's on the payment side or renewals between your all to any book and the and the prime big prime book. I'm just trying to get a sense of whether there are different levels of stress on the different sort of types of borrowers given the higher rate environment.

Joo Kim: Hi, Jihul. Thank you for your question. It's current here. So as you know, like we are seeing some direct for some customers and working with them on a divisible basis, but when we look at our all say mortgage, it is really a strong portfolio and government, in terms of our risk assessment. We approve it using the same stress-tech methodology as our other mortgages, so there's no other key differences. And so really, when we look at our all, it's a small percentage of our oral portfolio, it's only 12% of our mortgages and less than 5% of our total loan mortgages.

Joo Kim: And our all-A portfolio also has very low LTV, so less than 65%, and 55% or even less than 50%. Yeah, just to add to that, the average LTV on our all-A book is 49%. So very, very strong from a collateral coverage standpoint, and we're not seeing any variation relative to the conventional book.

Joo Kim: God, thanks for that. And I guess when the renewals are expected to happen in 2025 and beyond, how do you think about your borrowers capacity to handle the higher rates? I guess especially given that your book seems to be a bit more geared towards the x-ray mortgages. We're very disciplined in terms of our underlying standards with our mortgage customers. We do recognize that they will see an impact to the debt service in post 2025 to 2026, but as a current outlined, we stress the customer capacity to absorb rate increases at the outset.

Joo Kim: And at this time, we're very comfortable with reserves against those exposures. There will be an impact for those customers in terms of debt service with higher rates, but we're comfortable from a credit standpoint, given the valuation, given the reserves, given our forward expectations. Got it.

Joo Kim: Thank you.

Stephen Boland: Your last question comes from Steven Bowlin with Raymond James. Please go ahead. Appreciate you fit me in. Just follow up on a dark most question on the inventory of finance. You know, we're hearing from some of your peers that do the higher interest costs. A lot of dealers are pairing down. You know, their demand for inventory on their logs and things like that. Are you seeing any similar discussions with your dealer groups? Like, is that a possibility in your segments?

Eric Provost: Hi, Stefan. It's Eric. Just just again, like right now, summer is not even over. So, so we're still seeing at the dealer levels some some good foot traffic. We're seeing some some demand for the products. So, I think that will will will no more walking into for once the restocking season began begins and when the shows actually from the OEM are kicked off in all the various industries we cover. So, so it's still early, still difficult to presume for next season.

Eric Provost: And of course, dealers will be prudent and it's something we want to see actually because they it's the right approach for them. So, we expect restocking, but again, to what level it is to be seen in the coming quarter.

Eric Provost: And just on the dealer level, are you still seeing, are you still in a dealer ad mode? Like are you still out there recruiting to get more dealers on your books? Yeah and actually, as I mentioned with Darko's question, we are still acquiring, we've acquired about, we increased our dealer base about 10% year over year. And we're diversifying our books to try to reduce that seasonality in the past. We started originating into the IT sector, which will provide diversified sources of assets, as well as diversified the seasonality of the book. All right, thanks for taking my question.

Stephen Boland: And just one last comment, Stephen, thank you for taking coverage on the bank and welcome to the quarterly call. Thank you very much, the timing has been interesting for sure.

Operator: Thank you, that's all the time we have for questions.

Rania Llewellyn: I would now like to turn the meeting over to Ranya. Thank you for your questions today. We remain focused on our strategic plan and delivering against our three core priorities for this year. Customer experience is top of mind and I am pleased with the improvements we have made in personal banking. Deposits and an optimized funding structure remain a priority. Our digital account opening solution is supporting the subjective by gathering cost-deficient deposits from retail customers across the country.

Rania Llewellyn: We will continue to take the necessary actions to simplify and automate processes to reduce our efficiency ratio, which will further improve once we complete the conversion of all current visa customers onto the new card platform. We take it prudent approach the credit and will manage capital to support growth. Thank you again for joining the call.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating in ASA.

Operator: You please disconnect your lines.

Q3 2023 Laurentian Bank of Canada Earnings Call

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