Q4 2023 Laurentian Bank of Canada Earnings Call
[music].
Welcome to the Laurentian Bank quarterly and annual financial results call. Please note that this call is being recorded and I would like to turn the meeting over to Andrew <unk>, Vice President Investor Relations. Please go ahead Andrew.
Okay.
Good morning, everyone. Today's opening remarks will be delivered by Eric <unk>, President and CEO and the review of the fourth quarter of financial results will be presented by Vishal Shaw Executive Vice President and Chief Financial Officer, After which we will invite questions from the phone.
Also joining us for the question period are Liam Mason, Chief risk Officer, and Kelsey Gunderson head of capital markets.
All documents pertaining to the quarter can be found on our website in the Investor Center.
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.
Rick and Yvonne will be referring to adjusted results in their remarks, unless otherwise noted as reported.
I'll now turn the call over to Eric.
Thank you, Andrew and gave news and Thats hypothetical film slate as it does gets the emptiness good morning, and thank you for joining us today.
<unk> to be speaking to you as the new President and CEO of Laurentian Bank I know that the past few months has been a challenging periods for the bank with the conclusion of the strategic review and an outage of our mainframe, which impacted our retail and some small business customers for more than three days.
There were also a series of leadership changes.
Sending I strongly believe that there is a stable and brighter future for our organization.
I would like to thank the entire Laurentian bank team for their resilience and commitment to our customers to each other our shareholders and all other stakeholders. During this time I.
I would also like to thank our customers for the trust you've placed in US you continues to be our number one priority and my commitment to you as the banks New CEO is that we will do better.
While we have made significant progress over the past few years. Our results. This year have been impacted by continued macroeconomic uncertainty and limited progress in reducing our cost base. That's why I will be devoting some time today to talk about our path forward, but first I will provide an overview.
<unk> of our results and recent changes at the bank.
On an annual basis, the bank total revenue of $1 3 billion relatively in line with last year strong growth in interest income from commercial loans was offset by lower financial markets related revenue, which continued to be impacted by unfavorable market conditions.
Net income for the year was $208 million down 12% compared to last year, and EPS was $4 52 or down 13%.
Over the past year, we made a series of foundational investments in talent acquisition technology and business development to improve the customer experience as a result expenses were up 4% compared to last year and our full year efficiency ratio was 69, 9%.
With our prudent and disciplined approach to credit our PCL ratio was relatively in line with last year at 17 basis points.
In the fourth quarter net income was $44 7 million and EPS was $1 down, 22% and 18%, respectively quarter over quarter, and down, 23% and 24% respectively year over year.
Results this quarter were negatively impacted by $5 3 million or <unk> <unk> per share from the mainframe outage.
Of note monthly service fees for the months of September and October were waived to support our customers and make things right.
This quarter, we also announced restructuring and strategic review related charges of $11 7 million after tax.
This includes severance charges impairment charges and professional fees, resulting from the banks review of strategic options. This amount is excluded from our adjusted results.
Dave to the guidance, we provided last quarter.
Loan growth was muted as macroeconomic conditions impacted the business and consumer spending.
Our efficiency ratio was higher at 72% due to a lower loan base unfavorable market conditions and higher expenses due to the outage.
NIM was down eight bps due to lower interest income from commercial loans and higher liquidity levels.
<unk> were 18 bps down one bps from last year and up four bps compared to last quarter.
Capital remained strong at nine 9% up 10 bps sequentially.
Before moving on to some of the recent changes at the bank I would like to address two of our commercial banking specialties inventory financing and commercial real estate and.
Inventory financing remains a core specialty and while utilization rates were down this quarter as dealers took a more conservative approach to inventory volumes. It is still aligned with our credit appetite.
We have a well diversified and LTE dealer network and expect a modest ramp up of inventory heading into the 2024 season.
In commercial real estate the majority of our portfolio is in multi residential housing where demand is stronger than supply. While we have seen a slowdown in some projects there have been no project cancellations.
As a reminder, we deal with tier ones and tier two developers and are comfortable with our portfolio.
I'd now like to address some of the recent events at the bank beginning with the mainframe outage.
On September 23rd the bank, along with third party partners initiated an upgrade to one of its two mainframe computers. The update was unsuccessful and led to a multi day outage, where our retail and some small business customers could not access a number of our electronic services, including our <unk>.
Online banking platform.
Throughout the outage our customers, we're able to use their debit and credit cards at point of sales and withdraw money at Atms and at no time, where customer funds or data at risk.
This situation was completely unacceptable.
In response, we've established and <unk> successfully executed on a three point plan to restore trust with our customers.
First we resolved all outstanding issues related to the outage.
Second we increased communication with our customers to ensure that they were provided with timely updates on the full restoration of the bank services.
Third we launched a comprehensive review of the factors that led to the outage.
We have share shared updates with our board and our existing internal processes as required based on the lessons learned.
On October 14th.
2020, following my appointment we initiated the succession plans for personal and commercial banking designed to increase our focus on customers first the best day, but I was appointed as the bank Chief Operating Officer. In addition to his responsibility for our retail operations as mandate was extended.
To include oversight of product and the digital development. This structure will allow the bank to focus on the customer from an end to end product and servicing perspective.
Second CRE loans joined the bank's executive committee by assuming the role of executive Vice President of commercial banking.
She has long been on the succession plan for commercial banking and with more than 10 years of experience at the bank and 20 years in commercial financing. He brings a proven track record of building and maintaining strong relationships with the banks commercial clients turn Cepheid Boucher was appointed senior Vice President and.
Personal banking distribution in small medium enterprises with more than 25 years of bank of experience at the bank. She is tasked with extending commercial banking IV successful customer service practices and distribution to personal banking.
I am confident that with these changes we are bringing our senior leaders, even closer to the customer and make them more accountable for the customer experience move.
Moving forward, we will be revamping, our strategic plan and sharing further details with you in the spring.
We are already taking action today under the following guiding principles understanding in the past in order to shape the future simplifying the organization to increase efficiency and refocusing the bank's core activities to create maximum value for our customers.
To that end, we have introduced three strategic priorities for the organization.
First becoming more customer centric as.
As previously outlined we have made a series of executive changes that move customer centric individuals in key roles and give them an end to end view of the customer experience. We will now continue to Cascade. This approach throughout the organization.
Simplification Laurentian bank as talked about simplification and efficiency for many years without results notwithstanding the investments we add.
To make to close foundational gaps for our customers we have failed to reduce expenses at <unk>.
Preet pace.
We must now focus on running the bank versus transforming the bank and we are already taking action.
Earlier this week, we began to simplify our organizational structure and eliminated approximately 2% of our workforce.
As part of our strategic planning exercise, we will also be reviewing all products and projects.
Projects will product will be evaluated on customer satisfaction value and margin <unk>.
Projects will be reviewed on their ability to generate revenue or improve our activities. If they do not meet certain thresholds, we will eliminate those products and pose or canceled those projects.
Our technology investments will be focused on running the bank and improving our systems. We will also continue to invest prudently in technology projects that generate additional revenue.
I am also committed to ensuring that although our dollars are appropriately directed to maximize net income and return to shareholders.
Going forward, we will be looking for performance driven results on our investments.
In conclusion. These steps I, just outlined will streamline the organization and allow us to focus on what we do well serving our customers improving customer trust and ensuring that we remain a strong Quebec based financial institution.
I would now like to turn the call over to Eva to review our financial performance.
Okay.
Also with US I would like to begin by turning to slide nine which highlights the bank's financial performance for 2023.
Total revenue for the year was $1 3 billion relatively in line with last year.
On a reported basis net income and EPS were $181.1 million and $3 89, respectively.
<unk> item for the year amount to $27 $3 million after tax or <unk> 63 per share.
And include amortization of acquisition related intangible assets.
And the restructuring and strategic review related charges of 17.7 million. This includes $13 $4 million releasing.
<unk> from changes in the bank's management structure and the right sizing of the banks capital markets franchise as well as strategic review related charges of $4 4 million details of these items are shown on slide 24.
The remainder of my comments will focus on the fourth quarter on an adjusted basis.
Revenue as seen on slide 10.
<unk> $47 $4 million down, 4% year over year, and 5% sequentially due.
Due to fee waivers of $2 $3 million already to the mainframe outage and from a lower contribution from financial markets ready for the revenue as a result of sustained favorable market conditions.
EPS of $1 was down year over year and quarter over quarter by 24, and 18% respectively impacted by <unk> <unk> due to charges related to the outage.
Net income of $44 $7 million was down by 23% compared to last year, and 22% compared to last quarter.
The efficiency ratio was up by 540 basis points compared to last year, and 350 basis points sequentially as uncertain macro economy conditions impacted revenue and our continued investments in strategic priorities are we was six 6%.
Slide 11 shows net interesting come down by $900000 or 1% year over year sorry.
Exactly.
Mainly due to higher liquidity levels in funding costs, partially offset by higher interest income from commercial loans.
Sequential basis, the decrease of $9 $2 million or 5%, mainly reflects lower interest income from commercial loans and higher liquidity levels.
Net interest margin was down eight basis points sequentially to 176% mainly for the same reasons.
Slide 12 highlights our diversified sources of funding and the bank's liquidity position.
Year over year cost efficient longterm debt related to securitization increased by $700 million and loans decreased by $500 million as an offset we reduce wholesale funding and the rate sensitive deposits, while maintaining the same level of personal deposits.
On a sequential basis total funding was relatively flat personal time deposits were up $300 million, which was offset by a decrease in demand deposits as customers choose higher interest rate products in the current environment.
The bank maintains a strong liquidity coverage ratio for the quarter.
Retail deposits all of the slightly reduced by $15 million in Q4 and were not materially impacted by the recent events.
Slide 13 presents other income, which decreased by 12% compared to last year because of unfavorable market conditions impacting financial markets relates to the revenue.
Moving fees and securities brokerage commissions and income from mutual funds.
On a sequential basis other income was down 6% or $4 $2 million, mainly for the same reasons as well as a $2 3 million a reduction in service charges for customer banking fees waived as a result of the mainframe outage.
Slide 14 shows non interest expenses by 4% compared to last year, mainly due to higher technology depreciation and amortization costs as the bank continues to invest in its strategic priorities.
Also additional expenses of $3 million as a result of the outage, partially offset by lower performance based compensation.
On a sequential basis non interest expenses were relatively flat, mainly due to sequentially lower performance based compensation.
I think mentioned in his remarks, we have taken steps this month to further simplify Oregon isolation structure.
As a result restructuring charges of $6 $5 million before tax are expected to be incurred in the first quarter of 2024 and will generate annual cost savings of approximately $8 million before taxes.
Turning to slide 15.
CET one ratio was up 10 basis points to nine 9% due to internal capital generation and a reduction in the risk weighted assets.
Slide 16 highlights our commercial loan portfolio, which was down $400 million or 2% year over year and it was sequentially stable.
Slide 17 provides details of our inventory financing portfolio.
This quarter utilization rates are down slightly as dealers that have been taking a more conservative approach to inventory.
We've seen a modest ramp up of inventory going into 2024, and we expect utilization rates to increase slightly next quarter, but remained below historical levels.
Given the current economy environment, we are monitoring the portfolio closely.
Commercial real estate, our unfunded pipeline remains healthy.
The market is still calling.
Some developers that have slowed down given the macro and the current macroeconomic environment as they navigate through this period of high inflation and interest rates. However demand in the residential real estate continues to exceed supply.
Our unfunded pipeline to be impacted in line with the market.
As seen on slide 18, 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 financial recourse to strong and experienced sponsors.
As we've said over the past few quarters. The majority of the portfolio is in multi tenanted properties with limited exposure to single tenanted buildings.
Slide 19 presents the bank's residential mortgage portfolio.
Residential mortgage loans were up 3% year over year, and 2% on a sequential basis.
We maintained prudent underwriting standards and are confident in the quality of our portfolio.
Evidenced by the OE proportion of insured mortgages at 59% and low LTV of 49% on the uninsured portfolio.
It is also worth noting that more than 80% of our residential mortgage portfolio is fixed rate of which more than 80% will mature in 2025 or later.
Allowances for credit losses on slide 20 total.
<unk> $214 $8 million up $13 $6 million compared to last year, mostly as a result of higher provisions on commercial loans related to credit migration.
Allowances for credit losses decreased by $2 $3 million sequentially, mostly as a result of already provision net write offs.
Turning to slide 21, the provision for credit losses was $16 $7 million, an improvement of $1 $2 million from a year ago, reflecting lower provisions on performing loans due to volume reduction and credit migration, partly offset by higher provisions on.
Impaired loans.
<unk> were up by $3 $3 million compared to last quarter due to higher provisions on impaired loans.
Slide 22 provides an overview of impaired loans.
On a year over year basis, gross impaired loans increased by $73 million and were up $26 million sequentially.
Mostly in the commercial portfolio, which is well collateralized.
We continue to manage our risk with the prudent and disciplined approach and remain adequately provisioned.
Whereas the past few years, we've maintained the dividend payout ratio at the lower end of our state of the range of 40% to 50%.
Our current payout ratio is currently high and expect it to be next quarter.
As a result of ongoing macroeconomic conditions, our current high payout ratio and dividend yield the board decided to prudently maintain our quarterly dividend at <unk> 47.
As we look to the beginning of 2024 I would like to note a few key points focus on the first quarter.
We expect our loan book to be relatively stable, but different macroeconomic conditions continue to negatively impact business on consumer spending we may see a small decline in the first quarter.
Considering the muted loan growth the current macroeconomic environment and recent events, we have been managing at the high level of liquidity.
We now intend to manage our liquidity down slightly and gradually over the coming quarters, while remaining prudent.
My name is expected to remain relatively stable.
We expect our efficiency ratio to increase in the first quarter due to seek to a seasonal increase in payroll taxes as we start the new year and pay annual bonuses as well as due to the reset of performance based compensation.
We mentioned that the key priority for this bank is to simplify and improve our operational efficiency.
We are committed to reducing our efficiency ratio and we'll share more details with you in the spring as part of our revamped strategic plan.
Given the macroeconomic environment PCL are expected to be in the high teens to low twenties.
As a reminder, and they'll RCM interest payment is due next quarter, which has an impact of <unk> on our EPS.
Now I'll turn the call back to the operator.
Thank you Les.
Ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear a tweet on prompt acknowledging your request and if you would like to withdraw from the question queue simply press star followed by two and if you're using a speaker phone. We do ask that you. Please lift the handset before pressing any keys. Please.
Go ahead and press Star one now if you do have any questions.
And your first question will be from Goldman.
Moshe Bank. Please go ahead.
Hi, Good morning, just wanted to clarify something off the top in terms of the guidance you provided at the end of your commentary.
Just to clarify that most of it was directed at Q1 and then the PCL.
For the year as a whole do I have that right I just wanted to double check.
Many of the guidance was related essentially to Q1, but for the PCL I think it's probably to Q1 and the full 2024.
Yes, Matt it's Liam.
<unk>.
Our expectations are in the high teens low <unk> for the full year on PCL guidance.
Okay. Thanks for that.
Another clarification in terms of the restructuring charge.
Youre going to take in Q1, you highlight.
Our run rate savings of $8 million, just wondering if you see that flowing down to the bottom line or is there a need to reinvest.
Age.
This initially many it's done for impacting the efficiency ratio. So the $8 million of savings that is expected. This is pre tax, but that's expected to flow down to the bottom line.
Robin.
And then maybe this is a question for Eric definitely sounds.
Like there is a level of frustration from your part in terms of the progress on.
Expense management at the bank.
I'm just.
Curious about two things one if you could go into little more detail in terms of.
How you analyze the problem why why has our expense management.
It's been.
At the level that you think it needs to be so if you look back historically.
Where do you see the issues.
So maybe start there.
Yes, Thank you Manny.
I would not.
Quantify those as issues I think that we haven't tackled simplification as hard as we could have in the past.
<unk>.
What im committed to is that me and the leadership team in place we'll be revisiting.
The strategic plan and make sure that.
On the core aspects, we focus more on other customer we focus more on creating efficiencies through simplification and that.
While doing that we will continue to invest in the fund them fundamental technology, but I think it as a whole and then.
At the end of the day.
And Thats really the second question, especially in the context.
Tim's outage.
As you cut how do you gain confidence that you are cutting in the right places and not cutting in the wrong places.
Might lead to issues so just.
High level.
How are you.
See that.
Sort of playing out how you make sure that that you are cutting in the right place.
Oh.
I think I'm surrounded with talented executive.
<unk>.
Great experience and I've been around the bank 11 years. Many so so I have a pretty good feel.
Of where we're performing where we can improve and again theres going to be part of the full exercise, we're going to take and it has already started as you know like we've reduced 2% of our workforce.
This weekend and we will keep.
We will keep making the right assessment and make sure that the decisions. We're taking are to make our bank a.
A better bank at the end of the day.
And.
I know youre going to have.
We're going to.
About your strategic plan in more detail in the spring you made that clear, but just on this expense issue in terms of.
Where expenses go from here.
Ideally theyre an efficiency target that you think is.
Important to reach even if it's just a range.
At what point would you say mission accomplished in terms of expenses, how much how much improvement is there.
Laurentian Bank.
The only thing I can come back to many is that like the goal of the previous strategic plan was to get us below the 65% Mark and we're not adding in the right direction right now.
So again part of the revamping will be too.
To get back to the drawing boards make sure that we address path of simplification and that we.
We go.
We go the other way around.
Understood. Thank you.
No particular target.
Understood. Thank you.
Thank you.
Our next question will be from Paul Holden CIBC. Please go ahead.
Thank you good morning, so on the guidance I appreciate that it was focused on Q1 I think the other important factor for us to have a good sense on is the net interest margins.
I'm not sure to what extent that might be impacted by your upcoming strategic review, but if you could give us any kind of color on NIM I would look for the full year I think that would be helpful and I appreciate it.
Yes, there was definitely a few factors impacting this but at this point I would probably guide to relative stability.
We expect 2020 for it to be impacted by the macroeconomic environment.
The loan growth is going to be relatively muted.
So the portfolio mix is definitely something that could play in but it should not move that much in the coming year based on the fact, we expect relatively muted growth what should be helping the NIM a little bit by a b to gradually over the next few quarters is that we have been prudently managing at high liquidity.
Levels.
As to the economic environment as well as the recent events of the bank. So we will gradually reduce that excess liquidity that we've been maintaining so theres, probably a BP or two that's going to be coming from this.
But at this point I think we're just going to be prudent in terms of.
Of NIM management or expectations. Okay. Okay that is helpful. Thank you.
Specific question on funding the strategic partner deposits were down roughly 10% quarter over quarter.
What drove that and are the strategic partner deposits still in <unk>.
Area of focus for the region.
Yes. Thank you for your question Paul the strategic the positives.
Reduction in terms of deposit on the demand side, we have to keep in mind that this is the main deposits right. So it does follow the trend that we've seen in the history of growing.
Going from demand and time deposits. So that's what we've been seeing so it seems that that just continues going to term deposits or some kind of investments. So there is nothing particular this quarter in terms of that reduction is really related to market dynamics that we've seen in terms of demand.
Okay.
So on that based on that answer is there then an opportunity for the wrenching to offer term deposits to those same partners.
I don't want to go too much into the details of those agreements were compensated for reasons, Paul, but it's really structured around demand deposits.
With the partners, we have right now there is less opportunities to do the term deposits, but definitely we're always looking at partnerships on the deposit side.
But the ones that we have right now are really structured around demand deposits.
Okay. Okay.
Next question is with respect to credit so obviously, nothing worrying and the PCL ratios, but if I look at slide 22, I can see both the gross and net impaired loans.
On a basis point.
Basis, increasing faster than PCL. So.
And again nothing necessarily worry of errors.
Rate of change is different so my question really is why not increase provisions.
A little bit more be a little bit more conservative in terms of how you're managing the allowances, particularly given <unk>.
Highlighted.
Economic challenges ahead.
So Paul Thank you for your question, it's it's Liam Mason Chief Risk Officer, you may recall that over the past year or so.
It's been very very measured in terms of setting our ecl's, while some other larger banks released post in the Pan.
Pandemic, we maintained our reserves, we have a very disciplined ACL process.
We benchmark our.
Economic scenarios against the bank of Canada, and the competitors.
We have very good coverage ratios.
And we take a prudent and measured approach to setting <unk> <unk>, we're very comfortable with where we are right now given that measured disciplined approach and we will be continuing to do that.
Alright, okay.
Last question I'm, probably the most important question for me with respect to capital allocation.
Our CET one ratio of nine nine up 80 basis points year ago, I would agree you're in a good capital position.
So.
And given the outlook for muted loan growth like what is the plan to use that additional capital you've built over the last year or maybe the question is do you believe you have capacity to use it and if you do how would you plan on using it I would argue with the stock trading at less than five times book.
And operating ROE, let's call it around eight.
Mike back stock because it's a pretty attractive use of capital so interested to hear your thoughts on that.
Thank you Paul I'll take this one so we're at 99% so I would say in this environment.
It's a good place to be we're comfortable with the capital base that we have.
And I think it's a great moment in time probably to have that.
We mentioned loan growth is going to be relatively muted for the next few quarters. So I would say stay tune or looking at the plan right now and we're going to come back in a few quarters and probably provide some more perspective on what we're going to be doing exactly but at this point really like the position we're in very comfortable in the <unk>.
<unk> environment.
It's a great place to be.
Okay. That's it for me thank you.
Thank you Paul.
Next question will be from <unk> <unk>.
<unk> capital markets. Please go ahead.
Okay. Thank you Glenn.
Eric.
But perhaps some of these questions are going to be answered in more detail. When you do your I guess strategic review.
Unveiling, but.
But when you say the focus is on customer centricity or being more customer centric can you can you just elaborate what does that mean and how we'd be different from how you are.
Operating today or have been operating I guess over the last number of years well one.
One thing I can comment on <unk> and thank you for the question.
It's definitely sharing best practices.
We've highlighted in the past quarters like our NPS from our commercial banking customers have been.
Quite exceptional and we were able to actually build a strong culture around value added too.
To our customer base in that particular segment and from the get go like it is just a question of sharing those best practices I think that I highlighted that in my intro in terms of appointing the right leaders to to get that.
Expertise closer to our other business lines. So so this is a start but for sure as you mentioned the plan will.
We will get us further there.
Okay.
And the other thing you you mentioned I think as you finished up your in your remarks opening remarks was did you intend to remain strong.
Strong, Quebec based financial institution.
And so I guess said.
Wanted to see if you could comment as to whether or not.
As you are doing the strategic review it may it may entail.
Perhaps tightening the footprint or or is or was that just the generic statement I just want to make sure I understand if the path forward for example on IRR row EMEA actually involved.
Shrinking the bank a little bit.
Well no I just think it's a.
It is the fact, we are a Quebec based institution with.
With activities across Canada, and some specialties that go to North American scale. So.
Nothing to be decoded, there, except that our roots are deeply ingrained into the Quebec market.
Okay understood. Thank you very much thank.
Thank you.
Next question will be from Gabrielle does shine at National Bank Financial. Please go ahead.
Hi, Good morning, I have a technical question on your NIM.
NIM change explanation and then I wanted to dive into the liquidity commentary and outlook a little bit more.
But.
The NIM performance one of the items you identified was but.
Commercial.
NII was down I'm, just trying to understand why that is because if I look at balances they were at.
On a spot basis they were flat.
Maybe I'm missing something there.
If you think you're giving here I'll take this one so if you look at the end of Q3 versus the end of Q4. There is there are pretty much aligned but the way. It works is that you need to look at the average balance for the quarter. So if you look at Q3, there has been a reduction of $800 million.
Commercial assets.
Which did not.
<unk> or reverse in Q4, so if you take that apply good margin youre going to get to the explanation of the NIM.
Okay.
Then on the liquidity I missed.
Probably in one of these average balance things, but if I do simple average using your spot balances and forgive me. If you disclose these are average liquidity balances somewhere but if I just look at the cash.
Deposits with banks and securities.
The ratio of those liquid assets, earning asset threw up a bit sequentially, but pretty much in line with.
Previous quarters earlier, this year and actually down versus last year. So it doesn't look to me that you.
Dramatically increased liquidity or anything like that so maybe I'll file. This one in the technical questions as well maybe you can walk me through what I might be missing or how you define liquidity perhaps.
Okay.
Got it.
It's a good question given the yen and unfortunately, I would acknowledge that the.
The details of a bank financials doesn't give you all the answers in relation to liquidity, but the way we look at liquidity internally is what we call the liquidity buffers. So the way that My example, we're guided by items like LCR and CCF and other metrics it looks on the commitments and what's coming in the inflow.
And the outflows and all of that so Unfortunately, you don't have all of that information, but when you look at that after you've looked at the inflows net inflows versus outflows and the requirements of what you need it's what we describe internally as the buffer of liquidity in that buffer of liquidity has been running higher than last quarter.
Right.
Uh huh.
Mike.
Im a bit surprised to hear you say, you're going to take liquidity down over the next few quarters, maybe not dramatically but.
We're going to weigh on it whatever.
I would think given.
Given the issues given the.
Posit base that's been shrinking.
Shrinking in some areas.
But maybe some we'll call them outside observers would want you to stick with higher liquidity ratios for an indeterminate period.
The other thing.
Thank you for your question and happy to discuss about deposits and liquidity T. In general, but we have we have diversified than to have a solid funding.
In place of the bank, we have been running high in terms of liquidity.
A key element here is that we have been running high.
And we did that in the context of the economy and we did that in the context of the recent events but.
We have great customers, they've been resilient with us there's been no material impact from the recent events and at this point.
Despite being prudent with the macro economy.
Environment, we do have an excess buffer in terms of liquidity that we can take down a bit. So if we were running normal lowered LOE in terms of liquidity I wouldn't tell you that it would reduce its in that context, we've been running high for a few quarters. So in that context, we have the availability to do that and that may be helpful.
Okay. So when I look at the you're seeing movement been no fallout from.
At least from a customer standpoint.
Engine standpoint, I see the personal deposits down a bit.
From last quarter, nothing crazy, but.
Deposits were down.
45%.
But normal course, nothing no nobody said, okay, I'm done with margin or anything like that.
Yes.
Women's Kevin He is first if you look at retail has been in the customer base, that's been impacted by the outage.
$15 million a.
Variation over multi billions of dollars of deposits, so I would call that definitely non material.
It has not been impacted pretty much by the outage and we think our customer base that's been <unk>.
Barry <unk> with us and loyal so we appreciate that and we thank them for that what you mentioned on the commercial side in fact, we bundle issue categories into that one.
We also bundle what is called wholesale funding.
<unk> and then at the end and most of the reduction that has been in that category. So using less wholesale right. Now is good for anybody that can use less or sell and just use their personal deposits. It's a great place to be so.
Also a reflection of the fact, we've been running high in terms of liquidity and for whatever is what we call also rate sensitive deposits. We didn't have to compete highly in the market. So we could take deeper 10 feet to take that down a little bit as well. So overall, a solid solid liquidity base.
And the deposits are very solid and not been materially impacted by the events.
Got it and then last one I guess another technical one.
R W.
Deflation from a 30 basis point boost to your capital ratio can you explain that.
Hum.
The impact from the current guidelines or something like that.
Oh, there is no specific changes to the car guidelines, it's a reflection of some reduction in changes in the mix.
But the way we look at it it's a bit.
Yes.
It's mainly related to them.
Alright, thank you.
No.
Okay. Thank you.
As a reminder, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on you touched on the phone.
And your next question will be from Darko Mihalic at RBC capital markets. Please go ahead.
Yes.
Hi. Thank you. Good morning. My first question is are you committing to earnings per share growth in 2024.
Good morning Darko.
Okay.
In fact, our core we're going to be reviewing the plan as we mentioned so we're going to get back to you with more specific plans and more specific guidance at this point, we're not providing guidance for the 2024.
Okay. Thank you.
And similar question Laurentian Bank has in the past cut its dividend are you committed to compete keeping the dividend at its current level for 2024.
In fact, we just mentioned that we're holding on the dividend increase this quarter based on the fact that the payout ratio of the bank has been pretty high.
So the board decided to act prudently in the economy environment and the board decides every quarter. The decision. So I think it's too early to discuss next dividend decision at this point.
Okay, and the bank had a strategic review.
Last year.
I guess, there's a couple of questions around.
Is that going to be something that may occur.
More frequently at Laurentian as we go forward now at.
At the board level, and I guess in a roundabout way, where I'm coming from on this question is.
There was some.
Information.
Circulating I guess.
Last year that perhaps there was someone looking to.
To acquire Laurentian.
Going forward.
I'm just curious if if.
If the strategic review could it could happen again in 2024 or is there any intention to to sort of hold the strategic review every every year going forward.
Hi, Darko, its Eric I'm going to take this one.
This is John.
It was announced mid September like the strategic review was close and decision was to actually pursue.
With accelerating and reducing simplifying this organization.
And this is what I'm committed.
Doing with our executive team so.
I won't speculate about future years, what I can tell you is that me and the team will be working together.
To revamp that.
We're comfortable right now about the business mix and how we are.
Well, we operate and now we have been able to focus on specialized.
Aspect, mostly in our commercial.
Business lines, but.
The thing for sure we will put more emphasis on our customer where we bring value we need to streamline and be a simpler bank.
And we will keep investing in the foundational technology that will keep us.
And in the right spot. So so this is what I can I can share right now in terms of where we are.
Okay. That's helpful. Thank you one last question for me just.
Given the existing business mix and your expectations.
What would be.
Reasonable tax rate.
To assume.
For 2024.
Yes, it's a good question so I'll give it to you for the next quarter for sure. So we're at 15% on an adjusted basis for Q4, I would expect that to be 1% to 2% higher.
The restructuring charges in fact that even though the highest tax rate portion of the bank. So I would see gradually an increase of the tax rate over 2024, starting in Q1.
Okay, great. Thank you very much for taking my questions. Thank.
Thank you Doug.
Next question will be from Lamar Prasad at core Mark. Please go ahead.
Thank you so maybe for Ivan you mentioned stable margin relatively stable margins since that relatively stable into Q1 or.
Was that relatively stable versus.
Last year, so the full year.
Alright.
So.
Relatively stable Q1 versus Q4.
That's the key the key elements of course like any other institution, we need to see what's going to be happening to rates and the markets in general, but we can reset that next quarter, but for the next quarter.
Relatively in the same ballpark and potentially a bit better if we can reduce slightly liquidity.
Okay. So its just okay understood.
Ivan maybe sticking with you for a moment can you talk to any benefits from this quarter's restructuring charges I think you'd mentioned the $8 million cost savings from next quarter's restructuring, but I think I didn't hear anything for this quarter. So should we assume no savings from from this quarters or what are your thoughts on that I don't know what they are.
Our son differentially not to the same quantum of the restructuring because of the nature of them. The restructuring. This quarter included you know mostly.
Charges related to the management changes so it will some of those have not been replaced they will generate some savings, but overall not to the same quanta.
Okay, and then maybe I'll switch over to Eric here, just on that on that thought.
Would it be fair to suggest you have the right management team in place right. Now. So there is no more shifts we should expect on the top of the house does that is that a fair statement.
Well [laughter].
Yes, well with the recent appointments, we just made them.
Like.
I think as surrounding me as has the right team and we will work together to again.
Focus on our structure and simplifying the organization so so.
So right now have the right.
Level of experts with me too to achieve this.
<unk> plan.
Got you and then last one for me I know, you're still assessing the gulfport strategy and Youre going to provide more details in the spring, but it sounded like based on your comments you have some pretty strong thoughts on what you can do on the expense side, maybe I'm reading too much into it but could you talk to broadly speaking like where do you see that.
Areas of low hanging fruit you already talked about.
The employee reduction restructuring charge next quarter, but maybe even if broadly like what are some other areas that you think you could find substantial cost savings.
Yeah. Thank you Omar well I think that the.
Low hanging fruits.
Actually executed on.
This this week so so the reduction of 2% of our workforce.
The ones that.
Team felt comfortable executing upon.
And all the rest will be part of.
Our overall review.
And we have to rethink like like I said, the we need to be simpler more focused on the customer we need to share best practices from our commercial banking.
Operations and then this is what the team will tackle in the next few months.
Thanks, that's it for me.
Thank you thank you Tamara.
Next question will be from Michael I'm.
Im sorry, Marcel Mcclain at TD Securities. Please go ahead.
Okay. Thanks, very much maybe continuing with Eric on the similar line of questioning from Omar there.
I can appreciate you've been only two months here, but.
Are there any areas of the bank that maybe youre thinking about doubling down on or perhaps stepping away from like.
If we're not going to get maybe a sale of the bank total bank are there assets or certain businesses you want to exit.
You see just kind of wanted to get your thoughts early thoughts there yes. Thank you Matt.
Sure.
From from a macro perspective right now we're in a situation, where we still need to take a cautious approach in terms of how we see.
Future what I can tell you is that we feel good about our current business mix.
But part of revamping the plane will be two two.
Uh huh.
Make sure that we make the right approach and Decisioning in terms of.
How we put even more emphasis on where we add value to our customers. So this will be done across our business lines.
I did commit to to making us a simpler organization and the better ones. So.
So again, we'll see out there, we can and with with the right.
Approach.
Right now too early to tell we will be back in the spring with more details.
Okay. Thanks for that and then just my second question I apologize if I missed this earlier I had to jump off.
But.
The inventory finance volumes.
Down year over year, I think 2% or something but.
Maybe I'm wrong, there, but the correct me if I am.
Well my side, you've added a lot of partners. There. So why I understand there is seasonality on a quarter over quarter, but why are we down slightly on a year over year.
Yes, Marcelo usually what we see in the fourth quarter due to the seasonality you. Just mentioned is an increase of utilization of our line of credits to our dealers.
Last year.
Just to give you. An example, we were running at about 50, 454% utilization at end of Q4 and now at the end of this quarter Q4.
We landed at 48% utilization, which means that our dealer are taking a more cautious approach towards 2024 season, and we're good with that in terms of taking that prudent approach not being quite sure about that.
The overall traction theyre going to get this is the right way to manage this type of business and this is what explains the reduction overall in terms of year over year.
From that business line.
Okay got it alright, that's it for me. Thank you very much. Thank you Martha.
Thank you that is all the time, we have for questions I would now like to turn the meeting over to Eric.
Don't get <unk> Smith, Thank you for joining the call today, one thing is certain the status quo at Laurentian Bank is no longer an option and we will seize this opportunity to continue our simplification efforts in order to improve our customer experience. We have a lot of work ahead of us.
As we revamp our strategic plan and continue to implement our priorities of customer focus simplifying the bank and making investments in our foundational technology.
I would like to once again take our thank our employees for their continued resilience and effort for the organization I wish you all at the holidays and look forward to speaking again in the new year. Thank you.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
Hmm.
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Yes.
Sure.
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