Q2 2024 Laurentian Bank of Canada Earnings Call
Thanks.
A natural result.
Please note that this call is being recorded I would now like to turn the meeting over to Robert.
Apple head of Investor Relations. Please go ahead Raphael.
Most of that's good.
Good morning, and thank you for joining us for the Laurentian Bank 2024 second quarter result presentation.
My name is without that Abel and I'm head of Investor Relations.
Today's opening remarks will be delivered by <unk> global President and CEO and the review of the second quarter financial results will be presented by <unk> Executive Vice President and CFO.
After which we will invite questions from the phone.
Also joining us from the question period is Liam Mason Executive Vice President and CFO.
All documents pertaining to the quarter can be found on our website in the Investor Center.
I would like to remind you that during this conference call forward looking statements may be made and it is possible that actual results may differ materially from those projected in such statements for the complete cautionary note regarding forward looking statements. Please refer to our press release or to slide two of the presentation.
I would also like to remind listeners that the bank assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance.
Can you back we will be referring to adjusted results in their remarks, unless otherwise noted as reported.
I will now turn the call over to Eric.
The Super cooler.
The volatility of new telco split as it does those emptiness.
Good morning, and thank you for joining US later today, we'll be unveiling our revamped strategic plan, where we will outline our path forward, but first I want to start by thanking our employees for their ongoing resilience and commitment to serving our customers and shaping the future of the bank today's plan will provide a strong direct.
<unk> forward with a focus on all of us relentlessly executing against the new plan.
In our new strategy commercial banking will remain our growth engine, we will reduce complexity and personal banking and capital markets will support our customers across the bank.
I would also like to thank our customers, we are taking steps to build an even stronger bank with a greater focus on the customer experience.
Before discussing the second quarter results I'd like to address two recent announcements.
In April Kelsey Gunderson made the decision to leave the bank to focus on personal interest prior to establishing the next phase and as professional journey I.
I would like to sincerely. Thank kelsey for his contributions to the bank over the last five years, including navigating our capital market business through multiple periods of market volatility.
This month, we've announced forthcoming retirement of Liam Mason Executive Vice President and Chief Risk Officer, Leann has been an invaluable asset to the bank since 2018 significantly shaping our risk aware culture and driving sustained business success.
<unk> guidance the team excel in credit origination.
Displaying strong education practices prudent loss reserving and effective credit portfolio management.
<unk> will remain with us until the end of the fiscal year to ensure a seamless transition with this identified successor.
I personally extend my heartfelt thanks, Julian for his numerous contributions and wavering.
Wavering dedication I wish him all the best as he pursues his personal interest in the future.
As for our second quarter results they were aligned with previous quarter on an adjusted basis loan volume continued to be impacted by macroeconomic conditions.
As a result, we manage deposits accordingly.
Loans have decreased slightly mostly from our commercial real estate portfolio.
We remain disciplined but still enjoy a strong pipeline, which will support the expected rebound in growth once rate reductions occur.
As for inventory refinancing dealers and manufacturers continue to exercise caution given the current macroeconomic environment. This quarter utilization was 49% below historical average going forward, we expect the utilization to follow standard seasonality and reduced <unk>.
During Q3 before rebounding in the final quarter of the year. However, we do expect it to remain below historical levels.
Expenses remained elevated as we continued to enhance our technology and digital capabilities, along with other strategic initiatives coupled.
Coupled with lower revenue our adjusted efficiency ratio was 70 373, 8%. This quarter are read that strategic plan will address the actions we plan to take and we'll outline the medium term targets.
NIM remained stable at one 8% sequentially and our CET one capital ratio was up 20 bps to 10, 4%, mostly due to the reduction in loan volumes.
Finally, we maintain a prudent and disciplined approach to credit with PCL is materially lower than the big six banks.
This quarter, we focused on simplification and I would like to share some details regarding our adjusting items.
After careful consideration, we decided to suspend the IRB project to prioritize investing in strategic initiatives.
This project was not due to be delivered before a few years, but we need to focus and prioritize to deliver on our strategic plan objectives to be outline later today.
Assets in development stood at 23 million and were written off.
This decision and other factors trigger triggered an impairment test and resulted in an impairment charge of $156 million on the personal and commercial banking segment, including mostly goodwill elimination intangible reductions.
Or more we have decided to right size our footprint at the 199 base III corporate office. This decision was driven by our hybrid work model.
And low occupancy rate at less than 20% on average our corporate employees in Ontario, the ability to work from home or our Toronto and Burlington offices.
Since last October we have had to make difficult decisions regarding workforce reductions considering the actions taken we have now decreased our workforce by closed at 4%.
We have also continued to streamline and simplify our capital market business, including the upcoming cells seller of assets under administration of our full service brokerage business to aid scared ldls private wealth.
This transaction supports our strategic focus on simplification and concentrating on areas of business, where we can win and be more competitive.
Aligned with this approach we also announced that we have discontinued our institutional equity research alter.
Altogether, including the Q3 items these initiatives amount to charges of $161 million after taxes.
With an impact on regulatory capital of 10 basis basis points and are aligned with our goals and strategic roadmap. The estimated annual savings are expected to be about 20 million a portion of which will be reinvested to improve our profitability on a sustainable basis in the medium term.
We will provide more color as part of the unveiling of our plan. This afternoon.
These actions demonstrate our conviction and ability to execute on our strategic plan, we will concentrate on core strengths execute with precision foster accountability and seek partnerships to expedite our progress we will provide more comprehensive details later today and we hope you will all.
I'll be able to join US before I conclude my opening remarks remarks, I would like to congratulate Raphael on his new appointment and take Andrew churn in key who is leaving the bank to continue his professional career in the financial service sector.
Over the last few years, Andrew as played a key advisory role and all external actions that the bank has taken and ensured a smooth transition we wish him all the best in his future endeavors.
I would now like to turn the call over to Eva to review our financial performance.
Mr.
<unk> I would like to begin by turning to slide eight which highlights the bank's financial performance for the second quarter.
Total revenue was $263 million down, 2% compared to last year and last quarter.
On a reported basis net income and diluted EPS were negative $117 5 million and negative $2 71, $2 71, respectively.
Rick mentioned, we've recorded adjusting items for the quarter, which totaled $158 million after tax or $3 61 per share and include P&C banking segment impairment charges of $126 million after tax restructuring.
Restructuring and other impairment charges of $30 million after tax.
Amortization of acquisition related intangible assets of $2 million after tax.
Additional details are available on slide 22.
And in the second quarter report to shareholders.
The remainder of my comments will be on an adjusted basis.
Diluted EPS of <unk> 90.
It was down year over year and quarter over quarter by 22% and 1% respectively.
Net income of $45 million was down 22% compared to last year, and 8% compared to last quarter.
The banks efficiency ratio increased by 410 basis points compared to last year and by 80 basis points sequentially.
Uptick reflects our ongoing investments in strategic priorities on the word on volumes.
Are we for the quarter stood at six 1%.
Slide nine shows net interest income down by $4 $6 million or 2% year over year, mainly due to lower loan volumes.
On a sequential basis net interest income was down by $5 $6 million or 3%, mainly reflecting the negative impact of two less days in the quarters.
Our net interest margin was stable year over year and sequentially up 180%.
Slide 10 highlights the banks funding position.
Following a period of elevated liquidity, we have been gradually reducing our deposit basis, considering loan volume reductions in our previously stated objective of managing down our strong liquidity position.
On a sequential basis total funding was down $300 million.
T J partnership deposits decreased by 400 million as customers continue to allocate funds back into market activity or certain products.
This was partially offset by a $300 million increase in cost efficient longterm debt related securitization activity.
The bank maintains a healthy liquidity coverage ratio through the quarter, which remains materially above the industry average.
Slide 11 represents presents other income which was unchanged compared to last year.
Higher income from financial instruments was offset by lower lending fees due to temporary commercial real estate activity.
On a sequential basis other income also remains stable.
Higher income from financial instruments was offset by lower service revenues, which had a seasonal high first quarter.
Slide 12 shows adjusted non interest expenses up by 4% compared to last year, mainly due to higher regulatory expenses another cost rates to various compliance projects as well as higher expenses to support strategic priorities.
On a sequential basis non interest expenses were down 1%, mainly due to lower salaries and employee benefits from the two less days in the second quarter, partially offset by higher.
Speaker Change: Other non interest expenses as Joe described.
Turning to slide 13, our CET one ratio was up 20 basis points to 10, 4% due to a reduction in the risk weighted assets.
Speaker Change: Impairment and restructuring charges.
Of eight basis points on the bank CET one ratio in Q2.
Slide 14 highlights our commercial loan portfolio, which was down about $1 $4 billion or 8% year over year and down one.
$100 million on a sequential basis, mostly due to slowing real estate market activity.
Our investor refinancing dealer base as being prudent in the current macroeconomic environment.
Speaker Change: Slide 15 provides details of our inventory financing portfolio. This.
This quarter utilization rates were 49%.
This was lower than historical average as dealers, taking a more conservative approach to inventory due to macroeconomic conditions.
We expect utilization rates to follow the usual seasonality, which includes a reduction in the words of summer months before inventories begin to build in the fall.
Our commercial real estate pipeline remains healthy, but we continue to see that loppers slow down to start the projects awaiting expects of the rate reductions.
As seen on slide 16, the majority of our portfolio is in multi residential housing and our exposure to the office segment remains at 3% of our commercial loan portfolio.
As we've said over the past few quarters. The majority of the portfolio is in multi tenanted properties with limited exposure to single tenant buildings slide.
Slide 17 presents the bank's residential mortgage portfolio.
So mortgages loans were up 2% year over year and slightly down by 1% on a sequential basis.
We maintain prudent underwriting standards and are confident in the quality of our portfolio as evidenced by the high proportion of insured mortgages at 59% and low LTV of 50% on the uninsured portion.
Allowances for credit losses on slide 18, total $225 million up $13 $6 million compared to last year, mainly due to higher provisions on commercial and personal loans due to credit migration, partially offset by write offs.
Turning to slide 19, the provision for credit losses was $17 $9 million, an increase of $1 $8 million from a year ago, reflecting credit migration in commercial loans with higher provisions on impaired loans and a release on performing loans.
Sequentially <unk> were up $1 million for the same reasons as a percentage of average loans and acceptances <unk> increased by two basis points 20 basis points.
Slide 20 provides an overview of impaired loans on a year over year basis gross impaired loans increased by $119 $5 million and were up $59 $1 million sequentially, all seen the commercial portfolio, which is well collateralized.
We continue to manage our risk with a prudent and disciplined approach and remain adequately provisioned.
As we look ahead to Q3 I would like to note a few key points focused on the next quarter.
We expect our loan book to reduce mostly due to the seasonal reduction in inventory financing in the summer months.
This will partially offset some of the increase in NII due to the additional number of dates.
NIM is expected to remain relatively stable potentially slightly down due to the expected inventory refinancing volume reduction.
We are committed to reducing our efficiency ratio and we will share more details with you. This afternoon as part of our revamped strategic plan.
For the third quarter, we expect a slight reduction of our efficiency ratio based on the portion of the cost reductions linked to the impairments and restructuring charges outlined previously.
These savings will be partially offset as we reinvest to support our strategic plan.
Given the macroeconomic environment <unk> are expected to remain at the low twenty's.
Capital and liquidity levels are solid and expected to remain strong for Q3.
As a reminder, <unk> interest payment is due next quarter, which has an effect of success a lot EPS.
We'll 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 wondering you touched on phone you'll hear three telecom acknowledging your request and your questions will be folded in the order. They are received should you wish to decline from the polling process. Please press star followed by the Q.
You are using a speaker phone please lift the handset before pressing any Keith one moment. Please for your first question.
Your first question comes from many Roman with Scotiabank. Your line is now open.
Hi, Good morning, Thanks for taking my questions I wanted to start off by just talking about or asking about.
Goodwill and intangible charge in the P&C banking business, if you could give us a little bit more color in terms of.
Why you decided to take those charges this quarter whats really driving those charges, which really are the bulk of the charges that you are taking.
Yes. Thank you may need this is Ivan gives a bit more callers. So there is a few items every time you have material changes in the business and currently we have the new strategic plan, we're going to discuss this afternoon, we decided to suspend the IRB and Theres a few other elements like having the stock price being about 45%.
The book value. So all those elements led to an impairment testing and as part of that there is a general reduction of the value.
In terms of the bank.
And then how it works technically from an impairment perspective is that you start first by reducing the good wells you have left on your balance sheet. So we took $84 million. So we're pretty much now have eliminated the goodwill and then the rest of the charges are.
Attribute to the intangible mostly and a little bit in premises and equipment. So you should not see that goodwill intangibles being anywhere specific to anything it's really just the result of the impairment.
Technically how it's applied in the business.
Okay. Thanks for that and then.
I just wanted to ask about.
In terms of the.
The fee income financial.
Income from financial instruments, we've seen two quarters in a row now of strength. There just wanted to better understand what's going through that line and is that <unk>.
Sustainable at these levels here.
Yes. Thank you for your question. So definitely we have a good quarter in terms of income from financial instruments. So the markets have been better as you know for the last two quarters or so so we had a good performance. This quarter. Thank you for the team for making that happen.
We do believe that it's sustainable but obviously this is all related to the markets and the mood and currently.
We can sustain that level, but must admit that this quarter was extremely strong.
Thank you for that.
Your next question comes from Gabriel <unk> with National Bank. Your line is now open.
Hi, Good morning first question is on the on the credit.
Just the increase in impaired loans on a sequential basis can you.
Sorry, if I missed it in your disclosures but was.
Was that transportation related because everybody was getting at.
Issues, there or some other sector.
Thank you Gabriel good morning, it's Liam.
I am very happy actually with where we are on the on the <unk>. It is not transportation related there is no specific sector. It's cros.
Across our book.
Speaker Change: A couple of notes, our PCL as theyre running half the industry and <unk>.
Look at our Gill for the last 12 months. They are in line with the broader industry as a whole. So we're very comfortable with our current portfolio.
Fair enough I am just asking any one industry.
Youre seeing multiple industries or how many.
Across the book, but coming from commercial.
Hey, Brian outlined.
Is it or how many files.
It's a few files I mean remember Gabriel 95% of our loans are collateralized. So when you see a notional increase for Laurentian, it's not the same as looking at the other banks.
I just wanted to educate myself here.
On the expense side of things I saw the.
There was a mention of a 7 million dollar figure and Thats included in your core expenses. If you will associated with regulatory and compliance costs. I'm wondering if this is something embedded in your run rate before you are just highlighting it or if it's something new in that.
Tied to the IP issues, maybe last September maybe you can shed some light on that please.
Yes. Thank you gave me.
So no this has nothing to do with the.
The outage or the issues we had last.
Last fall in fact, yes, there is some of that but as it relates to supporting strategy priorities, but as we mentioned there was increased regulatory expenses and combines projects right. Now you can and will just to name a few and you can think about <unk> 15, 20, and I can keep going because there's a lot of those.
Speaker Change: <unk> stuff and get back in the federal budget as well. So we just wanted to make sure that we invest and Thats, where good on the compliance side.
Via birds enough depth and you should expect that we need to invest for the next few quarters as well related to those elements.
Okay Blake.
Catch up or how would you describe it.
Speaker Change: So it doesn't sound normal.
Where did that have been on a smaller number last year and youre, just being more proactive in accelerating that type of investment or.
In fact, many of the elements I just mentioned the word new over the last 12 months. So definitely there is a timing aspect of ramping up those projects. So definitely that's the key driver there is nothing special in those outside the fact that there is a lot of regulatory changes and we just need to make sure we're on top of it.
Yes.
Yeah, It's Eric it's Eric if I may like this afternoon, you're going to hear me repeat and talk about investing into our foundational technology and like this is going to be core for us to make sure that we simplify our technology stack.
A better ability to address those changes more efficiently in the future state. So we'll provide more detail. This afternoon, but all relates back to al we are structured in terms of our technology stack.
It's not fun stuff to spend on but the.
Investors don't want Underinvestment and so I'm sure it's good.
My last question is on the dividend this is a pretty.
Pivotal quarter for you a big transformation for the company.
Under what conditions would you revisit the dividend to the extent that your capital position find 10% plus on a standardized basis.
But the internal capital generation.
Be weaker because of investments because of the loan growth.
Speaker Change: Declining.
So there's perhaps a need for capital build too.
Best in the future direction of the bank what conditions would need to be present for you too.
Take another look at the dividend maybe.
Alter it.
In fact.
If you take a look the dividend quarter at the dividend decision is taken every quarter. So we always look at what the payout ratio of the bank currently is higher than where we'd like it to be specially in a context, where we have an impairment charge in the quarter.
If you look at the capital of the Bank as you mentioned, we're really well positioned that 10 four as you look at standardizing cycle is going to be one of the of the slides. This afternoon. So I'm, giving you that then.
In advance, but youre going to see that we're well placed there versus the rest of the industry on the apples to apples basis, but we do expect that as rates go down we're going to see a catch up and the rebound in our volumes as well. So overall right now if you look on that adjusted basis. We're at 52% payout ratio is slightly higher than where we would like to be.
So thats why its board decides they at 47% and this afternoon, you're going to hear a lot about the execution efficiency ratio that we need to improve so we have a plan to increase the profitability of this bank and that's going to support the dividend going forward.
Speaker Change: Alright, great. Thank you have a good well I guess, we'll talk later today.
Yes.
Yes.
Your next question comes from Sohrab <unk> with BMO capital markets. Your line is now open.
Thank you Yvonne can I just follow up on gapes.
When do you think.
He will probably do dividend increases again are you moving to some sort of an annual cycle.
We don't necessarily have the cycles are up where real look on a quarterly basis. We've over the last few years increased at least six months right now with the payout ratio is relatively high.
Hi in the context of that charge as mentioned, we just decided to hold on this so there is no specific dates of increasing the dividend, we're going to take it quarter by quarter and as I mentioned, we're looking to increase profitability, but in the short term will discuss this afternoon, but we have to invest if we want to make sure that there is a sustainable increase across.
Speaker Change: Stability.
Speaker Change: So we're going to be careful with the dividend.
Okay.
If I can just clarify a few other comments that you made I think you said you expect <unk> to remain.
In and around I think current levels I think you said low 20 basis point range I mean, obviously that is.
Ratio.
It's unclear I think.
Speaker Change: Where utilization rates are going to be.
Can you give that PCL guidance more in dollar terms.
In dollar terms in fact, if you look at this quarter, we have $17 $9 million. It is 20 bps. So it shouldnt be that far from that level. We're just you know.
Being careful of not guiding too low for the next quarter, because we see the industry. There has been some credit migration. So we believe that the level, where we are is probably close to what we should expect next quarter.
Okay.
You had also mentioned.
Some savings and I think you mentioned the 20, I think you said $20 million of savings.
Was that an annual number or is that per quarter.
I would like it to be in the quarter, but thats on an annual basis or so.
We announced in Q2 and what are you when I described in fact, you were $20 million.
Accurate for the next 12 months.
But it does include some restructuring and severance is that we have in Q3. So we outlined on the sorry, I don't recall, which slide that presents Asian, but youre going to see there is $7 million of additional <unk> in Q3 for what reaction in may but they if I include the annual savings of that restructuring, so Q2 and Q3.
What we've done to this point is about $20 million of annual savings. Unfortunately from a savings perspective, a big portion of the impairment relates to element that's worth not depreciated like goodwill or ARLP impairment the $23 million with just an asset that was sitting in not depreciate them. So it is in fact 20 million.
On about 40% of that.
Thats impairment charges, because about $65, 60% of it didn't have any expense like goodwill being the main one.
And so I mean, Eric talked about <unk>.
Taking a hard look at the foundational tech stack.
He is $20 million and Eric.
To get you to the upgrade you need or would you have to spend more than the savings.
Well, thank you Rob.
For asking.
We'll go and better clarification I believe this afternoon, but for sure like we already have a pace in terms of investing in our technology. So what we're going to be saying that we're going to accelerate this space.
Part of this $20 million is.
A portion, but also we will keep on simplifying and taking the right decision to simplify even further the organization, so hopefully generating more savings and position us.
Better on a profitability standpoint.
Okay and one last question for me Yvonne can you just remind me.
What the goodwill that you wrote off was associated with.
Yeah, I'll start by saying, so Rob you should not necessarily see this as an impairment.
The goodwill again, it's applied to the goodwill of the bank overall no matter what it was coming from but the goodwill that was left on the balance sheet came from the equipment and inventory financing acquisition that we have done in 2016 and 17. So it was on the commercial side, but again this has nothing to do with them.
Speaker Change: You have the commercial strength.
<unk> of the business, which is you know what.
The biggest swing probably we have at this point.
And.
I'm, sorry, I haven't looked at it but you were saying that you don't have any more goodwill left on the balance sheet is that correct.
Actually the first thing you do with an impairment, which impact the whole bank is to eliminate the goodwill first and that's what we've done so we're left with no goodwill.
Okay. Thank you very much for taking my questions. Thank you Sir.
Your next question comes from Paul Holden with CIBC. Your line is now.
Thank you good morning.
First question is with respect to the inventory finance business and not so much from a credit perspective I understand <unk> is the multiple layers of protection you have some credit.
Wanted to know the health of those dealers youre dealing with and Thats more of a.
Do you get a full recovery in loan growth when rates actually do come down.
Reading a number of things that dealers are struggling because demand is low so just wondering how youre viewing that.
All of the sort of the customers you have across that platform.
Thank you Paul for the question it's Eric.
While we're very we're very comfortable actually with the current behavior of our dealer base.
Of course, the market that is normalized and then for sure. It's a softer market in terms of consumer demand, but this is why our dealer base have been prudent in terms of restocking their inventory during the fall and the winter season, So right.
Right now our line utilization stood at 49% when actually historically at the end of Q2 those lines should be <unk>.
So our dealer are behaving as we would expect in terms of being more cautious not to read too much.
And right now they are turning some some products. So we will see during the season, but we expect.
Those level of assets to act as.
As they did last season and continued to reduce.
Should expect a bounce back in Q4, but again not back to historical like until we see interest rates easing in the U S. We believe that the dealer will keep a prudent approach towards a REIT.
Rebuilding their inventory.
Okay. So I think that's clear when we do see lower rates in the U S. Whenever that's going to be.
I would expect a full recovery in those.
And those lines because the dealers are going to be either healthy enough theyre going to last through the sort of the soft patch if you will yes.
And then we've always kept a prudent approach in terms of how we underwrite risk how we structure our credit appetite during dose.
Around those dealers that we.
We haven't changed our approach so we keep that prudent pace and we keep growing our dealer base and we will be ready.
For the rebound to actually <unk>.
Kris those those asset level.
Okay. That's great and then I guess sort of similar line of questioning on the retail lending portfolio I mean to modest upticks in.
And PCL of an impairment there, but wondering what kind of insights you can give us into how you feel about the health of the Canadian consumer like Big Big topic of discussion I think for obvious reasons. So any data points and observations you can provide there would be would be helpful.
Well thank you Paul.
Our client base as we have seen some uptick in terms of delinquency thing on the margin, but for our portfolio. We're really well positioned I think gave one went through.
On the mortgage portfolio in terms of the 59% insured.
Low loan to value, even our all portfolio, which is near prime is behaving very well.
<unk>.
I'm sorry are other key assets like investment loans, we're seeing with the uptick in the markets are good good performance there so for us and our customer base.
Although there are broader pressures in the economy from an interest rate perspective, our portfolio is holding up really well.
Okay great.
Speaker Change: And then <unk>.
Last one from me on the multi residential loans.
It seemed to me like there's a good level of support and demand there.
Some peers put up very healthy growth numbers.
Wondering if there is different some difference in the composition of your portfolio. There are basically trying to get it to like why why aren't we seeing better growth in multi residential loans given the broader growth in that in that.
Category.
Thank you Paul it's Eric again for the question.
Our commercial real estate portfolio year over year is actually decreased by 8% and then this this is explained in larger parts, because we have a specialty that tackles construction.
In terms of a mix of that real estate portfolio and actually the mix between our tier one developers that actually are waiting for our needs and interest rate to relaunch new projects and the fact that we've been paid out in terms of construction projects that have completed and that multi residential.
Housing segment, but usually like in terms of the economy for us to take to take those.
Stabilized assets into our balance sheet like don't don't quite make sense on the economy standpoint, so so for us it's just to be.
Do you feel well position out there with the team and we believe that once we see that ease in terms of.
Interest rates were going to see those housing projects, it's hard back again.
Better pace.
Team is positioned to keep on boarding those.
Those at the construction level.
Speaker Change: Okay.
Helpful. Alright, Thanks for the time and I will see you later today.
Paul.
Your next question comes from Doug Young with Desjardin capital markets. Your line is now open.
Hi, Good morning, just maybe continuing with.
I think that we've heard this from a lot of financial institutions that there needs to be and he's an insurance claim and so I'm curious when you think of the multi residential properties are your dealer.
Speaker Change: Network and dealer inbound block.
Speaker Change: He's really is going to have an impact on the growth is.
25 basis points 50 basis points or does it need to be more drastic.
It's a great question Erik again.
Yeah.
We believe that that's going to build momentum as soon as we start seeing some easing because I believe that's going to send a signal in Canada I'm talking about in terms of to the consumers is going to provide more clarity in terms of the directional.
Of those interest rates. So so we believe that.
The shortage, we're experiencing across Canada in terms of housing supply.
This.
Could be the start of a signal for our developer first to relaunch projects and again.
To have a better sense of do you kind of mix in the type of profitability that can generate launching those projects. So so again not clear in terms of how quickly the relaunch will occur and how deep.
Copper production, we need to get to to actually go back to.
So very sustained level, but for sure like just the needs we'll provide some.
Some positive inflow to that sector.
Okay, and then just a few other ones.
Going back to the just the Merrill.
Relatively quick the.
The income from financial instruments.
Runs do that is that just interest income on your liquidity part like what's actually in that line because you talked about the market impacting that.
Typically what market.
And in fact composed of two elements, so pretty much the trading aspect to it and also the return you get on that portfolio, it's mostly Campos.
Fixed income elements as it is aligned with our capital markets business. So this quarter is really a good quarter from that and we expect that if the market sustained we're going to continue doing good maybe not at the same level begins again Q2 was exceptional.
We have a great team that is driving those revenues and we would expect onto our good market conditions to continue.
Is it half and half trading.
Interest income or is it two thirds one third.
Trying to get a sense in fact, it's going to depend on a quarterly basis. So it depends on the market that would lead to more trading versus conditions in the market. So I don't want this or the point the percentage because that may evolve depending of the quarters.
Okay.
And then back to credit I'm, just trying to understand the release in performing loan allowances and it's mostly commercial.
This is despite the uptick in impaired impairments in commercial and I think on the commercial book your PCL rate in the quarter is 35 basis points and that was 24.
In 2023, so we've definitely seen an acceleration there so I'm just trying to understand.
The release and commercial as it relates to the uptick in the impairments.
Doug.
Net net obviously migration to the positive write offs and cleanup some policy commercial we've been very pleased with our workout results for that in terms of recoveries.
The improvement in release was really within the personal book as as we've seen investment wound.
And investment markets improved slightly and Thats.
Given us a better a better position with regard to ACL on the investment loans.
And have you made big changes to your allies are into your weightings in the sector and the.
Different categories or.
Just a natural evolution of the models going like country in one quarter forward.
Any other detail right yes.
Yes.
A good question and just want to remind everyone that we have been very disciplined over the past few years in terms of maintaining and building our reserves, we never a few years ago.
As in the past, we didnt release.
Maintained it.
Have a consistent and prudent reserving standard we haven't changed those.
And I'm really pleased with where we are because over the past year.
Our <unk> were up 11% the industry was up three times that.
And that reflects.
Our PCL is running about half the industry and the overall strength in our underwriting and credit standards as Eric alluded to earlier.
Okay and just last.
Yes going back to the write off on the balance sheet I think theres another $186 million of software and other intangibles is another almost $87 million in premises and equipment what are those.
Relate to and then obviously you went through a full impairment tests. So I don't imagine those get write down next quarter.
Is it at risk if things don't unfold as your plan.
Speaker Change: As you plan that there is additional risk to some of these asset classes to be written down just hoping to get some color.
The first settlement and think it's a good question for clarification for everybody. So first an impairment testing is usually done to validate the value of goodwill on the balance sheet. So we won't have any goodwill any more so than it is going to become an assessment of each specific elements.
But what you find in those.
Intangibles on the balance sheets are mostly composed of two elements.
Investments that we've been doing in our systems, which are systems, we use so as long as we use those systems will going to keep them on the balance sheet and there is also customer relationships through the acquisitions that we've done and those are in solid businesses as well, but overall its mostly related to it developments and investments in <unk>.
And going forward. So again it should be relative you should not expect a big.
Variation or impairment charges going forward unless there's a specific projects on the one that's but I don't have any right now but.
But there is no big other charges that should become.
I appreciate it thank you.
Thank you Doug.
Your next question comes from Lamar Crystal with core Mark Your line is now open.
Yes, thanks for taking my questions I won't ask about specific details about the restructuring since I'm sure you will talk about at the Investor day, but.
Just on that can you talk about the potential for additional restructuring charges I did see that youre, calling out some additional severance.
In Q3, but I'm just wondering if we if this is the first of many or if this is all wanted to N type of situation or anything you could do to help me think through that.
So thanks for the question, so I'll skip the impairment portion or specific charges. So we have some severance charges. In Q2, we have we have some in Q3 as well that comes from reduction of workforce with done in EMEA as well. So we outlined that in the presentation, we're going to continue to evolve and transform that business.
Within intend to make it more efficient overall, that's going to be a big team that we're going to discuss this afternoon. So there may be some others that arent going to come but if they come they are going to come with improvements overall on a sustainable basis for the bank.
Anything on the potential magnitude like should we expect like or is this the initial one that you've taken this corner so that the $40 million.
The big chunk and then we could go back to a more kind of what we've historically seen at Laurentian, where they're kind of like six I think you had $6 million in Q1. So this is like the primary big one and then smaller charges that is that a fair fair way to think about it.
Hi, Mark.
I think it's a fair way of seeing that because as I mentioned most of it should be related to potential small charges, we may incur but definitely nothing in the quantum that you've seen this quarter.
Okay, Great. That's helpful. Thanks, and then my next question.
I just wanted to go to your slide 11 here.
And some weakness outside of the income from financial instruments. So just looking at the list here.
Card services fees.
Fees on investment accounts insurance and other can you help me think through about what's driving some of these other kind of broader base weakness across these other lines and.
Because if we see some normalization in the income from financial instruments than these ones will start to matter a little bit more as we look forward. So can you talk to me like is there sort.
Any reason to expect that some of these line items that.
Kind of run rated lower maybe thats, the best way to ask it.
Yeah, Thanks, and happy out of the question I can provide a few details so if I look quarter over quarter differently income from financial instruments has been the big gainer versus Q1.
On the other side you mentioned the card services. The card services is in fact seasonal because as you know Q1, and Joe's Christmas and all of them. So that's pretty big season. So there was a seasonal impact in those revenues and lending fees is lower as well and that goes with what they described a few minutes ago.
Speaker Change: The slowdown of the developers in commercial real estate the wasting rates.
Rates to come back to slowdown sorry to reduce so technically lending fees is a question of timing.
Speaker Change: The cards is a question of seasonality so technically I'm not overly concerned the key points going forward is that we you should expect that 20 million yearly reductions of $5 million per quarter related to the business that we've been selling to industrial alliance.
C $5 million reduction starting in Q4, we expect that transaction to close in the first days of August.
And where does that where does that reduction go through.
That's one.
One would be in the <unk>.
Yeah season Securities brokerage commissions.
Okay, because like the card services revenues I appreciate the seasonality, but it was still down 11% year over year and then also these fees on investment accounts, specifically down 15% and insurance down 13%.
So even if I look at the year over year some of these ourselves still weak.
Maybe I'll follow up offline on that one.
Speaker Change: Yes happy to do.
Okay and then.
Final one for me I think the message is that.
When you look at the bank right now.
10, 10, 4% CET one ratio you are still well positioned from a capital perspective to pursue organic growth and if we see rate cuts coming you can you can capitalize there and still execute on this strategic refresh cycle Thats 10, four I think the message is that that's a sufficiently strong set one ratio. So we.
Should look at the pause on dividends to preserve capital. So that you can continue to grow that business. It's more linked to the elevated payout ratio does that is that a fair statement and that's fair characterization.
Yes, I think your questions include pretty much all of the elements that without given so I think it's a fair assessment.
Okay. Thanks for the time I appreciate it.
Thank you Omar.
Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by the one your next question comes from Stephen Boland with Raymond James Your line is now open.
So you went through a number of the <unk>.
The slides on the commercial side, maybe just construction and land.
That portfolio continues to decline so I'm just wondering if the environment.
Your appetite or competition.
Yes, Thank you Susan.
It's really the environment as a whole because the pace, we're getting repaid in terms of completing completing projects.
Versus the new one being launched.
As an equal.
So right now our tier one developers are awaiting in knees in terms of interest rate level to launch those new projects.
We believe we're very well positioned to capture on that rebound in catched up momentum. So so the team is ready for that so Lennon construction are definitely.
Core for us to continue and grow into future development in.
We're just awaiting.
Better macroeconomic.
Environment to do so.
Okay great.
Just a question on agenda, just from your Investor Day of one o'clock should we expect a press release before that a new deck or is that all going to be provided.
Clarke: Clarke I'm, just trying to see if theres going to be more disclosure ahead of that.
Yes.
Speaker Change: Don't know.
Sorry for that so it's Eric yes, youre going to get the press release and the deck.
Prior to just one o'clock before we start our Investor day.
Okay. Thanks, very much guys.
Speaker Change: Thank you.
Thank you that's all the time, we have for questions I would now like turn the meeting over to Eric.
Alright, Thank you for being with US on this call today, we are focused and determined to execute our strategic plan. We are fully aware of opportunities and the challenges we face only reinforce the determination of our institution, we will continue to build a robust robust organ.
Innovation, prioritizing simplicity and delivering enhanced value to all stakeholders, we hope youll be able to join us on our Investor day presentation via webcast at one P. M. Today.
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