Q1 2025 Laurentian Bank of Canada Earnings Call
Speaker Change: 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 Raphael Ambo Head Investor Relations. Please go ahead Raphael.
Speaker Change: Bonjour à tous. Good morning and thank you for joining us. Today's opening remarks will be delivered by Éric Prevost, President and CEO, and the review of the first quarter financial results will be presented by Yvan Deschamps, Executive Vice President and CFO, after which we'll invite questions from the phone.
Speaker Change: Also joining us for the question period is Christian Debroux, Executive Vice President and CRO.
Speaker Change: All documents pertaining to the quarter can be found on our website in the Investor Relations section. I'd like to remind you that during this conference call, forward-looking statements may be made, and it is possible that actual results may differ materially from those projected in such statements.
Speaker Change: For the complete costuming note regarding forward-looking statements, please refer to our press release or to slide 2 of the presentation.
Speaker Change: 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.
Speaker Change: Eric and Yvan will be referring to adjusted results in their remarks unless otherwise noted as reported. I will now turn the call over to Eric.
Eric: Bonjour à tous, merci Raphaël et bienvenue à notre appel conférence pour le premier trimestre fiscal de l'année 2025.
Good morning and thank you for being with us today.
Eric: For the first quarter of 2025, we are happy with the progress we've made on executing against our priorities.
Eric: For the first quarter of 2025, we are happy with the progress we've made on executing against our priorities I would like to take this opportunity to express my gratitude to all our team members for their commitment and hard work I'd like to begin my discussion by discussing the current economy.
Eric: And the environment. We are navigating as you are all aware there have been several developments over the past month that could potentially impact the economy and our businesses. We take these into consideration and are ready to adjust as needed we remain confident in our.
Eric: Will it be to manage under these circumstances.
Eric: Impacts will certainly be felt across several industries and we are still facing many unknowns, but I would like to reiterate that our bank a strong financial position and that our business strategies are to our advantage, including the I S insured residential mortgage portfolio.
Eric: Rate among Canadian banks in our business model that focuses on specializations in commercial banking.
Eric: I want to emphasize that the bank is fully committed to supporting our customers' households, and businesses and we are well positioned to face the macroeconomic challenges that lie ahead.
Eric: That being said we are starting 2025 with a visit the positive momentum in our loan growth. We were pleased to report a tree, 6% loan growth in commercial loans quarter over quarter. This was mostly driven by our inventory and equipment financing specialties. This fueled our <unk>.
Eric: <unk> assets concentration to now 48% favorable to our NIM, which grew by eight bps to 185%.
Eric: Coming back to inventory and equipment financing, we completed our merger of our activities under one brand Northpoint commercial finance.
Eric: As mentioned previously we believe that by combining our equipment and inventory financing specialties, we can accelerate growth as we simplify our go to market strategy and enhanced value proposition to address the needs of the full ecosystem.
From the manufacturer to the dealers and to the end users.
Eric: We are also ask you to announce that North point commercial finance as partner with Young America to provide exclusive floorplan dealer financing.
Eric: This news is aligned with our diversification strategy with an inventory financing as these dealers are in the agriculture and small construction industry.
Eric: This new partnership as well as other opportunities we've continued to fuel our organic growth both in terms of dealerships as well as open line of credits that are now above $10 billion Canadian.
Eric: Our utilization rate and inventory financing in the first quarter was at 45% and remains below historical levels. We continue to forecast a gradual normalization and utilization rate towards the end of 2025.
Eric: Regarding our commercial real estate portfolio the sustained decrease in interest rates in Canada combined with the trust, we have earned from developers and our industry expertise.
They build us to expand our unfunded pipeline over the past 12 months. This positive momentum is reinforcing our confidence in continued growth moving forward.
Eric: <unk> Bank remains a partner of choice for large scale progress projects in this industry.
Eric: In summary, we are delivering on our commitment of a commercial banking business focus on the specialties by expanding our footprint across these growth engines as we continue to invest in our strategic priorities our level of expenses remains elevated with inefficiency.
Eric: Fishing sea ratio exceeding 74%.
Eric: As mentioned in previous quarters, we anticipate a continued elevated expense level for the remaining <unk> of the year. The investments we are making are crucial to supporting the successful execution of our strategic plan and advancing our technology roadmap, which will position us.
Eric: For long term growth and success.
Eric: We are making steady progress on the critical foundational investments outlined in our strategic plan.
Eric: A key milestone was the successful completion of a comprehensive mainframe upgrade which has greatly enhanced our operational resiliency.
Eric: These announcements are laying the groundwork for our simplification. They finished efficiency gains over medium terms and paving the way to our future success. We are experiencing positive outcomes following the creation and implementation of the chief commercial experience role.
Eric: This led to an increase in retail customer satisfaction, driven by improved service quality. Additionally, our commercial specialties continue to upload uphold their excellent customer satisfaction levels.
Eric: Finally, we are in a strong liquidity and capital position, which provides us with the financial stability needed to effectively navigate the current macroeconomic uncertainty.
I would now like to turn the call over to Eva to review our financial performance.
Speaker Change: Let me see if cables are with us and I would like to begin by turning to slide six which highlights the bank's financial performance for the first quarter of 2025.
Speaker Change: Total revenue for the quarter was $249 $6 million down, 3% compared to last year and stable quarter over quarter.
Speaker Change: On a reported basis net income and diluted EPS were $38 $6 million.76, respectively.
Speaker Change: We've recorded as adjusting items for the quarter, which totaled $800000 after tax or two cents per share from restructuring and other impairment charges of $2 million and a profit on sale of assets under administration of $900000.
Speaker Change: Additional details are available on slide 21, and in the first quarter report to shareholders.
Speaker Change: The remainder of my comments will be on an adjusted basis.
Speaker Change: The diluted EPS of <unk>, 78 centers decreased by 14% year over year, and 12% quarter over quarter.
Speaker Change: Please note that the first quarter and so did that large T N interest payments, which had an impact of six cents.
Speaker Change: Net income of $39 $5 million was down 11% compared to last year and down 4% compared to last quarter.
Speaker Change: Bank's efficiency ratio increased by 130 basis points compared to last year and decreased by 70 basis points sequentially.
The decrease was.
Speaker Change: Driven by the increase in the revenues from higher loan volumes are.
Or are we for the quarter stood at five 3% down 70 basis points year over year, and 90 basis points quarter over quarter.
Speaker Change: Slide seven shows net interest income up by $1 million or 1% year over year, mainly due to favorable loan repricing lives, which was partly offset by lower average earning assets.
Speaker Change: On a sequential basis that seems the risks income was up by $12 $3 million or 7%, mostly from the increase in commercial loan volumes as well as the impact from loan repricing lives.
Speaker Change: Our net interest margin was up by five basis points year over year and up eight basis points sequentially at 185% essentially for the same reasons.
Speaker Change: Slide eight highlights the banks funding position.
Speaker Change: Sequential basis total funding was up by $800 million.
Speaker Change: Deposits from advisers and brokers increased by $800 million in wholesale funding increased by $400 million as we showed senior deposit note ahead of an upcoming maturity in the second quarter.
Speaker Change: These increases were partly offset by a reduction in partnership deposits of $400 million as customers continued to allocate funds back into market activity.
Speaker Change: The bank maintains a healthy liquidity coverage ratio through the quarter, which remains at the high end of the industry.
Speaker Change: Slide nine presents other income of $62 $6 million, which was lower by 14% compared to last year and 1% sequentially.
Speaker Change: The year over year decrease mostly came from lower fees and securities brokerage commissions.
Speaker Change: Following the divestiture of the retail brokerage divisions, and lower lending fees due to the low commercial real estate activity.
Speaker Change: Slide 10 shows adjusted non interest expenses.
Speaker Change: $184 $9 million down, 2% year over year and up 4% sequentially.
Speaker Change: Lee from seasonally higher performance based compensation employee benefits and vacation accruals.
Speaker Change: On slide 11, you'll see that our CET one ratio remained stable at 10, 9%.
Speaker Change: We are in a strong position in the world position to redeploy capital.
Speaker Change: Potentially kind of turmoil and May in fact volume growth for the end of 2025 showed I terrorists be implement.
Speaker Change: Slide 12 highlights our commercial loan portfolio, which was relatively stable year over year and up $600 million or 4% on a sequential basis.
Speaker Change: The increase was mostly fueled by the seasonal growth of inventory financing.
Speaker Change: A portion of which was due to the FX impact during the quarter.
Speaker Change: Slide 13 provides details of our inventory financing portfolio.
Speaker Change: The quarter this quarter utilization rates were 45% remaining materially below historical averages normally in the mid fifties with dealers continuing to take a more conservative approach to inventory restocking.
Speaker Change: Our commercial real estate pipeline continued to show positive momentum due to the recent rate reductions.
Speaker Change: Slide 14 illustrates that most of our commercial real estate portfolio is focused on multi residential housing with our exposure to the office segment holding steady at 3% of our commercial loan portfolio.
Speaker Change: As noted the bulk of our portfolio consist of multi tenanted properties.
Speaker Change: The LTV on the uninsured and multi residential portfolio stands prudently at 61%.
Slide 15 presents the banks or eventual mortgage portfolio.
Speaker Change: So mortgage loans were down 4% year over year and down 1% on a sequential basis.
Speaker Change: We adhere to cautious underwriting standards and are confident in the quality of our portfolio.
Speaker Change: This is reflected in our 60% of the proportion of insured mortgages and a low loan to value ratio of 49% on the uninsured portion.
Speaker Change: Allowances for credit losses on slide 16 totaled $206 $9 million up $3.1 million compared to last quarter from higher allowances on impaired commercial loans.
Speaker Change: Turning to slide 17, you can see the evolution of our allowances for credit losses in the top left corner.
Speaker Change: Compared to the industry.
Speaker Change: Level of our allowances for credit losses has remained relatively stable since the pandemic period, while the industry released provisions.
Speaker Change: In the bottom left corner Youll find the evolution of our coverage ratio expressed as the previous year's allowances for credit losses over the net write offs insured over the following 12 months.
Speaker Change: On that basis, we currently stood at about 30% higher than the industry average in terms of that's right off coverage.
Speaker Change: Well positioned to face the current uncertainties.
Speaker Change: Turning to slide 18, the provisions for credit losses was $15 $2 million, a decrease of one $7 million from a year ago.
Speaker Change: Due to releases of provisions on performing loans.
Speaker Change: Sequentially sales were up $4 $8 million of returning to the previously guided level in the high teens.
Speaker Change: As a percentage of average loans PCL decreased by one basis point year over year and increased by five basis points quarter over quarter to 17 basis points.
Speaker Change: Slide 19 provides an overview of impaired loans on.
On a year over year basis, gross impaired loans increased by $155 $3 million due to credit migration in the commercial loans and were up $21 million sequentially.
Speaker Change: Our disciplined approach to underwriting along with the high quality and strong collateralization of our loan portfolio.
Speaker Change: 93%.
Speaker Change: Enable us to effectively navigate credit migration without material impact on our ACL and Tcl results.
Speaker Change: We remain committed to a prudent and disciplined approach to risk management.
Speaker Change: As we look ahead to the second quarter of 2025, I would like to provide some remarks.
Speaker Change: We expect our loan book to be slightly up as inventory financing should continue its seasonal increase but at a lower pace than Q1, and considering that last quarter's growth was partly supported by the FX variation.
Speaker Change: Revenues are projected to be down mainly from the shorter quarter and from nonrecurring loan repricing lags, partially offset by higher inventory financing to volume.
Speaker Change: The name is also expected to be slightly down.
Speaker Change: Regarding the efficiency.
Speaker Change: Ratio. We previously explained that we are increasing our investments in cloud computing technology. These.
Speaker Change: These projects that have a higher proportion of operating expenses compared to the traditional capitalized expenses.
Speaker Change: For on premises technology.
Speaker Change: The execution is accelerating and high in Q2, and therefore the level of Opex is increasing.
Speaker Change: Our efficiency ratio guidance for the full year remains in the mid seventies, but we expect Q2 to be higher due to the acceleration of projects and the impact of a shorter quarter on the revenues.
Speaker Change: The investments, we are making will not only improve the customer experience and our digital offerings, but will also lead to efficiency gains in the medium term to achieve our financial targets.
Speaker Change: Considering the geopolitical and macroeconomic environment it is difficult to predict the potential outcome on pcl's.
Speaker Change: Our previous guidance for the year was itunes.
Speaker Change: Our tax rate is expected to be in the 19% to 20% range.
Speaker Change: Capital and liquidity levels are solid and expected to remain strong for Q2 and the remainder of 2025.
Speaker Change: I will now turn the call back to the operator.
Speaker Change: 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 prompt pay your hand, that's been raised should you wish to decline from the polling process. Please press star followed by the Q.
Speaker Change: If you are using a speakerphone please lift the handset before pressing any keys one moment. Please for your first question.
Manny Goldman: Your first question comes from many Goldman with Scotiabank. Your line is now open.
Mann: Hi, Good morning, just wanted to follow up on it.
Speaker Change: Look that you gave on margins I think you mentioned that we should expect it to be slightly down. So I'm just wanted a little bit more color in terms of sort of magnitude there and trying to understand why as well.
Speaker Change: Thank you for the question Manny So what I'll do is I'll start by explaining the eight bps increase this quarter and that's going to lead to a better explanation of your further question. So the NIM increased by eight basis points. This quarter three to four basis points of that came from loan repricing lags and FX.
Speaker Change: Five four to five basis points of that came from the business mix improvement due to the commercial loan growth and just to as a reminder, the loan re pricing lags relate to our U S portfolio and the way. It's done is that the repricing of the variable rates the customer happens in the months following.
Speaker Change: Variation of rates. So since we experience a few reduction from the fed and we have an advantage in our Q1 results from that lag in terms of repricing to the customer so the loan repricing lag as well as the effects of three to four basis points is not expected to recur in Q2 and therefore.
Speaker Change: <unk>, that's our guidance of a small reduction in terms of denim.
Speaker Change: Understood.
Speaker Change: I just wanted to ask.
Speaker Change: About <unk>.
Speaker Change: Parents and the first question is just in terms of.
Speaker Change: What your exposure is to some of the areas of the economy that are likely to be more impacted by tariffs in terms of you know auto's aluminum those types of.
Speaker Change: Areas of the economy that would potentially be directly in the eye of the storm and so what the exposure.
Speaker Change: For Laurentian Bank is there.
Speaker Change: Yes. Thank you many for the question it's Eric.
Speaker Change: As we as we said in the intro like we think the bank is well positioned actually to face tariff for sure in terms of the.
Speaker Change: Canadian workers and then the consumers.
Speaker Change: It will or could have impact again, depending on the <unk>.
Speaker Change: Extension of the tariff is their country tariff out there how long do they last so a lot of uncertainties still remains.
Speaker Change: One thing I want to.
Speaker Change: Put emphasis on is that our inventory financing business is 90% in the U S distributing for the vast majority.
Speaker Change: U S products from manufacturers. So so from that standpoint, we feel we feel good and as we highlighted.
Speaker Change: The other big segment for Us in Canada is commercial real estate.
Speaker Change: And there.
Speaker Change: Vast majority is in housing projects, which demand remains strong.
Speaker Change: We're seeing still momentum with the interest rate decrease.
Speaker Change: Last year. So so for US we believe our portfolio is well positioned and it has been resilient to previous.
Speaker Change: Events, and we think we're well positioned to face the uncertainties ahead.
Speaker Change: In terms of the inventory finance business.
Speaker Change: There's a lot of talk about the auto.
Speaker Change: Sector being very much a cross border business, so tariffs may impact supply chain, but in terms of the kinds of products.
Speaker Change: Your financing in terms of marine power sports trailers.
Speaker Change: Do you have a sense of like how much of that supply chain is is just within the U S or does it does.
Speaker Change: Does it connect to Canada and could it be susceptible to.
Speaker Change: Disruptions in a tariff war.
Speaker Change: And maybe this is a great question and actually two weeks ago I was I was down in the boat show in Miami.
Speaker Change: The overall feeling there was actually quite positive from the industry perspective.
Speaker Change: And from a tariff war if that occurs.
Speaker Change: That sector, if we take it for example fiber.
Speaker Change: Fiberglass like the feedback we got is that they expect the manufacturers.
Speaker Change: A minimal impact now would that be the same for a trailer industry or RV industry that as more.
Speaker Change: Aluminum based type.
Speaker Change: Components. It has to be determined that was built up in the lung.
Speaker Change: Long term scenario of tariff so to be determined in terms of the price of goods, but as a reminder, we don't do any auto in our inventory finance book of business and we believe that the industries, we're in our <unk>.
Speaker Change: Well equipped to face.
Speaker Change: Uncertainties, but again to be determined on D. A.
The size of.
Speaker Change: Tariff war, if it has to happen.
Speaker Change: Thanks for the detail.
Speaker Change: Thank you Manny.
Speaker Change: Your next question comes from Sohrab <unk> with BMO capital markets. Your line is now open.
Sohrab: Okay. Thank you Eric could you just wanted to maybe build on that a little bit I mean, you held an investor day, you laid out a plan for us.
Speaker Change: How.
Speaker Change: If at all.
Speaker Change: Do you anticipate.
Speaker Change: Tariffs may.
Speaker Change: Impact the timing of the delivery.
Speaker Change: Pat.
Speaker Change: Ambition.
Speaker Change: <unk>.
Speaker Change: So so many fronts on this strategic plan. So high so it's a great question high level as I, just touch on inventory financing that business will follow D actually.
Speaker Change: <unk> economy.
Speaker Change: The U S. So it will be trending towards the behavior of the U S economy as we highlighted we believe that right now we remain at low historical usage of our line of credit that now stands at $10 billion and.
Speaker Change: And we continue to grow organically that dealer footprint and we're diversifying in other industry. So the team is very efficient in building up that.
Speaker Change: Future growth opportunity and and I think that this will continue to fuel our.
NIM and also create the right level of revenue growth to fuel our strategic plan now can this be.
Speaker Change: Slowed down by a lower consumer confidence and a.
Speaker Change: Lower drove base in the American economy, the answer to that would be yes, but we believe still in the ability of our team to create the right level of asset growth from that perspective to sustain the plan.
Speaker Change: For our commercial real estate in the Canadian overall market.
Speaker Change: We think we're well position of course, the uncertainty creates a.
Speaker Change: Kind of a pause in both.
Speaker Change: Business side as well as the consumer side in terms of either investing or borrowing.
Speaker Change: So it creates that the uncertainty that we start feeling so this may impact the funding of some of our commercial real estate pipeline that we forecasted for later part of 2025.
Speaker Change: But again Theres a lot of unknowns. So so right now we keep steady on the positioning for for asset growth with our specialty groups. The rest will come from the efficiency, we are creating through our investments sorry, Ben and this is continuing.
Speaker Change: Actually as we described.
Speaker Change: <unk> are underway.
Speaker Change: To be expected increase in expenses in Q2, but we remain on our overall forecast for the year that is mid <unk> in terms of efficiency ratios. So so for us.
Speaker Change: There is uncertainty, but in the medium to long term it doesn't change our goals and our financial targets for the time being.
Speaker Change: I mean, that's it that's really helpful. So can I just clarify I mean, basically what youre, saying is.
Yes.
Speaker Change: The revenue environment.
Speaker Change: Is one thing, but once you've started down the optimization and expense.
Speaker Change: <unk> you expect to continue on that regardless, if the revenue environment or do you have flexibility to slow that down to continue to hit that.
Speaker Change: Call it mid seventies.
Speaker Change: Expense ratio, yes throughout the plan. There is there is a roadmap that has defined so that's so the projects that are in flight right. Now definitely there is there is no plan to reduce or.
Speaker Change: Or slowdown like we will execute because those are part of our foundational.
Speaker Change: If we were to face extended tariff and all of that we are prepared to be agile and make the right decisions too.
Speaker Change: To ensure that.
Speaker Change: It makes sense for us financially, but right now it's all speculation so.
Speaker Change: We have a range.
Speaker Change: <unk>.
Speaker Change: Yes, I get that and just one last question.
Speaker Change: Are you like does does north point.
Speaker Change: Assume they are in touch with him.
Speaker Change: Clients in there.
Derrick: Sure Derrick.
Speaker Change: Borrower base sleek.
Speaker Change: Can you share with us what if any conversations tariff related.
Speaker Change: Yeah are being had.
Speaker Change: At North point intend in your inventory finance with their customers.
Speaker Change: Yes.
Speaker Change: This is again a great question I have to say the sentiment in the U S is quite different than the one we experienced right now in Canada like.
Speaker Change: Discussions.
Speaker Change: That I've been involved with are not focused on tariffs so.
Speaker Change: So the dealer base the consumer confidence after the election of the New administration.
Speaker Change: It is more positive actually than last year. If I just take for example, the boat show I attended so so still.
Speaker Change: A positive.
Speaker Change: Overall sentiment I will still say in that ecosystem again that can involve again, if at all or to go into tariffs in country tariff, but it is still remains speculation.
Speaker Change: The overall sentiment at the time being is is.
Speaker Change: On the positive side from a U S perspective.
Speaker Change: Okay.
Speaker Change: Thank you very much for taking my questions.
Speaker Change: Have a good day.
Speaker Change: As a reminder, ladies and gentlemen, it is star one if you have a question.
Speaker Change: Your next question comes from Paul Holden with CIBC capital markets. Your line is now open.
Paul Holden: Thank you good morning, I wanted to ask.
Paul Holden: Maybe one more additional question on <unk>.
Paul Holden: We're forming allowances and tariff risk if I if I look at your slide 17, which are useful slide.
Paul Holden: Kind of suggests two things to be one is like if you look back into 2020 period, you didn't need to increase your performing allowances as much as the big banks that so maybe there's just less economic sensitivity in your loan mix. So maybe you can maybe you can address that but then also to I imagine.
Paul Holden: Some other reason.
Paul Holden: The ACL ratio is elevated today versus pre Covid is just because of the change in loan mix. So maybe you can also address second question his address sort of where your health ACL ratio for inventory finance.
Paul Holden: Equipment finance, specifically stands versus versus the past.
Paul Holden: Okay.
Paul Holden: Thank you Paul this is Christian.
Paul Holden: So I would say on our.
Paul Holden: ACL.
Paul Holden: You know we've.
Paul Holden: We've not reduced after COVID-19 is as other banks have done because we've been going from one pessimistic scenario to the next right. So we went through supply chain issues. We went through the rapid rise of interest rates and now we're morphing into geopolitical concerns and.
Paul Holden: So.
Paul Holden: Thats why youre not seeing as much ramping up as as elsewhere and why we didn't come down as we did before.
Paul Holden: And to your other point as to how sensitive we are to the environment.
Paul Holden: I think our portfolio has a lot of very good fundamentals. If you take a look at our balance sheet, 50% is in residential mortgages of which 60% is insured we're 49% loan to value on the uninsured part if you look at our commercial portfolio.
Paul Holden: Bulk is in commercial real estate and in the residential sector and if.
Speaker Change: And the other big portfolio is inventory financing, which is like a ric was pointing out 90% in the U S and we'll follow the U S economy, which is a fairly positive today.
Speaker Change: And if I can oh, youre totally right that the commercial mix increased but that only explains a small portion of the increase in terms of ACL.
Speaker Change: So overall you also need to look at the coverage ratio. We are at the bottom there which shows that we're pretty much covered 30% higher in terms of net write offs versus the rest of the industry. So we have a real great position to start with.
Speaker Change: Alright.
Speaker Change: Would you be willing to quantify what the impact to your ACL ratio. Your provisions would be if you moved to 100% probability on the pessimistic scenario.
Speaker Change: Correct.
Speaker Change: Christian.
Speaker Change: Speaking again, I would point you out to the.
Speaker Change: Our note five to our financial statements, where you can see the swing, 100% optimistic 100% pessimistic.
Speaker Change: Okay. Okay. Thank you.
Speaker Change: One one or two additional questions for me first first off I think you called acceleration and those planned project investment starting in Q2. So that just has me curious in terms of whats driving the acceleration have you made better progress today than than planned.
Or.
Speaker Change: Or I guess really what was the reason for accelerating those projects.
Paul Holden: Thank you Paul.
Paul Holden: I said acceleration probably more to relate to the expense level.
Paul Holden: We will incur on the Opex side of things because as Eva mentioned, a lot of component of our <unk>.
Paul Holden: Investments are going towards cloud based type solutions, but they are they are aligned with the strategic plan we highlighted.
Paul Holden: That's where to revamp our foundational and make sure after that we made the right decisions on on the digital offering we want to be able to deploy further down the road. So so for US it's just a.
Paul Holden: Yes.
Paul Holden: Continuing <unk> of our strategic plan, but in terms of expenses, we're guiding towards.
Paul Holden: That Q2 will incur accelerated expenses on the Opex side to support the projects that were launched since inception of our strategic plan.
Paul Holden: Okay that makes sense.
Paul Holden: Last question for me.
Paul Holden: Got it.
Speaker Change: A number of dealer relationships over the years don't recall, you calling them out like you have with Yan Maher.
Speaker Change: So wondering why you're calling up the yammer or is it simply because of <unk>.
Speaker Change: Diversifying into high or is it also maybe because of the potential size of that relationship as well.
Speaker Change: No I wouldn't qualify the size in terms of dollars as material in the overall portfolio. What you. Just described is exactly why we call it out.
Speaker Change: It is aligned with our strategic plan again too.
Speaker Change: To prove the fact that we are diversifying our industry base district present, great opportunity in terms of adding new sectors agriculture, and small constructions were part of the industries. We said we would target and this is just.
Speaker Change: Other proof point of the ability of our origination team to be able to land those types of agreements. So this is why we pointed out.
Speaker Change: Got it okay. That's it for me. Thank you for your time.
Speaker Change: Paul.
Speaker Change: And a final reminder, ladies and gentlemen, if you have a question or comment it is star one.
Speaker Change: Your next question comes from Doug Young with Desjardin capital markets. Your line is now open.
Hi, Good morning, just hopefully these are a few clarifications, but much cleaner quarter from a restructuring charge perspective, any anything else big on the horizon from a restructuring charge perspective that we should be anticipating.
Speaker Change: Not at this point as mentioned previously Doug we continue looking at the various operations as we get something or an opportunity to optimize and reduce the cost base going forward and may be more efficient, we're going to do it but nothing sizable on the horizon.
Speaker Change: Okay, and this might tie in with that one.
Speaker Change: Can you remind us what else needs to be really done we've talked a lot about north point in inventory financing, but what really needs to be done to improve the efficiency of that Canadian banking business and I assume a lot of these projects. That's what it's targeted at and Thats, what the accelerated or elevated expenses are.
Speaker Change: And the movement to cloud, but can you remind you some of the bigger projects that are really kind of honing in on improving that Canadian banking efficiency and how long that will take to kind of evolve.
Speaker Change: Yes, Thank you Doug it's Eric.
Speaker Change: Regarding what I think that the plan I highlight the fact that our goal is to stop copying the big banks model.
Speaker Change: I think this is the.
Speaker Change: The big takeaway to create efficient season does bank and this is what we started.
Speaker Change: Is to really focus on where we believe.
Speaker Change: We can win and add value deploying our capital. So so the efficiency creation will come through various angles in terms of new revenue generation opportunity.
Simplify.
Speaker Change: <unk> offering to our retail space and again last year you saw the actions in terms of divesting our full retail brokers as well as discount brokerage.
Speaker Change: Those are examples of the work that.
Speaker Change: As started and we will continue to be done as far as the efficiency created by projects, we're moving towards a better digital offering that will provide our customers with more self serve tools and this is where on the mid to long term within this plan we will.
Speaker Change: <unk> achieve.
Speaker Change: The momentum to get to our financial goals, which is to be.
Speaker Change: The low 60% efficiency ratio and above the 10% ROE target we gave ourselves.
Speaker Change: And no update on timing that timing that you gave at the Investor day is still.
Speaker Change: Well, we're still early in the plan Doug So we're we're nine months into it.
Speaker Change: You highlighted the many of the programs are in flight. That's what that's why we're guiding higher expenses in terms of Opex for next quarter.
Speaker Change: The team is fully engaged I think event also mentioned.
Speaker Change: A big milestone in our mainframe upgrade that occurred.
Speaker Change: This quarter, so very proud of that and the work of the team so definitely executing.
Speaker Change: But still early in the plan.
Speaker Change: Okay, and then lastly, just on credit and I get the retail side a bit but what we're seeing across the banking space is a lot more lumpiness on the commercial side.
Speaker Change: And when I look at the impaired loan formations are impaired lumpy CLS. It looks like that's creeped higher year over year sequentially. If I look at total gross new gross impaired loan formations, it's more than doubled year over year I assume most of that is coming in on the commercial side that you can correct me if I'm wrong can you talk a bit.
Speaker Change: <unk>.
Speaker Change: That new gross impaired loan formations, specifically relate to commercial and what Youre seeing is there.
Speaker Change: Anything in particular that we should be thinking about.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Thanks, Doug for your question this is Christian.
Speaker Change: You're right. It's the Guild is really in commercial what Youre seeing is actually a lot of activity in our girls right. So.
Speaker Change: We also had record returned to performing record repayment with minimal write offs. So.
Speaker Change: The large scale increase that you saw in the past quarters are starting to move into resolution.
Speaker Change: So.
Speaker Change: At this time, where we're really comfortable with our guidance of high teens, PCL, which is reflecting the high level of collateral backing our deals.
Speaker Change: And was this mostly Canada.
Speaker Change: Or is it the inventory I assume it's more mechanical.
Speaker Change: Yeah.
Speaker Change: Yes by and large it's mostly Canada.
Speaker Change: And then is this commercial real estate or is there any particular other segment.
Speaker Change: It's.
Speaker Change: Our portfolio is highly diversified and it's there is not a sector that is overweight relative to other of any meaningful importance.
Speaker Change: Okay.
Okay I appreciate the color. Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question one moment please.
Speaker Change: Yeah.
Your next question comes from Darko Me, Alec with RBC capital markets. Your line is now open.
Darko me: Hi, Thank you good morning, just a couple quick questions.
Darko me: First with respect to the lag impact that you referenced.
Darko me: I just wanted to make sure that I understand it. So so there is a repricing that occurred and and.
Darko me: As a result of that.
Darko me: Next quarter.
Darko me: With the with the new loans there'll be less margin.
Darko me: Did I did.
Darko me: Did I understand that correctly.
Speaker Change: Yes. Thank you for the question Darko I'll clarify in and if it's not after what I said please jump in so the way. It works is we got to fed.
Speaker Change: Reduction in the last quarter, so as the fed rates reduces the sulfur costs reduces which reduces our cost of fund is well we have contracts.
Speaker Change: In our inventory financing, which are variable rate contracts, but they reprice on a monthly basis. So there is a lag of timing between the time that our cost of fund reduced and the time that we faster to their customers. So we do benefit from some number of days.
Speaker Change: With an increased margin, which is temporary and non recurring and that's happened in Q4.
Speaker Change: So or in Q1 and in Q1 in Q2 going forward those will not recur unless there is additional fed rate reductions.
Speaker Change: The margin.
Speaker Change: <unk> like the margins are stable in terms of profitability is is that the timing of the repricing for us creates a good guy when interest rates go down.
Speaker Change: I understand and so even when I look at your ear.
Speaker Change: Income statement is that what I'm seeing in the derivatives line and your cost of funding.
Speaker Change: I know that there is one that is much more for the general hedging of the bank in terms of interest rates. So it does not relate to what we're talking about the impact of what I'm talking about pretty much shows up all on net interest income.
Speaker Change: Yes within the net interest income there's two components right. There is the asset and the and the funding cost and when I look at that.
Speaker Change: I see a very big drop in the interest expense from derivatives. So that's what I'm aiming at is that is that.
Speaker Change: Not connected to this lagging.
Speaker Change: No it's not connected to the edging itself. The hedging is different. This is just a question of cost of funds reduction versus.
Speaker Change: The margin improvement from the fact that there is a lag to the repricing of the customer. So it's not a hedging element, it's really an expense cost of net expense revenue.
Speaker Change: Okay. Thank you and then so so I see that on the deposit side as well.
Speaker Change: Fair enough and then just another question with respect to your risk weighted assets.
Speaker Change: And your capital when I look at your.
Speaker Change: Slide I guess it's.
Jon Foster: Jon Foster here.
Jon Foster: If I look at your capital Slide which is slide 11.
Essentially.
Jon Foster: Your your <unk> growth is exceeding your organic capital generation and so the question is what kind of growth are you searching for now while you have.
Jon Foster: Our high efficiency ratio.
Jon Foster: Which is preventing you from.
Jon Foster: Organically generating enough capital or another another way to ask this is where do you want to take down your ratio if.
Jon Foster: If you get good commercial loan growth.
In fact, the target didn't change for the whole bank. So it's ready to go below 60% in the medium term what the advantage. We have right now with <unk>, we have a very high capital base and we can use that capital base to invest in the business to generate the efficiencies, we're looking for and to deploy in the assets.
Jon Foster: We see the growth coming back.
Jon Foster: The capital increase as we got over the last year or a reduction in the average earning assets. So redeploying it isn't going to reuse the capital that we are pretty much accumulated over the last year or so but all of that to say as we generate the efficiency youre going to see as you mentioned the internal generation of capital increase which is going to support.
Jon Foster: Additional growth going forward.
Speaker Change: Alright, Thank you very much for that I appreciate that thank you.
Jon Foster: Thank you.
Andy: This concludes the Q&A session I will now hand, the meeting over to Andy <unk> for closing remarks.
Andy: Thank you I would like to express my heartfelt gratitude to our employees customers shareholders and all stakeholders for your ongoing support as we transform and reshape Laurentian Bank. Your commitment is vital to our evolution and success.
Andy: You have a great day.
Andy: Ladies and gentlemen, this concludes your conference call for today, we thank you for joining NSA you. Please disconnect your lines. Thank you.
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