Bank’s third-quarter earnings improve
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Sep 04, 2020 • • 3 minute read
The interim president and chief executive of Laurentian Bank of Canada says that the Montreal-based lender’s expenses and lines of business are under review as it aims to boost both its performance and profits amid the coronavirus pandemic and a search for a permanent CEO.
“We have started to review our cost structure in our operations, as well as all our lines of business and their products, segments and niches,” Stéphane Therrien said during a conference call for analysts and investors on Friday. “All this to improve our performance and generate profitable growth for the bank.”
Laurentian launched a seven-year overhaul of its operations in Nov. 2015, with Canada’s seventh-biggest bank investing in its technology and digital operations, as well as turning its brick-and-mortar branches into advice-only outlets. However, the bank’s results have still been rocky at times, and the lender had anticipated delays to its strategic plan because of COVID-19.
After reporting disappointing second-quarter earnings and a 40-per-cent cut to its dividend in late May, Laurentian announced in June that its president and CEO, François Desjardins, would retire from the bank at the end of that month. Therrien, Laurentian’s then-executive vice-president, personal and commercial banking, was appointed Desjardins’ interim successor.
Therrien said during the conference call Friday that the bank plans to continue with its transformation plan. The interim CEO also noted Laurentian had merged 14 of its “financial clinics” during the third quarter and planned to merge another six in the fourth quarter.
“Given the impacts of the pandemic on our operations and results, the management team is reviewing the various elements of the strategic plan with the aim of refining it,” Laurentian said in a report to shareholders that was released on Friday.
Laurentian also announced Friday that it booked net income of $36.2 million for the three months ended July 31. The third-quarter profit was an increase over the $8.9 million that the lender reported for its fiscal second quarter, but was 24 per cent lower than profit a year earlier.
The bank’s adjusted diluted earnings per share for the third quarter were $1.02, which was better than the 45 cents consensus among analyst estimates, yet still 11 per cent off from a year ago.
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One of the reasons for the increased-yet-still-decreased earnings was that Laurentian set aside $22.3 million for sour loans during the third quarter. This was down from the $54.9 million in provision for credit losses the bank set aside in the second quarter, but it was up from $12.1 million a year ago because of the pandemic, the economic effects of which have forced lenders to increase reserves.
Like its fellow Canadian banks, Laurentian has been offering up to six months of deferred loan payments to its customers to help them get through the pandemic. And, again like its peers, Laurentian is seeing the amount of deferred loans decline as the economy reopens. Payments on approximately $1.83 billion of Laurentian’s loans, or 5.5 per cent of its portfolio, were being deferred as of the end of July, down from $4.4 billion and 13.3 per cent as of the end of April.
National Bank Financial analyst Gabriel Dechaine noted Laurentian’s total revenue rose two per cent year-over-year, to $248.6 million, but that loan balances dipped by three per cent and deposits by eight per cent.
“On the bright side,” Dechaine added in a note to clients, “branch-raised deposits increased on a sequential basis for the second consecutive quarter.”
Laurentian’s common equity tier 1 ratio, a measure of its capital strength, rose to 9.4 per cent in its third quarter from 8.8 per cent for the second quarter.
Therrien said the pandemic particularly curbed Laurentian’s business loan growth during the quarter, which was mostly because of weaker inventory financing. Demand from customers for boats and recreational vehicles shot up, the interim CEO said, but manufacturing interruptions meant dealers were unable to restock their inventory and wound up borrowing less from the bank.
Laurentian also said salaries and employee benefits for the third quarter rose $2.4 million from a year earlier, to $92.5 million. Part of the reason for this, the bank said, was a $2.7-million compensation charge tied to Desjardins’ retirement.
When asked about the board of directors’ search for a permanent CEO, Therrien said there was “no timeframe” for the effort.
“It could be an internal candidate as well as an external candidate,” the interim CEO said. “So more to come, I would say.”
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