Laurentian Bank of Canada at RBC Capital Markets Canadian Bank CEO Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Darko Mihelic - RBC Capital Markets - Analyst : Now, in this instance, I want to start the conversation a little bit differently. Because in this situation, in Laurentian in particular, we just recently had some changes. So +ric, you've been at Laurentian Bank for well over a decade, and you were recently appointed as the President and CEO in October. And obviously, the first time here at my conference, so again, welcome. But maybe, you can spend a little bit of time here for investors and shareholders a little bit on your background just to start us off here because, well I could say, you're new. Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market Yeah, yeah. Thank you for having me this afternoon. And yes, this is my first RBC Conference. Very pleased to be here. As you said, just over 11 years actually for Laurentian Bank, last three years as Head of Commercial Banking. And within that group and that timespan, we've been very successful for the whole organization, delivering strong growth. 16% CAGR, grow those assets from $12.7 billion to $18 billion in that timespan, and also generate great NPS. So great customer surveys, feedback from excellent to world-class, actually in some of our specialty groups. And looking forward, I believe that we can take those learnings and best practices and actually extend those to the whole organization. As for me, I'm a pretty passionate guy, very result driven. I'm a team player. I love our people and I love this bank.

Question: Darko Mihelic - RBC Capital Markets - Analyst : So one of the things that we noticed is, okay -- so in your results, there was some fees that you had waived, and it does look like the deposit base was stable. But we've gone through Christmas now and people are out using their cards and spending and so on. So can you give us an update? What is -- what are the customer reaction today? Is there anything new to speak to that? And is there any other kind of fee waiving that we should think about? Or other actions to not only appease the customer base, but to start growing deposits? So maybe, you can talk to a little bit of the more immediate aftermath? Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market Yeah. For our customers, first of all, this, I'd like to take this opportunity of being here to thank them for their resiliency and their patience through to this event. The actions that were needed to be taken were taken. So we waived September and October fees, and that was disclosed in our Q4 results. And really, like in terms of how we think forward about deposits, deposits are key. They're core to the bank. We believe in a strong deposit base, and we need to aim and continue at trying to grow that deposit. But as we highlighted in terms of the strategic alignment between our loans, growth, as well as our deposits and securitization growth, we need to make sure that both goes in sync. And throughout this summer and the fall period, we've been managing liquidity very, very prudently, maintaining a very high level of LCR. And right now, we feel pretty strong about our liquidity position, which could position us in the upcoming quarters in terms of considering maybe reducing a little bit our deposit base, again, remaining prudent in the overall. But to enhance profitability, this is something we might be concerning.

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay. I look forward to the more detailed plan soon enough, I guess. Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market Spring, yeah.

Question: Darko Mihelic - RBC Capital Markets - Analyst : But if rates do come down faster and dramatic, you think what's? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 09, 2024 / 7:35PM, LB.TO - Laurentian Bank of Canada at RBC Capital Markets Canadian Bank CEO Conference Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market It could have a small benefit to the margin if it comes on a faster pace of course, and on bigger scale, yeah.

Question: Darko Mihelic - RBC Capital Markets - Analyst : And how much is that predicated on growing the number of dealers? Is there a push to attract new dealers to the platform? Or are you content with where you are? Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market No. Actually, we see great opportunities in that business model because we can leverage the operational capabilities of inventory financing. And as we indicated in the past, we can grow this into other industries. Right now, we have a big focus in marine, RV, manufactured housing and trailers. But for sure, the team has been growing those dealer base between 10% and 15% organically per year. Now, we started expanding into ag, into construction, into IT, and it's pretty much the same recipe all across. You start with the OEM. You go out there, you sign a repurchase program with them. They get out of -¡ they get to their dealership distribution list. After that, you do calls to onboard those dealers. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 09, 2024 / 7:35PM, LB.TO - Laurentian Bank of Canada at RBC Capital Markets Canadian Bank CEO Conference It takes securities on dealers, PGs from the owners. Then, after that, you have curtailment whenever these assets go out of the repurchase cycle. So we feel good about the opportunity. It's definitely a business that we like, and we've been very successful of growing in the past.

Question: Darko Mihelic - RBC Capital Markets - Analyst : And just a final question on this, and I promise to move on. But this is an interesting different thing from Laurentian, so we always want to dive into a little more detail on what some banks are doing differently. So if you are in fact moving into other industries, are you growing your sales force? Or can you give us any indications? And you mentioned 15% growth. Is 15% growth reasonable? Is 20%, 30%? In number of dealers, not necessarily in balances as well. Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market Yeah, yeah. So it's number of dealers. And yes, when you go into another industry, it's all about hiring the right people and going after the right OEMs at the level. So -- but you don't need to deploy a very big workforce or sales force to do that. And once you onboard those OEMs, you can after that, leverage the inside salespeople that you have already into the operational structure and maximize that structure. So after that, to add heads towards the capacity and the type of assets you think you can bring in. But in terms of potential growth, it's definitely a path forward for us.

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay. So I promised I wouldn't ask any more on this, so I'll move on to credit. So maybe, on provisions for credit losses. You provided pretty -- we understand where Laurentian's PCL have been, very strong reserves as well. So how do we think about credit in 2024 for your bank? And are there any areas that maybe, you'd point to have potential weakness or strength that we should be thinking about here in 2024? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 09, 2024 / 7:35PM, LB.TO - Laurentian Bank of Canada at RBC Capital Markets Canadian Bank CEO Conference Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market Well, as you said, we have a very high level of comfort about our reserving process. The portfolio has been quite resilient so far. And it's pretty hard to predict in this current environment where PCLs will be. We indicated we'd be managing high teens, low 20s throughout 2024, we still have this in mind. And in terms of areas, we've kept the same underwriting discipline approach towards our different business line. And then, we intend to do so. I think that having a stable approach when you're out there providing for loans and financing is the right way to do so, and that allows you to go through cycles in a less bumpy ride. So I think we're well positioned where we are now.

Question: Darko Mihelic - RBC Capital Markets - Analyst : And so, how about capital? Capital ratio, 9.9%, up 80 basis points QoQ. You're looking to operate around 9%, I think. So how do you intend to -- and is there a difference between you and your predecessors on -- how you think about managing capital at Laurentian Bank? Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market Well, we still need to remain prudent. And we guided towards -- we are comfortable at the level we're at. We're aiming to manage towards a 10% capital ratio. And again, after that, there's decisions to make sure that the capital we deploy, we deploy in the right areas, that will generate the returns so that we can hit that ROE target. So in our mind, we're at the right place. And it's interesting to see, all of the big banks now have disclosed their CET1 ratio and standardized approach. And happy to be in the top banks, considering our positioning right now at 9.9%, so I think we're in a good spot in terms of capital management.

Question: Darko Mihelic - RBC Capital Markets - Analyst : Right. That's where I'm going with. Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market Yeah.

Question: Darko Mihelic - RBC Capital Markets - Analyst : So you wouldn't consider an outright sale, but inviting in a partner as a potential? Is that how I should read the answer? Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market Well, what I mean, Darko, is that part of the plan, we need to revisit all the areas of the bank and make sure that we maximize our capital deployment, but also the profitability. So Northpoint is a key factor into our organization, and we see that as a very good potential growth. And to build ecosystem around the offering we already have with that dealer base is something that could be appealing to us, so we'll see.

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay, great. I think -- and then, one more chance because we got one more minute. If I could sneak in another question. Okay. So your dividend payout ratio increase throughout most of 2023, should we expect this to continue? Or is there room to pull back on dividends for a capital buffer? Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market It's a great question. And then, as you saw in last quarter, we hold on our dividend increase because we guided towards a distribution ratio between the 40% and 50%. At Q4, we were at 47% and expect to be still high in that distribution range. So I think it needs to be factored into the plan overall. What we need to do, what we need to invest, and then, what are the capital needs for that. So again, we'll need to come back in the spring with a clearer view of what the banks look like in the future.