Laurentian Bank of Canada Q1 2025 Earnings Call Transcript

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

Question: Meny Grauman - Scotiabank GBM - Analyst : Just wanted to follow up on the outlook that you gave on margins. I think you mentioned that we should expect it to be slightly down. So I just wanted a little bit more color in terms of sort of magnitude there and trying to understand why as well. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 28, 2025 / 2:00PM, LB.TO - Q1 2025 Laurentian Bank of Canada Earnings Call

Question: Meny Grauman - Scotiabank GBM - Analyst : Understood. And I just wanted to ask about tariffs. And the first question is just in terms of what your exposure is to sort of areas of the economy that are likely to be more impacted by tariffs in terms of autos, aluminum, those types of areas of the economy that would potentially be directly in the eye of the storm. And so, what the exposure for Laurentian Bank is there?

Question: Meny Grauman - Scotiabank GBM - Analyst : In terms of the inventory finance business, there's a lot of talk about the auto sector being very much a cross-border business. So tariffs may impact supply chain. But in terms of the kinds of products that you're financing in terms of marine, power sports, trailers, give a sense of like how much of that supply chain is just within the US? Or does it connect to Canada? And could it be susceptible to sort of disruptions in a tariff war?

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Eric, I just wanted to maybe build on that a little bit. You held an Investor Day. You laid out a plan for us. How, if at all, do you anticipate tariffs may impact the timing of the delivery of that ambition?

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : That's really helpful. So can I just clarify? Basically, what you're saying is, the revenue environment is one thing. But once you've started down the optimization and expense initiatives, you expect to continue on that regardless of the revenue environment? Or do you have flexibility to slow that down to continue to hit that, call it, mid-70s expense ratio?

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : That's -- yes, I get that. And just one last question. Are you -- like, does Northpoint -- I assume they're in touch with their clients and their borrower base. Like, can you share with us what, if any, conversations, tariff-related, are being had at Northpoint and in your inventory finance with customers?

Question: Paul Holden - CIBC Capital Markets - Analyst : I want to ask maybe one more additional question on performing allowances and tariff risk. If I look at your slide 17, which is a useful slide, it kind of suggests two things to me. One is like, if we look back in the 2020 period, you didn't need to increase your performing allowances as much as the big banks did. So maybe there's just less economic sensitivity in your loan mix. So maybe you can address that. But then, also two, I imagine some of the reason 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 is, address sort of where your ACL ratio for inventory finance and equipment finance specifically stands versus the past.

Question: Paul Holden - CIBC Capital Markets - Analyst : Would you be willing to quantify what the impact to your ACL ratio or your provisions would be, if you moved to 100% probability on the pessimistic scenario?

Question: Paul Holden - CIBC Capital Markets - Analyst : Okay. One additional -- or I guess, two additional questions for me. First off, I think you called acceleration in those planned project investments starting in Q2. So, that just has me curious in terms of what's driving the acceleration. Have you made better progress to date than planned? Or I guess, really, what's the reason for accelerating those projects?

Question: Paul Holden - CIBC Capital Markets - Analyst : Got it. Okay. That makes sense. And last question for me. You've added -- Laurentian has added a number of dealer relationships over the years. I don't recall you calling them out like you have with Yanmar. So wondering why you're calling out the Yanmar. Is it simply because of diversifying into ag? Or is it also maybe because of the potential size of that relationship as well?

Question: Doug Young - Desjardins Securities - Analyst : Just hopefully, these are a few clarifications. But a much cleaner quarter from a restructuring charge perspective. Anything else big on the horizon from a restructuring charge perspective that we should be anticipating?

Question: Doug Young - Desjardins Securities - Analyst : Okay. This might tie in with that one, but can you remind us what else needs to be really done? We talked a lot about Northpoint and inventory financing, but what really needs to be done to improve the efficiency of the Canadian banking business? And I assume a lot of these projects, that's what it's targeted at and that's what the accelerated or elevated expenses are and the movement to cloud. But can you remind me 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?

Question: Doug Young - Desjardins Securities - Analyst : And no update on timing? That timing that you gave at the Investor Day is still --

Question: Doug Young - Desjardins Securities - Analyst : Okay. And then, lastly, just on credit, and I get the retail side of it, but what we're seeing across the banking space is a lot more lumpiness on the commercial side. And when I look at the impaired loan formations or impaired loan PCLs, it looks like that's [crept] 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 has come in on the commercial side. You can correct me if I'm wrong. Can you talk a bit about that new gross impaired loan formation specifically related to commercial and what you're seeing? Is there anything in particular that we should be thinking about?

Question: Doug Young - Desjardins Securities - Analyst : Was this mostly Canada or was it the inventory? I assume it's mostly Canada, but the --

Question: Doug Young - Desjardins Securities - Analyst : And any -- is this commercial real estate? Or is there any particular other segment?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Just a couple of quick questions. First, with respect to the lag impact that you referenced, I just wanted to make sure that I understand it. So there's a repricing that occurred. And as a result of that, next quarter, with the new loans, there'll be less margin. Did I understand that correctly? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 28, 2025 / 2:00PM, LB.TO - Q1 2025 Laurentian Bank of Canada Earnings Call

Question: Darko Mihelic - RBC Capital Markets - Analyst : I understand. And so, Yvan, when I look at your income statement, is that what I'm seeing in the derivatives line in your cost of funding?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Yes. Within the net interest income, there's two components, right? There's the asset and the funding cost. And when I look at that, I see a very big drop in the interest expense from derivatives. So that's what I'm aiming at. Is that not connected to this lagging?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay. And then -- so I see that in the deposit side as well. Fair enough. And then, just another question with respect to your risk-weighted assets and your capital. When I look at your slide -- I guess it's jumped faster here. If I look at your capital slide, which is slide 11, essentially your RWA growth is exceeding your organic capital generation. So the question is, what kind of growth are you searching for now while you have a high efficiency ratio, which is preventing you from really organically generating enough capital? Or another way to ask this is, where do you want to take down your ratio if you get good commercial loan growth? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 28, 2025 / 2:00PM, LB.TO - Q1 2025 Laurentian Bank of Canada Earnings Call