Laurentian Bank of Canada Q4 2023 Earnings Call Transcript

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

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : Yvan, just wanted to clarify something up top in terms of the guidance you provided at the end of your commentary, just to clarify that most of it was directed at Q1 and then the PCL guidance for the year as a whole. Did I have that right? I just wanted to double check.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : Okay, thanks for that. Another clarification. In terms of the restructuring charge that you're going to take in Q1, you highlight our run rate savings of $8 million. Just wondering if you see that slowing down to the bottom line or is there a need to reinvest that at this stage?

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : Got it. And then maybe this is a question for Eric. It definitely sounds like there's a level of frustration from your part in terms of the progress on expense management at the bank. I'm just curious about a few things. One, if you could go into more detail in terms of how you analyze the problem. Why has expense management not been at the level that you think it needs to be? So if you look back historically where do you see the issues? So maybe start there. Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market I would not qualify those as issues. I think that we haven't tackled simplification as hard as we could have in the past. And what I'm committed to is that me and the leadership team in place will be revisiting the strategic plan and make sure that on the core aspect, we focus more on our customer. We focus more on creating efficiencies through simplification, and that while doing that, we will continue and invest in fundamental technology, but I think it's a whole, Meny, at the end of the day.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : And I know you're going to have a -- you're going to you think about your strategic plan in more detail in the spring. You made that clear. But just on this expense issue in terms of where expenses go from here, ideally, is there an efficiency target that you think is important to reach even if it's just a range? Like at what point would you say mission accomplished in terms of expenses? How much improvement is there for Laurentian Bank? Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market The only thing I can come back to, Meny, is that like the goal of the previous strategic plan was to get us below the 65% mark, and we're not heading in the right direction right now. So again, part of the revamping will be to get back to the drawing boards. Make sure that we address a path of simplification and that we go the other way around.

Question: Meny Grauman - Scotiabank Global Banking and Markets - Analyst : Understood.

Question: Paul Holden - CIBC Capital Markets - Analyst : So on the guidance, I appreciate that it was focused on Q1. I think the other important factor for us to have a good sense on is the net interest margins. I'm not sure to what extent that might be impacted by your upcoming strategic review. But if you give us any kind of color on NIM outlook for the full year, I think that would be helpful and appreciated.

Question: Paul Holden - CIBC Capital Markets - Analyst : Okay, that is helpful. And then specific question on funding. The strategic partner deposits were down roughly 10% quarter over quarter. What drove that? And are the strategic partner deposits still an area of focus for Laurentian?

Question: Paul Holden - CIBC Capital Markets - Analyst : Okay. So based on that answer, is there then an opportunity for Laurentian to offer term deposits to those same partners?

Question: Paul Holden - CIBC Capital Markets - Analyst : Understand. Okay. Next question is with respect to credit, so obviously nothing worrying in the PCL ratios. But if I look at slide 22, I can see both the gross and net impaired loans on a basis point basis increasing faster than PCL. And again, nothing necessarily worrying there. It's just rate of change is different. So the question really is like why not increase provisions a little bit more, be a little bit more conservative in terms of how you're managing the allowances particularly given you've highlighted economic challenges ahead?

Question: Paul Holden - CIBC Capital Markets - Analyst : Okay. Last question and probably the most important question for me with respect to capital allocation. So CET1 ratio of 9.9, up 80 basis points a year ago, I would agree, you're in a good capital position. And given the outlook for muted loan growth, what is the plan to use that additional capital you built over the last year or maybe the question is, do you believe you have capacity to use it? And if you do, how would you plan on using it? I would argue with the stock trading at less than 0.5 times book and operating ROE of, let's call it, around 8, buying back stock is a pretty attractive use of capital. So interested to hear your thoughts on that.

Question: Paul Holden - CIBC Capital Markets - Analyst : Okay. That's it for me.

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Eric, perhaps some of these questions are going to be answered in more detail when you do your, I guess, strategic review unveiling. But when you say the focus is on customer centricity or being more customer centric, can you just elaborate what does that mean, and how it would be different from how you are operating today or have been operating, I guess, over the last number of years? Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market Well, one thing I can comment on, Sohrab, and thank you for your question, is definitely sharing best practices. And we've highlighted in the past quarters, like our NPS from our commercial banking customers have been quite exceptional, and we were able to actually build a strong culture around value added to our customer base in that particular segment. And from the get-go, it is just a question of sharing those best practices. I think that I highlighted that in my intro in terms of appointing the right leaders to get that expertise closer to our other business lines. So this is a start, but for sure, as you mentioned, the plan will get us further there.

Question: Sohrab Movahedi - BMO Capital Markets - Analyst : Okay, understood.

Question: Gabriel Dechaine - National Bank Financial - Analyst : I have a technical question on your NIM change explanation and then I want to dive into the liquidity commentary and outlook a little bit more. But on the NIM performance, one of the items you identified was that the commercial NII was down. I'm just trying to understand why that is because if I look at balances, they were, at least on a spot basis, they were flat. Maybe I'm missing something there.

Question: Gabriel Dechaine - National Bank Financial - Analyst : Got it. Okay. Then on the liquidity. Probably, one of these average balance things, but if I do simple average using spot balances, and forgive me if you disclosed these average liquidity balances somewhere, but if I just look at cash deposits of banks and securities, the ratio of those liquid assets to earning assets, it was up a bit sequentially but pretty much in line with previous quarters earlier this year and actually down versus last year. So it doesn't look to me that you dramatically increased liquidity or anything like that. And maybe I'll file this one in the technical questions as well. Maybe you can walk me through what I might be missing or how you define liquidity perhaps.

Question: Gabriel Dechaine - National Bank Financial - Analyst : Okay. And like I'm a bit surprised to hear you say you're going to take liquidity down over the next few quarters, maybe not dramatically, but whittling away at it, whatever. I would think, given the issues, given the deposit base that has been shrinking in some areas that maybe some, we'll call them outside observers, would want you to stick with higher liquidity ratios for an indeterminate period. What's the --

Question: Gabriel Dechaine - National Bank Financial - Analyst : Okay. So when I look at the -- you're saying there has been no fallout -- at least from a customer standpoint, retention standpoint, I see the personal deposits down a bit from last quarter, nothing crazy. But the business deposits were down 4%, 5%, that's normal course, nothing, there's no -- nobody said, okay, I'm done with Laurentian or anything like that?

Question: Gabriel Dechaine - National Bank Financial - Analyst : Got it. And then last one, I guess another technical one, the RWA deflation, so the 30-basis point boost to your capital ratio, can you explain that one to me? Was it some lagged impact from the CAR guidelines or something like that?

Question: Darko Mihelic - RBC Capital Markets - Analyst : My first question is, are you committing to earnings per share growth in 2024?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Similar question, Laurentian Bank has in the past cut its dividend. Are you committed to keeping the dividend at its current level for 2024?

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay. And the bank had a strategic review last year. I guess, there's a couple of questions around like is that going to be something that may occur more frequently at Laurentian as we go forward now at the Board level? And I guess, in a roundabout way, where I'm coming from on this question is, there was some information circulating, I guess, in last year that perhaps there was someone looking to acquire Laurentian going forward. And I'm just curious if the strategic review could happen again in 2024, is there any intention to hold a strategic review every year going forward? Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market Hi, Darko. It's Eric. I'm going to take this one. Listen, as it was announced mid-September, like the strategic review was closed and decision was to actually pursue with accelerating and reducing, simplifying this organization. And this is what I'm committed to doing with our executive team. So I won't speculate about the future years. What I can tell you is that, me and the team will be working together to revamp the plan. We are comfortable right now about the business mix and how we operate and how we have been able to focus on specialized aspect mostly in our commercial business lines. But the thing for sure, we will put more emphasis on our customer where we bring value. We need to streamline and be a simpler bank, and we will keep investing in the foundational technology that will keep us in the right spot. So this is what I can share right now in terms of where we are.

Question: Darko Mihelic - RBC Capital Markets - Analyst : Okay, great.

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : So maybe for Yvan, you mentioned like relatively stable margins, is that relatively stable to Q1 or was that relatively stable versus last year, so the full year?

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : Okay. So it's just Q1. Understood. Yvan, maybe sticking with you for a moment. Can you talk to any benefits from this quarter's restructuring charges? I think you mentioned $8 million cost savings from next quarter's restructuring, but I didn't hear anything for this quarter. So should we see no savings from this quarter? What are your thoughts on that?

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : Okay. And then maybe I'll switch over to Eric here just on that thought. Would it be fair to suggest you have the right management team in place right now, so there is no more shifts we should expect on the top of the house? Is that a fair statement? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 07, 2023 / 2:00PM, LB.TO - Q4 2023 Laurentian Bank of Canada Earnings Call Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market Well, yeah. With the recent appointments we just made, Lemar, I think surrounding me is the right team, and we'll work together to again focus on our structure and simplifying the organization. So right now, I have the right level of experts with me to achieve this revamp plan.

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : That's it for me.

Question: Marcel McLean - TD Securities - Analyst : Maybe continuing with Eric on similar line of questioning from Lemar there. I can appreciate you've been only two months here, but are there any areas of the bank that maybe you're thinking about doubling down on or perhaps stepping away from? Like, if we're not going to get maybe a sale of the bank, of total bank, are there assets or certain businesses you want to exit that you see, just want to get your thoughts, early thoughts there? Eric Provost - Laurentian Bank of Canada - Executive Vice President, Head of Commercial Banking and President, Quebec Market From a macro perspective right now, we're in a situation where we still need to take cautious approach in terms of how we see future. What I can tell you is that we feel good about our current business mix. But part of revamping the plan will be to make sure that we make the right approach and decisioning in terms of how we put even more emphasis on where we add value to our customers, so this will be done across our business lines. I did commit to making us a simpler organization and a better one. So again, like we'll see how we can end with the right approach, but right now, too early to tell. We'll be back in the spring with more details. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 07, 2023 / 2:00PM, LB.TO - Q4 2023 Laurentian Bank of Canada Earnings Call

Question: Marcel McLean - TD Securities - Analyst : Okay, got it. All right. That it's for me.