Ms. Rania Llewellyn reports

LAURENTIAN BANK OF CANADA REPORTS SECOND QUARTER 2023 RESULTS

Laurentian Bank of Canada had net income of $49.3-million and diluted earnings per share of $1.11 for the second quarter of 2023, compared with $59.5-million and $1.34 for the second quarter of 2022. Return on common shareholders' equity was 7.7 per cent for the second quarter of 2023, compared with 10 per cent for the second quarter of 2022. Adjusted net income was $51.7-million and adjusted diluted earnings per share were $1.16 for the second quarter of 2023, compared with $61.6-million and $1.39 for the second quarter of 2022. Adjusted return on common shareholders' equity was 8.1 per cent for the second quarter of 2023, compared with 10.3 per cent for the same period a year ago.

For the six months ended April 30, 2023, reported net income was $101.2-million and diluted earnings per share were $2.20, compared with $115.1-million and $2.51 for the six months ended April 30, 2022. Return on common shareholders' equity was 7.6 per cent for the six months ended April 30, 2023, compared with 9.2 per cent for the six months ended April 30, 2022. Adjusted net income was $106-million and adjusted diluted earnings per share were $2.31 for the six months ended April 30, 2023, compared with $121.1-million and $2.65 for the six months ended April 30, 2022. Adjusted return on common shareholders' equity was 8 per cent for the six months ended April 30, 2023, compared with 9.7 per cent for the same period a year ago.

"I am extremely pleased with our results this quarter and the progress we have made in optimizing our funding profile, ending the quarter with a very strong liquidity position and capital level," said Rania Llewellyn, president and chief executive officer. "This quarter we continued to achieve key milestones along our digital journey, including the public launch of our digital account opening solution, which will allow us to deepen our relationships with current customers and acquire net new customers outside of our branch footprint across Canada."

Driving efficiencies through simplification

In line with the bank's priority to drive efficiencies through simplification and its strategic objective to focus on its specializations, coupled with unfavourable financial market conditions, Laurentian Bank decided in late May to rightsize its capital markets franchise. This is in line with the bank's commitment to operate a focused and aligned offering in key businesses, where it has significant alignment with the rest of the bank.

As a result, restructuring charges of an estimated $6-million (before income taxes) are expected to be incurred in the third quarter of 2023. Laurentian Bank expects these actions will generate recurring cost savings of an approximate $5-million (before income taxes) on an annual basis.

Consolidated results

Three months ended April 30, 2023, financial performance

Net income was $49.3-million and diluted earnings per share were $1.11 for the second quarter of 2023, compared with $59.5-million and $1.34 for the second quarter of 2022. Adjusted net income was $51.7-million and adjusted diluted earnings per share were $1.16 for the second quarter of 2023, compared with $61.6-million and $1.39 for the second quarter of 2022.

Total revenue

Total revenue of $257.2-million for the second quarter of 2023 decreased by 1 per cent compared with $259.6-million for the second quarter of 2022.

Net interest income increased by $4.1-million or 2 per cent to $184.2-million for the second quarter of 2023, compared with $180.1-million for the second quarter of 2022. The increase was mainly due to higher interest income from commercial loans, partly offset by higher financing costs and lower mortgage prepayment penalties. The net interest margin was 1.80 per cent for the second quarter of 2023, a decrease of seven basis points compared with the second quarter of 2022, mainly due to higher financing costs, loan repricing lags and lower mortgage prepayment penalties as a result of the rising interest rate environment, partly offset by favourable changes in the bank's business mix.

Other income decreased by $6.5-million or 8 per cent to $73-million for the second quarter of 2023, compared with $79.5-million for the second quarter of 2022. Unfavourable market conditions impacted financial markets-related revenue in the second quarter of 2023, including fees and securities brokerage commissions, income from mutual funds, and income from financial instruments.

Provision for credit losses

The provision for credit losses was $16.2-million for the second quarter of 2023, compared with $13-million for the second quarter of 2022, an increase of $3.2-million reflecting higher provisions on impaired loans due to credit migration, partly offset by lower provisions on performing loans. The provision for credit losses as a percentage of average loans and acceptances stood at 18 bps for the quarter, compared with 15 bps for the same quarter a year ago. Refer to the risk management section on pages 14 to 16 of the bank's management discussion and analysis for the second quarter of 2023 and to Note 5 to the condensed interim consolidated financial statements for more information on provision for credit losses and allowances for credit losses.

Non-interest expenses

Non-interest expenses amounted to $182.5-million for the second quarter of 2023, an increase of $10.4-million compared with the second quarter of 2022. Adjusted non-interest expenses increased by $9.9-million or 6 per cent to $179.3-million for the second quarter of 2023, compared with $169.4-million for the second quarter of 2022.

Salaries and employee benefits amounted to $100.7-million for the second quarter of 2023, an increase of $2-million compared with the second quarter of 2022, mostly due to salary increases and talent acquisition to invest in strategic priorities, improve the customer experience and support growth. This was partly offset by lower performance-based compensation.

Premises and technology costs were $48.6-million for the second quarter of 2023, an increase of $4.9-million compared with the second quarter of 2022. The increase year-over-year is mainly due to higher technology costs as the bank is investing in its infrastructure and strategic priorities, as well as increased amortization charges resulting from new projects.

Other non-interest expenses were $33.2-million for the second quarter of 2023, an increase of $3.3-million compared with the second quarter of 2022, mainly resulting from higher advertising, business development and travel expenses, as well as higher professional and advisory services fees to deliver strategic initiatives.

Efficiency ratio

The efficiency ratio on a reported basis was 71 per cent for the second quarter of 2023, compared with 66.3 per cent for the second quarter of 2022. The adjusted efficiency ratio was 69.7 per cent for the second quarter of 2023, compared with 65.2 per cent for the second quarter of 2022, mainly as a result of pressures on revenues and investments in strategic priorities, as detailed above. The same elements also contributed to negative operating leverage on a year-over-year basis.

Income taxes

For the second quarter of 2023, income taxes were $9.2-million, and the effective tax rate was 15.8 per cent. For the second quarter of 2022, the income tax expense was $14.9-million, and the effective tax rate was 20.1 per cent. For both quarters, the lower effective tax rate, compared with the statutory rate, is attributed to a lower taxation level of income from foreign operations, as well as from the favourable effect of holding investments in Canadian securities that generate non-taxable dividend income.

Financial condition

As at April 30, 2023, total assets amounted to $50.7-billion, unchanged compared with $50.7-billion as at Oct. 31, 2022.

Liquid assets

As at April 30, 2023, liquid assets amounted to $11.5-billion, a decrease of $300-million compared with $11.8-billion as at Oct. 31, 2022.

The bank continues to prudently manage its level of liquid assets. The bank's financing sources remain well diversified and sufficient to meet all liquidity requirements. Liquid assets represented 23 per cent of total assets as at April 30, 2023, unchanged compared with Oct. 31, 2022.

Loans

Loans and bankers' acceptances, net of allowances, stood at $37.7-billion as at April 30, 2023, an increase of $300-million since Oct. 31, 2022. During the first half of 2023, commercial loan and residential mortgage growth was partly offset by a decrease in personal loans. Commercial loans and acceptances amounted to $18.6-billion as at April 30, 2023, an increase of $400-million or 2 per cent since Oct. 31, 2022. The increase resulted mainly from net growth in both inventory financing and real estate lending. Residential mortgage loans of $16.4-billion as at April 30, 2023, increased by $200-million or 1 per cent from Oct. 31, 2022. Personal loans of $2.9-billion as at April 30, 2023, decreased by $400-million from Oct. 31, 2022, mainly as a result of a decline in the investment loan portfolio driven by volatile market conditions.

Deposits

The bank has prudently maintained higher liquidity over the past few quarters due to macroeconomic uncertainty. The bank had strongly increased its personal partnership and personal term deposits in the first quarter by a combined $1.4-billion. In addition and as further detailed below, the bank issued an additional $800-million of cost-effective long-term debt related to securitization activities during the second quarter. Therefore, the bank took actions throughout the second quarter to reduce shorter-term more costly deposits, including personal deposits from advisers and brokers, leading to a decrease of $600-million of total deposits to $26.5-billion as at April 30, 2023, compared with $27.1-billion as at Oct. 31, 2022. Of note, personal deposits sourced through the retail channel increased by $400-million or 5 per cent since Oct. 31, 2022.

Personal deposits represented 83 per cent of total deposits as at April 30, 2023, compared with 82 per cent as at Oct. 31, 2022, and contributed to the bank's sound liquidity position.

Debt related to securitization activities

Debt related to securitization activities increased by $500-million or 4 per cent compared with Oct. 31, 2022, and stood at $12.6-billion as at April 30, 2023. As detailed in the deposits section above, the bank took actions throughout the second quarter to optimize its financing structure and issued $800-million of cost-effective debt related to securitization activities.

Shareholders' equity and regulatory capital

Shareholders' equity stood at $2.8-billion as at April 30, 2023, and increased by $64.9-million compared with Oct. 31, 2022. Retained earnings increased by $51.9-million compared with Oct. 31, 2022, mainly as a result of the net income contribution of $101.2-million, partly offset by dividends. For additional information, please refer to the capital management section of the bank's MD&A and to the consolidated statement of changes in shareholders' equity for the period ended April 30, 2023.

The bank's book value per common share was $59.06 as at April 30, 2023, compared with $58.02 as at Oct. 31, 2022.

In the second quarter of 2023, OSFI's (Office of the Superintendent of Financial Institutions) revised capital, leverage, liquidity and disclosure rules that incorporate the final Basel III banking reforms with additional adjustments to make them suitable for federally regulated deposit-taking institutions (DTIs) took effect. The revised rules also include the small and medium-sized deposit-taking institutions (SMSBs) capital and liquidity requirements guideline, as well as separate Pillar 3 disclosure requirements for domestic systemically important banks (D-SIBs) and SMSBs. The new regulatory requirements had no material impact on the bank's common equity Tier 1 capital or common equity Tier 1 capital ratio as at April 30, 2023. Refer to the regulatory capital developments section on page 13 of the bank's MD&A for the second quarter of 2023 for more information.

The common equity Tier 1 capital ratio stood at 9.3 per cent as at April 30, 2023, an increase of 20 basis points compared with Oct. 31, 2022, and in excess of the minimum regulatory requirement and the bank's target management levels. The bank dynamically manages its level of capital which led to an increased CET1 capital ratio since the beginning of the year due to internal capital generation. The bank met OSFI's capital and leverage requirements throughout the quarter.

On May 31, 2023, the board of directors declared a quarterly dividend of 47 cents per common share, payable on Aug. 1, 2023, to shareholders of record on July 4, 2023. This quarterly dividend increased by 2 per cent compared with the dividend declared in the previous quarter and is 4 per cent higher compared with the dividend declared in the previous year. The board also determined that shares attributed under the bank's shareholder dividend reinvestment and share purchase plan will be made in common shares issued from corporate treasury with a 2-per-cent discount.

Access to quarterly results materials

This press release can be found on the bank's website, under the press room tab, and the bank's report to shareholders, investor presentation and supplementary financial information under the investor centre tab, financial results.

Conference call

Laurentian Bank media representatives and the public to listen to the conference call to be held at 9 a.m. (ET) on June 1, 2023. The live, listen-only, toll-free, call-in number is 1-888-664-6392, code 81520025. A live webcast will also be available on the group's website under the investor centre tab, financial results.

The conference call playback will be available on a delayed basis from 12 p.m. (ET) on June 1, 2023, until 12 p.m. (ET) on July 1, 2023, on the bank's website under the investor centre tab, financial results.

The presentation material referenced during the call will be available on the bank's website under the investor centre tab, financial results.

About Laurentian Bank of Canada

Laurentian Bank believes it can change banking for the better. By seeing beyond numbers.

Founded in Montreal in 1846, Laurentian Bank helps families, businesses and communities thrive. Today, it has approximately 3,000 employees working together as one team, to provide a broad range of financial services and advice-based solutions for customers across Canada and the United States. The bank protects, manages and grows $50.7-billion in balance sheet assets and $27.7-billion in assets under administration.

Laurentian Bank drives results by placing its customers first, making the better choice, acting courageously and believing everyone belongs.

We seek Safe Harbor.