Laurentian Bank Faces Sharp Profit Decline as Revenue Falls and Credit Losses Rise
Laurentian Bank of Canada (TSX: LB) announced a significant decline in its third-quarter profit, reflecting ongoing challenges in a fluctuating economic environment. For the third quarter of 2024, Laurentian Bank reported a net income of $34.1 million, or $0.67 per diluted share.
This marks a substantial 31% decrease from the $49.3 million, or $1.03 per share, reported in the same quarter last year.
On an adjusted basis, the bank posted earnings of $0.88 per share, down from $1.22 per share in the third quarter of 2023—a decline of 28%. However, this adjusted figure slightly exceeded analysts’ expectations of $0.86 per share.
Laurentian Bank’s total revenue for Q3 2024 was $256.5 million, representing a 1.6% decrease from the $260.8 million reported in the same period last year. This decline was driven primarily by a significant reduction in net interest income, which fell by $11.4 million to $180.8 million, compared to $192.1 million in the third quarter of 2023.
“The decrease in net interest income is a reflection of the challenging environment for commercial loans,” said CEO Éric Provost. “We are seeing the impact of lower volumes, particularly in the commercial real estate sector, where activity has been tempered.”
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The bank’s net interest margin also saw a slight decline, dropping by 5 basis points to 1.79%. This was mainly due to the reduced volume in commercial loans, which typically carry higher interest rates compared to other loan types.
Despite the decline in interest income, Laurentian Bank managed to increase its other income streams by $7.0 million, or 10%, bringing the total to $75.7 million. This growth was driven by higher income from financial instruments, though it was partly offset by lower lending fees, particularly in the commercial real estate sector where activity has slowed.
One of the more concerning aspects of Laurentian Bank’s Q3 results was the increase in provisions for credit losses, which rose to $16.3 million, up 23% from $13.3 million in the same quarter last year–continuing the trend of the major Canadian banks increasing credit loss provision following a tightening of the economy.
The provision for credit losses as a percentage of average loans and acceptances also rose, moving from 14 basis points last year to 18 basis points this quarter. The bank cited “credit migration”—the deterioration of credit quality in certain loans—as the primary reason for this increase. This rise was only partially mitigated by a release of provisions on performing loans, indicating that while some loans have improved in credit quality, the overall risk in the portfolio has grown.
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Laurentian Bank is in the midst of a strategic overhaul aimed at simplifying its operations and focusing on areas where it can compete more effectively. This strategy includes the sale of non-core assets, such as the recent transactions involving Laurentian Bank Securities’ (LBS) retail full-service investment broker division and discount brokerage division.
In August, the bank completed the sale of over $2 billion in assets under administration to iA Private Wealth Inc., a subsidiary of Industrial Alliance Insurance and Financial Services Inc. This sale is expected to yield net proceeds of approximately $12 million in fiscal 2024, mostly impacting the fourth quarter.
Additionally, Laurentian Bank announced the sale of $250 million in assets under administration from its discount brokerage division to CI Investment Services Inc., a subsidiary of CI Financial Corp. This transaction, pending regulatory approval, is expected to close by the end of the calendar year.
These moves are part of Laurentian’s broader strategy to streamline its operations and concentrate resources on core business areas. Provost emphasized the bank’s focus on “leveraging our specializations and investing in technology to strengthen our foundation,” signaling a continued commitment to its strategic plan despite current financial challenges.
Laurentian Bank also saw an increase in non-interest expenses, which rose to $200.2 million for the third quarter of 2024, a 5.4% increase from $190.1 million in the same period last year. Adjusted non-interest expenses, which exclude certain restructuring and impairment charges, rose by $9.4 million to $188.1 million, compared to $178.7 million last year.
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This rise in expenses was driven by several factors, including higher technology costs as the bank continues to invest in its infrastructure and strategic priorities. Additionally, there were increased regulatory expenses and higher professional fees associated with various compliance projects, further contributing to the rise in non-interest expenses.
The bank’s efficiency ratio, a measure of non-interest expenses as a percentage of revenue, increased to 78.1% from 72.9% in the previous year, indicating that the bank’s operating costs have grown faster than its revenue. On an adjusted basis, the efficiency ratio rose to 73.3% from 68.5% last year.
Despite the challenges, Laurentian Bank’s Common Equity Tier 1 capital ratio stood at 10.9% at the end of the third quarter, up from 9.8% a year earlier.
The bank’s board of directors also declared a quarterly dividend of $0.47 per share, consistent with previous quarters, payable on November 1, 2024, to shareholders of record as of October 1, 2024.
Laurentian Bank last traded at $26.96 on the TSX.
Information for this briefing was found via Sedar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
