Laurentian Bank reports net income of $28.3 million for the second quarter of
2010
MONTREAL, May 26 /CNW Telbec/ -
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Highlights of the second quarter 2010
- Net income of $28.3 million, up 34% from $21.2 million for the second
quarter of 2009
- Return on common shareholders' equity of 10.9%, compared to 8.5% for
the second quarter of 2009
- Total revenue of $178.1 million, an increase of 15% from $154.8 million
a year ago
- Loan losses of $16 million, unchanged from the first quarter of 2010,
and up from $12 million in the second quarter of 2009
- Total loans and bankers' acceptances increased by more than
$2.4 billion, or 16%, over the last twelve months
- Significant year-over-year improvement of the efficiency ratio to 69.4%
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Laurentian Bank of Canada reported net income of $28.3 million, or $1.06 diluted per common share, for the second quarter ended April 30, 2010, compared to net income of $21.2 million, or $0.76 diluted per common share, for the second quarter of 2009. Return on common shareholders' equity was 10.9% for the quarter, compared to 8.5% for the corresponding period in 2009.
For the six months ended April 30, 2010, net income totalled $60.4 million or $2.26 diluted per common share, compared with net income of $46.2 million or $1.68 diluted per common share in 2009. Return on common shareholders' equity was 11.6% for the six months ended April 30, 2010, compared to 9.3% for the same period in 2009.
Commenting on second-quarter results, Réjean Robitaille, President and Chief Executive Officer, mentioned: "We have maintained our momentum this quarter with earnings per share and ROE improving by 39% and 27% respectively compared to the second quarter of 2009. Year-over-year, revenue growth of 15% once again demonstrated our ability to grow organically and contributed to strong positive operating leverage. Furthermore, we continued to generate significant growth in our loan portfolio and improved the contribution from non-interest income. Overall, credit quality has stabilized in the quarter and certain portfolios, mainly on the retail side, have started to improve."
"All our business segments contributed to the strong quarter. Net income in the Real Estate and Commercial and B2B Trust segments increased by 80% and 45% respectively, as they benefitted from the improvement in net interest margins as well as higher loan and deposit volumes."
Review of Business Highlights
Laurentian Bank has yet again delivered significant loan growth during the quarter. Since the beginning of the year, loans have increased by 8%. This growth furthers the diversification of our portfolios and always conforms to our prudent approach to risk management. With approximately 40% of loans originating outside of Quebec, the Bank is geographically well diversified. Similarly, the distribution of the loan portfolio provides good balance and reduces credit risk.
Laurentian Bank has been pursuing its growth across all of its activities over the past few years, guided by the strategies and business development initiatives that have been put into place. This is exemplified by our loan and deposit portfolios which, over the past 3 years, have grown on average per year by more than 9% and 13% respectively. This growth is due to the agility that our business model offers.
More specifically, in the second quarter of 2010, business lines demonstrated solid performance. Moreover, their profitability is core, strong and sustainable. This year, the RRSP campaign in the Retail and SME Quebec sector again reached a record level, despite economic conditions making it difficult for many to invest for their retirement. This successful campaign demonstrates the Bank's ability to seize opportunities to strengthen and deepen client relationships. Similarly, the expansion of our sales teams serving businesses has helped to improve the quality of service and strengthen the client-Bank bond. This in turn contributed to business loans increasing by almost $300 million since the beginning of the year. Furthermore, B2B Trust continues to maintain its leadership position among financial intermediaries. The strong relationships that are being forged translate into steadily increasing loans and deposits. Finally, Laurentian Bank Securities is reaching more clients with the number of advisors now totalling 85.
The Bank is continuing its efforts to increase its profile. Advertising campaigns in the Retail and SME Quebec segment and at B2B Trust are raising the level of awareness in the Bank's target markets. The Bank is also involved, on a grass roots level, with several of the communities in which it operates. This too enhances the Bank's profile and puts into practice one of its core values, that of proximity.
It wouldn't be possible to forge strong client relationships, raise the profile of the Bank and build a well diversified institution without employees who are flexible and share in the entrepreneurial spirit. Thus, it is not only the agility of the business model but also the agility of all employees that will continue to contribute to the growth of Laurentian Bank.
Non-GAAP Financial Measures
The Bank uses both generally accepted accounting principles ("GAAP") and certain non-GAAP measures to assess performance, such as return on common shareholders' equity, net interest margin and efficiency ratios. With regard to the calculation of the return on common shareholders' equity, the Bank considers that net income is the best measure of profitability and that common shareholders' equity, excluding accumulated other comprehensive income, would be used as a measure of capital. The calculation of the Bank's book value is also based on common shareholders' equity, excluding accumulated other comprehensive income. Tangible common equity is defined as common shareholders' equity, excluding accumulated other comprehensive income, less goodwill and contractual and customer relationship intangible assets.
Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are unlikely to be comparable to any similar measures presented by other companies. The Bank believes that these non-GAAP financial measures provide investors and analysts with useful information so that they can better understand financial results and analyze the Bank's growth and profit potential more effectively.
Caution Regarding Forward-looking Statements
In this document and in other documents filed with Canadian regulatory authorities or in other communications, Laurentian Bank of Canada may from time to time make written or oral forward-looking statements within the meaning of applicable securities legislation. Forward-looking statements include, but are not limited to, statements regarding the Bank's business plan and financial objectives. The forward-looking statements contained in this document are used to assist the Bank's security holders and financial analysts in obtaining a better understanding of the Bank's financial position and the results of operations as at and for the periods ended on the dates presented and may not be appropriate for other purposes. Forward-looking statements typically use the conditional, as well as words such as prospects, believe, estimate, forecast, project, expect, anticipate, plan, may, should, could and would, or the negative of these terms, variations thereof or similar terminology.
By their very nature, forward-looking statements are based on assumptions and involve inherent risks and uncertainties, both general and specific in nature. It is therefore possible that the forecasts, projections and other forward-looking statements will not be achieved or will prove to be inaccurate. Although the Bank believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct.
The Bank cautions readers against placing undue reliance on forward-looking statements when making decisions, as the actual results could differ considerably from the opinions, plans, objectives, expectations, forecasts, estimates and intentions expressed in such forward-looking statements due to various material factors. Among other things, these factors include capital market activity, changes in government monetary, fiscal and economic policies, changes in interest rates, inflation levels and general economic conditions, legislative and regulatory developments, competition, credit ratings, scarcity of human resources and technological environment. The Bank further cautions that the foregoing list of factors is not exhaustive. For more information on the risks, uncertainties and assumptions that would cause the Bank's actual results to differ from current expectations, please also refer to the Bank's public filings available at www.sedar.com.
The Bank does not undertake to update any forward-looking statements, whether oral or written, made by itself or on its behalf, except to the extent required by securities regulations.
FINANCIAL
HIGHLIGHTS
FOR THE THREE MONTHS ENDED
IN MILLIONS OF DOLLARS, --------------------------
UNLESS OTHERWISE INDICATED APRIL 30 APRIL 30
(UNAUDITED) 2010 2009 VARIANCE
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Earnings
Net income $ 28.3 $ 21.2 34%
Net income available to
common shareholders $ 25.3 $ 18.2 39%
Return on common shareholders'
equity(1) 10.9% 8.5%
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Per common share
Diluted net income $ 1.06 $ 0.76 39%
Dividends declared $ 0.36 $ 0.34 6%
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FINANCIAL RATIOS
Dividend yield 3.26 % 4.72 %
Dividend payout ratio 34.1 % 44.7 %
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As a percentage of average
assets
Net interest income 2.10 % 1.92 %
Provision for loan losses 0.29 % 0.24 %
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Profitability
Efficiency ratio (non-interest
expenses as a % of total
revenue) 69.4 % 73.7 %
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FOR THE SIX MONTHS ENDED
IN MILLIONS OF DOLLARS, --------------------------
UNLESS OTHERWISE INDICATED APRIL 30 APRIL 30
(UNAUDITED) 2010 2009 VARIANCE
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Earnings
Net income $ 60.4 $ 46.2 31%
Net income available to
common shareholders $ 54.2 $ 40.0 36%
Return on common shareholders'
equity(1) 11.6% 9.3%
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Per common share
Diluted net income $ 2.26 $ 1.68 35%
Dividends declared $ 0.72 $ 0.68 6%
Book value(1) $ 40.22 $ 36.83 9%
Share price - close $ 44.12 $ 28.80 53%
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Financial position
Balance sheet assets $ 23,089 $ 20,403 13%
Loans, bankers' acceptances
and assets purchased under
reverse repurchase agreements,
net $ 17,555 $ 15,172 16%
Personal deposits $ 15,413 $ 14,490 6%
Shareholders' equity and
debentures $ 1,334 $ 1,282 4%
Number of common shares -
end of period (in thousands) 23,921 23,849 -%
Net impaired loans as a % of
loans, bankers' acceptances
and assets purchased under
reverse repurchase agreements 0.21% 0.08%
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Capital ratios
Tier I BIS capital ratio 10.9% 10.0%
Total BIS capital ratio 12.8% 12.0%
Assets to capital multiple 18.3x 17.3x
Tangible common equity as a
percentage of risk-weighted
assets(2) 9.0% 8.2%
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FINANCIAL RATIOS
Per common share
Price / earnings ratio
(trailing four quarters) 9.2x 7.4x
Market to book value 110% 78%
Dividend yield 3.26% 4.72%
Dividend payout ratio 31.8% 40.6%
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As a percentage of average
assets
Net interest income 2.12 1.96%
Provision for loan losses 0.28% 0.24%
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Profitability
Efficiency ratio (non-interest
expenses as a % of total
revenue) 68.0% 72.2%
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OTHER INFORMATION
Number of full-time equivalent
employees 3,632 3,453
Number of branches 156 156
Number of automated banking
machines 407 351
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(1) With regard to the calculation of the Return on common shareholders'
equity ratio, the Bank considers that net income is the best measure
of profitability and that common shareholders' equity, excluding
accumulated other comprehensive income, would be used as a capital
measure. The calculation of the Bank's book value is also based on
common shareholders' equity, excluding accumulated other
comprehensive income.
(2) Tangible common equity is defined as common shareholders' equity,
excluding accumulated other comprehensive income, less goodwill and
contractual and customer relationship intangible assets.
Management's Discussion and Analysis
This Management's Discussion and Analysis (MD&A) is a narrative explanation, through the eyes of management, of the Bank's financial condition as at April 30, 2010, and of how it performed during the three-month and six-month periods then ended. This MD&A, dated May 26, 2010, should be read in conjunction with the unaudited interim consolidated financial statements for the second quarter of 2010. Supplemental information on risk management, critical accounting policies and estimates, and off-balance sheet arrangements is also provided in the Bank's 2009 Annual Report.
Additional information about the Laurentian Bank of Canada, including the Annual Information Form, is available on the Bank's website www.laurentianbank.ca and on SEDAR at www.sedar.com.
Performance and Financial Objectives
The following table presents management's financial objectives for 2010 and the Bank's performance to date. These financial objectives are based on the same assumptions noted on page 21 of the Bank's 2009 Annual Report under the title "Key assumptions supporting the Bank's objectives".
2010 FINANCIAL OBJECTIVES
FOR THE
SIX MONTHS
ENDED
APRIL 30,
2010 OBJECTIVES 2010
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Revenue growth 5% to 10% 15%
Efficiency ratio 70% to 67% 68.0%
Return on common shareholders' equity 10.0% to 12.0% 11.6%
Diluted net income per common share $ 4.00 to $ 4.70 $ 2.26
Tier I BIS capital ratio Minimum of 9.5% 10.9%
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After six months, management believes that the Bank is well positioned to meet the 2010 objectives set at the beginning of the year, as shown in the table above.
Consolidated Results
Three months ended April 30, 2010 compared to three months ended April 30, 2009
Net income was $28.3 million, or $1.06 diluted per common share, for the second quarter ended April 30, 2010, compared with $21.2 million, or $0.76 diluted per common share, for the second quarter of 2009.
Total revenue
Total revenue increased by more than 15% year-over-year to $178.1 million in the second quarter of 2010, compared with $154.8 million in the second quarter of 2009. The Bank's net interest income increased to $117.6 million for the second quarter of 2010, from $94.1 million in the second quarter of 2009. The strong loan and deposit growth year-over-year combined with higher interest margins contributed to the 25.0% increase in net interest income. The low interest rate environment in 2009 had significantly hampered profitability last year. However, loan repricing measures introduced in 2009 have contributed to improve margins starting in the second half of last year.
Other income was $60.5 million in the second quarter of 2010, compared to $60.7 million in the second quarter of 2009. Securitization income decreased $8.3 million compared to the same quarter a year ago, as a result of lower securitization gains ensuing from the tightening of credit spreads, as well as the effect of mark-to-market revaluations on retained interests and related economic hedges (see note 3 to the interim financial statements for further details on securitization activities). However, offsetting the decline in securitization income, fees and commissions on loans and deposits, as well as credit insurance income improved appreciably. These increases further demonstrate the Bank's ability to grow its core business and represent a significant achievement as they largely compensated for the decrease in more volatile market driven income. Revenues from brokerage operations also increased markedly during the quarter, benefitting from the overall improvements in market conditions.
Provision for loan losses
The provision for loan losses amounted to $16.0 million in the second quarter of 2010, compared with $12.0 million in the second quarter of 2009. The increase mainly reflects losses associated with a limited number of commercial accounts, which were impacted by the late consequences of the economic slowdown, as well as the significantly higher loan volumes. Nonetheless, overall credit quality has remained satisfactory to date, with some improvements in retail portfolios as retail borrowers benefitted from the recovering economic conditions. The Risk Management section below provides additional information on the credit quality of the Bank's loan portfolios.
Non-interest expenses
Non-interest expenses totaled $123.5 million for the second quarter of 2010, compared to $114.0 million for the second quarter of 2009; an 8.3% year-over-year increase as the Bank continued to invest in its development. Salaries and employee benefits rose by $7.2 million, mainly as a result of salary increases and growth initiatives. Premises and technology costs also increased from $29.8 million for the second quarter of 2009 to $32.0 million for the second quarter of 2010. This increase is mainly explained by higher amortization expense related to IT development projects and overall increases in technology costs to support growth. Other non-interest expenses remained relatively unchanged.
As a result of the strong increase in revenues which more than offset the increase in expenses, the efficiency ratio (non-interest expenses divided by total revenue) significantly improved to 69.4% in the second quarter of 2010, compared with 73.7% in the second quarter of 2009.
Income taxes
For the quarter ended April 30, 2010, the income tax expense was $10.2 million and the effective tax rate was 26.5%. The lower tax rate, compared to the statutory rate, mainly resulted from the favourable effect of holding investments in Canadian securities that generate non-taxable dividend income and the lower taxation level on revenues from credit insurance operations. For the quarter ended April 30, 2009, the income tax expense was $7.6 million and the effective tax rate was 26.4%.
Six months ended April 30, 2010 compared to six months ended April 30, 2009
For the six months ended April 30, 2010, net income totalled $60.4 million or $2.26 diluted per common share, compared with net income of $46.2 million or $1.68 diluted per common share in 2009.
Total revenue
Total revenue improved to $358.6 million for the six months ended April 30, 2010, compared to $311.3 million for the six months ended April 30, 2009. Net interest income increased from $192.8 million for the six months ended April 30, 2009 to $238.3 million for the same period in 2010, as a combined result of higher net interest margins and higher loan and deposit volumes. Other income improved slightly, as higher fees and commissions resulting from overall business growth and higher brokerage revenues more than offset lower securitization income.
Provision for loan losses
The provision for loan losses amounted to $32.0 million for the six months ended April 30, 2010, compared to $24.0 million for the six months ended April 30, 2009. The increase essentially relates to commercial loan portfolios, while the credit quality of consumer loan portfolios has continued to improve.
Non-interest expenses
Non-interest expenses totaled $243.9 million for the six months ended April 30, 2010, compared to $224.8 million for the six months ended April 30, 2009. The increase is principally attributable to higher salaries and growth initiatives. Premises and technology costs also increased as a result of higher amortization expense related to IT development projects and overall increases in technology costs to support higher business activity levels. Other non-interest expenses remained relatively unchanged. For the six months ended April 30, 2010, the efficiency ratio improved significantly to 68.0%, compared to 72.2% for the six months ended April 30, 2009.
Income taxes
For the six months ended April 30, 2010, the income tax expense was $22.3 million and the effective tax rate was 26.9%, compared to $16.3 million and 26.1% for the six months ended April 30, 2009. The lower tax rate, compared to the statutory rate, mainly resulted from the favourable effect of holding investments in Canadian securities that generate non-taxable dividend income, as well as the lower taxation level on revenues from credit insurance operations, as noted above. In addition, income taxes for the six-month period ended April 30, 2010 included the unfavourable effect on future tax assets of the reduction to Ontario's provincial business tax rates which became effective during the first quarter.
Second quarter 2010 compared to first quarter 2010
Net income was $28.3 million for the second quarter of 2010, compared to $32.0 million for the first quarter ended January 31, 2010. Net interest income decreased by $3.1 million, mainly as a result of three fewer days in the quarter. Net interest margin stood at 2.10% in the second quarter of 2010, only slightly lower than for the first quarter of 2010 where it stood at 2.13%. This decrease was mainly due to changes in business mix and pressure on pricing. Other revenue increased slightly compared to the first quarter of 2010, as higher fees and commissions on loans and deposits, as well as higher income from treasury and financial market operations more than offset lower securitization income.
The provision for loan losses amounted to $16.0 million in the second quarter of 2010, unchanged compared to the first quarter of 2010. Higher losses in commercial loans and commercial mortgages during the second quarter of 2010 were offset by improvements in retail portfolios, when compared to the first quarter of 2010.
Non-interest expenses increased by $3.2 million compared with the first quarter of 2010. The increase mainly relates to salaries and employee benefits partially reflecting the effect of annual increases effective as of January 1st.
Financial Condition
CONDENSED BALANCE SHEET
AS AT AS AT AS AT
In thousands of dollars APRIL 30 OCTOBER 31 APRIL 30
(Unaudited) 2010 2009 2009
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ASSETS
Cash resources $ 258,061 $ 300,616 $ 301,947
Securities 4,143,430 4,432,183 3,789,812
Assets purchased under reverse
repurchase agreements 569,066 536,064 539,859
Loans, net 16,837,773 15,601,307 14,499,055
Other assets 1,280,683 1,294,610 1,272,464
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$23,089,013 $22,164,780 $20,403,137
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LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits $18,736,752 $18,299,966 $17,260,763
Other liabilities 3,018,525 2,543,588 1,860,796
Subordinated debentures 150,000 150,000 150,000
Shareholders' equity 1,183,736 1,171,226 1,131,578
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$23,089,013 $22,164,780 $20,403,137
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Balance sheet assets increased by more than $0.9 billion from year-end 2009 and stood at $23.1 billion at April 30, 2010. Over the last twelve months, balance sheet assets increased by $2.7 billion or 13.2%.
Liquid assets
Liquid assets, including cash, deposits with other banks, securities and assets purchased under reverse repurchase agreements, decreased by $298.3 million from year-end 2009, as the Bank gradually reduced its level of liquid assets to fund loan disbursements. Nonetheless, the Bank continues to maintain a relatively high level of liquidity to further support its growth.
Loan portfolio
The portfolio of loans and bankers' acceptances stood at $17.1 billion at April 30, 2010, up $1.2 billion from October 31, 2009. The Bank had another solid quarter of loan growth, up $533.4 million after new securitizations of $182.6 million. Since the beginning of the year, residential mortgages, including securitized loans, increased by $769.6 million, as detailed below.
RESIDENTIAL MORTGAGE PORTFOLIO
AS AT AS AT
In thousands of dollars APRIL 30 OCTOBER 31
(Unaudited) 2010 2009 VARIANCE
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On-balance sheet residential
mortgage loans $ 8,101,340 $ 7,219,830 $ 881,510
Securitized residential
mortgage loans
(off-balance sheet) 2,590,808 2,702,762 (111,954)
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Total residential mortgage
loans, including securitized
loans $10,692,148 $ 9,922,592 $ 769,556
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Commercial mortgages and commercial loans, including bankers' acceptances increased by $124.0 million and $98.5 million, respectively, as the Bank continues to capitalize on growth opportunities in the Canadian market. Personal loans increased by $73.7 million, mainly reflecting growth in investment loans and home equity lines of credit.
Deposits
Total personal deposits increased by $274.6 million since the beginning of the year to $15.4 billion as at April 30, 2010, as growth of more than $300 million during the second quarter of 2010 more than compensated the slight decrease of the first quarter. The Bank continues to actively manage its liquidity levels to meet funding requirements, while exercising rigorous control on pricing. As a result, deposit growth remains tightly managed, with the focus kept on retail deposit gathering. Retail deposits continue to be a particularly stable source of financing for the Bank, owing to their availability and lower cost when compared to institutional deposits. Since the beginning of the year, business and other deposits increased by $162.2 million, for a total $436.8 million increase in deposits. As at April 30, 2010, personal deposits accounted for 82.3% of total deposits of $18.7 billion.
Shareholders' equity
Shareholders' equity stood at $1,183.7 million as at April 30, 2010, compared with $1,171.2 million as at October 31, 2009. The increase in shareholders' equity mainly results from net income accumulated during the first six months of the year; partly offset by a decrease in accumulated other comprehensive income.
The Bank's book value per common share, excluding accumulated other comprehensive income, was $40.22 as at April 30, 2010, compared to $38.68 as at October 31, 2009. There were 23,920,962 common shares and 54,075 share purchase options outstanding as at May 18, 2010.
Assets under administration
Assets under administration increased by $0.4 billion from October 31, 2009 and amounted to $14.7 billion as at April 30, 2010, and increased by $1.0 billion from April 30, 2009 where they stood at $13.7 billion. The increase compared with April 30, 2009 is attributable to the recovery in market value of the assets under administration, mainly as they relate to self-directed RRSPs, client brokerage assets and mutual funds.
Capital Management
The regulatory Tier I capital of the Bank reached $1,081.6 million as at April 30, 2010, compared with $1,045.8 million as at October 31, 2009. The BIS Tier 1 and total capital ratios stood at 10.9% and 12.8%, respectively, as at April 30, 2010, compared to 11.0% and 13.0%, respectively, as at October 31, 2009. These ratios remain strong. The tangible common equity ratio of 9.0% also reflects the high quality of the Bank's capital.
REGULATORY CAPITAL - BIS
In thousands of dollars, AS AT AS AT AS AT
except percentage amounts APRIL 30 OCTOBER 31 APRIL 30
(Unaudited) 2010 2009 2009
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Total - Tier 1 capital (A) $ 1,081,593 $ 1,045,824 $ 989,048
Tier I BIS capital ratio (A/C) 10.9% 11.0% 10.0%
Total - capital (B) $ 1,270,338 $ 1,235,866 $ 1,181,510
Total BIS capital ratio (B/C) 12.8% 13.0% 12.0%
Total risk-weighted assets (C) $ 9,924,365 $ 9,480,823 $ 9,869,714
Assets to capital multiple 18.3x 18.0x 17.3x
Tangible common equity as a
percentage of risk-weighted
assets(1) 9.0% 9.1% 8.2%
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(1) Tangible common equity is defined as common shareholders' equity,
excluding accumulated other comprehensive income, less goodwill and
contractual and customer relationship intangible assets.
RISK-WEIGHTED ASSETS
AS AT AS AT AS AT
In thousands of dollars APRIL 30 OCTOBER 31 APRIL 30
(Unaudited) 2010 2009 2009
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Balance sheet items
Cash resources $ 9,822 $ 12,697 $ 43,110
Securities 285,836 220,257 229,296
Mortgage loans 3,528,327 3,222,867 2,874,258
Other loans and customers'
liabilities under acceptances 3,818,244 3,807,878 4,834,747
Other assets 527,396 516,561 458,061
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Total - balance sheet items 8,169,625 7,780,260 8,439,472
Off-balance sheet items 557,302 547,050 326,254
Operational risk 1,197,438 1,153,513 1,103,988
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Total - risk-weighted assets $ 9,924,365 $ 9,480,823 $ 9,869,714
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Basel Committee on Banking Supervision new proposed capital and liquidity regulation
In December 2009, the Basel Committee on Banking Supervision published proposals on new capital and liquidity requirements. The Bank participated during the quarter in a worldwide quantitative impact study (QIS) whose purpose is to help global regulators refine their proposals and define new minimum capital and liquidity requirements. These new guidelines are not expected to become regulation until late 2012 at the earliest. Therefore, at this stage, it is too early to determine the definitive impact on capital ratios and liquidity requirements, considering the proposals are likely to change between now and when final rules take effect.
Dividends
At its meeting on May 26, 2010, the Board of Directors declared regular dividends on the various series of preferred shares to shareholders of record on June 9, 2010. Also at the same meeting, the Board of Directors declared a dividend of $0.36 per common share, payable on August 1, 2010, to shareholders of record on July 2, 2010.
Risk Management
The Bank is exposed to various types of risks owing to the nature of its activities. These risks are mainly related to the use of financial instruments. In order to manage these risks, controls such as risk management policies and various risk limits have been implemented. These measures aim to optimize the risk/return ratio in all operating segments. For additional information regarding the Bank's Risk Management Framework, please refer to the 2009 Annual Report.
Credit risk
The following sections provide further details on the credit quality of the Bank's loan portfolios. Note 2 to these interim consolidated financial statements also provides detailed information on the Bank's loan portfolios and related credit exposures.
PROVISION FOR LOAN LOSSES RECORDED IN THE CONSOLIDATED STATEMENT OF
INCOME
FOR THE THREE MONTHS ENDED
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In thousands of dollars APRIL 30 JANUARY 31 APRIL 30
(Unaudited) 2010 2010 2009
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Loan portfolios
Personal loans $ 7,591 $ 8,658 $ 7,969
Residential mortgages 170 263 126
Commercial mortgages 3,069 794 6
Commercial and other loans 5,170 6,285 3,899
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Total $ 16,000 $ 16,000 $ 12,000
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FOR THE SIX MONTHS ENDED
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In thousands of dollars APRIL 30 APRIL 30
(Unaudited) 2010 2009
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Loan portfolios
Personal loans $ 16,249 $ 17,142
Residential mortgages 433 796
Commercial mortgages 3,863 25
Commercial and other loans 11,455 6,037
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Total $ 32,000 $ 24,000
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The provision for loan losses amounted to $16.0 million in the second quarter of 2010, unchanged compared to the first quarter of 2010 and increased from $12.0 million in the second quarter of 2009.
The increase year-over-year mainly reflects the higher losses in commercial loans and commercial mortgages, where certain commercial businesses were relatively more impacted by the late consequences of the economic slowdown, as well as the significantly higher loan volumes. Compared to the first quarter of 2010, higher losses in commercial mortgages were offset by improvements in retail portfolios. Losses on commercial loans and commercial mortgages during the second quarter of 2010 resulted from a limited number of accounts.
ALLOWANCE FOR LOAN LOSSES
In thousands of
dollars, except AS AT AS AT AS AT AS AT
percentage amounts APRIL 30 JANUARY 31 OCTOBER 31 APRIL 30
(Unaudited) 2010 2010 2009 2009
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Gross impaired
loans $ 161,930 $ 157,373 $ 137,494 $ 125,677
Allowance for
loan losses 124,178 121,364 114,546 113,129
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Net impaired
loans $ 37,752 $ 36,009 $ 22,948 $ 12,548
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Impaired loans as
a % of loans,
bankers'
acceptances and
assets purchased
under reverse
repurchase
agreements
Gross 0.92% 0.90% 0.83% 0.82%
Net 0.21% 0.21% 0.14% 0.08%
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Gross impaired loans stood at $161.9 million at April 30, 2010, compared to $157.4 million as at January 31, 2010 and $137.5 million at October 31, 2009. The increase since October 31, 2009 essentially results from commercial loans and mortgages, as the credit quality of retail portfolios has improved significantly. Net impaired loans stood at $37.8 million at April 30, 2010 (representing 0.21% of total loans, bankers' acceptances and assets purchased under reverse repurchase agreements), compared to $23.0 million (0.14%) at October 31, 2009. The lower level of relative provisioning mainly results from the good quality of the underlying collateral of the newly impaired loans.
Market risk
Market risk corresponds to the financial losses that the Bank could incur due to unfavourable fluctuations in the value of financial instruments following variations in the parameters underlying their valuation, such as interest rates, exchange rates or quoted stock market prices. This risk is inherent to the Bank's financing, investment, trading and asset and liability management (ALM) activities.
The purpose of ALM activities is to control structural interest rate risk, which corresponds to the potential negative impact of interest rate movements on the Bank's revenues and economic value. Dynamic management of structural risk is intended to maximize the Bank's profitability while preserving the economic value of common shareholders' equity. As at April 30, 2010, the effect on the economic value of common shareholders' equity and on net interest income before taxes of a sudden and sustained 1% increase in interest rates remained low and was as follows.
STRUCTURAL INTEREST RATE SENSITIVITY
AS AT AS AT
In thousands of dollars APRIL 30 OCTOBER 31
(Unaudited) 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Increase (decrease) in net interest income
before taxes over the next 12 months $ 2,600 $ (4,779)
Change in the economic value of common
shareholders' equity (Net of income taxes) $ (12,034) $ (19,626)
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-------------------------------------------------------------------------
While keeping the overall level of risk well under control, the Bank is actively managing its interest rate sensitivity position in order to benefit from current interest rate conditions.
Segmented Information
This section outlines the Bank's operations according to its organizational structure. Services to individuals, businesses, financial intermediaries and institutional clients are offered through the following business segments:
- Retail & SME Quebec - Laurentian Bank Securities and
- Real Estate & Commercial Capital Markets
- B2B Trust - Other
As of November 1, 2009, certain capital market activities which were previously reported in the Other segment are now reported with Laurentian Bank Securities activities under the newly formed Laurentian Bank Securities and Capital Markets business segment. In addition, foreign exchange and international services, which were also formerly reported in the Other segment, are now reported in the Real Estate & Commercial segment. The Retail & SME Quebec and B2B Trust business segments were not affected by this reorganization. Comparative figures were reclassified to conform to the current period presentation.
Retail & SME Quebec
FOR THE THREE MONTHS ENDED
In thousands of dollars, ----------------------------------------
except percentage amounts APRIL 30 JANUARY 31 APRIL 30
(Unaudited) 2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total revenue $ 111,382 $ 112,503 $ 103,770
Provision for loan losses $ 11,542 $ 9,790 $ 8,129
Net income $ 10,082 $ 12,552 $ 9,756
Efficiency ratio 78.4% 76.9% 80.1%
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-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
In thousands of dollars, --------------------------
except percentage amounts APRIL 30 APRIL 30
(Unaudited) 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total revenue $ 223,885 $ 208,569
Provision for loan losses $ 21,332 $ 17,664
Net income $ 22,634 $ 19,936
Efficiency ratio 77.6% 79.3%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Retail & SME Quebec business segment's contribution to net income improved 3%, totalling $10.1 million for the second quarter of 2010, compared with $9.8 million for the second quarter of 2009.
Total revenue increased by $7.6 million, from $103.8 million in the second quarter of 2009 to $111.4 million in the second quarter of 2010, as a result of higher loan and deposit volumes, as well as higher fee income. However, net interest margins were under pressure during the quarter, due to the particularly low interest rate environment and sustained competition on fixed term retail products. Loan losses increased from $8.1 million in the second quarter of 2009 to $11.5 million in the second quarter of 2010, essentially as a result of a single commercial account, as otherwise, the credit quality of retail loan portfolios has improved. Non-interest expenses increased by 5% or $4.2 million, from $83.1 million in the second quarter of 2009 to $87.3 million in the second quarter of 2010, mainly as a result of annual increases in salaries, as well as an increase in the number of employees.
For the six months ended April 30, 2010, net income improved by 14% to $22.6 million, as higher revenue more than offset increases in loan losses and expenses.
Balance sheet highlights
- Loans up 9% or $ 950 million over the last 12 months
- Increase in deposits of $ 750 million over the last 12 months, to
$8.7 billion as at April 30, 2010
Real Estate & Commercial
Foreign exchange and international services, which were reported in the Other segment, are now reported in the Real Estate & Commercial segment. Comparative figures were reclassified to conform to the current period presentation.
FOR THE THREE MONTHS ENDED
In thousands of dollars, ----------------------------------------
except percentage amounts APRIL 30 JANUARY 31 APRIL 30
(Unaudited) 2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total revenue $ 29,125 $ 27,590 $ 21,124
Provision for loan losses $ 3,984 $ 5,150 $ 3,161
Net income $ 13,655 $ 12,688 $ 7,600
Efficiency ratio 19.1% 15.4% 32.7%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
In thousands of dollars, -------------------------
except percentage amounts APRIL 30 APRIL 30
(Unaudited) 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total revenue $ 56,715 $ 41,110
Provision for loan losses $ 9,134 $ 4,815
Net income $ 26,343 $ 15,640
Efficiency ratio 17.3% 32.9%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Real Estate & Commercial business segment's contribution to net income improved 80%, reaching $13.7 million for the second quarter of 2010, compared with $7.6 million for the second quarter of 2009.
Total revenue increased by $8.0 million, from $21.1 million in the second quarter of 2009 to $29.1 million in the second quarter of 2010. Higher loan volumes, better interest margins resulting from repricing measures initiated last year, and overall strong business growth contributed to improve revenues. Loan losses were slightly higher at $4.0 million (6.2 basis points to average loans and bankers' acceptances) in the second quarter of 2010, compared to $3.2 million (6.0 basis points to average loans and bankers' acceptances) in the second quarter of 2009 as a result of a limited number of accounts requiring provisions and higher loan volumes. Nonetheless, management remains cautiously optimistic about credit quality in the commercial book for the remainder of the year. Non-interest expenses decreased by $1.3 million to $5.6 million in the second quarter of 2010, from $6.9 million in the second quarter of 2009.
For the six months ended April 30, 2010, net income improved by 68% to $26.3 million. Revenues for the six months ended April 30, 2010 increased essentially for the same reasons as noted above. In addition, expenses for the six months ended April 30, 2010 decreased, as a result of good cost control and certain operational loss provisions amounting to $2.8 million were reversed during the first six months of 2010. Also, loan losses increased as noted above.
Balance sheet highlight
- Loans and BAs up 22% or more than $ 500 million over the last 12 months
B2B Trust
FOR THE THREE MONTHS ENDED
In thousands of dollars, ----------------------------------------
except percentage amounts APRIL 30 JANUARY 31 APRIL 30
(Unaudited) 2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total revenue $ 29,635 $ 29,837 $ 23,913
Provision for loan losses $ 474 $ 1,060 $ 710
Net income $ 11,359 $ 11,061 $ 7,833
Efficiency ratio 43.0% 42.3% 49.1%
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-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
In thousands of dollars, --------------------------
except percentage amounts APRIL 30 APRIL 30
(Unaudited) 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total revenue $ 59,472 $ 47,414
Provision for loan losses $ 1,534 $ 1,521
Net income $ 22,420 $ 15,959
Efficiency ratio 42.6% 47.5%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The B2B Trust business segment's contribution to net income improved 45%, reaching $11.4 million in the second quarter of 2010, compared with $7.8 million in the second quarter of 2009.
Total revenue increased by $5.7 million, from $23.9 million in the second quarter of 2009, to $29.6 million in the second quarter of 2010. Net interest income increased markedly by $5.4 million as a combined result of volume growth and improved margins. Results for the second quarter of 2009 were particularly affected by the lower interest rate environment, as well as the promotional pricing related to the launch of the High Interest Investment Account. Loan losses, including losses on investment lending activities, remained low at $0.5 million in the second quarter of 2010, compared with $0.7 million in the second quarter of 2009. Non-interest expenses increased slightly to $12.8 million in the second quarter of 2010, compared with $11.7 million in the second quarter of 2009, mainly as a result of higher salary and employee benefits.
For the six months ended April 30, 2010, net income improved by 40% to $22.4 million, as higher revenue more than offset increases in expenses, essentially for the same reasons as noted above.
Balance sheet highlights
- Loans up 19% or $800 million over the last 12 months
- Increase in deposits of $1.0 billion over the last 12 months,
to $9.4 billion as at April 30, 2010
Laurentian Bank Securities and Capital Markets
As of November 1, 2009, certain Bank's capital market activities which were previously reported in the Other segment are now reported with Laurentian Bank Securities activities under the newly formed Laurentian Bank Securities and Capital Markets business segment. Comparative figures were reclassified to conform to the current period presentation.
FOR THE THREE MONTHS ENDED
In thousands of dollars, ----------------------------------------
except percentage amounts APRIL 30 JANUARY 31 APRIL 30
(Unaudited) 2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total revenue $ 15,280 $ 14,487 $ 14,013
Net income $ 2,586 $ 1,834 $ 3,344
Efficiency ratio 76.3% 80.6% 65.8%
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-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
In thousands of dollars, --------------------------
except percentage amounts APRIL 30 APRIL 30
(Unaudited) 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total revenue $ 29,767 $ 26,275
Net income $ 4,420 $ 5,867
Efficiency ratio 78.4% 68.0%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Laurentian Bank Securities and Capital Markets business segment's contribution to net income amounted to $2.6 million in the second quarter of 2010, compared with $3.3 million in the second quarter of 2009. Revenues continued their progression and increased by 9% to $15.3 million in the second quarter of 2010, mainly as a result of the strong performance from Laurentian Bank Securities Institutional Equity and Retail operations, which more than compensated the decline from the other capital markets operations. Non-interest expenses increased to $11.7 million in the second quarter of 2010, from $9.2 million in the second quarter of 2009, due primarily to an increase in variable compensation in the brokerage business.
For the six months ended April 30, 2010, net income decreased by 25% or $1.5 million compared to the same period last year, as the increase in revenues from Laurentian Bank Securities was offset by lower income from other capital market operations and higher non-interest expenses. The increase in expenses essentially results from variable compensation in the brokerage business.
Balance sheet highlight
- Assets under management up 27% or $468 million over the last 12 months
Other Sector
Certain Bank capital market activities, as well as foreign exchange and international services, which were previously reported in the Other segment, are now reported with the Laurentian Bank Securities and Capital Markets and Real Estate & Commercial business segments. Comparative figures were reclassified to conform to the current period presentation.
FOR THE THREE MONTHS ENDED
---------------------------------------
In thousands of dollars APRIL 30 JANUARY 31 APRIL 30
(Unaudited) 2010 2010 2009
------------------------------------------------------------------------
------------------------------------------------------------------------
Total revenue $ (7,309) $ (3,968) $ (8,052)
Net loss $ (9,333) $ (6,121) $ (7,378)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
--------------------------
In thousands of dollars APRIL 30 APRIL 30
(Unaudited) 2010 2009
------------------------------------------------------------------------
------------------------------------------------------------------------
Total revenue $ (11,277) $ (12,063)
Net loss $ (15,454) $ (11,200)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The Other sector posted a negative contribution to net income of $9.3 million in the second quarter of 2010, compared with a negative contribution of $7.4 million in the second quarter of 2009. Net interest income improved to negative $8.7 million in the second quarter of 2010, compared to negative $17.8 million in the second quarter of 2009. In the second quarter of 2009, net interest income had been particularly affected by higher funding costs and lower margins on liquid assets. Other income for the second quarter of 2010 was $1.4 million, compared to $9.7 million for the second quarter of 2009. This decrease mainly results from lower income from securitization.
For the six months ended April 30, 2010, the negative contribution stood at $15.5 million, compared to negative $11.2 million for the six months ended April 30, 2009. Net interest income improved, as noted above, as the interest rate conditions were more favourable. However, securitization income declined as credit spreads narrowed and the Bank focused less on securitization for funding purposes, having witnessed a solid inflow of retail deposits.
Additional Financial Information - Quarterly Results
In thousands of
dollars, except
per share and
percentage amounts APRIL 30 JANUARY 31 OCTOBER 31 JULY 31
(Unaudited) 2010 2010 2009 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total revenue $ 178,113 $ 180,449 $ 178,540 $ 176,657
Income from
continuing
operations $ 28,349 $ 32,014 $ 26,779 $ 28,683
Net income $ 28,349 $ 32,014 $ 38,248 $ 28,683
Income per common
share from
continuing
operations
Basic $ 1.06 $ 1.21 $ 0.99 $ 1.08
Diluted $ 1.06 $ 1.21 $ 0.99 $ 1.08
Net income per
common share
Basic $ 1.06 $ 1.21 $ 1.47 $ 1.08
Diluted $ 1.06 $ 1.21 $ 1.47 $ 1.08
Return on common
shareholders'
equity(1) 10.9% 12.3% 15.3% 11.6%
Balance sheet
assets (in
millions of
dollars) $ 23,089 $ 23,184 $ 22,165 $ 21,316
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In thousands of
dollars, except
per share and
percentage amounts APRIL 30 JANUARY 31 OCTOBER 31 JULY 31
(Unaudited) 2009 2009 2008 2008
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total revenue $ 154,768 $ 156,537 $ 152,811 $ 171,095
Income from
continuing
operations $ 21,155 $ 25,047 $ 22,910 $ 30,937
Net income $ 21,155 $ 25,047 $ 27,333 $ 30,937
Income per common
share from
continuing
operations
Basic $ 0.76 $ 0.92 $ 0.84 $ 1.17
Diluted $ 0.76 $ 0.91 $ 0.84 $ 1.17
Net income per
common share
Basic $ 0.76 $ 0.92 $ 1.02 $ 1.17
Diluted $ 0.76 $ 0.91 $ 1.02 $ 1.17
Return on common
shareholders'
equity(1) 8.5% 10.0% 11.5% 13.4%
Balance sheet
assets (in
millions of
dollars) $ 20,403 $ 19,868 $ 19,579 $ 19,301
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-------------------------------------------------------------------------
(1) With regard to the calculation of the Return on common shareholders'
equity ratio, the Bank considers that net income is the best measure
of profitability and that common shareholders' equity, excluding
accumulated other comprehensive income, would be used as a capital
measure. The calculation of the Bank's book value is also based on
common shareholders' equity, excluding accumulated other
comprehensive income.
Accounting Policies
A summary of the Bank's significant accounting policies is presented in notes 2 and 3 of the 2009 audited annual consolidated financial statements. Pages 51 to 53 of the 2009 Annual Report also contain a discussion of critical accounting policies and estimates which refers to material amounts reported in the consolidated financial statements or require management's judgment. The interim consolidated financial statements for the second quarter of 2010 have been prepared in accordance with these accounting policies.
Future changes in accounting policy
International Financial Reporting Standards
In February 2008, the AcSB confirmed the convergence of financial reporting standards for Canadian public companies with International Financial Reporting Standards (IFRS). The Bank will use IFRS for interim and annual financial statements relating to fiscal periods beginning on or after November 1, 2011.
The Bank has prepared a conversion plan and assembled a project team, including both internal and external resources, to coordinate and execute the conversion to IFRS. The Bank considers having the appropriate resources to finalize the IFRS conversion plan on schedule.
The conversion plan consists of the following phases:
- Preliminary assessment - This phase serves to heighten management's
awareness of the key conversion issues and establish a timeline mapping
out the Bank's priorities with regard to analyses and significant
issues.
- Financial standards analysis - This phase consists of a detailed
assessment of the quantitative, qualitative and technological impact of
IFRS implementation.
- Selection of key accounting policies - The initial adoption of IFRS
will require the Bank to make certain elections.
- Implementation - This phase consists of implementing the necessary
information systems to comply with the new IFRS requirements.
The Bank completed its preliminary assessment of the IFRS impact during the planning stage of the project in early 2009. Work on the financial standards analysis is well underway and nearly completed at the end of the second quarter, subject to changes to IFRS by the International Accounting Standards Board (IASB). The selection of key accounting policies are currently being assessed concurrently with standards analysis. The Bank is now progressing to the implementation of the necessary changes to processes and systems. The implementation phase is expected to be completed by the end of fiscal 2011. The Bank has therefore not finalized the estimation and analysis of the expected financial impact on the Bank's reported results from the change to IFRS as at the end of the second quarter of 2010.
Another important component of the IFRS conversion plan consists of training key finance and operational staff. This is an ongoing process which was initiated in 2008. As the Bank progresses in the conversion plan in 2010, it will communicate educational information of the IFRS implications to the various constituents affected by the change. The Bank has put in place a Steering Committee that is responsible to ensure the conversion plan is adequately followed. The Bank's Board of Directors, mainly through the Audit Committee members, are also involved in the IFRS conversion plan. They receive quarterly reviews of the timeline for implementation, the implications of IFRS standards on the business and an overview of the impact on the financial statements. The Audit Committee will continue to receive quarterly project status updates to ensure proper oversight of the conversion project.
The following project statuses have been presented to the Audit Committee:
First quarter of 2010
- A preliminary IFRS analysis, which consisted of an assessment of the
quantitative, qualitative and technological impact of IFRS
implementation;
- A list of potential accounting policy choices at the transition date
and going forward;
- A list of technological changes which have been identified with respect
to certain items, namely hedging, securitization, impaired loans,
share-based compensation and customer loyalty programs. The necessary
adjustments to the information system supporting these items are
expected to be completed before the end of the year 2010.
Second quarter of 2010
- An assessment of the main IFRS disclosure impacts, based on the year
end October 31 2009 financial statements. This exercise was aimed at
identifying the areas where additional information of disclosure is
required.
- A communication plan highlighting the impact for all the identified
constituents.
The following key areas of difference between the Bank's current accounting practices and the corresponding accounting treatment under IFRS have been identified:
a) Loan provisioning
In line with current Canadian GAAP, the Bank's provisioning for impaired loans is designed to take account incurred losses in the Bank's loan portfolio. This principle will not change as IFRS also currently require that provisioning be based on incurred losses. However, under IFRS, loan losses and allowances will be presented based on whether they are assessed individually or collectively for groups of similar loans. The methodologies to calculate these provisions are still being developed. As a result, there may be changes in the amount of the Bank's collective provisioning, mainly for loans which are not classified as impaired.
Provisions for loan losses must be based on the discounted values of estimated future cash flows. The discount unwinds during the period between the initial recognition of the provision and the eventual recovery of the written down amount, resulting in the recording of interest in the statement of income, within interest income. Under Canadian GAAP, the unwinding is presented as a credit to provision for credit losses.
b) Securitization
The combined effect of financial asset derecognition rules and the consolidation of special purpose entity rules will impact securitization arrangements involving the Bank's off balance sheet loans. The rules provide more stringent criteria for the derecognition of financial assets. Based on initial assessments, the criteria would not be met. This should lead to a significant gross-up of the Bank's balance sheet. In addition, prior gains and losses related to these transactions would be eliminated and the corresponding net interest income recorded in period earnings.
c) Employee benefits
At transition, IFRS generally provide for a retrospective adoption of the Employee Benefits standard (IAS 19). To date, the Bank has not undertaken the task to determine this potential impact given the significant challenge resulting from the complexity of pension benefits and the fact that the Bank has been offering pension plans for more than 30 years. However, IFRS gives the choice to not retrospectively apply IAS 19. If this election is made, gains and losses accumulated to the date of transition will be eliminated. This may have a significant effect on shareholders' equity. Actuarial gains or losses post transition to IFRS can be recognized immediately into earnings, amortized to earnings using a "Corridor Method" similar to Canadian GAAP, or directly into equity (the "SORIE Method"). The Bank is currently assessing the options and will make elections, when new BIS capital requirements are defined, presumably toward the end of the year 2010.
d) Share-based payments
IFRS introduces a new requirement for the Bank to recognize as an expense the fair value of stock appreciation rights. Under Canadian GAAP, these rights are presently accounted for using the intrinsic value method. This should lead to an adjustment of the Bank's financial liabilities and shareholders' equity. With respect to stock option awards granted prior to November 1, 2002, the Bank is not required to apply the standard IFRS 2 - Share based payment retrospectively, therefore, the Bank will continue to apply the previous Canadian GAAP standards under which no compensation cost is recognized for these options. In the second quarter of 2010, a new software application has been implemented that will allow the Bank to automate the calculations and ensure appropriate internal controls.
e) Business combinations
IFRS 3 and section 1582 of the CICA Handbook have been harmonized since January 2009. Henceforth, there will be no accounting differences beyond the IFRS transition date. However, at the transition date, the Bank has to make an election to either apply IFRS 3 retrospectively to all past business acquisitions before a chosen date or apply it prospectively from the transition date. The Bank is currently analyzing the impact of the two options and will make an election in the coming months.
f) Earnings per share
IAS 33 is similar to section 3500 of the CICA Handbook on various elements. However, based on preliminary assessments, the Bank's perpetual preferred shares must be included in the calculation of the diluted earnings per share as they may be converted into common shares; even though the conversion option lies with the Bank.
Throughout the current year and the period leading up to the transition to IFRS in 2012, the Bank will continue to follow the above-mentioned accounting policies and finalize its assessment of policy decisions available under IFRS in order to prepare the Bank for an orderly transition to IFRS. Moreover, as the review of accounting policies is completed, appropriate changes to ensure the integrity of internal control over financial reporting and disclosure controls and procedures will be made. Based on existing IFRS, the Bank has not identified the need for any significant modifications to its financial information technology architecture or to existing internal controls over financial reporting and disclosure.
The evolving nature of IFRS will likely also result in additional accounting changes, some of which may be significant, in the years following our initial transition. We continue to monitor changes in the standards and to adjust our transition accordingly.
In addition, the Bank is specifically addressing lending practices and capital issues, as summarized below, as well as all other matters to ensure an orderly transition.
Lending practices
The transition to IFRS will not only impact the Bank's financial statements, but also some of its clients' financial statements. This will have repercussions on the various loan covenants monitored by underwriting groups and the credit department. The Bank is currently working on developing information programs for commercial account managers as well as credit analysts, to foster a better internal understanding of IFRS to properly analyze the clients' IFRS financial statements and the impacts on ratios and covenants.
Capital implications
The Bank is closely monitoring the potential impact of IFRS conversion on capital requirements. Securitization and employee benefits are the two main areas which could have a significant impact on capital.
Corporate Governance and Changes in Internal Control over Financial Reporting
The Board of Directors and the Audit Committee of Laurentian Bank reviewed this press release prior to its release today. The disclosure controls and procedures support the ability of the President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer in assuring that Laurentian Bank's interim consolidated financial statements are fairly presented.
During the quarter ended April 30, 2010, there have been no changes in the Bank's policies or procedures and other processes that comprise its internal control over financial reporting which have materially affected, or are reasonably likely to materially affect, the Bank's internal control over financial reporting.
About Laurentian Bank
Laurentian Bank of Canada is a banking institution operating across Canada and offering its clients diversified financial services. Distinguishing itself through excellence in service, as well as through its simplicity and proximity, the Bank serves individual consumers and small and medium-sized businesses. The Bank also offers its products to a wide network of independent financial intermediaries through B2B Trust, as well as full-service brokerage solutions through Laurentian Bank Securities.
Laurentian Bank is well established in the Province of Quebec, operating the third-largest retail branch network. Elsewhere throughout Canada, it operates in specific market segments where it holds an enviable position. Laurentian Bank of Canada has more than $23 billion in balance sheet assets and more than $14 billion in assets under administration. Founded in 1846, the Bank employs more than 3,600 people.
Conference Call
Laurentian Bank invites media representatives and the public to listen to the conference call with financial analysts to be held at 3:30 p.m. Eastern Time on Wednesday, May 26, 2010. The live, listen-only, toll-free, call-in number is 1-888-789-9572.
You can listen to the call on a delayed basis at any time from 6:00 p.m. on Wednesday, May 26, until midnight on Friday, June 18th, 2010, by dialing the following playback number: 1-800-408-3053 Code 2555817#. The conference call can also be heard through the Investor Relations section of the Bank's Web site at www.laurentianbank.ca. The Bank's Website also offers additional financial information.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
AS AT AS AT AS AT
IN THOUSANDS APRIL 30 OCTOBER 31 APRIL 30
OF DOLLARS (UNAUDITED) NOTES 2010 2009 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
ASSETS
Cash and non-interest
-bearing deposits with
other banks $ 63,245 $ 61,010 $ 60,383
----------------------------------------
Interest-bearing
deposits with other
banks 194,816 239,606 241,564
----------------------------------------
Securities accounts 9
Available-for-sale 1,061,319 1,424,043 1,498,457
Held-for-trading 1,490,777 1,391,313 856,691
Designated as
held-for-trading 1,591,334 1,616,827 1,434,664
----------------------------------------
4,143,430 4,432,183 3,789,812
----------------------------------------
Assets purchased under
reverse repurchase
agreements 569,066 536,064 539,859
----------------------------------------
Loans 2 and 3
Personal 5,728,762 5,655,055 5,732,010
Residential mortgage 8,101,340 7,219,830 6,334,599
Commercial mortgage 1,408,973 1,285,012 1,053,537
Commercial and other 1,722,876 1,555,956 1,492,038
----------------------------------------
16,961,951 15,715,853 14,612,184
Allowance for loan
losses (124,178) (114,546) (113,129)
----------------------------------------
16,837,773 15,601,307 14,499,055
----------------------------------------
Other
Customers' liabilities
under acceptances 148,399 216,817 132,670
Premises and equipment 57,081 58,163 58,317
Derivative financial
instruments 254,369 253,661 283,590
Goodwill 53,790 53,790 53,790
Software and other
intangible assets 103,030 103,386 95,122
Other assets 664,014 608,793 648,975
----------------------------------------
1,280,683 1,294,610 1,272,464
----------------------------------------
$23,089,013 $22,164,780 $20,403,137
----------------------------------------
----------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits
Personal $15,413,194 $15,138,637 $14,489,829
Business, banks and
other 3,323,558 3,161,329 2,770,934
----------------------------------------
18,736,752 18,299,966 17,260,763
----------------------------------------
Other
Obligations related to
assets sold short 1,220,759 1,054,470 571,182
Obligations related to
assets sold under
repurchase agreements 590,168 284,988 183,424
Acceptances 148,399 216,817 132,670
Derivative financial
instruments 231,750 174,859 147,930
Other liabilities 827,449 812,454 825,590
----------------------------------------
3,018,525 2,543,588 1,860,796
----------------------------------------
Subordinated debentures 150,000 150,000 150,000
----------------------------------------
Shareholders' equity
Preferred shares 4 210,000 210,000 210,000
Common shares 4 259,363 259,208 257,496
Contributed surplus 226 209 193
Retained earnings 702,530 665,538 620,732
Accumulated other
comprehensive income 8 11,617 36,271 43,157
----------------------------------------
1,183,736 1,171,226 1,131,578
----------------------------------------
$23,089,013 $22,164,780 $20,403,137
----------------------------------------
----------------------------------------
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-------------------------------------------------------------------------
The accompanying notes are an integral part of the interim consolidated
financial statements.
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED
IN THOUSANDS OF DOLLARS, ----------------------------------------
EXCEPT PER SHARE AMOUNTS APRIL 30 JANUARY 31 APRIL 30
(UNAUDITED) NOTES 2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest income
Loans $ 180,142 $ 182,747 $ 171,158
Securities 17,241 17,639 16,723
Deposits with other
banks 60 53 509
Other, including
derivative financial
instruments 29,434 34,076 34,257
----------------------------------------
226,877 234,515 222,647
----------------------------------------
Interest expense
Deposits 106,778 111,498 125,571
Other, including
derivative financial
instruments 579 351 1,116
Subordinated debentures 1,887 1,950 1,887
----------------------------------------
109,244 113,799 128,574
----------------------------------------
Net interest income 117,633 120,716 94,073
----------------------------------------
Other income
Fees and commissions on
loans and deposits 28,488 26,979 24,665
Income from brokerage
operations 13,742 12,665 10,754
Securitization income 3 328 4,180 8,594
Credit insurance income 4,556 4,183 3,768
Income from sales of
mutual funds 3,786 3,526 2,985
Income from treasury
and financial market
operations 4,576 4,159 5,979
Income from registered
self-directed plans 2,313 2,088 2,038
Other 2,691 1,953 1,912
----------------------------------------
60,480 59,733 60,695
----------------------------------------
Total revenue 178,113 180,449 154,768
----------------------------------------
Provision for loan losses 2 16,000 16,000 12,000
----------------------------------------
Non-interest expenses
Salaries and employee
benefits 67,617 65,225 60,414
Premises and technology 32,017 32,142 29,790
Other 23,915 23,016 23,830
----------------------------------------
123,549 120,383 114,034
----------------------------------------
Income before income taxes 38,564 44,066 28,734
Income taxes 10,215 12,052 7,579
----------------------------------------
Net income $ 28,349 $ 32,014 $ 21,155
----------------------------------------
----------------------------------------
Preferred share dividends,
including applicable
taxes 3,074 3,074 3,004
----------------------------------------
Net income available to
common shareholders $ 25,275 $ 28,940 $ 18,151
----------------------------------------
----------------------------------------
Average number of common
shares outstanding
(in thousands)
Basic 23,921 23,919 23,849
Diluted 23,937 23,935 23,855
----------------------------------------
Net income per common share
Basic $ 1.06 $ 1.21 $ 0.76
Diluted $ 1.06 $ 1.21 $ 0.76
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
--------------------------
IN THOUSANDS OF DOLLARS, APRIL 30 APRIL 30
EXCEPT PER SHARE AMOUNTS (UNAUDITED) NOTES 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Interest income
Loans $ 362,889 $ 361,806
Securities 34,880 35,188
Deposits with other
banks 113 3,523
Other, including
derivative financial
instruments 63,510 56,532
--------------------------
461,392 457,049
--------------------------
Interest expense
Deposits 218,276 254,645
Other, including
derivative financial
instruments 930 5,794
Subordinated debentures 3,837 3,834
--------------------------
223,043 264,273
--------------------------
Net interest income 238,349 192,776
--------------------------
Other income
Fees and commissions on
loans and deposits 55,467 48,274
Income from brokerage
operations 26,407 19,445
Securitization income 3 4,508 19,119
Credit insurance income 8,739 7,828
Income from sales of
mutual funds 7,312 5,821
Income from treasury
and financial market
operations 8,735 10,554
Income from registered
self-directed plans 4,401 4,017
Other 4,644 3,471
--------------------------
120,213 118,529
--------------------------
Total revenue 358,562 311,305
--------------------------
Provision for loan losses 2 32,000 24,000
--------------------------
Non-interest expenses
Salaries and employee
benefits 132,842 120,803
Premises and technology 64,159 57,775
Other 46,931 46,188
--------------------------
243,932 224,766
--------------------------
Income before income taxes 82,630 62,539
Income taxes 22,267 16,337
--------------------------
Net income $ 60,363 $ 46,202
--------------------------
--------------------------
Preferred share dividends,
including applicable
taxes 6,148 6,226
--------------------------
Net income available to
common shareholders $ 54,215 $ 39,976
--------------------------
--------------------------
Average number of common
shares outstanding
(in thousands)
Basic 23,920 23,849
Diluted 23,936 23,863
--------------------------
Net income per common share
Basic $ 2.27 $ 1.68
Diluted $ 2.26 $ 1.68
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of the interim consolidated
financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED
---------------------------
APRIL 30 APRIL 30
IN THOUSANDS OF DOLLARS (UNAUDITED) NOTES 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income $ 28,349 $ 21,155
--------------------------
Other comprehensive income, net of
income taxes 8
Unrealized gains on
available-for-sale securities 895 8,369
Reclassification of (gains) losses
on available-for-sale securities
to net income (1,480) (45)
Net change in value of derivative
instruments designated as cash flow
hedges (24,232) 7,763
--------------------------
(24,817) 16,087
--------------------------
Comprehensive income $ 3,532 $ 37,242
--------------------------
--------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
--------------------------
APRIL 30 APRIL 30
IN THOUSANDS OF DOLLARS (UNAUDITED) NOTES 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income $ 60,363 $ 46,202
--------------------------
Other comprehensive income, net of
income taxes 8
Unrealized gains on
available-for-sale securities 3,693 855
Reclassification of (gains) losses
on available-for-sale securities
to net income (1,877) 672
Net change in value of derivative
instruments designated as cash flow
hedges (26,470) 22,804
--------------------------
(24,654) 24,331
--------------------------
Comprehensive income $ 35,709 $ 70,533
--------------------------
--------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of the interim consolidated
financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED
--------------------------
APRIL 30 APRIL 30
IN THOUSANDS OF DOLLARS (UNAUDITED) NOTES 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Preferred shares
Balance at beginning and end of
period $ 210,000 $ 210,000
--------------------------
Common shares 4
Balance at beginning of period 259,208 257,462
Issued during the period under
share purchase option plan 5 155 34
--------------------------
Balance at end of period 259,363 257,496
--------------------------
Contributed surplus
Balance at beginning of period 209 173
Stock-based compensation 5 17 20
--------------------------
Balance at end of period 226 193
--------------------------
Retained earnings
Balance at beginning of period 665,538 596,974
Net income 60,363 46,202
Dividends
Preferred shares, including
applicable taxes (6,148) (6,226)
Common shares (17,223) (16,218)
--------------------------
Balance at end of period 702,530 620,732
--------------------------
Accumulated other comprehensive income 8
Balance at beginning of period 36,271 18,826
Other comprehensive income, net of
income taxes (24,654) 24,331
--------------------------
Balance at end of period 11,617 43,157
--------------------------
Shareholders' equity $ 1,183,736 $ 1,131,578
--------------------------
--------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of the interim consolidated
financial statements.
CONSOLIDATED STATEMENT
OF CASH FLOWS
FOR THE THREE MONTHS ENDED
-------------------------------------
APRIL 30 JANUARY 31 APRIL 30
IN THOUSANDS OF DOLLARS (UNAUDITED) 2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flows relating to operating
activities
Net income $ 28,349 $ 32,014 $ 21,155
Adjustments to determine net
cash flows relating to
operating activities:
Provision for loan losses 16,000 16,000 12,000
Gains on securitization
operations (5,017) (3,185) (9,229)
Net loss (gain) on disposal of
non-trading securities (627) (1,789) 725
Future income taxes 4,155 5,470 4,294
Depreciation 2,667 2,621 2,802
Amortization of software and
other intangible assets 6,446 6,381 5,391
Net change in held-for-trading
securities 571,817 (671,281) 196,179
Change in accrued interest
receivable (14,262) 12,463 (14,919)
Change in assets relating to
derivative financial
instruments (21,836) 21,128 (5,299)
Change in accrued interest
payable 7,744 (12,886) 4,480
Change in liabilities relating
to derivative financial
instruments 59,511 (2,620) 13,901
Other, net (46,603) 2,137 (15,561)
-------------------------------------
608,344 (593,547) 215,919
-------------------------------------
Cash flows relating to financing
activities
Net change in deposits 310,418 126,368 1,687,893
Change in obligations related to
assets sold short (294,918) 461,207 (334,147)
Change in obligations related to
assets sold under repurchase
agreements (127,699) 432,879 (968,424)
Issuance of common shares 9 146 -
Dividends, including applicable
income taxes (11,686) (11,685) (11,113)
-------------------------------------
(123,876) 1,008,915 374,209
-------------------------------------
Cash flows relating to investing
activities
Change in securities available-
for-sale and designated as
held-for-trading
Acquisitions (951,316) (1,023,593) (1,807,299)
Proceeds on sale and at
maturities 894,412 1,448,322 1,497,435
Change in loans (826,470) (726,143) (467,955)
Change in assets purchased
under reverse repurchase
agreements 246,383 (279,385) 35,480
Proceeds from mortgage loan
securitizations 182,256 101,512 171,816
Additions to premises and
equipment and software, net of
disposals (11,018) (5,659) (8,356)
Change in interest-bearing
deposits with other banks (20,454) 65,244 (596)
Cash flows from discontinued
operations - 8,308 -
-------------------------------------
(486,207) (411,394) (579,475)
-------------------------------------
Net change in cash and non-
interest-bearing deposits with
other banks during the period (1,739) 3,974 10,653
Cash and non-interest-bearing
deposits with other banks at
beginning of period 64,984 61,010 49,730
-------------------------------------
Cash and non-interest-bearing
deposits with other banks at
end of period $ 63,245 $ 64,984 $ 60,383
-------------------------------------
Supplemental disclosure
relating to cash flows:
Interest paid during the
period $ 103,324 $ 126,503 $ 115,043
Income taxes paid during the
period $ 7,654 $ 11,279 $ 1,709
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
--------------------------
APRIL 30 APRIL 30
IN THOUSANDS OF DOLLARS (UNAUDITED) 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flows relating to operating
activities
Net income $ 60,363 $ 46,202
Adjustments to determine net
cash flows relating to
operating activities:
Provision for loan losses 32,000 24,000
Gains on securitization
operations (8,202) (25,901)
Net loss (gain) on disposal of
non-trading securities (2,416) 3,410
Future income taxes 9,625 11,613
Depreciation 5,288 5,556
Amortization of software and
other intangible assets 12,827 10,682
Net change in held-for-trading
securities (99,464) 212,506
Change in accrued interest
receivable (1,799) (5,543)
Change in assets relating to
derivative financial
instruments (708) (45,886)
Change in accrued interest
payable (5,142) (7,169)
Change in liabilities relating
to derivative financial
instruments 56,891 461
Other, net (44,466) (44,913)
--------------------------
14,797 185,018
--------------------------
Cash flows relating to financing
activities
Net change in deposits 436,786 1,926,951
Change in obligations related to
assets sold short 166,289 (248,054)
Change in obligations related to
assets sold under repurchase
agreements 305,180 (952,672)
Issuance of common shares 155 34
Dividends, including applicable
income taxes (23,371) (22,444)
--------------------------
885,039 703,815
--------------------------
Cash flows relating to investing
activities
Change in securities available-
for-sale and designated as
held-for-trading
Acquisitions (1,974,909) (2,806,215)
Proceeds on sale and at
maturities 2,342,734 2,333,284
Change in loans (1,552,613) (854,998)
Change in assets purchased
under reverse repurchase
agreements (33,002) 121,532
Proceeds from mortgage loan
securitizations 283,768 483,932
Additions to premises and
equipment and software, net of
disposals (16,677) (13,122)
Change in interest-bearing
deposits with other banks 44,790 (147,273)
Cash flows from discontinued
operations 8,308 -
--------------------------
(897,601) (882,860)
--------------------------
Net change in cash and non-
interest-bearing deposits with
other banks during the period 2,235 5,973
Cash and non-interest-bearing
deposits with other banks at
beginning of period 61,010 54,410
--------------------------
Cash and non-interest-bearing
deposits with other banks at
end of period $ 63,245 $ 60,383
--------------------------
Supplemental disclosure
relating to cash flows:
Interest paid during the
period $ 229,827 $ 261,646
Income taxes paid during the
period $ 18,933 $ 9,998
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The accompanying notes are an integral part of the interim consolidated
financial statements.
NOTES TO THE INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
ALL TABULAR AMOUNTS ARE IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE
INDICATED (UNAUDITED)
1. ACCOUNTING POLICIES
These unaudited interim consolidated financial statements of Laurentian Bank of Canada (the "Bank") have been prepared by management who is responsible for the integrity and fairness of the financial information presented. These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") for interim financial statements and follow the same significant accounting policies as those in the Bank's audited annual consolidated financial statements as at October 31, 2009. These accounting policies conform to GAAP. However, these interim consolidated financial statements do not reflect all of the information and disclosures required by GAAP for complete financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements as at October 31, 2009. These interim consolidated financial statements reflect amounts which are based on the best estimates and judgment of management. Actual results may differ from these estimates. Certain comparative figures have been reclassified to conform to the current period presentation.
Future changes to accounting policies
International Financial Reporting Standards
The AcSB confirmed the convergence of financial reporting standards for Canadian public companies with International Financial Reporting Standards (IFRS). The Bank will use IFRS for interim and annual financial statements relating to periods beginning as of November 1, 2011. The Bank is assessing the impact of IFRS on its consolidated financial statements upon adoption in the first quarter of 2012.
2. LOANS
Loans and impaired loans
AS AT APRIL 30, 2010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
GROSS AMOUNT
GROSS AMOUNT OF IMPAIRED SPECIFIC
OF LOANS LOANS ALLOWANCES
-------------------------------------------------------------------------
Personal loans $ 5,728,762 $ 20,771 $ 6,153
Residential mortgages 8,101,340 28,377 1,639
Commercial mortgages 1,408,973 29,130 6,104
Commercial and other loans 1,722,876 83,652 37,032
----------------------------------------
$16,961,951 $ 161,930 $ 50,928
-------------------------------------------------------------------------
-------------------------------------------------------------------------
AS AT APRIL 30, 2010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
GENERAL TOTAL
ALLOWANCES ALLOWANCES
-------------------------------------------------------------------------
Personal loans $ 31,670 $ 37,823
Residential mortgages 2,861 4,500
Commercial mortgages 4,599 10,703
Commercial and other loans 34,120 71,152
--------------------------
$ 73,250 $ 124,178
-------------------------------------------------------------------------
-------------------------------------------------------------------------
AS AT OCTOBER 31, 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
GROSS AMOUNT
GROSS AMOUNT OF IMPAIRED SPECIFIC
OF LOANS LOANS ALLOWANCES
-------------------------------------------------------------------------
Personal loans $ 5,655,055 $ 23,738 $ 7,048
Residential mortgages 7,219,830 32,368 1,878
Commercial mortgages 1,285,012 11,230 2,525
Commercial and other loans 1,555,956 70,158 29,845
----------------------------------------
$15,715,853 $ 137,494 $ 41,296
-------------------------------------------------------------------------
-------------------------------------------------------------------------
AS AT OCTOBER 31, 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
GENERAL TOTAL
ALLOWANCES ALLOWANCES
-------------------------------------------------------------------------
Personal loans $ 33,713 $ 40,761
Residential mortgages 2,956 4,834
Commercial mortgages 5,000 7,525
Commercial and other loans 31,581 61,426
--------------------------
$ 73,250 $ 114,546
-------------------------------------------------------------------------
-------------------------------------------------------------------------
AS AT APRIL 30, 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
GROSS AMOUNT
GROSS AMOUNT OF IMPAIRED SPECIFIC
OF LOANS LOANS ALLOWANCES
-------------------------------------------------------------------------
Personal loans $ 5,732,010 $ 22,057 $ 7,738
Residential mortgages 6,334,599 24,025 1,986
Commercial mortgages 1,053,537 6,057 1,908
Commercial and other loans 1,492,038 73,538 28,247
----------------------------------------
$14,612,184 $ 125,677 $ 39,879
-------------------------------------------------------------------------
-------------------------------------------------------------------------
AS AT APRIL 30, 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
GENERAL TOTAL
ALLOWANCES ALLOWANCES
-------------------------------------------------------------------------
Personal loans $ 31,695 $ 39,433
Residential mortgages 3,976 5,962
Commercial mortgages 5,660 7,568
Commercial and other loans 31,919 60,166
--------------------------
$ 73,250 $ 113,129
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Specific allowances for loan losses
-------------------------------------------------------------------------
-------------------------------------------------------------------------
PERSONAL RESIDENTIAL COMMERCIAL
LOANS MORTGAGES MORTGAGES
-------------------------------------------------------------------------
Balance at beginning of period $ 7,048 $ 1,878 $ 2,525
Provision for loan losses
recorded in the consolidated
statement of income 16,249 433 3,863
Write-offs (20,617) (772) (284)
Recoveries 3,473 100 -
----------------------------------------
Balance at end of period $ 6,153 $ 1,639 $ 6,104
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS
ENDED APRIL 30
--------------------------
2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
TOTAL TOTAL
COMMERCIAL AND SPECIFIC SPECIFIC
OTHER LOANS ALLOWANCES ALLOWANCES
-------------------------------------------------------------------------
Balance at beginning of period $ 29,845 $ 41,296 $ 39,184
Provision for loan losses
recorded in the consolidated
statement of income 11,455 32,000 24,000
Write-offs (4,283) (25,956) (26,978)
Recoveries 15 3,588 3,673
----------------------------------------
Balance at end of period $ 37,032 $ 50,928 $ 39,879
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Loans past due but not impaired
Personal and residential mortgage loans past due shown in the table below are not classified as impaired because they are less than 90 days past due or they are secured such as to reasonably expect full recovery. Commercial loans past due but not impaired are not significant.
AS AT APRIL 30, 2010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
1 TO 32 TO OVER
31 DAYS 90 DAYS 90 DAYS TOTAL
-------------------------------------------------------------------------
Personal loans $ 92,662 $ 28,399 $ 6,713 $ 127,774
Residential
mortgages 238,262 52,618 26,898 317,778
-------------------------------------------------------
$ 330,924 $ 81,017 $ 33,611 $ 445,552
-------------------------------------------------------------------------
-------------------------------------------------------------------------
AS AT OCTOBER 31, 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
1 TO 32 TO OVER
31 DAYS 90 DAYS 90 DAYS TOTAL
-------------------------------------------------------------------------
Personal loans $ 88,479 $ 30,522 $ 6,275 $ 125,276
Residential
mortgages 218,282 43,839 25,756 287,877
-------------------------------------------------------
$ 306,761 $ 74,361 $ 32,031 $ 413,153
-------------------------------------------------------------------------
-------------------------------------------------------------------------
3. LOAN SECURITIZATION
Under the mortgage-backed securitization program governed by the National Housing Act, the Bank securitizes residential mortgage loans secured by the Canadian Mortgage and Housing Corporation (CMHC) through the creation of mortgage-backed securities. The Bank also securitized conventional residential mortgages prior to 2008. Gains before income taxes, net of transaction costs, are recognized in other income.
The following table summarizes the residential mortgage securitization transactions carried out by the Bank.
FOR THE THREE MONTHS ENDED
----------------------------------------
APRIL 30 JANUARY 31 APRIL 30
2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash proceeds, net of
transaction costs $ 182,256 $ 101,512 $ 171,816
Rights to future excess spreads 10,524 4,824 15,180
Servicing liability (1,636) (689) (1,301)
Other (883) (400) (2,735)
----------------------------------------
190,261 105,247 182,960
Residential mortgages
securitized and sold (182,609) (101,538) (172,039)
Write-off of loan origination
costs (2,635) (524) (1,692)
----------------------------------------
Gains before income taxes $ 5,017 $ 3,185 $ 9,229
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
--------------------------
APRIL 30 APRIL 30
2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash proceeds, net of
transaction costs $ 283,768 $ 483,932
Rights to future excess spreads 15,348 43,487
Servicing liability (2,325) (4,099)
Other (1,283) (7,793)
--------------------------
295,508 515,527
Residential mortgages
securitized and sold (284,147) (484,441)
Write-off of loan origination
costs (3,159) (5,185)
--------------------------
Gains before income taxes $ 8,202 $ 25,901
-------------------------------------------------------------------------
-------------------------------------------------------------------------
With regard to the transfer of residential mortgages, the key assumptions used to determine the initial fair value of retained interests at the securitization date are summarized as follows.
DURING THE QUARTER ENDED
----------------------------------------
APRIL 30 JANUARY 31 APRIL 30
2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average term (months) 36 27 30
Rate of prepayment 18.0% 17.6% 20.8%
Discount rate 1.9% 1.3% 1.4%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
No loss is expected on insured residential mortgages.
Securitization income, as reported in the consolidated statement of income, is detailed in the following table.
FOR THE THREE MONTHS ENDED
----------------------------------------
APRIL 30 JANUARY 31 APRIL 30
2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gains on securitization
operations $ 5,017 $ 3,185 $ 9,229
Changes in fair value of
retained interests related to
excess spreads, securitization
swaps and financial instruments
held for economic hedging purposes (4,506) 667 (2,042)
Loan management income 1,977 1,975 1,820
Other (2,160) (1,647) (413)
----------------------------------------
$ 328 $ 4,180 $ 8,594
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
--------------------------
APRIL 30 APRIL 30
2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Gains on securitization
operations $ 8,202 $ 25,901
Changes in fair value of
retained interests related to
excess spreads, securitization
swaps and financial instruments
held for economic hedging purposes (3,839) (9,351)
Loan management income 3,952 3,655
Other (3,807) (1,086)
----------------------------------------
$ 4,508 $ 19,119
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at April 30, 2010, the Bank held rights to future excess spreads of $87,439,000 (of which $85,489,000 related to insured mortgages) and cash reserve accounts of $10,726,000.
The total principal amount of securitized residential mortgages outstanding amounted to $2,590,808,000 as at April 30, 2010 ($2,702,762,000 as at October 31, 2009).
4. CAPITAL STOCK
Issuance of common shares
During the quarter, 275 common shares were issued to management under the Bank's employee share purchase option plan for a cash consideration of $9,000 (6,999 common shares for a cash consideration of $155,000 during the six-month period ended April 30, 2010).
ISSUED AND OUTSTANDING AS AT APRIL 30, AS AT OCTOBER 31,
2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
IN THOUSANDS OF
DOLLARS, EXCEPT NUMBER OF NUMBER OF
NUMBER OF SHARES SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------
Class A Preferred
Shares (1)
Series 9 4,000,000 $ 100,000 4,000,000 $ 100,000
Series 10 4,400,000 110,000 4,400,000 110,000
---------------------------------------------------
Total preferred
shares 8,400,000 $ 210,000 8,400,000 $ 210,000
---------------------------------------------------
Common shares 23,920,962 $ 259,363 23,913,963 $ 259,208
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The preferred shares are convertible into common shares at the Bank's
option. However, the number of shares issuable on conversion is not
determinable until the date of conversion.
Capital management
Capital must meet minimum regulatory requirements, as defined by the Office of the Superintendent of Financial Institutions Canada (OSFI) and internal capital adequacy objectives.
Regulatory guidelines issued by OSFI require banks to maintain a minimum Tier 1 capital ratio of at least 7% and a Total capital ratio of at least 10%. The Bank is monitoring its regulatory capital based on the Standard Approach for credit risk and on the Basic Indicator Approach for operational risk, as proposed by the Bank for International Settlements regulatory risk-based capital framework (Basel II). In addition, Canadian banks are required to ensure that their assets-to-capital multiple, which is calculated by dividing gross adjusted assets by Total capital, does not exceed a maximum level prescribed by OSFI. The Bank has complied with these requirements throughout the six-month period ended April 30, 2010.
5. STOCK-BASED COMPENSATION
Share purchase option plan
There were no new grants during the first six months of 2010. Information on the outstanding number of options is as follows.
AS AT AS AT
APRIL 30, OCTOBER 31,
2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
NUMBER NUMBER
-------------------------------------------------------------------------
Share purchase options
Outstanding at end of period 54,075 61,074
Exercisable at end of period 41,575 36,074
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Restricted share unit plan
During the first quarter of 2010, under the restricted share unit plan, annual bonuses for certain employees amounting to $1,651,000 were converted into 38,268 entirely vested restricted share units. Simultaneously, the Bank also granted 22,961 additional restricted share units that will vest in December 2012. There were no new grants during the current quarter.
Performance-based share unit plan
During the first quarter of 2010, under the performance-based share unit plan, the Bank granted 50,426 performance-based share units valued at $43.15 each. Rights to 37.5% of these units will vest after three years. The rights to the remaining units will vest after three years, upon meeting certain financial objectives. There were no new grants during the current quarter.
Stock appreciation rights plan
There were no new grants during the first six months of 2010 under the stock appreciation rights plan.
Stock-based compensation plan expense
The following table presents the expense related to all stock-based compensation plans, net of the effect of related hedging transactions.
FOR THE THREE MONTHS ENDED
----------------------------------------
APRIL 30 JANUARY 31 APRIL 30
2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Stock-based compensation
plan expense $ 4,658 $ (71) $ 238
Effect of hedges (4,384) 813 (16)
----------------------------------------
Total $ 274 $ 742 $ 222
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
--------------------------
APRIL 30 APRIL 30
2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Stock-based compensation
plan expense $ 4,587 $ (5,677)
Effect of hedges (3,571) 8,013
--------------------------
Total $ 1,016 $ 2,336
-------------------------------------------------------------------------
-------------------------------------------------------------------------
6. EMPLOYEE FUTURE BENEFITS
FOR THE THREE MONTHS ENDED
----------------------------------------
APRIL 30 JANUARY 31 APRIL 30
2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Defined benefit pension
plan expense $ 1,992 $ 1,907 $ 1,140
Defined contribution pension
plan expense 1,132 1,093 1,031
Other plan expense 825 853 804
----------------------------------------
Total $ 3,949 $ 3,853 $ 2,975
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
--------------------------
APRIL 30 APRIL 30
2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Defined benefit pension
plan expense $ 3,899 $ 2,611
Defined contribution pension
plan expense 2,225 2,024
Other plan expense 1,678 1,636
--------------------------
Total $ 7,802 $ 6,271
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. WEIGHTED AVERAGE NUMBER OF OUTSTANDING COMMON SHARES
FOR THE THREE MONTHS ENDED
----------------------------------------
APRIL 30 JANUARY 31 APRIL 30
2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of outstanding
common shares 23,920,906 23,919,297 23,849,313
Dilutive share purchase options 16,035 16,110 5,289
----------------------------------------
Weighted average number of
outstanding common shares 23,936,941 23,935,407 23,854,602
----------------------------------------
----------------------------------------
Average number of share purchase
options not taken into account
in the calculation of diluted
income per common share (1) - - 105,400
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
--------------------------
APRIL 30 APRIL 30
2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average number of outstanding
common shares 23,920,088 23,848,894
Dilutive share purchase options 16,073 14,508
--------------------------
Weighted average number of
outstanding common shares 23,936,161 23,863,402
--------------------------
--------------------------
Average number of share purchase
options not taken into account
in the calculation of diluted
income per common share (1) - 51,827
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) The average number of share purchase options was not taken into
account in the calculation of diluted net income per common share
since the average exercise price of these options exceeded the
average market price of the Bank's shares during these periods.
8. ADDITIONAL INFORMATION REGARDING OTHER COMPREHENSIVE INCOME
Other comprehensive income
FOR THE THREE MONTHS ENDED
----------------------------------------
APRIL 30
2010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
BEFORE NET OF
INCOME INCOME INCOME
TAXES TAXES TAXES
-------------------------------------------------------------------------
Unrealized net gains on
available-for-sale securities $ 1,160 $ (265) $ 895
Reclassification of net (gains)
and losses to net income on
available-for-sale securities (2,037) 557 (1,480)
----------------------------------------
(877) 292 (585)
Net change in value of
derivative instruments
designated as cash flow hedges (34,987) 10,755 (24,232)
----------------------------------------
Other comprehensive income $ (35,864) $ 11,047 $ (24,817)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
----------------------------------------
APRIL 30
2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
BEFORE NET OF
INCOME INCOME INCOME
TAXES TAXES TAXES
-------------------------------------------------------------------------
Unrealized net gains on
available-for-sale securities $ 12,054 $ (3,685) $ 8,369
Reclassification of net (gains)
and losses to net income on
available-for-sale securities (64) 19 (45)
----------------------------------------
11,990 (3,666) 8,324
Net change in value of
derivative instruments
designated as cash flow hedges 11,777 (4,014) 7,763
----------------------------------------
Other comprehensive income $ 23,767 $ (7,680) $ 16,087
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
----------------------------------------
APRIL 30
2010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
BEFORE NET OF
INCOME INCOME INCOME
TAXES TAXES TAXES
-------------------------------------------------------------------------
Unrealized net gains on
available-for-sale securities $ 5,212 $ (1,519) $ 3,693
Reclassification of net (gains)
and losses to net income on
available-for-sale securities (2,612) 735 (1,877)
----------------------------------------
2,600 (784) 1,816
Net change in value of
derivative instruments
designated as cash flow hedges (38,535) 12,065 (26,470)
----------------------------------------
Other comprehensive income $ (35,935) $ 11,281 $ (24,654)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
----------------------------------------
APRIL 30
2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
BEFORE NET OF
INCOME INCOME INCOME
TAXES TAXES TAXES
-------------------------------------------------------------------------
Unrealized net gains on
available-for-sale securities $ 1,136 $ (281) $ 855
Reclassification of net (gains)
and losses to net income on
available-for-sale securities 977 (305) 672
----------------------------------------
2,113 (586) 1,527
Net change in value of
derivative instruments
designated as cash flow hedges 34,163 (11,359) 22,804
----------------------------------------
Other comprehensive income $ 36,276 $ (11,945) $ 24,331
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Accumulated other comprehensive income (net of income taxes)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
ACCUMULATED
OTHER
CASH AVAILABLE- COMPREHEN-
FLOW FOR-SALE SIVE
HEDGES SECURITIES INCOME
-------------------------------------------------------------------------
Balance at October 31, 2009 $ 32,596 $ 3,675 $ 36,271
Change during the three months
ended January 31, 2010 (2,238) 2,401 163
Change during the three months
ended April 30, 2010 (24,232) (585) (24,817)
----------------------------------------
Balance at April 30, 2010 $ 6,126 $ 5,491 $ 11,617
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
ACCUMULATED
OTHER
CASH AVAILABLE- COMPREHEN-
FLOW FOR-SALE SIVE
HEDGES SECURITIES INCOME
-------------------------------------------------------------------------
Balance at October 31, 2008 $ 35,417 $ (16,591) $ 18,826
Change during the three months
ended January 31, 2009 15,041 (6,797) 8,244
Change during the three months
ended April 30, 2009 7,763 8,324 16,087
----------------------------------------
Balance at April 30, 2009 58,221 (15,064) 43,157
Change during the three months
ended July 31, 2009 (17,786) 11,797 (5,989)
Change during the three months
ended October 31, 2009 (7,839) 6,942 (897)
----------------------------------------
Balance at October 31, 2009 $ 32,596 $ 3,675 $ 36,271
-------------------------------------------------------------------------
-------------------------------------------------------------------------
9. SUPPLEMENTAL INFORMATION ON FINANCIAL INSTRUMENTS
Securities
Gains and losses on the portfolio of available-for-sale securities
The following gains and losses were recognized in net income with regard to the available-for-sale securities.
FOR THE THREE MONTHS ENDED
------------------------------------------
APRIL 30 JANUARY 31 APRIL 30
2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Realized net gains (losses) $ 2,037 $ 575 $ 64
Writedowns for impairment
recognized in net income (148) - -
------------------------------------------
Total $ 1,889 $ 575 $ 64
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
--------------------------
APRIL 30 APRIL 30
2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Realized net gains (losses) $ 2,612 $ (977)
Writedowns for impairment
recognized in net income (148) -
--------------------------
Total $ 2,464 $ (977)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Unrealized gains and losses on the portfolio of available-for-sale securities
The following table presents the gross unrealized gains and unrealized losses on available-for-sale securities, recognized in other comprehensive income.
AS AT APRIL 30, 2010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------------------------------
Securities issued
or guaranteed
by Canada (1) $ 405,393 $ 4 $ 38 $ 405,359
by provinces 428,858 2,384 550 430,692
Other debt
securities 119,703 4,383 165 123,921
Asset-backed
securities 22,990 763 369 23,384
Preferred shares 42,135 696 935 41,896
Common shares and
other securities 33,628 3,369 930 36,067
------------------------------------------------------
$ 1,052,707 $ 11,599 $ 2,987 $ 1,061,319
-------------------------------------------------------------------------
-------------------------------------------------------------------------
AS AT OCTOBER 31, 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------------------------------
Securities issued
or guaranteed
by Canada (1) $ 686,786 $ 69 $ 13 $ 686,842
by provinces 535,422 4,913 2 540,333
Other debt
securities 107,827 6,213 27 114,013
Asset-backed
securities 18,545 159 600 18,104
Preferred shares 38,839 763 1,262 38,340
Common shares and
other securities 26,959 1,062 1,610 26,411
------------------------------------------------------
$ 1,414,378 $ 13,179 $ 3,514 $ 1,424,043
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Including mortgage-backed securities that are fully guaranteed by
the CMHC pursuant to the National Housing Act.
Available-for-sale securities are assessed for impairment at each reporting date to determine whether it is probable that the amortized cost of the security would be recovered. As at April 30, 2010, gross unrealized losses on available-for-sale securities were $2,987,000. These unrealized losses are mainly related to publicly traded common and preferred shares. Management believes that these unrealized losses are temporary as the underlying financial conditions and prospects of the issuers have remained sound.
Financial instruments designated as held-for-trading
Management can elect to designate financial instruments as held-for-trading instruments, with changes in fair value recorded in income, provided that such designations meet specific criteria. Certain securities, retained interests related to securitization activities and retail deposits were designated as held-for-trading in order to significantly reduce recognition inconsistencies that would otherwise arise from recognizing gains and losses on different bases. These financial instruments provide an economic hedge for other financial instruments that are measured at fair value. Gains and losses on these instruments are therefore generally offset by changes in value of other financial instruments. The following table shows the impact of changes in value of these instruments.
FOR THE THREE MONTHS ENDED
------------------------------------------
APRIL 30 JANUARY 31 APRIL 30
2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Included in securitization
income $ (28,120) $ 6,637 $ 3,455
Included in income from
treasury and financial market
operations - - 139
------------------------------------------
Total $ (28,120) $ 6,637 $ 3,594
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
--------------------------
APRIL 30 APRIL 30
2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Included in securitization
income $ (21,483) $ 24,701
Included in income from
treasury and financial market
operations - 94
--------------------------
Total $ (21,483) $ 24,795
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Derivative financial instruments
Ineffective portions of hedging relationships
The following tables shows the ineffective portions of the cumulative changes in fair value of hedging instruments recognized in the consolidated statement of income.
FOR THE THREE MONTHS ENDED
------------------------------------------
APRIL 30 JANUARY 31 APRIL 30
2010 2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flow hedges $ (141) $ (65) $ 89
Fair value hedges (105) 88 (227)
------------------------------------------
$ (246) $ 23 $ (138)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
--------------------------
APRIL 30 APRIL 30
2010 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash flow hedges $ (206) $ 124
Fair value hedges (17) (997)
--------------------------
$ (223) $ (873)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Other information on hedging relationships
Net deferred gains of $3,623,000, included in accumulated other comprehensive income as at April 30, 2010, are expected to be transferred into net income over the next twelve months.
The maximum term of cash flow hedging relationships was ten years as at April 30, 2010.
10. SEGMENTED INFORMATION
As of November 1, 2009, certain capital market activities which were previously reported in the Other segment are now reported with Laurentian Bank Securities activities under the newly formed Laurentian Bank Securities and Capital Markets business segment. In addition, foreign exchange and international services, which were also formerly reported in the Other segment, are now reported in the Real Estate & Commercial segment. The Retail & SME Quebec and B2B Trust business segments were not affected by this reorganization. Comparative figures were reclassified to conform to the current period presentation.
FOR THE THREE MONTHS ENDED
APRIL 30, 2010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
R & SME
QUEBEC RE&C B2B
-------------------------------------------------------------------------
Net interest income $ 78,531 $ 20,527 $ 26,863
Other income 32,851 8,598 2,772
----------------------------------------
Total revenue 111,382 29,125 29,635
Provision for loan losses 11,542 3,984 474
Non-interest expenses 87,305 5,558 12,757
----------------------------------------
Income (loss) before
income taxes 12,535 19,583 16,404
Income taxes (recovered) 2,453 5,928 5,045
----------------------------------------
Net income (loss) $ 10,082 $ 13,655 $ 11,359
----------------------------------------
----------------------------------------
Average assets (1) $11,869,619 $ 2,864,115 $ 4,965,651
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
APRIL 30, 2010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LBS/CM OTHER TOTAL
-------------------------------------------------------------------------
Net interest income $ 436 $ (8,724) $ 117,633
Other income 14,844 1,415 60,480
----------------------------------------
Total revenue 15,280 (7,309) 178,113
Provision for loan losses - - 16,000
Non-interest expenses 11,657 6,272 123,549
----------------------------------------
Income (loss) before
income taxes 3,623 (13,581) 38,564
Income taxes (recovered) 1,037 (4,248) 10,215
----------------------------------------
Net income (loss) $ 2,586 $ (9,333) $ 28,349
----------------------------------------
----------------------------------------
Average assets (1) $ 2,570,640 $ 680,037 $22,950,062
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
JANUARY 31, 2010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
R & SME
QUEBEC RE&C B2B
-------------------------------------------------------------------------
Net interest income $ 81,811 $ 19,911 $ 27,340
Other income 30,692 7,679 2,497
----------------------------------------
Total revenue 112,503 27,590 29,837
Provision for loan losses 9,790 5,150 1,060
Non-interest expenses 86,502 4,242 12,607
----------------------------------------
Income (loss) before
income taxes 16,211 18,198 16,170
Income taxes (recovered) 3,659 5,510 5,109
----------------------------------------
Net income (loss) $ 12,552 $ 12,688 $ 11,061
----------------------------------------
----------------------------------------
Average assets (1) $11,752,657 $ 2,800,270 $ 4,738,833
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
JANUARY 31, 2010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LBS/CM OTHER TOTAL
-------------------------------------------------------------------------
Net interest income $ 485 $ (8,831) $ 120,716
Other income 14,002 4,863 59,733
----------------------------------------
Total revenue 14,487 (3,968) 180,449
Provision for loan losses - - 16,000
Non-interest expenses 11,680 5,352 120,383
----------------------------------------
Income (loss) before
income taxes 2,807 (9,320) 44,066
Income taxes (recovered) 973 (3,199) 12,052
----------------------------------------
Net income (loss) $ 1,834 $ (6,121) $ 32,014
----------------------------------------
----------------------------------------
Average assets (1) $ 2,461,648 $ 741,713 $22,495,121
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
APRIL 30, 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
R & SME
QUEBEC RE&C B2B
-------------------------------------------------------------------------
Net interest income $ 74,489 $ 15,342 $ 21,496
Other income 29,281 5,782 2,417
----------------------------------------
Total revenue 103,770 21,124 23,913
Provision for loan losses 8,129 3,161 710
Non-interest expenses 83,105 6,901 11,740
----------------------------------------
Income (loss) before
income taxes 12,536 11,062 11,463
Income taxes (recovered) 2,780 3,462 3,630
----------------------------------------
Net income (loss) $ 9,756 $ 7,600 $ 7,833
----------------------------------------
----------------------------------------
Average assets (1) $10,849,661 $ 2,285,291 $ 4,231,056
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-------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
APRIL 30, 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LBS/CM OTHER TOTAL
-------------------------------------------------------------------------
Net interest income $ 526 $ (17,780) $ 94,073
Other income 13,487 9,728 60,695
----------------------------------------
Total revenue 14,013 (8,052) 154,768
Provision for loan losses - - 12,000
Non-interest expenses 9,225 3,063 114,034
----------------------------------------
Income (loss) before
income taxes 4,788 (11,115) 28,734
Income taxes (recovered) 1,444 (3,737) 7,579
----------------------------------------
Net income (loss) $ 3,344 $ (7,378) $ 21,155
----------------------------------------
----------------------------------------
Average assets (1) $ 1,855,020 $ 890,012 $20,111,040
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
APRIL 30, 2010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
R & SME
QUEBEC RE&C B2B
-------------------------------------------------------------------------
Net interest income $ 160,342 $ 40,438 $ 54,203
Other income 63,543 16,277 5,269
----------------------------------------
Total revenue 223,885 56,715 59,472
Provision for loan losses 21,332 9,134 1,534
Non-interest expenses 173,807 9,800 25,364
----------------------------------------
Income (loss) before
income taxes 28,746 37,781 32,574
Income taxes (recovered) 6,112 11,438 10,154
----------------------------------------
Net income (loss) $ 22,634 $ 26,343 $ 22,420
----------------------------------------
----------------------------------------
Average assets (1) $11,810,169 $ 2,831,663 $ 4,850,362
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
APRIL 30, 2010
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LBS/CM OTHER TOTAL
-------------------------------------------------------------------------
Net interest income $ 921 $ (17,555) $ 238,349
Other income 28,846 6,278 120,213
----------------------------------------
Total revenue 29,767 (11,277) 358,562
Provision for loan losses - - 32,000
Non-interest expenses 23,337 11,624 243,932
----------------------------------------
Income (loss) before
income taxes 6,430 (22,901) 82,630
Income taxes (recovered) 2,010 (7,447) 22,267
----------------------------------------
Net income (loss) $ 4,420 $ (15,454) $ 60,363
----------------------------------------
----------------------------------------
Average assets (1) $ 2,515,241 $ 711,386 $22,718,821
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
APRIL 30, 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
R & SME
QUEBEC RE&C B2B
-------------------------------------------------------------------------
Net interest income $ 150,743 $ 29,621 $ 42,611
Other income 57,826 11,489 4,803
----------------------------------------
Total revenue 208,569 41,110 47,414
Provision for loan losses 17,664 4,815 1,521
Non-interest expenses 165,338 13,527 22,516
----------------------------------------
Income (loss) before
income taxes 25,567 22,768 23,377
Income taxes (recovered) 5,631 7,128 7,418
----------------------------------------
Net income (loss) $ 19,936 $ 15,640 $ 15,959
----------------------------------------
----------------------------------------
Average assets (1) $10,794,330 $ 2,247,415 $ 4,197,356
-------------------------------------------------------------------------
-------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
APRIL 30, 2009
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LBS/CM OTHER TOTAL
-------------------------------------------------------------------------
Net interest income $ 1,344 $ (31,543) $ 192,776
Other income 24,931 19,480 118,529
----------------------------------------
Total revenue 26,275 (12,063) 311,305
Provision for loan losses - - 24,000
Non-interest expenses 17,875 5,510 224,766
----------------------------------------
Income (loss) before
income taxes 8,400 (17,573) 62,539
Income taxes (recovered) 2,533 (6,373) 16,337
----------------------------------------
Net income (loss) $ 5,867 $ (11,200) $ 46,202
----------------------------------------
----------------------------------------
Average assets (1) $ 1,828,265 $ 788,748 $19,856,114
-------------------------------------------------------------------------
-------------------------------------------------------------------------
R & SME Quebec - The Retail & SME Quebec segment covers the full range of
savings, investment, financing and transactional
products and services offered through its direct
distribution network, which includes branches, the
electronic network and the call centre, as well as
Point-of-Sale financing across Canada. This business
segment also offers Visa credit card services, insurance
products and trust services. As well, it offers all
commercial financial services to the small and medium
enterprises in Quebec.
RE&C - The Real Estate & Commercial segment handles real estate
financing throughout Canada, commercial financing in
Ontario and National accounts, as well as foreign
exchange and international services.
B2B - The B2B Trust business segment supplies generic and
complementary banking and financial products to
financial advisors and non-bank financial institutions
across Canada. This business segment also encompasses
deposit brokerage operations.
LBS/CM - Laurentian Bank Securities and Capital Markets segment
consists of the Laurentian Bank Securities Inc.
subsidiary and capital market activities.
Other - The Other segment includes treasury and securitization
activities and other activities of the Bank, including
revenues and expenses that are not attributable to the
above-mentioned segments.
(1) Assets are disclosed on an average basis as this measure
is most relevant to a financial institution.
For further information: Michel C. Lauzon, Chief Financial Officer, (514) 284-4500 #7997; Gladys Caron, Media and Investor Relations contact, (514) 284-4500 #7511; cell (514) 893-3963
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