Highlights of the second quarter 2013
- Net income of $35.1 million, return on common shareholders' equity of 10.3%, and diluted earnings per share of $1.10
- Total revenue up 8% year-over-year
- Loan losses remain low at $9.0 million and impaired loans continue to improve
- Continued effective cost control
- Excluding adjusting items:
- Adjusted net income of $40.5 million, up 12% year-over-year
- Adjusted return on common shareholders' equity of 12.1%
- Adjusted diluted earnings per share of $1.29
MONTREAL, June 5, 2013 /CNW Telbec/ - Laurentian Bank of Canada reported net income of $35.1 million or $1.10 diluted per share for the second quarter ended April 30, 2013, compared with $33.9 million or $1.22 diluted per share for the second quarter of 2012. Return on common shareholders' equity was 10.3% for the second quarter of 2013, compared with 12.0% for the same period in 2012. Excluding adjusting items1, net income was up 12% to $40.5 million or $1.29 diluted per share for the second quarter of 2013, compared to $36.3 million or $1.31 diluted per share for the same period in 2012. Adjusted return on common shareholders' equity was 12.1% for the second quarter of 2013, compared with 13.0% for the same period in 2012.
For the six months ended April 30, 2013, net income totalled $69.2 million or $2.22 diluted per share, compared with $64.8 million or $2.38 diluted per share in 2012. Return on common shareholders' equity was 10.3% for the six months ended April 30, 2013, compared with 11.8% for the same period in 2012. Excluding adjusting items, net income was up 17% to $81.0 million or $2.63 diluted per share for the six months ended April 30, 2013, compared with $69.2 million or $2.56 diluted per share for the same period in 2012. Adjusted return on common shareholders' equity was 12.2% for the six months ended April 30, 2013, compared with 12.7% for the same period in 2012.
Commenting on the Bank's financial results for the second quarter of 2013, Réjean Robitaille, President and Chief Executive Officer, mentioned: "We delivered solid revenue and earnings growth and again generated positive operating leverage. Our acquisitions and other growth strategies have contributed to expanding the Bank's revenue base over the past year, while the excellent credit quality of the loan portfolio and disciplined control over expenses also yielded good results. In the midst of slowing loan demand and compressed margins, we continue to focus on growing the more profitable segments of our portfolios and are particularly directing our attention toward the integration of our recently acquired businesses."
Mr. Robitaille concluded: "In this environment, we remain committed to enhancing value for our shareholders and we are working diligently to unlock the value in each of our business segments. I am therefore pleased to announce that the Board of Directors has approved an increase in our quarterly common share dividend of $0.01 to $0.50 per share."
1 | Certain analyses presented throughout this document are based on the Bank's core activities and therefore exclude the effect of certain amounts designated as adjusting items. Refer to the Adjusting items and Non-GAAP financial measures sections for further details. |
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 Annual Report under the title "Integrated Risk Management Framework" and other public filings available at www.sedar.com.
With respect to the anticipated benefits from the acquisitions of the MRS Companies1 and AGF Trust Company (AGF Trust) and the Bank's statements with regards to these transactions being accretive to earnings, such factors also include, but are not limited to: the fact that synergies may not be realized in the time frame anticipated; the ability to promptly and effectively integrate the businesses; reputational risks and the reaction of B2B Bank's or MRS Companies' and AGF Trust's customers to the transactions; and diversion of management time on acquisition-related issues.
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.
1 | The MRS Companies include the renamed B2B Bank Financial Services Inc., B2B Bank Securities Services Inc. and B2B Bank Intermediary Services Inc. (B2B Bank Dealer Services), as well as MRS Trust, which was amalgamated with B2B Trust (now B2B Bank) as of April 16, 2012. |
Highlights
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | ||||||||||||||||||||||
In thousands of Canadian dollars, except per share and percentage amounts (Unaudited) |
APRIL 30 2013 |
APRIL 30 2012 |
VARIANCE | APRIL 30 2013 |
APRIL 30 2012 |
VARIANCE | |||||||||||||||||
Profitability | |||||||||||||||||||||||
Total revenue | $ | 214,850 | $ | 198,670 | 8 | % | $ | 428,764 | $ | 392,414 | 9 | % | |||||||||||
Net income | $ | 35,139 | $ | 33,863 | 4 | % | $ | 69,229 | $ | 64,825 | 7 | % | |||||||||||
Diluted earnings per share | $ | 1.10 | $ | 1.22 | (10) | % | $ | 2.22 | $ | 2.38 | (7) | % | |||||||||||
Return on common shareholders' equity [1] |
10.3 | % | 12.0 | % | 10.3 | % | 11.8 | % | |||||||||||||||
Net interest margin [1] | 1.68 | % | 1.73 | % | 1.66 | % | 1.74 | % | |||||||||||||||
Efficiency ratio [1] | 74.4 | % | 74.0 | % | 74.9 | % | 73.9 | % | |||||||||||||||
Adjusted measures | |||||||||||||||||||||||
Adjusted net income [1] | $ | 40,547 | $ | 36,302 | 12 | % | $ | 80,965 | $ | 69,221 | 17 | % | |||||||||||
Adjusted diluted earnings per share [1] | $ | 1.29 | $ | 1.31 | (2) | % | 2.63 | $ | 2.56 | 3 | % | ||||||||||||
Adjusted return on common shareholders' equity [1] |
12.1 | % | 13.0 | % | 12.2 | % | 12.7 | % | |||||||||||||||
Adjusted efficiency ratio [1] | 71.5 | % | 72.4 | % | 71.7 | % | 72.4 | % | |||||||||||||||
Per common share | |||||||||||||||||||||||
Share price | |||||||||||||||||||||||
High | $ | 45.41 | $ | 47.65 | $ | 45.97 | $ | 48.68 | |||||||||||||||
Low | $ | 42.57 | $ | 43.90 | $ | 42.57 | $ | 41.12 | |||||||||||||||
Close | $ | 44.21 | $ | 44.03 | — | % | $ | 44.21 | $ | 44.03 | — | % | |||||||||||
Price / earnings ratio (trailing four quarters) |
9.2x | 9.9x | |||||||||||||||||||||
Book value [1] | $ | 43.96 | $ | 41.37 | 6 | % | |||||||||||||||||
Market to book value | 101 | % | 106 | % | |||||||||||||||||||
Dividends declared | $ | 0.49 | $ | 0.45 | 9 | % | $ | 0.98 | $ | 0.90 | 9 | % | |||||||||||
Dividend yield [1] | 4.43 | % | 4.09 | % | 4.43 | % | 4.09 | % | |||||||||||||||
Dividend payout ratio [1] | 44.5 | % | 37.0 | % | 44.1 | % | 37.8 | % | |||||||||||||||
Financial position (in millions of Canadian dollars) | |||||||||||||||||||||||
Balance sheet assets | $ | 34,474 | $ | 30,708 | 12 | % | |||||||||||||||||
Loans and acceptances | $ | 27,035 | $ | 23,121 | 17 | % | |||||||||||||||||
Deposits | $ | 23,809 | $ | 21,061 | 13 | % | |||||||||||||||||
Basel III regulatory capital ratios - All-in basis [2] | |||||||||||||||||||||||
Common Equity Tier I | 7.6 | % | n.a. | ||||||||||||||||||||
Tier 1 | 9.1 | % | n.a. | ||||||||||||||||||||
Total | 12.6 | % | n.a. | ||||||||||||||||||||
Other information | |||||||||||||||||||||||
Number of full-time equivalent employees | 4,254 | 4,003 | |||||||||||||||||||||
Number of branches | 154 | 158 | |||||||||||||||||||||
Number of automated banking machines | 423 | 426 | |||||||||||||||||||||
[1] Refer to the non-GAAP financial measures section. [2] As defined in OSFI 2013 Capital Adequacy Requirements Guideline. |
Review of Business Highlights
Laurentian Bank's financial services boutiques were recently recognized by the Chain Store Age magazine's international Retail Store of the Year competition. The concept of financial services boutiques was developed by the Bank almost 10 years ago with the aim of improving client experience and satisfaction. These boutiques offer customers a warm and user-friendly environment and are based on the Bank's core values of proximity, accessibility and simplicity. Today, 40 branches deploy this concept, contributing to the 95% client satisfaction level.
With the CRM (client relationship management) system well entrenched in Retail operations, the Bank is now leveraging this tool. The CRM system was adapted to the SME sector and was recently rolled out to SME account managers. With this capability, SME clients will be better served and the Bank's strong growth in this sector will be perpetuated. The next step will be to further adapt the CRM system to the Real Estate and Commercial segment. This tool provides the Bank with a competitive advantage, particularly in the Québec market.
The mutual fund distribution agreement with Mackenzie Financial Corporation entered its second year and continues to be a win/win partnership. The RRSP season demonstrated good momentum in mutual fund sales as clients are pleased with the fund offering. Year-to-date sales were more than 50% ahead of the level attained a year earlier and mutual funds, as at April 30, 2013, totalled $2.4 billion, an 18% increase from a year ago.
B2B Bank's focus on MRS has resulted in the integration being almost complete and on time and on budget. With B2B Bank having completed a satisfying RRSP campaign, achieving its RRSP volume objectives, it will now turn its attention to the AGF integration. Activities such as reviewing mortgage processes, credit reviews, program analysis and more are underway so as to gradually realize the expected synergies.
A hallmark of the client centric approach utilized in the Commercial and Real Estate segment relates to turn around time for loan approvals being among the best in the industry. A continuous review and streamlining of processes is resulting in improved efficiency for the segment and even faster and better service for the Bank's clients. This is evidenced by real estate loans and acceptances growing sequentially by 4% (excluding the sale of the $94.7 million real estate portfolio in the second quarter of 2013).
Laurentian Bank Securities' client focus is contributing to its good performance with all business lines ahead of last year, despite a very challenging environment. Execution remains strong and business development is ongoing. In particular, with its good pipeline of investment banking transactions, LBS is well positioned to take advantage of a market recovery.
In March of this year, Isabelle Courville assumed her role as Chairwoman of the Bank's Board of Directors. Ms. Courville has been a director of the Bank since 2007. An engineer and a lawyer by profession, she was, until recently, President of Hydro-Québec Distribution. Her extensive knowledge of the Bank, combined with her impressive career accomplishments, make her an ideal candidate for the Chair's position.
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, 2013, and of how it performed during the three-month and six-month periods then ended. This MD&A, dated June 5, 2013, should be read in conjunction with the unaudited condensed interim consolidated financial statements for the period ended April 30, 2013, prepared in accordance with IAS 34 Interim financial reporting, as issued by the International Accounting Standards Board (IASB). Supplemental information on risk management, critical accounting policies and estimates, and off-balance sheet arrangements is also provided in the Bank's 2012 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.
Economic Outlook
In North America, the U.S. economic recovery has continued to gain traction, but there are still some signs of weakness coming mostly from the labour market and the public sector, still deleveraging. Consequently, monetary policy should remain highly stimulative. The outlook for Canada remains unchanged: the economic recovery has lost momentum and is still expected to remain modest owing to a smaller contribution to growth from the public sector and a declining housing market. In that respect, the Bank expects the slowdown in the housing market to continue throughout 2013 since there are still imbalances between supply and demand. However, fundamentals should support demand over time and prevent a sharp correction in prices. In addition, the transition from economic growth driven by households and governments to growth driven by the external sector and private investment could take longer than anticipated. Private investment decisions in some key sectors may be delayed because of less favourable conditions and falling commodity prices. This situation has not put significant downward pressure on the Canadian dollar which remains elevated and contributes to preventing exports from edging higher. That said, the Bank has slightly revised downwards its forecasts and now expects real GDP to grow only by 1.5% in 2013 and 2.2% in 2014.
All in all, in the current environment, interest rates will remain lower for longer. With inflation expected to reach the 2% target only by mid-2015, the Bank anticipates the overnight target rate to remain on hold until at least the end of 2014. By that point, economic growth should have re-accelerated and "some modest withdrawal of monetary stimulus" would become more appropriate.
2013 Financial Objectives
The following table presents management's financial objectives for 2013 and the Bank's performance to date. These financial objectives are based on the assumptions noted on page 37 of the Bank's 2012 Annual Report under the title "Key assumptions supporting the Bank's objectives" and exclude adjusting items1.
2013 FINANCIAL OBJECTIVES [1] | ||||
2013 OBJECTIVES | FOR THE SIX MONTHS ENDED APRIL 30, 2013 |
|||
Revenue growth | > 5% | 9 | % | |
Adjusted efficiency ratio [1] | 72.5% to 69.5% | 71.7 | % | |
Adjusted net income (in millions of dollars) [1] | $145.0 to $165.0 | $81.0 | ||
Adjusted return on common shareholders' equity [1] | 10.5% to 12.5% | 12.2 | % | |
Common Equity Tier I capital ratio - All-in basis | > 7.0% | 7.6 | % | |
[1] Refer to the non-GAAP financial measures section. |
Based on the results for the six months ended April 30, 2013 and current forecasts, management believes that the Bank is in line to meet its objectives as set out at the beginning of the year. Strong revenue growth stemming mainly from the AGF Trust acquisition, combined with a disciplined control of expenses and continued excellent credit quality have contributed to the overall good performance.
Analysis of Consolidated Results
CONSOLIDATED RESULTS | ||||||||||||||||
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | |||||||||||||||
In thousands of Canadian dollars, except per share amounts (Unaudited) |
APRIL 30 2013 |
JANUARY 31 2013 |
APRIL 30 2012 |
APRIL 30 2013 |
APRIL 30 2012 |
|||||||||||
Net interest income | $ | 140,430 | $ | 142,344 | $ | 128,324 | $ | 282,774 | $ | 258,953 | ||||||
Other income | 74,420 | 71,570 | 70,346 | 145,990 | 133,461 | |||||||||||
Total revenue | 214,850 | 213,914 | 198,670 | 428,764 | 392,414 | |||||||||||
Gain on acquisition and amortization of net premium on purchased financial instruments |
(1,224) | (1,056) | — | (2,280) | — | |||||||||||
Provision for loan losses | 9,000 | 8,000 | 7,500 | 17,000 | 17,500 | |||||||||||
Non-interest expenses | 159,853 | 161,314 | 147,111 | 321,167 | 290,131 | |||||||||||
Income before income taxes | 44,773 | 43,544 | 44,059 | 88,317 | 84,783 | |||||||||||
Income taxes | 9,634 | 9,454 | 10,196 | 19,088 | 19,958 | |||||||||||
Net income | $ | 35,139 | $ | 34,090 | $ | 33,863 | $ | 69,229 | $ | 64,825 | ||||||
Preferred share dividends, including applicable taxes | 4,059 | 2,533 | 3,165 | 6,592 | 6,331 | |||||||||||
Net income available to common shareholders | $ | 31,080 | $ | 31,557 | $ | 30,698 | $ | 62,637 | $ | 58,494 | ||||||
Earnings per share | ||||||||||||||||
Basic | $ | 1.10 | $ | 1.12 | $ | 1.22 | $ | 2.22 | $ | 2.38 | ||||||
Diluted | $ | 1.10 | $ | 1.12 | $ | 1.22 | $ | 2.22 | $ | 2.38 |
Adjusting items
The Bank has designated certain amounts as adjusting items and has adjusted GAAP results to facilitate understanding of its underlying business performance and related trends. Adjusting items are included in the B2B Bank business segment's results. The Bank assesses performance on a GAAP basis and on an adjusted basis and considers both to be useful to investors and analysts in obtaining a better understanding of the Bank's financial results and analyzing its growth and profit potential more effectively. Adjusted results and measures are non-GAAP measures. Comments on the uses and limitations of such measures are disclosed in the Non-GAAP Financial Measures section.
IMPACT OF ADJUSTING ITEMS, NET OF INCOME TAXES | ||||||||||||||||
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | |||||||||||||||
In thousands of Canadian dollars, except per share amounts (Unaudited) | APRIL 30 2013 |
JANUARY 31 2013 |
APRIL 30 2012 |
APRIL 30 2013 |
APRIL 30 2012 |
|||||||||||
Impact on net income | ||||||||||||||||
Reported net income | $ | 35,139 | $ | 34,090 | $ | 33,863 | $ | 69,229 | $ | 64,825 | ||||||
Adjusting items, net of income taxes [1] | ||||||||||||||||
Gain on acquisition and amortization of net premium on purchased financial instruments |
||||||||||||||||
Amortization of net premium on purchased financial instruments | 902 | 778 | — | 1,680 | — | |||||||||||
Costs related to business combinations and other [2] | ||||||||||||||||
MRS Companies transaction and integration related costs |
1,332 | 4,318 | 2,439 | 5,650 | 4,396 | |||||||||||
AGF Trust transaction and integration related costs | 3,174 | 1,232 | — | 4,406 | — | |||||||||||
5,408 | 6,328 | 2,439 | 11,736 | 4,396 | ||||||||||||
Adjusted net income [1] | $ | 40,547 | $ | 40,418 | $ | 36,302 | $ | 80,965 | $ | 69,221 | ||||||
Impact on diluted earnings per share | ||||||||||||||||
Reported diluted earnings per share | $ | 1.10 | $ | 1.12 | $ | 1.22 | $ | 2.22 | $ | 2.38 | ||||||
Adjusting items [1] | 0.19 | 0.22 | 0.10 | 0.42 | 0.18 | |||||||||||
Adjusted diluted earnings per share [1] [3] | $ | 1.29 | $ | 1.34 | $ | 1.31 | $ | 2.63 | $ | 2.56 | ||||||
[1] Refer to the Non-GAAP Financial Measures section. [2] Also referred to as Transaction and Integration Costs (T&I Costs). [3] The impact of adjusting items on a per share basis does not add due to rounding for the quarter ended April 30, 2012 and for the six months ended April 30, 2013. |
Three months ended April 30, 2013 compared to three months ended April 30, 2012
Net income was $35.1 million, or $1.10 diluted per share, for the second quarter of 2013, compared with $33.9 million, or $1.22 diluted per share, for the second quarter of 2012.
Adjusted net income was up 12% year-over-year to $40.5 million for the second quarter ended April 30, 2013, compared with $36.3 million in 2012, while adjusted diluted net income per share was $1.29, compared to $1.31 diluted per share, in 2012. The calculation of diluted net income per share in the second quarter of 2013 includes a full second quarter dividend of $1.0 million related to the recently issued Series 11 preferred shares, as well as the regular dividend on Series 10 preferred shares and a final dividend on the Series 9 preferred shares redeemed in March.
Total revenue
Total revenue increased by $16.2 million or 8% to $214.9 million in the second quarter of 2013, compared with $198.7 million in the second quarter of 2012. The contribution from AGF Trust to total revenue amounted to $18.8 million for the second quarter of 2013, including $18.3 million reported in the B2B Bank business segment results and $0.5 million related to treasury activities presented in the Other business segment's results.
Net interest income was up 9% to $140.4 million for the second quarter of 2013, from $128.3 million in the second quarter of 2012, essentially reflecting loan and deposit growth year-over-year, mainly from the purchased portfolios of AGF Trust, partly offset by lower margins. When compared to the second quarter of 2012, margins decreased by 5 basis points to 1.68% for the second quarter of 2013 and continued to be adversely impacted by the very low interest rate environment. Overall margin compression was muted by the maturing of high-coupon securitization liabilities, as well as the higher-yielding loans in the AGF Trust portfolios.
Other income totalled $74.4 million in the second quarter of 2013, compared to $70.3 million in the second quarter of 2012, a $4.1 million or 6% increase reflecting improvements across most revenue streams. Higher fees and commissions on loans and deposits due to increased card service activity and fees, higher income from mutual funds reflecting new sales and improved financial markets, as well as better credit insurance income mainly contributed to the increase year-over-year. In addition, during the second quarter of 2013, consistent with its syndication strategy, the Bank completed the sale of $94.7 million of commercial mortgage loans which led to the recognition of a $3.7 million gain in other income, including $3.1 million reported in the Real Estate & Commercial business segment results and $0.6 million related to treasury activities presented in the Other business segment's results. In a similar transaction, a $3.1 million gain on sale of a $77.0 million commercial mortgage portfolio was recorded during the second quarter of 2012. These increases were partly offset by lower income from treasury and financial market operations, mainly due to lower net security gains.
Gain on acquisition and amortization of net premium on purchased financial instruments
For the second quarter of 2013, the charge related to the amortization of net premium on purchased financial instruments, presented on the line-item "Gain on acquisition and amortization of net premium on purchased financial instruments", amounted to $1.2 million. Refer to Note 12 to the unaudited condensed interim financial statements for additional information on this item.
Provision for loan losses
The provision for loan losses increased by $1.5 million to $9.0 million in the second quarter of 2013 from $7.5 million in the second quarter of 2012. This remains a very low level, considering the additional charge of $2.5 million related to the AGF Trust loan portfolios. The overall level of losses reflects stable employment and business conditions in Canada and the underlying quality of the Bank's loan portfolios.
Non-interest expenses
Non-interest expenses increased by $12.7 million to $159.9 million for the second quarter of 2013, compared to $147.1 million for the second quarter of 2012. This resulted from the addition of current operating expenses of $7.8 million related to AGF Trust and higher T&I Costs, as detailed below. Otherwise, the Bank's comparable non-interest expenses were up only 1% over the same period.
Salaries and employee benefits increased by $5.9 million or 7% to $85.2 million for the second quarter of 2013, compared to the second quarter of 2012. A $4.6 million portion of the increase was due to the additional headcount resulting from the acquisition of AGF Trust. Regular salary increases, higher performance-based compensation, as well as higher pension costs, partly offset by lower other employee benefits costs, also impacted costs for the quarter.
Premises and technology costs increased by $4.6 million or 12% to $42.6 million compared to the second quarter of 2012, mostly stemming from higher rental costs related to additional square footage of leased premises for IT teams as well as higher IT costs and amortization expense related to completed IT development projects. As well, additional rental and IT costs totalling $1.7 million resulted from the acquisition of AGF Trust.
Other non-interest expenses decreased by $0.6 million to $25.9 million for the second quarter of 2013, from $26.5 million for the second quarter of 2012. The decrease is mainly attributable to favourable adjustments to sales taxes recorded in the second quarter of 2013, as well as the Bank's continued cost control efforts. The decrease was partly offset by $1.6 million of other non-interest expenses that AGF Trust incurred in the second quarter of 2013.
T&I Costs for the second quarter of 2013 totalled $6.1 million and mainly related to salary, professional fees and other expenses for the integration of AGF Trust of $4.3 million, including a $1.9 million charge related to an ongoing project to relocate all B2B Bank's employees in a single location. T&I Costs also included professional fees, salaries, IT systems conversions costs and other expenses for the integration of the MRS Companies. With regards to the MRS Companies, the integration process is progressing according to plan and overall budget. With only a few steps of the MRS Companies integration yet to be completed, B2B Bank has now turned to the execution of its integration plans for AGF Trust, which should be ongoing over the next four quarters.
The adjusted efficiency ratio was 71.5% in the second quarter of 2013, compared to 72.4% in the second quarter of 2012. On the same adjusted basis, at 1.2% year-over-year, operating leverage was again slightly positive for the second consecutive quarter, mainly due to the addition of AGF Trust, higher other income and the Bank's continued cost control initiatives.
Income taxes
For the quarter ended April 30, 2013, the income tax expense was $9.6 million and the effective tax rate was 21.5%. 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 foreign insurance operations. For the quarter ended April 30, 2012, the income tax expense was $10.2 million and the effective tax rate was 23.1%. Year-over-year, the lower income tax rate for the second quarter ended April 30, 2013 results from the higher level of revenues from foreign insurance operations.
Six months ended April 30, 2013 compared to six months ended April 30, 2012
Net income was $69.2 million, or $2.22 diluted per share, for the six months ended April 30, 2013, compared with $64.8 million, or $2.38 diluted per share, in 2012.
Adjusted net income was up 17% year-over-year to $81.0 million for the six months ended April 30, 2013, compared with $69.2 million in 2012, while adjusted diluted net income per share was up 3% to $2.63, compared to $2.56 diluted per share, in 2012. The calculation of diluted net income per share for the six months ended April 30, 2013 includes a $6.6 million dividend charge related to preferred shares Series 9 and 10, as well as to the recently issued preferred shares Series 11, net of a one-time $1.1 million favourable adjustment to reflect changes in taxation.
Total revenue
Total revenue increased $36.4 million or 9% to $428.8 million for the six months ended April 30, 2013, compared with $392.4 million for the six months ended April 30, 2012. The contribution from AGF Trust to total revenue amounted to $38.6 million for the six months ended April 30, 2013, including $37.4 million reported in the B2B Bank business segment results and $1.2 million related to treasury activities included in the Other business segment's results.
Net interest income increased 9% to $282.8 million for the six months ended April 30, 2013, compared with $259.0 million for the same period in 2012, and is mainly explained by strong loan and deposit volume growth year-over-year from the purchased AGF Trust portfolios, which more than offset the effect of a decrease in net interest margin of 8 basis points over the same period. As noted above, the compression in net interest margin mainly resulted from the very low interest rate environment.
Other income was $146.0 million for the six months ended April 30, 2013, compared to $133.5 million for the same period in 2012, a 9% year-over-year increase stemming from improvements in most revenue streams, as noted above. In addition, mainly during the first quarter, income from brokerage operations increased by $3.1 million as the Bank capitalized on growth opportunities in the fixed income market and benefited from stronger equity markets compared to a year ago. Also, income from investment accounts added $1.3 million to the increase over the same period, mainly as a result of a full six-month contribution from B2B Bank Dealer Services in 2013. Finally, as noted above, the Bank recognized a $3.7 million gain on sale of a commercial mortgage portfolio during the second quarter of 2013, compared to a $3.1 million gain in the second quarter of 2012.
Gain on acquisition and amortization of net premium on purchased financial instruments
For the six months ended April 30, 2013, the charge related to the amortization of net premium on purchased financial instruments, presented on the line-item "Gain on acquisition and amortization of net premium on purchased financial instruments", amounted to $2.3 million. Refer to Note 12 to the unaudited condensed interim financial statements for additional information on this item.
Provision for loan losses
The provision for loan losses amounted to $17.0 million for the six months ended April 30, 2013, a decrease of $0.5 million or 3% from $17.5 million for the six months ended April 30, 2012, despite a 17% increase in the loan portfolio stemming mainly from the AGF Trust acquisition. Provisions for the six months ended April 30, 2013 included a $5.8 million charge related to the AGF Trust loan portfolios. This reflects the continued excellent credit conditions in the Canadian market and the quality of the Bank's loan portfolios. In addition, favourable settlements and overall improvements led to a net credit of $1.9 million in loan losses in the commercial loan portfolio for the six months ended April 30, 2013.
Non-interest expenses
Non-interest expenses totalled $321.2 million for the six months ended April 30, 2013, compared to $290.1 million for the six months ended April 30, 2012. Excluding current operating expenses related to AGF Trust of $16.8 million and T&I Costs of $13.7 million, non-interest expenses decreased by $6.5 million or 2%.
Salaries and employee benefits increased by $18.3 million or 12% to $174.6 million compared to the six months ended April 30, 2012, mainly due to increased headcount from the acquisition of AGF Trust, as well as to regular salary increases, higher performance-based compensation and pension costs. These were partly offset by lower employee benefits costs and by savings from restructurings in 2012.
Premises and technology costs increased by $6.3 million compared to the six months ended April 30, 2012, mainly stemming from rental and IT costs resulting from the acquisition of AGF Trust. Higher IT costs related to ongoing business growth and amortization expense related to completed IT development projects also contributed to the increase.
Other non-interest expenses decreased by $1.3 million to $51.4 million for the six months ended April 30, 2013, from $52.6 million for the same period of 2012. The decrease is mainly attributable to expenses incurred in the early stage of the acquisition of the MRS Companies prior to their integration within B2B Bank in 2012, as well as to favourable adjustments to sales taxes for the six months ended April 30, 2013, compared to a year ago. These were partly offset by other non-interest expenses of AGF Trust for the six months ended April 30, 2013.
T&I Costs for the six months ended April 30, 2013 totalled $13.7 million of which $7.7 million related to IT, legal and communication expenses for the integration of the MRS Companies and $6.0 million for salary, professional fees and other expenses for the integration of AGF Trust.
The adjusted efficiency ratio was 71.7% for the six months ended April 30, 2013, compared to 72.4% for the six months ended April 30, 2012. On the same adjusted basis, operating leverage was slightly positive year-over-year, as the addition of AGF Trust and continued cost control measures aimed at slowing expense growth combined with higher other income more than compensated for the impact of compressing margins.
Income taxes
For the six months ended April 30, 2013, the income tax expense was $19.1 million and the effective tax rate was 21.6%. 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 foreign insurance operations. For the six months ended April 30, 2012, the income tax expense was $20.0 million and the effective tax rate was 23.5%. Year-over-year, as noted above, the lower income tax rate for the six months ended April 30, 2013 reflects the higher level of revenues from foreign insurance operations, as well as miscellaneous tax recoveries.
Three months ended April 30, 2013 compared to three months ended January 31, 2013
Net income was $35.1 million or $1.10 diluted per share for the second quarter of 2013 compared with $34.1 million or $1.12 diluted per share for the first quarter of 2013.
Adjusted net income was $40.5 million, or $1.29 diluted per share, compared to $40.4 million or $1.34 diluted per share for the first quarter ended January 31, 2013. The calculation of diluted net income per share for the first quarter of 2013 included a one-time $1.1 million favourable adjustment to preferred share dividends to reflect changes in taxation, and only a partial dividend on the recently issued Series 11 preferred shares.
Total revenue increased slightly to $214.9 million in the second quarter of 2013, compared to $213.9 million in the previous quarter. Net interest income decreased by $1.9 million sequentially to $140.4 million in the second quarter, mainly as a result of the three fewer days in the second quarter. Net interest margins increased sequentially by 5 basis points from 1.63% in the first quarter of 2013 to 1.68% in the second quarter of 2013. This resulted mainly from the maturing, halfway through the first quarter, of a high-coupon securitization liability and lower levels of lower-yielding securities. These items compensated for the lower sequential margins on loans and deposits related to the ongoing very low interest rate environment.
Other income increased by $2.9 million sequentially, largely due to a $3.7 million gain on sale of a $94.7 million commercial mortgage loan portfolio during the second quarter, as well as higher credit insurance income resulting from a lower level of claims, partly offset by lower income from brokerage operations after a strong first quarter.
The charge related to amortization of net premium on purchased financial instruments, presented on the "Gain on acquisition and amortization of net premium on purchased financial instruments" line-item, amounted to $1.2 million in the second quarter of 2013, compared to a $1.1 million charge for the last quarter. Refer to Note 12 to the unaudited condensed interim financial statements for additional information on this item.
The provision for loan losses remained low at $9.0 million for the second quarter of 2013, compared to $8.0 million for the first quarter of 2013, reflecting the continued excellent quality of the portfolio. In the first quarter of 2013, the Bank had benefited from a $2.0 million favourable settlement on a single commercial loan exposure while there was no single significant settlement during the second quarter.
Non-interest expenses amounted to $159.9 million for the second quarter of 2013, compared to $161.3 million for the first quarter of 2013. Excluding T&I Costs of $6.1 million in the second quarter of 2013 and of $7.6 million in the first quarter of 2013, non-interest expenses were essentially unchanged sequentially, as the Bank continued to apply tight cost control measures.
Financial condition
CONDENSED BALANCE SHEET | |||||||||
In thousands of Canadian dollars (Unaudited) | AS AT APRIL 30 2013 |
AS AT OCTOBER 31 2012 |
AS AT APRIL 30 2012 |
||||||
ASSETS | |||||||||
Cash and deposits with other banks | $ | 317,013 | $ | 571,043 | $ | 696,280 | |||
Securities | 5,756,762 | 6,142,961 | 5,294,610 | ||||||
Securities purchased under reverse repurchase agreements | 545,974 | 631,202 | 978,063 | ||||||
Loans and acceptances, net | 26,920,674 | 26,663,337 | 22,982,601 | ||||||
Other assets | 933,172 | 928,283 | 756,920 | ||||||
$ | 34,473,595 | $ | 34,936,826 | $ | 30,708,474 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
Deposits | $ | 23,808,825 | $ | 24,041,443 | $ | 21,060,754 | |||
Other liabilities | 3,265,478 | 2,873,563 | 3,075,005 | ||||||
Debt related to securitization activities | 5,473,470 | 6,037,097 | 5,051,652 | ||||||
Subordinated debt | 444,469 | 443,594 | 243,426 | ||||||
Shareholders' equity | 1,481,353 | 1,541,129 | 1,277,637 | ||||||
$ | 34,473,595 | $ | 34,936,826 | $ | 30,708,474 |
Balance sheet assets stood at $34.5 billion at April 30, 2013, down $0.5 billion from year-end 2012. Over the last twelve months, balance sheet assets increased by $3.8 billion or 12%, mainly due to the acquisition of AGF Trust.
Liquid assets
Liquid assets, including cash, deposits with other banks, securities and securities purchased under reverse repurchase agreements, totalled $6.6 billion at April 30, 2013, a $0.7 billion decrease compared to October 31, 2012. This decrease is mainly due to the replacement assets used to reimburse $0.8 billion of matured debt related to securitization activities during the first quarter 2013. Liquid assets as a percentage of total assets decreased marginally to 19% from 21% as at October 31, 2012. The Bank continues to prudently manage its liquidity levels and maintains sufficient cash resources in order to meet its current and future financial obligations, under both normal and stressed conditions.
Loans
Net loans and bankers' acceptances stood at $26.9 billion as at April 30, 2013, a $0.3 billion increase compared to October 31, 2012. Residential mortgage loans increased by $330.2 million or 2% over the same period, reflecting a modest slowing in mortgage loan demand in a cooling housing market. Commercial loans, including bankers' acceptances, increased by $133.9 million or 6% from October 31, 2012 as the Bank capitalized on increased demand from its business clients. Commercial mortgage loans were relatively unchanged, as growth of $85.6 million was more than offset by a loan sale of $94.7 million during the second quarter. Personal loans decreased by $200.8 million or 3% since October 31, 2012, mainly due to attrition in the acquired AGF Trust portfolios and more modest consumer loan demand.
Deposits
Personal deposits stood at $19.5 billion as at April 30, 2013, relatively unchanged from October 31, 2012. Business and other deposits, which include institutional deposits, were down $0.4 billion since October 31, 2012 to $4.3 billion as at April 30, 2013, as the Bank reduced the level of high-priced wholesale deposits as part of its funding management.
The Bank continues to actively manage its liquidity levels and to maintain diversified funding sources. It focuses its efforts on retail deposit gathering through its Retail & SME-Québec and B2B Bank business segments, which represented 82% of total deposits as at April 30, 2013. This solid funding base is a valuable asset in light of future regulatory liquidity requirements.
Other Liabilities
Debt related to securitization activities stood at $5.5 billion as at April 30, 2013, a net $0.6 billion decrease since the beginning of the year considering the maturity of two issuances. During the six months ended April 30, 2013, the Bank also securitized $493.7 million of residential mortgage loans, of which $301.3 million was sold as part of a new Canada Mortgage Bond issuance and $192.4 million was sold as Replacement Assets. Subordinated debt stood at $444.5 million as at April 30, 2013, relatively unchanged from October 31, 2012.
Shareholders' equity
Shareholders' equity stood at $1,481.4 million as at April 30, 2013, compared with $1,541.1 million as at October 31, 2012. This decrease mainly resulted from the repurchase on March 15, 2013 of the Class A Preferred Shares, Series 9, at par for $100 million, partly offset by internal capital generation as well as from the issuance of 213,957 new common shares under the Shareholder Dividend Reinvestment and Share Purchase Plan. The Bank's book value per common share, excluding accumulated other comprehensive income, appreciated to $43.96 as at April 30, 2013 from $42.81 as at October 31, 2012. There were 28,351,668 common shares and 30,000 share purchase options outstanding as at May 29, 2013.
Capital Management
New regulatory capital requirements
In December 2012, the Office of the Superintendent of Financial Institutions Canada (OSFI) issued the final revised version of the Capital Adequacy Requirements Guideline (the Guideline) drawn on the Basel Committee on Banking Supervision (BCBS) capital guidelines, commonly referred to as Basel III. These new requirements took effect in January 2013 and generally provide more stringent capital adequacy standards. Institutions are expected to meet minimum risk-based capital requirements for exposure to credit risk, operational risk and, where they have significant trading activity, market risk.
Under the Guideline, minimum Common Equity Tier 1, Tier 1 and Total capital ratios were set at 3.5%, 4.5% and 8.0% respectively for 2013. These ratios include phase-in of certain regulatory adjustments between 2013 and 2019 and phase-out of non-qualifying capital instruments between 2013 and 2022 (the "transitional" basis). Starting in 2014, the Guideline also provides for annual increases in minimum capital ratio requirements, which will reach 7.0%, 8.5% and 10.5% in 2019, including the effect of capital conservation buffers.
In its Guideline, OSFI indicated that it expects deposit-taking institutions to attain target capital ratios without transition arrangements equal to or greater than the 2019 minimum capital ratios plus conservation buffer levels (the "all-in" basis) early in the transition period, including a minimum 7.0% Common Equity Tier 1 ratio target by the first quarter of 2013. Furthermore, certain banks in Canada have been designated by OSFI as Domestic Systemically Important Banks (or D-SIBs). Under this designation, these banks will be asked to hold a further 1% of Tier 1 Common Equity by January 1, 2016. Laurentian Bank, however, has not been so designated. The "all-in" basis includes all of the regulatory adjustments that will be required by 2019 but retains the phase-out rules for non-qualifying capital instruments. OSFI also requires that Canadian deposit-taking financial institutions maintain an Asset to Capital Multiple.
The Guideline provides additional guidance regarding the treatment of non-qualifying capital instruments and specifies that certain capital instruments no longer qualify fully as capital as of January 1, 2013. The Bank's non-common capital instruments are considered non-qualifying capital instruments under Basel III and are therefore subject to a 10% phase-out per year beginning in 2013. These non-common capital instruments include Series 9, 10 and 11 preferred shares, as well as Series 2010-1 and 2012-1 subordinated Medium Term Notes. The Bank redeemed at par on March 15, 2013 the Series 9 preferred shares which were non-qualifying instruments under Basel III.
As detailed in the table below, on an "all-in" basis, the Common Equity Tier 1, Tier 1 and Total capital ratios stood at 7.6%, 9.1% and 12.6%, respectively, as at April 30, 2013. These ratios meet all present minimum requirements.
REGULATORY CAPITAL | ||||||||||||
Basel III [1] | Basel II [2] | |||||||||||
In thousands of Canadian dollars, except percentage amounts (Unaudited) | AS AT APRIL 30 2013 |
AS AT OCTOBER 31 2012 |
AS AT APRIL 30 2012 |
|||||||||
Regulatory capital | ||||||||||||
Common Equity Tier 1 capital (A) | $ | 1,018,515 | n.a. | n.a. | ||||||||
Tier 1 capital (B) | $ | 1,223,661 | $ | 1,460,253 | $ | 1,245,326 | ||||||
Total capital (C) | $ | 1,698,448 | $ | 1,974,060 | $ | 1,543,140 | ||||||
Total risk-weighted assets (D) | $ | 13,428,594 | $ | 13,436,433 | $ | 11,935,860 | ||||||
Regulatory capital ratios | ||||||||||||
Common Equity Tier 1 capital ratio (A/D) | 7.6 | % | n.a. | n.a. | ||||||||
Tier 1 capital ratio (B/D) | 9.1 | % | 10.9 | % | 10.4 | % | ||||||
Total capital ratio (C/D) | 12.6 | % | 14.7 | % | 12.9 | % | ||||||
[1] The amounts are presented on an "all-in" basis. [2] The amounts are presented in accordance with Basel II as filed with OSFI. |
The Common Equity Tier 1 capital ratio increased by approximately ten basis points from 7.5% as at January 31, 2013 to 7.6% as at April 30, 2013. The improvement is mainly explained by internal capital generation during the quarter which increased total equity, while total risk-weighted assets remained unchanged.
The Bank uses the Standardized Approach in determining credit risk capital and to account for operational risk. In 2012, the Bank initiated the process to adopt the advanced internal ratings-based (AIRB) approach to determine credit risk capital under Basel II. Currently, the Bank's capital requirements for credit risk under the Standardized Approach are not calculated on the same basis as its industry peers, as larger Canadian financial institutions predominantly use the more favourable AIRB approach. The Bank's adoption of the AIRB approach should strengthen its credit risk management, improve comparability, optimize regulatory capital and provide a level-playing field for credit underwriting activities.
Proposal for new liquidity regulatory measures
In December 2009, the BCBS published proposals on new liquidity requirements, which introduced new global liquidity standards. The BCBS liquidity guidelines include minimum requirements for two regulatory measures, the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), which are scheduled for implementation in January 2015 and January 2018, respectively. The LCR establishes a common measure of liquidity risk and requires institutions to maintain sufficient liquid assets to cover a minimum of 30 days of cash flow requirements in a stressed situation. The NSFR describes a second common measure of liquidity establishing a minimum acceptable amount of stable funding based on the liquidity characteristics of a financial institution's assets and activities over a one-year horizon. Updates were also published in December 2010 and January 2013, providing additional information. At this stage, it is still too early to determine their definitive impact on liquidity requirements, considering some aspects of the proposals are yet to be finalized at both the international (BCBS) and national (OSFI) levels and may further change between now and when the final rules take effect. Nevertheless, the Bank is in the process of assessing differences between the current liquidity requirements and its liquidity data and reporting systems.
Dividends
On May 22, 2013, the Board of Directors declared regular dividends on the various series of preferred shares to shareholders of record on June 7, 2013. At its meeting on June 5, 2013, given the Bank's solid balance sheet and capital position as well as its confidence in the Bank's strategies going forward, the Board of Directors approved an increase of $0.01 per share, or 2%, to the quarterly dividend and declared a dividend of $0.50 per common share, payable on August 1, 2013, to shareholders of record on July 2, 2013.
COMMON SHARE DIVIDENDS AND PAYOUT RATIO | |||||||||||||||||||||||||||
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED |
FOR THE YEARS ENDED | |||||||||||||||||||||||||
In Canadian dollars, except payout ratios (Unaudited) |
APRIL 30 2013 |
JANUARY 31 2013 |
APRIL 30 2012 |
APRIL 30 2013 |
OCTOBER 31 2012 |
OCTOBER 31 2011 |
OCTOBER 31 2010 |
||||||||||||||||||||
Dividends declared per common share |
$ | 0.49 | $ | 0.49 | $ | 0.45 | $ | 0.98 | $ | 1.84 | $ | 1.62 | $ | 1.44 | |||||||||||||
Dividend payout ratio [1][2] | 44.5 | % | 43.7 | % | 37.0 | % | 44.1 | % | 37.0 | % | 34.8 | % | 31.1 | % | |||||||||||||
[1] Refer to the Non-GAAP Financial Measures section. [2] The ratio for 2010 is presented in accordance with previous Canadian GAAP. |
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 Integrated Risk Management Framework, please refer to the 2012 Annual Report.
Credit risk
The following sections provide further details on the credit quality of the Bank's loan portfolios.
PROVISION FOR LOAN LOSSES | ||||||||||||||||||||
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | |||||||||||||||||||
In thousands of Canadian dollars, except percentage amounts (Unaudited) | APRIL 30 2013 |
JANUARY 31 2013 |
APRIL 30 2012 |
APRIL 30 2013 |
APRIL 30 2012 |
|||||||||||||||
Provision for loan losses | ||||||||||||||||||||
Personal loans | $ | 7,455 | $ | 8,058 | $ | 5,856 | $ | 15,513 | $ | 12,045 | ||||||||||
Residential mortgage loans | 872 | 1,407 | 498 | 2,279 | 782 | |||||||||||||||
Commercial mortgage loans | 48 | 1,101 | 2,555 | 1,149 | 3,443 | |||||||||||||||
Commercial and other loans (including acceptances) | 625 | (2,566) | (1,409) | (1,941) | 1,230 | |||||||||||||||
$ | 9,000 | $ | 8,000 | $ | 7,500 | $ | 17,000 | $ | 17,500 | |||||||||||
As a % of average loans and acceptances | 0.14 | % | 0.12 | % | 0.13 | % | 0.13 | % | 0.16 | % |
The provision for loan losses amounted to $9.0 million in the second quarter of 2013, an increase of $1.0 million from the first quarter of 2013 and of $1.5 million compared to a year ago, albeit remaining at a very low level. This overall level of loan losses reflects the excellent credit quality of the Bank's loan portfolios and prolonged favourable credit conditions in the Canadian market.
The year-over-year increase of $1.6 million in loan losses on personal loans includes losses on the AGF Trust loan portfolios, partly offset by improvements in B2B Bank's collateralized investment loan portfolio. The provision on residential mortgage loans also increased by $0.4 million compared to the second quarter of 2012, consistent with the higher loan volume.
Loan losses on commercial mortgages and commercial loans remained at a very low level during the second quarter of 2013, but increased by a combined $2.1 million sequentially. The Bank had benefitted from a $2.0 million favourable settlement on a single commercial loan exposure in the first quarter of 2013. The prolonged low level of loan losses continues to reflect the very strong credit quality of this portfolio.
IMPAIRED LOANS | ||||||||||
In thousands of Canadian dollars, except percentage amounts (Unaudited) | AS AT APRIL 30 2013 |
AS AT OCTOBER 31 2012 |
AS AT APRIL 30 2012 |
|||||||
Gross impaired loans | ||||||||||
Personal | $ | 21,243 | $ | 16,863 | $ | 15,926 | ||||
Residential mortgages | 21,972 | 21,971 | 14,717 | |||||||
Commercial mortgages | 32,251 | 36,672 | 60,394 | |||||||
Commercial and other (including acceptances) | 42,200 | 52,517 | 56,284 | |||||||
$ | 117,666 | $ | 128,023 | $ | 147,321 | |||||
Allowances for loan losses against impaired loans | ||||||||||
Individual allowances | $ | (39,487) | $ | (47,849) | $ | (67,003) | ||||
Collective allowances | (12,802) | (12,492) | (11,592) | |||||||
$ | (52,289) | $ | (60,341) | $ | (78,595) | |||||
Net impaired loans [1] | $ | 65,377 | $ | 67,682 | $ | 68,726 | ||||
Collective allowances against other loans | $ | (62,079) | $ | (57,201) | $ | (60,274) | ||||
Impaired loans as a % of loans and acceptances | ||||||||||
Gross | 0.44 | % | 0.48 | % | 0.64 | % | ||||
Net | 0.24 | % | 0.25 | % | 0.30 | % | ||||
[1] Net impaired loans are now calculated as gross impaired loans less individual allowances and collective allowances against impaired loans. |
Gross impaired loans amounted to $117.7 million as at April 30, 2013, down 8% from $128.0 million as at October 31, 2012 as credit quality remained strong during the quarter. The decrease since October 31, 2012 resulted from improvement in the retail and commercial loan portfolios, as borrowers continued to benefit from the favourable low interest rate environment, as well as the prevailing business conditions in Canada, partly offset by the impact of the purchased AGF Trust personal and residential mortgage loan portfolios.
Since the beginning of the year, individual allowances decreased by $8.4 million to $39.5 million, as a result of favourable settlements and overall improvement in the commercial loan portfolio. Net impaired loans, now calculated as gross impaired loans less individual allowances and collective allowances against impaired loans, amounted to $65.4 million as at April 30, 2013, compared to $67.7 million as at October 31, 2012, and totalled 0.24% of loans and acceptances, a slight decrease from October 31, 2012 and reflecting the prudent level of provisioning of impaired loans.
Liquidity and funding risk
Liquidity and funding risk represents the possibility that the Bank may not be able to gather sufficient cash resources, when required and on reasonable conditions, to meet its financial obligations. There have been no material changes to the Bank's liquidity and funding risk management framework from year-end 2012. The Bank continues to maintain liquidity and funding that is appropriate for the execution of its strategy, with liquidity and funding risk remaining well within its risk appetite.
Market risk
Market risk represents the financial losses that the Bank could incur following unfavourable fluctuations in the value of financial instruments subsequent to changes in the underlying factors used to measure them, such as interest rates, exchange rates or equity 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 manage 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 protecting the economic value of common shareholders' equity from sharp interest rate movements. As at April 30, 2013, 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 across the yield curve was as follows.
STRUCTURAL INTEREST RATE SENSITIVITY ANALYSIS | |||||
In thousands of Canadian dollars (Unaudited) | AS AT APRIL 30 2013 |
AS AT OCTOBER 31 2012 |
|||
Increase in net interest income before taxes over the next 12 months | $ | 15,640 | $ | 16,701 | |
Decrease in the economic value of common shareholders' equity (Net of income taxes) | $ | (15,764) | $ | (19,710) |
As shown in the table above, the Bank maintained its short-term ALM sensitivity compared to October 31, 2012. These results reflect management's efforts to take advantage in the movement of short-term and long-term interest rates, while maintaining the sensitivity to these fluctuations within approved risk limits.
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-Québec | - Laurentian Bank Securities & Capital Markets |
- Real Estate & Commercial | - Other |
- B2B Bank |
Retail & SME-Québec
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | ||||||||||||||||||
In thousands of Canadian dollars, except percentage amounts (Unaudited) | APRIL 30 2013 |
JANUARY 31 2013 |
APRIL 30 2012 |
APRIL 30 2013 |
APRIL 30 2012 |
||||||||||||||
Net interest income | $ | 72,690 | $ | 76,855 | $ | 76,096 | $ | 149,545 | $ | 154,821 | |||||||||
Other income | 38,260 | 35,436 | 33,422 | 73,696 | 65,225 | ||||||||||||||
Total revenue | 110,950 | 112,291 | 109,518 | 223,241 | 220,046 | ||||||||||||||
Provision for loan losses | 5,924 | 6,066 | 4,855 | 11,990 | 11,071 | ||||||||||||||
Non-interest expenses | 93,386 | 92,981 | 91,268 | 186,367 | 182,528 | ||||||||||||||
Income before income taxes | 11,640 | 13,244 | 13,395 | 24,884 | 26,447 | ||||||||||||||
Income taxes | 1,978 | 2,034 | 2,737 | 4,012 | 5,368 | ||||||||||||||
Net income | $ | 9,662 | $ | 11,210 | $ | 10,658 | $ | 20,872 | $ | 21,079 | |||||||||
Efficiency ratio [1] | 84.2 | % | 82.8 | % | 83.3 | % | 83.5 | % | 82.9 | % | |||||||||
[1] Refer to the non-GAAP financial measures section. |
The Retail & SME-Québec business segment's contribution to net income was $9.7 million in the second quarter of 2013, a 9% decrease compared with $10.7 million in the second quarter of 2012.
Total revenue increased $1.4 million from $109.5 million in the second quarter of 2012 to $111.0 million in the second quarter of 2013, as growth in other income compensated for lower net interest income. Net interest income decreased by $3.4 million, as growth in loan and deposit volumes year-over-year, notably in the residential mortgage, home-equity lines of credit and SME loan portfolios, did not fully compensate for the decline in net interest margin stemming from the persistently low interest rate environment. Other income increased by 14% from $33.4 million in the second quarter of 2012 to $38.3 million for the same period in 2013 mainly due to higher fees on deposits as well as to higher income from sales of mutual funds reflecting new sales and better market performance compared to a year ago. Higher credit insurance income and higher revenues from card services due to increased activity also contributed to the increase year-over-year.
Loan losses increased from $4.9 million in the second quarter of 2012 to $5.9 million in the second quarter of 2013. This increase mainly reflects higher provisions on the SME portfolio, which benefitted from the reversal of provisions a year ago, partly offset by lower provisions required for personal lines of credit. Non-interest expenses increased by $2.1 million or 2%, from $91.3 million in the second quarter of 2012 to $93.4 million in the second quarter of 2013. Higher salaries due to regular salary increases and additional headcount to enhance the SME-Québec sales force, as well as higher pension costs, mainly accounted for the increase, partly attenuated by the effect of restructurings in 2012.
The efficiency ratio was 84.2% in the second quarter of 2013, compared with 83.3% in the second quarter of 2012. The overall low interest rate environment is weighing on the segment's efficiency ratio, despite the segment maintaining its focus on SME segment growth, generating fee income and controlling costs.
Compared to the first quarter of 2013, net income decreased, mainly as the fewer number of days in the quarter impacted net interest income, as well as because of higher HST costs incurred since January 2013.
For the six months ended April 30, 2013, net income decreased by 1% to $20.9 million essentially due to the combined effect of lower interest margins which more than offset growth in loan and deposit volumes and increased other income, as explained above. Owing to continued cost control initiatives, non-interest expenses for the six months ended April 30, 2013 were up only 2% year-over-year.
Real Estate & Commercial
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | ||||||||||||||||||
In thousands of Canadian dollars, except percentage amounts (Unaudited) | APRIL 30 2013 |
JANUARY 31 2013 |
APRIL 30 2012 |
APRIL 30 2013 |
APRIL 30 2012 |
||||||||||||||
Net interest income | $ | 20,179 | $ | 21,555 | $ | 22,049 | $ | 41,734 | $ | 44,261 | |||||||||
Other income | 10,503 | 8,086 | 10,451 | 18,589 | 18,457 | ||||||||||||||
Total revenue | 30,682 | 29,641 | 32,500 | 60,323 | 62,718 | ||||||||||||||
Provision for loan losses | (74) | (1,464) | 1,755 | (1,538) | 4,606 | ||||||||||||||
Non-interest expenses | 8,383 | 8,414 | 7,484 | 16,797 | 15,240 | ||||||||||||||
Income before income taxes | 22,373 | 22,691 | 23,261 | 45,064 | 42,872 | ||||||||||||||
Income taxes | 5,974 | 6,059 | 6,292 | 12,033 | 11,597 | ||||||||||||||
Net income | $ | 16,399 | $ | 16,632 | $ | 16,969 | $ | 33,031 | $ | 31,275 | |||||||||
Efficiency ratio [1] | 27.3 | % | 28.4 | % | 23.0 | % | 27.8 | % | 24.3 | % | |||||||||
[1] Refer to the non-GAAP financial measures section. |
The Real Estate & Commercial business segment's contribution to net income slightly decreased by $0.6 million or 3% to $16.4 million in the second quarter of 2013, compared with $17.0 million in the second quarter of 2012.
Total revenue decreased by $1.8 million, from $32.5 million in the second quarter of 2012 to $30.7 million in the second quarter of 2013. This decrease is mainly explained by a reduction in net interest income, which was impacted by compressed margins in the second quarter of 2013. Other income for the quarter was relatively unchanged compared to last year. Consistent with the Bank's syndication strategy, the sale of a $94.7 million commercial mortgage portfolio was completed during the quarter, which led to the recognition of a $3.1 million gain in other income. In a similar transaction, a $3.1 million gain on the sale of a $77.0 million portfolio was also recorded during the second quarter of 2012. Loan losses decreased by $1.8 million compared to a year ago and generated a net credit of $0.1 million in the second quarter of 2013, reflecting the sound quality of the commercial mortgage loan portfolio as well as prolonged good credit conditions in Canada. Non-interest expenses increased by $0.9 million to $8.4 million in the second quarter of 2013 compared with $7.5 million in the second quarter of 2012 essentially due to regular salary increases and higher allocated costs year-over-year.
Compared to the first quarter of 2013, net income was slightly down, essentially as a result of the fewer number of days in the second quarter which impacted net interest income and slightly less favourable loan losses, which more than offset the gain on the sale of commercial mortgage loans.
For the six months ended April 30, 2013, net income increased by $1.8 million or 6% to $33.0 million, mostly driven by improvements in loan losses, partly offset by lower net interest income due to lower margins as well as lower revenues from foreign exchange operations resulting from a more stable currency environment. Non-interest expenses increased by $1.6 million compared to the six months ended April 30, 2012, mainly due to increased salaries and benefits and allocated costs as explained above.
B2B Bank
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | ||||||||||||||||||
In thousands of Canadian dollars, except percentage amounts (Unaudited) | APRIL 30 2013 |
JANUARY 31 2013 |
APRIL 30 2012 |
APRIL 30 2013 |
APRIL 30 2012 |
||||||||||||||
Net interest income | $ | 47,195 | $ | 49,412 | $ | 30,689 | $ | 96,607 | $ | 61,653 | |||||||||
Other income | 8,884 | 9,056 | 9,116 | 17,940 | 17,259 | ||||||||||||||
Total revenue | 56,079 | 58,468 | 39,805 | 114,547 | 78,912 | ||||||||||||||
Gain on acquisition and amortization of net premium on purchased financial instruments |
(1,224) | (1,056) | — | (2,280) | — | ||||||||||||||
Provision for loan losses | 3,150 | 3,398 | 890 | 6,548 | 1,823 | ||||||||||||||
Non-interest expenses | 32,175 | 32,960 | 24,483 | 65,135 | 47,905 | ||||||||||||||
Costs related to business combinations and other [1] | 6,136 | 7,557 | 3,350 | 13,693 | 6,010 | ||||||||||||||
Income before income taxes | 13,394 | 13,497 | 11,082 | 26,891 | 23,174 | ||||||||||||||
Income taxes | 3,557 | 3,583 | 2,953 | 7,140 | 6,174 | ||||||||||||||
Net income | $ | 9,837 | $ | 9,914 | $ | 8,129 | $ | 19,751 | $ | 17,000 | |||||||||
Adjusted net income [2] | $ | 15,245 | $ | 16,242 | $ | 10,568 | $ | 31,487 | $ | 21,396 | |||||||||
Efficiency ratio [2] | 68.3 | % | 69.3 | % | 69.9 | % | 68.8 | % | 68.3 | % | |||||||||
Adjusted efficiency ratio [2] | 57.4 | % | 56.4 | % | 61.5 | % | 56.9 | % | 60.7 | % | |||||||||
[1] Integration costs related to the acquisition of the MRS Companies and AGF Trust. [2] Refer to the non-GAAP financial measures section. |
B2B Bank business segment's contribution to adjusted net income was $15.2 million in the second quarter of 2013, up $4.7 million or 44% from $10.6 million in the second quarter of 2012. Reported net income for the second quarter of 2013 was $9.8 million compared to $8.1 million a year ago. The improvement essentially stems from the addition of the portion of AGF Trust's net income reported in B2B Bank's business segment, which totalled $5.9 million in the second quarter of 2013, which more than offset the effect of tighter net interest margins.
Total revenue increased to $56.1 million in the second quarter of 2013 compared with $39.8 million in the second quarter of 2012. Net interest income increased by $16.5 million compared to last year, to $47.2 million in the second quarter of 2013, mainly due to higher loan and deposit volumes related to the acquisition of AGF Trust, which added $17.8 million to net interest income in the quarter. Other income decreased by $0.2 million to $8.9 million in the second quarter of 2013, mostly as a result of slightly lower B2B Bank Dealer Services-sourced fees on investment accounts, partly offset by a $0.5 million contribution from AGF Trust.
As shown above, the charge related to amortization of net premium on purchased financial instruments, presented on the line-item "Gain on acquisition and amortization of net premium on purchased financial instruments", amounted to $1.2 million in the second quarter of 2013, compared to a $1.1 million charge for the first quarter of 2013. Refer to Note 12 to the unaudited condensed interim financial statements for additional information on this item.
Loan losses increased from $0.9 million in the second quarter of 2012 to $3.2 million in the second quarter of 2013, mainly as a result of an additional $2.5 million charge related to the AGF Trust portfolios, partly offset by lower loan losses in B2B Bank's collateralized investment loan portfolio.
Non-interest expenses, as shown in the table above, increased by $7.7 million to $32.2 million in the second quarter of 2013, compared with $24.5 million in the second quarter of 2012. This increase includes current operating costs of $7.8 million related to AGF Trust. Otherwise, expenses were essentially unchanged year-over-year, as higher allocated costs, as well as increased salary and pension costs, were offset by realized cost synergies. T&I Costs amounted to $6.1 million for the second quarter of 2013, $4.3 million from salaries, professional fees and other expenses for the integration of AGF Trust, including a $1.9 million charge related to an ongoing project to relocate all B2B Bank's employees in a single location, and $1.8 million of expenses incurred for the integration of the MRS Companies.
Compared to the first quarter of 2013, adjusted net income was slightly down, mainly as the fewer number of days in the quarter impacted net interest income, while other revenues and expenses remained relatively unchanged1.
For the six months ended April 30, 2013, adjusted net income was $31.5 million, $10.1 million higher than the same period of 2012, essentially as a result of the $11.0 million operating contribution of AGF Trust while cost synergies achieved on the MRS Companies transaction compensated for a decline in B2B Bank's contribution compared to last year. Reported net income for the six months ended April 30, 2013 was $19.8 million, a 16% increase.
1 | During the second quarter of 2013, the Bank's Corporate Treasury retroactively adjusted its loan transfer pricing with regards to the recently acquired AGF Trust insured mortgage loan portfolio. As a result, net interest income related to AGF Trust amounting to $1.0 million for the first quarter ended January 31, 2013, which was previously reported in the Other sector, was reclassified to the B2B Bank's business segment. This change generated a $0.7 million increase in B2B Bank's net income in the first quarter of 2013. |
Laurentian Bank Securities & Capital Markets
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | ||||||||||||||||||
In thousands of Canadian dollars, except percentage amounts (Unaudited) | APRIL 30 2013 |
JANUARY 31 2013 |
APRIL 30 2012 |
APRIL 30 2013 |
APRIL 30 2012 |
||||||||||||||
Total revenue | $ | 16,967 | $ | 17,083 | $ | 16,265 | $ | 34,050 | $ | 30,920 | |||||||||
Non-interest expenses | 12,959 | 13,474 | 12,530 | 26,433 | 24,690 | ||||||||||||||
Income before income taxes | 4,008 | 3,609 | 3,735 | 7,617 | 6,230 | ||||||||||||||
Income taxes | 1,033 | 928 | 956 | 1,961 | 1,576 | ||||||||||||||
Net income | $ | 2,975 | $ | 2,681 | $ | 2,779 | $ | 5,656 | $ | 4,654 | |||||||||
Efficiency ratio [1] | 76.4 | % | 78.9 | % | 77.0 | % | 77.6 | % | 79.9 | % | |||||||||
[1] Refer to the non-GAAP financial measures section. |
Laurentian Bank Securities & Capital Markets business segment's contribution to net income increased to $3.0 million in the second quarter of 2013, compared to $2.8 million in the second quarter of 2012.
Total revenue was up 4% to $17.0 million in the second quarter of 2013 compared with $16.3 million for the same quarter of 2012. During the second quarter of 2013, the business segment benefited from improved market conditions for trading and retail brokerage activities compared to a year ago. Non-interest expenses increased by $0.4 million to $13.0 million in the second quarter of 2013, mainly due to slightly higher performance-based compensation, commissions and transaction fees, in-line with increased market-driven income.
For the six months ended April 30, 2013, net income increased by $1.0 million or 22% compared to the same period last year. Operating leverage was positive year-over-year, as a result of higher revenues from better markets compared to a year ago.
Other Sector
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | |||||||||||||
In thousands of Canadian dollars (Unaudited) | APRIL 30 2013 |
JANUARY 31 2013 |
APRIL 30 2012 |
APRIL 30 2013 |
APRIL 30 2012 |
|||||||||
Net interest income | $ | (704) | $ | (6,159) | $ | (1,206) | $ | (6,863) | $ | (2,987) | ||||
Other income | 876 | 2,590 | 1,788 | 3,466 | 2,805 | |||||||||
Total revenue | 172 | (3,569) | 582 | (3,397) | (182) | |||||||||
Non-interest expenses | 6,814 | 5,928 | 7,996 | 12,742 | 13,758 | |||||||||
Loss before income taxes | (6,642) | (9,497) | (7,414) | (16,139) | (13,940) | |||||||||
Income taxes recovery | (2,908) | (3,150) | (2,742) | (6,058) | (4,757) | |||||||||
Net loss | $ | (3,734) | $ | (6,347) | $ | (4,672) | $ | (10,081) | $ | (9,183) |
The Other sector posted a negative contribution to net income of $3.7 million in the second quarter of 2013 compared to a negative contribution of $4.7 million in the second quarter of 2012 and a revised negative contribution of $6.3 million in the first quarter of 20131.
Net interest income slightly improved to negative $0.7 million in the second quarter of 2013, compared to negative $1.2 million in the second quarter of 2012, mainly as a result of the maturing of high-coupon securitization liabilities which more than offset a less favourable market positioning compared to a year ago. Other income for the second quarter of 2013 decreased to $0.9 million, compared to $1.8 million for the second quarter of 2012, essentially as a result of lower realized security gains.
Non-interest expenses were down to $6.8 million in the second quarter of 2013 compared to $8.0 million in 2012. The decrease was largely due to lower employee benefits costs, combined with favourable adjustments to sales taxes recorded in the second quarter of 2013.
On a sequential basis, net interest income improved by $5.5 million to negative $0.7 million from negative $6.2 million for the first quarter ended January 31, 2013 mainly due to the maturing, halfway through the first quarter, of a high-coupon securitization liability and a lower level of liquid assets.
For the six months ended April 30, 2013, the negative contribution to net income was $10.1 million, compared to negative $9.2 million for the six months ended April 30, 2012, as the decrease in net interest income mainly resulting from a high level of lower-yielding liquid assets early in the period more than offset the decrease in non-interest expenses, mainly due to the same reasons as noted above.
1 | During the second quarter of 2013, the Bank's Corporate Treasury retroactively adjusted its loan transfer pricing with regards to the recently acquired AGF Trust insured mortgage loan portfolio. As a result, net interest income related to AGF Trust amounting to $1.0 million for the first quarter ended January 31, 2013, which was previously reported in the Other sector, was reclassified to the B2B Bank's business segment. This change generated a $0.7 million decrease in the Other sector's net income in the first quarter of 2013. |
Additional Financial Information - Quarterly Results
In thousands of Canadian dollars, except per share and percentage amounts (Unaudited) |
APRIL 30 2013 |
JANUARY 31 2013 |
OCTOBER 31 2012 |
JULY 31 2012 |
APRIL 30 2012 |
JANUARY 31 2012 |
OCTOBER 31 2011 |
JULY 31 2011 |
||||||||||||||||||||||||
Net interest income | $ | 140,430 | $ | 142,344 | $ | 142,411 | $ | 129,664 | $ | 128,324 | $ | 130,629 | $ | 126,391 | $ | 129,426 | ||||||||||||||||
Other income | 74,420 | 71,570 | 67,985 | 64,169 | 70,346 | 63,115 | 56,031 | 56,407 | ||||||||||||||||||||||||
Total revenue | 214,850 | 213,914 | 210,396 | 193,833 | 198,670 | 193,744 | 182,422 | 185,833 | ||||||||||||||||||||||||
Gain on acquisition and amortization of net premium on purchased financial instruments | (1,224) | (1,056) | 23,795 | — | — | — | — | — | ||||||||||||||||||||||||
Provision for loan losses | 9,000 | 8,000 | 8,000 | 7,500 | 7,500 | 10,000 | 12,999 | 14,640 | ||||||||||||||||||||||||
Non-interest expenses | 159,853 | 161,314 | 165,377 | 148,955 | 147,111 | 143,020 | 137,152 | 133,896 | ||||||||||||||||||||||||
Income before income taxes | 44,773 | 43,544 | 60,814 | 37,378 | 44,059 | 40,724 | 32,271 | 37,297 | ||||||||||||||||||||||||
Income taxes | 9,634 | 9,454 | 15,129 | 7,380 | 10,196 | 9,762 | 5,562 | 8,225 | ||||||||||||||||||||||||
Net income | $ | 35,139 | $ | 34,090 | $ | 45,685 | $ | 29,998 | $ | 33,863 | $ | 30,962 | $ | 26,709 | $ | 29,072 | ||||||||||||||||
Earnings per share | ||||||||||||||||||||||||||||||||
Basic | $ | 1.10 | $ | 1.12 | $ | 1.51 | $ | 1.06 | $ | 1.22 | $ | 1.16 | $ | 0.99 | $ | 1.09 | ||||||||||||||||
Diluted | $ | 1.10 | $ | 1.12 | $ | 1.51 | $ | 1.06 | $ | 1.22 | $ | 1.16 | $ | 0.99 | $ | 1.08 | ||||||||||||||||
Return on common shareholders' equity [1] | 10.3 | % | 10.3 | % | 14.2 | % | 10.1 | % | 12.0 | % | 11.5 | % | 9.9 | % | 11.2 | % | ||||||||||||||||
Balance sheet assets(in millions of Canadian dollars) | $ | 34,474 | $ | 34,249 | $ | 34,937 | $ | 31,416 | $ | 30,708 | $ | 29,921 | $ | 28,963 | $ | 28,239 | ||||||||||||||||
Adjusted measures | ||||||||||||||||||||||||||||||||
Adjusted net income [1] | $ | 40,547 | $ | 40,418 | $ | 36,186 | $ | 35,253 | $ | 36,302 | $ | 32,919 | $ | 33,375 | $ | 29,072 | ||||||||||||||||
Adjusted diluted earnings per share [1] | $ | 1.29 | $ | 1.34 | $ | 1.17 | $ | 1.27 | $ | 1.31 | $ | 1.24 | $ | 1.26 | $ | 1.08 | ||||||||||||||||
Adjusted return on common shareholders' equity [1] | 12.1 | % | 12.2 | % | 10.9 | % | 12.1 | % | 13.0 | % | 12.4 | % | 12.7 | % | 11.2 | % | ||||||||||||||||
[1] Refer to the non-GAAP financial measures section. |
Accounting Policies
A summary of the Bank's significant accounting policies is presented in Notes 2 and 3 of the 2012 audited annual consolidated financial statements. Pages 71 to 73 of the 2012 Annual Report also contain a discussion of critical accounting policies and estimates which refer to material amounts reported in the consolidated financial statements or require management's judgement. The unaudited condensed interim consolidated financial statements for the second quarter of 2013 have been prepared in accordance with these accounting policies.
Future accounting changes
The IASB has issued new standards and amendments to existing standards on financial instruments, consolidation, fair value measurement, employee benefits, offsetting and presentation of other comprehensive income. These future accounting changes will be applicable for the Bank in various annual periods beginning on November 1, 2013 at the earliest. The Bank is currently assessing the impact of the adoption of these standards on its financial statements. Additional information on the new standards and amendments to existing standards can be found in Note 3 to the unaudited condensed interim consolidated financial statements.
Corporate Governance and Changes in Internal Control over Financial Reporting
In accordance with Canadian securities law, management has limited the scope of internal control over financial reporting and disclosure controls and procedures evaluation and excluded the controls, policies and procedures of AGF Trust, acquired by the Bank on August 1, 2012. AGF Trust's results are included in the unaudited condensed interim consolidated financial statements of the Bank for the period ended April 30, 2013. AGF Trust constituted approximately 10% of total assets, 9% of total liabilities, 9% of total revenue and 17% of total net income as at and for the six months ended April 30, 2013.
During the last quarter ended April 30, 2013, 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.
The Board of Directors and the Audit Committee of Laurentian Bank reviewed this press release prior to its release today.
Non-GAAP Financial Measures
The Bank uses both generally accepted accounting principles (GAAP) and certain non-GAAP measures to assess performance. 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. These non-GAAP financial measures are considered useful to investors and analysts in obtaining a better understanding of the Bank's financial results and analyzing its growth and profit potential more effectively. The Bank's non-GAAP financial measures are defined as follows:
Return on common shareholders' equity
Return on common shareholders' equity is a profitability measure calculated as the net income available to common shareholders as a percentage of average common shareholders' equity, excluding accumulated other comprehensive income.
Book value per common share
The Bank's book value per common share is defined as common shareholders' equity, excluding accumulated other comprehensive income, divided by the number of common shares outstanding at the end of the period.
Net interest margin
Net interest margin is the ratio of net interest income to total average assets, expressed as a percentage or basis points.
Efficiency ratio and operating leverage
The Bank uses the efficiency ratio as a measure of its productivity and cost control. This ratio is defined as non-interest expenses as a percentage of total revenue. The Bank also uses operating leverage as a measure of efficiency. Operating leverage is the difference between total revenue and non-interest expenses growth rates.
Dividend payout ratio
The dividend payout ratio is defined as dividends declared on common shares as a percentage of net income available to common shareholders.
Dividend yield
The dividend yield is defined as dividends declared per common share divided by the closing common share price.
Adjusted GAAP and non-GAAP measures
Certain analyses presented throughout this document are based on the Bank's core activities and therefore exclude the effect of certain amounts designated as adjusting items, as presented in the table in the Adjusting Items section.
Most of the adjusting items relate to gains and expenses that arise as a result of acquisitions. The gain on acquisition and ensuing amortization of net premium on purchased financial instruments are considered adjusting items since they represent, according to management, significant non-cash adjustments and due to their non-recurrence. Transaction and integration-related costs in respect of the MRS Companies and AGF Trust have been designated as adjusting items due to the significance of the amounts and the fact that some of these costs have been incurred with the intent to generate benefits in future periods.
About Laurentian Bank
Laurentian Bank of Canada is a pan-Canadian banking institution that has $34 billion in balance sheet assets and $37 billion in assets under administration. Founded in 1846, Laurentian Bank was selected in 2012 as one of the 10 winners of the Canada's Passion Capitalists program in recognition of its sustained success through the promotion of passion within its ranks. The Bank employs more than 4,200 people.
Recognized for its excellent service, proximity and simplicity, Laurentian Bank serves more than one million clients in market segments in which it holds an enviable position. In addition to occupying a choice position among consumers in Québec, where it operates the third largest branch network, the Bank has built a solid reputation across Canada in the area of real estate and commercial financing thanks to its teams working out of more than 35 offices in Ontario, Québec, Alberta and British Columbia. Its subsidiary, B2B Bank, is a Canadian leader in providing banking products as well as investment accounts and services to financial advisors and brokers, while Laurentian Bank Securities is an integrated broker, widely recognized for its expertise and effectiveness nationwide.
Access to Quarterly Results Materials
Interested investors, the media and others may review this press release, unaudited condensed interim consolidated financial statements, supplementary financial information and our report to shareholders which are posted on our web site at www.laurentianbank.ca.
Conference Call
Laurentian Bank invites media representatives and the public to listen to the conference call with financial analysts to be held at 2:00 p.m. Eastern Time on Wednesday, June 5, 2013. The live, listen-only, toll-free, call-in number is 416 695-7806 or 1 888 789-9572 Code 5680517#.
You can listen to the call on a delayed basis at any time from 6:00 p.m. on Wednesday, June 5, 2013 until 11:59 p.m. on July 6, 2013, by dialing the following playback number: 905 694-9451 or 1 800 408-3053 Code 3255829#. 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 Web site also offers additional financial information.
Unaudited Condensed Interim Consolidated Financial Statements
The unaudited condensed interim consolidated financial statements for the quarter ended April 30, 2013, including the notes to consolidated financial statements, are also available on the Bank's Web site at www.laurentianbank.ca.
Consolidated Balance Sheet
In thousands of Canadian dollars (Unaudited) | AS AT APRIL 30 2013 |
AS AT OCTOBER 31 2012 |
AS AT APRIL 30 2012 |
||||||
ASSETS | |||||||||
Cash and non-interest-bearing deposits with other banks | $ | 83,512 | $ | 90,860 | $ | 72,029 | |||
Interest-bearing deposits with other banks | 233,501 | 480,183 | 624,251 | ||||||
Securities | |||||||||
Available-for-sale | 2,151,551 | 2,822,588 | 2,055,991 | ||||||
Held-to-maturity | 1,030,366 | 1,446,751 | 1,056,657 | ||||||
Held-for-trading | 2,574,845 | 1,873,622 | 2,181,962 | ||||||
5,756,762 | 6,142,961 | 5,294,610 | |||||||
Securities purchased under reverse repurchase agreements | 545,974 | 631,202 | 978,063 | ||||||
Loans | |||||||||
Personal | 7,605,244 | 7,806,067 | 6,116,400 | ||||||
Residential mortgage | 14,499,292 | 14,169,095 | 12,279,486 | ||||||
Commercial mortgage | 2,434,514 | 2,443,634 | 2,470,794 | ||||||
Commercial and other | 2,239,842 | 2,150,953 | 2,087,886 | ||||||
Customers' liabilities under acceptances | 256,150 | 211,130 | 166,904 | ||||||
27,035,042 | 26,780,879 | 23,121,470 | |||||||
Allowances for loan losses | (114,368) | (117,542) | (138,869) | ||||||
26,920,674 | 26,663,337 | 22,982,601 | |||||||
Other | |||||||||
Derivatives | 156,308 | 167,643 | 161,807 | ||||||
Premises and equipment | 72,108 | 71,871 | 66,308 | ||||||
Software and other intangible assets | 165,225 | 159,973 | 142,401 | ||||||
Goodwill | 64,077 | 64,077 | 64,077 | ||||||
Deferred tax assets | 4,690 | 4,751 | 2,467 | ||||||
Other assets | 470,764 | 459,968 | 319,860 | ||||||
933,172 | 928,283 | 756,920 | |||||||
$ | 34,473,595 | $ | 34,936,826 | $ | 30,708,474 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
Deposits | |||||||||
Personal | $ | 19,535,193 | $ | 19,369,310 | $ | 16,414,315 | |||
Business, banks and other | 4,273,632 | 4,672,133 | 4,646,439 | ||||||
23,808,825 | 24,041,443 | 21,060,754 | |||||||
Other | |||||||||
Obligations related to securities sold short | 1,679,095 | 1,349,932 | 1,352,007 | ||||||
Obligations related to securities sold under repurchase agreements | 394,725 | 244,039 | 441,532 | ||||||
Acceptances | 256,150 | 211,130 | 166,904 | ||||||
Derivatives | 96,626 | 100,867 | 128,626 | ||||||
Deferred tax liabilities | 19,264 | 16,128 | 1,408 | ||||||
Other liabilities | 819,618 | 951,467 | 984,528 | ||||||
3,265,478 | 2,873,563 | 3,075,005 | |||||||
Debt related to securitization activities | 5,473,470 | 6,037,097 | 5,051,652 | ||||||
Subordinated debt | 444,469 | 443,594 | 243,426 | ||||||
Shareholders' equity | |||||||||
Preferred shares | 205,146 | 303,249 | 205,527 | ||||||
Common shares | 438,454 | 428,526 | 313,544 | ||||||
Share-based payment reserve | 136 | 227 | 227 | ||||||
Retained earnings | 807,788 | 774,899 | 730,736 | ||||||
Accumulated other comprehensive income | 29,829 | 34,228 | 27,603 | ||||||
1,481,353 | 1,541,129 | 1,277,637 | |||||||
$ | 34,473,595 | $ | 34,936,826 | $ | 30,708,474 |
Consolidated Statement of Income
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | ||||||||||||||
In thousands of Canadian dollars, except per share amounts (Unaudited) | APRIL 30 2013 |
JANUARY 31 2013 |
APRIL 30 2012 |
APRIL 30 2013 |
APRIL 30 2012 |
||||||||||
Interest income | |||||||||||||||
Loans | $ | 264,704 | $ | 276,870 | $ | 240,943 | $ | 541,574 | $ | 486,026 | |||||
Securities | 16,178 | 17,128 | 18,377 | 33,306 | 37,268 | ||||||||||
Deposits with other banks | 499 | 914 | 1,276 | 1,413 | 2,300 | ||||||||||
Other, including derivatives | 11,193 | 13,453 | 14,557 | 24,646 | 30,254 | ||||||||||
292,574 | 308,365 | 275,153 | 600,939 | 555,848 | |||||||||||
Interest expense | |||||||||||||||
Deposits | 112,525 | 121,423 | 104,653 | 233,948 | 212,326 | ||||||||||
Debt related to securitization activities | 35,163 | 40,225 | 39,508 | 75,388 | 79,180 | ||||||||||
Subordinated debt | 3,927 | 4,024 | 2,374 | 7,951 | 4,777 | ||||||||||
Other, including derivatives | 529 | 349 | 294 | 878 | 612 | ||||||||||
152,144 | 166,021 | 146,829 | 318,165 | 296,895 | |||||||||||
Net interest income | 140,430 | 142,344 | 128,324 | 282,774 | 258,953 | ||||||||||
Other income | |||||||||||||||
Fees and commissions on loans and deposits | 31,724 | 31,330 | 29,657 | 63,054 | 58,168 | ||||||||||
Income from brokerage operations | 14,523 | 16,522 | 14,354 | 31,045 | 27,903 | ||||||||||
Income from investment accounts | 7,894 | 7,858 | 7,648 | 15,752 | 14,449 | ||||||||||
Income from sales of mutual funds | 5,415 | 5,140 | 4,488 | 10,555 | 8,817 | ||||||||||
Income from treasury and financial market operations | 4,601 | 5,341 | 5,856 | 9,942 | 10,570 | ||||||||||
Credit insurance income | 4,415 | 3,395 | 3,662 | 7,810 | 7,432 | ||||||||||
Other income | 5,848 | 1,984 | 4,681 | 7,832 | 6,122 | ||||||||||
74,420 | 71,570 | 70,346 | 145,990 | 133,461 | |||||||||||
Total revenue | 214,850 | 213,914 | 198,670 | 428,764 | 392,414 | ||||||||||
Gain on acquisition and amortization of net premium on purchased financial instruments | (1,224) | (1,056) | — | (2,280) | — | ||||||||||
Provision for loan losses | 9,000 | 8,000 | 7,500 | 17,000 | 17,500 | ||||||||||
Non-interest expenses | |||||||||||||||
Salaries and employee benefits | 85,200 | 89,380 | 79,282 | 174,580 | 156,314 | ||||||||||
Premises and technology | 42,626 | 38,881 | 37,998 | 81,507 | 75,164 | ||||||||||
Other | 25,891 | 25,496 | 26,481 | 51,387 | 52,643 | ||||||||||
Costs related to business combinations and other | 6,136 | 7,557 | 3,350 | 13,693 | 6,010 | ||||||||||
159,853 | 161,314 | 147,111 | 321,167 | 290,131 | |||||||||||
Income before income taxes | 44,773 | 43,544 | 44,059 | 88,317 | 84,783 | ||||||||||
Income taxes | 9,634 | 9,454 | 10,196 | 19,088 | 19,958 | ||||||||||
Net income | $ | 35,139 | $ | 34,090 | $ | 33,863 | $ | 69,229 | $ | 64,825 | |||||
Preferred share dividends, including applicable taxes | 4,059 | 2,533 | 3,165 | 6,592 | 6,331 | ||||||||||
Net income available to common shareholders | $ | 31,080 | $ | 31,557 | $ | 30,698 | $ | 62,637 | $ | 58,494 | |||||
Average number of common shares outstanding (in thousands) | |||||||||||||||
Basic | 28,287 | 28,169 | 25,235 | 28,227 | 24,573 | ||||||||||
Diluted | 28,297 | 28,182 | 25,253 | 28,239 | 24,591 | ||||||||||
Earnings per share | |||||||||||||||
Basic | $ | 1.10 | $ | 1.12 | $ | 1.22 | $ | 2.22 | $ | 2.38 | |||||
Diluted | $ | 1.10 | $ | 1.12 | $ | 1.22 | $ | 2.22 | $ | 2.38 | |||||
Dividends declared per share | |||||||||||||||
Common share | $ | 0.49 | $ | 0.49 | $ | 0.45 | $ | 0.98 | $ | 0.90 | |||||
Preferred share - Series 9 | $ | 0.38 | $ | 0.38 | $ | 0.38 | $ | 0.75 | $ | 0.75 | |||||
Preferred share - Series 10 | $ | 0.33 | $ | 0.33 | $ | 0.33 | $ | 0.66 | $ | 0.66 | |||||
Preferred share - Series 11 | $ | 0.25 | $ | 0.16 | n.a. | $ | 0.41 | n.a. |
Consolidated Statement of Comprehensive Income
FOR THE THREE MONTHS ENDED | FOR THE SIX MONTHS ENDED | ||||||||||||||
In thousands of Canadian dollars (Unaudited) | APRIL 30 2013 |
JANUARY 31 2013 |
APRIL 30 2012 |
APRIL 30 2013 |
APRIL 30 2012 |
||||||||||
Net income | $ | 35,139 | $ | 34,090 | $ | 33,863 | $ | 69,229 | $ | 64,825 | |||||
Other comprehensive income, net of income taxes | |||||||||||||||
Items that may subsequently be reclassified to the statement of income | |||||||||||||||
Unrealized net gains (losses) on available-for-sale securities | 1,484 | 1,116 | (3,751) | 2,600 | (5,234) | ||||||||||
Reclassification of net (gains) losses on available-for-sale securities to net income | (427) | (1,458) | (888) | (1,885) | (1,209) | ||||||||||
Net change in value of derivatives designated as cash flow hedges | 4,929 | (10,043) | (23,980) | (5,114) | (31,544) | ||||||||||
5,986 | (10,385) | (28,619) | (4,399) | (37,987) | |||||||||||
Comprehensive income | $ | 41,125 | $ | 23,705 | $ | 5,244 | $ | 64,830 | $ | 26,838 |
Consolidated Statement of Changes in Shareholders' Equity
FOR THE SIX MONTHS ENDED APRIL 30, 2013 | ||||||||||||||||||||||||
AOCI RESERVES | ||||||||||||||||||||||||
In thousands of Canadian dollars (Unaudited) | PREFERRED SHARES |
COMMON SHARES |
RETAINED EARNINGS |
AVAILABLE- FOR-SALE SECURITIES |
CASH FLOW HEDGES |
TOTAL | SHARE- BASED PAYMENT RESERVE |
TOTAL SHARE- HOLDERS' EQUITY |
||||||||||||||||
Balance as at October 31, 2012 | $ | 303,249 | $ | 428,526 | $ | 774,899 | $ | 12,201 | $ | 22,027 | $ | 34,228 | $ | 227 | $ | 1,541,129 | ||||||||
Net income | 69,229 | 69,229 | ||||||||||||||||||||||
Other comprehensive income (net of income taxes) | ||||||||||||||||||||||||
Unrealized net gains (losses) on available-for-sale securities | 2,600 | 2,600 | 2,600 | |||||||||||||||||||||
Reclassification of net (gains) losses on available-for-sale securities to net income | (1,885) | (1,885) | (1,885) | |||||||||||||||||||||
Net change in value of derivatives designated as cash flow hedges | (5,114) | (5,114) | (5,114) | |||||||||||||||||||||
Comprehensive income | 69,229 | 715 | (5,114) | (4,399) | 64,830 | |||||||||||||||||||
Issuance of share capital | (218) | 9,928 | (91) | 9,619 | ||||||||||||||||||||
Repurchase of share capital | (97,885) | (2,115) | (100,000) | |||||||||||||||||||||
Dividends | ||||||||||||||||||||||||
Preferred shares, including applicable taxes | (6,592) | (6,592) | ||||||||||||||||||||||
Common shares | (27,633) | (27,633) | ||||||||||||||||||||||
Balance as at April 30, 2013 | $ | 205,146 | $ | 438,454 | $ | 807,788 | $ | 12,916 | $ | 16,913 | $ | 29,829 | $ | 136 | $ | 1,481,353 | ||||||||
FOR THE SIX MONTHS ENDED APRIL 30, 2012 | ||||||||||||||||||||||||
AOCI RESERVES | ||||||||||||||||||||||||
In thousands of Canadian dollars (Unaudited) | PREFERRED SHARES |
COMMON SHARES |
RETAINED EARNINGS |
AVAILABLE- FOR-SALE SECURITIES |
CASH FLOW HEDGES |
TOTAL | SHARE- BASED PAYMENT RESERVE |
TOTAL SHARE- HOLDERS' EQUITY |
||||||||||||||||
Balance as at October 31, 2011 | $ | 205,527 | $ | 252,601 | $ | 694,371 | $ | 22,216 | $ | 43,374 | $ | 65,590 | $ | 227 | $ | 1,218,316 | ||||||||
Net income | 64,825 | 64,825 | ||||||||||||||||||||||
Other comprehensive income (net of income taxes) | ||||||||||||||||||||||||
Unrealized net gains (losses) on available-for-sale securities | (5,234) | (5,234) | (5,234) | |||||||||||||||||||||
Reclassification of net (gains) losses on available-for-sale securities to net income | (1,209) | (1,209) | (1,209) | |||||||||||||||||||||
Net change in value of derivatives designated as cash flow hedges | (31,544) | (31,544) | (31,544) | |||||||||||||||||||||
Comprehensive income | 64,825 | (6,443) | (31,544) | (37,987) | 26,838 | |||||||||||||||||||
Issuance of share capital | 60,943 | 60,943 | ||||||||||||||||||||||
Dividends | ||||||||||||||||||||||||
Preferred shares, including applicable taxes | (6,331) | (6,331) | ||||||||||||||||||||||
Common shares | (22,129) | (22,129) | ||||||||||||||||||||||
Balance as at April 30, 2012 | $ | 205,527 | $ | 313,544 | $ | 730,736 | $ | 15,773 | $ | 11,830 | $ | 27,603 | $ | 227 | $ | 1,277,637 |
SOURCE: Laurentian Bank of Canada
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Chief Financial Officer: Michel C. Lauzon, 514 284-4500 #7997
Media and Investor Relations contact: Gladys Caron, 514 284-4500 #7511; cell 514 893-3963
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