Highlights of the third quarter 2013
- Net income of $28.3 million, return on common shareholders' equity of 8.1%, and diluted earnings per share of $0.91
- Total revenue up 14% year-over-year
- Net interest margin stable at 1.68%
- Loan losses remain low at $9.0 million and impaired loans continue to improve
- Solid growth in the commercial loan portfolios
- Transaction and Integration Costs of $14.6 million in the quarter
- Excluding adjusting items:
- Adjusted net income of $39.8 million, up 13% year-over-year
- Adjusted return on common shareholders' equity of 11.8%
- Adjusted diluted earnings per share of $1.31
MONTREAL, Aug. 30, 2013 /CNW Telbec/ - Laurentian Bank of Canada reported net income of $28.3 million or $0.91 diluted per share for the third quarter ended July 31, 2013, compared with $30.0 million or $1.06 diluted per share for the third quarter of 2012. Return on common shareholders' equity was 8.1% for the third quarter of 2013, compared with 10.1% for the same period in 2012. Excluding adjusting items1, net income was up 13% to $39.8 million or $1.31 diluted per share for the third quarter of 2013, compared to $35.3 million or $1.27 diluted per share for the same period in 2012. Adjusted return on common shareholders' equity was 11.8% for the third quarter of 2013, compared with 12.1% for the same period in 2012.
For the nine months ended July 31, 2013, net income totalled $97.5 million or $3.12 diluted per share, compared with $94.8 million or $3.44 diluted per share in 2012. Return on common shareholders' equity was 9.6% for the nine months ended July 31, 2013, compared with 11.2% for the same period in 2012. Excluding adjusting items, net income was up 16% to $120.8 million or $3.95 diluted per share for the nine months ended July 31, 2013, compared with $104.5 million or $3.83 diluted per share for the same period in 2012. Adjusted return on common shareholders' equity was 12.1% for the nine months ended July 31, 2013, compared with 12.5% for the same period in 2012.
Commenting on the Bank's financial results for the third quarter of 2013, Réjean Robitaille, President and Chief Executive Officer, mentioned: "We continued to deliver solid revenues and earnings in the third quarter and leveraged our acquisitions to expand the Bank's revenue base. The continued excellent credit quality of the loan portfolio and disciplined control over expenses also contributed to our good performance."
Mr. Robitaille added: "In an environment of slower consumer loan demand and continued margin pressure, we are working diligently to increase the value in each of our business segments, with a constant focus on profitable growth, on optimizing certain operations, and on the integration of our recently acquired businesses in order to maximize operating leverage going forward."
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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.
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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 NINE MONTHS ENDED | ||||||||||||||||||||||
In thousands of Canadian dollars, except per share and percentage amounts (Unaudited) | JULY 31 2013 |
JULY 31 2012 |
VARIANCE | JULY 31 2013 |
JULY 31 2012 |
VARIANCE | |||||||||||||||||
Profitability | |||||||||||||||||||||||
Total revenue | $ | 221,042 | $ | 193,833 | 14 | % | $ | 649,806 | $ | 586,247 | 11 | % | |||||||||||
Net income | $ | 28,284 | $ | 29,998 | (6) | % | $ | 97,513 | $ | 94,823 | 3 | % | |||||||||||
Diluted earnings per share | $ | 0.91 | $ | 1.06 | (14) | % | $ | 3.12 | $ | 3.44 | (9) | % | |||||||||||
Return on common shareholders' equity [1] | 8.1 | % | 10.1 | % | 9.6 | % | 11.2 | % | |||||||||||||||
Net interest margin [1] | 1.68 | % | 1.66 | % | 1.66 | % | 1.71 | % | |||||||||||||||
Efficiency ratio [1] | 79.1 | % | 76.8 | % | 76.3 | % | 74.9 | % | |||||||||||||||
Adjusted measures | |||||||||||||||||||||||
Adjusted net income [1] | $ | 39,847 | $ | 35,253 | 13 | % | $ | 120,812 | $ | 104,474 | 16 | % | |||||||||||
Adjusted diluted earnings per share [1] | $ | 1.31 | $ | 1.27 | 3 | % | $ | 3.95 | $ | 3.83 | 3 | % | |||||||||||
Adjusted return on common shareholders' equity [1] | 11.8 | % | 12.1 | % | 12.1 | % | 12.5 | % | |||||||||||||||
Adjusted efficiency ratio [1] | 72.5 | % | 73.2 | % | 72.0 | % | 72.7 | % | |||||||||||||||
Per common share | |||||||||||||||||||||||
Share price | |||||||||||||||||||||||
High | $ | 45.75 | $ | 47.64 | $ | 45.97 | $ | 48.68 | |||||||||||||||
Low | $ | 42.41 | $ | 40.66 | $ | 42.41 | $ | 40.66 | |||||||||||||||
Close | $ | 45.05 | $ | 47.55 | (5) | % | $ | 45.05 | $ | 47.55 | (5) | % | |||||||||||
Price / earnings ratio (trailing four quarters) | 9.7x | 10.7x | |||||||||||||||||||||
Book value [1] | $ | 44.36 | $ | 41.96 | 6 | % | |||||||||||||||||
Market to book value | 102 | % | 113 | % | |||||||||||||||||||
Dividends declared | $ | 0.50 | $ | 0.47 | 6 | % | $ | 1.48 | $ | 1.37 | 8 | % | |||||||||||
Dividend yield [1] | 4.44 | % | 3.95 | % | 4.38 | % | 3.84 | % | |||||||||||||||
Dividend payout ratio [1] | 55.0 | % | 44.2 | % | 47.3 | % | 39.8 | % | |||||||||||||||
Financial position (in millions of Canadian dollars) | |||||||||||||||||||||||
Balance sheet assets | $ | 33,759 | $ | 31,416 | 7 | % | |||||||||||||||||
Loans and acceptances | $ | 27,189 | $ | 23,436 | 16 | % | |||||||||||||||||
Deposits | $ | 23,866 | $ | 21,622 | 10 | % | |||||||||||||||||
Basel III regulatory capital ratios — All-in basis [2] | |||||||||||||||||||||||
Common Equity Tier I | 7.5 | % | n.a. | ||||||||||||||||||||
Tier 1 | 9.0 | % | n.a. | ||||||||||||||||||||
Total | 12.6 | % | n.a. | ||||||||||||||||||||
Other information | |||||||||||||||||||||||
Number of full-time equivalent employees | 4,289 | 4,044 | |||||||||||||||||||||
Number of branches | 153 | 158 | |||||||||||||||||||||
Number of automated banking machines | 422 | 426 |
[1] | Refer to the non-GAAP financial measures section. | |
[2] | As defined in OSFI 2013 Capital Adequacy Requirements Guideline. |
Review of Business Highlights
Over the past few months, Laurentian Bank's Retail segment has been forming partnerships that are beneficial to the Bank's growth and development. For instance, the Bank launched a VISA product offering for FADOQ, the largest association of people aged 50 and over in Québec, with members totalling 275,000. It also introduced an offering for the 60,000 members of the Réseau des Ingénieurs du Québec, an association of Québec engineers. While it is still early days, this credit card initiative targeted at these high potential customer groups is off to a promising start.
Activitiy involving commercial clients have been reaping the rewards of their approach to lending which is based on areas of specialization. The focus and expertise that the bankers bring to their clients are resulting in several attractive lending opportunities. This is reflected in the strong growth in commercial loans, increasing by 6% in the third quarter of 2013 compared to the second quarter of 2013 and by 13% compared to a year earlier. Examples of high quality and specialized lending opportunities include participation in two Ontario consortiums; one with the proceeds used to build a wind farm in Kingsville and another to build an environmentally sustainable facility to treat wastewater in Sudbury.
B2B Bank is continuing to make good progress in integrating its two acquisitions. In particular, there has been a pronounced ramp up in the effort to integrate AGF Trust into B2B Bank, in preparation for the legal merger of these two entities on September 1st. When this occurs, all products and services will be branded under B2B Bank. Furthermore, as the integration proceeds, products begin to be offered to B2B Bank's clientele. For example, loans for Registered Educational Savings Plans are now offered to complement investment loans for Registered Retirement Savings Plans.
Laurentian Bank Securities is continuing to selectively build new capabilities. The syndication group, during the quarter, broadened its product offering by adding a team with structured note expertise. In addition to helping its partners bring product to market in a timely manner, this team is working with Investment Advisors to customize products to fit the needs of their high net worth clients. This enhancement to the Wealth Management platform is another effective way of helping clients to build wealth.
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 July 31, 2013, and of how it performed during the three-month and nine-month periods then ended. This MD&A, dated August 30, 2013, should be read in conjunction with the unaudited condensed interim consolidated financial statements for the period ended July 31, 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
As a result of recent Federal Reserve announcements, long-term interest rates in the U.S. and Canada have trended upward, triggering increases in fixed-term mortgage rates. While the Bank does not expect this situation to put significant pressure on housing affordability, activity in the housing market should continue to slow throughout 2013 and 2014 as imbalances between supply and demand persist. As for the broader real economy, some unusual temporary factors (floods and strike) will cause GDP growth to remain wavy in the near term. In the end, the outcome will remain the same: the Canadian economy should grow modestly in 2013 and accelerate somewhat in 2014, fuelled by stronger exports owing to a healthier economy south of the border.
Regarding monetary policy, the Bank of Canada will stay on the sidelines until inflation steadily increases and household sector balance sheets have improved. It will take time for these conditions to come together, consistent with an increase of the overnight target rate, only by the end of 2014 at the earliest.
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 NINE MONTHS ENDED JULY 31, 2013 |
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Revenue growth | > 5% | 11 | % | |
Adjusted efficiency ratio [1] | 72.5% to 69.5% | 72.0 | % | |
Adjusted net income (in millions of dollars) [1] | $145.0 to $165.0 | $120.8 | ||
Adjusted return on common shareholders' equity [1] | 10.5% to 12.5% | 12.1 | % | |
Common Equity Tier I capital ratio — All-in basis | > 7.0% | 7.5 | % |
[1] | Refer to the non-GAAP financial measures section. |
Based on the results for the nine months ended July 31, 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 from the AGF Trust acquisition and the Bank's strategies to diversify its revenue base, combined with a disciplined management of expenses and continued excellent credit quality have contributed to the overall good performance.
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1 | Refer to Adjusting items and Non-GAAP financial measures sections for further details. |
Analysis of Consolidated Results
CONSOLIDATED RESULTS | ||||||||||||||||
FOR THE THREE MONTHS ENDED | FOR THE NINE MONTHS ENDED | |||||||||||||||
In thousands of Canadian dollars, except per share amounts (Unaudited) | JULY 31 2013 |
APRIL 30 2013 |
JULY 31 2012 |
JULY 31 2013 |
JULY 31 2012 |
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Net interest income | $ | 144,549 | $ | 140,430 | $ | 129,664 | $ | 427,323 | $ | 388,617 | ||||||
Other income | 76,493 | 74,420 | 64,169 | 222,483 | 197,630 | |||||||||||
Total revenue | 221,042 | 214,850 | 193,833 | 649,806 | 586,247 | |||||||||||
Gain on acquisition and amortization of net premium on purchased financial instruments | (1,140) | (1,224) | — | (3,420) | — | |||||||||||
Provision for loan losses | 9,000 | 9,000 | 7,500 | 26,000 | 25,000 | |||||||||||
Non-interest expenses | 174,928 | 159,853 | 148,955 | 496,095 | 439,086 | |||||||||||
Income before income taxes | 35,974 | 44,773 | 37,378 | 124,291 | 122,161 | |||||||||||
Income taxes | 7,690 | 9,634 | 7,380 | 26,778 | 27,338 | |||||||||||
Net income | $ | 28,284 | $ | 35,139 | $ | 29,998 | $ | 97,513 | $ | 94,823 | ||||||
Preferred share dividends, including applicable taxes | 2,520 | 4,059 | 3,164 | 9,112 | 9,495 | |||||||||||
Net income available to common shareholders | $ | 25,764 | $ | 31,080 | $ | 26,834 | $ | 88,401 | $ | 85,328 | ||||||
Earnings per share | ||||||||||||||||
Basic | $ | 0.91 | $ | 1.10 | $ | 1.06 | $ | 3.13 | $ | 3.44 | ||||||
Diluted | $ | 0.91 | $ | 1.10 | $ | 1.06 | $ | 3.12 | $ | 3.44 |
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 NINE MONTHS ENDED | ||||||||||||||
In thousands of Canadian dollars, except per share amounts (Unaudited) | JULY 31 2013 |
APRIL 30 2013 |
JULY 31 2012 |
JULY 31 2013 |
JULY 31 2012 |
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Impact on net income | |||||||||||||||
Reported net income | $ | 28,284 | $ | 35,139 | $ | 29,998 | $ | 97,513 | $ | 94,823 | |||||
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 | 840 | 902 | — | 2,520 | — | ||||||||||
Costs related to business combinations and other [2] | |||||||||||||||
MRS Companies transaction and integration related costs | 3,977 | 1,332 | 4,801 | 9,627 | 9,197 | ||||||||||
AGF Trust transaction and integration related costs | 6,746 | 3,174 | 454 | 11,152 | 454 | ||||||||||
11,563 | 5,408 | 5,255 | 23,299 | 9,651 | |||||||||||
Adjusted net income [1] | $ | 39,847 | $ | 40,547 | $ | 35,253 | $ | 120,812 | $ | 104,474 | |||||
Impact on diluted earnings per share | |||||||||||||||
Reported diluted earnings per share | $ | 0.91 | $ | 1.10 | $ | 1.06 | $ | 3.12 | $ | 3.44 | |||||
Adjusting items [1] | 0.41 | 0.19 | 0.21 | 0.82 | 0.39 | ||||||||||
Adjusted diluted earnings per share [1] [3] | $ | 1.31 | $ | 1.29 | $ | 1.27 | $ | 3.95 | $ | 3.83 |
[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 July 31, 2013 and for the nine months ended July 31, 2013. |
Three months ended July 31, 2013 compared to three months ended July 31, 2012
Net income was $28.3 million, or $0.91 diluted per share, for the third quarter of 2013, compared with $30.0 million, or $1.06 diluted per share, for the third quarter of 2012. Adjusted net income was up 13% year-over-year to $39.8 million for the third quarter ended July 31, 2013, compared with $35.3 million in 2012, while adjusted diluted net income per share was $1.31, compared to $1.27 diluted per share, in 2012.
Total revenue
Total revenue increased by $27.2 million or 14% to $221.0 million in the third quarter of 2013, compared with $193.8 million in the third quarter of 2012. The contribution from AGF Trust to total revenue amounted to $19.0 million for the third quarter of 2013, including $18.5 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 11% to $144.5 million for the third quarter of 2013, from $129.7 million in the third quarter of 2012, essentially reflecting loan and deposit growth year-over-year from the purchased portfolios of AGF Trust, and slightly improved margins. When compared to the third quarter of 2012, margins increased by 2 basis points to 1.68% for the third quarter of 2013. The higher-yielding loans in the AGF Trust portfolios and relatively lower liquidity levels compared to a year ago, mainly contributed to the increase. These factors temporarily muted ongoing pressure on loan and deposit margins stemming from the repricing of maturing loans and deposits in the very low interest rate environment.
Other income totalled $76.5 million in the third quarter of 2013, compared to $64.2 million in the third quarter of 2012, a $12.3 million or 19% increase reflecting better performance in most revenue streams. During the quarter, fees and commissions on loans and deposits continued to benefit from increased activity. Income from treasury and financial market operations also increased due to a particularly strong quarter in treasury activities and slightly higher net security gains year-over-year. Higher income from brokerage operations, as well as continued solid income from sales of mutual funds and credit insurance also contributed to the increase year-over-year.
Gain on acquisition and amortization of net premium on purchased financial instruments
For the third 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 $1.1 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 third quarter of 2013 from $7.5 million in the third quarter of 2012, albeit a very low level, reflecting the overall underlying quality of the Bank's loan portfolios. The provision in the third quarter of 2013 includes a $3.5 million favourable settlement on a single commercial loan exposure. During the quarter, the Bank maintained its prudent approach to loan loss provisioning and adjusted collective provisions by $2.5 million for medium-sized residential real estate properties and projects as well as for certain residential mortgage loan portfolios in light of recent events in Alberta. Loan losses related to the AGF Trust loan portfolios amounted to $0.9 million for the quarter.
Non-interest expenses
Non-interest expenses increased by $26.0 million to $174.9 million for the third quarter of 2013, compared to $149.0 million for the third quarter of 2012. This mainly resulted from the addition of current operating expenses of $7.2 million related to AGF Trust, higher T&I Costs and certain one-off charges incurred in the third quarter of 2013, as detailed below.
Salaries and employee benefits increased by $10.5 million or 14% to $87.7 million for the third quarter of 2013, compared to the third quarter of 2012. Regular salary increases, higher performance-based compensation, as well as higher pension costs impacted costs for the quarter and more than offset savings related to group insurance programs. A $4.0 million portion of the increase was also due to the additional headcount resulting from the acquisition of AGF Trust.
Premises and technology costs increased by $5.8 million or 15% to $44.5 million compared to the third quarter of 2012, mostly stemming from higher amortization expense related to completed IT development projects, including a $1.6 million impairment charge related to discontinued IT projects. Higher rental costs related to additional square footage of leased premises for IT development teams and a $0.7 million charge related to the branch network optimization also contributed to the increase. As well, additional rental and IT costs totalling $1.7 million resulted from the acquisition of AGF Trust.
Other non-interest expenses increased by $2.2 million to $28.2 million for the third quarter of 2013, from $26.0 million for the third quarter of 2012. The increase is mainly attributable to a $1.0 million adjustment to provincial sales taxes and to $1.5 million$1.4 million of other non-interest expenses related to AGF Trust in the third quarter of 2013.
T&I Costs for the third quarter of 2013 totalled $14.6 million and mainly related to IT systems conversions costs, employee relocation costs, salaries, professional fees and other expenses for the integration of AGF Trust and the MRS Companies. The integration process is progressing according to plan and should be ongoing over the next few quarters.
The adjusted efficiency ratio was 72.5% in the third quarter of 2013, compared to 73.2% in the third quarter of 2012. On the same adjusted basis, at 1.0% year-over-year, the Bank continued to generate positive operating leverage, mainly due to the addition of AGF Trust, integration synergies, higher other income and the Bank's continued cost control initiatives.
Income taxes
For the quarter ended July 31, 2013, the income tax expense was $7.7 million and the effective tax rate was 21.4%. 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 July 31, 2012, the income tax expense was $7.4 million and the effective tax rate was 19.7%. Year-over-year, the higher income tax rate for the third quarter ended July 31, 2013 results from a lower level of non-taxable dividend income.
Nine months ended July 31, 2013 compared to nine months ended July 31, 2012
Net income was $97.5 million, or $3.12 diluted per share, for the nine months ended July 31, 2013, compared with $94.8 million, or $3.44 diluted per share, in 2012. Adjusted net income was up 16% year-over-year to $120.8 million for the nine months ended July 31, 2013, compared with $104.5 million in 2012, while adjusted diluted net income per share was up 3% to $3.95, compared to $3.83 diluted per share, in 2012.
Total revenue
Total revenue increased $63.6 million or 11% to $649.8 million for the nine months ended July 31, 2013, compared with $586.2 million for the nine months ended July 31, 2012. The contribution from AGF Trust to total revenue amounted to $57.6 million for the nine months ended July 31, 2013, including $55.9 million reported in the B2B Bank business segment results and $1.7 million related to treasury activities included in the Other business segment's results.
Net interest income increased 10% to $427.3 million for the nine months ended July 31, 2013, compared with $388.6 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 essentially offset the effect of continuing pressure in net interest margin of 5 basis points over the same period.
Other income was $222.5 million for the nine months ended July 31, 2013, compared to $197.6 million for the same period in 2012, a 13% year-over-year increase reflecting improvements across all revenue streams, notably in fees and commissions on loans and deposits originating from increased business volume and pricing initiatives as noted above. In addition, income from brokerage operations increased by $5.1 million as the Bank's brokerage subsidiary capitalized on growth opportunities in the fixed income market and benefited from stronger equity markets compared to a year ago. Other income sources also contributed to the overall better performance.
Gain on acquisition and amortization of net premium on purchased financial instruments
For the nine months ended July 31, 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 $3.4 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 $26.0 million for the nine months ended July 31, 2013, an increase of $1.0 million or 4% from $25.0 million for the nine months ended July 31, 2012, despite a 16% increase in the loan portfolio stemming mainly from the AGF Trust acquisition. This reflects the quality of the Bank's loan portfolios and the prolonged favourable credit conditions in the Canadian market. Provisions for the nine months ended July 31, 2013 included a $6.7 million charge related to the AGF Trust loan portfolios. In addition, favourable settlements and overall improvements led to a net credit of $2.6 million in loan loss provisioning in the commercial portfolios for the nine months ended July 31, 2013.
Non-interest expenses
Non-interest expenses totalled $496.1 million for the nine months ended July 31, 2013, compared to $439.1 million for the nine months ended July 31, 2012. Excluding current operating expenses related to AGF Trust of $24.0 million and T&I Costs of $28.3 million, non-interest expenses increased by $17.9 million or 4%.
Salaries and employee benefits increased by $28.8 million or 12% to $262.3 million compared to the nine months ended July 31, 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 synergies from integration of the MRS Companies, lower other employee benefit costs and savings from restructurings in the retail banking operations in 2012.
Premises and technology costs increased by $12.2 million compared to the nine months ended July 31, 2012, mainly stemming from rental and IT costs resulting from the acquisition of AGF Trust, as well as higher rental costs related to additional square footage of leased premises for IT project teams. Higher IT costs related to ongoing business growth and amortization expense related to completed IT development projects, including a $1.6 million impairment charge for discontinued IT projects, also contributed to the increase.
Other non-interest expenses increased marginally by $0.9 million to $79.5 million for the nine months ended July 31, 2013, from $78.6 million for the same period of 2012. The increase is mainly due to other non-interest expenses of AGF Trust for the nine months ended July 31, 2013, partly offset by net favourable adjustments to sales taxes. Expenses for the nine months ended July 31, 2012 also included MRS Companies' outsourcing expenses prior to its integration within B2B Bank in 2012.
T&I Costs for the nine months ended July 31, 2013 totalled $28.3 million and mainly related to IT systems conversions costs, employee relocation costs, salaries, professional fees and other expenses, as noted above.
The adjusted efficiency ratio was 72.0% for the nine months ended July 31, 2013, compared to 72.7% for the nine months ended July 31, 2012. On the same adjusted basis, operating leverage was slightly positive over period, as the addition of AGF Trust and higher other income combined with continued cost control measures aimed at slowing expense growth more than compensated for the impact of compressing margins.
Income taxes
For the nine months ended July 31, 2013, the income tax expense was $26.8 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 nine months ended July 31, 2012, the income tax expense was $27.3 million and the effective tax rate was 22.4%. Year-over-year, the lower income tax rate for the nine months ended July 31, 2013 reflects the higher level of revenues from foreign insurance operations, as well as miscellaneous tax recoveries.
Three months ended July 31, 2013 compared to three months ended April 30, 2013
Net income was $28.3 million or $0.91 diluted per share for the third quarter of 2013 compared with $35.1 million or $1.10 diluted per share for the second quarter of 2013.
Adjusted net income was $39.8 million, or $1.31 diluted per share, compared to $40.5 million or $1.29 diluted per share for the second quarter of 2013. The calculation of diluted net income per share in the second quarter of 2013 included a $1.5 million final dividend on the Series 9 preferred shares redeemed in March.
Total revenue increased to $221.0 million in the third quarter of 2013, compared to $214.9 million in the previous quarter. Net interest income increased by $4.1 million sequentially to $144.5 million in the third quarter, mainly as a result of the three additional days. Net interest margins held stable at 1.68% in the third quarter of 2013, unchanged compared to the second quarter of 2013. Loan prepayment penalties, seasonally higher in the third quarter, and a reduction in lower-yielding liquid assets temporarily compensated for the margin compression related to the ongoing very low interest rate environment and reduced level of higher-margin personal loans.
Other income increased by $2.1 million sequentially despite a $3.7 million gain on sale of a commercial mortgage loan portfolio recorded during the second quarter. The increase is largely due to higher fees and commissions on loan and deposits stemming from increased business activity, as well as the particularly strong performance of treasury activities which contributed to higher income from treasury and financial market operations.
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 $1.1 million in the third quarter of 2013, compared to a $1.2 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 third quarter of 2013, unchanged from the second quarter of 2013, reflecting the continued excellent quality of the portfolio. In the third quarter of 2013, the Bank prudently adjusted by $2.5 million collective provisions for medium-sized residential real estate properties and projects as well as for certain residential mortgage loan portfolios in light of recent events in Alberta. These additional provisions were offset by a $3.5 million favourable settlement on a single commercial loan exposure, while there was no comparable significant settlement during the second quarter.
Non-interest expenses amounted to $174.9 million for the third quarter of 2013, compared to $159.9 million for the second quarter of 2013. Excluding T&I Costs of $14.6 million in the third quarter of 2013 and of $6.1 million in the second quarter of 2013, non-interest expenses increased sequentially by 4%. This increase mainly results from adjustments to performance-based compensation, an impairment charge related to IT projects as well as an unfavourable adjustment to provincial sales taxes recorded in the third quarter, as the Bank continued to apply tight cost control measures in the midst of a more muted growth environment for net interest income.
Financial condition
CONDENSED BALANCE SHEET | |||||||||
In thousands of Canadian dollars (Unaudited) | AS AT JULY 31 2013 |
AS AT OCTOBER 31 2012 |
AS AT JULY 31 2012 |
||||||
ASSETS | |||||||||
Cash and deposits with other banks | $ | 219,480 | $ | 571,043 | $ | 917,923 | |||
Securities | 4,905,084 | 6,142,961 | 5,178,810 | ||||||
Securities purchased under reverse repurchase agreements | 741,561 | 631,202 | 1,173,704 | ||||||
Loans and acceptances, net | 27,074,649 | 26,663,337 | 23,303,028 | ||||||
Other assets | 817,733 | 928,283 | 842,047 | ||||||
$ | 33,758,507 | $ | 34,936,826 | $ | 31,415,512 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
Deposits | $ | 23,866,365 | $ | 24,041,443 | $ | 21,622,059 | |||
Other liabilities | 3,025,682 | 2,873,563 | 3,137,239 | ||||||
Debt related to securitization activities | 4,952,060 | 6,037,097 | 5,109,015 | ||||||
Subordinated debt | 444,962 | 443,594 | 243,869 | ||||||
Shareholders' equity | 1,469,438 | 1,541,129 | 1,303,330 | ||||||
$ | 33,758,507 | $ | 34,936,826 | $ | 31,415,512 |
Balance sheet assets stood at $33.8 billion at July 31, 2013, down $1.2 billion from year-end 2012. Over the last twelve months, balance sheet assets increased by $2.3 billion or 7%, 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 $5.9 billion at July 31, 2013, a $1.5 billion decrease compared to October 31, 2012. This decrease is mainly due to the replacement assets used to reimburse $1.5 billion of matured debt related to securitization activities during the nine months ended July 31, 2013. Liquid assets were relatively lower and decreased to 17%, as a percentage of total assets, from 21% as at October 31, 2012. The Bank continues to prudently manage the level and mix of liquid assets and maintains sufficient cash resources in order to meet its current and future financial obligations, under both normal and stressed conditions.
Loans
Loans and bankers' acceptances, net of loan loss allowances stood at $27.1 billion as at July 31, 2013, up $0.4 billion or 2% from October 31, 2012 and 16% year-over-year, mainly due to the purchased loans of AGF Trust. During the nine months ended July 31, 2013, the growth in the Bank's loan portfolios was fuelled by the strong organic growth in the higher-margin commercial loan portfolios, partly tempered by slowing loan demand in the retail portfolios. Commercial loans, including bankers' acceptances, increased by $273.6 million or 12% since October 31, 2012, as the Bank capitalized on increased demand from its business clients, while commercial mortgage loans were relatively unchanged, as growth of $96.1 million or 4% was offset by a loan sale of $94.7 million during the second quarter. Personal loans decreased by $394.4 million since October 31, 2012, mainly reflecting attrition in the acquired AGF Trust portfolios and lower demand for other personal loans as consumers begin to deleverage. Residential mortgage loans increased by $527.3 million or 4% from October 31, 2012.
Deposits
Personal deposits stood at $19.2 billion as at July 31, 2013, down $0.1 billion or 1% from October 31, 2012, in-line with more modest growth in the loan portfolios. Business and other deposits, which include institutional deposits, were down $0.1 billion since October 31, 2012 to $4.6 billion as at July 31, 2013, as the Bank reduced the level of high-priced wholesale deposits as part of its funding management. Nevertheless, the Bank continues to maintain diversified funding sources and to actively manage its liquidity levels. It focuses its efforts on retail deposit gathering through its Retail & SME-Québec and B2B Bank business segments, a solid funding base and a valuable asset in light of future regulatory liquidity adequacy requirements. These deposits represented 81% of total deposits as at July 31, 2013.
Other Liabilities
Debt related to securitization activities decreased by a net $1.1 billion since the beginning of the year considering the maturity of four issuances and stood at $5.0 billion as at July 31, 2013. Since October 31, 2012, the Bank also funded itself through the securitization of $816.5 million new residential mortgage loans. The Bank sold $512.6 million as part of new Canada Mortgage Bond issuances and $303.9 million as replacement assets in existing securitization structures. Subordinated debt stood at $445.0 million as at July 31, 2013, relatively unchanged from October 31, 2012.
Shareholders' equity
Shareholders' equity stood at $1,469.4 million as at July 31, 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 296,195 new common shares under the Shareholder Dividend Reinvestment and Share Purchase Plan and 30 000 new common shares under the Share purchase option plan. The Bank's book value per common share, excluding accumulated other comprehensive income, appreciated to $44.36 as at July 31, 2013 from $42.81 as at October 31, 2012. There were 28,443,795 common shares and 20,000 share purchase options outstanding as at August 23, 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 expected 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 7.5%, 9.0% and 12.6%, respectively, as at July 31, 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 JULY 31 2013 |
AS AT APRIL 30 2013 |
AS AT OCTOBER 31 2012 |
AS AT JULY 31 2012 |
||||||||||||
Regulatory capital | ||||||||||||||||
Common Equity Tier 1 capital (A) | $ | 1,013,588 | $ | 1,018,515 | n.a. | n.a. | ||||||||||
Tier 1 capital (B) | $ | 1,218,734 | $ | 1,223,661 | $ | 1,460,253 | $ | 1,233,467 | ||||||||
Total capital (C) | $ | 1,701,438 | $ | 1,698,448 | $ | 1,974,060 | $ | 1,535,081 | ||||||||
Total risk-weighted assets (D) | $ | 13,471,849 | $ | 13,428,594 | $ | 13,436,433 | $ | 12,187,979 | ||||||||
Regulatory capital ratios | ||||||||||||||||
Common Equity Tier 1 capital ratio (A/D) | 7.5 | % | 7.6 | % | n.a. | n.a. | ||||||||||
Tier 1 capital ratio (B/D) | 9.0 | % | 9.1 | % | 10.9 | % | 10.1 | % | ||||||||
Total capital ratio (C/D) | 12.6 | % | 12.6 | % | 14.7 | % | 12.6 | % |
[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 decreased by 0.1%, from 7.6% as at April 30, 2013 to 7.5% as at July 31, 2013. The decrease in unrealized gains on available-for-sale fixed income securities, reflecting the negative impact on fixed income security valuation due to the recent rise in long term bond yields, higher integration costs in the third quarter as well as higher deductions related to software resulted in a net decrease in regulatory capital, which combined with the slight increase in total risk-weighted assets hampered the ratio during the third quarter.
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 eventual 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 August 21, 2013, the Board of Directors declared regular dividends on the various series of preferred shares to shareholders of record on September 9, 2013. At its meeting on August 30, 2013, the Board of Directors declared a dividend of $0.50 per common share, payable on November 1, 2013, to shareholders of record on October 1, 2013.
COMMON SHARE DIVIDENDS AND PAYOUT RATIO | |||||||||||||||||||||||||||
FOR THE THREE MONTHS ENDED | FOR THE NINE MONTHS ENDED |
FOR THE YEARS ENDED | |||||||||||||||||||||||||
In Canadian dollars, except payout ratios (Unaudited) | JULY 31 2013 |
APRIL 30 2013 |
JULY 31 2012 |
JULY 31 2013 |
OCTOBER 31 2012 |
OCTOBER 31 2011 |
OCTOBER 31 2010 |
||||||||||||||||||||
Dividends declared per common share | $ | 0.50 | $ | 0.49 | $ | 0.47 | $ | 1.48 | $ | 1.84 | $ | 1.62 | $ | 1.44 | |||||||||||||
Dividend payout ratio [1][2] | 55.0 | % | 44.5 | % | 44.2 | % | 47.3 | % | 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 NINE MONTHS ENDED | |||||||||||||||||||
In thousands of Canadian dollars, except percentage amounts (Unaudited) | JULY 31 2013 |
APRIL 30 2013 |
JULY 31 2012 |
JULY 31 2013 |
JULY 31 2012 |
|||||||||||||||
Provision for loan losses | ||||||||||||||||||||
Personal loans | $ | 6,135 | $ | 7,455 | $ | 5,715 | $ | 21,648 | $ | 17,760 | ||||||||||
Residential mortgage loans | 4,645 | 872 | 1,256 | 6,924 | 2,038 | |||||||||||||||
Commercial mortgage loans | (3,141) | 48 | 13 | (1,992) | 3,456 | |||||||||||||||
Commercial and other loans (including acceptances) | 1,361 | 625 | 516 | (580) | 1,746 | |||||||||||||||
$ | 9,000 | $ | 9,000 | $ | 7,500 | $ | 26,000 | $ | 25,000 | |||||||||||
As a % of average loans and acceptances | 0.13 | % | 0.14 | % | 0.13 | % | 0.13 | % | 0.15 | % |
The provision for loan losses amounted to $9.0 million in the third quarter of 2013, unchanged from the second quarter of 2013 and up $1.5 million compared to a year ago. This very low level of loan losses reflects the strong overall credit quality of the Bank's loan portfolios and prolonged favourable credit conditions in the Canadian market.
The year-over-year increase of $0.4 million in loan losses on personal loans is mainly due to losses on the AGF Trust loan portfolios. The provision on residential mortgage loans also increased by $3.4 million compared to the third quarter of 2012, driven by additional collective provisions on medium-sized residential real estate properties and projects to better reflect the risk profile of these loans and on certain residential mortgage loan portfolios in light of recent events in Alberta.
Loan losses on commercial mortgages and commercial loans remained at a very low level during the third quarter of 2013 and further decreased by a combined $2.3 million year-over-year and $2.5 million sequentially, benefitting from a $3.5 million favourable settlement on a single commercial mortgage loan exposure in the third quarter of 2013. The prolonged low level of loan losses continues to reflect the excellent credit quality of these portfolios.
IMPAIRED LOANS | ||||||||||||
In thousands of Canadian dollars, except percentage amounts (Unaudited) | AS AT JULY 31 2013 |
AS AT OCTOBER 31 2012 |
AS AT JULY 31 2012 |
|||||||||
Gross impaired loans | ||||||||||||
Personal | $ | 15,008 | $ | 16,863 | $ | 17,774 | ||||||
Residential mortgages | 25,784 | 21,971 | 18,853 | |||||||||
Commercial mortgages | 20,774 | 36,672 | 61,418 | |||||||||
Commercial and other (including acceptances) | 36,631 | 52,517 | 58,348 | |||||||||
$ | 98,197 | $ | 128,023 | $ | 156,393 | |||||||
Allowances for loan losses against impaired loans | ||||||||||||
Individual allowances | $ | (35,941) | $ | (47,849) | $ | (62,052) | ||||||
Collective allowances | (11,541) | (12,492) | (17,643) | |||||||||
$ | (47,482) | $ | (60,341) | $ | (79,695) | |||||||
Net impaired loans [1] | $ | 50,715 | $ | 67,682 | $ | 76,698 | ||||||
Collective allowances against other loans | $ | (66,608) | $ | (57,201) | $ | (52,944) | ||||||
Impaired loans as a % of loans and acceptances | ||||||||||||
Gross | 0.36 | % | 0.48 | % | 0.67 | % | ||||||
Net | 0.19 | % | 0.25 | % | 0.33 | % |
[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 $98.2 million as at July 31, 2013, down 23% from $128.0 million as at October 31, 2012 as credit quality remained very good during the quarter. The decrease since October 31, 2012 resulted from improvement in the commercial mortgage loan 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 accounting impact of the purchased AGF Trust personal and residential mortgage loan portfolios.
Since the beginning of the year, individual allowances decreased by $11.9 million to $35.9 million, as a result of favourable settlements and overall improvement in the commercial mortgage loan and commercial loan portfolios. Net impaired loans, now calculated as gross impaired loans less individual allowances and collective allowances against impaired loans, amounted to $50.7 million as at July 31, 2013, compared to $67.7 million as at October 31, 2012, and totalled 0.19% of loans and acceptances,a decrease from October 31, 2012, reflecting the excellent credit quality of the loan portfolio. Despite this decrease, management continues to prudently manage the 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 July 31, 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 JULY 31 2013 |
AS AT OCTOBER 31 2012 |
||||
Effect of a 1% increase in interest rates | ||||||
Increase in net interest income before taxes over the next 12 months | $ | 6,553 | $ | 16,701 | ||
Decrease in the economic value of common shareholders' equity (Net of income taxes) | $ | (28,147) | $ | (19,710) |
As shown in the table above, the Bank reduced its short-term ALM sensitivity compared to October 31, 2012 while increasing its long term sensitivity in the context of a steepening of the longer end of the yield curve. 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
FOR THE THREE MONTHS ENDED | FOR THE NINE MONTHS ENDED | ||||||||||||||||||
In thousands of Canadian dollars, except percentage amounts (Unaudited) | JULY 31 2013 |
APRIL 30 2013 |
JULY 31 2012 |
JULY 31 2013 |
JULY 31 2012 |
||||||||||||||
Net interest income | $ | 77,799 | $ | 72,690 | $ | 80,163 | $ | 227,344 | $ | 234,984 | |||||||||
Other income | 40,897 | 38,260 | 34,662 | 114,593 | 99,887 | ||||||||||||||
Total revenue | 118,696 | 110,950 | 114,825 | 341,937 | 334,871 | ||||||||||||||
Provision for loan losses | 8,349 | 5,924 | 6,474 | 20,339 | 17,545 | ||||||||||||||
Non-interest expenses | 96,984 | 93,386 | 91,107 | 283,351 | 273,635 | ||||||||||||||
Income before income taxes | 13,363 | 11,640 | 17,244 | 38,247 | 43,691 | ||||||||||||||
Income taxes | 2,339 | 1,978 | 3,709 | 6,351 | 9,077 | ||||||||||||||
Net income | $ | 11,024 | $ | 9,662 | $ | 13,535 | $ | 31,896 | $ | 34,614 | |||||||||
Efficiency ratio [1] | 81.7 | % | 84.2 | % | 79.3 | % | 82.9 | % | 81.7 | % |
[1] | Refer to the non-GAAP financial measures section. |
The Retail & SME-Québec business segment's contribution to net income was $11.0 million in the third quarter of 2013 compared with $13.5 million in the third quarter of 2012.
Total revenue increased by $3.9 million from $114.8 million in the third quarter of 2012 to $118.7 million in the third quarter of 2013, as growth in other income compensated for lower net interest income. Net interest income decreased by $2.4 million, as growth in loan and deposit volumes year-over-year did not fully compensate for the ongoing decline in margins stemming from the repricing of loans and deposits in the very low interest rate environment. Other income increased by 18% from $34.7 million in the third quarter of 2012 to $40.9 million for the same period in 2013 reflecting improved performance across all revenue streams. Higher fees on deposits, higher income from sales of mutual funds reflecting new sales and better market performance compared to a year ago and higher credit insurance income mainly contributed to the increase year-over-year.
Loan losses increased from $6.5 million in the third quarter of 2012 to $8.3 million in the third quarter of 2013. This increase mainly results from adjustments to collective provisions on medium-sized residential real estate properties and projects to better reflect the risk profile of these loans. Non-interest expenses increased by $5.9 million or 6%, from $91.1 million in the third quarter of 2012 to $97.0 million in the third quarter of 2013. Regular salary increases and higher pension costs as well as higher premises and technology costs due to the recently harmonized Québec sales taxes and a $0.7 million charge related to the branch network optimization, mainly accounted for the increase.
The efficiency ratio was 81.7% in the third quarter of 2013, compared with 79.3% in the third quarter of 2012. Despite strong growth in other income and an increased focus on controlling costs, the impact of the prolonged very low interest rate environment continues to weigh on the segment's efficiency ratio.
Compared to the second quarter of 2013, net income increased by $1.4 million from $9.7 million to $11.0 million in the third quarter of 2013, mainly due to the increase in total revenue due to the three additional days, growth in loan and deposit volumes in the third quarter, seasonally higher loan prepayment penalties and better other income. This increase was partly offset by the additional provision for loan losses and higher non-interest expenses in part due to the three additional days in the third quarter and the charge related to the branch network optimization explained above.
For the nine months ended July 31, 2013, net income decreased by 8%, from $34.6 million to $31.9 million. Growth in loan and deposit volumes and increased other income, as explained above was more than offset by the effect of lower interest margins and increase in non-interest expenses partly attributable to higher salaries and sales taxes costs incurred since January 2013.
Real Estate & Commercial
FOR THE THREE MONTHS ENDED | FOR THE NINE MONTHS ENDED | ||||||||||||||||||
In thousands of Canadian dollars, except percentage amounts (Unaudited) | JULY 31 2013 |
APRIL 30 2013 |
JULY 31 2012 |
JULY 31 2013 |
JULY 31 2012 |
||||||||||||||
Net interest income | $ | 21,310 | $ | 20,179 | $ | 21,731 | $ | 63,044 | $ | 65,992 | |||||||||
Other income | 8,931 | 10,503 | 8,327 | 27,520 | 26,784 | ||||||||||||||
Total revenue | 30,241 | 30,682 | 30,058 | 90,564 | 92,776 | ||||||||||||||
Provision for loan losses | (1,880) | (74) | 436 | (3,418) | 5,042 | ||||||||||||||
Non-interest expenses | 8,946 | 8,383 | 7,756 | 25,743 | 22,996 | ||||||||||||||
Income before income taxes | 23,175 | 22,373 | 21,866 | 68,239 | 64,738 | ||||||||||||||
Income taxes | 6,188 | 5,974 | 5,915 | 18,221 | 17,512 | ||||||||||||||
Net income | $ | 16,987 | $ | 16,399 | $ | 15,951 | $ | 50,018 | $ | 47,226 | |||||||||
Efficiency ratio [1] | 29.6 | % | 27.3 | % | 25.8 | % | 28.4 | % | 24.8 | % |
[1] | Refer to the non-GAAP financial measures section. |
The Real Estate & Commercial business segment's contribution to net income increased by $1.0 million or 6% to $17.0 million in the third quarter of 2013, compared with $16.0 million in the third quarter of 2012.
Total revenue slightly increased by $0.2 million to $30.2 million in the third quarter of 2013, as growth in other income compensated for lower net interest income. Net interest income decreased by 2% compared to the third quarter of 2012 as the strong volume growth in the commercial loan portfolios was more than offset by compressed margins in the third quarter of 2013. Other income increased by 7% compared to the third quarter of 2012, mainly due to increased underwriting activity compared to a year ago. Loan losses decreased by $2.3 million compared to a year ago and generated a net credit of $1.9 million in the third quarter of 2013, as a result of a $3.5 million favourable settlement on a single commercial mortgage loan exposure, reflecting the excellent quality of the commercial loan portfolio. Non-interest expenses increased by $1.2 million to $8.9 million in the third quarter of 2013 compared with $7.8 million in the third quarter of 2012 essentially due to regular salary increases, higher performance-based compensation and higher allocated costs year-over-year.
Compared to the second quarter of 2013, net income increased sequentially. This increase mainly results from the three additional days in the third quarter which impacted net interest income and the $3.5 million favourable settlement on a single exposure, partly offset by a $3.1 million gain on the sale of a commercial mortgage loan portfolio recorded during the second quarter.
For the nine months ended July 31, 2013, net income increased by $2.8 million or 6% to $50.0 million, mostly driven by improvements in loan losses, partly offset by lower net interest income due to lower margins. Non-interest expenses increased by $2.7 million compared to the nine months ended July 31, 2012, mainly due to increased salaries and benefits, performance-based compensation and allocated costs as explained above.
B2B Bank
FOR THE THREE MONTHS ENDED | FOR THE NINE MONTHS ENDED | ||||||||||||||||||
In thousands of Canadian dollars, except percentage amounts (Unaudited) | JULY 31 2013 |
APRIL 30 2013 |
JULY 31 2012 |
JULY 31 2013 |
JULY 31 2012 |
||||||||||||||
Net interest income | $ | 48,249 | $ | 47,195 | $ | 32,119 | $ | 144,856 | $ | 93,772 | |||||||||
Other income | 9,359 | 8,884 | 8,408 | 27,299 | 25,667 | ||||||||||||||
Total revenue | 57,608 | 56,079 | 40,527 | 172,155 | 119,439 | ||||||||||||||
Gain on acquisition and amortization of net premium on purchased financial instruments | (1,140) | (1,224) | — | (3,420) | — | ||||||||||||||
Provision for loan losses | 2,531 | 3,150 | 590 | 9,079 | 2,413 | ||||||||||||||
Non-interest expenses | 31,114 | 32,175 | 22,913 | 96,249 | 70,818 | ||||||||||||||
Costs related to business combinations and other [1] | 14,600 | 6,136 | 7,157 | 28,293 | 13,167 | ||||||||||||||
Income before income taxes | 8,223 | 13,394 | 9,867 | 35,114 | 33,041 | ||||||||||||||
Income taxes | 2,240 | 3,557 | 2,612 | 9,380 | 8,786 | ||||||||||||||
Net income | $ | 5,983 | $ | 9,837 | $ | 7,255 | $ | 25,734 | $ | 24,255 | |||||||||
Adjusted net income [2] | $ | 17,546 | $ | 15,245 | $ | 12,510 | $ | 49,033 | $ | 33,906 | |||||||||
Efficiency ratio [2] | 79.4 | % | 68.3 | % | 74.2 | % | 72.3 | % | 70.3 | % | |||||||||
Adjusted efficiency ratio [2] | 54.0 | % | 57.4 | % | 56.5 | % | 55.9 | % | 59.3 | % |
[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 $17.5 million in the third quarter of 2013, up $5.0 million or 40% from $12.5 million in the third quarter of 2012. 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 $7.6 million in the third quarter of 2013, which more than offset the effect of overall tighter net interest margins. Reported net income for the third quarter of 2013 was $6.0 million compared to $7.3 million a year ago.
Total revenue increased to $57.6 million in the third quarter of 2013 compared with $40.5 million in the third quarter of 2012. Net interest income increased by $16.1 million compared to last year, to $48.2 million in the third quarter of 2013, as higher loan and deposit volumes related to the acquisition of AGF Trust added $18.1 million to net interest income in the quarter and compensated for the margin compression mainly stemming from the reduced level of higher-margin investment loans. Other income increased by $1.0 million to $9.4 million in the third quarter of 2013, mostly as a result of higher B2B Bank Dealer Services-sourced income from investment accounts, combined with the addition of a $0.3 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 $1.1 million in the third quarter of 2013, compared to a $1.2 million charge for the second quarter of 2013. Refer to Note 12 to the unaudited condensed interim financial statements for additional information on this item.
Loan losses increased from $0.6 million in the third quarter of 2012 to $2.5 million in the third quarter of 2013, mainly as a result of loan losses related to the AGF Trust loan portfolios which amounted to $0.9 million for the quarter. In addition, during the third quarter of 2013, the collective provisions on certain residential mortgage loan portfolios were adjusted in light of recent events in Alberta.
Non-interest expenses, as shown in the table above, increased by $8.2 million to $31.1 million in the third quarter of 2013, compared with $22.9 million in the third quarter of 2012. This increase includes current operating costs of $7.1 million related to AGF Trust. Otherwise, expenses increased by $1.1 million year-over-year, as increased salaries and performance-based compensation, as well as higher allocated costs, were partly offset by integration synergies. T&I Costs for the third quarter of 2013 totalled $14.6 million and related to IT systems conversions costs, employee relocation costs, salaries, professional fees and other expenses for the integration of AGF Trust and the MRS Companies.
Compared to the second quarter of 2013, adjusted net income increased by $2.3 million, mainly as a result of the three additional days in the quarter that impacted net interest income and more favourable loan losses.
For the nine months ended July 31, 2013, adjusted net income was $49.0 million, $15.1 million higher than the same period of 2012, essentially as a result of the $18.6 million operating contribution of AGF Trust which compensated for tighter margins and higher loan losses compared to last year. Reported net income for the nine months ended July 31, 2013 was $25.7 million, a 6% increase.
Laurentian Bank Securities & Capital Markets
FOR THE THREE MONTHS ENDED | FOR THE NINE MONTHS ENDED | ||||||||||||||||||
In thousands of Canadian dollars, except percentage amounts (Unaudited) | JULY 31 2013 |
APRIL 30 2013 |
JULY 31 2012 |
JULY 31 2013 |
JULY 31 2012 |
||||||||||||||
Total revenue | $ | 16,040 | $ | 16,967 | $ | 13,256 | $ | 50,090 | $ | 44,176 | |||||||||
Non-interest expenses | 13,055 | 12,959 | 11,668 | 39,488 | 36,358 | ||||||||||||||
Income before income taxes | 2,985 | 4,008 | 1,588 | 10,602 | 7,818 | ||||||||||||||
Income taxes | 698 | 1,033 | 412 | 2,659 | 1,988 | ||||||||||||||
Net income | $ | 2,287 | $ | 2,975 | $ | 1,176 | $ | 7,943 | $ | 5,830 | |||||||||
Efficiency ratio [1] | 81.4 | % | 76.4 | % | 88.0 | % | 78.8 | % | 82.3 | % |
[1] | Refer to the non-GAAP financial measures section. |
Laurentian Bank Securities & Capital Markets business segment's contribution to net income increased to $2.3 million in the third quarter of 2013, compared to $1.2 million in the third quarter of 2012.
Total revenue was up 21% to $16.0 million in the third quarter of 2013 compared with $13.3 million for the same quarter of 2012. During the third quarter of 2013, the business segment benefited from improved market conditions for trading and retail brokerage activities compared to a year ago and capitalized on growth opportunities in the fixed income market. Non-interest expenses increased by $1.4 million to $13.1 million in the third quarter of 2013, mainly due to higher performance-based compensation, commissions and transaction fees, in-line with increased market-driven income.
For the nine months ended July 31, 2013, net income increased by $2.1 million or 36% compared to the same period last year. The business segment generated positive operating leverage during the period, mainly as a result of higher revenues from business initiatives and better financial markets compared to a year ago.
Other Sector
FOR THE THREE MONTHS ENDED | FOR THE NINE MONTHS ENDED | |||||||||||||
In thousands of Canadian dollars (Unaudited) | JULY 31 2013 |
APRIL 30 2013 |
JULY 31 2012 |
JULY 31 2013 |
JULY 31 2012 |
|||||||||
Net interest income | $ | (3,523) | $ | (704) | $ | (5,134) | $ | (10,386) | $ | (8,121) | ||||
Other income | 1,980 | 876 | 301 | 5,446 | 3,106 | |||||||||
Total revenue | (1,543) | 172 | (4,833) | (4,940) | (5,015) | |||||||||
Non-interest expenses | 10,229 | 6,814 | 8,354 | 22,971 | 22,112 | |||||||||
Loss before income taxes | (11,772) | (6,642) | (13,187) | (27,911) | (27,127) | |||||||||
Income taxes recovery | (3,775) | (2,908) | (5,268) | (9,833) | (10,025) | |||||||||
Net loss | $ | (7,997) | $ | (3,734) | $ | (7,919) | $ | (18,078) | $ | (17,102) |
The Other sector posted a negative contribution to net income of $8.0 million in the third quarter of 2013 compared to a negative contribution of $7.9 million in the third quarter of 2012.
Net interest income improved to negative $3.5 million in the third quarter of 2013, compared to negative $5.1 million in the third quarter of 2012, mainly as a result of a lower level of liquid assets compared to a year ago. Other income for the third quarter of 2013 increased to $2.0 million, compared to $0.3 million for the third quarter of 2012, resulting from a particularly strong quarter in treasury activities and higher net security gains year-over-year.
Non-interest expenses were up to $10.2 million in the third quarter of 2013 compared to $8.4 million in 2012. The increase was largely due to higher amortization expense related to completed IT development projects, including a $1.6 million impairment charge related to discontinued IT projects, as well as higher rental costs stemming from additional square footage of leased premises for IT project teams. Regular salary increases as well as higher performance-based compensation also contributed to the increase.
On a sequential basis, net interest income declined by $2.8 million to negative $3.5 million from negative $0.7 million for the second quarter ended April 30, 2013, partly due to maturing higher yielding securities.
For the nine months ended July 31, 2013, the negative contribution to net income was $18.1 million, compared to negative $17.1 million for the nine months ended July 31, 2012, due to the decrease in net interest income mainly resulting from a high level of lower-yielding liquid assets early in the period, as well as a slight increase in non-interest expenses as explained above, partly offset by net favourable adjustments to sales taxes.
Additional Financial Information - Quarterly Results
In thousands of Canadian dollars, except per share and percentage amounts (Unaudited) | JULY 31 2013 |
APRIL 30 2013 |
JANUARY 31 2013 |
OCTOBER 31 2012 |
JULY 31 2012 |
APRIL 30 2012 |
JANUARY 31 2012 |
OCTOBER 31 2011 |
||||||||||||||||||||||||
Net interest income | $ | 144,549 | $ | 140,430 | $ | 142,344 | $ | 142,411 | $ | 129,664 | $ | 128,324 | $ | 130,629 | $ | 126,391 | ||||||||||||||||
Other income | 76,493 | 74,420 | 71,570 | 67,985 | 64,169 | 70,346 | 63,115 | 56,031 | ||||||||||||||||||||||||
Total revenue | 221,042 | 214,850 | 213,914 | 210,396 | 193,833 | 198,670 | 193,744 | 182,422 | ||||||||||||||||||||||||
Gain on acquisition and amortization of net premium on purchased financial instruments | (1,140) | (1,224) | (1,056) | 23,795 | — | — | — | — | ||||||||||||||||||||||||
Provision for loan losses | 9,000 | 9,000 | 8,000 | 8,000 | 7,500 | 7,500 | 10,000 | 12,999 | ||||||||||||||||||||||||
Non-interest expenses | 174,928 | 159,853 | 161,314 | 165,377 | 148,955 | 147,111 | 143,020 | 137,152 | ||||||||||||||||||||||||
Income before income taxes | 35,974 | 44,773 | 43,544 | 60,814 | 37,378 | 44,059 | 40,724 | 32,271 | ||||||||||||||||||||||||
Income taxes | 7,690 | 9,634 | 9,454 | 15,129 | 7,380 | 10,196 | 9,762 | 5,562 | ||||||||||||||||||||||||
Net income | $ | 28,284 | $ | 35,139 | $ | 34,090 | $ | 45,685 | $ | 29,998 | $ | 33,863 | $ | 30,962 | $ | 26,709 | ||||||||||||||||
Earnings per share | ||||||||||||||||||||||||||||||||
Basic | $ | 0.91 | $ | 1.10 | $ | 1.12 | $ | 1.51 | $ | 1.06 | $ | 1.22 | $ | 1.16 | $ | 0.99 | ||||||||||||||||
Diluted | $ | 0.91 | $ | 1.10 | $ | 1.12 | $ | 1.51 | $ | 1.06 | $ | 1.22 | $ | 1.16 | $ | 0.99 | ||||||||||||||||
Return on common shareholders' equity [1] | 8.1 | % | 10.3 | % | 10.3 | % | 14.2 | % | 10.1 | % | 12.0 | % | 11.5 | % | 9.9 | % | ||||||||||||||||
Balance sheet assets(in millions of Canadian dollars) | $ | 33,759 | $ | 34,474 | $ | 34,249 | $ | 34,937 | $ | 31,416 | $ | 30,708 | $ | 29,921 | $ | 28,963 | ||||||||||||||||
Adjusted measures | ||||||||||||||||||||||||||||||||
Adjusted net income [1] | $ | 39,847 | $ | 40,547 | $ | 40,418 | $ | 36,186 | $ | 35,253 | $ | 36,302 | $ | 32,919 | $ | 33,375 | ||||||||||||||||
Adjusted diluted earnings per share [1] | $ | 1.31 | $ | 1.29 | $ | 1.34 | $ | 1.17 | $ | 1.27 | $ | 1.31 | $ | 1.24 | $ | 1.26 | ||||||||||||||||
Adjusted return on common shareholders' equity [1] | 11.8 | % | 12.1 | % | 12.2 | % | 10.9 | % | 12.1 | % | 13.0 | % | 12.4 | % | 12.7 | % |
[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 third 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 July 31, 2013. AGF Trust constituted approximately 10% of total assets, 9% of total liabilities, 9% of total revenue and 20% of total net income as at and for the nine months ended July 31, 2013.
During the last quarter ended July 31, 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 in creating "Passion Capital" among its people. 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 Friday, August 30, 2013. The live, listen-only, toll-free, call-in number is 416 340-2217 or 1 866 689-5910 Code 3739731#.
You can listen to the call on a delayed basis at any time from 6:00 p.m. on Friday, August 30, 2013 until 11:59 p.m. on September 30, 2013, by dialing the following playback number: 905 694-9451 or 1 800 408-3053 Code 9518824#. 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 July 31, 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 JULY 31 2013 |
AS AT OCTOBER 31 2012 |
AS AT JULY 31 2012 |
||||||
ASSETS | |||||||||
Cash and non-interest-bearing deposits with other banks | $ | 91,090 | $ | 90,860 | $ | 89,287 | |||
Interest-bearing deposits with other banks | 128,390 | 480,183 | 828,636 | ||||||
Securities | |||||||||
Available-for-sale | 2,077,626 | 2,822,588 | 1,956,279 | ||||||
Held-to-maturity | 609,236 | 1,446,751 | 979,170 | ||||||
Held-for-trading | 2,218,222 | 1,873,622 | 2,243,361 | ||||||
4,905,084 | 6,142,961 | 5,178,810 | |||||||
Securities purchased under reverse repurchase agreements | 741,561 | 631,202 | 1,173,704 | ||||||
Loans | |||||||||
Personal | 7,411,683 | 7,806,067 | 6,081,592 | ||||||
Residential mortgage | 14,696,426 | 14,169,095 | 12,554,098 | ||||||
Commercial mortgage | 2,444,977 | 2,443,634 | 2,473,833 | ||||||
Commercial and other | 2,371,945 | 2,150,953 | 2,094,100 | ||||||
Customers' liabilities under acceptances | 263,708 | 211,130 | 232,044 | ||||||
27,188,739 | 26,780,879 | 23,435,667 | |||||||
Allowances for loan losses | (114,090) | (117,542) | (132,639) | ||||||
27,074,649 | 26,663,337 | 23,303,028 | |||||||
Other | |||||||||
Derivatives | 102,556 | 167,643 | 179,275 | ||||||
Premises and equipment | 71,054 | 71,871 | 68,890 | ||||||
Software and other intangible assets | 178,585 | 159,973 | 147,886 | ||||||
Goodwill | 64,077 | 64,077 | 64,077 | ||||||
Deferred tax assets | 7,238 | 4,751 | 12,938 | ||||||
Other assets | 394,223 | 459,968 | 368,981 | ||||||
817,733 | 928,283 | 842,047 | |||||||
$ | 33,758,507 | $ | 34,936,826 | $ | 31,415,512 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||
Deposits | |||||||||
Personal | $ | 19,249,777 | $ | 19,369,310 | $ | 16,837,043 | |||
Business, banks and other | 4,616,588 | 4,672,133 | 4,785,016 | ||||||
23,866,365 | 24,041,443 | 21,622,059 | |||||||
Other | |||||||||
Obligations related to securities sold short | 1,433,525 | 1,349,932 | 1,519,105 | ||||||
Obligations related to securities sold under repurchase agreements | 383,886 | 244,039 | 417,962 | ||||||
Acceptances | 263,708 | 211,130 | 232,044 | ||||||
Derivatives | 87,040 | 100,867 | 114,924 | ||||||
Deferred tax liabilities | 7,770 | 16,128 | 1,411 | ||||||
Other liabilities | 849,753 | 951,467 | 851,793 | ||||||
3,025,682 | 2,873,563 | 3,137,239 | |||||||
Debt related to securitization activities | 4,952,060 | 6,037,097 | 5,109,015 | ||||||
Subordinated debt | 444,962 | 443,594 | 243,869 | ||||||
Shareholders' equity | |||||||||
Preferred shares | 205,146 | 303,249 | 205,527 | ||||||
Common shares | 442,447 | 428,526 | 313,544 | ||||||
Share-based payment reserve | 91 | 227 | 227 | ||||||
Retained earnings | 819,371 | 774,899 | 745,703 | ||||||
Accumulated other comprehensive income | 2,383 | 34,228 | 38,329 | ||||||
1,469,438 | 1,541,129 | 1,303,330 | |||||||
$ | 33,758,507 | $ | 34,936,826 | $ | 31,415,512 |
Consolidated Statement of Income
FOR THE THREE MONTHS ENDED | FOR THE NINE MONTHS ENDED | ||||||||||||||
In thousands of Canadian dollars, except per share amounts (Unaudited) | JULY 31 2013 |
APRIL 30 2013 |
JULY 31 2012 |
JULY 31 2013 |
JULY 31 2012 |
||||||||||
Interest income | |||||||||||||||
Loans | $ | 274,778 | $ | 264,704 | $ | 248,073 | $ | 816,352 | $ | 734,099 | |||||
Securities | 13,053 | 16,178 | 16,802 | 46,359 | 54,070 | ||||||||||
Deposits with other banks | 314 | 499 | 2,304 | 1,727 | 4,604 | ||||||||||
Other, including derivatives | 10,217 | 11,193 | 14,457 | 34,863 | 44,711 | ||||||||||
298,362 | 292,574 | 281,636 | 899,301 | 837,484 | |||||||||||
Interest expense | |||||||||||||||
Deposits | 115,561 | 112,525 | 108,394 | 349,509 | 320,720 | ||||||||||
Debt related to securitization activities | 33,950 | 35,163 | 40,891 | 109,338 | 120,071 | ||||||||||
Subordinated debt | 4,033 | 3,927 | 2,408 | 11,984 | 7,185 | ||||||||||
Other, including derivatives | 269 | 529 | 279 | 1,147 | 891 | ||||||||||
153,813 | 152,144 | 151,972 | 471,978 | 448,867 | |||||||||||
Net interest income | 144,549 | 140,430 | 129,664 | 427,323 | 388,617 | ||||||||||
Other income | |||||||||||||||
Fees and commissions on loans and deposits | 35,033 | 31,724 | 31,522 | 98,087 | 89,690 | ||||||||||
Income from brokerage operations | 14,449 | 14,523 | 12,517 | 45,494 | 40,420 | ||||||||||
Income from investment accounts | 8,249 | 7,894 | 7,190 | 24,001 | 21,639 | ||||||||||
Income from sales of mutual funds | 5,848 | 5,415 | 4,478 | 16,403 | 13,295 | ||||||||||
Income from treasury and financial market operations | 5,840 | 4,601 | 2,398 | 15,782 | 12,968 | ||||||||||
Credit insurance income | 4,793 | 4,415 | 3,682 | 12,603 | 11,114 | ||||||||||
Other income | 2,281 | 5,848 | 2,382 | 10,113 | 8,504 | ||||||||||
76,493 | 74,420 | 64,169 | 222,483 | 197,630 | |||||||||||
Total revenue | 221,042 | 214,850 | 193,833 | 649,806 | 586,247 | ||||||||||
Gain on acquisition and amortization of net premium on purchased financial instruments | (1,140) | (1,224) | — | (3,420) | — | ||||||||||
Provision for loan losses | 9,000 | 9,000 | 7,500 | 26,000 | 25,000 | ||||||||||
Non-interest expenses | |||||||||||||||
Salaries and employee benefits | 87,680 | 85,200 | 77,177 | 262,260 | 233,491 | ||||||||||
Premises and technology | 44,491 | 42,626 | 38,644 | 125,998 | 113,808 | ||||||||||
Other | 28,157 | 25,891 | 25,977 | 79,544 | 78,620 | ||||||||||
Costs related to business combinations and other | 14,600 | 6,136 | 7,157 | 28,293 | 13,167 | ||||||||||
174,928 | 159,853 | 148,955 | 496,095 | 439,086 | |||||||||||
Income before income taxes | 35,974 | 44,773 | 37,378 | 124,291 | 122,161 | ||||||||||
Income taxes | 7,690 | 9,634 | 7,380 | 26,778 | 27,338 | ||||||||||
Net income | $ | 28,284 | $ | 35,139 | $ | 29,998 | $ | 97,513 | $ | 94,823 | |||||
Preferred share dividends, including applicable taxes | 2,520 | 4,059 | 3,164 | 9,112 | 9,495 | ||||||||||
Net income available to common shareholders | $ | 25,764 | $ | 31,080 | $ | 26,834 | $ | 88,401 | $ | 85,328 | |||||
Average number of common shares outstanding (in thousands) | |||||||||||||||
Basic | 28,385 | 28,287 | 25,250 | 28,280 | 24,800 | ||||||||||
Diluted | 28,393 | 28,297 | 25,267 | 28,291 | 24,818 | ||||||||||
Earnings per share | |||||||||||||||
Basic | $ | 0.91 | $ | 1.10 | $ | 1.06 | $ | 3.13 | $ | 3.44 | |||||
Diluted | $ | 0.91 | $ | 1.10 | $ | 1.06 | $ | 3.12 | $ | 3.44 | |||||
Dividends declared per share | |||||||||||||||
Common share | $ | 0.50 | $ | 0.49 | $ | 0.47 | $ | 1.48 | $ | 1.37 | |||||
Preferred share - Series 9 | n.a. | $ | 0.38 | $ | 0.38 | $ | 0.75 | $ | 1.13 | ||||||
Preferred share - Series 10 | $ | 0.33 | $ | 0.33 | $ | 0.33 | $ | 0.98 | $ | 0.98 | |||||
Preferred share - Series 11 | $ | 0.25 | $ | 0.25 | n.a. | $ | 0.66 | n.a. |
Consolidated Statement of Comprehensive Income
FOR THE THREE MONTHS ENDED | FOR THE NINE MONTHS ENDED | ||||||||||||||
In thousands of Canadian dollars (Unaudited) | JULY 31 2013 |
APRIL 30 2013 |
JULY 31 2012 |
JULY 31 2013 |
JULY 31 2012 |
||||||||||
Net income | $ | 28,284 | $ | 35,139 | $ | 29,998 | $ | 97,513 | $ | 94,823 | |||||
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 | (5,277) | 1,484 | (2,714) | (2,677) | (7,948) | ||||||||||
Reclassification of net (gains) losses on available-for-sale securities to net income | (685) | (427) | (334) | (2,570) | (1,543) | ||||||||||
Net change in value of derivatives designated as cash flow hedges | (21,484) | 4,929 | 13,774 | (26,598) | (17,770) | ||||||||||
(27,446) | 5,986 | 10,726 | (31,845) | (27,261) | |||||||||||
Comprehensive income | $ | 838 | $ | 41,125 | $ | 40,724 | $ | 65,668 | $ | 67,562 |
Consolidated Statement of Changes in Shareholders' Equity
FOR THE NINE MONTHS ENDED JULY 31, 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 | 97,513 | 97,513 | ||||||||||||||||||||||
Other comprehensive income (net of income taxes) | ||||||||||||||||||||||||
Unrealized net gains (losses) on available-for-sale securities | (2,677) | (2,677) | (2,677) | |||||||||||||||||||||
Reclassification of net (gains) losses on available-for-sale securities to net income | (2,570) | (2,570) | (2,570) | |||||||||||||||||||||
Net change in value of derivatives designated as cash flow hedges | (26,598) | (26,598) | (26,598) | |||||||||||||||||||||
Comprehensive income | 97,513 | (5,247) | (26,598) | (31,845) | 65,668 | |||||||||||||||||||
Issuance of share capital | (218) | 13,921 | (136) | 13,567 | ||||||||||||||||||||
Repurchase of share capital | (97,885) | (2,115) | (100,000) | |||||||||||||||||||||
Dividends | ||||||||||||||||||||||||
Preferred shares, including applicable taxes | (9,112) | (9,112) | ||||||||||||||||||||||
Common shares | (41,814) | (41,814) | ||||||||||||||||||||||
Balance as at July 31, 2013 | $ | 205,146 | $ | 442,447 | $ | 819,371 | $ | 6,954 | $ | (4,571) | $ | 2,383 | $ | 91 | $ | 1,469,438 | ||||||||
FOR THE NINE MONTHS ENDED JULY 31, 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 | 94,823 | 94,823 | ||||||||||||||||||||||
Other comprehensive income (net of income taxes) | ||||||||||||||||||||||||
Unrealized net gains (losses) on available-for-sale securities | (7,948) | (7,948) | (7,948) | |||||||||||||||||||||
Reclassification of net (gains) losses on available-for-sale securities to net income | (1,543) | (1,543) | (1,543) | |||||||||||||||||||||
Net change in value of derivatives designated as cash flow hedges | (17,770) | (17,770) | (17,770) | |||||||||||||||||||||
Comprehensive income | 94,823 | (9,491) | (17,770) | (27,261) | 67,562 | |||||||||||||||||||
Issuance of share capital | 60,943 | 60,943 | ||||||||||||||||||||||
Dividends | ||||||||||||||||||||||||
Preferred shares, including applicable taxes | (9,495) | (9,495) | ||||||||||||||||||||||
Common shares | (33,996) | (33,996) | ||||||||||||||||||||||
Balance as at July 31, 2012 | $ | 205,527 | $ | 313,544 | $ | 745,703 | $ | 12,725 | $ | 25,604 | $ | 38,329 | $ | 227 | $ | 1,303,330 |
SOURCE: Laurentian Bank of Canada
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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