A small & focused bank with an eye on the US market…

Laurentian Bank is a leading Canadian bank providing a broad range of advice-based solutions and services to its clients. It is a leading diversified financial services provider.

The bank provides a host of services to its clients ranging from commercial and private banking to equipment, inventory and real estate financing, and advisory services. The bank is also re-organizing its Commercial and Personal Banking into two operating units. 

Laurentian Bank caters to business, retail and institutional clients. The bank has the largest footprint in Quebec (43% of loans) and Ontario (33%). It has pan-Canadian activities and a growing presence in the U.S.(5%). Quebec is its home market and the bank also has a decent presence in the Atlantic provinces (2%). 

Laurentian Bank operates through its branch network based in Quebec and specialized teams across Canada. The bank operates through Laurentian Bank (business and retail services), B2B Bank, and Laurentian Bank Securities.

It provides equipment and inventory financing through subsidiaries LBC Capital and Northpoint Commercial Finance. In all, the group had total assets worth $44 billion and assets of $27.8 billion under administration at the year-end.

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Investment Data

Revenue Growth & Market Exposure

Laurentian Bank is a leading player in different market segments like retail, business, financial services, securities, and capital markets. It is the seventh largest Canadian bank. In addition, Laurentian Bank Securities offers integrated brokerage services to institutional as well as retail clients.

As a diversified financial services provider, the bank is well-positioned to take advantage of opportunities in an evolving marketplace. Laurentian completed the migration of all B2B Bank products and loans to the core banking system. It also completed the conversion of the traditional branch network to a 100% advice model.

With close to 175 years of banking experience, Laurentian Bank is trusted for its quality services, prudent management, and good governance. The bank launched a comprehensive seven-year transformation plan but was unable to achieve its goals due to the pandemic.

Laurentian Bank is evolving its loan portfolio mix to include a greater proportion of higher margin commercial loans in the group (increasing to 38% currently from 27% in 2015). The loan portfolio also comprises residential mortgage loans (49%) and personal loans (13%). The bank is expanding its geographic footprint in the US with the country now accounting for 5% of the mix (from nil in 2015).

The acquisition of the Canadian equipment financing activities of CIT and Northpoint Commercial Finance consolidated the Group’s position as an industry leader. Laurentian Bank is making progress towards launching its digital platform and increasing revenues from the commercial loan portfolio. 

The pandemic had an adverse impact on Laurentian Bank’s performance. The bank witnessed higher expected credit losses due to unfavorable economic conditions, and lower interest income driven by declining loan portfolios. The adjusted diluted EPS declined by more than 30% YoY.

Laurentian Bank earned lower net interest income due to a decrease in higher margin loan volumes partly as a result of COVID-19. However, personal demand deposits increased by 27% over the last twelve months. Laurentian Bank’s PCL balance was relatively favorable and payment deferrals also declined significantly in the latest quarter.

It also launched LBC Digital, a direct-to-customer channel, expanding the customer reach from coast to coast.

Dividends

Laurentian Bank has compounded its dividend growth by 6.7% over the last decade. The bank has a sound history of paying increasing dividends. It sports an attractive yield of more than 5% and a payout ratio of 67%. The company reduced its quarterly dividend by 40% given the highly uncertain environment.

Given its long history in the banking industry, Laurentian Bank is better placed to address changes in customer behavior influenced by changes in technology and the globalization of banking.

Transformational processes including the implementation of the core banking system, the development of digital solutions, and the adoption of the AIRB approach to credit risk should further strengthen the bank’s financial foundation. The bank is focusing on improving its efficiency through measures like conversion of traditional branches to a 100% advice model, optimization of certain back-office functions, and merger of 20 branches.

These actions resulted in significant savings. Laurentian Bank has a good track record of strong credit quality. The bank benefits from a diversified loan portfolio, multiple funding sources, and a healthy capital position. Its CET1 ratio stands at 9.6% currently. Laurentian Bank also has a large pan-Canadian and targeted U.S. presence.

Increased customer focus, expanding geographic footprint, and evolution to higher margin commercial loans have positioned Laurentian Bank for profitable growth in the future. In-depth knowledge of the Canadian banking industry, combined with the Group’s leadership position are major assets in the years of transformation.

The bank is expecting improved technology and better processes to drive future customer loan and deposit growth.

Competition

The financial services marketplace faces intense competition and Laurentian Bank’s performance is affected by the level of competition in all different market segments. Canadian Western Bank, National Bank, and VersaBank are Laurentian Banks’ top competitors.

National Bank is the leading bank based out of Quebec and ranks amongst Canada’s six largest commercial banks. VersaBank is a leading chartered bank in Canada, while Canadian Western Bank is known for providing specialized advice and financial services for business as well as personal banking and wealth management services.

In addition, Laurentian Bank also suffers from competition from non-financial institutions offering banking products and services through electronic and internet-based financial solutions. 

Bottom Line

Laurentian Bank should benefit from its large footprint in the Quebec market, which is expected to witness a momentum in housing and job markets. Laurentian Bank continues to enhance its cost discipline to improve its overall efficiency.

The bank will continue to deepen customer relationships and use its digital platform to build a complete product suite. Strong credit quality, a solid balance sheet, and a rigorous underwriting process help to position it well for the future.