Laurentian caps strong Q2 for Canada's banks which all beat analyst forecasts

MONTREAL – Laurentian Bank capped a strong second-quarter for Canada’s banking sector by joining the country’s Big 6 banks in beating analyst forecasts despite the challenges of intensified competition and ongoing low interest rates.

The Quebec-based bank said it will raise its quarterly dividend for the second time in a year and eighth time in four years after posting $39.4 million in adjusted profits, up slightly from the prior year.

Laurentian’s payment to shareholders will increase a penny to 52 cents per share as of Aug. 1. Based on Wednesday’s closing share price, the dividend would yield 4.4 per cent annually.

It is the fourth of Canada’s seven largest banks to raise its dividend this quarter, following National (TSX:NA), CIBC (TSX:CM) and Bank of Montreal (TSX:BMO).

“We are pleased that our focus on commercial activities has momentum as commercial loans increased 18 per cent year over year following a 17 per cent increase in the first quarter,” CEO Rejean Robitaille said during a conference call.

The bank benefited from a 32 per cent increase in sales of mutual funds and 17 per cent increase from brokerage operations, partly offset by the impact on financial markets from lower trading revenues.

It also launched a leasing and equipment financial portfolio that is expected to eventually represent one-quarter of its commercial sector.

Laurentian (TSX:LB) earned $1.29 per diluted share in adjusted profits for the period ended April 30, beating expectations by five cents. That compared with $1.24 per share or $39.25 million in the second quarter of 2013.

Including one-time charges such as AGF Trust integration costs, Laurentian’s net income dropped 8.4 per cent to $31 million or 99 cents per share, from $33.84 million or $1.05 per share a year earlier. Net income available to common shareholders fell to $28.49 million, from $29.78 million a year earlier.

Revenues were $216.9 million, up from $214.85 million.

Laurentian’s financial results were helped by continued efforts to reduce costs, in part by further reducing the number of employees as it integrates B2B Bank following acquisitions. Staffing levels decreased more than two per cent from the first quarter to 3,764. They are down 11.5 per cent in the past year.

“As the bulk of the integration costs are behind us and the growth of retained earnings should accelerate and going forward provide the bank with additional flexibility,” Robitaille told analysts.

Scott Chan of Canaccord Genuity said Laurentian Bank’s results were “fairly positive” and if trends continue could help to reduce the large trading discount of the bank’s shares compared to its larger peers.

“I think the market is pricing at a slower growth environment but on the cost side if they can extract more synergies which we expect and get some topline synergies as well with B2B Bank, I think they can deliver above average EPS growth compared to the other banks,” he said in an interview.

On the Toronto Stock Exchange, its shares hit a new 52-week high of $48.20 but closed at $48.06, up 48 cents in Wednesday trading.

The Toronto-based analyst had thought the bank would have raised its dividend more but now expects it to approve similar increases every second quarter.

The bank said its return on equity was 9.2 per cent for the quarter, compared with 10.4 per cent a year ago.

Laurentian’s provision for loan losses increased by $1.5 million to $10.5 million.

The personal and commercial banking segment’s profit surged nearly 22 per cent to $30.3 million from $24.8 million a year ago even though revenues grew 3.8 per cent to $146.7 million.

The B2B Bank business segment’s income plummeted to $5.08 million from $9.09 million a year earlier as revenues dropped 6.4 per cent to $52.48 million. Excluding one-time charges including those related to AGF, the segment’s adjusted profit dipped to $13.5 million from $14.5 million due to lower net interest income, fewer days in the quarter and higher loan losses.

Laurentian Bank Securities and its capital markets segment’s income fell 13.3 per cent to $2.6 million, despite an increase in revenues to $17.6 million, mainly on higher underwriting fees in the small-cap equity markets and increased non-interest expenses.

Laurentian Bank is Quebec’s second-largest bank and third-biggest financial institution in the province with $34.26 billion of assets, 3,764 employees, 153 branches and 423 automated teller machines.

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