(Montreal) Laurentian Bank shares retreated more than 10% on Wednesday, after the bank revealed a decline in third-quarter profits, attributable to its provisions for bad debts, while lower margins on interest income and a decline in personal loans also weighed on its performance.
Updated yesterday at 3:06 p.m.
The Montreal bank reported net profit of 55.9 million for its third quarter, down from 62.1 million in the same quarter last year, as it set aside 11.2 million more than last year for its bad debts during the quarter, due to the deterioration of the economic outlook.
“The macroeconomic environment continues to be uncertain and volatile, and is weighed down by high inflation, very rapid interest rate hikes and geopolitical tensions,” chief executive Rania Llewellyn said on Wednesday during a meeting. a conference call with analysts.
Despite economic pressures, the bank still expects to meet its financial targets for the year, Ms.me Llewellyn, thanks to a boost from its commercial division, which saw its loans increase by 29% compared to the previous year.
“Results were primarily driven by the conversion of our strong unfunded pipeline into the construction portfolio to support multi-residential segments, as developers continue to play catch-up with the structural shortage of supply in some markets. »
However, increased commercial lending has also put pressure on the levels of capital the bank needs to keep on hand, with the bank’s Tier 1 capital ratio falling to 9.1% in the quarter. , compared to 10.3% a year ago.
Laurentian’s net interest margin, a key measure of loan profitability, also fell four basis points in the quarter, despite rising interest rates. These two downward trends were a sign of concern for some analysts.
“Overall, we view this result as negative given the sequential pressure on margins of 4 basis points in a rising rate environment and the fact that the bank’s Tier 1 capital ratio continues to decline. down,” said Scotiabank analyst Meny Grauman.
He pointed out that Laurentian, however, exceeded its expectations for basic earnings per share, while the bank’s overall adjusted profitability was only slightly below analysts’ expectations.
The bank posted adjusted earnings of $1.24 per share for its most recent quarter, compared with adjusted earnings of $1.25 per share a year ago, while analysts on average had expected adjusted earnings of $1.25 per share, according to forecasts compiled by financial data firm Refinitiv.
The bank’s shares on Wednesday fell $4.14, or 10.3%, to close at $35.98 on the Toronto Stock Exchange.
Laurentian Bank’s overall revenue totaled 260 million, compared to 254.9 million in the third quarter of 2021, thanks to the increase in commercial loans, while residential mortgage loans increased by 1% compared to last year . Personal loans, for their part, fell by 10%.
Adjusted spending was flat compared to a year ago as salaries increased while real estate and technology spending fell. The bank reported an improvement in its efficiency ratio, which measures the bank’s ability to turn expenses into profit, compared to last year, on an adjusted basis, but it still remains above that of other banks.
“We continue to redeploy capital, in line with our strategic plan to support profitable and sustainable organic growth,” explained Mr.me Llewellyn.