Laurentian Bank reports net income of $28.7 million for the third quarter of 2009
- Press Release
- Source: LAURENTIAN BANK OF CANADA
- On 9:17 am EDT, Thursday September 3, 2009
MONTREAL, Sept. 3 /CNW Telbec/ -
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------------------------------------------------------------------------- Highlights of the third quarter 2009 - Net income of $28.7 million - Return on common shareholders' equity of 11.6% - Strong recovery of net interest margin at 2.15% - Solid levels of capital - Continued solid growth in loan and deposit portfolios -------------------------------------------------------------------------Laurentian Bank of Canada reported net income of $28.7 million, or $1.08 diluted per common share, for the third quarter ended July 31, 2009, compared to net income of $30.9 million, or $1.17 diluted per common share, for the third quarter of 2008. Return on common shareholders' equity was 11.6% for the quarter, compared to 13.4% for the corresponding period in 2008. Results for the third quarter of 2008 included the gain on sale of Montréal Exchange shares partly offset by an increase in the general allowance for loan losses, as further detailed in the Management Discussion and Analysis on page 3. Excluding these special items net income and earnings per share increased by 13% and 15% respectively, year-over-year.
For the nine months ended July 31, 2009, net income totalled $74.9 million, or $2.76 diluted per common share, compared to $75.2 million, or $2.78 diluted per common share, in 2008. Results for the nine months ended July 31, 2008 also included certain offsetting items as detailed below.
Commenting on the Bank's financial results, Réjean Robitaille, President and Chief Executive Officer, mentioned: "We are pleased with the excellent progress achieved during the quarter. Measures taken since the beginning of the year to offset the impact of the financial and economic crisis have clearly contributed to the improvement in earnings, particularly in restoring our net interest margin and top-line growth."
Mr. Robitaille added, with regards to operations: "The economic and credit conditions remain challenging. However, our prudent approach has served us well to date and the quality of our assets remains solid. Furthermore, our strong capital and liquidity positions, should continue to provide flexibility to benefit from future opportunities. Again this quarter, the excellent loan and deposit growth experienced in our business segments provides further evidence of our business development ability."
Review of Business Development Initiatives
All business segments demonstrated their ability to grow their businesses during the quarter. With a 44% year-over-year increase in profitability, the Real Estate and Commercial sector reported very strong results. Successful business development activities allowed the group to take advantage of opportunities in the market which resulted in loan and acceptances portfolios increasing by 20% over the last twelve months and more than 8% in the third quarter alone.
B2B Trust achieved solid revenue growth. While deposit growth slowed compared to the last quarter, it nonetheless remained impressive, with average deposits increasing 8% during the quarter, and 36% year-over-year. Despite the gradual reduction in the introductory promotional pricing on B2B Trust's High Interest Investment Accounts, the growth and retention of these deposits remain strong. The success of this product, as well as the continued growth in the other areas of the business line, specifically, investment loans and mortgages, testifies to the relevance of B2B Trust's strategy as well as its leadership position in the independent advisor community.
In Retail and SME Quebec, net income reached $9.7 million. Growth in most loan categories continued as a result of effective marketing and sales efforts. The diversification of strategies to better serve clients, be it through mobile mortgage representatives or financial planners, is proving to be successful in developing stronger and deeper relationships, especially young families who are a priority clientele.
Last June, the Bank was awarded the exclusive contract to operate the automatic banking machines network in the Montreal Metro stations. Given the importance of the Bank's retail franchise, this is considered to be a significant achievement. Under this new agreement, the Bank will install 44 machines, adding to the 26 the Bank is already operating in the Metro. With exposure to the 1.2 million daily commuters who use the Montreal public transit system, this represents an excellent opportunity to increase the Bank's visibility with its target market.
In July 2009, Standard & Poor's confirmed the Bank's BBB counterparty credit rating with a positive outlook, reflecting the sustainable core operating profitability, stable asset quality, good capital adequacy and strong liquidity and funding positions.
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, 2009, and of how it performed during the three- and nine-month periods then ended. This MD&A, dated September 3, 2009, should be read in conjunction with the unaudited interim consolidated financial statements for the third quarter of 2009. Supplemental information on subjects such as risk management, accounting policies and off-balance sheet arrangements is also provided in the Bank's 2008 Annual Report.
Performance and Financial Objectives
The following table presents management's financial objectives for 2009 and the Bank's performance to date.
------------------------------------------------------------------------- Nine months 2009 ended July 31, Performance indicators objectives 2009 (actual) ------------------------------------- ---------------- ----------------- Return on common shareholders' equity 10.0% to 12.0% 10.1% Diluted net income per share $3.70 to $4.40 $2.76 Total revenue + 2% to 5% + 2.2% ($645 to $665 ($488 million) million) Efficiency ratio 73% to 70% 70.5% Tier 1 capital ratio(1) Minimum of 9.5% 10.8% ------------------------------------------------------------------------- Note 1: During the third quarter, the Bank changed how it accounts for credit risk mitigation. See page 7 for further detail. Considering the prevailing economic conditions, results for the first nine months of 2009 are quite satisfactory and the Bank is well positioned to meet the objectives which were set at the end of last year. Analysis of Consolidated Results Three months ended July 31, 2009 compared to three months ended July 31, 2008Net income for the third quarter ended July 31, 2009 was $28.7 million, or $1.08 diluted per common share, compared to $30.9 million, or $1.17 diluted per common share, for the third quarter of 2008. Return on common shareholders' equity was 11.6% for the third quarter of 2009, compared to 13.4% for the corresponding period in 2008. Results for the third quarter of 2008 included certain specific items, as detailed in the table below.
Special items affecting results for 2008 ------------------------------------------------------------------------- In millions Items, Items, Diluted, of dollars, before net of per except per income income common share amounts Segment taxes taxes share ------------------------------------------------------------------------- Favourable (unfavourable) -------------------------- Three months ended January 31, 2008 Decrease in future tax assets arising from the reduction in federal income tax rates Other $- $(5.6) $(0.23) ------------------------------------------------------------------------- Three months ended July 31, 2008 Gain on sale of Montréal Exchange shares Other 12.9 11.1 0.46 Increase in the general allowance for loan losses Other (8.0) (5.5) (0.23) ------------------------------------------------------------------------- 4.9 5.6 0.23 ------------------------------------------------------------------------- Nine months ended July 31, 2008 $4.9 $(0.0) $(0.00) -------------------------------------------------------------------------Excluding these special items, net income and diluted earnings per share for the three months ended July 31, 2009 would have improved by $3.4 million and $0.14 respectively, when compared to the third quarter of 2008.
Total revenue increased 3% to $176.7 million in the third quarter of 2009, from $171.1 million in the third quarter of 2008, mainly as a result of a strong increase in net interest income, as detailed below.
The Bank's net interest income increased $9.4 million to $112.8 million for the third quarter of 2009, from $103.4 million in the third quarter of 2008, essentially as a result of higher loan and deposit volumes. After reaching a low of 1.92% in the second quarter of 2009, margins improved to 2.15% for the third quarter of 2009, a level still slightly lower than the level of 2.20% reached for the same period a year ago. Loan repricing measures introduced earlier this year and the gradual reduction in the introductory promotional pricing on B2B Trust's High Interest Investment Account contributed to this sharp recovery. Sustained competition for retail customers and the lower interest rate environment have however continued to put some pressure on margins.
Other income totalled $63.9 million during the third quarter of 2009, compared to $67.7 million in the third quarter of 2008. Income from brokerage operations improved markedly by $6.4 million for the third quarter of 2009, compared to the third quarter of 2008, as a result of continued strong performance from the Institutional Fixed Income division and recovering equity markets. Fees and commissions on loans and deposits also improved $3.1 million, as a result of the overall increase in business activity. These increases were partially offset by the $12.3 million decrease in income from treasury and financial market operations, which essentially results from the $12.9 million gain on sale of Montreal Exchange shares recorded a year ago. In the third quarter of 2009, income from treasury and financial market operations was also affected by a $4.7 million charge related to the write-down of certain available-for-sale equity investments which continued to suffer from a prolonged decline in their fair value despite recent stronger equity markets. Income from treasury and financial market operations for the third quarter of 2008 also included $5.3 million in losses on sales of certain securities. Revenues from securitization activities stood at $9.8 million for the third quarter of 2009, including a $5.2 million net gain on sale of $253 million of residential mortgages, compared to securitization revenues of $10.8 million for the third quarter of 2008. Note 3 to the interim financial statements provides further details on securitization activities. Other activities yielded generally comparable year-over-year results.
The provision for loan losses amounted to $16.0 million in the third quarter of 2009, compared to $18.5 million in the third quarter of 2008. The provision for loan losses in the third quarter of 2008 included an $8.0 million increase in general provisions to improve the overall provision level. The year-over-year increase in specific provisions resulted mainly from a deterioration in consumer loan portfolios (particularly point-of-sale financing), and increased provisioning in SME Quebec lending, as well as in commercial lending. The deterioration in consumer loan portfolios is mainly attributable to the current economic cycle and ensuing higher unemployment and bankruptcy levels. Gross impaired loans, which had increased at the beginning of the year, remained relatively unchanged since the end of the first quarter and stood at $123.1 million as at July 31, 2009. Net impaired loans amounted to $8.4 million at July 31, 2009 (representing 0.05% of total loans, bankers' acceptances and assets purchased under reverse repurchase agreements), compared to $12.5 million at April 30, 2009 and -$10.6 million at October 31, 2008. Compared to April 2009, the improvement reflects the increased provisioning, mainly in commercial loans. Overall, and in light of the current economic conditions, the loan portfolio performance remains nonetheless satisfying. See Note 2 to the interim consolidated financial statements for more details.
Non-interest expenses totalled $119.1 million for the third quarter of 2009, compared to $113.5 million for the third quarter of 2008; a 4.9% year-over-year increase. Salaries and employee benefits increased $2.2 million, essentially as a result of higher salaries and continued hiring in support of growth in selected priority areas, partially offset by lower pension expenses. Premises and technology costs remained relatively unchanged year-over-year. Other expenses increased $3.0 million mainly as a result of higher professional fees and a one-time adjustment to capital taxes. The efficiency ratio (non-interest expenses divided by total revenue) was 67.4% in the third quarter of 2009, compared with 66.4% in the third quarter of 2008.
For the quarter ended July 31, 2009, income tax expense was $12.9 million and the effective tax rate was 31.0%. Income taxes for the third quarter of 2009 included a $1.5 million charge resulting from adjustments to future income tax assets. For the quarter ended July 31, 2008, income tax expense was $8.1 million and the effective tax rate was 20.8%. This lower effective income tax rate essentially resulted from the lower income taxes on the gain on sale of the Montréal Exchange securities.
Nine months ended July 31, 2009 compared to nine months ended July 31, 2008For the nine-month period ended July 31, 2009, net income totalled $74.9 million, or $2.76 diluted per common share, compared to $75.2 million, or $2.78 diluted per common share, in 2008.
Total revenue improved to $488.0 million for the nine months ended July 31, 2009, compared to $477.7 million for the nine months ended July 31, 2008. The increase results in part from higher net interest income, which essentially stemmed from loan and deposit volume growth, while the repricing measures undertaken since the beginning of the year effectively offset the negative impact of generally lower interest rates. Increases in fees and commissions on loans and deposits, as well as significant growth in brokerage revenues and higher securitization income more than offset the decrease in income from treasury and financial market operations resulting from the gain on sale of the Montréal Exchange shares in 2008.
The provision for loan losses amounted to $40.0 million for the nine months ended July 31, 2009, compared to $38.0 million for the nine months ended July 31, 2008, which included an $8.0 million increase in general provisions. The increase reflects the ongoing challenging credit environment and higher loan volumes.
Non-interest expenses totalled $343.8 million for the nine months ended July 31, 2009, compared to $333.0 million for the nine months ended July 31, 2008. The increase is principally attributable to higher salaries in retail banking and technology, as well as to higher advertising expenses, partially offset by lower pension costs. For the nine months ended July 31, 2009, the efficiency ratio stood at 70.5%, compared to 69.7% for the nine months ended July 31, 2008.
For the nine months ended July 31, 2009, the income tax expense was $29.2 million and the effective income tax rate was 28.1%, compared to $31.5 million and 29.5% for the nine months ended July 31, 2008. Results for the nine months ended July 31, 2008, included the effect of a $5.6 million unfavourable tax adjustment resulting from federal income tax rate reductions recorded in the first quarter and the lower income taxes on certain capital gains in the third quarter.
Three months ended July 31, 2009 compared to three months ended April 30, 2009Net income was $28.7 million, or $1.08 diluted per common share, for the third quarter ended July 31, 2009, compared to net income of $21.2 million, or $0.76 diluted per common share, for the second quarter of 2009. The increase in profitability mainly results from the sharp increase in net interest income, as average assets were $678 million higher quarter-over-quarter and net interest income as a percentage of average assets rose 23 basis points, as well as from the effect of the longer quarter. These items were partially offset by higher loan losses and other expenses.
Analysis of Financial Condition
Balance sheet assets stood at $21.3 billion at July 31, 2009, compared to $19.6 billion at October 31, 2008.
Liquid assets, including cash, deposits with other banks, securities and assets purchased under reverse repurchase agreements, increased $525 million, mainly as a result of continued strong deposit growth, as detailed below. This higher level of liquid assets provides additional flexibility in meeting funding requirements and preserves the Bank's ability to capitalize on growth opportunities as they arise.
The portfolio of loans and bankers' acceptances stood at $15.6 billion at July 31, 2009, up $1.2 billion from October 31, 2008. Residential mortgages, including securitized loans, increased $1.0 billion over the last nine months, as detailed below, benefitting from a very strong level of activity during the recent mortgage renewal period in Quebec.
Residential Mortgage Portfolio July 31, April 30, October 31, (in millions of dollars) 2009 2009 2008 ------------------------------------------------------------------------- Residential mortgage loans, as reported on the balance sheet $6,978 $6,335 $6,183 Securitized loans 2,610 2,615 2,399 ------------------------------------------------------------------------- Total residential mortgage loans, including securitized loans $9,588 $8,950 $8,582 -------------------------------------------------------------------------Commercial mortgages and commercial loans increased more than $215 million and $155 million, respectively, since the beginning of the year. Personal loans decreased slightly as a result of management's decision to reduce the Bank's exposure to point-of-sale financing.
Total personal deposits increased a further $0.3 billion during the third quarter and $2.3 billion cumulatively since the beginning of the year, to reach $14.8 billion as at July 31, 2009. B2B Trust's new High Interest Investment Account (HIIA) continued to generate significant growth during the quarter and accounted for $2.0 billion of this total growth since the beginning of the year. Personal deposits sourced through the retail branch operations improved as well, up $533 million since the beginning of the year. Business and other deposits increased $421 million during the third quarter, benefitting from the new HIIA account and various other initiatives. These increases enabled a reduction in commercial and institutional funding since the beginning of the year. As at July 31, 2009, personal deposits accounted for 82% of total deposits of $18.0 billion.
Shareholders' equity stood at $1,143.5 million as at July 31, 2009, compared with $1,083.4 million as at October 31, 2008. The increase in shareholders' equity results from accumulated retained earnings since the beginning of the year and from an increase in other comprehensive income.
The Bank's book value per common share, excluding accumulated other comprehensive income, was $37.57 as at July 31, 2009, compared to $35.84 as at October 31, 2008. There were 23,855,926 common shares and 119,112 share purchase options outstanding as at August 26, 2009.
During the quarter, the Bank opted to use the Comprehensive approach to account for credit risk mitigation under the Standardized Basel II Framework, instead of the Simple approach. The Comprehensive approach allows fuller offset of collateral against exposures. In addition, the risk weight associated with certain credit commitments was also reviewed. These changes led to a net reduction in risk-weighted assets of approximately $869 million as at July 31, 2009 and generated increases in BIS Tier 1 and total capital ratios of 91 basis points and 108 basis points, respectively. As at July 31, 2009, the BIS Tier 1 and total capital ratios now stood at 10.8% and 12.8%, respectively. The Bank's regulatory Tier I capital reached $1,015 million as at July 31, 2009, as compared to $965.4 million as at October 31, 2008. These ratios fully reflect the Bank's strong capital and its ability to further develop its business. The tangible common equity ratio, one of the highest in the industry, at 8.8%, also testifies to the high quality of the Bank's capital.
During the quarter, Standard & Poor's confirmed the Bank's Deposits & Senior Debt counterparty credit rating at BBB with a positive outlook and the Short-Term Instruments rating at A-2, reflecting sustainable core operating profitability, stable asset quality, good capital adequacy and strong liquidity and funding position.
At its August 26, 2009 meeting, the Board of Directors declared regular dividends on the various series of preferred shares to shareholders of record on September 8, 2009. Also, at its September 3, 2009 meeting, the Board of Directors declared a dividend of $0.34 per common share, payable on November 1, 2009, to shareholders of record on October 1, 2009.
Assets under administration stood at $14.2 billion as at July 31, 2009, compared to $14.4 billion at October 31, 2008. Recoveries in market values during the last six months helped partly offset decreases in assets under administration recorded earlier this year, as well as a reduction in institutional assets under administration.
Segmented Information
The table below presents the net income contribution of each business segment of the Bank. Compared to the second quarter of 2009, results for the third quarter of 2009 generally benefited from the three additional days in the quarter.
Net income contribution ------------------------------------------------------------------------- Real Lauren- Estate tian Retail & Bank (in millions & SME Commer- B2B Secu- of $) Quebec cial Trust rities Other Total ------------------------------------------------------------------------- (note 1) Q3-2009 9.7 11.1 8.7 3.2 (4.0) 28.7 30% 34% 26% 10% n/a 100% Q2-2009 9.8 7.5 7.8 1.9 (5.8) 21.2 36% 28% 29% 7% n/a 100% Q3-2008 11.6 7.7 9.2 1.1 1.3 30.9 39% 26% 31% 4% n/a 100% ------------------------------------------------------------------------- Note 1: Percentage of net income contribution from the four business segments, excluding the Other segment.Retail & SME Quebec
The Retail & SME Quebec business segment's contribution to net income declined to $9.7 million for the third quarter of 2009, compared with $11.6 million for the third quarter of 2008.
Total revenue increased $1.6 million, from $107.5 million in the third quarter of 2008 to $109.1 million in the third quarter of 2009, as a result of continued growth in loan and deposit volumes. Loan losses were higher, at $12.4 million in the third quarter of 2009, compared to $9.3 million in the third quarter of 2008, reflecting ongoing weaker credit conditions in point of sale financing and SME lending. Non-interest expenses increased 2.3% or $1.9 million, from $82.8 million in the third quarter of 2008 to $84.7 million in the third quarter of 2009, due mainly to increases in salaries and advertising expenses.
Real Estate & Commercial
The Real Estate & Commercial business segment's contribution to net income improved $3.4 million, or 44%, to $11.1 million for the third quarter of 2009, compared to $7.7 million for the third quarter of 2008.
Total revenue increased 37%, or $6.7 million, from $18.3 million in the third quarter of 2008 to $25.0 million in the third quarter of 2009, as a result of higher net interest income due to growth in both loan volumes and margins, as well as higher fees. Loan losses, essentially in Commercial lending increased to $2.1 million in the third quarter of 2009, compared to $1.0 million in the third quarter of 2008. Given current economic conditions, loan losses in these portfolios remained well under control during the quarter. Non-interest expenses increased $1.0 million to $6.8 million in the third quarter of 2009, from $5.8 million in the third quarter of 2008.
B2B Trust
The B2B Trust business segment's contribution to net income declined by $0.6 million, to $8.7 million in the third quarter of 2009, compared with $9.2 million in the third quarter of 2008.
Total revenue increased $1.7 million, from $24.7 million in the third quarter of 2008 to $26.4 million in the third quarter of 2009. Net interest income increased $2.0 million year-over-year, mainly as a result of higher loan and deposit volumes. The recent easing of funding conditions and the gradual reduction in the introductory promotional pricing on B2B Trust's HIIA also partly restored net interest margins compared with prior quarters.
Deposits reached $8.7 billion as at July 31, 2009, up $2.7 billion since the beginning of the year and $334 million since April 30, 2009. The sharp increase resulted mainly from the new HIIA, which provided the Bank with additional flexibility in meeting funding requirements and supporting growth initiatives. Loans also continued their progression, with the quarterly average level increasing by $298 million over the last nine months.
Loan losses increased to $1.5 million in the third quarter of 2009, compared with $0.2 million in the third quarter of 2008. While these losses reflect a deterioration in credit conditions, their level remains low given the size of the underlying portfolios. Non-interest expenses increased to $12.3 million in the third quarter of 2009, compared with $10.6 million in the third quarter of 2008.
Laurentian Bank Securities
The Laurentian Bank Securities (LBS) business segment's contribution to net income improved noticeably to $3.2 million in the third quarter of 2009, compared with $1.1 million in the third quarter of 2008. The strong performance of the Institutional Fixed Income division and improved results in other activities resulting from recovering equity markets contributed to the excellent quarter. Non-interest expenses increased to $11.5 million in the third quarter of 2009, from $8.3 million in the third quarter of 2008, primarily due to higher variable compensation costs.
Other Segment
The Other segment posted a negative contribution to net income of $4.0 million in the third quarter of 2009, compared with a positive contribution of $1.3 million in the corresponding quarter of 2008.
Net interest income improved to -$7.9 million for the third quarter of 2009, compared to -$10.6 million for the third quarter of 2008. The negative income is mainly attributable to the offsetting adjustment to net interest income resulting from securitization activities in this segment, to the lower margins from liquid assets, and the lower overall interest rate environment. Other income stood at $7.9 million for the third quarter of 2009, consisting primarily of securitization income. The contribution to other income from treasury and financial market operations was negligible, as revenues earned during the quarter were offset by a $4.7 million charge related to the write-down of certain available-for-sale equity investments. Results for the third quarter of 2008 included the $12.9 million gain on the sale of Montréal Exchange shares, partly offset by losses of $5.3 million on the sale of other securities.
Results for the third quarter of 2008 also included the additional general provision for loan losses of $8.0 million.
Additional Disclosures - Investment in Asset-Backed Securities
As detailed below, the Bank holds investments in asset-backed securities in its investment and trading portfolios.
As at July 31, 2009 Term Notes ---------------------- (at market value, Other in millions of dollars) ABCP CMBS ABS(1) Total ------------------------------------------------------------------------- Securities issued by conduits previously covered by the Montréal Accord(2) - - 13 13 Other securities - 15 6 21 ------------------------------------------------------------------------- Total - Asset-backed securities - 15 19 34 ------------------------------------------------------------------------- (1) Excluding mortgage-backed securities that are fully guaranteed by the Canada Mortgage and Housing Corporation under the National Housing Act (NHA). (2) During the first quarter of 2009, all ABCP issued by conduits covered by the Montréal Accord were converted into term notes. The new securities have not traded actively to date. As a result, valuation techniques were used to estimate fair values. Compared to previous carrying amounts, the cumulative reductions in the value of these securities amount to $5.6 million, or approximately 30%. ABCP - Asset-backed commercial paper CMBS - Commercial mortgage-backed securities ABS - Asset-backed securities Additional Financial Information - Quarterly Results (in millions of dollars, except per share amounts 2009 (unaudited)) Q3 Q2 Q1 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total revenue $176.7 $154.8 $156.5 Income from continuing operations 28.7 21.2 25.0 Net income 28.7 21.2 25.0 Income per common share from continuing operations Basic 1.08 0.76 0.92 Diluted 1.08 0.76 0.91 Net income per common share Basic 1.08 0.76 0.92 Diluted 1.08 0.76 0.91 Return on common shareholders' equity 11.6% 8.5% 10.0% Balance sheet assets $21,295 $20,382 $19,847 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (in millions of dollars, except per share amounts 2008 2007 (unaudited)) Q4 Q3 Q2 Q1 Q4 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total revenue $152.8 $171.1 $155.5 $151.1 $145.6 Income from continuing operations 22.9 30.9 25.1 19.1 25.7 Net income 27.3 30.9 25.1 19.1 30.2 Income per common share from continuing operations Basic 0.84 1.17 0.93 0.68 0.96 Diluted 0.84 1.17 0.93 0.68 0.95 Net income per common share Basic 1.02 1.17 0.93 0.68 1.14 Diluted 1.02 1.17 0.93 0.68 1.14 Return on common shareholders' equity 11.5% 13.4% 11.2% 8.1% 13.8% Balance sheet assets $19,559 $19,301 $18,383 $18,270 $17,787 ------------------------------------------------------------------------- -------------------------------------------------------------------------Accounting Policies
A summary of the Bank's significant accounting policies is presented in notes 2 and 3 of the 2008 audited consolidated financial statements. Pages 54 to 56 of the 2008 Annual Report also contain a discussion of certain significant critical accounting policies which refer to material amounts reported in the consolidated financial statements or require management's judgment. The interim consolidated financial statements for the third quarter of 2009 have been prepared in accordance with these accounting policies, except as noted below.
New accounting standards adopted during fiscal 2009
Earlier in 2009, the Bank adopted Section 3064, Goodwill and Intangible Assets, and Abstract EIC-173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. These changes, detailed in note 1 to the interim consolidated financial statements, had no significant effect on the interim consolidated financial statements.
Future changes in accounting policies Impairment of financial assetsOn July 29, 2009, the Canadian Accounting Standards Board (AcSB) posted the typescript related to the amendments that will be incorporated to Section 3025, Impaired Loans and Section 3855, Financial Instruments - Recognition and Measurement. Details of the amendments are presented in note 1 to the interim consolidated financial statements. The amendments apply to annual financial statements relating to fiscal years beginning on or after November 1, 2008, but are not required for interim financial statements relating to periods within the fiscal year of adoption. The Bank has opted to defer the adoption to October 31, 2009 and does not anticipate that the new requirements will have a significant effect on the Bank's financial statements upon adoption.
Financial instruments disclosures
In June 2009, the AcSB issued amendments to Section 3862 - Financial instruments disclosures to improve disclosure requirements on fair value measurement and liquidity risk. The amendments are effective for the Bank's October 31, 2009 annual financial statements. As the amendments only concern disclosure requirements, they will not have a significant impact on results or financial position.
International Financial Reporting Standards
In January 2006, the AcSB released its new Strategic Plan, which includes the decision to converge financial reporting for Canadian public entities with International Financial Reporting Standards (IFRS). Under the AcSB's plan, this new framework will be effective for fiscal years beginning on or after January 1, 2011, that is, for the Bank's fiscal year ending October 31, 2012.
In light of the recent economic turmoil, the International Accounting Standards Board has proposed significant changes to accounting principles with respect to the accounting for financial instruments, including securitization activities, hedging transactions and loan losses. Analysis of accounting consequences related to these matters, as well as to the overall conversion to IFRS is in progress. A timetable has been prepared to assess the impact on financial disclosures, information systems and internal controls. The Bank is also closely monitoring potential implications of changes on capital requirements.
Corporate Governance and Changes in Internal Control over Financial ReportingThe Board of Directors and the Audit Committee of the Bank reviewed this press release prior to its release today. The disclosure controls and procedures support the ability of the President and Chief Executive Officer and the Executive Vice-President and Chief Financial Officer in assuring that Laurentian Bank's interim consolidated financial statements are fairly presented.
During the last quarter ended July 31, 2009, 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.
About Laurentian Bank
Laurentian Bank of Canada is a banking institution operating across Canada and offering its clients diversified financial services. Differentiating itself through excellence in service, as well as through its simplicity and proximity, the Bank serves individual consumers and small and medium-sized businesses. The Bank also offers its products to a wide network of independent financial intermediaries through B2B Trust, as well as full-service brokerage solutions through Laurentian Bank Securities.
Laurentian Bank is well established in the Province of Quebec, operating the third-largest retail branch network. Elsewhere throughout Canada, it operates in specific market segments where it holds an enviable position. Laurentian Bank of Canada has more than $21 billion in balance sheet assets and more than $14 billion in assets under administration. Founded in 1846, the Bank employs more than 3,500 people.
Non-GAAP Financial Measures
The Bank uses both generally accepted accounting principles ("GAAP") and certain non-GAAP measures to assess performance, such as return on common shareholders' equity, net interest margin, book value per common share and efficiency ratios. In addition, net income excluding significant items has been presented at certain points in this document. 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. The Bank believes that these non-GAAP financial measures provide investors and analysts with useful information so that they can better understand financial results and analyze the Bank's growth and profitability potential more effectively.
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, including statements regarding the Bank's business plan and financial objectives. These 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 inaccurate. Although the Bank believes that the expectations reflected in these forward-looking statements are reasonable, it provides 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 public filings available at www.sedar.com.
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.
Conference Call
Laurentian Bank invites media representatives and the public to listen to the conference call with financial analysts to be held at 2 p.m. Eastern Time on Thursday, September 3, 2009. The live, listen-only, toll-free call-in number is 1-866-231-8192.
You can listen to the call on a delayed basis at any time from 6:00 p.m. on Thursday, September 3, 2009, until midnight on September 25, 2009, by dialling the following playback number: 1-800-374-6971 Code 24703041. 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 Website also offers additional financial information.
FINANCIAL HIGHLIGHTS FOR THE THREE MONTHS ENDED IN MILLIONS OF DOLLARS, ----------------------------- UNLESS OTHERWISE INDICATED JULY 31 JULY 31 (UNAUDITED) 2009 2008 VARIATION ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings Net income $ 28.7 $ 30.9 (7)% Net income available to common shareholders $ 25.9 $ 28.0 (8)% Return on common shareholders' equity(1) 11.6 % 13.4 % Per common share Diluted net income $ 1.08 $ 1.17 (8)% Dividends declared $ 0.34 $ 0.32 6 % ------------------------------------------------------------------------- ------------------------------------------------------------------------- FINANCIAL RATIOS Per common share Dividend yield 3.80 % 3.05 % Dividend payout ratio 31.4 % 27.3 % As a percentage of average assets Net interest income 2.15 % 2.20 % Provision for credit losses 0.31 % 0.39 % Profitability Efficiency ratio (non- interest expenses as a % of total revenue) 67.4 % 66.4 % ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED IN MILLIONS OF DOLLARS, ----------------------------- UNLESS OTHERWISE INDICATED JULY 31 JULY 31 (UNAUDITED) 2009 2008 VARIATION ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings Net income $ 74.9 $ 75.2 - % Net income available to common shareholders $ 65.8 $ 66.3 (1)% Return on common shareholders' equity(1) 10.1 % 10.9 % Per common share Diluted net income $ 2.76 $ 2.78 (1)% Dividends declared $ 1.02 $ 0.96 6 % Book value(1) $ 37.57 $ 35.15 7 % Share price - close $ 35.75 $ 42.00 (15)% Financial position Balance sheet assets $ 21,295 $ 19,301 10 % Assets under administration $ 14,156 $ 15,490 (9)% Loans, bankers' acceptances and assets purchased under reverse repurchase agreements, net $ 15,853 $ 14,825 7 % Personal deposits $ 14,766 $ 12,466 18 % Shareholders' equity and debentures $ 1,293 $ 1,211 7 % Number of common shares - end of period (in thousands) 23,856 23,844 - % Net impaired loans as a % of loans, bankers' acceptances and assets purchased under reverse repurchase agreements 0.05 % (0.09)% Risk-weighted assets $ 9,410 $ 9,505 (1)% Capital ratios Tier I BIS capital ratio 10.8 % 10.1 % Total BIS capital ratio 12.8 % 12.1 % Assets to capital multiple 17.8 x 16.9 x Tangible common equity as a percentage of risk-weighted assets(2) 8.8 % 8.1 % ------------------------------------------------------------------------- ------------------------------------------------------------------------- FINANCIAL RATIOS Per common share Price / earnings ratio (trailing four quarters) 9.5 x 10.7 x Market to book value 95 % 119 % Dividend yield 3.80 % 3.05 % Dividend payout ratio 37.0 % 34.5 % As a percentage of average assets Net interest income 2.03 % 2.23 % Provision for credit losses 0.27 % 0.28 % Profitability Efficiency ratio (non- interest expenses as a % of total revenue) 70.5 % 69.7 % ------------------------------------------------------------------------- ------------------------------------------------------------------------- OTHER INFORMATION Number of full-time equivalent employees 3,571 3,521 Number of branches 156 156 Number of automated banking machines 362 340 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) With regard to the calculation of the Return on common shareholders' equity ratio, the Bank considers that net income is the best measure of profitability and that common shareholders' equity, excluding accumulated other comprehensive income, would be used as a capital measure. The calculation of the Bank's book value is also based on common shareholders' equity, excluding accumulated other comprehensive income. (2) Tangible common equity is defined as common shareholders' equity, excluding accumulated other comprehensive income, less goodwill and other intangible assets. CONSOLIDATED BALANCE SHEET AS AT AS AT AS AT IN THOUSANDS OF JULY 31 OCTOBER 31 JULY 31 DOLLARS (UNAUDITED) NOTES 2009 2008 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ASSETS Cash and non- interest-bearing deposits with other banks $ 56,240 $ 54,410 $ 63,756 -------------------------------------------- Interest-bearing deposits with other banks 475,986 94,291 292,085 -------------------------------------------- Securities accounts Available-for-sale 1,061,666 1,327,504 1,111,747 Held-for-trading 1,277,764 1,069,197 1,129,552 Designated as held-for-trading 1,574,909 1,118,838 1,018,698 -------------------------------------------- 3,914,339 3,515,539 3,259,997 -------------------------------------------- Assets purchased under reverse repurchase agreements 403,961 661,391 843,068 -------------------------------------------- Loans 2 and 3 Personal 5,214,906 5,302,046 5,265,562 Residential mortgage 6,978,469 6,182,871 6,109,648 Commercial mortgage 1,148,071 932,688 883,401 Commercial and other 2,003,217 1,847,327 1,727,105 -------------------------------------------- 15,344,663 14,264,932 13,985,716 Allowance for loan losses (114,672) (112,434) (115,504) -------------------------------------------- 15,229,991 14,152,498 13,870,212 -------------------------------------------- Other Customers' liabilities under acceptances 219,533 110,342 111,966 Tangible capital assets and software 142,494 143,489 138,000 Derivative financial instruments 241,239 237,704 110,370 Goodwill 53,790 53,790 53,790 Other intangible assets 11,982 12,896 13,201 Other assets 545,925 522,202 544,539 -------------------------------------------- 1,214,963 1,080,423 971,866 -------------------------------------------- $ 21,295,480 $ 19,558,552 $ 19,300,984 -------------------------------------------- -------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Personal $ 14,765,581 $ 12,430,038 $ 12,465,740 Business, banks and other 3,192,277 2,903,774 2,688,225 -------------------------------------------- 17,957,858 15,333,812 15,153,965 -------------------------------------------- Other Obligations related to assets sold short 700,058 819,236 933,839 Obligations related to assets sold under repurchase agreements 251,749 1,136,096 1,013,995 Acceptances 219,533 110,342 111,966 Derivative financial instruments 139,348 147,469 70,981 Other liabilities 733,444 778,162 805,422 -------------------------------------------- 2,044,132 2,991,305 2,936,203 -------------------------------------------- Subordinated debentures 150,000 150,000 150,000 -------------------------------------------- Shareholders' equity Preferred shares 4 210,000 210,000 210,000 Common shares 4 257,641 257,462 257,360 Contributed surplus 201 173 158 Retained earnings 638,480 596,974 580,703 Accumulated other comprehensive income 8 37,168 18,826 12,595 -------------------------------------------- 1,143,490 1,083,435 1,060,816 -------------------------------------------- $ 21,295,480 $ 19,558,552 $ 19,300,984 -------------------------------------------- -------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes are an integral part of the interim consolidated financial statements. CONSOLIDATED STATEMENT OF INCOME IN THOUSANDS OF FOR THE THREE MONTHS ENDED DOLLARS, -------------------------------------------- EXCEPT PER SHARE JULY 31 APRIL 30 JULY 31 AMOUNTS (UNAUDITED) NOTES 2009 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Interest income Loans $ 178,002 $ 171,158 $ 204,237 Securities 18,031 16,723 16,161 Deposits with other banks 278 509 6,815 Other, including derivative financial instruments 40,979 34,257 13,148 -------------------------------------------- 237,290 222,647 240,361 -------------------------------------------- Interest expense Deposits 122,119 125,571 128,264 Other, including derivative financial instruments 455 1,116 6,739 Subordinated debentures 1,950 1,887 1,945 -------------------------------------------- 124,524 128,574 136,948 -------------------------------------------- Net interest income 112,766 94,073 103,413 -------------------------------------------- Other income Fees and commissions on loans and deposits 26,768 24,665 23,660 Income from brokerage operations 15,417 10,754 8,973 Income from treasury and financial market operations 17 5,979 12,328 Income from sales of mutual funds 3,225 2,985 3,943 Credit insurance income 4,767 3,768 3,957 Income from registered self- directed plans 2,056 2,038 2,249 Securitization income 3 9,771 8,594 10,764 Other 1,870 1,912 1,808 -------------------------------------------- 63,891 60,695 67,682 -------------------------------------------- Total revenue 176,657 154,768 171,095 -------------------------------------------- Provision for loan losses 2 16,000 12,000 18,500 -------------------------------------------- Non-interest expenses Salaries and employee benefits 62,828 60,414 60,668 Premises and technology 30,331 29,790 29,937 Other 25,922 23,830 22,942 -------------------------------------------- 119,081 114,034 113,547 -------------------------------------------- Income before income taxes 41,576 28,734 39,048 Income taxes 12,893 7,579 8,111 -------------------------------------------- Net income $ 28,683 $ 21,155 $ 30,937 -------------------------------------------- -------------------------------------------- Preferred share dividends, including applicable taxes 2,824 3,004 2,967 -------------------------------------------- Net income available to common shareholders $ 25,859 $ 18,151 $ 27,970 -------------------------------------------- -------------------------------------------- Average number of common shares outstanding (in thousands) Basic 23,854 23,849 23,842 Diluted 23,872 23,855 23,888 -------------------------------------------- Net income per common share Basic $ 1.08 $ 0.76 $ 1.17 Diluted $ 1.08 $ 0.76 $ 1.17 ------------------------------------------------------------------------- ------------------------------------------------------------------------- IN THOUSANDS OF FOR THE NINE MONTHS ENDED DOLLARS, -------------------------------------------- EXCEPT PER SHARE JULY 31 JULY 31 AMOUNTS (UNAUDITED) NOTES 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Interest income Loans $ 539,808 $ 631,375 Securities 53,219 44,398 Deposits with other banks 3,801 21,187 Other, including derivative financial instruments 97,511 17,539 -------------------------------------------- 694,339 714,499 -------------------------------------------- Interest expense Deposits 376,764 380,233 Other, including derivative financial instruments 6,249 26,500 Subordinated debentures 5,784 5,796 -------------------------------------------- 388,797 412,529 -------------------------------------------- Net interest income 305,542 301,970 -------------------------------------------- Other income Fees and commissions on loans and deposits 75,042 67,775 Income from brokerage operations 34,862 23,330 Income from treasury and financial market operations 10,571 25,753 Income from sales of mutual funds 9,046 10,841 Credit insurance income 12,595 10,230 Income from registered self- directed plans 6,073 6,797 Securitization income 3 28,890 25,619 Other 5,341 5,355 -------------------------------------------- 182,420 175,700 -------------------------------------------- Total revenue 487,962 477,670 -------------------------------------------- Provision for loan losses 2 40,000 38,000 -------------------------------------------- Non-interest expenses Salaries and employee benefits 183,631 177,733 Premises and technology 88,106 88,321 Other 72,110 66,897 -------------------------------------------- 343,847 332,951 -------------------------------------------- Income before income taxes 104,115 106,719 Income taxes 29,230 31,521 -------------------------------------------- Net income $ 74,885 $ 75,198 -------------------------------------------- -------------------------------------------- Preferred share dividends, including applicable taxes 9,050 8,864 -------------------------------------------- Net income available to common shareholders $ 65,835 $ 66,334 -------------------------------------------- -------------------------------------------- Average number of common shares outstanding (in thousands) Basic 23,851 23,834 Diluted 23,866 23,877 -------------------------------------------- Net income per common share Basic $ 2.76 $ 2.78 Diluted $ 2.76 $ 2.78 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes are an integral part of the interim consolidated financial statements. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED IN THOUSANDS OF ---------------------- ------------------------ DOLLARS JULY 31 JULY 31 JULY 31 JULY 31 (UNAUDITED) NOTES 2009 2008 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net income $ 28,683 $ 30,937 $ 74,885 $ 75,198 ------------------------------------------------ Other comprehensive income (loss), net of income taxes 8 Net change in unrealized gains (losses) on available- for-sale securities 8,674 (2,851) 9,529 (5,583) Reclassification of realized (gains) and losses on available-for- sale securities to net income 3,123 (7,938) 3,795 (10,068) Net gains (losses) on derivative instruments designated as cash flow hedges (17,786) (641) 5,018 27,369 ------------------------------------------------ (5,989) (11,430) 18,342 11,718 ------------------------------------------------ Comprehensive income $ 22,694 $ 19,507 $ 93,227 $ 86,916 ------------------------------------------------ ------------------------------------------------ ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes are an integral part of the interim consolidated financial statements. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED ------------------------------ JULY 31 JULY 31 IN THOUSANDS OF DOLLARS (UNAUDITED) NOTES 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Preferred shares Balance at beginning and end of period $ 210,000 $ 210,000 ------------------------------ Common shares 4 Balance at beginning of period 257,462 256,445 Issued during the period under share purchase option plan 5 179 915 ------------------------------ Balance at end of period 257,641 257,360 ------------------------------ Contributed surplus Balance at beginning of period 173 105 Stock-based compensation 5 28 53 ------------------------------ Balance at end of period 201 158 ------------------------------ Retained earnings Balance at beginning of period 596,974 537,254 Net income 74,885 75,198 Dividends Preferred shares, including applicable taxes (9,050) (8,864) Common shares (24,329) (22,885) ------------------------------ Balance at end of period 638,480 580,703 ------------------------------ Accumulated other comprehensive income 8 Balance at beginning of period 18,826 877 Other comprehensive income, net of income taxes 18,342 11,718 ------------------------------ Balance at end of period 37,168 12,595 ------------------------------ Shareholders' equity $ 1,143,490 $ 1,060,816 ------------------------------ ------------------------------ ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes are an integral part of the interim consolidated financial statements. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED -------------------------------------------- IN THOUSANDS OF DOLLARS JULY 31 APRIL 30 JULY 31 (UNAUDITED) 2009 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash flows relating to operating activities Net income $ 28,683 $ 21,155 $ 30,937 Adjustments to determine net cash flows relating to operating activities: Provision for loan losses 16,000 12,000 18,500 Gains on securitization operations (5,234) (9,229) (8,208) Net loss (gain) on disposal of non-trading securities 404 725 (11,637) Future income taxes 5,007 4,294 6,505 Depreciation and amortization 8,411 8,193 7,708 Net change in held-for- trading securities (421,073) 196,179 1,597 Change in accrued interest receivable 13,120 (14,919) 8,592 Change in assets relating to derivative financial instruments 42,351 (5,299) 14,987 Change in accrued interest payable (42,979) 4,480 (8,783) Change in liabilities relating to derivative financial instruments (8,582) 13,901 (10,886) Other, net 19,353 (12,209) 5,574 -------------------------------------------- (344,539) 219,271 54,886 -------------------------------------------- Cash flows relating to financing activities Net change in deposits 697,095 1,687,893 712,043 Change in obligations related to assets sold short 128,876 (334,147) (11,916) Change in obligations related to assets sold under repurchase agreements 68,325 (968,424) 126,272 Issuance of common shares 145 - 82 Dividends, including applicable income taxes (10,935) (11,113) (10,599) -------------------------------------------- 883,506 374,209 815,882 -------------------------------------------- Cash flows relating to investing activities Change in securities available-for-sale and designated as held-for- trading Acquisitions (1,235,710) (1,810,651) (1,113,345) Proceeds on sale and at maturities 1,547,606 1,497,435 1,058,878 Change in loans (1,000,405) (467,955) (722,644) Change in assets purchased under reverse repurchase agreements 135,898 35,480 (363,748) Proceeds from mortgage loan securitizations 253,234 171,816 262,707 Additions to tangible capital assets and software (9,311) (8,356) (8,725) Proceeds from disposal of tangible capital assets and software - - - Net change in interest- bearing deposits with other banks (234,422) (596) 14,567 Net cash flows from sale of asset - - - -------------------------------------------- (543,110) (582,827) (872,310) -------------------------------------------- Net change in cash and non- interest-bearing deposits with other banks during the period (4,143) 10,653 (1,542) Cash and non-interest- bearing deposits with other banks at beginning of period 60,383 49,730 65,298 -------------------------------------------- Cash and non-interest- bearing deposits with other banks at end of period $ 56,240 $ 60,383 $ 63,756 -------------------------------------------- -------------------------------------------- Supplemental disclosure relating to cash flows: Interest paid during the period $ 172,336 $ 112,728 $ 140,480 Income taxes paid (recovered) during the period $ 3,303 $ 1,709 $ (4,568) ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED -------------------------------------------- IN THOUSANDS OF DOLLARS JULY 31 JULY 31 (UNAUDITED) 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash flows relating to operating activities Net income $ 74,885 $ 75,198 Adjustments to determine net cash flows relating to operating activities: Provision for loan losses 40,000 38,000 Gains on securitization operations (31,135) (23,393) Net loss (gain) on disposal of non-trading securities 3,814 (15,340) Future income taxes 16,620 26,655 Depreciation and amortization 24,649 23,048 Net change in held-for- trading securities (208,567) (42,594) Change in accrued interest receivable 7,577 1,830 Change in assets relating to derivative financial instruments (3,535) (47,625) Change in accrued interest payable (50,148) (14,289) Change in liabilities relating to derivative financial instruments (8,121) 130 Other, net (18,513) 45,035 -------------------------------------------- (152,474) 66,655 -------------------------------------------- Cash flows relating to financing activities Net change in deposits 2,624,046 1,275,257 Change in obligations related to assets sold short (119,178) 65,164 Change in obligations related to assets sold under repurchase agreements (884,347) 85,008 Issuance of common shares 179 915 Dividends, including applicable income taxes (33,379) (31,750) -------------------------------------------- 1,587,321 1,394,594 -------------------------------------------- Cash flows relating to investing activities Change in securities available-for-sale and designated as held-for- trading Acquisitions (4,048,972) (2,326,740) Proceeds on sale and at maturities 3,880,890 1,789,738 Change in loans (1,855,403) (1,690,453) Change in assets purchased under reverse repurchase agreements 257,430 (302,764) Proceeds from mortgage loan securitizations 737,166 1,068,956 Additions to tangible capital assets and software (22,437) (22,380) Proceeds from disposal of tangible capital assets and software 4 103 Net change in interest- bearing deposits with other banks (381,695) (8,830) Net cash flows from sale of asset - 29,632 -------------------------------------------- (1,433,017) (1,462,738) -------------------------------------------- Net change in cash and non- interest-bearing deposits with other banks during the period 1,830 (1,489) Cash and non-interest- bearing deposits with other banks at beginning of period 54,410 65,245 -------------------------------------------- Cash and non-interest- bearing deposits with other banks at end of period $ 56,240 $ 63,756 -------------------------------------------- -------------------------------------------- Supplemental disclosure relating to cash flows: Interest paid during the period $ 434,405 $ 428,133 Income taxes paid (recovered) during the period $ 13,301 $ (3,470) ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes are an integral part of the interim consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ALL TABULAR AMOUNTS ARE IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED (UNAUDITED)1. ACCOUNTING POLICIES
The unaudited interim consolidated financial statements of Laurentian Bank of Canada (the "Bank") have been prepared by management who is responsible for the integrity and fairness of the financial information presented. These interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") for interim financial statements. The significant accounting policies used in the preparation of these interim consolidated financial statements, except for changes to accounting policies stated below, are the same as those in the Bank's audited annual consolidated financial statements as at October 31, 2008. These accounting policies conform to GAAP. However, these interim consolidated financial statements do not reflect all of the information and disclosures required by GAAP for complete financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements as at October 31, 2008. These interim consolidated financial statements reflect amounts which are based on the best estimates and judgment of management. Actual results may differ from these estimates. Certain comparative figures have been reclassified to conform to the current period presentation.
Changes to accounting policies Goodwill and other intangible assetsIn November 2007, the Canadian Accounting Standards Board (AcSB) approved new Section 3064, Goodwill and Intangible Assets, which supersedes Section 3062, Goodwill and Other Intangible Assets, and Section 3450, Research and Development Costs. New Section 3064 reinforces a principle-based approach to the recognition of costs as assets in accordance with the definition of an asset and the criteria for asset recognition in Section 1000. It also specifically addresses the recognition of internally developed intangible assets. In addition, EIC-27, Revenues and Expenditures during the Pre-operating Period, will no longer apply following the adoption of Section 3064. These changes, effective for the Bank as of November 1, 2008, had no significant effect on the interim consolidated financial statements.
Credit risk and the fair value of financial assets and financial liabilitiesOn January 20, 2009, the Emerging Issue Committee of the Canadian Institute of Chartered Accountants issued Abstract EIC-173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities, applicable for the Bank retroactively as of November 1, 2008. The Abstract confirms that an entity's own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and liabilities, including derivative instruments. This Abstract had no significant effect on the interim consolidated financial statements.
Financial instruments disclosures
In June 2009, the AcSB issued amendments to Section 3862 - Financial instruments disclosures to improve disclosure requirements on fair value measurement and liquidity risk. The amendments are effective for the Bank's October 31, 2009 annual financial statements. As the amendments only concern disclosure requirements, they will not have a significant impact on results or financial position.
Impairment of financial assets
On July 29, 2009, the AcSB posted the typescript related to the amendments that will be incorporated to Section 3025, Impaired loans, and Section 3855, Financial Instruments - Recognition and Measurement.
The amendments will mainly: (i) eliminate the distinction between debt securities and other debt instruments, a distinction based more on legal form than economic substance; as a result, it will be possible to classify debt instruments not quoted in an active market as loans and receivables, and to assess impairment using the incurred credit loss model of Section 3025; (ii) change the impairment model for held-to-maturity financial assets to the incurred credit loss model of Section 3025; (iii) require the reversal of an impairment loss relating to an available-for-sale debt instrument when, in a subsequent period, the fair value of the instrument increases and the increase can be objectively related to an event occurring after the loss was recognized.
The amendments apply to annual financial statements relating to fiscal years beginning on or after November 1, 2008, but are not required for interim financial statements relating to periods within the fiscal year of adoption. The Bank has opted to defer the adoption to October 31, 2009 and does not anticipate that it will then have a significant effect.
2. LOANS Loans and impaired loans AS AT JULY 31, 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- GROSS AMOUNT GROSS AMOUNT OF IMPAIRED SPECIFIC OF LOANS LOANS ALLOWANCES ------------------------------------------------------------------------- Personal loans $ 5,214,906 $ 21,102 $ 7,333 Residential mortgages 6,978,469 24,633 1,643 Commercial mortgages 1,148,071 9,316 2,503 Commercial and other loans 2,003,217 68,058 29,943 -------------------------------------------- $ 15,344,663 $ 123,109 $ 41,422 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AS AT JULY 31, 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- GENERAL TOTAL ALLOWANCES ALLOWANCES ------------------------------------------------------------------------- Personal loans $ 28,949 $ 36,282 Residential mortgages 4,091 5,734 Commercial mortgages 5,879 8,382 Commercial and other loans 34,331 64,274 -------------------------------------------- $ 73,250 $ 114,672 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AS AT OCTOBER 31, 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- GROSS AMOUNT GROSS AMOUNT OF IMPAIRED SPECIFIC OF LOANS LOANS ALLOWANCES ------------------------------------------------------------------------- Personal loans $ 5,302,046 $ 19,250 $ 6,634 Residential mortgages 6,182,871 16,579 1,405 Commercial mortgages 932,688 6,275 1,883 Commercial and other loans 1,847,327 59,769 29,262 -------------------------------------------- $ 14,264,932 $ 101,873 $ 39,184 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AS AT OCTOBER 31, 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- GENERAL TOTAL ALLOWANCES ALLOWANCES ------------------------------------------------------------------------- Personal loans $ 33,052 $ 39,686 Residential mortgages 4,211 5,616 Commercial mortgages 4,760 6,643 Commercial and other loans 31,227 60,489 -------------------------------------------- $ 73,250 $ 112,434 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AS AT JULY 31, 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- GROSS AMOUNT GROSS AMOUNT OF IMPAIRED SPECIFIC OF LOANS LOANS ALLOWANCES ------------------------------------------------------------------------- Personal loans $ 5,265,562 $ 18,973 $ 6,431 Residential mortgages 6,109,648 21,033 1,625 Commercial mortgages 883,401 4,029 1,657 Commercial and other loans 1,727,105 58,639 32,541 -------------------------------------------- $ 13,985,716 $ 102,674 $ 42,254 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AS AT JULY 31, 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- GENERAL TOTAL ALLOWANCES ALLOWANCES ------------------------------------------------------------------------- Personal loans $ 32,289 $ 38,720 Residential mortgages 4,433 6,058 Commercial mortgages 4,716 6,373 Commercial and other loans 31,812 64,353 -------------------------------------------- $ 73,250 $ 115,504 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Specific allowances for loan losses FOR THE NINE MONTHS ENDED JULY 31 ----------------------- 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- RESIDEN- COMMER- COMMER- TOTAL TOTAL TIAL CIAL CIAL AND SPECIFIC SPECIFIC PERSONAL MORTGA- MORTGA- OTHER ALLOWAN- ALLOWAN- LOANS GES GES LOANS CES CES ------------------------------------------------------------------------- Balance at beginning of period $ 6,634 $ 1,405 $ 1,883 $ 29,262 $ 39,184 $ 50,072 Provision for loan losses recorded in the consoli- dated statement of income 27,363 1,003 620 11,014 40,000 30,000 Write-offs (32,731) (1,120) - (10,409) (44,260) (41,942) Recoveries 6,067 355 - 76 6,498 4,124 -------------------------------------------------------------- Balance at end of period $ 7,333 $ 1,643 $ 2,503 $ 29,943 $ 41,422 $ 42,254 ------------------------------------------------------------------------- -------------------------------------------------------------------------General allowance for loans losses
Loan losses for the nine months period ended July 31, 2008 include an $8,000,000 charge resulting from an increase in the general allowance for loan losses.
Loans past due but not impaired
Personal and residential mortgage loans shown in the table below are not classified as impaired because either they are less than 90 days past due or they are secured in order to reasonably expect full repayment. Commercial loans past due but not impaired are not significant.
AS AT JULY 31, 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 1 TO 32 TO OVER 31 DAYS 90 DAYS 90 DAYS TOTAL ------------------------------------------------------------------------- Personal loans $ 88,364 $ 27,345 $ 5,912 $ 121,621 Residential mortgages 164,405 47,809 28,067 240,281 ------------------------------------------------- $ 252,769 $ 75,154 $ 33,979 $ 361,902 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AS AT OCTOBER 31, 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 1 TO 32 TO OVER 31 DAYS 90 DAYS 90 DAYS TOTAL ------------------------------------------------------------------------- Personal loans $ 86,850 $ 26,298 $ 3,665 $ 116,813 Residential mortgages 151,524 27,861 16,368 195,753 ------------------------------------------------- $ 238,374 $ 54,159 $ 20,033 $ 312,566 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 3. LOAN SECURITIZATION The Bank securitizes residential mortgage loans insured by the Canadian Mortgage and Housing Corporation, under the Canada Mortgage Back Program and the Government of Canada NHA MBS auction process. As well, the Bank has securitized conventional mortgages prior to 2008. The gains before income taxes, net of transaction-related costs, are recognized in securitization income. The following table summarizes the residential mortgage loan securitization transactions carried out by the Bank. FOR THE THREE MONTHS ENDED -------------------------------------------- JULY 31 APRIL 30 JULY 31 2009 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash proceeds, net of transaction costs $ 253,234 $ 171,816 $ 262,707 Rights to future excess spreads 9,366 15,180 14,353 Servicing liability (2,317) (1,301) (2,225) Other 61 (2,735) (220) -------------------------------------------- 260,344 182,960 274,615 Residential mortgages securitized and sold (253,469) (172,039) (263,588) Write-off of loan origination costs (1,641) (1,692) (2,819) -------------------------------------------- Securitization gains $ 5,234 $ 9,229 $ 8,208 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED ------------------------------ JULY 31 JULY 31 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash proceeds, net of transaction costs $ 737,166 $ 1,068,956 Rights to future excess spreads 52,853 48,978 Servicing liability (6,416) (8,875) Other (7,732) (8,468) ------------------------------ 775,871 1,100,591 Residential mortgages securitized and sold (737,910) (1,069,271) Write-off of loan origination costs (6,826) (7,927) ------------------------------ Securitization gains $ 31,135 $ 23,393 ------------------------------------------------------------------------- ------------------------------------------------------------------------- With regard to the transfer of residential mortgages, the key assumptions used to determine the initial fair value of retained interests at the securitization date for transactions carried out during the third quarter of 2009 are summarized as follows. ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average term (months) 38 Rate of prepayment 22.1 % Discount rate 1.7 % ------------------------------------------------------------------------- ------------------------------------------------------------------------- No loss is expected on insured residential mortgages. The following table details securitization income as reported in the consolidated statement of income. FOR THE THREE MONTHS ENDED -------------------------------------------- JULY 31 APRIL 30 JULY 31 2009 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Securitization gains $ 5,234 $ 9,229 $ 8,208 Changes in fair value of retained interests, seller swaps and financial instruments held as economic hedges 4,879 (2,042) 1,709 Servicing income 1,938 1,820 1,716 Other (2,280) (413) (869) -------------------------------------------- $ 9,771 $ 8,594 $ 10,764 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED ------------------------------ JULY 31 JULY 31 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Securitization gains $ 31,135 $ 23,393 Changes in fair value of retained interests, seller swaps and financial instruments held as economic hedges (4,472) 1,315 Servicing income 5,593 4,697 Other (3,366) (3,786) ------------------------------ $ 28,890 $ 25,619 ------------------------------------------------------------------------- -------------------------------------------------------------------------As at July 31, 2009, the Bank held rights to future excess spreads of $85,557,000 (of which $81,921,000 related to insured mortgages) and cash reserve accounts of $13,304,000.
The total principal amount of securitized residential mortgages outstanding amounted to $2,610,188,000 as at July 31, 2009 ($2,398,564,000 as at October 31, 2008).
4.CAPITAL STOCK Issuance of common sharesDuring the quarter, 6,613 common shares were issued to management under the Bank's employee share purchase option plan for a cash consideration of $145,000 (8,226 common shares for a cash consideration of $179,000 during the nine-month period ended July 31, 2009).
ISSUED AND OUTSTANDING AS AT JULY 31, 2009 AS AT OCTOBER 31, 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- IN THOUSANDS OF DOLLARS, EXCEPT NUMBER NUMBER NUMBER OF SHARES OF SHARES AMOUNT OF SHARES AMOUNT ------------------------------------------------------------------------- Class A Preferred Shares(1) Series 9 4,000,000 $ 100,000 4,000,000 $ 100,000 Series 10 4,400,000 110,000 4,400,000 110,000 -------------------------------------------------- Total preferred shares 8,400,000 $ 210,000 8,400,000 $ 210,000 -------------------------------------------------- -------------------------------------------------- Common shares 23,855,926 $ 257,641 23,847,700 $ 257,462 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) The preferred shares are convertible into common shares at the Bank's option. However, the number of shares issuable on conversion is not determinable until the date of conversion.Capital management
The Bank's objective is to maintain an optimal level of capital to support activities while generating an acceptable return for its shareholders, considering the Bank's specific risk profile. Capital must be sufficient to demonstrate the Bank's solvency and its ability to deal with all of its operating risks, as well as to offer depositors and creditors the requisite safety. Capital must also meet minimum regulatory requirements, as defined by the Office of the Superintendent of Financial Institutions Canada (OSFI), internal capital adequacy objectives and be aligned with targeted credit ratings.
Regulatory guidelines issued by OSFI require banks to maintain a minimum Tier 1 capital ratio of at least 7% and a total capital ratio of at least 10%. The Bank is monitoring its regulatory capital based on the Standard Approach for credit risk and on the Basic Indicator Approach for operational risk, as proposed by the Bank for International Settlements regulatory risk-based capital framework (Basel II). The Bank has complied with these requirements throughout the nine-month period ended July 31, 2009.
Regulatory capital AS AT AS AT AS AT JULY 31 OCTOBER 31 JULY 31 2009 2008 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Tier 1 capital Common shares $ 257,641 $ 257,462 $ 257,360 Contributed surplus 201 173 158 Retained earnings 638,480 596,974 580,703 Non-cumulative preferred shares 210,000 210,000 210,000 Less : goodwill, securitization and other (91,071) (99,239) (91,498) -------------------------------------------- Total - Tier 1 capital 1,015,251 965,370 956,723 -------------------------------------------- Tier 2 capital Subordinated debentures 150,000 150,000 150,000 General allowances 72,476 73,250 73,250 Less : securitization and other (32,007) (31,738) (31,447) -------------------------------------------- Total - Tier 2 capital 190,469 191,512 191,803 -------------------------------------------- Total capital $ 1,205,720 $ 1,156,882 $ 1,148,526 -------------------------------------------- -------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- 5.STOCK-BASED COMPENSATION Share purchase option plan There were no new grants during the first nine months of 2009. Information on the outstanding number of options is as follows. AS AT AS AT JULY 31, OCTOBER 31, 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NUMBER NUMBER ------------------------------------------------------------------------- Share purchase options Outstanding at end of period 119,112 127,338 Exercisable at end of period 94,112 89,838 ------------------------------------------------------------------------- -------------------------------------------------------------------------Restricted share unit plan
During the first quarter of 2009, under the restricted share unit plan, annual bonuses for certain employees amounting to $1,528,000 were converted into 42,537 entirely vested restricted share units. The Bank also granted 25,522 additional restricted share units that will vest in December 2011.
Performance-based share unit plan
During the first quarter of 2009, under the performance-based share unit plan, the Bank granted 42,724 performance-based share units valued at $35.93 each. Rights to 37.5% of these units will vest after three years. The rights to the remaining units will vest after three years, upon meeting certain financial objectives.
Stock appreciation rights plan
There were no new grants during the third quarter of 2009 under the stock appreciation rights plan (the Bank granted 27,000 stock appreciation rights during the nine-month period ended July 31, 2009).
Stock-based compensation plan expense
The following table presents the expense related to all stock-based compensation plans, net of the effect of related hedging transactions.
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED --------------------------------- ----------------------- JULY 31 APRIL 30 JULY 31 JULY 31 JULY 31 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Stock-based compensation plan expense $ 4,024 $ 238 $ 595 $(1,653) $ 801 Effect of hedges (4,979) (16) 121 3,034 1,374 ----------------------------------------------------------- Total $ (955) $ 222 $ 716 $ 1,381 $ 2,175 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 6.EMPLOYEE FUTURE BENEFITS FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED --------------------------------- ----------------------- JULY 31 APRIL 30 JULY 31 JULY 31 JULY 31 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Defined benefit pension plan expense $ 1,194 $ 1,140 $ 2,659 $ 3,805 $ 7,882 Defined contribution pension plan expense 1,077 1,031 1,000 3,101 2,745 Other plan expense 832 804 830 2,468 2,472 ----------------------------------------------------------- Total $ 3,103 $ 2,975 $ 4,489 $ 9,374 $13,099 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 7. WEIGHTED AVERAGE NUMBER OF OUTSTANDING COMMON SHARES FOR THE THREE MONTHS ENDED ------------------------------------------- JULY 31 APRIL 30 JULY 31 2009 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Average number of outstanding common shares 23,853,725 23,849,313 23,841,767 Dilutive share purchase options 18,488 5,289 46,261 ------------------------------------------- Weighted average number of outstanding common shares 23,872,213 23,854,602 23,888,028 ------------------------------------------- ------------------------------------------- Average number of share purchase options not taken into account in the calculation of diluted net income per common share(1) - 105,400 - ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED ------------------------------------------- JULY 31 JULY 31 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Average number of outstanding common shares 23,850,522 23,834,150 Dilutive share purchase options 15,849 43,106 ------------------------------------------- Weighted average number of outstanding common shares 23,866,371 23,877,256 ------------------------------------------- ------------------------------------------- Average number of share purchase options not taken into account in the calculation of diluted net income per common share (1) 34,361 - ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) The average number of share purchase options was not taken into account in the calculation of diluted net income per common share since the average exercise price of these options exceeded the average market price of the Bank's shares during these periods. 8. SUPPLEMENTAL INFORMATION ON OTHER COMPREHENSIVE INCOME Other comprehensive income (loss) FOR THE THREE MONTHS ENDED ------------------------------------------- JULY 31 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- BEFORE NET OF INCOME INCOME INCOME TAXES TAXES TAXES ------------------------------------------------------------------------- Unrealized gains (losses) on available-for-sale securities Net unrealized gains (losses) during the period $ 12,276 $ (3,602) $ 8,674 Less : reclassification of realized (gains) and losses to net income during the period 4,523 (1,400) 3,123 ------------------------------------------- 16,799 (5,002) 11,797 Net (loss) on derivatives designated as cash flow hedges (26,214) 8,428 (17,786) ------------------------------------------- Other comprehensive income (loss) $ (9,415) $ 3,426 $ (5,989) ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED ------------------------------------------- JULY 31 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- BEFORE NET OF INCOME INCOME INCOME TAXES TAXES TAXES ------------------------------------------------------------------------- Unrealized gains (losses) on available-for-sale securities Net unrealized gains (losses) during the period $ (4,202) $ 1,351 $ (2,851) Less : reclassification of realized (gains) and losses to net income during the period (8,325) 387 (7,938) ------------------------------------------- (12,527) 1,738 (10,789) Net (loss) on derivatives designated as cash flow hedges (894) 253 (641) ------------------------------------------- Other comprehensive income (loss) $ (13,421) $ 1,991 $ (11,430) ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED ------------------------------------------- JULY 31 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- BEFORE NET OF INCOME INCOME INCOME TAXES TAXES TAXES ------------------------------------------------------------------------- Unrealized gains (losses) on available-for-sale securities Net unrealized gains (losses) during the period $ 13,412 $ (3,883) $ 9,529 Less : reclassification of realized (gains) and losses to net income during the period 5,500 (1,705) 3,795 ------------------------------------------- 18,912 (5,588) 13,324 Net gains on derivatives designated as cash flow hedges 7,949 (2,931) 5,018 ------------------------------------------- Other comprehensive income $ 26,861 $ (8,519) $ 18,342 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED ------------------------------------------- JULY 31 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- BEFORE NET OF INCOME INCOME INCOME TAXES TAXES TAXES ------------------------------------------------------------------------- Unrealized gains (losses) on available-for-sale securities Net unrealized gains (losses) during the period $ (8,117) $ 2,534 $ (5,583) Less : reclassification of realized (gains) and losses to net income during the period (10,850) 782 (10,068) ------------------------------------------- (18,967) 3,316 (15,651) Net gains on derivatives designated as cash flow hedges 40,518 (13,149) 27,369 ------------------------------------------- Other comprehensive income $ 21,551 $ (9,833) $ 11,718 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Accumulated other comprehensive income (net of income taxes) ------------------------------------------------------------------------- ------------------------------------------------------------------------- ACCUMULATED OTHER CASH AVAILABLE- COMPREHEN- FLOW FOR-SALE SIVE HEDGING SECURITIES INCOME ------------------------------------------------------------------------- Balance at October 31, 2008 $ 35,417 $ (16,591) $ 18,826 Change during the three months ended January 31, 2009 15,041 (6,797) 8,244 Change during the three months ended April 30, 2009 7,763 8,324 16,087 Change during the three months ended July 31, 2009 (17,786) 11,797 (5,989) ------------------------------------------- Balance at July 31, 2009 $ 40,435 $ (3,267) $ 37,168 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ACCUMULATED OTHER CASH AVAILABLE- COMPREHEN- FLOW FOR-SALE SIVE HEDGING SECURITIES INCOME ------------------------------------------------------------------------- Balance at October 31, 2007 $ (10,255) $ 11,132 $ 877 Change during the three months ended January 31, 2008 22,732 (3,931) 18,801 Change during the three months ended April 30, 2008 5,278 (931) 4,347 Change during the three months ended July 31, 2008 (641) (10,789) (11,430) ------------------------------------------- Balance at July 31, 2009 17,114 (4,519) 12,595 Change during the three months ended October 31, 2008 18,303 (12,072) 6,231 ------------------------------------------- Balance at October 31, 2008 $ 35,417 $ (16,591) $ 18,826 ------------------------------------------------------------------------- -------------------------------------------------------------------------9. RISK MANAGEMENT
The Bank is exposed to various types of risks owing to the nature of the business activities it carries on, including those related to the use of financial instruments. In order to manage the risks associated with using financial instruments, including loan and deposit, security and derivative financial instrument portfolios, controls such as risk management policies and various risk limits have been implemented. These measures aim to optimize the return/risk ratio in all operating segments. A corporate governance structure was also designed to ensure global risk tolerance is consistent with the Bank's strategies and objectives. The main risks to which the Bank is exposed are set out below.
Market risk
Market risk corresponds to the financial losses that the Bank could incur because of unfavourable fluctuations in the value of financial instruments following variations in the parameters underlying their valuation, such as interest rates, exchange rates or quoted stock market prices.
As at July 31, 2009 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 is as follows.
AS AT AS AT JULY 31, OCTOBER 31, 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Increase in net interest income before taxes over the next 12 months $ 2,475 $ 8,901 Change in the economic value of common shareholders' equity $ (15,436) $ (27,060) ------------------------------------------------------------------------- -------------------------------------------------------------------------Credit risk
The use of financial instruments, including derivatives, can result in credit risk exposures representing the risk of financial loss arising from counterparties' inability or refusal to fully honour their contractual obligations.
Note 2 to these interim consolidated financial statements provides detailed information on the Bank's loan portfolios and related credit exposures.
With respect to derivative financial instruments, the majority of the Bank's credit concentration is with financial institutions, primarily Canadian banks.
The amount that best represents the maximum exposure to credit risk of the Bank as at July 31, 2009, without taking account of any collateral held or other credit enhancements, is essentially the sum of financial assets on the consolidated financial statement, plus credit-related commitments, as set-out below.
AS AT AS AT JULY 31, OCTOBER 31, IN MILLIONS OF DOLLARS 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Financial assets, as reported on balance sheet $ 20,926 $ 19,255 Credit commitments and other off-balance sheet items(1) 4,626 4,153 ------------------------------ Total $ 25,552 $ 23,408 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Including $2,244,000,000 as at July 31, 2009 ($2,083,000,000 as at October 31, 2008) related to personal credit facilities and credit card lines. Liquidity risk Liquidity risk represents the possibility that the Bank may not be able to gather sufficient cash resources, when required and under reasonable conditions, to meet its financial obligations. Liquidity management pays particular attention to deposit and loan maturities, as well as to funding availability and demand when planning financing. Contractual maturities of financial liabilities The following table presents the principal obligations related to financial liabilities by contractual maturity. AS AT JULY 31, 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- TERM DEMAND ------------------------------------------ AND WITHIN 1 TO 5 OVER NOTICE 1 YEAR YEARS 5 YEARS ------------------------------------------------------------------------- Deposits $ 6,059,281 $ 5,003,797 $ 6,884,429 $ 10,351 Obligations related to assets sold short - 645,523 54,535 - Obligations related to assets sold under repurchase agreements - 251,749 - - Subordinated debentures - - 150,000 - ---------------------------------------------------------- $ 6,059,281 $ 5,901,069 $ 7,088,964 $ 10,351 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AS AT JULY 31, 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- TOTAL ------------------------------------------------------------------------- Deposits $ 17,957,858 Obligations related to assets sold short 700,058 Obligations related to assets sold under repurchase agreements 251,749 Subordinated debentures 150,000 ---------------------------------------------------------- $ 19,059,665 ------------------------------------------------------------------------- -------------------------------------------------------------------------
10. SUPPLEMENTAL INFORMATION ON FINANCIAL INSTRUMENTS Fair value of financial instrumentsThe fair value of a financial instrument is defined as the amount of consideration for a financial instrument that would be agreed upon in an arm's length transaction between knowledgeable, willing parties who are under no compulsion to act. Quoted market prices are not available for a significant portion of the Bank's financial instruments. As a result, for these instruments, the fair values presented are estimates derived using present value or other valuation techniques and may not be indicative of the net realizable value.
When fair value is determined using valuation models, it may be necessary to use assumptions as to the amount and timing of estimated future cash flows and discount rates. These assumptions reflect the risks inherent in financial instruments.
As at July 31, 2009, the fair value of financial assets and liabilities approximate their carrying amount, except for the assets and liabilities presented below.
AS AT JULY 31, 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FAVOURABLE CARRYING FAIR (UNFAVOURABLE) IN MILLIONS OF DOLLARS AMOUNT VALUE VARIANCE ------------------------------------------------------------------------- Assets Loans $ 15,230 $ 15,463 $ 233 Liabilities Deposits 17,958 18,182 (224) Subordinated debentures $ 150 $ 156 $ (6) ------------------------------------------------------------------------- ------------------------------------------------------------------------- AS AT OCTOBER 31, 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FAVORABLE CARRYING FAIR (UNFAVORABLE) IN MILLIONS OF DOLLARS AMOUNT VALUE VARIANCE ------------------------------------------------------------------------- Assets Loans $ 14,153 $ 14,272 $ 119 Liabilities Deposits 15,334 15,418 (84) Subordinated debentures $ 150 $ 155 $ (5) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Methods and assumptions used in estimating the fair value of financial instrumentsLoans
The fair value of loans is estimated by discounting cash flows adjusted to reflect prepayments, if any, at the prevailing interest rates in the marketplace for new loans with substantially similar terms. For certain variable rate loans subject to frequent rate resets and loans with indeterminate maturities, the fair value is deemed to represent the carrying amount.
Deposits
The fair value of fixed rate deposits is estimated using discounted cash flows based on current market interest rates for deposits with substantially similar terms. The fair value of deposits without stated maturities or variable rate deposits is deemed to represent their carrying amount.
Subordinated debentures
The fair value of subordinated debentures is estimated using discounted cash flows based on current market interest rates for similar issues or rates currently offered for debt securities with the same term to maturity.
Gains and losses on the portfolio of available-for-sale securities
The following gains and losses were recognized in net income with regard to the available-for-sale securities.
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED --------------------------------- ----------------------- JULY 31 APRIL 30 JULY 31 JULY 31 JULY 31 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Realized net gains $ 211 $ 64 $ 8,325(1) $ (766) $ 11,374(1) Writedowns for impairment recognized in net income (4,734) - (436) (4,734) (436) ----------------------------------------------------------- Total $ (4,523) $ 64 $ 7,889 $ (5,500) $ 10,938 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Includes a $12.9 million gain on the sale of shares of the Montreal Exchange. Unrealized gains and losses on the portfolio of available-for-sale securities The following table presents the gross unrealized gains and unrealized losses on available-for-sale securities, recognized in other comprehensive income. AS AT JULY 31, 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------------------------------------------------------------------- Securities issued or guaranteed by Canada $ 267,314 $ 38 $ - $ 267,352 by provinces 540,955 4,869 259 545,565 Other debt securities 115,921 5,035 468 120,488 Asset-backed securities 20,183 - 2,560 17,623 Preferred shares 74,751 440 1,524 73,667 Common shares and other securities 41,270 215 4,514 36,971 -------------------------------------------------------------- $ 1,060,394 $ 10,597 $ 9,325 $ 1,061,666 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AS AT OCTOBER 31, 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------------------------------------------------------------------- Securities issued or guaranteed by Canada $ 977,724 $ 575 $ 31 $ 978,268 by provinces 26,604 - 303 26,301 Other debt securities 200,342 287 3,650 196,979 Asset-backed securities 20,323 1 1,036 19,288 Preferred shares 75,329 6 6,263 69,072 Common shares and other securities 46,966 29 9,399 37,596 -------------------------------------------------------------- $ 1,347,288 $ 898 $ 20,682 $ 1,327,504 ------------------------------------------------------------------------- -------------------------------------------------------------------------As at July 31, 2009, unrealized losses mainly related to publicly traded securities of Canadian financial institutions and energy sector trusts. The market values of these securities have generally declined earlier in 2008 and 2009 due to market conditions. However, these companies have maintained good financial conditions and their business plans remain sound. As a result, management has determined that these declines in fair value were temporary in nature and that it had the ability and the intent to hold these securities until their fair value recovers. These declines in value are included in accumulated other comprehensive income.
Financial instruments designated as held-for-trading
Management can elect to designate financial instruments as held-for-trading instruments, with changes in fair value recorded in income, provided that such designations meet specific criteria. Certain securities, retained interests related to securitization activities and retail deposits were designated as held-for-trading in order to significantly reduce a recognition inconsistency that would otherwise have arisen from recognizing gains and losses on different bases. These financial instruments are used as part of the Bank's overall asset-liability management and provide an economic hedge for other financial instruments that are measured at fair value. Gains and losses on these instruments are therefore generally offset by changes in value of other financial instruments. The following table presents the effect on net income of fair valuing these instruments:
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED --------------------------------- ----------------------- JULY 31 APRIL 30 JULY 31 JULY 31 JULY 31 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Included in securiti- zation income $(26,498) $ 3,455 $ (4,540) $ (1,797) $ 19,318 Included in income from treasury and financial market operations 137 139 193 231 (233) ----------------------------------------------------------- Total $(26,361) $ 3,594 $ (4,347) $ (1,566) $ 19,085 ------------------------------------------------------------------------- -------------------------------------------------------------------------The nominal amount of deposits designated as held-for-trading was $6,000,000 as at July 31, 2009 ($68,560,000 as at July 31, 2008). The difference between the amount the Bank would be contractually required to pay at maturity to the holders of these deposits and their carrying amount of $6,023,000 as at July 31, 2009 ($68,704,000, as at July 31, 2008), is $23,000 ($144,000, as at July 31, 2008).
Derivative financial instruments Ineffectiveness related to hedging relationshipsThe following table presents the ineffective portion of accumulated changes in the fair value of hedging instruments recognized in the consolidated statement of income.
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED --------------------------------- ----------------------- JULY 31 APRIL 30 JULY 31 JULY 31 JULY 31 2009 2009 2008 2009 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Favourable (unfavourable) ineffectiveness on cash flow hedging $ 87 $ 89 $ 12 $ 211 $ 275 on fair value hedging 242 (227) (317) (755) (569) ----------------------------------------------------------- $ 329 $ (138) $ (305) $ (544) $ (294) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Breakdown of swap contracts designated as hedging instruments, by categoryThe following table presents the Bank's swap contracts between those designated as cash flow hedging instruments and those designated as fair value hedging instruments.
The swap contracts designated as hedging instruments are used by the Bank primarily for balance sheet matching purposes and to mitigate net interest income volatility. The fair value of such swap contracts may vary considerably. Accordingly, changes in the fair value of the swap contracts designated as cash flow hedging instruments could result in significant changes in accumulated other comprehensive income and in shareholders' equity.
AS AT JULY 31, 2009 AS AT OCTOBER 31, 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOMINAL FAIR VALUE NOMINAL FAIR VALUE AMOUNT NET AMOUNT AMOUNT NET AMOUNT ------------------------------------------------------------------------- Interest rate swap contracts designated as hedging instruments Swaps used for cash flow hedging $ 3,968,000 $ 42,922 $ 2,557,000 $ 46,118 Swaps used for fair value hedging 2,585,000 68,930 3,021,750 68,148 ----------------------------------------------------------- $ 6,553,000 $ 111,852 $ 5,578,750 $ 114,266 ------------------------------------------------------------------------- -------------------------------------------------------------------------Other information on hedging relationships
Net deferred gains of $33,287,000, included in accumulated other comprehensive income as at July 31, 2009, are expected to be transferred into net income over the next twelve months.
The maximum term of cash flow hedging relationships was five years as at July 31, 2009.
11. CONTINGENCIES Class action Marcotte v. BanksOn June 11, 2009, the Superior Court of the Province of Quebec granted a class action against ten Canadian financial institutions, including Laurentian Bank, with regards to mark-ups charged by banks to credit-cardholders upon conversion in Canadian dollars of foreign currency transactions. The judgment condemned the Bank to pay mark-ups earned, with interest and additional indemnity. Along with the other Canadian financial institutions sued, the Bank submits that the judgment contains many errors of fact and in law which are significant to the point of invalidating the judgment, and therefore elected to appeal the decision rendered. Given the current situation, the Bank is not in a position to determine the outcome of this litigation and consequently, no provision was set to date.
12. SEGMENTED INFORMATION FOR THE THREE MONTHS ENDED JULY 31, 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- R & SME QUEBEC RE&C B2B ------------------------------------------------------------------------- Net interest income $ 77,844 $ 18,355 $ 23,945 Other income 31,237 6,645 2,485 -------------------------------------------- Total revenue 109,081 25,000 26,430 Provision for loan losses 12,408 2,105 1,487 Non-interest expenses 84,734 6,792 12,293 -------------------------------------------- Income (loss) before income taxes 11,939 16,103 12,650 Income taxes (recovered) 2,265 5,040 3,985 -------------------------------------------- Net income $ 9,674 $ 11,063 $ 8,665 -------------------------------------------- -------------------------------------------- Average assets(1) $ 11,210,055 $ 2,476,318 $ 4,326,084 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED JULY 31, 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LBS OTHER TOTAL ------------------------------------------------------------------------- Net interest income $ 492 $ (7,870) $ 112,766 Other income 15,647 7,877 63,891 -------------------------------------------- Total revenue 16,139 7 176,657 Provision for loan losses - - 16,000 Non-interest expenses 11,530 3,732 119,081 -------------------------------------------- Income (loss) before income taxes 4,609 (3,725) 41,576 Income taxes (recovered) 1,366 237 12,893 -------------------------------------------- Net income $ 3,243 $ (3,962) $ 28,683 -------------------------------------------- -------------------------------------------- Average assets(1) $ 1,511,343 $ 1,265,222 $ 20,789,022 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED APRIL 30, 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- R & SME QUEBEC RE&C B2B ------------------------------------------------------------------------- Net interest income $ 74,489 $ 15,342 $ 21,496 Other income 29,281 5,033 2,417 -------------------------------------------- Total revenue 103,770 20,375 23,913 Provision for loan losses 8,129 3,161 710 Non-interest expenses 83,105 6,346 11,740 -------------------------------------------- Income (loss) before income taxes 12,536 10,868 11,463 Income taxes (recovered) 2,780 3,401 3,630 -------------------------------------------- Net income $ 9,756 $ 7,467 $ 7,833 -------------------------------------------- -------------------------------------------- Average assets(1) $ 10,849,661 $ 2,274,033 $ 4,231,056 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED APRIL 30, 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LBS OTHER TOTAL ------------------------------------------------------------------------- Net interest income $ 526 $ (17,780) $ 94,073 Other income 10,833 13,131 60,695 -------------------------------------------- Total revenue 11,359 (4,649) 154,768 Provision for loan losses - - 12,000 Non-interest expenses 8,721 4,122 114,034 -------------------------------------------- Income (loss) before income taxes 2,638 (8,771) 28,734 Income taxes (recovered) 772 (3,004) 7,579 -------------------------------------------- Net income $ 1,866 $ (5,767) $ 21,155 -------------------------------------------- -------------------------------------------- Average assets(1) $ 1,315,395 $ 1,440,895 $ 20,111,040 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED JULY 31, 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- R & SME QUEBEC RE&C B2B ------------------------------------------------------------------------- Net interest income $ 77,033 $ 14,256 $ 21,992 Other income(2) 30,467 4,044 2,740 -------------------------------------------- Total revenue 107,500 18,300 24,732 Provision for loan losses(3) 9,343 1,003 154 Non-interest expenses 82,789 5,786 10,628 -------------------------------------------- Income (loss) before income taxes 15,368 11,511 13,950 Income taxes (recovered) 3,812 3,808 4,710 -------------------------------------------- Net income $ 11,556 $ 7,703 $ 9,240 -------------------------------------------- -------------------------------------------- Average assets(1) $ 10,250,590 $ 2,117,407 $ 3,966,095 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED JULY 31, 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LBS OTHER TOTAL ------------------------------------------------------------------------- Net interest income $ 709 $ (10,577) $ 103,413 Other income(2) 9,203 21,228 67,682 -------------------------------------------- Total revenue 9,912 10,651 171,095 Provision for loan losses(3) - 8,000 18,500 Non-interest expenses 8,346 5,998 113,547 -------------------------------------------- Income (loss) before income taxes 1,566 (3,347) 39,048 Income taxes (recovered) 458 (4,677) 8,111 -------------------------------------------- Net income $ 1,108 $ 1,330 $ 30,937 -------------------------------------------- -------------------------------------------- Average assets(1) $ 1,587,308 $ 802,582 $ 18,723,982 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED JULY 31, 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- R & SME QUEBEC RE&C B2B ------------------------------------------------------------------------- Net interest income $ 228,587 $ 47,976 $ 66,556 Other income 89,063 16,543 7,288 -------------------------------------------- Total revenue 317,650 64,519 73,844 Provision for loan losses 30,072 6,920 3,008 Non-interest expenses 250,072 19,070 34,809 -------------------------------------------- Income (loss) before income taxes 37,506 38,529 36,027 Income taxes (recovered) 7,896 12,058 11,403 -------------------------------------------- Net income $ 29,610 $ 26,471 $ 24,624 -------------------------------------------- -------------------------------------------- Average assets(1) $ 10,934,428 $ 2,319,217 $ 4,240,737 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED JULY 31, 2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LBS OTHER TOTAL ------------------------------------------------------------------------- Net interest income $ 1,768 $ (39,345) $ 305,542 Other income 35,303 34,223 182,420 -------------------------------------------- Total revenue 37,071 (5,122) 487,962 Provision for loan losses - - 40,000 Non-interest expenses 28,442 11,454 343,847 -------------------------------------------- Income (loss) before income taxes 8,629 (16,576) 104,115 Income taxes (recovered) 2,529 (4,656) 29,230 -------------------------------------------- Net income $ 6,100 $ (11,920) $ 74,885 -------------------------------------------- -------------------------------------------- Average assets(1) $ 1,369,452 $ 1,306,667 $ 20,170,501 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED JULY 31, 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- R & SME QUEBEC RE&C B2B ------------------------------------------------------------------------- Net interest income $ 222,707 $ 41,581 $ 66,293 Other income(4) 86,177 11,447 8,138 -------------------------------------------- Total revenue 308,884 53,028 74,431 Provision for loan losses(3) 25,726 3,497 777 Non-interest expenses 244,362 16,850 31,623 -------------------------------------------- Income (loss) before income taxes 38,796 32,681 42,031 Income taxes(5) 9,596 10,815 14,182 -------------------------------------------- Net income $ 29,200 $ 21,866 $ 27,849 -------------------------------------------- -------------------------------------------- Average assets(1) $ 9,985,127 $ 2,107,511 $ 3,817,668 ------------------------------------------------------------------------- ------------------------------------------------------------------------- FOR THE NINE MONTHS ENDED JULY 31, 2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LBS OTHER TOTAL ------------------------------------------------------------------------- Net interest income $ 2,146 $ (30,757) $ 301,970 Other income(4) 23,894 46,044 175,700 -------------------------------------------- Total revenue 26,040 15,287 477,670 Provision for loan losses(3) - 8,000 38,000 Non-interest expenses 23,286 16,830 332,951 -------------------------------------------- Income (loss) before income taxes 2,754 (9,543) 106,719 Income taxes(5) 797 (3,869) 31,521 -------------------------------------------- Net income $ 1,957 $ (5,674) $ 75,198 -------------------------------------------- -------------------------------------------- Average assets(1) $ 1,481,166 $ 702,311 $ 18,093,783 ------------------------------------------------------------------------- ------------------------------------------------------------------------- R & SME Quebec - The Retail & SME Quebec segment covers the full range of savings, investment, financing and transactional products and services offered through its direct distribution network, which includes branches, the electronic network and the call centre, as well as Point-of-Sale financing across Canada. This business segment also offers Visa credit card services, insurance products and trust services. As well, it offers all commercial financial services to the small and medium enterprises in Quebec. RE&C - The Real Estate & Commercial segment handles real estate financing throughout Canada, commercial financing in Ontario and National accounts. B2B - The B2B Trust business segment supplies generic and complementary banking and financial products to financial advisors and non-bank financial institutions across Canada. This business segment also encompasses deposit brokerage operations. LBS - LBS segment consists of the activities of the Laurentian Bank Securities Inc. subsidiary. Other - The Other segment includes treasury and securitization activities and other activities of the Bank, including revenues and expenses that are not attributable to the above-mentioned segments. (1) Assets are disclosed on an average basis as this measure is most relevant to a financial institution. (2) Other income in the Other segment includes a $12.9 million gain ($11.1 million net of income taxes) on the sale of shares of the Montreal Exchange as a result of the business combination of the Montreal Exchange with the TSX Group. (3) The provision for credit losses in the Other segment includes an $8.0 million charge ($5.5 million net of income taxes) resulting from an increase in the general allowance for loan losses. (4) Other income in the Other segment includes a $0.4 million loss ($0.3 million net of income taxes) on the sale of a $30.1 million personal line of credit portfolio. The Bank has not retained any rights or obligations in respect of these loans. (5) The Other segment's income taxes include a $5.6 million tax adjustment reflecting the decrease in the Bank's future income tax assets as a result of reductions in federal income tax rates.
For further information
Chief Financial Officer: Michel C. Lauzon, (514) 284-4500, extension 7997
Media and Investor Relations contact: Gladys Caron, (514) 284-4500, extension 7511, cell (514) 893-3963
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- TFSA Pre-Sale at Laurentian Bank: Offering Savers a Bit of a Head Start - CNW Group
- Laurentian Bank and Maison Théâtre offering a special rate to see the Baobab holiday show - CNW Group
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