Laurentian Bank of Canada TSE: LB reported a second-quarter loss on a reported basis as transaction-related charges and a loss tied to the sale of a syndicated loan portfolio weighed on results, while management said the bank remains on track with previously announced transactions involving National Bank and Fairstone.
President and CEO Éric Provost said Laurentian remains focused on serving customers and managing operations during what he described as an uncertain macroeconomic environment, while also supporting the migration and sale process. He thanked employees for their commitment during the transition.
Provost said the bank made “meaningful progress” during the quarter on the transactions announced with National Bank and Fairstone. He said the Competition Act approval condition for both transactions has been satisfied, provided there is no change in circumstances relating to the Competition Bureau. Operationally, he said the portfolio migration is progressing well and remains on track.
“Based on our current trajectory, we continue to expect both transactions to close by the end of 2026,” Provost said during prepared remarks. In response to a question from CIBC analyst Paul Holden, Provost clarified that the expected timing refers to calendar 2026 and said the process is moving according to plan.
Reported Results Show Net Loss; Adjusted Earnings Decline
Executive Vice President and Chief Financial Officer Yvan Deschamps said reported total revenue for the second quarter of 2026 was CAD 213.7 million, down 12% from a year earlier and 15% sequentially. On a reported basis, Laurentian posted a net loss of CAD 20.6 million, or a diluted loss of CAD 0.50 per share.
Deschamps said the bank recorded CAD 43.2 million in after-tax adjusting items, equal to CAD 0.96 per share. Those items included several charges stemming from the announced transactions:
- CAD 12.9 million for severance and employee benefits;
- CAD 7.8 million for accelerated amortization of software and other intangible assets;
- CAD 1.4 million for onerous contracts, leases and other items;
- CAD 900,000 for impairment of premises and equipment;
- CAD 3.7 million for transaction and conversion costs;
- CAD 16.6 million for a net loss after tax related to the closing of the syndicated loan transaction.
On an adjusted basis, total revenue was CAD 236.2 million, down 3% year-over-year and 6% from the prior quarter. Adjusted net income was CAD 22.6 million, down 33% from a year earlier and 34% sequentially. Adjusted diluted earnings per share were CAD 0.46, down 37% year-over-year and 29% quarter-over-quarter.
The bank’s adjusted efficiency ratio increased by 240 basis points from a year earlier, which Deschamps attributed to investments, and rose 90 basis points sequentially. Adjusted return on equity was 3.4%, down 180 basis points year-over-year and 110 basis points from the previous quarter.
Net Interest Income Rises Year Over Year, Falls Sequentially
Net interest income increased by CAD 2.8 million, or 2%, compared with the prior year, supported by growth in average earning assets and a higher concentration of commercial loans. Sequentially, however, net interest income declined by CAD 9.8 million, or 5%, reflecting the shorter quarter and the impact of the syndicated loan transaction.
Laurentian’s net interest margin was 1.84%, down one basis point from a year earlier and five basis points from the prior quarter. Deschamps said the sequential decline reflected the non-recurrence of loan repricing lags and favorable repayments recorded in the first quarter of 2026.
Other income was CAD 51.1 million, down 15% year-over-year and 10% sequentially, mostly due to income from financial instruments. Non-interest expenses were CAD 183.2 million, up 1% from a year earlier but down 5% sequentially, mainly due to seasonally lower salaries and employee benefits and a streamlined workforce.
The bank’s CET1 ratio increased by 10 basis points to 11%, which Deschamps said reflected the net impact of the syndicated loan transaction. He also said Laurentian maintained a healthy liquidity coverage ratio through the quarter, remaining at the higher end of the industry.
Commercial Lending Growth Continues Excluding Syndicated Loan Sale
Provost said Laurentian’s commercial specialization teams delivered another strong quarter, with combined commercial loan growth of 2.4% when excluding the sale of the syndication portfolio. Inventory financing loans rose 5% quarter-over-quarter, while the dealer base expanded by 4%.
In commercial real estate, the portfolio increased 1% from the prior quarter, while the pipeline rose 9%. Provost said the performance leaves the bank positioned for future growth and remains aligned with its transformation plan.
Deschamps said the total commercial loan portfolio increased by about CAD 800 million year-over-year but declined by about CAD 300 million sequentially, as growth in commercial real estate and inventory financing was more than offset by the sale of the syndication loan portfolio.
Inventory financing utilization rates were 46%, up one percentage point from the prior quarter. Deschamps also noted that two-thirds of Laurentian’s commercial real estate portfolio is residential, most of it in multi-residential housing, with the loan-to-value ratio on the uninsured multi-residential portfolio at 60%.
Credit Costs Rise on Single Commercial File
Provision for credit losses increased to CAD 26.9 million, up CAD 10.2 million from a year earlier and CAD 10.4 million sequentially. As a percentage of average loans, provisions rose to 31 basis points, up 12 basis points year-over-year and 13 basis points quarter-over-quarter.
Provost said the increase was primarily driven by a single large commercial file in an industry where Laurentian no longer operates. He described the situation as isolated and said the bank believes the portfolio is appropriately reserved.
During the question-and-answer session, management said the larger credit file was not related to commercial real estate. In response to a question about the CRE portfolio, management said the book is performing in line with expectations and within normal historical variations.
Gross impaired loans decreased by CAD 50.6 million from a year earlier but increased by CAD 6.7 million sequentially, driven by commercial loans. Total allowances for credit losses were CAD 181.4 million, down CAD 11.2 million from the prior quarter, mostly due to lower allowances on impaired commercial loans.
Laurentian’s residential mortgage portfolio declined 3% year-over-year and 2% sequentially. Deschamps said the bank follows cautious underwriting standards and pointed to a 63% proportion of insured mortgages and a 52% loan-to-value ratio on the uninsured portion.
Management Outlines Third-Quarter Expectations
Looking to the third quarter of 2026, Deschamps said Laurentian expects to incur additional transaction-related charges in the CAD 40 million range on a pre-tax basis. He said those charges are largely a continuation of items incurred or gradually amortized over the current fiscal year.
The bank expects loans to decline roughly 2% to 3%, mainly due to seasonal reductions in inventory financing and a decline in residential mortgages. Deschamps said the reduction in inventory financing is also expected to pressure net interest margin.
Management said the adjusted efficiency ratio for the third quarter should be relatively aligned with the second quarter. Laurentian expects provisions for credit losses to be in the high teens, with the tax rate also expected to be in the high teens. Deschamps said capital and liquidity levels are solid and are expected to remain strong in the third quarter, while noting that an LRCN interest payment is due next quarter.
About Laurentian Bank of Canada TSE: LB
Founded in Montreal in 1846, Laurentian Bank is committed to serving its customers and fostering deep relationships with specialized groups. Laurentian Bank runs operations across Canada - primarily in Québec and Ontario - as well as in the United States and competes where it sees market opportunity and has an edge, while harnessing the power of partnerships and collaboration.
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