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

LB - Laurentian BankLaurentian Bank is a leading Canadian bank, providing a broad range of advice-based solutions and services to its clients.

The bank provides a host of services to its clients ranging from commercial and private banking; equipment, inventory and real estate financing; to advisory and investment securities services: and research and market analysis; and trustee services etc.

Laurentian Bank caters to retail clients, small and medium-sized enterprises and real estate developers. It has pan-Canadian activities and a presence in the U.S. Quebec is its home market and the bank also has a sizeable presence in the Atlantic provinces.

Laurentian Bank operates through its branch network based in Quebec and specialized teams across Canada. The bank often referred to as Laurentian Bank Financial Group comprises of LBC Capital, Northpoint commercial finance, B2B Bank, LBF Financial services and Laurentian bank securities. In all, the group manages $45 billion in total assets and has $10 billion in revenues.

Investment Data

Revenue Growth & Market Exposure

Laurentian Bank is a major player in different market segments like retail, business, financial services, securities and capital markets. As a diversified financial services provider, the bank is well positioned to take advantage of opportunities in an evolving marketplace.

Laurentian Bank is evolving its loan portfolio mix to include a greater proportion of higher margin commercial loans in the group (increasing to 35% in 2018 from 27% in 2015). The bank is also expanding its geographic footprint in the US with the country now accounting for 5% of the mix (from nil in 2015).

Its subsidiary B2B Bank is one of the major Canadian leaders in providing banking products and services, and investment accounts. In addition, Laurentian Bank Securities offers integrated brokerage services to institutional as well as retail clients.

The acquisition of the Canadian equipment financing activities of CIT and Northpoint Commercial Finance, an inventory finance lender, have strengthened the Group’s position as an industry leader. Laurentian Bank is also making progress towards launching its digital platform and increasing revenues from the commercial loan portfolio. Multiple and well diversified sources of funds like personal, institutional as well as business deposits, debt and capital, also support growth.

With more than 170 years of banking experience, Laurentian Bank is trusted for its quality services, prudent management and good governance. To drive customer growth, the bank is embracing a more customer-friendly approach and has also launched a comprehensive seven-year plan, in this regard three years back.

Dividends

Laurentian Bank is a Canadian Dividend Aristocrat having compounded its dividend growth by 7.8% over the last decade. The bank has a sound history of paying increasing dividends. It sports an attractive yield of 6% and last raised its dividend payout by 1.5%.

Given its long history in the banking industry, Laurentian Bank is better placed to address changes in customer behaviour influenced by changes in technology and the globalization of banking. Transformational processes including the implementation of the core banking system, the development of digital solutions and the adoption of the Advanced Internal Ratings-Based approach to credit risk (AIRB) should further strengthen the bank’s financial foundation.

The bank is expecting to grow its EPS by 5%-10% annually by 2021. A reasonable payout ratio of ~50% grants enough room for future dividend growth.

Increased customer focus, expanding geographic footprint, and evolution to higher margin commercial loans have positioned Laurentian Bank for profitable growth in the future. In-depth knowledge of the Canadian banking industry, combined with the Group’s leadership position are major assets in the years of transformation. The bank is expecting improved technology and better processes in 2019, which should drive future customer, loan and deposit growth.

Competition

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

National Bank is the leading bank based out of Quebec and ranks amongst Canada’s six largest commercial banks. VersaBank is a leading chartered bank in Canada, while Canadian Western Bank is known for providing specialized advice and financial services for business as well as personal banking and wealth management services. In addition, Laurentian Bank also suffers from competition from non-financial institutions offering banking products and services through electronic and internet-based financial solutions.

TickerCompanySectorIndustryScoreQuoteMarketCapPEFPEEPSYieldPayoutRatioPaymentsDividendChowderAmbassadorAchieverAristocratKingGraph
RYRoyal BankFinancial ServicesBanks67106.33152.4912.1211.868.793.9547.7844.2010.23NONOYESNO1
TDTD BankFinancial ServicesBanks7473.76134.1811.7310.786.304.0146.9842.9612.27NONOYESNO1
BNSScotia BankFinancial ServicesBanks6975.1591.7211.3010.506.694.7953.8143.6010.29NONOYESNO1
BMOBank of MontrealFinancial ServicesBanks6796.9861.9710.2510.279.474.2543.5144.127.29NONOYESNO1
CMCIBCFinancial ServicesBanks81109.8948.959.639.0511.455.2450.3145.769.58NONOYESNO1
NANational BankFinancial ServicesBanks6966.3922.1910.7310.606.244.1043.5942.7210.25NONOYESNO1
CWBCanadian Western BankFinancial ServicesBanks6233.422.9111.1810.773.003.3537.3341.128.51NONOYESNO1
FNFirst National Financial CorporationFinancial ServicesBanks5039.382.3615.9113.882.484.8276.60121.907.98NONONONO1
LBLaurentian BankFinancial ServicesBanks5545.281.9211.2910.334.015.8365.8442.6410.74NOYESYESNO1
EQBEquitable Group Inc.Financial ServicesBanks62106.721.789.968.7810.781.2412.2441.329.24NONOYESNO1

Bottom Line

Investment in people, processes, and technology have strengthened the Group’s financial foundation. Acquisition of larger commercial and equipment finance companies should support the bank to expand its product offerings and also provide an entry into the bigger U.S. market. Laurentian Bank should also benefit from its large footprint in the Quebec market, which is expected to witness a momentum in its housing and job markets.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
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