Laurentian Bank Of Canada Aktie

Welcome to Laurentian Bank Financial Results Call. Please note that this call is being recorded. I would now like to turn the meeting over to Raphael Ambeault, Vice President, Finance and Investor Relations. Please go ahead, Raphael.

[Foreign Language]

Good morning, and thank you for joining us. Today's opening remarks will be delivered by Eric Provost, President and CEO and the review of the second quarter financial results will be presented by Yvan Deschamps, Executive Vice President and CFO. After which, we'll invite questions from the phone.

Also joining us for the question period is Christian De Broux, Executive Vice President and CRO.

All documents pertaining to the quarter can be found on our website in the Investor Relations section. I'd like to remind you that during this conference call, forward-looking statements may be made, and it is possible that actual results may differ materially from those projected in such statements.

For the complete cautionary note regarding forward-looking statements, please refer to our press release or to Slide 2 of the presentation. I would also like to remind listeners that the bank assesses its performance on a reported and adjusted basis and consider both to be useful in assessing underlying business performance. Eric and Yvan will be referring to adjusted results in their remarks unless otherwise noted as reported.

I will now turn the call over to Eric.

[Foreign Language] Good morning, and thank you for being with us today. Our focus continues to be firmly anchored in serving our customers and managing our operations with discipline. I would like to begin by thanking our employees for their focus and commitment during this challenging period, as we navigate an uncertain macroeconomic environment while supporting the migration and sell process and while continuing to effectively manage the bank's day-to-day operations.

Moving on to our loan performance. Our commercial specialization teams delivered another strong quarter and driving solid performance with combined commercial loan growth of 2.4%, excluding the syndication portfolio sale.

Inventory financing performed well with loan growth of 5% quarter-over-quarter, while our dealer base grew by 4%, highlighting the continued expansion of our network. In commercial real estate, the portfolio grew by 1% quarter-over-quarter while the pipeline increased by 9%, positioning us well for future growth.

Overall, our commercial specialization continues to deliver high-quality growth fully aligned with our transformation plan. In terms of provisions, for credit losses, the ratio increased to 31 basis points, primarily driven by a single large commercial file in an industry where we no longer operate.

Importantly, this remains an isolated situation, and we are confident that our portfolio is appropriately reserved, reflecting its overall quality and performance. This quarter marked meaningful progress in advancing the announced transactions with National Bank and Fairstone with several key milestones achieved.

As a reminder, closing remains subject to regulatory approvals and other closing conditions. We have made solid progress on both fronts and as thing stands, the Competition Act approval condition for both transactions have been satisfied, provided that there is no change in circumstances relating to the Competition Bureau.

Operationally, 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. I will now turn the call over to Yvan to review our financial performance.

[Foreign Language] I would like to begin by turning to Slide 6, which has been added to provide details on the adjusting items for the second quarter of 2026, which totaled $43.2 million after tax or $0.96 per share. We recorded the following charges stemming from the transactions announced in December on an after-tax basis. Severance and employee benefits for $12.9 million, accelerated amortization of software and other intangible assets for $7.8 million. Charges related to onerous contracts, leases and others for $1.4 million. Impairment of premises and equipment for $900,000. Transaction and conversion costs were $3.7 million.

During the quarter, we also announced the closing of the syndicated loan transaction, which resulted in a net loss of $16.6 million after tax. Quarterly comparison is available on Slide 21 and in the second quarter report to shareholders.

Turning to Slide 7. It highlights the bank's financial performance for the second quarter of 2026. On a reported basis, total revenue for the quarter was $213.7 million, down 12% compared to last year and 15% quarter-over-quarter. Net loss and diluted loss per share were $20.6 million and $0.50, respectively. The remainder of my comments will be on an adjusted basis and also be on the total loans and total deposits basis as the balance sheet outlined separately for Q2, the assets held for sale and the liability is directly associated with them.

Total revenue for the quarter was $236.2 million, down 3% compared to last year, and 6% quarter-over-quarter. The diluted EPS of $0.46 decreased by 37% year-over-year and by 29% quarter-over-quarter. Net income of $22.6 million was down by 33% compared to last year and was down by 34% sequentially. The bank's efficiency ratio increased by 240 basis points compared to last year due to our investments and by 90 basis points sequentially. Our ROE for the quarter stood at 3.4%, down 180 basis points year-over-year and 110 basis points quarter-over-quarter.

Slide 8 shows net interest income up by $2.8 million or 2% year-over-year from the growth of average earning assets and higher commercial loan concentration. On a sequential basis, net interest income was down by $9.8 million or 5% from the shorter quarter and the impact of the Syndicated Loan Transaction. Our net interest margin at 1.84% was down 1 basis points year-over-year and down 5 basis points quarter-over-quarter. Sequential reduction was driven by the nonrecurrence of loan repricing lags and favorable repayments recorded in the first quarter of 2026.

The Slide 9 highlights the bank's funding position. On a sequential basis, total funding was up by $300 million from an increase of the debt-related securitization activities and wholesale deposits. The bank maintained a healthy liquidity coverage ratio through the quarter, which remains at the higher end of the industry.

Slide 10 presents other income of $51.1 million, which was lower by 15% compared to last year and by 10% compared to last quarter. The decrease mostly related to income from financial instruments.

Slide 11 shows noninterest expenses of $183.2 million up 1% year-over-year and down 5% sequentially, mainly from seasonally lower salaries and employee benefits and a streamlined workforce.

Slide 12 presents the CET1 ratio, which increased by 10 basis points to 11% due to the net impact of the Syndicated Loan Transaction. Slide 13 highlights our total commercial loan portfolio, which increased by about $800 million year-over-year and decreased by about $300 million sequentially, as the growth in commercial real estate and inventory financing was more than offset by the reduction due to the sale of the syndication loan portfolio in the second quarter of 2026.

The Slide 14 provides details of our inventory financing portfolio. This quarter, utilization rates were 46%, an increase of 1% quarter-over-quarter. Slide 15 illustrates that 2/3 of our commercial real estate portfolio is residential with most of it in multi-residential housing. The LTV on the uninsured multi-residential portfolio stood prudently at 60%.

Slide 16 presents the bank's total residential mortgage portfolio. Total residential mortgage loans were down 3% year-over-year and 2% on a sequential basis. We adhere to cautious underwriting standards and are confident in the quality of our portfolio. This is reflected in our 63% proportion of insured mortgages and a low loan-to-value ratio of 52% on the uninsured portion.

Total allowances for credit losses on Slide 17 totaled $181.4 million, down $11.2 million compared to last quarter, mostly from lower allowances on impaired commercial loans. Turning to Slide 18. The provision for credit losses was $26.9 million, an increase of $10.2 million from a year ago, from higher provision on impaired commercial loans. Sequentially, PCLs were up $10.4 million for the same reasons. As a percentage of average loans, PCLs increased by 12 basis points year-over-year and by 13 basis points quarter-over-quarter to 31 basis points.

Slide 19 provides an overview of impaired loans. Gross impaired loans decreased by $50.6 million year-over-year and increased by $6.7 million sequentially, driven by commercial loans. As we look ahead to the third quarter of 2026, I would like to provide some remarks.

We've all incurred additional transaction-related charges in Q3 in the $40 million range pretax. This is essentially the continuance of the charges incurred or gradually amortized over the current fiscal year. We expect loans to decline by roughly 2% to 3%, mainly due to the seasonal reduction in inventory financing and a reduction in residential mortgages. The reduction in inventory financing will also drive the NIM down.

Regarding the adjusted efficiency ratio, Q3 should be relatively aligned with Q2. We expect PCLs to be in the high teens. Our tax rate is also expected to be in the high teens. Capital and liquidity levels are solid and expected to remain strong for Q3. Reminder that there is LRCN interest payment next quarter. And I will now turn the call back to the operator.

Thank you. Ladies and gentlemen, we will now begin question-and-answer session. [Operator Instructions] Your first question comes from Paul Holden with CIBC.

Thank you. Good morning. Wanting to see the news -- good to see the news on the Competition Bureau approval. Can you give us a sense of -- like does that come a little bit earlier than original plan. And I guess the reason I ask is, there's some commentary recently from regulators in terms of suggesting sort of these transactions move faster in pace versus how they have historically. So just wondering if this transaction is indeed sort of moving along a little bit quicker than originally expected?

Well, I would comment, Paul, this is Eric, that we're pretty much on track. We've been collaborating with all instances of regulatory. And we believe things are moving along with what we expected. So not really earlier, just I think the timing is according to plan so far.

Okay. And that -- remind me, that is end of calendar 2026.

Yes. As I said in my comments we expect this to close in '26.

Okay. But that is calendar, not fiscal.

It is calendar. Yes.

Okay. Okay. And then just curious what you're seeing in terms of credit performance in the CRE book. I don't believe the higher losses this quarter related to that. But we've certainly seen some other banks put up higher losses in CRE. So just you commented on the LTV, et cetera, but just wondering if you're seeing any higher delinquency rates or any kind of negative movement on that portfolio?

Yes. Thank you, Paul. Yes, for the transaction, we highlighted like this is not CRE-related, but I would leave Christian for a few comments on that topic.

Okay. Thank you for the question. I would just say that our CRE book is performing as expected, according to historical normal variations. So no concern there. The big file that we've incurred loss on obviously is in a sector like we said, that we've exited. So obviously, not CRE.

Okay. So no concerns on CRE books kind of performing in line with expectations? .

It's performing in line. You're asking a CRO, if there's no worry. No, I always worry, but by and large, we're quite comfortable with the book at this point.

Okay. That's good. And then 1 final question from me would just be, how do you think about the, I'll call it, the capital stack or the different funding layers you have in place for the business today, obviously, particularly to commercial versus what might make sense as a private company. So that question particularly comes into mind when you just mentioned the reminder on the LRCN next quarter. Is that the type of thing that still makes sense as a private company?

Yes. Thank you for the question. This is Yvan, Paul. I'll take this one. So we are still a stand-alone company. So we still have the requirements in terms of capital stacks that we need to be in good standings with regulation and with obviously the regulator. So there's no change from a stand-alone perspective. Obviously, once the company gets into Fairstone, Fairstone will have to make its own calls on a consolidated basis. But until the closing of the transaction, we need to manage as a stand-alone business.

[Operator Instructions] This concludes the Q&A session. I will now hand the meeting over to Eric Provost for closing remarks.

Thank you. We continue to make steady progress towards the completion of our agreements with Fairstone and National Bank while maintaining a clear focus on supporting our customers and employees. Two important steps remain, we are well positioned and confident in our ability to execute on our priorities. I would also like to recognize and thank our employees for their dedication and continued commitment as Laurentian Bank navigates this important transition. Thank you, and I wish you all a great rest of the day.

Ladies and gentlemen, this concludes the conference call for today. We thank you for participating and ask that you please disconnect your lines. Thank you.

Welcome to Laurentian Bank Financial Results Call. Please note that this call is being recorded. I would now like to turn the meeting over to Raphael Ambeault, Vice President, Finance and Investor Relations. Please go ahead, Raphael.

[Foreign Language] Good morning, and thank you for joining us. Today's opening remarks will be delivered by Eric Provost, President and CEO, and the review of the first quarter financial results will be presented by Yvan Deschamps, Executive Vice President and CFO, after which we'll invite questions from the phone. Also joining us for the question period is Christian De Broux, Executive Vice President and CRO.

All documents pertaining to the quarter can be found on our website in the Investor Relations section. I'd like to remind you that during this conference call, forward-looking statements may be made, and it is possible that actual results may differ materially from those projected in such statements. For the complete cautionary note regarding forward-looking statements, please refer to our press release or to Slide 2 of the presentation. I would also like to remind listeners that the bank assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Eric and Yvan will be referring to adjusted results in their remarks unless otherwise noted as reported.

I will now turn the call over to Eric.

[Foreign Language] Good morning, and thank you for being with us today. For the first quarter of 2026, we're pleased with the progress we've made on our key priorities. Our core commercial businesses showed solid underlying momentum with a total loan growth of 4% in the first quarter, which is right in line with our transformation plan.

I want to take a moment to recognize our employees. Their commitment and professionalism stand out. They continue to navigate this period of change with resilience, integrity and a strong focus on serving our customers. This quarter, we recorded after-tax adjusting items of $54.7 million, reflecting charges related to the transactions announced in December. At the same time, the team has also established high momentum as it relates to the transaction. On that front, we reached an important milestone. As announced on February 5, our shareholders voted 98.8% in favor of the resolution approving the acquisition transaction. This vote confirms strong support for a future in which the bank can accelerate its strategic growth plan. Another milestone came on February 17 when we completed the sale of our syndication portfolio to National Bank.

The process went smoothly, and we will continue to monitor the transition to ensure everything remains seamless for the clients. While several steps remain to complete the transaction, including obtaining regulatory approvals, we are progressing steadily. We remain confident that we have the right team in place to successfully execute. Our mix of commercial loans continued to move in the right direction, increasing by 1% to reach 51% of total loan portfolio. As mentioned earlier, our commercial teams delivered a strong first quarter with notable momentum in key areas. Inventory financing grew 7% quarter-over-quarter and utilization improved by 5 percentage points sequentially, reaching 45%.

In commercial real estate, both the portfolio and the pipeline continued to show steady progress, each increasing by 5%. In essence, our commercial specialization demonstrated solid underlying growth, consistent with our transformation plan. In terms of provision for credit losses, the ratio decreased to 18 bps, reflecting the strength of our specialized underwriting, consistent education practices and disciplined portfolio management. We also saw an improvement in asset quality with gross impaired loans decreasing by 19% to 96 bps. We remain confident that our current level of provisions is prudent and appropriate given the overall quality and performance of our portfolio. Finally, our solid capital and liquidity positions allows us to move forward with confidence.

I would now like to turn the call over to Yvan to review our financial performance.

[Foreign Language]. I would like to begin by turning to Slide 6, which has been added to provide details on the adjusting items for the first quarter of 2026, which totaled $54.7 million after tax or $1.23 per share. We recorded the following charges stemming from the transactions announced in December, totaling $53.1 million after tax, including impairment of premises and equipment for $15.8 million, charges related to onerous contracts, leases and other for $10.8 million, severance and employee benefits for $8.4 million, accelerated amortization of software and other intangible assets for $5.2 million, impairment of software and other intangible assets for $4.8 million, transaction and conversion costs were $8.1 million. During the quarter, we also announced the purchase of group annuity contracts from a Canadian insurer that transfers approximately $60 million in obligations of our 2 registered defined benefit pension plans, which resulted in a net settlement loss of $1.6 million after tax. Quarterly comparison is available on Slide 21 and in the first quarter report to shareholders.

Turning to Slide 7. It highlights the bank's financial performance for the first quarter of 2026. Total revenue for the quarter was $251.6 million, up 1% compared to last year and up 3% quarter-over-quarter. On a reported basis, net loss and diluted loss per share were $20.5 million and $0.58, respectively. The remainder of my comments will be on an adjusted basis and also be on a total loans and total deposits basis as the balance sheet outlined separately for Q1, the assets held for sale and the liabilities directly associated with them. The diluted EPS of $0.65 decreased by 17% year-over-year and 11% quarter-over-quarter. Net income of 34.2%, $24.2 million was down by 13% compared to last year and stable sequentially. The bank's efficiency ratio increased by 240 basis points compared to last year due to our strategic investments and by 110 basis points sequentially, mainly from the regular annual salary increases and seasonally higher employee benefits. Our ROE for the quarter stood at 4.5%, down 80 basis points year-over-year and 50 basis points quarter-over-quarter.

Slide 8 shows net interest income, up by $8.7 million or 5% year-over-year from the growth of average earning assets and higher commercial loan concentration as well as favorable loan repayments. On a sequential basis, net interest income was up by $12.2 million or 7% for the same reasons in addition to the impact from favorable loan repricing lags due to the reduction of the U.S. Federal Reserve rate last December. Our net interest margin at 1.89% was up 4 basis points year-over-year and up 10 basis points sequentially, including about half from nonrecurring elements.

Slide 9 highlights the bank's funding position. On a sequential basis, total funding was stable. The bank maintained a healthy liquidity coverage ratio through the quarter, which remained at the high end of the industry. For the remainder of the year, the level of liquidity will remain very high, considering the proceeds of the sale of the syndicated loan portfolio closed on February 17.

Slide 10 presents other income of $56.7 million, which was lower by 9% compared to last year and compared to last quarter. The decrease mostly came from income from financial instruments.

Slide 11 shows noninterest expenses of $192.9 million, up 4% year-over-year and sequentially, mainly from the seasonal higher employee benefits and vacation accruals.

On Slide 12, you'll see that our CET1 ratio decreased by 40 basis points to 10.9% due to the charges stemming from the transactions announced in December and commercial loan portfolio growth.

Slide 13 highlights our total commercial loan portfolio, which grew by about $1.4 billion year-over-year and by about $700 million sequentially. This quarter, the seasonal dealers' inventory restocking was positive and fueled the loan growth to 7% quarter-over-quarter. Also, commercial real estate delivered 5% loan and pipeline growth.

Slide 14 provides details of our inventory financing portfolio. This quarter, utilization rate was 45%, an increase of 5% quarter-over-quarter.

Slide 15 illustrates that 2/3 of our commercial real estate portfolio is residential with most of it in multi-residential housing. The LTV on the uninsured multi-residential portfolio stood prudently at 61%.

Slide 16 presents the bank's total residential mortgage portfolio. Total residential mortgage loans were down 3% year-over-year and down 2% on a sequential basis. We adhere to cautious underwriting standards and are confident in the quality of our portfolio. This is reflected in our 65% proportion of insured mortgages and a low loan-to-value ratio of 51% on the uninsured portion.

Total allowances for credit losses on Slide 17 totaled $192.6 million, up $3.8 million compared to last quarter, mostly from higher allowances on commercial loans.

Turning to Slide 18. The provision for credit losses was $16.5 million, an increase of $1.3 million from a year ago from higher provisions on performing loans, partly offset by lower provisions on impaired loans. Sequentially, PCLs were down $1.5 million from lower provisions on impaired commercial loans, partly offset by lower releases of provisions on performing loans. As a percentage of average loans, PCLs increased by 1 basis point year-over-year and decreased by 2 basis points quarter-over-quarter to 18 bps.

Slide 19 provides an overview of impaired loans. Gross impaired loans decreased by $49 million year-over-year and $75.1 million sequentially, driven by changes in commercial loans. Thanks to our prudent underwriting standards and the strong credit quality of our loan portfolio by about 95% of which is collateralized, we're able to manage credit migration effectively with minimal impact on our ACL and PCL outcomes.

As we look ahead to the second quarter of 2026, I would like to provide some remarks. We will incur additional transaction-related charges in Q2 in the $40 million range post tax, including from the loss due to the discount on the sale of the syndicated loan portfolio to National Bank concluded on February 17. The expected Q2 impact from the sale of the syndicated loan portfolio is a loss of about $0.04 on adjusted EPS. We expect loans to decline by roughly 2% to 3%, mainly due to the syndicated loan portfolio sale.

Excluding this transaction, the loans should remain relatively stable. The NIM is expected to be slightly lower due to some nonrecurring items in Q1. Regarding the adjusted efficiency ratio, Q2 should be relatively in line with Q1. We expect PCLs to remain in the high teens. Our tax rate is also expected to be in the high teens. Capital and liquidity levels are solid and expected to remain strong for Q2.

I will now turn the call back to the operator.

[Operator Instructions] And your first question will be from Stephen Boland at Raymond James.

Just -- I know you said you still need regulatory approval. Could you just -- is that just OSFI and Minister approval? Is that the only 2 that are left at this point?

Stephen, it's Eric. Actually, we're -- the main ones we're waiting for is OSFI as well as the Competition Bureau. And after that would follow the Minister approval.

Okay. And the timing is, I think, in the disclosure, it is late 2026. That's the -- is there any more specific timing? I know dealing with OSFI and the Minister is always a bit of a crapshoot. So late 2026 is still the guidance?

Yes, yes. We're still aiming for that.

Okay. Second question is continued good growth in inventory finance. You talked a little bit about utilization. But what's driving that growth? Is it more dealers utilization? Is it Canada, U.S.? Maybe you could just flesh that out a bit, please?

Yes, Stephen. It's really a mix. Like we definitely continue our success track record in terms of onboarding. The newest program we actually won is Arctic Cat, which is an exclusivity, generating good traction again and will fuel future growth and continue on that side. But also the dealers have been restocking prudently, but still a good momentum there. So I think they anticipate, again, an okay season for 2026, and we're benefiting from that sentiment.

Okay. And I mean, obviously, I presume the people in the field are letting the clients know that there is a change in ownership with you potentially. What's the feedback? Is there -- is it positive? Do they care? I'm just curious what the message was to your salespeople, to top clients?

Well, actually, I had a great opportunity to be out there in the field with our people, meeting customers and the reaction is quite good. They understand the rationale of the transaction, and they're quite supportive. So far, we've seen that in additional volume and then good pipeline for future growth. So we're in good shape there.

[Operator Instructions] Seeing there's no further questions registered. This concludes the Q&A session. I will now hand the meeting over to Eric Provost for closing remarks.

Thank you. We're making steady progress towards closing the agreements with Fairstone and National Bank, all while keeping our customers and employees' best interest at the forefront. This is still work ahead of us, but I'm confident that we will achieve our objectives. Thank you, and have a great rest of the day.

Thank you. Ladies and gentlemen, this concludes the conference call for today. We thank you for joining and ask that you please disconnect your lines. Thank you.

Welcome to the Laurentian Bank Financial Results Conference Call. Please note that this call is being recorded.

I would now like to turn the meeting over to Raphael Ambeault, Vice President, Finance and Investor Relations. Please go ahead, Raphael.

[Foreign Language] Good morning, and thank you for joining us. Today's opening remarks will be delivered by Eric Provost, President and CEO, and the review of the fourth quarter and annual financial results will be presented by Yvan Deschamps, Executive Vice President and CFO, after which we'll invite questions from the phone. Also joining us for the question period is Christian De Broux, Executive Vice President and CRO. All documents pertaining to the quarter can be found on our website in the Investor Relations section.

I'd like to remind you that during this conference call, forward-looking statements may be made and it is possible that actual results may differ materially from those projected in such statements. For the complete cautionary note regarding forward-looking statements, please refer to our press release or to Slide 2 of the presentation. I would also like to remind listeners that the bank assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Eric and Yvan will be referring to adjusted results in their remarks unless otherwise noted as reported.

I will now turn the call over to Eric.

[Foreign Language] Good morning. Thanks for being with us today. Our road map for 2025 was ambitious. We are proud to report that we delivered against our plan, achieving several transformational milestones. Notably, the deployment of cloud-based systems has significantly improved our operational efficiency, resilience and customer experience. These investments are foundational to building a bank that is agile, secure and well positioned for the future. Operational resiliency and redundancy were also meaningfully enhanced, enabling the bank to respond swiftly to change, maintain stability and ensure consistent service delivery to our clients. Elevated interest rates and moderated economic activity influenced other income streams, notably lending fees.

Despite these headwinds, net interest income increased year-over-year, reflecting a more favorable business mix and an improved net interest margin. Credit performance remained stable at 17 bps with slightly lower allowances for credit losses compared to 2024, supported by resilient asset quality and disciplined risk management. In line with the spending levels outlined in our strategic plan, we continue to make targeted investments in IT infrastructure during the fourth quarter. These planned and essential initiatives are designed to simplify operations, strengthen resiliency and deliver long-term efficiency gains for both our clients and shareholders. As a result, we closed the year with an adjusted efficiency ratio of 75.2%, aligned with our guidance.

The bank divestitures of assets under administration from the full-service and discount brokerage division earlier in the fiscal year contributed to lower noninterest expenses through reduced headcount and broker commissions while also driving higher other income from the associated gain on the sale of the division on a reported basis. Our capital and liquidity positions remained consistently strong throughout the year, reinforcing the bank's financial resilience and ability to navigate the current macroeconomic environment. This solid foundation provides the stability and flexibility required to support growth while staying firmly focused on executing our strategic priorities.

Throughout the year, we have achieved steady progress in strengthening our portfolio by increasing the proportion of commercial loans from 47% to 50%. Notably, commercial loan balances grew by 2% on a quarter-over-quarter basis and by 8% year-over-year. This strategic shift in our business mix contributed to an improvement in our net interest margin, which rose from 1.79% in the prior year to 1.83% in 2025.

Turning to the composition of our commercial growth. Our key specialization delivered strong results. Inventory financing closed at $4.2 billion, making an impressive 12% year-over-year increase. This performance was supported by an expansion of our dealer base of more than 3% and continued diversification into new segments, areas where we see meaningful opportunities for further growth.

In commercial real estate, activities started the year slowly, but interest rate reductions later in the year resulted in a notable improvement, particularly in rental construction. This momentum allowed us to expand our unfunded pipeline by 13% and grow our loan book by 11% year-over-year.

On the personal banking front, our continued engagement with customers allowed us to maintain a relatively stable deposit base within the retail segment while simultaneously building positive momentum in broker-sourced deposits. The agreements we announced earlier this week are aligned with the acceleration of our commercial specialization and the partnership strategy we had announced as part of our strategic plan.

In recent years, we have assessed multiple approach for our retail and SME banking services. However, the substantial investments needed to sustain a competitive position in the Canadian banking landscape, coupled with the evolving regulatory requirements and rising customer expectations have made it increasingly difficult to compete effectively.

Joining forces with Fairstone Bank will allow us to grow our specialized commercial business even further while maintaining our brand identity and head office in Montreal, where we were funded over 175 years ago. Partnering with National Bank, a leading Quebec-based institution will provide our customers with access to a broader suite of services and enhance modern technology. The press release regarding this announcement is available in the News Release section of our website and includes detailed information. As the special shareholder meeting to vote on these agreements is scheduled for the first quarter of 2026, the proxy circular will be published in early January.

With that, I'll turn it over to Yvan.

[Foreign Language] I would like to begin by turning to Slide 6, which highlights the bank's financial performance for 2025. Total reported revenue for the year was $983.7 million, down 3% compared to last year. On a reported basis, net income and diluted EPS were $139.9 million and $2.85, respectively. On an adjusted basis, the bank generated net income of $147.2 million in fiscal 2025 or $3 per share. Adjusting items after taxes include restructuring and other impairment charges of $8 million and a profit on sale of assets under administration of $0.6 million. Additional details are available on Slide 21 and in the 2025 annual report.

The remainder of my comments will be on an adjusted basis and focus on the fourth quarter. Total revenue, as displayed on Slide 7, was $244.7 million, up 3% year-over-year, mainly from higher net interest income, driven by favorable business mix and the growth of average earning assets. Diluted EPS of $0.73 was down 18% year-over-year and down 6% quarter-over-quarter. Net income of $34.2 million was down by 16% compared to last year and down 14% compared to last quarter. The bank's efficiency ratio increased by 60 basis points compared to last year, but declined by 10 basis points compared to last quarter. The increase year-over-year reflects our ongoing investments in strategic priorities. Our ROE for the fourth quarter stood at 5%, down by 40 basis points from last quarter.

Slide 8 displays net interest income up by $8.8 million or 5% year-over-year, mainly driven by favorable shifts in the bank's business mix, notably with respect to the commercial loan mix. On a sequential basis, net interest income was down by $3.2 million or 2%, reflecting a seasonal decline in average inventory financing loan volumes during the quarter. Early signs of the buildup season appeared late in Q4, while real estate growth partially offset residential mortgage headwinds. Our net interest margin was up by 2 basis points year-over-year and down 3 basis points sequentially at 1.79%, essentially for the same reasons.

Slide 9 highlights the bank's funding position. We manage our funding in line with our loan book. On a quarterly basis, total funding was down by $100 million. Lower wholesale deposits largely contributed to this decrease due to the maturity of a $340 million senior deposit note. The $400 million increase in deposits sourced from the advisers and brokers channel was offset by a reduction in partnership deposits. Cost-efficient long-term debt related to securitization activities increased by $200 million over the quarter. The bank maintained a healthy liquidity coverage ratio remaining at the high end of the industry.

Slide 10 presents other income of $62.1 million, which was 1% lower compared to last year and 2% higher compared to last quarter. Quarterly increase in other income is driven primarily by higher lending fees and reflects the stronger momentum in commercial real estate activity towards the end of the fourth quarter.

Slide 11 shows noninterest expenses of $185.1 million, up 4% compared to last year, mainly due to higher salaries and employee benefits, together with higher technology costs as the bank pursues investments in infrastructure and strategic objectives. On a sequential basis, noninterest expenses were down 1%, primarily due to lower employee benefits costs.

On Slide 12, you will observe that our CET1 ratio remained stable at 11.3%. We are maintaining a solid capital position, and we are well positioned to redeploy capital. Slide 13 highlights our commercial loan portfolio, which was up $1.3 billion or 8% year-over-year and up $400 million or 2% on a sequential basis, both of which were mainly driven by the growth of commercial real estate pipeline.

Slide 14 provides details of our inventory financing portfolio. This quarter, utilization rates were 41%, remaining below historical averages, normally in the high 40s. Slide 15 illustrates that most of our commercial real estate portfolio is focused on multi-residential housing with our exposure to the office segment at around 4% of our commercial loan portfolio. As noted in previous quarters, the bulk of our portfolio consists of multi-tenant properties with minimal exposure to single-tenant buildings.

Slide 16 presents the bank's residential mortgage portfolio. Residential mortgage loans were down 2% year-over-year and down 1% on a sequential basis. We adhere to cautious underwriting standards and are confident in the quality of our portfolio. This is reflected in our 63% proportion of insured mortgages and a low loan-to-value ratio of 50% on the uninsured portion.

Allowances for credit losses on Slide 17 totaled $189 million, down $15 million compared to last year and $1.1 million compared to last quarter, mainly due to lower allowances on performing loans, partly offset by an increase in allowances on impaired loans, notably commercial loans.

Turning to Slide 18. The provision for credit losses was $18 million, an increase of $7.6 million from a year ago, impacted by higher provisions on impaired loans, partly offset by higher releases on performing loans. Sequentially, PCLs were up $6.9 million, mainly from higher provisions on impaired commercial loans. As a percentage of average loans and acceptances, PCLs increased by 8 basis points year-over-year and quarter-over-quarter to 20 basis points. Slide 19 provides an overview of impaired loans. On a year-over-year basis, gross impaired loans increased by $47.1 million or by $6.5 million sequentially. Thanks to our prudent underwriting standards and the strong credit quality of our portfolio, about 95% of which is collateralized, we're able to manage credit migration effectively with minimal impact on our ACL and PCL outcomes. We remain committed to a prudent and disciplined approach to risk management.

I will now turn the call back to the operator.

[Operator Instructions] And your first question will be from Stephen Boland at Raymond James.

Maybe, Eric, if you could just talk about the evolution of the transaction. We all know you went through a formal kind of process a couple of years ago before you took over. I'm just wondering how this transaction started and got to this point?

Stephen, well, actually, as per our strategic plan release in May 2024, like we clearly made it a priority to seek out partnership and to try to explore avenues for all business lines. And as you can see, we took actions throughout the year, but it was definitely through various interactions that we landed in terms of discussions engaging with Fairstone. And you're going to have way more details when we publish a proxy in the upcoming weeks.

Okay. That's great. Second question, which you're probably getting a lot of. Can you just talk about the dividend sustainability here until closing? Is there any thoughts of closing or shutting the -- reducing the dividend? Is there anything in the purchase agreement about that? And just I'll add a third here, just on the same topic kind of thing. Do you expect any issues on closing the branches? I know Quebec can be very -- they're not your regulator, but certainly, the government is always protective of employment. Maybe you could just touch on those 2 things.

Thank you, Stephen, and thank you for raising the question on dividend. We also did receive a lot of questions on it. So I'll answer that portion, and Eric will step in for your last question. So on the dividend side, as you see this morning, we declared the $0.47 dividend on the common shares. So there is no restrictions on paying dividend in the agreement. The only restriction is that we're not allowed to increase the dividend going forward.

Stephen, I'll take the branches and employees. This is the hardest part of the decision we took because it impacts colleagues and people that have been working with us for some time, a very long time. So in terms of branches like this, this is physical presence, the fact that we're going to National Bank, they have an extended network across the province, which we believe will be well received in terms of point of service for our customers.

And in terms of employment, we announced the fact that National Bank has offered a post-transition channel to actually prioritize posting and opportunities for the employees that will be impacted and terminated by this announcement. So I feel good about our approach towards the regulatory approvals, and we're confident we're going to get the right levels of support.

[Operator Instructions] We'll go next to Sohrab Movahedi at BMO Capital Markets.

I just wanted to confirm that you intend to continue with your investment agenda here, Eric and Yvan. And to the extent that you continue to make the investments, if you could kind of -- I suppose, portion it out as to how much of investments to date have been more in favor of the commercial franchise as opposed to the retail and SME and what the split may look like on a go-forward basis as well?

Yes, it's a great question, Sohrab. And our #1 goal is to execute on conversion getting to closing, like the migration towards National Bank will become definitely our priority. So there's a portion that's going to go there. And yes, like we've been working throughout the last 1.5 years on improving foundational and making sure that we create the right resiliency and redundancy. And part of it is focused and will be focused towards keeping the momentum towards our specialized group. So it's going to be really a split, but big focus will be on conversion.

Okay. And Eric, as obviously -- I mean, you're in the midst of something and we'll learn more about the details when the proxy becomes available. But is the bank now mostly focused on ensuring that -- are you more managing the downside risk? Or are you still trying to deploy capital and I don't know, grow the bank and the loan book and all of that?

Well, yes. So first and foremost, like our customers from a retail standpoint is our focus in terms of maintaining level of services, making sure that our people are taken care of and that we have a clear game plan towards executing our path towards National Bank migration. But for the rest, like this is the future path in terms of being a specialized bank. So we're fully engaged with our customer base on the commercial front, our specialized group, inventory financing, equipment financing and commercial real estate. The instructions to our team is definitely to continue and grow and seek out business that we want to continue into. So that continues.

Okay. So not to belabor the point, but it is possible then I suppose -- like, I mean, let me ask the question a little bit directly. Do you have capital for SME growth? Or is that more in a controlled amortization mode until the deal closes?

Yes. I'll be clear, Sohrab. So we're still in business, and we want to grow this bank. So as mentioned by Eric, definitely, the future is on the commercial side. But we're going to work with National to support our customers as well, and that includes the retail and the SME. And we want to make sure that those customers are well treated, and we're going to keep them. And definitely, the focus of the bank going forward is going to be on the commercial side. But we've mentioned for the last many quarters that we have a lot of liquidity and capital, and we still have resources that we can redeploy.

[Operator Instructions] Seeing we have no other questions registered. This concludes the Q&A session. I will now hand the meeting over to Eric Provost for closing remarks.

Thank you. This week marks the beginning of a new chapter for Laurentian Bank. As we look to the months ahead, our priorities are clear. We will work relentlessly and diligently to close the agreements with Fairstone Bank and National Bank while having our customers and employees' best interest at heart. Our priority is to ensure uninterrupted excellent service for our customers during this transition. Wishing you all a wonderful holiday season. Thank you.

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and ask that you please disconnect your lines. Thank you.

Welcome to the Laurentian Bank Quarterly Financial Results Call. Please note that this call is being recorded. I would now like to turn the meeting over to Raphael Ambeault, Vice President, Finance and Investor Relations. Please go ahead, Raphael.

[Foreign Language] Good morning, and thank you for joining us. Today's opening remarks will be delivered by Eric Provost, President and CEO; and the review of the third quarter financial results will be presented by Yvan Deschamps, Executive Vice President and CFO. After which, we'll invite questions from the phone. Also joining us for the question period is Christian De Broux, Executive Vice President and CRO.

All documents pertaining to the quarter can be found on our website in the Investor Relations section. I'd like to remind you that during this conference call, forward-looking statements may be made, and it is possible that actual results may differ materially from those projected in such statements. For the complete cautionary note regarding forward-looking statements, please refer to our press release or to Slide 2 of the presentation. I would also like to remind listeners that the bank assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Eric and Yvan will be referring to adjusted results in their remarks unless otherwise noted as reported.

I will now turn the call over to Eric.

[Foreign Language] Good morning. Thanks for being with us today. Today, we're pleased to report a strong quarter, reflecting our continued focus and disciplined execution. These efforts have enabled us to effectively manage the challenges of a volatile economic landscape. Our performance this quarter reaffirms the strength of our market positioning and the value of our commercial specialization, all supported by a solid foundation of liquidity and capital.

Our strategic priority remains clear: to simplify, strengthen and future-proof our operations. We are taking deliberate steps to reduce complexity across the organization, enhance system redundancy and improve overall resiliency. A key part of this involves streamlining our distribution channels and simplifying our technology stack, efforts that will continue into 2026. I'm proud to share that our teams remain highly engaged and committed to executing our strategy. This was clearly reflected in the results of our most recent engagement survey, transpiring to our culture and the support the team is dedicating to transform our organization.

Such a high level of engagement is especially important in today's economic environment. We are actively monitoring a range of factors, including market trends, policy developments and broader macroeconomic conditions that may impact our customers. As always, we remain ready to adapt as needed. Looking at loan performance, commercial loans remained stable this quarter, supported by growth in our commercial real estate portfolio, which offset the usual seasonal decline in our inventory financing segment. Mainly as a result of the shift in business mix, our net interest margin was slightly down to 1.82%.

In inventory financing, utilization declined to 41% at the end of July, fully aligned with our expectations and continues to reflect steady LT demand for the products offered by our dealers. Our dealer base has also continued to expand at a steady pace this quarter, bringing the year-to-date growth to 4%. This momentum was primarily driven by the agriculture and power sports segments, both of which are part of our diversification strategy in inventory financing. Looking ahead, we remain encouraged by the sustained demand our dealer network is experiencing this season.

Should interest rates begin to ease in the U.S. in the upcoming quarters, we believe this could act as a lever for renewed restocking activity, particularly as dealers prepare for the summer 2026 season. In our commercial real estate portfolio, loan volumes increased by 5% during the quarter, reflecting the strength of our market positioning and deep expertise of our teams. Their ability to identify and seize opportunities has been instrumental in driving this growth.

At the same time, we maintain a stable unfunded pipeline with potential to convert in the coming quarters. That said, we remain cautious in our outlook for Q4 given the current market environment. On the personal banking side, our sustained engagement with our customers enabled us to maintain a stable deposit base within our retail segment while also continuing to build positive momentum in broker-sourced deposits. As emphasized during our Investor Day, we remain actively focused on pursuing strategic partnerships to accelerate our specialization strategy. We believe that forging the right partnerships will be a key driver in unlocking future growth and further elevating our market position.

During the quarter, we also maintained focus on investing in our key strategic priorities, resulting in an adjusted efficiency ratio of 75.7%. While we expect these elevated expense levels to persist over the coming months, these investments, particularly in technology, are critical to executing our strategic plan. I'd also like to highlight that our provision for credit losses stood at 12 basis points this quarter, reflecting the strength of our specialized underwriting, consistent education and robust portfolio management.

We remain confident that our current level of provisions is prudent and aligned with the quality of our portfolio. While the economy has shown resilience so far, we remain vigilant and prepared to adjust. Finally, we continue to maintain a solid position in both liquidity and capital, providing us with the financial stability to manage the current macroeconomic environment while remaining focused on executing our strategic priorities.

With that, I'll turn it over to Yvan.

[Foreign Language] I would like to begin by turning to Slide 6, which highlights the bank's financial performance for the third quarter of 2025. Total revenue for the quarter was $246.8 million, down 4% compared to last year and up 2% quarter-over-quarter. On a reported basis, net income and diluted EPS were $37.5 million and $0.73, respectively. We've recorded adjusting items for the quarter, which totaled $2.1 million after tax or $0.05 per share from restructuring and other impairment charges of $2.9 million.

Additional details are available on Slide 21 and in the third quarter report to shareholders. The remainder of my comments will be on an adjusted basis. The diluted EPS of $0.78 decreased by 11% year-over-year and increased by 7% quarter-over-quarter. Net income of $39.6 million was down by 8% compared to last year and up 17% compared to last quarter. The bank's efficiency ratio increased by 240 basis points compared to last year and by 50 basis points sequentially. The increase is mainly driven by the elevated level of expenses related to investments in our strategic priorities. Our ROE for the quarter stood at 5.4%, down 80 basis points year-over-year and up 20 basis points quarter-over-quarter.

Slide 7 shows net interest income up by $5.1 million or 3% year-over-year from the growth of average earning assets and higher commercial loan concentration. On a sequential basis, net interest income was up by $3.7 million or 2%, mainly due to the longer quarter. Our net interest margin at 1.82% was up 3 basis points year-over-year and down 3 basis points sequentially due to changes in the loan mix. Slide 8 highlights the bank's funding position. On a sequential basis, total funding was up by $500 million, which mainly came from an increase in deposits from advisers and brokers. The bank maintained a healthy liquidity coverage ratio through the quarter, which remained at the high end of the industry.

Slide 9 presents other income of $60.9 million, which was lower by 20% compared to last year and higher by 1% sequentially. The year-over-year decrease mostly came from lower fees and securities brokerage commissions following the divestiture of the retail brokerage divisions as well as lower income from financial instruments and lower lending fees.

Slide 10 shows noninterest expenses of $186.9 million, down 1% year-over-year and up 2% sequentially from the number of days and the higher performance-based compensation. On Slide 11, you'll see that our CET1 ratio increased by 30 basis points to 11.3% sequentially due to changes in the asset mix and in the internal capital generation. We are in a solid position and well prepared to redeploy capital.

Slide 12 highlights our commercial loan portfolio, which grew by about $1.1 billion year-over-year and by about $100 million sequentially. The expected seasonal decline in inventory financing was offset by growth in our commercial real estate portfolio, which also maintained a stable pipeline through the quarter. Slide 13 provides details of our inventory financing portfolio. This quarter, utilization rates were 41%, remaining below historical averages normally in the high 40s.

Slide 14 illustrates that 2/3 of our commercial real estate portfolio is residential with most of it in multi-residential housing. We have limited exposure to the office segment, which accounts for just 3% of our commercial loan portfolio. The LTV on the uninsured multi-residential portfolio stood prudently at 59%.

Slide 15 presents the bank's residential mortgage portfolio. Residential mortgage loans were down 1% year-over-year and up 1% on a sequential basis. We adhere to cautious underwriting standards and are confident in the quality of our portfolio. This is reflected in our 62% proportion of insured mortgages and a low loan-to-value ratio of 50% on the uninsured portion.

Allowances for credit losses on Slide 16 totaled $189.9 million, down $14.4 million compared to last quarter, mostly from lower allowances on impaired commercial loans. Turning to Slide 17. Our level of allowances for credit losses has remained elevated since the pandemic period. In the bottom left corner, you'll find the evolution of our coverage ratio expressed as the previous year's allowances for credit losses over the net write-offs incurred over the following 12 months. On a relative basis, we remain well positioned in terms of coverage to face ongoing uncertainties.

Turning to Slide 18. The provision for credit losses was $11.1 million, a decrease of $5.2 million from a year ago from lower provisions on impaired loans. Sequentially, PCLs were down $5.6 million from provision reversals in performing loans. As a percentage of average loans, PCLs decreased by 6 basis points year-over-year and by 7 basis points quarter-over-quarter to 12 basis points. Slide 19 provides an overview of impaired loans. On a year-over-year basis, gross impaired loans increased by $41.9 million due to credit migration in commercial loans and by $11.3 million sequentially.

Thanks to our prudent underwriting standards and the strong credit quality of our loan portfolio, about 95% of which is collateralized, we're able to manage credit migration effectively with minimal impact on ACL and PCL outcomes. As we look ahead to the fourth quarter of 2025, I would like to provide some remarks. We expect muted growth for average earning assets for Q4. NIM is expected to be consistent with Q3. Regarding the efficiency ratio, Q4 should be relatively aligned with Q3, leading to a full year around 75% as previously guided. Considering the uncertain environment, it is difficult to predict the potential outcome on PCLs, but we currently expect to be in the high teens. Our tax rate is expected to be in the 19%, 20% range. Capital and liquidity levels are solid and are expected to remain strong for Q4.

I will now turn the call back to the operator.

[Operator Instructions] First, we will hear from Paul Holden at CIBC.

First question, I guess, is on, let's call it, credit trends. So performing provision release, but then the increase in gross impaired loans and increase in impaired PCLs. And I guess I recognize the 2 are always correlated. But maybe you can walk us through that, like what's driving the increase in GILs and impaired? And then why do you feel comfortable releasing against those trends?

Paul, Christian, thank you for the question. So the increase in GILs is really a function of our commercial book. And then these tend to be lumpy. So when they come in, they come in, in big chunks, and that's what we're seeing. It also takes a little bit more time today to work out of these accounts. But what you're seeing, there's a lot of activity in our GILs. Our GILs, the new formations was $140 million this quarter, and yet we've only increased by $11 million quarter-over-quarter in our GILs. That's because we have very high levels of return to performing net repayments with -- while managing our net write-offs.

So overall, it's just a reflection of the economic cycle, and we're performing well. And why do I feel that despite this increase that we are well provisioned there is a better impaired mix in our portfolio right now. So as we have built our portfolio -- and it has evolved over time. The same is said about our GILs. So we have a lot more of inventory financing, equipment financing and commercial real estate in our impaired mix, and that is more collateralized than what we've had in prior years. And remember as well, every time an impaired commercial account comes in, it goes through a process of a third-party appraisal to peg the value. So we're very comfortable with the level of allowances.

Okay. I want to ask a couple of questions on potential recovery in inventory finance. I think you gave us some numbers, roughly a low 40% utilization rate, and I think $10 billion of lines outstanding. Maybe you can give us a sense, remind us on how much CET1 that might consume if inventory finance recovers and also maybe the NII potential associated with that.

Yes. I'll take a portion of that and Yvan will complement. Paul, it's Eric. We feel very well positioned for an uptick in our inventory finance business, just growing our dealer base, as I mentioned in the opening remarks in terms of diversification as well. but a lot relies on the overall macro. And if we are to see some ease in the interest rate levels in the U.S., we believe that both the consumer confidence as well as the dealer base confidence could actually get us closer or back to historical levels.

And as you mentioned, like this could represent an uptick of 8% to 10% in utilization rates. So clearly, could be a consumption of 40 to 50 bps of capital. But again, everything needs to be aligned, and we are comfortable in the position we have right now in terms of capital because we'll be ready to deploy against those highly profitable markets.

In terms of NII, I don't know, Yvan, if you want to add.

The only thing I would add on NII, we don't disclose specifically. But what I can tell you is interest rate reductions in the U.S. would have a positive impact on inventory financing previously explained the impact. So just to quantify it, about a 25 basis points decrease in Fed rates would equate to about a nonrecurring $1.5 million for the quarter.

Okay. And then last question for me. Like how should we think about your liquidity level? So you didn't disclose your LCR ratio, but you said it's the top end of the range. How should we think about that versus the liquidity you might need to draw for recovery in inventory finance? Like would you need to increase broker deposits to fund it? Or do you have excess liquidity that you could pull on to fund it?

Yes, there's many ways of attacking it. But I would say, overall, we are in excess liquidity. We've been managing very prudently the liquidities. We're above the industry in terms of LCR. So we have good liquidity aside that would help us support an increased inventory financing. And the way it's -- the way we manage and that also regulatory-wise banks are managed for uncommitted amounts for some types of portfolios, we always have to keep some liquidities aside. So we can definitely use some of that for recovery of volume in inventory financing or otherwise.

[Operator Instructions] Next, we will hear from Stephen Boland at Raymond James.

Paul got through a lot of it. I just one question. There was talk of putting in a forward flow agreement or alternative funding in the U.S. I'm just wondering if there's been any progress on that on diversifying your funding base in the U.S.

Yes. Thank you, Stephen, for that question. We're actively working on it in terms of -- that's why I open up talking about partnerships, definitely, this is one of the angle of partnerships we are considering. But we'll make sure that we line up the right agreement. And right now, as you see in our capital position and as Yvan mentioned in terms of our liquidity position, like we feel very good where we are. So we're in no rush. So we're going to lend the best agreement possible for the organization going forward, but it's still in our plans. So more to come on that, Stephen.

Okay. And then just on your CET1, it does grow. I mean what's -- can you remind me what the goal is for your CET1 ratio? Is it to get to high 11s, 12, something like that?

Stephen, thank you for the question. This is Yvan. So what we mentioned in the past is we wanted to manage in the 10% plus margin, so to stay above 10% and that margin. We're currently at 11.3%, but that goes to a few points and partly Eric discussed that, right? The environment is still uncertain. We are heavily investing right now in the platform to build efficiencies going forward. But the key point that I want to pass on capital, Eric just mentioned that there's low utilization in inventory financing.

A change in rates in the U.S. could trigger some demand up to potentially $1 billion, which is 40, 50 basis points. Commercial real estate, we also have an increase of more than 20% in our unfunded pipeline since last year. So that's also additional capital that we want to keep aside to answer that. So we're not in a mode of necessarily growing, Stephen. We're in the mode of having enough for an impact in the market if there's less uncertainty, U.S. rate reduction and even Canada, Canadian rate reduction that could have on the real estate side.

Okay. And I'll sneak one more in. Just in your opening remarks, you mentioned expanding distribution or simplifying your distribution and technology costs. Can you give us like a concrete example of maybe some milestone you hit during the quarter or a product that you've discontinued? I'm just wondering like maybe a little bit like something specific.

Yes. Thank you, Stephen. Actually, it's Eric. On many fronts, we made progress towards the foundation. Like I won't go into system details, but definitely, efforts we're putting forward in terms of some of the upgrades we're considering are moving from on-premise type technology to cloud technology. And this, as we indicated in the strategic plan, puts more pressure from an OpEx point of view, so heavily on our expense side and again, for about the first 2 years of the plan.

Also remember that we started simplification last year by divesting some of our platforms, but also joining our equipment finance group into our inventory finance platform, Northpoint. So that combination also will fuel and create some future opportunities. So we're working on all aspects to really reduce complexity and create those efficiency going forward.

Next question will be from Sohrab Movahedi at BMO Capital Markets.

Okay. Eric, I just wanted to maybe follow up on that. I mean you obviously had a strategic plan. You shared some of that with us at your Investor Day. We're about a year or so into it. Like how are we tracking to that plan halfway through?

Thank you. I would come back on the halfway through, Sohrab, because we're just over a year in the plan actually of what has been released. And the financial targets we set were for midterm. So I feel very good, just like we said last quarter, we're tracking towards plan. And again, working on the foundation of future state required that investment blitz from the beginning to make sure we're ready to transition either to cloud allowing us afterwards to decommission key expensive systems in our platform and in our technology stack. So again, we are working on multi fronts. It is heavy lifting, but the teams are strongly engaged and we're making the progress as planned, but it's a big undertaking as we laid out last year.

Okay. So just to kind of belabor the point, I mean, things are going according to plan, I guess, or as planned you're saying. But I assume on the investing and the spending and the heavy lifting of the technology side, but the revenue backdrop has softened. So is there any plan to adjust to the prevailing kind of macro environment? Or is it more of a, I'll call it, pedal to the metal and we're doing the spending we're going on regardless of what the revenue environment looks like?

We'll stay committed to our investment level, Sohrab, because it's required. It's needed. If we want to transform and change this bank, we absolutely need to make the right steps to move to better, stronger, more resilient type technology. And this is a commitment we've made. So we will continue towards the program. And as you mentioned, unfortunately, we do have that macroeconomic volatility and uncertainty. But on that front, like I feel very good of where we are in terms of positioning into our specialized markets.

And our goal is to accelerate that specialization, Sohrab. And I think this is where it's going to bear its fruit in the overall plan over the quarters. Like if you look at a couple of examples, like we grew year-over-year 19% in our Equipment group. Our multi-res CRE business increased by 22%. Like overall, we are changing the mix of the bank's portfolio towards a more commercial focus. And this was going to improve our NII and our margins towards the time and should make us a more profitable organization and achieve our midterm targets.

Okay. And just one last one for me here. I mean to create the capacity to invest, you have done some restructurings. Do you think you'll have to do -- unless the revenue environment improves, do you have to do more restructurings to fund the continued investments?

Well, Sohrab, I think that we're well positioned, as Yvan said, from a capital perspective to sustain our investment in terms of technology. But like to go from a 75.7% efficiency towards our goal of 60% and below, we'll need to sustain a mix between revenue growth, improve profitability towards the mix of our portfolio, but also continue and make progress towards being a more efficient organization. So we'll have to work both on the revenue upside, but also keep the expenses aligned with our future efficiency state.

[Operator Instructions] And at this time, gentlemen, it appears we have no other questions. Please proceed.

Okay. Thank you for this morning's call. Overall, we remain focused on executing our strategy, growing commercial banking business that leverages our core strengths, expanding into targeted areas of opportunity and doing so with a continued focus on delivering on a value-added, high-quality client experience. I'd like to take a moment to sincerely thank our dedicated employees, loyal customers, shareholders and all stakeholders for your ongoing support as we transform and grow Laurentian Bank. We look forward to continuing this journey together and reaching new milestones. Thank you again, and I wish you all a great rest of your day. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.

Welcome to the Laurentian Bank Quarterly Financial Results Call. Please note that this call is being recorded.

I would now like to turn the meeting over to Raphael Ambeault, Head, Investor Relations. Please go ahead, Raphael.

[Foreign Language] Good morning and thank you for joining us. Today's opening remarks will be delivered by Éric Provost, President and CEO, and the review of the second quarter financial results will be presented by Yvan Deschamps, Executive Vice President and CFO, after which we'll invite questions from the phone. Also joining us for the question period is Christian De Broux, Executive Vice President and CRO.

All documents pertaining to the quarter can be found on our website in the Investor Relations section. I'd like to remind you that during this conference call, forward-looking statements may be made, and it is possible that actual results may differ materially from those projected in such statements. For the complete cautionary note regarding forward-looking statements, please refer to our press release or to Slide 2 of the presentation. I would also like to remind listeners that the bank assesses its performance on a reported and adjusted basis and considers both to be useful in assessing underlying business performance. Eric and Yvan will be referring to adjusted results in their remarks unless otherwise noted as reported.

I will now turn the call over to Eric.

[Foreign Language] Good morning, and thank you for being with us today. As we mark the one year anniversary of our strategic plan, I'm proud to share that Laurentian Bank has remained focused and disciplined in executing the priorities we set up. We've taken meaning steps to transform our organization and are making steady progress towards generating efficiency.

While we're still in the early stages, we are satisfied with the progress we have made and are encouraged by the sustained execution we have demonstrated so far. Our investment in technology is a key priority in our strategic plan. Thanks to the hard work and dedication of our team throughout the year, we've made real strides towards improving efficiency, strengthening our technology infrastructure and enhancing the customer experience.

We're focused on the areas where we can truly make an impact. That's why we're continuing to grow our presence in specialized commercial sector, while also maintaining a solid base in personal deposits.

Within Capital Markets, we're concentrating on fixed income and foreign exchange, areas where we've built solid expertise. I'm incredibly proud of the progress we've made, and I'm excited to keep working alongside our talented and committed team.

As we continue to build on this momentum, we remain mindful of the broader environment in which we operate. We're actively monitoring a range of factors, market trends and policy changes as well as broader macroeconomic shifts that could affect our customers, and as always, to we're prepared to adapt as needed.

While uncertainty remains, and we recognize that some sectors may be more impacted than others, I want to emphasize that Laurentian Bank is in a strong financial position. We have consistently maintained excellent credit performance across economic cycles. Our portfolio continues to perform well and has proven resilient. Our conviction remains unchanged, and we are well positioned to continue executing with confidence.

Looking at our loan performance. Commercial loans grew by 1% compared to the previous quarter, reflecting our continued strategic focus on growing commercial assets, which remains central to our long-term plan. Our commercial assets now make up 49% of the total and our net interest margin has remained stable at 1.85% quarter-over-quarter.

As for inventory financing, the utilization rate increased slightly to 46% in Q2, still below historical levels. That said, we saw a continued momentum in dealer onboarding during the quarter with a growth of 2% compared to last quarter. So far this spring, our dealers have seen healthy activity, and we anticipate typical seasonal trend in the summer months with inventory levels lowering as consumer demand drives sales.

In the commercial real estate portfolio, the market has been slow for the past few quarters and remains quiet. However, our unfunded pipeline continues to build momentum, growing 9% quarter-over-quarter and 28% year-over-year.

We believe our partners are eager to start projects and are ready to move forward, but they are still waiting for the right timing. We're optimistic that our pipeline will convert into 2026.

From our client perspective, our Commercial Banking Net Promoter Score, which measures customer satisfaction remained in the excellent category. This demonstrate that we are consistently delivering strong value-added solutions through our specialized approach.

On the Personal Banking side, we're continuing to build on the momentum from Q1 and are seeing positive consumer sentiment, supported by our renewed focus on customer service. All in all, we're staying true to our commitment, growing a commercial banking business that plays to our strengths, expanding into key areas of opportunity and doing it while keeping customer satisfaction front and center.

During the quarter, we continued to invest in our strategic priorities, which resulted in an adjusted efficiency ratio of 75.2%. As we mentioned in previous quarters, we anticipate these elevated expenses to continue throughout the remainder of the year. It's important to highlight that these investments are crucial for the successful execution of our strategic plan and for advancing our technology initiatives. In the medium term, these efforts will position us for sustained growth and help us achieve our financial targets.

Finally, we continue to maintain a strong position in both liquidity and capital, providing us with the financial stability necessary to manage current macroeconomic challenges and stay aligned with our strategic goals.

With that, I'll now pass the call over to Yvan, who will walk us through our financial performance.

[Foreign Language] I would like to begin by turning to Slide 7, which highlights the bank's financial performance for the second quarter of 2025. Total revenue for the quarter was $242.5 million, down 4% compared to last year and 3% quarter-over-quarter.

On a reported basis, net income and diluted EPS were $32.3 million and $0.69, respectively. We've recorded adjusting items for the quarter, which totaled $1.6 million after tax or $0.04 per share from restructuring and other impairment charges of $2.2 million. Additional details are available on Slide 22 and in the second quarter report to shareholders.

The remainder of my comments will be on an adjusted basis. The diluted EPS of $0.73 decreased by 19% year-over-year and 6% quarter-over-quarter. Net income of $34 million was down by 16% compared to last year and down 14% compared to last quarter.

The bank's efficiency ratio increased by 140 basis points compared to last year and by 90 basis points sequentially. The increase was driven by the impact of a shorter quarter on revenues while maintaining an elevated level of expenses related to our technology investments. Our ROE for the quarter stood at 5.2%, down 90 basis points year-over-year and 10 basis points quarter-over-quarter.

Slide 8 shows net interest income up by $2.6 million or 1% year-over-year, mainly from the higher commercial loan concentration. On a sequential basis, net interest income was down by $4 million or 2%, mainly from the shorter quarter, partly offset by the growth in our commercial specialties. Our net interest margin was up 5 basis points year-over-year and stable sequentially at 1.85%.

Slide 9 highlights the bank's funding position. On a sequential basis, total funding was up by $300 million. Deposits from advisers and brokers increased by $900 million to offset senior deposit notes and bank deposit notes that matured in the second quarter. The bank maintained a healthy liquidity coverage ratio through the quarter, which remains at the high end of the industry.

Slide 10 presents other income of $60.3 million, which was lower by 17% compared to last year and by 5% -- by 4% sequentially. The year-over-year decrease mostly came from lower fees and securities brokerage commissions following the divestiture of the retail brokerage divisions and lower lending fees due to the tempered commercial real estate activity.

Slide 11 shows noninterest expenses of $182.3 million, down 2% year-over-year and 1% sequentially, mainly from the shorter quarter, partly offset by continued investments in our strategic priorities.

On Slide 12, you'll see that our CET1 ratio increased by 10 basis points to 11% sequentially. We are in a solid position and well prepared to redeploy capital.

Slide 13 highlights our commercial loan portfolio, which grew by about $300 million year-over-year and sequentially. It was primarily driven by continued strength in inventory financing. However, the reported growth in our U.S. dollar-denominated portfolio was partly offset by approximately $300 million due to the appreciation of the Canadian dollar during the quarter.

Slide 14 provides details of our inventory financing portfolio. This quarter, utilization rates were 46%, remaining materially below historical averages normally in the mid-50s, with dealers continuing to take a more conservative approach to inventory restocking. Our commercial real estate pipeline continued to show positive momentum.

Slide 15 illustrates that the majority of our commercial real estate portfolio is concentrated in multi-residential housing, with limited exposure to the office segment, which accounts for just 2% of our commercial loan portfolio. As noted, the bulk of our portfolio consists of multi-tenant properties. The LTV on the uninsured multi-residential portfolio stood prudently at 60%.

Slide 16 presents the bank's residential mortgage portfolio. Residential mortgage loans were down 4% year-over-year and down 1% sequentially. We adhere to cautious underwriting standards and are confident in the quality of our portfolio. This is reflected in our 61% proportion of insured mortgages and a low loan-to-value ratio of 50% on the uninsured portion.

Allowances for credit losses on Slide 17 totaled $204.3 million, down $2.6 million compared to last quarter, mostly from lower allowances on impaired commercial loans.

Turning to Slide 18. Our level of allowances for credit losses has remained relatively stable since the pandemic period. In the bottom left corner, you'll find the evolution of our coverage ratio expressed as the previous year's allowances for credit losses over the net write-offs incurred over the following 12 months. On that basis, we currently stand at about 15% higher than the industry average in terms of net write-offs coverage, well positioned to face the current uncertainties.

Turning to Slide 19. Provision for credit losses was $16.7 million, a decrease of $1.2 million from a year ago from lower provisions on impaired loans, partly offset by higher provisions on performing loans. Sequentially, PCLs were up $1.5 million from higher provisions on performing loans, partly offset by lower provisions on impaired loans. As a percentage of average loans, PCL decreased by 1 basis points year-over-year and increased 2 basis points quarter-over-quarter to 19 basis points.

Slide 20 provides an overview of impaired loans. On a year-over-year basis, gross impaired loans increased by $104.6 million due to credit migration in commercial loans and were relatively stable sequentially. Our disciplined approach to underwriting, along with the high quality and strong collateralization of our loan portfolio around 93% enables us to effectively navigate credit migration without material impacts on our ACL or PCL results. We remain committed to a prudent and disciplined approach to risk management.

As we look ahead to third quarter of 2025, I would like to provide some remarks. We expect our loan book to decrease due to the seasonal reduction in inventory financing during Q3. Revenues are projected to be slightly up, mainly from number of days, partly offset by lower inventory financing volumes. NIM is expected to be slightly down for the same reasons. Regarding the efficiency ratio, we are continuing to invest in our strategic priorities with some acceleration in the remaining of the fiscal year.

As previously mentioned, we expect the full year to be in the mid-70s. The investments we are making in our IT infrastructure will not only improve the customer experience but will also simplify our infrastructure and improve our processes, leading to efficiency gains in the medium term. to achieve our financial targets.

Considering the geopolitical and macroeconomic environment, it is difficult to predict the potential outcome on PCLs, but we are currently expecting to remain in the high-teens. Our tax rate is expected to be in the 19% to 20% range. Capital and liquidity levels are solid and expected to remain strong for Q3 and the remainder of 2025.

I will now turn the call back to the operator.

[Operator Instructions] Your first question comes from Doug Young with Desjardins Bank Capital Markets.

Maybe I'll start off with a big picture question. Like is there anything unusual in these results, anything that lean for you or against you in this quarter that we should be thinking about?

Doug, it's Eric. Actually, no, it's no big story quarter for us. What I would emphasize is the positioning we see and continue to see in our specialized sectors. Commercial is definitely our main focus. And as I mentioned in the opening remarks, like we have a very strong, healthy unfunded pipeline in our commercial real estate sector. And our inventory finance group is performing quite well in terms of keeping onboarding new dealers. So right now, we feel very well positioned for future state. It's just a question of timing afterwards. But the portfolio has been resilient and performing well in this uncertain macroeconomic period.

Okay. And then just on the inventory finance side. Can you talk about the evolution? Or how many new dealers you added this quarter? You've embarked on expanding it beyond just RVs and boats into other categories. Can you talk a bit about that as well and how you're seeing this? And just it sounds like from your conference like your comments that you're actually seeing fairly confident or constructive on the outlook for inventory financing in light of or regardless of the economic backdrop, which I would assume people are buying less RVs and boats. But maybe you can flesh that out a bit.

Yes, Doug. Great question. I'd refer you to Page 14 in the investor presentation. But we said we would aim at diversifying and this is what we're doing in terms of inventory financing. Through the quarter, as I mentioned, we've increased about 2%. So I'm going to make a round number here, about 100 more dealers quarter-over-quarter. From last year, we grew now close to 6,500 dealers. That's a close to 6% growth year-over-year. So -- and most of that growth comes from new sectors, new industry where we deployed again, specialized focused people on ag, construction, IT sectors, power sports, and this is lending into new programs.

And this is what I believe is positioning us better for future state. After that, it's a question of restocking and making sure that those dealers are confident that consumers will be out there purchasing. But we feel good about that business. The risk profile is quite strong versus returns and we'll continue to push this in the future state.

Just two more other quick ones. Maybe just on -- it looks like there was a pickup in commercial write-offs. Do I have that right? And is there anything in particular that where you're seeing some pressure in terms of write-offs on the commercial side. .

Christian speaking. Our performance of our portfolios is within historical trends right now. If I have to say, if I have any concerns right now would be the trucking industry that affects everybody. But our exposure is small, and we're adequately provisioned at this time, taking into account the endemic risk of the sector. So overall, we feel good about our position.

Okay. And then just lastly on the expense ratio. I think you were guiding to move maybe a pickup in expenses. It looked like the expenses came through maybe better than I expected. I don't know if it's better than you expected. But an adjusted expense ratio in that 75% range, is that what you're thinking we should be thinking about for the remainder of this year?

Yes. Thank you, Doug. This is Yvan. So the 75 is what we're guiding or mid-70s for the whole year. So at this point, we're in the 74s or so. So you can see maybe a small uptick next quarter, but relatively small compared to where we are. So it's a good level of assessment for the end of the year.

Your next question comes from Sohrab Movahedi with BMO Capital Markets.

I don't know who wants to take it. The capital ratio is comfortable. It keeps on [ grinding ] higher, which is not a bad thing in this environment. But I'm just curious if you could just remind us of what our medium term, where you would expect your capital levels to be?

And where you think the extra capital that probably is sitting with you today is going to get deployed. Is it going to be invested in, I don't know, building provisions? Or is it going to be deployed because of all this excellent new dealership relationships that you've signed up or utilization rates are going to pick up? Or is it going to be invested in return to shareholders, whether it's through buybacks or maybe dividend increases?

This is Yvan. I'll start, and Eric may have some comments. So we didn't change our guidance in terms of capital. We're at 11%. We said we wanted to manage above 10%. So currently, we have a good cushion that we can use to redeploy capital, as you mentioned. Definitely, at this point, we've been saying for some quarters that inventory financing is running low in terms of utilization. We expect that we're going to see some normalization to 2026. It's obviously dependent on the economy. But at this point, we see still good tractions for the assets.

In terms of commercial real estate, we've seen also a pickup in the unfunded deals that we have. So we see good traction on that side. We see some delay in terms of project starts due to what's happening out there. But again, we expect to see some good momentum starting in 2026. So at this point, we just play prudent with the level that we have. We have a good level that we can use to really deploy to profitable growth in our specialty.

And Sohrab, if I may add, it's Eric. Commercial is a business more capital intensive, as you know. To give more clarity, on the unfunded commercial real estate we're sitting on right now, it's $3.4 billion compared to $2.7 billion last year. So I think just that is a good sign of momentum on our commercial real estate group.

And in terms of inventory financing, we are at lower levels of utilization. Q3 will provide for some further decrease because of the selling season and the seasonality of the book. But we are positioned with $10 billion plus of approved lines in inventory financing to actually benefit from restocking and more stable state in the macroeconomic levels, and we want to be ready for that. And really, it's a question of timing on our side, but these are good returns segments that we know we can add value and we want to be ready to that timing. So that's the reason.

Okay. I appreciate it. Just -- so therefore, for clarity, Yvan, I mean, what you're saying is, these elevated capital levels will get closer to maybe target levels primarily with balance sheet growth here? Is that the right conclusion?

Yes, exactly. And if I can give you a quantum, but I would assume for the end of the year, it's going to remain elevated, right? The [ 11th ] is not a surprise, and it's going to stick for the end of the year.

But as we see the growth coming back that Eric discussed, I'll give you an example. The 10% that we're talking inventory financing is roughly $1 billion. $1 billion is 40 bps of capital. So that gives you an assessment of why we're keeping the cushion that we have right now. And I can do the same math for commercial real estate as well. So definitely, the organic growth through segments where we have values, good margins and good return is what we intend.

And if I can push my luck here, that $1 billion, 40 basis points of capital, what sort of a return would that generate for us?

We don't provide detailed returns by asset as you know. But what I can tell you, it's a good return, and it's going to generate value to the shareholders.

[Operator Instructions] Your next question comes from Paul Holden with CIBC Capital Markets.

Question regarding that $10 billion of accrued lines, just give a bit of sense of how successful you have been in growing inventory finance over the last year. Do you know what that number would have been a year ago?

In terms of lines Sohrab, not quite sure I have that readily...

Paul.

Paul, sorry for that. Readily and -- so we were, yes, close to $9.1 billion last year. So in terms of -- and again, since we onboarded this platform, it demonstrated year after year organic growth potential now on a diversified base. You all know we're looking out for partnerships to help even accelerate further that trend. We believe this is a very great opportunity for us because of the operational capabilities we have and the broad industries that we can actually address to this specialized business.

So I feel good about the business. I feel good about the risk profile we're in, and I believe in its future potential. Again, it's a question of timing and the dealers have been cautious this year in terms of restocking. But in a normalized environment, we should be running at the mid-50s utilization, which you can appreciate the volume it represents.

Sure. So you may have mentioned this earlier, but I missed the -- where is the utilization rate currently?

So we're running end of Q2 at 46%. So we should be -- historically, it's been running above the 50% mark at this stage of the year. And now that we're entering the seasonal period of where we see increased sales from our dealerships, it is expected that this volume will reduce throughout Q3. But again, the restocking period occurs in the fall for the next season. So we're cautiously optimistic that the dealer base will be in a good position if things stabilize and that they will restock to historical levels, which just that should give us a good momentum in terms of asset growth for '26.

Okay. So I mean the accrued lines are available credit under inventory finance and the utilization rates versus historical is very helpful in terms of understanding the future growth potential there. Any similar statistics you can give us on equipment finance or your commercial mortgage lending book, like has that -- has the opportunity there, is that growing at a similar sort of 10% pace? Or is it something a little bit more modest?

Yes. It just don't behave the same way. Paul, in terms of -- it's not utilization lines that we set up. Like for equipment finance, as an example, like over the past 4 quarters -- 4 quarters, we saw a 20% growth in equipment financing in our diversified groups. So again, like we believe that this is a good business line for us. It's well diversified also in terms of different categories of industries.

And we have the same approach, very disciplined in terms of underwriting principles, specialization all across our functions and not solely at the origination stage. And that gives us comfort in the resiliency of the portfolio, but also in the future potential in terms of our North American positioning.

Okay. Got it. One final question for me. Just want to get a better sense of where you are at in terms of these technology investments? Obviously, as per the Investor Day, the real intention is to realize expense efficiencies ultimately, right? And I think your objective is less than 60%, and you're guiding to 75% this year. So just wondering how far along you are in the past, when roughly we should expect that efficiency ratio to start improving?

Yes, that's a great question, Paul. I'm very happy with the progress we've made so far a year into the plan. And as you mentioned, the goal is to create efficiencies. And for us, it's through simplification of our technology stack, improving our processes, reducing manual intervention from our various groups in operations.

So we made good progress, but there's still the path towards moving to cloud-based solution. And this is what is putting some pressure on our expense levels right now.

To answer your question more specifically, I think we should start building that momentum on our efficiency ratio into 2026. And again, it's a mix. Like we are improving our diversified mix of lending throughout more commercial, higher type margins. We are working on simplification and making sure that we're conscious of our operating costs. And of course, a big thing about the foundational technology investments we're making is that it will allow us to actually decommission some of our systems that will also create some efficiencies. So many prongs, but definitely good momentum so far.

Okay. So just so I understand, I'm putting the revenue sort of argument aside, which I get on efficiency, but just thinking about it from a pure cost perspective, but the real catalyst here, like the most material one is going to be the migration of cloud. And once you're kind of that's underway and complete, then you really start realizing the cost efficiencies. Is that what I just heard?

Yes, that's right.

Next question comes from Stephen Boland with Raymond James.

Just one question for me on a bit of a broken record on this. A couple of quarters ago, you mentioned about forward flow in the U.S. diversifying your funding sources. I'm wondering what progress, if any, has been made on that?

Yes, that's a great question, Stephen. In terms of forward flow, right now, we're not in a -- we're very well positioned in terms of diversified sources of funding. So we're making progress. We are discussing with various partners, and we want to make sure we land the right agreement for future states. So more to come on that, but I feel good where we are. And right now, the bank is in a solid liquidity and capital position. So there's no urgency for us. It is all a question of landing the right partner and the right agreement in place. So more to come.

Okay. Actually, I'll do a follow-up. Just on your intro remarks, you mentioned positive sentiment in Personal Banking. I'm wondering how formal is that? Is that the feedback you're getting from the branches, you mentioned improved customer service. Maybe you could just touch on that a bit, please?

Yes. Well, it's mostly how we reorganize our approach towards customer service and customer experience. So with the means we have, we actually revisited our models, which is showing in terms of customer surveys, customer satisfaction that we are able to pulse. But we don't have any new tools to deploy. So our path towards having a more adaptive digital offering is still underway. But definitely out there, we're seeing positive momentum and how the customers are feeling inside Laurentian Bank.

[Operator Instructions] Your next question comes from Darko Mihelic with RBC Capital Markets.

Just the first question for anyone who wants to handle this. So what are we seeing on the resolution collection side of the business? Is there anything there that if you could highlight for us? Is there anything different today than versus a year ago?

Darko, Christian here. I would say from a delinquency standpoint, we're within historical levels, and we're not seeing negative trends. And on the commercial side, I think things take a little bit longer time maybe now in the current environment, but I spent a lot of time our GILs, on our commercial GILs, and the files are progressing, and nothing leads me to believe that we're not adequately provisioned.

And in fact, you can take a look at our GIL activities, and you'll see that year-to-date, we have some of the highest returns to performing and repayment. And we're really managing net write-offs in there. So I feel good about it.

Okay. That would suggest to me that you're having a decent go of sort of restructuring loans and working with -- I'm a little more interested in the value of collateral and court processes for the more difficult files. Are you seeing anything different there?

The values soften a bit in a down cycle. But given our low loan to values and our conservative approach, this is not affecting us.

Okay. And every so often, once in a blue moon, I get to think longer term about banks. And so as I sit here and I think about what I've been seeing in terms of trends for Laurentian and I think about my forward model, I'm tempted to put in a higher net interest margin at some point on loan mix alone. But there's another part of me that says, well, funding is kind of important.

You touched on the digital offering. Where are you on that? Are you going to make a big splash soon with a deposit product? Will that maybe set you back a little bit at the beginning, but longer term be beneficial? Any kind of thoughts on that because I want to think about my model in '26 and '27. And before I get -- before I try and push margins higher on loan mix alone, I kind of want to have at least an understanding of your view on longer-term funding.

Yes. Darko, I'll start and maybe Yvan can complement on the mix in terms of the margin maybe shorter term, but listen, as for a big splash event in the shortcoming, like this is not to be expected. Like on our side, we're still focusing on the foundational and making the right migration towards cloud based. So for us, it is a longer-term type play in terms of having the right self-serve tools, and that's only one tool. Like we need to encompass the overall needs of our different business segment, and it needs to make the right returns for us.

And if you refer back to our plan last year, in the overall mix, like our goal was to increase our retail deposit funding by 5%-ish. So mid-single digit was part of the plan horizon. We're still aiming for that. But like in terms of having a big influence from a funding perspective on our margin mix, I would be more focused on the lending side where we will change the mix of lending that will allow for better quality of margins on that side of the balance sheet.

I'll add a word on the short term and maybe just reinforce what Eric is saying. So on the short term, for next quarter, you should see a small slight decrease in terms of margins due to the impact of the reduction of volume from inventory financing.

But I'll just reinforce what Eric said. As you see the commercial mix improving for the bank, it's going to help the NIM. And one element I mentioned over the last few quarters that is turning to be true is there is one less medium-sized bank on the broker GICs as well, not that it changes materially the costs, but I would say it's a more deep market for the medium-sized banks right now. And I think it believes and benefits everybody.

Okay. That's helpful. And maybe, Eric, just back to you then, as a follow-up on this topic. It was my impression at Investor Day that we would have seen the product by now. And so the question is, what has changed? Is it something in the marketplace? Is it something technologically? Is there something that's changed because I would have really expected the product by now. .

And I think as I recall, it was really focused for like a blue-collar self-serve kind of client in Quebec. And is it a market dynamic that's changed? Or is it something that's changed technologically at your bank?

No, actually, Darko, what we did lay out in the plan is that we wouldn't be building all ourself. We need to land the right partner, and most importantly, we need to land a solution that will allow to differentiate and have a real impact out there. But the mix between deploying a product and having the right return on investment doing so, for us, makes us approach the overall with cautious.

And right now, we still need to make sure that all the foundation is in place to be able to land that partnership the right way, and at the end of the day, to provide the right solution for enhanced customer experience and also allow for a differentiator factor on our side. So we're still exploring, still discussing, but haven't landed a final spot there. And again, when we laid out the plan, it was all about foundational investments, and we're still in that phase.

Your next question comes from Gabriel Dechaine with National Bank.

Apologies if this question has been asked before. I had to hop on a bit late. You hear a lot of banks talking about balance sheet optimization. I mean it's a recurring theme. And I know Laurentian over -- in the past has been a few or not in the past, now your balance sheet optimization involves improving your funding mix and all that. I'm just thinking more on the asset side. Are there any maybe material parts of the business or a loan book that you could exit?

Thank you for your question, Gabriel. This is Yvan. So at this point, the message that we had in the strat plan, and that didn't change, is that we have specialties in commercial. So those are where we're focusing, and that's what we intend to grow in the bank mix. So at this point, there is no intent of divesting of assets as you're suggesting in your questions. It's on the other side, growing organically, because we have good momentum and we have good potential in unfunded lines in the markets where we are good at, recognize and have very high satisfaction by our employees -- our customers, sorry.

No, no, I get that, but commercial is a broad discussion. Sometimes there's verticals within it that upon further review, say, well, our funding could -- and capital could be better used to support growth in the commercial -- the equipment financing business, for instance, anything -- well, it doesn't sound like it. So I guess the question is irrelevant.

Yes, Gabriel, it's Eric. On our side, it's making sure that the deals we onboard respect our risk return as well as our -- so we will see an evolution in the mix. But again, it's a transfer between the retail side of the book going towards more commercial assets at the end. So you're going to feel that shift, but exiting as a whole, that's...

And if you want to look at the small print, Gabriel, one big shift is despite the fact that the mortgages number on the balance sheet has not changed, the main portion of insured mortgages went from 40% to about 60%. So that freed up capital that we intend to use in commercial. So within the portfolio of products we're doing, we're doing shift of capital, not necessarily in terms of exits of portfolios.

This concludes the Q&A session. I will now hand the meeting over to Éric Provost for closing remarks.

Thank you. I want to take a moment to sincerely thank our dedicated employees, loyal customers, shareholders and all of our stakeholders for your continued support as we transform and grow Laurentian Bank. Your commitment is essential to our progress, and we look forward to achieving even more together. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and ask that you please disconnect your lines. Thank you.