June 5, 2000

Laurentian Bank reported improved profitability for the second quarter ended April 30, 2000. In the quarter, earnings per share were $0.70 versus $0.43 in the second quarter of 1999. Return on common shareholders’ equity improved from 8.1% in 1999 to 12.4% in the most recent quarter. For the first half of fiscal 2000, earnings per share were $1.27 and return on shareholders’ equity was 11.2%, compared to $1.13 and 10.5% respectively in 1999. As we previously discussed, management has targeted Laurentian’s net interest margin and its efficiency ratio in order to return to acceptable levels of profitability. Both of these measures have shown considerable improvement in the quarter, since net interest income grew 19% and the efficiency ratio declined from 79.8% to 71.8%.

At this time, there is little to report on two other important issues. First, Laurentian’s B2B Trust is proceeding as planned and the Bank is currently in the process of setting up the required infrastructure. Laurentian’s positioning as an Internet wholesaler of financial products and services bodes well for future growth and profitability. Second, we are still awaiting clarification from the federal government regarding changes in the regulation of the financial services industry. Without further news, the current ownership restrictions will continue to apply to Laurentian.

At ABC Funds, we believe that the second quarter results are quite positive for Laurentian Bank. Profitability is returning to acceptable levels through the focussed efforts of management and the B2B Trust initiative is well underway. Recent share price appreciation demonstrates investor interest and capital flow into fundamentally attractive value stocks.

Financial services has been one of the best performing sectors of the TSE 300 over the past quarter with a return of approximately 17%. The big 5 banks have done very well. But we believe that better value can be found elsewhere in the sector, as exemplified by our holding of Laurentian Bank. Laurentian typifies our investment style whereby we have identified an extremely undervalued, small capitalization company in an improving sector. Laurentian Bank's share price is just beginning to reflect its improving profitability, various growth opportunities and the establishment of the B2B Trust subsidiary.

Briefly, the trend of positive financial and operating results has continued. Laurentian Bank reported strong improvement in the third quarter of 2000, with net income of $0.78 up 70% from the $0.46 earned in the third quarter of 1999. This implies a return on equity of 13.1% versus 8.4% in the comparable quarter last year. As further proof of management's confidence, the quarterly dividend was increased from $0.23 to $0.25, or approximately 9%.

In addition to solid operating results, several important announcements were released. Laurentian has signed an agreement with Scotiabank to purchase 43 of their branches in Quebec. This purchase will expand Laurentian's retail coverage in the province. These branches will help build the critical mass needed to further reduce costs, develop market presence and improve operating efficiency. Laurentian Bank issued 2.5 million shares at $25.40 through Scotiabank as part of the transaction, with the balance of the purchase funded by cash.

B2B Trust, Laurentian's provider of wholesale financial products over the Internet, began operations on July 1, 2000. The strategic direction of the Toronto-based division is becoming more clearly defined as the infrastructure and products fall into place. B2B Trust will provide generic and trademarked products to individuals and sophisticated professional investors. Mutual funds, deposits, fixed income products and equity transactions will also be available online along with private-label chequing accounts, debit and VISA cards. The forward-looking nature of this initiative is remarkable and we eagerly await further positive developments from this e-commerce venture.

Over the past few months, several high-profile companies in the technology sector have released disappointing financial results. Reassuringly, many old economy names, such as Laurentian Bank, continue to report earnings that meet or exceed expectations. For the year-ended October 31, the Bank earned $2.86 per share from operations compared to $2.10 in fiscal 1999. The record results were driven by revenue growth of 10.7% and cost controls that improved the efficiency ratio from 77.6% to 71.9%.

With the earnings report, it was also announced that management, technology and infrastructure are now essentially in place for B2B Trust. Over the next six months, the plan is to forge third party agreements in order to develop the product mix and build the supplier base. In short, this value favourite is a defensive, old-economy stock with additional upside potential related to its online initiative.

Amid turbulent market conditions, Laurentian Bank continues to show good relative and absolute performance. The Bank's first quarter financial results were generally above expectations, as revenue grew 45% to $160.1 million and net interest income grew 57% to $91.9 million. Cost savings were evident in the quarter, as the efficiency ratio, or expenses as a percentage of revenue, fell to 69.5% from 74.6% in the first quarter of 2000. Earnings per share of $0.84 (after goodwill charges), versus $0.57 in the comparable quarter last year, yielded a solid 13.3% return on shareholders' equity. Notably, the sustainability of these results was confirmed with a dividend increase from $0.25 to $0.27 per quarter.

Credit quality has become somewhat of a concern for many banks, as the ability of technology and telecommunication companies to repay their loans has been questioned. Laurentian Bank is largely immune from such issues because the bulk of the Bank's portfolio is made up of personal and small-business loans. Net impaired loans were essentially zero percent of total loans in the first quarter of 2001, though the loan loss provision increased to $8 million from $5 million a year ago. This was primarily due to growth in the loan portfolio after the acquisition of Sun Life Trust and significant increases in personal and commercial lending.

We are quite satisfied with Laurentian's credit quality and its recent financial performance. The Bank's profitability and growing dividends are reassuring given declining earnings and volatility across the broad market. Finally, as we've said before, Laurentian Bank should become one of the more attractive takeover candidates in the sector, once consolidation is given the official green light.

Laurentian Bank recently announced second quarter results that were among the strongest of all the major Canadian Banks. Laurentian reported earnings per share (after goodwill charges) of $0.83, an increase of 18.6% from the previous year. Total revenue grew 19% reflecting the acquisition of several Scotiabank branches. Net interest income grew 32% through asset growth as well as a better loan and deposit mix. Further, the efficiency ratio improved from 71.8% to 71.1% and the return on common shareholders' equity reached 13.3%, up from 12.4% in the comparable period in 2000. Due to the lack of exposure to telecommunications, technology or other high-risk sectors, credit quality was sound and net impaired loans were an insignificant percentage of total loans and bankers' acceptances.

The excellent financial performance is a testament to Laurentian's development as a niche player in the Canadian financial services sector. The Bank's strategy for future growth places significant importance on B2B Trust, which accounted for 36% of net income in the second quarter. The business model is gaining acceptance and B2B Trust has announced several new contract and partnership arrangements with CAMIC (the Canadian Association of Mutual Insurance Companies), Capital Teraxis and the AIC Group of Funds. The spin-off and corporate reorganization of B2B Trust is now essentially complete, with the return of excess capital to Laurentian Bank on May 31 in the amount of $43 million. The B2B Trust IPO, originally postponed early in the year due to unfavourable market conditions, was completed on June 27, 2001 and the stock now trades on the TSE under the symbol BBT. We are of the opinion that Laurentian Bank will continue to outperform as profitability improves even further and B2B Trust gains momentum.

Even in a turbulent third quarter, Laurentian Bank was able to grow fully diluted earnings per share from $0.80 to $0.88, an increase of 10% over last year. For the first nine months of 2001, fully diluted earnings per share increased 25% to $2.63 and return on shareholders' equity before goodwill improved to 13.8% from 12.3% in the previous period. Management has maintained its focus on building shareholder value and book value has grown to $26.53 per share, up from $23.83 in the third quarter of 2000. Though the results for the quarter included several unusual items, there was no net effect on the bottom line. Essentially, a dilution gain related to the B2B Trust IPO was offset by a charge related to the restructuring of the Retail Banking and Wealth Management operations, which was designed to further improve the profitability of these segments.

Not unexpectedly, credit quality declined slightly in the quarter and the provision for credit losses was elevated to $9.5 million in 2001, or 0.22% of average assets, versus $6.7 million, or 0.18% of average assets, in 2000. This marginal increase was due to a larger loan portfolio and a small increase in the level of impaired commercial loans. Reassuringly, commercial loans account for only a small proportion of total loans and therefore we do not expect any severe deterioration in credit quality. Results for the quarter were positively impacted by impressive revenue growth of 21%, net interest income growth to 2.13% from 2.05% of average assets and a small improvement in the efficiency ratio to 70.4%, excluding special items.

As we have discussed in the past, Laurentian Bank is an interesting niche player in the Canadian financial services sector. Bill C-8 has received royal assent and Laurentian could very well become an acquisition target. Henri-Paul Rousseau, the Bank's President and CEO, has stated that management is still working to build shareholder value and is not actively looking to complete a deal. However, because the Bank was vulnerable to an unwelcome takeover offer, Laurentian Bank recently adopted a shareholder rights plan. This ensures adequate time to fully consider any unsolicited bid and enables the Board of Directors to negotiate or pursue the most attractive deal possible in the interest of its shareholders.

After an eventful 2001, Laurentian Bank's results for the fiscal year demonstrated revenue and earnings growth, efficiency improvements and a reasonable return on shareholders' equity. Initiatives included the integration of 43 Quebec Scotiabank branches, the initial public offering of B2B Trust and the creation of numerous alliances and partnerships with such institutions as AIC Limited, Cartier Partners Financial Group, Charles Schwab Canada and the Canadian Association of Mutual Insurance Companies. Management expects that operations will continue to show good progress as the Bank concentrates on meeting the needs of its retail clients, small and medium-sized businesses and independent financial advisors.

The financial results for the most recently completed fiscal year reflect the success of the Bank's unique positioning. Revenue, excluding two unusual gains, grew 24% from $490.7 million to $607.5 million in 2001. Earnings per share (after goodwill charges and excluding special items) amounted to $3.38 for the year versus $2.86 in 2000. The efficiency ratio (excluding special items) improved from 71.9% in 2000 to 70.3% in 2001, as the Bank controlled costs and grew revenue. Consequently, the ROE (before goodwill but excluding special items) improved from 12.7% to 13.8% over the twelve-month period.

Despite the recent weakness in the economy, Laurentian Bank has maintained a well-capitalized balance sheet. This allowed management to increase the Bank's dividend approximately 7% to $0.29 on a quarterly basis; the stock currently yields just over 3%. We continue to look forward to good operating and financial results and interesting developments from Laurentian Bank.

June 7, 2002

Last Friday, Henri-Paul Rousseau announced that the Quebec government had appointed him Chairman and Chief Executive Officer of the Caisse de Dépôt et Placement, the Quebec Pension Fund. He is expected to assume his new position on September 1, 2002 and will relinquish his duties as President and Chief Executive Officer of Laurentian Bank and B2B Trust on August 1, 2002. We believe that Mr. Rousseau was instrumental in shaping Laurentian's recent strategic initiatives and are disappointed to see him go.

However, the Board of Directors has acted quickly and decisively in order to minimize any potential speculation or uncertainty. Yesterday, the Laurentian Bank of Canada and B2B Trust announced the appointment of Raymond McManus to the position of President and Chief Executive Officer. Incidentally, Mr. McManus has worked in the banking industry since 1960. Most recently, he was the head of Cafa Financial Corporation, which he founded in 1986 as a private investment bank specializing in mergers and acquisitions, corporate financing and corporate investments. He has also been on the Board of Laurentian Bank for the past 14 years and has been a member of the Bank's Executive Committee for the past 12 years.

We believe that Mr. McManus is capable and is quite familiar with the nuances of the Bank's operations. While we expect him to proceed with the implementation of the Bank's long-term business strategy with minimal disruption, we believe that investors should bear in mind that his professional specialization includes mergers and acquisitions. This fact could come in quite handy with the future consolidation of the Canadian banking industry.

February 21, 2003

Laurentian Bank had a difficult year in fiscal 2002, as a result of the economic downturn and declining net interest margins. Large provisions due to deteriorating credit quality and a surprisingly large exposure to Teleglobe negatively impacted the financial results.
All told, Laurentian Bank reported fully diluted earnings of $1.26 in fiscal 2002 compared to $3.37 last year. These results implied a return on equity of just 4.8% compared to 13.1% for 2002 and 2001 respectively.

Although the earnings were disappointing, Laurentian Bank managed to increase its dividend by 9.4% from $1.06 to $1.16 per share. Further, the Bank's efficiency ratio (non-interest expenses as a percentage of total revenue) improved from 70.6% in 2001 to 67.8% in 2002. Laurentian Bank's stock price has found support around its year-end book value of $26.57. At current price levels, the Bank's attractive dividend yield of approximately 4.5% should provide additional support for the stock.

As we await the return to more normalized levels of profitability, new CEO Raymond McManus has begun to define the future direction of the Bank. As he stated in the Bank's news release, "given the uncertain economic and interest rate environment, the Bank has adopted more conservative growth and profitability objectives for 2003". To this end, the Bank is no longer pursuing its strategy of transforming into a holding company structure. Essentially, after a comprehensive review, management decided that the costs would outweigh the benefits in the current economic environment.

On a final note, it appears the possibility of labour unrest has been resolved. Talks between management and union representatives had broken off in December 2002. However, on February 2, 2003 both sides agreed to binding arbitration to settle their next collective agreement. Because the arbitration board's decision will be binding, strikes or lockouts will be avoided for the next several years. Laurentian Bank and its workforce will now be free to concentrate on achieving the efficiency improvements and implementing the cost cutting measures that are needed to return the Bank to acceptable levels of profitability.

December 12, 2003

Laurentian Bank had a difficult year in fiscal 2003, as a result of lower net interest margins, loan loss provisions and cost increases. Although the Bank reported $3.32 per fully diluted common share, the headline number included several unusual items. A restructuring charge and loan losses were more than offset by a large gain on the sale of 57 bank branches. Excluding the unusual items, Laurentian Bank earned $1.80 per fully diluted common share, implying a return on equity of only 4%. Although the earnings were disappointing, the Bank remains well capitalized and is committed to paying its annual dividend of $1.16. Laurentian Bank's stock price has found support just below its 2003 year-end book value of $28.73. At current price levels, the Bank's attractive dividend yield of almost 4.5% should provide additional support for the stock.

As we await the return to more normalized levels of profitability, the new CEO, Raymond McManus, has begun to define the future direction of the Bank. As he stated in a recent news release, "given the uncertain economic and interest rate environment, the Bank has adopted more conservative growth and profitability objectives". In keeping with this strategy, Laurentian Bank divested 57 branches in Ontario and Western Canada for a pre-tax gain of $69.9 million, which was included in the results as discussed above. Laurentian received almost twice book value for these branches, which was an excellent price for these assets. Clearly the buyer, the TD Bank, was a motivated purchaser.

Going forward, management is expected to refocus its efforts on the core Quebec market, a region where Laurentian has traditionally had success as a niche player. A reinvigorated marketing campaign should allow the Bank to strengthen its competitive position and reconnect with the retail customer. Outside of Quebec, Laurentian Bank has several banking arrangements with various third parties, including a potentially rewarding agreement to provide credit to customers of Canadian Tire.

In the fourth quarter report, the Bank outlined its 3-year strategic plan to return to sustainable growth. Management has set out six objectives, which focus on ROE, EPS, revenue, efficiency, capital and credit quality. Although the strategic repositioning will not occur overnight, we support management's efforts to "get back to business" in order to improve profitability over the long run.

June 25, 2004

Laurentian Bank is in the midst of a 3-year strategic plan to turn around the Bank’s operations and return to more normalized levels of profitability. Management, led by Ray McManus measures its progress based on six objectives: ROE, EPS, revenue, efficiency, capital and credit quality. Recently, the market seemed to focus on the Bank’s ability to continue to pay its $1.16 dividend, which yields over 4% at current price levels. We believe that fears of a dividend cut are overblown and that the Bank will show slow but steady progress in the coming quarters.

Results for the first six months indicate that the Bank is on track to meet its goals for fiscal 2004. Return on equity for the six-month period was 6% compared to the 5% objective. Diluted earnings per share for the first months were $0.85, which implies that the full year EPS objective of $1.44 is achievable. Year to date, total revenue of $244 million is 49% of the annual target of $503 million. The efficiency ratio came in at 76.6%, ahead of the 77.0% objective for the year. Capital ratios, both Tier 1 and total, were more conservative than mandated. Finally, the loan loss ratio of 0.25% was only slightly higher than the 2004 objective of 0.22%. The Board of Directors considered the results to be “satisfactory”, the financial condition of the Bank to be “sound” and declared the quarterly dividend of $0.29 per share.

As we’ve pointed out before, the strategic repositioning will not occur overnight. However, Ray McManus seems to have a clear vision for the Bank and has shown a willingness to make things happen. We would point to the sale of the 57 branches in Ontario and Western Canada to TD Bank and the privatization of B2B Trust as examples of his decisiveness. As we wait patiently for the turnaround to play out, the healthy dividend should provide downside protection.

December 10, 2004

Laurentian Bank recently reported financial results for fiscal 2004. Despite taking several major steps to improve the Bank’s competitive position and profitability, the results reflected a very difficult operating environment. For the full year, Laurentian reported net income of $47.8 million or $1.33 per diluted common share compared to $91.9 million or $3.32 per diluted common share. In 2003, the results were boosted by the sale of Ontario and Western Canada branches, which added $54.9 million or $2.34 per share to the results. Return on shareholders’ equity was 4.6% in 2004 compared to 12.4% in 2003. Regarding the Bank’s performance, Ray McManus, President and Chief Executive Officer, said, “In retrospect, I underestimated the time required to implement our Plan; however, I am more convinced than ever that we have the right Plan”.

As part of the Plan, Mr. McManus completed several major initiatives over the past year and a half, including the sale of 57 branches outside of Quebec, privatizing B2B Trust, repurchasing Class A Preferred shares and redeeming all of the Series 8 Debentures. The sale of BLC-Edmond de Rothschild Asset Management to Industrial Alliance is expected to close in the first quarter of fiscal 2005. The transaction will generate an initial cash payment of $65 million and a gain that may exceed $30 million, subject to a recovery clause. We like all of these transactions because they either lower the Bank’s cost of capital or monetize an under-performing asset.

In the Bank’s press release, Mr. McManus made his ultimate goal clear, “In order to further accelerate our Plan, one of my main objectives for 2005 is to convince one of the big five Canadian Chartered Banks to combine its Quebec retail operations into the Laurentian Bank”. This would immediately give the Bank the scale and scope in the Quebec retail market that is needed to improve profitability. Success will depend on having a solid balance sheet, which was a relatively bright spot for the year. The Tier 1 and total capital ratios exceeded objectives and stood at 10.5% and 14.0% respectively, versus the Bank’s minimum requirements of 9.5% and 13.0%. Thankfully, the Board of Directors was satisfied with the Bank’s financial condition and the progress made thus far. They declared the regular quarterly dividend of $0.29 payable on February 1, 2005 to shareholders of record on January 4, 2005.

September 30, 2005

Laurentian Bank, long the ugly duckling of the banking sector, recently reported financial results that triggered a rash of analyst upgrades. On August 26, the Bank reported third quarter net income of $15.8 million or $0.54 per diluted common share compared to $9.7 million or $0.31 per diluted common share for the same period last year. Importantly, the results for quarter were nice and clean; indicating a real improvement in the Bank’s operating performance in two key areas. First, net interest income increased $21.2 million to $85.5 million or 2.06% of average assets compared to $64.3 million or 1.59% of average assets for the similar quarter a year ago. Second, retail loans increased by $206 million during the quarter as a result of favourable lending conditions and promising results from the new financial services boutiques.

In addition to the positive year over year earnings growth, investors and investment analysts were excited about the results for two reasons. The earnings in the quarter provided a decent margin of safety for the Bank to continue paying the $1.16 annual dividend. Further, Laurentian Bank reported a return on equity of 7.4% in the quarter, above its estimated cost of capital. Not surprisingly, after trading below book value for years, Laurentian Bank’s stock rallied above its book value of $29.38 to reach approximately $31.50. As a final note, we have heard some speculation regarding the possibility of turning the Bank into an income trust. However, we don’t believe the rumours. We believe that the market is simply acknowledging the Bank’s fundamental turnaround.

February 3, 2006

After almost 6 years, we have finally sold our entire position in Laurentian Bank. Ray McManus, President and CEO, inherited a Bank with a litany of issues, including a unionized workforce, assets that were starved for capital and a footprint that was stretched too thin. The stock was pricing in disappointing profitability and the real threat of a dividend cut. Since taking over the helm of the Bank, Mr. McManus took decisive action. He resolved the labour unrest, refocused the Bank’s operations on its core Quebec market, sold underperforming assets at exceptional prices and returned profitability to acceptable levels. More importantly, he avoided having to cut the dividend. The share price has responded in kind, appreciating just over 50% from its 52 week low.

Despite our admiration for Mr. McManus’s accomplishments, we cannot be married to any of our stocks. With the stock trading at 1.2 times its fiscal 2005 book value of $29.85 and almost 20 times its 2005 earnings from continuing operations of $1.85, we believe that the stock is closer to fair value than not. Because we are essentially fully invested, we have decided to lock in our gains and look for other opportunities with greater upside potential.