TORONTO (Reuters) - Laurentian Bank of Canada (LB.TO) posted a 7 percent drop in its first-quarter profit on Wednesday, citing an unfavorable tax adjustment, and said net income would have jumped 25 percent excluding this item.
Shares of Laurentian, Canada's eighth-biggest bank by market value, leaped 4.4 percent to C$40.50 on the Toronto Stock Exchange on Wednesday, while other financial stocks slipped.
The bank, which has the third-largest branch network in the province of Quebec, reported net income of C$19.1 million ($19.5 million), or 68 Canadian cents a share, for the three months ended January 31. That was down from C$20.6 million, or 74 Canadian cents a share, in the same period a year earlier.
Without the C$5.6 million tax adjustment, Laurentian said its net income would have surged by 25 percent to C$24.7 million, or 91 Canadian cents a share.
That topped market forecasts, although some analysts noted that unusually high securitization gains boosted the bottom line.
Still, they had expected Laurentian to report earnings before exceptional items of just 83 Canadian cents a share, according to Reuters Estimates.
"While other banks will have some various capital markets hits, we believe that these results point to solid earnings in the retail operations of Canadian banks," BMO Capital Markets bank analyst Ian de Verteuil said in a research note.
Laurentian's return on equity, a measure of how efficiently a bank uses its capital, fell to 8.1 percent in the first quarter from 9.4 percent a year earlier. But return on equity would have been 10.9 percent without the tax adjustment for lower future income tax assets, Laurentian said.
"Results for the first quarter are very satisfactory considering the prevailing financial market conditions and the uncertain economic environment," Rejean Robitaille, the bank's president and chief executive, said in a statement.
"The continued growth in loan and deposit volumes, as well as effective cost control, enabled us to maintain strong core results."
On a conference call, Robitaille noted that his bank had shown a "significant improvement" in efficiency in the first quarter. Its efficiency ratio, or non-interest expenses as a percentage of total revenue, was 71.9 percent in the latest period, versus 73.7 percent a year earlier, even though the bank paid higher salaries, added new account managers and spent more on technology.
Total revenue rose 7 percent to C$151.1 million in the first quarter, while the bank's provision for credit losses dropped to C$9.5 million, from C$10 million a year earlier.
Laurentian is by far the best performing bank stock in Canada this year. Its shares are up nearly 22 percent year-to-date, while other bank stocks are down.
Reporting by Lynne Olver; Editing by Peter Galloway