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Laurentian Bank's main branch in downtown Montreal, (John Morstad/The Globe and Mail)
Laurentian Bank's main branch in downtown Montreal, (John Morstad/The Globe and Mail)

Don't forget about Canada's smaller banks Add to ...

Even though there was a lot of talk about the weak performance of most capital markets arms this quarter, personal and commercial operations are the bread and butter of Canadian banks, and they were solid for the Big Six.

This strength is good news for Canada's smaller banks, and their earnings are showing it this week. Laurentian announced strong fourth-quarter profit this morning and boosted its quarterly dividend to $0.39 a share, representing an annual yield around 3.4 per cent.

The move comes a day after Canadian Western Bank did the same thing, also on the back of solid fourth-quarter profit.

These increases come in contrast to five of the Big Six banks who deferred any hikes. In Bank of Montreal's case, chief executive officer Bill Downe said BMO is still slightly above its target payout ratio of 45 to 55 per cent, and until earnings increase to get the current payout in line with this target, dividend hikes won't happen.

So what's driving the smaller banks? 'Vanilla' business lines. Both CWB and Laurentian noted strong loan and deposit growth. That isn't very sexy, but it helps them build slowly over time. The commercial loan market is also one to watch over the next year because smaller businesses are expected to borrow in order to invest in their businesses.

Laurentian's net income was $32.5 million, or $1.24 diluted per share. Surprisingly net income from Quebec retail and small business operations, Laurentian's key market, was down sharply from the third quarter, but the bank still reported a higher overall net profit.

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