Laurentian Bank of Canada shares plunged almost 10 per cent in early trading Wednesday after the bank missed expectations and surprised analysts as a key measure of profitability shrank. That put the stock on pace for its biggest single-day drop since Rania Llewellyn took over as chief executive almost two years ago.

The Montreal-based lender said its net income fell 10 per cent year-over-year to $55.9 million in the three-month period that ended July 31. Adjusted for special items, Laurentian said it earned $1.24 per share; analysts, on average, were expecting $1.26.

Although the bank's revenue inched up two per cent to $260 million in the quarter, expenses rose at twice that pace. Profit was also held back by an increase in provisions for credit losses, as Laurentian booked $16.6 million for loans that could go bad. In the previous quarter, it set aside $13 million in provisions.

Several analysts highlighted that Laurentian's net interest margin (NIM) — which measures the difference between how much a bank generates from interest on loans versus how much it pays in interest — shrank to 1.83 per cent in its fiscal third quarter from 1.87 per cent in the second quarter. In general, there's an expectation that chartered banks will be able to expand their NIMs as central banks hike interest rates.

Laurentian’s shares ended the day with their biggest single-day drop since March 2020.

“While we believe that today's sell-off in [Laurentian's] share price was overdone, we come out of the quarter with a less favourable view of the bank's earnings trajectory over the medium-term related to both well-known headwinds around relative margin upside and new concerns on its ability to grow commercial lending with a rapidly-shrinking regulatory capital base (more so a potential issue in the second half of fiscal 2023 and beyond),” stated Mike Rizvanovic, an analyst at Keefe, Bruyette & Woods, in a report to clients.

He lowered his price target to $40 per share from $43 and maintained a market perform recommendation (the equivalent of a hold).

The frosty market reception is indicative of an investor base that still hasn't fully bought in to Llewellyn's turnaround strategy.

She became chief executive of the bank on Oct. 30, 2020 — just a few years removed from a messy episode in Laurentian’s loan book stemming from misrepresentations on some of its mortgages. Between the lingering effect from that affair and stiff competition with its much larger rivals, Llewellyn has been seeking to rebuild confidence in Laurentian. But she has also indicated she won't play into the game of simply hitting numbers to satisfy the street.

“I think transparency with any stakeholder, whether it's your employees, whether it's your parents, whether it's your kids, you earn that trust and respect. And as long as you start delivering — and if you don't deliver, explain why you haven't delivered — you'll gain credibility on the street,” Llewellyn said in an interview this summer.

“I think it's a very dangerous game to just meet quarter-over-quarter and not have the long-term vision in mind.”