Good morning, and thank you for joining us. Today's opening remarks will be delivered by Rania Llewellyn, President and CEO, followed by Yvan Deschamps, Executive Vice President and Chief Financial Officer. Following the prepared remarks, the bank's leadership team will take questions from analysts and investors. The Investor Day press release and presentation can be found on the bank's website in the Investor Center. Please note that this event is being simultaneously translated. Simply click on the link to the right of your screen to hear and experience the event in French. I would like to remind you that during the event, 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 the press release or to slides two and three of the presentation.
It is now my pleasure to turn the call over to Rania Llewellyn.
[Non-English content] Welcome everyone to Laurentian Bank's Investor Day. This is an exciting time for our organization, and we thank you for joining us this morning. This year, we celebrated the bank's 175th anniversary, and today, we are building on that history to create our future. As a country, we are seeing the restart of our economy, and so it is fitting that with our Investor Day, we too are rebooting for the future. Just over a year ago, when I became CEO, I committed to conducting a thorough review of the bank's operations. I'm pleased to say we've now completed that review, and we are excited to unveil our new strategic plan today. Let's take a look back at the history of the bank. Laurentian Bank has strong roots and a history of firsts.
Throughout the years, we were the first institution in Canada to hold a trust company license. We were the first to link all our branches to a central computer system, the first to install automated banking machines, the first to appoint a woman as chair of the board, and most recently, appointed a woman as CEO. In recent years, the bank has faced challenges. It tried to compete with the big banks by being all things to all people, which made the bank extremely complex and created siloed business units. As a result, it saw customer attrition in its personal bank, a decline in deposits, and a high turnover among our employees. In 2021, the bank began to reset and rebuild. We started off by identifying three key priorities for 2021 and immediately started to execute against them.
We renewed our leadership team with four external hires and two internal promotions. We simplified the organizational structure. We increased cost discipline and pivoted to structural cost optimization. As a result, we reduced our overall adjusted efficiency ratio by 410 basis points year-over-year to 68.2% for the year. Finally, we developed this plan, which will position the bank for sustainable long-term profitable growth by focusing on areas where we can continue to differentiate ourselves. To kickstart our strategic review, we started off by identifying our unique value proposition. Listening to customers, employees, and looking at external trends, we identified some of the things that set us apart. We are an alternative to the Big Six, offering lending services to meet the needs of even more Canadians and businesses. We are specialized with expertise in key markets.
We take a more human approach to banking, making a difference in our customers' and employees' lives and financial well-being. We can leverage our size to leapfrog the competition by partnering with others to offer our customers new products and services faster. We do have employees that are resourceful and resilient in serving our customers. Today, we are launching a new five-point strategy for long-term, sustainable, profitable growth. Let me walk you through each of those components one at a time. Building one winning team. We are going to work across boundaries, put the bank ahead of individual or team interests in an environment where everyone belongs and thrives. Make size our advantage. We will leverage our size to create a competitive advantage in specialized markets and remain agile in assessing new opportunities. Think customer first. We will create a culture with a relentless focus on the customer. Simplify.
We will streamline internal operations and enhance efficiencies. Make the better choice. From the businesses we're in to the people we hire and the suppliers we use, we live up to our values and integrate environmental, social, and governance best practices. For fiscal 2022, our growth is expected to continue in the commercial bank and in capital markets while we continue to reposition the personal bank. It is a year of execution. Fiscal 2023 will be a year of growth across all three business lines. Fiscal 2024, we will see growth accelerate. We've all heard companies talk about their strategies, and it is easy to dismiss them as such without proper execution. What I'm here to tell you is that we are all here to execute against our plan. In just over a year, we've already began delivering against our five-point strategy.
For example, building one winning team. We launched our first employee engagement survey in more than nine years. Make size our advantage, we've implemented agile methodology to help us speed up our product development, and we'll have more to say when we talk about our mobile app later this morning. Thinking customer first, we launched Voice of the Customer across the bank so we can hear their feedback in real time and launched a new customer quadrant in balanced scorecards. When it comes to simplifying, we've streamlined products, processes, and customer interactions with the bank. For example, for our Visa product offering, we reduced the number of products from eight to four. In making the better choice, we've tied ESG metrics to executive compensation. Our success and momentum over the past year demonstrates that we are capable of great accomplishments and that we are on the right track.
As we look forward, our focus now is to build on our solid foundation and execute on the bank's new three-year plan. What's the path forward? Culture. It may surprise you that we've chosen to start with culture today, but ultimately, we are in the people business. I truly believe that the right people and the right culture are the driving force behind a successful organization. For example, before I started, the HR division reported to an SVP and did not sit at the executive table. We have now hired a Chief Human Resources Officer, Sébastien Bélair, who sits on my ExCo and is critical to the success of the organization. Culture eats strategy for breakfast because without the right culture, strategy means nothing, and focusing on culture will drive performance. We know that culture drives performance and financial value.
A PwC study showed that 65% of employees say culture is more important to performance than strategy. It is proven that companies that succeed in aligning culture and strategy will yield 60% higher shareholder return. 2019 study showed that purpose-driven companies are 30% more innovative and have 40% higher levels of workforce in retention than competitors. To deliver on our plan, we have started to focus on three key priorities, inspiring and engaging employees to work as one team, instilling a performance-oriented culture, and creating an equitable, diverse, and inclusive environment. This isn't a new plan for us. In fact, we started this journey 12 months ago, and we will continue to execute against it. Let me share with you what we've done and what we will continue to do going forward.
To inspire and engage our employees, we've been on this journey for the last 12 months and will continue to inspire them to work as one team. How are we gonna do that? We're creating a purpose-driven culture, a sense of belonging, and renewing our purpose, values, and focusing on ESG. We will continue to listen and learn by introducing our first employee engagement survey in nine years and establish open two-way communication with our employees. Through our unique approach to the Future of Work, where we work from home will be the first approach, it will allow us to differentiate ourselves in retaining and acquiring people where we can tap into talent from anywhere. Last but not least, we will prioritize the development and growth of our employees to maximize performance. Moving to instilling a performance-oriented culture. We again have started on that journey.
Introducing balanced scorecards to all the executives in 2021, which we will be rolling out to the entire workforce this year. We established common goals to ensure one team alignment. We launched cross-functional calibration for individual performance ratings. We tied ESG and financial metrics to compensation. Our leaders will be held accountable to living our cultural values, which will be linked to their compensation. It's not just the what, but also the how. Finally, we have started on our journey to create an equitable, diverse, and inclusive environment by establishing equity, diversity, and inclusion targets in our leader scorecards. We also launched ED&I initiatives, including the Courageous Conversations series. We offered wellness and mental health services for our employees. We enabled two-way communication through a Team Voice channel and Voice of Employee survey.
We're co-creating a vision for the Future of Work project, with now a third of our workforce volunteering to participate in this very effort. We're also introducing a cultural boot camp to bring our new core values to life and to empower our employees to contribute to the success of the organization. The good news is that we have already started on this journey, and it is already yielding results. The most important driver is trust in management, which is at a record high of 89%, demonstrating that our employees trust management, and are confident about the future vision of the bank. We've also seen a significant increase in employee engagement since our last survey, up by 18% and closing the gap with our peers that are currently sitting at 77%.
Finally, we've reduced our turnover despite the pandemic by 10% in the last two years, demonstrating that employees are proud to work for this organization. We know we still have a long way to go. At the end of the day, what doesn't get measured doesn't get done. To continue, we need to focus and measure our progress. We identified three KPIs that will help us do that. The employee engagement index, we're starting at 74%, and now we're targeting greater than 80% by 2024. From an employee turnover perspective, we are reducing our turnover rate to instill a performance-oriented culture with a target of 20% by 2024. We will continue on our ED&I journey with targets to create a more equitable, diverse, and inclusive environment. This includes three metrics: women at AVP plus positions at more than 40%.
In line with our BlackNorth pledge commitments, hiring 5% students from Black community annually. This year, we exceeded our target at 8%, and by 2025, we have a target to have more than 3% of our leaders from the BIPOC community. As a people business, we believe culture is the driving force behind the success of our strategy. It will help us attract top talent, retain that talent, and promote that talent. Moving on to commercial banking. As the growth engine for our organization, the commercial bank has had sustained growth and revenue for several years. With a proven formula for success, the commercial bank has the right leadership with Éric Provost, a focused operating model rooted in specialized industries and a performance-oriented culture.
Éric was hired in 2013 to start the equipment financing business and was the lead on our CIT Canada and Northpoint acquisitions. We have seen the results of this proven business model. Commercial loans and acceptances have grown by CAD 6 billion since 2015, translating to a CAGR of 10%. We have deep relationships with our customers, as demonstrated by a continuously rising net promoter score, which sits at excellent in 2021. Commercial banking has generated double-digit loan growth across Canada and the U.S., and now represents 42% of the bank's overall business mix. We are going to continue on that growth path by focusing on where we can win in specialized sectors. We have a strong team, strong portfolios, and opportunities for us to expand our offerings through geographic diversification in the U.S. and Canada.
Success over the past few years has primarily been due to our specialized strategy. We've also demonstrated our ability to grow organically as well as our capacity to successfully acquire and integrate businesses. To continue on that growth trajectory, we have laid out three key priorities for the commercial bank, continue our focus on specialized sectors, diversify geographically and by industry, and deepen our customer relationships. First, to continue the focus on specialized sectors, we will increase the number of relationship managers and support teams. We'll be hiring over 50 new hires in fiscal 2022 alone, representing an increase of 8% of our overall commercial workforce. We will dedicate those resources to growing markets and new focus industries. We're also gonna expand equipment financing in the U.S. to extend the value chain of inventory financing.
We'll also be implementing new digital tools to improve the customer experience, which will allow our relationship managers to onboard customers onto new products more quickly and seamlessly while creating efficiencies. We will also be opportunistic and pursue strategic accretive acquisitions that are aligned to our strategy. While we are already diversified across Canada with our equipment and inventory financing capabilities in the U.S., we believe we have a unique North American platform from which we can continue to grow and gain market share. When it comes to specializations within inventory financing, such as recreational businesses, we are among the top three competitors in the U.S. with lots of opportunities to gain market share. At the same time, we will look at opportunities in new focused industries like technology, small construction, and ESG-friendly equipment.
The third part of our plan is focused on further deepening customer relationships with enhanced value-added products and services. This includes introducing a new digital cash management platform that will allow us to leverage our existing relationships and attract additional deposits. We're gonna look to introduce new products, such as merchant loans for our Canadian dealers, which will further deepen our relationships with those dealers while creating new opportunities for our personal bank. We will ensure our top-tier commercial clients have access to capital market services such as FX and advisory services. All of this will be underpinned by our continuous improvements to our customer experience. One of our unique value propositions is how inventory financing and equipment financing complement each other. It allows us the ability to finance the whole life cycle of an asset.
For example, for inventory financing, we establish an agreement with the manufacturer to facilitate the financing of their dealers. In turn, we provide equipment financing for the commercial customers of those dealers. Once you add a new product into the mix, like merchant loans, we can then finance both the sale and resale of those assets to the end consumer. Let me walk you through a boat manufacturer example. We sign a deal with a boat manufacturer to offer inventory financing facilities to dealers in their network. Often, the manufacturer provides us with the dealer list, and we get a warm prospecting list for our sales teams, and they go ahead and contact those dealers. We can then work with those dealers to finance their inventory among their respective clients.
If we were to introduce merchant loans, we can then provide financing for that end consumer, which further differentiates the dealer. This provides us with multiple revenue opportunities throughout the life cycle of an asset. How will we measure our success and our progress? We have introduced a few KPIs. Number one, we're gonna continue to expand this profitable business by growing loans from CAD 14 billion to CAD 15 billion in 2022, and greater than CAD 18 billion in 2024. We're gonna look to grow our representation in the U.S. by growing it from 14% as it currently stands to 18% of our overall commercial loans. Third, we will maintain our excellent NPS score with our customers. We believe we have the right strategy in place and are well-positioned to benefit from the economic recovery. Moving on to capital markets.
Similar to the commercial bank, Capital Markets has delivered record results over the past two years. Our proven business model works. Two years ago, Kelsey Gunderson joined the bank in 2019, having spent his entire career in capital markets. He took action to implement a focused operating model and developed a performance-oriented culture. He right-sized the operations by focusing on key products and industries, and he identified additional fee-based businesses. He also increased focus on the Quebec market, diversified in technology portfolios, and improved investment banking alignment with the commercial bank. This strategy resulted in record revenues in the Capital Markets business over the last two years.
These actions helped the business move from having an unclear market presence that was poorly integrated with the bank, volatile revenue, and limited distribution to a more focused specializations where we can win and broaden our North American distribution footprint and further align with our commercial bank. Moving forward, we've laid out three key priorities for our capital markets business. First, to continue to be an alternative to the large banks. Second, to expand our capabilities to even further align with our commercial bank. Third, introduce new ESG capabilities to amplify the bank's purpose. As an alternative to the large banks, the capital markets business has a unique value proposition that provides mid-size customers with personalized targeted capabilities and a boutique- style service. We are also uniquely positioned in key markets with a focus on ESG that aligns with regional priorities.
We are going to expand our capabilities by further aligning with top-tier commercial banking clients. We're gonna build select industry verticals like our real estate, where we have a deep expertise in the commercial bank, but not necessarily good coverage from a capital markets perspective. We're also gonna add select sales and trading capabilities that align with our customer needs, expand our securitized product and structured product capabilities, and build an ESG advisory business to offer our key clients. In the past 12 months, we've started shifting our focus to ESG and began aligning the bank with our renewed purpose, including having exited oil and gas research and advisory, involvement in a number of green bond issuances, leveraging our ESG expertise to build market share while creating an equitable, diverse, and inclusive culture in our capital markets business. How will we measure our progress? We've introduced some KPIs.
We want to grow our syndicate position with core provincial and corporate issuers from ninth position to seventh position. We're gonna expand the coverage of our top-tier commercial clients from 50% today to 100% by 2024. We will participate in greater than 75% sustainable bond issuances with our core clients annually. We believe these three priorities will position us for a strong future. Turning over to Personal Banking. Unlike our other business lines, over the past few years, Personal Banking has been on a journey without proper execution, but we are now repositioning for growth. What do I mean when I say strategy without execution? I mean moving to cashless branches without having the digital capabilities required to support that type of move. For example, not having a mobile app, no tap on debit, which was further heightened during the pandemic.
We were also trying to be all things to all people without a clear value proposition. Similar to our other business lines, we now have a new experienced leader, Karine Abgrall-Teslyk, who joined us in April with over 25 years of personal banking experience, with a plan to build a more focused operating model and performance-oriented culture. Let's walk you through the legacy customer journey. Let's take a walk in the shoes of a customer at Laurentian Bank. A customer enters one of our branches where we have too many products that are overly complex. The customer tries to open a bank account, so has to sit with an advisor for 45 minutes to manually complete the documentation. Oh, and by the way, my account won't be activated for another two or three days.
I apply for a credit card, and the activation process could take up to 25 days. I try to pay my bill, and I have no tap or mobile. I apply for a mortgage, and I may not hear back for up to eight days. Let's reimagine what that customer journey is going forward. I see a digital ad about a more human approach to banking. I visit the refreshed Laurentian Bank website and open my bank account digitally and in minutes. I download the mobile app and make an Interac e-Transfer to a friend. I receive a digital offer to apply for a Visa card. I immediately receive a virtual card that I can immediately use to start purchasing while my physical card is being sent to me by mail. I'm also self-employed, so I get an offer from Laurentian Bank to apply for an Alt-A mortgage.
I pleasantly receive a call from an advisor to complete a financial health assessment to ensure that I have the right products and services to meet my current and future needs. Just like our other businesses, we're not waiting to get started. We already started making some of these changes in fiscal 2021. We started by separating the Personal Bank from the Commercial Bank and appointing a new leader of Personal Banking, Karine. We created one Personal Bank. We combined B2B, our retail branches in Quebec, products, and marketing. We also created a new Residential Real Estate Secured Lending group, which combined four functions, including product, underwriting, and operations that all previously operated separately. We've also consolidated a few of our vendor contracts and simplified our Visa product offering from eight to four . On the customer first side, we developed a clear value proposition.
Looking ahead, we need to focus on three key things. One, retain our existing customers. We have about 460,000 customers in our personal banking network. Two, deepen those customer relationships. Over 50% of those customers only have one product with us, so there is a significant opportunity for cross-sell. And three, acquire net new customers by offering differentiated target solutions to new customer segments. In the personal bank, to reposition for growth, we are focused on four key priorities: create one person performance-oriented personal bank, enhance our focus products and processes, lead with a digital-first approach, build a purpose-driven brand. How are we gonna do this? We have a new leadership team and operating model. This includes expanding our personal offering on a national basis by combining our physical branch footprint with digital and virtual capabilities.
We're creating new loyalty teams and proactive customer outreach to retain and deepen relationships. We've started introducing new sales management disciplines aligned with reward and recognition and scorecards to drive performance and customer-first mindset. We're introducing targeted financial health assessments to identify opportunities to further deepen customer relationships, and we'll be introducing training and development to improve skills and provide a career path for our advisors. Many of these have already been put in place, and we're already seeing early positive trends. Our recent employee engagement survey demonstrates that our personal banking employees are confident about the future vision of the bank. Enhancing our focus products. There are three core products that really any personal banking customer needs: a mortgage, a Visa, and a deposit account. On the mortgage side, we have an opportunity to reimagine this business.
We've determined that we don't have a pipeline issue, but we have a throughput issue. Our ultimate goal is to replace our end-to-end platform, and we are currently exploring options with potential partners. In the meantime, the following are some of the initiatives that we've identified and are implementing. We've already started creating capacity by adding additional underwriters. We introduced first- time right metrics. We launched new loyalty teams to improve retention while leveraging predictive analytics. On the Visa side, for 2022, we will re-platform with a strategic partner, allowing us to accelerate our digital capabilities and offering. It'll allow us to provide instant adjudication, issue a virtual card, and activate on the spot. It'll also allow us to increase the personalization options for our customers and provide them with insights.
In 2023, we will build on that foundation by adding installment capabilities and start creating new bundled rewards. On the deposit side, increasing deposits through enabling our digital channels, starting with digital onboarding. We will also simplify our product offering while introducing ESG products. We're also gonna launch new deposit acquisition campaigns in market. All of these things will help us retain and deepen our existing relationships while giving us an opportunity to target new segments. Digital first. We are super excited today to announce the launch of the Laurentian Bank mobile app on both iOS and Android devices. A mobile app has been the number one requested feature from our customers and employees hands down.
The first version of this app provides customers with the most commonly used banking features, including account balances, transaction history, Interac e-Transfer, and bill payments, and has a simple user interface for ease of customer experience. This app was launched in less than seven months from conception to delivery and truly demonstrated how we can make our size our advantage by being agile and nimble in our development. Traditionally, something like this would take over two years to build and require significant investments. This closes a key foundational gap for the bank and will allow us to continue to grow our national presence and serve our customers where and when they want. When digital was first introduced at Laurentian Bank, it was a siloed business. It has now evolved from being a siloed business line to an enterprise enabler.
It will be focused on designing the optimal customer experience while leveraging agile methodology to deliver and close on those gaps. The launch of our new mobile app is a true testament to that. For example, we currently have five websites, and in 2022, we will focus on modernizing and refreshing laurentianbank.ca. In 2023, we will consolidate all five websites into one. We will also continue to add more features to the mobile app in 2022 while closing some of the other digital capability gaps. We're also working on identifying a partner in developing a new digital onboarding process. Building a purpose-driven brand. Over the past year, the bank has also begun to refresh its brand with the celebration of our 175th anniversary. In 2022, we will launch our new brand and tagline in a two-phased approach.
First, in Quebec, with our existing customer base. Second, as digital capabilities are expanded, the bank will scale its marketing campaign across Canada to acquire new customers by targeting underserved segments. As you can see, we have already started rolling out a more unified and modern brand on our website. How are we going to measure our progress? We've included four KPIs for the personal bank, including reducing the time to yes for mortgages from eight plus days to two by 2024. We've already started on this journey and have already reduced the time to yes from weeks to days. Instant adjudication for Visa cards, a reduction of 25 days. Growing our new bank accounts by 30 times by 2024. We are starting from a low base, but believe with disciplined sales, new marketing, and digital solutions, we can achieve this growth.
Reduction in the time to open a new bank account from two to three days to less than 30 minutes. Making the better choice. Our strategy is underpinned by a commitment to making the better choice by integrating ESG across the organization. We're not just making this commitment because it is the right thing to do, but it is also in response to changing stakeholder expectations. The data shows that 81% of institutional investors are increasingly using ESG as a significant factor in investment decision-making. Over 40% of our customers expect businesses to make decisions that benefit society and give back to the communities in which they operate. When it comes to retaining and attracting talent, 80% of millennials want to work for a company that is strong on ESG. In 2021, we implemented a number of ESG initiatives.
First, we established a clear governance structure at both the executive and board level, including embedding ESG into board committee charters and establishing an internal TCFD task force. We also made equity, diversity, and inclusion a key priority bank-wide by embedding ED&I targets in leaders' scorecards, rolling out unconscious bias training, and launching employee resource groups. We reinforced our commitment to sustainability by launching ESG products such as equity-linked GICs with an ESG focus and participating in green bond issuances. Going forward, we have established guiding principles to underpin our ESG strategy, which will be released in our first ESG report later this fiscal year. The strategy will be informed by data and high levels of transparency and disclosure. ESG will be integrated across the bank to ensure it is part of all decision-making.
Our strategy will be directly connected to financial performance and aligned with our bank's priorities to drive long-term growth. Today, I am also pleased to announce that going forward, Laurentian Bank will not directly finance the exploration, production, or development of coal or oil and gas. We believe that this commitment will not only differentiate us from the other Canadian banks, but it will also help us attract businesses that are working to accelerate the transition to green energy, as well as attracting customers and talent who prioritize sustainability. We will be posting the full details and guidelines on our website in the coming weeks. I'm now delighted to welcome our CFO, Yvan Deschamps, who will walk you through the financial roadmap. Yvan?
[Non-English content] Rania. [Non-English content ] Happy to share with you the anticipated financial benefits of our strategic plan. Our financial roadmap is based on building blocks, which are based on strong fundamentals with a prudent capital management, a diversified funding strategy, and a strong record of credit quality. This foundation allows a path forward to improve profitability from revenue and efficiency gains driven by sound business strategies. First, let me begin by speaking about our capital strategy. Our prudent capital management starts with our solid capital base with a standardized CET1 ratio of 10.2%, well above our operating range, representing more than CAD 300 million of excess capital, providing flexibility to support our expected profitable growth while also providing an opportunity for strategic acquisitions in line with our plan.
Based on our solid capital base, the confidence level we have in our strategic plan, and our ability to execute and grow profitably. We will return value to our shareholders through a sound payout ratio and a prudent share buyback program for 2022. As announced earlier today, we increased our common share dividend by 10% for Q1 2022, and intend to keep growing as we deliver profitable growth. In addition, we also announced the launch of a prudent 2% share buyback program. Turning to funding. Over the last few years, we diversified our funding sources and capabilities. In 2021, our credit ratings outlook was improved by both DBRS and S&P. We also initiated two new programs. First, we issued an NVCC, which improved our EPS by CAD 0.06 on an annual basis.
Second, we successfully initiated a new covered bond program to efficiently support our conventional mortgage growth, allowing for more competitive pricing for our customers. We intend to continue to diversify and solidify our funding sources. We expect the additional digital and cash management capabilities to drive deposit growth in line with our asset base. We also intend to initiate a new USD institutional program to support our U.S. growth. Finally, along with our purpose, we will introduce a sustainable bond framework. I will now touch on our strong record of credit quality. We have proven that we have a prudent approach to credit risk based on a strong underwriting discipline and a highly collateralized asset base. We intend to pursue the growth of commercial banking in the bank mix. This is expected to increase PCLs toward the high teens while improving the overall profitability of the bank.
Our strategic plan is based on profitable growth from opportunities within a risk-adjusted return mindset. Turning now to efficiency. The last year has outlined our focus on cost discipline with an improvement of over 400 basis points. We look forward to a path of continued improved efficiency. The improvement will come from profitable revenue growth. It will also come from cost optimization initiatives centered around three key themes, building partnerships, shifting to a hybrid work model, and process improvement. First, partnerships are at the heart of our new strategy and will allow us to access economies of scale. We believe we can leverage the capabilities of our partners to improve efficiency and leapfrog the competition. For example, by leveraging a partner, we've been able to get to market quicker with a new mobile app and at a lower cost of delivery compared to building it in-house.
Second, we are becoming an agile organization and implementing a hybrid work model that will make us more efficient and strengthen our employee value proposition. Third, process optimization will not only help us deliver value, but also improve the customer and employee experience. On the cost side, we identified multiple opportunities. This includes a review of our key vendor agreements and automation of processes leveraging RPA. Process optimization is also about shifting towards a culture of continuous improvement. Let's turn to growth. The top of this slide summarizes the business strategies that you've just heard. In terms of growth, commercial banking achieved double-digit growth since Éric joined the bank in 2013. We expect to continue to grow at the same rate over the medium term based on a very strong NPS score, showing the strength of our team and our focus on specialization.
The more people know us, the more successful we are. Capital Markets achieve record revenues over the last two years since Kelsey joined the bank. Our unique positioning is expected to allow us to gain market share and grow revenue by a CAGR in the mid-single digit by 2024, starting from a strong base. In 2022, Karine will reposition Personal Banking with a digital-first approach and a human touch aligned with our purpose. We intend to stabilize the loan base in 2022 and reposition the business line for growth over the medium term. I would now like to highlight our key financial drivers. The bank is expected to grow its loan book by a CAGR in the mid-single digits over the next three years.
The strong growth of commercial banking will continue to grow its share in the bank mix to 45% or more by 2024. The changes in the bank mix will also fuel NIM, which is expected to grow to 1.9% or more by the end of 2024. Despite being currently difficult to predict, we expect the loan losses in basis points to be in the mid-teens, excluding any material impact from the new COVID variants. Over time, as commercial grows, the loan losses are expected to trend towards high teens. I will now outline the expected results from our strategic plan. We expect EPS to grow by 5% or more in 2022, and by a CAGR of 7%-10% over the medium term.
The ROE for 2022 and 2024 are expected to be respectively above 8.5% and above 10%. The ROE improvement will be driven by the loan growth mentioned earlier, as well as an expected improvement of the efficiency ratio to below 68% in 2022 and below 65% in 2024. We target the operating leverage to remain positive. Finally, I would like to provide a view on factors that may contribute to an improvement of our valuation. First, our expected profitability increase will provide strong support for a valuation improvement. Second, the execution of our strategic plan and profitability increase is expected to help close the PE multiple gap with the rest of the industry. I will now invite Rania back for closing remarks.
[Non-English content] Yvan. We believe we have a clear and focused five-point plan for success. In summary, culture will be our driving force to attract and retain the right talent. Our commercial bank will continue to be our growth engine, executing on a proven business model. Our capital markets business will take a focused and aligned approach to differentiate from the competition. Our personal bank will reposition itself for growth. All of this will be underpinned by a commitment to ESG, a new purpose, and core values. I am very pleased to introduce our new core values, which reflect what we believe and how we behave. Our new core values grew organically and began during my leadership listen and learn tours with employees from across the organization.
During these roundtable discussions, employees consistently shared sentiments and stories with us about the importance of our customers, the value of teamwork, the power of one's voice, the drive to succeed, and that we all live here. Our new core values are as follows. We place the customer first. We work as one team. We act courageously. We are results driven. We believe everyone belongs. Our core values help drive our new purpose statement, our reason for existing. We believe we can change banking for the better by Seeing Beyond Numbers to bring hopes and dreams to life. Better begins when everyone feels like they belong and has the chance to thrive. Our purpose is our foundation. This serves as both our anchor as well as our North Star, guiding us towards the future.
We believe everyone deserves a chance to be listened to, inspired, and cheered for, to have the confidence to pursue their dreams, and the support to make them happen. We believe we can change banking for the better, that we're stronger when everyone's stronger. Diversity is a strength. Equality sparks opportunity. Investing in our future can't wait another day. Banking isn't just numbers. It's about stories, struggles, hopes, and dreams, listening without judgment and helping with heart so that families, businesses, and communities thrive. We believe in Seeing Beyond Numbers. Laurentian Bank.
We are so excited about our new tagline, Seeing Beyond Numbers. [Non-English content] . At Laurentian Bank, we believe banking isn't just numbers. It's about stories, struggles, hopes, and dreams, listening without judgment and helping with heart so that families, businesses, and communities thrive. In closing, I would like to leave you with a few key takeaways. We believe we have the right team. We believe our strategy is focused, simple, and executable. We believe we have a tested and proven formula for success. We believe we can leverage our size to leapfrog the competition. We believe we are a purpose-driven bank. We believe we can change banking for the better, and the future has arrived.
We are going to take a short break, and in a few minutes, we will start our Q&A with my entire leadership team.
Welcome back. For analysts and investors, please raise your virtual hand to ask a question. When you are called on to ask your question, please unmute yourself in the platform. Thank you. Our first question today comes from Sohrab Movahedi from BMO Capital Markets. Sohrab, please unmute yourself and ask your question.
Okay. Can you hear me?
Yes, we can.
Okay. Thank you very much for that. Congratulations on getting that Investor Day done. I have a series of questions, if we have the time for them. I'll start off with the assumptions around the medium-term targets, specifically the ROE. Can you let us know what capital ratio you're anticipating, given that 10%+ ROE by 2024?
Okay. Yvan?
Thank you, Sohrab. The capital is anticipated to stay relatively around the 10% from a CET1 perspective, so that's the assumption behind this. That's gonna support dividends, the growth of the business, and the rest of it.
Did we lose you, Sohrab?
Thank you. Our next question comes from Meny Grauman from Scotiabank Capital Markets. Meny, please unmute yourself and ask your question.
Good morning. Can you hear me?
Yes.
Yes.
Yes, we can.
Okay, great. My question is about the consumer's bank. When I listen to you, it sounds like the consumer banking digitization. I just wanna make sure that you would agree with that assessment. I'm understanding that the lack of digital
I'll jump in here. I think we didn't hear the entire end of question, but you said lack of digitization, if I heard you correctly. As Rania explained, it's really about execution. Firstly, having the right team, having the right talent. Having gotten to building really a digital expertise, going to get someone who is specialized in residential real estate secured lending, building an omni-channel approach. All these key things are foundational firstly to build then be able to build on the execution. Really the digital enablers and ensuring that we're providing the client experience with that human touch, but digital enablements are actually going to be key, yes, Meny.
Just as a follow-up.
Sorry, Meny.
I'm just wondering about your fintech strategy, both in terms of partnering and white labeling. I didn't hear anything about that. I wonder what you're thinking about that.
To Rania's point earlier, right? Our strategy is going to be about being able to leverage our size as an advantage. Yes, making some partnerships with fintechs, ensuring that we're not building, but leapfrogging by really accelerating and being more agile. We believe that we can create an ecosystem and create value with our partners. That will be what we'll be doing going forward. Maybe Beel can jump in.
Yeah.
Yeah.
If I can jump in. Thank you. Just to add to Karine's point.
Essentially, you know, one of the key areas that we're focusing on is simplification. As we move forward through this journey, we're gonna be building an architecture that will allow us to partner instead of build everything in-house, which will help us speed up and simplify our architecture. We're also gonna be looking at best-in-breed organizations that we can partner with. Ultimately, what's gonna guide us is the client journey and the digital client experience, and that those are the areas that we believe as we move forward will be part of the overall ecosystem that Karine was talking about.
Meny, as I was saying in my presentation, we are in discussions with a number of key partners for our various focus areas, and so there's gonna be more to come. Nothing for us to disclose further other than, you know, our partnership with Central 1 allowed us to be able to deliver the mobile app in less than seven months. That's really our expectation going forward.
Could you see Laurentian providing white label products for FinTechs?
You know what? I would say, why not? I think everything is on the table. If it makes sense, it's on strategy, it's gonna create revenue generation opportunities, it's gonna create efficiencies and create ultimately shareholder value, absolutely.
Thank you.
Thank you, Meny, for your questions. Do you have any follow-up questions?
Not at the moment.
Thank you so much. Ladies and gentlemen, if you are one of the people who ask a question, please note you will be asked if you have any follow-ups following the initial answer. A reminder for anyone who would like to ask a question for our panel in studio, please use the Raise Hand feature on the platform. When you are called on to ask your question, please unmute yourself in the platform. Our next question comes from Lemar Persaud from Cormark Securities. Lemar, please ask your question.
Hi, can you guys hear me?
Yes.
Yes.
Okay. I guess just looking at personal banking, I'm wondering what's the bottom value proposition for Laurentian Bank versus your large cap peers? When I look at 547, you can make the argument that large cap banks are almost at that personal banking euphoria, let's call it, and they all have the pedal down on new customer acquisition. We always hear call after call about deepening the client relationship. What's the pitch to go with Laurentian Bank over the large cap peers who are already more diversified? Is it pricing? Is it product design? Is it the targeted customer segment? Just any thoughts on that would be helpful.
Yeah.
Did you want to start, Karine ?
Yeah, I can start. The opportunity is really to become the opportunity of not being the Big Six bank, right? It's becoming the alternative to the Big Six , and ensuring that the size of our organization is small. Having that size leverage as an advantage and having that human approach and going to underserved segments. Linking it back to our purpose, to our ESG, and getting to newcomers in Canada, getting to students, for instance. That's an opportunity, and then ensuring that we're simplifying our process, and product and bringing that through the entire personal bank. Currently, there's silos, and the opportunity becomes us specializing in some key elements like our Alt-A business, for instance, and allowing that product to be accessible through all our distribution channels.
By bringing digital as an enabler versus a siloed business, it also becomes really a key differentiator of bringing essentially, which was our brick-and-mortar advisors in the Québec base, to becoming virtual and really supporting the entire base of customers to deepen the relationships. I have more than half of my customers that have only one product with us, so that's really one of the key opportunities by simplifying and bringing that human approach to all our customer base.
Just to add to what Karine was saying, so we are taking a digital-first approach with really a human touch element. To give you an example, most clients in the big banks would not be assigned, for example, an advisor. What our value proposition is, everyone at Laurentian Bank will be assigned an advisory team.
You will get a financial health assessment once a year, whether it's in person or through a virtual advisor. It's a combination of having the digital capabilities, making sure that we have a unique value proposition for each of our products that support our overall purpose, which is a purpose-driven organization, new ESG products, our marketing campaign, everything very much aligned along with making sure that we deliver that human approach through our advisors as well. It's that combination that's really gonna differentiate us, and just going after similar to the other businesses where we're specialized, we're looking to specialize in certain niche markets in the personal bank. As Karine said, we have 460,000 customers who are aging customers.
There's an opportunity for us from a family perspective. How do we get their families involved? Millennials are very sustainable purpose- driven in terms of their choice of investors. We think we have a really strong value proposition to attract net new segments to Laurentian Bank.
Thank you, Karine and Rania, for your response. Lemar, do you have any follow-up questions?
Yeah, I do. Just shifting gears over to Commercial Banking. Those growth figures on the slide, I think it was CAD 18 billion by 2024. Is there any M&A assumed in there? Is that all organic? Maybe if there is some M&A in there, could you talk about some of the criteria you look at for M&A in Commercial Banking? Like, what are some of the gaps you're looking to narrow? Thanks.
Yeah. Thank you, Lemar, for the question. Actually, the numbers you're seeing in there are organic growth- driven. We've proven throughout the years that these numbers we can achieve. By going to other industries, as highlighted earlier on in Rania's presentation, we believe that these are achievable. In terms of acquisitions, we're always looking for opportunities that would be accretive to the bank and also align with our strategic plan. Yes, they are out there, we are looking, but right now in the numbers you're seeing, it's really organically.
Thank you.
Éric, thank you for your response. Lemar, do you have any follow-up questions?
I don't wanna monopolize the Q&A, so I'll.
Thank you for your question. Our next question comes from Gabriel Dechaine from National Bank Financial. Gabriel, please unmute yourself and ask your question.
All right. Can you hear me?
Yes, we can.
Okay, great. I got two questions. One, strategic. I mean, the message I'm getting, especially on the personal banking side, is your growth strategies are underpinned largely by, you know, making it easier to do business with Laurentian, hastening the turnaround times and all that. I hate to use the low-hanging fruit analogy, but is this stuff kinda easy to do? I mean, it's a matter of doing it, but because it, you know, some aspects of the bank were neglected for so long that, say, "Hey, that's an obvious thing we should be doing. It's fairly easy to do. It might take some time." That increases your confidence in your growth targets.
Maybe I can start at a macro level and then pass it on to Karine. You know what? It's not rocket science. These are all proven business models, which is what we were trying to showcase in terms of bringing to light commercial and capital markets. You have the right team, you focus on the right things in areas where you can win, you execute, you know, you ensure all of your teams are held accountable to results, and good things will happen. It is a proven model. It's true and tested. We've tested it in two different business lines. Now under Karine's leadership, we are confident that we'll be able to not only stabilize the personal bank, but reposition it for growth.
Sort of easy stuff then?
Well, it's easy, but that doesn't mean it doesn't take time.
Okay. Got it.
Those are two very different things, right? Like, so everything is doable, and that's why we think partnership is a great way for us to leapfrog. Because as you know, for example, it takes a long time to develop new products and services. If you can find a best-in-class partner that already has that, and we can partner up with them, we can integrate with their technology, we can obviously deliver that value faster to our customers at a more efficient price.
If I can maybe add, the difference here is that Rania and the entire ExCo is extremely aligned and focused. If everybody were running in their different direction trying to accomplish their projects, then it becomes a resource capability. Because we're aligned and we've got really a well-planned for every year of what we want to accomplish, I think that's a key differentiator. Collaboration and leveraging our size is really gonna allow us to accelerate.
Gabriel, I know you like scorecards. That was the first thing I launched when I joined Laurentian Bank, and that speaks to the whole alignment, and that's something that was delivered to the executives. This year it's going down to all of our employees. It has four key quadrants: financial, customer, operational and culture and leadership. We discuss this, we align it, and we ensure that then everyone's held accountable, and then we move to execution.
I do like scorecards, just not for myself. My other question, something that caught my eye on the U.S. equipment finance. If I understand this correctly, it looks like right now you're doing, you know, primarily the manufacturer, you know, help and dealer financing, but you're looking to expand into, you know, end consumer. What underwriting expertise do you have in that? Or is this something you have to develop? You know, it's a higher risk category, clearly. How are you approaching that from [audio distortion]
Thank you, Gabriel, for the question. Actually, in terms of merchant loans, so end users financing, that would be focused on our Canadian market.
Okay.
Leveraging our bank expertise and our scorecard internally to be worked with risk. This is really a way to leverage the footprint we have with our existing dealers and to create that retail opportunity for the organization.
That's in Canada only?
Yeah.
Yes.
For the merchant loans.
Yeah.
Yeah.
You used to do that years ago when you started. Was this changing?
Actually, I wasn't there, but I heard.
Okay.
I heard the bank was very good at it. We feel it's a market that we know well because we are dealing with the manufacturers, because we have that relationship with the dealerships, we know the assets. We feel comfortable that this represent a growth opportunity. As per your question on the U.S. expansion, like, we believe that, with our current footprint and adding other, industry focus like technology, as an example, like we know it's a very fast-growing area. Well, it's to leverage our operational capabilities we've demonstrated that, we're good at, and, we believe that, this will fuel the growth and the footprint we have in the U.S.
Okay. [Non-English content]
[Non-English content] Gabriel.
Thank you, Rania, Karine, and Éric for your responses. Gabriel, confirming, do you have any follow-up questions?
I do not.
Thank you. Our next question comes from Paul Holden from CIBC World Markets. Paul, please unmute yourself and ask your first question.
Thank you. Good morning. First question, something that really stood out to me in Rania's prepared remarks was regarding mortgages, and you said it's not a pipeline issue, it's being a throughput issue. You've gone into great detail to help us understand how you're gonna fix the throughput issue. Just wondering how you can give us comfort that it's not a pipeline issue. What are you seeing that makes you form that statement?
Yeah. We've got two strong brands where we originate mortgages from. We've got our B2B brand, where we deal with mortgage brokers and who bring their mortgages to us, as well as the retail distribution network. two strong brands to originate, but where we've not deepened relationships. That's going to be an opportunity. really where we know we've done a lot of work in the last seven months since I've been here, is bringing the residential real estate secure team together, bringing recently underwriting under that team, ensuring that we identify all the sub-processes for both systems. really, we had 48 sub-processes and are getting ready to go to seven sub-processes in a very much streamlined process to get ready for the spring season.
All of these things really are gonna allow us to get to a faster time to yes. We've got business development managers on the business side with B2B who are really developing the markets and close to our brokers. They love the suite of products. We've got an award-winning suite of products with the Alt-A business. It's really about ensuring that we can provide that service, keep those relationships, and deliver. Then the next phase will be, as Rania mentioned, the re-platforming to really be able to accelerate because we wanna be able to be even more present with our customers and do more rather than have to sort of triage the deals coming in.
Paul, I mean, in simple terms, we know how much business is being asked, so what is being brought in, and we know how much we're funding, and so that's how we determine there's an opportunity. It's pretty simple math. You know what's coming in, but you know what's actually being funded, and so that's why we're focusing our internal processes and are looking to re-platform the end-to-end mortgage process.
Understood. Second question, there's a lot of focus on digital initiatives and the build-out of digital capabilities, which I fully understand. What I'd like to ask is for a little bit more details around the role of the branch network and what that plays in terms of future growth?
Thank you for asking that question. Through my months here, I would say we've really co-created with our employees how they envision the future. This strategy is not just coming from me, it's coming from the, you know, 600 employees that I've had conversations with and seeing how do they feel they can bring value to their customers. With technology, we can really allow them to serve customers in a remote way. We've got super resilient employees, and they love to bring advice, and yet they are stuck with, you know, sometimes paperwork and opportunities to simplify. Digitization allows us to take some of these things away and to create more value. That value then becomes a national opportunity.
We've created recently a loyalty team that serves all of my customers throughout the country, not just the ones in the retail distribution network. We've never been able to before cross-sell to other customers. I need the digital enablers to be able to get there. The combination of that human touch with the digital enablers is really what can allow us to win.
Maybe I can just chime in 'cause I think it's important to mention that to add to Karine's point, we have cashless branches, which is something that all the banks are trying to do or have been trying to do.
Yeah.
For a long time. For us, digital is not, you know, just digital channels or self-serve. It's also complemented by our branches and our employees. It's one of those things where the strategies around, you know, customers should be able to bank with us anytime they need to, and they should be able to get advice when they need to, and the branches essentially augment that model.
Yeah.
Mm-hmm.
Yeah.
Thank you, Karine, Rania, and Raphaël for your response. Paul, do you have any additional questions?
I have one additional question. Thank you. I do have to applaud you for the direction you're taking on sustainability. One of those objectives you mentioned today was stepping away from direct lending for coal, and oil, and gas. Just wondering if you can approximately size what that means for Laurentian Bank in terms of loan exposure to those industries today and/or perhaps what kind of revenue you're giving up.
For that, I'm gonna just get Kelsey and Éric to respond to that.
Yeah, Paul. Well, to start, in terms of loan exposure, this is not an industry we are actually specialized in. It represents less than 1% of our overall commercial book. For us, it's just a question of making sure that we are identified as an organization that can help industry transit towards a more friendly ESG-type footprint. For us, it's really a question of positioning and not really material to the current exposure we have within commercial.
From a capital markets perspective, we exited oil and gas advisory and M&A and ECM last year. Looking forward, we think there's a really good opportunity for us to partner with our clients, all of our core clients, as they pursue their own ESG journey. You know, a good example of that is our green bond business. You know, we were in something like 80% of the government sector green bond issuances over the last year. You know, we're relevant and impactful in that burgeoning field. We think that there's a really good opportunity for us to build not only an advisory perspective, but also underwriting the existing products that are coming to market.
Thank you, Kelsey and Éric, for your responses. Paul, confirming, do you have any follow-up questions?
No. Thank you.
Excellent. Thank you. For anyone wishing to ask a question, a reminder to please use the Raise Hand feature in the platform. If you are called upon to ask a question, for best participation experience, please use a headset or wear headphones when asking your question. Our next question comes from Darko Mihelic from RBC Capital Markets. Darko, please unmute yourself and ask your question. Darko, please unmute yourself and ask your question. While we work to get Darko connected, we will move on to the next participant. Marcel McLean from TD Securities will be asking the next question. Marcel, please unmute yourself and ask your question. Again, the next question is coming from Marcel Mclean from TD Securities. Marcel, please unmute yourself in the platform and ask your question.
Oh, can you hear me now?
Yes.
We can hear you. Thank you. Please ask your question.
We can hear you now.
Okay, good. My question's on expense growth. Sorry if I missed this, but for a number of years now, it's been relatively low, excluding the restructuring charges. My understanding is the restructuring charge you recently took was more to deal with issues of the past rather than what spend needs to happen to execute your new strategic plan. Just wondering if you can give us a little bit of guidance. You said technology, there's still more to spend there. Some marketing spend will start coming through later in 2022, I believe. Just wondering sort of the timing of it. Is it gonna be more front-end loaded for the strategic plan or spread out? How should we think about it in terms of future restructuring charges for the strategic plan?
Is it for everything that's one time in nature, are we gonna see more restructuring charges, or is it mostly gonna go through the income statement?
There's two components to your question. Let's start with just in terms of cost discipline, and I'm gonna turn it over then to Beel and Yvan to kind of talk about some of the efficiencies. There's really two components. We have been on this journey over the past year of just being, like, extremely disciplined on watching every dollar we spend, making sure that we're spending it where we're gonna create value. I think you see that even if you take out all of the, you know, the restructuring costs, you can see our efficiency ratio has improved by a significant amount year-over-year, and that's gonna be embedded in the culture going forward and has already started a year ago. The other element is around cost optimization, and we've already started identifying opportunities.
The future of work led by our employees has led to kind of a real estate decision that we're making that is a structural cost change. Some of the things we've done on the organizational side is also a structural cost change. Maybe I'll get Beel to talk about how the partner versus build is not as expensive as you think, and then Yvan to kind of talk about just in terms of some of the other cost structural optimization opportunities that we've identified as a bank.
Great. Thank you, Rania. You know, a bank of our size, it's important that as we look at investing in our technology, that we understand what that will do to our cost structure. We know that part of our strategy is simplification. This partner model will allow us to scale so that you can almost think of it as pay per use, where as we scale, our cost scales with that, but more importantly, we start to manage our cost when we implement new solutions. The other areas around cost optimization, we know that there are areas today that we can save money on. For example, storage is one area that, you know, we probably have a significant opportunity to drive costs down, to name a couple of areas.
The other thing I think it's about making the hard choices, and in this case, you know, if we take the example of core banking, we made a decision to stop core banking so that we can take the resources, the investment that we're making, and shift that to client-facing digital capability. These choices have impact in regards to helping the business grow and helping our customers get the experience that they deserve. Over to you.
Yeah, maybe add a couple of things on that. I agree with my colleague, Beel. There are many opportunities in our business to do better. As you've noted over the last four quarters, we've already started to move the needle through cost discipline, and those improvements are here to stay. They are sustainable. Part of our strategy has been to assess opportunities across all of the bank, and we've identified many quick wins. Our near-term targets of getting to better than 65% efficiency ratios are well supported by a bottom-up list of opportunities and initiatives. Maybe to build on some of the examples that Beel noted, a couple more, we're currently modernizing our ATM network.
We're leveraging a partnership model, a managed service model, rather than build and own, and that has a lower total cost of ownership. We're looking at our vendor relationships with an eye to streamlining them. We've recently reduced our print vendors from four to one , which is causing efficiencies. Maybe to call out one more at Laurentian Bank that's really untouched is we have many opportunities for automation. As you probably know, most large banks have a robust and well-established automation program to assist their employees with repetitive work. We launched our Laurentian Bank automation program, and RPA is low tech, low capital, and high payback. Many opportunities to create value and continue that movement towards a more efficient organization that we've been on.
Thank you for your response. Marcel, do you have any follow-up questions?
Yeah. I had one more on technology. You just launched the digital app, which was your number one priority. It sounds like with the agile launch, it doesn't have full capabilities yet, has some. Where does that sit on the scale? Is it 50%? Is it 80%? What is the next biggest one that's the priority following this digital app? Just to confirm, do you have tap on debit now as well?
No, we're actually. Maybe I'll answer the last part of the question. We're working on tap on credit. You know, I think what's gonna happen is starting the mobile app is essentially the foundation. As we think about the next six months, 12 months, 18 months, we're gonna be introducing new capability. Rania talked about the importance of, okay, now we've launched a mobile app, how do we onboard customers digitally, right? Customers don't have to walk into a branch to open an account. Digital onboarding is gonna be a big part of what we do over the next three to six months to figure out how do we now enable that for our customers. It starts to allow us to expand beyond our current market.
The other area that I think is gonna be important for us is as we think about our architecture, we're gonna be developing capabilities with partners that almost like think of plug and play, how we bring in capability into the mobile app. So if you think about things like remote check deposit or, you know, different ways that we can attract and bring in new deposits through mobile and online, these are all things that are a part of our roadmap. The execution aspect is where, you know, Rania mentioned seven months. I mean, these typically it takes about 18 months-24 months to launch a mobile app. Through digital, we've created a great model with our teams, working with the business, working with our partners to make sure that we speed up the development.
I think it's important that we think of it as bite-sized pieces over the next sic to 12 months to help build capability for our customers.
Let me just kind of give you. I know we talked about a couple of them, and I think it's in one of the slides just in terms of the roadmap. This year in fiscal 2022, what we're committing to, and remember it's agile, so the intent is for us to roll out new features on an ongoing basis, so it's not one big bank. Tap on debit for sure. Even resetting our passwords. Right now, we get 7,000 calls per month to our call center for customers who want to reset their passwords. Self-service, self-serve, initiatives like that are gonna be rolled out as part of our digital strategy. Digital onboarding is also coming. We don't have remote deposit capture yet, so that's coming as well.
Those are some of the key deliverables in fiscal 2022, including the Visa partnership that we're working on so that our clients can get a Visa also digitally, on a digital basis as well. I would say those are the key initiatives that we're currently working on and are excited to deliver in fiscal 2022.
Thank you for your responses. Marcel, do you have any follow-up questions or statements?
No, that's it for me. Thank you.
Thank you very much. Our next question will be coming from Darko Mihelic from RBC Capital Markets. Darko, please unmute yourself and ask your first question.
Thank you. Hopefully you can hear me this time.
Yeah. You're back, Darko.
All right. Maybe you can even see me.
We can't. No. Sorry.
Okay. My first question is probably a silly one, and I apologize if you may have already answered this, but I was having a bit of difficulty, as you could tell, with my computer. You discussed the three segments. Will you be actually just reporting on these financial segments going forward for us?
Yeah. That's a great question, Darko, and I should have probably mentioned it. On a quarterly basis, our commitment is our KPIs. All the KPIs that we've broken down in addition to obviously our financial targets that we will report on them on a quarterly basis. Now, as you know, some of them are measurable on a quarterly basis, but some of them would not be. For example, our engage, you know, our employee engagement survey, we're gonna do that once a year. We're not gonna do it every quarter. Yes, that's the intent, Darko.
Okay. Full financial statements for each segment. Is that. Am I hearing you correctly?
No, not financial statements. KPIs.
Okay. Got it.
Yes.
Fair enough. A question on commercial. The first part of this question is with respect to the new focus industries. I remember a time when Laurentian Bank focused on agriculture, built it up a little bit, then eventually sold it. Part of the reason for it was, hey, you didn't hit a minimum level size and so on. The first question is, with respect to technology lending, small construction, and ESG-friendly equipment, do you have in mind certain target levels of size of these portfolios? How big will they become as part of the whole portfolio? Then maybe as an addendum to that, you know, you mentioned that really this is gonna be your growth engine and you intend to hire people. Who are you hiring? Are you hiring green?
Are you trying to get commercial lenders from other players, and how do you see that evolving right now, or is this something that's just going to generally happen over time such that we really won't even see it hit the expense?
Yeah. Thank you, Darko, for the questions. In terms of the new segments we're considering, they are meeting our threshold. Before ongoing on any assessment of deploying a team or making sure that we focus on them, we make sure that in terms of risk-reward and positioning in the market, they're scalable so they can contribute to that increased growth profile. As well as you might see, the targeted segments right now will be countercyclical versus the current mix we have in our inventory finance business. Like, we are heavy in recreational. This creates some seasonality, so technology, small construction, as well as some ESG-friendly businesses will definitely help us diversify in terms of source of revenues. As a size, it's.
These are all segments that represent, like, huge opportunities. For us it's to link with your second question. It's all a question of putting the right people in these industries. For technology as an example, we already have started a small team, not green. We're actually getting experts, and this team is built out of the U.S. market. We bring in people that have that experience but also the relationship, because this is where the value is. Like, this is a human business and we attract people. They see we can win in our operational capabilities. They see the responsiveness of the team towards our customers and how dedicated we are.
This is a pool of attraction for us for the right talent, and we just intend to continue and target industries that are going to be accretive. Agriculture for us was one that we couldn't really scale on a national basis at the time, and the margins were actually very thin. That's what triggered the decision. That was 2018, and now moving forward we see great opportunities in other segments.
Just to add to what Éric was saying, you know, that's one thing we focus on is even within your traditional commercial bank is specialization. We currently finance 20% of all the daycares in Quebec. As you know, the government is looking to expand these programs across Canada. We have an expertise that, you know, is homegrown, that we've grown over the years that we're hoping to apply across Canada. As Éric said, we wanna specialize, we wanna grow and really, you know, hone in on a few key things that we can scale over time.
I'll maybe just add from a capital markets perspective as well. Keep in mind that what we're doing now, which we weren't doing in years past, is aligning the capital markets capabilities to the commercial bank. As Éric builds out the commercial lending capabilities, the return's gonna be augmented by the fee revenue that my business is going to bring as well. I don't think it's fair to say apples to apples versus the agriculture example because we are much better aligned now than we've ever been before, and I think the intent is to continue that path.
Thank you for your responses. Darko, can I confirm, do you have any follow-up questions?
No, I'm good for now. Thank you very much.
Thank you. For our next question, we will be returning to Sohrab Movahedi for follow-up. Sohrab, do you have any follow-up questions from the question you asked earlier at the beginning of this Q&A? If so, please unmute yourself and ask your follow-up question now.
Okay. Thank you. I probably have more than one question. I'm pre-warning you right now. I just wanted to go to Karine, maybe. I think you've mentioned 460,000 customers. How many customers did you have, let's say, relative to that number three or four years ago?
As Rania alluded in both the impairment charge conversation and now, the journey's not been easy. Therefore, we've lost customers along the way. We did retain our primary base of customers who hold the core of our deposits, and we've done a really good job with those customers delivering the advice. We know that when we are focused on these customers that we are differentiating ourselves. To the point that we made earlier, half of our customers don't have more than one product with us. It doesn't make them very sticky, but at the same time you know that they're underserved because their relationship is not somewhere else either. That's where the opportunity is to really, with our loyalty team, deepen those relationships, cross-sell and ensure that we're really retaining proactively.
Karine , just to be a little bit of a jerk about it, is the digital app intended to acquire new customers or just retain the ones that you have? If you can't retain the customers, why would I have confidence that you could actually cross-sell them?
Firstly, the digital app is a minimum viable product which will with time have more capabilities. Right now it's accessible to our existing customers who have LBC Direct. With time, as we go and get a new, for instance, you know, credit card transformation, that is what we call a wedge product. That's where you enter a relationship and deepen from there. The app is part of the facilitation that you need to be able to interact with us. I would say it's not necessarily the key point. Onboarding will be another key point, like credit cards, and then mortgage products are the anchor products. Really building on the onboarding to anchor with deposits, credit cards and mortgages are really the three products that every customer needs to be able to interact with the bank.
Sohrab, to answer your question, yes, the digital app is going to help retain our existing customer base, complemented by our new sales discipline, our proactive outreach, our annual assessment, as well, while we continue to close those capabilities and introduce new products to our customers, our existing customer base, while allowing us to then scale and create a national acquisition platform.
Okay. You have the national kind of ambition across all three business segments. Is that correct, then?
Well, we already have it. This is where the misconception is. We already have it in commercial and in capital markets. Personal banking, absolutely. We're there in B2B. We do have it in B2B, right?
Oh, yeah.
We have employees already on the personal bank that are present in the entire country. We're known, I guess, traditionally for the brick-and-mortar branches in Quebec, but we do have a national presence with B2B. It's really looking at a holistic view of the entire personal bank and leveraging all of that in deepening the relationships with existing customers and amplifying.
You've mentioned, I think several times that half the customers only have one product. What product would that be? Is there like a key product? Is this a mortgage product that then you're trying to cross-sell deposits and cards with or what's the mix?
Having 100,000 customers in my B2B Bank makes it that they're either coming in with an investment loan or with a mortgage. Those are what the two key products that they would have single products with and where we didn't have any capability because of limited digital enablers to be able to cross-sell to them. That's really one of the opportunities, and they're anchor products, so it's a great opportunity, and it's a differentiated product for investment lending as well. Really, if we can do a better job, have a you know easier time to really get a faster time to yes, our brokers and advisors love dealing with us, so that's really an opportunity for us.
In our Quebec base, it's a mix of products that they have.
Yep, yep.
Deposits, Visa, mortgages, so it would be a mix of products. Just a reminder, Sohrab, that 80% of our deposits come from the retail bank.
They do.
It's really core to our funding for the entire bank.
Thank you for your responses.
Just to be clear then, is the primary product you're hoping to cross-sell cards, credit cards? Is that correct then? Is that fair to say?
Three focus products: mortgages, Visa, and deposits.
Thank you.
Thank you for your responses. Sohrab, confirming, do you have any follow-up questions?
No, thank you very much.
Thank you very much for your questions today. Our next question comes from John van Boxmeer from CIBC Asset Management. John, please unmute yourself and ask your first question.
Good morning. I'm wondering where AIRB fits within the new strategic plan?
Hmm.
Thanks, John, for your question. It's Liam Mason. AIRB remains on our strategic plan. We think it can add value to the organization in terms of enhanced returns. Our focus right now is really on Basel III, and meeting the Basel III revised timelines over the next year. AIRB remains on our strategic plan, but not before 2025.
Thank you.
To confirm, John, do you have any follow-up questions?
No, that's good. Thanks very much.
Thank you. Our next question comes from Nigel D'Souza from Veritas Investment Research. Nigel, please unmute yourself and ask your first question.
Thank you. I hope you can hear me.
Yes.
Great. So I wanted to drill down on Laurentian Bank being an alternative to the larger banks in your space. Should we interpret that as the risk rating for the business you underwrite would be a notch below your peer group? How do you see the credit profile of your business going forward?
Yeah. Maybe I'll start, and then I'll turn it over to Liam. I mean, if you actually look at our historical PCLs, we're actually significantly below our competitors. Like, we ended the year at 15 basis points, and that's really kind of our average run rate is between 15-18 basis points. But yet we have. It really comes down to specializations. Specialization, you know, people usually think specialization is equal to concentration risk, which equals higher risk. The way we view it is you've got a specialized sales team, but then you have a specialized underwriting team that understands policy and understands these products and services, so that actually mitigates against these risks. In a lot of our specializations, we look at it as a risk-adjusted return.
Obviously, if your business makes changes and you move into selling more Visa products, well, your returns on Visa are a lot higher than your spreads on a mortgage that's collateralized. Over time, when that makes changes, we are anticipating higher PCLs. I would say that, no, it's not, but I'll get Liam to jump in as well.
Yeah. Thanks, Rania. Well said. I think I would frame it as follows. First of all, to Rania's point, our PCLs have actually been among the lowest in the industry. We have lots of capacity to take risk. We take risks in a prudent and measured way. We have, as you've seen, a disciplined approach to reserving. But we also like to focus on industries where we have specialization. That mitigates the risk. We have a well-defined risk appetite. We don't take risks that are outside of that. But at the same time, we want to enable our customers, and to do so, we must take risk, but it's in a measured and controlled way. I would say right now we're at the lower end of the risk spectrum, and we have lots of capacity.
Just commenting on the alternative. For example, you know, having a North American platform like inventory financing and equipment financing, that is an alternative for these manufacturers and these dealers that the other big banks can't offer or don't offer holistically in terms of a one-stop shop. An alternative in terms of providing, you know, that personalized boutique service for capital markets businesses that really fall through the cracks. They're too small to be serviced by the big banks, but then too big to actually get the balance sheet as well as, you know, the variety of products and services that we can offer off of our capital markets platform. If you move into personal banking, like look at the Alt-A mortgage product, right? The Big Six don't offer the Alt-A mortgage product.
I think that's where we're gonna like be very deliberate and specialized in areas where not only serving those segments, but also having very differentiated products in the market.
Great. That's helpful. If I could just fine-tune a point you mentioned. Your PCL ratio guidance, as you noted, is the high teens over the medium term. When I look at the pre-pandemic level, it was closer to low teens. It sounds like, and correct me if I'm wrong, that's on the shift of product mix to having higher growth rate in cards. It sounds like cards are gonna be a pretty important loan category for you going forward. Is that fair to say?
I would say cards, inventory financing, equipment financing. When you have a business like inventory financing that we wanna accelerate the growth in and it's generating mid-single digit margins, then you expect that, you know, there's gonna be an offsetting PCL. Alt-A as well, we wanna grow that that business as well. Even though it's collateralized in most instances as well as Visa. It's not any one product, but yes, our business mix is gonna shift over time.
It's also very much a risk-adjusted return focus. Where the returns, you know, I expected. You always expect losses. There's a degree of expected losses. You price for that. It's the unexpected losses that you have to worry about. If we can price for it and make an effective return, then it makes sense and it will add value to the bottom line and our shareholders.
All right. Just a real quick point on that. When I look at your margin guidance, you have five basis points of expansion on your net interest margin per your targets, right? You're getting about a similar expansion in your PCL ratio. I assume the risk-adjusted yield, we should think about it long term and over the long-term time horizon, do you expect that to improve? Is that fair to say? Short term
Yeah. Yeah, absolutely. Because if you see, we say year one is really a year of execution, right? Growth only starts coming in in year two, particularly in our personal bank. Year three is acceleration. Yeah, you need to take a longer term view on that.
Appreciate it.
Thank you, Rania and Liam, for your responses. Confirming Nigel, do you have any follow-up questions?
None for me. Thank you.
Thank you. Our next question comes again from Meny Grauman from Scotia Capital. Meny, please unmute yourself and ask your question.
Yeah. Hi. Thanks for taking another question. You've been talking a lot about catching up digitally, and it makes a lot of sense, but I'm wondering where the role is for innovation in your plan.
Maybe I should
Mm-hmm.
Yeah, I can take that. You know, the part of the fact that we're a bit behind in regards to digital, we know that we can leapfrog the competition in a lot of cases. We also know that we can avoid the pitfalls that our competitors have experienced over the last number of years as they built their digital capability. I think for us, as we look at the partnership model, innovation's gonna start through really looking at who's best in class when we're looking at certain capabilities, and how we partner with those organizations to drive innovation within Laurentian. That's part of our strategy, it's part of our roadmap, and it's something that will help us deliver value over the long run.
I would say one other thing that Beel and his team are working on is you can also innovate by, you know, creating that middle layer in the organization where we can do the plug and play as well. To me, innovation's gonna be throughout the entire organization, whether it's in the operational side, it's on the technology side, it's in capital. We'll be constantly looking for different ways of doing things. Continuous improvement, innovation, thinking outside of the box is gonna be something that's gonna be embedded across the entire organization, and not just limited to digital.
I have a follow-up on that. It's related to product innovation and how you see that specifically on the personal side. You know, one aspect could be to look at products that the larger peers don't have. You know, one product that comes to mind is reverse mortgages. How do you think about product innovation and are there any specific examples?
As you would've seen the first, I think, goal is really to close those digital gaps. We really have a new talent that's, you know, forward-looking, working in an agile way with a lot more design thinking and a lot closer to customers. Reverse mortgage is one that, you know, we have heard. Nothing's off the table at this point, but let's focus on the basics and doing that and then to sticking to our plan, and then we can move forward beyond 2024 at looking at other opportunities.
Maybe to give you an example on the Visa side, you know, as we're looking to redesign the future of Visa. Coming up with maybe a product, a card that's virtual, but it's almost like pick your own journey of who do you want in your ecosystem to give you rewards based on your consumer behaviors. If you want ESG rewards versus, you know what, I want some recreational rewards. We're already in discussions, and as Karine said, we've got a really new, fresh, team that are really thinking outside of the box and are thinking ahead in terms of how can we differentiate ourselves and leapfrog, the competition.
Thank you.
Thank you, Meny, for your questions. Thank you. Do we have any follow-up questions, Meny?
No.
Thank you very much. Our next question comes from Paul Holden from CIBC World Markets. Paul, please unmute yourself again and ask your question.
Sorry, actually, I did not have any additional questions, so.
Copy that. Thank you very much. Our next question has been submitted online. Sorry, from Doug Young, my apologies, from Desjardins Securities. ESG was mentioned several times throughout the presentations. What I'm interested in understanding is how ESG is being integrated with executive compensation and employee compensation going forward. Can you elaborate and provide specific examples if possible? Again, this question is from Doug Young from Desjardins Securities.
Did you wanna go ahead?
Sure. We use our ED&I targets. We've embedded into the executive scorecard this year, so VP plus around the organization. This is how we're gonna be measuring our success to our BlackNorth Initiative pledge that we've made and to other commitments that we've made around the ED&I journey. We're hoping to cascade down to the organization. The scorecard actually drives the compensation part of our compensation because the way that you're evaluated at the end of the year is tied to your bonus, so the year-end bonus. This is how it's tied into the overall compensation model.
Yeah. There are four quadrants as I said. You've got your financial, your customer, your culture and leadership, and you've got your operational. We've got different ESG targets that we need to deliver as an organization. Depending on which part of the business you're in, on the people and culture, it's on everyone's scorecard, it's standardized. But for example, on the policy side, in Liam's shop, you know, creating more transparency or fixing certain policies, that would be in the risk management side. Eric is looking at new products and services. Kelsey is looking at, you know, advisory services. I would say it's embedded throughout the entire organization to ensure that it's not a standalone thing that we're doing. It's something that we are all collectively.
It's how we do business going forward. The other thing too on a very strategic level, particularly on the S, I would say that, you know, we've launched Courageous Conversations series. We've launched wellness programs. Taking care of our employees. Our employees are our biggest ambassadors, and so creating that very socially sustainable environment where everybody feels like they belong has been a journey we've been on over the last 12 months. On the E, our move to the Future of Work model too will reduce our carbon footprint, will reduce the number of cars on the street in terms of commuting. I would say as we're making these decisions, making the better choice is one of our strategic pillars that we. That's the lens we use on every decision that we make.
Vendor selection, even when we're talking about who we select from a partner perspective, do they belong to a minority group? You know, are there enough women, representatives covering our account if we're dealing with one of the big, big institutions? These are things that we are all holding ourselves accountable to.
Thank you for your responses. Our next question comes from Gabriel Dechaine from National Bank Financial. Gabriel, do you have any additional questions? If so, please unmute yourself and ask your questions now.
I do have a question. I apologize if this has been covered already, but I'm a bit of a credit card junkie, and your emphasis on that business I find interesting. You did mention partnerships. I'm wondering, you know, to enhance the appeal, I guess. I'm wondering if the partnership is both on the reward side and the underwriting side. It sounded like, you know, instant approval adjudication or whatever, that's a new feature for you. So I'm wondering if that's something you're doing internally or outsourced.
There's different components to what you can look at, right? Because there's really an end-to-end relationship. We do wanna anchor within the organization the key elements within the value chain. We do believe that the platform, the rewards, there are opportunities to look at this with a fresh new lens aligned to our purpose and to ESG. We will work very closely with our risk partners internally to ensure that the entire adjudication process is aligned to our risk criteria.
To answer your question as well, Gabriel Dechaine, to add to what Karine Abgrall-Teslyk was saying, is we are looking at platform as a service. I mean, that's one of the key strategies that we're looking at. So everything's on the table. Like, if you can, if they can handle some of the calls, if they can handle, you know, some of the underwriting. Obviously we keep the core IP, which is our adjudication policies, our risk policies, and so on. Every partnership will be different, and you'll have to stay tuned to find out more.
Okay. Thank you.
Thank you for your responses. Gabriel, thank you for your initial question. Confirming, do you have any follow-up questions?
That's a negative.
Thank you very much. Our final question today comes from Lemar Persaud from Cormark Securities. Lemar, please unmute yourself and ask your question.
Can you guys hear me?
Yes.
Okay. I just want to come back to the risk-adjusted margin discussion. I think I heard the mention of higher risk-adjusted margins over time. When I look at your slide 71 here, it looks like you're assuming a five basis point move up in margins from 2022 to the medium term, and then a similar increase in the PCLs ratio. The 2022 PCLs ratio is not actually that materially different than your long term. It leads me to believe that that 1.9% NIM is a really conservative estimate for the bottom end. Is that a fair assessment? And then secondly, does that 1.9%, include
The benefits from higher administered rates? I'm guessing not. What could the upside be there?
Higher administered rates?
Bank of Canada rates.
Yeah. Okay.
Oh, Bank of Canada rates. Okay.
Impact of interest rates.
Maybe we'll get Yvan to answer that question.
Yeah. Thank you for your question. In fact, we have what we believe is a realistic plan because we really wanna make sure that we also build credibility, and we believe that's gonna help us, you know, in terms of, you know, credibility with the market and valuation with the bank. When I look at the rates, what's been built in for 2022 in our numbers is two increases in the second half of the year, so two times 25 bps, and that's within by October 31. We believe there's gonna be a few more at the beginning of 2023. Definitely it's built in, but definitely we also outlined a number that we believe we can achieve, and that's based on that basis that we outlined that number.
As we previously discussed, you have to look at it from a long-term perspective. Our business mix is gonna change over time, and so this is based on our best estimate in terms of how quickly can we grow our Visa, how quickly will we be able to grow our commercial bank in the markets that we think we're gonna grow in. That's really our best estimate at this point.
Thank you, Rania, for your response. Do we have any follow-up questions, Lemar?
No, but that fivve basis points assumed increase off 20. It looks relatively low to me, but I guess I'll look at that offline.
Thank you, Lemar, and thank you to our panel for all of your questions today and for everyone who answered. That's all the time we have for questions, and I would now like to turn it over to Rania Llewellyn for some closing remarks.
Thank you very much, everyone, for joining us today. As I hope you can see, we're very excited about the future of Laurentian Bank, and we believe we have the right team and the right plan to succeed. We hope we've answered your questions and encourage you to reach out to our team if you are interested in learning more. [Non-English content]