Are we good to begin the next session? Okay, great. I'm pleased to have Éric Provost with us, the CEO of Laurentian. And before we begin, I want to remind the audience that Éric's comments today may include forward-looking statements. Actual results could differ materially from forecasts, projections, or conclusions in these statements. And listeners can find additional details in the public filings of Laurentian Bank. So with that, welcome.
Thank you, Darko.
I think I want to start our discussion here a little bit differently and talk a bit about your focus and your efficiency ratio, which seems to be the big focus. You guided to a relatively stable efficiency ratio in 2025, more or less 75%, let's say, at Q4. Your longer-term goal is significantly lower than that. When I think of that big improvement or eventual improvement, efficiency is a function of two things: revenue and expenses. I think of the revenue side as being the interesting one to start thinking about and start talking about. Maybe we can discuss your shorter-term revenue growth and your longer-term aspirations of revenue growth to help bring down that efficiency ratio. That's my start. We'll start from there. I'm sure there's going to be lots to discuss there.
For sure. And it's a great angle because this is clearly a focus point for us. And there's no way to shrink ourselves to greatness. So for sure, revenue growth is an area of focus and a focus towards our specialty groups. As you know, we've been refocusing this institution. We wanted to stop being everything to everyone and try to copy the big banks model. So we aim to focus on our strength. And the strength we built throughout the years are mainly commercial-focused. So we believe we're very well positioned to benefit from the 2025 environment in our two main growth engines, one of them being commercial real estate. With the decrease of interest rates here in Canada, we definitely now see a pickup in terms of activities.
One of the proof points there is that our unfunded pipeline in terms of commercial real estate opportunity went this summer from CAD 2.7 billion-CAD 3.1 billion at the end of Q4. And developers are out there seeking out lending opportunities to actually start new projects, new programs. We see a lot of traction in the low-rise type multi-res units because there's still high demands across the country. So we believe that is a good source of funding opportunity at the latter part of 2025. The other big opportunity we see is within our Northpoint Commercial Finance platform. As you saw in October, we announced that we were embedding our equipment finance group, so previously LBC Capital, under the Northpoint Commercial Finance brand. And this, for us, is a huge opportunity for forward growth.
Just because right now we've experienced a low historical usage of our available line of credits, we have CAD 9.5 billion line of credits available out there. And at the end of Q4, utilization rate was standing at 42%, which at this point in time, at this stage of the year, we should be closer to the 50%-52% utilization. So we think that from what we're hearing from our dealer base, from having the election behind us in the U.S., consumer confidence is picking up good momentum and the economy is still strong. So we think that with the 2025 season, we're going to see our dealer base restocking in the beginning of the fall in a more normalized type pace, which for us means that pickup between low historical usage versus more normalized that should be at the 50% mark.
The good thing about growth story also in this platform is that even though we're lower utilization, we were able to grow on a CAGR since we've acquired Northpoint 8% year after year on average of new dealers. Last year, 6%. But overall, we're servicing now over 6,300 dealers across North America. And we strongly believe in the capability of the team to continue and grow organically that dealer base. So yes, growth is in the play. And we think that latter part of 2025 will show resumed growth in our commercial book of business.
So maybe just to follow up on that, the first follow-up is, so you're expecting utilization rates to improve for the fall. That's typically when they're restocking. But between now and then, the CAD 9.5 billion of lines could actually still grow as you add more dealers. And are you targeting 6%-8% growth in that arena? Is that still?
We're still actively seeking out and we're diversifying in terms of industries. So we've been very active in the marine, RV, trailer, and manufactured housing. But lately, we diversified in powersports , where we see tremendous opportunity. We diversified in ag, construction. And the fact that we're bringing in our equipment finance group within that umbrella opens up for all the commercial-type assets. Because the way we go to market is always through the manufacturer. We get access after that to all their distribution network. And on the commercial front, it allows us to touch on the end users on a North American scale as well. So great potential within that business segment.
Can you talk a little bit about that process in terms of growing the dealer base? Do you have to hire people? Because here we are talking about your efficiency ratio, but at the same time, we're talking about potentially growing the number of dealers. How do you see that evolve?
Great question. And that business has been very, very efficient through time. When we acquired in 2017, the book of business of Northpoint was CAD 1 billion, and we had about 150 employees. Now we stand at CAD 4 billion, and we have not even reached, we're at the 200-employee mark. So very scalable, very efficient because we have a good platform there. And the way we approach market is that we go to the OEM level. So let's take an industry in the marine space. We're going to go at the OEM. We're going to negotiate a repurchase agreement with the OEM, some economics in there, because marine allows for free flooring for their dealers once you onboard into one of their programs. And once we land that program, we get access to their full dealer list. So it's warm calling. We have our internal sales rep.
They go after that list. And we can showcase that Northpoint is actually an approved funder for that specific OEM. So yes, if you grow, you need to scale up. But the people we pay to scale are actually revenue generator headcounts, which for us is a big plus in terms of building that top line.
And by the way, I could talk about this all. I'm always fascinated by Northpoint, by the way. Just curious, just as a follow-up on that, I mean, the one thing that dealers in Minnesota versus Utah versus you name it. How is the vetting process done there in terms of the dealers that are?
In terms of dealers?
Yeah.
Well, we've been very disciplined in terms of how we approach the market. And the risk-reward needs to make sense for us. And we have a very standardized approach. So we go into the dealer base that will fit our credit box and provide the right returns because we don't play on price. But the way we offer and the way the repurchase agreements are structured, it allows us to go to enough broad coverage that allows us to capture a big portion of those dealers from a manufacturer's standpoint.
A big differentiator of us versus maybe regional players in the U.S. that try to approach that market is that not solely we service all the states, but the fact that we are Canadian, Quebec-based, and that we offer the same type of programs across Canada allows us to approach manufacturer with a North American solution, dealing with one provider to service the full scope of dealership that they have throughout America. So that's a big, big plus.
On balance, then, just to bring this all home to revenue growth and talk about this from a total holistic point of view, it is a smaller portfolio than commercial. Do you see or do you sense that there's a greater opportunity in the Northpoint portfolio, or do you see the better opportunity in your bread-and-butter commercial and real estate here in Canada?
I would say every area that we specialized in the last 10-12 years, we've been successful because we approach it with a very standardized way. And we put people not solely on the sales origination. We put specialized people in underwriting in our credit group. So it allows us to approach the market and the customer the right way in terms of service, but in terms of managing expectations. And we believe that we, through the plan, which is a three- to five-year horizon, we have an opportunity to double the size of Northpoint, even more so now with having equipment finance embedded in the group. This is a specialty finance group now with CAD 6 billion of assets total that can generate both on the consumer and on the commercial side opportunity on a North American scale from the manufacturer point of view.
And for us, and maybe you saw some article out there, we are seeking partnerships to actually help us accelerate because it doesn't mean we want to fund everything on our balance sheet. We think that there's a broad array of spectrum of opportunity, maybe in larger tickets, lower returns, which we don't want to keep, but we can service and generate other income for the organization, or deeper risk profiles, or maybe other industries that people could reach out and we could actually white label for them if they want to keep on their book, but they need a servicer to do the floor planning for them. So this is why we believe that platform has a tremendous opportunity to continue and build momentum for the organization.
We think that we're going to see that growth, not solely in terms of dealers, but assets will come back in the latter part of 2025.
So we can see that progression. We can think about that longer term. And it's efficient.
It is efficient.
So then the question now turning to the expense side. So what can actually be done on the expense side to help you get to your longer-term target? And should we think about that in terms of chunks? Big chunk this year or less?
And if I come back to the investor day and the investor deck we presented last May, one of the slides in there, you see the differences in, if you take Laurentian Bank as a whole in terms of efficiency profile, and as you stated, last quarter, we ran at 75%. You can see the difference between how efficient commercial banking is for the organization, so way below the efficiency of the total organization, and how the retail side of the bank has been deteriorating throughout the years. And this is what the plan on the retail side needs to address. And we already started because, as I said, we tried to be too widespread, so having less focus on how we deploy resources. So as you know, we divested our full retail brokerage last year. We divested our discount brokerage platform.
And if you accumulate the waves of restructuring plus natural attrition, we actually reduce headcount by 10% throughout the organization. Now, it's not enough to achieve our 60% less efficiency ratio targets. But now, with the investment we're redeploying in the organization and building the right foundation to simplify the overall processes, reduce the number of distribution channels, but also to make us a less manual, less workaround type organization, this is where in 2026, you're going to see the impact of those investments and of those actions taking effect on our efficiency ratio.
This is taking into account the accounting change and so on, the way to think of this. When I think to 2026, I mean, I don't have a significant change in your expense growth rate in 2026. That's something that we should be thinking about. You touched on something which is not wanting to be all things to all people. You alluded to deposits in your investor day. Maybe you can talk a little bit about your deposit strategy.
Definitely.
What we can think about going forward from here.
Yeah. And again, if you think about Laurentian in terms of our deposit base, we have CAD 23 billion of deposits. And in there, you have CAD 21 that are retail-based. And CAD 7.1 is actually our Quebec branches originated. The rest is broker deposits, which is a very efficient channel for us. We've been a player around, and we can definitely fund ourselves with the right mix. When we talk about our retail deposit, it's just the fact of leveraging our regional Quebec presence and regaining a fair market share within the middle-class type population. People forget, from 2019, we were at CAD 6.9 billion of retail deposits in 2019. We closed the year at CAD 7.1. We went as high as CAD 7.3. Right now, we're managing deposits aligned with our funding needs, of course, to get the right mix and to maximize our profitability.
But for sure, there is an opportunity with a name like ours, having been around in our Quebec market for 178 years. If we deploy the right self-serve type digital offering, we will be able to, again, our goal is to have a single mid-single digit growth of that retail deposit base in Quebec throughout the plan to actually improve our funding mix. But I think we need to think of us as a more commercially focused organization in very specialized niches that optimize its funding sources and diversification. And our branch network is part of that mix.
Where are you on that journey for the deposit product and the digital offering?
Great question. So we needed to address the foundation, which we made great progress in 2024. We actually successfully migrated to that new mainframe that actually caused the outage in 2023. So we're done with it. We're in a brand new mainframe environment, which is great for our foundation. And now it's just a question of building through the right tools. And our approach is going to be to consider the right opportunity in terms of cloud-based type solution. We don't have the scale or the resources of the larger institution. So we're very selective in terms of how and what we're going to deploy. And again, we need a simple product shelf that will help us to address the right day-to-day transactional needs of our middle-class customers.
And again, nothing to announce right now, but we're building towards a product launch that when we have more details, we'll be able to come back to you.
OK. OK. Didn't touch on this when your discussion on Northpoint, so I think I have to go back to this now because I look at my questions, like, oh, I forgot to ask about the uncertainty in the U.S. and the tariffs. How does that affect? Does it affect your business? What are the dealers telling you? And I think about that because you deal directly with the OEMs too. So maybe you can touch a little bit on the uncertainty that's out there today and the tariff threat.
Actually, if you take from a U.S. perspective, consumers are more confident. I think that they feel good about their positioning versus the new administration. And the way tariff for us, we see it, 90% of our dealer base are U.S. businesses. Most of the majority of our OEMs' relationship are U.S.-based institutions or businesses as well. So it's an ecosystem within itself in the U.S. market. So we believe, except if the U.S. was to apply tariffs that would impact parts of production, but it would be to their own detriment. So again, there's a lot of unknown of what they're going to put tariffs upon and how it could impact other reactions from various countries. But for us, we believe that we're well positioned within our field of expertise, and we will benefit from the overall strength of the U.S. economy as it seems right now.
I've spoken with some investors about your company. And many of them have come back with an understanding or maybe this better word is an appreciation of the value of Northpoint, and that the value of Northpoint may not actually be in your stock price at the current moment. And so the question that's sometimes thrown out, and I'm just going to ask it bluntly here, I mean, would you consider ever selling Northpoint, booking a large gain, and repatriating the capital and putting that to work on your Canadian strategy? Is that something you've considered? Is that something that we should completely blow off here? What should investors think about when thinking about that possibility?
For us, Northpoint is part of our strategy and part of our plan because we think we can actually double it. As you said, we think there's tremendous value in that platform. We believe in its potential. We believe in how we operate the platform. The leadership team there is amazing, and I just think it's a great opportunity for us to deploy capital efficiently and profitably for our shareholders, so for now, there's no plans to actually sell Northpoint in the midterm.
And maybe just to further nail down this point, I mean, a dealer in Minnesota selling a boat is oblivious to Laurentian Bank being part of Northpoint. Is that how I should think about this? So from a prospecting point of view, from a client relationship point of view, Northpoint really doesn't, whether it's Laurentian owning it or whatever.
So you're right. It's a standalone entity fully owned by Laurentian Bank. We're the funding provider, of course. But where we see opportunity as a bank in Canada is in terms of point of sales. We touch 650+ dealers across the country, where those dealers are warm relationships with us. They appreciate the service we provide. So part of the strategy in terms of exploring opportunities across the ecosystems we're good at is how do you get to point of sales and capture that retail customer that you can lend to as a bank? But after that, offer your credit card. You could offer mortgages. You can offer a self-serve digital type bank offering.
So for us, we see it as a growing opportunity in the midterm in terms of having a real established footprint that embeds both opportunity together in terms of Northpoint and the Laurentian Bank franchise here in Canada. And in the U.S., this is where partnership has its true value. If we lend the right partner that understands and can maximize that value of point of sales versus those 6,000 dealers we have out there or 5,800, this is also a great opportunity for us to create that referral channel or origination channel without touching the consumer in the U.S. and not being a bank in the U.S.
OK. Great. Thank you. So Northpoint, lots of commitment there. You did mention earlier you divested of the retail full-service investment brokerage division. Are there other things that other opportunities for divestment? Are there other things to think about? Or are we.
I think for us is to simplify, to make sure that, and I think those were two, I would call, areas where we didn't see ourselves grow to the right scale and to deliver the right returns. After that, I think simplification will come from internal, how we distribute, how we address our internal processes, and like I said, technology will play a part in terms of how do we automate, but for now, I think initially we were very quick in terms of executing and making sure we have the right focus with the leadership team.
So you ended the year at a Common Equity Tier 1 ratio, 10.9%, significant cushion there. I think I model that your ratio will grow, that you're going to generate some capital this year. So maybe you can speak a little bit about your capital plans and how you want to manage that and roughly where you want to manage your ratio to be.
Yeah. We indicated that we're comfortable managing over 10% of CET1. And right now, where we stand at 10.9% gives us the right level of cushion just for the opportunity we see forward in our commercial banking specialty groups. So commercial real estate, like I said, we're seeing the unfunded pipeline building up. Northpoint is definitely an area where we feel there's tremendous potential. So we want to have the right level of capital, and this is where we are today, that we're comfortable enough that once the markets start picking back up at the latter part of 2025, we have the right capital level to be able to sustain and to grow that profitable asset base in our own balance sheet.
Where do you think, at what point would you consider buybacks? At what ratio or an aggressive buyback program? Is that something that it's clearly not been, but is it something we can think about?
No. Right now, it's not into play. Our goal is to really make sure that we are positioned to sustain and fund our most valuable franchise on the specialty front. And as I said, if you just take that jump in terms of going back to normalized utilization, we're going to be close to the CAD 10 billion mark. We're at CAD 9.5 billion. We keep onboarding new dealers. As soon as we go back to that utilization, those assets will come back the way we want. And we need the capital to be able to fund that, so.
I'm going to turn to some questions from the audience. So this question I've already asked. Your dividend payout ratio increased throughout most of 2023. Should we expect this to continue, or is there room to pull back on dividends for a capital buffer?
Actually, we're very comfortable where we are in terms of dividend. You know it's a topic we discuss every quarter with our board. So right now, we believe that the mix between internal capital generation, the dividend that we're distributing is at the high range of our bracket. We guided towards a 40%-50%. Last quarter, we were closer to 53%. But we feel comfortable where we are right now in terms of dividend yield.
The next question is, can you please discuss which type of partners you are looking for to grow your U.S. platform, Northpoint?
Great question. Right now, what we're considering is forward flow type facilities with various types of partners, of course, private equity, insurance banks out there that are interested in the risk-reward profile of those assets. I have to say there's good momentum. There's good appetite overall towards these types of assets. So forward flow is our main focus. And after that, it's all about opportunities. We believe we can service very large programs, larger programs. Some out there, as an example, in powersports , require CAD 2 billion-CAD 3 billion of funding just to walk and own those programs. We wouldn't be able to do that alone. So if we land the right type of partner, it allows an open, broader opportunity to actually accelerate the growth we're seeing and the potential we believe we can generate through this platform.
Real quick, Canadian Western Bank being acquired by National Bank. I don't know, how aggressive can you be in Western Canada? Is this an opportunity for you?
Again, it's an opportunity always in our specialized segment. So we have a presence in the Western provinces in terms of our commercial real estate. We have a presence in terms of Northpoint and equipment. So for us, it is opportunistic. Maybe on the talent side of things, we could land some great people. But again, for us, it's not a big game changer. It's just, again, to win our market share versus our service and our specific offering versus any other competitors.
OK. We're at this point now where I'm going to ask you for some key messages that you'd like to leave for investors for 2025.
Thank you, Darko. Well, thank you for being here this afternoon. Thank you for attending. We're a bank that is definitely transforming. 2024 was a start of execution. We unveiled our plan seven months ago. Still, a big year in front of us in terms of investment. The choices we're making in terms of technology will make us a stronger, more profitable, better institution. And we think that the growth momentum we can generate into having a very focused organization into our specialized group, and then that is mainly the commercial approach we've put together, will allow us to generate the right returns and to achieve on the midterm our financial commitments, which is to bring this bank back to a 10%+ ROE profile and be able to operate at a 60% less efficiency ratio.
So I think that we believe our investors still need to be patient, to be patient throughout 2025 because of the investment needed. But we strongly believe that we're going to start building momentum towards those metrics in 2026 and further. So very confident about the team I have with me in terms of leadership and the execution path we're on today.
OK. Great. With that, we'll end the session and the conference. Thank you very much.
Thank you for having me.