VersaBank

Ladies and gentlemen, thank you for your patience. Please do not disconnect. The conference will begin momentarily. Once again, please continue to stand by. Do not disconnect. The conference will begin momentarily. Thank you. Thank you. Good morning, ladies and gentlemen, and welcome to VersaBank's third quarter fiscal 2023 financial results conference call. This morning, VersaBank issued a news release reporting its financial results for the third quarter ended July 31, 2023. That news release, along with the bank's financial statements and supplemental financial information, are available on the bank's website in the Investor Relations section, as well as on CDAR or EDGAR. Please note that in addition to the telephone dial-in, VersaBank is webcasting this morning's conference call. The webcast is listen-only. If you are listening to the webcast but wish to ask a question in the Q&A session following Mr. Taylor's presentation, please dial into the conference line, the details of which are included in this morning's news release and on the Bank's website. For those participating in today's call by telephone, the accompanying slide presentation is available on the Bank's website. Also, Today's call will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. Details on how to access the replays are available in this morning's news release. I would like to remind our listeners that the statements about future events made on this call are forward-looking in nature and are based on certain assumptions and analysis made by VersaBank management. Actual results could differ materially from our expectations due to various material risks and uncertainties associated with VersaBank's businesses. Please refer to VersaBank's forward-looking statement advisory in today's presentation. And I would like to turn the call over to David Taylor, President and Chief Executive Officer of VersaBank. Please go ahead, Mr. Taylor.

Good morning, everyone, and thank you for joining us for today's call. With me is Sean Clark, our Chief Financial Officer. Before I begin, I'd like to remind you that our financial results are reported and will be discussed on this call in our reporting currency of Canadian dollars. For those interested, we provide U.S. dollar translations for most of our financial numbers in our standard investor presentation, which will be updated and available on our website shortly. Now for the results. The third quarter of fiscal 2023 was once again, as is the case in the first half of the year, solid evidence of our significant operating leverage and our branchless partner-based business-to-business digital banking model. The continued steady growth in our loan portfolio to a new record of just shy of $3.7 billion, which was up a very healthy 30% year-over-year, drove growth in our net income over the same period of 75%. And earnings per share grew 90% year over year as we continue to take advantage of our share buyback program. Looking more closely at Q3 performance, there are four notable items I'd like to discuss. The first is net interest margin on our loan portfolio, which for the quarter was down 30 basis points from Q2, and a major factor that hindered us reporting yet another record for net income. There are a number of levers that influence our net interest margin from quarter to quarter. Over the long term, these historically net out to a net interest margin in our loan portfolio of around 3% within whatever the prevailing interest rate environment is. However, in our most recent quarter, which runs from the beginning of May through the end of June, we experienced an anomalous macro impact on the market rates for term deposits in Canada. Term deposits currently comprise an atypical high 80% of our total deposits and are more expensive cost of funds than our insolvency professional deposits. The market rates for term deposits are derived predominantly from a premium demanded by our depositors over the risk-free government Canada bond rate. Following the broad liquidity concerns that permeated the U.S. banking sector a number of months back, after several high-profile collapses, we saw a swift and significant spillover effect into Canada. The market premium over government of Canada has nearly quadrupled from its recent average, or more than 70 basis points in absolute terms. Further, although short-lived, this premium spike occurred at a time when we, coincidentally, were disproportionately raising deposits. In other words, we traded fairly large volume of low-interest term deposits for higher-rate term deposits, which exacerbated the impact. This obviously dampened net income for the quarter and kept us from posting yet another record quarter of profitability. Although, as I noted earlier, we did equal our record EPS as a result of our share buyback. And on a year-to-date basis, net income is still up 83%, and EPS up 96% compared to last year. I'm pleased to report that term deposit market has returned to its average range, even falling below that average. and we have no reason to believe that this situation will repeat itself in the foreseeable future. We are back to booking term deposit rates that support our target net interest margin. Fortunately, the majority of our term deposits have one-year maturities. Therefore, while we will continue to feel the impact of this temporary premium spike over the course of the next 12 months, we expect to see an incremental increase back towards the 3% range with each quarter, all other things being equal. Further, as Sean will discuss, we are seeing our much less expensive insolvency professional deposits increase as bankruptcy activity continues to expand, which will generally support net interest margin going forward. And as I noted previously, our receivable purchase program loans in the U.S. generate higher net interest margins. That said, I'll remind you that we do reserve the right to trade some net interest margin performance for a higher volume in situations where it is accretive to net income and return on common equity. The other three noteworthy items for Q3 are repeats of those I've highlighted on our last call, their repetition being indicative of both the power of the operating leverage and the consistency of our business model. The second is our efficiency ratio, or our cost to generate $1 of revenue. That number once again saw a sizable improvement on a year-over-year basis. Revenue not only increased by 26% year-over-year, but non-interest expenses decreased by 6% year-over-year, to $12.9 million. That's a little higher than the $12.5 million normalized quarterly number we are targeting due to ongoing supporting the approval process of our proposed acquisition of the U.S. bank. Our Q3 efficiency ratio of 43% is already far superior to the vast majority of North American banks, but with the continued expected growth in our loan portfolio, that number is poised to continue to improve to levels thought unattainable by a bank. The third major highlight is the combined improvement in our return on common equity, which increased more than 450 basis points year over year to 11.15%. This metric is also poised for a substantial improvement as we continue to capitalize on the operating leverage in our digital branchless partner-based model. Of course, each of these metrics would had been even better had it not been for the temporary spike in term deposit rates that compressed net interest margin in the quarter. Finally, the fourth highlight for Q3 is that the growth in our point-of-sale portfolio remains strong. 30% year-over-year overall loan growth was driven predominantly by the expansion of our point-of-sale business, which was up 39% year-over-year and 9% sequentially. Recall sequential growth last quarter was 5%, and I discussed the seasonality in our point-of-sale business such that growth is historically stronger in the summer months. We clearly saw this in Q3. We continue to have significant additional upside to our growth in Canada through our proposed acquisition of U.S.-based Stearns Bank Holdingford. This acquisition will be transformational for our bank enabling us to broadly launch our unique and attractive financing solution to what remains an underserved market in the United States. We continue to make incremental and meaningful progress towards receiving a decision from the US regulators with a decision from our Canadian regulators to follow. We are as comfortable as we've ever been with the prospects for a favorable outcome. We recognize this has been a protracted but necessary process, especially with the recent challenges experienced by the U.S. banking sector. We appreciate the continued diligence of our regulators and appreciate the patience of our shareholders, who we know are as eager as we are to bring this opportunity to fruition. We continue to be as transparent as possible in guiding towards an expected decision date, which we are now targeting for autumn of this year. If favorable, we will proceed towards Canadian regulatory approval and closing of the acquisition as quickly as possible thereafter. The limited launch of the RPP program in the United States continues to give us confidence in what we can achieve with a broad national launch. Our still limited but accelerated rollout of the U.S. RPP program continues to be encouraging. In Q3, our U.S. portfolio grew by another 38% as we started to ramp up our second partner.

I'd now like to turn the call over to Sean to review our financial results in detail. Sean? Thanks, David.

Before I begin, I'll remind you that our full financial statements and MD&A for the third quarter are available on our website under the Investor section, as well as on CDAR and EDGAR. And as David mentioned, all the following numbers are reported in Canadian dollars as per our financial statements, unless otherwise noted. Starting with the balance sheet, total assets at the end of the third quarter of fiscal 2023 were just over $3.98 billion, up 29% year over year from $3.1 billion at the end of Q3 of last year, and up 7% sequentially from $3.7 billion at the end of Q2 of this year. Cash and securities at the end of Q3 were $271 million or 7% of total assets, 7% being unchanged from both Q3 of last year and Q2 of this year. Our total loan portfolio at the end of the third quarter expanded to another record balance of $3.7 billion, an increase of 30% year-over-year and 7% sequentially. Book value per share increased 12% year-over-year and 3% sequentially to a record $13.55. These increases were the result of higher retained earnings, as well as fewer shares outstanding due to our share repurchase program, partially offset by dividends paid. Our CET1 ratio was 11.15%, down from 12.51% at the end of Q3 of last year and down from 11.21% from Q2 of this year. Our leverage ratio was 8.53%, down from 10.38% at the end of Q3 of last year and down from 8.83% at the end of Q2 of this year. Both our CET1 and leverage ratios remain well above our internal targets. Turning to the income statement, total consolidated revenue increased 26% year-over-year and 1% sequentially to another record, $26.9 million, with the increase driven primarily by higher net interest income derived from our digital banking operations. Consolidated non-interest expenses were $12.9 million, down from $13.2 million for Q3 of last year and up just slightly from $12.7 million for Q2 of this year. I will note here that non-interest expense remains slightly higher from what we expect to be our normalized run rate of around $12.5 million per quarter for fiscal 2023 due primarily to the ongoing expenses related to the regulatory approval process associated with our pending U.S. acquisition. Solid net income for Q3 increased 75% year-over-year and decreased 3% sequentially to $10 million. I will take the opportunity here to reiterate David's earlier comment related to the benefit of the operating leverage of our digital banking operations By highlighting that year-over-year consolidated net income growth of 75%, we achieved this quarter on a revenue growth of 26% over the same period. Solidated earnings per share increased 90% year-over-year and was unchanged sequentially at $0.38 per share, which benefited in part from a lower number of shares outstanding due to our active share repurchase program. During the third quarter, we purchased and canceled just shy of 80,000 common shares, bringing the total number purchased as of July 31, 2023, to just over 1.5 million shares. The primary driver of growth in our loan portfolio was once again our point-of-sale financing business, which increased 39% year-over-year and 9% sequentially to $2.8 billion. As noted last quarter, Q3 tends to be a little stronger for point-of-sale originations as a result of Canadians typically spending a little more on the products that we finance over the course of the summer months. Our point-of-sale portfolio represents 76% of our total loan portfolio at the end of Q3, which is up slightly from the end of Q2 of this year. Our commercial real estate portfolio expanded 7% year-over-year and was unchanged sequentially at $870 million at the end of Q3. I will remind you that our commercial portfolio is 90% comprised of loans and mortgages, which are financing residential properties, predominantly multi-unit in nature. And further, we continue to have very little exposure to commercial used properties. Referring to the income statement for our digital banking operations, as David noted, Q3 was somewhat anomalous in terms of our net interest margin due to a short-lived significant macro impact on the Canadian turned deposit market. Name on loans, that is, excluding cash and securities, decreased 38 basis points, or 12% year over year, and 30 basis points, or 10% sequentially, to 2.69%. Net interest margin overall, which includes the impact of cash, securities, and other assets, degrees 19 basis points, or 7% year-over-year, and degrees 21 basis points, or 8% sequentially to 2.57%. I'll take the opportunity here to reiterate that we have observed risk premiums in the term deposit market returning to historical spreads over Government of Canada bonds, and thus expect our NIM to begin an incremental climb back to normalized levels in Q4, all other things being equal. Non-interest expenses for digital banking for Q3 were $10.8 million compared with $11.4 million for Q3 of last year and compared to $10.7 million for Q2 of this year. As noted earlier, we expect some quarter-to-quarter fluctuation in non-interest expenses as a function of the completion of our pending U.S. acquisition. Cost of funds for Q3 was 3.62%, up 168 basis points year-over-year and up 35 basis points sequentially. The bulk of the year-over-year increase is the result of a higher interest rate environment although the increase in our cost of funds since the Bank of Canada began increasing its benchmark rate at the beginning of fiscal 2021 remains significantly below the benchmark increase of 425 basis points. In addition, as discussed earlier, the temporary spike in the market rate for term deposits during the quarter contributed to an atypical outsized cost of funds, which is exacerbated by the still relatively low quantity of insolvent professional deposits measured as a proportion of total deposits, even though we are seeing the increase in Canadian insolvencies translate into growth in this deposit base on both a year-over-year and sequential basis. For context, according to the latest stat scan data, on a year-to-date basis, Canadian consumer bankruptcies have increased approximately 26% as of June 30, 2023, with annual growth estimated up to 30% for the same year, which is expected to result in continued growth in the bank's TIP deposit base, which in turn will favorably impact cost of funds and ultimately support NIM expansion. Wealth management, or what we refer to as personal deposits, expanded 45% year-over-year and 8% sequentially. On the credit risk side, as a quick comment, our provision for credit losses, or PCLs, in Q3 remained very low at just 0.02% of average loans compared with a 12-quarter average of minus 0.01%. Turning now to DRTC, as a reminder, beginning in Q1 of this year, revenue for DRTC includes that derived from the digital banking operations for various technology development services, in addition to the contribution from our cybersecurity services business, Digital Boundary Group, or DBG. Let me start with DBG's standalone results. DBG's revenue for Q3 increased 10% year-over-year and decreased 8% sequentially to $2.4 million, while gross profit increased 52% year-over-year and decreased 6% sequentially to $1.8 million. Variations are the result of the ebb and flow of DBG's service engagements with the outsized increase in gross profit resulting from efficiency gains in the business. DBG remained profitable on a standalone basis within DRTC. Total DRTC revenue, including that from services provided to digital banking operations, increased 67% year-over-year and decreased 6% sequentially at $2 million. DRTC's net loss of $99,000 was an improvement over a net loss of $662,000 a year ago and compares to net income of $433,000 in Q2 of this year, which benefited from the recognition of a deferred tax asset related to DRTC's non-capital loss carry-forwards, which are anticipated to be applied to future taxable earnings.

I'd now like to turn the call back to David for some closing remarks. David? Thanks, Sean.

Our unique branchless partner-based digital banking model continues to prove itself in terms of operating leverage, efficiency, return on common equity, and risk mitigation that remain unmatched in the North American banking industry. Last quarter, I talked about how our very simple and straightforward business model gives rise to some very simple and a straightforward math that is the foundation of our investment proposition and very clearly demonstrates our path to increase shareholder value. We once again saw this hold firm in the third quarter results, even with the temporary compression of net interest margin, and we fully expect that our shareholders and prospective investors will continue to see this quarter after quarter going forward. For the first nine months of this year, our point-of-sale portfolio has grown 25%. This puts us firmly on track to deliver in the range of 30% growth in our total portfolio for 2023, barring any unforeseen changes in the macro economy. We expect to see this continued, steady, sequential growth going forward, barring any major economic shocks. Canadian consumer and small business spending in the categories that our point-of-sale partners finance, thus far has remained steady despite higher interest rate environment. And we believe there's a good opportunity in Canada to add new point-of-sale partners and expand our business with existing partners. As I mentioned earlier, all the other things being equal, we expect net interest margin on loans to trend back towards our recent historic levels. supported by both the return to a normal term deposit receipt market and growth in our insolvency professional deposits as Canadian insolvencies return to historical levels. Again, we'll be open to potentially foregoing some net interest margin for higher return on equity. Normal course quarterly non-interest expenses is excluding those related to the proposed U.S. acquisition should remain around $12.5 million. Finally, our unique model results in liquidity and loan loss risk that remain amongst the lowest in North American industry. We have very sticky deposits, either through our wealth management partners, all of which are term deposits, and bankruptcy trustee partners. And our provisions for credit losses continue to be negligible, as they have throughout our history. In Q3, we took another sizable step towards our $4 billion in asset milestone and the coinciding improvements in our ratio and return on common equity that naturally fall out of our model. We should easily achieve $4 billion before the end of 2023 fiscal year, end of October. When we reach $5 billion, it's simply a matter of how quickly we can add U.S. RPP loans once we begin to broadly roll out that program out following a favorable regulatory decision on our U.S. acquisition.

With that, I'd like to open the call to questions. Operator?

Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchstone phone. you will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, please press star followed by two. And if you are using a speakerphone, we will need you to lift the handset before pressing any keys. Please go ahead and press star one now if you do have any questions. And your first question will be from David Feaster at Raymond James. Please go ahead.

Hey, good morning, everybody. Good morning, David.

I'm glad to hear that the dislocation in the term deposit market's been alleviated and there's more visibility and kind of getting back to that normalized margin run rate. Sean kind of talked about, you know, getting closer there in the fourth quarter, but, you know, it sounded like maybe it might take a little bit longer. Hearing you, David, I was just hoping you could maybe give us some thoughts on kind of the margin trajectory in the next two or three quarters and whether you'd expect to get back there near term, or is there going to really be a big step up, you know, in the fiscal third quarter next year when these mature?

I think it'll just quarter by quarter return to around about the 3% margin that we've had historically. And one of the reasons is we're growing so rapidly, so we're booking new term deposit receipts at the now normal levels. It spiked to about 90-odd basis points over government cannon bonds for a short period of time. And then it sort of recovered down to about 16, 17 basis points. I've got a nice graph on it. So one of the positives of having sort of short-term assets, short-term liabilities, is that we recover from something like this fairly quickly. But we also have the negatives. where if there is a short-term dislocation, it's felt in a quarter. The other thing that's coming on board, unfortunately for Canada and for good Canadians, is the propensity to go into bankruptcy is increasing fairly dramatically. And that bodes well for our more economical and priced trustee deposits that run around prime minus three. We're seeing sort of a big correlation between the new accounts we've opened and what Stats Canada is posting for the increase in bankruptcy. So between 20-30% increases in bankruptcies this year. And that's about the same number of new accounts we've opened. So these new accounts sort of fill up with the proceeds of a bankruptcy. supplement our funding, of course, at a much more economical rate. So that'll help too. Help us, but not help the economy. That's right.

And then maybe just touching on the other side, I mean, obviously you're seeing tremendous growth in the point of sale market. And you touched on some of the seasonal strength this quarter and And, you know, you know, the potential slowdown in consumer spending here in the fiscal fourth quarter. I was just hoping you could maybe touch on the economic backdrop that you're seeing in Canada. Obviously, you touched on, you know, some of the stresses that you're seeing. But what gives you confidence that this is whatever this might be is going to be short lived? And then just the addition, you know, the pipeline of new point of sale customers in Canada? Yeah. And just an early read on what you're seeing in the U.S. as well and receptivity there.

Well, in Canada, we saw what you kind of expect. Canadians sort of come out of their cocoons in the spring and they buy stuff. And despite the cost to borrow increasing fairly significantly, we Canadians tend to buy cars and motorcycles and hot tubs and home improvement despite those things. I do expect in the fourth quarter that the higher interest rates and that kind of enthusiasm to buy will dissipate somewhat. You know, if it gets back to around 5% growth in the fourth quarter, I'd expect that. I think in the winter months, you're probably looking for sort of lackluster purchases. So five, four, three, quarter by quarter. It's kind of inevitable that the raising of rates in Canada will dampen that. Now, at the same time, we're still adding more partners, so our reach into Canada is getting greater than it was, so that will offset that a little bit. And there's also the... home improvement market that is mainly looking at energy savings, i.e. insulation, new furnaces, new hot water heaters. Things are more efficient. So that kind of drives it too. But I don't expect 2024's growth to be 30% like it is today. This year, it should be less if Tiff McCallum has his wish. He's trying to dampen that, trying to dampen it. In the U.S., it's such a huge market, and our product is so popular that we can double, triple in the States without putting a dent in the market. So I expect to have a recession in the States, too. But I don't think that'll have much impact on us in that the market's so huge.

That makes sense. And maybe just switching gears to DRT cyber, I'm curious, some of the underlying trends you're seeing there. Obviously, we had the DTA impact in the quarter on the revenue side. But you talked in the MD&A about, you know, some slower engagements, but kind of reading further, it sounds like this might be more of a timing issue. I'm just curious what you're seeing within DBG and kind of how the pipeline is looking going forward.

Yeah, it's sort of an anomaly for the quarter. DBG continues to sign up new customers for its penetration testing, and it's very – popular in that in that area and then and the other products the drtc is bringing on board uh they seem to be quite well received in the marketplace too um yeah so i i see drtc dbg um continue to grow at the rate it has been growing at um what we're hoping for is sort of a breakthrough with a relationship with um say a large a large corporation that provides uh other services to our target market, and that's mainly other financial institutions. We'd like to bend our services through somebody who already has a relationship. That would be a breakthrough. We have state of the art technology for providing cybersecurity, and it would be nice for altruistic reasons, too, to be able to provide those services to other FIs that seem to be quite vulnerable to cyber attacks.

That's helpful, Colin. I appreciate it. Thanks, everybody.

Thank you. Next question will be from Mike Rizvinovic at KBW Research. Please go ahead.

Good morning. Quick question on the U.S. bank acquisition and So, David, maybe this is an unfair question, but I'm trying to get a sense of what the risk is that maybe this is something that doesn't get approved in the near term and maybe even extends into 2025. I know that sounds perhaps a bit long, but in terms of what I'm hearing on the regulatory front, I keep hearing about staffing shortages across the regulatory footprint in the U.S., Obviously, coming out of the regional banking crisis, there's a lot on their plate right now. What would you say is the risk that this is something that continues to just get sort of pushed off, not from your end, but by the regulators? And then maybe it's a much longer timeframe here. I think you suggested perhaps the fall for approval, but what's the risk that it could be a lot longer?

Well, it's a tiny risk, but it's not non-existent because those factors you mentioned are real. The U.S. regulators got their work cut out for them with the various challenges that have surfaced. And, you know, frankly, we're a pretty small transaction. We don't move the needle for them. Now, mind you, after saying that, we're part of the cleanest bank anyone's ever seen. It's not very often I think you come across a financial institution talking about a 30-year history of personal loan losses and a model that's been proven out in Canada, point-of-sale model, I think, talking about that isn't quite a significant demand in the States. So we've got those things going in our favor, but as you say, there is a backdrop of U.S. regulators being... sort of challenged with their existing business. So I wouldn't say it's nonexistent, but from what we're seeing and our interaction with U.S. regulators, it looks like we're getting close to the end. There hasn't been anything new come out for a long time. And I think our value proposition for the U.S. economy is significant. We're providing an alternate source of funding that percolates through to consumers and small businesses, uh, which is, you know, helpful for any economy. Uh, so not non-existent, but I, I'd say, uh, we're in the, in the 90%, uh, that we'll see, uh, we'll see some movement in the, in the fall.

Okay. That's very helpful. Thank you for that color. And then a quick one on POS. I recall a couple of quarters ago, I thought you were a little bit less optimistic on volumes and it, I think it's fair to say that you've been pleasantly surprised on the 9% growth this quarter, 5% sequentially last quarter. It's been a really good trajectory here. And I'm wondering, what do you think is driving that? I don't know if this is more industry, more broadly, or is it just more of a take market share from BB&K's perspective?

It's a combination of both. We are taking market share from the others that are participating in this area. Our model, our systems, our technology are state-of-the-art, and our partners like it. They like getting fast funding. They like fast turnaround, and our buy rates are competitive. So we are taking market share. The other thing is just what I was talking about earlier. there's always a boost in purchases in the summer. And it was maybe a little more of a boost than we were originally anticipating, but it is the summertime spending spree. And it'll dissipate in the fall, like I was saying, in that the higher rates, the monthly rate for your motorcycle or your hot tub or your home improvement, it's gone up fairly significantly. And You know, a lot of Canadians now are wondering how they're going to make their mortgage payments with renewing their mortgages at much, much, much higher rates. So, you know, I expect that actual purchases to decline going forward. But we are taking more market share, too, that might very well offset that.

Thank you so much for the insights. Appreciate it. Well, thank you, Mike.

Once again, as a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchstone phone. And your next question will be from Stephen Ranzini at University Bank. Please go ahead.

Great job on a great quarter, David and team. It was great to see you at the picnic, which is a really fun time. Yes, Stephen. Yes. So just to follow up on David Feaster's question, and by the way, are you going to be at the Raymond James Conference in Chicago next month?

I sure am. Awesome.

Well, hopefully we'll see you there. You know, Dave was talking about the model, sort of the, you know, last quarter you also went through this, but I just want to make sure that you still see things the same way. You were saying if we can get to $5 billion in loans, at a three-point margin, that's $150 million of net revenue, and your expenses are running, you know, $12.5 million a quarter, so $50 million a year. So, you know, you can get to 20% ROE, and you have the capital to do that. Is that still your thinking?

Yeah, that's absolutely right, Steve. It's a fantastic model. It just gets better and better with the volume. I guess it's inevitable we'll get to the $5 billion mark. The question is just how long it takes. I was talking about the recessionary forces upset perhaps by entering the U.S. market in a bigger way and taking a little market share in Canada. But I think we'll end this year well over $4 billion, and I'm hoping next year is over $5 billion. And that's when the numbers really start to

to work, work well.

Super. Um, and then the follow-up question I've got on a different topic is, you know, during the quarter, you, you bought back just under 80,000 shares and for the year, a million five. And you mentioned that, um, in August, do you have to go back to your regulator to, um, you know, sort of get new permission for a buyback program. Um, just curious about two things. One, uh, why only 80,000 shares in the most recent quarter? Did you, did you run out of room or, you know, did the share price run away from your target? And, and what are you targeting for next year? What do you think would be great to be able to do next year?

Well, we ran out of capacity to buy. Uh, we, um, we're only allocated so many shares we can purchase by a regulator each year. And, um, we ran out. Yes, we do have the application to buy more shares, and it's in the order of about 1.5 million shares would be our hope. Mind you, we are in a, you know, what you call a more challenging regulatory environment in that regulators, both North and South, are looking for more capital, not less. So I'm not sure how well received a $1.5 million share purchase will be. But we would like to have a normal course issuer bid open so we can take advantage of our stock when it's running less than book value. It just obviously makes a turbo charges our earnings. The denominator is reducing. That's what gave us $0.38 this quarter versus last quarter, despite being slightly down in net income.

Well, yeah, and I'm enthusiastic about your approach to buying back the stock at underbooked value. And my last question relates to the mortgage business and the potential you discussed last quarter about getting deeper into the CMHC business and launching some new... channels there. Have you made any progress towards that in the most recent quarter?

On the retail side, we're working with some partners with the view that in the first part of 2024, we'd be able to launch the retail type mortgage product and make good progress there. We've hired a person who's an expert in that area and we've got some good partnerships developing. On the commercial side, the interim construction of residential projects, you'll see us pivot into CMHC-insured construction projects. There's quite a demand in Canada for new residential units. We've had a lot of new Canadians come in looking for homes, and we banks... ourselves included, seem to be quite reluctant to finance these construction projects without the comfort of CMHC insurance. So we've had a few opportunities to do that, and we expect in 2024 there will be, I would say, a good portion of our construction book will be CMHC insured. It's helpful on the capital allocation side in that CMHC provides some a zero percent risk weighted asset. So it doesn't soak up any of our CET1 capital, which frees it up for the point of sale program. So you'll see our construction lenders sort of pivot into that government insured program and, you know, be helpful for our economy. We'll be still providing student residences and retirement homes and and condominium units for the Canadians that are looking for a place to live.

Well, thanks so much, David, and I look forward to seeing you in Chicago. Oh, absolutely.

If the weather prediction is correct, this is going to be another hot, hot time in Chicago.

I saw something like 95 degrees.

Thank you. Again, ladies and gentlemen, if you have any questions, please press star followed by one. Next will be Bradley Ness at Coral Capital. Please go ahead.

Great. Thank you. Hi, guys. How are you doing? Very good, Brad.

Good to hear from you.

Perfect. Thanks. Can you tell me the balance of the U.S. RPP loans and how many partners you have right now?

Well, we've signed up three partners, and off the top of my head, I haven't got the exact figure on the balance, but Sean might have that handy.

Sean, have you got that figured? For sure, Dave. About $67 million U.S.

$67 million.

Yes, sir.

$67 million. Got it. Got it.

And we just signed up a new one, Brad, so that hasn't drawn down yet.

Okay. Perfect. Perfect. And when I think of loan growth going forward, should I still think of 30% annual clips?

Pluses and minuses, taking into consideration, it looks still like a reasonable figure. And that's taking into consideration the things I was mentioning earlier, a damping of the Canadian economy, maybe the U.S. economy dampening too, but Heading into the States, us being sort of a drop in the bucket in the market, doubles and triples aren't hard to think about. And in Canada, our reach into other providers' market might offset the inevitable downturn in our economy. So yeah, I mean, 30%, it seems like a realistic figure. All those things take into consideration.

Okay, got it. Thank you. And regarding the net interest margin, it sounds as though, if I heard everything correctly, that this is kind of trough quarter at 257 and likely will sequentially head higher over the next many quarters. Did I hear you say that maybe back to 3% your modeling shows in the next four quarters?

Yeah, absolutely. That's the historic spread that we've been able to earn over the years. And we're going to be helped by the increase in solvencies. That's saying we've opened 20%, 30% more accounts since the beginning of the fiscal year. And that sort of correlates quite highly with the number of increased bankruptcies in Canada. So when we open accounts, they don't fill up with the proceeds of the liquidations Right away, it takes about six months for that to start happening. But it's promoting of what we will get. So that helps the spread too. And they run a prime minus three on average. So that would be 420 in Canada. And our GIC rate or return deposit rate in the one-year category might be 540. So it helps. So those are the things that help us get back to that 3% margin that we target.

Okay, great. And the new point of sale loans that you put on, what rate are those nowadays?

The ones in the States are a little higher margin than we get in Canada. Roughly, they're on 4% over our cost.

Okay, 4% over.

This market condition tends to be different. Got it. different.

Got you. And on the expense side, if I heard you correctly, you know, the normal is $12.5 million per quarter without any kind of acquisition-related costs in there. This quarter, you were at $12.9 million, so kind of implying that $400,000 related to, you know, primarily legal expenses related to the acquisition. And kind of thinking about it i'm like you know you've been running higher legal expenses for i guess you know a year and a half or so from this acquisition like what addition like 400 000 seems like a lot when all that should be kind of done i would have thought um you know you already did the application now it's just maybe you know kind of sitting around and redoing some some filings here and there but you know do you really need 400 000 a quarter in additional legal expenses for this

It could be even higher, hopefully when we close. But there's other miscellaneous expenses that went through the quarter too. About half of that might have been attributable to what Steve was alluding to. We completed our 30th year and had a celebratory picnic. You should have come too, Brad. And that That was a couple hundred thousand Canadian all in. For that, we had about a thousand people to celebrate our 30th year anniversary. Things like that went through. There's pluses and minuses. But normally speaking, on a normal quarter, 12 and a half is about the right figure for us.

Okay, great. That's it for me. I appreciate it, guys. All righty.

Thank you. And at this time, Mr. Taylor, it appears we have no further questions. Please proceed with any additional remarks.

Well, I'd like to thank everybody for joining us today, and I look forward to speaking to you at the time of our fiscal 2023 year-end results. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.