Q4 2023 VersaBank Earnings Call
Good morning, ladies and gentlemen, welcome to break the bank's fourth quarter and year end fiscal 'twenty Chinese see financial results conference call.
Good morning, ladies and gentlemen. Welcome to VersaBank's fourth quarter and year and fiscal 2023 financial results conference call.
This morning with a bang.
This morning, VersaBank issued a news release reporting its financial results for the fourth quarter and fiscal year ended October 31, 2023.
<unk> issued a news release reporting and some actual results for the fourth quarter and fiscal year ended October 31st 2000, Chinese saying they.
The news release, along with the bank's financial statements, and DNA and supplemental financial information, are available on the bank's website in the Investor Relations section, as well as on the CEDAW Plus and EDGAR.
The news release, along with the banks financial statements MD&A and supplemental financial information are available on the bank's website in the Investor Relations section, that's wireless undefeated parts and at card.
Please note that in addition to the telephone dial-in, VersaBank is webcasting this morning's conference call.
Please note that in addition to the telephone dialing back the bank is webcasting this mornings conference call.
The webcast is listened only. If you are listening to the webcast but with 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.
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 presentation. Please dial into the conference line did.
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 telephony that companion slide presentation is available on the bank's website.
For those participating in today's call by telephone, the companion slide presentation is available on the bank's website.
Also, today's call will be archived for replay, both by Telethon and via the internet, beginning approximately one hour following completion of the call.
So todays 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 replay are available in this morning's news release I would like to remind our listeners that statements about future events made on desktop are forward looking in nature and are based on certain assumptions and analysis made by both the bank management.
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 byverse bank management.
actual results could differ materially from our expectations due to various material risks and uncertainties associated with birth to dance businesses.
Actual results could differ materially from our expectations due to various material risks and uncertainties associated with voice to banks businesses.
Please refer to Bertha Bence, Forward Licking Statement Advisory
Please refer to both the bank forward looking statement advisory in today's presentation.
Speaker Change: I would now like to turn the call over to David Taylor, President and Chief Executive Officer I'm supposed to bank. Please go ahead Mr. Turner.
I would now like to turn the call over to David Taylor, President and Chief Executive Officer of Bursadang. 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.
David Taylor: Good morning, everyone and thank you for joining us for today's call.
David Taylor: With me, it's Sharon Clark, our Chief Financial Officer.
David Taylor: Before I begin I'd like to remind you that our financial results are reported.
Before I begin, I'd like to remind you that our financial results are reported, and we'll be discussing this call in our reporting currency of Canadian dollars.
David Taylor: They discussed in this call and our reporting currency are Canadian dollars.
David Taylor: It's interesting 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 web site shortly.
David Taylor: Now for the results.
Another record quarter cap top, another record year for our bank. As we realize the significance and increasing operating leverage in our branchless business to business, partner-based digital banking model with the continued growth in our loan portfolio.
David Taylor: Another record quarter capped off another record year for our bank as we realized a significant and increasing operating leverage.
David Taylor: This helped us to designate partner based digital banking model with the continued growth in our loan portfolio.
David Taylor: 94% year over year growth in net income.
94% year-over-year growth in net income was more than triple that of our healthy 29% growth and our loan growth.
David Taylor: More than triple that of our healthy 29% growth in our loan portfolio.
And that drove an 86% increase in average return on common equity and nearly 14%.
And that drove an 86% increase in average return on common equity to nearly 14%.
David Taylor: Looking more closely at our fourth quarter performance. Our results once again showed the predictability and momentum of our business.
Looking more closely at our fourth quarter performance, our results once again show the predictability and momentum of our bill.
David Taylor: Those of you that Apollo versus a bank for some time will have heard me say that the 4 billion mark or total assets plus the <unk>.
Those of you that have followed VersaBank for some time, who have heard me say that the 4 billion mark for total assets was the point in which we begin to see the operating leverage in our digital banking model. That concludes.
David Taylor: Tim which we begin to.
See the operating leverage and our digital banking model.
David Taylor: That can clearly be seen in Q4 numbers.
David Taylor: The total assets crossing 4 billion Mark during Q4, ending the quarter and the year at $4 2 billion. We are seeing the outsized positive impact on efficiency profitability and our return on equity.
The total assets costing 4 billion mark during Q4, ending the quarter and the year at 4.2 billion. We are seeing the outsized positive impact on efficiency, profitability, and our return on it.
Continued steady growth in our long portfolio do primarily to the continued strength of our point of sale Receivable purchase program drove very healthy sequential revenue growth of 9% Which contributed to 20% growth year over year
Continued steady growth in our loan portfolio due primarily to the continued strength of our point of sale, let's see a bulk purchase program drove very healthy sequential revenue growth of 9%, which contributed to 20% growth year over year.
David Taylor: We achieved this growth while holding non interest expenses flat in reality, it was down a bit which drove our digital banking efficiency ratio to 45% from 51%.
We achieved this growth while holding non-interest expenses flat. In reality, it was down a bit, which drove our digital banking efficiency ratio to 45% from 51%.
As I noted last quarter, this level of efficiency
As I noted last quarter this level of efficiency.
Already leads a vast majority of North American banks. Fourth quarter return on come, acquities saw a big jump up to 13.58%, up 243 basis points sequentially, and 626 basis points year over year.
David Taylor: Already leads the vast majority of North American banks fourth quarter return on income.
David Taylor: You saw a big jump up to 13.58% up 243 basis points sequentially.
David Taylor: 626 basis points year over year.
This was always my vision for a branchless business to business partner based digital bank. Our ability to grow revenue while holding non-interest expenses is the engine that drives and will increasingly continue to drive earnings growth return on equity and value for our share.
This was always my addition for our Branchless business to does the partner base digital bank, our ability to grow revenue, while holding non interest expenses.
David Taylor: Engine that drives and will increasingly continued to drive earnings growth return on equity and value for our shareholders.
David Taylor: Importantly, we are really just beginning to realize the true efficiencies up our model.
Importantly, we are really just beginning to realize the true efficiencies of our model. Our highlights for today's talk are
Our highlights for fiscal 2023.
David Taylor: You're very much mirror those for the fourth quarter.
year very much near the those for the fourth quarter. Our digital banking efficiency ratio for 2023 improved to 43% from 55% as we grew revenue by 31% while holding non-interest expenses to just a one.
David Taylor: Our digital banking efficiency ratio for 2023 improved to 43% from 55%.
We grew revenue by 31%.
David Taylor: Holding non interest expenses to just a 1% increase.
David Taylor: And that with the benefit of solid profitable growth from our cyber security subsidiary translated into an 86% increase in net income and a 19, 9% increase in earnings per share.
And that, with the benefit of solid profitable growth from our cybersecurity subsidiary, translated into an 86% increase in net income and a 99% increase in earnings per share.
Return on common equity for the year improves substantially to 11.75% from six points.
Return on common equity for the year improved substantially to 11, 75% from 6.61%.
David Taylor: The vast majority of our 2023 girls was driven by the continued solid performance of our Canadian.
The vast majority of our 2023 growth was driven by the continued solid performance of our Canadian Point of Sale Receivable Purchase Program.
Sale receivable purchase program.
we continue to expect solid growth for the foreseeable future.
David Taylor: We continue to expect solid growth for the foreseeable future.
We're also seeing continued incremental growth from the limited US launch of our Receivable Purchase Program. We'll fill off a small base. This growth is indicative of the uniqueness and attractiveness of this offering. The real opportunity in the US, however, remains the broad national roll out of our solution.
We're also seeing continued incremental growth from the limited U S launch of our receivable purchase program, while still off a small base. This girl is indicative of the uniqueness and attractive to us at this offering.
David Taylor: Real opportunity in the U S. However remains the broad national rollout of our solution.
what remains an underserved mark.
David Taylor: What remains.
Underserved market.
David Taylor: It will supercharge, our expected growth we continue to advance the approval process for our proposed acquisition of U S. Based Stearns bank holding for <unk>, which will provide the U S license to enable us to undertake this broad rollout.
It will supercharge our expected growth. We continue to advance the approval process for a proposed acquisition of US-based Stearns Bank Holdings.
which will provide the US license to enable us to undertake this broad roll-up.
David Taylor: We understand and respect the protracted nature of the process and remain encouraged by our interactions with the regulators to date should we received the approval. We are seeking we know that would be well worth the wait.
We understand and respect the protracted nature of the process and remain encouraged by our interactions with the regulators to date. Should we receive the approval we are seeking, we know that the well worth...
David Taylor: Yeah.
David Taylor: I'd now like to turn the call over to Sean to review our financial results in detail.
I'd now like to turn the call over to Sean to review our financial results in detail. Sean?
David Taylor: Sure.
Thank you David and good morning, everyone.
David Taylor: Before I begin I will remind you that our full financial statements and MD&A for the fourth quarter and the full year are available on our website under the investors section as well as on SEDAR and Edgar.
Before I begin, I will remind you that our full financial statements in MD&A for the fourth quarter and the full year are available on our website under the investors section as well as on CEDAR and EDGAR. And as David mentioned, all of the following numbers are reported in Canadian dollars as per our financial statements unless otherwise noted.
David Taylor: And as David mentioned, all the following numbers are reported in Canadian dollars as per our financial statements unless otherwise noted.
David Taylor: Yeah.
David Taylor: Starting with the balance sheet total assets at the end of the fourth quarter of fiscal 2023 grew to a new high of just over $4 2 billion was up 29% from $3 3 billion at the end of Q4 of last year and up 6% sequentially from 4 billion at the end of Q3 of this year.
Starting with the balance sheet, total assets at the end of the fourth quarter of fiscal 2023 grew through a new high of just over 4.2 billion. It was up 29% from 3.3 billion at the end of Q4 last year and up 6% sequenced from 4 billion at the end of Q3 of this year.
David Taylor: Cash and securities at the end of Q4 were $230 million or 7% of total assets, which is unchanged from both Q4 of last year in Q3 of this year.
Cash and securities again, if Q4 were 230 million or 7% of total assets, which is unchanged from both Q4 last year and Q3 of this year.
David Taylor: Our total loan portfolio at the end of the fourth quarter expand to another record balance of $3 85 billion, an increase of 29% year over year and 5% sequentially.
Our total loan portfolio at the end of the fourth quarter expanded to another record balance of $3.85 billion, an increase of 29% year over year and 5% sequentially.
Oak value per share increased 13% year over year and 3% sequentially to a record $14. These increases with the result of higher retained earnings, as well as a few shares outstanding due to our share repurchase program offset partially by dividends paid.
David Taylor: Book value per share increased 13% year over year, and 3% sequentially to a record $14. These increases were the result of higher retained earnings as well as fewer shares outstanding due to our share repurchase program offset partially by dividends paid.
Our CET ratio at the end of the quarter was 11.33%, down from 12% at the end of Q4 of last year and up from 11.15% from Q3 of this year. Our leverage ratio is 8.30%, down from 9.84% at the end of Q4 last year and down from 8.53% at the end of Q3 of this year. Both our CET1 and leverage ratios remain well above our internal target.
David Taylor: Our CET ratio at the end of the quarter was $11 three 3% down from 12% at the end of Q4 of last year and up from $11. One 5% from Q3 of this year, our leverage ratio was 830% down from $9 eight 4% at the end of Q4 last year and down from $8 five 3% at the end of Q3 of this year, both our CET, one and <unk>.
David Taylor: <unk> ratios remained well above our internal targets.
David Taylor: Turning to the income statement total consolidated revenue for the quarter increased 20% year over year, and 9% sequentially to another record of $29 2 million. The increase was driven primarily by higher net interest income from our digital banking operations, primarily due to the strong growth of our loan portfolio.
Turning to the income statement, total consolidated revenue for the quarter increased 20% year over year and 9% sequenced to another record of 29.2 million. The increase was driven primarily by higher net interest income from our digital banking operations primarily due to the strong growth of our loan portfolio.
Solidited non-invasive expense was 12.4 million for the quarter down from 13.8 million for Q4 last year and down from 12.9 million for Q3 of this year. Do you ever your decrease with a function of lower salary and benefit expenses as well as lower cost incurred in the current quarter or attributable to the regulatory process associated with the first bank's proposed acquisition of a U.S. financial institution. To see a bunch of decrease to do primarily to certain costs specific to Q3 that were not repeating Q4.
David Taylor: Consolidated <unk> expense was $12 4 million for the quarter down from $13 8 million for Q4 of last year down from $12 9 million for Q3 of this year.
David Taylor: The year over year decrease was a function lower salary and benefit expenses as well as lower costs incurred in the current quarter attributable to the regulatory process associated with the <unk> proposed acquisition of a U S financial institution.
<unk> decreased due primarily to certain cost specific to Q3 that were not repeated in Q4.
David Taylor: Consolidated net income for Q4 increased 94% year over year, and 25% sequentially to $12 5 million.
Consolidated net income for Q4 increased 94% year over year and 25% sequentially to 12.5 million.
Consolidated earnings per share for Q4 increased 104% year over year and 24% sequentially to another record 47 cents, benefiting in part from a lower number of shares outstanding due to our share repurchase program.
David Taylor: Consolidated earnings per share for Q4 increased to 104% year over year and 24% sequentially to another record 47.
David Taylor: Benefiting in part from a lower number of shares outstanding due to our share repurchase program.
David Taylor: During the 2023 of fiscal year, we purchased and canceled over one 3 million common shares bringing the total number of shares purchased as of the end of fiscal 2023 to just over $1 5 million or.
During the 2023 fiscal year, we purchased in Kansas over 1.3 million common shares, bringing the total number of shares purchases at the end of fiscal 2023 to just over 1.5 million.
Q4 profitability continued to by far contributed to by far the best year in the history of the bank. The fiscal 2023 net income increasing 86% compared to 2022 to 42.2 million while EPS increased 99% to $1.57.
David Taylor: Our Q4 profit Q4 profitability continued to buy far contributed to by far the best year in the history of the bank with fiscal 2023, net income increasing 86% compared to 2022 to $42 2 million, while EPS increased 99% to $1 $1 57.
David Taylor: Primary driver of growth in our loan portfolio was once again, our point of sale financing business, which increased 30% year over year and 4% sequentially to $2 9 billion I should note here that the completion of a planned portfolio sale early in the quarter had the effect of reducing quarter over quarter U S financing portfolio growth by approximately 2%.
Primary driver of growth in our loan portfolio is once again our point is to finance and business, which increased 30% year over year and 4% sequenced to 2.9 billion. I should note here that the completion of a plan portfolio sale early in the quarter had the effect of reducing quarter of a quarter U.S. financing portfolio growth by approximately 2%.
David Taylor: Our point of sale portfolio represented 75% of our total loan portfolio at the end of Q4 down just slightly from Q3 of this year.
David Taylor: Our commercial real estate portfolio expanded 24% year over year, and 10% sequentially to $898 million at the end of Q4. This increase was due primarily to increased loan origination activity in select markets that are aligned with the bank's conservative loan origination strategy in this space.
David Taylor: I should note here that our commercial portfolio was 90% composed of loans and mortgages, which are financing residential properties predominantly multi unit in nature and we continue to have very little exposure to commercial use properties.
Turning to the income statement for our digital banking operations net interest margin on loans that is excluding cash and securities was 269%.
David Taylor: <unk> 34 basis points or 11% lower on a year over year basis, but unchanged sequentially net.
David Taylor: Net interest margin overall, including the impact of cash securities and other assets decreased 27 basis points year over year of 10% decreased three basis points or 1% sequentially to five 4% Q.
David Taylor: Q4, net interest margin was again dampened by a spike in market rates for term deposits relative to governance cana rates during the quarter.
David Taylor: And I will note that despite some volatility in that term deposit rates for the over the course of the year net interest margin was essentially in line with that of last year.
David Taylor: Noninterest expenses for digital banking for Q4 for $11 4 million down slightly from $11 5 million for Q4 last year and up from $10 8 million for Q3 of this year.
David Taylor: The increase was a function primarily of higher fees like intercompany technology, and cyber security services, which are disproportionately high in Q4 and are expected to return to normalized levels in Q1 of fiscal 2024.
David Taylor: Cost of funds for Q4 is 386% up 141 basis points year over year, and up 24 basis points sequentially. The bulk of the year over year increase as a result of the 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 'twenty two and on 2021 remained significantly below the policy rate increase.
David Taylor: 475 basis points.
David Taylor: Cost of funds was somewhat elevated in Q4 due to the spike in market rates for term deposits as previously discussed.
David Taylor: Our provision for credit losses, or <unk> in Q4 remain at very low adjusted 0.0% to 2% of average loans compared with the 12 quarter averaged 0.00%.
David Taylor: Turning now to DTC as a reminder, beginning in Q1 of this year revenue for the OTC includes income from digital banking operations associated with the delivery of various technology development services. In addition to the contribution from our cyber security services business digital boundary group or TPG.
David Taylor: Let me start with TPG Standalone results.
David Taylor: <unk> revenue for Q4 increased 21% year over year, and 46% sequentially to $3 4 million driven by continued growth in service engagements.
David Taylor: Gross profit increased 50% year over year, and 45% sequentially to $2 6 million and TPG continues to realize efficiencies in the business TBD.
David Taylor: <unk> remained profitable on a standalone basis within D RTC.
David Taylor: Total <unk> revenue, including revenue derived from services provided the digital banking operations increased 108% year over year, and 83% sequentially to $3 7 million Crts is net income of $1 2 million was an improvement over a net loss of 486000 a year ago.
David Taylor: Net loss of 99000 in Q3 of this year.
Speaker Change: With that I would now like to turn the call back to David for some closing remarks.
David Taylor: David.
David Taylor: Thank you Sean.
David Taylor: Those of you who read the entirety of our news release. This morning, I will note that with the conclusion of tests called 2023, we are undertaking a strategic realignment of certain roles within our senior management team to ensure we're prepared to move forward immediately anyway and aggressively should we received the <unk>.
David Taylor: <unk> regulatory approvals to broadly launch our RP financing solution in the United States.
David Taylor: My partner on these calls for the last several years, Sean Clarke will move from its current role of CFO to the newly created role of Chief operating officer.
David Taylor: During his decade, and a half with birthday, Sean has made tremendous contributions to our growth and success in a variety of capacity.
David Taylor: Leading roles in corporate development technology risk and of course find out.
David Taylor: Including holding the title of Chief Risk Officer, Senior Vice President operations as well as Chief operating officer of the subsidiary of the Bank.
David Taylor: In addition to the normal course.
David Taylor: CFO duties over the course of the past years. He has been integral to the development of the business plan and then implementation strategy for the RP and United States as well as the U S regulatory approval process.
David Taylor: Oh, he will help lead our charge into the United States.
Speaker Change: Take care of him the CFO role will be John asthma with.
Speaker Change: Who has served as our treasurer for the past year and a half and who previously served in a variety of senior executive roles with the bank, including senior Vice President and Treasurer, Senior Vice President structured finance and treasurer.
Speaker Change: And your vice President credits and Treasurer.
Speaker Change: And then this recent tenure as treasurer, John has been instrumental in enhancing our return on treasury balances, while further mitigating risk and enhancing liquidity as well as expanding our base of business development.
Speaker Change: John's financial acumen, and discipline will serve the bank well as we increasingly realize the operating leverage of our business.
Speaker Change: Finally, <unk> Shah who has been a valuable member of our Treasury team for the last two and a half years. Most recently as assistant Treasurer will become treasurer.
Speaker Change: <unk> has spent the majority of his career in the treasury function.
Speaker Change: Worked closely with John towards that groups, many accomplishments over the past several years.
I have the utmost confidence in his ability to take on the bank's treasury role and continuing to drive the success of this critical aspect of our business.
Speaker Change: 2023 was by far the best year in the history of our bank.
Speaker Change: Demonstrative of the execution of the plan that I put in place years ago.
Speaker Change: With the recognition that technology could be used efficiently to address underserved banking markets, leveraging intermediaries to limit costs and mitigate risk and drive outside outsized returns.
Speaker Change: On common equity and value for our shareholders.
Speaker Change: It marks a new chapter in the evolution of our growth trajectory.
Speaker Change: As we look ahead into 2024, we remain comfortable with our highly stable low cost funding sources very sticky deposits derived through our wealth management partners all of which are term deposits.
Speaker Change: And our low cost bankruptcy trustee partners.
Speaker Change: Hi Tech stone belt into deposit maturities with very limited risk of unexpected withdrawal.
Speaker Change: I will note here that we may see some fluctuations in our net interest margin in 2024 based on cost of funds as Sean noted earlier net interest margin and in turn revenue for a gain this quarter dampened by a period of elevated rates in the turn to positive receipt.
Speaker Change: Yeah.
Speaker Change: It appears to be a function of our continuing uncertainty around the banking sector in North America, which has an impact on smaller banks. Therefore, it may be the case that we've seen more volatility going forward.
Speaker Change: All other things being equal we expect interest margin for the year to be in the range of this year or something.
Speaker Change: The number will depend.
Speaker Change: Some degree on the success of our continued after it to add low cost funding sources as well as the low capital requirement opportunities. We may pursue that would drive return on equity, but damped in net interest margin.
Speaker Change: Importantly, with the momentum and the efficiency of the business and the fluctuations in interest margin, we've only have us.
Speaker Change: We'll only have a small impact on our profitability.
Speaker Change: And I will note here that we continue to have by far the largest net interest margin among publicly traded banks in Canada.
Speaker Change: In terms of insolvency deposits. That's expected recent data shows consumer insolvencies up 26%.
Speaker Change: And then since insolvencies up 42% compared to last year.
Speaker Change: This increased activity should drive the continued expansion of our low cost deposits.
Speaker Change: Course will support net interest.
Speaker Change: Yeah.
Speaker Change: Should we receive the regulatory approvals that will enable us to probably roll out the ERP in the United States.
We're well prepared for getting the low cost deposit taking in U S dollars to fund the program.
Speaker Change: Last quarter I discussed our near term outs milestones and how we reach those milestones we will be increasing will increasingly benefit from the inherent operating leverage of our business.
Speaker Change: Having surpassed the affordability of milestone in the fourth quarter of 2023, we're now focused on our next milestone 5 billion.
Speaker Change: And the additional outsized growth in efficiency profitability and return on equity that our model will generate.
Speaker Change: Net 5 billion milestone represents 19% growth from the $4 2 billion.
Speaker Change: He ended up fiscal 2023.
Speaker Change: I noted earlier during 2023, we grew assets by 29% driven primarily by our point of sale placebo purchase program business. Accordingly, we expect to achieve its next milestone during 2024 calendar year.
Speaker Change: Just on just the continued growth of our existing business.
Speaker Change: Always barring any major unexpected economic shocks.
Speaker Change: We are seeing some signs of potential slowdown in the broader economy due to the current interest rate environment. However, we are seeing resiliency in the sectors in which we participate hence our confidence in the outlook for next year.
Speaker Change: Should we receive regulatory approval for our U S acquisition and be able to broadly launch our RP P. In 2024 that would present potentially significant incremental growth depending on the timing that could push us well past the 5 billion milestone.
Speaker Change: At the same time, we expect only a modest increase in noninterest expenses for 2024 more or less in line with inflation, excluding any costs that could be related to the closing of our acquisition.
And that by virtue of the simple straightforward mouth I described in our last call translates into a disproportionate improvements in efficiency and expansion on our return on equity.
Speaker Change: Provisions for credit losses should of course remain de Minimis.
Speaker Change: The results of our highly mitigated lending practices in particular, there's a whole back model for our point of sale receivable purchase program for loans and leases.
Finally, we're seeing solid momentum in our cyber security services subsidiary, which we expect to continue throughout the next year, our strong reputation for results along with increased visibility efforts are driving growth in our client base, while engagement with existing clients expand let's say.
Speaker Change: The unique value we have to offer.
As just one example, this year, we began working with a major North American financial institution and quickly became one of our top tier hybrid security testing partners.
Speaker Change: This remains a tremendous opportunity in this rapidly growing market.
Speaker Change: <unk> continued growth.
Speaker Change: So going forward.
Speaker Change: To conclude 2024 is expected to be a year that takes our efficiency profitability and return on equity to even higher levels further demonstrating the strength and scalability of our business model.
We will see more of each revenue dollar drop to the bottom line as we continue to mitigate risk throughout every aspect of our business. This is a recipe for delivering sustainable long term shareholder value.
Speaker Change: With that I would like to open the call for questions.
Speaker Change: Operator.
Speaker Change: Thank you ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: So do you have a question. Please press star followed by the number one on your Touchtone filing you will see Tom Tom that challenging your request should you wish to decline from the polling process. Please press star followed by the member Kim.
Speaker Change: If you are using a speaker phone please lift your handset before pressing any key.
Speaker Change: Our first question comes from the line of David Feaster from Raymond James. Please go ahead.
Speaker Change: Hi, good morning, everybody.
Speaker Change: Good morning, David.
Speaker Change: I just wanted to start on kind of the <unk>.
Speaker Change: Most of the market and the driver of the growth outlook.
Hearing you correctly, it's great to hear that.
Speaker Change: <unk> 5 billion target and given the starting point and the growth that youre seeing it seems obviously pretty achievable.
Speaker Change: I'm just curious.
Speaker Change: It sounds like that's exclusive of.
Speaker Change: The Sterne deal.
Speaker Change: And so I was just kind of curious kind of how you think about that the growth trajectory and the contribution from the U S. RVP program that <unk> been rolling out.
Speaker Change: As a part of that.
Speaker Change: Well just purely based on Canada.
Speaker Change: This quarter, we've just completed would've been about 6%.
Speaker Change: Prior to the sale of about $64 million portfolio. So we're running in Canada about 6% a quarter.
Speaker Change: And there is no.
Speaker Change: I don't see any dampening impact.
Speaker Change: We're planning for a lot of home improvement loans.
Speaker Change: Folks.
Speaker Change: Looking for a more in energy a petition furnaces, another and other devices.
Speaker Change: Dave.
Speaker Change: So it doesn't appear that.
Speaker Change: Just the Canadian market will deliver asking much love some say about a 25% growth.
Speaker Change: So approximately six and a bit per per quarter.
Speaker Change: We have got three customers now in the United States and.
Speaker Change: The product is very keenly.
Speaker Change: Being sought after.
So.
Speaker Change: You know it looks like Oh.
Speaker Change: Despite not having the U S banking lifestyle. So at this point that would be.
Speaker Change: Additional growth on top of the Canadian market.
No.
Speaker Change: We're in a fairly unstable world and.
Speaker Change: You know if they suddenly.
Speaker Change: He couldn't see a shock or two and then.
Speaker Change: And consumers tend to stop buying at that point.
Speaker Change: A little bit but.
Speaker Change: That's the run rate, 6% or so per quarter in Canada and some in some further growth in the United States.
Speaker Change: Yes, no that's great and again.
Speaker Change: Starting with the U S licenses kind of icing on the cake above that but could you maybe talk about the loan sale.
Speaker Change: And kind of the drivers behind that what you sold.
Speaker Change: And kind of what drove that sale.
Speaker Change: Yeah, we were somebody requested the repurchase of receivables that we had originally sold to us so that's.
Speaker Change: That's due to some internal background.
Speaker Change: Requirements and that the actual yield on that portfolio with.
Speaker Change: Somewhat anemic compared with the rest of our portfolio.
Speaker Change: So it made sense from that.
Speaker Change: Curtis back to <unk>.
Speaker Change: Increased profitability and it made sense for them and that they wanted to repatriate that was originally originally put on so it was a win win.
And we don't do much of that it was just sort of an anomaly somebody asked for it we looked at the numbers and said Gee that makes sense.
Speaker Change: Okay that makes yeah, no that's great.
Speaker Change:
Speaker Change: And one thing.
Speaker Change: <unk> growth was a little bit higher.
Kind of them kind of accelerate in the quarter and just kind of reading your commentary in listening to you it sounds like youre a bit more cautious on the CRE space I'm curious, what what drove kind of a higher pace of growth there.
Speaker Change: And just how you think about credit.
Speaker Change: Credit quality and underwriting at this point, just given the higher higher rate environment, and kind of where LTV and debt services.
Speaker Change: At these higher rates.
Speaker Change: The CRE growth was probably just the results of the.
Speaker Change: <unk> the construction during the warmer summer months.
Speaker Change: So it would be.
Speaker Change: Just a natural result of the of the construction loans that we'd have in place drawing down.
Speaker Change: Rapidly during the summer.
Speaker Change: My view on the market is that.
Speaker Change: It's one that deserves a lot of caution going into and where.
Speaker Change: We're emphasizing government insured construction mortgages.
Speaker Change: In Canada.
Speaker Change: Insurance government.
Speaker Change: Governments are insurance company called the CMA Sea and have a wonderful program for ensuring residential construction mortgages.
Speaker Change: We're planning in 2024 to take full advantage of that I don't see much L. A in 2024.
Speaker Change: Uninsured mortgages for example.
Speaker Change: I'd just as soon.
Speaker Change: Stay in the comfort of the same eight seats.
Speaker Change: <unk> is much more favorable risk weighting the assets the risk weighted zero versus 7800, 250% on on some of the other asset categories.
Speaker Change: It's a very efficient use of capital.
Speaker Change: Still providing financing for our customers.
Speaker Change: They're trying to make that would make it up there.
Speaker Change: They need a tremendous need for residential units in Canada, you're probably aware we've had a lot of.
Speaker Change: Immigration into Canada.
Our country, but that's created a huge demand for residential units and.
Speaker Change: Our customers are developers.
Speaker Change: We have been banking in my case, I'm personally not 46 years.
Speaker Change: And their best in search of that need and.
Speaker Change: We were thinking that CMA see vehicles as the best weighted.
Speaker Change: That's the way to do that.
Speaker Change: That makes sense.
Speaker Change: And maybe switching gears to <unk> cyber nice to see the uptick in revenues.
Speaker Change: And expense control was was really impressive I know there was some timing issues with last quarter, but I'm just curious how the pipeline is trending you talked about the major win that you had here in the states.
Speaker Change: But I'm just curious kind of how the pipeline is <unk> cyber and just how you think about.
Speaker Change: That business going forward.
Speaker Change: Well the pipeline is has increased.
Speaker Change: Quite significantly in the last while.
Speaker Change: The months of November just center numbers in it.
Speaker Change: It's a way up over the previous no of the last year in November.
Speaker Change: In the last quarter or so we've seen a kind of.
Speaker Change: Significant increase in demand for our product.
I'm not sure why that is maybe just nervousness of these terrible creeps up they're hacking everybody.
And we you know we have a premium.
Speaker Change: Particularly in the area of penetration testing and that type thing.
Speaker Change: So in.
Speaker Change: In the last quarter or so we saw a big a big increase and it looks like it's continuing right right on.
Speaker Change: How do you think about.
Speaker Change: Expansion of that business I mean are there any other new.
Speaker Change: So our innovations are.
Speaker Change: Just add on services that you are looking to expand into.
Speaker Change: Yeah, there's a few that we developed off the shelf.
Speaker Change: That would be a raisin are anti spam.
Software filter.
Prevents prevents employees and their corporations, sending emails to those that are calling the unsubscribe lets for example, also at screens and coming of spam email. So we like that product suite.
Speaker Change: It was in house developments, and we're rolling that one out.
Speaker Change: We have our machine learning.
Speaker Change: Capability that we.
Speaker Change: We're actively promoting our customers use.
It's the sort of early warning. Some hacker is trying to trying to find their way and give some as you'd expect.
The alarm bells, but somehow unusuals, taking a system or they're trying to get our customers to use that.
Speaker Change: Those that have those tests periodically that's fine, but it would be nice ship to.
Speaker Change: Also had the.
There are system.
Speaker Change:
Speaker Change: Big brother looking over at all the time too so we've got that product to rollout.
Speaker Change: There's other other.
Speaker Change: Products that are right now are presently on utilize that being diverse evolved amazing that's tremendous.
Speaker Change: Tremendous flexibility and Oh.
Speaker Change: In the digital World.
Speaker Change: It's tactically, we're keeping up on Savana.
Speaker Change: Savana occupied with digital outlets.
Speaker Change: We're in the process of our of.
Speaker Change: Our bank application I.
Speaker Change: Im expecting some time.
Speaker Change: In the future not too distant future Oh, So you see the green light on that and then it might be the DRG C.
Should become the.
Speaker Change: Property of some some other entity.
Speaker Change: The strong relationships to the bank and then products like first of all can come back to life.
Speaker Change: Right now, there's probably being compatible with the bank, but I'm sure.
Speaker Change: I'm sure the other.
Speaker Change: As a Standalone company Dr T C, but have.
Speaker Change: Quite a bit more value than sitting as a sub of a bank.
Speaker Change: Those other products could be.
Speaker Change: Good luck.
Speaker Change: Absolutely.
Speaker Change: Well I appreciate the questions. Thank you.
Speaker Change: Thank you David look forward to seeing you in the Sunny Sunny, Florida one of these one of these days.
Speaker Change: Absolutely gorgeous out.
Speaker Change: [laughter].
Speaker Change: And planning to head down there just before Christmas so hopefully in the new year catch up.
Speaker Change: Thank you.
Speaker Change: Thank you ladies and gentlemen, just a reminder, if you have a question. Please press star followed by the number one I know that ghansham.
Speaker Change: We have our next question coming from the line of younger. Please go ahead.
Speaker Change: Good morning, David and congratulations on the quarter for the year and the realignment of management.
Speaker Change: Sponsor abilities, all super initiatives.
Speaker Change: Couple of questions. One you referred to the positive interactions with the U S regulator.
Speaker Change: Im curious whether there is extensive back and forth currently or.
Speaker Change: Are they asking for more information or are they have all the information they need.
Speaker Change: And it's just going through their own particular process.
Speaker Change: Well good question yeah. Thanks.
Speaker Change: It was a it was.
Speaker Change: Quite a vindication.
Speaker Change: The indication of that model I put together about 30 years ago seeing seen it finally unfolds and that starts to deliver the numbers that should deliver.
Speaker Change: With respect to your question.
Speaker Change: Very little back and forth.
Speaker Change: But between us and the U S regulators for the last few months.
Speaker Change: But we feel we've answered all.
Speaker Change: All the questions they had about our banking business.
Speaker Change: There's just been some sort of tidy up in the last while up are asking.
Speaker Change: Speaking about our major shareholder.
Kind of routine for understand for these types of things, where we have a U S. A we would have a U S Bank holding company.
Speaker Change:
Speaker Change: Sort of tidy up a.
Speaker Change: <unk> is nothing changed sort of thing so.
For months, we haven't really.
Speaker Change: And traction with the U S regulator on announcing about the bank.
Speaker Change: Presumably you've kept us stay up to date, so that you would be able to pull.
Speaker Change: Pull that trigger.
Speaker Change: As soon as you do receive.
Speaker Change: Go ahead do you have to in any way renegotiate the deal with it.
Speaker Change: Stearns Bank, just because of the protracted period of time, it's taken.
Speaker Change: No. There's no requirement for that <unk> has been working well with us throughout this long longer than we thought originally.
Speaker Change: A period of time.
Both keenly interested in putting the deal Tibet and looking forward to other transactions that we can do together. We've got some are on the drawing board right now.
Speaker Change: I expect someone that's old relationship going forward that's starting.
Speaker Change: The overall just being patient.
You were once in the governments in the regulatory world and [laughter].
Speaker Change: Patience is.
Speaker Change: The virtue that.
Speaker Change: And these things and.
Speaker Change: Where we're at.
Speaker Change: And if a regulator who does a lot more information in the bank and endeavors to provide it for the right SaaS anything it answered.
Speaker Change: Concert in the afternoon.
And presumably you wouldn't anticipate any problems with us.
Speaker Change: A descent.
No no.
Speaker Change: From a speed perspective, it just allows us as a.
Speaker Change: Bank to diversify.
Speaker Change: And growing.
Speaker Change: You know in a market that's probably.
Speaker Change: It is quite conducive to our product.
Speaker Change:
Speaker Change: We've got.
Speaker Change: That's why over the last year or so nothing but positive remarks backhaul fees of course doing the job they always do it.
Speaker Change: Sure about this but.
Speaker Change: Okay.
Speaker Change: Further.
Speaker Change: On the publicly I can say I've, just seen green lights recently.
And last question is there currently unapproved and CIB.
Speaker Change: For either kind of holding off on that until you see what happens.
Speaker Change: It's pumped pampas, we submitted in CIB, but.
Speaker Change: Outsource we do it too.
Speaker Change: Pause it and we'd like to see them.
The final shape of our capital.
Speaker Change: Great.
Speaker Change: Well its closing.
Speaker Change: And.
Speaker Change: It kind of you know these numbers are fairly.
Speaker Change: I think remarkable cigna could get so I would expect the stock not to stay.
Speaker Change: Hey, Jim can be optimistic.
Speaker Change: Three quarters of book value. It was a bargain and obviously a turbocharged our earnings Aps, we got almost a double.
Speaker Change: But I can't imagine that stays.
Sort of bargain statements here that.
Speaker Change: With the kind of numbers we're posting.
Speaker Change: That's great David Thank you for that you're starting to sound more and more like one of those greedy bankers all I can say is keep up the good work.
David: [laughter], Yeah don't apologize for that well I got my banker hat.
David: Yesterday, we were at the Salvation Army given some back so of course, it's Christmas time.
David: We're doing our part there too.
David: Great.
David: Yesterday, but today I've got it squarely on my head.
David: Yeah.
Thanks very much.
David: Thanks.
David: Thank you.
This concludes our Q&A session I would now like to turn the call back over to Mr. Taylor for final closing remarks.
David Taylor: Well I'd like to thank everybody for listening in and the good questions that I received and I wish you all a Merry Christmas and a happy happy holidays.
David Taylor: Stay safe and look forward to talks.
David Taylor: Talking to you at the end of Q.
David Taylor: Q1, hopefully we have more good news to share.
David Taylor: Should you have any questions in the meantime.
We're just an email away.
David Taylor: We're happy to answer questions. So on the fly to.
David Taylor: Again happy holidays so.
Thank you.
Speaker Change: Thank you, Sir ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a lovely day.
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