Q3 2024 VersaBank Earnings Call
And he's really is reporting its financial results for the third quarter ended July 31st 2020 for the.
Speaker Change: 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 as well as in theater, plus and Ed Garber.
Speaker Change: Please note that in addition to the telephone dial in virtual bank as webcasting This morning's conference call the.
Speaker Change: The webcast is listen only and if you're listening to a webcast, but wish to ask a question in the Q&A session. Following Mr. <unk> presentation. Please dial into the conference line details of which are included in this mornings news release and on the bank's website.
Speaker Change: 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 telephone and via the Internet beginning approximately one hour following completion of the call.
Speaker Change: Details on how to access the replay are available in this morning's news release.
Speaker Change: I would like to remind our listeners that statements about future events made on this call are forward looking in nature and are based on certain assumptions and analysis made by the bank management.
Speaker Change: Actual results could differ materially from our expectations due to various material risks and uncertainties associated with the birth of the bank's businesses.
Speaker Change: Please refer to oversee the bank's forward looking statement advisory in today's presentation I would now like to turn the call over to David Taylor, President and Chief Executive Officer of the Bank. Please go ahead Mr. Taylor.
David Taylor: Good morning, everyone and thank you for joining us for today's call.
John <unk>: With me today is chief Financial Officer, John <unk>.
Speaker Change: I'd like to begin today's call by discussing one of the most important announcements in the history of our bank.
Speaker Change: The clothing late last week of our U S acquisition.
Speaker Change: It's been a long process spanning more than two years since we first announced the transaction in spring of 2022.
Speaker Change: But this was no mean feat, what we understand to be a relatively rare of currency of United States.
Speaker Change: There were many who thought it wouldn't be possible.
Speaker Change: However, with a rock solid foundation based on our Branchless Digital Beach B model.
Speaker Change: Proven track record of innovation earnings drove a no loan losses, and a truly unique risk mitigated offering and our receivable purchase program.
Speaker Change: We presented the U S regulators with a very compelling proposition.
Speaker Change: I'd like to take this opportunity to publicly thank all those that versus the bank for their tireless efforts on both the regulatory approval process in the acquisition itself.
Speaker Change: Credible team that stern financial for being great partners throughout the transaction and our advisers for their ongoing counsel throughout this initiative.
Speaker Change: This is a transformational event inverse bank's growth trajectory, we are now able to bring our unique and highly attractive RTP solution, which has been successful in Canada to the largest point of sale financing market in the world.
Speaker Change: With the closing of the acquisition unscheduled last Friday, we are now in the process of finalizing our first <unk> transaction RP partner in the United States and.
Speaker Change: And on the deposit side, we are now able to raise economical FDIC insured deposits to fund this program and we have the mechanisms in place to do that.
Speaker Change: In a few minutes I will discuss how we are able to launch the ERP Pete in the United States. This with virtually no capital expenditures minimal additional operating expenditures and very low execution risk.
Speaker Change: Turning to our financial results preparations for the closing of our U S acquisition, a broad launch of our <unk> program in the U S gave rise to a fair amount of noise. This quarter. We view this in three categories.
Speaker Change: One we maintained higher cash balances in preparation to fund the capital requirements of the U S subsidiary following the closing of the SBA acquisition.
Speaker Change: The higher cash balances temporarily depressed our net interest margin, which was already dampened by won't we typically experience when interest rates decline.
Speaker Change: The rates, we pay on our Canadian term deposits decreased more slowly than the government of Canada rate. So there is a period of catch up of course, we benefit in the same way when interest rates were rising.
Speaker Change: Sorry noninterest.
Speaker Change: <unk> expenses increased due to acquisition related costs, some of which were specific to the third quarter and some of which are being incurred ahead of the asset growth and revenue generated by the launch of our U S.
Speaker Change: <unk> I will note that there will again be one time costs in the fourth quarter given the acquisition firmly closed in Q4.
Cosmos.
Speaker Change: I'd like to begin today's call by discussing one of the most important announcements in the history of our bank.
Speaker Change: We achieved another record high for total assets of $4 5 billion, driven by 11% year over year growth in our loan portfolio.
Speaker Change: The closing late last week of our U S acquisition.
Speaker Change: It's been a long process spanning more than two years since we first announced the transaction in spring of 2022.
Speaker Change: As expected we saw a seasonal pickup in the growth in our Canadian RPT point of sale business, which expanded four.
Speaker Change: Towns the Transaction in Spring of 2022. But this was no mean feat. What we understand is to be a relatively rare occurrence in the United States.
4% sequentially, even at this discretionary spending in Canada generally remained soft.
Speaker Change: There were many who thought this, it wouldn't be possible.
Speaker Change: <unk> also continues to dampen by higher than typical put backs from loans that have gone 90 days in arrears to our partners due to a higher defaults among the borrowers.
Speaker Change: However, with a rock solid foundation based on our branchless digital B2B model, a proven track record of innovation earning a drill, a no-long losses and a truly unique risk mitigated offering in our receivable purchase program.
Speaker Change: This of course is exactly how our model is supposed to work the defaulted loans go back to our partners and we are made whole by the cash holdback.
Speaker Change: We present the U.S. regulators with a very compelling proposition.
Speaker Change: You can see this very clearly in our provision for credit losses, which was zero in Q3.
Speaker Change: I'd like to take this opportunity to publicly thank all those that burst the bank for their tireless efforts.
Speaker Change: Yeah.
Speaker Change: I'm both a regulatory approval process on the acquisition itself.
Speaker Change: You can see the continued performance of our business model.
Speaker Change: The incredible team at Stern's financial for being great partners throughout the transaction and our advisors for their ongoing counsel throughout this initiative.
Speaker Change: In our year to date fiscal 2024 results with all key metrics trending in the right direction, most notably net income for the first nine months of this year is up 15% and EPS is up 17%.
Speaker Change: This is a transformational event in Versaband Stroke trajectory. We are now able to bring our unique and highly attractive RPP solution, which has been successful in Canada to the largest point of sale financing market in the world.
Speaker Change: I'd now like to turn the call over to John to review our financial results in detail.
Speaker Change: John.
Speaker Change: With the closing of the acquisition on schedule last Friday, we are now in the process of finalizing our first post-transaction RPP partnering in the United States.
John <unk>: Thanks, David before I begin I will remind you that our financial statements and MD&A for the third quarter and the nine months are available on our website under the investors section as well as on SEDAR and Edgar all of the following numbers are reported in Canadian dollars as per our financial statements and <unk>.
Speaker Change: and on the deposit side, we are now able to raise economical, FDIC, and sure deposits to fund this program and we have the mechanisms in place to do that.
John <unk>: Otherwise noted.
Speaker Change: In a few minutes, I'll discuss how we're able to launch the RPP United States with virtually no capital expenditures, minimal additional operating expenditures and very low executioner.
John <unk>: Starting with the balance sheet total assets at the end of the third quarter of fiscal 2024 grew 13% year over year, and 3% sequentially to a new high of $4 5 billion.
Speaker Change: Turning to our financial results, preparations for the closing of our U.S. acquisition and broad launch of our PPP program in the U.S. gave rise to a fair amount of noise this quarter. We view this in three categories.
John <unk>: Cash and securities were $401 million or 9% of total assets up from 7% in both in both Q3 last year and Q2 of this year.
John <unk>: Book value per share increased to a new high of $15.23.
Speaker Change: 1. We maintain higher cash balances and preparation to fund the capital requirements of the U.S. subsidiary following the closing of the SBH acquisition.
Speaker Change: Our Q or pardon me, our CET, one ratio increased to 11, 75% and our leverage ratio was 85, 4%.
Speaker Change: The higher cash balance is temporarily depressed our net interest margin, which was already dampened by what we typically experience when interest rates decline.
Speaker Change: With both remaining above internal targets.
Speaker Change: Turning to our income statement.
Speaker Change: The rates we pan our Canadian term deposits decrease more slowly than the government of Canterrake. So there is a period of catch-up. Of course we benefit in the same way when interest rates were rising.
Speaker Change: Total consolidated revenue increased 1% year over year and decreased 5% sequentially to $27 million.
Speaker Change: The year over year increase was driven primarily by higher net interest income as our digital banking loan portfolio continues to grow while sequentially decreased.
Speaker Change: 3. Non-interest expenses increased due to acquisition related costs. Some of which were specific to the third quarter, and some of which were being incurred ahead of the asset growth and revenue generated by the launch of our U.S.
Speaker Change: While the sequential decrease was mainly due to the impact of temporary dampening of cost of funds as Canadian interest rates fall, which was exasperated by the higher cash balances.
Speaker Change: RPP. I will note that there will again be one time cost in the fourth quarter, given the acquisition formula closed in Q4.
Speaker Change: Consolidated net interest expenses were $13 5 million up from $12 9 million last year and $12 2 million for Q2 of this year.
Speaker Change: We achieved another record high for told last at sub 4.5 billion, driven by 11% year over year growth in our long portfolio.
Speaker Change: As expected, we saw seasonal pickup in the growth in our Canadian RPP Point-Sale business, which expanded 4% sequentially. Even out-discussion-respelling in Canada, generally remain soft.
Speaker Change: Primary year over year and sequential increases were due to costs related to the U S Bank acquisition.
And preparation for the launch of our receivable purchase program in the U S.
Speaker Change: As David noted, we will see additional acquisition related costs in the fourth quarter, returning to a normalized cost structure in Q1.
Speaker Change: Rolf also continues to dampen by higher than typical putbacks of loans that have gone 90 days from the Rears to our partners due to a higher default among the borrowers.
Speaker Change: Consolidated net income.
Speaker Change: This, of course, is exactly how our model supposed to work. The defaulted loans go back to our partners and we are made whole by the cash hole back. You can see this very clearly in our provision for credit losses which was zero in Q3.
Speaker Change: Consolidated net income for Q3 decreased 3% year over year, and 18, 18% sequentially to $9 7 million or.
Speaker Change: 36 per share with the decrease driven by the factors described above.
Speaker Change: You can see that continued performance of our business model.
Speaker Change: Our loan portfolio grew to a new record for <unk> zero 5 billion at the end of Q3, driven once again by our point of sale receivable purchase program, which increased 16% year over year, and 4% sequentially to $33 2 billion.
Speaker Change: In our year-to-date fiscal 2024 results, with all team metrics trending in the right direction. Most notably, net income for the first time months of this year is up to 15% and EPS is up to 17%.
Speaker Change: Our receivable purchase program portfolio represented 80% of our total loan portfolio at the end of Q3 up from 78%.
Speaker Change: and I'd like to turn the call over to John to review our financial results in detail. John?
John: Before I begin, I will remind you that our financial statements in MDNA for the third quarter and the nine months are available on our website under the Investors section.
Speaker Change: At the end of Q2.
Speaker Change: Our real estate portfolio contracted 9% year over year, and 10% sequentially to $745 million as we continue to transition to CMA sea insured loans.
John: As well as on C.D.R. and Edgar. All of the following numbers are reported in $10,000 as per financial statements, unless otherwise noted.
Speaker Change: Which which is because they are zero percent risk weighted and require no regulatory capital.
John: i
John: Starting with the balance sheet, total assets at the end of the third quarter of fiscal 2024 grew 13% year over year and 3% sequentially to a new high of 4.5 billion.
Speaker Change: We have current commitments outstanding of $570 million with $125 million outstanding at the current time, which we anticipate growing over the next several quarters.
John: Cash in securities were 401 million or 9% of total assets up from 7% in both Q3 last year and Q2 of this year.
Speaker Change: As a reminder, our real estate portfolio is primarily mortgages and construction loans for residential properties, we have very little exposure to commercial use properties.
John: Book value per share increase to a new high of $15 and $23.
Speaker Change: Turning to the income statement for our digital banking operation net interest margin on loans that is excluding cash and securities was 241%.
John: Our QE, our CET1 ratio increase to 11.75% and our leverage ratio was 8.54%.
Speaker Change: That was 28 basis points or 10% lower on a year over year basis, and 11 basis points or 4% sequentially net.
John: with both remaining above internal targets.
John: i
John: Turning to our income statement.
Speaker Change: Net.
John: But what we'll consolidate at revenue increased 1% year over year and decreased 5% sequentially to 27 million.
Speaker Change: The interest margin overall, including the impact of cash securities and other assets decreased 34 basis points year over year.
Speaker Change: At 13% and decreased 22 basis points or 9% sequentially to 2% to 3%.
John: The year over here, increased was driven primarily by higher net interest income, as our digital banking alone portfolio continues to grow. While sequentially decreased,
Speaker Change: Q3 net interest margin.
Speaker Change: To reflect the continued growth of the receivable purchase program portfolio, which is comprised of lower risk weighted lower yielding but higher our oce assets than commercial real estate as well as temporary increases.
John: Why the subconsciously decrease was mainly due to the impact of temporary dampening of cost of funds as Canadian interest rates fall, which was exasperated by the higher cash balances.
Speaker Change: And as well as temporary increases in cost of funds as due to the decreases in interest rates in Canada.
John: Consolidated net interest expenses were 13.5 million up from 12.9 million last year and 12.2 million for Q2 of this year.
Speaker Change: Cost of funds for Q3 was $4, one, 7% up 55 basis points year over year and down four basis points sequentially.
Speaker Change: The primary year-over-year and sequential increases were due to cost-related to the U.S. bank acquisition and preparation for the launch of our receivable purchase program in the U.S.
Speaker Change: The temporary upward pressure from interest rates is being offset by the benefit by the benefits contained by the benefit of continued expansion of our low cost insolvency professional deposits as insolvency NK activity in Canada continues to steadily increase.
Speaker Change: As David noted, we will see additional acquisition-related costs in the fourth quarter, returning to a normalized cost structure in Q loss.
Speaker Change: Our provision for credit losses, or PCL in Q3 remained negligible at zero percent of average loans compared to zero, 2% last year and with a quarter over where we're starting with a 12 quarter average of zero percent.
Speaker Change: Consolidated Net Income of our meat consolidated net income for Q3, decreased 3% year over year and 18% sequentially to 9.7 million.
Speaker Change: 36 cents per share with the decreased driven by the factors described above.
Speaker Change: Before turning the call back to David.
Speaker Change: Quick review of our cyber security business.
Speaker Change: Our first portfolio crew to a new record, 4.05 billion, at the end of Q3 driven once again by our point of sale receivable purchase program, which increased 16% year over year and 4% sequentially to 3.2 billion.
Speaker Change: CRT cyber on a standalone basis within <unk> cyber digital calendar grew revenues for Q3 increased 8% year over year to $2 5 million and gross profit increased 5% to $1 9 million.
Speaker Change: Our receivable purchase program portfolio represented 80% of our total loan portfolio, at the end of Q3, up from 78% at the end of Q2.
Speaker Change: Both due to higher services agreements.
Speaker Change: Sequentially, both were down slightly primarily as a function of the timing of service engagements.
Speaker Change: <unk> remained profitable within the RTC.
Speaker Change: Our real estate portfolio contracted 9% year-old over a year and 10% sequentially to 745 million. As we continue to transition to CMHC and Shared Loans.
Speaker Change: <unk> net loss of 106000 in Q3 of this year was comparable with a net loss with a net loss a year ago and an improvement from a net loss of 162000 in Q2 of this year.
Speaker Change: which is because they are 0% risk-witted and required no regulatory capital.
Speaker Change: I would now like to turn the call back to David for some closing remarks.
Speaker Change: We have current commitments outstanding of $570 million with 125 million outstanding at the current time which we anticipate growing over the next several quarters.
David Taylor: Thanks, John.
David Taylor: As we entered the U S market with our point of sale receivable purchase program and meaningful way, we still feel a lot of the questions around how and why we were able to do what we do in our RPT with no loan losses to date.
Speaker Change: As a reminder, our real estate portfolio is primarily mortgages and construction loans for residential properties. We have very little exposure to commercial use properties.
David Taylor: Let me take a minute to walk through the model.
David Taylor: Those viewing our presentation, our graphic used as an example of a home hot water heater loan, but the model works for virtually any good or service that can be financed at the points of sale.
Speaker Change: Turning to the income statement for our digital banking operation, that interest margin on loans, that is, including cash and securities was 2.41%.
Speaker Change: As part of our master agreements with our RP partners embedded in the economics of every loan we purchase is what we refer to as the cash hold back.
Speaker Change: That was 28 basis points or 10% lower on a year over your basis and 11 basis points or 4% sequentially.
Speaker Change: And the amount of cash that we hold on our balance sheet as the deposit. These cash hold backs are aggregated in a pool for each partner.
Speaker Change: Net interest margin overall, including the impact of cash, securities and other assets, decreased 30-4 basis points year over year or 13 percent, and increased 22 basis points or 9 percent sequentially to 2.23 percent.
Speaker Change: The amount of these casual bags is based on a multiple of historical default rates for similar types of loans and burgers the keyword here being multiple.
Speaker Change: 2-3 net interest margin.
Speaker Change: In other words, the cash flow backs, our multiple times in excess of what would be considered.
Speaker Change: Reflect a continued growth of the receivable purchase program portfolio, which is comprised of lower-risk weighted, lower-yielding, but higher ROCE assets than commercial real estate, as well as temporary increases.
Speaker Change: Risk loss scenario.
Speaker Change: With our partner acting as administrator of the loan that is exclusively dealing with the end customer we receive monthly payments until the loan is repaid.
Speaker Change: and as well as temporary increases in cost of funds as due to the decreases in interest rates in Canada.
Speaker Change: It's if and when the loan goes 90 days in arrears, we automatically returned not loan to our partner to deal with the collections at.
Speaker Change: Cost of funds for Q3 was 4.17% up 55 basis points year over year and down 4 basis points sequentially.
Speaker Change: At the same time, we automatically debit the partner's cash holdback account, making us whole on the loan.
Speaker Change: The temporary upward pressure from the interest rates is being offset by the benefit of continued expansion of our low cost and solvency professional deposits. As in solvency and activity in Canada continues to steadily increase.
Speaker Change: One might ask why would a point of sale finance company wants to work with us if they retain the lending risk.
Speaker Change: There are several reasons all of which are rooted in our proprietary software, which is the foundation of our RFP P value proposition for our partners.
Speaker Change: Our provision for credit losses or PCL in Q3 remain negligible at 0% of average loans compared to 0.02% last year and with a quarter over, or a quarter average of 0%.
Speaker Change: One the economics makes sense because the efficiency of our Branchless digital <unk> model. There is enough margin for both the bank and our partners to do very nicely.
Speaker Change: Two we typically provide our partners with 100% of the value of the loans compared to <unk>.
Speaker Change: Before turning the call back to David, a quick review of our cybersecurity business.
Speaker Change: Say, 17% to 80% through their conventional financing sources.
David: DRT cyber. On a standalone basis within DRT cyber, digital boundary revenues for Q3 and create 8% year-over-year to 2.5 million.
Speaker Change: That means less need for their own capital and significantly higher return on equity for them.
Speaker Change: Three.
We can purchase loans on demand even daily we significantly reduced their liquidity needs and I will note here that our goal is to advance and real time purchasing.
Speaker Change: and gross profit increased 5% to 1.9 million, both due to higher services agreements.
Speaker Change: So, sequentially, both were down slightly, primarily as a function of the timing of service engagement.
Speaker Change: For our software Akamai automates everything is seamless and it just works.
Speaker Change: and David G remained profitable within the RTC.
Speaker Change: Importantly, we are looking to replace all of our financing of our potential RP partner.
Speaker Change: DRTC's net loss of 106,000 in Q3 this year was comparable with a net loss with a net loss a year ago and an improvement from a net loss of 162,000 in Q2 of this year.
Speaker Change: Oh excuse me.
Speaker Change: We're not looking to replace all of the financing of our potential our <unk> partner.
Speaker Change: Funding diversification on their part as smart, we just want to be an additional convenient economical source of funding that allows us not only to grow their business faster, but also more profitably.
Speaker Change: I'd now like to turn the call back to David for some closing remarks.
Speaker Change: Thanks, John.
David G: As we enter the U.S. market with our appointed sale-recibel purchase program in a meaningful way. We still feel a lot of the questions around how and why we're able to do what we do in our RTP with no long losses to date.
Speaker Change: Definitely.
Speaker Change: Win win.
Speaker Change: The other question I get is how can you, possibly do this with no capex.
Speaker Change: Hardly any additional opex and very little risk.
Speaker Change: Let me take a minute to walk through the model. For those viewing our presentation, our graphic uses an example of a home hot water heater long, but the model works for virtually any good or service that can be financed at the point of sale.
Speaker Change: Because of our RP business essentially operates in the cloud expansion to the U S requires a little more than signing up with Microsoft Azure.
Speaker Change: Does your data center, which was done months ago.
Speaker Change: As part of our master agreements with our RPP partners embedded in the economics of every lonely purchase is what we refer to as a cashhold back.
Speaker Change: We come to the Filtrate U S deposit raising a new SRP lending terms.
Speaker Change: Our existing technology centers in Canada.
Speaker Change: With our U S acquisition and license we are just erasing the board.
Speaker Change: An amount of cash that we hold on our balance sheet as a deposit. These cash holdbacks are aggregated in a pool for each partner.
Speaker Change: Yes, we will have a de minimis amount of additional opex in the U S primarily for our leadership team.
Speaker Change: The amount of these cash flow back is based on a multiple of his historical default rates for similar types of loans and borrowers. The key word here being multiple.
Speaker Change: And we plan to add few dedicated U S RP.
Speaker Change: <unk> account people as we ramp.
Speaker Change: So these amounts are negligible relative to the revenue, we expect business to drive over the long term.
Speaker Change: In other words, the cash flowbacks are multiple times in excess of what we'd be considered a worst-loss-taste scenario.
Speaker Change: Our U S receivable purchase program opportunity alongside our anticipated continued steady growth in Canada is expected to generate strong sustainable expansion of our loan portfolio for the years to come.
Speaker Change: With our partner acting as a administrator of the law, that is exclusively dealing with the end customer. We received monthly payments until the law industry paid.
Speaker Change: It will enable us to further capitalize on the significant operating leverage in our model to drive growth and profitable.
Speaker Change: If I'm when the loan goes 90 days in the rear, we automatically return that loan to our partner to deal with the collections.
Speaker Change: The ability and the return on common equity and efficiency that is among the very best in North American banking industry.
Speaker Change: At the same time, we automatically debit the Prime Minister's cash hold back account, making us whole on the loan.
Speaker Change: Continued growth in our.
Speaker Change: POS RPT in Canada alone will push us past the $5 billion milestone.
Speaker Change: One might ask, why would a point to sell finance company wants to work for us if they retain the lending risk?
Speaker Change: In addition to RPT Pos growth, we expect near term expansion in our real estate portfolio, which exists to capitalize on decades of experience in this sector to generate additional returns with very low risk.
Speaker Change: There are several reasons.
Speaker Change: All of which are rooted in our proprietary software, which is the foundation of our RPP Value Proposition for our partners.
Speaker Change: One, the economics makes sense because the efficiency of our branchless digital B2B model, there's enough margin for both the bank and our partners to do very nicely.
Speaker Change: We are in the process of transitioning much of this portfolio, which is zero risk weighted CMA sea insured loans, meaning they required no regulatory capital, which will further enhance our return on common equity.
Speaker Change: 2. We typically provide our partners with 100% of the value of the loan compared to say 70% to 80% through their conventional financing sources.
Speaker Change: Finally, with respect to net interest margin, while we do expect.
Speaker Change: To see some continuing short term pressure as interest rates in Canada decreased we will also continue to benefit from the expansion of our insolvency professional deposits as bankruptcies in Canada continued to trend upward.
Speaker Change: That means less need for their own capital and significantly higher return and equity for them.
Speaker Change: 3. Because we can purchase loans on demand, even daily, we significantly reduce their liquidity needs.
Speaker Change: We also expect a higher net interest margin contribution from our U S. ERP portfolio due to more favorable economics economics for the solution there.
Speaker Change: and I will note here that our goal is to advance in real time purchasing.
Speaker Change: and four are software, automatic, automates, everything. It's seamless and it jumps to work.
To conclude despite the acquisition related noise, our third quarter results continue to demonstrate the considerable operating leverage in and very low risk nature of our Branchless digital b to B model among that we've proven out in Canada.
Speaker Change: Importantly, we are looking to replace all of our financing of our potential RPP partner.
Speaker Change: Excuse me, importantly we're not looking to replace all the financing of our potential RPP partner.
Speaker Change: Funding diversification on their part is smart. We just want to be an additional convenient, economical source of funding that will allow the not only to grow their business faster but also more profitably.
Speaker Change: We are very confident we will see the same success in much larger faster growing U S market.
Speaker Change: With that I'd like to open the call.
Speaker Change: Call to questions operator.
Speaker Change: It's definitely a win-win.
Speaker Change: Thank you, Sir ladies and gentlemen, you will now begin the question and answer session. So do you have a question. Please press the star followed by the number one on your Touchtone phone.
Speaker Change: The other question I get is, how can you do possibly do this with no context?
Speaker Change: are Leonie additional optics and very little risk.
Speaker Change: <unk> has been raised should use the declines on the polling process. Please press star followed by the number too.
Speaker Change: Because our RPP businesses essentially operates in the cloud, expansion to the U.S. requires a little more than signing up with Microsoft at their U.S. Azure Data Center, which was done months ago.
Speaker Change: If you are using a speaker phone please lift the handset before pressing any keyword.
Speaker Change: Against that you have a question. Please press star one on your telephone keypad one moment. Please for your first question.
Speaker Change: We come to fill, take U.S. deposit rating, and U.S. RPP lending, from our existing technology centers in Canada.
Speaker Change: Hi.
Speaker Change: With our U.S. acquisition and license, we are just erasing the border.
Speaker Change: Our first question comes from the line of David Feaster from Raymond James Go ahead. Please.
Speaker Change: Yes, we will have a diminimus amount of additional objects in the U.S. primarily for a leadership team.
David Feaster: Hi, good morning, everybody congratulations on closing the deal.
David: Thank you David.
Speaker Change: and we plan to add few dedicated U.S.
Speaker Change: So we've got the deals now closed I was hoping maybe you could start with just how conversations are going with new partners in the U S. How demand is trending and maybe the growth trajectory that you're expecting.
Speaker Change: RTP account people as we ramp.
Speaker Change: But these amounts are negligible relative to the revenue we expect business to thrive over the long term.
Speaker Change: Our U.S. Receivable purchase program opportunity alongside our anticipated continued steady-grossing Canada. It's the expected to generate strong, sustainable expansion of our lone portfolio for the years to come.
And then just remind us of those better economics on the RP program and the states that you were alluding to.
Speaker Change: Yes.
Speaker Change: The.
Speaker Change: The reception we've had in the United States is tremendous.
Speaker Change: It will enable us to further capitalize on the significant operating leverage in our model to drive growth and profitable profitability and the return and common equity and efficiency. That is, among the very best in North American banking industry.
Speaker Change: Some partners have patiently waited for us too.
Finally.
Speaker Change: Be able to operate in the states and one of the one we're working with right now to conclude and get them operational.
Speaker Change: Continued growth in our POS RPP in Canada alone will push us past the 5 billion milestone.
Speaker Change: There's a multitude of others that.
Speaker Change: There will be signing up over the course of the next year.
Speaker Change: In addition to our PPPOS growth, we expect near-term expansion and our real estate portfolio, which exists to capitalize on decades of experience in the sector. Geogenary's additional returns with very low risk.
Speaker Change: But they.
Speaker Change: They have been convinced for the last few years.
Speaker Change: And it worked very well for them so super reception in United States and one already in the Hopper, a very patient on that stuck with us through the through the process.
Speaker Change: We are in the process of transitioning much of this portfolio, which is zero-risk-weighted CMAC-insured loans. Meaning they require no regulatory capital, which will further enhance a return on a common equity.
Speaker Change: Maybe in a month or so will be fully operational.
Speaker Change: The economics in the U S is slightly better than Canada.
Speaker Change: The U S bank.
Speaker Change: Cost of funds runs about.
Speaker Change: 1% lower than the equivalent rate in Canada.
Speaker Change: Finally, with respect to net interest marching, while we do expect.
Speaker Change: <unk> recently and that our deposit rates in Canada.
Speaker Change: To see some continuing short-term pressure as interest rates in Canada decreased, we will also continue to benefit from the expansion of our insolvency professional deposits, as bankruptcies in Canada continue to trend operate.
Speaker Change: Mentioning a bit sticky they don't come down quite as fast as bank of Canada rates.
So theoretically there's about a 1% improvement in the.
Speaker Change: <unk> program in the U S versus Canada.
Speaker Change: Been averaging approximately 250 basis points and channels. So.
Speaker Change: We also expect a higher net interest margin contribution from our U.S.R.P.P portfolio due to more favorable economic for the solution there.
Speaker Change: <unk> got a fairly significant improvement in profitability in the states.
Speaker Change: That's terrific.
Speaker Change: At that point.
Speaker Change: I was hoping you could touch on on.
Speaker Change: To conclude, despite the acquisition-related noise, our third quarter results continue to demonstrate.
The funding growth side in the states.
Speaker Change: You just talked about the lower deposit costs could you just touch on the timeline I mean like can you immediately with the deal closed start driving deposit growth here in the states and just walk through your strategy.
Speaker Change: The considerable operating leverage in a very low risk nature of our branchless digital B2B model. A model that we have proven out in Canada and that we are very confident we will see the same itself and much larger faster growing U.S. market.
Speaker Change: For funding growth in.
Speaker Change: In the U S.
Speaker Change: I'd like to open the call to questions.
Speaker Change: And the answer is yes, we can immediately start raising and pause in fact, we have.
Speaker Change: Operator.
Speaker Change: Already our entire retail outlets and holding forward.
Speaker Change: Thank you, sir.
Speaker Change: Ladies and gentlemen, you will not begin the question and answer session. Should you have a question please best to start followed by the number one on your touchstone phone. You will hear a prompt that your hand has been raised.
Speaker Change: Over the calendar of course, and thankfully, we have recently signed up with your commentary Raymond James Tu.
Speaker Change: Suppliers with deposits and there's another large company brokerage firm.
Speaker Change: Should you wish to decline from the polling classes, please press star, followed by the number two.
Speaker Change: We had the documentation to sign.
Speaker Change: If you're using a speaker phone, please lift the handset before pressing any key.
Speaker Change: Between the two your company David.
Speaker Change: On the other one it gives us tremendous.
Speaker Change: Again, should you have a question? Please press star 1 on your telephone keypad. One moment please for your first question.
Outreach into the deposit market. So that those two are yours is signed and the other one is likely to be signed today of some type.
Speaker Change: Our first question comes from the line of David Feester from Raymond James. Go ahead, please.
Speaker Change: Plenty of deposit access for <unk>.
Speaker Change: Bank.
Speaker Change: Sure over the course of the year there'll be more signing up with us but with.
Speaker Change: Alright, get out of the morning everybody, congratulations on closing the deal.
Speaker Change: With the.
Speaker Change: And the other one that is more than we can possibly ever use.
David: Thank you, David.
Speaker Change: So we've got the deal in our clothes. I was hoping maybe you could start with just how conversations are going with new partners in the US.
Speaker Change: That's great to hear it.
Speaker Change: And then just one quick modeling question you called out some one time costs in the quarter can you quantify those.
Speaker Change: How's the man's trending and maybe the growth trajectory that you're expecting? And then just remind us of those better economics on the RPP program in the states that you were waiting to?
Speaker Change: And maybe quantify what was in this quarter and some of the onetime charges you might expect next quarter.
Speaker Change: Well with about $700 thousand dollars that was directly associated with the U S acquisition in Q3.
Speaker Change: Yeah, we'll be the...
Speaker Change: Reception we've had in the United States is tremendous and, uh...
Speaker Change: <unk>.
Speaker Change: Yes, it'd be consulting fees.
Speaker Change: Some partners have patiently waited for us to finally be able to operate in the states. And one of that one we're working with right now to conclude and get them operational. There's a multitude of others that...
Speaker Change: As.
Speaker Change: And ongoing expense will be additions to our payroll with the hires.
Speaker Change: Senior people United States to range from the shop.
Speaker Change: There was also.
Picnic.
Speaker Change: Celebration that we had counted up my farm that.
Speaker Change: and we'll be signing up for the course of the next year.
Speaker Change: Have a bit of a bill on part of the 700.
Speaker Change: has been convinced for the last few years that it's been worked very well for them. So it's super reception in the United States, and one already in the hopper, a very patient, one that stuck with us through the process that maybe in a month or so will be fully operational.
Speaker Change: So those are direct expenses associated with the <unk>.
Speaker Change: For the U S acquisitions under the miscellaneous type expenses travel costs meetings and.
Speaker Change: And then the additional board members for cheese and such.
Speaker Change: The economics in the U.S. is slightly better than Canada, and the U.S. Bank cost of funds runs about 1% lower than the equivalent of the British Canada, particularly recently in that our deposit rates in Canada was us.
Speaker Change: Sorry to go through in the quarter. The other thing that impacted us this quarter.
John <unk>: John alluded to was.
John <unk>: With bank in Canada dropping rates.
Speaker Change: The Canadian deposit rates.
Speaker Change: Paul with the bank in Canada, but they lagged.
Speaker Change: Benchening are a bit sticky, they don't come down quite as fast as thank you Candarates.
Speaker Change: So it's happened this quarter, we are raising about $120 million additional over.
Speaker Change: So theoretically, this is about a 1% improvement in the RPP program in the US versus Canada. And we've been averaging fair proximity to our 50 basis points in Canada, so I'm sure very significant improvement in profitability in the states.
Speaker Change: Over and above what we normally erosion and deposits in order to fund the U S acquisition. So we're raising adjusted the wrong time because the.
Speaker Change: Thank you, Canada dropped our rates and our deposit rates.
Speaker Change: Hadn't quite dropped that'd be an exchange in deposit market hasn't quite drop in lockstep with it so.
Speaker Change: That's terrific. And just do that point. You know, I was hoping you could touch on, on.
Speaker Change: <unk>.
Speaker Change: Probably all in squeezed our margin and.
Speaker Change: You know, the funding growth side in the states, you know, you just talked about the lower deposit costs.
And cost is in the order of about $600000 in additional interest expense, but Tom.
Speaker Change: Could you just touch on the timeline, I mean, can you immediately with deal clothes start driving the positive growth here in the states and just walk through your strategy for funding growth in the US?
Tom: It goes away right, so almost caught up again now.
Speaker Change: But I suppose if we just had another chopped and back again, so hopefully our deposit rates catch up faster than they did last time.
Speaker Change: Now, so just we can immediately start reasoning positive that we already are at our retail outlet and holding forward over the counter, of course. And thankfully, we have recently signed up with your company, Raymond James, to...
Speaker Change: And based on the disclosures, it's about a three month lag is that right.
Speaker Change: Yes, and you got a nice graph for you for David.
David: If you want to have it.
<unk> this is painful to see it of course.
Speaker Change: Used to be like this years ago I have been banking 47 years. It used to go I think it was.
Speaker Change: Supply as the deposits and there's another large company brokerage firm that has documentation to sign.
Speaker Change: Tie it together with the steel steel bar.
Speaker Change: But for some reason.
David: Between the two, your company, David and the other one, I give us tremendous reach into the deposit market. So those two years have signed and the other one is likely to be signed today sometimes. That's...
Canadian deposit market sort of lags, which means that we banks pay a little more than we should be paying.
Speaker Change: In the short run while while the deposit rates catch up with the reduction of the bank of Canada.
Speaker Change: Okay. That's helpful. Thanks, everybody.
David: Plenty of deposit access for our little bank. I'm sure of the course here, there'll be more signing up for this, but with the most you and the other one that is more than we could possibly ever use.
Speaker Change: Well. Thank you Dave is looking forward to seeing you downstairs.
Speaker Change: All of those.
Mr Windy: Mr Windy amend the windy city today and.
Speaker Change: It actually isn't Wendy it's beautiful beautiful day out looking out on the Lake Youre clear Blue skies.
Speaker Change: and that's great. I'll be here. And then just one quick, modern question. You called out some one-time costs in the quarter because you quantify those and maybe you know, quantify what was in this quarter and some of the one-time charges you might expect next quarter.
Speaker Change: Thanks again.
Speaker Change: Thank you.
Speaker Change: Everyone. Just a reminder, so do you have a question. Please press star followed by the number one on your touch.
Speaker Change: Stone song.
Speaker Change: There seems to be no further questions at this time I would now like to turn the call back over to Mr. Taylor.
Speaker Change: It's a long growing expense will be additions to our payroll, it'll be the hires of the...
Mr. Taylor: Well I'd like to thank everybody for joining us today and I'll look forward to speaking to you at the time of our first fourth quarter.
Speaker Change: Senior Peaclay United States to run the shop.
Speaker Change: Those who are attending the Raymond James Conference here in Chicago, I look forward to.
Speaker Change: There was also a picnic celebration that we had in Canada, my farm that had a bit of a bill on part of the 700. So those were direct expenses associated with the year.
Speaker Change: Talking to your downstairs in a few minutes.
Speaker Change: Hello.
Speaker Change: Over and out.
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.
Speaker Change: with the U.S. Accosition, then there'd be miscellaneous type expenses, law travel costs, meetings, and...
Speaker Change: and I needed additional board members with season and such. Sorry to go through in the quarter. The other thing I impacted as this quarter, John alluded to, was...
John: with the banking calendar dropping rates.
John: and the Canadian deposit rates.
John: Fall with the banking counter, but they lagged.
Speaker Change: So it's happened this quarter. We're raising about $120 million additional over above what we normally raise in deposits.
Speaker Change: in order to fund the U.S. acquisition, so we're raising just at the wrong time because the banking can't have dropped the rates and our deposit rates hadn't quite dropped. That being the change in deposit market, hadn't quite dropped in lockstep with it. So we, we, um...
Speaker Change: Probably all in squeezed our margin and at cost is in the order of about $600,000 in additional interest expense, but of course it goes away, it's almost caught up again now.
Speaker Change: but I suppose we just had another drop in the back of the cat so hopefully our deposit rates catch up faster than they did the last time.
Speaker Change: and based on the disclosures, it's about a three-month lag, is that right?
Speaker Change: Yeah, and we got a nice graph for you for your David's um...
David: I want to have a re-graph test, it's painful to see it, of course.
Speaker Change: It didn't used to be like this years ago I've been banking for 27 years and it used to go like it was tied together with a steel bar. But for some reason Canadian deposit market sort of lags which means that we banks.
Speaker Change: Pay a little more than we should be paying in the short run while the deposit rates catch up with the reduction in the bank account rate.
Speaker Change: Okay, that's awful. Thanks everybody.
Speaker Change: Well, thank you, Dave's looking forward to seeing you downstairs for a bit.
Speaker Change: I'm in the Windy City today and it actually isn't windy. It's beautiful beautiful day out looking out on the lake here at ClearBoost guys.
Speaker Change: Thank you again.
Speaker Change: Thank you.
Speaker Change: Hi everyone. Just a reminder, should you have a question please press star followed by the number one on your touchstone song.
Speaker Change: Episode 2
Speaker Change: that
Speaker Change: Episode 2
Speaker Change: This seems to be no further questions at this time I'd now like to turn the call back over to Mr Taylor.
Mr Taylor: Well, I'd like to thank everybody for joining us today, and I'll look forward to speaking to you at the time of our fourth quarter. And if those of you are attending the Raymond James Conference here in Chicago, I look forward to talking to you downstairs in a few minutes.
Speaker Change: The Lord.
Speaker Change: Over and Out.
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.
Speaker Change: [inaudible]
Speaker Change: [inaudible]