Versabank (VBNK) 2023 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to VersaBank's Third Quarter Fiscal 2023 Financial Results Conference Call. This morning, VersaBank issued a news release reporting its financial results for the third quarter ended July 31, 2023. That news release, along with the bank's financial statements and supplemental financial information, are available on the bank's website in the Investor Relations section as well as on SEDAR or EDGAR.

Please note that in addition to the telephone dial-in, VersaBank is webcasting this morning's conference call. The webcast is listen only. If you are listening to the webcast, but wish to ask a question in the Q&A session following Mr. Taylor's presentation. please dial into the conference line, the details of which are included in this morning's news release and on the bank's website.

For those participating in today's call by telephone, the accompanying slide presentation is available on the bank's website. Also, today's call will be archived for replay, both by telephone and via the Internet beginning approximately 1 hour following completion of the call. Details on how to access the replays are available in this morning's news release.

I would like to remind our listeners that the statements about future events made on this call are forward-looking in nature and are based on certain assumptions and analysis made by VersaBank management. Actual results could differ materially from our expectations due to various material risks and uncertainties associated with VersaBank's businesses. Please refer to VersaBank's forward-looking statement advisory in today's presentation.

And I would like to turn the call over to David Taylor, President and Chief Executive Officer of VersaBank. Please go ahead, Mr. Taylor.

Good morning, everyone. Thank you for joining us for today's call. With me is Shawn Clarke, our Chief Financial Officer.

Before I begin, I'd like to remind you that our financial results are reported and will be discussed on this call and are reporting currency of Canadian dollars. For those interested, we provide U.S. dollar translations for most of our financial numbers in our standard investor presentation, which will be updated and available on our website shortly. Now for the results. The third quarter of fiscal 2023 was once again, as is the case in the first half of the year, solid evidence of our significant operating leverage in our branchless partner-based business-to-business digital banking model. The continued steady growth in our loan portfolio to a new record of just shy of CAD 3.7 billion which was up a very healthy 30% year-over-year, drove growth in our net income over the same period of 75%. And earnings per share grew 90% year-over-year as we continue to take advantage of our share buyback program.

Looking more closely at Q3 performance, there are four notable items I'd like to discuss. The first is net interest margin on our loan portfolio, which for the quarter was down 30 basis points from Q2 and a major factor that hindered us reporting yet another record for net income. There are a number of levers that influence our net interest margin from quarter-to-quarter. Over the long term, these historically net out to a net interest margin, our loan portfolio of around 3%, within whatever the prevailing interest rate environment is. However, in our most recent quarter, which runs from the beginning of May, through the end of June, we experienced an anomalous macro impact on the market rates for term deposits in Canada.

Term deposits current price in a typical high 80% of our total deposits, and our more expensive cost of funds than our insolvency professional deposits. The market rates for term deposits are derived predominantly from a premium demanded by our depositors over the risk-free Government [of Canada Bonds] rate. Following the broad liquidity concerns that perminated the U.S. banking sector, a number of months back after several high-profile collapses, we saw a swift and significant spillover effect into Canada. The market premium over Government of Canada has nearly quadrupled from its recent average or more than 70 basis points in absolute terms. Further, although short-lived, this premium spike occurred at a time when we coincidentally were disproportionately raising deposits. In other words, we traded a fairly large volume of loan interest term deposits for higher rate term deposits, which exacerbated the impact. This obviously dampened net income for the quarter and kept us from posting yet another record quarter of profitability. Although as I noted earlier, we did equal our record EPS as a result of our share buyback.

On a year-to-date basis, net income is still up 83% and EPS up 96% compared to last year. I'm pleased to report that term deposit market has returned to its average range, even falling below that average, and we have no reason to believe that this situation will repeat itself in the foreseeable future. We are back to booking term deposit rates that support our target net interest margin. Fortunately, the majority of our term deposits have 1 year of maturities. Therefore, while we will continue to feel the impact of this temporary premium spike over the course of the next 12 months, we expect to see an incremental increase back towards the 3% range with each quarter, all other things being equal.

Further, as Sean will discuss, we are seeing our much less expensive in the solvency professional deposits increase as bankruptcy activity continues to expand, which will generally support net interest margin going forward. And as I've noted previously, our receivable purchase program loans in the U.S. generate higher net interest margins.

That said, I'll remind you that we do reserve the right to trade some net interest margin performance for higher volume in situations where it is accretive to net income and return on common equity. The other three noteworthy items for Q3 are repeats of those I've highlighted on our last call. Their repetition being indicative of both the power of the operating leverage and the consistency of our business model. The second is our efficiency ratio for our cost to generate CAD 1 of revenue. That number once again saw a sizable improvement on a year-over-year basis. Revenue not only increased by 26% year-over-year, but non-interest expenses decreased by 6% year-over-year to CAD 12.9 million. Now it's a little higher than the CAD 12.5 million normalized quarterly number, we are targeting due to ongoing supporting the approval process of our proposed acquisition of the U.S. Bank.

Our Q3 efficiency ratio of 43% is already far superior to the vast majority of North American banks. But with the continued expected growth in our loan portfolio, that number is poised to continue to improve to levels thought unattainable by a bank. The third major highlight is the combined improvement in our return on common equity, which increased more than 450 basis points year-over-year to 11.15%. This metric is also poised for a substantial improvement as we continue to capitalize on the operating leverage in our additional branchless partner-based model.

Of course, each of these metrics would have been even better had it not been for the temporary spike in term deposit rates that compressed net interest margin in the quarter. Finally, the fourth highlight for Q3 is that the growth in our point-of-sale portfolio remains strong, 30% year-over-year. Overall loan growth was driven predominantly by the expansion of our point of sales, which was up 39% year-over-year and 9% sequentially. Recall sequential growth last quarter was 5%. And I discussed the seasonality in our point-of-sale business such that growth is historically stronger in the summer months, we clearly saw this in Q3.

We continue to have significant additional upside to our growth in Canada through our proposed acquisition of U.S.-based Stearns Bank Holdingford. This acquisition will be transformational for our bank, enabling us to broadly launch our unique and attractive financing solution to what remains an underserved market in the United States. We continue to make incremental and meaningful progress towards receiving a decision from the U.S. regulators with a decision from our Canadian regulators to follow. We are as comfortable as we've ever been with the prospects for a favorable outcome. We recognize this as being a protracted but necessary process especially with the recent challenges experienced by the U.S. banking sector.

We appreciate the continued diligence of our regulators and appreciate the patience of our shareholders who we know are as eager as we are to bring this opportunity to fruition. We continue to be as transparent as possible in guiding towards an expected decision date, which we are now targeting for autumn of this year. If favorable, we will proceed towards Canadian regulatory approval and closing of the acquisition as quickly as possible thereafter. The limited launch of the RPP program in the United States continues to give us confidence in what we can achieve with a broad national launch. Our still limited but accelerated rollout to the U.S. RPP program continues to be encouraging. In Q3, our U.S. portfolio grew by another 38% as we started to ramp up our second partner.

I'd now like to turn the call over to Shawn to review our financial results in detail. Shawn?

Thanks, David. Before I begin, I'll remind you that our full financial statement and MD&A for the third quarter are available on our website under the Investors section as well as on SEDAR and EDGAR. And as David mentioned, all the following numbers are reported in Canadian dollars as per our financial statements unless otherwise noted.

Starting with the balance sheet. Total assets at the end of the third quarter of fiscal 2023 were just over CAD 3.98 billion, up 29% year-over-year from CAD 3.1 billion at the end of Q3 of last year, and up 7% sequentially from CAD 3.7 billion at the end of Q2 of this year. Cash and securities at the end of Q3 were CAD 271 million or 7% of total assets, 7% being changed from both Q3 of last year and Q2 of this year.

Our total loan portfolio at the end of the third quarter expanded to another record balance of CAD 3.7 billion, an increase of 30% year-over-year and 7% sequentially. Book value per share increased 12% year-over-year and 3% sequentially to a record CAD 13.55. These increases were the result of higher retained earnings as well as fewer shares outstanding due to our share repurchase program, partially offset by dividends paid. Our CET1 ratio was 11.15%, down from 12.51% at the end of Q3 of last year and down from 11.21% from Q2 of this year. Our leverage ratio was 8.53%, down from 10.38% at the end of Q3 of last year and down from 8.83% at the end of Q2 of this year. Both our CET1 and leverage ratios remain well above our internal targets.

Turning to the income statement. Total consolidated revenue increased 26% year-over-year and 1% sequentially to another record CAD 26.9 million with an increase driven primarily by higher net interest income derived from our digital banking operations, consolidated non-interest expense CAD 12.9 million down from CAD 13.2 million for Q3 of last year and up just slightly from CAD 12.7 million for Q2 of this year. I will note here that non-interest expense remains slightly higher from what we expect to be our normalized run rate of around CAD 12.5 million per quarter for fiscal 2023, due primarily to the ongoing expenses related to the regulatory approval process associated with our pending U.S. acquisition.

Consolidated net income for Q3 increased 75% year-over-year and decreased 3% sequentially to $10 million. I will take the opportunity here to reiterate David's earlier comment related to the benefit of the operating leverage of our digital banking operations by highlighting that year-over-year consolidated net income growth 75%, we achieved this quarter on a revenue growth of 26% over the same period. Consolidated earnings per share increased 90% year-over-year and was unchanged sequentially at $0.38 per share which benefited in part from a lower number of shares outstanding due to our active share repurchase program. During the third quarter, we purchased and canceled just shy of 80,000 common shares bringing the total number purchased as of July 31, 2023, to just over 1.5 million shares.

Primary driver of growth in our loan portfolio was once again our point-of-sale financing business. which increased 39% year-over-year and 9% sequentially to $2.8 billion. As noted last quarter, Q3 tends to be a little strong for point-of-sale originations as a result of Canadians typically spending a little more on the products that we finance over the course of the summer months. Our point-of-sale portfolio represents 76% of our total loan portfolio at the end of Q3, which is up slightly from the end of Q2 of this year.

Our commercial real estate portfolio expanded 7% year-over-year and was unchanged sequentially at $870 million at the end of Q3. I will remind you that our commercial portfolio was 90% comprised of loans and mortgage, which are financing residential properties, predominantly multiunit in nature. And further, we continue to have very little exposure to commercial used properties.

Turning to the income statement for our digital banking operations. As David noted, Q3 was somewhat anomalous in terms of our net interest margin due to a short lived significant macro impact on the Canadian term deposit market. name on loans that is excluding cash and securities, decreased 38 basis points or 12% year-over-year and 30 basis points or 10% sequentially to 2.69%. Net interest margin overall, which includes the impact of cash, securities and other assets decreased 19 basis points or 7% year-over-year and decreased 21 basis points or 8% sequentially to 2.57%. And I'll take the opportunity here to reiterate that we have observed risk premiums in the term deposit market returning to historical spreads on the Government of Canada bonds and thus expect our NIM to begin an incremental climb back to normalized levels in Q4, all other things being equal.

Non-interest expenses for Digital Banking for Q3 were CAD 10.8 million compared with CAD 11.4 million for Q3 of last year and compared to CAD 10.7 million for Q2 of this year. as noted earlier, we expect some quarter-to-quarter fluctuation in non-interest expenses as a function of the completion of our pending U.S. acquisition. Cost of funds for Q3 was 3.62%, up 168 basis points year-over-year and up 35 basis points sequentially. The bulk of the year-over-year increase is a result of a higher interest rate environment, although the increase in our cost of funds since the Bank of Canada began increasing its benchmark rate at the beginning of fiscal 2021 remains significantly below the benchmark increase of 425 basis points.

In addition, as discussed earlier, the temporary spike in the market rate return deposits during the quarter contributed to an atypical outsized cost of funds which is exacerbated, but there's still relatively low quantity of insolvency professional deposits measured as a proportion of total deposits, even though we are seeing the increase in Canadian solvencies translate into growth in this deposit base on both a year-over-year and sequential basis. For context, according to the latest stat scan data on a year-to-date basis, Canadian consumer bankruptcies have increased approximately 26% as at June 30, 2023, with annual growth estimated up to 30% for the same year. which is expected to result in continued growth in the bank's tip deposit base, which in turn will favorably impact cost of funds and ultimately support NIM expansion.

Wealth Management, what we refer to as personal deposits expanded 45% year-over-year and 8% sequentially. On the credit risk side, it's a quick comment, our provision for credit losses, our PCLs in Q3 remained very low at just 0.02% of average loans compared with a 12-quarter average of minus 0.01%.

Turning now to DRTC, As a reminder, beginning in Q1 of this year, revenue for DRTC includes that derived from the digital banking operations for various technology development services in addition to the contribution from our cybersecurity services business Digital Boundary Group or DBG.

Let me start with DBG's stand-alone results. DBG's revenue for Q3 increased 10% year-over-year and decreased 8% sequentially to CAD 2.4 million, while gross profit increased 52% year-over-year and decreased 6% sequentially to $1.8 million. Variations are the result of the ebb and flow of DBG's service engagements with the outsized increase in gross profit resulting from efficiency gains in the business. DBG remained profitable on a stand-alone basis within DRTC. Total DRTC revenue, including that from services provided to the digital banking operations increased 67% year-over-year and decreased 6% sequentially at CAD 2 million. DRTC's net loss of CAD 99,000 was an improvement over a net loss of CAD 662,000 a year ago, and compares to net income of CAD 433,000 in Q2 of this year, which benefited from the recognition of a deferred tax asset related to DRTC's non-capital loss carryforwards, which are anticipated to be applied to future taxable earnings.

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

Thanks, Shawn. Our unique branchless partner-based digital banking model continues to prove itself in terms of operating leverage, efficiency, return on common equity and risk mitigation that remain unmatched in the North American banking industry.

Last quarter, I talked about how our very simple and straightforward business model gives rise to some very simple and a straightforward mass that is the foundation of our investment proposition and very clearly demonstrates our path to increase shareholder value. We once again saw this hold firm in the third quarter results, even with the temporary compression of net interest margin. And we fully expect that our shareholders and prospective investors will continue to see this quarter after quarter going forward.

For the first 9 months of this year, our point-of-sale portfolio has grown 25%. This puts us firmly on track to deliver in the range of 30% growth in our total portfolio for 2023, barring any unforeseen changes in the macro economy. We expect to see this continued steady sequential growth going forward, barring any major economic shocks.

Canadian consumer and small business spending in the categories that are appointed to sell partners finance thus far has remained steady despite higher interest rate environment. And we believe there is a good opportunity in Canada to add new point-of-sale partners to expand our business with existing partners.

As I mentioned earlier, all of the other things being equal, we expect net interest margin on loans to trend back towards our recent historic levels, supported by both the return to a normal term deposit receipt market. and growth in our insolvency professional deposits as Canadian installment fees returned to historical levels. Again, will be open to potentially for growing some net interest margin for higher return on equity. Normal quarterly non-interest expenses that is excluding those related to the proposed U.S. acquisition, should remain around CAD 12.5 million.

Finally, our unique model results in liquidity and loan loss risk that remain amongst the lowest in North American industry. We have very sticky deposits either through our wealth management partners all of which are term deposits and bankruptcy trustee partners, and our provisions for credit losses continued to be negligible as they have throughout our history.

In Q3, we took another sizable step towards our CAD 4 billion in asset milestone and the consenting improvements in our ratio and return on common equity that naturally fall out of our model. We should easily achieve CAD 4 billion before the end of 2023 fiscal year end of October. When we reached CAD 5 billion, it's simply a matter of how quickly we can add U.S. RPP loans once we begin to broadly roll out that program out following a favorable regulatory decision on our U.S. acquisition.

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

(Operator Instructions) And your first question will be from David Feaster at Raymond James.

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

I think it will just quarter-by-quarter, return to around about the 3% margin that we've had historically. And one of the reasons is we're growing so rapidly. So we're booking new term deposit receipts at the now normal levels. It spiked to about 90-odd basis points over Government of Canada Bonds for a short period of time. And then it sort of recovered down to about 15, 17 basis points. I've got a nice graph on it. So one of the positives of having a sort of short-term asset search and liability is that we recovered from something like this fairly quickly. But we also have the negative where if there is a short-term dislocation that it's felt in a quarter.

The other thing that's coming on board, unfortunately, for Canada and for good Canadians is the propensity in bankruptcy is increasing fairly dramatically and that bodes well for our more economically priced [rusty] deposits run around prime minus 3. We are seeing sort of a very correlation between the new accounts we built than what Stats Canada is posting for the increase in bankruptcy. So between 20% and 30% increases in bankruptcies this year, and that's about the same number of new accounts we've opened. So these new accounts sort of fill up with the proceeds of a bankruptcy and supplement our funding, of course, at a much more economical rates. So that will help, too, certainly not help the economy.

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

Well, in Canada, we saw what you kind of expect, Canadians sort of come out of their cocoons in the spring and they buy stuff. And even despite the cost to borrow increasing fairly significantly. We Canadians tend to buy cars and motor cycles and hot tubs and home improvement despite those things. I do expect in the fourth quarter that the higher interest rates and that kind of enthusiasm to buy will dissipate somewhat. If it gets back to around 5% growth in the fourth quarter, I'd expect that. I think in the winter months, you're probably looking for sort of lackluster purchases. So [5%], [4%], [3%], quarter-by-quarter, it's kind of inevitable to the raising of rates in Canada will dampen that.

Now at the same time, we're still adding more partners. So our reach in the can is getting greater than it was. So that will offset that a little bit. And there's also the home improvement market that is mainly looking at energy saving i.e. insulation, new furnaces, new hot water heaters, things are more efficient. So that kind of drives it too. So it's -- but I don't expect 2024's growth to be 30% like it is this year. It should be less if Tiff Macklem has his switch. He's trying to dampen -- that trying to dampen it.

In the U.S., it's such a huge market, and our product is so popular that we can double triple in the states without putting dent on the market. So I expect to have a recession in the States, too. But I don't think that will have much impact on us in that the market is so huge.

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

Yes. I sort of anomaly for the quarter. DBG continues to sign up new customers for its penetration testing, and it's very popular in that area. And then the other products the DRTC is bringing on board seem to be quite well received in the marketplace, too. Yes. So I see DRTC, DBG continue to grow at the rate it has been growing up. What we're hoping for is sort of a breakthrough with a relationship with a large corporation that provides other services to our target market, and that's been the other financial institutions. So we'd like to bend our services through somebody who already has a relationship, that would be a breakthrough. We have stayed mounting on our customers that we have state of the art technology for providing cybersecurity and it would be nice for aluristic reasons to help provide those services to other FIs that seems to be quite vulnerable to cyber attacks.

Next question will be from Mike Rizvanovic at KBW Research.

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

Well, it's a tiny risk, but it's not nonexistent because those factors you mentioned are real. The U.S. regulators got their work cut out for them with the various challenges that have surfaced and frankly, we're a pretty small transaction. We don't put the needle for them, now mind you after saying that, We're part of the cleanest bank anybody has ever seen. It's not very often. I think you come across financial institution talking about a 30-year history of no loan losses and a model that's been proven out in Canada point-of-sale model, I think talking about that is in quite a significant demand in the states. So we've got those things going in our favor.

But as you say, there is a backdrop of U.S. regulators being sort of challenged with their existing business. So I wouldn't say it's nonexistent. But from what we're seeing and our interaction with the U.S. regulators, it looks like we're getting close to the end. There hasn't been anything new come out for a long time. And I think our value proposition for the U.S. economy is significant. We're providing an alternate source of funding that percolates through to consumers and small businesses, which is helpful for any economy. So not nonexistent, but I'd say we're in the 90% that we'll see some movement in the fall.

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

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

(Operator Instructions) Your next question will be from Stephen Ranzini of University Bank.

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

I sure am.

Well, hopefully, we'll see you there. David was talking about the model sort of -- in last quarter, you also went through this, but I just want to make sure that you still see thinks the same way. You're saying if we can get to $5 billion in loans at a 3-point margin, that's CAD 150 million of net revenue and your expenses are running CAD 12.5 million a quarter, so CAD 50 million or so, you can get to 20% ROE and you have the capital to do that. Is that still your thinking?

Yes, that's absolutely right, Steve. It's a fantastic model. It just gets better and better at the volume. I guess it's inevitable we'll get to the CAD 5 billion mark. The question is just how long it takes (inaudible) these recessionary forces offset perhaps by entering the U.S. market in a bigger way and take a little market share in Canada. But I think we'll end this year well over $4 billion, and I'm hoping next year is over $5 billion. And that's when the numbers really start to work well.

Super. And then the follow-up question I've got on a different topic is during the quarter, you bought back just under 80,000 shares for the year, 1.5 million. And you mentioned that in August, do you have to go back to your regulator to sort of get new permission for a buyback program? Just curious about two things. One, why only 80,000 shares in the most recent quarter, did you run out of room or did the share price run away from your target? And what are you targeting for next year? What do you think would be great to be able to do next year?

Well, we ran out of capacity to buy. We were already allocated so many shares we can purchase by a regulator here, and we ran out. Yes, we do have the application to buy more shares, and it's in the order of about 1.5 million shares would be our hope. Mind you, we are in a what you call them a more challenging regulatory environment and that regulators altering the South board are looking for more capital and not less. So I'm not sure how well received a CAD 1.5 million -- 1.5 million share purchase will be. But we would like to have a normal course issuer bid open. So we can take advantage of our stock when it's running less than book value. It just obviously makes a turbo charge our earnings as the denominator is reducing. What gave us CAD 0.38 this quarter versus last quarter despite being slightly down in net income.

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

On the retail side, we're working with some partners with a view that in the first part of 2024, we'll be able to launch the retail-type mortgage product. and good progress there. We've hired our person who is an expert in that area, and we've got some good partnerships developing. On the commercial side, the interim construction of residential projects, you'll see us pivot into CMHC insured construction projects. There's quite a demand in Canada of for new residential units, as we've had a lot of new Canadians come in looking for homes. And we banks seen ourselves included, it's going to be quite reluctant to finance these construction projects without the comfort of CMHC insurance.

So we've done a few opportunities to do that. And we expect in the 2024 will be I would say, a good portion of our construction book will be CMHC insured. It's helpful on the capital allocation side and that CMHC provides some a 0% risk-weighted asset, so it doesn't soak up any of our CET1 capital, which frees it up for the point-of-sale program. So you'll see our construction lenders sort of pivot into that government-insured program and be helpful for our economy, we still providing student residences and retirement homes and condominium units for the Canadians that are looking for a place to live.

(Operator Instructions) Next will be Bradley Ness at Choral Capital.

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

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

For sure, David, about $67 million.

$67 million.

Yes, sir. 6 7.

Signed up a new one, Brad. So that hasn't drawn down yet.

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

Pluses and minuses taken into consideration it looks still like a reasonable figure. And that's taken into consideration of things as mentioning earlier, a dampening of the Canadian economy, maybe the U.S. economy dampening too. But heading into the states as being sort of a drop in the bucket in the market, doubles and triples aren't hard to think about. And in Canada, our reach into other providers market might offset the inevitable downturn in our economy. So yes, I mean 30%, it seems like a realistic figure all those things take into consideration.

Okay. Got it. And regarding the net interest margin, it sounds as though, if I heard everything correctly, that this is kind of a trough quarter at [2.57%] and likely sequentially head higher over the next many quarters. Did I hear you say that maybe back to 3% you're modeling shows in the next 4 quarters?

Yes, absolutely. That's the historic spread that we've been able to earn over the years, and we're going to be helped by the increase in solvencies, that's saying we've opened 20%, 30% more accounts since the beginning of the year, fiscal year. And that's sort of correlates quite highly with the number of rings bankruptcies in Canada. So when we open accounts, they don't flop with the proceeds of the liquidation right away, it takes about 6 months for that to start happening. But it's promoting of what we will get. So that helps the spread to and that they run a prime-minus [3%] on average. So that would be [4.20%] in Canada. And our GIC rate or return to deposit right in the year category might be [5.40%] so it helps. So those are the things that help us get back to that 3% margin that we target.

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

Yes. The one in the states are a little higher margin than we get in Canada. Roughly, they're around 4% over our cost.

Okay.

These market conditions et different.

Got you. And on the expense side, if I heard you correctly, the normal is CAD 12.5 million per quarter without any kind of acquisition-related costs in there. This quarter, you were at CAD 12.9 million, so kind of implying that CAD 400,000 related to primarily legal expenses related to the acquisition. And just kind of thinking about them, like you've been running higher legal expenses for I guess, 1.5 years or so from this acquisition. Like what addition like CAD 400,000 seems like a lot when all that should be kind of done, I would have thought. You already did the application now just maybe kind of sitting around and redoing some filings here and there, but do you really need CAD 400,000 a quarter in additional legal expenses for this?

It's -- it could be even higher. I hope so when we close. But there's other miscellaneous expenses that went through the quarter 2. About half of that might have been attributable to what Steve was alluding to. We completed our 30th year and had a celebratory picnic, you should have come too, Brad. And that was a couple of hundred thousand Canadian all in. For that, we had about 1,000 people that celebrate our 30th year anniversary things like that went through these pluses and minuses. But normally speaking, on a normal quarter, CAD 12.5 million is about the right figure for us.

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

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

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