Earnings Call Transcript - VBNK Q1 2022

Operator, Operator

Good morning, ladies and gentlemen, and welcome to VersaBank's First Quarter 2022 Financial Results Conference Call. This morning, VersaBank issued a news release reporting its financial results for the first quarter ended January 31, 2022. 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 and Edgar. Please note that in addition to the telephone dial-in, VersaBank is webcasting the conference call live over the Internet. The webcast is listen-only. If you are listening to the webcast, but wish to ask a question in the Q&A session following Mr. Taylor's presentation, please dial into the conference line the details of which are included in this morning's news release and on the Bank's website. For those participating in today's call by telephone, the accompanying slide presentation is available on the Bank's website. Also, today's call will be archived for replay both by telephone and via the Internet, beginning approximately one hour following the 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's 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 statements advisory in today's presentation. I would now like to turn the call over to Mr. David Taylor, President and Chief Executive Officer, VersaBank. Please go ahead, Mr. Taylor.

David Taylor, President and CEO

Thank you, Chelsea. Good morning, everyone. And thank you for joining us for today's call. I had the pleasure of hosting this morning's call from New York City, where I'm participating in Keith Burnett and Woods Synteq payments conference. I spoke on a panel entitled how technology can advance fundamental banking. I can't think of a better panel topic to discuss. A recording of that panel will be available on our website later this week. Joining me today for today's call at our headquarters back in London, Ontario is Shawn Clarke, our Chief Financial Officer. The first quarter of fiscal 2022 saw the continuation of the momentum that drove a record year for VersaBank in 2021 as, once again, our core banking operations delivered strong year-over-year growth in both loans and net income. We achieved another record loan portfolio at quarter-end of just over $2.2 billion, up 24% year-on-year and 5% sequentially, while net income grew 5% year-on-year. And a quick reminder here that we report our financial results in Canadian dollars, and all amounts in today's call will be in Canadian dollars unless otherwise stated. Some other headline results for Q1: total revenue increased 18% year-over-year, and was essentially unchanged from Q4. Cost of funds decreased 13 basis points year-over-year, and two basis points sequentially to 1.29%. And net interest margin was down nine basis points year-over-year, but up four basis points sequentially to 2.77%. Notably, our cash balances returned to historic levels in the first quarter as we continue to deploy funds to interest-generating loans. Shawn will discuss the financials in more detail in a moment. Q1 also saw a number of other highlights. Most notably, we completed our closed ecosystem testing of VCAD, the bank's Canadian Dollar version of its revolutionary, highly encrypted digital deposit receipts offering, with each VCAD unit representing $1 deposit with the bank. More on this in a moment. And for the first time this quarter, we are breaking out our cybersecurity business, DRT Cyber, in our financials, which delivered a year-over-year increase in revenue and gross profit of 36% and 30%. I will remind you here, gross profit for DRT Cyber is included in non-interest income in the bank's income statements. As noted a moment ago, we have completed our closed ecosystem testing for the first of our digital deposit receipts in Canadian dollar based VCAD. VCAD remains on Ethereum, Algorand and Stellar blockchain. We continue to transact internally but our testing has satisfied our criteria. We are now preparing for our commercial launch, which we expect upon the completion of the SOC 2 compliance audit. SOC 2 is a widely recognized standard intended to verify the non-financial reporting controls relating to security, availability, processing, integrity, confidentiality, and privacy of the system. While the audit is taking longer than anticipated, we recognize the critical importance of such a third-party evaluation and validation in the rapidly evolving regulatory landscape. Our digital deposit receipts were developed to be a significantly better stable currency: a one-to-one representation of a Canadian dollar on deposit with our licensed bank, which is an investment-grade rated bank, and the highest level of security based on our own security technology. In fact, we are increasingly hearing the term 'tokenized deposits', particularly being used to describe an ideal digital currency. And that is exactly what our digital deposit receipts are. As such, they serve the dual purpose of both acting as a safe store of value and as a digital currency for transacting business. We are very encouraged by recent trends toward regulation in North America and around the world, which we believe will firmly position our DDRs as not only compelling digital currency in the market, but also one that will become the gold standard amidst the future regulatory requirements. We're preparing for commercial launch as soon as possible following the completion of the SOC 2 audit. Before I turn the call over to Shawn, I would like to take this opportunity to publicly welcome the newest member of our leadership team, Gary Clement, who joins VersaBank as our new Chief Anti-Money Laundering Officer, or CAMLO for short. Gary is a financial crime prevention expert and an advocate recognized internationally in areas of money laundering, white-collar crime, organized crime, and detection of suspicious activities, including cybercrime. He brings to our bank more than 40 years of policing and financial crime prevention experience, including three decades with the RCMP, including as National Director of Proceeds of Crime. I could go on and on, but instead, I will refer you to Gary's extensive CV, which is summarized in yesterday's press release. I don't know if there's anyone more qualified than Gary to fill this vacancy. We are extremely fortunate to have him, especially given the upcoming commercial launch of our digital deposit receipts, which shields a vacancy left by our longtime colleague, Barb Hale, who is retiring after 25 years with the bank, the last 20 of those in the CAMLO position. On behalf of the board, I'd like to thank Barb for her outstanding contribution to the security and reputation of our bank during her tenure. I'd now like to turn the call over to Shawn to review our financial results in detail.

Shawn Clarke, CFO

Thank you, David. Just a quick reminder, folks, that our full financial statements and MD&A for the first quarter of 2022 are available on our website in the Investor Relations section, as well as on SEDAR and EDGAR. And as David mentioned, all the following numbers will be noted in Canadian dollars as per our financial statements, unless otherwise noted. We do offer U.S. dollar transformations of our key metrics in our standard investor presentation, which will be updated for the first-quarter numbers and posted to our website very shortly. Starting with an overview of the balance sheet, total assets at the end of the quarter were $2.4 billion, up 18% year-over-year and unchanged from last quarter. Our cash balances, again in Q1, were $155 million, returning to more typical historical levels at 6% of total assets, down from $272 million or 11% of total assets last quarter, and down from $212 million or 10% of total assets last year. The decrease was the result of the bank deploying our temporarily elevated cash balances into higher-yielding loans. Loans were up 24% year-over-year and 5% sequentially to $2.22 billion, representing another record for loan balances. I will note that the bank has achieved continuous quarter-over-quarter loan growth since Q3 of fiscal 2020, shortly after the onset of the pandemic. Looking a little more closely at the composition of our loan growth, our point-of-sale financing portfolio was up 43% year-over-year and up 13% sequentially to $1.4 billion. The increase continued to be driven primarily by strong demand for home finance, auto, and home improvement receivable financing. For additional context, point-of-sale financing represents 65% of our total loan portfolio as of January 31, 2022, up from 61% total loans last quarter. Our commercial loan portfolio contracted 2% year-over-year and 6% sequentially to $769 million, a decrease mainly due to the timing of scheduled repayments over the course of the current quarter. Book value per share increased 8% year-over-year and 1% sequentially to $11.78 as a function primarily of higher retained earnings, attributable to net income earned in each of the periods, offset partially by the payment of dividends. Our CET1 capital ratio increased to 14.83%, up from 12.4% last year and down from 15.18% last quarter. Finally, our leverage ratio at the end of Q1 was 12.69%, up from 11.4% last year and up slightly from 12.6% last quarter. The year-over-year trends in our regulatory capital levels and ratios, including our leverage ratio, are a function of a number of factors that include private placement of subordinated notes payable to U.S. institutional investors in April 2021 for proceeds in the amount of $92.1 million Canadian, a treasury offering of common shares completed in September 2021, for total net proceeds of $75.1 million Canadian adjusted for tax effected issue cost. Also contributing was retained earnings growth, cash provision recoveries related to the bank's deferred tax asset and the redemption of the bank's outstanding non-cumulative Series C preferred shares in 2021. Our CET1, total capital and leverage ratios remain well above our internal targets. As David noted, the first quarter saw continued strong performance across most of our financial metrics. Total revenue for the first quarter increased 18% year-over-year to $18.3 million and was comprised of net interest income in the amount of $16.9 million and non-interest income in the amount of $1.4 million. As a reminder, our non-interest income is derived primarily from our cybersecurity services operation. Higher year-over-year revenue was driven mainly by higher interest income, attributable to growth in the point-of-sale financing portfolio within our digital banking operations. Also, higher non-interest income, as well as the deployment of cash into higher-yielding lending assets. Q1 revenue was up only modestly from Q4, 2021, with growth in interest income being substantially offset by lower non-interest income, which is a function of several factors. Seasonally, Q4 tends to be the strongest quarter for our cybersecurity services business as customers work to deploy budgeted funds before the calendar year-end, while Q1 tends to be slightly softer due to the holiday season. Furthermore, this year was impacted negatively by delays in some off-site visits, as COVID-19 restrictions came back into effect in many regions. Net interest margin for the quarter was 2.77%, down 9 basis points from last year and up 4 basis points from last quarter. The year-over-year decrease was mainly due to a shift in lending portfolio mix as growth in our lower-risk point-of-sale financing portfolio outpaced growth in our commercial loan portfolio. The sequential net increase in NIM was primarily a function of the redeployment of cash into higher yielding lending assets. Net interest income for the quarter was $16.9 million, up 17% year-over-year and up 5% sequentially. These trends are a function of the strong growth in our point-of-sale financing portfolio and the redeployment of cash into higher-yielding lending assets in the current quarter. Non-interest expenses for the quarter were $10.6 million, up 32% from last year and up 2% from last quarter. The year-over-year increase was due primarily to higher salary and benefit expenses resulting from annual compensation adjustments and increasing staff levels, higher insurance premiums attributable to the bank's listing on the NASDAQ, and investments in the bank's business development initiatives. This quarter's non-interest expenses should be a reasonable proxy for our run rate over the remainder of fiscal 2022. I will also note that the current quarter included three months of operating expenses of DBG compared to two months of operating expenses included in the comparative quarter last year due to the timing of the bank's acquisition of DBG on November 30, 2020. The sequential NRE trend was primarily a function of the same factors driving the year-over-year trends, but without the impact of the misalignment of the DBG expense items. Net income for the quarter was $5.6 million or $0.19 per common share basic and diluted, which is up 5% year-over-year and down 6% sequentially. The year-over-year trend was a function primarily of higher net interest income attributable substantially to loan growth, offset partially by higher non-interest expense that I just described previously. The sequential trend was a function primarily of higher non-interest expense, higher provision for credit losses, and lower non-interest income, offset partially by higher net interest income, which is attributable to loan growth. As David highlighted previously, the first quarter once again saw our cost of funds decreased to 1.29%, down 13 basis points year-over-year and down two basis points from last quarter. The year-over-year trend was primarily a result of continued growth in our insolvency professional deposits, which currently pay interest at a rate of 0%. The sequential trend was a function primarily of the redeployment of existing cash balances into lending assets. The quality of our loan portfolio remains very strong. We once again finished the first quarter with no impaired loans and no loans in arrears, which continues to be the case today. In Q1, we recognized provisions for credit losses in the amount of $2,000 compared to a provision for credit loss in the amount of $57,000 for the same period last year and a recovery of credit loss provisions in the amount of $279,000 last quarter. Provisions for credit losses as a percentage of average loans this quarter were 0.00% compared with a historical 12-quarter average of negative 0.01%, which remains amongst the lowest of the publicly traded Canadian federally licensed banks. As a final comment, amidst the continuing evolution of the pandemic and being mindful of the elevated geopolitical risk resulting from the crisis in Ukraine, we continue to operate at a heightened level of awareness to ensure that our risk management, loan origination, and underwriting practices remain highly disciplined and focused. I'd now like to turn the call back to David for some closing remarks.

David Taylor, President and CEO

Thanks, Shawn. Q1 was a very solid start to fiscal 2022. We saw the continued momentum in our existing digital banking operations, as well as strong year-over-year growth from DRT Cyber. We expect this momentum to continue throughout the remainder of the year with a baseline of growth from these operations in line with 2021 with some potential upside. Demand for these types of goods and services that are financed to our point-of-sale business remains strong in Canada, and we are noting what appears to be a resurgence in commercial spending. On the deposit side, we expect a return to sequential growth of our insolvency deposits as the pandemic-related government support payments end. I want to note here that the bank benefits in the short term during a period of rising interest rates. In our cybersecurity service business, we have solid momentum that we expect to continue into 2022. You will note that a moment ago I referred specifically to existing digital banking operations. That is because 2022 is a year in which we expect to meaningfully expand our point-of-sale finance business. On our last call, I talked about the opportunities to bring our unique point-of-sale financing model, which has been so successful in Canada, to the $1.8 trillion U.S. consumer finance market. It's a market where we see the same potential for success that we did in Canada a decade ago, but obviously, it is many, many times larger, and we have a proven solution that we know addresses the unmet needs. We are steadily making progress with our plans. And with that, I would like to open the call for questions.

Operator, Operator

Thank you. We will now begin the Q&A session. You will hear a tone to acknowledge your request, and your questions will be taken in the order they are received. One moment, please, for your first question. Your first question comes from William Wallace from Raymond James. Please proceed.

William Wallace, Analyst

Good morning, guys. Thanks for taking my call, I mean my questions. Dave, maybe just starting with where you ended. You said you're making steady progress, I believe, on your plans to enter the U.S. with your point-of-sale business. Could you provide some more specific commentary around what needs to occur for an actual entry into the U.S. and where you stand from a timeline perspective and how maybe that industry might look?

David Taylor, President and CEO

Yeah. Thank you, William. Wonderful weather here in New York City. Well, we've incorporated a company we call Versa Finance to serve as a lending platform. We've identified at least three potential new customers and our team has been working with the lawyers on documenting our program. There are some differences between Canadian and U.S. law, and that's sort of what slowed it down, but we're just at the stage now of finalizing the legal documents. It shouldn't be too much longer before you see us book the first deal and the same. There are a few more in the hopper that will follow after that now that we've settled on the legal documentation.

William Wallace, Analyst

So do you think that could be a fiscal this quarter announcement?

David Taylor, President and CEO

Yes. I was hoping it would be the first quarter, but legal matters are taking longer than we anticipated.

William Wallace, Analyst

Okay. But you feel like you've gotten through that process now and we could expect to see some sort of announcement this quarter with your first partner, at least your first partner in the U.S.?

David Taylor, President and CEO

That's right. Well, it's not only about getting the legal work sorted out. After that, it's up to our team's marketing efforts.

William Wallace, Analyst

It seems you have identified three customers based on their volumes. Can you give us an idea of how significant the impact could be from a volume standpoint, or is that too early to determine?

David Taylor, President and CEO

It's a little early to say. As I said in the comments, what we're calling our baseline growth is about the same as we experienced last year, and that was about 43%. That's based on the Canadian customers. The U.S. will all be incremental to that. It’s hard to put a figure on it right now, but by next quarter, I should be able to do that when we'll have some real live customers.

William Wallace, Analyst

Okay. And then you also mentioned towards the end in your commentary, I think you said what looks like a resurgence in commercial spending. Are you referencing the commercial real estate business or are you talking about small business or something else in the point-of-sale side?

David Taylor, President and CEO

Commercial equipment. Yes. There was quite a sensation in small business spending with the pandemic. There’s more spending in retail areas primarily on home improvement and related projects. But now we're starting to see some commercial spending coming back, finally. This pandemic has certainly taken its toll on small businesses in Canada.

William Wallace, Analyst

Okay. Great. And then I just wanted to shift gears and talk a little bit about VCAD and the SOC 2 audit. We're delayed on the launch, the SOC 2 audit is a pretty structured and formalized process. Is that correct?

David Taylor, President and CEO

Yeah. Absolutely.

William Wallace, Analyst

So where are you in the audit process itself, and how soon do you anticipate completing the audit?

David Taylor, President and CEO

Last quarter, if you'd asked me that I would have been more optimistic. I'm now saying a few weeks. It's taken a lot longer than I had expected. However, I've asked your colleague who is in charge of that area. He is looking for a few more weeks. This was a self-imposed requirement that we placed for ourselves; thinking that for a brand-new product for the world, it would be good that our customers and regulators would know that a third-party reviewed it with stringent SOC requirements. So, yeah, maybe a few more weeks. There was a delay in physically reviewing our facility because of COVID restrictions in Canada, but that's behind us now.

William Wallace, Analyst

Okay. Assuming this is completed in the next several weeks, what will the commercial launch look like? Will you be launching with multiple customers who will offer your VCAD Stablecorp alternative? Will it be a simultaneous launch or will you need to work on customer agreements, etc.? Please help us understand what the launch might look like once the audit is finished.

David Taylor, President and CEO

Our partner, Stablecorp, has secured customers ready to purchase the VCAD. They are just waiting for us to issue the VCAD to them. Once we are prepared, we will provide the VCAD to Stablecorp, which will then distribute it to their customers. They have also previously announced that their QCADs will be converted into our VCADs. Once we provide the go-ahead, Stablecorp is prepared and has an account set up with us.

William Wallace, Analyst

Okay. And then as it relates to the USD, that would just be a potential offering, right? You wouldn't need to undergo a whole additional audit for that specific DDR?

David Taylor, President and CEO

That's exactly right. In fact, we already have the USDs on the blockchains for the closed testing. Now we only issue in Canada, of course. The denomination can be U.S. or perhaps sterling in Europe too. We are just issuing in Canada to Canadian purchasers via Stablecorp to start with. Thereafter, we are looking into the United States to acquire a bank this year; we are engaged in discussions on that topic, but presently, the coins are just being issued in Canada.

William Wallace, Analyst

Okay. Great. So it seems like this quarter could be hopefully and potentially a quarter with some kind of meaningful progress on these two new initiatives that we've been talking about since the IPO.

David Taylor, President and CEO

Yeah. Exactly, William. Sorry it's taking longer than I expected, but with legal work and accountants doing the SOC audit and COVID with the second shutdown or restrictions in Canada, it slowed it down a bit. The other one that we didn't mention was our Instant Mortgage. That seems, finally, we may have a mortgage administration company lined up to look into the administration for us. That may very well get done this quarter too.

William Wallace, Analyst

Okay. Great. I have a few more questions, but I’m going to hop out and let somebody else ask some of that. If they don't get asked, I will come back later. Thank you very much for your time. I appreciate it, Dave.

David Taylor, President and CEO

Thank you, William.

Operator, Operator

Thank you. Your next question comes from Greg MacDonald from LodeRock Research. Please go ahead.

Greg MacDonald, Analyst

Thanks. Good morning, guys. How are you, David?

David Taylor, President and CEO

Very good, Greg. It's a nice, sunny day here in New York, and thankfully, I am overlooking Central Park.

Greg MacDonald, Analyst

Nice, and the temperature is probably a little warmer there.

David Taylor, President and CEO

Yes.

Greg MacDonald, Analyst

Thanks for taking my question. I wanted to ask one on DRT. You talked about revenue growth, 36% year-over-year, you talked about the sustainability of that, and heightened threat alerts makes us all come back to this as an important topic and realize that this is possibly a scenario where demand is outpacing the ability to provide services for cybersecurity companies. Can you talk a little bit, just give us a little bit of an update on DRT? I'm sensing demand must be great, but this is a human resources business at the end of the day. Give us just an update on how things are going with respect to growth and staff capabilities.

David Taylor, President and CEO

Well, you're absolutely right that the penetration testing side is dependent on people. I think everybody in the IT software industry knows it's become harder to retain and acquire new IT people. We've done fairly well. London is a popular spot for people to live, so we've got that going for us. We introduced options for our staff, which has become standard in the software industry to encourage people to stay with us and prosper with the increasing value of the shares. So we, I suppose, the industry, we're doing much better with retention and obtaining staff. But on the penetration side of our key business, it is somewhat human dependent. We have other cybersecurity products that are highly scalable. So that isn't so human dependent and we're hoping that folks who are subject to higher degree of demand will take us up on our machine learning products. Basically, give them a heads up that someone is trying to hack into their systems. So we continue to see tremendous growth area for DRT Cyber. One area is subject to hiring in human resources, so we think we've got that covered with an attractive compensation package. The other products we have are highly scalable and not very dependent on human resources.

Greg MacDonald, Analyst

Okay, thanks for that. And sense of growth profile on the top line, is this still primarily a Canadian business, i.e., Canadian corporations serving Canadian government agencies, or have you made success moving into the U.S. market yet?

David Taylor, President and CEO

We have a lot of U.S. customers. A number of states are using us for their 911 service. A lot of police departments here in the United States are using us. Of the 350 or so customers that we have, a good portion are in the United States, and it's just what you'd expect: critical services, utility companies, rail lines that use us. So we're quite prevalent in the United States.

Greg MacDonald, Analyst

Thank you for that. I have a quick question about the instant mortgage products. In the past, you've mentioned opportunities for significant growth in that area, and it's great to see that the product is ready from an administrative standpoint. Based on what your loan origination partners are saying, do you have any insight into changes in optimism for growth in this area? Are you feeling more positive about it now? Since it’s a new product, any updates would be appreciated.

David Taylor, President and CEO

Well, we are very optimistic about it. The hold-up for the Instant Mortgage itself was finding a mortgage administration company that could look after the mortgages for us. As you know, our modus operandi is to partner out those types of activities. It seems like we have one that's ready to work with us. It's hard to say what the growth potential is, but it looks like there is a lot of demand. Mind you, that could end pretty quickly. As you know, Greg, in Canada, we're looking at a highly unusual increase in property values, and it very well could settle back or pricing, and maybe the demand for mortgages will settle back. But right now, there's huge demand.

Greg MacDonald, Analyst

Also a highly unusual increase in immigration, which works in its favor.

David Taylor, President and CEO

Yeah, absolutely. This is primarily what the mortgage is aimed at: those that want a convenient way to obtain mortgage financing at the point-of-sale.

Greg MacDonald, Analyst

Great. I'm curious to see how that product rolls out; it's imaginative and I think it's very interesting. Thanks very much, David, I appreciate the answers to the question. I'll pass it on.

David Taylor, President and CEO

Thank you, Greg.

Operator, Operator

Thank you. Your next question comes from William Wallace from Raymond James. Please go ahead.

William Wallace, Analyst

Hey Dave, good to see you again.

David Taylor, President and CEO

Yes.

William Wallace, Analyst

I just wanted to maybe follow-up a little bit on interest rates just for us Americans, who may be unfamiliar with the interest rate policy in Canada. As we look at the U.S. Fed likely starting to increase rates this month, how typically do the interest rates in Canada follow? And remind us how the point-of-sale loans are priced and what you would expect from a margin perspective, whether it's NII percent growth or margin basis point expansion for every move that we see in rates, whether it's relevant in Canada or with the Fed.

David Taylor, President and CEO

Well, I think there's a long history of banking in Canada following the Fed when they raise interest rates. So, while it's not a certainty, there's a high probability that if the Fed increases rates, Canadian banks will follow suit. Our portfolio is structured so that about a 155 basis point increase would allow a lot of that to flow straight to our bottom line. A good portion of our deposits are priced at prime minus four; it takes about a 165 basis point increase before we start paying additionally on our deposits. We have about $600 million to $700 million of prime-based loans that go up immediately, so we're positioned well. Like most banks, we hold a lot of liquidity that currently earns next to nothing on the liquid assets, so we'll benefit from that too. As usual, rates are extremely low now, so even a little increase around 150 basis points, as an example next year, we're set up well for that. Regarding point-of-sale financing, they're priced over government Canada bonds, which tend to correlate highly with our fixed-rate deposits. So margins should stay about the same. Any compression should be positive if rates go up at the same rate as government Canada bond yields. The portfolio I referred to is the real estate portfolio, the prime-based portfolio. That's the one where you get to boost.

William Wallace, Analyst

How often do the real estate loans re-price?

David Taylor, President and CEO

Well, they're almost all prime-based, so they re-price instantly. If the government raises rates, that day, those loans are affected. However, for quite a few years now, banks have suffered with rates being extremely low. So if rates move up a little bit, it means that our net interest margin will return to historic levels around 3%.

William Wallace, Analyst

Okay. Perfect, that's very helpful. Thanks very much. And then I believe Shawn mentioned in his remarks something about on-site visits being delayed; was that specific to what's going on with DRT Cyber? Should we expect a bounce-back in fee income or was that specific to something else? I apologize for missing that.

David Taylor, President and CEO

No, you are correct about DRT Cyber and the penetration testing. Our team conducts many on-site visits, which makes it labor-intensive. The penetration aspect of the business faced delays this quarter for two reasons: the holiday season, as clients typically do not schedule penetration testing during that time, and COVID lockdowns, which also impacted the SOC audit since auditors needed to visit our facility and faced strict pandemic restrictions. Fortunately, those issues are behind us now, hopefully for good. These lockdowns have caused significant disruptions.

William Wallace, Analyst

Thanks for that commentary. So, in the DRT Cyber, any delayed site visits due to COVID lockdowns, can you catch back up on that in one given quarter, or is the nature of staffing such that everything just kind of gets pushed back?

David Taylor, President and CEO

I think we'd be catching up this quarter. There's some seasonality to it that I mentioned, which brought about the holiday season. Typically, Q1 for DRT Cyber is lower in revenues and activity, then Q2, Q3, and Q4 should bounce back, and we have other products too that we're introducing. We have the ongoing cyber surveillance, so when we identify weaknesses in a corporation or government’s cybersecurity, we can present them with a solution, not just to patch it, but also to assure them that if someone is trying to break in, they’ll know it.

William Wallace, Analyst

Okay. Thanks so much for taking on my questions. I really appreciate your time. That's all I have. Take care, Dave.

David Taylor, President and CEO

No problem at all, Willy. Whereabouts are you calling me from?

William Wallace, Analyst

I'm sitting in Richmond, Virginia.

David Taylor, President and CEO

Perfect. So pretty close to where I am. I suppose you're getting the nice weather too.

William Wallace, Analyst

Yes, sir. Yes, sir, it's nice.

David Taylor, President and CEO

Excellent.

Operator, Operator

Thank you. Your last question comes from Trevor Reynolds from Acumen Capital. Please go ahead.

Trevor Reynolds, Analyst

Good morning, Dave.

David Taylor, President and CEO

Good morning, Trevor.

Trevor Reynolds, Analyst

Just I think most of the questions have been covered. I was just wondering if you could give us an update on the Indigenous Infrastructure and Housing initiatives that you've rolled out in the summer.

David Taylor, President and CEO

Yes, we are definitely working on it, although it is taking longer than we anticipated. I would really like to secure some home financing for Indigenous Canadians because we believe there is significant demand. Robert Falcon Ouellet is leading the effort on this project, and everyone involved is eager to get it underway. However, we haven't issued any loans yet, which is concerning, especially in the Arctic. As I mentioned to the team recently, if we don't act quickly, the ice roads will melt and we won't be able to deliver the necessary materials. For anyone listening, you understand the urgency. We want to provide financing to help you get homes, but we need to move faster.

Trevor Reynolds, Analyst

So definitely taking longer than you'd anticipated when you rolled this out?

David Taylor, President and CEO

Yes. This progress is slow. Our team is working on it with their counterparts. Sorry, it just seems everything takes a little longer. We'd love to scale it up a bit. Our Instant Mortgage works quite well; it's adaptable to serve the Indigenous community with mortgage financing. That's what Robert's got going with some other counterparts aside. We've set up some good partners to work with Robert on this.

Trevor Reynolds, Analyst

How big do you think this could get?

David Taylor, President and CEO

Well, it's hard to gauge. I'd say there'd be at least $600 million of Indigenous financing. That's the demand. Whether we get it all or not is another question. In the past, we provided a lot of financing, particularly in the Canadian Arctic, including infrastructure projects such as schools and hospitals, pipelines, and lines, and all sorts of good projects we've done in the past. However, for some reason, it's taking longer to fire that back up, longer than I would like.

Trevor Reynolds, Analyst

Got it. And then maybe apologies if I missed this, but just on the DRT side, how are the reseller agreements working?

David Taylor, President and CEO

They are working well. Some of those products have come through our reseller agreements and provide nearly a complete suite of cybersecurity products. There are a couple more add-ons I'd like to get. I will talk about that maybe in another quarter, but we have a wonderful relationship with our partners.

Trevor Reynolds, Analyst

Perfect. I appreciate it. That's good for me. Thanks.

David Taylor, President and CEO

Well, thank you. Thank you, Trevor. What's it like in Calgary?

Trevor Reynolds, Analyst

It's warmed up a bit, but probably it doesn't sound like it's as nice as where you're sitting today.

David Taylor, President and CEO

I will be back to the frozen North pretty soon, probably tomorrow.

Operator, Operator

Thank you, Mr. Taylor, you may proceed as there are no further questions at this time.

David Taylor, President and CEO

Thank you all for joining us today. I look forward to speaking with you when we release our year-end results next quarter. We will be sharing press releases this quarter regarding the key projects we have been working on. Thanks again.

Operator, Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you very much for participating and ask that you please disconnect your lines. Have a good day.

David Taylor, President and CEO

Thank you.