Earnings Call Transcript - VBNK Q3 2023

Operator, Operator

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 one hour following completion of the call. Details on how to access the replays are available in this morning's news release. I would like to remind our listeners that the statements about future events made on this call are forward-looking in nature and are based on certain assumptions and analysis made by VersaBank management. Actual results could differ materially from our expectations due to various material risks and uncertainties associated with VersaBank's businesses. Please refer to VersaBank's forward-looking statement advisory in today's presentation. And I would like to turn the call over to David Taylor, President and Chief Executive Officer of VersaBank. Please go ahead, Mr. Taylor.

David Taylor, CEO

Good morning, everyone, and 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 in our reporting currency of Canadian dollars. For those interested, we’ve provided US dollar translations for most of our financial numbers in our standard investor presentation, which will be updated and available on our website shortly. Now, for the results. The third quarter of fiscal 2023 was once again, as is the case in the first half of the year, solid evidence of our significant operating leverage and our branchless partner-based business-to-business digital banking model. The continued steady growth in our loan portfolio to a new record of just shy of $3.7 billion, which was up a very healthy 30% year-over-year, drove growth in our net income over the same period of 75%. And earnings per share grew 90% year-over-year as we continue to take advantage of our share buyback program. Looking more closely at Q3 performance, there are four notable items I'd like to discuss. The first is net interest margin on our loan portfolio, which for the quarter was down 30 basis points from Q2, and a major factor that hindered us from reporting yet another record for net income. There are a number of levers that influence our net interest margin from quarter to quarter. Over the long term, these historically net out to a net interest margin in our loan portfolio of around 3%, within whatever the prevailing interest rate environment is. However, in our most recent quarter, which runs from the beginning of May through the end of June, we experienced an anomalous macro impact on the market rates for term deposits in Canada. Term deposits currently comprise a typical high 80% of our total deposits and are a 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 bond rate. Following the broad liquidity concerns that terminated the US 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 of 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 were disproportionately raising deposits. In other words, we traded a fairly large volume of low-interest term deposits for higher-rate term deposits, which exacerbated the impact. This obviously dampened net income for the quarter and kept us from posting yet another record quarter of profitability. Although as I noted earlier, we did equal our record EPS as a result of our share buyback. And on a year-to-date basis, net income is still up 83% and EPS up 96% compared to last year. I'm pleased to report that the term deposit market has returned to its average range, even falling below that average. And we have no reason to believe that this situation will repeat itself in the foreseeable future. We are back to booking term deposit rates that support our target net interest margin. Fortunately, the majority of our term deposits have one-year maturities. Therefore, while we will continue to feel the impact of this temporary premium spike over the course of the next 12 months, we expect to see an incremental increase back towards the 3% range with each quarter, all other things being equal. Further, as Shawn will discuss, we are seeing our much less expensive insolvency professional deposits increase as bankruptcy activity continues to expand, which will generally support net interest margin going forward. And as I've noted previously, our receivable purchase program loans in the US 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 reputation 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 $1 of revenue. That number once again saw sizable improvement on a year-over-year basis. Revenue not only increased by 26% year-over-year, but non-interest expenses decreased by 6% year-over-year to $12.9 million. That's a little higher than the $12.5 million normalized quarterly number we are targeting due to ongoing support of the approval process of our proposed acquisition of the US 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 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-sale business, which was up 39% year-over-year and 9% sequentially. Recall, sequential growth last quarter was 5%. 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 US-based Stearns Bank Holdingford. This acquisition will be transformational for our bank, enabling us to broadly launch our unique and attractive financing solution to what remains an underserved market in the United States. We continue to make incremental and meaningful progress towards receiving a decision from the US regulators, with a decision from our Canadian regulators to follow. We are as comfortable as we've ever been with the prospects for a favorable outcome. We recognize this has been a protracted but necessary process, especially with the recent challenges experienced by the US 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'll 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 rollouts of the US RPP program continue to be encouraging. In Q3, our US portfolio grew by another 38% as we start 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 Clarke, CFO

Thanks, David. Before I begin, I'll remind you that our full financial statements and MD&A for the third quarter are available on our website under the 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 $3.98 billion, up 29% year-over-year from $3.1 billion at the end of Q3 of last year and up 7% sequentially from $3.7 billion at the end of Q2 of this year. Cash and securities at the end of Q3 were $271 million or 7% of total assets, 7% being unchanged from both Q3 of last year and Q2 of this year. Our total loan portfolio at the end of the third quarter expanded to another record balance of $3.7 billion, an increase of 30% year-over-year and 7% sequentially. Book value per share increased 12% year-over-year and 3% sequentially to a record $13.55. These increases were the result of higher retained earnings, as well as fewer shares outstanding due to our share repurchase program, partially offset by dividends paid. Our CET1 ratio was 11.15%, down from 12.51% at the end of Q3 of last year, and down from 11.21% from Q2 of this year. Our leverage ratio was 8.53%, down from 10.38% at the end of Q3 of last year, and down from 8.83% at the end of Q2 of this year. Both our CET1 and leverage ratios remain well above our internal targets. Turning to the income statement. Total consolidated revenue increased 26% year-over-year and 1% sequentially to another record $26.9 million, with the increase driven primarily by higher net interest income derived from our digital banking operations. Consolidated non-interest expenses were $12.9 million, down from $13.2 million for Q3 of last year and up just slightly from $12.7 million for Q2 of this year. I will note here that non-interest expense remains slightly higher from what we expect to be our normalized run rate of around $12.5 million per quarter for fiscal 2023 due primarily to the ongoing expenses related to the regulatory approval process associated with our pending US 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 of 75% was achieved this quarter on 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. The primary driver of growth in our loan portfolio was once again our point-of-sale financing business, which increased 39% year-over-year and 9% sequentially to $2.8 billion. As noted last quarter, Q3 tends to be a little stronger for point-of-sale originations as a result of Canadians typically spending a little more on the products that we finance over the course of the summer months. Our point-of-sale portfolio represents 76% of our total loan portfolio at the end of Q3, which is up slightly from the end of Q2 of this year. Our commercial real estate portfolio expanded 7% year-over-year and was unchanged sequentially at $870 million at the end of Q3. I will remind you that our commercial portfolio was 90% comprised of loans and mortgages, which are financing residential properties, predominantly multi-unit in nature, and further, we continue to have very little exposure to commercial use 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. NIM 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%. I'll take the opportunity here to reiterate that we have observed risk premiums in the term deposit market returning to historical spreads of Government of Canada bonds, and thus expect our NIM to begin an incremental climb back to normalized levels in Q4, all other things being equal. Non-interest expenses for digital banking for Q3 were $10.8 million, compared with $11.4 million for Q3 of last year and compared to $10.7 million for Q2 of this year. As noted earlier, we expect some quarter-to-quarter fluctuation in non-interest expenses as a function of the completion of our pending US 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 remained significantly below the benchmark increase of 425 basis points. In addition, as discussed earlier, the temporary spike in the market rate for term deposits during our order contributed to an atypical outsized cost of funds, which is exacerbated by the still relatively low quantity of insolvency professional deposits measured as a proportion of total deposits, even though we are seeing the increase in Canadian solvency 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 to be up to 30% for the same year, which is expected to result in continued growth in the bank's term 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, just a quick comment on our provision for credit losses or PCLs in Q3 remained very low, which is 0.02% of average loans compared with the 12-quarter average of minus 0.01%. Turning now to DRTC. As a reminder, beginning in Q1 of this year, revenue for DRTC includes data derived from the digital banking operations for various technology development services in addition to the contribution from our Cybersecurity Services business, Digital Boundary Group or DBG. Let me start with DBG's standalone results. DBG revenue for Q3 increased 10% year-over-year and decreased 8% sequentially to $2.4 million, while gross profit increased 52% year-over-year and decreased 6% sequentially to $1,800,000. The 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. DPG 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 to $2 million. DRTC's net loss of $99,000 was an improvement over a net loss of $662,000 a year ago and compares to net income of $433,000 in Q2 of this year, which benefited from the recognition of a deferred tax asset related to DRTC's non-capital loss 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 Taylor, CEO

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

Operator, Operator

And your first question will be from David Feaster at Raymond James. Please go ahead.

David Feaster, Analyst

Hey, good morning, everybody.

David Taylor, CEO

Good morning, David.

David Feaster, Analyst

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. David, I was just hoping you could maybe give us some thoughts on kind of the margin trajectory in the next or two 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?

David Taylor, CEO

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 16, 17 basis points. I've got a nice graph on it. So one of the positives of having short-term assets and short-term liabilities is that we recover 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 to go into bankruptcy is increasing fairly dramatically and that bodes well for our more economically priced products. We are seeing a very correlation between the new accounts we built and 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 much more economical rates. So that will help, too.

David Feaster, Analyst

That's right. And moving to another aspect, you're experiencing significant growth in the point-of-sale market. You mentioned some seasonal strengths this quarter and the possible slowdown in consumer spending in the fiscal fourth quarter. I was hoping you could elaborate on the economic conditions you're observing in Canada. You've mentioned some stresses, but what gives you confidence that this situation will be short-lived? Additionally, could you discuss the pipeline of new point-of-sale customers in Canada and share your initial observations regarding the US market and its receptivity?

David Taylor, CEO

In Canada, we observed the typical seasonal behavior of consumers as they emerged from winter and began making purchases. Despite rising borrowing costs, Canadians continue to buy items like cars, motorcycles, hot tubs, and home improvement goods. However, I anticipate that in the fourth quarter, the impact of higher interest rates and consumer enthusiasm will decrease somewhat. A growth rate around 5% for this period seems likely, along with a slowdown in purchases during the winter months. The sequence of quarterly growth is expected to decline gradually due to the rate increases in Canada. On the positive side, we are adding more partners, which expands our reach in Canada and should help mitigate some of the negative effects. Additionally, there is ongoing interest in energy-efficient home improvements, like insulation and modern furnaces, which also supports our growth. However, I do not expect growth in 2024 to reach the 30% level we experienced this year, especially if Tiff Macklem's efforts to cool the market are successful. In the US, the market is enormous and our product is quite popular, allowing us to potentially double or triple our presence without significantly impacting the overall market. I do foresee a recession in the US as well, but I believe it will have a minimal effect on our business given the vast market size.

David Feaster, Analyst

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 ring 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?

David Taylor, CEO

Yeah. It's sort of an anomaly for the quarter. DBG continues to sign up new customers for its penetration testing, and that's very popular in that area. And then the other products the DRTC is bringing onboard are going to be quite well received in the marketplace too. Yeah, so I see DRTC, DBG continuing to grow at the rate it has been growing at. What we're hoping for is sort of a breakthrough with a relationship with, say, a large corporation that provides other services to our target market, and that's mainly 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 state-of-the-art technology for providing cybersecurity and it would be nice for altruistic reasons to help provide those services to other financial institutions that seem to be quite vulnerable to cyber-attacks.

David Feaster, Analyst

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

Operator, Operator

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

Mike Rizvanovic, Analyst

Good morning. I have a question regarding the US Bank acquisition. David, I apologize if this question is a bit unfair, but I’m trying to understand the risk of this not being approved in the near term, possibly extending into 2025. I know that seems like a long time, but I've been hearing about staffing shortages in the US regulatory sector. Given the recent regional banking crisis, I know they have a lot on their agenda. How would you assess the risk that this could continue to be delayed due to regulators, rather than any issues on your side, and that the timeline could end up being much longer? I recall you mentioned the possibility of approval in the fall, but how likely is it that it could take significantly more time?

David Taylor, CEO

Well, it's a tiny risk, but it's not non-existent because those factors you've mentioned are real. The US regulators have their work cut out for them with the various challenges that have surfaced. And frankly, we’re a pretty small transaction. We don't move the needle for them. Now mind you, after saying that, we're part of the cleanest bank anybody's ever seen. It's not very often, I think you'd come across financial institutions where you can talk about a 30-year history of negligible loan losses and a model that's been proven out in Canada with the point-of-sale model, I'm talking about that is in quite significant demand in the States. So we got those things going in our favor, but as you say, there is a backdrop of US regulators being sort of challenged with their existing business. So I wouldn't say it's non-existent. But from what we're seeing and our interactions with the US 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 US 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 non-existent, but I'd say, we're in the 90% that we'll see some movement in the fall.

Mike Rizvanovic, Analyst

Thank you for the information. I wanted to ask about POS. A few quarters back, I believe you were somewhat less optimistic about volumes, but it seems you have been pleasantly surprised by the 9% growth this quarter and 5% growth sequentially last quarter. The trajectory looks strong. I'm curious about what you think is driving this growth. Is it more representative of the overall industry, or is it mainly VBNK gaining market share?

David Taylor, CEO

It's a combination of both factors. We are gaining market share from competitors in this space. Our model, systems, and technology are top-notch, and both customers and partners appreciate our ability to provide fast funding and quick turnaround times while also offering competitive buy rates. Additionally, there's typically an increase in purchases during the summer, and this year we experienced an even larger boost than we initially expected. However, I anticipate this spending surge will fade in the fall due to rising monthly rates for items like motorcycles, hot tubs, and home improvements. Many Canadians are now concerned about making their mortgage payments after refinancing at significantly higher rates. Therefore, I expect overall purchases to decline moving forward. Nonetheless, our continued market share growth could balance this out.

Mike Rizvanovic, Analyst

Alright. Thank you so much for the insights. Appreciate it.

David Taylor, CEO

Well, thank you, Mike.

Operator, Operator

Your next question will be from Stephen Ranzini at University Bank. Please go ahead.

Stephen Ranzini, Analyst

Hi, great job on a great quarter, David and team, it was great to see you at the event, which was a really fun time.

David Taylor, CEO

Yeah, Steven.

Stephen Ranzini, Analyst

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?

David Taylor, CEO

I sure am.

Stephen Ranzini, Analyst

Awesome. Hopefully, we'll see you there. Dave discussed the model last quarter, and I want to confirm that you view it the same way. You mentioned that if we can reach $5 billion in loans with a 3-point margin, that would yield $150 million in net revenue, while your expenses are around $12.5 million per quarter, totaling $50 million annually. This would enable a 20% return on equity, and you have the capital for this. Is that still your perspective?

David Taylor, CEO

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

Stephen Ranzini, Analyst

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 and for the year, 1.5 million. And you mentioned that in August, 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?

David Taylor, CEO

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

Stephen Ranzini, Analyst

Well, yeah. And I, and I’m enthusiastic about your approach to buying back the stock at undervalue. 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?

David Taylor, CEO

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 make good progress there. We've hired a person who's an expert in that area, and we've got some good partnerships that are developing. On the commercial side, the interim construction of residential projects, you'll see us pivot into CMHC insured construction projects. There's quite a demand in Canada for a new residential unit. We've had a lot of new Canadians come in looking for homes. And, we banks seem, ourselves included, quite reluctant to finance these construction projects without the comfort of CMHC insurance. So we've got a few opportunities to do that, and we expect in 2024, it'll be, I would say, a good portion of our construction book will be CMHC insured. It's helpful on the capital allocation side, in that CMHC provides some 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. Hopefully, we'll be offering student residences, retirement homes, and condominium units for the Canadians that are looking for a place to live.

Stephen Ranzini, Analyst

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

David Taylor, CEO

Absolutely. If the weather prediction is accurate, this site is expected to be quite hot in Chicago, around 95 degrees.

Operator, Operator

Next will be Bradley Ness at Choral Capital. Please go ahead.

Bradley Ness, Analyst

Great. Thank you. Hi, guys. How are you doing?

David Taylor, CEO

Very good, Brad. It’s good to hear from you.

Bradley Ness, Analyst

Perfect. Thanks. Hey, can you tell me the balance of the US RPP loans and how many partners you have right now?

David Taylor, CEO

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

Shawn Clarke, CFO

For sure, David. It was USD67 million.

Bradley Ness, Analyst

USD67 million?

Shawn Clarke, CFO

Yes, sir. 6-7.

David Taylor, CEO

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

Bradley Ness, Analyst

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

David Taylor, CEO

Plus and minus taken into consideration, it looks still like a reasonable figure. And, that's taking into consideration the things that I was mentioning earlier that dampen the Canadian economy, maybe the US economy dampening too, but heading into the States has been sort of a drop in the bucket in the market, doubles and triples aren't hard to think about. And in Canada, our reach into other providers' market might offset the inevitable downturn in our economy. So, yeah, I mean, 30%, it seems like a realistic figure, all those things taken into consideration.

Bradley Ness, Analyst

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

David Taylor, CEO

Yes, that's the historic spread we've managed to achieve over the years, and the increase in solvencies will support us. We’ve opened 20% to 30% more accounts since the start of the fiscal year, which correlates strongly with the rise in bankruptcies in Canada. When we open accounts, it takes about six months for them to start generating proceeds from liquidations, but this will contribute to our growth. Additionally, they typically run at a prime minus 3% on average, which is around 4.20% in Canada. Our GIC and return deposit receipt in the one-year category may yield around 5.40%. These factors aid us in returning to our target margin of 3%.

Bradley Ness, Analyst

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

David Taylor, CEO

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

Bradley Ness, Analyst

Okay. 4%.

David Taylor, CEO

This market condition is going to be a lot different.

Bradley Ness, Analyst

Got it. Regarding expenses, if I understood you correctly, the typical amount is $12.5 million per quarter without any acquisition-related costs included. This quarter, you recorded $12.9 million, suggesting that $400,000 relates mainly to legal expenses tied to the acquisition. Considering you've been incurring higher legal expenses for about a year and a half due to this acquisition, I'm curious about that $400,000 figure. It seems significant, especially since the application process is complete. It appears you're only resubmitting some filings now, so do you really need an additional $400,000 in legal expenses each quarter for this?

David Taylor, CEO

It could potentially be higher when we finalize, but there were other miscellaneous expenses incurred during the quarter as well. About half of that amount might be related to what Stephen mentioned. We celebrated our 30th year with a picnic, which you should have attended, Brad. That event cost a couple of hundred thousand dollars, and we had around a thousand people to commemorate our anniversary. There were various expenses like those to consider, with both positives and negatives. Generally, for a typical quarter, $12.5 million is the appropriate figure for us.

Bradley Ness, Analyst

Okay. Great. That's it for me. I appreciate it, guys.

David Taylor, CEO

Alrighty.

Operator, Operator

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

David Taylor, CEO

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.

Operator, Operator

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