Good morning, ladies and gentlemen. Welcome to VersaBank’s Third Quarter Fiscal 2024 Financial Results Conference Call. This morning, VersaBank issued a news release reporting its financial results for the third quarter ended July 31, 2024. That news release, along with the Bank’s financial statements, MD&A 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 this morning’s conference call. The webcast is listen-only. And if you are listening to webcast but wish to ask a question in the Q&A session following Mr. Taylor’s presentation, please dial-in into the conference line, 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. I would now like to turn the call over to David Taylor, President and Chief Executive Officer of VersaBank. Please go ahead, Mr. Taylor.

Good morning, everyone, and thank you for joining us for today’s call. With me today is Chief Financial Officer, John Asma. I’d like to begin today’s call by discussing one of the most important announcements in the history of our bank, the closing late last week of our U.S. acquisition. It’s been a long process, spanning more than two years, since we first announced the transaction in spring of 2022, but this was no mean feat, what we understand to be a relatively rare occurrence in the United States. There were many who thought it wouldn’t be possible, however, with a rock solid foundation based on our branchless digital B2B model, a proven track record of innovation, earnings growth and no loan losses, and a truly unique risk mitigated offering in our receivable purchase program, we present the U.S. regulators with a very compelling proposition. I’d like to take this opportunity to publicly thank all those at VersaBank for their tireless efforts on both the regulatory approval process and the acquisition itself. The incredible team at Stearns Financial for being great partners throughout the transaction and our advisors for their ongoing counsel throughout this initiative. This is a transformational event in VersaBank’s growth trajectory. We are now able to bring our unique and highly attractive RPP solution, which has been successful in Canada to the largest point of sale financing market in the world. With the closing of the acquisition on schedule last Friday, we are now in the process of finalizing our first post transaction RPP partner in the United States. And on the deposit side, we are now able to raise economical FDIC insured deposits to fund this program and we have the mechanisms in place to do that. In a few minutes, I’ll discuss how we are…

Thanks, David. Before I begin, I will remind you that our financial statements and MD&A for the third quarter and the nine months are available on our website under the Investors section as, well as on SEDAR and EDGAR. All of the following numbers are reported in Canadian dollars as per our financial statements, unless otherwise noted. Starting with the balance sheet, total assets at the end of the third quarter of fiscal 2024 grew 13% year-over-year and 3% sequentially to a new high of $4.5 billion. Cash and securities were $401 million, or 9% of total assets, up from 7% in both Q3 last year and Q2 of this year. Book value per share increased to a new high of $15.23. Our – pardon me, our CET1 ratio increased to 11.75% and our leverage ratio was 8.54%, with both remaining above internal targets. Turning to our income statement. Total consolidated revenue increased 1% year-over-year and decreased 5% sequentially to $27 million. The year-over-year increase was driven primarily by higher net interest income as our digital banking loan portfolio continues to grow. While sequentially decreased – while the sequential decrease was mainly due to the impact of temporary dampening of cost of funds as Canadian interest rates fall, which was exasperated by the higher cash balances. Consolidated net interest expenses were $13.5 million, up from $12.9 million last year and $12.2 million for Q2 of this year. The primary year-over-year and sequential increases were due to costs related to the U.S. bank acquisition and preparation for the launch of our receivable purchase program in the U.S. As David noted, we will see additional acquisition related costs in the fourth quarter returning to a normalized cost structure in Q1. Consolidated net income – pardon me, consolidated net income for Q3 decreased…

Thanks, John. As we enter the U.S. market with our point of sale receivable purchase program in a meaningful way. We still feel a lot of the questions around how and why we're able to do what we do in our RPP with no loan losses to date. Let me take a minute to walk through the model. For those viewing our presentation, our graphic uses an example of a home hot water heater loan, but the model works for virtually any goods or service that can be financed at the point of sale. As part of our master agreements with our RPP partners, embedded in the economics of every loan we purchase is what we refer to as a cash holdback, an amount of cash that we hold on our balance sheet as a deposit. These cash holdbacks are aggregated in a pool for each partner. The amount of these cash holdbacks is based on a multiple of historical default rates for similar types of loans and borrowers, the key word here being multiple. In other words, the cash holdbacks are multiple times in excess of what would be considered a worst loss case scenario. With our partner acting as administrator of the loan that is exclusively dealing with the end customer. We receive monthly payments until the loan is repaid. If and when a loan goes 90 days in arrears, we automatically return that loan to our partner to deal with the collections. At the same time, we automatically debit the partner's cash holdback account, making us hold on the loan. One might ask, why would a point of sale finance company want to work with us if they retain the lending risk? There are several reasons, all of which are rooted in our proprietary software, which is…

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of David Feaster from Raymond James. Go ahead, please.

Hi. Good morning, everybody. Congratulations on closing the deal.

Thank you, David.

So we've got – the deal now closed, I was hoping maybe you could start with just how conversations are going with new partners in the U.S. How demand is trending and maybe the growth trajectory that you're expecting. And then just remind us of those better economics on the RPP program in the states that you were alluding to.

Yes. Well, the reception we've had in the United States is tremendous, and some partners have patiently waited for us to finally be able to operate in the states. And one we're working with right now to conclude and get them operational, there's a multitude of others that will be signing up over the course of the next year. They've been convinced for the last few years that it's going to work very well for them. So at super reception in the United States, and one already in the hopper, a very patient one, that stuck with us through the process, that maybe in a month or so we'll be fully operational. The economics in the U.S. are slightly better than Canada in that the U.S. bank cost of funds runs about 1% lower than the equivalent rate in Canada, particularly recently in that our deposit rates in Canada, as I was mentioning, are a bit sticky. They don't come down quite as fast as bank in Canada rates. So theoretically, there's about a 1% improvement in the RPP program in the U.S. versus Canada. And we've been averaging, say, approximately 250 basis points in Canada. So a fairly significant improvement in profitability in the states.

That's terrific. And to that point, I was hoping you could touch on the funding growth side in the states. You just talked about the lower deposit costs. Could you just touch on the timeline? I mean, like, can you immediately with deal close, start driving deposit growth here in the states and just walk through your strategy for funding growth in the U.S.?

The answer is yes, we can immediately start raising positive. We already are at our retail outlet and holding forward over the counter, of course. And thankfully, we have recently signed up with your company, Raymond James, to supplies with deposits. And there's another large company brokerage firm that we had the documentation to sign between the two, your company, David, and the other one gives us tremendous reach into the deposit market. So those two are yours is signed, and the other one is likely to be signed today sometime. That's plenty of deposit access for our little bank.I'm sure over the course of the year there'll be more signing up with us, but with you and the other one, that is more than we can possibly ever use.

That's great. I love to hear it. And then just one quick modeling question. You called out some one-time costs in the quarter. Could you quantify those and maybe quantify what was in this quarter and some of the one-time charges you might expect next quarter?

Well, there's about $700,000 or so directly associated with U.S. acquisition in Q3. It’d be consulting fees, as – an ongoing expense will be additions to our payroll. This would be the hires of the senior people in the United States to run the shop. There was also a picnic celebration that we had in Canada at my farm, that had a bit of a bill on part of the $700,000. So those were direct expenses associated with the U.S. acquisition. Then there’d be miscellaneous type expenses, a lot of travel costs, meetings, and then the additional Board members with fees and such that started to go through in the quarter. The other thing that impacted us this quarter that John alluded to was with the bank in Canada dropping rates. The Canadian deposit rates fall with the bank in Canada, but they lag. So it’s happened this quarter we’re raising about $120 million additional over and above what we normally raise in deposits in order to fund the U.S. acquisition. So we’re raising just at the wrong time because the bank in Canada dropped the rates and our deposit rates hadn’t quite dropped, that being the change in deposit market hadn’t quite dropped in lockstep with it. So we probably all in squeezed our margin and it cost us in the order of about [indiscernible] in additional interest expense. But of course, it goes away. The rates are almost caught up again now, but I suppose we just had another trough in bank account. So hopefully, our deposit rates catch up faster than they did the last time.

And based on the disclosures, it’s about a three-month lag. Is that right?

Yes. And we’ve got a nice graph for you, Dave, if you want to have regraft us painful to see it, of course, and it didn’t used to be like this, years ago, I’ve been banking 47 years and it used to go like it was tied together with a steel bar. But for some reason, Canadian deposit market sort of lags, which means that we banks pay a little more than we should be paying in the short run while all the deposit rates catch up with the reduction of bank of Canada rate.

Okay. That’s helpful. Thanks, everybody.

Well, thank you, Dave. Looking forward to seeing you downstairs.

Very good.

I’m in the windy city today and it actually isn’t windy. It’s beautiful, beautiful day out, looking out on the lake here, clear blue skies.

Thanks again.

Thank you. [Operator Instructions] There seems to be no further questions at this time. I’d now like to turn the call back over to Mr. Taylor.

Well, I’d like to thank everybody for joining us today. And I look forward to speaking to you at the time of our fourth quarter. And for those who are attending the Raymond James Conference here in Chicago, I look forward to talking to you downstairs in a few minutes – over and out.

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