Mike Rizvanovic: Okay. Is it fair to assume that you’ve incorporated the same level of diligence to reflect a potential downturn like the 5.5% is low because it makes but it doesn’t mean that you’re necessarily not including a bit of a buffer because of the macroeconomic environment? Maybe not looking so robust anymore? Is that fair?
Shawn Clarke: Absolutely, we generally run around at least three times the amount of losses that our clients would show so and that’s what we had. The depths of despair and the pandemic are the intrinsic losses that our models pointed to for our portfolio that have been around just round numbers 30 million, and we were holding about 100 million in cash fullbacks. And that’s generally where we run. But these are ballpark figures. It’s done a lot more scientifically than that each individual portfolio is looked at and reviewed on continuous basis. And we’re always adjusting the cash hold backs, depending on our view of what’s in store for our partner on the overall economy.
David Taylor: And Mike one other piece of colors you might want to keep in mind is that, as David mentioned, no change in our risk assessment process or the management process there. But in some cases, some of our seller partners post LCS as opposed to cash. So the risk fee, the volume there is still there, the protection is still there, but just the structure of the whole back is modified slightly with some of our partners.
Mike Rizvanovic: And then just a quick one on your insolvency deposit down in the quarter. And we have seen the number take up both on business and consumer, it is gradually normalizing. I think I was a little bit surprised that the number wasn’t up sequentially, just given that trend. Or is it maybe just the nature of the assortment, maybe the size of an average insolvencies smaller today than it was. What’s driving the number coming in lower? And then as a quick follow-up to that, how important is this as a funding mix shift on your margins going forward?
David Taylor: Well, the good news for us the bad news for Canada is we’re opening more new accounts to receive the deposits and liquidation of the unfortunate businesses and consumers are going bankrupt. So we’re opening more accounts. So these are sort of empty buckets that take about two years to fill up and then they’re used to their burst to the creditors. So really, it’s just you’re just seeing the lag effect. We’re seeing more insolvencies now those even in the figures earlier, and we’re opening up a lot more accounts. Now we have most of the trustees in Canada dealing with us. So kind of the leading indicator is, what’s the new volume of account opening. And there’s a lot more been open since the close of our fiscal year.
So it’s just simply the lag effect, I expect the solvency deposits will reach a record high for us, because we have a larger piece of the market share now than we had a few years ago, quite a larger piece. And already, we’re seeing the new accounts be opened at an increasing pace. So it’s just simply the lag. Now, how important are these two are our net interest margin? While they’re pretty important, we pay on average, about prime minus 2.8, on the solvency deposit, something like that. And that’s a good, stable low-cost funding source. But frankly, I don’t see that impacting our margin, our margins, always, of course been industry leading margin and category of 1% higher than most banks, I think marginal stay the same. What could impact the margin?
A little, which is really positive, because it has a tremendous boost to return on equity is our instant mortgage app is getting ready to roll out. And that gives us access to lower margin conventional mortgages and CMHC mortgages, their lower margin, but the risk weighting, of course, CMHC is zero, 35% on conventionals. So it might, you might see that, possibly as quarters to come depress margin a little but it certainly won’t be too repressed from return equity, return on equity will continue to grow at a rapid pace. He’s seen it growing up.
Operator: Your next question will come from Stephanie Woo at LodeRock Research.
Stephanie Woo: I’m Stephanie on for Greg. So this quarter, I see surprising sequential growth and point of sale loans, given the economy backdrop, and I think you guys also alluded to in the comments that going forward probably won’t see the same type of growth going forward. Maybe just a little bit more color on the Canadian side of point of loan growth? That’s my first question. And second, is it correct for me to assume that the U.S. expansion is going to be helpful for the NIM to go back to 3% going forward?
David Taylor: I appreciate that people are likely surprised that our loan growth is continuing at 8% per quarter, or the other banks in Canada, some are underwater, some are up here. And that’s probably because the market that we’re targeting, our partners are targeting is in the home improvement area. And as I was saying earlier, with energy costs going up, folks are quite rightly looking at getting new siding, new installation, new furnace more efficiency. And that’s been a sort of a bonanza for our partners to provide that type of financing. Discretionary purchases, I was saying earlier boats, cars, motorcycles as well, that’s really dialed down. But thankfully, we’re nicely diversified across the entire country and across all the industries.
And we’re seeing substantial significant growth in the point of sale on the home improvement in particular. So that’s Canada, and in Canada for loan growth too, keep in mind that we’ve been working for quite a while on this innovative new program we call Instant-Mortgage. That’s an app that enables a developer who’s selling homes to that is potential purchasers punch the numbers in and come back with a very quick approval for their conventional mortgage or their CMHC mortgage inside. So we expect to see some growth in that area. And we’re comforted somewhat in the market price of housing in certain communities seems to drop back to relatively reasonable prices. So unlike other lenders that unfortunately, were lending in the bubble, and maybe their loan to value ratios are, have gotten a lot higher than they were open for.
Now we’re getting in sort of at the right time, but carefully. So that’ll boost Canadian loan growth to. In the U.S., the cost funds United States is good bit less than visa vie Canada, relative to the risk free rate. So we see 4% net interest margins as being quite possible. And that will, as time progresses, that will boost our overall NIM. Just keep in mind our NIM on loans overall NIM on loans with north of 3%. And on our treasury assets, it’s about 1%. So as if rates continue to go up or rates went up, we get a little bit more in our treasury assets. So the overall NIM improves. But then again, it says saying it depending on how much and CMHCs and conventionals are in summary, delivers, that will tend to depress NIM, but it’ll increase ROE because these are really, really high ROE type assets.
They absorbed. And CMHCs use case no capital in conventional mortgages case 35% risk weighting. So even NIM might slide back a bit betting all these factors might hold won’t change much, but our release should be increasing pretty dramatically.
Stephanie Woo: Okay. Thank you so much. Best of luck on the U.S. expansion.
