David Taylor: So, what happened with the additional deposit receipt is the model that we had worked on, we called DCAD that used a third party to hold the wallet, didn’t seem to sit well with the various regulators that we were discussing it with. So, we pivoted over to a different model, but using all the same technology where we were host – we would host, and we are hosting right now, the wallets ourselves, and hence the name change to CADV. We think this is the model that will have legs and frankly, I wouldn’t be surprised every other bank will want too, in that it has a lot of advantages over the original one. Yes. For one thing, the data for the deposits are maintained both on the stellar blockchain, and also in our tried and true what we call deposit management system, DMS.
So, from – to alleviate sort regulatory fears, say something should happen to a blockchain, which I really, really doubt that would ever happen, but if it were, the data is maintained simultaneously on our existing deposit system. So, sort of in reaction to feedback we got from various regulators and what we noticed happening in the world, we pivoted over to this what we think is the best of the best that’s out there, where a bank itself is the host of the wallet and the digital deposit receipt isn’t really a token. It represents a real deposit with a real bank that goes through all the normal AML procedures and all that. But it did take time. It is fully functional now amongst our directors and our employees, but we’ll tactically wait to lift the curtain up and to make it available to our other depositors.
So, with respect to utilizing off-balance sheet techniques to fund our loans, presently we have a lot of capital. So, we’re just using our own capital to fund the loans and leases as we’re generating them. As time progresses, though, we are contemplating portfolioing these assets so they would be readily available for sale for two reasons. One, increases the bank’s liquidity, and the other one, as you say, it improves the bank’s return on common equity.
Stephen Ranzini: Okay, great. I’ve got two more questions, but I’ll go back in the queue and we’ll see if we get back to me. Thanks.
Operator: Thank you. Your next question, confirm, Brad Ness from Choral Capital. Please go ahead.
Brad Ness: Hello, gentlemen. How are you doing?
David Taylor: Very good, Brad.
Brad Ness: Good. Hey, on the effective tax rates, that $1.1 million in additional taxes for the quarter, what was that specifically related to? And are we going to go back to that 27% effective tax rates say going forward?
David Taylor: I think that’s a good question for pir CFO who’s been on the line waiting for a good question to answer. So, Shawn, I’ll leave that one to you.
Shawn Clarke: Thank you, David. I hope I’m off mute here, folks. Good morning, Brad. That little high tax rate there we’re seeing in the year, a function of kind of three core variables, Brad, that we’re pointing to, and we do expect this to diminish over the course of 2023. We don’t think we’ll get back to our statutory rate at 27%, but we do think we’ll be selling to 30% as these – the various elements are rationalized over the course of the year. They’re comprised primarily of non-deductible expansions associated with our stock options, Brad, as well as some non-deductible losses. We think this is going to be one that we’ll be able to utilize early in the coming year, as well as there’s a – you’re probably familiar with a FAPI tax here in Canada, which we’ll pay, and it’s a function of the foreign exchange gains realized over the last, particularly over the last quarter on our current US lending operations through VersaFinance.
So, those three elements, those miscellaneous items underneath that, but those three items, contribute to about 90% of the increase that we noted in our public disclosure.
Brad Ness: Okay, great. I’ve got several more here, if you guys have time. Nowadays, what type of rate are you getting on your point-of-sale loan financing, and what’s the incremental cost to fund those?
David Taylor: Well, the rates are running in Canada about 2.5% over the same term government Canada bond. So, say the government Canada bond is say 4%, Brad, at least 6.5, 7 is the yield on the point-of-sale in Canada. In the United States, you add about a 1% to that on that interest margin. With respect to incremental costs, there may be a little bit of hiring necessary to take on the US market, but not very much in relation to the scale of the operation. It’s very, very scalable. And for the most part, all the operations will be handled at the tech center, which I’m sitting in today, at the – in London. So, there’s no need to duplicate what we have here in London to take on the US market. So, marginal increases, tiny increases maybe in a few staff members to take on the US market, but other than that, the systems are capable of many times the volume that they’re presently dealing with.
Brad Ness: Okay, great. If I heard that correct, in the Canadian market, you’re getting 250 basis points over treasuries, and in the US market, you’re getting 350 basis points over treasuries for this point-of-sale product?
David Taylor: Yes, that’d be about right. Yes, it’s about 1% better than we get in Canada, roughly speaking, those numbers.
Brad Ness: Okay, great. And can you update me on kind of the timing of the CADV rollout as you kind of see things play out next year?
David Taylor: Well, I think here – so early in 2023, we’ll be in a position to take CADV to the open market. But that all depends on the regulator’s perception. Right now, thanks to a certain fellow in Bahamas who created a whole lot of nervousness in this area, even though, of course, our digital deposit receipt is an entirely different animal than what was being promoted out of Bahamas. So, I mean, technically, we’d be ready to go first probably 2023, but we are cognizant of the caution and concern that various regulators have about this use of a blockchain, and that’s about the only similarity. We’re simply using Stellar to account for our actual deposits with our bank. So, not a whole lot of similarity to all the things that have gone wrong, or even what the so-called stable coins where they’ve placed deposits with another financial institution as collateral for their coin.
Ours is – represents a real deposit with a real bank, and in fact, the data is duplicated, so think earlier on our own DMS deposit system and on Stellar so that in effect, our depositor has the ability to use Versaview, our view software or view app, and look at their deposit, just like they would with any other bank using an internet app. But you can look at it on Stellar. The bonus is, of course, is, should you choose to move your digital deposit receipt from your wallet to somebody else’s wallet, say to effect a payment, you can do it. So, what we’ve in effect done is turned an old school bank account into the most modern type of checking account, where our CADV has become checks, certified checks, in fact, because they’re drawn on our bank and moved to somebody else’s e-wallet, say Amazon’s e-wallet, to effect a payment.
When I say that, some folks say, but there are already rails that do that, David. There’s already ways of doing payments, but nowhere near as efficiently, nowhere near as cost effective. Transactions on Stellar is in the order of fractions of cents and takes place instantaneously anywhere in the world, versus if you try to move money even from Canada to United States, you might be waiting three days and be charged a hefty fee for that. So, we think it’s a fantastic revolutionary adaption of blockchain technology, and we’re hoping that our regulators, and this is all throughout the world, will understand what we’re doing and endorse it. It’s about as low risk as you can imagine. As a bank, we pay attention to all the things that others don’t seem to have paid attention to, like say anti-money laundering and terrorist financing to – let’s not repeat the list.
Anyway, Brad, we’re keenly excited about putting it out in Canada, and hopefully, our regulators in the new year after we’ve had some good solid interaction with them, will endorse it too.