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 supplement 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 analyses 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 statements advisory in today's presentation. I would now like to turn the call over to Mr. David Taylor, President and Chief Executive Officer of VersaBank. Please go ahead, Mr. Taylor.
Thank you, Kelsey. Good morning, everyone, and thank you for joining us for today's call. I have the pleasure of hosting this morning's call from New York City, where I'm participating in Keefe, Bruyette & Woods Fintech Payments Conference, and yesterday spoke on a panel entitled How Technology Can Advance Fundamental Banking. I can't think of a better panel topic to speak on. 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 CAD 2.2 billion, up 24% year-over-year and 5% sequentially, while net income grew 5% year-over-year. 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 2 basis points sequentially to 1.29%. A net interest margin was down 9 basis points year-over-year, but up 4 basis points sequentially to 2.77%. Notably, our cash balances returned to historic levels in the first quarter as we continued 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 CAD 1 deposit with the bank. More on this in a moment. 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 amount for DRT Cyber is included in non-interest income in the bank's income statement. As noted a moment ago, we have completed our closed ecosystem testing for the first of our digital deposit receipts, the Canadian dollar-based VCAD.
VCAD remains on Ethereum, Algorand, and Stellar blockchains, and we continue to transact internally that our testing has satisfied our criteria. We are now preparing for a commercial launch, which we expect upon the independent auditor's 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 what is rapidly evolving regulatory landscape. Our DDRs were developed to be a significantly better stablecoin. A one-for-one representation of a fiat currency on deposit with our federally licensed bank, investment-grade rated bank, and the highest level of security based on our own VersaVault technology.
In fact, we are increasingly hearing the term tokenized deposits, particularly in this town, used to describe the 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 towards regulation in North America and around the world, which we believe will put us in a firm position for our DDRs as not only a compelling digital currency for the market, but also one that will become the gold standard amidst the future regulatory requirements. We are preparing for commercial launch as soon as possible following the completion of the SOC 2 audits.
Before I turn the call over to Shawn Clarke, I would like to take this opportunity to publicly welcome the newest member of our leadership team, Garry Clement, who joins VersaBank as our new Chief Anti-Money Laundering Officer, or CAMLO for short. Garry 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 we'll refer you to Garry's extensive CV, which is summarized in yesterday's press release. I don't know if there's anyone more qualified than Garry to fill this vacancy.
We are extremely fortunate to have him, especially given the upcoming commercial launch of our Digital Deposit Receipts. Garry fills a vacancy left by our longtime colleague, Barbara 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 would like to thank Barbara 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?
Thank you, David. Just a quick reminder, folks, that our full financial statements and MD&A for the Q1 of 2022 are available on our website under the Investor Relations section, as well as on SEDAR and EDGAR. As David mentioned, all the following numbers will be denoted in Canadian dollars as per our financial statements, unless otherwise noted. We do offer US dollar translations of our key metrics in our standard investor presentation, which will be updated for the Q1 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 CAD 2.4 billion, up 18% year-over-year and unchanged from last quarter.
Our cash balances at the end of Q1 were CAD 155 million, returning to more typical historical levels at 6% of total assets, down from CAD 272 million or 11% of total assets last quarter and down from CAD 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 CAD 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 CAD 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 at January 31, 2022, up from 61% of total loans last quarter. Our commercial loan portfolio contracted 2% year-over-year and 6% sequentially to CAD 769 million, the decrease being a function primarily of 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 CAD 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 12.48% 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, were a function of a number of factors that included private placement of subordinated notes payable to U.S. institutional investors in April 2021 for proceeds in the amount of CAD 92.1 million. Treasury offering of common shares completed in September 2021 for total net proceeds of CAD 75.1 million adjusted for tax affected issue costs. 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 three Preferred Shares in April 2021. Our CET1 total capital and leverage ratios remain well above our internal targets. As David noted, the Q1 saw continued strong performance across most of our financial metrics.
Total revenue for the Q1 increased 18% year-over-year to CAD 18.3 million and was comprised of net interest income in the amount of CAD 16.9 million and non-interest income in the amount of CAD 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, and further 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 the lending portfolio mix as growth in our lower risk point-of-sale financing portfolio outpaced growth in our commercial loan portfolio. The sequential increase in NIM was a function primarily of the redeployment of cash into higher yielding lending assets.
Net interest income for the quarter was CAD 16.9 million, up 17% year-over-year and up 5% sequentially. These trends are a function primarily 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 CAD 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 expense 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. Sequential NIE trend was a function primarily of the same factors driving the year-over-year trends, but without the impact of the misalignment of the DBG expense item. Net income for the quarter was CAD 5.6 million or 19% per common share, basic and diluted, which was 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 expenses that I just described previously.
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, Q1 once again saw our cost of funds decrease 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. Credit quality of our loan portfolio remains very strong. We once again finished the Q1 with no impaired loans and no loans in arrears, which continues to be the case today.
Q1, we recognized a provision for credit losses in the amount of CAD 2,000 compared to a provision for credit loss in the amount of CAD 57,000 for the same period last year, and a recovery of credit loss provisions in the amount of CAD 279,000 last quarter. Provision for credit losses as a percentage of average loans this quarter was 0.00% compared with a historical 12-quarter average of negative 0.01%, which remains among 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?
Thanks, Shawn. Q1 was a very solid start to fiscal 2022. We saw the continued momentum of our existing digital banking operations as well as a 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 through 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 additionally benefits in the short term during a period of rising interest rates.
In our cybersecurity service business, we have a solid momentum that we expect to continue into 2022. You will note that moments 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 an opportunity to bring our unique point-of-sale financing model, which has been so successful in Canada to the $1.8 trillion US consumer finance market. It's a market where we see same potential for success that we did in Canada a decade or so ago, but obviously many, many times larger and with a proven solution that we know addresses the unmet need. We are steadily making progress with our plans. With that, I'd like to open the call for questions. Operator?
Thank you. Ladies and gentlemen, we'll now begin the question-answer session. Should you have a question, please press the star followed by 1 on your touch-tone phone. You will then hear a 3-tone prompt acknowledging your request, and your questions will be pooled in the order that they are received. Should you wish to decline from the polling process, please press star followed by 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from William Wallace from Raymond James. Please go ahead.
Hi. Good morning, guys. Thanks for taking my call. I mean, my questions. David, maybe just starting with where you ended, you said 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 kinda stand from a timeline perspective, and how maybe that entry might look?
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 lawyers on documenting our program. There's some differences between the Canadian law and the U.S. law, and that's sort of what slowed it down. We're just in the stage now of finalizing the legal documents. It shouldn't be too much longer before you see us book the first deal.
As I was saying, there's a few more in the hopper that will follow after that now that we've settled on the legal documentation.
Do you think that could be a fiscal this quarter announcement?
Yes.
Okay.
We're looking for this. I was hoping it would be the Q1 , but plowing through the legal nuances took a little longer than we expected.
Okay. You feel like you've gotten through that process now, and we could expect to see some sort of announcement this quarter with a first partner, at least a first partner in the U.S.?
Yeah. That's right, Walliam. After that, it's sort of now we've got the legal work sorted out, then it's all up to our team's marketing efforts.
Okay. Based on it sounds like you have identified three customers just kind of based on their volumes. You know, any willingness to give us a sense as to how big of a splash you could enter the U.S. with from a kind of a volume perspective? Is that putting the cart in front of the horse?
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%. Yeah, that's based on the Canadian customers. US would all be incremental to that, and it's hard to put a figure on it right now. Next quarter, I should be able to do that in that we'll have some real live customers.
Okay. 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-
Equipment
or something on the point-of-sale side?
Yeah.
Okay. You are talking about the point of sale.
Commercial equipment. Yeah.
Okay.
There was quite a sensation in small business spending with the pandemic. It was more than offset, of course, by a lot of spending in the retail area, primarily on home improvement and that sort of thing. Now we're starting to see some commercial spending coming back finally. You know, this pandemic certainly taken its toll on small businesses in Canada.
Okay, great. 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?
Yeah, absolutely.
Where are you in the audit process itself and, you know, how soon do you anticipate completing the audit?
Well, if you'd asked me that last quarter, I would've said a few weeks. I'm still saying a few weeks. It's taken a lot longer than I had expected. However, I asked Gurpreet Sahota, who's in charge of that area, and he's looking for a few more weeks. This was a self-imposed re-requirement that we, you know, placed on ourselves, thinking that it's a brand new product for the world it is, that it would be good that our customers and our regulators would know that a third party had reviewed it with that stringent SOC requirements. Yeah, maybe a few more weeks.
There was a delay in actually physically reviewing our facility that the COVID restrictions in Canada brought about, but that's behind us now.
Okay. Assuming this is done within the next several weeks, what does a commercial launch look like? Will you launch with multiple customers that will be, you know, offering your VCAD stablecoin alternative? You know, will it be all launched at once, or will you just say we're launching, and then you have to go and start working on the customer agreements, et cetera? Just help us kind of think about what the launch might look like once this audit is complete.
Our partners, Stablecorp, has already lined up customers to purchase the VCAD. That's... They're just waiting for us to be able to issue the VCAD to them. Immediately when we're ready to go, we'll be issuing VCAD to Stablecorp, and they in turn will be issuing VCADs to their customers. They also announced some time ago that their QCADs would swap into our VCADs. As soon as we're ready to go, Stablecorp's ready to go. That's the first. There's some others that have contacted us about also distributing our VCADs, VUSD and perhaps VSterling and VEuro. As soon as we give them the green light, I'm sure Stablecorp's...
They have an account open with us, and they're all set to go.
Okay. As it relates to VUSD, that would just be a potential kind of tack-on offering, right? You wouldn't need to undergo a whole additional audit for that specific DDR-
That's-
Would you?
Yeah. That's exactly right. In fact, we already have VUSDs on the blockchains for the closed loop testing. Now we only issue in Canada, of course. Even though the denomination is US or it could be sterling or euro too, it's just issued in Canada to Canadian purchasers. That'd be in Stablecorp to start with. Thereafter, you know, we are looking into the United States to acquire a bank this year. We're engaged in discussions on that topic, but presently the coins should just be issued in Canada.
Okay.
Okay.
Great. It seems like this quarter could be, I guess, hopefully and potentially a quarter with some kind of meaningful progress on these two new sort of initiatives that we've been talking about.
Yeah.
since the IPO.
Exactly, Walliam. Sorry, it's taking longer than I expected, but with legal work and accountants doing the SOC 2 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 InstaMortgage that it seems finally we may have a mortgage administration company lined up to look after the administration for us. That may very well hit this quarter too.
Okay. Great. I have a few more questions, but I'm gonna hop out and let somebody else ask some. If they don't get asked, I'll come back on. Thank you very much for the time. I appreciate it, David.
Well, thank you, Walliam.
Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. Your next question comes from Greg MacDonald from LodeRock Research. Please go ahead.
Thanks. Good morning, guys. How are you, David?
Very good, Greg. It's a nice sunny day here in New York, and thankfully, I'm overlooking Central Park. So beautiful.
Lovely. The temperature's probably a little warmer there.
It is indeed.
Thanks for taking my question. I wanted to ask one on DRT. You talk about revenue growth 36% year-over-year. You talk about some sustainability of that. You know, quote-unquote heightened threat alert makes us all kinda come back to this as an important topic and realize that this is possibly a scenario where demand is outpacing ability to provide service for cybersecurity companies. Can you just 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, with respect to ability to staff, things like that.
Well, you're absolutely right that the penetration testing side it depends on people. I think everybody in the IT software industry knows that it's been harder and 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. Secondly, we introduced options for our staff, which is kind of standard in the software industry to encourage people to stay with us and prosper with the increasing value of the shares. I suppose vis-a-vis the industry, we're doing much better with retention and obtaining staff.
On the penetration side of our DRT 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, as you say, subject to a higher degree of attacks will take us up on our machine-driven products that give a... You know, basically give them a heads up that someone's trying to hack into their systems. So we continue to see a tremendous growth area for DRT Cyber. One area is subject to dependent on hiring in humans, and 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 humans.
Okay. Thanks for that. You know, 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 had success moving into the U.S. market yet?
Well, 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 about 350 or so customers that we have, a good portion are in the United States. It's just what you'd expect. It's critical services, utility companies, rail lines that use us. We're quite prevalent in the United States.
Okay. Thanks for that. Just a quick question on the InstaMortgage product. You've expressed some opportunity for attractive growth there in the past, and it's nice to see that from an administrative perspective that product's ready to roll. Any sense of, you know, from what your loan origination partners are talking about, any sense of change in optimism for growth there? Is it an avenue that you think you're more optimistic about now? Just it's a new product, right? Any updates there would be-
Yeah.
Helpful for us.
Well, we are very optimistic about it. The hold up for the InstaMortgage 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, and looks like we have one that's keen to work with us. It's hard to say what the growth potential is, but it looks like 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. It you know, very well could be a settling back of pricing and maybe the demand for mortgages will settle back.
Right now it looks like huge demand.
Also a highly unusual increase in immigration, which works in its favor.
Yeah, absolutely.
Great.
This is primarily what the InstaMortgage is aimed at, for those that want a convenient way to obtain mortgage financing at the point of sale, of course.
Yes.
It's designed for new Canadians.
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 questions. I'll pass it on.
Well, thank you, Greg.
Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. Your next question comes from William Wallace from Raymond James. Please go ahead.
Hey, David. Good to see you again.
Yes.
I just wanted to maybe follow up a little bit on interest rates just for us Americans who maybe are 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 does interest rates in Canada follow? Remind us how the point-of-sale loans are priced and what you would expect from a margin perspective, whether it's NII, you know, percent growth or margin basis point expansion for every move that we see in rates, whether it's Bank of Canada or Fed or whatever, however you would talk about that.
Well, Walliam, I think there's a long history of banking in Canada following the Fed for interest rate increases. It's not a certainty, but it's high probability that if the Fed increases rates, Bank of Canada will increase too. Our portfolio is structured so that about 155 basis point increase a lot of that goes straight to our bottom line. That a good portion of our deposits are priced at prime minus four. It takes about 155 basis points before we start paying additionally on our deposits. We have, like, CAD 600 million-CAD 700 million of prime-based loans that go up immediately.
We're positioned, I think, like most banks, but I think an increasing interest rate environment is positive for us. Secondly, like all banks, we hold a lot of liquidity, and we're earning next to nothing on the liquid assets. We'll benefit on that. You know, it's as usual, rates are extremely low now, and if they move up a little bit, 150 odd basis points, say, in the next year or two, that's all good for us. With respect to the point-of-sale financing, they're priced over Government of Canada bonds, which tend to correlate highly with our fixed rate deposits. The margins should stay about the same. I don't anticipate any compression. It should.
Our deposit rates go up at the same rate as Government of Canada bond yields do, too. Margins there should stay the same. The other portfolio I was referring to is the real estate portfolio, the prime-based portfolio, and that's the one where you get the boost.
How often do the real estate loans reprice?
Well, they're all almost all prime-based, so they reprice instantly.
They do.
If Government of Canada puts the rates up that day, you know, bonus for them. They have to gloat over it. You know, for quite a few years now, we banks have suffered with having rates you know, extremely low. You know, if rates move up a little bit, it means that our net interest margin will go back to probably historic levels around 3%.
Okay. Perfect. That's very helpful. Thank you very much. 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 something.
No, that was. You got it right. It was DRT Cyber. With the penetration testing, our guys do a lot of on-site visits. That's why it's human-intensive, the penetration side of the business. Two things would have slowed that down this quarter. One is the holiday season. Folks don't tend to invite us in to do our penetration testing during the festive season. The other thing with these COVID lockdowns we encountered here in Canada, that sort of slowed down the on-site visit. It's also what slowed down the SOC audit, SOC 2 audit, in that the auditors wanted to physically visit our facility.
Where it's located, there was some stringent pandemic lockdown. That's all behind us now. Hopefully, it's behind us for good. These lockdowns have been quite disrupting.
Thanks for that commentary. 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 it, is the nature of your staffing, et cetera, such that everything just kind of gets pushed back?
I think we'd be catching it up this quarter.
Okay.
It's also a seasonality to it that I was mentioning earlier about brought by the holiday season. Typically, Q1 for DRT Cyber is lower revenues and activities. Then two, three, and four, it should make it back. Then we've got these other products too that we're introducing, the ongoing cyber surveillance, so that when we do identify weakness in a corporation or a government cybersecurity, we can present them with a solution, not just to patch it, but also to give them the assurance that henceforth, if someone is trying to get in, they'll know about it while they're knocking on the door.
Okay. Thanks so much for taking all my questions. I really appreciate the time. That's all I have. Take care.
Oh, no problem at all, Walliam. Whereabouts are you calling me from?
I'm sitting in Richmond, Virginia.
Wow. Perfect. Pretty close to where I am, I suppose. You're getting the nice weather too.
Yes, sir. It's nice.
Excellent.
Thank you. Your last question comes from Trevor Reynolds from Acumen Capital. Please go ahead.
Good morning, David.
Good morning, Trevor.
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.
Well, we're sure working on it. It is taking longer than expected too. I would love to get some home financing on the books for Indigenous Canadians. We think there's a huge demand for it. Robert-Falcon Ouellette is our man on the job there, and he's involved in the project, and we're all keen to get it started. No loans yet, which is disappointing for me, particularly in the Arctic. As I was saying to the guys the other day, if you don't hurry up and get something going, the ice roads are gonna melt. You won't be able to deliver the material. If anybody's listening on the line there, they know who I'm talking about.
We'd love to provide you with financing, get you in nice homes, but they gotta speed it up a bit.
Definitely taking longer than you'd anticipated when you rolled this out?
There's constant progress. Our team's working on it with their counterparts and are working as far as they can. It's just that everything seems to take a little longer and a little longer. There's sure a huge demand for the InstaMortgage. It 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 on the other side, we've got some good partners working with Robert on this.
How big do you think this could get?
It's hard to dream. I'd say there'd be at least CAD 500 million-CAD 600 million of indigenous home financing. That's the demand. Whether we get it all or not is another question. You know, in the past, we provided a lot of finance, particularly in the Canadian Arctic. As you've mentioned, infrastructure projects such as schools and hospitals and pipelines and power lines, all kinds of good projects we did in the past. For some reason, it's taking a little longer to fire that back up, longer than I would like.
Got it. Maybe apologies if I missed this, but just on the DRT side, has there you know, maybe just an update on how those reseller agreements are working?
They're working well. Some of those products I was alluding to come through our reseller arrangements, and it gives almost a complete suite of cybersecurity products. There's a couple more add-ons that I'd like to get that we'll talk about maybe another quarter. Yeah, we have a wonderful relationship with our partners in this.
Perfect. Appreciate it. That's good for me. Thanks.
Well, thank you. Thank you, Trevor. What's it like in Calgary?
It's warmed up a bit, but probably doesn't sound like it's as nice as where you're sitting today.
Well, I'll be back to the frozen north pretty soon. Probably tomorrow.
Thank you. Ladies and gentlemen, again, as a reminder, if you do have a question, please press star then one. There are no further questions at this time. Mr. Taylor, you may proceed.
Well, thank you. I'd like to thank everybody for joining us today, and I look forward to speaking to you at a time of our year-end next quarter results come out. As we're talking, look forward to some press releases this quarter on these key projects that we've been working on. Thank you again.
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.