Operator: Ladies and gentlemen, thank you for standing by, and welcome to the third quarter 2020 financial results. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Hal Khouri, Chief Financial Officer. You may begin.

Hal Khouri: Thank you, operator, and good morning, everyone.

My name is Hal Khouri, the company's Chief Financial Officer, and thank you for joining us to discuss goeasy Limited's results for the third quarter ended September 30, 2020. The news release, which was issued yesterday after the close of market is available on GlobeNewswire and on the goeasy website. Today, Jason Mullins, goeasy's President and Chief Executive Officer, will update you on the company's response to COVID-19, review the results for the third quarter and provide an outlook for the business before we open the lines for questions from investors. Jason Appel, the company's Risk officer, is also on the call. Before we begin, I remind you that this conference call is open to all investors and is being webcast through the company's investor website.

All shareholders, analysts and portfolio managers are welcome to ask questions over the phone after management has finished their prepared remarks. The operator will poll for questions and will provide instructions at the appropriate time. Business media are also welcome to listen to this call and to use management's comments and responses to questions and any coverage. However, we would ask that you do not quote callers unless that individual has granted their consent. Today's discussion may contain forward-looking statements.

I'm not going to read the full statement, but I will direct you to the caution regarding forward-looking statements included in the MD&A. Now I will turn the call over to Jason Mullins.

Jason Mullins: Thanks, Hal, and welcome to today's call, everyone. During the third quarter, we began to experience a gradual reopening of the economy after the significant shutdowns and stay-at-home orders implemented in the prior quarter. As Canadians began to adapt to the safety protocols and restrictions that we have all come to accept, we saw a concurrent, although moderate step-up in overall demand leading to an increase in originations and a return to growth in our loan portfolio.

Our unique omnichannel business model allowed us to continue leveraging digital technology to serve customers remotely where in-branch transactions were not possible, thereby safeguarding the health and well-being of our team, our customers and our communities. Furthermore, the progress in our point-of-sale channel has allowed us to capture some of the shift in consumer behavior toward purchasing everyday household items and the overall shift to e-commerce. During the quarter, we enabled second look financing for brands such as Samsung and Lenovo and will continue to onboard new merchants going forward. We've also remained steadfast in leveraging our strength in credit risk management and decision sciences to prudently navigate through these uncertain times by making careful and targeted credit model and underwriting adjustments that are tailored to the specific regions and industry sectors most affected by closures, we can ensure that we only originate loans that meet our required return and risk profile despite the more stressed economic environment. Turning to the specific results for the quarter.

As I highlighted last quarter, the effects of the COVID-19 pandemic, which have resulted in stay-at-home orders, increased government support and reduced living expenses for consumers has served to temporarily reduce overall demand. As the summer months unfolded and restrictions were slowly lifted, we saw demand begin to gradually improve and the effects of our increased investment in advertising take hold. After being down 38% in the second quarter, we saw originations in the third quarter lift to finish flat year-over-year with $287 million. While July was down 7% and August improved to be down only 4%, the launch of our fall media campaign helped propel brand awareness to our previous all-time high of 85% and helped lift September originations to nearly 13% over 2019. During the quarter, the loan portfolio grew $48.3 million, an annualized growth rate of nearly 17%.

While down from last year, this was a significant improvement over the prior quarter and in line with the outlook we previously provided. The quality of the originations is also proving to be a highlight during the pandemic. With the mix of originations skewed more toward our best-performing existing customers and the credit quality of our new loans is slightly higher up the credit spectrum when compared to the prior year, this bodes well for the long-term performance and profitability of the portfolio. Revenue for the third quarter was $162 million, an increase of 4% over 2019. As loan originations lifted and consumers returned to work, the volume of loan protection claims began to wind down.

In combination with the contractual structure of the program, which includes a fixed maximum claims exposure within a given period, we experienced a sequential lift in the total portfolio yield to 45.1%. While the temporarily lower level of commission from this program results in a reduction of revenue, it is more than offset by the long-term protection it provides for the customer and the company's future credit losses. During the quarter, we continued to experience very strong credit and payment performance. Use of the loan protection insurance program, continued government support, assistance provided by other lenders, such as payment deferral programs, and reduced overall living expenses, combined with the credit model enhancements made over the course of 2019 have conspired to result in another improvement to credit losses. The net charge-off rate for the third quarter was a record low 7.8% compared to 13.2% in the third quarter of 2019 and 10% in the second quarter of 2020.

Throughout the quarter, we experienced gradual declines in loan protection insurance claims, lower usage of our customer assistance programs and true payment performance that exceeds pre-COVID levels. During the second quarter, total loan protection claims payments made on behalf of borrowers was $21.7 million. In the third quarter, claims payments declined by 33% to $14.6 million with a further decline in the trend subsequent to quarter end. As of October month end, less than 10% of the customers that filed claims during the pandemic remained on benefits. Furthermore, approximately 75% of the customers that filed an unemployment claimed during COVID returned to work that began making regular payments prior to exhausting their 6 months of payment coverage.

We are proud that we provide such supportive ancillary services to our customers, and this experience has proved to showcase the value in this product to everyday Canadians. We also continue to provide our customers with a suite of loan amendment solutions that support them through a difficult financial period. As we've highlighted in the past, these include temporarily deferring loan payments or extending the term of the loan to reduce the regular payment obligation. After peaking in April at approximately 12%, the portion of borrowers utilizing a form of support has fallen to below pre-COVID levels and remained below 7% in each individual months since. Furthermore, we have also continued to observe a strong level of true overall payment performance.

During the second quarter, the company collected an average of 96% of the payment volume it would normally collect prior to the pandemic. In the third quarter, customer payment volume relative to the outstanding consumer loan portfolio was at or above 100% of the levels we would normally collect prior to the pandemic. This continues to highlight our customers' resiliency and the stability of their current cash flow. While we have continued to experience improvement in the underlying credit performance, there does remain uncertainty about the trajectory of the pandemic and the timing and pace of the economic recovery. As such, we continue to employ the use of our probability weighted economic scenarios to determine the appropriate loan loss provision allowance that would fairly account for the future expected credit losses under a stressed scenario where we faced further economic disruption.

As a result, our allowance for future credit losses was held broadly flat at 10.03%, down only slightly from 10.05% in the previous quarter. Although we continue to carefully manage operating expenses, we also began reinvesting in the business during the quarter. We listed our advertising spend to support growing the brand and acquiring new customers, and we are moving forward on our strategic initiatives. Together, operating income for the third quarter was $56.9 million, up 34% from $42.6 million in the third quarter of 2019, while the operating margin for the business was 35.2%, up from 27.3% in the prior year. During the quarter, we also recorded another $1.7 million pretax increase to the carrying value of our minority equity investment at PayBright, our Canadian instant point-of-sale consumer financing and buy-now-pay-later platform partner.

As highlighted last quarter, since we arranged our investment, PayBright has been growing revenue by over 80% a year and has continued to onboard numerous marquee clients. With a significant presence in e-commerce, and the launch of their Pay in 4 products for smaller ticket items, PayBright has continued to be the beneficiary of the worldwide shift to online retailing caused by the pandemic. While the customer acquisition volume from this partnership continues to act as the primary benefit to our business long term, we are pleased that our equity position has proven to be another wise investment decision. Altogether, net income in the third quarter was a record $33.1 million, up 67% from $19.8 million in 2019, which resulted in diluted earnings per share of $2.09, up 63% from the $1.28 in the third quarter of 2019. Return on equity was 34.7%, up from 21.4% in the third quarter of 2019.

If we adjust for the increase taken to the carrying value of our equity investment in PayBright, net income was a record $31.6 million and diluted earnings per share was $2, an increase of 59% and 56%, respectively, while adjusted return on equity was 33.1%. I'll now pass it over to Hal to discuss our balance sheet and liquidity position before providing some comments on our outlook.

Hal Khouri: Thanks, Jason. The third quarter continued to demonstrate the cash producing capabilities of our business and the strength of our balance sheet. Cash provided by operating activities before the net issuance of consumer loans receivable and purchase of lease assets was $96.7 million during the quarter, an increase of 20% from the $80.9 million in the third quarter of 2019.

With the strength of the cash flow produced by the business, we were able to fund the $48.3 million of organic loan growth and opportunistically repurchased approximately 7 million of our shares during the quarter, while only drawing down our liquidity by $10 million. As previously mentioned, we continue to use a portion of our cash flow to invest in repurchasing our shares when we believe they are below the intrinsic value of our company and can produce an attractive return. $7 million investment in the quarter to repurchase 108,660 common shares at a weighted average price of $63.55 was followed on with an additional $5 million to repurchase 76,440 shares at a weighted average price of $68.39, subsequent to quarter end. That brings our total share repurchases year-to-date through our normal course issuer bid 764,435. As a reminder, both our dividend and share repurchase decisions are made on the basis that we can fund all organic loan volume that meets our credit criteria and they can be sustained even in the stress scenario during economic disruption.

Turning to our funding. Based on the cash at hand at the end of the quarter and the borrowing capacity under our revolving credit facility, we had approximately $250 million in liquidity, which we estimate would allow us to fund the organic growth of the business through to midyear 2022. We also estimate that once our existing available sources of capital are fully utilized, we could continue to grow the loan portfolio by approximately $150 million per year solely from internal cash flows. The business has also benefited from reduced funding costs. At quarter end, our fully drawn weighted average cost of borrowing reduced to 5%, down from 6.7% in the prior year, with incremental draws on our senior secured revolving credit facility bearing a rate of approximately 3.6%.

During the quarter, we issued a notice to redeem all of our 5.75% convertible unsecured subordinated debentures that were due to mature on July 31, 2022. As of the close of business on June 28, 2020, the principal amount of convertible debentures issued and outstanding was approximately $43.8 million of which the holders of approximately $41.4 million, an aggregate principal amount elected to convert their debentures into approximately 954,000 common shares prior to the redemption date of July 31. We then redeemed the $2.4 million that remained unconverted on that date to cash. But most of the debentures being converted into equity and the loan growth being largely self-funded, we've also reduced our leverage position. Our net debt to net capitalization declined 66% at quarter end, and the equity on our balance sheet improved to over $410 million.

Lastly, we are making good progress on securing an agreement for a securitized funding facility, which we hope to launch by year-end. If implemented, the facility would provide another diversified source of funding for the company, while increasing our total liquidity and further lowering our cost of capital. Despite the challenging environment, our balance sheet remains one of our key competitive strengths. With a conservative level of leverage and potential new funding sources on the horizon, we are well-equipped to fund our ambitious growth plan and capture new investment opportunities that we deem to be a strategic fit. I'll now pass the call back over to Jason for some comments on our outlook.

Jason Mullins: Thanks, Hal. While our business is thriving during a challenging time, we will continue to be cautious and nimble, carefully navigating through these uncharted waters. We will continue to leverage our custom proprietary credit scores that use best-in-class statistical modeling technology and our centralized loan approval function to apply the targeted credit tolerance adjustments needed to operate in a rapidly changing environment. At the same time, we are continuing to invest in our business and position ourselves as the leader in the non-prime consumer lending market. In the fourth quarter, we intend to invest nearly $8 million in marketing and advertising to ensure that we have maximum awareness during the traditionally busiest quarter of the year.

The quarter was kicked off with the launch of our new TV spot, titled #10 to sit alongside our hubs ad, both of which aim to provide everyday Canadians a sense of hope and a second chance to acquire the credit they need while putting them on the path to a better tomorrow. On our strategic initiatives, the implementation of our new cloud-based lending platform remains on track for deployment next year, and we are also making great progress in the design and development of our direct-to-consumer auto loan product, which will be in pilot in early 2021. We were pleased to launch the pilot of our next-generation scoring models that leverage alternative consumer banking data so that we could better underwrite unique segments of the population, such as new Canadians, students and those deny credit. Since we turned on the pilot in September, we have tested lending to 1,000 new customers that we would otherwise have denied based solely on traditional credit data. Lastly, we will continue to work with PayBright to seek new retail and e-commerce partnerships where the second look easy financial offer can help them maximize their sales.

As there continues to be uncertainty around the ongoing and future effects of COVID-19, we plan to defer providing an updated long-range forecast until the environment begins to stabilize, and we can better assess the timing and pace of a recovery. We are hopeful that will be in the new year. In the meantime, our portfolio is performing well, and we will continue to provide a regular near-term outlook. Although it appears it will take another few quarters before demand returns to pre-COVID levels, with sales volume gradually improving and our media campaign continuing to run through to December, we expect to grow the consumer loan portfolio during the fourth quarter between 5% and 6% or between $60 million and $70 million. With the level of support being provided to borrowers remaining stable, and the volume of loan protection insurance claims gradually reducing, we expect the total yield generated on the loan portfolio to improve by between 50 to 100 basis points over the third quarter finishing between 45.5% and 46.5%.

And turning to credit. We continue to expect credit losses to gradually normalize and trend back toward pre-COVID levels. However, our consumer payment and default trends continue to perform very well. The government has continued to extend its subsidy program through the creation of new EI benefits that have been rolled out and with extra caution being applied due to a potential second wave, many consumers will continue to experience a reduction in living expenses throughout the winter months. During the month of October, for example, our average delinquency rate was 4.5%, which remained down by nearly 20% from last year.

Based on the current collection, repayment and delinquency trends, we would expect our net charge-off rate in the fourth quarter to finish at approximately 10%. In closing, we continue to be well positioned to navigate through the economic uncertainty and sees the opportunities that arise along the way. The fundamentals of our business and the confidence in our strategy to provide everyday Canadians with a path to a better tomorrow are stronger than ever. I want to thank all 2,000 goeasy team members. Without their unwavering commitment to stand by our customers, we cannot serve the millions of everyday Canadians that rely on our services as we work toward helping them improve their credit and graduate back to prime.

With those comments complete, we will now open the call for questions.

Operator: [Operator Instructions]. Your first question comes from the line of Stephen Boland from Raymond James.

Stephen Boland: First question is just on the insurance protection. I guess back in Q2, you said the - I guess, the July claims payments were about $4.7 million.

So for the total of Q3, it was $14.6 million. So I expect there wasn't much decline in August and September. Is that a fair statement? Or was there a gradual or I guess, a decline in September compared to August?

Jason Mullins: Yes. Great question. So the way to think about it is there was a decline in the number of customers on claims, however, around the month of September - through mostly September and October would be the 2 primary months.

Those consumers who did reach the 6-month milestone and were eligible for the $2,000. That onetime lump sum $2,000 is within that number. So what you see is a gradual decline in the underlying number of consumers on claims, but the dollars through the back part of Q3 and the first month of Q4, really being temporarily propped by the onetime payments from those last customers that got that $2,000 lump sum. And then all of those customers that get that last payment we're really seeing them kind of completely fall off claims come the end of October, beginning of November. So the claims numbers you're seeing for Q3, the yield guidance that we gave for Q4, all of that all takes into consideration those last tranche of customers that are hitting month 6 and receiving that final payment.

Stephen Boland: Are those customers that had the payment plus the lump sum, if they pay their loan off, they are eligible to re-up and get a new loan, right?

Jason Mullins: Yes. They are. Our models will often require a customer in that type of scenario to have a gap period where we can see some stability, depends on the variables on their credit. But yes, if they successfully repay the loan and they have not seen further reductions in their credit quality from whatever they have been doing to manage their other liabilities, then they could very well potentially qualify for credit down the road.

Stephen Boland: Okay.

I guess I appreciate that you don't want to give like further guidance in sort of the medium to long term. But I guess last quarter, you're - you mentioned your cash would last till end of 2022. This quarter, I don't want to be too specific, but they'll last till Q2 2022, so 6 months shorter. So is that use of cash due to an improved growth outlook? Or what would be driving that use of cash?

Jason Mullins: Yes. That's right.

So as we looked at the growth trends, obviously, last quarter, where they - it looked like it might be a little longer before we started to see a return to growth of the portfolio. Our internal projections for how long that capital would fund organic growth were a little bit longer. Now that we've seen growth in the third quarter at $48 million, call it, $200 million on annualized basis. And then as per the guidance we've given, another step-up expected in Q4. The improvement to the organic growth projections that we have internally just means that it shaped a few months off how much runway we have from the existing capital albeit that's before any new capital is introduced, such as the facility that Hal mentioned we're working on.

Stephen Boland: And I guess part of that would be the 2021 growth expectation, which I don't know if you want to disclose that or not at this point?

Jason Mullins: No, I don't think we want to - I don't think we're planning to provide any specifics at this time until we can give you the new clear commercial guidance, which again, we're hoping to do early next year. All I would say is that if you look at our Q3 growth and the trends we're suggesting we're seeing for Q4, we're clearly graduating back toward pre-COVID levels. We're probably not all the way there yet, but if we grow 50% in Q3 and 60% to 70% in Q4, as suggested during the prepared remarks, you can get a sense that we're kind of a 70% to 80% plus back to pre-COVID growth levels. Perhaps we continue to see that improve as we hit Q1 as well. And so if you think of pre-COVID growth levels as being somewhere between the loan book growth, $250 million to $300 million range, and you consider the trajectory that we're on in Q3 and Q4, you could start to get a sense that we feel the business should be in good shape for a solid year of growth next year.

Operator: Your next question comes from the line of Gary Ho from Desjardins Capital Markets.

Gary Ho: Maybe Jason, can you provide a bit more color on the big step down in net charge-off this quarter? And what do you think - you'll see that big jump back that 10% in Q4. Are you seeing some of that number so far in the October data?

Jason Mullins: So I'll maybe make an opening comment and then Jason would validate that. So - and I would certainly think of the 8% in the third quarter as being certainly unusually low granted the 10% we reported in the second quarter and that we're guiding for Q4 is also clearly a very good loss rate ratio relative to our trends prior to the pandemic. Yes, the way I think about Q4 is, as we said in the prepared remarks, we would expect that we will eventually graduate and normalize back toward pre-COVID levels.

I do think that there is a scenario where because the underlying credit quality of the book has been improving that as we exit the pandemic, the portfolio performance is better than where we came into the pandemic. Certainly, there's a downside to there where the next number of months get really problematic, it could swing the other way. But at this point, it would seem like it would feel more like we're going to go through a gradual normalization. It will take probably a couple of quarters for that to happen. So I look at the 10% that we're expecting to see in the first - fourth quarter as just being part of that natural evolution, but still, obviously, a 10% being markedly down from the 13% we were running when we came into this experience.

Jason Appel: And Gary, maybe just to add to that, two other things I'd have you think about. One would be the strong growth that we saw in the overall economy in Q2, which bled into Q3, really helped to keep our portfolio loss rates down. Obviously, we've seen some modest slowing in the overall Canadian economy, which eventually finds its way into the overall loss performance of the book. And then the second trend that we obviously keep a close eye on is where insolvency trends have been moving, they obviously continue to be lower year-on-year, which is obviously giving us a net benefit in the portfolio, but they are slowly, albeit very gradually rising up. So the combination of a slowing economy, along with modestly rising insolvencies are what's likely going to take the overall portfolio loss rate up a little bit, again, still well below 300 basis points on average below last year but still significantly low overall.

Gary Ho: Okay. Great. And then second, I know there's still a fair bit of uncertainty, and that's part of the reason why you haven't reinstated your 3-year outlook. Can you maybe talk about kind of what items you need to see or happen before you think about putting those forecasts out? And would that roughly coincide with you potentially bringing down your allowance for credit losses as well?

Jason Mullins: Yes. I mean I would say the things we're looking for are to be comfortable in republishing full 3-year targets, and the things we're looking for to be comfortable in any provision adjustments are probably similar in that what we're really looking for is just some degree of confidence that the worst of the pandemic is behind us that there's clearly something on the horizon that suggests case counts should trend down and - or we're working toward a vaccine time line so that we're not dealing with the uncertainty that there might be another major outbreak and a major widespread set of industry or economic closures.

It feels like by the time we get to when we get to February, and we're releasing our year-end results, and we'll have a bit of visibility on Q1 performance at that time as well, that should be a time we feel we're going to be in a position to at least provide new commercial guidance. Certainly, if it's still a tumultuous period, we might defer it, but I feel pretty good. That's what we're planning and aiming for. And so that's the intent today. Provision might take another quarter before that gets to the point we feel really comfortable, but certainly, in the first half of next year, we would hope to be in a position where both of those things are able to be dealt with, and the outlook is much more clear.

Gary Ho: And then my last question, maybe for Hal, just on the securitization program, just how much of a benefit could we see in terms of financing costs as we move on to 2021 here?

Hal Khouri: Yes. Gary, I think it's a really good question. First of all, I'd say we're making excellent progress in expanding up that facility and hope to have it set up within the next couple of months before year-end. Obviously, that will give us a nice diversified funding source, additional liquidity to fuel the organic growth as well as some of the activities that we're sort of looking at from an M&A standpoint. In terms of the overall rate, I would expect that rate to be at least on par, if not better than our current marginal rate that we have in place currently and that would be the expectation of where we land.

Jason Mullins: Generally, Gary, the securitized facilities would typically - Hal, correct me if I'm wrong, be kind of 50 basis points, give or take, better than the unsecured revolving facility. However, today, the variable rates being so low, means that, that delta and spread is going to be a bit tighter, right, because our - as Hal mentioned in the comments, the revolving credit facilities' incremental draw costs are 3.6. So because the underlying variable rate component is so low, that delta of improvement in spread at that level is going to be a little bit tighter. In normal - slightly more normal interest environments, the securitization would then be a little bit more meaningful in terms of the decline. But as Hal said, it should be at least at or better than the revolving credit facility.

Operator: Your next question comes from the line of Etienne Ricard from BMO Capital.

Etienne Ricard: My first question was on just a follow-up on credit quality. I appreciate visibility into 2021 remains limited, although I'd like to get your thoughts on what gives you comfort credit losses should remain within historical ranges? And one specific angle I'm interested in is, by the end of 2020, what percentage of your receivables would be pre-pandemic vintage loans?

Jason Mullins: So I'll provide an opening comment, and I think Jason can give you a sense of the approximate proportion of the portfolio that, at the end of the year would have been originated during the year. So look, when we think about our outlook for credit, we speak from the perspective of closely monitoring the credit quality of the originations that we are and have been recently booking the credit quality of the active customer base that we have, which we reassess the entire portfolio every month by pulling fresh credit data and rerunning all of those consumers through our own credit models where we can get full visibility to all of the activity on their credit file, including the payment behavior and performance with all of their other lenders. We work with our credit reporting agency directly to provide us with market data segment by credit segment to see what's going on with those consumers' performance on all of their liabilities, what they're doing with payment deferrals, et cetera.

So part of the confidence in the outlook of our credit is because when we look at all the things that we can control, the quality of the originations based on the quality of the underwriting we're doing, the performance of the existing customers on the book, those factors, it looks to be in good shape. And as evidenced by the actual experience, does look like we should see a fairly positive outlook for credit performance. The caution we're providing is purely the uncontrollables and what happens in the broader economic environment and the trends of the pandemic. If we see the next several months look like we've seen in the last month or 2, where closures are contained to very specific regions and industry sectors and the government continues to battle hard to try to keep as much open as possible while we bob and weave our way through this next wave, then you're in a more optimistic scenario where the underlying credit quality should prevail, and we would see our loss rate, as I suggested, perhaps return to or be better than the levels we saw coming into the pandemic. It's just the unknown of these things got worse.

It's really hard to say for sure, they can't, if things got worse, could you see the loss rate climb back to and maybe above where they were? It's possible. It's just that's looking like a lesser probability scenario at this moment. Jason, you want to add anything to that?

Jason Appel: And just to bolt-on to Jason's comments, Etienne. The other thing I'd have you think about is your comment around sort of how we distribute the portfolio. About 40% of the portfolio has been originated within, call it, the pandemic period, as we monitor those originations monthly, we know that the credit quality of those customers is significantly above our historical trend.

And admittedly some of that is being aided by certain assistance programs that we've mentioned before. But I think the other story here is what happened before the pandemic. As Jason mentioned in his opening comments that we are constantly tweaking and modifying the portfolio, adjusting our underwriting, tweaking our credit models, introducing new champion and challenger strategies with an overall goal to continue to manage the risk of the overall portfolio moving down and those actions actually started taking place prior to COVID. And the key message I'd have you take away here is losses lag. So they generally, on average, lagging about 9 to 15 months after the changes you put in.

So if you think about the fact that we've been making credit adjustments throughout most of 2019 and obviously in 2020 in response to the pandemic, it's that combination of ongoing tweaking adjustments that leaves us feeling relatively confident about what the future looks like. Again, notwithstanding the fact that the economy could move in the other direction, the underlying and underpinning data of the vintages that we see are as good, if not better, with each subsequent quarter that we move through. And that's what ultimately gives us the confidence to think that the loss rates should remain comfortably underneath our higher points of 2019, subject to the economy remaining on a fairly solid footing.

Jason Mullins: Maybe just one other small bolt-on data point Etienne is, you've heard us talk about in the past that the mix of loans that we issue to brand-new borrowers versus existing borrowers or existing customers with whom we have an existing relationship, has a very different loss profile. One of the things you'll see and notice is that where in the past several quarters pre-pandemic, we were issuing the net new credit to new customers at about 60% versus existing at about 40%.

And over the last couple quarters through the pandemic, that's been more like 50-50. So while it's not a significant swing, still a fair amount of healthy new customer growth, that shift just from 60-40 to 50-50 and the effect of a bit more of our lending being done to existing borrowers where our behavioral models are far more predictive and accurate at determining exactly who we should lend to the right rate and the right amount because of the history we have with those customers, that just helps act as another tailwind to improving the overall credit quality. So it's sort of those kind of combination of factors that give us some of the thinking around the outlook.

Etienne Ricard: Well, this was my next question, Jason. I mean that's great.

I mean how important will new customers be in driving growth relative to extending credit to existing borrowers that you have in the form of risk-based pricing?

Jason Mullins: Yes. So undoubtedly, new customers are the lifeblood of any business, full stop. Nothing that we're doing is taking our emphasis or attention away from going and acquiring and focusing on building our new customer growth. The demand effects caused by the pandemic has given us the mix shift that I noted, which is really just an ancillary benefit to the tailwind on the credit side of the ledger, but it does not imply any change in focus around growing new customers. The banking models that I noted that we're just put in better at pilot.

That's out of 1,000 new customers already that we would have otherwise not lend to. That models - those models are designed, particularly to try and allow us to underwrite brand-new customer segments. As we get ready to go into next year and launch the direct-to-consumer auto products, that will be another key product in attracting and acquiring new customers into the business that we might have not developed before. So given we still represent a very, very small share of this market, our view is that there is substantial organic new customer growth still for a long runway in front of us.

Etienne Ricard: Great detail.

One last question for me. I'd like to talk about loss ratios across your different channels. I think you've previously mentioned that loans originated in branches has historically benefited from lower credit losses relative to the online channel, given that it helps build customer relationships. In a more digital environment, how do you think you can help recreate that connection with clients online?

Jason Mullins: Yes. It's a really great question.

And those kinds of issues or the issues all businesses are dealing with is how do they leverage the digital capabilities and accelerate their digital development, given the change in consumer trend and preference in a way that maximizes the potential of the business. In our case, what we've been doing is enabling the capacity for customers to not have to physically visit us if they or the personnel identify a reason why it would be unsafe to do so. However, even though the transaction is being facilitated using digital technology, the customers that would have previously visited the branch are still interacting with the branch. So the branch is still the one who's reaching out to dialogue with the customer. The customer is still going through a process of applying and providing the appropriate documentation to the local branch.

And so we do believe that interacting with someone in a branch in your local community, even though you might not physically come in and see them face-to-face is still the next best thing to getting them in the door and sitting down and spending some time with them face-to-face. Certainly, we would expect that, that might mean some incremental risk compared to seeing every customer face-to-face, but if I compare that to a true digital transaction where you're dealing with someone in a call center and somewhere far away, where you're not having any human interaction, we do see in the vintage performance of the cohorts of loans that it is markedly better than that. It's much closer to a real face-to-face experience. So I think when we consider that the credit quality of the customers, we're onboarding because of the underwriting changes are markedly better, I would expect those things to outrun any additional risk being taken by the fact that some of our loans are being done with branch staff, but digitally as opposed to physically having them come in. And so that's - it's the combination of the digital technology and still being able to interact with someone in your local community that works out of a local office where you shop that you can periodically pop in and see or drop something off to, it's really merging that digital and haymen interaction where we're finding ourselves today.

Operator: Your next question comes from the line of Doug Cooper from Beacon Securities.

Doug Cooper: Congratulations on a great quarter. Just want to focus on PayBright just for a second. Second quarter in a row, you've increased your equity position in terms of mark-to-market. $40 million at roughly 20%, gets - I guess, gets them a value of around $200 million.

I think in the MD&A, you said you're valuing the thing around 7x sales. So they're in the run rate of around $30 million. Was that the ballpark?

Jason Mullins: So we don't publish our ownership stake or their revenue figures or any specific financial performance of theirs. Frankly, we have limited access to some of that information. What we do know and can state is that their revenue has been growing at an annualized rate of 80% plus as a way to think about their performance.

We mark-to-market our equity-based on a combination of the business performance. So the revenue growth of the portfolio as well as looking at industry comparables in that sector and trying to do what we think is an appropriate value for that private business to reflect the appropriate amount we carry in our balance sheet for our portion of the equity.

Doug Cooper: Right. I guess I was just trying to get at if - you raised your equity portion by, I think, 17% quarter-over-quarter, something like that, but they're growing to 80%. It seems to me that the revenue multiple you're using is declining.

I noticed that Wayfair had a huge numbers, increase their customers, 51%. And I know that Wayfair is a customer of PayBright. Can you talk a little bit about sort of, of your loan book, how is the originations from PayBright, what's the momentum in that for your business?

Jason Mullins: Yes. So it's been very good. We are pretty close to being right on track with what we expected.

The only thing that's kept us a little bit off course is that with some of the effects of COVID, getting some of the new technology turned on with them has been a little bit delayed, but the underlying growth that new customers coming from that partnership has been very good. We've also seen, frankly, great new customer growth in our point-of-sale partnerships even outside of PayBright. So point-of-sale overall has been meaningful in terms of its new customer contribution. I think the way to think about it is the average transaction in point-of-sale is much smaller, much smaller than our unsecured loan and secured loan products. The average ticket through point-of-sale would be around only $1,000 because the customer is typically purchasing a single household item.

And so you don't see the manifestation of that channel in POS, point-of-sale originations. Where you really see its contribution is in our ability to cross-sell those customers our other products, and that shows up in our unsecured and secured loan originations and also shows up as lending to an existing customer because once a customer gets on-boarded through point of sale, and we now have their payment history, we can use our behavioral models to then cross-sell them another product. So that is also contributing to that shift in mix we highlighted earlier on the prior question because we're seeing good new customer growth come in, and we're seeing very good success in cross-selling those customers into our other loans. So again, we haven't split out the origination specifically by channels, but consider the new customer contribution to be quite healthy and consider that the cross-sell rate of those customers into our other products is also quite healthy.

Doug Cooper: Right.

And I don't know if you can comment or not, but presumably, their access to capital, if they require it to grow 80% to 100% per year. Certainly, the peer group - publicly traded peer group is upwards of 40x sales. Any indication of what their plans might be in terms of going public or monetizing that investment at some point? I'll leave it there.

Jason Mullins: Yes. So a couple comments.

On general access to capital, that industry sector has done very well given the combination of the fact that they're a prime lender who is really focused on an upper credit quality consumer and the fact that they, along with all the others in that point-of-sale industry sector, have seen great growth, a large contribution of which is from the shift to online commerce from the pandemic. They, along with many others, have not struggled to get access to capital. Certainly, when you have equity investors like ourselves and some of their other marquee investors that are behind the business that gives their lenders confidence in investing in the company, providing debt capital as well. I will not comment or speculate on their specific plans or how they intend to monetize the business, but I would say is you are seeing across that industry sector, some consolidation. You're seeing certainly lots of interest in the sector from those strategic players and straight equity investors.

So it would not be a surprise that if you see in that industry sector at large, there are going to be a continuation of transactions happening. But PayBright, we're a minority equity holder. So it's really PayBright independently that has to make those decisions and figure out the right plan for that long term. In the meantime, we continue to be a great partner, both as an equity investor and a great commercial relationship. So that's where we've been focusing our time.

Operator: I'm showing no further questions at this time. I would now like to turn the conference back to Jason Mullins.

Jason Mullins: Okay. Thank you. Well, since there are no more questions, again, I would like to thank everyone for participating in the conference call, and we look forward to updating you again next quarter when we close out the year.

So thanks, everyone, and have a fantastic day.

Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.