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Update on balance sheet and (un)profitability of Motus Bank
December 3, 2022
10:20 am
Doug
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Despite Motus Bank's CFO promising to produce separate, non-consolidated annual audited financial statements every year and distribute them on their website, they've not done that. So, we have to continue to rely on the balance sheet and income return details provided by OSFI.

Balance sheet (as at September 30, 2022)

Loans:
- Loans, including lines of credit: $22 million
- Of which: $15 million is secured by non-residential property

Mortgages:
- Insured (CMHC and/or Sagen and Canada Guaranty): $24 million
- Of which: $0 is NHA-insured, pooled/securitized mortgages that have not yet been sold and remain on the bank's balance sheet
- Uninsured: $161 million

Meridian Credit Union members' capital held for required regulatory purposes:
- $40 million in deposits held with the central bank and other commercial banks
- $10 million held in treasury bills

Demand and short-term notice deposits and other liabilities:
- Tax sheltered: $41 million
- Non-registered: $72 million

Term deposits:
- Tax sheltered: $45 million
- Non-registered: $48 million

Mortgages payable by the bank:
- $14 million

Income statement (quarter ended September 30, 2022):
- $4.5 million in interest income ($852,000 from loans, $3 million from mortgages, and $10,000 from loans classified as impaired)
- Non-interest revenue ($3.1 million, of which $3 million is classified as 'other' and $100,000 is classified as service charges)
Less:
- Deposit interest payable on demand and notice deposits: $1 million
- Deposit interest payable on term deposits: $1.5 million
- Other non-interest expenses: $6.7 million, of which $4.3 million is salaries

Net Loss for the quarter: $1.5 million

Annualized run rate proforma net loss: $6-10 million

of which reduces parent Meridian Credit Union's annual profit

Motus Bank has yet to turn a profit for Meridian, and its growth in assets appears to have plateaued.

Cheers,
Doug

December 3, 2022
10:52 am
AltaRed
BC Interior
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Those are extremely tiny numbers overall and may result in a wrap up with ongoing losses. It goes to show how hard it is for a fintech to be relevant in a crowded space.

It might explain why their GIC rates are good but their HISA rates are abysmal. They can't afford any kind of 'run on the bank'.

December 3, 2022
11:35 am
Loonie
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It makes me wonder what Meridian's strategy is or was, and what its expectations were.

From depositor's perspective, they only ever had good rates at the very beginning - until very recently.
I have no idea where they even get new business as they appear not to advertise - or at least not in my direction.

motusbank had or has some possibilities as it is a relatively-full-service totally-online bank. Again, I wonder what is strategy for making that niche work?

I ithink raising depositor rates is a good move though. Unlike the for-profit banks, they don't have to make extravagant amounts of money, but they do have to make some!

Personally, I think Meridian needed to fix its timelines for transfers before it opened a bank. I think people go to an online bank expecting greater efficiency than at a bricks and mortar bank.

December 3, 2022
4:19 pm
Doug
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I agree with both of you, AltaRed and Loonie. What I think Meridian should do is fold Motus Bank into Meridian Credit Union and operate as a pan-Canadian, Ontario regulated credit union. They're the only Ontario credit union, as far as I know, that has in their bylaws to permit out of province residents becoming members. Ontario legislation allows it. They could even rebrand Motusbank as Motus Financial, a division of Meridian Credit Union Limited, and operate as a virtual branch transit of Meridian. Redeploy those added corporate cost centre costs into improving their banking platforms and systems, to facilitate end-to-end digital fulfillment and improve end user EFT transaction posting times. Continue to source mortgages and deposits through deposit brokers as well, and even consider paying brokers a commission for new members added to the Motus Financial stream.

Cheers,
Doug

December 3, 2022
4:31 pm
Loonie
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Maybe.
but they're going to have to put some money into advertising if motus is to succeed in whatever configuration... and lose that dreadful name!!
Maybe they can't afford the advertising, or are waiting for some future growth opportunity. Just think of all the money that was poured into ads by Oaken and EQ!
Right now it feels like motus is relying on word of mouth.

December 4, 2022
8:13 am
Doug
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From Meridian Credit Union's 2021 annual report, it looks like Meridian has hired an external consultant to review Motus Bank's business strategy and has effectively placed Motus Bank on a strategic review. This could include, among other things:

* An orderly wind down/wind up of operations;
* An amalgamation into Meridian Credit Union;
* A completely revamped product suite, including significant changes to product names, service features, and fees;
* Some combination of the first three options; or,
* Maintaining the status quo.

The fourth option seems unlikely, as I would question the Meridian board's and management team's hiring of a costly external consultant to conduct a strategic review and conclude that the current situation (i.e., plateauing of new member sign ups, deposits, and mortgages, and its unprofitability) is "just fine." sf-cool

Cheers,
Doug

December 4, 2022
8:21 am
Doug
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Meridian Credit Union also revealed Motus Bank grew by only a customer base of 1,800 clients. They did not reveal their total number of clients, but still trails their peers, based on past numbers they've revealed.

Perhaps most concerning for a bank of their small size is they revealed $1 million of their "other income" was from "fraud recoveries." Given how few members they have, to have taken legal or other action to recover $1 million is concerning.

Cheers,
Doug

December 4, 2022
8:33 am
AltaRed
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My depreciating nickel thoughts.... I think the Motus experiment is a half-hearted attempt by some Meridian board member(s) who had a 'me too' copycat moment to get into federally chartered banking like Alterna without any real commitment/motivation/resources to make it happen. Meridian members have no particular reason to sign up for Motus and anyone outside Ontario could care less with other competitive established alternatives readily available. Time to stop the bleeding.

December 4, 2022
8:45 am
Doug
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AltaRed said
My depreciating nickel thoughts.... I think the Motus experiment is a half-hearted attempt by some Meridian board member(s) who had a 'me too' copycat moment to get into federally chartered banking like Alterna without any real commitment/motivation/resources to make it happen. Meridian members have no particular reason to sign up for Motus and anyone outside Ontario could care less with other competitive established alternatives readily available. Time to stop the bleeding.  

100% agreed. Love how you qualified your "nickel thoughts" too.

December 4, 2022
11:43 am
Loonie
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Consultants are often hired basically to tell people what they already know - i.e. to tell the boards what the management already knows but the board doesn't want to hear or vice versa.

Motus does have some potential, in my view. Of he online-only options, it has the fullest slate of offerings with best rates. That OUGHT to be a profitable model for the future, considering there are no branch expenses and they are using a building Meridian already had.
I suggest these improvements:
1. Advertise. Spend the money on this, not a consultant. Do it or die. Put out a coupe of special rates to pull people in. If you can't afford the ads, pull out until you can, cut your losses.
2. Improve the website so that all the rates for GICs are in a line, not scattered. Way too confusing at present; the modern online customer with short attention span will just give up.
3. Overhaul back room operations so that transfers are done efficiently and so that one can always see where one's money is. If you transfer money out of there or Meridian, it just disappears until they get around to transferring it several days later. This is unacceptable.

I withdrew the money I had at motus a few months ago as it no longer met my needs. My Alterna Bank account is also quiet, but Alterna seems to somehow survive regardless. They both have unremarkable rates.

Or maybe motus just has poor managers?

December 4, 2022
12:26 pm
AltaRed
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Maybe, or maybe not. This has become a crowded space in recent years with a number of start ups and some failures (or consolidation) is inevitable.

Not directly related, but in the CU space, there were 350 CUs (ex Quebec) end of 4Q14. That reduced to 220 CUs end of 4Q2021 and to 212 CUs end of 2Q2022. My thought being that it is likely impossible to survive long term with less than maybe $300M in assets. #100 on the current CU list is Grand Forks District CU with $309M in assets. Like many other similar stand alone CUs in the BC Kootenays, it is hard to imagine this one will survive on its own post 2030.

Added: I think that unless there is national exposure, e.g. the likes of LBC Digital, Motive Financial, EQ Bank, or Oaken Financial due to a national 'parent', it will be hard to develop scale.

December 4, 2022
12:51 pm
Doug
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AltaRed said
Maybe, or maybe not. This has become a crowded space in recent years with a number of start ups and some failures (or consolidation) is inevitable.

Not directly related, but in the CU space, there were 350 CUs (ex Quebec) end of 4Q14. That reduced to 220 CUs end of 4Q2021 and to 212 CUs end of 2Q2022. My thought being that it is likely impossible to survive long term with less than maybe $300M in assets. #100 on the current CU list is Grand Forks District CU with $309M in assets. Like many other similar stand alone CUs in the BC Kootenays, it is hard to imagine this one will survive on its own post 2030.

Added: I think that unless there is national exposure, e.g. the likes of LBC Digital, Motive Financial, EQ Bank, or Oaken Financial due to a national 'parent', it will be hard to develop scale.  

Wow, I hadn't realized Grand Forks & District Credit Union wasn't in the top 100 already. With so many CU mergers and even caisses populaires mergers, the barrier for entry to the "top 100" club is not high anymore. Pretty soon we'll probably see Compensation Credit Union on the list (a closed bond, single branch credit union for employees and retirees of WorkSafeBC)!

But yes, I think the last point is interesting. Alterna Bank didn't have a national presence, but they also didn't have the competition. Achieva Financial succeeds among the Manitoba CUs because it was the first born digital financial institution banner, preceding even ING DIRECT Canada and PC Financial. Hubert succeeds because of the simplicity of the their new member onboarding process. That may change when they're ultimately forced onto Access' platform, though. The others are "me too" competitors that struggle to attract any following. The only reason they continue is because the cost base is so small and they share a common contact centre.

In short, Meridian waited way too long. They should've launched ten years ago, and they might've had a fighting chance.

Write the business off, fold Motus customers' GICs, HISAs, and registered plans into Meridian products, and then improve the Meridian back end transaction processing times. Launch a no-fee online only Meridian chequing account, and they've essentially got what they wanted, without the added cost structure and regulatory capital. And going federal seems to add a lot of regulatory burden, capital requirements, and bureaucratic micro-management—just ask Innovation Credit Union, which members approved to go federal several years ago and it looks like it won't happen this year after all.

Cheers,
Doug

December 7, 2022
12:10 pm
Adammon
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Grand Forks CU in BC is looking to merge with Gulf and Fraser with an expected announcement date of the vote results on December 13th, so your surprise isn't that far out, Doug.

January 11, 2023
9:55 am
JenE
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As I’m thinking of depositing TFSA GIC monies with Motusbank, I’d appreciate thoughts on the wisdom of this, based on the rather negative thoughts of some posters. If Motusbank was to close up shop, what would the fate be of these 5 year GICs?

I must say, that opening accounts with Motusbank and subsequent queries, etc., have been almost Hubert- like in the quality of service I have received.

January 11, 2023
10:15 am
justsmileandnod
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JenE said
As I’m thinking of depositing TFSA GIC monies with Motusbank, I’d appreciate thoughts on the wisdom of this, based on the rather negative thoughts of some posters. If Motusbank was to close up shop, what would the fate be of these 5 year GICs?

My understanding is that you would be covered up to $100,000 (motusbank is CDIC-covered).

But in my view, the real financial risk -- and the one that keeps me from opening TFSAs at motusbank and People's Trust/Bank -- is that even if CDIC comes to the rescue and you get your funds back, my expectation is that they would no longer be sheltered. So it would be essentially like withdrawing them.

If it happens in December then that's not really a problem -- just wait a couple of weeks and slide them back into a TFSA somewhere else. But if it happens early in the year (and if my assumption is correct) then the tax-on-interest cost could be painful.

January 11, 2023
11:17 am
canadian.100
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Please delete this box.
Not the thread I was looking for.

January 11, 2023
12:05 pm
justsmileandnod
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AltaRed said
My depreciating nickel thoughts.... I think the Motus experiment is a half-hearted attempt by some Meridian board member(s) who had a 'me too' copycat moment to get into federally chartered banking like Alterna without any real commitment/motivation/resources to make it happen. Meridian members have no particular reason to sign up for Motus and anyone outside Ontario could care less with other competitive established alternatives readily available. Time to stop the bleeding.  

I agree with this, and would add that part of the 'me too' motivation was to specifically to target younger digital natives (and I guess older digital immigrants who don't care about brick and mortar).

According to one person at Meridian who I've talked to about this -- and who candidly shared his insights -- the big problem they have right now, is that people who are comfortable with digital banking are ALSO comfortable moving their money out if the rates aren't competitive.

In other words, I think some folks on the board thought (as folks on the board often do) that the technology, itself, would be enough to make the relationship sticky. Sure, good technology helps. But it's not enough; especially if the same people who have money in a HISA at motusbank can easily (like in their sleep) move those funds to EQ, or chase Tang and Simplii across the promo landscape for a while.

On top of this, if you are both a motusbank and a Meridian customer, if you walk into a Meridian branch or phone your branch, they will not help you with your motusbank stuff. That may seem obvious and expected from the business side, but customers make their own rules. My Meridian contact told me that some customers were frustrated (and a few outraged) that they were 'pitched' to join motusbank through Meridian, but once they signed up it was like a giant wall went up. Even if they were told this would happen, they didn't connect the dots and realize what it would mean to their day-to-day banking experience.

January 11, 2023
4:31 pm
Loonie
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I don't feel I know enough about who Motus' customers are and what the business plan is to be able to say much about their future at this point.
It does seem to be a crowded market but motus does offer more services than many other online banks.
It may be that the owners are thinking twice about online banks etc. I note that Coast Capital doesn't seem to have gotten off the ground nationally after going federal, DUCA appears to have abandoned the effort to go federal, Ideal Savings seems to have been effectively abandoned, and perhaps there are other similar stories.

If motus were to go out of businesses, I imagine Meridian would find a way to capture its customers and investments. Nonetheless, I would not exceed CDIC limits INCLUDING ANTICIPATED COMPOUND INTEREST.
I don't think TFSA investors would be left high and dry. I think that they would be offered a route to transfer the money to another TFSA at FI of their choosing. I seem to remember that this was what was done in another situation having to do with RSPs.
If you stay within CDIC limits, the worst that is likely to happen is that your GIC will be cut short but you will get interest to date. Seems like a fairly minor risk to me but everyone has their own threshold.

January 11, 2023
5:08 pm
Canadianbull
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How bad is the situation? Is it really that bad that people actually think these guys will not survive for next 5 years? I really like the rates. I am looking forward to invest 160K in 2 different GICs.

January 11, 2023
5:42 pm
KamWest
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I'm not sure if I agree with all the doom and gloom.

Technically motus is run by the same staff, same servers, same software etc.

There really is no downside to keeping it and playing the waiting game.
Most of my relatives, myself included have our RRSP and TFSA accounts there and the interest is decent.

The savings account is nominal but any significant funds are invested anyways.

If I were to have one criticism its all those juvenile animations when you deposit and such. The Meridian interface is exactly the same without the animations and using that one for my business accounts feels professional whereas the motus one feels to me like they are going after teenagers, which they probably are.

Everyone has flankers now and I think it would be a mistake to shut it down, especially since the biggest expenses are the startup expenses and those are done with.

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