– Fourth Quarter and Fiscal 2023
Highlighted by Another Record Loan Portfolio and Record Revenue,
Net Interest Income and Net Income While ROCE Improves to 13.58% –
VersaBank's 2023 annual audited Consolidated Financial
Statements and Management's Discussion and Analysis ("MD&A")
will be available today online at
www.versabank.com/investor-relations, SEDAR+ at
www.sedarplus.ca and EDGAR at www.sec.gov/edgar.shtml.
Supplementary Financial Information will also be available on our
website at www.versabank.com/investor-relations. All amounts are in
Canadian dollars unless otherwise noted. All interim financial
information within this earnings release is unaudited and based on
interim Consolidated Financial Statements prepared in compliance
with International Accounting Standard 34 Interim Financial
Reporting, unless otherwise noted. All annual financial information
herein was derived from VersaBank's 2023 annual audited
Consolidated Financial Statements and MD&A.
LONDON,
ON, Dec. 13, 2023 /CNW/ - VersaBank
("VersaBank" or the "Bank") (TSX: VBNK) (NASDAQ: VBNK), a North
American leader in business-to-business digital banking, as well as
technology solutions for cybersecurity, today reported its results
for the fourth quarter and year ended October 31, 2023. All figures are in Canadian
dollars unless otherwise stated.
CONSOLIDATED AND SEGMENTED FINANCIAL SUMMARY
(unaudited)
|
|
|
As at or for the
three months ended
|
|
As at or for the
year ended
|
|
|
|
|
|
October
31
|
July
31
|
|
October
31
|
|
|
October
31
|
October
31
|
|
(thousands of Canadian
dollars except per share amounts)
|
2023
|
2023
|
Change
|
2022
|
Change
|
|
2023
|
2022
|
Change
|
Financial
results
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
|
$
29,173
|
$
26,859
|
9 %
|
$
24,252
|
20 %
|
|
$ 108,635
|
$
82,392
|
32 %
|
|
Cost of
funds(1)
|
|
|
3.86 %
|
3.62 %
|
7 %
|
2.45 %
|
58 %
|
|
3.46 %
|
1.77 %
|
95 %
|
|
Net interest
margin(1)
|
|
2.54 %
|
2.57 %
|
(1 %)
|
2.81 %
|
(10 %)
|
|
2.68 %
|
2.70 %
|
(1 %)
|
|
Net interest margin on
loans(1)
|
|
2.69 %
|
2.69 %
|
0 %
|
3.03 %
|
(11 %)
|
|
2.85 %
|
3.08 %
|
(7 %)
|
|
Return on average
common equity(1)
|
13.58 %
|
11.15 %
|
22 %
|
7.32 %
|
86 %
|
|
11.75 %
|
6.61 %
|
78 %
|
|
Net
income
|
|
|
12,479
|
10,003
|
25 %
|
6,429
|
94 %
|
|
42,162
|
22,658
|
86 %
|
|
Net income per common
share basic and diluted
|
0.47
|
0.38
|
24 %
|
0.23
|
104 %
|
|
1.57
|
0.79
|
99 %
|
Balance sheet and
capital ratios
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
4,201,610
|
$
3,980,845
|
6 %
|
$
3,265,998
|
29 %
|
|
$
4,201,610
|
$
3,265,998
|
29 %
|
|
Book value per common
share(1)
|
|
14.00
|
13.55
|
3 %
|
12.37
|
13 %
|
|
14.00
|
12.37
|
13 %
|
|
Common Equity Tier 1
(CET1) capital ratio
|
11.33 %
|
11.15 %
|
2 %
|
12.00 %
|
(6 %)
|
|
11.33 %
|
12.00 %
|
(6 %)
|
|
Total capital
ratio
|
|
|
15.38 %
|
15.10 %
|
2 %
|
16.52 %
|
(7 %)
|
|
15.38 %
|
16.52 %
|
(7 %)
|
|
Leverage
ratio
|
|
|
8.30 %
|
8.53 %
|
(3 %)
|
9.84 %
|
(16 %)
|
|
8.30 %
|
9.84 %
|
(16 %)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) See definition
under 'Non-GAAP and Other Financial Measures' in the Annual 2023
Management's Discussion and Analysis.
|
|
|
(thousands of Canadian
dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for the three months
ended
|
October 31,
2023
|
July 31,
2023
|
October 31,
2022
|
|
|
|
|
Digital
|
DRTC
|
Eliminations/
|
Consolidated
|
Digital
|
DRTC
|
Eliminations/
|
Consolidated
|
Digital
|
DRTC
|
Eliminations/
|
Consolidated
|
|
|
|
|
Banking
|
|
Adjustments
|
|
Banking
|
|
Adjustments
|
|
Banking
|
|
Adjustments
|
|
Net interest
income
|
|
|
$
26,239
|
$
-
|
$
-
|
$
26,239
|
$
24,929
|
$
-
|
$
-
|
$
24,929
|
$
22,477
|
$
-
|
$
-
|
$
22,477
|
Non-interest
income
|
|
|
315
|
3,699
|
(1,080)
|
2,934
|
101
|
2,020
|
(191)
|
1,930
|
38
|
1,778
|
(41)
|
1,775
|
Total
revenue
|
|
|
26,554
|
3,699
|
(1,080)
|
29,173
|
25,030
|
2,020
|
(191)
|
26,859
|
22,515
|
1,778
|
(41)
|
24,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (recovery
of) credit losses
|
|
(184)
|
-
|
-
|
(184)
|
171
|
-
|
-
|
171
|
205
|
-
|
-
|
205
|
|
|
|
|
26,738
|
3,699
|
(1,080)
|
29,357
|
24,859
|
2,020
|
(191)
|
26,688
|
22,310
|
1,778
|
(41)
|
24,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
|
5,878
|
1,411
|
-
|
7,289
|
5,891
|
1,562
|
-
|
7,453
|
5,678
|
1,541
|
-
|
7,219
|
|
General and
administrative
|
|
4,889
|
354
|
(1,080)
|
4,163
|
4,257
|
380
|
(191)
|
4,446
|
5,154
|
457
|
(41)
|
5,570
|
|
Premises and
equipment
|
|
617
|
372
|
-
|
989
|
610
|
370
|
-
|
980
|
624
|
361
|
-
|
985
|
|
|
|
|
11,384
|
2,137
|
(1,080)
|
12,441
|
10,758
|
2,312
|
(191)
|
12,879
|
11,456
|
2,359
|
(41)
|
13,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes
|
|
15,354
|
1,562
|
-
|
16,916
|
14,101
|
(292)
|
-
|
13,809
|
10,854
|
(581)
|
-
|
10,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
provision
|
|
|
4,088
|
349
|
-
|
4,437
|
3,999
|
(193)
|
-
|
3,806
|
3,939
|
(95)
|
-
|
3,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
$
11,266
|
$ 1,213
|
$
-
|
$
12,479
|
$
10,102
|
$
(99)
|
$
-
|
$
10,003
|
$
6,915
|
$
(486)
|
$
-
|
$
6,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
4,190,876
|
$
26,443
|
$ (15,709)
|
$
4,201,610
|
$
3,971,781
|
$
25,485
|
$
(16,421)
|
$
3,980,845
|
$
3,267,479
|
$
22,345
|
$
(23,826)
|
$
3,265,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
$
3,818,412
|
$
28,788
|
$ (22,748)
|
$
3,824,452
|
$
3,609,832
|
$
29,123
|
$
(23,153)
|
$
3,615,802
|
$
2,912,249
|
$
25,755
|
$
(22,681)
|
$
2,915,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(thousands of Canadian
dollars)
|
|
|
|
|
|
|
|
|
|
for the year
ended
|
October 31,
2023
|
October 31,
2022
|
|
|
|
|
Digital
|
DRTC
|
Eliminations/
|
Consolidated
|
Digital
|
DRTC
|
Eliminations/
|
Consolidated
|
|
|
|
|
Banking
|
|
Adjustments
|
|
Banking
|
|
Adjustments
|
|
Net interest
income
|
|
|
$ 100,051
|
$
-
|
$
-
|
$ 100,051
|
$
76,666
|
$
-
|
$
-
|
$
76,666
|
Non-interest
income
|
|
|
540
|
9,698
|
(1,654)
|
8,584
|
52
|
5,839
|
(165)
|
5,726
|
Total
revenue
|
|
|
100,591
|
9,698
|
(1,654)
|
108,635
|
76,718
|
5,839
|
(165)
|
82,392
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (recovery
of) credit losses
|
|
609
|
-
|
-
|
609
|
451
|
-
|
-
|
451
|
|
|
|
|
99,982
|
9,698
|
(1,654)
|
108,026
|
76,267
|
5,839
|
(165)
|
81,941
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and
benefits
|
|
25,382
|
6,046
|
-
|
31,428
|
22,303
|
4,493
|
-
|
26,796
|
|
General and
administrative
|
|
15,140
|
1,565
|
(1,654)
|
15,051
|
17,614
|
1,283
|
(165)
|
18,732
|
|
Premises and
equipment
|
|
2,462
|
1,440
|
-
|
3,902
|
2,475
|
1,390
|
-
|
3,865
|
|
|
|
|
42,984
|
9,051
|
(1,654)
|
50,381
|
42,392
|
7,166
|
(165)
|
49,393
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes
|
|
56,998
|
647
|
-
|
57,645
|
33,875
|
(1,327)
|
-
|
32,548
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
provision
|
|
|
15,867
|
(384)
|
-
|
15,483
|
9,744
|
146
|
-
|
9,890
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
|
$
41,131
|
$ 1,031
|
$
-
|
$
42,162
|
$
24,131
|
$
(1,473)
|
$
-
|
$
22,658
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
4,190,876
|
$
26,443
|
$
(15,709)
|
$
4,201,610
|
$
3,267,479
|
$
22,345
|
$
(23,826)
|
$
3,265,998
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
$
3,818,412
|
$
28,788
|
$
(22,748)
|
$
3,824,452
|
$
2,912,249
|
$
25,755
|
$
(22,681)
|
$
2,915,323
|
|
|
|
|
|
|
|
|
|
|
|
|
HIGHLIGHTS FOR THE FOURTH QUARTER OF FISCAL 2023
Consolidated
- Total assets increased 29% year-over-year and 6% sequentially
to a record $4.2 billion;
- Consolidated total revenue increased 20% year-over-year and 9%
sequentially to a record $29.2
million, driven by higher net interest income due primarily
to continued strong loan growth, as well as a larger contribution
from DRT Cyber Inc. ("DRTC");
- Consolidated net income increased 94% year-over-year and 25%
sequentially to $12.5 million, driven
primarily by the significant and increasing operating leverage in
VersaBank's branchless, business-to-business (partner-based)
digital banking model as well as a recovery of credit losses;
- Consolidated earnings per share increased 104% year-over-year
and 24% sequentially to $0.47 due to
higher net income, as well as the positive impact of the purchase
and cancellation of VersaBank's common shares through its Normal
Course Issuer Bid ("NCIB");
- Return on common equity increased to 13.58% from 7.32%;
and,
- The Bank continues to advance the process seeking approval of
its proposed acquisition of OCC-chartered US bank, Stearns Bank
Holdingford N.A., and expects a decision from US regulators during
the first calendar quarter of 2024. If favourable, the Bank will
proceed toward completion of the acquisition as soon as possible,
subject to Canadian regulatory (OSFI) approval.
Digital Banking Operations
- Loans increased 29% year-over-year and 5% sequentially to a
record $3.85 billion, driven
primarily by growth in the Bank's Point-of-Sale ("POS") Financing
portfolio, which increased 30% year-over-year and 4%
sequentially;
- Total revenue increased 18% year-over-year and 6% sequentially
to a record $26.6 million, driven
primarily by higher net interest income attributable substantially
to loan growth and higher non-interest income attributable to
higher gross profit generated by DRTC;
- Net interest margin on loans decreased 34 bps, or 11%,
year-over-year and was unchanged sequentially at 2.69%. The
year-over-year and sequential trends were a function primarily of
higher cost of funds due to elevated rates on term deposits
experienced periodically over the course of the year, including
during the fourth quarter, offset partially by higher yields earned
on the Bank's loans;
- Net interest margin decreased 27 bps year-over-year, or 10%,
and decreased 3 bps, or 1%, sequentially to 2.54%;
- Provision for credit losses as a percentage of average loans
remained negligible at -0.02%, compared with a 12-quarter average
of 0.00%, which remains among the lowest of the publicly traded
Canadian Schedule I (federally licensed) Banks; and,
- Efficiency ratio (excluding DRTC) improved year-over-year to
45% (down from 51%), driven by the significant and increasing
operating leverage in VersaBank's branchless, business-to-business
(partner) digital banking model. On a sequential basis, efficiency
ratio increased modestly to 45% from 43% due primarily to
transitory non-interest expenses related to inter-company
technology and cybersecurity services provided in the current
quarter.
DRTC's Cybersecurity Services Operations (Digital Boundary
Group)
- Revenue for the Cybersecurity Services component of DRTC
(Digital Boundary Group, or DBG) increased 21% year-over-year to
$3.4 million driven by higher service
engagements, while gross profit increased 50% to $2.6 million due to improved operational
efficiency. Sequentially, revenue and gross profit for Digital
Boundary Group increased 46% and 45%, respectively, due primarily
to higher service engagements. DBG's gross profit amounts are
included in DRTC's consolidated revenue which is reflected in
non-interest income in VersaBank's consolidated statements of
income and comprehensive income. DBG remained profitable on a
standalone basis within DRTC.
HIGHLIGHTS FOR THE FULL FISCAL 2023 YEAR
Consolidated
- Total assets increased 29% year-over-year and 6% sequentially
to a record $4.2 billion;
- Consolidated total revenue increased 32% to a record
$108.6 million, driven by higher net
interest income resulting primarily from continued strong loan
growth and higher revenue contributions from DRT Cyber Inc.
("DRTC");
- Consolidated net income increased 86% to $42.2 million due primarily to strong revenue
growth significantly outpacing the small increase in non-interest
expenses (mainly due to the significant and increasing operating
leverage in VersaBank's branchless, business-to-business
(partner-based) digital banking model), which was partially offset
by higher provision for credit losses;
- Consolidated earnings per share increased 99% year-over-year to
$1.57 due to higher net income, as
well as the positive impact of the purchase and cancellation of
VersaBank's common shares through its Normal Course Issuer Bid
("NCIB");
- Return on common equity increased to 11.75% from 6.61%;
and,
- The Bank purchased and cancelled 1,321,358 common shares under
its NCIB in the current year, bringing the total number of common
shares purchased through the NCIB as at October 31, 2023 to 1,516,658.
Digital Banking Operations
- Loans increased 29% to a record $3.85
billion, driven primarily by growth in the Bank's
Point-of-Sale ("POS") Financing portfolio, which increased 30%
year-over-year, as well as strong growth in its commercial lending
portfolio, which increased 24%;
- Total revenue increased 31% year-over-year to a record
$100.6 million, driven primarily by
higher net interest income attributable substantially to loan
growth;
- Net interest margin on loans decreased 23 bps, or 7%,
year-over-year to 2.85% due to elevated rates on term deposits
experienced periodically over the course of the year, offset
partially by higher yields earned on the Bank's loans;
- Net interest margin decreased 2 bps year-over-year, or 1% to
2.68%;
- Provision for credit losses ("PCL") was $609,000 compared with $451,000 last year due primarily to higher loan
balances, as well as changes in the forward-looking information
used by VersaBank in its credit risk models offset partially by
changes in the Bank's loan mix;
- Provision for credit losses as a percentage of average loans
remained negligible at 0.02%, compared with a 12-quarter average of
0.00%, which remains among the lowest of the publicly traded
Canadian Schedule I (federally licensed) Banks; and,
- Efficiency ratio for Digital Banking operations (excluding
DRTC) improved to 43% from 55% last year as a function of 31%
growth in revenue and only a 1% increase in non-interest expenses
due to the significant and increasing operating leverage in
VersaBank's branchless, business-to-business (partner-based)
digital banking model.
DRTC's Cybersecurity Services Operations (Digital Boundary
Group)
- Revenue for the Cybersecurity Services component of DRTC
(Digital Boundary Group, or DBG) increased 9% year-over-year to
$10.6 million due to higher service
engagements, while gross profit increased 38% to $7.8 million due to improved operating
efficiency. DBG's gross profit amounts are included in DRTC's
consolidated revenue which is reflected in non-interest income in
VersaBank's consolidated statements of income and comprehensive
income. DBG remained profitable on a standalone basis within
DRTC.
MANAGEMENT COMMENTARY
"Another record quarter capped off another record year as
continued strong growth in our loan portfolio increasingly enabled
us to capitalize on the significant operating leverage in our
unique, branchless, business-to-business, partner-based digital
banking model," said David Taylor,
President and Chief Executive Officer, VersaBank. "29% growth
in total assets for the year, which pushed us well past our
$4 billion milestone, drove an 86%
increase in annual net income, improving our banking efficiency
ratio for the year to 43% from 55% and return on common equity at
the end of the year to just under 12% for the year and just under
14% for the fourth quarter from 7.3% last year."
"Looking ahead to fiscal 2024, we expect continued solid growth
in our loan portfolio, led by our Canadian Point-of-Sale Receivable
Purchase Program, with an expectation to surpass our next total
asset milestone of $5 billion during
the year. As we continue to grow, we will increasingly
benefit from the operating leverage in our model, driving further
outsized increases in profitability and return on common equity.
The massive US market opportunity for our Receivable Purchase
Program, should we receive regulatory approval for our proposed
acquisition of a US national bank, provides the potential for
additional growth to drive total assets well in excess of our
$5 billion milestone."
FINANCIAL REVIEW
Consolidated
Net Income – Net income for the fourth quarter of
fiscal 2023 was $12.5 million, or
$0.47 per common share (basic and
diluted), compared with $10.0
million, or $0.38 per common
share (basic and diluted) for the third quarter of fiscal 2023
and $6.4 million, or
$0.23 per common share (basic and
diluted), for the same period of fiscal 2022. The sequential and
year-over-year increases were due primarily to higher revenue,
which was driven by strong loan growth, increased contribution from
DRTC, a recovery of credit losses as well as lower non-interest
expense.
Capital – At October 31,
2023, VersaBank's total regulatory capital was $476 million compared with $460 million at the end of the third quarter of
fiscal 2023 and $449 million a year
ago. The Bank's total capital ratio at October 31, 2023, was 15.38%, compared with
15.10% at the end of the third quarter of fiscal 2023 and 16.52% a
year ago.
Digital Banking Operations
Net Interest Margin – Net interest margin (or
spread) for the quarter was 2.54% compared to 2.57% for the third
quarter of fiscal 2023 and 2.81% for the same period of fiscal
2022. The year-over-year and sequential decreases were a function
primarily of higher cost of funds due to elevated rates on term
deposits experienced periodically over the course of the year,
offset partially by higher yields earned on the Bank's loans.
Net Interest Margin on Loans – Net interest margin on
loans for the quarter was 2.69% compared to 2.69% for the third
quarter of fiscal 2023 and 3.03% for the same period of fiscal
2022. The year-over-year and sequential trends are attributable to
the same variables discussed in the Net Interest Margin section
above.
Net Interest Income – Net interest income for the
quarter increased to a record $26.2
million from $24.9
million for the third quarter of fiscal 2023 and $22.5 million for the same period of fiscal 2022.
The year-over-year and sequential trends were a function
primarily of higher interest income attributable to continued,
strong loan growth, higher yields earned on floating rate loans
attributable to rising interest rates and the redeployment of
available cash into higher yielding, low risk securities, offset
partially by higher interest expense in the current period.
Non-Interest Expenses – Non-interest expenses for
the quarter were $11.4 million
compared with $10.8 million for the
third quarter of fiscal 2023 and $11.5
million for the same period of fiscal 2022. The sequential
increase was a function primarily of higher fees incurred in the
current quarter related to inter-company technology and
cybersecurity services.
Provision for/Recovery of Credit Losses – Recovery
of credit losses for the quarter was $184,000 compared to a provision for credit
losses of $171,000 for the third
quarter of fiscal 2023 and a provision for credit losses of
$205,000 for the same period of
fiscal 2022. The year-over-year and sequential trends were a
function primarily of management recalibrating the POS Financing
portfolio's static, legacy loss rate floor to align more closely
with empirical loss rate data and changes in the Bank's lending mix
offset partially by higher loan balances and changes in the
forward-looking information used in the Bank's credit risk models.
Provision for credit losses as a percentage of average loans was
-0.02%, compared with a 12-quarter average of 0.00%.
Credit Quality – The Bank's allowance for expected credit
losses ("ECL") at October 31, 2023
was $2.5 million compared with
$2.7 million for the third quarter of
fiscal 2023 and $1.9 million a year
ago. The sequential and year-over-year increases were due primarily
to higher loan balances and changes in the forward-looking
information used by VersaBank in its credit risk models offset
partially by the impact of management recalibrating the POS
Financing portfolio's static, legacy loss rate floor to align more
closely with empirical loss rate data and changes in the Bank's
loan portfolio mix. VersaBank's allowance for credit losses ratio
continues to be one of the lowest in the Canadian banking industry,
reflecting the very low risk profile of the Bank's loan portfolio,
enabling it to generate superior net interest margins by offering
innovative, high-value deposit and lending solutions that address
unmet needs in the banking industry through a highly efficient
partner model. VersaBank has very limited exposure to the
commercial real estate market as the vast majority of its
commercial real estate portfolio is composed of loans and mortgages
for residential use properties, it has very limited exposure to the
commercial real estate market.
Lending Operations: POS Financing – POS Financing
portfolio balances for the quarter increased 4% sequentially and
30% year-over-year to $2.9 billion
due primarily to continued strong demand for home improvement/HVAC
receivable financing. Consumer spending and business
investment in Canada are expected
to slow modestly over the course of fiscal 2024 due primarily to
the impact of higher interest rates, inflationary pressures and a
softening labour market. This modest economic slowdown is not
expected to devolve into a recession and is anticipated to be
reasonably short lived, with only modest layoffs and a moderate
increase in unemployment. It is management's view that any impact
of a slower Canadian economy on the POS Financing portfolio in
fiscal 2024 will be substantially mitigated by the positive impact
of continued onboarding of new origination partners and the
continued expansion of business with existing partners over the
course of the year. As a result, management expects solid growth in
the Canadian POS portfolio over the course of fiscal 2024.
US Receivable Purchase Program ("RPP"): Despite higher interest
rates and continuing inflationary pressures in the US, the US
labour market remains resilient, which, combined with the broad
expectation that the Federal Reserve's tightening cycle has come to
an end will continue to support consumer spending. Management views
the current trajectory of the US economy to be favourable in the
context of continued, stable demand for durable goods as a function
of enduring consumption. Management believes that the anticipated
US macroeconomic and industry trends described above will continue
to support healthy growth in the Bank's RPP portfolio over the
course of fiscal 2024, which would be expected to include
meaningful contribution from the Bank's US subsidiary should
VersaBank receive regulatory approval for, and complete, the
proposed acquisition of a US bank.
Lending Operations: Commercial Lending – The
Commercial Lending portfolio for the quarter increased 10%
sequentially and 24% year-over-year to $898
million due primarily to increased loan origination in
select markets that were in line with the Bank's conservative loan
origination strategy in light of the evolving, challenging
macroeconomic environment. Notwithstanding the effective risk
mitigation strategies that are employed in managing the Bank's
Commercial Real Estate ("CRE") portfolios, including working with
well-established, well-capitalized partners and maintaining modest
loan-to-value ratios on individual transactions, management
continues to take a cautionary stance with respect to its broader
CRE portfolios due to volatility in CRE asset valuations and the
potential impact of higher for longer interest rates on borrowers'
ability to service debt. While management will continue to focus on
the multi-family residential sector in fiscal 2024 it is
anticipated that Bank's CRE portfolio asset mix will meaningfully
pivot into lower risk weighted insured assets that will drive
moderate portfolio growth in the coming year.
Deposit Funding – Cost of funds for the fourth quarter
was 3.86%, an increase of 24 bps sequentially and 141 bps
year-over-year due primarily to higher rates paid on term deposits
during the quarter. Management expects that commercial deposits
raised via VersaBank's Trustee Integrated Banking ("TIB") program
will continue to grow throughout fiscal 2024 as a function of
higher volumes of consumer and commercial bankruptcy and proposal
restructuring proceedings, attributable primarily to the impact of
a higher interest rate environment. In addition, VersaBank
continues to pursue a number of initiatives to grow and expand its
well-established, diverse deposit broker network through which it
sources personal deposits, consisting primarily of guaranteed
investment certificates. The Bank's current deposit channels remain
an efficient, reliable and diversified source of funding, providing
access to ample reasonably priced deposits in volumes that
comfortably support the Bank's liquidity requirements.
Substantially all of the Bank's deposit volumes raised through
these channels are eligible for CDIC insurance.
DRTC (Cybersecurity Services and Banking and Financial
Technology Development)
DRTC revenue (including that from services provided to the
Digital Banking operations) increased 83% sequentially and
increased 108% year-over-year to $3.7
million, due primarily to the timing of service engagements
and higher fees earned related to inter-company technology and
cybersecurity services provided to Digital Banking. DRTC recorded
net income of $1.2 million compared
to net loss of $99,000 for the third
quarter of fiscal 2023 and a net loss of $486,000 a year ago. The sequential and
year-over-year improvement was due primarily to higher revenue
which was partially offset by higher non-interest expenses
attributable to higher salary and benefits expense due to higher
staffing levels necessary to support expanded business
activity.
DBG revenue increased 46% sequentially and 21% year-over-year to
$3.4 million while gross profit
increased 45% sequentially and 50% year-over-year to $2.6 million. The sequential and
year-over-year trends were due primarily to higher service
engagements in the current quarter. DBG's gross profit amounts are
included in DRTC's consolidated revenue which is reflected in
non-interest income in VersaBank's consolidated statements of
income and comprehensive income.
FINANCIAL HIGHLIGHTS
(unaudited)
|
|
|
for the three months
ended
|
|
for the year
ended
|
|
|
|
|
|
October
31
|
October
31
|
|
October
31
|
October
31
|
($CDN thousands except
per share amounts)
|
2023
|
2022
|
|
2023
|
2022
|
Results of
operations
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
$
66,089
|
$
42,072
|
|
$ 229,334
|
$ 126,817
|
|
Net interest
income
|
|
|
26,239
|
22,477
|
|
100,051
|
76,666
|
|
Non-interest
income
|
|
|
2,934
|
1,775
|
|
8,584
|
5,726
|
|
Total
revenue
|
|
|
29,173
|
24,252
|
|
108,635
|
82,392
|
|
Provision for (recovery
of) credit losses
|
(184)
|
205
|
|
609
|
451
|
|
Non-interest
expenses
|
|
12,441
|
13,774
|
|
50,381
|
49,393
|
|
|
Digital
banking
|
|
|
11,384
|
11,456
|
|
42,984
|
42,392
|
|
|
DRTC
|
|
|
2,137
|
2,359
|
|
9,051
|
7,166
|
|
Net
income
|
|
|
12,479
|
6,429
|
|
42,162
|
22,658
|
|
Income per common
share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
0.47
|
$
0.23
|
|
$
1.57
|
$
0.79
|
|
|
Diluted
|
|
|
$
0.47
|
$
0.23
|
|
$
1.57
|
$
0.79
|
|
Dividends paid on
preferred shares
|
$
247
|
$
247
|
|
$
988
|
$
988
|
|
Dividends paid on
common shares
|
$
650
|
$
680
|
|
$
2,612
|
$
2,741
|
|
Yield*
|
|
|
6.40 %
|
5.26 %
|
|
6.14 %
|
4.47 %
|
|
Cost of
funds*
|
|
|
3.86 %
|
2.45 %
|
|
3.46 %
|
1.77 %
|
|
Net interest
margin*
|
|
|
2.54 %
|
2.81 %
|
|
2.68 %
|
2.70 %
|
|
Net interest margin on
loans*
|
|
2.69 %
|
3.03 %
|
|
2.85 %
|
3.08 %
|
|
Return on average
common equity*
|
13.58 %
|
7.32 %
|
|
11.75 %
|
6.61 %
|
|
Book value per common
share*
|
|
$
14.00
|
$
12.37
|
|
$
14.00
|
$
12.37
|
|
Efficiency
ratio*
|
|
|
43 %
|
57 %
|
|
46 %
|
60 %
|
|
Efficiency ratio -
Digital banking*
|
|
45 %
|
51 %
|
|
43 %
|
55 %
|
|
Return on average total
assets*
|
|
1.19 %
|
0.77 %
|
|
1.10 %
|
0.76 %
|
|
Provision for (recovery
of) credit losses as a % of average loans*
|
(0.02 %)
|
0.03 %
|
|
0.02 %
|
0.02 %
|
|
|
|
|
|
as at
|
Balance Sheet
Summary
|
|
|
|
|
|
|
|
Cash
|
|
|
$ 132,242
|
$
88,581
|
|
$ 132,242
|
$
88,581
|
|
Securities
|
|
|
167,940
|
141,564
|
|
167,940
|
141,564
|
|
Loans, net of allowance
for credit losses
|
3,850,404
|
2,992,678
|
|
3,850,404
|
2,992,678
|
|
Average
loans
|
|
|
3,756,038
|
2,903,400
|
|
3,421,541
|
2,547,864
|
|
Total assets
|
|
|
4,201,610
|
3,265,998
|
|
4,201,610
|
3,265,998
|
|
Deposits
|
|
|
3,533,366
|
2,657,540
|
|
3,533,366
|
2,657,540
|
|
Subordinated notes
payable
|
|
106,850
|
104,951
|
|
106,850
|
104,951
|
|
Shareholders'
equity
|
|
|
377,158
|
350,675
|
|
377,158
|
350,675
|
Capital
ratios**
|
|
|
|
|
|
|
|
|
Risk-weighted
assets
|
|
$
3,095,092
|
$
2,714,902
|
|
$
3,095,092
|
$
2,714,902
|
|
Common Equity Tier 1
capital
|
|
350,812
|
325,657
|
|
350,812
|
325,657
|
|
Total regulatory
capital
|
|
476,005
|
448,575
|
|
476,005
|
448,575
|
|
Common Equity Tier 1
(CET1) capital ratio
|
11.33 %
|
12.00 %
|
|
11.33 %
|
12.00 %
|
|
Tier 1 capital
ratio
|
|
|
11.78 %
|
12.50 %
|
|
11.78 %
|
12.50 %
|
|
Total capital
ratio
|
|
|
15.38 %
|
16.52 %
|
|
15.38 %
|
16.52 %
|
|
Leverage
ratio
|
|
|
8.30 %
|
9.84 %
|
|
8.30 %
|
9.84 %
|
* See definition under
'Non-GAAP and Other Financial Measures' in the Annual 2023
Management's Discussion and Analysis.
|
** Capital management
and leverage measures are in accordance with OSFI's Capital
Adequacy Requirements and Basel III Accord.
|
STRATEGIC REALIGNMENT OF CERTAIN SENIOR MANAGEMENT
ROLES
VersaBank also announced that it has realigned certain senior
management roles as it prepares for broad launch of its RPP in the
US should it receive the relevant regulatory approvals (as
discussed above). Shawn Clarke,
previously the Bank's Chief Financial Officer, has been appointed
to the newly created role of Chief Operating Officer (COO).
John Asma, previously Treasurer, has
been appointed Chief Financial Officer (CFO). Chintan Shah, previously Assistant Treasurer,
will assume the role of Treasurer, reporting directly to Mr.
Asma.
"I am very pleased to announce these appointments, which,
together, enable the Bank to efficiently and effectively deploy our
deep internal expertise to fully capitalize on the significant
opportunities in front of us," said Mr. Taylor. "During his nearly
15-year tenure with VersaBank, Shawn has made tremendous
contributions to our growth and success in a variety of capacities,
especially in last several years, as, in addition to his normal
course CFO duties he has been integral to our US IPO and Nasdaq
listing, as well as the US regulatory approval process for our
proposed acquisition. His extensive involvement in the
development of the business plan and implementation strategy for
the RPP in the US will be invaluable to the success of our broad
roll out."
"John brings a long track record of success in banking and
finance, as well as a deep knowledge and understanding of the
unique VersaBank model, to the CFO role. In his recent tenure
as Treasurer, he has been instrumental in enhancing our return on
treasury balances, while further mitigating risk and enhancing
liquidity, as well as expanding our base of business
development. As CFO, John's financial acumen and discipline
will serve the Bank well as we increasingly realize the operating
leverage in our business, with a particular focus on optimizing net
interest margin and managing non-interest expense to fully
capitalize on this critical part of our business model, as well as
optimizing its efficiency and return on common equity in the
context of focusing on risk mitigation throughout the Bank and our
regulatory obligations."
"Chintan has spent most of his career in the treasury function
within the banking sector and over the past two and a half years
has proven to be a valuable member of our own Treasury team,
working closely with John toward that group's many
accomplishments. I have the utmost confidence in his ability
to take on the Bank's Treasurer role and continue to drive the
success of this critical aspect of our business."
About VersaBank
VersaBank is a Canadian Schedule I chartered (federally
licensed) bank with a difference. VersaBank became the world's
first fully digital financial institution when it adopted its
highly efficient business-to-business model in 1993 using its
proprietary state-of-the-art financial technology to profitably
address underserved segments of the Canadian banking market in the
pursuit of superior net interest margins while mitigating risk.
VersaBank obtains all of its deposits and provides the majority of
its loans and leases electronically, with innovative deposit and
lending solutions for financial intermediaries that allow them to
excel in their core businesses. In addition, leveraging its
internally developed IT security software and capabilities,
VersaBank established wholly owned, Washington, DC-based subsidiary, DRT Cyber
Inc. to pursue significant large-market opportunities in cyber
security and develop innovative solutions to address the rapidly
growing volume of cyber threats challenging financial institutions,
corporations of all sizes and government entities on a daily
basis.
VersaBank's Common Shares trade on the Toronto Stock Exchange
("TSX") and Nasdaq under the symbol VBNK. Its Series 1 Preferred
Shares trade on the TSX under the symbol VBNK.PR.A.
Forward-Looking Statements
VersaBank's public communications often include written or oral
forward-looking statements. Statements of this type are included in
this document and may be included in other filings and with
Canadian securities regulators or the US Securities and Exchange
Commission, or in other communications. All such statements are
made pursuant to the "safe harbor" provisions of, and are intended
to be forward-looking statements under, the United States Private
Securities Litigation Reform Act of 1995 and any applicable
Canadian securities legislation. The statements in this
management's discussion and analysis that relate to the future are
forward-looking statements. By their very nature, forward-looking
statements involve inherent risks and uncertainties, both general
and specific, many of which are out of VersaBank's control. Risks
exist that predictions, forecasts, projections and other
forward-looking statements will not be achieved. Readers are
cautioned not to place undue reliance on these forward-looking
statements as a number of important factors could cause actual
results to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in such
forward-looking statements. These factors include, but are not
limited to, the strength of the Canadian and US economy in general
and the strength of the local economies within Canada and the US in which VersaBank conducts
operations; the effects of changes in monetary and fiscal policy,
including changes in interest rate policies of the Bank of
Canada and the US Federal Reserve;
global commodity prices; the effects of competition in the markets
in which VersaBank operates; inflation; capital market
fluctuations; the timely development and introduction of new
products in receptive markets; the impact of changes in the laws
and regulations pertaining to financial services; changes in tax
laws; technological changes; unexpected judicial or regulatory
proceedings; unexpected changes in consumer spending and savings
habits; the impact of wars or conflicts and the impact of both on
global supply chains and markets; the impact of outbreaks of
disease or illness that affect local, national or international
economies; the possible effects on our business of terrorist
activities; natural disasters and disruptions to public
infrastructure, such as transportation, communications, power or
water supply; and VersaBank's anticipation of and success in
managing the risks implicated by the foregoing. For a detailed
discussion of certain key factors that may affect VersaBank's
future results, please see VersaBank's annual MD&A for the year
ended October 31, 2023.
The foregoing list of important factors is not exhaustive. When
relying on forward-looking statements to make decisions, investors
and others should carefully consider the foregoing factors and
other uncertainties and potential events. The forward-looking
information contained in the management's discussion and analysis
is presented to assist VersaBank shareholders and others in
understanding VersaBank's financial position and may not be
appropriate for any other purposes. Except as required by
securities law, VersaBank does not undertake to update any
forward-looking statement that is contained in this management's
discussion and analysis or made from time to time by VersaBank or
on its behalf.
Conference Call
VersaBank will be hosting a conference call and webcast today,
Wednesday, December 13, 2023, at
9:00 a.m. (ET) to discuss its fourth
quarter results, featuring a presentation by David Taylor, President & CEO, and other
VersaBank executives, followed by a question and answer period.
Dial-in Details
Toll-free dial-in
number:
|
1 (888) 664-6392
(Canada/US)
|
Local dial-in
number:
|
(416)
764-8659
|
Please call between 8:45 a.m. and 8:55
a.m. (ET).
To join the conference call by telephone without operator
assistance, you may register and enter your phone number in advance
at https://emportal.ink/49VXnYb to receive an instant
automated call back.
Webcast Access: For those preferring to listen to the
conference call via the Internet, a webcast of Mr. Taylor's
presentation will be available via the internet, accessible here
https://app.webinar.net/G5MNnkaXpb2 or from the Bank's web
site.
Instant Replay
Toll-free dial-in
number:
|
1 (888) 390-0541
(Canada/US)
|
Local dial-in
number:
|
(416)
764-8677
|
Passcode:
|
219304#
|
Expiry Date:
|
January 13th, 2024, at
11:59 p.m. (ET)
|
The archived webcast presentation will also be available via the
Internet for 90 days following the live event at
https://app.webinar.net/G5MNnkaXpb2 and on the Bank's web
site.
Visit our website at: www.versabank.com
Follow VersaBank on Facebook, Instagram, LinkedIn and X
(formerly Twitter)
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