VERSABANK REPORTS RESULTS FOR FIRST QUARTER FISCAL 2024: CONTINUED ROBUST GROWTH IN POINT-OF-SALE RECEIVABLE PURCHASE PROGRAM DRIVES 41% YEAR-OVER-YEAR INCREASE IN EPS TO ANOTHER NEW RECORD[1]
- Record high total assets of $4.3 billion for VersaBank in the first quarter of fiscal 2024.
- Net income increased by 35% year-over-year to $12.7 million.
- Revenue grew by 11% year-over-year, primarily due to strong loan growth.
- Transitioning to lower risk-weighted loans to improve return on common equity.
- Continued robust growth in the Point-of-Sale Receivable Purchase Program portfolio.
- Expectations to surpass $5 billion in total assets during the 2024 fiscal year.
- Strategic acquisition plans for US bank pending regulatory approval.
- Efficiency ratio improved to 40% year-over-year in digital banking operations.
- DRTC's Cybersecurity Services operations saw a 24% increase in revenue year-over-year.
- None.
Insights
Analyzing VersaBank's Q1 2024 financial results, the key takeaway is the 22% year-over-year growth in total assets, reaching a record $4.3 billion. This growth is primarily attributed to the 7% growth in Digital Banking Operations' Point of Sale Receivable Purchase Program (POS/RPP) portfolio. It's crucial to note the strategic shift from higher yielding, higher risk-weighted loans to lower yielding, lower risk-weighted (CMHC) loans in the non-core Commercial Real Estate (CRE) portfolio, which is expected to enhance Return on Equity (ROE) in the long term, despite a slight dampening effect on the current quarter's results.
The 35% year-over-year increase in net income to $12.7 million is significant, showing the bank's ability to leverage its business-to-business digital banking model effectively. However, the net interest margin on loans has decreased by 13% year-over-year, which could be a point of concern as it impacts the bank's profitability on lending activities. Stakeholders should monitor how the strategic transition within the CRE portfolio will balance the lower net interest margin with the expected increase in ROE.
From a market perspective, VersaBank's performance in the first quarter of 2024 reflects the competitive landscape of digital banking and the bank's strategic positioning within it. The bank's focus on efficiency, as evidenced by a year-over-year and sequential improvement in the efficiency ratio (excluding DRTC) to 40%, suggests that VersaBank is well-positioned to capitalize on economies of scale and maintain a competitive edge. Additionally, the bank's ongoing process to acquire an OCC-chartered US bank could potentially open up new markets and contribute to future growth, pending regulatory approval.
Investors should consider the implications of the bank's strategic shift within its loan portfolio and the potential expansion into the US market. The ability to maintain strong loan growth, particularly in the POS/RPP portfolio, will be crucial for VersaBank's continued success in a sector where technology and innovation are rapidly evolving.
Examining the broader economic context, VersaBank's strategic transition to lower risk-weighted loans aligns with a more conservative risk management approach amid uncertain economic conditions. The bank's Common Equity Tier 1 (CET1) capital ratio of 11.39% remains strong, indicating a solid capital buffer above regulatory requirements. This financial stability is essential for weathering potential economic downturns and maintaining investor confidence.
The bank's leverage ratio of 8.44% also suggests a prudent approach to leveraging, which is crucial for ensuring long-term sustainability. As economic indicators and interest rates continue to fluctuate, VersaBank's conservative positioning may serve as a hedge against market volatility, offering a stable investment profile within the financial sector.
All amounts are unaudited and in Canadian dollars and are based on financial statements prepared in compliance with International Accounting Standard 34 Interim Financial Reporting, unless otherwise noted. Our first quarter 2024 ("Q1 2024") unaudited Interim Consolidated Financial Statements for the period ended January 31, 2024 and Management's Discussion and Analysis ("MD&A"), are available online at www.versabank.com/investor-relations, SEDAR at www.sedarplus.ca and EDGAR at www.sec.gov/edgar. Supplementary Financial Information will also be available on our website at www.versabank.com/investor-relations. |
Consolidated and Segmented Financial Summary
(unaudited) | As at or for the three months ended | ||||||||
January 31 | October 31 | January 31 | |||||||
(thousands of Canadian dollars except per share amounts) | 2024 | 2023 | Change | 2023 | Change | ||||
Financial results | |||||||||
Total revenue | $ 28,851 | $ 29,173 | (1 %) | $ 25,918 | 11 % | ||||
Cost of funds* | 3.99 % | 3.86 % | 3 % | 2.95 % | 35 % | ||||
Net interest margin* | 2.48 % | 2.54 % | (2 %) | 2.83 % | (12 %) | ||||
Net interest margin on loans* | 2.63 % | 2.69 % | (2 %) | 3.03 % | (13 %) | ||||
Return on average common equity* | 13.41 % | 13.58 % | (1 %) | 10.79 % | 24 % | ||||
Net income | 12,699 | 12,479 | 2 % | 9,417 | 35 % | ||||
Net income per common share basic and diluted | 0.48 | 0.47 | 2 % | 0.34 | 41 % | ||||
Balance sheet and capital ratios | |||||||||
Total assets | $ 4,309,635 | $ 4,201,610 | 3 % | $ 3,531,690 | 22 % | ||||
Book value per common share* | 14.46 | 14.00 | 3 % | 12.77 | 13 % | ||||
Common Equity Tier 1 (CET1) capital ratio | 11.39 % | 11.33 % | 1 % | 11.19 % | 2 % | ||||
Total capital ratio | 15.19 % | 15.38 % | (1 %) | 15.34 % | (1 %) | ||||
Leverage ratio | 8.44 % | 8.30 % | 2 % | 9.21 % | (8 %) | ||||
* See definitions under 'Non-GAAP and Other Financial Measures' in the Q1 2024 Management's Discussion and Analysis. | |||||||||
(1) In the first quarter of 2017 the Bank recognized an |
(thousands of Canadian dollars) | |||||||||||||||
for the three months ended | January 31, 2024 | October 31, 2023 | January 31, 2023 | ||||||||||||
Digital | DRTC | Eliminations/ | Consolidated | Digital | DRTC | Eliminations/ | Consolidated | Digital | DRTC | Eliminations/ | Consolidated | ||||
Banking | Adjustments | Banking | Adjustments | Banking | Adjustments | ||||||||||
Net interest income | $ 26,568 | $ - | $ - | $ 26,568 | $ 26,239 | $ - | $ - | $ 26,239 | $ 24,274 | $ - | $ - | $ 24,274 | |||
Non-interest income | 120 | 2,500 | (337) | 2,283 | 315 | 3,699 | (1,080) | 2,934 | 2 | 1,833 | (191) | 1,644 | |||
Total revenue | 26,688 | 2,500 | (337) | 28,851 | 26,554 | 3,699 | (1,080) | 29,173 | 24,276 | 1,833 | (191) | 25,918 | |||
Provision for (recovery of) credit losses | (127) | - | - | (127) | (184) | - | - | (184) | 385 | - | - | 385 | |||
26,815 | 2,500 | (337) | 28,978 | 26,738 | 3,699 | (1,080) | 29,357 | 23,891 | 1,833 | (191) | 25,533 | ||||
Non-interest expenses: | |||||||||||||||
Salaries and benefits | 5,371 | 1,167 | - | 6,538 | 5,878 | 1,411 | - | 7,289 | 6,684 | 1,573 | - | 8,257 | |||
General and administrative | 4,276 | 394 | (337) | 4,333 | 4,889 | 354 | (1,080) | 4,163 | 2,862 | 455 | (191) | 3,126 | |||
Premises and equipment | 768 | 385 | - | 1,153 | 617 | 372 | - | 989 | 623 | 329 | - | 952 | |||
10,415 | 1,946 | (337) | 12,024 | 11,384 | 2,137 | (1,080) | 12,441 | 10,169 | 2,357 | (191) | 12,335 | ||||
Income (loss) before income taxes | 16,400 | 554 | - | 16,954 | 15,354 | 1,562 | - | 16,916 | 13,722 | (524) | - | 13,198 | |||
Income tax provision | 4,136 | 119 | - | 4,255 | 4,088 | 349 | - | 4,437 | 3,789 | (8) | - | 3,781 | |||
Net income (loss) | $ 12,264 | $ 435 | $ - | $ 12,699 | $ 11,266 | $ 1,213 | $ - | $ 12,479 | $ 9,933 | $ (516) | $ - | $ 9,417 | |||
Total assets | $ 4,299,625 | $ 26,645 | $ (16,635) | $ 4,309,635 | $ 26,443 | $ (15,709) | $ 4,201,610 | $ 23,797 | $ (14,386) | $ 3,531,690 | |||||
Total liabilities | $ 3,914,863 | $ 28,625 | $ (22,887) | $ 3,920,601 | $ 28,788 | $ (22,748) | $ 3,824,452 | $ 27,751 | $ (21,435) | $ 3,180,513 | |||||
MANAGEMENT COMMENTARY
"The first quarter of fiscal 2024 was highlighted by continued robust growth in our Point-of-Sale Receivable Purchase Program portfolio, which expanded
"As per our stated objective to maximize long-term profitability and return on common equity, during the first quarter the Bank began its planned strategic transition from higher yielding, higher risk-weighted loans to lower yielding, lower risk-weighted (CMHC) loans in its non-core CRE portfolio as we pursue new CRE opportunities. While this had a slight dampening effect on first quarter results, we expect that this strategic adjustment will enhance ROE and contribute to stronger growth in subsequent quarters throughout the year."
"2024 is unfolding slightly ahead of expectations for our Point-of-Sale Receivable Purchase Program, providing continued confidence in our ability to surpass our next total asset milestone of
HIGHLIGHTS FOR THE FIRST QUARTER OF FISCAL 2024
Consolidated
- Total assets increased
22% year-over-year and3% sequentially to a record$4.3 billion 7% growth in Digital Banking Operations' Point of Sale Receivable Purchase Program (POS/RPP) portfolio. The quarter-over-quarter increase was dampened by a transitory contraction in the non-core Commercial Real Estate (CRE) portfolio under the Bank's strategy to transition a portion of its CRE portfolio to higher return, lower risk lending opportunities; - Consolidated total revenue increased
11% year-over-year and decreased1% sequentially to$28.9 million - Consolidated net income increased
35% year-over-year and2% sequentially to$12.7 million 23% ) from the Digital Banking Operations, as well as a higher contribution from DRTC and lower non-interest expenses. The sequential increase was dampened slightly by the transitory contraction in the non-core CRE portfolio under the Bank's strategy to transition a portion of its CRE portfolio to higher return, lower risk lending opportunities; - Consolidated earnings per share increased
41% year-over-year and2% sequentially to$0.48 - Return on common equity increased to
13.41% from10.79% year-over-year and decreased1% from13.58% sequentially; 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 second 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
23% year-over-year and3% sequentially to a record$3.98 billion 28% year-over-year and7% sequentially. The sequential increase was dampened slightly by a transitory contraction in the non-core Commercial Real Estate (CRE) portfolio under the Bank's strategy to transition a portion of its CRE portfolio to higher return, lower risk lending opportunities; - Total revenue increased
10% year-over-year and increased1% sequentially to$26.7 million - Net interest margin on loans decreased 40 bps, or
13% , year-over-year and 6 bps, or2% , sequentially at2.63% . The decreases were due primarily to the strong growth of the POS Financing portfolio (which is composed of lower-risk weighted, lower yielding but higher Return on Common Equity ("ROCE") assets than the CRE portfolio, the impact of the planned transition of some higher yielding, higher risk-weighted CRE loans to lower yielding, lower risk-weighted CRE loans as part of the Bank's strategy to capitalize on opportunities for lower-risk loans with a higher return on capital deployed, as well as higher rates on term deposits experienced during the quarter. This was offset partially by higher yields earned on the Bank's lending assets; - Net interest margin decreased 35 bps, or
12% , year-over-year and decreased 6 bps, or2% , sequentially to2.48% ; - Provision for credit losses as a percentage of average loans remained negligible at -
0.01% , compared with a 12-quarter average of0.00% , which remains among the lowest of the publicly traded Canadian Schedule I (federally licensed) Banks; and, - Efficiency ratio (excluding DRTC) improved both year-over-year and sequentially to
40% from42% and45% , respectively.
DRTC's Cybersecurity Services Operations (Digital Boundary Group)
- Revenue for the Cybersecurity Services component of DRTC (Digital Boundary Group, or DBG) increased
24% year-over-year to$2.9 million 31% to$2.1 million 17% and18% , respectively, due primarily to seasonally lower 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.
FINANCIAL SUMMARY
(unaudited) | For the three months ended | ||||||
January 31 | October 31 | January 31 | |||||
(thousands of Canadian dollars except per share amounts) | 2024 | 2023 | 2023 | ||||
Results of operations | |||||||
Interest income | $ 69,292 | $ 66,089 | $ 49,561 | ||||
Net interest income | 26,568 | 26,239 | 24,274 | ||||
Non-interest income | 2,283 | 2,934 | 1,644 | ||||
Total revenue | 28,851 | 29,173 | 25,918 | ||||
Provision (recovery) for credit losses | (127) | (184) | 385 | ||||
Non-interest expenses | 12,024 | 12,441 | 12,335 | ||||
Digital Banking | 10,415 | 11,384 | 10,169 | ||||
DRTC | 1,946 | 2,137 | 2,357 | ||||
Net income | 12,699 | 12,479 | 9,417 | ||||
Income per common share: | |||||||
Basic | $ 0.48 | $ 0.47 | $ 0.34 | ||||
Diluted | $ 0.48 | $ 0.47 | $ 0.34 | ||||
Dividends paid on preferred shares | $ 247 | $ 247 | $ 247 | ||||
Dividends paid on common shares | $ 650 | $ 650 | $ 663 | ||||
Yield* | 6.47 % | 6.40 % | 5.78 % | ||||
Cost of funds* | 3.99 % | 3.86 % | 2.95 % | ||||
Net interest margin* | 2.48 % | 2.54 % | 2.83 % | ||||
Net interest margin on loans* | 2.63 % | 2.69 % | 3.03 % | ||||
Return on average common equity* | 13.41 % | 13.58 % | 10.79 % | ||||
Book value per common share* | $ 14.46 | $ 14.00 | $ 12.77 | ||||
Efficiency ratio* | 42 % | 43 % | 48 % | ||||
Efficiency ratio - Digital banking* | 40 % | 45 % | 42 % | ||||
Return on average total assets* | 1.16 % | 1.19 % | 1.07 % | ||||
Provision (recovery) for credit losses as a % of average loans* | (0.01 %) | (0.02 %) | 0.05 % | ||||
As at | |||||||
Balance Sheet Summary | |||||||
Cash | $ 127,509 | $ 132,242 | $ 201,372 | ||||
Securities | 133,005 | 167,940 | 49,847 | ||||
Loans, net of allowance for credit losses | 3,984,281 | 3,850,404 | 3,235,083 | ||||
Average loans | 3,917,343 | 3,756,038 | 3,113,881 | ||||
Total assets | 4,309,635 | 4,201,610 | 3,531,690 | ||||
Deposits | 3,638,656 | 3,533,366 | 2,925,452 | ||||
Subordinated notes payable | 103,355 | 106,850 | 102,765 | ||||
Shareholders' equity | 389,034 | 377,158 | 351,177 | ||||
Capital ratios** | |||||||
Risk-weighted assets | $ 3,194,696 | $ 3,095,092 | $ 2,917,048 | ||||
Common Equity Tier 1 capital | 363,798 | 350,812 | 326,411 | ||||
Total regulatory capital | 485,309 | 476,005 | 447,472 | ||||
Common Equity Tier 1 (CET1) capital ratio | 11.39 % | 11.33 % | 11.19 % | ||||
Tier 1 capital ratio | 11.81 % | 11.78 % | 11.66 % | ||||
Total capital ratio | 15.19 % | 15.38 % | 15.34 % | ||||
Leverage ratio | 8.44 % | 8.30 % | 9.21 % | ||||
* See definition under 'Non-GAAP and Other Financial Measures' in the Q1 2024 Management's Discussion | |||||||
and Analysis. | |||||||
** Capital management and leverage measures are in accordance with OSFI's Capital Adequacy Requirements | |||||||
and Basel III Accord. | |||||||
This news release is intended to be read in conjunction with the Bank's Consolidated Financial Statements and Management's Discussion & Analysis (MD&A) for the three months ended January 31, 2024, which will be filed on SEDAR (www.sedarplus.ca) and will be available at www.versabank.com.
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,
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
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, March 6, 2024, at 9:00 a.m. (ET) to discuss its first 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 (
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/48fCFAo 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/YPAdVJ2VnBl or from the Bank's web site.
Instant Replay
Toll-free dial-in number: 1 (888) 390-0541 (
Local dial-in number: (416) 764-8677
Passcode: 659787#
Expiry Date: April 6th, 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/YPAdVJ2VnBl and on the Bank's website.
Visit our website at: www.versabank.com
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FAQ
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