• Total Assets: Reached a record high of $4.5 billion, a 13% year-over-year increase.
• Loan Portfolio: Grew 11% year-over-year to $4.05 billion.
• Receivable Purchase Program Portfolio: Increased 16% year-over-year to $3.2 billion, representing 80% of the total loan portfolio.
• Net Income: Decreased 3% year-over-year to $9.7 million.
• Earnings Per Share (EPS): Increased 17% year-to-date.
• Revenue: Increased 1% year-over-year to $27 million.
• Net Interest Margin: Decreased 34 basis points year-over-year to 2.23%.
• Book Value Per Share: Increased to $15.23.
• CET1 Ratio: Increased to 11.75%.
• Provision for Credit Losses: Remained at 0% for Q3.
• Cybersecurity Business Revenue: Increased 8% year-over-year to $2.5 million.

• Warning! GuruFocus has detected 5 Warning Signs with VBNK.

Release Date: September 05, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• VersaBank (NASDAQ:VBNK) successfully closed its US acquisition, marking a significant milestone in its growth trajectory.
• The bank achieved a record high for total assets of $4.5 billion, driven by an 11% year-over-year growth in its loan portfolio.
• Net income for the first nine months of fiscal 2024 increased by 15%, with EPS up by 17%.
• The receivable purchase program (RPP) in Canada expanded by 4% sequentially, demonstrating continued growth.
• VersaBank (NASDAQ:VBNK) maintained a provision for credit losses at 0% in Q3, showcasing the effectiveness of its risk management model.

Negative Points

• Net interest margin was temporarily depressed due to higher cash balances and slower decreases in Canadian term deposit rates.
• Non-interest expenses increased due to acquisition-related costs, impacting profitability.
• Consolidated net income for Q3 decreased by 3% year over year and 18% sequentially.
• The real estate portfolio contracted by 9% year over year and 10% sequentially.
• There were additional acquisition-related costs expected in the fourth quarter, indicating continued financial pressure.

Q & A Highlights

Q: How are conversations with new partners in the US progressing, and what is the expected growth trajectory for the RPP program there? A: David Taylor, President and CEO, stated that the reception in the US has been tremendous, with some partners having waited patiently for the bank to operate in the US. One partner is already in the process of becoming operational, with more expected to sign up over the next year. The US RPP program is expected to be more profitable due to lower bank cost of funds, which are about 1% lower than in Canada.

Q: Can VersaBank immediately start driving deposit growth in the US following the acquisition? A: Yes, according to David Taylor, VersaBank can immediately start raising deposits in the US. They have already begun at their retail outlet and have signed agreements with Raymond James and another large brokerage firm to supply deposits, providing significant reach into the deposit market.

Q: Could you quantify the one-time costs incurred in the quarter and any expected in the next quarter? A: David Taylor mentioned that approximately $700,000 in costs were directly associated with the US acquisition in Q3, including consulting fees and expenses related to hiring senior personnel in the US. Additional costs included travel and board member fees. There will be ongoing expenses related to payroll additions in the US.

Q: What impact did the lag in Canadian deposit rates have on VersaBank's financials this quarter? A: The lag in Canadian deposit rates, which do not decrease as quickly as the Bank of Canada rates, resulted in a temporary squeeze on margins, costing VersaBank approximately $609,000 in additional interest expense. This lag typically lasts about three months.

Q: What are the benefits for point-of-sale finance companies to work with VersaBank despite retaining lending risk? A: David Taylor explained that the economics make sense due to the efficiency of VersaBank's branchless digital B2B model, allowing both the bank and partners to benefit. VersaBank typically provides 100% of the loan value, reducing partners' capital needs and increasing their return on equity. The bank's software automates processes, making it a convenient and economical funding source.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.