Mr. David Taylor reports

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]

VersaBank has released its results for the first quarter of fiscal 2024 ended Jan. 31, 2024.

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 28 per cent year-over-year and 7 per cent sequentially, and, in turn, drove total assets to another record high of $4.3-billion," said David Taylor, president and chief executive officer, VersaBank. "The bank continued to benefit from the significant operating leverage in our unique and efficient business-to-business digital banking model, with an 11-per-cent year-over-year increase in revenue generating a 35-per-cent year-over-year increase in net income to another quarterly record.

"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 [commercial real estate] 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 [return on equity] and contribute to stronger growth in subsequent quarters throughout the year.

"Two thousand twenty-four 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 $5-billion during the 2024 fiscal year. Notably, this is before any potential contribution from the broad launch of the RPP [receivable purchase program] in the U.S., should we receive favourable regulatory approval for our proposed U.S. bank acquisition. As our loan book continues to grow, we will increasingly benefit from the operating leverage in our unique and efficient, business-to-business digital banking model, driving further outsized increases in profitability and return on common equity."

Highlights for the first quarter of fiscal 2024

Consolidated:

• Total assets increased 22 per cent year-over-year and 3 per cent sequentially to a record $4.3-billion, with the increase driven primarily by 7-per-cent 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 per cent year-over-year and decreased 1 per cent sequentially to $28.9-million. The year-over-year and sequential trends reflect higher net interest from income from the digital banking operations, due primarily to continued strong loan growth, with the sequential trend reflecting lower contribution from DRT Cyber Inc. (DRTC) due to lower seasonal sales volume.
• Consolidated net income increased 35 per cent year-over-year and 2 per cent sequentially to $12.7-million. The year-over-year and quarter-over-quarter increases were primarily due to higher revenue, which was driven primarily by strong loan growth (23 per cent) 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 per cent year-over-year and 2 per cent sequentially to 48 cents, with the year-over-year increase benefiting from the impact of a lower number of common shares outstanding from the purchase and cancellation of common shares under the bank's normal course issuer bid (NCIB) over the course of fiscal 2023.
• Return on common equity increased to 13.41 per cent from 10.79 per cent year-over-year and decreased 1 per cent from 13.58 per cent sequentially.
• The bank continues to advance the process seeking approval of its proposed acquisition of OCC (Office of the Comptroller of the Currency)-chartered U.S. bank, Stearns Bank Holdingford NA, and expects a decision from U.S. 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 (Office of the Superintendent of Financial Institutions)) approval.

Digital banking operations:

• Loans increased 23 per cent year-over-year and 3 per cent sequentially to a record $3.98-billion, driven primarily by continued robust growth in the bank's POS/RPP portfolio, which increased 28 per cent year-over-year and 7 per cent sequentially. The sequential increase was dampened slightly by a transitory contraction in the non-core commercial real estate 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 per cent year-over-year and increased 1 per cent sequentially to $26.7-million, driven primarily by higher net interest income attributable substantially to loan growth.
• Net interest margin on loans decreased 40 bps (basis points), or 13 per cent, year-over-year and six bps, or 2 per cent, sequentially at 2.63 per cent. 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 per cent, year-over-year and decreased six bps, or 2 per cent, sequentially to 2.48 per cent.
• Provision for credit losses as a percentage of average loans remained negligible at minus 0.01 per cent, compared with a 12-quarter average of nil per cent, which remains among the lowest of the publicly traded Canadian Schedule I (federally licensed) banks.
• Efficiency ratio (excluding DRTC) improved both year-over-year and sequentially to 40 per cent from 42 per cent and 45 per cent, respectively.

DRTC's cybersecurity services operations (Digital Boundary Group):

• Revenue for the cybersecurity services component of DRTC (Digital Boundary Group, or DBG) increased 24 per cent year-over-year to $2.9-million, driven by higher service engagements, while gross profit increased 31 per cent to $2.1-million due to improved operational efficiency. Sequentially, revenue and gross profit for DBG decreased 17 per cent and 18 per cent, 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 stand-alone basis within DRTC.

This news release is intended to be read in conjunction with the bank's consolidated financial statements, and management's discussion and analysis (MD&A) for the three months ended Jan. 31, 2024, which will be filed on SEDAR+ and will be available at VersaBank's website.

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 information technology security software and capabilities, VersaBank established wholly owned, Washington, D.C.-based subsidiary, DRTC, to pursue significant large-market opportunities in cybersecurity 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.

Conference call

VersaBank will be hosting a conference call and webcast today, Wednesday, March 6, 2024, at 9 a.m. (Eastern Time) to discuss its first quarter results, featuring a presentation by Mr. Taylor, president and chief executive officer, and other VersaBank executives, followed by a question-and-answer period.

Dial in details

Toll-free dial-in number:  1-888-664-6392 (Canada/United States)

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 on-line and enter your phone number in advance 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 on-line or from the bank's website.

Instant replay

Toll-free dial-in number:  1-888-390-0541 (Canada/U.S.)

Local dial-in number:  416-764-8677

Passcode:  659787 followed by the pound key

Expiry date:  April 6, 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 on-line and on the bank's website.

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