VersaBank Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
December 13, 2023

There are 5 speakers on the call.

Operator

Morning, ladies and gentlemen. Welcome to VersaBank's 4th Quarter and Year End Fiscal 2023 Financial Results Conference Call. This morning, VersaBank issued a news release reporting its financial results for the Q4 fiscal year ended October 31, 2023. The news release, along with the bank's financial statements, MD and A and supplemental financial information are available on the bank's website in the Investor Relations section, as well as on the SITA plus and EDGAR. Please note that in addition to the telephone dial in, VersaBank is webcasting this morning's conference call.

Operator

The webcast is listen only. If you are listening to the webcast but wish to ask a question in the Q and A session following Mr. Taylor's presentation, Please dial into the conference line. The details of which are included in this morning's news release and on the bank's website. For those participating in today's call by telephone, the companion slide presentation is available on the bank's website.

Operator

Also, today's call will be archived for replay, both by telephone and via the Internet, beginning approximately 1 hour following completion of the call. Details on how to access the replays are available in this morning's news release. I would like to remind our listeners that the statements about future events made on this call are forward looking in nature and are based on certain assumptions and analysis made by VersaBank Management. Actual results could differ materially from our in today's presentation. I would now like to turn the call over to David Taylor, President and Chief Executive Officer of Bursa Bank.

Operator

Please go ahead, Mr. Taylor.

Speaker 1

Good morning, everyone, and thank you for joining us With me is Sean Clark, our Chief Financial Officer. Before I begin, I'd like to remind you that our financial results For most of our financial numbers and our standard investor presentation, which will be updated and available on our website shortly. Now for the results. Another record quarter capped off another record year for our bank as we realized The significant and increasing operating leverage in our branchless, business to business, partner based digital banking model With the continued growth in our loan portfolio, 94% year over year growth in net income It was more than triple that of our healthy 29% growth in our loan portfolio. And that drove an 86% increase And average return on common equity to nearly 14%.

Speaker 1

Looking more closely at our 4th quarter performance, Our results once again show the predictability and momentum of our business. Those of you that have followed VersaBank for some time Well, I've heard me say that the $4,000,000,000 mark for total assets was the point in which we begin to see the operating leverage In our digital banking model, that can clearly be seen in Q4 numbers. The total assets crossing $4,000,000,000 mark During Q4, ending the quarter and the year at $4,200,000,000 we are seeing the outsized positive impact on efficiency, Profitability and our return on equity. Continued steady growth in our loan portfolio due primarily to the continued Strength of our point of sale receivable purchase program drove very healthy sequential revenue growth 9%, which contributed to 20% growth year over year. We achieved this growth while Holding non interest expenses flat, in reality it was down a bit, which drove our digital banking Efficiency ratio to 45% from 51%.

Speaker 1

As I noted last quarter, this level of efficiency Already leads a vast majority of North American banks. 4th quarter return on common equity saw a big jump Up to 13.58 percent, up 243 basis points sequentially and 626 basis points year over year. This was always my vision for a branchless business to business partner based digital bank. Our ability to grow revenue while holding non interest expenses is the engine that drives and will increasingly continue to drive earnings growth, return on And value for our shareholders. Importantly, we are really just beginning to realize the true efficiencies of our model.

Speaker 1

Our highlights for fiscal 2023 year very much mirror those for the Q4. Our digital banking efficiency ratio for 2023 improved to 43% from 55% As we grew revenue by 31%, while holding non interest expenses to just a 1% increase. And that with the benefit of solid profitable growth from our cybersecurity subsidiary translated into an 86% increase in net income And a 99% increase in earnings per share, return on common equity for the year improved substantially to 11.75 percent from 6.61%. The vast majority of our 2023 growth was driven By the continued solid performance of our Canadian point of sale receivable purchase program, we continue to expect solid growth While still off a small base, this growth is indicative of the uniqueness and attractiveness of this offering. The real opportunity in the U.

Speaker 1

S, however, remains the broad national rollout of our solution, but remains An underserved market. It will supercharge our expected growth. We continue to advance the approval process For our proposed acquisition of U. S.-based Stearns Bank Holdingford, which will provide the U. S.

Speaker 1

License to enable us to undertake this broad rollout. We understand and respect the protracted nature I'd now like to turn the call over to Sean to review our financial results in detail. Sean?

Speaker 2

Thank you, David, and good morning, everyone. Before I begin, I will remind you that our full financial statements and MD and A for the 4th All of the following numbers are reported in Canadian dollars as per our financial statements unless otherwise noted. Starting with the balance sheet. Total assets at the end of the Q4 of fiscal 2023 grew to a new high of just over $4,200,000,000 was up 29% from $3,300,000,000 at the end of Q4 of last year and up 6% sequentially from $4,000,000,000 at the end of Q3 of this year. Cash and securities at the end of Q4 were $230,000,000 or 7% of total assets, which is unchanged from both Q4 last year and Q3 of this year.

Speaker 2

Our total loan portfolio at the end of the 4th quarter expanded to another record balance of $3,850,000,000 an increase of 29% year over year 5% sequentially. Book value per share increased 13% year over year and 3% sequentially to a record $14 These increases were the result of higher retained earnings as well as fewer shares outstanding due to our share repurchase program, offset partially by dividends paid. Our CET ratio at the end of the quarter was 11.33%, down from 12% at the end of Q4 of last year and up from 11.15% from Q3 of this year. Our leverage ratio is 8.30 percent, down from 9.84 percent at the end of Q4 last year and down from 8.53% at the end of Q3 of this year. Both our CET1 and leverage ratios remain well above our internal targets.

Speaker 2

Turning to the income statement. Total consolidated revenue for the quarter increased 20% year over year and 9% sequentially to another record of $29,200,000 The increase was driven primarily by higher net interest income from our digital banking operations, primarily due to the strong growth of our loan portfolio. Consolidated non interest expense was $12,400,000 for the quarter, down from $13,800,000 for Q4 of last year and down from $12,900,000 for Q3 of this year. Year over year decrease is a function of lower salary and benefits expenses as well as lower costs incurred in the current quarter attributable to the regulatory process Consolidated net income for Q4 increased 94% year over year and 25% sequentially to 12,500,000 Consolidated earnings per share for Q4 increased 104% year over year and 24% sequentially to another record $0.47 Benefiting in part from a lower number of shares outstanding due to our share repurchase program. During the 2023 fiscal year, we purchased and canceled over 1,300,000 common shares, The total number of shares purchased as of the end of fiscal 2023 to just over 1,500,000.

Speaker 2

Our Q4 profitability continued to by FAR contributed to by far the best year in the history of the bank with fiscal 2023 net income increasing 86 compared to 2022 to $42,200,000 while EPS increased 99% to $1.57 Primary driver of growth in our loan portfolio was once again our point of sale financing business, which increased 30% year over year And 4% sequentially to $2,900,000,000 I should note here that the completion of a planned portfolio sale early in the quarter had the effect of reducing quarter over quarter POS Our point of sale portfolio represented 75% of our total loan portfolio at the end of Q4, down just slightly from Q3 of this year. Our commercial real estate portfolio expanded 24% year over year and 10% sequentially to $898,000,000 at the end of Q4. This increase was due primarily to increased loan origination activity in select markets that are aligned with the bank's conservative loan origination strategy in this space. I should note here that our commercial portfolio is 90% composed of loans and mortgages, which are financing residential properties predominantly multiunit in nature, And we continue to have very little exposure to commercial use properties. Turning to the income statement for our digital banking operations.

Speaker 2

Net interest margin on loans, that is excluding cash and securities, was 2.69%. That was 34 basis points decreased 27 basis points year over year or 10% and decreased 3 basis points or 1% sequentially to 2.54%. Q4 net interest margin was again dampened by a spike in market rates for term deposits relative to Government of Canada rates during the quarter. And I will note that despite some volatility in the term deposit rates Over the course of the year, net interest margin was essentially in line with that of last year. Non interest expenses for digital banking for Q4 $11,400,000 down slightly from $11,500,000 for Q4 last year and up from $10,800,000 for Q3 of this year.

Speaker 2

The sequential increase was a function primarily of higher fees led to intercompany technology and cybersecurity services, which were disproportionately high in Q4 and are expected to return to normalized levels in Q1 of fiscal 2024. Cost of funds for Q4 was 3.86%, 141 basis points year over year and up 24 basis points sequentially. The bulk of the year over year increase is a result of the higher interest rate environment, rate increase of 4 75 basis points. Cost of funds was somewhat elevated in Q4 due to the spike in market rates for term deposits as previously discussed. Our provision for credit losses or PCLs in Q4 remained very low, adjusted 0.02% of average loans compared with a 12 quarter average of 0.00%.

Speaker 2

Turning now to DRTC. As a reminder, beginning Q1 this year, Revenue for DRTC includes income from digital banking operations associated with the delivery of various technology development services in addition to the contribution from our cybersecurity services business, Digital Boundary Group or DBG. Let me start with DBG's stand alone results. DBG's revenue for Q4 increased 21% year over year and 46% $2,600,000 that DVG continues to realize efficiencies in the business. DVG remained profitable on a standalone basis within DRTC.

Speaker 2

Total DRTC revenue, including revenue derived from services provided to digital banking operations increased 108% year over year and 83% sequentially to $3,700,000 DRTC's net income of $1,200,000 was an improvement over a net loss of $486,000 a year ago and a net loss of $99,000 in Q3 of this year. With that, I would now like to turn the call back to David for some closing remarks. David?

Speaker 1

Thank you, Sean. Those of you who read the entirety of our news release this morning will know that With the conclusion of test call 2023, we are undertaking a strategic realignment of certain roles within our senior management team To ensure we're prepared to move forward immediately and aggressively should we receive the relevant regulatory approvals to broadly launch Our RPP financing solution in the United States. My partner on these calls for the last several years, Sean Clark, We'll move from his current role of CFO to the newly created role of Chief Operating Officer. During his decade and a half with VersaBank, Sean has made tremendous contributions to our growth and success in a variety of capacities, including roles in Corporate Development, Technology, Risk and of course Finance, including holding the titles of Chief Risk Officer, Senior Vice President, Operations as well as Chief Operating Officer of a subsidiary of the bank. In addition to his normal course, CFO duties over the course of the past years, he has been integral To the development of the business plan and the implementation strategy for the RPP in the United States, as well as the U.

Speaker 1

S. Regulatory approval process. As COO, he will help lead our charge into United States. Taking on the CFO role will be John Asman, who has served as our Treasurer for the past year and a half And who previously served in a variety of senior executive roles with the bank, including Senior Vice President and Treasurer, Senior Vice President, Structured Finance and Treasurer Senior Vice President, Credit and Treasurer. In his recent tenure as Treasurer, John 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.

Speaker 1

John's financial acumen and discipline will serve the bank well as we increasingly realize the operating leverage of our business. Finally, Shenton Shaw, who has been a valuable member of our treasury team for the last two and a half years, Most recently as Assistant Treasurer will become Treasurer. Tien Tsin has spent the majority of his career in the treasury function And has worked closely with John towards that group's many accomplishments over the past several years. I have the utmost confidence in his ability to take on the bank's treasury role and continue to drive the success of this critical aspect of our business. 2023 was by far the best year in the history of our bank.

Speaker 1

It is demonstrative Of the execution of the plan that I put in place years ago, to the recognition that technology could be used Efficiently to address underserved banking markets, leveraging intermediaries to limit costs and mitigate risk And drive outsized returns on common equity and value for our shareholders. It marks a new chapter in the evolution of our growth As we look ahead into 2024, we remain comfortable with our highly stable low cost funding sources, Very sticky deposits derived through our wealth management partners, all of which are term deposits and our low cost bankruptcy trustee partners. Each has excellent visibility into deposit maturities with very limited risk on expected withdrawal. I will note here that we may see some fluctuations in our net interest margin in 2024 based on cost of funds. As Sean noted earlier, net interest margin and in turn revenue were again this quarter dampened by a period of elevated rates It appears to be the function of a continuing uncertainty around the banking sector in North America, which has an impact on smaller banks.

Speaker 1

Therefore, it may be the case that we see more volatility going forward. All other things being equal, we expect interest margin for the year to be in the range of this year's number. The number will depend To some degree, on the success of our continuing effort to add low cost funding sources as well as the low capital requirement opportunities We might pursue that would drive return on equity, but dampen net interest margin. Importantly, with the momentum In the efficiency of our business and the fluctuations in interest margin, we will only have a small impact on our profitability. I will note here that we continue to have by far the largest net Margin among publicly traded banks in Canada.

Speaker 1

In terms of insolvency deposits, as Expected recent data shows consumer insolvency is up 26% and business insolvency is up 42% compared to last year. This increased activity should drive the continued expansion of our low cost deposits and of course will support net interest margin. Should we receive the regulatory approval that will enable us to broadly roll out the RPP in the United States? We are well prepared to begin the low cost deposit And how we reach those milestones will be increasing will increasingly benefit from the inherent operating leverage of our business. Having surpassed the $4,000,000,000 milestone in the Q4 of 2023, we are now focused on our next milestone, dollars 5,000,000,000 and the additional outsized growth in efficiency, profitability and return on equity that our model will generate.

Speaker 1

Net $5,000,000,000 milestone represents 19% growth from the $4,200,000,000 as of the end of fiscal 2023. As I noted earlier, during 2023, we grew assets by 29%, driven primarily by our point of sale Receivable Purchase Program Business. Accordingly, we expect to achieve this next milestone during 2024 calendar year based on just the We are seeing some signs of potential slowdown in the broader economy due to the current interest rate environment. However, we are seeing resiliency in the sectors in which we Hence, our confidence in the outlook for next year. Should we receive regulatory approval for our U.

Speaker 1

S. Acquisition And be able to broadly launch our RPP in 2024 that would present potentially significant incremental growth Depending on the timing, that could push us well past the $5,000,000,000 milestone. At the same time, we expect only a modest increase in non interest expenses for 2024, more or less in line with inflation, Excluding any costs that could be related to the closing of our acquisition and that by virtue of the simple straightforward Provisions for credit losses should, of course, remain de minimis. The result of our highly mitigated lending practices, In particular, the holdback model for our point of sale receivable purchase program for loans and leases. Finally, we are seeing solid momentum in our cybersecurity services subsidiary, which we expect to continue throughout the next year.

Speaker 1

Our strong reputation for results along with increased visibility efforts are driving growth in our client base, While engagement with existing clients expands as they see the unique value we have to offer. As just one example, this year, we began working with a major North American financial institution and quickly became one of our top tier Cybersecurity Testing Partners. There remains a tremendous opportunity in this rapidly growing market and we expect continued growth and Success going forward. To conclude, 2024 is expected to be a year that takes our efficiency, Profitability and return on equity to even higher levels, further demonstrating the strength and scalability of our business model. We will see more of each revenue dollar drop to the bottom line as we continue to mitigate risk throughout every aspect of our business.

Speaker 1

This is our recipe for delivering sustainable long term shareholder value. With that, I would like to open the call for questions. Operator?

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Our first question comes from the line of David Feaster from Raymond James. Please go ahead.

Speaker 3

Hi, good morning everybody.

Speaker 1

Good morning, David.

Speaker 3

I just wanted to start on kind of The pulse of the market and the driver the growth outlook. If I'm hearing you correctly, it's great to hear the The update on the $5,000,000,000 target and given the starting point and the growth that you're seeing, it seems obviously pretty achievable. I'm just curious, it sounds like that's exclusive of the Stearns deal. And so I'm just kind of curious kind of how you think about that, the growth trajectory And the contribution from the U. S.

Speaker 3

RPP program that you've been rolling out as a part of that?

Speaker 1

Well, just purely based on Canada, the quarter we've just completed would have been about 6% Prior to the sale of that $64,000,000 portfolio, so we're running in Canada about 6% a quarter, and there's no We're finding a lot of home improvement loans where folks Looking for more energy efficient furnaces and other devices to save costs. So It doesn't appear that just the Canadian market will deliver at much less than say about a 25% growth I'm going to say approximately 6 and a bit per quarter. We have gotten 3 customers now in the United States and The product is very keenly being sought after. It looks like despite not having the U. S.

Speaker 1

Banking license at this point, that will be Additional growth on top of the Canadian market. Now, we're in a fairly unstable world and Some as I said in the talk, you could see a shock or 2 and consumers tend to Stop buying at that point and cocoon a little bit, but presently that's the run rate, 6% or so per quarter in Canada And some further growth in the United States?

Speaker 3

Yes. No, that's great. And again, the The U. S. License is kind of icing on the cake above that.

Speaker 3

But could you maybe talk about the loan sale And kind of the drivers behind that, what you sold and kind of what drove that sale?

Speaker 1

Yes, we were somebody requested the repurchase of receivables that we had they originally sold to us Due to some internal background requirements and that the actual yield on that portfolio was Somewhat anemic compared with the rest of our portfolio. So it made sense from our perspective Increased profitability and it made sense for them and that they want to repay to rate their loans that they originally put on. So It was a win win and we don't do much of that. It was just sort of anomaly somebody asked for it. We looked at the numbers and said, gee, that makes sense.

Speaker 3

Okay. That makes yes, no, that's great. And one thing the CRE growth was a little bit higher, kind of accelerating the quarter and just Reading your commentary and listening to you, it sounds like you're a bit more cautious on CRE space. I'm curious What drove the kind of the higher pace of growth there? And just how you think about credit quality and underwriting At this point, just given the higher rate environment, kind of where LTV and debt service is at these higher rates?

Speaker 1

Well, the CRE growth was probably just a result of the accelerated construction during the warmer summer months. So it would be just a natural result of the construction loans that we'd have in place Drawing down more rapidly during the summer. My view on the market is that it's one that deserves a lot of caution going into And we're emphasizing government insured construction mortgages now. In Canada, there's Insurance government's insurance company called CMHC and they have a wonderful program for insuring residential construction mortgages And we're planning in 2024 to take full advantage of that. I don't see much else in 2020 for Non insured mortgages, for example, I'd just assume stay in the comfort of the CMHCs.

Speaker 1

And additionally, there's much more favorable risk weighting. The assets are risk weighted at 0 versus 70%, 100%, 150% On some of the other asset categories. So it's a very efficient use of capital and we're still providing financing for our customers We're trying to make up the need, the tremendous need for residential units In Canada, you're probably aware we've had a lot of immigration into Canada. It's a very popular country, but It's created a huge demand for residential units and our customers, our developers We've been banking, in my case, personally, not 46 years, doing their best to sort of fill that need. And we're thinking the CMHC vehicle is the best way to do that.

Speaker 3

That makes sense. And maybe switching gears to DRT Cyber, nice to see the uptick in revenues And expense control was really impressive. I know there was some timing issues with last quarter, but I'm just curious how the pipeline is trending. You talked about the major win that you had here in the States. But I'm just curious kind of how the pipeline is at DRT Cyber and just how you think about That business going forward?

Speaker 1

Well, the pipeline has increased quite significantly in the last while. The month of November, I've just seen the numbers, and it's way up over the previous the last year in November. So in the last quarter or so, we've seen a kind of a significant increase in demand for our product. I'm not sure why that is me, just nervousness of these terrible people out there hacking everybody. And we have a premium product, Particularly in the area of penetration testing and app testing.

Speaker 1

So in the last quarter or so, We saw a big increase and it looks like it's continuing right on.

Speaker 3

How do you think about Expansion of that business, I mean, are there any other new products or innovations or Just add on services that you're looking to expand into?

Speaker 1

Yes. There's a few that we developed off the shelf. That would be Raven, our anti spam software filter Prevents employees in the corporation sending emails to those that have on the unsubscribe list, for example. Also it's green to incoming spam emails. We like that product.

Speaker 1

It was in house development and we're rolling that one out. We have our machine learning capability that we are actively promoting our customers use. It's the sort of early warning that some hacker is trying to find their way in, give some, as you'd expect, I got an alarm bell that something unusual is taking in the system. We're trying to get our customers to use that. Those that have this test periodically, that's fine, but it'd be nice if they also had their system, The Big Brother looking over it all the time to it.

Speaker 1

So we've got that product to roll out. There's other products that are right now presently unutilized that being the VersaVault, I believe that has Tremendous applicability in the digital world. It's tactically, we're keeping up on So we're unoccupied with digital assets, while we're in the process of our bank application. I'm expecting sometime in the future, not too distant future, we'll hopefully see the green light on that. And then it might be the DRTC Should become the property of some other entity with a strong relation to the bank.

Speaker 1

And then Products like Versavol can come back to life. Right now, it's probably incompatible with the bank, but I'm sure there's other As a standalone company, DRTC would have quite a bit more value than sitting as a sub of a bank, Then those other products could be utilized.

Speaker 3

Absolutely. Terrific. Well, I appreciate the questions. Thank you.

Speaker 1

Well, thank you, David. Look forward to seeing you in the sunny Florida one of these nice days.

Speaker 3

Absolutely. It's gorgeous out.

Speaker 1

Yes. I'm planning to head down there just before Christmas. So hopefully in the New Year we can catch up.

Speaker 3

Let's do it. Thank

Speaker 2

you. Thank you.

Operator

We have our next question coming from the line of Ian Gillispie. Please go ahead.

Speaker 4

Good morning, David, and congratulations on the quarter, the year And the realignment of management responsibilities, all super initiatives. A couple of questions. One, you referred to the positive interactions with the U. S. Regulator.

Speaker 4

I am curious whether there is extensive back and forth currently or Are they asking for more information or they have all the information they need

Speaker 1

and it's just going through their own Particular process? Well, good question, Ian, and thanks. It was quite a vindication of that model I put together about 30 years ago, seeing it finally unfold and starts Deliver the numbers it should deliver. With respect to your question, there's very little back and forth Well, between us and the U. S.

Speaker 1

Regulators for the last few months, we feel we've answered All the questions they had about our banking business. There's just been some sort of tidy up in the last while of Asking about our major shareholder, that's kind of routine for understand for these types of things Well, we have a U. S. Or we would have a U. S.

Speaker 1

Bank holding company. They sort of tidy up Questions of has nothing changed sort of thing. So for months, we haven't really Interact you with the U. S. Regulator on announcing about the bank?

Speaker 4

Presumably, you've kept us the up to date so that you would be able to Pull that trigger as soon as you do receive the go ahead. Do you have to in any way renegotiate the deal with Stearns Bank just because of the protracted Period of time it's taken?

Speaker 1

No, there's no requirement for that. Stearns has been working well with us throughout this longer than we thought We're both keenly interested in putting the deal to bed and looking forward to Other transactions that we can do together, we've got some on the drawing board right now. I expect a wonderful relationship going forward with Going forward with Sterling's overall just being patient. I know you were once in The governments and the regulatory world and patience is the virtue that you need to defend these things. And We're if a regulator does want more information, the bank endeavors to provide us with a Sure.

Speaker 1

Ask if anything gets answered in the afternoon.

Speaker 4

And presumably, you wouldn't anticipate any problems with OSFI at this end?

Speaker 1

No, no. I think from OSFI's perspective, it just allows us the bank to diversify And growing in a market that's probably quite conducive to our product. We've got sort of over the last year or so nothing but positive remarks back. OSFI is of course doing the job they always do and I'm sorry about this, but further Publicly, I can say I've just seen green lights recently.

Speaker 4

And last question, is there currently an approved NCIB?

Speaker 1

We're kind of holding off on that until you see what happens. It's on pause. We submitted the NCIB, But we asked us to pause it in that we'd like to see the final shakeout of our capital Right. Well, it's closing. And it depends these numbers are fairly, I think remarkably significant, I would expect the stock not to stay maybe I'm dreaming optimistically.

Speaker 1

3 quarters of book value, it was a bargain and obviously turbocharged to earnings, EPS, we got almost a double. Yes. But I can't imagine that stays that sort of bargain stays there that much longer with the kind of numbers we're posting.

Speaker 4

Well, that's great, David. Thank you for that. You're starting to sound more and more like one of those greedy bankers. All I can say is keep up the good work.

Speaker 1

Yes. I don't apologize for that while I got my banker hat on. But yesterday, we were at the Salvation Army Given some back, of course, it's Christmas time and we're doing our part there too. Great. Thank you.

Speaker 1

I did have my Yesterday, but today I've got it squarely on my head again. Thanks very much.

Operator

Thank you. This concludes our Q and A session. I'd now like to turn the call back over to Mr. Taylor for final closing remarks.

Speaker 1

Well, I'd like to thank everybody for listening in and the good questions that I received. I wish you all Merry Christmas and a happy holidays. Stay safe. Look forward to Talking to you at the end of Q1. Hopefully, we have more good news to share.

Speaker 1

And should you have any questions in the meantime, We're just an e mail away, and we're happy to answer questions on the fly too. Again, happy holidays. It's long. Thank you.

Operator

Thank you, Thin. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.

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Key Takeaways

  • VersaBank delivered record Q4 and FY 2023 results, with net income up 94% YoY in Q4 ($12.5 M) and 86% for the year ($42.2 M), an improved efficiency ratio (45% Q4, 43% FY) and return on common equity near 14% in Q4.
  • Loan portfolio grew 29% YoY to $3.85 B, driven by the Canadian point-of-sale receivables program, with a 6% quarterly growth rate and early U.S. customer wins suggesting further upside once the banking license is secured.
  • Net interest margin was dampened to 2.54% in Q4 by elevated term-deposit rates and higher cost of funds, introducing potential volatility in margin in 2024 despite expectations to remain around current levels.
  • The pending acquisition of U.S.-based Stearns Bank Holdingford, now in advanced regulatory review, would give VersaBank a U.S. banking license to broadly roll out its Receivables Purchase Program, potentially accelerating growth past the $5 B asset milestone.
  • Digital Boundary Group, the bank’s cybersecurity subsidiary, saw Q4 revenues jump 108% YoY to $3.7 M and turned a profit of $1.2 M, with a robust pipeline and new products like the Raven email security filter driving momentum.
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Earnings Conference Call
VersaBank Q4 2023
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