VersaBank Q2 2025 Earnings Report

VersaBank EPS Results

• Actual EPS: $0.18
• Consensus EPS: $0.21
• Beat/Miss: Missed by -$0.03
• One Year Ago EPS: N/A

VersaBank Revenue Results

• Actual Revenue: $21.87 million
• Expected Revenue: $20.77 million
• Beat/Miss: Beat by +$1.10 million
• YoY Revenue Growth: N/A

VersaBank Announcement Details

• Quarter: Q2 2025
• Date: 6/4/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, June 4, 2025
• Conference Call Time: 9:00AM ET

VersaBank (NASDAQ:VBNK) provides various banking products and services in Canada and the United States. It offers deposit products, such as web-based chequing accounts, guaranteed investment certificates, registered retirement savings plans, and tax-free savings accounts, as well as deposit insurance products. The company also provides lending services, including point of sale financing that covers purchasing loan and lease receivables from finance companies operating in various industries; commercial banking services comprising commercial real estate, public sector/infrastructure financing, and condominium financing; and residential mortgages. In addition, it offers cybersecurity services. The company was formerly known as Pacific & Western Bank of Canada and changed its name to VersaBank in May 2016. VersaBank was incorporated in 1979 and is headquartered in London, Canada.

VersaBank Q2 2025 Earnings Call Transcript

Key Takeaways

• VersaBank delivered record assets, record credit assets, and record revenue, with net interest margin on credit assets expanding by 23 bps sequentially in Q2.
• First drawdowns from the U.S. receivable purchase program (RPP) exceeded US$70 million by quarter end, with management expecting the portfolio to reach at least US$290 million by year-end.
• Q2 earnings were dampened by preliminary realignment costs of CAD 0.9 million and a large non-cash foreign exchange translation loss on U.S. subsidiary assets, reducing EPS to C$0.28 on a normalized basis.
• The proposed structural realignment into a U.S.-domiciled bank holding company aims to simplify oversight, generate cost savings of CAD 2–3 million annually after an ~CAD 8 million one-time investment, and unlock additional shareholder value.
• Low-cost funding growth continued as insolvency deposit balances rose 22% year-over-year (and 5% sequentially), with a target of C$1 billion by year-end to support margin expansion.

Presentation

[Operator]

Morning, ladies and gentlemen. Welcome to VersaBank's Second Quarter Fiscal twenty twenty five Financial Results Conference Call. This morning, VersaBank issued a news release reporting its financial results for the second quarter ended 04/30/2025. That 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 on Cedar 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're 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 accompanying slide presentation is available on the bank's website. Also, today's call will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call.

[Operator]

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 expectations due to various material risks and uncertainties associated with BursaBank's businesses. Please refer to BursaBank's forward looking statement advisory in today's presentation. I would now like to turn the call over to David Taylor, President and Chief Executive Officer of VersaBank. Please go ahead, mister Taylor.

[David Taylor, Director, President & CEO at VersaBank]

Good morning, everyone, and thank you for joining us for today's call. With me is our Chief Financial Officer, John Aslan. The second quarter of fiscal twenty twenty five unfolded as planned with a number of positive highlights that will continue to drive momentum in our business. We saw the first drawdowns of our U. S.

[David Taylor, Director, President & CEO at VersaBank]

RPP portfolio, which by the end of the quarter had surpassed U. Dollars Seventy Million. We saw growth in our Canadian residential construction loan portfolio. We saw meaningful expansion of our net interest margin due to several factors that are trending positively. Joan will go into these in more detail, and we do expect these trends to continue to support NIM around these levels for the remain remainder of the year.

[David Taylor, Director, President & CEO at VersaBank]

This drove record assets, record credit assets, record revenue alongside sequential improvements in banking efficiency and return on common equity based on our core earnings. And subsequent to quarter end, we initiated a structural realignment of our business to that of the standard U. S. Bank framework, which if approved by regulatory authorities and shareholders, we expect will realize additional shareholder value, reduce costs, and further mitigate risk. Looking at the financial highlights in more detail, as I noted, record credit assets and very healthy expansion of our net interest margin drove record revenue.

[David Taylor, Director, President & CEO at VersaBank]

Credit assets on both sides of the border are expanding more or less in line with expectations this year. Net interest margin also expanded as we saw several favorable trends continue, driving 23 basis point increase in NIM on credit assets sequentially. I will note here there were two items that did slightly dampen our income. The first is some preliminary costs associated with our proposed structural realignment. The second is the impact of foreign exchange translation of US subsidiary assets, which was a typically large unrealized noncash loss due to precipitous drop of The US versus Canadian dollar in Q2.

[David Taylor, Director, President & CEO at VersaBank]

Including these items, earnings per share was $0.28 or excuse me, excluding these items. I will take the opportunity to remind you that this is early point in our US receivable purchase program. Although profitable, the results of our US operations continue to reflect the cost structure that will support our ramp to vastly larger revenues. As I noted last quarter, we tend to look at our Canadian banking operations as a proxy for where we think the efficiency and return in common equity of our US banking operations can go. And we are pleased to see both improve sequentially, excluding the two aforementioned items, to 4412.53% respectively.

[David Taylor, Director, President & CEO at VersaBank]

And I will remind you that our Canadian banking operations bear the vast majority of our corporate overhead costs, including our public company costs. So as an indicator of true potential efficiency and return on equity of our U. S. Business is actually significantly understated. And finally, as I did last quarter, I'll remind you that our EPS for the quarter reflects a significant higher number of shares outstanding in q two as a result of our December capital raise, most of which we are still putting to work.

[David Taylor, Director, President & CEO at VersaBank]

We deploy our this capital at around 12 times or more and around two and a half percent spread, so it is very accretive. Now I'd like to turn the call over to John to review the financial results in detail. John?

[John Asma, Chief Financial Officer at VersaBank]

Thanks, David. Before I begin, I will remind you that our financial statements and MD and A for the second quarter are available on our website under the Investors section as well as on SEDAR and EDGAR. 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 second quarter of fiscal twenty twenty five grew 15% year over year and 2% sequentially to a new high of over $5,000,000,000 Cash and securities were $445,000,000 or 9% of total assets, down from 11% at the end of Q1 as we steadily deploy the capital we raised in December of last year. Book value per share increased to a record $16.25 Our CET1 ratio increased to 14.28%, and our leverage ratio was 9.61%, both remaining above our internal targets.

[John Asma, Chief Financial Officer at VersaBank]

Total consolidated revenue was a record of 30,100,000.0 up 6% year over year and 8% sequentially. The increase was driven primarily by our continued growth in credit assets with the sequential growth being additionally driven by solid expansion of our net interest margin. Consolidated net interest expense was $17,500,000 compared to $12,200,000 in Q2 of last year and $15,700,000 for Q1 of this year. As David discussed, Q2 NIEs included $900,000 related to the preliminary costs associated with the bank's proposed structural realignment as well as an atypically high unrealized foreign exchange translation loss. Excluding these costs, NIEs were in line with our expectations.

[John Asma, Chief Financial Officer at VersaBank]

Otherwise, the year over year increase in net interest expenses was primarily due to the addition of VersaBank USA. As a reminder, DRT Cyber expenses were included in our consolidated net interest expenses and totaled $2,700,000 for the quarter. Reported net income was $8,500,000 and consolidated earnings were $0.26 per share. Excluding the preliminary costs associated with the proposed structural realignment and the impact of the foreign exchange translations, consolidated net income was $9,200,000 and consolidated earnings per share was $0.28 Looking at the income statement on a segmented basis, the vast majority of revenue continues to be driven by our Canadian digital operations or, pardon me, our Canadian digital banking operations. And within that Canadian banking operations as well as our U.

[John Asma, Chief Financial Officer at VersaBank]

S. RPP program ramped up with continued incremental growth. Revenue for the Canadian banking operations was $25,600,000 up 8% sequentially from Q1. As the corporate expenses flow through the Canadian Digital Banking segment, net income and net earnings per share were negatively impacted by costs associated with the structural realignment and the impact of foreign exchange translation. Excluding these impacts, net income for the Canadian Banking operation was $9,900,000 which comes to $0.30 per share.

[John Asma, Chief Financial Officer at VersaBank]

Revenue from The U. S. Banking operations was $2,500,000 a 22% sequential increase. And net income for U. S.

[John Asma, Chief Financial Officer at VersaBank]

Banking operations was 133,000 a 29% increase sequentially. Within DRT cyber within the I'm sorry. Within the DRT within DRTC, the cybersecurity component generated revenue of $1,800,000 down from $2,300,000 in Q2 of last year. Net loss was $652,000 impacted by higher operating expenses. Within DRTC, Digital Media revenue was $569,000 with net loss of $152,000 Our credit assets grew to a record $4,520,000,000 at the end of Q2, driven once again by our receivable purchase program, which increased 14% year over year and 4% sequentially to 3,500,000,000.0 Our RPP portfolio represented 79% of our total asset portfolio at the end of Q2 consistent with the end of Q1.

[John Asma, Chief Financial Officer at VersaBank]

Our multifamily residential loans and other portfolio grew 8% year over year and 3% sequentially to $958,000,000 as we steadily drew down on CMHC insured loan commitments. As a reminder, our multifamily residential loans and other portfolio is primarily business to business mortgages and construction loans for residential properties. We have very little exposure to commercial use properties. Turning to the income statement of digital banking operations. Net interest margin on credit assets, that is excluding cash and securities, was 2.59.

[John Asma, Chief Financial Officer at VersaBank]

That was seven basis points or 3% higher on a year over year basis and 16 basis points or 10% higher sequentially. As David discussed, our net interest margin on credit assets is benefiting from several positive trends. The yield curve is no longer inverted, further replacement of maturing higher interest rate term deposits with lower interest rate term deposits, continued expansion of our low cost insolvency professional deposits and higher margin generated by our U. S. RPP.

[John Asma, Chief Financial Officer at VersaBank]

Net interest margin overall, including the impact of cash, securities and other assets was 2.29%, an increase of 21 basis points sequentially, which still remained among the highest of the publicly traded financial licensed banks in Canada. Our provision for credit losses or PCL in Q2 increased slightly this quarter to 0.08% of average credit assets compared to 0% last year and is higher than our 12 average of 0.02%. The increase this quarter was due to changes in forward looking information used in our credit risk models, mainly due to increased uncertainty and more challenging outlook for the economy. I'd now like to turn the call back to David for some closing remarks. David?

[David Taylor, Director, President & CEO at VersaBank]

Thanks, John. Looking ahead to the second half of the year, we expect positive trends of Q2 to continue into the third and fourth quarters, which we expect will drive steady sequential growth in core earnings, meaning excluding the investments in the structural realignment. Credit assets should continue to steadily grow driven by momentum in our US receivable purchase program, which we continue to expect to reach at least 290,000,000 US dollars by the end of the year. The US has vastly underserved market for big ticket point of sale financing, and we have a unique solution that offers a number of clear advantages over existing alternatives. We see some potential for incremental growth in Canada amidst what remains a challenging environment for consumer spending, and we expect to see an increasing contribution from our growing CMHC insured multifamily residential loan business and this opportunistic part of our Canadian business and remain on target to achieve $1,000,000,000 in commitments by the end of the year.

[David Taylor, Director, President & CEO at VersaBank]

We will increasingly benefit from the operating leverage in our business model as those assets scale, especially as we deploy the capital from our equity offering last December, contributing to further improvements in efficiency and return on common equity on core earnings. We expect to see the continuation of this favorable trend in support of our net interest margins that are in line with our expanding Q2 levels. Further replacement of maturing higher cost term deposit receipts with those of the current rates, the normalized yield curve, which benefits our RPP spreads, the higher spread we generate on RPP assets in The US, and the higher deposits in our low cost insolvency deposit business. Q2's insolvency balances were up another 5% sequentially and 22% year over year, and we continue to expect those deposits to grow to about a billion. Finally, as discussed in our last call, we are aggressively pursuing the renewed opportunity for our proprietary digital deposit receipts.

[David Taylor, Director, President & CEO at VersaBank]

As we expected with the US administration's significantly more favorable view towards digital assets, including digital currencies and stablecoins, we are starting to see the industry itself ramping up their plans. Most notably, Wall Street Journal reported JPMorgan Chase, Citi, Wells Fargo, and and b of of a Bank of America, and others are all exploring the use of this technology to modernize payments. Our digital deposit receipts are a market ready solution created by a bank or banks that seamlessly integrate with existing bank software systems while addressing the major concerns of regulators. They take the concept of stablecoin to an entirely new level. In fact, next week, I'll be speaking at the Florida Bankers Association annual meeting, the title of my presentation, introducing the ultimate stablecoin, the only USD digital deposit receipt.

[David Taylor, Director, President & CEO at VersaBank]

I will discuss why we believe our first of a kind stablecoin minted by a national bank, SOC two approved, based on the highest military grade security, can and we believe will play a role in changing the banking industry. Before we open the call to questions, a few words on the proposed structural realignment we announced last week. The details are a little convoluted and well laid out in our news release, so I won't get into those here. The purpose of this initiative is to realign our corporate structure to that of the most international banks under which there is a a corporate parent entity that holds the various operating subsidiaries. This is the structure with which US and international investors are most familiar.

[David Taylor, Director, President & CEO at VersaBank]

Under the proposed plan, the new parent would be domiciled in The United States and fall under the purview of The US regulators as would our US operations. Our Canadian operations would remain domiciled in Canada and remain under the purview of the Canadian regulators. The benefits of this proposed realignment are clear. We would simplify our regulatory oversight. We would further mitigate risks, something we continuously seek to do.

[David Taylor, Director, President & CEO at VersaBank]

We would generate meaningful cost savings. Our stock should become eligible for certain indices, including the Russell two thousand. And looking longer term, it would provide a structure that would be favorable to further international expansion. We would expect all this to generate additional shareholder value over and above the value we expect to drive through growth of the business itself. The realignment is subject to a number of approvals, the OCC, the Fed in in The US, the Minister of Finance in Canada, the Nasdaq, and the Toronto Stock Exchange, of course, and our shareholders.

[David Taylor, Director, President & CEO at VersaBank]

There is significant cost to this undertaking, is very much, we view as an investment with a substantial expected return. We estimate that to be around $8,000,000 Canadian to be roughly divided between third and fourth quarters this year with a small amount incurred in Q2 as noted earlier. That expected CAD 8,000,000 investment equates to about 1.5% of our current market cap. We are confident that the combined benefits will drive incremental shareholder value far in excess of this investment. With that, I'd like to open up the call to questions. Operator?

[Operator]

Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your telephone keypad. If you're using a speakerphone, please speak up your handset before pressing any keys. With that, our first question comes from the line of Joey Antunes with Raymond James. Please go ahead.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Good morning. Good morning, Joe. So in your prepared remarks, I believe you said that you expect insolvency deposits will reach 1,000,000,000. What's the timing for that target? And in conjunction with this tailwind and the several others that you listed, do you have a sense for the magnitude of the expansion in the app orders?

[David Taylor, Director, President & CEO at VersaBank]

Sure. Could you repeat the second half? Because I broke up a little bit.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Yeah. It was the the timing for the billion and then, you know, kind of an outlook a near term outlook for the NIM expansion.

[David Taylor, Director, President & CEO at VersaBank]

Well, with the the billing, I'm thinking by the end of the calendar year, we should get there. As you can see, we're growing at 22% year over year. And unfortunately for Canada, we're made almost a record low for consumer sentiment and insolvency. So while, it's a a tough time for most, most Canadians, it's it's good time for the insolvency business. And, you know, it should should it supplies us with with some economically priced deposits.

[David Taylor, Director, President & CEO at VersaBank]

So I think if I run it, continue the balances continue to grow at the at present rate by the end of the calendar year, it should have hit about a billion. Now with respect to NIM expansion, very pleased to see the 29 basis points sequentially in the credit assets. There's a little bit of a dampening effect right now happening in Canada even though we have about 700,000,000 in GICs maturing in the next few months at about 1% less than and the the replacement GIC is about 1% less. So that's all very favorable for us. But the yield curve is still pretty flat and might have a little tiny, inversion in the in the short end.

[David Taylor, Director, President & CEO at VersaBank]

That puts a bit of damper on it. So it hasn't quite swung back up as as, as it normally is. And the marginal government bonds that our GICs have over the last while are are high too. It's about 80 odd basis points. They're usually around usually around 50.

[David Taylor, Director, President & CEO at VersaBank]

So right now, I'm thinking NIM will stay where it is and probably start edging up again when some of this some of this noise gets out of the system.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Got it. I appreciate that. And then kinda moving over to expenses. So excluding the realignment cost, how should we think about, you know, non interest expenses kinda trending from here? And then what are the expected annual savings from redomiciling in The US?

[David Taylor, Director, President & CEO at VersaBank]

Well, with excluding the those onetime expenditures with respect to reorganizing, there's probably a little bit more in NIE in The States. We've got maybe one more hire to do. And as of that, it should stabilize. So maybe a slight increase in the in The US banks expenses going forward is unstable. And with respect to the savings, you you could probably pencil in around 2,000,000, 3 million a year once once we've got that re the reorganization done.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Excellent. I appreciate that. Then just last one for me with respect to capital, and perhaps I missed this in the materials, but didn't look like you utilized your recent share repurchase authorization. How should we think about your appetite for repurchases in the app orders?

[David Taylor, Director, President & CEO at VersaBank]

Well, we're we're we're keen to buyers talk back less than book value, and it looks like it's less than book value. Maybe it's saying it has been the last so the we we are keen to buy it back at that price. Personally don't expect it to stay down there that that long. But, if it is, you know, we've got, loads of capital, and that probably the best place to deploy our capital is buying back our stock less than book.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Excellent. Thank you for taking my questions.

[David Taylor, Director, President & CEO at VersaBank]

Thank you, Joe. Look forward to seeing you in Florida.

[Operator]

And your next question comes from the line of Tim Switzer with KBW. Please go ahead.

[Tim Switzer, Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)]

Hey. Good morning. Thank you for taking my questions.

[David Taylor, Director, President & CEO at VersaBank]

Good morning, Tim.

[Tim Switzer, Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)]

Good morning. Can you update us on the expectations you have on the the cell DRTC cyber and the timeline there?

[David Taylor, Director, President & CEO at VersaBank]

Well, we're in the sort of final stages of engaging Affirm to, look after that sale. And, I would expect by the end of this this fiscal year, we'll have a deal done. It's, you know, I think a very popular business, unfortunately, but a terrible comment on humanity that cybersecurity attacks just seem to be relentless, and DRT Cyber is is seem to be a a world leader in particularly near penetration testing. So we're we're actively in the in the sale process now. And as I say, we expect fairly soon to engage your firm to to look after that for us.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Okay. Great. That's good to hear. And can you provide an update on how, like, conversations with new partners in The US are going? Maybe how many new programs you expect to be fully launched, you know, by the end of the year?

[David Taylor, Director, President & CEO at VersaBank]

Well, the the conversation's going quite well. And, of course, it's a it's a very attractive product, but the onboarding process is is a little longer than I would like. We've got three signed up now. And by the end of the year, say we have another three signed up, I'm hoping for a lot more than that, but it is taking a while to onboard. The legal work is different in The States versus what we have in Canada.

[David Taylor, Director, President & CEO at VersaBank]

Not that much different, but it is there are nuances to it. So three now, maybe another three. And if the guys pleasantly surprised me, maybe another three on top of that.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Okay. That sounds good. And, the last question I have is, can you just provide some commentary on the credit trends you're seeing in the CRE book where we we've seen some reserve release over the last few, quarters, but have had also had some charge offs. Just would love to hear, what you guys are seeing there.

[David Taylor, Director, President & CEO at VersaBank]

Well, the, charge offs actually, are sort of an academic, charge off, and that they're part of the US portfolio that we purchased, when we purchased that US bank. So they're not they're not in the Canadian real estate area. We have no charge offs. No no real charge offs at all in our book. But we we purchased the portfolio to buy the bank, and along with it, we purchased their expected loss provision that's been charged against it.

[David Taylor, Director, President & CEO at VersaBank]

The Canadian real estate market is in a bit of a turmoil. So it's a really a heads up game lending in that area. We've been at it for, I guess, my case, forty eight years. So this is one of those periods of time where you have to be really careful. Hence, our focus on the government's insured CMHC mortgages, and we intend to to keep that focus.

[David Taylor, Director, President & CEO at VersaBank]

And we we tend to lend to our exit clients that we've loaned to for decades around the London, Ontario area. So yeah. If like, even our real estate developer clients are are, for the most part, sitting on a lot of cash, sort of waiting until things smooth out a bit in the in the the economy.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Great. Appreciate you answering all the questions, David.

[David Taylor, Director, President & CEO at VersaBank]

No problem, Tim. Maybe I'll stay in New York. I'm heading in there next week sometime.

[Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial]

Okay. Yeah. We'll be in touch.

[David Taylor, Director, President & CEO at VersaBank]

Yep.

[Operator]

Thank you. And once again, if you would like to ask a question, seem to press star one on your telephone keypad. Your next question comes from the line of Andrew Scott with Roth Capital Partners. Please go ahead.

[Andrew Scutt, Equity Research Associate at Roth Capital Partners, LLC]

Hey. Good morning, and thank you for taking my questions. So my first one here is a little bit of a two parter. You guys had nice growth in the ERPP portfolio. So kind of breaking it out by geography, with the softness in the Canadian economy, can you just kind of talk about what verticals you did see strength in?

[Andrew Scutt, Equity Research Associate at Roth Capital Partners, LLC]

And then maybe within the active US portfolio, is there anything you've kinda learned that surprised you, thus far?

[David Taylor, Director, President & CEO at VersaBank]

Well, actually, Andrew, it surprised me the Canadian portfolio grew and that all the stats in Canada are pretty negative. Like, a consumer sentiment at an all time low, insolvencies at an all time high. So I was surprised to see any growth in Canada. I think the last quarter I I said that. But the the vertical really is home improvement, and I suppose, you know, that's that maybe maybe that's to be expected.

[David Taylor, Director, President & CEO at VersaBank]

Canadians are buying new furnaces and energy efficient furnaces and hot water heaters and that sort of things that are saving them ultimately in the monthly and monthly expenses. So that's where we see the growth in Canada still, strangely enough. And, it's probably gonna continue right through the end of the year. So, you may very well see, about a 10% increase year over year in in the RPP in Canada. And, of course, on the other side of that, we're seeing 22% growth year over year in the insolvency deposits, which are are helping drive our, the expansion of our, of our margin.

[David Taylor, Director, President & CEO at VersaBank]

In in The United States, the I suppose the lesson is that the alternate source of of financing is securitization, and the credit credit spreads in that area, have been pretty narrow. So even though, first, everybody we talk to in The States, wants to sign up for our program as a sort of a continuous steady reliable source of of capital for to fund their loans. The the market is giving money pretty cheap right now. So it it means that we're we're maybe not the top priority with with that would be otherwise if credit spreads are really wide. So that's American point of sale customers tend to be a lot larger than the Canadian ones, but the Canadian ones don't have because their size don't have really access to the to the securitization programs, but the American ones do because they're so much larger.

[David Taylor, Director, President & CEO at VersaBank]

And so their appetite for for our program is sort of modified by the credit spreads.

[Andrew Scutt, Equity Research Associate at Roth Capital Partners, LLC]

Really appreciate the detail there. And second one for me, if I may. You guys added an additional deposit broker in the quarter. Noted this could potentially be a tailwind to NIM. So can you kinda talk us through how that could be a benefit to you guys and if you're interested to to, you know, further expand your your network?

[David Taylor, Director, President & CEO at VersaBank]

Well, absolutely right. We were fortunate that Bank of Montreal put us on their board. In my early career, I started off with Bank of Montreal. So it was it was just it was justice that that that they should have us on their on their board. Bank of Montreal is a huge, a huge channel for for distributing our deposits.

[David Taylor, Director, President & CEO at VersaBank]

So, that is a tailwind on it, and that would be contributing to our our net interest margin expansion and the diversity of our our deposit base. So we're we're we're thankful that Bank of Montreal added us. I think maybe one large bank left in Canada to put us on their board. And, again, that helps with the diversity and and and the NIM expansion. And just to spell it out, the more, channels we have, that distribute our deposits, the the the less we have to pay for our deposits and that we don't overwhelm one one particular channel because it we're so well distributed all across the entire country of Canada.

[David Taylor, Director, President & CEO at VersaBank]

So so that's helpful. And, I said, there may be one more bank that in the very early days of and I was just conceiving this this model, was actually a supplier, and then the market changed a bit. The industry changed. So we we should really sign them up too, and then we have the entire country.

[Andrew Scutt, Equity Research Associate at Roth Capital Partners, LLC]

Great. We really appreciate the color, and, thanks for taking my questions.

[David Taylor, Director, President & CEO at VersaBank]

Well, thank you, Andrew. See you in New York soon.

[Andrew Scutt, Equity Research Associate at Roth Capital Partners, LLC]

Yeah. That'd be great.

[Operator]

And your next question comes from the line of Jeff Jeff Wagman with Raymond James. Please go ahead.

[Jeff Wagman, Portfolio Manager at Raymond James]

Hey. Good morning, David and John.

[David Taylor, Director, President & CEO at VersaBank]

Good morning.

[Jeff Wagman, Portfolio Manager at Raymond James]

It's been a while.

[David Taylor, Director, President & CEO at VersaBank]

You're in Saint Petersburg. Are you are you in the baking hot Saint Petersburg right now?

[Jeff Wagman, Portfolio Manager at Raymond James]

No. No. I'm I'm in, actually, getting warmer Toronto. Oh,

[David Taylor, Director, President & CEO at VersaBank]

oh, no kidding. Sorry. Sorry, Gisai. Yeah. Thought you were down in the head headquarters.

[Jeff Wagman, Portfolio Manager at Raymond James]

No. No. I hope to be in London sometime through the summer. But, anyway, just a general question. Given the political climate and, you know, the expansion and wisely, I think, the concentration of of business to The United States, are you experiencing or hearing of any possible pushback given the political environment regarding foreigners in The US?

[David Taylor, Director, President & CEO at VersaBank]

No. Not yet. But, you know, we've we've heard sort of statements earlier on about Canadian bags in general, and it hasn't affected us negatively. In fact, on the balance, the current US administration's propensity for digital commerce has helped us a lot. As you know, we have the world's first digital deposit receipt.

[David Taylor, Director, President & CEO at VersaBank]

We pioneered it in Canada under the Canadian regulatory environment, and now it seems that it's it's absolutely perfect for what the US administration is talking about. So other than that, a little bit of rhetoric about Canadian banks. The the the overwhelming positive thing is is the endorsement of digital commerce, and our our digital deposit receipt, of course, is at least two years ahead of the game. Yeah. We we not only pioneered it in the regulatory environment, but we also obtained a SOC type two audit audit, which is you can only get by having it actually be functional.

[David Taylor, Director, President & CEO at VersaBank]

So everybody else is dreaming of doing this, you know, they got a few years to go. And we got we got this thing ready to roll in The United States. So if anything on the balance, it's it's positive to be in The United States.

[Jeff Wagman, Portfolio Manager at Raymond James]

Alright. So now, proposed, they're talking about tax increases on foreigners investing in The States and the increase in withholding taxes for on on dividends and that sort of thing. But I don't know about business operations yet. I haven't heard anything about that.

[David Taylor, Director, President & CEO at VersaBank]

Yeah.

[David Taylor, Director, President & CEO at VersaBank]

A good portion of our shareholders are US. Other than our major holding company, it's 80% US shareholders.

[Jeff Wagman, Portfolio Manager at Raymond James]

Mhmm.

[Jeff Wagman, Portfolio Manager at Raymond James]

But it won't impact your business as a as an operational thing, will it?

[Jeff Wagman, Portfolio Manager at Raymond James]

No.

[Jeff Wagman, Portfolio Manager at Raymond James]

Could it?

[David Taylor, Director, President & CEO at VersaBank]

I we don't I don't see it. It but we're part of the part of this restructuring will give us insights into how we can efficiently structure ourselves to minimize our our tax burdens and foreign exchange translations that we saw us getting hit with this quarter. So that's all underway. Also, obviously, with us adopting the same holding company structure that the other international US banks have, That minimizes the the risk that there might be some sort of aversion to Canadian banks in in The United States. We're we'll have a holding company structure identical to that of, say, JPMorgan. So that that minimizes all the all that stuff.

[Jeff Wagman, Portfolio Manager at Raymond James]

I'll give you a shout, and, when you guys are in London, I'll make a plan to come down and see you.

[David Taylor, Director, President & CEO at VersaBank]

Yeah. Well, I'm in I'm in London right now. I'm right at the World Bank Innovations Center of Excellence here. And but last time without an airplane, so I can't find the island to visit with you, I got a set of No.

[Jeff Wagman, Portfolio Manager at Raymond James]

I'm in Toronto. It's a jet.

[David Taylor, Director, President & CEO at VersaBank]

Yeah. I know. Well, at Island Airport, of course.

[Jeff Wagman, Portfolio Manager at Raymond James]

Oh, the Island Airport. No. I forgot about that.

[David Taylor, Director, President & CEO at VersaBank]

Yeah. That's that's a

[David Taylor, Director, President & CEO at VersaBank]

30 that's a thirty five minute flight for me out out of London Airport here where we're located, but I got a new set of Garmin instruments going in and and seems to take forever. Like, a lot of things in life nowadays, everything seems to take a lot longer than

[Jeff Wagman, Portfolio Manager at Raymond James]

you. Alright.

[David Taylor, Director, President & CEO at VersaBank]

Hope for.

[Jeff Wagman, Portfolio Manager at Raymond James]

Well, I

[Jeff Wagman, Portfolio Manager at Raymond James]

I'm I'm tied up this month. We got our kids in from overseas, so it'll be July or August. Hopefully, July. It'll be sometime in July. But I'll I'll I'll message you and John and see if we can

[David Taylor, Director, President & CEO at VersaBank]

Yeah. Absolutely. Yeah.

[Jeff Wagman, Portfolio Manager at Raymond James]

Yeah.

[David Taylor, Director, President & CEO at VersaBank]

I'm in all day. I'll enjoy it regularly once I got the got my wings back.

[Jeff Wagman, Portfolio Manager at Raymond James]

Yeah. I'm sure. Well, thanks again. Thanks very much.

[David Taylor, Director, President & CEO at VersaBank]

Okay. Thank you.

[Jeff Wagman, Portfolio Manager at Raymond James]

Bye. Okay.

[Operator]

And we have no further questions at this time. I would like to turn it back to David Taylor for closing remarks.

[David Taylor, Director, President & CEO at VersaBank]

Well, I'd like to thank everyone for joining us today, and I look forward to speaking to you at the time of our third quarter results. Thank

[Operator]

you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.

Participants

Executives

• David Taylor, Director, President & CEO
• John Asma, Chief Financial Officer

Analysts

• Joseph Yanchunis, Senior Equity Research Associate at Raymond James Financial
• Tim Switzer, Vice President of Equity Research at Keefe, Bruyette & Woods (KBW)
• Andrew Scutt, Equity Research Associate at Roth Capital Partners, LLC
• Jeff Wagman, Portfolio Manager at Raymond James
• Jeff Wagman, Portfolio Manager at Raymond James