• Total Assets: Grew 15% year-over-year and 3% sequentially to just under $5 billion.
• Cash and Securities: $545 million, representing 11% of total assets.
• Book Value per Share: Increased to a record $16.03.
• CET1 Ratio: Increased to 14.61%.
• Leverage Ratio: 9.67%.
• Total Consolidated Revenue: $27.8 million, compared to $28.9 million last year.
• Consolidated Non-Interest Expense: $15.7 million, up from $12 million in Q1 last year.
• Canadian Banking Operations Revenue: $23.8 million.
• Canadian Banking Operations Net Income: $8.8 million or $0.30 per share.
• U.S. Banking Operations Revenue: $2 million.
• U.S. Banking Operations Income: $103,000.
• DRT Cyber Revenue: $2 million, up from $1.9 million in Q1 last year.
• DRT Cyber Net Loss: $757,000.
• Credit Asset Portfolio: Grew to $4.35 billion, with RPP portfolio representing 79%.
• Net Interest Margin on Credit Assets: 2.36%, 27 basis points lower year-over-year.
• Provision for Credit Losses: Increased to 0.09% on average credit assets.

• Warning! GuruFocus has detected 2 Warning Sign with VBNK.

Release Date: March 05, 2025

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

Positive Points

• VersaBank (NASDAQ:VBNK) signed its first U.S. partner, Watercross Financial, following the U.S. bank acquisition, marking a significant step in its expansion strategy.
• The bank completed a successful $86 million capital raise, including full execution of the over-allotment option, to support its U.S. RPP opportunity.
• VersaBank (NASDAQ:VBNK) achieved a record for total assets, with a 15% year-over-year growth, reaching nearly $5 billion.
• The Canadian digital banking operations continue to demonstrate strong operating leverage, contributing to efficiency and return on common equity.
• The bank's CET1 ratio increased to 14.61%, and the leverage ratio was 9.67%, both remaining above internal targets, indicating strong capital adequacy.

Negative Points

• The U.S. operations are currently incurring full costs without generating significant revenue, impacting overall profitability.
• Total consolidated revenue decreased slightly year-over-year, driven by lower net interest margin and non-interest income.
• Non-interest expenses increased due to incremental operating costs associated with U.S. operations and higher costs to support anticipated business activities.
• The net interest margin on credit assets was lower year-over-year due to the lag effect of an atypical inverted yield curve.
• Provision for credit losses increased due to changes in forward-looking information, reflecting a more unstable credit environment.

Q & A Highlights

Q: The digital deposit receipts sound exciting. How should we think about their near-term impact, and what level of deposits would you consider successful by year-end? A: We plan to pilot the project in the U.S. soon, similar to our Canadian pilot. After a successful pilot, we aim to start raising deposits towards the middle to end of the year. It's like a modern-day checking account, offering insured digital deposit receipts. We expect to roll it out by year-end, starting with a pilot in the U.S.

Q: Should we consider the current non-interest expenses as the run rate moving forward? A: Yes, possibly even a bit more. The exchange rate impacts our U.S. expenses, making them more costly in Canadian dollars. So, today's rate plus a little more is a good estimate.

Q: How should we think about the growth in U.S. RPP volume throughout the year? A: The first account with Watercress took time due to legal work, but we've started funding. We expect momentum to build, with original targets of USD 290 million easily attainable with a few RPP partners. Several are lined up.

Q: Can you update us on the U.S. point-of-sale business and what it will take for new partners to launch quickly? A: It's about completing paperwork. Our partners need to understand our master person sale agreement. Interest is high, and some partners have huge potential. The market conditions, with securitizations getting more expensive, play into our hands.

Q: How should we think about the balance sheet capacity versus loans for syndication, and what does that mean for fee income? A: As we approach our budgeted figure, we'll share loans through syndication with community banks and investment firms. We're targeting around 1% management fees, which could improve with favorable bond ratings and market conditions.

Q: Can you provide more detail on the impact of the flattening yield curve and 2025 trajectory? A: High-margin GICs are maturing, reducing our costs and providing a tailwind for margins. Bankruptcy increases in Canada provide more economically priced deposits. We expect margins to widen back to historical levels.

Q: You took a provision this quarter due to an accounting change. Can you provide details? A: Provisions are based on forward-looking models and reflect potential losses. The unstable credit environment has increased provisions, but they remain low compared to the industry.

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