Summary of VersaBank Conference Call Company Overview - **Company Name**: VersaBank - **Stock Symbols**: NASDAQ: VBNK, TSX: VBNK - **Type**: Fully digital, branchless bank operating in North America - **Founding**: Established in the early 1990s, first federal license in Canada in 18 years, and a national bank license in the U.S. after three decades [2][3] Core Business Model - **Receivable Purchase Program (RPP)**: Flagship product allowing the purchase of receivables from point-of-sale finance companies, which finance consumer purchases like vehicles and home improvements [4][12] - **Operational Efficiency**: The bank operates with approximately 100 employees, leveraging technology to maintain low fixed costs and high scalability [5][18] - **Credit Risk Management**: Utilizes a put-back arrangement to return delinquent loans to originators, resulting in minimal credit risk [5][13][19] Recent Innovations - **Digital Vault (VersaVault)**: Launched in 2018, allows tokenization of deposits, offering a digital representation of bank deposits [7][9] - **AI Enhancements**: Developed AI modules to process data and documentation significantly faster than human capabilities, improving operational efficiency [21][22] - **Real-Time Receivable Purchases**: Future plans to enable real-time purchases of receivables, enhancing cash flow for partners [22][23] Market Position and Expansion - **U.S. Market Entry**: Recently expanded operations into the U.S., targeting the point-of-sale market, which is significantly larger than the Canadian market [12][17] - **Competitive Landscape**: Currently, no direct competitors in the U.S. market; however, some competition exists in Canada [24][25] - **Securitization**: Plans to incorporate securitization into the product offering to enhance funding options [24] Financial Metrics and Performance - **Return on Equity (ROE)**: Historically high ROE, with margins around 250 basis points, expected to improve with asset growth [6][26] - **Efficiency Ratios**: Focus on improving efficiency ratios to enhance pre-tax earnings, currently at a 30% tax rate [26] - **Asset Growth**: Key metric for investors; growth in assets directly correlates with increased profitability [26] Future Outlook - **Divestment of Cybersecurity Firm**: Plans to divest a cybersecurity firm, which may positively impact book value [14][19] - **Market Potential**: The stablecoin industry has seen $27 trillion in transactions, presenting a significant growth opportunity for VersaBank's digital deposit products [15] Additional Insights - **Consumer Behavior**: Noted differences in financing behavior between U.S. and Canadian consumers, with U.S. consumers financing more readily at point-of-sale [17] - **Scalability**: The bank's model is described as "almost infinitely scalable," with no need for traditional branch networks [18] This summary encapsulates the key points discussed during the conference call, highlighting VersaBank's innovative approach, market expansion, and financial performance metrics.

Core Insights - VersaBank has implemented advanced artificial intelligence capabilities in its core banking technology to enhance real-time monitoring of credit asset data [1] - The new AI features aim to further mitigate risk and improve the bank's operational efficiency [1] Company Overview - VersaBank is recognized as a leader in business-to-business digital banking in North America [1] - The bank also specializes in technology solutions for cybersecurity [1]

Core Viewpoint - VersaBank is advancing its Digital Deposit Receipts (DDRs) pilot programs in Canada and the U.S., aiming to leverage its unique position as the only nationally licensed bank with tokenized deposit capabilities in both countries, to facilitate secure and efficient cross-border transactions [1][2][3]. Group 1: Pilot Programs - The CADVB Pilot Refresh is designed to validate the functionality, security, and compliance of DDRs with Canadian regulations, following enhancements to the bank's core technology since the initial pilot in 2022 [1][2]. - The integration of the CADVB Pilot Refresh with the USDVB Pilot Program aims to showcase the bank's capacity for high-speed, low-cost, and secure cross-border payments using DDRs as digital representations of actual deposits [2]. - Both pilot programs are expected to conclude by the end of 2025, with a commercial launch anticipated shortly thereafter, subject to regulatory requirements [2]. Group 2: Market Opportunity - Approximately CAN$1 trillion in trade occurs annually between the U.S. and Canada, presenting a significant opportunity for VersaBank to provide blockchain-secured foreign exchange transactions [3]. - DDRs offer advantages over non-bank stablecoins, including the ability to pay interest and provide deposit insurance, which are critical for businesses seeking secure digital transaction solutions [3][4]. - The bank is actively pursuing opportunities to monetize its proprietary DDR technology, which is positioned as a market-ready solution for various financial entities [3]. Group 3: Technology and Security - DDRs are bank-issued tokenized deposits that provide enhanced security, stability, and regulatory compliance compared to traditional stablecoins, combining traditional banking safety with blockchain efficiency [4][6]. - The issuance and management of CADVBs will utilize VersaBank's proprietary VersaVault platform, ensuring secure handling of sensitive data and compliance with regulatory standards [5][8]. - VersaVault is designed to manage highly sensitive digital assets and ensure end-to-end security for the lifecycle of DDRs, addressing the need for regulated custody in the digital asset space [8]. Group 4: Company Overview - VersaBank operates as a branchless, digital bank in North America, focusing on underserved segments of the banking industry through its innovative technology [9]. - The bank has successfully launched its Receivable Purchase Program in the U.S., expanding its operations into a multi-trillion-dollar market [9]. - VersaBank also owns DRT Cyber Inc., a leader in cybersecurity services, enhancing its capabilities to address the growing cyber threats faced by financial institutions [9].

Core Viewpoint - VersaBank (NASDAQ: VBNK) reported an earnings per share (EPS) of $0.21, exceeding estimates but showing a decline from the previous year, while revenue fell short of expectations, indicating challenges in revenue generation despite effective earnings management [2][3][6] Financial Performance - EPS of $0.21 surpassed the estimated $0.20, marking a 10% earnings surprise, but declined from $0.26 in the same quarter last year [2][6] - Revenue for the quarter was $22.98 million, missing the Zacks Consensus Estimate of $25.2 million by 0.57%, although it showed growth from $19.72 million a year ago [2][3][6] Earnings and Revenue Trends - Over the past four quarters, the company exceeded consensus EPS estimates twice but consistently fell short of revenue expectations, indicating effective earnings management but challenges in revenue generation [3][6] Financial Ratios - The price-to-earnings (P/E) ratio is approximately 16.77, reflecting the price investors are willing to pay for each dollar of earnings [4][6] - The price-to-sales ratio is about 2.13, indicating that investors are paying $2.13 for every dollar of sales [4][6] - The debt-to-equity ratio is 0.20, suggesting a relatively low level of debt compared to equity, which is favorable for investors [5][6] - The current ratio is 0.11, indicating potential liquidity concerns regarding the ability to cover short-term liabilities with short-term assets [5][6] - The earnings yield stands at 5.96%, providing insight into the earnings generated from each dollar invested [5]

Financial Data and Key Metrics Changes - Total assets grew 21% year over year and 9% sequentially to just shy of CAD 5.5 billion [13] - Consolidated revenue reached a record CAD 31.6 million, up 17% year over year and 5% sequentially [14] - Reported net income was CAD 6.6 million, with adjusted net income of CAD 9.7 million excluding restructuring costs [15] Business Line Data and Key Metrics Changes - Revenue for Canadian Banking operations was CAD 26.6 million, up 4% sequentially [15] - U.S. Banking operations revenue was CAD 3.1 million, a 25% sequential increase [16] - The credit asset portfolio grew to a record CAD 4.78 billion, with the receivable purchase program increasing 15% year over year [18] Market Data and Key Metrics Changes - Canadian consumer spending showed resilience despite economic uncertainties, contributing to growth in credit assets [7] - The Canadian insolvency deposit business remained stable, with expectations of increased deposits due to economic conditions [35] Company Strategy and Development Direction - The company is realigning its corporate structure to that of a standard U.S. bank, which is expected to enhance shareholder value and reduce corporate costs [5][22] - Expansion of the receivable purchase program in both the U.S. and Canada is a key focus, with the introduction of a securitized financing solution [10][21] - The company is advancing its digital deposit receipt initiative, which aims to provide interest-bearing stable coins that are federally insured [23][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving a fiscal year-end target of CAD 290 million for U.S. RPP funding [21] - The outlook for Canadian RPP business is improving with the addition of securitization capabilities [21] - The company anticipates a breakout year in 2026, driven by growth in U.S. operations and digital deposit initiatives [20] Other Important Information - Non-interest expenses for Q3 included CAD 4.2 million related to corporate realignment, with expectations of similar charges in Q4 [15][56] - The net interest margin on credit assets was 2.55%, reflecting a 6% year-over-year increase [19] Q&A Session Summary Question: What were balances at quarter end for the US RPP program? - The balance was approximately CAD 125 million [29] Question: How many partners are generating loans currently? - Currently, only WaterCrest is funding loans, but there are several partners expected to enter the securitization program soon [30][31] Question: How will the securitized financing offering impact growth? - The securitized financing offering is expected to drive the majority of growth in the near term, with enhancements planned for the traditional RPP program [32] Question: What is the outlook for Canadian insolvency deposits? - The company expects an increase in insolvency deposits due to a decline in GDP, which may lead to more insolvencies [35] Question: Can you provide insight on the NIM trajectory going forward? - The company anticipates a flat net interest margin for the current quarter, with potential for slight increases in the future [45]

Core Viewpoint - VersaBank reported quarterly earnings of $0.22 per share, exceeding the Zacks Consensus Estimate of $0.20 per share, but down from $0.26 per share a year ago, indicating a mixed performance in earnings despite a positive surprise this quarter [1][2]. Financial Performance - The company posted revenues of $22.98 million for the quarter ended July 2025, which was below the Zacks Consensus Estimate by 0.57%, and an increase from $19.72 million year-over-year [2]. - Over the last four quarters, VersaBank has surpassed consensus EPS estimates two times but has not beaten consensus revenue estimates [2]. Stock Performance - VersaBank shares have declined approximately 18% since the beginning of the year, contrasting with the S&P 500's gain of 9.6% [3]. - The current Zacks Rank for VersaBank is 3 (Hold), suggesting that the shares are expected to perform in line with the market in the near future [6]. Earnings Outlook - The consensus EPS estimate for the upcoming quarter is $0.25 on revenues of $24.62 million, and for the current fiscal year, it is $0.85 on revenues of $89.34 million [7]. - The trend of estimate revisions for VersaBank was mixed ahead of the earnings release, which could change following the recent report [6]. Industry Context - The Zacks Industry Rank for Banks - Foreign is currently in the top 25% of over 250 Zacks industries, indicating a favorable outlook for the industry [8].

Financial Performance - Total assets reached $5.48 billion, a 21% increase year-over-year[6, 11] - Credit assets totaled $4.78 billion, up 18% year-over-year and 6% sequentially[6, 7, 11, 18] - Total revenue was $31.6 million, representing a 17% year-over-year increase and a 5% sequential increase[6, 14, 15] - Adjusted net income was $9.7 million, consistent with the previous year and up 11% sequentially[6, 14] - Adjusted EPS was $0.30, a 17% decrease year-over-year but a 7% increase sequentially[6, 14] Balance Sheet Strength - Cash and securities increased to $0.62 billion, a 55% increase year-over-year[11] - Book value per common share increased to $16.42, an 8% increase year-over-year[11] - CET1 ratio stood at 13.56%, an increase of 181 bps year-over-year[11] - Leverage ratio was 8.90%, an increase of 36 bps year-over-year[11] Segment Performance - Digital Banking Canada revenue was $26.619 million, a 6% increase year-over-year and a 4% sequential increase[15] - Digital Banking USA revenue was $3.116 million, a 25% sequential increase[15]

[Consolidated Balance Sheets](index=2&type=section&id=Consolidated%20Balance%20Sheets) VersaBank's financial position as of July 31, 2025, October 31, 2024, and July 31, 2024, detailing asset, liability, and equity changes Consolidated Balance Sheet Summary (thousands of Canadian dollars) | As at | July 31, 2025 | October 31, 2024 | July 31, 2024 | | :--- | :--- | :--- | :--- | | **Assets** | | Cash | $460,312 | $225,254 | $247,983 | | Securities | $160,136 | $299,300 | $153,026 | | Credit assets, net | $4,778,316 | $4,236,116 | $4,049,449 | | Total Assets | $5,477,489 | $4,838,484 | $4,516,436 | | **Liabilities** | | Deposits | $4,627,410 | $4,144,673 | $3,821,185 | | Subordinated notes payable | $102,148 | $102,503 | $101,641 | | Other liabilities | $219,789 | $192,105 | $184,625 | | Total Liabilities | $4,949,347 | $4,439,281 | $4,107,451 | | **Shareholders' Equity** | | Share capital | $326,040 | $215,610 | $228,471 | | Retained earnings | $200,409 | $181,238 | $177,584 | | Total Shareholders' Equity | $528,142 | $399,203 | $408,985 | [Consolidated Statements of Income and Comprehensive Income](index=3&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) VersaBank's net income decreased for the three and nine months ended July 31, 2025, despite increased net interest income, due to higher non-interest expenses and credit loss provisions Consolidated Statements of Income Summary (thousands of Canadian dollars, except per share amounts) | Metric | 3 Months Ended July 31, 2025 | 3 Months Ended July 31, 2024 | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Interest income | $73,987 | $71,646 | $218,209 | $212,181 | | Interest expense | $44,208 | $46,702 | $134,674 | $134,427 | | Net interest income | $29,779 | $24,944 | $83,535 | $77,754 | | Non-interest income | $1,804 | $2,052 | $6,014 | $6,594 | | Total revenue | $31,583 | $26,996 | $89,549 | $84,348 | | Provision for (recovery of) credit losses | $1,181 | $(1) | $3,094 | $(112) | | Non-interest expenses | $21,649 | $13,534 | $54,864 | $37,743 | | Income before income taxes | $8,753 | $13,463 | $31,591 | $46,717 | | Income tax provision | $2,171 | $3,758 | $8,337 | $12,485 | | Net income | $6,582 | $9,705 | $23,254 | $34,232 | | Basic and diluted income per common share | $0.20 | $0.36 | $0.74 | $1.29 | [Consolidated Statements of Changes in Shareholders' Equity](index=4&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) VersaBank's equity changes for Q3 and YTD July 31, 2025 and 2024, detail movements in common shares, preferred shares, and retained earnings, reflecting new issuances and dividends Consolidated Statements of Changes in Shareholders' Equity Summary (thousands of Canadian dollars) | Metric | July 31, 2025 (3 months) | July 31, 2024 (3 months) | July 31, 2025 (9 months) | July 31, 2024 (9 months) | | :--- | :--- | :--- | :--- | :--- | | Common shares, beginning of period | $329,799 | $214,824 | $215,610 | $214,824 | | Purchased and cancelled | $(3,759) | - | $(3,759) | - | | Issued during period | - | - | $114,879 | - | | Total share capital, end of period | $326,040 | $228,471 | $326,040 | $228,471 | | Retained earnings, beginning of period | $196,284 | $168,776 | $181,238 | $146,043 | | Net income | $6,582 | $9,705 | $23,254 | $34,232 | | Dividends paid | $(807) | $(897) | $(2,433) | $(2,691) | | Retained earnings, end of period | $200,409 | $177,584 | $200,409 | $177,584 | | Total shareholders' equity, end of period | $528,142 | $408,985 | $528,142 | $408,985 | [Consolidated Statements of Cash Flows](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash flows for the nine months ended July 31, 2025, and 2024, show decreased cash from operations, a shift to investing inflows, and significant financing inflows from common share issuance Consolidated Statements of Cash Flows Summary (thousands of Canadian dollars) | Cash provided by (used in) | 9 Months Ended July 31, 2025 | 9 Months Ended July 31, 2024 | | :--- | :--- | :--- | | Operations | $(4,927) | $119,422 | | Investing | $135,326 | $(4,551) | | Financing | $106,178 | $(8,232) | | Change in cash | $236,577 | $106,639 | | Cash, beginning of period | $225,254 | $132,242 | | Cash, end of period | $460,312 | $247,983 | [Notes to Interim Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Interim%20Consolidated%20Financial%20Statements) Detailed explanations and disclosures supporting the interim consolidated financial statements, covering accounting policies, financial instrument specifics, and operational segments [1. Reporting entity](index=6&type=section&id=1.%20Reporting%20entity) VersaBank operates as a Schedule I bank in Canada and, via VersaBank USA N.A., holds a national OCC charter in the US, offering commercial lending and cybersecurity services - VersaBank operates as a Schedule I bank in Canada and, since August 30, 2024, through VersaBank USA N.A., holds a national OCC charter in the United States[7](index=7&type=chunk) - The Bank provides commercial lending and banking services to niche markets in Canada and the US, and cybersecurity services through DRT Cyber Inc[7](index=7&type=chunk) [2. Basis of preparation](index=6&type=section&id=2.%20Basis%20of%20preparation) These interim consolidated financial statements are prepared in accordance with IFRS (IAS 34) and based on historical cost, with certain exceptions measured at fair value, and presented in Canadian dollars [a) Statement of compliance](index=6&type=section&id=2.a)%20Statement%20of%20compliance) These statements comply with IFRS (IAS 34) and should be read alongside the Bank's 2024 audited Consolidated Financial Statements - Statements prepared in accordance with IFRS (IAS 34) and should be read with the Bank's audited Consolidated Financial Statements for the year ended October 31, 2024[8](index=8&type=chunk) [b) Basis of measurement](index=6&type=section&id=2.b)%20Basis%20of%20measurement) Financial statements are prepared on a historical cost basis, with specific exceptions measured at fair value - Prepared on historical cost basis, except for securities, investment in Canada Stablecorp Inc., and derivative instruments, which are measured at fair value[10](index=10&type=chunk) [c) Functional and presentation currency](index=6&type=section&id=2.c)%20Functional%20and%20presentation%20currency) The financial statements are presented in Canadian dollars, which is the Bank's functional currency - Presented in Canadian dollars, which is the Bank's functional currency[11](index=11&type=chunk) [d) Use of estimates and judgements](index=7&type=section&id=2.d)%20Use%20of%20estimates%20and%20judgements) Management applies judgment and estimates for various financial items, acknowledging that actual results may differ materially from these estimates - Management uses judgment and estimates for credit risk, ECL allowance, fair value of stock options, derivatives, investment in Canada Stablecorp Inc., impairment of intangible assets/goodwill, and deferred income taxes[12](index=12&type=chunk) - Actual results may vary from estimates, potentially leading to material adjustments in the future[12](index=12&type=chunk) [3. Material Accounting Policy Information and future accounting changes](index=7&type=section&id=3.%20Material%20Accounting%20Policy%20Information%20and%20future%20accounting%20changes) The accounting policies applied in these interim consolidated financial statements are consistent with those in the Bank's 2024 audited Consolidated Financial Statements - Accounting policies are consistent with those applied in the Bank's 2024 audited Consolidated Financial Statements[14](index=14&type=chunk) [4. Securities](index=7&type=section&id=4.%20Securities) VersaBank's securities holdings totaled **$160.1 million** as of July 31, 2025, a decrease from October 31, 2024, primarily comprising US and Government of Canada Treasury Bills Securities Holdings (thousands of Canadian dollars) | As at | July 31, 2025 | October 31, 2024 | | :--- | :--- | :--- | | Total Securities | $160,136 | $299,300 | | US Treasury Bills | $153,700 | N/A | | Government of Canada Treasury Bill | $2,200 | N/A | | Other securities | $4,300 | N/A | [5. Credit assets, net of allowance for credit losses](index=7&type=section&id=5.%20Credit%20assets,%20net%20of%20allowance%20for%20credit%20losses) Credit assets, net of allowance, increased to **$4,778.3 million** as of July 31, 2025, with the allowance for credit losses rising due to changes in credit risk and macroeconomic assumptions [Summary of credit assets, net of allowance for credit losses](index=8&type=section&id=Summary%20of%20credit%20assets,%20net%20of%20allowance%20for%20credit%20losses) Credit assets are categorized into Receivable Purchase Program (RPP) and Multi-Family Residential Loans and Other (MROL), showing overall growth - Credit assets are categorized into Receivable Purchase Program (RPP) and Multi-Family Residential Loans and Other (MROL)[16](index=16&type=chunk) Summary of Credit Assets, Net of Allowance for Credit Losses (thousands of Canadian dollars) | As at | July 31, 2025 | October 31, 2024 | July 31, 2024 | | :--- | :--- | :--- | :--- | | Receivable purchase program | $3,720,442 | $3,307,328 | $3,228,354 | | Multi-family residential loans and other | $1,041,076 | $910,314 | $801,791 | | Total credit assets | $4,761,518 | $4,217,642 | $4,030,145 | | Allowance for credit losses | $(6,037) | $(3,303) | $(2,401) | | Accrued interest | $22,835 | $21,777 | $21,705 | | **Total credit assets, net of allowance for credit losses** | **$4,778,316** | **$4,236,116** | **$4,049,449** | [Allowance for credit losses](index=9&type=section&id=Allowance%20for%20credit%20losses) The Expected Credit Loss (ECL) methodology recognizes 12 months of expected losses for Stage 1 assets and lifetime expected losses for Stage 2 and Stage 3 assets - ECL methodology recognizes 12 months of expected losses for Stage 1 assets and lifetime expected losses for Stage 2 (significant increase in credit risk) and Stage 3 (impaired) assets[21](index=21&type=chunk) [Forward-looking Information and ECL Sensitivity](index=9&type=section&id=Forward-looking%20Information%20and%20ECL%20Sensitivity) The Bank uses Moody's Analytics for credit risk modeling and macroeconomic scenario data, with 2025 assumptions including tariff uncertainty and anticipated rate cuts - Uses Moody's Analytics for credit risk modeling and macroeconomic scenario data to compute forward-looking credit risk parameters[22](index=22&type=chunk) - Key assumptions for 2025 include global tariff uncertainty, decelerating GDP growth, anticipated rate cuts by Bank of Canada and U.S. Federal Reserve, and an upward revision in the unemployment rate forecast[23](index=23&type=chunk) Expected Credit Loss Sensitivity (thousands of Canadian dollars) | Scenario | Reported ECL (July 31, 2025) | 100% Upside | 100% Baseline | 100% Downside | | :--- | :--- | :--- | :--- | :--- | | Allowance for expected credit losses | $6,037 | $5,470 | $5,927 | $6,770 | | Variance from reported ECL (%) | N/A | (9%) | (2%) | 12% | [Reconciliation of ECL allowance](index=11&type=section&id=Reconciliation%20of%20ECL%20allowance) This section provides a detailed reconciliation of the total Expected Credit Loss (ECL) allowance for the three and nine months ended July 31, 2025 Total ECL Allowance Reconciliation (July 31, 2025 - 3 months) (thousands of Canadian dollars) | Category | Stage 1 | Stage 2 | Stage 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Balance at beginning of period | $3,760 | $1,168 | $30 | $4,958 | | Provision for (recovery of) credit losses | $774 | $(767) | $1,174 | $1,181 | | Write-offs | $(102) | - | - | $(102) | | FX Impact | $4 | $(3) | - | $1 | | **Balance at end of period** | **$4,434** | **$399** | **$1,204** | **$6,037** | Total ECL Allowance Reconciliation (July 31, 2025 - 9 months) (thousands of Canadian dollars) | Category | Stage 1 | Stage 2 | Stage 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Balance at beginning of period | $2,996 | $306 | $1 | $3,303 | | Provision for (recovery of) credit losses | $1,789 | $102 | $1,203 | $3,094 | | Write-offs | $(361) | - | - | $(361) | | FX Impact | $12 | $(10) | - | $2 | | **Balance at end of period** | **$4,434** | **$399** | **$1,204** | **$6,037** | [Credit quality](index=14&type=section&id=Credit%20quality) As of July 31, 2025, **98%** of the Bank's credit assets were categorized as 'Satisfactory,' with no material changes in credit risk management processes - **98%** of the Bank's credit assets were categorized as "Satisfactory" as of July 31, 2025 (up from 96% at October 31, 2024)[34](index=34&type=chunk) - No material change in the Bank's processes for managing credit risk during the current quarter[34](index=34&type=chunk) [6. Other assets](index=15&type=section&id=6.%20Other%20assets) VersaBank's other assets totaled **$31.5 million** as of July 31, 2025, mainly accounts receivable, prepaid expenses, right-of-use assets, and a deferred income tax asset Other Assets (thousands of Canadian dollars) | As at | July 31, 2025 | October 31, 2024 | July 31, 2024 | | :--- | :--- | :--- | :--- | | Accounts receivable | $10,532 | $10,718 | $5,710 | | Prepaid expenses and other | $15,775 | $14,399 | $21,517 | | Right-of-use assets | $2,596 | $2,734 | $2,909 | | Deferred income tax asset | $1,626 | $750 | $2,251 | | Derivative instruments | - | $20 | $150 | | Investment (Canada Stablecorp Inc.) | $953 | $953 | $953 | | **Total Other Assets** | **$31,482** | **$29,574** | **$33,490** | - The Bank holds an **11% investment** in Canada Stablecorp Inc. at fair value through other comprehensive income[35](index=35&type=chunk) [7. Subordinated notes payable](index=15&type=section&id=7.%20Subordinated%20notes%20payable) VersaBank holds **US $75.0 million** in unsecured subordinated notes payable, maturing May 2031, with a fixed effective interest rate of **5.38%** until May 2026 Subordinated Notes Payable (thousands of Canadian dollars) | As at | July 31, 2025 | October 31, 2024 | July 31, 2024 | | :--- | :--- | :--- | :--- | | Subordinated notes payable | $102,148 | $102,503 | $101,641 | - Notes have a principal amount of **US $75.0 million**, fixed effective interest rate of **5.38%** until May 1, 2026, then floating, maturing May 2031[36](index=36&type=chunk) [8. Other liabilities](index=16&type=section&id=8.%20Other%20liabilities) VersaBank's other liabilities increased to **$219.8 million** as of July 31, 2025, primarily due to a rise in cash reserves on receivable purchase program receivables Other Liabilities (thousands of Canadian dollars) | As at | July 31, 2025 | October 31, 2024 | July 31, 2024 | | :--- | :--- | :--- | :--- | | Accounts payable and other | $11,057 | $10,752 | $9,252 | | Current income tax liability | - | $893 | $3,109 | | Deferred income tax liability | $73 | $141 | $332 | | Derivative instruments | $423 | - | - | | Lease obligations | $2,866 | $3,035 | $3,230 | | Cash collateral and amounts held in escrow | $5,566 | $6,076 | $6,421 | | Cash reserves on receivable purchase program receivables | $199,804 | $171,208 | $162,281 | | **Total Other Liabilities** | **$219,789** | **$192,105** | **$184,625** | [9. Share capital](index=16&type=section&id=9.%20Share%20capital) VersaBank's share capital increased significantly due to a common share offering in December 2024, alongside a Normal Course Issuer Bid and redemption of preferred shares [a) Common shares](index=16&type=section&id=9.a)%20Common%20shares) Common shares outstanding increased due to a December 2024 offering, with the Bank also initiating a Normal Course Issuer Bid to purchase and cancel shares - Common shares outstanding increased to **32,167,644** at July 31, 2025, from 26,002,577 at October 31, 2024[38](index=38&type=chunk) - Completed a common share offering in December 2024, raising **CAD $116.0 million** in net cash proceeds[39](index=39&type=chunk) - Approved a Normal Course Issuer Bid (NCIB) to purchase and cancel up to **2,000,000** common shares (approx. **8.99%** of public float) from April 30, 2025, to April 29, 2026[40](index=40&type=chunk)[41](index=41&type=chunk) - Purchased and cancelled **351,142** common shares for **$5.4 million** during the nine months ended July 31, 2025[42](index=42&type=chunk) [b) Preferred shares](index=17&type=section&id=9.b)%20Preferred%20shares) All **1,461,460** outstanding Series 1 preferred shares were redeemed for **$14.6 million** in October 2024 - Redeemed all **1,461,460** outstanding Series 1 preferred shares for **$14.6 million** in October 2024[43](index=43&type=chunk) [c) Stock options](index=17&type=section&id=9.c)%20Stock%20options) Stock options outstanding decreased to **771,939** at July 31, 2025, with a corresponding decrease in compensation expense for the nine-month period Stock Option Transactions (Number of options) | | July 31, 2025 (9 months) | July 31, 2024 (9 months) | | :--- | :--- | :--- | | Outstanding, beginning of period | 819,125 | 874,393 | | Exercised | (6,775) | - | | Forfeited/cancelled | (40,411) | (14,925) | | **Outstanding, end of period** | **771,939** | **859,468** | - Compensation expense related to stock options for the nine months ended July 31, 2025, was **$75,000**, down from $276,000 in the prior year[44](index=44&type=chunk) [10. Income tax provision](index=17&type=section&id=10.%20Income%20tax%20provision) VersaBank's income tax provision for the nine months ended July 31, 2025, decreased to **$8.3 million**, with Canada's combined statutory federal and provincial income tax rate at approximately **27%** Income Tax Provision (thousands of Canadian dollars) | Period | July 31, 2025 (3 months) | July 31, 2024 (3 months) | July 31, 2025 (9 months) | July 31, 2024 (9 months) | | :--- | :--- | :--- | :--- | :--- | | Income tax provision | $2,171 | $3,758 | $8,337 | $12,485 | - Combined statutory federal and provincial income tax rate in Canada is approximately **27%**[45](index=45&type=chunk) [11. Income per common share](index=18&type=section&id=11.%20Income%20per%20common%20share) Basic and diluted income per common share decreased to **$0.74** for the nine months ended July 31, 2025, primarily due to a significant increase in weighted average common shares outstanding Income Per Common Share (thousands of Canadian dollars, except per share amounts) | Metric | July 31, 2025 (3 months) | July 31, 2024 (3 months) | July 31, 2025 (9 months) | July 31, 2024 (9 months) | | :--- | :--- | :--- | :--- | :--- | | Net income | $6,582 | $9,705 | $23,254 | $34,232 | | Less: dividends on preferred shares | - | $(247) | - | $(791) | | Net income attributable to common shareholders | $6,582 | $9,458 | $23,254 | $33,441 | | Weighted average number of common shares outstanding | 32,368,728 | 25,964,424 | 31,302,938 | 25,964,424 | | **Income per common share** | **$0.20** | **$0.36** | **$0.74** | **$1.29** | [12. Derivative instruments](index=18&type=section&id=12.%20Derivative%20instruments) VersaBank uses derivative instruments, including interest rate swaps and foreign exchange forward contracts, for asset liability management and to mitigate foreign exchange risk on US operations and intercompany loans - The Bank uses an interest rate swap with a notional amount of **$20.6 million** for asset liability management, qualifying for hedge accounting[47](index=47&type=chunk) - Utilizes a foreign exchange forward contract with a notional value of **USD $98.3 million** to hedge foreign exchange risk on its net investment in VersaBank USA (**USD $139.5 million**)[48](index=48&type=chunk) - A portion of a **USD $75.0 million** subordinated debt also serves as a designated hedge for the remaining **USD $41.2 million** net investment in VersaBank USA[49](index=49&type=chunk) - Another foreign exchange forward contract with a notional value of **USD $12.1 million** mitigates FX risk on a USD-denominated intercompany loan[51](index=51&type=chunk) [13. Commitments and contingencies](index=19&type=section&id=13.%20Commitments%20and%20contingencies) VersaBank's total credit-related commitments decreased to **$638.8 million** as of July 31, 2025, primarily driven by a reduction in credit asset commitments Commitments and Contingencies (thousands of Canadian dollars) | As at | July 31, 2025 | October 31, 2024 | July 31, 2024 | | :--- | :--- | :--- | :--- | | Credit asset commitments | $591,162 | $635,433 | $367,494 | | Letters of credit | $47,651 | $65,671 | $66,167 | | **Total** | **$638,813** | **$701,104** | **$433,661** | [14. Related party transactions](index=19&type=section&id=14.%20Related%20party%20transactions) Amounts due from key management personnel remained consistent at **$1.5 million**, while amounts due from a controlled corporation decreased, with all related party loans current and no credit loss provisions - Amounts due from key management personnel totaled **$1.5 million** at July 31, 2025 (consistent with October 31, 2024)[54](index=54&type=chunk) - Amounts due from a corporation controlled by key management personnel decreased to **$5.3 million** at July 31, 2025, from $7.1 million at October 31, 2024[54](index=54&type=chunk) - No provisions for credit losses associated with loans to key management personnel, and all loans were current[54](index=54&type=chunk) [15. Capital management](index=19&type=section&id=15.%20Capital%20management) VersaBank's capital management strategy focuses on maintaining a strong capital base for growth, investor confidence, and regulatory compliance, adhering to OSFI guidelines and Basel III standards [a) Overview](index=19&type=section&id=15.a)%20Overview) The Bank aims to maintain a strong capital base in accordance with Board-approved policies and OSFI targets, with no material changes in management approach during the period - The Bank's policy is to maintain a strong capital base to retain investor, creditor, market, and regulator confidence and support future growth[55](index=55&type=chunk) - Capital is managed in accordance with Board-approved policies, considering forecasted requirements, market conditions, and OSFI targets[56](index=56&type=chunk) - Regulatory capital comprises Common Equity Tier 1, Additional Tier 1 (redeemed in 2024), and Tier 2 capital[57](index=57&type=chunk) - No material changes in capital management during the period ended July 31, 2025[60](index=60&type=chunk) [b) Risk-based capital ratios](index=20&type=section&id=15.b)%20Risk-based%20capital%20ratios) The Bank complies with Basel III standards, maintaining capital levels above OSFI's minimum requirements, with CET1, Tier 1, and Total capital ratios all exceeding targets - The Bank complies with Basel III standards and maintains capital levels above OSFI's minimum requirements[63](index=63&type=chunk) Risk-Based Capital Ratios | Capital Ratio | July 31, 2025 | October 31, 2024 | OSFI Minimum (incl. buffer) | | :--- | :--- | :--- | :--- | | CET1 capital ratio | 13.56% | 11.24% | 7.0% | | Tier 1 capital ratio | 13.56% | 11.24% | 8.5% | | Total capital ratio | 16.50% | 14.48% | 10.5% | Total Regulatory Capital (thousands of Canadian dollars) | Capital Component | July 31, 2025 | October 31, 2024 | | :--- | :--- | :--- | | Common Equity Tier 1 capital | $507,212 | $373,503 | | Additional Tier 1 capital | - | - | | Total Tier 1 capital | $507,212 | $373,503 | | Total Tier 2 capital | $109,867 | $107,673 | | **Total regulatory capital** | **$617,079** | **$481,176** | | Total risk-weighted assets | $3,740,088 | $3,323,595 | [c) Leverage ratio](index=22&type=section&id=15.c)%20Leverage%20ratio) The Bank's leverage ratio was **8.90%** as of July 31, 2025, significantly exceeding the Basel III minimum of **3.0%** - The Bank's leverage ratio was **8.90%** as of July 31, 2025, exceeding the Basel III minimum of **3.0%**[65](index=65&type=chunk) Leverage Ratio (thousands of Canadian dollars) | Metric | July 31, 2025 | October 31, 2024 | | :--- | :--- | :--- | | Tier 1 capital | $507,212 | $373,503 | | Total exposures | $5,698,707 | $5,062,129 | | **Leverage ratio** | **8.90%** | **7.38%** | [16. Interest rate risk position](index=22&type=section&id=16.%20Interest%20rate%20risk%20position) VersaBank is exposed to interest rate risk; a **100 basis point increase** is projected to increase net interest income by **$6.2 million** over 12 months, while a **100 basis point decrease** would reduce it by **$6.5 million** - The Bank is subject to interest rate risk, impacting net interest margin, net interest income, and economic value[66](index=66&type=chunk) Impact of 100 Basis Point Shift in Interest Rates (thousands of Canadian dollars) | Impact on projected net interest income (12 months) | July 31, 2025 | October 31, 2024 | | :--- | :--- | :--- | | Increase 100 bps | $6,244 | $5,223 | | Decrease 100 bps | $(6,481) | $(5,430) | | Duration difference (months) | (1.7) | (1.6) | [17. Fair value of financial instruments](index=23&type=section&id=17.%20Fair%20value%20of%20financial%20instruments) Fair values of financial instruments are management's best estimates, with cash measured at FVTPL and securities at FVOCI, while credit assets and deposits are primarily at amortized cost - Fair values are management's best estimates, subject to assumptions and judgment, and may not reflect future fair values[68](index=68&type=chunk) - Cash is measured at FVTPL, securities at FVOCI. Credit assets and deposits are primarily at amortized cost[69](index=69&type=chunk) [18. Operating segmentation](index=25&type=section&id=18.%20Operating%20segmentation) VersaBank operates through four reportable segments: Digital Banking Canada, Digital Banking USA, DRTC (cybersecurity), and Digital Meteor, Inc. (digital assets/DDRs), each managed separately due to distinct market focuses - Established four reportable operating segments: Digital Banking Canada, Digital Banking USA, DRTC (cybersecurity), and Digital Meteor, Inc. (digital assets/DDRs)[71](index=71&type=chunk) - Digital Banking Canada employs a business-to-business model for underserved Canadian banking markets, while Digital Banking USA plans a similar model for the US[71](index=71&type=chunk)[72](index=72&type=chunk) - DRTC focuses on cybersecurity services, and Digital Meteor, Inc. owns proprietary IP for next-generation digital assets, including Digital Deposit Receipts (DDRs)[73](index=73&type=chunk)[74](index=74&type=chunk) Segment Net Income (thousands of Canadian dollars) | Segment | July 31, 2025 (3 months) | July 31, 2024 (3 months) | July 31, 2025 (9 months) | July 31, 2024 (9 months) | | :--- | :--- | :--- | :--- | :--- | | Digital Banking Canada | $6,520 | $9,811 | $24,484 | $34,065 | | Digital Banking USA | $437 | $303 | $673 | $156 | | Digital Meteor, Inc. | $23 | $(409) | $(96) | $11 | | DRTC | $(398) | $(409) | $(1,807) | $11 | | **Consolidated Net Income** | **$6,582** | **$9,705** | **$23,254** | **$34,232** | [19. Comparative balances](index=27&type=section&id=19.%20Comparative%20balances) Certain comparative balances in the financial statements have been reclassified to conform with the presentation adopted in the current period - Certain comparative balances have been reclassified to conform with the current period's financial statement presentation[80](index=80&type=chunk)

Core Insights - VersaBank reported its third quarter results for fiscal 2025, highlighting significant growth in its digital banking operations and the expansion of its Receivable Purchase Program (RPP) in both the US and Canada [2][8][9] Financial Performance - Total revenue for Q3 2025 reached $31.6 million, a 17% increase year-over-year and a 5% increase sequentially [4][13] - Consolidated net income was $6.6 million, down from $9.7 million in Q3 2024 and $8.5 million in Q2 2025, impacted by $4.2 million in non-interest expenses related to the Proposed Realignment of Corporate Structure [4][13][18] - Adjusted net income, excluding the aforementioned costs, was $9.7 million, unchanged year-over-year and up 11% sequentially [4][13][18] Asset Growth - Total assets increased by 21% year-over-year and 9% sequentially to a record $5.5 billion, primarily driven by growth in credit portfolios, particularly the RPP [4][13] - Total Digital Banking operations credit assets rose 18% year-over-year and 6% sequentially to $4.78 billion, with the RPP portfolio increasing by 15% year-over-year and 5% sequentially [4][13][18] Operational Developments - The company added two new partners to its RPP in Canada, including its first securitization partner, which is expected to enhance asset and earnings growth [9][14] - A pilot program for tokenized deposits in the US is underway, which could provide a competitive edge in the digital banking space [9][10] Strategic Initiatives - The Proposed Realignment of Corporate Structure aims to align with a standard US bank framework, expected to create additional shareholder value and reduce corporate costs [3][8][9] - The company is focusing on enhancing its digital banking efficiency and profitability, particularly in the US market, as it continues to grow its RPP [8][9][10]

Group 1 - VersaBank has added two new partners to its Receivable Purchase Program (RPP) in Canada, including its first partner under the newly expanded RPP to include a securitized financing offering [1][2] - The first funding transaction for the RPP Securitization partner has been completed, with funding for the other new partner expected to commence soon [1][2] - The addition of these partners enhances VersaBank's position in Canada and is expected to significantly expand its addressable market in both Canada and the United States [2] Group 2 - VersaBank's RPP Securitized Financing strategy will focus on investment in senior-level tranches of target securitized credit assets, typically AAA-rated, and will establish a platform for securitization of assets from financing partners [2] - The strategy aims to meet the current demand from larger financing companies for lower-cost securitized financing in the existing interest rate environment [2] Group 3 - VersaBank operates a branchless, digital, business-to-business banking model, leveraging proprietary technology to serve underserved segments of the banking industry [3] - The bank has successfully launched its Receivable Purchase Program funding solution for point-of-sale finance companies in the US market, building on nearly 15 years of success in Canada [3] - VersaBank also owns DRT Cyber Inc., a leader in cybersecurity services, and Digital Meteor Inc., which focuses on next-generation digital assets for the banking and financial community [3]