VersaBank(VBNK) - 2024 Q4 - Annual Report

Introduction and Key Developments Details VersaBank's strategic US acquisition and its immediate financial impacts on Q4 and FY2024 results Acquisition of Stearns Bank Holdingford N.A. VersaBank completed the acquisition of Stearns Bank Holdingford N.A. (SBH) for approximately US$14.1 million (CA$19.0 million) in August 2024, renaming it VersaBank USA N.A. This acquisition received approvals from US and Canadian regulators and establishes a fully operational national bank in the US focused on small business lending - Acquisition of Stearns Bank Holdingford N.A. (SBH) completed on August 30, 2024, for approximately US$14.1 million (CA$19.0 million). SBH was renamed VersaBank USA N.A. and is an OCC-chartered national bank focused on small business lending[3] Impact of US Acquisition on Financial Results The US acquisition significantly impacted Q4 and FY2024 financial results due to one-time costs, a deferred tax asset expense, and higher cash balances maintained for capital requirements, which temporarily dampened net interest margin - One-time impact associated with the U.S. acquisition totaled CA$3.3 million for Q4 and CA$3.7 million for FY2024[4] - A one-time expense of a deferred tax asset of CA$1.6 million impacted both Q4 and FY2024[4] - The combined after-tax impact on net income was CA$4.5 million (CA$0.18 per share) for Q4 and CA$5.2 million (CA$0.20 per share) for FY2024[5] Consolidated and Segmented Financial Summary Presents VersaBank's consolidated and segmented financial performance for Q4 and FY2024, including key balance sheet and capital ratios Q4 2024 Consolidated Financials For Q4 2024, VersaBank reported a 6% year-over-year decrease in total revenue to $27.3 million and a 56% year-over-year decrease in net income to $5.5 million, primarily due to one-time acquisition-related costs. Net interest margin also saw a significant decline Q4 2024 (CA$ thousands) | Metric | Q4 2024 (CA$ thousands) | Q4 2023 (CA$ thousands) | YoY Change | | :------------------------ | :---------------------- | :---------------------- | :--------- | | Total revenue | 27,285 | 29,173 | (6%) | | Net income | 5,516 | 12,479 | (56%) | | Net income per common share | 0.20 | 0.47 | (57%) | | Net interest margin* | 2.12% | 2.54% | (17%) | FY 2024 Consolidated Financials For the full fiscal year 2024, total revenue increased 3% year-over-year to $111.6 million, but net income decreased 6% to $39.7 million, largely impacted by one-time acquisition-related items. Net interest margin also declined FY 2024 (CA$ thousands) | Metric | FY 2024 (CA$ thousands) | FY 2023 (CA$ thousands) | YoY Change | | :------------------------ | :---------------------- | :---------------------- | :--------- | | Total revenue | 111,633 | 108,635 | 3% | | Net income | 39,748 | 42,162 | (6%) | | Net income per common share | 1.49 | 1.57 | (5%) | | Net interest margin* | 2.27% | 2.68% | (15%) | Segmented Financial Performance (Q4 & FY) Digital Banking Canada remained the primary contributor to net interest income, while Digital Banking USA began contributing in Q4 2024. DRTC generated non-interest income. Non-interest expenses increased across all segments, particularly in Digital Banking Canada and DRTC Q4 2024 Segmented Net Income (CA$ thousands) | Segment | Q4 2024 Net Income | | :------------------------ | :----------------- | | Digital Banking Canada | 5,031 | | Digital Banking USA | 465 | | DRTC | 20 | | Consolidated Net Income | 5,516 | FY 2024 Segmented Net Income (CA$ thousands) | Segment | FY 2024 Net Income | | :------------------------ | :----------------- | | Digital Banking Canada | 39,096 | | Digital Banking USA | 465 | | DRTC | 187 | | Consolidated Net Income | 39,748 | Balance Sheet and Capital Ratios VersaBank's total assets grew significantly year-over-year to $4.8 billion, driven by loan growth. Deposits also increased. Capital ratios remained strong, with CET1 at 11.24% and total capital ratio at 14.48% for FY2024 Balance Sheet Summary (CA$ thousands) | Metric | Oct 31, 2024 | Oct 31, 2023 | YoY Change | | :---------------- | :----------- | :----------- | :--------- | | Total assets | 4,838,484 | 4,201,610 | 15% | | Loans, net | 4,236,116 | 3,850,404 | 10% | | Deposits | 4,144,673 | 3,533,366 | 17% | | Shareholders' equity | 399,203 | 377,158 | 6% | Capital Ratios | Metric | Oct 31, 2024 | Oct 31, 2023 | YoY Change | | :---------------------- | :----------- | :----------- | :--------- | | CET1 capital ratio | 11.24% | 11.33% | (1%) | | Total capital ratio | 14.48% | 15.38% | (6%) | | Leverage ratio | 7.38% | 8.30% | (11%) | Management Commentary Provides the CEO's perspective on VersaBank's strategic direction, operational efficiencies, and future growth prospects CEO Statement CEO David Taylor highlighted the underlying strength of VersaBank's digital, B2B, branchless banking model, particularly the successful rollout of the Receivable Purchase Program (RPP) in the US market. He anticipates increased efficiency in US Digital Banking due to lower deposit costs and personnel requirements, and continued growth in Canadian RPP and CMHC-insured mortgages. The bank also expects profitability from loan syndication in the US and is encouraged by the favorable stance on digital currencies for DRT Cyber Inc - Consolidated EPS, excluding one-time items, was CA$0.38 for Q4 and CA$1.69 for FY2024[9] - Canadian Point-of-Sale Receivable Purchase Program portfolio grew 15% year-over-year[9] - Expects US Digital Banking operations to be more efficient due to lower deposit costs and personnel requirements, with additional profitability from loan syndication[9] Fiscal 2024 Highlights Outlines VersaBank's key financial and operational achievements and challenges during the fourth quarter and the full fiscal year 2024 Fourth Quarter Highlights The fourth quarter of fiscal 2024 saw record total assets and loan growth, primarily driven by the POS/RPP portfolio. However, consolidated revenue and net income decreased year-over-year, largely due to one-time acquisition impacts and lower non-interest income from cybersecurity operations Consolidated Performance (Q4) Details VersaBank's consolidated financial performance for the fourth quarter, including asset growth, revenue, and net income - Total assets increased 15% year-over-year and 7% sequentially to a record CA$4.8 billion[10] - Consolidated total revenue decreased 6% year-over-year to CA$27.3 million, primarily due to lower non-interest income from DRTC[10] - Consolidated net income was CA$5.5 million; excluding one-time items, it was CA$10.0 million[10][17] - Consolidated earnings per share was CA$0.20; excluding one-time items, it was CA$0.38[10][17] Digital Banking Operations (Combined Canada and U.S.) (Q4) Highlights the combined digital banking operations' loan growth, revenue, and net interest margin performance in Q4 - Loans increased 10% year-over-year and 5% sequentially to a record CA$4.24 billion, with POS/RPP portfolio growing 15% year-over-year[11] - Total revenue decreased 6% year-over-year to CA$25.0 million[11] - Net interest margin on loans decreased 13% year-over-year to 2.34%, impacted by an atypically inverted yield curve and elevated term deposit rates[11] Digital Banking Operations Canada (Q4) Focuses on the net income, EPS, efficiency ratio, and return on common equity for Canadian Digital Banking operations in Q4 - Canadian Digital Banking operations net income (excluding one-time items) was CA$9.5 million[13] - Canadian Digital Banking operations earnings per share (excluding one-time items) was CA$0.36[13] - Efficiency ratio (excluding one-time items) was 53%; Return on common equity (excluding DRTC and one-time items) was 9.31%[13] Digital Banking Operations U.S. (Q4) Reports the net income and EPS for U.S. Digital Banking operations in Q4, reflecting initial operational expenses and RPP launch - U.S. Digital Banking operations net income was CA$0.5 million and earnings per share was CA$0.02[14] - Results include expenses incurred ahead of asset growth and revenue generated by the launch of the RPP in the U.S[14] DRTC's Cybersecurity Services Operations (Q4) Presents DRTC's revenue and gross margin performance for its cybersecurity services in the fourth quarter - DRTC's revenue (excluding intercompany transactions) decreased 8% year-over-year to CA$3.2 million, but increased 21% sequentially[15] - DRTC's gross margin decreased 15% year-over-year to CA$2.2 million, but increased 19% sequentially, due to the timing of client engagements[15] Full Fiscal Year Highlights For the full fiscal year 2024, VersaBank achieved record total assets and significant loan growth, with a 3% increase in consolidated revenue. However, consolidated net income and EPS decreased due to one-time acquisition-related impacts. Digital Banking operations maintained strong efficiency and return on equity, while DRTC saw revenue and gross margin increases Consolidated Performance (FY) Summarizes VersaBank's full fiscal year consolidated performance, including asset growth, revenue, and net income - Total assets increased 15% year-over-year to a record CA$4.8 billion[16] - Consolidated total revenue increased 3% year-over-year to CA$111.6 million[16] - Consolidated net income decreased 6% year-over-year to CA$39.7 million; excluding one-time items, it was CA$45.0 million[16] - Consolidated earnings per share decreased 5% year-over-year to CA$1.49; excluding one-time items, it was CA$1.69[18] Digital Banking Operations (Combined Canada and U.S.) (FY) Details the full fiscal year performance of combined digital banking operations, focusing on loan growth, revenue, and net interest margin - Loans increased 10% year-over-year to a record CA$4.24 billion, driven by 15% year-over-year growth in the POS/RPP portfolio[19] - Total revenue increased 3% year-over-year to CA$103.4 million[19] - Net interest margin on loans decreased 12% year-over-year to 2.52%[19] - Provision for credit losses as a percentage of average loans remained negligible at -0.01%[19] Digital Banking Operations Canada (FY) Highlights the full fiscal year net income, efficiency ratio, and return on common equity for Canadian Digital Banking operations - Canadian Digital Banking operations net income (excluding one-time items) was CA$44.3 million[20] - Efficiency ratio (excluding DRTC and one-time items) was 44%[20] - Return on common equity (excluding DRTC and one-time items) was 11.36%[20] Digital Banking Operations U.S. (FY) Reports the full fiscal year net income and EPS for U.S. Digital Banking operations, reflecting initial operational phases - U.S. Digital Banking operations net income was CA$0.5 million and earnings per share was CA$0.02[21] - Results include expenses incurred ahead of asset growth and revenue generated by the launch of the RPP in the U.S[21] DRTC's Cybersecurity Services Operations (FY) Presents DRTC's full fiscal year revenue and gross margin performance for its cybersecurity services - DRTC's revenue (excluding intercompany transactions) increased 7% to CA$11.6 million[22] - DRTC's gross margin increased 3% to CA$8.3 million due to increased client engagements and improved operational efficiency[22] Company Overview Provides a concise description of VersaBank's business model, key offerings, and its cybersecurity subsidiary About VersaBank VersaBank is a North American digital, branchless, B2B bank utilizing proprietary technology to serve underserved banking segments. It launched its Receivable Purchase Program (RPP) in the US market in August 2024 and owns DRT Cyber Inc., a cybersecurity services provider - VersaBank operates a branchless, digital, business-to-business model, leveraging proprietary state-of-the-art technology[27] - Launched its unique Receivable Purchase Program (RPP) funding solution in the US market in August 2024, after nearly 15 years of success in Canada[27] - Owns Washington, DC-based DRT Cyber Inc., a North American leader in cybersecurity services[27] Forward-Looking Statements Cautions readers about the inherent risks and uncertainties associated with forward-looking statements in VersaBank's public disclosures Risks and Uncertainties This section highlights that VersaBank's public communications contain forward-looking statements, which inherently involve risks and uncertainties. Readers are cautioned against undue reliance, and a detailed discussion of key factors affecting future results is available in the annual MD&A. The bank does not undertake to update these statements unless required by law - Forward-looking statements involve inherent risks and uncertainties, many of which are out of VersaBank's control[29] - Important factors that could cause actual results to differ include economic conditions, monetary and fiscal policy changes, competition, regulatory changes, technological changes, and geopolitical events[29] - VersaBank does not undertake to update any forward-looking statement that is contained in this management's discussion and analysis or made from time to time by VersaBank or on its behalf, except as required by securities law[30] Conference Call Information Provides details regarding the conference call and webcast held to discuss VersaBank's fourth-quarter financial results Q4 Results Conference Call VersaBank hosted a conference call and webcast on December 9, 2024, to discuss its Q4 results, featuring presentations by the President & CEO and CFO, followed by a Q&A. Details for joining the call, webcast, and accessing replays were provided - Conference call and webcast held on Monday, December 9, 2024, at 9:00 a.m. (ET) to discuss fourth quarter results[32] - Featured a presentation by David Taylor, President & CEO, and John Asma, CFO, followed by a question-and-answer period[32] - Archived webcast presentation and teleconference replay available for 90 days and until January 9, 2025, respectively[34]