VersaBank(VBNK) - 2025 Q3 - Quarterly Report

Consolidated Balance Sheets 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 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 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 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 Detailed explanations and disclosures supporting the interim consolidated financial statements, covering accounting policies, financial instrument specifics, and operational segments 1. Reporting entity 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] - The Bank provides commercial lending and banking services to niche markets in Canada and the US, and cybersecurity services through DRT Cyber Inc[7] 2. Basis of preparation 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%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] b) Basis of measurement%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] c) Functional and presentation currency%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] d) Use of estimates and judgements%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] - Actual results may vary from estimates, potentially leading to material adjustments in the future[12] 3. Material Accounting Policy Information and future accounting changes 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] 4. Securities 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 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 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] 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 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] Forward-looking Information and ECL Sensitivity 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] - 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] 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 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 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] - No material change in the Bank's processes for managing credit risk during the current quarter[34] 6. Other assets 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] 7. Subordinated notes payable 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] 8. Other liabilities 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 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%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] - Completed a common share offering in December 2024, raising CAD $116.0 million in net cash proceeds[39] - 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][41] - Purchased and cancelled 351,142 common shares for $5.4 million during the nine months ended July 31, 2025[42] b) Preferred shares%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] c) Stock options%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] 10. Income tax provision 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] 11. Income per common share 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 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] - 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] - 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] - Another foreign exchange forward contract with a notional value of USD $12.1 million mitigates FX risk on a USD-denominated intercompany loan[51] 13. Commitments and contingencies 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 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] - 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] - No provisions for credit losses associated with loans to key management personnel, and all loans were current[54] 15. Capital management 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%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] - Capital is managed in accordance with Board-approved policies, considering forecasted requirements, market conditions, and OSFI targets[56] - Regulatory capital comprises Common Equity Tier 1, Additional Tier 1 (redeemed in 2024), and Tier 2 capital[57] - No material changes in capital management during the period ended July 31, 2025[60] b) Risk-based capital ratios%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] 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%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] 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 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] 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 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] - Cash is measured at FVTPL, securities at FVOCI. Credit assets and deposits are primarily at amortized cost[69] 18. Operating segmentation 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] - 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][72] - DRTC focuses on cybersecurity services, and Digital Meteor, Inc. owns proprietary IP for next-generation digital assets, including Digital Deposit Receipts (DDRs)[73][74] 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 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]