VersaBank(VBNK) - 2023 Q1 - Quarterly Report

Interim Consolidated Financial Statements This section provides VersaBank's interim consolidated financial statements, covering balance sheets, income, equity changes, and cash flows Consolidated Balance Sheets As of January 31, 2023, VersaBank's total assets increased to $3,531.7 million, driven by a rise in net loans to $3,235.1 million, with deposits growing to $2,925.5 million Consolidated Balance Sheet Highlights (in thousands of Canadian dollars) | Balance Sheet Item | Jan 31, 2023 | Oct 31, 2022 | Jan 31, 2022 | | :--- | :--- | :--- | :--- | | Total Assets | $3,531,690 | $3,265,998 | $2,415,346 | | Cash | $201,372 | $88,581 | $155,239 | | Loans, net | $3,235,083 | $2,992,678 | $2,215,638 | | Total Liabilities | $3,180,513 | $2,915,323 | $2,078,395 | | Deposits | $2,925,452 | $2,657,540 | $1,847,003 | | Total Shareholders' Equity | $351,177 | $350,675 | $336,951 | Consolidated Statements of Income and Comprehensive Income For Q1 2023, VersaBank's net income significantly increased by 69.2% to $9.4 million, driven by a 43.8% rise in net interest income to $24.3 million, with EPS reaching $0.34 Income Statement Highlights (in thousands of Canadian dollars) | Metric | Q1 2023 (3 months ended Jan 31) | Q1 2022 (3 months ended Jan 31) | YoY Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $24,274 | $16,885 | +43.8% | | Total Revenue | $25,918 | $18,266 | +41.9% | | Income Before Income Taxes | $13,198 | $7,628 | +73.0% | | Net Income | $9,417 | $5,566 | +69.2% | | Basic and Diluted EPS | $0.34 | $0.19 | +78.9% | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity increased to $351.2 million year-over-year, primarily due to $9.4 million in net income, partially offset by $7.1 million in share repurchases and $0.9 million in dividends - The Bank purchased and cancelled common shares during the period, reducing share capital by $7.1 million[5] - Retained earnings increased to $116.6 million, reflecting the net effect of $9.4 million in net income, less $1.2 million for share cancellations and $0.9 million in dividends paid[5] Consolidated Statements of Cash Flows For Q1 2023, cash provided by operations significantly shifted to $126.2 million from a prior year usage of $112.9 million, resulting in a $116.8 million increase in cash to $201.4 million Cash Flow Summary (in thousands of Canadian dollars) | Cash Flow Activity | Q1 2023 (3 months ended Jan 31) | Q1 2022 (3 months ended Jan 31) | | :--- | :--- | :--- | | Cash provided by (used in) Operations | $126,203 | ($112,864) | | Cash used in Purchase of investment | ($25) | ($32) | | Cash used in Financing | ($9,407) | ($1,103) | | Change in Cash | $116,771 | ($113,999) | | Cash, end of the period | $201,372 | $155,239 | Notes to Interim Consolidated Financial Statements This section provides detailed notes to the interim consolidated financial statements, elaborating on key accounts and accounting policies Note 5. Loans, net of allowance for credit losses The Bank's net loan portfolio expanded to $3,235.1 million, with Point-of-Sale loans at $2,414.3 million, and the total allowance for credit losses at $2.29 million Summary of loans and allowance for credit losses The gross loan portfolio reached $3,221.7 million, primarily comprising Point-of-Sale loans at $2,414.3 million, with a total allowance for credit losses of $2.29 million Loan Portfolio Breakdown (in thousands of Canadian dollars) | Loan Category | Jan 31, 2023 | Oct 31, 2022 | Jan 31, 2022 | | :--- | :--- | :--- | :--- | | Point-of-sale loans and leases | $2,414,266 | $2,220,894 | $1,439,781 | | Commercial real estate mortgages | $752,138 | $710,369 | $722,829 | | Other | $55,334 | $48,617 | $45,847 | | Total Loans (Gross) | $3,221,738 | $2,979,880 | $2,208,457 | | Allowance for credit losses | ($2,289) | ($1,904) | ($1,455) | ECL Allowance by Stage as of Jan 31, 2023 (in thousands of Canadian dollars) | Stage | Loan Amount | ECL Allowance | Expected Loss % | | :--- | :--- | :--- | :--- | | Stage 1 (Performing) | $3,131,875 | $2,212 | 0.07% | | Stage 2 (Increased Credit Risk) | $88,181 | $77 | 0.09% | | Stage 3 (Impaired) | $1,682 | - | 0.00% | | Total | $3,221,738 | $2,289 | 0.07% | Expected Credit Loss Model and Sensitivity The Bank's IFRS 9 ECL model uses third-party macroeconomic scenarios, with sensitivity analysis showing a downside scenario could increase the allowance to $4.0 million from the reported $2.3 million - The Bank uses third-party forward-looking credit risk parameter modeling systems from Moody's Analytics due to its limited historical loss data, which is crucial for estimating expected credit losses[37] ECL Sensitivity Analysis as of Jan 31, 2023 (in thousands of Canadian dollars) | Scenario | Estimated ECL | Variance from Reported ECL | Variance % | | :--- | :--- | :--- | :--- | | Reported ECL | $2,289 | - | - | | 100% Upside | $1,857 | ($432) | (19%) | | 100% Baseline | $2,772 | $483 | 21% | | 100% Downside | $4,025 | $1,736 | 76% | Impaired loans Impaired loans significantly increased to $1.7 million as of January 31, 2023, up from $279 thousand at October 31, 2022 - The value of impaired loans increased to $1.7 million as of January 31, 2023, up from $279,000 at October 31, 2022[51] Note 9. Share capital The Bank repurchased and cancelled 822,296 common shares for $8.3 million under its NCIB, with 26.4 million common shares outstanding as of January 31, 2023 - The Bank initiated a Normal Course Issuer Bid (NCIB) to purchase up to 1,700,000 common shares, as management believes the market price is at a material discount to book value[57] - During the quarter ended January 31, 2023, the Bank purchased and cancelled 822,296 common shares for $8.3 million[59] Note 15. Capital management VersaBank maintained strong capital ratios above OSFI minimums, with CET1 at 11.19% and Total Capital at 15.34%, despite a slight decrease due to risk-weighted asset growth - The Bank's policy is to maintain a strong capital base to support future growth and retain market confidence, while balancing returns to shareholders[70] Regulatory Capital Ratios | Capital Ratio | Jan 31, 2023 | Oct 31, 2022 | Minimum Requirement | | :--- | :--- | :--- | :--- | | CET1 Capital Ratio | 11.19% | 12.00% | 7.0% | | Tier 1 Capital Ratio | 11.66% | 12.50% | 8.5% | | Total Capital Ratio | 15.34% | 16.52% | 10.5% | | Leverage Ratio | 9.21% | 9.84% | 3.0% | Note 18. Operating segmentation The Bank's Digital Banking segment generated $24.3 million in revenue and $9.9 million in net income, while the DRTC cybersecurity segment reported a $516 thousand net loss Segment Performance (in thousands of Canadian dollars) | Segment (Q1 2023) | Total Revenue | Net Income (Loss) | Total Assets | | :--- | :--- | :--- | :--- | | Digital Banking | $24,276 | $9,933 | $3,522,279 | | DRTC | $1,833 | ($516) | $23,797 | | Consolidated | $25,918 | $9,417 | $3,531,690 | - The Digital Banking segment remains the primary driver of profitability, while the DRTC cybersecurity segment continues to be in an investment phase, reporting a net loss[88]