VersaBank Reports Third Quarter 2019 Results With a Substantial 17% Increase in Year-to-Date EPS

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Aug 28, 2019 07:00 am
LONDON, Ontario -- 

All amounts are unaudited and in Canadian dollars and are based on financial statements prepared in compliance with International Accounting Standard 34 Interim Financial Reporting, unless otherwise noted. Our third quarter 2019 (“Q3 2019”) unaudited Interim Consolidated Financial Statements for the period ended July 31, 2019 and Management’s Discussion and Analysis, are available online at www.versabank.com/investor-relations and at www.sedar.com. Supplementary Financial Information will also be available on our website at www.versabank.com/investor-relations.

Q3 Net Income

 

 

 

Q3 EPS

 

 

 

YTD Net Income

 

 

 

YTD EPS

 

CET1

$5.0 million

$0.21

$14.8 million

$0.62

 

12.71%

+6% yoy

+5% yoy

+15% yoy

+17% yoy

 

+16% yoy

VersaBank (“VB” or the “Bank”) (TSX:VB) today reported its results for the third quarter ended July 31, 2019. Net income for the quarter was up 6% and on a year-to-date basis was up 15% giving rise to a substantial 17% increase in EPS over the previous year. Results reflected strong growth in eCommerce banking, industry leading NIM expansion, and very low provisions for credit losses (“PCL”) on impaired loans, offset partially by lower earnings from Commercial Banking, which also saw non-core loan balances continue to run-off.

David Taylor, President and CEO stated, “Our low risk strategy to use new technologies to provide innovative banking solutions to niche markets not well served by the major players is working very well. On a year-to-date basis; NIM increased to an industry leading 3.0%, efficiency improved to 50.21%, our eCommerce portfolio increased by 8.7%, all giving rise to a 17% increase in EPS. We accomplished this all the while continuing to adhere to our low risk model and devoting considerable resources to developing innovative new ways to apply ‘state of the art’ technologies to traditional banking functions.”

Q3 2019 Highlights:

Q3 2019 compared to Q3 2018(1)

  • Core cash earnings(2) of $6.8 million (up 6% from $6.4 million)
  • Core cash earnings per common share of $0.32 (up $0.01 from $0.31)
  • Net income of $5.0 million (up 6% from $4.7 million)
  • NIM of 3.12% (up 24 bps from 2.88%)
  • Basic and diluted EPS of $0.21 (up $0.01 from $0.20)
  • Common share book value of $9.77 (up 9% from $8.99)
  • CET1 ratio of 12.71% (up from 10.95%)
  • Leverage ratio of 11.90% (up from 10.38%)

YTD Q3 2019 compared to YTD Q3 2018(1)

  • Core cash earnings(2) of $20.4 million (up 12% from $18.3 million)
  • Core cash earnings per common share of $0.96 (up $0.10 from $0.86)
  • Net income of $14.8 million (up 15% from $12.9 million)
  • NIM of 3.00% (up 15 bps from 2.85%)
  • Basic and diluted EPS of $0.62 (up $0.09 from $0.53)
  • Common share book value of $9.77 (up 9% from $8.99)
  • CET1 ratio of 12.71% (up from 10.95%)
  • Leverage ratio of 11.90% (up from 10.38%)

(1) Certain highlights include non-GAAP measures. See definitions under ‘Basis of Presentation’ in the Q3 2019 Management’s Discussion and Analysis.
(2) Core cash earnings is calculated as:

(thousands of Canadian dollars)
for the three months ended for the nine months ended

July 31

July 31

 

 

July 31

July 31

2019

2018

 

 

2019

2018

 
Net income

$ 4,963

$ 4,678

$ 14,791

$ 12,910

 
Adjusted for:
Income taxes

1,874

1,768

5,587

4,890

Other non-core general
and administrative expense items

-

-

-

453

1,874

1,768

5,587

5,343

 
Core cash earnings

$ 6,837

$ 6,446

$ 20,378

$ 18,253

Q3 2019 Business Performance

VersaBank adopted an electronic branchless model in 1993, becoming the world’s first branchless financial institution. It holds a Canadian Schedule I chartered bank licence and obtains its deposits, and the majority of its loans and leases, electronically. VersaBank’s Common Shares trade on the Toronto Stock Exchange under the symbol VB and its Series 1 Preferred Shares and Series 3 Preferred Shares trade under the symbols VB.PR.A and VB.PR.B, respectively.

Commercial Banking – Commercial loans are originated through a well-established network of mortgage brokers and syndication partners and through direct contact with VB’s clients. These loans are well secured by real estate primarily in Ontario and occasionally other areas of Canada. We are continuing to approach this business line with increased caution and are letting the non-core portion of this portfolio run-off. Loans at July 31, 2019 were $624 million, down 15.33% from a year ago.

eCommerce – Small loan and lease receivables are electronically purchased from VB’s network of origination partners who make point of sale loans and leases in various markets throughout Canada. This line of our business has tremendous potential for additional growth and profitability. Accordingly, we are devoting considerable energy to developing new innovative ideas to enhance VB’s competitive advantage in this market. Lending assets at July 31, 2019 were $972 million, up 8.68% from a year ago.

Funding - VB has established three core funding channels, those being personal deposits, commercial deposits, and holdbacks retained from VB’s receivable purchase program origination partners that are classified as other liabilities. Personal deposits, consisting principally of guaranteed investment certificates, are sourced primarily through a well-established and well-diversified deposit broker network that we continue to grow and expand across Canada. Commercial deposits are sourced primarily through specialized chequing accounts made available to insolvency professionals (“Trustees”) in the Canadian insolvency industry. VB has developed customized banking software for use by Trustees that integrates banking services with the market-leading software platform used in the administration of consumer bankruptcy and proposal restructuring proceedings. This low-cost diversified deposit gathering network provides VB with a significant advantage. VB’s cost of funds for the quarter was 1.98%, up only 31 bps from a year ago.

Capital – As at July 31, 2019, VB’s CET1 ratio was 12.71%, up 176 bps from a year ago. VB, like most small banks, uses the Standardized Approach to calculate its risk weighted assets. VB focuses on commercial and consumer loans with lower than average risk (as demonstrated by its long history of low provision for credit losses). VB believes that the Standardized Approach does not properly reflect the intrinsic risk in its lending portfolio. As a consequence, VB’s leverage ratio is one of the most conservative in the industry, being more than twice the average leverage ratio of the major Canadian banks, which use the Advanced Internal Ratings Based (“AIRB”) approach to calculate their risk weighted assets.

Credit Quality – For the quarter ended July 31, 2019, the Bank recorded a provision for credit losses in the amount of $381,000 compared to a provision for credit losses in the amount of $128,000 for the same period a year ago. The year over year trend was a function primarily of higher expected credit losses estimated on a stage 3 facility, asset growth in the receivable purchase portfolio, and the impact of remeasurements of expected credit loss amounts using the expected credit loss methodology under IFRS 9, partially offset by lower commercial banking assets. On a year-to-date basis VB’s PCL was actually a recovery of $319,000. VB’s PCL ratio has historically been one of the lowest in the industry, reflecting the very low risk profile of the Bank’s lending portfolio. VB’s business strategy involves taking lower credit risk but achieving higher NIM by providing superior service in niche markets that are not well served by the larger financial institutions.

VersaVault Inc. – VersaVault Inc. (“VV”) is a wholly owned subsidiary of the Bank and was formed to develop and provide cyber-security services to commercial entities. VV has entered into an exclusive licence agreement with Chairmans Financial B.V. (“Chairmans”), a company registered in the Netherlands operating in the financial services space. The agreement permits Chairmans to use the VersaVault name and brand, and to offer global clients secure storage of digital assets, encryption, authentication and related services. VersaVault will operate from the United States and Europe and will service clients globally. The licenced technology and services are to be used by Chairmans in connection with a digital asset security business, which will be carried on exclusively by, and in the name of, Chairmans. Neither VV nor VB will be party to any of the customer or other contracts (other than the licence and certain contracts with third party service providers) related to the business. We are very excited by this ‘state of the art’ technology that we believe will have numerous applications in the banking industry throughout the world.

FINANCIAL HIGHLIGHTS
 
(unaudited) for the three months ended for the nine months ended
July 31 July 31 July 31 July 31
($CDN thousands except per share amounts)

2019

2018

 

2019

2018

Results of operations
Interest income

$ 22,958

$ 20,446

$ 66,042

$ 58,878

Net interest income

14,059

12,965

40,242

37,792

Non-interest income

19

17

42

66

Total revenue

14,078

12,982

40,284

37,858

Provision (recovery) for credit losses

381

128

(319)

143

Non-interest expenses

6,860

6,408

20,225

19,915

Core cash earnings*

6,837

6,446

20,378

18,253

Core cash earnings per common share*

$ 0.32

$ 0.31

$ 0.96

$ 0.86

Net income

4,963

4,678

14,791

12,910

Income per common share:
Basic

$ 0.21

$ 0.20

$ 0.62

$ 0.53

Diluted

$ 0.21

$ 0.20

$ 0.62

$ 0.53

Yield*

5.10%

4.55%

4.92%

4.45%

Cost of funds*

1.98%

1.67%

1.92%

1.60%

Net interest margin*

3.12%

2.88%

3.00%

2.85%

Return on average common equity*

8.56%

8.72%

8.77%

8.16%

Core cash return on average common equity*

12.20%

12.45%

12.50%

12.03%

Book value per common share*

$ 9.77

$ 8.99

$ 9.77

$ 8.99

Efficiency ratio*

48.74%

49.36%

50.21%

52.60%

Return on average total assets*

0.98%

0.92%

0.98%

0.85%

Gross impaired loans to total loans*

1.58%

0.04%

1.58%

0.04%

Provision (recovery) for credit losses as a % of average loans*

0.02%

0.01%

(0.02%)

0.01%

as at
Balance Sheet Summary
Cash and securities

$ 118,310

$ 125,231

$ 118,310

$ 125,231

Loans, net of allowance for credit losses

1,613,811

1,649,326

1,613,811

1,649,326

Average loans*

1,620,964

1,606,875

1,622,419

1,585,092

Total assets

1,776,659

1,815,234

1,776,659

1,815,234

Average assets*

1,786,426

1,782,966

1,792,894

1,770,142

Deposits

1,398,286

1,450,615

1,398,286

1,450,615

Subordinated notes payable

4,879

9,829

4,879

9,829

Shareholders' equity

235,730

219,164

235,730

219,164

Capital ratios*
Risk-weighted assets

$ 1,504,445

$ 1,532,135

$ 1,504,445

$ 1,532,135

Total regulatory capital

225,572

201,112

225,572

201,112

Common Equity Tier 1 (CET1) ratio

12.71%

10.95%

12.71%

10.95%

Tier 1 capital ratio

14.66%

12.87%

14.66%

12.87%

Total capital ratio

14.99%

13.13%

14.99%

13.13%

Leverage ratio

11.90%

10.38%

11.90%

10.38%

* This is a non-GAAP measure. See definition under 'Basis of Presentation' in the Q3 2019 Management's
Discussion and Analysis.

Forward-Looking Statements

The statements in this press release that relate to the future are forward-looking statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, many of which are out of our control. Risks exist that predictions, forecasts, projections and other forward-looking statements will not be achieved. Readers are cautioned not to place undue reliance on these forward-looking statements as a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to, the strength of the Canadian economy in general and the strength of the local economies within Canada in which we conduct operations; the effects of changes in monetary and fiscal policy, including changes in interest rate policies of the Bank of Canada; changing global commodity prices; the effects of competition in the markets in which we operate; inflation; capital market fluctuations; the timely development and introduction of new products in receptive markets; the impact of changes in the laws and regulations pertaining to financial services; changes in tax laws; technological changes; unexpected judicial or regulatory proceedings; unexpected changes in consumer spending and savings habits; and our anticipation of and success in managing the risks implicated by the foregoing. For a detailed discussion of certain key factors that may affect our future results, please see our annual Management’s Discussion and Analysis for the year ended October 31, 2018.

The foregoing list of important factors is not exhaustive. When relying on forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. The forward-looking information contained in this document and the related management’s discussion and analysis is presented to assist our shareholders in understanding our financial position and may not be appropriate for any other purposes. Except as required by securities law, we do not undertake to update any forward-looking statement that is contained in this document and related management’s discussion and analysis or made from time to time by the Bank or on its behalf.

Conference Call and Presentation

VersaBank will be hosting a conference call on Wednesday, August 28, 2019, at 9:00 a.m. EST to discuss the results for VB’s third quarter. The toll-free-dial-in number is 1-866-323-9095 or local call dial-in number is 416-849-3996, with participant passcode 969299#.

Investor Relations: Wade MacBain (800) 244-1509, [email protected]
Visit our website at: www.versabank.com

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