VersaBank 6-K, filed Mar 2, 2022
VersaBank (VBNK)
About this 6-K
VersaBank filed this 6-K on March 2, 2022.
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VERSABANK
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Date: March 2, 2022
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By:
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/s/ Shawn Clarke
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Name: Shawn Clarke
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Title: Chief Financial Officer
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Exhibit
No.
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Description
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99.1
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99.2
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99.3
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99.4
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99.5
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99.6
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Exhibit 99.1
Interim Consolidated Financial Statements
January 31, 2022
(Unaudited)
VERSABANK
Consolidated Balance Sheets
(Unaudited)
| (thousands of Canadian dollars) |
||||||||||||
| January 31 |
October 31 |
January 31 |
||||||||||
| As at |
2022 |
2021 |
2021 |
|||||||||
| Assets |
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| Cash |
$ | $ | $ | |||||||||
| Loans, net of allowance for credit losses (note 4) |
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| Other assets (note 5) |
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| $ | $ | $ | ||||||||||
| Liabilities and Shareholders' Equity |
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| Deposits |
$ | $ | $ | |||||||||
| Subordinated notes payable (note 6) |
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| Other liabilities (note 7) |
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| Shareholders' equity: |
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| Share capital (note 8) |
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| Retained earnings |
||||||||||||
| Accumulated other comprehensive income (loss) |
( |
) | ||||||||||
| $ | $ | $ | ||||||||||
The accompanying notes are an integral part of these interim Consolidated Financial Statements.
VERSABANK
Consolidated Statements of Income and Comprehensive Income
(Unaudited)
(thousands of Canadian dollars, except per share amounts)
| for the three months ended |
||||||||
| January 31 |
January 31 |
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| 2022 |
2021 |
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| Interest income: |
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| Loans |
$ | $ | ||||||
| Other |
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| Interest expense: |
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| Deposits and other |
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| Subordinated notes |
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| Net interest income |
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| Non-interest income |
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| Total revenue |
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| Provision for credit losses (note 4) |
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| Non-interest expenses: |
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| Salaries and benefits |
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| General and administrative |
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| Premises and equipment |
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| Income before income taxes |
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| Income tax provision (note 9) |
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| Net income |
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| Other comprehensive income: |
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| Items that may subsequently be reclassified to net income: |
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| Foreign exchange gain on translation of foreign operations |
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| Comprehensive income |
$ | $ | ||||||
| Basic and diluted income per common share (note 10) |
$ | $ | ||||||
| Weighted average number of common shares outstanding |
||||||||
The accompanying notes are an integral part of these interim Consolidated Financial Statements.
VERSABANK
Consolidated Statements of Changes in Shareholders’ Equity
(Unaudited)
(thousands of Canadian dollars)
| for the three months ended |
||||||||
| January 31 |
January 31 |
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| 2022 |
2021 |
|||||||
| Common shares (note 8): |
||||||||
| Balance, beginning and end of the period |
$ | $ | ||||||
| Preferred shares (note 8): |
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| Series 1 preferred shares |
||||||||
| Balance, beginning and end of the period |
$ | $ | ||||||
| Series 3 preferred shares |
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| Balance, beginning and end of the period |
$ | $ | ||||||
| Contributed surplus: |
||||||||
| Balance, beginning of the period |
$ | $ | ||||||
| Fair value of stock-based compensation (note 8) |
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| Balance, end of the period |
$ | $ | ||||||
| Total share capital |
$ | $ | ||||||
| Retained earnings: |
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| Balance, beginning of the period |
$ | $ | ||||||
| Net income |
||||||||
| Dividends paid on common and preferred shares |
( |
) | ( |
) | ||||
| Balance, end of the period |
$ | $ | ||||||
| Accumulated other comprehensive income (loss): |
||||||||
| Balance, beginning of the period |
$ | ( |
) | $ | ||||
| Other comprehensive income |
||||||||
| Balance, end of the period |
$ | $ | ||||||
| Total shareholders' equity |
$ | $ | ||||||
The accompanying notes are an integral part of these interim Consolidated Financial Statements.
VERSABANK
Consolidated Statements of Cash Flows
(Unaudited)
| (thousands of Canadian dollars) |
||||||||
| for the three months ended |
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| January 31 |
January 31 |
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| 2022 |
2021 |
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| Cash provided by (used in): |
||||||||
| Operations: |
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| Net income |
$ | $ | ||||||
| Adjustments to determine net cash flows: |
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| Items not involving cash: |
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| Provision for credit losses |
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| Stock-based compensation |
||||||||
| Income tax provision |
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| Interest income |
( |
) | ( |
) | ||||
| Interest expense |
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| Amortization |
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| Foreign exchange rate changes on debt |
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| Interest received |
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| Interest paid |
( |
) | ( |
) | ||||
| Income taxes paid |
( |
) | ||||||
| Change in operating assets and liabilities: |
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| Loans |
( |
) | ( |
) | ||||
| Deposits |
( |
) | ||||||
| Change in other assets and liabilities |
( |
) | ||||||
| ( |
) | ( |
) | |||||
| Purchase of investment: |
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| Acquisition of DBG, net of cash acquired |
( |
) | ||||||
| Purchase of property and equipment |
( |
) | ( |
) | ||||
| ( |
) | ( |
) | |||||
| Financing: |
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| Repayment of loan assumed from DBG |
( |
) | ||||||
| Redemption of securitization liability |
( |
) | ||||||
| Dividends paid |
( |
) | ( |
) | ||||
| Repayment of lease obligations |
( |
) | ( |
) | ||||
| Income taxes paid |
( |
) | ||||||
| ( |
) | ( |
) | |||||
| Change in cash |
( |
) | ( |
) | ||||
| Effect of exchange rate changes on cash |
( |
) | ||||||
| Cash, beginning of the period |
||||||||
| Cash, end of the period |
$ | $ | ||||||
The accompanying notes are an integral part of these interim Consolidated Financial Statements.
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
1. Reporting entity:
VersaBank (the “Bank”) operates as a Schedule I bank under the Bank Act (Canada) and is regulated by the Office of the Superintendent of Financial Institutions (“OSFI”). The Bank, whose shares trade on the Toronto Stock Exchange and NASDAQ Stock Exchange, provides commercial lending and banking services to select niche markets in Canada as well as cybersecurity services through the operations of its wholly owned subsidiary DRT Cyber Inc.
The Bank is incorporated in Canada, and maintains its registered head office at Suite 2002, 140 Fullarton Street, London, Ontario, Canada, N6A 5P2.
2. Basis of preparation:
a) Statement of compliance:
These interim Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and have been prepared in accordance with International Accounting Standard (“IAS”) 34 – Interim Financial Reporting and do not include all of the information required for full annual financial statements. These interim Consolidated Financial Statements should be read in conjunction with the Bank’s audited Consolidated Financial Statements for the year ended October 31, 2021.
The interim Consolidated Financial Statements for the three months ended January 31, 2022 and 2021 were approved by the Audit Committee of the Board of Directors on February 28, 2022.
b) Basis of measurement:
These interim Consolidated Financial Statements have been prepared on the historical cost basis except for the investment in Canada Stablecorp Inc. which is measured at fair value through other comprehensive income (see note 5).
c) Functional and presentation currency:
These interim Consolidated Financial Statements are presented in Canadian dollars, which is the Bank’s functional currency. Functional currency is also determined for each of the Bank’s subsidiaries and items included in the interim financial statements of the subsidiaries are measured using their functional currency.
d) Use of estimates and judgements:
In preparing these interim Consolidated Financial Statements, management has exercised judgement and developed estimates in applying accounting policies and generating reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting periods. Significant judgement was applied in assessing significant changes in credit risk on financial assets and in the selection of relevant forward-looking information in assessing the Bank’s allowance for expected credit losses on its financial assets as described in note 4 – Loans. Estimates are applied in the determination of the allowance for expected credit losses on financial assets and the measurement of deferred income taxes. It is reasonably possible, on the basis of existing knowledge, that actual results may vary from that expected in the development of these estimates. This could result in material adjustments to the carrying amounts of assets and/or liabilities affected in the future.
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
Estimates were applied by management in determining the fair value of stock options granted in the current quarter as described in note 8.
Available forward-looking information, including forecast macroeconomic indicator and industry performance trend data continue to be influenced by COVID-19 and remain broadly dynamic, including, but not limited to, the scope and timing of the removal or relaxation of public health restrictions which were imposed as a function of the emergence and rapid spread of the Omicron variant, the timing, velocity and impact of monetary policy tightening, the potential implementation of new federal government stimulus programs, and the magnitude and directionality of inflation trends. The current, dynamic nature of the trends exhibited by the available forward looking information continues to infuse uncertainty into the assumptions, judgements and estimates made by management in the preparation of these interim Consolidated Financial Statements.
Estimates and their underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are applied prospectively once they are known.
3. Significant accounting policies and future accounting changes:
The accounting policies applied by the Bank in these interim Consolidated Financial Statements are the same as those applied by the Bank as at and for the year ended October 31, 2021 and are detailed in note 3 of the Bank’s 2021 audited Consolidated Financial Statements. During the current year the Bank updated or incorporated the following significant accounting policies:
Segment reporting:
Effective the quarter ending January 31, 2022, the Bank has opted to adopt presenting segmented information in its Consolidated Financial Statements in accordance with IFRS 8 Segment Reporting. The Bank’s management has established two reportable operating segments, those being Banking and Cybersecurity Services. Details of the Bank’s segment reporting is described in note 16.
4. Loans:
The Bank organizes its lending portfolio into the following four broad asset categories: Commercial Real Estate Mortgages, Commercial Real Estate Loans, Point of Sale Loans and Leases, and Public Sector and Other Financing. These categories have been established in the Bank’s proprietary, internally developed asset management system and have been designed to catalogue individual lending assets as a function primarily of their key risk drivers, the nature of the underlying collateral, and the applicable market segment.
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
The Commercial Real Estate Mortgages (“CRE Mortgages”) asset category is comprised of Commercial and Residential Construction Mortgages, Commercial Term Mortgages, Commercial Insured Mortgages and Land Mortgages. While all of these loans would be considered commercial loans or business-to-business loans, the underlying credit risk exposure is diversified across both the commercial and retail market segments, and further, the portfolio benefits from diversity in its underlying security in the form of a broad range of collateral properties.
The Commercial Real Estate Loans (“CRE Loans”) asset category is comprised primarily of Condominium Corporation Financing loans.
The Point of Sale Loans and Leases (“POS Financing”) asset category is comprised of Point of Sale Loan and Lease Receivables acquired from the Bank’s broad network of origination and servicing partners as well as Warehouse Loans that provide bridge financing to the Bank’s origination and servicing partners for the purpose of accumulating and seasoning practical volumes of individual loans and leases prior to the Bank purchasing the cashflow receivables derived from same.
The Public Sector and Other Financing (“PSOF”) asset category is comprised primarily of Public Sector Loans and Leases, a small balance of Corporate Loans and Leases and Single Family Residential Conventional and Insured Mortgages.
a) Summary of loans and allowance for credit losses:
| (thousands of Canadian dollars) | ||||||||||||
| January 31 | October 31 | January 31 | ||||||||||
| 2022 | 2021 | 2021 | ||||||||||
| Commercial real estate mortgages | $ | $ | $ | |||||||||
| Commercial real estate loans | ||||||||||||
| Point of sale loans and leases | ||||||||||||
| Public sector and other financing | ||||||||||||
| Allowance for credit losses | ( | ) | ( | ) | ( | ) | ||||||
| Accrued interest | ||||||||||||
| Total loans, net of allowance for credit losses | $ | $ | $ | |||||||||
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
The following table provides a summary of loan amounts, expected credit loss allowance amounts, and expected loss rates by lending asset category:
| As at January 31, 2022 | As at October 31, 2021 | |||||||||||||||||||||||||||||||
| (thousands of Canadian dollars) | Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | ||||||||||||||||||||||||
| Commercial real estate mortgages | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| ECL allowance | ||||||||||||||||||||||||||||||||
| EL % | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| Commercial real estate loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| ECL allowance | ||||||||||||||||||||||||||||||||
| EL % | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| Point of sale loans and leases | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| ECL allowance | ||||||||||||||||||||||||||||||||
| EL % | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| Public sector and other financing | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| ECL allowance | ||||||||||||||||||||||||||||||||
| EL % | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| Loans | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total ECL allowance | ||||||||||||||||||||||||||||||||
| Total EL % | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
The Bank’s maximum exposure to credit risk is the carrying value of its financial assets. The Bank holds security against the majority of its loans in the form of mortgage interests over property, other registered securities over assets, guarantees or cash reserves on loan and lease receivables included in the POS Financing portfolio (see note 7).
Allowance for Credit Losses
The Bank must maintain an allowance for expected credit losses (“ECL”) that is adequate, in management’s opinion, to absorb all credit related losses in the Bank’s lending and treasury portfolios. Under IFRS 9 the Bank’s ECL is estimated using the expected credit loss methodology and is comprised of expected credit losses recognized on both performing loans, and non-performing, or impaired loans even if no actual loss event has occurred.
Assessment of significant increase in credit risk (“SICR”)
At each reporting date, the Bank assesses whether or not there has been a SICR for loans since initial recognition by comparing, at the reporting date, the risk of default occurring over the remaining expected life against the risk of default at initial recognition.
SICR is a function of the loan’s internal risk rating assignment, internal watchlist status, loan review status and delinquency status which are updated as necessary in response to changes including, but not limited to, changes in macroeconomic and/or market conditions, changes in a borrower’s credit risk profile, and changes in the strength of the underlying security, including guarantor status, if a guarantor exists.
Quantitative models may not always be able to capture all reasonable and supportable information that may indicate a SICR. As a result, qualitative factors may be considered to supplement such a gap.
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
Examples include changes in adjudication criteria for a particular group of borrowers or asset categories or changes in portfolio composition, and more specifically changes attributable to the continued impact of COVID-19 on the Canadian economy and the Bank’s business.
Expected credit loss model - Estimation of expected credit losses
Expected credit losses are an estimate of a loan’s expected cash shortfalls discounted at the effective interest rate, where a cash shortfall is the difference between the contractual cash flows that are due to the Bank and the cash flows that the Bank actually expects to receive.
Forward-Looking Information
The Bank incorporates the impact of future economic conditions, or more specifically forward-looking information into the estimation of expected credit losses at the credit risk parameter level. This is accomplished via the credit risk parameter models and proxy datasets that the Bank utilizes to develop probability of default, (“PD”) and loss given default, (“LGD”) term structure forecasts for its loans. The Bank has sourced credit risk modeling systems and forecast macroeconomic scenario data from Moody’s Analytics, a third party service provider for the purpose of computing forward-looking credit risk parameters under multiple macroeconomic scenarios that consider both market-wide and idiosyncratic factors and influences. These systems are used in conjunction with the Bank’s internally developed ECL models. Given that the Bank has experienced very limited historical losses and, therefore, does not have available statistically significant loss data inventory for use in developing internal, forward looking expected credit loss trends, the use of unbiased, third party forward-looking credit risk parameter modeling systems is particularly important for the Bank in the context of the estimation of expected credit losses.
The Bank utilizes macroeconomic indicator data derived from multiple macroeconomic scenarios in order to mitigate volatility in the estimation of expected credit losses, as well as to satisfy the IFRS 9 requirement that future economic conditions are to be based on an unbiased, probability-weighted assessment of possible future outcomes. More specifically, the macroeconomic indicators set out in the macroeconomic scenarios are used as inputs for the credit risk parameter models utilized by the Bank to sensitize the individual PD and LGD term structure forecasts to the respective macroeconomic trajectory set out in each of the scenarios (see Expected Credit Loss Sensitivity below). Currently the Bank utilizes upside, downside and baseline forecast macroeconomic scenarios, and assigns discrete weights to each for use in the estimation of its reported ECL. The Bank has also applied expert credit judgement, where appropriate, to reflect, amongst other items, uncertainty in the Canadian macroeconomic environment attributable to the continued impact of COVID-19.
The macroeconomic indicator data utilized by the Bank for the purpose of sensitizing PD and LGD term structure data to forward economic conditions include, but are not limited to: real GDP, the national unemployment rate, long term interest rates, the consumer price index, the S&P/TSX Index and the price of oil. These specific macroeconomic indicators were selected in an attempt to ensure that the spectrum of fundamental macroeconomic influences on the key drivers of the credit risk profile of the Bank’s balance sheet, including: corporate, consumer and real estate market dynamics; corporate, consumer and SME borrower performance; geography; as well as collateral value volatility, are appropriately captured and incorporated into the Bank’s forward macroeconomic sensitivity analysis.
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
Key assumptions driving the macroeconomic forecast trends this quarter include: the rate of decline of new case counts of the Omicron variant and the relaxation of public health restrictions as a function of same, the timing and magnitude of the Bank of Canada’s (“BoC”) first overnight rate increase as well as the number and magnitude of additional, anticipated increases over the course of 2022 and beyond, the resiliency of consumer spending in a rising rate environment, the mitigation of the current high rate of inflation as a function of the resolution of existing supply-chain bottlenecks, the trajectory of oil and gasoline prices, tighter monetary policy and a shrinking BoC balance sheet, the continued rate of job growth, the impact of more specific eligibility requirements associated with the federal government’s remaining stimulus programs, and the level and duration of historically high housing prices.
Management developed ECL estimates using credit risk parameter term structure forecasts sensitized to individual baseline, upside and downside forecast macroeconomic scenarios, each weighted at 100%, and subsequently computed the variance of each to the Bank’s reported ECL as at January 31, 2022 in order to assess the alignment of the Bank’s reported ECL with the Bank’s credit risk profile, and further, to assess the scope, depth and ultimate effectiveness of the credit risk mitigation strategies that the Bank has applied to its lending portfolios (see Expected Credit Loss Sensitivity below).
Expected Credit Loss Sensitivity:
The following table presents the sensitivity of the Bank’s estimated ECL to a range of individual macroeconomic scenarios, that in isolation may not reflect the Bank’s actual expected ECL exposure, as well as the variance of each to the Bank’s” reported ECL as at January 31, 2022:
| (thousands of Canadian dollars) | ||||||||||||||||
| Reported | 100 | % | 100 | % | 100 | % | ||||||||||
| ECL | Upside | Baseline | Downside | |||||||||||||
| Allowance for expected credit losses | $ | $ | $ | $ | ||||||||||||
| Variance from reported ECL | ( | ) | ( | ) | ||||||||||||
| Variance from reported ECL (%) | ( | %) | ( | %) | % | |||||||||||
The following table provides a reconciliation of the Bank’s ECL allowance by lending asset category for the three months ended January 31, 2022:
| (thousands of Canadian dollars) | Stage 1 | Stage 2 | Stage 3 | Total | ||||||||||||
| Commercial real estate mortgages | ||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||
| Transfer in (out) to Stage 1 | ( | ) | ||||||||||||||
| Transfer in (out) to Stage 2 | ( | ) | ||||||||||||||
| Transfer in (out) to Stage 3 | ||||||||||||||||
| Net remeasurement of loss allowance | ( | ) | ( | ) | ( | ) | ||||||||||
| Loan originations | ||||||||||||||||
| Derecognitions and maturities | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for (recovery of) credit losses | ( | ) | ( | ) | ( | ) | ||||||||||
| Write-offs | ||||||||||||||||
| Recoveries | ||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||
| Commercial real estate loans | ||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||
| Transfer in (out) to Stage 1 | ||||||||||||||||
| Transfer in (out) to Stage 2 | ||||||||||||||||
| Transfer in (out) to Stage 3 | ||||||||||||||||
| Net remeasurement of loss allowance | ( | ) | ( | ) | ||||||||||||
| Loan originations | ||||||||||||||||
| Derecognitions and maturities | ||||||||||||||||
| Provision for (recovery of) credit losses | ( | ) | ( | ) | ||||||||||||
| Write-offs | ||||||||||||||||
| Recoveries | ||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||
| Point of sale loans and leases | ||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||
| Transfer in (out) to Stage 1 | ( | ) | ||||||||||||||
| Transfer in (out) to Stage 2 | ( | ) | ||||||||||||||
| Transfer in (out) to Stage 3 | ||||||||||||||||
| Net remeasurement of loss allowance | ( | ) | ||||||||||||||
| Loan originations | ||||||||||||||||
| Derecognitions and maturities | ||||||||||||||||
| Provision for (recovery of) credit losses | ||||||||||||||||
| Write-offs | ||||||||||||||||
| Recoveries | ||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||
| Public sector and other financing | ||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||
| Transfer in (out) to Stage 1 | ||||||||||||||||
| Transfer in (out) to Stage 2 | ||||||||||||||||
| Transfer in (out) to Stage 3 | ||||||||||||||||
| Net remeasurement of loss allowance | ( | ) | ( | ) | ( | ) | ||||||||||
| Loan originations | ||||||||||||||||
| Derecognitions and maturities | ( | ) | ( | ) | ||||||||||||
| Provision for (recovery of) credit losses | ( | ) | ( | ) | ( | ) | ||||||||||
| Write-offs | ||||||||||||||||
| Recoveries | ||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||
| Total balance at end of period | $ | $ | $ | $ | ||||||||||||
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
The following table provides a reconciliation of the Bank’s ECL allowance by lending asset category for the three months ended January 31, 2021:
| (thousands of Canadian dollars) | Stage 1 | Stage 2 | Stage 3 | Total | ||||||||||||
| Commercial real estate mortgages | ||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||
| Transfer in (out) to Stage 1 | ||||||||||||||||
| Transfer in (out) to Stage 2 | ( | ) | ||||||||||||||
| Transfer in (out) to Stage 3 | ||||||||||||||||
| Net remeasurement of loss allowance | ||||||||||||||||
| Loan originations | ||||||||||||||||
| Derecognitions and maturities | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision for (recovery of) credit losses | ( | ) | ||||||||||||||
| Write-offs | ||||||||||||||||
| Recoveries | ||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||
| Commercial real estate loans | ||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||
| Transfer in (out) to Stage 1 | ||||||||||||||||
| Transfer in (out) to Stage 2 | ||||||||||||||||
| Transfer in (out) to Stage 3 | ||||||||||||||||
| Net remeasurement of loss allowance | ( | ) | ( | ) | ||||||||||||
| Loan originations | ||||||||||||||||
| Derecognitions and maturities | ||||||||||||||||
| Provision for (recovery of) credit losses | ( | ) | ( | ) | ||||||||||||
| Write-offs | ||||||||||||||||
| Recoveries | ||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||
| Point of sale loans and leases | ||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||
| Transfer in (out) to Stage 1 | ( | ) | ||||||||||||||
| Transfer in (out) to Stage 2 | ( | ) | ||||||||||||||
| Transfer in (out) to Stage 3 | ||||||||||||||||
| Net remeasurement of loss allowance | ( | ) | ( | ) | ||||||||||||
| Loan originations | ||||||||||||||||
| Derecognitions and maturities | ||||||||||||||||
| Provision for (recovery of) credit losses | ( | ) | ( | ) | ||||||||||||
| Write-offs | ||||||||||||||||
| Recoveries | ||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||
| Public sector and other financing | ||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | ||||||||||||
| Transfer in (out) to Stage 1 | ||||||||||||||||
| Transfer in (out) to Stage 2 | ||||||||||||||||
| Transfer in (out) to Stage 3 | ||||||||||||||||
| Net remeasurement of loss allowance | ( | ) | ( | ) | ||||||||||||
| Loan originations | ||||||||||||||||
| Derecognitions and maturities | ||||||||||||||||
| Provision for (recovery of) credit losses | ( | ) | ( | ) | ||||||||||||
| Write-offs | ||||||||||||||||
| Recoveries | ||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||||
| Total balance at end of period | $ | $ | $ | $ | ||||||||||||
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
b) Impaired loans:
At January 31, 2022, impaired loans were ( October 31, 2021 - ).
5. Other assets:
| (thousands of Canadian dollars) |
||||||||||||
| January 31 |
October 31 |
January 31 |
||||||||||
| 2022 |
2021 |
2021 |
||||||||||
| Accounts receivable |
$ | $ | $ | |||||||||
| Prepaid expenses and other |
||||||||||||
| Property and equipment |
||||||||||||
| Right-of-use assets |
||||||||||||
| Deferred income tax asset |
||||||||||||
| Investment |
||||||||||||
| Goodwill |
||||||||||||
| Intangible assets |
||||||||||||
| Total other assets |
$ | $ | $ | |||||||||
In February 2021, the Bank acquired an
6. Subordinated notes payable:
| (thousands of Canadian dollars) | ||||||||||||
| January 31 | October 31 | January 31 | ||||||||||
| 2022 | 2021 | 2021 | ||||||||||
| year term, unsecured, non-viability contingent capital compliant, subordinated notes payable, principal amount of $ million, $ is held by related party (note 12), effective interest rate of %, maturing . | $ | $ | $ | |||||||||
| year term, unsecured, non-viability contingent capital compliant, subordinated notes payable, principal amount of USD $ million, effective interest rate of %, maturing . | ||||||||||||
| $ | $ | $ | ||||||||||
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
7. Other liabilities:
| (thousands of Canadian dollars) |
||||||||||||
| January 31 |
October 31 |
January 31 |
||||||||||
| 2022 |
2021 |
2021 |
||||||||||
| Accounts payable and other |
$ | $ | $ | |||||||||
| Current income tax liability |
||||||||||||
| Deferred income tax liability |
||||||||||||
| Lease obligations |
||||||||||||
| Cash collateral and amounts held in escrow |
||||||||||||
| Cash reserves on loan and lease receivables |
||||||||||||
| $ | $ | $ | ||||||||||
8. Share capital:
a) Common shares:
At January 31, 2022, there were
b) Preferred shares:
At January 31, 2022, there were
On April 30, 2021, the Bank redeemed all of its
c) Stock options
Under the Bank’s stock option plan, the Bank will grant, to eligible participants options for the Bank’s common shares on a periodic basis. As per the Bank’s current stock option plan all options issued have a year term and vest over a year period. At January 31, 2022, the Bank was authorized to issue
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
Stock option transactions during the three month periods ended January 31, 2022 and 2021:
| for the three months ended | ||||||||||||||||
| January 31, 2022 | January 31, 2021 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Number of | average | Number of | average | |||||||||||||
| options | exercise price | options | exercise price | |||||||||||||
| Outstanding, beginning of period | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeired/cancelled | ||||||||||||||||
| Expired | ||||||||||||||||
| Outstanding, end of period | $ | $ | ||||||||||||||
For the three month period ended January 31, 2022, the Bank recognized $
As at January 31, 2022,
9. Income tax provision:
Income tax provision for the three months ended January 31, 2022 was $
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
10. Income per common share:
| (thousands of Canadian dollars) |
||||||||
| for the three months ended |
||||||||
| January 31 |
January 31 |
|||||||
| 2022 |
2021 |
|||||||
| Net income |
$ | $ | ||||||
| Less: dividends on preferred shares |
( |
) | ( |
) | ||||
| Average number of common shares outstanding |
||||||||
| Income per common share: |
$ | $ | ||||||
The Series 1 NVCC preferred shares are contingently issuable shares and would only have a dilutive impact upon issuance.
11. Commitments and contingencies:
The amount of credit related commitments represents the maximum amount of additional credit that the Bank could be obligated to extend.
| (thousands of Canadian dollars) |
||||||||||||
| January 31 |
October 31 |
January 31 |
||||||||||
| 2022 |
2021 |
2021 |
||||||||||
| Loan commitments |
$ | $ | $ | |||||||||
| Letters of credit |
||||||||||||
| $ | $ | $ | ||||||||||
12. Related party transactions:
The Bank’s Board of Directors and Senior Executive Officers represent key management personnel and are related parties. At January 31, 2022, amounts due from these related parties totalled $
$
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
13. Capital management:
a) Overview:
The Bank’s policy is to maintain a strong capital base so as to retain investor, creditor and market confidence as well as to support the future growth and development of the business. The impact of the level of capital held on shareholders’ return is an important consideration and the Bank recognizes the need to maintain a balance between the higher returns that may be possible with greater leverage and the advantages and security that may be afforded by a more robust capital position.
OSFI sets and monitors capital requirements for the Bank. Capital is managed in accordance with policies and plans that are regularly reviewed and approved by the Board of Directors and that take into account, amongst other items, forecasted capital requirements and current and anticipated financial market conditions.
The goal is to maintain adequate regulatory capital for the Bank to be considered well capitalized, protect consumer deposits and provide capacity to support organic growth as well as to capitalize on strategic opportunities that do not otherwise require accessing the public capital markets, all the while providing a satisfactory return to shareholders. The Bank’s regulatory capital is comprised of share capital, retained earnings and unrealized gains and losses on fair value through other comprehensive income securities (Common Equity Tier 1 capital), preferred shares (Additional Tier 1 capital) and subordinated notes (Tier 2 capital).
The Bank monitors its capital adequacy and related capital ratios on a daily basis and has policies setting internal targets and thresholds for its capital ratios. These capital ratios consist of the leverage ratio and the risk-based capital ratios.
The Bank makes use of the Standardized Approach for credit risk as prescribed by OSFI, and therefore, may include eligible ECL allowance amounts in its Tier 2 capital, up to a maximum of
During the period ended January 31, 2022, there were no material changes in the Bank’s management of capital.
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
| b) | Risk-Based Capital Ratios: |
The Basel Committee on Banking Supervision has published the Basel III rules on capital adequacy and liquidity (“Basel III”). OSFI requires that all Canadian banks must comply with the Basel III standards on an “all-in” basis for the purpose of determining their risk-based capital ratios. Required minimum regulatory capital ratios are a
OSFI also requires banks to measure capital adequacy in accordance with guidelines for determining risk adjusted capital and risk-weighted assets including off-balance sheet credit instruments as specified in the Basel III regulations. Based on the deemed credit risk for each type of asset, both on and off balance sheet assets of the Bank are assigned a weighting ranging between 0% to 150% to determine the Bank’s risk weighted equivalent assets and its risk-based capital ratios.
The Bank’s risk-based capital ratios are calculated as follows:
| (thousands of Canadian dollars) | ||||||||
| January 31 | October 31 | |||||||
| 2022 | 2021 | |||||||
| "Transitional" | ||||||||
| & "All in" | "All in" | |||||||
| Common Equity Tier 1 (CET1) capital | ||||||||
| Directly issued qualifying common share capital | $ | $ | ||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income | ( | ) | ||||||
| CET1 before regulatory adjustments | ||||||||
| Regulatory adjustments applied to CET1 | ( | ) | ( | ) | ||||
| Common Equity Tier 1 capital | $ | $ | ||||||
| Additional Tier 1 capital | ||||||||
| Directly issued qualifying Additional Tier 1 instruments | $ | $ | ||||||
| Total Tier 1 capital | $ | $ | ||||||
| Tier 2 capital | ||||||||
| Directly issued Tier 2 capital instruments | $ | $ | ||||||
| Tier 2 capital before regulatory adjustments | ||||||||
| Eligible stage 1 and stage 2 allowance | ||||||||
| Total Tier 2 capital | $ | $ | ||||||
| Total regulatory capital | $ | $ | ||||||
| Total risk-weighted assets | $ | $ | ||||||
| Capital ratios | ||||||||
| CET1 capital ratio | % | % | ||||||
| Tier 1 capital ratio | % | % | ||||||
| Total capital ratio | % | % | ||||||
As at January 31, 2022 and October 31, 2021, the Bank exceeded all of the minimum Basel III regulatory capital requirements prescribed by OSFI.
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
c) Leverage Ratio:
The leverage ratio, which is prescribed under the Basel III Accord, is a supplementary measure to the risk-based capital requirements and is defined as the ratio of Tier 1 capital to the Bank’s total exposures. The Basel III minimum leverage ratio is
| (thousands of Canadian dollars) | ||||||||
| January 31 | October 31 | |||||||
| 2022 | 2021 | |||||||
| "Transitional" | ||||||||
| & "All in" | "All in" | |||||||
| On-balance sheet assets | $ | $ | ||||||
| Assets amounts adjusted in determining the Basel III | ||||||||
| Tier 1 capital | ( | ) | ( | ) | ||||
| Total on-balance sheet exposures | ||||||||
| Total off-balance sheet exposure at gross notional amount | $ | $ | ||||||
| Adjustments for conversion to credit equivalent amount | ( | ) | ( | ) | ||||
| Total off-balance sheet exposures | ||||||||
| Tier 1 capital | ||||||||
| Total exposures | ||||||||
| Leverage ratio | % | % | ||||||
As at January 31, 2022 and October 31, 2021, the Bank was in compliance with the leverage ratio prescribed by OSFI.
14. Interest rate risk position:
The Bank is subject to interest rate risk which is the risk that a movement in interest rates could negatively impact net interest margin, net interest income and the economic value of assets, liabilities and shareholders’ equity. The following table provides the duration difference between the Bank’s assets and liabilities and the potential after-tax impact of a 100 basis point shift in interest rates on the Bank’s earnings during a 12 month period as well as the potential after-tax impact of a 100 basis point shift in interest rates on the Bank’s shareholders’ equity over a 60 month period if no remedial actions are taken.
| (thousands of Canadian dollars) | ||||||||||||||||
| January 31, 2022 | October 31, 2021 | |||||||||||||||
| Increase 100 bps | Decrease 100 bps | Increase 100 bps | Decrease 100 bps | |||||||||||||
| Increase (decrease): | ||||||||||||||||
| Impact on projected net interest income during a 12 month period | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Impact on reported equity during a 60 month period | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Duration difference between assets and liabilities (months) | ||||||||||||||||
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
15. Fair Value of Financial Instruments:
Fair values are based on management’s best estimates of market conditions and valuation policies at a certain point in time. The estimates are subjective and involve particular assumptions and matters of judgement and as such, may not be reflective of future fair values. The Bank’s loans and deposits lack an available market as they are not typically exchanged and, therefore, the book value of these instruments are not necessarily representative of amounts realizable upon immediate settlement. See note 19 of the October 31, 2021 audited Consolidated Financial Statements for more information on fair values.
| (thousands of Canadian dollars) | ||||||||||||||||
| As at | January 31, 2022 | October 31, 2021 | ||||||||||||||
| Book | Fair | Book | Fair | |||||||||||||
| (thousands of Canadian dollars) | Value | Value | Value | Value | ||||||||||||
| Assets | ||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||
| Loans | ||||||||||||||||
| Other financial assets | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Deposits | $ | $ | $ | $ | ||||||||||||
| Subordinated notes payable | ||||||||||||||||
| Other financial liabilities | ||||||||||||||||
16. Operating Segmentation:
The Bank has established
Banking – The Bank employs a business-to-business model using its proprietary financial technology to address underserved segments of the Canadian banking market. VersaBank obtains its deposits and provides the majority of its loans and leases electronically, with innovative deposit and lending solutions for financial intermediaries that allow them to excel in their core businesses.
Cybersecurity Services - Leveraging its internally developed IT security software and capabilities, VersaBank established a wholly-owned subsidiary, DRT Cyber Inc. (“DRTC”), to pursue significant large-market opportunities in cybersecurity and develop innovative solutions to address the rapidly growing volume of cyber threats challenging financial institutions, multi-national corporations and government entities.
The basis for the determination of the reportable segments is a function primarily of the systematic, consistent process employed by our chief operating decision maker, the Chief Executive Officer, and the Chief Financial Officer in reviewing and interpreting the operations and performance of each segment. The accounting policies applied to these segments are consistent with those employed in the preparation of our consolidated financial statements, as disclosed in Note 3 of the Bank’s 2021 audited Consolidated Financial Statements.
VERSABANK
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three month periods ended January 31, 2022 and 2021
Performance is measured based on segment net income, as included in the Bank’s internal management reporting. Management has determined that this measure is the most relevant in evaluating segment results and in the allocation of resources. Information regarding the results of each reportable operating segment is as follows:
| (thousands of Canadian dollars) | ||||||||||||||||||||||||||||||||
| for the three months ended | January 31, 2022 | January 31, 2021 | ||||||||||||||||||||||||||||||
| Banking | Cybersecurity | Eliminations | Consolidated | Banking | Cybersecurity | Eliminations | Consolidated | |||||||||||||||||||||||||
| and Adjustments | and Adjustments | |||||||||||||||||||||||||||||||
| Net interest income | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Non-interest income | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Total revenue | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Provision for (recovery of) credit losses | ||||||||||||||||||||||||||||||||
| ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Non-interest expenses: | ||||||||||||||||||||||||||||||||
| Salaries and benefits | ||||||||||||||||||||||||||||||||
| General and administrative | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Premises and equipment | ||||||||||||||||||||||||||||||||
| ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||||||||
| Income tax provision | ||||||||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Total assets | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Total liabilities | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
While the Bank has operations in the US, primarily through its DRTC operations, substantially all of the Bank’s earnings and assets are based in Canada.
17. Comparative balances:
Certain comparative balances have been reclassified to conform with the financial statement presentation adopted in the current period.
Exhibit 99.2
Management’s Discussion and Analysis
This management’s discussion and analysis (“MD&A”) of operations and financial condition for the first quarter of Fiscal 2022, dated February 28, 2022, should be read in conjunction with the unaudited interim consolidated financial statements for the period ended January 31, 2022, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This MD&A should also be read in conjunction with VersaBank’s MD&A and Audited Consolidated Financial Statements for the year ended October 31, 2021, which are available on VersaBank’s website at www.versabank.com, SEDAR at www.sedar.com and EDGAR at https://www.sec.gov/edgar.shtml. Except as discussed below, all other factors discussed and referred to in the MD&A for the year ended October 31, 2021, remain substantially unchanged. All currency amounts in this document are in Canadian dollars unless otherwise indicated.
|
Cautionary Note Regarding Forward-Looking Statements |
2 |
|
Overview |
3 |
|
Update on Impact of COVID-19 |
3 |
|
Overview of Performance |
4 |
|
Selected Financial Highlights |
6 |
|
Business Outlook |
7 |
|
Financial Review - Earnings |
10 |
|
Financial Review - Balance Sheet |
14 |
|
Off-Balance Sheet Arrangements |
26 |
|
Related Party Transactions |
26 |
|
Capital Management and Capital Resources |
27 |
|
Results of Operating Segments |
29 |
|
Summary of Quarterly Results |
31 |
|
Non-GAAP and Other Financial Measures |
32 |
|
Significant Accounting Policies and Use of Estimates and Judgments |
34 |
|
Controls and Procedures |
34 |
Cautionary Note Regarding Forward-Looking Statements
The statements in this management’s discussion and analysis 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 the Bank’s 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 the Bank conducts operations; the effects of changes in monetary and fiscal policy, including changes in interest rate policies of the Bank of Canada; global commodity prices; the effects of competition in the markets in which the Bank operates; inflation; capital market fluctuations; the timely development and introduction of new products in receptive markets; the impact of changes in the laws and regulations regulating financial services; changes in tax laws; technological changes; unexpected judicial or regulatory proceedings; unexpected changes in consumer spending and savings habits; the impact of wars or conflicts including the crisis in Russia-Ukraine; the impact of COVID-19 and the Bank’s 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 MD&A for the year ended October 31, 2021.
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 the management’s discussion and analysis is presented to assist our shareholders and others 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 management’s discussion and analysis or made from time to time by the Bank or on its behalf.
Overview
VersaBank (the “Bank”) adopted an electronic branchless model in 1993, becoming the world’s first branchless financial institution. It holds a Canadian Schedule 1 chartered bank licence and obtains its deposits, and the majority of its loans and leases, electronically. In addition to its core banking operations, the Bank has also established a cybersecurity services operation through its wholly owned subsidiary, DRT Cyber Inc. VersaBank’s Common Shares trade on the Toronto Stock Exchange and Nasdaq under the symbol VBNK. Its Series 1 Preferred Shares trade on the Toronto Stock Exchange under the symbol VBNK.PR.A.
Update on Impact of COVID-19
COVID-19 continues to impact communities, businesses and the Canadian economy with the emergence of the Omicron variant and the reinstatement of public health restrictions over the course of the current quarter. As a digital bank with a low-risk business-to-business, partner-based model, VersaBank continues to remain relatively insulated from many of the negative influences of COVID-19 as a function primarily of our staff working remotely, enabled by our branchless, technology-driven model. However, with public health restrictions being relaxed somewhat on January 31st, 2022 and expected to abate further in the short term, management will begin to execute on its return-to-work strategy, which will see staff transition from working remotely to working in a traditional office setting over the course of the timeframe spanning February 14th, 2022, to March 14th, 2022.
Notwithstanding the above, we continue to operate at a heightened level of awareness to ensure that our origination and underwriting practices remain highly disciplined and focused, and further, have no loans on our balance sheet that are subject to payment deferrals, no impaired loans and no loans in arrears.
As we navigate past the business and operational challenges imposed by the continued impact of COVID-19, the Bank remains highly focused on increasing earnings by concentrating on niche markets that support modestly better pricing for its products and by leveraging its diverse deposit gathering network that provides efficient access to a range of low-cost deposit sources in order to maintain a lower cost of funds.
The underlying drivers of the Bank’s performance trends for the current and comparative periods are set out in the following sections of this MD&A.
Overview of Performance
* See definition in the "Non-GAAP and Other Financial Measures" section below.
Q1 2022 vs Q4 2021
| ► |
Loans were up 5% to $2.22 billion attributable to strong growth in the Bank’s point of sale loan and lease receivable (“POS Financing”) portfolio offset partially by lower commercial real estate (“CRE”) portfolio balances; |
| ► |
Total revenue was up modestly to $18.3 million, comprised of net interest income in the amount of $16.9 million and non-interest income in the amount of $1.4 million, the latter derived primarily from the Bank’s cybersecurity services operation; |
| ► |
Net interest margin (NIM) was up 4 bps to 2.77% as a function primarily of higher yields earned on lending assets and lower cost of funds attributable primarily to the Bank re-deploying cash into higher yielding lending assets; |
| ► |
Provision for credit losses was $2,000 compared to a recovery of credit loss provisions in the amount of $279,000; |
| ► |
Net income and EPS were down 6% and 21% to $5.6 million and $0.19 per share respectively, with the magnitude of the EPS trend being affected notably by the impact of dilution attributable to the issuance of 6.3 million common shares concurrent with the Bank’s listing on the Nasdaq in September, 2021; |
| ► |
Efficiency ratio was up 2% as a function primarily of higher non-interest expense attributable to general, annual compensation adjustments and higher insurance premiums resulting from the Bank’s listing on the Nasdaq in September, 2021. |
Q1 2022 vs Q1 2021
| ► |
Loans were up 24% as a function of strong growth in the Bank’s POS Financing portfolio, offset partially by lower CRE portfolio balances; |
| ► |
Total revenue was up 18% as a function of higher net interest income and higher non-interest income, the latter being a function of the Bank’s cybersecurity services operation; |
| ► |
NIM was down 9 bps attributable to lower yields earned on lending assets offset partially by lower cost of funds; |
| ► |
Provision for credit losses was $2,000 compared to a provision for credit losses in the amount of $57,000; |
| ► |
Net income and EPS were up 5% and down 14% respectively, with the magnitude and direction of the EPS trend being affected notably by the impact of dilution attributable to the issuance of 6.3 million common shares concurrent with the Bank’s listing on the Nasdaq in September, 2021; |
| ► |
Efficiency ratio was up 11% as a function primarily of higher non-interest expense attributable to general annual compensation adjustments and higher insurance premiums resulting from the Bank’s listing on the Nasdaq in September, 2021. |
Items of note
Q1 2022
| ► |
There were no material items of note in the current quarter. |
Q4 2021
| ► |
On September 21, 2021 the Bank completed a treasury offering of 5,500,000 common shares at a price of USD $10.00 per share, the equivalent of CAD $12.80 per share, for gross proceeds of USD $55.0 million and on September 29, 2021 the underwriters of the aforementioned offering exercised their full over-allotment option to purchase an additional 825,000 shares (15% of the 5,500,000 common shares issued via the base offering referenced above) at a price of USD $10.00 per share, or CAD $12.68 per share, for gross proceeds of USD $8.3 million, (collectively, “the Common Share Offering”). Total net cash proceeds from the Common Share Offering was CAD $73.2 million. However, the Bank’s share capital increased by CAD $75.1 million as a function of the Common Share Offering and tax effected issue costs in the amount of $5.4 million. The Bank listed on the Nasdaq under the symbol VBNK concurrent with the Common Share Offering on September 21, 2021. |
Q1 2021
| ► |
On November 30, 2020, the Bank’s wholly owned subsidiary DRT Cyber Inc. (“DRTC”) acquired 100% of the shares of 2021945 Ontario Inc., operating as Digital Boundary Group (“DBG”), in exchange for $8.5 million in cash and a deferred payment obligation of $1.4 million, for total consideration of $9.9 million. |
Selected Financial Highlights
|
(unaudited) |
For the three months ended |
|||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||
|
(thousands of Canadian dollars except per share amounts) |
2022 |
2021 |
2021 |
|||||||||
|
Results of operations |
||||||||||||
|
Interest income |
$ | 24,720 | $ | 23,924 | $ | 21,515 | ||||||
|
Net interest income |
16,885 | 16,146 | 14,374 | |||||||||
|
Non-interest income |
1,381 | 2,090 | 1,048 | |||||||||
|
Total revenue |
18,266 | 18,236 | 15,422 | |||||||||
|
Provision (recovery) for credit losses |
2 | (279 | ) | 57 | ||||||||
|
Non-interest expenses |
10,636 | 10,377 | 8,087 | |||||||||
|
Net income |
5,566 | 5,910 | 5,290 | |||||||||
|
Income per common share: |
||||||||||||
|
Basic |
$ | 0.19 | $ | 0.24 | $ | 0.22 | ||||||
|
Diluted |
$ | 0.19 | $ | 0.24 | $ | 0.22 | ||||||
|
Dividends paid on preferred shares |
$ | 247 | $ | 247 | $ | 542 | ||||||
|
Dividends paid on common shares |
$ | 687 | $ | 684 | $ | 528 | ||||||
|
Yield* |
4.06 | % | 4.04 | % | 4.28 | % | ||||||
|
Cost of funds* |
1.29 | % | 1.31 | % | 1.42 | % | ||||||
|
Net interest margin* |
2.77 | % | 2.73 | % | 2.86 | % | ||||||
|
Return on common equity* |
6.58 | % | 8.07 | % | 8.26 | % | ||||||
|
Book value per common share* |
$ | 11.78 | $ | 11.61 | $ | 10.90 | ||||||
|
Efficiency ratio* |
58 | % | 57 | % | 52 | % | ||||||
|
Return on total assets* |
0.87 | % | 0.96 | % | 0.94 | % | ||||||
|
Gross impaired loans to total loans* |
0.00 | % | 0.00 | % | 0.00 | % | ||||||
|
Provision (recovery) for credit losses as a % of average loans* |
0.00 | % | (0.05% | ) | 0.01 | % | ||||||
|
As at |
||||||||||||
|
Balance Sheet Summary |
||||||||||||
|
Cash |
$ | 155,239 | $ | 271,523 | $ | 212,016 | ||||||
|
Loans, net of allowance for credit losses |
2,215,638 | 2,103,050 | 1,793,724 | |||||||||
|
Average loans* |
2,159,344 | 2,027,602 | 1,724,317 | |||||||||
|
Total assets |
2,415,346 | 2,415,086 | 2,044,976 | |||||||||
|
Deposits |
1,847,003 | 1,853,204 | 1,664,694 | |||||||||
|
Subordinated notes payable |
97,726 | 95,272 | 4,891 | |||||||||
|
Shareholders' equity |
336,951 | 332,106 | 259,508 | |||||||||
|
Capital ratios** |
||||||||||||
|
Risk-weighted assets |
$ | 2,095,335 | $ | 2,013,544 | $ | 1,721,935 | ||||||
|
Common Equity Tier 1 capital |
310,825 | 305,708 | 214,851 | |||||||||
|
Total regulatory capital |
426,237 | 418,718 | 251,020 | |||||||||
|
Common Equity Tier 1 (CET1) capital ratio |
14.83 | % | 15.18 | % | 12.48 | % | ||||||
|
Tier 1 capital ratio |
15.49 | % | 15.86 | % | 14.18 | % | ||||||
|
Total capital ratio |
20.34 | % | 20.80 | % | 14.58 | % | ||||||
|
Leverage ratio |
12.69 | % | 12.60 | % | 11.40 | % | ||||||
|
* See definition in "Non-GAAP and Other Financial Measures" section below. |
|
**Capital management and leverage measures are in accordance with OSFI's Capital Adequacy Requirements and Basel III Accord. |
Business Outlook
The Bank is active in niche markets that support more attractive pricing for its lending products, and further, continues to develop and expand its diverse deposit gathering network that provides efficient access to a range of low-cost deposit sources. In addition, the Bank remains highly committed to, and focused on further developing and enhancing its technology advantage, a key component of its value proposition that not only provides efficient access to the Bank’s chosen niche lending and deposit markets, but also delivers superior financial products and better customer service to its clients.
Management is closely monitoring the current situation in Ukraine and the potential, derivative impact of same on the Bank’s business. At this time, management has not identified any material direct or indirect risk exposure to the Bank as a function of the conflict, however we will continue to examine the available information and further evaluate the situation as it evolves.
While the Bank does not provide guidance on specific performance metrics, we provide commentary below related to aspects of our business and certain expected trends related to same that, in management’s view could potentially impact future performance.
Lending Assets
| ► |
The Bank anticipates that fiscal 2022 will bring continued growth in the commercial mortgage space, particularly with respect to financing for residential housing properties. Management expects that the demand for residential housing will be a function primarily of continued development in communities on the periphery of the major city centres as a result of consumers continuing to seek more affordable housing outside of the city centres and the federal government’s efforts to revitalize immigration programs. Management is of the view that the multi-unit residential rental sector, within the Bank’s target markets remains one of the most stable and low-risk sectors in the real estate market. Further, as COVID-19 restrictions continue to abate, management anticipates higher origination volumes related to commercial asset classes such as student housing and commercial and retail property types as the risk profile associated with this asset class realigns with the Bank’s risk appetite. Finally, management continues to pursue opportunities to develop more meaningful balance sheet exposure to the B-20 compliant conventional, uninsured mortgage financing space; and, |
| ► |
Consumer spending is expected to remain strong into at least the second half of fiscal 2022 as COVID-19 restrictions continue to abate, and in many cases are removed altogether and as consumers exhaust excess savings built up over the course of the pandemic. Management anticipates that consumers will continue to deploy their savings into a range of durable goods, including assets related to home improvements as well as home purchases for which the Bank’s POS loan and lease origination partners provide financing. This, along with the anticipated addition of new origination partners and the Bank’s planned entrance into the US market represent key drivers of POS Financing balance sheet growth over the course of fiscal 2022. |
Credit Quality
| ► |
The Bank lends to niche markets that support more attractive pricing for its lending products but typically exhibit a lower than average risk profile generally as a function of the lower inherent risk associated with the underlying collateral assets and/or the structure of the Bank’s offered financing arrangements; |
| ► |
We have no loans on our balance sheet that are subject to payment deferrals, no impaired loans and no loans in arrears, however, we continue to monitor our lending portfolio and the underlying borrowers as well as our origination partners closely to ensure that management has good visibility on credit trends that could provide an early warning indication of the emergence of any elevated risk in our lending portfolio; |
| ► |
Forward-looking macroeconomic and industry data remains broadly dynamic and as a result, management anticipates that estimated expected credit loss (“ECL”) amounts may continue to exhibit modest volatility over the course of fiscal 2022, most specifically as a function of the scope and timing of the removal or relaxation of public health restrictions which were imposed as a function of the emergence and rapid spread of the Omicron variant, the timing, velocity and impact of monetary policy tightening, the potential implementation of new federal government stimulus programs, and the magnitude and directionality of inflation trends. Notwithstanding the above, management also expects that the lower risk profile of the Bank’s lending portfolio, which is a function of the Bank’s prudent underwriting practices, and its focus on niche financing markets within which it has a wealth of experience will contribute to mitigating potential volatility in its forward ECL amounts; and, |
| ► |
The Bank has sourced credit risk modeling systems and forecast macroeconomic scenario data from Moody’s Analytics, a third party service provider, for the purpose of computing forward-looking credit risk parameters under multiple macroeconomic scenarios that consider both market-wide and idiosyncratic factors and influences. These credit risk modeling systems are used in conjunction with the Bank’s internally developed ECL models. We continue to see dynamic, modestly improving trends in the macroeconomic data used as forward-looking information in our credit risk models and depending on the growth trajectory and composition of our lending portfolio, these improving trends could result in the Bank recognizing lower provisions for credit losses, or potentially even recognizing further recoveries in the coming quarters. However, if the performance of the Canadian economy is not aligned with the current forecast macroeconomic trends, and further, begins to deteriorate, our borrowers could be exposed to credit risk that could result in loan deferrals and/or loan defaults and have an unfavourable impact on our estimated ECL. |
Funding and Liquidity
| ► |
Management anticipates that commercial deposit volumes raised via the Bank’s Trustee Integrated Banking (“TIB”) program will continue to grow over the course of fiscal 2022 as a function of an increase in the volume of consumer bankruptcy and proposal restructuring proceedings over the same timeframe. This perspective is attributable primarily to the anticipated effect of changes to federal government support programs as the impact of COVID-19 moderates, and higher interest rates as a result of the Bank of Canada tightening monetary policy over the course of the year. Further, the Bank continues to grow and expand its well-established, diverse deposit broker network through which it sources personal deposits, consisting primarily of guaranteed investment certificates. Management expects the combination of the operational trends set out above will allow the Bank to continue to effectively mitigate its cost of funds, even in a rising interest rate environment; and, |
| ► |
Management anticipates that liquidity levels will remain reasonably consistent over the course of fiscal 2022 as the Bank continues to fund anticipated, additional balance sheet growth across each of its lines of business. |
Earnings and Capital
| ► |
Earnings growth in fiscal 2022 will be realized as a function primarily of anticipated organic balance sheet growth and incremental earnings contributions from the Bank’s cybersecurity services operation; |
| ► |
Net interest income growth is expected to be a function primarily of the expansion of each of our core business lines across key lending asset categories, disciplined liquidity management and the expectation that the Bank will be able to continue to maintain, and potentially further moderate its cost of funds over the course of the year; |
| ► |
Non-interest income growth will be a function primarily of the Bank’s cybersecurity services business DRT Cyber Inc. deploying its suite of cybersecurity solutions into the market which includes financial institutions, multi-national corporations and government entities; |
| ► |
The Bank’s capital ratios are currently well in excess of regulatory minimums. Management is of the view that the Bank’s current capital levels are sufficient to accommodate anticipated, medium term balance sheet growth, however; management will continue to closely monitor the capital markets to identify opportunities for the Bank to raise additional regulatory capital on attractive terms in order to position the Bank to support a potentially more robust growth profile; and, |
| ► |
Management does not anticipate increasing the Bank’s dividend rate over the course of fiscal 2022 in order to ensure that it continues to have adequate regulatory capital available to support the balance sheet growth currently contemplated over the same period and remain in compliance with its established regulatory capital ratio targets and thresholds. |
There is potential that the Bank may not realize or achieve the anticipated performance trends set out above as a function of a number of factors and variables including, but not limited to, the strength of the Canadian economy in general and the strength of the local economies within Canada in which the Bank conducts operations; the effects of changes in monetary and fiscal policy, including changes in the interest rate policies of the Bank of Canada; global commodity prices; the effects of competition in the markets in which the Bank operates; inflation; capital market fluctuations; the timely development and introduction of new products in receptive markets; the ability of the Bank to grow its business and execute its strategy in the US market; the impact of changes in the laws and regulations regulating financial services; the impact of wars or conflicts including the crisis in Russia-Ukraine; and the impact of COVID-19 on the Canadian economy. Please see “Cautionary Note Regarding Forward-Looking Statements” on page 2 of this MD&A.
Financial Review - Earnings
Total Revenue
Total revenue, which consists of net interest income and non-interest income was up modestly to $18.3 million compared to last quarter and was up 18% compared to the same period a year ago.
Net Interest Income
|
(thousands of Canadian dollars) |
||||||||||||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||||||||||
|
For the three months ended: |
2022 |
2021 |
Change |
2021 |
Change |
|||||||||||||||
|
Interest income |
||||||||||||||||||||
|
Commercial real estate mortgages |
$ | 9,753 | $ | 9,935 | (2 | %) | $ | 9,110 | 7 | % | ||||||||||
|
Commercial real estate loans |
192 | 328 | (41 | %) | 342 | (44 | %) | |||||||||||||
|
Point of sale loans and leases |
14,455 | 13,208 | 9 | % | 11,501 | 26 | % | |||||||||||||
|
Public sector and other financing |
114 | 119 | (4 | %) | 133 | (14 | %) | |||||||||||||
|
Other |
206 | 334 | (38 | %) | 429 | (52 | %) | |||||||||||||
|
Interest income |
$ | 24,720 | $ | 23,924 | 3 | % | $ | 21,515 | 15 | % | ||||||||||
|
Interest expense |
||||||||||||||||||||
|
Deposit and other |
$ | 6,469 | $ | 6,479 | 0 | % | $ | 7,014 | (8 | %) | ||||||||||
|
Subordinated notes |
1,366 | 1,299 | 5 | % | 127 | 976 | % | |||||||||||||
|
Interest expense |
$ | 7,835 | $ | 7,778 | 1 | % | $ | 7,141 | 10 | % | ||||||||||
|
Net interest income |
$ | 16,885 | $ | 16,146 | 5 | % | $ | 14,374 | 17 | % | ||||||||||
|
Non-interest income |
$ | 1,381 | $ | 2,090 | (34 | %) | $ | 1,048 | 32 | % | ||||||||||
|
Total revenue |
$ | 18,266 | $ | 18,236 | 0 | % | $ | 15,422 | 18 | % | ||||||||||
Q1 2022 vs Q4 2021
Net interest income was up 5% to $16.9 million as a function primarily of:
| ► |
Higher interest income earned on lending assets attributable to growth in the Bank’s POS Financing portfolio; and, |
| ► |
Redeployment of cash into higher yielding lending assets. |
Offset partially by:
| ► |
Lower interest income earned on the Bank’s CRE Mortgage and Loan portfolios attributable to lower asset balances; and, |
| ► |
Higher interest expense attributable to the Bank’s USD subordinated notes payable (the “Notes”) resulting from changes in the USD/CAD foreign exchange spot rate over the course of the period. |
Q1 2022 vs Q1 2021
Net interest income was up 17% as a function primarily of:
| ► |
Higher interest income earned on the Bank’s POS Financing and CRE Mortgage portfolios attributable primarily to lending asset growth; and, |
| ► |
Redeployment of cash into higher yielding lending assets. |
Offset partially by:
| ► |
Higher interest expense attributable to the Notes. |
Net Interest Margin
|
(thousands of Canadian dollars) |
||||||||||||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||||||||||
|
For the three months ended: |
2022 |
2021 |
Change |
2021 |
Change |
|||||||||||||||
|
Interest income |
$ | 24,720 | $ | 23,924 | 3 | % | $ | 21,515 | 15 | % | ||||||||||
|
Interest expense |
7,835 | 7,778 | 1 | % | 7,141 | 10 | % | |||||||||||||
|
Net interest income |
16,885 | 16,146 | 5 | % | 14,374 | 17 | % | |||||||||||||
|
Average assets |
$ | 2,415,216 | $ | 2,350,429 | 3 | % | $ | 1,994,431 | 21 | % | ||||||||||
|
Yield |
4.06 | % | 4.04 | % | 0 | % | 4.28 | % | (5 | %) | ||||||||||
|
Cost of funds |
1.29 | % | 1.31 | % | (2 | %) | 1.42 | % | (9 | %) | ||||||||||
|
Net interest margin |
2.77 | % | 2.73 | % | 1 | % | 2.86 | % | (3 | %) | ||||||||||
Q1 2022 vs Q4 2021
Net interest margin was up 4 bps as a function primarily of:
| ► |
Redeployment of cash into higher yielding lending assets. |
Q1 2022 vs Q1 2021
Net interest margin was down 9 bps as a function primarily of:
| ► |
Changes in the Bank’s lending portfolio mix; and, |
| ► |
Higher interest expense attributable to the Notes. |
Offset partially by:
| ► |
Lower cost of funds attributable primarily to growth in operating accounts that the Bank makes available to Canadian insolvency professionals. |
Non-Interest Income
Non-interest income reflects the consolidation of the gross profit generated through the Bank’s cybersecurity services business and income derived from miscellaneous transaction fees not directly attributable to lending assets.
Non-interest income for the quarter was $1.4 million compared to $2.1 million last quarter and $1.0 million for the same period a year ago. The quarter over quarter trend was a function primarily of strong performance in the comparative quarter attributable to engagements that were deferred in early 2021, due to COVID-19, being realized last quarter and normal course seasonality. The year over year trend was a function primarily of higher service work volume in the current quarter attributable partially to the comparative period including only two months of operations due to the timing of the Bank’s acquisition of DBG on November 30, 2020.
Provision for Credit Losses
|
(thousands of Canadian dollars) |
||||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||
|
For the three months ended: |
2022 |
2021 |
2021 |
|||||||||
|
Provision for (recovery of) credit losses by lending asset: |
||||||||||||
|
Commercial real estate mortgages |
$ | (69 | ) | $ | (287 | ) | $ | 147 | ||||
|
Commercial real estate loans |
(9 | ) | (7 | ) | (65 | ) | ||||||
|
Point of sale loans and leases |
95 | 16 | (8 | ) | ||||||||
|
Public sector and other financing |
(15 | ) | (1 | ) | (17 | ) | ||||||
|
Total provision for (recovery of) credit losses |
$ | 2 | $ | (279 | ) | $ | 57 | |||||
Q1 2022 vs Q4 2021
The Bank recorded a provision for credit losses in the amount of $2,000 compared to a recovery of credit loss provisions in the amount of $279,000 as a function primarily of:
| ► |
Higher lending asset balances. |
Offset partially by:
| ► |
Changes in the Bank’s lending asset portfolio mix; and, |
| ► |
Changes in the forward-looking information used by the Bank in its credit risk models in the current quarter. |
Q1 2022 vs Q1 2021
The Bank recorded a provision for credit losses in the amount of $2,000 compared to a provision for credit losses in the amount of $57,000 as a function primarily of:
| ► |
Changes in the Bank’s lending asset portfolio mix; and, |
| ► |
Changes in the forward-looking information used by the Bank in its credit risk models in the current quarter. |
Offset partially by:
| ► |
Higher lending asset balances. |
Non-Interest Expenses
|
(thousands of Canadian dollars) |
||||||||||||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||||||||||
|
For the three months ended: |
2022 |
2021 |
Change |
2021 |
Change |
|||||||||||||||
|
Salaries and benefits |
$ | 6,083 | $ | 5,407 | 13 | % | $ | 5,030 | 21 | % | ||||||||||
|
General and administrative |
3,624 | 3,974 | (9 | %) | 2,339 | 55 | % | |||||||||||||
|
Premises and equipment |
929 | 996 | (7 | %) | 718 | 29 | % | |||||||||||||
|
Total non-interest expenses |
$ | 10,636 | $ | 10,377 | 2 | % | $ | 8,087 | 32 | % | ||||||||||
|
Efficiency Ratio |
58.23 | % | 56.90 | % | 2 | % | 52.44 | % | 11 | % | ||||||||||
Q1 2022 vs Q4 2021
Non-interest expenses were up 2% to $10.6 million as a function primarily of:
| ► |
Higher salary and benefits expense attributable to general, annual compensation adjustments and increased staffing levels to support expanded business activity across the Bank; and, |
| ► | Higher insurance premiums attributable to the Bank’s listing on the Nasdaq. |
Offset partially by:
| ► |
Timing of general operating expense items. |
Q1 2022 vs Q1 2021
Non-interest expenses were up 32% as a function primarily of:
| ► |
Higher salary and benefits expense attributable to general annual compensation adjustments and increased staff levels to support expanded business activity across the Bank; |
| ► |
Higher insurance premiums attributable to the Bank’s listing on the Nasdaq; |
| ► |
Investments in the Bank’s business development initiatives; and, |
| ► |
Current quarter including three months of operating expenses of DBG compared to two months of operating expenses included in the comparative period due to the timing of the Bank’s acquisition of DBG on November 30, 2020. |
Income Tax Provision
The Bank’s tax rate is approximately 27%, similar to that of previous periods. The tax rate is impacted by certain items not being taxable or deductible for income tax purposes. Provision for income taxes for the current quarter was $2.1 million compared to $2.2 million last quarter and $2.0 million for the same period a year ago.
Financial Review - Balance Sheet
|
(thousands of Canadian dollars) |
||||||||||||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||||||||||
|
2022 |
2021 |
Change |
2021 |
Change |
||||||||||||||||
|
Total assets |
$ | 2,415,346 | $ | 2,415,086 | 0 | % | $ | 2,044,976 | 18 | % | ||||||||||
|
Cash |
155,239 | 271,523 | (43 | %) | 212,016 | (27 | %) | |||||||||||||
|
Loans, net of allowance for credit losses |
2,215,638 | 2,103,050 | 5 | % | 1,793,724 | 24 | % | |||||||||||||
|
Deposits |
1,847,003 | 1,853,204 | 0 | % | 1,664,694 | 11 | % | |||||||||||||
Total Assets
Total assets at January 31, 2022, were $2.42 billion compared to $2.42 billion last quarter and $2.04 billion a year ago. The year over year trend was a function primarily of growth in the Bank’s POS Financing portfolio offset partially by lower cash balances.
Cash
Cash, which is held primarily for liquidity purposes, was $155.2 million or 6% of total assets at January 31, 2022, compared to $271.5 million or 11% of total assets last quarter and $212.0 million or 10% of total assets a year ago. The quarter over quarter and year over year trends were a function primarily of the Bank deploying cash into higher yielding lending assets over the respective periods.
Loans
|
(thousands of Canadian dollars) |
||||||||||||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||||||||||
|
2022 |
2021 |
Change |
2021 |
Change |
||||||||||||||||
|
Commercial real estate mortgages |
$ | 722,829 | $ | 757,576 | (5 | %) | $ | 712,256 | 1 | % | ||||||||||
|
Commercial real estate loans |
14,600 | 26,569 | (45 | %) | 31,663 | (54 | %) | |||||||||||||
|
Point of sale loans and leases |
1,439,781 | 1,279,576 | 13 | % | 1,008,029 | 43 | % | |||||||||||||
|
Public sector and other financing |
31,247 | 32,587 | (4 | %) | 36,612 | (15 | %) | |||||||||||||
| $ | 2,208,457 | $ | 2,096,308 | 5 | % | $ | 1,788,560 | 23 | % | |||||||||||
The Bank organizes its lending portfolio into the following four broad asset categories: Commercial Real Estate Mortgages, Commercial Real Estate Loans, Point of Sale Loans & Leases, and Public Sector and Other Financing. These categories have been established in the Bank’s proprietary, internally developed asset management system and have been designed to catalogue individual lending assets as a function primarily of their key risk drivers, the nature of the underlying collateral, and the applicable market segment.
The Commercial Real Estate Mortgages (“CRE Mortgages”) asset category is comprised of Commercial and Residential Construction Mortgages, Commercial Term Mortgages, Commercial Insured Mortgages and Land Mortgages. While all of these loans would be considered commercial loans or business-to-business loans, the underlying credit risk exposure is diversified across both the commercial and retail market segments, and further, the portfolio benefits from diversity in its underlying security in the form of a broad range of collateral properties.
The Commercial Real Estate Loans (“CRE Loans”) asset category is comprised primarily of Condominium Corporation Financing loans.
The Point of Sale Loans and Leases (“POS Financing”) asset category is comprised of Point of Sale Loan and Lease Receivables acquired from the Bank’s broad network of origination and servicing partners as well as Warehouse Loans that provide bridge financing to the Bank’s origination and servicing partners for the purpose of accumulating and seasoning practical volumes of individual loans and leases prior to the Bank purchasing the cashflow receivables derived from same.
The Public Sector and Other Financing (“PSOF”) asset category is comprised primarily of Public Sector Loans and Leases, a small balance of Corporate Loans and Leases and Single Family Residential Conventional and Insured Mortgages. The Bank has de-emphasized Corporate lending and continues to monitor the public sector space in anticipation of more robust demand for Federal, Provincial and Municipal infrastructure and other project financings.
Q1 2022 vs Q4 2021
Loans were up 5% to $2.22 billion as a function primarily of:
| ► |
Higher POS Financing portfolio balances attributable primarily to continued strong demand for home finance, auto and home improvement/HVAC receivable financing. |
Offset partially by:
| ► |
Lower CRE Mortgage and Loan portfolio balances. |
Q1 2022 vs Q1 2021
Loans were up 24% as a function primarily of:
| ► |
Higher POS Financing portfolio balances attributable primarily to continued strong demand for home finance, auto and home improvement/HVAC receivable financing and higher CRE Mortgage portfolio balances. |
Offset partially by:
| ► |
Lower CRE Loan portfolio balances. |
Residential Mortgage Exposures
In accordance with the Office of the Superintendent of Financial Institutions (“OSFI”) Guideline B-20 – Residential Mortgage Underwriting Practices and Procedures, additional information is provided regarding the Bank’s residential mortgage exposure. For the purposes of the Guideline, a residential mortgage is defined as a loan to an individual that is secured by residential property (one to four unit dwellings) and includes home equity lines of credit (HELOCs). This differs from the classification of residential mortgages used by the Bank which also includes multi-family residential mortgages.
Under OSFI’s definition, the Bank’s exposure to residential mortgages at January 31, 2022, was $2.4 million compared to $2.7 million last quarter and $4.1 million a year ago. The Bank did not have any HELOC’s outstanding at January 31, 2022, last quarter or a year ago.
Credit Quality and Allowance for Credit Losses
As discussed previously, we currently have no loans on our balance sheet that are subject to payment deferrals, no impaired loans and no loans in arrears, but we continue to monitor our lending portfolio, as well as the underlying borrowers and our origination partners closely to ensure that we have good visibility on any credit trends that could provide an early warning indication of the emergence of any elevated risk in our lending portfolio.
Allowance for Credit Losses
The Bank must maintain an allowance for expected credit losses or ECL allowance that is adequate, in management’s opinion, to absorb all credit related losses in the Bank’s lending and treasury portfolios. Under IFRS 9 the Bank’s ECL allowance is estimated using the expected credit loss methodology and is comprised of expected credit losses recognized on both performing loans, and non-performing, or impaired loans even if no actual loss event has occurred.
|
(thousands of Canadian dollars) |
||||||||||||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||||||||||
|
2022 |
2021 |
Change |
2021 |
Change |
||||||||||||||||
|
ECL allowance by lending asset: |
||||||||||||||||||||
|
Commercial real estate mortgages |
$ | 1,045 | $ | 1,114 | (6 | %) | $ | 1,513 | (31 | %) | ||||||||||
|
Commercial real estate loans |
36 | 45 | (20 | %) | 72 | (50 | %) | |||||||||||||
|
Point of sale loans and leases |
370 | 275 | 35 | % | 207 | 79 | % | |||||||||||||
|
Public sector and other financing |
4 | 19 | (79 | %) | 40 | (90 | %) | |||||||||||||
|
Total ECL allowance |
$ | 1,455 | $ | 1,453 | 0 | % | $ | 1,832 | (21 | %) | ||||||||||
|
(thousands of Canadian dollars) |
||||||||||||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||||||||||
|
2022 |
2021 |
Change |
2021 |
Change |
||||||||||||||||
|
ECL allowance by stage: |
||||||||||||||||||||
|
ECL allowance stage 1 |
$ | 1,359 | $ | 1,316 | 3 | % | $ | 1,665 | (18 | %) | ||||||||||
|
ECL allowance stage 2 |
96 | 137 | (30 | %) | 167 | (43 | %) | |||||||||||||
|
ECL allowance stage 3 |
- | - | - | |||||||||||||||||
|
Total ECL allowance |
$ | 1,455 | $ | 1,453 | 0 | % | $ | 1,832 | (21 | %) | ||||||||||
Q1 2022 vs Q4 2021
The Bank’s ECL allowance at January 31, 2022 was $1.5 million compared to $1.5 million last quarter as a function primarily of:
| ► |
Higher lending asset balances. |
Offset by:
| ► |
Changes in the Bank’s lending asset portfolio mix; and, |
| ► |
Changes in the forward-looking information used by the Bank in its credit risk models. |
Q1 2022 vs Q1 2021
The Bank’s ECL allowance at January 31, 2022 was $1.5 million compared to $1.8 million a year ago as a function primarily of:
| ► |
Changes in the Bank’s lending asset portfolio mix; and, |
| ► |
Changes in the forward-looking information used by the Bank in its credit risk models. |
Offset partially by:
| ► |
Higher lending asset balances. |
The Bank’s gross impaired loans at January 31, 2022 were $nil compared to $nil last quarter and $nil a year ago.
Assessment of significant increase in credit risk (“SICR”)
At each reporting date, the Bank assesses whether or not there has been a SICR for loans since initial recognition by comparing, at the reporting date, the risk of default occurring over the remaining expected life against the risk of default at initial recognition.
SICR is a function of the loan’s internal risk rating assignment, internal watchlist status, loan review status and delinquency status which are updated as necessary in response to changes including, but not limited to, changes in macroeconomic and/or market conditions, changes in a borrower’s credit risk profile, and changes in the strength of the underlying security, including guarantor status, if a guarantor exists.
Quantitative models may not always be able to capture all reasonable and supportable information that may indicate a SICR. As a result, qualitative factors may be considered to supplement such a gap.
Examples include changes in adjudication criteria for a particular group of borrowers or asset categories or changes in portfolio composition, and more specifically changes attributable to the continued impact of COVID-19 on the Canadian economy and the Bank’s business.
Forward-Looking Information
The Bank incorporates the impact of future economic conditions, or more specifically forward-looking information into the estimation of expected credit losses at the credit risk parameter level. This is accomplished via the credit risk parameter models and proxy datasets that the Bank utilizes to develop probability of default, (“PD”) and loss given default, (“LGD”) term structure forecasts for its loans. The Bank has sourced credit risk modeling systems and forecast macroeconomic scenario data from Moody’s Analytics, a third party service provider for the purpose of computing forward-looking credit risk parameters under multiple macroeconomic scenarios that consider both market-wide and idiosyncratic factors and influences. These systems are used in conjunction with the Bank’s internally developed ECL models. Given that the Bank has experienced very limited historical losses and, therefore, does not have available statistically significant loss data inventory for use in developing internal, forward looking expected credit loss trends, the use of unbiased, third party forward-looking credit risk parameter modeling systems is particularly important for the Bank in the context of the estimation of expected credit losses.
The Bank utilizes macroeconomic indicator data derived from multiple macroeconomic scenarios in order to mitigate volatility in the estimation of expected credit losses, as well as to satisfy the IFRS 9 requirement that future economic conditions are to be based on an unbiased, probability-weighted assessment of possible future outcomes. More specifically, the macroeconomic indicators set out in the macroeconomic scenarios are used as inputs for the credit risk parameter models utilized by the Bank to sensitize the individual PD and LGD term structure forecasts to the respective macroeconomic trajectory set out in each of the scenarios (see Expected Credit Loss Sensitivity below). Currently the Bank utilizes upside, downside and baseline forecast macroeconomic scenarios, and assigns discrete weights to each for use in the estimation of its reported ECL. The Bank has also applied expert credit judgment, where appropriate, to reflect, amongst other items, uncertainty in the Canadian macroeconomic environment attributable to the continued impact of COVID-19.
The macroeconomic indicator data utilized by the Bank for the purpose of sensitizing PD and LGD term structure data to forward economic conditions include, but are not limited to: real GDP, the national unemployment rate, long term interest rates, the consumer price index, the S&P/TSX Index and the price of oil. These specific macroeconomic indicators were selected in an attempt to ensure that the spectrum of fundamental macroeconomic influences on the key drivers of the credit risk profile of the Bank’s balance sheet, including: corporate, consumer and real estate market dynamics; corporate, consumer and SME borrower performance; geography; as well as collateral value volatility, are appropriately captured and incorporated into the Bank’s forward macroeconomic sensitivity analysis.
Key assumptions driving the macroeconomic forecast trends this quarter include: the rate of decline of new case counts of the Omicron variant and the relaxation of public health restrictions as a function of same, the timing and magnitude of the Bank of Canada’s (“BoC”) first overnight rate increase as well as the number and magnitude of additional, anticipated increases over the course of 2022 and beyond, the resiliency of consumer spending in a rising rate environment, the mitigation of the current high rate of inflation as a function of the resolution of existing supply-chain bottlenecks, the trajectory of oil and gasoline prices, tighter monetary policy and a shrinking BoC balance sheet, the continued rate of job growth, the impact of more specific eligibility requirements associated with the federal government’s remaining stimulus programs, and the level and duration of historically high housing prices.
Management developed ECL estimates using credit risk parameter term structure forecasts sensitized to individual baseline, upside and downside forecast macroeconomic scenarios, each weighted at 100%, and subsequently computed the variance of each to the Bank’s reported ECL as at January 31, 2022 in order to assess the alignment of the Bank’s reported ECL with the Bank’s credit risk profile, and further, to assess the scope, depth and ultimate effectiveness of the credit risk mitigation strategies that the Bank has applied to its lending portfolios (see Expected Credit Loss Sensitivity below).
A summary of the key forecast macroeconomic indicator data trends utilized by the Bank for the purpose of sensitizing lending asset credit risk parameter term structure forecasts to forward looking information, which in turn are used in the estimation of the Bank’s reported ECL, as well as in the assessment of same are presented in the charts below.
Expected Credit Loss Sensitivity:
The following table presents the sensitivity of the Bank’s estimated ECL to a range of individual forecast macroeconomic scenarios, that in isolation may not reflect the Bank’s actual expected ECL exposure, as well as the variance of each to the Bank’s reported ECL as at January 31, 2022:
| (thousands of Canadian dollars) | ||||||||||||||||
|
Reported |
100 | % | 100 | % | 100 | % | ||||||||||
|
ECL |
Upside | Baseline | Downside | |||||||||||||
|
Allowance for expected credit losses |
$ | 1,455 | $ | 898 | $ | 1,193 | $ | 1,675 | ||||||||
|
Variance from reported ECL |
(557 | ) | (262 | ) | 220 | |||||||||||
|
Variance from reported ECL (%) |
(38 | %) | (18 | %) | 15 | % | ||||||||||
Management is of the view that forward-looking macroeconomic and industry data will remain somewhat dynamic, specifically related to the economy’s anticipated recovery from the impact of the re-imposed public health restrictions attributable to the emergence and spread of the Omicron variant as well as the interpretation of the economy’s forward response to tighter monetary policy and prolonged, historically high rates of inflation. As a result, management anticipates that the Bank’s estimated ECL amounts will continue to exhibit some volatility over the course of fiscal 2022.
Considering the analysis set out above and based on management’s review of the loan and credit data comprising the Bank’s lending portfolio, combined with our interpretation of the available forecast macroeconomic and industry data, management is of the view that its reported ECL allowance represents a reasonable proxy for potential, future losses.
Deposits
The Bank has established three core funding channels, those being personal deposits, commercial deposits, and cash reserves retained from the Bank’s POS Financing origination partners that are classified as other liabilities, which are discussed in the Other Assets and Liabilities section below.
|
(thousands of Canadian dollars) |
||||||||||||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||||||||||
|
2022 |
2021 |
Change |
2021 |
Change |
||||||||||||||||
|
Commercial deposits |
$ | 596,211 | $ | 606,143 | (2 | %) | $ | 523,471 | 14 | % | ||||||||||
|
Personal deposits |
1,250,792 | 1,247,061 | 0 | % | 1,141,223 | 10 | % | |||||||||||||
|
Total deposits |
$ | 1,847,003 | $ | 1,853,204 | 0 | % | $ | 1,664,694 | 11 | % | ||||||||||
Personal deposits, consisting principally of guaranteed investment certificates, are sourced primarily through a well-established and well-diversified deposit broker network that the Bank continues to grow and expand across Canada.
Commercial deposits are sourced primarily via specialized operating accounts made available to insolvency professionals (“Trustees”) in the Canadian insolvency industry. The Bank 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.
Q1 2022 vs Q4 2021
Deposits were unchanged at $1.8 billion as a function primarily of:
| ► |
Modestly higher personal deposits attributable to the Bank increasing activity in its broker market network to fund balance sheet growth. |
Offset by:
| ► |
Lower commercial deposits attributable to withdrawals made by Trustees to fund normal course disbursements associated with consumer bankruptcy and proposal restructuring proceedings. |
Q1 2022 vs Q1 2021
Deposits were up 11% as a function primarily of:
| ► |
Higher personal deposits attributable to the Bank increasing activity in its broker market network to fund balance sheet growth; and, |
| ► |
Higher commercial deposits attributable to continued growth in the Bank’s TIB program. |
Subordinated Notes Payable
|
(thousands of Canadian dollars) |
||||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||
|
2022 |
2021 |
2021 |
||||||||||
|
Ten year term, unsecured, non-viability contingent capital compliant, subordinated notes payable, principal amount of $5.0 million, effective interest rate of 10.41%, maturing March 2029. |
$ | 4,901 | $ | 4,898 | $ | 4,891 | ||||||
|
Ten year term, unsecured, non-viability contingent capital compliant, subordinated notes payable, principal amount of USD $75.0 million, effective interest rate of 5.38%, maturing May 2031. |
92,825 | 90,374 | - | |||||||||
| $ | 97,726 | $ | 95,272 | $ | 4,891 | |||||||
Subordinated notes payable, net of issue costs, were $97.7 million at January 31, 2022, compared to $95.3 million last quarter and $4.9 million a year ago. The quarter over quarter trend was a function primarily of changes in the USD/CAD foreign exchange spot rate. The year over year trends was a function of the April 30, 2021 private placement of the Notes in the principal amount of USD $75.0 million.
Other Assets and Liabilities
Other Assets
|
(thousands of Canadian dollars) |
||||||||||||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||||||||||
|
2022 |
2021 |
Change |
2021 |
Change |
||||||||||||||||
|
Accounts receivable |
$ | 2,938 | $ | 2,643 | 11 | % | $ | 2,604 | 13 | % | ||||||||||
|
Prepaid expenses and other |
16,881 | 12,699 | 33 | % | 9,726 | 74 | % | |||||||||||||
|
Property and equipment |
6,905 | 7,075 | (2 | %) | 7,643 | (10 | %) | |||||||||||||
|
Right-of-use assets |
4,643 | 4,817 | (4 | %) | 5,337 | (13 | %) | |||||||||||||
|
Deferred income tax asset |
2,868 | 2,931 | (2 | %) | 4,286 | (33 | %) | |||||||||||||
|
Investment |
953 | 953 | 0 | % | - | |||||||||||||||
|
Goodwill |
5,754 | 5,754 | 0 | % | 5,754 | 0 | % | |||||||||||||
|
Intangible assets |
3,527 | 3,641 | (3 | %) | 3,886 | (9 | %) | |||||||||||||
|
Total other assets |
$ | 44,469 | $ | 40,513 | 10 | % | $ | 39,236 | 13 | % | ||||||||||
Q1 2022 vs Q4 2021
Other assets were up 10% to $44.5 million as a function primarily of:
| ► |
Higher prepaid expenses and other attributable primarily to the capitalization of compensation costs and various development costs; and, |
| ► |
Higher accounts receivable attributable primarily to the normal course timing of general corporate receivables. |
Offset partially by:
| ► |
Lower capitalized assets due to amortization; and, |
| ► |
Draw downs on the deferred income tax asset derived from taxable income generated by the Bank. |
Q1 2022 vs Q1 2021
Other assets were up 13% as a function primarily of:
| ► |
Higher prepaid expenses and other attributable primarily the prepayment of higher insurance premiums resulting from the Bank’s listing on the Nasdaq as well as capitalization of compensation costs and various development costs; |
| ► |
Higher accounts receivable attributable primarily to the normal course timing of general corporate receivables; and, |
| ► |
The Bank’s 11% investment in Canada Stablecorp Inc. (“Stablecorp”) for cash consideration of $953,000 in February 2021. This was a strategic investment made by the Bank to bring together the necessary financial and technology expertise that will facilitate the development and future issuance of a new, highly encrypted digital deposit receipt which the Bank will brand as VCAD. |
Offset partially by:
| ► |
Lower capitalized assets due to amortization; and, |
| ► |
Draw downs on the deferred income tax asset derived from taxable income generated by the Bank. |
Other Liabilities
|
(thousands of Canadian dollars) |
||||||||||||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||||||||||
|
2022 |
2021 |
Change |
2021 |
Change |
||||||||||||||||
|
Accounts payable and other |
$ | 6,155 | $ | 6,893 | (11 | %) | $ | 5,359 | 15 | % | ||||||||||
|
Current income tax liability |
1,975 | 2,949 | (33 | %) | 1,052 | 88 | % | |||||||||||||
|
Deferred income tax liability |
855 | 898 | (5 | %) | 898 | (5 | %) | |||||||||||||
|
Lease obligations |
4,944 | 5,113 | (3 | %) | 5,598 | (12 | %) | |||||||||||||
|
Cash collateral and amounts held in escrow |
5,252 | 7,887 | (33 | %) | 3,379 | 55 | % | |||||||||||||
|
Cash reserves on loan and lease receivables |
114,485 | 110,764 | 3 | % | 99,597 | 15 | % | |||||||||||||
|
Total other liabilities |
$ | 133,666 | $ | 134,504 | (1 | %) | $ | 115,883 | 15 | % | ||||||||||
Q1 2022 vs Q4 2021
Other liabilities were down 1% to $133.7 million as a function primarily of:
| ► |
Lower cash collateral and amounts held in escrow; and, |
| ► |
General decrease in accounts payable and income tax payable amounts attributable to the timing of cash payments. |
Offset partially by:
| ► |
Higher cash reserve balances attributable to higher POS Financing portfolio balances. |
Q1 2022 vs Q1 2021
Other liabilities were up 15% attributable primarily to:
| ► |
Higher cash reserves balances attributable to higher POS Financing portfolio balances; |
| ► |
The Bank recognizing higher income taxes payable after utilizing the significant income tax loss carryforwards in the prior fiscal year; |
| ► |
Higher cash collateral and amounts held in escrow; and, |
| ► |
General increase in accounts payable amount attributable to increased earning activity. |
Shareholders’ Equity
Shareholders’ equity was $337.0 million at January 31, 2022 compared to $332.1 million last quarter and $259.5 million a year ago.
Q1 2022 vs Q4 2021
Shareholders’ equity was up 1% attributable primarily to:
| ► |
Higher retained earnings attributable to net income earned. |
Offset partially by:
| ► |
Payment of dividends. |
Q1 2022 vs Q1 2021
Shareholders’ equity was up 30% attributable primarily to:
| ► |
The Common Share Offering; and, |
| ► |
Higher retained earnings attributable to net income earned. |
Offset partially by:
| ► |
The Bank’s redemption of its outstanding Non-Cumulative Series 3 preferred shares (NVCC) in April 2021; and, |
| ► |
Payment of dividends. |
The Bank’s book value per common share at January 31, 2022 was $11.78 compared to $11.61 last quarter and $10.90 a year ago. The quarter over quarter and year over year trends were a function primarily of higher retained earnings attributable to net income earned in each of the periods offset partially by the payment of dividends over the respective periods.
See note 8 to the unaudited interim consolidated financial statements for additional information relating to share capital.
Stock-Based Compensation
Stock options are accounted for using the fair value method which recognizes the fair value of the stock option over the applicable vesting period as an increase in salaries and benefits expense with the same amount being recorded in share capital. The Bank recognized compensation expense for the quarter totalling $196,000 compared to $nil last quarter and $nil for the same period a year ago, relating to the estimated fair value of stock options granted. The fair value of the 913,730 stock options granted during the period ended January 31, 2022, was estimated at the grant date using the Black-Scholes valuation model and the following input assumptions: risk-free rate of 1.26%, expected option life of 3.5 years, expected volatility of 29.5%, expected annual dividends of 0.64% and a forfeiture rate of 2.0%. The fair value of each stock option granted was estimated at $3.10 per share.
As at January 31, 2022, 40,000 common share stock options were fully vested and exercisable at $7.00 per share and expire in October 2023. See note 8 to the unaudited interim consolidated financial statements for additional information relating to stock options.
Updated Share Information
As at February 28, 2022, there were no changes since January 31, 2022 in the number of common shares, Series 1 preferred shares, and common share options outstanding.
Off-Balance Sheet Arrangements
As at January 31, 2022, the Bank did not have any significant off-balance sheet arrangements other than loan commitments and letters of credit resulting from normal course business activities. See note 11 to the unaudited interim consolidated financial statements for more information.
Related Party Transactions
The Bank’s Board of Directors and senior executive officers represent key management personnel. See note 12 to the unaudited interim consolidated financial statements for additional information on related party transactions and balances.
Capital Management and Capital Resources
The table below presents the Bank’s regulatory capital position, risk-weighted assets and regulatory capital and leverage ratios for the current and comparative periods.
|
(thousands of Canadian dollars) |
||||||||||||||||||||
|
January 31 |
October 31 |
January 31 |
||||||||||||||||||
|
2022 |
2021 |
Change |
2021 |
Change |
||||||||||||||||
|
Common Equity Tier 1 capital |
$ | 310,825 | $ | 305,708 | 2 | % | $ | 214,851 | 45 | % | ||||||||||
|
Total Tier 1 capital |
$ | 324,472 | $ | 319,355 | 2 | % | $ | 244,188 | 33 | % | ||||||||||
|
Total Tier 2 capital |
$ | 101,765 | $ | 99,363 | 2 | % | $ | 6,832 | 1390 | % | ||||||||||
|
Total regulatory capital |
$ | 426,237 | $ | 418,718 | 2 | % | $ | 251,020 | 70 | % | ||||||||||
|
Total risk-weighted assets |
$ | 2,095,335 | $ | 2,013,544 | 4 | % | $ | 1,721,935 | 22 | % | ||||||||||
|
Capital ratios |
||||||||||||||||||||
|
CET1 capital ratio |
14.83 | % | 15.18 | % | (2 | %) | 12.48 | % | 19 | % | ||||||||||
|
Tier 1 capital ratio |
15.49 | % | 15.86 | % | (2 | %) | 14.18 | % | 9 | % | ||||||||||
|
Total capital ratio |
20.34 | % | 20.80 | % | (2 | %) | 14.58 | % | 40 | % | ||||||||||
|
Leverage ratio |
12.69 | % | 12.60 | % | 1 | % | 11.40 | % | 11 | % | ||||||||||
The Bank reports its regulatory capital ratios using the Standardized approach for calculating risk-weighted assets, as defined under Basel III, which may require the Bank to carry more capital for certain credit exposures compared to requirements under the Advanced Internal Ratings Based (“AIRB”) methodology. As a result, regulatory capital ratios of banks that utilize the Standardized approach are not directly comparable with the large Canadian banks that employ the AIRB methodology.
OSFI requires that all Canadian banks must comply with the Basel III standards on an “all-in” basis for purposes of determining their risk-based capital ratios. Required minimum regulatory capital ratios are a 7.0% Common Equity Tier 1 (“CET1”) capital ratio, an 8.5% Tier 1 capital ratio and a 10.5% total capital ratio, all of which include a 2.5% capital conservation buffer.
The quarter over quarter trends exhibited by the Bank’s reported regulatory capital levels, regulatory capital ratios and leverage ratios were a function primarily of retained earnings growth and changes to the Bank’s risk-weighted asset balances and composition.
The year over year trends exhibited by the Bank’s reported regulatory capital levels, regulatory capital ratios and leverage ratios were a function primarily of: the redemption of the Bank’s outstanding Non-cumulative Series 3 Preferred Shares on April 30, 2021, the private placement of the Notes on April 30, 2021, The Common Share Offering in September 2021, retained earnings growth, tax provision recoveries related to the Bank’s deferred tax asset, and changes to the Bank’s risk-weighted asset balances and composition.
For more information regarding capital management, please see note 13 to the Bank’s January 31, 2022, interim Consolidated Financial Statements as well as the Capital Management and Capital Resources section of the Bank’s MD&A for the year ended October 31, 2021.
Liquidity
The unaudited Consolidated Statement of Cash Flows for the three months ended January 31, 2022, shows cash used in operations in the amount of $112.9 million compared to cash used by operations in the amount of $26.5 million for the same period last year. The current period trend was a function primarily of the Bank using existing liquidity to fund loans. The comparative period trend was a function primarily of cash outflows to fund loans exceeding cash inflows from deposits raised and the use of existing liquidity to fund loans. Based on factors such as liquidity requirements and opportunities for investment in loans and securities, the Bank may manage the amount of deposits it raises and loans it funds in ways that result in the balances of these items giving rise to either negative or positive cash flow from operations. The Bank will continue to fund its operations and meet contractual obligations as they become due using cash on hand and by closely managing its flow of deposits.
Interest Rate Sensitivity
The table below presents the duration difference between the Bank’s assets and liabilities and the potential after-tax impact of a 100 basis point shift in interest rates on the Bank’s earnings during a 12 month period and the potential after-tax impact of a 100 basis point shift in interest rates on the Bank’s shareholders’ equity over a 60 month period if no remedial actions are taken. At January 31, 2022, the duration difference between assets and liabilities was 2.0 months compared to 2.3 months at October 31, 2021, which indicates that the Bank’s assets would reprice faster than liabilities in the event of a future change in interest rates.
|
(thousands of Canadian dollars) |
||||||||||||||||
|
January 31, 2022 |
October 31, 2021 |
|||||||||||||||
|
Increase 100 bps |
Decrease 100 bps |
Increase 100 bps |
Decrease 100 bps |
|||||||||||||
|
Increase (decrease): |
||||||||||||||||
|
Impact on projected net interest income during a 12 month period |
$ | 3,951 | $ | (3,951 | ) | $ | 4,147 | $ | (3,220 | ) | ||||||
|
Impact on reported equity during a 60 month period |
$ | 717 | $ | (1,196 | ) | $ | 1,603 | $ | (1,586 | ) | ||||||
|
Duration difference between assets and liabilities (months) |
2.0 | 2.3 | ||||||||||||||
Contractual Obligations
Contractual obligations as disclosed in the Bank’s MD&A and Audited Consolidated Financial Statements for the year ended October 31, 2021, have not changed significantly as at January 31, 2022.
Results of Operating Segments
(thousands of Canadian dollars)
|
for the three months ended |
January 31, 2022 |
|||||||||||||||
|
Banking |
Cybersecurity |
Eliminations |
Consolidated |
|||||||||||||
|
and Adjustments |
||||||||||||||||
|
Net interest income |
$ | 16,885 | $ | - | $ | - | $ | 16,885 | ||||||||
|
Non-interest income |
- | 1,422 | (41 | ) | 1,381 | |||||||||||
|
Total revenue |
16,885 | 1,422 | (41 | ) | 18,266 | |||||||||||
|
Provision for (recovery of) credit losses |
2 | - | - | 2 | ||||||||||||
| 16,883 | 1,422 | (41 | ) | 18,264 | ||||||||||||
|
Non-interest expenses: |
||||||||||||||||
|
Salaries and benefits |
5,440 | 643 | - | 6,083 | ||||||||||||
|
General and administrative |
3,482 | 183 | (41 | ) | 3,624 | |||||||||||
|
Premises and equipment |
582 | 347 | - | 929 | ||||||||||||
| 9,504 | 1,173 | (41 | ) | 10,636 | ||||||||||||
|
Income before income taxes |
7,379 | 249 | - | 7,628 | ||||||||||||
|
Income tax provision |
1,961 | 101 | - | 2,062 | ||||||||||||
|
Net income |
$ | 5,418 | $ | 148 | $ | - | $ | 5,566 | ||||||||
|
Total assets |
$ | 2,412,167 | $ | 23,767 | $ | (20,588 | ) | $ | 2,415,346 | |||||||
|
Total liabilities |
$ | 2,072,691 | $ | 25,147 | $ | (19,443 | ) | $ | 2,078,395 | |||||||
|
for the three months ended |
October 31, 2021 |
|||||||||||||||
|
Banking |
Cybersecurity |
Eliminations |
Consolidated |
|||||||||||||
|
and Adjustments |
||||||||||||||||
|
Net interest income |
$ | 16,146 | $ | - | $ | - | $ | 16,146 | ||||||||
|
Non-interest income |
(46 | ) | 2,177 | (41 | ) | 2,090 | ||||||||||
|
Total revenue |
16,100 | 2,177 | (41 | ) | 18,236 | |||||||||||
|
Provision for (recovery of) credit losses |
(279 | ) | - | - | (279 | ) | ||||||||||
| 16,379 | 2,177 | (41 | ) | 18,515 | ||||||||||||
|
Non-interest expenses: |
||||||||||||||||
|
Salaries and benefits |
4,720 | 687 | - | 5,407 | ||||||||||||
|
General and administrative |
3,704 | 311 | (41 | ) | 3,974 | |||||||||||
|
Premises and equipment |
628 | 368 | - | 996 | ||||||||||||
| 9,052 | 1,366 | (41 | ) | 10,377 | ||||||||||||
|
Income before income taxes |
7,327 | 811 | - | 8,138 | ||||||||||||
|
Income tax provision |
1,907 | 321 | - | 2,228 | ||||||||||||
|
Net income |
$ | 5,420 | $ | 490 | $ | - | $ | 5,910 | ||||||||
|
Total assets |
$ | 2,411,790 | $ | 22,309 | $ | (19,012 | ) | $ | 2,415,086 | |||||||
|
Total liabilities |
$ | 2,077,643 | $ | 23,205 | $ | (17,868 | ) | $ | 2,082,980 | |||||||
|
for the three months ended |
January 31, 2021 |
|||||||||||||||
|
Banking |
Cybersecurity |
Eliminations |
Consolidated |
|||||||||||||
|
and Adjustments |
||||||||||||||||
|
Net interest income |
$ | 14,374 | $ | - | $ | - | $ | 14,374 | ||||||||
|
Non-interest income |
(17 | ) | 1,093 | (28 | ) | 1,048 | ||||||||||
|
Total revenue |
14,357 | 1,093 | (28 | ) | 15,422 | |||||||||||
|
Provision for (recovery of) credit losses |
57 | - | - | 57 | ||||||||||||
| 14,300 | 1,093 | (28 | ) | 15,365 | ||||||||||||
|
Non-interest expenses: |
||||||||||||||||
|
Salaries and benefits |
4,698 | 332 | - | 5,030 | ||||||||||||
|
General and administrative |
2,062 | 305 | (28 | ) | 2,339 | |||||||||||
|
Premises and equipment |
570 | 148 | - | 718 | ||||||||||||
| 7,330 | 785 | (28 | ) | 8,087 | ||||||||||||
|
Income before income taxes |
6,970 | 308 | - | 7,278 | ||||||||||||
|
Income tax provision |
1,853 | 135 | - | 1,988 | ||||||||||||
|
Net income |
$ | 5,117 | $ | 173 | $ | - | $ | 5,290 | ||||||||
|
Total assets |
$ | 2,041,784 | $ | 20,612 | $ | (17,420 | ) | $ | 2,044,976 | |||||||
|
Total liabilities |
$ | 1,781,121 | $ | 20,622 | $ | (16,275 | ) | $ | 1,785,468 | |||||||
Banking
Q1 2022 vs Q4 2021
Banking net income was down marginally as a function primarily of higher non-interest expense attributable to general annual compensation adjustments and higher insurance premiums resulting from the Bank’s listing on the Nasdaq as well as higher provision for credit losses, the latter being relative to a recovery of credit loss provisions in the amount of $279,000 in the comparative quarter, offset partially by higher net interest income attributable primarily to loan growth.
Q1 2022 vs Q1 2021
Net income was up 6% as a function primarily of higher net interest income attributable substantially to loan growth, offset partially by higher non-interest expense attributable to general annual compensation adjustments and higher insurance premiums resulting from the Bank’s listing on the Nasdaq.
Cybersecurity Services
Q1 2022 vs Q4 2021
Cybersecurity Services net income was down 70% to $148,000 as a function primarily of strong performance in the comparative quarter attributable to engagements that were deferred in early 2021, due to COVID-19, being realized in the comparative quarter and lower seasonal activity in the current quarter. Cybersecurity services revenue and gross profit were down 24% and 35% to $2.4 million and $1.4 million respectively as a function of the items set out above. Cybersecurity Services gross profit amounts are included in non-interest income in the Bank’s consolidated statements of income and comprehensive income.
Q1 2022 vs Q1 2021
Cybersecurity Services net income was down 14% as a function primarily of higher non-interest expense partially offset by higher service work volume in the current quarter attributable partially to the comparative period including only two months of operations due to the timing of the Bank’s acquisition of DBG on November 30, 2020. Cybersecurity Services revenue and gross profit were up 36% and 30% respectively as a function of the items set out above. Cybersecurity Services gross profit amounts are included in non-interest income in the Bank’s consolidated statements of income and comprehensive income.
Summary of Quarterly Results
|
(thousands of Canadian dollars |
||||||||||||||||||||||||||||||||
|
except per share amounts) |
2022 |
2021 |
2020 |
|||||||||||||||||||||||||||||
|
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
|||||||||||||||||||||||||
|
Results of operations: |
||||||||||||||||||||||||||||||||
|
Interest income |
$ | 24,720 | $ | 23,924 | $ | 22,400 | $ | 21,649 | $ | 21,515 | $ | 21,068 | $ | 20,172 | $ | 22,688 | ||||||||||||||||
|
Yield on assets (%) |
4.06 | % | 4.04 | % | 4.02 | % | 4.24 | % | 4.28 | % | 4.33 | % | 4.12 | % | 4.83 | % | ||||||||||||||||
|
Interest expense |
7,835 | 7,778 | 7,858 | 6,554 | 7,141 | 7,360 | 7,788 | 8,212 | ||||||||||||||||||||||||
|
Cost of funds (%) |
1.29 | % | 1.31 | % | 1.41 | % | 1.28 | % | 1.42 | % | 1.51 | % | 1.59 | % | 1.75 | % | ||||||||||||||||
|
Net interest income |
16,885 | 16,146 | 14,542 | 15,095 | 14,374 | 13,708 | 12,384 | 14,476 | ||||||||||||||||||||||||
|
Net interest margin (%) |
2.77 | % | 2.73 | % | 2.61 | % | 2.96 | % | 2.86 | % | 2.82 | % | 2.53 | % | 3.08 | % | ||||||||||||||||
|
Non-interest income |
1,381 | 2,090 | 1,187 | 875 | 1,048 | 18 | 8 | 9 | ||||||||||||||||||||||||
|
Total revenue |
18,266 | 18,236 | 15,729 | 15,970 | 15,422 | 13,726 | 12,392 | 14,485 | ||||||||||||||||||||||||
|
Provision for (recovery of) credit losses |
2 | (279 | ) | 96 | (312 | ) | 57 | (582 | ) | (44 | ) | 490 | ||||||||||||||||||||
|
Non-interest expenses |
10,636 | 10,377 | 8,200 | 8,342 | 8,087 | 7,763 | 6,410 | 6,899 | ||||||||||||||||||||||||
|
Efficiency ratio |
58 | % | 57 | % | 52 | % | 52 | % | 52 | % | 57 | % | 52 | % | 48 | % | ||||||||||||||||
|
Income before income taxes |
7,628 | 8,138 | 7,433 | 7,940 | 7,278 | 6,545 | 6,026 | 7,096 | ||||||||||||||||||||||||
|
Tax provision |
2,062 | 2,228 | 1,997 | 2,196 | 1,988 | 1,799 | 1,657 | 1,947 | ||||||||||||||||||||||||
|
Net income |
$ | 5,566 | $ | 5,910 | $ | 5,436 | $ | 5,744 | $ | 5,290 | $ | 4,746 | $ | 4,369 | $ | 5,149 | ||||||||||||||||
|
Income per share |
||||||||||||||||||||||||||||||||
|
Basic |
$ | 0.19 | $ | 0.24 | $ | 0.25 | $ | 0.25 | $ | 0.22 | $ | 0.20 | $ | 0.18 | $ | 0.22 | ||||||||||||||||
|
Diluted |
$ | 0.19 | $ | 0.24 | $ | 0.25 | $ | 0.25 | $ | 0.22 | $ | 0.20 | $ | 0.18 | $ | 0.22 | ||||||||||||||||
|
Return on common equity |
6.58 | % | 8.07 | % | 8.72 | % | 9.20 | % | 8.26 | % | 7.46 | % | 6.90 | % | 8.64 | % | ||||||||||||||||
|
Return on total assets |
0.87 | % | 0.96 | % | 0.93 | % | 1.02 | % | 0.94 | % | 0.86 | % | 0.78 | % | 0.98 | % | ||||||||||||||||
|
Gross impaired loans to total loans |
0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.43 | % | 0.41 | % | ||||||||||||||||
The financial results for each of the last eight quarters are summarized above. Key drivers of the Bank’s quarter over quarter performance trends for the current reporting period were:
| ► |
Lending asset growth attributable to strong growth in the POS Financing portfolio; |
| ► |
Higher NIM as a function of higher yields and lower cost of funds attributable primarily to the Bank re-deploying cash into higher yielding lending assets; |
| ► |
Lower non-interest income as a function of strong Cybersecurity Services business performance achieved in the comparative quarter attributable to engagements that were deferred in early 2021, due to COVID-19, being realized last quarter and normal course seasonality; |
| ► |
Higher provisions for credit losses attributable primarily to lending asset growth; and, |
| ► |
Higher non-interest expense as a function of higher salary and benefits expense attributable to increased staffing levels to support expanded business activity across the Bank and higher insurance premiums attributable to the Bank’s listing on the Nasdaq. |
Non-GAAP and Other Financial Measures
Non-GAAP and other financial measures are not standardized financial measures under financial reporting framework used to prepare the financial statements of the Banks to which these measures relate. These measures may not be comparable to similar financial measures disclosed by other issuers. The Bank uses these financial measures to assess its performance and as such believes these financial measures are useful in providing readers with a better understanding of how management assesses the Bank’s performance.
Non-GAAP Measures
Return on Average Common Equity is defined as annualized net income less amounts relating to preferred share dividends, divided by average common shareholders’ equity which is average shareholders’ equity less amounts relating to preferred shares recorded in equity.
|
January 31 |
October 31 |
January 31 |
||||||||||
|
(thousands of Canadian dollars) |
2022 |
2021 |
2021 |
|||||||||
|
Return on average common equity |
||||||||||||
|
Net income |
$ | 5,566 | $ | 5,910 | $ | 5,290 | ||||||
|
Preferred share dividends |
(247 | ) | (247 | ) | (542 | ) | ||||||
|
Adjusted net income |
5,319 | 5,663 | 4,748 | |||||||||
|
Annualized adjusted net income |
21,103 | 22,467 | 18,837 | |||||||||
|
Average common equity |
$ | 320,882 | $ | 278,423 | $ | 228,060 | ||||||
|
Return on average common equity |
6.58 | % | 8.07 | % | 8.26 | % | ||||||
Book Value per Common Share is defined as Shareholders’ Equity less amounts relating to preferred shares recorded in equity, divided by the number of common shares outstanding.
|
January 31 |
October 31 |
January 31 |
||||||||||
|
(thousands of Canadian dollars) |
2022 |
2021 |
2021 |
|||||||||
|
Book value per common share |
||||||||||||
|
Common equity |
$ | 323,304 | $ | 318,459 | $ | 230,170 | ||||||
|
Shares outstanding |
27,441,082 | 27,441,082 | 21,123,559 | |||||||||
|
Book value per common share |
$ | 11.78 | $ | 11.61 | $ | 10.90 | ||||||
Return on Average Total Assets is defined as annualized net income less amounts relating to preferred share dividends, divided by average total assets.
|
January 31 |
October 31 |
January 31 |
||||||||||
|
(thousands of Canadian dollars) |
2022 |
2021 |
2021 |
|||||||||
|
Return on average total assets |
||||||||||||
|
Net income |
$ | 5,566 | $ | 5,910 | $ | 5,290 | ||||||
|
Preferred share dividends |
(247 | ) | (247 | ) | (542 | ) | ||||||
|
Adjusted net income |
5,319 | 5,663 | 4,748 | |||||||||
|
Annualized adjusted net income |
21,103 | 22,467 | 18,837 | |||||||||
|
Average Assets |
$ | 2,415,216 | $ | 2,350,429 | $ | 1,994,431 | ||||||
|
Return on average total assets |
0.87 | % | 0.96 | % | 0.94 | % | ||||||
Other Financial Measures
Yield is calculated as interest income (as presented in the Consolidated Statements of Comprehensive Income) divided by average total assets. Yield does not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other financial institutions.
Cost of Funds is calculated as interest expense (as presented in the Consolidated Statements of Comprehensive Income) divided by average total assets. Cost of funds does not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other financial institutions.
Net Interest Income and Net Interest Margin or Spread is calculated as net interest income divided by average total assets. Net interest margin or spread does not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other financial institutions.
Efficiency Ratio is calculated as non-interest expenses as a percentage of total revenue (as presented in the interim Consolidated Statements of Comprehensive Income). This ratio does not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other financial institutions.
Gross Impaired Loans to Total Loans captures gross impaired loan balances as a percentage of the Bank’s loans, net of allowance for credit losses. This percentage does not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other financial institutions.
Provision for (Recovery of) Credit Losses as a Percentage of Average Total Loans captures the provision for (recovery of) credit losses (as presented in the interim Consolidated Statements of Comprehensive Income) as a percentage of the Bank’s average loans, net of allowance for credit losses. This percentage does not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other financial institutions.
Basel III Common Equity Tier 1, Tier 1, Total Capital Adequacy and Leverage Ratios are determined in accordance with guidelines issued by the Office of the Superintendent of Financial Institutions (Canada) (OSFI).
Significant Accounting Policies and Use of Estimates and Judgements
Significant accounting policies and use of estimates and judgements are detailed in note 2 and note 3 of the Bank’s 2021 Audited Consolidated Financial Statements. There have been no material changes in accounting policies since October 31, 2021, except as noted below.
During the current quarter the Bank updated or incorporated the following significant accounting policies:
Segment reporting
Commencing in fiscal 2022, the Bank has opted to adopt presenting segmented information in its Consolidated Financial Statements in accordance with IFRS 8 Segment Reporting. The Bank’s management has established two reportable operating segments, those being Banking and Cybersecurity Services.
Controls and Procedures
During the quarter ended January 31, 2022, there were no changes in the Bank’s internal controls over financial reporting, that have materially affected, or are reasonably likely to materially affect, the Bank’s internal controls over financial reporting.
FOR FURTHER INFORMATION PLEASE CONTACT:
LodeRock Advisors: Lawrence Chamberlain (416) 519-4196,
lawrence.chamberlain@loderockadvisors.com
Visit our website at: www.versabank.com
CORPORATE INFORMATION
|
DIRECTORS
The Honourable Thomas A. Hockin, P.C., B.A, M.P.A., Ph.D., ICD.D Chairman of the Board Retired, former Executive Director of the International Monetary Fund
Gabrielle Bochynek, B.A. CHRL Principal, Human Resources and Labour Relations, The Osborne Group
Robbert-Jan Brabander, M.Sc. and B.Sc. (Economics) Managing Director of Bells & Whistles Communications, Inc.
David A. Bratton, B.A.(Hons), M.B.A., CHRL, FCMC Retired, former President of Bratton Consulting Inc.
R.W. (Dick) Carter, FCPA, FCA, C. Dir (Recused until January 31, 2022) Retired, former Chief Executive Officer of the Crown Investments Corporation of Saskatchewan
Peter M. Irwin, B.A. (Hons.) Retired, former Managing Director, CIBC Worlds Markets Inc.
Art Linton, JD Barrister & Solicitor
Susan T. McGovern, B.Sc. Vice-President, External Relations and Advancement Ontario Tech University
Paul G. Oliver, FCPA, FCA, ICD.D. Retired, former partner of PricewaterhouseCoopers LLP
David R. Taylor, B.Sc. (Hons), M.B.A., F.I.C.B. President & Chief Executive Officer, VersaBank
|
OFFICERS AND SENIOR MANAGEMENT
David R. Taylor, B.Sc. (Hons), M.B.A., F.I.C.B. President & Chief Executive Officer
Shawn Clarke, M.Eng., P.Eng., M.B.A. Chief Financial Officer & Treasurer
Michael Dixon, B.Comm., M.B.A. Senior Vice President, e-Commerce
Ross P. Duggan Senior Vice President, Commercial Lending
Aly Lalani, B.A., M.B.A., CPA, CA Senior Vice President
Nick Kristo, B.Comm., M.B.A. Chief Credit Officer
Tammie Ashton, B.A., LL.B Chief Risk Officer
Steve Creery, B.A. (Economics) Vice President, Credit
Barbara Hale, LL.B. Chief Anti-Money Laundering Officer
Brent T. Hodge, HBA, JD, CIPP/C Vice President, General Counsel & Corporate Secretary, Chief Compliance Officer
Saad Inam, B.Comm., M.B.A. Vice President, Credit
Joanne Johnston, B.Comm., CPA, CA, CIA Chief Internal Auditor
Wooi Koay, B.Comm., B.Sc. Chief Information Officer
Tel Matrundola, Hons. B.A., M.A., Ph,D. Chief Strategist, Cybersecurity
Nancy McCutcheon, HBA, MA, CPA, CGA Vice President, TIB Business Development
Andy Min, B.A., CPA, CA Vice President, Finance & Corporate Accounting
Scott A. Mizzen, B.A., LL.B. Vice President, Commercial Lending
Gurpreet Sahota, CISSP, CCSP. Chief Architect, Cybersecurity
Jonathan F.P. Taylor, B.B.A., CHRL Chief Human Resources Executive
David Thoms, B.A., M.B.A. Vice President, Structured Finance
Barbara Todres, B.Comm Hons. Vice President, Deposit Services
Terri Wilson Vice President, Investment & Risk Control |
|
SOLICITORS Stikeman Elliott LLP 5300 Commerce Court West 199 Bay Street Toronto, Ontario M5L 1B9 |
AUDITORS KPMG LLP 333 Bay Street, Suite 3300 Toronto, Ontario M5H 2S5 |
|
TRANSFER AGENT |
BANK |
|
Computershare Investor Services Inc. |
Royal Bank of Canada |
|
100 University Avenue |
Main Branch, 154 1st Avenue South |
|
Toronto, Ontario M5J 2Y1 |
Saskatoon, Saskatchewan S7K 1K2 |
STOCK EXCHANGE LISTINGS
| Toronto Stock Exchange | NASDAQ |
| Trading Symbol: VBNK, VBNK.PR.A | Trading Symbol: VBNK |
CORPORATE OFFICES
|
Head Office |
|
Suite 2002 - 140 Fullarton Street |
|
London, Ontario N6A 5P2 |
|
Telephone: (519) 645-1919 |
|
Toll-free: (866) 979-1919 |
|
Fax: (519) 645-2060 |
|
VersaBank Innovation Centre of Excellence |
Saskatoon Office |
|
1979 Otter Place |
410 - 121 Research Drive |
|
London, Ontario N5V 0A3 |
Saskatoon, Saskatchewan S7N 1K2 |
|
Telephone: (519) 645-1919 |
Telephone: (306) 244-1868 |
|
Toll-free: (866) 979-1919 |
Toll-free: (800) 213-4282 |
|
Fax: (519) 645-2060 |
Fax: (306) 244-4649 |
INVESTOR RELATIONS
Toll Free Telephone: (800) 244-1509
Email: InvestorRelations@versabank.com
Web site: www.versabank.com
LodeRock Advisors
Telephone: (416) 519-4196
lawrence.chamberlain@loderockadvisors.com
Exhibit 99.3
For Immediate Release: March 2, 2022
Attention: Business Editors
VERSABANK REPORTS CONTINUED STRONG RESULTS FOR FIRST QUARTER 2022
– Quarter Highlighted by Continued Strong Year-over-Year Growth as Bank Achieves Another Loan Portfolio Record –
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 first quarter 2022 (“Q1 2022”) unaudited Interim Consolidated Financial Statements for the period ended January 31, 2022 and Management’s Discussion and Analysis (“MD&A”), are available online at www.versabank.com/investor-relations, SEDAR at www.sedar.com and EDGAR at https://www.sec.gov/edgar.shtml. Supplementary Financial Information will also be available on our website at www.versabank.com/investor-relations.
LONDON, ON/CNW – VersaBank (“VersaBank” or the “Bank”) (TSX: VBNK; NASDAQ: VBNK), a North American leader in business-to-business digital banking, as well as technology solutions for cybersecurity, today reported its results for the first quarter of 2022 ended January 31, 2022. All figures are in Canadian dollars unless otherwise stated.
Financial Summary
|
(unaudited) |
As at or for the three months ended |
|||||||||||||||||||
|
(thousands of Canadian dollars except per share amounts) |
January 31
2022 |
October 31
2021 |
Change |
January 31 2021 |
Change |
|||||||||||||||
|
Financial results |
||||||||||||||||||||
|
Revenue |
$ | 18,266 | $ | 18,236 | 0 | % | $ | 15,422 | 18 | % | ||||||||||
|
Cost of funds |
1.29 | % | 1.31 | % | (2 | %) | 1.42 | % | (9 | %) | ||||||||||
|
Net interest margin |
2.77 | % | 2.73 | % | 2 | % | 2.86 | % | (3 | %) | ||||||||||
|
Net income |
5,566 | 5,910 | (6 | %) | 5,290 | 5 | % | |||||||||||||
|
Net income per common share basic and diluted |
0.19 | 0.24 | (21 | %) | 0.22 | (14 | %) | |||||||||||||
|
Balance sheet and capital ratios |
||||||||||||||||||||
|
Total assets |
2,415,346 | 2,415,086 | 0 | % | 2,044,976 | 18 | % | |||||||||||||
|
Book value per common share(1) |
$ | 11.78 | $ | 11.61 | 1 | % | $ | 10.90 | 8 | % | ||||||||||
|
Common Equity Tier 1 (CET1) capital ratio |
14.83 | % | 15.18 | % | (2 | %) | 12.48 | % | 19 | % | ||||||||||
|
Total capital ratio |
20.34 | % | 20.80 | % | (2 | %) | 14.58 | % | 40 | % | ||||||||||
|
Leverage ratio |
12.69 | % | 12.60 | % | 1 | % | 11.40 | % | 11 | % | ||||||||||
|
(1) |
Certain highlights include non-GAAP measures. See definitions under ‘Non-GAAP and Other Financial Measures' in the Q1 2022 Management’s Discussion and Analysis. |
Highlights for the First Quarter of 2022
|
● |
Loans increased 24% year-over-year and 5% sequentially to a record $2.22 billion, as a function of strong growth in the Bank’s Point-of-Sale Loan and Lease Receivable (“POS Financing”) portfolios; |
|
● |
Total revenue increased 18% year-over-year and increased modestly sequentially, to $18.3 million; |
|
● |
Net income increased 5% year-over-year and decreased 6% sequentially to $5.6 million; |
|
● |
EPS was $0.19, a decrease of 14% year-over-year and 21% sequentially, primarily due to a higher number of shares outstanding following the issuance of 6.3 million common shares via the Bank’s US IPO on the Nasdaq in September, 2021 (the "Common Share Offering”) in advance of deploying the capital raised to interest generating loans; |
|
● |
Cost of funds decreased 13 bps, or 9%, year-over-year and decreased 2 bps, or 2%, sequentially to 1.29%; |
|
● |
Net interest margin decreased 9 bps, or 3%, year-over-year and increased 4 bps, or 2%, sequentially, to 2.77%; |
|
● |
Provision for Credit Losses (PCLs) as a percentage of average loans was 0.00%, compared with a 12-quarter average of -0.01%, which remains amongst the lowest of the publicly traded Canadian Schedule I (federally licensed) Banks; |
|
● |
Completed closed ecosystem testing of VCAD, the Bank’s Canadian-dollar version of its revolutionary highly-encrypted Digital Deposit Receipt (DDR) offering, with each VCAD unit representing a one-dollar deposit with the Bank. VersaBank’s DDRs have been successfully deployed on the Ethereum, Algorand and Stellar blockchains. The DDR process is currently undergoing a SOC2 compliance audit; |
|
● |
Cybersecurity Services (wholly owned subsidiary DRT Cyber, Inc.) revenue and gross profit were up 36% and 30%, respectively, year-over-year. |
Management Commentary
“The first quarter of fiscal 2022 saw continued momentum in our core Digital Banking operations, highlighted by another record loan portfolio at quarter end of $2.22 billion and strong year-over-year growth in revenue, net income and earnings per share,” said David Taylor, President and Chief Executive Officer. “Loan portfolio growth was driven by the continued expansion of our Canadian Point-of-Sale Financing business as our unique, value-added model continues to resonate with consumer financing businesses and consumer demand for the types of goods and services they are financing remains strong.”
“We expect the strong momentum in our existing Digital Banking operations to continue throughout fiscal 2022, especially as we continue to deploy capital generated by our US IPO, in particular to support continued high demand for Point-of-Sale financing in Canada. In addition, we have significant additional growth potential from the planned launch of our Point-of-Sale offering in the United States, as well as the positive impact of any increase in interest rates.”
“Having successfully completed our closed ecosystem testing for our first Digital Deposit Receipt (DDR), the Canadian-dollar based VCAD, we are preparing for commercial launch, which we expect upon the independent SOC2 auditors’ completion of the compliance audit. While this is taking longer than anticipated, we recognize the critical importance of such third-party evaluation in the rapidly evolving regulatory landscape. Our DDRs were developed to be a significantly better stablecoin – one-for-one fiat currency on deposit with our federally licensed, investment-grade rated Bank, and the highest level of security based on our own VersaVault technology. We are very encouraged by recent regulatory trends in North America and around the world, which we believe will very firmly position our DDRs as not only a compelling digital currency for the market but also one that meets future regulatory requirements.”
Financial Review
Net Income – Net income for the quarter was $5.6 million, or $0.19 per common share (basic and diluted), compared to $5.9 million, or $0.24 per common share (basic and diluted) last quarter and $5.3 million, or $0.22 per common share (basic and diluted), for the same period a year ago. The quarter-over-quarter trend was a function primarily of higher non-interest expense attributable to general, annual compensation adjustments and increased staffing levels to support expanded business activity across the Bank, higher insurance premiums attributable to the Bank’s listing on the Nasdaq, higher provision for credit losses, and lower non-interest income, offset partially by higher net interest income attributable primarily to loan growth. The year-over-year trend was a function primarily of higher net interest income attributable substantially to loan growth, offset partially by higher non-interest expense attributable to general, annual compensation adjustments and increased staffing levels to support expanded business activity across the Bank and higher insurance premiums attributable to the Bank’s listing on the Nasdaq.
Net Interest Margin – Net interest margin (or spread) for the quarter was 2.77% compared to 2.73% last quarter and 2.86% for the same period a year ago. The quarter-over-quarter trend was a function primarily of redeployment of cash into higher yielding lending assets. The year-over-year trend was a function primarily of changes in the Bank’s lending portfolio mix.
Net Interest Income – Net interest income for the quarter was $16.9 million compared to $16.1 million last quarter and $14.4 million for the same period a year ago. The quarter-over-quarter trend was a function primarily of higher interest income earned on lending assets attributable to growth in the Bank’s POS Financing portfolio and redeployment of cash into higher yielding lending assets, offset partially by lower interest income earned on the Bank’s CRE Mortgage and Loan portfolios attributable to lower asset balances and higher interest expense attributable to the Bank’s USD subordinated notes payable (the “Notes”) resulting from changes in the USD/CAD foreign exchange spot rate over the course of the period. The year-over-year trend was a function of higher interest income earned on the Bank’s POS Financing and CRE Mortgage portfolios attributable primarily to lending asset growth and the redeployment of cash into higher yielding lending assets, offset partially by higher interest expense attributable to the Notes.
Non-Interest Expenses – Non-interest expenses for the quarter were $10.6 million compared to $10.4 million last quarter and $8.1 million for the same period a year ago. The quarter over quarter trend was a function primarily of higher salary and benefits expense attributable to general, annual compensation adjustments and increased staffing levels to support expanded business activity across the Bank and higher insurance premiums attributable to the Bank’s listing on the Nasdaq. The year over year trend was a function primarily of higher salary and benefits expense attributable to general, annual compensation adjustments and increased staff levels, higher insurance premiums attributable to the Bank’s listing on the Nasdaq, investments in the Bank’s business development initiatives and the current quarter including three months of operating expenses of Digital Boundary Group (“DBG”) compared to only two months of operating expenses included in the comparative period due to the timing of the Bank’s acquisition of DBG on November 30, 2020.
Provision for/Recovery of Credit Losses – The Bank recognized a provision for credit losses in the current quarter in the amount of $2,000 compared to a recovery of credit loss provisions in the amount of $279,000 last quarter and a provision for credit losses in the amount of $57,000 for the same period a year ago. The quarter-over-quarter trend was a function primarily of higher lending asset balances, offset partially by changes in the Bank’s lending asset portfolio mix and changes in the forward-looking information used by the Bank in its credit risk models in the current quarter. The year-over-year trend was a function primarily of changes in the Bank’s lending asset portfolio mix and changes in the forward-looking information used by the Bank in its credit risk models in the current quarter, offset partially by higher lending asset balances.
Capital – At January 31, 2022, VersaBank’s Total regulatory capital was $426 million compared to $419 million last quarter and $251 million a year ago and the Bank’s CET1 capital ratio was 14.83%, compared 15.18% last quarter and 12.48% a year ago. The quarter-over-quarter capital ratio trends were a function primarily of retained earnings growth, tax provision recoveries related to the Bank’s deferred tax asset, and changes to the Bank’s risk-weighted asset balances and composition. The year-over-year trends were a function primarily of the redemption of the Bank’s outstanding Non-cumulative Series 3 Preferred Shares on April 30, 2021, the issuance of the Notes on April 30, 2021, the Common Share Offering in September 2021, retained earnings growth, tax provision recoveries related to the Bank’s deferred tax asset, and changes to the Bank’s risk-weighted asset balances and composition.
Credit Quality -- Gross impaired loans at January 31, 2022 were $nil, compared to $nil a year ago. The Bank’s allowance for expected credit losses, or ECL at January 31, 2022 was $1.5 million compared to $1.5 million last quarter and $1.8 million a year ago. The quarter-over-quarter and year-over-year ECL trends were a function primarily of the factors set out in the Provision for/Recovery of Credit Losses section above. VersaBank’s Provision for Credit Losses ratio continues to be one of the lowest in the industry, reflecting the very low risk profile of the Bank’s lending portfolio, enabling it to generate superior net interest margins by offering innovative, high-value deposit and lending solutions that address unmet needs in the banking industry through a highly efficient partner model.
Q1 2022 Business Performance
Lending Operations
Commercial Lending – Commercial loans are originated through a well-established network of mortgage brokers and syndication partners, as well as through direct contact with VersaBank’s staff. Most of these loans are secured by real estate assets located in Ontario and certain other Canadian provinces. The portfolio decreased 2% year-over-year and 6% sequentially to $769 million, as a function primarily of timing of scheduled repayments over the course of the current quarter. The Bank anticipates that fiscal 2022 will bring continued growth in the commercial mortgage space, particularly with respect to financing for residential housing properties. Management expects that the demand for residential housing will be a function primarily of continued development in communities on the periphery of the major city centres as a result of consumers continuing to seek more affordable housing outside of the city centres and the federal government’s efforts to revitalize immigration programs. Management is of the view that the multi-unit residential rental sector, within the Bank’s target markets remains one of the most stable and low-risk sectors in the real estate market. Further, as COVID-19 restrictions continue to abate, management anticipates higher origination volumes related to commercial asset classes such as student housing and commercial and retail property types as the risk profile associated with this asset class realigns with the Bank’s risk appetite. Finally, management continues to pursue opportunities to develop more meaningful balance sheet exposure to the B-20 compliant conventional, uninsured mortgage financing space.
POS Financing – Leveraging its proprietary technology, VersaBank electronically purchases small loan and lease receivables from its network of origination partners who make point of sale loans and leases, primarily for big ticket consumer purchases, throughout Canada. For the first quarter of 2022, the Bank’s POS Financing portfolio was up 43% year-over-year and 13% sequentially to $1.4 billion as a function primarily of continued strong demand for home finance, auto and home improvement/HVAC receivable financing. Consumer spending is expected to remain strong into at least the second half of fiscal 2022 as COVID-19 restrictions continue to abate, and in many cases are removed altogether and as consumers exhaust excess savings built up over the course of the pandemic. Management anticipates that consumers will continue to deploy their savings into a range of durable goods, including assets related to home improvements as well as home purchases for which the Bank’s POS loan and lease origination partners provide financing. This, along with the anticipated addition of new origination partners and the Bank’s planned entrance into the US market represent key drivers of POS Financing balance sheet growth over the course of fiscal 2022.
Deposit Funding
VersaBank continues to increase its proportion of lower-cost commercial deposits by growing its well diversified Trustee in Bankruptcy, (“TIB”) program deposit base which currently attracts a nominal interest rate. This low-cost diversified deposit channel provides VersaBank with a significant cost of funds advantage, enabling it to generate superior net interest margins while maintaining its conservative risk profile. VersaBank’s cost of funds for the first quarter of 2022 was 1.29%, down 2 bps sequentially and 13 bps year-over-year. Management anticipates that commercial deposit volumes raised via the Bank’s TIB program will continue to grow over the course of fiscal 2022 as a function of an increase in the volume of consumer bankruptcy and proposal restructuring proceedings over the same timeframe. This perspective is attributable primarily to the anticipated effect of changes to federal government support programs as the impact of COVID-19 moderates, and higher interest rates as a result of the Bank of Canada tightening monetary policy over the course of the year. Further, the Bank continues to grow and expand its well-established, diverse deposit broker network through which it sources personal deposits, consisting primarily of guaranteed investment certificates. Management expects the combination of the operational trends set out above will allow the Bank to continue to effectively mitigate its cost of funds, even in a rising interest rate environment.
Commercial deposits at January 31, 2022 were $596 million, up 14% year-over-year and down 2% sequentially. The year-over-year trend was attributable primarily to continued growth in the Bank’s TIB program. The quarter-over-quarter trend was attributable primarily to withdrawals made by Trustees to fund normal course disbursements associated with consumer bankruptcy and proposal restructuring proceedings.
Cybersecurity Services
Leveraging its internally developed IT security software and capabilities, VersaBank established wholly-owned subsidiary, DRT Cyber, Inc., to pursue significant large-market opportunities in cybersecurity and develop innovative solutions to address the rapidly growing volume of cyber threats challenging financial institutions, multi-national corporations and government entities. For the first quarter of 2022, cybersecurity net income of $148,000 was down 14% year-over-year and down 70% sequentially. The year-over-year trend was as a function primarily of of higher non-interest expense partially offset by higher service work volume in the current quarter attributable partially to the comparative period including only two months of operations due to the timing of the Bank’s acquisition of Digital Boundary Group on November 30, 2020. The quarter-over-quarter trend was a function primarily of strong performance in the comparative quarter attributable to engagements that were deferred in early 2021, due to COVID 19, being realized in the comparative quarter and lower seasonal activity in the current quarter.
FINANCIAL HIGHLIGHTS
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(unaudited) |
For the three months ended |
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|
January 31 |
October 31 |
January 31 |
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|
(thousands of Canadian dollars except per share amounts) |
2022 |
2021 |
2021 |
|||||||||
|
Results of operations |
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|
Interest income |
$ | 24,720 | $ | 23,924 | $ | 21,515 | ||||||
|
Net interest income |
16,885 | 16,146 | 14,374 | |||||||||
|
Non-interest income |
1,381 | 2,090 | 1,048 | |||||||||
|
Total revenue |
18,266 | 18,236 | 15,422 | |||||||||
|
Provision (recovery) for credit losses |
2 | (279 | ) | 57 | ||||||||
|
Non-interest expenses |
10,636 | 10,377 | 8,087 | |||||||||
|
Net income |
5,566 | 5,910 | 5,290 | |||||||||
|
Income per common share: |
||||||||||||
|
Basic |
$ | 0.19 | $ | 0.24 | $ | 0.22 | ||||||
|
Diluted |
$ | 0.19 | $ | 0.24 | $ | 0.22 | ||||||
|
Dividends paid on preferred shares |
$ | 247 | $ | 247 | $ | 542 | ||||||
|
Dividends paid on common shares |
$ | 687 | $ | 684 | $ | 528 | ||||||
|
Yield* |
4.06 | % | 4.04 | % | 4.28 | % | ||||||
|
Cost of funds* |
1.29 | % | 1.31 | % | 1.42 | % | ||||||
|
Net interest margin* |
2.77 | % | 2.73 | % | 2.86 | % | ||||||
|
Return on common equity* |
6.58 | % | 8.07 | % | 8.26 | % | ||||||
|
Book value per common share* |
$ | 11.78 | $ | 11.61 | $ | 10.90 | ||||||
|
Efficiency ratio* |
58 | % | 57 | % | 52 | % | ||||||
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Return on total assets* |
0.87 | % | 0.96 | % | 0.94 | % | ||||||
|
Gross impaired loans to total loans* |
0.00 | % | 0.00 | % | 0.00 | % | ||||||
|
Provision (recovery) for credit losses as a % of average loans* |
0.00 | % | (0.05% | ) | 0.01 | % | ||||||
|
As at |
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|
Balance Sheet Summary |
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|
Cash |
$ | 155,239 | $ | 271,523 | $ | 212,016 | ||||||
|
Loans, net of allowance for credit losses |
2,215,638 | 2,103,050 | 1,793,724 | |||||||||
|
Average loans* |
2,159,344 | 2,027,602 | 1,724,317 | |||||||||
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Total assets |
2,415,346 | 2,415,086 | 2,044,976 | |||||||||
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Deposits |
1,847,003 | 1,853,204 | 1,664,694 | |||||||||
|
Subordinated notes payable |
97,726 | 95,272 | 4,891 | |||||||||
|
Shareholders' equity |
336,951 | 332,106 | 259,508 | |||||||||
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Capital ratios** |
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Risk-weighted assets |
$ | 2,095,335 | $ | 2,013,544 | $ | 1,721,935 | ||||||
|
Common Equity Tier 1 capital |
310,825 | 305,708 | 214,851 | |||||||||
|
Total regulatory capital |
426,237 | 418,718 | 251,020 | |||||||||
|
Common Equity Tier 1 (CET1) capital ratio |
14.83 | % | 15.18 | % | 12.48 | % | ||||||
|
Tier 1 capital ratio |
15.49 | % | 15.86 | % | 14.18 | % | ||||||
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Total capital ratio |
20.34 | % | 20.80 | % | 14.58 | % | ||||||
|
Leverage ratio |
12.69 | % | 12.60 | % | 11.40 | % | ||||||
|
* |
This is a non-GAAP measure. See definition under 'Non-GAAP and Other Financial Measures' in the Q1 2022 Management's Discussion and Analysis. |
|
** |
Capital management and leverage measures are in accordance with OSFI's Capital Adequacy Requirements and Basel III Accord. |
COVID-19 Update
As a digital bank with a low-risk business-to-business, partner-based model, VersaBank continues to remain relatively insulated from many of the negative influences of COVID-19 as a function primarily of our staff working remotely, enabled by our branchless, technology-driven model. However, with public health restrictions being relaxed somewhat on January 31st, 2022 and expected to abate further in the short term, management will begin to execute on its return-to-work strategy, which will see staff transition from working remotely to working in a traditional office setting over the course of the timeframe spanning February 14th, 2022, to March 14th, 2022.
Notwithstanding the above, we continue to operate at a heightened level of awareness to ensure that our origination and underwriting practices remain highly disciplined and focused, and further, have no loans on our balance sheet that are subject to payment deferrals, no impaired loans and no loans in arrears.
As we navigate past the business and operational challenges imposed by the continued impact of COVID-19, the Bank remains highly focused on increasing earnings by concentrating on niche markets that support modestly better pricing for its products and by leveraging its diverse deposit gathering network that provides efficient access to a range of low-cost deposit sources in order to maintain a lower cost of funds.
About VersaBank
VersaBank is a Canadian Schedule I chartered (federally licensed) bank with a difference. VersaBank became the world’s first fully digital financial institution when it adopted its highly efficient business-to-business model using its proprietary state-of-the-art financial technology to profitably address underserved segments of the Canadian banking market in the pursuit of superior net interest margins while mitigating risk. VersaBank obtains all of its deposits and provides the majority of its loans and leases electronically, with innovative deposit and lending solutions for financial intermediaries that allow them to excel in their core businesses. In addition, leveraging its internally developed IT security software and capabilities, VersaBank established wholly owned, Washington, DC-based subsidiary, DRT Cyber Inc. to pursue significant large-market opportunities in cyber security and develop innovative solutions to address the rapidly growing volume of cyber threats challenging financial institutions, multi-national corporations and government entities on a daily basis.
VersaBank’s Common Shares trade on the Toronto Stock Exchange (TSX) and Nasdaq under the symbol VBNK. Its Series 1 Preferred Shares trade on the TSX under the symbol VBNK.PR.A.
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 several 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; the impact of wars or conflicts including the crisis in Russia-Ukraine; the impact of the COVID-19 pandemic 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 MD&A for the year ended October 31, 2021.
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 and others 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 the related management’s discussion and analysis or made from time to time by the Bank or on its behalf.
Conference Call
VersaBank will be hosting a conference call and webcast today, Wednesday, March 2, 2022, at 9:00 a.m. (EDT) to discuss its first quarter results, featuring a presentation by David Taylor, President & CEO, and other VersaBank executives, followed by a question and answer period.
Dial-in Details
| Toll-free dial-in number: | 1 (888) 664-6392 (Canada/US) |
| Local dial-in number: | (416) 764-8659 |
| Participant passcode: | 43448798 |
Please call between 8:45 a.m. and 8:55 a.m. (EDT).
Webcast Access: For those preferring to listen to the conference call via the Internet, a webcast of Mr. Taylor’s presentation will be available via the internet, accessible here https://bit.ly/362GAGz or from the Bank’s web site.
Instant Replay
| Toll-free dial-in number: | 1 (888) 390-0541 (Canada/US) |
| Local dial-in number: | (416) 764-8677 |
| Passcode: | 448798# |
| Expiry Date: | April 2nd, 2021, at 11:59 p.m. (EDT) |
The archived webcast presentation will also be available via the Internet for 90 days following the live event at https://bit.ly/362GAGz and on the Bank’s web site.
FOR FURTHER INFORMATION, PLEASE CONTACT:
|
LodeRock Advisors Lawrence Chamberlain (416) 519-4196 lawrence.chamberlain@loderockadvisors.com |
Visit our website at: www.versabank.com
Follow VersaBank on Facebook, Instagram, LinkedIn and Twitter
Exhibit 99.4
For Immediate Release: March 2, 2022
Attention: Business Editors
VERSABANK DECLARES DIVIDENDS
LONDON, ON/CNW - VersaBank (the “Bank”) (TSX: VBNK; NASDAQ: VBNK) today announced that cash dividends in the amount of CAD $0.025 per Common Share of the Bank and CAD $0.1693 per Series 1 Preferred Share of the Bank, have been declared for the quarter ending April 30, 2022, payable as of April 30, 2022, to shareholders of record at the close of business on April 8, 2022.
The dividends to which this notice relates are eligible dividends for tax purposes.
About VersaBank
VersaBank is a Canadian Schedule I chartered bank with a difference. VersaBank became the world’s first fully digital financial institution when it adopted its highly efficient business-to-business model using its proprietary state-of-the-art financial technology to profitably address underserved segments of the Canadian banking market in the pursuit of superior net interest margins while mitigating risk. VersaBank obtains all of its deposits and provides the majority of its loans and leases electronically, with innovative deposit and lending solutions for financial intermediaries that allow them to excel in their core businesses. In addition, leveraging its internally developed IT security software and capabilities, VersaBank established wholly owned, Washington, DC-based subsidiary, DRT Cyber Inc. to pursue significant large-market opportunities in cyber security and develop innovative solutions to address the rapidly growing volume of cyber threats challenging financial institutions, multi-national corporations and government entities on a daily basis.
VersaBank’s Common Shares trade on the Toronto Stock Exchange (“TSX”) and Nasdaq under the symbol VBNK. Its Series 1 Preferred Shares trade on the TSX under the symbol VBNK.PR.A.
FOR FURTHER INFORMATION, PLEASE CONTACT:
|
LodeRock Advisors Lawrence Chamberlain (416) 519-4196 lawrence.chamberlain@loderockadvisors.com |
Visit our website at: www.versabank.com
Follow VersaBank on Facebook, Instagram, LinkedIn and Twitter.
Exhibit 99.5
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, David R. Taylor, President & Chief Executive Officer of VersaBank, certify the following:
|
1. |
Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of VersaBank (the “issuer”) for the interim period ended January 31, 2022. |
|
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
|
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial statements together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
|
4. |
Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
|
5. |
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
|
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
|
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
|
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
|
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
|
5.1 |
Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. |
|
5.2 |
N/A |
|
5.3 |
N/A |
|
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on November 1, 2021 and ended on January 31, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
|
Date: |
March 2, 2022 |
/s/ David R. Taylor
___________________
David R. Taylor
President &
Chief Executive Officer
Exhibit 99.6
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, Shawn Clarke, Chief Financial Officer of VersaBank, certify the following:
|
1. |
Review: I have reviewed the interim financial statements and interim MD&A (together, the “interim filings”) of VersaBank (the “issuer”) for the interim period ended January 31, 2022. |
|
2. |
No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings. |
|
3. |
Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial statements together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. |
|
4. |
Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer. |
|
5. |
Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings |
|
(a) |
designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that |
|
(i) |
material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and |
|
(ii) |
information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and |
|
(b) |
designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. |
|
5.1 |
Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. |
|
5.2 |
N/A |
|
5.3 |
N/A |
|
6. |
Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on November 1, 2021 and ended on January 31, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. |
|
Date: |
March 2, 2022 |
/s/ Shawn Clarke
____________________
Shawn Clarke
Chief Financial Officer