LONDON, Ontario--(BUSINESS WIRE)--Aug 29, 2018--All amounts are unaudited and in Canadian dollars and are based on financial statements prepared in compliance with International Accounting Standard 34 Interim Financial Reporting, unless otherwise noted.Our third quarter 2018 (“Q3 2018”) unaudited Interim Consolidated Financial Statements for the period ended July 31, 2018 and Management’s Discussion and Analysis, are available online atand at. Supplementary Financial Information will also be available on our website at.

VersaBank (“VB” or the “Bank”) (TSX:VB) today reported net income of $4.7 million for the third quarter ended July 31, 2018. Net income was up $2.0 million or 74% from a year ago and earnings per share (EPS) of 20 cents was up $0.10 or 100% from a year ago.

Core cash earnings (CCE) for the quarter was up 48% to $6.4 million from $4.4 million a year ago and CCE EPS increased to $0.31 from $0.21. CCE, which reflects the Bank’s core operational performance and earnings capacity, is calculated as net income (as presented in the Consolidated Statements of Comprehensive Income) adjusted for income taxes, restructuring charges, corporate projects and other non-core operational expenses (see core cash earnings reconciliation below) (2).

Results for the quarter were driven primarily by higher interest income, improved efficiency, and outstanding credit quality. NIM increased to 2.88%, up 35 basis points from a year ago. Efficiency improved to 49% from 65% for the same period a year ago and the provision for credit losses (PCL) ratio was again negligible.

Net income was up 10% to $4.7 million from $4.3 million last quarter primarily due to higher interest income earned on lending assets as well as lower non-interest expenses partially offset by higher interest expense.

David Taylor, President and Chief Executive Officer, commented: “Our Bank’s model of using advanced technologies to serve niche markets is continuing to demonstrate its tremendous earnings power and produced another record quarter. Core cash earnings for the past 3 quarters grew by 35% over the same period last year and I expect this growth trend to continue through the fourth quarter.”

(1) Certain highlights include non-GAAP measures. See definition under ‘Basis of Presentation’ in the Q3 2018 Management’s Discussion and Analysis.(2) Core cash earnings is calculated as:

(3) YTD Q3 2017 earnings include the recognition of $8.8 million in deferred income tax assets in January 2017.

Q3 2018 Business Operations

VersaBank is a technology based, digital Canadian Schedule I chartered bank. It operates using an “electronic branchless model” and sources its funding, along with consumer and commercial loan and lease receivables, electronically. VersaBank also makes residential development and commercial mortgages it obtains through a well-established network of brokers and through direct contact with its lending staff.

Commercial Banking – Loans are originated through direct contact with the Bank’s clients and through mortgage brokers and syndication partners. Loans are well secured by real estate primarily in Ontario and occasionally other areas of Canada. Loans at July 31, 2018 were $738 million, up 5.07% from last quarter and up 3.44% from a year ago.

eCommerce – Small loan and lease receivables are electronically purchased from VB’s vendor partners who originate point of sale loans and leases in various markets throughout Canada. Lending assets at July 31, 2018 were $894 million, up 5.83% from last quarter and up 11.18% from a year ago.

Funding - VB has established three core funding channels, those being personal deposits, commercial deposits, and holdbacks retained from the Bank’s receivable purchase program originator partners that are classified as other liabilities. Personal deposits, consisting principally of guaranteed investment certificates, are sourced primarily through a well-established and well-diversified deposit broker network that the Bank continues to grow and expand across Canada. Commercial deposits are sourced primarily via specialized chequing 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. VB’s cost of funds for the quarter was 1.67%, up 3 bps from last quarter and up 6 bps from a year ago. VB’s low cost of funds enables it to earn industry leading NIM without taking on increased credit risk typically necessary to achieve higher yields.

Capital – As at July 31, 2018, VB’s CET1 ratio was 10.95%, down 12 bps from last quarter and down 5 bps from a year ago. VB, like most small banks, uses the Standardized Approach to calculate its risk weighted assets. Because VB focuses on commercial and consumer loans with lower than average risk (as demonstrated by its long history of low provision for credit losses), it believes the Standardized Approach does not properly reflect the intrinsic risk in its lending assets. As a consequence, VB’s leverage ratio is conservative, being more than twice the average leverage ratio of the major Canadian banks, which use the Advanced Internal Ratings Based (“AIRB”) approach to calculate their risk weighted assets.

Credit Quality – For the quarter ended July 31, 2018, the Bank recorded a provision in the amount of $128,000 compared to a recovery of $50,000 last quarter and a provision of $38,000 for the same period a year ago. Further, as at July 31, 2018, total gross impaired loans were approximately 0.04% of total lending assets. The Bank’s provision for credit losses (“PCL”) ratio continues to be one of the lowest in the industry and only a small fraction of the PCL ratios reported by the major Canadian Banks, reflecting the very low risk profile of the Bank’s lending portfolio. VB’s business strategy involves taking lower credit risk, but achieving greater NIM by lending in niche markets that are not well served by the larger financial institutions.

VersaVault Inc. – VersaVault Inc. (“VV”) is a wholly owned subsidiary of the Bank and was formed to develop and provide cyber-security services to commercial entities. Beta-Testing of the VersaVault service offering has commenced and will investigate the functionality and efficiency of the developed software systems. The Beta Testing program is being conducted in cooperation with VV’s selected vendor of biometric security software systems and hand selected Canadian, commercial entities. The Beta Testing program is expected to be complete by the end of the current fiscal year.


Forward-Looking Statements

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