VersaBank (NASDAQ:VBNK) Q2 2025 Earnings Call Highlights
On June 4, 2025, VersaBank reported impressive earnings, showcasing record credit assets and revenue growth driven by both its Canadian and US portfolios. The bank's net interest margin saw significant expansion, further enhancing its financial performance.
Positive Developments
VersaBank is currently undergoing a structural realignment to align with the standards of a typical US bank framework. This move is anticipated to bolster shareholder value and streamline costs. The bank's Canadian residential construction loan portfolio and US receivable purchase program displayed robust growth, while insolvency deposits increased by 22% year over year, providing a low-cost funding source.
Challenges Ahead
However, the preliminary costs related to the structural realignment have negatively impacted earnings. Additionally, the bank recorded an atypically large non-cash loss due to foreign exchange translation of its US subsidiary assets. While US operations are profitable, they are still at an early stage and reflect a cost structure necessary for future growth. The Canadian economy's challenging environment for consumer spending may also limit growth potential. Moreover, VersaBank faced increased operating expenses in its cybersecurity segment, leading to a net loss.
Q & A Highlights
Q: What is the expected timeline for reaching the $1 billion target in insolvency deposits, and what is the outlook for net interest margin (NIM) expansion?
A: David Taylor, President and CEO, indicated that the bank aims to reach its $1 billion target by the end of the calendar year, supported by a 22% year-over-year growth rate. Despite the challenging Canadian economic environment, favorable conditions such as maturing GICs at lower rates contributed to a 29 basis point sequential increase in credit assets, although the flat yield curve may limit further NIM expansion in the short term.
Q: How should we understand non-interest expenses excluding realignment costs, and what are the expected annual savings from redomiciling in the US?
A: Taylor mentioned that excluding one-time expenditures related to the reorganization, there might be a slight increase in US bank expenses due to an additional hire, but it should stabilize. The anticipated annual savings from redomiciling in the US are estimated to be between $2 million and $3 million post-reorganization.
Q: Can you provide an update on the sale of DRTC Cyber and its timeline?
A: Taylor stated they are in the final stages of engaging a firm to manage the sale of DRTC Cyber, expecting a deal to close by the end of the fiscal year, driven by rising demand for cybersecurity services.
Q: How are conversations with new partners in the US progressing, and how many new programs do you expect to launch by year-end?
A: Taylor reported positive progress with three partners already signed, hoping to secure three more by year-end, though the onboarding process has been delayed due to legal differences between the US and Canada.
Q: What are the current credit trends in the commercial real estate (CRE) book, and how are charge-offs being managed?
A: Taylor clarified that charge-offs are linked to the US portfolio acquired with the US bank purchase and not the Canadian real estate market, which is currently under pressure. VersaBank focuses on government-insured CMHC mortgages and long-term clients to mitigate risks.
For more detailed insights, visit Inside Ticker.