VersaBank

Ladies and gentlemen, thank you for your patience. Please do not disconnect. The conference will begin momentarily. Once again, please continue to stand by. Do not disconnect. The conference will begin momentarily. Thank you. Thank you. Good morning, ladies and gentlemen, and welcome to VersaBank's third quarter fiscal 2023 financial results conference call. This morning, VersaBank issued a news release reporting its financial results for the third quarter ended July 31, 2023. That news release, along with the bank's financial statements and supplemental financial information, are available on the bank's website in the Investor Relations section, as well as on CDAR or EDGAR. Please note that in addition to the telephone dial-in, VersaBank is webcasting this morning's conference call. The webcast is listen-only. If you are listening to the webcast but wish to ask a question in the Q&A session following Mr. Taylor's presentation, please dial into the conference line, the details of which are included in this morning's news release and on the Bank's website. For those participating in today's call by telephone, the accompanying slide presentation is available on the Bank's website. Also, Today's call will be archived for replay both by telephone and via the Internet beginning approximately one hour following completion of the call. Details on how to access the replays are available in this morning's news release. I would like to remind our listeners that the statements about future events made on this call are forward-looking in nature and are based on certain assumptions and analysis made by VersaBank management. Actual results could differ materially from our expectations due to various material risks and uncertainties associated with VersaBank's businesses. Please refer to VersaBank's forward-looking statement advisory in today's presentation. And I would like to turn the call over to David Taylor, President and Chief Executive Officer of VersaBank. Please go ahead, Mr. Taylor.

Good morning, everyone, and thank you for joining us for today's call. With me is Sean Clark, our Chief Financial Officer. Before I begin, I'd like to remind you that our financial results are reported and will be discussed on this call in our reporting currency of Canadian dollars. For those interested, we provide U.S. dollar translations for most of our financial numbers in our standard investor presentation, which will be updated and available on our website shortly. Now for the results. The third quarter of fiscal 2023 was once again, as is the case in the first half of the year, solid evidence of our significant operating leverage and our branchless partner-based business-to-business digital banking model. The continued steady growth in our loan portfolio to a new record of just shy of $3.7 billion, which was up a very healthy 30% year-over-year, drove growth in our net income over the same period of 75%. And earnings per share grew 90% year over year as we continue to take advantage of our share buyback program. Looking more closely at Q3 performance, there are four notable items I'd like to discuss. The first is net interest margin on our loan portfolio, which for the quarter was down 30 basis points from Q2, and a major factor that hindered us reporting yet another record for net income. There are a number of levers that influence our net interest margin from quarter to quarter. Over the long term, these historically net out to a net interest margin in our loan portfolio of around 3% within whatever the prevailing interest rate environment is. However, in our most recent quarter, which runs from the beginning of May through the end of June, we experienced an anomalous macro impact on the market rates for term deposits in Canada. Term deposits currently comprise an atypical high 80% of our total deposits and are more expensive cost of funds than our insolvency professional deposits. The market rates for term deposits are derived predominantly from a premium demanded by our depositors over the risk-free government Canada bond rate. Following the broad liquidity concerns that permeated the U.S. banking sector a number of months back, after several high-profile collapses, we saw a swift and significant spillover effect into Canada. The market premium over government of Canada has nearly quadrupled from its recent average, or more than 70 basis points in absolute terms. Further, although short-lived, this premium spike occurred at a time when we, coincidentally, were disproportionately raising deposits. In other words, we traded fairly large volume of low-interest term deposits for higher-rate term deposits, which exacerbated the impact. This obviously dampened net income for the quarter and kept us from posting yet another record quarter of profitability. Although, as I noted earlier, we did equal our record EPS as a result of our share buyback. And on a year-to-date basis, net income is still up 83%, and EPS up 96% compared to last year. I'm pleased to report that term deposit market has returned to its average range, even falling below that average. and we have no reason to believe that this situation will repeat itself in the foreseeable future. We are back to booking term deposit rates that support our target net interest margin. Fortunately, the majority of our term deposits have one-year maturities. Therefore, while we will continue to feel the impact of this temporary premium spike over the course of the next 12 months, we expect to see an incremental increase back towards the 3% range with each quarter, all other things being equal. Further, as Sean will discuss, we are seeing our much less expensive insolvency professional deposits increase as bankruptcy activity continues to expand, which will generally support net interest margin going forward. And as I noted previously, our receivable purchase program loans in the U.S. generate higher net interest margins. That said, I'll remind you that we do reserve the right to trade some net interest margin performance for a higher volume in situations where it is accretive to net income and return on common equity. The other three noteworthy items for Q3 are repeats of those I've highlighted on our last call, their repetition being indicative of both the power of the operating leverage and the consistency of our business model. The second is our efficiency ratio, or our cost to generate $1 of revenue. That number once again saw a sizable improvement on a year-over-year basis. Revenue not only increased by 26% year-over-year, but non-interest expenses decreased by 6% year-over-year, to $12.9 million. That's a little higher than the $12.5 million normalized quarterly number we are targeting due to ongoing supporting the approval process of our proposed acquisition of the U.S. bank. Our Q3 efficiency ratio of 43% is already far superior to the vast majority of North American banks, but with the continued expected growth in our loan portfolio, that number is poised to continue to improve to levels thought unattainable by a bank. The third major highlight is the combined improvement in our return on common equity, which increased more than 450 basis points year over year to 11.15%. This metric is also poised for a substantial improvement as we continue to capitalize on the operating leverage in our digital branchless partner-based model. Of course, each of these metrics would had been even better had it not been for the temporary spike in term deposit rates that compressed net interest margin in the quarter. Finally, the fourth highlight for Q3 is that the growth in our point-of-sale portfolio remains strong. 30% year-over-year overall loan growth was driven predominantly by the expansion of our point-of-sale business, which was up 39% year-over-year and 9% sequentially. Recall sequential growth last quarter was 5%, and I discussed the seasonality in our point-of-sale business such that growth is historically stronger in the summer months. We clearly saw this in Q3. We continue to have significant additional upside to our growth in Canada through our proposed acquisition of U.S.-based Stearns Bank Holdingford. This acquisition will be transformational for our bank enabling us to broadly launch our unique and attractive financing solution to what remains an underserved market in the United States. We continue to make incremental and meaningful progress towards receiving a decision from the US regulators with a decision from our Canadian regulators to follow. We are as comfortable as we've ever been with the prospects for a favorable outcome. We recognize this has been a protracted but necessary process, especially with the recent challenges experienced by the U.S. banking sector. We appreciate the continued diligence of our regulators and appreciate the patience of our shareholders, who we know are as eager as we are to bring this opportunity to fruition. We continue to be as transparent as possible in guiding towards an expected decision date, which we are now targeting for autumn of this year. If favorable, we will proceed towards Canadian regulatory approval and closing of the acquisition as quickly as possible thereafter. The limited launch of the RPP program in the United States continues to give us confidence in what we can achieve with a broad national launch. Our still limited but accelerated rollout of the U.S. RPP program continues to be encouraging. In Q3, our U.S. portfolio grew by another 38% as we started to ramp up our second partner.

I'd now like to turn the call over to Sean to review our financial results in detail. Sean? Thanks, David.