VersaBank

Thank you. Thank you. Good morning, ladies and gentlemen. Welcome to VersaBank's third quarter fiscal 2024 financial results conference call. This morning, VersaBank issued a news release reporting its financial results for the third quarter ended July 31st, 2024. The news release, along with the bank's financial statements, MD&A, and supplemental financial information are available on the bank's website in the investor relations section, as well as on Cedar Plus and EDGAR. Please note that in addition to the telephone dial-in, VersaBank is webcasting this morning's conference call. The webcast is listen-only, and if you are listening to a webcast but wish to ask a question in the Q&A session following Mr. Taylor's presentation, please dial into the conference line, 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 companion slide presentation is available on the bank's website. Also, today's call will be archived for replay, both 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. I would now 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 today is Chief Financial Officer John Asma. I'd like to begin today's call by discussing one of the most important announcements in the history of our bank, the closing late last week of our U.S. acquisition. It's been a long process spanning more than two years since we first announced the transaction in spring of 2022. But this was no mean feat, what we understand to be a relatively rare occurrence in the United States. There were many who thought it wouldn't be possible. However, with a rock-solid foundation based on our branchless digital B2B model, a proven track record of innovation, earnings growth, and no loan losses, and a truly unique risk-mitigated offering in our receivable purchase program, we present to the U.S. regulators with a very compelling proposition. I'd like to take this opportunity to publicly thank all those at VersaBank for their tireless efforts on both the regulatory approval process and the acquisition itself. The incredible team at Stearns Financial for being great partners throughout the transaction and our advisors for their ongoing counsel throughout this initiative. This is a transformational event in VersaBank's growth trajectory. We are now able to bring our unique and highly attractive RPP solution, which has been successful in Canada, to the largest point of sale financing market in the world. With the closing of the acquisition on schedule last Friday, we are now in the process of finalizing our first post-transaction RPP partner in the United States. And on the deposit side, we are now able to raise economical FDIC-insured deposits to fund this program, and we have the mechanisms in place to do that. In a few minutes, I'll discuss how we're able to launch the RPP in the United States This with virtually no capital expenditures, minimal additional operating expenditures, and very low execution risk. Turning to our financial results, preparations for the closing of our U.S. acquisition and broad launch of RPP program in the U.S. gave rise to a fair amount of noise this quarter. We view this in three categories. One, we maintain higher cash balances in preparation to fund the capital requirements of the U.S. subsidiary following the closing of the SBH acquisition. The higher cash balances temporarily depressed our net interest margin, which was already dampened by what we typically experience when interest rates decline. The rates we pay in our Canadian term deposits decrease more slowly than the Government of Canada rate, so there is a period of catch-up. Of course, we benefit in the same way when interest rates were rising. Three, non-interest expenses increased due to acquisition-related costs, some of which were specific to the third quarter and some of which were being incurred ahead of the asset growth and revenue generated by the launch of our U.S. RPP. I will note that there will again be one-time costs in the fourth quarter given the acquisition formally closed in Q4. We achieved another record high for total assets of $4.5 billion, driven by 11% year-over-year growth in our loan portfolio. As expected, we saw a seasonal pickup in the growth in our Canadian RPP point-of-sale business, which expanded 4% sequentially. Even as discretionary spending in Canada generally remains soft, growth also continues to dampen by higher-than-typical putbacks of loans that have gone 90 days in arrears to our partners due to a higher default among the borrowers. This, of course, is exactly how our model is supposed to work. The defaulted loans go back to our partners and we are made whole by the cash holdback. You can see this very clearly in our provision for credit losses, which was zero in Q3.

You can see the continued performance of our business models.