VersaBank

Good morning, ladies and gentlemen, and welcome to VersaBank's third quarter fiscal 2025 financial results conference call. Earlier today, VersaBank issued a news release reporting its financial results for the third quarter ended July 31st, 2025. That news release, along with VersaBank's financial statements and MD&E, are available on VersaBank's website in the investor relations section. Please note, VersaBank is webcasting this conference call live over the internet. The webcast is listened only. If you are listening to the webcast but wish to ask a question in the Q&A session following management's prepared remarks, please dial into the conference lines, the details of which are included on the current slide of the presentation, as well as in the morning's news release and on VersaBank's website. For those participating in today's call by telephone, the accompanying slide presentation is available as a standalone file on VersaBank's website. Please note that today's call is being 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 now I would like to turn the call over to David Taylor, President and Founder of VersaBank. Please go ahead, Mr. Taylor.

Good morning, everyone. I'm calling you today from Raymond James Banking Conference, in the Windy City, Chicago. And thank you for joining us for today's call. With me is our Chief Financial Officer, John Aspeth. Before I begin, I do want to remind you that our financial results for the third quarter and year to date reflect the costs associated with our plan to realign our corporate structure to that of a standard U.S. bank framework. Those costs amount to $4.2 million. As the vast majority of those costs are transitory, that being they will be incurred by the fiscal year end, my comments this morning will focus on adjusted or core earnings as well as adjusted numbers for any metrics that are derived from earnings, as those are more accurate reflection of the performance of our business going forward. In fact, I discussed on our last call, we believe this realignment will enhance shareholder value through further risk mitigation, reducing corporate costs and eligibility for certain stock indices. On to our financial results. The third quarter unfolded very much in line with our expectations and are indicative of the momentum in our business. They reflect the ramp-up of our receivable purchase program in the United States. alongside veteran expected growth in our credit assets in Canada, as well as net interest margins consistent with the improved levels we saw last quarter. These combined to drive revenue to another record with a very healthy sequential increase in adjusted net income. As founder and president, as well as shareholder, there are a number of important takeaways for me when I look at Q3 results. The first is that credit assets continue to grow 18% year over year and 6% sequentially. And with that, so does our book value. And this is despite a slower than expected third quarter for US funding, which as I will discuss later on, has since accelerated and is now growing as per our plan toward 290 million fiscal year target. The second is that net interest margin grew year over year despite higher than typical liquidity in preparation for U.S. credit asset growth. The third is that amidst the continuing uncertainties around tariffs and trade and what continues to be lackluster overall economy, consumer spending in Canada has been more resilient than expected. As we announced yesterday, we added two new partners in Canada to support continued growth there. And we continue to see solid growth in our insolvency deposit business. Fourth, and perhaps most importantly, the results for our Canadian digital banking operations continue to demonstrate the potential of our US operations as we ramp up credit assets there and achieve scale. As a reminder, under our current corporate structure, the vast majority of our corporate costs are included in financials for the Canadian digital banking operations. So the reported efficiency ratio and return on common equity of this segment is significantly understated even after excluding the corporate realignment expenses I discussed earlier. With a smaller cost structure, less expensive deposits, and significant greater scale potential. We expect the US metrics to be even better than Canada. Again, as a shareholder, it's how I'm thinking about the future of the business. Finally, I will note that our results are prior to the contribution of the additional new growth initiatives that we have recently announced. One of these announcements was the expansion of our receivable purchase program in both the United States and Canada through the launch of a securitized financing solution for our partners. As we steadily ramp up the RPP in the United States, it has become clear, especially in the current credit market, that there is a significant additional opportunity to further growth our assets by providing securitized financing to our target market, especially in the current market environment where securitized financing are inexpensive. Our securitized RPP financing have the benefit of being favorably risk-weighted as low as 20%, or one-fifth that of our standard RPP financing. While generating a lower spread, they will provide much larger contribution to return on common equity. Importantly, we expect that they will be an entry point to new partner relationships by offering one-stop shop to these partners for attractive, readily available financing in any interest rate environment. I want to be clear here that these securitized RPP financings are investments in senior level tranches, typically AAA rated and subject to our normal credit approval process. And as a result, are even lower risk than our core RPP financings. As we announced yesterday, we have already added our first partner under the securitized RPP offering in Canada and expect to begin adding partners in the U.S. shortly. We also plan to establish our own platform offering securitization of assets originated and owned by its financing partner to further enhance profitability here. We believe there is enough opportunity here that we created a new leadership position to head up this initiative and appointed capital markets veteran Tim Kaminski to the role. Tim has specific senior level experience in developing and managing financial products, as well as underwriting strategy and portfolio management. We already are seeing the value of Tim's expertise. I will note that this is our strategy to further expand the target market for our RPP solution through additional enhancements and are working on other innovations to this end. I would now like to turn the call over to John to review our financial results in detail.

Thanks, David. Before I begin, I will remind you that our full financial statements and MD&A for the third quarter are available on our website under the Investors section. as well as on Cedar and Edgar. All of the following numbers are reported in Canadian dollars as per our financial statements, unless otherwise noted. Starting with the balance sheet, total assets at the end of the third quarter of fiscal 2025 grew 21% year over year and 9% sequentially to a new high of just shy of $5.5 billion. Cash and securities were $620 million, or 11% of total assets, up from 9% at the end of Q2. Book value per share increased to a record $16.42. Our CET1 ratio increased to 13.56%, and our leverage ratio was 8.90%, with both remaining above our internal targets. Total consolidated revenue was a record $31.6 million, up 17% year over year and 5% sequentially. The increases were driven primarily by continued growth in our credit assets. Consolidated non-interest expense was $21.6 million compared with $13.5 million in Q3 last year and $17.5 million in Q2 of this year. As David discussed, Q3 non-interest expenses included $4.2 million related to the ongoing costs associated with the bank's structural realignment. Excluding these costs, NIEs for Q3 were $17.4 million. Otherwise, the year-over-year increase is primarily due to the addition of the VersaBank USA operations and costs associated with the launch and ramp-up for the RPP program in the United States. As a reminder, DRT cyber expenses are included in consolidated NIEs and total $2.1 million for the fourth quarter. Reported net income was $6.6 million and consolidated earnings per share were $0.20. Excluding the costs associated with the proposed realignment of the corporate structure, consolidated net income was $9.7 million and consolidated earnings per share was $0.30. Looking at the income statement on a segmented basis, revenue for the Canadian banking operations was $26.6 million, up 4% sequentially from Q2. As the corporate expenses flow through Canadian digital banking, net income and earnings per share were negatively impacted by costs associated with the proposed realignment to corporate structure. Net income was $6.5 million, and earnings per share was 20 cents. However, that number is impacted by the $4.2 million from the corporate realignment. Revenue for U.S. banking operations was $3.1 million, a 25% increase sequentially, primarily due to the ramp-up in the U.S. RPP. And net income for the U.S. banking operation was $437,000, a 229% increase sequentially. Within DRTC, The cybersecurity component generated revenue of $1.6 million, up from $1.4 million in Q3 of last year. Net loss was $398,000, impacted by higher operating expenses related to the onboarding support costs for the new cybersecurity offering. Within DRTC, digital media revenue was $622,000, with a net income of $23,000. Our credit asset portfolio grew to a new record of $4.78 billion at the end of Q3, driven once again by our receivable purchase program, which increased 15% year-over-year and 5% sequentially to $3.7 billion. Our RPP portfolio represented 78% of our total credit asset portfolio at the end of Q3, down slightly from the end of Q2. Our multifamily residential loan and other portfolio grew 30% year over year and 9% sequentially to $1.04 billion as we steadily draw down on our CMHC insured loan commitments. As a reminder, our multifamily residential loans and other portfolio is primarily business to business mortgages and construction loans for residential purposes. We have very little exposure to commercial use properties. Turning to the income statement for our digital banking operations, net interest margin on credit assets, that is excluding cash and securities, was 2.55%. That was 14 basis points or 6% higher on a year-over-year basis and down very slightly sequentially. Net interest margin overall, including the impact of cash, securities, and other assets, was 2.25%. an increase of 2% year-over-year and also down slightly from Q2, which was primarily due to the higher-than-typical liquidity. Our net interest margin still remained among the highest of the publicly traded Canadian federally licensed banks. Our provision for credit losses in Q3 continue to be de minimis as a percentage of average credit assets at 0.1%. This was up slightly from Q2 and reflects the forward-looking information used in our credit models. I'd like to turn the call back to David for some closing remarks. David?