VersaBank

Good morning, ladies and gentlemen, and welcome to the VersaBank fourth quarter fiscal 2025 financial results conference call. This morning, VersaBank issued news release reporting its financial results for the fourth quarter and year ended October 31st, 2025. That news release, along with the bank's financial statements, MDNA 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, 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 replay is 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 like to turn the call over to David Taylor, President of VersaBank. Please go ahead, Mr. Taylor.

Good morning, everyone, and thank you for joining us for today's call. With me is our Chief Financial Officer, John Astman. Before I begin, I want to remind you, as I did last quarter, that our financial results for the fourth quarter and the year reflect the costs associated with our plan to realign our corporate structure to that of a standard U.S. bank framework. Those costs amounted to $4.3 million in the fourth quarter and brought the total costs for the year to $8.6 million. These are one-time transitory costs and represent the majority of the total for the realignment, although there will be some that flow into the first half of fiscal 2026. So again, this quarter I will focus my discussion on our adjusted or core earnings as those more accurately reflect the performance of the business going forward. On to our financial results. The fourth quarter was very strong finish to a transformational fiscal 2025 and clear evidence of the momentum of our digital banking business. When we extract the one-time costs and the other adjustments I just noted, you can clearly see the increasing benefit of our operating leverage in our cloud-based business-to-business banking. and ramp up in the United States. Credit assets grew at a healthy 20% year-over-year and 6% sequentially to another record driven by solid growth in Canada as consumer spending remains resilient despite economic softness, as well as the increasing contribution of now rapidly accelerating ramp-up of our receivable purchase program in the United States. although it's worth noting that we are only just beginning to realize the contribution of our expansion south of the border. Combined with steady continued expansion in our net interest margin, this drove year-over-year revenue growth of 29% to a new all-time high. And with the continued improvement in efficiency generated by our operating leverage, that translated into a 91% increase in adjusted net income. John will go into the financial results by segment, but I do want to note here that our US operations are profitable, even at this early point, and we expect to really capitalize on the greater efficiency of the US operation as the RPP ramps up there in 2026. Finally, I'll note that we achieved these metrics with significantly higher than typical levels of liquidity at this early point in our expansion in the US. Let me go into a little more detail on the accelerated momentum we are seeing in our RPP program. Most importantly, of course, in the United States. During Q4, we completed U.S. dollars $200 million in U.S. RPP fundings, and we surpassed our fiscal 2025 target for our U.S. RPP fundings, achieving $310 million in total fundings, ending the year with RPP assets of $293 million. We have since added over $80 million more in fundings. Since the start of Q4, we have added four new RPP partners, two in Canada and two in the United States, highlighted by an agreement with our largest partner to date, ECN Financial, by their subsidiary, SourceOne. Bringing ECN as a partner is especially gratifying given their experience and knowledge in this sector. It is our largest validation to date of the program in the United States. Since we started working together at the end of October, we have already provided more than $90 million of funding to SourceOne. All of this business is under our higher spread core RPP. Importantly, in terms of our results, the vast majority of these recent additions only had a small contribution to the fourth quarter. The pipeline for additional partners remains strong. As I discussed on our last call, we have expanded our RPP program to a securitization option that will generate additional growth through access to a component of the market not previously available to us. We've already seen good initial interest and expect this will be a solid complement to the growth of our core RPP portfolio. Those who have listened to these calls for a while will know that we operate our multi-residential real estate lending business in Canada in an opportunistically way, but will always in the context of risk mitigation. A couple of years ago, we shifted our focus here to new opportunity around CMHC insured construction lending that has contributed both in asset growth and the return on equity as a result of the zero risk weightings. We are Nearing our $1 billion target and commitments for these, with our loan portfolio steadily increasing as borrowers draw down on those commitments. Subsequent to the quarter end, we added new income stream in this business through the enhancement of the program. We are now utilizing our allocated capacity under the Canadian Mortgage Bond Program to invest in CMHC-insured multi-unit residential term mortgages. These are post-construction loans for stabilized properties originated by partners who are well-established leaders in the Canadian multi-res mortgage industry. This initiative requires the minimum incremental regulatory capital, and we will earn fixed fee on the securitization and sale of these CMHC insured mortgages into the CMB program, which are expected to contribute a minimum of $2 million of incremental revenue in fiscal 2026 with a de minimis additional operating costs. We will see the first contribution from this program in Q1. I'd now like to turn the call over to John to review our financial results in detail.

Before I begin, I will remind you that our full financial statements and MD&A for the fourth quarter are available on our website under the Investors section. as well as on CDAR 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 fourth quarter for fiscal 2025 grew 20% year over year and 6% sequentially to a new high of just over $5.8 billion. Cash and securities were $663 million, or 11% of total assets, level with the end of Q3. And I will reiterate here David's earlier comments about there being higher than historical levels of around 7% as a result of our entry into the U.S. market. Book value per share increased to another record of $16.67. Our CET1 ratio was 12.92%, and our leverage ratio was 8.47%, with both remaining above our internal targets. Our strong growth in assets drove total consolidated revenue to a record $35.1 million, up 29% year-over-year and 11% sequentially. Consolidated non-interest expenses, including one-time costs, associated with the realignment and other adjustments were $23.9 million compared with $19.4 million in Q4 last year and $21.6 million for Q3 of this year. Excluding these costs, non-interest expense for Q4 was $19.7 million. As a reminder, DRT cyber expenses are included in our consolidated non-interest expenses and totaled $1.9 million for the quarter. Reported net income was $5.2 million and consolidated earnings per share were 16 cents. Excluding the costs associated with the realignment and other adjustments, consolidated adjusted net income was $10.5 million. or 33 cents per share. So going on to slide 11, looking at the income statement on a segmented basis, revenue for the Canadian banking operations was 27.6 million, up 17% year over year, and 4% sequentially. Again this quarter, I will remind you that the bank's corporate expenses flow through the Canadian digital banking segment, And as a result, reported net income includes those realignment costs and other adjustments. Net income was $3.1 million. However, that number is dampened by the $5.4 million impact of corporate realignment I described earlier. Revenue for the U.S. banking operations was $5.2 million, a 67% increase sequentially, primarily due to the ramp up in the US RPP. That drove a 357% increase sequentially in net income as we begin to see the US operation leverage take effect. As David noted, much of the growth in the US RPP assets in Q4 only contributed partially to the quarter's results, but will fully contribute in Q1. Within DRTC, the cybersecurity component generated revenue of 1.9 million, up from 2.3 million in Q4 of last year. Net loss was $17,000, impacted by higher operating expenses relating to the onboarding support costs for new cybersecurity offerings. Digital media revenue was 1.6 million, with net income of $94,000. Our credit asset portfolio grew to a new record of $5.07 billion at the end of Q4, driven once again by our receivable purchase program, which increased 19% year-over-year and 6% sequentially to $3.9 billion. Our RPP portfolio represented 78% of our total assets portfolio at the end of Q4, Level with the end of Q3. Our multifamily residential loans and other portfolio grew 11% year over year and decreased 3% sequentially to $1 billion. We have enhanced our CMHC insured lending program to invest in CMHC insured multi-unit residential term mortgages and securitize them through the Canadian Mortgage Program. As a reminder, our multifamily residential loans and other portfolio is primarily business-to-business mortgages and construction loans for residential properties. We have very little exposure to commercial use properties. Turning to the income statement for our digital banking operations, net interest margin on our credit assets, that is excluding cash and securities, was 265 basis points. That was 31 basis points, or 13% higher on a year-over-year basis, and 10% or 4% higher sequentially. Overall, net interest margin, including the impact of cash and securities and other assets, was 229 basis points, an increase of 17 basis points year-over-year and up slightly from Q3 2020. and again is dampened by our higher than typical cash balances, but still remained among the highest of the publicly traded Canadian federally licensed banks. Our provision for credit losses or PCLs in Q4 continued to be de minimis as a percentage of average credit assets at 11%. This was up slightly from Q3 and reflects the forward-looking information used in our credit modeling. I'd now like to turn the call back to David for some closing remarks.