0001437749-23-034288
SEC filingVersaBank achieved record net income of $42.2M in FY2023, driven by 32% revenue growth and effective cost control, with EPS doubling to $1.57.
VersaBank delivered strong financial results for the fiscal year ended October 31, 2023, with total revenue reaching $108.6 million, a 32% increase from $82.4 million in the prior year. Net interest income, the primary revenue component, grew 31% to $100.1 million, driven by a 29% expansion in the loan portfolio to $3.85 billion. The higher interest rate environment boosted yields, but also increased the cost of funds, leading to a slight 2-basis-point compression in net interest margin to 2.68%. Non-interest income rose 50% to $8.6 million, primarily due to improved performance from the cybersecurity subsidiary, Digital Boundary Group.
Non-interest expenses increased only 2% to $50.4 million, reflecting disciplined cost management despite higher staffing and professional fees related to the pending U.S. bank acquisition. Consequently, income before income taxes surged 77% to $57.6 million, and net income more than doubled to $42.2 million (up 86% year-over-year). Earnings per share (basic and diluted) rose to $1.57 from $0.79, outperforming net income growth due to share repurchases.
Total assets grew 29% to $4.20 billion, fueled by a 30% increase in Point-of-Sale loans and leases to $2.88 billion and a 25% rise in commercial real estate mortgages to $889 million. Deposits increased 33% to $3.53 billion, with personal deposits (primarily GICs) up 42%, reflecting the Bank's expanded broker network. Cash and securities totaled $300 million, representing 7% of assets, largely unchanged from the prior year.
Shareholders' equity increased to $377 million from $351 million, driven by retained earnings and partially offset by share buybacks. The Bank maintained strong capital ratios: CET1 ratio of 11.33% (versus 12.00% in 2022) and leverage ratio of 8.30% (versus 9.84%), comfortably above regulatory minimums.
Operating cash flow turned sharply positive to $94.7 million, compared to a negative $32.7 million in the prior year, as deposit inflows outpaced loan funding. Net cash from operations exceeded net income, indicating healthy cash generation. Net cash used in investing activities totaled $28.1 million, mainly for securities purchases. Financing outflows included $13.3 million for share buybacks and $3.6 million in dividends. The Bank ended the period with cash of $132.2 million, up from $88.6 million, providing ample liquidity.
Management highlighted continued momentum in the Point-of-Sale and commercial lending businesses, supported by stable credit quality. The outlook calls for moderate U.S. economic conditions and sustained demand for durable goods, which should support further growth in the Receivable Purchase Program. Key initiatives include the pending acquisition of Stearns Bank Holdingford N.A., which received approval from the OCC and Federal Reserve; closing is expected in the first calendar quarter of 2024. No specific numerical guidance was provided, but management expects continued organic balance sheet growth and improved contributions from the cybersecurity segment.
Management identified a material weakness in internal control over financial reporting related to the classification of cash flows in interim periods. Though corrected in the annual statements, the weakness highlights the need for enhanced control mechanisms. Credit risk is expected to remain manageable due to the Bank's conservative underwriting and low historical losses, though the uncertain macro environment could lead to higher provisions.
The Bank operates two reportable segments: Digital Banking and DRTC (cybersecurity and fintech development). Digital Banking generated net income of $41.1 million, up 70% year-over-year, driven by loan growth and improved non-interest income. DRTC turned profitable with net income of $1.0 million, versus a $1.5 million loss in 2022, thanks to higher client engagements and a deferred tax asset recognition. The Bank's total allowance for credit losses stood at $2.5 million, up from $1.9 million, with sensitivity analysis showing a downside scenario would increase the allowance by $462,000. The provision for credit losses was $609,000, representing 0.02% of average loans.
Share-based compensation expense was $901,000, down from $1.5 million, as fewer options were granted. Under the Normal Course Issuer Bid, the Bank repurchased and canceled 1.32 million common shares for $13.3 million. No new share repurchase program has been announced. Subordinated notes payable increased slightly to $106.9 million due to foreign exchange translation.