VersaBank T.VBNK

Ink Research

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Morning Report: Insiders bet VersaBank can benefit from good and hard times 

March 28, 2023

As of Monday, VersaBank is up 1.5% since we last highlighted it here on December 20th, versus a 0.9% drop for the Equal Weight Bank Index ETF (ZEB). VersaBank is awaiting regulatory approval for its acquisition of Minnesota-based Stearns Bank Holdingford which forms part of VersaBank's digital point-of-sale (POS) North American lending growth strategy. Its POS financing portfolio grew 68% year-over-year and 9% since Q4 2022 to stand at $2.4 billion as of Q1 (ended January 31, 2023). VersaBank's total assets stood at just over $3.5 billion as of Q1.

VersaBank's funding sources primarily come from wealth management partners by offering access to CDIC-insured deposits and its commercial program for insolvencies professionals who have funds to put on deposit. Funding costs have risen over the past year due to greater use of wealth management deposits, but it expects relatively lower-cost commercial deposits should grow as bankruptcies rise during economic weakness. For Q1, net interest margin rose to 2.83% from 2.81% in Q4 and 2.77% a year earlier as higher net interest income helped offset deposit cost pressures. Q1 net income was $0.34 per diluted share versus $0.23 in Q4 and $0.19 a year ago.

VersaBank's Common Equity Tier 1 (CET1) capital ratio of 11.19% (above the 7% CET1 regulatory minimum) has allowed it to pursue growth opportunities, giving it room to not only expand its POS business but also develop digital deposit receipts which are structured as a future competitor to crypto stablecoins. So far in 2023, we have also seen VersaBank buying back shares and insiders buying in the public market.