Versabank T.VBNK

Ink Research

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Morning Report: VersaBank insiders positioned for US expansion

July 29, 2024

When we last featured digital banking innovator VersaBank (VBNK) on January 5th, it was waiting for regulatory approvals for its acquisition of Minnesota-based Stearns Bank Holdingford. VBNK received final approval on June 25th and is targeting the deal to close on August 30th. The deal will allow it to launch its point-of-sale Receivable Purchase Program (RPP) in the US. The RPP is a digital funding solution for finance companies that lend money to consumers and small businesses for typically big-ticket purchases. In the 5 fiscal years ended October 31st, 2023, VBNK's Canadian RPP portfolio grew at a compounded annual rate of more than 26%. As of April 30th, its RPP portfolio stood in excess of $3.1 billion.

In Q2 (ended April 30th), VBNK's loans increased 18% year-over-year (y/y) to $4.0 billion, led by the RPP which rose 23%. Sequentially from Q1, loans and RPP lending rose 1%. Net interest margin on loans decreased 47 bps y/y and 11 bps sequentially to 2.52%. Strong RPP growth accounted for some of the drop. VBNK explained that the RPP is composed of lower-risk weighted, lower yielding but higher Return on Common Equity assets than its commercial real estate portfolio. Earnings were $0.45 per share in Q2, up 18% y/y and down 6% sequentially. Higher revenue and lower share count helped y/y growth while higher provisions for credit losses (a recovery was recorded in Q1) and taxes offset pre-tax net income growth in digital banking. On the weekend, US presidential candidate Donald Trump promised to "create a framework to enable the safe, responsible expansion of stablecoins." That could potentially open the regulatory door for VBNK to develop its US dollar digital deposit receipts which it unveiled in November 2021. Since our January report, insiders have continued to buy even as the stock advanced 8.3%, ahead of the BMO Equal Weight Bank Index (ZEB) up 4.3%.