Canada's B2B Digital VersaBank Delivers the Goods in Q1 2023, Looks Set for Further Niche Growth

VersaBank (CA:VBNK) reported its first quarter 2023 results on March 8. Current shareholders in the London, Ontario, business-to-business digital bank’s shareholders have got to be thrilled with the news.

Investors, however, didn’t seem to care. As a result, VBNK shares were barely up on the day.

Part of the problem for the micro-cap is it is thinly traded. Its 30-day average volume is just 83,729 shares; similarly, its Nasdaq-traded shares (US:VBNK) volume is about 57,000 shares. A large-cap financial stock such as the Royal Bank of Canada (CA:RY) has 43x the volume on any given day. It gets the lion’s share of the attention.

But make no mistake, VersaBank delivered first-rate results for the January-end quarter. Adventurous investors would be wise to follow VBNK more closely in the future.

On the top line, VersaBank’s revenue in the quarter was $25.92 million, 7% higher than in Q4 2022 and 42% above those a year earlier. On the bottom line, the digital bank had record net income of $9.42 million, 46% higher than in the previous quarter and 69% higher than in Q1 2022.

The bank’s revenues were considerably higher in the first quarter due to a much larger loan portfolio. In Q1 2023, its loan portfolio increased by 46% over last year to $3.24 billion. Sequentially, its loan portfolio grew by 8%.

Its provision for credit losses (PCLs) was $385,000, 88% higher than at the end of October. Still, they represented just 0.05%, one of the lowest of publicly traded, federally licensed banks.

“Looking out to the remainder of fiscal 2023, we expect to see similar healthy sequential growth in our Canadian loan portfolio to that of the first quarter of this year, as consumer spending remains healthy in the sectors of the economy our Canadian Point of Sale business finances,” stated VersaBank CEO David Taylor. “Importantly, VersaBank was specifically designed to do well in good economic environments and even better in more challenging economic environments.”

VersaBank’s focus is to capture market share in underserved banking markets in Canada and the U.S. Its biggest product in the Canadian market is point-of-sale (POS) financing for consumers. That increased by 68% over last year and 9% sequentially to $2.4 billion.

In the first quarter, it also experienced healthy growth in its Commercial Real Estate (CRE) loan portfolio. It finished the first quarter with $807 million in CRE loans.

In June 2022, VersaBank announced a deal to acquire Minnesota-based Stearns Bank Holdingford for $17.4 million. The U.S. bank focuses on small business lending. It had $60 million in total assets at the time of the announcement.

Management is looking for regulatory approval sometime between April and June. It will close the acquisition shortly after that.

Meanwhile, VersaBanks’ Receivable Purchase Program (RPP) is in the early stages of development. Look for those RPPs to grow through commercial equipment financing once that Minnesota acquisition closes. VersaBank estimates that the U.S. POS financing market is $1.8 trillion, growing at 20% annually.

VersaBank’s stock trades at just 0.8x its Jan. 31, 2023, book value per share of $12.77.

This article originally appeared on Fintel

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