PWC CAPITAL INC VERSABANK ANNOUNCES AN INCREASE OF 44% IN ITS RESULTS FOR ITS THIRD QUARTER ENDING JULY 31, 2016 COMPARED TO THE SAME PERIOD A YEAR AGO.
LONDON, Ontario-(BUSINESS WIRE)-VersaBank (TSX:VB):
THIRD QUARTER HIGHLIGHTS
(compared to the same periods in the prior year unless otherwise noted)
- Net income of VersaBank (the 'Bank') (formerly Pacific & Western Bank of Canada) for the current quarter was $2.5 million or $0.09 per common share (basic and diluted), increasing by 36% from $1.8 million or $0.06 per common share (basic and diluted) for the previous quarter and compared to $1.7 million or $0.05 per common share (basic and diluted) a year ago, an increase of 44%. Net income increased from the previous quarter and a year ago primarily as a result of an increase in net interest income. Net income for the current quarter also included restructuring charges of $98,000 compared to $445,000 for the previous quarter.
- Net income of the Bank for the nine months ended July 31, 2016 was $6.6 million or $0.25 per common share (basic and diluted) increasing by 21% from $5.4 million or $0.21 per common share (basic and diluted) for the same period a year ago with the increase due primarily to an increase in net interest income reduced by restructuring charges. Net income for the same period a year ago included an income tax recovery of $724,000 related to previously unrecognized deferred income tax assets.
- Net interest margin or spread for the current quarter increased to 2.31% from 2.23% for the previous quarter and from 2.24% for the same period a year ago.
- For the nine months ended July 31, 2016, net interest margin or spread increased to 2.28% compared to 2.22% for the same period a year ago.
- Credit quality remains exceptional with no gross impaired loans at July 31, 2016 or at April 30, 2016, or a year ago.
Certain highlights include non-GAAP measures. See definition under 'Basis of Presentation' in the attached Management's Discussion and Analysis.
PRESIDENT'S COMMENTS
I am pleased to report that our Bank has completed a record quarter. Net earnings for the 3 quarter represented a 36% increase over the previous quarter and on year-to-date basis a 21% increase over the same period last year. The considerable investment we have made in technology is rapidly increasing core earnings. Rapid growth, of course, requires additional capital and a few months ago we initiated a strategic review to address this. This review is ongoing and we hope to be in a position to disclose the results this fall.
We have built a highly scalable financial institution whose products and services are in very high demand, Loan and lease receivables acquired through our Bulk Purchase Program continued to grow steadily and the portfolio increased by 5% to $740 million. We purchase loans and lease receivables from an increasing number of non-bank and fintech financiers who operate throughout Canada in a variety of industries, many of which are taking advantage of new technologies to reach their customers. Our program enables this type of financing and indirectly provides much needed financing for small businesses and greater choice for consumers across Canada. We have developed state of the art high capacity systems that allow us to process large numbers of these small ticket transactions. Credit risk is reduced to acceptable levels by substantial cash deposits made by our partners to be available to offset credit losses. Our Bank is at the leading edge of this new method of financing and this new business is a driving force behind the Bank's rapidly increasing profits.
The remainder of the Bank's lending portfolio is comprised of a variety of loans including loans to government entities, credit card receivables and Commercial Real Estate (CRE) loans. The latter class of loans makes up the largest component (70%). A few years ago we made the strategic decision to de-emphasise this type of lending particularly in major urban centres that we thought had the potential to become 'overheated'. As part of this strategy, in 2013 we closed our Calgary branch and reduced our lending in the Toronto GTA. CRE financing still makes a significant contribution to the Bank's overall earnings. However, we do not expect much growth in this portfolio and CRE loans balances declined slightly in the 3 quarter to a balance of $530 million.
Asset quality remained industry leading with the Bank again reporting no impaired loans. We pride ourselves on maintaining stellar credit adjudication and processes that for decades has consistently delivered industry leading results.
Our Bank now has one of the largest and geographically diverse deposit gathering networks in Canada with partners that include many of the large banks' brokerage firms. This channel provides a steady, reliable source of low cost deposits. In addition to this channel we created two new channels for acquiring deposits. The first involved developing an internet banking solution for niche markets that have unique challenges in dealing with the traditional banks and the second involved receiving deposits from our Bulk Purchase vendors. These two low cost channels now provide approximately 35% of the Bank's new deposits and are serving to reduce the Bank's overall cost of funds and increase its NIM, which increased to an industry leading 2.31% in the 3rd quarter.
Total revenue for the quarter increased by 12% to $10.2 million compared to the same quarter last year and on a year-to-date basis increased by 13% to $29.3 million. Net income for the quarter was $2.5 million ($.09 per common share) versus $1.8 million ($.06 per common share) earned in the previous quarter. On a year-to-date basis our Bank earned $6.6 million for the nine months ended July 31 a 21% increase over the same period last year.
Through utilization of specialized software and well-experienced staff, we are able to rapidly acquire large volumes of loans, leases and deposits with minimal costs in niche markets that are not well served by the larger financial institutions. This has enabled our Bank to earn excellent margins without accepting much risk. The financial market place is embracing innovative new ideas and our Bank is at the forefront of prudently applying new ideas and technology to provide Canadians with greater choice and more economical financing solutions.
FINANCIAL HIGHLIGHTS
| (unaudited) | for the three months ended | for the nine months ended | |||||||||||||||
| July 31 | July 31 | July 31 | July 31 | ||||||||||||||
| ($CDN thousands except per share amounts ) | 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Results of operations | |||||||||||||||||
| Net interest income | $ | 9,836 | $ | 8,727 | $ | 28,338 | $ | 25,013 | |||||||||
| Net interest margin* | 2.31% | 2.24% | 2.28% | 2.22% | |||||||||||||
| Non-interest income | 343 | 368 | 953 | 1,010 | |||||||||||||
| Total revenue | 10,179 | 9,095 | 29,291 | 26,023 | |||||||||||||
| Provision for credit losses | 24 | 297 | 449 | 1,226 | |||||||||||||
| Non-interest expenses | 6,654 | 6,421 | 19,177 | 18,222 | |||||||||||||
| Restructuring charges | 98 | - | 543 | - | |||||||||||||
| Income before income taxes | 3,403 | 2,377 | 9,122 | 6,575 | |||||||||||||
| Net income | 2,456 | 1,707 | 6,574 | 5,448 | |||||||||||||
| Income per common share: | |||||||||||||||||
| Basic | $ | 0.09 | $ | 0.05 | $ | 0.25 | $ | 0.21 | |||||||||
| Diluted | $ | 0.09 | $ | 0.05 | $ | 0.25 | $ | 0.21 | |||||||||
| Return on average common equity* | 4.90% | 2.64% | 4.37% | 3.96% | |||||||||||||
| Book value per common share* | $ | 7.72 | $ | 7.36 | $ | 7.72 | $ | 7.36 | |||||||||
| Gross impaired loans to total loans | 0.00% | 0.00% | 0.00% | 0.00% | |||||||||||||
| Provision for credit losses as a % of average loans | 0.01% | 0.02% | 0.03% | 0.09% | |||||||||||||
as at | |||||||||||||||||
| Balance Sheet Summary | |||||||||||||||||
| Cash and securities | $ | 152,028 | $ | 157,357 | $ | 152,028 | $ | 157,357 | |||||||||
| Total loans | 1,499,006 | 1,376,237 | 1,499,006 | 1,376,237 | |||||||||||||
| Average loans | 1,510,643 | 1,360,209 | 1,473,333 | 1,300,242 | |||||||||||||
| Total assets | 1,685,294 | 1,563,102 | 1,685,294 | 1,563,102 | |||||||||||||
| Average assets | 1,691,800 | 1,544,361 | 1,655,550 | 1,504,481 | |||||||||||||
| Deposits | 1,357,963 | 1,275,523 | 1,357,963 | 1,275,523 | |||||||||||||
| Subordinated notes payable | 14,039 | 13,934 | 14,039 | 13,934 | |||||||||||||
| Shareholders' equity | 184,537 | 172,410 | 184,537 | 172,410 | |||||||||||||
| Capital ratios | |||||||||||||||||
| Risk-weighted assets | $ | 1,384,117 | $ | 1,260,199 | $ | 1,384,117 | $ | 1,260,199 | |||||||||
| Total capital | 187,235 | 176,602 | 187,235 | 176,602 | |||||||||||||
| Common Equity Tier 1 (CET1) ratio | 10.70% | 10.68% | 10.70% | 10.68% | |||||||||||||
| Tier 1 capital ratio | 12.82% | 13.01% | 12.82% | 13.01% | |||||||||||||
| Total capital ratio | 13.53% | 14.01% | 13.53% | 14.01% | |||||||||||||
* This is a non-GAAP measure. See definition under 'Basis of Presentation' in the attached Management's Discussion and Analysis. | |||||||||||||||||
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
This management's discussion and analysis (MD&A) of operations and financial condition for the third quarter of fiscal 2016, dated August 29, 2016, should be read in conjunction with the unaudited interim consolidated financial statements for the period ended July 31, 2016, included herein which have been prepared in accordance with International Financial Reporting Standards (IFRS). This MD&A should also be read in conjunction with the Bank's MD&A and the audited consolidated financial statements for the year ended October 31, 2015, which are available on SEDAR at www.sedar.com. Except as discussed below, all other factors discussed and referred to in the MD&A for the year ended October 31, 2015, remain substantially unchanged.
Basis of Presentation
Non-GAAP and Additional GAAP Measures
Net Interest Income and Net Interest Margin or Spread
Most banks analyze profitability by net interest income (as presented in the Consolidated Statements of Income) and net interest margin or spread. Net interest margin or spread is defined as net interest income as a percentage of average total assets. Net interest margin or spread does not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other financial institutions.
Basel III Common Equity Tier 1, Tier 1 and Total Capital Adequacy Ratios
Basel III Common Equity Tier 1, Tier 1 and total capital adequacy ratios are determined in accordance with guidelines issued by the Office of the Superintendent of Financial Institutions Canada (OSFI).
Book Value Per Common Share
Book value per common share is defined as Shareholders' Equity less amounts relating to preferred shares recorded in equity, divided by the number of common shares outstanding.
Return on Average Common Equity
Return on average common equity is defined as annualized net income less amounts relating to preferred share dividends, divided by average common shareholders' equity which is average shareholders' equity less amounts relating to preferred shares recorded in equity.
Non-Interest Expenses to Total Assets Ratio
The ratio of non-interest expenses to total assets is determined by dividing non-interest expenses by total assets.
Overview
VersaBank (the 'Bank') (formerly Pacific & Western Bank of Canada) is a technologically proficient Canadian Schedule I chartered bank which operates using an electronic branchless model. It sources its deposits through a well-established and widely diversified network of deposit brokers and purchases loan and lease receivables. The Bank also makes residential development and commercial loans and mortgages which are sourced through direct contact with its lending staff. Effective May 13, 2016, the Bank changed its name from Pacific & Western Bank of Canada to VersaBank.
The Bank is the principal subsidiary of PWC Capital Inc. ('PWC') whose shares also trade on the Toronto Stock Exchange. At July 31, 2016 PWC owned approximately 63% (October 31, 2015 - 68%) of the common shares of the Bank. On March 7, 2016, PWC and the Bank announced they were undertaking a review of their strategic alternatives. At this time, there can be no assurance that the strategic review process of either PWC or the Bank will result in a transaction for either entity or, if a transaction is undertaken, as to its nature, terms or timing.
Net income for the current quarter was $2.5 million or $0.09 per common share (basic and diluted), increasing by 36% from $1.8 million or $0.06 per common share (basic and diluted) for the previous quarter and compared to $1.7 million or $0.05 per common share (basic and diluted) a year ago, an increase of 44%. Net income increased from the previous quarter and a year ago primarily as a result of an increase in net interest income. Net income for the current quarter also included restructuring charges of $98,000 compared to $445,000 for the previous quarter.
Net income for the nine months ended July 31, 2016 was $6.6 million or $0.25 per common share (basic and diluted), increasing by 21% from $5.4 million or $0.21 per common share (basic and diluted) for the same period a year ago with the changes due primarily to an increase in net interest income reduced by restructuring charges and an increase in non-interest expenses. Net income for the same period a year ago included an income tax recovery of $724,000 related to previously unrecognized deferred income tax assets.
Total assets at July 31, 2016 were $1.69 billion compared to $1.70 billion at the end of the previous quarter and $1.56 billion a year ago. Lending assets were $1.50 billion compared to $1.52 billion at the end of the previous quarter and $1.38 billion a year ago. Credit quality remains strong with no gross impaired loans at July 31, 2016, or at April 30, 2016 or a year ago.
Total Revenue
Total revenue consists of net interest income and non-interest income. Non-interest income consists primarily of fees from credit card operations.
For the three months ended July 31, 2016, total revenue increased to $10.2 million from $9.6 million for the previous quarter and from $9.1 million for the same period a year ago, an increase of 12%, with the increases due to growth in net interest income.
For the nine months ended July 31, 2016, total revenue increased by 13% to $29.3 million from $26.0 million a year ago with the increase due to growth in net interest income.
Net Interest Income
Net interest income for the three months ended July 31, 2016 increased to $9.8 million from $9.4 million for the previous quarter and from $8.7 million for the same period a year ago, an increase of 13%. The increase in net interest income from a year ago was due primarily to growth in lending assets which grew to $1.50 billion at July 31, 2016 from $1.38 billion last year and from a decrease in the Bank's cost of funds which decreased to 1.82% from 2.00% a year ago.
Net interest income for the nine months ended July 31, 2016 increased to $28.3 million from $25.0 million for the same period year ago with the increase due primarily to growth in lending assets and a decrease in the Bank's cost of funds which decreased to 1.92% from 2.02% a year ago.
Net Interest Margin
Net interest margin or spread for the three months ended July 31, 2016 increased to 2.31% from 2.23% for the previous quarter and 2.24% for the same period a year ago. Net interest margin has increased as a result of a decrease in the Bank's cost of deposits as noted above.
Net interest margin or spread for the nine months ended July 31, 2016 increased to 2.28% from 2.22% for the same period a year ago with the increase due to the factors described above.
Provision For Credit Losses
The Bank maintains high credit quality and strong underwriting standards and as a result traditionally requires minimal provisions for credit losses. The provision for credit losses for the current quarter was $24,000 compared to $213,000 for the previous quarter and $297,000 for the same period a year ago. The provision for credit losses decreased from a year ago due to a lower amount of write offs related to credit card receivables as well as a change in Ioan mix over the past year with a decrease in commercial mortgages and loans offset by growth in loan and lease receivables sourced through the bulk finance program which require a lower collective allowance due to the cash holdbacks that are retained.
The provision for credit losses for the nine months ended July 31, 2016 was $449,000 or 3 basis points of average loans compared to $1.2 million or 9 basis points of average loans for the same period a year ago with the decrease due to the change in loan mix as noted above.
Non-Interest Expenses
Non-interest expenses, excluding restructuring costs, totalled $6.7 million for the current quarter compared to $6.5 million for the previous quarter and $6.4 million for the same period a year ago. The increase in non-interest expenses from the previous quarter was due primarily to an increase in premises costs as a result of the opening of new premises. The increase in non-interest expenses from a year ago was due primarily to an increase in employee compensation and an increase in premises costs.
Non-interest expenses, excluding restructuring costs, for the nine months ended July 31, 2016 totalled $19.2 million compared to $18.2 million with the increase due to higher employee compensation as a result of an increase in employee complement and an increase in premises costs. However the Bank continues to see economies of scale as non-interest expenses as a percentage of average assets for the current period decreased to 1.54% from 1.61% for the same period a year ago.
Restructuring Charges
During the three months ended July 31, 2016, the Bank incurred restructuring charges totalling $98,000 and for the nine months ended July 31, 2016 incurred restructuring charges of $543,000 relating to rebranding of the Bank and costs associated with the review of strategic alternatives commenced by the Bank in the previous quarter.
Income Taxes
The statutory federal and provincial income tax rate of the Bank is approximately 27%, similar to that of the previous periods. The statutory rate is impacted by certain items not being taxable or deductible for income tax purposes.
For the three months ended July 31, 2016, the provision for income taxes was $947,000 compared to $708,000 for the previous quarter and $670,000 for the same period a year ago with the changes due to the level of earnings in the Bank.
For the nine months ended July 31, 2016, the provision for income taxes was $2.5 million compared to $1.1 million for the same period a year ago with the change due to a higher level of earnings in the Bank and an income tax recovery of $724,000 recorded last year relating to the recognition of previously unrecognized deferred income tax assets of the Bank.
Comprehensive Income
Comprehensive income is comprised of net income for the period and other comprehensive income which consists of unrealized gains and losses on available-for-sale securities. Comprehensive income of the Bank for the three months ended July 31, 2016 was $2.5 million compared to $1.8 million for the previous quarter and $1.7 million a year ago. For the nine months ended July 31, 2016, comprehensive income of the Bank was $6.6 million compared to $5.5 million a year ago. Due to the current composition of the Bank's treasury portfolio, which consists primarily of liquid securities, unrealized gains or losses in the portfolio are not significant and as a result comprehensive income does not differ significantly from net income.
Consolidated Balance Sheet
Total assets at July 31, 2016 were $1.69 billion compared to $1.70 billion at the end of previous quarter and $1.56 billion a year ago. The increase from a year ago was due to growth in lending assets which grew to $1.50 billion from $1.38 billion last year. Growth in lending assets was primarily a result of an increase in loan and lease receivables sourced through the Bank's bulk purchase program as discussed below.
Cash and Securities
Cash and cash equivalents consist of deposits with Canadian financial institutions and government treasury bills with less than ninety days to maturity from the date of acquisition. Securities in the treasury portfolio typically consist of Government of Canada and Canadian provincial and municipal bonds and debt of other financial institutions. Amounts invested in each of these securities are determined based on liquidity needs, investment yield and capital management considerations. Cash and securities, which are held primarily for liquidity purposes, totalled $152 million or 9.0% of total assets compared to $142 million or 8.3% of total assets at the end of the previous quarter and $157 million or 10.0% of total assets a year ago. The current level of cash and securities as a percentage of total assets is expected to continue to decrease in the coming months.
Loans
At July 31, 2016, loans totalled $1.50 billion compared to $1.52 billion at the end of the previous quarter and $1.38 billion a year ago. The decrease in loans from the previous quarter was due primarily to repayments in commercial mortgages and loans partially offset by growth in loan and lease receivables purchased through the Bank's bulk purchase program. The growth in loans from a year ago was due primarily to increases in construction mortgages and loan and lease receivables purchased through the Bank's bulk purchase program.
At July 31, 2016, the balances of individual loan categories compared to the end of the previous quarter reflects a continuation of the change in lending strategy where focus on government loans has decreased due to market conditions and has been replaced by an emphasis on loan and lease receivables purchased through the bulk purchase program. Compared to a year ago, individual loan categories showed growth in construction mortgages and loan and lease receivables and a decrease in government loans as discussed above and a decrease in commercial mortgages and loans which was due primarily to timing of repayments and advances.
As noted above, loan and lease receivables purchased through the bulk purchase program continued to show strong growth. The balance of loan and lease receivables increased to $740 million at July 31, 2016 from $706 million at the end of the previous quarter, a net increase of $34 million, and from $563 million last year, a net increase of $177 million or 31%. The bulk purchase program, which consists of the purchase of individual loan and lease receivables, continues to be a key initiative and the primary driver for growth of the lending portfolio. The credit quality of these loan and lease receivables is strong and normally attracts a lower collective allowance due to the level of cash holdbacks that are retained.
Total new lending for the quarter was $234 million compared to $198 million for the previous quarter and $277 million a year ago. Loan repayments for the quarter totalled $259 million compared to $173 million for the previous quarter and $246 million a year ago. For the nine months ended July 31, 2016, new lending totalled $662 million compared to $750 million for the same period a year ago and loan repayments totalled $610 million compared to $591 million last year. At July 31, 2016, loan commitments representing loans in the Bank's pipeline totalled $301 million compared to $228 million at the end of the previous quarter and $210 million a year ago.
Residential mortgage exposures
In accordance with the Office of the Superintendent of Financial Institutions (OSFI) Guideline B-20 - Residential Mortgage Underwriting Practices and Procedures, additional information is provided regarding the Bank's residential mortgage exposure. For the purposes of the Guideline, a residential mortgage is defined as a loan to an individual that is secured by residential property (one to four unit dwellings) and includes home equity lines of credit (HELOC's). This differs from the classification of residential mortgages used by the Bank which also includes multi-family mortgages.
Under OSFI's definition, the Bank's exposure to residential mortgages at July 31, 2016 totalled $647,000 compared to $658,000 at the end of the previous quarter and $816,000 a year ago. The Bank did not have any HELOC's outstanding at July 31, 2016, or at the end of the previous quarter or a year ago.
Credit Quality
Gross impaired loans at July 31, 2016, were $nil, unchanged from the end of the previous quarter and a year ago. At July 31, 2016, the collective allowance totalled $2.9 million compared to $3.1 million at the end of previous quarter and compared to $3.1 million a year ago. The collective allowance decreased from the previous quarter as a result of a decrease in commercial mortgages and loans offset by growth in loan and lease receivables sourced through the bulk finance program which require a lower collective allowance due to the cash holdbacks that are retained. Included in the collective allowance at July 31, 2016 was $1.1 million relating to credit card receivables which is similar to the end of the previous quarter and a year ago.
Based on results from ongoing stress testing of the loan portfolio under various scenarios and the secured nature of the existing loan portfolio, the Bank is of the view that any credit losses which exist but cannot be specifically identified at this time are adequately provided for. The Bank's exposure to loan losses in Western Canada and to the oil and gas industry is not significant. As well, the Bank is not concentrated in the housing markets in Toronto and Western Canada.
The geographic concentration of the Bank's lending portfolio at July 31, 2016 has not changed significantly from that at the end of the previous quarter and a year ago where the overall lending portfolio remains concentrated in the province of Ontario.
Other Assets
Other assets totalled $34.3 million at July 31, 2016, compared to $34.5 million at the end of the previous quarter and $29.5 million a year ago with the change from a year ago due to an increase in accounts receivable. Also included in other assets are prepaid expenses, capital assets and the deferred income tax asset.
The deferred income tax asset of the Bank was $6.9 million at July 31, 2016, compared to $7.6 million at the end of the previous quarter and $8.3 million a year ago. The changes from previous periods were primarily a result of the utilization of loss carryforwards due to taxable income earned by the Bank over the past year. The deferred income tax asset is a result of income tax losses of the Bank totalling approximately $20.2 million incurred in previous years. These income tax loss carry-forwards are not scheduled to begin expiring until 2027 if unutilized.
Deposits and Other Liabilities
Deposits are used as a primary source of financing growth in assets and are raised primarily through a well established and well diversified deposit broker network across Canada. Deposits at July 31, 2016, totalled $1.36 billion compared to $1.38 billion at the end of the previous quarter and $1.28 billion a year ago and consist primarily of guaranteed investment certificates. The increase in deposits from a year ago was due to the raising of new deposits to fund the growth in lending assets.
Of the total amount of deposits outstanding, $17.3 million or approximately 1.28% of total deposits at the end of the current quarter were in the form of demand savings accounts compared to $17.9 million or 1.30% of total deposits at the end of the previous quarter and $17.7 million or approximately 1.40% of total deposits a year ago. In addition, the Bank has chequing accounts related to trustees in the Canadian bankruptcy industry as discussed below.
The Bank continues to grow and expand its deposit broker network across Canada. In addition, in order to further diversify its sources of deposits and reduce its cost of new deposits, the Bank has another source of funds, that being a specialized chequing facility platform for trustees in the Canadian bankruptcy industry. The Bank has developed banking software to enable this market to efficiently administer its chequing accounts with these services provided to trustees across Canada. At July 31, 2016, balances from this source totalled $160.3 million compared to $141.4 million at the end of the previous quarter and $108.7 million a year ago.
Other liabilities typically consist of accounts payable and accruals and holdbacks payable related to the bulk purchase program. At July 31, 2016, other liabilities totalled $85.1 million compared to $80.1 million at the end of the previous quarter and $57.6 million a year ago with the increase primarily due to holdbacks associated with loan and lease receivables purchased through the bulk purchase program which have shown significant growth over the past year.
An additional source of financing growth in assets and a source of liquidity is the use of margin lines and securities sold under repurchase agreements. At July 31, 2016, there were no amounts outstanding from these sources compared to none outstanding at the end of the previous quarter and a year ago.
Securitization Liabilities
Securitization liabilities relate to amounts payable to counterparties for cash received upon initiation of securitization transactions. At July 31, 2016, securitization liabilities totalled $43.7 million compared to $43.6 million at the end of the previous quarter and $43.6 million a year ago. The amounts payable to counterparties bear interest at rates ranging from 1.97% - 3.95% and mature between 2016 and 2020. Residential mortgages and other assets are pledged as collateral for securitized liabilities. There have been no securitization transactions in the past several years.
Subordinated Notes Payable
Subordinated notes payable, net of issue costs, totalled $14.0 million at July 31, 2016 compared to $14.0 million at the end of the previous quarter and $13.9 million a year ago. The face value of the outstanding subordinated notes totalled $14.5 million and were issued by the Bank to an unrelated party. These subordinated notes, which are currently callable, bear interest at rates ranging from 8.00% to 11.00% and mature between 2019 and 2021.
Shareholders' Equity
At July 31, 2016, shareholders' equity was $184.5 million compared to $182.6 million at the end of the previous quarter and $172.4 million a year ago. The increase from previous periods was due to earnings and proceeds received from the issue of 657,894 common shares for proceeds of $5 million on March 9, 2016.
Common shares outstanding at July 31, 2016 totalled 20,095,065 unchanged from the end of the previous quarter and compared to 19,437,171 a year ago with the increase due to the issue of 657,894 common shares on a private placement basis referred to above. Common share options totalled 40,000 at July 31, 2016, unchanged from the previous quarter and a year ago.
The Bank's book value per common share at July 31, 2016 was $7.72 compared to $7.63 at the end of the previous quarter and $7.36 a year ago.
See Note 9 to the unaudited interim consolidated financial statements for additional information relating to share capital.
Updated Share Information
As at August 29, 2016, there were no changes since July 31, 2016 in the number of outstanding common shares, Series 1 and Series 3 Preferred Shares and common share options.
Off-Balance Sheet Arrangements
As at July 31, 2016, the Bank does not have any significant off-balance sheet arrangements other than loan commitments and letters of credit resulting from normal course business activities. See Note 11 to the unaudited interim consolidated financial statements for more information.
Related Party Transactions
During the three and nine month periods ended July 31, 2016, the Bank incurred management and other fees totalling $225,000 (July 31, 2015 - $150,000) and $525,000 (July 31, 2015 - $450,000) respectively to PWC.
The Bank's and PWC's Board of Directors and Senior Executive Officers represent key management personnel. See Note 12 to the unaudited interim consolidated financial statements for additional information on related party transactions and balances.
Risk Management
The risk management policies and procedures of the Bank are provided in its annual MD&A for the year ended October 31, 2015, and are found on pages 39 to 46 of the Bank's 2015 Annual Report.
Capital Management and Capital Resources
The Basel Committee on Banking Supervision has rules supporting stringent global standards on capital adequacy and liquidity (Basel III). Significant rules under Basel III that are most relevant to the Bank include:
- Increased focus on tangible common equity.
- All forms of non-common equity such as the Bank's conventional subordinated notes must be non-viability contingent capital (NVCC) compliant. NVCC compliant means the subordinated notes must include a clause that would require conversion to common equity in the event that OSFI deems the institution to be insolvent or a government is ready to inject a 'bail out' payment.
- Changes in the risk-weighting of certain assets.
- Additional capital buffers.
- Requirements for levels of liquidity and new liquidity measurements.
The Bank reports its regulatory capital ratios using the Standardized approach for calculating risk-weighted assets, as defined under Basel III, which requires the Bank to carry significantly more capital for certain credit exposures compared to requirements under the Advanced Internal Ratings Based (AIRB) methodology. As a result, regulatory capital ratios of banks that utilize the Standardized approach are not directly comparable with the large Canadian banks which use the AIRB methodology.
OSFI requires that all Canadian banks must comply with the Basel III standards on an 'all-in' basis for purposes of determining its risk-based capital ratios. Required minimum regulatory capital ratios are a 7.0% Common Equity Tier 1 (CET1) capital ratio and an 8.5% Tier 1 capital ratio and 10.5% total capital ratio, all of which include a 2.5% capital conservation buffer. The Basel III rules provide for 'transitional' adjustments whereby certain aspects of the new rules will be phased in between 2013 and 2019. The only available transition allowed by OSFI for capital ratios is related to the 10 year phase out of non-qualifying capital instruments.
Under the Basel III standards, total regulatory capital of the Bank was $187.2 million at July 31, 2016 compared to $184.6 million at the end of the previous quarter and $176.6 million a year ago. The increase in total regulatory capital from the previous periods was due primarily to earnings in the Bank during the periods and a private placement of common shares totalling $5.0 million by the Bank in March 2016.
At July 31, 2016, the Bank exceeded the current Basel III regulatory capital requirements referred to above with a CET1 ratio of 10.70% compared to 10.59% at the end of the previous quarter and 10.68% a year ago. At July 31, 2016, the Bank's Tier 1 capital ratio was 12.82% compared to 12.73% at the end of the previous quarter and 13.01% a year ago. In addition, the Bank's total capital ratio was 13.53% at July 31, 2016, compared to 13.44% at the end of the previous quarter and 14.01% a year ago. At July 31, 2016, the Bank's leverage ratio was 9.77% compared to 9.68% at the end of the previous quarter and 9.84% a year ago.
See Note 13 to the interim consolidated financial statements for more information regarding capital management.
Interest Rate Risk Management
The Bank is subject to interest rate risk which is the risk that a movement in interest rates could negatively impact net interest margin, net interest income and the economic value of assets, liabilities and shareholders' equity. The following table provides the duration difference between the Bank's assets and liabilities and the potential after-tax impact of a 100 basis point shift in interest rates on the Bank's earnings during a 12 month period and the potential after-tax impact of a 100 basis point shift in interest rates on the Bank's shareholders' equity over a 60 month period if no remedial actions are taken.
| July 31, 2016 | October 31, 2015 | |||||||||||||
| Increase 100 bps | Decrease 100 bps | Increase 100 bps | Decrease 100 bps | |||||||||||
| Impact on projected net interest | ||||||||||||||
| income during a 12 month period | $ | 2,761 | $ | (2,579) | $ | 3,371 | $ | (3,114) | ||||||
| Impact on reported equity | ||||||||||||||
| during a 60 month period | $ | (1,014) | $ | 1,096 | $ | 295 | $ | (86) | ||||||
| Duration difference between assets and | ||||||||||||||
| liabilities (months) | 0.3 | 0.8 | ||||||||||||
The Bank's sensitivity to changes in interest rates and its duration difference between assets and liabilities at July 31, 2016 has not changed significantly since October 31, 2015. As indicated by the above, the impact on net interest income during a 12 month period of a 100 basis point increase would be approximately $2.8 million and the impact on net interest income of a 100 basis point decrease would be approximately ($2.6 million). Similarly at July 31, 2016, the impact on equity during a 60 month period of a 100 basis point increase would be approximately ($1.0 million) and the impact on equity of a 100 basis point decrease would be approximately $1.1 million. The duration difference between assets and liabilities is less than 1 month compared to approximately 1 month at October 31, 2015 and shows that the Bank's assets and liabilities would reprice at approximately the same time in the event of a change in interest rates.
Liquidity
The unaudited Consolidated Statement of Cash Flows for the nine months ended July 31, 2016 shows cash provided by (used in) operations of ($641,000) compared to ($50.6 million) for the same period last year. The operating cash flow is primarily affected by the change in the balance of its deposits (a positive change in deposits has a positive impact on cash flow and a negative change in deposits has a negative impact on cash flow) as compared to the change in the balance of its loans (a positive change in loans has a negative impact on cash flow and a negative change in loans has a positive impact on cash flow). Based on factors such as liquidity requirements and opportunities for investment in loans and securities, the Bank may manage the amount of deposits it receives and loans it funds in ways that result in the balances of these items giving rise to either negative or positive cash flow from operations. The Bank will continue to fund its operations and meet contractual obligations as they become due from cash on hand and from managing the amount of deposits it receives as compared to the amount of loans it funds.
Contractual Obligations
Contractual obligations as disclosed in its MD&A and audited consolidated financial statements for the year ended October 31, 2015, have not changed significantly as at July 31, 2016.
Capital Assets
The operations are not dependent upon significant amounts of capital assets to generate revenue. Currently, the Bank does not have any commitments for capital expenditures or for significant additions to its level of capital assets.
Summary of Quarterly Results
| ($CDN thousands except per share amounts) | 2016 | 2015 | 2014 | ||||||||||||||||||||||
| Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | ||||||||||||||||||
| Results of operations: | |||||||||||||||||||||||||
| Total interest income | $ | 17,628 | $ | 17,346 | $ | 17,226 | $ | 16,685 | $ | 16,513 | $ | 15,630 | $ | 15,629 | $ | 15,078 | |||||||||
| Yield on assets (%) | 4.13% | 4.14% | 4.11% | 4.15% | 4.24% | 4.21% | 4.18% | 4.27% | |||||||||||||||||
| Interest expense | 7,792 | 7,986 | 8,084 | 7,724 | 7,786 | 7,375 | 7,598 | 7,469 | |||||||||||||||||
| Cost of funds (%) | 1.82% | 1.91% | 1.93% | 1.92% | 2.00% | 1.99% | 2.03% | 2.11% | |||||||||||||||||
| Net interest income | 9,836 | 9,360 | 9,142 | 8,961 | 8,727 | 8,255 | 8,031 | 7,609 | |||||||||||||||||
| Net interest margin (%) | 2.31% | 2.23% | 2.18% | 2.23% | 2.24% | 2.22% | 2.15% | 2.16% | |||||||||||||||||
| Non-interest income | 343 | 285 | 325 | 384 | 368 | 304 | 338 | 791 | |||||||||||||||||
| Total revenue | 10,179 | 9,645 | 9,467 | 9,345 | 9,095 | 8,559 | 8,369 | 8,400 | |||||||||||||||||
| Provision for credit losses | 24 | 213 | 212 | 319 | 297 | 427 | 502 | 400 | |||||||||||||||||
| Non-interest expenses | 6,654 | 6,472 | 6,051 | 6,562 | 6,421 | 6,264 | 5,537 | 6,243 | |||||||||||||||||
| Restructuring charges | 98 | 445 | - | - | - | - | - | - | |||||||||||||||||
| Income before income taxes | 3,403 | 2,515 | 3,204 | 2,464 | 2,377 | 1,868 | 2,330 | 1,757 | |||||||||||||||||
| Income tax provision (recovery) | 947 | 708 | 893 | (306) | 670 | (194) | 651 | (719) | |||||||||||||||||
| Net income | $ | 2,456 | $ | 1,807 | $ | 2,311 | $ | 2,770 | $ | 1,707 | $ | 2,062 | $ | 1,679 | $ | 2,476 | |||||||||
| Income per common share | |||||||||||||||||||||||||
| Basic | $ | 0.09 | $ | 0.06 | $ | 0.09 | $ | 0.11 | $ | 0.05 | $ | 0.09 | $ | 0.07 | $ | 0.13 | |||||||||
| Diluted | $ | 0.09 | $ | 0.06 | $ | 0.09 | $ | 0.11 | $ | 0.05 | $ | 0.09 | $ | 0.07 | $ | 0.13 | |||||||||
The financial results for each of the last eight quarters are summarized above. Total interest income and net interest income continued to increase through 2015 and in the first three quarters of 2016 as a result of growth in lending assets, specifically loan and lease receivables purchased through the Bank's bulk purchase program.
The Bank's cost of funds decreased over the past eight quarters as a result of reductions in the Bank of Canada interest rate as well as the Bank being able to hold lower amounts of cash and securities which reduces the amount of deposits being raised and its related cost. An additional factor in the decrease in the cost of funds was the growth over the periods in chequing accounts of trustees in the Canadian bankruptcy industry.
Restructuring charges in the third and second quarters of 2016 relate to rebranding of the Bank and costs associated with the review of strategic alternatives commenced by the Bank in the second quarter as discussed previously.
The provision for income taxes in each of the quarters reflects the effective statutory income tax rate of 27% applied to earnings in the Bank. The provision for income taxes in the fourth and second quarters of 2015 and the fourth quarter of 2014 includes positive income tax adjustments relating to a change in the estimate of previously unrecognized deferred income tax assets of the Bank.
Significant Accounting Policies and Use of Estimates and Judgments
Significant accounting policies are detailed in Note 3 of the Bank's 2015 Audited Consolidated Financial Statements. There have been no material changes in accounting policies since October 31, 2015.
In preparing the consolidated financial statements, management has exercised judgment and developed estimates in applying accounting policies and generating reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting periods. Areas where significant judgment was applied were in the assessments of impairment of financial instruments. Estimates were developed in the calculation of the allowance for credit losses and the measurement of deferred income taxes.
It is reasonably possible, on the basis of existing knowledge, that actual results may vary from that expected in the generation of these estimates. This could result in material adjustments to the carrying amounts of assets and/or liabilities affected in the future.
Estimates and their underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are applied prospectively once they are recognized.
The policies discussed below are considered particularly significant as they require management to make estimates or judgements, some of which may relate to matters that are inherently uncertain.
Loans
Loans are initially measured at fair value plus incremental direct transaction costs. Loans are subsequently measured at amortized cost, net of allowance for credit losses, using the effective interest method. On a monthly basis, the Bank assesses whether or not there is any objective evidence to suggest that the carrying value of the loans may be impaired. Impairment assessments are facilitated through the identification of loss events and assessments of their impact on the estimated future cash flows of the loans.
A loan is classified as impaired when, in management's opinion, there has been deterioration in credit quality to the extent that there is no longer reasonable assurance as to the timely collection of the full amount of principal and interest. Loans, except credit cards, where interest or principal is contractually past due 90 days are automatically recognized as impaired, unless management determines that the loan is fully secured, in the process of collection and the collection efforts are reasonably expected to result in either repayment of the loan or restoring it to current status. All loans, except credit cards, are classified as impaired when interest or principal is past due 180 days, except for loans guaranteed or insured by the Canadian government, provinces, territories, or a Canadian government agency, which are classified as impaired when interest or principal is contractually 365 days in arrears. Credit card receivables are written off when payments are 180 days past due, or upon receipt of a bankruptcy notification.
As loans are classified as loans and receivables and measured at amortized cost, an impairment loss is measured as the difference between the carrying amount and the present value of future cash flows discounted using the effective interest rate computed at initial recognition, if future cash flows can be reasonably estimated. When the amounts and timing of cash flows cannot be reasonably estimated, the carrying amount of the loan is reduced to its estimated net realizable value based on either:
(i) the fair value of any security underlying the loan, net of expected costs of realization, or,
(ii) observable market prices for the loan.
Impairment losses are recognized in income or loss. If, in a subsequent period, the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was first recognized, then a recovery of a portion or all of the previously recognized impairment loss is adjusted through income or loss to reflect the net recoverable amount of the impaired loan.
Real estate held for resale is recorded at the lower of cost and fair value, less costs to sell.
Allowance for Credit Losses
The Bank maintains an allowance for credit losses which, in management's opinion, is adequate to absorb all credit related losses in its loan portfolio. The allowance for credit losses consists of both individual and collective allowances and is reviewed on a monthly basis. The allowance is included in loans on the Consolidated Balance Sheets.
The Bank considers evidence of impairment for loans at both an individual asset and collective level. All individually significant loans are assessed for impairment first. All individually significant loans found not to be specifically impaired and all loans which are not individually significant are then collectively assessed for impairment.
The collective allowance is determined by separating loans into categories that are considered to have common risk elements and reviewing factors such as current portfolio credit quality trends, exposure at default, probability of default and loss given default rates and business and economic conditions. The collective allowance may also be adjusted by management using its judgment taking into account other observable and unobservable factors.
Corporate Income Taxes
Current income taxes are calculated based on taxable income at the reporting period end. Taxable income differs from accounting income because of differences in the inclusion and deductibility of certain components of income which are established by Canadian taxation authorities. Current income taxes are measured at the amount expected to be recovered or paid using statutory tax rates at the reporting period end.
The Bank follows the asset and liability method of accounting for deferred income taxes. Deferred income tax assets and liabilities arise from temporary differences between financial statement carrying values and the respective tax base of those assets and liabilities. Deferred income tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years when temporary differences are expected to be recovered or settled.
Deferred income tax assets are recognized in the consolidated financial statements to the extent that it is probable that the Bank will have sufficient taxable income to enable the benefit of the deferred income tax asset to be realized. Unrecognized deferred income tax assets are reassessed for recoverability at each reporting period end.
The realization of the deferred income tax asset is dependent upon the Bank being able to generate taxable income during the carry-forward period sufficient to offset the income tax losses and deductible temporary timing differences. While management is of the opinion that it is probable that the Bank will be able to realize the deferred income tax asset, there is no guarantee the Bank will be able to generate sufficient taxable income during the carry-forward period. The realization of the deferred income tax asset is dependent upon the Bank being able to generate taxable income in future years sufficient to offset the income tax losses.
Future Change in Accounting Policies
Financial instruments (IFRS 9)
In July, 2014, the International Accounting Standards Board (IASB) issued the final revised IFRS 9 standard which addresses classification, measurement and impairment of financial instruments and hedge accounting. IFRS 9 specifies that financial assets be classified into one of three categories: financial assets measured at amortized cost, financial assets measured at fair value through profit or loss or financial assets measured at fair value through other comprehensive income. The standard also includes an expected credit loss model and a general hedging model.
IFRS 9 will be mandatorily effective for the Bank's fiscal year beginning on November 1, 2018, although early adoption is permitted. In January 2015, OSFI determined that Domestic Systematically Important Banks (D-SIBs) should adopt IFRS 9 for their annual periods beginning November 1, 2017, while early adoption is permitted but not required for other federally regulated Canadian banks with October year ends such as the Bank.
Controls and Procedures
During the quarter ended July 31, 2016, there were no changes in the Bank's internal controls over financial reporting, that have materially affected, or are reasonably likely to materially affect, the Bank's internal controls over financial reporting.
Forward-Looking Statements
The statements in this management's discussion and analysis that relate to the future are forward-looking statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, many of which are out of our control. Risks exist that predictions, forecasts, projections and other forward-looking statements will not be achieved. Readers are cautioned not to place undue reliance on these forward-looking statements as a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to, the strength of the Canadian economy in general and the strength of the local economies within Canada in which we conduct operations; the effects of changes in monetary and fiscal policy, including changes in interest rate policies of the Bank of Canada; global commodity prices, the effects of competition in the markets in which we operate; inflation; capital market fluctuations; the timely development and introduction of new products in receptive markets; the impact of changes in the laws and regulations regulating financial services; changes in tax laws; technological changes; unexpected judicial or regulatory proceedings; unexpected changes in consumer spending and savings habits; and our anticipation of and success in managing the risks implicated by the foregoing. For a detailed discussion of certain key factors that may affect our future results, please see page 46 of our 2015 Annual Report.
The foregoing list of important factors is not exhaustive. When relying on forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. The forward-looking information contained in the management's discussion and analysis is presented to assist our shareholders in understanding our financial position and may not be appropriate for any other purposes. Except as required by securities law, we do not undertake to update any forward-looking statement that is contained in this management's discussion and analysis or made from time to time by the Bank or on its behalf.
VERSABANK
(formerly Pacific & Western Bank of Canada)
Consolidated Balance Sheets
(Unaudited)
| (thousands of Canadian dollars) | |||||||||||
| July 31 | October 31 | July 31 | |||||||||
| As at | 2016 | 2015 | 2015 | ||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | 142,048 | $ | 127,078 | $ | 134,883 | |||||
| Securities (note 4) | 9,980 | 22,433 | 22,474 | ||||||||
| Loans, net of allowance for credit losses (note 5) | 1,499,006 | 1,447,660 | 1,376,237 | ||||||||
| Other assets | 34,260 | 28,635 | 29,508 | ||||||||
| $ | 1,685,294 | $ | 1,625,806 | $ | 1,563,102 | ||||||
| Liabilities and Shareholders' Equity | |||||||||||
| Deposits | $ | 1,357,963 | $ | 1,325,828 | $ | 1,275,523 | |||||
| Subordinated notes payable (note 6) | 14,039 | 13,959 | 13,934 | ||||||||
| Securitization liabilities (note 7) | 43,685 | 43,525 | 43,625 | ||||||||
| Other liabilities (note 8) | 85,070 | 67,872 | 57,610 | ||||||||
| 1,500,757 | 1,451,184 | 1,390,692 | |||||||||
| Shareholders' equity: | |||||||||||
| Share capital (note 9) | 176,706 | 171,706 | 171,702 | ||||||||
| Retained earnings | 7,827 | 2,903 | 683 | ||||||||
| Accumulated other comprehensive income | 4 | 13 | 25 | ||||||||
| 184,537 | 174,622 | 172,410 | |||||||||
| $ | 1,685,294 | $ | 1,625,806 | $ | 1,563,102 | ||||||
The accompanying notes are an integral part of these interim Consolidated Financial Statements.
VERSABANK
(formerly Pacific & Western Bank of Canada)
Consolidated Statements of Income
(Unaudited)
| (thousands of Canadian dollars, except per share amounts) | ||||||||||||||
| for the three months ended | for the nine months ended | |||||||||||||
| July 31 | July 31 | July 31 | July 31 | |||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||
| Interest income: | ||||||||||||||
| Loans | $ | 17,288 | $ | 16,130 | $ | 51,287 | $ | 46,564 | ||||||
| Securities | 340 | 383 | 913 | 1,208 | ||||||||||
| 17,628 | 16,513 | 52,200 | 47,772 | |||||||||||
| Interest expense: | ||||||||||||||
| Deposits and other | 7,438 | 7,435 | 22,812 | 21,719 | ||||||||||
| Subordinated notes | 354 | 351 | 1,050 | 1,040 | ||||||||||
| 7,792 | 7,786 | 23,862 | 22,759 | |||||||||||
| Net interest income | 9,836 | 8,727 | 28,338 | 25,013 | ||||||||||
| Non-interest income | 343 | 368 | 953 | 1,010 | ||||||||||
| Total revenue | 10,179 | 9,095 | 29,291 | 26,023 | ||||||||||
| Provision for credit losses (note 5b) | 24 | 297 | 449 | 1,226 | ||||||||||
| 10,155 | 8,798 | 28,842 | 24,797 | |||||||||||
| Non-interest expenses: | ||||||||||||||
| Salaries and benefits | 3,589 | 3,568 | 10,493 | 9,404 | ||||||||||
| General and administrative | 2,302 | 2,327 | 6,870 | 7,244 | ||||||||||
| Premises and equipment | 763 | 526 | 1,814 | 1,574 | ||||||||||
| 6,654 | 6,421 | 19,177 | 18,222 | |||||||||||
| Restructuring charges | 98 | - | 543 | - | ||||||||||
| 6,752 | 6,421 | 19,720 | 18,222 | |||||||||||
| Income before income taxes | 3,403 | 2,377 | 9,122 | 6,575 | ||||||||||
| Income tax provision | 947 | 670 | 2,548 | 1,127 | ||||||||||
| Net income | $ | 2,456 | $ | 1,707 | $ | 6,574 | $ | 5,448 | ||||||
| Basic and diluted income per common share (note 10) | $ | 0.09 | $ | 0.05 | $ | 0.25 | $ | 0.21 | ||||||
| Weighted average number of | ||||||||||||||
| common shares outstanding | 20,095,000 | 19,437,000 | 19,783,000 | 19,437,000 | ||||||||||
The accompanying notes are an integral part of these interim Consolidated Financial Statements.
VERSABANK
(formerly Pacific & Western Bank of Canada)
Consolidated Statements of Comprehensive Income
(Unaudited)
| (thousands of Canadian dollars) | ||||||||||||
| for the three months ended | for the nine months ended | |||||||||||
| July 31 | July 31 | July 31 | July 31 | |||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||
| Net income | $ | 2,456 | $ | 1,707 | $ | 6,574 | $ | 5,448 | ||||
| Other comprehensive income (loss), net of tax | ||||||||||||
Net unrealized gains (losses) on assets held as available-for-sale | (2) | (8) | (9) | 6 | ||||||||
| Comprehensive income | $ | 2,454 | $ | 1,699 | $ | 6,565 | $ | 5,454 | ||||
Net of income tax benefit for the three months of $1 (2015 - $3) and income tax benefit for the nine months of $3 (2015 - $2 expense)
The accompanying notes are an integral part of these interim Consolidated Financial Statements.
VERSABANK
(formerly Pacific & Western Bank of Canada)
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
| (thousands of Canadian dollars) | ||||||||||||||
| for the three months ended | for the nine months ended | |||||||||||||
| July 31 | July 31 | July 31 | July 31 | |||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||
| Common shares (note 9): | ||||||||||||||
| Balance, beginning of the period | $ | 147,224 | $ | 142,224 | $ | 142,224 | $ | 142,224 | ||||||
| Issued during the period | - | - | 5,000 | - | ||||||||||
| Balance, end of the period | $ | 147,224 | $ | 142,224 | $ | 147,224 | $ | 142,224 | ||||||
| Preferred shares (note 9): | ||||||||||||||
| Series 1 preferred shares | ||||||||||||||
| Balance, beginning and end of the period | $ | 13,647 | $ | 13,647 | $ | 13,647 | $ | 13,647 | ||||||
| Series 3 preferred shares | ||||||||||||||
| Balance, beginning of the period | $ | 15,690 | $ | 15,690 | $ | 15,690 | $ | - | ||||||
| Issued during the period, net of issue costs and income taxes | - | - | - | 15,690 | ||||||||||
| Balance, beginning and end of the period | $ | 15,690 | $ | 15,690 | $ | 15,690 | $ | 15,690 | ||||||
| Contributed surplus: | ||||||||||||||
| Balance, beginning of the period | $ | 145 | $ | 134 | $ | 145 | $ | 122 | ||||||
| Fair value of stock options granted | - | 7 | - | 19 | ||||||||||
| Balance, end of the period | $ | 145 | $ | 141 | $ | 145 | $ | 141 | ||||||
| Total share capital | $ | 176,706 | $ | 171,702 | $ | 176,706 | $ | 171,702 | ||||||
| Retained earnings (deficit): | ||||||||||||||
| Balance, beginning of the period | $ | 5,921 | $ | (265) | $ | 2,903 | $ | (3,493) | ||||||
| Net income | 2,456 | 1,707 | 6,574 | 5,448 | ||||||||||
| Dividends paid on preferred shares (note 10) | (550) | (759) | (1,650) | (1,272) | ||||||||||
| Balance, end of the period | $ | 7,827 | $ | 683 | $ | 7,827 | $ | 683 | ||||||
| Accumulated other comprehensive income, net of taxes: | ||||||||||||||
| Balance, beginning of the period | $ | 6 | $ | 33 | $ | 13 | $ | 19 | ||||||
| Other comprehensive income (loss) | (2) | (8) | (9) | 6 | ||||||||||
| Balance, end of the period | $ | 4 | $ | 25 | $ | 4 | $ | 25 | ||||||
| Total shareholders' equity | $ | 184,537 | $ | 172,410 | $ | 184,537 | $ | 172,410 | ||||||
The accompanying notes are an integral part of these interim Consolidated Financial Statements.
VERSABANK
(formerly Pacific & Western Bank of Canada)
Consolidated Statements of Cash Flows
(Unaudited)
| (thousands of Canadian dollars) | ||||||||||
| July 31 | July 31 | |||||||||
| For the nine months ended | 2016 | 2015 | ||||||||
| Cash provided by (used in): | ||||||||||
| Operations: | ||||||||||
| Net income | $ | 6,574 | $ | 5,448 | ||||||
| Adjustments to determine net cash flows: | ||||||||||
| Items not involving cash: | ||||||||||
| Provision for credit losses | 449 | 1,226 | ||||||||
| Stock-based compensation | - | 19 | ||||||||
| Income tax provision | 2,548 | 1,127 | ||||||||
| Interest income | (52,200) | (47,772) | ||||||||
| Interest expense | 23,862 | 22,759 | ||||||||
| Interest received | 51,300 | 47,255 | ||||||||
| Interest paid | (23,812) | (23,251) | ||||||||
| Income taxes paid | (1,239) | - | ||||||||
| Change in operating assets and liabilities: | ||||||||||
| Loans | (50,339) | (152,229) | ||||||||
| Deposits | 32,325 | 82,448 | ||||||||
| Change in other assets and liabilities | 9,891 | 12,390 | ||||||||
| (641) | (50,580) | |||||||||
| Investing: | ||||||||||
| Purchase of securities | (9,583) | - | ||||||||
| Proceeds from sale and maturity of securities | 21,844 | 25,905 | ||||||||
| 12,261 | 25,905 | |||||||||
| Financing: | ||||||||||
| Proceeds from shares issued, net of costs | 5,000 | 15,690 | ||||||||
| Dividends paid | (1,650) | (1,272) | ||||||||
| 3,350 | 14,418 | |||||||||
| Increase (decrease) in cash and cash equivalents | 14,970 | (10,257) | ||||||||
| Cash and cash equivalents, beginning of the period | 127,078 | 145,140 | ||||||||
| Cash and cash equivalents, end of the period | $ | 142,048 | $ | 134,883 | ||||||
| Cash and cash equivalents is represented by: | ||||||||||
| Cash | $ | 142,048 | $ | 44,894 | ||||||
| Cash equivalents | - | 89,989 | ||||||||
| Cash and cash equivalents, end of the period | $ | 142,048 | $ | 134,883 | ||||||
The accompanying notes are an integral part of these interim Consolidated Financial Statements.
VERSABANK
(formerly Pacific & Western Bank of Canada)
Notes to Interim Consolidated Financial Statements
(Unaudited)
Three and nine month periods ended July 31, 2016 and 2015
1.Reporting entity:
VersaBank (the 'Bank') (formerly Pacific & Western Bank of Canada) operates as a Schedule I bank under the Bank Act (Canada) and is regulated by the Office of the Superintendent of Financial Institutions (OSFI). The Bank, whose shares trade on the Toronto Stock Exchange, is involved in the business of providing commercial lending services to selected niche markets. Effective May 13, 2016, the Bank changed its name from Pacific & Western Bank of Canada to VersaBank.
The Bank is incorporated and domiciled in Canada, and maintains its registered office at Suite 2002, 140 Fullarton Street, London, Ontario, Canada, N6A 5P2. It is the principal subsidiary of PWC Capital Inc. ('PWC') whose shares also trade on the Toronto Stock Exchange. At July 31, 2016 PWC owned approximately 63% (October 31, 2015 - 68%) of the common shares of the Bank.
2.Basis of preparation:
a) Statement of compliance:
These interim Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and have been prepared in accordance with International Accounting Standard (IAS) 34 - Interim Financial Reporting and do not include all of the information required for full annual financial statements. These interim Consolidated Financial Statements should be read in conjunction with the Bank's audited Consolidated Financial Statements for the year ended October 31, 2015.
The interim Consolidated Financial Statements for the three and nine months ended July 31, 2016 and 2015 were approved by the Audit Committee of the Board of Directors on August 29, 2016.
b) Basis of measurement:
These interim Consolidated Financial Statements have been prepared on the historical cost basis except for securities designated as available-for-sale that are measured at fair value in the Consolidated Balance Sheets.
c) Functional and presentation currency:
These interimConsolidated Financial Statements are presented in Canadian dollars which is the Bank's functional currency. Except as indicated, the financial information presented has been rounded to the nearest thousand.
d) Use of estimates and judgments:
In preparing these interimConsolidated Financial Statements, management has exercised judgment and developed estimates in applying accounting policies and generating reported amounts of assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Areas where significant judgment was applied were in the assessments of impairment of financial instruments. Estimates include the calculation of the allowance for credit losses and the measurement of deferred income taxes.
It is reasonably possible, on the basis of existing knowledge, that actual results may vary from that expected in the generation of these estimates. This could result in material adjustments to the carrying amounts of assets and/or liabilities affected in the future.
Estimates and their underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are applied prospectively once they are recognized.
3.Significant accounting policies:
The accounting policies applied by the Bank in these interim Consolidated Financial Statements are the same as those applied by the Bank as at and for the year ended October 31, 2015 and are detailed in Note 3 of the Bank's 2015 Audited Consolidated Financial Statements.
4.Securities:
Portfolio analysis:
| July 31 | October 31 | July 31 | ||||||||
| 2016 | 2015 | 2015 | ||||||||
| Available-for-sale securities | ||||||||||
| Securities issued or guaranteed by: | ||||||||||
| Canadian provincial governments | $ | 9,713 | $ | 9,607 | $ | 9,634 | ||||
| Canadian municipal governments | 267 | 279 | 276 | |||||||
| Total available-for-sale securities | $ | 9,980 | $ | 9,886 | $ | 9,910 | ||||
| Held-to-maturity security | ||||||||||
| Debt of other financial institutions | $ | - | $ | 12,547 | $ | 12,564 | ||||
| Total securities | $ | 9,980 | $ | 22,433 | $ | 22,474 | ||||
Canadian provincial government securities are carried at fair value based on quoted market prices (Level 1). Canadian municipal debt falls into Level 2 of the fair value hierarchy. See Note 3 (c) of the October 31, 2015 consolidated financial statements for more information.
5.Loans:
a) Portfolio analysis:
| July 31 | October 31 | July 31 | ||||||||
| 2016 | 2015 | 2015 | ||||||||
| Government loans | $ | 65,112 | $ | 72,181 | $ | 77,246 | ||||
| Loan and lease receivables | 739,735 | 618,432 | 563,197 | |||||||
| Residential mortgages | 99,681 | 112,759 | 106,428 | |||||||
| Commercial mortgages | 220,699 | 269,193 | 260,348 | |||||||
| Construction mortgages | 260,711 | 237,100 | 232,467 | |||||||
| Commercial loans | 82,023 | 104,996 | 105,655 | |||||||
| Credit card receivables and other | 28,733 | 31,168 | 29,190 | |||||||
| 1,496,694 | 1,445,829 | 1,374,531 | ||||||||
| Collective allowance | (2,893) | (3,212) | (3,118) | |||||||
| Accrued interest | 5,205 | 5,043 | 4,824 | |||||||
| Total loans, net of allowance for credit losses | $ | 1,499,006 | $ | 1,447,660 | $ | 1,376,237 | ||||
The collective allowance for credit losses relates to the following loan portfolios:
| July 31 | October 31 | July 31 | ||||||||
| 2016 | 2015 | 2015 | ||||||||
| Government loans | $ | 14 | $ | 18 | $ | 20 | ||||
| Loan and lease receivables | 332 | 269 | 250 | |||||||
| Residential mortgages | 121 | 268 | 238 | |||||||
| Commercial mortgages | 483 | 587 | 535 | |||||||
| Construction mortgages | 747 | 776 | 782 | |||||||
| Commercial loans | 138 | 228 | 227 | |||||||
| Credit card receivables and other | 1,058 | 1,066 | 1,066 | |||||||
| $ | 2,893 | $ | 3,212 | $ | 3,118 | |||||
The Bank holds security against the majority of its loans in the form of either mortgage interests over property, other registered securities over assets, guarantees and holdbacks on loan and lease receivables (note 8).
b) Allowance for credit losses:
The allowance for credit losses results from the following:
| July 31 | July 31 | ||||||||||||
| 2016 | 2015 | ||||||||||||
| For the three months ended | Collective | Individual | Total Allowance | Total Allowance | |||||||||
| Balance, beginning of the period | $ | 3,104 | $ | - | $ | 3,104 | $ | 3,086 | |||||
| Provision for credit losses | 24 | - | 24 | 297 | |||||||||
| Write-offs | (235) | - | (235) | (265) | |||||||||
| Balance, end of the period | $ | 2,893 | $ | - | $ | 2,893 | $ | 3,118 | |||||
| July 31 | July 31 | ||||||||||||
| 2016 | 2015 | ||||||||||||
| For the nine months ended | Collective | Individual | Total Allowance | Total Allowance | |||||||||
| Balance, beginning of the period | $ | 3,212 | $ | - | $ | 3,212 | $ | 2,905 | |||||
| Provision for credit losses | 449 | - | 449 | 1,226 | |||||||||
| Write-offs | (768) | - | (768) | (1,013) | |||||||||
| Balance, end of the period | $ | 2,893 | $ | - | $ | 2,893 | $ | 3,118 | |||||
c) Impaired loans:
At July 31, 2016, there were $nil impaired loans (October 31, 2015 - $nil). At July 31, 2016, loans, other than credit card receivables, past due were $nil (October 31, 2015 - $nil). At July 31, 2016, credit card receivables overdue by one day or more totalled $2,527,000 (October 31, 2015 - $2,773,000).
6.Subordinated notes payable:
| July 31 | October 31 | July 31 | ||||||||
| 2016 | 2015 | 2015 | ||||||||
| Ten year term, unsecured, callable, subordinated notes payable by the Bank to an unrelated party, maturing between 2019 and 2021, net of issue costs of $461 (October 31, 2015 - $541) effective interest of 10.06% | ||||||||||
| $ | 14,039 | $ | 13,959 | $ | 13,934 | |||||
| $ | 14,039 | $ | 13,959 | $ | 13,934 | |||||
7.Securitization liabilities:
Securitization liabilities include amounts payable to counterparties for cash received upon initiation of securitization transactions, accrued interest on amounts payable to counterparties, and the unamortized balance of deferred costs and discounts which arose upon initiation of the securitization transactions.
The amounts payable to counterparties bear interest at rates ranging from 1.97% - 3.95% and mature between 2016 and 2020. Securitized residential insured mortgages and other assets are pledged as collateral for these liabilities.
8.Other liabilities:
| July 31 | October 31 | July 31 | ||||||||
| 2016 | 2015 | 2015 | ||||||||
| Accounts payable and other | $ | 7,387 | $ | 6,869 | $ | 5,266 | ||||
| Holdbacks payable on loan and lease receivables | 77,683 | 61,003 | 52,344 | |||||||
| $ | 85,070 | $ | 67,872 | $ | 57,610 | |||||
9.Share capital:
a) Common shares:
At July 31, 2016, there were 20,095,065 (October 31, 2015 - 19,437,171) common shares outstanding. In March 2016, 657,894 common shares were issued for cash proceeds of $5,000,000.
b) Preferred shares:
At July 31, 2016, there were 1,461,460 (October 31, 2015 - 1,461,460) Series 1 preferred shares and 1,681,320 (October 31, 2015 - 1,681,320) Series 3 preferred shares outstanding. These shares are Basel III compliant, non-cumulative rate reset preferred shares which includes non-viability contingent capital provisions (NVCC). As a result, these shares qualify as Additional Tier 1 Capital (see note 13).
c) Stock options:
At July 31, 2016, there were 40,000 common share stock options outstanding (October 31, 2015 - 40,000).
10. Income per common share:
| for the three months ended | for the nine months ended | ||||||||||||
| July 31 | July 31 | July 31 | July 31 | ||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||
| Net income | $ | 2,456 | $ | 1,707 | $ | 6,574 | $ | 5,448 | |||||
| Less: dividends on preferred shares | (550) | (759) | (1,650) | (1,272) | |||||||||
| 1,906 | 948 | 4,924 | 4,176 | ||||||||||
| Average number of common shares outstanding | 20,095,000 | 19,437,000 | 19,783,000 | 19,437,000 | |||||||||
| Income per common share: | $ | 0.09 | $ | 0.05 | $ | 0.25 | $ | 0.21 | |||||
The Series 1 and Series 3 NVCC preferred shares are contingently issuable shares and do not have a dilutive impact.
11. Commitments and contingencies:
The amount of credit related commitments represents the maximum amount of additional credit that the Bank could be obligated to extend. Under certain circumstances, the Bank may cancel loan commitments at its option. The amounts with respect to the letters of credit are not necessarily indicative of credit risk as many of these arrangements are contracted for a limited period of usually less than one year and will expire or terminate without being drawn upon.
| July 31 | October 31 | July 31 | ||||||||
| 2016 | 2015 | 2015 | ||||||||
| Loan commitments | $ | 300,924 | $ | 243,253 | $ | 210,108 | ||||
| Undrawn credit card lines | 129,955 | 140,071 | 142,783 | |||||||
| Letters of credit | 41,418 | 39,015 | 36,940 | |||||||
| $ | 472,297 | $ | 422,339 | $ | 389,831 | |||||
12.Related party transactions:
During the three months and nine months ended July 31, 2016 the Bank incurred management and other fees totalling $225,000 (July 31, 2015 - $150,000) and $525,000 (July 31, 2015 - $450,000) respectively to PWC.
The Bank's and PWC's Boards of Directors and Senior Executive Officers represent key management personnel.
The Bank has loans to employees and key management personnel. At July 31, 2016, amounts due from key management personnel totalled $2,284,000 (October 31, 2015 - $2,303,000) and are unsecured. The interest rates charged on these loans are similar to those charged in an arms-length transaction. Interest income earned on the above loans for the three months and nine months ended July 31, 2016 was $18,000 (July 31, 2015 - $18,000) and $52,000 (July 31, 2015 - $56,000) respectively. There were no provisions for credit losses related to loans issued to key management personnel for the three and nine months ended July 31, 2016 and 2015.
13.Capital management:
a) Overview:
The Bank's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders' return is also important and the Bank recognizes the need to maintain a balance between the higher returns that might be possible with greater leverage and the advantages and security afforded by a sound capital position.
OSFI sets and monitors capital requirements for the Bank. Capital is managed in accordance with policies and plans that are regularly reviewed and approved by the Board of Directors and take into account forecasted capital needs and conditions in financial markets.
The goal is to maintain adequate regulatory capital to be considered well capitalized, protect consumer deposits and provide capacity for internally generated growth and strategic opportunities that do not otherwise require accessing the public capital markets, all the while providing a satisfactory return to shareholders. The Bank's regulatory capital is comprised of share capital, retained earnings and unrealized gains and losses on available-for-sale securities (Common Equity Tier 1 capital), preferred shares (Additional Tier 1 capital) and the qualifying amount of subordinated notes (Tier 2 capital).
The Bank monitors its capital adequacy and related capital ratios on a daily basis and has policies setting internal maximum and minimum amounts for its capital ratios. These capital ratios consist of the leverage ratio and the risk-based capital ratios.
During the period ended July 31, 2016, there were no material changes in the Bank's management of capital.
b) Risk-Based Capital Ratios:
The Basel Committee on Banking Supervision has published the Basel III rules supporting more stringent global standards on capital adequacy and liquidity (Basel III).
OSFI requires that all Canadian banks must comply with the Basel III standards on an 'all-in' basis that became effective January 1, 2013 for purposes of determining its risk-based capital ratios. Required minimum regulatory capital ratios are a 7.0% Common Equity Tier 1 (CET1) capital ratio and effective January 1, 2014, an 8.5% Tier 1 capital ratio and 10.5% total capital ratio, all of which include a 2.50% capital conservation buffer. The Basel III rules provide for 'transitional' adjustments whereby certain aspects of the new rules will be phased in between 2013 and 2019. The only available transition allowed by OSFI for capital ratios is related to the 10 year phase out of non-qualifying capital instruments.
OSFI also requires banks to measure capital adequacy in accordance with guidelines for determining risk adjusted capital and risk-weighted assets including off-balance sheet credit instruments as specified in the Basel III regulations. Based on the deemed credit risk for each type of asset, assets held by the Bank are assigned a weighting of 0% to 150% to determine the risk-based capital ratios.
The Bank's risk-based capital ratios are calculated as follows:
| July 31, 2016 | October 31, 2015 | |||||||||||||
| 'All-in' | 'Transitional' | 'All-in' | 'Transitional' | |||||||||||
| Common Equity Tier 1 (CET1) capital | ||||||||||||||
| Directly issued qualifying common share capital | $ | 147,369 | $ | 147,369 | $ | 142,369 | $ | 142,369 | ||||||
| Retained earnings | 7,827 | 7,827 | 2,903 | 2,903 | ||||||||||
| Accumulated other comprehensive income | 4 | 4 | 13 | 13 | ||||||||||
| CET1 capital before regulatory adjustments | 155,200 | 155,200 | 145,285 | 145,285 | ||||||||||
| Total regulatory adjustments to CET1 | (7,101) | (4,261) | (9,031) | (3,612) | ||||||||||
| Common Equity Tier 1 capital | $ | 148,099 | $ | 150,939 | $ | 136,254 | $ | 141,673 | ||||||
| Additional Tier 1 (AT1) capital | ||||||||||||||
| Directly issued qualifying AT1 instruments | $ | 29,337 | $ | 29,337 | $ | 29,337 | $ | 29,337 | ||||||
| Tier 1 capital | $ | 177,436 | $ | 180,276 | $ | 165,591 | $ | 171,010 | ||||||
| Tier 2 capital | ||||||||||||||
| Directly issued capital instruments subject to | ||||||||||||||
| phase out from Tier 2 | $ | 9,800 | $ | 9,800 | $ | 12,700 | $ | 12,700 | ||||||
| Tier 2 capital before regulatory adjustments | 9,800 | 9,800 | 12,700 | 12,700 | ||||||||||
| Total regulatory adjustments to Tier 2 capital | - | - | - | - | ||||||||||
| Tier 2 capital | $ | 9,800 | $ | 9,800 | $ | 12,700 | $ | 12,700 | ||||||
| Total capital | $ | 187,236 | $ | 190,076 | $ | 178,291 | $ | 183,710 | ||||||
| Total risk-weighted assets | $ | 1,384,117 | $ | 1,386,957 | $ | 1,320,158 | $ | 1,325,576 | ||||||
| Capital ratios | ||||||||||||||
| CET1 Ratio | 10.70% | 10.88% | 10.32% | 10.69% | ||||||||||
| Tier 1 Capital Ratio | 12.82% | 13.00% | 12.54% | 12.90% | ||||||||||
| Total Capital Ratio | 13.53% | 13.70% | 13.51% | 13.86% | ||||||||||
c) Leverage Ratio:
The leverage ratio, which is prescribed under the Basel III Accord, is a supplementary measure to the risk-based capital requirements and is defined as the ratio of Tier 1 capital to its total exposures. The leverage ratio is calculated as follows:
| July 31 | October 31 | ||||||
| 2016 | 2015 | ||||||
| On-balance sheet assets | $ | 1,685,294 | $ | 1,625,806 | |||
| Asset amounts deducted in determining Basel III 'all in' Tier 1 Capital | (7,101) | (9,031) | |||||
| Total on-balance sheet exposures | 1,678,193 | 1,616,775 | |||||
| Off-balance sheet exposure at gross notional amount | $ | 472,297 | $ | 422,339 | |||
| Adjustments for conversion to credit equivalent amount | (334,857) | (301,674) | |||||
| Off-balance sheet exposures | 137,440 | 120,665 | |||||
| Tier 1 Capital | 177,435 | 165,591 | |||||
| Total Exposures | 1,815,633 | 1,737,440 | |||||
| Leverage Ratio | 9.77% | 9.53% | |||||
The Bank was in compliance with the leverage ratio prescribed by OSFI throughout the periods presented.
14.Interest rate position:
The Bank is subject to interest rate risk which is the risk that a movement in interest rates could negatively impact net interest margin, net interest income and the economic value of assets, liabilities and shareholders' equity. The following table provides the duration difference between the Bank's assets and liabilities and the potential after-tax impact of a 100 basis point shift in interest rates on the Bank's earnings during a 12 month period and the potential after-tax impact of a 100 basis point shift in interest rates on the Bank's shareholders' equity over a 60 month period if no remedial actions are taken.
| July 31, 2016 | October 31, 2015 | ||||||||||||
| Increase 100 bps | Decrease 100 bps | Increase 100 bps | Decrease 100 bps | ||||||||||
| Impact on projected net interest | |||||||||||||
| income during a 12 month period | $ | 2,761 | $ | (2,579) | $ | 3,371 | $ | (3,114) | |||||
| Impact on reported equity | |||||||||||||
| during a 60 month period | $ | (1,014) | $ | 1,096 | $ | 295 | $ | (86) | |||||
| Duration difference between assets and | |||||||||||||
| liabilities (months) | 0.3 | 0.8 | |||||||||||
15.Fair Value of Financial Instruments:
Fair values are based on management's best estimates of market conditions and valuation policies at a certain point in time. The estimates are subjective and involve particular assumptions and matters of judgment and as such, may not be reflective of future fair values. The Bank's loans and deposits lack an available market as they are not typically exchanged. Therefore, they are not necessarily representative of amounts realizable upon immediate settlement. See Note 22 to the October 31, 2015 consolidated financial statements for more information on fair values.
| July 31, 2016 | October 31, 2015 | ||||||||||||
| Fair value | Fair value | ||||||||||||
| Book | of assets | Book | of assets | ||||||||||
| Value | and liabilities | Value | and liabilities | ||||||||||
| Assets | |||||||||||||
| Cash and cash equivalents | $ | 142,048 | $ | 142,048 | $ | 127,078 | $ | 127,078 | |||||
| Securities | 9,980 | 9,980 | 22,433 | 22,386 | |||||||||
| Loans | 1,499,006 | 1,499,432 | 1,447,660 | 1,449,567 | |||||||||
| Other financial assets | 13,275 | 13,275 | 5,887 | 5,887 | |||||||||
| Liabilities | |||||||||||||
| Deposits | $ | 1,357,963 | $ | 1,371,029 | $ | 1,325,828 | $ | 1,333,366 | |||||
| Subordinated notes payable | 14,039 | 14,500 | 13,959 | 14,500 | |||||||||
| Securitization liabilities | 43,685 | 47,335 | 43,525 | 47,604 | |||||||||
| Other financial liabilities | 85,070 | 85,070 | 67,872 | 67,872 | |||||||||
VersaBank, a Schedule I chartered bank, is a branchless financial institution with approximately $1.7 billion in assets. VersaBank specializes in providing commercial lending services to selected niche markets and receives its deposits through a diversified deposit broker network across Canada.
VersaBank shares trade on the TSX and its shares trade under the symbol VB.
On behalf of the Board of Directors: David R. Taylor, President & C.E.O.
To receive company news releases, please contact:
Wade MacBain at wadem@versabank.com (519) 675-4201
Visit our website at: http://www.versabank.com
Pacific & Western Credit Corp. published this content on 31 August 2016 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 02 September 2016 01:55:01 UTC.
Original documenthttp://www.pwccapital.com/news/article/1000032
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