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VersaBank is a federally licensed bank in both Canada and the USA. Instead of physical branches, the company uses technology to source deposits and purchase the receivables associated with point-of-sale loans from its partners. Its “RPP” model is proven in Canada and has several benefits:

Through 2025 VersaBank has been expanding south of the border, reaching nearly US$300M in assets and targeting another US$1B in 2026. Given the US market is an order of magnitude larger than in Canada, the bank has ample runway to grow – which should result in:

With VBNK trading just above book value today, we believe the market is still focused on the near-term expansion headwinds (higher costs, lower ROE). Success in the US market should drive returns in two ways:

VersaBank is a federally licensed bank in both Canada and the USA that operates a branchless, business-to-business model enabled by the proprietary, in-house technology the company uses to manage both sides of its balance sheet. Today, that means sourcing deposits from hundreds of deposit brokers to fund the purchase of loan receivables from ~30 point-of-sale origination partners, who agree to bear the credit risk in exchange for VBNK’s readily available, economically attractive financing. The strategy has proven to be highly efficient and risk-mitigated across a range of economic backdrops, delivering consistent growth in credit assets with next-to-no loan losses – resulting in a steady rise in book value per share.

Following its SBH acquisition in 2024, the bank now has a national US bank charter – allowing it to grow its Receivable Purchase Program (RPP) model in the much larger US market. As part of this push, VersaBank is required to divest its cybersecurity unit (DRTC) – which should immediately improve its earnings quality once closed. In parallel, VersaBank is transitioning its corporate structure to better align with other US banks, become eligible for certain stock indices, reduce regulatory costs/burden, and set the foundation for potential international growth. While these initiatives represent a near-term overhang (higher costs, lower returns), the headwinds should dissipate through 2026. We believe the market is waking up to the long-term potential of these changes, which should continue as the company delivers growth south of the border.

As stated previously, VersaBank doesn’t operate a physical branch network like most banks do. Instead, the company leverages technology to serve financing and deposit partners – enabling its credit portfolio to grow to $5.1B as of Q4, funded by $4.9B of deposits. Roughly 80% of the credit book is linked to RPP assets sourced from its ~30 origination partners, with the remaining ~20% tied to multi-family real estate (CMHC-insured focus). Similarly, over 80% of the deposit book comes from VBNK’s network of >120 deposit brokers, with the remainder coming from the company’s >100 office network of licensed insolvency trustees.

The composition of the credit book has changed dramatically in recent years, fueled by >300% growth in RPP balances from 2020 to 2025 (from 59% to 80% of total). That growth was driven by the “perfect storm” created by the pandemic, with stay-at-home orders resulting in increased home improvement activity. At the same time, point-of-sale lenders experienced tighter financing conditions – pushing them towards alternative sources of capital like VersaBank to support the surge in origination activity. VersaBank’s willingness to support the industry when other funding sources pulled back goes a long way, allowing it to keep up the momentum beyond those post-pandemic years. With the company focused almost exclusively on this model, we believe its years of experience, custom software, and partner relationships make it simply better at this line of business versus larger banks trying to “tack on” the strategy.

Given the RPP now accounts for the vast majority of VBNK’s credit assets and is the focus of its US growth, it’s worth taking a deeper look at how it works. By now we’re all familiar with point-of-sale financing, typically used to reduce the upfront capital outlay of large purchases (home improvement, automobiles, etc.). To fund these loans and enable growth, the originator has several options including securitization, warehouse credit facilities, and traditional debt and equity. VersaBank’s RPP is another such funding tool, with a few key advantages.

That translates to higher returns for VBNK’s partners, enabling the bank to shift the credit risk back to the lender via two unique terms:

Together, these terms make VBNK relatively agnostic to the types of receivables it purchases (but strict on partners), though most of its activity has been in the home improvement industry (better credit profile).

It’s these two mechanisms that have led to zero loan losses in the RPP program’s history, resulting in extremely low provisioning activity across the portfolio. VersaBank’s PCL ratio has remained stable, averaging 0.01% since 2020 – which screens favourably to the large Canadian banks at 0.35%.

Because point-of-sale loans are shorter duration in nature than other types of credit, VersaBank can fund its RPP asset growth primarily through brokered term deposits. This deposit source brings two key benefits:

That results in relatively stable margins through the cycle, with net interest margins oscillating around 250 bps historically (give or take 50 bps).

Net interest margins peaked in 2023, facing downward pressure until the last few quarters due to a confluence of factors. On the structural side, there are two key drivers behind recent margin compression:

On the transitory side, the interest rate environment has weighed on NIM to an extent (inverted/flat yield curve is bad for banks). This has started to normalize through 2025, driving some margin recovery that should continue as the spread between long and short-term government bonds opens up.

The other short-term margin headwind is tied to the crux of the VersaBank investment thesis: US growth. To fund a rapid rise in US RPP balances, VersaBank has built its capital position – with cash balances sitting nearly double the long-term average, second only to the pandemic. Naturally, VBNK isn’t earning its typical return on the ~11% of assets it holds in cash and equivalents – creating a margin drag that should be alleviated as the bank’s US activity ramps up through 2026.

Through 2025 VersaBank built momentum south of the border, with several US origination partners onboarded including Watercress Financial, Thrive Financial, and Source One (a subsidiary of ECN Capital) – taking RPP assets from zero to US$293M through 2025, above its US$290M target. The bank has shown adaptability in this early ramp up, adding securitization to its offering to address the current market appetite for asset backed financing. Like the CMHC-insured transition, securitization adds margin pressure but is lower risk (20% risk weighted) – meaning higher volume and returns for the same level of regulatory capital versus the traditional RPP. More importantly, it gives VersaBank the opportunity to expand relationships to the RPP over time - either as a bridge into securitization or as a substitute, depending on market conditions.

The company has a large runway to grow south of the border, with management aiming to add US$1B of RPP/securitization assets through 2026 with existing partners (upside from new partner additions). Beyond that, VBNK could continue above market growth for years – given the US point-of-sale market is an order of magnitude larger than in Canada. That growth should come at a lower cost of funds than in Canada and with significant operating leverage, with VersaBank having already built the technology and infrastructure to support the RPP business. At scale, that should mean higher sustainable returns – which would warrant a higher book value multiple (more on this later).

DRT Cyber Security (DRTC) started as an internal vehicle to mitigate VersaBank’s exposure to cybersecurity threats, headed up by Gurpreet Sahota – an industry veteran who spent 16 years at Blackberry, most recently as its Principal Cybersecurity Architect. This unit is responsible for VersaVault, the foundation for the company’s Real Bank Deposit Tokens, which we’ll touch on later.

Seeing the broader market opportunity, DRTC acquired Digital Boundary Group (DBG) in 2020 for $10M - giving it access to over 400 large external customers spanning retail, financial services, police, energy, utilities, and infrastructure. DBG’s business is largely service-based (penetration testing), so the deal gave VersaBank a strong go-to-market channel for its in-house products.

While there was some early momentum, revenue contribution from software products was ultimately limited and as a condition to its US expansion, regulators require VersaBank to divest this unit. With DRTC remaining a service-based business, we wouldn’t expect it to fetch the premium multiple software-heavy companies in this industry command. We’d view anything over $20M positively ($0.60/share), though a distant second to the improvement in earnings quality that would come post-close.

Backing out the cybersecurity segment results from VersaBank’s consolidated numbers makes this clear. On average, VBNK’s (already strong) efficiency ratio would improve by over four percentage points without DRTC. That in and of itself should make the inevitable sale a catalyst, with upside from the redeployment of proceeds into credit asset growth, the simplification of the business, and the potential to re-allocate the company’s tech talent into higher leverage areas.

Real Bank Deposit Tokens represent one such area where VersaBank can re-allocate its tech talent, given renewed interest in the space on the back of a more welcoming political climate in North America. Currently in pilot programs both north and south of the border, RBDTs are the first dual-currency deposit token solution launched by a federally licensed bank. The company is positioning the technology as an alternative to stablecoins, with some key advantages:

While we focus on the core business in our valuation analysis (we ascribe no value to this segment today), we’ll be monitoring it closely – as it represents an opportunity to attract lower cost deposits and/or license the underlying technology out to other, less technically capable banks.

We expect 2026 will be a rebound year for VersaBank, with the bulk of the one-time costs associated with its US expansion in the rearview (regulatory costs, lawyers, advisory fees on a DRTC sale, etc.). We expect any lingering costs to roll off over the course of the year and be more than offset by >30% Y/Y growth in credit assets, led by US RPP and securitization volumes as VersaBank adds new partners and expands existing relationships. As VBNK scales up its US footprint we expect the operating leverage inherent in the model to become clear, with asset (revenue) growth far outpacing non-interest expense growth (software/infra has already been built). Even without any forecasted NIM expansion, we expect consolidated efficiency to fall below 45% and return on equity to reach 13% in 2027 – with potential to move higher in the following years. That should support higher growth in book value per share through the forecast period (we model >10% per year).

Through 2025, the market wasn’t giving VersaBank much credit for its growth prospects south of the border – pricing the stock right around book value (in-line with its long-term average). While the bank’s recent earnings results and 2026 US$1B growth target has driven some interest, execution should bring additional upside.

As book value multiples are a function of a bank’s return on equity versus its cost of equity, we believe the market hasn’t fully bought into the idea that US growth can push returns well above 10% sustainably. Should it (before or after results), we’d expect to see multiple expansion – which combined with higher growth in book value per share makes the case for VBNK an interesting one. At its current P/B multiple, our 2027 (FY+1) estimate for book value per share sits ~25% above VBNK’s share price. For every 0.1x added to its current multiple, our implied upside increases by ~10%.

Looking at the company in comparison to its peer group tells a similar story, with VersaBank trading at a meaningful discount on book value to the Canadian banks and US tech-enabled regionals (more comparable, especially as US growth continues). That discount is likely due in part to VBNK’s compressed return on equity – which should be temporary but could keep investors sidelined until it rebounds.

Once VersaBank’s ROE trajectory improves, we’d expect the market won’t wait for the full impact of a US ramp before pricing in that growth. Plotting ROE estimates (2026-2028E) relative to the current book value multiple makes this clear. If VersaBank tracks to our estimates, it would quickly move outside the upper bounds of the relationship without a multiple re-rate – a dislocation investors would likely step in and correct if present.

VersaBank’s leadership team is tenured, with many of the company’s executives being with the bank for more than twenty years. That level of longevity lends itself to a management team that works well together, and the incentive structure points them in the right direction. On top of base salary, incentive compensation is predominantly tied to measures of shareholder value (EPS, ROE, NIM) and operational results (loan growth, efficiency, risk management).

One potential overhang lies in the shareholder base, where GBH Inc. has a control block at over a quarter of all shares outstanding. The entity is a vehicle for the George family, early backers of the bank – so they’ve been on board a long time without any negative history, but it’s still worth paying attention to. Beyond that, ownership is spread across various institutional holders and insiders.

Regulatory risk: VersaBank operates in a highly regulated industry in multiple countries. Adverse changes to these regulations could impact the company’s ability to operate.

Credit risk: VersaBank takes on credit risk in its normal course of business. While it has implemented multiple mitigating strategies (put-back provision, cash holdback, etc.), this risk is still present.

Counterparty risk: VersaBank relies on partners to grow both sides of the balance sheet. Any adverse developments with key partners could impact the company’s ability to operate.

Liquidity risk: At ~100K shares traded per day across the TSX and NASDAQ exchanges, the market for VBNK shares is not as deep as it could be – creating the potential for share price volatility in large buying/selling.

Competitive risk: VersaBank operates in a competitive industry, especially as it expands in the US market. Inability to compete effectively would limit the company’s overall growth prospects.

Monetary policy: VersaBank’s business model, like all banks, is exposed to interest rate risk. Changes to the interest rate environment in either direction impact the company’s profit potential.

Technology risk: VersaBank relies on technology to operate its business efficiently. Any adverse developments (technology failure, cybersecurity incident, etc.) could impact its ability to operate.

Macroeconomic risk: VersaBank relies on point-of-sale lending activity predominantly. In a deteriorating macro environment, a weakened consumer may be less likely to make big purchases, impacting the loan volumes that it sits downstream from.

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