A small Canadian bank's plan to acquire an even smaller Minnesota-based institution is entering its 21st month under review by U.S. banking regulators.
The $3.2 billion-asset VersaBank, with headquarters in London, Ontario,
"We feel we're in the final stages of closing the purchase," Taylor, who founded VersaBank in 1993, said March 12 during the iAccess Alpha Buyside Best Ideas Spring Conference. "We've been dealing with the U.S. regulators. I have quite a good relationship with them."
"We think we've answered all the questions," Taylor added March 14 during a second online investor event sponsored by Virtual Investor Conferences. "If [regulators] have more, bring them on."
VersaBank said it was aiming for an October 2022 close when it originally announced the deal for the $78 million-asset Stearns Bank Holdingford.
As part of its scheme for entering the U.S. banking market, the online-only VersaBank would form a bank holding company. Stearns Bank Holdingford, though a subsidiary of Stearns Financial Services in St. Cloud, Minnesota, is a separately chartered national bank. Thus VersaBank needs approval from both the Federal Reserve and the Office of the Comptroller of the Currency.
A VersaBank spokesman did not respond to a request for comment. Kelley Skalicky, CEO of Stearns Financial, did not return a reporter's call prior to deadline.
On Monday, an OCC spokesperson confirmed the agency received an application involving Stearns Bank Holdingford in December 2022. The spokesperson added that the agency "does not comment on the timing of licensing decisions." The Federal Reserve received VersaBank's application in March 2023.
Douglas Faucette, a partner at Locke Lord in Washington, D.C., and chairman of the firm's bank regulatory and transactional practice group, said Tuesday that 21 months is an unusually long time for an application to be under regulatory scrutiny, even in light of proposed policy changes by
That said, VersaBank's pending merger with Stearns is no routine transaction, Faucette added. "When you have a digital bank, you have a different animal," Faucette said. "It doesn't have the same stickiness a hometown bank has. …You can try to apply traditional concepts of community needs to a digital bank, but where's the community?
"The new merger policy totally puts a damper on any kind of merger," Faucette added.
Taylor, for his part, acknowledged in his comments to bank investors that VersaBank is different from most traditional banks. "We're [more like] a warehouse that gathers deposits and loans electronically and doesn't give anything back in loan losses," Taylor said at the iAccess Alpha conference.
According to Taylor, VersaBank follows a business-to-business model. It gathers deposits largely from deposit brokers serving insolvency professionals who work with companies and individuals with debt problems and wealth managers. Lending is done indirectly, through point-of-sale transactions across a number of different industries. The model functions well, producing a 40% efficiency ratio and de minimis loan losses, Taylor said.
"It's unfolded as designed, to be one of the most efficient banks in North America," Taylor told investors at the iAccess Alpha conference. "Also, it comes with, I think, one of the lowest risk profiles. … We didn't think it appropriate that a tiny little bank should take on a lot of risk, so everywhere possible, I tried to mitigate it to the lowest level."
Taylor believes VersaBank's existing infrastructure is scalable enough to handle the increased volume resulting from a U.S. expansion. Costs would remain relatively fixed while revenues would increase. Key to the calculation is VersaBank's insistence point-of-sale partners handle servicing and collection chores. Lenders also agree to take back any loan that falls more than 90 days delinquent.
VersaBank reported net income totaling $31.9 million for its 2023 fiscal year, which closed Oct. 31, up from $16.8 million in fiscal 2022.
Acquiring Stearns Bank Holdingford — which would be renamed VersaBank USA — would serve as the vehicle for VersaBank, which has experienced solid growth in Canada the past five years, to fully enter the much larger U.S. point-of-sale lending market, the world's largest, according to Taylor.
"The growth opportunity, of course, is south of the border," Taylor said during the iAccess Alpha conference. "We've pioneered [point-of-sale lending] in Canada. … We're sure looking forward to bringing this product to the United States in a big way.
"We've seen a whole lot of interest in our product," Taylor added.
