Canadian lender VersaBank closed its acquisition of Saint Cloud, Minnesota-based Stearns Bank Holdingford Tuesday, rebranding the one-branch firm VersaBank USA and bringing VersaBank’s point-of-sale lending product to the U.S.
CEO David Taylor told Banking Dive he was on the hunt for the smallest financial institution in the U.S. he could find for sale when he, with the help of investment bank Raymond James, found SBH, a $62 million-asset subsidiary of Stearns Financial Services.
“I didn’t want a branch network. I just wanted to access the U.S. market,” he said. It was the same strategy he used in Canada, where he purchased Saskatoon, Saskatchewan bank Pacific & Western Trust for its deposit insurance and bank charter in 1993 to launch the branchless banking platform now known as VersaBank.
Branches were never in the business plan. Since its inception, the bank has obtained all of its deposits and provided most of its loans and leases electronically, Taylor said.
Beyond the sole branch formerly known as SBH – which Taylor says VersaBank will keep and hopes that the locals “find we Canadians understand how to lend to farming communities” – VersaBank USA will operate its receivable purchase program nationally, which provides secure funding solutions to point-of-sale finance companies.
VersaBank launched RPP 14 years ago in Canada and has never had a loan loss, Taylor said. The POS lending market is much larger in the U.S. than in Canada, he said, and his eyes have been trained on the U.S. market since long before the VersaBank-SBH deal was first announced two years ago.
“Point-of-sale [lending] happens all the time in the States, but no U.S. bank has this technology to be able to buy the loans and leases electronically as they’re developed,” Taylor said. “We’re bringing a brand new service to the point-of-sale companies.”
McKinsey & Co. dubbed POS lending “the next frontier of growth” in U.S. lending in 2019.
VersaBank’s RPP has amassed partnerships with roughly 275 and provided more than $6.5 billion in funding to North American finance firms since launching in 2010, the firm said in June.
The main ingredient in POS lending, said Taylor, is convenience to the consumer.
“Consumers like the idea of being able to have a loan right at the point-of-sale … [its popularity] is growing leaps and bounds, and there’s no end to it,” he said.
“The other thing about consumers, a year or two later, they might say, ‘Hey, I’ve got enough cash. Now I want to pay this off.’ [They can because] there’s no prepayment penalties,” he said.
The VersaBank-SBH deal was originally expected to close in October 2022. Taylor chalked up the long hold to a couple of things: First, a foreign bank buying a de novo bank in the U.S. is no common occurrence, he said. Second, Silicon Valley Bank – and a handful of other banks – failed in March 2023. Both factors gave regulators greater pause.
“In fact, they said to me, ‘Say you have a run on your bank.’ And I said, ‘Well, where are they going to run to? We don’t have branches,’” Taylor recounted. “Then they said, ‘Well, what about your website? People could move their money in an afternoon.’ I said, ‘We don’t have a fancy website that gives access to consumers to move their money.’”
Taylor said that when he designed VersaBank 14 years ago as the world’s first fully digital financial institution, he tried to eliminate flaws that other banks were vulnerable to, including liquidity issues.
“In the banking industry, we say credit issues are like getting cancer, they’ll kill you slowly. But liquidity issues will take you out like a heart attack,” he said.
Additionally, because VersaBank operates in the cloud, the RPP lending solution can launch with almost no capital expenditures and very little additional operating expenditures, he said.
“As a result, the monumental U.S. RPP opportunity, alongside our expected continued steady growth in Canada, is expected to generate a strong and sustainable expansion of our loan portfolio for years to come, enabling us to further capitalize on the significant operating leverage in our digital, branchless model to drive growth in profitability and return on common equity and efficiency,” Taylor said in a press announcement on the deal.
VersaBank’s RPP portfolio has exceeded CAD$3.1 billion (US$2.1 billion) and has been growing at a compounded annual rate of 26% over the last five years as of July 31, the announcement said.
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Publish date : 2024-09-04 10:20:00
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