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VersaBank (VBNK) Gets Fed Nod for Stearns Bank Holdingford Deal

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Ontario-based VersaBank (VBNK - Free Report) has announced the receipt of the approval from the U.S. Federal Reserve for its proposed acquisition of Minnesota-headquartered Stearns Bank Holdingford, N.A., a wholly-owned subsidiary of Stearns Financial Services Inc. The company awaits approval from the Office of the Comptroller of the Currency (OCC).

If the OCC makes a favorable decision, VersaBank plans to immediately seek clearance from the Canadian regulator, the Office of the Superintendent of Financial Institutions (OSFI), for the acquisition.

In June 2022, VersaBank announced the signing of an agreement to acquire Stearns Bank Holdingford. Through this, the company intends to bolster growth of its Receivable Purchase Program (RPP) in the United States.

VersaBank’s Point of Sale Financing division operates RPP. Through RPP, the Point of Sale Financing division buys loan and lease receivables from various finance companies in Canada and the United States, providing capital for small businesses and increasing consumer choice.

The company has been successfully implementing the RPP model in Canada for more than 10 years. With this acquisition, VBNK is eager to expand into the largest financing market globally and take advantage of the considerable operational leverage that comes with a branchless, business-to-business digital banking model.

Going by the press release dated Jun 14, 2022, VBNK expects earnings per share to be accretive within the first year after closing. VersaBank USA is expected to be well capitalized on closing with a total capital ratio in excess of 10%.

VersaBank has established an incredibly successful digital banking business in Canada by meeting unmet demands with creative, tech-driven solutions that have resulted in disproportionate earnings growth. With the acquisition of Stearns Bank Holdingford, the company will now have a platform from which to replicate that success in the largest banking market in the Western world.

In the past year, shares of VBNK on the NYSE have rallied 44.9% compared with the industry’s growth of 24.1%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Currently, VBNK carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Similar Action Taken by Other Canadian Bank

In April 2024, Royal Bank of Canada (RY - Free Report) completed the acquisition of HSBC Holdings’ (HSBC - Free Report) Canada unit for C$13.5 billion. The deal was announced in November 2022.  

The acquisition is expected to bolster RY's position in a market where the top six banks control around 80% of banking assets. The consent was conditioned on several steps to be taken by RY following the completion of the deal, which will make the company a banking behemoth in Canada.

Besides, the deal will lead to an estimated gain on sale of $4.9 billion in the first quarter of 2024 for HSBC.

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