This Bank is Leading the Digital Revolution with Double-Digit Growth

VersaBank (TSE:VB) is Canada’s first fully digital Schedule 1 Chartered Bank. This high growth bank is a good alternative to Canada’s Big Five banks.

| More on:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

When it comes to investing in Canada’s banking sector, investors are laser focused on the Big Five Banks, or Six if one chooses to include National Bank of Canada. There is a good reason for this. They are highly regulated, deliver consistent returns and pay a reliable dividend.

Outside of a frothy housing market, there isn’t much not to like about Canada’s Big Banks. Lost amidst the love for these banking giants however, are smaller banks who have attractive growth potential.

Lack of awareness is a good thing because it presents great investment opportunities for the investor with a keen eye. One bank that offers exceptional value is technological marvel VersaBank (TSX:VB).

Outperformance

VersaBank is Canada’s first fully digital Schedule 1 Chartered Bank. Over the past year, this small up-and-comer has outperformed Canada’s preferred banking stalwarts. It’s not even close. VersaBank’s share price has risen 56% over the past year and 13% year to date. This is double that of Toronto-Dominion Bank, Canada’s best performing Big Bank.

Yes, VersaBank’s 0.58% yield is negligible. It’s important to note however, that the company is in its infancy and just started paying a dividend this past November. Management believes the company is overcapitalized. As a result, it has applied to use the Advanced Internal Ratings Based approach to calculate their risk weighted assets.

If approved by regulators, this will free up significant cash and will lead to a higher dividend.

Massive growth

Over the past four years, VersaBank has grown cash core earnings by a compound annual growth rate of 40%. This past Wednesday, the company posed quarterly results that smashed expectations. Third-quarter core cash earnings grew 48% while net income doubled from the third quarter of 2017.

Book value per share rose almost 8% to $8.99 over the previous quarter. Despite its 5.29% jump on the day it released earnings, VersaBank was still trading at a 20% discount to book value. The company’s CEO expects record results again in the fourth quarter.

High-quality portfolio

One of the most attractive aspects of the bank is its high quality credit portfolio. The company’s delinquency rate, a measure of the quality of its loans, is negligible. In the third quarter, gross impaired loans were only 0.04% of the company’s asset base.

No other bank in Canada has provision for credit losses this small.

VersaVault

VersaBank is one of Canada’s most advanced technological banks, evidenced by its introduction of VersaVault, the world’s first blockchain digital safety deposit box. Beta-testing commenced in June and is expected to run until the end of the current fiscal year.

It is still too early to tell what kind of demand exists for such a product. Regardless, it’s certainly exciting to witness the innovative and forward-thinking mindset of the company.

VersaBank is rapidly growing its asset base and positioning itself as an viable alternative to the larger lenders. It’s only a matter of time before the market takes notice. VersaBank is a good investment for those looking for more growth and innovation in their banks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Mat Litalien is long VersaBank and Toronto-Dominion Bank.  

More on Dividend Stocks

edit Person using calculator next to charts and graphs
Dividend Stocks

The 3 Best Dividend Stocks for Monthly Passive Income

These three dividend stocks are the best options for those seeking high passive income in the next few years in…

Read more »

clock time
Dividend Stocks

Got $10,000 to Invest? 1 Cheap TSX Stock to Buy Right Now

This top TSX dividend stock is finally on sale and has made some savvy buy-and-hold investors quite rich.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Want Monthly Passive Income? These TSX Dividend Stocks Are for You

If you want monthly passive income from TSX stocks, you have to do a little digging. I've given you a…

Read more »

ETF chart stocks
Dividend Stocks

3 International ETFs to Buy for a Diversified Portfolio

Some international markets may prove more resilient against economic downturns, and exposure to them may strengthen your portfolio during crashes…

Read more »

Payday ringed on a calendar
Dividend Stocks

TFSA Pension: 3 Canadian Dividend Stocks to Buy for Monthly Passive Income

These high-yield Canadian stocks look good to buy right now for a TFSA focused on monthly passive income.

Read more »

TIMER SAYING TIME FOR ACTION
Dividend Stocks

Need $500 Right Away? These 3 Passive-Income Stocks Have Got You Covered

I could really use an extra $500 to feed my kids, who seem to be permanently hungry. Couldn't you?

Read more »

Young adult woman walking up the stairs with sun sport background
Dividend Stocks

3 Top TSX Stocks to Begin Your Investment Journey

Given their solid business models and stable cash flows, these three TSX stocks are ideal for income-seeking investors.

Read more »

Community homes
Dividend Stocks

Housing Market Crash: How to Make a Profit 

The housing market crash is here, but you can still earn dividends with Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP).

Read more »