The Canadian banking sector is highly regulated, which offers incumbents certain competitive moats. Compared to peers south of the border, Canadian banks are fairly conservative, an approach that has helped them to navigate economic downturns with relative ease.
For instance, several U.S. banks were forced to lower or suspend their dividends during the Great Financial Crisis in 2008-09. However, the Big Six Canadian banks maintained these payouts, which showcase their robust financials and healthy balance sheets.
The lending sector is cyclical, making TSX bank stocks vulnerable in the near-term, especially if macroeconomic conditions deteriorate. However, as it’s impossible to time the market, investors should consider adding quality stocks to their portfolio and benefit from the power of compounding.
In this article, I have identified one top Canadian bank stock that could be the best buy in 2025. Valued at a market cap of $561 million, VersaBank (TSX: VBNK) provides banking products and services in Canada and the United States. It offers deposit products, such as Guaranteed Investment Certificates, Registered Retirement Savings Plans, and Tax-Free Savings Accounts, as well as deposit insurance products.
VersaBank also provides lending services, including point-of-sale financing that covers purchasing loans and lease receivables from finance companies.
The TSX bank stock went public in early 2017 and has since returned 275% to shareholders in dividend-adjusted gains. Despite its stellar performance, VBNK stock is down 32% from its all-time high, presenting an opportunity to buy the dip.
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Is this Canadian bank stock a good buy?
In the fiscal third quarter (Q3) of 2025, VersaBank reported record revenue of $31.6 million, an increase of 17% year over year, driven by growth in its receivables purchase program. The company’s credit assets grew 18% annually to reach $4.78 billion.
VersaBank’s U.S. banking operations generated $3.1 million in revenue, up 25% sequentially, with net income jumping 229%. Management remains confident in hitting its $290 million fiscal year-end target for U.S. receivables.
VersaBank has launched a securitized financing solution for RPP partners, significantly expanding its addressable market. These securitized investments carry AAA ratings and favourable 20% risk weighting, providing substantial returns on equity despite lower spreads. The company has already added its first Canadian partner under this structure and expects to add U.S. partners shortly.
But the bigger opportunity may be digital deposit receipts. VersaBank initiated a U.S. pilot for what it calls USDVBs, essentially tokenized deposits issued on blockchain. Unlike stablecoins, these bear interest and carry FDIC (Federal Insurance Deposit Corp.) insurance because a licensed bank issues them.
Management sees this as a solution to deposit flight among younger generations. The pilot should be completed by calendar year-end, with commercial launch subject to regulatory approval.
CEO David Taylor suggested that one immediate use case would be offering holders of existing stablecoins, such as USDC, the ability to swap into interest-bearing USDVBs. With $60 billion in USDC outstanding, even capturing a small percentage could be meaningful.
The company expects to complete its corporate restructuring and DRT cybersecurity divestiture in early 2026.
Is VBNK stock undervalued in 2025?
Analysts tracking VersaBank stock forecast adjusted earnings to expand from $1.12 per share in fiscal 2025 (ending in October) to $2.20 per share in fiscal 2027. If the TSX stock is priced at 10 times forward earnings, which is quite cheap, it should gain 25% within the next 15 months.
Given consensus price targets, VBNK stock trades at 9% discount in October 2025.
