With interest rates expected to decline over the next 12 months, Canadian bank stocks should benefit from higher loan demand across multiple verticals.
Over the past two decades, TSX bank stocks have delivered inflation-beating returns to long-term shareholders. In addition to capital gains, most Canadian bank stocks offer shareholders a tasty dividend yield, making them attractive to income-seeking investors.
In this article, I have shortlisted one bank stock in VersaBank (TSX:VBNK), which is positioned to deliver outsized gains over the next few years. Let’s see why.
Is this TSX bank stock a good buy?
VersaBank operates a cloud-based, branchless banking model that combines the stability of traditional banking with the potential of a tech-powered growth company.
The digital bank continues to expand its innovative Receivable Purchase Program (RPP) into the massive U.S. market following its 2024 acquisition of a U.S. bank charter.
The RPP provides financing solutions for point-of-sale companies, offering consumer and small-business loans for big-ticket purchases such as home improvements and commercial equipment.
This program has driven most of VersaBank’s Canadian growth over the past five years. The bank secured its first U.S. RPP partnership in January 2025 and continues to build a strong pipeline of prospective partners in what management describes as an underserved multi-trillion-dollar market.
VersaBank can grow assets and revenue much faster than it can increase expenses, thanks to its technology-driven approach and lack of physical branches. In Canada, VersaBank also pursues Canada Mortgage Housing Corp or CMHC-insured loans for multi-family residential construction, which require no regulatory capital allocation while generating attractive margins.
Notably, its DRT Cyber subsidiary serves over 400 clients in cybersecurity and IT privacy services, focusing on financial institutions and government entities. Federal Reserve requirements mandate VersaBank divest DRT Cyber by September 2026, which could unlock additional shareholder value.
VersaBank’s proprietary Digital Deposit Receipts technology combines traditional banking safety with blockchain efficiency. This product positions the company to capitalize on growing digital asset adoption while maintaining a low-risk profile.
A strong performance in Q3 of 2025?
VersaBank reported strong third-quarter (Q3) results with credit assets growing 18% year over year and 6% sequentially, driving record revenue of $31.6 million. The digital bank continues expanding its innovative RPP, which provides financing solutions for point-of-sale companies serving consumers and small businesses making big-ticket purchases, such as home improvements and commercial equipment.
U.S. banking operations generated $3.1 million in revenue during the quarter, up 25% sequentially as the program ramps toward a $290 million fiscal year target. Management added two new Canadian partners and launched a securitized financing solution that carries a favourable 20% risk weighting compared to standard RPP financing.
The company is realigning its corporate structure to a standard U.S. bank framework, incurring $4.2 million in transitory costs this quarter but expecting annual expense savings of over $1 million.
What is the target price for VBNK stock?
Analysts tracking VersaBank forecasts revenue to increase from $111.6 million in fiscal 2024 (ended in October) to $208 million in 2027. In this period, adjusted earnings are forecast to expand from $1.49 per share to $2.20 per share.
VBNK stock is down 34% from all-time highs and has still returned 240% to shareholders in the past decade, after adjusting for dividends. If the TSX bank stock is priced at 10 times forward earnings, which is quite reasonable, it could gain over 35% in the next 12 months.
