VersaBank's acquisition of Stearns Bank Holdingford NA, a Stearns Financial Services Inc. subsidiary, will open the Canadian company's point-of-sale finance business to the U.S., where the market and demand for point-of-sale loans are much greater.
Under the deal, which is expected to close by the end of October, Stearns Bank Holdingford will change its name to VersaBank USA NA upon closing, while Stearns Financial and its two other subsidiaries will continue to operate independently.
VersaBank specializes in providing capital to point-of-sale finance companies and hopes to bring its services from Canada into the much larger markets of the U.S. where point-of-sale loans are more popular, CEO David Taylor said in an interview. Taylor estimated that point-of-sale finance is a $1.1 trillion market in the U.S., compared to Canada's $30 billion market.
"There wasn't an exact replica of this type of financing, so your point-of-sale companies would probably like to have this service available to them," Taylor said. "It's just taking a product that we piloted in Canada that worked out really well for us and bringing it to the States."
VersaBank ultimately determined that a bank subsidiary with a federal banking charter would give it the greatest flexibility to conduct business in the U.S., Taylor said.
Comfortable fit
VersaBank and Stearns Financial are of comparable size, with $2.1 billion and $2.3 billion in total assets, respectively, as of March 31. The $13.5 million deal will add about $60 million in total assets to VersaBank.
Stearns lends in three major areas including equipment finance, which makes up roughly half the company's assets, commercial real estate and Small Business Administration loans, Stearns Treasurer and Director Heather Plumski said. Plumski noted that VersaBank was an attractive buyer because the companies share some of the same lending niches.
"The similarities with Versa is that they're also in commercial real estate and about half their assets are equipment finance or point-of-sale financing," Plumski said. "We have kind of a similar mindset."
From Stearns' perspective, the deal was also attractive because VersaBank prioritizes the well-being of its employees, which was an important trait the employee-owned Stearns looked for in potential buyers, Plumski said.
"We want to make sure that our community in Holdingford, including our employees, were going to be taken care of and our customers would also be served," Plumski said. "The same employees will facilitate the branch and service the customers, so that was attractive to us."
Following the deal, both Taylor and Plumski said they hope to continue their working relationship following the deal's close.
Regulatory approval, future deals
The biggest challenge in the cross-border deal will be gaining the approval of regulatory agencies in both countries. This includes the Federal Deposit Insurance Corp., the Federal Reserve and the Office of the Comptroller of the Currency in the U.S., and the Office of the Superintendent of Financial Institutions in Canada, Taylor said.
"I've been in the banking industry for over 45 years, so that's basically all I know, but it's a process," Taylor said.
As for further M&A following the deal, Taylor said VersaBank generally prefers to accumulate loans directly, but would not rule out more deals in the future.
"We tend not to acquire other lending operations, as we like to put the loans on directly ourselves, but I wouldn't rule it out, in that with the current market conditions, there may very well be some lenders that are priced attractively enough to catch our attention," Taylor said.
On the nonbank side, VersaBank has another subsidiary, DRT Cyber Inc, that provides cybersecurity solutions to large corporations and government entities. VersaBank could opt to buy companies with capabilities that would complement DRT's current repertoire, and the company would consider targets in both the U.S. and Canada, Taylor said.