Okay, everybody. Next up, the CEO and founder of Versa Bank. I give you Mr. David Taylor.
Well, thank you. Thank you very much. Appreciate that little applause. Normally, bankers aren't applauded when they arrive. Normally, I sit in the back of the back of a bar with my back against the wall, just in case somebody we've foreclosed on comes in looking for you. So today I'm gonna tell you about a bank that I conceived and created, and I'm hoping to bring to United States fairly soon actually. Now, you might say, "Geez, we've got 6,500 lending institutions in the United States. Well, what would you be doing that for, Dave? What, are you a glutton for punishment?" And the reason is that, well, the usual disclaimer there. Looks like what you find on the back of a medicine bottle.
The reason is that what I did is I pioneered, with the help of about 100 software engineers, a new type of bank. And one of the neat technologies we created, we call point-of-sale finance program, has worked extremely well in Canada, and we thought that it could work just as well in the United States, probably a lot better, considering the U.S. point-of-sale market is about 100 times bigger than Canada. And according to our regulators, U.S. regulators have been reviewing our proposal. It's unique, i.e., so we're bringing a new mousetrap to United States, something that isn't available presently and has worked extremely well in Canada. So that's the reason why I look like a glutton for punishment going into a country that's already got 6,500 lending institutions.
So literally, I designed the bank with a whiteboard, and I had a fair amount of experience with a large Canadian bank, Bank of Montreal, and after that, a British bank. So I kind of knew all the things I didn't like about banking, the stuff that I thought, "Shit, I don't wanna do that. I don't want that." So first, you know, I didn't like the idea of credit risk. Having a collection department, that's a nasty process, calling: "Hey, where's the money you owe us on the," I don't wanna do that. So I tried to eliminate that, and I'll tell you how I did it. Loan losses, I mean, that's a pain in the ass. You don't wanna be giving losses or so you don't want folks not paying you back. So I tried to eliminate the idea of loan losses. Having people are pesky.
I started a biology background. I'd call them pesky bio units that, so if I get away with less people and use more technology, all the better. I didn't like the risk that you've seen in the last few years here, deposit risk, that's where there's a run on your bank, and son of a gun, your bank's out of existence in an afternoon. Economic exposure, banks tend to have ups and downs, depending on what the economy is doing. I don't like that. Interest rate risk, and like that. Inefficiencies created the VersaBank. All righty. So, it's a fully digital bank. It is presently headquartered in London, Ontario, at the airport. Just a little bit of interest, I have a runway at my house, and literally fly into work. Takes me about six minutes. That would be about a half-hour drive.
So a fully digital bank, it operates, we call a B2B model. So we have partners that raise deposits for us, and we have partners that do the lending for us. And this slide shows that on the deposit side, years ago, before internet was about, I had to use telephone modems and IBM PCs and clones to create a network for folks to be able to send us deposits. It's evolved and evolved. So now, deposits pouring in the door to VersaBank, digitally, throughout Canada, not United States, presently, and that we don't have an OCC license in the United States yet. And on the other side, loans pour in the door to us from our lending partners. So these are point-of-sale finance companies.
So if you're going down to a Harley dealer and you really like that Street Glide and you got a little sticker shock, $20,000, holy smokes! Someone's likely to say to you, "Can you afford $200 a month?" And you'll say, "Yeah," they'll get the iPad out. Yeah, we'll get you a loan, and you'll throw your leg over the Harley, and you'll go out the door. Where we come in is that loan in Canada could be transported over to us, sold to us. So it ends up on our books. Now, we, we hopefully never meet you, and that loan just sits there happily as you're making your payments, and, we earn a, we earn a nice little spread on it. Our bank earns approximately 250 basis point spread, our net interest margin from what we pay to our depositors and, and what we earn on our loans.
So 250 basis points in Canada is about the widest spread in the industry. So you might say, "But Dave, huh, how do you get away with no loan losses?" Right? I mean, obviously, if you're lending to, you know, I drive a motorcycle, and I think they're best credit risk in the world, but some others might not be quite so good. You should have losses because inevitably someone's not gonna pay you back. And the trick is that we say to our lending partners, that would be the point-of-sale finance companies, we have about 25 of them, that you can store the loan or lease on our books, so long as it's current. So if it goes 90 days in arrears, we have a put- back arrangement, and the loan goes back to whoever the point-of-sale finance company was that originated the loan.
Now, that's nice, and we've got the arrangement with everybody, so we don't actually have loan losses on our books. But you might say, "But, say, they don't take it back?" Aha! So we also require that they put a substantial amount of cash on deposit with us, so that our computers can automatically debit the account and get our money back. And so then the collection, that nasty experience, dialing up the person, "Hey, where's the payment on the motorbike?" That's not our responsibility. That's gone away, that's the responsibility of our partners. So that's how we get away with earning a nice 250 basis points without provisions for losses, 'cause the losses don't stay with us. This slide sort of illustrates that. This is a little line graph that shows our provisions for losses.
This is what you'd expect to see for a bank that doesn't have any losses, that the provision - 1 basis point, + 2 basis point, negative, negative, positive. It's just noise in the works that's giving rise from our modeling, that when we model out what's an appropriate expected loss provision. Now, on the deposit side, one of the U.S. regulators said to me, after Silicon Valley Bank failed, "Say you have a run on your bank." And I said, "Well, where are they gonna run to? We don't have any branches. It's just two tech facilities." "Okay, okay, but what about your fancy website? You know, what, your customers can go in there and move their high rate daily interest savings account to some other bank, and you wake up in the afternoon and find out you have no more deposits, and you're insolvent."
Well, we don't have one of those fancy websites. Our deposits are in the States, we call them CDs, in Canada, they call them GICs, term deposit receipts, so that you can only get your money out when the deposit matured. So this is what you'd expect to see if I'm telling the truth. You'd expect to see our income growing quite nicely, and it grows in proportionate to our loans. So our total assets right now in Canadian dollars are CAD 4.2 billion. I've set a milestone. Earlier on in the year, I said we'd hopefully get to CAD 5 billion by the end of the year. The economy in Canada slowed down a little bit, so I've now pushed that out. Yesterday, when I did the podcast, I said maybe it's CAD 5 billion at the first quarter of 2025.
But earnings go in proportion to assets, and that's because our net interest margin is sort of hovering around 250 basis points, so that gives rise to to the growth in revenue. And then, we pay taxes about a 25% rate, so pre-tax is about CAD 92 million. CAD 42 million was the net income for 2023. And so this is a nice, t his is what you'd expect with a highly scalable software company that managed to be blessed with a banking license. Loan growth year-over-year 18%, and that's just in Canada. Total revenue up 9%, net income up 25%, EPS 29%. The reason why EPS is up a little higher than net income is we took the opportunity to buy back some shares. And this is a weird situation.
Our stock is trading at about 90% of book value, and about a 7x PE, which, of course, is a great opportunity to buy. But it also gives us an opportunity from time to time to buy back some shares and turbocharge our EPS. ROE is starting to pick up nicely. As we put more assets on, the ROE keeps getting better and better. And the efficiency ratio, which could be thought of as cost in cents to earn a dollar of revenue, is about CAD 0.39 to earn a dollar of revenue at the half year mark. That just keeps getting better and better because our fixed costs are fixed. There we go. So, this is the colossal opportunity that's in front of us. We plan to take our tried and true, and tested point-of-sale program to United States.
And so people say, "Well, you have to put branches, or you're gonna have to go to buildings, or you're going to have to spend a lot of money to bring it to the United States?" The answer is no. It's a cloud-based bank. In fact, I could operate the cloud-based bank anywhere in the world, just as easily. I just, l iterally, when my plane touches down, wherever the wheels touch, I have to have the authority to do business. So in the United States, we need to be granted the ability to operate as a federal bank. And then we can bring this point-of-sale program over to United States and hopefully expand to take advantage of the $1.8 trillion market, which is maybe 100 times bigger than Canada.
And help serve these point-of-sale finance companies in the States that I think are eager to take advantage of our economical and reliable funding source. So, as I said on the podcast yesterday, the good news is, we haven't heard from our U.S. regulators yet, but we are hoping to hear from our U.S. regulators by the end of this month. And of course, fingers crossed, toes crossed, everything crossed, we're hoping that they're going to give us the affirmative. Yes, indeed, you can complete the purchase of Stearns Bank Holdingford. It's a little tiny bank in the middle of Minnesota that is an OCC bank and has access to all of the United States. So we're kind of hold our breath till the end of this month.
Hopefully, we receive the good news, and then our cloud-based bank can begin operating in the United States. Next slide that talks about that. Another nice slide showing the leverage that our bank has. As assets increase, net interest income increases proportionately, but that using the rough figure of 250 basis points, fixed costs of those remain virtually the same as their fixed costs. That's what you'd expect. And that gives rise to the kinda rapid growth in ROE and in earnings. I put these milestones up just to illustrate how the math works. The CAD 5 billion mark, our efficiency ratio should be less than 40%. Right now, as you see, it's about 38%, so it's going where it should, and it gives rise to an ROCE of about 16.5%, just using the CAD 5 billion with the same ratios.
At CAD 6 billion, it just gets better and better. CAD 10 billion, somebody asked me at the interviews, what it's like at CAD 10 billion? Well, it's really, really good at CAD 10 billion. All righty. So, years ago, when I was a young lad, for some weird reason, I decided to be a maximum security prison guard. I just wanted to see what was going on in the Big House, and I got the opportunity to meet some fellows I would normally not get to meet, and some of those were real-life bank robbers. And the tool of choice in those days was a Winchester Defender, a nice shotgun.
So when I created this bank, I did not want to fall prey to the modern-day bank robbers, the cybersecurity folks that maybe occupy a basement somewhere, or maybe some foreign country or whatever, that try to break into your bank and steal your data or your money. Terrible! So being the entrepreneur that I am, I thought I would create our own cybersecurity firm, and that being DRT Cyber. That I did. And I was blessed with a friend of mine, Tom Ridge, former Head of Homeland Security, as chairman of the DRT Cyber. And the fellow who headed up BlackBerry cybersecurity for about 14 years and kept BlackBerry a safe and legendary firm. I managed to recruit Gurpreet Sahota to set this up for us. So we created DRT Cyber to keep our bank safe, first and foremost. But again, we're entrepreneurs, we can't help ourselves.
So we start vending our services throughout the United States and Canada. But presently, we'd have about 400 of your high-value targets as our clients. So that would include your police department in town here, energy companies, transportation lines, states that rely on DRT Cyber for some of their cyber security needs, and that's a wholly-owned sub of the bank. The reason we say it's a free option, because if your shares are valued at less than book, you get this little gem for free. It is quite possible when we're granted our U.S. bank license, that this company will be divested of, because it's not really compatible with a bank holding onto a cybersecurity firm. Years ago, I had another incompatible business, wonderful business, we provided the dogfighting training to the U.S. Air Force, Canadian Air Force, and U.K. Air Force from time to time.
I had the largest private fleet of jet fighters. That was a really cool business, but not compatible with banking. It was a cool business, though. Anyways, so why would you want to buy VersaBank stock now? Well, even if we didn't get the U.S. license, it's still a screaming buy at less than book with a 7 times price earnings ratio. But we think that we're gonna soon have U.S. access to the U.S. market. Makes it even better. Obviously, the operating leverage is kicking in. You saw how with assets increasing we start posting some seriously good numbers of, I think we're about CAD 1 million a week in after-tax earnings on the run rate presently. There it is. Any questions? Yes, sir?
[Inaudible]
Yeah, in Canada, our point-of-sale partners provide financing through basically all the industries. But a lot of it is discretionary spending, so hot tubs, motorcycles, and cars and things. So, in Canada, in the winter months, you don't tend to have as much going on. In the summer, those types of purchases take place, and a lot of them are financed at the point of sale. Another part of the business that's been good for us is, folks have been getting new energy-efficient furnaces and hot water heaters and all those sort of things. That's been a real good business for us, but it really is, we really are dependent on consumer demand. If consumer demand wanes, then the volume of loans we put on reduces.
Another interesting characteristic of our bank is, as you probably know, in Canada, in the States, there's been more defaults on loans than in the past. During COVID times, our government generously gave out lots of money to people, and there was virtually no defaults. Bankruptcies went to a 40-year low. Now we've gone past an average bankruptcies. There's more insolvencies, up about 23%, and small business, about 60%. So what that means is, we would have more defaults in our portfolio, our loan portfolio. But unlike other banks that have credit losses then, that simply means the loan's repaid faster. So it means we don't grow as quickly because our loans are being repaid by our partners, so it's not to show up in our books as a bad loan, but it does slow down the growth. So when the economies slow down, our bank's volume slows down. But unlike the other banks, we don't experience the credit losses, but we do suffer when the volumes slow down. That's pretty cool model.
[Inaudible]
Yeah, it's even better than that. I didn't tell you the real icing on the cake, because I thought I'm really gonna do well, even in recessionary times as well as the good times, right? As that's so there's an industry in Canada that I thought should be, wasn't being well served by the other banks. It's called the insolvency industry. So these are the insolvency professionals that wind up people's estates, and we provided a custom banking package for the insolvency professionals, and it's just, as you say, you know, you build it, they will come. Virtually, no advertising at all. It was just such a beautiful package that we have most of the insolvency industry dealing with us. So what happens?
It's not even, it's better than what I was saying, because now there are more insolvencies, so now we're getting, we've just opened about 20-30% more accounts. We're about 8,800 accounts now. These are the accounts the insolvency professionals will open, so when they're winding up somebody's estate, they put the proceeds on it and deposit with our bank for about a year and a half or so, until, until the, so it's even better than that. No, I wouldn't say because I'm a banker, I wouldn't say no risk. You can't say no risk. There's always something that can go wrong, you know, it's just the way things are.
But I did try to. I had the, like I said, with the whiteboard, I had the kind of privilege, honor to create a bank and know all the things I knew and said, "Well, I don't like that. I don't like this," and yeah, did it and rolled it out. Not a lot of opposition to start with. Our regulators in the early days had never seen a bank without branches. There was no example here in this country either, and when I said I'm gonna operate without branches, I got lectures. "People won't do that, David. They won't give you their money without walking in and seeing a person." And one guy took it upon himself to describe a bank, and he did pillars. He did pillars in front of it.
I said, "Well, these things are gonna change, Gee," if Gee's listening, he knows who he is. Things will change. I had a premonition that things would change. Yeah, but I haven't eliminated all the risks. There's tiny little risks here and there, but it is. The usual risks that banks face, I managed to really squash them down. Yes, sir.
[Inaudible]
Well, I think, to answer the second part of that question, we need to be blessed. The US regulator needs to say to us, "Okay, you can go and conclude the purchase of, Stearns Bank Holdingford." And I think that's what people are doing. They're sitting in their hands saying: I don't think he's ever gonna see that license. It's been two years. Well, two years isn't that long, really, in the regulatory world. I was the first guy in 18 years in Canada to get a bank license. 18 years. In fact, I made a joke when I talked to some of the regulators. You guys aren't gonna keep me around for 18 years, are you? Like, you got a little old here. So I think that's it. I think just what's happened is people are saying, oh, you know.
But even if you didn't get the license, the Canadian operations is still turning big numbers anyways, but I think that's what's happened. It's just like who cares? Or that other question that somebody asked me, why would you come to the United States? 6,500 financial institutions. Well, you're a bank. I mean, why do you think you can do things better? The other Canadian banks coming here have got their ass in hands. Well, it's the reason I'm coming is because I got something entirely different, and I can say that with somewhat, with confidence, because the OCC told me, "We've never seen anything like this before. We've never seen a model like this." So, you know, I'm coming with a new mousetrap.
So I think you'll see, fingers crossed, I think you'll see that all change pretty rapidly by the end of this month. Because our cost of funds is way, way, way lower than theirs, because we're hopefully in the United States, FDIC-insured deposits, in Canada, CDIC-insured deposits. So our cost of funds is super low, and we pass some of that benefit to them so that we can earn the 250 odd basis points, and we leave the rest on the table for them. So they're earning more than they would otherwise because we give them such a good deal on the cost of funds. And we also buy the receivables like on a regular basis.
We can buy them daily, so they don't have to batch up and have a lot of liquidity, that's expensive. They have to borrow, you know, have a line of credit with somebody. They can virtually operate without equity. They just send us loans as they generate them and earn a nice little return. If we see a partner who can't live on what we leave on the table for them, we don't want to have to do with them. You know, they're just not good lenders then. But the good lenders we're dealing with, we both literally sit down and say, "How much do you need to make your rate of return?", " Here's what we need. Can you get that?" And if they can get it, then it's a joy.
You know, it's one of those partnerships that just marriage made in heaven sort of thing, where it's yay. Well, the bank would have to have our software and our systems, our people, you know, it's this, a lot of training involved in processing and all that, and we keep moving the bar, so it's harder and harder for someone to emulate it. But I wouldn't be surprised, once we roll this out, we, we'll have competition. I mean, this country is really good at doing stuff like that. All they need to do is say, "Wow, that looks good." Yeah, I don't mind that at all. I mean, we don't ever want to take over the entire business of one of our partners.
I like them to have other part suppliers, too, because our facilities are what's called as-offered facilities. As a bank, I don't like to be ever having to provide financing. I like them to have other choices, even if it's a little more expensive, maybe. So we see ourselves as complementary. When I first pitched this to point- of- sale companies, I said, "As a bank, I like to have diversified deposit sources, funding sources. Don't you?" Yeah. Okay. Like, there's no, there's never any, t he sales pitch is really, really easy. Anyways, well, thank you very much, everybody. I very appreciate it. Good questions.
Ladies and gentlemen, David Taylor!