Leading the discussion from the firm will be President and CEO David Taylor. Before I hand it over, a quick reminder that the Q&A tab is located right at the bottom of the screen. Feel free to type in questions throughout the presentation, and we can save time for Q&A at the end. With that said, David, take it away.
Thank you, Brendan, and thank you, everybody, for joining me this afternoon. This is exciting times for VersaBank. We have just entered the United States with a brand new solution for point-of-sale finance companies. We have also got a brand new product for the U.S. banking industry, a digital deposit receipt that I am very pleased to tell you all about in this presentation. Moving along. Oh, that is the usual disclaimer. For those of you that are not all that familiar with VersaBank, this is a bank that I conceived in the early 1990s. I had worked for a large Canadian bank, and then after that, a large British bank. Somewhere along the line, I thought the technology has progressed to a point that I could start a bank of my own and lean on the new technology that was out there.
The new technology does not sound so new nowadays. It was IBM PCs and telephone modems. Having the opportunity to start a bank, literally with a whiteboard, I took into consideration all the things that I had learned in my early career with the big British bank and the big Canadian bank. The things that I was not very happy with for my bank, I decided to try and eliminate to the best I could. Excessive lending risk, of course, has been the death knell of small financial institutions over the years. They seem to be enticed to get into riskier situations. Inevitably, when a downturn came, they found themselves out of business. I tried to eliminate that wherever I could. With that comes the elimination of those nasty loan losses and terrible collection experiences.
I'll tell you how I managed to erase that from our bank. Deposits and liquidities. If credit losses are the beginning of a cancer in a bank, then liquidity issues could be what we call a heart attack in a bank. We've seen that in the past with some banks that have gone out of existence in a very short order due to liquidity problems. Try to eliminate that wherever possible. Economic exposure. Banks tend to do well in upbeat economies. From time to time, they're whining about downturns. When you start a bank from scratch, you can maybe figure out ways to be immune to those downturns as best as possible. Interest rate risk, of course, that's something any bank should be taking. We don't know any better than anybody else. We should always be neutral on that. Physical infrastructure.
You know that's very costly, particularly when I was as a young lad looking at forming my own bank, the prospect of building a branch network, very, very expensive, probably unattainable for me, just mortgaging my house to start the bank in the first place. Of course, necessity being the mother of invention, I created a branchless bank. Inefficiency, well, if you do all those things above, you end up being a very efficient financial institution. Moving along. Aha. What have we got today? We have a fully digital North American bank. I'm very proud to say that. We're a national charter in Canada and national charter in the United States. Because we're a cloud-based bank, literally cloud-based, in that we do conduct business from airplanes from time to time, we are able to operate, I guess, functionally anywhere in the world.
However, I use airplane analogy, but only where we're cleared to land. We've been cleared to land in the United States and Canada. The branchless model, a branchless model utilizing partners, has lent itself to extreme efficiency. Of course, I guess we can't help ourselves. We're a very innovative bunch, and from time to time, we come up with innovative new ideas for our banking industry. I gave you a little preview of that earlier. I think the most revolutionary, innovative thing we've come up with so far, we're about to hopefully bring into the United States and eventually Canada. That's what I call a digital deposit receipt or the ultimate stablecoin. Moving along. All right. That just shows what I mean about being a cloud-based bank. There's actually a little logo missing in the middle of Minnesota.
There should be a logo because we have an administrative center in Minneapolis now. We also have a tech center at London Airport, where I'm sitting in right now. And in my alma mater, the University of Saskatchewan, at the Innovation Center, we have a tech center there. Moving along. All right. It is one thing to say that you're a risk-averse financial institution. The folks who have been talking to me today, in fact, must be from Missouri. They're saying, "What really, Dave?" Have a look at those numbers. That is since 2017. That is our provisions for losses. Pretty well averages zero. That is what you'd expect from a bank that has over the last 32 years almost no credit losses at all. So proud to say that. Other banks could do that too, but they have no earnings because they're not taking any chances.
What we have been able to do is sort of thread that needle and actually show very good earnings, maybe the widest net interest margin in Canada with also the lowest loan loss experience, which is having your cake and eating it too in the banking world. Very sticky deposits. I was talking earlier. What a bank has to be very, very careful about is that its deposits are sticky. They are the lifeblood of the bank. In our case, we take CDs in the United States and what they call GICs in Canada, our fixed-term deposit receipts that lend themselves to, of course, because of their nature, having a fixed term, very, very sticky. We also have another channel of very sticky deposits where we provide deposit services to the insolvency professionals in Canada. 98% of our deposits are insured.
That is mainly now in Canada, CDIC insurance, but also insured, of course, in the United States with FDIC insurance. Moving along. Aha. What you can see here is the bank has been able to grow in the last few years fairly rapidly. A little bit of a dampening period happened in 2019, 2020 due to the pandemic. It slowed down growth a little bit, but of course, that rebounded. We have been growing quite rapidly. Canada is now facing some headwinds in its economy. Despite that, we have still been growing, I think, faster than any bank in Canada, but only maybe 3%, 4% a quarter. The big growth for us, of course, is now entering perhaps the largest point-of-sale market in the world, that being the United States of America, where we expect to have exponential growth. Moving along. Yes. Very low-risk lending channels.
I better get into that, in that that's sort of the secret sauce of VersaBank, how we're managing to have our cake and eat it too. We developed an analogous lending network to the way we raise deposits. We raise deposits exclusively through a well-established deposit broker network. That means we never get to meet the actual depositors, thankfully. Deposits are sent to us by this network in the United States. That would be Raymond James and Stifel. In the next while, there will be some more of our interlist in Canada. It would be 100 or so well-established deposit brokers, including most of the investment firms of the large Canadian banks. That's how we raise our deposits. How do we put it back out again? We look for an analogous network, and we settled on point-of-sale finance companies.
These are the companies who provide you with the financing, your hot tub, your motorcycle, your HVAC, at the point of sale. What happens is we purchase from them the cash flow streams that are derived from these loans and leases. This picture here shows you a person who needed an air conditioner. That could have been me in Port Orange, where I live most of the time. If the air conditioner quits there, you need an air conditioner fast. One-hour air conditioning firm will show up at the door and say, "Oh, we got a new air conditioner for you and this and that. It's going to cost you $10,000." "Oh, no." To give you an iPad, you sign it, and you've got yourself a loan. That loan in Canada, generally, it flows to us.
Hopefully, in the United States, they're starting to flow to us. If you envisioned it this way, we're a large electronic warehouse taking in deposits from that great network I talked of. On the loan side, taking in loans from this network of point-of-sale finance companies. These loans come on to our balance sheet, the loans, of course, the assets, liabilities being the deposits. As mentioned earlier, we are in a spread in the middle, which happens to be the largest spread in the Canadian banking industry. Hopefully, in the U.S. too, but we're just getting started in the United States. I think some of you might be saying, "How can Dave be possibly talking about no loan losses when he's financing hot tubs, motorcycles, cars, air conditioners?
have got to be loan losses. The arrangement that we have with our partners is a putback. This keeps us out of that unhappy customer experience of collections, of course. We do not have to deal with that. We do not even hear, just software engineers. We are not really culturally set up, culturally inclined to get into collections. The putback arrangement is what we have. Our point-of-sale partners place on deposit with our bank a substantial amount of cash. If a loan was to go 90 days in arrears, then we had the ability to put the loan back to our partner. They look after that collection experience that we are just not set up to do and do not have any desire to ever get into. That is how it works.
I put that in place about 15 years ago in Canada, and it's worked exceptionally well. Thankfully, we've never actually had to meet the guy on the motorbike that has forgotten to make his payments. If we ever did have to meet the owner of the house that got the air conditioner, something's gone wrong. Over the last 15 years, touch wood, that's never occurred. Wonderful model. Now we're really happy about bringing that into the United States. We think we can really provide a super service for the point-of-sale companies in the United States. Moving along. All right. As I was talking, the culture in Kelsey Hickman. Oh, we got to stop that. Stop. Look at that, and it won't shut down. Sorry about that, ladies and gentlemen. The trick is to run a bank with a culture that is risk-averse.
In every conceivable place where a bank might be, VersaBank is always trying to find ways to mitigate that risk down to as close to zero as we possibly can. As we know, as statistician-type people, we know it is never a zero, but we do our best to maybe get 90. Maybe we are at the 99th confidence limit that we have. 99% of the risks allayed. There is always a surprise. I cannot ever put my hand on my heart and say there is no risk in the VersaBank world. With respect to the point-of-sale program, we do extensive due diligence on onboarding a partner. We would like to see them at least 10 years in existence. We would like to see through the cycle analysis. We would like to see what their worst years are. We would like to see how they handled it, how stable they are.
Because like I said to our staff here, we can't save a bad lender. They have to be good lenders. We're somewhat agnostic as to the market they're in. They could be cars, hot tubs, motorcycles, whatever. But whatever market they're in, they got to be good. Because if they're not so good, it won't help them that we're funding them or even give them economical funding pricing. You can't save a bad lender. So we're really, really careful about who our partners are. I would say in the United States, maybe 10%, 20% of the point-of-sale lenders meet our pretty high bar of being exceptional lenders. Now, if that's all we did, that'd be calling the aviation world set and forget. And that usually ends to a bad ending in the aviation world.
What we do is continuously monitor the data that represents loans and leases as it is coming in the door. Look for trends. Look for anomalies. Maybe they are having more arrears than they originally anticipated. We have actually got an AI module now that helps the humans out with that type of analysis. We can spot something going wrong or going right. It might be that we have too much cash collateral, and our client might, our partner might say, "Hey, maybe you should give some of that back to us." Or it could be the other way around. Let's say it is happening in Canada now, where arrears are a little higher than average, maybe quite a bit higher than average. I mean, you need a little more cash to offset the risk. There are some good stats. 20% five-year compounded average growth rate. Pretty good.
United States, it should be many times that figure, given the size of the market and the reception that we're receiving. Moving along. All right. This just shows, as you'd expect, the stats of our ROE. It's kind of an inflection point. When we crack through $3 billion in assets, you start to see ROEs getting up there into the double digits. It should be a lot higher. We're almost infinitely scalable being a software company. However, going into the United States, it was a lot of one-time type expenditures. Also, the ongoing costs of hiring new people, setting up the premises, all that sort of thing. It dampened our digital operations ROE a little bit. Now that we're established and ready to go, you should see those figures getting to the 20s, 20%. Moving along. This is a timeline.
As you can see, with the approval for the national license in the United States, May 2024, we've run along with the program. We're at the final stage of it now. We're in the acquisition mode where we're acquiring as quickly as possible and as prudent new point-of-sale partners in the United States. This year, we have, I think, a fairly modest target of $290 million of point-of-sale assets on by the end of the year. It is giving our lending officers some work in that the onboarding process takes quite a while. We've got a real good one on already. We've got about three more in the hopper, another three identified. All being well, we'll have those on by the end of the year and hit that $290 million mark. It is possible to go many, many times higher than that.
The onboarding is a process. It, of course, is something we have to spend a bit of time with to make sure we're onboarding the compatible partners with our business model. Moving along. All righty. There are some more good stats. In the interest of time, I'll just speed through this a bit. Obviously, the scalability is fantastic. The more assets we put on, the ROE just goes right through the roof. Again, move along. Where are we? All righty. This is the revolutionary new method of gathering deposits that we pioneered in Canada starting in 2021. In 2018, we came up with the linchpin for this program. We called it VersaVault, the digital vault. I thought, banks have always been known to keep their customers' valuables safe in vaults. Now that valuables are represented in digital format, why not create a digital vault?
We created that in 2018. That is the hub for our digital deposit receipt. A digital deposit receipt is a digital representation of a deposit with our bank. It could be, if other banks want to participate in this technology, those banks. Unlike the stablecoins that you are hearing about today, this is not a coin on the blockchain. Ours is on Algorand, Stellar, and Ethereum. This actually represents a real deposit with a real bank, which would, as all deposits do in Canada, CDIC, and United States FDIC. If you are interested in coins, stablecoins, this is the destabilist of the stablecoins in that it is convertible back and forth, of course, to U.S. dollars or Canadian dollars if we go to Canada with it too. We think this is the next wave for banks on both sides of the border.
This is where banks are able to offer the utility of a so-called stablecoin, but the safety, soundness, and security that goes with being a national bank that is scrutinized by the regulators to ensure that nothing goes wrong, like unfortunately has gone wrong in the ragtag stablecoin cryptocurrency industry in the past. We are bringing to the banking industry just where it should be. I guess I'm prejudiced as a banker. I think banks have a cultural imperative to ensure that their depositors always get their money back. And we bankers, that's what we're here for. That's our mission. Also make a little bit on the side for our shareholders afterwards. We created this digital deposit receipt. It's based on our VersaVault. We are getting pretty close to rolling it out. Stay tuned. Moving along.
At this point in time, you might say to yourself, "Why invest in VersaBank?" Here are some of the good reasons. With the massive growth we're expecting in the United States, we're definitely in the inflection point with respect to return on our common equity. The U.S. market may be the largest point-of-sale market in the world and has a high propensity to finance at the point of sale. It just works out perfectly for us. The risk-mitigated model that we have in mind should give our shareholders a lot of comfort in that our bank isn't keen on growing for the sake of growth or jumping fearlessly into new markets. As I was saying to somebody recently, we have a powerful tool in VersaBank. It's called just say no. No thanks. No, we're not interested in that. No, no, no.
We only sort of cherry pickers, picking the lowest risk, highest return markets that we can possibly find. We think that the point-of-sale market, we've found just that. All righty. Opening the floor for questions.
Fantastic. David, thank you for the overview here. We can open the floor for a Q&A. Why don't we start with the receivable purchase program partnerships in the U.S.? How many partnerships do you have at this point? What's the pipeline look like?
We have three. One we're funding steadily. The pipeline, I would say, we're visible on about 30 that would easily fit our model. That's without even trying. We'd have about half a dozen in the works in various stages of processing.
Great. Great. How has the initial customer response been throughout the first quarter of 2025?
Our first customer, Watercress, went in on the record saying it's been a fantastic experience. It works wonderfully for our point-of-sale company. They're able to sell us the cash flows associated with our loans and leases on a continuous basis as they're generating them. That alleviates them of having to warehouse these assets waiting for perhaps a securitization or just borrowing in the traditional sense from community banks and only maybe getting 75% or 85% of the receivables value and having to fund the rest with equity, which, of course, is a lot more expensive. It's an economical, reliable funding source that we proved out in Canada. Our U.S. partners love it. It's very complementary to their existing asset securitization way of financing.
Even if they happen to have lines of credit with other community banks, we see as a complementary product fits right in with all that. We're not really looking to replace their relationship, the long-standing relationships they've likely got with other lenders. It just fits in to alleviate some of their cash flow issues and maybe get them better pricing from time to time.
Great. Do you see additional room for geographic expansion there, just given the digital nature of the business?
Absolutely. We're a national bank in the United States. We have the entire country. Of course, our software is cloud-based. There's no geographic constraint, unlike, say, state banks or banks that are restricted to certain areas. We're happy to receive a national charter.
I guess maybe from an international perspective.
Oh, yes. Yes, indeed.
There are some other countries that look quite attractive to us. Mind you, we're a little bit on the back burner right now. We're looking at the U.K. We have an insolvency business I alluded to in the show that works extremely well for the Canadian market. And the U.K. market is almost the same. In fact, our software partner in the U.K. is a Canadian partner too. So there are other countries that would work well that are quite natural fits for us.
Yeah. And then turning to the cybersecurity business, can you talk about the value realization efforts there? I think you've mentioned in the past that that might be subject to monetization. What do you see potential use of proceeds for?
We've been working with, I guess, a stake from KBW on that topic to find an appropriate purchaser for the cybersecurity business that we have.
I think it's a premier cybersecurity service. It has about 400 of the, we call them high-value targets in the United States and Canada, big retailers, big energy firms, and police departments and states and such. I think it's an ideal add-on for a cybersecurity firm. A little reluctant, we have to sell it. We did agree with the U.S. regulator that we'd move it on its way. Proceeds would be applied to regulatory capital, just to be multiplied by approximately 12x and let back out again. We've got lots of use for the capital to augment our lending program.
Got it. Maybe one last question here. Can you comment on net interest margins? Also maybe tie in your underwriting process and maybe how you adjust the credit box over time.
In Canada, where we are well established, the margins are the highest of the banking industry. They are even higher if you take into consideration the other banks are providing 20, 30, some maybe this year 40 basis points for provisions. Ours, on our credit assets, last quarter were 259 basis points with maybe two basis points or half a basis point for one and a half for credit losses. Good credit margins to start with. There are a number of factors that are giving rise to a little, maybe a little expansion going forward. That is the yield curve used to be inverted. It is flattened. We have a lot of GICs maturing that we are replacing with about 1% less than the maturing GICs. That helps. That yield curve is not properly upward sloping yet. That puts a bit of a damper in it.
GICs over the same-term government Canada bonds are a little higher than average too. All things considered, margins over, let's say, the next six-seven months should expand even further. We used to run around 300 on our credit assets. I could see it coming back. We still have that kind of tug-of-war going on with those various factors.
Fantastic. David, we really appreciate the overview and the insight. We'll conclude the presentation there. If there were any questions we did not get to, feel free to reach out to VersaBank directly. You can contact Sadody. David, thanks again for your time.
Thank you, Brendan. Thank you, everybody. Appreciate your interest in VersaBank.
Have a great day, everybody.