...Hello, and welcome to Virtual Investor Conferences. On behalf of OTC Markets, we're very pleased you joined us for our Digital Asset Conference. Our next presentation is from VersaBank. Please note you may submit questions for the presenter in the box to the left of the slides, and you can view a company's availability for one-on-one meetings by clicking Book a Meeting. At this point, I'm very pleased to welcome David Taylor. He's the President and Founder of VersaBank, which trades on Nasdaq and the TSX under the symbol VBNK. Welcome back, David.
Well, thank you, John. I'm very pleased to be here to discuss this very timely topic for both the market and for our bank. We are likely quite a bit different than the other companies presenting today. Our bank has been in existence for 30 years, not 30 months, 30 years! And as an opportunities for digital asset space are naturally extensions of what we have been doing for decades, and we provide significant upside to an already high-growth, profitable business. Looking at the advisory slide. Everybody got that already. Since the early 1990s, VersaBank has been ahead of the curve on banking and financial technology, continuously innovating. We have a track record of firsts, especially notable in a highly regulated industry such as banking. In fact, we were, to our knowledge, we're the first digital branchless financial institution.
A number of firsts are why I'm here today. They are the reason for our early leadership in the digital asset space. Before I go on to these, I want to spend a few minutes on our core business. Because with VersaBank, you not only get the digital asset opportunity I will discuss, but you also get an established, consistently profitable, high-growth North American bank. We are a fully digital bank, nationally licensed on both sides of the border, United States and Canada. Our cloud-based, branchless business-to-business model means we benefit from significant operating leverage. We increasingly see this as we grow, especially as a result of our recent entry to the United States. What this means for shareholders is that our assets grow at a disproportionate amount of every additional dollar of revenue will drop to our bottom line.
On the left side of the graph, you can see our growth over the past three years, an average of 27% compounded average growth rate to nearly CAD 6 billion in assets, that being in Canadian dollars. This was driven by the success of unique receivable purchase financing program that we launched in Canada. Last year, we also launched this in the United States, and we're off to a fantastic start. We are consistently profitable, earning nearly CAD 36 million in 2025 of ordinary income. As we grow in the United States, our operating leverage will drive significantly greater efficiency, outsized growth and profitability, and expansion of a return on common equity to what we believe will be industry-leading levels. That, in and of itself, is pretty good for an investment story.
It all exists before we even start to talk about what we're doing with digital assets. As usual, we are on the leading edge of this technology and have been for nearly a decade. In fact, over the last few months, I've been invited to speak on this topic to both U.S. and Canadian bank regulators, the Florida Bankers Association, as well as international banking and finance representatives. The digital asset revolution is upon us and is transforming financial industry that includes banking. There are two main functional areas that are relevant to us as a bank: deposits and payments. On the deposit side, banks are challenged by the flight of deposits from banks to non-banks as wealth transfers from older to younger generations.
We've been told by a major banking service provider that approximately 70% of the wealth that is transferred generationally goes to non-bank, crypto, stablecoins, et cetera. This is an existential crisis for community banks. They must embrace new technology or suffer the consequences. On the payment side, the market is continuing to pursue faster, less expensive, and more secure transactions. Digital assets, specifically tokenized deposits and stablecoins, address both. Let me start with a quick comparison of tokenized deposits and stablecoins. Both are representations of a unit of currency on the blockchains, meaning both provide significant faster transactions, significantly lower cost, significantly greater security and programmability.... To date, stablecoins have been getting all the headlines, predominantly because their rapid growth, which has been largely due to their ability to exist outside the regulation until recently.
But I'm going to start with the deposit tokens because they are where the biggest names in banking and finance are playing, and where we have the biggest opportunity. One-to-one digital representation of actual deposits with a bank on blockchain, supported by the same liquidity regulatory framework as typical bank deposits. Ability to pay interest, which stablecoins are not allowed to do. As actual bank deposits, we believe they will be eligible for deposit insurance. Designed for institutional applications, including cross-border and B2B payments, digital asset settlement, and on-chain liquidity management. They adhere to the most rigorous compliance standards, better suited for enterprise-grade applications where know your client and anti-money laundering compliance standards must be met. And very importantly, they reside on the bank's balance sheet, meaning they are a source of low-cost, even no-cost deposits. That's music to my ears as a banker.
Which means they provide low-cost, no-cost funding for financing and lending activities to further grow our business. Stablecoins are similar but are issued by non-banks, cannot pay interest, are not eligible for deposit insurance, and must be invested in low-risk assets like T-bills with third parties, meaning they are not available for use by the issuer. We believe each will have a role to play in the digital asset ecosystem. The digital asset revolution is here, and it is moving quickly. We have a U.S. administration dedicated to the U.S. leading the world in digital asset space, and the Canadian government is quickly catching up. Non-bank-issued stablecoins have returned to favor after crypto winter of just a couple of years ago. Total value of the stablecoin market has surpassed $300 billion. That's up more than a third in the last 12 months.
Stablecoin transaction volumes are regularly reaching record level. Tokenized deposits are quickly becoming mainstream, with major names in the banking industry having announced initiatives of various kinds. That puts us in a very good company with our unique solution. Being greedy bankers, we are pursuing both deposit tokens and stablecoins opportunities. If you've ever gone to the racetrack with a banker, you might know they bet on the two best horses, so they never lose. Just the way we are. We actually have been doing this for a long time, nearly 10 years, in fact. Back in 2017, I recognized the application of digital asset technology to the banking industry. As a fully digital bank, we had already internally developed an industry-leading security technology. This probably goes back to my early days, when I was in university.
I doubled as a maximum security prison guard and got the opportunity to meet real-life bank robbers. So when I created this bank, I thought to myself, "The modern bank robbers that might reside in a basement somewhere in the world are not going to have their way with our bank." So I invented a cybersecurity firm I call DRT Cyber, and was blessed to entice, I think, the world's leading authority on this area, Gurpreet Sahota, who had led BlackBerry's cybersecurity for 14 years. So we're early in the space, and we've had tested working deposit tokens since 2021. But with the submission of our application for a U.S. banking license, we were advised to shelf this deposit token.
Now, with a favorable regulatory environment, we are currently undertaking an integrated cross-border pilot program to demonstrate the functionality of this wonderful new technology. With trillions of dollars projected to shift out of banks and into non-banks by those demanding seamless technology-based financial services, we have a bank-developed, market-ready solution to enable thousands of community banks in the U.S. to have a blockchain-based solution. In finance, technology may change, but confidence remains the foundation. In a world of increasing regulatory scrutiny, trust really matters. Recent events have demonstrated that confidence can erode quickly when questions arise about asset quality or redemption risk. This results in two opportunities for our bank. One, we can issue our own deposit tokens, providing heaps of low-cost or no-cost funding for growth of our business. And two, we can license our technology to other banks who want to issue their own deposit tokens.
We're certainly happy to do that and share. There are many potential use cases for deposit tokens... but I want to focus on the one getting the most attention, and one for which we are best positioned: cross-border payments. We're the only bank with existing deposit token in both United States and in Canada, with $1.3 trillion of trade activity between the two countries. This means billions of potential, tens of billions of very low or even no-cost deposits for our bank. In 2025, adoption has surged, with global issuance climbing to around $300 billion, up around 50% year to date. That's from Citi. We are taking a different approach with stablecoins. Stablecoins, because they're issued by non-banks, require a custodian and specialized financial institution that holds and safeguards these assets.
For hundreds of years, banks have prudently served as custodians of depositors' money, and we strongly believe we should continue to do so for the digital assets. As a nationally licensed bank in both United States and Canada, with unmatched security through our versatile technology, we are ideally positioned to act as a custodian for third-party stablecoins. With the value of stablecoins in circulation projected to grow as high as $4 trillion by 2030, we expect this to be a meaningful, new, low-cost revenue stream for us, as well as another significant source of low-cost deposits to fund our growth. In summary, at its core, VersaBank has a low-risk, high-growth, fully digital banking business in the United States and Canada. Recent entry and ramp-up in the United States is expected to drive continued strong growth and profitability as we benefit from the significant operating leverage in our business.
On top of that, we have a significant additional upside in digital asset opportunity with RBDTs and stablecoin custody. Before I open things up to questions, I'll note our analyst coverage for those looking for additional perspective on VersaBank. And for those who don't have access to the investment dealer research, I will note that Keystone is available to individuals via subscription, and Bullpen Research is available to anyone at no cost on their website. And of course, the lawyers require me to say that we do not endorse any of these financial estimates, and no animal has been harmed in this presentation. I will now open up for questions.
All right, David, we've got a few questions, coming in.
Excellent.
The first one has to do with the, you know, path to commercialization and timing with respect to the pilots that are running. And obviously, you've got regulators that you need to be concerned with. So what's that look like going forward here?
Well, it's a real good question. We are piloting them both simultaneously, north of the border and south of the border. And north of the border, we'd already run a pilot and acclimatized the various regulators about our deposit token, but we're refreshing it in Canada. And on south of the border, we're well underway with socializing our deposit token with the U.S. regulators. With respect to timeline, we lost a little bit of time during the holiday season, hard to get people's attention when they're dreaming of sugar plums dancing in their heads. But now we're fully engaged again in the new year. So I'd expect some announcements within about a month or so on both sides of the border.
What legislation will determine if RBD deposits can be put into RBD programs or the timeline? Or I guess that question might be, you know, how would you leverage these deposits in terms of growing the business? What would the timeline look around that? How does that impact growth?
Well, thankfully, we don't believe any, any legislation or even regulation is needed to launch the tokenized deposits either north or south of the border, in that they are real bank... That's hence the name Real Bank Deposits. They're real bank deposits, and their, their records are kept as all our deposits on our own ledger. The data is simply reflected onto the various blockchains to provide for speedy payment vehicle. So our view is that no, no regulation or certainly no change in legislation is needed to allow banks to simply show evidence of a deposit utilizing a new technology.... It was very similar to back in the day when banks began using internet rather than paper to provide evidence of the deposits.
I don't recall any new legislation required for that. It just made it more convenient, a convenient forum for looking at what you had on deposit with the bank. Now, with respect to utilizing these deposits for our normal lending business, and which community banks, of course, definitely are very keenly interested in, because this is their lifeblood, and this is how they provide Mrs. Jones and Mr. Jones with a mortgage on their house. What we banks do is look at the stickiness of the deposit, and we'll need some experience. We'll have to have some data on this to determine how much we comfortably feel we can lend back out in the longer term assets.
So for the time being, for the early days, we banks will be doing some math on the statistics on the stickiness. And once we've become comfortable and our regulators have become comfortable, then just like all deposits, they'll be used to fund folks looking to get a mortgage or finance a motorcycle or a car, all the things that banks banks do. That sort of the lifeblood of community bank, but the lifeblood of the economy on both sides of the border. But that's what we banks are here for, to take risk-averse people's deposits and place them judiciously, carefully into assets that pay interest and help grow the economy.
David, you talked about the opportunity to white label or license the deposit token technology to community banks who need something like this. What feedback have you heard from the community bank sector? And then what potentially could that look like, and how might you access thousands of banks, and how are you thinking about that opportunity?
Well, we've been approached by quite a number of community banks, eagerly, waiting for us to, blaze the trail through the regulatory environment. Then once that's done, we've stated that we will help them, issue their own deposit tokens. So we have the capability of hosting, a vast number of deposit tokens for, for other community banks. So what I envision is that each community bank will have its own, deposit token. We call ours the VBs, Real Bank Deposit Token for VersaBank, and all the others could be X, Y, Z, or T or S or whatever. All these tokens, we're able to host and provide for the, for the community banks.
And then to create liquidity amongst the banks, I have in mind hosting an exchange facility where the tokens from each community bank can be exchanged. I envision a dollar for dollar, of course, 'cause I imagine they'll all be FDIC insured. And, you know, I think that's the way it'll go. I think each bank will be issuing its tokens. We'll host an exchange for them. We'll clip them a couple of little basis points, not a lot of friction. We want to create a very liquid market for our colleagues in the community bank industry.
'Cause frankly, I think it serves us all well to have a very strong community bank industry that can do what it's always done, provide, provide, capital for, for consumers and small businesses throughout, throughout North America.
Look at as the main competitors to your RBDTs, you know, either with respect to community banks or just in general.
Well, not really. You saw that long list of firsts with VersaBank. Our modus operandi is to determine what the market needs in some niche market or and develop the technology to address the need. And, you know, we haven't had competition. We've been able to create new products that the market needs, and by definition, nobody else was serving it. So there's almost no competition. We'll raise deposits for those throughout the world. Theoretically, it could be throughout the world. The blockchain knows no borders, of course. And I'd expect the other community banks can do the very same. First and foremost, they'll serve their geographic areas.
We are a national bank in Canada and the United States, so our geographic area is all North America. There's a tremendous amount of deposits, and we all bid for them based on interest rate. A few basis points often separates one deposit from another.
There's a question on the core business, and I think you made a very compelling point that, the bank is a very profitable, high-growth, low-risk, core business that's related to, but sort of sits, underneath, in addition to the, digital asset opportunity. You launched your, receivable purchase program in the U.S. last year. You achieved your, target by the end of the year of $290 million in terms of, RPP value. What's 2026 look like? New partners, growth of that, how are you, you thinking about that?
Well, earlier on, I used the word fantastic experience in the United States. So 2025 was really our first year of operation, and by the end of the year, we had more deal flow in the United States than we have in Canada. And we've been at it for about 18 years in Canada. So fantastic reception in the U.S. market. We've been able to sign up some big players. We have a few more in the works presently.
And we are, of course, because this is VersaBank, we are improving the product offering, with the idea that, rather than have our partners batch up their receivables and send them to us every so often, which requires they have a line of credit and some liquidity in that, we're working on an AI-driven, instant purchase of the receivables. So our partners can get by with a lot less liquidity, theoretically, no liquidity. They can sell their receivable as they're being generated, and our AI, homegrown AI module keeps an eye on the data as it's flowing in, to ensure that it meets our pre-approved credit box, and all those good things that bankers like to do.
But of course, the AI is able to do it, a zillion times faster than the gray matter our humans are. So a wonderful business in the United States. We're gonna improve the product. We're gonna grow, serving the various markets. Hopefully, ideally, we're doing a little good. We're an economical, reliable source of funding. Hopefully, that cheaper funding trickles down through to the consumers and the small business, and they get a better deal, too.
David, we've had a couple of questions about the planned sale of your cybersecurity services business, which I will just note for anybody listening, has nothing to do with the digital asset business. It's a completely separate and distinct entity, but that you have been, by virtue of your approval for entry into the U.S., asked to divest of by... I believe it's the somewhere towards the end of this year. Do you have an update on the process of that sale and what could be a valuable contributor to our regulatory capital?
Yes, indeed. So we're well down the path on receiving bids for the business, and as you said, it's not the technology that we use to issue the deposit tokens or the Versa Vault. But this is a really cool business that, frankly, I like, but it is a bit of a distraction. All the regulators are right. It's a cool business, but it's distracting. Our claim to fame mainly is that we are what's called penetration testers. So we're invited by we call them high-value targets in the United States and Canada, to try and break in, to reveal the vulnerabilities. And always, we do. So that says something for these high-value targets.
The villains are maybe almost as good as we are. So it's a very important function that we provide for high-value targets, and that would include railway lines and police departments and energy companies and all that. So those targets, you do not want shut down. So I think in the next month, you'll see we'll be receiving bids for the business, and hopefully it goes to a wonderful cyber security firm that can take advantage of all the technology we've developed and the expertise we have in that area, and help keep Canada and the United States continue to be safe.
Okay, bringing it back to digital assets. I think you covered this, but just to be clear, are RBDTs covered by deposit insurance in the US? And I guess that question would apply as well to Canada.
Well, we fully expect they will be, but until we receive official approval, I'll have to use the word expect. They are no different than any other deposit that our bank has actually maintained on our own core banking system and the deposit ledger. So I don't see any reason why they wouldn't be. I think it's extremely important, both sides of the border, that the deposits that are represented on highly secure blockchains have insurance. 'Cause in the final analysis, a depositor probably has a tough time with the highly complicated capital ratios that we banks are subject to, but they know they have insurance. And that's...
When we're talking about confidence in the banking industry, it's extremely important that on both sides of the board, that banks' deposits are insured. That creates the stability and the confidence in the banking system and prevents all those disastrous things that have happened in the past when confidence is lost. So I say, I'm not 100% on it, I'm 99.9%. And like I said, I think for two reasons. One, it's just natural that all bank deposits are insured, and number two is, it's a super important part of the Canadian and U.S. banking system, that deposit insurance is afforded banks 'cause it creates that stability and confidence.
David, that's the end of our questions, and I believe the end of our time.
Wow! Well, thank you. Thank you, ladies and gentlemen. Again, no animal was harmed in this presentation. Have a good day.